030 Chap. 2 GROUP MANAGEMENT REPORT MARKET DEVELOPMENT Insurance industry and financial services sector For the second consecutive year already, the German insurance industry lagged behind the general eco- nomic development. Only health insurance witnessed an expansion, albeit at a slower rate. In life insurance premium income stagnated. Property and casualty insurance experienced a decrease while expenditure rose substantially in the same period. As a whole, the industry is under the influence of a changing legal envi- ronment and heavy competitive pressure. In the closed business year, the German insur- ance industry was again hardly able to benefit from the positive economic development. Although the business cycle and the labour market improved sub- stantially, the 453 companies which are members of the German Insurance Association (GDV) achieved a growth of premium income of a little as 0.5 percent, according to first calculations. Growth thus remained markedly below the previous year's level of 2.4 per- cent. The total premium income of German direct busi- ness across all lines and classes amounted to approx. 162.6 bn (previous year: 161.8 bn). Only private health insurance was in a position to achieve a noticeable premium growth of 2.5 percent in 2007. In life insurance, the premium development (+0.3 percent) remained nearly at the previous year's level; premium income in property and casualty insur- ance witnessed a decrease (-0.4 percent). Besides keen competition and the impact of political reforms, the industry's development was curbed primarily as a result of persistent consumer reticence and insecurity. Despite sinking unemployment and a boost in con- sumer spending, large sections of the population are still reluctant to take a long-term decision with regard to their own provision for old age. According to first GDV estimates, life insurers, pension-scheme and pension-fund companies as a whole witnessed a slight 0.3 percent growth of pre- miums to 78.6 bn (previous year: 78.3 bn). New business was also weaker than in 2006. Insurance business in the broader sense (i.e. including pension schemes and pension funds) in terms of regular pre- miums decreased by about 3.2 percent to 6.7 bn (previous year: 6.9 bn). If, however, the increase attrib- utable to the third Riester increase step is deducted from the 2006 figures, new business witnessed a rise in terms of regular premiums. Single premiums decreased by 0.7 percent to 12.4 bn. The trend towards long-term contracts of pro- vision continued in life insurance. The share of con- tracts providing for pension payment represented 54 percent of new business in 2007. The development of new business was supported by the so-called Riester and Rürup pensions. All in all, life insurers took out approx. 2.1 million (previous year: 2.0 million) Riester contracts in the year 2007. Across the market, about 9 million Riester policies have thus been sold since the launch of this product in 2002. The demand for basic-pension policies is also rising noticeably. On the whole, sales grew by nearly 80 percent in 2007 to about 311,000 new policies. At year end, the market had a portfolio of more than 600,000 basic-pension contracts. · In the business year 2007, the German insurance industry only grew by 0.5 percent. It thus hardly benefited from the positive development of the economy as a whole. · Only health insurance witnessed an expansion ­ albeit at a slower rate ­, while life insurance stagnated and property and casualty insurance shrank. · The industry as a whole is under the influence of a changing legal environment and heavy competitive pressure.