Hannover Life Reassurance Company of America Orlando/Charlotte/ Denver/New York, USA 100.0%
Earnings per share (basic and diluted) in EUR 5.02 –19.1% 6.21 6.08 (1.05) 5.98
Book value per share in EUR 41.22 +10.2% 37.39 30.80 23.47 27.77
Share price at year-end in EUR 38.325 –4.5% 40.135 32.71 22.50 31.55
Return on investment (excl. funds withheld by ceding companies) 3.9% 3.9% 4.0% 0.4% 4.6%
For globally operating reinsurers the 2011 financial year was most notable for an extraordinarily heavy burden of natural catastrophe losses. According to the available market data, the insured major losses exceeded the level of USD 100 billion in the year under review. After 2005, when the insured catastrophe losses were somewhat higher still, this is the second-highest figure in the history of the insurance and reinsurance industry.
In common with other market players, we too were impacted in substantial measure by the major losses. The burden of catastrophe losses and major claims reached
The fact that we ultimately achieved net income of EUR 606 million can be considered highly gratifying in light of this major loss expenditure.
2.9 billion in the year under review – or 11.5 percent – to EUR 28.3 billion. We were thus again able to substantially increase the value of your company and the financial strength of Hannover Re in 2011. None of this would have been possible without the outstanding contribution made by all our staff, to whom I would like to take this opportunity to express my sincerest thanks – also on behalf of my colleagues on the
The growth stimuli were also supported, above all, by the significant improvement in reinsurance conditions that took hold from April 2011 onwards as a consequence of the considerable major losses incurred in the first quarter. Yet the net income of EUR
The development of our second business group – life and health reinsurance – was less vigorous in the year under review than in prior years. This is true of both premium growth and profitability. With net income of EUR 182 million we nevertheless achieved a satisfactory performance. The business development was pleasing in the
United Kingdom, Germany, Scandinavia, France and the Asian markets, where we generated good results overall. Our Australian portfolio was, however, adversely impacted on account of additional reserves that had to be constituted for disability business. We had already responded to the emerging more problematic development of this segment in the past and since 2009 we have not written any further new business relating to the affected coverage concepts. Profitability in life and health reinsurance was also influenced by the volatile conditions on capital markets. The widening of credit spreads on bond markets led to a negative performance of the derivative to be established on deposits held by US cedants on behalf of Hannover Re.
In our assessment, longevity risks in the United Kingdom continue to offer good business prospects. In December, therefore, we successfully concluded a block assumption transaction to protect the longevity risk of a pension fund. In this respect, we assume only the biometric risk of longevity, not the investment or inflation risks.
Our portfolio of listed equities, which we had built up again since the third quarter of 2010, was liquidated with virtually no effect on income. Based on our enhanced risk management system – following the experience of 2008 – we decided to take this step in response to the sudden surge in volatility on stock markets in the aftermath of the
Japan earthquake. The price decline on equity markets in the course of the year consequently had no further adverse implications for our result.
In this way we are seeking to further extend and cement our position as one of the leading reinsurance groups. The focus here is on profitable growth and a sustained above-average return on our equity. Special importance attaches to risk management.
The sovereign debt crisis in the Eurozone and the accumulation of major losses had a moderating effect on the performance of the Hannover Re share in the year under review. Including the dividend paid, it nevertheless delivered a slightly positive performance that was thus somewhat better than the DAX and MDAX.
I would also like to thank you, our valued shareholders, most sincerely for your trust –
The stock market environment in 2011 was overshadowed in particular by the European sovereign debt crisis, which caused considerable volatility and uncertainty among market players.
Concerns about the stability of the single currency and the ability of Greece, Portugal and Italy to refinance weighed especially heavily on financials and bank stocks, with in some cases substantial write-downs having to be taken on the affected government bonds. The development of the real economy was not, however, reflected on stock markets. Most strikingly, the German economy proved to be surprisingly resilient. In light of the expected corporate profits, analysts therefore anticipated an average increase to as much as 7,750 points on the German DAX
The Hannover Re share began 2011 at a price of EUR 40.135.
The prospect of pleasing renewals and the expectation of a successful 2011 financial year were reflected in a positive performance at the beginning of the year – irrespective of the heavy loss expenditure incurred from the flooding in Brisbane,
Hannover Re share was unable to divorce itself from the marked price trend on international stock markets caused by concerns about the ability of some European countries to refinance and the stability of the single currency. On 12 September the share price ultimately fell to its lowest level of the year at EUR 29.31. Reporting on the likelihood of a gratifying 2012 renewal season and confirmation of the guidance for 2011 – in conjunction with the absence of any significant hurricane damage – prompted a substantial price rally in the fourth quarter.
At the end of the financial year the Hannover Re share was listed 4.5% lower at EUR 38.325. It thus comfortably outperformed the German DAX (–14.7%) and MDAX (–12.1%), but lagged behind our international benchmark, the Royal Bank of Scotland (RBS) Global Reinsurance Index (–0.9%).
Based on the year-end closing price of EUR 38.325, the market capitalisation of the Hannover Re Group totalled EUR 4.6 billion at the end of the 2011 financial year. According to the rankings drawn up by Deutsche Börse AG, the company placed ninth in the MDAX at the end of December with a free float market capitalisation of EUR 2.3 billion. The Hannover
Re Group thus continues to rank among the 40 largest listed companies in Germany. Measured by trading volume over the past twelve months, the share came in at number 13 in the
The Annual General Meeting of Hannover Re was held on 3 May 2011 at the HCC – Hannover Congress Centrum. Altogether around 800 shareholders, shareholder and bank representatives as well as guests accepted the invitation of the Executive Board and Supervisory Board. This means that a good 76% of the share capital was represented. In his address to the meeting Chief Executive Officer Ulrich Wallin took the opportunity to look back once more on the record 2010 financial year, in which the company again outperformed the previous year with net income after tax of EUR 748.9 million
Executive Board and Supervisory Board. Among other things, the meeting elected Dr. Andrea Pollak to succeed Mr. Karl
The results of the voting and the attendance were published on the company’s website following the Annual General Meeting.
Responding not least to the considerable need to discuss the natural catastrophe events, we further stepped up our Investor
Relations efforts in 2011. Altogether, we took part in 14 capital market conferences (previous year: 9) and met with interested investors at 21 roadshows (previous year: 22). Our travel activities in 2011 were again focused on the financial centres of Frankfurt, London and New York, which we visited at least once a quarter. Along with Paris, Copenhagen, Stockholm, Oslo, Geneva and Zurich, our itinerary also included
Toronto and Boston. Newly added financial marketplaces – or venues that we had not visited in a long time – included
Frankfurt and London. Our 14th Investors’ Day, held as scheduled in Hannover in 2011, was very well received. In total, 36 analysts and institutional investors enjoyed an intensive exchange of views with the Executive Board. The discussions focused on the new corporate strategy as well as growth and development prospects going forward in non-life and life/
In the year under review we also optimised the rendering of online offerings provided on our Investor Relations website for mobile end devices such as smartphones and tablet PCs. Our
Rankings, which crowned our HTML Annual Report the second -best in the world on account of its extensive functionality.
Within our free float the proportionate holdings in Germany and the United States increased slightly in the year under review, rising by 1.9 percentage points in Germany to 42.5%
Kingdom and France, on the other hand, recorded declines to stand at 17.8% (–2.1 percentage points) and 1.3% (–1.4 percentage points) respectively.
The substantial loss events of 2011 prompted an exceptionally large number of research reports. In the 2011 financial year more than 350 analyst recommendations were published for Hannover Re and the insurance industry, an increase of 50%. Based on the figures for the first nine months of 2011, 35 analysts handed down their opinion: sixteen analysts recommended the Hannover Re share as “buy” or “overweight”; altogether eighteen opinions were a “hold”, making this the most common, while only one “underweight” or “sell” recommendation was issued. The analysts’ average price target climbed steadily in the course of the year from EUR 41.43 at the start of the year to EUR 43.56 by year-end. Parallel to this trend, the average analysts’ opinion also moved higher.
Earnings per share (basic and diluted) 5.02 6.21 6.08 (1.05) 5.98
We seek to strengthen and further expand our position as a leading, globally operating reinsurance group, delivering profitability that is above the average for the sector. We are passionate about reinsurance and chart our own course. Quick, flexible and independent, we strive for excellence in our actions. We aspire to be the best option for our business partners when it comes to choosing a reinsurance provider. Our mission: Growing Hannover Re profitably.
Expand primary insurance business in selected niche markets as a complement to our reinsurance activities
Offer standard products as well as specially tailored customer solutions that add value for both contracting parties
Foster customer relationships to both parties’ mutual benefit irrespective of the size of the account
Achieve target return – risk-free interest rate plus the cost of capital
Support considered and pragmatic principles of corporate governance and recognise their central role in guiding our activities
Ensure rigorous derivation of strategic objectives across all areas of the company 16 OUR STRATEGY
This systematic approach is of crucial importance to the execution of our strategy in daily actions. In the context of our holistic management system Performance Excellence 2.0 we align all our activities such that they advance our strategic objectives with a view to successfully implementing our strategy. All organisational units determine substantial strategy contributions to the strategic objectives of the Hannover Re Group. This also includes defining performance criteria and indicators that can be used to establish fulfilment of the relevant strategy contributions.
The model enables us to ensure rigorous derivation of the strategic objectives
For more details of our strategy see our website at: F or o u r in ve st or s
A more restrictive economic policy as well as debt problems affecting many advanced national economies led to a slow­
certainties as to the outlook for the global economy caused the climate in the major economic areas to deteriorate overall in the course of the year. The European sovereign debt crisis was a particularly significant factor in this regard. Yet doubts about the state of the financial sector also played a part in the more depressed mood.
In the United States the economic upturn gathered pace as the year progressed, and the risk of sliding back into recession consequently receded into the background. Most significantly, private consumption remained robust despite muted income growth. A key pillar of the US economy, however, was gross investment in fixed assets, which includes the acquisition of durable and reproducible means of production; such invest­
ments made an appreciable contribution to the growth in gross domestic product (GDP) recorded in 2011. Prospects on the labour market have also picked up again of late, thereby confirming the at least moderate expansion of the US eco n­
omy. Nevertheless, the US still struggled in the face of struc­
tural difficulties, levels of personal and public debt continued to be high and sales figures on real estate markets remained very subdued. Overall, GDP rose by 1.7% in the year under review.
ive financial policy as well as uncertainties surrounding the unfolding of the European sovereign debt crisis crippled in­
tively healthy public finances and a strong ability to compete internationally, such as Germany, the Netherlands, Finland and Austria, delivered above­average increases in output. The situation was a different one in Greece, Ireland, Portugal and
larly dramatic in 2011 was the plight of Greece, which was only able to avert a sovereign default thanks to considerable assistance from the European Union. The onset of this eco­
ably and disposable incomes rose. The state of the labour mar­
ceal the fact that in Germany too economic prospects had be­
China continued to enjoy very vigorous expansion, although the pace slowed somewhat as the year progressed owing to a more restrictive monetary policy. All in all, the economic out­
bonds fell to 1.7% for a time. This level was assisted not only by a monetary policy that remained committed to a strong supply of liquidity but also by a preference among investors for government bonds of the highest quality. Government bonds issued by a number of other European countries came under increasing pressure on account of inadequate actions to bring about fiscal consolidation; this was reflected accord­
Bank sought to stabilise the capital market by buying up gov­
ernment bonds. US treasury bonds also fell to record lows with yields of less than 2%. Despite the move by Standard &
sion. While the DAX closed 2011 with a loss of 15%, the US
After showing strength early on in the year, the euro ultimate­
ly remained broadly unchanged against the US dollar, pound sterling and the Canadian and Australian dollar over the course of the full 2011 financial year.
Industry-specific environment 2011 was a challenging year for the international insurance industry. Owing to numerous natural disasters, it went down as the second­most expensive year in industry history. Experts anticipate insured catastrophe losses of around USD 110 bil­
lion; in 2005 the figure was in the order of USD 125 billion.
Association (GDV) nevertheless expects premiums for 2011 to decline by 1.2%. This decrease is attributable to a nor­
Non­life reinsurance markets developed more favourably in the year under review than initially expected: in the treaty re­
“Solvency II” will also cause our clients to attach even greater importance to the tool of reinsurance. For further details of de­
Our second business group, life and health reinsurance, did not grow quite as rapidly as in previous years. It now con­
tributes 43.6% of the total premium volume. Given the lower volatility of results, we have set ourselves premium growth targets here – unlike in non­life reinsurance. In the year under review we again succeeded in enlarging our premium volume.
sets under own management grew appreciably to EUR 28.3 billion (EUR 25.4 billion). Despite the overall decline in inter­
In March we sold our portfolio of listed equities with virtually no gain or loss on disposal. We decided to take this step be­
cause of the uncertain extended implications for capital and reinsurance markets of the still ongoing Fukushima nuclear disaster. The decision had become necessary in the context of our systematic approach to risk management. Since then we have only retained a minimal holding of listed equities as part of strategic participations. In the area of bonds our policy continues to be geared towards maintaining a well­diversified portfolio. The regional spread of our government bonds was largely unchanged in the reporting period. It remains the case that our exposure to countries on the Eurozone periphery (Ire­
The hedging effect of the inflation swaps taken out in 2010 to hedge part of the inflation risks associated with the loss
reserves in our technical account diminishes over time owing to their fixed maturity. In order to restore the original protect­
den of major losses, it still gave grounds for satisfaction. It amounted to EUR 841.4 million (EUR 1,177.9 million) as at
In the aftermath of the severe natural disasters in the first quarter we reduced our profit estimate in March from around
EUR 650 million to roughly EUR 500 million. Despite further heavy loss expenditure incurred in the course of the year under review we maintained this guidance. The fact that we were able to generate Group net income of EUR 606.0 million
EUR 980.7 million – the second­highest strain of all time for our company – can be attributed both to the quality of the underlying business and the very healthy investment income.
128.0 million. Run­off profits on loss reserves established in prior years were also booked – a reflection of the fact that the development of paid and reported claims from prior years was more favourable than anticipated. The run­off profits did not give rise to a reduction in the confidence level of our loss reserves. The result was curtailed by effects in life and health reinsurance. Earnings per share stood at EUR 5.02 (EUR 6.21).
tion. In the course of the year the reinsurance recoverables on unpaid claims – i.e. receivables due to us from our retro­
We continue to attach considerable importance to the quality of our retrocessionaires: 90.9% of the companies with which we maintain such business relations have an investment grade rating of “BBB” or better from Standard & Poor’s.
After Hannover Re had reached agreement on the sale of the operational companies of its US subsidiary Clarendon Insur­
ance Group, Inc. in December 2010, the transaction received the customary regulatory approvals and closed in July 2011.
Re in April 2011. Readers of the highly regarded inter national trade magazine “Reactions” crowned us “Reinsurance Com­
ance sheet items and profit components broken down into the individual business groups.
insurance is Hannover Re’s largest business group. We do not pursue any growth targets here, but instead practise active cycle management according to which we expand our busi­
dustrial fire programmes. During the renewals our company set great store by supporting our Japanese clients in these difficult times and providing them with the necessary cap ­
acity. The treaty negotiations for Australia and New Zealand as at 1 April and 1 July 2011 similarly brought about substan­
insurance industry from tornado and flood events as well as model adjustments made by the agency Risk Management
The treaty renewals once again demonstrated that ceding companies continue to attach great importance to a reinsur­
ably in the year under review and expand our market share.
The focus of our activities was on the markets of China, Cen­
ness group increased by 7.7% in the year under review to
duced a net burden of catastrophe losses and major claims totalling EUR 980.7 million for the year under review (EUR
Earnings per share in EUR 3.78 –21.6% 4.82 3.92 (1.33) 4.56 1 including expenses on funds withheld and contract deposits
EUR 599.3 million (EUR 879.6 million) as at 31 December 2011 on account of the heavy major loss expenditure. Group net income closed at EUR 455.6 million, following EUR 581.0 million in the comparable period. The business result was favourably influenced by a tax refund of EUR 128.0 million deriving from a decision of the Federal Fiscal Court (BFH).
insurance business group, which is split into three segments according to the areas of responsibility on the Executive
Our business fared better than expected in the year under review in our target markets of Germany and North America: the premium volume grew to EUR 1,857.6 million (EUR
Germany”, the company has been a sought­after partner for decades thanks to its good rating, pronounced customer orien tation and the continuity of its business relations. E+S
Rück is very well positioned in our domestic market and con­
The state of the German market was favourably influenced in the year under review by an increased gross domestic prod­
uct, although it was also adversely impacted by after­effects of the financial and economic crisis. The historically low level of interest rates again led to sharply reduced interest income, which constitutes a major component of the pricing in long­
In motor primary insurance the year under review ushered in the anticipated trend reversal in premium income. Both in motor liability insurance and in own damage business pre­
Breakdown of gross written premium in target markets 47.3% North America 52.7% Germany
Industrial property and liability insurance was again fiercely competitive in the year under review. We responded by writ­
national orientation overall, this line is exhibiting growing potential domestically too – especially in the field of renewable energies: we work together with our partners on solutions that safeguard the insurability of energy­efficient technologies. A
concept for the insurance of energy­saving warranties, which we had already launched on the US market, has now been adapted for the German market. By means of this insurance product we are also seeking to create incentives for greater investment in energy­saving technologies.
Not only that, through our cooperation with a primary insurer we have brought to market covers against weather­related losses of revenue and profit. In this case, too, we are drawing on our expertise from collaboration with a US partner. Target customers for these products include the construction sector, regional energy suppliers and the automobile industry. Given the changing energy policy in Germany, the (re)insurance of wind farms will also play an ever greater role; this is espe­
sponsible for around 6% of the loss ratio in own damage in­
surance for the market as a whole and caused a combined net strain of EUR 14.2 million for our company. Along with an increase in basic losses, mention should also be made of two major loss events in industrial fire insurance which – with a combined market loss of almost EUR 350 million – played a crucial part in the substantial deficit recorded in this line. The combined ratio for our German business deteriorated to north america
The North American (re)insurance market is the largest single market both worldwide and for Hannover Re.
In the primary sector premium income grew appreciably for the first time since 2006. Such a trend reversal was also sore­
ate below­average returns on equity owing to both the claims experience and the reduced investment income booked on account of low interest rates. The rate increases were most marked in industrial property business and workers’ compen­
formed particularly unsatisfactorily in recent years, such as general liability and directors & officers (D&O) covers.
In view of our excellent credit rating and our standing in the market we are a valued partner among our clients, who there­
fore attach considerable importance to the fact that almost all their casualty placements are submitted to our company. At the same time, our clients also appreciate our broad product range and our willingness to participate in all lines as long as the price is adequate.
ment already accounts for significantly more than 20% of our total portfolio in North America.
We consciously did not enlarge our market share in the year under review because the price level – especially in the casu­
As in the preceding years, the hurricane season passed off moderately in 2011. Only hurricane “Irene” caused appre­
The major loss expenditure for our business in North America was higher than in the previous year, causing the underwriting result to deteriorate. The combined ratio amounted to 110.8%
EUR 2,569.2 million in the year under review. The combined ratio increased from 91.4% to 95.0%. The operating profit
cial and economic crisis of 2008. While turnover volumes in 2011 were again higher than in the previous year, in many areas they still fell short of pre­crisis levels. Insurance pre­
A primary objective of our underwriting policy in 2011 was to push through improved conditions in the offshore energy seg­
ment. We were largely successful in achieving this goal. We nevertheless wrote such risks very prudently and tended to
M an ag em en t re p or t reduce our limits of liability in order to keep the volatility of results as low as possible. Most notably, we maintained our exposure in the Gulf of Mexico on a low level. On the other hand, we expanded the rest of our marine portfolio for reasons of improved diversification. Gross premium contracted in the year under review.
1 billion. For Hannover Re this gave rise to a major loss with net expenditure in the order of EUR 16 million.
In international aviation reinsurance we similarly rank among the market leaders.
America, the situation facing airlines stabilised in the year under review. Passenger numbers picked up slightly, which also benefited the (re)insurance industry. With deliveries of the Airbus A380 “super jumbo” on the rise and the entry into service of the Boeing 787 Dreamliner, more and more pol­
sulting in a net strain of around EUR 7 million for our account.
ket in the year under review. Major emerging markets and national economies with strong export sectors such as
Germany enjoyed a marked upswing in the first half­year. The second half of the year was overshadowed in particular by the worsening debt crisis and crisis of confidence in Europe and the United States. It was, however, countries with a high debt ratio such as Greece, Italy and Spain that came under the greatest pressure.
Surplus capacities prevailed on the reinsurance side owing to the appreciable improvement in claims rates in the original business. Having scaled back their participation in the chal­
The combined ratio improved in the year under review to 87.7%, after 97.8% in the previous year.
Demand for structured reinsurance was very brisk in the year under review, enabling us to expand our customer base. The premium volume showed vigorous growth.
tion in 2011. Due to the implementation of risk­based capital models and the associated more exacting solvency require­
ments, additional business opportunities are opening up for our company outside Europe too. In the year under review we concluded our first­ever transaction predicated on the Solv­
ance market was undiminished despite the losses that were recorded in the year under review. Thus, for example, we were able to increase our “K” quota share – a securitisation consist­
parable price rises – hence boosting the competitiveness of these instruments. Still, these effects have not yet led to any significant increase in new issues of catastrophe bonds.
fore promotes diversification of asset portfolios. Nor did the heavy losses incurred by investors in the year under review, most notably in Japan, curtail investment activity. The avail­
With its product range Hannover Re enables investors to enjoy optimised and customised access to, inter alia, non­life re­
Following the expiry of our FacPool Re transaction, under which we transferred facultative risks to the capital market in 2009, our premium volume in the area of insurance­linked securities contracted in the year under review. The result fell short of the previous year on account of the worldwide claims situation.
The tense state of the economy in the UK caused the premium income booked by leading insurers to contract in the year under review. Particularly hard­hit were covers for risks in the construction industry. Overall, competition was fierce – espe­
view – prompting us to enlarge our premium volume. In in­
dustrial property business our involvement is concentrated on mid­sized clients, since in these cases we are better able to play a part in structuring the programmes. Neither the frost damage nor the civil unrest witnessed in London and some other major English cities had any significant effect on our results.
ition. This business, which encompasses virtually all areas, is reinsured in large measure by Hannover Re Africa.
We were able to substantially enlarge our premium volume from direct business in the year under review. Our increased involvement in the UK motor sector was a contributory factor in this regard. Yet the premium volume that we write in South
Not only were we able to extend our activities in direct busi­
Breakdown of gross written premium in global reinsurance 28.3% Facultative reinsurance 56.5% international treaty business 15.2% catastrophe business
In the face of sustained competition with more than sufficient reinsurance capacities, we continued to practice our selective underwriting policy in France. As before, our strategy remains geared to preserving the profitability of our portfolio. We were largely successful in accomplishing this goal.
ingly important. In builder’s risk insurance we are one of the leading players in France. The accident line is another focus of our activities.
No significant loss events were recorded in the year under review.
ing reporting obligations prompted further mergers among primary insurers in 2011. Particularly in the segment of small­
gered by the European Solvency II Directive for a risk­based solvency system. The accompanying more rigorous require­
The markets of Northern Europe are served by our branch in
Europe continue to be above average. There was, however, no easing in the intense competition, as a consequence of which prices in the primary sector came under pressure in the year under review. On the reinsurance side, by contrast, rates and conditions were by and large stable.
ing to extend our margin requirements over a longer period of time.
Latin American markets have enjoyed very vigorous growth in recent years. A key factor here, among others, was the in­
Hannover Re is well­positioned in Latin America and a market leader in some countries. The most important markets for our company are Brazil, Mexico, Argentina, Colombia, Venezuela and Ecuador.
tunities available to foreign reinsurers that do not have a local branch. This means that from 2012 onwards companies such as Hannover Re are only able to assume retrocessions, in other words coverages for local reinsurers.
America increased. In contrast to the previous year, we did not incur any major losses and the loss ratio therefore improved appreciably. All in all, we are thoroughly satisfied with the development of our business in Latin America.
In the year under review the Japanese market was dominated by the devastating earthquake in March as well as the subse­
In view of the accumulation of natural perils, the Japanese reinsurance market is crucially driven by demand for covers for earthquake, windstorm and flood risks.
With an estimated market loss of USD 35 billion, the Great
ed programmes ranged from 30% to 100%, while rates for other business with natural catastrophe exposure also im­
For Hannover Re Japan is a very important market – and one in which business relationships are traditionally geared to­
“core reinsurer” with most primary insurers. Thanks to the commitment that we showed to our clients in the aftermath of the earthquake, we were able to further consolidate our rela­
229 million, this natural catastrophe was the largest single loss for our company in the year under review.
Thailand, the Philippines and Indonesia. Our portfolio here consists predominantly of property business. The accident, crop and livestock insurance lines as well as structured re­
insurance products were further expanded in the year under review. We also continued to engage in the field of micro­in­
Given the greater importance attached to risk­based models not only in Malaysia but also in Thailand, we observed a surge in demand in proportional motor business. We are supporting our clients here with an eye to the increased capital require­
The result deteriorated appreciably owing to the exceptionally heavy loss expenditure recorded in this market.
The pace of the Chinese economy’s growth slowed somewhat in the year under review. Nevertheless, at around 16% (33%)
the growth rates recorded by the reinsurance industry were still unusually high. In view of the relatively low insurance density as well as more stringent requirements governing the equity resources of insurance companies, we anticipate fur­
ditions remained stable and the major loss experience was unremarkable, hence enabling us to generate a good under­
On the whole, we are satisfied with the development of our portfolio from the Chinese market. Our premium volume was enlarged in the year under review.
The immense major loss expenditure as well as reduced investment income stepped up the pressure on insurers to restore their underwriting results to profitability. What is more, some reinsurers withdrew from the market following these losses, while established players at best held stable or otherwise reduced their capacities in Australia and New
Zealand. This led to increased pricing pressure and brought the anticipated significant rate hikes and improved conditions for catastrophe­exposed business. For further information in this regard please see the section “Global catastrophe busi­
With a view to optimising our diversification, we enlarged the share of our portfolio stemming from the casualty sector at the expense of the dominant catastrophe business. Prices here remained broadly stable or increased slightly.
The bulk of Hannover Re’s catastrophe business is written out of Bermuda, which is considered the centre of competence for this line worldwide. Along with the expertise of our local team, our financial strength and an excellent rating have made us a particularly highly sought­after partner for ceding companies and brokers for quite some years now.
nessed in 2010 – we need only recall the earthquakes in Chile and New Zealand – even heavier losses were incurred in the
quake covers saw prices surge by 25% to 50%. Up to 50%
Bearing in mind the accumulation of severe natural disasters in certain regions, we redistributed our capacities in order to reduce the risk of profit erosion.
Our gross premium volume from global catastrophe business increased by 19.2% in the year under review to EUR 364 mil­
– where above all government subsidies for multi­risk covers are ensuring a rising premium volume for primary insurers.
Our underwriting policy in 2011 was driven by the goal of further optimising our portfolio. We therefore expanded prof­
itable business relationships while at the same time scaling back shares in instances where we no longer considered the rates to be commensurate with the risks.
We also continued to work on the regional spread of our port­
States or Western Europe. Following the market regulation introduced for reinsurers in Argentina with effect from 1 Sep­
acted in accordance with Islamic law – in both Southeast Asia and on the Arabian Peninsula. We maintain a dedicated sub­
sidiary for this business in Bahrain (Hannover ReTakaful) as well as a branch that bears responsibility for writing trad­
Our goal was to continue to generate profitable growth and to strengthen our position as market leader. Particularly in the construction sector and in the casualty lines we were able to expand our business, above all in Saudi Arabia. The fact that we succeeded in growing in the year under review despite an oversupply of reinsurance capacity can be attributed first and foremost to our excellent financial standing and our very good client relationships.
The largest single loss event in 2011 was flooding in the region around Jeddah in Saudi Arabia, which resulted in an estimated strain of less than EUR 5 million for our account; we also recorded a number of fire losses. The loss ratio conse­
In recognition of its market leadership Hannover ReTakaful was awarded the title of “Best International Retakaful Oper­
Here, too, our strategy is to grow only in those areas that offer adequate profitability. In the year under review we therefore further optimised our portfolio structure and withdrew from business areas that did not meet these criteria. The latter in­
clude, among others, risky liability business such as medical malpractice in certain developed countries.
As was also the case in the traditional reinsurance market, rate increases in the facultative sector were attainable in those areas that had seen heavy losses in the year under review.
In energy business – and especially in the mining industry –
The severe natural disasters recorded in the year under review also adversely impacted our facultative portfolio, although our shares in this regard were very moderate.
The protracted volatility on international financial markets and the sovereign debt crisis in Europe have triggered uncertainty among private investors and the business community world­
wide. Along with the banking sector, the insurance industry was increasingly impacted by these developments. In some cases, as a financially strong contracting partner, this opened up new business potential for us since we were able to offer those of our clients who had been adversely affected by the crisis the security that they were seeking. Despite the un­
kets, considerable volatility on stock exchanges and sustained low level of interest rates also prompted stronger demand for reinsurance protection. The interest shown by primary insurers in bespoke reinsurance solutions increased, in part with a view to keeping their own cost of capital on a moderate level and also in order to satisfy the required solvency standards.
dom, Germany, France and Scandinavia continue to play a pivotal role for our company. In addition, we appreciably stepped up our involvement in the emerging markets of East­
ern Europe as well as in China, India and in retakaful business.
In the United States we had already successfully completed the acquisition of the ING portfolio in 2009. We further reinforced our market position in conventional US mortality business with another portfolio acquisition in 2011; the addition of these portfolios ideally complements our organic growth. Within the past four years we have tripled our market share of organic new business in the US and thereby boosted our new business by double­digit percentages annually – all of this despite the fact that the total US reinsurance market contracted during the observation period. We consider ourselves to be very well positioned in the market segment of conventional US mortal­
In the United Kingdom we are one of the leading reinsurers for longevity covers and a preferred business partner for private annuities taken out by individuals with a reduced life expectancy – so­called “enhanced annuities”. We also assume pension payment commitments from large pension funds under portfolio acquisitions which are normally limited to the part on which benefits are already being paid. These frequent­
Although the market for longevity swaps is still in its infancy in many countries, we have already received enquiries from clients in Germany, Norway and Denmark as well as Latin
pand our business in these markets too in the near future.
folio or withdraw entirely from the Russian market. Our strategic decision to service this market centrally with our underwriting team in Hannover has proven correct in light of
Geographical breakdown of gross written premium 27.9% United Kingdom 31.5% North America 6.1% Germany 8.0% Australia/ New Zealand 7.3% Rest of Europe 3.0% latin America 9.3% Asia 3.3% France 3.6% Africa
We have substantially expanded our local presence in Asian markets in recent years. Our premium volume here was ap­
Arabia and the United Arab Emirates. We write our business here in accordance with Islamic law (retakaful) through our subsidiary Hannover ReTakaful in Manama/Bahrain.
We are one of the few professional life and health reinsurers operating worldwide and are a top player in the international rankings. For our company, however, playing an active part in shaping and growing the global life insurance market in a dialogue with our clients is more important than this leading position.
ness, which is geared specially to insurance products that are in conformity with Islamic law.
Our business model is integrated into the strategy of the Han­
ise, has its own individual marketing approach and is geared to different customer requirements and products. In the con­
ventional reinsurance segment we participate selectively in attractive traditional life and health reinsurance. By way of the other four pillars we are able to offer individual, innovative and needs­oriented insurance solutions.
Conventional reinsurance traditionally accounts for the lion’s share of our portfolio. Nevertheless, particularly as a conse­
quence of our activities in the UK private annuity market (en­
hanced annuities), we have been able to substantially enlarge our business volume in the area of new markets; the contribu­
tion made by this pillar to our total volume is therefore stead­
mium worldwide in the year under review. Accident business contributed the most modest share of our premium income, amounting to 2.0%.
tion: our market leadership in the area of enhanced annuities, substantial growth in acceptances of the longevity risk associ­
ucts, growth in Latin America, Asia and Africa as well as the mortality risk from business written in the United States.
folio give rise to a broad spectrum of factors that can influence our operating result (EBIT). Essentially, these are: • Development of the biometric risks of mortality, longevity and morbidity
• Developments on international capital markets, especially fluctuations in exchange rates between our balance sheet currency (EUR) and the most relevant foreign currencies
Along with our local presence, we attach great importance to maintaining and expanding long­term business partnerships with our ceding companies. In this regard we draw on our
Our business model is geared primarily to organic growth. Yet we remain open to acquisitions of suitable portfolios in order to gain access to new business segments and with a view to cementing our market position and achieving our medium­
In geographical terms, we sustained our overall premium level year­on­year in the United States and the United Kingdom, while in Australia and Africa we generated pleasing increases.
Breakdown of gross written premium by lines of business 66.7% life 2.0% Accident 8.7% Health 22.6% Annuity
The experience of the three biometric risks of mortality, longevity and morbidity, which is a key influencing factor on pro fi tability, was very mixed in the year under review.
tremely patchy experience in the year under review. While a large block of business newly acquired in the first quarter of 2011 surpassed our expectations, other areas of the business fell short of the anticipated profitability (among other things on account of temporarily elevated suicide rates).
Australian disability annuity business again failed to match up to our expectations in the year under review, necessitating the establishment of additional reserves running into the mid­
Key figures for life and health reinsurance Figures in EUR million
Gross premium incl. premium deposits 6,974.6 +4.0% 6,708.0 6,861.0 5,315.6 3,937.4
Earnings per share in EUR 1.51 –17.0% 1.82 2.47 0.65 1.57 1 Operating result (EBiT)/net premium earned
With this in mind it is gratifying to note that our clients con­
liability management; we also attach considerable importance to quality and diversification. Despite our conservative invest­
ment policy the turmoil on financial markets did not leave our investment performance unscathed. In the US reinsurance market we are exposed to the investment risk associated with securities deposited with ceding companies to cover the bene­
ments”, page 191. This can give rise to sometimes sharp an­
The securities deposited with our ceding companies outside the United States, on the other hand, generally do not entail an investment risk because a fixed rate of interest income is normally contractually agreed for the reinsurer under such contracts – and guaranteed to us by the primary insurer –
ence the profit and loss account. In the year under review the devaluation of the US dollar had particularly negative implica­
We traditionally devote special attention to the efficiency of our business model. Our administrative expenses amounted to EUR 130.6 million (EUR 118.7 million) for the year under review, corresponding to 2.5% of our gross written premium.
The financial solutions and bancassurance segments again delivered excellent returns. The multinationals pillar also fa­
vourably influenced our total result in the year under review with a healthy EBIT margin, whereas the profitability of new markets was impaired by a highly conservative reserving pol­
icy for the longevity risk. Going forward, however, we expect this strategic pillar to make a significant contribution to our net income.
view came in slightly below our expectations on account of the difficult situation on the international capital markets. With an average tax ratio of 14.1% and after allowance for minority interests, net income after tax in life and health reinsurance amounted to EUR 182.3 million (EUR 219.6 million). This was equivalent to earnings of EUR 1.51 (EUR 1.82) per share.
The situation on the German life insurance market was again highly challenging in the year under review. In view of the continued low level of interest rates, the uncertainty prevailing throughout the entire European Economic Area with respect to a renewed financial and currency crisis as well as the im­
The trend in new business towards single­premium products with shorter policy periods, which was still evident in 2010, declined sharply in the year under review. Policyholders dis­
Within the Hannover Re Group the German primary insurance market is traditionally served directly from Hannover by our subsidiary E+S Rückversicherung AG. Our focus here is on life and annuity insurance. We enjoy a stable customer portfolio and – with more than 40 ceding companies – can point to a good level of market penetration. Despite fierce competition in the German market, we were able to enlarge our business
In the area of mortality and disability covers the UK life re­
insurance market is notable for a multitude of providers. This results in an extremely competitive market environment, which is why HLR UK has continued its prudent and conserva­
The gross premium booked by HLR UK totalled EUR 194.4 million (EUR 197.6 million). The operating profit (EBIT) of
EBIT margin of 17.9%. Net income after tax was also ex­
In the area of enhanced annuities, which is handled from Han­
nover, we have built up considerable expertise over the past two decades and continue to operate as one of the market leaders in this segment. For some years now we have also been working together with a number of specialist insurers and banks to reinsure UK pension funds. We are able to draw upon our know­how from enhanced annuities business in order to appropriately analyse the longevity risk associated with the pension funds and to adequately structure the re­
folio that we acquired from Scottish Re in January 2011 was a major factor here. The biometric risk associated with this new block of business fared better than expected, while the profitability of the ING portfolio acquired in 2009 was below average. As we were unable to offset these adverse develop­
ally exceeded. The business result reported by HLR Ireland was thus shaped by very mixed developments in the year under review.
mium income booked by Hannover Life Re. Of this, the sub­
ments as well as adverse movements in exchange rates, the operating profit (EBIT) declined sharply to EUR 36.2 million
sibility for this market area rests with our life branch in Paris.
Business developed in line with our expectations, enabling us to report another thoroughly gratifying result.
After the decline in single­premium business in 2010, we are well on track to bounce back to our accustomed premium level thanks to the favourable development of certain treaties this year. We generated gross premium of EUR 473.2 million
(EUR 452.0 million) in the year under review. Our EBIT was boosted by 26.0% to EUR 65.6 million (EUR 52.1 million); with net premium standing at EUR 454.8 million, this corres­
Hannover ReTakaful. Since its establishment in 2006 we have built up an excellent client base and we continued to expand activities in the reporting period. Exceptional growth is still the hallmark of the overall Islamic reinsurance market. Our local presence enables us to serve this increased demand for life reinsurance coverage.
By stepping up our underwriting activities we were able to boost our premium volume, more than doubling it in the year under review to EUR 29.3 million (EUR 12.6 million). This growth was similarly reflected in a comparable increase in profitability.
Our Stockholm branch is responsible for reinsurance business in Scandinavia and the Baltic states as well as Turkey and
Israel. Eastern European markets are served centrally by an underwriting team based in Hannover.
leading reinsurers for more than ten years now. We maintain long­term relationships with our clients and cooperate closely on developing tailored reinsurance solutions for conventional covers of the biometric risks of mortality and morbidity. We are also active in the area of financing arrangements and the bancassurance sector.
Since 2009 we have also served Central and Eastern European markets directly from Hannover, with a focus on Poland and
We vigorously enlarged our premium volume in this region in the year under review, posting decisive gains not only in
Russia and Kazakhstan but also in Poland and Hungary. Our premium volume in the year under review totalled EUR 11.0 million (EUR 5.2 million), thereby surpassing the 10 million euro mark for the first time. The result recorded for this region was very positive.
We seek to promote our clients’ commercial success. We do this by delivering undogmatic, flexible and prompt service that is geared to the needs of our clients.
HLR America was able to further extend its market position in the mortality solutions segment through the acquisition of a large US portfolio in the first quarter of 2011. This block of business consists of term life policies written between 2000 and 2003 and therefore ideally complements the previously acquired portfolio of US individual life policies. While the risk experience of this new block of business was pleasing, the claims experience of the ING business acquired in 2009 fell short of expectations.
ness and again succeeded in enlarging our market share and new business volume, despite the fact that the US life reinsur­
ance market as a whole has contracted. We believe that we are on the right track towards accomplishing our medium­term goal of securing a market share in new business in the range of 10% to 15%.
The tense state of the economy and considerable uncertainty on financial markets heavily impacted both the economic posi­
tion and risk­carrying capacity of life insurers in the primary sector, hence boosting demand for financial reinsurance prod­
ucts. In the financial solutions segment we therefore booked pleasing increases in premium income, which will be favour­
ably reflected in our operating result in the years ahead. In the area of senior markets we are currently tending towards a cautious approach on account of the existing uncertainties surrounding healthcare reform in the United States.
Owing to temporary valuation losses arising out of the fair value measurement of investments deposited with ceding companies as required by the relevant accounting rules, the operating result recognised by our subsidiary in the year under review decreased to EUR 9.0 million (EUR 13.0 million).
ment as well as in the emerging markets of Africa and Asia.
(EUR 155.8 million), of which EUR 143.0 million (EUR 146.8 million) could be recognised as net premium earned for the financial year (the net amount exceeds the gross premiums in the reporting period due to relatively high unearned pre­
EUR 15.5 million. The EBIT margin stood at 16.6%. The com­
provement in its infrastructure, we are also working together with a number of primary insurers to promote direct and on­
line sales of insurance products with the aid of automated underwriting systems. This involvement is intended to open up access for a broad sector of the population to appropriate life and health insurance protection.
EUR 163.5 million (EUR 149.5 million) in the year under review, of which EUR 129.6 million was retained for own account. This produced an operating profit (EBIT) of EUR 8.8 million (EUR 11.9 million), corresponding to an EBIT margin of 6.8%.
The business volume was boosted to EUR 156.4 million, an increase of 19.0% relative to the previous year’s figure of
EUR 131.4 million. Of this amount, a premium volume of EUR
Asia represents a promising growth market for our company and is served directly by local branches and service offices.
Our life branches in Kuala Lumpur and Hong Kong operate as regional centres with overarching coordination and service functions.
ation with GIC Re. Support for this region and the cooperation with GIC Re are handled by our service office in Mumbai.
We have achieved a high degree of market penetration in the
China and Korea is written by our branches in Shanghai and
Seoul respectively. In Japan we are locally represented by our service office in Tokyo.
actions in the year under review and anticipate rising demand over the coming years.
EUR 308.6 million (EUR 201.6 million). The rapid pace of growth in these markets was undiminished in the year under review at 53%.
We have been doing business in Australia and New Zealand for almost 20 years now through our Sydney­based subsidiary
Hannover Life Re of Australasia (HLR Australasia). In these markets we write predominantly traditional risk­oriented busi­
Capital markets in 2011 were heavily overshadowed by the global debt crisis and the responses of the various central banks. In the area of fixed­income securities risk premiums on corporate bonds increased for the most part in both US and
tive fair value effects for our portfolio were, however, more than offset by the yield declines during the year on German government bonds and US treasuries across virtually all ma­
Overall, the fair values of our fixed­income portfolio developed very favourably, hence causing unrealised gains to rise sharp­
ally more marked decrease from 3.3% to 1.9%. Bonds issued by some European countries carried substantial risk pre­
Breakdown of investments 88.9% Fixed-income securities 0.1% Equities 1.8% Private Equity 5.3% Short-term investments and cash 1.8% Other 2.1% Real estate
With these goals in mind we engage in active risk manage­
ment on the basis of balanced risk/return analyses. In this con­
Thanks to a positive cash flow from the technical account and the investments, and assisted by the development of our fixed­
The impairments taken on investments were slightly higher than in the previous year at EUR 22.0 million (EUR 16.6 mil­
lion). A volume of EUR 14.0 million (EUR 7.7 million) was attributable to alternative investments – principally pri­
1.6 million (EUR 0.2 million) were taken on real estate funds.
Unrealised losses on our asset holdings measured at fair value through profit or loss amounted to EUR 38.8 million, after
EUR 39.9 million in the previous year. The bulk of this amount
(ModCo) under which securities deposits are held by ceding companies on our behalf. The inflation swaps taken out in 2010 to hedge a portion of the inflation risks associated with the loss reserves in our technical account gave rise to unreal­
EUR 31.2 million in the previous year. The hedging effect of the inflation swaps diminishes slightly over time owing to their fixed maturity. In order to restore the original protective effect we therefore took out further inflation swaps in the first quar­
Net investment income from funds withheld 338.5 +7.0% 316.4 276.8 199.6 220.1 1 Excluding expenses on funds withheld and contract deposits 2 including depreciation/impairments on real estate 3 Portfolio at fair value through profit or loss and trading
We were thus able to boost our net investment income by 9.9% to EUR 1,384.0 million (EUR 1,258.9 million) – first and foremost thanks to the increased current investment income but also due to higher income from funds withheld and real­
Holdings of alternative investments remained on a broadly stable level. As at 31 December 2011 an amount of EUR
485.7 million (EUR 469.3 million) was invested in private equity funds, a further EUR 348.2 million (EUR 316.4 million)
in short­term investments and cash at the end of the year under review. Funds withheld amounted to EUR 13.3 billion
The intention and the ability to hold them until maturity enable the companies to reduce balance sheet volatility.
(10.9%) of the balance sheet total as well as the loans and –
ing actions as necessary. For further information please see the section “Management of policyholders’ surplus” on page 52.
ties to the expected payment patterns of our liabilities and reduce the economic exposure to the interest rate risk. In add­
The preservation of its capital is a key strategic objective for
Hannover Re. In recent years hybrid capital was issued as an equity substitute in order to keep the cost of capital on a low level. The policyholders’ surplus is a key management ratio in the context of Hannover Re’s comprehensive capital manage­
ment. The policyholders’ surplus is defined as the sum total of: • shareholders’ equity excluding non­controlling interests, composed of the common shares, additional paid­in capital, other comprehensive income and retained earnings,
6,987.0 million) as at the balance sheet date, an increase of 5.0% in the year under review.
ment are described in greater detail in our remarks on value­
siderations and factors that influence market presence, the allocation of capital to the Group’s operational companies is based upon the economic risk content of the business group in question. Some Group companies are subject to additional national capital and solvency requirements. All Group com­
tional units at the parent company on the basis of the latest actual figures as well as the corresponding planned and fore­
EUR 488.8 million in the year under review to EUR 5.6 billion.
preciably by EUR 64.6 million from –EUR 53.0 million to EUR
Non­controlling interests in Group shareholders’ equity grew by EUR 27.1 million to EUR 636.0 million as at 31 December 2011. This increase was attributable primarily to the non­
ers of the Hannover Re Group contracted to EUR 606.0 million
(EUR 748.9 million). The non­controlling interest in the profit generated in the year under review totalled EUR 70.8 million
vance of rating requirements. The total volume of debt and subordinated capital stood at EUR 1,934.4 million (EUR
Finance (Luxembourg) S.A. in 2001 had a first call option as at 14 March 2011. The outstanding bond volume of EUR 138.1 million was called by the issuer at the specified date and re­
The table on the following page summarises the carrying amounts of our subordinated bonds.
In addition, collateral in the form of letters of credit have been furnished by a number of financial institutions as collateral for our technical liabilities; bilateral agreements exist with various financial institutions. Furthermore, two unsecured syndicated guarantee facilities, one of which had a remaining volume after partial cancellations and was terminated in its entirety at the beginning of January 2012, existed as at the balance sheet date. For detailed information on existing contingent liabilities please see the notes, Section 5.12 “Debt and subordinated capital”, page 178 et seq. and 7.7 “Contingent liabilities and commitments”, page 201.
nover Re is able to make the necessary payments at all times.
Subordinated bonds in EUR million issue date coupon in % 2011 2010
Hannover Finance (luxembourg) S.A., subordinated debt, EUR 350 million; 2001/20311,2 14.03.2001 6.25 – 138.1
Hannover Finance (luxembourg) S.A., subordinated debt, EUR 750 million; 2004/2024 26.02.2004 5.75 748.0 746.9
Hannover Finance (luxembourg) S.A., subordinated debt, EUR 500 million; 2005/undated 01.06.2005 5.00 485.7 484.1
Hannover Finance (luxembourg) S.A., subordinated debt, EUR 500 million; 2010/2040 14.09.2010 5.75 497.9 500.0 1 This bond was exchanged in an amount of EUR 211.9 million in 2005 2 The outstanding volume of this debt in an amount of EUR 138.1 million was repaid on 14 March 2011
Consolidated cash flow statement in EUR million cash flow from operating activities 2,522.9 1,681.3 cash flow from investing activities (2,041.3) (1,993.7)
Exchange rate differences on cash 0.0 46.9 change in cash and cash equivalents 31.7 17.8 cash and cash equivalents at the beginning of the period 475.2 457.4 change in cash and cash equivalents according to cash flow statement 31.7 17.8
Cash and cash equivalents at the end of the period1 507.0 475.2 1 Thereof attributable to disposal groups: EUR 0.0 million
Germany, the funds were used primarily to expand corporate bond holdings of an attractive quality, while holdings of gov­
ernment bonds and structured financial products were in some cases reduced in view of favourable market opportuni­
Compared to the previous year, the cash flow from financing activities was reduced by EUR 733.2 million from EUR 283.3 million to –EUR 449.9 million. The change was influenced first and foremost by the inflow of funds from placement of the subordinated debt 2010/2040 in an amount of EUR 500.0 mil­
lion paid by the parent company Hannover Re as well as re­
A.M. Best and Standard & Poor’s, the rating agencies of par­
ticular relevance to the insurance industry, assess the financial strength of Hannover Re on the basis of an interactive rating process and have awarded it very good ratings. The rating agencies highlight in particular the strength of the Hannover
Two umbrellas provide better protection than one – that is something on which insurers (first umbrella) and reinsurers (second umbrella) have long been in agreement. And policyholders are twice as happy about the proven partnership between Hannover Re and the primary insurer.
ticipations that exceed 10% of the voting rights: Talanx AG, Riethorst 2, 30659 Hannover, holds 50.2% (round­
(AktG). Amendment of the Articles of Association is governed by §§ 179 et seq. Stock Corporation Act (AktG) 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. Stock Cor­
AG. For details of the letter of credit lines please see our ex­
In addition, retrocession covers in non­life and life business contain standard market change­of­control clauses which in each case grant the other contracting party a right of termin­
ation if a significant change occurs in the ownership structure and participation ratios of the affected contracting party.
tions and their degree of fulfilment is made measurable. The additional assessment of the individual significance of the various management principles for each feedback provider simplifies both the identification of topical concentrations for the follow­up team discussion and the elaboration of person­
The intention thereby is to directly support implementation of the strategy item “We want successful employees”; pivotal importance attaches in this regard both to our managerial staff and to team interaction.
As part of the review of the corporate strategy, we also revised our human resources strategy in 2011. The core of our human resources strategy nevertheless remained essentially un­
changed since it has proven itself in the past. What has now been brought out more clearly is that the success of our com­
cessful leadership. In the year under review we once again reworked this management feedback process. We are thus aligning our personnel development tools even more system­
atically with the human resources strategy. Further matters dealt with were the revision of the remuneration structure for executive staff, a pilot project for the launch of “blended learn­
ing”, a linking of traditional face­to­face learning activities with virtual e­learning as well as the roll­out of state­of­the­art software to enhance the new appointments process.
The Hannover Re Group employed 2,217 (2,192) staff as at 31 December 2011. The turnover ratio at Home Office in
In order to satisfy the requirements of the Regulation on the
In 2011 we successfully implemented another state­of­the­art learning method, namely “blended learning”. This enables us to even better integrate our staff in Hannover and our col­
In blended learning, a seminar unit consists of a linkage be­
to­face training sessions. We thus exploit modern technical capabilities to make learning less place­ and time­bound. Not only that, we are responding to the demands of a new genera­
Despite all the advantages of modern technology, we are still aware of the communicative, uniting and motivating value of traditional face­to­face instruction and we shall continue to use this where it is didactically appropriate – for example in new seminars that further reinforce the intercultural skills of our employees or their customer orientation.
Complementing its successfully launched employer branding campaign in 2010, Hannover Re went live with a new look to the career section of the company website in the year under review.
The emphasis is on a combination of colourful images (natural phenomena), eye­catching multi­titles and stimulating task descriptions. We also let our employees speak for us: their descriptions of their journey through life and their successful entry into Hannover Re round off the information provided.
tion of our Web presence, we have also brought the technol­
cluded in this medium, known as Talentpool. Our colleagues in recruiting search these profiles on a preferential basis when new job requirements arise and check their suitability.
The Executive Board would like to thank all employees for their dedication in the past year. At all times the workforce identified with the company’s objectives and purposefully pursued them. We would also like to express our appreciation to the representatives of staff and senior management who participated in our co­determination bodies for their critical yet always constructive cooperation.
ing on the operational activities of Hannover Re and hence forms part of how we see our business. Our goal is to generate economic success on the basis of a solid business model in conformity with legal regulations and the needs of our staff and the company, while also giving due consideration to conserva­
egy is based on good and sustainable compliance and puts into more concrete terms the higher­level corporate strategy of the Hannover Re Group. Within the scope of the strategy, altogether five action fields as well as concrete measures and targets have been defined for the period up until 2015.
Code of Conduct – which we adopted Group­wide in 2003 –
With effect from the autumn of 2012 we shall report on the degree of goal accomplishment as well as on the development of key performance indicators in an annually published sus­
folio under product responsibility. Our investment strategy is designed to generate a commensurate market return in the interests of our clients, institutional investors and private in­
vestors. Nevertheless, going forward we shall seek to give even greater consideration to environmental, social and gov­
The success of our company is directly dependent on the suc­
Since 2008 members of staff at Hannover Home Office have also been able to entrust the care of their children to trained childcare nurses at the public day nursery supported by the
City of Hannover and the Federal State of Lower Saxony as well as Hannover Re and Concordia Versicherung AG. Set up on the premises of Hannover Re, the daycare centre provides all­day supervision for infants from the first to third year of life. The nursery is able to accept infants on a year­round basis in order to enable parents to return to work without delay.
It is a stated aim of Hannover Re to keep the negative eco­
ises as well as by our business travel. In addition, we make every effort to use (raw) materials in our offices in the most economic and environmentally friendly manner possible. In our procurement we pay close attention to compliance with social and environmental standards when it comes to selecting products and vendors.
ting payments to the international organisation “atmosfair”, thereby supporting selected climate protection projects in de­
Certificate System) certificates from our electricity supplier to promote the use of renewable forms of energy. From 2012 onwards Hannover Re will cover the power requirements at its
nover Re in 2011 at the Hannover Home Office location were 98% offset. All in all, CO2 pollution increased by 438 tonnes or 5.7% relative to the previous year. In the year under review, as in past years, Hannover Re again participated in the survey conducted as part of the “Carbon Disclosure Project” (CDP).
The CDP serves to gather and publish qualitative data on the subject of climate change in order to motivate investors, busi­
ture and social projects dates back to its founding in 1966.
Essentially, our social involvement is subdivided into four areas: sponsorship, foundation support, donations and assis­
tance through words and deeds. The latter encompasses the voluntary activities performed by our staff as well as their passing on of know­how at our various locations worldwide.
larly close to our heart is support for research and learning as well as for music and art.
Re’s core business. In order to correctly assess risks, a con­
cial backing of altogether EUR 1 million. The model, which is scheduled to be developed by 2013, is intended among other things to help local authorities in earthquake­exposed zones to draw up more efficient contingency plans and, if disaster strikes, to facilitate the more rapid delivery of aid.
The awarding of donations is guided above all by the criterion of benefit to the public. We do not donate to organisations or projects in the following areas: politics, churches and religious movements, protection of historical buildings or animal wel­
Resources consumed at Hannover Home Office 20112 20102 20092 20081 2007
Waste (in kg) 257,400 297,000 327,000 no data no data 1 Karl-Wiechert-Allee 50 and Roderbruchstraße 26, Hannover 2 Karl-Wiechert-Allee 50, Roderbruchstraße 26 and infant daycare centre, Hannover 3 Radiative Forcing index: 2.7
With a view to accomplishing our business objectives we enter into a broad variety of risks which, on the one hand, open up opportunities for profit but, on the other hand, can also have adverse implications for our company. Our goal is to make optimal use of opportunities while at the same time adequate­
ly controlling and managing the risks associated with our commercial activities. Crucial importance therefore attaches to the qualitative and quantitative elements of our risk man­
Board with respect to the risk appetite of Hannover Re are fundamental to the acceptance of risks. The risk strategy de­
rived from the corporate strategy constitutes the basis for our handling of opportunities and risks. We act on opportunities only by weighing up the associated risks. The risk strategy and the guidelines derived from it, such as the framework guide­
We manage our total risk such that we can expect to generate positive Group net income under IFRS with a probability of 90% and the likelihood of the complete loss of our economic equity and shareholders’ equity does not exceed 0.03% p.a.
These indicators are monitored using our internal capital model. The necessary equity resources are determined ac­
cording to the requirements of our economic capital model, solvency regulations, the expectations of rating agencies with respect to our target rating and the expectations of our clients and shareholders. Above and beyond that, we maintain an equity buffer in order to be able to act on business opportuni­
ties at any time. We manage the level of our shareholders’
though the first regulations will enter into force in 2013. We
ment approach of the type which regulators will then require and we began to make our preparations for the requirements of Solvency II at an early stage. This includes participating in all Quantitative Impact Studies (QIS) and entering the pre­
ments imposed under Solvency II are unlikely to present an obstacle, since our internal capitalisation targets (confidence level of 99.97%) go well beyond the regulatory requirements
Stronger demand for reinsurance covers can also be expected as a consequence of content­based adjustments to the natural catastrophe simulation models used by many companies (in­
cluding Hannover Re) as well as the vigorous growth recorded in various target markets. Furthermore, we anticipate rising demand for individual protection against biometric risks in major emerging markets such as China, India and Brazil. Busi­
ward. This is complemented by initiatives such as our “future radar”, a systematic analysis of relevant factors that will drive future success.
ver Re’s risk management is assessed by Standard & Poor’s as
• Risk monitoring across the Group as a whole and the business groups of all material risks from the company perspective
Business units1 • Risk steering: primary responsibility for risk identification and assessment on the departmental level based on the guidelines of Group Risk Management
• Setting up and monitoring of the department’s internal control system (icS)
internal Auditing • Process-independent and Group-wide supervision on behalf of the Executive Board 1 Treaty departments and service departments in the non-life and life/health reinsurance business groups as well as the investments sector
nover Re’s internal capital model is one of the central tools. It constitutes a uniform mathematical framework for the evalu­
prise model. It is able to determine the effect of a large number of scenarios on key performance indicators and balance sheet ratios. In this context, an economic valuation approach is prac­
tion likely to be adopted in future under Solvency II. On the basis of methods used in actuarial science and financial math­
ematics, scenarios are generated for technical risks, market risks, credit risks and operational risks – making allowance for the dependencies between these risks. Last but not least, the model enables us to verify whether the level of available eco­
flects the goal of not exceeding a one­year ruin probability of 0.03%. The internal target capitalisation is therefore signifi­
cantly higher than the future requirements under Solvency II, where the confidence level is 99.5%.
Shareholders’ equity 5,606.7 5,117.9 value adjustments for non-life reinsurance 1,262.8 1,490.2 value adjustments for life and health reinsurance 751.6 675.8 value adjustments for assets under own management 368.8 232.5
Available capital and required risk capital1 in EUR million 2011 2010
The increase in the available economic capital and the parallel merely modest rise in the required risk capital pushed the cover­
Hannover Re calculates the economic equity as the difference between the market­consistent value of the assets and the mar­
closes the capital reserves that are not revealed by the measure­
As already explained, the internal capital model of Hannover Re covers technical risks, market risks, credit risks and operational risks. These risks are carried over to Hannover Re’s risk map and further broken down, e.g. into interest rate risks, catastrophe risks and reserving risks. Dependencies exist between these risks, which Hannover Re takes into account in order to ad­
equately establish its target capitalisation. Dependencies arise, for example, as a consequence of market shocks such as the current financial crisis which simultaneously impact multiple market segments. What is more, several observation periods may be interrelated on account of market phenomena such as price cycles. In dealing with these dependencies, however, it is our assumption that not all extreme events occur at the same time. The absence of complete dependency is referred to as diversification.
suant to Article 45 of the Solvency II Directive. Systematic risk identification, analysis, measurement, steering and moni­
Diversification effect within the non-life reinsurance business group Risk capital per line of business for the 99.5% vaR in EUR million 50.0% diversification
Germany Aviation UK, london market & direct business credit, surety & political risks
Guideline on the Internal Control System (ICS). The purpose of this set of rules is to systematically steer and monitor the execution of our corporate strategy. We therefore always or­
In addition, it forms the basis for the accomplishment of in­
ment system that has been put in place. It is intended to estab­
Framework Guideline defines, among other things, the major tasks, rights and responsibilities, the organisational frame­
work conditions and the risk control process. Principles are also set out governing the evaluation of new products in light of risk considerations as well as risk reporting. Internal risk reporting safeguards systematic and timely communication within the company about all material risks. Risk reporting takes place quarterly and covers inter alia the defined limits and thresholds, key ratios of our internal capital model, expert assessments (e.g. emerging risks) and a summary presenta­
tion of the risk situation. The regular quarterly reporting is supplemented as necessary by immediate internal reporting on material risks and limit oversteps that emerge at short notice. The criteria for this reporting are also specified in the Risk Management Framework Guideline. Within the cen­
tral system of limits and thresholds for the material risks of the Hannover Re Group, key ratios have been specified for steering and monitoring. Risk steering and monitoring is operationalised through the specification of suitable limits and thresholds for quantitatively measurable material risks. Ma­
In the area of accounting, processes with integrated controls ensure the completeness and accuracy of the consolidated financial statement. These processes for the organisation and implementation of consolidation tasks and for the prepar­
Depending upon the findings produced by reconciliation of internal transactions within the Group, these values are corrected as necessary. Provision is made for manual book­
ings in the case of extraordinary or unusual transactions. The control measures described above – among other checks – are performed in order to avoid false statements.
The risk landscape of Hannover Re encompasses technical risks in non­life and life/health reinsurance, market risks, credit risks, operational risks and other risks. The specific risk characteristics and the principal monitoring and management mechanisms are described in the following sections.
We make a fundamental distinction here between risks that result from business operations of past years (reserving risk)
writing result. In order to counter this risk we calculate our loss reserves based on our own actuarial loss estimations; where necessary we also establish additional reserves sup­
(incurred but not reported) reserve for losses that have already occurred but have not yet been reported to us.
Real estate risk currency risk credit spread risk longevity and mortality risk
lation of the reserves to be established as at each balance sheet date. Their adequacy is monitored using actuarial methods (cf. here Section 5.7 “Technical provisions” on page 167 et seq.). Our own actuarial calculations regarding the ad­
equacy of the reserves are also subject to annual quality as­
Licensed scientific simulation models, supplemented by the expertise of our own specialist departments, are used to assess our material catastrophe risks from natural hazards
cumulation control) is rounded out by realistic extreme loss scenarios. Within the scope of accumulation controlling, the
For the purposes of risk limitation, maximum underwriting limits (capacities) are stipulated for various extreme loss scen­
The catastrophe losses and major claims shown on the next page were incurred by our company in the 2011 financial year.
Survival ratio in years and reserves for asbestos-related claims and pollution damage in EUR million individual loss reserves iBNR reserves Survival ratio in years individual loss reserves iBNR reserves Survival ratio in years
The price/premium risk lies primarily in the possibility of a random claims realisation that diverges from the claims ex­
The development of the combined ratio in non­life reinsurance is shown in the table on the following page.
Tornadoes in the Midwestern United States 20 – 25 May 45.1 40.5
Hurricane irene in the United States and caribbean 20 – 29 August 33.8 25.9 cyclone yasi in Australia 2 – 3 Februar 23.1 16.7
Thunderstorm in Germany 24 – 26 August 15.1 10.0 cloudburst in copenhagen, denmark 2 July 11.5 7.8
All risks directly connected with the life of an insured person are referred to as biometric risks (especially the miscalculation of mortality, life expectancy, morbidity and occupational dis­
finance our cedants’ new business acquisition costs. As in non­life 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 quality assurance measures we ensure that the reserves established by ceding companies in accordance with local accounting principles satisfy all requirements with re­
writing guidelines give due consideration to the particular features of individual markets.
By monitoring compliance with these underwriting guidelines we minimise the risk of an inability to pay or deterioration in the financial status of cedants. Regular reviews and holistic analyses (e.g. with an eye to lapse risks) are carried out with respect to new business activities and the assumption of inter­
tees that are given, is of only minimal relevance to our company thanks to the structure of our contracts. The actu­
arial reports and documentation required by local regulators ensure that regular scrutiny also takes place on the level of the subsidiaries.
The Market Consistent Embedded Value (MCEV) is a ratio used for the valuation of life insurance and reinsurance busi­
ness; it is calculated as the present value of the future share­
ance portfolio plus the allocated capital. The calculation makes allowance as far as possible for all risks included in this busi­
ness. The Market Consistent Embedded Value is established on the basis of the principles of the CFO Forum published in
The change in the MCEV under the scenarios shown captures the low volatility in this area and reflects our portfolio’s high degree of diversification. The consolidated MCEV before non­
phasis is on the stability of the generated return. With this in mind, our portfolio is guided by the principles of broad diversification and a balanced risk/return ratio. Risks in the investment sector consist primarily of market, credit default and liquidity risks. The most significant market price risks are share price, interest rate and currency risks.
ponding fair value development is overstepped. Despite the sometimes difficult capital market environment in the year under review, our early­warning system consistently remained above the escalation levels (cf. graph below).
ity of the securities positions under own management and the correlation between these risks. As part of these calcula­
ability of 95% will not be exceeded within ten trading days.
The model takes into account the following market risk factors: • interest rate risk,
fication and the liquidation of our equity portfolio in the first quarter, our Value at Risk of 1.2% (0.7%) as at the end of the reporting period was nevertheless clearly below the Value at
lations. In addition, tightly defined tactical duration ranges are in place, within which the portfolio can be positioned oppor­
tunistically according to market expectations. The parameters for these ranges are directly linked to our calculated risk­bear­
Fixed-income securities yield increase +50 basis points –560.3 –388.8 yield increase +100 basis points –1,095.0 –759.0 yield decrease –50 basis points 581.7 403.9 yield decrease –100 basis points 1,188.5 826.0
Value at Risk1 for the investment portfolio of the Hannover Re Group in %
tremely slight implications for our portfolio. We spread the risks through systematic diversification. Please see also our comments in Section 5.1 of the notes, “Investments under own management”, page 148 et seq.
ments is provided in Section 5.1, “Investments under own management”, page 148 et seq.
Real estate risks result from the possibility of unfavourable changes in the value of real estate held either directly or through fund units. They may be caused by a deterioration in particular qualities of a property or by a general downslide in market values (such as the US real estate crash). Real estate risks continued to grow in importance for our portfolio owing to our continuous involvement in this sector. We spread these risks through broadly diversified investments in high­quality markets of Germany, Europe as a whole and the United States.
serves in our technical account. In addition, as in the previous year, a modest portion of our cash flows from the insurance business was hedged using forward exchange transactions.
parties and exposures are controlled in accordance with the restrictive parameters set out in the investment guidelines so as to avoid credit risks associated with the use of such transac­
The credit risk consists primarily of the risk of complete or partial failure of the counterparty and the associated default on payment. Also significant here is the so­called migration risk, which results from the possibility of a deterioration in the counterparty credit quality and is reflected in a change in fair value. Since the business that we accept is not always fully retained, but instead portions are retroceded as necessary, the credit risk is also material for our company in reinsurance transactions. Our retrocession partners are carefully selected and monitored in light of credit considerations in order to keep the risk as small as possible. This is also true of our broker relationships, which entail a risk inter alia through the potential loss of the premium paid by the cedant to the broker or through possible double payments of claims. We minimise these risks, inter alia, by reviewing all broker relationships with an eye to criteria such as the existence of professional in­
tinuously monitored. On the basis of this ongoing monitoring a Security Committee decides on measures where necessary to secure receivables that appear to be at risk of default. This process is supported by a Web­based risk management appli­
We therefore keep a particularly close eye on the assessment and evaluation of risks.
to our retrocessionaires give us a reliable overview of the market and put us in a position to respond quickly to cap­
The table above shows how the proportion of assumed risks that we do not retrocede (i.e. that we run in our retention) has changed in recent years.
The key ratios for management of our bad debt risk are as follows: • 90.9% of our retrocessionaires have an investment grade rating (“AAA” to “BBB”),
• Since 2007 we have reduced the level of recoverables by altogether 37.3%.
• 38.8% 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 re­
Retrocession gives rise to claims that we hold against our retrocessionaires. These reinsurance recoverables – i.e. the reinsurance recoverables on unpaid claims – amounted to
Further remarks on technical and other assets which were unadjusted but considered overdue as at the balance sheet date as well as on significant impairments in the year under review are provided in Section 5.4 “Technical assets”, page 162 et seq., Section 5.6 “Other assets”, page 164 et seq. and
Credit risks from investments may arise out of the risk of a failure to pay (interest and/or capital repayment) or a change in the credit status (rating downgrade) of issuers of securities.
ratios used to monitor and manage our credit risks combined ratio (non-life reinsurance) 104.3% 98.2% 96.6% 95.4% 99.7%
1 (Shareholders‘ equity + hybrid capital)/net earned premium 2 Hybrid capital/shareholders‘ equity 3 EBiT/interest on hybrid capital 4 Net reserves/net premium earned
We attach equally vital importance to exceptionally broad diversification as we do to credit assessment conducted on the basis of the quality criteria set out in the investment guide­
ures to government bonds or instruments backed by sovereign guarantees issued by the so­called GIIPS states (Greece,
portion of 1.3%. The individual countries account for the following shares: Spain EUR 309.4 million, Ireland EUR 36.6 million, Italy EUR 20.7 million and Portugal EUR 18.7 million.
ity checks. In addition, as part of our process management, overarching and company­wide processes are continuously optimised and standardised.
nover Re Group (e.g. tax, anti­trust, embargo or regulatory law). Upon suspicion of breaches of the law pertaining to
portunities but also by more exacting requirements for our risk management. We have therefore put in place extensive internal controls and advanced risk management methods and are tracking, for example, developments in connection with the “Own Risk and Solvency Assessment” very closely.
This gives rise to risks associated with such sales channels, although these are minimised through the careful selection of agencies, mandatory underwriting guidelines and regular checks.
Re Group can be attributed in large measure to the expertise and dedication of our staff. In order to minimise personnel risks, we pay special attention to the skills, experience and motivation of our employees and foster these qualities through outstanding personnel development and leadership activities.
(e.g. by way of a performance assessment) and appropriately steered and controlled.
The hallmark of emerging risks is that the content of such risks cannot as yet be reliably assessed – especially with re­
formed by this working group are used Group­wide in order to pinpoint any necessary measures (e.g. the implementation of contractual exclusions or the development of new reinsur­
called megacities – are analysed by this working group. The growth of such urban centres goes hand­in­hand with a host of different problems, including a growing demand for food, drinking water, energy and living space. These challenges may also have implications for our treaty portfolio – in the form not only of risks but also opportunities, e.g. through increased demand for reinsurance products. Climate change, nanotech­
quirements. The cross­divisional section, which contains our ten strategic principles, safeguards realisation of our vision: the cementing and expansion of our position as one of the leading, globally operating reinsurance groups of above­
Reputational risks refer to the risk of a loss of trust in our company among clients, shareholders, employees or the pub­
Code of Conduct. Our rules governing the use of social net­
pected due to a lack of market liquidity. Core elements of the liquidity management of our investments are, in the first place, management of the maturity structure of our investments on the basis of the planned payment profiles arising out of our technical liabilities and, secondly, regular liquidity planning as well as the asset structure of the investments.
are normally paid out after a lead time that can be reliably planned. As part of our liquidity management we have never­
Profitable growth has been at the heart of our business activi­
In Performance Excellence (PE) we have at our disposal a consistent method Group­wide that enables us to steer the development of the company and measure the extent to which we have achieved our strategic objectives. The decentralised approach used by PE is of special importance in this con­
text: every single organisational unit defines and continuously exam ines its value contributions to execution of the Hannover
The planning process spans the three levels of Results, Risks and Resources, which are closely interrelated. These three levels are planned by the responsible officers with central sup­
The targets that emerge out of the planning process are in­
The above remarks describe the diverse spectrum of risks to which we, as an internationally operating reinsurance com­
pany, are exposed as well as the steps taken to manage and monitor them. These risks can potentially have a significant impact on our assets, financial position and net income. Yet consideration solely of the risk aspect does not fit our holistic conception of risk, since it is always the case that we only enter into those risks that go hand­in­hand with opportunities.
portunities. The pivotal element in this regard is our effective and closely interlinked system of qualitative and quantitative risk management.
We are of the opinion that our risk management system af­
fords us a transparent overview of the current risk situation at all times and that our overall risk profile is appropriate. Our assessment is reinforced by various developments and key data: the increase of 76% in our shareholders’ equity since 2008, our strong market position as one of the world’s leading reinsurers and our very good credit rating (Standard & Poor’s: AA–). Based on our currently available insights arrived at from a holistic analysis of the risk situation, the Executive Board of
sociated with our business please see the Forecast contained in the management report.
ness activities. This enables us to evaluate the assumption of underwriting risks and investment risks both in light of in­
dividual risk/return aspects and against the backdrop of our overall risk appetite. Our economic capital model supplies the key parameters for this purpose. In addition, along with considerations of business policy, outside influencing factors such as the requirements of regulatory authorities and rating agencies also play a major role in the allocation of capital. Al­
In this way, we ensure that when evaluating and pricing our various reinsurance products our profit targets are taken into consideration consistently and in light of risk/return aspects.
System of value-based management: Performance Excellence (PE) combines the strategic and operational levels 1 All managers of the Hannover Re Group worldwide come together once a year at the Global Management Forum (GMF) to define strategic orientations.
The parameters developed here serve as the basis for the subsequent process.
trolling interest in profit and loss are included back in the calculation.
after deduction of the risk­appropriate cost of capital and the administrative expenses.
The IVC (Intrinsic Value Creation) is calculated according to the following formula: Adjusted operating profit − (capital allocated x weighted cost of capital) = IVC
nomic valuations and amounts stated in the IFRS balance sheet (changes in the fair values of assets not recognised in income under IFRS, discount effect of the loss reserves and the Embedded Value Not Recognised (EVNR) in life/health
Intrinsic Value Creation and excess return on capital allocated ivc in EUR million xRocA in %
Non-life reinsurance 91.2 +2.1 +1.5 323.7 +7.5 +6.0 life and health reinsurance 221.4 +10.3 +4.6 243.9 +15.5 +5.2 1 ivc/net premium earned 2 income above risk-free after deduction of risk-appropriate cost of capital
M an ag em en t re p or t 1 Adjusted on the basis of iAS 1 2 Operating profit (EBiT)/net premium earned 3 ivc/net premium earned 4 McEv increase on the basis of the adjusted McEv of the previous year after elimination of capital changes and changes from currency effects.
Business group Key data Targets 2011 2011 20101 2009 2008 2007
Non-life reinsurance combined ratio ≤ 100% 104.3% 98.2% 96.6% 95.4% 99.7%
life and health reinsurance increase in the value of new business ≥ 10% n. a.5 89.2% –44.2% 41.4% 65.7%
Growth in earnings per share ≥ 10% –19.1% 2.1% > 100% –117.6% 8.3%8
Growth in book value per share ≥ 10% 10.2% 21.4% 31.2% –15.5% 15.6%
In calculating the cost of capital, our assumption – based on a Capital Asset Pricing Model (CAPM) approach – is that the investor’s opportunity costs are 450 basis points above the risk­free interest rate, meaning that value is created above this threshold. Our strategic return on equity target of 750 basis points above risk­free thus already contains a not insignificant target value creation. We allocate equity sparingly and use equity substitutes to optimise our average cost of capital. At 6.9%, we can point to a considerably lower average cost of capital than our competitors.
Code (DCGK); this year, the company’s implementation of the recommendations of the Code as amended 26 May 2010 again diverges in one respect. The recommendation in ques­
§ 161 Stock Corporation Act (AktG). The present and all previ­
ous Declarations of Conformity of the company are published on its website (
Hannover Rückversicherung AG: The German Corporate Governance Code sets out major statu­
tory requirements governing the management and supervision of German listed companies. It contains both nationally and internationally recognised standards of good and responsible enterprise management. The purpose of the Code is to fos­
gotiations also extending to the severance cap in the event of a member leaving the Executive Board. Whilst it is true that the legal literature discusses structuring options that would permit the legally secure implementation of the recommen­
In addition, the scope for negotiation over a member leaving the Executive Board would be restricted, which could be par­
Hannover Re’s objective continues to be the consolidation and further expansion of its position as one of the leading, globally operating reinsurance groups of above­average profit­
IFRS net income before and after tax as well as the value of the company – including dividends paid – by a double­digit margin every year. We offer our shareholders the prospect of a sustained above­average return on their capital. Consequently, we strive for an IFRS return on equity that is at least 750 basis points above the risk­free interest rate.
Through the greatest possible delegation of tasks, authorities and responsibility we put ourselves in a position to be able to respond quickly and flexibly. We lead on the basis of Manage­
cc/generic/CGprinciples­e.pdf). Our efforts are intended to ensure integrity at all times in our dealings with business part­
Center of Corporate Governance on acceptance of the Code’s recommendations and suggestions found that, as in previous years, Hannover Re again ranks among the top companies listed on the DAX and MDAX with a degree of fulfilment of 98.9% in its compliance with the provisions of the Code.
Supervisory Board shall do its utmost to further increase the quota of women in the context of the upcoming fresh elec­
tions to the Supervisory Board in 2012. The Executive Board and Supervisory Board also considered at length the issue of sustainability and Corporate Social Responsibility. Hannover
ness activities in order to come closer to reaching our goal of carbon neutrality. In so doing, we are demonstrably taking responsibility for a sustainable future (
ance principles, our Code of Conduct establishes binding rules worldwide governing integrity in the behaviour of all members of staff of the Hannover Re Group. They are intended to help us cope with the ethical and legal challenges that we face as part of day­to­day work. The Executive Board is expressly committed to observance of these rules.
The compliance report for the 2011 calendar year setting out the structure and diverse range of activities of Hannover Re in this regard was submitted to the Finance and Audit Commit­
ments, the insider register, adherence to internal guidelines, consulting agreements, data protection, international sanc­
Hannover Re Group is based on the risk strategy, which in turn is derived from the company strategy. A core component is the systematic and comprehensive recording of all risks that from the current standpoint could conceivably jeopardise the company’s profitability and continued existence. Further de­
The Executive Board and Supervisory Board of Hannover Re work together on a trusting basis to manage and monitor the company. In accordance with the Rules of Procedure of the
visory Board is kept informed on a regular and timely basis of the business development, the execution of strategic deci­
ance issues. The Chairman of the Supervisory Board stays in regular contact with the Chairman of the Executive Board in order to discuss with him significant business occurrences.
The Rules of Procedure of the Executive Board are intended to ensure that a consistent business policy is elaborated and implemented for the company in accordance with its stra ­
Open and trusting cooperation geared to the interest of the whole is the foundation of success. In this context, the mem­
cial statements. It is envisaged that at least two members shall be women. Persons suggested to the Annual General Meeting as candidates for election to the Supervisory Board may not be older than 72 at the time of their election. Nominations shall take account of the company’s international activities as well as diversity. For their part, each member of the Super­
visory Board participates in less than half of the meetings of the Supervisory Board in a financial year, this shall be noted in the Supervisory Board’s report. No more than two former members of the company’s Executive Board may belong to the Supervisory Board.
in the scope of competence defined by the Rules of Procedure applicable to the committee in question.
mation system for the Supervisory Board and discusses the interim reports as well as the semi­annual reports prior to their publication. It prepares the Supervisory Board’s exam­
ination of the annual financial statement, management report and proposal for the appropriation of profit as well as of the consolidated financial statement and Group management re­
ceives detailed information on the auditor’s view of the net assets, financial position and results of operations as well as explanations of the effects of any modified recognition and measurement principles on the net assets, financial position and results of operations together with available alternatives.
In addition, the committee prepares the Supervisory Board’s decision on the commissioning of the independent auditor for the financial statements. It considers matters associated with the necessary independence of the auditor, the awarding of the audit mandate to the independent auditor, the determin­
Board with the exception of remuneration­related content as well as resolutions regarding their implementation. It bears responsibility for the granting of loans to the group of persons specified in §§ 89 Para. 1, 115 Stock Corporation Act (AktG)
and those considered equivalent pursuant to § 89 Para. 3 Stock
For further details of the activities of the Supervisory Board committees please see the explanations provided in the Super­
Section 7.3 “Share­based payment” of the notes, page 194 et seq., and in the remuneration report with respect to the members of the Executive Board.
nover Re and explains the structure, composition and amount of the components of the remuneration received by the Execu­
The remuneration report is guided by the recommendations of the German Corporate Governance Code and contains infor­
mation which forms part of the notes to the 2011 consolidated financial statement as required by IAS 24 “Related Party Dis­
tion includes data specified as mandatory for the notes (§ 314
Insurance Sector (VersVergV) – which entered into force in the previous year – have been observed. In addition, we took into account the more specific provisions of DRS 17
(amend ed 2010) “Reporting on the Remuneration of Members of Governing Bodies”.
As has been the case since 2009, the Standing Committee continues to decide in lieu of the Supervisory Board on the content, formation, modification and cancellation as well as termination of employment contracts with the members of the
Function, responsibility, length of service on the Executive Board contractual stipulations 12 equal monthly instalments
The following chart summarises the revised make­up of the variable remuneration components. For details of measure­
ment and payment procedures please see the two tables following the chart.
Variable remuneration as per regulatory requirements 1 chief Executive Officer/chief Financial Officer 70% profit bonus, 30% performance bonus (personal objectives); all other Board members: 50% profit bonus, 50% performance bonus (25% personal objectives/25% business group objectives)
Short-term Medium-term long-term 60% of the variable remuneration with the next monthly salary payment following the Supervisory Board resolution 20% of the variable remuneration in the bonus bank; withheld for 3 years; the positive amount contributed 3 years prior to the payment date is available for payment, provided this does not exceed the balance of the bonus bank in light of credits/debits up to and including those for the financial year just-ended; an impending payment not covered by a positive balance in the bonus bank is omitted; loss of claims due from the bonus bank in special cases: resignation from office without a compelling reason; contract extension on the same conditions is rejected; no interest is paid on credit balances.
Automatic granting of virtual Hannover Re Share awards with a value equivalent to 20% of the variable remuneration; payment of the value calculated at the payment date after a vesting period of 4 years; value of the share on awarding/payment: unweighted arithm. mean of the Xetra closing prices five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement; additional payment of the sum total of all dividends per share paid out during the vesting period; changes in a cumulative amount of 10% or more in the value of the Share Awards caused by structural measures trigger an adjustment.
Group return on equity (RoE); x individual basic amount (graduated according to area of responsibility and professional experience) for each 0.1 percentage point by which the average RoE of the past three financial years exceeds the risk-free interest rate of 2.8%; cap max: 200% cap min: –100% (penalty); change in the risk-free interest rate by one percentage point or more necessitates adjustment of the bonus calculation; RoE calculation: iFRS Group net income (excluding non-controlling interests) ./. arithm. mean of iFRS Group shareholders’ equity (excluding non-controlling interests) at the beginning and end of the financial year.
Measurement of the intrinsic value creation (ivc)1 of the business groups in the respective area of responsibility; Primary ivc criteria: relative change year-on-year, absolute amount, comparison with target value, dividend payout or profit transfer ratio, general market environment; 100% = amount x = targets achieved in full cap max: 200% cap min: EUR 0; initial application in 2013, until then refinement of the ivc concept and resolution of the Supervisory Board according to its best judgement.
Personal qualitative, quantitative objectives; individual contribution to the overall performance, leadership skills, innovative skills, entrepreneurial skills, specific features of area of responsibility. 100% = amount x = targets achieved in full cap max: 200% cap min: EUR 0
The company insures the members of the Executive Board against accidents in an appropriate amount until the end of their appointment to the Executive Board and takes out an adequate level of luggage insurance for them.
ation consists of a profit bonus and a performance bonus. In the event of goal accomplishment of 100%, the share of the variable remuneration attributable to the profit bonus amounts to 70% for the Chief Executive Officer and Chief Financial
Officer and 50% for the members of the Executive Board with business group responsibility. The performance bonus accounts for the remaining 30% or 50%.
ling interests) at the beginning and end of the financial year.
The risk­free interest rate is the average market rate over the past five years for 10­year German government bonds and is set at an agreed value of 2.8%. The arrangements governing the profit bonus can be adjusted if the risk­free interest rate of 2.8% changes to such an extent that an (absolute) deviation of at least one percentage point arises.
The performance bonus for the Chief Executive Officer and the Chief Financial Officer is arrived at from individual qualita­
tive and, as appropriate, quantitative targets defined annually by the Supervisory Board that are to be accomplished in the subsequent year. For members of the Executive Board with responsibility for a certain business group, the performance bonus consists in equal parts of the business group bonus and the individual bonus.
sibility. The degree of goal accomplishment is determined by the Supervisory Board according to its best judgement. The individual bonus for goal accomplishment of 100% is con­
cept for measuring the IVC is currently undergoing further refinement and will be applied for the first time to the 2013 financial year.
The total amount of variable remuneration is arrived at by adding the amounts for the individual remuneration components.
tive amount, the variable remuneration is EUR 0. A negative amount is, however, taken into consideration when calculat­
Of the total amount of defined variable remuneration, a partial amount of 60% is paid out in the month following the Super­
visory Board meeting that approves the consolidated financial statement. The remaining amount of 40% is initially withheld.
With a view to encouraging long­term value creation, half of the withheld portion (i.e. 20% of the total amount of defined variable remuneration) is allocated to a “bonus bank”, while the other half is granted in the form of Hannover Re share awards (HR­SAs) in accordance with the rules explained in the following sections.
Bonus bank (retention for a period of three years): Each year 20% of the mathematically determined positive variable remuneration is allocated to the bonus bank. If the mathematically calculated amount of variable remuneration is negative, 100% of this negative amount is allocated to the bonus bank.
The amount allocated to the bonus bank in each case is paid out after three years to the extent that it is covered by the balance existing at that time. Any portion of the variable re­
muneration due for disbursement that is not covered by the balance in the bonus bank is forfeited.
Re at the time when the award is made. The value per share of Hannover Re is established according to the unweighted arithmetic mean of the Xetra closing prices of the Hannover
In the event of voluntary resignation or termination/dismissal by the company for a compelling reason or if an offered con­
If the contractual relationship ends normally prior to the end of the vesting period for the bonus band and HR­SAs, and if a contract extension is not offered, the member of the Execu­
quired (pro rata) in the final year of the Board member’s work for the company.
neration model applicable until 31 December 2010. In contrast to the current remuneration structure, the variable remuner­
of the notes to this Group Annual Report, page 194 et seq.
mains in force for all members of the Executive Board until all stock appreciation rights have been exercised or have lapsed.
ation rights with a value of EUR 1.4 million (EUR 1.5 million)
Board had at their disposal a total of 722,090 (547,901) grant­
In the event of temporary incapacity for work the fixed annual salary shall continue to be paid in the same amount, at most until termination of the contract of employment. Contracts from 2009 onwards count any disability benefits paid to the eligible recipient by HDI­Unterstützungskasse towards the continued salary payment.
If the Board member dies during the period of the contract of employment, his widow – or alternatively the eligible children
mitment to benefits in the event of a premature termination of employment on the Executive Board owing to a change of control. Only the conditions for the granting of share­based remuneration in the form of stock appreciation rights provide for special exercise options in the event of the merger, spin­off or demerger of Hannover Re into another legal entity.
With regard to Item 4.2.3 Para. 4 of the German Corporate
Wallin for two years after the termination of his contract of employment, he shall be recompensed in a monthly amount of 50% of his most recent fixed remuneration. Income earned through the application of his working capacity elsewhere shall be counted towards this compensation insofar as such income in combination with the compensation exceeds 100%
Hannover Re on the basis of its work for Hannover Re and its affiliated companies is calculated from the sum of all the components set out in the following table pursuant to DRS 17
Meeting of 12 May 2006, the remuneration is now specified on an individualised basis by name for the first time in the year under review.
The members of the Executive Board require the approval of the Supervisory Board to take on sideline activities. This ensures that neither the remuneration granted nor the time required for this activity can create a conflict with their re­
Total remuneration received by active members of the Executive Board pursuant to DRS 17 (amended 2010) in EUR thousand
Variable remuneration payable Bonusbank 60% Remuneration from seats with Group bodies3 20% (Granting)4 1 As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2011. The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly.
2 The non-cash compensation has been carried in the amounts established for tax purposes.
3 Remuneration from seats with Group bodies netted with the variable remuneration payable.
4 The nominal amount is stated; full or partial payment in 2015, depending on the development until such time of the balance in the bonus bank.
6 The stock appreciation rights granted in 2011 for 2010 were included at their fair value (according to the Black-Scholes option pricing model) at the time when they were granted (8 March 2011). Since the Supervisory Board decides upon the final allocation of stock appreciation rights at the meeting after the balance sheet date and given that the period of the stock appreciation rights commences in each case on 1 January of the following year, the stock appreciation rights awarded for the financial year are expensed in subsequent years.
7 In order to calculate the number of share awards reference was made to the Xetra closing price of the Hannover Re share on 30 December 2011
(EUR 38.325). The number to be actually awarded is established from the arithmetic mean of the Xetra closing prices of the Hannover Re share in a period from five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement in March 2012.
8 The remuneration of Dr. Becke continues to be based on the remuneration structure prior to 2011 since his appointment ends on age grounds on 31 December 2011, i. e. the bonus bank and Hannover Re share awards components do not apply.
Expense for share awards in 20111 total dr. Wolf Becke2 269.4 –92.1 177.3
Jürgen Gräber 258.1 –87.9 27.8 198.0 dr. Michael Pickel 223.4 –66.2 53.1 210.3
The table is to be viewed independently of the presentation of the total remuneration received by active members of the
2 The old remuneration structure (prior to 2011) applicable to dr. Becke does not provide for the granting of share awards.
ment pay exists. The pensionable event occurs on or after reaching the age of 65 or on account of a permanent incap­
ment, the contract of employment shall terminate at the end of the sixth month after which the permanent incapacity for work is established – although no later than the end of the contract of employment. A permanent incapacity for work exists if the
ment pay upon termination/non­extension of the contract of employment is conditional upon at least eight years of ser­
vice on the Executive Board. In addition, the member of the
The amount of the benefits is determined according to the pensionable income and the qualifying period of employment.
sion entitlement due to permanent incapacity for work, half of the difference between the percentage attained and the percentage that the Board member would have attained upon reaching age 65 is added to the percentage attained until leav­
ing the company. This arrangement does not apply to Board members appointed prior to 1997.
Board member was appointed from 1997 onwards. In the event of appointment prior to 1997, income earned by the eligible recipient from self­employment and work performed in an employed capacity can be counted towards retirement pay paid prior to reaching age 65 insofar as the total amount of retirement pay and income exceeds the pensionable remu­
Benefits from previously earned pension payments are counted towards the retirement pay in the case of members of the
Cash remuneration actually accruing to active members of the Executive Board in the year under review in EUR thousand
Name Fixed remuneration variable remuneration Stock appreciation rights exercised total claude chèvre 53.3 – – 53.3 dr. Klaus Miller 320.0 71.2 – 391.2
M an ag em en t re p or t pension, disability pension and surviving dependants’ pen­
sion) is that the Board member must consent to insurance cover being taken out for the pension commitments.
ence date less year of birth) and the funding contribution on the reference date. The annual funding contribution for these contracts is paid by the company in an amount of 25% of the pensionable income (fixed annual remuneration as at the reference date of 1 July of each year).
ment, the contract of employment shall terminate at the end of the sixth month after which the permanent incapacity for work is established – although no later than the end of the contract of employment. A permanent incapacity for work exists if the Board member will probably be permanently un­
Surviving dependants’ benefit (in the case of a final-salary pension commitment)
(appointment from 1997 onwards) shall receive continued payment of the retirement pension for the month of death and the following three months (appointment prior to 1997)
There shall be no entitlement to a widow’s pension if the spouse is more than 25 years younger or the marriage was entered into after the occurrence of the pensionable event or solely in order to substantiate a benefit entitlement in favour of the spouse.
An orphan’s pension shall be granted in the amount of 15% –
Widow’s and orphan’s benefits combined may not exceed the amount of the retirement pay; otherwise, the orphan’s pen­
viving spouse receives a life­long spouse’s pension. The amount of the spouse’s pension is equivalent to 60% of the pen­
sion that the deceased Board member received or would have received if he had been incapacitated for work at the time of his death.
The spouse’s pension is only paid if the marriage was entered into before the Board member reached the age of 60 and be­
The orphan’s pension is paid until the age of 18. A child who is still attending school or undergoing vocational training at this time shall continue to receive the orphan’s pension until
ceived or would have received if he had been incapacitated for work at the time of his death; otherwise, they are reduced pro rata.
ment, widow’s and orphan’s benefits: the price index for the cost of living of all private households in Germany (contracts from 2001 onwards), the price index for the cost of living of four­person households of civil servants and higher­income salaried employees (contracts from 1997 to 2000) or the unad­
Current pensions based on the commitments given from 2009 onwards (defined contribution commitment) are increased an­
nually by at least 1% of their most recent (gross) amount.
(EUR 1.3 million) in the year under review. The projected bene fit obligation of the pension commitments to former members of the Executive Board amounted to altogether EUR
Jürgen Gräber 158.5 1,606.0 74.4 dr. Michael Pickel 120.0 800.1 73.9
Name Annual funding contribution1 Attainable annual pension (age 65) Premium claude chèvre2 25% 68.1 80 dr. Klaus Miller2 25% 48.3 80 1 Percentage of pensionable income (fixed annual remuneration as at the reference date of 1 July of each year)
1 Pension payment to dr. Becke from 1 January 2012 onwards.
2 Mr. vogel was appointed as a member of the Executive Board effective 1 April 2009. He was first granted a pension commitment on the basis of his service to the company prior to 2001; the earned portion of the commitment from the Unterstützungskasse is therefore established as a proportion (in the ratio [currently attained service years since entry]/[attainable service years from entry to exit age]) of the final benefit.
Board receive fixed annual remuneration of EUR 30,000 per member in addition to reimbursement of their expenses.
Furthermore, each member of the Supervisory Board receives variable remuneration measured according to the average earnings per share (EPS) of the company over the past three financial years preceding the Annual General Meeting at which the actions of the Supervisory Board for the last of these three years are ratified. The variable remuneration amounts to
EUR 330 for each EUR 0.10 average earnings per share (EPS)
of the company; it is limited to an annual maximum of EUR
30,000. The Chairman of the Supervisory Board receives twice the aforementioned remuneration amounts and the Deputy
Chairman of the Supervisory Board receives one­and­a­half times the said amounts.
Standing Committee formed by the Supervisory Board receive remuneration of EUR 7,500. In this case, too, the Chairman of the Committee receives twice and the Deputy Chairman one­and­a­half times the stated amounts. No remuneration is envisaged for the Nomination Committee.
Compared to the previous remuneration arrangements most recently applicable to the 2010 financial year, the new ar­
rangement contains the following material changes: The fixed remuneration of the members of the Supervisory
The variable remuneration was restructured. Previously, the variable remuneration amounted to 0.03‰ of the earnings before interest and taxes (EBIT) recognised in the consoli­
Standing Committee 15% of the previously described fixed and variable Supervisory Board remuneration for their Com­
The attendance allowance for participation in the meetings of the Supervisory Board or the specified Committees was in­
Herbert K. Haas2 chairman of the – Supervisory Board – Standing committee – Finance and Audit committee – Nomination committee
Karl Heinz Midunsky Member (until 3 May 2011) of the – Supervisory Board – Nomination committee
Supervisory Board for the financial year, the relevant reserve allocations are recognised allowing for any fractional amounts.
Value­added tax payable upon the remuneration is reimbursed by the company.
In the year under review no payments or benefits were granted to members of the Supervisory Board in return for services provided individually outside the Committee work described above, including for example consulting or mediation ser­
versicherung AG effected by members of the Executive Board or Supervisory Board of Hannover Re or by other persons with managerial functions who regularly have access to insider in­
formation concerning the company and who are authorised to take major business decisions – as well as such dealings conducted by certain persons closely related to the aforemen­
ment and staff alike. This principle is reflected as far as pos­
ment of the targets agreed for a particular year (Management by Objectives) produce the total cash compensation. The ratio of annual fixed salary to short­term variable MbO bonus varies at Hannover Home Office according to hierarchical level as follows: • 60/40 for Managing Directors
Office, but the average figures for all Managing Directors are 62% fixed and 38% variable and for General Managers 74%
Economic department targets are agreed on the basis of the combined ratio and IVC in non­life reinsurance and the pre­
ance (“stellar performance”), in other words a performance in excess of 80%, triggers indexation of the degree of goal attainment. A maximum goal attainment of 100% corresponds after indexation to a maximum degree of goal attainment
While the MbO process takes into account the attainment of short­term targets, the long­term performance of the com­
ager outside the total cash compensation. The cash value of the basic allocation of stock appreciation rights at the Local
Re is first awarded an individual basic number of stock appre­
ance Index) performance criterion is surpassed or undershot, this basic number increases or decreases to produce the final number of stock appreciation rights. The awarded stock ap­
preciation rights may be exercised up to 10 years after the end of the respective allocation year, provided the vesting period has expired (for the first 60% after four years, with one further year for each additional 20%).
Re share at the beginning of the allocation year (basic price)
In order to fulfil the requirements of the Regulation on the
Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (Versicherungs­Vergütungsverordnung
– VersVergV), which entered into force on 13 October 2010, a uniform remuneration system is applicable worldwide to all managers of the Hannover Re Group with effect from 1
satisfies the special requirements of § 4 VersVergV and is appropriately realised according to the various management levels. As part of the reorientation of the remuneration system, the share­based remuneration of the Executive Board – the so­called share award programme – is also to be extended to include managers. At the same time, the stock appreciation rights plan for managers is terminated with effect from the 2012 allocation year. This ensures adherence to a consistent share­based remuneration component for the Executive Board and managers alike.
The Group net income is measured by the average return on equity (ROE) of the Hannover Re Group over the last three financial years. The maximum possible goal attainment is 200%. A lower limit is placed on goal attainment of –50%
The measurement of the business group targets is geared to the actual value created. The Intrinsic Value Creation (IVC) of the business group encompassing the relevant area of respon­
Negative performance contributions are excluded here – the minimum possible goal attainment is 0%. The maximum pos­
tinue to be arrived at as part of the MbO process.
The overall degree of goal attainment determines the amount of variable remuneration including share awards. On Man­
ors and General Managers) the variable remuneration is split into 65% cash payment and 35% granted as share awards.
ing days after the meeting of the Supervisory Board at which the consolidated financial statement is approved. The number of share awards is established by dividing the specified por­
tion of the total bonus (40% or 35%) by the value per share, rounded up to the next full share.
Re share is again determined from the average of the closing prices of the shares in a period from 20 trading days before to 10 trading days after the meeting of the Supervisory Board that approves the consolidated balance sheet. In addition, a sum in the amount of the dividend is paid out for each share award. The level of the dividend payment is the sum total of all dividends per share paid out during the period of the share awards multiplied by the number of share awards.
Profitable growth is a goal defined both by our clients and by our company. We therefore look for solutions that promise profits for both parties. For only in this way can we secure the long­term partnership­based relationships to which we aspire.
The US economy is initially expected to slow further, although it may then stabilise in the second half of the year. Given the protracted heavy indebtedness of private households and what is only a slow improvement in the jobless rate, private con­
M an ag em en t re p or t and private consumption will be flat as a consequence of sharp tax increases. Domestic demand is likely to be particularly soft in Italy, France and the countries on Europe’s south­eastern periphery. Only the external sector will probably deliver posi­
tive stimuli in 2012, although this will merely be a reflection of the weak import trend rather than sharp growth in exports.
Although the economic gloom is forecast to lift somewhat in the second half of the year, the Ifo Institute expects gross domestic product to contract overall by 0.2% in 2012.
European debt crisis. The drive towards consolidation and the austerity efforts undertaken in the Eurozone will probably take a heavy toll on exports. Furthermore, equipment spending is also likely to slow. On the other hand, private consumption –
cord above­average growth in 2012, although the pace will likely slow somewhat. Gross domestic product is expected to come in at around 8.2%, a slight contraction relative to 2011.
In 2012 international bond markets will probably again be shaped by a low interest rate level. In the relevant currency areas for our company we do not expect any hike in key inter­
pelled to cut interest rates again in 2011 on account of the tense economic situation, interest rates can likely only be raised in 2012 if there is a sharp rise in prices. The US Federal
ernment bonds will remain on a low level. Bonds issued by certain states belonging to the European Monetary Union will continue to come under pressure. Last but not least, the incre­
sis, the international insurance industry will make another important contribution to economic stability in the volatile climate of 2012. In global terms, the insurance sector should be able to consolidate its role in the economy and society.
Insurers operate in the field of loss limitation, loss prevention and risk diversification; in this way they support economic development. They not only spread risks across a number of actors, they also help to shape markets and serve as a cata ­
come overall for the German insurance industry, provided the broader economic environment does not take a significant turn for the worse.
By international standards, the insurance industry in Germany is growing, if anything, at a below­average pace. In property and casualty insurance changes in the market cycle are likely to encourage premium growth. The concept of private indi­
vidual provision will also take on increasing prominence, with favourable implications for growth in life and health insurance
mentation of insurance supervision on the European level and a risk­based solvency system, is creating incentives to take an even more professional approach to risk management. Not only that, Solvency II will lead to greater stability and in­
creased competitiveness in the industry, which can ultimately only benefit policyholders. For reinsurers, the arrival of Solv­
– the date when around two­thirds of our treaties in non­life reinsurance (excluding facultative business and structured reinsurance) were renegotiated – was pleasing for our com­
vestment income, reinsurers exhibited considerable discipline in quoting prices that were commensurate with the risks. On average, we obtained conditions and rates that were better than in the previous year. In light of this attractive climate, we enlarged our premium volume by around 6%.
grammes. In Australia price increases of up to 60% were pos­
New Zealand – countries that were hard hit by natural disas­
In marine business we enlarged our premium volume by some 12%. Rate increases were recorded primarily in the offshore energy sector. Broadly stable prices were obtained in other marine business. Rate erosion was observed in both primary insurance and reinsurance on account of the good results booked in the aviation sector in recent years. The business nevertheless remains attractive, and we therefore boosted our premium volume by around 7%. In credit and surety reinsur­
ance we also noted moderate rate erosion on the back of re­
duced claims rates. Yet here, too, we were satisfied with the outcome of the treaty renewals because they offered sufficient opportunities to write profitable business. The trend towards rising prices has still to take hold in the liability lines, prompt­
In view of the favourable outcome for our company of the treaty renewals as at 1 January 2012, we are looking to the present year with optimism. We currently expect to grow our premium income from German business by some 3%. Our
client base here has also been further enlarged. The situation in motor insurance showed a pleasing development. Hail dam­
Demand for reinsurance protection is rising in connection with the planned implementation of Solvency II in 2013. Given that it serves to alleviate capital requirements and in view of its contractual flexibility compared to other instruments, re­
Canada, where substantial price increases were attained not only in catastrophe business but also in the property sector.
It is our assumption that market conditions in North America will improve further in the course of 2012, since only half of our portfolio came up for renewal on 1 January 2012. We are looking to further price rises at the 1 June/1 July renewal dates, including in the casualty lines. All in all, we expect to grow our premium in the current financial year.
In marine business we anticipate a sharply enlarged premium volume for the current financial year. In view of the loss events incurred in 2010 in the offshore energy sector, it was pos­
countries. Gross premium is expected to grow in the current financial year.
In the surety line we anticipate a good experience, although a moderately higher claims frequency is possible in some re­
framework, stronger demand can be observed for structured reinsurance products. In emerging markets, too, we are looking to expand our business in view of the adoption of risk­
Liability covers for professions such as auditors and architects are likely to see modest decreases. The direct business and reinsurance that we write in the UK is expected to generate an increased premium volume. Similarly, the direct business written in South Africa is also expected to record further pre­
tinue to post above­average growth rates in this region going forward. For the current financial year we anticipate by and large stable prices on account of the fiercely competitive en­
proved rates in the treaty renewals as at 1 January 2012. For 2012 and beyond, we are looking to write more new business and grow our premium income.
mand and further increases in rates for catastrophe covers in both 2012 and 2013 on the back of the enormous loss expend­
itures incurred in the year under review. The premium volume should rise in the current financial year.
Motor business in China remains intensely competitive. This can be attributed to the deregulation of motor tariffs. As a result, we expect prices for motor covers to soften slightly.
tion of the necessary rate adjustments. Over the coming years we shall step up our cooperation with selected ceding com­
Australia and New Zealand. The current financial year should bring an enlarged gross premium volume and at the same time a reduction in the risk.
grammes we expect to see additional growth in demand for agricultural covers, as a consequence of which premium in­
We shall stand by our strategy of geographical diversification in the years ahead.
It remains our assessment that our retakaful business offers potential going forward. Infrastructure measures – specific ally in Saudi Arabia and Qatar – should promote further economic growth in 2012 and beyond. Demand for (re)insurance prod­
M an ag em en t re p or t global catastrophe business
grammes that had suffered losses. In Australia, for example, prices surged by an average of 60%; the increase in the
United States was in the double­digit million euro range. The increases in Europe – varying from 0% to 5% – were more moderate. We expect to see further substantial rate increases at 1 April 2012 renewal date in Japan and in the New Zealand renewals.
Given the varied nature of demand for facultative covers, we see attractive scope to generate further profitable growth in the current year. Market conditions are likely to improve over­
In our assessment, the greatest growth potential is offered by emerging markets such as China, India and Latin America. Yet we are also increasingly focusing on Russia and Arab markets, where we are optimally positioned thanks to our infrastruc­
ture, our “somewhat different” reinsurance concepts and – in the case of the Islamic markets – our successful Sharia­com­
In addition, the impending implementation of Solvency II is already casting its shadow. Set to enter into force in 2013, the new regime will compel European (re)insurers to satisfy more rigorous regulatory requirements and implement risk­based enterprise management and capital determination.
Solvency II, we are engaged in a close dialogue with the
– taking our lead from the existing standard models, which tend to be more oriented towards primary insurers – to fit reinsurance­specific requirements. Beyond Europe’s borders, considerable efforts are presently being made to bring about regulatory equivalence between the regional supervisory sys­
ities of occurrence for (natural) catastrophe events in terms of their number and scale as well as their magnitude for the insurance industry are subject to considerable fluctuations.
ing to note that sizeable loss burdens also resulted from dis­
asters that could not be modelled or could only be modelled to a limited extent. It should be recognised that the risk as­
ural hazards models for the main perils in the United States and Europe as well as from demand prompted by Solvency II
sources and an associated rise in demand patterns can also be observed in emerging markets.
The global framework conditions in life and health reinsurance remain favourable. In industrialised nations such as the United
Primary insurers benefit from tailored reinsurance protection when it comes to optimising their capital, liquidity and risk management as well as reducing their underwriting risk.
ations in results. There are nevertheless economic risks (such as the interest rate risk, default risk and exchange rate risk)
ity and longevity). In this context we take account of the preeminent importance of risk management and safeguard corporate profitability.
Against the backdrop of the protracted European debt crisis and associated uncertainties, we shall maintain the conserva­
We expect the enlargement of the investment portfolio to positively affect investment income. In view of the low level of returns on secure investments, we shall step up our invest­
Given the present economic expectations, high degree of volatility and considerable capital requirements, we are cur­
In the current year we anticipate another very good overall result for the Hannover Re Group. The non­life reinsurance business group is expected to deliver an increase of 5% to 7%
In non­life reinsurance we are guided exclusively by profit rather than growth targets. Our goal here is to achieve an EBIT
The life and health reinsurance business group expects to generate organic growth of between 5% and 7% in gross premium income. We continue to attach considerable import­
ance to the profitability of the business written and are target­
It remains our aim to generate consistent double­digit growth in the value of new business.
ings per share and the book value per share also constitute central management ratios and performance indicators for our company. Our strategic objective is to increase these key figures – together with the operating profit (EBIT) – by double­
Consolidated BalanCe sheet Consolidated aCCounts as at 31 December 2011 liabilities in eUR thousand notes 31.12. 2011 31.12. 2010 loss and loss adjustment expense reserve 5.7 20,767,317 18,065,395
Unearned premium reserve 5.7 2,215,864 1,910,422 other technical provisions 5.7 207,262 184,528
Retained earnings 3,679,351 3,351,116 equity attributable to shareholders of Hannover Re 4,970,631 4,508,965 non-controlling interests 636,024 608,903 total shareholders‘ equity 5,606,655 5,117,868 total liabilities 49,866,952 46,725,293
Figures in eUR thousand notes 1.1.– 31.12. 2011 1.1.– 31.12. 20101
Basic earnings per share 5.02 6.21 diluted earnings per share 5.02 6.21 1 adjusted on the basis of ias 1
Consolidated statement oF ComPRehensive inCome Consolidated aCCounts net income 676,788 830,905
Gains (losses) recognised directly in equity 46,970 183,883 transferred to the consolidated statement of income 23,098 3,863 tax income (expense) (5,383) (10,911)
tax income (expense) 7,477 2,517 total income and expense recognised directly in equity
Gains (losses) recognised directly in equity 276,203 530,614 transferred to the consolidated statement of income (115,386) (180,960)
total recognised income and expense 804,780 1,143,232 thereof: attributable to non-controlling interests 65,376 94,200 attributable to shareholders of hannover Re 739,404 1,049,032
Common shares additional paid-in capital other reserves (cumulative other comprehensive income)
Changes in the consolidated group – – – – – – (23) (23)
Changes in ownership interest with no change of control status – – – – – 15 179 194
Changes in the consolidated group – – – – – – 15 15
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 (DRS 2)
The amounts taken into consideration are limited to cash and cash equivalents shown under the balance sheet item “Cash”.
Other financial assets – at fair value through profit or loss other invested assets
structural change without loss of control 194 6,522 dividends paid (315,844) (283,986)
Cash and cash equivalents at the beginning of the period 475,227 457,412 thereof cash and cash equivalents of disposal groups: 27,474
Cash and cash equivalents at the end of the period 506,963 475,227 income taxes 2,514 (147,966)
Consolidated segmental report segmentation of assets in eUR thousand non-life reinsurance assets held to maturity 3,704,836 2,724,546 loans and receivables 3,486,857 2,259,375 available for sale 11,707,340 11,725,861
Reinsurance payable 446,301 456,496 long-term liabilities 202,823 187,690 other liabilities in the segment 1,544,215 1,564,020 liabilities related to assets held for sale – 1,381,120 total liabilities 22,890,015 21,487,597
From insurance business with external third parties 6,825,522 6,339,285 net premium earned 5,960,764 5,393,884 net investment income 845,426 721,225 thereof deposit interest and expenses 14,239 12,200
Operating profit/loss (EBIT) 599,259 879,560 interest on hybrid capital – –
Life/health reinsurance Consolidation total 1 adjusted on the basis of ias 1
1. Company information 127 2. Accounting principles 127 3. Accounting policies 130 3.1 Changes in accounting policies 130 3.2 Summary of major accounting policies 130 3.4 Major discretionary decisions and estimates 137 4.2 Consolidated companies and complete list of 4.3 Major acquisitions and new formations 146 5. Notes on the individual items of the balance sheet 148 5.1 Investments under own management 148 5.2 Funds withheld (assets) 162 5.3 Contract deposits (assets) 162 5.4 Technical assets 162 5.6 Other assets 164 5.7 Technical provisions 167 5.8 Funds withheld (liabilities) 172 5.9 Contract deposits (liabilities) 172 5.10 Provisions for pensions and other post-employment benefit obligations 172 5.11 Other liabilities 176 5.12 Debt and subordinated capital 178 5.13 Shareholders‘ equity, non-controlling interests and treasury shares 181 6. Notes on the individual items of the statement of income 182 6.1 Gross written premium 182 6.2 Investment income 183 6.3 Reinsurance result 185 6.4 Other income/expenses 188 6.5 Taxes on income 187 7. Other notes 190 7.1 Derivative financial instruments 190 7.2 Related party disclosures 192 7.3 Share-based payment 194 7.4 Staff and expenditures on personnel 199 7.5 Earnings per share and dividend proposal 200 7.7 Contingent liabilities and commitments 201 7.8 Long-term commitments 201 7.9 Rents and leasing 202 7.10 Fee paid to the auditor 202 7.11 Events after the balance sheet date 203
Pursuant to EU Regulation (EC) No. 1606/2002, the present consolidated financial statement and group management re­
5­20 on risk reporting at insurance undertakings, with regard to information on the management of technical and financial risks to be provided in the management report. The disclo­
sures resulting from these requirements are included in the risk report. We have dispensed with an additional presenta­
man Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code has been submitted and, as described in the Declaration of the Executive Board regarding the Corporate Governance of the Company, made permanently available on the Hannover Re website.
Financial Statements” there is no mandatory requirement to compile interim accounts for Group companies with diverging reporting dates because their closing dates are no earlier than three months prior to the closing date for the consolidated
health reinsurance and maintain business relations with more than 5,000 insurance companies on every continent. With gross premium of approximately EUR 12.1 billion, Hannover
Special Purpose Entities”) as well as the standards governing the accounting of interests in joint ventures (IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly Controlled Entities –
Rather, interests in joint ventures must be accounted for using the equity method.
formance and cash flows, significantly expanded disclosures of information are required in comparison with the previous requirements.
The revised version of IAS 27 will in future consist solely of re­
quirements for the accounting of investments in subsid iaries, jointly controlled entities and associates in separate (nonconsolidated ) financial statements of the parent company. In this context, only minimal changes were made relative to the previous wording of the standard.
clude rules governing the accounting of investments in joint ventures. In both instances application of the equity method is required.
sified and those that will not be reclassified. Tax associated with items presented before tax is to be shown separately for each of the groups of OCI items. In future the revised IAS
Commission amendments to IFRS 7 Financial Instruments: Disclosures – Transfers of Financial assets amendments to IFRS 7 Financial Instruments: Disclosures – Offsetting Financial assets and Financial Liabilities 1 January 2013 Pending amendments to IaS 12 – Deferred Tax: Recovery of underlying assets 1 January 2012 Pending amendments to IaS 32 – Offsetting Financial assets and Financial Liabilities 1 January 2014 Pending
130 Hannover Re Group annual report 2011NOtes 3.2 SuMMaRy OF MaJOR aCCOunTInG POLICIES
justed the calculation logic used for model-based fair value measurement and for establishing the share of fair value changes attributable to impairments with the aim of measur­
The hybrid capital shown under debt and subordinated capital is recognised according to the effective interest rate method at amortised cost. Components of income arising out of the amortisation of transaction costs and premiums/discounts oc­
formity with these basic rules of IFRS 4 and the IFRS Frame­
work, Hannover Re is availing itself of the option of retaining the previously used accounting policies for underwriting items
rivative assets that entail fixed or determinable payments on a defined due date and are acquired with the intent and ability to be held until maturity. They are measured at amortised cost.
ments that entail fixed or determinable payments on a defined due date and are not listed on an active market or sold at short notice. They are carried at amortised cost; premiums or dis­
We allocate to this category those financial instruments that do not satisfy the criteria for classification as held to maturity, loans and receivables, at fair value through profit or loss, or trading. Unrealised gains and losses arising out of changes in the fair value of securities held as available for sale are recognised – with the exception of currency valuation differ­
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 finan­
Impairments: As at each balance sheet date we review our financial assets with an eye to the need to take impairments.
Permanent impairments on all invested assets are recognised directly in the statement of income. In this context we take as a basis the same indicators as those discussed below for fixed-income securities and securities with the character of equity. Qualitative case-by-case analysis is also carried out.
ment of the cost basis. Impairment is tested in each reporting period using the criteria defined by Hannover Re. If a security is considered to be impaired on the basis of these cri teria,
IAS 39 requires that a value adjustment be recognised in the amount of the fair value less historical cost and less prior value adjustments, meaning that depreciation is taken on the fair value as at the closing date – if available, on the publicly quoted stock exchange price. We also apply this method to participations in funds that invest in private equity. In order to reflect the specific character of these funds (in this case initially negative yield and liquidity flows from the so-called
Straight­line depreciation is taken over the expected useful life – at most 50 years. Under the impairment test the market value of real estate for third­party use (recoverable amount)
Funds withheld are receivables due to reinsurers from their clients in the amount of the cash deposits contractually with­
Theoretical price Interest rate curve Present-value method unlisted structured bonds Theoretical price Interest rate curve, Volatility surfaces
Present-value method equities unlisted equities Theoretical price Acquisition cost, cash flows, EBIT multiples, as applicable book value net asset value method
quired by US GAAP. IFRS 4 in conjunction with FASB ASC
method and hence eliminated from the technical account. The compensation for risk assumption booked to income under these contracts is netted under other income and expenses.
ance business and the other receivables are carried at nominal value; value adjustments are made where necessary on the basis of a case-by-case analysis. We use adjustment accounts for value adjustments taken on reinsurance accounts receiv­
Deferred acquisition costs principally consist of commissions and other variable costs directly connected with the acquisi­
binations” scheduled depreciation is not taken on goodwill; instead, impairment is taken where necessary after an annual impairment test. For the purposes of the impairment test, goodwill is to be allocated pursuant to IAS 36 “Impairment of Assets” to so-called “cash generating units” (CGUs). Each
ment purposes and may not be larger than a segment. Follow­
Deferred tax assets may only be netted with deferred tax li­
abilities if an enforceable right exists to net actual tax refund claims with actual taxes owing. A precondition here is that the deferred tax assets and deferred tax liabilities refer to income taxes that are levied by the same revenue authority either for
134 Hannover Re Group annual report 2011NOtes 3.2 SuMMaRy OF MaJOR aCCOunTInG POLICIES
Loss and loss adjustment expense reserves are constituted for payment obligations from reinsurance losses that have oc­
tions relating to the future development. With the exception of a few reserves, future payment obligations are not discounted.
Long-term liabilities principally consist of subordinated debts that can only be satisfied after the claims of other creditors in the event of liquidation or bankruptcy. They are measured at amortised cost. Liabilities to holders of minority shares in partnerships arising out of long­term capital commitments are measured at the fair value of the redemption amount as at the balance sheet date.
nover Re does not make use of the fair value option provided by IAS 39 “Financial Instruments: Recognition and Measure­
ition to the statutory reserves of the parent company and the allocations from net income, the retained earnings consist of reinvested profits generated by the Hannover Re Group com­
“Presentation of Financial Statements” requires that noncontrolling interests be recognised separately within Group shareholders’ equity. The non-controlling interest in profit or loss is shown separately as profit appropriation following the net income (“thereof” note). This item refers mainly to noncontrolling interests in E+S Rück.
Instruments: Disclosures” requires more extensive disclosures according to classes of financial instruments. In this context, the term “class” refers to the classification of financial instru­
tinction is required here between measurement at amortised cost or at fair value. A more extensive or divergent distinction should, however, be geared to the purpose of the correspond­
Currency translation: financial statements of Group subsidiaries were drawn up in the currencies corresponding to the economic environment in which each subsidiary primarily operates. These currencies are referred to as functional cur­
rencies. The euro is the reporting currency in which the con­
Rates” the recognition of exchange differences on translation is guided by the nature of the underlying balance sheet item.
Exchange differences from the translation of monetary assets and liabilities are recognised directly in the statement of in­
The individual companies’ statements of income prepared in the local 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 effect­
Exchange Rates” differences from the currency translation of financial statements of foreign Group companies must be rec­
ognised in the consolidated financial statement as a separate item in shareholders’ equity. Currency translation differences resulting from long-term loans or lendings without specified maturity between Group companies are similarly recognised outside the statement of income in a separate item of share­
ance premiums, commissions and claim settlements as well as assumed portions of the technical reserves are recognised according to the terms and conditions of the reinsurance treaties, giving due consideration to the underlying contracts for which reinsurance was taken out.
Ceded reinsurance premiums are deducted from the gross written premium. Assets and liabilities in connection with reinsurance ceded are recognised on a gross basis. The re­
Premiums already collected that are attributable to future risk periods are deferred pro rata temporis and recognised in conformity with the pertinent standards of US GAAP. In this context, assumptions are to be made if the data required for
Key exchange rates 1 EuR corresponds to: Mean rate of exchange on the balance sheet date average rate of exchange 3.3 segmentation
N ot es 3.4 MaJOR DISCRETIOnaRy DECISIOnS anD ESTIMaTES NOtes 3.4 Major discretionary decisions and estimates
In the consolidated financial statement it is to some extent necessary to make estimates and assumptions which affect the assets and liabilities shown in the balance sheet, the infor­
ability of investments in associated companies, the valuation of derivative financial instruments as well as assets and li­
abilities relating to employee benefits. The actual amounts may diverge from the estimated amounts.
ness 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 pos­
sible estimated future settlement amount is recognised in the balance sheet. The development until completion of the run­
By analysing a broad range of observable information it is possible to classify losses as major individual loss events.
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 com­
ments in the risk report on page 68 et seq. We would further refer to our explanatory remarks on the technical reserves in
Section 3.2 “Summary of major accounting policies”, page 130 et seq., and Section 5.7 “Technical provisions”, page 167 et seq.
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 cri­
ther predefined by the tariff (e.g. allowance for costs, amount of premium, actuarial interest rate) or need to be estimated
position and the commencement of covered policies within the year. Such assumptions are estimated at the inception of a reinsurance treaty and subsequently adjusted to the actual projection.
servative assumptions” versus “best estimate”), constitute the starting point for numerous areas of application encompassing quotation, the determination of carrying values and em bedded values as well as contract-specific analyses, e.g. regarding the appropriateness of the recognised reinsurance liabilities
(“liability adequacy test”). In this context we would refer the reader to our comments on technical assets and provisions in
Section 3.2 “Summary of major accounting policies”, page 130 et seq., and on the liability adequacy tests in Section 5.7
sition costs of the parent company are netted with the propor­
ers’ equity of the subsidiary and the purchase price is recog­
nised as goodwill. Under IFRS 3 scheduled amortisation is not taken on goodwill. Instead, impairment is taken where neces­
sary on the basis of annual impairment tests. Immaterial and negative goodwill are recognised in the statement of income in the year of their occurrence.
Non-controlling interests in shareholders’ equity are reported separately within Group shareholders’ equity in accordance with IAS 1 “Presentation of Financial Statements”. The noncontrolling interest in profit or loss, which forms part of net in­
ers’ equity attributable to the Group. A significant influence is presumed to exist if a company belonging to the Hannover Re
In addition to Hannover Rückversicherung AG as the parent company of the Group, the scope of consolidation of the Han­
nover Re Group encompasses the companies listed in the table below.
Companies included at equity 1 Consists of: 19 (18) individual companies and 36 (39) companies which are fully consolidated in 3 (3) subgroups.
140 Hannover Re Group annual report 2011NOtes 4.2 COnSOLIDaTED COMPanIES anD COMPLETE LIST OF SHaREHOLDInGS
German Corporate Governance Code as amended on 26 May 2010, the following table also lists the percentage share in capital, the capital and reserves and the result for the last financial year for major participations in unconsolidated third companies.
Hannover Finance (uK) Limited, Virginia Water/united Kingdom4 100.00 GBP 131,122 GBP 27
Hannover Life Reassurance Bermuda Ltd., Hamilton/Bermuda 100.00 EuR 183,262 EuR 23,815
Hannover Life Reassurance Company of america, Orlando/uSa4 100.00 uSD 175,264 uSD 4,103
Hannover Life Re of australasia Ltd., Sydney/australia4 100.00 auD 297,281 auD 45,537
Hannover Re advanced Solutions Ltd., Dublin/Ireland5 100.00 EuR 31 EuR –
International Insurance Company of Hannover Ltd., Bracknell/united Kingdom4 100.00 GBP 116,406 GBP 5,702
Secquaero ILS Fund Ltd., George Town, Grand Cayman/Cayman Islands6 100.00 uSD 53,277 uSD 1,805
Hannover Re (Guernsey) PCC Limited, St Peter Port/Guernsey4 100.00 EuR 258 EuR (3)
Integra Insurance Solutions Limited, Bradford/uK8 74.99 GBP 115 uSD 100 subgroups resident abroad
Hannover Finance, Inc. compiles its own subgroup financial statement in which the following major companies are included: Consolidated companies
Hannover Life Reassurance africa Ltd., Johannesburg/South africa 100.00 ZaR 368,337 ZaR 22,482
142 Hannover Re Group annual report 2011NOtes 4.2 COnSOLIDaTED COMPanIES anD COMPLETE LIST OF SHaREHOLDInGS
Hannover Reinsurance africa Ltd., Johannesburg/South africa 100.00 ZaR 755,497 ZaR 147,341
Hannover Reinsurance Mauritius Ltd., Port Louis/Mauritius 100.00 MuR 46,393 MuR (4,220)
Mua Insurance acceptances (Pty) Ltd., Cape Town/South africa 40.80 ZaR 4,376 ZaR 4,624
Garagesure Consultants and acceptances (Pty) Ltd., Johannesburg/South africa 40.80 ZaR 541 ZaR 815
Cargo Transit Insurance (Pty) Ltd., Helderkruin/South africa 40.80 ZaR (2,522) ZaR (2,252)
Hospitality Industries underwriting Consultants (Pty) Ltd., Johannesburg/South africa 36.82 ZaR 1,603 ZaR 2,981
Thatch Risk acceptances (Pty) Ltd., Cape Town/South africa 33.14 ZaR 1,246 ZaR 2,233
Envirosure underwriting Managers (Pty) Ltd., Durban/South africa 30.60 ZaR (1,690) ZaR 159
Takafol South africa (Pty) Ltd., Johannesburg/South africa4 24.99 ZaR 601 ZaR (181)
Commercial & Industrial acceptances (Pty) Ltd., Johannesburg/South africa4 20.40 ZaR 6,218 ZaR 19,901
Camargue underwriting Managers (Pty) Ltd., Parktown/South africa4 13.26 ZaR 3,504 ZaR 504
N ot es 4.2 CONSOLIDATED COMPANIES AND COMPLETE LIST OF SHAREHOLDINGS NOTES
GLL HRE CORE PROPERTIES LP, Wilmington/USA6 95.00 USD 111,771 USD 391 11 Stanwix LLC, Wilmington/USA6 95.00 USD 30,292 USD 941
Hannover Re Consulting Services India Private Limited, Mumbai/India8 100.00 INR 50,647 INR 5,004
144 Hannover Re Group annual report 2011NOtes 4.2 COnSOLIDaTED COMPanIES anD COMPLETE LIST OF SHaREHOLDInGS
Hannover Services (México) S.a. de C.V., Mexico City/Mexico11 100.00 MXn 10,552 MXn 561
Hannover Re Services uSa, Inc., Itasca/uSa 100.00 uSD 845 uSD 50
Hannover Re Services Italy Srl, Milan/Italy 99.64 EuR 485 EuR 80
Hurst Holme Insurance Company Limited - account 2006 - 03 SCC, Hamilton/Bermuda11 28.50 uSD 780 uSD (113)
XS Direct Insurance Brokers Limited, Dublin/Ireland11 25.00 EuR (172) EuR (725)
Sciemus Power MGa Limited, London/united Kingdom11 25.00 GBP 1 GBP –
acte Vie S.a. Compagnie d‘assurances sur la Vie et de Capitalisation, Strasbourg/France11 9.38 EuR 8,203 EuR 226 1 year-end result after profit transfer 2 Formerly Zweite Hannover Rück Beteiligung Verwaltungs-GmbH
according to the local accounting practice relevant for supervisory purposes, the company is adequately capitalised.
Errors” – also falls back on the relevant standards of US GAAP.
called collateralised fronting arrangements under which risks assumed from ceding companies are passed on to institutional investors outside the Group using special purpose entities.
business. Due to the lack of a controlling influence over the special purpose entities involved, there is no consolidation requirement for Hannover Re with respect to these structures.
Hannover Re transferred a portfolio of facultative reinsurance risks to the capital market from September 2009 to January 2011, was in run­off as at the balance sheet date. A number of special purpose entities participated in the reinsurance cessions within “FacPool Re”; Hannover Re did not hold any shares in these special purpose entities and did not bear the majority of the economic benefits or risks arising out of their activities through any of its business relations.
posal transaction at the time when it was approved by US
regulators (“closing condition”). Approval was given on 8 July 2011 and the transaction commenced upon closing of the sale with simultaneous deconsolidation of the operational com­
panies. Since Hannover Re is not the major beneficiary of the special purpose entity and does not exercise either indirect or direct control over it, there is no requirement to consolidate this special purpose entity.
The securitisation of reinsurance risks is largely structured through the use of special purpose entities.
Effective 30 March 2011 a structured transaction was entered into in order to finance the statutory reserves (so-called TripleX
floating swap with a ten-year term to a Group company of the
EUR 193.1 million had been taken up as at the balance sheet date. The variable payments to the special purpose entity guar­
The higher of the fair value and the amount carried as a provi­
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 influ­
curities GmbH & Co. KG – in a number of special purpose entities for the securitisation of catastrophe risks by investing in “disaster bonds” (or “CAT bonds”). Since Hannover Re does not exercise a controlling influence in any of these transac­
pany of Hannover Ltd., Bracknell, United Kingdom, which in turn is wholly owned by Hannover Re. The business object of the company is to hold, acquire and sell participating interests in other companies.
USD 98,000 (corresponding to 49% of the share capital). The business object of the company will primarily be to underwrite specialty lines as well as property and casualty program busi­
ness. Preference shares in an amount of roughly USD 2.3 mil­
7.5 million effective 18 August 2011. Incidental acquisition costs of EUR 0.1 million were recognised as other expenses in the statement of income. As an agency, Integra mediates insurance business to International Insurance Company of
The shareholders’ equity of Integra at the time of acquisition amounted to GBP 0.1 million. The company’s assets are com­
America by Eurus II Ltd., a special purpose entity domiciled in the Cayman Islands. Hannover Re does not exercise a control­
ling influence over the special purpose entity. Under IFRS this transaction is to be recognised as a financial instrument.
ness as well as aviation and marine risks. The volume of this securitisation, which was increased in the year under review, was equivalent to EUR 258.8 million (EUR 248.5 million) as at the balance sheet date. The transaction henceforth has an indefinite term and can be cancelled annually by the investors.
Kaith Re Ltd., a special purpose entity domiciled in Bermuda, is being used for the securitisation.
Hannover Re also 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.
GmbH in an amount of EUR 12,250. In addition, a capital con­
tribution of EUR 250,000 was made. The business object of the company is the sale and mediation of insurance products.
On 21 December 2010 Hannover Re reached agreement on the sale of the operational companies of its US subgroup
Wilmington, which is also included in full in the consolidated financial statement. The agreed purchase price is USD 219.1 million.
Discontinued Operations” the subsidiaries of CIGI constituted a disposal group, which was to be measured at the lower of the carrying amount and fair value less costs to sell. The measure­
ment of the disposal group gave rise to income of EUR 7.9 mil­
The cumulative other comprehensive income of –EUR 23.1 million arising out of the currency translation of the assets and liabilities belonging to the disposal group was realised in the context of deconsolidation. Profits from the measurement of available-for-sale financial assets were realised in an amount of EUR 5.2 million upon deconsolidation and recognised in other income and expenses.
Assets and liabilities of the disposal group in EuR thousand 12. 07. 2011 31.12. 2010
148 Hannover Re Group annual report 2011NOtes 5.1 InVESTMEnTS unDER OWn ManaGEMEnT
Hannover Re classifies investments according to the following categories: held-to-maturity, loans and receivables, financial assets at fair value through profit or loss and available-forsale. The allocation and measurement of investments are de­
The investments under own management also encompass investments in associated companies, real estate and real es­
tate funds (also includes: investment property), other invested assets, short­term investments and cash.
Maturities of the fixed-income and variable-yield securities in EuR thousand amortised cost1 Fair value amortised cost1 Fair value
Held to maturity due in one year 486,965 491,332 293,247 296,019 due after one through two years 926,846 942,245 481,951 497,863 due after two through three years 613,913 643,263 530,917 556,296 due after three through four years 1,097,347 1,161,746 402,290 435,132 due after four through five years 562,175 597,596 842,291 896,024 due after five through ten years 461,311 462,789 458,201 489,910 due after more than ten years 7,532 8,091 19,121 18,143
Loans and receivables due in one year 106,731 107,501 61,280 61,845 due after one through two years 205,235 209,847 129,327 129,184 due after two through three years 505,043 523,717 348,915 356,739 due after three through four years 306,484 318,696 576,421 592,242 due after four through five years 321,807 348,653 330,110 342,088 due after five through ten years 1,174,558 1,250,207 806,953 840,900 due after more than ten years 904,877 983,320 61,423 58,741
Government debt securities of Eu member states 356,246 24,036 370 7,509 387,421
Debt securities issued by semi-governmental entities 820,844 38,595 3,201 13,996 870,234
Debt securities issued by semi-governmental entities 709,181 35,252 978 13,305 756,760
Hannover Re reclassified fixed-income securities at fair values of altogether EUR 1.3 billion from the available­for­sale to the held­to­maturity portfolio. The securities gave rise to cumula­
quence of reclassification are to be amortised in the statement of income across the maturities of the instruments. These se­
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value Figures in EuR thousand amortised cost unrealised gains unrealised losses accrued interest
Debt securities issued by semi-governmental entities 996,339 29,986 88 14,622 1,040,859
152 Hannover Re Group annual report 2011NOtes 5.1 InVESTMEnTS unDER OWn ManaGEMEnT
Debt securities issued by semi-governmental entities 3,453,861 90,835 10,100 50,883 3,585,479
The carrying amounts of the financial assets at fair value through profit or loss correspond to their fair values includ­
Analysis of the fair value changes in the portfolio of fixedincome securities at fair value through profit or loss indicated that an amount of –EUR 4.1 million was due to changes in the ratings of callable bonds. This contrasted with an increase in fair values of EUR 0.6 million in the previous year.
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
uity securities classified as available for sale as well as the short­term investments allocated to this category correspond to their fair values, in the case of interest­bearing assets in­
Fair value of financial assets at fair value through profit or loss before and after accrued interest as well as accrued interest on such financial assets Figures in EuR thousand
Debt securities of semi-governmental entities 9,998 9,995 115 80 10,113 10,075
Other comprehensive income from investments allocation to gains/losses from the fair-value measurement of the available-for-sale portfolio 245,396 208,751
Fixed-income securities – at fair value through profit or loss – 12,728 9,134 57,322 48,404 24,990 52 8,500 161,130
Total fixed-income securities incl. derivatives 8,844,785 7,529,951 5,434,151 2,591,365 468,812 105,861 2,891 144,667 25,122,483
Total fixed-income securities incl. derivatives 11,269,291 4,053,785 4,172,443 1,379,417 198,769 103,660 10,719 227,145 21,415,229
156 Hannover Re Group annual report 2011NOtes 5.1 InVESTMEnTS unDER OWn ManaGEMEnT
Fixed-income securities – at fair value through profit or loss – – 45,486 – – 86,553 29,091 – 161,130
Fixed-income securities – loans and receivables – 6,916 1,683,975 6,280 – 593,892 – 23,366 2,314,429
Other financial assets – at fair value through profit or loss – – 9,495 – – 45,261 – – 54,756
Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 18.3 million (EUR 18.4 million).
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.
Net book value after currency translation 127,347 128,605 adjustment recognised in income 1,534 1,127 adjustment recognised outside income (3,101) (2,643)
Net book value at 31 December of the year under review 127,554 127,644
158 Hannover Re Group annual report 2011NOtes 5.1 InVESTMEnTS unDER OWn ManaGEMEnT
Gross book value at 31 December of the previous year 338,634 190,212
Gross book value at 31 December of the year under review 436,874 338,634
Net book value at 31 December of the previous year 303,422 162,612
Net book value at 1 January of the year under review 308,502 173,860
In addition, we held indirect real estate investments in the year under review in an amount of EUR 128.1 million (EUR
The fair value of investment property amounted to EUR 397.2 million (EUR 305.4 million) as at the balance sheet date.
The additions to this item are attributable in large part to the sharply increased investment activities of the real estate com­
lative depreciation totalled EUR 2.6 million at the time of reclassification. The carrying amount of the reclassified prop­
The other invested assets consisted largely of participating interests in partnerships measured at fair value in an amount of EUR 833.8 million (EUR 779.5 million). The amortised cost of these participations amounted to EUR 612.8 million (EUR
struments recognised at fair value in the balance sheet are to be assigned to a three­level fair value hierarchy. This hier­
– Level 2: Inputs used for measurement that are based on observable market data and are not included within level 1.
This level includes, in particular, prices for comparable assets and liabilities, prices on markets that are not con­
The following table shows the breakdown of the financial instruments recognised at fair value into the three­level fair value hierarchy.
Total financial liabilities measured at fair value – 98,498 – 98,498
Income and expenses recognised in the statement of income (1,412) – 5,730 recognised directly in shareholders' equity (3,494) (4) (13,900)
Net book value at 31 December of the year under review 38,190 8 875,401
Net book value at 1 January of the year under review 131,453 350 576,807
ments included in level 3 with fair values of altogether EUR
913.6 million (EUR 862.1 million) as at the balance sheet date,
For the remaining financial instruments included in level 3 with a volume of EUR 50.1 million (EUR 22.7 million), the effects of alternative inputs and assumptions are immaterial.
In the case of reinsurance treaties for unit­linked life insurance policies classified as “universal life-type contracts” pursuant to FASB ASC 944-20-15-26 to -30, the capitalised acquisition costs are amortised on the basis of the estimated gross profit margins from the reinsurance treaties, making allowance for the period of the insurance contracts. A discount rate based on the interest for medium­term government bonds was applied to such contracts. In the case of annuity policies with a single premium payment, these values refer to the expected policy period or period of annuity payment.
In life and health reinsurance the deferred acquisition costs associated with life and annuity policies with regular premium payments are determined in light of the period of the con­
tracts, the expected surrenders, the lapse expectancies and the anticipated interest income.
Development of deferred acquisition costs in EuR thousand 2011 2010 net book value at 31 December of the previous year 1,834,496 1,838,450
adjusted but considered overdue as at the balance sheet date is presented below.
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 74 et seq.
The default risks associated with accounts receivable under reinsurance business are determined and recognised on the basis of case­by­case analysis.
With regard to the credit risks resulting from technical assets we would also refer the reader to our comments in the risk report on page 74 et seq.
Cumulative value adjustments at 31 December of the year under review 35,665 35,768
Gross book value of accounts receivable at 31 December of the year under review 3,174,992 2,877,071
Net book value of accounts receivable at 31 December of the year under review 3,139,327 2,841,303
Net book value at 31 December of the year under review 94,985 98,368
Net book value at 31 December of the year under review 59,289 45,773
This item principally consists of the present value of future cash flows from the business acquired that we recognised in 2009 in the context of the acquisition of the ING life reinsur­
Gross book value at 31 December of the previous year 107,445 111,425
Cumulative depreciation at 31 December of the previous year 75,637 72,581
provided software and EUR 28.5 million (EUR 31.6 million) for purchased software as at the balance sheet date. Scheduled depreciation is taken over useful lives of three to ten years.
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 0.6 million (EUR 0.5 million) in the year under review on the basis of specific impairment analyses.
Gross book value at 31 December of the previous year 167,593 171,899
Gross book value at 31 December of the year under review 175,867 167,593
Cumulative depreciation at 31 December of the previous year 127,794 115,028
Net book value at 31 December of the year under review 35,672 39,799
Loss and loss adjustment expense reserve 20,767,317 1,550,587 19,216,730 18,065,395 1,025,332 17,040,063
ciple calculated on the basis of the information supplied by ceding companies. Additional IBNR reserves are established for losses that have been incurred but not as yet reported.
serve is shown in the following table. Commencing with the gross reserve, the change in the reserve after deduction of the reinsurers’ portions is shown in the year under review and the previous year.
Loss and loss adjustment expense reserve in EuR thousand gross retro net gross retro net net book value at 31 December of the previous year 18,065,395 1,025,332 17,040,063 17,425,293 1,747,991 15,677,302
Reclassification pursuant to IFRS 5 – – – (1,306,483) (827,314) (479,169)
Net book value at 31 December of the year under review 20,767,317 1,550,587 19,216,730 18,065,395 1,025,332 17,040,063 1 Including expenses recognised directly in shareholders‘ equity
In the year under review specific value adjustments on retrocessions, i.e. on the reinsurance recoverables on unpaid claims, were established in an amount of EUR 2.2 million
(EUR 2.1 million) and reversed in virtually the same amount of EUR 2.2 million (EUR 23.1 million). On balance, therefore, unchanged cumulative specific value adjustments of EUR 3.5 million (EUR 3.5 million) were recognised in these reinsur­
The total amount of the net reserve before specific value ad­
Run-off of the net loss reserve in the non-life reinsurance segment
The run­off triangles show the run­off of the net loss reserve
(loss and loss adjustment expense reserve) established as at each balance sheet date, this reserve comprising the provi­
sions constituted in each case for the current and preceding occurrence years.
drawals as well as changes in the consolidated group may be included here. For this reason, the run­off results in the current financial year are shown after adjustment for the net loss reserves of the operational companies of the Clarendon
Net loss reserve and its run-off in the non-life reinsurance segment Figures in EuR million
Change relative to previous year as percentage of original loss reserve 0.6 (0.1) 0.2 0.1 0.6 0.3 0.6 0.1 (0.5) 0.5
rent financial year derives in particular from positive run-offs of reserves in the areas of credit/surety, marine/aviation and short­tail property business.
IFRS 4 “Insurance Contracts” requires information which helps to clarify the amount and timing of cash flows expected from reinsurance contracts. In the following tables we have shown the future maturities of the technical provisions broken down by the expected remaining times to maturity. As part of our maturity analysis we have directly deducted the deposits put up as security for these reserves, since the cash inflows and outflows from these deposits are to be allocated directly to the ceding companies. For further explanation of the recogni­
insurance – and applied to the outstanding liabilities for each underwriting year and run­off status.
fore considered separately using reference samples or similar losses. The payment patterns used can be compared year for year by contrasting the projected payments with the actual amounts realised. Liabilities in liability and motor reinsurance traditionally have long durations, sometimes in excess of 20 years, while liabilities in property business are settled within the first ten years.
The unearned premium reserve derives from the deferral of reinsurance premium. The unearned premium is determined by the period during which the risk is carried and established in accordance with the information supplied by ceding com­
ation of these contracts, long­term reserves are constituted for life and annuity policies and predominantly short­term re­
The mortality and morbidity rates used are chosen on the basis of national tables and the insurance industry standard.
basis in order to determine whether these assumptions need to be adjusted (“unlocked’).
Development of the benefit reserve in eUr thousand gross retro net gross retro net net book value at 31 December of the previous year 8,939,190 347,069 8,592,121 7,952,640 104,868 7,847,772
Net book value at 31 December of the year under review 10,309,066 380,714 9,928,352 8,939,190 347,069 8,592,121
644.6 million (EUR 1,187.7 million) represent the cash and securities deposits furnished to our company by our retro­
cessionaires that do not trigger any cash flows and cannot be realised without the consent of our retrocessionaires. The maturities of these deposits are matched to the corresponding shares of the reinsurers in the technical provisions. If such a share no longer exists the corresponding funds withheld are reduced to the same extent.
Notes 5.10 provisions for pensions anD oTher posT-employmenT BenefiT oBligaTions 5.8 Funds withheld (liabilities)
vant version of the pension plan as amended. The 1968 pen­
The adequacy of the technical liabilities arising out of our reinsurance treaties is reviewed as at each balance sheet date.
As part of the adequacy test for technical liabilities the antici­
pated future contractual payment obligations are compared with the anticipated future income. Hannover Re adopts the
“loss recognition” method set out under US GAAP. Should the result of the test indicate that the anticipated future income will not be sufficient to fund future payments, the entire short­
From 1997 onwards it has been possible to obtain pension commitments through deferred compensation. The employee­
funded commitments included in the provisions for accrued pension rights are protected by an insurance contract with
funded. Amounts carried as liabilities are recognised under other liabilities. The provisions for pensions in Germany and abroad were calculated on the basis of uniform standards de­
Deferred compensation – 20 actuarial gain/loss (10,643) 11,034 currency translation 366 2,447
past service cost 1,062 57 effect of plan curtailments or settlements (82) (1,379)
174 Hannover Re Group annual report 2011Notes 5.10 provisions for pensions anD oTher posT-employmenT BenefiT oBligaTions
Change in the provision for pensions in eUr thousand 2011 2010 net provisions for pensions at 31 December of the previous year 81,657 77,497 currency translation 83 (681)
Net provisions for pensions at 31 December of the year under review 88,299 81,657
Defined benefit obligations at 31 December of the year under review 106,618 109,962 fair value of plan assets at 31 December of the year under review 11,525 10,464
Projected benefit obligation at 31 December of the year under review 106,618 109,962 fair value of plan assets 11,525 10,464
Funded status (present value of earned benefit entitlements less fund assets) 95,093 99,498
The recognised provision for pensions developed as follows in the year under review:
The components of the net periodic pension cost for benefit plans were as follows: 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 “Employee Benefits” is applied.
(EUR 6.0 million) under administrative expenses, EUR 1.6 million (EUR 1.0 million) under other expenses and EUR 0.8 million (EUR 0.7 million) under other investment expenses.
Net periodic pension cost in eUr thousand 2011 2010 current service cost for the year under review 3,341 2,818 interest cost 4,893 4,908 expected return on plan assets 738 640 recognised actuarial gain/loss (1,695) (526)
176 Hannover Re Group annual report 2011Notes 5.11 oTher liaBiliTies 5.11 other liabilities
Balance at 1 January of the year under review provisions for audits and costs of publishing the annual financial statements 5,840 (42) 5,798 partial retirement arrangements and early retirement obligations 5,483 28 5,511 holiday entitlements and overtime 5,810 (34) 5,776 anniversary bonuses 2,080 – 2,080 measurement of disposal groups 55,055 1,312 56,367
tions. The expense recognised for these obligations in the year under review in accordance with IAS 19 “Employee Benefits”
was EUR 5.7 million (EUR 4.2 million), of which EUR 0.8 mil­
are attributable to affiliated companies. The liabilities from derivatives of EUR 69.4 million (EUR 77.2 million) consist of instruments to hedge currency and inflation risks as well as embedded derivatives recognised separately from the under­
lying insurance contract at fair value pursuant to IAS 39 “Fi­
The sundry liabilities include, most notably, distributions within the year of EUR 53.4 million (EUR 28.4 million) from interests in private equity funds that had still to be recognised in income as at the balance sheet date.
Hannover Re Group, Hannover Re has issued subordinated debt by way of a number of guaranteed, callable bonds.
On 14 September 2010 Hannover Re placed a new subordinated bond on the European capital market through its sub­
sidiary Hannover Finance (Luxembourg) S.A. This subordinated debt of nominally EUR 500.0 million has a maturity of 30 years with a first scheduled call option after ten years. The bond carries a fixed coupon of 5.75% in the first ten years after which the interest basis changes to a floating rate of 3­month EURIBOR +423.5 basis points.
On 1 June 2005 Hannover Re issued further subordinated debt in the amount of EUR 500.0 million through its subsidiary
ers of the subordinated debt of EUR 350.0 million placed by
Hannover Re in 2001 – which had a term of 30 years and could be called in prior to maturity by the issuer on 14 March 2011
ume was called by the issuer on the specified date and repaid in full.
On 26 February 2004 subordinated debt in the amount of EUR
accrued interest fair value other long-term liabilities 33 – – 33
Debt and subordinated capital figures in eUr thousand 2010 subordinated loans coupon
The aggregated fair value of the issued subordinated loans is based on quoted, active market prices. If such price informa­
180 Hannover Re Group annual report 2011Notes 5.12 DeBT anD sUBorDinaTeD capiTal
The ordinary expenses principally include interest expenses of nominally EUR 98.5 million (EUR 85.3 million) resulting from the subordinated debt placed through Hannover Finance
cured syndicated guarantee facility. The LoC facility matures in principle at the beginning of 2017 and has various renewal options. In addition, several bilateral loan agreements were also taken out.
The syndicated guarantee facility from 2005 had a remaining volume of EUR 27.0 million as at the balance sheet date after partial cancellations and ends in its entirety at the beginning of January 2012. The syndicated LoC line from 2006 was re­
N ot es 5.13 shareholDers‘ eqUiTy, non-conTrolling inTeresTs anD TreasUry shares Notes
turing at the latest in 2021) and a total volume equivalent to
EUR 2,403.1 million (EUR 1,207.2 million) exist on a bilateral basis with financial institutions; in addition, a long-term unse­
cured line of credit intended specifically for US life business was concluded in December 2009 with a total volume equiva­
ment”. 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.
Authorised capital of up to EUR 60,299 thousand is available with a time limit of 3 May 2015. The subscription right of shareholders may be excluded with the consent of the Supervisory Board. New, no­par­value registered shares may be issued on one or more occasions for contributions in cash or kind. Of the total amount, up to EUR 1,000 thousand may be used to issue employee shares.
In addition, conditional capital of up to EUR 60,299 thousand is available. It can be used to grant shares to holders of con­
nancial Statements” with regard to the management of capital, the reader is referred to page 52 of the “Financial position”
IAS 1 “Presentation of Financial Statements” requires separate disclosure in shareholders’ equity of treasury shares and transactions with owners acting in their capacity as such. By a resolution of the Annual General Meeting of Hannover Rück­
versicherung AG adopted on 4 May 2010, the company was authorised until 3 May 2015 to acquire treasury shares of up to 10% of the share capital existing on the date of the resolution. As part of this year’s employee share option plan Han­
182 Hannover Re Group annual report 2011Notes 6.1 gross wriTTen premiUm
North America 3,170,197 3,373,501 1 after elimination of internal transactions within the group across segments
lion), an amount of EUR 14.0 million (EUR 7.7 million) was attributable to alternative investments. The impairments on fixed-income securities of EUR 5.4 million (EUR 7.9 million)
ment loss of EUR 0.9 million (EUR 0.6 million) was recognised on equities whose fair value had fallen significantly – i.e. by at least 20% – or for a prolonged period – i.e. for at least nine months – below acquisition cost. This contrasted with write­
cial assets, which include the technical derivatives, changes in unrealised gains and losses are also recognised.
Investment income in eUr thousand 2011 2010 income from real estate 38,283 31,410 interest income 916,220 829,855 other investment income 4,703 14,829 ordinary investment income 966,171 880,521
Net income from assets under own management 1,045,503 942,527 interest income on funds withheld and contract deposits 432,186 436,183 interest expense on funds withheld and contract deposits 93,648 119,815 total investment income 1,384,041 1,258,895
Financial assets – at fair value through profit or loss 6,571 6,812
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 held to maturity loans and receivables available for sale
Section 5.7 “Technical provisions”. The change in the benefit reserve relates exclusively to the life and health reinsurance segment.
change in provision for contingent commissions 17,219 21,113 other acquisition costs 10,675 5,302 other technical expenses 8,954 44,183 administrative expenses 289,063 280,720
Commissions and brokerage, change in deferred acquisition costs in eUr thousand commissions paid (gross) 2,491,637 2,266,467 reinsurance recoverables 97,046 147,198 change in deferred acquisition costs (gross) 45,516 (158,192)
186 Hannover Re Group annual report 2011Notes 6.4 oTher income/expenses other technical expenses in eUr thousand 2011 2010 other technical expenses (gross) 8,980 44,574 reinsurance recoverables 26 391 other technical expenses (net) 8,954 44,183 other income/expenses in eUr thousand 2011 20101 other income exchange gains 77,099 157,691 reversals of impairments on receivables 11,878 55,655 income from contracts recognised in accordance with the deposit accounting method 49,374 49,672 income from services 2,996 10,546 other interest income 73,139 5,896 sundry income 19,883 106,931 other expenses other interest expenses 43,460 35,246 exchange losses 59,057 20,688 separate value adjustments 12,933 13,540 expenses for the company as a whole 50,854 39,847 expenses for services 4,339 9,321 expenses from the disposal of clarendon 10,015 54,918 sundry expenses 46,186 93,322 6.4 other income/expenses 1 adjusted on the basis of ias 1
Please see our explanatory remarks in Section 6.5 “Taxes on income”.
Of the separate value adjustments, an amount of EUR 9.2 million (EUR 10.9 million) was attributable to accounts re­
ceivable, EUR 2.2 million (EUR 2.1 million) to reinsurance recoverables on unpaid claims and EUR 0.6 million (EUR 0.5 million) to other receivables.
N ot es 6.5 Taxes on income Notes 6.5 taxes on income
Income tax in eUr thousand 2011 2010 actual tax for the year under review 191,911 307,519 actual tax for other periods (124,812) (52,498)
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 li­
The reader is referred to Section 3.2 “Summary of major ac­
mestic companies was unchanged from the previous year at 31.93% (rounded to 32%). It is arrived at from the corporate income tax rate of 15.0%, the German reunification charge of 5.5% and a uniform trade earnings tax rate of 16.1%. The deferred taxes at the companies abroad were calculated using the applicable country-specific tax rates.
filiated companies are established in the year when they are received.
holders’ equity in the financial year amounted to –EUR 36.4 million (–EUR 37.5 million). They resulted from items that were charged or credited directly to equity.
Netting of deferred tax assets and deferred tax liabilities in eUr thousand 2011 2010
161.9 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 151.5 million (EUR 156.5 million) thereof was not capitalised since realisation is not sufficiently certain.
In addition, tax credits of EUR 4.4 million (EUR 5.9 million)
which were not capitalised are still available. There were no other temporary differences which had not been capitalised
from the previous year regarding the taxation of investment income generated by the Group’s reinsurance subsidiaries domiciled in Ireland as foreign­sourced income pursuant to the Foreign Transactions Tax Act, taxes already paid for earlier years were in large measure refunded in the first quarter of the year under review. Assessments regarding the taxation of foreign­sourced income for the companies Hannover Reinsur­
Hannover Re and E+S Rück in the year under review. The trade tax effects were offset in the third quarter of 2011 by the controlling company HDI Haftpflichtverband der Deutschen
ise intentions to buy/sell. In this context we take special care to limit the risks, select first-class counterparties and adhere strictly to the standards defined by investment guidelines.