Published by Hannover Rückversicherung AG Karl-Wiechert-Allee 50 30625 Hannover info@hannover-re.com www.hannover-re.com
A n n u al f in an ci al s ta te m en ts n ot es F
Despite growing competitive pressure, the development of our operational business was highly satisfactory overall. Leaving aside some areas of life and health reinsurance, with demand in Asian markets seeing a particularly marked surge, the demand for reinsurance remained broadly stable in the year under review. On the other hand, the increased capital resources available to reinsurers have led to a substantially enlarged supply of capacity. With reinsurers generally exercising considerable discipline in their underwriting practice, it was nevertheless possible to keep prices and conditions for the most part on a level that can be considered commensurate with the risks. Thanks to our solid financial strength and our market position, we held our ground well in the competitive environment and were able to further boost our premium volume in both non-life and life/health reinsurance.
The efforts that we have made over the past two years to tap into new business opportunities in non-life reinsurance are bearing initial fruit. In cooperation with a partner in the United States, for example, we launched a new insurance product on the market designed to guarantee the energy savings promised by companies that make energyimproving upgrades to buildings. In this way we are able to play our part in reducing energy consumption and hence the emission of greenhouse gases. We are pleased to report that we have already written business in this area.
In a three-year comparison (see chart) the Hannover Re share including reinvested dividends delivered a performance of
The next Annual General Meeting is scheduled for 3 May 2011 and will again be held at Hannover Congress Centrum.
“risk-free” interest rate. Triple-10 target; allocation of capital to generate the maximum risk-weighted profit; increase in the share price > Global Reinsurance Index; lowest cost of capital in the industry 2. Capital protection Positive return on equity in at least nine out of ten years 3. Preferred business partner Highly capable – rating of at least “AA–” from S&P
The value of the euro fell against other currencies, such as the
accounting practice, the sale of Clarendon produces a charge of EUR 69.2 million to our Group net income in the year under review, which is recognised in the non-life reinsurance business group.
A very healthy underlying operating profit and favourable nonrecurring effects associated with the decision of the Federal
Geographical breakdown of gross written premium 24.8% North America 20.3% Rest of Europe 12.6% Germany 16.4% United Kingdom 12.1% Australasia 9.2% Other 4.6% Africa
In view of the substantial major loss expenditure, the underwriting result for non-life reinsurance contracted year-on-year by EUR 61.2 million to EUR 82.4 million (EUR 143.5 million).
Starke Ergebnisschwankungen stimmen niemanden fröhlich. Am allerwenigsten unsere Investoren. An drei neuralgischen Punkten hat die Hannover Rück ergebnis­ stabilisierende Maßnahmen angesetzt: Unser Zeichnungsvolumen für Naturkatas­ trophen haben wir insgesamt und in Hoch­ risikogebieten (Peak­Zones) reduziert und dafür in Non­Peak­Zones ausgebaut. Durch Wachstum in anderen Sparten sank zudem das Gewicht des Katastrophengeschäfts innerhalb unseres Portfolios. Die Zusam­ mensetzung unseres Kapitalanlagebestan­ des ist grundsätzlich sehr konservativ. Wir haben größere Positionen so kategorisiert, dass sie zu Anschaffungskosten bewertet werden und damit die GuV­Volatilität redu­ zieren. Diese neue Anlagestrategie wird unsere Renditen stabilisieren. Das beruhigt Volatilität und Nerven zugleich. Drittens erhöhen wir unseren Anteil der Personen­ Rückver sicherung am Gesamtportfolio wei­ ter. Sie erwirtschaftet nun fast 50 % der Prämien und rund ein Drittel des opera­ tiven Ergebnisses. Da diese Erträge sehr stabil sind, wird unser Konzernergebnis künftig weniger volatil sein.
Demand on the reinsurance side was largely stable, although softening tendencies were noticeable at the beginning of the year. This prompted us to consolidate our existing business and write new business only where it served to further enhance the diversification of our portfolio. Emerging markets may be mentioned here by way of example.
In surety reinsurance the situation remains favourable; claims rates were stable on a good level. Rates increased only slightly here on account of a favourable loss experience.
Kingdom and on the London market. Against a backdrop of broadly stable rates and conditions, developments in the various lines were on the whole gratifying.
Competition in the (re)insurance market is also very fierce in view of the enormous growth opportunities. In our assessment, China offers particularly attractive prospects in the areas of facultative business and agricultural risks as well as in the marine and aviation lines.
Hannover Re still ranks third in the Australian non-life reinsurance market. Our underwriting strategy is geared strictly towards profitability and we therefore relinquished unprofitable business in the year under review. We write the entire spectrum of reinsurance business in Australia and New Zealand.
In the German life insurance market single-premium products enjoyed strong growth in the year under review. Since these products are for the most part oriented towards the capital market, opportunities for traditional reinsurance are scarce.
Increased life expectancy has made clear to many companies the potential for losses inherent in their pension benefits. In the United Kingdom, for example, pension funds have more than GBP 1,000 billion in defined benefit liabilities. These benefits are guaranteed by the retirees‘ former employers. For several years Hannover Life Re has been successfully offering longevity swaps that hedge the risk associated with annuity portfolios.
In the first quarter of 2010 we concluded a significant transaction through a European investment bank which covers the longevity risk for annuity recipients of a large pension fund.
This market area is served by our life branch in Paris. The focus of activities in these regions is on bancassurance.
(takaful operators) is written through our composite subsidiary Hannover ReTakaful in Manama, Bahrain. Growth in this market is extremely vigorous, and we were able to substantially expand our client relationships.
The mortality solutions segment, which experienced considerable growth in 2009 following the acquisition of the ING life reinsurance portfolio, was shaped in the year under review by moves to revitalise the former US clientele of Scottish Re
13.0 million. Net income after tax came in at EUR 5.8 million.
South Africa will these distribution methods help to provide large parts of the rural population with suitable life and health insurance products for the first time.
The awarding of donations is guided above all by the criterion of benefit to the public. We do not donate to organisations or projects in the following areas: politics, churches and religious movements, protection of historical buildings or animal welfare.
The CDP serves to gather and publish qualitative data on the subject of climate change in order to motivate investors, businesses and countries to contribute actively to climate protection. Through our involvement we receive information on where we stand with our efforts to economise – especially as regards carbon emissions – relative to international standards.
CO2 emissions3 (in kg) 7,685,000 9,005,000 9,838,000 9,917,000 no data 1 Karl-Wiechert-Allee 50 and Roderbruchstraße 26, Hannover 2 Karl-Wiechert-Allee 50, Roderbruchstraße 26 and infant daycare centre, Hannover 3 Radiative Forcing Index: 2.7
Risk Committee Process-integrated monitoring • Operational risk management, monitoring and coordinating body • Decision-making power is within the bounds of the risk strategy defined by the Executive Board • Implementation and safeguarding of a consistent Group-wide risk management culture
IFRS and their discounted value, increased by the cost of capital needed to cover the fluctuation potential of the liabilities. In life and health reinsurance we show the difference between IFRS
measurement and market-consistent measurement, which largely follows the principles of Market Consistent Embedded Value.
Framework Guideline, govern inter alia the handling of new products, monitoring of the risk-bearing capacity, risk reporting and risk responsibilities within Hannover Re’s overall system. Our risk reporting is geared to providing systematic and timely information about risks and their potential implications as well as ensuring adequate communication within the company about all material risks as a basis for decision-making.
The short-term “Value at Risk” (VaR) is another vital tool used for monitoring and managing market price risks. The VaR is determined on the basis of historical data, e.g. the volatility of the securities positions under own management and the correlation between these risks. As part of these calculations the decline in the fair value of our portfolio is simulated with a given probability and within a certain period. The VaR of the
Through extensive matching of currency distributions on the assets and liabilities side, we reduce this risk on the basis of the individual balance sheets within the Group. The short-term
Value at Risk therefore does not include quantification of the currency risk. We regularly compare the liabilities per currency with the covering assets and optimise the currency coverage in light of relevant collateral conditions by regrouping assets. Remaining currency surpluses are systematically quantified and monitored within the scope of economic modelling.
(issues) and in subsequent steps on a combined basis on the issuer level.
In order to limit the risk of counterparty default we define various limits on the issuer and issue level as well as in the form of dedicated rating quotas. A comprehensive system of risk reporting ensures – as with all other investment risks –
The planning process spans the three levels of Results, Risks and Resources, which are closely interrelated. These three levels are planned by the responsible officers with central support and are reviewed and approved by the Executive Board.
6 The decrease in the value of new business was due to three special effects. Details are provided in the EEV report for 2006 published on our website.
The preservation and consistent enhancement of its capital is a key strategic objective for Hannover Re. In recent years and in the year under review hybrid capital was issued as an equity substitute in order to keep the cost of capital on a low level.
Minority interest Hybrid capital, limited maturity 1 Adjusted on the basis of IAS 8
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 500 million; 2010/2040 14.09.2010 5.75 500.0 –
S.A. are rated “a” by A.M. Best and “A” by Standard & Poor’s.
Para. 1 No. 8 Stock Corporation Act to acquire treasury shares on certain conditions.
Board contract, this does not preclude the possibility of negotiations also extending to the severance cap in the event of a member leaving the Executive Board. Whilst it is true that the legal literature discusses structuring options that would permit the legally secure implementation of the recommendation contained in Item 4.2.3 Para. 4, it is, however, open to question whether qualified candidates for a position on the company’s Executive Board would accept appropriate clauses.
In the year just-ended, as in previous years, the company again had to adapt to a variety of new laws and regulations in the area of Corporate Governance. Purely with regard to management board remuneration, various laws, regulations and recommendations were adopted on the national and international level (e.g. the Act and Regulation on the Prudential
The Executive Board adopted the revised Code of Conduct cc/generic/codeofconduct-e.pdf). The rules defined therein reflect the high ethical and legal standards that guide our actions worldwide. Integrity in dealings with business partners, staff, shareholders and the general public constitutes the foundation of a successful enterprise. In both our strategic planning and our day-to-day business activities, we aspire to consistently apply the highest ethical and legal standards; for our actions and the way in which every single one of us presents and conducts himself or herself – whether a member of the Executive Board or a member of staff – are crucial in shaping the image of the Hannover Re Group.
Executive Board in the 2010 financial year on the basis of the Board members’ work for Hannover Re and its affiliated companies.
The following chart summarises the revised make-up of the variable remuneration components. For details of measurement and payment procedures please see the two tables following the chart.
In Germany, on the other hand, the outlook for economic growth is positive. Favourable earnings prospects, job security and low interest rates will likely encourage private consumption and housing investment. Corporate spending should also increase. Yet the economic momentum in Germany will probably be considerably less pronounced in 2011 than in 2010. Global economic stimuli will be weaker and foreign trade is expected to make just a modest contribution to the increase in real gross domestic product. What is more, the federal government is steering towards a course of consolidation, which will also have a restraining effect. All in all, real
Lively competition is once again shaping business conditions in North America in the current financial year.
On the reinsurance side we expect rates for property business to remain adequate in 2011. Property catastrophe business saw sharp rate cuts in the treaty renewals as at 1 January 2011, and we therefore scaled back our business in areas where the price situation failed to adequately reflect the risks.
United States. Within the bounds of our investment strategy we shall make active use of other types of alternative investments in order to diversify our risks and boost returns.
Matters of special significance arising after the closing date for the consolidated financial statements are discussed in Section 7.11 of the notes “Events after the balance sheet date”
Income/expense on funds withheld and contract deposits 6.2 316,368 276,774 net investment income 1,258,895 1,120,383 other technical income 6.3 16,845 14,362 total revenues 11,322,756 10,441,921
Commission and brokerage, change in deferred acquisition costs 6.3 2,257,948 2,011,344 other acquisition costs 5,302 14,137 other technical expenses 6.3 44,183 38,788 total technical expenses 10,248,919 9,421,970 other income and expenses 6.4 99,963 122,528
Consolidated stateMent oF CoMPRehensive inCoMe Consolidated aCCounts net income 830,905 774,059
N ot es 2. aCCOunTInG PRInCIPLES NOtes 1. Company information 2. Accounting principles
Pursuant to EU Regulation (EC) No. 1606/2002, the present consolidated financial statement and group management report of Hannover Re have been drawn up in accordance with the International Financial Reporting Standards (IFRS) that are to be applied within the European Union. In addition, we have made allowance for the regulations that are also applicable pursuant to § 315a Para. 1 German Commercial Code
The parent company Hannover Rückversicherung AG (“Hannover Re”) and its subsidiaries (collectively referred to as the
“Insurance Contracts” but fail to meet the risk transfer required by US GAAP. IFRS 4 in conjunction with FASB ASC
technical reserves: the technical reserves are shown for gross account in the balance sheet, i.e. before deduction of the share attributable to our reinsurers; cf. here the remarks concerning the corresponding assets. The reinsurers‘ portion is calculated and accounted for on the basis of the individual reinsurance contracts.
N ot es come. Currency translation differences from the translation of non-monetary assets measured at fair value via the statement of income are recognised with the latter as profit or loss from fair value measurement changes. Exchange differences from non-monetary items – such as equity securities – classified as available for sale are initially recognised outside income in a separate item of shareholders’ equity and only booked to income when such non-monetary items are settled.
Measurement of the obligations existing in this connection is carried out using a separate process, which is based largely on contract-specific estimates.
International Insurance Company of Hannover Ltd., Bracknell/united Kingdom4 100.00 GBP 119,353 GBP 9,134
Hannover Re (Guernsey) PCC Limited, St Peter Port/Guernsey4 100.00 EuR 261 EuR (42)
Clarendon Services of new Jersey, Inc., Trenton/uSa4,8,9 100.00 uSD – uSD –
Hannover Re Services uSa, Inc., Itasca/uSa 100.00 uSD 794 uSD 78
13 Last annual financial statement compiled as at 31 December 1999 14 Financial year as at 31 March 2010 15 Company was newly established in 2010; an annual financial statement is not yet available.
Securities (ILS) activities, Hannover Re wrote a number of socalled collateralised fronting arrangements under which risks assumed from ceding companies were passed on to institutional investors outside the Group using special purpose entities. The purpose of such transactions is to directly transfer clients‘ business. Due to the lack of a controlling influence over the special purpose entities involved, there is no consolidation requirement for Hannover Re with respect to these structures.
Re Ltd., a special purpose entity domiciled in Bermuda, is being used for the securitisation.
The company began trading under the name Svedea AB with effect from the balance sheet date. The company‘s business object consists principally of writing liability insurance for motor vehicles and yachts.
Discontinued Operations” CIGI was classified as at the balance sheet date as a disposal group, which is to be measured at the lower of the carrying amount and fair value less costs to sell.
The contract deposits on the assets side grew by EUR 89.9 million in the year under review from EUR 625.5 million to
The commitments to employees in Germany predominantly comprise benefit obligations financed by the Group companies. The pension plans are unfunded. Amounts carried as liabilities are recognised under other liabilities. The provisions for pensions in Germany and abroad were calculated on the basis of uniform standards defined by Talanx AG and subject to local economic conditions.
partial retirement arrangements and early retirement obligations 8,232 266 8,498 (3,947)
Following the contractual maturity of the first 50% of the line from 2005 in January 2010, it amounted to an equivalent of
Deferred tax liabilities loss and loss adjustment expense reserves 13,228 15,494
We would refer the reader to the explanatory remarks in Section 4 “Consolidation” regarding the securitisation of reinsurance risks.
With effect from the second quarter of 2010 Hannover Reinsurance (Ireland) Ltd. and Talanx AG commuted a group of reinsurance treaties furnished with guarantees from Talanx
The maximum period of the stock appreciation rights is ten years, commencing at the end of the year in which they are awarded. Stock appreciation rights which are not exercised by the end of the 10-year period lapse. Stock appreciation rights may only be exercised after a waiting period and then only within four exercise periods each year. For 40% of the stock appreciation rights (first tranche of each allocation year)
Total fees of EUR 9.5 million (EUR 8.9 million) were incurred for accountants’ services throughout the Hannover Re Group worldwide in the year under review. They were principally comprised of auditing and tax consultancy fees.
In a press release dated 11 January 2011 we advised that the
With an eye to § 87 Para. 1 Sentence 1 German Stock Corporation Act, the full Supervisory Board again considered the definition of the performance bonuses of the members of the
Gross/Retro/Net: gross items constitute the relevant sum total deriving from the acceptance of direct insurance pol icies or reinsurance treaties; retro items constitute the relevant sum total deriving from own reinsurance cessions. The difference is the corresponding net item (gross – retro = net, also: for own account).
F u rt h er i n fo rm at io n
Quota share reinsurance: form of proportional reinsur ance under which the reinsurer assumes a contractually set percentage share of the written risk. Since the insurer is responsible for acquisition, pricing, policy administration and claims handling, the administrative expenditure for the reinsurer is very low. The latter therefore participates in the aforementioned expenses through payment of a reinsurance commission. This commission can amount to 15%–20% of the original premium depending upon the market and cost situation.
Statement of Financial Accounting Standards, SFAS (also: Financial Accounting Standards, FAS): the accounting and reporting standards published by the Financial Account ing