In order to safeguard the sustained financial strength of the Hannover Re Group, a Group company has issued subordinated debt by way of a number of callable bonds which are guaranteed by Hannover Rück SE.
On 26 February 2004 subordinated debt in the amount of EUR 750.0 million was placed through Hannover Finance (Luxembourg ) S.A. on the European capital markets. The bond has a final maturity of 20 years and for the first ten years carries a fixed coupon of 5.75%. With regard to the redemption of this bond please see our remarks in Section 8.11 “Events after the balance sheet date”.
The ordinary expenses principally include interest expenses of nominally EUR 121.9 million (EUR 99.8 million) resulting from the subordinated debt placed through Hannover Finance (Luxembourg) S.A.
Other financial facilities Letter of credit (LoC) facilities exist with a number of financial institutions. With respect to the syndicated facility taken out in 2011 with a volume equivalent to EUR 726.4 million (758.6 million ), the second renewal option was utilised and the maturity extended from the beginning of 2018 to the beginning of 2019. In addition, several bilateral loan agreements were taken out and existing agreements were expanded.
The common shares (share capital of Hannover Rück SE) amount to EUR 120,597,134.00. They are divided into 120,597,134 voting and dividend-bearing registered no-par shares. The shares are paid in in full. Each share carries an equal voting right and an equal dividend entitlement.
Non-controlling interests in the shareholders’ equity of the subsidiaries amounted to EUR 641.6 million (EUR 681.7 million ) as at the balance sheet date. They were principally attributable to non-controlling interests in the shareholders’ equity of E+S Rück AG in an amount of EUR 620.3 million (EUR 648.2 million).
The Executive Board is authorised – with the consent of the Supervisory Board – to acquire treasury shares of up to 10% of the existing share capital. The authorisation is limited until 3 May 2015.
The Annual General Meeting of Hannover Rück SE resolved on 7 May 2013 that a dividend of EUR 2.60 and a bonus of EUR 0.40 per share should be paid for the 2012 financial year. This corresponds to a total distribution of EUR 361.8 million (EUR 253.3 million).
Treasury shares IAS 1 requires separate disclosure of treasury shares in shareholders ’ equity. As part of this year’s employee share option plan Hannover Rück SE acquired altogether 18,750 (23,160) treasury shares during the second quarter of 2013 and delivered them to eligible employees at preferential conditions. These shares are blocked until 31 May 2017. This transaction resulted in an expense of EUR 0.4 million, which was recognised under personnel expenditure, as well as a negligible increase in retained earnings recognised in equity. The company was no longer in possession of treasury shares as at the balance sheet date.
These impairments contrasted with appreciation of EUR 0.3 million (EUR 2.7 million) on investments written down in previous periods. The portfolio did not contain any overdue, unadjusted assets as at the balance sheet date since overdue securities are written down immediately.
Financial assets – at fair value through profit or loss 958 2,895
Making allowance for the other investment expenses of EUR 97.3 million (EUR 96.4 million), net income from assets under own management of altogether EUR 1,054.5 million (EUR 1,300.2 million) was recognised in the year under review.
Other invested assets – 1,014 – 2,838 3,852 1 Including income from associated companies, for reconciliation with the consolidated statement of income 2 Excluding other investment expenses
The administrative expenses amounted to altogether 2.7% (2.5%) of net premium earned.
Income from contracts recognised in accordance with the deposit accounting method 68,184 58,683
Expenses from contracts recognised in accordance with the deposit accounting method 14,521 11,369
The tax rate used to calculate the deferred taxes of the domestic companies was unchanged from the previous year at 31.93% (rounded to 32%). It is arrived at from the corporate income tax rate of 15.0%, the German reunification charge of 5.5% and a uniform trade earnings tax rate of 16.1%. The deferred taxes at the companies abroad were calculated using the applicable country-specific tax rates.
Breakdown of taxes on income The breakdown of actual and deferred income taxes was as follows: Income tax in EUR thousand 2013 2012 1
The deferred tax assets and deferred tax liabilities are shown unoffset in the above table. The deferred taxes are recognised as follows in the balance sheet after appropriate netting: Netting of deferred tax assets and deferred tax liabilities in EUR thousand 2013 2012 1
In view of the unrealised losses from investments and currency translation recognised directly in equity in the financial year, actual and deferred tax income – including amounts attributable to non-controlling interests – of EUR 217.8 million (previous year: tax expense of EUR 200.5 million) was also recognised directly in equity.
Availability of non-capitalised loss carry-forwards Unused tax loss carry-forwards and tax credits of EUR 321.8 million (EUR 233.7 million) existed as at the balance sheet date. Making allowance for local tax rates, EUR 172.5 million (EUR 152.4 million) thereof was not capitalised since realisation is not sufficiently certain.
Hannover Re also holds derivative financial instruments to hedge inflation risks associated with the loss reserves. These transactions resulted in the recognition of other liabilities amounting to EUR 34.1 million (EUR 4.9 million) and other financial assets at fair value through profit or loss in an amount of EUR 1.4 million (EUR 13.1 million).
Maturity structure of derivative financial instruments 2012 in EUR thousand 2012
Hannover Re calculates the fair value of the embedded derivatives in ModCo treaties using the market information available on the valuation date on the basis of a “credit spread” method. Under this method the derivative is valued at zero on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities. The derivative had a positive value of EUR 45.3 million (EUR 39.8 million) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss.
In the course of the year the change in the fair value of the derivative gave rise to a positive profit contribution of EUR 7.4 million before tax (EUR 51.8 million).
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 on the balance sheet date was EUR 68.8 million (EUR 54.8 million), which 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 1.0 million in investment income in the 2013 financial year.
All in all, application of the standards governing the carrying of derivatives in connection with the technical account led to recognition of assets totalling EUR 52.1 million (EUR 47.7 million) as well as recognition of liabilities in an amount of EUR 78.0 million (EUR 60.9 million) from the derivatives resulting from technical items as at the balance sheet date. Increases in investment income amounting to EUR 8.5 million (EUR 52.0 million) as well as charges to income of EUR 4.4 million (EUR 7.1 million) were recognised in the year under review from all separately measured derivatives in connection with the technical account.
HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI) holds an unchanged majority interest of 50.22% in Hannover Rück SE through Talanx AG.
With effect from the 1997 financial year onwards all new business and renewals written on the German market have been the responsibility of E+S Rück AG, while Hannover Rück SE has handled foreign markets. Internal retrocession arrangements ensure that the percentage breakdown of the business applicable to the previously existing underwriting partnership is largely preserved between these companies. In November 2013 the responsible bodies of Hannover Rück SE and E+S Rück AG decided to reorganise the business relationship between the two companies with effect from 1 January 2014.
Companies belonging to the Talanx Group granted the Hannover Re Group insurance protection inter alia in the areas of public liability, building, group accident and business travel insurance. Divisions of Talanx AG also performed services for us in the areas of taxes and general administration.
The Hannover Re Group provides reinsurance protection for the HDI Group. To this extent, numerous underwriting business relations exist with related parties in Germany and abroad which are not included in Hannover Re’s consolidation. This includes business both assumed and ceded at usual market conditions.
Business assumed and ceded in Germany and abroad in EUR thousand 2013 2012
The Group companies E+S Rück AG, Hannover Finance (Luxembourg ) S.A., Hannover Re (Ireland) Plc and Hannover Re (Bermuda) Ltd. invested in a nominal amount of altogether EUR 150.0 million in a bearer debenture of Talanx AG with a term until 8 July 2013 and a coupon of 5.43%. Talanx AG redeemed this bearer debenture in the first quarter of 2013. The redemption gave rise to realised gains on investments of EUR 2.8 million before tax for the Hannover Re Group. In the context of a new bond issue by Talanx AG the Group companies Hannover Rück SE and E+S Rück AG invested in a nominal amount of EUR 47.0 million in the issued bearer debt, which has a coupon of 3.125%. The carrying amount of the instrument, which is recognised under fixed-income securities held to maturity, was EUR 48.3 million including accrued interest of EUR 1.3 million.
Under long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2013 to Talanx Service AG, Hannover, which also entered into the existing lease agreements. In addition, lease agreements exist with Talanx Service AG for use of a portion of the space in our data-processing computer centre.
The members of the governing bodies did not receive any advances or loans in the year under review. Nor were there any other reportable circumstances or contractual relationships as defined by IAS 24 between companies of the Hannover Re Group and the members of the governing bodies or their related parties in the year under review.
All other information on the remuneration of the governing bodies, directors’ dealings and shareholdings as well as the structure of the remuneration system for the Executive Board is contained in the remuneration report from page 99 onwards. This remuneration report is based on the recommendations of the German Corporate Governance Code and contains information which also forms part of the notes to the 2013 consolidated financial statement as required by IAS 24 “Related Party Disclosures”. In addition, we took into account the more specific provisions of DRS 17 “Reporting on the Remuneration of Members of Governing Bodies”. Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in the remuneration report. Consequently, we have not provided any further explanation in the notes.
In the 2013 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)
Provisions at 31 December 2013 (in EUR million) 2.12 7.81 5.02 0.52 0.85 –
The calculations were based on the price of the Hannover Re share of EUR 58.97 as at the reference date of 13 December 2013, expected volatility of 31.33% (historical volatility on a five-year basis), an expected dividend yield of 4.49% and risk-free interest rates of 0.39% for the 2006 allocation year, 0.60% for the 2007 allocation year, 1.08% for the 2009 allocation year, 1.32% for the 2010 allocation year and 1.55% for the 2011 allocation year.
3,354 stock appreciation rights from the 2004 allocation year, 18,222 stock appreciation rights from the 2006 allocation year, 192,512 stock appreciation rights from the 2007 allocation year and 293,077 stock appreciation rights from the 2009 allocation year were exercised. The total amount paid out stood at EUR 4.85 million.
Thereof: Recognised dividend in EUR thousand 2 – 46.7 – 66.7 –
On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 5.7 million for the 2013 financial year (EUR 2.5 million). The expense totalled altogether EUR 3.2 million (EUR 2.2 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 in EUR thousand 2013 2012 a) Wages and salaries 203,056 197,664 b) Social security contributions and expenditure on provisions and assistance ba) Social security contributions 18,481 18,295 bb) Expenditures for pension provision 22,748 20,369 bc) Expenditures for assistance 3,711 3,840 8.5 Earnings per share and dividend proposal
Neither in the year under review nor in the previous reporting period were there any dilutive effects.
The weighted average of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the balance sheet date. In the context of the employee share option plan Hannover Re acquires treasury shares and sells them at a later date to eligible employees. The weighted average number of shares does not include 18,750 (23,160) treasury shares pro rata temporis for the period from 13 to 15 May 2013. For further details please see our comments in Section 6.13 “Shareholders’ equity, non-controlling interests and treasury shares”.
With the exception of the aforementioned proceedings, no significant court cases were pending during the year under review or as at the balance sheet date – with the exception of proceedings within the scope of ordinary insurance and reinsurance business activities.
Hannover Re enters into contingent liabilities as part of its normal business operations. A number of reinsurance treaties concluded by Group companies with outside third parties include letters of comfort, guarantees or novation agreements under which Hannover Rück SE guarantees the liabilities of the subsidiary in question or enters into the rights and obligations of the subsidiary under the treaties if particular constellations materialise.
Operating leasing contracts produced expenditures of EUR 8.5 million (EUR 6.0 million) in the year under review.
The subordinated debt in the amount of EUR 750.0 million placed through Hannover Finance (Luxembourg) S.A. on 26 February 2004 was redeemed in the full nominal amount by the issuer on 17 January 2014 at the first scheduled call date. The repayment date was 26 February 2014.
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 2013. 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.
Rising healthcare costs Health is humanity’s most prized asset. More and more people are living longer and longer, and thanks to medical advances these years are increasingly spent in good health. At the same time, rising life expectancy goes hand-in-hand with increasing healthcare costs. In Germany, for example, spending on the healthcare system soared by 85.2% from 1992 to 2011 to altogether EUR 293.8 billion.
New treatments for diseases at the beginning and end of a person’s lifespan have been a particularly key factor in higher life expectancy.
Key points of deliberation As in every year, we were given a description of the major pending legal proceedings. We were regularly updated on the work of the Supervisory Board committees, and at several meetings we deliberated on the reorganisation of the business relationship with E+S Rück and adopted the necessary resolutions. We approved the participation of Hannover Rück SE in a consolidation platform for German life insurance companies and were informed about the opportunities and challenges in growth markets of life and health reinsurance as well as about the current retrocession structure. The medium-term outlook until 2018, the possible acquisition of a Lloyd’s platform and the development and status of the Market Consistent Embedded Value in life and health reinsurance were also considered at length. Further key points of deliberation were the adoption of a resolution on the issuance of hybrid capital in a maximum amount of EUR 750 million by the end of 2015 as well as the taking out of bilateral letter of credit lines. The annual review of the investment guidelines focused on the adjustment of issuer limits, specifications with regard to forward exchange transactions and the updating of asset allocations for various capital market products. A capital increase at the subsidiary
Committees of the Supervisory Board Of the committees formed by the Supervisory Board within the meaning of § 107 Para. 3 German Stock Corporation Act, the Finance and Audit Committee met on four occasions, the Standing Committee met twice and the Nomination Committee met once. The Chairman of the Supervisory Board updated the full Supervisory Board on the major deliberations of the committee meetings at its next meeting and provided an opportunity for further questions.
The Nomination Committee considered the upcoming election of new shareholder representatives to the Supervisory Board on 7 May 2014 and nominated appropriate candidates for election.
Supervisory Board thanked Mr. Wächtler, who had belonged to the Supervisory Board since 3 May 2007, for his many years of valuable work on the Supervisory Board. Mr. Claude Chèvre, Dr. Klaus Miller and Mr. Ulrich Wallin, the latter being simultaneously appointed as Chairman of the Executive Board, were reappointed as members of the Executive Board.
Word of thanks to the Executive Board and members of staff The very good result once again generated by Hannover Rück SE for the 2013 financial year was made possible by the exceptional performance of the company’s Executive Board and members of staff. The Supervisory Board would like to express its special appreciation to the Executive Board and all the employees for their efforts in the year under review.
Hannover Rueck SE Australian Branch – Non-Life Office Level 12 20 Bond Street Sydney NSW 2000
International Insurance Company of Hannover Plc 10 Fenchurch Street London EC3M 3BE
Block assumption transaction (BAT): proportional reinsurance treaty on a client’s life or health insurance portfolio, by means of which it is possible, inter alia, for our clients to realise in advance the future profits so as to be able to efficiently ensure the attainment of corporate objectives, e. g. in the areas of financial or solvency policy.
Modified Coinsurance- (Modco) treaty: type of reinsurance treaty where the ceding company retains the assets with respect to all the policies reinsured and also establishes and retains the total reserves on the policies, thereby creating an obligation to render payments to the reinsurer at a later date. Such payments include a proportional share of the gross premium plus a return on the assets.
Provision for unearned premiums (also: unearned pre mium reserve): premiums written in a financial year which are to be allocated to the following period on an accrual basis. This item is used to defer written premiums.
Annual Results Press Conference Start 10:30 a.m. Home Office building of Hannover Rück SE Karl-Wiechert-Allee 50 30625 Hannover, Germany