Book value per share in EUR 66.90 +6.9% 62.61 48.83 50.02 41.22
The German DAX index had entered 2015 at 9,806 points. After its early rally the index surpassed the magic 12,000 mark for the first time in its history on 16 March 2015. It was not, however, a level that could be sustained over the longer term. By the end of August Germany’s leading index had slipped back below its level at the start of the year at 9,648 points, finally closing the year after some ups and downs at 10,743 with a gain of 9.6%. The performance of the MDAX was similarly volatile: standing at 16,935 as the year got underway, it had surged to an impressive 21,114 by mid-March. The ensuing rollercoaster ride left the index at 20,775 points after twelve months with a gain of 22.7%. The Dow Jones, by contrast, moved in the opposite direction to end 2015 2.2% lower at 17,425 points.
In light of this good result and the company’s very healthy capitalisation, the shareholders accepted the proposal of the Executive Board and Supervisory Board that a gross dividend of EUR 4.25 per share should be paid. The payout took the form of a dividend of EUR 3.00 per share and a special dividend of EUR 1.25 per share, with the special dividend to be considered a capital management measure. This proposal,
IVC – the strategic management ratio In order to fine-tune the portfolios and individual treaties we apply underwriting-year-oriented measurement principles based on expected cash flows that appropriately accommodate the specific characteristics of property & casualty and life & health reinsurance. The accomplishment of targets in a particular financial year is also of interest – especially from the standpoint of shareholders. Based on our internal capital model, the foundation of our enterprise management, we strive to generate a profit in excess of the cost of capital. This return – which is the decisive ratio for the management of our business activities – is referred to as Intrinsic Value Creation (IVC).
The IVC (Intrinsic Value Creation) is calculated according to the following formula: Adjusted operating profit (EBIT) − (capital allocated × weighted cost of capital) = IVC
Economic growth in emerging markets was softer in 2015, although initial signs of stabilisation could be discerned towards year-end. The first six months, above all, were overshadowed by some particularly dark economic clouds: Russia and Brazil slipped deeper into recession. Drastic price declines on stock markets in China prompted concerns towards the middle of the year that the Chinese economy, too, might be drawn into a crisis-driven process of adjustment. Even though such a scenario did not materialise in the second half of the year, the pace of growth in the emerging economies was on the moderate side. In Russia indications have recently emerged of a stabilisation in output. In Latin America, on the other hand, the situation remained difficult.
United States The positive momentum of the US economy continued to stabilise in the past year. Gross domestic product (GDP) added another 0.3 percentage points in 2015 (previous year: 2.2%). This was despite the fact that the economy had entered the year with softer growth. The upward revaluation of the dollar hampered US foreign trade, capital investment contracted and consumption also slowed somewhat initially. Viewed over the full year, however, the economy showed a further clear trend towards stabilisation. Private consumption continued to pick up and government spending also increased. The development of the labour market, where the unemployment rate has now fallen to 5.0%, points to a sustained cyclical upturn.
Business development • Highest Group net income in Hannover Re’s history • Very good result in property and casualty reinsurance • Major loss expenditure below the expected level • Further improvement in the profitability of life and health reinsurance delivers pleasing contribution to Group net income • Good investment income despite challenging conditions • Further strengthening of capital base • Return on equity unchanged year-on-year at 14.7%
On the following pages we report in detail on developments in the individual markets and lines of our Property & Casualty reinsurance group, split into the three areas of Board responsibility referred to at the beginning of this section.
Loss-impacted programmes saw positive price adjustments. Although general liability business came under heavier rate pressure, as reflected in coverage extensions and more generous limits of liability as well as increased cost reimbursements, rate increases were booked in some instances in the
Key figures for Life & Health reinsurance M 20 in EUR million year
Earnings per share in EUR 2.40 +41.3% 1.70 1.36 1.84 1.51 1 Adjusted pursuant to IAS 8 2 Operating result (EBIT) / net premium earned
The gross premium for worldwide longevity business totalled EUR 1,482.1 million (EUR 1,012.0 million) in the year under review. The operating result (EBIT) amounted to EUR 54.0 million (EUR 23.7 million), while the EBIT margin stood at 4.5% (2.9%).
We were able to further increase the gross premium in the mortality reporting category to EUR 3,561.6 million (EUR 2,949.5 million) in the year under review. At 46.1%, mortality business therefore once again contributed the lion’s share of our total gross premium income from life and health reinsurance (EUR 7.7 billion).
Investments • Pleasing return on investment (excluding effects from ModCo derivatives and inflation swaps)
Along with the rebuilding of an equity portfolio, we adjusted the allocation of our investments to the individual classes of securities in other asset categories as well in response to the challenging interest rate environment. For example, we continued to expand the asset classes of fixed income enhancements and emerging markets while at the same time enlarging our holding of government bonds. On the other hand, the proportion of mid-rated covered bonds and corporate bonds was reduced. In this way we can achieve increased liquidity of the portfolio with stable return expectations, while extensively maintaining the overall risk level of our fixed-income portfolio unchanged. We also moved to further slightly increase the share attributable to real estate as part of the strategic expansion of this asset category. In all other asset classes we made only minimal changes in the context of regular portfolio maintenance.
In view of the very positive result, the development of the shareholders’ equity of the Hannover Re Group was pleasing. Compared to the position as at 31 December 2014, it surged by EUR 524.5 million – or 6.4% – in the year under review to EUR 8,777.5 million. After adjustment for non-controlling interests, it rose by EUR 517.6 million to EUR 8,068.3 million.
Information pursuant to § 315 Para. 4 German Commercial Code (HGB)
The following paragraphs explain major agreements concluded by the company that are subject to reservation in the event of a change of control, inter alia following a takeover bid, and describe the resulting effects. Some letter of credit lines extended to Hannover Rück SE contain standard market change-of-control clauses that entitle the banks to early termination of a credit facility if Talanx AG loses its majority interest or drops below the threshold of a 25% participation or if a third party acquires the majority interest in Hannover Rück SE. For details of the letter of credit lines please see our explanatory remarks on other financial facilities in the notes, Section 6.12 “Debt and subordinated capital”, page 211.
For details of Hannover Re’s current Sustainability Strategy please see www.hannover-re.com/60729/sustainability
The Framework Guideline on Risk Management describes, among other things, the major tasks, rights and responsibilities, the organisational framework conditions and the risk control process. The rules, which are derived from the corporate strategy and the risk strategy, additionally take account of the regulatory minimum requirements for risk management as well as international standards and developments relating to appropriate enterprise management.
Underwriting risk in property and casualty reinsurance 3,408.9 3,101.1 1 Required risk capital with a confidence level of 99.5%
With a view to preserving the value of our assets under own management, we constantly monitor adherence to a trigger mechanism based on a clearly defined traffic light system that is applied across all portfolios. This system defines clear thresholds and escalation channels for the cumulative fluctuations in fair value and realised gains / losses on investments since the beginning of the year. These are unambiguously defined in conformity with our risk appetite and trigger specified information and escalation channels if a corresponding fair value development is overstepped.
Risk assessment in the context of the “new product process”, as appropriate
• Shareholdings pursuant to Item 6.2 of the German Corporate Governance Code.
Objective, structure and system of Executive Board remuneration The total remuneration of the Executive Board and its split into fixed and variable components conform to regulatory requirements – especially the provisions of the Act on the Adequacy of Management Board Remuneration (VorstAG) and the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV). An independent expert’s report confirms that the system of remuneration meets the requirements of Art. 275 Commission Delegated Regulation (EU) 2015 / 35 for a remuneration policy and remuneration practices that are in line with the undertaking’s business, strategy and risk profile.
2 The expense for share awards is spread across the remaining period of the individual service contracts. This gives rise to a difference relative to the nominal amount shown in the table of total remuneration.
… quick Keeping the flows of goods moving The 2011 floods in Thailand caused considerably heavier losses than the insurance industry had anticipated. Many railway lines were blocked, while main highways and country roads were impassable. Along with the direct losses incurred by the Thai economy, supply disruptions impacted the worldwide computer and automobile industries. This market consequently experienced capacity shortages on the reinsurance side. Hannover Re was quick to respond, vigorously expanding its services for primary insurers in Thailand within a short space of time. As a result, we wrote substantially more business and helped to get the infrastructure and industrial plants back up and running.
Capital increases / additions – – – – – – – – 189 189
Notes to the consolidated financial statements 2015 1. Company information 146 2. Accounting principles 146 3. Accounting policies 149 3.1 Changes in accounting policies 149 3.2 Summary of major accounting policies 149 3.3 Major discretionary decisions and estimates 156 4.1 Consolidation principles 157 4.2 Consolidated companies and complete list of shareholdings 158 4.3 Major acquisitions and new formations 170 4.4 Major disposals and retirements 170 4.5 Other corporate changes 171 5. Segment reporting 171 6. Notes on the individual items of the balance sheet 176 6.1 Investments under own management 176 6.2 Funds withheld (assets) 192 6.3 Contract deposits (assets) 192 6.4 Technical assets 192 6.6 Other assets 195 6.7 Technical provisions 198 6.8 Funds withheld (liabilities) 203 6.9 Contract deposits (liabilities) 203 6.10 Provisions for pensions and other post-employment benefit obligations 203 6.11 Other liabilities 207 6.12 Debt and subordinated capital 208 6.13 Shareholders’ equity and treasury shares 212 6.14 Non-controlling interests 213 7. Notes on the individual items of the statement of income 214 7.1 Gross written premium 214 7.2 Investment income 215 7.3 Reinsurance result 217 7.4 Other income and expenses 218 7.5 Taxes on income 219 8. Other notes 222 8.1 Derivative financial instruments and financial guarantees 222 8.2 Related party disclosures 225 8.3 Share-based payment 227 8.4 Staff and expenditures on personnel 231 8.5 Earnings per share and dividend proposal 231 8.7 Contingent liabilities and commitments 232 8.8 Long-term commitments 233 8.9 Rents and leasing 233 8.10 Fee paid to the auditor 234 8.11 Events after the balance sheet date 235
Listing of the underlying share, implicit volatilities, money-market interest rate, dividend yield
Hannover Life Reassurance Bermuda Ltd., Hamilton / Bermuda 1 100.00 USD 392,068 57,216
Inter Hannover (No.1) Limited, London / United Kingdom 1 100.00 GBP – –
Film & Entertainment Underwriters SA (Pty) Ltd., Johannesburg / South Africa 35.70 ZAR (1,292) 668
Hannover Re Consulting Services India Private Limited, Mumbai / India 13 100.00 INR 91,270 11,768
L & E Holdings Limited, London / United Kingdom 1 100.00 GBP 5 –
In 2012 Hannover Re issued a catastrophe bond for the purpose of transferring to the capital market peak natural catastrophe exposures deriving from European windstorm events. The term of the CAT bond, which has a volume of nominally EUR 100.0 million, runs until 31 March 2016; it was placed with institutional investors from Europe, North America and Asia by Eurus III Ltd. Eurus III Ltd. is a special purpose entity domiciled in Hamilton / Bermuda that was registered in August 2012 as a “special purpose insurer” under the Bermuda Insurance Act 1978. The retrocession contract concluded with the special purpose entity under the transaction affords Hannover Rück SE, E+S Rückversicherung AG and Hannover Re (Bermuda) Ltd. protection against the aforementioned catastrophe risks. The aforementioned volume of the transaction is measured by the ceded exposure limit of the retrocession contract. The structured entity is fully funded by contractually defined investments in the form of cash and equivalent liquid assets. Given that the maximum liability of the structured entity is therefore wholly collateralised, there is no risk of loss for Hannover Re.
Hannover Rück SE and E+S Rückversicherung AG, both limited partners, hold interests of 85% and 15% respectively in the company. The personally liable partner is HAPEP II Komplementär GmbH, also based in Hannover. The business object of the company is to build, hold and manage a portfolio of investments.
From insurance business with external third parties 9,337,973 7,903,369 7,730,690 6,458,432 – – 17,068,663 14,361,801 thereof
Income / expense on funds withheld and contract deposits 20,162 20,394 374,871 355,662 – – 395,033 376,056
Held to maturity due in one year 516,518 523,403 1,089,446 1,110,905 due after one through two years 142,835 147,242 539,118 561,992 due after two through three years 92,480 96,765 145,300 151,217 due after three through four years 28,933 31,692 97,896 103,592 due after four through five years 35,024 40,966 32,696 35,894 due after five through ten years 190,907 219,086 234,795 273,704 due after more than ten years 968 323 491 568
Cumulative depreciation at 31 December of the year under review 71,602 44,979
Net book value at 31 December of the previous year 978,302 847,164
Net book value at 31 December of the previous year 1,914,598 1,672,398
The value adjustments on accounts receivable that we recognise in adjustment accounts changed as follows in the year under review: Value adjustments on accounts receivable N 41 in EUR thousand 2015 2014
A nn ua l f in an ci al s ta te m en ts 6.6 Other assets
Of this, other assets of EUR 4.6 million (EUR 5.1 million) are attributable to affiliated companies.
Cumulative depreciation at 31 December of the previous year 48,712 44,916
Cumulative depreciation at 31 December of the year under review 53,439 48,712
Insurance for pension commitments Effective 1 July 2003 Hannover Rück SE took out insurance for pension commitments. The commitments involve deferred annuities with regular premium payment under a group insurance policy. In accordance with IAS 19 “Employee
Benefits” they were carried as a separate asset at fair value as at the balance sheet date in an amount of EUR 82.2 million (EUR 76.6 million).
The following table shows the net loss reserve for the property and casualty reinsurance business group in the years 2005 to 2015 as well as the run-off of the reserve (so-called run-off triangle ). The figures reported for the 2005 balance sheet year also include the amounts for previous years that are no longer shown separately in the run-off triangle. The run-off results shown reflect the changes in the ultimate loss arising in the 2015 financial year for the individual run-off years.
Unsecured letter of credit facilities with various terms (maturing at the latest in 2022) and a total volume equivalent to EUR 2,581.6 million (EUR 2,559.3 million) exist on a bilateral basis with financial institutions. For further information on the letters of credit provided please see our explanatory remarks in Section 8.7 “Contingent liabilities and commitments”.
The non-controlling interest in profit or loss, which forms part of net income and is shown separately after net income as a “thereof” note, amounted to EUR 64.0 million (EUR 79.5 million ) in the year under review.
1 Including income from associated companies, for reconciliation with the consolidated statement of income 2 Excluding other investment expenses
Maturity structure of derivative financial instruments N 85 in EUR thousand
In the course of the year the change in the fair value of the derivative gave rise to a charge against investment income of EUR 26.1 million before tax (EUR 6.8 million).
The business relationship between Hannover Rück SE and its subsidiary E+S Rückversicherung AG is based on a cooperation agreement. A retrocession by Hannover Rück SE to E+S Rückversicherung AG exists in property and casualty reinsurance. The exclusive responsibilities of E+S Rückversicherung AG for German business and of Hannover Rück SE for international markets have been preserved.
Within the contractually agreed framework Talanx Asset Management GmbH performs investment and asset management services for Hannover Rück SE and some of its subsidiaries. Assets in special funds are managed by Ampega Investment GmbH. Talanx Immobilien Management GmbH performs services for Hannover Re under a number of management contracts.
Actuarial opinions with respect to the pension commitments given to staff are drawn up for Hannover Rück SE and E+S Rückversicherung AG by Talanx Pensionsmanagement AG and HDI Lebensversicherung AG under an actuarial service contract.
In our function as the Supervisory Board we considered at length during the 2015 financial year the position and development of the company and its major subsidiaries. We advised the Executive Board on the direction of the company and monitored the management of business on the basis of written and verbal reports from the Executive Board. The Supervisory Board of Hannover Rück SE held four regular meetings in order to adopt the necessary resolutions after appropriate discussion. All nine Supervisory Board members took part in each of the Supervisory Board meetings held in 2015. In addition, we were informed by the Executive Board in writing and orally about the course of business and the position of the company and the Group on the basis of the quarterly financial statements. The quarterly reports with the quarterly financial statements and key figures for the Hannover Re Group constituted an important source of information for the Supervisory Board. We received an analysis of the 2014 results in property & casualty and life & health reinsurance as well as a presentation from the Executive Board covering the profit expectations for the 2015 financial year and the operational planning for the 2016 financial year. In addition, the Chairman of the Supervisory Board was constantly advised by the Chairman of the Executive Board of major developments and impending decisions as well as of the risk situation within the company and the Group. All in all, we were involved in decisions taken by the Executive Board and assured ourselves of the lawfulness, regularity and efficiency of the company’s management as required by our statutory responsibilities and those placed upon us by the company’s Articles of Association.
Hannover Reinsurance Group Africa (Pty) Ltd. Hannover Re House Cnr Hillside & Empire Roads Parktown, Johannesburg 2193 P. O. Box 85321 Emmarentia 2029
Loss, insured: the insured loss reflects the total amount of losses covered by the insurance industry (insurers and re insurers).