Earnings per share (basic and diluted) in EUR 7.43 +5.4% 7.04 5.02 6.21 6.08
In the previous year I was able to report here on a record result for 2012. It is now my pleasure to inform you that in the year under review we were again able to very comfortably surpass that performance. Group net income for 2013 reached EUR 895 million, roughly 5 percent higher than the previous best result in the company’s history. This was driven by a very good underwriting profit in non-life reinsurance, which improved by a further EUR 63 million on the good level of the previous year. Not only that, net income in both non-life and life and health reinsurance was supported by positive tax effects, which caused the tax expenditure under IFRS accounting to decrease by around 15 percent. The most significant effect here relates to a reduction of the provisions for deferred taxes in connection with the equalisation reserves established under German Commercial Code (HGB) accounting. These two positive components of our net income in the year under review enabled us to very clearly offset the result in life and health reinsurance, which fell short of expectations. Investment income, on the other hand, came in thoroughly reliably within the bounds of our expectations.
Growth in earnings per share (year-on-year comparison) ≥ 10% 5.4% 41.6% -19.1% 6.2%
1 Adjusted pursuant to IAS 8 (cf. Section 3.1 of the notes) 2 Average annual growth, otherwise weighted averages 3 Excluding inflation swaps and ModCo derivatives 4 750 basis points above the 5-year average return on 10-year German government bonds after tax 5 Growth in book value per share including dividends paid 6 Average over the reinsurance cycle at constant exchange rates 7 Including major loss budget of EUR 625 million 8 EBIT / net premium earned 9 Excess return on allocated economic capital 10 Organic growth only; annual average growth (5 years); at constant exchange rates 11 Reclassification of treaties
In 2013 Hannover Re developed, inter alia, innovative concepts for coverage of weather-related risks and renewable energies with its partner WetterProtect and subsequently launched them on the market in cooperation with primary insurance partners. In the former case, solutions targeting specific sectors were designed for a clientele heavily dependent on weather conditions. These products protect customers against the vagaries of nature and hence give them greater certainty for planning purposes. In addition, an insurance product was developed to protect providers of energy-efficient measures against a failure to deliver the promised level of energy savings. This solution can play a decisive part in promoting greater investment in energy-efficiency and hence make a meaningful contribution to reducing energy consumption.
In emerging markets, on the other hand, economic growth was more restrained, although the pace of growth in China picked up again after a slow start to the year. Major emerging economies such as Brazil, India, Indonesia, South Africa and Turkey experienced a softer phase in 2013. Along with structural difficulties, they were faced with an increased exodus of foreign capital. This caused refinancing conditions to deteriorate by the middle of the year, putting currencies in these countries under pressure.
Asia Economic growth in Asia’s emerging markets was again muted. Aside from the lack of demand stimuli from the more advanced economies, domestic economic difficulties increasingly made themselves felt. In China the tendency towards more moderate economic expansion continued. After a weaker first six months the economy picked up momentum over the rest of the year, as reflected in the IfW’s growth figure of 7.5% for the full year (7.8%). This rally was, however, crucially driven by a stimulus programme launched at short notice. Faced with the evergreater challenge of maintaining its high pace of growth, China unveiled an economic reform project in November that recognises the more significant role played in the economy by market forces and the non-public sector. The Indian econo my, currently languishing in a period of weakness, boosted its growth to 4.0% thanks to a vigorous spurt at year-end and hence climbed back to the level seen in 2012 (3.7%).
Major stock markets soared in some cases to historic highs and recorded substantial price gains over the year. This, too, was a reflection of the continued expansionary monetary policy practised by central banks as well as of the quest by investors for high-yield investments. Such price movements can, however, be only partially explained by isolated indications beginning to emerge from the real economy. Global economic developments nevertheless continue to be subject to a variety of uncertainties and risks.
These to some extent opposing developments resulted in reduced Group net income of EUR 164.2 million (EUR 222.5 million ) for life and health reinsurance. Earnings per share amounted to EUR 1.36 (EUR 1.84).
Write-downs were again taken in only a minimal volume in the year under review, the bulk of them being due to scheduled depreciation on real estate. Income from funds withheld and contract deposits remained stable at EUR 357.3 million (EUR 355.5 million).
• Highest-ever Group net income of EUR 807.7 million • Major losses slightly below expectations at EUR 577.6 million • Pleasing combined ratio of 94.9% • Currency-adjusted premium growth of +3.5% according to plan
Breakdown of proportional and non-proportional treaties by volume in EUR million proportional non-proportional
On the following pages we report in detail on developments in the individual markets and lines of our non-life reinsurance business group, which is split into three segments according to the areas of responsibility on the Executive Board: target markets, specialty lines and global reinsurance.
The German insurance market recorded further growth in property / casualty business in the year under review. This was driven principally by motor insurance, which enjoyed another year of premium growth in all lines in 2013. Nevertheless, the
The major loss situation in North America was crucially shaped in the year under review by the flood events in Canada. While Alberta, in particular, suffered flooding as a consequence of heavy rainfall, the US was affected by a series of tornadoes. On the other hand, hurricane events with implications for the reinsurance industry were once again absent in 2013. For further information on losses from natural disasters please see the section entitled “Global catastrophe business” on page 45.
The year under review, just like the previous year, brought another strong inflow of cash into the ILS market. On the one hand, investors value the low correlation with other financial assets and the associated diversification, while at the same time they also find the market for insurance risks relatively appealing in comparison with other investments. As a result, catastrophe bonds have enjoyed lively demand among the investor community. Prices for these bonds have consequently fallen considerably. Yet the issuance of catastrophe bonds has also become a more attractive proposition. The volume of new issues in the market was once again higher.
The state of the UK economy showed no significant improvement compared to 2012. Fierce competition continued to prevail among the insurers and reinsurers writing business in this market. In many lines this was inevitably reflected in a deteriorating rate level. In contrast to the non-proportional reinsurance sector, rates in motor primary business retreated after short-lived rallies. Private homeowners insurance as well as covers for small and mid-sized businesses were also impacted by rate erosion. We responded by significantly scaling back our exposures in these areas from agency acceptances.
While the Chinese insurance market failed to expand quite as vigorously in the year under review as it had in prior years, the growth was nevertheless considerably stronger than in mature insurance markets. Having scaled back our portfolio at the outset of 2013 in the face of soft conditions and hence insufficient profit expectations, we successfully intensified our business relations with selected clients as the year progressed. All in all, the market remained fiercely competitive, as was evident not only in original business but also in conditions for reinsurance treaties. With this in mind, we wrote our portfolio extremely selectively. Despite this, we were able to slightly enlarge the premium volume. Our underwriting result was adversely impacted in the year under review by a major loss at a semiconductor memory fabrication plant and two typhoons.
We are thoroughly satisfied with the development of our business and our results in South and Southeast Asian markets. Our premium volume surged more strongly in the financial year than had been forecast. Growth was driven inter alia by niche lines. The burden of major losses in 2013 came in below expectations.
rate environment, run-off business began to take on greater significance in 2013 and became a central concern for primary insurers. Activities in this area are focused on the professional run-off of closed blocks of business.
With these goals in mind we engage in active risk management based on balanced risk / return analyses. In this context we are guided by centrally implemented investment guidelines and the insights of dynamic financial analysis. In light of the current market situation and requirements on the liabilities side investment ranges are defined on this basis, within which operational portfolio management is carried out. These measures are intended to safeguard the generation of an appropriate level of return. In so doing, we pay strict attention to compliance with our clearly defined risk appetite, which is reflected in the risk capital allocated to the investments and establishes the foundation for the asset allocation of the entire Hannover Re Group to the individual portfolios. In addition, we ensure that we are able to meet our payment obligations at all times. Within the scope of our asset / liability management (ALM) the allocation of investments by currencies and maturities is determined by the technical liabilities. The modified duration of our bond portfolio is geared largely to the technical liabilities.
Compared to the previous year, we modified only slightly the allocation of our assets to the individual classes of securities: the proportions of semi-government bonds and covered bonds were both reduced somewhat, while the proportion of corporate bonds was enlarged. We also further increased the share attributable to real estate as part of the strategic expansion of this asset category. In all other classes we made only minimal changes in the context of regular portfolio maintenance.
The policyholders’ surplus totalled EUR 8,767.9 million (EUR 8,947.2 million) as at the balance sheet date, a decrease of 2.0% in the year under review due to changes in cumulative other comprehensive income and in light of adjustments to the previous year pursuant to IAS 8 (cf. Section 3.1 of the notes).
Motor The gross premium volume for the motor line contracted by 12.7% to EUR 653.8 million (EUR 748.6 million). The loss ratio slipped back to 78.9% (74.7%). The underwriting result decreased slightly year-on-year to -EUR 21.2 million (-EUR 20.6 million). An amount of EUR 37.2 million (EUR 1.8 million) was withdrawn from the equalisation reserve and similar provisions.
Hannover Re’s carbon dioxide emissions at the Hannover Home Office location amounted to 7,203 (previous year: 4,984) tonnes in 2013, some 44.5% more than in the previous year. In addition to an increased number of kilometres flown on business, the considerably higher level of carbon dioxide pollution can be attributed to a greater need for heating on account of a longer winter.
The parameters and decisions of the Executive Board with respect to the risk appetite of the Hannover Re Group, which are based on the calculations of risk-bearing capacity, are fundamental to the acceptance of risks. Through our business operations on all continents and the diversification between our non-life and life and health reinsurance business groups we are able to effectively allocate our capital in light of opportunity and risk considerations and generate a higher-thanaverage return on equity. In non-life reinsurance we practise active cycle management and adopt a selective and disciplined underwriting approach.
In the interests of our shareholders and clients we strive to ensure that our risks remain commensurate with our capital resources. Our quantitative risk management provides a uniform framework for the evaluation and steering of all risks affecting the company as well as of our capital position. In this context, the internal capital model is our central tool.
Available capital and required risk capital 1 in EUR million 2013 2012
The statistical run-off triangles used by our company are another monitoring tool. They show the changes in the reserve over time as a consequence of paid claims and in the recalculation of the reserves to be established as at each balance sheet date. Their adequacy is monitored using actuarial methods.
The price / premium risk lies primarily in the possibility of a random claims realisation that diverges from the claims expectancy on which the premium calculation was based. Regular and independent reviews of the models used for treaty quotation as well as central and local underwriting guidelines are vital management components.
• The average default rate over the past three years was 0.09%
The assessment is carried out, for example, by assessing the degree of maturity of the respective risk management function or of the risk monitoring and reporting. The system enables us, among other things, to prioritise operational risks. Within the overall framework we consider, in particular, business process risks, compliance risks, risks associated with sales channels and outsourcing of functions, fraud risks, personnel risks, information technology risks / information security risks and business interruption risks.
Fraud risks refer to the risk of intentional violations of laws or regulations by members of staff (internal fraud) and / or by externals (external fraud). This risk is reduced by the internal control system as well as by the audits conducted by Internal Auditing on a Group-wide and line-independent basis.
Our holdings of unrestricted German, UK and US government bonds as well as cash during the year under review were larger than possible disbursements for assumed extreme events, which means that our liquidity is assured even in the unlikely case of financial crises coinciding with an extreme event that needs to be paid out quickly. The liquid asset reserve stood at more than EUR 2.1 billion as at the balance sheet date. In addition, we manage the liquidity of the portfolio by checking on each trading day the liquidity of the instruments contained therein; their underlying parameters are verified on a regular and ad hoc basis. These measures serve to effectively reduce the liquidity risk.
Key elements in Hannover Re’s opportunity management include its various market-specific innovations in the life and health and non-life reinsurance business groups (see page 120 et seq. of the Forecast). What is more, innovative and creative ideas are generated by our employees. If they can be successfully translated into additional profitable premium volume, such ideas are financially rewarded. Further elements are the “Future Radar” initiative and the working group on “Emerging Risks and Scientific Affairs”. Not only that, Hannover Re has set up a stand-alone organisational unit for “Business Opportunity Management”. This service unit deals exclusively and systematically with ideas and opportunities and it concentrates its activities on generating additional premium volume with profit potential. In this context, among other things, ideas on business opportunities are refined and optimal framework conditions for fresh commercial ideas are put in place.
Through our worldwide presence and activities in all lines of reinsurance we achieve an optimal risk diversification while maintaining a balanced risk / opportunity profile. Profit and value creation constitute the foundation of our sustainable development in the interests of our clients, shareholders, employees and business partners. Our goal is to increase the IFRS net income before and after tax as well as the value of the company – including dividends paid – by a double-digit margin every year. We consider the organic growth of our business volume, which exceeds the growth of the reinsurance market over the long term, to be a crucial success factor in this regard. This does not preclude temporary losses of market share. We offer our shareholders the prospect of a sustained above-average return on their capital. Consequently, we strive for an IFRS return on equity that is at least 750 basis points above the risk-free interest rate and a share price performance that beats the weighted Global Reinsurance Index over a rolling three-year period.
The business group bonus is determined by the Supervisory Board according to its best judgement. The determination also takes into account, in particular, the contribution made by the business under the responsibility of the Board member concerned to the achieved business group performance and the relative change in the average IVC in the remuneration year. The Supervisory Board may make additions to or deductions from the arithmetically calculated values at any time in the event of over- or underfulfilment of the criteria.
Dr. Klaus Sturany Deputy Chairman of the • Supervisory Board Member of the • Standing Committee • Nomination Committee
Wolf-Dieter Baumgartl 2 Member of the • Supervisory Board • Standing Committee • Finance and Audit Committee • Nomination Committee
Structure and system The remuneration scheme for senior executives below the Executive Board (management levels 2 and 3) consists of a fixed annual salary and a system of variable remuneration. This is comprised of a short-term variable remuneration component, the annual cash bonus, and a long-term share-based remuneration component, the Share Award Plan. This variable remuneration has been uniformly applied worldwide since 1 January 2012 to all Group senior executives (i. e. Managing Directors, Directors and General Managers). It satisfies the requirements of the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV), which entered into force on 13 October 2010, inasmuch as – in its basic principles and parameters – it meets the special requirements of § 4 VersVergV and is appropriately realised according to the various management levels. As part of the reorientation of the remuneration system for senior executives the Share Award Plan of the Executive Board was consciously extended to include management levels 2 and 3. Given that at the same time the stock appreciation rights plan for senior executives was cancelled with effect from the 2012 allocation year, this means that a uniform share-based remuneration component has been maintained for the Executive Board and senior executives alike.
Assisted by a favourable situation on the labour market, private households will significantly step up their consumer spending. Despite this positive tone on the employment front, the number of jobseekers will likely still remain just under three million.
Under loss-impacted programmes it was possible to push through rate increases; this was particularly true of catastrophe covers in Germany and Canada. In marine business further increases were booked as a consequence of negative loss experiences from prior years.
Target markets Our domestic market was similarly notable for marked competition in the treaty renewals. Although demand for natural catastrophe XL covers rose in Germany on account of heavy losses from the severe flood and hail events of 2013, not all expectations were fulfilled. In both proportional motor own damage insurance and homeowners insurance we profited from further premium increases in the original business. The rate level for covers in non-proportional motor liability was also sharply improved. The fierce competition observed in commercial and industrial business is likely to be sustained in 2014. The trend towards higher retentions – observable for some time now – principally through the reduction of proportional cessions is continuing in the current year. With this in mind, we anticipate a discernible premium decline in industrial fire business. All in all, our portfolio in our domestic market should remain stable.
Along with the effects of developments in the global economy, another major challenge facing the insurance industry is the constant shift in the age structure. Given that people are on average living longer, the need for corresponding insurance solutions remains consistently high. In 2014 we expect that demand for competitive and innovative insurance concepts designed to provide longevity coverage will rise around the world. Based on our long-standing expertise, it can be assumed that our customers will trust us to deliver fresh stimuli and appropriate reinsurance solutions.
Assets held for sale 6.1 11,226 6,333 2,391 1 Adjusted pursuant to IAS 8 (cf. Section 3.1 of the notes)
Transferred to the consolidated statement of income – – – –
International Hannover Holding AG, Hannover / Germany 1, 4 100.00 EUR 42 (3)
One Winthrop Square, LLC, Wilmington / USA 7, 9 95.00 USD (1,280) 11,979 402 Santa Monica Blvd, LLC, Wilmington / USA 7 95.00 USD 29,353 (5)
Lireas Holdings (Pty) Ltd., Johannesburg / South Africa 51.00 ZAR 176,476 18,990
Hannover Re Risk Management Services India Private Limited, New Delhi / India 13 100.00 INR – –
Synergy Targeted Risk Solutions (Pty) Ltd, Johannesburg / South Africa 1 10.20 ZAR 941 (165)
Financial assets at fair value through profit or loss 18,157 113,030
Hannover Re classifies investments according to the following categories: held-to-maturity, loans and receivables, financial assets at fair value through profit or loss and available-for-sale. The allocation and measurement of investments are determined by the investment intent.
Government debt securities of EU member states 1,888,024 40,708 19,518 18,075 1,927,289
This item principally included the goodwill from the acquisition of E+S Rück AG as well as from the acquisition of a 75% interest in Integra Insurance Solutions Ltd.
The run-off triangles provided by the reporting units are shown after adjustment for the currency effects arising out of translation of the respective transaction currency into the local reporting currency. The run-off triangles of the reporting units delivered in foreign currencies are translated to euro at the current rate on the balance sheet date in order to show run-off results after adjustment for currency effects. In cases where the originally estimated ultimate loss corresponds to the actual ultimate loss in the original currency, it is ensured that also after translation to the Group reporting currency (EUR) a run-off result induced purely by currency effects is not shown.
Net loss reserve and its run-off in the non-life reinsurance segment in EUR million 31.12. 2003 31.12.
Altogether four (previous year: four) subordinated bonds were recognised as at the balance sheet date with an amortised cost of EUR 2,237.8 million (EUR 2,233.0 million).
Sundry expenses 66,419 54,074 1 Adjusted pursuant to IAS 8 (cf. Section 3.1)
The increase in the other interest income derived inter alia from the interest portion of the income tax refund for previous years.
Actual expense for income taxes 163,143 364,405 1 Adjusted pursuant to IAS 8 (cf. Section 3.1)
On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 16.3 million for the 2013 financial year (EUR 15.2 million). The expense totalled altogether EUR 5.2 million (EUR 11.8 million).
Dividend per share A dividend of EUR 361.8 million (previous year: EUR 253.3 million ) was paid in the year under review for the 2012 financial year.
Hannover Life Re Bermuda was also approved. With an eye to § 3 Para. 1 Sentence 3 of the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV) the full Supervisory Board considered the adequacy of the remuneration system for the members of the Executive Board. The fixed remuneration of members of the Executive Board as at 1 January 2014 was also reviewed. The variable remuneration of the members of the Executive Board was defined on the basis of the findings with respect to attainment of the respective targets for the 2012 financial year and the arrangements governing the business group bonus were revised. At the constituent meeting of the Supervisory Board of Hannover Rück SE the Chairman of the Supervisory Board and his Deputy as well as the members and Chair of the Finance and Audit Committee and the members of the Standing Committee and of the Nomination Committee were elected. At an extraordinary meeting of the Supervisory Board the members of the Executive Board of Hannover Rück SE were appointed and the agenda for the first Annual General Meeting of Hannover Rück SE was set.
Hannover Rück SE Canadian Branch – Chief Agency 3650 Victoria Park Avenue, Suite 201 Toronto, Ontario M2H 3P7