Effective 11 January 2018 Hannover Re acquired all the shares in The Omaha Indemnity Company, Madison, via its wholly owned subsidiary Hannover Finance, Inc., Wilmington. The company now trades as Glencar Insurance Company, Orlando. The purchase price of the shares amounted to EUR 21.2 million. The business was included in the consolidated financial statement in the first quarter. In the context of purchase price allocation, goodwill of EUR 3.5 million resulted from the calculation of the fair values of the acquired assets and liabilities made for initial consolidation.
In the fourth quarter of 2018 Hannover Re established the special purpose property company M8 Property Trust as well as Markham Real Estate Partners (KSW) Pty Limited, both Sydney, Australia, via its 94.7%-owned subsidiary PAG Real Estate Asia Select Fund Limited, George Town, Cayman Islands, for the purpose of real estate acquisition. A total amount of roughly EUR 85.2 million was invested in this connection.
Effective 5 October 2018 Hannover Re established the segregated accounts company Kubera Insurance (SAC) Ltd, Hamilton, Bermuda. All shares of the general account are held by Hannover Finance, Inc., Wilmington.
With economic effect from 1 January 2019 HDI Global SE acquired 50.2% of the shares in Inter Hannover for a purchase price of EUR 107.2 million. Inter Hannover was subsequently rebranded as HDI Global Specialty SE. HDI Global SE is transferring its specialty portfolio to the new company. The remaining shares in HDI Global Specialty SE will continue to be held by Hannover Re. Upon closing of the transaction the company will be deconsolidated in the first quarter of 2019 and included at equity in the consolidated financial statement.
The cumulative other comprehensive income of EUR -4.6 million arising out of the currency translation of the assets and liabilities belonging to the disposal group will only be realised in the context of deconsolidation. In addition, actuarial gains and losses in an amount of EUR -0.5 million were netted directly in equity as at the balance sheet date.
In compliance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” we recognise the assets and liabilities of the disposal group in corresponding balance sheet items. Transactions between the disposal group and the other consolidated companies continue to be entirely eliminated in conformity with IFRS 10 “Consolidated Financial Statements”.
The assets and liabilities are presented on a consolidated basis in the following table and broken down into their major components. The fixed-income securities of EUR 238.1 million are exclusively level 2 financial instruments. The real estate funds recognised in an amount of EUR 12.4 million, on the other hand, are level 3 financial instruments.
Assets and liabilities of the disposal group N 14 in EUR thousand 31.12.2018
The life and health reinsurance segment now includes the company Kubera Insurance (SAC) Ltd, Hamilton, Bermuda, which was established in October 2018. All other companies consolidated for the first time or deconsolidated in 2018 are allocated to the property and casualty reinsurance segment. The same is true of International Insurance Company of Hannover SE, Hannover, which is classified as a disposal group.
Segmentation of assets Property and casualty reinsurance Life and health reinsurance Consolidation Total
Fixed-income securities – available for sale 24,689,122 23,662,710 8,531,051 7,617,113 19,512 2,085 33,239,685 31,281,908
Reinsurance recoverables on unpaid claims 1,903,289 1,443,869 181,341 207,660 – (194) 2,084,630 1,651,335
Reinsurance recoverables on benefit reserve – – 909,056 959,533 – – 909,056 959,533
Other assets in the segment 1,781,317 1,351,426 565,346 792,297 (1,165,321) (671,162) 1,181,342 1,472,561
Assets held for sale 1,041,043 – – – (1,859) – 1,039,184 –
Long-term debt and notes payable 323,235 250,122 – – 2,235,649 1,491,951 2,558,884 1,742,073
Liabilities related to assets held for sale 2,246,129 – – – – – 2,246,129 –
Income / expense on funds withheld and contract deposits 35,810 17,789 172,177 217,126 – – 207,987 234,915
Change in benefit reserve – – 50,791 (571) – – 50,791 (571)
Held to maturity due in one year 27,597 28,255 85,411 86,359 due after one through two years 35,210 37,680 28,055 29,586 due after two through three years 138,040 150,358 35,145 39,097 due after three through four years – – 138,465 156,064 due after four through five years 48,280 53,358 – –
due after five through ten years – – 48,278 54,789 due after more than ten years 816 266 828 263
Available for sale due after one through two years 3,217,098 3,230,856 2,711,972 2,721,829 due after two through three years 3,264,200 3,253,202 3,310,919 3,364,264 due after three through four years 2,828,576 2,831,536 3,659,321 3,675,048 due after four through five years 3,047,032 3,043,361 2,748,835 2,814,657 due after five through ten years 10,040,715 10,051,258 9,992,925 10,218,549 due after more than ten years 6,086,028 6,166,985 4,601,225 4,935,094
due after four through five years 17,740 17,740 7,075 7,075 due after five through ten years 4,248 4,248 – –
due after more than ten years – – 18,713 18,713 1 Including accrued interest 2 Including short-term investments, cash and cash equivalents
Debt securities issued by semi-governmental entities 23,833 130 1,865 – 25,698
Debt securities issued by semi-governmental entities 1,544,933 22,830 187,976 5,221 1,727,688
Government debt securities of EU member states 4,812,680 24,143 104,587 8,016 4,909,251
Debt securities issued by semi-governmental entities 5,039,941 41,088 144,688 25,358 5,159,271
Debt securities issued by semi-governmental entities 5,137,974 37,859 183,998 45,058 5,276,914
The carrying amounts of the fixed-income securities and equity securities classified as available for sale as well as the short-term investments allocated to this category correspond to their fair values, in the case of interest-bearing assets including accrued interest.
Analysis of the fair value changes in the portfolio of fixed-income securities at fair value through profit or loss indicated that, just as in the previous year, no fair value changes were attributable to a changed credit risk.
Fixed-income securities – available-for-sale 15,546,636 5,496,061 4,970,072 5,874,243 637,336 237,103 1,433 476,801 33,239,685
Fixed-income securities – held-to-maturity 196,454 77,734 51,993 10,001 – – – – 336,182
Fixed-income securities – available-for-sale 13,754,622 4,892,769 5,138,558 5,890,327 1,105,067 170,001 1,847 328,717 31,281,908
Fixed-income securities – at fair value through profit or loss – – – – 31,543 – – 180,499 212,042
Fixed-income securities – available-for-sale 2,198,566 1,153,025 453,079 7,672,596 3,003,948 15,314,560 212,714 1,273,420 31,281,908
Fixed-income securities – at fair value through profit or loss – – – – – 212,042 – – 212,042
Equity securities – available-for-sale – – – 19,838 102 17,580 – – 37,520
Financial information on investments in associated companies N 30 in EUR thousand 2018 2017
Group share of income and expense recognised directly in equity (4,024) (936)
The carrying amount of the investments in associated companies changed as follows in the year under review: Investments in associated companies N 31 in EUR thousand 2018 2017
Net book value at 31 December of the previous year 121,075 114,633
Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 18.8 million (EUR 18.8 million ). For further details please see section 4 “Consolidation”.
Real estate Real estate is divided into real estate for own use and investment property. Own-use real estate is recognised under other assets.
Gross book value at 31 December of the previous year 1,712,667 1,502,800
Gross book value at 31 December of the year under review 1,844,408 1,712,667
Net book value at 1 January of the year under review 1,617,257 1,318,675
In terms of diversification across various real estate sectors the focus is on office properties (68%), followed by retail properties (19%). The allocation is complemented by investments in further sectors, including for example logistics and parking facilities. In geographical terms, exposures are spread across the United States (36%), Europe (excluding Germany; 33%) as well as Germany (20%) and Asia (11%).
Real estate which is held for sale as defined by IFRS 5 is recognised separately in the consolidated balance sheet. Intentions to sell are substantiated by individual real estate market conditions and specific property circumstances, taking into consideration current and future opportunity / risk profiles. In the year under review no property had to be reclassified to assets held for sale.
Other invested assets The other invested assets consisted largely of participating interests in partnerships measured at fair value in an amount of EUR 1,491.0 million (EUR 1,507.6 million), the amortised cost of which amounted to EUR 1,145.8 million (EUR 1,124.5 million). The differences between the carrying amounts and the amortised costs were recognised as unrealised gains of EUR 362.1 million (EUR 398.0 million) and unrealised losses of EUR 16.9 million (EUR 14.8 million) under cumulative other comprehensive income.
Fair value hierarchy For the purposes of the disclosure requirements pursuant to IFRS 13 “Fair Value Measurement”, financial assets and liabilities are to be assigned to a three-level fair value hierarchy.
Fair value hierarchy of financial assets and liabilities recognised at fair value N 33 in EUR thousand
Net book value at 31 December of the previous year 102 49,039 384,973 1,639,065 185,498
Net book value after currency translation 100 51,365 416,125 1,685,756 194,294
Income and expenses recognised in the statement of income – 29,037 (2,601) 41,735 (5,775)
Net book value after currency translation 9 – 372,594 1,522,952 148,462
Realised gains and losses on investments – – – 56,694 –
Realised gains and losses on investments (79) – – 15,538 –
Change in fair value of financial instruments – 2,024 – 1,887 29,818
Fair value hierarchy of financial assets and liabilities measured at amortised cost N 39 in EUR thousand
Financial assets that give rise solely to payments of principal and interest
Fixed-income securities – at fair value through profit or loss – – 559,750 (19,933)
No rating low credit risk 630,371 more than a low credit risk 175,447
The fair value for financial assets that meet the cash flow criterion and have more than a low credit risk corresponds to the carrying amount before impairment shown in the table.
The funds withheld totalling EUR 10,691.8 million (EUR 10,735.0 million) represent the cash deposits furnished by our company to our cedants that do not trigger any cash flows and cannot be realised by cedants without our consent. The maturities of these deposits are matched to the corresponding provisions. In the event of default on such a deposit our reinsurance commitment is reduced to the same extent.
Net book value at 31 December of the previous year 2,228,246 2,264,034
For further explanatory remarks please see section 3.1 “Summary of major accounting policies”.
The value adjustments on accounts receivable that we recognise in adjustment accounts changed as follows in the year under review: Value adjustments on accounts receivable N 45 in EUR thousand 2018 2017
Gross book value of accounts receivable at 31 December of the year under review 4,005,281 3,838,515
Net book value of accounts receivable at 31 December of the year under review 3,975,778 3,821,124
For the purposes of the impairment test, the goodwill was allocated to the cash-generating units (CGUs) that represent the lowest level on which goodwill is monitored for internal management purposes. In the instances of goodwill recognised as at the balance sheet date, the CGUs are the respective legal entities. The recoverable amount is established on the basis of the value in use, which is calculated using the discounted cash flow method. In this context, the detailed planning phase draws on the planning calculations of the CGUs / companies covering the next five years. These planning calculations represent the outcome of a detailed planning process in which all responsible members of management are involved and where allowance is made for the latest market developments affecting the relevant entity (in relation to the sector and the economy as a whole). The subsequent perpetuity phase is guided by the profit margins and revenue growth rates that management believes can be sustainably generated. The capitalisation rate is based on the Capital Asset Pricing Model (CAPM) as well as growth rates that are considered realistic in light of the specific market environment.
The following capitalisation rates and growth rates were recognised for the individual cash-generating units: Capitalisation rates N 47
Sensitivity analyses were performed in which the capitalisation rates as well as material and value-influencing items of the relevant planning calculations (such as premium volumes, investment income or loss ratios) were varied. In this context individual parameters were each varied within appropriate ranges that could be anticipated in view of the prevailing market circumstances and developments. It was established that in the event of changes in parameters within ranges that could reasonably occur, the values in use of Argenta Holdings Limited and E+S Rückversicherung AG were in each case higher than the corresponding book values.
CGU. The value adjustment on the level of Glencar Underwriting Managers Inc. amounts to EUR 5.0 million and encompasses the entire goodwill. The value adjustment taken on the level of Integra Insurance Solutions Limited amounts to EUR 3.4 million. The expense was in each case recognised under the other income / expenses in the property and casualty reinsurance segment.
Present value of future profits on acquired life reinsurance portfolios 39,609 63,285
The item “Other” includes receivables of EUR 50.4 million (EUR 286.8 million) which correspond to the present value of future premium payments in connection with derivative financial instruments arising from transactions in the life and health reinsurance business group. For further explanation please see section 8.1 “Derivative financial instruments and financial guarantees”.
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios N 49 in EUR thousand 2018 2017
Gross book value at 31 December of the previous year 121,859 136,053
Cumulative depreciation at 31 December of the year under review 86,969 58,574
Net book value at 31 December of the year under review 39,609 63,285
Fixtures, fittings and equipment N 50 in EUR thousand 2018 2017
Gross book value at 31 December of the previous year 157,511 155,812
Cumulative depreciation at 31 December of the previous year 127,858 128,578
Cumulative depreciation at 31 December of the year under review 129,561 127,858
Net book value at 31 December of the year under review 29,804 29,653
With regard to the measurement of fixtures, fittings and equipment, the reader is referred to our explanatory notes on the other assets in section 3.1 “Summary of major accounting policies”.
Gross book value at 31 December of the year under review 370,192 364,879
Cumulative depreciation at 31 December of the previous year 231,166 213,132
Cumulative depreciation at 31 December of the year under review 240,795 231,166
Net book value at 31 December of the year under review 129,397 133,713
Credit risks may result from other financial assets that were not overdue or adjusted as at the balance sheet date. In this regard, the reader is referred in general to our comments on the credit risk contained in the risk report on page 94 et seq.
Technical provisions N 52 in EUR thousand gross retro net gross retro net
Loss and loss adjustment expense reserve N 53 in EUR thousand gross retro net gross retro net
Changes in the consolidated group – – – 164,813 41,964 122,849
Net book value at 31 December of the year under review 28,758,575 2,084,630 26,673,945 28,378,545 1,651,335 26,727,210 1 Excluding effects from portfolio entries / exits recognised in income
The total amount of the net reserve before specific value adjustments was EUR 26,619.3 million (EUR 26,682.7 million) as at the balance sheet date.
The following table shows the net loss reserve for the property and casualty reinsurance business group in the years 2008 to 2018 as well as the run-off of the reserve (so-called run-off triangle). The figures reported for the 2008 balance sheet year also include the amounts for previous years that are no longer shown separately in the run-off triangle. The run-off results shown reflect the changes in the ultimate loss arising in the 2018 financial year for the individual run-off years.
A n n u al f in an ci al s ta te m en ts
Maturities of the technical reserves IFRS 4 “Insurance Contracts” requires information which helps to clarify the amount and timing of cash flows expected from reinsurance contracts. In the following tables we have shown the future maturities of the technical provisions broken down by the expected remaining times to maturity. As part of our maturity analysis we have immediately deducted the deposits put up as collateral for these reserves, since the cash inflows and outflows from these deposits are to be allocated directly to the ceding companies. For further explan ation of the recognition and measurement of the reserves please see section 3.1 “Summary of major accounting policies”.
Due after ten through twenty years 2,937,053 207,093 2,729,960 595,049 113,647 481,402
Due after one through five years 11,094,574 778,008 10,316,566 1,691,898 764,857 927,041
Due after five through ten years 3,911,767 237,354 3,674,413 491,424 58,694 432,730
Due after ten through twenty years 2,337,495 120,616 2,216,879 197,622 (1,711) 199,333
The average maturity of the loss and loss adjustment expense reserves was 5.2 years (4.6 years), or 5.2 years (4.6 years) after allowance for the corresponding retrocession shares. The benefit reserve had an average maturity of 11.0 years (11.1 years) – or 12.3 years (13.6 years) on a net basis.
The parameters used to calculate the benefit reserve are interest income, lapse rates and mortality / morbidity rates.
Development of the benefit reserve N 57 in EUR thousand gross retro net gross retro net
Net book value after currency translation 9,039,817 987,917 8,051,900 9,638,277 1,065,993 8,572,284
The development in the year under review was influenced by portfolio entries attributable principally to UK single premium business.
Net book value after currency translation 3,587,488 98,286 3,489,202 3,148,590 122,837 3,025,753
Reclassifications pursuant to IFRS 5 (564,230) (26,567) (537,663) – – –
On 1 April 1993 (1 June 1993 in the case of senior executives) the 1993 pension plan came into effect. This pension plan provides for retirement, disability and surviving dependants’
In addition to these pension plans, senior executives and members of the Executive Board, in particular, enjoy individual commitments as well as commitments given under the benefits plan of the Bochumer Verband.
The commitments to employees in Germany predominantly comprise benefit obligations financed by the Group companies. The provisions for pensions in Germany and abroad were calculated on the basis of uniform standards according to prevailing economic circumstances.
The defined benefit plans expose Hannover Re to the following actuarial risks: • longevity
Actuarial gain (–) / loss (+) from change in biometric assumptions 373 3,407 – – – –
Return on plan assets, excluding amounts included in interest income – – 2,681 4,154 – –
Position at 31 December of the financial year 223,604 210,855 39,989 33,675 41 135
The plan assets consist exclusively of qualifying insurance policies as defined by IAS 19.
Projected benefit obligations at 31 December of the financial year 223,604 210,855
Defined contribution plans In addition to the defined benefit plans, some Group companies have defined contribution plans that are based on length of service and the employee’s income or level of contributions. The expense recognised for these obligations in the financial year in accordance with IAS 19 “Employee Benefits” was EUR 20.6 million (EUR 20.2 million), none of which (EUR 0.8 million) was attributable to commitments to employees in key positions. Of the expense for defined contribution plans, an amount of EUR 11.5 million (EUR 10.8 million) relates to state pension schemes, thereof EUR 7.9 million (EUR 7.6 million) to contributions to the statutory pension insurance scheme in Germany.
The sundry liabilities include, among other things, trade accounts payable and clearing balances. In addition, they in clude distributions within the year of EUR 19.1 million (EUR 6.9 million) from interests in private equity funds that had still to be recognised in income as at the balance sheet date.
The maturities of the sundry non-technical provisions as at the balance sheet date are shown in the following table: Maturities of the sundry non-technical provisions N 65 in EUR thousand 2018 2017
Audits and costs of publishing the annual financial statements 8,964 (16) 8,948 – – (10) 5,323 6,803 750 (10) 6,698
Altogether four (three) bonds were recognised as at the balance sheet date with an amortised cost of EUR 2,235.6 million (EUR 1,492.0 million).
Other long-term liabilities – – 1 – – – 38 1 Excluding sundry non-technical provisions and derivative financial instruments; the maturities of these items are broken down separately.
Net gains and losses from long-term debt and notes payable N 70 in EUR thousand
The ordinary expenses principally include interest expenses of nominally EUR 76.6 million (EUR 70.6 million) resulting from the issued subordinated and senior bonds.
Reconciliation of long-term debt and notes payable N 72 in EUR thousand
The common shares (share capital of Hannover Rück SE) amount to EUR 120,597,134.00. They are divided into 120,597,134 voting and dividend-bearing registered ordinary shares in the form of no-par-value shares. The shares are paid in full. Each share carries an equal voting right and an equal dividend entitlement.
Non-controlling interests in partnerships are reported in accordance with IAS 32 “Financial Instruments: Presentation” under long-term liabilities. The non-controlling interest in profit or loss, which forms part of net income and is shown separately after net income as a “thereof” note, amounted to EUR 86.0 million (EUR 86.0 million) in the year under review.
Net income 235,431 205,345 thereof attributable to non-controlling interests 82,892 72,299
Shareholders’ equity 2,005,406 1,995,032 thereof attributable to non-controlling interests 706,072 702,419
A n n u al f in an ci al s ta te m en ts 7. Notes on the individual items of the statement of income 7.1 Gross written premium
Of the impairments totalling EUR 18.7 million (EUR 40.8 million ), an amount of EUR 15.3 million (EUR 8.4 million) was attributable to private equity. An impairment loss of EUR 2.9 million (EUR 18.0 million) was recognised on real estate and real estate funds. These impairments contrasted with appreciation of EUR 3.6 million (EUR 0.9 million) recognised on real estate that had been written down in previous periods.
Interest income on investments N 76 in EUR thousand 2018 2017
Net gains and losses on investments N 77 in EUR thousand
With regard to the claims and claims expenses as well as the change in the benefit reserve the reader is also referred to section 6.7 “Technical provisions”. The change in the benefit reserve relates exclusively to the life and health reinsurance segment. The administrative expenses amounted to altogether 2.4% (2.6%) of net premium earned.
Commissions and brokerage, change in deferred acquisition costs N 81 in EUR thousand 2018 2017
Commissions and brokerage, change in deferred acquisition costs (net) 4,271,736 3,499,270
Other technical expenses (net) 4.804 3.781 7.4 Other income / expenses
Of the separate value adjustments, an amount of EUR 19.2 million (EUR 19.6 million) was attributable to accounts receivable and EUR 9.3 million (EUR 43.6 million) to retrocession recoverables.
Brokerage commissions, performance fees and similar forms of remuneration 1 4,457
Total 76,521 1 Revenue realised at a point in time 2 Revenue largely realised over time
An amount of EUR 44.1 million was realised over time in the current financial year in connection with other insurance- related services.
This involves revenues from administrative services amounting to EUR 24.2 million that were generated on the Lloyd’s markets in the United Kingdom and in the Asia-Pacific region. The transaction prices are essentially calculated according to the general fee scales as well as a percentage share of the gross premium. The revenues from the administrative services described here are largely earned over a period of three to four years and for the most part realised pro rata temporis.
The transaction price is calculated from a percentage rate in relation to the acknowledged invoice amount. Binding fees are considered to be earned as soon as the underlying gross premium was realised. The revenues from claims settlement were generated on an evenly spread basis throughout the year.
EUR 1.0 million were generated from the transfer of use of application software used for the underwriting of insurance risks.
In addition, revenues of EUR 28.0 million were realised at a point in time in the current financial year from other insurance -related services.
A further EUR 3.3 million was earned from the sale of expert reports on improving mine safety. These studies were conducted primarily in Australia, Canada and South Africa and supported the subsequent underwriting process for the risks in the respective countries. The transaction price is calculated according to the surveyor’s daily rates, which are agreed in advance, plus travel expenses. The revenues described here are deemed to be earned at a point in time upon handover of the report to the customer.
Actual taxes on income at the domestic companies, comparable actual taxes on income at foreign subsidiaries as well as deferred taxes in accordance with IAS 12 “Income Taxes” are recognised under this item.
The reader is referred to the remarks in section 3.1 “Summary of major accounting policies” regarding the basic approach to the recognition and measurement of deferred taxes.
Deferred tax liabilities 1,245,474 1,353,304 1 Thereof on tax loss carry-forwards: EUR -68,488 thousand (EUR -80,933 thousand)
In view of the unrealised components of profit and loss actual and deferred tax expenditure – including amounts attributable to non-controlling interests – of EUR 186.7 million (EUR 61.8 million) was also recognised directly in equity. The following table presents a reconciliation of the expected expense for income taxes with the actual expense for income taxes reported in the statement of income. The pre-tax result is multiplied by the Group tax rate in order to calculate the Group’s expected expense for income taxes.
Reconciliation of the expected expense for income taxes with the actual expense N 89 in EUR thousand 2018 2017
The write-down of deferred tax assets recognised in previous years resulted in a deferred tax expense of EUR 0.8 million (EUR 10.1 million) in the year under review. This is opposed by deferred tax income of EUR 6.3 million (none) from the reversal of earlier write-downs.
Hannover Re holds derivative financial instruments to hedge interest rate risks from loans connected with the financing of real estate; these gave rise to recognition of other liabilities in an amount of EUR 0.5 million (EUR 1.0 million) and other financial assets at fair value through profit or loss in an amount of EUR 0.5 million (EUR 0.5 million).
Hannover Re’s portfolio contained derivative financial instruments as at the balance sheet date in the form of forward exchange transactions taken out to hedge currency risks. These transactions gave rise to recognition of other liabilities in an amount of EUR 6.1 million (EUR 17.7 million) and other financial assets at fair value through profit or loss in an amount of EUR 16.4 million (EUR 2.0 million). The increase in equity from hedging instruments recognised directly in equity pursuant to IAS 39 in an amount of EUR 2.9 million (EUR 1.4 million) derived solely from the forward exchange transactions taken out to hedge currency risks from long-term investments in foreign operations. These hedging instruments resulted in the recognition of other financial assets at fair value through profit or loss in an amount of EUR 3.8 million (other liabilities of EUR 2.4 million). Ineffective components of the hedge were recognised in profit or loss under other investment expenses in an amount of EUR 0.1 million (other investment income of EUR 0.2 million).
In order to hedge the risk of share price changes in connection with the stock appreciation rights granted under the share award plan, Hannover Re has taken out hedges since 2014 in the form of so-called equity swaps. The fair value of these instruments amounted to EUR 1.0 million as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss (EUR 0.8 million recognised under other liabilities). The hedge gave rise to an increase in equity from hedging instruments recognised directly in equity in an amount of EUR 0.3 million (decrease in equity of EUR 1.5 million recognised directly in equity). Ineffective components of the hedge were recognised in a minimal amount under other investment income.
The maturities of the fair values and notional values of the hedging instruments described above can be broken down as follows: Maturity structure of derivative financial instruments N 91 in EUR thousand
The net changes in the fair value of these instruments increased the result of the financial year by EUR 3.2 million (reduction in the result of EUR 3.8 million).
Hannover Re calculates the fair values of the embedded derivatives in ModCo treaties using the market information available on the valuation date on the basis of a “credit spread” method. Under this method the derivative has no value on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities. The derivative had a positive value of EUR 14.0 million (EUR 25.1 million) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss. In the course of the year the change in the fair value of the derivative gave rise to a charge of EUR 11.9 million before tax (income of EUR 3.7 million).
A derivative financial instrument was also unbundled from another similarly structured transaction. This gave rise to recognition of other financial assets at fair value through profit or loss in an amount of EUR 4.8 million (EUR 7.4 million). The performance of this derivative reduced the result by EUR 2.6 million in the financial year (improvement in the result of EUR 3.5 million).
Financial guarantees Structured transactions were entered into in the life and health reinsurance business group in order to finance statutory reserves (so-called Triple-X or AXXX reserves) of US ceding companies. In each case such structures necessitated the involvement of a special purpose entity. The special purpose entities carry extreme mortality risks securitised by the cedants above a contractually defined retention and transfer these risks by way of a fixed / floating swap to a member company of the Hannover Re Group. The total amount of the contractually agreed capacities of the transactions is equivalent to EUR 3,268.7 million (EUR 3,229.1 million); an amount equivalent to EUR 2,623.4 million (EUR 2,525.9 million) had been taken up as at the balance sheet date. The variable payments to the special purpose entities that are guaranteed by the Hannover Re Group cover their payment obligations. Under some of the transactions the payments resulting from the swaps in the event of a claim are reimbursed by the parent companies of the cedants by way of compensation agreements. In this case the reimbursement claims from the compensation agreements are to be capitalised separately from and up to the amount of the provision.
HDI Lebensversicherung AG, Cologne, participated in a nominal amount of EUR 50.0 million in the subordinated bond issued by Hannover Rück SE in September 2014 with a coupon of 3.375%.
Within the contractually agreed framework Ampega Asset Management GmbH (name change in January 2019, formerly: Talanx Asset Management GmbH) performs investment and asset management services for Hannover Rück SE and the vast majority of its subsidiaries. A total amount of EUR 42.2 million (EUR 43.2 million) was expensed for the rendering of these services in the financial year just ended. Assets in special funds are managed by Ampega Investment GmbH. Ampega Real Estate GmbH (name change in January 2019, formerly: Talanx Immobilien Management GmbH) performs services for Hannover Re under a number of management contracts.
In 2014 Hannover Rück SE concluded an agreement with Ampega Asset Management GmbH that allows Ampega Asset
Under long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2015 to HDI Service AG, Hannover (name change in January 2019, formerly: Talanx Service AG). In addition, lease agreements exist with HDI Service AG for use of a portion of the space in our data centre.
Furthermore, IT and management services were performed for Talanx Reinsurance Broker GmbH, Hannover, under service contracts.
Stock Appreciation Rights Plan With effect from 1 January 2000 the Executive Board of Hannover Rück SE, with the consent of the Supervisory Board, introduced a virtual stock option plan that provides for the granting of stock appreciation rights to certain managerial staff. The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of shares of Hannover Rück SE, but merely to payment of a cash amount linked to the performance of the Hannover Rück SE share.
A n n u al f in an ci al s ta te m en ts spect of which the waiting period has not yet expired shall lapse. Retirement, disability or death of the member of management shall not be deemed to be termination of the employment relationship for the purpose of exercising stock appreciation rights.
The allocations for the years 2009 to 2011 gave rise to commitments in the 2018 financial year shown in the following table. No commitments exist for years prior to 2009.
Stock appreciation rights of Hannover Rück SE N 96 in EUR thousand
Provisions at 31 December 2018 (in EUR million) 0.44 0.63 0.04
Amounts paid out in the 2018 financial year (in EUR million) 1.61 0.22 0.15
Expense in the 2018 financial year (in EUR million) – – –
The calculations were based on the price of the Hannover Re share of EUR 118.80 as at the reference date of 12 December 2018, expected volatility of 19.74% (historical volatility on a five-year basis), an expected dividend yield of 4.21% and risk-free interest rates of -0.68% for the 2009 allocation year, -0.62% for the 2010 allocation year and -0.53% for the 2011 allocation year.
The Share Award Plan replaced the cancelled Stock Appreciation Rights Plan. Please see our remarks under “Stock Appreciation Rights Plan” in this section. The share awards do not establish any claim against Hannover Re to the delivery of stock, but merely to payment of a cash amount in accordance with the conditions set out below.
Share awards were granted separately for the first time for the 2011 financial year and then for each financial year (allocation year) thereafter. The first payout of share awards took place in the 2016 financial year for those share awards that had been allocated in the 2011 financial year to the eligible members of the Executive Board. In the 2017 financial year
Development of the provision for share awards of Hannover Rück SE N 98 in EUR thousand
The aggregate provision – recognised under the sundry non-technical provisions – amounted to EUR 33.9 million (EUR 34.1 million) as at the balance sheet date.
With regard to the effects of the equity swaps taken out to hedge price risks, please see our explanatory remarks in section 8.1 “Derivative financial instruments and financial guarantees ”.
The lawsuits pending in the year under review and as at the balance sheet date were not material for the Hannover Re Group either individually or combined. Furthermore, there were no contingent liabilities from lawsuits to report as at the balance sheet date.
As security for technical liabilities to our US clients, we have established two trust accounts (master trust and supplemental trust) in the United States. They amounted to EUR 3,904.8 million (EUR 3,716.4 million) and EUR 132.3 million (EUR 71.5 million) respectively as at the balance sheet date. The securities held in the trust accounts are shown as available -for-sale investments. In addition, we furnished further collateral to ceding companies in an amount of EUR 2,555.3 million (EUR 1,946.5 million) in the form of so-called “single trust funds”. This amount includes a sum equivalent to EUR 2,042.6 million (EUR 1,634.5 million) which was furnished by investors as security for potential reinsurance obligations from ILS transactions.
Letter of credit (LoC) facilities existed with a number of financial institutions as at the balance sheet date in a total volume equivalent to EUR 2,417.3 million (EUR 2,890.9 million) and with various terms maturing at the latest in 2023.
A number of LoC facilities include standard market contractual clauses that allow the banks rights of cancellation in the event of material changes in our shareholding structure or trigger a requirement on the part of Hannover Re to furnish collateral upon materialisation of major events, for example if our rating is significantly downgraded. Please see also our explanatory remarks in the “Financial position” section of the management report, page 66 et seq., on the information pursuant to § 315a Para. 1 German Commercial Code (HGB).
As security for liabilities in connection with participating interests in real estate companies and real estate transactions the usual collateral under such transactions has been furnished to various banks, the amount of which totalled EUR 647.4 million (EUR 508.2 million) as at the balance sheet date.
Outstanding capital commitments with respect to alternative investments exist on the part of the Group in an amount of EUR 1,326.4 million (EUR 1,201.9 million). These primarily involve as yet unfulfilled payment obligations from investment commitments given to private equity funds and venture capital firms.
Group companies are members of the association for the reinsurance of pharmaceutical risks and several atomic and nuclear pools. The failure of one of the other pool members to meet its liabilities would result in an additional call according to the quota participation.
Hannover Rück SE has provided an open-ended guarantee limited to EUR 11.1 million in favour of the pension fund “The Congregational & General Insurance Plc Pension and Life Assurance Scheme” of the now extinguished Congregational & General Insurance Plc., Bradford, United Kingdom, at usual market conditions.
Non-cancellable operating leases will give rise to the following future minimum payments payable and receivable in subsequent years.
Future minimum lease payments payable N 102 in EUR thousand Amounts payable
The rental payments receivable result principally from the long-term renting out of properties by the Group’s real estate companies.
At its meeting on 8 March 2018 the Supervisory Board of Hannover Re appointed PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft (PwC GmbH) as the auditor of the consolidated financial statement of Hannover Re as defined by § 318 German Commercial Code (HGB). The expense recognised for the fees paid to PwC GmbH and worldwide member firms of PwC International Limited (PwC) in the year under review can be broken down as follows: Fee paid to the auditor N 104 in EUR thousand
The fee for services relating to auditing of the financial statements performed by PwC GmbH includes above all the fees for the auditing of the consolidated financial statement including legally required extensions of the mandate, the review report on the interim report as well as audits of annual financial statements and audits of the Solvency II balance sheets of the subsidiaries included in the consolidated financial statement.
Accountants / Certified Auditors (Berufssatzung WP / vBP) as amended on 21 June 2016 is Mr. Mathias Röcker. He served as the engagement partner responsible for the audit of the annual and consolidated financial statements for the first time as at 31 December 2018.
A n n u al f in an ci al s ta te m en ts 8.10 Events after the balance sheet date
We have audited the consolidated financial statement of Hannover Rück SE, Hannover, and its subsidiaries (the Group) – comprising the consolidated balance sheet as at 31 December 2018, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in shareholders’ equity and the consolidated cash flow statement for the financial year from 1 January to 31 December 2018 as well as the notes to the consolidated financial statement, including a summary of major accounting policies.
In addition, we audited the Group management report of Hannover Rück SE, which is combined with the management report of the company, for the financial year from 1 January to 31 December 2018. In accordance with German statutory requirements, we did not audit the content of the components of the Group management report specified in the “Other information ” section of our independent auditor’s report.
We conducted our audit of the consolidated financial statement and the Group management report in conformity with § 317 Commercial Code (HGB) and the EU Audit Regulation (No. 537 / 2014) with due regard to German generally accepted standards for the auditing of financial statements promulgated by the Institute of Public Auditors in Germany (IDW). Our responsibility according to these requirements and principles is described more extensively in the section of our audit report entitled “Responsibility of the auditor for the auditing of the consolidated financial statement and the Group management report”. We are independent of the Group companies in conformity with the requirements of European law as well as German commercial law and professional standards and we fulfilled our other German professional duties in
Key audit matters are those matters that, in our professional judgement, are of the greatest significance to our audit of the consolidated financial statement for the financial year from 1 January to 31 December 2018. These matters were considered in the context of our audit of the consolidated financial statement as a whole and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters.
(3) Measurement of the benefit reserve (4) Calculation of the estimated gross premium
We have structured our presentation of these key audit matters as follows: (a) Facts of the matter and problem (b) Approach taken in the audit and insights gained (c) Reference to further information
Financial instruments measured using models are subject to an increased valuation risk in this connection owing to a reduced scope for objectivity and the underlying discretionary decisions, estimates and assumptions of Management.
Given that the estimates and assumptions used, especially those in relation to interest rates and cash flows, as well as the applied measurement methods can potentially have material implications for the measurement of these financial instruments and for the net assets and results of operations of the Group and also bearing in mind that extensive disclosures in the notes are required on measurement methods and scope for discretion, this was a key audit matter in the context of our audit.
(c) The information provided by the company regarding the measurement of financial instruments is contained in the sections of the notes to the consolidated financial statement entitled “Accounting policies” and “Notes on the individual items of the balance sheet”, subsection “Investments under own management”.
(2) Measurement of the loss and loss adjustment expense reserve in property and casualty reinsurance
The loss reserves in property and casualty reinsurance are estimated based on empirical values in light of the information provided by ceding companies. The measurement of the loss reserves is derived using actuarial methods that necessitate a sufficiently long data history and stability of the observed data. The mathematical methods incorporate assumptions regarding premiums, ultimate loss ratios and run-off patterns that are built upon an expert assessment based on past experience. Taking into account the results of the actuarial procedures and other influencing factors in relation to the uncertainties associated with the calculations, Management determines the amount of the loss reserves.
The determination of the loss reserve requires discretionary decisions, estimates and assumptions on the part of Management. Minimal changes to these assumptions and the methods used can materially affect the measurement of this provision.
(b) As part of the audit, in light of the significance of the loss reserve, we evaluated the methods used by the company and the assumptions made by Management in cooperation with our own actuaries. In so doing, we worked on the basis of, among other things, our industry expertise and our industry experience.
Among other things, we assessed the adequacy of the design of the reserving process and performed functional checks in order to evaluate the effectiveness of the internal controls. In so doing, we focused especially on controls that ensure the data used are adequate and complete and that the calculation process is subject to a sufficient form of quality assurance.
On the basis of our audit procedures we were able to assure ourselves that the estimates and assumptions made by Management with regard to the loss reserve are appropriate overall.
(c) The information provided by the company on the loss reserves in property and casualty reinsurance is contained in the sections of the notes to the consolidated financial statement entitled “Accounting policies” and “Notes on the individual items of the balance sheet”, subsection “Technical provisions”. Risk information is provided in the section of the Group management report entitled “Risk report”, subsection “Underwriting risks in property and casualty reinsurance”.
The measurement of the benefit reserve is derived using actuarial methods from the present value of future payments to ceding companies less the present value of future premiums still to be paid by ceding companies. Defined actuarial bases are applied upon initial recognition of the treaty in question. Depending on the structuring of the treaty and the regular course of business, the calculation is based either on a combination of available statements of account from ceding companies, as necessary adjusted by estimates of the treaty experience for accounting periods not yet available, or on model-based own calculations of the benefit reserve. In this regard, actuarial assumptions are made in connection with interest rates, investment income, mortality, morbidity, longevity, expenses and future policyholder behaviour.
An annual liability adequacy test is performed on the level of portfolios managed as a unit in order to verify whether the technical provisions, and hence in particular the benefit reserve, established as at the balance sheet date using the actuarial bases for initial recognition, less existing deferred acquisition costs, are sufficient to cover the best estimate as at the balance sheet date of the expected present value of future payments less the present value of premiums payable from the portfolios managed as a unit.
The assessment of the adequacy of the reported benefit reserve, the estimates made in cases where statements of account from ceding companies were not available and the model-based calculations of the benefit reserve are subject to considerable scope for discretion on the part of Management and hence associated estimation uncertainties.
On the basis of the audit procedures that we conducted, we were able to assure ourselves that the methods and assumptions used by Management for measurement of the benefit reserve are appropriate overall.
(c) The information provided by the company on the benefit reserve is contained in the sections of the notes to the consolidated financial statement entitled “Accounting policies” and “Notes on the individual items of the balance sheet”, subsection “Technical provisions”. Risk information is provided in the section of the Group management report entitled “Risk report”, subsection “Underwriting risks in life and health reinsurance”.
(a) The company reports gross written premium of EUR 19,176.4 million in the statement of income contained in its consolidated financial statement.
In view of the material significance (in terms of amount) of the estimated premium volume for the Group’s net assets and results of operations as well as the considerable discretionary scope of Management and the associated estimation uncertainties, this matter was of particular significance in the context of our audit.
(b) For the purpose of auditing the estimated gross premium, as a first step we conducted the structural audit of the premium and estimation process. In this connection we identified the material key controls and analysed their design. On this basis, as part of the functional audit, we tested the effectiveness of the key controls implemented in the process and evaluated the adequacy of the mate- rial assumptions by reproducing and analysing the calculation method used to arrive at the estimated gross premium.
• the disclosures contained in the Group management report that are identified as unaudited in connection with Solvency II reporting
The other information additionally encompasses the other parts of the Annual Report – excluding further cross-references to external information –, with the exception of the audited consolidated financial statement, the audited Group management report and our audit report.
Our audit opinions on the consolidated financial statement and on the Group management report do not extend to the other information, and hence we do not express an audit opinion or draw any other form of audit conclusion in this regard.
In preparing the consolidated financial statement, Management is responsible for assessing the capacity of the Group to continue as a going concern. Furthermore, they are responsible for declaring facts and circumstances connected with continuation as a going concern, where relevant. In addition, they are responsible for financial reporting on the going concern basis of accounting, unless there is an intention to liquidate the Group or cease operations or there is no other realistic alternative.
Responsibility of the auditor for the auditing of the consolidated financial statement and the Group management report
• we obtain an understanding of the internal control system relevant to the audit of the consolidated financial statement and the safeguards and measures relevant to the audit of the Group management report in order to plan audit procedures that are appropriate under the existing circumstances, albeit not with the aim of providing an audit opinion on the effectiveness of these systems.
• we assess the adequacy of the accounting policies applied by Management as well as the reasonableness of the estimated values presented by Management and associated disclosures.
• we draw conclusions regarding the adequacy of the going concern accounting principle applied by Management as well as, on the basis of the audit evidence obtained, regarding whether material uncertainty exists in connection with events or circumstances that can raise significant doubts about the capacity of the Group to continue as a going concern. If we conclude that material uncertainty exists, we are required in the audit report to draw attention to the associated disclosures in the consolidated financial statement and in the Group management report or, if these disclosures are inadequate, to modify our audit opinion. We arrive at our conclusions on the basis of the audit evidence obtained until the date of our audit report. Future events or circumstances may, however, result in the Group no longer being able to continue as a going concern.
• we assess the overall presentation, the structure and the content of the consolidated financial statement including the disclosures as well as whether the consolidated financial statement presents the underlying business transactions and events in such a way that the consolidated financial statement gives a true and fair view of the net assets, financial position and results of operations of the Group in conformity with IFRS, as applicable in the EU, and with the additional requirements of German law applicable pursuant to § 315e Para. 1 Commercial Code (HGB).
• we obtain sufficient suitable audit evidence for the accounting information of the companies or business activities within the Group in order to be able to provide audit opinions on the consolidated financial statement and on the Group management report. We are responsible for the direction, monitoring and conduct of the audit of the consolidated financial statement. We bear sole responsibility for our audit opinions.
• we assess the consistency of the Group management report with the consolidated financial statement, its conformity with the law and the view of the position of the Group that it conveys.
We determine from among the matters that we discussed with those charged with governance those matters that were most relevant to the current reporting period in the audit of the consolidated financial statement and therefore constitute the key audit matters. We describe these matters in the audit report, unless laws or other legal provisions prevent public disclosure of the matter.
We were selected as the auditor of the consolidated financial statement by the Supervisory Board on 8 March 2018. We received the audit mandate from the Supervisory Board on 13 June 2018. We have served as the auditor of the consolidated financial statement of Hannover Rück SE, Hannover, since the 2018 financial year.
Report by the independent auditor on a limited assurance engagement for the non-financial reporting
We have performed a limited assurance engagement on the combined non-financial information statement of Hannover Rück SE, Hannover (hereinafter the “Company”) according to
§§ 289b und 315b Commercial Code (HGB), which is contained in the section of the combined management report entitled “Combined non-financial information statement” (hereinafter the “non-financial information statement”), for the period from 1 January to 31 December 2018.
This responsibility of Management involves selecting and applying appropriate methods for non-financial reporting as well as making assumptions and estimates regarding individual non-financial disclosures which are reasonable in the circumstances. Furthermore, the legal representatives are responsible for the internal controls that they have determined to be necessary in order to facilitate the preparation of a non-financial information statement that is free from material misstatements, whether due to fraud or error.
In the context of our assurance engagement we performed, inter alia, the following assurance procedures and other activities:
• Gaining insight into the structure of the sustainability organisation and into the performance of the materiality analysis
• Questioning Management and relevant employees involved in the preparation of the non-financial information statement about the process of preparing the non-financial information statement, about the internal control system relating to this process and about the disclosures in the non-financial information statement
Based on the assurance procedures performed and the assurance evidence obtained, we are not aware of any facts or circumstances that lead us to believe that the Company’s non-financial information statement for the period from 1 January to 31 December 2018 has not been prepared, in all material respects, in conformity with §§ 315b and 315c in conjunction with 289b to 289e Commercial Code (HGB).
We issue this report on the basis of the assurance engagement agreed with the Company. The assurance engagement has been performed for the purposes of the Company and the report is intended solely to inform the Company about the result of the assurance engagement.
In our function as the Supervisory Board we considered at length during the 2018 financial year the position and development of the company and its major subsidiaries. We advised the Executive Board on the direction of the company and monitored the management of business on the basis of written and verbal reports from the Executive Board. The Supervisory Board of Hannover Rück SE held four regular meetings and two extraordinary meetings in order to adopt the necessary resolutions after appropriate discussion. In addition, the Supervisory Board adopted two resolutions in the reporting period by a written procedure. All nine Supervisory Board members took part in each of the Supervisory Board meetings held in 2018. Two representatives of the Federal Financial Supervisory Authority attended one meeting on a routine basis. In addition, we were informed by the Executive Board in writing and orally on the basis of the quarterly statements about the course of business as well as the position of the company and the Group. The quarterly reports with the components of the financial statements and key figures for the Hannover Re Group constituted an important source of information for the Supervisory Board.
Key points of deliberation On 12 February 2018 we held an extraordinary meeting dedicated to addressing the US tax reform and its implications for the reinsurance business transacted by Hannover Rück SE as well as specific financing measures.
At the meeting on 8 March 2018 the Supervisory Board discussed the audited annual and consolidated financial statements as well as the Executive Board’s proposal for the appropriation of the disposable profit for the 2017 financial year. In this regard, as in the previous year, the Executive Board described all material indicators from the technical and non-technical accounts as well as key data on the investment side and the independent auditor directly presented the results of the audit and elaborated on the audit procedure. The Executive Board outlined the prospects for the current 2018 financial year and we discussed the major insights from the compliance, audit and risk reports. Among the steps taken as part of the annual revision of the investment guidelines, the product catalogue was expanded to include cross-currency swaps and adjustments were made to asset allocations in a few specific cases in response to market developments. Following the announcement that two members of the Supervisory Board – namely Mr. Wolf-Dieter Baumgartl and Dr. Klaus Sturany – would be stepping down with effect from the end of the Annual General Meeting in May, the Supervisory Board discussed the corresponding by-elections of Mr. Torsten Leue and Dr. Ursula Lipowsky, who attended the meeting as guests for this purpose. In this connection consideration was given to the areas of expertise within the body as a whole as well as the envisaged changes to the composition of the committees. The other agenda items to be dealt with at the upcoming Annual General Meeting were also determined. Having chosen the preferred auditing firm in 2017 as recommended by the Finance and Audit Committee following the selection procedure, the Supervisory Board appointed PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft as the independent auditor for the first time in accordance with this determination. Furthermore, the variable remuneration of the members of the Executive Board was defined on the basis of the findings with respect to attainment of the respective targets for the 2017 financial year and, after an in-depth exploration of the matter, a capital increase was approved at the subsidiary Glencar Insurance Company.
On 4 May 2018 the Executive Board reported to us on the first quarter of 2018 and we explored the overall results of the previous year in greater detail; in this regard the Executive Board presented relevant analyses regarding the quality of the loss reserves in property and casualty reinsurance and the intrinsic value creation (IVC). In addition to the outlook for
On 8 August 2018 the Executive Board reported on the first half of 2018; in this context, as usual, it described the material indicators from the technical and non-technical accounts and outlined the attainment status of the strategic objectives based on the target matrix. The outlook for the current financial year was followed by a discussion of the key insights from the risk report. In addition, the management measures chosen by the company in connection with the so-called US Brock portfolio and the description of the recognition and development of the business concerned were a major focus of the August meeting. The corresponding project “Reboot Update ” was also considered at length in the meetings of the Finance and Audit Committee. We also received the audit report on the solvency balance sheet. Furthermore, the Supervisory Board received a detailed explanation of the company ’s digitalisation strategy from the Executive Board, which it subsequently discussed. With an eye to the self-assessment of the Supervisory Board’s areas of expertise that had once more been carried out, the Supervisory Board decided that the extensive list of topics which goes beyond the regulatory requirements will be used again in 2019. Responding to the insights gained from this self-assessment in the previous year, the Supervisory Board took part in an IT training session. The Supervisory Board also received a report on the development of the investment dating from 2016 in Somerset Re, a Bermuda-based reinsurer. In August the Supervisory Board was additionally introduced to Mr. Jean-Jacques Henchoz as a potential successor to Mr. Ulrich Wallin in the role of Chief Executive Officer.
At the last meeting of the year on 7 November 2018, we deliberated at length on the key preliminary results in the business performance together with the outlook for the current financial year. We were provided with the report on employee capacities. The Executive Board also presented the operational planning for 2019; we considered this in detail and subsequently approved the annual / results planning submitted to us. We discussed the latest insights from the risk report and were informed of the status of major pending legal proceedings. The ongoing project “Nukleus” and our associated decision to terminate the control and profit transfer agreement with International Insurance Company of Hannover SE was another focus of our deliberations. As in every year, the full Supervisory Board considered the adequacy of the remuneration system for the members of the Executive Board. We received a report on the allocation, structure and profitability of the real estate portfolio. Based on the findings of the “Fit & Proper” self-assessment that had been conducted, we engaged in an extensive exchange of views on a development plan for the full Supervisory Board. Furthermore, we dedicated a significant part of our discussion to corporate governance issues and in this regard we approved a revised diversity concept and the updated Declaration of Conformity (see also further information below).
The Finance and Audit Committee considered inter alia the consolidated financial statement and the quarterly reports drawn up in accordance with IFRS and the individual financial statement of Hannover Rück SE drawn up in accordance with the German Commercial Code (HGB) and it discussed with the independent auditors their reports on these financial statements. As in the previous year, an expert opinion on the adequacy of the loss reserves in property and casualty reinsurance was noted, the retrocession structure of the Hannover Re Group and the accumulated prefinancing volume in life reinsurance including a comparison of the expected return flows with the repayments actually made, the risk reports, the compliance report and the report on adherence to corporate governance principles were discussed and reports on the major subsidiaries were received and considered.
A further subject of discussion was the review of the successful completion of the transition phase between the previous and currently mandated auditing firm. The Finance and Audit Committee subsequently assured itself – including through direct dialogue with the auditors in the context of a meeting – that the change of auditing firm had been completed in an orderly fashion.
In all these matters the Committee drew up corresponding recommendations for the full Supervisory Board. The Committee deliberated at length on the medium- and longtime succession arrangements for the Executive Board and recommended to the full Supervisory Board the appointment of Mr. Henchoz as a member of the Executive Board, his nomination as Chief Executive Officer to succeed Mr. Wallin and the reappointment of Mr. Claude Chèvre.
We considered the report by the Executive Board on non- financial matters (cf. page 75 et seq. of the combined management report in the Annual Report) and examined it. Besides Price waterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft audited the information statement with limited assurance in accordance with the audit standard ISAE 3000 (Revised) (see here the Independent Auditor’s Report on page 270 et seq.).
The Supervisory Board chose the auditor and the Chairman of the Supervisory Board awarded the audit mandate. The auditor’s independence declaration was received. Along with the audit concentrations of the German Financial Reporting Enforcement Panel (DPR), the additional audit concentrations defined by the European Securities and Markets Authority (ESMA) also formed part of the scope of the audit. The mandate for the review report by the independent auditors on the Half-yearly Financial Report as at 30 June 2018 was also awarded again. The special challenges associated with the international aspects of the audits were met without reservation. Since the audits did not give rise to any objections PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft issued unqualified audit certificates. It was also determined that the annual financial statement contains the information pursuant to § 289f German Commercial Code (HGB). The Finance and Audit Committee discussed the financial statements and the combined management report with the participation of the auditors and in light of the audit reports, and it informed the Supervisory Board of the outcome of its reviews. The audit reports were distributed to all the members of the Supervisory Board and explored in detail – with the participation of the auditors – at the Supervisory Board meeting held to consider the annual results. The auditors will also be present at the Annual General Meeting.
– in each case drawn up as at 31 December 2018 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report.
On the Supervisory Board Mr. Baumgartl and Dr. Sturany informed the Chairman of the Supervisory Board that they would be resigning their Supervisory Board mandates with effect from the end of the Annual General Meeting of Hannover Rück SE on 7 May 2018. Mr. Baumgartl also sat on the Standing Committee, the Finance and Audit Committee and the Nomination Committee. Dr. Sturany belonged to the Standing Committee. Dr. Lipowsky and Mr. Leue were elected to the Supervisory Board in the scheduled by-election held at the Annual General Meeting on 7 May 2018 with effect from the end of the Annual General Meeting.
At the extraordinary Supervisory Board meeting held after the Annual General Meeting Dr. Erhard Schipporeit resigned his mandate as a member of the Finance and Audit Committee. Dr. Lipowsky and Mr. Leue were subsequently elected to the Finance and Audit Committee. Mr. Leue and Dr. Schipporeit were elected to the Standing Committee. In addition, Mr. Leue was elected to the Nomination Committee.
As a member of the Supervisory Board and employee representative on the company’s Supervisory Board, Mr. Otto Müller stepped down from the Supervisory Board effective 31 May 2018 at the end of his active employment relationship with the company. Ms. Benita Bierstedt succeeded Mr. Müller on the Supervisory Board as the appointed personal substitute member with effect from 1 June 2018. Ms. Bierstedt then resigned her mandate as a Supervisory Board member and employee representative on the company’s Supervisory Board for personal reasons effective 6 July 2018. In the by-election that was then held for the vacant seat as an employee representative, Mr. Müller was re-elected to the Supervisory Board as an external employee representative with effect from 12 July 2018.
Mr. Henchoz was appointed as a member of the Executive Board with effect from 1 April 2019 and nominated as Chairman of the Executive Board with effect from the end of the
Annual General Meeting on 8 May 2019; from this date onwards he will therefore take over as Chief Executive Officer from Mr. Wallin, who is retiring. Mr. Chèvre was reappointed as a member of the Executive Board.
Word of thanks to the Executive Board and members of staff The good result generated by Hannover Rück SE for the 2018 financial year was made possible by the exceptional performance of the Executive Board and the members of staff working for the company and the Group. The Supervisory Board would like to express its recognition and special appreciation to the Executive Board and all the employees for their efforts.
Burgwedel Chairman Former Chief Executive Officer of Talanx AG and HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Berg (until 7 May 2018) Former Chief Executive Officer of Talanx AG and HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Munich (since 7 May 2018) Member of the Supervisory Board of the Association, Association of German Dioceses (VDD), Corporation under Public Law
Hannover (until 31 May 2018 and since 12 July 2018) Employee
Dr. Immo Querner Celle Member of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G. Member of the Board of Management of Talanx AG
Further information Branch offices and subsidiaries of the Hannover Re Group abroad
Hannover Life Reassurance Company of America (Bermuda) Ltd. Canon’s Court, 22 Victoria Street Hamilton, HM 12
Hannover Rueck SE Malaysian Branch Suite 29-01 Integra Tower, The Intermark 348 Jalan Tun Razak 50400 Kuala Lumpur
Hannover Reinsurance Group Africa (Pty) Ltd. Rosebank Towers Office Level 3 15 Biermann Ave Rosebank, Johannesburg 2196 P. O. Box 85321 Emmarentia 2029
Office Denver 4500 Cherry Creek Drive South, Suite 1100 Glendale, CO 80246
Hannover Re Services USA, Inc. 500 Park Blvd., Suite 805 Itasca, Illinois 60143
Benefit reserves: value arrived at using mathematical methods for future liabilities (usually prospectively as present value of future liabilities minus present value of future incoming premiums), primarily in life and health insurance (that is transacted in a similar way to life insurance).
Capital allocation: risk-appropriate allocation of the economic capital to the business segments of property & casualty reinsurance and life & health reinsurance as well as the investments on the basis of the respective economic risk content.
Cat. bonds: securitised (re)insurance risks in respect of which the payment of interest and / or repayment of capital is dependent on the occurrence and severity of a predefined insured event. Purchasers of a catastrophe bond assume the risk carried by the (re)insurer upon occurrence of the catastrophic event. Catastrophe bonds are part of the insurance -linked securities market. Cf. securitisation instruments
Excess return on capital allocated (xRoCA): indicator which describes the IVC in relation to the allocated capital and shows the relative excess return generated above and beyond the weighted cost of capital.
International Securities Identification Number (ISIN): ten-character universal code used to identify securities internationally. It is prefixed by a country code that specifies the country where the issuer entity is legally registered or in which it has legal domicile, e. g. DE = Germany.
Issuer: private enterprise or public entity that issues securities, e. g. the federal government in the case of German Treasury Bonds and a joint-stock corporation in the case of shares.
Major loss budget: annual budget for major losses determined from the modelled loss expectancy for business with natural perils exposure as well as for man-made net losses larger than EUR 10 million.
Modified Coinsurance (ModCo) treaty: type of reinsurance treaty where the ceding company retains the assets with respect to all the policies reinsured and also establishes and retains the total reserves on the policies, thereby creating an obligation to render payments to the reinsurer at a later date. Such payments include a proportional share of the gross premium plus a return on the assets.
Other securities, trading: securities that are held principally for short-term trading purposes. They are measured at their fair value at the balance sheet date.
Price / earnings ratio (PER): a valuation ratio of a company’s share price compared to its per-share earnings.
Structured reinsurance: reinsurance with limited potential for profits and losses. In most cases customers strive for risk equalisation over time or solvency relief, both of which have a stabilising effect on the ceding company’s balance sheet.
M 03 Intrinsic Value Creation and excess return on capital allocated 22
M 04 Gross premium by business group 32 M 05 Business development in the year under review 33 M 06 Gross written premium in P & C reinsurance 36 M 07 Geographical breakdown of gross written premium in 2018 36 M 08 Breakdown of gross premium by treaty types: proportional and non-proportional treaties by volume 36
M 10 Key figures for Property & Casualty reinsurance 38 M 11 Property & Casualty reinsurance: Major loss trend 39 M 12 Property & Casualty reinsurance: Key figures for individual markets and lines in 2018 39 M 13 Property & Casualty reinsurance: Breakdown of gross written premium in target markets 40 M 14 Property & Casualty reinsurance: Breakdown of gross written premium in North America by line of business 40
M 15 Property & Casualty reinsurance: Breakdown of gross written premium in Continental Europe by line of business 41
M 19 Property & Casualty reinsurance: Breakdown of gross written premium in worldwide treaty reinsurance 45
M 20 Breakdown of gross premium by markets 52 M 21 Value of New Business (VNB) growth 52 M 22 Breakdown of gross written premium by reporting categories 52 M 23 EBIT performance 52 M 24 Key figures for Life & Health reinsurance 53 M 25 Investment income 59 M 26 Development of investment income 59 M 27 Investment portfolio 60 M 28 Breakdown of investments under own management 61 M 29 Rating of fixed-income securities 61 M 30 Capital structure as at 31 December 2018 62 M 31 Development of policyholders’ surplus 63 M 32 Development of Group shareholders’ equity 64 M 33 Amortised cost of our bonds 64 M 34 Consolidated cash flow statement 65 M 35 Cash flow from operating activities 65 M 36 Financial strength ratings of the
M 43 Allocation of material issues to the reportable non-financial aspects pursuant to the German Commercial Code (HGB) 78
M 44 Goal to be achieved by 2020: Responsible corporate governance 79
M 72 Required risk capital for underwriting risks in life and health reinsurance 109
M 73 Required risk capital for market risks 110 M 74 Utilisation of the trigger system 111 M 75 Value at Risk for the investment portfolio of the Hannover Re Group 112 M 76 Scenarios for changes in the fair value of material asset classes 112 M 77 Rating structure of our fixed-income securities 114 M 78 Required risk capital for the counterparty default risk 114 M 79 Gross written premium retained 115 M 80 Reinsurance recoverables as at the balance sheet date 115 M 81 Required risk capital for operational risks 116 M 82 Opportunity management process 120 M 83 Measurement basis and payment procedures for fixed remuneration 128 M 84 Overview of the composition of variable remuneration 129 M 85 Measurement bases / conditions of payment for variable remuneration 130 M 86 Payment procedures for the total variable remuneration 132 M 87 Total remuneration of the active members of the Executive Board pursuant to DRS 17 (modified in 2010) 134
M 90 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2017 and 2018) 140
M 91 Pension commitments 143 M 92 Individual remuneration received by the members of the Supervisory Board 144 M 93 Group of participants and total number of eligible participants in variable remuneration systems 146 M 94 Growth in gross domestic product (GDP) 150 M 95 Property & Casualty reinsurance: Forecast development for 2019 154 M 96 Life & Health reinsurance: Forecast development for 2019 157
N 04 Consolidated statement of changes in shareholders’ equity 2018 166
N 09 Scope of consolidation 185 N 10 List of shareholdings 186 N 11 Material branches of the Group 193 N 12 Book values from business relations with unconsolidated structured entities 2018 196 N 13 Book values from business relations with unconsolidated structured entities 2017 197 N 14 Assets and liabilities of the disposal group 199 N 15 Consolidated segment report 200
N 19 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value 2017 206
N 22 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value 2018 208
N 23 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value 2017 209
N 24 Fair value of financial assets at fair value through profit or loss before and after accrued interest as well as accrued interest on such financial assets 210
N 37 Income and expenses from level 3 financial assets and liabilities 2018 219
N 39 Fair value hierarchy of financial assets and liabilities measured at amortised cost 2018 220
N 73 Subsidiaries with material non-controlling interests 244 N 74 Gross written premium 245 N 75 Investment income 246 N 76 Interest income on investments 246 N 77 Net gains and losses on investments 2018 247 N 78 Net gains and losses on investments 2017 247 N 79 Reinsurance result 248 N 80 Other technical income 248
N 81 Commissions and brokerage, change in deferred acquisition costs 249
Germany and abroad 258 N 96 Stock appreciation rights of Hannover Rück SE 261 N 97 Share awards of Hannover Rück SE 263 N 98 Development of the provision for share awards of Hannover Rück SE 263 N 99 Personnel information 264 N 100 Personnel expenditures 264 N 101 Calculation of the earnings per share 265 N 102 Future minimum lease payments payable 267 N 103 Future minimum lease payments receivable 267 N 104 Fee paid to the auditor 268
Half-yearly Financial Report 2019 22nd International Investors’ Day, Frankfurt am Main