Investments (excl. funds withheld by ceding companies) 25,411.1 +12.9% 22,507.0 20,137.2 19,815.3 19,494.0
Earnings per share (basic and diluted) in EUR 6.21 +2.1% 6.08 (1.05) 5.98 4.27
Dividend per share in EUR 2.302 +9.5% 2.10 – 1.80+0.503 1.60
Share price at year-end in EUR 40.14 +22.7% 32.71 22.50 31.55 35.08
Large losses as percentage of net premium earned (non-life reinsurance)5 12.3% 4.6% 10.7% 6.3% 2.3%
A printed version of the Hannover Re Group‘s Annual Report is also available in German. The report can be downloaded online in PDF format in English and German at www.hannover-re.com.
u rt h er i n fo rm at io n F
The 2010 financial year was an eventful but successful one overall for your company
Through the placement of subordinated debt in the amount of EUR 500 million that qualifies as hybrid capital we were again able to reinforce your company’s financial strength in the year under review.
Dear shareholders, ladies and gentlemen, ulrich Wallin Chairman of the Executive Board
Our operational business was impacted by a heavy incidence of major losses that was significantly higher than the expected level calculated at the beginning of the year.
Based on this good performance and equity-affecting increases in the valuation of our assets, our shareholders’ equity grew by more than 20 percent in the year under review. The book value per share amounted to EUR 37.39 (EUR 30.80) as at 31 December 2010. This improved financial strength of Hannover Re is also the basis for the company’s growth and its resulting need for greater risk capital.
It is pleasing to note that your company’s success has also been reflected in a favourable share price movement. The value of the Hannover Re share increased by around 23 percent in the year under review.
Although it was shaped by various special effects with differing implications, our result in the non-life reinsurance business group was very pleasing from an overall perspective. First and foremost, mention should be made of the considerable burden of catastrophe losses: even though the hurricane season spared the US mainland from any damage, the (re)insurance industry worldwide found itself faced with very appreciable losses, especially from natural disasters. To start with, the year under review witnessed three severe earthquakes – in Haiti, Chile and New Zealand. Then there was winter storm “Xynthia” in Europe, numerous flood events all over the world and the sinking of the “Deepwater Horizon” drilling rig, which caused an environmental disaster on a hitherto unprecedented scale in the Gulf of Mexico as well as a substantial insured loss. All in all, the major loss expenditure of EUR 662 million incurred by
Hannover Re was well in excess of the expected level of EUR 500 million.
Not only that, the result in non-life reinsurance was impacted by the aforementioned strains connected with the sale of Clarendon. On the other hand, a positive special effect derived from the decision of the Federal Fiscal Court regarding the taxation of foreign sourced investment income generated by our Irish subsidiaries. All tax risks were reassessed in this context. As a result, Group net income was boosted by altogether EUR 112 million.
Another significant development for your company was the decision taken by US
regulators in Florida at the beginning of the year under review to allow Hannover Re
Our life and health reinsurance business group also developed exceptionally well. It is notable for stable results that are subject to only minimal volatility. We shall therefore continue to strive for growth in life and health reinsurance. With double-digit percentage gains in both gross and net premium, we again accomplished our goals here in the year under review. Growth was driven in particular by the very positive development of our business in the United Kingdom, especially in the area of longevity risks.
In the first place, mention should be made of the substantial expansion in reinsurance business involving portfolios of immediate enhanced annuities with a single premium payment. This segment, which we played a crucial role in shaping in the United
a trend from which we profit disproportionately strongly as a leading reinsurer.
Since the acquisition of the ING life reinsurance portfolio in 2009 we have been increasingly active on the US mortality market – also in relation to new business. We have gone on to successfully expand this business and currently enjoy a market share of 5 percent. For 2011 we have set our sights on 7 percent. The successful enlargement of our customer base thus far brings us a step closer to attaining our goal of a 10 to 15 percent share over the medium term.
Including deposit interest and expenses, net investment income rose by 12 percent to EUR 1.3 billion.
We expect to record further substantial growth in both non-life and life/health reinsurance in 2011. At constant exchange rates growth should be in the region of 5 percent overall. In view of the unchanged good quality of our portfolio, we anticipate net income in the order of EUR 650 million for the current year – always assuming that the burden of major losses remains within expectations and there are no fresh distortions on financial markets.
On my own behalf and that of my colleagues on the Executive Board I would like to thank you, our valued shareholders, most sincerely for your confidence.
The Dow Jones had gained 11.0% by year-end, while the Nikkei closed 3.0% down on the beginning of the year. The DAX, which had started 2010 at 5,957 points, ended the year only just below the 7,000 mark at 6,914 – an improvement of 16.1% on the previous year’s closing date. The MDAX put on as much as 34.9% in the same period.
The Hannover Re share began 2010 at a price of EUR 32.71.
EUR 36.56 by the end of the first quarter. However, heavy loss expenditures – resulting inter alia from the earthquake in
As far as the dividend for the 2010 financial year is concerned, we intend to propose to our shareholders at the Annual
(EUR 2.10) per share be distributed. This represents an increase on the previous year. Based on the year-end closing price of EUR 40.14, this produces a dividend yield of 5.7%.
Congress Centrum. Around 660 shareholders, shareholder and bank representatives as well as guests accepted our invitation to come to Hannover in order to learn about the development of our business in the financial year just-ended. This means that roughly 71% of the share capital was represented.
Wallin took the opportunity to look back on a superb 2009 financial year, in which the company was for the first time able to show an operating profit (EBIT) in excess of EUR 1 billion after positive non-recurring effects.
In the subsequent voting the Annual General Meeting adopted by a large majority the resolutions proposed by the Executive
London and Frankfurt, which are a regular stop on our travels, we returned to Boston, Paris, Copenhagen, Stockholm, Oslo,
In the year just-ended we also optimised the online offerings available on our Investor Relations website. Not only did we expand the range of available information, e.g. in the form of an online fact sheet, we also significantly enhanced the userfriendliness of the online version of our Annual Report. These steps were already recognised in the year under review: our
Other surveys also delivered a pleasing assessment of Hannover Re’s overall Investor Relations activities. The company placed fourth within the MDAX category in the IR rankings published by the business magazine Capital, while it came in at number 11 in a survey conducted by Thomson Extel. In the
European IR Perception Study carried out by Institutional Investor magazine we placed tenth in the “insurers” category.
The shareholding structure of Hannover Re was stable in the year under review. The interest held by Talanx AG remained unchanged, while the stake held by private investors grew by 0.3% to 7.8%, causing the proportion in the hands of institutional investors to contract slightly to 42.0%.
US share contracted. The relative holdings attributable to other countries changed only marginally in comparison with the end of the previous year.
All in all, 38 analysts handed down more than 220 recommendations for Hannover Re in 2010. The extent of our analyst coverage remained very stable overall, although fluctuation among the analysts was comparatively high. We were pleased to note that the cessation of research activities as a consequence of takeovers was offset by the fact that four new analysts began to follow us. The analysts’ average target price developed favourably in the course of the year, climbing incrementally from EUR 36.71 at the start of the year to EUR 41.43 by year-end. The average analysts’ opinion tended to move sideways during the year, declining only in the fourth quarter in the context of the rise in price of the Hannover Re share.
40.6% Germany 19.9% United Kingdom 4.4% Belgium 3.5% Luxembourg 3.4% Switzerland 2.7% France 3.0% Other
USA: American Depositary Receipts (Level 1 ADR program; 2 ADR = 1 share)
Earnings per share (basic and diluted) 6.21 6.08 (1.05) 5.98 4.27
Price-to-cash flow (P/CF) ratio9 2.9 2.3 1.9 4.2 2.5 1 Adjusted to IAS 8 2 XETRA daily closing prices 3 Dividend proposal 4 1.80 EUR + 0.50 EUR bonus 5 Earnings per share/average of book value per share at start and end of year 6 Dividend per share/year-end closing price 7 Year-end closing price/book value per share 8 Year-end closing price/earnings per share 9 Year-end closing price/cash flow (from operating activities) per share
Strategic action fields 1. Performance excellence Holistic management system including regular external assessment
2. Corporate Governance Integrity in our dealings with all stakeholders –
We support meaningful and pragmatic Corporate Governance principles and recognise these as guidelines for our activities. Ethical corporate conduct towards our business partners, employees, shareholders and all other stakehold ers constitutes a core element of our Corporate Governance principles. We apply high ethical standards at all times, both in our strategy and in our day-to-day business operations.
Life/health reinsurance Within five years one of the three major, globally operating life and health reinsurers of above-average profitability – annual double-digit growth in volume and profit indicators – special attention devoted to the regional and biometric balance of the portfolio
We accomplished our goals for the year under review and are confident of doing so in 2011 as well.
The economic recovery in the United States weakened appreciably as the year progressed. Key factors in this change of pace were, in the first place, foreign trade – which delivered a clearly negative growth contribution – and, secondly, the declining impetus from economic stimulus programmes. Against this backdrop, the structural problems remained considerable: the level of debt carried by private households was and still is high; what is more, the crisis in the real estate sector continued unabated. The state of the labour market consequently showed no signs of easing; the unemployment rate of 9.8%
The pace of economic growth in the Eurozone returned to normal. Gross domestic product for 2010 climbed by 1.8%.
China continued to see very vigorous expansion, although the pace slowed somewhat in the course of the year. This was likely due first and foremost to the government’s efforts to prevent overheating of the real estate market and counter excessive lending with a considerably more restrictive monetary policy. Gross domestic product nevertheless grew by 10.3%.
text and closed the year with sizeable price gains. US markets also moved higher, and by the end of the year major indices such as the Dow Jones and DAX had consequently surpassed the levels of the previous year.
is intended to introduce European insurance regulation and a risk-based solvency system. The specifics are currently under consideration by various government bodies in consultation with the insurance industry. In 2010 European insurance and reinsurance undertakings were invited to participate in the fifth Solvency II Quantitative Impact Study (QIS 5), which was conducted from August to November. The findings are expected to be published in April 2011 by the European Insurance and Occupational Pensions Authority (EIOPA). The standards contained in the EU Solvency II Directive are to be implemented by the member states in national law by 2012.
As part of the macroeconomic recovery, German insurers generated further growth in 2010 – with premium income expected to show a nominal increase of 4.7%. This growth was driven first and foremost by single-premium business in the life insurance sector. Owing to the specific business model operated by insurers and their essential function in the national economy, the insurance industry has been able to maintain a stable development in times of crisis.
Street Reform and Consumer Protection Act” heralded a farreaching overhaul of US financial regulation in response to the financial market crisis. This Act entails extensive changes for the financial services sector. Some changes are also of relevance to (re)insurers. For the first time an agency for insurance matters has been established on the federal level – the
Federal Insurance Office. Regulatory responsibility will nevertheless remain with the individual US states.
We are thoroughly satisfied with the development of our business in the year under review. Market conditions for financially strong reinsurers such as Hannover Re were good in both non-life and life/health reinsurance. Gross premium in total business grew to EUR 11.4 billion (EUR 10.3 billion). The operating profit (EBIT) climbed to EUR 1.2 billion (EUR 1.1 billion), while the Group net income of EUR 748.9 million
Even though a trend towards softening reinsurance conditions could be observed in some non-life reinsurance markets, not all lines were affected in the same way. Overall, prices were still very much commensurate with the risks. The 2010 financial year was impacted by the large number of (natural) catastrophe losses; for our company too, the burden of major losses significantly exceeded our expectations. Nevertheless, these strains were offset by the otherwise good performance of our non-life reinsurance portfolio. For further details of developments in non-life reinsurance in the year under review please see page 21 et seq.
Our second business group, life and health reinsurance, delivered particularly vigorous growth. Its contribution to the total premium volume now stands at 44.5%. Given the low volatility of results we have set ourselves premium growth targets here – unlike in non-life reinsurance. In the year under review we achieved in full not only these goals but also our profit targets. For detailed comments on the development of business in life and health reinsurance please see page 36 et seq.
(EUR 810.5 million). Income on funds withheld and contract deposits climbed to EUR 316.4 million (EUR 276.8 million).
The impairments of EUR 16.5 million taken on securities (excluding real estate) were considerably lower than in the previous year (EUR 141.3 million). Of this amount, EUR 7.7 million
Gross premium by business group 55.5% Non-life reinsurance 44.5% Life and health reinsurance
The operating profit (EBIT) booked by Hannover Re increased to EUR 1.2 billion (EUR 1.1 billion) in 2010. The previous year had been influenced by positive special effects in life and health reinsurance amounting to EUR 144.7 million. These derived from the acquisition of the ING life reinsurance portfolio as well as the reversal of unrealised losses on deposits held by US cedants on behalf of Hannover Re (ModCo). The
Group net income of EUR 748.9 million once again surpassed the outstanding level of the previous year (EUR 733.7 million).
Accounting for 55.5% of our premium volume, non-life reinsurance is Hannover Re’s largest business group. We do not pursue any growth targets here, but are instead guided by active cycle management according to which we expand our business if the rate situation is favourable and scale back our portfolio if prices are inadequate.
The expectations expressed with regard to the treaty renewals as at 1 January 2010 were confirmed over the course of the year: prices remained broadly stable, although they softened slightly in loss-free segments. Rate increases were also recorded in areas that had seen sizeable losses in 2009, such as aviation insurance or credit and surety reinsurance. The fact that prices remained on a largely stable level also reflects the underwriting discipline practised among reinsurers. Given the lower returns attainable on investments owing to the low interest rate level, the primary focus of attention was even more heavily on underwriting results. This was also true of the various treaty renewal phases that took place within the year.
The treaty renewals in North America were in line with our expectations, although the rate level in many areas was not adequate. We therefore exercised caution in assuming additional risks. In credit and surety business – despite growing capacity on the market – we were again able to push through significantly improved conditions and expand our market position. In worldwide catastrophe business prices for reinsurance covers declined as expected owing to the relatively untroubled major loss experience in 2009 as well as the improved capital resources of primary insurers. Rate reductions in the United
States were particularly marked; price increases were nevertheless obtained under loss-impacted programmes in certain regions.
All in all, we enjoyed very good opportunities to generate profi table business and extend our market share. The focus of our activities was on the markets of China as well as Central and Eastern Europe, facultative reinsurance and agricultural risks. In the UK market, too, we successfully extended our position.
Details of developments in the individual markets are provided on the following pages.
329 million. The portfolio assembled for the “K6” securitisation consists of non-proportional reinsurance treaties in the property catastrophe, aviation and marine (including offshore)
The gross premium volume for our non-life reinsurance business group increased as forecast, rising by 10.3% to EUR 6.3 billion (EUR 5.7 billion). At constant exchange rates, especially against the US dollar, growth would have come in at 6.7%. The level of retained premium fell from 94.1% to 88.9%. Net premium earned climbed 3.1% to EUR 5.4 billion
The largest single loss event for our account in the year under review – at EUR 181.9 million – was the severe earthquake in
Chile. The devastating earthquake in Haiti, on the other hand, produced a somewhat more modest loss amount of EUR 27.2 million owing to the lower insured values. In Europe, too, we were impacted by a number of natural disasters in the year under review, including for example several flood events and a powerful winter storm (“Xynthia”). The earthquake in New
Zealand, which caused destruction on a massive scale, resulted in a net strain of EUR 113.8 million for our account.
Federal Fiscal Court in the aforementioned matter of additional taxation. This amount was not split into the three segments of target markets, specialty lines and global reinsurance. Group net income consequently surged by a very appreciable 22.9% to EUR 581.0 million (EUR 472.6 million).
In the following pages we report in detail on our non-life reinsurance business group, which is split into three segments according to the areas of responsibility on the Executive
Our business fared better than expected in the year under review in our target markets of Germany and North America: the premium volume remained virtually unchanged at EUR
1,754.0 million (EUR 1,737.9 million). The combined ratio stood at 97.4% in the year under review, after 104.7% in the previous year. The operating profit (EBIT) for the target markets totalled EUR 300.6 million (EUR 118.8 million).
In the context of the planned launch of Solvency II in 2013 it remains to be seen to what extent the regulations and reporting duties will be reasonably proportionate to the intended improvements in risk management. Smaller insurers, at least, could incur considerable strains as a result of Solvency II.
The brighter developments on the primary side also had positive implications for our motor portfolio: margins under our proportional treaties were better, while non-proportional arrangements benefited from an improved premium level in the original business as well as increased reinsurance premiums.
Personal accident insurance, which remains one of our target lines, developed favourably. We acquired new clients in the year under review, while at the same time assuming larger participations with existing accounts. Our premium volume consequently showed further growth. In terms of the loss situation, too, we are highly satisfied with the business development in accident insurance. In the year under review we further extended our range of services, which include inter alia training programmes for cedants in matters of underwriting and claims assessment.
Business developed favourably in general liability insurance, which delivered a positive profit contribution thanks to a combined ratio under 100%.
The North American (re)insurance market is the largest single market both worldwide and for our non-life reinsurance portfolio. It accounted for 13.2% of our premium volume in this business group.
Breakdown of gross written premium in Germany by line of business 36.2% Motor 26.0% Liability 5.4% Accident 32.4% Property
Hardly any new market players entered the US market and reinsurers – despite increased equity resources – for the most part acted with considerable discipline. The trend towards primary insurers carrying greater retentions was sustained only to a modest extent in the year under review. While reinsurance rates in certain lines did come under pressure, they nevertheless remained relatively stable overall; this was also especially true on the conditions side.
North America and maintain more than 2,000 treaties. Market players confirm that we are the reinsurer with the broadest portfolio diversification.
Rates in property business were satisfactory, although modest reductions were observed in the course of the year. The absence of any appreciable catastrophe losses was a contributory factor here. In the casualty sector it was possible to avoid any further premium erosion. Our premium volume in standard casualty business was maintained on a constant level in light of good results.
Wir werden auch in Zukunft unsere Chan­ cen zu wahren wissen. Immer mit Blick auf stabile Ergebnisse und Dividenden. Insbe­ sondere Investoren, die langfristige Enga­ gements suchen, werden diese Strategie des nachhaltigen Wachstums honorieren.
R O L A N D V O G E L C h i E f f i N A N C i A L O f f i C E R
Going forward, as in the past, we shall make the most of our opportunities – always with an eye to stable results and dividends.
Investors seeking a long-term involvement will particularly value this strategy of sustainable growth.… but only on the roller coaster.
The development of our specialty lines was thoroughly satisfactory. This segment of non-life reinsurance includes marine and aviation business, credit/surety, structured reinsurance,
ILS (insurance-linked securities), the London market and direct business. The premium volume climbed from EUR 2,233.9 million to EUR 2,371.9 million. The combined ratio improved to 91.4% (96.5%). The specialty lines segment delivered an operating profit (EBIT) of EUR 369.6 million (EUR 256.4 million ).
The recession triggered by the financial market crisis continued to affect global trade in 2010. Although the premium volume in cargo insurance reflected the economic recovery, this has merely taken the form of stabilisation to date. Cargo volumes and premiums are still well below the level prior to the financial and economic crisis. Improvements were also evident in freight charges and the values of vessels, with a flattening trend and even increases in some areas.
Our underwriting policy focuses first and foremost on more profitable non-proportional business. The primary objective for 2010 was to defend the price level of the previous year –
which could be assessed as good owing to the repercussions of Hurricane “Ike” in 2008. In the year under review, as in 2009, we further reduced our limits of liability in the Gulf of
Mexico and had thus already scaled back our exposure prior to the loss of the “Deepwater Horizon” drilling rig.
Along with a number of basic losses in hull insurance as well as cargo claims resulting from the earthquake in Chile, 2010 was dominated by the explosion on the “Deepwater Horizon”
We are a market leader for non-proportional treaties in the airline market, whereas in proportional business we write our business opportunistically and concentrate for the most part on niche segments. We maintained our involvement in nonproportional reinsurance on a stable level; our gross premium in the aviation line contracted marginally.
In worldwide credit and surety reinsurance Hannover Re ranks among the market leaders. As in previous years, we concentrated exclusively on the core business of the credit and surety lines. We do not write financial guarantees or credit default swaps.
While the situation in credit and surety insurance had been challenging in the previous year, it eased in the year under review. Although most of the industrial nations have put the recession behind them, the environment remains volatile.
Claims rates in credit insurance, which had been driven up sharply by the economic crisis, reached their peak at the beginning of 2010. They then subsided appreciably; since mid2010 claims rates have reverted to pre-crisis levels or in some cases even lower. In the surety and political risk lines claims rates remained on a good level. Most notably, results in surety business escaped the crisis virtually unscathed.
The combined ratio moved back under 100% in the year under review. It stood at 97.8%, after 104.2% in the previous year.
In the year under review we further intensified cooperation with our treaty departments writing traditional reinsurance, thereby enabling us to offer our clients the full spectrum of our company’s products and its extensive range of services.
Breakdown of gross written premium in credit/surety 58.2% Credit33.4% Surety 8.4% Political risk
Demand for structured reinsurance covers remained strong in the year under review, despite the fact that primary insurers were able to rebuild the capital that they had lost in the economic crisis; in the previous year this had served to drive demand for surplus relief contracts.
We do not anticipate any strains on our structured reinsurance covers from major losses occurring or reported in the year under review.
As anticipated, demand for insurance-linked securities continued to grow in the year under review; this sector, which had contracted in the wake of the financial market crisis, has recovered.
Investor demand thus comfortably outstripped supply when it came to our “K6” transaction. The portfolio assembled for this securitisation consists of non-proportional reinsurance treaties in the property catastrophe, aviation and marine (including offshore) lines. The “K6” quota share, which had originally been launched in 2009, was boosted by USD 152 million in 2010 to the desired volume of more than USD 300 million, specifically, to USD 329 million. The additional shares in the
“K6” transaction were written as new three-year treaties, which means that henceforth only a portion of the total volume will be renewed at year-end.
We make use of the capital market not only to protect our own property catastrophe risks, but also to structure and package risks for our cedants. When it comes to innovations and bespoke solutions we are a market pioneer.
Our “FacPool Re” project, which in 2009 for the first time transferred a portfolio of facultative risks to the capital market, was continued. What is more, we significantly expanded our business relations with individual investors by enabling them to enjoy optimised access to (re)insurance risks.
The declining rate level in large areas of traditional reinsurance business is also causing prices to fall in the ILS market.
The development of our ILS activities in the year under review was very favourable overall.
The cold spell in January 2010 and poor results in motor business prompted rate increases in the United Kingdom in both homeowners and motor insurance. These did not, however, affect our reinsurance business, since for the most part we write the middle and higher layers of programmes and hence we had not been impacted by the disappointing results of the previous year.
Our expectation of increased premium growth for 2010 was fulfilled: we were able to substantially enlarge our premium volume in direct business. The stepping up of our involvement in professional indemnity lines in the UK, especially in connection with liability policies for the legal profession, was also a factor here. Nevertheless, our premium volume written in
Thanks not least to a new branch of Inter Hannover in Australia we were able to expand our business. Not only did we extend the geographical reach of our involvement in direct business, we also launched new products on the market. In cooperation with a US company, for example, we developed the “Energy Savings Warranty” programme to provide an insurance backstop for energy-saving guarantees in the United
Our second company writing specialty business, namely Compass Insurance Ltd., is one of the leading players in this segment in South Africa. The company’s strategic objective, which was successfully accomplished in the year under review, is to expand profitable business with underwriting agencies. The reinsurance of this portfolio is in large measure assumed by Hannover Re Africa. Altogether, agency business accounts for roughly two-thirds of the total non-life reinsurance written by Hannover Re Africa.
We combine all markets worldwide under global reinsurance, with the exception of our target markets of Germany and
The development of markets in our global reinsurance segment was challenging in the year under review. The premium volume here surged by 24.7% to EUR 2,213.4 million (EUR
(87.9%) owing to an exceptionally heavy burden of major losses. The operating profit (EBIT) consequently shrank to
Hannover Re is one of the major reinsurance players in the
French market and a leader in the builder’s risk and personal accident lines. In builder’s risk insurance we continued to pursue our strategy of long-term expansion in the year under review. Overall, the premium volume in France contracted slightly.
Hannover Re stands by its strategy of expanding the share of its Dutch business deriving from casualty lines. In view of the more attractive rate situation prevailing in non-proportional casualty business, we therefore moderately enlarged our portfolio; property business, on the other hand, is written highly selectively. In motor insurance it would seem that tariffs in original business have now bottomed out.
Breakdown of gross written premium in global reinsurance 31.3% Facultative reinsurance 54.9% International treaty business 13.8% Catastrophe business
In the markets of Northern Europe Hannover Re is a major provider of insurance covers. This is due both to the capacities that we make available and our very good rating. The fact that we are the only reinsurer with a branch in Scandinavia also works to our advantage.
Competition in Northern Europe remains fierce in both the primary and reinsurance sectors. With the markets softening, we have scaled back our portfolio. The mutual insurers segment continues to be a focal point of our underwriting policy.
Several natural disasters occurred in the year under review, causing losses that also affected Hannover Re; the severe rainfall in Denmark may be mentioned by way of example.
We have defined the countries of Central and Eastern Europe as strategic growth markets – always assuming that business here remains profitable. In this region Hannover Re ranks among the top three players in the reinsurance industry. We are very well positioned and quote our business in all lines and markets.
Although the markets of Central and Eastern Europe were affected by a number of natural disasters in 2010, we are satisfied overall with the development of our business. Our premium volume was again boosted in the year under review.
Ecuador. Along with the writing of agricultural risks, catastrophe covers are especially interesting here.
The effects of the financial and economic crisis on Latin America were considerably milder than in Europe; the most severe repercussions were felt in Mexico. An adverse factor here –
In Brazil, where we have maintained a representative office since 2008, we operate as an “admitted reinsurer”. We were able to acquire additional market shares in the year under review. The primary market is growing very rapidly, and considerably more quickly than the reinsurance market. Competition is tending to intensify in this market on both the insurance and reinsurance side, and we therefore practice a highly selective underwriting strategy.
Chile earthquake also produced an exceptionally heavy burden of major claims for the (re)insurance industry. With an estimated market loss of around USD 12 billion, the Chile earthquake is the largest loss event in Latin America. For Hannover Re, the net strain from this event was EUR 181.9 million; the earthquake in Haiti cost our company EUR 27.2 million.
Tokyo affords us good insight into the Japanese market. Longterm business relations are traditionally of great importance in Japan. Thanks to our very good rating we were again a particularly highly sought-after partner for our cedants in the year under review. We transact business across all segments and enjoy the status of “core reinsurer” with most major primary insurers.
The situation on the reinsurance side was largely unchanged year-on-year. Rates for the most part remained stable. Conditions in property business – which is written predominantly on a proportional basis – continued to adequately reflect the risks, and we were able to book stable commissions. On average we obtained slight increases for casualty covers. The most important single line for our company in Japan is natural catastrophe business, where rates were essentially unchanged.
Given the greater importance attached to risk-based models in Malaysia, we observed a surge in demand in proportional motor business – both in traditional reinsurance and in terms of structured solutions. We are supporting our clients here with an eye to the increased capital requirements and in the year under review we wrote the largest contract to date –
It remains the case that rates in the primary insurance sector are scarcely adequate in Southeast Asian markets, and hence reinsurance conditions also deteriorated in 2010 relative to the previous year.
As forecast, our premium volume in China increased appreciably. Our Shanghai branch, which commenced operations in the year under review, improved our business opportunities as we had expected. As a “local” reinsurer, we now also enjoy access to treaties in the domestic currency.
The rate trend was unsatisfactory in some areas due to the highly competitive environment in Australia and New Zealand.
The hail events in March, for example, had no appreciable positive effects on prices; against this backdrop we withdrew from a number of programmes. Similarly, the severe earthquake in New Zealand in September failed to trigger the expected rate increases. The region around Christchurch suffered severe devastation. This loss event produced a net strain of EUR 113.8 million for Hannover Re. Another major loss was caused by the flooding in Queensland in December, for which we have reserved an amount of EUR 16.1 million.
Whilst the severe earthquake in Chile led to price increases in the affected region, it did not usher in a general trend reversal in prices for natural catastrophe risks.
The strains caused by catastrophe losses were sharply higher in the year under review than in 2009. The costs to the global insurance industry from natural disasters and man-made losses rose by more than 30% to approximately USD 37 billion. The most expensive natural disaster in 2010 was the severe earthquake in Chile; for Hannover Re, too, this was the largest single loss in the year under review with a cost of EUR 181.9 million. Hurricane events were again the exception in the year under review and had no bearing on our technical account.
Even in the emerging markets insurance products for agricultural land or livestock are increasingly gaining hold. This trend is similarly reflected in our portfolio: while our initial focus was on South America, we are now also growing in other regions such as India and China. In Eastern Europe, too, we
M an ag em en t re p or t have enlarged our portfolio. In the aftermath of the devastating fires seen in Russia in the year under review the government is now increasingly looking at boosting its spending on measures to support farmers; legislation is currently in the pipeline.
In addition to cementing our involvement in traditional markets such as the United States or Western Europe, we added new market shares – including for example in Brazil following the deregulation of the local insurance market. We were also able to expand our business in Peru.
We write retakaful business – that is to say, insurance transacted in accordance with Islamic law – in both Southeast Asia and on the Arabian Peninsula. With the Bahrain-based Hannover ReTakaful we maintain a subsidiary that bears exclusive responsibility for transacting this line of business; we also have a local branch that writes traditional reinsurance in the
The economic crisis led to an overall slowdown in construction work and put a stop to infrastructure measures. The premium volume generated by primary insurers consequently grew less strongly. This, in turn, had implications for reinsurers. We nevertheless succeeded in boosting our gross premium volume. Yet our company does not aspire primarily to growth targets or market shares; rather, our focus is on the profitability of the business. Our largest single market is Saudi Arabia.
The successful growth of our retakaful business can be attributed to the very good relations that we cultivate with our clients, our quick response times and the financial standing of
Rates in energy business continued to move lower in the year under review. The “Deepwater Horizon” loss did, however, have positive implications for reinsurance prices in the offshore energy line.
In North America we enlarged our portfolio in both property and casualty business – and here most notably in professional indemnity. Although rates were certainly under strain, conditions remained relatively stable.
In common with our obligatory business, our facultative portfolio was also impacted by the severe earthquakes in Chile and
On the other hand, following on from the acquisition of the
ING life reinsurance portfolio in 2009, we again significantly expanded our position in the US mortality market in the course of the year under review. We revived reinsurance relations with several ceding companies and are now well on track
Canada and South Africa to implement similar solutions outside the United Kingdom; we are confident of closing the first transaction of this type in the first half of 2011. The currently emerging, increasingly international dimension of demand for such covers promises outstanding potential for the future.
In the coming years, too, we expect to see hardly any changes on the demand side at primary insurers.
In several emerging markets, on the other hand, we were able to make significant progress in the year under review.
In South Africa we continue to be the leading life reinsurer, based on our extensive support for innovative, customer-oriented insurance companies. In the Indian market, in which we only established a footing in 2008 with a service office in
Geographical breakdown of gross premium 27.4% United Kingdom 35.4% North America 7.1% Germany 6.6% Australia/ New Zealand 7.6% Rest of Europe 2.6% Latin America 6.9% Asia 3.0% France 3.4% Africa
M an ag em en t re p or t branch in Shanghai concentrates on business from China, where – in close cooperation with the CIRC and its express approval – we were able to close the first two liquidity-related financing transactions.
ReTakaful in Manama/Bahrain, was also highly gratifying. Our retakaful cedants are located predominantly in Saudi Arabia,
The core business policy of Hannover Life Re is given concrete shape in our tried and trusted Five Pillar model. It consists of the pillars of conventional reinsurance, new markets, multinationals, bancassurance and financial solutions.
(at around 40% of our portfolio) and the other four pillars (at around 60% of our portfolio) in the next few years.
The growth in longevity business diversifies our mortality risk, while the growth on emerging markets in Asia, Africa and
Latin America serves to improve the geographical spread of our portfolio from the major markets of the United States,
All in all, we consider Hannover Life Re to be a superbly diversified reinsurer that optimally combines the prospects for long-term growth and profitability over the next 20 to 30 years.
Certain risks that enjoy occasional demand as growth drivers in the international reinsurance markets have been con sidered unreinsurable by our company for quite some years. We include here derivative financial options and guarantees deriving from variable annuity products, the longevity risk for affluent socio-economic groups and life-long guarantees for morbidity products.
Our business model is founded on a concept of organic growth, although we are open to acquisitions. Going forward, as in the past, we expect to maintain our growth on an average level of 10% – 12% per year through appropriate portfolio acquisitions, thereby systematically gaining market shares in the global market without this detrimentally impacting the quality of our acceptances.
Breakdown of gross written premium according to the Five Pillar model 42.7% Conventional reinsurance 10.2% Multinationals 28.3% New markets 10.5% Bancassurance
J E N S B L O H M M A N A G I N G D I R E C T O R
H A N N O V E R L I F E R E G E R M A N Y
In Deutschland wird die klassische Ziel­ gruppe für Lebensversicherungen im Alter von 25 bis 40 Jahren in den nächsten 30 Jahren um ca. 20 % schrumpfen. Gleichzei­ tig bilden sich neue Zielgruppen wie die Best Ager mit neuen und erweiterten Ver­ sicherungsbedürfnissen.
J E N s B L O h m m A N A G i N G D i R E C t O R
In Germany the traditional target group for life insurance products aged between 25 and 40 will shrink by around 20% over the coming 30 years. At the same time, new target groups such as best agers are forming with different and more extensive insurance needs.
Hannover Life Re has an eye on both these developments. One example is enhanced annuities in the United Kingdom, a market segment that emerged in the mid-1990s with our support. The idea: immediate life annuities for soon-to-be pensioners are written with medical underwriting. Depending upon the severity of pre-existing conditions, the resulting annuities may be considerably higher. In Germany, on the other hand, long-term care insurance is a major market. The over-sixties see this as an important and necessary safeguard for their existential risk.
The gross premium income booked in the year under review totalled EUR 5.1 billion, an increase of 12.4% relative to the previous year’s figure of EUR 4.5 billion. At constant exchange rates – especially against the US dollar – growth would have come in at 6.8%. Net premium earned amounted to EUR 4.7 billion; this represents a slightly higher level of retained premium of 91.7% than in the previous year.
The various covers associated with the biometric risk segment of morbidity, such as disability covers, critical illness/trauma covers and health covers, accounted for 10.4%, while the modest but highly profitable portfolio of accident business contributed a share of 2.0%.
Our wide-ranging business model and the high degree of diversification of our international portfolio inevitably give rise to a broad spectrum of factors that can influence the operating result (EBIT).
• Biometric risks 2: development of the biometric risk of longevity, which has a special influence on results in new markets
• Development of the specific client-related counterparty risk, which is of relevance to financial solutions business
• Investment risk 1: investment performance of the assets under own management that cover the shareholders’ equity and our non-deposited reserves
• Movements in exchange rates between our reporting currency (EUR) and the most relevant foreign currencies (USD,
• Cost trend for letters of credit (LOCs) in connection with US
The experience of the biometric risks of mortality and morbidity was extremely mixed in the year under review and less favourable overall than in the two previous years.
The claims experience in Australian disability annuity business was similarly unusual: the period during which annuity recipients remained in the disability phase was longer by market standards. This prompted a strengthening of the IBNR
We continued to enjoy very favourable claims experiences in the United Kingdom, Germany and France as well as in the emerging markets of South Africa, Latin America and Asia.
Breakdown of gross written premium by lines of business 66.5% Life 2.0% Accident 10.4% Health 21.1% Annuity
With this in mind, we wrote off an amount in the low doubledigit million euros for several European financing arrangements in respect of the deferred acquisition costs.
The client-specific counterparty risk was unremarkable. Based on our insights, none of our ceding companies is in financial difficulties and in no case are regulators expected to intervene.
Gross premium incl. premium deposits 6,708.0 –2.2% 6,861.0 5,315.6 3,937.4 3,959.8
losses – showed a slightly positive experience, compared with the profit running into the low triple-digit million euros that had been recognised in the previous year.
520.1 million); of this amount, EUR 204.1 million derived from assets under own management and EUR 304.2 million was attributable to amounts credited on deposits with ceding companies.
Internal administrative expenses in life and health reinsurance amounted to EUR 118.7 million; this corresponds to an expense ratio of 2.3% of gross written premium. Our lean processes, quick decision-making structures and our focus on relevant client relationships in the context of a detailed CRM
strategy are key factors in the efficiency of our business model.
EUR 284.4 million. The previous year, which produced a record result of EUR 374.7 million, had been influenced by special effects associated with the acquisition of the US ING
Our specialty segments of financial solutions and bancassurance are currently delivering above-average returns; this contrasts with the new markets segment, which for some years to come will tend to generate a below-average return owing to the structural dominance of the longevity risk and the conservative recognition of profit on accounting grounds. From a longer-term perspective, it is nevertheless our assumption that earnings from longevity business will make a significant contribution to profitability.
Breakdown of gross premium by business centers before consolidation 23.3% HLR International 24.5% HLR Germany 20.7% HLR Ireland 17.9% HLR America 5.3% HLR Australasia 3.2% HLR United Kingdom 2.6% HLR Bermuda 2.5% HLR Africa
The behaviour of consumers is also noteworthy: in new business single-premium products, coupled with shorter policy periods, are preferred. The lapse rates for in-force business, which compared to the previous year have stabilised on a high level, point to a shift in loyalty patterns that in future will have considerable implications for the financial strength of life insurers.
M an ag em en t re p or t new business. Against this backdrop HLR UK maintained its prudent underwriting policy.
For some years now we have been working together with a number of specialist insurers and investment banks to reinsure the longevity risk of selected UK pension funds. When it comes to structuring and quoting these transactions, we are able to draw upon the risk expertise that we have gathered since 1995 as well as the data available from the private pension sector.
EUR 944.3 million, corresponding to growth of 47.2% relative to the previous year’s figure of EUR 641.6 million.
Established in 1999, our Irish subsidiary HLR Ireland operates worldwide and offers tailored reinsurance solutions for primary insurers and reinsurers in numerous markets. They range from a full risk transfer to limited transactions effected as deposit accounting contracts.
The profitability of the ING life reinsurance portfolio is determined by a complex combination of biometric risks, investment income and cost structures. Owing to numerous major claims in the second half of the year, the biometric experience of this portfolio was not satisfactory in the year under review
– even though the statistical deviation on an annual basis was within the standard deviation and to this extent can be regarded as entirely normal performance volatility. Developments on the investment side, on the other hand, were pleasing, and the collateral costs were also lower than budgeted. All in all, the operating profit came in slightly below expectations.
Due to a decline in single-premium business the gross volume contracted quite sharply and came in at EUR 452.0 million (EUR 494.1 million). Profitability was nevertheless highly gratifying: the operating profit (EBIT) amounted to EUR 49.2 million, corresponding to an EBIT margin of 11.6% on the net premium earned of EUR 425.8 million.
Baltic states – as well as for Turkey and Israel. The markets of Central and Eastern Europe (CEE/Russia/CIS), on the other hand, are served by a team of native-speaker actuaries and underwriters based in Hannover.
We are still in the development phase in Eastern European markets, where our focus is on bancassurance and unit-linked products. The premium volume from this region – with concentrations on Poland, Russia and Hungary – surpassed the
Carolina and Long Island/New York. It bears responsibility for our US business in the segments of mortality solutions, financial solutions and senior and special markets.
US. In this context the retention limit of Hannover Life Re for
Our subsidiary HLR Bermuda, which was established in 2007, is active worldwide; it offers tailored reinsurance solutions with a focus on bancassurance as well as the emerging markets of Africa and Asia.
Our Johannesburg-based subsidiary HLR Africa writes life business in South Africa as well as in the region of Englishspeaking southern Africa, i.e. in countries such as Botswana,
Namibia and Kenya. It concentrates on traditional individual mortality and morbidity business, although it also supports some rapidly growing primary insurers with financially oriented solutions. We maintain only a highly selective presence in group life business.
The premium income of HLR Africa showed vigorous growth of 35.3%, in part due to the strength of the South African rand; it totalled EUR 149.5 million (EUR 110.5 million). The underwriting result remained good. This produced an operating profit (EBIT) of EUR 11.9 million, corresponding to an
The rating agency Standard & Poor’s has awarded the company a rating of “A” (stable outlook), which is higher than that of the country of South Africa.
The markets in this region are served directly from Hannover, although our offices in Mexico City (for Central America) and
Rio de Janeiro (for Brazil) are assigned an important service role.
Whereas in Central America we support a broad range of primary insurers first and foremost through services in the areas of underwriting and claims management, our focus in South
By carefully selecting our ceding companies we enlarged our business volume to EUR 131.4 million, after EUR 101.5 million in the previous year. Of this amount, roughly EUR 30 million was attributable to the markets of Central America (incl.
Business in ASEAN markets – with a focus on Malaysia, Singapore, Thailand and Vietnam – is written in Kuala Lumpur, while our service office in Mumbai handles the Indian market and the strategic cooperation with GIC Re.
For the region of South Asia/Southeast Asia we booked premium of EUR 21.4 million in the year under review; results were thoroughly gratifying.
Business in East Asia is coordinated through our regional centre in Hong Kong, which also bears direct responsibility for the markets of Hong Kong, Macau and Taiwan. Responsibility for the Chinese and Korean markets rests with our branches in Shanghai and Seoul respectively, while the Japanese market is served by our Tokyo office.
China Insurance Regulatory Commission (CIRC). In the second half of the year we were able to close another transaction of this type and we anticipate further potential in the years ahead.
Korea and Japan) amounted to EUR 201.6 million, an increase of more than 60% compared to the previous year.
Premium income for the entire Asian region thus surpassed the EUR 200 million mark for the first time to reach EUR 223.0 million (EUR 147.2 million). Despite fierce competition, most notably in Korea and Hong Kong, the technical results were again quite satisfactory.
Australian direct sales organisation to offer a range of riskoriented products. We see both these activities as an important source of diversification.
Risk premiums on corporate bonds increased for the most part in both US and European markets as the year progressed. The resulting negative fair value effects were, however, more than offset by the yield declines during the year on US treasuries and debt securities issued by semi-governmental entities across virtually all maturity segments. Overall, this had positive implications for the development of the fair values of the fixed-income portfolio, hence also causing unrealised gains to rise in the course of the year. Both the US Federal Reserve and the European Central Bank left their key interest rates unchanged during the period under review at 0% to 0.25%
The euro slipped back against the US dollar and pound sterling, but lost ground particularly heavily against the Canadian and Australian dollar.
Hannover Re’s investment policy continues to be guided by the following core principles: • generation of stable and risk-commensurate returns while at the same time maintaining the high quality standard of the portfolio; • ensuring the company’s liquidity and solvency at all times; • high diversification of risks; • limitation of currency exposures in accordance with the principle of matching currencies.
EUR 880.5 million (EUR 810.5 million) even though interest rates were lower overall. This was due to the growth in assets under own management, which was attributable to both positive cash flows from the technical account and the development of the market.
Impairments of just EUR 16.6 million (EUR 141.4 million) had to be taken on investments. They decreased sharply on fixedincome assets to EUR 7.9 million (EUR 45.4 million). A volume of EUR 7.7 million (EUR 92.6 million) was attributable to alternative investments – principally private equity funds. Owing to the broadly upward market trend, write-downs of a mere
We were thus able to boost our net investment income by 12.4% to EUR 1.3 billion (EUR 1.1 billion) – first and foremost thanks to the increased current investment income and the considerably lower volume of write-downs.
Holdings of alternative investments remained on a broadly stable level. As at 31 December 2010 an amount of EUR 469.3 million (EUR 375.3 million) was invested in private equity funds, a further EUR 155.0 million (EUR 353.2 million) in high-return bond funds and loans as well as CDOs, and altogether EUR 149.7 million (EUR 108.6 million) in structured real estate investments. The uncalled capital with respect to the aforementioned alternative investments totalled EUR
In the year under review we consistently pursued our strategy of investing more heavily in real estate. To this end, various properties were acquired in Germany and the United States, and further projects are under review; the real estate allocation will therefore keep rising steadily as planned, and currently stands at 1.9% (1.2%).
A reinsurer’s success is crucially dependent on the skills and expertise of its staff and their willingness to assume responsibility. Hannover Re is well aware of this performance factor and took a number of steps in 2010 to ensure its continued success going forward. For the fifth time we surveyed our employees on their attitude towards their company in 2010.
We were delighted to find that they are highly satisfied overall with their own workplace; nine out of ten described Hannover
The rate of absenteeism – at 3.0% – was slightly lower than in the previous year (3.2%). The turnover ratio and rate of absenteeism thus continued to be below the industry average.
In 2009 Hannover Re launched another special training programme for (business) mathematicians. This reflects, in the first place, the continuous and marked growth in the need for qualified mathematicians in recent years; secondly, we have recognised the advantage of this highly tailored internal form of further training and now applied it to graduates in the field of mathematics. So far, we have already recruited four trainees to this programme since 2009.
Lasting roughly a year and a half, the programme offers trainees the opportunity – through five to six placements – to get to know the various mathematically oriented departments of
Hannover Re has at its disposal mathematicians with a specialised background in reinsurance.
Solvency II hat trotz des langen Anlaufs das Potenzial einer Erfolgsgeschichte. Für die europäische Versicherungswirtschaft wer­ den ab Anfang 2013 einheitliche Solvenz­ regeln gelten.
s i L k E s E h m m A N A G i N G D i R E C t O R
h A N N O V E R R E A D V A N C E D s O L u t i O N s
The extended range of reinsurance products required by Solvency II already exists at our company in the form of „structured reinsurance solutions“. Capital protection tailored precisely to fit an insurer‘s individual profile, such as that offered by Hannover Re‘s „Advanced Solutions“, corresponds to the idea at the very heart of Solvency II – namely coverage that is more commensurate with the risk.
We also offer applicants a range of helpful functions on our website, including for example a job subscription service that alerts interested candidates immediately when new vacancies are advertised. Through Talentpool, the centrepiece of our online recruitment process, we invite jobseekers to stay in touch with us and trust that the dialogue will be fruitful for both parties.
Staff affinity with the company and identification with their employer have also risen. Motivation among staff can similarly be described as very good; eight out of ten employees categorise themselves as exceptionally motivated or highly motivated. The positive overall evaluation in the key target criteria of satisfaction, motivation and affinity reaffirm Hannover Re’s considerable appeal as an employer that was already established in 2004 and 2007. Our working time model also continues to be well received: 90% (91%) are satisfied or highly satisfied with it.
Profit and value creation are indispensable prerequisites for sustainable development in the interests of our clients, shareholders, staff and business partners as well as for the fulfilment of our social responsibility. Hannover Re strives to be a reinsurer of above-average profitability, since only in this way can we ensure our long-term survival as an independent company – which also constitutes the basis for the perception of our responsibility in society. In so doing, our premises of financing growth through self-generated profits and avoiding imbalances that could necessitate capital measures continue to apply unchanged. Our operations are thus guided primarily by profitability considerations and we concentrate on attractive segments of reinsurance business. The responsible underwriting of risks and prudent risk management are among the vital conditions for assuring the quality of our business over the long term.
Entrepreneurial success is only sustainable if it is achieved consistently and grounded on ethical behaviour. As an internationally operating company, Hannover Re bears responsibility in various senses. This is true of its compliance with all relevant laws and regulations, but also applies to the company ’s products and its relationship with staff, shareholders, the public at large and the cultural circles in which the company operates. Hannover Re has adopted an extensive set of rules, adherence to which is constantly monitored by means of an internal control system.
Sustainability is a deciding factor for our company above and beyond the purely economic. It is applicable to the further and advanced training of our people, and it is also true of our commitment to social causes. Not only that, it is our stated aim to keep environmental impacts to a minimum and – wherever possible – to reduce them.
– which enables Hannover Re to apply the very latest insights –
is of crucial importance. In this context the company supports the highly renowned Geo Research Center in Potsdam, an institution that engages in the systematic investigation and early detection of earthquakes.
With a view to extending its dialogue with universities, Hannover Re assists institutions of higher learning in a variety of ways – including for example the University of Hannover, where it sponsors an endowed professorship in actuarial science. In 2010 our company also lent its support to a more internationally-oriented training in law at the University of
German market, organises so-called examination concerts in cooperation with the University of Music, Drama and Media
Hannover. Since the first concert was held back in 1998, we have assisted three to four of the university’s “master students ” each year as they seek to embark on their career as soloists, while at the same time offering our clients a musical highlight.
Hannover Re also supports the Kestnergesellschaft, an art association whose roots in Hannover go back to 1916, through its participation in the latter’s partner programme: in its role as a “kestnerpartner” the company is able to promote the society ’s work on a continuous and lasting basis.
• staff (further and advanced training, compatibility of work and family life),
Although Hannover Re’s environmental footprint is comparatively slight as a service company, we attach special importance to the issue of environmental protection. Consequently,
Hannover Re is a partner in numerous initiatives for climate and environmental protection and has set itself the goal of reducing emissions as far as possible. In the year under review alone we cut our CO2 emissions by a further 15%.
Innovations are the key to resource efficiency and the most environmentally compatible mobility. Since 2007 Hannover Re has participated in the Greater Hannover region’s “Ecological
Since 2008 the company has also compensated for the CO2 pollution caused by business flights through voluntary offsetting payments to the international organisation “atmosfair”, thereby supporting selected climate protection projects in developing and emerging countries. We pay similar voluntary offsets for the CO2 emissions from train travel as well. In addition, we have purchased RECS (Renewable Energy Certificate System) certificates from our electricity supplier to promote the use of renewable forms of energy.
Not only that, as part of the “Climate Alliance Hannover 2020”,
Energy Service Companies that upgrade buildings and commit to deficiency payments if the remediation fails to deliver the promised energy savings.
The CO2 pollution of 7,685 tonnes caused by Hannover Re in 2010 (calculated for the Hannover Home Office location) was 97% offset. All in all, carbon emissions were reduced by 1,320 tonnes relative to the previous year. In the year under review, as in past years, Hannover Re again participated in the survey conducted as part of the “Carbon Disclosure Project” (CDP).
The table breaks down Hannover Re’s consumption and emissions and presents the total figures for electricity, heat, water, paper, waste, business trips and CO2 emissions.
More extensive information on Hannover Re’s activities in this regard is provided in the Sustainability Report published on our website at www.hannover-re.com/csr.
Resources consumed at Hannover Home Office 2010 20091 20082 2007 2006
The risk strategy derived from the corporate strategy constitutes the basis for our handling of risks and opportunities. The parameters and decisions of the Executive Board with respect to Hannover Re’s risk appetite are fundamental to the acceptance of risks. The risk strategy – as a self-contained set of rules – serves as the foundation for Group-wide risk management. It is an integral component of the guidelines for risk monitoring and risk steering and is reflected on the various levels of risk management and in the operational guidelines.
The insights obtained establish a framework for decisionmaking on all management levels by bringing transparency to the relationship between opportunities and risks.
• Systematic and comprehensive monitoring of all conceivable risks from the current perspective that could jeopardise the company’s profitability or continued existence with the aid of efficient and practice-oriented management and control systems operationalisation of the risk strategy
Limit and threshold system for the material risks of the Hannover Re Group
• Documentation of the material elements of the system in mandatory instructions
The current financial strength rating from Standard & Poor’s is “AA–” (“Very strong”, stable outlook), while the rating from
The roles and responsibilities are clearly defined and ensure smooth interaction.
Supervisory Board • Advising and supervising the Executive Board in its management of the company, inter alia with respect to risk management, on the basis of the Supervisory Board‘s Rules of Procedure
Business units1 Process-integrated controlling • Primary responsibility for risk identification and assessment on the departmental level based on the guidelines of Group Risk Management • Setting up and monitoring of the department‘s internal control system (ICS)
Internal Auditing Process-independent monitoring • Process-independent and Group-wide supervision on behalf of the Executive
The internal capital model of Hannover Re is a stochastic enterprise model. It establishes probability distributions for key performance indicators and balance sheet ratios, such as company profit and shareholders’ equity, in light of all material internal and external influencing factors. These include the structure of the insurance and investment portfolio, taxation and capital market developments.
The available economic capital is composed of the components of IFRS shareholders’ equity (including minority interests), valuation reserves and hybrid capital. The valuation reserves for non-life reinsurance business primarily relate to the difference between the nominal (undiscounted) loss reserves according to
The measurement adjustments for investments derive from the difference between fair value and book value.
The risk categories were adjusted in comparison with the previous year to reflect the future requirements of Solvency II. The figures for the previous year are shown accordingly.
The indicators described above are further tools used to monitor and manage the risks associated with our business activities.
The basic elements of the system, such as risk identification and risk reporting, are closely interlinked.
Regular quarterly reporting to the Risk Committee and Executive Board is supplemented as necessary by immediate internal reporting on material risks that emerge at short notice.
Within our central system of limits and thresholds for the material risks of the Hannover Re Group, key ratios have been specified for steering and monitoring – within the meaning of the materiality concept defined in the risk strategy. Risk steering and monitoring is operationalised through the specification of suitable limits and thresholds for quantitatively measurable material risks. Material risks that cannot be quantified or are difficult to quantify (such as operational risks or reputational risks) are primarily steered and monitored using appropriate processes and practices (e.g. contingency and crisis communication plans).
M an ag em en t re p or t comprehensive income, statement of changes in shareholders ’ equity, cash flow statement and the relevant data for the segmental reporting, notes and consolidation are stored in a database; this data is uploaded via automatic interfaces to a consolidation system, where it can be edited. Depending upon the results of preceding checks made on internal transactions within the Group, these values are reviewed and – as necessary
– corrected. Provision is made for manual bookings in the case of extraordinary or unusual transactions. The control measures described above – among other checks – are performed in order to avoid false statements.
Risks emanating from non-life reinsurance are of crucial significance to our business operations. We make a fundamental distinction here between risks that result from business operations of past years (reserving risk) and those stemming from activities in the current or future years (price/premium risk). A significant technical risk is the reserving risk, i.e. the within the enterprise. It serves, inter alia, to safeguard compliance with guidelines and to reduce risks in the interests of secure execution of corporate strategy. This includes, among other things: • documentation of the controls within processes, especially in accounting,
In the area of Group accounting, processes with integrated controls ensure the completeness and accuracy of the consolidated financial statement. These 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 documented and subject to regular review. All internal Group accounting principles are collated in an Accounting Manual that is available in IT-supported form to all relevant organisational units and all staff of the Hannover Re Group.
Certified by independent auditors, the IFRS reporting of the entities included in the consolidated financial statement is carried out using a Web-based IT application. The individual items of the balance sheet, statement of income, statement of internal risk management and control system improvement Planning
4,249.6 million in the year under review. Asbestos- and pollution -related claims involve complex calculation methods. The adequacy of these reserves can be estimated using the socalled “survival ratio”. This ratio expresses how many years the reserves would cover if the average level of paid claims over the past three years were to continue.
The statistical run-off triangles used by our company are another monitoring tool. They show the changes in the reserve over time as a consequence of paid claims and in the recalculation of the reserves to be established as at each balance sheet date. Their adequacy is monitored using actuarial methods (cf. here Section 5.7 “Technical provisions”). Our own actuarial calculations regarding the adequacy of the reserves are also subject to annual quality assurance reviews conducted by external actuaries and auditors.
survival ratio in years and reserves for asbestos-related claims and pollution damage in EUR million
Risk landscape of Hannover Re technical risks non-life reinsurance Life and health reinsurance operational risksother risks
Licensed scientific simulation models, supplemented by the expertise of our own specialist departments, are used to assess our material catastrophe risks from natural hazards (especially earthquake, windstorm and flood). Furthermore, we establish the risk to our portfolio from various scenarios in the form of probability distributions. The monitoring of the natural hazards exposure of the Hannover Re portfolio (accumulation control) is rounded out by the calculation of realistic extreme loss scenarios. Within the scope of accumulation controlling, the Executive Board defines the risk appetite for natural perils once a year on the basis of the risk strategy. The risk appetite is a key basis for our underwriting approach in this segment.
"Deepwater Horizon" drilling rig, Gulf of Mexico 20 April 155.2 84.7
Winter storm "Xynthia" in Southern and Central Europe 27/28 February 27.4 20.8
Flooding in Queensland, Australia 23 December 2010 – 10 January 2011 20.5 16.1
Flooding in France and Spain 12 – 16 June 17.4 11.3
Political unrest in Bangkok, Thailand 16 April – 24 May 10.3 10.3
By monitoring compliance with these underwriting guidelines we minimise the potential credit risk stemming from an inability to pay or deterioration in the financial status of cedants.
Combined and catastrophe loss ratio over the past ten years in %
Limits and thresholds for the 100- and 200-year aggregate annual loss as well as utilisation thereof natural catastrophes and aggregate annual losses in EUR million
All natural catastrophe risks, net exposure 100-year aggregate annual loss 1,010 909 883 200-year aggregate annual loss 1,209 1,088 1,072
The change in the MCEV under the scenarios shown captures the low volatility in this area and reflects our portfolio’s high degree of diversification. The consolidated MCEV before minority interests amounted to EUR 2,210.8 million (2008: EUR
1,652.0 million) as at 31 December 2009. This represents an increase of 33.8% (4.3%). The operating MCEV earnings totalled EUR 178.5 million (EUR 172.4 million), while the value of new business stood at EUR 83.9 million (EUR 150.5 million). The increase in the mortality sensitivities can be attributed to the business with a high mortality exposure written in 2009. This new business also reacts sensitively to changes in the lapse rate, hence additionally causing lapse sensitivities to rise. For more detailed information please see the Market
We pursue an investment policy in which the primary emphasis is on the stability of the generated return. With this in mind, our portfolio is guided by the principles of broad diversification and a balanced risk/return ratio. Risks in the investment sector consist primarily of market, credit default and liquidity risks. The most significant market price risks are share price, interest rate and currency risks.
With a view to preserving the value of our assets under own management, we constantly monitor adherence to a trigger mechanism based on a clearly defined traffic light system that is applied across all portfolios. This system puts the accumulated fluctuations in fair value and realised gains/losses on investments since the beginning of the year in relation to a maximum loss amount, with an eye to clearly graduated trigger values. These are unambiguously defined in conformity with our risk appetite and trigger specified actions if a corresponding fair value development is overstepped. Owing to the favourable capital market environment in the year under review, the trigger utilisation in the 2010 financial year was consistently above the escalation levels – as shown by the graph on the following page.
Hannover Re Group determined in accordance with these principles specifies the decrease in the fair value of our securities portfolio under own management that with a probability of 95% will not be exceeded within ten trading days. A multifactor model is used to calculate the VaR indicators for the
As part of ongoing refinements, we optimised our VaR calculation halfway through the reporting period, thereby enabling us to make more precise allowance for certain scenarios from market price risks associated with credit spreads. The values for the period prior to this recalibration were adjusted accordingly in the graph. In general terms, the market price risks continued to decrease in the year under review as a consequence of reduced volatility, and despite the move back into equities the Value at Risk in relation to the portfolio of investments under own management decreased year-on-year to around 0.7% as at the balance sheet date.
1 VaR upper limit according to Hannover Re‘s investment guidelines: 1.5%
be mentioned. The credit spread refers to the interest rate differential between a risk-entailing bond and risk-free bond of the same quality. Changes in these risk premiums, which are observable on the market, result – analogously to changes in pure market yields – in changes in the fair values of the corresponding securities.
Real estate risks result from the possibility of unfavourable changes in the value of real estate held either directly or through fund units. They may be caused by a deterioration in the particular qualities of a property or by a general downslide in market values (such as the US real estate crash). Real estate risks continued to grow in importance for our portfolio owing to our continuous involvement in this sector. We spread these risks through broadly diversified investments in high-quality markets of Germany, Europe as a whole and the United States.
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 5.1 of the notes, “Investments under own management”.
The portfolio of fixed-income securities is exposed to the interest rate risk. Declining market yields lead to increases and rising market yields to decreases in the fair value of the fixedincome securities portfolio. The credit spread risk should also scenarios for changes in the fair value of material investment positions in EUR million
Scenario Portfolio change on a fair value basis Change in equity before tax
Retrocession gives rise to claims that we hold against our retrocessionaires. These reinsurance recoverables – i.e. the reinsurance recoverables on unpaid claims – amounted to EUR
1,025.3 million (EUR 1,748.0 million) as at the balance sheet date.
We attach equally vital importance to exceptionally broad diversification as we do to credit assessment conducted on the basis of the quality criteria set out in the investment guidelines.
We measure credit risks in the first place using the standard market credit risk components, especially the probability of default and the amount of loss in the event of default – making allowance for any collateral and the ranking of the individual instruments depending on their effect in each case. We then assess the credit risk first on the level of individual securities
The measurement and monitoring mechanisms that have been put in place result in a prudent, broadly diversified investment strategy. This is reflected inter alia in the fact that within our portfolio of assets under own management the exposures to government bonds or instruments backed by sovereign guarantees issued by the so-called PIIGS states amount to altogether just EUR 316.2 million on a fair value basis. This corresponds to a proportion of just 1.2%. The individual countries account for the following shares: Spain EUR 171.6 million,
Ireland 63.8 million, Portugal 37.5 million, Italy 26.8 million and Greece EUR 16.6 million. No impairments had to be taken Secured AAA AA A ≤ BBB, NR
In our understanding, this category encompasses the risk of losses occurring because of the inadequacy or failure of internal processes or as a result of events triggered by employeerelated, system-induced or external factors. The operational risk also extends to legal risks. Operational risks exist, inter alia, in relation to the risk of business interruptions or failures of technical systems or they may derive from unlawful or unauthorised acts. Given the broad spectrum of operational risks, there is a wide range of different management and monitoring measures tailored to individual types of risk.
The range of tools is rounded off with external and internal surveys of clients and staff, the line-independent monitoring of risk management by Internal Auditing and the internal control system.
Strategic risks derive from the risk of an imbalance between the corporate strategy and the constantly changing general business environment. Such an imbalance might be caused, for example, by incorrect strategic policy decisions or a failure to consistently implement the defined strategies. We therefore regularly review our corporate strategy and risk strategy and adjust our processes as and when required.
The liquidity risk refers to the risk of being unable to convert investments and other assets into cash in order to meet our financial obligations when they become due. The liquidity risk consists of the refinancing risk, i.e. the necessary cash cannot be obtained or can only be raised at increased costs, and the market liquidity risk, meaning that financial market transactions can only be completed at a poorer price than expected due to a lack of market liquidity. Our regular liquidity planning and the liquid asset structure of our investments are core elements of our ability to manage this risk. These mechanisms ensure that Hannover Re is able to meet its payment obligations at all times. We manage the liquidity risk inter alia by allocating a liquidity code to every security. Adherence to the limits defined in our investment guidelines for each liquidity class is subject to daily control. The spread of investments across the various liquidity classes is recorded in the monthly investment reports and managed/monitored by way of appropriate limits. Roughly half of our investment holdings under own management can be liquidated on any trading day without a mark-down, a reflection of the high liquidity of our portfolio.
Solvency II will also result in considerably increased compliance costs, principally in connection with extensive reporting and documentation requirements. Just how high these additional costs will be depends upon the interpretation of the
In non-life reinsurance we have many years of positive experience using a ratio based on underwriting years, namely
“DB 5”: level 5 of our contribution margin accounting method constitutes the clear profit after earning the discounted claims expenditure (level 1) plus all direct (level 2) and indirect costs
(level 3), including the cost of capital (level 4). We apply DB 5 to the non-life reinsurance treaty departments as part of the fine tuning of portfolios down to the level of individual contracts.
Embedded Value (MCEV). The MCEV is defined as the intrinsic value of an enterprise, measured as the discounted profit flow until final run-off of the in-force portfolio – from the standpoint of the shareholder and after taxes.
• use IVC – as the core business result within the scope of our holistic management system Performance Excellence (PE)
– to measure the extent to which we are able to execute our strategy.
On the basis of the detailed strategies and activity plans drawn up by all treaty departments and service units, the planning is adopted by the Executive Board and subsequently communicated within the Group.
1 Adjusted on the basis of IAS 8 2 Operating profit (EBIT)/net premium earned 3 IVC/net premium earned 4 MCEV increase on the basis of the adjusted MCEV of the previous year after elimination of capital changes and changes from currency effects.
Non-life reinsurance Combined ratio ≤ 100% 98.2% 96.6% 95.4% 99.7% 100.8%
In calculating the cost of capital, our assumption – based on a
The policyholders’ surplus is a key management ratio in the context of Hannover Re’s comprehensive capital management.
The policyholders’ surplus is defined as the sum total of: • shareholders’ equity excluding minority interests, composed of the common shares, additional paid-in capital, other comprehensive income and retained earnings,
• hybrid capital used as an equity substitute, which encompasses our subordinated debt.
Re’s liabilities are essentially 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. We also use the latter with the goal of optimising our cost of capital. The following chart shows our capital structure as at 31 December 2010, split into equity, loans and subordinated capital, technical provisions and other liabilities, in each case as a percentage of the balance sheet total.
The technical provisions and liabilities shown above, which include funds withheld/contract deposits and reinsurance payable, make up 76.5% (80.7%) of the balance sheet total and are more than covered by our investments, (assets-side) funds withheld/contract deposits, accounts receivable and reinsurance recoverables.
Capital structure 76.5% Technical provisions and liabilities 10.9% Equity 4.4% Loans and subordinated capital 8.2% Other liabilities
Hannover Re is guided in its capital management by the requirements and expectations of the rating agencies that assess the Group with an eye to its targeted rating. Furthermore, while making appropriate allowance for business policy considerations and factors that influence market presence, the allocation of capital to the Group’s operational companies is based upon the economic risk content of the business group in question. Some Group companies are subject to additional national capital and solvency requirements. All Group companies met the applicable local minimum capital requirements in the year under review. Adherence to these capital requirements is continuously monitored by the responsible organisational units at the parent company on the basis of the latest actual figures as well as the corresponding planned and forecast figures. If, despite the capital allocation mechanisms described above, a scenario occurs in which there is a danger of minimum capital requirements being undershot, suitable options are immediately discussed and measures set in motion to counteract such an eventuality. From the Group perspective we manage Hannover Re’s solvency using our internal capital model, which is described in greater detail on page 57 et seq.
The changes in shareholders’ equity were shaped chiefly by the following movements: The Group net income for 2010 attributable to the shareholders of the Hannover Re Group climbed to EUR 748.9 million
Net unrealised gains on investments recognised in the other reserves reached EUR 372.1 million, a figure EUR 130.5 million higher than at the beginning of the year under review.
The reserve for currency translation adjustment improved appreciably by EUR 171.1 million to –EUR 53.0 million as a consequence of exchange rate fluctuations of foreign currencies against the euro in the year under review. The rise in the reserve for currency translation adjustment resulted above all from the appreciation of the Australian dollar (AUD) and US
Our subordinated loans and bonds supplement our equity with the aim of reducing the cost of capital and also help to ensure liquidity at all times. In the 2010 financial year we again placed subordinated debt of nominally EUR 500.0 million on the European capital market through our subsidiary Hannover
Furthermore, several Group companies have taken up longterm debt – principally in the form of mortgage loans –
For further explanatory information please see our remarks in the notes to this report, Section 5.12 “Debt and subordinated capital” and 5.13 “Shareholders’ equity, minority interests and treasury shares”.
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 105 et seq.
subordinated bonds in EUR million Issue date Coupon in % 2010 2009
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 750 million; 2004/2024 26.02.2004 5.75 746.9 746.1
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 500 million; 2005/undated 01.06.2005 5.00 484.1 481.1
A.M. Best and Standard & Poor’s, the rating agencies of particular relevance to the insurance industry, assess the financial strength of Hannover Re on the basis of an interactive rating process and have awarded it very good ratings. The rating agencies highlight in particular the strength of the Hannover
EUR 1.8 billion in the previous year. Despite higher claim payments in the financial year, the net inflow was thus only slightly lower than that of the previous year – principally due to the improvement in investment income over the previous year.
States and Germany, the funds were used primarily to further enlarge the portfolio of high-quality fixed-income securities.
Investments were made principally in corporate bonds and asset-backed securities, while the share of government bonds and debt securities of semi-governmental entities was reduced.
Compared to the previous year, the cash inflows from financing activities increased from EUR 57.7 million to EUR 283.3 million. This rise was due first and foremost to the inflow from placement of the subordinated debt 2010/2040 in an amount of nominally EUR 500.0 million. This increase was in turn reduced accordingly by the dividend of EUR 253.3 million paid by the parent company Hannover Re in the year under review.
Cash and cash equivalents at the beginning of the period 457.4 430.2
Change in cash and cash equivalents according to cash flow statement 17.8 27.2
The Executive Board of the company is not aware of any restrictions relating to voting rights or the transfer of shares, including cases where these may arise out of agreements between shareholders.
The following company holds direct or indirect capital participations that exceed 10% of the voting rights: Financial strength ratings of subsidiaries
Talanx AG, Riethorst 2, 30659 Hannover, holds 50.2% (rounded ) of the company’s voting rights. There are no shares with special rights granting their holders powers of control, nor is there any specially structured voting control for employees who have capital participations and do not directly exercise their rights of control.
Board are determined by §§ 84 et seq. Stock Corporation Act.
J Ö R G S T E F F E N S E N G E N E R A L M A N A G E R
Die eigentliche Frage ist demnach: Wie reagieren die Prämien auf die neue Dimen­ sion von Großschäden, die unter anderem von der zunehmenden Akkumulation von Werten in Hochrisikogebieten bestimmt sind? Solange zunehmenden Entschädi­ gungsleistungen höhere Prämien gegen­ überstehen, sind auch Hurrikane, Taifune und Erdbeben versicherbar. Auch die klimatisch bedingten Naturkatastrophen – Stürme, Überflutungen und Hagel­ schläge –, die sich wegen des Klimawan­ dels wahrnehmbar häufen, hat die Rück­ versicherung im Griff – das besagte „wenn“ voraus gesetzt!
Unsere Underwriter werden bei ihren Zeichnungen durch ausgefeilte Risiko­ managementverfahren unterstützt. Zudem inves tieren wir stark in die Entwicklung von mathematischen Verfahren und Soft­ ware­Modellen, um sämtliche Risiken quali­ fiziert bewerten und steuern zu können. Interne Naturwissenschaftler unterstützen uns bei der Einschätzung von Naturgefahren. Kurzum: wir setzen auf unsere Expertise.
G R O u p R i s k m A N A G E m E N t m O D E L L i N G
In the previous year Hannover Re was not in compliance with one recommendation of the German Corporate Governance Code (DCGK); this year, the company’s implementation of the recommendations of the Code as amended 18 June 2009 and 26 May 2010 again diverges in one respect. In each case the recommendation in question refers to the inclusion of a cap on severance payments when concluding or renewing an
declaration of Conformity pursuant to § 161 Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code at
The German Corporate Governance Code sets out major statutory requirements governing the management and supervision of German listed companies. It contains both nationally and internationally recognised standards of good and responsible enterprise management. The purpose of the Code is to foster the trust of investors, clients, employees and the general public in German corporate governance. Under § 161 Stock
Corporation Act (AktG) it is incumbent on the management board and supervisory board of German listed companies to provide an annual declaration of conformity with the recommendations of the “German Corporate Governance Code
The Executive Board and Supervisory Board declare pursuant to § 161 Stock Corporation Act (AktG) that in its implementation of the German Corporate Governance Code as amended 18 June 2009 Hannover Rückversicherung AG diverged in one respect from the Code recommendations (Code Item 4.2.3
Para. 4; Caps on severance payments in management board contracts). In its implementation of the version of the Code dated 26 May 2010 Hannover Rückversicherung AG again diverges from the recommendations in one respect: Code Item 4.2.3 Para. 4; Caps on severance payments in management board contracts
Premature termination of a service contract without serious cause may only take the form of cancellation by mutual consent. Even if the Supervisory Board insists upon setting a severance cap when concluding or renewing an Executive
In addition, the scope for negotiation over a member leaving the Executive Board would be restricted, which could be particularly disadvantageous in cases where there is ambiguity surrounding the existence of serious cause for termination. In the opinion of Hannover Rückversicherung AG, it is therefore in the interest of the company to diverge from the recommendation contained in Item 4.2.3 Para. 4.
The principles of responsible and good enterprise management and supervision constitute the core of our Corporate
Governance Code (DCGK) and recognises their importance in guiding its activities.
Requirements for the Remuneration Systems of Institutions and Insurance Companies, the Regulation on the Supervisory
The full Supervisory Board further deliberated for the first time on the concrete measurement of the performance bonuses of the members of the Executive Board and defined the total remuneration of individual members of the Executive Board.
The revision of the system of Executive Board remuneration and the adjustment of contracts of employment with members of the Executive Board were also considered at length. These revisions were essential on account of the aforementioned changes in the legal framework conditions.
The findings of a written survey conducted among the members of the Supervisory Board regarding the efficiency of the
The compliance report for the 2009 calendar year setting out the structure and diverse range of activities of Hannover Re in this regard was submitted to the Finance and Audit Committee in March 2010. After in-depth examination of topics such as directors’ dealings, ad hoc and other reporting requirements, the insider register, adherence to internal guidelines, consulting agreements, data protection, international sanctions and the Group-wide whistleblower system, the report concludes that two 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 future the Hannover Re Group will be in full compliance with the material external requirements for its business activities. Compliance with statutory provisions – not only in terms of their letter but also their spirit – is our overriding priority.
Hannover Re Group is based on the risk strategy, which in turn is derived from the company strategy. A core component is the systematic and comprehensive recording of all risks that from the current standpoint could conceivably jeopardise the company ’s profitability and continued existence. Further details in this regard may be obtained from the risk report contained in the Annual Report on page 55 et seq.
Board. 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
M an ag em en t re p or t for orderly performance of their tasks and that the Supervisory
Board must have a sufficient number of independent members. At least one independent member shall have technical expertise in the fields of accounting and the auditing of financial statements. It is envisaged that at least two members shall be women. 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. Nominations shall take account of the company’s international activities as well as diversity. For their part, each member of the Supervisory Board shall 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 participates in less than half of the meetings of the Supervisory Board 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 committees of the Supervisory Board prepare the decisions of the Supervisory Board within their area of competence and take decisions in lieu of the Supervisory Board within the scope of competence defined by the Rules of Procedure applicable to the committee in question.
It also handles issues relating to compliance and the information system for the Supervisory Board and discusses the interim reports as well as the semi-annual reports prior to their publication. It prepares the Supervisory Board’s examination of the annual financial statement, management report and proposal for the appropriation of profit as well as of the consolidated financial statement and Group management report. In this context, the Finance and Audit Committee receives detailed information on the auditor’s view of the net assets, financial position and results of operations as well as explanations of the effects of any modified recognition and measurement principles on the net assets, financial position and results of operations together with available alternatives.
For further details of the activities of the Supervisory Board committees please see the explanations provided in the Supervisory Board Report from page 188 onwards.
Information regarding the following items is provided in the remuneration report: • Remuneration report for the Executive Board and individualised disclosure of the remuneration received by Supervisory
The remuneration report is based on the recommendations of the German Corporate Governance Code and contains information which forms part of the notes to the 2010 consolidated financial statement as required by IAS 24 “Related Party Disclosures ”. The provisions of the Act on the Adequacy of Management Board Remuneration (VorstAG) and of the Insurance
Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in this remuneration report. Consequently, no further explanation of the information discussed in this remuneration report is provided in the notes.
The Act on the Adequacy of Management Board Remuneration stipulates that the full Supervisory Board shall determine the amount of remuneration of the Executive Board of Hannover Re. In the previous year the Supervisory Board had therefore already amended the Rules of Procedure of the Standing
Rules of Procedure, the committee shall decide in lieu of the
Supervisory Board on the content, formation, modification and termination of employment contracts with the members of the
Board is to recompense the members of the Executive Board according to their scope of activity and responsibility and in proportion to their tasks and performances as well as the position of the company. In this context, an appropriate variable portion of the total remuneration directly recognises the joint and individual performance of the Executive Board as well as the performance of the company. The variable remuneration components have a multi-year assessment basis and thereby support the sustainable development of the company.
With this objective in mind, the remuneration system consists of three components: fixed emoluments, a variable bonus as well as a share-based remuneration component based on a virtual stock option plan with a longer-term incentive effect and risk element.
The variable bonus is cash compensation geared to the result of the financial year; half is based on the individual Board member’s specific profit contribution (performance bonus)
and half on the net income generated by the Group as a whole
(profit bonus). With respect to the determination of the profit bonus for the 2010 financial year, the Supervisory Board approved inter alia the calculation of the earnings per share
The internal performance criterion is satisfied upon achievement of the target diluted earnings per share (EPS) calculated in accordance with IAS 33 “Earnings per Share”. The external performance criterion is the relative increase in the value of the Hannover Re share. The benchmark used to measure this increase in value is the weighted RBS Global Reinsurance Index. The benchmarks cannot be retrospectively altered.
Performance bonus Individual contribution to the overall performance, leadership skills, innovative skills, entrepreneurial skills, accomplishment of personal objectives
In the third year after the end of the 2009 allocation year (max. 40%), in each of the fourth, fifth and sixth years max. 20%
In the fifth year after ex - piry of the 2010 allocation year (max. 60%), in each of the sixth and seventh years max. 20%
The previous conditions apply to stock appreciation rights granted in the financial year for the 2009 allocation year.
At its meeting on 8 November 2010 the Supervisory Board – at the recommendation of the Standing Committee – approved revisions to the system of Executive Board remuneration effective 1 January 2011 in order to respond to the amended legal framework as well as to bring the split into fixed and variable
In the 2010 financial year 234,905 stock appreciation rights with a value of EUR 1.5 million were granted to active members of the Executive Board for the 2009 allocation year; in the previous year no stock appreciation rights were granted for the 2008 financial year because the internal performance criterion was not satisfied. Of the stock appreciation rights granted in previous years to active and former members of the
Executive Board, an amount of EUR 0.14 million (EUR 0.15 million) was exercised.
As at 31 December 2010 the members of the Executive Board had at their disposal a total of 547,901 (318,170) granted, but not yet exercised stock appreciation rights with a fair value of
remuneration more closely into line with market standards and make it more competitive. This future system of Executive Board remuneration is summarised under the heading
Remuneration actually accruing to active members of the Executive Board in the financial year in EUR thousand
Stock appreciation rights exercised 42.6 146.8 total remuneration received by active members of the executive Board pursuant to GAs 17 in EUR thousand
Stock appreciation rights exercised 42.6 146.8 1 As at the balance sheet date no Board resolution was available regarding the amounts to be paid out for 2010. The variable bonuses are recognised on the basis of estimates and the provisions constituted accordingly.
2 Since the Supervisory Board decides upon the final allocation of the number of stock appreciation rights at the March meeting after the balance sheet date and given that the period of the stock appreciation rights commences in each case on 1 January of the following year, the stock appreciation rights awarded for the financial year are expensed in subsequent years.
Board and Hannover Re with a contract date prior to 2009 contain commitments to an annual retirement pension calculated as a percentage of the fixed annual remuneration (defined benefit). Depending upon the contract date, the target pension is at most 50% or 65% of the monthly fixed salary payable on reaching the age of 65. For contracts from 2009 onwards commitments exist on the basis of a defined contribution scheme. The annual funding contribution for these contracts is paid by the company in an amount of 25% of the pensionable income (fixed annual emoluments as at 1 July of each year). Under both contract variants (defined benefit and defined contribution) income received from other sources while the pension is being drawn is taken into account pro rata or in full in certain circumstances (e.g. in the event of incapacity for work or termination of the contract of employment prior to age 65, receipt of disability benefits or previously earned pension payments).
2.9 million (EUR 1.5 million) was allocated to the provision for pensions in the year under review. The provision stood at
EUR 11.3 million (EUR 8.4 million) as at 31 December 2010.
In addition, contributions to a pension fund in an amount of
Group companies is deducted when calculating the variable bonus and shown separately in the table.
Board Remuneration (VorstAG) and the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the
IVCs (Intrinsic Value Creation being a tool of value-based management used to measure the accomplishment of longterm objectives),
The following tables provide an overview of the structure of the Executive Board’s remuneration applicable from 1 January 2011 onwards, as approved by the Supervisory Board at its meeting on 8 November 2010 on the recommendation of the
Proportion of variable remuneration: Chief Executive Officer/ Chief Financial Officer: 70%; Board members except for CEO/CFO: 50%
Measurement of the Intrinsic Value Creation (IVC) of the business groups in the respective area of responsibility; Primary IVC criteria: relative change year-on-year, absolute amount, comparison with target value, dividend payout or profit transfer ratio, general market environment; 100% = amount x = targets achieved in full Cap max: 200% Cap min: EUR 0; Initial application in 2013, until then refinement of the IVC concept and resolution of the Supervisory Board according to its best judgement.
Personal qualitative, quantitative objectives; individual contribution to the overall performance, leadership skills, innovative skills, entrepreneurial skills, special factors. 100% = amount x = targets achieved in full Cap max: 200% Cap min: EUR 0
Until 2013: The Supervisory Board determines degree of goal accomplishment according to its best judgement From 2013 onwards: Attainment of the IVC
Short-term Medium-term Long-term 60% of the variable remu ner ation with the next monthly salary payment following the Supervisory Board resolution 20% of the variable remuneration in the bonus bank; withheld for three years; the positive amount contributed three years prior to the payment date is available for payment, provided this does not exceed the balance of the bonus bank in light of credits/debits up to and including those for the financial year just-ended; an impending payment not covered by a positive balance in the bonus bank is omitted; loss of claims due from the bonus bank in special cases: resignation of office without a compelling reason; contract extension on the same conditions is rejected; no interest is paid on credit balances.
Automatic granting of virtual Hannover Re Share Awards with a value equivalent to 20% of the variable remuneration.
negative variable total bonus = payment of euR 0 variable remuneration. Any negative value of the variable total bonus of a financial year is transferred in full to the bonus bank (see “Medium-term” column).
The remuneration of the Supervisory Board is determined by the Annual General Meeting of Hannover Re and regulated by the Articles of Association.
Board receive fixed annual remuneration of EUR 10,000 per member in addition to reimbursement of their expenses. Furthermore, each member of the Supervisory Board receives variable remuneration of 0.03‰ of the operating profit
Supervisory Board receive an emolument of 30% of the previously described fixed and variable remuneration for their committee work. The members of the Standing Committee formed by the Supervisory Board receive an additional emolument of 15% of the previously described fixed and variable remuneration for their committee work.
Members who have only belonged to the Supervisory Board or one of its committees for part of the financial year receive the remuneration pro rata temporis.
No remuneration was approved for the members of the Nomination Committee.
Dr. Klaus Sturany Deputy Chairman of the – Supervisory Board Member of the – Standing Committee
Wolf-Dieter Baumgartl Member of the – Supervisory Board – Standing Committee – Finance and Audit Committee – Nomination Committee
Uwe Kramp2 Member of the Supervisory Board Fixed remuneration 10.0 10.0
individual remuneration received by the members of the supervisory Board in EUR thousand 2010 2009
Dr. Erhard Schipporeit Member of the – Supervisory Board – Finance and Audit Committee
Gert Wächtler2 Member of the Supervisory Board Fixed remuneration 10.0 10.0
The individualised presentation of the remuneration shows the expense charged to the financial year in question. Since the remuneration for a financial year becomes due at the end of the Annual General Meeting that ratifies the acts of the Supervisory Board for the financial year, the relevant reserve allocations are recognised allowing for any fractional amounts.
Value-added tax payable upon the remuneration is reimbursed by the company.
All the members of the Supervisory Board receive an attendance allowance of EUR 500 for their participation in each meeting of the Supervisory Board and the Committees. These fees are included in the reported remuneration.
In order to avoid potential conflicts of interest, Hannover Re may only grant loans to members of the Executive Board or
Supervisory Board or their dependants with the approval of the Supervisory Board.
Dealings in shares, options and derivatives of Hannover Rückversicherung AG effected by members of the Executive Board or Supervisory Board of Hannover Re or by other persons with managerial functions who regularly have access to insider information concerning the company and who are authorised to take major business decisions – as well as such dealings conducted by certain persons closely related to the aforementioned individuals – in excess of EUR 5,000 are to 1 Including supervisory board remuneration from affiliated companies 2 Employee representatives
Excellence process at Hannover Re. Departmental and individual goals are derived from the strategic corporate objectives.
By linking Management-by-Objectives agreements and Performance Excellence criteria we ensure that the efforts of our staff contribute directly to the success of the business strategy.
A system of variable remuneration is in place for the management levels of Managing Director, Director and General
Manager. It consists, firstly, of a long-term remuneration component (stock appreciation rights) and, secondly, of short-term variable remuneration dependent upon accomplishment of the agreed goals for the year in question (Management by Objectives ). Members of staff on the levels of Chief Manager, Senior
The variable portion of the remuneration for the senior management group is dependent upon hierarchical level. On the first management level (Managing Director) the remuneration breaks down into 60% fixed annual salary and 40% shortterm variable component. The remuneration of General Managers is based on a split into 70% fixed and 30% short-term variable components. While the MbO (Management-by-Objectives ) process recognises the attainment of short-term goals, the long-term success of the company is reflected in Hannover
The short-term variable remuneration components at Hannover Re are linked to agreements on targets. These agreed targets are derived from the Performance Excellence process (leadership, business policy, advancement and skills enhancement, resources management, processes, employee eligible participants in variable remuneration systems (Hannover Home Office) 2010 2009
M an ag em en t re p or t motivation, customer satisfaction, business results). The targets agreed upon with Managing Directors in the treaty and regional departments are split equally into economic targets for their department and individual targets. Of the variable remuneration received by General Managers in the treaty and regional departments, one quarter is based on the department ’s economic targets and three quarters derive from individual targets. The economic targets agreed upon for the departments encompass the combined ratio, contribution margin (DB) level 5 and IVC in non-life reinsurance and the premium growth, underwriting result and IVC in life and health reinsurance.
In the service departments the agreements on targets consisted entirely of individual targets in the year under review.
This is, however, only intended to be a temporary state of affairs. It is envisaged that the MbO agreements for managers in the service departments will in future have a 25% linkage to corporate objectives and/or department goals.
Here, the necessary consolidation efforts are expected to prove a drag on the pace of expansion. All in all, global output in 2011 is likely to show a low single-digit percentage increase. Such forecasts are, however, subject to risks: particularly notable threats to the development of the world economy could derive from the protracted tension on European government bonds markets as well as from another sharp correction in real estate prices in the United States or China.
The economic rally in the United States will be exposed to considerable risks in the current year owing to ongoing structural problems. With both earnings and sales prospects under strain, especially for small and mid-sized enterprises, the speed with which equipment spending is stepped up could come under pressure. Given the minimal economic growth impetus, the prevailing exceptionally high level of unemployment will probably drop only slightly; the ifo-Institute estimates the average jobless rate in 2011 at 9.5%. GDP is forecast to rise by 1.7% in 2011.
In the Eurozone, too, the upsurge in the economy should be sustained; the ifo-Institute expects GDP to rise by 1.4% overall in 2011. The differences between member states will likely remain considerable. In countries with relatively solid public finances and no major structural problems, such as Germany,
Countries on the European periphery, however, will likely experience only a sluggish recovery (for example in Spain, Italy or Ireland) or even recession (for example in Greece). The enormous repercussions of the crisis and the pressure to consolidate will be adverse factors here. In 2011 all Eurozone countries will embark on a course of fiscal consolidation. As a result, public spending and disposable incomes will likely be detrimentally affected. The resurgence in domestic demand will consequently slow.
In China the pace of expansion will likely diminish in 2011, although it will remain on a high level. An increasingly restrictive monetary policy will probably play a role here and should ultimately restrict the growth in economic output to 8%.
ECB is not anticipated before the end of 2011 at the earliest; the US Federal Reserve will probably only follow suit in 2012.
Having held its ground in the crisis, the international insurance industry will make another important contribution to economic stability in 2011. Insurers operate in the field of loss limitation, loss prevention and risk diversification; in this way they support economic development. They not only spread risks across a number of actors, they also help to shape markets and serve as a catalyst for financing and investments. For 2011 the German insurance industry expects premium income to contract overall – against the backdrop of the anticipated decline in income from single-premium business in life insurance. In the international arena the insurance industry looks set to expand its role in the economy and society in 2011.
We are broadly satisfied with conditions in non-life reinsurance. The renewals as at 1 January 2011 – the date on which 67% of our treaties in traditional reinsurance were renegotiated – passed off better for our company than the market players had generally expected. Despite softer market conditions, we had sufficient opportunities to write profitable business.
All in all, we were able to enlarge the premium volume by 2%
Even though rates declined sometimes substantially on account of the healthy capital resources enjoyed by primary insurers and the absence of market-changing major losses in the developed markets, we were nevertheless able to maintain prices on a stable level in many instances – including for example in US casualty business involving small and mid-sized risks. As a direct consequence of the heavy loss expenditure associated with the sinking of the “Deepwater Horizon” drilling rig we obtained appreciable price increases on covers for offshore oil exploration. While original rates climbed by around 20%, price increases of roughly 25% were attainable in non-proportional reinsurance. We also succeeded in pushing through higher prices in European motor liability business.
The picture in casualty business was a mixed one: rates in standard casualty insurance, an important line for our company, remained stable; prices in the professional indemnity lines held stable or fell slightly.
We were thoroughly satisfied with the treaty renewals in specialty lines. Rate movements were particularly favourable in offshore energy business. In view of the heavy losses associated with the sinking of the “Deepwater Horizon” drilling rig, prices here rose sharply in both the property and casualty lines; we therefore expect to enlarge our premium volume for 2011 by 16%. Rates remained stable in other marine lines such as cargo and hull covers as well as marine liability.
Business should also develop well in credit and surety reinsurance. Although the treaty renewals as at 1 January 2011 saw price decreases in credit business after above-average rate rises in the previous years, the development of claims rates should nevertheless continue to be satisfactory. On the surety side, too, business is likely to fare well; we do, however, anticipate a moderate increase in the claims frequency. Given our selective underwriting policy the premium volume in credit and surety reinsurance is expected to contract by 8% in 2011. Nevertheless, the premium level is still 50% higher than at the beginning of the financial market crisis.
Overall, we are seeing sustained demand for contracts with a greater risk transfer in the area of structured reinsurance products. Given the likelihood of more exacting capital adequacy requirements under Solvency II, it is our expectation that further growth will be possible in Europe. We see potential for surplus relief contracts in emerging markets, since here too risk-based capital models are increasingly being adopted. In 2011 we shall again persevere with our strategy of enhancing our portfolio’s regional diversification. We are looking forward to further pleasing development of our business in the current financial year.
We shall continue to expand our business in the area of Insurance -Linked Securities in 2011. Along with our activities in non-life reinsurance, we are now increasingly turning our attention to the securitisation of life reinsurance risks.
We shall grow by around 2% in global treaty reinsurance in 2011, even though the treaty renewals as at 1 January 2011 presented a mixed picture in the individual markets.
In the markets of Central and Eastern Europe it may be assumed that the importance of high-quality reinsurance protection will continue to grow and we shall again have very good opportunities to write profitable business in 2011. Although rates retreated on account of adequate capacities, demand remains strong for reinsurers of excellent financial standing.
It was even possible to obtain modest price increases under programmes that had suffered losses. Based on our good positioning we expect to write more new business in 2011 and beyond. Gross premium should continue to grow.
In Japan, our largest Asian market, we expect rates to remain broadly unchanged; nor do we anticipate any significant changes in our underwriting policy for 2011. The extent to which the current wave of mergers in the primary sector will impact our premium volume remains to be seen.
In the coming years, too, we expect to see stronger demand for our entire portfolio of agricultural covers on account of the growth in government subsidy programmes. Premium volume is therefore forecast to rise in both 2011 and 2012. We shall continue to devote our energies to the cultivation of new markets and the development of innovative products.
Sharia-compliant reinsurance products (retakaful) offers considerable potential. The engineering and liability lines should profit from an upswing in the construction industry in the current financial year. Gross premium volume is expected to rise in 2011.
Owing to the absence of major loss events in peak zones such as the United States, the overall tendency towards declining rates in catastrophe business was sustained. Rate increases were only recorded in areas where 2010/2011 saw appreciable loss expenditures. Prices in Europe remained stable on account of a moderate claim incidence in the previous year. We expect the premium income from our business in Australia and New Zealand to grow in the current financial year. Given the heavy burden of losses from the earthquake in New Zealand in 2010 and the severe flood events in Australia in December 2010 and January 2011, further price increases for natural catastrophe covers are to be anticipated. Altogether, the gross premium from our global catastrophe business is likely to contract by around 10% in the current financial year.
In this context we are seeing a shift in demand for new business away from developed markets such as the United States,
The preparations for Solvency II, and in particular the stress tests performed by the EU (QIS – Quantitative Impact Studies), have led to a greater risk awareness among European insurers and highlighted the important role of reinsurance as a means of risk and capital optimisation. This is especially true of small and mid-sized insurers, specialty providers and mutual insurance companies.
Irrespective of the expectations for individual segments and markets in non-life reinsurance, it should be noted that the probabilities of occurrence for (natural) catastrophe events in terms of their number and scale as well as their magnitude for the insurance industry are subject to considerable fluctuations. Hence, the total burden of losses in the current financial year may be significantly higher or lower than catastrophe loss assumptions based on multi-year trends and averages.
healthy economic climate naturally leads to higher claims frequencies – for example in the motor and engineering lines. In credit and surety reinsurance the correlation is inverted: as insolvency numbers rise, so do loss ratios – but also prices for reinsurance covers.
General growth stimuli for non-life reinsurance are expected to come from the more exacting requirements placed on companies ’ risk-based capital resources; for them, the transfer of risk to reinsurers with good ratings offers an economically attractive alternative.
The general framework conditions in international life and health reinsurance can in principle be described as favourable. In mature insurance markets such as the United States,
With this in mind, primary insurers are looking for tailored reinsurance solutions that support their own capital, liquidity
Life and health reinsurance is generally characterised by its stable growth and minimal exposure to random fluctuations in results. There are nevertheless financial and non-financial risks (particularly risks such as mortality and longevity, morbidity and disability as well as the lapse risk), which are fully integrated into Hannover Re’s risk management. In this context, crucial importance attaches to the appropriate selection of pricing assumptions, fundamental research into developments affecting the biometric actuarial bases, the adequate and complete reserving of all technical liabilities as well as risk diversification (both geographically and in terms of risk types, e.g. between mortality and longevity).
In view of the low yield level on government bonds and the reduced risk premiums on corporate bonds, any increase in investment income will be driven largely by the anticipated further growth in asset holdings. Although indications are emerging that money market rates will remain low on a sustained basis, we believe that there is an increased probability of a rise in yields – especially at the long end of the yield curve, with corresponding effects on equity from medium- and long-dated bonds. We shall counter this with a slightly reduced interest rate positioning and by expanding the balance sheet protection for our shareholders’ equity through recognition at cost.
Bearing in mind the current economic expectations, we shall moderately increase our equity allocation in the current year.
We expect another very good overall result for the Hannover Re Group in the current year. The non-life reinsurance business group is expected to deliver stable or slightly higher net premium income, with an increase of up to 3%. Despite the continued trend towards softening markets, we anticipate a very good result for 2011. The life and health reinsurance business group is forecast to generate net premium growth of 10% to 12% and an EBIT margin in excess of 6%.
The expected positive cash flow that we generate from the technical account and our investments should – subject to stable exchange rates – lead to further growth in our asset portfolio. In the area of fixed-income securities we continue to stress the high quality and diversification of our portfolio.
Bearing in mind the satisfactory to good market conditions described above in non-life and life/health reinsurance as well as our strategic orientation, we are looking forward to another good financial year in 2011. We expect our gross premium volume in total business to grow by about 5%. If no allowance is made for the special effects that favourably influenced the result in 2010, the net income generated by the Hannover Re
As things currently stand, based on our positioning and our financial strength as well as the business prospects described above, we expect Group net income to come in at around EUR
650 million. This is subject to the premise that the burden of catastrophe losses does not significantly exceed the expected level of around EUR 530 million and that there are no drastically adverse movements on capital markets. For 2011, as in recent years, we are therefore aiming for a dividend in the range of 35% to 40% of Group net income.
In non-life reinsurance we are guided exclusively by profit rather than growth targets. Our goal here is to achieve an EBIT
Along with our organic growth we anticipate further portfolio acquisitions in mature insurance markets. We are targeting an
1 IVC/net premium earned 2 MCEV increase on the basis of the adjusted MCEV of the previous year after elimination of capital changes and changes from currency effects 3 Risk-free interest rate + cost of capital 4 750 basis points above the risk-free return
Consolidated balance sheet assets in eUR thousand notes 31. 12. 2010 31.12.20091
Reinsurance recoverables on other technical reserves 5.7 1,831 400 deferred acquisition costs 5.4 1,834,496 1,838,450 deferred tax assets 6.5 622,136 515,867 accrued interest and rent 11,182 3,189 assets held for sale 4.4 1,529,355 –
Unearned premium reserve 5.7 1,910,422 1,512,840 other technical provisions 5.7 184,528 148,827
Provision for deferred taxes 6.5 1,632,527 1,485,157 long-term debt and subordinated capital 5.12 2,056,797 1,481,336 liabilities related to assets held for sale 4.4 1,381,120 –
Minority interests 608,903 542,112 total shareholders‘ equity 5,117,868 4,256,557 total liabilities 46,725,293 40,837,568
Change in ceded unearned premium 33,300 18,658 net premium earned 10,047,016 9,307,176 ordinary investment income 6.2 880,521 810,547
Basic earnings per share 7.5 6.21 6.08 diluted earnings per share 7.5 6.21 6.08 1 adjusted on the basis of ias 8
Gains (losses) recognised directly in equity 353,614 121,189 transferred to the consolidated statement of income (184,823) 29,070 tax income (expense) (28,933) (19,975)
Gains (losses) recognised directly in equity 183,883 24,704 transferred to the consolidated statement of income 3,863 (2,438)
Gains (losses) recognised directly in equity 530,614 149,031 transferred to the consolidated statement of income (180,960) 26,632 tax income (expense) (37,327) (22,545)
Consolidated statement of comprehensive income 2010 1 adjusted on the basis of ias 8
Acquisition/disposal of treasury shares – – – – – (361) – (361)
total income and expense recognised after tax1 – – 23,481 127,705 –151 733,712 42,477 927,224 dividends paid – – – – – – (13,662) (13,662)
Acquisition/disposal of treasury shares – – – – – (293) – (293)
(DRS 2) of the German Accounting Standards Board regarding the preparation of cash flow statements, which were supplemented by the requirements of DRS 2-20 that apply specifically to insurance enterprises. In accordance with the recommendation of the German Accounting Standards Board for insurance enterprises, we adopted the indirect method of presentation. The amounts taken into consideration are limited to cash and cash equivalents shown under the balance sheet item “Cash”.
Affiliated companies and participating interests acquisition of inG life reinsurance portfolio acquisition of cash in hand – 117,170
Real estate and real estate funds short-term investments other changes (net) 2,521 (21,232)
Cash flow from financing activities 283,346 57,755 iV. exchange rate differences on cash 46,922 3,866
Cash and cash equivalents at the beginning of the period 457,412 430,225
Cash and cash equivalents at the end of the period 475,227 457,412 thereof cash and cash equivalents of disposal groups 27,474 –
Consolidated segmental report segmentation of assets in eUR thousand non-life reinsurance assets held to maturity 2,724,546 2,651,188 loans and receivables 2,259,375 2,624,702 available for sale 11,725,861 9,820,513
Reinsurance payable 456,496 701,103 long-term liabilities 187,690 116,286 other liabilities in the segment 1,564,020 1,461,588 liabilities related to assets held for sale 1,381,120 –
From insurance business with external third parties 6,339,285 5,746,613 net premium earned 5,393,884 5,229,510 net investment income 721,225 563,208 thereof deposit interest and expenses 12,200 36,838
Commission and brokerage, change in deferred acquisition costs and other technical income/expenses 1,273,906 1,129,567 administrative expenses 164,498 150,736 other income and expenses 75,984 24,628
Hannover Re and its subsidiaries are obliged to prepare a consolidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB).
(HGB) and the supplementary provisions of the parent company ‘s Articles of Association as amended on 9 August 2010.
“International Financial Reporting Standards (IFRS)”; the standards dating from earlier years still bear the name “International Accounting Standards (IAS)”. Standards are cited in our notes accordingly; in cases where the notes do not make explicit reference to a particular standard, the term IFRS is used.
Financial Statements” there is no requirement to compile interim accounts for Group companies with diverging reporting dates because their closing dates are no earlier than three months prior to the closing date for the consolidated financial statement. Allowance has been made for the effects of significant transactions between the diverging reporting dates and the closing date for the consolidated financial statement.
health reinsurance. The Group maintains business relations with more than 5,000 insurance companies in about 150 countries. With gross premium of approximately EUR 11.4 billion,
Hannover Re is one of the largest reinsurance groups in the world. The company‘s network consists of more than 100 subsidiaries, affiliates, branches and representative offices worldwide with a total workforce of roughly 2,200. The Group‘s
E+S Rückversicherung AG. The parent company is a jointstock corporation, the registered office of which is located at
In the 2010 financial year the following IFRS requiring mandatory application were of relevance to Hannover Re: In June 2009 the IASB published amendments to IFRS 2
The amendments do not have any significant implications for the net assets, financial position or results of operations of
IFRS 3 “Business Combinations” and IAS 27 “Consolidated and Separate Financial Statements”. The new provisions primarily cover the balance sheet recognition of minority interests, measurement issues in connection with successive acquisition, changes in a participating interest with or without a loss of control as well as adjustments to acquisition costs depending upon future events and their effects on goodwill. Since the amendments are to be applied prospectively to financial years beginning on or after 1 July 2009, implications for Hannover
In April 2009 the IASB published “Improvements to IFRSs (Issued 16 April 2009)”, a collection of various minor amendments to IFRS that are for the most part applicable from the 2010 financial year onwards. Insofar as these changes were of practical relevance to the Group, they had no significant effect on the net assets, financial position or results of operations of
(EUR), the amounts shown have been rounded to EUR thousands and – provided this does not detract from transparency
The present consolidated financial statement was prepared by the Executive Board on 14 February 2010 and hence released for publication.
These offsetting rules were not applied consistently within the Group in previous reporting periods. In accordance with the requirements of IAS 8 “Accounting Policies, Changes in
(liabilities side) are each reduced by EUR 1,429.2 million as at 31 December 2009. The decrease in these balance sheet items in the opening balance sheet as at 1 January 2009 amounted to EUR 1,852.1 million in each case.
The effects of the aforementioned adjustments on the items of the consolidated balance sheet and consolidated statement of income are as follows: standards Applicable to financial years beginning on or after adoption by European
Improvements to IFRSs (issued by IaSB in May 2010) For the most part 1 January 2011
Change in basic and diluted earnings per share (in EuR) +0.02
Contracts” represents the outcome of Phase I and serves as a transitional arrangement until the IASB defines the measurement of insurance contracts after completion of Phase II.
Underwriting business is to be subdivided into insurance and investment contracts. Contracts with a significant insurance risk are considered to be insurance contracts, while contracts without significant insurance risk are to be classified as investment contracts. The standard is also applicable to reinsurance contracts. IFRS 4 contains fundamental rules governing specific circumstances, such as the separation of embedded derivatives and unbundling of deposit components. In conformity with these basic rules of IFRS 4 and the IFRS Framework, Hannover Re is availing itself of the option of retaining the previously used accounting policies for underwriting items
Financial assets: as a basic principle we recognise the purchase and sale of directly held financial assets including derivative financial instruments as at the settlement date. The recognition of fixed-income securities includes apportionable accrued interest.
Loans and receivables are non-derivative financial instruments that entail fixed or determinable payments on a defined due date and are not listed on an active market or sold at short notice. They are carried at amortised cost; premiums or discounts are deducted or added within the statement of income using the effective interest rate method until the amount repayable becomes due. Impairment is taken only to the extent that repayment of a loan is unlikely or no longer expected in the full amount. Please refer to our comments on impairments in this section.
ried as assets or liabilities: 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 instruments, their bid price is used. 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 page 117. For further information please see our explanatory remarks on the fair value hierarchy in Section 5.1 “Investments under own management”.
We allocate to this category those financial instruments that do not satisfy the criteria for classification as held to maturity, loans and receivables, at fair value through profit or loss or trading. Unrealised gains and losses arising out of changes in the fair value of securities held as available for sale are recognised – with the exception of currency valuation differences on monetary items – directly in equity after deduction of deferred taxes.
Impairments: as at each balance sheet date we review our financial assets with an eye to objective, substantial indications of impairment. Permanent impairments on all invested assets are recognised directly in the statement of income. In this context we take as a basis the same indicators as those discussed below for fixed-income securities and securities with the character of equity. Qualitative case-by-case analysis is also carried out. IAS 39 “Financial Instruments: Recognition and Measurement” contains a list of objective, substantial indications for impairments of financial assets. In the case of fixed-income securities and loans reference is made, in particular, to the rating of the instrument, the rating of the issuer/borrower as well as the individual market assessment in order to establish whether they are impaired. With respect to held-to-maturity instruments as well as loans and receivables recognised at amortised cost, the level of impairment is arrived at from the difference between the book value of the asset and the present value of the expected future cash flows. The book value is reduced directly by this amount which is then recognised as an expense. With the exception of value adjustments taken on accounts receivable, we recognise impairments directly on the assets side – without using an adjustment account – separately from the relevant items. If the reasons for the write-down no longer apply, a write-up is made in income up to at most the original amortised cost for fixed-income securities.
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 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 a security is considered to be impaired on the basis of these criteria, IAS 39 requires that a value adjustment be recognised in the amount
unlisted bond funds Theoretical price audited net asset values (naV) net asset value method aBS/MBS for which no market prices are available
Private equity Theoretical price Acquisition cost, cash flows, EBIT multiples, market prices net asset value method
Insurance derivatives Theoretical price Market values of the cat. bonds, interest rate curve
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.
Netting of financial instruments: financial assets and liabilities are only netted and recognised in the appropriate net amount if a corresponding legal claim exists or is expressly agreed by contract (reciprocity; similarity and maturity), in other words if the intention exists to offset such items on a net basis or to effect this offsetting simultaneously.
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”
Investments in associated companies are valued at equity on the basis of the proportionate shareholders‘ equity attributable to the Group. Under IAS 28 “Investments in Associates”, which requires the application of the equity method based on the investor‘s share of the results of operations of the investee, the goodwill apportionable to the associated companies must be recognised together with the investments in associated companies. The year-end result of an associated company relating to the Group‘s share is included in the net investment income and shown separately. The shareholders‘ equity and net income are taken from the associated company‘s latest available financial statement.
Funds withheld are receivables due to reinsurers from their clients in the amount of the cash deposits contractually withheld by such clients; they are recognised at acquisition cost
Intangible assets: in accordance with IFRS 3 “Business Combinations ” scheduled depreciation is not taken on goodwill; instead, impairment is taken where necessary after an annual impairment test. For the purposes of the impairment test, goodwill is to be allocated pursuant to IAS 36 “Impairment of Assets” to so-called “cash generating units” (CGUs). Each
CGU to which goodwill is allocated should represent the lowest level on which goodwill is monitored for internal management purposes and may not be larger than a segment. Following allocation of the goodwill it is necessary to determine for each CGU the recoverable amount, defined as the higher of the value in use and the fair value less costs to sell. The fair value is calculated using a discounted cash flow method on the
Deferred tax assets: IAS 12 “Income Taxes” requires that assets-side deferred taxes be established if assets have to be recognised in a lower amount or liabilities in a higher amount in the consolidated balance sheet than in the tax balance sheet and if these temporary differences will lead to reduced tax burdens in the future. In principle, temporary differences result from the valuation differences between the tax balance sheets drawn up in accordance with national standards and the IFRS balance sheets of the companies included in the consolidated financial statement drawn up in accordance with uniform group standards as well as from consolidation processes. Deferred tax assets are also recognised on tax loss carry-forwards and for tax credits. Insofar as the deferred taxes refer to items carried directly in equity, the resulting deferred taxes are also recognised directly in equity. Value adjustments are taken on deferred tax assets as soon as realisation of the receivable no longer appears likely. Deferred taxes are measured according to the tax regulations specific to the country concerned that are applicable or have been adopted as at the closing date.
Deferred tax assets may only be netted with deferred tax liabilities if an enforceable right exists to net actual tax refund claims with actual taxes owing and the deferred tax assets and deferred tax liabilities refer to income taxes levied by the same revenue authority either for (i) the same taxable entity or for (ii) different taxable entities that intend – in every future period in which the discharge or realisation of substantial amounts of deferred tax liabilities/deferred tax assets is to be expected – either to bring about the settlement of the actual taxes owing and refund claims on a net basis or to discharge the liabilities at the same time as the claims are realised. The presentation of deferred tax assets and deferred tax liabilities in the consolidated balance sheet makes no distinction between short-term and long-term.
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, allowances for past experience and assumptions relating to the future development are in corporated in calculating the estimates. With the exception of a few reserves, future payment obligations are not discounted.
Long­term liabilities principally consist of subordinated debts that can only be satisfied after the claims of other creditors in the event of liquidation or bankruptcy. They are measured at amortised cost. Liabilities to holders of minority shares in partnerships arising out of long-term capital commitments are measured at the fair value of the redemption amount as at the balance sheet date.
Financial liabilities at fair value through profit or loss: Hannover Re does not make use of the fair value option provided by IAS 39 “Financial Instruments: Recognition and Measurement ” to classify financial liabilities in this category upon firsttime recognition.
shareholders‘ equity: the items “common shares” and “additional paid-in capital” are comprised of the amounts paid in by the parent company‘s shareholders on its shares. In addition to the statutory reserves of the parent company 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.
(“thereof” note). This item refers mainly to minority interests in E+S Rück.
Instruments: Disclosures” requires more extensive disclosures according to classes of financial instruments. In this context, the term “class” refers to the classification of financial instruments according to their risk characteristics. A minimum distinction is required here between measurement at amortised cost or at fair value. A more extensive or divergent distinction should, however, be geared to the purpose of the corresponding disclosures in the notes. In contrast, the term “category”
is used within the meaning of the measurement categories defined in IAS 39 “Financial Instruments: Recognition and
This grouping into classes is not, however, solely determinative for the type and structure of each disclosure in the notes.
The individual companies‘ statements of income prepared in the national currencies are converted into euro at the average rates of exchange and transferred to the consolidated financial statement. The conversion of foreign currency items in the balance sheets of the individual companies and the transfer of these items to the consolidated financial statement are effected at the mean rates of exchange on the balance sheet date.
In accordance with IAS 21 “The Effects of Changes in Foreign
ations: in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, non-current assets and disposal groups are classified as held for sale if the relevant carrying amount is realised largely through sale rather than through continued use. Components of an entity that can be clearly distinguished from the rest of the entity for operational and accounting purposes and were classified as sold or for sale are recognised as discontinued operations. Measurement is at the lower of carrying amount and fair value less costs to sell. Scheduled depreciation is not taken on non-current assets classified as held for sale. Impairment losses on fair value less costs to sell are recognised in profit or loss; a gain for any subsequent increase in fair value less costs to sell leads to the realisation of profit up to the amount of the cumulative impairment. If the impairment loss to be taken on a disposal group exceeds the carrying amount of the corresponding non-current assets, the need to establish a provision within the meaning of IAS 37 “Provisions, Contingent Liabilities and
In order to measure the “ultimate liability” in non-life business 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 runoff 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
Section 3.2 “Summary of major accounting policies” and Section 5.7 “Technical provisions”.
mortality or disability rates, lapse rates). These assumptions are heavily dependent on country-specific parameters and on the sales channel, quality of the cedant‘s underwriting and claims handling, type of reinsurance and other framework conditions of the reinsurance treaty. The superimposition of numerous model points gives rise to a projection, which incorp orates inter alia assumptions concerning the port folio composition and the commencement of covered policies within the year. Such assumptions are estimated at the inception of a reinsurance treaty and subsequently adjusted to the actual projection.
Accounting Standard No. 3 “Segment Reporting” (DRS 3) of the German Accounting Standards Board as well as the requirements of DRS 3–20 “Segment Reporting of Insurance
Hannover Re has refined the calculation logic for the fair values of derivatives in connection with Modified Coinsurance/
Coinsurance Funds Withheld reinsurance treaties. This represents a change in an accounting estimate, which pursuant to
In the context of the “purchase accounting” method the acquisition costs of the parent company 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
Hannover Re Group encompasses the companies listed in the tables below.
Companies included at equity 1 Consists of: 18 (20) individual companies and 39 (37) companies which are fully consolidated in 3 (3) subgroups.
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. Transactions between a disposal group and the continuing operations of the Group were similarly eliminated in accordance with IAS 27 “Consolidated and Separate Financial Statements”.
Companies over which Hannover Re is able to exercise a significant influence are normally consolidated “at equity” as associated companies with the proportion of the shareholders ’ equity attributable to the Group. 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. Income from investments in associated companies is recognised separately in the consolidated statement of income.
Hannover Euro Private Equity Partners IV GmbH & Co. KG, Hannover/Germany3 60.17 EuR 72,582 EuR 8,946
HEPEP II Holding GmbH, Hannover/Germany3 57.64 EuR 2,944 EuR 483 4.2 COnSOLIDaTED COMPanIES anD COMPLETE LIST OF SHaREHOLDInGS NOtes
Hannover Life Reassurance Company of america, Orlando/uSa4 100.00 uSD 166,599 uSD 217
Hannover Life Reassurance (Ireland) Ltd., Dublin/Ireland4 100.00 EuR 922,025 EuR 84,505
Hannover Life Reassurance (uK) Ltd., Virginia Water/united Kingdom4 100.00 GBP 40,509 GBP (461)
Hannover Life Re of australasia Ltd., Sydney/australia4 100.00 auD 251,641 auD 27,673
Hannover Services (uK) Ltd., Virginia Water/united Kingdom4 100.00 GBP 763 GBP (17)
Secquaero ILS Fund Ltd., George Town, Grand Cayman/Cayman Islands4,5 100.00 uSD 51,472 uSD 26
Name and registered office of the company Figures in currency units of 1,000
Hannover Reinsurance Group africa (Pty) Ltd., Johannesburg/South africa4 100.00 ZaR 155,813 ZaR 138,961
Compass Insurance Company Limited, Johannesburg/South africa 100.00 ZaR 111,083 ZaR (13,847)
Micawber 185 (Pty) Ltd., Johannesburg/South africa 100.00 ZaR 18,257 ZaR 3,225
Hannover Reinsurance Mauritius Ltd., Port Louis/Mauritius 100.00 MuR 50,613 MuR 2,824
Lireas Holdings (Pty) Ltd., Johannesburg/South africa 51.00 ZaR 185,175 ZaR 36,888
Mua Insurance acceptances (Pty) Ltd., Cape Town/South africa 51.00 ZaR 3,751 ZaR 4,696
Mua Insurance Company Ltd., Cape Town/South africa 51.00 ZaR 19,673 ZaR 5,655
Garagesure Consultants and acceptances (Pty) Ltd., Johannesburg/South africa 48.45 ZaR 1,926 ZaR 220
Cargo Transit Insurance (Pty) Ltd., Helderkruin/South africa4 40.80 ZaR (269) ZaR (769)
SuM Holdings (Pty) Ltd., Johannesburg/South africa 37.38 ZaR 21,469 ZaR 478
Gem & Jewel acceptances (Pty) Ltd., Johannesburg/South africa4 35.70 ZaR 459 ZaR 393
Envirosure underwriting Managers (Pty) Ltd., Durban/South africa 30.60 ZaR (1,849) ZaR (618)
Construction Guarantee (Pty) Ltd., Parktown/South africa 26.01 ZaR 1,476 ZaR 1,152
Film & Entertainment underwriters Sa (Pty) Ltd., northcliff/South africa4 26.01 ZaR (610) ZaR (860)
Takafol South africa (Pty) Ltd., Johannesburg/South africa 24.99 ZaR 825 ZaR 351
Commercial & Industrial acceptances (Pty) Ltd., Johannesburg/South africa4 20.40 ZaR 5,147 ZaR 15,703
Flexible accident and Sickness acceptances (Pty) Ltd., Johannesburg/South africa 20.40 ZaR 1,811 ZaR 2,995
Hannover Re Real Estate Holdings, Inc. holds a subgroup in which the following companies are included: Consolidated companies 5115 Sedge Corporation, Chicago/uSa5 95.10 uSD 2,582 uSD 277
One Winthrop Square LLC, Wilmington/uSa5 95.00 uSD 23,123 uSD 1,078 402 Santa Monica Blvd LLC, Wilmington/uSa5 95.00 uSD 31,673 uSD 1,139 300 S. Orange avenue LLC, Wilmington/uSa5 95.00 uSD 55,392 uSD 1,743 465 Broadway LLC, Wilmington/uSa5 95.00 uSD 42,394 uSD 1,088 5115 Sedge Boulevard LP, Chicago/uSa5 79.88 uSD 1,012 uSD 231
International Mining Industry underwriters Ltd., London/united Kingdom4 100.00 GBP 358 GBP 57
LRa Superannuation Plan Pty Ltd., Sydney/australia6 100.00 auD – auD –
Mediterranean Reinsurance Services Ltd., Hong Kong/China9,13 100.00 uSD 125 uSD –
Hannover Re Consulting Services India Private Limited, Mumbai/India14 100.00 InR 45,643 InR 5,643
Hannover Rückversicherung aG Escritório de Representação no Brasil Ltda., Rio de Janeiro/Brazil11 100.00 BRL 35 BRL 107
Hannover Re Services Italy Srl, Milan/Italy4 99.64 EuR 313 EuR 91
acte Vie S.a. Compagnie d‘assurances sur la Vie et de Capitalisation, Strasbourg/France11 9.38 EuR 8,118 EuR 136 1 year-end result after profit transfer 2 Formerly Zweite Hannover Rück Beteiligung Verwaltungs-GmbH
7 Financial year as at 30 October 2009 8 Certain equity items are not counted under IFRS, as a consequence of which the amount of capital and reserves can be negative here.
Purpose Entities” with an eye to their implications for consolidation. In cases where IFRS do not currently contain any specific standards, Hannover Re‘s analysis – in application of
Secquaero ILS Fund Ltd. and Hannover Insurance-Linked Securities GmbH & Co. KG – in a number of special purpose entities for the securitisation of catastrophe risks by investing in “disaster bonds” (or “CAT bonds”). Since Hannover Re does not exercise a controlling influence in any of these transactions either there is no consolidation requirement.
On 18 January 2010 Funis GmbH & Co. KG, a wholly owned subsidiary of Hannover Re, acquired an interest of 28.5% in
Energi Holdings, Inc., based in Peabody/United States, for a purchase price equivalent to EUR 2.4 million. The business object of Energi Holdings, Inc. and its three other wholly owned subsidiaries is the mediation of risk management and insurance brokerage services for companies in the energy industry.
(corresponding to 75.2% of the shares) in the newly established Foco 146 AB, which is based in Stockholm, Sweden.
– as at the balance sheet date. The business object of the company consists principally of the development and sale of financial services in Ireland and the United Kingdom.
On 21 December 2010 Hannover Re reached agreement on the sale of its US subgroup Clarendon Insurance Group,
Bermuda-based company specialising in the run-off of insurance business. Hannover Re holds all shares of CIGI indirectly through the intermediate holding company Hannover Finance,
Inc., Wilmington (HFI), which is also included in full in the consolidated financial statement. The buyer is to acquire all shares of CIGI at a purchase price equivalent to EUR 162.5 million before final price determination, which will take place upon adoption of the local annual financial statement as at 31 December 2010. As at the balance sheet date the transaction was still subject to the customary regulatory approvals.
Closing of the transaction and the associated deconsolidation from Hannover Re are anticipated in the second quarter of 2011.
This measurement gave rise to the recognition of impairment losses in an amount of EUR 10.2 million, which were carried in other income and expenses.
The cumulative other comprehensive income of –EUR 28.8 million arising out of the currency translation of the assets 4.4 MaJOR DISPOSaLS NOtes
The assets and liabilities of the disposal group are presented in the following table and broken down into their major components.
Effective 26 April 2010 the share capital of E+S Rück was increased out of retained earnings without the issue of new shares by an amount of EUR 2.8 million from EUR 42.6 million to EUR 45.5 million. The par value per share now stands at
EUR 600. This did not give rise to a change of control status.
Reinsurance (Ireland) Ltd., both based in Dublin, Ireland, were liquidated effective 25 November 2010.
Assets and liabilities of the disposal group in EuR thousand 31. 12. 2010
Hannover Re classifies investments according to the following categories: held-to-maturity, loans and receivables, financial assets at fair value through profit or loss and available-forsale. The allocation and measurement of investments are determined by the investment intent.
North America 7,202,980 6,847,616 1 after elimination of internal transactions within the Group across segments 5.1 InVESTMEnTS unDER OWn ManaGEMEnT NOtes
Maturities of the fixed­income and variable­yield securities in EuR thousand amortised cost1 Fair value amortised cost1 Fair value
Held to maturity due in one year 293,247 296,019 106,788 117,125 due after one through two years 481,951 497,863 280,725 290,471 due after two through three years 530,917 556,296 469,248 490,878 due after three through four years 402,290 435,132 521,196 542,714 due after four through five years 842,291 896,024 298,115 315,856 due after five through ten years 458,201 489,910 1,259,917 1,319,098 due after ten years 19,121 18,143 17,500 15,852
Loans and receivables due in one year 61,280 61,845 220,814 221,111 due after one through two years 129,327 129,184 80,127 82,095 due after two through three years 348,915 356,739 41,048 41,219 due after three through four years 576,421 592,242 332,716 339,025 due after four through five years 330,110 342,088 485,554 490,978 due after five through ten years 806,953 840,900 1,294,842 1,323,459 due after ten years 61,423 58,741 246,730 244,384
Government debt securities of Eu member states 324,564 13,960 1,252 6,884 344,156
Government debt securities of Eu member states – – – 305 305
Hannover Re recognised in this category as at the balance sheet date derivative financial instruments in an amount of
Standard & Poor’s and Moody’s and in each case reflects the lowest of the available ratings.
Other foreign government debt securities 9,995 – 80 – 10,075 –
Debt securities of semi-governmental entities 97,770 7,066 542 162 98,312 7,228
Other comprehensive income from investments allocation to gains/losses from the fair-value measurement of the available-for-sale portfolio 208,751 221,550
Rating structure of fixed­income securities Figures in EuR thousand aaa aa a BBB BB B C Other Total
Fixed-income securities – available-for-sale 8,444,249 2,542,309 3,441,409 1,092,359 133,890 59,984 10,643 152,791 15,877,634
Fixed-income securities – at fair value through profit or loss 4,494 10,475 40,392 80,633 46,391 33,442 8,404 10,918 235,149
Fixed-income securities – available-for-sale 890,838 364,124 4,709,837 1,250,538 96,553 5,836,171 202,180 454,807 13,805,048
Equity securities – available-for-sale – – 14,799 3,734 – 691 133 – 19,357
Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 18.4 million (EUR 17.9 million).
For further details of our major participating interests please see Section 4 “Consolidation”.
Net book value at 31 December of the year under review 127,644 128,316
Gross book value after currency translation at 1 January of the year under review 201,795 45,044
Gross book value at 31 December of the year under review 338,634 190,212
Cumulative depreciation at 31 December of the previous year 27,600 23,640
Cumulative depreciation after currency translation at 1 January of the year under review 27,935 23,559 appreciation (52) –
Cumulative depreciation at 31 December of the year under review 35,212 27,600
Net book value at 1 January of the year under review 173,860 21,485
Net book value at 31 December of the year under review 303,422 162,612
The additions to this item are attributable in large part to the sharply increased investment activities of Hannover Re Real
Balance at 1 January of the year under review 131,453 350 576,807
Short-term investments 1,339,985 12,490 – 1,352,475 total assets measured at fair value 8,807,961 6,530,538 708,610 16,047,109 total liabilities measured at fair value 1,796 19,333 – 21,129
EUR 715.4 million. The increase was attributable principally to specific new contracts in the area of life reinsurance.
The retrocessionaires’ portions of the technical provisions are based on the contractual agreements of the underlying reinsurance treaties. For further details please refer to our comments on the technical provisions in Section 5.7 “Technical provisions” as well as the remarks in the risk report on page 66 et seq.
If models are used to measure financial instruments included in level 3 under which the adoption of reasonable alternative inputs leads to a material change in fair value, IFRS 7
EUR 862.1 million (EUR 708.6 million) as at the balance sheet date, Hannover Re measures financial instruments with a volume of EUR 839.4 million (EUR 701.9 million) using the Net
Asset Value method, in respect of which alternative inputs within the meaning of the standard cannot reasonably be established. For the remaining financial instruments included in level 3 with a volume of EUR 22.7 million (EUR 6.7 million), the effects of alternative inputs and assumptions are immaterial.
The value adjustments on accounts receivable that we recognise in adjustment accounts changed as follows in the year under review: In addition, we took specific value adjustments on reinsurance recoverables on unpaid claims in the year under review.
Currency translation at 1 January of the year under review 2,325 (2,351)
Cumulative value adjustments at 31 December of the year under review 35,768 72,258
Net book value of accounts receivable at 31 December of the year under review 2,841,303 2,869,874 5.4 TECHnICaL aSSETS NOtes
Group Africa (Pty.) Ltd. For further information on the method used to test impairment the reader is referred to our explanatory remarks in Section 3.2 “Summary of major accounting policies”.
Development of goodwill in EuR thousand 2010 2009 net book value at 31 December of the previous year 44,393 42,833
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios in EuR thousand net book value at 31 December of the previous year 102,408 1,823
Net book value at 1 January of the year under review 102,672 1,936 additions – 104,252
Present value of future profits on acquired life reinsurance portfolios 98,368 102,408
This item principally consists of the present value of future cash flows from the business acquired that we recognised in 2009 in the context of the acquisition of the ING life reinsurance portfolio. This intangible asset is amortised over the term of the underlying reinsurance contracts in proportion to the future premium income. The period of amortisation amounts to altogether 30 years. The PVFP is recognised under other assets. For further information please refer to our explanatory notes on intangible assets in Section 3.2 “Summary of major accounting policies”.
Gross book value at 31 December of the year under review 107,445 111,425
Cumulative depreciation at 31 December of the previous year 72,581 62,808
Cumulative depreciation at 31 December of the year under review 75,637 72,581
Net book value at 31 December of the previous year 38,844 26,302
Net book value at 31 December of the year under review 31,808 38,844
Effective 1 July 2003 Hannover Re took out insurance for pension commitments. The commitments involve deferred annuities with regular premium payment under a group insurance policy. In accordance with IAS 19 “Employee Benefits” they were carried as a separate asset at fair value as at the balance sheet date in an amount of EUR 57.1 million (EUR 52.0 million).
Gross book value at 31 December of the year under review 167,593 171,899
Cumulative depreciation at 31 December of the previous year 115,028 104,649
Cumulative depreciation at 31 December of the year under review 127,794 115,028
Net book value at 31 December of the previous year 56,871 61,310
Net book value at 31 December of the year under review 39,799 56,871
As in the previous year, the other receivables do not include any items that were overdue but unadjusted as at the balance sheet date. Value adjustments were taken on other receivables in an amount of EUR 0.3 million (EUR 0.7 million) in the year under review on the basis of specific impairment analyses.
N ot es technical provisions in EuR thousand gross retro net gross retro net
The development of the loss and loss adjustment expense reserve is shown in the following table. Commencing with the gross reserve, the change in the reserve after deduction of the reinsurers’ portions is shown in the year under review and the previous year.
Loss and loss adjustment expense reserve in EuR thousand gross retro net gross retro net net book value at 31 December of the previous year 17,425,293 1,747,991 15,677,302 16,932,069 2,079,168 14,852,901
In the year under review specific value adjustments on retrocessions, i.e. on the reinsurance recoverables on unpaid claims, were reversed in an amount of EUR 21.0 million (previous year: reversed in an amount of EUR 22.2 million). Consequently, cumulative specific value adjustments of EUR 3.5 million (EUR 24.5 million) were recognised in these reinsurance recoverables as at the balance sheet date.
The run-off triangles are therefore shown after adjustment for effects associated with the additional premium.
(so-called run-off triangle). The figures reported for the 2000 balance sheet year also include the amounts for previous years that are no longer shown separately in the run-off triangle.
Run­off of the net loss reserve in the non­life reinsurance segment
The result for the run-off years in the 2010 financial year was
The improved run-off result relative to the previous year can be attributed to positive run-offs of reserves for major losses
Of which currency exchange rate differences 94 27 28 42 47 69 66 89 139 138 net run-off result excluding currency exchange rate differences as percentage of original loss reserve 1.8 0.5 (0.3) 0.5 0.2 0.3 0.3 – 1.9 (2.8)
IFRS 4 “Insurance Contracts” requires information which helps to clarify the amount and timing of cash flows expected from reinsurance contracts. In the following tables we have shown the technical provisions broken down by the expected remaining times to maturity. In our maturity analysis we have directly deducted the deposits put up as security for these reserves, since the cash inflows and outflows from these deposits are to be allocated directly to the ceding companies.
For further explanation of the recognition and measurement of the reserves please see Section 3.2 “Summary of major accounting policies”.
Due after ten through twenty years 1,864,722 92,180 1,772,542 757,943 5,216 752,727
after allowance for the corresponding retrocession shares. The benefit reserve had an average maturity of 14.4 years (13.0 years) – or 14.7 years (13.3 years) on a net basis.
The benefit reserve is established for life, annuity, personal accident and health reinsurance contracts. Based on the term of these contracts, long-term reserves are constituted for life and annuity policies and predominantly short-term reserves are set aside for health and personal accident business.
Notes 5.10 provisions for pensions anD oTher posT-employmenT benefiT obligaTions 5.8 Funds withheld (liabilities)
665.9 million in the year under review from EUR 4,038.4 million to EUR 4,704.3 million. The contract deposits item encompasses balances deriving from non-traditional life insurance contracts that are to be carried as liabilities. The rise was due principally to growth in new business in the area of life reinsurance.
On 1 April 1993 (1 June 1993 in the case of managerial staff)
benefits. The scheme is based upon annual determination of the pension contributions, which at 1% up to the assessment limit in the statutory pension insurance scheme and 2.5%
to 2.5% respectively depending upon the company’s performance. The pension plan closed as at 31 March 1999.
Development of the unearned premium reserve in eUr thousand gross retro net gross retro net net book value at 31 December of the previous year 1,512,840 47,651 1,465,189 1,333,856 29,733 1,304,123
“loss recognition” method set out under US GAAP. Should the result of the test indicate that the anticipated future income will not be sufficient to fund future payments, the entire shortfall is recognised in income by first writing off capitalised acquisition costs corresponding to the shortfall. Any remaining difference is constituted as an additional provision.
Cologne, the employee-funded commitments included in the provisions for accrued pension rights are protected by an insurance contract with HDI-Gerling Lebensversicherung AG,
IAS 19 “Employee Benefits” using the projected unit credit method. The pension plans discussed above are classified as defined benefit plans. The basis of the valuation is the estimated future increase in the rate of compensation of the pension beneficiaries. The benefit entitlements are discounted by applying the capital market rate for highest-rated securities.
The calculation of the provisions for pensions is based upon the following assumptions: The change in the projected benefit obligation of the pension commitments as well as their breakdown into plans that are unfunded or are wholly or partially funded was as follows: Change in the projected benefit obligation in eUr thousand 2010 2009
Projected benefit obligation at the beginning of the year under review 93,462 79,908 current service cost for the year under review 2,818 2,506 interest cost 4,969 4,731
Projected benefit obligation at 31 December of the year under review 109,962 93,462
The fair value of the plan assets developed as follows: Change in plan assets in eUr thousand 2010 2009 fair value at the beginning of the year under review 9,317 7,051 expected return on plan assets 710 532 actuarial gain/loss (448) (43)
Fair value of plan assets at 31 December of the year under review 10,464 9,317
The structure of the portfolio underlying the plan assets was as follows: Portfolio structure as % of plan assets 2010 2009 equities – 5
The fair value of plan assets did not include any amounts (EUR
1.3 million) for own financial instruments as at the balance sheet date. No actual gains or losses were generated on plan assets in the year under review or in the previous year.
Reconciliation of the net provision for pensions in eUr thousand 2010 2009
Funding of the defined benefit obligation in eUr thousand 2010 2009
Projected benefit obligation at 31 December of the year under review 109,962 93,462 fair value of plan assets 10,464 9,317
The recognised provision for pensions developed as follows in the year under review: Change in the provision for pensions in eUr thousand 2010 2009 net provisions for pensions at 31 December of the previous year 77,497 72,207 currency translation (681) 288 expense for the year under review 7,688 7,260 amounts paid during the year (344) (143)
Net provisions for pensions at 31 December of the year under review 81,657 77,497
The components of the net periodic pension cost for benefit plans were as follows: Net periodic pension cost in eUr thousand 2010 2009 current service cost for the year under review 2,818 2,506 interest cost 4,908 4,679 expected return on plan assets 640 478 recognised actuarial gain/loss (526) (538)
In determining the actuarial gains and losses to be recognised in the statement of income the corridor method suggested as an option in IAS 19 “Employee Benefits” is applied.
(EUR 5.8 million) under administrative expenses, EUR 1.0 million (EUR 0.7 million) under other expenses and EUR 0.7 million (EUR 0.8 million) under other investment expenses.
other liabilities in eUr thousand 2010 2009 liabilities from derivatives 77,205 21,129
Liabilities due to affiliated companies 4,833 3,285 provisions arising out of employment relationships 29,746 33,850
Development of sundry non-technical provisions balance at 31.12. 2009 currency translation at 1 January balance at 1 January of the year under review
N ot es 5.11 oTher liabiliTies Notes in eUr thousand other reclassifications changes in consolidated group additions Utilisation release currency translation at 31 December
162 Hannover Re Group annual report 2010Notes 5.12 DebT anD sUborDinaTeD capiTal 5.12 Debt and subordinated capital
750.0 million was placed through Hannover Finance (Luxembourg ) S.A. on the European capital markets. The bond has a final maturity of 20 years and for the first ten years carries a fixed coupon of 5.75% (calculated as a spread of 163 basis points over the 10-year mid-swap rate at the time of issue). It may be redeemed by Hannover Re on 26 February 2014 at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of quarterly EURIBOR +263 basis points.
Altogether four subordinated bonds were recognised as at the balance sheet date with a cost or amortised cost of EUR
Debt and subordinated capital in eUr thousand 2010 subordinated loans coupon
accrued interest and rent fair value other long-term liabilities 66 – – 66
The further rise of EUR 71.4 million in the debt to EUR 187.6 million was driven by increased borrowing requirements as a consequence of the extended investment activities of Hannover Re Real Estate Holdings, Inc. The largest debt in an amount equivalent to nominally EUR 68.4 million matures on 26 March 2015 and was accessed by the company in two tranches as at 1 April 2010 and 2 November 2010.
The ordinary expenses principally include interest expenses of EUR 85.3 million (EUR 76.7 million) resulting from the subordinated debt placed through Hannover Finance (Luxembourg ) S.A.
Net gains and losses from debt and subordinated capital in eUr thousand ordinary income/expenses amortisation net result
Facilities exist with various financial institutions for letters of credit, including two syndicated guarantee facilities from
EUR 754.5 million (EUR 1,395.1 million) as at the balance sheet date. The other 50% of this line matures in January 2012. The line from 2006, the amount of which as at the balance sheet date was equivalent to EUR 1,509.0 million (EUR
Ten to twenty years more than twenty years no maturity other long-term liabilities – – 86 – – – –
1 excluding derivatives and minority shares in partnerships 1 excluding derivatives and minority shares in partnerships
Minority interests are established in accordance with the shares held by companies outside the Group in the shareholders ’ equity of the subsidiaries.
Financial Statements” with regard to the management of capital the reader is referred to the “Financial position” section on page 73 et seq. of the management report.
166 Hannover Re Group annual report 2010Notes 6.1 gross wriTTen premiUm
Gross written premium1 in eUr thousand 31. 12. 2010 31. 12. 2009
North America 3,373,501 3,224,789 1 after elimination of internal transactions within the group across segments
67.4 million (EUR 53.1 million), net income from assets under own management of altogether EUR 942.5 million (EUR 843.6 million) was recognised in the year under review.
Unrealised gains and losses on investments (39,893) 100,571 impairments on real estate 7,314 1,253 impairments on equity securities 569 3,165
Interest income on investments in eUr thousand 2010 2009 fixed-income securities – held to maturity 124,539 102,600 fixed-income securities – loans and receivables 90,063 72,005 fixed-income securities – available for sale 583,968 566,953
Other financial assets 2,842 – – 10,125 12,967 1 including income from associated companies, for reconciliation with the consolidated statement of income 2 excluding other investment expenses
With regard to the claims and claims expenses as well as the change in the benefit reserve the reader is also referred to
Net change in benefit reserve 652,711 562,668 change in deferred acquisition costs (117,566) (52,990)
170 Hannover Re Group annual report 2010Notes 6.5 Taxes on income other technical expenses in eUr thousand 2010 2009 other technical expenses (gross) 44,574 38,892 reinsurance recoverables 391 104 other technical expenses (net) 44,183 38,788
Of the separate value adjustments, an amount of EUR 10.9 million (EUR 23.9 million) was attributable to accounts receivable, EUR 2.1 million (EUR 10.4 million) to reinsurance recoverables on unpaid claims and EUR 0.5 million (EUR 0.7 million) to other receivables.
other income/expenses in eUr thousand 2010 2009 other income exchange gains 157,691 112,533 reversals of impairments on receivables 55,655 95,879 income from the recognition of negative goodwill – 92,652 income from contracts recognised in accordance with the deposit accounting method 49,672 40,468 income from services 10,546 7,893 other interest income 5,896 1,904 other expenses other interest expenses 35,246 48,757 exchange losses 20,688 32,580 separate value adjustments 13,540 35,022 expenses for the company as a whole 39,847 33,690 expenses for services 9,321 9,698 expenses from the measurement of disposal groups 54,918 –
The reader is referred to Section 3.2 “Summary of major accounting policies” regarding the basic approach to the recognition and measurement of deferred taxes.
The tax rate used to calculate the deferred taxes of the domestic companies was unchanged from the previous year at 31.93% (rounded to 32%). It is arrived at from the corporate income tax rate of 15.0% applicable since 1 January 2008, the German reunification charge of 5.5% and a uniform trade earnings tax rate of 16.1%. The deferred taxes at the companies abroad were calculated using the applicable countryspecific tax rates.
In October 2010 the Federal Fiscal Court confirmed the decision of the lower court. Provisions constituted for these circumstances were therefore released. As a result, a non-capitalised contingent asset also existed as at 31 December 2010 in connection with the refund of prepaid taxes and interest in a substantial amount.
The breakdown of current and deferred income taxes was as follows: tax risks
Deferred taxes from loss carry-forwards 6,299 1,822 change in deferred taxes due to changes in tax rates (899) 18
Domestic/foreign breakdown of recognised tax expenditure/income in eUr thousand 2010 2009
Benefit reserve 36,148 43,126 other technical/non-technical provisions 170,844 150,513 funds withheld 308,411 531,016 accounts receivable/reinsurance payable 6,243 15,926 valuation differences relating to investments 14,517 21,739 contract deposits 84 30,533 other valuation differences 278,904 307,875 value adjustments2 (44,377) (146,651)
Benefit reserve 190,521 390,521 other technical/non-technical provisions 95,284 109,499 equalisation reserve 802,480 753,431 funds withheld 51,402 91,293
Deferred acquisition costs 363,468 380,562 accounts receivable/reinsurance payable 53,593 52,493 valuation differences relating to investments 183,523 138,533
Profit before income taxes 1,088,534 1,065,829 expected tax rate 32% 32%
Actual expense for income taxes 257,629 291,770 expiry of loss carry-forwards in eUr thousand
370.8 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 156.5 million (EUR 345.0 million) thereof was not capitalised since realisation is not sufficiently certain.
Significant elements of the unused tax loss carry-forwards, non-capitalised tax credits and other non-capitalised temporary differences were allocated to the disposal group as at the balance sheet date. This is reflected in a decrease relative to the previous year.
Availability of loss carry-forwards and tax credits that have not been capitalised:
174 Hannover Re Group annual report 2010Notes 7.1 DerivaTive financial insTrUmenTs
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 2.3 million (previous year: none).
Instruments: Recognition and Measurement” and recognised under investments. Fluctuations in the fair value of the derivative components are to be recognised in income in subsequent periods.
and “coinsurance funds withheld” (ModCo) reinsurance treaties, under which securities deposits are held by the ceding companies and payments rendered on the basis of the income from certain securities of the ceding company, the interestrate risk elements are clearly and closely related to the underlying reinsurance arrangements. Embedded derivatives consequently result solely from the credit risk of the underlying securities portfolio.
Hannover Re calculates the fair value of the embedded derivatives in ModCo treaties using the market information available on the valuation date on the basis of a “credit spread”
method. Under this method the derivative is valued at zero on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities. The derivative had a value of EUR 45.2 million (EUR 31.9 million) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss.
The derivative components of another group of contracts in the area of life and health reinsurance were measured on the basis of stochastic considerations. The measurement produced a positive derivative value of EUR 9.3 million (EUR 9.9 million) on the balance sheet date. The derivative was recognised under other financial assets at fair value through profit or loss. The valuation resulted in a charge against investment income of EUR 0.6 million (EUR 1.2 million) as at 31 December 2010.
Pursuant to IAS 39 “Financial Instruments: Recognition and Measurement” the “Eurus II” transaction gives rise to a derivative, the fair value of which as at 31 December 2010 was –EUR 6.8 million (EUR 1.5 million) and which we recognised under other liabilities as at the balance sheet date.
176 Hannover Re Group annual report 2010Notes 7.2 relaTeD parTy DisclosUres
Asset Management GmbH performs investment and asset management services for Hannover Re and some of its subsidiaries. AmpegaGerling Immobilien Management GmbH performs services for Hannover Re under a management contract.
Companies belonging to the Talanx Group granted the Hannover Re Group insurance protection inter alia in the areas of public liability, building, group accident and business travel collision insurance. In addition, Talanx AG billed Hannover Re and E+S Rück pro rata for the directors’ and officers’ (D&O)
E+S Rück are able to participate in the protection covers on the retention of Group cedants and share in the protection afforded by them. In certain circumstances Hannover Re and
E+S Rück are obliged to assume unplaced shares of the reinsurance of Group cedants from Protection Reinsurance Intermediaries AG.
122.1 million) as well as charges to income of EUR 22.2 million (EUR 20.0 million) were recognised in the year under review from all separately measured derivatives in connection with the technical account.
Positive run-offs of reserves and losses in proportional reinsurance business from the German market significantly influenced the underwriting result from business assumed from related parties in the non-life reinsurance segment.
In the 2007 financial year Hannover Re (Bermuda) Ltd. extended a loan due on 31 May 2012 with a coupon of 4.98% to
Talanx AG, the volume of which as at the balance sheet date was unchanged at EUR 51.5 million (EUR 51.5 million). The carrying amount includes accrued interest of EUR 1.5 million (EUR 1.5 million). This instrument was recognised under other invested assets.
The Group companies E+S Rück, Hannover Finance (Luxembourg ) S.A., Hannover Reinsurance (Ireland) Ltd. and Hannover Re (Bermuda) Ltd. invested in a nominal amount of EUR
150.0 million in a bearer debenture of Talanx AG with a term until 8 July 2013 and a coupon of 5.43%. The carrying amount of the instrument, which is recognised under fixed-income securities held to maturity, was EUR 153.9 million (EUR 153.9 million) and included accrued interest of EUR 3.9 million (EUR
As part of long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2010 to HDI Direkt Versicherung AG, Hannover. In addition, lease agreements exist with Talanx Service AG, Hannover, AmpegaGerling Asset Management GmbH, Cologne, and
HDI-Gerling Leben Betriebsservice GmbH, Brühl, for use of a portion of the space in our data-processing computer centre.
Furthermore, IT and management services were performed for both HDI Direkt Versicherung AG and Protection Reinsurance
HGB). These details are discussed as a whole in the remuneration report. Consequently, we have not provided any further explanation in the notes.
All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. Recognition of transactions involving stock appreciation rights with cash settlement is governed by the requirements of IFRS 2 “Share-based Payment”.
Each exercise period lasts for ten trading days, in each case commencing on the sixth trading day after the date of publication of the quarterly report of Hannover Re.
Upon exercise of a stock appreciation right the amount paid out to the entitled party is the difference between the basic price and the current market price of the Hannover Re share at the time of exercise. In this context, the basic price corresponds to the arithmetical mean of the closing prices of the
Hannover Re share on all trading days of the first full calendar month of the allocation year in question. The current market price of the Hannover Re share at the time when stock appreciation rights are exercised is determined by the arithmetical mean of the closing prices of the Hannover Re share on the
N ot es 7.3 share-baseD paymenT Notes last twenty trading days prior to the first day of the relevant exercise period.
provisions at 31.12.2010 (in eUr million) 3.90 6.10 6.48 2.05 0.03 0.02 –
Expense in the 2010 financial year (in eUr million) 3.90 2.40 2.53 0.59 0.01 – –
In the 2010 financial year the waiting period expired for 100%
of the stock appreciation rights awarded in 2000 and 2002 to 2004, 60% of those awarded in 2006 and 40% of those awarded in 2007. 1,503 stock appreciation rights from the 2000 allocation year, 7,682 stock appreciation rights from the 2002 allocation year, 52,581 stock appreciation rights from the 2003 allocation year, 29,832 stock appreciation rights from the 2004 allocation year, 95,380 stock appreciation rights from the 2006 allocation year and 10,399 stock appreciation rights from the 2007 allocation year were exercised. The total amount paid out stood at EUR 1.3 million.
Number of options at 31.12.2003 – – – – – 686,664 986,835 granted in 2004 – – – – 904,234 – –
Number of options at 31.12.2004 – – – – 844,273 626,828 849,182 granted in 2005 – – – 211,171 – – –
The average number of staff at the companies included in the consolidated financial statement of the Hannover Re Group during the reporting period was 2,130 (1,984).
employed in Germany and 1,103 (1,037) working for the consolidated Group companies abroad.
Trenton/USA, by Hannover Finance, Inc., Wilmington/USA – a subsidiary of Hannover Re –, a legal dispute exists with the former owners of Lion Insurance Company regarding the release of a trust account in an amount of around USD 14 million that serves as security for liabilities of the former owners in connection with a particular business segment.
Neither in the year under review nor in the previous reporting period were there any dilutive effects. The weighted average of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the balance sheet date. In the context of the employee share option plan Hannover Re acquires treasury shares and sells them at a later date to eligible employees. For further details please see our comments in Section 5.13 “Shareholders’ equity, minority interests and treasury shares”.
A dividend of EUR 253.3 million (previous year: none) was paid in the year under review for the 2009 financial year.
On the occasion of the Annual General Meeting to be held on 3 May 2011 it will be proposed that a dividend of EUR
Calculation of the earnings per share 2010 2009 group net income in eUr thousand 748,890 733,712 weighted average of issued shares 120,596,877 120,594,371 basic earnings per share in eUr 6.21 6.08
(Luxembourg) S.A. Hannover Re has secured by subordinated guarantee both the debt issued in 2001, the volume of which now stands at EUR 138.1 million, and the debts from financial years 2004 in an amount of EUR 750.0 million as well as 2005 and 2010 in amounts of EUR 500.0 million respectively.
As security for technical liabilities to our US clients, we have established two trust accounts (master trust and supplemental trust) in the United States. They amounted to EUR 2,576.3 million (EUR 2,341.3 million) and EUR 9.5 million (previous year: none) respectively as at the balance sheet date. The securities held in the trust accounts are shown as availablefor -sale investments. Further collateral exists in an amount of
In order to collateralise our technical liabilities, various financial institutions have furnished sureties for our company in the form of letters of credit. The total amount as at the balance sheet date was EUR 2,766.6 million (EUR 2,552.2 million).
Operating leasing contracts produced expenditures of EUR 8.2 million (EUR 5.4 million) in the year under review.
2.8 million (EUR 2.3 million) for the auditing of the financial statement and EUR 0.1 million (EUR 0.1 million) for tax consultancy services. Expenditure of EUR 0.5 million (EUR
0.1 million) was incurred for consultancy and other services performed for the parent or subsidiary companies in the year under review.
In a press release dated 22 December 2010 we reported that
Ltd., Hamilton. Since this transaction was still subject to the customary regulatory approvals at the time when the consolidated financial statement was released for publication, it remains our expectation that the sale will be closed in the second quarter of 2011.
Whereas it had previously been necessary to post collateral for 100% of the technical reserves, the required collateral level for Hannover Re now stands at just 20%.
The subordinated debt of EUR 350.0 million issued in 2001 through Hannover Finance (Luxembourg) S.A. can be called for the first time on 14 March 2011 and has a remaining volume of EUR 138.1 million after the offer made in 2005 to existing issue holders to exchange into a new bond. As announced on 1 February 2011, the issuer exercised its call option and will repay the outstanding bond volume in full effective 14
March 2011. Further details of the debt are provided in section 5.12 “Debt and subordinated capital”.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW).
Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and group management report.
Report by the Supervisory Board of Hannover Re for the Hannover Re Group
In our function as the Supervisory Board we considered at length during the 2010 financial year the position and development of the company and its major subsidiaries. We advised the Executive Board on the direction of the company and monitored the management of business on the basis of written and verbal reports from the Executive Board. The Supervisory Board held four meetings in order to adopt the necessary resolutions after appropriate discussion. A resolution was adopted by a written procedure with respect to one matter requiring attention at short notice. We received quarterly written reports from the Executive Board on the course of business and the position of the company and the Group. These reports describe, inter alia, the current planned and expected figures for the individual business groups. The reporting also covers strains from major losses as well as the investment portfolio, investment income, ratings and the development of the Group’s global workforce. The quarterly reports with the quarterly financial statements and key figures for the