The international financial crisis and the ensuing global economic crisis continued to leave the world's stock markets in a tense state during the early months of 2009. The abrupt slump of around 20% in global trade caused a contraction in output and corresponding falls in the gross domestic product of many national economies. A string of bad news had pushed leading indices such as the Dow
Our shareholding structure changed only marginally in the year under review. The interest held by Talanx AG
Reinsurance Index. Lowest cost of capital in the industry 2. Capital protection
Net premium earned consequently surged even more strongly by 31.8% to EUR 9.3 billion (EUR 7.1 billion).
In Pakistan an initial project has been launched in cooperation with a locally based insurer: low-income individuals are now able to obtain insurance protection. Hannover
– while original premiums continued to decline –, hence enabling us to generate only a barely adequate result in our proportional motor liability business.
The burden of catastrophe losses and major claims in Germany was moderate in the year under review; we incurred a loss in the low double-digit million euros in 2009 as a result of the collapse of the Cologne City Archive. The month of July also saw hail events that caused heavy losses in motor own damage insurance and, above all, agricultural insurance. These hailstorms had no particular impact on the reinsurance side, however. The combined ratio for our German business stood at 103.1%.
Breakdown of gross written premium in credit/surety 55.0% Credit36.2% Surety 8.8% Political risk reinsurance business we achieved average rate increases of 10% to 25% in the year under review – and in certain cases even as much as 50% to 100%.
Japan is far and away our largest Asian market. Our service company in Tokyo affords us good insight into the
The effects of the international financial market crisis, which made themselves felt in 2008, heavily impacted our operating results in the year under review in various respects.
• developments on international capital markets and movements in exchange rates, especially in our most relevant currencies of EUR, GBP, USD, AUD and ZAR,
It should, however, be borne in mind that many life insurers have been downgraded by the rating agencies or assigned a poorer outlook – overall, then, the credit quality of the life insurance market has deteriorated. Our clients typically have a very respectable Standard & Poor's rating of A+/AA–.
Unit-linked products tied to euro equities achieved less resonance in new business. Particularly in the case of deferred unit-linked annuities launched by some providers in the years 2006 to 2007, considerable product adjustments and simplifications had to be made.
Ireland writes worldwide business ceded by highly respected primary insurers – principally from the US, UK
We stepped up our acquisition efforts in Eastern European markets, Russia and the CIS states by forming a self-contained market unit in Hannover staffed by an expert team of native-speaker underwriters and actuaries. Our attention here is directed primarily towards the bancassurance sector, with a focus on Poland, Hungary and Russia.
Nigeria and Kenya, and we are planning to systematically extend this cooperation.
The operating profit (EBIT) amounted to EUR 10.0 million thanks to positive special effects, producing an EBIT margin of 12.8%.
to 0.25% after the dramatic cuts of the previous year, the
Strong demand for expert staff has been the hallmark of competition on the reinsurance labour market in recent years. The economic crisis did not bring any relief in the year under review. In certain cases both the time required to fill vacancies and the costs of recruitment increased.
Going forward, we shall foreground these aspects in our presentation of Hannover Re as an attractive employer.
Board that is counterparty-oriented and encompasses all the various types of risk
S&P rating. This evaluation testifies to the quality of our holistic approach to risk management. The current financial strength rating from Standard & Poor's is “AA-”
1 Adjustment of 2008 figures to disclosure of risk position according to economic measurement principles
“Technical provisions”). Our own actuarial calculations regarding the adequacy of the reserves are subject to annual quality assurance reviews conducted redundantly by external actuaries and auditors.
Within the scope of accumulation controlling of these risks the Executive Board defines the appetite for assuming natural hazards risks once a year on the basis of the risk strategy. The risk appetite is a key basis for our underwriting approach in this segment. For the purposes of risk limitation, maximum underwriting limits (capacities)
The portfolio of fixed-income securities is generally exposed to the interest rate risk. Declining market yields lead to increases and rising market yields to decreases in the fair value of the fixed-income securities portfolio. The credit spread risk should also be mentioned. The credit spread risk refers to the risk that the interest rate differential between a risk-entailing bond and risk-free bond may change while the quality remains unchanged.
Potential market price risks are reduced with the aid of a broad range of risk-steering measures. The “value at risk”
Base values in EUR million MCEV 2008 2 EEV 2007 2
the reinsurance recoverables on unpaid claims – amounted to EUR 1,748.0 million (EUR 2,079.2 million) as at the balance sheet date.
Net cat. loss ratio up to 10% 4.6% 10.7% 6.3% 2.3% 26.3%
IVC components whose value drivers the manager in question can influence. Thus, for example, an underwriter at Hannover Home Office will only be accountable for the “Underwriting” decision field, whereas the manager of a subsidiary will also bear responsibility for all other decision fields. With regard to the operational units the
IVC calculation for the operational units is geared to the explicit identification of value drivers that require a more detailed breakdown of the IVC.
Our subordinated loans and bonds supplement our equity with the aim of reducing the cost of capital and also help to ensure liquidity at all times. The table summarises the carrying amounts of our subordinated bonds.
20.0 million that was still outstanding at that date. The debt was thus repurchased in full and cancelled in the year under review.
tational risks that could adversely impact our business activities. With this in mind, the Executive Board revised the Code of Conduct most recently in mid-2008 (http://
granted, but not yet exercised stock appreciation rights with a fair value of EUR 2.1 million (EUR 1.4 million). The remuneration paid to former members of the Executive
In addition, at the same meeting the Supervisory Board decided to extend the waiting period from two to four years for the Executive Board with respect to stock ap­
(Managing Director) the remuneration breaks down into 60% fixed annual salary and 40% variable component.
The casualty lines did not see any further increases in retentions on the primary insurance side. Capacities are limited – especially for directors' and officers' (D&O) covers – and, what is more, expensive. Hannover Re maintained its portfolio on a constant level here, as was also true of errors and omissions (E&O) insurance. Our casualty portfolio should hold stable in the current year. We expect to see modest premium growth in total business.
than 1 January. In contrast to 2009, we anticipate rate reductions in the current financial year.
All in all, terms and conditions in worldwide non-life reinsurance continue to be favourable for Hannover Re. Our financial strength puts us in a better position to profit from the available market opportunities. Our excellent rating smoothes our path towards generating attractive business. In non-life reinsurance our focus remains firmly directed towards profitable niche markets, and we expect business to develop very favourably in the current year and beyond.
Hence, the total burden of losses in the current financial year may be significantly higher or lower than catastrophe loss assumptions based on multi-year trends and averages.
Total liabilities 42,264,219 37,490,214 as at 31 December 2009 1 Adjusted on the basis of IAS 8.
Consolidated cash flow statement 2009 1 Adjusted on the basis of IAS 8.
Commission and brokerage, change in deferred acquisition costs and other technical income/expenses 1,129,567 915,339
We employ over 1,000 staff in Hannover and roughly 2,000 worldwide. The parent company is a joint-stock corporation, the registered office of which is located at Karl-Wiechert-Allee 50, 30625
IFRS 8 “Operating Segments” replaces the previous IAS 14 “Segment Reporting”. IFRS 8 requires adoption of the management approach to reporting on the economic position of segments. Under this approach, the segmentation and the disclosures for the segments are based on the information used internally by management for evaluating segment performance and deciding on the allocation of resources. IFRS 8 was applied for the first time in the first quarter of 2009. Hannover Re concluded that it should retain the previously used system of segmentation, since it is regularly used by management to assess the various areas of business and facilitates a transparent presentation of Group net income.
In accordance with IAS 8 we have therefore adjusted the comparative figures in the present consolidated financial statement. The adjustments have no implications for the Group net income reported in the 2008 financial year. Contrary to the figures originally shown, the balance sheet items “funds withheld” (assets side) and “contract deposits” (liabilities side) are each reduced by
project into two phases. IFRS 4 represents the outcome of Phase I and serves as a transitional arrangement until the IASB defines the measurement of insurance contracts after completion of Phase II. Underwriting business is to be subdivided into insurance and investment contracts.
Real estate used by third parties (investment property) is valued at cost less scheduled depreciation and impairment. Straight-line depreciation is taken over the expected useful life – at most 50 years.
Deferred tax assets may only be netted with deferred tax liabilities if the tax creditor is identical.
In the consolidated financial statement it is to some extent necessary to make estimates and assumptions which affect the assets and liabilities shown in the balance sheet, the information on contingent claims and liabilities as at the balance sheet date and the disclosure of income and expenses during the reporting period. Key facts and circumstances subject to such assumptions and estimates include, for example, the recoverability of contingent reinsurance liabilities, the valuation of derivative financial instruments as well as assets and liabilities relating to employee benefits. The actual amounts may diverge from the estimated amounts.
underwriting and claims handling, type of reinsurance and other framework conditions of the reinsurance treaty. The superimposition of numerous model points gives rise to a projection, which incorporates inter alia assumptions concerning the portfolio composition and the commencement of covered policies within the year. Such assumptions are estimated at the inception of a reinsurance treaty and subsequently adjusted to the actual projection.
The projections, which cover various model scenarios (“conservative assumptions” versus “best estimate”), constitute the starting point for numerous areas of application encompassing quotation, the determination of carrying values and embedded values as well as contract-specific analyses, e.g. regarding the appropriateness of the recognised reinsurance liabilities (“liability adequacy test”). In this context we would refer the reader to our comments on technical assets and provisions in Section 3.2 “Summary of major accounting policies” and on the liability adequacy tests in
“thereof” note, amounted to EUR 40.3 million (–EUR 8.0 million) as at 31 December 2009.
Assets and liabilities of the acquired business in EuR thousand 1.1.2009
In 2008 Hannover Re established the special purpose entity Globe Re in Bermuda as part of its extended Insurance-Linked Securities (ILS) activities. Hannover Re held a stake of 15.2% in the equity tranche and did not exercise a controlling influence over the special purpose entity through any of its business relations. Since the transaction was terminated in the year under review as agreed in the contract, the company was liquidated on 27 November 2009.
Loans and receivables due in one year 220,814 221,111 71,859 72,140 due after one through two years 80,127 82,095 136,024 136,654 due after two through three years 41,048 41,219 82,013 83,086 due after three through four years 332,716 339,025 9,898 9,873 due after four through five years 485,554 490,978 198,037 203,531 due after five through ten years 1,294,842 1,323,459 970,241 996,374 due after ten years 246,730 244,384 212,785 209,757
Government debt securities of Eu member states 79,498 1,713 415 739 81,535
Debt securities issued by semi-governmental entities 3,654,452 156,244 12,446 61,737 3,859,987
Cumulative depreciation at 31 December of the previous year 23,640 24,408
EUR 98.7 million (EUR 135.8 million) and unrealised losses of EUR 0.8 million (EUR 17.8 million)
This item comprises investments with a maturity of up to one year at the time of investment.
The following table shows the breakdown of the financial instruments recognised at fair value into the three-level fair value hierarchy.
Re measures financial instruments with a volume of EUR 701.9 million using the Net Asset Value method, in respect of which alternative inputs within the meaning of the standard cannot reasonably be established. For the remaining financial instruments included in level 3 with a volume of
With regard to the credit risks resulting from technical assets we would also refer the reader to our comments in the risk report on page 62 et seq.
Loss and loss adjustment expense reserve 17,425,293 1,747,991 15,677,302 16,932,069 2,079,168 14,852,901
The table below shows the net loss reserve (loss and loss adjustment expense reserve) for nonlife reinsurance in the years 1999 to 2009 as well as the run-off of the reserve (so-called run-off triangle).
At the inception of every reinsurance contract, assumptions about the three parameters are made and locked in for the purpose of calculating the benefit reserve. At the same time, safety/fluctuation loadings are built into each of these components. In order to ensure at all times that the originally chosen assumptions continue to be adequate throughout the contract, checks are made on a regular – normally annual – basis in order to determine whether these assumptions need to be adjusted (’unlocked‘).
152 Hannover Re Group annual report 2009Notes 6.8 FUnDs wiThhelD (liaBiliTies)
Net book value at 31 December of the year under review 1,512,840 47,651 1,465,189 1,333,856 29,733 1,304,123
Provisions for audits and costs of publishing the annual financial statements 5,670 69 5,739
45.4 million were taken predominantly on structured assets. An impairment loss of EUR 3.2 million (EUR 356.1 million) was recognised on equities whose fair value had fallen significantly – i.e.
The tax rate used to calculate the deferred taxes of the domestic companies was unchanged from the previous year at 31.93% (rounded to 32%). It is arrived at from the corporate income tax rate of 15.0% applicable on 1 January 2008, the German reunification charge of 5.5% and a uniform trade earnings tax rate of 16.1%. The deferred taxes at the companies abroad were calculated using the applicable country-specific tax rates.
Within the scope of the accounting of “modified coinsurance” and “coinsurance funds withheld”
Management GmbH performs services for Hannover Re under a management contract.
On 4 November 2009 the Supervisory Board of Hannover Re decided to extend the waiting period applicable to members of the Executive Board from two to four years for stock appreciation rights granted from the 2010 allocation onwards; on 23 November 2009 the Executive Board decided to extend the waiting period accordingly for the members of the Group’s management. Upon expiry of this waiting period a maximum 60% of the stock appreciation rights awarded for an allocation year may be exercised. The waiting period for each additional 20% of the stock appreciation rights awarded for this allocation year to a member of the managerial staff is one year.
The amount paid out is limited to a maximum calculated as a quotient of the total volume of compensation to be granted in the allocation year and the total number of stock appreciation rights awarded in the year in question.
Period 10 years 10 years 10 years 10 years 10 years 10 years waiting period 2 years 2 years 2 years 2 years 2 years 2 years
Neither in the year under review nor in the previous reporting period were there any dilutive effects. On the basis of the employee share option plan Hannover Re acquired treasury shares in the course of the third quarter of 2009 and sold them to the eligible employees. The weighted average of shares in circulation during the reporting period was therefore insignificantly lower than in the previous year. For further details please see our comments in Section 6.13 “Shareholders’ equity, minority interests and treasury shares”.
There were no other extraordinary components of income which should have been recognised or disclosed separately in the calculation of the earnings per share.
On the occasion of the Annual General Meeting to be held on 4 May 2010 it will be proposed that a dividend of EUR 2.10 per share should be paid for the 2009 financial year. This corresponds to a total distribution of EUR 253.3 million. The dividend proposal does not form part of this consolidated financial statement.
USD 13 million that serves as security for liabilities of the former owners in connection with a particular business segment.
For liabilities in connection with participating interests in real estate companies and real estate transactions Hannover Re Real Estate Holdings has furnished the usual collateral under such transactions to various banks, the amount of which totalled EUR 174.4 million (EUR 85.5 million)
Several Group companies are members of the association for the reinsurance of pharmaceutical risks and the association for the insurance of German nuclear reactors. In the event of one of the other pool members failing to meet its liabilities, an obligation exists to take over such other member ’s share within the framework of the quota participation.
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
China Hannover Rückversicherung AG shanghai Branch suite 1708, United Plaza 1468 nan Jing xi lu 200040 shanghai
Mexico Hannover services (México) s.A. de C.V. German centre Oficina 4-4-28 av. santa Fé no. 170 col. lomas de santa Fé c.P. 01210 méxico, D.F.
This approach is used primarily for long-term products in personal lines, such as life, annuity and personal accident insurance.
Funds held by ceding companies/funds held under reinsurance treaties: cf. deposits with ceding companies/deposits received from retrocessionaires
Life and health (re-)insurance: collective term for the lines of business concerned with the insurance of persons, i.e.
Non-life business: by way of distinction from business activities in our life and health reinsurance business group, we use this umbrella term to cover our business groups of property and casualty reinsurance, financial reinsurance and specialty insurance.
Specialty insurance: a specialty form of non-life primary insurance that focuses on narrowly defined, homogenous portfolios of niche or other non-standard risks (specialty business), whereby the typical insurer functions (acquisition, underwriting, policy issuing, premium collection, policy administration, claims settlement, etc.) can be outsourced to specialized managing general agents (MGAs)
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