Operating result (EBIT) Figures in EUR million 1 Based on US GAAP
Hannover Re Escritório de Representação no Brasil Ltda. Rio de Janeiro, Brazil
Earnings per share (diluted) in EUR 6.06 (1.05) 5.98 4.27 0.41
Book value per share in EUR 30.78 +31.2% 23.47 27.77 24.03 21.57
1 Incl. financial reinsurance and specialty insurance 2 Bonus 3 Incl. funds withheld 4 Natural catastrophes and other major losses in excess of EUR 5 million gross for the Hannover Re Group‘s share 5 Operating result (EBIT)/net premium earned
These materialised in part in connection with our acquisition of a large US life reinsurance portfolio, and can also be attributed to the reduced risk premiums for corporate bonds. Even if these one-off effects – which doubtless will not be repeated on this scale – are factored out, the outcome of the 2009 financial year was quite outstanding both for the life and health reinsurance business group and for Hannover Re as a whole.
With a view to turning the positive tendency that manifested itself in the year under review into a long-term trend, we are continuously refining our business models in non-life and life/health reinsurance and exploring new business opportunities. With this in mind, we put in place in the year under review the structures needed to systematically and consistently identify such opportunities and hence generate attractive new business.
The passing of the baton at the top of your company and the reshuffling of responsibilities on the Executive Board associated with this changeover passed off smoothly. Reflecting the division of responsibilities on the Board, we now split our non-life reinsurance portfolio into three segments – namely
Australia and winter storm “Klaus” in Europe. A number of sizeable individual losses, such as in aviation business, were also incurred. Overall, though, the burden of major claims and catastrophe losses was below the expected level.
In life and health reinsurance, as I have already mentioned, not only healthy double-digit organic growth but also an acquisition brought about a vigorous surge in premium income and results. The assumption of a large portfolio of
States – in which we had previously been under-represented. Yet the acquisition will also bring about even better diversification of our revenue streams, because life reinsurance – which is characterised by greater stability – will account for an even greater share of the total portfolio. The sharp surge in profitability in life and health reinsurance derives from the good performance of our worldwide activities in this area. The already mentioned non-recurring positive effects were a further factor here.
More than 90% of our investments are made in fixed-income securities with a concentration on government bonds or bonds backed by government guarantees as well as corporate bonds of very good quality. In view of the current low level of interest rates, this risk-averse investment policy led, on the one hand, to a diminished return relative to the previous year. On the other hand, the write-downs taken were considerably lower than in the previous year as financial markets moved back towards normality. It should also be mentioned that the investment income positively reflected the one-off effect associated with the reversal of unrealised losses on so-called ModCo derivatives. Furthermore, we expanded our investments in real estate as planned in the year under review. In contrast, we refrained from investments in listed equities in the year under review, for two reasons: firstly, we do not yet consider the environment to be sufficiently stable and, secondly, investments in listed equities would result in a substantial capital commitment in the capital models used by rating agencies. In light of our good opportunities to acquire attractive reinsurance business, we decided to use the capital on the underwriting side rather than to invest in stocks.
Having fallen in 2008 against the backdrop of the financial crisis, our share price developed favourably in the year under review with an increase of 45%.
As you, our valued shareholders, will recall, we announced a dividend of at least two euro per share prior to the end of the third quarter. In view of the good result, the Supervisory Board and Executive Board will propose to the
Ordinary General Meeting that you should be paid a dividend of 2.10 euro per share.
The treaty renewals as at 1 January 2010 passed off satisfactorily for our company overall, although it should be noted that modest rate erosion was observed – especially in property lines. In credit and surety reinsurance as well as aviation reinsurance, on the other hand, we were able to obtain further rate increases. All in all, we still expect conditions to be commensurate with the risks, and this should enable us to generate our targeted margins. In life and health reinsurance, too, we have already been able to tap into promising business opportunities in many areas at the outset of 2010. Overall, at constant exchange rates we again expect to be able to generate moderate growth in our premium income for 2010.
From left to right: dr. Michael Pickel, Roland vogel, ulrich Wallin, André Arrago, Jürgen Gräber, dr. Wolf Becke
Yet the broad range of support measures and interest rate cuts initiated by central banks in the previous year as well as the bank rescue funds and economic stimulus packages launched by numerous governments started to have an effect: the financial sector began to stabilise, while the first pieces of good news and optimistic sentiment indicators brought about a trend reversal on equity markets towards the end of March. By the end of the first half-year most stock market indices had regained or even surpassed their levels at the opening of the year. Stock exchanges in many emerging countries enjoyed particularly marked surges.
Thanks to improved economic data the recovery was sustained into the second half-year. By year-end the Dow
The general downslide at the start of the year also impacted the Hannover Re share, which slipped to its lowest point of the year on 27 January 2009 with a closing price of EUR 20.64. However, it was subsequently able to decouple itself from the broad downward trend: initially, the share profited greatly from the outcome of our treaty renewals as at 1 January, and it then enjoyed lively demand following its surprising inclusion in Germany's bellwether
In early May the publication of very good figures for the first quarter prompted another sharp upward surge, which was then followed by a period of consolidation. The unremarkable third quarter of 2009 – especially with an eye to hurricane events – as well as the very pleasing figures for the second quarter, which were published in early August, ultimately led to higher price targets for our share. Our share price climbed vigorously, reaching EUR
34.65 on 14 October – its high for the year. The exit from the DAX on 21 September, which was only to be expected after the general economic recovery, had no significant effect on the share price.
Many analysts anticipated difficult treaty renewals at year-end, prompting a consolidation of the Hannover Re share in the range of EUR 32 to 34. Closing at EUR 32.71 on 30 December 2009, our share posted a performance of
EUR 10.21 or 45% in the year under review, hence comfortably outperforming the DAX and MDAX. The price decline of the previous year was thus more than offset.
“Trading volume over the past 12 months” with a volume of EUR 3,586 million for the year. According to both criteria the Hannover Re Group thus ranks among the 40 largest listed companies in Germany.
With a book value per share of EUR 30.78 the Hannover
As far as the dividend for the 2009 financial year is concerned, we intend to propose to our shareholders at the
We expanded our Investor Relations activities in the year under review in order to counter the uncertainty among market players about Hannover Re's further development.
London, Frankfurt and New York, we also travelled to Boston, Paris, Luxembourg, Zurich and Edinburgh as well as other business centres.
life reinsurance portfolio and the future development of our US subsidiary Hannover Life Reassurance of America, the life reinsurance market in the United Kingdom, credit and surety reinsurance and the level of our reserves.
Turning to the breakdown of our free float by countries, the proportionate holding attributable to Germany fell by an appreciable 6% in the year under review to 36.5%, while the US share increased by 4.2% to 26.0%. Shareholders in Luxembourg also enlarged their stake, specifically by 1.8% to 4.1%. The relative holdings attributable to other countries changed only marginally relative to the end of the previous year.
Interest in our company among analysts was again very lively in the year under review and gained added impetus from the inclusion of our share in the DAX. All in all, 38 analysts handed down more than 200 recommendations for Hannover Re in 2009. Based on the data for the first nine months of 2009, 32 analysts recently published the following opinions: fourteen recommended the Hannover
“underweight” or “sell” were issued. In the course of 2009 the average analysts' opinion clearly improved. At the same time the average target price for our share rose sharply to stand at EUR 36.71 at the beginning of 2010.
36.5% Germany 26.0% United States 20.4% United Kingdom 5.0% Belgium 4.1% Luxembourg 3.2% Switzerland 2.0% France 2.8% Other
Annual General Meeting: 4 May 2010, 10:30 h Hannover Congress Centrum, Kuppelsaal Theodor-Heuss-Platz 1–3, Hannover, Germany
Profit and value creation are the basis of sustainable development in the interests of our shareholders, clients, employees and other business partners. We strive to be one of the three most profitable reinsurers in the world. We are a “somewhat different” reinsurer, meaning that we are a well diversified multi-specialist with whom our clients enjoy working and are driven by an aspiration to excellence in all our actions.
Return on equity of at least 750 basis points above the “risk-free” interest rate. Triple-10 target; allocation of capital to generate the maximum riskweighted profit; increase in the share price > Global
Positive return on equity in at least nine out of ten years 4. Motivated employees
Skills and motivation just as crucial to success as capital resources 5. Lean organisation
Effective and efficient organisation geared to business processes; safeguarding of know-how and cost leadership
Highly capable – rating of at least “AA–” from S&P and “A+” from A.M. Best
Observance of all external requirements in order to avoid business, liability and reputational risks 1. Performance Excellence
Our holistic management system of “Performance Excellence” ensures consistent execution of our strategy. We improve our performance systematically and continuously under all excellence criteria and subject our accomplishments to both internal and external assessments.
Our corporate guidelines and other rules and regulations as well as our business processes and daily actions are always consistent with external requirements. We thus avoid business, liability and reputational risks that could harm our commercial activities. By defining and implementing clear standards we also deliver efficient and effective support for attainment of our corporate objectives.
One of the overriding issues of the year under review was the global economic crisis. The winter of 2008/2009 witnessed the most severe crash in the world economy since the Second World War. Most notably, the sharp contraction in global trade at the beginning of the year ushered in a deep recession. It impacted first and foremost the large industrial nations, which had to absorb a record fall in their economic output. Since the spring the economy has been on course for recovery. A crucial factor here was the stabilisation of the financial markets, a success attributable primarily to massive central bank intervention as well as the announcement of state assistance programmes and guarantees for the financial sector. Government stimulus packages also left a positive mark on the real economy.
By year-end the situation on the world's financial markets had eased appreciably, and the economic climate had improved virtually everywhere. New orders, output and global trade all showed improvements. The experience of past economic phases shows that recessions associated with banking and real estate crises are usually only slowly overcome. The problems affecting the financial sector have still to be remedied, and the decline in capacity utilisation is expected to bring rising unemployment. Positive stimuli are anticipated from the continuing effects of the economic stimulus programmes and the robust development of emerging markets.
Against the backdrop of the global recession and the financial market crisis, GDP in Germany contracted by 5.0% in the year under review. The German economy declined markedly at the start of the year; owing to its strong export orientation it suffered extremely heavily under the collapse of international demand. From the second quarter onwards the situation recovered somewhat as exports stabilised and thanks to the car scrappage scheme, which had a positive effect on consumption. Economic activity was fostered by fiscal stimuli and a continued expansionary monetary policy. Unlike in most countries, a massive surge in unemployment was avoided – in large measure thanks to short-time working arrangements. By the beginning of 2010 the German economy had entered a period of recovery, although it remains in a highly fragile state.
In the rest of the Eurozone, too, the economic situation began to pick up in the middle of the year. Total economic output was expanded in the third quarter for the first time since the first quarter of 2008. The trend in manufacturing in the various member states of the Eurozone nevertheless varied widely. While Germany and Italy, for example, recorded appreciable growth rates, output in
The Japanese economy was also hard hit in the winter of 2008/2009 on account of its dependence on exports. As early as the second quarter of the year under review, however, exports enjoyed renewed moderate growth. By the end of the year Japan, too, had entered a very clear recovery phase – albeit one that is driven very heavily by exports.
to take risks again. Many market segments saw the onset of a marked recovery in March, which has been sustained to date. At the same time, yields on long-dated government bonds increased, although they are still relatively low.
March of the year under review. The shift in sentiment was attributable to the sharp cuts in key lending rates implemented by the world's major central banks, the various national economic stimulus programmes and bank rescue funds as well as the realisation that after the collapse of Lehman Brothers governments would not allow any more banks of systemic importance to fail.
States, Japan and the United Kingdom interest rates were close to zero, while in Europe the ECB slashed the prime rate to 1.0%. At the same time all key central banks massively stepped up their efforts in 2009 to prop up the supply of liquidity to the banking sector.
The US dollar lost ground against other currencies, including the euro, in the year under review. The weakness of the greenback fanned demand for gold, which enjoyed an upward trend in 2009 – the consistency of which was unmatched by any other form of investment – and reached a new record price in December. By year-end the dollar was able to move slightly higher against the euro.
Most insurance undertakings have hitherto withstood the crisis relatively well. In this context, the focus in the year under review was on prices commensurate with the risks.
Solvency II Directive are to be implemented by the member states in national law by 2012.
As a capital management tool for our clients, the appeal of reinsurance grew in the year under review – especially in capital-intensive segments of non-life reinsurance. We were consequently able to push through appreciable rate increases in 2009, which even ran into the double-digit percentages in some lines such as credit and surety reinsurance. Although our expectations exceeded the price increases achieved in certain areas, we were highly satisfied overall with the development of the non-life reinsurance business group. In the context of these market opportunities we succeeded in growing our premium income in the year under review – appreciably so – after years of declining volume.
The various rounds of treaty renewals again demonstrated that ceding companies attach considerable importance to a reinsurer's rating, especially where the underwriting of long-tail casualty business is concerned. In this case a very good rating is a prerequisite for any provider seeking to be offered and awarded the opportunity to write the entire spectrum of business. With our very good ratings
Another positive factor was the reversal of unrealised losses on securities deposits held by ceding companies for the account of Hannover Re.
The portfolio of assets under own management showed further growth to reach EUR 22.5 billion thanks to positive cash inflows from the technical account. Ordinary income fell slightly short of the comparable figure for the previous year at EUR 810.5 million (EUR 829.8 million)
owing to generally lower interest rates. Deposit interest rose to EUR 276.8 million (EUR 199.6 million). Writedowns of EUR 141.3 million (EUR 479.9 million) were taken on securities (excluding real estate), including EUR
Gross premium by business group 55.9% Non-life reinsurance 44.1% Life and health reinsurance
10.3 billion (EUR 8.1 billion). At constant exchange rates the premium volume would have grown by 26.1%. As a consequence of the financial market crisis our capital market transaction “K6” was placed with a reduced volume; the retention therefore increased from 89.1% to 92.6%.
We are highly satisfied with the development of our business results. The operating profit (EBIT) increased exceptionally vigorously to EUR 1.1 billion. The net income of just EUR 148.1 million booked in the 2008 financial year had been shaped by the repercussions of the financial market crisis. Group net income for 2009 soared by EUR
858.2 million to EUR 731.2 million, in part assisted by special effects associated with the ING life reinsurance portfolio as well as by funds withheld by ceding companies. Earnings per share stood at EUR 6.06 (–EUR 1.05).
We use retrocession, i.e. the passing on of portions of our covered risks to other reinsurers, as a means of risk reduction. In the course of the year the reinsurance recoverables on unpaid claims – i.e. receivables due to us from our retrocessionaires – decreased to EUR 1.7 billion (EUR 2.1 billion). We continue to attach considerable importance to the quality of our retrocessionaires: 96.0% of the companies with which we maintain such business relations have an investment grade rating of “BBB” or better from
In the following section we discuss the development of the financial year on the basis of our two strategic business groups, namely non-life reinsurance and life/health reinsurance. In addition, the segmental report provided in the annual financial statement shows the key balance sheet items and profit components broken down into the individual business groups.
Non-life reinsurance is our largest and most important 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. In view of the positive state of the market we extended our involvement in various regions and segments in the year under review. While rates in the previous year had still been notable for softening tendencies, we were able to obtain stable prices – and in some cases even increases – in the treaty renewals as at 1 January 2009, the time of year when roughly two-thirds of our portfolio is renegotiated. In some markets and lines the increases even ran into double-digit percentages. This was especially true of catastrophe business, which had suffered losses in 2008, as well as worldwide credit and surety reinsurance. German business continued to be attractive.
– such as US casualty business – were still not adequate.
In accordance with our profit-oriented underwriting policy, we therefore further reduced our exposures in these areas.
The already existing licence to transact life and health reinsurance in China was extended in 2009 to include non-life reinsurance. Going forward, both business groups will be operated directly out of our Shanghai office. This strengthened presence enables our clients to
Earnings per share in EUR 3.92 (1.33) 4.56 3.97 0.04 1 Including Financial Reinsurance and Specialty Insurance 2 Including expenses on funds withheld and contract deposits
In the year under review eleven leading reinsurers came together to form the “Global Reinsurance Forum”. Hannover Re, too, is a member of this interest group, which will focus on supervisory issues, legal concerns, tax matters and accounting questions.
As far as new business developments are concerned, we are now also participating in the area of micro-insurance.
Within the scope of our extended activities in the field of
sions. The amount of capital made available totals altogether USD 60 million, of which Hannover Re keeps a share of around USD 5 million in addition to carrying losses that exceed the capacity of “Fac Pool Re”. The transaction has a term of two and a half years.
The burden of catastrophe losses remained below average in the year under review, in part thanks to a rather unremarkable hurricane season. Despite a series of devastating natural disasters, the repercussions on the reinsurance industry were mostly slight. The largest single event in 2009 for our company was the severe bush fires in Australia at a cost of EUR 34.7 million, followed by winter storm “Klaus” with a strain of EUR 33.8 million. The crash of the Air France Airbus resulted in a loss of EUR 33.8 million for Hannover Re.
(EUR 1,586.3 million). The combined ratio stood at 104.7% in the year under review, after 99.0% in the previous year. The operating profit (EBIT) for the target markets totalled EUR 118.8 million (–EUR 90.4 million).
Rück continues to rank as one of the leading providers in
The general economic environment in Germany was difficult on account of the repercussions of the financial market crisis. Most significantly, the protracted economic downturn – which bottomed out towards the middle of the year under review – led to a historically low interest rate level. Results in lines such as motor insurance – which
In the latter case this was especially true of motor business, an important line for our company. Compared to the original market, however, the climate on the reinsurance side was more favourable, i.e. rates and conditions continued to be broadly adequate.
In motor liability insurance the positive trend towards a falling claims frequency observed in recent years was not sustained. It increased slightly in the year under review
comprehensive insurance also took a brighter turn, although we were unable to generate an adequate result here.
In the second half of the year the economic climate in the
United States recovered somewhat from the adverse effects of the financial and economic crisis. Consumption also picked up slowly, aided by continued low interest rates. With write-downs returning to normal levels and investment income bouncing back, the equity position of primary insurers improved surprisingly sharply relative to 2008. According to an analysis carried out by an institute specialising in insurance stocks, the financial
Breakdown of gross written premium in Germany by line of business 35.4% Motor 25.3% Liability 7.1% Accident 32.2% Property
situation of insurers in the United States has returned to the previous year's level after a vigorous recovery in the second quarter. For this reason, demand for reinsurance grew only insignificantly in the US. The trend towards carrying increased retentions was not, however, sustained in the year under review.
(NAIC) as well as of individual US states to improve conditions for foreign reinsurers as a very sensible move.
Based on its long-standing business relationships, its expertise and especially its excellent financial standing,
With a view to further diversifying our portfolio we again scaled back the share of larger cedants in the year under review, while at the same time expanding our business relationships with mid-sized regional players and mutual insurers. This business segment has been progressively enlarged over the past five years. Our concentration on these clients will continue to be the focus of our activities, with greater weight attached to strategically oriented customer relationships.
We quite deliberately did not seek to extend our market share in 2009, since we still do not consider business to be sufficiently attractive in certain segments. We nevertheless continue to form part of the small group of reinsurers that are preferentially approached for placement and pricing on account of their rating and market standing.
EUR 2,233.9 million. The combined ratio stood at 96.5%, compared to 97.2% in the previous year. The specialty lines delivered an operating profit (EBIT) of EUR 256.4 million (EUR 2.7 million).
All in all, we are satisfied with the development of our marine business. The combined ratio stood at 78.1%.
In international aviation reinsurance we similarly rank among the market leaders. These risks are written predominantly through the London Market.
The year under review suffered under higher-than-average loss expenditure. The largest individual loss for our company was the crash of an Air France jet with a net strain of EUR 33.8 million. Other major claims to impact our account were a plane crash in the United States and two satellite losses.
Against the backdrop of higher insolvency figures, insurers were faced with significantly increased claims rates in the year under review; this was particularly true of the credit line. Dramatic rehabilitation of the business was therefore initiated. Premiums thus climbed by low doubledigit percentages while exposures were reduced. In some
The recession triggered by the financial market crisis had significant repercussions on global trade: fewer goods were shipped at lower prices, causing the premium volume in cargo insurance to contract. Since the values of vessels have fallen, premiums in hull insurance also declined. Taken together with lower commodity prices, however, this trend had positive effects with regard to claims inflation.
On the reinsurance side demand was stable: thanks to risk-adequate conditions the market was in a good state, and we were able to obtain higher prices. Prices surged especially vigorously in offshore business owing to the heavy burden of losses in the previous year. Our underwriting policy focuses first and foremost on more profitable non-proportional business. In the Gulf of Mexico we consolidated our exposures and further reduced our limits of liability. In this line we were seeking to accelerate the enlargement of our portfolio outside the United States and
As far as major claims were concerned, 2009 was a relatively untroubled year worldwide. The largest single event was the total loss of a drilling rig off the coast of Australia with a net strain of EUR 16.9 million.
Breakdown of gross written premium in specialty lines 15.1% Aviation 32.8% Structured reinsurance 21.0% Credit/surety19.2% United Kingdom & direct business 11.9% Marine
Parallel to the measures undertaken to restore credit insurance to profitability, government assistance programmes were launched in most European countries; they are intended to facilitate access for risks of a lower quality to credit insurance covers. In Germany, too, such a programme was implemented. Experience to date has shown that these measures do not, however, call into question the business model operated by credit insurers.
The experience of our political risks business was satisfactory. In this segment, too, significant rate increases were pushed through.
We are thoroughly satisfied with the development of structured reinsurance products. Implementation of the insurance supervision act regulating structured reinsurance products in Germany as well as an ordinance issued by the
The surge in demand was also driven by capital depletion at primary insurers – induced by the financial market crisis. This was especially true of surplus relief contracts.
What is more, increased demand could be felt around the world for loss portfolio transfers and multi-year excess of loss arrangements to provide combined protection for retentions. The latter reduces the volatility of results and thus also optimises equity requirements according to Solvency II.
With the capital market environment improving over the course of the financial year, demand for surplus relief con-
In keeping with our strategy of regional diversification, we further enlarged our portfolio in Europe. Yet we were also able to raise our profile and write new business in
We are one of the two largest providers of structured covers in the world and can draw upon many years of experience as regards actuarial, balance sheet, accounting and underwriting expertise. Our range of products is geared to optimising our clients' cost of capital.
In the year under review we further intensified the cooperation with our regional departments writing traditional reinsurance, thereby enabling us to offer our clients the full spectrum of our company's products and services.
We succeeded in enlarging our premium volume in the year under review.
In view of the repercussions of the financial market crisis, catastrophe bonds and similar securitisation instruments played a minor role in the year under review. It was therefore all the more gratifying that we were able to renew our
“Eurus” catastrophe bond – first issued in 2006 – in the year under review. Instead of the originally planned EUR
75 million, we were able to place double the volume, i.e.
The “Fac Pool Re” facility marks the first time that we transferred a portfolio of facultative risks to the capital market. At stake here is not the protection of our business, but rather the direct transfer of our clients' business. With this type of risk structuring and packaging we enable ceding companies to pass on individual risks to the capital market. At the same time investors are able to access risks that would otherwise be out of their reach. The amount of capital made available under “Fac Pool Re” totalled USD
Insurance-Linked Securities GmbH & Co. KG – which currently administers exclusively own funds of Hannover Re
– was boosted from USD 100 million to USD 150 million on account of the successful experience.
the adverse effects primarily impacted the banks. Prices for professional indemnity insurance consequently also rose sharply, particularly for financial institutions. In the casualty sector Hannover Re again profited from its very good rating.
In motor business we were able to secure moderate rate increases. Although we maintain a small number of longterm business relationships, we generally pursue an opportunistic underwriting policy in the London Market.
Kingdom and the South African company Compass Insurance Ltd., a subsidiary of Hannover Re Africa, we write direct business that complements our principal business activity as a reinsurer. This involves, inter alia, acceptances concentrated on tightly defined portfolios of niche or other non-standard business.
In the year under review we stepped up our involvement in the professional indemnity lines for these clients and generated substantial premium growth. Covers for attorneys, an area in which we expanded in 2009, were an especially prominent factor here. A new addition to our
portfolio in the UK is legal protection insurance, a segment which we expect will bring attractive business opportunities. We considerably enlarged the overall premium volume in the year under review.
South African MUA Insurance Company Ltd., which was acquired in the previous year, to an underwriting agency.
Its core business is the insurance of high-value motor vehicles. Thanks to expanded activities in this sector as well as in the insurance of minibus taxis, we were able to substantially enlarge our motor portfolio. An increase in premium income was also booked in the fire line.
We are satisfied with the development of our direct business in the year under review.
We combine all markets worldwide under global reinsurance, with the exception of our target markets of Germany and North America and the specialty lines. This segment also encompasses a number of specialised areas such as worldwide catastrophe business, facultative reinsurance, agricultural risks and Sharia-compliant retakaful business.
The combined ratio improved to 87.9%, after 88.5% in the previous year. The operating profit (EBIT) climbed by 295.8% to EUR 356.2 million (EUR 90.0 million).
Italy Hannover Re is considered one of the leading reinsurers in the Italian market. Despite cutthroat competition, we were able to consolidate our core portfolio of qualitatively high-value business and moderately extend our involvement. Assisted by an above-average rating, we are thus in a position to tap into a sizeable business potential.
This was due to the major loss experience. The severe earthquake in Abruzzo cost our company EUR 11.2 million. The train accident in Viareggio left us with a burden of around EUR 5 million.
france Rates in France largely held stable. Our goal was to preserve the profitability of our portfolio in the face of a sometimes unsatisfactory premium level. We largely accomplished this aim, although the motor line – in which prices are insufficient – still proved problematic. Hannover Re is the number two player in the market, and we are the leader in the builder's risk and personal accident lines.
In builder's risk insurance we are pursuing a long-term strategy of consistent expansion. We therefore continued to grow our portfolio in 2009, and now rank among the market leaders.
We enlarged our overall premium volume. France was impacted by a number of natural catastrophe events in the year under review, including winter storm “Klaus”. The resulting loss burden was modest, however, owing to our low share of catastrophe-exposed business.
Solvency II standards, smaller insurers in the Netherlands are finding themselves forced to merge. This trend was observed again in the year under review. The more exacting requirements placed on risk management ultimately prompted the purchase of more catastrophe covers.
In the markets of Northern Europe we strive to play a leading role, especially in the mutual insurers segment. We prefer client relationships that are geared to the long term. In cases where we do not consider loyalty considerations a relevant factor, we write our business opportunistically. The intense competition in both the insurance and reinsurance sectors shows no signs of diminishing.
All in all, we are thoroughly satisfied with the development of our business in Central and Eastern Europe. Our premium volume was once again enlarged in the year under review – while maintaining unchanged our high profit margins.
In Brazil we have maintained a representative office and operated as an “admitted reinsurer” since 2008. We were thus able to acquire additional market shares in the year under review, first and foremost in the casualty lines.
with the exception of Argentina – was previously underrepresented in our portfolio. No major losses were incurred. All in all, we are thoroughly satisfied with the development of our business.
Japanese market. Long-term business relations are traditionally of great importance in Japan. Thanks to our very good rating we were again a particularly highly soughtafter 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 loss experience in the year under review was moderate. Typhoon “Melor” produced only minimal strains for our account. Overall, we are very satisfied with the results of our Japanese business.
Lines such as personal accident, crop and livestock insurance as well as terrorism covers and structured reinsurance products were systematically expanded.
Rates and conditions in the original market – aside from engineering business – again failed to improve in the year under review. Reinsurance, on the other hand, developed more favourably in some areas. We pursue an opportunistic underwriting policy in China, but were able to expand our treaty portfolio in the year under review thanks to good conditions. Our overall premium volume came in considerably higher in 2009.
Hannover Re had previously only been licensed to transact life/health reinsurance in China. This licence extension gives us the optimal point of departure for further enlarging our position in China, one of Asia's largest insurance markets.
industry in the year under review. Most importantly, losses on the investment side and low interest rates stepped up the pressure to stabilise underwriting results. Rate increases were therefore evident across all segments. Significantly higher prices could sometimes be obtained under loss-affected programmes.
The strategy guiding our global catastrophe business in the year under review was to reduce peak risks and assume exposures in smaller markets as well as in regions where the risks are not as great. We successfully accomplished this goal.
Although reinsurance capacities for catastrophe covers were scarce in the United States, they were certainly adequate. The rate increases obtained in Florida – one of the largest markets for catastrophe business – nevertheless fell short of expectations. We therefore reduced our peak exposures in this region too. Appreciable rate increases were possible in the rest of the US under programmes that had been impacted by loss events such as hurricane “Ike”
While the major loss picture in global catastrophe business was moderate in the year under review in terms of loss expenditure, there were again numerous human tragedies. In January the European winter storm “Klaus” left our company with a net loss burden of EUR 33.8 million.
– it is rather low in developing and emerging markets. Yet here, too, agricultural insurance is increasingly being adopted as a means of risk protection. The deregulation of the Brazilian market is just one of the factors that have led to sharply rising premium income. All in all, growing demand can be observed worldwide for reinsurance capacities in the area of agricultural covers. Our company, for its part, has launched new products and cemented our shares in traditional markets. In developing markets such as Brazil, Peru, China, Southeast Asia and Eastern Europe
We write retakaful business – that is to say, insurance business 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 Arab world.
Given a number of new start-ups by regional reinsurers, the year under review was notable for growing competition. Although the economic situation failed to build on the prosperity of the previous year, we were able to increase our premium income in 2009. The country with the largest volume was Saudi Arabia.
Overall, we are highly satisfied with the development of our retakaful business – which in our assessment continues to offer considerable potential.
In the year under review we profited from the capacity shortages affecting a number of reinsurers. Yet neither in
We grow only in those areas that we believe offer adequate profitability. Overall, our premium volume increased in the year under review. We have consistently expanded our market position in recent years and continue to see considerable potential for profitable growth in facultative reinsurance.
The explosion at a hydroelectric plant in Russia produced a net loss of EUR 11.9 million. We were satisfied with the development of our facultative reinsurance business in the year under review; the combined ratio stood at 94.9%.
Reinsurance activities in the life, annuity and health insurance lines are combined under the worldwide Hannover Life Re brand. We also reinsure personal accident insurance in this business group, insofar as it is transacted by life insurers.
In terms of markets, the weakening of the capital and solvency position of many life insurers around the world triggered brisk demand for tailored reinsurance solutions –
with a central focus on financially oriented reinsurance models. We have placed particular emphasis on block assumption transactions, under which we assume existing blocks of policies that are closed to new business via quota share reinsurance arrangements. In several cases our clients indicated their interest in reinsurance solutions of this type in the 2010 year as well.
Our strategic orientation in the US market reached a milestone with the assumption of a large portfolio of US life insurance risks containing more than four million reinsured policies and generating annual premium income in excess of USD 1.0 billion. Along with this diversified portfolio, we also took over a number of other asset items –
The life branches established in Asia in 2008 in the cities of Shanghai and Seoul have successfully executed their strategies for market entry and are now recognised providers in the local life markets – in China, for example, we have now built up more than 40 customer relationships.
In India, too, our cooperation with the market's leading reinsurer GIC Re is living up to expectations, and we were able to acquire the first sizeable treaties. In Brazil, with the backing of our representative office in Rio de Janeiro, we are systematically pursuing the cooperation with
Malucelli Re and were able to acquire the first four cedants.
Overall, we considerably strengthened our international market position and now rank among the leading providers in a number of major insurance markets. In the year under review we thus moved another significant stride closer to attaining our goal of claiming the number 3 spot in the global market within the foreseeable future.
(almost 40%) of Hannover Life Re's total premium volume. The US acquisition in the spring of 2009 for the first time boosted this share to more than 44%, i.e. an amount of around EUR 2.0 billion, in the year under review. The four specialty segments of financial solutions, partnerships with multinational clients, new markets and banc-
with the exception of new markets – they contracted in relative terms.
The UK pension market also constitutes a strong growth segment. We cooperate here with a number of specialist providers and cover the biometric risk of longevity by way of so-called longevity swaps.
As in the past, we continue to place great emphasis on the cultivation of long-term relationships with our major cedants and we attach paramount importance to the principle of identity of interests between insurers and reinsurers.
The gross premium income booked in the year under review totalled EUR 4.5 billion, an increase of 44.5% relative to the previous year's figure of EUR 3.1 billion. While the assumption of the US portfolio accounted for EUR 0.8 billion in premium volume, organic growth in the year under review was also on a pleasing double-digit percentage level.
At constant exchange rates the gross premium would have grown by 46.2%. Net premium earned came in at EUR 4.1 billion, while the retention stood at 90.7%.
The United States took over as the most important single market for the first time thanks to the acquisition of the
US mortality portfolio: it accounted for 37.3% of total premium income in the year under review. The United Kingdom, by far the largest European life reinsurance market, now ranks second with 24.0%, while the German market occupies the number three slot with 9.6%.
Asian markets and those of Latin America are of less importance in terms of their absolute volume.
Our acceptances continue to be concentrated on the life and annuity lines, i.e. the assumption of mortality and longevity risks, which altogether contributed 86.6% of total premium income booked worldwide.
Asian markets as well as disability annuities in Australia, accounted for 11.5% of premium volume, while 1.9% was attributable to individual accident business from various countries. We do not participate in the reinsurance of long-term financial guarantees in connection with deferred unit-linked annuities.
• development of the three biometric risks of mortality, morbidity and longevity, the structural risk associated with the persistency of the business in force as well as the specific client-related counterparty risk in connection with financing transactions,
We traditionally devote particular attention to lean processes, an efficient personnel structure and short lines of decision-making. Internal administrative expenses totalled EUR 98.3 million in the year under review, corresponding to 2.2% of gross written premium. Our administrative expense ratio is thus significantly lower than that of our major competitors.
With a tax ratio of 19.7% and after allowance for minority interests, consolidated net income after tax thus came in at EUR 295.5 million (EUR 78.3 million), an all-time record for Hannover Life Re. This was equivalent to earnings of EUR 2.45 per share.
Act, which entered into force on 1 January 2008. This reform brought significant changes in market practices with respect to the transparency of policies, premature contract termination and the participation of customers in life insurers' hidden reserves.
Equally notable was the marked rise in lapses, which for the market as a whole grew in the space of twelve months from 5.5% to over 6% of the portfolio, i.e. by around 15%
Another noteworthy development was the sharply growing interest shown by insurers in reshaping their application processes; in this respect E+S Rück is optimally placed thanks to its long-standing experience in the area of system-supported application processes. Based on this positioning it was possible to write several reinsurance treaties in the year under review with new and existing clients.
Hannover Life Re continues to be the market leader for the reinsurance of UK enhanced annuities with a reduced payment period. Their profitability in the year under review was hampered by a widening of interest rate spreads on investments furnished to one of our cedants in connection with securities deposits. It is our expectation that these losses will be largely made good by the middle of
UK business placed with HLR Ireland and HLR Bermuda, our reinsurance business from the United Kingdom generated a premium of EUR 1.1 billion; of this amount, 60.3% was attributable to business written by Hannover
HLR network was reinforced in February 2009 through the extensive assumption of mortality risks under our acquisition in the United States. The company received an equity injection of EUR 410 million to assist with solvency and capital requirements. The premium volume was double that of the previous year, surpassing the one billion euro mark for the first time to reach EUR 1.2 billion.
(EUR 0.8 million), while the EBIT margin generated by this subsidiary stood at 16.9%. Net income after tax consequently came in at EUR 176.6 million. This can be attributed to a satisfactory risk experience and an excellent investment result, influenced not least by the aforementioned non-recurring effects – which played a decisive part here.
The premium volume grew by 32.8% to EUR 494.1 million, and margins were again good. Key growth drivers – as in previous years – were the bancassurance segment, most notably our successful efforts to support French banks as they moved into European markets abroad, as well as the
Near East. In this region we were able to further extend our leading position as a life reinsurer.
In Arab markets we attach special strategic importance to insurance business transacted in accordance with Islamic standards; this sector is served by our Bahrain-based
– known as family takaful – written by Hannover ReTakaful enjoyed vigorous growth thanks to the acquisition of several new clients; with a premium volume of EUR 7.9 million it was already able to cover its costs in the first financial year.
As in past years, reinsurance acceptances in this region are written from Hannover Home Office, although our offices in Milan and Madrid are closely integrated into key aspects of customers support and service provision on a local basis.
Premium income climbed 8.7% to EUR 76.5 million, reflecting above all the enlargement of our Italian portfolio; profitability was again highly satisfactory.
The premium volume booked by the Stockholm life branch fell from EUR 81.3 million to EUR 66.7 million owing to the weakness of the Swedish krona and Norwegian krone as well as a reduced share in a major Swedish contract.
Responsibility for the US life market is borne by our subsidiary Hannover Life Re America, which is headquartered in Orlando and maintains an underwriting office for group life business on Long Island/New York.
Our activities in the year under review were concentrated on financially oriented covers for US clients and on those areas of health insurance for seniors handled by the private sector, namely Medicare Supplement and Medicare
The assumption of a significant portfolio of US mortality risks in the first quarter of 2009 under a specially tailored reinsurance transaction marks a turning-point for our positioning in the traditional US mortality market.
Our subsidiary Hannover Life Re Bermuda can report a highly gratifying business development in the year under review. It offers a broad spectrum of reinsurance solutions on a worldwide basis, maximising Bermuda's edge as a favourable insurance business environment to the benefit of our ceding companies.
America and Japan. In its second full financial year the company wrote six new reinsurance treaties.
The gross premium of HLR Bermuda totalled EUR 113.2 million, of which the company retained EUR 112.8 million. The operating profit (EBIT) grew to EUR 15.9 million
It concentrates on traditional risk-oriented individual and group life business, although for a number of years it has also written sizeable financing transactions in the South
Cooperation with a number of new insurers specialising in alternative distribution channels such as direct marketing or internet marketing has also proven to be a promising business segment. In addition, we gave our support to a new life insurer in South Africa that has launched the
Our other African business, which accounts for roughly 7.5% of the premium volume booked by HLR Africa, is showing a pleasing trend. Through a strategic alliance with a professional reinsurer based in Lagos we have gained access to the important life insurance markets of
The premium volume generated from this region, in which we have singled out bancassurance for special emphasis, remained almost unchanged year-on-year at EUR 101.5 million. Conditions are satisfactory given our adherence to a conservative underwriting policy, and profitability in the year under review again lived up to our expectations.
Japan. In many markets we also noted a resurgence of interest in risk-oriented offerings designed to provide income and asset protection for policyholders.
In Korea and China we now rank among the leading reinsurers for new business, having attained a high market penetration of more than 80% in China. In Japan we have repositioned ourselves with a new team equipped with special actuarial expertise.
In Southeast Asia we consolidated our position in Malaysia and Singapore, and appreciably strengthened our presence in Vietnam. In India we built up the local infrastructure in Mumbai and – assisted by our strategic cooperation with GIC Re – were able to acquire our first sizeable reinsurance participations.
For many years now HLR Australasia has also been involved in the segment of occupational retirement provision, known as superannuation funds. It concentrates on assuming the biometric risks of mortality and disability, but does not take any part in the capital accumulation of these provision schemes.
Premium income fell by 13.5% to EUR 251.3 million due to withdrawal from an earlier block assumption transaction with an Australian cedant. Although the claims experience with disability annuities was not satisfactory, the company posted an improved result thanks to higher income from retrocessions: the operating profit (EBIT) rose to EUR 28.4 million, corresponding to an EBIT margin of 25.0%. Net income after tax was also very attractive at
Overall, our investment income in the year under review was favourably affected by the turmoil on international capital markets in the first half of the year and the recovery that set in during the second six months.
While yields fell on European government bonds – especially those with short and medium-dated maturities –, they increased in the longer-dated range. Yields on US
treasury bonds increased across virtually all maturity segments, sometimes markedly so. The resulting negative fair value effects were, however, more than offset by the reduction in risk premiums for corporate bonds. Overall, this had positive implications for the development of the fair values of the fixed-income portfolio, hence considerably boosting unrealised negative gains in the course of the year. While the US Federal Reserve left its key interest rates unchanged during the period under review at 0.00%
The return on ten-year US treasury bonds climbed appreciably from 2.1% to 3.8% in the course of the year. A
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.
With these goals in mind we engage in active risk management on the basis of balanced risk/return analyses. In this context we observe centrally implemented investment guidelines and are guided by the insights of dynamic financial analysis. These measures are intended to safeguard the generation of an appropriate level of return while at the same time staying within our clearly defined risk appetite.
Investments in EUR million net investment income Figures in EUR million
Ordinary investment income fell slightly short of the previous year at EUR 810.5 million (EUR 829.8 million). This was due to lower reinvestment yields than those attainable in the course of the previous year.
The balance of our deposit interest and expenses was sharply higher at EUR 276.8 million (EUR 199.6 million).
In light of increased fair values, these write-downs contrasted with write-ups of EUR 20.1 million (previous year: –)
–EUR 113.6 million in the previous year. Unrealised gains on our asset holdings measured at fair value through profit or loss amounted to EUR 100.6 million, contrasting with unrealised losses of –EUR 119.7 million in the previous year. The positive development can be attributed primarily to the derivatives embedded in US life reinsurance contracts.
thanks first and foremost to the development of unrealised gains and the considerably lower volume of write-downs.
in short-term assets and current assets at the end of the year under review. Funds withheld by ceding companies amounted to EUR 12.2 billion (EUR 9.6 billion).
375.3 million was invested in private equity funds, a further EUR 353.2 million in high-return bond funds and loans as well as CDOs and altogether EUR 108.6 million in structured real estate investments. The uncalled capital with respect to the aforementioned alternative investments totalled EUR 328.8 million.
In the year under review we continued our strategy of investing more heavily in real estate. Various properties have already been acquired in Germany and the United
Highly skilled and motivated staff have been instrumental in the success enjoyed by Hannover Re today. Continuously fostering our employees' expertise and motivation therefore continues to be one of the most important keys to securing our company's future and constitutes the foundation of our human resources policy. Our personnel management activities in the year under review were concentrated on the areas of employer branding, competency management, succession planning and training.
The Hannover Re Group employed 2,069 (1,812) staff as at 31 December 2009. The turnover ratio at Home Office in Hannover of 2.3% (3.3%) was higher than in the previous year. The rate of absenteeism – at 3.2% – was slightly higher than in the previous year (2.7%). The turnover ratio and rate of absenteeism thus continued to be comfortably below the industry average.
The demographically-induced decline in graduate numbers will exacerbate the situation going forward. Hannover Re accepts these challenges and is developing measures to ensure that it continues to succeed on the recruitment market.
With a view to formulating a targeted strategy in the “War for Talents”, it was first necessary to obtain valid information on the relevant target groups for Hannover Re (university graduates in the disciplines of economics and mathematics with an international orientation). We commissioned a company specialising in this field to conduct a nationwide study. Data was collected on the expectations directed towards a future employer, the preferred media used by jobseekers and the current image of Hannover Re. The findings also included a competition analysis broken down into industries and rivals with whom
The external survey was supplemented by an internal workshop carried out with employees of our company in order to identify the qualities that – from an insider's perspective – set Hannover Re apart.
Our new profile combines images of nature with catchy adjectives and stimulating job titles that bring out the company's dynamism, diversity and modernity. What is more, the appeal of the tasks available at Hannover Re is made even clearer through in-depth job descriptions.
Image advertising and job adverts, our employment fair stand, careers website and brochures have all been modified to fit the new look.
In 2009 Hannover Re again carried out systematised succession planning. This survey is generally conducted in a biennial cycle. It constitutes an important component of both risk management and competency development.
Detailed discussions with the highest management levels of our company constitute the basis of succession planning. In general terms, it may be stated that our company does not face any serious succession problems. Potential successors already stand ready within the company for the vast majority of current management positions – both at home and abroad.
Another issue that dominates our human resources activities is demographic change. An internal study revealed that we can preserve and enhance the already high job satisfaction and performance capability of our staff by fostering improvement of their work/life balance. We offer a variety of measures in this connection, having added stress management sessions to our range of activities in
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. This includes the responsible underwriting of risks and diligent risk management, since these are vital conditions for assuring the quality of our business over the long term. Hannover
Re consequently strives to be one of the three most profitable reinsurers in the world and consistently enhances its position. In so doing, our premise of achieving growth through self-generated profits and wherever possible avoiding imbalances that could necessitate capital measures continues to apply unchanged. Our operations are thus guided primarily by profitability considerations and we concentrate on attractive segments of reinsurance business.
External standards shape our corporate guidelines and hence also our daily actions. Hannover Re thus minimises business, liability and reputational risks that could have a detrimental effect on its commercial activities. By defining clear parameters we support the efficient and effective accomplishment of our corporate objectives. Companywide guidelines, such as the Code of Conduct, help our staff to successfully master the often complex ethical and legal challenges encountered as part of their day-to-day work.
In 2007 Hannover Re joined forces with other companies and organisations in the city of Hannover and Greater
Hannover region to participate in the “Ecological Project for Integrated Environmental Technology” (Ecoprofit).
In addition, as part of the “Climate Alliance Hannover 2020”, we play our part in efforts to accomplish the state capital's goal of cutting climate-threatening greenhouse gas emissions to levels 40% lower than in 1990 by the year 2020. Our specific contributions will be regularly checked every two years from 2011 onwards.
Within the German Insurance Association (GDV) we are participating in a working group to develop a method of
Hannover Re reviews other activities that contribute to the conservation and sustainable preservation of resources within the scope of regular Business Excellence assessments.
Carbon emissions of Hannover Re at its Home office location 62.5% Business travel 35.4% Electricity 2.1% (District) heating
For a number of years Hannover Re has participated in the survey conducted as part of the “Carbon Disclosure
Project” (CDP). The CDP serves to gather and publish qualitative data on the subject of climate change in order to motivate investors, businesses and countries to contribute actively to climate protection. Through our involvement we receive information on where we stand with our efforts to economise – especially as regards carbon emissions – relative to international standards. Regular participation in the study supports our ongoing process of internally reviewing the steps we have taken to cut back.
The transfer of knowledge between business and research is an important element of our core commercial activities.
Among other things, this exchange is indispensable for the underwriting and assessment of catastrophe risks. For some years now we have therefore supported the Geo Research Center in Potsdam, which engages in the systematic investigation and early detection of earthquakes.
Yet we also set great store by our dialogue with universities. We assist a number of institutions of higher learning in Germany in a variety of ways – for example the University of Hannover, where we sponsor an endowed professorship in actuarial science.
We are aware of our responsibility as a major company in the Greater Hannover region, and we strive to award contracts locally where possible so as to foster businesses based here.
Social commitment is also something that Hannover Re takes very seriously, and the assumption of social responsibility constitutes a core element of our corporate culture. For the second time we organised a Christmas tree campaign, in which staff at Hannover Re helped to realise the dreams of children at a local children's home.
These are just two examples of Hannover Re's various projects on the international level.
For many years Hannover Re has also dedicated itself to supporting the fine arts. In 1991, for example, we launched an art foundation that benefits the Sprengel Museum Hannover and we regularly make works of art available to this institution as permanent loans. The interest earned on the foundation's capital is used to acquire these pieces. Guided tours make this collection accessible to interested sections of the broader public.
Hannover through its participation in the latter's partner programme: in our role as a “kestnerpartner” we are able to promote the society's work on a continuous and lasting basis.
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 thus an integral component of entrepreneurial actions and is reflected in the detailed strategies of the various divisions.
As an internationally operating reinsurer we are confronted with a broad diversity of risks that are indivisibly bound up with our entrepreneurial activities and which manifest themselves differently in the individual business groups and geographical regions. Both the company strategy and the risk strategy are therefore subject to regular review. Through this regular scrutiny of our assumptions and any resulting adjustments, we ensure that our strategic principles and hence also our actions are guided by the latest insights.
The overriding goal of our risk management is to adhere to our strategically defined risk positions and to ensure that sufficient capital resources are available at all times.
We attach central importance to the following elements of our risk management system: • Management and monitoring of individual risks so that the total risk remains within the permissible tolerances
• Regular review of the efficiency of systems and, as appropriate, adjustment to the business environment and/
or the changed risk situation within the scope of our internal risk management and control system
• 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
• Documentation of the vital elements of the system in mandatory instructions
In the year under review our risk management was assessed by Standard & Poor's as “Strong”, the second-best
Hannover Re has developed an internal capital model for risk quantification as a central risk management tool. The purpose of risk quantification is inter alia to evaluate the capital resources of the Hannover Re Group and its individual companies. In addition, the model is used to establish the risk contribution made by individual business segments to the total company risk as well as the riskappropriate allocation of the cost of capital.
The internal capital model of Hannover Re is a stochastic enterprise model that establishes probability distributions detailed strategies (Central) divisions, subsidiaries Risk strategyCompany strategy
Risk Committee • Monitoring and coordinating body with respect to operational risk management
Internal Auditing • Process-independent review of all functional areas of Hannover Re
Framework Guideline, govern inter alia the handling of new products, monitoring of the risk-bearing capacity, risk reporting and responsibilities within the system as a whole. Our risk reporting is geared to providing systematic and timely information about risks and their potential implications as well as ensuring adequate communication within the company about all material risks as a basis for decision-making. Regular quarterly reporting to the Risk
UK, L on do n m ar ke t & di re ct bu sin es s
Glob al tre at y Tot al 1 In contrast to 2008 calculation of required capital according to economic valuation principles
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).
Another key element of the overall system is the Framework Guideline on the Internal Control System (ICS). The purpose of this set of rules is to ensure systematic execution of our company strategy with a special eye to capital protection. In addition, we thereby support our strategic action fields of “Corporate Governance” and “Compliance ”. In accordance with these principles, the Framework Guideline puts in place a consistent appreciation of controls as well as a uniform procedure and standards for implementation of the ICS across all organisational units of Hannover Re.
The Framework Guideline defines concepts, stipulates responsibilities and provides a guide for the description of controls. In addition, it contributes to the accomplishment of internal objectives and the fulfilment of external requirements imposed on Hannover Re. The ICS consists of systematically structured organisational and technical measures/controls within the enterprise. It serves, inter alia, to safeguard compliance with guidelines and to reduce risks in the interests of secure execution of company strategy. This includes, among other things: • Documentation of the controls within processes, especially in accounting
A significant technical risk is the reserving risk, i.e. the risk of under-reserving losses and the associated strain on the underwriting result. In order to counter this risk we calculate our loss reserves on an actuarial basis, where necessary supplemented by additional reserves based on our own actuarial loss estimations and the IBNR (incurred but not reported) reserve for losses that have already occurred but have not yet been reported to us.
reserve. The IBNR reserve is calculated on a differentiated basis according to risk categories and regions. The
The statistical run-off triangles used by our company are another monitoring tool. They show how the reserve has changed over time as a consequence of paid claims and the recalculation of the reserves that are to be established as at each balance sheet date. Their adequacy is monitored using actuarial methods (cf. here Section 6.7
Winter storm "Klaus" in France and Spain, 23-25 January 34.9 33.8
are stipulated for various extreme loss scenarios and return periods in light of profitability criteria. Adherence to these limits is continuously verified by the central risk monitoring function. The Risk Committee, the Executive
Hannover Re's treaty departments prepare regular reports on the progress of the various treaty renewals. The reporting in this regard makes reference inter alia to significant changes in conditions, risks (such as inad equate premiums ) as well as to emerging market opportunities and the strategy pursued in order to accomplish targets.
3 Natural catastrophes and other man-made major losses > EUR 5 million gross for the share of the Hannover Re Group as a percentage of net premium earned
All natural catastrophe risks, net exposure 100-year aggregate annual loss 958.0 91%
Counterparty, lapse and catastrophe risks – e.g. with an eye to pandemics – are also material since we also prefinance our cedants' new business acquisition costs. As in non-life reinsurance, the reserves are essentially calculated according to information provided by our clients and are also determined on the basis of secure biometric actuarial bases.
Through our own quality assurance measures we ensure that the reserves established by ceding companies in accordance with local accounting principles satisfy all requirements with respect to the calculation methods used and assumptions made (e.g. use of mortality and disability tables, assumptions regarding the lapse rate etc.). New business is written in all regions in compliance with underwriting guidelines applicable worldwide, which set out detailed rules governing the type, quality, level and origin of risks. These global guidelines are revised annually and approved by the Executive Board. Country-specific special underwriting guidelines give due consideration to the particular features of individual markets.
(valid as of 31 December 2008), the table shows the MCEV
(EUR 280.0 million), while the value of new business stood at EUR 150.5 million (EUR 106.4 million). The development relative to the values for the previous year was in line with our expectations. Regarding the change in the previous year's figure, please see the “European
MCEV for the 2009 financial year on our Internet website at the same time as the quarterly report for the first quarter of 2010.
The overriding principle guiding our investment strategy is capital preservation while giving adequate consideration to the security, liquidity, mix and spread of the assets. 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.
Share price risks derive from unfavourable changes in the value of equities and equity or index derivatives. We spread these risks through systematic diversification across various sectors and regions. Having reduced our exposure to listed equities to a marginal holding during the previous year and refrained from any investments in this asset class in the year under review, scenarios for changes in equity prices naturally have only minimal implications for our portfolio.
A multi-factor model is used to calculate the VaR indicators for the Hannover Re Group. The multi-factor model is based on time series of selected representative market parameters (equity prices, yield curves, spread curves, exchange rates, commodity prices and macro-economic variables). All correlations between these time series are reduced by analysis to a reasonable number of main components. All asset positions are mapped on the level of individual positions by the APT model, i.e. the market price risks of all individual positions are reduced through mathematical operations to the market price risk factors 1 More extensive information is provided in the EEV/MCEV reports published on our website. The presentation is based on the EEV/MCEV principles for publication, which are defined by the CFO Forum.
The CFO Forum is an international organisation of Chief Financial Officers from major insurance and reinsurance enterprises.
of the model. Residual risks (e.g. market price risks that are not directly explained by the multi-factor model) can be determined through back-calculation and are accommodated in the overall calculation on the supposition of non-correlation.
VaR calculation, thereby making greater allowance for special scenarios that we observed in the context of the recent upheavals on capital markets. The values for the period prior to recalibration were adjusted accordingly in the graph. Despite the resulting slight increase, our VaR
Stress tests are conducted in order to be able to map extreme scenarios as well as normal market scenarios for the purpose of calculating the VaR. In this context, the loss potentials for fair values and shareholders' equity
(before tax) are simulated on the basis of already occurred or notional extreme events. Further significant risk management tools include the performance of various stress tests to estimate the loss potential under extreme market conditions as well as sensitivity and duration analyses and asset/liability management (ALM). The internal capital model provides us with quantitative support for the investment strategy as well as a broad diversity of VaR
Further information on the risk concentrations of our investments can be obtained from the tables on the rating structure of fixed-income securities as well as on the currencies in which investments are held. Please see our comments in Section 6.1 “Investments under own management ”.
The contracts are concluded solely with first-class counterparties and exposures are strictly controlled in accordance with the restrictive parameters set out in the investment guidelines so as to avoid risks – especially credit risks – associated with the use of such transactions.
The credit risk consists primarily of the complete or partial failure of the counterparty and the associated default on payment. Also significant here is the so-called migration risk, which results from a rating downgrade of the counterparty and is reflected in a change in fair value.
Security Committee continuously monitors the credit status of retrocessionaires and approves measures where necessary to secure receivables that appear to be at risk of default.
(cession management). Depending on the type and extools used to monitor and manage our credit risks
1 (Shareholders' equity + minority interests + hybrid capital)/net written premium 2 Hybrid capital/shareholders' equity + minority interests (Debt)
Gross written premium retained 1 Including financial reinsurance and specialty insurance scenarios for changes in the fair value of our securities in EUR million Scenario Portfolio change based on fair value
The key ratios for management of our bad debt risk are as follows: • 96.0% of our retrocessionaires have an investment grade rating (“AAA” to “BBB”).
• 30.5% of our recoverables from reinsurance business are secured by deposits or letters of credit. What is more, for the majority of our retrocessionaires we also function as reinsurer, meaning that in principle recoverables can potentially be set off against our own liabilities.
• The average default rate over the past three years was
For further remarks on technical and other assets which are unadjusted but considered overdue as at the balance sheet date as well as on significant impairments in the year under review please see Section 6.4 “Technical assets” and Section 6.6 “Other assets” as well as section 7.2 “Investment result”.
Credit risks from investments may arise out of a failure to pay (interest and/or capital repayment) or change in the credit status (rating downgrade) of issuers of securities.
Corporate bonds Covered bonds/ asset-backed securities in % in EUR million in %
in EUR million 1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings
On a fair value basis EUR 2,569.9 million of the corporate bonds held by our company were issued by entities in the financial sector. Of this amount, 1,846.2 EUR million was attributable to banks. The vast majority of these bank bonds (almost 90%) were rated “A” or better. Our investment portfolio under own management does not contain any directly written credit derivatives.
Against the backdrop of the wave of illness caused by the
A/H1N1 virus Hannover Re took a number of preventive steps to protect its staff. Among other things, they were kept constantly updated on the latest news. In addition, the crisis management team held regular meetings to consider at length the issue of an influenza pandemic.
The hallmark of emerging risks (such as nanotechnology, climate change) is that the content of such risks cannot as yet be reliably assessed – especially with respect to our treaty portfolio. Such risks evolve gradually from barely perceptible signals to unmistakable tendencies. It is therefore vital to detect such risks at an early stage and then determine their relevance. For the purpose of early detection we have developed an efficient process that spans divisions and lines of business and ensures its linkage to risk management, thereby making it possible to pinpoint any necessary measures (e.g. ongoing observation, the implementation of contractual exclusions or the development of new reinsurance products).
A good corporate reputation is an indispensable prerequisite for our core business as a reinsurer. It often takes decades to build up a positive reputation, yet this reputation can be damaged or even destroyed within a very brief space of time. Management of this risk is made possible by our fixed communication channels, a professional approach to corporate communications, tried and tested processes for defined crisis scenarios as well as our established Code of Conduct.
The proportion of investment holdings that can be liquidated on any trading day without a mark-down was around 50% as at the balance sheet date, a reflection of the high liquidity of our portfolio.
Tax Act. Insofar as tax assessments to this effect have already been received, appeals have been filed – also with respect to the amounts already recognised as a tax expense. Now that our opinion has been confirmed in full by the court of the first instance, we continue to regard as slight the risk that tax assessments containing additional taxation of investment income generated by Irish companies will be upheld.
Our overriding strategic objective is to be one of the three most profitable reinsurers in the world and to increase our profit and the value of the company by a double-digit percentage every year.
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.
Both concepts reflect the specific characteristics of the individual segments. Together, they constitute the basis for our central management tool: Intrinsic Value Creation
With the aid of IVC it is possible to compare the value contributions of the Group as a whole, its two business groups and the individual operational units. This enables us to reliably identify value creators and value destroyers.
With Performance Excellence (PE) we have at our disposal a consistent method Group-wide that enables us to measure how the company is evolving and to what extent we have achieved our strategic objectives, while at the same time accommodating the specific conditions of the various treaty departments and service units. The local approach used by PE is of special importance in this context: it is incumbent upon every single organisational unit to continually reassess and enhance its value contribution to the Hannover Re Group. In so doing, however, we never lose sight of the big picture.
system of value-based management: Performance excellence (Pe) combines the strategic and operational levels
Internal management reporting is drawn up twice a year, tiered according to areas of responsibility. In the first place, the achievement of objectives in the past year is reviewed here, and secondly the planning is assessed with an eye to the strategic objectives.
In addition, the interest on hybrid capital, minority interest in profit and loss and extraordinary profits and losses are eliminated. We consider the allocated capital to be the shareholders' equity plus minority interests, the balancing items for differences between present values and carrying amounts as well as the hybrid capital. Capital is allocated to the profit centres according to the risk content of the business in question. In this context, the risks associated with the assets under own management have to date been allocated to the non-life reinsurance business group, hence explaining the sharply negative value for 2008. Going forward, in order to be able to distinguish between the value contribution from investments and the 1 Including financial reinsurance and specialty insurance 2 Operating profit (EBIT)/net premium earned 3 750 basis points above the risk-free return 4 MCEV increase on the basis of the adjusted MCEV of the previous year after elimination of capital changes and changes from currency effects.
7 Risk-free interest rate + cost of capital 8 Excluding tax effect targets until 2009
Growth in book value per share ≥ 10% 31.2% (15.5%) 15.6% 11.4% 3.0%
IVC will be shown for the functional area of investments from 2010 onwards.
Pricing Model (CAPM) – is that the investor's opportunity costs are 450 basis points above the risk-free interest rate.
Since comparison of absolute amounts is not always meaningful, we have introduced the xRoCA (Excess Return on Capital Allocated) in addition to the IVC. This describes the IVC in relation to the allocated capital and shows us the relative excess return generated above and beyond the weighted cost of capital. Once they have been calculated we communicate the IVC and xRoCA for the reporting year in the second quarter in various media, including on our website.
Value management is not limited to the specification and determination of a value-based ratio, but also encompasses the definition of so-called value drivers. These describe action fields through which the value creation can be influenced.
The IVC for the Group should be defined as close as possible to the annual financial statements so that the IVC can also be used for external reporting. On the other hand, the
1 In 2005 to 2007 the present value components are based on the European Embedded Value (EEV), from 2008 onwards they are based on the Market
Re's liabilities and equity is 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 2009, split into equity, loans and subordinated capital, technical provisions and other liabilities, in each case as a percentage of the balance sheet total.
We ensure that our business is sufficiently capitalised at all times through continuous monitoring and by taking appropriate steering actions as necessary. For further information please see the section “Management of policyholders ' surplus”.
Within the scope of our asset/liability management the allocation of investments by currencies and maturities is determined by the technical liabilities. The modified duration of our bond portfolio – at 3.7 – is geared largely to the average maturity of the technical liabilities. We thereby adjust the maturity pattern of the fixed-income securities to the expected payment patterns of our liabilities and reduce the economic exposure to the interest rate risk. In addition, through active and regular management of the currency spread in our fixed-income portfolio we bring about extensive matching of currencies on the assets and liabilities sides of the balance sheet, as a consequence of which fluctuations in exchange rates have no significant influence on our result. At year-end 2009 we held 44.6% of our investments in euro, 37.9% in US dollars and 6.5% in pound sterling.
The preservation and consistent enhancement of its capital is a key strategic objective for Hannover Re. In recent years hybrid capital has been issued as an equity substitute in order to keep the cost of capital as low as possible.
With the aim of achieving this goal, Hannover Re's capital management extends to the policyholders' surplus. The policyholders' surplus is defined as the sum total of
Hannover Re uses “Intrinsic Value Creation” (IVC) as its central value-based management tool. For more information on this concept as well as the objectives and principles in accordance with which we conduct our enterprise management and capital management the reader is referred to our remarks on value-based management on page 67 et seq. of this report.
Capital structure 81.3% Technical provisions and liabilities 10.1% Equity 3.5% Loans and subordinated capital 5.1% Other liabilities
Hannover Re satisfies the capital expectations of the rating agencies that assess the Group's financial strength with an eye to our targeted rating. 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. The parent company ensures that the local minimum capital requirements applicable to subsidiaries are always satisfied in accordance with the official requirements defined by insurance regulators.
December 2008, it increased by EUR 922.5 million in the year under review to EUR 4.3 billion. After adjustment for minorities, it increased by EUR 881.9 million to EUR 3.7 billion. The book value per share increased accordingly by 31.2% to EUR 30.78. The changes in shareholders' equity were shaped chiefly by the following movements.
The Group net income for 2009 attributable to the shareholders of the Hannover Re Group climbed to EUR 731.2 million (–EUR 127.0 million).
Net unrealised gains on investments reached EUR 241.6 million, a figure EUR 127.7 million higher than at the beginning of the year under review. This rise derived in particular from the fall in the risk-free interest rate and the credit risk charges for corporate risks, as a consequence of which the net unrealised gains on our fixed-income securities classified as available for sale were further boosted.
The reserve for currency translation adjustment improved slightly by EUR 23.5 million to –EUR 224.1 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
EUR 40.7 million to EUR 542.1 million as at 31 December 2009. This increase derived primarily from the minority interest in profit of EUR 40.3 million generated in the year under review.
We generate liquidity primarily from our operational reinsurance business, investments and financing measures.
Common shares and additional paid-in capital development of policyholders' surplus in EUR million
Change in cash and cash flow equivalents according to cash flow statement 27.2 94.8
The cash flow from operating activities, which also includes inflows from interest received and dividend receipts, amounted to EUR 1.8 billion in the year under review as opposed to EUR 1.5 billion in the previous year.
The net cash outflows from investing activities amounted to altogether EUR 1.8 billion in 2009, as against EUR 1.0 billion in the previous year. Along with the acquisition of real estate, predominantly in the United States and Germany, the funds were used primarily to enlarge the portfolio of high-quality fixed-income securities. Investments were made principally in government bonds. This contrasted with cash inflows from the acquisition of the US
Regarding the development of the investment portfolio please see also our remarks in the “Investments” section of the management report.
EUR 318.7 million in the previous year, net inflows of EUR
57.7 million were recorded in the year under review. This change was due first and foremost to the decrease of EUR
EUR 1,481.3 million (EUR 1,420.0 million) as at the balance sheet date.
In addition, unsecured syndicated guarantee facilities exist with a number of financial institutions. For detailed information on existing contingent liabilities please see the notes, Section 6.12 “Debt and subordinated capital”
Effective 31 March 2009 Hannover Re exercised the call option allowed under the bond conditions – permitting scheduled redemption of the debt at nominal value for the first time – for the subordinated debt issued by Hannover
For further explanatory notes please see our remarks in the notes to this report, Section 6.12 “Debt and subordinated capital” and 6.13 “Shareholders' equity, minority interests and treasury shares”.
The common shares (share capital) of the company amount to EUR 120,597,134.00. They are divided into 120,597,134 registered no-par-value shares.
The following company holds direct or indirect capital participations that exceed 10% of the voting rights: 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.
Act. Amendment of the Articles of Association is governed by §§ 179 et seq. Stock Corporation Act in conjunction with § 16 Para. 2 of the Articles of Association of Hannover Re.
The powers of the Executive Board with respect to the issue and repurchase of shares are defined in Hannover
Re's Articles of Association as well as in §§ 71 et seq.
Declaration of Conformity pursuant to § 161 Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code at Hannover Rückversicherung AG: 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 pur­
Board of German listed companies to provide an annual declaration of conformity with the recommendations of the “German Corporate Governance Code Government
spect from the version of the Code dated 6 June 2008
Management Board contracts). In its implementation of the version of the Code dated 18 June 2009 Hannover
dations in one respect: Code Item 4.2.3 Para. 4; Caps on severance payments in
tual consent. Even if the Supervisory Board insists upon setting a severance cap when concluding or renewing an
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.
Supplementary note on Code Item 3.8; D&O insurance, appropriate deductible for members of the Management
forts in the field of Corporate Governance are driven by the goal of achieving sustainable growth in the value of the company and consolidating the trust placed in the enterprise by our business partners, staff, shareholders and the general public through integrity at all times. On this basis Hannover Re supports the principles of valuebased and transparent enterprise management and super­
In the year just­ended, as in previous years, the company again had to adapt to numerous new statutory regulations in the area of Corporate Governance. German legislators alone adopted the Act on the Modernisation of Account­
plementation of the Shareholder Rights Directive – to name but a few. What is more, the German Corporate
ket crash and economic crisis. The new regulations affect virtually all areas of corporate governance and imple­
panies when it came to compliance with the provisions of the Code. Based on the version of the German Corporate
DAX- and MDAX-listed enterprises. On average, companies listed on the DAX and MDAX satisfied 80 and 76 respec­
it of state­of­the­art Corporate Governance. It continues to be enshrined in the company's business practices as a matter of course and it not limited to rigid adherence to formal rules. The Executive Board and Supervisory Board consistently address changes in the relevant legal frame­
The Supervisory Board again conducted a review of the efficiency of its work using a self-assessment question­
Governance Officer in strict confidentiality and made available to the Supervisory Board in anonymised and aggregated form at its meeting held on 10 March 2010.
duct. Compliance with our Code of Conduct will further strengthen the company's standing in the eyes of the pub­
An interim compliance report for 2009 was submitted to the Supervisory Board setting out the structure and di­
wide whistleblower system, the report concludes that no grounds can be identified for suspecting significant breaches of relevant standards. By strengthening our per­
pliance with statutory provisions – not only in terms of their letter but also their spirit – is our overriding priority.
The risk management system applicable throughout the entire Hannover Re Group is based on the risk strategy, which in turn is derived from the company strategy. A
Re work together on a trusting basis to manage and mon­
tion/modification of investment guidelines require the consent of the Supervisory Board. In addition, the Super­
position of the Supervisory Board and its committees is set out on page 192 of this Annual Report.
operation geared to the interest of the whole is the founda­
tion of success. In this context, the members of the Ex­
ecutive Board bear joint responsibility for the overall management of business. Irrespective of their overall re­
sponsibility, each member of the Executive Board leads their own area of competence at their individual respon­
gested 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 Supervi­
pendent auditor for the financial statements. It considers matters associated with the necessary independence of the auditor, the awarding of the audit mandate to the in­
The Standing Committee prepares personnel decisions for the Supervisory Board and decides in lieu of the Supervi­
It exercises the powers arising out of § 112 Stock Corpora­
Supervisory Board members pursuant to Items 4.2.5 and 5.4.6 of the German Corporate Governance Code
vided in section 8.2 of the notes and in the remuneration report with respect to the members of the Executive
The remuneration report summarises the principles used to determine the remuneration of the Executive Board of
pervisory Board on the basis of its work for Hannover Re and its affiliated companies and the principles according to which this remuneration is determined are described.
remuneration of the executive Board responsibility The Supervisory Board has hitherto delegated responsi­
tion of the total remuneration makes direct allowance for the joint and individual performance of the Executive
Structure of the remuneration received by the executive Board With this objective in mind, the remuneration system con­
sists 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 measured by the performance in the financial year; half is based on the individual Board member's profit contribution (perform­
ance bonus) and half on the net income generated by the
The members of the Executive Board are also entitled to receive stock appreciation rights under the virtual stock option plan implemented in 2000 for certain members of the Group's management.
Under these conditions, stock appreciation rights are awarded separately for each financial year provided the internal and external performance criteria defined in ad­
fect from 1 January 2010 as a consequence of the Act on the Adequacy of Management Board Remuneration.
For further details of the virtual stock option plan please see the explanations provided in the notes to this Group
preciation rights granted have also been included in the total remuneration at their fair value on the date when they were granted. The figures for the previous year have been adjusted for comparative purposes since the presen­
tation last year was based on the cash receipts and dis­
In the 2009 financial year no stock appreciation rights were granted for the 2008 allocation year because the internal performance criterion was not satisfied; in the previous year 215,280 stock appreciation rights totalling EUR 0.5 million were granted for the 2007 allocation year. Stock appreciation rights granted in previous years were exer­
nual retirement pension calculated as a percentage of the fixed annual emoluments. Commitments also exist on the basis of a defined contribution scheme. There were five
bers in the year under review. An amount of EUR 1.5 million (EUR 1.5 million) was allocated to the provision for pensions in the year under review. This includes the allocation to the employee­funded provision constituted from deferred compensation – an allocation that was made from the variable bonus for the previous year. The provi­
December 2009. In addition, contributions to a pension fund in an amount of EUR 0.05 million were paid.
total remuneration received by the executive Board in teUr 2009 2008 2007 remuneration from group companies netted with the bonus 116.7 113.5 145.3 stock appreciation rights granted2 – 527.3 1,197.9 taxable amount from non-cash compensation 144.7 91.1 84.9
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 on 1 January of the subsequent year, the stock appreciation rights to be awarded for the financial year are expensed in subsequent years.
Sideline activities of the members of the executive Board The members of the Executive Board require the approv­
This ensures that neither the remuneration granted nor the time required for this activity can create a conflict with their responsibilities on the Executive Board. If the sideline activities involve seats on supervisory boards or comparable control boards, these are listed and published in the Annual Report of Hannover Re. The remuneration received for such seats at Group companies is deducted when calculating the variable bonus and shown separate­
In accordance with § 12 of the Articles of Association as amended on 3 August 2007, the members of the Supervi­
10,000 per member in addition to reimbursement of their expenses. Furthermore, each member of the Supervisory
Committee formed by the Supervisory Board receive an additional emolument of 15% of the previously described fixed and variable remuneration for their committee work.
The Chairman of the Supervisory Board or of a Committee receives three times the aforementioned amounts, while a Deputy Chairman receives one­and­a­half times the said amounts.
While the remuneration in the following individualised presentation was geared to the date of cash receipt in the previous year, the presentation in the 2009 financial year was modified such that the expense charged to the finan­
cial year in question is shown. Since the remunerations for a financial year become due at the end of the Annual
neration paid to employee representatives on the basis of their employment contracts.
Hannover Re's Executive Board or Supervisory Board, nor did the company enter into any contingent liabilities for members of the management boards.
Wolf-Dieter Baumgartl Chairman (until 5 may 2009) of the – supervisory Board – standing Committee – Finance and audit Committee – nomination Committee member (from 6 may 2009) of the – supervisory Board – standing Committee – Finance and audit Committee – nomination Committee
Uwe Kramp1 member of the supervisory Board Fixed remuneration 10.0 10.0
tive Board or Supervisory Board of Hannover Re or by other persons with managerial functions who regularly have access to insider information concerning the com­
sions – as well as such dealings conducted by certain per­
sons closely related to the aforementioned individuals – in excess of EUR 5,000 are to be reported pursuant to § 15a
Securities Trading Act (WpHG). The following reportable transactions took place in the 2009 financial year.
Members of the Supervisory Board and Executive Board of Hannover Re as well as their spouses or registered part­
Changes approved for the 2010 financial year as a consequence of the act on the adequacy of Management Board remuneration
ed by the Act on the Adequacy of Management Board Re­
Securities transactions name type of transaction type of security isin transaction date number of securities price in eUr total volume in eUr
Dr. erhard schipporeit member of the – supervisory Board – Finance and audit Committee
attendance allowances 3.5 3.0 gert Waechtler1 member of the supervisory Board Fixed remuneration 10.0 10.0
(EPS)” on a rolling three-year average, the capping of the profit bonus to a maximum 1.5 times the average target
preciation rights that have not been exercised lapse once ten years have passed since the date of allocation.
The following table summarises the future structure of the Executive Board's remuneration.
ance Excellence process at Hannover Re. Departmental and individual goals are derived from the strategic corpor­
Structure and system of executive Board remuneration with effect from 1 January 2010
internal performance criterion (target performance defined by the supervisory Board, expressed in “diluted earnings per share” according to ias 33) external performance criterion (movement in the share price in the allocation year relative to the aBn amro global reinsurance index)
exercise of aBr In the fifth year after the end of the allocation year (“maximal”60%), “maximal ” 20% each in the sixth and seventh years retirement provision pension entitlement Basic remuneration Years of service on the executive Board retirement, insured event, premature termination or non-extension of employment contract under certain circumstances
Performance Excellence criteria we ensure that the efforts of our staff contribute directly to the success of the business strategy. We are convinced that performance-based remuneration components foster individual initiative. The variable portion for the managerial group is dependent upon hierarchical level. On the first management level
variable components. The variable remuneration components are linked to agreements on targets, which for Managing Directors in the treaty departments are split equally into economic targets (Group result, operating profit
(EBIT), earnings per share, xRoCA target, combined ratio and contribution margin (DB) level 5 as well as individ ual targets. In the service departments the agreements on targets are linked to internal customer surveys (25%), appraisal of managers by staff (10% to 30%) and individual targets (35% to 65%). The individual targets are in turn derived from the Performance Excellence process (leadership, business policy, advancement and skills enhancement, resources management, processes, employee motivation, customer satisfaction, business results). The target agreement process is directed by Human Resources Management and Group Controlling Services. Goal accomplishment is subject to the approval of the full Executive
Board, which means that a correction is possible. While the MbO (Management-by-Objectives) process accommodates short-term goals, the long-term success of the company is reflected in our virtual stock option plan (cf. Section 8.2 of the Notes). For staff on the level of Manager or higher we introduced a remuneration model linked to the company's success in 2004, namely the Group Performance Bonus (GPB). This tool is geared to the minimum return on equity of 750 basis points above the risk-free interest rate and the return on equity actually generated.
In the year under review the targets were surpassed, and the maximum amount of the GPB can therefore be paid out for the third time since its implementation.
The pace will, however, likely be moderate since business activity remains under considerable strain despite the improved environment in the major economic regions. This is because, among other factors, the proper functioning of the world's financial markets is still impaired. The already difficult state of the labour markets is expected to worsen. Last but not least, the impetus from the political sphere will weaken as the year progresses: economic stimulus programmes, which played a significant role in stabilising and reviving business activity, are for the most part coming to an end. Most notably, tax incentives from the political side will be scaled back, since the budgets of many countries are under heavy pressure. All in all, it is likely that the economic trend will gradually run out of steam.
Economic activity in the Eurozone should pick up somewhat. It is, however, unclear how vigorous the revival will be. The pace of growth will probably flatten off as economic stimu lus programmes come to an end.
China's economic outlook for 2010 is again positive. Although the government's extensive stimulus package will end towards the middle of the year, the German ifo Institute still expects GDP to grow by 7.8% in 2010.
The economic upswing in Japan will be lacklustre initially, before slowing gathering momentum. Domestic demand will scarcely pick up, while foreign trade should benefit from the resurgence of economic activity in the emerging markets of Asia.
– which are growing in prominence given the substantial money supplies – should be reflected in greater volatility in mid- and long-term yields. Since central banks will probably have little room for manoeuvre, yield curves are expected to remain very steep.
The international insurance industry will again play an important part in stabilising the economy in 2010. The effects of the economic crisis on the German insurance industry should be moderate. Looking at the available projections, a premium contraction of around 0.5% is anticipated for the coming year and hence a very robust and satisfactory performance by industry standards.
In the course of the renewals it was again evident that our clients attach considerable importance to the ratings of their reinsurers; this applies above all to the underwriting of long-tail casualty business. In this area a very good rating is a necessary prerequisite in order simply to be asked to submit a quotation. Thanks to its very good ratings (“AA–” from Standard & Poor's and “A” from A.M.
Best) Hannover Re is one of the reinsurers to meet this condition without reservation.
We are optimistic about the business development in our target market of Germany: the treaty renewals passed off more favourably than expected. Thanks to improved conditions – sometimes markedly so – our subsidiary E+S
In motor business we obtained rate increases following a higher claims frequency in this line in the third quarter of the year under review. It is gratifying to note that we were able to slightly reduce commissions under quota share cessions in proportional business. The increase in motor liability tariffs announced by insurers also offers potential leverage for boosting profitability in 2010. Remuneration for motor excess of loss programmes was further improved, hence building on the trend seen in the previous year.
US (non-proportional) business showed signs of rate softening after seven years without significant losses, we slightly reduced our participation. Rate increases as well as lower commissions were obtained for 2010 in the area of political risks.
The premium increases generated by the renewals at the beginning of the year left the split of our three lines virtually unchanged: the proportion of credit business stands at roughly 55%, surety accounts for around 35% and political risks have a share of about 10%. Although the general environment in credit business will not be easy for 2010, we see very good scope overall to further strengthen our market position. Significantly better conditions, falling loss ratios and reduced liabilities should appreciably boost our result for the current financial year.
fell slightly, we achieved stable conditions for other markets. We are pressing ahead in 2010 with our strategy of enhancing our portfolio's regional diversification. All in all, we are looking forward to a pleasing financial year.
Demand for insurance-linked securities had already rallied in 2009, and we expect to see increased levels of market activity in 2010. This can be attributed to the improved
(re)insurance risks predominantly from insurance companies to the capital market, and on the other hand as an investor through our own actively managed ILS funds with a total volume currently in the order of USD 150 million. What is more, in 2010 we shall build on our previous successful risk transfers to the capital market (“Globe Re”,
In Western and Southern Europe rates held stable for longtail business, while softening slightly for short-tail business. We expect builders' risk covers in France – an area where we are the market leader – to offer further good business opportunities. Rates here were largely unchanged.
The development of markets in Central and Eastern Europe, which are a strategic focus for our company, is similarly positive. Demand here for reinsurance products is rising, and we therefore expect our premium income to continue growing on the back of unchanged healthy profitability.
Increased competition is making itself felt in Latin American markets, as it is in Brazil too. We are nevertheless looking to boost our premium volume here slightly.
Should 2010 similarly be spared sizeable (natural) catastrophe events, the pressure on premiums will be sustained. What is more, sufficient reinsurance capacity is available in the market.
States; this was true of property catastrophe covers as well as workers' compensation and personal accident insurance. Price increases were, however, possible in areas where programmes had suffered losses, such as property business in the Mid-West.
The events of 2009 – the earthquake in Abruzzo as well as hailstorms – prompted price increases in Italy, the extent of which nevertheless fell short of our expectations.
We are seeing consistent demand for agricultural covers, which protect inter alia against risks to crops and livestock. This market will continue to expand on account of the growing importance attached to food security. We support our clients with product development activities and cooperate with international organisations with an eye to leveraging potential openings.
Given that the insurance density in Arab markets is still relatively modest overall, retakaful business still offers substantial potential.
Even under the shadow of the international financial market crisis, we anticipate a favourable constellation in life and health insurance from the medium-term perspective; in most markets this will lead to further dynamic growth on account of long-range demographic changes.
pillar). We shall also put a clear emphasis on the expansion of our portfolios in Greater China and Japan, a priority that will be reflected in the allocation of the necessary resources.
The main drivers of our business development in the current year will continue to be the mature insurance markets of the United States, United Kingdom, Germany, Australia, South Africa and France. In all these markets we are recognised as a leading reinsurer – a role that we intend to build on systematically.
Following the acquisition of the ING life reinsurance portfolio and our entry into the traditional mortality market, the United States will be Hannover Life Re's most significant market for some years to come.
In the United Kingdom it is our assumption that business involving the biometric risk of longevity – both in the form of enhanced annuities with a reduced payment period and through the assumption of risks associated with existing pension funds – will prove to be a significant growth sector. From the standpoint of the pandemic catastrophe risk, this business takes on a risk-minimising role through biometric diversification effects.
Irrespective of the expectations for individual segments and markets, it should be noted that the probabilities of occurrence for (natural) catastrophes in terms of their number and scale as well as their magnitude for the insurance industry are subject to considerable fluctuations.
In numerous lines there is a correlation between the state of the overall economy and the claims frequency. If the economy picks up during the current year, this will generally lead 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.
With this in mind, primary insurers are looking for tailored reinsurance solutions that support their own capital, liquidity and risk management. This longer-term trend has been particularly evident during the international financial market crisis, which also left a clear mark on the insurance sector. In the coming years we expect the reinsurance market to develop a more vigorous growth momentum than the primary market. Despite fierce yet professionally conducted competition among life/health reinsurers, earnings prospects will remain on a satisfactory level.
We are keeping a very close eye on stock markets in view of the continued anticipated volatility. When contemplating our potential re-entry into equity investments, we shall also take into consideration the changes in IFRS accounting for financial instruments that are currently under discussion.
Our strategy of stepping up investments in real estate will continue in 2010. We anticipate further attractive opportunities here in our focus markets of Germany and the
When it comes to alternative investments, we shall invest within the limits of our investment strategy since we see here a means of risk diversification and a chance to boost our return.
(EBIT), we envisage a gratifying EBIT margin. Given the expected absence of special effects such as those recorded in 2009, the figure will be on a normalised level – i.e.
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. We are targeting a return on investment of 3.5%
In life and health reinsurance we have set ourselves an annual growth target of 10% to 12% for gross premium income. Along with our organic growth we anticipate – as in the case of the ING transaction – portfolio acquisitions from the developed insurance markets. We are targeting an EBIT margin in the range of 6% to 7%.
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 strategic targets
Other financial assets – at fair value through profit or loss 6.1 58,273 44,654
Figures in EUR thousand Notes 1.1.- 31. 12. 2009 1.1.- 31. 12. 2008
Changes in ownership interest with no change of control status 180 140 (13,739) 4,499 (8,920)
The reporting on cash flows within the Group is based on IAS 7 “Statement of Cash Flows”. In addition, we observed the principles set out in German Accounting Standard No. 2 (GAS 2) of the German Accounting Standards Board regarding the preparation of cash flow statements, which were supplemented by the requirements of GAS 2-20 that apply specifically to insurance enterprises. In accordance with the recommendation of the German Accounting Standards
Cash and cash equivalents at the beginning of the period 430,225 335,422
Cash and cash equivalents at the end of the period 457,412 430,225
Other liabilities in the segment 1,461,588 1,222,087 1 Adjusted on the basis of IAS 8.
1. Company information 107 2. Accounting principles 107 3. Accounting policies 110 3.1 Changes in accounting policies 110 3.2 Summary of major accounting policies 110 3.4 Major discretionary decisions and estimates 117 4. Consolidated companies and consolidation principles 119 5. Major acquisitions, new formations and other corporate changes 124 5.1 Acquisitions and new formations 124 5.2 Further corporate changes 126 6. Notes on the individual items of the balance sheet 127 6.1 Investments under own management 127 6.2 Funds withheld (assets) 141 6.3 Contract deposits (assets) 142 6.4 Technical assets 142 6.6 Other assets 144 6.7 Technical provisions 146 6.8 Funds withheld (liabilities) 152 6.9 Contract deposits (liabilities) 153 6.10 Provisions for pensions and other post-employment benefit obligations 153 6.11 Other liabilities 157 6.12 Debt and subordinated capital 160 6.13 Shareholders‘ equity, minority interests and treasury shares 163 7. Notes on the individual items of the statement of income 164 7.1 Gross written premium 164 7.2 Investment result 165 7.3 Reinsurance result 167 7.4 Other income/expenses 168 8. Other notes 172 8.1 Derivative financial instruments 172 8.2 Related party disclosures 174 8.3 Staff and expenditures on personnel 180 8.4 Earnings per share and dividend proposal 181 8.6 Contingent liabilities and commitments 182 8.7 Long-term commitments 183 8.8 Rents and leasing 183 8.9 Currency translation 184 8.10 Fee paid to the auditor 185 8.11 Events after the balance sheet date 185
107Hannover Re Group annual report 2009 2. ACCOunTInG PRInCIPLES NOtes 1. Company information
Hannover Rückversicherung AG is a subsidiary of Talanx AG, which in turn is wholly owned by
Pursuant to EU Regulation (EC) No. 1606/2002, the present consolidated financial statement and group management report of Hannover Re have been drawn up in accordance with the International Financial Reporting Standards (IFRS) that are to be applied within the European Union.
We have also made allowance for the supplementary regulations applicable pursuant to § 315a
Para. 1 German Commercial Code (HGB) and the supplementary provisions of the parent company’s
(IFRIC), application of which was mandatory for the 2009 financial year. The disclosures regarding the management of technical and financial risks arising out of IFRS 7 “Financial Instruments: Disclosures” and IFRS 4 “Insurance Contracts” are contained in the risk report. We have dispensed with an additional presentation of the same content in the notes.
Committee (DRSC) have been observed insofar as they do not conflict with currently applicable
The present consolidated financial statement was prepared by the Executive Board on 15 February 2010 and hence released for publication.
ability to analyse and compare the information given in financial statements. Hannover Re applied the standard for the first time in the first quarter of 2009. A central element of IAS 1 (rev. 2007)
In February 2008 the amendments to IAS 32 and IAS 1 “Puttable Financial Instruments and Obligations arising on Liquidation” were published. Application of the amendments is mandatory from 1 January 2009 onwards. The amendment of IAS 1 refers to revised disclosure requirements applicable to puttable financial instruments and obligations arising on liquidation. The revised version of IAS 32 permits the balance sheet classification of puttable financial instruments as equity in the future under certain conditions. Particularly given the fact that minority interests in partnerships will continue to be recognised as a financial liability in the consolidated financial statement, the amendment is of no practical significance to the consolidated financial statement.
IFRS 9 introduces new requirements for classifying and measuring financial assets. The standard, the implications of which for Hannover Re are currently under review, has not yet been ratified by the European Union.
In June 2009 the IASB published amendments to IFRS 2 “Group Cash-settled Share-based Payment
As at the balance sheet date Hannover Re did not avail itself of the facilities offered by the amendments to “IAS 39 & IFRS 7 – Reclassification of Financial Assets”, which entered into force in
October 2008, regarding the reclassification and measurement of selected financial instruments.
In January 2008 the IASB published the revised versions 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 adjust-
110 Hannover Re Group annual report 2009NOtes 3.2 SuMMARy OF MAjOR ACCOunTInG POLICIES
ments 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 Re can only arise in connection with future acquisitions.
In the 2009 financial year Hannover Re corrected the balance sheet recognition of a life reinsurance contract with a US cedant. In accordance with applicable US GAAP (FASB ASC 340-30), certain technical assets and liabilities relating to this contract are to be offset in the balance sheet.
Reinsurance contracts: in March 2004 the IASB published IFRS 4 “Insurance Contracts”. The first standard governing the accounting of insurance contracts, it divides the “Insurance 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 (US GAAP).
111Hannover Re Group annual report 2009 3.2 SuMMARy OF MAjOR ACCOunTInG POLICIES NOtes
Financial assets at fair value through profit or loss consist of securities held for trading and those classified as measured at fair value through profit or loss since acquisition. This refers principally to unsecured debt instruments issued by corporate issuers and derivative financial instruments.
Within the scope of the fair value option provided under IAS 39, according to which financial assets may be carried at fair value on first-time recognition subject to certain conditions, all structured securities that would have needed to have been broken down had they been recognised as available for sale or under loans and receivables are also recognised here. Hannover Re makes use of the fair value option solely for selected subportfolios of its assets. In addition, derivative financial instruments that Hannover Re does not recognise as a valuation unit with underlying risks are recognised here. Securities held for trading and securities classified as measured at fair value through profit or loss since acquisition are carried at their fair value on the balance sheet date.
If stock market prices are not available for use as fair values, the carrying values are determined using generally acknowledged measurement methods. All unrealised gains or losses from this valuation are recognised in net investment income. The classification of financial assets at fair value through profit or loss is compatible with Hannover Re’s risk management strategy and investment strategy, which is oriented extensively towards economic fair value variables.
Establishment of the fair value of financial instruments carried 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 of which are set out in the following table. For further information please see our explanatory remarks on the fair value hierarchy in Section 6.1 “Investments under own management”.
Qualitative case-by-case analysis is also carried out. IAS 39.59 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.
are tested for impairment, we examine whether material items – looked at on their own – are impaired. The amount of the probable loss is arrived at from the difference between the book value of the asset and the present value of the expected future earnings 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 cease to apply, a write-up is made in income up to at most the original amortised cost for fixed-income securities.
Private equity Theoretical price Acquisition cost, cash flows, EBIT multiples, market prices net Asset Value method
Investments in associated companies are valued at equity on the basis of the proportionate shareholders ’ equity attributable to the Group. Under IAS 28.23, 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. As a general rule, the shareholders ’ equity and year-end result are taken from the associated company’s latest available annual financial statement.
114 Hannover Re Group annual report 2009NOtes 3.2 SuMMARy OF MAjOR ACCOunTInG POLICIES
Deferred acquisition costs principally consist of commissions and other variable costs directly connected with the acquisition or renewal of existing reinsurance contracts. These acquisition costs are capitalised and amortised over the expected period of the underlying reinsurance contracts.
Intangible assets: in accordance with IFRS 3 “Business Combinations” scheduled depreciation is not taken on goodwill; instead, unscheduled depreciation 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 basis of a five-year detailed plan and allowing for a perpetuity factor. The recoverable amount is to be compared with the book value of the CGU including goodwill. When the latter exceeds the recoverable amount, an impairment expense is to be recognised. The other intangible assets largely consist of purchased and self-developed software. This is recognised at acquisition cost less scheduled depreciation. The other intangible assets also contain – within the scope of corporate acquisitions – the expected present value of future profits (PVFP) at the time of acquisition of already existing life reinsurance portfolios; amortisation is taken according to the periods of the underlying acquired contracts. Intangible assets are regularly tested for impairment and unscheduled depreciation is taken where necessary.
The recognition of deferred tax assets and liabilities in the consolidated balance sheet makes no distinction between short-term and long-term items.
Own-use real estate is measured in the same way as investment property.
Technical reserves: the technical reserves are shown for gross account in the balance sheet, i.e.
Unearned premium is premium that has already been collected but is allocated to future risk periods.
In reinsurance business flat rates are sometimes used if the data required for calculation pro rata temporis is not available.
Minority interests are shares in the equity of affiliated companies not held by companies belonging to the Group. IAS 1 “Presentation of Financial Statements” requires that minority interests be recognised separately within Group shareholders’ equity. The minority interest in profit or loss is shown separately as profit appropriation following the net income (“thereof” note). This item refers mainly to minority interests in E+S Rück.
“class” refers to the classification of financial instruments according to their risk characteristics.
A minimum distinction between measurement at amortised cost or at fair value through profit or loss is required here. 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 (held to maturity, loans and receivables, available for sale and financial assets at fair value through profit or loss with the subcategories of trading and designated financial instruments). Essentially, the following classes of financial instruments are established: • Fixed-income securities
During the financial year no material changes occurred in the organisational structure that could have influenced the composition of the segments. Since the performance indicators used to steer the segments correspond to the system according to which the consolidated financial statement is prepared, a separate reconciliation of the segment results with the Group result is not provided.
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 run-off is projected on the basis of statistical triangles from the original notifications of ceding companies. In this context it is generally assumed that the future rate of inflation of the loss run-off will be analogous to the average rate of the past inflation contained in the data. The more recent underwriting years in actuarial projections are of course subject to greater uncertainty, although this can be considerably reduced with the aid of a variety of additional information on improvements in the rates and conditions of the business written and on loss trends. The amounts arrived at as the difference between the ultimate losses and the reported losses are set aside as the IBNR reserve for losses that have been incurred but are not yet known or have still to be reported.
For further details, for example concerning the modelling of natural catastrophe scenarios and the assumptions relating to asbestos and pollution risks, the reader is referred to our comments in the risk report on page 53 et seq. We would further refer to our explanatory remarks on the technical reserves in Section 3.2 “Summary of major accounting policies” and Section 6.7 “Technical provisions”.
In life business too the calculation of reserves and assets is crucially dependent on actuarial projections of the covered business. So-called model points are defined according to the type of business covered. The main distinguishing criteria are the age, sex and (non-)smoker status of the insured, tariff, policy period, period of premium payment and amount of insurance. The portfolio development is simulated for each model point, in which regard the key input parameters are either predefined by the tariff (e.g. allowance for costs, amount of premium, actuarial interest rate) or need to be estimated (e.g. 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
118 Hannover Re Group annual report 2009NOtes 3.4 MAjOR DISCRETIOnARy DECISIOnS AnD ESTIMATES
Hannover Re has refined the calculation logic used to determine the fair value of derivatives in connection with modified coinsurance and coinsurance funds withheld reinsurance treaties. This represents a change in an accounting estimate, which pursuant to IAS 8.36 was performed in the year under review without adjustment of the comparative figures for previous years. For further details please see the remarks on derivative financial instruments in Section 8.1 “Derivative financial instruments”.
Funis GmbH & Co, KG Hannover/Germany5 100.00 EuR 100 EuR –
Hannover America Private Equity Partners II GmbH & Co, KG, Cologne/Germany4
Hannover Euro Private Equity Partners III GmbH & Co, KG, Cologne/Germany4
Hannover Euro Private Equity Partners IV GmbH & Co, KG, Cologne/Germany4 60.36 EuR 56,499 EuR (14,532)
120 Hannover Re Group annual report 2009NOtes 4. COnSOLIDATED COMPAnIES AnD COnSOLIDATIOn PRInCIPLES
Hannover Life Reassurance Bermuda Ltd., Hamilton/Bermuda1 100.00 EuR 149,821 EuR 15,899
Hannover Life Reassurance (Ireland) Ltd., Dublin/Ireland1 100.00 EuR 863,222 EuR 176,556
Hannover Reinsurance Group Africa (Pty) Ltd., johannesburg/South Africa1 100.00 ZAR 156,852 ZAR 50,719
Hannover Re Real Estate Holdings, Inc. holds a subgroup in which the following major companies are included: 5115 Sedge Corporation, Chicago/uSA7 95.17 uSD 2,035 uSD 227
Penates A, Ltd., Tortola/British Virgin Islands1,7 90.40 uSD 145,660 uSD 39,676
121Hannover Re Group annual report 2009 4. COnSOLIDATED COMPAnIES AnD COnSOLIDATIOn PRInCIPLES NOtes
1 Provisional (unaudited) figures 2 year-end result after profit transfer 3 Formerly Zweite Hannover Rück Beteiligung Verwaltungs-GmbH
9 Financial year as at 31 December 2008 10 Company is in liquidation 11 Last annual financial statement compiled as at 31 August 2006.
The capital consolidation complies with the requirements of IAS 27 “Consolidated and Separate
The capital consolidation is based on the revaluation method. 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 “Business Combinations” are to be accounted for separately from goodwill, the difference between the revalued shareholders’ equity of the subsidiary and the purchase price is recognised as goodwill. Under IFRS 3 scheduled amortisation is not taken on goodwill. Instead, unscheduled amortisation is taken where necessary on the basis of annual impairment tests. Immaterial and negative goodwill are recognised in the statement of income in the year of their occurrence.
Minority interests in shareholders’ equity are reported separately within Group shareholders’
equity in accordance with IAS 1 “Presentation of Financial Statements”. The minority interest in profit or loss, which forms part of net income and is shown separately after net income as a
The securitisation of reinsurance risks is largely structured through the use of special purpose entities. The existence of a consolidation requirement in respect of such entities is to be examined in accordance with SIC-12 “Consolidation – Special Purpose Entities”. In cases where IFRS do not currently contain any specific standards, Hannover Re’s analysis – in application of IAS 8.12 – also falls back on the relevant standards of US GAAP.
With the aim of transferring to the capital market peak natural catastrophe exposures deriving from European windstorm events, Hannover Re issued a catastrophe (“CAT”) bond that can be traded on a secondary market for the second time in July 2009. The CAT bond, which has a volume of EUR 150 million, was placed with institutional investors from Europe and North America by
Eurus II Ltd., a special purpose entity domiciled in the Cayman Islands. “Eurus II” is a successor transaction to the “Eurus” structure that was terminated on 8 April 2009 as per the contractual agreement. Hannover Re does not exercise a controlling influence over the special purpose entity.
In September 2009, in a transaction referred to as “Fac Pool Re”, Hannover Re for the first time transferred a portfolio of facultative reinsurance risks to the capital market as part of its extended
Insurance-Linked Securities (ILS) activities. The contracts, which cover worldwide individual risks, are mediated by an external reinsurance intermediary, written by Hannover Re and placed on the capital market in conjunction with a service provider. The “Fac Pool Re” transaction consists of a quota share reinsurance arrangement and two non-proportional cessions. The total amount of capital provided stands at USD 60 million, with Hannover Re keeping a share of approximately USD
123Hannover Re Group annual report 2009 4. COnSOLIDATED COMPAnIES AnD COnSOLIDATIOn PRInCIPLES NOtes special purpose entities participate in the reinsurance cessions within “Fac Pool Re”; Hannover
Re does not hold any shares in these special purpose entities and does not bear the majority of the economic benefits or risks arising out of their activities through any of its business relations.
With effect from 1 January 2009 Hannover Re again used the capital market to obtain underwriting capacity for catastrophe risks. The “K5” transaction, which ended as per the contractual agreement on 31 December 2008, was replaced by the successor transaction “K6”. The volume of “K6” was equivalent to EUR 120.3 million as at the balance sheet date. This securitisation, which was again placed with institutional investors in North America, Europe and Asia, involves a quota share cession on worldwide natural catastrophe business as well as aviation and marine risks. As with the
“K3” and “K5” transactions, Kaith Re Ltd., a special purpose entity domiciled in Bermuda, is being used for the securitisation. The planned term of the transaction runs until 31 December 2011. In addition, Hannover Re uses the special purpose entity Kaith Re Ltd. for various retrocessions of its traditional covers to institutional investors. In accordance with SIC–12 Kaith Re Ltd. is included in the consolidated financial statement.
Investments Within the scope of its asset management activities Hannover Re has participated since 1988 in numerous special purpose entities – predominantly funds –, which for their part transact certain types of equity and debt capital investments. On the basis of our analysis of our relations with these entities we concluded that the Group does not exercise a controlling influence in any of these transactions and a consolidation requirement therefore does not exist.
5. Major acquisitions, new formations and other corporate changes 5.1 Acquisitions and new formations
FUNIS GmbH & Co. KG was established on 23 October 2009 with registered office in Hannover.
The company’s business object is to acquire, hold and manage real estate in the United States.
On 20 February 2009 Hannover Re completed the acquisition of the US ING life reinsurance portfolio under a reinsurance and asset purchase transaction with Scottish Re Group Limited, Hamilton, Bermuda, through its subsidiaries Hannover Life Reassurance Company of America, Orlando
In addition to the materialisation of the reinsurance contracts, HLRUS acquired the infrastructure and operating assets needed to administer the life reinsurance business in North America for a purchase price of EUR 12.9 million. The infrastructure mainly encompasses the IT systems for administration and quotation of the business. A portion of the workforce was consequently also taken over from Scottish Re Group. In accordance with the requirements of IFRS 3 “Business Combinations ” Hannover Re recognises this acquisition as a business combination since the reinsurance contracts and the systems needed for their administration in conjunction with the assumed workforce are to be considered a separate and independent business for the purposes of IFRS 3.
The acquired business was included in the consolidated financial statement for the first time as at 1 January 2009, since the significant part of the economic risks and benefits was apportionable to Hannover Re from this date onwards when the reinsurance transactions acquired contractual force. For the purpose of first-time consolidation, assumptions and estimations based on forecasts of future cash flows were in some cases used to establish the fair values of the acquired assets and liabilities within the framework of appropriate measurements methods. The acquired business was therefore initially included in the consolidated financial statement on a provisional basis, using the best available information.
125Hannover Re Group annual report 2009 5.1 ACquISITIOnS AnD nEW FORMATIOnS NOtes
“value of business acquired/VOBA”). The PVFP was initially recognised at fair value on the basis of generally accepted actuarial methods (“actuarial appraisal method”), while in the subsequent periods scheduled amort isation is taken on the PVFP over the period of the underlying reinsurance contracts in proportion to the future premium income. In addition, the intangible asset is regularly tested for impairment. As a consequence of detailed revision of the actuarial appraisal models, this asset was increased by EUR 14.2 million to EUR 104.3 million compared to the initial carrying amount.
Fresh insights from the scrutiny and individual measurement of the assumed reinsurance contracts resulted in a reduction of the benefit reserve by EUR 30.3 million to EUR 981.7 million, derecognition of the provisionally recognised reinsurance recoverables on the benefit reserve in an amount of EUR 26.9 million as well as other, altogether minimal adjustments.
After recognition of all adjusted fair values of the identifiable assets, liabilities and contingent liabilities from the initial consolidation, total net assets after tax amounted to EUR 105.5 million.
126 Hannover Re Group annual report 2009NOtes 5.2 FuRTHER CORPORATE CHAnGES
Negative goodwill resulted from the acquisition described above and in consideration of the purchase price of EUR 12.9 million paid for the other assets described above; this was recognised immediately in income as required by IFRS 3.56.
The incidental costs, the final amount of which was definitely established in the fourth quarter of 2009, amounted to EUR 6.2 million. Where there is negative goodwill, these incidental costs shall be deducted from the negative goodwill recognised in income, as a consequence of which the transaction produced a one-time net gain of altogether EUR 86.4 million. As at the balance sheet date the negative goodwill booked to income was recognised under other operating income.
The incidental costs are included in the other operating expenses in the consolidated statement of income.
The gross written premium of the acquired business amounted to EUR 833.7 million from the date of initial consolidation until the balance sheet date. A net profit of EUR 44.8 million was booked for the same period from the acquired business. This figure does not include the other operating income from the reversal of the negative goodwill.
Saint-Ouen, France. The company’s business object is to develop and broker micro-insurance and micro-finance products. The company is recognised as a participating interest at amortised cost.
127Hannover Re Group annual report 2009 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT NOtes 6. Notes on the individual items of the balance sheet 6.1 Investments under own management
Investments are classified and measured in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”.
The investments under own management also encompass investments in associated companies, real estate and real estate funds (also includes: investment property), other invested assets, shortterm investments and cash.
In the case of financial assets that are not traded on an active market, the fair value is determined using a measurement method (e.g. present-value method). The value determined in this way at time of acquisition can, however, diverge from the actual cost of acquisition. The resulting measurement difference constitutes a theoretical “day-one profit/loss”. As at the balance sheet date this produced only an insignificant loss.
128 Hannover Re Group annual report 2009NOtes 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT
Regional origin united Kingdom 1,363,938 1,134,915 north America 6,847,616 6,507,471 1 After elimination of internal transactions within the Group across segments
Available for sale due in one year2 3,890,651 3,926,328 3,496,170 3,473,225 due after one through two years 1,686,180 1,725,646 1,947,238 1,966,672 due after two through three years 1,656,235 1,698,765 1,725,197 1,751,528 due after three through four years 1,718,907 1,782,188 1,217,321 1,239,933 due after four through five years 1,875,448 1,907,847 1,867,138 1,933,328 due after five through ten years 3,151,562 3,196,970 4,021,163 4,059,484 due after ten years 1,383,350 1,377,191 1,344,802 1,296,606
Financial assets at fair value through profit or loss due in one year 22,145 22,145 68,553 65,907 due after one through two years 70,245 70,245 4,788 4,991 due after two through three years 18,358 18,358 71,132 70,476 due after three through four years 39,155 39,155 641 626 due after four through five years 4,541 4,541 56,687 58,560 due after five through ten years 11,239 11,239 34,675 34,529 due after ten years 69,466 69,466 23,373 19,439
130 Hannover Re Group annual report 2009NOtes 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT
131Hannover Re Group annual report 2009 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT NOtes
Government debt securities of Eu member states 29,410 1,228 – 407 31,045
132 Hannover Re Group annual report 2009NOtes 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT
Government debt securities of Eu member states 2,179,903 39,399 4,675 28,867 2,243,494
Government debt securities of Eu member states 2,565,205 74,577 2,000 46,936 2,684,718
Under financial assets at fair value through profit or loss Hannover Re recognised as at the balance sheet date the derivative financial instruments originally allocated to this item in an amount of
EUR 58.3 million (EUR 44.7 million) as well as fixed-income securities amounting to EUR 235.1 million (EUR 254.5 million) designated in this category.
We additionally use an internal rating method to back up this analysis. Our internal rating system is based on the corresponding credit ratings of securities assigned by the agencies Standard &
Poor’s and Moody’s and in each case reflects the lowest of the available ratings.
Other foreign government debt securities – 2,577 – – – 2,577
Participating interests and other invested assets, real estate funds 725,760 92,709 815,230 26,913
Changes in the other comprehensive income from fair value measurement and transactions
Allocation to gains/losses from the fair-value measurement of the available-for-sale portfolio 221,550 347,041
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 total fixed-income securities incl. derivatives 10,786,905 3,996,968 3,308,473 1,093,422 140,281 255,262 16,006 136,303 19,733,620
Fixed-income securities – held to maturity 12,693 31,479 1,915,290 77,534 – 908,228 8,265 – 2,953,489
Fixed-income securities – held to maturity 10,054 27,570 819,602 29,821 – 577,247 10,908 – 1,475,202
Fixed-income securities – loans and receivables – 139 1,530,599 16,189 – 127,702 – 6,228 1,680,857
Real estate is divided into real estate for own use and third-party use (investment property). The investment property in the portfolio which is used to generate income is shown under the investments. Real estate is valued at cost of acquisition less scheduled depreciation with useful lives of at most 50 years. Own-use real estate is recognised under other assets.
Gross book value at 31 December of the previous year 45,258 41,370
Gross book value after currency translation at 1 january of the year under review 45,044 41,801
Net book value at 31 December of the year under review 162,612 21,618
140 Hannover Re Group annual report 2009NOtes 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT
The following table provides a reconciliation of the fair values of financial instruments included in level 3 at the beginning of the financial year with the fair values as at 31 December of the financial year.
Other financial assets – at fair value through profit or loss – 58,273 – 58,273
Balance at 1 January of the year under review 118,328 350 621,944
Income and expenses recognised in the statement of income (3,227) – (77,410)
141Hannover Re Group annual report 2009 6.2 FunDS WITHHELD (ASSETS) NOtes
thereof attributable to financial instruments included in the portfolio at 31 December of the year under review
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 7.27 B requires disclosure of the effects of these alternative assumptions. Of the financial instruments included in level 3 with fair values of altogether EUR 708.6 million as at the balance sheet date, Hannover
EUR 6.7 million, the effects of alternative inputs and assumptions are immaterial.
represent the cash and securities deposits furnished by our company to our cedants that do not trigger any cash flows and cannot be realised by cedants without our consent. The durations of these deposits are matched to the corresponding provisions. In the event of default on such a deposit our reinsurance commitment is reduced to the same extent. The rise in funds withheld by ceding companies was attributable principally to the acquisition of a US life reinsurance portfolio as well as increased new business in the area of life reinsurance.
The contract deposits on the assets side grew by EUR 336.7 million in the year under review from
Enterprises”) requires that acquisition costs be capitalised as assets and amortised via the statement of income in proportion to the earned premium.
Portfolio entries/exits 3 12,551 currency translation at 31 December (3,759) 14,478
Net book value at 31 December of the year under review 1,838,450 1,860,783
The age structure of the accounts receivable which were unadjusted but considered overdue as at the balance sheet date is presented below: Age structure of overdue accounts receivable in eUR thousand
Within the scope of our management of receivables we expect to receive payment of accounts receivable within three months of the date of creation of the debit entry – a period for which we also make allowance in our risk analysis. Please see our comments on the credit risk within the risk report on page 62 et seq.
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. We would refer the reader to the corresponding remarks on the loss and loss adjustment expense reserve in Section 6.7 “Technical provisions”.
net book value at 1 january of the year under review 44,393 43,412
Net book value at 31 December of the year under review 44,393 42,833
net book value at 1 january of the year under review 1,936 2,228
Gross book value at 31 December of the previous year 89,110 95,352
Gross book value at 31 December of the year under review 111,425 89,110
Net book value at 31 December of the year under review 38,844 26,302
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 0.7 million (EUR 3.8 million) in the year under review on the basis of specific impairment analyses.
Credit risks may result from other financial assets that were not overdue or adjusted as at the balance sheet date. In this regard, the reader is referred in general to our comments on the credit risk contained in the risk report on page 62 et seq.
Gross book value at 31 December of the previous year 165,959 155,429 currency translation at 1 January 24 (739)
Gross book value at 31 December of the year under review 171,899 165,959 cumulative depreciation at 31 December of the previous year 104,649 99,039 currency translation at 1 January 176 (233)
Cumulative depreciation at 31 December of the year under review 115,028 104,649
Gross Retro net Gross Retro net net book value at 31 December of the previous year 16,932,069 2,079,168 14,852,901 16,553,888 2,471,585 14,082,303
Reserve at 1 january of the year under review 16,957,176 2,059,330 14,897,846 16,469,354 2,515,812 13,953,542
Net book value at 31 December of the year under review 17,425,293 1,747,991 15,677,302 16,932,069 2,079,168 14,852,901 1 Including expenses recognised directly in shareholders‘ equity technical provisions in EuR thousand 2009 2008
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.
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 22.2 million (previous year: established in an amount of EUR 20.2 million). Consequently, cumulative specific value adjustments of EUR 24.5 million (EUR 46.7 million) were recognised in these reinsurance recoverables as at the balance sheet date.
The total amount of the net reserve before specific value adjustments, to which the following remarks apply, was EUR 15,652.8 million (EUR 14,806.2 million) as at the balance sheet date.
The development of the euro relative to the most relevant foreign currencies is also a significant influencing factor in the analysis of run-off triangles. In particular, despite the opposing effects of other major foreign currencies, the appreciation of 2.6% in the US dollar against the euro compared to the previous year led to a slight increase in the loss and loss adjustment expense reserve on a euro basis.
The run-off results shown reflect the changes in the ultimate loss arising in the 2009 financial year for the individual run-off years.
The result for the run-off years was EUR 84.9 million in the 2009 financial year. This is equivalent to 0.6% of the original reserve.
Figures in eUr million loss and loss adjustment expense reserve (from balance sheet)
Due after one through five years 6,717,787 743,097 5,974,690 296,293 36,811 259,482
Maturities of the technical reserves in eUr thousand loss and loss adjustment expense reserves
Due after one through five years 6,548,143 871,076 5,677,067 211,262 35,046 176,216
Due after five through ten years 2,346,469 243,109 2,103,360 308,077 2,154 305,923
The average maturity of the reserves is determined using actuarial projections of the expected future payments. A payment pattern is calculated for each homogenous category of our portfolio –
making allowance for the business sector, geographical considerations, treaty type and the type of reinsurance – and applied to the outstanding liabilities for each underwriting year and run-off status.
The benefit reserve is established in accordance with the principles set out in FASB ASC 944–40–30 and –35 (previously contained in SFAS 60 ”Accounting and Reporting by Insurance Enterprises“).
Development of the unearned premium reserve in eUr thousand 2009 2008
Net book value at 31 December of the previous year 1,333,856 29,733 1,304,123 1,186,382 92,322 1,094,060 reserve at 1 January of the year under review 1,345,414 31,357 1,314,057 1,170,191 91,823 1,078,368 changes in the consolidated group – – – 1,866 1,328 538
The funds withheld under reinsurance treaties totalling EUR 857.4 million (EUR 566.0 million)
represent the cash and securities deposits furnished to our company by our retrocessionaires that do not trigger any cash flows and cannot be realised without the consent of our retrocessionaires.
The contract deposits on the liabilities side increased by EUR 832.7 million in the year under review from EUR 4,634.9 million to EUR 5,467.6 million. The contract deposits item on the liabilities side 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.
For further details of the recognition of contract deposits please see our explanatory remarks in
The pension entitlement is dependent on length of service; entitlements under the statutory pension insurance scheme are taken into account. The pension plan was closed to new participants with effect from 31 January 1981.
On 1 April 1993 (1 June 1993 in the case of managerial staff) the 1993 pension plan came into effect. This pension plan provides for retirement, disability and surviving dependants’ 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% above the assessment limit of the pensionable employment income are calculated in a range of 0.7% to 1% and 1.75%
to 2.5% respectively depending upon the company’s performance. The pension plan closed as at
As at 1 July 2000 the 2000 pension plan came into force for the entire Group. Under this plan, new employees included in the group of beneficiaries are granted an indirect commitment from HDI
Unterstützungskasse. The pension plan provides for retirement, disability and surviving dependants ’ benefits.
Effective 1 December 2002 Group employees have an opportunity to accumulate additional oldage provision at unchanged conditions by way of deferred compensation through membership of
154 Hannover Re Group annual report 2009Notes 6.10 PrOvisiOns FOr PensiOns anD OTher POsT-emPlOymenT BeneFiT OBliGaTiOns
Projected benefit obligation at the beginning of the year under review 79,908 79,135 current service cost for the year under review 2,506 2,789 interest cost 4,731 4,009
Funding of the defined benefit obligation in eUr thousand 2009 2008
Projected benefit obligation from wholly or partially funded plans (before deduction of fair value of plan assets) 11,217
Projected benefit obligation at the end of the year under review 93,462 79,908
Provisions for pensions are established in accordance with IAS 19 “Employee Benefits” (rev. 2004)
Provisions for pensions are established in accordance with actuarial principles and are based upon the commitments made by the Hannover Re Group for retirement, disability and widows’ benefits.
The amount of the commitments is determined according to length of service and salary level.
155Hannover Re Group annual report 2009 6.10 PrOvisiOns FOr PensiOns anD OTher POsT-emPlOymenT BeneFiT OBliGaTiOns Notes
The fair value of plan assets as at the balance sheet date included amounts totalling EUR 1.3 million (EUR 1.4 million) for own financial instruments.
No actual gains or losses were generated on plan assets in the year under review, compared with actual losses on plan assets of –EUR 1.1 million in the previous year.
The following table presents a reconciliation of the funded status – calculated from the difference between the defined benefit obligations and the plan assets – with the provision for pensions recognised as at the balance sheet date: Reconciliation of the net provision for pensions in eUr thousand 2009 2008
The recognised provision for pensions developed as follows in the year under review: Change in the provisions for pensions in eUr thousand 2009 2008 net provisions for pensions at 31 December of the previous year 72,207 67,101 currency translation 288 (130)
Net provisions for pensions at 31 December of the year under review 77,497 72,207
employer contributions 398 287 contributions paid by plan participants – 13
In the current financial year Hannover Re expects contribution payments of EUR 0.6 million (EUR 0.5 million) under the pension plans set out above.
The net periodic pension cost was recognised in the consolidated statement of income in amounts of EUR 5.8 million (EUR 5.8 million) under administrative expenses, EUR 0.8 million (EUR 0.6 million ) under other expenses and EUR 0.7 million (EUR 1.0 million) under other investment expenses.
No actuarial gains (EUR 0.1 million) were recognised as at the balance sheet date in other comprehensive income.
In determining the actuarial gains and losses to be recognised in the statement of income the corridor method provided for as an option in IAS 19 is applied.
157Hannover Re Group annual report 2009 6.11 OTher liaBiliTies Notes 6.11 other liabilities other liabilities in eUr thousand 2009 2008 liabilities from derivatives 21,129 91,680
Deferred income 19,522 15,977 costs of the annual financial statements 6,189 5,670 liabilities due to affiliated companies 3,285 5,849
The liabilities from derivatives of EUR 21.1 million (EUR 91.7 million) consist principally of embedded derivatives recognised separately from the underlying insurance contract at fair value pursuant to IAS 39. Please see our remarks on derivative financial instruments in Section 8.1 “Derivative financial instruments”.
In addition to the defined benefit plans, some Group companies have defined contribution plans that are based on length of service and the employee’s income or level of contributions. The expense recognised for these obligations in the year under review in accordance with IAS 19.46 was EUR
159Hannover Re Group annual report 2009 6.11 OTher liaBiliTies Notes additions Utilisation release currency translation at 31 December
In order to safeguard the sustained financial strength of the Hannover Re Group, Hannover Re issued additional subordinated debt. On 26 February 2004 subordinated debt in the amount of
EUR 750.0 million was placed through Hannover Finance (Luxembourg) S.A., a wholly owned subsidiary of Hannover Re, 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
On 1 June 2005 Hannover Re issued further subordinated debt in the amount of EUR 500.0 million through its subsidiary Hannover Finance (Luxembourg) S.A. The bond is perpetual and carries a fixed coupon of 5.00 % in the first ten years. It may be redeemed by Hannover Re on 1 June 2015 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 +268 basis points. As part of the transaction, holders of the subordinated debt of EUR 350.0 million placed by Hannover
% of the first of these lines matures in January 2010 and the other 50 % in January 2012, while the second line matures in January 2013.
Unsecured letter of credit facilities with various terms (maturing at the latest in 2017) and a total volume equivalent to EUR 802.2 million exist on a bilateral basis with financial institutions.
Furthermore, in December 2009 a long-term unsecured line of credit with a total volume equivalent to at most EUR 523.2 million was concluded in December 2009. It is intended specifically for US
Figures in eur thousand 2009 less than three months three months to one year one to five years
Figures in eur thousand 2008 less than three months three months to one year one to five years
Measurement”. The change in shareholders’ equity comprises not only the net income deriving from the statement of income but also the changes in the value of asset and liability items not recognised in the statement of income.
The common shares (share capital of the parent company) amount to EUR 120,597,134.00. They are divided into 120,597,134 voting and dividend-bearing registered no-par shares. The shares are paid in in full. Each share carries an equal voting right and an equal dividend entitlement.
Minority interests are established in accordance with the shares held by companies outside the
Rückversicherung AG adopted on 6 May 2008, the company was authorised until 31 October 2009 to acquire treasury shares of up to 10% of the share capital existing on the date of the resolution.
This transaction reduced the retained earnings by EUR 0.4 million. The company was no longer in possession of treasury shares as at the balance sheet date.
164 Hannover Re Group annual report 2009Notes 7.1 GrOss wriTTen PremiUm 7. Notes on the individual items of the statement of income 7.1 Gross written premium
Gross written premium 1 in eUr thousand 31. 12. 2009 31. 12. 2008
United Kingdom 1,808,204 1,453,402 north america 3,224,789 2,090,514 1 after elimination of internal transactions within the Group across segments
165Hannover Re Group annual report 2009 7.2 invesTmenT incOme Notes 7.2 Investment income
impairments/depreciation on real estate 1,253 514 impairments on equity securities 3,165 356,052 impairments on fixed-income securities 45,379 96,941 impairments on participating interests and other financial assets 92,709 26,913
EUR 92.6 million was attributable to alternative investments. This includes impairments taken on private equity amounting to EUR 54.3 million. The impairments on fixed-income securities of EUR
EUR 9.3 million to fixed-income securities. The portfolio did not contain any overdue, unadjusted assets as at the balance sheet date since overdue securities are written down immediately.
Unrealised gains and losses net income from assets under own management2 net exchange profit or loss held to maturity loans and receivables available for sale at fair value through profit or loss 1 including income from associated companies, for reconciliation with the consolidated statement of income 2 excluding other investment expenses
Unrealised gains and losses net income from assets under own management2 net exchange profit or loss held to maturity
Fixed-income securities 65,107 – – – 65,107 553 loans and receivables available for sale equity securities
The administrative expenses amounted to altogether 2.7% (3.1%) of net premium earned.
Gross written premium 10,274,755 8,120,919 ceded written premium 759,076 886,621 change in unearned premium (227,161) (113,480)
Other technical income 14,362 7,294 total net technical income 9,321,538 7,068,919 claims and claims expenses paid 5,712,583 3,959,971 change in loss and loss adjustment expense reserve 835,510 742,156
Other technical income (gross) 15,301 8,168 reinsurance recoverables 939 874 other technical income (net) 14,362 7,294
income from contracts recognised in accordance with the deposit accounting method 40,468 25,654 income from services 7,893 7,128
Domestic taxes on income, comparable taxes on income at foreign subsidiaries as well as deferred taxes in accordance with IAS 12 (“Income Taxes”) and deferred tax assets and liabilities are recognised under this item.
Contrary to a very clear opinion expressed by tax attorneys, the revenue authority is of the view that not inconsiderable investment income generated by the Group’s reinsurance subsidiaries domiciled in Ireland is subject to additional taxation at the parent companies in Germany on the basis of the provisions of the Foreign Transactions Tax Act. Insofar as tax assessments to this effect have already been received, appeals have been filed – also with respect to the amounts already recognised as a tax expense. Now that our opinion has been confirmed in full by the court of the first instance, we continue to regard as slight the risk that tax assessments containing additional taxation of investment income generated by Irish companies will be upheld.
The breakdown of actual and deferred income taxes was as follows: Income tax in eUr thousand 2009 2008 actual tax for the year under review 146,887 181,395 actual tax for other periods 37,804 30,298
Deferred taxes from loss carry-forwards 1,822 1,883 change in deferred taxes due to changes in tax rates 18 (1,030)
The establishment of deferred tax liabilities in connection with the capitalised PVFP at the time of acquisition of the ING life reinsurance portfolio in an amount of EUR 13.0 million correspondingly reduced the negative goodwill.
Deferred tax assets and deferred tax liabilities of all Group companies in eUr thousand
Tax loss carry-forwards 117,918 92,362 loss and loss adjustment expense reserves 193,175 145,855
Present value of future profits on acquired life reinsurance portfolios (PvFP) 12,297 –
The deferred tax assets and deferred tax liabilities are shown unoffset in the above table. The deferred taxes are recognised as follows in the balance sheet after appropriate netting.
expected expense for income taxes 340,257 22,600 change in deferred tax rates 19 (1,023)
Unused tax loss carry-forwards of EUR 370.8 million (EUR 292.0 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 345.0 million (EUR 249.6 million) thereof was not capitalised since realisation is not sufficiently certain.
There were also temporary differences of EUR 103.5 million (EUR 114.2 million) and available tax credits of EUR 22.3 million (EUR 20.3 million), which were not capitalised.
172 Hannover Re Group annual report 2009Notes 8.1 DerivaTive Financial insTrUmenTs 8. Other notes 8.1 Derivative financial instruments
39 and recognised under investments. Fluctuations in the fair value of the derivative components are to be recognised in income in subsequent periods.
173Hannover Re Group annual report 2009 8.1 DerivaTive Financial insTrUmenTs Notes
(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 interest-rate 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.
The markets for traded credit risks have evolved significantly. Hannover Re has responded to this trend and refined the calculation logic for derivatives resulting from ModCo contracts. The determination of credit risks based on rating classes was thus converted to a largely issue-based calculation. The risks from the aforementioned contracts are thereby established on a more marketoriented basis. Retention of the parameters used until the third quarter of 2009 to calculate the derivative would have produced a value of EUR 108.8 million. The effect of this refinement of the calculation logic on the value of the derivative in future reporting periods could only have been determined with a disproportionately high effort.
Owing to the sharp narrowing of credit spreads in the course of the year, the change in the fair value of the derivative gave rise to a positive profit contribution of EUR 121.8 million before tax
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 9.9 million (EUR 11.1 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 1.2 million (EUR 1.5 million) as at 31 December 2009.
Pursuant to IAS 39.9 the “Eurus” transactions give rise to a derivative, the fair value of which as at 31 December 2009 was –EUR 1.5 million and which we recognised under other liabilities (EUR
(improvement of EUR 6.9 million in investment income) in the year under review. We would refer the reader to the explanatory remarks in Section 4 “Consolidated companies and consolidation principles” regarding the securitisation of reinsurance risks.
174 Hannover Re Group annual report 2009Notes 8.2 relaTeD ParTy DisclOsUres
All in all, application of the standards governing the carrying of derivatives in connection with the technical account led to recognition of assets totalling EUR 58.0 million (EUR 44.7 million) as well as recognition of liabilities from the derivatives resulting from technical items in an amount of EUR 3.3 million (EUR 91.2 million) as at the balance sheet date. Increases in investment income amounting to EUR 122.1 million (EUR 30.7 million) as well as charges to income of EUR 20.0 million (EUR 76.7 million) were recognised in the year under review from all separately measured derivatives in connection with the technical account.
With effect from the 1997 financial year onwards all new business and renewals written on the
German market have been the responsibility of E+S Rück, while Hannover Re has handled foreign markets. Internal retrocession arrangements ensure that the percentage breakdown of the business applicable to the previously existing underwriting partnership is largely preserved between these companies.
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) insurance of the Talanx Group. Divisions of Talanx AG also performed services for us in the areas of taxes and general administration.
Effective 31 December 2008 Hannover Re assumed the life insurance business of a related party that had previously been retroceded to a reinsurer outside the Group by exercising its right of novation. This restructuring gave rise to non-recurring income of EUR 37.0 million as at 1 January 2009, which was opposed by a technical expense of EUR 36.9 million in connection with the non-Group reinsurer.
(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 and included accrued interest of EUR 3.9 million (EUR 3.9 million ) as at the balance sheet date.
Business assumed non-life reinsurance 392,009 6,240 life and health reinsurance 351,713 48,151
176 Hannover Re Group annual report 2009Notes 8.2 Related paRty disclosuRes
Code and contains information which also forms part of the notes to the 2009 consolidated financial statement as required by IAS 24 “Related Party Disclosures”. In addition, we took into account the more specific provisions of GAS 17 “Reporting on the Remuneration of Members of Governing
Bodies”. Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in the remuneration report. Consequently, we have not provided any further explanation in the notes.
With effect from 1 January 2000 the Executive Board of Hannover Re, with the consent of the
Supervisory Board, introduced a virtual stock option plan that provides for the granting of stock appreciation rights to certain managerial staff. The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of 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”.
The internal performance condition is achievement of the target performance defined by the Supervisory Board, which is expressed in terms of the diluted earnings per share calculated in accordance with IAS 33 “Earnings Per Share” (EPS). If the target EPS is surpassed or undershot, the provisional basic number of stock appreciation rights initially granted is increased or reduced accordingly to produce the EPS basic number. The external performance condition is the development of the share price in the allocation year. The benchmark used in this regard is the (weighted)
177Hannover Re Group annual report 2009 8.2 relaTeD ParTy DisclOsUres Notes
The maximum period of the stock appreciation rights is ten years, commencing at the end of the year in which they are awarded. Stock appreciation rights which are not exercised by the end of the 10-year period lapse. Stock appreciation rights may only be exercised after a waiting period and then only within four exercise periods each year. For 40% of the stock appreciation rights
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
The allocations for the years 2000, 2002 to 2004 as well as 2006 and 2007 gave rise to the following commitments in the 2009 financial year. No allocations were made for 2001, 2005 or 2008:
178 Hannover Re Group annual report 2009Notes 8.2 relaTeD ParTy DisclOsUres stock appreciation rights of Hannover Re allocation year
Fair value at 31.12.2009 (in eUr) 5.76 6.50 10.96 8.63 8.79 5.49 number of rights existing at 31.12.2009 908,637 789,773 156,454 55,897 10,047 1.503
In the 2009 financial year the waiting period expired for 100% of the stock appreciation rights awarded in 2000, 2002 and 2003, 80% of those awarded in 2004 and 40% of those awarded in 2006. 6,525 stock appreciation rights from the 2000 allocation year, 560 stock appreciation rights from the 2002 allocation year, 79,262 stock appreciation rights from the 2003 allocation year and 1,500 stock appreciation rights from the 2004 allocation year were exercised. The total amount paid out stood at EUR 0.7 million.
Granted in 2001 – – – – – 1,138,005 exercised in 2001 – – – – – –
The calculations were based on the year-end closing price of the Hannover Re share of EUR 32.63 as at 21 December 2009, expected volatility of 32.97% (historical volatility on a five-year basis), a dividend yield of 6.13% and risk-free interest rates of 0.70% for the 2000 allocation year, 1.59%
EUR 8.79 for the 2002 allocation year, EUR 8.63 for the 2003 allocation year, EUR 10.96 for the 2004 allocation year, EUR 6.50 for the 2006 allocation year and EUR 5.76 for the 2007 allocation year.
On this basis the aggregate provisions amounted to EUR 10.5 million (EUR 3.7 million). The expense for the 2009 financial year totalled altogether EUR 7.5 million.
The average number of staff at the companies included in the consolidated financial statement of the Hannover Re Group during the reporting period was 1,984 (1,790). The increase in the workforce was attributable chiefly to the acquisition of the ING life reinsurance portfolio.
As at the balance sheet date altogether 2,069 (1,812) staff were employed by the Hannover Re
The nationalities of the workforce as at the balance sheet date were as follows: Nationality of employees 2009
181Hannover Re Group annual report 2009 8.4 earninGs Per share anD DiviDenD PrOPOsal Notes expenditures on personnel
weighted average of issued shares 120,594,371 120,594,783 earnings per share in eUr 6.06 (1.05)
No dividend (previous year: EUR 277.4 million) was paid in the year under review for the 2008 financial year.
In the context of the acquisition of Lion Insurance Company, 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
Hannover Re has placed three subordinated debts on the European capital markets through its subsidiary Hannover Finance (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 and 2005 in amounts of EUR 750.0 million and EUR 500.0 million respectively. For further details please see Section 6.12 “Debt and subordinated capital”.
Willy Vogel Beteiligungsgesellschaft mbH in Willy Vogel AG. In order to secure the guarantees assumed under the purchase agreement Hannover Re and the other shareholders jointly gave the purchaser a directly enforceable guarantee, the term of which ended on 8 July 2009. No call was made on the guarantee.
United States. As at the balance sheet date this master trust amounted to EUR 2,341.3 million
EUR 2,552.2 million (EUR 2,524.3 million). The standard market contractual clauses contained in some of the underlying letter of credit facilities regarding compliance with stipulated conditions are explained in greater detail in the “Financial position” section of the management report, page 77 on the information pursuant to § 315 Para. 4 German Commercial Code (HGB) as well as in
Outstanding capital commitments with respect to special investments exist on the part of the Group in an amount of EUR 328.8 million (EUR 291.1 million). These primarily involve as yet unfulfilled payment obligations from participations entered into in private equity funds and venture capital firms.
Altogether, non-cancellable contracts will produce the rental income shown below in subsequent years.
Rental income totalled EUR 16.3 million (EUR 1.5 million) in the year under review. The rental income resulted principally from the renting out of properties by Hannover Real Estate Holdings.
Items in the annual financial statements of Group subsidiaries were measured in the currencies corresponding to the economic environment in which each subsidiary primarily operates. These currencies are referred to as functional currencies. The euro is the reporting currency in which the consolidated financial statement is prepared.
Transactions in foreign currencies reported in Group companies’ individual financial statements are converted into the reporting currency at the transaction rate. In accordance with IAS 21 the recognition of exchange differences on translation is guided by the nature of the underlying balance sheet item.
Exchange differences from non-monetary items – such as equity securities – classified as available for sale are initially recognised outside income in a separate item of shareholders’ equity and only booked to income when such non-monetary items are settled.
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 Exchanges Rates” differences from the currency translation of financial statements of foreign
Rental income in eUr thousand Payments to be received subsequent years 46,004
185Hannover Re Group annual report 2009 8.11 evenTs aFTer The Balance sheeT DaTe Notes
Key exchange rates mean rate of exchange on the balance sheet date average rate of exchange 8.10 Fee paid to the auditor
Total fees of EUR 8.9 million (EUR 6.6 million) were incurred for accountants’ services throughout the Hannover Re Group worldwide in the year under review. They were principally comprised of auditing and tax consultancy fees.
Code (HGB). The amount includes a fee of EUR 2.3 million (EUR 2.0 million) for the auditing of the financial statement and EUR 0.1 million (EUR 0.1 million) for tax consultancy services. Expenditure of EUR 0.1 million (EUR 0.1 million) was incurred for consultancy and other services performed for the parent or subsidiary companies in the year under review.
We have audited the consolidated financial statements prepared by Hannover Rückversicherung
The preparation of the consolidated financial statements and the group management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Para 1 HGB are the responsibility of the parent company’s management.
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). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the
In our function as the Supervisory Board we considered at length during the 2009 financial year the position and development of the company and its major subsidiaries. We advised the Execu tive
Board. We received an analysis of the 2008 results in non-life and life/health reinsurance as well as a presentation from the Executive Board covering the profit expectations for the 2009 financial year and the operational planning for the 2010 financial year. In addition, the Chairman of the
Group. All in all, we were involved in decisions taken by the Executive Board and assured ourselves of the lawfulness, regularity and efficiency of the company’s management as required by our statutory responsibilities and those placed upon us by the company’s Articles of Association. No audit measures pursuant to § 111 Para. 2 Sentence 1 German Stock Corporation Act were required in the 2009 financial year.
As part of the updating of the Rules of Procedure for the Executive Board, the canon of measures and transactions subject to approval was extended – for example, in connection with borrowing and the agreement of “Change of Control” clauses. A duty to notify the agreement of particularly significant downgrade clauses was also implemented. With an eye to § 87 Para. 1 German Stock
The Finance and Audit Committee considered inter alia the consolidated financial statement drawn up in accordance with IFRS and the individual financial statement of the parent company Hannover
Re drawn up in accordance with the German Commercial Code (HGB) and discussed with the auditors the reports submitted by the independent auditors on these financial statements. As in the previous year, an expert opinion on the adequacy of the loss reserves in non-life reinsurance, a review of the accumulated prefinancing volume in life reinsurance including a comparison of the expected return flows with the repayments actually made as well as the risk report pursuant to the
Act on Control and Transparency (KonTraG), the compliance report/report on adherence to Corporate Governance principles and reports on the major subsidiaries were received and discussed.
Since no elections to the Supervisory Board were upcoming, the Nomination Committee did not meet.
The accounting, annual financial statements, consolidated financial statements and the corresponding management reports were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The Supervisory Board selected the auditor and the Chairman of the Supervisory Board awarded the audit mandate. The auditor’s independence declaration was received. In addition to the usual audit tasks, the auditors focused particularly on the methodology and adequacy of estimation systems on the underwriting side, the calculation and impairment of deferred taxes, the risk reporting in the management report and the balance sheet recognition of the acquisition of entire insurance portfolios. In the context of the consolidated financial statements to be drawn up by Hannover Re in accordance with International Financial Reporting Standards (IFRS), the auditors were required to subject the risk reporting in the management report, the balance sheet recognition of the acquisition of entire insurance portfolios, the calculation and presentation of run-off triangles, the internal control system and the representation of capital market risks in reinsurance and retrocession treaties to particular scrutiny. The mandate for the review report by the independent auditors on the interim financial report as at 30 June 2009 was again also awarded. The special challenges associated with the international aspects of the audits were met without reservation.
Since the audits did not give rise to any objections KPMG AG issued unqualified audit certificates.
The Finance and Audit Committee discussed the annual financial statements and the management reports with the participation of the auditors and in light of the audit reports, and it informed the
– at the Supervisory Board meeting held to consider the annual results. The auditors will also be present at the Annual Gen eral Meeting.
The report on the company‘s relations with affiliated companies drawn up by the Executive Board has likewise been examined by KPMG AG and given the following unqualified audit certificate:
Executive Board, b) the consolidated financial statements of the Hannover Re Group and the Group management report prepared by the Executive Board and c) the report of the Executive Board pursuant to § 312 German Stock Corporation Act (Report on relations with affiliated companies)
– in each case drawn up as at 31 December 2009 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report. The Supervisory Board thus concurred with the opinions of the auditors and approved the annual financial statements and the consolidated financial statements; the annual financial statements are thereby adopted. We concur with the Executive Board’s proposal regarding the appropriation of the disposable profit for 2009.
After Mr. Baumgartl had stepped down as Chairman of the Supervisory Board of Hannover Re with effect from the end of the Annual General Meeting on 5 May 2009, the Supervisory Board elected
Mr. Wilhelm Zeller retired on 30 June 2009 at the age of sixty-five after leading the company for more than 13 years as its Chief Executive Officer. The Supervisory Board thanked Mr. Zeller for his extraordinarily successful work, which had been instrumental in shaping the development of the company and the Hannover Re Group. At an extraordinary meeting of the Supervisory Board
Board with effect from 1 April 2009 for a period of three years.
Word of thanks to the executive Board and members of staff
Burgwedel 1 member of the standing committee 2 member of the Finance and audit committee 3 member of the nomination committee 4 staff representative
Bahrain Hannover Retakaful B.s.C. (c) al Zamil Tower, 17th Floor Government avenue manama center 305 manama
Hannover Re (Bermuda) Ltd. victoria Place, 2nd Floor, 31 victoria street hamilton, hm 10
Brazil Hannover Re escritório de Representação no Brasil Ltda. Praça Floriano, 19/1701 rio de Janeiro
France Hannover Rückversicherung AG succursale Française 109 rue de la Boetie (entrance: 52 avenue des champs elysées) 75008 Paris non-life +33 1 456173-40
Ireland Hannover Life Reassurance (Ireland) Limited no. 4 custom house Plaza, iFsc Dublin 1
Hannover Reinsurance (Ireland) Limited no. 2 custom house Plaza, iFsc Dublin 1
Italy Hannover Re services Italy s.r.l. via mazzini, 12 20123 milan
Hannover Life Reassurance Africa Limited P. O. Box 85321 emmarentia 2029 Johannesburg 2000
Managing Director: Thomas Barenthein taiwan Hannover Rückversicherung AG taipei Representative office 8F, no. 122, Tun hwa north road Taipeh 105
Aggregate excess of loss treaty: a form of excess of loss treaty reinsurance under which the reinsurer responds when a ceding insurer incurs losses on a particular line of business during a specific period (usually 12 months)
Instead of trading the foreign shares directly, US stock exchanges trade the ADRs.
Bancassurance: partnership between a bank and an insurance company for the purpose of selling insurance products through the banking partner‘s branches. The link between the insurer and the bank is often characterised by an equity participation or a long-term strategic cooperation between the two parties.
Cash flow statement: statement on the origin and utilisation of cash and cash equivalents during the accounting period.
Cedant: direct insurer or reinsurer which passes on (also: cedes) shares of its insured or reinsured risks to a reinsurer in exchange for premium.
Coinsurance Funds Withheld- (CFW) Treaty: type of coinsurance contract where the ceding company retains a portion of the original premium at least equal to the ceded reserves. Similar to a Modco contract the interest payment to the reinsurer reflects the investment return on an underlying asset portfolio.
US accounting principles for the recognition of short­term and multi­year insurance and reinsurance contracts with no significant underwriting risk transfer. The standard includes inter alia provisions relating to the classification of corresponding contract types as well as the recognition and measurement of a deposit asset or liability upon in­