Business situation

Despite the difficult market conditions resulting from the effects of the COVID-19 pandemic and the continuation of extremely low interest rates, the Volksbanken Raiffeisenbanken Cooperative Financial Network was again able to maintain its position, reporting a profit before taxes of €7,226 million in 2020 (2019: €10,179 million). This profit before taxes was in line with the forecast for 2020 made in the previous year.

The cooperative banks’ lending to retail and corporate customers increased by 6.2 percent in 2020 and thus grew at a slightly faster pace than in the previous year (2019: 6.1 percent). This trend was primarily driven by continued brisk demand for long-term real estate loans, which made up more than half of the credit portfolio of the cooperative banks, and by government support loans for companies. The cooperative banks’ market share in the retail and corporate customer segment increased by 0.4 percentage points year on year to 17.6 percent.

The Cooperative Financial Network’s deposit-taking business saw customer deposits grow by a further 6.5 percent to €937,876 million. These deposits played a crucial part in funding the Cooperative Financial Network’s lending business.

Equity increased by 5.0 percent to €121,790 million at the end of the reporting year (December 31, 2019: €116,013 million). The Cooperative Financial Network’s capital resources provide it with a risk buffer and, at the same time, the foundations on which it can continue to expand its lending business with retail and corporate customers.

Credit rating agencies Standard & Poor’s and Fitch Ratings have each given the Cooperative Financial Network a rating of AA–.

In 2020, the number of members of the Cooperative Financial Network fell slightly year on year. As at the end of the financial year, the cooperative banks had 18.42 million members (individuals and companies) in total, compared with 18.54 million at the end of 2019.

Financial performance

Net interest income rose by 1.1 percent year on year to €18,382 million in 2020 (2019: €18,185 million). The cooperative banks’ net interest income, the biggest source of income for the Cooperative Financial Network, amounted to €15,368 million in 2020 (2019: €15,610 million). This figure was primarily influenced by the low-interest-rate policy of the ECB and the resulting deterioration of margins. However, the decrease was partially offset by growth in lending. Net interest income in 2020 was therefore slightly higher than expected.

Net fee and commission income improved by €347 million to €7,439 million in 2020 (2019: €7,092 million) and was therefore above the forecast figure. The main sources of income were payments processing (including card processing) and securities brokerage business with entities in the Cooperative Financial Network. With a contribution of €5,885 million, the cooperative banks accounted for most of the net fee and commission income (2019: €5,666 million).

The Cooperative Financial Network’s gains and losses on trading activities came to a net gain of €728 million (2019: net gain of €643 million). Gains and losses on trading activities are largely influenced by the DZ BANK Group.

Gains and losses on investments returned to normal levels, falling from a net gain of €961 million in the previous year to a net gain of €7 million in the year under review. This figure comprised the net loss on securities of €152 million (2019: net gain of €749 million) and the net gain on investments in subsidiaries and equity investments of €159 million (2019: €212 million). The change in the gains and losses was attributable to realized gains and losses on sales of securities during the year and to measurement effects.

The loss allowances determined in the reporting year amounted to a net addition of €2,327 million (2019: €832 million). Loss allowances are mainly influenced by the Retail Customers and SMEs, the Central Institution and Major Corporate Customers, and the Real Estate Finance operating segments. The required addition resulting from the measurement of loss allowances reflects observable and unobservable effects of the COVID-19 pandemic that were taken into account by validating the rating-related default probabilities and, in particular, by factoring in the anticipated macroeconomic conditions through adjustment of the model-based default probability profiles (referred to as shift factors) and that were taken into account when determining the expected losses. Credit-rating-related mitigating factors at the cooperative banks had a countervailing effect. The net amount stood at around €1.3 billion for the cooperative banks and around €0.2 billion for the DZ BANK Group.

Other gains and losses on valuation of financial instruments declined from a net gain of €226 million in 2019 to a net loss of €22 million in the reporting year. This decrease was predominantly due to higher expenses arising from the valuation of guarantee commitments at Union Asset Management Holding AG and the movement of credit spreads, particularly on bonds from eurozone periphery countries (Spain, Italy, Portugal). A narrowing of credit spreads was evident in both 2020 and 2019, although this had resulted in a significantly more positive valuation effect in 2019.

Net income from insurance business, which is exclusively attributable to the R+V Group, comprises premiums earned, gains and losses on investments held by insurance companies and other insurance company gains and losses, insurance benefit payments, and insurance business operating expenses. It amounted to €722 million in 2020 (2019: €1,652 million). The year-on-year fall was primarily attributable to the changes, described in the details for the Insurance operating segment, in premiums earned, gains and losses on investments held by insurance companies and other insurance company gains and losses, and insurance benefit payments.

Administrative expenses totaled €18,036 million in the year under review, which was a little lower than the prior-year figure of €18,142 million. The bulk of the administrative expenses were attributable to staff expenses, which came to €10,092 million (2019: €10,100 million), and general and administrative expenses, which came to €6,843 million (2019: €6,976 million).

Income taxes amounted to €2,192 million (2019: €3,133 million), with most of this amount (€2,606 million; 2019: €2,758 million) attributable to current income taxes.

The consolidated net profit after taxes decreased to €5,034 million in 2020 (2019: €7,046 million).

The Cooperative Financial Network’s cost/income ratio came to 65.4 percent in 2020 (2019: 62.2 percent).

Financial position

The consolidated total assets of the Volksbanken Raiffeisenbanken Cooperative Financial Network had risen by €91,841 million to €1,475,929 million as at December 31, 2020 (December 31, 2019: €1,384,088 million). The volume of business increased from €1,870,742 million in 2019 to €1,994,013 million in the reporting year. Trust activities amounted to a volume of €2,094 million (December 31, 2019: €761 million). The growth of trust activities was attributable to KfW support loans that DZ BANK AG made available on behalf of the German government to support companies affected by the COVID-19 pandemic.

Of the total assets before consolidation, 62.2 percent was attributable to the cooperative banks (December 31, 2019: 61.6 percent) and 34.8 percent to the DZ BANK Group (December 31, 2019: 35.4 percent). As had also been the case at the end of 2019, the remaining 3.0 percent was attributable to Münchener Hypothekenbank, the BVR protection scheme, and BVR Institutssicherung GmbH.

On the assets side of the balance sheet, loans and advances to banks declined by €2,709 million to €19,730 million (December 31, 2019: €22,439 million), whereas cash and cash equivalents rose to €120,961 million (December 31, 2019: €87,421 million) and loans and advances to customers increased by €46,024 million to €890,576 million (December 31, 2019: €844,552 million). As in previous years, this upward trend was mainly driven by the cooperative banks on the back of increased lending.

Financial assets held for trading fell by €1,692 million to €42,643 million as at December 31, 2020 (December 31, 2019: €44,335 million), primarily because bonds and other fixed-income securities dropped to €10,261 million (December 31, 2019: €12,421 million) and receivables to €8,310 million (December 31, 2019: €11,080 million). By contrast, derivatives (positive fair values) increased to €22,303 million (December 31, 2019: €19,291 million) and shares and other variable-yield securities to €1,460 million (December 31, 2019: €1,220 million).

Investments rose to €255,374 million as at December 31, 2020 (December 31, 2019: €248,509 million). The principal reasons for this were the increase in bonds and other fixed-income securities to €179,256 million (December 31, 2019: €177,788 million) and the increase in shares and other variable-yield securities to €71,694 million (December 31, 2019: €66,548 million).

Investments held by insurance companies went up from €112,554 million as at December 31, 2019 to €120,580 million as at December 31, 2020. Mortgage loans increased to €10,882 million (December 31, 2019: €9,749 million), variable-yield securities to €11,639 million (December 31, 2019: €11,300 million), and fixed-income securities to €61,160 million (December 31, 2019: €55,551 million). Assets related to unit-linked contracts rose to €14,820 million (December 31, 2019: €14,368 million).

On the equity and liabilities side of the balance sheet, deposits from banks swelled from €119,955 million as at December 31, 2019 to €160,924 million at the end of 2020. This growth reflects the increase in support loan business since the outbreak of the COVID-19 pandemic. In 2020, the Volksbanken Raiffeisenbanken Cooperative Financial Network also participated in the ECB’s TLTRO III programs, leading to a corresponding rise in deposits from banks.

Deposits from customers grew from €880,398 million as at December 31, 2019 to €937,876 million as at the end of the reporting year. This can be explained by the rise in customer deposits as a result of the ECB’s policy of low and zero interest rates. Debt certificates issued including bonds declined to €58,365 million (December 31, 2019: €79,610 million), mainly because of the contraction of commercial paper in connection with the reduction of short-term liquidity.

Financial liabilities held for trading decreased to €46,796 million (December 31, 2019: €48,490 million). This reduction was largely attributable to the fall in money market deposits to €3,790 million (December 31, 2019: €6,866 million). Short positions declined to €603 million (December 31, 2019: €1,128 million). By contrast, derivatives (negative fair values) rose to €20,139 million (December 31, 2019: €18,189 million).

Equity increased by €5,777 billion to €121,790 million as at December 31, 2020 (December 31, 2019: €116,013 million), primarily because of the level of profit earned in 2020. Subscribed capital rose from €12,919 million at the end of 2019 to €13,614 million as at December 31, 2020. The cooperative banks accounted for 84.0 percent of equity while the other entities in the Cooperative Financial Network accounted for 16.0 percent. This equity allocation highlights the local corporate responsibility and great significance of the cooperative banks for the Cooperative Financial Network.

Capital adequacy and regulatory ratios

The disclosures relating to own funds and capital requirements are based on the outcome of the extended aggregated calculation in accordance with article 49 (3) of the Capital Requirements Regulation (CRR) in conjunction with article 113 (7) CRR.

By far the greatest proportion of the consolidated own funds is held by the cooperative banks. The growth in own funds therefore arises primarily from the profits generated, and in most cases retained, by the cooperative banks and network institutions. Rights issues by the network institutions are for the most part subscribed internally and consolidated within the Cooperative Financial Network.

Due to the exclusion of internal exposures within the network in accordance with article 113 (7) CRR, risk-weighted exposure amounts are generally not consolidated. Consolidation measures primarily include directly and indirectly held own funds instruments of the Cooperative Financial Network and therefore particularly affect equity investments of cooperative banks and subordinate receivables due to them from the network institutions, especially from DZ BANK AG. The amounts are consolidated in the relevant own funds categories.

The impact of consolidation on the level of the risk-weighted exposure amounts is therefore negligible, whereas own funds decrease. The method by which the consolidation is carried out results in a total capital ratio for the Cooperative Financial Network that is lower than the corresponding ratio for the sum of all cooperative banks.

The Cooperative Financial Network’s Tier 1 capital ratio increased again to reach 14.4 percent as at the end of 2020 (December 31, 2019: 13.7 percent). If the reserves pursuant to section 340f of the German Commercial Code (HGB) are classified as Tier 1 capital, the Tier 1 capital ratio is 16.1 percent (December 31, 2019: 15.5 percent). The regulatory total capital ratio also went up year on year, standing at 16.2 percent as at the end of 2020 (December 31, 2019: 15.6 percent). Overall, the Cooperative Financial Network’s own funds increased by €7.7 billion to €114.6 billion. This rise was largely attributable to the retention of profits for the reporting year by the cooperative banks.

As at December 31, 2020, risk-weighted assets stood at €709.3 billion, which was up by €23.9 billion year on year (see table on page 22). This increase was predominantly due to the growth of loans and advances in customer-related business. In total, credit risk exposures made up 90.6 percent of risk-weighted assets (December 31, 2019: 90.2 percent). The banks in the Cooperative Financial Network primarily use the Standardized Approach to credit risk to determine their regulatory capital requirements. Some institutions also apply internal ratings-based (IRB) approaches, including the DZ BANK Group, Münchener Hypothekenbank eG, and Deutsche Apotheker- und Ärztebank eG.

Using Tier 1 capital (including reserves in accordance with section 340f HGB and applying the new CRR provisions in full) as the capital basis, the leverage ratio was 8.4 percent as at December 31, 2020 (December 31, 2019: 7.8 percent). Once again, this ratio underlines the sound and conservatively calculated capital adequacy of the Cooperative Financial Network.

Retail Customers and SMEs operating segment

The net interest income generated by the Retail Customers and SMEs operating segment amounted to €15,939 million in the reporting year (2019: €16,197 million). This figure was primarily influenced by the low-interest-rate policy of the ECB. Net interest income from consumer finance business rose once again, mainly thanks to an increase in the average consumer finance volume.

Net fee and commission income advanced from €7,281 million in 2019 to €7,609 million in the year under review. In 2020, this line item was again positively influenced by income from payments processing (including cards processing) and from the securities and funds business. The volume-related income contribution generated as a result of the average assets under management of €365.1 billion (December 31, 2019: €349.4 billion) was another key factor in the increase in net fee and commission income in the Retail Customers and SMEs operating segment. Income from real estate fund transaction fees was also up year on year at €55 million (2019: €36 million). There was a year-on-year rise in income from performance-related management fees too, which amounted to €32 million in 2020 (2019: €9 million). The contribution to income from the fund services business was higher than in the previous year. The volume of assets under management relating to high-net-worth clients rose from €18.8 billion as at December 31, 2019 to €20.0 billion as at December 31, 2020.

Gains and losses on trading activities in the Retail Customers and SMEs operating segment came to a net gain of €211 million (2019: net gain of €196 million). This line item is derived from trading in financial instruments, gains and losses on trading in foreign exchange, foreign notes and coins, and precious metals business, and gains and losses on commodities trading.

Gains and losses on investments returned to normal levels, falling from a net gain of €711 million in the previous year to a net loss of €162 million in the year under review. The change in the gains and losses was attributable to realized gains and losses on sales of securities during the year and to measurement effects.

Loss allowances amounted to a net addition of €1,659 million (2019: net addition of €628 million). This increase predominantly arose because of the need for additions as a result of the COVID-19 pandemic. The required addition resulting from the measurement of loss allowances reflects observable and unobservable effects of the COVID-19 pandemic that were taken into account by validating the rating-related default probabilities and, in particular, by factoring in the anticipated macroeconomic conditions through adjustment of the model-based default probability profiles (referred to as shift factors) and that were taken into account when determining the expected losses. Credit-rating-related mitigating factors at the cooperative banks had a countervailing effect.

The Cooperative Financial Network’s administrative expenses are subject to constant cost management. In the Retail Customers and SMEs operating segment, they amounted to €15,758 million in the reporting year (2019: €15,732 million). The main influences on this segment’s administrative expenses were appointments to new and vacant positions and average pay rises, although there was a mitigating effect from people leaving – mainly due to retirement. Consequently, staff expenses remained virtually unchanged year on year. The main influence on other administrative expenses in 2020 was a decrease in expenses for public relations and marketing activities. However, IT expenses went up.

As a result of the factors described above, the profit before taxes of the Retail Customers and SMEs operating segment amounted to €6,253 million (2019: €8,211 million). The cost/income ratio was 66.6 percent (2019: 64.0 percent).

Central Institution and Major Corporate Customers operating segment

The net interest income of the Central Institution and Major Corporate Customers operating segment declined to €1,337 million in the year under review (2019: €1,421 million). The decrease was essentially due to the absence of interest income following the sale of the aviation finance and land transport finance businesses in 2019.

Net interest income in the Corporate Banking business line rose to €481 million due to the increase in the lending volume (2019: €446 million). At €162 million, net interest income from structured finance was higher than the prior-year figure of €151 million. The drivers behind this increase were successful acquisitions at the beginning of 2020 and at the end of 2019, together with the conclusion of new income-generating deals in the reporting year in virtually all product groups, as a result of which there was a significant rise in net interest income particularly in the infrastructure, international trade finance, and project finance businesses.

Net interest income in the investment promotion business rose to €55 million (2019: €50 million). The year-on-year increase was mainly due to substantial growth in volume driven by the strong demand for business support programs in connection with the COVID-19 pandemic and for residential development loans. At €23 million, net interest income from the separately managed real estate lending portfolio was down compared with the prior-year figure of €46 million due to the reduction in the size of portfolio caused by the transfer of some of its components to DZ HYP. In the Capital Markets business line, net interest income advanced by 19.6 percent to €275 million (2019: €230 million). This was primarily attributable to business with institutional customers, the treasury portfolios, and other net interest income. The main reasons for the increase were the larger volume of money market business, lower interest expense on the specific funding structure, and the beneficial effect of the tiered interest rates introduced by the ECB.

The expansion of the core business, which involved a further rise in the volumes of the digital solutions, had a positive impact on net interest income. However, it was unable to compensate for the absence of the income from the non-core areas of business that have been scaled back or sold in line with the strategy. In 2019, the strategy had resulted in the sale of the following areas of the business: real estate leasing (VR IMMOBILIEN LEASING GmbH), centralized settlement, and IT leasing (BFL Leasing GmbH). The proportion of total new business (leasing and lending) accounted for by contracts entered into online reached 98.3 percent in the reporting period (2019: 90.0 percent). In response to the COVID-19 pandemic, a needs-based support package derived from the entire range of solutions was introduced for small-business and self-employed customers. In connection with these measures, the ‘VR Smart flexibel’ financing solution was temporarily withdrawn until the end of November 2020 and the ‘VR Smart flexibel support loan’ solution, which was eligible for support from Germany’s KfW development bank, was introduced at short notice.

Net fee and commission income in the Central Institution and Major Corporate Customers operating segment came to €521 million and was therefore lower than in the previous year (2019: €531 million).

The principal sources of income were service fees in the Corporate Banking business line (in particular, from lending business including guarantees and international business), in the Capital Markets business line (mainly from securities issuance and brokerage business, agents’ fees, transactions on futures and options exchanges, financial services, and the provision of information), and in the Transaction Banking business line (primarily from payments processing including credit card processing, safe custody, and gains/losses from the currency service business).

The decline was essentially due to the absence of income following the sale of DVB Bank’s aviation finance and land transport finance businesses. Moreover, activity in the shipping finance and offshore finance businesses at DVB Bank was now limited to the occasional extension of existing transactions. Net fee and commission income from finance for small businesses was down year on year due to the absence of income resulting from the disposal of the centralized settlement business.

Gains and losses on trading activities in the Central Institution and Major Corporate Customers operating segment came to a net gain of €506 million in 2020, up from a net gain of €450 million in the previous year.

Gains and losses on trading activities relate to the business activities of the Capital Markets business line. This item also includes income from money market business entered into for trading purposes and all derivatives transactions.

Gains and losses on trading activities in the Capital Markets business line amounted to a net gain of €521 million, up from a net gain of €430 million in 2019. The institutional client business was expanded in 2020, with year-on-year growth in the product volume. The level of income was higher than the prior-year figure. In terms of asset classes, the increase in product sales arose predominantly from trading in sovereign, supranational and agency (SSA) bonds, bank bonds, government bonds, and covered bonds, from business involving interest-rate structures and interest-rate derivatives, and from spot exchange business. In 2020, customer use of electronic trading platforms again exceeded the level of the previous year. Other gains and losses on trading activities resulting from non-operating, IFRS-related effects amounted to a net loss of €33 million (2019: net gain of €7 million). For the assets and liabilities recognized at fair value in the ‘financial assets and liabilities measured at fair value through profit or loss’ category (fair value PL) and in the ‘financial assets and liabilities designated as at fair value through profit or loss’ category, the adjustment of the valuation curves gave rise to a significant net gain in 2020, as it had in the previous year. This gain was offset by a number of factors, notably negative valuation effects from interest-rate-sensitive derivatives in the banking book.

Gains and losses on investments improved from a net gain of €37 million in 2019 to a net gain of €53 million in the reporting year. This was due to income from the sale of securities. Some of the gains were offset by expenses arising from the unwinding of hedges in the context of portfolio fair value hedge accounting.

The net addition to loss allowances in the Central Institution and Major Corporate Customers segment amounted to €517 million in the reporting year (2019: net addition of €226 million). In stages 1 and 2, this change was primarily attributable to additions in connection with COVID-19. The required addition resulting from the measurement of loss allowances reflects observable and unobservable effects of the COVID-19 pandemic that were taken into account by validating the rating-related default probabilities and, in particular, by factoring in the anticipated macroeconomic conditions through adjustment of the model-based default probability profiles (referred to as shift factors) and that were taken into account when determining the expected losses. Loss allowances in stage 3 also went up due to significant individual additions that were not solely attributable to the COVID-19 pandemic.

Other gains and losses on valuation of financial instruments came to a net loss of €34 million in 2020 (2019: net loss of €5 million). The main reason for the difference compared with the previous year was a negative valuation impact in respect of derivatives that were not included in hedge accounting. Some of this impact was offset by positive valuation effects compared with the previous year from the application of the fair value option.

Administrative expenses fell to €1,866 million in the year under review (2019: €1,971 million). The decrease was primarily the result of a reduction in staff expenses that was mainly due to the lower headcount.

Due to the factors described above, profit before taxes in the Central Institution and Major Corporate Customers operating segment declined to €119 million in the year under review (2019: €352 million). The cost/income ratio was 74.6 percent in 2020 (2019: 77.3 percent).

Real Estate Finance operating segment

The net interest income of the Real Estate Finance operating segment of the Cooperative Financial Network amounted to €1,552 million in 2020 (2019: €1,305 million). On the one hand, this line item improved thanks to the portfolio growth generated from new business. On the other hand, net interest income was again impacted by an additional charge arising from a special addition to provisions relating to building society operations. However, at €115 million, this charge was lower than the equivalent amount of €280 million in 2019. This largely reflected discounted future obligations of Bausparkasse Schwäbisch Hall to make payments in the form of loyalty bonuses or premiums to those home savings customers who decline to take up the contractually agreed loans. Interest income arising on investments declined once again because capital market rates for investments remained low. Net interest income was also adversely impacted by an increase in fees, commissions, and transaction costs directly assignable to the acquisition of home savings contracts and loan agreements and incorporated into the effective interest method applied to home savings deposits and building loans. In the case of loans issued under advance or interim financing arrangements and other building loans, income remained more or less stable at €999 million (2019: €1,002 million) on the back of the expansion in business over the last few years and despite a fall in average returns. Income from home savings loans amounted to €68 million (2019: €70 million).

The net expense traditionally reported in the Real Estate Finance operating segment under net fee and commission income amounted to €112 million (2019: €121 million). This fall was primarily due to a positive effect from the decrease in fees and commissions not directly attributable to the conclusion of a home savings contract. However, this effect was partly offset by the increase in fee and commission expense for loan brokerage generated from new business.

Gains and losses on investments in the Real Estate Finance operating segment declined to a net gain of €67 million (2019: net gain of €186 million). In the prior year, this figure had been boosted, in particular, by the disposal of the shares in Czech building society ČMSS and the net gain on the sale of securities, especially Spanish government bonds.

Loss allowances in the Real Estate Finance operating segment saw a net addition of €108 million in the reporting year (2019: net reversal of €26 million) that was largely due to additions required in connection with the COVID-19 pandemic. The required addition resulting from the measurement of loss allowances reflects observable and unobservable effects of the COVID-19 pandemic that were taken into account by validating the rating-related default probabilities and, in particular, by factoring in the anticipated macroeconomic conditions through adjustment of the model-based default probability profiles (referred to as shift factors) and that were taken into account when determining the expected losses.

Other gains and losses on valuation of financial instruments in the Real Estate Finance operating segment deteriorated year on year, amounting to a net gain of €115 million in 2020 (2019: net gain of €287 million). This decrease was due firstly to the movement of credit spreads and secondly to changes in the fair value of hedging derivatives. A narrowing of credit spreads on bonds from eurozone periphery countries was evident in both 2020 and 2019, although this had resulted in a significantly more positive valuation effect in 2019.

Administrative expenses amounted to €891 million in 2020 (2019: €875 million). The increase was primarily attributable to staff expenses, which went up owing to collectively negotiated salary increases and, in particular, headcount growth. Staff expenses were also affected by the recognition of a provision for a program aimed at the structural optimization and management of costs, which was set up in 2020.

Profit before taxes in the Real Estate Finance operating segment amounted to €684 million in the year under review (2019: €863 million). The performance of the Real Estate Finance operating segment, as outlined above, meant that the cost/income ratio rose to 52.9 percent (2019: 51.1 percent).

Insurance operating segment

Premiums earned went up by €1,492 million to €18,741 million (2019: €17,249 million), reflecting the integral position held by the R+V subgroup within the Cooperative Financial Network.

Premium income in the life insurance and health insurance business grew by a total of €1,012 million to €9,311 million.

Premiums earned from the life insurance business rose by €972 million to €8,645 million. Occupational pensions and new guarantees were the main areas of business contributing to this increase. On the other hand, credit insurance, unit-linked life insurance, and traditional product business have recently seen a decline. In the health insurance business, net premiums earned rose by €40 million to €666 million, with notably strong growth in private supplementary health insurance and full health insurance.

In the non-life insurance business, premium income earned grew by €217 million to €6,347 million, with most of this growth being generated from motor vehicle insurance and corporate customer business.

Premiums earned from the inward reinsurance business rose by €263 million to €3,083 million. Business performed particularly well in the Americas, Europe, and Asia, with Europe remaining the largest market. Growth was generated notably from the motor vehicle, fire, and property classes of insurance.

Gains and losses on investments held by insurance companies and other insurance company gains and losses declined by €4,120 million to a net gain of €2,072 million (2019: net gain of €6,192 million). This figure includes the fair value-based gains and losses on investments held by insurance companies in respect of insurance products constituting unit-linked life insurance for the account and at the risk of employees, employers, and holders of life insurance policies (unit-linked contracts). The gains and losses on investments held by insurance companies attributable to unit-linked contract products generally have no impact on profit/loss before taxes, because this line item is matched by an insurance liability addition or reversal of the same amount. The net gain on investments held by insurance companies, excluding unit-linked contracts, amounted to €2,137 million in 2020 (2019: €4,402 million).

The balance of additions to loss allowances, reversals of loss allowances, and directly recognized impairment losses amounted to an expense of €59 million in 2020 (2019: income of €2 million). Around €46 million of the expenses for additions to loss allowances were related to the effects of the COVID-19 pandemic.

The level of long-term interest rates was lower than in 2019. However, changes in spreads on interest-bearing securities had some negative impact on this item. In the first six months of the year, spreads widened significantly, but a narrowing was evident in the second half of the year. The iBoxx Euro Overall Spread A index, which is the main index relevant to the portfolio structure at R+V, climbed from 80.0 points at the beginning of 2020 to 187.0 points at the end of the first quarter of 2020 and then declined steadily to 71.9 points at the end of the year. By contrast, there had been a continual narrowing of spreads in 2019.

Over the course of 2020, equity markets relevant to R+V performed worse than in 2019. For example, the EURO STOXX 50, a share index comprising 50 large listed companies in the eurozone, saw a fall of 192 points from the start of 2020, closing the reporting period on 3,553 points. In 2019, this index had risen by 744 points. In the reporting year, movements in exchange rates between the euro and various currencies were generally less favorable than in the previous year. For example, the US dollar/euro exchange rate on December 31, 2020 was 0.8173 compared with 0.8909 at the end of 2019, which equates to a fall of 8.3 percent in the value of the euro. By contrast, the euro had risen by 1.8 percent against the US dollar in the previous year.

Overall, these trends in the reporting year essentially resulted in a €3,078 million negative change in unrealized gains and losses to a net gain of €507 million (2019: net gain of €3,585 million), a €205 million decrease in the contribution to earnings from the derecognition of investments to a gain of €32 million (2019: gain of €237 million), and a deterioration of €996 million in the foreign exchange gains and losses to a net loss of €752 million (2019: net gain of €244 million). In addition, net income under current income and expense fell by €215 million to €2,132 million (2019: €2,347 million) and the balance of depreciation, amortization, impairment losses, and reversals of impairment losses deteriorated by €91 million to a net expense of €165 million (2019: net expense of €74 million). Other insurance gains and losses and non-insurance gains and losses improved by €434 million to a net gain of €318 million. Owing to the inclusion of provisions for premium refunds (particularly in the life insurance and health insurance business) and claims by policyholders in the fund-linked life insurance business, the change in the level of gains and losses on investments held by insurance companies also affected the ‘insurance benefit payments’ line item presented below.

Insurance benefit payments amounted to €17,561 million, which equated to a decline of €1,779 million compared with the corresponding 2019 figure of €19,340 million.

The decrease in insurance benefit payments reflected both the trend in net premiums earned and the policyholder participation in gains and losses on investments held by insurance companies.

At the companies offering personal insurance, the changes in insurance benefit payments were in line with the change in premium income and in gains and losses on investments held by insurance companies and other insurance company gains and losses. An amount of €739 million (2019: €647 million) was added to the ‌supplementary change-in-discount-rate reserve.

In the non-life insurance business, a decline in the claims rate trend was evident compared with the prior year. The overall claims rate was below the level of 2019. An increase in major claim costs was offset by a reduction in claims expenses for natural disasters and basic claim costs. In the context of the COVID-19 pandemic, additions were made to provisions for claims on the basis of received and expected claims. The main areas of business affected were the corporate customer business (insurance covering event cancelations and business closures) and the banking/loan business (guarantee insurance/special indemnities). After taking into account the countervailing effects in motor vehicle insurance, the insurance expense in connection with the COVID-19 pandemic amounted to €58 million. The losses in connection with Storm Sabine amounted to around €62 million.

In the inward reinsurance business, the net claims ratio was up by 4.4 percentage points compared with the prior year. The ratio for large claims was higher than in 2019, but the ratio for moderate claims was down year on year. The basic claims ratio remained more or less steady in 2020. Notably, the COVID-19 pandemic gave rise to an insurance expense of around €263 million, with a corresponding impact on earnings. Up to the reporting date, claims of approximately €96 million had been received from ceding insurers, which included one major claim of €28 million. The claims in connection with the Beirut port explosion were quantified in the inward reinsurance division at €55 million, those arising from the Derecho storm in the US Midwest at €121 million, and those caused by Hurricane Laura at €31 million.

Insurance business operating expenses incurred in the course of ordinary business activities went up by €73 million to €3,046 million (2019: €2,973 million). This change is the result of business growth, particularly in the inward reinsurance division, which saw an increase of €66 million or 9.5 percent. Expenses also rose in the life/health insurance business, by €13 million or 1.6 percent. In the non-life insurance division, expenses were down by €5 million or 0.3 percent, so were virtually unchanged.

The factors described above meant that profit before taxes for the reporting year fell by €902 million to €215 million (2019: €1,117 million).