Stock Appreciation Rights Plan With effect from 1 January 2000 the Executive Board of Hannover Re, with the consent of the Supervisory Board, introduced a virtual stock option plan that provides for the granting of stock appreciation rights to certain managerial staff. The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. Recognition of transactions involving share-based remuneration with cash settlement is governed by the requirements of IFRS 2 “Sharebased Payment”.
The Conditions for the Granting of Stock Appreciation Rights were cancelled for the 2011 financial year by a resolution of the Supervisory Board dated 8 November 2010, insofar as the members of the company’s Executive Board could be granted stock appreciation rights on the basis of these Conditions (partial cancellation). The Conditions for the Granting of Stock Appreciation Rights were also cancelled for the other eligible recipients for the year under review by a resolution of the Executive Board dated 14 March 2011. Awarded stock appreciation rights continue to be exercisable until the end of their period of validity.
The internal performance condition is achievement of the target performance defined by the Supervisory Board, which is expressed in terms of the diluted earnings per share calculated in accordance with IAS 33 “Earnings Per Share” (EPS). If the target EPS is surpassed or undershot, the provisional basic number of stock appreciation rights initially granted is increased or reduced accordingly to produce the EPS basic number. The external performance criterion is the relative development of the share price in the allocation year. The benchmark used in this regard is the (weighted) Global Reinsurance Index. This index encompasses the performance of listed reinsurers worldwide. Depending upon the outperformance or underperformance of this index, the EPS basic number is increased – albeit by at most 400% of the EPS basic number – or reduced – although by no more than 50% of the EPS basic number.
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) the waiting period is two years; for each additional 20% of the stock appreciation rights (tranches two to four of each allocation year) the waiting period is extended by one year. Each exercise period lasts for ten trading days, in each case commencing on the sixth trading day after the date of publication of the quarterly report of Hannover Rückversicherung AG.
Upon exercise of a stock appreciation right the amount paid out to the entitled party is the difference between the basic price and the current market price of the Hannover Re share at the time of exercise. In this context, the basic price corresponds to the arithmetic mean of the closing prices of the Hannover Re share on all trading days of the first full calendar month of the allocation year in question. The current market price of the Hannover Re share at the time when stock appreciation rights are exercised is determined by the arithmetic mean of the closing prices of the Hannover Re share on the last twenty trading days prior to the first day of the relevant exercise period.
The allocations for the years 2003, 2004 as well as 2006, 2007 and 2009 to 2011 gave rise to commitments in the 2012 financial year shown in the following table. No allocations were made for 2005 or 2008.
Period 10 years 10 years 10 years 10 years 10 years 10 years 10 years
Participants in year of issue 143 129 137 110 106 109 110
Fair value at 31.12.2012 (in EUR) 17.31 7.16 8.62 10.79 10.32 24.62 8.99
Number of rights existing at 31.12.2012 262,789 1,661,890 932,372 240,852 26,491 3,354 0
Amounts paid out in the 2012 financial year (in EUR million) – – 4.94 5.94 2.33 2.49 0.02
The calculations were based on the price of the Hannover Re share of EUR 57.65 as at the reference date of 14 December 2012, expected volatility of 41.16% (historical volatility on a five-year basis), a dividend yield of 4.60% and risk-free interest rates of -0.07% for the 2004 allocation year, 0.19% for the 2006 allocation year, 0.39% for the 2007 allocation year, 0.84% for the 2009 allocation year, 1.06% for the 2010 allocation year and 1.26% for the 2011 allocation year.
In the 2012 financial year the waiting period expired for 100% of the stock appreciation rights awarded in 2003, 2004 and 2006, 80% of those awarded in 2007 and 40% of those awarded in 2009.
Number of options at 31.12.2005 – – – – – 204,774 784,439
Number of options at 31.12.2007 – – – – 809,034 164,288 258,438
After share awards were already granted to the members of the Executive Board in the year under review for the 2011 financial year, share awards will be granted separately to managers for the first time for the 2012 financial year and then for each financial year (allocation year) thereafter.
The total amount of the provision of EUR 2.4 million (EUR 0.2 million) is shown under the sundry provisions.
It will be proposed to the Annual General Meeting on 7 May 2013 that a dividend of EUR 2.60 and a bonus of EUR 0.40 per share should be paid for the 2012 financial year. This corresponds to a total distribution of EUR 361.8 million. The dividend proposal does not form part of this consolidated financial statement.
Hannover Re has placed four subordinated debts on the European capital market through its subsidiary Hannover Finance (Luxembourg) S.A. Hannover Re has secured by subordinated guarantee both the debt issued in 2004, the volume of which amounts to EUR 750.0 million, and the debts from the 2005, 2010 and 2012 financial years in amounts of EUR 500.0 million each.
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 2,855.7 million (EUR 2,756.1 million) and EUR 11.9 million (EUR 12.1 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 549.3 million (EUR 367.4 million ) in the form of so-called “single trust funds”.
As security for our technical liabilities, various financial institutions have furnished sureties for our company in the form of letters of credit. The total amount as at the balance sheet date was EUR 3,343.0 million (EUR 3,097.8 million). The standard market contractual clauses contained in some of the underlying letter of credit facilities regarding compliance with stipulated conditions are explained in greater detail in the “Financial position” section of the management report, page 55, on the information pursuant to § 315 Para. 4 German Commercial Code (HGB) as well as in Section 6.12 “Debt and subordinated capital” on other financial facilities.
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 288.3 million (EUR 309.3 million) as at the balance sheet date.
Outstanding capital commitments with respect to alternative investments exist on the part of the Group in an amount of EUR 575.9 million (EUR 451.9 million). These primarily involve as yet unfulfilled payment obligations from investment commitments given to private equity funds and venture capital firms.
In a press release dated 21 February 2013 we announced the completion of another block transaction for longevity risks in our life and health reinsurance business group. Under the transaction pension obligations in the amount of GBP 3.2 billion assumed by a UK cedant are mostly transferred to Hannover Re with contractual effect from 31 January 2013. Hannover Re assumes only the biometric risk under this transaction, not the investment risk. Hannover Re will generate total premium income of roughly GBP 2.2 billion from this longevity transaction, with gross premium of around GBP 100.0 million attributable to the 2013 financial year.
We have audited the consolidated financial statements prepared by Hannover Rückversicherung AG, Hannover – comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and notes to the consolidated financial statements – as well as the group management report for the business year from 1 January to 31 December 2012. The preparation of the consolidated financial statements and the group management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Para. 1 HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Para. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.
Since no changes were to be made in the context of the election of shareholder representatives to the Supervisory Board in May 2012 and given that the same individuals were standing for reelection, the Nomination Committee did not meet.
The accounting, annual financial statements, consolidated financial statements and the corresponding management reports were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The Supervisory Board selected the auditor and the Chairman of the Supervisory Board awarded the audit mandate. The auditor ’s independence declaration was received. In addition to the usual tasks performed by the auditors, key points of focus in the audit of the individual and consolidated financial statements of Hannover Re for 2012 were the issues defined by the Financial Reporting Enforcement Panel (Deutsche Prüfstelle für Rechnungslegung ) and the examination of the non-accounting-related internal control system with an eye to the effectiveness of the underwriting guidelines in selected areas of non-life reinsurance as well as adherence to investment guidelines. The mandate for the review report by the independent auditors on the interim financial report as at 30 June 2012 was also awarded again. The special challenges associated with the international aspects of the audits were met without reservation. Since the audits did not give rise to any objections KPMG AG issued unqualified audit certificates. The Finance and Audit Committee discussed the annual financial statements and the management reports with the participation of the auditors and in light of the audit reports, and it informed the Supervisory Board of the outcome of its examination. The audit reports were distributed to all members of the Supervisory Board and scrutinised in detail – with the participation of the auditors – at the Supervisory Board meeting held to consider the annual results. The auditors will also be present at the Annual General Meeting.
– in each case drawn up as at 31 December 2012 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report. 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. We concur with the Executive Board’s proposal regarding the appropriation of the disposable profit for 2012.
The composition of the shareholder representatives on the Supervisory Board and on the committees of the Supervisory Board did not change in the year under review. The employees of the company elected Ms. Frauke Heitmüller to serve on the Supervisory Board with effect from 3 May 2012. Ms. Heitmüller succeeded Mr. Uwe Kramp, who had been a member of the Supervisory Board since 3 May 2007. The Supervisory
With effect from 1 January 2013 Dr. Michael Pickel was reappointed as a member of the Executive Board for a term of five years until 31 December 2017.
Details of memberships of legally required supervisory boards and comparable control boards at other domestic and foreign business enterprises are contained in the individual report of Hannover Rückversicherung AG.
Australia / New Zealand The pressure on insurers has increased following the enormous catastrophe losses of recent years. The industry expects premiums for major loss covers to rise.
Hannover Rückversicherung AG Australian Branch – Chief Agency The Re Centre, Level 21 Australia Square 264 George Street Sydney NSW 2000 G. P. O. Box 3973 Sydney NSW 2001
Hannover Rückversicherung AG Bahrain Branch Al Zamil Tower 17th Floor Government Avenue Manama Center 305 Manama Tel. +973 1721-4766 Fax +973 1721-4667 General Manager: Mahomed Akoob
Hannover Life Reassurance Bermuda Ltd. Victoria Place, 2nd Floor, 31 Victoria Street Hamilton, HM 10
Hannover Rückversicherung AG Escritório de Representação no Brasil Ltda. Praça Floriano, 19 / 1701
Hannover Rückversicherung AG Canadian Branch – Chief Agency 3650 Victoria Park Avenue, Suite 201 Toronto, Ontario M2H 3P7
Hannover Rückversicherung AG Shanghai Branch Suite 3307, China Fortune Tower 1568 Century Boulevard Pudong 200122 Shanghai
Hannover Rückversicherung AG Succursale Française 109 rue de la Boetie (Entrance: 52 avenue des Champs Elysées) 75008 Paris
Hannover Reinsurance Africa Limited Hannover Re House Cnr Hillside & Empire Roads Parktown, Johannesburg 2193 P. O. Box 85321 Emmarentia 2029
Fax (Life) +46 8 617-5597 Fax (Non-life) +46 8 617-5593 Managing Director: Thomas Barenthein
Hannover Rückversicherung AG Taipei Representative Office Rm 902, 9F, No. 129, Sec. 3 Minsheng E. Road Taipeh
International Insurance Company of Hannover Limited 1 Arlington Square 10 Fenchurch Street London EC3M 3BE
Hannover Re UK Life Branch Hannover House Station Parade Virginia Water Surrey GU25 4AA
Claims and claims expenses: sum total of paid claims and provisions for loss events that occurred in the business year; this item also includes the result of the run-off of the provisions for loss events from previous years, in each case after the deduction of own reinsurance cessions.
Confidence (also: probability) level: the confidence level defines the probability with which the defined amount of risk will not be exceeded.
Corporate Governance: serves to ensure responsible management and supervision of enterprises and is intended to foster the trust of investors, clients, employees and the general public in companies.
Direct (also: primary) insurer: company which accepts risks in exchange for an insurance premium and which has a direct contractual relationship with the policyholder (private individual, company, organisation).
Discounting of loss reserves: determination of the present value of future profits through multiplication by the corresponding discount factor. In the case of the loss reserves this is necessary because of the new profit calculation methods for tax purposes applicable to German joint-stock corporations.
Loss, economic: total loss incurred by the affected economy as a whole following the occurrence of a loss. The economic loss must be distinguished from the insured loss.
Loss ratio: proportion of loss expenditure (gross or net) relative to the (gross or net) premium earned.
Major loss budget: modelled loss expectancy for business with natural perils exposure with respect to net losses larger than EUR 10 million plus the average of the past 10 years for manmade net losses larger than EUR 10 million.
Morbidity risk: in general terms, the actuarial risk that a person receiving health, disability or long-term-care benefits triggered by illness, malfunctioning of body parts, injury or frailty experiences a higher or longer than expected morbidity or disability leading to a higher payment amount, higher frequency or longer duration.
Portfolio: a) all risks assumed by an insurer or reinsurer in a defined sub-segment (e. g. line of business, country) or in their entirety; b) group of investments defined according to specific criteria.
Priority: direct insurer’s loss amount stipulated under nonproportional reinsurance treaties; if this amount is exceeded, the reinsurer becomes liable to pay. The priority may refer to an individual loss, an accumulation loss or the total of all annual losses.
Property and casualty (re-)insurance: collective term for all lines of business which in the event of a claim reimburse only the incurred loss, not a fixed sum insured (as is the case in life and personal accident insurance, for example). This principle applies in all lines of property and casualty insurance.
Rate: percentage rate (usually of the premium income) of the reinsured portfolio which is to be paid to the reinsurer as reinsurance premium under a non-proportional reinsurance treaty.
Retention: the part of the accepted risks which an insurer / reinsurer does not reinsure, i. e. shows as net (retention ratio: percentage share of the retention relative to the gross written premiums).
Annual Results Press Conference Start 10:30 a.m. Hannover Re Karl-Wiechert-Allee 50 30625 Hannover, Germany
We would also be pleased to provide you with the individual Annual Report of Hannover Rückversicherung AG in German or English. If you wish to receive paper copies of any of these versions, please contact Corporate Communications on: Fax + 49 511 5604-1648 or order them online at www.hannover-re.com under “Media Centre / Financial Reports”.