In order to hedge the risk of share price changes in connection with the stock appreciation rights granted under the share award plan, Hannover Re has taken out hedges since 2014 in the form of so-called equity swaps. The fair value of these instruments amounted to EUR 2.0 million (EUR 1.1 million) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss. The hedge gave rise to an increase in equity from hedging instruments recognised directly in equity in an amount of EUR 5.9 million (EUR 1.1 million); ineffective components of the hedge were recognised in a minimal amount under other investment expenses.
The net changes in the fair value of these instruments resulted in an improvement of EUR 4.0 million in the result of the financial year (charge to the result of EUR 32.9 million).
Hannover Re calculates the fair values of the embedded derivatives in ModCo treaties using the market information available on the valuation date on the basis of a “credit spread” method. Under this method the derivative is valued at zero on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities. The derivative had a positive value of EUR 23.2 million (EUR 44.8 million) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss.
A number of transactions concluded in the life and health reinsurance business group in previous years, under which Hannover Re companies offer their contracting parties coverage for risks from possible future payment obligations arising out of hedging instruments, are also to be classified as derivative financial instruments. The payment obligations result from contractually defined events and relate to the development of an underlying group of primary insurance contracts with statutory reserving requirements. The contracts are to be categorised and recognised as stand-alone credit derivatives pursuant to IAS 39. These derivative financial instruments were carried in equity on initial recognition because receivables recognised under other assets were to be carried in the same amount. Please see Section 6.6 “Other assets”. The fair value of these instruments was EUR 156.1 million (EUR 136.5 million) on the balance sheet date and was recognised under other liabilities. The change in value in subsequent periods is dependent upon the risk experience and led to an improvement of EUR 17.8 million (EUR 6.3 million) in investment income in the financial year.
Financial guarantees Structured transactions were entered into in the life and health reinsurance business group in order to finance statutory reserves (so-called Triple-X or AXXX reserves) of US ceding companies. In each case such structures necessitated the involvement of a special purpose entity. The special purpose entities carry extreme mortality risks securitised by the cedants above a contractually defined retention and transfer these risks by way of a fixed / floating swap to a member company of the Hannover Re Group. The total amount of the contractually agreed capacities of the transactions is equivalent to EUR 3,544.4 million (EUR 3,079.4 million); an amount equivalent to EUR 2,483.4 million (EUR 1,887.0 million) had been taken up as at the balance sheet date. The variable payments to the special purpose entities that are guaranteed by the Hannover Re Group cover their payment obligations. Under some of the transactions the payments resulting from the swaps in the event of a claim are reimbursed by the parent companies of the cedants by way of compensation agreements. In this case the reimbursement claims from the compensation agreements are to be capitalised separately from and up to the amount of the provision.
Companies belonging to the Talanx Group granted the Hannover Re Group insurance protection inter alia in the areas of public liability, building, contractors all risks, group accident and business travel insurance. Divisions of Talanx AG also performed services for us in the areas of taxes and general administration.
Talanx Reinsurance Broker AG grants Hannover Rück SE and E+S Rückversicherung AG a preferential position as reinsurers of cedants within the Talanx Group. In addition, Hannover Rück SE and E+S Rückversicherung AG are able to participate in the protection covers on the retention of Group cedants and share in the protection afforded by them. In certain circumstances Hannover Rück SE and E+S Rückversicherung AG are obliged to assume unplaced shares of the reinsurance of Group cedants from Talanx Reinsurance Broker AG.
Under long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2015 to Talanx Service AG, Hannover. In addition, lease agreements exist with Talanx Service AG for use of a portion of the space in our data-processing computer centre.
Remuneration and shareholdings of the management boards of the parent company The remuneration of the active members of the Executive Board of Hannover Re amounted to altogether EUR 8.1 million (EUR 7.6 million). The total remuneration (excluding pension payments) of former members of the Executive Board and their surviving dependants stood at EUR 0.7 million (EUR 0.8 million ). The pension payments to previous members of the Executive Board and their surviving dependants, for whom 16 (16) pension commitments existed, totalled EUR 1.6 million (EUR 1.5 million) in the year under review; altogether, a provision of EUR 25.0 million (EUR 28.8 million) has been set aside for these commitments.
In the 2015 financial year the following share-based payment plans with cash settlement existed within the Hannover Re Group: 1. Stock Appreciation Rights Plan (in effect since 2000, cancelled in stages from 2011 onwards and currently being wound up)
Stock appreciation rights were first granted for the 2000 financial year and were awarded separately for each subsequent financial year (allocation year) until cancellation of the plan, provided the performance criteria defined in the Conditions for the Granting of Stock Appreciation Rights were satisfied.
Waiting period 4 years 4 years 2 years 2 years 2 years
Fair value at 31 December 2015 (in EUR) 32.13 8.92 8.76 10.79 10.32
On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 13.5 million for the 2015 financial year (EUR 20.5 million). The expense totalled altogether EUR 3.6 million (EUR 7.8 million).
Share Award Plan With effect from the 2011 financial year the Supervisory Board of Hannover Rück SE implemented a Share Award Plan for the members of the Executive Board of Hannover Re; this provides for the granting of stock participation rights in the form of virtual shares (referred to as “share awards”). The Executive Board of Hannover Re decided to adopt a Share Award Plan for certain management levels at Hannover Re as well with effect from the 2012 financial year.
Share awards are granted separately for the first time for the 2011 financial year and then for each financial year (allocation year) thereafter.
Number of allocated share awards in the allocation year 1 The other adjustments result from originally granted share awards that have since lapsed.
Provision at 31 December of the year under review 1,658 4,636 8,078 10,850 2,548 27,770
The aggregate provision – recognised under the sundry non-technical provisions – amounted to EUR 27.8 million (EUR 12.7 million) as at the balance sheet date.
The personnel expense for share awards in the case of members of the Executive Board is spread on an accrual basis across the relevant term of the share awards or the shorter term of the service contracts; in the case of senior executives the personnel expense is spread across the relevant term of the share awards. The allocation of the financial year recognised in the expenditures on personnel totalled altogether EUR 15.1 million
Expenditures on personnel The expenditures on insurance business, claims expenses (claims settlement) and expenditures on the administration of investments include the following personnel expenditures: Personnel expenditures N 94 in EUR thousand 2015 2014 a) Wages and salaries 246,391 224,659 b) Social security contributions and expenditure on provisions and assistance ba) Social security contributions 23,037 21,290 bb) Expenditures for pension provision 25,430 22,816 bc) Expenditures for assistance 4,784 4,616 8.5 Earnings per share and dividend proposal
The earnings per share is calculated by dividing the net income attributable to the shareholders of Hannover Rück SE by the weighted average number of shares outstanding within the period under review.
The weighted average of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the balance sheet date. In the context of the employee share option plan Hannover Re acquires treasury shares and sells them at a later date to eligible employees. The weighted average number of shares does not include 12,922 (21,608) treasury shares pro rata temporis for the duration of the holding period. For further details please see our comments in Section 6.13 “Shareholders’ equity and treasury shares”.
Dividend per share A dividend of EUR 512.5 million (EUR 361.8 million) was paid in the year under review for the 2014 financial year.
Hannover Rück SE has secured by subordinated guarantee the subordinated debts issued by Hannover Finance (Luxembourg ) S.A. in the 2010 and 2012 financial years in amounts of EUR 500.0 million each. A subordinated debt issued in 2005 by Hannover Finance (Luxembourg) S.A. with a volume of EUR 500.0 million, which was also secured by a subordinated guarantee, was redeemed on 1 June 2015 at the first scheduled call date.
As security for technical liabilities to our US clients, we have established two trust accounts (master trust and supplemental trust) in the United States. They amounted to EUR 3,511.5 million (EUR 3,173.7 million) and EUR 27.2 million (EUR 24.4 million ) respectively as at the balance sheet date. The securities held in the trust accounts are shown as available-for-sale investments. In addition, we furnished further collateral to ceding companies in an amount of EUR 1,810.3 million
(EUR 979.1 million) in the form of so-called “single trust funds”. This amount includes a sum equivalent to EUR 1,281.2 million (EUR 329.1 million) which was furnished by investors as security for potential reinsurance obligations from ILS transactions.
As part of our business activities we hold collateral available outside the United States in various blocked custody accounts and trust accounts, the total amount of which in relation to the Group’s major companies was EUR 2,775.8 million (EUR 2,694.0 million) as at the balance sheet date.
As security for liabilities in connection with participating interests in real estate companies and real estate transactions the usual collateral under such transactions has been furnished to various banks, the amount of which totalled EUR 592.7 million (EUR 574.3 million) as at the balance sheet date.
Outstanding capital commitments with respect to alternative investments exist on the part of the Group in an amount of EUR 837.1 million (EUR 716.3 million). These primarily involve as yet unfulfilled payment obligations from investment commitments given to private equity funds and venture capital firms.
Operating leasing contracts produced expenditures of EUR 10.8 million (EUR 9.3 million) in the year under review.
Rented property Altogether, non-cancellable contracts will produce the rental income shown below in subsequent years: Rental income N 97 in EUR thousand Payments to be received
Rental income totalled EUR 87.8 million (EUR 76.2 million) in the year under review. The rental income resulted principally from the renting out of properties by the Group’s real estate companies.
Services relating to auditing of the financial statements 7,124 1,603 6,271 1,415
We have audited the consolidated financial statements prepared by Hannover Rück SE, Hannover – comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated cash flow statement and notes to the consolidated financial statements – as well as the combined management report of the company and the Group for the business year from 1 January to 31 December 2015. The preparation of the consolidated financial statements and the combined management report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Para. 1 HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the combined management report based on our audit.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the combined management report are detected with reasonable assurance.
No audit measures pursuant to § 111 Para. 2 Sentence 1 German Stock Corporation Act were required in the 2015 financial year.
Key points of deliberation As in every year, we were regularly updated on the work of the Supervisory Board committees and given a description of the major pending legal proceedings. We approved the restructuring of a sizeable life portfolio with a simultaneous expansion of the risk monitoring structures. In addition, we received extensive reports on the recognition, measurement and development of mortality solutions business in the United States and on the status of the Market Consistent Embedded Value in life and health reinsurance relative to competitors. A further key point of deliberation was the adoption of a resolution on the increase in the capital reserve at Hannover Life Re AG. In the annual review of the investment guidelines the granularity of the list of capital market products was revised. The review also centred on an increase in the real estate allocation including updating of the specifications regarding the real estate exposure. A report on the profitability of the use of inflation swaps years was also received and the bilateral letter of credit facilities were discussed. The formation of a control and profit transfer agreement with International Insurance Company of Hannover SE was approved. Implementation of the Act on the Equal Participation of Women and Men in Leadership Positions in the Private Sector and the Public Sector was also discussed and a corresponding resolution adopted. In addition, the strategic approach of acquiring capital participations in Lloyd’s syndicates as well as the realisation of a portion of the hidden reserves in the equity participation held in E+S Rückversicherung AG were discussed. With an eye to § 3 Para. 1 Sentence 3 of the Regulation on the Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV) the full Supervisory Board considered the adequacy of the remuneration system for the members of the Executive Board. The variable remuneration of the members of the Executive Board was defined on the basis of the findings with respect to attainment of the respective targets for the 2014 financial year.
The Finance and Audit Committee considered inter alia the consolidated annual and quarterly financial statements drawn up in accordance with IFRS and the corresponding individual financial statements of Hannover Rück SE drawn up in accordance with the German Commercial Code (HGB) and discussed with the independent auditors their reports on these financial statements. As in the previous year, an expert opinion on the
S up er vi so ry b oa rd adequacy of the loss reserves in property and casualty reinsurance was noted, the retrocession structure of the Hannover Re Group and the accumulated prefinancing volume in life reinsurance including a comparison of the expected return flows with the repayments actually made, the risk reports, the compliance report and the report on adherence to Corporate Governance principles were discussed and reports on the major subsidiaries were received and considered. In addition, the Committee examined the investment structure and investment income – including the stress tests with regard to the investments and their implications for net income and the equity base – and defined the audit concentrations for the 2015 financial year. The Committee was provided with detailed reports on the current status and probable development of the subsidiary International Insurance Company of Hannover SE as well as on the recognition and measurement of the risk-oriented book of US life reinsurance business acquired in 2009 from Scottish Re. In addition, an audit report was submitted by KPMG AG Wirtschaftsprüfungsgesellschaft on the calculation of the intrinsic value creation (IVC). The Committee prepared various resolutions to be adopted by the Supervisory Board, including resolutions on the increase in the capital reserve at Hannover Life Re AG and the realisation of a portion of the hidden reserves in the equity participation held in E+S Rückversicherung AG. The Committee also received an explanation of the capital market risks in life and health reinsurance and considered various M&A projects. Furthermore, the options available to the company for capital market measures were explored. As in the previous year, we were again updated on the status of the approval procedure for the internal model.
– in each case drawn up as at 31 December 2015 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report.
The Supervisory Board thus concurred with the opinions of the auditors and approved the annual financial statements and the consolidated financial statements; the annual financial statements are thereby adopted. Our proposal regarding the appropriation of the disposable profit for 2015 is in accordance with that of the Executive Board.
Changes on the Supervisory Board and the Executive Board The composition of the Supervisory Board and its committees as well as of the Executive Board did not change in the year under review.
Burgwedel Employee 1 Member of the Standing Committee 2 Member of the Finance and Audit Committee 3 Independent financial expert on the Finance and Audit Committee 4 Member of the Nomination Committee 5 Staff representative
Hannover Rueck SE Australian Branch The Re Centre, Level 21 Australia Square 264 George Street Sydney NSW 2000 G. P. O. Box 3973 Sydney NSW 2001
International Insurance Company of Hannover SE (Australian Branch) – Underwriting Office Level 12 20 Bond Street Sydney NSW 2000
Hannover Rück SE Korea Branch Room 414, 4th Floor Gwanghwamoon Officia Building 92, Saemunan-ro, Jongno-gu Seoul 110-999
Compass Insurance Company Limited KPMG Wanooka Place Ground Floor St. Andrews Road Parktown Johannesburg 2193 P. O. Box 37226 Birnam Park 2015 www.compass.co.za Managing Director: Paul Carragher
International Insurance Company of Hannover SE (Scandinavian Branch) Hantverkargatan 25 P. O. Box 22085 10422 Stockholm
Capital asset pricing model (CAPM): the CAPM is used to explain the materialisation of prices / returns on the capital market based on investor expectations regarding the future probability distribution of returns. Under this method, the opportunity cost rate for the shareholders’ equity consists of three components – a risk-averse interest rate, a market-specific risk loading and an enterprise-specific risk assessment, the beta coefficient. The cost of shareholders’ equity is therefore defined as follows: risk-averse interest rate + beta * enterprise -specific risk assessment.
Facultative reinsurance: participation on the part of the reinsurer in a particular individual risk assumed by the direct insurer. This is in contrast to obligatory (also: treaty) re insurance.
Financial Solutions: refers to reinsurance transactions which – in addition to the transfer of biometric risks – also include financing components. They generally employ the future profits contained in a block of new or inforce business to enable a ceding company to achieve a desired financial objective. Such reinsurance solutions provide direct insurers with an alternative means of accessing capital in order, for example, to pursue new lines of business or increase capital reserves.
Non-proportional reinsurance: reinsurance treaty under which the reinsurer assumes the loss expenditure in excess of a particular amount ( priority) (e. g. under an excess of loss treaty). This is in contrast to proportional reinsurance.
Other securities, held-to-maturity: investments in debt securities that can and are intended to be held to maturity. They are measured at amortised cost.
Quota share reinsurance: form of proportional reinsurance under which the reinsurer assumes a contractually set percentage share of the written risk. Since the insurer is responsible for acquisition, pricing, policy administration and claims handling, the administrative expenditure for the reinsurer is very low. The latter therefore participates in the aforementioned expenses through payment of a reinsurance commission. This commission can amount to 15% to 50% of the original premium depending upon the market and cost situation.
Retrocession (also: Retro): ceding of risks or shares in risks which have been reinsured. Retrocessions are ceded to other reinsurers in exchange for a pro-rata or separately calculated premium (cf. Gross / Retro / Net).
Segment reporting: presentation of items in the balance sheet and income statement split according to functional criteria such as business sectors and regions.
I 09 Highs and lows of the Hannover Re share 10 I 10 Relative performance of the Hannover Re share 11 I 11 Shareholding structure as at 30 November 2015 12 I 12 Geographical breakdown of the shares held by institutional investors 12 I 13 Basic information 13 I 14 Key figures 13 I 15 Performance Excellence 19
M 01 Target attainment 24 M 02 System of value-based management: Performance Excellence (PE) combines the strategic and operational levels 25 M 03 Intrinsic Value Creation and excess return on capital allocated 26 M 04 Gross premium by business group 33 M 05 Business development in the year under review 35 M 06 Gross written premium in P& reinsurance 36 M 07 Geographical breakdown of gross written premium
M 08 Breakdown of proportional and non-proportional treaties by volume 36 M 09 Breakdown into business written through brokers and direct business 36 M 10 Key figures for Property & Casualty reinsurance 37 M 11 Property & Casualty reinsurance: Major loss trend 38 M 12 Property & Casualty reinsurance: Key figures for individual markets and lines in 2015 39 M 13 Property & Casualty reinsurance: Breakdown of gross written premium in target markets 39 M 14 Property & Casualty reinsurance: Breakdown of gross written premium in North America by line of business 40
M 16 Property & Casualty reinsurance: Breakdown of gross written premium in worldwide specialty lines 41
M 18 Property & Casualty reinsurance: Breakdown of gross written premium in global reinsurance 43
M 19 Property & Casualty reinsurance: Breakdown of gross written premium in worldwide treaty reinsurance 44
M 20 Key figures for Life & Health reinsurance 47 M 21 Breakdown of gross premium by markets 48 M 22 Value of New Business (VNB) growth 48 M 23 Breakdown of gross written premium by reporting categories 48 M 24 EBIT-margin per reporting category vs. target margins 2015 48 M 25 Investment income 52 M 26 Investment income 52 M 27 Investment portfolio 53 M 28 Breakdown of investments under own management 54 M 29 Rating of fixed-income securities 54 M 30 Capital structure as at 31 December 2015 55 M 31 Development of policyholders’ surplus 56 M 32 Development of Group shareholders’ equity 56 M 33 Amortised cost of our subordinated bonds 57 M 34 Consolidated cash flow statement 58 M 35 Cash flow from operating activities 58 M 36 Financial strength ratings of the Hannover Re Group 58 M 37 Financial strength ratings of subsidiaries 59 M 38 Issue ratings of issued debt 59 M 39 Condensed profit and loss account of
Hannover Rück SE 60 M 40 Hannover Rück SE: Breakdown of gross premium by individual lines of business 61 M 41 Balance sheet structure of Hannover Rück SE 63 M 42 Staff turnover / absenteeism Hannover Home Office 65 M 43 Breakdown of employees by country 66 M 44 Resources consumed at Hannover Home Office 69 M 45 Implementation of strategy 72 M 46 Strategic targets for risk position 73
M 47 Solvency II: Hannover Re is prepared 74 M 48 Available capital and required risk capital 75 M 49 Central functions of risk monitoring and steering 77 M 50 Reconciliation (economic capital /
Hannover Re Group 88 M 65 Scenarios for changes in the fair value of material asset classes 89 M 66 Rating structure of our fixed-income securities 90 M 67 Gross written premium retained 91 M 68 Reinsurance recoverables as at the balance sheet date 92
M 77 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 1 (target / minimum / maximum remuneration as nominal amounts) 114
M 78 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2014 and 2015) 116
N 16 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value 2015 178
N 21 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value 2014 181
N 58 Effect on the defined benefit obligation 206 N 59 Other liabilities 207 N 60 Development of sundry non-technical provisions 208 N 61 Maturities of the sundry non-technical provisions 208 N 62 Debt and subordinated capital 2015 209 N 63 Debt and subordinated capital 2014 210 N 64 Maturities of financial liabilities 2015 210 N 65 Maturities of financial liabilities 2014 211 N 66 Net gains and losses from dept and subordinated capital 211 N 67 Subsidiaries with material non-controlling interests 213 N 68 Gross written premium 214 N 69 Investment income 215 N 70 Interest income on investments 215 N 71 Net gains and losses on investments 2015 216 N 72 Net gains and losses on investments 2014 216 N 73 Reinsurance result 217 N 74 Other technical income 217 N 75 Commissions and brokerage, change in deferred acquisition costs 218 N 76 Other technical expenses 218 N 77 Other income / expenses 218 N 78 Income tax 219 N 79 Domestic / foreign breakdown of recognised tax expenditure / income 219 N 80 Deferred tax assets and deferred tax liabilities of all Group companies 220 N 81 Netting of deferred tax assets and deferred tax liabilities 220 N 82 Reconciliation of the expected expense for income taxes with the actual expense 221 N 83 Expiry of non-capitalised loss carry-forwards and temporary differences 221 N 84 Maturity structure of derivative financial
Interim Report 1 / 2016 Annual General Meeting Hannover Congress Centrum Theodor-Heuss-Platz 1 – 3 30175 Hannover, Germany
Annual financial statements 2016 Annual Results Press Conference, Hannover Analysts’ Meeting, London
Interim Report 1 / 2017 Annual General Meeting Hannover Congress Centrum Theodor-Heuss-Platz 1 – 3 30175 Hannover, Germany
We would also be pleased to send you copies of the Annual Reports of the Hannover Re Group and Hannover Rück SE in English or German. If you wish to receive paper copies of any of these versions please contact Corporate Communi cations on: Fax + 49 511 5604-1648 or order them online at www.hannover-re.com under “Investors / Results and reports”.