Allocation to the equalisation reserve and similar provisions (694.0) +229.5% (210.6) 25.3 165.9 8.7
Equalisation reserve and similar provisions 3,771.4 +22.6% 3,077.4 2,866.8 2,892.1 3,058.0
Total capital, reserves and technical provisions 37,586.4 -0.8% 37,880.9 34,674.8 33,358.4 34,011.8 1 Excluding disposable profit 2 Excluding life and health reinsurance
B oa rd s an d o ff ic er s N
Jean-Jacques Henchoz Chairman of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Board of Management Talanx AG, Hannover, Germany Chairman of the Board of Directors Hannover Life Reassurance Company of America, Orlando, USA Chairman of the Board of Directors Hannover Re (Bermuda) Ltd., Hamilton, Bermuda Chairman of the Board of Directors Hannover Re (Ireland) Designated Activity Company, Dublin, Ireland Member of the Board of Directors Hannover Life Re of Australasia Ltd, Sydney, Australia
Sven Althoff Member of the Executive Board Hannover Rück SE, Hannover, Germany Chairman of the Board of Directors Argenta Holdings Limited, London, United Kingdom Chairman of the Board of Directors Hannover ReTakaful B.S.C. (c), Manama, Bahrain Member of the Board of Directors Argenta Syndicate Management Limited, London, United Kingdom Member of the Board of Directors Hannover Re Services Japan, Tokyo, Japan
Clemens Jungsthöfel (since 1 September 2020) Member of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Hannover Finance, Inc., Wilmington, USA (since 30 September 2020) Chairman of the Board of Directors Hannover Finance (Luxembourg) S.A., Leudelange, Luxembourg (since 1 October 2020) Deputy Chairman of the Board of Directors Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda (since 30 September 2020) Member of the Supervisory Board Ampega Asset Management GmbH, Cologne, Germany (since 1 October 2020 Deputy Chairman) Member of the Board of Directors Hannover Life Reassurance Company of America (Bermuda) Ltd., Hamilton, Bermuda (since 1 October 2020) Member of the Board of Directors Hannover Life Reassurance Company of America, Orlando, USA (since 30 September 2020) Member of the Board of Directors Hannover Re (Bermuda) Ltd., Hamilton, Bermuda (since 1 October 2020)
B oa rd s an d o ff ic er s
Dr. Klaus Miller Member of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Bristol Re Ltd., Hamilton, Bermuda (since 19 October 2020) Chairman of the Board of Directors Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda Chairman of the Board of Directors Hannover Life Reassurance Company of America (Bermuda) Ltd., Hamilton, Bermuda Chairman of the Board of Directors Kubera Insurance (SAC) Ltd., Hamilton, Bermuda Vice Chairman of the Board of Directors Hannover Life Reassurance Company of America, Orlando, USA Member of the Board of Directors Hannover Re (Ireland) Designated Activity Company, Dublin, Ireland Member of the Supervisory Board Proxalto Lebensversicherung AG, Munich, Germany Member of the Supervisory Board Viridium Holding AG, Neu-Isenburg, Germany Member of the Advisory Board Viridium Group GmbH & Co. KG, Neu-Isenburg, Germany
Dr. Michael Pickel Member of the Executive Board Hannover Rück SE, Hannover, Germany Chairman of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Glencar Insurance Company, Orlando, USA Chairman of the Board of Directors Glencar Underwriting Managers, Inc., Chicago, USA Chairman of the Board of Directors Hannover Re Services Italy S.r.l., Milan, Italy Chairman of the Board of Directors Hannover Re Services USA, Inc., Illinois, USA Member of the Board of Directors Hannover Re Holdings (UK) Limited, London, United Kingdom (since 1 August 2020) Member of the Supervisory Board Delvag Luftversicherungs-AG, Cologne, Germany 1
Roland Vogel (until 30 September 2020) Member of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Hannover Finance, Inc., Wilmington, USA (until 30 September 2020) Chairman of the Board of Directors Hannover Finance (Luxembourg) S.A., Leudelange, Luxembourg (until 30 September 2020) Chairman of the Board of Directors Hannover Finance (UK) Limited, London, United Kingdom (until 30 September 2020) Deputy Chairman of the Board of Directors Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda (until 30 September 2020) Chairman of the Advisory Board Hannover Finanz GmbH, Hannover, Germany Deputy Chairman of the Supervisory Board Ampega Asset Management GmbH, Cologne, Germany (until 30 September 2020) Member of the Board of Directors Hannover Life Reassurance Company of America (Bermuda) Ltd., Hamilton, Bermuda (until 30 September 2020) Member of the Board of Directors Hannover Life Reassurance Company of America, Orlando, USA (until 30 September 2020) Member of the Board of Directors Hannover Re (Bermuda) Ltd., Hamilton, Bermuda (until 30 September 2020) Member of the Board of Directors Meribel Mottaret Limited, St. Helier, Jersey (until 30 September 2020) Member of the Supervisory Board HDI Global Specialty SE (until 1 March 2020), Hannover, Germany 1
Member of the Administrative Board HDI Global Specialty SE (since 2 March 2020), Hannover, Germany 1
Member of various Supervisory Boards Member of the Supervisory Board HDI Global SE, Hannover, Germany Member of the Supervisory Board HDI International AG, Hannover, Germany
Member of various Supervisory Boards Member of the Supervisory Board BDO AG, Hamburg, Germany Member of the Supervisory Board HDI Haftpflichtverband der Deutschen Industrie V.a.G., Hannover, Germany Member of the Supervisory Board RWE AG, Essen, Germany Member of the Supervisory Board Talanx AG, Hannover, Germany 1 Member of the Standing Committee 2 Member of the Finance and Audit Committee 3 Member of the Nomination Committee 4 Staff representative 5 Memberships of supervisory boards and comparable control boards required by law at other companies in Germany and abroad 6 Date when member was first appointed / elected to the company‘s Supervisory Board, current term of office for the entire Supervisory Board commenced at the end of the Annual General Meeting on 8 May 2019
Balance sheet as at 31 December 2020 Assets in EUR thousand 2020 2019
II. Investments in affiliated companies and participating interests 1. Shares in affiliated companies 7,395,963 7,467,536 2. Loans to affiliated companies 576,662 654,651 4. Loans to enterprises in which the company has a participating interest 78,535 83,333
III. Other financial investments 1. Shares, units or shares in investment funds and other variable-yield securities 1,798,169 1,590,335 2. Bearer debt securities and other fixed-income securities 19,820,748 20,587,443 3. Other loans a) Registered debt securities 397,791 348,233 b) Debentures and loans 344,865 392,924 4. Deposits with banks 621,807 357,329
I. Provision for unearned premiums 2. Less: reinsurance ceded 830,488 665,391
III. Provisions for outstanding claims 2. Less: reinsurance ceded 5,746,629 5,673,528
d) Change in the provisions for unearned premiums, retrocessionaires’ share 236,474 258,123 2. Allocated investment return transferred from the non-technical account, net of retrocession 189,357 137,460 3. Other technical income, net of retrocession – –
4. Claims incurred, net of retrocession a) Claims paid aa) Gross 12,888,968 10,720,395 bb) Retrocessionaires’ share 3,930,839 3,127,475 b) Change in provisions for outstanding claims aa) Gross (1,404,634) (1,980,037)
3. Allocated investment return transferred to the technical account (196,977) (143,457)
Property is valued at the purchase or construction cost less depreciation in accordance with the normal operational useful life. Impairments are taken only if the reduction in value will probably be permanent (§ 253 (3) Sentence 5 of the Commercial Code (HGB)).
The portfolio of securities is allocated to fixed assets or current assets depending on the intended use and valued at purchase cost less write-downs to the lower fair value in accordance with the provisions of § 341 b of the Commercial Code (HGB).
Other investments are allocated to fixed assets or current assets and valued at purchase cost less write-downs to the lower fair value in accordance with the requirements of § 341 b of the Commercial Code (HGB). Valuation is made according to the strict or modified lower-of-cost-or-market principle depending on the intended use.
Derivative instruments are valued on a mark-to-market basis. Forward exchange transactions, cross currency swaps and inflation total return swaps are subject to a reporting prohibition based on the principle of not recognising pending transactions. Provisions for anticipated losses from pending transactions are established in the event of negative fair values as at the balance sheet date.
Fixed assets are valued at purchase cost less straight-line or declining-balance depreciation according to the normal operational useful life. Low-value items are written off in the year of acquisition.
Write-ups are made in accordance with § 253 (5) of the Commercial Code (HGB).
Valuation of liabilities The provision for unearned premiums, life assurance provision, provisions for outstanding claims, provisions for bonuses and rebates and other technical provisions are entered as liabilities according to the information provided by the ceding companies.
The catastrophe risk provision for terrorism is calculated in accordance with § 30 (2a) of the Regulation on the Accounting of Insurance Undertakings (RechVersV).
The provisions for taxation and other provisions take into account all identifiable risks and uncertain liabilities.
Deferred taxes are calculated using a tax rate of 32.63%. Deferred tax liabilities, which refer largely to the balance sheet items shares in affiliated companies, receivables from affiliated companies and participating interests (owing to diverging recognition of shares in partnerships and booking of income from participating interests in a different accounting period), are netted in particular with deferred tax assets from the balance sheet item “Provisions for outstanding claims”. No deferred taxes are recognised in view of the surplus of deferred tax assets.
The deposits received from retrocessionaires and other liabilities are valued at the settlement amounts.
In addition, the provisions for currency risks from past balance sheet dates are written back on a year-by-year basis.
B. I. Land and buildings, rights to land and buildings, leasehold 30,850 1,558 – – – 854 – 31,554
B. II. Investments in affiliated companies and participating interests 4. Loans to enterprises in which the company has a participating interest 83,333 – – 1 – – (4,797) 78,535
B. III. Other financial investments 1. Shares, units or shares in investment funds and other variable-yield securities 1,590,335 601,457 – 335,531 – 10,222 (47,870) 1,798,169 2. Bearer debt securities and other fixed-income securities 20,587,443 10,210,129 – 9,861,901 1,458 11,912 (1,104,469) 19,820,748 3. Other loans
On 31 December 2020 the company had at its disposal six developed properties with commercial and other buildings in Hannover and near Paris as well as one floor of offices in Madrid. The book value of the floor of offices in Madrid amounted to EUR 655 thousand (EUR 671 thousand) as at 31 December 2020; the book value of the developed property near Paris was EUR 928 thousand (EUR 959 thousand). Five buildings in Hannover with a book value of EUR 29,971 thousand (EUR 29,220 thousand) are for own use.
Result for the last financial year Figures in currency units of 1,000
holds 100.00% of the shares in: Hannover Re (Bermuda) Ltd., Hamilton / Bermuda USD 1,484,571 261,033 holds 100.00% of the shares in: Hannover Re (Ireland) Designated Activity Company, Dublin / Ireland USD 775,712 16,494 holds 100.00% of the shares in: Hannover Life Re of Australasia Ltd., Sydney / Australia AUD 541,551 12,026
Hannover Re Euro PE Holdings GmbH & Co. KG, Hannover / Germany 74.99 EUR 421,461 43,062
HILSP Komplementär GmbH 2, Hannover / Germany 100.00 EUR 27 (1)
FUNIS GmbH & Co. KG, Hannover / Germany 100.00 EUR 103,348 8,248 holds 100.00% of the shares in: Integra Insurance Solutions Limited, Bradford / United Kingdom GBP 7,018 397 holds 30.00% of the shares in: Reaseguradora del Ecuador S.A., Guayaquil / Ecuador USD 20,171 3,489 holds 20.00% of the shares in: Monument Insurance Group Limited 1, Hamilton / Bermuda GBP – –
holds 15.00% of the shares in: SWISS INSUREVOLUTION PARTNERS Holding (CH) AG 1, Zurich / Switzerland CHF – –
Inter Hannover (No.1) Limited, London / United Kingdom 100.00 GBP – –
Hannover Re Global Alternatives GmbH & Co. KG, Hannover / Germany 85.00 EUR 481,436 (10,382)
holds 100.00% of the shares in: PAG Real Estate Asia Select Fund Limited, George Town / Cayman Islands USD 210,919 2,039 holds 99.99% of the shares in: HR US Infra Debt LP, George Town / Cayman Islands USD 249,233 10,345
HDI Global Specialty SE, Hannover / Germany 49.78 EUR 238,327 (17,435)
Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg / South Africa 100.00 ZAR 252,060 78 holds 100.00% of the shares in: Hannover Life Reassurance Africa Limited, Johannesburg / South Africa ZAR 1,027,288 135,564
Leine Investment General Partner S.à.r.l., Luxembourg / Luxembourg 100.00 EUR 714 584 holds 100.00% of the shares in: LI RE, Hamilton / Bermuda USD – –
Argenta Holdings Limited, London / United Kingdom 100.00 GBP 56,030 3,129 holds 100.00% of the shares in: Argenta Private Capital Limited, London / United Kingdom GBP 3,244 1,045 holds 100.00% of the shares in: Argenta Syndicate Management Limited, London / United Kingdom GBP 4,553 2,506 holds 100.00% of the shares in: Argenta Tax & Corporate Services Limited, London / United Kingdom GBP 458 381 holds 100.00% of the shares in: Argenta Underwriting Asia Pte. Ltd., Singapore / Singapore SGD 2,441 971 holds 100.00% of the shares in: Argenta Underwriting No.1 Limited, London / United Kingdom GBP 22 –
holds 100.00% of the shares in: Argenta Underwriting No.4 Limited, London / United Kingdom GBP (152) –
holds 100.00% of the shares in: Argenta Underwriting No.7 Limited, London / United Kingdom GBP – –
holds 100.00% of the shares in: Argenta Underwriting No.9 Limited, London / United Kingdom GBP 31 (520)
holds 100.00% of the shares in: Argenta No.14 Limited, London / United Kingdom GBP – –
holds 100.00% of the shares in: Argenta No.15 Limited, London / United Kingdom GBP – –
Hannover Re Real Estate Holdings, Inc., Orlando / USA 86.50 USD 1,006,788 (370)
holds 99.99% of the shares in: HR US Infra Equity LP, Wilmington / USA USD 90,269 (1,374)
holds 99.90% of the shares in: GLL HRE CORE Properties L.P., Wilmington / USA USD 800,978 (269)
Hannover ReTakaful B.S.C. (c), Manama / Bahrain 5.00 BHD 77,127 8,477
HANNOVER Finanz GmbH 1, Hannover / Germany 27.78 EUR 63,434 4,449
1 Financial year ending 31 December 2019 2 Financial year ending 30 September 2020 3 Financial year ending 31 July 2019
As at 31 December 2020 the company held shares in affiliated companies with a book value of EUR 7,395,963 thousand (EUR 7,467,536 thousand). Write-downs of EUR 5,930 thousand (EUR 21 thousand) were not taken on shares in affiliated companies with a book value of EUR 117,978 thousand (EUR 158 thousand) because the impairments in question are purely temporary. Based on the assumption that impairments on loans to affiliated companies will not be permanent and are attributable to the underlying measurement parameters, write-downs of EUR 0 thousand (EUR 48 thousand) were not taken on a portfolio with a book value of EUR 0 thousand (EUR 22,845 thousand). Write-downs of EUR 1,356 thousand (EUR 0 thousand) were not taken on participating interests with a book value of EUR 18,188 thousand (EUR 0 thousand) because the impairments in question are purely temporary.
The securities totalling EUR 1,744,324 thousand (EUR 1,534,455 thousand) shown under the “Other financial investments ” in the item “Shares, units or shares in investment funds and other variable-yield securities” were allocated to fixed assets. The fair value of these holdings amounted to EUR 2,152,932 thousand (EUR 1,836,790 thousand). Based on the assumption that the impairments will not be permanent, write-downs of EUR 10,475 thousand (EUR 9,967 thousand ) were not taken on a portfolio with a book value of EUR 99,642 thousand (EUR 124,520 thousand). In the case of shares and investment fund certificates, a separate and standardised method is used to check the permanence of the impairment.
Altogether, bearer debt securities and other fixed-income securities with a book value of EUR 16,763,624 thousand (EUR 16,149,445 thousand) and a fair value of EUR 17,896,111 thousand (EUR 16,755,960 thousand) were allocated to fixed assets. Write-downs of EUR 14,750 thousand (EUR 51,285 thousand) were not taken on bearer debt securities with a book value of EUR 1,523,440 thousand (EUR 3,004,391 thousand ). Given that there were no indications of issuer default, it is expected that the nominal value will be repaid in full upon maturity and hence a permanent impairment is not anticipated. The holdings that were not written down to fair value relate inter alia to CDO / CLO investments. Model-based fair value measurement, making allowance for applicability criteria and verification of compliance with collateral tests of the respective higher tranches, is used to test for impairment of the carrying amounts.
Based on determination of the fair value as at 31 December 2020, no requirement to recognise a permanent impairment on registered debt securities with a book value of EUR 10,000 thousand (EUR 159,080 thousand) was identified. There were no indications of issuer default, and hence write-downs of EUR 537 thousand (EUR 2,407 thousand) were not taken.
Assets with a balance sheet value of EUR 6,912,925 thousand (EUR 7,259,361 thousand) are blocked in favour of companies.
Current values pursuant to § 54 of the Regulation on the Accounting of Insurance Undertakings (RechVersV)
Deposits with banks and other investments are carried at nominal values and in individual cases at book value.
B. I. Land and buildings, rights to land and buildings, leasehold 31,554 53,710 22,156
B. II. Investments in affiliated companies and participating interests 1. Shares in affiliated companies 7,395,963 12,242,897 4,846,934 2. Loans to affiliated companies 576,662 597,768 21,106 4. Loans to enterprises in which the company has a participating interest 78,535 79,468 933
Amount of capital stock attributable to the shares (EUR) 16,511.00 16,511.00
The company’s capital reserve remained unchanged as at 31 December 2020 in the amount of EUR 880,608 thousand. The capital reserve refers solely to the amount generated upon the issue of shares in excess of the par value of the subscribed capital.
The retained earnings were unchanged as at 31 December 2020 in an amount of EUR 630,511 thousand. They were reduced by EUR 529 thousand due to the issue of employee shares and an amount of EUR 529 thousand was allocated to retained earnings from the 2020 profit for the year. Pursuant to § 268 (8) Sentence 3 in conjunction with Sentence 1 of the Commercial Code (HGB) there is a restriction on distribution of EUR 37 thousand (EUR 33 thousand) for the excess of fair value over historical cost of the assets used to cover retirement benefit obligations less corresponding deferred tax liabilities.
The disposable profit for the financial year includes a profit carried forward from the previous year of EUR 713,716 thousand.
Under a loan agreement dated 15 September 2010 Hannover Finance (Luxembourg) S.A. granted Hannover Re a junior loan of EUR 500,000 thousand at a coupon of 5.85% and with a maturity date of 11 September 2040 as well as a first call option as at 11 September 2020. This was exercised in the 2020 financial year.
Under a loan agreement dated 19 November 2012 Hannover Finance (Luxembourg) S.A. granted Hannover Re a junior loan of EUR 500,000 thousand at a coupon of 5.131% and with a maturity date of 20 November 2042 as well as a first call option as at 20 June 2023.
On 9 October 2019 Hannover Re placed further subordinated debt in an amount of EUR 750,000 thousand on the capital market at a coupon of 1.125% and with a maturity date of 9 October 2039 as well as a first scheduled call option on 9 July 2029.
The difference between the discounting of the pension obligations with the average market interest rate of the last ten years compared to discounting with the average market interest rate of the last seven years – allowing for deferred tax liabilities – was EUR 8.9 million (EUR 8.8 million).
Assets and the associated expenses and income were offset pursuant to § 246 (2) Sentence 2 of the Commercial Code (HGB) with respect to the provisions for pensions and the provision for partial retirement. Pension liabilities and pension insurance policies were netted in an amount of EUR 187 thousand (EUR 183 thousand). The provision for partial retirement of EUR 3,656 thousand (EUR 2,357 thousand) was netted with plan assets with a fair value of EUR 1,508 thousand (EUR 652 thousand) pursuant to § 246 (2) of the Commercial Code (HGB). In this connection, income of EUR 7 thousand (EUR 29 thousand) was offset against total expenses of EUR 5 thousand (EUR 4 thousand).
The plan assets for partial retirement were measured pursuant to § 253 (1) Sentence 3 of the Commercial Code (HGB) on the basis of fair values. The acquisition cost of the plan assets amounted to EUR 1,494 thousand (EUR 1,484 thousand).
In accordance with the disclosure required pursuant to § 27 (3) and (4) of the Regulation on the Accounting of Insurance Undertakings (RechVersV), insurance contracts with the HDI property / casualty group are booked with a time delay of one month. The premium volume for 2020 amounts to altogether EUR 854.6 million (EUR 822.6 million). Of this, EUR 2.7 million (EUR 0.7 million) relates to the month of December 2019.
In addition to the audit of the annual financial statement and management report as at 31 December 2020, the independent auditor reviewed the reporting package compiled in accordance with International Financial Reporting Standards
Payment of a dividend of EUR 4.50 on each eligible no-par value share 542,687,103.00
As security for technical liabilities, various financial institutions have furnished sureties for our company in the form of letters of credit. The total amount of the letters of credit, which also provide security for subsidiaries, was EUR 2,200.1 million (EUR 2,359.7 million) as at the balance sheet date.
Outstanding capital commitments with respect to special investments and shares in affiliated companies exist in the amount of EUR 292.1 million (EUR 405.1 million).
Hannover Re has provided guarantees of altogether USD 6,089.1 million (USD 5,996.4 million) to third parties for affiliated companies. The term of the guarantees is determined in each case by the secured liabilities of the affiliated company. Hannover Re receives guarantee commissions for this. In addition, a guarantee of GBP 10.0 million (GBP 10.0 million) was furnished. Furthermore, there are financial commitments to affiliated companies in an amount of USD 250.0 million (USD 400.0 million), payment obligations to subsidiaries in South Africa based on the insurance and reinsurance contracts that they have written and a contingent liability in relation to our Australian subsidiary in connection with a financing instrument. A long-term compensation obligation in an amount of EUR 6,350 thousand (EUR 3,380 thousand) exists with respect to HDI Unterstützungskasse.
The particulars for the Executive Board and Supervisory Board are provided on pages 2 to 5.
On 3 November 2020 the Executive Board and Supervisory Board of Hannover Rück SE submitted an updated Declaration of Conformity pursuant to § 161 of the Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code and made it permanently accessible on the company’s website (www.hannover-re.com/200801/declaration -of-conformity).
The company‘s portfolio also includes 20 forward exchange transactions in notional amounts of HKD 640.0 million (USD 82.4 million), HKD 1,010.8 million (TWD 3,357.0 million), PHP 1,059.2 million (USD 20.9 million), IDR 379.0 billion (USD 25.0 million), KRW 25.2 billion (EUR 21.0 million), INR 4,969.3 million (USD 64.9 million), AUD 520 million (EUR 299.4 million), AUD 44.0 million (USD 31.6 million) and CAD 139.7 million (EUR 89.1 million) with different maturity dates (the last transaction runs until 2027) that are not combined into valuation units. Risks underlying the transactions are transferred to the branches in Hong Kong and Malaysia or remain with Hannover Re in Germany. The negative fair values of EUR 1.8 million (USD 1.5 million), EUR 13.3 million (AUD 21.3 million) and EUR 0.7 million (TWD 24.6 million) are carried in full on the liabilities side of the balance sheet as a provision for anticipated losses. The calculation is made on the basis of yield curves as well as spot and forward rates using the interest rate parity model.
The stock participation rights granted in the form of virtual shares (share awards) in an amount of EUR 16.8 million were hedged by equity swaps in the financial year. The hedge is effected at the level of tranches and on a rolling basis with a maturity of three months until the share awards are paid out after five years. The hedged risk amounts to EUR 3.8 million. The underlying and the hedge were combined in a single valuation unit pursuant to § 254 of the Commercial Code (HGB). The offsetting changes in value are not recognised in the profit and loss account (net hedge presentation method). The effectiveness derives from the parallelism between the payments from the equity swaps and the change in value of the Hannover Re share. Effectiveness is measured retrospectively through the change in value of equity swaps and share awards. In April 2020 share awards with a value of EUR 7.0 million were paid out. Hedging through equity swaps resulted in a positive earnings effect of EUR 2.4 million.
Independent Auditor’s Report (Translation of the auditor`s report issued in German language of the annual/consolidated financial statements prepared in German language by the management of Hannover Rück SE)
Report on the audit of the annual financial statements and of the management report
scribed in the “Auditor’s Responsibilities for the Audit of the Annual Financial Statements and of the Management Report” section of our auditor’s report. We are independent of the Company in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the annual financial statements and on the management report.
Key Audit Matters in the Audit of the Annual Financial Statements
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the annual financial statements for the financial year from January 1 to December 31, 2020. These matters were addressed in the context of our audit of the annual financial statements as a whole, and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.
(14.5% of total assets) are reported under the “Technical provisions” balance sheet item in the Company’s annual financial statements. The premium reserve was recognized primarily for the reinsurance activities in the life and health reinsurance segments.
The premium reserve in accordance with German commercial law is measured by using actuarial methods to derive the present value of future benefits to cedants, less the present value of premiums still to be paid by cedants in accordance with the principle of prudence and the realization principle set out in German commercial law in accordance with the relevant requirements of commercial and prudential law. Depending on the structure of the relevant policy and the regular business, the calculation is based either on a combination of previous cedant settlements, where necessary adjusted to account for estimates of the course of the policy for settlement periods not yet settled or based on model-driven own calculations of the premium reserve. The measurement also takes into account estimates of valuation parameters, particularly with respect to the biometric accounting bases to be recognized such as probabilities for mortality and longevity, where applicable including trends, invalidity and socioeconomic factors such as assumed behaviors on the part of the policyholders (e.g., cancellation). This also includes the expected impact of the ongoing coronavirus crisis on the premium reserves.
The estimate of the sufficiency of the reported premium reserves, the estimates made in the absence of cedant settlements as well as model-driven calculations of the premium reserve is subject to considerable discretion to be exercised by the executive directors and the associated estimate uncertainties.
In light of this and due to the material significance of the amount of the premium reserves for the assets liabilities and financial performance of the Company and the complexity of the underlying calculations, this matter was of particular significance in the context of our audit.
For the purposes of the assessment, we also evaluated the design and effectiveness of the controls established by the Company for the purpose of calculating and recording the premium reserves. We focused in particular on controls designed to ensure that new products and policies are correctly classified and that changes in assumptions are correctly implemented in the systems.
Based on our audit procedures, we were able to satisfy ourselves that the estimates and assumptions made by the executive directors for the purpose of measuring the premium reserves are appropriate overall.
(b) Given the significance of the claims provision, as part of our audit we worked with our actuaries to assess 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.
Among other things, we assessed the appropriateness of the structure of the process for recognizing reserves and carried out functional audits in order to assess the effectiveness of the internal controls. We focused in particular on controls designed to ensure that the data used are appropriate and complete and that the calculation process is subject to a sufficient form of quality assurance.
(3) Calculation of estimated gross premium (a) In its annual financial statements, the Company reported gross premiums of EUR 19,217.0 million in the income statement.
Acquired reinsurance premiums are accounted for in accordance with the terms and conditions of the reinsurance policies. In the absence of invoices for cedants, the Company made supplementary or complete estimates of the contributions. Of the total gross premiums recognized, approximately EUR 6,568.4 million (34.18%) were estimated. The estimates are based on assumptions and are therefore subject to considerable uncertainty and judgment, including with respect to the impact of the coronavirus.
Due to the material significance of the estimated premiums for the net assets and results of operations of the Company as well as the considerable scope for judgment on the part of the executive directors and the associated uncertainties in the estimations made, this matter was of particular significance in the context of our audit.
In tests of details, we critically reviewed the material assumptions underlying an estimate and asked the Company to explain to us the grounds for such estimates. Based on information on the contributions expected in the previous year, we reconciled the expectations against the actual events and thus were able to draw conclusions as to the quality of the estimates.
Based on our audit procedures, we were able to satisfy ourselves that the calculation procedures used to derive the estimated gross premium are appropriate overall.
• is materially inconsistent with the annual financial statements, with the management report or our knowledge obtained in the audit, or
In preparing the annual financial statements, the executive directors are responsible for assessing the Company’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting, provided no actual or legal circumstances conflict therewith.
The supervisory board is responsible for overseeing the Company ’s financial reporting process for the preparation of the annual financial statements and of the management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual financial statements and this management report.
• Obtain an understanding of internal control relevant to the audit of the annual financial statements and of arrangements and measures (systems) relevant to the audit of the management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems of the Company.
• 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 Company’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 annual financial statements and in the 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 Company to cease to be able to continue as a going concern.
Reasonable Assurance Conclusion We have performed an assurance engagement in accordance with § 317 Abs. 3b HGB to obtain reasonable assurance about whether the reproduction of the annual financial statements and the management report (hereinafter the “ESEF documents ”) contained in the attached electronic file HannoverRueckSE_EA_LB_2020 -12-31.zip and prepared for publication purposes complies in all material respects with the requirements of § 328 Abs. 1 HGB for the electronic reporting format (“ESEF format”). In accordance with German legal requirements, this assurance engagement only extends to the conversion of the information contained in the annual financial statements and the management report into the ESEF format and therefore relates neither to the information contained within this reproduction nor to any other information contained in the above-mentioned electronic file.
The executive directors of the Company are also responsible for the submission of the ESEF documents together with the auditor’s report and the attached audited annual financial statements and audited management report as well as other documents to be published to the operator of the German Federal Gazette [Bundesanzeiger].
The supervisory board is responsible for overseeing the preparation of the ESEF documents as part of the financial reporting process.
• Obtain an understanding of internal control relevant to the assurance engagement on the ESEF documents in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing an assurance conclusion on the effectiveness of these controls.
• Evaluate the technical validity of the ESEF documents, i.e., whether the electronic file containing the ESEF documents meets the requirements of the Delegated Regulation (EU) 2019/815 in the version applicable as at the balance sheet date on the technical specification for this electronic file.
• Evaluate whether the ESEF documents enables a XHTML reproduction with content equivalent to the audited annual financial statements and to the audited management report.
Further Information pursuant to Article 10 of the EU Audit Regulation
We were elected as auditor by the supervisory board on 10 March 2020. We were engaged by the supervisory board on 18 June 2020. We have been the auditor of the Hannover Rück SE, Hannover, without interruption since the financial year 2018.
R es p on si b il it y st at em en t
Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles, the annual financial statements give a true and fair view of the assets, liabilities, financial position and results of operations of Hannover Rück SE, and the combined management report includes a fair review of the development and performance of the business and the position of the company, together with a description of the principal opportunities and risks associated with the expected development of Hannover Rück SE.
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. In the intervals between regular meetings we received inter alia written reports on material changes due to business impacts from Covid-19, the disclosure to the capital market regarding the communicated profit guidance for 2020 dated 21 April 2020 and on the company‘s position with respect to its dividend policy. 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. 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 held discussions without the presence of the Executive Board, inter alia regarding personnel matters on the level of the Executive Board and regularly in relation to matters of the Supervisory Board‘s internal organisation.
At its meeting on 10 March 2020 the Supervisory Board discussed in detail the audited annual and consolidated financial statements as well as the Executive Board’s proposal for the appropriation of the disposable profit for the 2019 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 auditors directly presented the results of the audit and elaborated on the audit procedure. The assurance report on the non-financial information statement was also discussed. The Executive Board outlined the prospects for the current 2020 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, they were specified in greater detail inter alia with respect to certain formal and procedural clarifications as well as adjustment of the rating limits for allocation of the credit risk. At the recommendation of the Finance and Audit Committee, PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft – following its initial appointment for the audit of the 2018 financial year – was again awarded the mandate to audit the annual financial statements.
On 5 May 2020 our meeting was held for the first time in a hybrid format owing to the pandemic situation, i.e. with partially in-person and partially virtual participation as well as the resulting precautionary measures. Dr. Lipowsky and Dr. Schipporeit were unable to participate and cast their votes on the relevant resolutions in writing pursuant to § 12 (2) of the Articles of Association of Hannover Rück SE. The Executive Board reported to us on the first quarter of 2020, with additional detailed elaboration on the effects and measures associated with the Covid-19 pandemic. We explored the overall results of the previous year in greater detail; in this regard, the Executive Board presented relevant analyses regarding the quality of the loss reserves in property and casualty reinsurance and the intrinsic value creation (IVC). In addition to the outlook for the current financial year – which was similarly shaped by the uncertainties around the Covid-19 crisis –, the examination of the Own Risk and Solvency Assessment (ORSA) and the capitalisation under Solvency II constituted further key points of deliberation. Following up on this, the structure of the Regular Supervisory Report (RSR) and its differences and overlaps relative to the ORSA were explained. In addition to the Covid-19 crisis, the discussion of the principles underlying the strategy for the upcoming cycle 2021 – 2023 and adoption of a corresponding resolution were a focus of the meeting. Picking up on the strategy 2018 – 2020, the Executive Board presented to us in this context the company ‘s strengths that are to be cultivated and carried forward, specific areas where opportunities are seen and investments planned as well as the objectives for the next cycle. In part owing to the uncertainties surrounding the further course of the pandemic and what its long-term business repercussions might be, we invited the Executive Board to give us another report on the status of strategy development at the November meeting. In addition, we were provided with a peer comparison of the return on investment and a detailed report on how profitability is safeguarded in life and health reinsurance business. Lastly, the Executive Board looked ahead to the internal preparations being made for potential issuance of additional hybrid capital in an amount of EUR 500 million in the current year.
The issuance of additional hybrid capital in an amount of EUR 500 million announced at the May meeting was approved by the Supervisory Board and its Finance and Audit Committee by a written procedure in June 2020.
Of the committees formed by the Supervisory Board within the meaning of § 107 Para. 3 Stock Corporation Act (AktG), the Finance and Audit Committee met on four occasions, with two resolutions additionally adopted by a written procedure – in the first place, regarding the aforementioned issuance of additional subordinated debt and, secondly, regarding mandating of the independent auditor to conduct a limited assurance review of the non-financial information statement. The Standing Committee similarly met four times in 2020. The Chairman of the Supervisory Board updated the full Supervisory Board on the major deliberations of the committee meetings at its next meeting and provided an opportunity for further questions.
The Finance and Audit Committee considered inter alia the consolidated financial statement and the quarterly reports drawn up in accordance with IFRS and the individual financial statement of Hannover Rück SE drawn up in accordance with the German Commercial Code (HGB), and it discussed with the independent auditors their reports on these financial statements. As in the previous years, an expert opinion on the adequacy of the loss reserves in property and casualty reinsurance was noted, the retrocession structure of the Hannover Re Group, the risk reports and the compliance report were discussed, and reports on the major subsidiaries were received and considered. In addition, the Committee examined the investment structure and investment income – including the stress tests with regard to the investments and their implications for net income and the equity base. The audit concentrations of the independent auditors for the 2020 financial year were defined. In order to review the quality of the auditing a system was developed this year that will be used by the Committee in future as the basis for its assessment. The Committee continued to be provided with ongoing detailed reports on the recognition and measurement of the risk-oriented book of US life reinsurance business acquired in 2009 from Scottish Re as well as on the rate increases that had been initiated and / or implemented. The measures for safeguarding profitability in Life & Health business – which were also subsequently reported to the full Supervisory Board – were discussed in detail and the Committee was able to obtain a good understanding of the sustainability of the financial solutions portfolio after receiving an additional report from the division. Furthermore, the Committee examined in detail the functioning of the volatility adjustment in the internal model and its effect on the solvency ratio. The Committee also had an opportunity to engage with the Executive Board in an advisory capacity regarding the strategy 2021-2023,
The accounting, annual financial statements, consolidated financial statements and the combined management report were audited by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft.
The report on the company’s relations with affiliated companies drawn up by the Executive Board has likewise been examined by PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft and given the following unqualified audit certificate: “Having audited the report in accordance with our professional duties, we confirm that 1. the factual details of the report are correct; 2. in the case of the transactions detailed in the report, the expenditure of the company was not unreasonably high.”
– in each case drawn up as at 31 December 2020 – 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.
Effective 1 September 2020 we appointed Mr. Clemens Jungsthöfel to the Executive Board so that he could take over as Chief Financial Officer from Mr. Roland Vogel on 30 September, following the latter’s retirement. We are most grateful to Mr. Vogel for his many years of service to the Group and the unfailingly open and constructive dialogue. He made himself available in an advisory capacity during and after the familiarisation phase, which in the eyes of the Supervisory Board ensured the smoothest possible transition. Mr. Jungsthöfel had already served on the Executive Board of HDI Global SE since 2018 and he impressed us not only from a technical standpoint but also on the personal level. We look forward to further successful cooperation with the new Chief Financial Officer and with the entire Executive Board.