The fair values of the derivative financial instruments were determined on the basis of the market information available at the balance sheet date. Please see Section 3.1 “Summary of major accounting policies” with regard to the measurement models used.
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 4.0 million (EUR 1.4 million) and other financial assets at fair value through profit or loss in an amount of EUR 0.5 million (none).
Hannover Re also holds derivative financial instruments to hedge inflation risks associated with the loss reserves. These transactions resulted in the recognition of other liabilities amounting to EUR 63.6 million (EUR 34.1 million and other financial assets at fair value through profit or loss in an amount of EUR 1.4 million).
The net changes in the fair value of these instruments resulted in a charge of EUR 32.9 million to the result of the financial year (EUR 33.1 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 is valued at zero 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 44.8 million (EUR 45.3 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 against investment income of EUR 6.8 million before tax (increase in investment income of EUR 7.4 million).
Hannover Re companies offer their contracting parties coverage for risks from possible future payment obligations arising out of hedging instruments, are also to be classified as derivative financial instruments. The payment obligations result from contractually defined events and relate to the development of an underlying group of primary insurance contracts with statutory reserving requirements. The contracts are to be categorised and recognised as stand-alone credit derivatives pursuant to IAS 39. These derivative financial instruments were carried in equity on initial recognition because receivables recognised under other assets were to be carried in the same amount. Please see Section 6.6 “Other assets”. The fair value of these instruments on the balance sheet date was EUR 136.5 million (EUR 68.8 million ), which was recognised under other liabilities. The change in value in subsequent periods is dependent upon the risk experience and led to an improvement of EUR 6.3 million (EUR 1.0 million ) in investment income in the financial year.
All in all, application of the standards governing the accounting for derivatives in connection with the technical account led to recognition of assets totalling EUR 51.4 million (EUR 52.1 million ) as well as recognition of liabilities in an amount of EUR 142.2 million (EUR 78.0 million) from the derivatives resulting from technical items as at the balance sheet date. Increases in investment income amounting to EUR 11.4 million (EUR 8.5 million) as well as charges to income of EUR 7.5 million (EUR 4.4 million) were recognised in the year under review from all separately measured derivatives in connection with the technical account.
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 3,079.4 million (EUR 1,372.2 million); an amount equivalent to EUR 1,887.0 million (EUR 892.1 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.
Talanx AG directly and indirectly holds an unchanged majority interest of altogether 50.22% in Hannover Rück SE. For its part, HDI-Haftpflichtverband der Deutschen Industrie Versicherungsverein auf Gegenseitigkeit, Riethorst 2, 30659 Hannover (HDI) holds a stake of 79.0% in Talanx AG and therefore indirectly holds 39.7% (rounded) of the voting rights in Hannover Rück SE.
In the previous year the responsible bodies of Hannover Rück SE and E+S Rückversicherung AG decided to reorganise the business relationship between the two companies under the cooperation agreement with effect from 1 January 2014. In property and casualty reinsurance a retrocession by Hannover Rück SE to E+S Rückversicherung AG has been maintained. The exclusive responsibilities of E+S Rückversicherung AG for German business and of Hannover Rück SE for international markets have been preserved.
The Hannover Re Group provides reinsurance protection for the HDI Group. To this extent, numerous underwriting business relations exist with related parties in Germany and abroad which are not included in Hannover Re’s consolidation. This includes business both assumed and ceded at usual market conditions. For the year under review and the previous year these business relations can be broken down as follows: Business assumed and ceded in Germany and abroad N 86 in EUR thousand 2014 2013
Under long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2014 to Talanx Service AG, Hannover. In addition, lease agreements exist with Talanx Service AG for use of a portion of the space in our data-processing computer centre.
The total remuneration of the Supervisory Board of Hannover Re amounted to EUR 0.9 million (EUR 0.9 million). There are no pension commitments to former members of the Supervisory Board or their surviving dependants.
All other information on the remuneration of the governing bodies, directors’ dealings and shareholdings as well as the structure of the remuneration system for the Executive Board is contained in the remuneration report from page 105 onwards. This remuneration report is based on the recommendations of the German Corporate Governance Code and contains information which also forms part of the notes to the 2014 consolidated financial statement as required by IAS 24 “Related Party Disclosures”. In addition, we took into account the more specific provisions of DRS 17 “Reporting on the Remuneration of Members of Governing Bodies”. Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in the remuneration report. Consequently, we have not provided any further explanation in the notes.
In the 2014 financial year the following share-based payment plans with cash settlement existed within the Hannover Re Group: 1. Stock Appreciation Rights Plan (in effect since 2000, cancelled in stages from 2011 onwards and currently being wound up)
In the event of cancellation or termination of the employment relationship as a consequence of a termination agreement or a set time limit, a holder of stock appreciation rights is entitled to exercise all such rights in the first exercise period thereafter. Stock appreciation rights not exercised in this period and those in respect 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 2006, 2007 and 2009 to 2011 gave rise to commitments in the 2014 financial year shown in the following table. No allocations were made for 2005 or 2008.
Participants in year of issue 143 129 137 110 106 109
Provisions at 31 December 2014 (in EUR million) 4.43 12.76 3.03 0.27 0.05 –
The calculations were based on the price of the Hannover Re share of EUR 71.89 as at the reference date of 15 December 2014, expected volatility of 24.12% (historical volatility on a five-year basis), an expected dividend yield of 4.17% and risk-free interest rates of 0.05% for the 2006 allocation year, 0.04% for the 2007 allocation year, 0.09% for the 2009 allocation year, 0.20% for the 2010 allocation year and 0.32% for the 2011 allocation year.
In the 2014 financial year the waiting period expired for 100% of the stock appreciation rights awarded in 2004, 2006 and 2007 and for 80% of those awarded in 2009.
On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 20.5 million for the 2014 financial year (EUR 16.3 million). The expense totalled altogether EUR 7.8 million (EUR 5.2 million).
The eligible recipient shall be paid an amount that corresponds to the sum total of the values of the share awards calculated at the disbursement date for which the vesting period of four years has expired. The amount is to be paid in the month after expiry of the determinative period for calculating the value per share according to the preceding paragraphs.
On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 12.7 million for the 2014 financial year (EUR 5.7 million). The expense totalled altogether EUR 7.0 million (EUR 3.2 million).
Staff The average number of staff at the companies included in the consolidated financial statement of the Hannover Re Group during the reporting period was 2,475 (2,376). As at the balance sheet date altogether 2,534 (2,419) staff were employed by the Hannover Re Group, with 1,289 (1,219) employed in Germany and 1,245 (1,200) working for the consolidated Group companies abroad.
The weighted average of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the balance sheet date. In the context of the employee share option plan Hannover Re acquires treasury shares and sells them at a later date to eligible employees. The weighted average number of shares does not include 21,608 (18,750) treasury shares pro rata temporis for the duration of the holding period. For further details please see our comments in Section 6.13 “Shareholders’ equity and treasury shares”.
Dividend per share A dividend of EUR 361.8 million (EUR 361.8 million) was paid in the year under review for the 2013 financial year.
Hannover Rück SE has secured by subordinated guarantee the subordinated debts issued by Hannover Finance (Luxembourg) S.A. in the 2005, 2010 and 2012 financial years in amounts of EUR 500.0 million each.
As security for technical liabilities to our US clients, we have established two trust accounts (master trust and supplemental trust) in the United States. They amounted to EUR 3,173.7 million (EUR 2,748.1 million) and EUR 24.4 million (EUR 21.5 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 650.0 million (EUR 565.6 million ) in the form of so-called “single trust funds”.
As security for our technical liabilities, various financial institutions have furnished sureties for our company in the form of letters of credit. The total amount as at the balance sheet date was EUR 2,899.1 million (EUR 2,895.1 million). The standard market contractual clauses contained in some of the underlying letter of credit facilities regarding compliance with stipulated conditions are explained in greater detail in the “Financial position ” section of the management report, page 59 et seq., on the information pursuant to § 315 Para. 4 German Commercial Code (HGB) as well as in Section 6.12 “Debt and subordinated capital” on other financial facilities.
For liabilities in connection with participating interests in real estate companies and real estate transactions the usual collateral under such transactions has been furnished to various banks, the amount of which totalled EUR 574.3 million (EUR 459.9 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 665.6 million (EUR 598.5 million). These primarily involve as yet unfulfilled payment obligations from investment commitments given to private equity funds and venture capital firms.
Operating leasing contracts produced expenditures of EUR 9.3 million (EUR 8.5 million) in the year under review.
Rented property Altogether, non-cancellable contracts will produce the rental income shown below in subsequent years: Rental income N 94 in EUR thousand Payments to be received
An expense of altogether EUR 3.7 million (EUR 3.5 million) was incurred in the year under review for the fee paid to the appointed auditor of the consolidated financial statement as defined by § 318 German Commercial Code (HGB). Of this total amount, EUR 1.4 million (EUR 1.3 million) was attributable to the fee for auditing services in relation to the financial statement, EUR 0.4 million (EUR 0.6 million) to other assurance services, EUR 0.5 million (EUR 0.2 million) to tax consultancy services and EUR 1.4 million (EUR 1.4 million) to other services.
We have audited the consolidated financial statements prepared by Hannover Rück SE, Hannover – comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and notes to the consolidated financial statements – as well as the combined management report of the company and the Group for the business year from 1 January to 31 December 2014. The preparation of the consolidated financial statements and the combined management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Para. 1 HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the combined management report based on our audit.
No audit measures pursuant to § 111 Para. 2 Sentence 1 German Stock Corporation Act were required in the 2014 financial year.
The Finance and Audit Committee considered inter alia the consolidated annual and quarterly financial statements drawn up in accordance with IFRS and the corresponding individual financial statements of Hannover Rück SE drawn up in accordance with the German Commercial Code (HGB) and 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
The Standing Committee dealt with the adequacy of the system of remuneration for the members of the Executive Board, the review of the fixed remuneration with respect to those members of the Executive Board for whom a review was due and the determination of the variable remuneration of the members of the Executive Board for the 2013 financial year on the basis of the findings with respect to attainment of their respective targets. In all these matters the Committee drew up corresponding recommendations for the full Supervisory Board. The Committee also recommended the appointment of Mr. Althoff to the Executive Board as the successor to Mr. Arrago and decided upon the stipulation of his individual targets for 2014 by way of a written circulation procedure.
Audit of the annual financial statements and consolidated financial statements The accounting, annual financial statements, consolidated financial statements and the combined management report were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The Supervisory Board selected the auditor and the Chairman of the Supervisory Board awarded the audit mandate. The auditor’s independence declaration was received. In addition to the usual tasks performed by the auditors, key points of focus in the audit were the performance of goodwill impairment tests, the scrutiny of business combinations, the accounting of defined benefit pension commitments, the new standards governing consolidation and the new requirements placed by German Accounting Standard No. 20 (DRS 20) on the Group management report, together with the examination of the underwriting-related internal control system (ICS) in selected lines and the review of the ICS process for handling major losses. 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 interim financial report as at 30 June 2014 was also awarded again. The special challenges associated with the international
The audit reports were distributed to all members of the Supervisory Board and scrutinised in detail – with the participation of the auditors – at the Supervisory Board meeting held to consider the annual results. The auditors will also be present at the Annual General Meeting.
– in each case drawn up as at 31 December 2014 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report.
Changes on the Supervisory Board and the Executive Board The composition of the Supervisory Board and its committees did not change in the year under review. With effect from 1 August 2014 Mr. Althoff was appointed to the Executive Board. Mr. Arrago stepped down from the Executive Board with effect from 31 August 2014. The Supervisory Board thanks Mr. Arrago, who had belonged to the Executive Board since 2001, for his many years of valuable service.
Dr. Immo Querner Celle Member of the Board of Management of Talanx AG Member of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Hannover Life Re of Australasia Ltd Level 7 70 Phillip Street Sydney NSW 2000
Hannover Rueck SE Australian Branch – Property & Casualty Office Level 12 20 Bond Street Sydney NSW 2000
Hannover Rueck SE Bahrain Branch Al Zamil Tower 17th Floor Government Avenue Manama Center 305 Manama Tel. +973 1721-4766 Fax +973 1721-4667 General Manager: Mahomed Akoob
Hannover Rück SE Hong Kong Branch 2008 Sun Hung Kai Centre 20th Floor 30 Harbour Road Wanchai, Hong Kong Tel. +852 2519-3208 Fax +852 2588-1136 General Manager: Wilbur Lo
Hannover Rück SE Succursale Française 33 Avenue de Wagram 75017 Paris Tel. (Life & Health) +33 1 4561-7300 Tel. (Property & Casualty) +33 1 4561-7340
Compass Insurance Company Limited 54 Peter Place, Peter Place Office Park Building G Bryanston Johannesburg P. O. Box 37226 Birnam Park 2015 www.compass.co.za Managing Director: Paul Carragher
Fax (Life & Health) +46 8 617-5597 Fax (Property & Casualty) +46 8 617-5593 Managing Director: Thomas Barenthein
Hannover Rück SE Taipei Representative Office Rm. 902, 9F, No. 129, Sec. 3 Minsheng E. Road Taipeh
International Insurance Company of Hannover SE (UK Branch) 10 Fenchurch Street London EC3M 3BE
Hannover Life Reassurance Company of America 200 South Orange Avenue Suite 1900 Orlando, Florida 32801
Capital asset pricing model (CAPM): the CAPM is used to explain the materialisation of prices / returns on the capital market based on investor expectations regarding the future probability distribution of returns. Under this method, the opportunity cost rate for the shareholders’ equity consists of three components – a risk-averse interest rate, a market-specific risk loading and an enterprise-specific risk assessment, the beta coefficient. The cost of shareholders’ equity is therefore defined as follows: risk-averse interest rate + beta * enterprisespecific risk assessment.
Facultative reinsurance: participation on the part of the re insurer in a particular individual risk assumed by the direct insurer. This is in contrast to obligatory (also: treaty) re insurance.
Inflation swap: derivative financial instrument to hedge inflation risks, under which a fixed cash flow is swapped for a variable cash flow dependent on the inflation trend.
Intrinsic value creation (IVC): the IVC is calculated according to the following formula: real operating value creation = adjusted operating profit (EBIT) – (capital allocated x weighted cost of capital). IVC is a tool of value-based enterprise management used to measure the accomplishment of long-term targets on the level of the Group, the individual business groups and the operating units (profit centres).
Longevity risk: in general terms, the actuarial risk that a person receiving regular living benefits – such as annuities or pensions – lives longer than expected.
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
Property & Casualty business: by way of distinction from operations in our Life & Health reinsurance business group, we use this umbrella term to cover our business group comprised essentially of property and casualty reinsurance, specialty lines and structured reinsurance products.
M 17 Property & Casualty reinsurance: Breakdown of gross written premium in facultative reinsurance 43
M 18 Property & Casualty reinsurance: Breakdown of gross written premium in global reinsurance 44
M 20 Key figures for Life & Health reinsurance 49 M 21 Breakdown of gross premium by markets 50 M 22 Value of New Business (VNB) growth 50 M 23 Breakdown of gross written premium by reporting categories 50 M 24 EBIT-margin per reporting category vs. target margins 2014 50 M 25 Investment income 52 M 26 Investment income 53 M 27 Investment portfolio 54 M 28 Breakdown of investments under own management 54 M 29 Rating of fixed-income securities 55 M 30 Capital structure as at 31 December 2014 55 M 31 Development of policyholders’ surplus 56 M 32 Amortised cost of our subordinated bonds 57 M 33 Development of Group shareholders’ equity 57 M 34 Consolidated cash flow statement 58 M 35 Cash flow from operating activities 58 M 36 Financial strength ratings of the Hannover Re Group 59 M 37 Financial strength ratings of subsidiaries 59 M 38 Issue ratings of issued debt 59 M 39 Condensed profit and loss account of
shareholders’ equity) 83 M 59 Required risk capital 84 M 60 Risk landscape of Hannover Re 85 M 61 Required risk capital for underwriting risks in property and casualty reinsurance 86 M 62 Survival Ratio in years and reserves for asbestasrelated claims and pollution damage 87 M 63 Stress tests for natural catastrophes after retrocessions 87 M 64 Limit and threshold for the 200-year aggregate annual loss as well as utilisation thereof 87 M 65 Catastrophe losses and major claims in 2014 88 M 66 Ensuring the quality of our portfolios 88 M 67 Combined and catastrophe loss ratio 89 M 68 Required risk capital for underwriting risks in life and health reinsurance 89 M 69 Required risk capital for market risks 90 M 70 Utilisation of the trigger system 91 M 71 Value at Risk for the investment portfolio of the
Hannover Re Group 91 M 72 Scenarios for changes in the fair value of material asset classes 92 M 73 Rating structure of our fixed-income securities 93 M 74 Gross written premium retained 94
M 84 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 1 (target / minimum / maximum remuneration as nominal amounts) 116
M 85 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2013 and 2014) 118
M 86 Defined benefit commitments 121 M 87 Defined contribution commitments 121 M 88 Individual remuneration received by the members of the Supervisory Board 122 M 89 Securities transactions 124 M 90 Group of participants and total number of eligible participants in variable remuneration systems 125 M 91 Growth in gross domestic product (GDP) 130 M 92 Property & Casualty reinsurance: Forecast development for 2015 132 M 93 Life & Health reinsurance: Forecast development for 2015 135
N 17 Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value 2013 181
N 18 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 2014 182
N 19 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 2013 183
N 86 Business assumed and ceded in Germany and abroad 227 N 87 Stock appreciation rights of Hannover Rück SE 230 N 88 Share awards of Hannover Rück SE 232 N 89 Personnel information 232 N 90 Nationality of employees in 2014 232 N 91 Personnel expenditures 233 N 92 Calculation of the earnings per share 233 N 93 Future leasing commitments 235 N 94 Rental income 236
Interim Report 1 / 2015 Annual General Meeting Hannover Congress Centrum Theodor-Heuss-Platz 1 – 3 30175 Hannover, Germany
Annual financial statements 2015 Annual Results Press Conference, Hannover Analysts’ Meeting, Frankfurt