Equity attributable to shareholders of Hannover Rück SE 8,528.5 -5.2% 8,997.2 8,068.3 7,550.8 5,888.4
Earnings per share (basic and diluted) in EUR 7.95 -18.2% 9.71 9.54 8.17 7.43
Book value per share in EUR 70.72 -5.2% 74.61 66.90 62.61 48.83
Dividend per share in EUR 3.50 + 1.50 2, 3 – 3.50 + 1.50 3 3.25 + 1.50 3 3.00 + 1.25 3 3.00
Share price at year-end in EUR 104.90 +2.0% 102.80 105.65 74.97 62.38
Market capitalisation at year- end 12,650.6 +2.0% 12,397.4 12,741.1 9,041.2 7,522.8
Combined ratio (property and casualty reinsurance) 4 99.8% 93.7% 94.4% 94.7% 94.9%
Return on investment (excl. funds withheld by ceding companies) 6 3.8% 3.0% 3.5% 3.3% 3.4%
A complete list of our shareholdings is provided on page 170 et seq. of the notes. The addresses of the Hannover Re Group’s branch offices and subsidiaries abroad are to be found in the section “Further information” on page 262 et seq.
S tr at eg ic b us in es s gr ou ps
1 Restated pursuant to IAS 8 2 Dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015, dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014 and dividend of EUR 2.60 plus special dividend of EUR 0.40 for 2012 3 Proposed dividend
We transact all lines of property & casualty and life & health reinsurance and are present on all continents with roughly 3,300 staff. Established in 1966, the Hannover Re Group today has a network of more than 140 subsidiaries, branches and representative offices worldwide. The German business of the Hannover Re Group is transacted by our subsidiary E+S Rück.
The rating agencies most relevant to the insurance industry have awarded both Hannover Re and E+S Rück outstanding financial strength ratings: Standard & Poor’s “AA-” (Very Strong) and A.M. Best “A+” (Superior).
Even in the challenging 2017 financial year, therefore, the generated result delivered a return on equity of 10.9 percent that comfortably beats our minimum target of 900 basis points above the riskfree interest rate. The Group net income of EUR 959 million thus constitutes a satisfactory result.
The performance of our life and health reinsurance portfolio, however, was less pleasing. Net income contracted by a good 31 percent to EUR 173 million. Despite an otherwise rather good business experience, this was due to losses from our US mortality portfolio, which came in significantly higher than we had anticipated. The primary reasons here were, firstly, that – contrary to the expectations at the time of pricing the business – the mortality improvement in the US population has for some time now failed to materialise to the anticipated extent. Furthermore, the exercise of the various options available to policyholders, particularly in relation to cancellation of their policies, had resulted in a more sharply negative portfolio mix than anticipated, especially in relation to older underwriting years. Although these changes should not produce negative results for our new business due to the applied pricing parameters, the situation is different with a large block of business that we assumed from Scottish Re at the beginning of 2009. In this case there can be no doubt that the reinsurance premiums are not sufficient to cover the anticipated future claims, especially for policyholders at an advanced age. Consequently, based on detailed analysis of the business, we are now making intensive efforts to exercise contractually agreed options in such a way as to raise the reinsurance rates for this legacy portfolio to an adequate level. The resulting additional premium income that is expected to be generated in the future has already been factored into the valuation of the business.
Turning to the prospects for the current 2018 financial year, we have a good platform in property and casualty reinsurance for once again achieving good results in 2018. In the latest treaty renewals we obtained thoroughly pleasing rate increases overall; the premium quality for 2018 is consequently better than was the case for 2017. The reason here is the market response to the considerable losses of 2017. While the available reinsurance capacity still clearly exceeded demand, reinsurers were successful in securing moderate rate increases. This brought about a trend reversal, after primary insurers had consistently been able to push through reduced rates for their reinsurance cessions since mid-2013. Based on our strong competitive position and our very good ratings, we made the most of the improved market climate and booked premium growth of more than 20 percent in the renewal season as at 1 January 2018. This was true of virtually all regions and lines, but derived again in special measure from the area of structured reinsurance, where demand for bespoke reinsurance solutions tailored to provide solvency relief showed further growth. In life and health reinsurance, too, we anticipate slightly higher premium income because we are continuing to write attractive new business. The total result in life and health reinsurance will again be heavily influenced by the performance of our US mortality portfolio. What is particularly essential here is that we can actually achieve the targeted rate increases in relation to the previously mentioned large block of business. What is more, in individual cases this may lead to strains due to recaptures of business by our ceding companies. Given that a large part of the portfolio has negative earnings expectations for the future, such recaptures are generally economically desirable for us.
I would like to take this opportunity to thank you, our valued shareholders, most sincerely for your trust – also on behalf of my colleagues on the Executive Board. I would also like to express my appreciation to our employees for their very good and responsible work. Going forward, as in the past, we shall do everything in our power to safeguard Hannover Re’s successful development. It is and will remain our goal to increase the value of your company on a sustainable basis.
• Africa, Asia, Australia / New Zealand, Latin America, Western and Southern Europe
From left to right: Dr. Michael Pickel, Sven Althoff, Jürgen Gräber, Ulrich Wallin, Roland Vogel, Dr. Klaus Miller, Claude Chèvre
The Hannover Re share stood at EUR 102.80 going into the year. Despite the continued intensely competitive climate in the reinsurance industry, the company was able to raise its guidance for the 2017 financial year at the beginning of February. This was prompted by a renewal season as at 1 January 2017 that surpassed expectations in terms of premium volume. Boosted by the unveiling of a fifth consecutive record profit for the year, the share price rose steadily during the spring and reached its highest point of the year – and at the same time a new alltime high – of EUR 115.65 one day before the Annual General Meeting on 9 May 2017. Following payment of the dividend the share went on to list at a correspondingly lower level and in the ensuing months until late summer it moved in a volatile sideways direction. In the third quarter the impacts of
Hannover Re | Annual Report 2017 three hurricanes within the space of just four weeks on the US coast and the Caribbean as well as two severe earthquakes in Mexico caused the share price to retreat sharply in the face of the expected losses. On 7 September 2017, following the announcement that Hurricane “Irma” would make landfall on the Florida coast, the share price fell to its lowest level of the year at EUR 95.95. It was indeed the case that the natural disasters in the third quarter led to a volume of losses in excess of the multi-year average. Against this backdrop, Hannover Re adjusted its profit guidance for the year under review on 21 September by publishing an ad hoc notification. At the same time, the losses prompted a turnaround in market sentiment after five years of large loss expenditures below the anticipated levels and rates were expected to move higher in the upcoming renewals. The share price consequently experienced a trend reversal. At the end of the financial year the Hannover Re share closed with a gain of 2.0% at EUR 104.90, delivering a performance of 6.8% including reinvested dividends. Looked at over the year as a whole, the Hannover Re share thus fared somewhat more poorly than its benchmark indices, namely the DAX (+12.5%) and MDAX (+18.1%); it nevertheless beat the Global Reinsurance (Performance) Index (-8.9%), although this was significantly impacted by the softening of the US dollar against the euro owing to its heavy USD weighting. The Global Reinsurance Index tracks the share performance including dividend payments of the world’s 15 largest reinsurers. Hannover Re measures its performance by this benchmark index.
With a book value per share of EUR 70.72 the Hannover Re share showed a price-to-book (P / B) ratio of 1.48 at the end of the year under review; compared to the average MDAX P / B ratio of 2.10 as at year-end, the share thus continues to be very moderately valued.
The Annual General Meeting of Hannover Rück SE was held on 10 May 2017 at Hannover Congress Centrum (HCC). Altogether, including postal ballots around 77% of the share capital was represented.
In light of this good result and the further strengthening of the company’s capitalisation, the shareholders accepted the proposal of the Executive Board and Supervisory Board that a gross dividend of EUR 5.00 per share should be paid. The payout took the form of a dividend of EUR 3.50 per share – an increase of EUR 0.25 compared to the previous year – and a special dividend of EUR 1.50 per share, with the special dividend to be considered a capital management measure. This proposal, together with all other proposed resolutions put to the vote, was approved by the Annual General Meeting by a large majority.
Complementing these activities, we held Hannover Re’s 20th Investors’ Day on 19 October 2017 in Frankfurt. Discussions centred on the outcome of the updated Group strategy for the years 2018 to 2020, which has been framed under the motto “Creating value through reinsurance”. Another issue addressed at the event was the impact of the recent natural catastrophes in the autumn of 2017. After five years of rather low expenditures these had led to insured losses on a par with the costly years of 2005 and 2011 and hence significantly in excess of the multi-year average. In addition, the Executive Board took the opportunity to provide more in-depth insights into the highgrowth segment of structured reinsurance and described the cash flows expected from new business in life and health reinsurance over the coming years. Discussions relating to the risk profile and the capitalisation under Solvency II also featured on the agenda, as did the implications of the protracted low interest rate environment for strategic capital management. In common with many of our other IR events, the Investors’ Day is broadcast live on our website.
Geographical breakdown of the shares I 12 held by institutional investors
Return on equity (after tax) 4 10.9% 13.7% 14.7% 14.7% 15.0%
Price-to-cash flow (P / CF) ratio 8 7.5 5.3 4.1 4.7 3.4 1 Xetra daily closing prices from Bloomberg 2 Proposed dividend 3 Dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015 and dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014 4 Earnings per share / average of book value per share at start and end of year 5 Dividend per share / year-end closing price 6 Year-end closing price / book value per share 7 Year-end closing price / earnings per share 8 Year-end closing price / cash flow (from operating activities) per share
Report on economic position 22 Macroeconomic climate and industry- specific environment 22
Our subsidiary E+S Rückversicherung AG (E+S Rück), as the “dedicated reinsurer for the German market”, offers a range of products and services tailored to the specific features of the German market. Of special importance here are the mutual insurers with whom we maintain a strategic partnership that is underscored through their participation in E+S Rück.
EBIT margin 7 1 Annual average growth, otherwise weighted averages 2 Excluding effects from ModCo derivatives 3 After tax; target value: 900 basis points above the five-year average return on ten-year German government bonds 4 Growth in book value per share including dividend paid 5 Average over the reinsurance cycle; at constant exchange rates 6 Including large loss budget of EUR 825 million 7 EBIT / net premium earned 8 Excess return on allocated economic capital 9 Organic growth only; target: annual average growth over a five-year period; at constant exchange rates 10 Since 2016 based on Solvency II principles and pre-tax reporting; in 2015 based on MCEV principles with cost of capital of 6% and post-tax reporting
Planning year 1 The Global Management Forum (GMF) and the Global Executive Forum (GEF) bring together senior managers of the Hannover Re Group from around the world for the purpose of defining strategic orientations. The parameters developed here serve as the basis for the subsequent planning process.
1 Restatement based on final Solvency II shareholders' equity as at year-end 2 Income above risk-free interest rate after deduction of risk-appropriate cost of capital
The allocated capital consists of three components: the shareholders ’ equity including non-controlling interests, the balancing items for differences between economic valuations pursuant to Solvency II and amounts stated in the IFRS balance sheet and the hybrid capital. Capital is allocated to the profit centres as described above according to the risk content of the business in question. A systematic distinction is made here between the assumption of underwriting risks, on the one hand, and investment risks, on the other. Under the IVC calculation, therefore, only risk-free interest income on the generated cash flows is allocated to the business segments of property & casualty and life & health reinsurance. The investment income above and beyond risk-free is allocated in its entirety to the functional area of investments and included in the IVC after deduction of the risk-appropriate cost of capital and the administrative expenses.
A number of IFRS-based financial performance indicators are also embedded in our strategic system of targets and coordinated with our parameters for value creation derived from the internal capital model. We use these indicators for operational management within the year, in part because they are available promptly and also because they already provide initial pointers as to whether we are likely to achieve our higher-order strategic objectives. These are for both business groups the growth in gross premium, for property and casualty reinsurance the combined ratio, for life and health reinsurance the EBIT margin and for the Group as a whole the return on investment. Non-financial performance indicators, on the other hand, are not used for operational management within the year.
Exploring market trends and developing innovative products are tasks assigned to the individual market units at Hannover Re. In addition, business opportunities and innovations that cut across markets and segments are coordinated by the “Regulatory Affairs and Innovation” team and pursued by means of interdisciplinary projects in which various market and service units participate. In this way, we develop products and solutions that deliver value added both for Hannover Re and for our clients. By way of example, our move to give capital market players direct access to insurance risks as far back as the mid1990s through our “K” transactions puts us among the industry pioneers. The intervening years have seen the evolution of a market for so-called insurance-linked securities, which is one of the fastest growing markets in the insurance sector. Another example of Hannover Re’s development activities is our own internal model for risk management under Solvency II that caters to the requirements of various stakeholders (regulators, rating agencies, capital providers) and was one of the first in Europe to be approved by the supervisory authority (BaFin). Not only that, through our active involvement and the provision of financial assistance we support scientific initiatives geared to developing products, solutions or markets that will be crucial success factors going forward in the viability of any reinsurance undertaking.
Reinsurance business is founded on the comprehensive understanding and active management of risks. Our specialists therefore continuously analyse known risks with an eye to changes in their structure and probability of occurrence, while at the same time focusing on the early detection of newly emerging risks and working to provide our clients with appropriate solutions tailored to their needs. Above and beyond this, Hannover Re makes systematic efforts to identify new business opportunities in order to achieve sustainable growth and strengthen the profitable development of the company (cf. here also the Opportunity report on page 101 et seq.).
The pace of growth in the world economy picked up appreciably in 2017. It reached 3.8% (previous year: 3.2%), the sharpest increase since 2011. The revival already began to set in towards the end of 2016 after a softer phase and continued to gather momentum into the late summer. As the year drew to a close, the relevant indicators pointed to a consolidation of the upward cyclical trend in virtually all the major national economies.
After posting moderate growth at the start of the year, manufacturing in the advanced economies expanded vigorously – especially in the six months of summer. The uptick in capital spending was crucial to the strengthening of the underlying economic trend. Consumer demand from private households, which for some time now has remained stable on a high level, was a further factor here. In Japan total economic output continued to rise on the back of a boost from exports. The Eurozone economy similarly sustained its expansion. The upward trend in manufacturing output in the United Kingdom was comparatively modest.
on the back of normal capacity utilisation. Unemployment continued to fall year-on-year to 4.4%, a low point last seen at the turn of the millennium. Consumer prices climbed 2.1%, a sharper rise than in the previous year. Looked at in context, however, the price trend remains muted.
Europa The Eurozone economy sustained its upward trend in 2017: the growth rate improved on the previous year by 0.6 percentage points to 2.4%. The expansion was still driven largely by domestic economic forces. Capital expenditure was once again significantly higher. Yet private consumption also continued to grow at a robust pace on the back of stronger employment and rising wages. Government spending, on the other hand, was down slightly on the previous year.
What is pleasing from the macroeconomic perspective is the fact that the economy is now on a clearly upward track in all the countries across the Eurozone. This is borne out by the currently broad-based nature of the expansion. The three crisis- hit countries of Portugal (+2.6%), Italy (+1.6%) and Greece (+1.4%), for example, consolidated their growth in 2017. The UK economy posted softer growth year-on-year of 1.5% on the back of lower consumer spending.
Germany For the fifth year in succession the German economy sustained its upswing of the past four years in 2017. A vigorous start to the year was followed by a further acceleration in the pace of economic growth in the subsequent months, boosting gross domestic product – before working days adjustment – by 2.3% (1.9%). Since entering the boom of the years 2006 / 2007 the German economy recorded stronger growth than in the first three quarters only in the context of the catch-up effects following the great economic slump at the beginning of the previous
The jobless rate in 2017 fell to 5.7% (6.1%) and continues to trend lower. The number of persons employed domestically rose by more than 550,000. The inflation rate for Germany measured by the consumer price index stood at 1.7% in December 2017 (0.5%).
Gross domestic product in Japan increased by 1.8% year-onyear (0.9%). The export sector played a major role here. Capital spending also picked up appreciably compared to the previous year. Private households, whose expenditures on consumption account for some 60% of the country’s economic output, cast aside some of their caution and also boosted their spending.
Capital markets The investment climate remained challenging in the reporting period and was exposed to numerous potentially unsettling influencing factors. After the surprising outcomes of the Brexit referendum and the US elections in 2016, many feared further sources of unrest for the year under review such as France or the Netherlands moving to leave the EU or the Eurozone. These concerns proved unfounded, however, and even real factors such as the overhaul of international trade agreements and the sluggish progress in forming a government in Germany had little impact on financial markets, which proved to be astonishingly robust and in the case of the Eurozone even surprisingly sprightly. US markets continued to be fuelled by the hope of effective growth incentives from the Trump administration. Towards the end of the year these then materialised with astonishing speed in the form of a major package of tax reforms. In many emerging nations the economy continued to stabilise as the year progressed, while China largely dispelled the doubts about its economic strength that had arisen in the previous year. What is more, markets continued to appear thoroughly crisis-proof in view of the large amount of available liquidity, as a consequence of which the world economy as a whole recorded its strongest year since 2010.
The ECB announced that it would reduce its monthly purchases of corporate bonds but at the same time extend the programme until September 2018. This demonstrates the balancing act that the ECB has to perform in order to avoid giving the impression of an overly brash exit from its support programme while simultaneously demonstrating decisiveness and a willingness to act. All in all, the policy pursued by central banks in our main currency areas was inconsistent. The ECB left the key interest rate for the Eurozone at a historically low 0.00%, whereas the Bank of England raised the prime rate for pound sterling for the first time since 2007 to 0.5% and promised further increases over the next three years. The Federal Reserve moved even further along the path towards normalisation of central bank policy, increasing the base rate for the US dollar in three increments to a range of 1.25% to 1.5% and hence further widening the interest differential between the US dollar and the Eurozone.
Sluggish progress in negotiations between the European Union and the United Kingdom as a consequence of the British people’s vote in favour of Brexit led to protracted uncertainty. In the period under review this was especially evident in the decline of the British pound against the euro and US dollar, although it was also reflected in the comparatively muted performance of UK stock markets. Yet the uncertainty surrounding the structuring of future economic and trade relations between the EU and UK as well as the free movement of workers is also generally unfavourable for the national economies of the remaining EU Member States, since it detrimentally affects the planning security and investment readiness of the business community.
Yields on German government bonds remained on a very low level in the year under review. The increases seen as the year progressed were merely modest across all maturities, with negative returns persisting well into the medium maturity segment. UK government bonds similarly saw fairly minimal increases, especially as these were limited primarily to the short and medium maturities. In the case of US Treasury bonds, on the other hand, a rotation of the yield curve could be observed in which rather significant interest rate increases were evident for short maturities. Longer maturities, on the other hand, saw declines.
The uncertainty of the previous year that had prevailed in the valuation of markets for corporate bonds subsided in the period under review. The emerging markets sector, in particular, benefited from more stable commodity prices and attractive exchange rates. This was increasingly reflected across all rating classes in a steady fall in risk premiums on corporate bonds.
The development of the world economy remains subject to various uncertainties and risks, first and foremost of a geopolitical nature. Global heterogeneity associated with varying economic trends and local flashpoints may be mentioned here as a particularly significant consideration. The ongoing risk of terrorism is another factor that needs to be monitored, even though capital markets have hitherto responded to this in rather robust fashion.
The euro more than made up for its losses of the previous year against the US dollar and climbed sharply from USD 1.05 to USD 1.20. The pound sterling also lost ground against the euro after the already heavy losses seen in 2016 following the Brexit referendum, sliding from GBP 0.86 to GBP 0.89. The Australian dollar similarly softened against the euro, retreating from AUD 1.46 to AUD 1.53.
For the international (re)insurance industry the environment in 2017 remained challenging. Faced with the protracted low level of interest rates, insurers continued to focus on preserving the value of their investments and generating stable returns.
Following the successful roll-out of the European insurance supervision regime Solvency II in 2016, some 350 German and several thousand European insurance undertakings published their Solvency and Financial Condition Report (SFCR) for the first time in the year under review. Insurers are required to give an account of all aspects relevant to their business activities and risk position: the underwriting result and investment result, the governance system including the risk management system and the internal control system, the risk profile of the undertaking, the valuation made for solvency purposes and the organisation’s capital management. The planned launch of a new risk-based solvency system in South Africa, known as Solvency Assessment and Management (SAM), was postponed again and is now scheduled for 2018.
Digital transformation and progressive digitalisation continued to be a topic of growing importance to the (re)insurance industry in 2017. The focus for insurers was on developing new products, delivering more innovative customer support as well as optimising internal cost structures and business processes. At the same time, increased involvement in and cooperation with start-ups and insurtechs was evident. This trend is expected to continue over the coming years.
Property and casualty reinsurance was once again fiercely competitive in 2017. The capital position of primary insurers remained strong, enabling them to continue running high retentions. What is more, the inflow of capital from the ILS sector into the reinsurance market was sustained, as a consequence of which the supply of capacity in the market comfortably outstripped demand – hence keeping up the pressure on prices and conditions. In the second half of the year signs of a trend reversal could be detected. The three severe hurricanes, combined with the earthquakes in Mexico and forest fires in California, left the (re)insurance industry facing exceptionally heavy loss expenditure. Against this backdrop, indications that the rate level was beginning to pick up could already be discerned by the end of the year.
The protracted low interest rate environment similarly had implications for life and health reinsurance in the area of traditional life insurance products: not only have they now lost a considerable part of their appeal, they have also to some extent been supplanted by new policies which have been adapted to the changed interest rate situation. Demand for solvency- oriented reinsurance solutions remained robust following the implementation of Solvency II and – especially for longevity business – the associated more exacting capital requirements.
On a global scale the progressive demographic shift and increasing ageing of the population continue to drive stronger demand for retirement provision products – on the reinsurance as well as the insurance side. Lifestyle products, which primarily offer risk coverage tailored to protecting the policyholder’s specific life situation, are also enjoying a surge in demand. These include, in particular, policies under which the premium is linked to the insured’s health-related behaviour (e. g. fitness, nutrition). Although the purchasers of such products have hitherto tended to be in Anglo-Saxon and Asian markets, a tangible interest in this trend can now also be detected in Europe.
Business development • Currency-adjusted growth in gross premium better than forecast • Very good Group net income despite unusually high burden of large losses • Property and casualty reinsurance falls short of previous year owing to natural catastrophe losses • Life and health reinsurance adversely impacted by parts of the existing US mortality portfolio • Investment income comfortably beats return expectations • Return on equity: 10.9%
The situation in property and casualty reinsurance was little changed in the year under review. The fiercely competitive state of the market initially continued unabated; reinsurance capacity was still substantially in excess of demand. Additional capacities from the insurance-linked securities (ILS) market added to the sustained pressure on prices and conditions. Nevertheless, profitable business opportunities also opened up in the various rounds of treaty renewals.
After a moderate loss experience in the first half of the year, the third quarter was dominated by three severe hurricanes as well as other natural catastrophe events. Altogether, the net expenditure on large losses incurred by Hannover Re stood at EUR 1,127.3 million, compared to EUR 626.6 million in the comparable period. As anticipated, the combined ratio of 99.8% (93.7%) was higher than our targeted maximum figure of 96%.
Investment income from assets under own management in property and casualty reinsurance delivered a gratifying performance. It increased by 35.9% to EUR 1,191.5 million (EUR 876.9 million), a reflection of – among other things – the positive effect from the disposal of our equity portfolio. Nevertheless, ordinary income also rose by 12.8% to EUR 1,014.7 million (EUR 899.3 million).
The business performance in life and health reinsurance was shaped by both positive and negative developments.
Gross premium income in life and health reinsurance contracted marginally by 1.0% and was on a par with the previous year at EUR 7.1 billion (EUR 7.1 billion). Adjusted for exchange rate effects, modest growth of 1.4% would have been recorded. The Value of New Business (VNB) came in at EUR 364 million, again comfortably beating the targeted level of EUR 220 million.
The operating profit (EBIT) fell by 28.6% to EUR 245.2 million (EUR 343.3 million) due to the situation described above in US mortality business and the one-off effect. The EBIT margins achieved within the individual reporting categories were as follows: in mortality and morbidity business we fell well short of the 6% target with an EBIT margin of 0.0%. Longevity business reached its stated target of 2% with an EBIT margin of 2.1%. The EBIT margin for financial solutions business amounted to 25.4%, thereby comfortably beating the minimum target of 2%. The Group net income booked for our Life & Health reinsurance business group totalled EUR 172.6 million (EUR 252.9 million).
Bearing in mind the challenging market environment, we are highly satisfied with the development of our investments as at 31 December 2017. Our portfolio of investments under own management contracted to EUR 40.1 billion (31 December 2016: EUR 41.8 billion). This was driven above all by negative exchange rate effects – especially associated with the weaker US dollar – as well as slightly reduced hidden reserves and the dividend distribution.
Despite the low level of interest rates, ordinary investment income excluding interest on funds withheld and contract deposits surpassed the previous year (EUR 1,162.0 million) at EUR 1,289.0 million.
Net realised gains on investments as at 31 December 2017 increased sharply from EUR 206.3 million to EUR 377.1 million. This can be attributed in large measure to the liquidation of our equity portfolio. The impairments taken in the year under review were only again only minimal.
The gross premium in our total business increased by 8.8% as at 31 December 2017 to EUR 17.8 billion (EUR 16.4 billion ). Growth of 11.2% would have been booked at constant exchange rates. We thus surpassed our guidance, which had initially anticipated an increase in the low single-digit percentage range and was ultimately raised to more than 5% over the course of the year. The level of retained premium climbed to 90.5% (89.3%). Net premium earned rose by 8.5% to EUR 15.6 billion (EUR 14.4 billion). At unchanged exchange rates the increase would have been 10.8%.
The equity position remains highly robust: the equity attributable to shareholders of Hannover Re totalled EUR 8.5 billion (EUR 9.0 billion) as at 31 December 2017. The return on equity amounted to a good 10.9% (13.7%). The book value per share reached EUR 70.72 (EUR 74.61). In view of the exceptionally heavy losses incurred in the year under review, the forecasts provided for the 2017 financial year as shown in the following table “Business development in the year under review” were only partially achievable.
+11.2% at constant exchange rates +8.8% not adjusted for currency effects
Gross premium growth for Life & Health reinsurance moderate growth 1, 3 +1.4% at constant exchange rates -1.0% not adjusted for currency effects
Natural disasters cause damage to property, which can in turn trigger production losses and business interruptions.
Extreme weather events are coming up against rising insured values: In 2017, insured losses from natural disasters amounted to more than USD 100 billion worldwide.
The company’s shareholders’ equity continues to be robust. At the time of preparing the management report, both the business position of the Hannover Re Group and its financial strength remain good. The Executive Board and Supervisory Board will therefore propose to the Annual General Meeting that a dividend on the level of the previous year should be paid.
All in all, we were satisfied with the outcome of the treaty renewals as at 1 January 2017 – when 64% of our port folio in property and casualty reinsurance was renegotiated. Despite challenging treaty renewals we benefited from our customer intimacy and our ability to offer tailor-made reinsurance products.
Net premium earned increased by 14.7% to EUR 9.2 billion (EUR 8.0 billion); adjusted for exchange rate effects, growth would have amounted to 17.0%.
Credit, surety and political risks 666.7 +8.7% 613.5 112.8 91.1% 94.7%
UK, Ireland, London market and direct business 791.2 +56.5% 505.6 (106.5) 140.9% 97.4%
North America The North American (re)insurance market is the largest single market both worldwide and for Hannover Re. Our business here is written almost exclusively through brokers.
As a consequence of the three hurricanes “Harvey”, “Irma” and “Maria”, and also owing to the forest fires in California, the year under review was one of exceptionally heavy losses for the US market. The combined ratio for the reinsurance market consequently climbed to well over 100%, as against 95% in the previous year. For our company, too, these events – after years of moderate loss expenditures – resulted in substantial strains. Detailed figures on our large losses are provided on page 90. It is gratifying to note that the losses impacted Hannover Re less heavily than our market shares would have suggested – something which can be attributed to a prudent underwriting policy in highly exposed zones and our retrocession strategy.
In the year under review we continued to cautiously expand our volume of so-called program business, a form of primary insurance that we write through managing agents in North America.
Property & Casualty reinsurance: Breakdown of gross M 14 written premium in North America by line of business 8.2% Motor 47.3% Property 0.2% Other 44.3% Liability
The “Covered Agreement” between the United States and European Union that was signed in September 2017 will have pleasing implications for future results. The reinsurance collateral that we are required to furnish to our customers for business written in the US will be reduced or entirely eliminated over the coming years.
In property and casualty insurance prices in original business moved higher. This was especially true of homeowners’ comprehensive and motor insurance in view of the continued strained claims situation in these lines. In motor insurance higher prices for automotive parts also made themselves felt. The costs of personal injury claims also remained stubbornly high.
On the reinsurance side the German market was stable in terms of both rates and conditions. Significant adjustments were seen only in the case of treaties that were particularly heavily impacted by losses. Driver assistance systems are emerging as a new factor in motor insurance. With this in mind E+S Rück is cooperating with a major mobile communications provider under a pilot project. Our goal is to offer German motor insurers the possibility of easy access to the field of telematics, while at the same time adding to the existing range of services for our customers.
Positive results were, however, booked in the general liability, householders and accident lines.
Property & Casualty reinsurance: Breakdown of gross M 15 written premium in Continental Europe by line of business 7.9% Other 38.8% Property 18.0% Liability 35.3% Motor
Rest of Continental Europe European insurance markets were once again fiercely competitive in the year under review on account of surplus capacities; this was especially true of mature markets such as France and Northern Europe. The situation was particularly competitive in the fire / industrial lines and in motor business. On the reinsurance side, too, there was no easing in the intense competition. Demand for tailored reinsurance solutions was nevertheless brisk. In long-tail liability lines – and here primarily in the motor sector – conditions remained challenging, promoting us to write this business only on a highly selective basis. Overall, we are satisfied with the development of the accident line and hence further expanded our premium volume here. The performance of our portfolio in the Netherlands, which grew across all lines of business, was pleasing.
Growth rates in the countries of Central and Eastern Europe – for both the primary and reinsurance market – were still stronger than the European average overall. For the most part, however, prices for reinsurance covers declined in the face of intense competition. This was not the case in Polish motor business, though, where rates moved higher. This was driven by the negative loss experience as a consequence of new case law under which accident victims are entitled to higher liability claims.
The premium volume for specialty lines in the year under review amounted to EUR 2,767.6 million (EUR 2,646.6 million). The combined ratio deteriorated to 98.8% (90.9%). The operating profit (EBIT) for specialty lines contracted to EUR 349.5 million (EUR 447.8 million).
Marine The rate decline in marine insurance continued in 2017, although it was less marked. Underlying factors such as the low oil price, the merely faltering growth of the global economy and excess capacities in the market for transportation of freight and cargo meant that there was no appreciable change in demand for marine insurance solutions. In the face of falling prices for commodities and other goods, the premium volume in the market continued to contract. Combined with a modest rise in the available capacity, the pressure on original rates increased again slightly in both offshore energy and marine insurance business.
Claims expenditure in the first half of the year was gratifyingly light. The third and to some extent also the fourth quarter, however, were impacted by significant losses from the hurricanes in the United States and Caribbean. Clients who wrote yacht insurance were especially hard hit by the windstorm events. Providers of insurance solutions for inland transportation in the US market also incurred substantial losses. As one of the world’s leading marine reinsurers, the aforementioned losses from natural perils also left their mark on our books.
Aviation International aviation (re)insurance remained under strain in 2017: the line continues to see a significant oversupply of capacity. This is true of both the original market and the reinsurance side.
During this phase of potential market upturn we kept our disciplined underwriting strategy unchanged and focused especially on non-proportional business. In this segment we operate as one of the market leaders.
Credit, surety and political risks Growth in the global primary insurance market remained relatively soft. Reinsurance cessions, on the other hand, were slightly higher. This was especially true of the credit and political risks lines; they were stable in surety business.
The combined ratio for the entire segment improved to 91.1% on the back of reduced loss ratios; it had stood at 104.9% in the comparable period. The operating profit (EBIT) rose to EUR 112.8 million (EUR 8.3 million).
United Kingdom, Ireland, London Market and direct business United Kingdom, Ireland and the London Market The result of the property and casualty business that we reinsure for companies in the United Kingdom and on the London Market was not entirely satisfactory in 2017.
Direct business We also write primary insurance business through our subsidiary International Insurance Company of Hannover SE (Inter Hannover). This essentially involves tightly defined portfolios of niche or other non-standard business that complements our principal commercial activity as a reinsurer.
The gross premium booked from the United Kingdom, Ireland, the London Market and direct business rose from EUR 505.6 million to EUR 791.2 million. The vigorous growth derived in part from the aforementioned effects and was also due to a portfolio transfer from the area of facultative reinsurance. Reflecting above all the increase of almost EUR 300 million in the loss reserves for our acceptances of non-proportional UK motor business, the combined ratio for the segment United Kingdom, Ireland, London Market and direct business rose to 140.9% (95.6%). The operating profit (EBIT) declined to EUR -106.5 million (EUR 97.5 million).
Our focus on our core business and the associated closer orientation towards regional entities have been very well received by our clients. This will likely open up potential avenues for new business and hence additional premium income. Early successes are already evident in Latin America, the United States and Europe. Similarly, the investments that we had made in past years in the areas of cyber risks and renewables were rewarded with attractive premium growth in the year under review.
Global reinsurance We combine all markets worldwide under global reinsurance with the exception of our target markets and specialty lines. This segment also encompasses global catastrophe business, the reinsurance of agricultural risks, Sharia-compliant retakaful business as well as structured reinsurance and insurance-linked securities.
The premium volume increased by 34.8% in the year under review to EUR 4,787.7 million (EUR 3,550.9 million). The combined ratio deteriorated from 97.1% to 98.2%. The operating profit (EBIT) improved from EUR 294.3 million to EUR 328.9 million.
Worldwide treaty reinsurance We are satisfied with the development of our worldwide treaty reinsurance. Gross premium income contracted to EUR 1,826.7 million (EUR 1,885.0 million). The combined ratio was lower than in the previous year at 96.3% (103.9%). The operating profit (EBIT) surged from EUR 65.5 million to EUR 237.4 million.
Asia-Pacific region Despite the fiercely competitive business climate Hannover Re maintained its stable positioning in the Asia-Pacific region in the financial year just ended.
In Japan we consolidated our market position with modest premium erosion. Results were more pleasing than in 2016 because fewer natural catastrophe losses were reported in the year under review. Due to the absence of earthquake losses as well as moderate loss expenditure from the typhoon season, our Japanese business delivered a successful profit contribution. Although local reinsurance conditions again softened slightly, the reductions were less of a factor than they had been in the previous year.
In China we further cemented our market position as a local reinsurer. Thanks to our very good customer relationships and an innovative market presence, we were able to put our portfolio on a broader product basis despite increased competitive pressure. In terms of results, we improved significantly on 2016 owing to a lower incidence of natural perils events.
Along with China, the regions of Southeast and South Asia again proved to be the growth engines of the Asia-Pacific and delivered good results. At the same time, though, margins continue to be very squeezed – a state of affairs that is unlikely to improve in the coming years given the absence of significant large losses in 2017.
Following final approval of a branch licence for India at the end of 2016, our local permanent establishment commenced regular business operations with the Indian renewal season on 1 April 2017. The first financial year passed off in line with expectations. As a local reinsurer, Hannover Re is now very well positioned in the market to share in the opportunities offered by the Indian growth market. No significant loss events were recorded in the year under review.
Property & Casualty reinsurance: Breakdown of M 18 gross written premium in global reinsurance in EUR million
South Africa Our property and casualty reinsurance business in South Africa is produced by three companies: our subsidiary Hannover Reinsurance Africa Limited writes reinsurance in all lines. Compass Insurance is responsible for direct business generated through so-called underwriting management agencies (UMAs). Our third company, Lireas Holdings, holds interests in several of these UMAs. This enables us to comprehensively steer and control the business. Agency business forms the pillar of our activities in South Africa, although traditional reinsurance is also written in South Africa and other African nations.
As the year under review got underway the insurance market was still characterised by prevailing soft rates and conditions. In the course of the year, however, the region saw an increased claims incidence and hence appreciable losses for the (re)insurance industry. Special mention should be made here of the wildfires along the Garden Route. This development, combined with the large loss situation around the world, led to significant market hardening that already made itself felt in the renewals as at 1 July and 1 October 2017. We maintained the premium volume on a stable level overall.
Latin America Despite the competitive landscape, Hannover Re is very well positioned in Latin America and a market leader in some countries. The most important markets for our company are Brazil, where we are also present with a representative office, as well as Mexico, Argentina, Colombia and Ecuador. In view of the significant natural disasters in the year under review, it is our expectation that the soft market phase for Latin America and the Caribbean is now over.
Most Latin American markets showed very vigorous growth in the financial year just ended. Premiums in the primary sector are currently rising here on an annual basis – depending on the market – by between 5% and 15%. This is driven not only by the high inflation rates but also by the growing purchasing power of the middle class. The strongest demand for reinsurance covers is in the area of natural catastrophe risks, not only within individual markets but also increasingly across national borders.
Broadly speaking, we are satisfied with the development of our business in Latin America and the Caribbean.
Agricultural risks We rank among our clients’ preferred partners for agricultural covers and were therefore able to continue expanding our market position in the financial year just ended. In addition, we are increasingly involved in the development of original products. We entered into further cooperative arrangements with governments, development banks and international organisations in the year under review with a view to expanding protection for agricultural risks.
The performance of our agricultural risks business was satisfactory. The largest loss events in 2017 included the catastrophic forest fires in Chile at the start of the year and a drought in southern India. The continued improvement in the diversification of our portfolio adequately alleviated or offset the adverse effect of these losses.
The takaful and retakaful markets remained highly competitive – in part also owing to the entry of new market players. A further factor was the sustained low oil price and an associated slowdown in economic growth and in the willingness to invest in infrastructure projects. Rates therefore remained under pressure in 2017, as was particularly evident for treaties which had been spared any losses: we booked a decline of 10% to 15% in rates for loss-free treaties in property business; the rate level fell by 10% for energy treaties that had not incurred any losses. The (re)insurance of construction risks was also notable for predatory pricing and an excess supply of capacity.
Catastrophe XL (Cat XL) Hannover Re writes the bulk of its catastrophe business out of Bermuda, the worldwide centre of competence for this segment. In the interest of diversifying the portfolio, our subsidiary Hannover Re (Bermuda) Ltd. has also written risks in some of the specialty lines since 2013.
Worldwide natural catastrophe business continued to be driven by an excess supply of reinsurance capacity in the financial year just ended. For this reason, and due to the inflow of additional capacities from the ILS market, the business was fiercely competitive. The declining results posted by many reinsurers in the first quarter failed to bring about the trend reversal in rates that had been anticipated for the renewals as at 1 July 2017; the deterioration already observed in the renewals as at 1 January and 1 April 2017 was sustained. Particularly when it came to the renewals for catastrophe risks in Florida, the pressure on rates was ratcheted up still further.
In keeping with our objective we continued to enlarge our customer base and acted on available opportunities in the year under review. We were able to further expand the quota share cessions already initiated in 2016 for capital management purposes in North America and Europe.
Hannover Re leverages the entire spectrum of opportunities offered by the insurance-linked securities market. On the one hand we take out reinsurance with ILS investors, while at the same time we transfer risks for our customers to the capital market as a service. This is done in the form of catastrophe bonds or through collateralised reinsurance, in the context of which our business partners on the investment side are principally specialised ILS funds. We are also active ourselves as an investor in catastrophe bonds.
Under collateralised reinsurance programmes the investor assumes reinsurance risks that are normally collateralised in the amount of the limit of liability. Hannover Re stepped up its cooperation with selected fund managers in the year under review and generated attractive margins. It is also pleasing to note that we were able to further expand the transfer of life reinsurance risks to the capital market.
The key role played by the capital market in our purchasing of retrocession protection remains unchanged. Thus, for example, we were able to renew the protection cover for Hannover Re known as the “K cession” – a modelled quota share cession consisting of non-proportional reinsurance treaties in the property, catastrophe, aviation and marine (including offshore) lines that has been placed inter alia on the ILS market for 25 years now – at an increased level of roughly USD 600 million for 2017. In addition to the K cession we use the ILS market for other protection covers as well.
• Successful implementations of our automated underwriting systems with thoroughly positive customer feedback
EBIT-margin per reporting category M 23 vs. target margins 2017 in %
The total gross premium income booked in life and health reinsurance in the year under review amounted to EUR 7,079.6 million (EUR 7,149.0 million). This is equivalent to a decline of 1.0%; adjusted for exchange rate effects, a modest increase of 1.4% would have been recorded. The level of retained premium stood at 91.7% (90.4%). Net premium earned climbed 0.7% to EUR 6,472.8 million (EUR 6,425.0 million), corresponding to growth of 3.0% adjusted for exchange rate effects.
The operating result (EBIT) in life and health reinsurance reached a level of EUR 245.2 million (EUR 343.3 million). This decline of 28.6% can be attributed in large measure to
Hannover Re | Annual Report 2017 the poorer-than-expected performance of the US mortality portfolio and the aforementioned one-off effect. Group net income for life and health reinsurance retreated accordingly to EUR 172.6 million (EUR 252.9 million).
We provide below an overview of developments in life and health reinsurance, split into our reporting categories, as well as a description of our extensive range of services under the heading “Underwriting services”. The breakdown of the reporting categories is structured according to our internal risk management system and hence subdivided into the sections “Financial solutions” and “Risk solutions”. The category of risk solutions is further differentiated according to the biometric risks of longevity, mortality and morbidity.
Financial Solutions In our financial solutions business we concentrate on reinsurance solutions geared to optimising the solvency, liquidity and capital position of our customers. These forms of reinsurance are highly diverse and individually structured because they are always tailored to the customer’s needs. The decisive differentiating feature is that the customer’s primary motivation is not exclusively the coverage of biometric risks, but rather the protection of its financial and balance sheet position.
We can draw on long-standing expertise and we write financial solutions business with considerable success worldwide – particularly in the United States. This was again evident in the financial year just ended: we were exceptionally satisfied with the expansion of our business in the US, which delivered a clearly positive result this year and will continue to do so in the years ahead. Customer surveys rank us among the market leaders in the US and have named us number one in the field of financial solutions.
In Germany a fundamental interest in Solvency II topics was evident on the primary insurance market. The first-time publication of the Solvency and Financial Condition Reports nevertheless attracted only scant attention. It remained the case that demand for financing solutions to help fund the additional interest rate reserves was more pressing than Solvency II issues. We stood by our customers in this regard as a reliable partner, using our expertise to identify possible solutions.
Gross premium income for the financial solutions reporting category fell by 6.9% to EUR 895.1 million (EUR 961.2 million ). This corresponds to a share of 12.6% of the total gross premium booked in life and health reinsurance. The operating result (EBIT) came in at a very pleasing EUR 223.8 million (EUR 168.0 million).
Internationally, the longevity market has continued to evolve favourably: it is particularly gratifying to report that we have concluded our first large treaty in Scandinavia. Along with deferred pension liabilities this also covers annuities in the pay-out phase. What is more, customers in Australia, Asia and Europe have expressed interest and in some cases signalled a concrete need for protection against longevity risks. A key factor in the increased demand worldwide was the high solvency -based capital requirements imposed on insurers under the various local supervisory regimes. Where longevity risks are involved, it is frequently the case that very high reserves need to be held by primary insurers to cover pension commitments that are often still in the distant future. As a robustly capitalised reinsurer, this is where we can provide the necessary solvency relief.
The gross premium for longevity business contracted by 15.2% in the year under review to EUR 1,256.9 million (EUR 1,482.4 million). The operating result (EBIT) reached a level of EUR 20.0 million (EUR 25.7 million).
In the rest of Europe the situation varied from market to market. Heavy pricing pressure and competition were the dominant factors in the United Kingdom, giving rise to an extremely competitive environment in which no appreciable changes could be pushed through. In the Scandinavian markets, on the other hand, we were able to preserve the robust positon that we have enjoyed in recent years. Business developed favourably overall. Customer feedback was thoroughly positive, especially in connection with the implementation of our automated underwriting system hr | ReFlex. We were similarly satisfied with the development of our business in Southern Europe and Latin America. In Asia and Australia our expectations were satisfied in equal measure. Even though competition has intensified and market requirements have become more exacting – particularly in Australia, for example, following mandatory adoption of the Code of Practice to improve protection for end customers –, we were satisfied on the whole with the achieved growth.
Another important and large market for our company is US mortality business. We have systematically expanded this business since 2009 and offer the entire spectrum of mortality- oriented reinsurance solutions. In the year under review part of our in-force portfolio fared more poorly than expected, significantly impacting the result. These losses are based in part on reserve increases and business recaptures, which will ensure an improved experience going forward and thereby prevent losses over the long term. Detached from this development, the volume of new US business performed in line with our expectations, although this was not sufficient to offset the adverse effects associated with the in-force portfolio – as reflected in the results.
In principle, we are satisfied with the development of our portfolio in the countries of Southern and Eastern Europe, given that for the most part they fared positively as anticipated. In Northern Europe, too, we preserved our strong market position. The markets of the Middle East proved to be highly competitive, although in this region we were successful in rolling out our automated underwriting system hr | ReFlex with a number of customers. This delivered a crucial competitive advantage by enabling our customers to expand their product range to include risk-oriented covers such as strict (any occupation) disability and critical illness insurance.
The market for group business proved to be comparatively competitive, especially in Hong Kong. Despite this, we successfully renewed our portfolio thanks to our disciplined underwriting approach and thereby consolidated our market position. In other areas of Asia and Latin America we similarly recorded a positive development and booked growth in line with our expectations.
Underwriting services A core focus of our underwriting services is on our automated underwriting systems and providing the associated support for our customers that goes beyond pure risk transfer. In the year under review it was again evident that these services, in particular, cement our long-term business relationships with our customers and deliver a competitive advantage.
Process automation was a dominant topic throughout the entire (re) insurance industry. With the aid of our underwriting systems, our customers are able to automate and structure the underwriting process so as to ensure that their end customers immediately receive an offer tailored to their needs and can at once arrive at a decision. We were thoroughly satisfied with the development of our underwriting system hr | Quirc, which customer surveys carried out last year in South Africa crowned as the most widely used system in the market and the one with the highest satisfaction rates. In addition to South Africa, we successfully launched the system in other African countries as well as the Middle East. Not only that, customers from Asia and Australia increasingly expressed their interest as well. Similarly, we are exceptionally satisfied with the development and progressive international roll-out of our new and even more state-of-the-art system hr | ReFlex. The number of implementations rose sharply in the year under review, enabling us to boost our market penetration throughout Europe, in particular, and in the United States as well as to improve our name recognition in other markets such as those of Latin America. We enjoyed a consistently positive response from customers; what is more, customer surveys showed that hr | ReFlex is generating extraordinarily high rates of satisfaction, especially in the US and Northern Europe.
Furthermore, we were highly successful in implementing our underwriting system hr | ReFlex in the US market in cooperation with a US insurtech partner. Online and mobile distribution channels are used to sell life insurance directly to end consumers. In the US life insurance market policies have hitherto generally tended to be sold by traditional means through agents. As a result, the broad middle class does not have sufficient insurance protection because they are not addressed by agents. The innovative combination of online insurance sales with our automated underwriting system hr | ReFlex delivers a cost-efficient and flexible solution for end consumer and provider alike.
All in all, the focus of all our activities – taking into consideration our corporate objectives – is on the needs of our customers.
One in three adults monitors their health with fitness trackers and lifestyle apps.
We recognise a derivative for the credit risk associated with special life reinsurance treaties (ModCo) under which securities deposits are held by cedants for our account; the performance of this derivative in the year under review gave rise to positive fair value changes recognised in income of EUR 3.7 million (EUR 0.5 million). Altogether, the positive changes in the fair values of our financial assets recognised at fair value through profit or loss amounted to EUR 38.6 million (EUR 26.1 million ). The principal items recognised here are various derivative financial instruments relating to the technical account or taken out as currency or interest rate hedges as well as fixed-income assets for which the fair value option provided by IAS 39 was applied.
Impairments and depreciation totalling EUR 71.9 million (EUR 76.3 million) were taken. The impairments were attributable in an amount of EUR 15.6 million (EUR 0.0 million) to two real estate properties in the United States. Equities accounted for an amount of EUR 3.7 million (EUR 30.1 million ). Impairments of EUR 8.4 million (EUR 11.7 million) were recognised on alternative investments. The write-downs taken on fixed-income securities amounted to just EUR 0.3 million (EUR 0.7 million). Impairments were also taken on our portfolio of equity investments in an amount of EUR 10.4 million (EUR 1.9 million). Scheduled depreciation on directly held real estate rose to EUR 31.0 million (EUR 28.9 million), a reflection
Change in fair value of financial instruments 3 38.6 +48.0% 26.1 0.9 (33.3) (27.1)
Net investment income from assets under own management 1,539.0 +26.3% 1,218.3 1,270.1 1,095.8 1,054.5
Despite the challenging interest rate environment, we were able to generate investment income of EUR 1,773.9 million that was clearly in excess of the comparable period (EUR 1,550.4 million ) on the back of stronger ordinary income from real estate and private equity as well as higher realised gains. Income from assets under own management accounted for EUR 1,539.0 million (EUR 1,218.3 million), producing an average return (including effects from ModCo derivatives) of 3.8%. We thus clearly beat the 2.7% goal that we had originally set ourselves for the full financial year and comfortably outperformed the minimum target return that we had revised upwards to 3.0% in the fourth quarter. This can be attributed first and foremost to the substantial gains realised on the liquidation of our portfolio of non-strategic listed equities, but was also made possible by the pleasing ordinary income booked from private equity and real estate funds, which came in higher than anticipated.
By adjusting the maturity pattern of our fixed-income securities to the expected payment patterns of our liabilities we reduce the economic exposure to the interest rate risk. In the current reporting period this gave rise to a broadly neutral modified duration of our bond portfolio, which stood at 4.8 (previous year: 5.0) as at 31 December 2017. Through active and regular
As at year-end 2017 we held 30.1% (30.2%) of our investments in euro, 45.5% (48.3%) in US dollars, 8.2% (6.9%) in pound sterling and 5.9% (5.1%) in Australian dollars.
Furthermore, we made the most of market opportunities available to our US real estate portfolio by both selling and acquiring one office building. Our real estate portfolios in Asia and Eastern Europe were similarly enlarged. In Germany, on the other hand, we acted on sales opportunities for two of our properties, although we also consolidated our portfolio through the acquisition of a new property. Our real estate allocation consequently rose slightly. It currently stands at 5.3% (4.6%). As at the end of the year under review we held a total amount of EUR 1.8 billion (EUR 1.7 billion) in short-term investments and cash. Funds withheld amounted to EUR 10.9 billion (EUR 11.8 billion).
The equity including non-controlling interests at 15.2% (15.3%) of the balance sheet total as well as the loans and – especially – subordinated capital at an altogether unchanged 2.8% (2.8%) of the balance sheet total represent our most important sources of funds.
We ensure that our business is sufficiently capitalised at all times through continuous monitoring and by taking appropriate steering actions as necessary. For further information please see the following section “Management of policyholders ’ surplus”.
Capital structure as at 31 December 2017 M 30 2.8% Loans and subordinated capital 15.2% Equity 4.9% Other liabilities 77.1% Technical provisions and liabilities
In its capital management Hannover Re is guided by the requirements and expectations of the rating agencies with an eye to its targeted rating. Furthermore, while making appropriate allowance for business policy considerations and factors that influence market presence, the allocation of capital to the Group’s operational companies is based upon the economic risk content of the business group in question. The Group companies are also subject to national capital and solvency requirements. All Group companies met the applicable local minimum capital requirements in the year under review. Adherence to these capital requirements is continuously monitored by the responsible organisational units on the basis of the latest actual figures as well as the corresponding planned and forecast figures. If, despite the capital allocation mechanisms described above, a scenario occurs in which there is a danger of minimum capital requirements being undershot, suitable options are immediately discussed and measures set in motion to counteract such an eventuality. From the Group perspective we manage Hannover Re’s solvency using our internal capital model (cf. “Opportunity and risk report”, page 79 et seq.).
Non-controlling interests in shareholders’ equity increased by EUR 14.8 million to EUR 758.1 million as at 31 December 2017. The bulk of this – in an amount of EUR 702.4 million – is attributable to the non-controlling interests in E+S Rückversicherung AG.
Our subordinated bonds supplement our equity with the aim of reducing the cost of capital and also help to ensure liquidity at all times. As at the balance sheet date altogether three subordinated bonds had been placed on the European capital market through Hannover Rück SE and Hannover Finance (Luxembourg) S.A.
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 500 million; 2012 / 2043 20.11.2012 5.00 497.8 497.5
Hannover Rück SE, subordinated debt, EUR 500 million; 2014 / undated 15.9.2014 3.375 495.0 494.5
Hannover Re does not conduct any automated internal cash pooling within the Group. Liquidity surpluses are managed and created by the Group companies. Various loan relationships exist within the Hannover Re Group for the optimal structuring and flexible management of the short- or long-term allocation of liquidity and capital.
Consolidated cash flow statement M 34 in EUR million 2017 2016
Change in cash and cash equivalents according to cash flow statement (13.0) 27.7
Cash and cash equivalents at the end of the period 835.7 848.7
Overall, the cash and cash equivalents therefore decreased year-on-year by EUR 13.0 million to EUR 835.7 million.
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 500 million; 2012 / 2043 A aa-
Hannover Re avails itself of the option to present a combined Group and company management report pursuant to § 315 Para. 3 of the Commercial Code (HGB) in conjunction with § 298 Para. 3 of the Commercial Code (HGB). Supplementary to the reporting on the Hannover Re Group, we discuss below the development of Hannover Rück SE.
Since 1 January 1997 Hannover Rück SE has written active reinsurance for the Group – with few exceptions – solely in foreign markets. Responsibility within the Hannover Re Group for German business rests with the subsidiary E+S Rückversicherung AG.
Condensed profit and loss account of Hannover Rück SE M 39 in EUR thousand 2017 2016
Allocated investment return transferred from the non-technical account, net of retrocession 185,841 237,271
The profit on ordinary activities decreased to EUR 968.0 million (EUR 1,241.8 million). The year under review closed with a profit for the year of EUR 843.4 million (EUR 949.2 million).
Fire Total gross premium income for the fire line climbed by 20.8% in the 2017 financial year to EUR 1,963.4 million (EUR 1,625.5 million). The net loss ratio rose from 67.7% to 75.7%. The underwriting result declined to EUR -122.5 million (EUR 57.5 million). An amount of EUR 337.2 million (EUR 211.6 million) was withdrawn from the equalisation reserve and similar provisions, primarily because the lossheavy 2001 financial year was eliminated from the 15-year observation period.
Hannover Rück SE: Breakdown of gross premium M 40 by individual lines of business in EUR million 10,86511,048
Casualty Gross premium in casualty business climbed by 9.7% to EUR 1,584.0 million (EUR 1,443.7 million). The loss ratio decreased from 78.0% to 44.3%. The underwriting result improved to EUR 349.5 million (EUR -17.4 million) in the year under review. An amount of EUR 305.1 million was allocated to the equalisation reserve and similar provisions; the allocation in the previous year had totalled EUR 190.3 million.
Motor Driven by large-volume quota share treaties, gross premium income for the motor line soared by 103.8% to EUR 1,860.8 million (EUR 913.1 million). The loss ratio increased from 68.1% to 85.6%. The underwriting result closed at EUR -247.5 million after EUR 53.2 million in the previous year. An amount of EUR 60.5 million was withdrawn from the equalisation reserve and similar provisions in the year under review, following an allocation of EUR 106.5 million in the previous year.
Aviation The gross premium volume fell by 12.8% from EUR 273.0 million to EUR 238.1 million. The loss ratio moved into negative territory at -42.7% (57.7%) due to the favourable run-off of losses from prior underwriting years and other effects. The underwriting result came in at EUR 198.6 million (EUR 39.3 million). An amount of EUR 57.1 million was withdrawn from the equalisation reserve and similar provisions in the year under review, following an allocation of EUR 23.3 million in the previous year.
Life Gross premium income in the life line was stable in the reporting period at EUR 4,104.9 million (EUR 4,107.8 million). From an overall perspective, life and health reinsurance business developed broadly in line with expectations. In Europe, fulfilment of Solvency II requirements was an ever-present issue. Demand was particularly heavy in the area of longevity risks because Solvency II requires primary insurers to establish high reserves as collateral for pension obligations that are usually still in the distant future. In developing countries a steadily growing and ageing middle class led to pleasing growth, above all driving demand for critical illness covers.
The total gross premium volume in the other lines grew by a modest 0.7% to EUR 2,862.4 million (EUR 2,841.6 million). The net loss ratio climbed from 72.5% to 80.9%. The underwriting result closed at EUR -202.3 million following EUR -20.5 million in the previous year. An amount of EUR 37.2 million was allocated to the equalisation reserve and similar provisions after a withdrawal of EUR 9.8 million in the previous year.
Balance sheet structure of Hannover Rück SE M 41 in EUR thousand 2017 2016
Our capital and reserves – excluding the disposable profit – stood at EUR 1,631.7 million (EUR 1,631.7 million). The total capital, reserves and technical provisions – comprised of the capital and reserves excluding disposable profit, the subordinated liabilities, the equalisation reserve and similar provisions as well as the net technical provisions – decreased during the year under review to EUR 33,358.4 million (EUR 34,011.8 million ). The balance sheet total of Hannover Rück SE fell to EUR 37.9 billion (EUR 39.0 billion).
The business development of Hannover Rück SE is essentially subject to the same risks and opportunities as that of the Hannover Re Group. As a general principle, Hannover Rück SE shares in the risks of participating interests and subsidiaries according to the amount of its respective holding; these are described in the risk report. The relations with participating interests of Hannover Rück SE may also give rise to losses from legal or contractual contingent liabilities (particularly novation clauses and guarantees). Please see our explanatory remarks in the notes to this report.
Pursuant to § 315b (1) Sentence 3 German Commercial Code (HGB), reference is also made to non-financial information provided elsewhere in the Group management report with respect to certain aspects. Unless otherwise stated, all information refers to the Hannover Re Group. The Group non-financial information statement is a section of the report that the legislator has expressly exempted from the audit of the financial statements (§ 317 (2) Sentence 6 and Sentence 4 German Commercial Code (HGB); unaudited information). It is the responsibility of the Supervisory Board to verify the lawfulness, correctness and expediency of the Group non-financial information statement.
A detailed description of Hannover Re’s sustainability efforts, which go above and beyond the legal requirements of the Group non-financial information statement, is provided in a separate Sustainability Report compiled annually by the Group on a voluntary basis.
For a detailed description of the business model please see the section "Business model" under “Foundations of the Group” on page 15 of the Group management report.
Our Group strategy encompasses ten strategic principles that apply to all business units and help to ensure realisation of our vision for the strategy cycle 2015 to 2017 “Long-term success in a competitive business”. The objectives of our Group strategy are pursued in accordance with our holistic management system Performance Excellence 2.0. Based on the Excellence Model of the European Foundation for Quality Management (EFQM), this requires each organisational unit of our Group to define and explore its contribution to the Group strategy. In this way, we ensure that all initiatives and measures within our Group are rigorously linked to the corporate strategy. Indicators for the status of target attainment are mapped centrally in our Target Matrix. For further details please see the section “Value-based management” on page 16 of the Group management report.
• Grow the premium volume (by more than the market average)
• Outperform the Global Reinsurance Index (GloRe) over a three-year period
• Consistently pay an attractive dividend 2. We are a preferred business partner
Hannover Re | Annual Report 2017 3. We aim for successful employees
• Foster the qualifications, experience and commitment of our staff 4. We strive for an optimal balance between stability and yield of our investments
• Ensure protection of capital through qualitative risk management 6. We maintain an adequate level of capitalisation
• Ensure a lower expense ratio than our competitors 8. We use information technology to achieve a competitive advantage
• Information and communication systems assure optimal support for business processes in light of cost / benefit considerations 9. We are committed to sustainability, integrity and compliance
As enshrined in Item 9. of the Group strategy, sustainability forms an integral part of our actions. Our goal is to harmonise our business operations with environmental and social requirements. To do this, we have developed a sustainability strategy that complements the guiding model of our Group strategy. This defines four actions fields, concrete goals and measures, while also taking into account the major requirements and interests of our stakeholders. Of particular relevance here are our customers, our investors and our employees.
These issues dovetail to some extent with the topics to be reported on under the CSR Directive Implementation Act. In the process of preparing the non-financial information statement, the legally required dimensions of “business relevance” and “impacts” were factored into the determination of materiality.
As a first step, the 15 material issues identified for the sustainability strategy were evaluated on a scale of 0 to 5 with an eye to their business relevance to the non-financial aspects of the CSR Directive Implementation Act. We consider issues rated 3.3 and higher to be material for our company within the meaning of this legislation. In a second step, the issues pinpointed by this evaluation as material were rated – again using the aforementioned points scale – according to their direct and indirect impacts on the non-financial aspects. All issues rated 3.3 or higher were included and form the content of our non- financial information statement. The matrix below compares the reportable aspects with the issues that we identified as material within the meaning of the CSR Directive Implementation Act and highlights thematic overlaps.
As an internationally operating company, Hannover Re bears responsibility in various senses. This is true of compliance with relevant laws and regulations, but also applies to the relationship with staff, shareholders, the public at large and the cultures within which the company operates. As a listed European company (SE) based in Germany, the formal framework that shapes Hannover Re’s corporate governance is determined by national law. The fundamental hallmarks of this corporate governance structure are a two-tier system with its transparent and effective split into management (Executive Board) and its oversight (Supervisory Board), the appointment of shareholder and employee representatives to the Supervisory Board and the rights of co-administration and supervision exercised by shareholders at the General Meeting. The interplay between these bodies is regulated by German stock corporation law and by the company’s Articles of Association. Furthermore, our Group Strategy, the Corporate Governance principles and our Code of Conduct form the basis of our enterprise management.
In addition to our continuous engagement with the changing general legal framework, since 2003 we have provided an annual Declaration of Conformity with the German Corporate Governance Code (DCGK) which is published on our company’s website and reproduced on page 106 of the Group management report. The Corporate Governance principles of Hannover Rück SE are also subject to regular review and fulfil the recommendations of the currently valid version of the German Corporate Governance Code as amended.
Given that the trust of our various stakeholder groups and an immaculate reputation advance the success of our company, we also make every effort to continuously maintain an active dialogue with our stakeholders.
In our annually published Sustainability Report we provide regular updates on our achievements as a responsible enterprise. In so doing, we follow the currently applicable and internationally recognised guidelines of the Global Reporting Initiative (GRI). In our sustainability communication we also fulfil the transparency requirements of environmental, social and governance (ESG) rating agencies, as reflected in the favourable evaluations of our company. Hannover Re participates in the following sustainability ratings: FTSE4Good, Robeco SAM, Oekom Research, Sustainalytics, VigeoEiris, CDP and MSCI. In addition, we are included in the FTSE4Good Index, the Global Challenges Index initiated by the Hannover stock exchange parent company BÖAG Börsen AG as well as in major STOXX indices.
Our goals and performance indicators for value-based enterprise management are set out as part of our Group strategy.
Further information in this regard is provided in the “Value-based management” section of the Annual Report.
Goal to be achieved by 2017: M 44 Attractive investment for sustainability-minded investor groups
Enlarge on rating-specific sustainability topics In the context of the annual online Sustainability Report we have been increasingly responsive to the information requirements of rating agencies and enlarged on various topics, including for example reinsurance solutions.
The term “compliance” can be defined as the totality of all content-related and organisational safeguards that ensure the lawful conduct of the Hannover Re companies, the members of their governing bodies and their employees with regard to all legal and ethical standards as well as the internal corporate policies in the major areas of the organisation and operating processes. We consider efficiently functioning compliance management to be essential, since legally correct, responsible and ethical actions constitute the fundamental precondition for trust in our company and for its competitiveness. In our view, conformity with applicable legal requirements is a self- evident prerequisite for enduring successful business operations. This includes laws and regulations relating to the environment just as it does those with a bearing on, among other things, anti-corruption, the prevention of money laundering, data privacy and tax compliance.
Our Code of Conduct is accepted by our employees as an integral component of their employment contract and therefore has binding effect. It makes clear that active and passive bribery are not tolerated and further makes specific reference to the prohibition of money laundering and illicit financing. The Compliance Officer is to be notified of all suspicious cases. There are also specific rules of conduct, for example in the form of instructions for the avoidance and disclosure of conflicts of interest, for the granting and acceptance of benefits, gifts and invitations, for the arrangement of donations and sponsorships as well as with respect to sideline activities and involvement in other companies and business transactions. Our Code of Conduct also contains specific instructions for containing other corruption risks. These risks include the alleged offence of active and passive bribery as well as the acceptance and granting of benefits, especially in connection with invitations and gifts, procurement, tendering procedures, donations and sponsorship activities. The compliance risks facing the corporate group are regularly analysed in the context of the annual compliance plan and, as appropriate, new measures are suggested. In addition, Group Legal Services – which includes Compliance – follows up on all suspicious cases notified through the whistleblower system.
As a listed company, we also emphasise to our employees the necessity of observing rules on insider trading and we specify blocking periods during which shares may not be traded.
In this context, the monitoring of data privacy requirements takes place in close coordination with Group Auditing. Transparency is ensured through defined reporting channels. The results of the separate data privacy reporting are included in the compliance report.
Observance of applicable sanctions regulations plays a central role for us on account of our international orientation. We have enshrined the requirement for compliance with relevant sanctions provisions in our Code of Conduct and Under writing Guidelines. In addition, a Sanctions Screening Guideline is in place, stipulating when members of staff must perform sanctions screening with respect to the initiation of contracts and / or the payment of claims. A software-supported check continuously verifies whether the company’s data inventories include the names of persons who are subject to sanctions. If the software alerts the user to any such names, these are investigated in a two-step process. Contract formation or payment of funds is prevented if matches are determined. Each working day staff in Group Legal Services check the Official Journal of the European Union for changes in sanctions law on the EU level and publicise relevant changes Group-wide without delay.
Expansion of the international compliance network We organise an annual gathering of European Compliance Officers and also hold conference calls within this group in the other three quarters. In addition, a review of the compliance requirements under Solvency II was carried out.
Through conferences, roadshows and one-to-one meetings, for example, we stay in contact with representatives of the capital market, rating agencies and private investors. Our employees cultivate the dialogue with our worldwide customers through direct, face-to-face discussions. Furthermore, we regularly measure customer satisfaction with the involvement of external market research institutes. We similarly engage in an ongoing dialogue with political decision-makers, supervisory authorities and insurance industry associations – mostly in relation to topical issues in insurance supervision and financial market regulation in Germany, the European Union and on the wider international level. In this context we contribute our specialist expertise from business practice to the public debate.
Goal to be achieved by 2017: M 46 Purposeful stakeholder dialogue
Systematic expansion of the stakeholder dialogue, e. g. with investors practising socially responsible investment (SRI) by attending SRI conferences / roadshows, with rating agencies and by means of regular stakeholder surveys
Compilation of a fact sheet on sustainability at Hannover Re A draft fact sheet had been drawn up by the end of the 2017 financial year. We are aiming to publish it in the first quarter of 2018.
In the area of other risks we pay particular attention to future (emerging) risks. The hallmark of such risks is that their content cannot as yet be reliably assessed. Our interdisciplinary working group on “Emerging Risks and Scientific Affairs” analyses, for example, risks associated with possible climate change. Global warming would, for instance, affect not only natural perils, but also human health, the world economy, the agricultural sector and much more besides. Further examples of emerging risks include technology risks, shortage of resources and supply chain risks. On these and other topics the working group formulates internal position papers and makes recommendations regarding their handling in reinsurance practice. Within the working group the trend radar continuously tracks long-term and mega-trends.
Goal to be achieved by 2017: M 47 Development and expansion of “sustainable” products
Index-based disaster finance concepts, which guarantee rapid financial assistance in the event of natural disasters, have been developed for countries in South America and Asia.
Expansion of the dialogue on emerging risks An in-house information system on topics relating to emerging risks keeps our employees updated and serves as a basis for dialogue. The expansion of the dialogue will continue in the 2018 to 2020 strategy cycle.
ESG criteria. Securities of issuers defined as “non-adequate” are actively reduced while minimising the market impact. In addition, potential new investments are checked in advance to see whether the issuers violate the defined ESG criteria. Such exposure is rejected if this is found to be the case. The portfolio subjected to this screening encompasses major asset classes such as fixed-income securities (government debt securities and debt securities issued by semi-governmental entities, corporate bonds and covered bonds) and listed equities. Altogether, depending on strategically motivated allocation changes, virtually 90% of our investments (carrying value as at the balance sheet date of 31 December 2017: EUR 40.1 billion)
In the year under review we devoted special energy to the implementation of a “best-in-class” investment approach. A designated ESG officer on the investment team assures the development and application of ESG criteria and implementation of the policy. Key investment decisions are also discussed and approved by the Investment Committee. Two members of the Executive Board sit on the Investment Committee.
Goal to be achieved by 2017: M 48 Extension of ESG guidelines for asset management
In 2017 a review of the requirements associated with signing the UN PRIs was initiated. A concrete recommendation for action has still to be formulated, however, and a decision has not yet been finalised. This remains a goal for the upcoming strategy cycle.
Refinement of the ESG Investment Policy incl. development of positive screening
In 2017, for example, we organised events in our “Building Bridges” seminar series, at which underwriters with our clients are able to expand their knowledge of specific types of reinsurance business and risks. In life and health reinsurance our “ReCent Medical News” newsletter informs customers about medical research findings with a bearing on insurance.
Goal to be achieved by 2017: M 49 Customer orientation and satisfaction
In the life and health reinsurance business group the newsletter “ReCent Medical News” has been an established feature for a number of years; it provides insights into the findings of medical research, case studies and underwriting methods.
Several customer surveys have been held since 2015 (including in Australia and Italy).
Work has begun on implementation of a proprietary CRM application (“CoRe”). This will be further expanded in subsequent years.
The basis of our common corporate culture is the greatest possible delegation of tasks, responsibilities and authority. In this way we ensure that our employees are able to act in a quick and flexible manner. This is supported through management by objectives, and we expect our managers to instil a strong sense of accountability in their staff. Our managers therefore play a particularly important role. They lead their staff according to our management principles. We support them in developing their leadership skills, inter alia with the aid of the management feedback process held on a regular basis. This gives members of staff an opportunity to provide feedback to their supervisor on how his or her management style is experienced.
Where qualifications are equivalent, vacant management posts are filled wherever possible from within the Group, and we therefore consider leadership potential even at the recruitment stage. As part of a standardised process that takes place every other year at the Hannover location, all positions from management level (General Manager / Director) upwards are reviewed at corporate headquarters and at selected international entities. With a view to achieving a better gender balance we strive for an increasing proportion of women on all levels of management.
One of the central concerns in our human resources management is exploring the implications of shifting demographics and helping to preserve the working capacity of our managers and staff. With this in mind, we have put in place strategic health management that includes, for example, in-house wellness days as well as targeted training activities for managers and staff alike. We extended our training programme for managers by including several events on the subject “Wellness – Individual Responsibility and Management Task”. This gives the participating managers an opportunity to grasp the correlation between management and wellness and to reconsider their own behaviour with this in mind.
Along with making every effort to preserve working capacity, we also devote close attention to other demographic issues such as the more demanding requirements placed on our managers by the changing age structures in our society and hence also within our organisation. To this end, we extended the training programme provided to our managers in the financial year just ended so as to enable them to explore topics such as generation management.
A further important component of our health management is the Employee Assistance Programme. This has been available to our managers, staff and their family members since August 2016. The programme offers free and anonymous immediate counselling on personal, professional and health concerns as well as a service for families. Early numbers confirm that this programme has been well-received and is seen as helping to ensure that individual challenges in working or home life do not become burdens.
Goal to be achieved by 2017: M 51 Expansion of further training measures for specialist and executive staff
Goal to be achieved by 2017: M 52 Preserve and restore the performance capability of our staff
Continuation of existing health programmes / check-ups In 2016 we held our first “Wellness Day”, offering staff a wide range of insights into how to stay healthy and prevent disease. As a result, an additional training activity addressing the topic of relaxation skills was implemented.
Development of a counselling service for professional and personal crises (“Employee Assistance Programme” at the Hannover location)
The specifics were worked out by a specially formed working group. Discussions and consultations were ongoing with the Employee Council.
Continuation of the offered family services Under the Employee Assistance Programme (EAP), family members of our staff and managers are also able to access the available services.
We believe in enabling our employees to strike a healthy balance between their professional and private life. We therefore offer part-time and teleworking models that can be individually structured and flexible working-time arrangements without core hours. Through this flexibility we want to make it easier for our employees to organise everyday life in phases such as starting a family or preparing for the end of their professional career, e. g. through partial retirement arrangements. These benefits are reflected in a low staff turnover rate and the long periods of time that our employees stay with the Group.
We also operate our own company daycare centre at the Hannover location, offering altogether 30 places for all-day care of infants (up to the age of three).
Our employees are paid according to their specific tasks, their skills and qualifications and their performance. At the same time, employees in Germany benefit from the security and advantages of the collective agreement for the private insurance industry. 93% of our employees at the Hannover location are covered by the collective bargaining agreement. The remaining 7% can be attributed to some non-collective agreements with managers. All employees in Brazil, Italy, France, Sweden and Spain are covered by collective bargaining agreements.
Supplementary to individual and statutory retirement provision, employees in Germany who have been with us for longer periods of time are entitled to inclusion in the employer-funded retirement provision models. The amount of the funding contributions is determined by the individual salary levels and calculated according to the pay scale groups under the collective agreement.
Employees can accumulate further employee-funded occupational retirement provision by way of deferred compensation. In this case we pay the contributions from the employee’s gross salary into the pension fund.
Expansion of the care services provided for employees’ children at the company’s infant daycare centre 30 places are currently available. This capacity can be expanded as necessary; in 2017 there was no need for additional places.
Continuation of the mentoring programme for female employees with the aim of increasing the proportion of women in management positions
The first round of the programme was completed in 2016. Information events for a new round were held at the end of 2016 and the internal application process was set in motion. As a result, the next round of the mentoring programme got underway in March 2017.
Training / awareness-raising of executives An executive seminar was held on “Gender-specific Communication ”. This forms an integral part of our further training programme for managers that continued in 2017.
Our reinsurance products contribute substantially to hedging against crop failure and stabilising the world’s food situation.
The importance of insurance protection for agricultural land and livestock is increasing, both in developed countries and in emerging markets.
Our current corporate strategy encompasses ten guiding principles that safeguard the realisation of our vision “Long-term success in a competitive business” across the various divisions. For further information on the corporate strategy, the updating of this strategy effective 1 January 2018 and the strategic principles we would refer to our website (www.hannover-re. com/135441/group-strategy-at-a-glance).
We manage our total enterprise risk such that we can expect to generate positive IFRS Group net income with a probability of 90% p. a. and the likelihood of the complete loss of our economic capital and shareholders’ equity under IFRS does not exceed 0.03% p. a. These indicators are monitored using our internal capital model and the Executive Board is informed quarterly about adherence to these key parameters as part of regular reporting. The necessary equity resources are determined according to the requirements of our economic capital model, regulatory parameters, the expectations of rating agencies with respect to our target rating and the expectations of our clients. Above and beyond that, we maintain a capital cushion in order to be able to act on new business opportunities at any time.
Probability of loss of shareholders ’ equity under IFRS < 0.03% 0.01%
Major external factors influencing risk management in the financial year just ended Regulatory developments: The implementation of the new European supervisory regime Solvency II effective 1 January 2016 continued to make itself felt in 2017. Among other things, a Solvency and Financial Condition Report had to be compiled for the first time. Hannover Re published the report on 10 May 2017 on its website. Additional reporting requirements to the insurance regulator were fulfilled in 2017.
Hannover Re received approval from the regulatory authorities to calculate its solvency requirements using a partial internal capital model with effect from the entry into force of Solvency II on 1 January 2016. In 2017 the Hannover Re Group additionally received permission from the Federal Financial Super visory Authority (BaFin) to calculate the operational risk on the Group level using the internal model and now has a full internal model. The aim is to obtain approvals for the solo entities belonging to the Group.
Brexit: In view of the slow progress of negotiations in 2017, it is increasingly likely that the status of legal relations between the European Union and United Kingdom will not be entirely resolved by the withdrawal date of 30 March 2019. Consequently, the Hannover Re Group must also be prepared for a “hard” Brexit and the associated workload and expenses. With this in mind, Hannover Re has set up a Group-wide working group to address readiness measures. The major impacts will be felt by our entities in the United Kingdom. The “Hannover Re Life UK Branch” and “Inter Hannover UK Branch” write significant premium volumes in life reinsurance as well as property and casualty insurance respectively. The legal status of a locally authorised entity in the United Kingdom in the form of a “third-country branch” will be sought in order to continue operations after a hard Brexit. This would be necessary in the event of the United Kingdom not recognising EU supervision and / or the Solvency II regulatory regime in the future. This will, however, entail an increased regulatory workload and capital expenditure. “Argenta Holdings plc” is a stand-alone subsidiary in the United Kingdom and already authorised as a member of Lloyd’s. Furthermore, the business volume transacted with the EU is minimal with a premium share of less than 5%. Argenta will therefore be affected only marginally. We also write business in the United Kingdom through Group companies in Hannover and Ireland. In this regard we do not anticipate any significant changes as a result of Brexit.
Natural catastrophe risks and climate change: 2017 was notable for an above-average number of natural disasters. The largest insured losses resulted from the three hurricanes in the Atlantic, the cyclone in Australia and the two earthquakes in Mexico. For Hannover Re, too, these events constituted major losses. All these events were optimally reflected in the assumptions underlying the natural perils models which are used for pricing and managing natural catastrophe risks. The possibility that the increased storm activity is due to progressive global warming cannot be ruled out. Hannover Re works together with partners to closely monitor the implications of global warming for extreme weather events so as to be able to incorporate the insights obtained into the models.
Hannover Re is thus well capitalised and our available capital comfortably exceeds the required capital, both from the economic and the regulatory perspective: Available capital and required risk capital M 57 in EUR million 31.12.2017 (economic)
We hold additional capital above all to meet the requirements of the rating agencies for our target rating and to be able to act flexibly on business opportunities. We strive for a rating from the rating agencies most relevant to our industry that facilitates and secures our access to all reinsurance business worldwide. Hannover Re is analysed by the rating agencies Standard & Poor’s (S & P) and A.M. Best as part of an interactive rating process. The current financial strength ratings are assessed as “AA-” (Very Strong, stable outlook) by Standard & Poor’s and “A+” (Superior, stable outlook) by A.M. Best. Standard & Poor’s evaluates Hannover Re’s risk management as “Very Strong”, the best possible rating.
In awarding these ratings the agencies highlighted the company ’s very good risk management, the consistent and systematic implementation of corporate strategy by management and its excellent capital resources. Hannover Re’s internal capital model was also subjected to expert appraisal. As a result of this review, Standard & Poor’s factors the results of the Hannover Re Group’s internal capital model into the determination of the target capital for the rating.
Hannover Re has set up risk management functions and bodies Group-wide to safeguard an efficient risk management system. The organisation and interplay of the individual functions in risk management are crucial to our internal risk steering and control system. The central functions of risk management are closely interlinked in our system and the roles, tasks and reporting channels are clearly defined and documented in terms of the so-called “3 lines of defence”. The first line of defence consists of risk steering and the original risk responsibility on the divisional or company level. Risk management ensures the second line of defence – risk monitoring. It is supported in this regard by the actuarial function and the compliance function. The third line of defence is the process-independent monitoring performed by the internal audit function. The
Treaty / regional and service divisions within the business groups of Property & Casualty reinsurance, Life & Health reinsurance and investments Risk steering and original risk responsibility for risk identification and assessment on the divisional and company level 3rd line of defence2nd line of defence2nd line of defence 1st line of defence
Risk monitoring across the Group as a whole and the business groups of all material risks from the company perspective supported by local risk management functions
Risk identification A key source of information for monitoring risks is the risk identification carried out on a periodic basis. All identified risks are documented in a central register containing all material risks.
Risk analysis and assessment In principle, every risk that is identified and considered material is quantitatively assessed. Only risk types for which quantitative risk measurement is currently impossible or difficult are qualitatively assessed (e. g. strategic risks, reputational risks or emerging risks). Qualitative assessment can take the form of, for example, expert evaluations. Quantitative assessment of material risks and the overall risk position is performed using Hannover Re’s internal capital model. The model makes allowance for risk concentration and risk diversification.
Risk reporting Our risk reporting provides systematic and timely information about all material risks and their potential implications. The central risk reporting system consists primarily of regular risk reports, e. g. on the overall risk situation, adherence to the parameters defined in the risk strategy or on the capacity utilisation of natural catastrophe scenarios. Complementary to the regular risk reporting, immediate internal reporting on material risks that emerge at short notice takes place as necessary. The already existing range of risk reports was supplemented by further reports in the context of Solvency II requirements and the associated Pillars II and III. In this regard Hannover Re has made considerable efforts in recent years to already incorporate into its IFRS reporting the foreseeable contents of the public SFCR.
Within the scope of our control system the Group companies are responsible for Group-wide adherence to the accounting policies and the internal control guidelines. The managing directors and chief financial officers of the Group companies defined as material in our control system affirm to the Executive Board of Hannover Rück SE at each closing date the completeness, correctness and reliability of the financial data that they pass on to Group Accounting. Data for the preparation of the consolidated financial statement is delivered using a networked IT application. The relevant data for Group financial reporting is collected in a database and processed via automatic interfaces in a consolidation system. As part of the financial reporting process we perform preventive and detective checks on the reported figures in order to minimise the probability and reduce the impacts of a potentially incorrect disclosure.
In the context of its business operations the Hannover Re Group enters into a broad variety of risks. These risks are deliberately accepted, steered and monitored in order to be able to act on the associated opportunities. The parameters and decisions of the Executive Board with respect to the risk appetite of the Hannover Re Group, which are based on the calculations of risk-bearing capacity, are fundamental to the acceptance of risks. Through our business operations on all continents and the diversification between our Property & Casualty and Life & Health reinsurance business groups we are able to effectively allocate our capital in light of opportunity and risk considerations and generate a higher-than-average return on equity. Along with our principal business operations as a reinsurer of property & casualty and life & health business, we also transact primary insurance in selected niche markets as a complement to our core reinsurance business. With this approach we are well positioned for further profitable growth. In this context crucial importance attaches to our risk management in order to ensure that, among other things, risks to the reinsurance portfolio remain calculable and also exceptional major losses do not have an unduly adverse impact on the result.
In this section we compare the available economic capital with the required risk capital in greater detail. Hannover Re calculates the economic equity as the difference between the market- consistent value of the assets and the market-consistent value of the liabilities. While fair values are available for most investments, the market-consistent valuation of reinsurance treaties necessitates a specific valuation model. We establish the market-consistent value of technical items as the present value of projected payments using actuarial methods. This is adjusted by a risk loading that factors in the fluctuation in future payments. Such fluctuations result from risks that cannot be hedged by means of capital market products, such as underwriting risks. For the discounting of future cash flows we use the risk-free basic yield curves without volatility adjustment or matching adjustment calculated in accordance with Solvency II rules. Market prices for options and guarantees embedded in insurance contracts are determined or approximated using option valuation models from the field of financial mathematics. The volume of these options and guarantees in our portfolio is, however, comparatively slight. The adjustments for assets under own management shown in the following table indicate the difference between fair value and book value of those investments recognised under IFRS at book values. Other adjustments encompass above all the deferred taxes. The available economic capital, which is available as liable capital for policyholders, is composed of the economic equity and the hybrid capital and includes the deduction of foreseeable dividends as required by Solvency II. Hybrid capital is recognised at market-consistent value as required by Solvency II, with changes in the own credit risk not being included in the valuation.
The available economic capital decreased to EUR 13,041.8 million as at 31 December 2017, compared to EUR 13,461.0 million as at 31 December 2016 (pursuant to the Solvency II year-end reporting for 31 December 2016). The primary factor here was the general strengthening of the euro, especially against the US dollar. Shareholders’ equity held in foreign currencies consequently has a diminished value in euro. The recon ciliation from measurement under IFRS to measurement under Solvency II is broadly stable, with underlying effects such as interest rate changes and other changes in the technical provisions largely cancelling each other out.
2 Minor changes for 31 December 2016 compared to annual report 2016. Figures based on final Solvency II year-end reporting as presented in the Solvency and Financial Condition Report.
The required risk capital of the Hannover Re Group with the target confidence level of 99.5% decreased to EUR 4,729.0 million as at 31 December 2017, compared to EUR 5,149.5 million as at 31 December 2016. As with the shareholders’ equity, a key driver of the reduction here is the stronger euro against our major foreign currencies, especially the US dollar, and the associated lower foreign-currency volumes underlying the risks, including for example the volume of investments. In addition, lower market risks led to a decrease in the risk capital. With regard to regulatory capital requirements, the integration of the operational risk model – which was approved last year – also contributed to an increase in the Solvency II capital adequacy ratio.
The underwriting risks in property and casualty reinsurance decreased primarily as a consequence of the weaker US dollar against the euro and slightly improved diversification within property and casualty reinsurance. The underwriting risks in life and health reinsurance increased owing to higher mortality risks due to more robust assumptions and model changes. The decrease in counterparty default risks is principally the result of a lower volume of receivables due from ceding companies and retrocessionaires as well as reduced volatility of the modelled losses.
Underwriting risk property and casualty 3,485.4 3,552.9 1 Required risk capital at a confidence level of 99.5%
The largest share of the required risk capital for the premium risk (including catastrophe risk) is attributable to risks from natural disasters. The following table shows the required risk capital for our four largest natural hazards scenarios: Required risk capital 1 for the four largest M 63 natural hazards scenarios in EUR million 2017 2016
The reserve risk, i. e. the risk of under-reserving losses and the resulting strain on the underwriting result, is a high priority in our risk management. We attach importance to maintaining a conservative reserving level. In order to counter the risk of under-reserving we calculate our loss reserves based on our own actuarial estimations and establish, where necessary, additional reserves supplementary to those posted by our cedants as well as the segment reserve for losses that have already
For the purpose of assessing our material catastrophe risks from natural hazards (especially earthquake, windstorm and flood) we use licensed scientific simulation models, supplemented by the expertise of our own specialist departments, that deliver probability distributions for losses from natural catastrophes. The monitoring of the risks resulting from natural hazards is rounded out by scenario analyses. Major scenarios and stress tests are shown below.
Within the scope of this process, the Executive Board defines the risk appetite for natural perils once a year on the basis of the risk strategy by specifying the portion of the economic equity that is available to cover risks from natural perils. This is a key basis for our underwriting approach in this segment and served to significantly cushion, for example, the strain from this risk category in 2017. As part of our holistic approach to risk management across business groups, we take into account numerous relevant scenarios and extreme scenarios, determine their effect on portfolio and performance data, evaluate them in relation to the planned figures and identify alternative courses of action.
For the purposes of risk limitation, maximum amounts are also stipulated for various extreme loss scenarios and return periods in light of profitability criteria. Risk management ensures adherence to these maximum amounts. The Executive Board, Risk Committee and P&C Executive Committee are kept regularly updated on the degree of capacity utilisation. The limits and thresholds for the 200-year aggregate loss as well as the utilisation thereof are set out in the following table: Limit and threshold for the 200-year aggregate M 66 annual loss as well as utilisation thereof in EUR million
Hurricane “Irma”, United States 5 – 13 September 2017 597.9 342.6
Hurricane “Harvey”, United States 23 – 31 August 2017 215.8 122.1
Forest fires, California, United States 3 – 20 December 2017 27.7 19.2
The price / premium risk lies primarily in the possibility of a random claims realisation that diverges from the claims expectancy on which the premium calculation was based. Regular and independent reviews of the models used for treaty quotation as well as central and local underwriting guidelines are vital management components. We have put in place a multi- step quotation process to ensure the quality of our portfolios:
In addition, Hannover Re’s regional and treaty departments prepare regular reports on the progress of their respective renewals. The reporting in this regard makes reference inter alia to significant changes in conditions, risks (such as inadequate premiums) as well as to emerging market opportunities and the strategy pursued in order to accomplish targets. The development of the combined ratio in property and casualty reinsurance in 2017 and prior years is shown in the table below: Combined and catastrophe loss ratio M 69
Combined ratio (property and casualty reinsurance) 99.8 93.7 94.4 94.7 94.9 95.8 104.3 98.2 96.6 95.4 1 Net share of the Hannover Re Group for natural catastrophes and other major claims in excess of EUR 10 million gross as a percentage of net premium earned (until 31 December 2011: in excess of EUR 5 million gross)
Through our quality assurance measures we ensure that the reserves established by ceding companies in accordance with local accounting principles satisfy all requirements with respect to the calculation methods used and assumptions made (e. g. use of mortality and morbidity tables, assumptions regarding the lapse rate). In addition, the assumptions are continuously reviewed on the basis of empirical data and modified if necessary. New business is written in all regions in compliance with underwriting guidelines applicable worldwide, which set out detailed rules governing the type, quality, level and origin of risks and how these considerations are factored into the pricing. These global guidelines are revised annually and approved by the Executive Board. Special underwriting guidelines give due consideration to the particular features of individual markets. By monitoring compliance with these underwriting guidelines we minimise the risk of an inability to pay or of deterioration in the financial status of cedants. Regular reviews and holistic analyses (e. g. with an eye to lapse risks) are carried out with respect to new business activities and the assumption of international portfolios. Large transactions are also examined by our risk management department. Individual actuarial reports and documentation ensure that regular scrutiny also takes place on the level of the subsidiaries. The interest rate risk, which in the primary sector is important in life business owing to the guarantees that are given, is of only minimal relevance to our company thanks to the design of our reinsurance treaties. We have confidence in the entrepreneurial abilities of our underwriters and grant them the most extensive possible powers. In our decentralised organisation we manage risks where they arise using a consistent Group-wide approach
In recent years we have reported regularly on the results of our US mortality business, which have been poorer than anticipated. This was again the case in the 2017 financial year. The reason for this development is the negative earnings performance of a large portfolio that we, as reported at the time, assumed at the beginning of 2009. The other US mortality business is, by contrast, performing satisfactorily and showing good growth. In consequence, this business overall – i. e. including the poorly performing portfolio – shows a positive value in force (VIF). For this reason, in accordance with the lock-in principle, the assumptions made at the time of treaty formation constitute the basis of reserving that is applicable for IFRS accounting purposes.
The risks arising out of life and health reinsurance are reflected in the internal capital model.
Market risk 3,462.2 4,225.4 1 Required risk capital at a confidence level of 99.5% 2 Including Private Equity
Interest rate and spread markets were relatively stable over the course of the year under review. Despite its conservative posture our investment portfolio benefited modestly from the market movements. Primarily due to lower risk premiums on corporate bonds and declining US dollar interest rates in the long maturities, a significant increase in hidden reserves for fixed-income securities was thus booked over the year as a whole.
At no time were the escalation levels of the trigger system reached in this connection.
The short-term loss probability measured as the VaR (Value at Risk) is another vital tool used for monitoring and managing market price risks. It is calculated on the basis of historical data, e. g. the volatility of the securities positions under own management and the correlation between these risks. As part of these calculations the decline in the fair value of our portfolio is simulated with a certain probability and within a certain period. The VaR of the Hannover Re Group determined in accordance with these principles specifies the decrease in the fair value of our securities portfolio under own management that with a probability of 95% will not be exceeded within ten trading days. A multi-factor model is used to calculate the VaR indicators for the Hannover Re Group. It is based on time series of selected representative market parameters (equity prices, yield curves, spread curves, exchange rates, commodity prices and macro-economic variables). All asset positions are mapped on the level of individual positions within the multi- factor model; residual risks (e. g. market price risks that are not directly explained by the multi-factor model) can be determined through back-calculation and are incorporated into the overall calculation. The model takes into account interest rate risks, default and spread risks, systematic and specific equity risks, commodity risks and option-specific risks. Against the backdrop of what was still a difficult capital market environment, the volatilities of fixed-income assets, in particular, and hence the market price risks increased in the year under review relative to the previous year. Based on continued broad risk diversification and the orientation of our investment portfolio, our Value at Risk was nevertheless clearly below the Value at Risk upper limit defined in our investment guidelines. It amounted to 0.8% (1.2%) as at the end of the reporting period.
Value at Risk 1 for the investment portfolio of the Hannover Re Group M 73 in %
Further significant risk management tools – along with the various stress tests used to estimate the loss potential under extreme market conditions – include sensitivity and duration analyses and our asset / liability management (ALM). The internal capital model provides us with quantitative support for the investment strategy as well as a broad diversity of VaR calculations. In addition, tactical duration ranges are in place, within which the portfolio can be positioned opportunistically according to market expectations. The parameters for these ranges are directly linked to our calculated risk-bearing capacity. Further information on the risk concentrations of our investments can be obtained from the tables on the rating structure of fixed-income securities as well as on the currencies in which investments are held. Please see our comments in section 6.1 of the notes entitled “Investments under own management” on page 195 et seq.
Real estate risks result from the possibility of unfavourable changes in the value of real estate held either directly or through fund units. They may be caused by a deterioration in particular qualities of a property or by a general downslide in market values. Real estate risks continued to grow in importance for our portfolio owing to our ongoing involvement in this sector. We spread these risks through broadly diversified investments in high-quality markets of Germany, Europe as a whole, the United States and Asia; each investment is preceded by detailed analyses of the property, manager and market concerned.
We use derivative financial instruments only to the extent needed to hedge risks. The primary purpose of such financial instruments is to hedge against potentially adverse developments on capital markets. As in the previous year, a portion of our cash flows from the insurance business as well as foreign exchange risks was hedged using forward exchange transactions because currency matching could not be efficiently achieved. Hannover Re holds further derivative financial instruments to hedge interest rate risks from loans taken out to finance real estate. In addition, Hannover Re has taken out hedges in the form of equity swaps to hedge price risks in connection with the stock appreciation rights granted in 2014 under the Share Award Plan. These are intended to neutralise changes in the fair values of the awarded stock appreciation rights. Contracts are concluded with reliable counterparties and for the most part collateralised on a daily basis so as to avoid credit risks associated with the use of such transactions. The remaining exposures are controlled according to the restrictive parameters set out in our investment guidelines. Our investments entail credit risks that arise out of the risk of a failure to pay (interest and / or capital repayment) or a change in the credit status (rating downgrade) of issuers of securities. We attach equally vital importance to exceptionally broad diversification as we do to credit assessment conducted on the basis of the quality criteria set out in the investment guidelines. We measure credit risks in the first place using the standard market credit risk components, especially the probability of default and the potential amount of loss – making allowance for any collateral and the ranking of the individual instruments depending on their effect in each case.
On a fair value basis EUR 3,942.3 million of the corporate bonds held by our company were issued by entities in the financial sector. Of this amount, EUR 3,189.5 million was attributable to banks. The vast majority of these bank bonds (64.3%) are rated “A” or better. Our investment portfolio under own management does not contain any written or issued credit default swaps.
Counterparty default risk 282.0 296.5 1 Required risk capital at a confidence level of 99.5%
The average default rate from retrocessions over the past four years was 0.06%.
The amount of assets subject to collateral arrangements is well below 60% of Hannover Re’s total assets. This statement is relevant for the calculation of the counterparty default risk with respect to Hannover Re.
Operational risks refer to the risk of losses occurring because of the inadequacy or failure of internal processes or as a result of events triggered by employee-related, system-induced or external factors. In contrast to underwriting risks (e. g. the reserve risk), which we enter into in a deliberate and controlled manner in the context of our business activities, operational risks are an indivisible part of our business activities. The focus is therefore on risk avoidance and risk minimisation. Unlike market, counterparty default and underwriting risks, operational risks are categorised as non-financial risks.
Required risk capital 1 for operational risks M 79 in EUR million 31.12.2017 31.12.2016
Within the overall framework of operational risks we consider, in particular, business process risks including risks associated with deficient data quality, compliance risks including tax risks, risks associated with the outsourcing of functions, fraud risks, personnel risks, information / IT security risks and business interruption risks.
Reinsurance recoverables as at the balance sheet date M 78 in EUR million
In selected market niches we transact primary insurance business that complements our reinsurance activities. In so doing, just as on the reinsurance side, we always work together with partners from the primary sector – such as insurance brokers and underwriting agencies. This gives rise to risks associated with such distribution channels, although these are minimised through the careful selection of agencies, mandatory underwriting guidelines and regular checks.
Information and IT security risks arise, inter alia, out of the risk of the inadequate integrity, confidentiality or availability of systems and information. By way of example, losses and damage resulting from the unauthorised passing on of confidential information, the malicious overloading of important IT systems or from computer viruses are material to the Hannover Re Group. Given the broad spectrum of such risks, a diverse range of steering and monitoring measures and organisational standards, including for example the requirement to conclude confidentiality agreements with service providers, have been put in place. In addition, our employees are made more conscious of such security risks through practically oriented tools provided online in the intranet, by way of training opportunities and through a staff information campaign.
When it comes to reducing business interruption risks, the paramount objective is the quickest possible return to normal operations after a crisis, for example through implementation of existing contingency plans. Guided by internationally accepted standards, we have defined the key framework conditions and – among other measures – we have assembled a crisis team to serve as a temporary body in the event of an emergency. The system is complemented by regular exercises and tests. A leaflet is available setting out the correct behaviour in the event of a business interruption; this condenses in compact form the key information that all employees need to know, such as the information channels to use in a crisis situation.
Reputational risks refer to the risk that the trust put in our company by clients, shareholders, employees or the public at large may be damaged. This risk has the potential to jeopardise the business foundation of the Hannover Re Group. A good corporate reputation is therefore an indispensable prerequisite for our core business as a reinsurer. Reputational risks may arise out of all business activities conducted by the Hannover Re Group. Reputational damage may be caused, inter alia, by a data mishap that becomes public knowledge or financial difficulties on account of an underwriting risk. In addition to the risk identification methods already described, we use a number of different techniques for risk minimisation, such as our defined communication channels (e. g. Crisis Communication Guideline), a professional approach to corporate communications, tried and tested processes for specific crisis scenarios as well as our established Code of Conduct. The reputational risk also relates to our social responsibility and is thus a control point in the context of our sustainability efforts.
Hannover Re | Annual Report 2017 structure of the investments. Above and beyond the foreseeable payments, unexpected and exceptionally large payments may pose a threat to liquidity. In reinsurance business, however, significant events (major losses) are normally paid out after a lead time that can be reliably planned. As part of our liquidity management we have nevertheless defined asset holdings that have proven to be highly liquid – even in times of financial stress such as the 2008 financial crisis. Our holdings of unrestricted German, UK and US government bonds as well as cash during the year under review were larger than possible disbursements for assumed extreme events, which means that our liquidity is assured even in the unlikely case of financial crises coinciding with an extreme event that needs to be paid out quickly. The liquid asset reserve stood at EUR 5.1 billion as at the balance sheet date. In addition, we manage the liquidity of the portfolio by checking on each trading day the liquidity of the instruments contained therein. These measures serve to effectively reduce the liquidity risk.
Key elements in Hannover Re’s opportunity management include its various market-specific innovations in the Life & Health and Property & Casualty reinsurance business groups (see the Forecast on page 137 et seq.). What is more, innovative and creative ideas are developed by our employees. Those that can be successfully translated into additional profitable premium volume are financially rewarded. Further elements are the working group on “Emerging Risks and Scientific Affairs” and the “Future Radar” initiative.
Not only that, Hannover Re has set up an organisational unit for “Innovation Management” within the Chief Executive Officer’s scope of responsibility. This service unit deals systematically with ideas and potential business possibilities and it concentrates its activities on opening up additional growth opportunities. To this end, promising opportunities are translated into business models with the support of project teams. New solutions that meet with a positive response are subsequently launched on the market in cooperation with primary insurance partners. The goal is to cultivate new business and thereby promote Hannover Re’s profitable growth. Several of the more than 115 ideas contributed by the global network since the unit was set up have been realised as innovative insurance solutions and successfully handed over to line responsibility; they are now being sold on the market by primary insurers.
Our experts assess our customers’ cyber risks and offer them custom-made protection coverage.
In 2016, 700 million people in 21 countries were affected by some form of cybercrime.
The networking of the innovative minds involved gives rise to close links with other projects, working groups and bodies, such as with the working group on “Emerging Risks und Scientific Affairs” in regard to emerging risks and opportunities (see page 100 et seq. “Other risks”). This working group carries out qualitative assessments of emerging risks. As a result, however, not only are the potential risks explored but also any available business opportunities. In the year under review, for example, issues such as “Political crimes” and “Regulatory environment” were analysed by the working group.
Our own evaluation of the manageability of existing risks is confirmed by various financial indicators and external assessments. Specific monitoring indicators, corresponding notification thresholds and potential escalation steps are defined on a mandatory basis in our central system of limits and thresholds for the material risks of the Hannover Re Group. As a result, the system provides us with a precise overview of potentially undesirable developments in the defined risk tolerances and enables us to react in a timely manner. One testament to our financial stability, for example, is the growth of our shareholders’ equity: the total policyholders’ surplus (hybrid capital, non-controlling interests and shareholders’ equity) stands at 147% of the corresponding figure from 2011. In this context, our necessary equity resources are determined by the requirements of our economic capital model, solvency regulations, the assumptions of rating agencies with respect to our target rating and the expectations of our clients and shareholders. This increase gives us a sufficient capital cushion to be able both to absorb risks and act on business opportunities that may arise. Similarly, our very good ratings (see page 57 et seq.) also testify to our financial stability. The quality of our Enterprise Risk Management (ERM) is evaluated separately by Standard & Poor’s. In the year under review Standard & Poor’s gave our risk management its highest possible grade of “Very Strong”. Most notably, our established risk management culture – one of the rating agency’s benchmark criteria – promotes the development of appropriate risk monitoring systems and strategic risk management. The evaluation further encompasses the areas of risk controls, emerging risk management and risk models. This external appraisal confirms the quality of our holistic approach to risk management.
The objective of Hannover Re continues to be to consolidate and further expand its position as one of the leading, globally operating reinsurance groups of above-average profitability. In aspiring towards this goal, it is particularly important to observe and fulfil the principles of good and sustainable enterprise management. In so doing, we not only comply with the German Corporate Governance Code (DCGK, hereinafter also referred to as the Code), but have also developed our own model for responsible enterprise management which we consistently pursue and adjust to the latest requirements in accordance with our best practice standards.
hannover-re.com/50889/corporate-governance-principles.pdf). These were adjusted in the year under review to reflect changes in the Code. We cultivate integrity at all times in our dealings with business partners, staff, shareholders and other stakeholder groups and support the principles of value-based and transparent enterprise management and supervision defined in the German Corporate Governance Code. The Supervisory Board, Executive Board and employees of Hannover Re identify with these principles, which thus form part of our corporate self-image. The Executive Board ensures that the principles are observed Group-wide.
The Executive Board and Supervisory Board declare pursuant to § 161 Stock Corporation Act (AktG) that in its implementation of the German Corporate Governance Code Hannover Rück SE diverges in four respects from the recommendations contained in the version of the Code dated 7 February 2017:
Code Section 4.2.3 Para. 2; Caps on the amount of variable compensation elements in Management Board contracts The variable compensation of the members of the Executive Board is granted in part in the form of Hannover Re share awards. The maximum number of share awards granted at the time of allocation depends upon the total amount of variable compensation, which is subject to an upper limit (cap), i. e. the allocation of share awards is limited by the cap. The share awards have a vesting period of four years. During this period the members of the Executive Board therefore participate in positive and negative developments at the company, as reflected in the share price. The equivalent value of the share awards is paid out to the members of the Executive Board after the end of the vesting period. The amount paid out is determined according to the share price of the Hannover Re share applicable at the payment date plus an amount equivalent to the total dividends per share distributed during the vesting period. The share awards consequently follow the economic fortunes of the Hannover Re share.
Even if the Supervisory Board insists upon setting a severance cap when concluding or renewing an Executive Board contract, this does not preclude the possibility of negotiations also extending to the severance cap in the event of a member leaving the Executive Board. In addition, the scope for negotiation over a member leaving the Executive Board would be restricted if a severance cap were agreed, which could be particularly disadvantageous in cases where there is ambiguity surrounding the existence of serious cause for termination. In the opinion of Hannover Rück SE, it is therefore in the interest of the company to diverge from the recommendation contained in Code Section 4.2.3 Para. 4.
This assessment is also not cast into question by the fact that the Committee Chair cannot be considered independent within the meaning of the German Corporate Governance Code. Furthermore, since his service as Chief Financial Officer of Hannover Rück SE dates back to a period that is already some fifteen years ago, it is also the case that the reviews and checks performed by the Finance and Audit Committee no longer relate to any timeframe within which he himself was still a member of the Executive Board or decisions initiated by him as a member of the Executive Board were still being realised.
Code Section 5.3.2 Para. 3 Sentence 3; Chair of the Supervisory Board and Chair of the Audit Committee shall not be the same person The currently serving Chair of the Supervisory Board of Hannover Rück SE is at the same time the Chair of the Finance and Audit Committee. As already explained above in the justification for divergence from Code Section 5.3.2 Para. 3 Sentence 2, there are good grounds to support the current Chair of the Supervisory Board also serving as Chair of the Finance and Audit Committee. In the opinion of Hannover Rück SE, it is therefore in the interest of the company to diverge from the recommendation contained in Code Section 5.3.2 Para. 3 Sentence 3.
We are in compliance with all other recommendations of the Code.
Nomination Committee is a woman. Detailed information on the topic of sustainability is provided on our website (www. hannover-re.com/60729/sustainability).
In accordance with § 289 et seq. Para. 4 Sentence 1 in conjunction with Para. 2 No. 4 Commercial Code (HGB) and § 111 Para. 5 Stock Corporation Act (AktG), the Supervisory Board of the company was required to set fresh target quotas for women on the Supervisory Board and Executive Board because the deadline for reaching the existing targets was 30 June 2017. For the said period the target quotas for women were 30% on the Supervisory Board and zero on the Executive Board. The target set for the Supervisory Board was fulfilled with a quota of around 33%; the target for the Executive Board was not surpassed.
The company’s Executive Board raised the existing targets for the two levels of senior management below the Executive Board from 16.8% to 18% for the same period.
The Executive Board and Supervisory Board of Hannover Rück SE work together on a trusting basis to manage and monitor the company and the Group as a whole. In accordance with the Rules of Procedure of the Executive Board, matters of fundamental importance require the consent of the Supervisory Board. The Supervisory Board is comprised of nine members. Six members are elected as shareholder representatives by the shareholders at the Annual General Meeting. The three seats held by employee representatives, which are currently allocated to Germany pursuant to Part III. § 13 (3) of the Agreement regarding the Participation of Employees in Hannover Rück SE of 23 January 2013, are elected in accordance with the provisions of the SE Participation Act (SEBG) by the responsible representative body (currently the joint Employee Council of Hannover Rück SE and E+S Rückversicherung AG). The Supervisory Board appoints the members of the Executive Board. Since members of the Supervisory Board cannot at the same time belong to the Executive Board, a high degree of
The Rules of Procedure of the Supervisory Board provide inter alia that each member of the Supervisory Board must have the knowledge, skills and professional experience required for orderly performance of their tasks and that the Supervisory Board must have a sufficient number of independent members. Currently, at least two of the six shareholder representatives are independent as defined by Item 5.4.1 Para. 4 of the German Corporate Governance Code. In the assessment of the Supervisory Board, at least the following members of the Supervisory Board are independent shareholder representatives: Dr. Pollak, Dr. Sturany. At least one independent member shall have technical expertise in the fields of accounting and the auditing of financial statements. Persons suggested to the Annual General Meeting as candidates for election to the Supervisory Board may not be older than 72 at the time of their election and shall normally not belong to the Supervisory Board as a member for longer than three full consecutive terms of office; the term of office commencing from the end of the 2014 Annual General Meeting shall be counted as the first term of office in this regard. Nominations shall take account of the company ’s international activities as well as diversity. Furthermore, it shall be ensured that the proposed person can allocate the expected amount of time. For their part, each sitting member of the Supervisory Board shall also ensure that they have sufficient time to discharge their mandate. The Supervisory Board meets at least twice each calendar half-year. If a member of the Supervisory Board has only participated in half of the meetings of the Supervisory Board and the committees or less in a financial year, this shall be noted in the Supervisory Board’s report. No more than two former members of the company’s Executive Board may belong to the Supervisory Board.
The Standing Committee prepares personnel decisions for the Supervisory Board. It bears responsibility for granting loans to the group of persons specified in §§ 89 Para. 1, 115 Stock Corporation Act (AktG) and those considered equivalent pursuant to § 89 Para. 3 Stock Corporation Act (AktG) as well as for approving contracts with Supervisory Board members in accordance with § 114 Stock Corporation Act (AktG). It exercises the powers arising out of § 112 Stock Corporation Act (AktG) in lieu of the Supervisory Board and – in cooperation with the Executive Board – ensures that long-term succession planning is in place.
For further details of the activities of the Supervisory Board committees please see the explanations provided in the Supervisory Board Report on pages 258 to 260.
The risk management system applicable throughout the entire Hannover Re Group is based on the risk strategy, which in turn is derived from the corporate strategy. A core component is the systematic and comprehensive recording of all risks that from the current standpoint could conceivably jeopardise the company ’s profitability and continued existence. Further details in this regard may be obtained from the risk report contained in this Annual Report on page 78 et seq.
The remuneration report summarises the principles used to determine the remuneration of the Executive Board of Hannover Rück SE and explains the structure, composition and amount of the components of the remuneration received by the Executive Board in the 2017 financial year on the basis of the work performed by the Board members for Hannover Rück SE and companies belonging to the Group.
The provisions of the Act on the Adequacy of Management Board Remuneration (VorstAG) and of the Insurance Supervision Act (VAG) in conjunction with the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV) have been observed. In addition, we took into account the more specific provisions of DRS 17 “Reporting on the Remuneration of Members of Governing Bodies”.
Objective, structure and system of Executive Board remuneration The total remuneration of the Executive Board and its split into fixed and variable components conform to regulatory requirements – especially the provisions of the Act on the Adequacy of Management Board Remuneration (VorstAG) and of Art. 275 Commission Delegated Regulation (EU) 2015 / 35 and supplemented by those of the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV). An independent expert’s report from June 2017 confirms that the system of remuneration meets the requirements of Art. 275 Commission Delegated Regulation (EU) 2015 / 35 for a remuneration policy and remuneration practices that are in line with the undertaking’s business, strategy and risk profile.
The amount and structure of the remuneration of the Executive Board are geared to the size and activities of the company, its economic and financial position, its success and future prospects as well as the customariness of the remuneration, making reference to the benchmark environment (horizontal) and the remuneration structure otherwise applicable at the company (vertical). The remuneration is also guided by the tasks of the specific member of the Executive Board, his or her individual performance and the performance of the full Executive Board.
The risk-free interest rate is the average market rate for 10-year German government bonds over the past five years, with the average being calculated on the basis of the respective interest rate at year-end.
1 An instrument of value-based management used to measure the attainment of long-term goals on the level of the Group, business groups and operational units (see also page 18 et seq.).
Payment procedures for the total variable remuneration Of the total amount of defined variable remuneration, a partial amount of 60% is paid out in the month following the Supervisory Board meeting that approves the consolidated financial statement. The remaining amount of 40% is initially withheld as explained below with a view to encouraging long-term value creation: Payment procedures for the total variable remuneration M 84
Handling of payment of variable remuneration components in special cases In the event of voluntary resignation or termination / dismissal by the company for a compelling reason or if an offered contract extension on the same conditions (exception: the member of the Executive Board has reached the age of 60 and has served as a member of the Executive Board for two terms of office) is declined, all rights to payment of the balances from the bonus bank and from the HR-SAs are forfeited.
Variable remuneration payable Bonus bank Share awards from seats with Group bodies in EUR thousand 1 As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2017. The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly.
Total remuneration of the active members of the Executive Board pursuant to DRS 17 (modified in 2010) M 85
Financial year Non-performance-based remuneration Performance-based remuneration 1 Performance-based remuneration 1 Total Number of share awards 6 2016 = Actual 2017 = Estimate
Total expense for share-based remuneration of the Executive Board M 86
3 The expenses for stock appreciation rights of Mr. Althoff and the payment of share awards to him relate to his work as a senior executive until 2014.
Board member with divisional responsibility Coordinator of worldwide property & casualty reinsurance in EUR thousand
Dividend on share awards for 2015 3 31.1 0.0 0.0 0.0 32.2 0.0 0.0 0.0 32.8 0.0 0.0 0.0
German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 1 M 87 (target / minimum / maximum remuneration as nominal amounts)
The service costs for Mr. Chèvre and Mr. Miller refer to the funding contribution for 2016 and for the first time to the personnel expense for 2017.
German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2016 and 2017) M 88
2 In the case of Mr. Althoff the payment of share awards in 2012 relates to his work as a senior executive before his appointment as a member of the Executive Board.
In both contract variants (i. e. defined benefit and defined contribution) other income received while drawing the retirement pension is taken into account pro rata or in its entirety under certain circumstances (e. g. in the event of incapacity for work or termination of the service contract before reaching the age of 65).
Pension payments to former members of the Executive Board The pension payments to former members of the Executive Board and their surviving dependants, for whom 17 (16) pension commitments existed, totalled EUR 1.6 million (EUR 1.6 million) in the year under review. The projected benefit obligation of the pension commitments to former members of the Executive Board amounted to altogether EUR 24.7 million (EUR 25.3 million).
3 The guaranteed interest rate is 3.25%. 4 Measured under IAS 19 as a defined benefit commitment for the first time as at 31 December 2016. The guaranteed interest rate is 2.25%. 5 The guaranteed interest rate under the basic insurance is 3.25%; the interest rate for the bonus insurance is 1.25%.
Individual remuneration received by the members of the Supervisory Board M 90
Attendance allowances 4.0 4.0 1 Amounts excluding reimbursed VAT 2 Including supervisory board remuneration and remuneration for committee work as well as advisory board remuneration received from entities affiliated with the company 3 Employee representatives
In 2017 no loan relationships existed with members of the Executive Board or Supervisory Board of Hannover Rück SE, nor did the company enter into any contingent liabilities for members of the management boards.
The Group net income is measured by the three-year average return on equity (RoE) of the Hannover Re Group above the risk-free interest rate. Goal attainment is calculated as follows: for each individual financial year of the last three financial years it is calculated by how many percentage points the RoE of the Hannover Re Group exceeds the risk-free interest rate. The average of these three differences determines the threeyear average RoE above the risk-free interest rate. The risk-free interest rate is the average market interest rate over the past five years for 10-year German government bonds.
In view of the fact that outperformance of up to 200% is possible for Group net income and up to 150% for business group targets, a maximum total degree of goal attainment of 140% can be attained in both treaty / regional departments and service departments. Given outperformance of all targets, a maximum of 140% of the variable remuneration can therefore be attained on management levels 2 and 3.
Following expiry of a vesting period of four years the value of one Hannover Re share calculated at the disbursement date is paid out for each share award. The value of the Hannover Re share is again determined from the average of the closing prices of the shares in a period from 20 trading days before to 10 trading days after the meeting of the Supervisory Board that approves the consolidated financial statement. In addition, a sum in the amount of the dividend is paid out for each share award, insofar as dividends were distributed to shareholders. The level of the dividend payment is the sum total of all dividends per share paid out during the period of the share awards multiplied by the number of share awards.
Global reinsurance capital of around USD 440 billion provides long-term protection for investments and assets.
Global economy The pace of the upward trend that can now be observed in virtually all large national economies will show another slight increase overall in the current year. In its year-end forecast the Kiel Institute for the World Economy expects global output to grow by 0.1 percentage points in 2018 to 3.9%. The principal reason why stronger growth is not anticipated is the already high level of production capacity utilisation.
The world economy is again faced with numerous political risks in the current year. While the widely held fear that the new US administration might appreciably harm global economic growth through a pivot towards protectionism has so far failed to materialise, the scepticism expressed by the US government towards multilateral agreements could produce unexpected outcomes at any time. In Europe, the current efforts to secure independence for Catalonia clearly highlight the considerable fragility that still permeates the European Union. Risks associated with monetary policy are also taking on greater prominence again. It is entirely possible, for example, that the approaching normalisation of monetary policy could trigger sudden uncertainty on capital markets, triggering episodic corrections.
United States After the US economy gathered more momentum than anticipated in 2017, the Kiel-based experts expect the growth in output to accelerate by a further 0.2 percentage points to 2.5% on the back of the robust state of the economy. Key drivers here are sustained positive consumer sentiment, rising disposable incomes and swelling corporate profits. The latter will be further boosted by the corporate tax reform passed in December, hence leaving room for the forecast to be revised upwards. With financing conditions still favourable, capital spending is also likely to be highly stimulated.
In the United Kingdom the uncertainties surrounding Brexit continue to prove a drag on growth, which will likely show another modest decline to 1.4% with a sustained downward tendency. Despite intensive talks over the past year, it was still unclear coming into this year how a smooth transition to a new economic and political framework could be structured for both sides.
Corporate investments will be another growth driver, as companies increasingly cast aside their reluctance to spend in view of high capacity utilisation and excellent business prospects.
With its announcement that it would scale back its monthly corporate bond purchases but at the same time extend the programme until at least September 2018 against the backdrop of a historically low reference rate, the ECB is standing by its policy of ultra-low interest rates. A change in the key interest rate cannot be expected until well after the bond purchases have stopped. This is intended to support business activity in the Eurozone and bring inflation back towards the ECB’s 2% target. More and more voices are, however, drawing attention to the growing dangers of this policy for business and the markets.
Two key areas drawing attention continue to be the low interest rate environment and increasingly exacting regulatory requirements: the decisions taken by the ECB in the autumn of 2017 indicate that the Eurozone will not see any quick turning away from the extremely low level of interest rates. Life insurers are particularly hard hit, having no choice but to adjust their business models. The Federal Reserve in the United States, on the other hand, continues to chart a course towards higher interest rates in 2018. Going forward, there is at least the prospect that this will also lead to a normalisation of interest rates in Europe. On the regulatory side the industry is currently grappling with implementation of the EU Insurance Distribution Directive (IDD) and the EU General Data Protection Regulation (GDPR).
The pressure to act on cutting costs remains considerable, prompting companies to accelerate the drive towards digitalisation of their business processes. They are expanding automation of their back office processes and enhancing the flexibility of their IT structures, at the same time opening up further scope to improve customer care. The consolidation process that has already been ongoing in the reinsurance sector for a number of years will continue in 2018. Surplus capacities are thereby eliminated, efficiency increased and operational rigour in the process of transformation maintained on a high level.
Reinsurers are continuing to shift their focus towards the quality of the solutions that they offer. This move is also prompted by the demand side, since their insurance partners are increasingly calling for bespoke solutions. Against this backdrop insurance products are created that actively support their partners’ strategic objectives and growth targets.
The increasing need to protect against climate change, elevated political risks and the ever more important segment of cyber risks continue to open up numerous entry points for the industry to launch new products. The digital transformation, in particular, is opening up new avenues for loss prevention. Going forward, it will prompt the industry to cooperate more closely with partners from the technology sector.
Overview The heavy natural catastrophe losses incurred in 2017 caused prices to move higher again or at least remain stable across the board for the first time after four years of declining reinsurance rates. The supply of reinsurance capacity – from both the traditional reinsurance sector and the ILS market – nevertheless still exceeded demand. Although the rate increases fell somewhat short of expectations, we are satisfied with the outcome of the treaty renewals in property and casualty reinsurance as at 1 January 2018. On this date 65% of our life and health reinsurance portfolio (excluding facultative business and structured reinsurance) was renegotiated. Our premium volume was boosted by altogether 12.7%, primarily from new business. The increases were particularly marked in Australia, Asia and in the United Kingdom. In addition, we were thoroughly satisfied with the treaty renewals in North America as well as in Western and Eastern Europe. In the area of cyber covers, too, attractive opportunities opened up to expand the portfolio. We noted another sharp rise in demand among customers for reinsurance solutions designed to provide solvency relief, enabling us to book further good gains in the structured reinsurance segment. Including this business, the growth booked from the treaty renewals in property and casualty reinsurance totalled 21.8%.
The pleasing growth achieved in the treaty renewals as at 1 January 2018 was made possible by the higher prices that could be obtained, increases in shares and the expansion of strategic cooperation arrangements. The outcome of the renewals constitutes a solid basis for attainment of our targets in the current financial year.
For Continental Europe as a whole we expect to book a higher premium volume.
Specialty lines worldwide Marine In marine reinsurance we enjoyed satisfactory renewals as at 1 January 2018. The rate increases were most pronounced in the important London Market, especially under loss-impacted programmes. Rates for programmes in Asia and Continental Europe, on the other hand, were largely unchanged. Given these shifts in the market environment compared to last year, we expect a stable premium volume for 2018.
Credit, surety and political risks The anticipated upturn in the global economy should have favourable effects on the credit and surety lines as well as political risks business. We expect the level of insolvencies to stabilise. Premiums in credit reinsurance will likely rise on the back of higher shares in selected programmes. In surety reinsurance the stabilisation in developing markets should generate positive stimuli and result in organic growth. In the area of political risks we anticipate growing demand and rising premiums in view of the elevated risk situation around the world. All in all, we are looking for a stable market environment in the current 2018 financial year. Against this backdrop, we expect to book modestly increased premium income and a good result.
United Kingdom, Ireland, London Market and direct business Rates here were higher in the treaty renewals as at 1 January 2018 on account of the loss experience in the year just ended. Most notably, we achieved appreciable price increases in the motor liability line in the United Kingdom and – depending on how impacted the business was by the hurricane events – for property reinsurance programmes in the London Market. We expect to see the same effect, albeit less marked, on the primary insurance side. New business opportunities for our company are particularly likely to open up with start-up syndicates at Lloyd’s. Although we had already substantially boosted the reinsurance premium from cyber treaties in 2017, we expect to further expand our position here in 2018.
Facultative reinsurance The current financial year is expected to bring increased demand for facultative reinsurance. This is due to the above- average loss incidence in the previous year and also reflects the changed risk appetite of our clients. Our strong customer focus should enable us to benefit disproportionately from the potential market opportunities. We enlarged our reinsurance portfolio in those regions and lines where we were able to push through higher prices. Particularly healthy premium growth is anticipated in North America, Latin America, the Caribbean and Australia. Overall, we expect to see a slight contraction in premium income for our facultative business in the current financial year with sustained healthy results.
A rising premium volume and continued good results are anticipated for our specialty lines in 2018.
Our organisational set-up with decentralised underwriting at our local branches – under strategic management from Hannover Home Office – is very well received by our customers and will enable us to put our Group capital efficiently on risk going forward, as it has in the past. The extent to which the significant natural catastrophe losses of 2017 will influence local reinsurance capacities and prices in Asia remains to be seen.
China continues to be the focus of our activities in Asia. Particularly against the backdrop of rapid digitalisation in this country, we are seeking new business opportunities with existing and new partners. In traditional reinsurance business we anticipate a continued oversupply of capacity, which means that a greater emphasis on innovation will play an important strategic role in the cultivation of new business.
All in all, the markets of the Asia-Pacific region offer favourable prospects for further profitable growth. Special mention should also be made here of projects with large customers, some of which have already reach fruition while others are still in the development phase. In the context of our updated strategy cycle for the years 2018 to 2020 this region will play a major part in growing our volume and profit.
Hannover Re expects demand for the coverage of agricultural risks to continue rising: the increasing need for agricultural commodities and foodstuffs as well as the growing prevalence of extreme weather events are generating stronger demand for reinsurance covers, particularly in emerging and developing markets. At Hannover Re we engage both in traditional reinsurance and in intensified cooperation with our customers and partners on the development of new original insurance tools. In this regard, we see further growth potential for index-linked products as part of direct and indirect insurance concepts in emerging and developing economies. The more widespread implementation of public-private partnerships offers us new opportunities to write profitable business in markets that have still to establish themselves.
In our retakaful business we anticipate a predominantly soft rate level on account of the competition-induced excess supply of capacity as well as a comparatively low oil price. Risk selection and good customer relations will therefore play a pivotal role in our underwriting of profitable business. Our focus in 2018 will be on our specialty lines. We are also planning a cautious entry into proportional motor business so as to participate in the available rate increases here. Prices for catastrophe XL business have risen owing to the numerous large losses in 2017. All in all, we expect the premium volume to remain stable.
In the area of insurance-linked securities (ILS) we expect to see continued growth in demand. Investors are seeking a negative or minimal correlation with other financial investments and hence the diversification that this brings. We are responding to this market situation with a strong emphasis on service, offering individually tailored products – from collateralised reinsurance to catastrophe bonds – for property and life reinsurance risks. Over the coming years we expect our ILS activities to deliver a positive and consistently rising profit contribution. The capital market remains an important factor in the protection covers taken out by our company.
Furthermore, we see the potential to instil fresh momentum in our customers with our automated underwriting systems. Demand for such automated solutions is especially brisk in France. Upcoming supervisory changes could generate business potential here in connection with hr | ReFlex. In Russia, too, regulatory reform will influence business going forward: the establishment of a new state reinsurer and the associated requirement to cede 10% of all transactions to it will trigger movement in the market. The mandatory cession applies to all business and is applicable effective 1 January 2018 – as well as retroactively from 1 January 2017.
In Latin America we anticipate positive growth stimuli, just as we do in Asia, Africa and the Middle East. Most notably, we take an optimistic view of the future development of business in conjunction with wellness-oriented insurance concepts that not only provide policyholders with pure risk coverage but also motivate them through an individually tailored bonus system to stay active and eat a healthy diet.
Furthermore, it is our expectation that the international longevity market will continue to develop favourably and that our customers will increasingly show concrete interest in relevant reinsurance solutions.
Geopolitical developments harbour growing uncertainties and the behaviour of capital market players can to some extent scarcely be explained by fundamentals. With this in mind, we shall continue to invest substantial parts of our investment portfolio conservatively. Nevertheless, irrespective of the sovereign debt issue, the brighter economic outlook will also be reflected in appropriate risk-taking. Our emphasis on broad diversification will remain in place. By maintaining the most neutral possible modified duration we shall ensure that the interest rate risk is tightly managed.
In our assessment, the Brexit issue is an indirect source of uncertainty affecting capital markets, but not a direct factor influencing our asset management activities because we assume that markets have already priced in the uncertainty surrounding the withdrawal process.
With regard to the IVC targets that we use to map economic value creation, we anticipate a minimum 2% xRoCA both for property and casualty reinsurance and for life and health reinsurance.
In view of the expected positive cash flow that we generate from the technical account and our investments, and assuming roughly stable exchange rates and interest rate levels, our asset portfolios should continue to grow. We are looking to deliver a return on investment of 2.7%.
Consolidated statement of changes N 04 in shareholders’ equity 2017 in EUR thousand
Capital increases / additions – – – – – – – – 210 210
Changes in the consolidated group – – – – – – – – 461 461
Acquisition / disposal of treasury shares – – – – – – (54) (54) – (54)
Change in fair value of financial instruments (through profit or loss) (38,569) (26,066)
Change in cash and cash equivalents (I. + II. + III. + IV.) (12,961) 27,672
Notes to the consolidated financial statements 2017 1. Company information 156 2. Accounting principles 156 3. Accounting policies 159 3.1 Changes in accounting policies 159 3.2 Summary of major accounting policies 159 3.3 Major discretionary decisions and estimates 167 4.1 Consolidation principles 168 4.2 Consolidated companies and complete list of shareholdings 169 4.3 Major acquisitions and new formations 181 4.4 Major disposals and retirements 183 4.5 Other corporate changes 183 5. Segment reporting 183 6. Notes on the individual items of the balance sheet 188 6.1 Investments under own management 188 6.2 Funds withheld (assets) 204 6.3 Contract deposits (assets) 204 6.4 Technical assets 205 6.6 Other assets 208 6.7 Technical provisions 211 6.8 Funds withheld (liabil ities) 216 6.9 Contract deposits (liabil ities) 216 6.10 Provisions for pensions and other post-employment benefit obligations 216 6.11 Other liabil ities 220 6.12 Debt and subordinated capital 222 6.13 Shareholders’ equity and treasury shares 224 6.14 Non-controlling interests 225 7. Notes on the individual items of the statement of income 226 7.1 Gross written premium 226 7.2 Investment income 227 7.3 Reinsurance result 229 7.4 Other income and expenses 230 7.5 Taxes on income 231 8. Other notes 234 8.1 Derivative financial instruments and financial guarantees 234 8.2 Related party disclosures 237 8.3 Share-based payment 239 8.4 Staff and expenditures on personnel 243 8.5 Earnings per share and dividend proposal 244 8.7 Contingent liabil ities and commitments 245 8.8 Rents and leasing 246 8.9 Fee paid to the auditor 247 8.10 Events after the balance sheet date 248
Hannover Rück SE and its subsidiaries (collectively referred to as the “Hannover Re Group” or “Hannover Re”) transact all lines of property & casualty and life & health reinsurance. With gross premium of approximately EUR 17.8 billion, Hannover Re is the third-largest reinsurance group in the world. The company’s network consists of more than 140 subsidiaries, affiliates, branches and representative offices worldwide with a total workforce of roughly 3,300. The Group’s German business is conducted by the subsidiary E+S Rückversicherung AG. Hannover Rück SE
is a European Company, Societas Europaea (SE), which has its registered office at Karl-Wiechert-Allee 50, 30625 Hannover, Germany, and is entered in the commercial register of Hannover County Court under the number HR Hannover B 6778. 50.2% (rounded) of the shares of Hannover Rück SE are held by Talanx AG, Hannover, which in turn is majority-owned – with an interest of 79% – by HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI), Hannover.
Pursuant to EU Regulation (EC) No. 1606 / 2002, the present consolidated financial statement and group management report of Hannover Re have been drawn up in accordance with the International Financial Reporting Standards (IFRS) that are to be applied within the European Union. In addition, we have made allowance for the regulations that are also applicable pursuant to § 315a Para. 1 German Commercial Code (HGB) and the supplementary provisions of the Articles of Association of Hannover Rück SE as amended on 30 May 2016.
The consolidated financial statement reflects all IFRS in force as at 31 December 2017 as well as all interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), application of which was mandatory for the year under review. IFRS 4 “Insurance Contracts” requires disclosures on the nature and extent of risks stemming from reinsurance contracts, while IFRS 7 “Financial Instruments: Disclosures” requires similar information on risks from financial instruments. Additionally, § 315 Para. 2 Number 1 German Commercial Code (HGB) also contains requirements for insurance undertakings with regard to information on the management of underwriting and financial risks that is to be provided in the management report. The disclosures resulting from these requirements are included in the risk report. We have dispensed with an additional presentation of the same content in the notes. In order to obtain a comprehensive overview of the risks to which Hannover Re is exposed it is therefore necessary to consider both the risk report and the relevant information in the notes. We refer the reader accordingly to the corresponding remarks in the risk report and the notes.
In view of the fact that reinsurance contracts, in conformity with IFRS 4 “Insurance Contracts”, are recognised according to the pertinent provisions of United States Generally Accepted
Accounting Principles (US GAAP) as applicable on the date of initial application of IFRS 4 on 1 January 2005, we cite individual insurance-specific standards of US GAAP using the designation “Statement of Financial Accounting Standard (SFAS)” that was valid at that time.
• Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)
In May 2017 the IASB published the final version of IFRS 17 “Insurance Contracts”, which has still to be endorsed by the EU. IFRS 17 replaces IFRS 4 and thereby establishes for the first time consistent principles for the recognition, measurement, presentation and disclosure of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. The measurement model of IFRS 17 requires entities to measure groups of insurance contracts based on estimates of discounted future cash flows with an explicit risk adjustment for non-financial risks (“fulfilment cash flows”) as well as a contractual service margin, representing the expected (i. e. unearned) profit for the provision of insurance coverage in the future.
Instead of reporting premium income when it is received, insurance revenue is reported when it is earned by recognising in each period the changes in the liability for providing coverage for which the insurance entity receives compensation as well as the part of the premiums that cover acquisition costs. Receipts and payments relating to savings components are not recognised as revenue or as profit or loss in the statement of income. Insurance finance income and expenses result from discounting effects and financial risks. For each portfolio of insurance contracts they may either be recognised in profit or loss in the statement of income or in other comprehensive income.
Subject to endorsement in EU law, IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2021.
In July 2014 the IASB published the final version of IFRS 9 “Financial Instruments”, which supersedes all previous versions of this standard and replaces the existing IAS 39 “Financial Instruments: Recognition and Measurement”. The standard contains requirements governing classification and measurement, impairment based on the new expected credit loss impairment approach and general hedge accounting. Initial mandatory application of the standard, which was endorsed by the EU in November 2016, is set for annual periods beginning on or after 1 January 2018. In September 2016, however, the IASB published “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4)”. These amendments address the implications of the different effective dates for initial application of IFRS 9 and IFRS 17, the new standard governing the recognition of insurance and
reinsurance contracts which has now been published. Under the so-called deferral approach provided for in the amendments, entities whose predominant activity is issuing insurance and reinsurance contracts within the scope of IFRS 4 are granted an optional temporary exemption from recognising their financial instruments in accordance with IFRS 9 until the recognition of insurance and reinsurance contracts has been finally settled, although this option may not be used after 1 January 2021. Hannover Re reviewed the application requirements based on the consolidated financial statement as at 31 December 2015 with a positive outcome and decided to make use of the deferral approach. Hannover Re primarily anticipates implications for the classification of financial instruments. The IFRS 9 implementation project is running parallel to and in close coordination with the IFRS 17 implementation project.
June 2016 Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
Hannover Re | Annual Report 2017 3. Accounting policies 3.1 Changes in accounting policies
Restatements pursuant to IAS 8 N 07 in EUR thousand 1.1.2016 31.12.2016
Unearned premium reserve 33,478 41,847 in EUR thousand 1.1. – 31.12.2016
IFRS 4 sets out basic principles for the accounting of insurance contracts. Underwriting business is to be subdivided into insurance and investment contracts. Contracts with a significant insurance risk are considered to be insurance contracts, while contracts without significant insurance risk are to be classified as investment contracts. The standard is also applicable to reinsurance contracts. IFRS 4 contains fundamental rules governing specific circumstances, such as the separation of embedded derivatives and unbundling of deposit components, but it does not set out any more extensive provisions relating to the measurement of insurance and reinsurance contracts. In conformity with the basic rules of IFRS 4 and the IFRS Framework, reinsurance-specific transactions therefore continue to be recognised in accordance with the pertinent provisions of US GAAP (United States Generally Accepted Accounting Principles ) as applicable on the date of initial application of IFRS 4 on 1 January 2005.
Unlisted ABS / MBS, CDO / CLO Risk premiums, default rates, prepayment speed and recovery rates
Establishment of the fair value of financial instruments carried as assets or liabilities: we establish the fair value of financial instruments carried as assets or liabilities using the methods and models described below. The fair value of a financial instrument corresponds to the amount that Hannover Re would receive or pay if it were to sell or settle the said financial
Impairments: As at each balance sheet date we review our financial assets with an eye to the need to take impairments. Permanent impairments on all invested assets are recognised directly in the statement of income. In this context we take as a basis the same indicators as those subsequently discussed for fixed-income securities and securities with the character of equity. Qualitative case-by-case analysis is also carried out. IAS 39 “Financial Instruments: Recognition and Measurement ” contains a list of objective, substantial indications for impairments of financial assets. In the case of fixed-income securities and loans reference is made, in particular, to the rating of the instrument, the rating of the issuer / borrower as well as the individual market assessment in order to establish whether they are impaired. With respect to held-to-maturity instruments as well as loans and receivables recognised at amortised cost, the level of impairment is arrived at from the difference between the book value of the asset and the present value of the expected future cash flows. The book value is reduced directly by this amount which is then recognised as an expense. With the exception of value adjustments taken on accounts receivable, we recognize impairments directly on the assets side – without using an adjustment account – separately from the relevant items. If the reasons for the write-down no longer apply, a write-up is made in income up to at most the original amortised cost for fixed-income securities.
Real estate used by third parties (investment property) is valued at cost less scheduled depreciation and impairment. Straight-line depreciation is taken over the expected useful life – at most 50 years. Under the impairment test the market value of real estate for third-party use (recoverable amount) is determined using acknowledged valuation methods and compared with the book value; arising impairments are recognised. Maintenance costs and repairs are expensed. Value-enhancing expenditures are capitalised if they extend the useful life.
Contract deposits: under this item we report receivables and liabilities under insurance contracts that satisfy the test of a significant risk transfer to the reinsurer as required by IFRS 4 “Insurance Contracts” but fail to meet the risk transfer required by US GAAP. IFRS 4 in conjunction with SFAS 113 requires insurance contracts that transfer a significant technical risk from the ceding company to the reinsurer to be differentiated from those under which the risk transfer is of merely subordinate importance. Since the risk transfer under the affected transactions is of subordinate importance, these contracts are recognised using the “deposit accounting” method and hence eliminated from the technical account. The compensation for risk assumption booked to income under these contracts is netted under other income and expenses. The payment flows resulting from these contracts are shown in the cash flow statement under operating activities.
Intangible assets: in accordance with IFRS 3 “Business Combinations ” goodwill is not amortised; instead, impairments may be taken after an annual impairment test or as indicated. For the purposes of the impairment test, goodwill is to be allocated pursuant to IAS 36 “Impairment of Assets” to so-called “cash generating units” (CGUs). Each CGU to which goodwill is allocated should represent the lowest level on which goodwill is monitored for internal management purposes and may not be larger than a segment. Following allocation of the goodwill it is necessary to determine for each CGU the recoverable amount, defined as the higher of the value in use and the fair value less costs to sell. For impaired goodwill the recoverable amount is to be stated. The recoverable amount is to be compared with the book value of the CGU including goodwill. When the latter exceeds the recoverable amount, an impairment expense is to be recognised. For detailed information on the impairment method used and the goodwill recognised as at the balance sheet date, please see section 6.5 “Goodwill”.
The other intangible assets largely consist of purchased and self-developed software. This is recognised at acquisition cost less scheduled depreciation. Intangible assets are regularly tested for impairment and impairment is taken where necessary. The other intangible assets also include the expected profits from acquired life reinsurance portfolios. These are carried at the present value of future profits (PVFP) at time of acquisition, which is calculated as the present value of profits expected from the acquired blocks of business disregarding new business and tax effects. Scheduled amortisation is taken according to the periods of the underlying acquired contracts. The PVFP is regularly tested for impairment using a liability adequacy test and impairments are taken if necessary. In this regard please see section 3.3 “Major discretionary decisions and estimates”.
Deferred tax assets: IAS 12 “Income Taxes” requires that assets-side deferred taxes be established if assets have to be recognised in a lower amount or liabilities in a higher amount in the consolidated balance sheet than in the tax balance sheet and if these temporary differences will lead to reduced tax burdens in the future. In principle, temporary differences result from the valuation differences between the tax balance sheets drawn up in accordance with national standards and the IFRS balance sheets of the companies included in the consolidated financial statement drawn up in accordance with uniform group standards as well as from consolidation processes. Deferred tax assets and liabilities are not established if they arise out of assets or liabilities, the book value of which upon first-time recognition diverges from their initial tax base.
Deferred tax assets are also recognised on tax loss carry-forwards and tax credits. Insofar as the deferred taxes refer to items carried directly in equity, the resulting deferred taxes are also recognised directly in equity. Value adjustments are taken on deferred tax assets as soon as realisation of the receivable no longer appears likely. Deferred taxes are measured according to the tax regulations specific to the country concerned that are applicable or have been adopted as at the closing date.
Provisions for pensions are established in accordance with IAS 19 “Employee Benefits” using the projected unit credit method. They are calculated according to actuarial principles and are based upon the commitments made by the Hannover Re Group for retirement, disability and widows’ benefits. The amount of the commitments is determined according to length of service and salary level. The pension plans are defined benefit plans. The basis of the valuation is the estimated future increase in the rate of compensation of the pension beneficiaries. The benefit entitlements are discounted by applying the capital market rate for highest-rated securities. All changes in valuation, especially actuarial gains and losses, are captured immediately in cumulative other comprehensive income. Service cost and interest cost are recognised in the statement of income. Returns on plan assets are determined using the same interest rate as that used in the calculation of the present value of the defined benefit obligation.
Sundry non-technical provisions are established according to a realistic estimate of the amount required and shown under the balance sheet item “Other liabilities”. Allocation to such provisions is conditional upon the Group currently having a legal or actual obligation that results from a past event and in respect of which utilisation is probable and the amount can be reliably estimated.
Shareholders’ equity: the items “common shares” and “additional paid-in capital” are comprised of the amounts paid in by the shareholders of Hannover Rück SE on its shares. In addition to the statutory reserves of Hannover Rück SE and the allocations from net income, the retained earnings consist of reinvested profits generated by the Hannover Re Group companies in previous periods. What is more, in the event of a retrospective change of accounting policies, the adjustment for previous periods is recognised in the opening balance sheet value of the retained earnings and comparable items of the earliest reported period. Unrealised gains and losses from the fair value measurement of financial instruments held as available for sale are carried in cumulative other comprehensive income under unrealised gains and losses on investments. Translation differences resulting from the currency translation of separate financial statements of foreign subsidiaries are recognised under cumulative foreign currency translation adjustments.
Key exchange rates N 09 1 EUR corresponds to: Mean rate of exchange on the balance sheet date
Premiums for reinsurance treaties are booked to income as earned across the period of the contracts in proportion to the insurance protection already provided or when they become due. Unearned premiums are calculated individually for each treaty in order to establish the portion of the premium volume that is not booked to income. This applies principally to property and casualty reinsurance and parts of accident and health reinsurance. Premiums already collected that are attributable to future risk periods are deferred pro rata temporis and recognised in conformity with the pertinent standards of US GAAP. In this context, assumptions are to be made if the data required for a calculation pro rata temporis is not available. The unearned premium corresponds to the insurance protection afforded in future periods.
Taxes: the taxes are comprised of the actual tax load on corporate profits of the Group companies, to which the applicable local tax rates are applied, as well as changes in deferred tax assets and liabilities. Income and expenses arising out of interest or penalties payable to the revenue authorities are shown under other income and expenses. The calculation of the deferred tax assets and liabilities is based on tax loss carry-forwards, unused tax credits and temporary differences between the book values of assets and liabilities in the consolidated balance sheet of the Hannover Re Group and their tax values. Further information on deferred taxes is provided in our remarks on deferred tax assets and liabilities.
Hannover Re | Annual Report 2017 3.3 Major discretionary decisions and estimates
The sale or transfer of shares of E+S Rückversicherung AG takes place by way of an endorsement and is permissible only with the approval of the company’s Supervisory Board. The Supervisory Board enjoys the right to grant or deny approval unconditionally, without being obliged to state reasons in the event of denial.
List of shareholdings The following list of shareholdings is provided in the present Group annual financial report in accordance with § 313 Para. 2 German Commercial Code (HGB). The stipulations of IFRS 12.10 and IFRS 12.21 have also been observed.
Hannover Rück Beteiligung Verwaltungs-GmbH 1, 2, Hannover / Germany 100.00 EUR 2,341,925 –
HILSP Komplementär GmbH 3, Hannover / Germany 100.00 EUR 34 2
HAPEP II Holding GmbH 1, Hannover / Germany 95.42 EUR 3,905 2,403
Hannover Re Euro PE Holdings GmbH & Co. KG 1, Hannover / Germany 91.20 EUR 299,017 59,712
Hannover Re Euro RE Holdings GmbH 1, Hannover / Germany 87.68 EUR 979,041 33,720
E+S Rückversicherung AG 1, Hannover / Germany 64.79 EUR 922,413 351,000
HANNOVER Finanz GmbH 5, Hannover / Germany 27.78 EUR 81,509 18,078
Hannover Finance (UK) Limited 1, London / United Kingdom 100.00 GBP 2,694 (9)
Hannover Life Reassurance Bermuda Ltd. 1, Hamilton / Bermuda 100.00 USD 443,699 52,393
Hannover Life Reassurance Company of America, Orlando / USA 100.00 USD 411,166 45,624
Hannover Life Reassurance Company of America (Bermuda ) Ltd., Hamilton / Bermuda 100.00 USD 10,370 2,193
Hannover Re (Ireland) Designated Activity Company 1, Dublin / Ireland 100.00 USD 1,426,073 (282,260)
Inter Hannover (No. 1) Limited 1, London / United Kingdom 100.00 GBP (66) –
Argenta Private Capital Limited 1, 8, London / United Kingdom 100.00 GBP 6,827 4,026
APCL Corporate Director No. 2 Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta Insurance Research Limited 1, 8, London / United Kingdom 100.00 GBP – –
Fountain Continuity Limited 1, 8, Edinburgh / United Kingdom 100.00 GBP – –
Argenta Secretariat Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta Continuity Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta LLP Services Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta Underwriting No. 2 Limited 1, 8, London / United Kingdom 100.00 GBP 4,971 656
Argenta Underwriting No. 7 Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta Underwriting No. 9 Limited 1, 8, London / United Kingdom 100.00 GBP 1,379 763
Argenta Underwriting No. 10 Limited 1, 8, London / United Kingdom 100.00 GBP (36) (7)
Argenta No. 14 Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta No. 15 Limited 1, 8, London / United Kingdom 100.00 GBP – –
Residual Services Corporate Director Limited 1, 8, London / United Kingdom 100.00 GBP – –
Argenta Underwriting Asia Pte. Ltd. 1, 8, Singapore / Singapore 100.00 SGD 1,200 (340)
Argenta Underwriting Labuan Ltd 1, 8, Labuan / Malaysia 100.00 USD 75 (3)
Glencar Underwriting Managers, Inc. 1, Chicago / USA 100.00 USD 5,148 325
Leine Investment General Partner S.à r. l. 1, 8, Luxembourg / Luxembourg 100.00 EUR 877 327
Leine Investment SICAV-SIF 1, 8, Luxembourg / Luxembourg 100.00 USD 64,430 1,113
LI RE 1, 8, Hamilton / Bermuda 100.00 USD – –
Hannover Finance, Inc. 1, 8, Wilmington / USA 100.00 USD 164,494 1,020
Sand Lake Re, Inc. 1, Burlington / USA 100.00 USD 11,977 (177,565)
Hannover Reinsurance Africa Limited 1, Johannesburg / South Africa 100.00 ZAR 764,519 31,582
Compass Insurance Company Limited 1, Johannesburg / South Africa 100.00 ZAR 214,943 28,611
Hannover Re Real Estate Holdings, Inc. 8, Orlando / USA 95.25 USD 771,070 6,885
HR US Infra Equity LP 1, 8, Wilmington / USA 95.25 USD – –
GLL HRE CORE Properties, L. P. 1, 8, Wilmington / USA 95.15 USD 618,198 (328)
7550IAD LLC 1, 8, Wilmington / USA 95.15 USD 70,511 (2,250)
HR US Infra Debt LP 1, 8, George Town / Cayman Islands 94.72 USD 53,609 182
PAG Real Estate Asia Select Fund Limited 1, George Town / Cayman Islands 94.72 USD 72,360 (669)
Orion No.1 Professional Investors Private Real Estate Investment LLC 1, Seoul / South Korea 94.39 USD 145,610 312
Peace G. K. 1, Tokyo / Japan 93.77 JPY 5,186,767 52,767
Mustela s. r.o. 1, Prague / Czech Republic 87.67 CZK 1,181,309 26,998
HR GLL Griffin House SPÓLKA Z OGRANICZONA ODPOWIEDZIALNÓSCIA 1, Warsaw / Poland 87.67 PLN 37,478 2,355
Akvamarín Beta s. r.o. 1, Prague / Czech Republic 87.67 CZK 98,774 45,809
HR GLL Europe Holding S.à r. l. 1, Luxembourg / Luxembourg 87.67 EUR 198,268 1,617
Commercial & Industrial Acceptances (Pty) Ltd. 1, Johannesburg / South Africa 79.20 ZAR 13,333 18,653
SUM Holdings (Pty) Ltd. 1, Johannesburg / South Africa 50.54 ZAR 25,059 5,326
Hospitality Industrial and Commercial Underwriting Managers (Pty) Ltd. 1, Johannesburg / South Africa 45.49 ZAR 1,764 6,536
Construction Guarantee (Pty) Ltd. 4, 11, Johannesburg / South Africa 42.00 ZAR – –
Envirosure Underwriting Managers (Pty) Ltd., Durban / South Africa 35.70 ZAR 3,803 591
International Mining Industry Underwriters Limited 1, London / United Kingdom 100.00 GBP 225 –
Mediterranean Reinsurance Services Ltd. 4, 12, Hong Kong / China 100.00 USD 52 –
Hannover Re Services USA, Inc., Itasca / USA 100.00 USD 3,781 307
Hannover Re Risk Management Services India Private Limited 13, New Delhi / India 100.00 INR 59,598 (8,347)
Hannover Re Services Italy S. r.l., Milan / Italy 99.65 EUR 368 110
Clarenfin (Pty) Ltd. 1, Johannesburg / South Africa 29.40 ZAR 120 (5)
Vela Taxi Finance (Pty) Ltd 1, Johannesburg / South Africa 16.17 ZAR (3,922) (1,078)
Inlife Holding (Liechtenstein) AG 5, Triesen / Liechtenstein 15.00 CHF 3,608 15,645
Acte Vie S. A. 5, Schiltigheim / France 9.38 EUR 9,258 170
Kopano Ventures (Pty) Ltd 6, Johannesburg / South Africa 4.61 ZAR – –
1 Provisional (unaudited) figures 2 Year-end result after profit transfer 3 Financial year as at 30 September 2017 4 Company is in liquidation 5 Figures as at 31 December 2016 6 Company was newly established in 2017; an annual financial statement is not yet available. 7 Financial year as at 31 July 2017 8 IFRS figures 9 The company holds 35 subsidiaries with capital and reserves of altogether EUR 0.5 million. 10 Financial year as at 31 October 2017 11 Figures as at 31 December 2013 12 Figures as at 31 December 2015 13 Financial year as at 31 March 2017 14 Financial year from 8 May 2015 to 31 December 2016 15 Financial year as at 30 June 2017