The cumulative other comprehensive income of EUR -4.6 million arising out of the currency translation of the assets and liabilities belonging to the disposal group was realised in the context of deconsolidation. In addition, actuarial gains and losses in an amount of EUR -0.5 million were netted directly in equity.
In March 2019 all shares in the special purpose property company Mustela s.r.o., Prague / Czech Republic, were sold through HR GLL Europe Holding S.à.r.l., Luxembourg, for a purchase price of EUR 76.6 million.
Virtually all the acquisitions and new formations as well as the disposals and retirements referred to in the previous two sections are allocated to the property and casualty reinsurance segment. The exceptions here are ITAS Vita S.p.A. and the indirectly held participation in the Viridium Group, both transactions attributable to the life and health reinsurance segment. Monument Insurance Group Limited, which is included for the first time in the consolidated financial statement at equity, is similarly allocated to the life and health reinsurance segment.
Fixed-income securities – held to maturity 171,542 198,596 51,507 51,347 – – 223,049 249,943
Fixed-income securities – loans and receivables 2,139,810 2,349,266 39,205 34,635 15,049 15,049 2,194,064 2,398,950
Fixed-income securities – available for sale 28,806,079 24,689,122 9,247,666 8,531,051 14,714 19,512 38,068,459 33,239,685
Reinsurance recoverables on other reserves 4,489 543 4,866 6,627 – – 9,355 7,170
Total investments and cash under own management 36,599,092 32,092,110 10,969,502 10,030,024 60,832 75,204 47,629,426 42,197,338
Other liabilities in the segment 2,157,872 1,718,949 2,314,045 2,192,760 (1,265,812) (1,173,150) 3,206,105 2,738,559
Liabilities related to assets held for sale – 2,246,129 – – – – – 2,246,129
Income / expense on funds withheld and contract deposits 47,652 35,810 158,781 172,177 – – 206,433 207,987
Total depreciation, impairments and appreciation of investments 73,566 49,093 7,080 31 – – 80,646 49,124
Maturities of the fixed-income and variable-yield securities N 20 in EUR thousand
Held to maturity due in one year 35,277 36,392 27,597 28,255 due after one through two years 138,711 146,834 35,210 37,680 due after two through three years – – 138,040 150,358 due after three through four years 48,282 52,963 – –
Available for sale due after one through two years 2,747,789 2,774,964 3,217,098 3,230,856 due after two through three years 3,458,407 3,524,451 3,264,200 3,253,202 due after three through four years 3,022,147 3,098,443 2,828,576 2,831,536 due after four through five years 2,853,983 2,960,945 3,047,032 3,043,361 due after five through ten years 13,017,561 13,541,446 10,040,715 10,051,258 due after more than ten years 8,240,612 8,781,103 6,086,028 6,166,985
Financial assets at fair value through profit or loss due in one year 513,831 513,831 427,918 427,918 due after one through two years 18,880 18,880 86,411 86,411 due after two through three years 16,840 16,840 13,075 13,075 due after three through four years 18,489 18,489 10,358 10,358 due after four through five years – – 17,740 17,740 due after five through ten years 10,739 10,739 4,248 4,248 due after more than ten years – – – –
1 Including accrued interest 2 Including short-term investments, cash and cash equivalents
Government debt securities of EU member states 5,220,153 22,517 244,693 18,299 5,446,547
For further information please see the explanatory remarks in section 8.1 “Derivative financial instruments and financial guarantees”.
Participating interests and other invested assets, real estate funds 2,782,340 35,696 2,257,080 17,900
For further explanatory remarks on the impairment criteria please see section 3.2 “Summary of major accounting policies”.
Fixed-income securities – at fair value through profit or loss 56,144 271,933 – – 27,611 – – 204,062 559,750
Fixed-income securities – held to maturity – – – 198,656 14,716 9,677 – – 223,049
Fixed-income securities – loans and receivables 159,486 – 40,051 1,637,453 5,933 351,141 – – 2,194,064
Fixed-income securities – at fair value through profit or loss – – – – – 290,464 – 288,315 578,779
Equity securities – available-for-sale – – – 18,091 – 11,124 – – 29,215
Fixed-income securities – held to maturity – – – 226,485 13,972 9,486 – – 249,943
Other financial assets – at fair value through profit or loss – – – 2,296 87,515 100,713 – 235 190,759
• Monument Insurance Group Limited, Hamilton, Bermuda, as well as the following companies included at equity within the subgroup Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, South Africa: • Clarendon Transport Underwriting Managers (Pty) Ltd., Johannesburg, South Africa,
Financial information on investments in associated companies N 33 in EUR thousand 2019 2018
Net book value at 31 December of the year under review 245,478 110,545
Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 16.0 million (EUR 18.8 million ). For further details please see section 4 “Consolidation”.
The investment property in the portfolio which is used to generate income is shown under the investments. Income and expenses from rental agreements are included in the investment income.
Gross book value at 31 December of the year under review 1,935,208 1,844,408
Cumulative depreciation at 31 December of the previous year 159,476 128,939
In terms of diversification across various real estate sectors the focus is on office buildings (64%), complemented by retail (16%) and logistics properties (14%). In geographical terms, exposures are spread across the United States (44%), Europe (excluding Germany; 22%) as well as Germany (19%) and Asia (15%).
The real estate in the investment portfolio is normally subject to internal and external valuation by an appraiser as at the balance sheet date. The two analyses do not differ from one another in the methodology used, which means that the findings are comparable at all times and on a continuous basis. Generally speaking, the fair value of the real estate is determined using the discounted cash flow (DCF) method, with rental income capitalised in consideration of the associated management costs. The valuation result is also influenced by increases and reductions based on specific property circumstances (upkeep, vacancies, rent divergences from the market level, etc.). The evaluation of international real estate also draws primarily on the discounted cash flow method. The main feature of this method is the present value estimation of projected annual free cash flows.
In addition, we held indirect real estate investments measured at fair values in an amount of EUR 534.7 million (EUR 433.9 million) in the year under review, the amortised costs of which amounted to EUR 475.0 million (EUR 379.8 million). The differences between the carrying amounts and amortised costs were recognised as unrealised gains of EUR 65.3 million (EUR 57.5 million) and unrealised losses of EUR 5.6 million (EUR 3.4 million) under cumulative other comprehensive income.
In addition, acquired life insurance policies measured at fair value through profit or loss were recognised under the other invested assets in an amount of EUR 24.0 million (EUR 38.6 million). Loans granted in an amount of EUR 123.2 million (EUR 141.1 million) were similarly recognised under other invested assets.
Fair value hierarchy of financial assets and liabilities recognised at fair value N 36 in EUR thousand
Net book value at 31 December of the previous year 132,339 433,899 1,647,992 24,548
Income and expenses recognised in the statement of income 38,369 (3,441) (25,558) (5,545)
Net book value at 31 December of the year under review 160,418 534,739 1,841,392 30,042
Change in fair value of financial instruments 38,369 – (1,884) 5,545
Total depreciation, impairments and appreciation of investments – (3,441) (23,919) –
Change in fair value of financial instruments 29,037 – 512 5,775
If models are used to measure financial assets and liabilities included in level 3 under which the adoption of alternative inputs leads to a material change in fair value, IFRS 13 requires disclosure of the effects of these alternative assumptions.
Fair value disclosures for financial assets N 44 in EUR thousand
Fixed-income securities – at fair value through profit or loss – – 578,779 20,105
No rating low credit risk 1,011,199 594,427 more than a low credit risk 258,399 175,447
The funds withheld totalling EUR 10,948.5 million (EUR 10,691.8 million) represent the cash deposits furnished by our company to our cedants that do not trigger any cash flows and cannot be realised by cedants without our consent. The maturities of these deposits are matched to the corresponding provisions. In the event of default on such a deposit our reinsurance commitment is reduced to the same extent.
The contract deposits on the assets side increased by EUR 152.4 million in the year under review from EUR 172.9 million to EUR 325.3 million.
Development of deferred acquisition costs N 47 in EUR thousand 2019 2018
Net book value at 31 December of the previous year 2,155,820 2,228,246
The change in the consolidated group refers in particular to acquisition costs that were formerly deferred internally within the Group in connection with HDI Global Specialty SE, following the partial disposal and associated loss of control these were no longer eliminated in the context of debt consolidation.
The age structure of the accounts receivable which were unadjusted but classified as overdue at the balance sheet date is presented below.
Age structure of overdue accounts receivable N 48 in EUR thousand
Within the scope of our management of receivables we expect to receive payment of accounts receivable within three months of the date of creation of the debit entry unless otherwise agreed – a period for which we also make allowance in our risk analysis. Please see our comments on the counterparty default risk within the risk report on page 112 et seq.
The default risks associated with accounts receivable under reinsurance business are determined and recognised on the basis of case-by-case analyses.
The value adjustments on accounts receivable that we recognise in adjustment accounts changed as follows in the year under review: Value adjustments on accounts receivable N 49 in EUR thousand 2019 2018
Cumulative value adjustments at 31 December of the year under review 33,840 29,503
In addition, we took specific value adjustments on reinsurance recoverables on unpaid claims in the year under review. We would refer the reader to the corresponding remarks on the loss and loss adjustment expense reserve in section 6.7
In accordance with IFRS 3 “Business Combinations” amortisation is not taken on goodwill. Goodwill was subject to an impairment test.
Net book value at 31 December of the previous year 85,588 91,692
This item principally includes the goodwill from the acquisitions of E+S Rückversicherung AG, Integra Insurance Solutions Limited and Argenta Holdings Limited.
A n n u al f in an ci al s ta te m en ts 6.6 Other assets
Present value of future profits on acquired life reinsurance portfolios 33,815 39,609
With regard to the right-of-use assets from lease contracts included in the items “Own-use real estate”, “Fixtures, fittings and equipment” and “Other”, please see section 8.8 “Leases”.
Gross book value at 31 December of the year under review 129,150 126,578
Cumulative depreciation at 31 December of the year under review 95,335 86,969
Net book value at 31 December of the year under review 33,815 39,609
Insurance for pension commitments Effective 1 July 2003 Hannover Rück SE took out insurance for pension commitments. The commitments involve deferred annuities with regular premium payment under a group insurance policy. In accordance with IAS 19 “Employee Benefits ” they were carried as a separate asset at fair value as at the balance sheet date in an amount of EUR 97.2 million (EUR 94.0 million).
Gross book value at 31 December of the previous year 159,365 157,511
Gross book value at 31 December of the year under review 164,170 159,365
Cumulative depreciation at 31 December of the previous year 129,561 127,858
Cumulative depreciation at 31 December of the year under review 137,167 129,561
Net book value at 31 December of the year under review 27,003 29,804
The changes pursuant to IAS 8 result from the revised recognition of leases in accordance with IFRS 16. For further information we would refer to section 8.8 “Leases”.
Development of other intangible assets N 55 in EUR thousand 2019 2018
Gross book value at 31 December of the year under review 394,088 370,192
Cumulative depreciation at 31 December of the year under review 259,996 240,795
Net book value at 31 December of the previous year 129,397 133,713
A n n u al f in an ci al s ta te m en ts 6.7 Technical provisions
Technical provisions N 56 in EUR thousand gross retro net gross retro net
Loss and loss adjustment expense reserve N 57 in EUR thousand gross retro net gross retro net
Changes in the consolidated group 1,398,836 (2,871) 1,401,707 – – –
Net book value at 31 December of the year under review 32,996,231 2,050,114 30,946,117 28,758,575 2,084,630 26,673,945 1 Excluding effects from portfolio entries / exits recognised in income
The total amount of the net reserve before specific value adjustments was EUR 30,885.5 million (EUR 26,619.3 million) as at the balance sheet date.
Due after one through five years 12,155,030 1,032,938 11,122,092 981,506 58,866 922,640
Due after ten through twenty years 3,204,969 174,164 3,030,805 428,902 53,327 375,575
Development of the benefit reserve N 61 in EUR thousand gross retro net gross retro net
Net book value at 31 December of the year under review 9,028,000 852,598 8,175,402 9,184,356 909,056 8,275,300
The development in the year under review was influenced by portfolio exits attributable principally to Chinese business and UK longevity business.
Reclassifications pursuant to IFRS 5 – – – (564,230) (26,567) (537,663)
Changes in the consolidated group 477,736 (948) 478,684 – – –
The adequacy of the technical liabilities arising out of our reinsurance treaties is reviewed as at each balance sheet date. In the context of the adequacy testing of technical liabilities (liability adequacy test pursuant to IFRS 4 in conjunction with loss recognition test as per US GAAP) the anticipated future contractual payment obligations are compared with the anticipated future income. Should the result of the test indicate that the anticipated future income will not be sufficient to fund future payments, the entire shortfall is recognised in income by first writing off capitalised present values of future profits on acquired life reinsurance portfolios and acquisition costs corresponding to the shortfall. Any remaining difference is constituted as an additional provision.
As at 1 July 2000 the 2000 pension plan came into force for the entire Group. Under this plan, new employees included in the group of beneficiaries are granted an indirect commitment from HDI Unterstützungskasse e.V. This pension plan provides for retirement, disability and surviving dependants’ benefits. The provident fund takes out insurance coverage with HDI Lebensversicherung AG that maps the entire spectrum of benefits (matching coverage). These pension commitments are considered to be contribution-based pension benefits under German employment law, and for economic purposes the pension scheme is classified as a defined benefit plan. The relevant assets of the provident fund are recognised as plan assets.
Employees also have the option to accumulate additional, insurance-type retirement provision by way of deferred compensation. Pension provisions are not recognised in this regard.
The pension progression entails the risk that the anticipated development of the consumer price index factored into the trend assumptions was too low and that increased benefit obligations arise on account of pension indexation required by law.
The movements in the net pension liability for the Group’s various defined benefit plans were as follows: Movements in net liability from defined benefit pension plans N 64 in EUR thousand
Past service cost and plan curtailments 175 725 – – – –
Employee contributions and deferred compensation 4 63 – (5) – –
Projected benefit obligations at 31 December of the financial year 249,636 223,604
In the current financial year Hannover Re anticipates contribution payments of EUR 3.8 million under the plans set out above. The weighted average duration of the defined benefit obligation is 18.2 (18.0) years.
Furthermore, a change is possible with respect to the assumed mortality rates and lifespans. The underlying mortality tables were adjusted by reducing the mortalities by 10% in order to determine the longevity risk. Extending the lifespans in this way would have produced a EUR 7.7 million (EUR 6.6 million) higher pension commitment at the end of the financial year.
Defined contribution plans In addition to the defined benefit plans, some Group companies have defined contribution plans that are based on length of service and the employee’s income or level of contributions.
With effect from this reporting period we are entering into term repurchase agreements (repos) as a supplementary liquidity management tool. The asset portfolios exchanged in this context are fully collateralised. As at the balance sheet date the liabilities from repos recognised in the sundry liabilities amounted to EUR 66.3 million.
Audits and costs of publishing the annual financial statements 6,698 86 6,784 (3) 6,257 5,243 252 – 7 7,550
The maturities of the sundry non-technical provisions as at the balance sheet date are shown in the following table: Maturities of the sundry non-technical provisions N 69 in EUR thousand 2019 2018
On 14 September 2010 Hannover Rück SE placed a subordinated bond on the European capital market through its subsidiary Hannover Finance (Luxembourg) S. A. This subordinated debt of EUR 500.0 million has a maturity of 30 years with a first scheduled call option after ten years and may be redeemed at each coupon date thereafter. The bond carries a fixed coupon of 5.75% in the first ten years, after which the interest rate basis changes to a floating rate of 3-month EURIBOR +423.5 basis points.
Long-term debt and notes payable N 70 in EUR thousand 2019
Net gains and losses from long-term debt and notes payable N 72 in EUR thousand
The ordinary expenses principally include interest expenses of nominally EUR 80.9 million (EUR 76.6 million) resulting from the issued subordinated and senior bonds.
The following table shows the movements in long-term debt, notes payable and other long-term liabilities with respect to cash and non-cash changes.
Other long-term liabilities 39 – (4) – 35 6.13 Shareholders’ equity and treasury shares
The Annual General Meeting of Hannover Rück SE resolved on 8 May 2019 that a gross dividend of EUR 5.25 per share should be paid for the 2018 financial year. This corresponds to a total distribution of EUR 633.1 million (EUR 603.0 million ). The distribution consists of a dividend of EUR 3.75 per share and a special dividend of EUR 1.50 per share.
The disclosures on capital management arising out of IAS 1.134 – 136 “Presentation of Financial Statements” are provided in the “Financial position” section of the management report, to which the reader is referred. This includes both a presentation of our capital management objectives and procedures (page 57 et seq., section entitled “Investment policy ”) and a description of our policyholders’ surplus (page 59 et seq., section entitled “Management of policyholders’ surplus ”), together with a summary of the diverse external capital requirements to which we are subject. The Solvency II regulatory framework, in particular, gives rise to capital requirements and consequences for capital management, which we discuss more closely on pages 93 et seq. of the risk report.
Dividends paid 150,000 151,566 thereof attributable to non-controlling interests 52,813 53,364
Of the impairments totalling EUR 44.0 million (EUR 18.7 million ), an amount of EUR 23.9 million (EUR 15.3 million) was attributable to private equity and EUR 6.9 million (EUR 0.0 million) to a loan. An impairment loss of EUR 11.9 million (EUR 2.9 million) was recognised on real estate and real estate funds.
The portfolio did not contain any overdue, unadjusted assets as at the balance sheet date since overdue securities are written down immediately.
Interest income on investments N 80 in EUR thousand 2019 2018
Making allowance for the other investment expenses of EUR 122.5 million (EUR 114.3 million), net income from assets under own management of altogether EUR 1,550.6 million (EUR 1,322.0 million) was recognised in the year under review.
Other financial assets – – – 63,453 63,453 1 Including income from associated companies, for reconciliation with the consolidated statement of income 2 Excluding other investment expenses
Commissions and brokerage, change in deferred acquisition costs N 85 in EUR thousand 2019 2018
Commissions and brokerage, change in deferred acquisition costs (net) 4,805,447 4,271,736
Other technical expenses (net) – 4,804 7.4 Other income / expenses
Other income / expenses N 87 in EUR thousand 2019 2018 1
The sundry expenses include the amortisation of the PVFP in an amount of EUR 6.7 million (EUR 25.9 million). For details we would refer to section 6.6 “Other assets”.
With regard to the fundamental approach adopted for application of IFRS 15 we would refer to the remarks in section 3.2 “Summary of major accounting policies”.
This involves revenues from administrative services amounting to EUR 21.3 million (EUR 24.2 million) that were generated on the Lloyd’s markets in the United Kingdom and in the Asia-Pacific region. The transaction prices are essentially calculated according to the general fee scales as well as a percentage share of the gross premium. The revenues from the administrative services described here are largely earned over a period of three to four years and for the most part realised pro rata temporis in accordance with the contractual term.
On the North American market revenues of EUR 3.9 million (EUR 3.9 million) were earned from the assumption of administrative tasks. The performance obligation is considered to have been fulfilled when the company has rendered the contractually agreed services. Further revenues as defined by IFRS 15 were generated from the transfer of use of application software used for the underwriting of insurance risks. These amounted to EUR 2.4 million (EUR 1.0 million) and are deemed to be earned over a period of time when the customer makes use of the software. In both cases the transaction price is derived from the contractually agreed contract prices.
In addition, revenues of EUR 10.4 million (EUR 28.0 million) were realised at a point in time in the current financial year from other insurance-related services.
In this context revenues of EUR 7.0 million (EUR 3.0 million) were realised on the South African market which are connected with commission-based business but cannot be characterised as commissions. The transaction price is arrived at as a percentage of the underlying gross premium share. The performance obligation is deemed to be fulfilled at a point in time upon issuance of the insurance certificate for the end customer.
A n n u al f in an ci al s ta te m en ts 7.5 Taxes on income
Breakdown of taxes on income The breakdown of actual and deferred income taxes was as follows: Income tax N 89 in EUR thousand 2019 2018
Deferred tax liabilities 1,746,903 1,245,474 1 Thereof on tax loss carry-forwards: EUR -69,906 thousand (EUR -68,488 thousand)
In view of the unrealised components of profit and loss recognised directly in equity in the financial year, actual and deferred tax expenditure – including amounts attributable to non-controlling interests – of EUR -331.9 million (EUR 186.7 million) was also recognised directly in equity. The following table presents a reconciliation of the expected expense for income taxes with the actual expense for income taxes reported in the statement of income. The pre-tax result is multiplied by the Group tax rate in order to calculate the Group’s expected expense for income taxes.
The expense for income taxes in the financial year was EUR 19.9 million higher than in the previous year at EUR 392.7 million (EUR 372.9 million). Despite a higher pre-tax profit, the effective tax rate of 22.2% (24.6%) was lower than in the previous year due to increased tax-privileged income.
Availability of non-capitalised loss carry-forwards Unused tax loss carry-forwards, deductible temporary differences and tax credits of EUR 1,899.4 million (EUR 2,924.7 million) existed as at the balance sheet date. In the previous year a capitalised loss of USD 332.5 million was recognised for Hannover Life Reassurance Company of America (Bermuda ) Ltd., which at this time was based on an estimation of tax implications. When the tax return was subsequently prepared, management established that the amount of the provisions for tax purposes in 2018 had to be corrected. As a consequence of this, the amount recognised for the loss carry-forwards was also too high by USD 112.1 million. The corrected capitalised loss carry-forward amounts to USD 220.4 million. This did not have any impact on the income recognition and balance sheet reporting. Of existing tax loss carry-forwards, EUR 330.3 million (EUR 329.4 million) was not capitalised in consideration of local tax rates because their realisation is not sufficiently certain.
Excess deferred tax assets are recognised with respect to losses in the year under review or in the previous year only to the extent that, based on strong evidence, it is likely that the company concerned will generate sufficiently positive taxable results in the future. This evidence was provided for deferred tax assets of EUR 21.0 million (EUR 40.5 million).
Availability of loss carry-forwards that have not been capitalised: Expiry of non-capitalised loss carry-forwards and temporary differences N 94 in EUR thousand One to five years Six to ten years More than ten years
Loss carry-forwards – – 8,572 321,715 330,287 8. Other notes 8.1 Derivative financial instruments and financial guarantees
Hannover Re holds derivative financial instruments to hedge interest rate risks from loans connected with the financing of real estate; these gave rise to recognition of other liabilities in an amount of EUR 1.5 million (EUR 0.5 million) and other financial assets at fair value through profit or loss in an amount of EUR 0 million (EUR 0.5 million).
Hannover Re’s portfolio contained derivative financial instruments as at the balance sheet date in the form of forward exchange transactions taken out to hedge currency risks. These transactions gave rise to recognition of other liabilities in an amount of EUR 15.9 million (EUR 6.1 million) and other financial assets at fair value through profit or loss in an amount of EUR 5.9 million (EUR 16.4 million). The increase in equity from hedging instruments recognised directly in equity pursuant to IAS 39 in an amount of EUR 0.3 million (EUR 2.9 million) derived solely from the forward exchange transactions taken out to hedge currency risks from longterm investments in foreign operations. These hedging instruments resulted in the recognition of other financial assets at fair value through profit or loss in an amount of EUR 0.3 million (EUR 3.8 million) and other liabilities of EUR 0.3 million (EUR 0 million). Ineffective components of the hedge were recognised in profit or loss in a negligible amount under other investment income.
In order to hedge the risk of share price changes in connection with the stock appreciation rights granted under the share award plan, Hannover Re has taken out hedges since 2014 in the form of so-called equity swaps. The fair value of these instruments amounted to EUR 5.9 million (EUR 1.0 million ) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss. The hedge gave rise to an increase in equity from hedging instruments recognised directly in equity in an amount of EUR 7.8 million (EUR 0.3 million). Ineffective components of the hedge were recognised in a minimal amount under other investment income.
The net changes in the fair value of these instruments reduced the result of the financial year by EUR 0.7 million (improvement in the result of EUR 3.2 million).
Within the scope of the accounting of “modified coinsurance” and “coinsurance funds withheld” (ModCo) reinsurance treaties, under which securities deposits are held by the ceding companies and payments rendered on the basis of the income from certain securities of the ceding company, the interest -rate risk elements are clearly and closely related to the underlying reinsurance arrangements. Embedded derivatives consequently result solely from the credit risk of the underlying securities portfolio.
A derivative financial instrument was also unbundled from another similarly structured transaction. This gave rise to recognition of other financial assets at fair value through profit or loss in an amount of EUR 25.9 million (EUR 4.8 million).
A number of transactions concluded in the Life & Health reinsurance business group in previous years, under which Hannover Re companies offer their contracting parties coverage for risks from possible future payment obligations arising out of hedging instruments, are also to be classified as derivative financial instruments. The payment obligations result from contractually defined events and relate to the development of an underlying group of primary insurance contracts with statutory reserving requirements. The contracts are to be categorised and recognised as stand-alone credit derivatives pursuant to IAS 39. These derivative financial instruments were carried in equity on initial recognition. Please see section 6.6 “Other assets”. The fair value of these instruments was EUR 43.7 million (EUR 53.2 million) on the balance sheet date and was recognised under other financial assets at fair value through profit or loss. The change in value in subsequent periods is dependent upon the risk experience and led to an improvement of EUR 37.8 million (EUR 32.9 million) in investment income in the financial year.
All in all, application of the standards governing the accounting for derivatives in connection with the technical account led to recognition of assets totalling EUR 228.8 million (EUR 173.9 million) as well as recognition of liabilities in an amount of EUR 39.1 million (EUR 75.9 million) from the derivatives resulting from technical items as at the balance sheet date. Improvements in investment income amounting to EUR 78.0 million (EUR 62.4 million) as well as charges to income of EUR 11.7 million (EUR 14.5 million) were recognised in the year under review from all separately measured derivatives in connection with the technical account.
Talanx AG holds an unchanged majority interest of 50.22% in Hannover Rück SE. For its part, HDI Haftpflichtverband der Deutschen Industrie Versicherungsverein auf Gegenseitigkeit (HDI), Hannover, holds a stake of 79.0% in Talanx AG.
Companies belonging to the Talanx Group granted the Hannover Re Group insurance protection inter alia in the areas of public liability, building, contractors all risks, group accident and business travel insurance. Divisions of Talanx AG also performed services for the Hannover Re Group in the areas of taxes and general administration. Divisions of Hannover Rück SE performed services in connection with the insurance and
Loss and loss adjustment expense reserve 2,770,357 47,002 2,817,359 1,166,164 46,553 1,212,717
With economic effect from 1 July 2019 FUNIS GmbH & Co. KG, Hannover, a wholly owned subsidiary of Hannover Rück
SE, sold all its shares in Svedea AB, Stockholm, to HDI Global Specialty SE, Hannover, a subsidiary of HDI Global SE, for a purchase price of EUR 52.9 million. For details of both transactions please refer to the information provided in section 4.4 “Major disposals and retirements”.
In addition, other assets of EUR 3.4 million (EUR 3.4 million) as well as other liabilities of EUR 41.5 million (EUR 18.3 million ) exist with respect to Talanx AG and its subsidiaries which are not part of the scope of consolidation of Hannover Re.
Within the contractually agreed framework Ampega Asset Management GmbH (name change in January 2019, formerly: Talanx Asset Management GmbH) performs investment and asset management services for Hannover Rück SE and the vast majority of its subsidiaries. A total amount of EUR 43.9 million (EUR 42.2 million) was expensed for the rendering of these services in the financial year just ended. Assets in special funds are managed by Ampega Investment GmbH. Ampega Real Estate GmbH (name change in January 2019, formerly: Talanx Immobilien Management GmbH) performs services for Hannover Re under a number of management contracts.
Hannover Rück SE has concluded agreements with Ampega Asset Management GmbH and with HDI Global Specialty SE
that enable these companies to use software for checking sanctions lists.
Under long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2015 to HDI Service AG, Hannover (name change in January 2019, formerly: Talanx Service AG).
The waiting period for each additional 20% of the stock appreciation rights awarded for this allocation year to a member of the managerial staff is one further 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 Rück SE.
The allocations for the years 2009 to 2011 gave rise to commitments in the 2019 financial year shown in the following table. No commitments exist for years prior to 2009.
Award date 15 March 2012 8 March 2011 15 March 2010
Fair value at 31 December 2019 (in EUR) 32.21 8.92 8.76
Number of rights existing at 31 December 2019 6,807 23,601 –
Provisions at 31 December 2019 (in EUR million) 0.22 0.21 –
In the 2019 financial year the waiting period expired for 100% of the stock appreciation rights awarded in 2009, 2010 and 2011. 5,050 stock appreciation rights from the 2009 allocation year, 46,665 stock appreciation rights from the 2010 allocation year and 6,754 stock appreciation rights from the 2011 allocation year were exercised. The total amount paid out stood at EUR 0.68 million.
On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 0.4 million (EUR 1.1 million) for the 2019 financial year. No expense (EUR 0 million) was recognised in the year under review.
The Share Award Plan replaced the cancelled Stock Appreciation Rights Plan. The share awards do not establish any claim against Hannover Re to the delivery of stock, but merely to payment of a cash amount in accordance with the conditions set out below.
The members of the Executive Board and management of Hannover Re who are eligible recipients under the Share Award Plan are those who have been allowed a contractual claim to the granting of share awards and whose service / employment relationship exists at the time when the share awards are granted and does not end through cancellation or
Provision at 31 December of the year under review 1,895 4,981 7,198 12,187 15,691 – – 41,952
The personnel expense for share awards in the case of members of the Executive Board is spread on an accrual basis across the relevant term of the share awards or the shorter term of the service contracts; in the case of senior executives the personnel expense is spread across the relevant term of the share awards. The allocation of the financial year recognised in the expenditures on personnel totalled altogether
EUR 22.1 million (EUR 14.2 million). This consists of the expense for share awards of the 2019 financial year as well as the dividend claim and the additionally earned portion of the share awards granted in earlier financial years. The value of the share awards finally granted is also influenced by movements in the share price. The sum total of the dividends included in the expenditures on personnel for earlier financial years amounted to EUR 1.6 million (EUR 1.6 million). The distributed dividend is recognised, with no allowance made for expected dividend payments. Dividend claims are recognised in the discounted amounts.
Staff The average number of staff at the companies included in the consolidated financial statement of the Hannover Re Group during the reporting period was 3,151 (3,272). As at the balance sheet date altogether 3,083 (3,317) staff were employed by the Hannover Re Group, with 1,396 (1,426) employed in Germany and 1,687 (1,891) working for the consolidated Group companies abroad.
Expenditures on personnel The expenditures on insurance business, claims expenses (claims settlement) and expenditures on the administration of investments include the following personnel expenditures: Personnel expenditures N 104 in EUR thousand 2019 2018 a) Wages and salaries 281,945 287,012 b) Social security contributions and expenditure on provisions and assistance ba) Social security contributions 20,749 26,928 bb) Expenditures for pension provision 24,245 26,117 bc) Expenditures for assistance 4,281 4,067
Neither in the year under review nor in the previous reporting period were there any dilutive effects. The weighted average of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the balance sheet date. In the context of the employee share option plan Hannover Re acquires treasury shares and sells them at a later date to eligible employees. The weighted average number of shares does not include 16,467 (16,530) treasury shares pro rata temporis for the duration of the holding period. For further details please see our comments in section 6.13 “Shareholders’ equity and treasury shares”.
Dividend per share A dividend of EUR 633.1 million (EUR 603.0 million) was paid in the year under review for the 2018 financial year.
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 4,135.7 million (EUR 3,904.8 million) and EUR 172.4 million (EUR 132.3 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 3,155.7 million (EUR 2,555.3 million) in the form of so-called “single trust funds”. This amount includes a sum equivalent to EUR 2,716.6 million (EUR 2,042.6 million) which was furnished by investors as security for potential reinsurance obligations from ILS transactions.
As part of our business activities we hold collateral available outside the United States in various blocked custody accounts and trust accounts, the total amount of which in relation to the Group’s major companies was EUR 2,994.2 million (EUR 2,915.0 million) as at the balance sheet date.
A number of LoC facilities include standard market contractual clauses that allow the banks rights of cancellation in the event of material changes in our shareholding structure or trigger a requirement on the part of Hannover Re to furnish collateral upon materialisation of major events, for example if our rating is significantly downgraded. Please see also our explanatory remarks in the “Financial position” section of the management report, page 63 et seq., on the information pursuant to § 315a Para. 1 German Commercial Code (HGB).
We put up own investments with a book value of EUR 12.9 million (EUR 5.6 million) as collateral for existing derivative transactions. We received collateral with a fair value of EUR 10.5 million (EUR 15.6 million) for existing derivative transactions.
Leases in the balance sheet N 106 in EUR thousand 2019
The following amounts were recognised in the statement of income in connection with leases.
Amortisation of right-of-use assets in connection with leases N 107 in EUR thousand 2019
The interest expenses for lease liabilities totalled EUR 3.9 million. Expenses in connection with short-term leases were recognised in an amount of EUR 1.2 million. The total amounts payable for leases came to EUR 12.4 million. Non-cancellable future minimum payments payable in connection with leases for which the contract inception date has already occurred but which have still to commence exist in an amount of EUR 4.0 million.
At its meeting on 8 March 2018 the Supervisory Board of Hannover Re appointed PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC GmbH) as the auditor of the consolidated financial statement of Hannover Re as defined by § 318 German Commercial Code (HGB). The expense recognised for the fees paid to PwC GmbH and worldwide member firms of PwC International Limited (PwC) in the year under review can be broken down as follows: Fee paid to the auditor N 109 in EUR thousand
Services relating to auditing of the financial statements 8,345 2,430 7,521 2,671
No significant events beyond the scope of ordinary business activities have occurred since the balance sheet date.
Report on the audit of the consolidated financial statement and the Group management report
We have audited the consolidated financial statements of Hannover Rück SE, Hannover, and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2019, and the consolidated statement of comprehensive income, consolidated statement of profit or loss, consolidated statement of changes in equity and consolidated statement of cash flows for the financial year from 1 January to 31 December 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the group management report of Hannover Rück SE, which is combined with the Company’s management report, for the financial year from 1 January to 31 December 2019. In accordance with the German legal requirements, we have not audited the content of those parts of the group management report listed in the “Other Information” section of our auditor’s report.
We conducted our audit of the consolidated financial statements and of the group management report in accordance with § 317 HGB and the EU Audit Regulation (No. 537/2014, referred to subsequently as “EU Audit Regulation”) in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany]
Key audit matters in the auditing of the consolidated financial statement
Our presentation of these key audit matters has been structured in each case as follows: (a) Matter and issue (b) Audit approach and findings (c) Reference to further information
Hereinafter we present the key audit matters: (1) Fair value measurement of certain financial instruments
(a) In the Company’s consolidated financial statements financial instruments amounting to EUR 58,903.2 million (82,6% of total assets) are reported.
Financial instruments measured using models are subject to an increased measurement risk due to their lower objectivity and the underlying judgments, estimates and assumptions of the executive directors. Since the estimates and assumptions, in particular with regard to interest rates and cash flows, and the valuation methods applied could materially affect the measurement of these financial instruments and the assets, liabilities and financial performance of the Group and also extensive disclosures in the note to the consolidated financial statements on measurement methods and scope of judgments are necessary, this matter was of particular significance in the context of our audit.
With the help of our internal financial mathematics specialists, we also assessed the appropriateness of the methods applied by the executive directors to test the assets for impairment and the inputs used for that purpose. We have compared the methods and assumptions used to calculate valuation adjustments in the financial year with recognized practices and industry standards and ascertained to what extent these are suitable for determining an appropriate accounting treatment.
Based on our audit procedures performed, we were able to satisfy ourselves that the methods and assumptions used by the executive directors to measure certain financial instruments (valued based on models and third-party value indicators) are suitable overall and that the disclosures contained in the notes to the consolidated financial statements are appropriate.
(2) Measurement of provisions for claims outstanding in the property reinsurance business segment
The claims provisions under property reinsurance are estimated taking into account cedant information based on empirical values. The provision is measured based on actuarial methods, which require a sufficiently long data history and stability of the observed data. The mathematical methods use assumptions concerning premiums, ultimate loss ratios and run-off patterns, which are based on an expert estimate derived from past experience. The executive directors calculate the amount of the claims provisions taking into account.
The determination of the claims provision required the use of judgments, estimates and assumptions by the executive directors. Minor changes to those assumptions or to the methods used may have a material impact on the measurement of this provision.
Against this background and also due to the material significance of the amount of this provision for the assets, liabilities and financial performance of the Group, the measurement of this provision was of particular significance in the context of our audit.
(b) Given the significance of claims provisions, as part of our audit we assessed together with our actuaries the methods used by the Company and the assumptions made by the executive directors. The assessment was based on our industry expertise and experience, among other things.
Based on the controls testing, we carried out additional analytical and substantive audit procedures relating to the measurement of the claims provision. In light of the significance of the claims provision for the overall business of the Company, our internal measurement specialists assessed the appropriateness of the methods used by the Company. Furthermore, our internal measurement specialists evaluated the models used by the Company and assumptions made by the executive directors based on industry expertise and experience with recognized actuarial practice. Thereby, we verified the valuation methods for consistency of use.
Based on our audit procedures, we were able to satisfy ourselves that the estimates and assumptions made by the executive directors with respect to the claims provisions are appropriate overall.
Annual appropriateness tests are conducted to verify at the level of portfolios subject to standardized management whether the technical provisions calculated as of the reporting date in accordance with the accounting bases used upon initial recognition, and hence the premium reserve in particular, less existing deferred costs of concluding the policy, are sufficient to cover the present value of future benefits as best estimated at the balance sheet date, less the present value of contributions to be paid in connection with the standardized managed portfolios.
Based on the controls testing, we carried out additional analytical and substantive audit procedures relating to the measurement of the premium reserves. With the help of our actuaries, we have compared the respective actuarial methods applied and the material assumptions with generally recognized actuarial practices and industry standards and ascertained to what extent these are appropriate for the valuation. In our tests of details procedures we evaluated the correct and proper use of the available cedant settlements for calculating the premium reserves. Thereby, we also assessed the appropriateness of the material assumptions by analyzing how the actuarial methods applied were derived.
Based on the tests of appropriateness conducted, we assessed whether the accounting bases and methods were appropriately applied. Where market rates of interest were used in the valuation, we verified the appropriateness of the discount rates used by comparing these with observable market parameters. Given the significance of the business for the Group, we focused in particular on the appropriateness test for the business of covering mortality risks in the USA in the Mortality Solutions division. Furthermore, we analyzed the development of premium reserves as compared to the previous year, particularly in light of the fact that the assumptions consistently correspond to the currently available cedant information, current business developments of the cedants and our expectations based on market observations.
(a) In its consolidated financial statements, the Company reported gross premiums of EUR 22,597.6 million in the income statement.
In context of our tests of details procedures, we critically questioned the material assumptions underlying an estimate and had the Company explain to us the reasons for such estimates. Based on information on the contributions expected in the previous year, we reconciled the expectations against the actual results and thus were able to draw conclusions as to the quality of the estimates.
The executive directors are responsible for the other information. The other information comprises the following non-audited parts of the group management report: • the statement on corporate governance pursuant to § 289f HGB and § 315d HGB included in section “Enterprise management” of the group management report
• the disclosures contained in the group management report and marked as unaudited regarding Solvency II reporting
• is materially inconsistent with the consolidated financial statements, with the group management report or our knowledge obtained in the audit, or
The executive directors are responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition the executive directors are responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
We exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our audit opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Evaluate the appropriateness of accounting policies used by the executive directors and the reasonableness
• Conclude on the appropriateness of the executive directors ’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective audit opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
• Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with German law, and the view of the Group’s position it provides.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.
Independent Practitioner’s Report on a Limited Assurance Engagement on Non-financial Reporting
(PricewaterhouseCoopers GmbH WPG has performed a limited assurance engagement on the German version of the combined Non-financial Statement and issued an independent assurance report in German language, which is authoritative. The following text is a translation of the independent assurance report.)
We have performed a limited assurance engagement on the disclosures in the section “Combined Non-financial Statement ” of the combined Non-financial Statement (hereinafter the “Non-financial Statement”) included in the combined management report pursuant to §§ (Articles) 341a Abs. (paragraph ) 1a und 341j Abs 4 i. V. m. 289b Abs. 1 und 315b Abs. 1 HGB (“Handelsgesetzbuch”: “German Commercial Code”) of Hannover Rück SE, Hannover, (hereinafter the “Company”) for the period from 1 January to 31 December 2019.
The executive directors of the Company are responsible for the preparation of the Non-financial Statement in accordance with §§ 315c in conjunction with 289c to 289e HGB.
Our responsibility is to express a limited assurance conclusion on the Non-financial Statement based on the assurance engagement we have performed.
Within the scope of our engagement, we did not perform an audit on external sources of information or expert opinions, referred to in the Non-financial Statement.
We conducted our assurance engagement in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised): Assurance Engagements other than Audits or
• Inquiries of management and personnel involved in the preparation of the Non-financial Statement regarding the preparation process, the internal control system relating to this process and selected disclosures in the Non-financial Statement
• Comparison of selected disclosures with corresponding data in the consolidated financial statements and in the combined management report
In our function as the Supervisory Board we considered at length during the 2019 financial year the position and development of the company and its major subsidiaries. We advised the Executive Board on the direction of the company and monitored the management of business on the basis of written and verbal reports from the Executive Board. The Supervisory Board of Hannover Rück SE held four regular meetings in order to adopt the necessary resolutions after appropriate discussion. A further meeting was a constituent meeting of the Supervisory Board held following the General Meeting. In addition, the Supervisory Board adopted two resolutions in the reporting period by a written procedure. All the Supervisory Board members attended the Supervisory Board meetings held in 2019 in person. Two representatives of the Federal Financial Supervisory Authority attended one meeting on a routine basis. We were informed by the Executive Board in writing and orally on the basis of the quarterly statements about the course of business as well as the position of the company and the Group. With regard to reports on topics that fall under the responsibility of key functions, we had an opportunity to engage directly in a dialogue with the respective key function holders, who attended parts of the meetings as guests. The quarterly reports with the components of the financial statements and the key figures for the
Hannover Re Group constituted an important source of information for the Supervisory Board. We also regularly held discussions without the presence of the Executive Board, inter alia regarding personnel matters on the level of the Executive Board.
No audit measures pursuant to § 111 Para. 2 Sentence 1 Stock Corporation Act (AktG) were required in the 2019 financial year.
Key points of deliberation At its meeting on 6 March 2019 the Supervisory Board discussed the audited annual and consolidated financial statements as well as the Executive Board’s proposal for the appropriation of the disposable profit for the 2018 financial year. In this regard, as in the previous year, the Executive Board described all material indicators from the technical and non-technical accounts as well as key data on the investment side. The independent auditor directly presented the results of the audit and elaborated on the audit procedure. The Executive Board outlined the prospects for the current 2019 financial year and we discussed the major insights from the compliance, audit and risk reports. Among the steps taken as part of the annual revision of the investment guidelines, adjustments were made inter alia with respect to certain formal and procedural clarifications for the asset managers and specifications regarding limit calculations were described in greater detail. Additionally, the already defined budget for the “impact investment funds” variant of the private equity asset class was included in the procedural stipulations and the thresholds contained in the guidelines. At the recommendation of the Finance and Audit Committee, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft – following its initial appointment in 2017 – was again awarded the mandate to audit the annual financial statements. In preparation for the Annual General Meeting on 8 May 2019, the agenda and the proposal for the election of new shareholder representatives was discussed and approved by the Supervisory Board. In this context consideration was given to the competencies within the entire Supervisory Board as well as aspects relating to diversity and the independence of the members of the Supervisory Board. In concrete terms, the Supervisory Board deliberated on the election of Dr. Michael Ollmann, who also attended the meeting for this purpose as a guest. Furthermore, after extensive consideration and in accordance with the recommendation of the Standing Committee, we appointed Ms. Silke Sehm as a member of the company’s Executive Board to succeed Mr. Jürgen Gräber, whose long-standing commendable service on the Executive Board
Following the General Meeting on 8 May 2019, at which the shareholder representatives were elected, we came together for a constituent meeting. This was also attended for the first time by the employee representatives who had been newly elected by the workforce, namely Ms. Natalie Bani Ardalan, Ms. Ilka Hundeshagen and Ms. Frauke Heitmüller (re-elected ). At the meeting we chose from among our ranks the Chairman and Deputy Chairman as well as the members of the Finance and Audit Committee, the Standing Committee and the Nomination Committee (composition shown on pages 4 to 5 of the Annual Report of Hannover Rück SE). In this regard, particular emphasis was placed on ensuring that the necessary expertise, experience and independence are preserved on the committees.
At the last meeting of the year on 5 November 2019, we deliberated at length on the key preliminary results in the business performance together with the outlook for the current financial year. We were provided with the report on employee capacities. The Executive Board also presented to us the operational planning for 2020; we considered this in detail and subsequently approved the annual / results planning submitted to us. We discussed the latest insights from the risk report and were informed of the status of major pending legal proceedings. In addition, the 100-day report by the Chief Executive Officer on the strategic orientation of Hannover Re and the measures for ensuring profitability during the P&C underwriting process were focal points of our deliberations. The capital increase at a subsidiary was approved in advance. As in every year, the full Supervisory Board considered the adequacy of the remuneration system for the members of the Executive Board. Based on the findings of the “Fit & Proper” self-assessment that had been conducted among the Supervisory Board members and against the backdrop of the new composition of the Supervisory Board, we engaged in an extensive exchange of views on a development plan for the entire Supervisory Board. It was again the case this year that the individual members of the Supervisory Board attended numerous advanced training measures in relation to various core topics and competencies. We also decided to update the policy regarding the specialist and personal requirements for members of the Supervisory Board. Furthermore, we dedicated a significant part of our discussion to corporate governance issues and in this regard we approved the revised diversity concept and the updated Declaration of Conformity (see also further information below).
Corporate Governance The Government Commission on the German Corporate Governance Code (DCKG) adopted an extensive revision of the German Corporate Governance Code in May 2019, although this had not entered into force by year-end. We nevertheless devoted considerable attention to the topic of corporate governance and the proposed changes. For example, the Supervisory Board updated the diversity concept in the year under review (cf. page 124 et seq. of the combined management report in the present Annual Report) and reported on the manner of its implementation as well as the results achieved in the financial year. The diversity on the Supervisory Board and Executive Board was increased accordingly in the financial year and steps were initiated to bring about a further improvement in the coming years.
In addition, the Supervisory Board received a report on the design of the remuneration schemes as well as the compliance, internal audit and risk reports. The Supervisory Board further noted that at least three of its members – namely Dr. Andrea Pollak, Dr. Ursula Lipowsky and Dr. Michael Ollmann – are to be considered independent members of the Supervisory Board.
Notwithstanding the high importance that the Supervisory Board attaches to the standards of good and responsible enterprise management defined in the German Corporate Governance Code as amended on 7 February 2017, the Supervisory Board decided not to fully comply with the recommendations contained in Code Section 4.2.3 Para. 2 regarding caps on the amount of variable compensation elements in management board contracts, in Code Section 4.2.3 Para. 4 concerning a cap on severance payments in management board contracts and in Code Section 5.3.2 Para. 3 Sentence 2 concerning the independence of the Chair of the Audit Committee. Justification for these divergences is provided in the Declaration of Conformity pursuant to § 161 Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code, which is reproduced in the pres-
Audit of the annual financial statements and consolidated financial statements The accounting, annual financial statements, consolidated financial statements and the combined management report were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
We have examined a. the annual financial statements of the company, the financial statements of the Hannover Re Group and the combined management report prepared by the Executive Board for the company and the Group, and b. the report of the Executive Board pursuant to § 312 Stock Corporation Act (AktG) (Report on relations with affiliated companies)
– in each case drawn up as at 31 December 2019 – and have no objections in this regard; nor do we have any objections to the statement made by the Executive Board at the end of the report on relations with affiliated companies.
Changes on the Supervisory Board and the Executive Board Changes occurred in the composition of the Supervisory Board, its committees and the Executive Board in the year under review. The term of office of the company’s Supervisory Board expired pursuant to § 10 (3) of the Articles of Association of Hannover Rück SE at the end of the General Meeting on 8 May 2019. At the suggestion of the Nomination Committee and bearing in mind the targets for the composition of the Supervisory Board, the former Supervisory Board therefore proposed the following persons for election as representatives of the shareholders of the company with effect from the end of the Annual General Meeting on 8 May 2019 for the period until the end of the General Meeting that ratifies the actions taken for the 2023 financial year, although at most for a term of six years: • Herbert K. Haas
Mr. Otto Müller and Ms. Maike Sielaff thus routinely stepped down from the Supervisory Board at this time. The Supervisory Board would like to express its sincere thanks for their good cooperation and the conscientious fulfilment of their duties on the Supervisory Board over the past few years.
On 6 March 2019, following the sudden and entirely unexpected passing of Mr. Jürgen Gräber on 9 November 2018, Ms. Silke Sehm was appointed to the Executive Board. In this connection changes arose in the Board responsibilities for property and casualty reinsurance, which we discussed in conjunction with the appointment and the implementation of which we approved in the context of the revised schedule of responsibilities for the Executive Board. In addition to the areas of structured reinsurance and insurance-linked securities, Ms. Sehm now bears responsibility for French-speaking markets in Europe and the Nordic countries as well as Central and Eastern Europe and the company’s natural catastrophe business. In appointing Ms. Sehm, the Standing Committee and subsequently the full Supervisory Board were able to form a good picture of her extensive personal and specialist competencies. We wish Ms. Sehm every success in her new role and look forward to continued good cooperation going forward.
Dr. Immo Querner Celle (until 8 May 2019) Member of the Board of Management of Talanx AG Member of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Supervisory Board, current term of office for the entire Supervisory Board commenced at the end of the Annual General Meeting on 8 May 2019
Hannover Life Reassurance Company of America (Bermuda) Ltd. Purvis House, First Floor 29 Victoria Street Hamilton, HM 10
Hannover Rück SE Succursale Française 33 Avenue de Wagram 75017 Paris Tel. (Life & Health)
Hannover Rück SE India Branch Unit 604, 6th Floor B Wing, Fulcrum Sahar Road Andheri (East)
Hannover Re (Ireland) Designated Activity Company No. 4 Custom House Plaza, IFSC Dublin 1
Hannover Reinsurance Group Africa (Pty) Ltd. Rosebank Towers Office Level 3 15 Biermann Ave Rosebank, Johannesburg 2196 P.O. Box 85321 Emmarentia 2029
Fax (Life & Health) + 46 8 617-5597 Fax (Property & Casualty) + 46 8 617-5593 Managing Director: Thomas Barenthein
Argenta Holdings Limited 5th Floor 70 Gracechurch Street London EC3V OXL
Glencar Insurance Company 500 Park Blvd., Suite 805 Itasca, Illinois 60143
Acquisition cost, deferred (DAC): cost of an insurance company that arises from the acquisition or the renewal of an insurance contract (e. g. commission for the closing, costs of proposal assessment and underwriting etc.). Capitalisation results in a distribution of the cost over the duration of the contract.
The cost of shareholders’ equity is therefore defined as follows: risk-averse interest rate + beta * enterprise-specific risk assessment.
Derivatives, derivative financial instruments: financial products derived from underlying primary instruments such as equities, fixed-income securities and foreign exchange instruments, the price of which is determined on the basis of an underlying security or other reference asset. Notable types of derivatives include swaps, options and futures.
Dread disease (also: critical illness) cover: personal rider on the basis of which typically a lump-sum cash payment is made in the event of previously defined severe illnesses.
Earnings retention: non-distribution of a company’s profits leading to a different treatment for tax purposes than if profits were distributed.
Insurance-linked securities (ILS): securitised insurance risks, such as catastrophe bonds, derivatives or collateralised reinsurance.
Loss, insured: the insured loss reflects the total amount of losses covered by the insurance industry (insurers and reinsurers ).
Loss ratio: proportion of loss expenditure in the retention relative to the (gross or net) premium earned.
Morbidity risk: in general terms, the actuarial risk that the state of health of a person is adversely impacted by illness, malfunctioning of organs or other body parts (functional disability ), injury or frailty and that higher costs are triggered by medical treatment, long-term care or protracted periods of disability.
Non-proportional reinsurance: reinsurance treaty under which the reinsurer assumes the loss expenditure in excess of a particular amount (priority) (e. g. under an excess of loss treaty). This is in contrast to proportional reinsurance.
Other securities, available-for-sale: securities that cannot be clearly allocated to the “trading” or “held-to-maturity” portfolios; these securities can be disposed of at any time and are reported at their fair value at the balance sheet date. Changes in fair value are not recognised in the statement of income.
Present value of future profits (PVFP): intangible asset primarily arising from the purchase of life and health insurance companies or portfolios. The present value of expected future profits from the portfolio assumed is capitalised and amortised according to schedule.
Quota share reinsurance: form of proportional reinsurance 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.
Securitisation instruments: instruments for transferring reinsurance business to the capital markets with the goal of refinancing or placing insurance risks.
Solvency II: European directive for the insurance industry. The new European regulatory regime for (re)insurers that entered into force on 1 January 2016 on the basis of the Solvency II Directive (Directive 2009 / 138 / EC) is comprised of risk-based capital requirements and imposes quantitative, qualitative and reporting-related requirements in three main areas known as pillars.
Solvency capital ratio: Percentage coverage of the supervisory capital requirement (target solvency capital) under Solvency II by eligible own funds.
Surplus reinsurance: form of proportional reinsurance under which the risk is not spread between the insurer and reinsurer on the basis of a previously agreed, set quota share. Instead, the insurer determines a maximum sum insured per risk up to which it is prepared to be liable. Risks that exceed the ceding company’s retention (surpluses) are borne by the reinsurer. The reinsurer’s lines thus vary according to the level of the retention and the sum insured of the reinsured contract.
Survival ratio: ratio of loss reserves to paid losses under a specific contract or several contracts in a balance sheet year.
Technical result: balance of income and expenditure allocated to the insurance business and shown in the technical statement of income.
M 08 Gross premium by lines of business in 2019 37 M 09 Breakdown of proportional and non-proportional treaties by volume 38 M 10 Breakdown into business written through brokers and direct business 38 M 11 Key figures for Property & Casualty reinsurance 40 M 12 Property & Casualty reinsurance: Major loss trend 41 M 13 Property & Casualty reinsurance: Key figures for individual markets and lines in 2019 41 M 14 Property & Casualty reinsurance: Gross premium in North America by lines of business 42 M 15 Property & Casualty reinsurance: Gross premium in Latin America, Iberian Peninsula and Agricultural Risks by lines of business 43
M 17 Property & Casualty reinsurance: Gross premium in United Kingdom, Ireland and London Market by lines of business 44
M 18 Property & Casualty reinsurance: Gross premium in Continental Europe and Africa by lines of business 45
M 19 Property & Casualty reinsurance: Gross premium in Asia, Australia and the Middle East by lines of business 46
M 20 Property & Casualty reinsurance: Gross premium in Structured Reinsurance and ILS by lines of business 47
M 21 Property & Casualty reinsurance: Gross premium in Facultative Reinsurance and Direct Business by lines of business 47
Hannover Re Group 63 M 39 Financial strength ratings of subsidiaries 63
(economic capital / shareholders’ equity) 102 M 65 Required risk capital at the confidence level of 99.5% 103 M 66 Required risk capital for underwriting risks in property and casualty reinsurance 103 M 67 Required risk capital for four natural hazards scenarios 103 M 68 Survival ratio in years and reserves for asbestos-related claims and pollution damage 104 M 69 Stress tests for natural catastrophes after retrocessions 104
M 90 Total expense for share-based remuneration of the active members of the Executive Board 134
M 91 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 1 (target / minimum / maximum remuneration as nominal amounts) 136
M 93 Pension commitments 141 M 94 Individual remuneration received by the members of the Supervisory Board 142 M 95 Group of participants and total number of eligible participants in variable remuneration systems 145
N 01 Consolidated balance sheet as at 31 December 2019 158
change in accounting policy 171 N 08 Reconciliation of lease liabilities at the date of initial application 171 N 09 Changes pursuant to IAS 8 –
N 20 Maturities of the fixed-income and variable-yield securities 203 N 21 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value 2019 204
N 25 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value 2019 206
N 27 Fair value of financial assets at fair value through profit or loss before and after accrued interest as well as accrued interest on such financial assets 208
N 28 Carrying amounts before impairment 208 N 29 Rating structure of fixed-income securities 2019 209 N 30 Rating structure of fixed-income securities 2018 209 N 31 Breakdown of investments by currencies 2019 210 N 32 Breakdown of investments by currencies 2018 211 N 33 Financial information on investments in associated companies 212 N 34 Investments in associated companies 212 N 35 Development of investment property 213 N 36 Fair value hierarchy of financial assets and liabilities recognised at fair value 2019 215 N 37 Fair value hierarchy of financial assets and liabilities recognised at fair value 2018 215 N 38 Movements in level 3 financial assets and
N 40 Income and expenses from level 3 financial assets and liabilities 2019 217 N 41 Income and expenses from level 3 financial assets and liabilities 2018 217 N 42 Fair value hierarchy of financial assets and liabilities measured at amortised cost 2019 218 N 43 Fair value hierarchy of financial assets and liabilities measured at amortised cost 2018 218 N 44 Fair value disclosures for financial assets 2019 219 N 45 Fair value disclosures for financial assets 2018 219 N 46 Rating structure of financial assets that give rise to solely payments of principal and interest 220 N 47 Development of deferred acquisition costs 221 N 48 Age structure of overdue accounts receivable 221 N 49 Value adjustments on accounts receivable 221 N 50 Development of goodwill 222 N 51 Capitalisation rates 222 N 52 Other assets 223 N 53 Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios 224
N 63 Measurement assumptions 233 N 64 Movements in net liability from defined benefit pension plans 234 N 65 Provisions for pensions 235 N 66 Effect on the defined benefit obligation 235 N 67 Other liabilities 236 N 68 Development of sundry non-technical provisions 236 N 69 Maturities of the sundry non-technical provisions 236 N 70 Long-term debt and notes payable 2019 238 N 71 Long-term debt and notes payable 2018 239 N 72 Net gains and losses from long-term debt and notes payable 239 N 73 Maturities of financial liabilities 2019 239 N 74 Maturities of financial liabilities 2018 240 N 75 Reconciliation of financing liabilities 2019 240 N 76 Reconciliation of financing liabilities 2018 240 N 77 Subsidiaries with material non-controlling interests 242 N 78 Gross written premium 243 N 79 Investment income 244 N 80 Interest income on investments 244 N 81 Net gains and losses on investments 2019 245 N 82 Net gains and losses on investments 2018 245 N 83 Reinsurance result 246 N 84 Other technical income 246 N 85 Commissions and brokerage, change in deferred acquisition costs 247 N 86 Other technical expenses 247 N 87 Other income / expenses 247 N 88 Revenue categories 248 N 89 Income tax 249
N 93 Reconciliation of the expected expense for income taxes with the actual expense 251
Publication of the annual financial statements 2019 Annual Results Press Conference, Hannover Analysts’ Meeting, webcast
Publication of the annual financial statements 2020 Annual Results Press Conference, Hannover Analysts’ Meeting, webcast www.hannover-re.com