Equalisation reserve and similar provisions 3,058.0 -0.3% 3,066.7 2,930.6 2,653.0 2,385.3
Total capital, reserves and technical provisions 34,011.8 +1.8% 33,416.7 35,406.7 30,866.0 28,458.3 1 Excluding disposable profit 2 Excluding life and health reinsurance
Member of the Board of Directors Hannover Life Re of Australasia Ltd, Sydney, Australia Member of the Advisory Board Barmenia Allgemeine Versicherungs-AG, Wuppertal, Germany Member of the Advisory Board Barmenia Krankenversicherung a.G., Wuppertal, Germany Member of the Advisory Board Barmenia Lebensversicherung a.G., Wuppertal , Germany
Claude Chèvre Member of the Executive Board Hannover Rück SE, Hannover, Germany Chairman of the Board of Directors Hannover Life Reassurance Africa Limited, Johannesburg, South Africa Deputy Chairman of the Board of Directors Hannover Life Re of Australasia Ltd, Sydney, Australia Member of the Board of Directors Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda Member of the Board of Directors Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, South Africa Member of the Board of Directors Hannover ReTakaful B.S.C. (c), Manama, Bahrain Member of the Board of Directors Hannover Re Services Japan, Tokyo, Japan Member of the Board of Directors U for Life Sdn. Bhd., Kuala Lumpur, Malaysia Member of the Supervisory Board Hannover Life Re AG, Hannover, Germany 1
Dr. Klaus Miller Member of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda Chairman of the Board of Directors Hannover Life Reassurance Company of America (Bermuda) Ltd., Hamilton, Bermuda Vice Chairman of the Board of Directors Hannover Life Reassurance Company of America, Orlando, USA Chairman of the Supervisory Board Hannover Life Re AG, Hannover, Germany 1
Member of the Board of Directors Hannover Re (Ireland) Designated Activity Company, Dublin, Ireland
Dr. Michael Pickel Member of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Glencar Underwriting Managers, Inc., Chicago, USA Chairman of the Board of Directors Hannover Re Services Italy S.r.l., Milan, Italy Chairman of the Board of Directors Hannover Re Services USA, Inc., Illinois, USA Chairman of the Board of Directors Mediterranean Reinsurance Services Ltd., Hong Kong, China Member of the Supervisory Board Delvag Luftversicherungs-AG, Cologne, Germany 1
Roland Vogel Member of the Executive Board Hannover Rück SE, Hannover, Germany Member of the Executive Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Board of Directors Hannover Finance, Inc., Wilmington, USA Chairman of the Board of Directors Hannover Finance (Luxembourg) S.A., Luxembourg Chairman of the Board of Directors Hannover Finance (UK) Limited, London, United Kingdom Deputy Chairman of the Board of Directors Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda Deputy Chairman of the Supervisory Board Hannover Life Re AG, Hannover, Germany 1
Member of the Board of Directors Hannover Life Reassurance Company of America, Orlando, USA Member of the Board of Directors Hannover Re (Bermuda) Ltd., Hamilton, Bermuda Member of the Board of Directors Hannover Re (Ireland) Designated Activity Company, Dublin, Ireland Member of the Board of Directors Meribel Midco Limited, St. Helier, Jersey Member of the Board of Directors Meribel Topco Limited, St. Helier, Jersey Member of the Supervisory Board International Insurance Company of Hannover SE, Hannover, Germany 1
The other details are those on comparable control boards at other domestic and foreign business enterprises pursuant to § 125 (1) Sentence 5, second half-sentence of the Stock Corporation Act (AktG).
Burgwedel, Germany Chairman Chairman of the Board of Management Talanx AG Chairman of the Board of Management HDI Haftpflichtverband der Deutschen Industrie V.a.G. Chairman of the Supervisory Board E+S Rückversicherung AG, Hannover, Germany Chairman of the Supervisory Board HDI Global SE, Hannover, Germany Chairman of the Supervisory Board HDI Kundenservice AG, Cologne, Germany Chairman of the Supervisory Board Talanx Deutschland AG, Hannover, Germany Chairman of the Supervisory Board Talanx International AG, Hannover, Germany Chairman of the Supervisory Board Talanx Systeme AG, Hannover, Germany Member of the Advisory Board Norddeutsche Landesbank Girozentrale, Hannover, Germany 5
Dr. Klaus Sturany 1 Ascona, Switzerland Deputy Chairman Former member of the Executive Board of RWE AG Member of the Supervisory Board Bayer AG, Leverkusen, Germany
Berg, Germany Former Chief Executive Officer of Talanx AG and HDI Haftpflichtverband der Deutschen Industrie V.a.G. Chairman of the Supervisory Board Talanx AG, Hannover, Germany Chairman of the Supervisory Board HDI Haftpflichtverband der Deutschen Industrie V.a.G., Hannover, Germany Member of the Advisory Board E+S Rückversicherung AG, Hannover, Germany 5
Member of the Administrative Board HDI Assicurazioni S.p.A., Rome, Italy 5
Hannover, Germany Employee Member of the Supervisory Board Talanx AG, Hannover, Germany
Deputy Chairwoman of the Supervisory Board Fronius International GmbH, Pettenbach, Austria 5
Dr. Immo Querner Celle, Germany Member of the Board of Management Talanx AG Member of the Board of Management HDI Haftpflichtverband der Deutschen Industrie V.a.G. Chairman of the Supervisory Board Talanx Asset Management GmbH, Cologne, Germany 5
Deputy Chairman of the Supervisory Board Talanx Immobilien Management GmbH, Cologne, Germany 5
Deputy Chairman of the Supervisory Board Talanx Service AG, Hannover, Germany Member of the Supervisory Board BÖAG Börsen AG, Hannover, Germany Member of the Supervisory Board Caplantic GmbH, Hannover , Germany 5 Member of the Supervisory Board E+S Rückversicherung AG, Hannover, Germany Member of the Supervisory Board Talanx International AG, Hannover, Germany Member of the Supervisory Board Talanx Systeme AG, Hannover, Germany Member of the Supervisory Board Tertia Handelsbeteiligungsgesellschaft mbH, Cologne , Germany 5
Hannover, Germany Member of various Supervisory Boards Member of the Supervisory Board BDO AG, Hamburg, Germany Member of the Supervisory Board Deutsche Börse AG, Frankfurt am Main , Germany Member of the Supervisory Board Fuchs Petrolub SE, Mannheim, Germany Member of the Supervisory Board HDI Haftpflichtverband der Deutschen Industrie V.a.G., Hannover, Germany Member of the Supervisory Board RWE AG, Essen, Germany Member of the Supervisory Board SAP SE, Walldorf, Germany Member of the Supervisory Board Talanx AG, Hannover, Germany
Burgwedel, Germany 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 Memberships of supervisory boards and comparable control boards required by law at other companies in Germany and abroad 6 Staff representative
Combined management report The management report of Hannover Rück SE and the Group management report have been combined in accordance with § 315 (3) of the German Commercial Code (HGB) and published in the Group Annual Report 2016.
The annual financial statement and the management report of Hannover Rück SE – combined with the Group management report – for the 2016 financial year have been submitted to the operator of the electronic Federal Gazette and published in the electronic Federal Gazette.
I. Land and buildings, rights to land and buildings, leasehold 32,910 33,265
II. Investments in affiliated companies and participating interests 1. Shares in affiliated companies 6,014,234 6,237,511 2. Loans to affiliated companies 756,493 412,530 4. Loans to enterprises in which the company has a participating interest 0 0
III. Other financial investments 1. Shares, units or shares in investment funds and other variable-yield securities 2,112,533 2,087,133 2. Bearer debt securities and other fixed- income securities 16,908,885 15,310,969 3. Other loans a) Registered debt securities 317,633 425,631 b) Debentures and loans 559,663 540,371 4. Deposits with banks 548,674 570,232
I. Provision for unearned premiums 2. Less: reinsurance ceded 383,212 403,406
I. Accounts receivable arising out of reinsurance operations 2,221,988 2,161,772 from affiliated companies: II. Other receivables 531,166 797,552 from affiliated companies: 2,753,154 2,959,324
Profit and loss account for the 2016 financial year in EUR thousand
I. Technical account 1. Earned premiums, net of retrocession a) Gross written premiums 11,917,076 14,139,332 b) Retrocession premiums 3,291,555 3,814,312 c) Change in the gross provisions for unearned premiums (67,606) (284,910)
7. Operating expenses, net of retrocession a) Gross acquisition expenses 2,525,380 2,929,318 b) Less: commissions and profit commissions received on retrocession 665,183 823,519 8. Other technical charges, net of retrocession 902 1,056 10. Change in the equalisation reserve and similar provisions 8,724 (136,129)
II. Non-technical account 1. Investment income a) Income from participating interests 37,192 41,783 thereof affiliated companies: b) Income from other investments thereof affiliated companies: aa) Income from land and buildings, rights to land and buildings, leasehold 3,348 4,257 bb) Income from other investments 741,067 1,016,642 c) Appreciation on investments 25,875 5,104 d) Gains on the realisation of investments 161,229 119,732 e) Income from profit pools, profit and loss transfer agreements or partial profit and loss transfer agreements 416,290 675,075 2. Investment charges a) Expenditure for the management of investments, interest expenditure and other investment expenditure 34,805 51,717 thereof impairments in accordance with § 253 (3) sentence 3 of the Commercial Code (HGB): c) Losses on the realisation of investments 28,302 25,742 d) Expenses from loss transfer – 6,000 3. Allocated investment return transferred to the technical account (277,463) (532,949)
Property is valued at the purchase or construction cost less scheduled depreciation in accordance with the normal operational useful life. Impairments are taken only if the reduction in value will probably be permanent (§ 253 (3) Sentence 5 of the Commercial Code (HGB)).
Shares, units or shares in investment funds and other variable -yield securities as well as bearer debt securities and other fixed-income securities are valued according to the strict or modified lower-of-cost-or-market principle depending on the intended use. Securities intended for use on a continuing basis in the normal course of business activities are valued according to the modified lower-of-cost-or-market principle (§ 341 b (2) of the Commercial Code (HGB) in conjunction with § 253 (3) of the Commercial Code (HGB)). Permanent impairments are recognised through profit or loss.
Registered debt securities, debentures and loans as well as other loans are carried at acquisition cost – taking into account amortisation – or at the lower fair value.
Various models are used for the valuation of alternative investments allocated to non-current assets. Individual and fund investments are valued at purchase cost. A write-down to lower fair value is made on individual investments if certain applicability criteria are met. In addition, for CLO positions compliance with collateral tests of the respective higher tranche is verified. In the case of yield enhancement funds, actually incurred defaults as well as instruments at high risk of default in the respective funds are taken as an indication of impairment. Subsequent valuation of shares in private equity funds is based on net asset value (NAV).
Derivative instruments are valued on a mark-to-market basis. Forward exchange transactions are subject to a reporting prohibition based on the principle of not recognising pending transactions. Provisions for anticipated losses from pending business are established in the event of negative fair values as at the balance sheet date.
Fixed assets are valued at purchase cost less straight-line or declining-balance depreciation. Low-value items are written off in the year of acquisition.
Write-ups are effected in accordance with § 253 (5) of the Commercial Code (HGB).
Where the provisions indicated by the ceding companies are not expected to be adequate, they are increased by appropriate additional amounts. Where no figures are available from cedants, the provisions are estimated in the light of the business experience to date. The results of new treaties are at least neutralised. In some cases, provisions are determined on an actuarial basis. If necessary, additional or complete estimates of the corresponding portfolio or profit elements including relevant retrocessions are carried out where ceding company accounts with substantial premium income are missing. Missing ceding company accounts with a low premium income are included in the following year. The estimated gross premium income for treaties of the 2016 underwriting year is 37.2% of the total volume.
In all major lines IBNR claims reserves have been set up. The calculation is largely carried out in accordance with statistical mathematical methods.
Deferred tax liabilities, which refer largely to the balance sheet items shares in affiliated companies, receivables from affiliated companies and participating interests (owing to diverging recognition of shares in partnerships and booking of income from participating interests in a different accounting period), are netted in particular with deferred tax assets from the balance sheet item provisions for outstanding claims. Deferred taxes are calculated using a tax rate of 32.63%.
The other provisions are established in the settlement amount required according to reasonable and prudent business judgement, in some cases on the basis of actuarial opinions.
Provisions with a maturity of more than one year are discounted using the average market rate published by the German Bundesbank for the last seven years in accordance with their maturity.
The remaining assets and liabilities outside the aforementioned valuation units have a maturity of less than one year and are measured in accordance with § 256 a of the Commercial Code (HGB).
The technical interest results in the main from the interest income earned on the basis of the life assurance provision. Standard methods are used for the calculation.
The declaration of conformity required pursuant to § 161 of the Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code has been submitted and made permanently available to the stockholders.
B. I. Land and buildings, rights to land and buildings, leasehold 33,265 313 – – 359 1,027 – 32,910
B. II. Investments in affiliated companies and participating interests 4. Loans to enterprises in which the company has a participating interest 0 – – – – – – 0
Goodwill acquired for a consideration is amortised over five years. The amortisation period was established according to the estimated average term of the underlying insurance contracts.
On 31 December 2016 the company had at its disposal six developed properties with business and other buildings in Hannover, Bremen and near Paris as well as one floor of offices in Madrid. The book value of the floor of offices in Madrid amounted to EUR 721 thousand as at 31 December 2016. Four buildings in Hannover are for own use (book value: EUR 29,421 thousand).
holds 64.79% of the shares in: E+S Rückversicherung AG, Hannover / Germany EUR 696,413 125,000 holds 20.00% of the shares in: WeHaCo Unternehmensbeteiligungs-GmbH 1, Hannover / Germany EUR 83,207 11,857 holds 100.00% of the shares in: HR Verwaltungs-GmbH, Hannover / Germany EUR 12 (1)
Hannover Life Re AG, Hannover / Germany 100.00 EUR 1,873,188 –
Hannover Euro Private Equity Partners II GmbH & Co. KG, Cologne / Germany 35.13 EUR 1,226 1,044 holds 100.00% of the shares in: HEPEP II Holding GmbH, Cologne / Germany EUR 22 (1,760)
Hannover Euro Private Equity Partners IV GmbH & Co. KG, Cologne / Germany 36.76 EUR 5,434 10,848
Hannover Re Euro PE Holdings GmbH & Co. KG, Hannover / Germany 74.99 EUR 251,203 20,291
HILSP Komplementär GmbH 2, Hannover / Germany 100.00 EUR 33 3
holds 30.00% of the shares in: Reaseguradora del Ecuador S.A. 1, Guayaquil / Ecuador USD 10,433 1,092 holds 28.50% of the shares in: Energi, Inc. 1, Peabody / USA USD 20,168 (1,437)
International Insurance Company of Hannover SE, Hannover / Germany 100.00 EUR 165,845 –
holds 100.00% of the shares in: The Congregational & General Insurance Public Limited Company, Bradford / United Kingdom GBP 11,920 2,891 holds 100.00% of the shares in: International Hannover Holding AG 3, Hannover / Germany EUR 39 (2)
holds 100.00% of the shares in: International Mining Industry Underwriters Limited, London / United Kingdom GBP 131 23 holds 100.00% of the shares in: L & E Holdings Limited, London / United Kingdom GBP 5 –
Oval Office Grundstücks GmbH, Hannover / Germany 50.00 EUR 1,589 (21)
Hannover Finance (Luxembourg) S.A., Luxembourg / Luxembourg 100.00 EUR 34,647 288
Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg / South Africa 100.00 ZAR 219,820 209,916 holds 100.00% of the shares in: Hannover Life Reassurance Africa Limited, Johannesburg / South Africa ZAR 555,797 31,770 holds 100.00% of the shares in: Hannover Reinsurance Africa Limited, Johannesburg / South Africa ZAR 728,000 59,243 holds 100.00% of the shares in: Compass Insurance Company Limited, Johannesburg / South Africa ZAR 195,883 33,692 holds 70.00% of the shares in: Lireas Holdings (Pty) Ltd., Johannesburg / South Africa ZAR 199,372 34,180
Hannover ReTakaful B.S.C. (c), Manama / Bahrain 5.00 BHD 65,810 4,080
ITAS Vita S.p.A. 1, Trento / Italy 34.88 EUR 98,161 4,014
HANNOVER Finanz GmbH 1, Hannover / Germany 27.78 EUR 74,801 11,324
Key exchange rates 1 EUR corresponds to: Exchange rates on 31.12.2016
Altogether, bearer debt securities and other fixed-income securities with a book value of EUR 12,440,645 thousand (EUR 10,143,229 thousand) and a fair value of EUR 12,758,369 thousand (EUR 10,391,004 thousand) were allocated to fixed assets. Write-downs of EUR 124,673 thousand (EUR 62,884 thousand) were not taken on bearer debt securities with a book value of EUR 4,704,394 thousand (EUR 3,850,849 thousand). Given that there were no indications of issuer default, it is expected that the nominal value will be repaid in full upon maturity and hence a permanent impairment is not anticipated. The holdings that were not written down to fair value relate inter alia to CDO / CLO investments. Model-based fair value measurement, making allowance for applicability criteria and verification of compliance with collateral tests of the respective higher tranches, is used to determine the sustainability of the book values.
Write-downs of EUR 3,557 thousand (EUR 832 thousand) were not taken on debentures with a book value of EUR 93,000 thousand (EUR 14,161 thousand) based on the premise that the nominal value will be repaid in full on maturity.
The portfolio includes a special fund launched for Hannover Re by an external manager. The company’s share of the fund is 100.0%. The fund in question is a high yield fund investing principally in European fixed-income securities. An index composed of the iBoxx universe is used as the benchmark. For Hannover Re a total amount of EUR 18,396 thousand (EUR 23,079 thousand) was distributed in the year under review. The units can be returned at any time within at most five days. The fund units have a fair value of EUR 1,218,557 thousand (EUR 1,130,062 thousand) and a book value of EUR 1,058,557 thousand (EUR 985,789 thousand ), producing unrealised gains of EUR 160,000 thousand (EUR 144,273 thousand).
Fair values pursuant to § 54 of the Regulation on the Presentation of Insurance Company Accounts (RechVersV)
Shares, units or shares in investment funds, bearer debt securities and other securities are carried at market or stock exchange prices. These are obtained from publically available prices and bid prices as at the balance sheet date. In the case of special investments for which there are no publically available prices, valuation is model-based using risk premiums, default rates, prepayment speed and recovery rates or at net asset value (NAV). The fair values of securities traded in illiquid markets as well as those of the sundry loans and loans to affiliated companies and participating interests are calculated on the basis of yield curves, taking into account the creditworthiness of the specific debtor and the currency of the loan.
Fair values pursuant to § 54 RechVersV of asset items B. I. to B. III.
B. II. Investments in affiliated companies and participating interests 1. Shares in affiliated companies 6,014,234 9,814,665 3,800,431 2. Loans to affiliated companies 756,493 785,304 28,811 4. Loans to enterprises in which the company has a participating interest 0 0 0
B. III. Other investments 1. Shares, units or shares in investment funds and other variable-yield securities 2,112,533 2,545,233 432,700 2. Bearer debt securities and other fixed-income securities 16,908,885 17,346,209 437,324 3. Other loans a) Registered debt securities 317,633 356,293 38,660 b) Debentures and loans 559,663 593,355 33,692
The company’s subscribed capital remained unchanged as at 31 December 2016 in the amount of EUR 120,597 thousand. It is divided into 120,597,134 no-par-value registered shares.
Authorised capital is also available in an amount of up to EUR 60,299 thousand with a time limit of 9 May 2021. Of this, an amount of up to EUR 1,000 thousand may be used to issue employee shares.
The retained earnings were unchanged as at 31 December 2016 in an amount of EUR 630,511 thousand. They were reduced by EUR 395 thousand due to the issue of employee shares and an amount of EUR 395 thousand was allocated to retained earnings from the 2016 profit for the year. Pursuant to § 268 (8) Sentence 3 in conjunction with Sentence 1 of the Commercial Code (HGB) there is a restriction on distribution of EUR 17 thousand for the fair value of the assets designed to cover retirement benefit obligations less corresponding deferred tax liabilities that is in excess of original cost. Based on the discounting of pension obligations with the average market interest rate of the last ten years compared to discounting with the average market interest rate of the last seven years, there is an additional restriction on distribution for the first time in the financial year in an amount of EUR 7.0 million after allowance for deferred taxes.
Under a loan agreement dated 15 September 2010 Hannover Finance (Luxembourg) S.A. granted Hannover Re a junior loan of EUR 500,000 thousand at a coupon of 5.85% and with a maturity date of 11 September 2040 as well as a first call option as at 11 September 2020.
The net run-off result in property and casualty insurance is positive overall and amounts to 4.4% (2.8%) relative to the original provision.
Provisions which are similar to the equalisation reserve – major risks –
Provisions for other risks and charges in EUR thousand 2016 2015
Assets and the corresponding expenses and income were offset pursuant to § 246 (2) Sentence 2 of the Commercial Code (HGB) with respect to the provisions for pensions and the provisions for partial retirement. Pension liabilities and pension insurance policies were netted in an amount of EUR 486 thousand (EUR 740 thousand). The provisions for partial retirement of EUR 3,543 thousand (EUR 3,848 thousand) were netted with plan assets with a fair value of EUR 1,901 thousand (EUR 1,587 thousand) pursuant to § 246 (2) of the Commercial Code (HGB). In this connection income of EUR 16 thousand (EUR 36 thousand) was offset against total expenses of EUR 48 thousand (EUR 0 thousand).
In accordance with the disclosure required pursuant to § 27 (3) and (4) of the Regulation on the Presentation of Insurance Company Accounts (RechVersV), insurance contracts with the HDI property / casualty group are booked with a time delay of one month. The premium volume for 2016 amounts to altogether EUR 376.4 million.
Interest pursuant to § 233 a AO (Fiscal Code) 1,272 14,571
Income from discounting pursuant to § 277 (5) HGB (Commercial Code) 14 54
Compounding of interest on provisions / expense from compounding pursuant to § 277 (5) HGB (Commercial Code) 85 6,718
Payment of a dividend of EUR 3.50 on each eligible no-par value share 422,089,969.00
Outstanding capital commitments with respect to special investments and shares in affiliated companies exist in the amount of EUR 823.8 million (EUR 756.5 million).
Under novation clauses in reinsurance contracts written by the subsidiaries with outside third parties we shall – in certain constellations – assume the rights and duties of the subsidiaries under the contracts. In the event of the contracts being transferred to Hannover Re, assets shall be transferred from the relevant subsidiary in the amount of the reserves. As at 31 December 2016 reserves equivalent to EUR 869,586 thousand (EUR 902,627 thousand) existed at the subsidiaries. No soft letters of comfort were provided in the financial year. Hannover Re has provided guarantees of altogether USD 5,251.0 million to third parties for affiliated companies. The term of the guarantees is determined in each case by the secured liabilities of the affiliated company. Hannover Re receives guarantee commissions for this. In addition, guarantees of GBP 10.0 million and MYR 10.0 million were furnished. Furthermore, financial commitments to affiliated companies exist in an amount of USD 300.0 million. A long-term compensation obligation in an amount of EUR 1,995 thousand exists with respect to HDI Unterstützungskasse.
There were no further contingent liabilities or other financial commitments that were not evident from the annual balance sheet.
The average size of the workforce was 1,258 in the year under review, of whom 112 were executive staff and 1,146 employees.
The remuneration report is provided in the combined management report of the company on pages 103 to 123 of the Group Annual Report. The total remuneration of the Executive Board of Hannover Re amounted to EUR 7.3 million (EUR 6.7 million). In the year under review 8,825 share awards with a fair value of EUR 0.9 million were granted to active members of the Executive Board. Pension payments to former members of the Executive Board and their surviving dependants amounted to EUR 1,057 thousand. A liability of EUR 13,505 thousand was recognised for current pensions of former members of the Executive Board. The remuneration of the Supervisory Board amounted to EUR 772 thousand (EUR 735 thousand).
The company combined opposing forward exchange transactions in notional amounts of ZAR 226.1 million (EUR 10.6 million), ZAR 442.3 (USD 23.3 million), USD 433.1 million (EUR 401.1 million), CAD 65.1 million (USD 46.2 million), AUD 217.4 million (USD 162.9 million), GBP 26.7 million (USD 35.2 million), EUR 52.0 million (USD 58.2 million), USD 11.4 million (CNH 77.4 million) and USD 66.5 million (ZAR 920.5 million) into valuation units as at the balance sheet date pursuant to § 254 of the Commercial Code (HGB). The risk entered into vis-à-vis the counterparty is passed on in full – including the default risk – to five affiliated companies. In this context, the transactions with the affiliated companies constitute the underlying transactions and those with the counterparties outside the Group constitute the hedge instruments that make up the valuation unit. Both the interest rate risks and the currency risks of the underlying transactions are hedged by means of micro-hedging. The opposing effects from the valuation units are fully correlated and recognised in the balance sheet using the net hedge presentation method. The effectiveness of the micro-hedges is assessed using the critical term method. As at 31 December 2016 the underlying transactions show positive fair values of altogether EUR 9.9 million and negative fair values totalling EUR 16.5 million. The forward exchange transactions, which were concluded in several tranches, have various maturity dates; the last transaction expires in 2022.
Hannover Re hedges against currency risks by matching foreign currency liabilities with foreign currency assets. The intention is that changes in the value of foreign currency liabilities (underlying) caused by movements in exchange rates will be offset by opposing changes in the value of the foreign currency assets (hedge instrument). Matched liabilities are combined with their matching assets per currency into a valuation unit which is recognised in the balance sheet in the context of portfolio hedges. The volume amounts to EUR 18,105.1 million.
The stock participation rights granted in the form of virtual shares (share awards) in an amount of EUR 21.7 million were hedged by equity swaps in the financial year. The hedge is effected at the level of tranches and on a rolling basis with a maturity of three months until the share awards are paid out after five years. The hedged risk amounts to EUR 6.3 million. The underlying and the hedge were combined in a single valuation unit pursuant to § 254 of the Commercial Code (HGB). The offsetting changes in value are not recognised in the profit and loss account (net hedge presentation method). The effectiveness derives from the parallelism between the payments from the equity swaps and the change in value of the Hannover Re share. Effectiveness is measured retrospectively through the change in value of equity swaps and share awards. In April 2016 share awards with a value of EUR 1.7 million were paid out. Hedging through equity swaps resulted in a positive earnings effect of EUR 0.8 million.
In the year under review a permanent establishment of Hannover Re invested deposits with ceding companies in an amount of USD 187.6 million from a retrocession contract in a structured security of a large European bank (underlying). In this contract the retrocessionaire furnished a capital and interest guarantee for these invested contract deposits (hedge). The hedged risk amounted to USD 8.8 million as at the balance sheet date. The underlying and hedge are combined into a valuation unit in the balance sheet in a micro-hedge relationship.
We conducted our audit of the annual financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with German principles of proper accounting and in the combined management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the
Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and combined management report. We believe that our audit provides a reasonable basis for our opinion.
In our opinion based on the findings of our audit, the annual financial statements comply with the legal requirements and supplementary provisions of the articles of association and give a true and fair view of the net assets, financial position and results of operations of Hannover Rück SE in accordance with German principles of proper accounting. The combined management report is consistent with the annual financial statements, complies with the legal requirements and as a whole provides a suitable view of the Company’s position and suitably presents the opportunities and risks of future development.
We received an analysis of the 2015 results in property & casualty and life & health reinsurance as well as a presentation from the Executive Board covering the profit expectations for the 2016 financial year and the operational planning for the 2017 financial year. In addition, the Chairman of the Supervisory Board was constantly advised by the Chairman of the Executive Board of major developments and impending decisions as well as of the risk situation within the company and the Group. All in all, we were involved in decisions taken by the Executive Board and assured ourselves of the lawfulness, regularity and efficiency of the company’s management as required by our statutory responsibilities and those placed upon us by the company’s Articles of Association.
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 and the Standing Committee met three times. 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 Government Commission on the German Corporate Governance Code (DCKG) did not make any changes to the German Corporate Governance Code in 2016. The Supervisory Board nevertheless devoted considerable attention to the topic of corporate governance. For example, the results of the efficiency evaluation of the Supervisory Board’s activities in accordance with Item 5.6 of the Code as well as the optimisation measures to be adopted on this basis were considered at length. It also determined the differentiations that are required for the vertical comparison of remuneration pursuant to Item 4.2.2 of the Code. In addition, the Supervisory Board received a report on the design of the remuneration schemes as well as the compliance, internal audit and risk reports.
In connection with the implementation of Solvency II the company offered the Supervisory Board an internal training event in 2016. This enabled the members of the Supervisory Board to improve their knowledge of the new regulatory developments resulting from the laws and policies adopted in the context of Solvency II. Topical concentrations included, among others, the special demands placed on the Supervisory Board, requirements with respect to the business organisation and key functions as well as the company’s internal model. Notwithstanding the high importance that the Supervisory Board attaches to the standards of good and responsible enterprise management defined in the German Corporate Governance Code, the Supervisory Board decided not to comply with the recommendations contained in Code Item 4.2.3 Para. 2 regarding caps on the amount of variable compensation elements in management board contracts, in Code Item 4.2.3 Para. 4 concerning a cap on severance payments in management board contracts, in Code Item 5.2 Para. 2 concerning the Chair of the Audit Committee and in Code Item 5.3.2 concerning the independence of the Chair of the Audit Committee. Justification for these divergences is provided in the Declaration of Conformity pursuant to § 161 German Stock Corporation Act regarding compliance with the German Corporate Governance Code, which is reproduced in the Group Annual Report as part of the Declaration on Corporate Governance. Further information on the topic of corporate governance is available on Hannover Re’s website.
We have examined a) the annual financial statements of the company, the financial statements of the Hannover Re Group and the combined management report prepared by the Executive Board for the company and the Group, and b) the report of the Executive Board pursuant to § 312 German Stock Corporation Act (Report on relations with affiliated companies)
– in each case drawn up as at 31 December 2016 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report.
The composition of the Supervisory Board and its committees as well as of the Executive Board did not change in the year under review. Mr. Sven Althoff, Mr. Jürgen Gräber, Mr. Roland
Vogel and Mr. Ulrich Wallin were reappointed as members of the Executive Board, with the latter at the same time being appointed as Chairman of the Executive Board.
The very good result once again generated by Hannover Rück SE for the 2016 financial year was made possible by the exceptional performance of the Executive Board and the members of staff working for the company and the Group. The Supervisory Board would like to express its recognition and special appreciation to the Executive Board and all the employees for their efforts.
Concept, design and realisation Silvester Group GmbH & Co. KG, Hamburg www.silvestergroup.com
This is a translation of the original German text; the German version shall be authoritative in case of any discrepancies in the translation.