Disclosures on risks from insurance contracts and financial instruments
Premiums, claims and expenses according to lines of business 2013 2012 2011 2010
Gross premiums €million
Motor 1,531 1,669 1,730 1,724
Thereof motor liability 910 936 942 910 Thereof other motor 621 733 788 814
Accident 834 838 875 902
Fire and property 882 776 827 773
Liability 611 584 560 532
Transport and aviation 169 187 167 154
Other 816 801 754 735
Legal expenses 1,079 1,045 1,009 968
Total 5,922 5,899 5,922 5,787
Claims ratio % (net)
Motor 79.6 79.6 87.2 88.2
Thereof motor liability 84.5 85.1 89.6 90.6 Thereof other motor 72.5 72.1 84.2 85.2
Accident 40.8 41.0 39.9 35.3
Fire and property 68.4 66.4 63.3 68.6
Liability 55.7 62.5 56.8 46.1
Transport and aviation 67.2 58.1 40.1 64.8
Other 43.6 51.9 51.8 52.3
Legal expenses 55.6 55.5 55.0 55.2
Total 60.7 62.2 62.9 62.5
Combined Ratio % (net)
Motor 105.0 105.1 113.2 113.9
Thereof motor liability 109.0 110.3 115.5 115.5 Thereof other motor 99.0 98.1 110.3 112.1
Accident 79.4 78.5 77.0 72.2
Fire and property 106.5 103.8 100.3 104.7
Liability 88.9 95.5 90.8 78.9
Transport and aviation 94.6 99.1 87.8 94.4
Other 92.0 95.4 95.9 96.0
Legal expenses 98.7 97.2 97.5 96.8
Total 96.7 97.2 98.3 97.0
The estimation of technological, social and demographic parameters plays an important part in assessing and pricing risks assumed in all classes of business.
Beyond this, in liability insurance and sections of motor insurance, the development of economic and legal parameters is significant. In the lines of business where there is a high degree of sensitivity regarding the underly- ing assumptions about natural catastrophes, we include expected trends in our considerations when assessing the risks.
We are convinced that we have calculated our premiums to include a sufficient margin for risk. The containment of risk is guaranteed through our targeted underwriting policy, strict underwriting guidelines and guidelines for the degree of authority and competency. The systematic controlling of the portfolios and regular recalculation of premiums ensure that premium income and claims pay- ments remain in an appropriate balance.
Reserve risks
The provision for outstanding claims is subject to the risk that actual claims settlements may be less than or exceed the amount reserved (reserve risk). Particular attention is given to those situations where the funds dedicated to future claims payments may be inadequate.
The measurement of the provision for outstanding claims is based on an analysis of the historical loss development data for the different classes of business. We use a range of well-established actuarial methods to analyse and value this data which embed various pricing, coverage, benefit and inflation levels. In doing so, we draw on the special- ist knowledge present in our claims and underwriting departments and take all foreseeable future trends into account. As part of our regular results monitoring process, we keep a close eye on trends to ensure that the assump- tions underlying the measurement of the provisions always reflect the latest developments. Consequently, in the course of reserve run-off, it may be necessary to revise the original estimates of the claims expenditure required and to adjust the provisions accordingly.
Actuarial claims requirements can deviate from the expected claims requirements for future insurance risks from insurance business that has already been under- written. A check is made during an IFRS 4 adequacy test to find out whether the expected loss requirement, includ- ing costs, is more than expected earned premiums plus the proportionate amount of investment income. If this is the case, additional reserves will be set up. Appropriate reserves are set up based on experience from past years. There have not been any major fluctuations in the past in either the claims ratio or run-off results.
The development of our claims reserves and the corre- sponding run-off results are shown under [17] Provision for outstanding claims.
Interest-rate risks
Economically, an interest-rate risk derives in principle from the need to earn a return on the investment covering the provision that is commensurate with the discount rate used in measuring the provision. In balance sheet terms, the interest-rate risk affects only those parts of the techni- cal provisions that are discounted. In our case, this risk lies predominantly with the provisions for personal accident insurance with premium refunds and annuities.
However, as only around 11.2% of the actuarial and claims reserves to be considered in this respect are discounted, this risk can be deemed small. If investment income failed to cover the expenses arising from discounting, this would result in losses not included in the calculations. In such cases, a reserve adjustment may be necessary. Conversely, if the investment income were higher, this would result in unforeseen gains.
Liquidity risks
Such risks could result for ERGO if the cash outflow for insurance claims payments and the costs related to the business were to exceed the cash inflow from premiums and investments. In property-casualty insurance, a distinc- tion must be made between payments for claims for which reserves were posted in previous years and immediate payments, i. e. payments for claims incurred in the current financial year. If claims reserves are posted, the liquidity risk can be minimised through our asset-liability manage- ment, in which investments are geared to the character of the liabilities. The proportion of immediate claims pay- ments constitutes only a fraction of the total payments to be made and is, in our experience, stable over time. Consequently, the liquidity risks in respect of these pay- ments can also be minimised by means of asset-liability management.
The following table shows that in the past calendar years the liquidity situation has always been positive.
ERGO Insurance Group
Annual Report 2013
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