Earnings per share (basic and diluted) in EUR 9.54 +16.7% 8.17 7.43 7.04 5.02
Market capitalisation at year- end 12,741.1 +40.9% 9,041.2 7,522.8 7,110.4 4,621.9
Return on investment (excl. funds withheld by ceding companies) 6 3.5% 3.3% 3.4% 4.1% 4.1%
1 Adjusted pursuant to IAS 8 2 Proposed dividend 3 Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015, EUR 3.00 plus special dividend of EUR 1.25 for 2014 and
Policyholders’ surplus I 03 * in EUR million 1 Adjusted pursuant to IAS 8 2 Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015; EUR 3.00 plus special dividend of EUR 1.25 for 2014 as well as EUR 2.60 plus special dividend of EUR 0.40 for 2012 and EUR 1.80 plus special dividend of EUR 0.50 for 2007 3 Proposed dividend
Hannover Re, with gross premium of more than EUR 17 billion, is the third-largest reinsurer in the world.
Branch offices and subsidiaries of the Hannover Re Group abroad 242 Glossary 245 List of graphs, tables and charts * 250 Financial calendar 253 Contact information 254 Imprint 255 * Graphs, tables and charts are numbered and listed on page 250 et seq.
As we consider the highly satisfactory figures more closely, I would like to highlight the increase of around 17 percent in Group net income to EUR 1.15 billion. This is the first time that we can report a net profit for the Group in excess of EUR 1 billion. It is also pleasing to note that despite an intensely competitive market we enlarged our gross premium volume to EUR 17 billion. This is equivalent to currency- adjusted growth of some nine percent. Similarly, your company’s shareholders’ equity rose by almost seven percent to EUR 8 billion. The average shareholders’ equity, the basis on which we calculate the return on equity, actually increased by more than 16 percent. The return on equity nevertheless remained stable at a very pleasing 14.7 percent. This shows that we have succeeded in boosting the profitability of your company in step with the growth in shareholders’ equity.
Both on the basis of its capitalisation under the newly implemented solvency regime (Solvency II) and in the assessment of the rating agencies, Hannover Re is comfortably capitalised. With this in mind, we had already distributed a special dividend to you last year with an eye to capital management considerations. In view of the gratifying development of our business, the Executive Board and Supervisory Board intend to propose a further increase in both the basic dividend and the additional special dividend to the Annual General Meeting in May 2016. Consequently, it is envisaged that the total distribution should be raised to EUR 4.75 per share, split into a dividend of EUR 3.25 per share and a special dividend of EUR 1.50 per share. The increase in the basic dividend reflects your company’s stronger profitability.
I would also like to mention at this juncture how particularly pleased we were in the context of the new solvency regulations (Solvency II) to receive approval from the Federal Financial Supervisory Authority for the use of our internal capital model to calculate the quantitative solvency for the Hannover Re Group as early as the third quarter of the year under review. In the fourth quarter the same was then also true of the individual companies Hannover Rück SE, E+S Rück and Hannover Re Ireland. We are better able to map the risk structure of our business using our internal model rather than the standard model and hence we can efficiently implement the capital requirements according to Solvency II.
I would now like to explore in greater detail the developments in our business groups of Property & Casualty and Life & Health reinsurance and on the investments side.
The major loss expenditure of EUR 573 million was higher than in 2014, when it came in at EUR 426 million. Nevertheless, this figure was still well below our budgeted level of EUR 690 million. The largest single loss was the devastating series of explosions at the port of the Chinese city of Tianjin, costing EUR 111 million. The operating profit (EBIT) in property and casualty reinsurance grew by almost 13 percent to an exceptionally pleasing EUR 1.3 billion.
We improved the operating result (EBIT) in life and health reinsurance by some 54 percent to EUR 405 million. Our financial solutions business, in particular, played a vital part in this gratifying development. The very good underlying profitability here was bolstered by positive non-recurring effects. Our mortality and morbidity business, on the other hand, incurred negative one-off effects, such as those recorded at our branch in France. In terms of the underwriting result, these effects – which each ran into the mid-double-digit million euro range – largely offset one another; the posted underwriting result is therefore a good reflection of the underlying profitability in the year under review. The special effect of roughly EUR 40 million recognised in investment income in relation to an early termination fee for a cancelled contract will not, however, be so readily repeated in the coming years.
As I mentioned at the outset, your company has entered the current year in a very healthy financial state. In view of the intense competition prevailing in both property & casualty and life & health re insurance, our primary emphasis for 2016 is on achieving a result that meets our financial targets. Growing our premium volume is less of a priority. With this in mind, it is our expectation that gross premium income will remain stable or may contract slightly. On the other hand, despite the fiercely competitive state of the property and casualty reinsurance market, the combined ratio is expected to again come in below our strategic target of 96 percent. This is subject to the proviso that major losses do not significantly exceed our increased budget of EUR 825 million. In life and health reinsurance the underlying trend of improving results is expected to be sustained in the current year. As far as the profit expectation is concerned, it must of course be borne in mind that we cannot anticipate another positive one-off effect. Turning to the investments, we expect to see further growth in our asset holdings. This should enable us to keep the investment income broadly stable in absolute terms, despite a lower expected return of 2.9 percent.
I would like to take this opportunity to thank you, our valued shareholders, most sincerely for your trust – also on behalf of my colleagues on the Executive Board. I would also like to express my appreciation to our employees for their very good and reliable work. Going forward, as in the past, you can rest assured that we shall do everything in our power to safeguard Hannover Re’s successful development. It is and will remain our goal to increase the value of your company on a sustainable basis.
Ulrich Wallin Chairman Business Opportunity Management Compliance Controlling Human Resources Management Internal Auditing Risk Management Corporate Development Corporate Communications
• United Kingdom / Ireland, North America, Northern, Eastern and Central Europe
From left to right: Roland Vogel, Ulrich Wallin, Claude Chèvre, Dr. Klaus Miller, Sven Althoff, Dr. Michael Pickel, Jürgen Gräber
Highs and lows of the Hannover Re share I 09 in EUR
In a three-year comparison the Hannover Re share delivered a performance (including reinvested dividends) of 106.4%. It therefore once again clearly outperformed the DAX (41.1%) and MDAX (74.4%) and the Global Reinsurance Index (92.6%) benchmark indices.
Based on the year-end closing price of EUR 105.65, the market capitalisation of the Hannover Re Group totalled EUR 12.7 billion at the end of the 2015 financial year, an increase of EUR 3.7 billion or 40.9% compared to the previous year’s figure of EUR 9.0 billion. According to the rankings drawn up by Deutsche Börse AG, the company placed seventh in the MDAX at the end of December with a free float market capitalisation of EUR 6,484.2 million and a trading volume of EUR 4,748.7 million over the past twelve months. All in all, the Hannover Re Group thus continues to rank among the 40 largest listed companies in Germany.
All voting results and the attendance were published on the company’s website following the Annual General Meeting. The next Annual General Meeting will be held on 10 May 2016 in Hannover.
Hannover Re’s 18th Investors’ Day was held on 14 October 2015 in Frankfurt / Main. Around 40 analysts and institutional investors made the most of the opportunity to engage in an intensive exchange of views with members of the Executive Board. The focus this time was on a discussion of new business opportunities in reinsurance, such as the insurance of cyber and agricultural risks as well as microinsurance products for developing countries or integrated lifestyle insurance concepts intended to promote healthy living on the part of insureds. The Executive Board also used the occasion to explain in detail the establishment of claims equalisation reserves at insurance undertakings in accordance with the German accounting principles of the Commercial Code (HGB) as well as their implications for earnings performance, as illustrated by Hannover Re. The latter topic was met with considerable interest among the participants in view of its relevance to the company’s ability to pay a dividend. As in the previous years, all interested parties were able to follow the event in full via a live webcast on the company’s website.
Sustainability reporting In the year just ended Hannover Re again provided information about its achievements as a responsible enterprise in the form of a stand-alone sustainability report drawn up in accordance with the internationally recognised reporting standards of the Global Reporting Initiative (GRI). Based on this structured reporting format, which was presented for the fourth year in succession, the company’s sustainability performance was also assessed by the rating agency Oekom Research; its above-average fulfilment of industry-specific requirements was confirmed with the award of “prime” status. Hannover Re also retained its place in the worldwide FTSE4Good Index Series in the financial year just ended.
The shareholding of Talanx AG in Hannover Re was unchanged at 50.2% as at 30 November 2015. The breakdown of the free float remained unchanged year-on-year.
At the end of November 2015 a shareholder identification analysis was carried out, i. e. an analysis of the company’s shareholding structure that goes beyond the entries in the share register. It determined that the geographical breakdown of the shares held by institutional investors is as follows: Analysts sharply increase price target
Market capitalisation at year-end in EUR million 12,741.1 9,041.2 7,522.8 7,110.4 4,621.9
Earnings per share (basic and diluted) 9.54 8.17 7.43 7.04 5.02
Return on equity (after tax) 5 14.7% 14.7% 15.0% 15.4% 12.8%
Price-to-cash flow (P / CF) ratio 9 4.1 4.7 3.4 2.7 1.8 1 Adjusted pursuant to IAS 8 2 Xetra daily closing prices from Bloomberg 3 Proposed dividend 4 Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015, EUR 3.00 plus special dividend of EUR 1.25 for 2014 and
创业容易, 守业更难 – “Chuàng yè róng yì, shǒu yè gèng nán.” A Chinese proverb says: “To open a shop is easy; to keep it open is an art”. Rightly so: regulatory hurdles and intense competition have long made China a challenging target market. Yet Hannover Re has been involved in this market for more than forty years, with its oldest treaty dating back to 1971. It has had a local presence for some 25 years: in Hong Kong since 1990 with a service office and since 1999 with a branch, and also in Shanghai since 2008 with another branch. Today, our staying power is paying off: Hannover Re has expanded vigorously in China over the past ten years.
Excellent solutions for our business partners constitute the basis for strengthening and further expanding our position as a leading, globally operating reinsurance group. They enable us to deliver long-term sustainable profitability and assert our position as one of the most profitable reinsurers worldwide.
We are passionate about reinsurance and chart our own course. We are quick, flexible and independent and we strive for excellence in our actions. By generating innovative business opportunities from newly emerging risks we consistently expand the scope of our business. With our organisation geared to efficiency, we offer our business partners an attractive value proposition.
We are a preferred business partner • Offer an attractive value proposition that makes us the preferred business partner for our clients • Foster customer relationships to both parties’ mutual benefit irrespective of the size of the account
Performance Excellence I 15 10 Do 10 Check 10 Act10 Plan
… undogmatic Life and health reinsurance – moving up in the industry through a wealth of ideas People’s life expectancy depends on numerous factors – spanning lifestyle just as much as state of health. Individual underwriting makes it possible to optimise the regular annuity income received by policyholders according to their risk predisposition. Since the mid-1990s we have played a pioneering role in revolutionising the UK market through the launch of such enhanced annuities. Today, our detailed understanding of the enhanced annuities market helps us to offer optimal solutions in the form of sophisticated health analyses that meet the needs of our customers. Even though the premium volume for enhanced annuities in the United Kingdom is contracting due to legislative changes, the enhanced annuities market will remain an attractive segment.
The strategy pursued in both property & casualty and life & health reinsurance supports our Group’s paramount mission, namely: “Long-term success in a competitive business”. Our entire business operations are geared to our goal of being the best option for our business partners when they come to choose their reinsurance provider. It is for this reason that our clients and their concerns form the focus of our activities.
We generate competitive advantages to the benefit of our clients and shareholders by conducting our insurance business with lower administrative expenses than our rivals. In this way we deliver above-average profitability while at the same time being able to offer our customers reinsurance protection on competitive terms.
We transact primary insurance in selected market niches as a complement to our core reinsurance activities. In this context, we always work together with partners from the primary insurance sector.
In the Property & Casualty reinsurance business group we consider ourselves to be a reliable, flexible and innovative market player that ranks among the best in any given market. Cost leadership, effective cycle management and superlative risk management are the key elements of our competitive position.
In the Life & Health reinsurance business group we are recognised – as customer surveys confirm – as one of the top players and the leading provider of innovative solutions. We achieve this standing by opening up new markets for our company and by identifying trends in order to anticipate the future needs of our customers.
EBIT margin 7 1 Average annual growth, otherwise weighted averages 2 Excluding effects from ModCo derivatives and inflation swaps 3 After tax; target value: 900 basis points above the 5-year average return on 10-year German government bonds 4 Growth in book value per share including dividend paid 5 Average over the reinsurance cycle; at constant exchange rates 6 Including major loss budget of EUR 690 million 7 EBIT / net premium earned 8 Excess return on allocated economic capital 9 Organic growth only; annual average growth (5 years); at constant exchange rates 10 Based on a cost of capital of 6% (until 2014: 4.5%)
Management by Objectives Some of the targets that emerge out of the target matrix are integrated into the individual agreements on objectives with managers. When it comes to the definition of objectives, the participants take into account not only standardised financial indicators but also non-financial variables derived from the strategic parameters.
Management Reporting The annual Management Reporting presents in detail the respective degree of target attainment – also in comparison with our planning – for each individual treaty / regional department and service unit as well as for the two business groups of Property & Casualty and Life & Health and for the Group as a whole. On this basis appropriate performance controlling is carried out, potential scope for improvement and refinement is identified and performance-oriented remuneration components defined in the context of Management by Objectives are established.
System of value-based management: M 02 Performance Excellence (PE) combines the strategic and operational levels
Capital allocation The basis of value-based management is the risk-appropriate allocation of capital to the individual business activities. This enables us to evaluate the acceptance of underwriting risks and investment risks both in light of individual risk / return aspects and against the backdrop of our overall risk appetite. Our internal capital model supplies the key parameters for this purpose. In addition, along with considerations of business policy, outside influencing factors such as the requirements of regulatory authorities and rating agencies also play a major role in the allocation of capital. Allowance is therefore made for them in the form of collateral conditions on the various allocation levels. Starting out from the Group’s overall risk situation, capital is first allocated to the functional areas of underwriting and investments. We then further divide the capital within the underwriting sector, first between the business segments of property & casualty reinsurance and life & health reinsurance and then between the various reinsurance products and according to risk categories / treaty types and lines. In this way, we ensure that our profit targets including risk, cost and return considerations are consistently factored into the evaluation and pricing of our various reinsurance products.
With the aid of the IVC ratio it is possible to compare the value contributions of the Group as a whole, its two business groups and the individual operational units. This enables us to reliably identify value creators and value destroyers. In this way, we can
The allocated capital consists of three components: the shareholders ’ equity including non-controlling interests, the balancing items for differences between economic valuations and amounts stated in the IFRS balance sheet and the hybrid capital. In this context, capital that is not at risk (excess capital) is disregarded, i. e. it is not broken down into business activities. Capital is allocated to the profit centres as described above according to the risk content of the business in question. A systematic distinction is made here between the assumption of underwriting risks, on the one hand, and investment risks, on the other. Under the IVC calculation, therefore, only risk-free interest income on the generated cash flows is allocated to the business segments of property & casualty and life & health reinsurance. The investment income above and beyond risk-free is allocated in its entirety to the functional area of investments and included in the IVC after deduction of the risk-appropriate cost of capital and the administrative expenses.
In calculating the cost of capital, our assumption – based on a Capital Asset Pricing Model (CAPM) approach – is that the investor ’s opportunity costs are 450 basis points above the risk-free interest rate, meaning that value is created above this threshold. Our strategic return on equity target of 900 basis points above risk-free thus already contains a substantial target value creation. We allocate equity sparingly and use equity substitutes to optimise our average cost of capital. At 5.4%, our average cost of capital is comparatively low.
Every market unit at Hannover Re is tasked with exploring market trends and developing innovative products. In addition, opportunities and innovations that cut across markets and segments are coordinated by the specially created “Business Opportunity Management” team and pursued by means of interdisciplinary projects in which various market and service units play key roles. In this way, we develop products and solutions that deliver value added both for Hannover Re and for our clients. By way of example, our move to give capital market players direct access to insurance risks as far back as the mid1990s through our “K” transactions puts us among the industry pioneers. The intervening years have seen the evolution of a market for so-called insurance-linked securities, which is one of the fastest growing markets in the insurance sector. Another example of Hannover Re’s development activities is the creation of its own internal model for risk management under Solvency II that caters to the requirements of various stakeholders (regulators, rating agencies, capital providers) and was one of the first to be approved in Europe. Not only that, through our active involvement and the provision of financial assistance we support scientific initiatives geared to developing products, solutions or markets that will be crucial success factors going forward in the viability of any reinsurance undertaking.
Reinsurance business is founded on the comprehensive understanding and active management of risks. Our specialists therefore continuously analyse known risks with an eye to changes in their structure and probability of occurrence, while at the same time focusing on the early detection of newly emerging risks and working to provide our clients with appropriate solutions tailored to their needs (cf. here also the Opportunity report on page 95 et seq.).
… bold Operating against the cycle – US casualty business We dare to write business that others find too risky – because we take a systematic approach to cycle management. US casualty business is just one example. When major events heighten the risk exposure, sharp market corrections normally ensue – prices for reinsurance protection go up. As a consequence of the financial and banking crisis that peaked in 2008 liability risks for executive officers in the financial sector rose, and we made increased capacities available for the D&O line. Our courage was rewarded with profitable growth.
The expansion of the global economy slowed somewhat in the course of 2015 and came in slightly below the level of the previous year at 3.1% (3.4%). Even though the anticipated slump in the world economy therefore failed to materialise, this is the weakest growth figure since the crisis year of 2009.
The advanced economies continued to record moderate growth on the whole, although economic activity varied widely between countries and regions. As had already been the case in the previous year, the pace of growth in the United States remained strong. In the United Kingdom, too, cyclical momentum remained intact despite a slight slowing in the expansionary trend. The economy in the Eurozone also developed favourably, although the pace of growth here remained minimal overall. While certain framework conditions such as the employment situation improved slightly, this was not sufficient to deliver a fundamentally positive upward stimulus. Business activity weakened markedly in Japan.
Germany The German economy experienced a modest uptick in 2015. In the first half of the year it expanded at rates that reflected the potential output. In the third quarter the pace of growth then flagged for a while. Over the year as a whole the economy grew by 1.8%. Expansion continued to be driven by private consumption. The latter benefited from an appreciable rise in employment, increasing real wages and the falling price of crude oil. Additional factors boosting consumption were the unchanged very low level of interest rates, the introduction of the minimum wage and expanded transfer payments. Investment activity was rather slow to pick up, albeit with a rising tendency towards the end of the year. Exports surged irrespective of the mediocre pace of global economic growth. The recovery in the Eurozone and depreciation of the euro were
C om bi ne d m an ag em en t re po rt major factors here. The German labour market continued to improve: on an annual average the working population rose to a record high of 43 million (+0.8%). The number of unemployed dropped below two million in 2015, a decrease of 6.7% compared to the previous year.
Industrial output nevertheless stabilised over the year as a whole, and the Purchasing Managers’ Index also signalled a stable development. China consequently registered growth of 6.8% for 2015. In recent months, however, there have been increasing indications that the economic data does not fully capture the slowing economy. The deflation in producer prices, for example, points to substantial surplus capacities in industry and in the construction sector. The high indebtedness of the private sector continues to pose a further problem. Corporate debt also rose sharply. The sudden slump in share prices at the start of the current year would appear to confirm this assessment.
India further improved its growth rate year-on-year to 7.2%. This was driven principally by the real estate, financial and insurance sectors. Nevertheless, the manufacturing sector, government spending and private consumption also played a part in this positive trend.
It was only growing concerns about diminishing economic strength in China combined with slumping commodity prices that triggered a marked downturn on equity markets in August. We were able to turn this to our advantage since we seized the moment to start our already planned rebuilding of an equity portfolio. The development of the world’s economy continues to be subject to a broad range of uncertainties and risks. Most notably, the global patchwork of differing economic developments and local flashpoints such as in the Middle East and Ukraine may be mentioned here as causal factors. These disparities are being further exacerbated by the precipitous fall in the price of oil, which has a beneficial effect on countries with a
large appetite for energy but jeopardises the budgets of oil-producing nations. The elevated threat of terrorism is another factor that cannot be ignored, even though the response to it from capital markets has hitherto been rather robust.
The euro again dropped sharply against the US dollar in the course of the year, slipping from USD 1.22 to USD 1.09. Against the pound, however, the euro softened at most only slightly over the full twelve months despite marked volatility within the year. To some extent it was even able to make up ground lost against the Australian and Canadian dollar in the previous year. This performance can certainly be attributed in part to the protracted weakness in commodities and the share of exports that they account for in the balance of trade of these countries.
For more detailed remarks on the development of Hannover Re’s investments please see the “Investments” section on page 51 et seq.
The insurance industry was again heavily preoccupied in 2015 with preparations for the new requirements governing financial risk protection. In Europe this takes the form of Solvency II: the reform of insurance supervision law initiated by the European Commission entered into force on 1 January 2016 and compels P&C and L&H insurers, most significantly, to maintain a higher minimum level of own funds. Regulators are allowing a transitional period for gradual adoption of the revised methodology that must be used to measure the provisions in order to enable them to progressively build up the required own funds. In this connection a number of large reinsurers have received approval from the Federal Financial Supervisory Authority (BaFin) to use their own internal capital models and are already showing comparatively high capital ratios.
Demographic changes around the world are generating increased demand for reinsurance protection in the area of longevity solutions. So-called “lifestyle products” are also enjoying a surge in demand: these primarily involve life insurance policies under which the premium is linked to the insured’s healthy lifestyle (e. g. fitness, nutrition). These products are especially popular in Australia, South Africa and the United States.
The Chinese insurance market continues to grow at an above-average pace. The new solvency requirements (C-ROSS) implemented on 1 January 2016 had already been applied by insurers on a “trial basis” in 2015. This had an effect on demand patterns for reinsurance solutions.
We are highly satisfied with the development of our business in the 2015 financial year. Once again, we succeeded in beating the previous year’s record profit: we booked the highest-ever Group net income in company history – at EUR 1,150.7 million (previous year: EUR 985.6 million) – and surpassed the one billion euro threshold for the first time. All business groups played a part in this result, which is all the more gratifying in view of the fact that market conditions for reinsurers remain challenging and the protracted low level of interest rates is also limiting our scope to generate returns on the investment side. While Group net income was assisted by major loss expenditure below the planned budget and a positive special effect in life and health reinsurance, the strength of the result is also borne out by the sustained very good confidence level of our loss reserves.
Investment income from assets under own management rose by 12.3% year-on-year to EUR 924.8 million (EUR 823.2 million ). It is particularly gratifying to note that ordinary income was higher than in the previous year despite the protracted low interest rate environment. This can be attributed in part to increased income from real estate and fixed-income securities, although special effects associated with our private equity investments were also a factor here.
The underwriting result, which improved by 23.0% to EUR 432.2 million (EUR 351.5 million), was also thoroughly positive. While expenditure on large losses was higher than in the previous year, it remained within the budgeted amount of EUR 690 million at EUR 572.9 million (EUR 425.7 million). The combined ratio stood at 94.4% and was thus better than our targeted level of below 96%. The operating profit (EBIT) as at 31 December 2015 surged by 12.6% to EUR 1,341.3 million (EUR 1,190.8 million). The EBIT margin amounted to 16.6% (17.0%), thereby again comfortably beating our minimum target of at least 10%. This is a reflection of the very good performance in property and casualty reinsurance. Group net income increased by 10.3% to EUR 914.7 million (EUR 829.1 million).
The operating profit (EBIT) reached an extremely satisfactory level of EUR 405.1 million (EUR 263.8 million). The EBIT margins within the individual reporting categories developed as follows: for mortality and morbidity business we fell short of the 6% target with an EBIT margin of 3.6%. Longevity business reached its targeted EBIT margin of 2.0% at 4.5%. In the financial solutions reporting category we booked another exceptionally good result. The generated EBIT margin of 18.1% clearly exceeded the target margin of 2%. The life and health reinsurance segment thus posted very good Group net income of altogether EUR 289.6 million (EUR 205.0 million) in the financial year just ended. This represents an increase of 41.3%.
Even though interest rates remained low, ordinary investment income excluding interest on funds withheld and contract deposits came in 17.3% higher than the level of the previous year at EUR 1,253.4 million (EUR 1,068.4 million). Interest on funds withheld and contract deposits improved from EUR 376.1 million to EUR 395.0 million.
Net realised gains on investments as at 31 December 2015 remained below the previous year’s rather high figure at EUR 135.8 million (EUR 182.5 million). Write-downs were once again taken in only a minimal volume in the year under review, the vast bulk of them being due to scheduled depreciation on real estate. Income from assets under own management showed pleasing growth to reach EUR 1,270.1 million (EUR 1,095.8 million). The resulting annual return (excluding ModCo derivatives and inflation swaps) amounted to 3.5% (3.3%). It thus clearly beats our anticipated figure of 3.0%. Along with increased earnings from fixed-income securities, this was due to higher income from alternative investments such as real estate and private equity as well as a special effect in life and health reinsurance. We also benefited from movements in exchange rates. Investment income including interest on funds withheld and contract deposits consequently increased to EUR 1,665.1 million (EUR 1,471.8 million), a rise of 13.1% relative to 2014.
We are highly satisfied not only with the pleasing premium growth but also with the business results in the year under review. The operating profit (EBIT) climbed a further 19.7% compared to the already very good previous year to reach EUR 1,755.2 million (EUR 1,466.4 million). Group net income surged by 16.7% to EUR 1,150.7 million (EUR 985.6 million). We thus beat both our original guidance of EUR 875 million and the revised guidance of around EUR 950 million released mid-year. Earnings per share for the Hannover Re Group amounted to EUR 9.54 (EUR 8.17).
C om bi ne d m an ag em en t re po rt reach EUR 8.1 billion (EUR 7.6 billion) despite a reduction of 9.2% in other comprehensive income. This decrease was due to declines in valuation reserves owing to higher interest rates and increased risk premiums on corporate bonds, which were not entirely offset by positive exchange rate effects. The change in the average shareholders’ equity – calculated on the basis of the respective average shareholders’ equity for the 2014 and 2015 financial years – showed an increase of as much as 16.2%. The return on equity nevertheless remained unchanged at 14.7% (14.7%). This shows that the increase in Group net income was able to keep pace with the growth in shareholders’ equity. The book value per share was also sharply higher, reaching its highest-ever level to date at EUR 66.90 (EUR 62.61). All in all, Hannover Re achieved and in some cases clearly exceeded the forecasts provided for the 2015 financial year as shown in the following table “Business development in the year under review”.
The total policyholders’ surplus, consisting of shareholders’ equity, non-controlling interests and hybrid capital, amounted to EUR 10.3 billion (EUR 10.2 billion) as at 31 December 2015.
Gross premium growth (Group) stable to slightly higher gross premium volume / growth of 5 – 10% 1, 5
Gross premium growth for Property & Casualty reinsurance stable 1 +8.1% at constant exchange rates +18.2% not adjusted for currency effects
Group net income ≈ EUR 875 Mio. / EUR 950 million 4, 5 EUR 1,150.7 million 1 At constant exchange rates 2 Organic growth only 3 Excluding ModCo derivatives and inflation swaps 4 Assuming stable capital markets and / or major loss expenditure in 2015 that does not exceed EUR 690 million 5 In the context of publication of the half-year results for 2015 the forecast Group net income was raised to EUR 950 million and the forecast gross premium growth (Group) was specified more closely at 5 – 10% at constant exchange rates
Results of operations In the following sections we discuss the development of the financial year in our two strategic business groups, namely Property & Casualty reinsurance and Life & Health reinsurance, as well as the performance of our investments and the financial position and assets of our Group. Supplementary to the information provided here, the segment reporting in Section 5 of the notes to this Annual Report shows the key balance sheet items and profit components of the two business groups.
Gross written premium in P&C reinsurance M 06 in EUR million
Geographical breakdown of gross written premium M 07 in 2015 3.0% Africa 31.3% North America 1.8% Australia 18.3% Rest of Europe 17.4% Asia 12.1% Germany 9.5% United Kingdom 6.6% Latin America
• Highest-ever Group net income of EUR 914.7 million • Major loss expenditure lower than expected at EUR 572.9 million • Pleasing combined ratio of 94.4% • Growth of 18.2% in gross premium; currency-adjusted premium growth of 8.1% above the medium-term target corridor of 3 – 5%
Accounting for 55% of our premium volume, Property & Casualty reinsurance is Hannover Re’s largest business group. It is structured according to our Board areas of responsibility, namely “Target markets”, “Specialty lines worldwide” and “Global reinsurance”.
By and large, this trend was sustained in the treaty renewals during the year, although isolated indications of a stabilisation in reinsurance prices could be detected. With this in mind, we were also satisfied with the renewals as at 1 June and 1 July 2015 – the dates when, most notably, parts of our North American portfolio, agricultural risks and business from Latin America come up for renewal. Hannover Re successfully grew its business at adequate rates. This was also the main renewal season for business in Australia, which passed off highly successfully for Hannover Re thanks to the enlarged market share secured with long-standing customers.
Earnings per share in EUR 7.58 +10.3% 6.88 6.70 5.68 3.78 1 Adjusted pursuant to IAS 8 2 Operating result (EBIT) / net premium earned 3 Including expenses on funds withheld and contract deposits
As in the previous years, the burden of major losses that we incurred remained moderate: the hurricane season in North America and the Caribbean once again passed off thoroughly unremarkably in 2015. However, an increased number of natural disasters was recorded, including for example flooding in the UK and the storm “Niklas” in Europe. There was also a spate of man-made losses. The largest single loss for the insurance industry and hence also for our company was the devastating series of explosions at the port of the Chinese city of Tianjin in August 2015. This gave rise to loss expenditure of EUR 111.1 million for our net account.
These and other large losses resulted in net major loss expenditure for our company totalling EUR 572.9 million (EUR 425.7 million). While this figure is well above that of the previous year, it still came in below our budgeted level of EUR 690 million. For a detailed list of our catastrophe and large losses please see page 85.
The combined ratio of 94.4% (94.7%) in the year under review was better than the target mark of 96%. The underwriting result (including expenses on funds withheld and contract deposits) improved again on the previous year to reach EUR 452.4 million (EUR 371.9 million).
Property & Casualty reinsurance: Key figures for individual markets and lines in 2015 M 12
UK, Ireland, London market and direct business 519.7 +17.6% 442.0 153.7 86.6% 98.7%
Structured reinsurance and Insurance-linked securities 1,306.8 +42.4% 917.7 57.4 98.4% 98.9%
Target markets Hannover Re classifies North America and Continental Europe as target markets. The premium volume increased by 11.7% to EUR 2,925.5 million (EUR 2,619.4 million). Growth thus came in stronger than originally forecast. The combined ratio slipped from 92.5% to 99.0%, as a consequence of which the operating profit (EBIT) retreated accordingly to EUR 445.2 million (EUR 507.6 million).
The continued moderate growth of the US economy in 2015 served to boost the premium volume in the primary insurance market; the rate level, which had been rising since 2011, stabilised on the level of the previous year. Given the continued absence of significant natural catastrophe events in the United States and with low inflation rates offering room to write back reserves, both insurance and reinsurance companies were able to show healthy profits.
The more comfortable capital resources available to market players and the additional risk-carrying capacity offered by alternative capital led to renewed pressure on reinsurance rates, albeit to a lesser extent than had originally been anticipated. Proportional property business was broadly stable, although conditions deteriorated in some areas. Rates in non-proportional US catastrophe business fell in response to the inflow of capacity from alternative markets and on account of higher retentions carried by ceding companies, although the pace of erosion slowed.
Property & Casualty reinsurance: M 13 Breakdown of gross written premium in target markets in EUR million
professional indemnity lines. Greater awareness of cyber risks led to stronger demand. Opportunities also opened up in the reinsurance of M & A activities. In addition, we were able to further enlarge our business relationship with a long-standing customer in the context of a large-volume treaty.
Germany The German market – the second-largest in the world for property and casualty reinsurance – is served within the Hannover Re Group by our subsidiary E+S Rück. As the “dedicated reinsurer for Germany”, the company is a sought-after partner thanks to its very good rating and the continuity of its business relationships. E+S Rück is superbly positioned in its domestic market and a market leader in property and casualty reinsurance.
The German market was similarly shaped by oversupply on the reinsurance market, putting pressure on conditions – especially in short-tail business. Furthermore, ceding companies are raising their retentions in order to meet internal cost pressure – especially associated with regulatory requirements such as Solvency II.
Property & Casualty reinsurance: Breakdown of gross M 15 written premium in Continental Europe by line of business 8.7% Other 37.1% Property 24.2% Liability 30.0% Motor
Claims expenditure in motor own damage insurance was in line market-wide with the multi-year average. Despite tariff improvements in the primary market, the increased loss burden compared to the previous year caused the combined ratio to deteriorate slightly. Using highly specialised analysis tools, we assist our customers with the individual exposure mapping of their own damage portfolios and draw on these insights to develop bespoke reinsurance solutions.
Premium income from motor liability insurance rose again in 2015 – on the back of modest tariff increases in the previous years. Allowing for the run-off from previous years, the combined ratio for the year as a whole is likely to reach a level of roughly 100% market-wide. General liability business in Germany will similarly see the technical income statement close in positive territory. Growing demand could be observed here for cyber covers, although the associated premium volume is still very minimal. All in all, we are satisfied with the premium contribution from our German business.
Rest of Continental Europe European markets are still intensely competitive; this is true not only of countries in Central and Eastern Europe but also of most mature markets such as France and Northern Europe. Along with difficult economic conditions, surplus capacities put the insurance industry under strain; rate reductions and poorer conditions were therefore once again a feature of the Northern European and French markets, especially in the industrial lines. We nevertheless succeeded in maintaining our market share, in part by increasing our shares with selected cedants and also by writing additional business in less competitive lines. In longtail liability business, especially on the motor side, we are still seeing a challenging climate and participate only selectively.
The premium volume for specialty lines amounted to EUR 2,920.4 million (EUR 2,575.6 million) in the year under review. The combined ratio improved from 100.2% to 90.9%. The operating profit (EBIT) for specialty lines surged to EUR 518.5 million (EUR 169.4 million).
Marine After years of satisfactory rates, the marine reinsurance market is currently experiencing a soft market phase. In the treaty renewals at the beginning of 2015 price declines running into double-digit percentages were recorded as a consequence of the relatively low expenditure on marine losses. The insurance market for offshore energy risks has been facing substantial surplus capacities for around 18 months now. The drop in oil prices has also cut into demand. Despite some strains from man-made losses, reinsurance prices for coverage of such risks therefore continued to decline.
In 2015 the series of explosions in the Chinese port city of Tianjin caused a market loss in the range of USD 2 to 3 billion, a not inconsiderable part of which impacted marine reinsurance. The net loss for our share across all lines amounted to EUR 111.1 million. Further large losses incurred in the market were attributable principally to damaged oil rigs in the Gulf of Mexico. We therefore adjusted our underwriting policy along more conservative lines and relinquished business that offered little prospect of profitability.
Driven in part by positive exchange rate effects, gross premium for our marine portfolio increased by 5.9% to EUR 297.1 million (EUR 280.6 million). Despite the aforementioned loss expenditure the combined ratio improved to 60.0% (67.2%) and the underwriting result moved correspondingly higher. The operating profit (EBIT) climbed to EUR 112.3 million (EUR 85.7 million).
Aviation Results in international aviation (re)insurance were once again impacted in the year under review by a number of losses, including what investigations currently indicate was the deliberate crash of a German aircraft. At the same time, the space market was faced with the largest single loss in its history.
While the development of the worldwide economy in 2015 can be described as robust overall, economic conditions in certain regions – including for example in Southern Europe, emerging markets and especially China – were difficult. Global growth in the primary insurance market therefore remained minimal. The increased risk-carrying capacity of ceding companies has led to a drop in reinsurance cessions in some areas. We write a large share of our business with credit, surety and political risks in the form of proportional treaties, under which cost reimbursements in the year under review increased only moderately.
Gross premium income in these lines grew by 14.0% in 2015 to EUR 605.6 million (EUR 531.4 million). The premium growth was boosted by exchange rate effects, the acquisition of new customers and the expansion of existing client relationships.
Direct business We also write direct business through our subsidiary International Insurance Company of Hannover SE (Inter Hannover). This essentially involves tightly defined portfolios of niche or other non-standard business that complements our principal commercial activity as a reinsurer.
We transformed the company into a Societas Europaea (SE) in 2014 and moved its registered office to Hannover at the beginning of 2015. The purpose was to interlink more closely the business management units and to leverage potential synergies and economies of scale in the administration of the business. We write a large portion of our direct business in the London Market and through our Swedish branch. The result of our direct business was significantly improved in the financial year just ended. This is a respectable achievement, especially bearing in mind the intensive competition among the insurers and reinsurers operating in this sector.
The gross premium booked from the United Kingdom, London market and direct business climbed – as indicated in the renewals as at 1 January 2015 – by 17.6% from EUR 442.0 million to EUR 519.7 million. A good portion of the growth was driven by positive exchange rate effects. The combined ratio stood at 86.6% (110.3%). The operating result (EBIT) improved accordingly to EUR 153.7 million (-EUR 12.8 million).
Heavy rate erosion and diminished demand for coverage of offshore and onshore risks were all but offset by increased acceptances in the areas of renewables, cyber risks and personal accident / sports covers. Yet even in these segments the effects of the soft market could be felt. Rate movements therefore varied across regions and markets, although the overall trend was still downwards.
We are largely satisfied with the development of our overall facultative portfolio in the year under review, despite the protracted soft market environment: we grew our business and further diversified the portfolio. The premium volume increased to EUR 1,120.7 million (EUR 957.6 million). The organic growth was favourably influenced by a strong US dollar and a non-recurring special effect associated with a modified method for calculating and deferring premiums from reinsurance treaties that have still to be brought to account. An unusually high frequency of mid-sized losses was incurred from various regions and lines in the 2015 financial year. The combined ratio was particularly heavily impacted by damage to oil exploration equipment in the Gulf of Mexico and refineries, although fire losses at industrial facilities and some isolated liability claims were also contributory factors. Major losses nevertheless did not reach the level of the previous year. The combined ratio of 94.1% was below that of the previous year (103.9%). The operating profit (EBIT) improved accordingly to EUR 118.3 million (EUR 11.8 million).
Property & Casualty reinsurance: Breakdown of gross M 17 written premium in facultative reinsurance 10.7% Other 44.4% Property 12.5% Motor 32.4% Liability
Worldwide treaty reinsurance We are satisfied with the development of our worldwide treaty reinsurance portfolio. The gross premium volume grew in line with our expectations to EUR 1,810.4 million (EUR 1,480.7 million ). The combined ratio improved from 98.5% to 95.7%. The operating profit (EBIT) retreated to EUR 165.7 million (EUR 225.6 million).
Thanks to our historically broad positioning with the major Japanese insurance groups in the Asia-Pacific region and worldwide, the Hannover Re Group was also able to hold its premium income stable despite sustained pressure on reinsurance conditions in the last April renewals.
In China Hannover Re once again booked double-digit growth in the year under review. We are present in the country with a locally licensed branch and have systematically pursued the successful strategy of the previous years – namely consolidating our business relationships with selected clients. Our business already benefited in the year under review from the upcoming implementation of the risk-based solvency system C-ROSS effective 1 January 2016, which favours local reinsurance placements. Results were, however, hard hit by the extraordinary series of explosions at the Port of Tianjin; the insured market loss from this accident is estimated to be in the range of EUR 2 to 3 billion.
Almost all primary insurance markets in South and Southeast Asia are growing disproportionately strongly compared to the more mature Asian markets. In this region Hannover Re is represented by a branch in Kuala Lumpur. We further improved our market penetration and generated strong growth in the year under review. In keeping with our strategy, the prevailing conditions – which were shaped by the intense competitive forces – prompted us to successfully expand new, less hardfought business segments and optimise our risk balance.
South Africa Our property and casualty reinsurance business in South Africa is generated by three companies. Hannover Reinsurance Africa Limited writes reinsurance in all lines – including specialty lines, which are written in close consultation with departments in Hannover. Compass Insurance writes direct business through so-called underwriting management agencies (UMAs). The third company, Lireas Holdings, holds interests in several of these UMAs. This enables us to comprehensively steer and control the business. Agency business forms the pillar of our activities in South Africa, although reinsurance business is also written on the open market in South Africa and other African countries.
Property & Casualty reinsurance: Breakdown of gross M 19 written premium in worldwide treaty reinsurance 9.2% Other 64.8% Property 20.8% Motor 5.2% Liability
Against this backdrop, both Compass Insurance and Hannover Reinsurance Africa performed appreciably better in the 2015 financial year and delivered pleasing results. The premium volume contracted owing to negative exchange rate effects and expected shifts into large-volume, structured reinsurance arrangements.
Latin America Hannover Re is very well positioned in Latin America and a market leader in some countries. The most important markets for our company are Brazil, where we are present with a representative office, as well as Mexico, Argentina, Colombia and Ecuador.
Most Latin American markets have enjoyed very vigorous growth in recent years and are still showing solid gains. Primary insurance premiums are increasing by between 5% and 15% a year depending on the market. With natural catas trophe risks highly exposed, the strong demand for reinsurance covers remains undiminished. In Latin America, too, the reinsurance market finds itself experiencing a soft phase. Premium income on the reinsurance side contracted in 2015 owing to the devaluation of some Latin American currencies and due to the higher retentions carried by primary insurers.
Retakaful business We write retakaful business, i. e. reinsurance transacted in accordance with Islamic law, worldwide. Our focus is currently on the Middle East, North Africa and Southeast Asia. This business is written by our subsidiary in Bahrain. We also maintain a branch that is responsible for writing traditional reinsurance in the Middle East and North Africa. Our retakaful business has been growing very vigorously for a number of years and we are satisfied overall with its development.
With major losses again lower than expected and hence the associated good results posted by insurers and reinsurers, and in view of the increasing capacities made available by so-called alternative capital markets, competition was intense. Reflecting this situation, rates in US property catastrophe business fell further – albeit at a slowing pace. After the appreciable increases that we had booked in 2012 and 2013, rates in Japan softened as anticipated. Only in isolated cases, most notably under loss-impacted programmes, were improvements recorded. All in all, declining rates are the dominant feature of natural catastrophe business worldwide.
As in the previous years, losses were very much on the moderate side for both insurers and reinsurers and those losses that were incurred came in within the modelled claims expectations. The largest single losses under our natural catastrophe covers were the earthquake in Chile and the floods in the United Kingdom.
Structured reinsurance and Insurance-Linked Securities Structured reinsurance Hannover Re is one of the largest providers in the world for advanced solutions or structured reinsurance solutions, the purpose of which – among other things – is to optimise the cost of capital for our ceding companies. In this area we offer bespoke alternative reinsurance solutions that provide solvency relief or protect our clients against basic losses in lower layers. The 2015 financial year was notable for growing demand, particularly with an eye to the implementation of Solvency II in Europe and other risk-based solvency regimes in various countries.
In addition, we enable investors to participate in insurance and reinsurance risks. Our role can be that of initiator, arranger, structurer and / or fronter. The principal instruments are collateralised reinsurance and catastrophe bonds. Our business partners on the investment side include specialised ILS funds, pension funds and hedge funds as well as primary insurers, captives and other portfolio managers seeking risks that promote diversification. The exposure volume that we transferred to the capital market in 2015 in the form of catastrophe bonds was in excess of USD 1.5 billion, including more than USD 700 million for the Texas Windstorm Insurance Association (TWIA), over USD 300 million for the Massachusetts Property Insurance Underwriting Association (MPIUA) and another bond for California earthquake risks with a volume of USD 300 million. We also acted as co-manager in UnipolSai’s Azzurro transaction with a volume of more than EUR 200 million.
The currently available capital exceeds by far the opportunities for new investments in catastrophe bonds. This has prompted investors to look for other means of investing in the reinsurance sector. So-called collateralised reinsurance again enjoyed particularly strong growth in the year under review and exceeds market-wide the volume of funds invested in catastrophe bonds. Under collateralised reinsurance programmes the investor assumes reinsurance risks that are normally collateralised in the amount of the limit of liability. Hannover Re further stepped up its cooperation with selected fund managers in the area of collateralised reinsurance in the year under review and generated attractive margins on this business.
The gross premium volume in structured reinsurance and from ILS activities climbed from EUR 917.7 million to EUR 1,306.8 million. The combined ratio stood at 98.4% (94.1%). The operating profit (EBIT) amounted to EUR 57.4 million (EUR 102.6 million).
• Gross premium growth of 19.7% – currency-adjusted 9.5% – clearly above the target corridor of 5% to 7%
• Targeted improvement in profitability achieved with higher Group net income • Strengthening of our international network through establishment of a branch in Toronto, Canada • Creation of a stand-alone online sales platform for direct selling of life insurance products in Malaysia
Life and health reinsurance accounted for 45% of Group gross premium in the financial year just ended. It has evolved into a core strategic business group of the Hannover Re Group and thus plays a key part in the company’s success. On the basis of our long-standing, partnership-based business relationships with our customers, our expertise and our worldwide presence, we operate directly in the international arena – not only identifying but also actively helping to shape trends and new markets. In so doing, we never lose our focus on profitability.
Total business The performance of life and health reinsurance was at times volatile in the individual quarters of the financial year just ended. This was due to, among other things, differing developments in the various markets.
Breakdown of gross premium by markets M 21 in EUR million
Value of New Business (VNB) Value of New Business – target
≥ 180 1 Based on the MCEV Principles of the CFO Forum 2 Increase in the cost of capital from 4.5% to 6.0%
EBIT-margin per reporting category M 24 vs. target margins 2015 in %
The operating result (EBIT) in life and health reinsurance reached a very pleasing level of EUR 405.1 million (EUR 263.8 million). The increased result was boosted by the gratifying development of financial solutions business. Overall, the very good underlying profitability was influenced on the one hand by positive special effects, including for example the early termination of a contract in the first quarter of 2015 in an amount of EUR 39.0 million. Negative one-off effects also played a part, however, as was the case at our branch in France. Against this backdrop, Group net income for life and health reinsurance increased by 41.3% to EUR 289.6 million (EUR 205.0 million).
In China the new supervisory regime C-ROSS (China Risk Oriented Solvency System), which was officially adopted on 1 January 2016, left its mark on the (re)insurance market in the financial year just ended. This was because companies were already applying the regulations on a test basis in 2015, hence generating stronger demand for reinsurance concepts to fit the new framework conditions.
Mortality Mortality-exposed business traditionally constitutes the core business of life and health reinsurance. The mortality reporting category accounts for the largest share of our total life and health reinsurance portfolio. The risk that we assume as a reinsurer is that the actually observed mortality may diverge negatively from the expected mortality.
Morbidity Morbidity business encompasses all business relating to the risk of deterioration in a person’s state of health due to disease, injury or infirmity. The morbidity reporting category is notable for extensive product diversity, ranging from strict (any occupation) disability and occupational disability to numerous varieties of long-term care insurance. We are active in this area as a robust business partner, supporting our customers with our know-how and through risk transfer.
The development of group and health business in the Middle East gave grounds for satisfaction in the year under review. In the United Kingdom, too, our business fared well despite an extremely competitive environment. In Asian markets we noted stronger demand for critical illness covers.
The Australian market recovered appreciably in the financial year just ended, enabling us to slightly enlarge our portfolio in this area. The run-off of Australian disability business was in line with our expectations. Results in the US market were slightly poorer than we had anticipated owing to increased losses. The reform of the health sector there is nevertheless injecting fresh impetus into the market. We expect this to have positive implications for the development of business going forward.
Taken together, we generated an operating result (EBIT) of EUR 147.8 million (EUR 165.5 million) for the reporting categories of mortality and morbidity in the financial year just ended. This is equivalent to an EBIT margin of 3.6% (4.8%).
better than our forecast at 3.5% • Ordinary income higher despite low interest rates • High-quality investment portfolio even more diversified through equity exposure
Net investment income from assets under own management 1,270.1 +15.9% 1,095.8 1,054.5 1,300.2 1,045.5
Financial position and net assets • High-quality investment portfolio diversified even further through equity holding • Asset allocation adjusted to safeguard the return • Shareholders’ equity sharply higher thanks to excellent Group net income despite lower valuation reserves
With these goals in mind we engage in active risk management based on balanced risk / return analyses. To this end we make allowance for insights gained from dynamic financial analysis and have implemented detailed investment guidelines on a centralised basis. We are thus able to take into account the prevailing state of the market and the basis is established for the current structuring of the liabilities side, which must be factored into operational management of the portfolio. These measures are intended to safeguard the generation of an appropriate level of return. In so doing, we pay strict attention to compliance with our clearly defined risk appetite, which is reflected in the risk capital allocated to the investments and constitutes the foundation for the asset allocation of the entire Hannover Re Group. In addition, our ability to meet our payment obligations at all times is thereby ensured. Within the scope of our asset / liability management (ALM) the allocation of investments by currencies and maturities is determined by the technical liabilities. With this in mind the modified duration of our bond portfolio is geared largely to the technical liabilities.
Furthermore, through active and regular management of the currency spread in our fixed-income portfolio we bring about extensive matching of currencies on the assets and liabilities sides of the balance sheet, as a consequence of which fluctuations in exchange rates have only a limited effect on our result. At year-end 2015 we held 30.8% (36.9%) of our investments in euro, 46.7% (41.4%) in US dollars, 8.3% (8.5%) in pound sterling and 5.1% (5.2%) in Australian dollars.
Holdings of alternative investment funds increased appreciably. As at 31 December 2015 an amount of EUR 781.5 million (EUR 684.9 million) was invested in private equity funds; a further EUR 678.8 million (EUR 551.5 million) was attributable predominantly to investments in high-yield bonds and loans. In addition, altogether EUR 371.3 million (EUR 373.7 million ) was invested in structured real estate investments. The uncalled capital with respect to these asset classes totalled EUR 837.1 million (EUR 716.3 million).
The capital structure and the composition of the liabilities of Hannover Re are shaped by our activity as a reinsurer. By far the largest share is attributable to technical provisions and liabilities. Further elements are equity and equity substitutes, which help to substantially strengthen our financial base and optimise our cost of capital. The following chart shows our capital structure as at 31 December 2015, broken down into percentages of the balance sheet total.
The technical provisions and liabilities shown above, which include funds withheld / contract deposits and reinsurance payable, make up 78.5% (77.6%) of the balance sheet total and are more than covered by our investments, (assets-side) funds withheld / contract deposits, accounts receivable and reinsurance recoverables.
The equity including non-controlling interests at 13.9% (13.7%) of the balance sheet total as well as the loans and – especially – subordinated capital at altogether 2.8% (3.8%) of the balance sheet total represent our most important sources of funds.
A key strategic objective of Hannover Re is long-term capital preservation. Just as in previous years, we issued hybrid capital as an equity substitute in order to keep the cost of capital on a low level. The policyholders’ surplus is an important management ratio in the context of Hannover Re’s comprehensive capital management. The total policyholders’ surplus is defined as follows: • shareholders’ equity excluding non-controlling interests, composed of the common shares, additional paid-in capital, other comprehensive income and retained earnings,
The book value per share increased accordingly by 6.9% to EUR 66.90. The changes in shareholders’ equity were shaped chiefly by the following developments: Net unrealised gains on investments stood at EUR 712.0 million, a drop of EUR 457.3 million compared to the beginning of the year under review. This decrease was mainly due to higher risk premiums for corporate bonds held in our portfolio as well as to the rise in the short- and medium-term US dollar interest rate level.
The foreign currency gains and losses climbed significantly by EUR 318.7 million from EUR 190.5 million to EUR 509.2 million as a consequence of exchange rate movements of foreign currencies against the euro in the financial year. The rise in the reserve for currency translation adjustment resulted principally from the marked depreciation of the euro against the US dollar.
Non-controlling interests in shareholders’ equity increased marginally by EUR 6.9 million to EUR 709.1 million as at 31 December 2015. The bulk of this – in an amount of EUR 667.1 million – is attributable to the non-controlling interests in E+S Rückversicherung AG.
In addition to the financing effect of the changes in shareholders ’ equity described above, debt financing on the capital market is a significant component of Hannover Re’s financing. It was essentially composed of subordinated bonds issued to ensure lasting protection of our capital base – in part also in observance of rating requirements. The total volume of debt and subordinated capital stood at EUR 1,798.3 million (EUR 2,270.3 million) as at the balance sheet date.
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 500 million; 2005 / undated 1.6.2005 5.00 – 497.7
For further explanatory information please see our remarks in the notes to this report, Section 6.12 “Debt and subordinated capital”, page 208 et seq., and Section 6.13 “Shareholders’ equity and treasury shares”, page 212.
Liquidity We generate liquidity primarily from our operational reinsurance business, investments and financing measures. Regular liquidity planning and a liquid investment structure ensure that Hannover Re is able to make the necessary payments at all times. Hannover Re’s cash flow is shown in the consolidated cash flow statement on page 142 et seq.
Consolidated cash flow statement M 34 in EUR million 2015 2014
Cash and cash equivalents at the beginning of the period 772.9 642.9
Cash flow from operating activities The cash flow from operating activities, which also includes inflows from interest received and dividend receipts, amounted to EUR 3,104.9 million in the year under review as opposed to EUR 1,930.9 million in the previous year. The sharp increase of EUR 1,174.0 million in the net inflow year-on-year was essentially attributable to the generally higher premium volumes and, in particular, to certain financial solutions contracts in the area of life and health reinsurance under which the premiums had already been received by the balance sheet date but the corresponding retrocession premiums were not scheduled to be paid until the beginning of 2016.
Overall, allowing for the changes in the consolidated group, the cash and cash equivalents therefore increased year-on-year by EUR 19.7 million to EUR 792.6 million.
For further information on our liquidity management please see page 95 of the risk report.
The appointment and recall of members of the Executive Board are determined by §§ 84 et seq. Stock Corporation Act. Amendment of the Articles of Association is governed by §§ 179 et seq. Stock Corporation Act in conjunction with § 18 Para. 2 of the Articles of Association of Hannover Rück SE.
Condensed profit and loss account of Hannover Rück SE M 39 in EUR thousand 2015 2014
The underwriting result for total business (before changes in the equalisation reserve) improved in the year under review from -EUR 15.0 million to EUR 158.4 million. An amount of EUR 136.1 million (EUR 277.6 million) was allocated to the equalisation reserve and similar provisions.
All in all, our net investment result improved to EUR 1,695.9 million (EUR 1,580.8 million).
The profit on ordinary activities increased to EUR 1,064.0 million (EUR 597.8 million). The year under review closed with a profit for the year of EUR 905.8 million (EUR 421.2 million).
The following section describes the development of the various lines of business. We would like to point out that with effect from the beginning of the 2014 financial year the exchange of business under joint underwriting arrangements between Hannover Rück SE and E+S Rückversicherung AG was reorganised. In property and casualty reinsurance, however, a retrocession from Hannover Rück SE to E+S Rückversicherung AG has been maintained. The proportion of Hannover Rück SE’s gross written premium attributable to business accepted from E+S Rückversicherung AG stood at 0.1% (-0.1%) in the year under review and relates to the run-off of the 2013 and prior underwriting years.
Hannover Rück SE: Breakdown of gross premium M 40 by individual lines of business in EUR million
Casualty Gross premium in casualty business climbed by 19.3% to EUR 1,400.9 million (EUR 1,174.7 million). The loss ratio decreased from 104.5% to 82.6%. The underwriting result consequently improved to -EUR 69.5 million (-EUR 276.0 million ). An amount of EUR 139.6 million was allocated to the equalisation reserve and similar provisions in the year under review; the withdrawal in the previous year had totalled EUR 88.7 million.
Accident Gross premium increased by 4.4% to EUR 329.8 million (EUR 316.0 million). The loss ratio rose from 57.4% to 70.3%. The underwriting result came in at EUR 9.9 million, after EUR 32.2 million in the previous year. An amount of EUR 23.7 million was withdrawn from the equalisation reserve and similar provisions, following an allocation of EUR 2.9 million in the previous year.
Motor Gross premium income for the motor line surged by a very substantial 51.2% to EUR 1,423.6 million (EUR 941.7 million). The loss ratio deteriorated to 85.5% (39.1%). The underwriting result closed at -EUR 159.4 million (EUR 138.2 million). An amount of EUR 13.1 million was withdrawn from the equalisation reserve and similar provisions in the year under review, after an allocation of EUR 69.3 million in the previous year.
Aviation The gross premium volume rose by a modest 1.8% from EUR 343.6 million to EUR 349.7 million. The loss ratio improved markedly from 102.1% to 77.8%. The underwriting result came in at EUR 2.5 million (-EUR 60.7 million). Following a withdrawal of EUR 34.4 million in the previous year, an amount of EUR 15.5 million was allocated to the equalisation reserve and similar provisions in the year under review.
Marine Gross written premium nudged slightly higher by 0.7% to EUR 436.9 million (EUR 433.8 million). The net loss ratio rose from 62.2% to 74.3%. The underwriting result consequently contracted from EUR 39.4 million to EUR 8.2 million. An amount of EUR 48.2 million (EUR 91.3 million) was allocated to the equalisation reserve and similar provisions.
Our portfolio of assets under own management grew in the year under review to EUR 25.7 billion (EUR 23.0 billion). This corresponds to an increase of 11.8% and can be attributed above all to the very positive operating cash flow and the appreciation of various currencies against the euro. The balance of unrealised gains on fixed-income securities and bond funds contracted to EUR 610.3 million (EUR 891.3 million). This reflected the yield increases observed in the course of the year under review – especially on US Treasuries – as well as higher risk premiums for corporate bonds.
Deposits with ceding companies, which are shown under the investments, totalled EUR 15.6 billion (EUR 18.9 billion) in the year under review.
Our capital and reserves – excluding the disposable profit – stood at EUR 1,631.7 million (EUR 1,381.7 million). The total capital, reserves and technical provisions – comprised of the capital and reserves excluding disposable profit, the subordinated liabilities, the equalisation reserve and similar provisions as well as the net technical provisions – fell during the year under review to EUR 33,416.7 million (EUR 35,406.7 million). The balance sheet total of Hannover Rück SE consequently decreased to EUR 44.9 billion (EUR 45.0 billion).
A dividend of EUR 3.00 plus a special dividend of EUR 1.25 per share, equivalent to EUR 512,5 million (EUR 361.8 million), was paid in the year under review for the 2014 financial year.
It will be proposed to the Annual General Meeting on 10 May 2016 that a dividend of EUR 3.25 plus a special dividend of EUR 1.50 per share should be paid for the 2015 financial year. This corresponds to a total distribution of EUR 572.8 million. The dividend proposal does not form part of this consolidated financial statement.
The survey was conducted in October 2015 with the support of an external opinion research and management consulting firm. Overall participation came in at a solid level of just under 70% of all surveyed staff. A very high degree of overall satisfaction among our staff can be identified as a central finding. This is true both of the average evaluation across all questions and for virtually all individual questions. The considerable motivation and dedication expressed by our staff is especially gratifying. As far as potential scope for improvement is concerned, they identified a more broad-based system of remuneration and further optimisation of the support provided for their ongoing individual training.
Another focus of our activities in the financial year just ended was the implementation of a state-of-the-art learning management system – the HannoverReAcademy. This process was launched in 2014 by means of an evaluation project, followed in 2015 by the roll-out of the selected program. Since then, we have been able to offer our staff a clear overview of all internal seminar opportunities from the areas of HR and IT in the form of a training catalogue. Similarly, all booking, approval and administration processes are run using this application.
Staff turnover / absenteeism Hannover Home Office M 42 in %
We went to special lengths to refresh our efforts to recruit new personnel. In recent years we had already enjoyed consistent success in attracting new staff in a timely manner who fulfil our quality requirements. Nevertheless, in the financial year just ended – working in conjunction with the other areas of our company that play an active part in our external profile – we revamped our online presence. Along similar lines to our entire corporate website, the careers section now features a fresh contemporary design. At the same time we improved the information provided on our webpages as well as the ability to search the content systematically.
We attached special emphasis to expanding our efforts to address the applicant groups most relevant to our company in a targeted manner through short film clips. The centrepiece in this regard is a new personnel marketing video that highlights aspects of particular importance to our target applicant groups – specifically, the challenging nature of the work, the pleasant working atmosphere and the international dimension. This image video is flanked by four newly produced testimonials, in which members of staff describe their roles and the associated appeal of their work from their own individual perspectives.
The goal is to offer potential recruits a straightforward and engaging insight into the diversity and fascination of our tasks and to encourage them to apply. The range of video materials is rounded off with some recordings of public appearances or interviews featuring our personnel advisers, who offer practical tips on the application process and choosing the right employer.
In 2014 we reviewed our Group Strategy and Sustainability Strategy in keeping with our three-year strategy cycle. In conformity with the Group Strategy, the sustainability goals that had been set for the strategy cycle just ended were therefore similarly revisited and modified to reflect the changing general business conditions. Sustainability goals that had still to be achieved were carried over to the new strategy cycle. Our current Sustainability Strategy for the years 2015 to 2017 defines the following four action fields and specifies 14 concrete goals and 42 measures: • Governance and dialogue
As an internationally operating company, Hannover Re bears responsibility in various senses. This is true of its compliance with relevant laws and regulations, but also applies to its relationship with staff, shareholders, the public at large and the cultures within which the company operates. As a European company (Societas Europaea – SE) based in Germany, the formal framework that shapes Hannover Re’s corporate governance is determined by national (German) law. The fundamental hallmarks of this corporate governance are a two-tier system with its transparent and effective split into management (Executive Board) and its oversight (Supervisory Board), the appointment of shareholder and employee representatives to the Supervisory Board and the rights of co-administration and supervision exercised by shareholders at the Annual General Meeting. The interplay between these bodies is regulated by German stock corporation law and by the company’s Articles of Association. Furthermore, our Group Strategy, the Corporate Governance principles and our Code of Conduct form the basis of our enterprise management.
Given that the trust of our stakeholder groups and an immaculate reputation are vital to the success of our company, we also make every effort to cultivate an active dialogue with representatives of the capital market and society as a whole as well as with our clients and staff. In the year just ended we again reported on our achievements as a responsible enterprise in the form of a stand-alone Sustainability Report. In this regard we follow the currently applicable and internationally recognised guidelines of the Global Reporting Initiative (GRI); we fulfil Application Level B – the intermediate level of transparency – as defined by the GRI.
Hannover Re’s carbon dioxide emissions at its German location in 2015 amounted to 8,581 (previous year: 7,798) tonnes, some 10.0% more than in the previous year. This is equivalent to per capita CO2 emissions of 6.4 tonnes (+6.7% compared to the previous year).
Detailed explanatory remarks on our consumption of resources as well as extensive information on our social commitment can be found at www.hannover-re.com/60729/sustainability
… innovative Innovative in lifestyle matters People with a healthy lifestyle are – at least statistically speaking – less susceptible to disease and disability. Lifestyle programmes are designed to motivate people to live a healthy life. This means that insurers can grant premium discounts, extend the scope of coverage or offer attractive rewards – while at the same time having to make lower claims payments. Hannover Re participates in such lifestyle programmes, contributing its know-how and helping its customers to carry the risk. The concepts developed for the South African market have the potential to grow into the largest incentive-based scientific wellness programme in the world; they have already been successfully adopted in other countries.
The risk strategy is derived from our corporate strategy. It forms the core element in our handling of opportunities and risks. The risk strategy specifies more closely the goals of risk management and documents our understanding of risk. We have also defined ten overriding principles within our risk strategy: 1. We adhere to the risk appetite set by the Executive Board.
5. We determine a materiality threshold for our risks. 6. We make use of appropriate quantitative methods. 7. We apply well-suited qualitative methods. 8. We allocate our capital risk-based. 9. We ensure the necessary separation of functions through our organisational structure.
Major external factors influencing risk management in the financial year just ended
The core functions of Solvency II – the risk management function, the actuarial function, the compliance function and the internal audit function – have been implemented. In fulfilling the new supervisory requirements for core functions, we were able to build on existing processes and organisational structures. In 2015 we comprehensively fulfilled the supervisory reporting requirements during the preparatory phase for Solvency II, inter alia by compiling a Regular Supervisory Report (RSR) and a report on the Own Risk and Solvency Assessment (ORSA) for Hannover Rück SE and other European insurance companies within the Group.
Capital market environment: Another major external influencing factor is the protracted low level of interest rates, especially with an eye to the return on our investments. For further information please see the “Investments” section of the management report on page 51 et seq.
Hannover Re has long had in place an internal control system, the necessary key functions and extensive risk management. Additional requirements arising out of Solvency II have become established along existing processes.
C om bi ne d m an ag em en t re po rt departments, although more importantly it is also verified in the context of the regular, company-wide use of the capital model when assessing risks and allocating the cost of capital. Hannover Re calculates the required risk capital as the Value at Risk (VaR) of the economic change in value over a period of one year with a confidence level of 99.97%. This reflects the goal of not exceeding a one-year ruin probability of 0.03%. The internal target capitalisation of the Hannover Re Group is therefore significantly higher than the minimum confidence level of 99.5% required under Solvency II.
Irrespective of regulatory reporting requirements, the Hannover Re Group regularly calculates its capitalisation in accordance with Solvency II, i. e. in accordance with the approved internal model (partial model). The capital requirements for market risks, underwriting risks and counterparty default risks are determined on this basis. The capital requirement for operational risks, on the other hand, is calculated according to the parameters of the Solvency II standard formula. The own funds are based on the economic capital, with non-controlling interests not fully recognised as required by Solvency II. The capital adequacy ratio of the Hannover Re Group calculated in accordance with the parameters of Solvency II stood at 221% as at 30 September 2015.
Risk-bearing capacity concept The establishment of the risk-bearing capacity involves determining the total available risk coverage potential and calculating how much of this is to be used for covering all material risks. This is done in conformity with the parameters of the risk strategy and the risk appetite defined by the Executive Board. The quantitatively measurable individual risks and the risk position as a whole are evaluated using our risk model. A central system of limits and thresholds is in place to monitor material risks. This system incorporates – along with other risk-related key figures – in particular the indicators derived and calculated from the risk-bearing capacity. Adherence to the overall risk appetite is verified on an ongoing basis using the results of the risk model.
Risk monitoring The monitoring of all identified material risks is a core task of Group Risk Management. This includes, inter alia, monitoring execution of the risk strategy as well as adherence to the defined limits and thresholds and to risk-related methods and processes. A further major task of risk monitoring is the ascertainment of whether risk steering measures were carried out and whether the planned effect of the measures is sufficient.
• and technical plausibility checks and access privileges in the IT systems.
We use a central IT solution with standardised accounting and consolidation processes, posting rules and interfaces for data delivery in order to draw up the consolidated financial statement. Access rights for the reporting systems are assigned through an approval process. All components of the accounting -related internal control system, the processes for the organisation and implementation of consolidation tasks and for the preparation of the consolidated financial statement as well as the accompanying controls are consistently documented. In order to safeguard and continuously improve the adequacy of the control system it is subject to regular review and evaluation. In this regard, the internal audit function ensures that the quality of the control system is constantly monitored. All relevant accounting principles are collated in a Group Accounting Manual that sets out uniform Group-wide rules for the recognition, measurement and reporting of items in the consolidated financial statement. The process for updating and, if necessary, adjusting these rules is clearly regulated with respect to information channels, responsibilities and period of validity. Not only that, we provide prompt Group-wide notification of significant developments and modified requirements in Group financial reporting.
In the following section we compare the available economic capital with the required risk capital. Hannover Re calculates the economic equity as the difference between the market-consistent value of the assets and the market-consistent value of the liabilities. While fair values are available for most investments, the market-consistent valuation of reinsurance treaties necessitates a specific valuation model. We establish the market -consistent value of technical items as the present value of projected payments using actuarial methods. This is adjusted by a risk loading that factors in the fluctuation in future payments. Such fluctuations result from risks that cannot be hedged by means of capital market products, such as underwriting risks. For the discounting of future cash flows we use the risk-free basic yield curves without volatility adjustment or matching adjustment calculated in accordance with Solvency II rules. Market prices for options and guarantees embedded in insurance contracts are determined or approximated using option valuation models from the field of financial mathematics. The significance of these options and guarantees in our portfolio is, however, minimal. The valuation reserves for investments shown in the following table indicate the difference between fair value and book value of those investments recognised under IFRS at book values. Other adjustments encompass above all the deferred taxes as well as the deduction of foreseeable dividends as required by Solvency II. The available economic capital, which is available as liable capital for policyholders, is composed of the economic equity and the hybrid capital. Hybrid capital is recognised at market-consistent value as required by Solvency II, with changes in own credit risk not being included in the valuation.
The elevated risk in relation to market risks was not only volume- driven but also reflected the building of an equity allocation in the investment portfolio.
Underwriting risk in property and casualty reinsurance 5,377.3 3,408.9 5,023.1 3,101.1
Underwriting risk in life and health reinsurance 3,441.9 2,109.6 3,327.2 1,906.9
Required risk capital of the Hannover Re Group 9,593.0 5,126.3 7,786.6 4,353.1
Longevity and mortality risk Morbidity and disability risk Lapse risk Catastrophe risk
Share price risk Interest rate risk Real estate risk Currency risk Credit and spread risk
Diversification within the Property & Casualty reinsurance business group is actively managed through allocation of the cost of capital according to the contribution made to diversification. A high diversification effect arises out of the underwriting of business in different lines and different regions with different business partners. In addition, the active limitation of individual risks – such as natural catastrophes – enhances the diversification effect. The risk capital with a confidence level of 99.5% for underwriting risks in property and casualty reinsurance breaks down as follows: Required risk capital 1 for underwriting risks M 53 in property and casualty reinsurance in EUR million 30.9.2015 31.12.2014
Earthquake Japan 780.0 1 Required risk capital with a confidence level of 99.5% on an aggregate annual loss basis
The reserve risk, i. e. the risk of under-reserving losses and the resulting strain on the underwriting result, is the overriding priority in our risk management. We attach the utmost importance to a conservative reserving level and therefore traditionally have a high confidence level (> 50%). In order to counter the risk of under-reserving we calculate our loss reserves based on our own actuarial estimations and establish, where necessary, additional reserves supplementary to those posted by our cedants as well as the segment reserve for losses that have already occurred but have not yet been reported to us. Liability claims have a major influence on the segment reserve. The segment reserve is calculated on a differentiated basis according to risk categories and regions. The segment reserve established by the Hannover Re Group amounted to EUR 6,948.1 million in the year under review.
Within the scope of this process, the Executive Board defines the risk appetite for natural perils once a year on the basis of the risk strategy by specifying the portion of the economic capital that is available to cover risks from natural perils. This is a key basis for our underwriting approach in this segment. As part of our holistic approach to risk management across business groups, we take into account numerous relevant scenarios and extreme scenarios, determine their effect on portfolio and performance data, evaluate them in relation to the planned figures and identify alternative courses of action.
Winter storm, United States 1 – 22 February 2015 18.6 12.8
Typhoon “Mujigae”, Taiwan, Korea, China 2 – 3 October 2015 14.1 14.1
Severe weather / flooding, United States 24 May – 14 June 2015 10.8 7.3 1 Natural catastrophes and other major claims in excess of EUR 10 million gross
The price / premium risk lies primarily in the possibility of a random claims realisation that diverges from the claims expectancy on which the premium calculation was based. Regular and independent reviews of the models used for treaty quotation as well as central and local underwriting guidelines are vital management components. We have put in place a multi -step quotation process to ensure the quality of our portfolios: Ensuring the quality of our portfolios M 59
The reporting in this regard makes reference inter alia to significant changes in conditions, risks (such as inadequate premiums) as well as to emerging market opportunities and the strategy pursued in order to accomplish targets. The development of the combined ratio in property and casualty reinsurance in 2015 and prior years is shown in the table below: Combined and catastrophe loss ratio M 60
Combined ratio (property and casualty reinsurance) 94.4 94.7 94.9 95.8 104.3 98.2 96.6 95.4 99.7 100.8 1 Net share of the Hannover Re Group for natural catastrophes and other major claims in excess of EUR 10 million gross as a percentage of net premium earned (until 31 December 2011: in excess of EUR 5 million gross)
The reserves are determined on the basis of secure biometric actuarial bases in light of the information provided by our clients. The biometric actuarial bases used and the lapse assumptions are continuously reviewed with an eye to their adequacy and if necessary adjusted. This is done using the company’s own empirical data as well as market-specific insights. Our current risk profile in life and health reinsurance is dominated by mortality and longevity risks. This is due to the fact that under some of our contracts we pay death benefits, while under others we pay survival benefits. The volume of our annuity portfolio has continued to grow and contributes to diversification within life and health reinsurance. We calculate the diversification effect between mortality and longevity risks prudently in view of the fact that the contracts are normally taken out for different regions, age groups and individuals. The required risk capital with a confidence level of 99.5% for underwriting risks in life and health reinsurance breaks down as follows: Required risk capital 1 for underwriting risks M 61 in life and health reinsurance in EUR million 30.9.2015 31.12.2014
Underwriting risk life and health 2,109.6 1,906.9 1 Required risk capital with a confidence level of 99.5%
Required risk capital 1 for market risks M 62 in EUR million 30.9.2015 31.12.2014
Market risk 3,903.1 3,521.6 1 Required risk capital with a confidence level of 99.5% 2 Including private equity
The predefined discussion and analysis mechanisms initiated on reaching the escalation levels in each case arrived at the assessment that the general market movements would not have any intolerable or strategy-changing implications for our portfolio or our capitalisation. Consequently, we did not make any changes to the investment allocation as a result of our trigger system.
Value at Risk 1 for the investment portfolio of the Hannover Re Group M 64 in %
1 VaR upper limit according to Hannover Re’s investment guidelines: 2.5%
Further significant risk management tools – along with the various stress tests used to estimate the loss potential under extreme market conditions – include sensitivity and duration analyses and our asset / liability management (ALM). The internal capital model provides us with quantitative support for the investment strategy as well as a broad diversity of VaR calculations. In addition, tactical duration ranges are in place, within which the portfolio can be positioned opportunistically according to market expectations. The parameters for these ranges are directly linked to our calculated risk-bearing capacity. Further information on the risk concentrations of our investments can be obtained from the tables on the rating structure of fixed-income securities as well as on the currencies in which investments are held. Please see our comments in Section 6.1 of the notes entitled “Investments under own management” on page 176 et seq.
On a fair value basis EUR 4,127.7 million of the corporate bonds held by our company were issued by entities in the financial sector. Of this amount, EUR 3,392.1 million was attributable to banks. The vast majority of these bank bonds (76.4%) are rated “A” or better. Our investment portfolio under own management does not contain any written or issued credit default swaps.
Since the business that we accept is not always fully retained, but instead portions are retroceded as necessary, the credit risk is also material for our company in reinsurance transactions. Our retrocession partners are carefully selected and monitored in light of credit considerations in order to keep the risk as small as possible. This is also true of our broker relationships, which entail a risk inter alia through the potential loss of the premium paid by the cedant to the broker. We minimise these risks, among other things, by reviewing all broker relationships once a year with an eye to criteria such as the existence of professional indemnity insurance, payment performance and proper contract implementation. The credit status of retrocessionaires is continuously monitored. On the basis of this ongoing monitoring a Security Committee decides on measures where necessary to secure receivables that appear to be at risk of default. This process is supported by a Web-based risk management application, which specifies cession limits for the individual retrocessionaires participating in protection cover programmes and determines the capacities still available for short-, medium- and long-term business. Depending on the type and expected run-off duration of the reinsured business, the selection of reinsurers takes into account not only the minimum ratings of the rating agencies Standard & Poor’s and A.M. Best but also internal and external expert assessments (e. g. market information from brokers). Overall, retrocessions conserve our capital, stabilise and optimise our results and enable us to act on opportunities across a broader front, e. g. following a major loss event. Regular visits to our retrocessionaires give us a reliable overview of the market and put us in a position to respond quickly to capacity changes. The following table shows how the proportion of assumed risks that we do not retrocede (i. e. that we run in our retention) has changed in recent years: Gross written premium retained M 67
The key ratios for managing the counterparty default risk are as follows: • 88.5% of our retrocessionaires have an investment grade rating (“AAA” to “BBB”).
• In terms of the Hannover Re Group’s major companies, EUR 236.4 million (6.4%) of our accounts receivable from reinsurance business totalling EUR 3,665.9 million were older than 90 days as at the balance sheet date.
• The average default rate over the past four years was 0.4%.
Further remarks on technical and other assets which were unadjusted but considered overdue as at the balance sheet date as well as on significant impairments in the year under review are provided in Section 6.4 “Technical assets” on page 192 et seq., Section 6.6 “Other assets” on page 195 et seq. and Section 7.2 “Investment result” on page 215 et seq.
Reinsurance recoverables as at the balance sheet date M 68 in EUR million
With the aid of the Self-Assessment for Operational Risks we determine the maturity level of our operational risk management system and define action fields for improvements. The assessment is carried out, for example, by assessing the maturity level of the respective risk management function or of the risk monitoring and reporting. The system enables us, among other things, to prioritise operational risks and is used (for internal purposes) to calculate the capital commitment in our internal model.
Required risk capital 1 for operational risks M 69 in EUR million 30.9.2015 31.12.2014
Operational risk 431.1 382.7 1 Required risk capital at a confidence level of 99.5%
Compliance risks are associated with the risk of breaches of standards and requirements, non-compliance with which may entail lawsuits or official proceedings with not inconsiderable detrimental implications for the business activities of the Hannover Re Group. Regulatory compliance, compliance with the company’s Code of Conduct, data privacy and compliance with anti-trust and competition laws have been defined as issues of particular relevance to compliance. The compliance risk also extends to tax and legal risks. Responsibilities within the compliance organisation are regulated and documented Group-wide and interfaces with risk management have been put in place. The set of tools is rounded off with regular compliance training programmes. For further information on compliance -related topics, including for example lawsuits, contingent liabilities and commitments, please see Section 8.6 “Lawsuits” and Section 8.7 “Contingent liabilities and commitments” on page 232 et seq.
Information technology risks and information security risks arise, inter alia, out of the risk of the inadequate integrity, confidentiality or availability of systems and information. By way of example, losses and damage resulting from the unauthorised passing on of confidential information, the malicious overloading of important IT systems or from computer viruses are material to the Hannover Re Group. Given the broad spectrum of such risks, a diverse range of steering and monitoring measures and organisational standards, including for example the requirement to conclude confidentiality agreements with service providers, have been put in place. In addition, our employees are made more conscious of such security risks through practically oriented tools provided online in the intranet, by way of training opportunities and through a staff information campaign.
When it comes to reducing business interruption risks, the paramount objective is the quickest possible return to normal operations after a crisis, for example through implementation of existing contingency plans. Guided by internationally accepted standards, we have defined the key framework conditions and – among other measures – we have assembled a crisis team to serve as a temporary body in the event of an emergency. The system is complemented by regular exercises and tests. A leaflet is available setting out the correct behaviour in the event of a business interruption; this condenses in compact form the key information that all employees need to know (e. g. information channels in a crisis situation). Regular risk reporting to the Risk Committee and the Executive Board has also been put in place.
Strategic risks derive from a possible imbalance between the corporate strategy of the Hannover Re Group and the constantly changing general business environment. Such an imbalance might be caused, for example, by incorrect strategic policy decisions, a failure to consistently implement the defined strategies and business plans or an incorrect allocation of resources. We therefore regularly review our corporate strategy in a multi-step procedure and adjust our processes and the resulting guidelines as and when required. We have defined performance criteria and indicators for operational implementation of the strategic principles and objectives; these are authoritative when it comes to determining fulfilment of the various targets. With the “Strategy Cockpit” the Executive Board and responsible managers have at their disposal a strategy tool that assists them with the planning, elaboration and management of strategic objectives and measures and safeguards their overall perspective on the company and its strategic risks. The process for the management of strategic risks continues to be assessed annually as part of the monitoring of business process risks. In addition, a Group-wide guideline on the management of strategic risks was drawn up in 2015. Further details on the topic of strategy are provided in the section entitled “Our strategy” on page 16 et seq.
Reputational risks refer to the risk that the trust put in our company by clients, shareholders, employees or the public at large may be damaged. This risk has the potential to jeopardise the business foundation of the Hannover Re Group. A good corporate reputation is therefore an indispensable prerequisite for our core business as a reinsurer. Reputational risks may arise out of all business activities conducted by the Hannover Re Group. Reputational damage may be caused, inter alia, by a data mishap that becomes public knowledge or financial difficulties on account of an underwriting risk. In addition to the risk identification methods already described, we use a number of different techniques for risk minimisation, such as our defined communication channels (e. g. Crisis Communication Guideline), a professional approach to corporate communications, tried and tested processes for specific crisis scenarios as well as our established Code of Conduct. A specific Groupwide guideline on the management of reputational risks was compiled in the 2015 financial year.
Not only that, Hannover Re has set up a stand-alone organisational unit for “Business Opportunity Management” within the Chief Executive Officer’s scope of responsibility. This service unit deals systematically with ideas and business opportunities and it concentrates its activities on generating additional premium volume with profit potential. To this end, promising business opportunities are translated into business models with the support of project teams and tested on the market by the partner b2b Protect. New solutions that meet with a positive response are subsequently launched on the market in cooperation with primary insurance partners. The goal is to generate new business and thereby sustainably promote Hannover Re’s profitable growth. Several of the more than 100 ideas contributed by the global network since the unit was set up have been realised as innovative insurance solutions and successfully handed over to line responsibility; they are now being sold on the market by primary insurers. The following solutions may be cited by way of example: Weather insurance The goal is to offer a heavily weather-dependent clientele industry-specific solutions to protect against fluctuations in the weather. Particularly strong interest in this product is currently being shown by companies operating in areas such as construction, energy trading, event management, amusement parks and tourism.
Energy Savings Protect (Energie Einspar Protect = EEP) This insurance solution enables providers of energy efficiency solutions to take out protection in the event that the promised energy savings fail to materialise. In this case the company in question receives a compensatory payment from the primary insurer. For its part, Hannover Re covers the energy saving warranties of its primary insurance clients. By building trust, the greater planning reliability created by the product makes it possible for many activities needed as part of Germany’s turnaround in energy policy to be undertaken in the first place. Based on its considerable success, as reflected not only in the premium generated but also in its singling out for energy efficiency awards (the enercity-Energie-Effizienzpreis and the Energieeffizienzpreis Perpetuum from the German Industry Initiative for Energy Efficiency (DENEFF)), this product is now available Europe-wide and is being modified for other fields of application.
The networking of the innovative minds involved gives rise to close links with other projects, working groups and bodies, such as with the working group on “Emerging Risks und Scientific Affairs” in regard to emerging risks and opportunities (see page 94 “Other risks”). This working group carries out qualitative assessments of emerging risks. As a result, however, not only are the potential risks analysed but also any available business opportunities. In the year under review, for example, issues such as “Global shifts in disease patterns due to climate change”, “Supply chain risks”, “Safe foods and their availability ”, “Costs of preventive medical screening in the United States”, “Drones”, “Claims resulting from traumatic sports injuries ” and “Cyber risks” were explored by the working group.
Our own evaluation of the manageability of existing risks is confirmed by various financial indicators and external assessments. Specific monitoring indicators, corresponding notification thresholds and potential escalation steps are defined on a mandatory basis in our central system of limits and thresholds for the material risks of the Hannover Re Group. As a result, the system provides us with a precise overview of potentially undesirable developments in the defined risk tolerances and enables us to react in a timely manner. One testament to our financial stability, for example, is the growth of our shareholders ’ equity: the total policyholders’ surplus (hybrid capital, non-controlling interests and shareholders’ equity) stands at 140% of the corresponding figure from 2011. In this context, our necessary equity resources are determined by the requirements of our economic capital model, solvency regulations, the
We would also refer to the explanatory remarks on the financial strength ratings of our subsidiaries in the “Financial position” section of the management report on page 59. In addition, the risk trigger mechanism and internal monitoring system are reviewed annually by the independent auditor. The Group-wide risk management system is also a regular part of the audits conducted by the internal audit function. For additional information on the opportunities and risks associated with our business please see the Forecast on page 126 et seq.
The objective of Hannover Rück SE continues to be to consolidate and further expand its position as one of the leading, globally operating reinsurance groups of above-average profitability. In aspiring towards this goal, it is particularly important to observe and fulfil the principles of good and sustainable enterprise management. In so doing, we not only comply with the German Corporate Governance Code (DCGK, hereinafter also referred to as the Code), but have also developed our own model for responsible enterprise management which we consistently pursue and adjust to the latest requirements in accordance with our best practice standards.
hannover-re.com/50889/corporate-governance-principles.pdf). We cultivate integrity at all times in our dealings with business partners, staff, shareholders and other stakeholder groups and support the principles of value-based and transparent enterprise management and supervision defined in the German Corporate Governance Code. The Supervisory Board, Executive Board and employees of Hannover Rück SE identify with these principles, which thus form part of our corporate self-image. The Executive Board ensures that the principles are observed Group-wide.
As an instrument of self-regulation for the business world, the German Corporate Governance Code – the latest version of which dates from 5 May 2015 – sets out recommendations and suggestions that are intended to maintain and foster the trust of investors, customers, employees and the general public in the management and supervision of German companies. Although the Code does not have binding legal force, the enterprises addressed by the Code are nevertheless required by § 161 Stock Corporation Act (AktG) to provide an annual declaration as to whether or not the recommendations of the Code were and are complied with in the reality of the company’s business activities. If recommendations were not acted upon, this is to be explained and disclosed as part of the Declaration of Conformity.
Declaration of Conformity pursuant to § 161 Stock Corporation Act (AktG)
The amount of variable compensation deriving from the granting of share awards is thus capped at the time when the share awards are allocated, but it is not capped again at the time of payment. Bearing in mind the harmonisation of the interests of shareholders and of the members of the Executive Board of Hannover Rück SE that is sought through the share awards, the company does not consider further limitation of the amount of variable remuneration resulting from the granting of share awards at the time of payment to be expedient. From the company ’s perspective, the use of Hannover Re share awards as a method of payment constitutes – in economic terms – a compulsory investment in Hannover Re shares with a four-year holding period.
The current Chairman of the Supervisory Board of Hannover Rück SE served as the company’s Chief Financial Officer in the period from 1994 to 2002. During this time he acquired superb knowledge of the company and he is equipped with extensive professional expertise in the topics that fall within the scope of responsibility of the Finance and Audit Committee. With this in mind, the serving Chairman of the Supervisory Board is optimally suited to chairing the Audit Committee. In the opinion of Hannover Rück SE, it is therefore in the interest of the company to diverge from this recommendation.
In addition to the Corporate Governance principles, Hannover Rück SE has adopted a more extensive Code of Conduct ( www.hannover-re.com/50943/code-of-conduct.pdf). Complementing our corporate strategy and the Corporate Governance principles, it establishes rules governing integrity in the behaviour of all employees of Hannover Rück SE and is intended to help members of staff cope with the ethical and legal challenges that they face as part of day-to-day work. The rules defined in the Code of Conduct reflect the high ethical and legal standards that guide our actions worldwide. It is our belief that integrity in dealings with our stakeholders constitutes the foundation of a successful enterprise. In both our strategic planning and our day-to-day business activities, we therefore aspire to consistently apply the highest ethical and legal standards; for our actions and the way in which every single one of us presents and conducts himself or herself are crucial in shaping the image of Hannover Rück SE.
The strategic orientation of Hannover Rück SE towards sustainability constitutes an increasingly important element of the enterprise strategy. The aim is to achieve commercial success on the basis of a solid business model in accordance with the needs of our staff and the company as well as with an eye to protecting the environment and conserving natural resources. We strive to reduce as far as possible the greenhouse gas emissions produced by our day-to-day business activities in order to come closer to reaching our goal of carbon neutrality. In so doing, we are demonstrably taking responsibility for a sustainable future. In 2011 we defined for the first time a concrete Sustainability Strategy setting out our primary objectives in this field. Not only that, in the year under review we again presented our Sustainability Report in the form of a so-called “GRI Report” (Global Reporting Initiative). Further information on the topic of sustainability is provided on our website (www. hannover-re.com/60729/sustainability).
Targets pursuant to §§ 76 Para. 4, 111 Para. 5 Stock Corporation Act
In accordance with the Act for the Equal Participation of Women and Men in Leadership Positions in the Private Sector and the Public Sector, the Supervisory Board of the company was required by 30 September 2015 to define a target quota for women on the Supervisory Board and Executive Board of the company in the period until 30 June 2017. After extensive deliberations the Supervisory Board decided, in due consideration of the term of office of the Supervisory Board and the current mandates and contracts of service of the members of the Executive Board, to define within the specified period – without prejudice to possible decisions to the contrary that may be taken as warranted when the time comes – a target quota for women on the Supervisory Board of 30% and an anticipated continued quota of zero for the Executive Board. Should events result in the currently unforeseeable appointment of a new member of the Executive Board, the Supervisory Board shall give preference to a potential female candidate in case of equal personal aptitude and professional qualifications. The company’s Executive Board defined a target quota of 16.8% with the same deadline for the two levels of senior management below the Executive Board.
The Executive Board and Supervisory Board of Hannover Rück SE work together on a trusting basis to manage and monitor the company. In accordance with the Rules of Procedure of the Executive Board, matters of fundamental importance require the consent of the Supervisory Board. The Supervisory Board is comprised of nine members. Six members are elected by the shareholders at the Annual General Meeting, three members are appointed by the Employee Council. The Supervisory Board appoints the members of the Executive Board. Since members of the Supervisory Board cannot at the same time belong to the Executive Board, a high degree of independence in the oversight of the Executive Board is thus already ensured by structural means. In addition, the Supervisory Board is kept informed on a regular and timely basis of the business development, the execution of strategic decisions, material risks and planning as well as relevant compliance issues. The Chairman of the Supervisory Board stays in regular contact with the Chairman of the Executive Board in order to discuss with him significant business occurrences. The composition of the Executive Board (including areas of responsibility) as well as of the Supervisory Board and its committees is set out on pages 6 et seq. and 241 respectively of the present Annual Report.
technical expertise in the fields of accounting and the auditing of financial statements. Persons suggested to the Annual General Meeting as candidates for election to the Supervisory Board may not be older than 72 at the time of their election and shall normally not belong to the Supervisory Board as a member for longer than three full consecutive terms of office; the term of office commencing from the end of the 2014 Annual General Meeting shall be counted as the first term of office in this regard. Nominations shall take account of the company ’s international activities as well as diversity. Furthermore, it shall be ensured that the proposed person can allocate the expected amount of time. For their part, each sitting member of the Supervisory Board shall also ensure that they have sufficient time to discharge their mandate. The Supervisory Board meets at least twice each calendar half-year. If a member of the Supervisory Board has only participated in half of the meetings of the Supervisory Board and the committees or less in a financial year, this shall be noted in the Supervisory Board’s report. No more than two former members of the company’s Executive Board may belong to the Supervisory Board.
The compliance report for the 2015 calendar year will be submitted to the Finance and Audit Committee in March 2016. The reporting sets out the structure and diverse range of activities of Hannover Re in this regard. The findings of the separate data privacy reporting for the 2015 calendar year are also included in the compliance report. After in-depth examination of topics such as directors’ dealings, ad hoc and other disclosure requirements, the insider register, consulting agreements, data protection, international sanctions and the Group-wide whistleblower system, the report concludes that only a few circumstances have been identified which point to breaches of relevant compliance standards. After detailed exploration of these incidents, the necessary safeguards were put in place to ensure that in the future Hannover Re is in conformity with the internal and external requirements governing its business activities.
Information on share-based payment pursuant to Item 7.1.3 of the German Corporate Governance Code is provided in Section 8.3 of the notes “Share-based payment”, page 227 et seq., and in the remuneration report with respect to the members of the Executive Board.
In addition to the present Declaration on Corporate Governance, the Corporate Governance Report and the reports of recent years are published on our website pursuant to Item 3.10 of the German Corporate Governance Code (www.hannover-re.com/200801/ declaration-of-conformity).
Remuneration report The remuneration report summarises the principles used to determine the remuneration of the Executive Board of Hannover Rück SE and explains the structure, composition and amount of the components of the remuneration received by the Executive Board in the 2015 financial year on the basis of the work performed by the Board members for Hannover Rück SE and companies belonging to the Group.
Fixed remuneration (approx. 40% of total remuneration upon 100% goal attainment)
The profit bonus is dependent on the risk-free interest rate and the average Group return on equity (RoE) of the past three financial years.
An individually determined and contractually defined basic amount is paid for each 0.1 percentage point by which the RoE of the past three financial years exceeds the risk-free interest rate of 1.8%. Goal attainment of 100% corresponds to an RoE of 10.6%. Goal attainment can amount to a maximum of 200% and a minimum of -100%.
Divisional bonus Proportion of variable remuneration: Board member with divisional responsibility: 25%
As at 31 December 2015 active members of the Executive Board had at their disposal a total of 79,464 (228,957) granted, but not yet exercised stock appreciation rights with a fair value of EUR 0.7 million (EUR 2.1 million).
Amount of remuneration received by the Executive Board The total remuneration received by the Executive Board of Hannover Rück SE on the basis of its work for Hannover Rück SE and the companies belonging to the Group is calculated from the sum of all the components set out in the following table pursuant to DRS 17 (amended 2010).
The remuneration (excluding pension payments) received by former members of the Executive Board totalled EUR 0.7 million (EUR 0.8 million).
6 In order to calculate the number of share awards for 2015 reference was made to the Xetra closing price of the Hannover Re share on 30 December 2015 (EUR 105.65). The number to be actually awarded is established from the arithmetic mean of the Xetra closing prices of the Hannover Re share in a period from five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement in March 2016. The applicable market price of the Hannover Re share had increased from EUR 74.97 (30 December 2014) to EUR 89.06 by the allocation date (9 March 2015) of the share awards for 2014; the share awards actually allocated for 2014 are shown here, not those estimated in the 2014 Annual Report.
Total remuneration of the active members of the Executive Board pursuant to DRS 17 (amended 2010) M 75
Variable remuneration payable Bonus bank Share awards 60% 3 Netted remuneration from seats with Group bodies in EUR thousand 1 As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2015. The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly.
4 The nominal amount is stated; full or partial repayment in 2019, depending on the development until such time of the balance in the bonus bank. In 2015 altogether EUR 36,100 more than had been originally reserved was allocated to the bonus bank for 2014.
Total expense for share-based remuneration of the Executive Board M 76
3 Mr. Althoff was appointed to the Executive Board on 1 August 2014. The figures for 2014 therefore relate in part to his prior work as a senior executive at Hannover Re.
The following two tables show the remuneration of the Executive Board in the 2015 financial year in accordance with the recommendations of the German Corporate Governance Code: German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 1 M 77 (target / minimum / maximum remuneration as nominal amounts)
Dividend on share awards for 2014 0.0 34.9 34.9 34.9 0.0 35.4 35.4 35.4 0.0 38.4 38.4 38.4 1 Year of payment 2 Maximum value when awarded, amount paid out dependent upon the share price in the year of payment and the dividends paid until such time. 3 In the case of Mr. Althoff the dividend for 2013 refers to share awards from his work as a senior executive at Hannover Re. 4 For details of the service cost see the tables “Defined benefit commitments” and “Defined contribution commitments” on page 119.
Dividend on share awards for 2014 0.0 62.1 62.1 62.1 0.0 13.3 13.3 13.3 0.0 24.6 24.6 24.6 0.0 45.9 45.9 45.9
German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2014 and 2015) M 78
4 Stock appreciation rights were awarded in 2010, exercise option at the discretion of the Executive Board until 31 December 2020 in the following tranches: 60% from 2015, 80% from 2016, 100% from 2017 onwards.
The widow’s pension amounts to 60% of the retirement pay that the Board member received or would have received if he had been incapacitated for work at the time of his death.
Adjustments The following parameters are used for adjustments to retirement, widow’s and orphan’s benefits: the price index for the cost of living of all private households in Germany (contracts from 2001 onwards) or the price index for the cost of living of four-person households of civil servants and higher-income salaried employees (contracts from 1997 to 2000).
Current pensions based on the commitments given from 2009 onwards (defined contribution commitment) are increased annually by at least 1% of their most recent (gross) amount.
3 An annual premium of EUR 103,700 (25% of the pensionable income) was paid for Mr. Vogel for 2015. The guaranteed interest rate of his commitment is 3.25%.
Premium 1 Percentage of pensionable income (fixed annual remuneration as at the contractually specified reference date) 2 Guaranteed interest rate 2.25%
twice the aforementioned remuneration amounts and the Deputy Chairman of the Supervisory Board receives one-and-a-half times the said amounts.
Dr. Klaus Sturany Deputy Chairman of the Supervisory Board Member of the Standing Committee
Dr. Andrea Pollak Member of the • Supervisory Board • Nomination Committee
In 2015 no loan relationships existed with members of the Executive Board or Supervisory Board of Hannover Rück SE, nor did the company enter into any contingent liabilities for members of the management boards.
Members of staff on the levels of Chief Manager, Senior Manager and Manager are also able to participate in a variable remuneration system through the Group Performance Bonus (GPB). The Group Performance Bonus (GPB) is a remuneration model launched in 2004 that is linked to the success of the company. This tool is geared to the minimum return on equity of 750 basis points above the risk-free interest rate and the return on equity actually generated. For those participating in the GPB 14.15 monthly salary payments are guaranteed; a maximum of 16.7 salary payments is attainable. Since its launch the maximum amount of the GPB was paid out in 2006, 2007, 2009, 2010, 2012, 2013 and 2014.
Measurement of variable remuneration for senior executives The measurement of the variable remuneration is based on three elements: Group net income, divisional targets and individual targets. The weighting of the elements is dependent upon whether responsibility is carried in a treaty / regional department or in a service department. In the treaty / regional departments the Group net income is weighted at 20%, the divisional targets at 40% and the individual targets also at 40%. In the service departments the Group net income carries a 40% weighting, while the individual targets account for 60%. Agreements on divisional targets and individual targets as well as on their degree of goal attainment are arrived at as part of the Management by Objectives (MbO) process.
The measurement of the divisional targets – which in the case of the treaty / regional departments account for 40% of overall goal attainment – is geared to the actual value created. The Intrinsic Value Creation (IVC) of the division encompassing the relevant area of responsibility is therefore used as a one-year measurement basis. Negative performance contributions are excluded here – the minimum possible goal attainment is 0%. The maximum possible goal attainment is limited to 150%.
Group of participants and total number of eligible participants in variable remuneration systems M 82 Valid: 31 December 2015
Hannover Re Group All 160 Group senior executives worldwide receive a cash bonus upon corresponding goal attainment and participate in the Share Award Plan.
Home Office Hannover 699 staff (excl. seconded employees) out of the altogether 1,337 at Hannover Home Office (incl. 94 senior executives) are GPB-eligible.
The cash bonus for the 2014 financial year was paid out in June 2015. The share awards for the 2014 financial year were also allocated in June 2015; they will be paid out in the spring of 2019 including dividends paid for the 2014, 2015, 2016 and 2017 financial years.
Forecast • Solid prospects for 2016 in property and casualty reinsurance despite protracted soft market phase • Further growth and increased profitability in life and health reinsurance • Return on investment target of 2.9% for assets under own management • Group net income expected in the order of EUR 950 million
Global economy Economic experts expect 2016 to bring a positive continuation of cyclical momentum on a slightly higher level: in its yearend forecast the Kiel Institute for the World Economy anticipates growth of 3.4% for the global economy in 2016, which is 0.3 percentage points stronger than in 2015.
The upturn in the developed economies will generally be sustained: monetary policy, which for the most part remains expansionary, gradually rising wages and the low price of oil are supporting progressive deleveraging processes in the private sector and boosting business activity. Expansion in emerging markets will initially continue to be curtailed by low commodity prices and structural problems, although the state of the economy in this group of countries is expected to bounce back little by little.
United States Output in the United States is set to rise by 2.8% in 2016. With sales prospects looking brighter at home and abroad, the increase in corporate investment, in particular, will likely be sustained. Consumer spending is also continuing to trend clearly higher. Further improvement on the labour market will bring about progressive wage growth.
Germany After the growth in total output had slowed somewhat of late, there are signs of an appreciably accelerated pace of expansion in 2016. Particularly in the service sector, growth expectations are higher than at any point since the reunification boom. The experts at the Kiel Institute for the World Economy anticipate a growth rate of 2.2% for 2016 with a modestly rising tendency. Growth will continue to be driven primarily by stronger private consumption, which will be fed by sharply higher disposable incomes of private households. Corporate investment will see further expansion in an extremely favourable financing climate. Exporters have enjoyed a surge in competitiveness with the devaluation of the euro. This may lead to stronger exports and stimulate capital investment as the expansion picks up pace. A new factor affecting the economy is the high level of refugee migration, which will give an added boost to spending. The restraining influence of foreign markets that has been felt of late will fade, giving way to increasingly stimulating effects on the economy. Growth momentum is picking up in the countries that are Germany’s major customers.
China, India, Japan Developments in emerging economies will continue to be hampered for the time being by low commodity prices and structural difficulties, although business activity in these markets too should gradually stabilise. Overall, the contribution made by these countries to global growth will fall short of the high levels seen in past years. The room for manoeuvre in fiscal policy remains very limited in many emerging markets because monetary policy there is geared more towards stabilising the currency than stimulating the economy. The government in China implemented numerous measures last year to prop up demand. In the assessment of economic experts, however, these steps will not suffice to bring about the desired structural shift towards a financially and environmentally more sustainable economy, not to mention one geared more towards private consumption. Nevertheless, they will likely result in the pace of expansion easing only slightly in the forecast period. Growth of 6.5% is anticipated for China in 2016, with a modestly slowing tendency.
Capital markets The decision of the European Central Bank to stand by its low interest rate policy and purchase government bonds over an extended timeframe is intended to protect the Eurozone against the threat of deflation. The US Federal Reserve, by contrast, moved away from its expansionary interest rate policy and set in motion a cycle of rate hikes for the first time in almost a decade. This should be reflected in a continued strong US dollar. The next steps taken by the Federal Reserve and the signals that it sends out will come under particularly close scrutiny throughout 2016. The US central bank finds itself compelled to walk a fine line between the potential need for additional interest rate moves and the risk of adversely affecting the flow of money into other countries and weakening the US economy through precisely these measures.
Insurance industry According to general industry assessments, the international insurance industry will find itself operating in an environment in 2016 that is comparable with the previous year. Two key issues will continue to be the low Interest rate policy and implications of the implementation of Solvency II or similar regulatory regimes in many major markets around the world at the start of this year. They are helping to ensure that the insurance industry remains heavily focused on efficiency, shoring up its profitability and innovating on both the product and service side. Irrespective of the challenges that it is facing, the insurance sector should still remain on a stable course in the current year.
The (re)insurance market had already witnessed various notable mergers and acquisitions in 2015. This trend is likely to be not only sustained but even accentuated in 2016, given that increased competition is making it especially difficult for smaller (re)insurers to generate their target margins. What is more, it is evident that primary insurers and contracting parties are tending to turn to highly profitable reinsurers with an above-average rating who can fall back on strong balance sheets and a positive cash flow. This has been accompanied by rising demand for partners with a diversified range of products and services.
Overview After four years in a row of low major losses and good results for all market players, property and casualty reinsurance is once again seeing intense competition in the current financial year. This is being driven above all by the continued abundant oversupply of reinsurance capacity attributable to the fact that reinsurers have been able to boost their capital positions – on the back of minimal large loss expenditure – and also because capital has flowed in from the market for catastrophe bonds (ILS).
Expectations for the development of our property and casualty reinsurance business are described in greater detail below.
Continental Europe In Germany, the largest single market within our Continental Europe segment, Hannover Re was able to further cement its excellent position. Hannover Re is active in this market through its subsidiary E+S Rück. Here, too, competition nevertheless remained keen. The increased retentions carried by larger clients were a particularly significant factor in the 1 January renewals, when virtually our entire portfolio was renegotiated. In motor business, the most important single line, we expect original rates to rise and have increased our shares accordingly. Moderate improvements were also possible in homeowners comprehensive insurance. The quality of results in non-proportional motor liability business will continue to improve due to better conditions as a consequence of higher priorities. Unfortunately, this will also entail accepting a decrease in premium.
Fierce competition and the large number of basic losses put adequate results in industrial fire insurance out of reach. With this in mind, we continued to write our business here very selectively. Our total portfolio in the domestic German market is expected to show a slightly reduced premium volume.
All in all, we booked a moderate premium contraction in the treaty renewals for Continental European markets.
Credit, surety and political risks The premium volume in the area of credit, surety and political risks is expected to remain virtually unchanged in 2016. Slowing growth in China and the moderate rise in loss ratios in emerging markets will impact our business. While the risk appetite of primary insurers has grown steadily in recent years, we do not now anticipate any further increases in the premium that they retain for own account. Overall, leaving aside certain exceptions principally in the area of political risks business, it is our expectation that conditions will come under only slight pressure in 2016. Against this backdrop, the segment is expected to deliver a moderately improved profit contribution.
United Kingdom, London market and direct business In the face of protracted competition we expect to see declining rates for our reinsurance business in this area in 2016, especially in the property lines. In non-proportional UK motor business, on the other hand, we are benefiting from stable rates and growth in the underlying business. Further risk selection and increased diversification should serve to boost the portfolio quality of our direct business and deliver stable earnings in 2016. In the treaty renewals as at 1 January 2016 we largely preserved our portfolio thanks to our established customer relationships, while we reduced shares in treaties that had come under heavier pressure. For the current year we expect to book a stable or slightly higher premium volume.
The Japanese portfolio of the Hannover Re Group is expected to see slight erosion of the premium income but continued satisfactory profitability. Our positioning in this important market is nevertheless very good, giving us a range of excellent options for responding to future market changes.
The region of South and Southeast Asia should deliver continued growth, although it will be somewhat softer than in the previous year. Consequently, our portfolio here should show a further rise in premium income due to special volume-oriented and product initiatives that have already been launched. Rates for these initiatives are expected to be adequate.
The market and the placement of reinsurance cessions in Latin America are just as fiercely competitive as in other regions. Thanks to our exceptionally good position in this region and our outstanding financial strength, we expect to achieve prices that are commensurate with the risks in the main renewal season as at 1 July 2016 – something which we were also able to do in the 1 January renewals. Despite the difficult state of the market we succeeded in holding our portfolio stable thanks to our focus on Latin America as a whole. In Argentina – one of the largest markets in Latin America – we anticipate a more business-friendly policy after the change of government at the end of 2015. To this extent, we remain confident of generating further profitable growth for our portfolio from Latin American markets in the current financial year by adhering to our selective underwriting policy.
Structured reinsurance and insurance-linked securities With the implementation of risk-based models for calculating solvency requirements not only within but also outside the European Union, we anticipate good business opportunities in our structured reinsurance business. The key driver here is the growing integration of reinsurance into insurers’ risk management as a means of offsetting the effects of the increasingly exacting capital requirements placed upon them. The adoption of C-ROSS in China means that primary insurers require less capital for motor business (70% of property and casualty reinsurance business). Demand for quota share reinsurance arrangements offering solvency relief may therefore diminish.
In keeping with our strategy of “Long-term success in a competitive business”, we have adjusted to this soft market phase in property and casualty reinsurance. With an expense ratio well below the average of our competitors and reserves that are calculated on a highly conservative basis, we are in a position – subject to normal major loss expenditure – to achieve good results. This is further supported by our good diversification across regions and lines of business.
In mature insurance markets we also see considerable upside in the years ahead for long-term care insurance products on account of the ageing population. Critical illness covers continue to be in demand on Asian markets. Thanks to our long-standing, international expertise Hannover Re is superbly positioned here to meet the needs of our customers going forward, as we have in the past. Changes affecting certain high-premium treaties can sometimes significantly reduce premium volume.
Right across markets stronger demand can be felt for health insurance products. We operate selectively in this segment and offer our customers bespoke solutions.
The continuing popularity of innovative, integrated, health-oriented insurance concepts is another worldwide trend. Society is placing greater emphasis on a health-conscious lifestyle and insurers are increasingly tackling these needs by extending their product ranges. Wearable devices, for example, enable users to track their fitness progress on a personalised basis. With the insured’s consent, such data can assist with the assessment of an individual’s state of health. The integration of the output of such mobile data sources into existing underwriting systems is a trend that will be sustained in the year ahead. We shall assist and systematically support our customers in this process with the aid of innovative concepts.
Bearing in mind the advanced phase of the credit cycle in the United States as well as the political and economic uncertainties in Europe, the conservative orientation of some parts of our investment portfolio will be preserved. Nevertheless, irrespective of the sovereign debt issue, the improved economic outlook will also be reflected in selective risk-taking. Our emphasis on broad diversification will be retained unchanged. By way of a neutral modified duration we shall continue to ensure that the interest rate risk is tightly managed.
The enlargement of the asset portfolio is expected to have a positive effect on investment income, although the average return will decline owing to persistently low interest rates. Our asset holdings are expected to increase again based on positive cash flow estimates. In view of the low returns on more secure investments, we shall continue to invest in products offering attractive credit spreads and selectively expand our portfolio in the areas of alternative investments and real estate.
In the current financial year, despite a challenging environment in reinsurance business and on the capital market, we anticipate a good overall result for the Hannover Re Group. Bearing in mind developments both in property and casualty and in life and health reinsurance, we expect to book a stable or slightly reduced gross premium volume – based on constant exchange rates – for our total portfolio in the current financial year.
The premium volume in property and casualty reinsurance is expected to contract slightly based on constant exchange rates. This assumption is based firstly on our selective underwriting policy, according to which in large part we only write business that satisfies our margin requirements. It also reflects our expectation that high-volume quota share arrangements which still enjoyed strong demand among Chinese cedants in the year under review will be discontinued in 2016. The treaty renewals during the year are nevertheless anticipated to pass off favourably again thanks to our good ratings and long-standing stable customer relationships.
Even though market conditions in property and casualty reinsurance are likely to remain soft, the underwriting result should come in roughly on the level of the 2015 financial year – provided the major loss incidence remains within the bounds of our expectations. In terms of our targeted combined ratio, we continue to aim for a figure under 96%. The EBIT margin for property and casualty reinsurance should amount to at least 10%.
In life and health reinsurance we see further good business opportunities in the current year. We shall continue to strive to offer our customers not only traditional risk transfer but also comprehensive reinsurance service. Adjusted for exchange rate effects, we expect to book slightly higher gross premium in life and health reinsurance. It should, however, be borne in mind that changes affecting certain very high-premium treaties have significant implications for the business volume – and that these can be either positive or volume-reducing. The Value of New Business (VNB) should be in excess of EUR 220 million. Our target EBIT margins remain unchanged at 2% for financial solutions and longevity business and 6% for mortality and morbidity business.
For 2016 we anticipate Group net income in the order of EUR 950 million. This is subject to the proviso that the burden of major losses does not significantly exceed the budgeted level of EUR 825 million and that there are no exceptional distortions on capital markets.
Profit / loss from investments in associated companies 7.2 19,169 1,042
Commission and brokerage, change in deferred acquisition costs 7.3 2,918,429 2,579,368
Capital repayments – – – – – – – – (72) (72)
Changes in ownership interest with no change of control status – – 2,172 (103) – (60) (2,637) (628) (19,452) (20,080)
Capital increases / additions – – – – – – – – 4 4
Changes in ownership interest with no change of control status – – – – – – (1,320) (1,320) (1,189) (2,509)
Capital repayments – – – – – – – – (9) (9)
Acquisition / disposal of treasury shares – – – – – – (10) (10) – (10)
Cash and cash equivalents at the beginning of the period 772,882 642,936
Hannover Rück SE and its subsidiaries (collectively referred to as the “Hannover Re Group” or “Hannover Re”) transact all lines of property & casualty and life & health reinsurance. With gross premium of approximately EUR 17.1 billion, Hannover Re is the third-largest reinsurance group in the world. The company’s network consists of more than 130 subsidiaries, affiliates, branches and representative offices worldwide with a total workforce of roughly 2,500. The Group’s German business is conducted by the subsidiary E+S Rückversicherung AG. Hannover Rück SE
2. Accounting principles Hannover Rück SE and its subsidiaries are required to prepare a consolidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB).
The consolidated financial statement reflects all IFRS in force as at 31 December 2015 as well as all interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), application of which was mandatory for the year under review. IFRS 4 “Insurance Contracts” requires disclosures on the nature and extent of risks stemming from reinsurance contracts, while IFRS 7 “Financial Instruments: Disclosures” requires similar information on risks from financial instruments. Additionally, § 315 Para. 2 Number 2 German Commercial Code (HGB) also contains requirements for insurance undertakings with regard to information on the management of underwriting and financial risks that is to be provided in the management report. The disclosures resulting from these requirements are included in the risk report. We have dispensed with an additional presentation of the same content in the notes. In order to obtain a comprehensive overview of the risks to which Hannover Re is exposed it is therefore necessary to consider both the risk report and the relevant information in the notes. We refer the reader accordingly to the corresponding remarks in the risk report and the notes.
The present consolidated financial statement was released for publication by a resolution of the Executive Board on 22 February 2016.
In December 2013 the IASB issued “Annual Improvements to IFRSs 2011 – 2013 Cycle”. The annual improvements involve minor amendments and clarifications relating to the following standards: IFRS 1 “First-time Adoption of International Financial Reporting Standards”, IFRS 3 “Business Combinations”, IFRS 13 “Fair Value Measurement” and IAS 40 “Investment
Property”. The improvements are effective for annual periods beginning on or after 1 July 2014 and were endorsed by the EU in December 2014. Initial application of the revised standards did not give rise to any significant implications for Hannover Re.
In July 2014 the IASB published the final version of IFRS 9 “Financial Instruments”, which replaces all previous versions of this standard. The standard now contains requirements governing classification and measurement, impairment based on the new expected loss impairment model and general hedge accounting. The originally included model for macro hedge accounting, which considers risk management that assesses risk exposures on a continuous basis and at a portfolio level, is being treated separately from general hedge accounting by the IASB outside of IFRS 9. Initial mandatory application of the standard, which has still to be endorsed by the EU, is set for annual periods beginning on or after 1 January 2018. Hannover Re is currently exploring the implications of this standard and anticipates significant implications for the consolidated financial statement. In December 2015, however, the IASB published the Exposure Draft ED / 2015 / 11 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” containing proposals to amend the existing IFRS 4 “Insurance Contracts”. It is intended to address the implications of the different effective dates of IFRS 9 and the anticipated new standard for the recognition of insurance and reinsurance contracts. The Exposure Draft contains two possible solutions. Under the so-called deferral approach entities whose predominant activity is issuing insurance and reinsurance contracts within the scope of IFRS 4 would be granted an optional temporary exemption from recognising their financial instruments in accordance with IFRS 9 until the recognition of insurance and reinsurance contracts has been finally settled, although this option could not be used after 1 January 2021. The so-called overlay approach would permit entities to reclassify from profit or loss to other comprehensive income some of the income or expenses arising from designated financial assets that are measured at fair value through profit or loss in their entirety applying IFRS 9 but would not have been so measured applying IAS 39 “Financial Instruments: Recognition and Measurement”.
In addition to the accounting principles described above, the IASB has issued the following standards, interpretations and amendments to existing standards with possible implications for the consolidated financial statement of Hannover Re, application of which was not yet mandatory for the year under review and which are not being applied early by Hannover Re. Initial application of these new standards is not expected to have any significant implications for Hannover Re’s assets, financial position or net income: Further IFRS Amendments and Interpretations N 06
September 2014 Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016
May 2014 Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
December 2013 Annual Improvements to IFRSs 2010-2012 Cycle 1 February 2015
November 2013 Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
A nn ua l f in an ci al s ta te m en ts 3. Accounting policies 3.1 Changes in accounting policies
This represents a change in an accounting estimate, which pursuant to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” is to be performed prospectively in the period under review without restatement of the comparative figures for previous periods. Retention of the parameters and methods used until 31 December 2014 would have reduced the gross premium by EUR 89.8 million, the net premium earned by EUR 28.7 million and the operating profit (EBIT) by EUR 15.1 million in the year under review. The effects of this restatement in future reporting periods could only be determined with disproportionate effort.
Financial assets held to maturity are comprised of non-derivative assets that entail fixed or determinable payments on a defined due date and are acquired with the intent and ability to be held until maturity. They are measured at amortised cost. The corresponding premiums or discounts are recognised in profit or loss across the duration of the instruments using the effective interest rate method. A write-down is taken in the event of permanent impairment. Please refer to our comments on impairments in this section.
Currency forwards Interest rate curves, spot and forward rates Interest parity model
Establishment of the fair value of financial instruments carried as assets or liabilities: we establish the fair value of financial instruments carried as assets or liabilities using the methods and models described below. The fair value of a financial instrument corresponds to the amount that Hannover Re would receive or pay if it were to sell or settle the said financial instrument on the balance sheet date. Insofar as market prices are listed on markets for financial assets, their bid price is used; financial liabilities are valued at ask price. In other cases the fair values are established on the basis of the market conditions prevailing on the balance sheet date for financial assets with similar credit rating, duration and return characteristics or using recognised models of mathematical finance. Hannover Re uses a number of different valuation models for this purpose. The details are set out in the table on this page. Financial assets for which no publicly available prices or observable market data
With respect to impairments on securities with the character of equity, IAS 39 “Financial Instruments: Recognition and Measurement ” states, in addition to the aforementioned principles, that a significant or prolonged decrease in fair value below acquisition cost constitutes objective evidence of impairment. Hannover Re considers equity securities to be impaired under IAS 39 if their fair value falls significantly, i. e. by at least 20%, or for a prolonged period, i. e. at least nine months, below acquisition cost. In accordance with IAS 39 the reversal of impairment losses on equities to the statement of income once impairment has been taken is prohibited, as is adjustment of the cost basis. Impairment is tested in each reporting period using the criteria defined by Hannover Re. If an equity security is considered to be impaired on the basis of these criteria, IAS 39 requires that a value adjustment be recognised in the amount of the fair value less historical cost and less prior value adjustments, meaning that depreciation is taken on the fair value as at the closing date – if available, on the publicly quoted stock exchange price. We also apply this method to participations in funds that invest in private equity. In order to reflect the specific character of these funds (in this case initially negative yield and liquidity flows from the so-called “J curve” effect during the investment period of the funds), we take an impairment to net asset value as an approximation of the fair value for the first time after a two-year waiting period if there is a significant or prolonged decrease in value.
Other invested assets are for the most part recognised at nominal value. Insofar as such financial assets are not listed on public markets (e. g. participating interests in private equity firms), they are carried at the latest available net asset value as an approximation of the fair value. Loans included in this item are recognised at amortised cost.
Loss and loss adjustment expense reserves are constituted for payment obligations from reinsurance losses that have occurred but have not yet been settled. They are subdivided into reserves for reinsurance losses reported by the balance sheet date and reserves for reinsurance losses that have already been incurred but not yet reported (IBNR) by the balance sheet date. The loss and loss adjustment expense reserves are based on estimates that may diverge from the actual amounts payable. In reinsurance business a considerable period of time may elapse between the occurrence of an insured loss, notification by the insurer and pro-rata payment of the loss by the reinsurer. For this reason the best estimate of the future settlement amount is carried. With the aid of actuarial methods, the estimate makes allowance for past experience and assumptions relating to the future development. The interest rate-induced portion of the change in the reserve is shown in the statement of income on a consistent Group basis.
Sundry non-technical provisions are established according to the best estimate of the amount required and shown under the balance sheet item “Other liabilities”. Allocation to such provisions is conditional upon the Group currently having a legal or actual obligation that results from a past event and in respect of which utilisation is probable and the amount can be reliably estimated.
Share-based payment: The share-based payment models existing within the Hannover Re Group are remuneration plans with cash settlement. In accordance with the requirements of IFRS 2 “Share-based Payment”, the services rendered by the eligible beneficiaries and the resulting liability are to be recognised at the fair value of the liability and expensed over the vesting period. Until settlement of the liability the fair value of the liability is remeasured at each closing date and at the settlement date. All changes in fair value are recognised in profit or loss for the period.
Shareholders’ equity: the items “common shares” and “additional paid-in capital” are comprised of the amounts paid in by the shareholders of Hannover Rück SE on its shares. In addition to the statutory reserves of Hannover Rück SE and the allocations from net income, the retained earnings consist of reinvested profits generated by the Hannover Re Group companies in previous periods. What is more, in the event of a retrospective change of accounting policies, the adjustment for previous periods is recognised in the opening balance sheet value of the retained earnings and comparable items of the earliest reported period. Unrealised gains and losses from the fair value measurement of financial instruments held as available for sale are carried in cumulative other comprehensive income under unrealised gains and losses on investments. Translation differences resulting from the currency translation of separate financial statements of foreign subsidiaries are recognised under gains and losses from currency translation.
Non-controlling interests are shares in the equity of affiliated companies not held by companies belonging to the Group. IAS 1 “Presentation of Financial Statements” requires that non-controlling interests be recognised separately within Group shareholders’ equity. The non-controlling interest in profit or loss is shown separately following the net income. Further information is provided in Section 6.14 “Non-controlling interests”.
• Certain financial assets in the balance sheet item “Real estate and real estate funds”
In order to measure the ultimate liability in property and casualty reinsurance the expected ultimate loss ratios are calculated for all lines. Actuarial methods such as the “chain ladder” method provide the starting point for these calculations. The best possible estimated future settlement amount is recognised in the balance sheet. The development until completion of the run-off is projected on the basis of statistical triangles from the original notifications of ceding companies. In this context it is generally assumed that the future rate of inflation of the loss run-off will be analogous to the average rate of the past inflation contained in the data. The more recent underwriting years in actuarial projections are of course subject to greater uncertainty, although this can be considerably reduced with the aid of a variety of additional information on improvements in the rates and conditions of the business written and on loss trends. The amounts arrived at as the difference between the ultimate losses and the reported losses are set aside as the IBNR reserve for losses that have been incurred but are not yet known or have still to be reported.
The projections, which cover various model scenarios (“conservative assumptions” versus “best estimate”), constitute the starting point for numerous areas of application encompassing quotation, the determination of carrying amounts and embedded values as well as contract-specific analyses, e. g. regarding the appropriateness of the recognised reinsurance liabilities (“liability adequacy test”). In this context we would refer the reader to our comments on technical assets and provisions in Section 3.2 “Summary of major accounting policies” and on the liability adequacy tests in Section 6.7 “Technical provisions”.
In determining the carrying amounts for certain financial assets it is sometimes necessary to make assumptions in order to calculate fair values. In this regard we would refer the reader to our remarks in Section 3.2 “Summary of major accounting policies” concerning financial assets at fair value through profit or loss and securities held as available for sale as well as in Section 6.1 “Investments under own management” concerning investment property. Assumptions concerning the appropriate applicability criteria are necessary when determining the need for impairments on non-monetary financial assets held as available for sale. In this regard we would again refer the reader to our explanatory remarks in Section 3.2 “Summary of major accounting policies”.
The capital consolidation is based on the acquisition method. In the context of the acquisition method the acquisition costs, measured at the fair value of the consideration rendered by the parent company on the acquisition date, are netted with the proportionate shareholders’ equity of the subsidiary at the time when it is first included in the consolidated financial statement after the revaluation of all assets and liabilities. After recognition of all acquired intangible assets that in accordance with IFRS 3 “Business Combinations” are to be accounted for separately from goodwill, the difference between the revalued shareholders’ equity of the subsidiary and the purchase price is
Companies over which Hannover Re is able to exercise a significant influence are consolidated as associated companies using the equity method of accounting. We therefore measure investments in associated companies with the proportion of the shareholders’ equity attributable to the Group. According to the proportionate interest method required by IAS 28 “Investments in Associates”, the goodwill attributable to associated companies is recognised together with the investments in associated companies. The share of an associated company’s year-end profit or loss relating to the Group is included in the income from investments and shown separately in the consolidated statement of income. Shareholders’ equity and profit or loss are taken from the associated company’s latest available financial statement. A significant influence is presumed to exist if a company belonging to the Hannover Re Group directly or indirectly holds at least 20% – but no more than 50% – of the voting rights. We also derive evidence of significant influence over an associated company from representation on a governing body of such company, participation in its policy-making processes – e. g. with respect to dividends or other distributions –, the existence of material inter-company transactions, the possibility of interchanging managerial personnel or the provision of key technical information for the company. Further particulars on companies consolidated using the equity method of accounting are provided in Section 6.1 “Investments under own management” under “Associated companies”.
Consolidation of business transactions within the Group Receivables and liabilities between the companies included in the consolidated financial statement were offset against each other. Profits and expenses from business transactions within the Group were also eliminated.
As security for our technical liabilities and as collateral for liabilities arising out of existing derivative transactions Hannover Re has established blocked custody accounts and trust accounts in certain countries, while for liabilities in connection with real estate transactions – to the extent that is customary under such transactions – it has pledged assets in favour of third parties outside the Group. For further information please see our explanatory remarks in Section 8.7 “Contingent liabilities and commitments”.
List of shareholdings The following list of shareholdings is provided in full in the present Group annual financial report in accordance with § 313 Para. 2 German Commercial Code (HGB) as amended by the Act on the Modernisation of Accounting Law (BilMoG). The stipulations of IFRS 12.10 and IFRS 12.21 have also been observed.
With regard to the major acquisitions and disposals in the year under review please see our remarks in the following paragraphs of this section.
Hannover Life Re AG, Hannover / Germany 1, 2 100.00 EUR 1,873,188 –
HILSP Komplementär GmbH, Hannover / Germany 3 100.00 EUR 30 3
International Insurance Company of Hannover SE, Hannover / Germany 1, 2 100.00 EUR 166,571 –
FUNIS GmbH & Co. KG, Hannover / Germany 1 100.00 EUR 59,749 3,477
Erste HRBV GmbH & Co. KG, Hannover / Germany 1 100.00 EUR 152,865 –
Zweite HRBV GmbH & Co. KG, Hannover / Germany 1 100.00 EUR 152,865 –
Hannover Re Global Alternatives GmbH & Co KG, Hannover / Germany 1 94.72 EUR 34,370 (498)
HR GLL Central Europe GmbH & Co. KG, Munich / Germany 1 87.67 EUR 335,844 2,569
Hannover Euro Private Equity Partners III GmbH & Co. KG, Cologne / Germany 1 67.54 EUR 32,139 9,248
E+S Rückversicherung AG, Hannover / Germany 1 64.79 EUR 681,413 110,000
Hannover Euro Private Equity Partners IV GmbH & Co. KG, Cologne / Germany 1 60.58 EUR 46,160 16,892
Hannover Euro Private Equity Partners II GmbH & Co. KG, Cologne / Germany 1 57.89 EUR 6,918 1,826
Other participations b2b protect GmbH, Hildesheim / Germany 6 48.98 EUR 253 (214)
Hannover Finance (Luxembourg) S.A., Luxembourg / Luxembourg 1 100.00 EUR 34,359 (4,994)
Hannover Finance (UK) Limited, London / United Kingdom 1 100.00 GBP 2,718 (16)
Hannover Life Reassurance Company of America (Bermuda) Ltd., Hamilton / Bermuda 1 100.00 USD 6,699 1,752
Hannover Re (Ireland) Limited, Dublin / Ireland 1 100.00 EUR 1,549,326 105,470
Hannover Life Re of Australasia Ltd, Sydney / Australia 1 100.00 AUD 476,201 3,552
Hannover Re (Bermuda) Ltd., Hamilton / Bermuda 1 100.00 USD 1,236,561 226,765
Hannover Services (UK) Limited, London / United Kingdom 1 100.00 GBP 860 148
Hannover Finance, Inc., Wilmington / USA 1, 7 100.00 USD 438,123 8,194
Atlantic Capital Corporation, Wilmington / USA 4, 7 100.00 USD (111,867) –
Sand Lake Re, Inc., Burlington / USA 9 100.00 USD – –
Hannover Life Reassurance Africa Limited, Johannesburg / South Africa 1 100.00 ZAR 576,793 122,119
Hannover Reinsurance Africa Limited, Johannesburg / South Africa 1 100.00 ZAR 723,659 109,105
Compass Insurance Company Limited, Johannesburg / South Africa 1 100.00 ZAR 161,473 29,252
Micawber 185 (Pty) Ltd., Johannesburg / South Africa 100.00 ZAR 14,174 2,794
GLL HRE CORE Properties, L.P., Wilmington / USA 1, 7 95.15 USD 422,384 7,362 11 Stanwix, LLC, Wilmington / USA 1, 7 95.15 USD 36,462 752 402 Santa Monica Blvd, LLC, Wilmington / USA 1, 7 95.15 USD 1,852 704 300 California, LLC, Wilmington / USA 10 95.15 USD – –
111ORD LLC, Wilmington / USA 1, 7 95.15 USD 76,761 1,166 140EWR LLC, Wilmington / USA 1, 7 95.15 USD 81,391 (347)
7550IAD, LLC, Wilmington / USA 1, 7 95.15 USD 76,427 550 300 South Orange Avenue, LLC, Orlando / USA 1, 7 95.15 USD 249 (43)
Broadway 101, LLC, Wilmington / USA 1, 7 95.15 USD 11,892 356
River Terrace Parking, LLC, Wilmington / USA 1, 7 95.15 USD 20,664 (7)
Commercial & Industrial Acceptances (Pty) Ltd., Johannesburg / South Africa 88.00 ZAR 4,669 24,061
HR GLL CDG Plaza S.r.l., Bucharest / Romania 1 87.67 RON 184,636 5,271
Name and registered office of the company in currency units of 1,000
Mustela s.r.o., Prague / Czech Republic 1 87.67 CZK 1,267,889 27,767
MUA Insurance Acceptances (Pty) Ltd., Cape Town / South Africa 56.00 ZAR 8,016 3,919
Cargo Transit Insurance (Pty) Ltd., Helderkruin / South Africa 4, 11 56.00 ZAR (4,499) –
Firedart Engineering Underwriting Managers (Pty) Ltd., Johannesburg / South Africa 49.00 ZAR 484 2,287
Garagesure Consultants and Acceptances (Pty) Ltd., Johannesburg / South Africa 49.00 ZAR 1,377 2,010
Thatch Risk Acceptances (Pty) Ltd., Johannesburg / South Africa 45.49 ZAR 1,498 1,265
Construction Guarantee (Pty) Ltd., Johannesburg / South Africa 4, 11 42.00 ZAR – –
LRA Superannuation Plan Pty Ltd., Sydney / Australia 10 100.00 AUD – –
Hannover Re Services Japan, Tokyo / Japan 1 100.00 JPY 102,461 4,677
Hannover Life Re Consultants, Inc., Orlando / USA 100.00 USD 173 (27)
Hannover Services (México) S.A. de C.V., Mexico City / Mexico 6 100.00 MXN 8,934 (612)
Hannover Re Services USA, Inc., Itasca / USA 100.00 USD 3,504 26
Hannover Re Services Italy S.r.l., Milan / Italy 99.65 EUR 465 105
U FOR LIFE SDN.BHD., Kuala Lumpur / Malaysia 6 60.00 MYR (1,140) (1,190)
Glencar Underwriting Managers, Inc., Chicago / USA 6 88.20 USD 5,778 1,875
Clarendon Transport Underwriting Managers (Pty) Ltd., Johannesburg / South Africa 26.11 ZAR 19,144 21,730
Synergy XOL (Pty) Ltd., Johannesburg / South Africa 25.79 ZAR 332 648
Energi Insurance Services, Inc., Peabody / USA 6 28.50 USD 733 2,362
Energi of Canada Ltd., Toronto / Canada 6 28.50 CAD 1 (253)
XS Direct Holdings Limited, Dublin / Ireland 6 25.00 EUR 2,049 44
XS Direct Insurance Brokers Limited, Dublin / Ireland 6 25.00 EUR 226 114
Meribel Topco Limited, St. Helier / Jersey 1 20.11 EUR 2,725 (79)
Iconica Business Services Limited, Bradford / United Kingdom 6 18.75 GBP (362) 100
Unconsolidated structured entities The business relations of Hannover Re Group companies with structured entities set out below do not give rise to consolidation because the criteria for control pursuant to IFRS 10 contained in our consolidation principles are not met.
Hannover Re participates through its subsidiary Leine Investment SICAV-SIF, Luxembourg, in a number of structured entities that issue catastrophe bonds for the securitisation of catastrophe risks by investing in such bonds. Leine Investment General Partner S.à r.l. is the managing partner of the asset management company Leine Investment SICAV-SIF, the business object of which is to build, hold and manage a portfolio of insurance-linked securities (catastrophe bonds) – including for third-party investors outside the Group. The volume of these transactions is derived from the book values of the respective investments and amounted to EUR 108.3 million (EUR 50.3 million ) as at the balance sheet date. The maximum risk of loss corresponds to the book values.
Collateralised fronting (ILS) As part of its extended Insurance-Linked Securities (ILS) activities, Hannover Re has concluded so-called collateralised fronting arrangements under which risks assumed from ceding companies are passed on to institutional investors outside the Group using structured entities. The purpose of such transactions is to directly transfer clients’ business. The volume of the transactions is derived from the ceded exposure limit of the underlying retrocession agreements and amounted to EUR 4,701.0 million (EUR 3,135.3 million) as at the balance sheet date. Part of the ceded exposure limit is funded and collateralised by contractually defined investments in the form of cash and equivalent liquid assets, while a further part remains uncollateralised or is collateralised by less liquid assets. The maximum risk of loss from these transactions is derived from the uncollateralised exposure limit and the credit risk of the collateral and amounted to EUR 2,779.9 million (EUR 1,942.4 million ) as at the balance sheet date. This does not, however, correspond to the economic risk of loss, which is established using recognised actuarial methods. The expected loss on a modelled basis in a worst-case scenario of 10,000 years amounts to at most EUR 50.0 million (EUR 50.0 million).
Fixed-income securities – at fair value through profit or loss – 108,273 –
Book values from business relations with unconsolidated structured entities N 12 in EUR thousand
Fixed-income securities – at fair value through profit or loss – 50,344 –
With regard to commitments and obligations that we do not consider to be support, particularly outstanding capital commitments from special investments, please see our remarks in Section 8.7 “Contingent liabilities and commitments”.
Life and health reinsurance assumed Some transactions in the life and health reinsurance segment are effected with the involvement of ceding special purpose entities as contracting parties that are established by parties outside the Group and from which member companies of the Hannover Re Group assume certain underwriting and / or financial risks. Given that the risks from such transfer transactions are entirely recognised in the technical / non-technical account of the Hannover Re Group, it is immaterial whether the active reinsurance business is assumed from structured or other entities. Although Hannover Re is exposed to variable returns from the business relations with such entities, these are independent of the purpose and design of the respective structured entity.
Rather, these business relations correspond to regular cedant -reinsurer relations and are therefore not the subject of this disclosure. Some of the transactions include features that are to be classified as financial guarantees. For the corresponding disclosures please see our remarks in Section 8.1 “Derivative financial instruments and financial guarantees”.
Within our subgroup Hannover Reinsurance Group Africa (Pty) Ltd, Johannesburg, South Africa (“HRGSA”), Compass Insurance Company Ltd, Johannesburg, acquired 60% of the shares in and hence control over Commercial & Industrial Acceptances (Pty) Ltd, Johannesburg (“CIA”), effective 1 January 2015 in the form of a business combination made in stages for the purpose of securing the insurance portfolio mediated by the company. CIA had previously already been included in the subgroup financial statement of HRGSA using the equity method of accounting because 40% of its shares were held by Lireas Holdings (Pty) Ltd, Johannesburg. The purchase price was equivalent to EUR 3.6 million and included contingent considerations.
Within the scope of initial consolidation intangible assets in the form of customer relationships were identified with a value of EUR 5.3 million. The goodwill from this business combination amounts to EUR 1.8 million. In a similar transaction Lireas Holdings (Pty) Ltd increased its interest in Firedart Engineering Underwriters Managers Proprietary Limited (“Firedart”), which had previously been consolidated using the equity method, by 16.2% to altogether 70% and assumed control over the company effective 28 November 2015. The purchase price was equivalent to EUR 0.2 million. Within the scope of initial consolidation intangible assets in the form of customer relationships were identified with a value of EUR 0.7 million. The goodwill from this business combination provisionally amounts to EUR 0.6 million.
After its business had already been completely wound up in the previous year, Hannover Re PCC (Guernsey) Ltd., a so-called protected cell company under the “Protected Cell Companies Ordinance 1997”, was liquidated effective 9 July 2015 and removed from the Guernsey Registry.
By means of a dividend resolution of 25 March 2015 of ASPECTA Assurance International AG, Vaduz, Liechtenstein, which had hitherto been included in the consolidated financial statement using the equity method of accounting, a purchase option on the part of the majority shareholder became exercisable. Hannover Re consequently lost its significant influence over the company, as a result of which recognition using the equity method ended. The company was carried under other participations until the shares were returned to the majority shareholder on 4 May 2015.
A nn ua l f in an ci al s ta te m en ts 4.5 Other corporate changes
The Group company Hannover Re (Ireland) Limited, Dublin, Ireland, established a branch in Canada in February 2015. The Toronto-based branch trades under the name Hannover Re (Ireland) Limited Canadian Life Branch and was registered on 26 February 2015. The business object of the branch is to transact life and health reinsurance business.
The registered office of the Group company International Insurance Company of Hannover SE, London (“Inter Hannover SE”), was relocated from the United Kingdom to Hannover, Germany. Inter Hannover SE received approval to commence insurance operations in Germany and was entered in the commercial register in January 2015.
Hannover Re Global Alternatives GmbH & Co. KG, Hannover, Germany, the special purpose property companies acquired in the United States and Europe through GLL HRE Core Properties, LP, Wilmington, and HR GLL Central Europe GmbH & Co. KG, Munich, respectively, the companies Commercial & Industrial Acceptances (Pty) Ltd. and Firedart Engineering Underwriting Managers Proprietary Limited, both Johannesburg, South Africa, which were consolidated for the first time in the year under review in the Hannover Reinsurance Group Africa as well as Hannover Re PCC (Guernsey) Ltd., St Peter Port, Guernsey, which was liquidated in the third quarter, are allocated to the property and casualty reinsurance segment. Sand Lake Re, Inc., Burlington, United States, which was newly established in the third quarter, is allocated to the life and health reinsurance segment.
Fixed-income securities – held to maturity 810,256 1,841,982 163,890 179,209 33,519 118,551 1,007,665 2,139,742
Total investments and cash under own management 30,080,237 28,141,146 8,988,572 7,591,142 278,094 495,722 39,346,903 36,228,010
Loss and loss adjustment expense reserve 22,822,777 20,797,820 3,734,225 3,315,694 (614) (1,458) 26,556,388 24,112,056
Fixed-income securities – loans and receivables 2,807,317 2,912,110 62,548 76,077 – – 2,869,865 2,988,187
Other liabilities in the segment 2,135,696 2,042,408 1,747,491 1,982,821 (829,559) (1,023,766) 3,053,628 3,001,463
Change in fair value of financial instruments 851 (23,344) 50 (9,083) – (830) 901 (33,257)
Total depreciation, impairments and appreciation of investments 35,556 27,429 177 129 2,365 – 38,098 27,558
Maturities of the fixed-income and variable-yield securities N 15 in EUR thousand 2015 2014
Available for sale due after one through two years 3,889,262 3,915,448 2,415,488 2,449,568 due after two through three years 3,803,539 3,827,843 2,908,199 2,972,420 due after three through four years 2,572,827 2,624,891 2,904,276 2,951,154 due after four through five years 3,829,675 3,915,469 2,655,178 2,741,708 due after five through ten years 9,449,584 9,659,645 9,181,834 9,760,031 due after more than ten years 3,253,590 3,482,398 3,122,626 3,543,151
Government debt securities of EU member states 163,206 4,126 2,395 7 165,594
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value N 19 in EUR thousand
Government debt securities of EU member states 2,394,804 19,460 135,191 3,849 2,526,146
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments N 21 classified as available for sale as well as their fair value in EUR thousand
Covered bonds / asset-backed securities – – – – – –
The carrying amounts of the financial assets at fair value through profit or loss correspond to their fair values including accrued interest.
Participating interests and other invested assets, real estate funds 1,922,482 6,694 1,643,408 5,847
Fixed-income securities – held-to-maturity 594,316 218,555 136,257 58,537 – – – – 1,007,665
Fixed-income securities – held-to-maturity 1,102,639 492,209 474,167 65,658 – – 5,069 – 2,139,742
Fixed-income securities – available-for-sale 9,688,957 5,080,801 6,951,209 4,105,419 760,200 114,779 12,507 103,651 26,817,523
Fixed-income securities – available-for-sale 1,923,332 886,984 191,808 7,042,147 3,051,928 15,131,219 181,058 1,207,972 29,616,448
Fixed-income securities – at fair value through profit or loss – – – 5,061 709 103,212 – – 108,982
Equity securities – available-for-sale – – – 333,222 – 118,886 – – 452,108
Other financial assets – at fair value through profit or loss – – – 9,045 1,265 29,292 – – 39,602
Fixed-income securities – held to maturity – 101,700 – 1,273,877 154,598 609,567 – – 2,139,742
Fixed-income securities – available-for-sale 1,769,408 753,826 102,042 8,246,517 2,794,734 11,808,473 204,544 1,137,979 26,817,523
Fixed-income securities – at fair value through profit or loss – – – 18,014 649 45,831 – – 64,494
Equity securities – available-for-sale – – – 19,409 – 13,395 – – 32,804
Information on the percentage share held by the Hannover Re Group in the capital of the associated companies as well as on the amount of capital and reserves and the result for the last financial year of these companies is provided in the list of shareholdings in Section 4.2 “Consolidated companies and complete list of shareholdings”.
The carrying amount of the investments in associated companies changed as follows in the year under review: Investments in associated companies N 29 in EUR thousand 2015 2014
In addition, we held indirect real estate investments measured at fair values in an amount of EUR 371.3 million (EUR 321.0 million ) in the year under review, the amortised costs of which amounted to EUR 316.0 million (EUR 260.1 million). The differences between the carrying amounts and amortised costs were recognised as unrealised gains of EUR 56.4 million (EUR 62.1 million) and unrealised losses of EUR 1.2 million (EUR 1.2 million) under cumulative other comprehensive income.
• Level 2: Assets or liabilities which are measured using observable market data and are not allocable to level 1. Measurement is based, in particular, on prices for comparable assets and liabilities that are traded on active markets, prices on markets that are not considered active as well as inputs derived from such prices or market data
The operational units responsible for coordinating and documenting measurement are organisationally separate from the operational units that enter into investment risks. All relevant valuation processes and valuation methods are documented. Decisions on fundamental valuation issues are taken by a valuation committee that meets monthly.
In the previous year alternative investments with a fair value of EUR 36.3 million were no longer allocable to level 2 but rather to 3 as a consequence of model-based pricing.
Movements in level 3 financial assets and liabilities N 33 in EUR thousand
Net book value at 31 December of the previous year 522 8 320,956 1,258,903 136,486
Income and expenses recognised in the statement of income – – (921) (13,829) (17,771)
Income and expenses recognised in the statement of income 1 – (11) (8,773) (3,604)
The breakdown of income and expenses recognised in the statement of income in the financial year in connection with financial assets and liabilities assigned to level 3 is as follows.
Income and expenses from level 3 financial assets and liabilities N 35 in EUR thousand
Total depreciation, impairments and appreciation of investments – (842) (5,852) –
Total depreciation, impairments and appreciation of investments – (842) (5,851) –
Fair value hierarchy of financial assets and liabilities measured at amortised cost N 37 in EUR thousand
Fair value hierarchy of financial assets and liabilities measured at amortised cost N 38 in EUR thousand
Total financial liabilities – 2,469,795 – 2,469,795 6.2 Funds withheld (assets)
The contract deposits on the assets side increased by EUR 96.5 million in the year under review from EUR 92.1 million to EUR 188.6 million.
Net book value at 31 December of the year under review 2,094,671 1,914,598
Within the scope of our management of receivables we expect to receive payment of accounts receivable within three months of the date of creation of the debit entry – a period for which we also make allowance in our risk analysis. Please see our comments on the credit risk within the risk report on page 87 et seq.
Gross book value of accounts receivable at 31 December of the year under review 3,701,929 3,156,199
Net book value of accounts receivable at 31 December of the year under review 3,665,937 3,113,978
Net book value at 31 December of the previous year 58,220 57,070
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 were in each case higher than the corresponding book values. Please see also our basic remarks in Section 3.2 “Summary of major accounting policies”.
The item “Other” includes receivables of EUR 194.7 million (EUR 165.6 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”.
Gross book value at 31 December of the year under review 131,700 131,102
Net book value at 31 December of the previous year 82,390 85,270
Gross book value at 31 December of the year under review 147,459 143,788
Cumulative depreciation at 31 December of the previous year 110,621 99,608
Cumulative depreciation at 31 December of the year under review 118,752 110,621
Net book value at 31 December of the year under review 28,707 33,167
Development of other intangible assets N 47 in EUR thousand 2015 2014
Gross book value at 31 December of the year under review 247,773 220,296
Cumulative depreciation at 31 December of the previous year 182,834 165,846
Cumulative depreciation at 31 December of the year under review 199,996 182,834
Net book value at 31 December of the previous year 37,462 30,843
Net book value at 31 December of the year under review 47,777 37,462
Technical provisions N 48 in EUR thousand gross retro net gross retro net
Loss and loss adjustment expense reserve 26,556,388 1,395,281 25,161,107 24,112,056 1,376,432 22,735,624
Net book value after currency translation 25,230,228 1,432,430 23,797,798 23,028,728 1,496,203 21,532,525
Specific value adjustment for retrocessions – 3 (3) – 40 (40)
The total amount of the net reserve before specific value adjustments, to which the following remarks apply, was EUR 25,161.0 million (EUR 22,735.5 million) as at the balance sheet date.
Net loss reserve and its run-off in the property and casualty reinsurance segment N 50 in EUR million 31.12.
The average maturity of the loss and loss adjustment expense reserves was 5.0 years (5.0 years), or 5.0 years (5.0 years) after allowance for the corresponding retrocession shares. The benefit reserve had an average maturity of 9.9 years (10.7 years) – or 11.8 years (11.5 years) on a net basis.
Net book value at 31 December of the previous year 11,757,132 676,219 11,080,913 10,631,451 344,154 10,287,297
Net book value at 31 December of the year under review 12,206,699 1,367,173 10,839,526 11,757,132 676,219 11,080,913
The development in the year under review was influenced by portfolio withdrawals attributable principally to partial withdrawals for specific underwriting years in relation to our single premium business.
Development of the unearned premium reserve N 54 in EUR thousand gross retro net gross retro net
Net book value at 31 December of the previous year 2,748,594 149,257 2,599,337 2,405,497 139,039 2,266,458
Net book value after currency translation 2,863,206 155,523 2,707,683 2,573,827 148,642 2,425,185
Net book value at 31 December of the year under review 3,159,363 164,023 2,995,340 2,748,594 149,257 2,599,337
The contract deposits on the liabilities side decreased by EUR 1,389.8 million in the year under review from EUR 6,072.3 million to EUR 4,682.5 million. The contract deposits item on the liabilities side essentially encompasses balances deriving from non-traditional life insurance contracts that are to be carried as liabilities. The decrease was due principally to partial withdrawals for specific underwriting years in relation to our UK single premium business.
The calculation of the provisions for pensions is based upon the following assumptions: Measurement assumptions N 55 in %
The movements in the net pension liability for the Group’s various defined benefit plans were as follows: Movements in net liability from defined benefit pension plans N 56 in EUR thousand
Position at 1 January of the financial year 187,034 129,602 15,533 13,510 – 75
Actuarial gain (–) / loss (+) from change in biometric assumptions – 11 – – – –
Actuarial gain (–) / loss (+) from change in financial assumptions (17,840) 52,930 – – – –
Position at 31 December of the financial year 154,832 187,034 4,533 15,533 – –
The increase in benefit payments from defined benefit obligations to EUR 20.2 million (EUR 2.9 million) as well as from fair values of plan assets to EUR 16.2 million (EUR 0.0 million) in the year under review resulted largely from entitlements paid out to long-serving senior executives within the Group.
The reconciliation of the projected benefit obligations with the recognised provisions for pensions is as follows: Provisions for pensions N 57 in EUR thousand 2015 2014
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 20.0 million (EUR 18.7 million), of which EUR 1.5 million (EUR 1.2 million) was due to obligations to members of staff in key positions and EUR 6.6 million (EUR 6.5 million) to contributions to the statutory pension insurance scheme in Germany.
Audits and costs of publishing the annual financial statements 7,400 4 7,404 – 4 5,790 6,058 34 (14) 7,092
On 14 September 2010 Hannover Rück SE placed a subordinated bond on the European capital market through its subsidiary Hannover Finance (Luxembourg) S.A. This subordinated debt of nominally EUR 500.0 million has a maturity of 30 years with a first scheduled call option after ten years and may be redeemed at each coupon date thereafter. The bond carries a fixed coupon of 5.75% in the first ten years, after which the interest rate basis changes to a floating rate of 3-month EURIBOR +423.5 basis points.
Net gains and losses from debt and subordinated capital N 66 in EUR thousand
Other financial facilities Letter of credit (LoC) facilities existed with a number of financial institutions as at the balance sheet date. A syndicated letter of credit facility taken out in 2011 with a volume equivalent to EUR 915.2 million (EUR 822.7 million) had a term maturing at the beginning of 2019. It was terminated in January 2016 and partially refinanced through bilateral credit facilities.
The Annual General Meeting of Hannover Rück SE resolved on 6 May 2015 that a gross dividend of EUR 4.25 per share should be paid for the 2014 financial year. This corresponds to a total distribution of EUR 512.5 million (EUR 361.8 million). The distribution consists of a dividend of EUR 3.00 per share and a special dividend of EUR 1.25 per share.
The decrease in the other reserves arising out of currency translation, which is recognised in equity, was attributable in an amount of EUR 11.9 million (increase recognised in equity of EUR 33.0 million) to the translation of long-term debt or loans with no maturity date extended to Group companies and branches abroad.
Non-controlling interests in the shareholders’ equity of subsidiaries are reported separately within Group shareholders’ equity in accordance with IAS 1 “Presentation of Financial Statements ”. They amounted to EUR 709.1 million (EUR 702.2 million ) as at the balance sheet date.
Net income 147,794 211,042 thereof attributable to non-controlling interests 52,036 76,341
Dividends paid 120,000 110,000 thereof attributable to non-controlling interests 42,250 39,946
The impairments totalling EUR 15.0 million (EUR 9.2 million) were attributable in an amount of EUR 2.8 million (EUR 2.0 million ) to the area of fixed-income securities. Impairments of EUR 5.9 million (EUR 5.8 million) were taken on alternative investments. These were attributable exclusively to private equity. Impairments of EUR 4.5 million (EUR 1.4 million) were recognised on investments in the real estate sector. Impairments of EUR 1.9 million (EUR 0.0 million) were recognised on equities or equity funds in the year under review because their fair values had fallen either significantly (by at least 20%) or for a prolonged period (for at least nine months) below acquisition cost. These impairments contrasted with write-ups of EUR 0.6 million (EUR 0.1 million) made on investment property that had been written down in previous periods. The portfolio did not contain any overdue, unadjusted assets as at the balance sheet date since overdue securities are written down immediately.
Interest income on investments N 70 in EUR thousand 2015 2014
Financial assets – at fair value through profit or loss 3,215 1,810
Net gains and losses on investments N 71 in EUR thousand
Net gains and losses on investments N 72 in EUR thousand
A nn ua l f in an ci al s ta te m en ts 7.3 Reinsurance result
Other income / expenses N 77 in EUR thousand 2015 2014
The separate value adjustments were attributable to accounts receivable in an amount of EUR 23.6 million (EUR 21.7 million).
Effective 1 January 2016 the raising of the trade tax multiplier for the City of Hannover from 460.0% to 480.0% was approved.
A tax rate of 32.63% (rounded to 32.7%; previous year: 31.93%, rounded to 32.0%) was therefore used to calculate the deferred taxes of the major domestic companies. It is arrived at from the unchanged corporate income tax rate of 15.0%, the unchanged German solidarity surcharge of 5.5% and a trade earnings tax rate of 16.8% (16.1%). The deferred taxes at the companies abroad were calculated using the applicable country-specific tax rates.
Breakdown of taxes on income The breakdown of actual and deferred income taxes was as follows: Income tax N 78 in EUR thousand 2015 2014
Deferred tax assets and deferred tax liabilities of all Group companies N 80 in EUR thousand 2015 2014
Present value of future profits on acquired life reinsurance portfolios (PVFP) 9,783 10,299
In view of the unrealised gains on investments and on currency translation recognised directly in equity in the financial year, actual and deferred tax income – including amounts attributable to non-controlling interests – of EUR 142.8 million (tax expenditure of EUR 258.2 million) was also recognised directly in equity.
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 3.6 million (EUR 4.0 million) and other financial assets at fair value through profit or loss in an amount of EUR 0.1 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 3.1 million (EUR 30.6 million) and other financial assets at fair value through profit or loss in an amount of EUR 15.0 million (EUR 14.5 million). The increase in equity from hedging instruments recognised directly in equity pursuant to IAS 39 in an amount of EUR 3.6 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 assets in an amount of EUR 2.7 million. Ineffective components of the hedge were recognised in profit or loss under other investment expenses in an amount of EUR 0.8 million.