Investments (excl. funds withheld by ceding companies) 47,629.4 +12.9% 42,197.3 40,057.5 41,793.5 39,346.9
Dividend per share in EUR 4.00 + 1.50 3, 4 +4.8% 3.75 + 1.50 4 3.50 + 1.50 4 3.50 + 1.50 4 3.25 + 1.50 4
Market capitalisation at year- end 20,778.9 +46.4% 14,194.3 12,650.6 12,397.4 12,741.1
Combined ratio (property and casualty reinsurance) 2 98.2% 96.5% 99.8% 93.7% 94.4%
Large losses as percentage of net premium earned (property and casualty reinsurance) 5 7.5% 7.9% 12.3% 7.8% 7.1%
1 Restated pursuant to IAS 8 2 Including expenses on funds withheld and contract deposits 3 Proposed dividend 4 Dividend of EUR 4.00 plus special dividend of EUR 1.50 for 2019, dividend of EUR 3.75 plus special dividend of EUR 1.50 for 2018, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016 and dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015 5 Hannover Re Group’s net share for natural catastrophes and other major losses in excess of EUR 10 million gross as a percentage of net premium earned 6 Operating result (EBIT) / net premium earned
A complete list of our shareholdings is provided on page 184 et seq. of the notes. The addresses of the Hannover Re Group’s branch offices and subsidiaries abroad are to be found in the section “Further information” on page 285 et seq.
Contents 14 For our investors 14 Letter from the Chairman of the Executive Board 18 Executive Board of
285 Further information 285 Branch offices and subsidiaries of the Hannover Re Group abroad 288 Glossary 294 List of graphs, tables and charts 298 Imprint 299 Contact information 300 Financial calendar
Beyond risk sharing – we team up to create opportunities 1Hannover Re | Annual Report 2019
Roland Vogel and Jean-Jacques Henchoz for the future 3Hannover Re | Annual Report 2019
Why did Hannover Re engage with its self-image and its core values in 2019?
How do you experience Hannover Re’s self-image in concrete terms? Could you cite an example by way of illustration?
Henchoz: For me, our self-image is tangible on a daily basis. Hannover Re is ruled by a spirit of collaboration, all our employees are real team players. We are there for our clients and we take a thoroughly pragmatic approach – it’s in our DNA, and it’s captured in the phrase “we team up”.
By defining our company’s purpose we have accomplished something very significant: we have identified the factors in our past success and embraced them on our path into the future.
It was wholly intentional that we involved a large number of employees all around the world, since in this case the journey was the destination. This process was extremely valuable in enabling us to condense and concisely define our self-image and our corporate culture.
Vogel: Our days as a start-up are long behind us, even though we perhaps still carry this feeling inside us. Being the number three reinsurer in the world brings obligations and opportunities alike. We now want to draw on our self-image and our values as guidance for the future so as to continue to succeed going forward.
Our actions have always been driven by the self-image of an entrepreneur – and that will remain so going forward.
W e va lu e ev er y co m m on s uc ce ss co nt ri bu te t o W
We take ownership I am proactive and accountable for my actions. I decide and act reliably and transparently. In everything I do, I consider sustainability and long-term impacts.
We value every individual and embrace diversity I value every person’s uniqueness. I meet everyone on equal terms. I ask for different points of view.
We are ambitious – for our clients’ success I deliver value-adding solutions to build sustainable partnerships. I generate and promote good ideas. I collaborate with all relevant parties. I get things done – fast.
interviews with 7 Board members regional workshops at 13 international locations
We transact all lines of property & casualty and life & health reinsurance and are present on all continents with more than 3,000 staff. Established in 1966, the Hannover Re Group today has a network of more than 170 subsidiaries, branches and representative offices worldwide. The German business of the Hannover Re Group is transacted by our subsidiary E+S Rück.
The rating agencies most relevant to the insurance industry have awarded both Hannover Re and E+S Rück very good financial strength ratings: Standard & Poor’s AA- “Very Strong” and A.M. Best A+ “Superior”.
Further information 285 Branch offices and subsidiaries of the Hannover Re Group abroad 285
In my first few months as Chief Executive Officer, a role which I took over in May, the positive impression that I had previously formed of Hannover Re as an outsider was unreservedly confirmed. The dedication and expertise of our employees, our long-standing and partnership-based customer relationships and our efficient business model establish the foundations for our superb positioning – and this will remain the case going forward.
With a view to ensuring that Hannover Re continues to enjoy this exceptional level of success, we shall be revising our Group strategy as part of the regular review process in the 2020 financial year. Without doubt, Hannover Re is on the right track. Nevertheless, given the changing landscape in our industry, we too must continue to evolve and will have to make ongoing course adjustments going forward.
I am able to report on some of the early initiatives that we have already set in motion in the 2019 financial year. We shall, for example, expand our footprint in Asia so as to better participate in the
F or o u r in ve st or s growth of this region’s insurance markets. Furthermore, we remain committed to improving our customer relationships and to strategic projects in the areas of digital innovation and talent development.
In the second half of 2019 we also grappled with the definition of a Purpose Statement for Hannover Re. More than 400 members of staff around the world engaged in a frank exchange about the purpose of our work, about our culture and values and about the future orientation of our company. On this basis, we formulated a corporate purpose that – to my mind – perfectly encapsulates the strengths and ambition of Hannover Re: “Beyond risk sharing - we team up to create opportunities”.
In keeping with our corporate values, our Purpose Statement highlights our desire to deliver added value for our clients that goes above and beyond pure risk coverage (“Beyond risk sharing”). We aim to do this on a partnership basis and as a global team (“we team up”). At the same time, we see ourselves in a proactive role as an innovation partner for our clients (“to create opportunities”).
One very good example of how we act on our purpose is the cooperation that we announced in December with Global Parametrics, the Federal Ministry of Economic Cooperation and Development, Kreditanstalt für Wiederaufbau (KfW) and the Department for International Development (DFID) in the United Kingdom. Working together, we have developed an innovative concept for the coverage of climate risks in developing countries based on parametric indices. As our experience shows, partnering with government institutions on solutions of this type offers an effective means of closing the protection gap.
In the reinsurance industry the capacity for innovation is becoming an increasingly key differentiating factor. Technological changes in the context of digitalisation will further accelerate this trend.
I would like to turn now to the results of the financial year just ended. With Group net income of EUR 1.28 billion Hannover Re achieved another record result. The fact that we did this even though 2019 was another relatively costly year for the reinsurance industry merely underlines our profitability.
Political Risks • United Kingdom, Ireland and London Market • Facultative Reinsurance and Direct Business
The German DAX index had entered the year at 10,559 points. After some brief initial hesitancies, the domestic bellwether index rose steadily in the period until May to surpass 12,000 points. As the year progressed, German blue chips moved sideways against the backdrop of a renewed flare-up of concerns about the stability of the global economy. In the fourth quarter the DAX picked up steam again to reach its highest point of the year on 16 December 2019 at 13,408, before closing out the year 25.5% higher at 13,249 points.
The MDAX, which had been expanded in the year under review following a decision by Deutsche Börse AG, performed significantly more strongly. It similarly recorded its lowest level right out of the gate at 21,398 points. The index rose relentlessly throughout the year to touch its highest point of 28,545 points on 23 December 2019. A few days later the MDAX ended the year with a gain of 31.2% at 28,313 points.
Movements were just as positive on the US S & P 500 and the Dow Jones Industrial indices, which closed 28.9% and 22.3% higher on the year respectively. The MSCI World index also ended the year up by 25.4% at 2,359 points.
Based on the year-end closing price of EUR 172.30, Hannover Re’s market capitalisation totalled EUR 20.8 billion at the end of the 2019 financial year, an increase of EUR 6.6 billion or 46.4% compared to the previous year’s figure. According to the rankings drawn up by Deutsche Börse AG, the company placed first in the MDAX at the end of December in terms of its free float market capitalisation and ninth by trading volume.
The Executive Board and the Supervisory Board intend to propose to the Annual General Meeting on 6 May 2020 that a dividend of EUR 4.00 plus a special dividend of EUR 1.50 per share should be distributed. The total dividend of EUR 5.50 would thus be EUR 0.25 higher than the previous year’s dividend. As was also the case in the previous years, the special dividend will be paid as a capital management measure because the company’s capitalisation continues to exceed the required level. Based on the year-end closing price, this produces a dividend yield of 3.2%.
The Annual General Meeting of Hannover Rück SE was held on 8 May 2019 at Hannover Congress Centrum (HCC) in Hannover. Altogether, including postal ballots, around 82% of the share capital was represented.
Following the Annual General Meeting the constituent meeting of the Supervisory Board was held in its new composition. Torsten Leue, Chief Executive Officer of Talanx AG, was elected as the new Chairman of the Supervisory Board. He succeeds Herbert Haas, who had chaired the Supervisory Board since 5 May 2009. Mr. Haas has since continued to serve as a member of the Supervisory Board. All voting results and the attendance were published on the company’s website following the Annual General Meeting.
Along with traditional financial considerations, so-called non-financial or ESG (environmental, social and governance) key performance indicators are coming to play an increasingly important role in the evaluation of companies on the capital market. In the financial year just ended, therefore, Hannover Re again reported on these non-financial efforts undertaken as a responsible enterprise. Publication took the form of the non-financial information statement that forms an integral component of the Group management report as well as an extensive, stand-alone sustainability report compiled in accordance with the internationally recognised reporting standards of the Global Reporting Initiative (GRI). Based on this information, the company’s sustainability performance was assessed by multiple rating agencies, including MSCI, FTSE4Good, Sustainalytics, ISS-oekom, VigeoEiris and the Carbon Disclosure Project (CDP).
Market capitalisation at year-end in EUR million 20,778.9 14,194.3 12,650.6 12,397.4 12,741.1
Equity attributable to shareholders of Hannover Rück SE in EUR million 10,528.0 8,776.8 8,528.5 8,997.2 8,068.3
Earnings per share (basic and diluted) 10.65 8.79 7.95 9.71 9.54
Return on equity (after tax) 4 13.3% 12.2% 10.9% 13.7% 14.7%
Price-to-cash flow (P / CF) ratio 8 8.3 6.4 7.5 5.3 4.1 1 Xetra daily closing prices from Bloomberg 2 Proposed dividend 3 Dividend of EUR 4.00 plus special dividend of EUR 1.50 for 2019, dividend of EUR 3.75 plus special dividend of EUR 1.50 for 2018, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017 and 2016 and dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015 4 Earnings per share / average of book value per share at start and end of year 5 Dividend per share / year-end closing price 6 Year-end closing price / book value per share 7 Year-end closing price / earnings per share 8 Year-end closing price / cash flow (from operating activities) per share
We generate competitive advantages to the benefit of our clients and shareholders by conducting our reinsurance business with lower administrative expenses than our rivals. In this way we deliver above-average profitability while at the same time being able to offer our customers reinsurance protection on competitive terms.
Guided by a clearly defined risk appetite, the Executive Board steers the company using risk management techniques so as to be able to act on business opportunities while securing our financial strength on a lasting basis.
In the Property&Casualty reinsurance business group we consider ourselves to be a reliable, flexible and innovative market player that ranks among the best in any given market. Cost leadership, effective cycle management and superlative risk management are the key elements of our competitive positioning.
EUR 439 million 1 Annual average growth, otherwise weighted averages 2 Excluding effects from ModCo derivatives 3 After tax; target: 900 basis points above the five-year average return on ten-year German government bonds 4 Growth in the economic equity including dividend paid
Management by Objectives The key indicators from the target matrix are integrated into the individual agreements on objectives with managers. When it comes to the definition of objectives, the participants take into account not only standardised financial indicators but also non-financial variables derived from the strategic parameters.
Management Reporting The annual Management Reporting presents in detail the respective degree of target attainment for each individual treaty / regional department and service unit as well as for the two business groups of Property & Casualty and Life & Health reinsurance and for the Group as a whole. On this basis appropriate performance controlling is carried out, potential scope for improvement and refinement is identified and performance -oriented remuneration components defined in the context of Management by Objectives are established.
IVC – the strategic management ratio In order to manage the portfolios and individual treaties we apply underwriting-year-oriented measurement principles based on expected cash flows that appropriately accommodate the specific characteristics of property & casualty and life & health reinsurance. The attainment of targets in a particular financial year is also of interest – especially from the standpoint of shareholders. Based on our economic measurement according to Solvency II principles and our internal capital model, the foundation of our enterprise management, we strive to generate a profit in excess of the cost of capital. This return – which is the decisive ratio for the management of our business activities – is referred to as Intrinsic Value Creation (IVC).
A number of IFRS-based financial performance indicators are also embedded in our strategic system of targets and coordinated with our parameters for value creation derived from the internal capital model. We use these indicators for operational management within the year, in part because they are available promptly and also because they already provide initial pointers as to whether we are likely to achieve our higher -order strategic objectives. These are for both business groups the growth in gross premium, for property and casualty reinsurance the combined ratio, for life and health reinsurance the EBIT growth and for the Group as a whole the return on investment. Non-financial performance indicators, on the other hand, are not used for operational management within the year.
Research and development Exploring market trends and developing innovative products are tasks assigned to the individual market units at Hannover Re. In addition, business opportunities and innovations that cut across markets and segments are coordinated by the “Regulatory Affairs and Innovation” team and pursued by means of interdisciplinary projects in which various market and service units participate. In this way, we develop products and solutions that deliver value added both for Hannover Re and for our clients. By way of example, our move to give capital market players direct access to insurance risks as far back as the mid-1990s through our “K” transactions puts us among the industry pioneers. The intervening years have seen the subsequent evolution of a market for so-called insurance -linked securities, which is one of the fastest growing markets in the insurance sector.
Another example of Hannover Re’s development activities is our own internal model for risk management under Solvency II that caters to the requirements of various stakeholders (regulators, rating agencies, capital providers) and was one of the first in Europe to be approved by a national financial regulator (Federal Financial Supervisory Authority = BaFin). Not only that, through our active involvement and the provision of financial assistance we support scientific initiatives geared to developing products, solutions or markets that will be crucial success factors going forward in the viability of any reinsurance undertaking. Over the past four years we have launched and held two ideas competitions in which we opened up new business opportunities on both the primary and reinsurance side.
Reinsurance business is founded on the comprehensive understanding and active management of risks. Our specialists therefore continuously analyse known risks with an eye to changes in their structure and probability of occurrence, while at the same time focusing on the early detection of newly emerging risks and working to provide our clients with appropriate solutions tailored to their needs. Above and beyond this, Hannover Re makes systematic efforts to identify new business opportunities in order to achieve sustainable growth and strengthen the profitable development of the company.
In 2018 a sizeable cyclical gap had opened up between the advanced economies: a sharp rise in output in the United States, on the one hand, contrasted with softer expansion in the Eurozone and Japan, on the other. These differences in economic momentum narrowed during 2019. While the pace of expansion in the United States flagged, among other things as fiscal stimuli petered out, it remained stable in the Eurozone. Manufacturing in Japan and the United Kingdom ultimately even began to pick up again.
Emerging market economies saw a broadly muted development overall. One reason here was that these countries increasingly came under pressure from financial markets: international investors withdrew capital on a substantial scale, even triggering recessions in Argentina and Turkey. While the financial framework conditions improved at the end of the year, the economic slowdown in advanced economies at the same time had a restraining effect on demand.
United States The US economy is experiencing its longest upswing in recent history. Following the vigorous increase in manufacturing output in the previous year, however, economic activity slowed appreciably in the course of the year under review. Gross domestic product grew by 2.3% according to the IfW and was thus 0.6 percentage points lower than in 2018 (2.9%). While the slowdown in capital spending was especially notable, exports also showed a softening tendency and consumer demand – which had hitherto been very robust – similarly lost momentum. Yet this did not affect domestic employment: the jobless rate retreated to 3.5% in November, the lowest level since 1969.
Europe The decline in the Eurozone growth rate was halted in the course of 2019: according to the IfW, gross domestic product began to grow again in the third quarter thanks to reinvigorated private consumption and stronger exports. Over the year as a whole, though, growth still came in 0.7 percentage points lower than in 2018 at 1.2%. Looked at in terms of individual countries, some softening was particularly evident in the hitherto very robust economies of the EU Member States in Central and Eastern Europe. The growth rate for Poland, for example, retreated from 5.1 to 4.3%. Unemployment in the Eurozone nevertheless tended to move lower despite the muted trend in manufacturing output. Standing at 7.5% in October, it was only marginally higher than the existing all-time low of 7.3% from 2007. The increase in the harmonised index of consumer prices was down 0.5 percentage points yearon -year at 1.2%.
In a climate of uncertainty surrounding what form Brexit would take, the United Kingdom’s economy grew by 1.3% – a pace that was only slightly slower than in the previous year. The UK labour market similarly proved to be exceptionally resilient: the jobless rate remained at the historically low level of 3.7%.
At the European Central Bank, on the other hand, there is no end in sight to the expansionary monetary policy. The ECB did not hold out any prospect of an increase in key interest rates for the foreseeable future. Such a move will only be made when inflation expectations once again clearly approach the target of just below 2%. Given the depletion of monetary policy tools and in view of the gloomy growth and inflation outlook, calls for fiscal measures are nevertheless now growing louder.
After the softer period experienced at the close of the previous year, major equity markets posted considerable gains once the year under review got underway. The policy reversal by the US Federal Reserve in favour of monetary easing provided vital impetus here. Even recurring worries about the stability of the global economy that bubbled up from the middle of the year onwards only briefly put the brakes on this soaring performance. Emerging markets equities – which had similarly come under pressure in 2018 – also rallied appreciably, but their performance fell short of that seen in the industrial nations. The trade dispute between the United States and China, the somewhat fragile state of the global economy and weaker demand for raw materials were all factors here.
The euro softened against the US dollar just as it had in the previous year, falling from USD 1.15 to USD 1.12. The euro similarly retreated against pound sterling after the strong gains posted in prior years, slipping from GBP 0.90 to GBP 0.85. The Australian dollar gained ground slightly against the euro, hardening from AUD 1.62 to AUD 1.60.
The international (re)insurance industry was once again faced with a challenging environment in 2019.
In Europe a comprehensive review of the Solvency II Directive by the European Commission is planned for 2020. Against this backdrop, the European Commission instructed the European Insurance and Occupational Pensions Authority (EIOPA) to review large parts of Solvency II and submit its recommendations by mid-2020. EIOPA began the review of reporting requirements in July 2019.
In November 2019 the International Association of Insurance Supervisors (IAIS) adopted a package of reforms for the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs), including an Insurance Capital Standard Version 2.0, and for the mitigation of systemic risks in the insurance sector. A particularly significant milestone here was the implementation of the Insurance Capital Standard (ICS). The ICS is the first global, risk-based capital standard for IAIGs. It precisely specified which entities fall under the supervision and rules of the ICS; according to the BaFin, there are currently three such insurance groups in Germany and 70 worldwide.
The planned adoption of the new international accounting standard IFRS 17 by the International Accounting Standards Board (IASB) continued to be an important concern in the year under review. IFRS 17 will replace the interim standard IFRS 4, which has been in force since 2005, and is intended to make it easier to compare insurers through a consistent worldwide basis for the recognition of insurance contracts. The new financial reporting standards will likely come into effect starting 1 January 2022, although they are only mandatory for the consolidated financial statements of capital-market -oriented insurance companies. The requirement to apply the financial instruments standard IFRS 9 will enter into force at the same time, with the result that all insurers will have to apply IFRS 9 and IFRS 17 simultaneously from 2022 onwards.
In the United Kingdom the industry was affected in the year under review by the further change in the rate used for discounting compensation payments in connection with personal injury claims (Ogden rate) from minus 0.75% to the current level of minus 0.25%. Although the new discount rate is higher than the previously applicable factor, the assumption of lower annual investment returns still means larger lump sum payments have to be made. Many insurers had expected the rate to be raised to 0% – 1%, and hence the increase and the improvement for insurers and reinsurers alike proved to be less significant than anticipated.
The issue of sustainability has increasingly come into focus for political institutions and businesses over the past few years. Back in 2017 a CSR Directive was already adopted in the European Union requiring publically traded companies as well as banks and insurers with more than 500 employees to publish a statement containing non-financial information. The disclosures cover environmental, employee and social matters as well as human rights and combating corruption. The BaFin similarly attaches increasing importance to this topic. In 2019, for example, it published a “Guidance Notice on Dealing with Sustainability Risks” in which it urges the financial sector to make conscious efforts to tackle the risks associated with climate change. More broadly speaking, it must in any case be anticipated that the financial industry within the European Union will pay much closer attention to sustainability considerations.
Furthermore, the investment income on the Group level was boosted by higher ordinary income booked from fixed- income securities and sharply higher net realised gains. The return on investment of 3.4% beat our minimum target, which we had raised to 3.2% (excluding effects from ModCo derivatives) in November.
Hannover Re’s equity position – which is very robust measured in terms of the solvency ratio comfortably in excess of threshold levels – was further expanded in the financial year just ended. The equity attributable to shareholders of Hannover Re rose to EUR 10.5 billion (EUR 8.8 billion) as at 31 December 2019. Despite the sharp increase in shareholders ’ equity, the return on equity improved again to 13.3% (12.2%). The book value per share reached EUR 87.30 (EUR 72.78). Thanks to the favourable development of our business in the year under review, we were able to achieve and in some cases even substantially outperform all the forecasts shown in the following table “Business development in the year under review”.
The total policyholders’ surplus, consisting of shareholders’ equity, non-controlling interests and hybrid capital, amounted to EUR 13.6 billion (EUR 11.0 billion) as at 31 December 2019. The increase was supported inter alia by the issuance of a subordinated bond.
A more detailed overview of the development of our two business groups – Property & Casualty reinsurance and Life & Health reinsurance – and the performance of our investments is provided on pages 37 to 56.
Gross premium growth (Group) Gross premium growth in the single-digit percentage range / of around 10% 1, 2
+15.2% at constant exchange rates +17.8% not adjusted for currency effects
Gross premium growth for Life & Health reinsurance moderate growth 1, 3 +6.7% at constant exchange rates +8.6% not adjusted for currency effects
Group net income > EUR 1.1 billion 5 / > EUR 1.25 billion 2 EUR 1,284.2 million 1 At constant exchange rates 2 In the context of publication of the quarterly statement as at 30 September 2019 the guidance for gross premium growth (Group) was raised to more than 10%, the expected return on investment to at least 3.2% and the expected Group net income to more than EUR 1.25 billion. 3 Organic growth only 4 Excluding ModCo derivatives 5 Assuming stable capital markets and / or major loss expenditure in 2019 that does not exceed EUR 875 million
In our second major business group, Life & Health reinsurance, we were again able to act on promising business opportunities in international markets, for example by providing protection for longevity risks and tailored coverage solutions.
The management actions taken in the previous year to improve profitability in the in-force US mortality portfolio also had an impact.
Our investments delivered another very pleasing contribution to the Group result, supported by one-time income from the revaluation of a participating interest.
Hannover Re’s shareholders’ equity increased further in the course of the financial year and constitutes the foundation for our superb positioning as one of the largest and most financially robust reinsurers in the world. At the time of preparing the management report, it remains the case that both the business position of the Group and its financial strength can be assessed as very good. Within the framework of our Group strategy we determine our necessary equity resources according to the requirements of our internal capital model, solvency regulations, the expectations of rating agencies for our target rating and the expectations of our clients and shareholders. With this in mind, the Executive Board and Supervisory Board will propose to the Annual General Meeting that a dividend of EUR 5.50 per share should be paid. The distribution consists of an ordinary dividend of EUR 4.00 per share and a special dividend of EUR 1.50 per share.
Rest of Europe 10.3 % United Kingdom 38.3 % North America
Accounting for 65% of our total premium volume, Property & Casualty reinsurance is Hannover Re’s largest business group.
In the treaty renewals as at 1 January 2019 we enjoyed stronger demand from both existing and new customers and – thanks to our good position in the market – we generated pleasing growth at adequate conditions. It was at this point in the year that we renegotiated roughly 66% of our portfolio in property and casualty reinsurance (excluding facultative business and structured reinsurance).
While the price increases in January were for the most part still restricted to loss-affected programmes, in the course of subsequent renewals held during the financial year we discerned a broader-based, modest improvement in prices and conditions for reinsurance protection for the first time in years. On the primary insurance side, slight price increases could similarly be observed in many markets as the year progressed, which in some cases were similarly reflected in reinsurance business. Looked at in absolute terms, however, the
Breakdown of proportional and non-proportional treaties by volume in % and in EUR million
As one of the leading reinsurers in the world, Hannover Re continued to benefit in the renewal negotiations from its long-standing, stable customer relationships, its very good financial strength and the sustained trend among insurers towards consolidation of their reinsurance partners.
The most expensive catastrophe loss in the year under review was hurricane Dorian, for which we have paid or reserved a net amount of EUR 194.7 million for our clients. A net strain of EUR 183.8 million is anticipated for typhoon Hagibis in Japan, while typhoon Faxai is likely to cost EUR 83.8 million for our account. We expect to incur a net loss of roughly EUR 85.7 million in connection with the insolvency of UK travel operator Thomas Cook. Our total net major loss expenditure thus came to EUR 956.1 million (EUR 849.8 million) and exceeded our large loss budget of EUR 875 million. For a detailed list of our large losses please see page 105.
The underwriting result including interest and expenses on funds withheld and contract deposits decreased to EUR 235.4 million (EUR 372.8 million). The combined ratio deteriorated to 98.2% (96.5%) and was thus higher than our maximum target of 97% for the financial year. The primary factors here were the considerable losses incurred in the financial year and belated claim notifications received for prior-year losses.
On the following pages we report in detail on developments in our Property & Casualty reinsurance business group. This is split into a number of reporting categories, which are grouped together thematically and in each case allocated to one member of our Executive Board. By way of example, our company allocates Spain to the reporting category of Latin America. Given that we write the bulk of our agricultural covers in Latin America, we similarly allocate such business to this reporting category.
Key figures for Property & Casualty reinsurance M 11 in EUR million year
Earnings per share in EUR 7.23 -6.2% 7.70 6.94 7.88 7.58 1 Operating result (EBIT) / net premium earned 2 Including expenses on funds withheld and contract deposits
Property & Casualty reinsurance: Major loss trend 1 in EUR million M 12
Latin America, Iberian Peninsula and Agricultural Risks 771.3 16.0% 665.0 34.3 101.8% 95.3% 119.0 87.0%
United Kingdom, Ireland and London Market 731.0 -16.1% 871.5 48.4 104.3% 96.7% 30.3 111.5%
Structured Reinsurance and Insurance-Linked Securities 3,603.7 23.2% 2,926.1 104.0 98.3% 99.1% 129.3 97.7%
Credit, Surety and Political Risks 789.6 6.2% 743.2 104.6 93.8% 95.4% 155.0 85.8%
Regional markets North America The North American (re)insurance market is the largest single market in the world. Within our business group of Property & Casualty reinsurance North America is also our highest-volume region. Our business here is written largely through brokers.
The healthy sustained growth enjoyed by the US economy in 2019 had positive implications for the premium growth booked by primary insurers. Altogether, the increase in premium was in the mid-single-digit percentage range.
The most appreciable rate increases in the primary market were seen in industrial property business. Nevertheless, lines that had performed particularly inadequately in recent years – such as general liability, motor liability or directors’ and officers’ insurance – also showed positive tendencies in the year under review. At the end of the year, the rates for loss-affected treaties moved significantly higher in light of further natural disasters such as hurricane Dorian and a fresh outbreak of wildfires in California.
The renewals in North America passed off especially successfully for our company. The rate level here rose by at least single digits in all lines except for workers compensation, with clear double-digit percentage increases recorded in areas that had suffered losses.
The bulk of our activities in North America are conducted in liability and property business. In liability business we secured further rate increases, enabling us to expand our business volume. Selective growth was also booked again in the area of cyber covers, where growing demand was evident in response to loss events and regulatory changes.
Property & Casualty reinsurance: Gross premium in North America by lines of business
Latin America, Iberian Peninsula and Agricultural Risks The region of Latin America experienced considerable unrest in the second half of the year affecting Chile as well as countries such as Ecuador, Bolivia and Colombia. Not only did this lead to significant losses on both the primary and reinsurance side in countries that had previously enjoyed political stability, it also resulted in a slowdown in economic growth. In view of the increased exposure associated with risks that were not to date a central concern for reinsurers, there is now a need for substantial adjustments in the (re)insurance sector – especially when it comes to the assessment of political risks and the pricing of corresponding covers.
Even though we anticipate slower economic growth due to the unrest in this region, demand will continue to rise over the long term – especially in the case of catastrophe-exposed business. Hurricane Dorian caused considerable losses and
C om b in ed m an ag em en t re p or t damage in the Caribbean in 2019. Taken together with the series of windstorm events in the preceding two years, natural disasters such as these underscore the necessity of rate adjustments on the (re)insurance market.
The increasingly widespread implementation of public-private partnerships, not only in emerging and developing economies, presents new opportunities for our company to write profitable business in markets that have still to mature. In Europe, too, the unusually dry summers of 2018 and 2019 prompted new discussions around the subject of crop insurance. Among other things, there has been talk of government -funded drought insurance. By drawing on our technical know-how we assist our customers around the world with the development and implementation of innovative insurance products.
The gross premium volume in the reporting category Latin America, Iberian Peninsula and Agricultural Risks rose by 16.0% to EUR 771.3 million (EUR 665.0 million). The combined ratio amounted to 101.8% (87.0%). The operating profit (EBIT) decreased to EUR 34.3 million (EUR 119.0 million ).
Germany, Switzerland, Austria and Italy Responsibility for the German market within the Hannover Re Group is assigned to our subsidiary E+S Rückversicherung AG. As the “dedicated reinsurer for Germany”, E+S Rück is a sought-after partner thanks to its very good rating and the continuity of its business relationships and it is one of the market leaders in property and casualty reinsurance in its domestic market.
The need for remedial action in industrial lines was increasingly met through adjustments to the scope of coverage and premium increases. In motor insurance the premium adjustments made to date were not sufficient to offset the rising costs of spare parts and repairs; at the same time, though, we noted a further decline in claims frequencies, as a consequence of which expenditures for claims remained broadly unchanged.
E+S Rück estimates that the original market for property and casualty insurance grew by around 3% in the financial year just ended, hence keeping up the pace of the previous year.
Property & Casualty reinsurance: Gross premium in Germany, Switzerland, Austria and Italy by lines of business
The further change in the discount rate used to calculate lump-sum compensation payments for personal injuries (“Ogden rate”) posed a special challenge. Although the new discount rate was raised relative to the previously applicable factor, it was still negative. The assumption of lower annual investment returns means larger lump sum payments have to be made in the event of a claim. Not only that, the increase was less than had been anticipated by insurers and reinsurers. Prior to the adjustment in the third quarter reinsurance programmes with coverage for personal injuries had seen stable prices or in some instances modest rate reductions because many market players had expected a more substantial increase in the Ogden rate.
Our portfolio remained largely stable in 2019. The reinsurance renewals, which for the most part came up in the first quarter, took place on a stable price level with unchanged conditions. In motor business we were not willing to make pre-emptive concessions in anticipation of an adjustment to the Ogden rate. In other business, too, depending on the profitability of the treaty relationship we were only prepared to renew our shares at stable or improved prices.
The gross premium volume for the United Kingdom, Ireland and London Market fell by 16.1% to EUR 731.0 million (EUR 871.5 million). The combined ratio amounted to 104.3% (111.5%). The operating profit (EBIT) rose to EUR 48.4 million (EUR 30.3 million).
Continental Europe and Africa In the reporting category Continental Europe and Africa we bring together France, Benelux, the Nordic countries, Eastern Europe, Israel, Turkey, Greece and Cyprus, Malta, the Maghreb countries and French-speaking sub-Saharan Africa.
It was apparent here in the financial year just ended that industrial insurers were concentrating more heavily on covers for smaller and mid-sized enterprises. Where primary insurance covers for large customers were concerned, on the other hand, a sharper focus on technical income took hold in the market. In general terms, significant competitive pressure and sustained modest growth in gross premium could be observed both in the insurance of small and mid-sized companies and in retail business.
Growth rates in the countries of Central, Eastern and Southern Europe were still stronger than the European average. This was true of both the primary and reinsurance market. Business on the reinsurance side continued to be shaped by
On the whole, we were not entirely satisfied with the premium development and rate movements in Continental European markets. By building on long-established customer relationships with both larger and smaller companies, we were nevertheless able to selectively expand our position in the market.
The South African economy suffered under extremely minimal growth in the year under review. The power supply crisis that worsened dramatically towards the end of 2019 was an additional factor here. This climate is also taking a toll on insurers and reinsurers, especially when it comes to growth and dealing with fraudulent claims. In the context of this challenging landscape our result was highly satisfactory.
Our participations in insurance start-ups in South Africa gave continuing grounds for satisfaction in the year under review. InvestSure, a company which our participating interest Lireas holds in its portfolio, was chosen as one of the 100 most promising insurtechs in the world and will expand into international markets in 2020. InvestSure protects private investors by insuring their listed shares against losses arising out of the deceptive or misleading acts of a company’s management.
Asia, Australia and the Middle East Insurance and reinsurance markets alike in the Asia-Pacific region were impacted by windstorm events with devastating losses in some instances. Most notably, typhoons Hagibis and Faxai caused extensive insured storm and flood damage in Japan. The large losses of prior years and substantial additional reserves that had to be set aside in some cases, especially for typhoon Jebi, have already had appreciable effects on demand for reinsurance capacities. We modestly expanded our market position in Japan in light of the general environment described above.
Our short decision channels and local branches equipped with appropriate decision-making powers constitute the basis for successfully expanding our market shares in the region. We remain committed to profit-oriented growth in this fiercely competitive part of the world.
In India we operate as a local reinsurer and continued to share in the promising growth opportunities offered by this country. Outside of agricultural insurance, however, business on the Indian subcontinent remained difficult.
Insurance markets in the Middle East continued to post dynamic growth rates. Government spending and the price of oil were significant factors influencing the market as a whole. The marked improvement in the region’s regulatory environment had a positive effect. This will likely drive the spread of insurance covers and open up a wide range of opportunities for the broader reinsurance market. While the inflow of international underwriting capacities continued unabated, the growing political tensions in the region affected business indirectly and put the brakes on economic growth.
The gross premium volume in Asia, Australia and the Middle East surged by a substantial 27.2% to reach EUR 1,664.0 million (EUR 1,308.1 million). The combined ratio amounted to 96.4% (94.9%). The operating profit (EBIT) grew to EUR 174.4 million (EUR 155.0 million).
Global lines Structured Reinsurance and Insurance-Linked Securities In the Structured Reinsurance and ILS reporting category we combine our business involving tailor-made property and casualty reinsurance solutions and insurance-linked securities (ILS).
In structured reinsurance we rank as one of the largest providers in the world. In this area we assist our clients with their capital management and offer innovative tailored reinsurance solutions. These provide solvency relief and thus have a positive effect on the client’s rating or protect against the strain of frequency losses.
We see further opportunities to grow this business not only in North America and Europe but also in Asia. The purchasing habits of many customers have shifted quite recently towards holistic reinsurance solutions. This trend shows no signs of easing and will result in more and more clients seeking complex structured contractual arrangements. Given that this business is generally based on large-volume transactions, premium income in structured reinsurance can fluctuate sharply.
Hannover Re leverages the entire spectrum of opportunities offered by the insurance-linked securities market. On the one hand, we take out reinsurance with ILS investors, while at the same time we transfer risks for our customers to the capital market as a service. This is done in the form of catastrophe bonds or through collateralised reinsurance, under which our partners on the investment side are primarily specialised ILS funds. We also invest ourselves in catastrophe bonds.
In collateralised reinsurance business we continued to step up our cooperation with selected fund managers and in so doing generated attractive margins. In addition, we were able to substantially expand the transfer of life reinsurance risks to the capital market.
The heavy natural catastrophe losses of 2017, 2018 and 2019, an adverse development affecting individual large losses from older underwriting years and a sizeable number of man-made losses led to substantial capacity shortages in the course of 2019. This went hand-in-hand with significant improvements in conditions. Demand for facultative reinsurance solutions increased appreciably in the year under review – a trend which could be observed globally and encompassed virtually all lines of business.
The greater decentralisation of our underwriting activities in recent years has enabled us to significantly strengthen our customer relationships. Hannover Re is increasingly and actively sought after as a reinsurance partner.
The gross premium for the Credit, Surety and Political Risks reporting category increased in the financial year by 6.2% to EUR 789.6 million (EUR 743.2 million). The combined ratio amounted to 93.8% (85.8%). The operating profit (EBIT) fell to EUR 104.6 million (EUR 155.0 million).
The positive tendencies on the reinsurance side actually gained added impetus from mid-2019 onwards. This was primarily driven by the significant strains on proportional and especially no-proportional reinsurance treaties from two crashes in 2018 and 2019. Particularly in the case of loss- affected non-proportional treaties, it was possible to obtain substantial price increases. Despite these improvements, the excess-of-loss market has still to find an adequate level overall and consequently prices still to be adjusted higher. With this in mind, Hannover Re continues to adhere to its disciplined underwriting policy.
The market for covers in marine business appears at least to some extent to have bottomed out in 2019 after several years of intensified competition. A notable feature of marine business in the year under review was the significantly increased influence exerted by the Lloyd’s insurance market. Responding to the consistent deficits posted in some marine lines, Lloyd’s set growth limits for individual members or reduced their underwriting capacity. In some instances this resulted in closures in certain segments or indeed of specialised syndicates, giving rise to capacity shortages and a hardening of primary insurance conditions. This was especially striking in cargo insurance and yacht business.
The aforementioned changes on one of the most important international marketplaces for marine insurance led to risks being placed at higher prices and with more restrictive coverage or prompted the affected customers to purchase insurance protection in local markets.
Offshore energy business experienced another year of below -average losses. Substantial surplus capacities were still a hallmark of the segment.
In view of our market position as one of the world’s leading marine reinsurers, we were successful in expanding existing customer relationships and acquiring new clients despite the challenging environment. In a parallel move, we scaled back loss-making business, giving rise to a solid and profitable core portfolio overall.
Catastrophe XL (Cat XL) We write the bulk of our non-proportional catastrophe business in Bermuda, the worldwide centre of competence for this segment. In the interest of diversifying the portfolio, our subsidiary Hannover Re (Bermuda) Ltd. also writes risks in some specialty lines.
While our major loss expenditures in the first six months came in below our expectations, the second half of the year brought another accumulation of costly catastrophic events. In addition to losses caused by typhoons in Japan and hurricanes in the Caribbean and United States, the industry was impacted by increasing costs for prior-year losses – in particular for typhoon Jebi and for hurricane losses in Florida.
The gross premium volume for our global catastrophe business grew by 22.3% to EUR 591.0 million (EUR 483.4 million ). The combined ratio deteriorated to 105.0% (92.7%). The operating profit (EBIT) declined to EUR 36.2 million (EUR 62.5 million).
• Gross premium volume rises by 6.7% adjusted for exchange rate effects • Sustained strong worldwide demand for financial solutions • Growing international interest in longevity solutions • Improved profitability in legacy US mortality portfolio after steps taken in previous year • Extraordinary investment income booked from revaluation of a participation • Segment result improves substantially to EUR 471.6 million
Key figures for Life & Health reinsurance M 26 in EUR million 2019 + / – previous year
Earnings per share in EUR 3.91 +153.7% 1.54 1.43 2.10 2.40 1 Restated pursuant to IAS 8 2 Operating result (EBIT) / net premium earned
Total gross written premium in the Life & Health reinsurance business group climbed by 8.6% to EUR 7,816.4 million (previous year: EUR 7,200.4 million); at constant exchange rates the increase would have been 6.7%, coming in slightly ahead of our anticipated growth in the range of 3% to 5%. The level of retained premium stood at 89.5% (90.7%). Net premium earned increased by 6.9% to EUR 6,931.9 million (EUR 6,484.8 million), corresponding to growth of 5.1% adjusted for exchange rate effects.
The underwriting result including interest and expenses on funds withheld and contract deposits deteriorated to EUR -244.7 million (EUR -215.8 million). Key factors here, among others, were the Australian disability income portfolio and effects in financing business. Investment income, on the other hand, delivered a highly gratifying performance. This was boosted by one-time earnings of EUR 99.5 million booked from the release of hidden reserves to income which had been necessitated by restructuring of our participating interest in the Viridium Group. In this connection, the share held by Hannover Re remained unchanged. Altogether, the investment income for the business group grew by 39.2% to EUR 684.5 million (EUR 491.8 million).
We provide below a more detailed discussion of developments in the individual reporting categories of “Financial Solutions”, “Longevity Solutions” and “Mortality and Morbidity Solutions” as well as an overview of the extensive support that we provide as part of our “Underwriting Services”.
Financial Solutions In the Financial Solutions reporting category, we concentrate on reinsurance solutions geared to optimising the solvency, liquidity and capital position of our customers. Our reinsurance solutions in this segment are highly diverse and individually structured because they are always tailored to the customer’s specific needs. Given that the customer’s primary motivation here is not exclusively to secure coverage for biometric risks, a hallmark of such solutions is that they also seek to deliver financial and regulatory benefits.
The United States has traditionally been an exceptionally important insurance market for our financial solutions business. Our US business in this segment developed favourably in the year under review and played a considerable part in the total result.
Gross premium income in the Financial Solutions reporting category climbed by 5.7% to EUR 980.9 million (EUR 928.2 million), accounting for a share of 12.5% of total gross premium in life and health reinsurance. The operating result (EBIT) increased by 24.3% to EUR 397.0 million (EUR 319.4 million ). Furthermore, financial solutions delivered another appreciable EBIT contribution from contracts with a reduced risk transfer. This good development is not reflected in gross premium growth because no premium is booked owing to the minimal risk transfer. The income generated from such contracts in an amount of EUR 287.5 million (EUR 198.0 million) is recognised in other income/expenses.
Longevity Solutions In the Longevity Solutions reporting category, we group together all reinsurance business where the primary risk covered is the longevity risk. We develop innovative annuity products tailored to the individual needs of policyholders in various life situations. The bulk of our longevity solutions consists of traditional annuity policies, pensions blocks taken out for new business and enhanced annuities – under which pensioners with a pre-existing condition are guaranteed a higher annuity payment for their remaining shortened life expectancy. The United Kingdom continues to be our largest and most mature market for protection against longevity risks.
Morbidity Solutions Within the Morbidity Solutions reporting category, we cover business centred around the risk of deterioration in a person ’s state of health due to disease, injury or infirmity. A hallmark of this business is the wide range of possible combinations of different covered risks, including for example strict (any occupation) disability, occupational disability and various forms of long-term care insurance.
Interest in the issue of long-term care insurance in old age continues to grow in many industrial nations. In Germany, for example, we are consistently expanding our range of solutions as part of an ongoing dialogue with our customers. Our morbidity business also fared exceptionally well in Asia, with China once again the most dynamic growth market in the year under review. Most notably, we were able to substantially expand our critical illness business.
The gross premium for our total Mortality and Morbidity Solutions business rose by 11.3% to EUR 5,561.3 million (EUR 4,996.0 million). The operating result (EBIT) for the two reporting categories improved to EUR 144.0 million (EUR -49.1 million).
Underwriting Services Under the heading of Underwriting Services we report on the activities and services that we perform for our customers above and beyond pure risk transfer. Our automated underwriting systems under the “hr | ReFlex” and “hr | Quirc” brands and the associated process automation for our customers are a major feature in this regard.
In the financial year just ended, we successfully implemented our hr | ReFlex underwriting system at customers in Scandinavia, France, Germany and the United States.
The roll-out of our innovation platform “hr | equarium” also got off to an extremely successful start. On the one hand, this online platform enables our customers to access a wide range of insurance-specific products and solutions. At the same time, it opens up access for providers – frequently insurtechs and other start-ups – to our global client network. At this stage we have brought together more than 1,100 users on the platform as well as some 100 solutions – ranging from a digital health platform through applications based on artificial intelligence and real-time flood models to a software protocol for data verification.
• Another very good investment performance with stable ordinary income despite the challenging environment
• Income further boosted by alternative investments and real estate • Income from assets under own management rises by 17.3% • Return on investment reaches 3.4% and clearly beats target
The low interest rates will, however, make it more difficult to (re)invest in fixed-income securities at adequate returns going forward. In the year under review the further – in some cases marked – decline in interest rates and risk premiums on corporate bonds in our main currency areas nevertheless led to a sizeable increase in the hidden reserves on fixed-income securities.
Impairments and depreciation totalling EUR 80.6 million (EUR 52.7 million) were taken. An impairment loss was recognised on alternative investments in the amount of EUR 23.9 million (EUR 15.3 million) and on directly held real estate in the amount of EUR 8.5 million (EUR 0.3 million). Write-downs on fixed-income securities amounted to just EUR 0.1 million (EUR 0.5 million) together with a further EUR 6.9 million for a loan. Depreciation on directly held real estate increased to EUR 36.7 million (EUR 34.0 million), reflecting the further expansion of our involvement in this sector. These writedowns were not opposed by any write-ups (EUR 3.6 million).
Change in fair value of financial instruments 3 72.9 +133.8% 31.2 38.6 26.1 0.9
Net investment income from assets under own management 1,550.6 +17.3% 1,322.0 1,539.0 1,218.3 1,270.1
Our portfolio of assets under own management amounted to EUR 47.6 billion, a level significantly higher than at the end of the previous year (31 December 2018: EUR 42.2 billion). Along with the positive operating cash flow, this reflects the issuance of a bond in the third quarter and above all the sharp valuation increases on fixed-income securities as a consequence of lower interest rates and risk premiums on corporate bonds. We adjusted the allocation of our investments to the individual classes of securities in the reporting period in that we expanded the portfolio of bonds from the emerging markets sector. We also increased our holdings of high-yield and covered bonds. In this way we are responding to the ever more challenging search for an adequate risk/reward ratio in our reinvestment activities and when making new investments.
We further boosted our real estate portfolio as part of the strategic expansion of this asset category by acquiring four properties in the United States and Asia. In Eastern Europe we also acted on very attractive market opportunities to sell two properties. While our real estate portfolio thus increased slightly in volume overall, the real estate allocation dropped from 5.6% to 5.3% due to the larger total investment portfolio. In all other asset classes we made only minimal changes in the context of regular portfolio maintenance.
The portfolio of fixed-income securities excluding short-term assets rose to EUR 41.1 billion (EUR 36.5 billion). This increase can similarly be attributed not only to the positive operating cash flow but also to the issuance of a bond in the third quarter and above all the sharp valuation increases on fixed-income securities as a consequence of lower interest rates and risk premiums on corporate bonds. Hidden reserves for available-for-sale fixed-income securities, which are included in shareholders’ equity, totalled EUR 1,356.4 million (EUR 91.4 million). This increase also reflects the declining yields on government bonds and lower risk premiums on corporate bonds observed over the course of the reporting period.
As to the quality of the bonds measured in terms of rating categories, the proportion of securities rated “A” or better remained on a consistently high level and stood at 74.3% (78.4%) as at year-end.
At the end of the year under review we held a total amount of EUR 1.6 billion (EUR 1.5 billion) in short-term investments and cash. Funds withheld amounted to EUR 11.3 billion (EUR 10.9 billion).
Capital structure as at 31 December 2019 M 32 4.5 % Other liabilities 4.9 % Long-term debt and notes payable provisions and liabilities
A key strategic objective of Hannover Re is long-term capital preservation. We issued hybrid capital as an equity substitute in order to keep the cost of capital on a low level. The policyholders ’ surplus is an important management ratio in the context of Hannover Re’s comprehensive capital management. The total policyholders’ surplus is defined as follows: • shareholders’ equity excluding non-controlling interests, composed of the common shares, additional paid-in capital, other comprehensive income and retained earnings,
In its capital management Hannover Re is guided by the requirements and expectations of the rating agencies with an eye to its targeted rating. Furthermore, while making appropriate allowance for business policy considerations and factors that influence market presence, the allocation of capital to the Group’s operational companies is based upon the economic risk content of the business group in question. The Group companies are also subject to national capital and solvency requirements. All Group companies met the applicable local minimum capital requirements in the year under review. Adherence to these capital requirements is continuously monitored by the responsible organisational units on the basis of the latest actual figures as well as the corresponding planned and forecast figures. From the Group perspective we manage Hannover Re’s solvency extensively using our internal capital model (cf. “Opportunity and risk report”, page 92 et seq.).
In addition to the financing effect of the changes in shareholders ’ equity described above, debt financing on the capital market is a significant component of Hannover Re’s financing. It was essentially composed of bonds issued to ensure lasting protection of our capital base – in part also in observance of rating requirements. The total volume of long-term debt and notes payable stood at EUR 3,372.8 million (EUR 2,558.9 million) as at the balance sheet date.
Our bonds supplement our equity resources with the aim of reducing the cost of capital and also help to ensure liquidity at all times. As at the balance sheet date altogether five bonds had been placed on the European capital market through Hannover Rück SE and Hannover Finance (Luxembourg) S. A.
Amortised cost of our bonds M 35 in EUR million Issue date Coupon in % 2019 2018
Hannover Finance (Luxembourg) S. A. subordinated debt, EUR 500 million; 2010 / 2040 14.9.2010 5.75 499.6 499.3
Several Group companies have also taken up long-term debt – principally in the form of mortgage loans – amounting to EUR 395.0 million (EUR 323.2 million).
Various financial institutions have provided us with letters of credit for the collateralisation of technical liabilities. We report in detail on existing contingent liabilities in the notes, section 8.7 “Contingent liabilities and commitments”, page 264 et seq.
Liquidity We generate liquidity from our operational reinsurance business, investing activities and financing measures. Through regular liquidity planning and by managing the fungibility of our investments, we ensure that Hannover Re is able to make the necessary payments at all times. Hannover Re’s cash flow is shown in the consolidated cash flow statement on page 164 et seq.
Change in cash and cash equivalents according to cash flow statement (60.6) 315.8
Cash and cash equivalents at the end of the period 1,090.9 1,151.5
Thereof cash and cash equivalents at the end of the period excluding disposal group 1,090.9 1,072.9
Cash flow from investing activities The balance of cash inflows and outflows from operating activities and investing activities in an amount of EUR -2,709.4 million (EUR -2,075.2 million) was invested in accordance with the company’s investment policy, giving particular consideration to the matching of currencies and maturities on the liabilities side of the technical account. Regarding the development of the investment portfolio please see also our remarks at the beginning of this section.
Cash flow from financing activities The cash inflow from financing activities amounted to EUR 108.3 million (EUR 149.5 million) in the year under review. This item includes primarily the dividends paid out by Group companies in the financial year totalling EUR 687.3 million (EUR 657.7 million) and the receipts from issuance of a subordinated bond in a nominal amount of EUR 750.0 million.
Overall, the cash and cash equivalents therefore decreased year-on-year by EUR 60.6 million to EUR 1,090.9 million.
Hannover Rück SE subordinated debt, EUR 750 million; Hannover Rück SE senior bond, EUR 750 million; Hannover Rück SE subordinated debt, EUR 500 million; 2014 / undated A a+
Hannover Finance (Luxembourg) S. A. subordinated debt, EUR 500 million; Hannover Finance (Luxembourg) S. A. subordinated debt, EUR 500 million; Information pursuant to § 315a Para. 1 German Commercial Code (HGB)
The common shares (share capital) of Hannover Rück SE amount to EUR 120,597,134.00. They are divided into 120,597,134 registered no-par shares.
Hannover Re exercises the option to present a combined Group and company management report pursuant to § 315 Para. 3 of the German Commercial Code (HGB) in conjunction with § 298 Para. 3 of the German Commercial Code (HGB). Supplementary to the reporting on the Hannover Re Group, we discuss below the development of Hannover Rück SE.
The annual financial statement of Hannover Rück SE is drawn up in accordance with German accounting principles (HGB). The consolidated financial statement, on the other hand, conforms to International Financial Reporting Standards (IFRS). This gives rise to various divergences in accounting policies affecting, above all, intangible assets, investments, technical assets and liabilities, financial instruments and deferred taxes.
Allocated investment return transferred from the non-technical account, net of retrocession 137,460 203,602
The 2019 financial year, just like the two previous years, was adversely impacted by large losses that exceeded our expectations. While the first six months again recorded a thoroughly moderate major loss experience, the volume of losses incurred in the second half of the year was significantly higher than anticipated. The total net expenditure on major losses for Hannover Rück SE amounted to EUR 606.3 million (EUR 536.6 million).
Accident Gross premium income for the accident line grew by 13.0% in the year under review to EUR 442.0 million (EUR 391.1 million). The net loss ratio rose to 54.5% (48.9%). The underwriting result came in at EUR 43.8 million (EUR 34.7 million ). An allocation of EUR 9.1 million (EUR 13.3 million) was made to the equalisation reserve and similar provisions.
Motor Gross premium for the motor line increased by 20.1% to EUR 2,945.2 million (EUR 2,452.3 million). The loss ratio retreated from 78.4% to 73.5%. The underwriting result closed at EUR -45.3 million (EUR -176.5 million). An amount of EUR 111.0 million was allocated to the equalisation reserve and similar provisions, after an allocation of EUR 27.5 million in the previous year.
Aviation The gross premium volume grew by 14.3% to EUR 257.7 million (EUR 225.4 million). The loss ratio decreased to 45.8% (63.1%). The underwriting result came in at EUR 47.8 million (EUR 18.6 million). An amount of EUR 37.6 million (EUR 3.3 million) was allocated to the equalisation reserve and similar provisions in the year under review.
Life Gross premium income in the life line totalled EUR 4,757.9 million (EUR 4,236.5 million) in the period under review. Life and health reinsurance business has a clear international focus. We write our business on all continents and in many instances we are directly available as a local point of contact thanks to our extensive network. In addition to traditional mortality-oriented life reinsurance, we write financial solutions business as well as health and longevity risks on a worldwide basis. The increase is attributable largely to an improvement in the in-force Australian business as well as growth in Asia.
The underwriting result in life business amounted to altogether EUR 94.6 million (EUR 29.6 million) for the reporting period.
Balance sheet structure of Hannover Rück SE M 43 in EUR thousand 2019 2018
Our portfolio of assets under own management grew in the year under review to EUR 31.8 billion (EUR 28.7 billion), equivalent to an increase of 10.8%. Along with the positive operating cash flow, this reflects the issuance of a bond in the third quarter. The balance of unrealised gains on fixed-income securities and bond funds increased to EUR 1,001.2 million (EUR 366.6 million). Marked valuation increases as a consequence of lower interest rates and risk premiums on corporate bonds were key factors here.
Deposits with ceding companies, which are shown under the investments, climbed to EUR 8.8 billion (EUR 8.1 billion) in the year under review.
The business development of Hannover Rück SE is essentially subject to the same risks and opportunities as that of the Hannover Re Group. As a general principle, Hannover Rück SE shares in the risks of participating interests and subsidiaries according to the amount of its respective holding; these risks are described in the risk report. The relations with participating interests of Hannover Rück SE may give rise to losses from legal or contractual contingent liabilities (particularly novation clauses and guarantees). Please see our explanatory remarks in the notes to this report.
In view of the interrelations between the parent company and the Group companies and the former’s large share of business within the Group, we would refer here to our remarks contained in the section entitled “Outlook for 2020” on page 147 et seq., which also reflect the expectations for Hannover Rück SE.
The combined non-financial information statement is a section of the report that the legislator has expressly exempted from the audit of the financial statements (§ 317 (2) Sentence 6 and Sentence 4 German Commercial Code (HGB); unaudited information). The combined non-financial information statement presented here has, however, been audited with limited assurance by the auditing firm of PricewaterhouseCoopers in accordance with the audit standard ISAE 3000 ( Revised) (see here the Independent Auditor’s Report on page 276 et seq.).
The combined non-financial information statement contains the legally required information relating to significant environmental matters, employee matters, social matters, respect for human rights and combating corruption and bribery. Within these individual aspects, the underlying concepts and due diligence processes are discussed and available findings are reported. In addition, the combined non- financial information statement is to be used to report on material risks pursuant to § 289c (3) No. 3 and 4 German Commercial Code (HGB) to the extent necessary for an understanding of the business development, business result, position of Hannover Rück SE and the Group as well as of the implications for non-financial matters. In view of the fact that Hannover Re purposefully enters into numerous risks in the context of its business operations, it has put in place an extensive and effective risk management system. For a description of the risk management system please see the “Risk report” section under “Opportunity and risk report” in the combined management report.
Pursuant to § 315b (1) Sentence 3 German Commercial Code (HGB), reference is also made to non-financial disclosures provided elsewhere in the combined management report with respect to certain aspects. Unless otherwise stated, all disclosures refer to the Hannover Re Group.
The combined non-financial information statement is guided in the description of material contents by the internationally accepted framework of the Global Reporting Initiative (GRI) and reflects both the materiality definition of the GRI and that of the German Commercial Code (HGB). For information on the definition of materiality we would refer to the section entitled “Materiality analysis”.
The description of the business model is provided in the section “Business model” under “Foundations of the Group” in the combined management report.
Our Group strategy encompasses ten strategic principles that apply to all business units and help to ensure realisation of our vision for the strategy cycle 2018 to 2020 “Creating value through reinsurance”. The objectives of our Group strategy are pursued in accordance with our holistic management system Performance Excellence 2.0. Based on the Excellence Model of the European Foundation for Quality Management (EFQM), this requires each organisational unit of our Group to explore and define its contribution to the Group strategy. In this way, we ensure that all initiatives and measures within our Group are rigorously linked to the Group strategy. Indicators for the status of target attainment are mapped centrally in our Target Matrix. For further details please see the section “Value-based management” in the combined management report.
• Ensure protection of capital through quantitative and qualitative risk management 6. We maintain an adequate level of capitalisation
• Ensure that requirements for equity resources (economic capital model, solvency regulations etc.) are met
• Ensure conformity with all legal requirements, our own corporate policies and high ethical standards
• Support social objectives particularly in the area of qualified training, not only within but also outside the company
The sustainability strategy, goals and measures are examined, approved and regularly reviewed by the Executive Board. Sustainability measures are implemented on a decentralised basis in the various specialist and service departments.
The coordination of strategic goals and measures as well as the collection of data for reporting purposes are handled by an interdisciplinary team composed of representatives of all relevant business units.
Materiality analysis For the purpose of identifying material non-financial topics, we conducted a stakeholder survey and a materiality analysis most recently in 2018. These were carried over unchanged in the 2019 financial year as the basis for the present reporting. Representatives of the stakeholder groups comprised of customers, brokers, the capital market, employees, non-governmental organisations (NGOs) and the public sector were surveyed by means of an online questionnaire and telephone interviews. On this basis, our already existing materiality analysis was reviewed and adjusted in 2018. In this context, we took into account the various materiality approaches of the GRI, which constitutes the basis for our extensive annual sustainability report, and the German Commercial Code (HGB), on which this combined non-financial information statement is based. As a first step, we identified potential issues using internal sources and already received stakeholder feedback as well as information obtained from media analysis, a peer comparison and global standards. The issues were then categorised according to our four action fields in the context of the sustainability strategy. While the external survey developed on this basis focused on the relevance of these issues, the internal survey carried out among our employees included the additional dimensions “business relevance” and “impact of operations”. All three dimensions were rated on a scale of 1 to 7, with the lowest figure indicating very low relevance and the highest reflecting a very high degree of relevance.
In total, we thus identified 13 material sustainability aspects in 2018 in accordance with the German Commercial Code (HGB) and the GRI, which we discuss below in our combined non-financial information statement. The issues “Operational environmental protection”, “Customer orientation and satisfaction ”, “Supplier management” and “Sustainable insurance solutions” are matters identified as non-material according to the dimensions of the German Commercial Code (HGB). They are, however, of considerable relevance to our stakeholders. For this reason, we also report on these aspects as part of this non-financial information statement on a voluntary basis and in conformity with the materiality approach of the GRI.
In addition, we report on the issues identified as material annually on a voluntary basis in our sustainability report compiled in accordance with the GRI.
As an internationally operating company, Hannover Re bears responsibility in various senses. This is true of compliance with relevant laws and regulations, but also applies to the relationship with staff, shareholders, the public at large and the cultures within which the company operates.
The material issue of “Responsible corporate governance” has a special connection to the aspect “Combating corruption and bribery”, which we expand to include aspects of corporate governance.
The basic principles governing the remuneration of members of the Executive Board and Supervisory Board as well as other incentive systems constitute important elements of responsible corporate governance. A detailed description of the remuneration scheme for both the Executive Board and Supervisory Board is provided in the “Remuneration report” on page 126 et seq. of the combined management report.
Given that the trust of our various stakeholder groups and an immaculate reputation advance the success of our company, we make every effort to continuously maintain an active dialogue with our stakeholders. For more information on the dialogue with stakeholders we would refer to the corresponding section. In our annually published sustainability report we provide regular updates on our achievements as a responsible enterprise. In so doing, we follow the currently applicable and internationally recognised guidelines of the GRI. In our sustainability communication we also fulfil the transparency requirements of environmental, social and governance (ESG) rating agencies, as reflected in the favourable evaluations of our company. Hannover Re is rated by the following rating agencies specialising in sustainability: FTSE4Good, Robeco SAM, ISS-oekom, Sustainalytics, Vigeo Eiris, CDP and MSCI. In addition, we are included in the FTSE4Good Index, the Global Challenges Index initiated by the Hannover Stock Exchange parent company BÖAG Börsen AG as well as in major STOXX indices.
The Sustainability Strategy 2018-2020 defines the following goals and measures with regard to this issue:
Ongoing process 2019: Peer comparison, tracking of new developments, processing of internal and external feedback
Provision of further information on sustainability 2019: Updating of the CSR fact sheet
Ongoing process 2019: Regular dialogue in connection with sustainability ratings (CDP, FTSE4Good, Sustainalytics, Vigeo Eiris, MSCI, ISS-oekom)
Refinement and optimisation of reporting on sustainability topics in accordance with the GRI Standards
Publication of a sustainability report in accordance with the GRI Standards 2019: Publication of the sustainability report in accordance with the GRI Standards
We define “compliance” as the totality of all content-related and organisational safeguards that ensure lawful conduct on the part of the Hannover Re companies, the members of their governing bodies and their employees with regard to all legal and regulatory standards as well as the internal corporate policies in the respective areas of the organisation and operating processes.
The material issue of “Compliance” has a special connection to the aspects “Respect for human rights” and “Combating corruption and bribery”, which we expand to include compliance with legal and regulatory requirements.
Legally correct and responsible actions constitute the fundamental precondition for trust in our Group and its competitiveness.
The Corporate Compliance Organisational Manual summarises the major activities and defines the responsibilities within our company, the interfaces and the elements of the compliance organisation. Our compliance structure was reviewed most recently in 2015 against the backdrop of the compliance requirements associated with Solvency II; the Compliance Manual was modified most recently in the 2019 reporting year.
A web-based whistleblower system for the notification of possible violations is also in place for the companies within the Group. This enables employees, customers and third parties to report compliance violations anonymously in their local language or in English. Relevant tips and the countermeasures initiated are included in the annual compliance report. Tips that are brought directly to the attention of the compliance officers or submitted through the whistleblower system are analysed and steps are taken as necessary.
The compliance officers verify observance of compliance standards on an ongoing basis and evaluate identified risks using a compliance risk matrix. The adequacy and effectiveness of the mitigating measures implemented for specific risks are reviewed in the context of monitoring procedures and steps are taken to optimise them when needed. The compliance officer must also be notified by staff of all suspicious cases.
Staff awareness is raised using various tools. As a general principle, all new employees receive compliance training when they join the Group. In the 2019 reporting year, four training activities were held for altogether 113 employees. The Compliance department and the Chief Compliance Officer keep employees informed of changes in legislation, insofar as they affect their work. In addition, traditional communication channels including intranet portals and online newsletters are used to keep staff updated on compliance- related issues. As a listed company, our employees are also required to respect rules on insider trading. The compliance
It is incumbent on the Hannover Re Group to uphold the statutory data privacy rights of data subjects, and we have implemented appropriate policies and procedures for this purpose. This includes the requirement that personal data may only be collected, processed and stored by Group employees to the extent that this is necessary for a precisely defined purpose as part of their lawful task fulfilment or a corresponding basis exists in law.
The EU General Data Protection Regulation (GDPR) does not directly affect all Hannover Re companies if their registered office is located outside the European Union or European Economic Area. The respective national legal frameworks are primarily determinative for these companies.
The existing structures of the established compliance organisation are used to implement the minimum standards required by data privacy law. Irrespective of the scope of application of the GDPR, the designated compliance officers and contact persons are responsible for local data protection requirements. As necessary, they draw up additional local data privacy guidelines and serve as the interface to the Data Protection Officer at Hannover Re in Germany.
The Data Protection Officer coordinates overarching aspects of the data privacy management system installed within the Hannover Re Group. He gives advice on how to resolve specific data privacy issues and monitors compliance with the GDPR and other data protection standards.
An information security management system geared to ISO 27001 has been set up Group-wide for operational assurance of the protection requirements under data privacy law as well as for ensuring the security of all other sensitive information within the company. In organisational terms, information security management is coordinated centrally by the Group Information Security function and incorporates all other relevant functions, including for example Group IT for matters of IT security or Facility Management with respect to building security. In addition, awareness among our employees of such security risks is raised through practically oriented assistance measures, training activities and information provided to staff.
Exchange of views in the context of the European Compliance Officer meetings and regular teleconferences
Stepping up of cooperation between compliance officers at the Local Offices and their contacts in the compliance function at the Group’s head office
Risk management is a vital tool for safeguarding our company ’s enduring financial and economic stability. It involves monitoring and steering all financial and entrepreneurial risks that we take on in the context of our business operations. A detailed description is provided in the section “Risk report” on page 92 et seq. of the combined management report.
Through conferences, roadshows and one-to-one meetings, we stay in contact with representatives of the capital market, financial and ESG rating agencies and private investors. In addition, analysts and institutional investors use our annual Investors’ Day and the analysts’ conference to participate in an intensive exchange with management. Our employees engage with our worldwide customers through direct, face-toface discussions. For further information we would refer to the section “Customer orientation and satisfaction”.
We similarly engage in an ongoing dialogue with political decision -makers, supervisory authorities and insurance industry associations – mostly in relation to topical issues in insurance supervision and financial market regulation in Germany, the EU and on the wider international level.
Furthermore, we take part in various initiatives that address the financial costs of natural disasters in developing and emerging countries due to underinsurance. To this end, we engage in an exchange with state actors such as the Federal Ministry for Economic Cooperation and Development and we work with the German Corporation for International Cooperation (GIZ). In addition, we participate in the Munich Climate Insurance Initiative (MCII) and we are a member of the Insurance Development Forum, the CRO Forum and the “Extreme Events and Climate Risks” working group of the Geneva Association.
Our activities relating to the material issue of “Risk expertise and risk assessment” have particular implications for the aspects “Environmental matters” and “Social matters”, since in this respect we offer relevant services and provide insurance solutions and expert know-how.
Support for the development of research programmes, regular publications and organisation of international meetings as a member of the Geneva Association Working Group on “Climate Change and Emerging Environmental Topics” 2019: Support for the further refinement of catastrophe models to assess the effects of climate change
Support for publications of the CRO Forum and research into climate-related risks
Our activities relating to the material issue of “Sustainable insurance solutions” have particular implications for the aspects “Environmental matters” and “Social matters”, since in this respect we offer relevant services and provide insurance solutions and expert know-how.
Our business activities do not give rise to any direct negative impacts on society or the environment. Rather, our reinsurance services help to ensure that societal and environmental risks can be adequately insured and that the effects in the event of loss or damage can be rectified or mitigated. Often, it is only the backing of internationally operating reinsurers such as Hannover Re that enables primary insurers to cover large individual risks and the risks associated with natural perils. We thereby help to increase insurance density, especially in emerging and developing countries, and promote social and financial inclusion. Furthermore, by offering reinsurance solutions and supporting primary insurance solutions, we are able to respond to the opportunities and risks associated with these issues and come up with innovations. Consequently, we support sustainable insurance and reinsurance solutions that are designed to minimise negative environmental and social repercussions. It is also important to bear in mind the potential indirect environmental and social effects of reinsurance business. Extensive exclusions, on the other hand, can actually cause the protection gap to grow inasmuch as risks are no longer adequately covered in the future.
It is therefore vital to consider possible implications from a range of perspectives.
Reduction of exposure to fossil fuels 2019: Policy decision in relation to individual risks (facultative reinsurance) to stop reinsuring any planned new coal-fired power plants or thermal coal mines with immediate effect. In addition, no further reinsurance of coal-related risks in the entire property and casualty reinsurance portfolio in connection with coal mining and coal-fired power generation (phased withdrawal by 2038 targeted)
Additional staffing in the relevant market department and associated increase in written treaties
Further development of “Parents Pocket Money Protection” solution for the South African market; product implementation at multiple customers
Information seminars for customers in Asia on the subject of longevity protection (to help combat poverty among the elderly)
Along with our direct impacts on the environment and society, we are able to make a positive contribution to sustainable development through our investing activities by pursuing an investment policy that avoids companies which engage in unethical behaviour or fail to live up to environmental and social standards.
In accordance with our investment policy, we strive for stable, fair market returns in order to be able to meet our underwriting commitments and liquidity requirements at all times while preserving a balanced risk/return profile and broad diversification. Furthermore, we attach considerable importance to our sustainability approach by incorporating environmental, social and governance aspects (ESG criteria).
Our activities relating to the material issue of “ESG criteria in asset management” have implications for all aspects.
C om b in ed m an ag em en t re p or t tents and results of the sustainability approach as well as any changes directly to the Chief Financial Officer, and they are discussed and approved by the Investment Committee or the full Executive Board. Two members of the Executive Board sit on the Investment Committee.
Within our portfolio of assets under own management, the fixed-income securities (government and semi-government bonds, corporate bonds and covered bonds) and listed equities have been subject to half-yearly negative screening since 2012. As at the reference date of 31 December 2019 these investment classes accounted for roughly 86% of our asset portfolio. The ten principles of the United Nations Global Compact are a decisive factor in guiding our reviews. Companies that fail to respect human rights or are complicit in human rights abuses are in violation of fundamental principles of the United Nations. Instruments issued by such entities are ruled out for our investment purposes, as are issuers that disregard basic labour standards and environmental protection considerations. Lastly, exposures to companies that have been noted for their use of compulsory / child labour or their involvement in discrimination or corruption are also excluded. In our review of government issuers, the focus is on whether they are currently subject to sanctions imposed by the United Nations or the European Union.
The qualitative evaluation of our investments is additionally based on individual ESG criteria that we have developed and continuously review in cooperation with a financial services provider specialising in sustainability. Securities of issuers identified as “non-adequate” are actively scaled back. In addition, potential new investments are checked in advance to see whether the issuers violate the defined ESG criteria. Such exposure is rejected if this is found to be the case.
As to the criterion of “controversial weapons”, we rule out issuers who are involved in the development and proliferation of particularly cruel weapons. In the fossil fuels sector the exclusion criterion applies to issuers who generate 25% or more of their turnover from coal mining, coal-based energy generation or oil sands extraction.
Given that the proportion of listed equities in our asset portfolio currently accounts for less than 1% of our investments under own management, we have not adopted any voting guidelines to date on environmental and social issues in connection with the sustainable orientation of our investments, nor have we defined any corresponding processes or measures. Should the proportion of listed equities in our portfolio increase significantly, we shall revisit the topic of active ownership.
Use of exclusion criteria Ongoing: Exclusion of issuers that violate the principles of the UN Global Compact
The issue of “Customer orientation and satisfaction” does not have implications for the aspects pursuant to the German Commercial Code (HGB). We therefore consider and report on the topic voluntarily in view of its strategic relevance.
Customer relationships at our company are normally managed on the level of individual divisions. In property and casualty reinsurance we cultivate our customer relationships both through reinsurance brokers and directly by making regular business trips or holding videoconferences. Furthermore, our employees attend trade fairs and expert conferences worldwide. In life and health reinsurance we have a direct local presence in most markets due to our decentralised approach and are thus able to quickly engage with our customers.
We conduct regular surveys to measure the satisfaction of our customers – not only independently but also with the support of external market research institutes when it comes to certain markets. In view of the importance that we attach to accommodating the specific features of individual markets, we consciously do not carry out any general uniform survey of customer satisfaction on a global basis across all our divisions. We process the results of our customer surveys and studies in-house so as to identify potential action fields. The steps taken have not only served to improve the perception of our brand, they have also made our services and products stronger. In recent years, for example, we have enhanced our automated underwriting systems according to the wishes of our customers and we have brought new product ideas to market.
Ongoing, active knowledge sharing with our customers by way of product- and/or market -specific seminars and workshops (see “Sustainable insurance solutions”)
The success of any company is directly dependent on the successful work of its employees. For its part, too, Hannover Re makes systematic efforts to support the professional development, personal growth and wellness of its staff, an approach that it enshrines in strategic principles governing human resources management. Just like other companies, however, we currently face a range of challenges. For some time now, for example, the shortage of skilled workers has been worsening – along with the competition to recruit the best people. This goes hand-in-hand with the fact that employees base their decision to join an employer not only on purely monetary aspects but also on other factors including, for example, the company’s reputation, the availability of development opportunities and fringe benefits. Issues such as demographic change, the rapid transformation of the working world as well as the digitalisation and automation of work processes are also increasingly shaping human resources management.
In the context of our materiality process we have identified issues in the areas of executive development / employee advancement, employee retention and diversity as material. These have a special connection with the aspects “Employee matters” and “Respect for human rights”.
We pay particularly close attention to the qualifications, experience and commitment of our staff. Our strategic human resources planning enables us to harmonise the size and skills of our workforce with the current and future requirements of our global market presence as well as with the requirements of increasing digitalisation.
The sustained demand for appropriate seminars and workshops geared to enhancing resilience and relaxation skills is a testament to the need for our preventive wellness measures among managers and staff alike. They continued to be complemented by our Employee Assistance Programme offering external and anonymous immediate counselling on personal, professional and health concerns as well as access to a service for families.
Furthermore, our communication seminars such as “International negotiations”, “Intercultural skills” and “Mastering difficult dialogue situations” as well as the topically entitled “Dealing with complexity” stimulated lively interest among the workforce. This gives us added motivation to keep addressing topical issues within the company and thereby also to fulfil the requirements placed not only on insurers but also on reinsurance undertakings by the Insurance Distribution Directive.
Encouraging all staff to participate in training activities 2018: The average number of training days per employee at the Hannover location was 4.4. The number of training days per employee for the 2019 financial year had not yet been fully recorded as at the balance sheet date. An adequate basis is not currently available for the collection of valid figures and statements regarding the average number of training days Group-wide, which means that this figure cannot be reliably established
Ongoing, 2019: Continuing offer of an Employee Assistance Programme 2019: Preventive seminars geared to enhancing resilience and relaxation skills offered and well attended on multiple occasions 2019: Continuation of the workshop “Fit for changes” in response to the changing world of work
Ongoing: Measures such as those to enable more flexible working in terms of time and place, promoting a work/life balance, fair remuneration, fringe benefits 2019: Staff turnover rate at the Hannover location 2.7% (target: 3-5%)
Conducting employee surveys 2019: Group-wide employee survey conducted as part of the Organizational Health Check with a participation rate of 64% (target for employee surveys: 60%)
One of the cornerstones of our successful business activities, along with our employees’ skills and commitment, is a considerable degree of diversity in the workforce. At our Hannover location, for example, the members of staff came from altogether 44 different nations as at 31 December 2019 – a reflection of the international dimension of our operations. Our worldwide Code of Conduct stipulates that nobody may be disadvantaged on grounds of his or her gender, ethnic origin, religion or ideology, disability, age or sexual persuasion. Salary increases and promotions follow a clearly defined process.
The Sustainability Strategy 2018-2020 defines the following goals with regard to this issue:
Promoting a work environment free of discrimination; part of the Code of Conduct
Ongoing: Whistleblower system for reporting any incidents 2019: No instances of discrimination that would have had consequences under labour law were reported
Improving the conditions needed to ensure a healthy work/life balance for our employees
As a service company, our activities in this regard do not entail any special risks. The issue is nevertheless of considerable importance to us and is reported accordingly.
Back in 2012 we put in place standard processes at the Hannover location to address environmental protection and we specified concrete measures in our environmental programme. Our environmental management system has since been recertified annually, from 2016 onwards according to the revised standard DIN EN ISO 14001:2015. The recertification completed in 2019 is valid until 9 January 2023. Since 2016 we have also published annually a validated EMAS III Environmental Statement in fulfilment of the Europe-wide legal requirement to perform energy audits. The environmental management system records the consumption and emissions data for the Hannover sites of Hannover Rück SE, E+S Rückversicherung AG and HDI Specialty Group SE (formerly Inter Hannover) as well as the associated infant daycare centre and hence covers roughly 45% of the global workforce.
The focus of our efforts to conserve the environment is on reducing CO2 emissions caused by the supply of electricity and heat to our premises as well as those resulting from our business travel. We have operated with a net zero carbon footprint at the Hannover location since 2016. The changeover to renewable energy and the offsetting of greenhouse gas emissions caused by air travel through payments to the climate protection organisation atmosfair were key factors in this achievement. In 2018 we began to record and offset the emissions due to air travel at several locations in the Asia- Pacific region.
Review offsetting of CO2 emissions caused by air travel in the APAC region
Since mid-2012 our Code of Conduct for Suppliers has been applied throughout large parts of the company at the Hannover location. Reviewed on a regular basis and adjusted as necessary, it obliges all main suppliers and subcontractors to fulfil sustainability criteria, inter alia respect for human rights and observance of the core labour standards of the International Labour Organisation (ILO).
We rate new suppliers based on self-reporting and using an application-supported process; those that are assessed critically in an ESG risk category are assigned to a blacklist, as a consequence of which no further orders are placed with them. The process is used as warranted by Facility Management and IT at the Hannover location.
The Sustainability Strategy 2018-2020 defines the following goals with regard to this issue: Goal to be achieved by 2020: Supplier management
All new and core suppliers are required to respect a Code of Conduct in which they undertake, among other things, to comply with environmental and social standards 89% of category A and B IT vendors undertake to comply with the Code of Conduct for Suppliers
The capital position is constantly reviewed against the backdrop of possible changes in the risk profile.
• Our risk management system continuously monitors newly added and changing risks and is able to respond flexibly to changes in internal and external factors.
Our current corporate strategy encompasses ten guiding principles that safeguard the realisation of our vision “Creating value through reinsurance” across the various divisions.
3. We promote an open risk culture and the transparency of our risk management system.
Both the Hannover Re Group and the specified individual companies calculate their capital requirements under Solvency II on the basis of a full internal model. Hannover Re received approval from the Federal Financial Supervisory Authority (BaFin) for the end of 2018 to use volatility adjustments pursuant to § 82 Insurance Supervision Act (VAG). This is intended to mitigate the effect of value fluctuations on the bond market. An application has now been submitted to the BaFin for a modification that includes dynamic modelling of the volatility adjustment in order to better capture the effect of the volatility adjustment in the calculation of the risk-based capital as well.
Risks from the cyber environment: Recent years have seen the increasing emergence of cyber risks affecting electronic systems. Hannover Re, in common with other companies, is at risk of outside attacks on its IT systems and has put in place extensive safeguards. Furthermore, Hannover Re offers reinsurance coverage for risks connected with electronic systems and the associated data. The dynamic pace of developments in the context of digitalisation presents a particular challenge for the assessment of such risks. The mapping of cyber risks in the internal capital model was improved in the course of 2019, with the result that more detailed risk management encompassing both our cyber portfolio and our “silent cyber” exposure is now possible, insofar as the relevant portfolios have already been analysed.
The 2019 financial year was once again impacted by natural catastrophe events that caused market losses in excess of USD 100 billion. In common with other market players, Hannover Re was among those affected – principally by hurricane Dorian and typhoon Hagibis. Given that the amounts will be paid out over the next few years, an element of uncertainty in the remaining anticipated loss payments has been allowed for as part of the estimated technical reserves.
Hannover Re is thus well capitalised and our available capital comfortably exceeds the required capital, both from the economic and the regulatory perspective:
Solvency Capital Requirement / Required risk capital at the confidence level of 99.5% 5,719.1 5,135.4
1 The figures were calculated on the basis of the Solvency II reporting as at 31 December 2019. This table includes information that has not been audited by the independent auditor. The calculation of the Solvency Capital Requirement allows for the dynamic volatility adjustment which is subject to the BaFin approval process at the reporting date.
2 Minor differences for 31 December 2018 compared to the Annual Report 2018. The figures are based on the final Solvency II year-end reporting as presented in the Solvency and Financial Condition Report.
We strive for a rating from the rating agencies most relevant to our industry that facilitates and secures our access to all reinsurance business worldwide. Hannover Re is analysed by the rating agencies Standard & Poor’s (S & P) and A.M. Best as part of an interactive rating process. The current financial strength is assessed as “AA-” (Very Strong, stable outlook) by Standard & Poor’s and “A+” (Superior, stable outlook) by A.M. Best. In this context both S & P and A.M. Best consider Hannover Re’s risk management to be a very important aspect in the evaluation of financial strength.
Hannover Re has set up risk management functions and bodies Group-wide to safeguard an efficient risk management system. The organisation and interplay of the individual functions in risk management are crucial to our internal risk steering and control system. The central functions of risk management are closely interlinked in our system and the roles, tasks and reporting channels are clearly defined and documented in terms of the so-called “three lines of defence”. The first line of defence consists of risk steering and the original risk responsibility on the divisional or company level. The second line of defence is made up of the core risk management functions, the actuarial function and the compliance function. These functions are responsible for process-integrated monitoring and control. The third line of defence is the process- independent monitoring performed by the internal audit function. The following chart provides an overview of the central functions and bodies within the overall system as well as of their major tasks and powers.
Supervisory Board Advising and supervising the Executive Board in its management of the company, inter alia with respect to risk management
Risk-bearing capacity concept The establishment of the risk-bearing capacity involves determining the total available risk coverage potential and calculating the funds required to cover all risks. This is done in conformity with the parameters of the risk strategy and the risk appetite defined by the Executive Board. The quantitatively measurable individual risks and the risk position as a whole are evaluated using our internal capital model. A central system of limits and thresholds is in place to monitor material risks. This system incorporates the limits and thresholds derived from the corporate strategy. Adherence is verified on an ongoing basis.
Risk identification A key source of information for monitoring risks is the risk identification carried out on a periodic basis. All identified risks are documented in a central register containing all material risks. Risk identification takes the form of, among other things, structured assessments, interviews or scenario analyses. External insights from relevant bodies or working groups are incorporated into the process. Risk identification is important for ensuring that our risk management consistently remains up-to-date.
Risk monitoring The monitoring of all identified material risks is a core function of risk management. This includes, inter alia, monitoring execution of the risk strategy as well as adherence to the defined limits and thresholds and to risk-related methods and processes. A further major task of risk monitoring is the ascertainment of whether risk steering measures were carried out and whether the planned effect of the measures is sufficient.
Process-integrated / -independent monitoring and quality assurance Irrespective of internally assigned competencies, the Executive Board is responsible for the orderly organisation of the company’s business. This also encompasses monitoring of the internal risk steering and control system. Process-independent monitoring and quality assurance of risk management is carried out by the internal audit function and external instances (regulators, independent auditors and rating agencies ). Most notably, the independent auditors review the trigger mechanism and the internal monitoring system. The risk management system is rounded off with process-integrated procedures and rules, such as those of the internal control system.
We organise our business activities in such a way that they are always in conformity with all legal requirements. The internal control system (ICS) is an important subsystem that serves, among other things, to secure and protect existing assets, prevent and reveal errors and irregularities and comply with laws and regulations. The core elements of Hannover Re’s ICS are documented in a guideline that establishes a common understanding of the differentiated execution of the necessary controls. In the final analysis, it is designed to systematically steer and monitor the implementation of our corporate strategy. The guideline defines concepts, stipulates responsibilities and provides a guide for the description of controls. In addition, it forms the basis for the accomplishment of internal objectives and the fulfilment of external requirements imposed on Hannover Re. The ICS consists of systematically structured organisational and technical measures and controls within the enterprise. These include, among other things, the principle of dual control, separation of functions, documentation of the controls within processes as well as technical plausibility checks and access privileges in the IT systems.
Equity risk Interest rate risk Real estate risk Foreign exchange risk Default and spread risk
Longevity and mortality risk Morbidity and disability risk Lapse risk Catastrophe risk Expense risk
The available economic capital increased to EUR 15,034.9 million as at 31 December 2019, compared to EUR 13,340.0 million (pursuant to the final Solvency II year-end reporting for 31 December 2018) as at 31 December 2018. The primary factors here were the investment income, the positive contribution made by new business in life and health reinsurance as well as a favourable run-off of the existing portfolio in property and casualty reinsurance. Economic developments such as movements in exchange rates as well as the decrease in credit spreads and associated valuation increases in fixed-income securities also played a part in the increase in economic equity. Furthermore, the issuance of another subordinated bond increases the hybrid capital and hence the available economic capital. The development of shareholders’ equity is adversely impacted by, among other things, the large loss expenditure in property and casualty reinsurance and a higher risk margin – especially for life and health reinsurance – due to the decline in interest rates and the growth of the business.
3 Minor differences for 31 December 2018 compared to the Annual Report 2018. Figures based on final Solvency II year-end reporting as presented in the Solvency and Financial Condition Report.
4 Adjustments for technical provisions in life & health and property & casualty reinsurance including risk margin.
The increase in the market risk is a reflection first and foremost of the larger volume of assets under own management as well as higher volumes in the private equity sector. Further factors here are an increased duration and a slightly higher -risk investment in fixed-income securities. An opposing effect derives from the initial application of the dynamic volatility adjustment, which leads to a decrease in the spread risk.
The underwriting risks in property and casualty reinsurance increased primarily as a consequence of higher premium and reserve levels as well as larger underwriting capacities for natural perils. The enlarged volumes are driven by interest rate and exchange rate effects associated with the business growth as well as by the large loss expenditure and the accompanying higher reserves. Moreover, in the area of catastrophe risks the modelling approach used for cyber risks was refined, leading to a rise in the risk capital.
The underwriting risks in life and health reinsurance increased primarily as a consequence of the business expansion in the area of longevity and morbidity risks as well as lower interest rates. In addition, adjustments made in the calibration of mortality risks gave rise to an increased risk. The rise in counterparty default risks can be attributed principally to a higher volume of receivables due from ceding companies and retrocessionaires as well as changes in credit rating.
Winter storm Europe 762.36 609.77 1 Required risk capital with a confidence level of 99.5% on an aggregate annual loss basis
The reserve risk, i. e. the risk of under-reserving losses and the resulting strain on the underwriting result, is a high priority in our risk management. We attach importance to maintaining a conservative reserving level. In order to counter the risk of under-reserving we calculate our loss reserves based on our own actuarial estimations and establish, where necessary, additional reserves supplementary to those posted by our cedants as well as the segment reserve for losses that have already occurred but have not yet been reported to us. Liability claims have a major influence on the segment
reserve. The segment reserve is calculated on a differentiated basis according to risk categories and regions. The segment reserve established by the Hannover Re Group amounted to EUR 7,609.8 million in the year under review.
Survival ratio in years and reserves for asbestos-related claims and pollution damage M 68 in EUR million
Asbestos-related claims / pollution damage 14.1 110.7 30.1 19.5 157.9 30.0
Within the scope of this process, the Executive Board defines the risk appetite for natural perils once a year on the basis of the risk strategy by specifying the portion of the economic equity that is available to cover risks from natural perils. This is a key basis for our underwriting approach in this segment. As part of our holistic approach to risk management across
C om b in ed m an ag em en t re p or t business groups, we take into account numerous relevant scenarios and extreme scenarios, determine their effect on portfolio and performance data, evaluate them in relation to the planned figures and identify alternative courses of action.
For the purposes of risk limitation, maximum amounts are also stipulated for various extreme loss scenarios and return periods in light of profitability criteria. Risk management ensures adherence to these maximum amounts. The Executive Board, Risk Committee and P & C Executive Committee are kept regularly updated on the degree of capacity utilisation. The limits and thresholds for the 200-year aggregate loss as well as the utilisation thereof are set out in the following table: Limit and threshold for the 200-year aggregate annual loss as well as utilisation thereof
All natural catastrophe risks 1 200-year aggregate annual loss 2,125 1,913 1,727 1 Loss relative to the underwriting result
Hailstorm “Jörn”, Germany 10 June 2019 23.9 14.9 1 Natural catastrophes and other major claims in excess of EUR 10 million gross
The price / premium risk lies in the possibility of a random claims realisation that diverges from the claims expectancy on which the premium calculation was based. Regular and independent reviews of the models used for treaty quotation as well as central and local underwriting guidelines are vital management components. We have put in place a multi-step quotation process to ensure the quality of our portfolios:
In addition, Hannover Re’s regional and treaty departments prepare regular reports on the progress of their respective renewals. The reporting in this regard makes reference inter alia to significant changes in conditions, risks (such as inadequate premiums) as well as to emerging market opportunities and the strategy pursued in order to accomplish targets. The development of the combined ratio in property and casualty reinsurance in 2019 and prior years is shown in the table below: Combined and catastrophe loss ratio M 73
Combined ratio (property and casualty reinsurance) 98.2 96.5 99.8 93.7 94.4 94.7 94.9 95.8 104.3 98.2 1 Net share of the Hannover Re Group for natural catastrophes and other major claims in excess of EUR 10 million gross as a percentage of net premium earned (until 31 December 2011: in excess of EUR 5 million gross)
For further information on the run-off of the loss reserves please see our explanatory remarks in the section “Run-off of the net loss reserve in the property and casualty reinsurance segment” on page 228 et seq.
In recent years we have reported regularly on the results of our US mortality business, which have been poorer than anticipated. The reason for this development was the negative earnings performance of a large portfolio that we, as reported at the time, acquired at the beginning of 2009.
As part of our inforce management measures we had initiated rate adjustments for the portfolio concerned in 2018. For the majority of the underlying business, these rate adjustments have been successfully implemented or the cedant has recaptured the business. It is to be anticipated that an arbitration procedure will take place with selected individual cedants in respect of the implemented rate increases. Based on the information currently available to us, we take a favourable view of our legal position.
Based on the information available to us today, we continue to assume a positive VIF for our US mortality business as a whole. Should additional information lead to the determination that this is no longer the case, this would result in a oneoff charge to the IFRS result. Similarly, one-time charges to the IFRS result may arise in a small number of remaining individual cases, insofar as the cedants affected by rate adjustments exercise their right of recapture.
We continue to monitor developments in the Australian disability portfolio on an ongoing basis.
Faced with a challenging capital market climate, particularly high importance attaches to preserving the value of assets under own management and the stability of the return. Hannover Re’s portfolio is therefore guided by the principles of a balanced risk / return profile and broad diversification. Based on a risk-averse asset mix, the investments reflect both the currencies and durations of our liabilities. Market price risks include equity risks, interest rate risks, foreign exchange risks, real estate risks, default and spread risks. Our portfolio currently consists in large part of fixed-income securities, and hence default and spread risks account for the bulk of the market risk. We minimise interest rate and foreign exchange risks through the greatest possible matching of payments from fixed-income securities with the projected future payment obligations from our insurance contracts. Market risks derive from the investments managed by Hannover Re itself and from investment risks of ceding companies that we assume in connection with insurance contracts. The following table shows the risk capital with a confidence level of 99.5% for the market risks from investments under own and third-party management.
Required risk capital 1 for market risks M 75 in EUR million 31.12.2019 31.12.2018
Interest rate and spread markets were relatively volatile over the course of the year under review. The already very low level of the previous year was once again pushed significantly lower in all our main currency areas. While the US dollar area recorded particularly appreciable interest rate declines, pound sterling and euro interest rates also saw sharp decreases. Risk premiums on European and US corporate bonds retreated sometimes markedly in virtually all rating categories in the reporting period. Consequently, a very substantial increase in the hidden reserves for fixed-income securities was booked over the year as a whole.
The escalation levels of the early-warning system were not triggered at any time in the reporting period. For this reason, our trigger system did not cause us to make any changes to the asset allocation.
The short-term loss probability measured as the Value at Risk (VaR) is another vital tool used for operational monitoring and management of the market price risks associated with our securities positions. It is calculated on the basis of historical data, e. g. the volatility of the securities positions under own management and the correlation between these risks. As part of these calculations the decline in the fair value of our securities portfolio is simulated with a certain probability and within a certain period. The VaR of the Hannover Re Group determined in accordance with these principles specifies the decrease in the fair value of our securities portfolio under own management that with a probability of 95% will not be exceeded within ten trading days. A standard market model is used to calculate the VaR indicators for the Hannover Re Group. It is based on historical time series of relevant market parameters (equity prices, yield curves, spread curves and exchange rates). Against the backdrop of what was still a difficult capital market and interest rate environment, volatilities – especially of fixed-income assets – were again on a high level in the year under review. Based on continued broad risk diversification and the orientation of our investment portfolio, our VaR was nevertheless clearly below the VaR upper limit defined in our investment guidelines. It amounted to 0.8% (previous year: 0.5%) as at the end of the reporting period.
M 77 1 VaR upper limit according to Hannover Re’s investment guidelines: 2.5%
Scenarios for changes in the fair value of material asset classes M 78 in EUR million Scenario Portfolio change on a fair value basis Change in equity before tax
Equity risks derive from the possibility of unfavourable changes in the value of equities, equity derivatives or equity index derivatives in our portfolio. Their relevance to our investments was, however, very slight because we currently hold only a minimal portfolio of equities and equity funds in the context of
Foreign exchange risks are especially relevant if there is a currency imbalance between the technical liabilities and the assets.
Derivatives connected with the technical account play a minor role in Hannover Re’s portfolio.
Our investments entail credit risks that 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. We attach equally vital importance to exceptionally broad diversification as we do to credit assessment conducted on the basis of the quality criteria set out in the investment guidelines.
On a fair value basis EUR 4,645.3 million of the corporate bonds held by our company were issued by entities in the financial sector. Of this amount, EUR 3,677.0 million was attributable to banks. The vast majority of these bank bonds (63.9%) are rated “A” or better. Our investment portfolio under own management does not contain any written or issued credit default swaps.
67.5% of our recoverables from reinsurance business are secured by deposits or letters of credit. For the majority of our retrocessionaires we also function as reinsurer, meaning that in most cases recoverables can potentially be set off against our own liabilities. In terms of the Hannover Re Group’s major companies, EUR 219.7 million (4.2%) of our accounts receivable from reinsurance business totalling EUR 5,269.8 million were older than 90 days as at the balance sheet date.
Required risk capital 1 for operational risks M 83 in EUR million 31.12.2019 31.12.2018
Operational risk 532.6 575.3 1 Required risk capital with a confidence level of 99.5%
Within the overall framework of operational risks we consider, in particular, business process and data quality risks, compliance risks, outsourcing risks, fraud risks, personnel risks, information security risks and business interruption risks.
In conformity with a risk-based approach, sanctions screening software is used on the relevant parts of the Hannover Re Group’s portfolio as well as on loss advices to filter out individuals who are subject to sanctions. Suitable steps are taken if such individuals are identified. Business partners are also screened in this way. Responsibilities within the compliance organisation are regulated and documented Group-wide and interfaces with risk management have been put in place. The set of tools is rounded off with regular compliance training programmes. For further information on compliance-related topics, including for example lawsuits, contingent liabilities and commitments, please see section 8.6 “Lawsuits” on page 263 and section 8.7 “Contingent liabilities and commitments” on page 264 et seq.
Outsourcing risks can result from the outsourcing of functions, services and / or organisational units to third parties. Mandatory rules have been put in place to limit this risk; among other things, they stipulate that a risk analysis is to be performed prior to a material outsourcing. In the context of this analysis a check is carried out to determine, inter alia, what specific risks exist and whether outsourcing can even occur in the first place. Our external partners are additionally subject to regular due diligence checks.
Fraud risks refer to the risk of intentional violations of laws or regulations by members of staff and / or by externals in order to obtain a personal gain. This risk is reduced by the internal control system as well as by the audits conducted by Group Auditing on a Group-wide and line-independent basis.
Information security risks arise, inter alia, out of the risk of the inadequate integrity, confidentiality or availability of systems and information. By way of example, losses and damage resulting from the unauthorised passing on of confidential information, the malicious overloading of important IT systems or from computer viruses are material to the Hannover Re Group. Given the broad spectrum of such risks, a diverse range of steering and monitoring measures and organisational standards, including for example the requirement to conclude confidentiality agreements with service providers, have been put in place. In addition, our employees are made more conscious of such security risks through practically oriented tools provided online in the intranet, by way of training opportunities and through a staff information campaign.
Under other risks we include emerging risks, strategic risks, reputational risks and liquidity risks. Reputational risks are categorised as non-financial risks.
Subcategories included under other risks • Emerging risk • Strategic risk • Reputational risk • Liquidity risk
Strategic risks derive from a possible imbalance between the corporate strategy of the Hannover Re Group and the constantly changing general business environment. Such an imbalance might be caused, for example, by incorrect strategic policy decisions, a failure to consistently implement the defined strategies and business plans or an incorrect allocation of resources. We therefore regularly review our corporate strategy in a multi-step procedure and adjust our processes and the resulting guidelines as and when required. We have
As part of the risk management process we also take into account the impacts on the operational and reputational risks of aspects of environmental management, employee matters, social matters, respect for human rights and the combating of corruption and bribery, as required by the CSR Directive Implementation Act in accordance with § 289b and c German Commercial Code (HGB) and § 315c German Commercial Code (HGB).
Opportunity report Speed is one of the qualities used to measure a successful knowledge transfer. Quick solutions and staying one step ahead of the competition is the name of the game. Hannover Re searches systematically for new business opportunities in order to generate sustainable growth and strengthen the company’s profitable development. With a view to identifying opportunities and successfully translating ideas into business, Hannover Re adopts a number of closely related approaches in order to achieve holistic opportunity and risk management. Of significance here is the interplay without overlaps of the various functions within opportunity and risk management, which is ensured by defined interfaces.
C om b in ed m an ag em en t re p or t digital technologies. These include an organisational unit that provides specific support for insurtechs in the development of their digital business models and devises reinsurance solutions to this end, thereby also generating new premium potential for Hannover Re.
Corporate culture and entrepreneurship are increasingly coming into focus as further elements of the innovation landscape. Hannover Re has developed a structured innovation process for the in-house generation of ideas in order to actively support and foster the internal spirit of entrepreneurship. This process is embedded in the “Hannover Re Intrapreneurship Programme” (HIPE), which offers all employees worldwide a platform for contributing innovative ideas geared to increasing efficiency, inter alia in the fields of automation, risk assessment and accumulation control as well as product development. In the course of a 14-week incubator programme selected ideas were developed by employees in an external innovation ecosystem. Project participants were partially released from their line function for the duration of the incubator programme in order to elaborate on their ideas as quickly as possible in a highly focused environment. Upon completion of the conceptual development phase five teams presented their ideas to the full Executive Board. After indepth exploration, the Board members decided to allocate a budget to three concepts for an implementation phase that will facilitate the development of prototypes. Depending upon how their implementation and commercial success are evaluated, it is likely that the project will be repeated. This promotes the ongoing consolidation of an agile working environment and dynamic enterprise culture within the established processes.
Cyber insurance Cyber attacks on critical systems are becoming increasingly common. They can cause considerable financial losses and also damage corporate reputations. Not only that, they can severely hamper private and public life, especially if critical infrastructures are impacted – such as the health, transportation / traffic and energy sectors. In such instances supply bottlenecks with lasting effects as well as major disruptions to public safety may ensue. In a networked world the repercussions of cyber attacks are intensifying because the volume of globally stored data and the extent of system dependencies are constantly growing – and in this context it is not only one’s own technical infrastructure that needs to be secured. On the contrary, the trend towards cloud computing is increasingly shifting the focus to third-party infrastructures and the associated network connection. As part of our holistic approach to risk and opportunity management, we are also tackling the question of what new insurance products can be developed in order to protect against the relevant risks. The constant refinement of our systemic analyses for the assessment of cyber risks forms the basis for developing new (re)insurance solutions. We aim to bring transparency to the customer’s cyber risks and we seek to cover the need for risk-mitigating measures by offering suitable solutions. To this extent, we also see an opportunity to generate additional reinsurance premium in this line of business.
As an internationally operating reinsurance group, we move in a highly complex environment. Nevertheless, thanks to our business activities in all lines of reinsurance we are able to achieve optimal risk spreading through geographical and risk-specific diversification while at the same time maintaining a balanced opportunity / risk profile. We consider the risks described in the above sections to be manageable, particularly because our steering and monitoring measures are effectively and closely interlinked. Despite these diverse mechanisms, individual and especially accumulation risks can decisively affect our assets, financial position and net income. In accordance with our understanding of risk, however, we consider not only risks but also at the same time opportunities. We therefore only enter into those risks that go hand-inhand with opportunities. Our steering and monitoring tools as well as our organisational and operational structure ensure that we identify risks at an early stage and are able to act on our opportunities. Our central monitoring tool is the system of risk management that we have installed Group-wide, which brings together both qualitative and quantitative information. Most notably, the interplay between domestic and foreign risk management functions affords us a holistic and Groupwide overview.
Our own evaluation of the manageability of existing risks is confirmed by various financial indicators and external assessments. Specific monitoring indicators, corresponding notification thresholds and potential escalation steps are defined on a mandatory basis in our central system of limits and thresholds for the material risks of the Hannover Re Group. As a result, the system provides us with a precise overview of potentially undesirable developments in the defined risk tolerances and enables us to react in a timely manner. One testament to our financial stability, for example, is the growth of our shareholders’ equity: the total policyholders’ surplus (hybrid capital, non-controlling interests and shareholders’ equity) stands at 185% of the corresponding figure from 2011. In this context, our necessary equity resources are determined by the requirements of our economic capital model, solvency regulations, the assumptions of rating agencies with respect to our target rating and the expectations of our clients and shareholders. This increase gives us a sufficient capital cushion to be able both to absorb risks and act on business opportunities that may arise. Similarly, our very good financial strength ratings (see page 63) also testify to our financial stability. The quality of our Enterprise Risk Management (ERM), for example, is assessed by Standard & Poor’s as a key factor in the rating process. Special consideration is given to our established risk management culture, which promotes the development of appropriate risk monitoring systems and supports strategic risk management. The rating encompasses in particular the areas of risk culture, risk controls, emerging risk management, risk models and strategic risk management. This external appraisal confirms the quality of our holistic approach to risk management.
Enterprise management Declaration on Corporate Governance pursuant to §§ 289f, 315d German Commercial Code (HGB)
The Executive Board and Supervisory Board of Hannover Rück SE expressly support the suggestions and recommendations of the German Corporate Governance Code that are practicable for the reinsurance industry and recognise their central importance in guiding our activities. The principles of responsible and good enterprise management therefore constitute the core of our internal Corporate Governance principles (www.hannover-re.com/50889/corporate-governance -principles.pdf). These remained unchanged in the year under review. We cultivate integrity at all times in our dealings with business partners, staff, shareholders and other stakeholder groups and we support the principles of value -based and transparent enterprise management and supervision defined in the German Corporate Governance Code. The Supervisory Board, Executive Board and employees of Hannover Re identify with these principles, which thus form part of our corporate self-image. The Executive Board ensures that the principles are observed Group-wide.
Code (HGB) and pursuant to § 315d German Commercial Code (HGB) in conjunction with § 289f German Commercial Code (HGB) for the Hannover Re Group: Corporate Governance
The positive attitude of Hannover Rück SE towards the Code is not contradicted by the fact that in the year under review we did not comply with certain Code recommendations, since a well justified deviation from the recommendations of the Code may – as in the present cases – be very much in the interests of good corporate governance tailored to a particular company, i. e. by reflecting enterprise- and industry-specific features (cf. Foreword to the German Corporate Governance Code). Based on what is still a high degree of fulfilment of the recommendations and suggestions of the Code, Hannover Rück SE continues to rank very highly among the companies listed on the DAX and MDAX – as is also borne out this year for the first time by the findings of the analysis conducted by the German Association for Financial Analysis and Asset Management (DVFA).
C om b in ed m an ag em en t re p or t al public in German enterprise management. Under § 161 Stock Corporation Act (AktG) it is incumbent on the Management Board and Supervisory Board of German listed companies to provide an annual declaration of conformity with the recommendations of the “German Corporate Governance Code Government Commission” published by the Federal Ministry of Justice or to explain which recommendations of the Code were / are not applied.
In the period from 1994 to 2002 he served as the company’s Chief Financial Officer. During this time he acquired superb knowledge of the company and he is equipped with extensive professional expertise in the topics that fall within the scope of responsibility of the Finance and Audit Committee. With this in mind, he is optimally suited to chairing the Audit Committee.
The Executive Board and Supervisory Board of Hannover Rück SE work together on a trusting basis to manage and monitor the company and the Group as a whole. In accordance with the Rules of Procedure of the Executive Board, matters of fundamental importance require the consent of the Supervisory Board. The Supervisory Board is comprised of nine members. Six members are elected as shareholder representatives by the shareholders at the Annual General Meeting.
C om b in ed m an ag em en t re p or t man of the Executive Board in order to discuss with him significant business occurrences. The composition of the Executive Board (including areas of responsibility) as well as of the Supervisory Board and its committees is set out on pages 18 et seq. and 284 respectively of the present Annual Report.
The Supervisory Board decides in individual cases whether external advice should also be sought as a decision-making aid. This is included in a regularly conducted self-assessment with a view to assuring the general efficiency of its working approach on a lasting basis.
Working practice of the committees of the Supervisory Board In order to efficiently perform its tasks the Supervisory Board has formed a number of committees: the Finance and Audit Committee, the Standing Committee and the Nomination Committee. The Supervisory Board committees are each comprised of three members (the names of the members can be found on page 284 of the report) and prepare matters within their scope of competence for discussion and adoption of a resolution by the full Supervisory Board. Moreover, the committees are also assigned their own authority to adopt resolutions.
The Standing Committee prepares personnel decisions for the Supervisory Board. It bears responsibility for granting 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 Corporation Act (AktG) as well as for approving contracts with Supervisory Board members in accordance with § 114 Stock Corporation Act (AktG). It exercises the powers arising out of § 112 Stock Corporation
Act (AktG) in lieu of the Supervisory Board and – in cooperation with the Executive Board – ensures that long-term succession planning is in place. This regularly constitutes an item for reporting and deliberation in the committee meetings and it is explored in detail – also in connection with the Executive Board’s strategic objectives in the area of talent management.
Hannover Re considers a properly functioning compliance structure to be an essential tool for ensuring compliance with external rules and regulations as well as requirements imposed internally by the company. In the financial year just ended we thoroughly overhauled our compliance management system across the Group. Our compliance structure continues to be precisely tailored to the specific features of our Property & Casualty and Life & Health reinsurance business groups. The consistent decentralised implementation of our six compliance modules reflects our self-image as a company and hence also our culture and it facilitates optimal handling by the responsible actors within the organisation.
The risk management system applicable throughout the entire Hannover Re Group is based on the risk strategy, which in turn is derived from the corporate strategy. A core component is the systematic and comprehensive recording of all conceivable risks that from the current standpoint could potentially jeopardise the company’s profitability and continued existence. Further details in this regard may be obtained from the risk report contained in the present Annual Report on pages 92 et seq.
I. Implementation of the diversity concept in the 2019 financial year
In selecting candidates to be put forward to the Annual General Meeting for election to the Supervisory Board, care was taken to ensure that the individuals concerned have the necessary knowledge, skills and specialist experience, can demonstrate an international background and reflect a broad range of different educational and professional profiles within this governance body.
Furthermore, the proposed election nominations for 2019 were guided in particular by the goal of assuring an adequate number of independent Supervisory Board members as de-
The diversity of the Executive Board was strengthened with the appointment of Ms. Silke Sehm as a full member by a resolution of the Supervisory Board adopted at its meeting on 6 March 2019. The goal of appointing at least one woman as a member of the company’s Executive Board by the year 2022 was thereby fulfilled. Ms. Sehm brings extensive professional experience within the company to the Executive Board and succeeds Mr. Jürgen Gräber, who passed away unexpectedly on 9 November 2018.
In selecting members of the Executive Board the goal is to ensure that the members have the skills and experience needed to properly perform their tasks. The Supervisory Board considers diversity in the composition of the Executive Board. Moreover, on the level of the Executive Board the aim is to appoint another woman as a member of the company’s Executive Board by the year 2024. The age limit for the Executive Board is set at 65. The members of the Executive Board are appointed by the Supervisory Board for a term of at most five years. Member of the Executive Board are initially appointed for no more than three years.
Information regarding the following items is provided in the remuneration report: – Remuneration report for the Executive Board and disclosure of the remuneration received by Supervisory Board members pursuant to Items 4.2.5 and 5.4.6 of the German Corporate Governance Code, – Securities transactions, – Shareholdings.
Information on share-based payment pursuant to Item 7.1.3 of the German Corporate Governance Code is provided in section 8.3 of the notes “Sharebased payment”, page 258 et seq., and in the remuneration report with respect to the members of the Executive Board.
The remuneration report is guided by the recommendations of the German Corporate Governance Code and contains information which forms part of the notes to the 2019 consolidated financial statement as required by IAS 24 “Related Party Disclosures”. Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in this remuneration report and presented in summary form in the notes.
Insurance Sector (VersVergV). An independent expert’s report from July 2019 confirms that the system of remuneration meets the requirements of Art. 275 Commission Delegated Regulation (EU) 2015 / 35 for a remuneration policy and remuneration practices that are in line with the undertaking’s business, strategy and risk profile.
Non-cash compensation, fringe benefits: Accident, liability and luggage insurance, company car for business and – if desired – personal use (tax on the non-cash benefit payable by the Board member), reimbursement of travel expenses and other expenditures incurred in the interest of the company
Measurement bases / conditions of payment for variable remuneration M 87
An individually determined and contractually defined basic amount is paid for each 0.1 percentage point by which the RoE of the past three financial years exceeds the risk-free interest rate. Goal attainment of 100% corresponds to an RoE of 8.8% plus the risk-free interest rate (2019: 0.28%). Goal attainment can amount to a maximum of 200% and a minimum of -100%.
The basis for the divisional bonus is the return generated on the capital allocated to the division in the respective 3-year period just ended (= RoCA (Return on Capital Allocated)).
Decision of the Supervisory Board according to its best judgement 1 An instrument of value-based management used to measure the attainment of long-term goals on the level of the Group, business groups and operational units (see also page 28 et seq.).
A General Performance Bonus geared to the individual overall performance of the member of the Executive Board can be determined by the Supervisory Board as part of the individual bonus.
Total remuneration of the active members of the Executive Board pursuant to DRS 17 (modified in 2010) M 89
Short-term Medium-term Long-term 2018 = Actual 2019 = EstimateVariable remuneration payable Bonus bank Share awards in EUR thousand 60% 3 Netted remuneration from seats with
2 The non-cash compensation has been carried in the amounts established for tax purposes. 3 In 2019 EUR 110,100 more in variable remuneration was paid out to Board members for 2018 than had been reserved. As contractually agreed, the variable remuneration for 2018 was paid out in full to Mr. Gräber’s heirs in an amount EUR 64,900 higher than had been reserved. 4 The nominal amount is stated; full or partial repayment in 2023, depending on the development until such time of the balance in the bonus bank. In 2019 altogether EUR 36,700 more than had been originally reserved was allocated to the bonus bank for 2018.
6 In order to calculate the number of share awards for 2019 reference was made to the Xetra closing price of the Hannover Re share on 30 December 2019 (EUR 172.30). 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 2020. The applicable market price of the Hannover Re share had increased from EUR 117.70 (28 December 2018) to EUR 129.60 by the allocation date (16 March 2019) of the share awards for 2018; the share awards actually allocated for 2018 are shown here, not those estimated in the 2018 Annual Report.
5 The nominal amount is stated; virtual Hannover Re share awards are automatically granted in an amount equivalent to 20% of the variable remuneration. The equivalent amount will be paid in 2024 at the prevailing share price of Hannover Re. In 2019 nominal amounts of EUR 36,700 more than had been originally reserved were used as a basis for allocation of the 2018 share awards.
Dividend on share awards for 2017 4 24.7 0.0 0.0 0.0 26.1 0.0 0.0 0.0 – 0.0 0.0 0.0 28.2 0.0 0.0 0.0
Hannover Re. 5 For details of the service cost see the table “Pension commitments” on page 141.
Dividend on share awards for 2017 4 45.7 0.0 0.0 0.0 – 0.0 0.0 0.0 22.0 0.0 0.0 0.0 28.4 0.0 0.0 0.0
Dividend on share awards for 2018 4 0.0 45.1 45.1 45.1 – 0.0 0.0 0.0 0.0 22.4 22.4 22.4 0.0 26.8 26.8 26.8
Dividend on share awards for 2018 4 0.0 22.9 22.9 22.9 0.0 26.2 26.2 26.2 – 15.6 15.6 15.6 0.0 28.9 28.9 28.9 1 The fringe benefits of Mr. Henchoz include a contractually agreed one-time payment of EUR 1 million. 2 Year of payment 3 Maximum value when awarded, amount paid out dependent upon the share price in the year of payment and the dividends paid until such time. 4 In the case of Mr. Althoff and Ms. Sehm, the dividends paid out on share awards include the allocations for work performed as senior executives at
4 In the case of Mr. Althoff and Ms. Sehm, the payment of share awards includes the allocations for their work as senior executives before their appointment to the Executive Board.
5 Stock appreciation rights were awarded to Mr. Althoff in 2011 as a senior executive. 6 For details of the service cost see the table “Pension commitments” on page 141.
Roland Vogel Chief Financial Officer 1 The stated amounts include the remuneration received by Ms. Sehm as a senior executive of Hannover Re for the period from 1 January 2019 to 6 March 2019.
Sideline activities of the members of the Executive Board 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 responsibilities on the Executive Board. If the sideline activities involve seats on supervisory boards or comparable control boards, these are listed and published in the Annual Report of Hannover Rück SE. The remuneration received for such seats at Group companies and other board functions is deducted when calculating the variable bonus and shown separately in the table of total remuneration.
Pension payments to former members of the Executive Board The pension payments to former members of the Executive Board and their surviving dependants, for whom 18 (previous year: 17) pension commitments existed, totalled EUR 2.0 million (EUR 1.7 million) in the year under review. The projected benefit obligation of the pension commitments to former members of the Executive Board amounted to altogether EUR 34.2 million (EUR 26.0 million).
DBO 31.12. Personnel expense in EUR thousand 1 In accordance with IAS the service cost for active members is determined at the beginning of the year based on the data known at the time; consequently, the change in the service contract of Mr. Wallin was already reflected in the provision as at 31 December 2018 and the personnel expense in 2019 amounts to EUR 0. The pension paid to him with effect from 9 May 2019 is included in the projected benefit obligation of the pension commitments to former members of the Executive Board.
3 The personnel expense for 2019 includes a past service cost of EUR 97.5 thousand. 4 The personnel expense for 2019 includes a past service cost of EUR 139.2 thousand.
Member of the • Supervisory Board • Standing Committee • Finance and Audit Committee • Nomination Committee
(since 8 May 2019) Member of the Supervisory Board Fixed remuneration 19.4 –
Dr. Ursula Lipowsky Member of the • Supervisory Board • Finance and Audit Committee
(until 8 May 2019) Member of the Supervisory Board Fixed remuneration 30.7 50.0
Dr. Erhard Schipporeit Member of the • Supervisory Board • Standing Committee
(until 8 May 2019) Member of the Supervisory Board Fixed remuneration 10.7 30.0
Dealings in shares, options and derivatives of Hannover Rück SE effected by members of the Executive Board or Supervisory Board of Hannover Re or by other persons with managerial functions who regularly have access to insider information concerning the company and who are authorised to take major business decisions – as well as such dealings conducted by certain persons closely related to the aforementioned individuals – in excess of EUR 5,000 are to be reported. No reportable transactions took place in the 2019 financial year.
C om b in ed m an ag em en t re p or t attainment are agreed between the senior executive and their supervisor.
If the three-year average RoE above the risk-free interest rate reaches the expected minimum return on equity of 750 basis points, goal attainment stands at 85%. Goal attainment of 100% is recorded at 882 basis points. The maximum possible goal attainment is 200%. A lower limit is placed on goal attainment of -50% (penalty) for management level 2 (Managing Director) and 0% for management level 3 (Director and General Manager).
Hannover Re Group All 152 Group senior executives worldwide receive a cash bonus upon corresponding goal attainment and participate in the Share Award Plan.
Head office Hannover 798 staff (excl. seconded employees) out of the altogether 1,396 at Hannover head office (incl. 86 senior executives) are GPB-eligible.
Outlook Forecast • Gross written premium expected to grow by around 5% at constant exchange rates • Property and casualty reinsurance: target for combined ratio of no more than 97% • Life and health reinsurance: average EBIT growth of more than 5% • Return on investment target of roughly 2.7% for assets under own management • Group net income of around EUR 1.2 billion expected
In the advanced economies the increase in output will likely remain muted against a backdrop of high capacity utilisation. This can be attributed not least to the fact that the hitherto robust US economy is losing speed and the underlying trend in the Chinese economy is towards further modestly slowing growth. After a gain of 1.8% in the year just ended, growth in the advanced economies will therefore likely drop to 1.4% in the current year.
Asia Overall, the Kiel Institute for the World Economy sees growth in Asia reviving again slightly in 2020, improving by 0.2 percentage points to 5.8%. A particularly important role here will be played by India. The country will likely bounce back quickly from the temporary crisis in its banking system to reach growth of 6.3%. With trade relations between China and the United States still overshadowed by reciprocal punitive tariffs, growth in China will probably continue to soften somewhat and should come in at 5.9%. It was too early to assess the concrete economic impacts of the coronavirus – particularly in China – at the date when this report was compiled, but negative effects must be anticipated.
Capital markets It is our expectation that financial markets will bring further promising investment opportunities in 2020 but also a continued high degree of volatility. Above all, geopolitical risks and government-mandated protectionism – along with the US presidential election – have the potential to trigger significant fluctuations. The growing influence of populist movements should have less impact on the real economy because fiscal and monetary measures have a calming effect on markets.
In addition to the US presidential election, a major issue in 2020 will likely be the path taken by the United Kingdom as it leaves the European Union. In view of the importance of the US and China in world politics and global trade, the continued simmering trade dispute between the two countries is causing uncertainty among institutional investors. The emotional dialogue taking place within the European Union on its future orientation – as it seeks to strike a balance between necessary reforms and the influence of populist movements – should also have implications for investor behaviour.
The change of course taken by some central banks in favour of market support measures compensates for structural shortcomings. The ECB, for example, resumed its programme of corporate bond purchases in December. While geopolitical tensions and moves towards economic isolationism are casting a cloud over the business outlook, monetary policy measures and announcements appear to weigh more heavily. Following the leadership change at the ECB in the autumn, we do not anticipate any significant changes in the central bank’s policy. It is our expectation that the US Federal Reserve and Asian central banks will continue to pursue the programmes that have already been set in motion.
Declining credit spreads across the board were a hallmark of credit markets in 2019, albeit with clear differences in momentum between first-rate issuers and those more towards the bottom end of the spectrum. Investors appear to be somewhat more discerning and are tending to shun the more speculative end of the market. Nonetheless, unusually low risk premiums will continue to be evident in 2020 on industrials and financials, for which considerable positive impetus has already been priced in. This should tend to curb the speculative scope for further price jumps.
Once again, 2020 will thus present a challenging combination of excess liquidity, geopolitical and monetary policy uncertainty and fairly stable corporate profits. Given the very different perceptions of risk among many market actors, even greater attention must be paid to risk and return considerations when making investment decisions. With this in mind, broad diversification within the investment portfolio will continue to be of considerable importance in 2020.
The industry also remains intensely focused on the changes in customer expectations. Against a backdrop of advancing digitalisation, customers are becoming increasingly agile in their behaviour and their expectations – in terms of benefits and services – are also shifting appreciably. Insurers are responding by stepping up their customer contact management, focusing more sharply on service quality and developing new products. This move is also prompted by the demand side, since their insurance partners are increasingly calling for bespoke solutions. Against this backdrop, insurance products are created that actively support their partners’ strategic objectives and growth targets. The growing need to protect against climate change, elevated political risks and the ever more important cyber risks segment offer multiple entry points for new products. The digital transformation of the industry, in particular, is opening up new avenues for loss prevention.
Going forward, this will result in the industry working more closely together with partners in the technology sector.
The treaty renewals as at 1 January 2020 gave Hannover Re grounds for satisfaction. Higher prices were obtained in some areas, as had been anticipated; the increases were particularly marked for loss-impacted programmes. On the whole, prices and conditions showed modest improvement. Nevertheless, it remains the case that the rate level for natural catastrophe covers in particular, and here above all in Japan, Latin America and the Caribbean, is too low and there is a need for further improvement.
Adjusted for exchange rate effects, we grew our premium volume in traditional property and casualty reinsurance as at 1 January on an underwriting-year basis by altogether 14% to EUR 7,049 million. On this date 67% of the traditional property and casualty reinsurance portfolio (excluding facultative reinsurance, ILS business and structured reinsurance) was up for renewal. Expectations for the development of individual markets and lines in property and casualty reinsurance are described in greater detail below.
C om b in ed m an ag em en t re p or t subsidiary responsible for the German market, was able to further strengthen its leading position and wrote numerous increased treaty shares at largely stable prices and conditions.
In Germany, E+S Rück expects to book rising premiums for directly written business in 2020. In the 1 January treaty renewals we further cemented our prominent market position and wrote numerous increased treaty shares at largely stable prices and conditions. In motor reinsurance we achieved an adequate price level for our excess of loss portfolio. When it comes to proportional treaties, we made commission adjustments on a case-by-case basis depending on the profitability of the business.
Continental Europe and Africa In the other markets of Continental Europe we achieved slightly higher prices for the most part in the 1 January treaty renewals, above all under loss-impacted programmes and especially in Northern Europe. At the same time, demand for reinsurance was generally stronger across the entire region.
In South Africa we are planning to transform the companies Hannover Reinsurance Africa Ltd. and Hannover Life Reassurance Africa Ltd. in 2020 into a single entity that will transact both life & health and property & casualty reinsurance. This restructuring will give us greater capital efficiency and stability. Even though the general state of the South African economy will again limit the insurance industry’s growth prospects in the year ahead, we see attractive business opportunities for our companies.
Asia, Australia and the Middle East The above-average growth enjoyed by insurance markets in the Asia-Pacific region should be sustained in 2020. We therefore see particularly good opportunities here to grow our portfolio. The region is expected to deliver continued better -than-average premium growth over the coming years, most notably in property and casualty reinsurance.
Looking ahead to the renewal season in India as at 1 April 2020, our goal is to secure a qualitative improvement in conditions. Reflecting our ambitions for the Indian market, we would be prepared to substantially expand our portfolio provided conditions are appropriate. Markets in Southeast Asia and Southern Asia similarly offer a broad range of growth opportunities. Our activities here are focused on assisting our clients with the development of products, processes and systems.
A predominantly soft rate level is anticipated for our retakaful business in view of the oversupply of capacity in this fiercely competitive segment and the relatively low oil price. In 2020 we shall concentrate on our specialty lines. Both the portfolio and the premium volume should remain stable overall.
In the area of insurance-linked securities (ILS) we anticipate rising demand over the long term. Investors are seeking a negative or minimal correlation with other financial investments and hence greater diversification. We are responding to this demand with a strong emphasis on service, offering individually tailored solutions – from collateralised reinsurance to the transformation of catastrophe bonds – for property and life reinsurance risks. Over the coming years we expect our ILS activities to deliver a positive and consistently rising profit contribution. The capital market remains an important element in the retrocession coverage taken out by our own company.
Facultative Reinsurance and Direct Business We expect the current direction of the facultative reinsurance market to be sustained over the coming 18 to 24 months. In the 2020 financial year we anticipate a further rise in demand for facultative reinsurance at substantially improved conditions. This is driven by the above-average losses incurred in the previous years and also reflects the increased need for reinsurance among our clients.
Aviation and Marine Even though the primary insurance market for aviation risks has still to find an adequate pricing level, the significant losses of 2018 and 2019 further reinforced the trend towards rising prices and improved conditions. In its proportional reinsurance portfolio Hannover Re will be able to benefit directly from these improvements. Nevertheless, we also expect to be able to push through further increases for non-proportional programmes.
Catastrophe XL (Cat XL) In natural catastrophe (Cat XL) business we expect a sustained steady – albeit rather moderate – inflow of capacity from the capital markets. As in the previous year, this can be attributed to the loss experience of 2017 and 2018 – and in this regard especially the protracted run-off of certain losses – as well as to a pricing response that many capacity providers found disappointing. Following the catastrophe losses of recent years, we expect to see slightly increased demand among primary insurers for reinsurance protection, from which we will likely benefit disproportionately strongly thanks to our good rating and broad-based market presence.
Despite another considerable burden of losses from natural disasters such as hurricane Dorian, which impacted the Bahamas and the United States, and typhoons Faxai and Hagibis in Japan, together with increased additional reserves set aside for prior-year losses such as hurricane Irma in 2017 and typhoon Jebi in 2018, it was only possible to obtain stable
C om b in ed m an ag em en t re p or t prices and conditions overall in the 1 January renewals that for the most part fell short of expectations.
The global Cat XL market is expected to gain more significant pricing momentum in the further rounds of renewals during the year, which are more focused on loss-impacted regions such as Japan or Australia. With California having suffered extensive wildfires for a third year in succession, coverage for corresponding risks will also likely remain a central focus of attention.
In general terms, given the prevailing market conditions, we intend to increase our capacities for coverage of natural catastrophe risks only under certain selected programmes.
+ = above the cost of capital + / – = cost of capital earned – = below the cost of capital
Turning to our automated underwriting systems, we are similarly optimistic that we can build on the success story written so far. Numerous new deployments of hr | ReFlex and hr | Quirc are already in the pipeline. Moreover, the growing demand for lifestyle insurance products that combine health-related aspects (e. g. fitness and nutritional habits) with insurance protection will remain a trend and have major implications for the life insurance industry around the world.
In property and casualty reinsurance we expect solid growth at slightly improved conditions overall based on the outcome of the treaty renewals as at 1 January 2020. We shall retain unchanged our selective underwriting policy, under which in large part we write only business that satisfies our margin requirements. Looking ahead to the subsequent rounds of renewals during the year, we generally expect to see more appreciable pricing impetus – especially for natural catastrophe covers, and here above all in Japan, Latin America and the Caribbean.
Thanks to our good rating, long-standing stable customer relationships and low expense ratio, we should be able to generate another good result provided the burden of large losses remains within our expectations. We continue to aim for a combined ratio of no more than 97%. The targeted EBIT margin for property and casualty reinsurance remains unchanged at a minimum 10%.
In life and health reinsurance we expect to generate moderate growth in gross premium for the current financial year based on constant exchange rates. We anticipate EBIT growth averaging more than 5% over a three-year period. The value of new business should exceed the minimum target of EUR 220 million.
For the 2020 financial year we again expect to achieve a return on equity above our minimum target of 9.1%. We define our minimum target as 900 basis points above the five-year average return on ten-year German government bonds. As far as the solvency ratio is concerned, we continue to anticipate a level in excess of our minimum 200% target.
Hannover Re anticipates an unchanged payout ratio for the ordinary dividend in the range of 35% to 45% of its IFRS Group net income. The ordinary dividend will be supplemented by payment of a special dividend in light of capital management considerations if the comfortable level of capitalisation remains unchanged and Group net income is in line with expectations.
Fixed-income securities – at fair value through profit or loss 6.1 578,779 559,750
Other financial assets – at fair value through profit or loss 6.1 235,019 190,759
Profit / loss from investments in associated companies 7.2 26,354 4,977
Changes in the consolidated group – – – – – – – – (160) (160)
Other changes recognised outside income – – – – – – (15,632) (15,632) – (15,632)
Capital increases / additions – – – – – – – – 498 498
Capital repayments – – – – – – – – (40) (40)
Acquisition / disposal of treasury shares – – – – – – 37 37 – 37
Change in cash and cash equivalents (I. + II. + III. + IV.) (60,657) 315,803
Cash and cash equivalents at the end of the period 1,090,852 1,151,509
Cash and cash equivalents at the end of the period excluding the disposal group 1,090,852 1,072,915
A n n u al f in an ci al s ta te m en ts 1. Company information 168 2. Accounting principles 168 3. Accounting policies 171 3.1 Change in accounting policies 171 3.2 Summary of major accounting policies 172 3.3 Major discretionary decisions and estimates 180 4.1 Consolidation principles 181 4.2 Consolidated companies and complete list of shareholdings 182 4.3 Major acquisitions and new formations 195 4.4 Major disposals and retirements 196 5. Segment reporting 197 6. Notes on the individual items of the balance sheet 202 6.1 Investments under own management 202 6.2 Funds withheld (assets) 220 6.3 Contract deposits (assets) 220 6.4 Technical assets 220 6.6 Other assets 223 6.7 Technical provisions 227 6.8 Funds withheld (liabilities) 232 6.9 Contract deposits (liabilities) 232 6.10 Provisions for pensions and other post-employment benefit obligations 232 6.11 Other liabilities 236 6.12 Financing liabilities 238 6.13 Shareholders’ equity and treasury shares 240 6.14 Non-controlling interests 241 7. Notes on the individual items of the statement of income 243 7.1 Gross written premium 243 7.2 Investment income 244 7.3 Reinsurance result 246 7.4 Other income / expenses 247 7.5 Taxes on income 249 8. Other notes 252 8.1 Derivative financial instruments and financial guarantees 252 8.2 Related party disclosures 255 8.3 Share-based payment 258 8.4 Staff and expenditures on personnel 262 8.5 Earnings per share and dividend proposal 263 8.7 Contingent liabilities and commitments 264 8.9 Fee paid to the auditor 266 8.10 Events after the balance sheet date 267
1. Company information Hannover Rück SE and its subsidiaries (collectively referred to as the “Hannover Re Group” or “Hannover Re”) transact all lines of property & casualty and life & health reinsurance. With gross premium of approximately EUR 22.6 billion, Hannover Re is the third-largest reinsurance group in the world. The company’s network consists of more than 170 subsidiaries, affiliates, branches and representative offices worldwide with a total workforce of roughly 3,100. The Group’s German business is conducted by the subsidiary E+S Rückversicherung AG. Hannover Rück SE is a European Company, Societas Europaea (SE), which has its registered office at Karl-Wiechert-Allee 50, 30625 Hannover, Germany, and is entered in the commercial register of Hannover County Court under the number HR Hannover B 6778. 50.2% (rounded) of the shares of Hannover Rück SE are held by Talanx AG, Hannover, which in turn is majority-owned – with an interest of 79% – by HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI), Hannover.
The consolidated financial statement reflects all IFRS in force as at 31 December 2019 as well as all interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), application of which was mandatory for the year under review. IFRS 4.38 et seq. “Insurance Contracts” requires disclosures on the nature and extent of risks stemming from reinsurance contracts, while IFRS 7.31-42 “Financial Instruments: Disclosures” requires similar information on risks from financial instruments. Furthermore, § 315 Para. 2 Number 1 German Commercial Code (HGB) also contains requirements for insurance undertakings with regard to information on the management of underwriting and financial risks that is to be provided in the management report. The disclosures resulting from these requirements are included in the risk report. With regard to the disclosures required by IFRS 4 and IFRS 7, we would refer in particular to pages 105 to 109 “Underwriting risks in property and casualty reinsurance / Underwriting risks in life and health reinsurance” and to pages 110 to 114 “Market risks” respectively. We have dispensed with an additional presentation of the same content in the notes. In order to obtain a comprehensive overview of the risks to which Hannover Re is exposed it is therefore necessary to consider both the risk report and the relevant information in the notes. We refer the reader accordingly to the corresponding remarks in the risk report and the notes.
In view of the fact that reinsurance contracts, in conformity with IFRS 4 “Insurance Contracts”, are recognised according to the pertinent provisions of United States Generally Accepted Accounting Principles (US GAAP) as applicable on the date of initial application of IFRS 4 on 1 January 2005, we cite individual insurance-specific standards of US GAAP using the designation “Statement of Financial Accounting Standard (SFAS)” that was valid at that time.
The declaration of conformity required pursuant to § 161 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.
The present consolidated financial statement was released for publication by a resolution of the Executive Board on 6 March 2020.
Standards or changes in standards that have not yet entered into force or are not yet applicable
Furthermore, the standard fundamentally changes the presentation in the consolidated statement of income and introduces the new concept of insurance revenue instead of the disclosure of gross written premium. Insurance revenue is reported when it is earned by recognising in each period the changes in the liability for providing coverage for which the insurance entity receives compensation as well as the part of the premiums that covers acquisition costs. Receipts and payments relating to savings components are not recognised as revenue or as profit or loss in the statement of income. Insurance finance income and expenses result from discounting effects and financial risks. In accordance with the transition choices offered by IFRS 17, for each portfolio of insurance contracts they may be recognised either in profit or loss in the statement of income or directly in equity.
Changes in assumptions that do not relate to interest rates or financial risks are not recognised directly in the statement of income but are booked against the contractual service margin and hence spread across the remaining coverage period. Recognition in profit or loss is only immediate in the case of those groups of insurance contracts that are expected to be loss-making.
In view of the considerable complexity of the rules and the associated implementation effort, the IASB published an exposure draft of proposed amendments to IFRS 17 in June 2019, including deferral of the date of the standard’s initial application to annual reporting periods beginning on or after 1 January 2022 and other content-related changes. The exemption from initial application of IFRS 9 “Financial Instruments ” granted to insurance and reinsurance entities is similarly to be extended until 1 January 2022, thereby continuing to facilitate first-time application of both standards at the same time. The draft of the amended standard is still under
Hannover Re primarily anticipates implications for the classification of financial instruments. The portfolio of financial instruments to be recognised at fair value through profit or loss will increase as a consequence of the new classification rules. In addition, the Group expects the new impairment model to have implications for debt instruments.
Initial application to annual periods beginning on or after the following date: September 2019 Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
The opening balances as at 1 January 2019 were restated as follows due to the amended accounting of leases (IFRS 16): Changes pursuant to IAS 8 – change in accounting policy N 07 in EUR thousand 1.1.2019
The reconciliation of the commitment from operating leases stated as at 31 December 2018 to the lease liabilities recognised on 1 January 2019 is as follows: Reconciliation of lease liabilities at the date of initial application N 08 in EUR thousand 1.1.2019
Commitments from lease contracts already concluded with use commencing after 31 December 635
The average incremental borrowing rate at the date of initial application is 3.7%.
In the consolidated financial statement for the 2018 financial year Hannover Re corrected income and expenses from foreign currency translation in conformity with IAS 8 retrospectively in amounts of EUR 560.5 million each with no implications for Group net income. Offsetting takes place entirely for income and expenses resulting from the same currency.
Reinsurance contracts: IFRS 4 “Insurance Contracts” represents the outcome of Phase I of the IASB project “Insurance Contracts” and constitutes a transitional arrangement. IFRS 17, which was issued by the IASB in May 2017, establishes binding principles for the measurement of insurance contracts effective for annual reporting periods beginning on or after 1 January 2021. With the publication of the Exposure Draft “Amendments to IFRS 17” in June 2019, the IASB proposed a deferral of the date of the standard’s initial application to 1 January 2022 as well as further amendments to IFRS 17.
please see our explanatory remarks on the fair value hierarchy in section 6.1 “Investments under own management”.
Netting of financial instruments: financial assets and liabilities are only netted and recognised in the appropriate net amount if a corresponding legal claim (reciprocity, similarity and maturity) exists or is expressly agreed by contract, in other words if the intention exists to offset such items on a net basis or to effect this offsetting simultaneously.
Investments in associated companies are valued at equity on the basis of the proportionate shareholders’ equity attributable to the Group. Further information is provided in section 4.1 “Consolidation principles”.
Cash and cash equivalents are carried at face value. Cash collateral that we have received for the hedging of positive fair values of derivatives is shown under other liabilities.
Repurchase agreements (repo transactions): fully collateralised, term repurchase agreements (repos) are entered into as a supplementary liquidity management tool. In this context the Group sells securities and at the same time commits to repurchase them at a later date for an agreed price. Given that the material risks and opportunities associated with the financial instruments remain within the Group, we continue to recognise these assets. The repurchase commitment arising out of the payment received is accounted for under “sundry liabilities”; any difference between the amount received for the transfer of the securities and the amount agreed for their repurchase is spread across the term of the repo using
The other intangible assets include the expected profits from acquired life reinsurance portfolios. These are carried at the present value of future profits (PVFP) at time of acquisition, which is calculated as the present value of profits expected from the acquired blocks of business disregarding new business and tax effects. Amortisation is taken according to the periods of the underlying acquired contracts. The PVFP is regularly tested for impairment using a liability adequacy test and impairment losses are taken if necessary. In this regard please see section 3.3 “Major discretionary decisions and estimates ”. Separately identifiable intangible assets in connection with business combinations, such as customer base or contractual / legal rights, are also recognised under this item.
Deferred tax assets: IAS 12 “Income Taxes” requires that assets -side deferred taxes be established if assets have to be recognised in a lower amount or liabilities in a higher amount in the consolidated balance sheet than in the tax balance sheet and if these temporary differences will lead to reduced tax burdens in the future. In principle, temporary differences result from the valuation differences between the tax balance sheets drawn up in accordance with national standards and the IFRS balance sheets of the companies included in the consolidated financial statement drawn up in accordance with uniform group standards as well as from consolidation processes. Deferred tax assets and liabilities are not established if they arise out of assets or liabilities, the book value of which upon first-time recognition diverges from their initial tax base.
Deferred tax assets are also recognised on tax loss carry-forwards and tax credits. Insofar as the deferred taxes refer to
Right-of-use assets from lease contracts are measured at amortised cost in the amount of the initial measurement of the lease liability (cf. here the paragraph below), adjusted by prepaid lease payments, lease incentives received, initial direct costs incurred and probable restoration costs.
Right-of-use assets are amortised on a straight-line basis over the term of the lease contract.
Revenue from contracts with customers is realised when control of the promised goods or services is transferred to the customer. The amount of revenue realised corresponds to the consideration that the Group expects to receive in return for the transfer of goods or services to the customer. Under its contracts that fall within the scope of application of IFRS 15 the Group generally acts as a principal, because it normally controls the services or goods before transferring them to the customer.
Technical reserves: the technical reserves are shown for gross account in the balance sheet, i. e. before deduction of the share attributable to our reinsurers; cf. here the remarks concerning the corresponding assets. The reinsurers’ portion is calculated and accounted for on the basis of the individual reinsurance contracts.
A n n u al f in an ci al s ta te m en ts changes in valuation, especially actuarial gains and losses, are captured immediately in cumulative other comprehensive income. Service cost and interest cost are recognised in the statement of income. Returns on plan assets are determined using the same interest rate as that used in the calculation of the present value of the defined benefit obligation.
Translation differences resulting from the currency translation of separate financial statements of foreign subsidiaries are recognised under cumulative foreign currency translation adjustments.
Taxes: the taxes are comprised of the actual tax load on corporate profits of the Group companies, to which the applicable local tax rates are applied, as well as changes in deferred tax assets and liabilities. Income and expenses arising out of interest or penalties payable to the revenue authorities are shown under other income / expenses. The calculation of the deferred tax assets and liabilities is based on tax loss carry -forwards, unused tax credits and temporary differences between the book values of assets and liabilities in the consolidated balance sheet of the Hannover Re Group and their carrying amounts in the tax balance sheet. Further information on deferred taxes is provided in our remarks on deferred tax assets and liabilities.
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 information on contingent claims and liabilities as at the balance sheet date and the disclosure of income and expenses during the reporting period. Key facts and circumstances subject to such assumptions and estimates include, for example, the recoverability of contingent reinsurance liabilities, the recoverability of investments in associated companies, the valuation of derivative financial instruments as well as assets and liabilities relating to employee benefits. The actual amounts may diverge from the estimated amounts.
Supplementary or complete estimates of the corresponding profit and loss items, assets and liabilities including relevant retrocessions are made where ceding company accounts with substantial premium income are missing. Missing ceding company accounts with a low premium volume are included in the following year.
The projections, which cover various model scenarios (“conservative assumptions” versus “best estimate”), constitute the starting point for numerous areas of application encompassing quotation, the determination of carrying amounts and embedded values as well as contract-specific analyses, e. g. regarding the appropriateness of the recognised reinsurance liabilities (“liability adequacy test”). In this context we would refer the reader to our comments on technical assets and provisions in section 3.2 “Summary of major accounting policies” and on the liability adequacy tests in section 6.7 “Technical provisions”.
A n n u al f in an ci al s ta te m en ts 4. Consolidation 4.1 Consolidation principles
Only subsidiaries which are of minor importance – both individually and in their entirety – for the net assets, financial position and results of operations of the Hannover Re Group are exempted from consolidation. Hannover Re assesses whether a subsidiary is of minor importance on the basis of the company’s total assets and net income relative to the corresponding values for the Group as a whole on average over the last three years. For this reason 12 (12) companies at home and abroad were not consolidated in the year under review. A further 4 (5) individual companies as well as in the previous year a subgroup account with altogether 14 individual companies were not included at equity in the consolidated financial statement for the same reason. The business object of these altogether 16 (31) companies is for the most part the rendering of services for reinsurance companies within the Group.
Hannover America Private Equity Partners II GmbH & Co. KG 1, Hannover / Germany 95.42 EUR 542,769 58,858
Hannover Re Euro PE Holdings GmbH & Co. KG 1, Hannover / Germany 91.20 EUR 362,071 53,321
HR GLL Central Europe GmbH & Co. KG 1, Munich / Germany 87.67 EUR 180,430 33,305
HILSP Komplementär GmbH 3, 4, Hannover / Germany 100.00 EUR 34 (1)
HANNOVER Finanz GmbH 7, Hannover / Germany 27.78 EUR 63,435 5,322
Hannover Finance (UK) Limited 1, London / United Kingdom 100.00 GBP 656 (24)
Hannover Life Reassurance Bermuda Ltd. 1, Hamilton / Bermuda 100.00 USD 495,663 95,050
Hannover Life Reassurance Company of America 1, Orlando / USA 100.00 USD 552,826 70,119
Hannover Life Reassurance Company of America ( Bermuda) Ltd. 1, Hamilton / Bermuda 100.00 USD 1,616,067 166,255
Hannover ReTakaful B.S.C. (c) 1, Manama / Bahrain 100.00 BHD 68,650 9,800
Hannover Services (UK) Limited 1, London / United Kingdom 100.00 GBP 927 (42)
APCL Corporate Director No.1 Limited 1, 3, London / United Kingdom 100.00 GBP – –
Names Taxation Service Limited 1, 3, London / United Kingdom 100.00 GBP 10 –
Argenta Secretariat Limited 1, 3, London / United Kingdom 100.00 GBP – –
Argenta LLP Services Limited 1, 3, London / United Kingdom 100.00 GBP – –
Argenta Syndicate Management Limited 1, 3, London / United Kingdom 100.00 GBP 4,357 2,583
Argenta Tax & Corporate Services Limited 1, 3, London / United Kingdom 100.00 GBP 386 113
Argenta Underwriting No.2 Limited 1, 3, London / United Kingdom 100.00 GBP 1,347 48
Argenta Underwriting No.3 Limited 1, 3, London / United Kingdom 100.00 GBP (276) (742)
Argenta Underwriting No.4 Limited 1, 3, London / United Kingdom 100.00 GBP (152) –
Argenta Underwriting No.9 Limited 1, 3, London / United Kingdom 100.00 GBP 552 (239)
Argenta Underwriting No.11 Limited 1, 3, London / United Kingdom 100.00 GBP (19) 11
Argenta No.13 Limited 1, 3, London / United Kingdom 100.00 GBP – –
Argenta No.14 Limited 1, 3, London / United Kingdom 100.00 GBP – –
Residual Services Limited 1, 3, 9, London / United Kingdom 100.00 GBP 3 –
Residual Services Corporate Director Limited 1, 3, London / United Kingdom 100.00 GBP – –
Leine Investment SICAV-SIF 1, 3, Luxembourg / Luxembourg 100.00 USD 114,319 2,316
LI RE 1, 3, Hamilton / Bermuda 100.00 USD – –
Hannover Finance, Inc. 3, Wilmington / USA 100.00 USD 1,405,321 27,227
Hannover Reinsurance Group Africa (Pty) Ltd. 1, Johannesburg / South Africa 100.00 ZAR 251,982 100,171
Hannover Life Reassurance Africa Limited 1, Johannesburg / South Africa 100.00 ZAR 828,141 108,856
Compass Insurance Company Limited 1, Johannesburg / South Africa 100.00 ZAR 265,807 55,512
HR US Infra Equity LP 1, 3, Wilmington / USA 95.25 USD 58,948 (599)
GLL HRE CORE Properties, L.P. 1, 3, Wilmington / USA 95.15 USD 807,452 231 101BOS LLC 1, 3, Wilmington / USA 95.15 USD 49,647 1,508 402 Santa Monica Blvd, LLC 1, 3, Wilmington / USA 95.15 USD (1,887) 910 111ORD LLC 1, 3, Wilmington / USA 95.15 USD 67,069 1,987 140EWR LLC 1, 3, Wilmington / USA 95.15 USD 50,104 (10,285)
7550IAD LLC 1, 3, Wilmington / USA 95.15 USD 68,298 (141,581)
M8 Property Trust 1, Sydney / Australia 94.72 AUD 64,927 314
HR US Infra Debt LP 1, 3, George Town / Cayman Islands 94.71 USD 183,722 8,022
3541 PRG s.r.o. 1, Prague / Czech Republic 87.67 CZK 964,116 59,089
HR GLL Griffin House SPÓŁKA Z OGRANICZONĄ ODPOWIEDZIALNOŚCIĄ 1, Warsaw / Poland 87.67 PLN 34,740 (1,323)
Garagesure Consultants and Acceptances (Pty) Ltd. 1, Johannesburg / South Africa 70.00 ZAR 3,034 1,313
MUA Insurance Acceptances (Pty) Ltd. 1, Cape Town / South Africa 66.50 ZAR 10,224 9,561
Hospitality Industrial and Commercial Underwriting Managers (Pty) Ltd. 1, Johannesburg / South Africa 59.50 ZAR 2,077 13,848
Firedart Engineering Underwriting Managers (Pty) Ltd. 1, Johannesburg / South Africa 49.00 ZAR 677 (547)
Film & Entertainment Underwriters SA (Pty) Ltd. 1, Johannesburg / South Africa 35.70 ZAR 983 446
HR Hannover Re, Correduría de Reaseguros, S.A., Madrid / Spain 100.00 EUR 683 109
Hannover Re Services Japan 1, Tokyo / Japan 100.00 JPY 151,508 12,301
Hannover Services (México) S.A. de C.V. 7, Mexico City / Mexico 100.00 MXN 9,627 833
Hannover Rück SE Escritório de Representação no Brasil Ltda. 7, Rio de Janeiro / Brasil 100.00 BRL 3,405 390
U FOR LIFE SDN. BHD. 1, Petaling Jaya / Malaysia 100.00 MYR (26,613) (4,709)
Clarendon Transport Underwriting Managers (Pty) Ltd. 1, Johannesburg / South Africa 22.87 ZAR 16,820 15,884
Pineapple Tech (Pty) Ltd 1, Johannesburg / South Africa 17.50 ZAR (2,596) (5,820)
Trinity Underwriting Managers Ltd. 15, Toronto / Canada 20.00 CAD 3 (1,274)
Meribel Mottaret Limited 16, St. Helier / Jersey 18.92 EUR – –
Kopano Ventures (Pty) Ltd 1, Johannesburg / South Africa 10.50 ZAR 2,537 (4,377)
Centaur Animal Health, Inc. 17, Olathe / USA 6.90 USD 1,968 150
The Sociotech Institute Proprietary Limited 1, Cape Town / South Africa 3.84 ZAR (434) (7,989)
Liberty Life Insurance Public Company Ltd 15, Nicosia / Cyprus 3.30 EUR 8,222 331
B3i Services AG 7, Zurich / Switzerland 1.63 CHF (4,612) (12,086)
The Hannover Re Group companies listed in the following table maintain branches that we consider to be material to an understanding of the Group’s position.
Hannover Rueck SE Australian Branch, Sydney / Australia 426,221 489,319 10,607 16,168
Hannover Rueck SE Malaysian Branch, Kuala Lumpur / Malaysia 447,232 397,170 26,894 44,681
Hannover Rück SE, Tyskland Filial, Stockholm / Sweden 349,856 253,390 19,635 35,184
Hannover Rück SE Shanghai Branch, Shanghai / China 1,726,805 1,193,529 24,281 25,515
Hannover Rück SE Korea Branch, Seoul / South Korea 49,067 47,822 2,640 2,889
Structured entities are entities designed in such a way that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity frequently has some or all of the following features or attributes: • Restricted activities; • A narrow and well-defined business objective; • Insufficient equity to allow it to finance its activities without subordinated financial support; • Financing in the form of multiple contractually linked instruments issued to investors that create concentrations of credit or other risks (tranches).
Investing activities and investments in catastrophe bonds (ILS) Within the scope of its investment activities Hannover Re participates inter alia in numerous structured entities. These are predominantly special purpose entities in the form of funds, which for their part transact certain types of equity and debt capital investments. These investments encompass private equity funds, fixed income funds, collateralised debt obligations, real estate funds, index funds and other public funds. The volume of these transactions is derived from the book values of the respective investments and amounted to EUR 3,323.6 million (EUR 2,916.5 million) as at the balance sheet date. The maximum risk of loss corresponds to the book values.
Hannover Re participates through its subsidiary Leine Investment SICAV-SIF, Luxembourg, in a number of structured entities that issue catastrophe bonds for the securitisation of catastrophe risks by investing in such bonds. Leine Investment General Partner S.à.r.l. is the managing partner of the asset management company Leine Investment SICAV-SIF, the business object of which is to build, hold and manage a portfolio of insurance-linked securities (catastrophe bonds) – including for third-party investors outside the Group. The volume of these transactions is derived from the book values of the respective investments and amounted to EUR 78.5 million (EUR 86.3 million) as at the balance sheet date. The maximum risk of loss corresponds to the book values.
Collateralised fronting (ILS) As part of its extended insurance-linked securities (ILS) activities, Hannover Re has concluded so-called collateralised fronting arrangements under which risks assumed from ceding companies are passed on to institutional investors outside the Group using structured entities. The purpose of such transactions is to directly transfer clients’ business. The volume of the transactions is derived from the ceded exposure limit of the underlying retrocession agreements and amounted to EUR 6,559.4 million (EUR 6,131.3 million) as at the balance sheet date. Part of the ceded exposure limit is funded and collateralised by contractually defined investments in the form of cash and equivalent liquid assets; a further part remains uncollateralised or is collateralised by less liquid assets. The maximum risk of loss from these transactions is derived from the uncollateralised exposure limit and the credit risk of the collateral and amounted to EUR 3,125.9 million (EUR 3,063.1 million) as at the balance sheet date. This does not, however, correspond to the economic risk of loss, which is established using recognised actuarial methods. The expected loss on a modelled basis in a worst-case scenario of 10,000 years amounts to at most EUR 37.1 million (EUR 50.0 million).
In the third and fourth quarters of 2019 GLL HRE Core Properties, LP, established 7550BWI LLC and 7659BWI LLC, both Wilmington, USA, for the purpose of real estate acquisition. An amount of roughly EUR 50.4 million was invested in this connection.
With economic effect from 1 January 2019 HDI Global SE acquired 50.2% of the shares in Inter Hannover for a purchase price of EUR 107.2 million. Inter Hannover was subsequently rebranded as HDI Global Specialty SE. HDI Global SE transferred its specialty portfolio to the new company. The remaining shares in HDI Global Specialty SE will continue to be held by Hannover Re. Deconsolidation of the company in the first quarter of 2019 gave rise to income of EUR 6.3 million, which was recognised in other income and expenses. The remaining interest in the company in an amount of 49.8% was included at equity in the consolidated financial statement.