All voting results and the attendance were published on the company’s website following the Annual General Meeting. The next Annual General Meeting will be held on Monday, 7 May 2018 in Hannover.
Our integrated system of enterprise management constitutes the basis for attainment of our strategic objectives. Located at its core are, first and foremost, our profit and growth targets, which are summarised for the Group and its business groups in the so-called target matrix. In addition to traditional performance indicators geared to the IFRS balance sheet, our system of strategic targets also includes economic targets derived from our internal capital model approved by the regulator. The targets are regularly analysed and adjusted in the context of the strategy review conducted at periodic intervals. Our primary focus is on long-term attainment of the strategic targets.
Since comparison of absolute amounts is not always meaningful, we have introduced the xRoCA (excess return on capital allocated ) in addition to the IVC. This describes the IVC in relation to the allocated capital and shows us the relative excess return generated above and beyond the weighted cost of capital.
Equity markets once again soared to new – in some cases historic – highs in the course of the year. Emerging economies and the US market, above all, booked significant price gains over the year as a whole. Most European indices also ended the year higher – in some instances substantially so – than the previous year, although the gains posted by the UK stock market were rather muted. European equity markets were driven principally by the continued expansionary monetary policy of the ECB and the search by investors for high-return assets. With this in mind, the high price levels can ultimately be explained only partially by fundamentals. Overall, stock markets once again proved to be broadly robust despite all the talk of crisis. While this is gratifying, there is an associated risk that bubbles may form.
For more detailed remarks on the development of Hannover Re’s investments please see the “Investments” section on page 50 et seq.
It is therefore all the more pleasing that we were able to generate very good Group net income of EUR 958.6 million. While this is lower than our original guidance of more than EUR 1 billion, it clearly exceeds the EUR 800 million that we had forecast in November 2017. This performance should also be viewed extremely favourably in comparison with our competitors. Our result was assisted by exceptionally gratifying investment income as well as by the release of reserves established for loss events of prior years that were no longer required.
The operating profit (EBIT) fell by 19.2% to EUR 1,364.4 million (EUR 1,689.3 million) owing to the above-average burden of large losses. Group net income contracted year-on-year to EUR 958.6 million (EUR 1,171.2 million). We thus comfortably outperformed the revised guidance of EUR 800 million issued with the quarterly statement for the third quarter owing to the hurricane events. Earnings per share for the Hannover Re Group stood at EUR 7.95 (EUR 9.71).
The market environment in worldwide property and casualty reinsurance was little changed overall in the year under review compared to the previous year. The prevailing intense competition continued unabated owing to the absence of market -changing large losses in the previous year. Reinsurance capacity clearly outstripped demand, with additional capacities putting prices and conditions under sustained pressure. Stronger demand could, however, be observed in some regions.
All in all, we further boosted our shares under long-standing client relationships in the countries of Continental Europe; this was true of both larger and smaller customer accounts.
While expenditure on large losses in the airline sector was minimal in the year under review, a significant part of the market premium again had to be allocated to small and midsized losses that were not widely reported in the media. In non- airline (general aviation) business and in the area of product liability the market was impacted not only by normal claims activity but also by individual larger events. We incurred one sizeable loss from a typhoon in China.
The gross premium volume for our global catastrophe business was stable at EUR 354.2 million (EUR 357.2 million). The combined ratio deteriorated sharply to 121.1% (55.9%) on account of the large loss incidence. The operating profit (EBIT) came in at EUR -3.3 million (EUR 154.9 million).
Value of New Business (VNB) growth 1 M 21 in EUR million
The portfolio of fixed-income securities excluding short-term assets contracted to EUR 34.3 billion (EUR 35.5 billion). This decline can similarly be attributed principally to exchange rate effects. Hidden reserves for available-for-sale fixed-income securities, which are allocable to shareholders' equity, totalled EUR 706.2 million (EUR 728.2 million) on balance. This reflects the yield increases observed in the course of the reporting period, especially in the area of EUR- and GBP-denominated sovereign bonds and debt securities issued by semi-governmental entities, which were offset to some extent by lower risk premiums on corporate bonds. As to the quality of the bonds – measured in terms of rating categories – the proportion of securities rated “A” or better remained on a consistently high level as at year-end at 76.6% (77.6%).
Holdings of alternative investment funds increased slightly overall. As at 31 December 2017 an amount of EUR 776.3 million (EUR 722.4 million) was invested in private equity funds; a further EUR 818.3 million (EUR 750.7 million) was attributable predominantly to investments in high-yield bonds and loans. In addition, altogether EUR 385.0 million (EUR 390.7 million) was invested in structured real estate investments. The uncalled capital with respect to the aforementioned alternative investments totalled EUR 1,201.9 million (EUR 1,096.4 million).
The annual financial statement of Hannover Rück SE – from which the balance sheet and profit and loss account in particular are reproduced here in condensed form – has been submitted to the operator of the electronic Federal Gazette and can be accessed via the webpage of the Companies Register. This annual financial statement can also be accessed on the company ’s website (www.hannover-re.com) and may be requested from Hannover Rück SE, Karl-Wiechert-Allee 50, 30625 Hannover, Germany.
Group Strategy 2015-2017 1. We have ambitious profit and growth targets
Active dialogue with rating agencies for sustainability with a view to ongoing inclusion in at least one recognised sustainability index as well as maintaining the Oekom “Prime” rating
As a global entity, we are able to offer our employees an attractive workplace that fosters motivation, dedication and teamwork. Our attractiveness as an employer is further reinforced by systematic career development programmes, a commitment to clearly expressing our appreciation of employees and an approach that allows them to participate in the sustained success of the business.
Staff at our Hannover head office also enjoy access to a broad range of fitness opportunities, including company sports groups dedicated to various types of sport and cooperation arrangements with fitness studios. When it comes to individual workstations, we take care to provide the most ergonomic possible room layout, desks and chairs.
7. We make balanced use of both quantitative and qualitative methods.
The risk strategy, risk register and central system of limits and thresholds – as integral components of our Risk and Capital Management Guideline – are reviewed at least once a year. In this way we ensure that our risk management system is kept up-to-date.
The figures shown above refer to the Hannover Re Group. In addition, Hannover Rück SE is also subject to regulatory capital requirements, which in accordance with Solvency II reporting were clearly fulfilled as at 31 December 2017 with a solvency ratio of 267.1% (the audit procedures conducted by the independent auditor in relation to Solvency II reporting have still to be completed). In this context, the internal operational risk model which is undergoing the regulatory approval process was used to determine the risk margin and the indicators in relation to the solvency capital requirement for Hannover Rück SE. The solvency ratio of Hannover Rück SE is normally higher than the solvency ratio of the Hannover Re Group because there are no restrictions with regard to the use of own funds attributable to non-controlling interests.
Risk identification takes the form of, among other things, structured assessments, interviews or scenario analyses. External insights such as recognised industry know-how from relevant bodies or working groups are incorporated into the process. Risk identification is important for ensuring that our risk management consistently remains up-to-date.
Asbestos-related claims / pollution damage 20.1 155.3 27.2 35.5 210.5 24.6
Required risk capital 1 for market risks M 71 in EUR million 31.12.2017 31.12.2016
Equity risks derive from the possibility of unfavourable changes in the value of equities, equity derivatives or equity index derivatives in our portfolio. Their relevance to our investments decreased sharply in the year under review, however, because we liquidated our holdings of non-strategic listed equities and equity funds at the end of the third quarter in response to the hurricane events in the Caribbean and the United States as well as the earthquakes in Mexico. In this way we not only made the most of the favourable state of the market, we also reduced our general risk position and freed up capital for potential risk reallocations. Our exposure to the private equity market remains unchanged. Changes in fair value here tend to be prompted less by general market conditions and more by entity-specific assessments. The risks are associated principally with the business model and profitability and less so with the interest rate component in the consideration of cash flow forecasts. Please see our comments in section 6.1 of the notes entitled “Investments under own management” on page 188 et seq.
The counterparty default risk consists primarily of the risk of complete or partial failure of the counterparty and the associated default on payment. The following table shows the required risk capital for counterparty defaults with a confidence level of 99.5%.
Code Section 5.3.2 Para. 3 Sentence 2; Independence of the Chair of the Audit Committee The current Chair of the Supervisory Board and Chair of the Finance and Audit Committee of Hannover Rück SE is at the same time also the Chair of the Board of Management of the controlling shareholder and hence cannot, in the company’s legal assessment, be considered independent.
The new resolution adopted by the Supervisory Board is applicable to the period from 1 July 2017 to 30 June 2022. After extensive deliberations the Supervisory Board decided, in due consideration of the term of office of the Supervisory Board and the current mandates and contracts of service of the members of the Executive Board, to leave the target quota for women on the Supervisory Board at 30%. The target quota for the Executive Board was raised from zero to 14%. This means that one woman shall serve as a member of the Executive Board in the specified period.
The Finance and Audit Committee monitors the accounting process and the effectiveness of the internal control system, the risk management system and the internal auditing system. It also handles issues relating to compliance and the information system for the Supervisory Board and discusses the Quarterly Statements as well as the Half-yearly Financial Report prior to their publication. It prepares the Supervisory Board’s examination of the annual financial statement, management report and proposal for the appropriation of profit as well as of the consolidated financial statement and Group management report. In this context, the Finance and Audit Committee receives detailed information on the auditor’s view of the net assets, financial position and results of operations as well as explanations of the effects of any modified recognition and measurement principles on the net assets, financial position and results of operations together with available alternatives. In addition, the committee prepares the Supervisory Board’s decision on the commissioning of the independent auditor for the financial statements. It considers matters associated with the necessary independence of the auditor, the awarding of the audit mandate to the independent auditor, the determination of the audit concentrations and the fee agreement. The minutes of the meetings of the Finance and Audit Committee are also made available to the members of the Supervisory Board who do not sit on the committee.
6 In order to calculate the number of share awards for 2017 reference was made to the Xetra closing price of the Hannover Re share on 29 December 2017 (EUR 104.90). The number to be actually awarded is established from the arithmetic mean of the Xetra closing prices of the Hannover Re share in a period from five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement in March 2018. The applicable market price of the Hannover Re share had increased from EUR 102.80 (30 December 2016) to EUR 107.15 by the allocation date (16 March 2017) of the share awards for 2016; the share awards actually allocated for 2016 are shown here, not those estimated in the 2016 Annual Report.
Dividend on share awards for 2016 3 0.0 29.3 29.3 29.3 0.0 30.7 30.7 30.7 0.0 30.7 30.7 30.7 1 Year of payment 2 Maximum value when awarded, amount paid out dependent upon the share price in the year of payment and the dividends paid until such time. 3 In the case of Mr. Althoff the dividend also refers to share awards from his work as a senior executive at Hannover Re. 4 For details of the service cost see the table “Pension commitments” on page 127.
A Board member who has reached the age of 65 and left the company’s employment receives a life-long retirement pension. The amount of the monthly retirement pension is calculated according to the reference date age (year of the reference date less year of birth) and the funding contribution on the reference date. The annual funding contribution for these contracts is paid by the company in the amount of a contractually specified percentage of the pensionable income (fixed annual remuneration as at the contractually specified reference date).
Structure and system The remuneration scheme for senior executives below the Executive Board (management levels 2 and 3) and for key function holders in Germany belonging as a matter of principle to the ranks of senior executives 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). 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 sharebased remuneration component has been maintained for the Executive Board and senior executives alike.
The pace of growth in Japan, on the other hand, will likely ease somewhat in 2018 to 1.5%, with a further downward trend. While the country is enjoying its longest growth stretch in more than 16 years, this is being driven primarily by strong export demand. Domestic demand, by contrast, remains soft.
Target markets North America In North America we expect to see further mergers and acquisitions, both in the insurance and reinsurance market. This does not, however, in any way have adverse implications for our market position. On the contrary, we anticipate further business opportunities based on our long-standing, close customer relationships and financial strength.
Continental Europe In Germany, the largest single market within our Continental Europe segment, we were able to assert our prominent position in the treaty renewals as at 1 January 2018. Rates and conditions improved slightly for the most part. Although improved conditions were obtained in industrial fire insurance – which had suffered heavy losses – in the treaty renewals, these are still not adequate in view of the losses. We therefore maintained our selective underwriting policy in this segment. In motor business, our most important single line, we expect to further grow our premium income.
For the German (re)insurance market it is our expectation that in the coming reporting period the interest rate level will remain unchanged on the present low level, thereby further adding to the strain associated with the additional interest rate reserves that have to be constituted by German life insurers. However, policymakers are expected to take appropriate supportive actions in relation to the additional interest rate reserves as part of the revisions to the Life Insurance Reform Act. The concrete implications for the industry remain to be seen.
In May 2014 the IASB issued IFRS 15 “Revenue from Contracts with Customers”. The standard specifies when and in what amount revenue is to be recognised and which disclosures are required for this purpose. IFRS 15 provides a single five-step model framework to be applied to all contracts with customers. In the “Clarifications to IFRS 15 Revenue from Contracts with Customers”, which were published in April 2016, the IASB clarified various principles of IFRS 15 and included additional transition relief provisions. Financial instruments and other contractual rights and obligations which are to be recognised under separate standards as well as (re)insurance contracts within the scope of IFRS 4 “Insurance Contracts” are expressly exempted from the standard’s scope of application. Both the standard and the clarifications are to be applied for the first time to annual periods beginning on or after 1 January 2018. Hannover Re subjected the service contracts existing as at the balance sheet date to analysis and does not anticipate any significant changes relative to current practice. The predominant activity of the Hannover Re Group falls within the scope of application of IFRS 4. Consequently, the services falling within the scope of application of IFRS 15 will probably not have any significant implications overall for the Group’s net assets, financial position or result of operations. Hannover Re intends to opt for the modified retrospective approach on initial application of IFRS 15, according to which the cumulative effect of applying the new standard is recognised in retained earnings as at 1 January 2018. In addition, the practical transition relief provided in the standard with respect to completed contracts and contract modifications will be utilised.
June 2017 IFRIC 23 - Uncertainty over Income Tax Treatments 1 January 2019 (still to be endorsed by the EU)
December 2016 IFRIC 22 - Foreign Currency Transactions and Advance Consideration 1 January 2018 (still to be endorsed by the EU)
Argenta Tax & Corporate Services Limited 1, 8, London / United Kingdom 100.00 GBP 1,105 400
Hannover Life Reassurance Africa Limited 1, Johannesburg / South Africa 100.00 ZAR 534,324 39,302
320AUS LLC 1, 8, Wilmington / USA 95.15 USD 94,093 424
101BOS LLC 1, 8, Wilmington / USA 95.15 USD 51,644 1,623 402 Santa Monica Blvd, LLC 1, 8, Wilmington / USA 95.15 USD (28) 947 111ORD LLC 1, 8, Wilmington / USA 95.15 USD 72,463 2,133 140EWR LLC 1, 8, Wilmington / USA 95.15 USD 64,279 (15,123)
Thatch Risk Acceptances (Pty) Ltd., Johannesburg / South Africa 49.00 ZAR 2,122 4,489
HR Hannover Re, Correduría de Reaseguros, S. A. 1, Madrid / Spain 100.00 EUR 497 48
In the third quarter of 2017 Hannover Re Global Alternatives GmbH & Co. KG, Hannover, took a 100% stake in the company PAG Real Estate Asia Select Fund Limited, George Town, Cayman Islands, for the purpose of acquiring real estate. The company acquired 99.7% of the shares in Orion No. 1 Professional Investors Private Real Estate Investment LLC, Seoul, South Korea, and 99.0% of the shares in Peace G.K., Tokyo, Japan. A total amount in the order of EUR 113.6 million was invested in this connection. In addition, Hannover Re Global Alternatives GmbH & Co. KG participated in HR US Infra Debt LP, George Town, Cayman Islands, which enters into US infrastructure investments.
Financial assets at fair value through profit or loss 56,652 73,352 244,222 224,230 – – 300,874 297,582
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 is determined by the investment intent and complies with the requirements of IAS 39 “Financial Instruments: Recognition and Measurement”.
Loans and receivables due in one year 129,159 130,841 209,243 210,524 due after one through two years 179,739 188,653 140,840 144,552 due after two through three years 218,893 233,670 185,067 198,725 due after three through four years 302,243 320,436 228,296 247,919 due after four through five years 214,455 235,151 329,506 354,351 due after five through ten years 942,722 1,126,196 987,545 1,194,792 due after more than ten years 467,953 505,538 483,097 543,506
Fixed-income securities – held to maturity – 19,192 – 359,148 44,926 61,689 – – 484,955
In addition, we held indirect real estate investments measured at fair values in an amount of EUR 385.0 million (EUR 390.7 million) in the year under review, the amortised costs of which amounted to EUR 327.2 million (EUR 323.5 million). The differences between the carrying amounts and amortised costs were recognised as unrealised gains of EUR 59.5 million (EUR 70.8 million ) and unrealised losses of EUR 1.7 million (EUR 3.7 million) under cumulative other comprehensive income.
Movements in level 3 financial assets and liabilities N 37 in EUR thousand
Cumulative value adjustments at 31 December of the previous year 40,468 35,992
Net book value at 31 December of the previous year 64,609 60,244
Gross book value at 31 December of the year under review 121,859 136,053
Loss and loss adjustment expense reserve N 52 in EUR thousand gross retro net gross retro net
The funds withheld under reinsurance treaties totalling EUR 974.8 million (EUR 1,234.1 million) represent the cash and securities deposits furnished to our company by our retrocessionaires that do not trigger any cash flows and cannot be realised without the consent of our retrocessionaires. The maturities of these deposits are matched to the corresponding shares of the reinsurers in the technical provisions. If such a share no longer exists the corresponding funds withheld are reduced to the same extent.
Interest income on investments N 74 in EUR thousand 2017 2016
With regard to the claims and claims expenses as well as the change in the benefit reserve the reader is also referred to section 6.7 “Technical provisions”. The change in the benefit reserve relates exclusively to the life and health reinsurance segment. The administrative expenses amounted to altogether 2.6% (2.8%) of net premium earned.
In view of the unrealised gains on investments and on currency translation recognised directly in equity in the financial year, actual and deferred tax expenditure – including amounts attributable to non-controlling interests – of EUR 61.8 million (EUR 4.8 million) was also recognised directly in equity.
The assets-side unadjusted deferred taxes on loss carry -forwards and tax credits amounting to EUR 55.1 million (EUR 83.3 million) will probably be realised in an amount of EUR 15.5 million (EUR 17.6 million) within one year and in an amount of EUR 39.6 million (EUR 65.7 million) in the subsequent years.
The lawsuits pending in the year under review and as at the balance sheet date were not material for the Hannover Re Group either individually or combined. Furthermore, no contingent liabilities from lawsuits were to report as at the balance sheet date.
As security for technical liabilities to our US clients, we have established two trust accounts (master trust and supplemental trust) in the United States. They amounted to EUR 3,716.4 million (EUR 3,850.7 million) and EUR 71.5 million (EUR 45.6 million) respectively as at the balance sheet date. The securities held in the trust accounts are shown as available -for-sale investments. In addition, we furnished further collateral to ceding companies in an amount of EUR 1,946.5 million (EUR 1,857.5 million) in the form of so-called “single trust funds”. This amount includes a sum equivalent to EUR 1,634.5 million (EUR 1,328.7 million) which was furnished by investors as security for potential reinsurance obligations from ILS transactions.
Future minimum lease payments payable N 99 in EUR thousand Amounts payable
• We assessed the adequacy of the material assumptions by analysing the actuarial methods used to arrive at them.
The risk for the consolidated financial statement The company reports gross written premium of EUR 17,790.5 million in its consolidated financial statement.
• the other parts of the Annual Report, with the exception of the audited consolidated financial statement and Group management report as well as our audit report.
In connection with our audit our responsibility is to read the other information and assess whether the other information
The legal representatives are responsible for preparation of the consolidated financial statement, which in all material respects is in conformity with IFRS, as applicable in the EU, and the supplementary applicable German legal requirements in accordance with § 315e Para. 1 Commercial Code (HGB), and for ensuring that the consolidated financial statement gives a true and fair view – in compliance with these provisions – of the Group’s net assets, financial position and results of operations. In addition, the legal representatives are responsible for the internal controls that they have determined to be necessary in order to facilitate preparation of a consolidated financial statement that is free of material misstatements, whether intended or unintended.
• we conduct audit procedures with respect to the forward -looking statements presented by the legal representatives in the combined management report. In particular, based on sufficient suitable audit evidence we verify the major assumptions taken as a basis by the legal representatives for the forward-looking statements and assess the proper derivation of the forward-looking statements from these assumptions. We do not provide an independent audit opinion on the forward-looking statements or on the underlying assumptions. There is a considerable unavoidable risk that future events may differ substantially from the forward-looking statements.
The Supervisory Board thus concurred with the opinions of the auditors and approved the annual financial statements and the consolidated financial statements; the annual financial statements are thereby adopted. Our proposal regarding the appropriation of the disposable profit for 2017 is in accordance with that of the Executive Board.
Hannover Rueck SE Australian Branch Tower 1, Level 33 100 Barangaroo Avenue Sydney NSW 2000
M 88 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2016 and 2017) 124