Hannover Rückversicherung AG Escritório de Representação no Brasil Ltda. Rio de Janeiro, Brazil 100.0%
Equity attributable to shareholders of Hannover Re 4,970.6 +10.2% 4,509.0 3,714.4 2,830.1 3,349.1
Investments (excl. funds withheld by ceding companies) 28,341.2 +11.5% 25,411.1 22,507.0 20,137.2 19,815.3
1 Adjusted on the basis of IAS 1 2 Dividend proposal 3 Bonus 4 Incl. funds withheld 5 Natural catastrophes and other major losses in excess of EUR 5 million gross for the Hannover Re Group‘s share as percent of net premium earned 6 Operating result (EBIT)/net premium earned
Consolidated segmental report 122 1. Company information 127 2. Accounting principles 127 3. Accounting policies 130 5. Notes on the individual items of the balance sheet 148 6. Notes on the individual items of the statement of income 182 7. Other notes 190
These hard numbers do not even come close to describing the devastating repercussions of these natural disasters. The impact on those living in the regions affected by such natural catastrophe events is far more dramatic. Not only did they result in the tragic death of a large number of people – the forces of nature also deprived many of the survivors of the economic basis for their daily lives. Special mention should be made here of the disastrous earthquakes in New Zealand and above all in Japan. As a reinsurer, we cannot prevent such disasters. Perhaps, however, the losses paid by the reinsurance industry can at least help here and there to somewhat alleviate the
economic implications of these destructive events. For our company, therefore, it was important to remain a reliable partner for our clients – after the losses, just as we were before – and to continue to provide them with reinsurance capacities for natural catastrophe losses.
The climate on capital markets was also thoroughly challenging in the year under review. Most significantly, the sovereign debt crisis in the Eurozone caused considerable volatility. On the other hand, however, the sharply reduced interest rate level for high-quality government bonds also gave rise to gains that were reflected in the reinsurers’ balance sheets. Looking ahead to the medium term, most economists expect interest rates to remain low. This will probably lead to a gradual decline in the investment income booked by insurers and reinsurers, which will make it necessary to generate an improved underwriting performance.
It is also particularly pleasing to note that even in the challenging 2011 financial year we were able to boost our shareholders’ equity and the book value per share by more than 10 percent. Not only that, thanks to the very positive cash flow from operating activities the portfolio of assets under own management grew by more than EUR
Executive Board. Our gratitude is due especially to the team at our Tokyo branch, who were affected not only professionally but also personally by the repercussions of the devastating earthquake in Japan.
The increased shareholders’ equity, in particular, enables us to pay a dividend for 2011 that is in fact somewhat higher than our strategic dividend target of 35 to 40 percent of our Group net income. The Supervisory Board and Executive Board will propose to the Annual General Meeting that you should be paid a dividend of
Permit me, if I may, to turn to the development of the financial year: in our non-life reinsurance business group we maintained the growth course charted in previous years. Our premium volume grew by 7.7 percent (9.4 percent adjusted for currency effects) to more than EUR 6.8 billion. This targeted and selective growth derived especially from our business in the speciality lines and from emerging markets.
456 million after tax and non-controlling interests generated by our non-life reinsurance business group was also highly satisfactory in view of the aforementioned heavy major loss expenditure. This is all the more remarkable inasmuch as despite the run-off profits booked on our loss reserves in the financial year their confidence level continued to increase. Nor is the positive overall assessment of the result diminished by the fact that it profited from tax refunds including accrued interest of altogether
EUR 128 million. It should, after all, be borne in mind that charges in the corresponding amount had been taken in previous years.
Reflecting the aforementioned major loss burden, the combined ratio climbed to 104.3 percent after 98.2 percent in the previous year. This was, however, at least partially offset by a thoroughly gratifying increase of 17.2 percent in investment income.
We also strengthened our traditional US risk-oriented life business in the year un der review. Not only did we grow our new business, we also acquired an additional reinsurance portfolio. This will generate an annual premium volume of some USD
We are thoroughly satisfied with the development of our investments despite the turmoil on international capital markets. Thanks to the enlarged asset volume we were able to boost ordinary investment income by almost 10 percent in spite of the decline in interest rates. In addition, profits were generated in the context of portfolio reallocations from government to corporate bonds that accounted for a significant portion of the total net realised gains. The inflows from the operating cash flow were invested primarily in corporate bonds, asset-backed securities and real estate.
The regular review of our corporate strategy was also on the agenda for the year under review. Under our revised strategy we have elaborated our business model even more clearly and put in place a foundation that will enable the individual organisational units to align their targets rigorously with the overarching strategic objectives.
On the basis of our internal risk capital model we manage the assumed risks with the goal of optimising the risk-weighted return. In this context, we set great store by protecting our shareholders’ equity against excessive volatility in results. Bearing in mind the 2011 claims year and its accumulation of natural catastrophes, we can assert with an eye to the profitability of Hannover Re that our risk management has once again demonstrated its resilience.
Particularly in non-life reinsurance, we are seeing modest hardening on the markets driven by rate increases in property catastrophe business and under loss-impacted programmes. This was also evident for our company in the main treaty renewals as at 1 January 2012, where we booked premium growth of 6 percent on the back of rising rates. In life and health reinsurance, too, we see good opportunities for further profitable growth. This is especially true of US risk-oriented life reinsurance, longevity business in the United Kingdom and the markets of Eastern Europe and Asia. It is our assumption, therefore, that we will be able to move forward on the growth track that we have been charting since 2009 – both in non-life and life/health reinsurance. We also believe that with further growth in our investments under own management we can generate a net return in the order of 3.5 percent.
also on behalf of my colleagues on the Executive Board. Going forward, as in the past, we shall do our utmost to continue to successfully grow Hannover Re’s business with an eye to the existing opportunities and risks. It is and will remain our goal to increase the value of your company on a sustainable basis.
Seated from left to right: Claude Chèvre, ulrich Wallin, Roland vogel Standing from left to right: dr. Klaus Miller, Jürgen Gräber, André Arrago, dr. Michael Pickel
It was indeed the case that the DAX began 2011 at 6,914 points and climbed to a three-and-a-half-year high of 7,600 in the subsequent months until May. Yet just a few months later, in September, this was followed by a plunge of more than 2,500 points to a low of 4,966. After a modest rally the DAX ended the year down by 14.7% at 5,898 points, coming in significantly below original expectations. The MDAX similarly posted an appreciable loss of 12.1% in the same period and closed the year at 8,898 points. Only the Japanese Nikkei index performed more poorly, declining by 17.3% year-on-year to a level of 8,455. The exception was the US Dow Jones index which, despite the prevailing economic difficulties in the United States, high unemployment and the loss of the “AAA” credit rating, moved 5.6% higher on the year to close at 12,218.
On 18 February the Hannover Re share climbed to its highest point of the year at EUR 43.29. However, the devastating earthquake off the coast of Japan and the tsunami with the subsequent nuclear disaster in the middle of March then took a toll on the share’s performance. As the year progressed the
In a three-year comparison (see chart) the Hannover Re share including reinvested dividends delivered a performance of 92.2%. It thus again clearly surpassed the DAX (22.6%) and
With a book value per share of EUR 41.22 the Hannover Re share showed a price-to-book (P/B) ratio of 0.9 as at year-end 2011; compared to the average MDAX P/B ratio of 1.7 as at year-end the share is thus very moderately valued. A comparison of the price-to-earnings (P/E) ratios reveals a similar picture.
of Group net income after tax that has been targeted for a number of years now. Based on the year-end closing price of
(EUR 733.7 million), in part due to positive non-recurring effects. In the votes that were taken the Annual General Meeting adopted by a large majority the resolutions proposed by the
Heinz Midunsky on the company’s Supervisory Board for the remaining term of office.
Institutional investors and analysts had another opportunity to engage in dialogue with the Executive Board at our analysts ’ conferences, which we again held on the same day in
41.7% Institutional investors 8.1% Private investors shareholding structure by countries (free float)
Average analysts’ price target for the Hannover Re share in EUR
Germany: Xetra, Frankfurt, Munich, Stuttgart, Hamburg, Berlin, Düsseldorf, Hannover (official trading: Xetra, Frankfurt and Hannover)
Market capitalisation at year-end in EUR million 4,621.9 4,840.2 3,944.7 2,713.4 3,804.8
Equity attributable to shareholders of Hannover Re in EUR million 4,970.6 4,509.0 3,714.4 2,830.1 3,349.1
Price-to-cash flow (P/CF) ratio8 1.8 2.9 2.3 1.9 4.2 1 Xetra daily closing prices from Bloomberg 2 Proposed dividend 3 EUR 1.80 + EUR 0.50 bonus 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
Generate an exceptionally high return on equity by reducing the required capital
E+S Rück: Maintain or enlarge the number of minority shareholders and cultivate trusting cooperation
Respond undogmatically, flexibly and quickly to the needs of our clients
Generate an IFRS return on equity of at least 750 basis points above the risk-free interest rate
The high degree of familiarity and insight thereby created is a guarantor of successful execution.
Ensure that requirements for equity resources (economic capital model, solvency regulations, etc.) are met
Take into account the maturities of our liabilities and the liquidity requirements of our business
Information and communication systems assure optimal support for business processes in light of cost/benefit considerations
Our strategy encompasses ten strategic principles for ensuring the accomplishment of our mission “Growing Hannover Re profitably” across business units. The orientation of the business groups is guided by these principles, hence enabling them to contribute directly to attainment of the overarching objectives. Implementation takes the form of each organisational unit defining its contribution to goal attainment and aligning its activities and measures accordingly.
Not only that, the value of the company and financial strength of Hannover Re were also boosted: shareholders’ equity and the book value per share rose by 10 percent. Particularly thanks to the increased shareholders’ equity, it is possible to pay a dividend in excess of the strategic dividend target. The Supervisory Board and Executive Board will therefore propose to the Annual General Meeting that a dividend of EUR 2.10 per share should be distributed.
down in the economic recovery in the year under review. Un­
Economic developments again varied widely from region to region. Emerging markets once more proved to be a pillar of the global economy in 2011, although they were unable to maintain the strong growth of previous years. It remains the case that Asian countries recorded the most vigorous growth rates among the emerging markets. The industrial nations were faced with considerable difficulties. Nagging struc­
tural problems and the necessity of fiscal consolidation were reflected in sometimes sharp drops in economic output. All in all, the global economy is estimated to have grown by around 3.8% – compared to 5.1% in the previous year.
Economic developments in the Eurozone showed a very mixed picture in the year under review. The economy cooled ap­
Spain, where the tendencies towards recession became more marked on account of intensive consolidation efforts. Particu­
nomic slowdown was also apparent on labour markets. Most notably, countries on the Eurozone periphery were faced with high jobless levels that continued to rise.
In Germany the economic upswing was sustained in the year under review. According to figures published by the Federal
Statistical Office, real gross domestic product grew by 3.0% in the full year. Germany was thus a front­runner among the major industrial nations and delivered healthy growth contributions to gross domestic product within the area of the single currency.
The most significant driver of growth for the German economy was domestic demand. Private consumption developed favour­
fected by the earthquake and nuclear reactor disaster in the first half of 2011. After suffering a slump in output, Japan’s economy moved back into growth in the third quarter. The labour market also saw a revival.
The European sovereign debt crisis became a renewed focus of concern for investors from August 2011 onwards. Overall, the 2011 financial year was again characterised by an expan­
Eurozone the first steps towards a more restrictive monetary policy were undone in the second half of the year, causing the key interest rate for the euro area to slip back to the level at the end of 2010. The yield on 10­year German government
Poor´s to downgrade the credit rating of the United States to
The picture on equity markets was a mixed one. Considerable volatility and uncertainty were the hallmarks of the market environment. The losses seen in March in response to the nuclear disaster in Japan were initially made good again. In the second half of the year, however, the mood again became darker; along with the European sovereign debt crisis, equity markets were increasingly weighed down by fears of reces­
erable loss burdens the capital resources of primary insurers and reinsurers remained on a high level. Overall, in a difficult environment insurance undertakings demonstrated their role as a stabilising element for the economy.
II is intended to introduce European insurance regulation and a risk­based solvency system; these moves will change the insurance landscape in Europe. The specifics are currently under consideration by various government bodies in consult­
ation with the insurance industry. The new regulatory model of Solvency II is to be implemented from 2013 onwards and will be fully effective from 2014. Even at this late stage before its launch, the European insurance and reinsurance federation still sees some imperfections in the regulations that need to be remedied. The Solvency II Directive will be implemented in German law through an amendment to the Insurance
Model Law” in 2011. While this model law is not binding upon the individual states, some have already announced their in­
tention to implement it in 2012. Upon adoption of the model law, the collateral requirements for loss reserves of foreign reinsurers in the state in question would be reduced from the current level of 100%. Some US states, such as Florida and
Investments, the profitability of the industry and employment in the insurance sector also remained largely unchanged. The industry has hitherto coped well with the challenges of the recent financial and economic crisis. The German Insurance
malisation of income from single premium business in life insurance and had already been anticipated by the GDV in the previous year.
ital market climate were the hallmarks of the 2011 financial year. Yet for our company, as a financially strong reinsurer, the opportunities offered by the market for profitable growth were good – in both non­life and life/health reinsurance. We were therefore able to enlarge our premium volume in the year under review. Gross premium in total business grew by 5.8% to EUR 12.1 billion (EUR 11.4 billion). At constant ex­
change rates – especially against the US dollar – the increase would have been 7.5%; this is within the range of our growth forecast of 7% to 8%. The level of retained premium nudged slightly higher to 91.2% (90.1%). Net premium earned grew by 7.0% to EUR 10.8 billion (EUR 10.0 billion).
pects. Quite the contrary, since demand for reinsurance covers has since increased. The equity requirements arising out of
velopments in our non­life reinsurance business group please see page 24 et seq.
With a view to strengthening our traditional US life insurance business – and following on the heels of a large transaction in 2009 – we assumed another portfolio in the United States that covers the mortality risk under term and endowment policies.
We were also able to conclude a further block assumption transaction for longevity risks in the United Kingdom. For de­
tailed comments on the development of business in life and health reinsurance please see page 38 et seq.
vestments. Thanks to positive cash inflows from the technical account and improvements in fair values, our portfolio of as­
est rate levels, ordinary income consequently surpassed the comparable figure for the previous year at EUR 966.2 million
(EUR 880.5 million). Income on funds withheld and contract deposits climbed to EUR 338.5 million (EUR 316.4 million).
M an ag em en t re p or t gross premium by business group 56.4% Non-life reinsurance 43.6% life and health reinsurance
ive effect we therefore took out further inflation swaps to the extent necessary in the first quarter of the year under review.
In the context of portfolio reallocations from government to corporate bonds Hannover Re generated profits that account­
ed for a significant portion of the total net realised gains. The inflows from the operating cash flow were invested primarily in corporate bonds, asset­backed securities and real estate.
Although the operating profit (EBIT) booked by Hannover Re fell short of the previous year’s result owing to the heavy bur­
The result additionally profited from the refund of excess taxes paid and interest paid thereon in an amount of EUR
oped very favourably, rising in the year under review from EUR
creased to EUR 7.3 billion (EUR 7.0 billion). The return on equity came in at 12.8% (18.2%).
We use retrocession, i.e. the passing on of portions of our covered risks to other reinsurers, as a means of risk reduc­
pany of the Year” on the occasion of the London Market
In the following sections we discuss the development of the financial year in our two strategic business groups, namely non­life reinsurance and life/health reinsurance. Supplemen­
tary to the information provided here, the segmental report contained in the annual financial statement shows the key bal­
Our business model continues to offer us the best outlook going forward.
Our business is driven by two segments of virtually equal size: Non­Life and Life. By spreading our risks across these two business groups we achieve optimal diversification for our company and our stakeholders – and enjoy a promising outlook.
ness if the rate situation is favourable and scale back our port­
The situation on the international reinsurance markets was broadly favourable in the year under review. The renewals in non­life reinsurance as at 1 January 2011 – the date when around 67% of our treaties in traditional reinsurance were renegotiated – passed off better than initially expected by some market players. Even though market conditions were tending to soften, we had sufficient opportunities to write prof­
itable business. Prices and conditions essentially remained stable. All in all, we boosted our premium volume by around 2% in the 1 January treaty renewals.
Rate increases were recorded in the treaty renewals during the year, especially in reinsurance lines exposed to natural catastrophes. The price rises were driven by the enormous major losses incurred in the first quarter of 2011. Yet even under loss­free reinsurance programmes from regions that were spared major claims, rate increases were in some cases obtained.
March of the year under review, as anticipated, price increases were pushed through for non­proportional earthquake covers as well as improved conditions under proportional treaties.
tial price adjustments, both for loss­impacted programmes and those that had been spared losses. This was especially true of New Zealand, which suffered extensive damage from earthquakes in both 2010 and 2011. We were also satisfied with the treaty renewals in other Asian markets; here, too, we slightly enlarged our premium volume.
In North America – our largest single market – we were simi­
er’s financial strength. A very good rating is indispensable for a reinsurer seeking to be offered and awarded the entire spec­
Standard & Poor’s and “A” from A.M. Best) Hannover Re is one of the reinsurers that meet this requirement without reserva­
tral and Eastern Europe as well as facultative reinsurance and agricultural risks.
takings as a consequence of the introduction of Solvency II; for such companies, the transfer of risk to reinsurers with good ratings constitutes an economically attractive alter­
to 91.3%. Net premium earned grew by 10.5% to EUR 6.0 billion (EUR 5.4 billion); growth would have been 12.1% at constant exchange rates. The increase was thus stronger than anticipated; at the beginning of the year the forecast for 2011 had been in the range of 0% to 3% at unchanged exchange rates.
661.9 million). Not only did this figure surpass the already unusually high volume of the previous year, it also far ex­
ceeded the expected level of around EUR 530 million. The combined ratio consequently rose from 98.2% to 104.3%.
Gross Net Net expectancy for major losses1 1 losses > EUR 5 million gross
(EUR 82.4 million). Net investment income climbed by a very pleasing 17.2% to EUR 845.4 million (EUR 721.2 million). The operating profit (EBIT) for non­life reinsurance contracted to
In the following pages we report in detail on our non­life re­
1,754.0 million). The combined ratio stood at 106.1%, after 97.4% in the previous year. The operating profit (EBIT) for the target markets totalled EUR 184.0 million (EUR 300.6 million).
tinues to rank as the number two in Germany – the world’s second­largest non­life reinsurance market. It even ranks first in the reinsurance of motor business.
ability. The claims situation in own damage business continues to give cause for concern; in motor liability, on the other hand, it is possible to discern the re­emergence of a long­term downward trend in claims frequencies. Although the improved
M an ag em en t re p or t terms and conditions in the primary sector had positive impli­
cations for our motor portfolio, profit margins came under strain overall from the low level of interest rates. As a further factor, the difficult situation in motor own damage business was significantly impacted by hail events in August and Sep­
miums against a backdrop of falling loss ratios; this was also true to some extent of homeowners’ insurance.
We are again thoroughly satisfied with the development of accident insurance. In this area we offer our cedants not only reinsurance covers, but also services such as training pro­
cessing of applications at the workplace or even at point of sale.
The claims situation in the engineering insurance lines was satisfactory in the 2011 financial year. Despite its highly inter­
In the year under review we cemented our position as one of the leading reinsurers in the profitable German market. Gross premium volume climbed 6.5%, leaving us satisfied overall with developments on our domestic market in the face of con­
The major loss situation in Germany was notable for hail events in August and September, which altogether were re­
ly needed by many clients, since it was only possible to gener­
cerned in the year under review in segments that had per­
Nevertheless, the rate rises did not suffice to bring about an adequate level of profitability in the short term. Consequently, 2012 will again need to see further rate increases across the board before the situation can be described as adequate. It is, however, important not to overlook the fact that casualty prices in original business were still on a significantly higher level in 2011 than in the soft market years from 1998 to 2000.
Against this backdrop Hannover Re – which in North America writes its business through brokers – boosted its premium income in the original currency by 6% in the year under re­
With a view to further diversifying our portfolio we again scaled back the share attributable to larger cedants in the year to review, while at the same time expanding our business re­
alty sector – was still not sufficiently appealing. Nevertheless, thanks to our positioning we are able to increase our shares at any time if prices and conditions move towards a hard mar­
ciable loss expenditure, costing our company around EUR 26 million. The series of tornadoes in April led to a strain of some
EUR 15 million for our account. In May a tornado destroyed virtually the entire town of Joplin, with a death toll of more than 100. The resulting major loss for our company amounted to roughly EUR 41 million. Along with these catastrophic events, a number of sizeable individual property claims – in­
(EBIT) for the specialty lines was slightly below that of the previous year at EUR 327.9 million (EUR 369.6 million).
Hannover Re ranks among the market leaders in international marine reinsurance.
The general business environment in this segment in the year under review was to some extent still influenced by the finan­
miums consequently also failed to entirely climb back to the levels seen before the crisis. On the reinsurance side demand in the marine line was essentially stable.
Breakdown of gross written premium in specialty lines 14.6% Aviation 29.1% Structured reinsurance 22.5% credit/surety 24.6% United Kingdom & direct business 9.2% Transport
icies are seeing increases in the indemnity limits purchased by airlines. Primary insurers further raised their retentions on the back of improved capital resources. Although the year under review was notable for a series of basic losses, these did not have any major implications for reinsurers since for the most part they remained within the retentions carried by the in surers. For this reason, and on account of further expansion in reinsurance capacities, the pressure on prices intensified in the course of the year under review.
With this in mind, our goal was to largely preserve the ex­
isting market shares and prices. We are a market leader for non­proportional treaties in the airline market, whereas in the proportional sector we write our business opportunistically and concentrate primarily on niche segments. We maintained our involvement in non­proportional reinsurance on a stable level. Gross premium in the aviation line contracted slightly in the year under review.
In worldwide credit and surety reinsurance Hannover Re ranks among the market leaders. As in previous years, we concen­
trated exclusively on the core business of the credit and surety lines. We do not write financial guarantees or credit default swaps.
insurers in the years 2009/2010 had broadly positive effects and claims rates in credit insurance in the year under review remained below the pre­crisis level of 2008. Results in surety business and in the area of political risks were similarly scarcely impacted.
lenging years of 2009 and 2010, all the established reinsurers enlarged their portfolios again. Not only that, a number of new players entered the market.
We are currently not interested in increasing our market share. Our business development in the year under review was thoroughly satisfactory. The credit line profited from a sharp reduction in claims rates as the economy rebounded. The surety line and political risks business also performed satis­
In view of the very good claims rates in the credit line rates in original business experienced a moderate decline; this trend had, however, softened by the end of the year. Commissions
M an ag em en t re p or t rose under proportional reinsurance covers. Rates for the reinsurance of surety business and political risks remained largely stable in the year under review. All in all, our premium volume in the 2011 financial year was a par with the previous year.
Overall, we are highly satisfied with the development of credit and surety reinsurance. Once again, we did not incur any major losses in the year under review. In non­proportional business our portfolio was virtually spared any claims, as a consequence of which we enjoyed very healthy profitability.
Hannover Re is one of the two largest providers of structured reinsurance solutions in the world. Thanks to our many years of experience and our actuarial, balance sheet, accounting and underwriting expertise, our clients are able to profit from reinsurance solutions that are optimally tailored to their needs and can access a comprehensive range of services. Our prod­
uct range is geared to reducing and optimising the cost of capital for our ceding companies.
Demand for ILS products on the capital market and among investors from the traditional reinsurance and primary insur­
ing of non­proportional reinsurance treaties in the property catastrophe, aviation and marine (including offshore) lines that we have placed on the ILS market for almost 20 years – by around USD 20 million for 2012 to USD 350 million. The cap­
ital losses incurred by investors in the extremely costly 2011 financial year were offset by funds reinvested by existing in­
In addition to protecting our own property catastrophe risks, we use the capital market to structure and package risks for our cedants. We also take the role of investor ourselves by investing in catastrophe bonds. In contrast to prices for trad­
itional capital market, such as interest rate risks, and it there­
able funds comfortably exceeded the opportunities for new investments in catastrophe bonds. This prompted investors to search for further investment possibilities in the reinsurance sector, for example by way of Industry Loss Warranties and so­called Collateralised Reinsurance Programmes. In the latter case the investor assumes reinsurance risks that are normally collateralised in the amount of the limit of liability.
gross written premium credit/surety in EUR million credit Surety Political risk
tinued to expand this segment in the year under review. In addition, we are working on concepts for the transfer of life reinsurance risks to the capital market.
We are broadly satisfied with the business that we write in the United Kingdom and on the London market. Despite chal­
lenging conditions, we succeeded in preserving the rate level for our treaty portfolio. Even though prices in motor business climbed in the year under review, they are still not yet com­
mensurate with the risks in some areas. In light of this, we maintained our premium volume in the United Kingdom on a stable level.
insurer. This essentially involves acceptances concentrated on tightly defined portfolios of niche or other non­standard busi­
cially in the professional indemnity lines. Market conditions for individual occupations varied widely, however. Rate in­
creases were obtained, for example, under policies for the legal professions.
miums in motor business surged again in the year under re­
ive of expanding profitable business with underwriting agencies. Despite a competitive environment we successfully accomplished this aim – thanks not least to our market pos­
ness regionally, we also moved forward with establishing our new products in the market – for example the insurance of energy­saving warranties in the United States.
North America and the specialty lines. This segment also encompasses worldwide catastrophe business, facultative re­
(EUR 2,213.4 million). As already explained, the 2011 financial year was overshadowed by an extraordinarily heavy major loss incidence in global reinsurance. Against this backdrop, the combined ratio climbed to 112.3% (106.1%). The operating profit (EBIT) consequently contracted from EUR 111.9 million to EUR 19.2 million.
ments placed on risk management are giving rise to stronger demand for natural catastrophe covers.
We moderately enlarged our portfolio in the Dutch market in the year under review; casualty business was a particularly important contributory factor here.
The year under review was notable for significant local hail events in motor own damage insurance, some substantial fire losses in property insurance and also for a number of sizeable casualty claims. The loss ratio consequently rose sharply.
The year under review was overshadowed by several natural disasters: the second most expensive loss event in the history of Denmark was the severe rainfall in July, which left large parts of Copenhagen under water. The total insured loss is in the order of EUR 650 million. At EUR 7.8 million, the loss expenditure for Hannover Re’s account was rather moderate.
In the face of unfavourable conditions we slightly scaled back our business in 2011.
panding our business here disproportionately strongly over the coming years. In these countries we rank among the three largest providers of reinsurance protection and we write our business in all lines and markets. Our underwriting policy is opportunistic, i.e. it is guided by the healthy profitability of the business written. In the case of loyal clients, we are also will­
ness in Central and Eastern European markets. In the year under review we were again able to obtain adequate rates that satisfied our profitability requirements. No major losses were incurred, and the loss ratio consequently improved on the pre­
Given the appeal of motor and casualty business we continued to expand our portfolio in these lines. Overall, prices in Latin
In Brazil, where we have maintained a representative office since 2008, we operate as an “admitted reinsurer”. Competi­
Re, are nevertheless a highly valued partner – especially for casualty covers – and attractive business opportunities conse­
New supervisory regulations introduced in Argentina in the year under review placed limitations on the business oppor­
In most markets we again accomplished our goal of boosting our premium income from Latin America in the 2011 finan­
Along with this human tragedy, the repercussions for the country’s economy and of course also for the insurance indus­
Tohoku Earthquake is the most expensive loss event to date in the country’s history. Faced with this enormous burden of losses, insurers were forced to re­evaluate earthquake risks with an eye to the potential exposures from tsunamis as well as contingent business interruption (CBI). The event caused original rates for earthquake covers to rise by an average of 30%. On the reinsurance side price increases for loss­impact­
proved by an average of 5% to 20%. Not only that, primary insurers were faced with tighter conditions in the form of in­
wards the long term. Through our service company in Tokyo we are closely familiar with our clients’ requirements and can draw on very good market know­how. We enjoy the status of
Along with catastrophe covers (see also the section on “Global catastrophe business” on page 35 et seq.) we transact busi­
ness across all lines of property and casualty insurance; in particular, we enjoy a leading position in the casualty sector and personal accident insurance.
In terms of major losses, the region again came under strain in 2011. The flooding in Thailand, which even left parts of the capital city Bangkok under water for several weeks, was par­
ticularly devastating. The total market loss is estimated to be in excess of USD 11 billion, making it the largest insurance
M an ag em en t re p or t loss to date in Southeast Asia. The net burden of losses for
ther significant growth here in the years ahead. With this in mind, all major reinsurers consider this country to be a target market.
The dominant line in China is motor insurance. Now that gov­
tinued, sales of locally made automobiles have fallen – as a consequence of which (re)insurance premiums did not grow quite as vigorously as in the previous year. The development of business in this segment was thoroughly satisfactory: con­
petitive, and expanding our market share was therefore not a central concern for our company.
As anticipated, our business prospects enjoyed a further boost from the establishment of our branch in Shanghai in 2010.
Hannover Re is still the number three in the Australian and
New Zealand non­life reinsurance market. We write the entire spectrum of reinsurance in this region. Our offerings in
Australia are complemented by a primary insurance license held by our subsidiary Inter Hannover.
For Australia, and even more so for New Zealand, 2011 was a year of extremely heavy losses. Following the severe earth­
ruary 2011. Further tremors were again felt in June. The losses for Hannover Re from these two events amounted to
In Australia it was the flooding in Brisbane that caused par­
ticularly severe devastation. The resulting net loss for our company was in the order of EUR 54 million. Cyclone Yasi slammed into the country’s northeastern coast, although the insured losses remained moderate on account of the low insurance density. The associated strain for Hannover Re’s account was around EUR 17 million.
Owing to the enormous burden of losses, the loss ratio moved significantly higher and we were therefore unable to achieve our profit targets in 2011.
quent tsunami in Japan, a fresh earthquake in New Zealand and flooding in Australia not only caused immense human suffering in the first quarter, they also inflicted extraordinar­
ily high loss expenditure on the (re)insurance industry. Price increases within the year for catastrophe covers in the affect­
higher premiums were payable for catastrophe programmes in Australia, while in New Zealand prices rocketed by as much as 150% to 500%; this was also due in part to new regulatory requirements, under which insurers are required to maintain coverage for up to a 500­year event. At the same time, given the scale of the events, the decline in prices for catastrophe risks in other markets was halted. In China and Korea prices held stable, while in the United Kingdom, Latin America and the Caribbean they climbed by around 5% on average. In the
United States, too, a high frequency of natural catastrophe events and above all the model adjustments made by the pro­
Our strategy for underwriting catastrophe business remained largely unchanged in the year to review. Always giving due consideration to our customer relationships, we made the most of the available capacity to write profitable business.
The most expensive single loss for the (re)insurance industry in the year under review was the severe earthquake and tsunami in Japan, the cost of which is put at around USD 35.5 billion. This event gave rise to a burden of losses for Hannover
iture of around EUR 25.9 million. A list of all catastrophe losses and major claims in 2011 is provided on page 70.
Owing to the substantial loss burdens, the result fell short of the previous year. The combined ratio for global catastrophe business came in at 119.4% and thus improved slightly on agricultural risks
creased in the year under review. This trend is also evident from our portfolio; we substantially boosted our premium vol­
folio in the year under review, stepping up our involvement in emerging markets such as India and China. Yet we by no means lost sight of traditional markets such as the United
The performance of our business with agricultural risks was adversely affected in the year under review by frost damage in Mexico. The associated net strain for our account was in the order of EUR 50 million. This loss event pushed prices for reinsurance covers higher, causing them to triple.
Arab countries and the slowdown in economic development were reflected in a lower gross national product in the year under review. This had a dampening effect on the (re)insur­
ance industry. New market players further exacerbated the competition, prompting rates in primary business to fall. With this in mind, a prudent selective underwriting policy was called for across all business segments. The largest single market for our company is Saudi Arabia.
ator of the Year” in the year under review, the second year in succession that it has received this distinction. Mahomed
Akoob, Managing Director of the company, was awarded the prize of “Retakaful Leader of the Year” for his achievements in the development of the international takaful and retakaful markets.
vidual risks in facultative business. The general environment for both types of reinsurance in the various markets is, how­
In view of the favourable general environment we further stepped up our involvement in Latin America and the Middle
East in the year under review. With energy prices on the rise and the increasing shift towards green energy sources, we are keeping a close eye on the development of insurance solu­
We took a more active interest in risks from the engineering and global energy sectors. Our company also wrote an in­
favourable market conditions, therefore, we were able to generate a broadly satisfactory result for our life and health reinsurance business.
ity business and we are targeting a double­digit market share of new business in the years ahead. Alongside our activities in the mortality sector, our focus on our central divisions of
In these areas our clients profit from our innovative and customised reinsurance solutions, into which we are able to incorporate our international expertise.
ly take the form of so­called longevity swaps. In this context, the reinsurer takes over the actual pension payments and hence the biometric risk in exchange for an agreed fixed pre­
America and Canada. We are confident of being able to ex­
In major emerging markets we were already able to generate pleasing growth in our business volume in the year under review.
We have grown exceptionally vigorously in Eastern European markets – especially in Russia, where we significantly im­
M an ag em en t re p or t this development and – thanks to changes in the general business environment – has opened up fresh business poten­
In South Africa we continue to be the leading reinsurer in the field of individual life business and we offer our clients here a comprehensive service that also extends to direct sales of in­
In the Indian market we substantially improved our market penetration through our cooperation with the local company
Greater China (China, Hong Kong and Taiwan) we were again able to record unusually strong growth.
In the year under review we also enlarged our business in predominantly Islamic countries such as Bahrain, Saudi
The international activities of the Hannover Re Group in the life and health reinsurance business group are conducted under the Hannover Life Re brand name. We offer individual reinsurance solutions worldwide in the areas of life, annuity and health insurance, having consciously chosen to concen­
ity and morbidity. We also write the accident line to the extent that it is transacted by life insurers as well as retakaful busi­
nover Re Group and promotes outstanding diversification of the portfolio. Our core business policy is based on the tried and trusted Five Pillar model: conventional reinsurance, new markets, multinationals, bancassurance and financial solu­
– new markets and conventional reinsurance – continued to increase in the year under review, while the shares of the other three segments decreased slightly. We nevertheless achieved a balanced mix of conventional reinsurance – with around 44% of our portfolio – and the four other pillars – ac­
Another key feature of our business model is its decentralised structure: with 23 units in 19 countries we operate on all continents in close proximity to our clients. Our international network enables us to deliver direct service tailored to the specific needs and requirements of our customers. The vari­
ous locations see themselves as parts of a network that sup­
port each other and facilitate the rapid transfer of relevant information.
• Investment risk 1: investment performance of the assets under own management that cover the shareholders’ equity and our non­deposited reserves
Customer Relationship Management (CRM), an approach that has proven itself over the years and is practised by our com­
fore our individual customer orientation, as part of which we devote particularly close attention to positive profit and growth opportunities for both sides.
term growth target. Of overriding importance, however, is our striving to safeguard the profitability and quality of the busi­
ness written and our desire to cultivate and preserve our long­
With net premium earned standing at EUR 4.8 billion (EUR 4.7 billion), our net retention retreated slightly to 91.0% (91.7%).
the assumption of mortality and longevity risks. We generated 89.3% of our total premium income in these segments in the year under review.
Breakdown of gross written premium according to the Five Pillar model 44.1% conventional reinsurance 9.6% Multinationals 29.1% New markets 9.8% Bancassurance
The capital market was heavily influenced by the opinions of the rating agencies in the year under review. The credit rating of certain countries, even including the United States, was downgraded, while others saw their outlook revised to nega­
Net premium incl. premium deposits 6,408.6 +5.6% 6,068.6 6,204.5 4,911.8 3,579.0
worthiness and a secure financial position, as a consequence of which our client­related counterparty risk – which we carry primarily in the financial solutions segment – was unremark­
able in the year under review. The risk associated with the persistency of the business in force was similarly inconspicu­
ous in the year under review and remained within the bounds of our expectations.
When it comes to investing our portfolio of assets under own management we pay close attention to the requirements of appropriate currency and duration matching as well as asset/
nual fluctuations in the reserves. The widening of credit spreads for securities is directly reflected in our income state­
A valuation loss in the mid­double­digit million euro range was incurred here in the year under review. These valuation losses will be entirely made good if the securities perform as
planned until maturity – provided there are no defaults among the debtors that issued the securities.
The currency risk is of major significance to our company as an internationally operating life and health insurer. For the most part we write our treaties with primary insurers in the local currency and also constitute the necessary reserves in the particular currencies. Since matching cover is not entirely possible for every item, fluctuations in exchange rates influ­
This administrative expense ratio – which is extraordinarily low compared to our main competitors – is made possible by our lean processes, the delegation of responsibilities on all levels and our concentration on relevant customer groups in the context of our Customer Relationship Management strat­
284.4 million) in the year under review. The EBIT margin of 4.5% fell somewhat short of our expectations.
formance of life and health reinsurance in the year under re­
pending implementation of Solvency II, the insurance industry also came under increasing strain.
The reduction of the actuarial interest rate from the current level of 2.25% to 1.75% as proposed by the Federal Finan­
cial Supervisory Authority (BaFin) was approved and enters into force for all new contracts at the beginning of 2012. The interest rate applicable upon contract formation continues to be valid for current business, meaning – for example – that a return of 4% is still contractually guaranteed for life insur­
ance policies taken out between 1995 and 2000. At the end of 2011, with a view to securing these obligations, life insurers for the first time implemented premium reserve increases in order to take lower interest income into account at an early stage (Zinszusatzreserven). From the reinsurance perspective, this may open up new business potential going forward for the prefinancing of such additional reserves.
played renewed interest in traditional, long­term life insurance products such as annuity and disability covers.
– especially in niche segments – and consider ourselves well positioned for the future.
tion can be attributed inter alia to the planned scaling back of some expiring large contracts. A favourable risk experience in mortality and annuity business helped us to show an excep­
tive underwriting policy. Targets for premium growth have consciously not been set.
Both enhanced annuities and the pension business are rapidly growing segments. In the year under review the premium vol­
ume surpassed EUR 1 billion for the first time to reach EUR
1,053.0 million (EUR 944.3 million), corresponding to growth of 11.5% for the two segments combined.
ance Ireland (HLR Ireland) has been writing reinsurance business in the international arena with primary insurers and reinsurers. Reinsurance solutions individually tailored to the needs of our clients constitute the basis for this long­standing success story.
The pivotal role played by this unit was further strengthened in the year under review. The assumption by a way of a retro­
ments with the new block of business, our underwriting result fell significantly short of that reported in the previous year.
On the investment side we were also compelled to take sub­
stantial fair value reductions on our securities deposited with ceding companies owing to the protracted financial crisis. On the other hand, the financial solutions business retroceded from the United States developed in line with our assumptions and our expectations for the assumed UK business were actu­
With a premium volume of EUR 1,230.9 million (EUR 1,267.2 million), HLR Ireland generated a large part of the total pre­
treating to EUR 72.3 million (EUR 82.6 million). The result recorded for this market region was satisfactory despite this decline.
The premium income booked by our life branch in Stockholm amounted to EUR 81.5 million (EUR 78.0 million) in the year under review, almost all of which was retained for own ac­
count. Business continued to develop favourably, enabling us to again boost profitability and report pleasing results.
Hungary as well as certain CIS states. In addition to sound reinsurance expertise our actuaries and underwriters can draw on superb familiarity with the specific languages and cultures thanks to their own background; this enables them to provide support geared to our clients’ needs with an appropri­
Our concentration in these markets is on bancassurance and unit­linked insurance. The success of these products can be attributed in part to the use of the bank counter as an addi­
Company of America (HLR America) has a structure which is unique within our Group. Each office is equipped with par­
ticular know­how in specific business segments. As a total unit, HLR America is responsible for US life and health rein­
1,007.7 million (EUR 1,090.7 million), of which EUR 236.9 million was retained by HLR America after retrocessions.
We were therefore only able to report a profit of EUR 2.5 mil­
When it comes to designing products, we make the most of the favourable insurance environment offered by Bermuda in order to provide our clients with optimal coverage structures.
nover Life Reassurance Africa (HLR Africa) for more than 20 years. From our location in Johannesburg we traditionally write predominantly individual term life reinsurance business in South Africa and most English­speaking countries south of the Sahara.
In general terms, the market is enjoying strong growth and becoming visibly more competitive. Nevertheless, we were pleased to be able to further enlarge our market share in the financial solutions segment in the year under review. Thanks to our long­standing expertise and our service, we continue to be a sought­after business partner. For the first quarter of 2012 we are already expecting to close an initial new business financing arrangement and we see further good growth pro­
nover, which also bears responsibility for risk assessment and underwriting. We successfully make up for this geographical distance to our clients through regular on­the­spot visits.
(including Mexico). The remaining EUR 124.9 million was generated in South American markets (including Brazil). Prof­
Indian reinsurance market and have written treaties with the major primary insurance players. Not only that, we are known among our clients for innovative product solutions and we rank among the leading providers in the field of online and direct sales.
The premium volume in these markets amounted to EUR 25.9 million (EUR 21.4 million). Profitability was again pleasing in the year under review.
Our branch in Hong Kong coordinates the entire East Asian region, although direct business responsibility is limited to
na is particularly notable on account of exceptionally strong demand for reinsurance protection in the financial solutions segment. We successfully concluded a number of new trans­
ness in the life and critical illness sectors, and we also par­
ation with an Australian direct sales organisation – offers a range of risk­oriented product solutions in the primary sector.
In this segment our involvement is for the most part concen­
trated on occupational retirement provision, where we assume the biometric risks of mortality and morbidity. These activities deliver a growing contribution to the total business volume and are a key factor in our healthy risk diversification.
lion (EUR 23.7 million), corresponding to an EBIT margin of 4.4%. The underwriting losses were offset by a non­recurring tax credit, as a result of which net income after tax showed a gratifying profit of EUR 25.3 million.
turity segments. Movements in fair values for debt securities issued by semi­governmental entities were also very gratifying in wide areas. Bonds issued by countries on the Eurozone periphery, by contrast, recorded sometimes substantial risk premiums. The performance of a portfolio of fixed­income se­
curities was therefore heavily dependent on its exposure to corporate bonds and countries on the Eurozone periphery.
ly. The US Federal Reserve left key interest rates unchanged at 0% to 0.25% during the year under review. The European
Central Bank, on the other hand, reduced key interest rates to 1% in the second half of the year after making initial rate hikes and supported the European bond market by buying up government bonds.
The return on ten­year German government bonds declined from 3.0% to 1.8% in the course of the year. A comparable trend was also observed for US treasury bonds, with a margin­
miums, especially in the second half of the year, leading to a patchy and volatile yield environment in Europe.
The picture on equity markets was a mixed one. The losses seen in March in response to the nuclear disaster in Japan were initially made good. In the second half of the year, how­
Hannover Re’s investment policy continues to be guided by the following four core principles: • generation of stable and risk­commensurate returns while at the same time maintaining the high quality standard of the portfolio; • ensuring the liquidity and solvency of Hannover Re at all times; • high diversification of risks; • limitation of currency exposures and maturity risks in accordance with the principle of matching currencies and maturities.
text we observe centrally implemented investment guidelines and are guided by the insights of dynamic financial analy sis.
These measures are intended to safeguard the generation of an appropriate level of return while at the same time staying within a clearly defined risk appetite. In so doing, it must be ensured that we are able to meet our payment obligations at all times.
EUR 966.2 million (EUR 880.5 million) even though interest rates were lower overall. This was due principally to the sharp growth in assets under own management to EUR 28.3 billion
(EUR 25.4 billion), which was attributable to both positive cash flows from the technical account and the development of fair values in the fixed­income portfolio.
In the context of portfolio reallocations from government to corporate bonds Hannover Re generated profits that accounted for a significant portion of the total net realised gains. The inflows from the operating cash flow were invested primarily in corporate bonds, asset­backed securities and real estate.
The balance of net realised gains improved by 10.8% to EUR
with write­ups of EUR 16.9 million (EUR 24.1 million) on fixed­
EUR 17.3 million (EUR 3.0 million) on alternative investments and EUR 2.5 million (EUR 0.1 million) on real estate funds.
Write­downs of a mere EUR 0.9 million (EUR 0.6 million) were taken on equities, only a minimal portfolio of which is still held in the context of strategic participations.
ter of the year under review. The changes in the fair values of the inflation swaps are recognised in income as a derivative pursuant to IAS 39.
Net investment income from assets under own management 1,045.5 +10.9% 942.5 843.6 78.9 901.6
The portfolio of fixed­income securities excluding short­term investments climbed again to EUR 25.2 billion (EUR 21.4 bil­
lion). New investments were made predominantly in corporate bonds and public­sector covered bonds (Pfandbriefe) as well as asset­backed securities. Hidden reserves for available­for­
equity totalled EUR 416.1 million (EUR 268.4 million). The spread of asset classes shifted as planned towards corporate bonds, while the share of government and semi­government bonds was reduced. As to the quality of the bonds – measured in terms of rating categories –, the downgrade of the United
States’ credit status was reflected in a shift between the rating categories of “AAA” and “AA”. Nevertheless, the proportion of securities rated “A” or better remained stable on a high level as at year­end at 86.7% (91.0%).
cause of the uncertain extended implications for capital and reinsurance markets of the still ongoing Fukushima nuclear disaster. The decision had become necessary in the context of our systematic approach to risk management. Since that time we have only retained a minimal portfolio of listed equities in the context of strategic participations.
In the year under review we consistently pursued our strategy of investing more heavily in real estate. To this end, various properties were acquired in Germany and the United States, and further projects are under review; the real estate alloca­
We held a total amount of EUR 1.5 billion (EUR 2.0 billion)
Hannover Re reclassified fixed­income securities at fair values of altogether EUR 1.3 billion from the available­for­sale to the held­to­maturity portfolio. The securities gave rise to cumula­
tive hidden reserves of EUR 46.5 million, which as a conse­
quence of reclassification are to be amortised in the statement of income across the maturities of the instruments. These securities are permanently available to the relevant companies of the Hannover Re Group in light of cash flow projections.
Re’s liabilities are essentially shaped by our activity as a re­
insurer. By far the largest share is attributable to technical provisions and liabilities. Further elements are equity and equity substitutes, which help to substantially strengthen our financial base and optimise our cost of capital. The following chart shows our capital structure as at 31 December 2011, split into equity, loans and subordinated capital, technical pro­
visions and other liabilities, in each case as a percentage of the balance sheet total.
The technical provisions and liabilities shown above, which include funds withheld/contract deposits and reinsurance pay­
able, make up 80.0% (76.5%) of the balance sheet total and are more than covered by our investments, (assets­side) funds withheld/contract deposits, accounts receivable and reinsur­
We ensure that our business is sufficiently capitalised at all times through continuous monitoring and by taking appropriate steer­
Capital structure as at 31.12.2011 80.0% Technical provisions and liabilities 11.2% Equity 3.9% loans and subordinated capital 4.9% Other liabilities
ition, through active and regular management of the currency spread in our fixed­income portfolio we bring about extensive matching of currencies on the assets and liabilities sides of the balance sheet, as a consequence of which fluctuations in ex­
change rates have no significant influence on our result. At year­end 2011 we held 39.9% (44.6%) of our investments in euro, 37.4% (35.4%) in US dollars and 7.6% (6.8%) in pound sterling.
tral value­based management tool. With the aid of this tool we apply the principles of economic allocation of equity and efficient use of debt as an equity substitute in order to achieve the lowest possible weighted cost of capital. This concept as well as the objectives and principles in accordance with which we conduct our enterprise management and capital manage­
Hannover Re is guided in its capital management by the re­
quirements and expectations of the rating agencies that assess the Group with an eye to its targeted rating. Furthermore, while making appropriate allowance for business policy con­
panies met the applicable local minimum capital requirements in the year under review. Adherence to these capital require­
In view of the favourable result, the development of the share­
EUR 461.7 million to EUR 5.0 billion. The book value per share increased accordingly by 10.2% to EUR 41.22. The changes in shareholders’ equity were shaped chiefly by the following movements: Net unrealised gains on investments recognised in the other reserves reached EUR 453.1 million, a figure EUR 81.0 million higher than at the beginning of the year under review. This rise derived in particular from the decline in yields on bonds of various European countries such as Germany, France and the United Kingdom as well as on bonds issued by semi­gov­
ernmental entities. The reduced level of interest rates more than offset the generally increased credit spreads that were observed as the year progressed; this was similarly applicable to our corporate bond holdings.
11.6 million as a consequence of exchange rate fluctuations of foreign currencies against the euro in the year under re­
In addition to the financing effect of the changes in sharehold­
ket is a key component of Hannover Re’s financing. It was essentially composed of subordinated bonds issued to ensure lasting protection of our capital base – in part also in obser­
Our subordinated loans and bonds supplement our equity with the aim of reducing the cost of capital and also help to ensure liquidity at all times. As at the balance sheet date three subor­
– principally in the form of mortgage loans – amounting to
For further explanatory information please see our remarks in the notes to this report, Section 5.12 “Debt and subordinated capital”, page 178 et seq. and 5.13 “Shareholders’ equity, non­
Hannover Re’s cash flow is shown in the consolidated cash flow statement on page 119 et seq.
Hannover Re does not conduct any automated internal cash pooling within the Group. Liquidity surpluses are managed and invested by the Group companies. Various loan relation­
ships exist within the Hannover Re Group for the optimal structuring and flexible management of the short­ or long­
The cash flow from operating activities, which also includes inflows from interest received and dividend receipts, amounted to EUR 2.5 billion in the year under review as opposed to EUR
1.7 billion in the previous year. The principal factor in the sharply higher net inflow year­on­year – along with the im­
ments of EUR 40.3 million, a figure slightly lower than in the previous year – was the acquisition of a reinsurance portfolio in an amount of EUR 419.8 million within traditional life business in the United States in the second quarter of the year under review. The acquired portfolio covers the mortality risk under term life and endowment policies that were reinsured in the underwriting years 2000 to 2003. The tax refunds including interest of EUR 172.5 million received as a consequence of the decision by the Federal Fiscal Court in the previous year also played a part here.
The net cash outflows from investing activities amounted to altogether EUR 2.0 billion in 2011 and were thus on a par with the previous year. Along with the further enlargement of the real estate portfolio, above all in the United States and
Regarding the development of the investment portfolio please see also our remarks in the “Investments” section of the man­
lion in the previous year. The cash outflow in the year under review was due principally to the dividend of EUR 277.4 mil­
payment of the remaining volume of the subordinated debt 2001/2031 in an amount of EUR 138.1 million.
For further information on our liquidity management please see page 79 et seq. of the risk report.
As part of the process of rating Hannover Re the rating agencies also assess the debt issued by the Hannover Re
ed) of the company’s voting rights. There are no shares with special rights granting their holders powers of control, nor is there any specially structured voting control for employees who have capital participations and do not directly exercise their rights of control.
Board are determined by §§ 84 et seq. Stock Corporation Act
suant to § 71 Para. 1 No. 8 Stock Corporation Act (AktG) to acquire treasury shares on certain conditions for a period of five years, ending on 3 May 2015.
cluded by the company that are subject to reservation in the event of a change of control, inter alia following a takeover bid, and describe the resulting effects. The letter of credit lines extended to Hannover Re contain standard market change­of­
ment if Talanx AG loses its majority interest or drops below the threshold of a 25 percent participation or if a third party acquires the majority interest in Hannover Rückversicherung
ments with the members of the Executive Board or with em­
Since 2001 our company has used the personnel development tool of management feedback for executives. This offers both the staff and superiors of our executives the opportunity to formulate criteria­driven feedback on an executive’s manage­
ment style as they perceive it. The participating executives thus receive structured feedback on their managerial impact as well as on any possible need for development.
The management feedback tool was extensively overhauled for the second time since its adoption. The focus was on its rigorous orientation towards our company’s management principles. These are picked up on by way of targeted ques­
pany is directly dependent on the successful work of our people. We therefore pay special attention to the qualifica­
tions, experience and drive to perform of our staff and foster these attributes through excellent personnel development and leadership activities. Special importance attaches in this re­
gard to our managerial staff. They lead their teams in the spirit of our management principles. For some years now we have used management feedback as a means of reviewing suc­
Supervisory Law Requirements for Remuneration Schemes in the Insurance Sector (VersVergV), which entered into force on 13 October 2010, a consistent worldwide remuneration system has been in effect since 1 January 2012 for all managers of the
§ 4 VersVergV in its principles and parameters and is applied in an appropriate form according to the particular level of management. For further information please see the section
language reinsurance seminars in the blended learning format. In addition, a learning program was developed under the auspices of our IT colleagues that provides training in the use of our electronic administration system for reinsurance treaties. Both blended learning courses were completed by members of staff at various locations.
Yet we have not only refined the look and text­based presenta­
ogy into line with the very latest state of the art. To this end, we rolled out software in the year under review to enhance the new applications process; candidates are able to input their profile intuitively and with less effort at the front end. This enables them, inter alia, to apply for several vacancies at the same time or to set up a so­called “job subscription service”
Jobseekers whom we are unfortunately unable to offer an appropriate position at the time of their application are in­
holders, staff and business partners. As a leading player in the reinsurance industry, our commercial success is crucially dependent on the correct assessment of present and emerging risks. With this in mind, sustainability aspects are increasingly reflected in these risks. The issue therefore has a direct bear­
tion of the environment and natural resources. In so doing, our premises of financing growth through self­generated profits and avoiding imbalances that could necessitate capital measures continue to apply unchanged. Our operations are thus guided primarily by profitability considerations and we concentrate on attractive segments of reinsurance business.
ted to its strategic objective of sustainable value creation in the context of a sustainability strategy. The sustainability strat­
Entrepreneurial success is only sustainable if it is achieved on the basis of ethical behaviour. As an internationally operating company, Hannover Re bears responsibility in various senses.
This is true of its compliance with relevant laws and regula­
ers, the public at large and the cultural circles in which the company operates. In the context of face­to­face discussions, joint events, membership of societies and associations and regular surveys, we maintain an open and ongoing dialogue with our stakeholder groups – whose trust is a vital prerequis­
ance that we attach to this issue is also reflected in the associ­
As a company based in Germany, the formal framework that shapes our corporate governance is determined by German law. With one exception Hannover Re fulfils all the recom­
(DCGK). Further details in this regard are provided in the sec­
tainability report. In so doing, we shall be guided from the outset by the internationally recognised guidelines of the
Our range of reinsurance products and services is geared to the needs of the market and our clients. In response to changing social challenges, new economic, social and eco­
We use these internally and externally acquired insights in order to be able to offer better insurance solutions. We devote special attention to protecting against risks that result from climate change and providing insurance coverage for socially vulnerable groups in developing countries.
cessful work of our staff. We therefore pay special attention to their skills, experience and commitment and we attach con­
The focus of our environmental efforts is on reducing CO2 emissions caused by supplying power and heat to our prem­
Not only that, Hannover Re is a partner in numerous initiatives for climate and environmental protection such as the “Eco­
(Ecoprofit) and the “Climate Alliance Hannover 2020”. The energy­saving successes already achieved are regularly pub­
Since 2008 the company has also compensated for the CO2 pollution caused by business flights through voluntary offset­
veloping and emerging countries. We pay similar voluntary offsets for the CO2 emissions from train travel in Germany as well. In addition, we purchased RECS (Renewable Energy
tion. Through our involvement we receive information on where we stand with our efforts to economise – especially as regards carbon dioxide emissions – relative to international standards.
The table on the following page breaks down Hannover Re’s consumption and emissions and presents the total figures for electricity, heat, water, paper, waste, business trips and CO2 emissions.
Hannover Re already maintains long­standing partnerships with various areas of society in the role of sponsor. Particu­
– which enables Hannover Re to apply the very latest insights
– is of crucial importance. In this context the company sup­
Re sponsors an endowed professorship in actuarial science at the University of Hannover.
E+S Rück, our subsidiary with responsibility for the German market, organises so­called examination concerts in coopera­
Since the first concert was held back in 1998, we have as­
sociation whose roots in Hannover go back to 1916, through its participation in the latter’s partner programme: in its role as a “kestnerpartner” the company is able to promote the so­
versary, Hannover Re launched an art foundation that benefits the Sprengel Museum in Hannover. The Sprengel Museum ranks among the foremost German museums of twentieth­
sition of contemporary pieces, which are then made available to the Sprengel Museum on permanent loan. The Foundation is further tasked with financing publications and events to ac­
In the year under review Hannover Re and E+S Rück jointly donated to projects in an amount of altogether EUR 121,000 to projects in the following categories: • Social and scientific causes
• Staff (further and advanced training, compatibility of work and family life)
line on risk management and the central system of limits and thresholds, are subject to regular review. In this way, we en­
ment system are kept up­to­date. Operationalisation of our corporate strategy takes place on multiple levels and ultimate­
ly leads into local guidelines, including for example the local underwriting guidelines used by our treaty departments.
equity in such a way that our targeted return of 750 basis points above the “risk­free” interest rate is not jeopardised. In order to optimise our cost of capital we use equity substitutes such as hybrid capital and the transfer of risk to capital and retrocession markets. Through the risk­appropriate allocation of the cost of capital to individual business areas we strive to maximise the risk­adjusted profit.
Opportunities for the Hannover Re Group are to be anticipated inter alia as a consequence of the impending adoption of risk­
ency II is expected to be implemented on 1 January 2014, al­
application phase for approval of an internal capital model. We see Solvency II as an opportunity for the convergence of inter­
ness ideas and opportunities are systematically analysed by our Business Opportunity Management unit with the aim of generating new business and thereby enabling the Hannover
In this connection we aspire to a rating from the rating agencies most relevant to our industry that opens up and se­
Poor’s is “AA–” (“Very strong”, stable outlook) and the rating from A.M. Best is “A” (“Excellent”, positive outlook). Hanno­
“strong”, the second­best S&P rating. This evaluation testifies to the quality of our holistic approach to risk management. We would additionally refer the reader to our remarks on the fi­
Executive Board • Overall responsibility for Group-wide risk management • Responsibility for the proper functioning of risk management • definition of the risk strategy
Risk committee • Operational risk management, monitoring and coordinating body • implementation and safeguarding of a consistent Group-wide risk management culture chief Risk Officer • Responsibility for holistic risk monitoring across the Group as a whole and the business groups (systematic identification and assessment, control/monitoring and reporting) of all material risks from the Group perspective (technical risks in life/health and non-life reinsurance, market risks, credit risks, operational risks and other risks)
For many years Hannover Re has managed and monitored its risks with the aid of quantitative methods. In this context, Han­
ation of all risks affecting the company. In this way, the costs associated with a risk – the cost of capital – can be consistently broken down to all operational areas of the corporate group.
The internal capital model of Hannover Re is a stochastic enter­
ness at all times. Hannover Re calculates the required capital as the Value at Risk (VaR) of the economic change in value over a period of one year with a confidence level of 99.97%. This re­
ly in the year under review from EUR 5,410.7 million to EUR
5,484.7 million. This increase reflects the enlarged business volume in the non­life and life/health reinsurance business groups. The increased credit risk is attributable inter alia to a rise in reinsurance recoverables due to the use of retrocession in the 2011 financial year. The market risks give rise to an effect that runs contrary to the increase in required risk capital for the non­life and life/health reinsurance groups. The required risk capital for market risks is lower because Hannover Re progres­
pite the heavy burden of major losses. The change in the eco­
nomic environment in 2011 – with sharply lower interest rates and higher credit spreads – led to an increase in the valuation reserves for investments and a reduction of the valuation adjust­
1 The required risk capital is the value at Risk for the confidence level of 99.97% of the potential change in value over a period of one year.
age ratio higher to 159.7%. The Hannover Re Group thus con­
able for most investments, the market­consistent valuation of reinsurance treaties necessitates a suitable valuation model. We establish the market­consistent value of technical items as the present value of projected payments using actuarial methods adjusted by a risk loading that factors in the fluctuation in future payments. These fluctuations result from non­hedgeable risks such as technical risks. For the life reinsurance line we addition­
ally use valuation principles similar to those set out by the Chief
ment rules under IFRS. The valuation reserves for investments show the difference between the fair values and book values of our assets under own management. Other valuation adjustments refer principally to deferred taxes in connection with the valua­
The available economic capital, which is available as liable capital for policyholders, is comprised of the economic equity measured as described above and the hybrid capital.
Qualitative methods and practices are a fundamental element of our internal risk management and control system as well as the future Own Risk and Solvency Assessment (ORSA) pur­
toring as well as risk reporting are crucial to the effectiveness of risk management as a whole. Only by giving prompt con­
sideration to risks can the continued existence of our Group be assured. The system that is in place – in common with the corporate and risk strategy – is subject to a constant cycle of planning, action, control and improvement.
ganise our business activities in such a way that they are in conformity with all legal requirements. In accordance with these principles, the Framework Guideline puts in place a con­
ternal 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. It serves, inter alia, to safeguard com­
terial risks that cannot be quantified or are difficult to quantify
ation of the consolidated financial statement as well as the accompanying controls are documented and subject to regular review. All internal Group accounting principles are collated in an Accounting Manual that is available in IT­supported form to all relevant organisational units and all staff of the Hannover
ment audited by independent auditors is delivered by the relevant entities using a Web­based IT application. The in­
dividual items of the balance sheet, statement of income, statement of comprehensive income, statement of changes in shareholders’ equity, cash flow statement and the relevant data for the segmental reporting, notes and consolidation are stored in a database; this data is uploaded via automatic in­
and those stemming from activities in the current or future years (price/premium risk). In the latter case, special import­
A significant technical risk is the reserving risk, i.e. the risk of under­reserving losses and the associated strain on the under­
plementary to those posted by our cedants as well as an IBNR
serves would cover if the average level of paid claims over the past three years were to continue.
other monitoring tool. They show the changes in the reserve over time as a consequence of paid claims and in the recalcu­
Hannover Re has taken out inflation swaps (USD and EUR zero coupon swaps) to partially hedge inflation risks. Portions of the loss reserves are hedged against inflation risks by means of these derivative financial instruments. An inflation risk exists particularly inasmuch as the liabilities (e.g. loss re­
serves) could develop differently than assumed at the time when the reserve was constituted. Inflation protection was purchased for the first time in the second quarter of 2010 with terms of 4 and 5 years; it was increased in the first quarter of 2011 (term of 8 years).
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 capital that is available to cover risks from natural perils.
This is a key basis for our underwriting approach in this seg­
lar and independent reviews of the models used for treaty quotation as well as central and local underwriting guidelines 1 Natural catastrophes and other major claims > EUR 5 million gross are vital management components. 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.
Catastrophe losses and major claims1 2011 in EUR million date gross net
Flood damage in northern and central Thailand 15 September – 1 November 234.5 195.7
Winter storm damage in Mexico 3 – 5 February 50.1 50.1
Tornadoes in the southern United States 27 – 28 April 22.6 14.6
Winter storm damage in the United States 31 January – 5 February 5.3 4.2
Stress tests for natural catastrophes after retrocessions in EUR million 2011 2010
Effect on forecast net income 100-year loss European windstorm (63.2) (146.5)
ability); they constitute material risks for our company in the area of life and health reinsurance. Counterparty, lapse and catastrophe risks are also material since we additionally pre­
garding the lapse rate). New business is written in all regions in compliance with underwriting guidelines applicable world­
mary sector is important in life business owing to the guaran­
tivities in comparison with the corresponding sensitivities of the MCEV 2009. For more detailed information please see the
Market Consistent Embedded Value Report 2010, which in a departure from the system used here shows the figures after non­controlling interests.
Base value 3,891.0 3,390.3 interest rate curve +100 basis points –0.5% 2.2%
combined ratio (non-life reinsurance) 104.3 98.2 96.6 1 incl. financial reinsurance and specialty insurance 2 Based on US GAAP figures 3 Natural catastrophes and other man-made major losses > EUR 5 million gross for the share of the Hannover Re Group as a percentage of net premium earned
controlling interests amounted to EUR 2,711.9 million (2009: EUR 2,210.8 million) as at 31 December 2010. This represents an increase of 22.7% (33.8%). The operating MCEV earnings totalled EUR 299.5 million (EUR 178.5 million), while the value of new business stood at EUR 153.4 million (EUR 83.9 million).
We shall publish the MCEV for the 2011 financial year on our
Internet website at the same time as the quarterly report for the first quarter of 2012.
lated fluctuations in fair value and realised gains/losses on investments since the beginning of the year in relation to a maximum loss amount, with an eye to clearly graduated trig­
ger values. These are unambiguously defined in conformity with our risk appetite and trigger specified actions if a corres­
tions the decline in the fair value of our 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 prob­
A multi­factor model is used to calculate the VaR indicators for the Hannover Re Group. It is based on time series of selected representative market parameters (equity prices, yield curves, spread curves, exchange rates, commodity prices and macro­economic variables). All asset positions are mapped on the level of individual positions within the multi­
factor model; residual risks (e.g. market price risks that are not directly explained by the multi­factor model) can be de­
Market price risks increased in the year under review in the face of greater volatility. Due to continued broad risk diversi­
Stress tests are conducted in order to be able to map extreme scenarios as well as normal market scenarios for the purpose of calculating the Value at Risk. In this context, the loss poten­
tials for fair values and shareholders’ equity (before tax) are simulated on the basis of already occurred or notional extreme events. Further significant risk management tools – along with various stress tests used to estimate the loss potential under extreme market conditions – include sensitivity and duration analyses and our asset/liability management (ALM). The inter­
nal capital model provides us with quantitative support for the investment strategy as well as a broad diversity of VaR calcu­
ments can be obtained from the tables on the rating structure of fixed­income securities as well as on the currencies in which investments are held. Please see our comments in
Scenarios for changes in the fair value of material investment positions in EUR million
Share price risks derive from the possibility of unfavourable changes in the value of equities, equity derivatives or equity index derivatives held in the portfolio. In the first quarter we disposed of our entire portfolio of listed equities in view of what was already a highly volatile market environment. Since then we have made corresponding new investments only on a very modest scale as part of strategic participations. The scen­
terest rate risk. Declining market yields lead to increases and rising market yields to decreases in the fair value of the fixed­
income securities portfolio. The credit spread risk should also be mentioned. The credit spread refers to the interest rate differential between a risk­entailing bond and risk­free bond of the same quality. Changes in these risk premiums, which are observable on the market, result – analogously to changes in pure market yields – in changes in the fair values of the corresponding securities.
Through extensive matching of currency distributions on the assets and liabilities side, we reduce this risk on the basis of the individual balance sheets within the Group. The short­term
Value at Risk therefore does not include quantification of the currency risk. We regularly compare the liabilities per cur­
erage in light of relevant collateral conditions by regrouping assets. Remaining currency surpluses are systematically quan­
We use derivative financial instruments only to a very limited extent. The primary purpose of such financial instruments is to hedge against potentially adverse situations on capital mar­
kets. In the year under review we took out inflation swaps to hedge part of the inflation risks associated with the loss re­
demnity insurance, payment performance and proper contract implementation. The credit status of retrocessionaires is con­
cessionaires participating in protection cover programmes and determines the capacities still available for short­, medium­
Poor’s and A. M. Best but also internal and external expert assessments (e.g. market information from brokers). Overall, retrocessions conserve our capital, stabilise and optimise our results and enable us to act on opportunities across a broader front, e.g. following a catastrophe loss event. Regular visits
ces sionaires we are able to provide a stable renewals forecast.
ated and limited in light of credit considerations and are con­
stantly monitored and controlled within the scope of our system of limits and thresholds.
• In terms of the Hannover Re Group’s major companies, EUR
insurance business totalling EUR 3,142.1 million were older than 90 days as at the balance sheet date.
The chart on the next page shows the development of our reinsurance recoverables – split by rating quality – due from our retrocessionaires. Although the reinsurance recoverables were higher in 2011 than in the previous year on account of the heavy burden of major losses, recent years are clearly trending lower with an average reduction of 11% per year.
In order to limit the risk of counterparty default we define various limits on the issuer and issue level as well as in the form of dedicated rating quotas. A comprehensive system of risk reporting ensures timely reporting to the functions en­
The measurement and monitoring mechanisms that have been put in place safeguard a prudent, broadly diversified invest­
ment strategy. This is reflected inter alia in the fact that with­
385.3 million on a fair value basis. This corresponds to a pro­
No impairments had to be taken on these holdings. Our port­
On a fair value basis EUR 3,305.2 million of the corporate bonds held by our company were issued by entities in the fi­
Operational risks refer to the risk of losses occurring because of the inadequacy or failure of internal processes or as a result of events triggered by employee­related, system­induced or external factors. Operational risks are monitored primarily by way of appropriate process management. These risk potentials are evaluated on the basis of expert assessments, the plausi­
bility of which is verified by central risk management. These assessments enable us to prioritise operational risks. When it comes to the monitoring of such risks, we attach special emphasis to the following individual risks.
Rating classes Government bonds Securities issued by semi-governmental entities corporate bonds covered bonds/assetbacked securities in % in EUR million in % in EUR million in % in EUR million in % in EUR million 1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings.
Reinsurance recoverables as at the balance sheet date in EUR million
equate or deficient internal processes, e.g. as a consequence of poor data quality. Data quality is a critical success factor, es­
Hannover Re Group, for example by way of regular data qual­
Compliance risks are associated with the risk of breaches of standards and requirements, non­compliance with which may entail lawsuits or official proceedings with not inconsiderable detrimental implications for the business activities of the Han­
Hannover Re, our employees and business partners are able to report such suspicions anonymously using our electronic whistleblower system. These tips are brought to the attention of Hannover Re’s Compliance Office, which is thus able to investigate the grounds for suspicion. Responsibilities within the compliance organisation are regulated Group­wide and documented in a manual. The process is documented in regu­
As a reinsurance specialist, we transact primary insurance business that complements our reinsurance activities in se­
Fraud risks refer to the risk of intentional violations of laws or regulations by members of staff (internal fraud) and/or by externals (external fraud). This risk is reduced by the process­
integrated internal control system as well as by the audits conducted by Internal Auditing on a Group­wide and line­
Regular employee surveys, the monitoring of turnover rates and the holding of exit interviews ensure that such risks are identified at an early stage and scope to take the necessary actions is created.
Information technology risks and information security risks arise, inter alia, out of the risk of the inadequate integrity, con­
When it comes to reducing business interruption risks, the paramount objective is the quickest possible return to normal operations after a crisis, for example through implementation of existing contingency plans. Guided by internationally ac­
tions for the Hannover Re Group and – among other measures
– we have assembled a crisis team to serve as a temporary body in the event of an emergency. The system is comple­
vices may give rise to associated risks. Regulatory and binding internal rules serve to minimise such risks. All risks associated with any instance of outsourcing must be identified, evaluated
M an ag em en t re p or t other risks
Of material importance to our company in the category of other risks are primarily emerging risks, strategic risks, repu­
spect to our treaty portfolio. Such risks evolve gradually from weak signals to unmistakable tendencies. It is therefore vital to detect these risks at an early stage and then determine their relevance. For the purpose of early detection we have developed an efficient process that spans divisions and lines of business and we have ensured its linkage to risk management.
ance products). By way of example, the risks arising out of the emergence of large cities and urban conurbations – so­
nology, political unrest, amendments to laws and changes in regulatory requirements as well as pandemics may be cited as examples of other emerging risks.
Strategic risks derive from a possible imbalance between the corporate strategy of the Hannover Re Group and the con­
balance might be caused, for example, by incorrect strategic policy decisions, a failure to consistently implement the de­
fined strategies and business plans or an incorrect allocation of resources. We therefore regularly review our corporate strategy in a multi­step procedure and adjust our processes and the resulting guidelines as and when required. We have defined performance criteria and indicators for the operational implementation of the strategic guidelines; these are authori­
tative when it comes to determining fulfilment of the various targets. In accordance with our strategy cycle, we reviewed our strategy this year and adjusted it in line with current re­
average profitability. The business group strategies specify in concrete terms the contribution to be made by the business groups to attainment of the overarching objectives. With the
ures. Further details are provided in the section entitled “Our strategy” on page 14 et seq.
lic at large. This risk has the potential to jeopardise the busi­
ness foundation of the Hannover Re Group. A good corporate reputation is therefore an indispensable prerequisite for our core business as a reinsurer. It often takes decades to build up a positive reputation, yet this reputation can be damaged or even destroyed within a very brief space of time. Loss of reputation may occur, for example, if a data mishap becomes public knowledge or as a consequence of fraud. We use a number of different practices to minimise this risk, including for example our set communication channels, a professional approach to corporate communications, tried and tested pro­
works (social media) as well as the principles defined in our sustainability strategy for conducting business in a respon­
ity risk consists of the refinancing risk, i.e. the necessary cash cannot be obtained or can only be raised at increased costs, and the market liquidity risk, meaning that financial market transactions can only be completed at a poorer price than ex­
theless defined asset holdings that have proven to be highly liquid – even in times of financial stress such as the 2008 financial crisis. Our holdings of unrestricted German, UK and
US government bonds as well as cash during the year under
ties for many years and therefore remains a crucial objective of our Group strategy, which was revised this year. We shall seek to cement and further extend our position as one of the leading globally operating reinsurance groups of above­aver­
With a view to allocating our demanding profit and growth targets for the Group to the individual business activities and profit centres on a basis that adequately reflects the risks and in order to be able to measure goal attainment, we have used a set of value­based management tools for many years now.
On the basis of the corporate strategy and the corresponding strategy contributions of all treaty departments and service units, the planning is adopted by the Executive Board and subsequently communicated within the Group.
tegrated into the individual agreements on objectives with managers. When it comes to the definition of objectives, the participants take into account not only profit­oriented but also non­financial variables derived from the strategic parameters.
review were larger than possible disbursements for assumed extreme scenarios, which means that our liquidity is assured even in the unlikely event of financial crises coinciding with an extreme event that needs to be paid out quickly. The liquid asset reserve stood at more than EUR 1.8 billion as at the balance sheet date. In addition, we manage the liquidity of the portfolio through ongoing monitoring of the liquidity of the instruments contained therein; liquidity is verified on a monthly and ad hoc basis. These measures serve to effectively reduce the liquidity risk.
sational and operational structures ensure that we are able to identify our risks in a timely manner and maximise our op­
Hannover Re cannot discern any risks that could jeopardise the continued existence of our company in the short or me­
dium term or have a material and lasting effect on our assets, financial position or net income.
The annual Management Reporting presents in detail the degree of goal attainment for each individual operational unit and for the Group as a whole. On this basis appropri­
ate per formance controlling is carried out, potential scope for improvement and refinement is identified and performance­
The main component of value­based management is the risk­appropriate allocation of capital to the individual busi­
lowance is therefore made for them in the form of collateral conditions on the various allocation levels. Starting out from the Group’s overall risk situation, capital is first allocated to the functional areas of underwriting and investments. We then further divide the capital within the underwriting sector, first between the business segments of non­life reinsurance and life/health reinsurance and then between the various reinsur­
In order to fine­tune the portfolios and individual treaties we apply underwriting­year­oriented measurement principles based on expected cash flows that appropriately accommo­
date the specific characteristics of non­life and life/health reinsurance. The accomplishment of targets in a particular financial year is also of interest – especially from the stand­
point of shareholders. Based on our economic 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 busi­
Management by Objectives p la n n in g p ro ce ss
reinsurance). In addition, interest on hybrid capital already recognised in the IFRS Group net income and the non­con­
ancing items for differences between economic valuations and amounts stated in the IFRS balance sheet and the hybrid capital. In this context, capital that is not at risk (excess cap­
ital) is disregarded, i.e. it is not allocated. Capital is allocated to the profit centres as described above according to the risk content of the business in question. A systematic distinction is made here between the assumption of underwriting risks, on the one hand, and investment risks, on the other. Under the IVC calculation, therefore, only risk­free interest income on the generated cash flows is allocated to the business seg­
ments of non­life and life/health reinsurance. The investment income above and beyond risk­free is allocated in its entirety to the functional area of investments and included in the IVC
The adjusted operating profit is comprised of two factors: the recognised IFRS Group net income after tax and the change in the balancing items for differences between eco­
5 The McEv as at 31 december 2011 will be published on our website at the same time as the quarterly financial report for the first quarter of 2012.
6 Risk-free interest rate + cost of capital 7 750 basis points above the risk-free return 8 Excluding tax effect target attainment
ful, we have introduced the xRoCA (excess return on capital allocated) in addition to the IVC. This describes the IVC in relation to the allocated capital and shows us the relative ex­
cess return generated above and beyond the weighted cost of capital. Complementary to this, the IVC margin corresponds to the ratio of the IVC to the net premium earned, i.e. the intrin­
sic value creation as a percentage of our net premium income.
In the previous year Hannover Re was not in compliance with one recommendation of the German Corporate Governance
Declaration of Conformity pursuant to § 161 Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code at
ter the trust of investors, clients, employees and the general public in German corporate governance. 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 rec­
Government Commission” published by the Federal Ministry of Justice or to explain which recommendations of the Code were/are not applied.
The Executive Board and Supervisory Board declare pursuant to § 161 Stock Corporation Act (AktG) that in its implementa­
26 May 2010 Hannover Rückversicherung AG diverged in one respect from the Code recommendations: Code Item 4.2.3 Para. 4; Caps on severance payments in man­
ious cause may only take the form of cancellation by mutual consent. Even if the Supervisory Board insists upon setting a severance cap when concluding or renewing an Executive
dation contained in Item 4.2.3 Para. 4, it is, however, open to question whether qualified candidates for a position on the company’s Executive Board would accept appropriate clauses.
ticularly disadvantageous in cases where there is ambiguity surrounding the existence of serious cause for termination. In the opinion of Hannover Rückversicherung AG, it is therefore in the interest of the company to diverge from the recommen­
ability. Through our worldwide presence and activities in all lines of reinsurance we achieve an optimal risk diversification while maintaining a balanced risk/opportunity profile. Profit and value creation constitute the foundation of our sustain­
When it comes to our staff, we pay special attention to their skills, experience and motivation, and we foster these qualities through our human resources and leadership development ac­
We support sensible and pragmatic Corporate Governance principles and recognise their central importance in guiding our activities. The principles of responsible and good enter­
ners, staff, shareholders and other stakeholder groups. On this basis Hannover Re supports the principles of value­based and transparent enterprise management and supervision as de­
Rules of Procedure of the Supervisory Board in the previous year and specification of the goal that the number of women on the Supervisory Board should be increased, a woman was for the first time elected to this body as a shareholder repre­
sentative on the occasion of a special election to the Supervis­
Re’s strategic orientation towards sustainability forms a key element of its corporate strategy. The aim here is to achieve commercial success on the basis of a solid business model in accordance with the needs of our staff and the company as well as with an eye to protecting the environment and conserving natural resources. We strive to reduce as far as possible the greenhouse gas emissions produced by our day­to­day busi­
cise of their rights at this year’s Annual General Meeting even more than we have in the past by making postal voting pos­
neric/codeofconduct­e.pdf). The rules defined therein reflect the high ethical and legal standards that guide our actions worldwide. It is our belief that integrity in dealings with our stakeholders constitutes the foundation of a successful en­
terprise. In both our strategic planning and our day­to­day business activities, we therefore aspire to consistently apply the highest ethical and legal standards; for our actions and the way in which every single one of us presents and conducts himself or herself are crucial in shaping the image of the Han­
tee in March 2012. After in­depth examination of topics such as directors’ dealings, ad hoc and other reporting require­
tails in this regard may be obtained from the opportunity and risk report contained in the Annual Report on page 63 et seq.
Executive Board, matters of fundamental importance require the consent of the Supervisory Board. In addition, the Super­
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 8 and 210 respectively of the present Annual Report.
ance is expressly attached to an organisation that facilitates cost­effective, quick and unbureaucratic decision processes.
all responsibility, each member of the Executive Board leads their own area of competence at their individual responsibility within the bounds of the resolutions adopted by the Executive
mined such that it expires no later than the end of the month in which the member of the Executive Board turns 65.
The Rules of Procedure of the Supervisory Board provide inter alia that each member of the Supervisory Board must have the knowledge, skills and professional experience required for orderly performance of their tasks and that the Supervisory
bers. At least one independent member shall have technical expertise in the fields of accounting and the auditing of finan­
visory Board shall ensure that they have sufficient time to discharge their mandate. The Supervisory Board meets at least twice each calendar half­year. If a member of the Super ­
The Standing Committee prepares personnel decisions for the Supervisory Board and decides in lieu of the Supervisory
Corporation Act (AktG) as well as for the approval of 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 Super­
Information regarding the following items is provided in the remuneration report: • Remuneration report for the Executive Board and individual­
Information on share­based payment pursuant to Item 7.1.3 of the German Corporate Governance Code is provided in
tive Board in the 2011 financial year on the basis of the work performed by the Board members for Hannover Re and its affiliated companies.
visory Board on the basis of its work for Hannover Re and its affiliated companies and the principles according to which this remuneration is determined are described; we also explain the principles on which the remuneration for managers below the level of Executive Board is based.
tails are discussed as a whole in this remuneration report and presented in summary form in the notes.
Responsibility for determining the amount of remuneration received by the Executive Board of Hannover Re rests with the full Supervisory Board.
related content. The latter has been decided upon at a full meeting of the Supervisory Board since 2009.
The amendments were undertaken with the assistance of an independent firm of consultants specialising in the field of remuneration systems. In this way, it is ensured that the total remuneration and the split into fixed and variable components conform to regulatory requirements – especially the provisions of the Act on the Adequacy of Management Board Remuner­
tive Board are geared to the size and activities of the com pany, its economic and financial position, its success and future prospects as well as the customariness of the remuneration, making reference to the benchmark environment and the re­
With an eye to these objectives, the remuneration system has two components: fixed salary/non­cash compensation and variable remuneration. The variable remuneration elements have a multi­year assessment basis and thereby promote the sustainable development of the company. In the event of 100% goal accomplishment, the share of the total remuner­
2 An instrument of value-based management used to measure the attainment of long-term objectives on the level of the Group, business groups and operational units.
1 An instrument of value-based management used to measure the attainment of long-term objectives on the level of the Group, business groups and operational units.
Measurement bases/conditions of payment for variable remuneration component Measurement basis/parameter condition of payment
Proportion of variable remuneration: chief Executive Officer/chief Financial Officer: 70%; Board members except for cEO/cFO: 50%
Until 2013: The Supervisory Board determines degree of goal accomplishment according to its best judgement. From 2013 onwards: Attainment of the ivc
Proportion of variable remuneration: chief Executive Officer/chief Financial Officer: 30%; Board members except for cEO/cFO: 25%
The Supervisory Board determines degree of goal accomplishment according to its best judgement.
The fixed annual salary is paid in twelve equal monthly in­
For the duration of the appointment to the Executive Board a passenger car is made available for business and personal use.
The member of the Executive Board is responsible for paying tax on the pecuniary advantage associated with private use of the company car.
The Board member is reimbursed to an appropriate extent for travel expenses and other expenditures incurred in the interest of the company.
The profit­ and performance­based variable remuneration is contingent on certain defined results and the attainment of certain set targets. The set targets vary according to the func­
The profit bonus is dependent on the risk­free interest rate and the average return on equity (RoE) over the last three financial years. Goal accomplishment can amount to a maximum of 200% and a minimum of –100%.
The RoE is calculated using the IFRS Group net income (ex­
cluding non­controlling interests) and the arithmetic mean of the IFRS Group shareholders’ equity (excluding non­control­
The criteria for the individual bonus for all members of the
bution to the overall result, leadership skills, innovative skills, entrepreneurial skills and other quantitative and qualitative personal targets, making special allowance for the specific features associated with the Board member’s area of respon­
EUR 0 and the highest is equivalent to double the bonus upon complete fulfilment of the targets.
For the years 2011 and 2012 the business group bonus is established by the Supervisory Board according to its best judgement. In so doing, the Supervisory Board pays special attention to the following five criteria: relative change in the
goal accomplishment is awarded. The lowest business group bonus amounts to EUR 0, while the highest is equivalent to double the bonus upon complete fulfilment of the criteria.
If addition of the individual amounts gives rise to a nega­
The variable remuneration is defined at the Supervisory Board meeting that approves the consolidated financial statement for the financial year just­ended.
A positive balance in the bonus bank is carried forward to the following year after deduction of any amount paid out, while a negative balance is not carried forward to the next year.
The bonus bank has no opening balance and no interest is payable upon the balance in the bonus bank.
Share awards (vesting period of four years): 20% of the mathematically determined variable remuneration is granted as share­based remuneration in the form of virtual
Re share in a period of five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement. The HR­SAs are awarded automatically without any requirement for a declaration by
For each HR­SA the value of the Hannover Re share calculated on the disbursement date (value calculated in the same way as when the award is made) – plus an amount equivalent to the total dividends distributed during the vesting period – is paid out after expiry of a vesting period of four years. Taxes and social security contributions due are borne by the member of the Executive Board. Board members have no entitlement to delivery of shares.
ber of the Executive Board has reached the age of 60 and has served as a member of the Executive Board for two terms of office) is declined, all rights to payment of the balances from the bonus bank and from the HR­SAs are forfeited.
tive Board retains his entitlements to payment from the bonus bank – making allowance for a defined forward projection of the bonus bank – and for already awarded HR­SAs.
All claims to the allocation of amounts to the bonus bank and/or awarding of HR­SAs after leaving the company are ex cluded. In cases where an individual leaves the company because of non­reappointment, retirement or death this shall not apply with respect to claims to variable remuneration ac­
Members of the Executive Board whose appointment does not extend beyond 31 December 2011 on age grounds shall continue to receive their remuneration according to the remu­
metic mean of the actual earnings per share (EPS under IFRS)
allocation year. Of the stock appreciation rights granted in previous years, active and former Board members exercised amounts totalling EUR 1.1 million (EUR 0.1 million).
– shall be entitled to continued payment of the fixed annual salary for the month in which the Board member dies and the six months thereafter, at most until termination of the contract of employment.
The contracts of the Board members do not include a com­
agement board contracts” – we would refer the reader to our remarks in the Declaration of Conformity contained in the section “Enterprise management” on page 84 of this Group
competition clause shall not apply if the contract ends prior to the age of 65 because the company does not extend it or because Mr. Wallin declines an extension offered to him on what are for him inferior terms, or if the premature termin­
ation or non­extension is due to a compelling reason that is the responsibility of the company.
After utilisation of the option contained in the Act on the
Disclosure of Management Remuneration (VorstOG) not to specify the remuneration of the Executive Board on an indi­
vidualised basis for a period of altogether five years in accord­
The remuneration (excluding pension payments) received by former members of the Executive Board totalled EUR 0.1 mil­
sponsibilities 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 the parent company Hannover Re. 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.
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 out in 2016 at the prevailing share price of Hannover Re.
On account of the changeover from the stock appreciation rights programme to the share awards programme in 2011 and the different booking rules applicable to these programmes, DRS 17 requires that both share-based payment programmes be shown in 2011 even though they refer to different years.
11 The 2010 amounts reflect the old remuneration structure and cannot be compared 1:1 with the figures for 2011.
Total remuneration received by active members of the Executive Board pursuant to dRS 17 (amended 2010) (contd.) in EUR thousand
Total expense for share-based remuneration of the Executive Board in 2011 in EUR thousand
1 The expense for share awards is spread across the remaining period of the individual contracts of employment.
able fixed annual remuneration (defined benefit). The target pension is at most 50% (appointment from 1997 onwards) or 65% (appointment prior to 1997) of the monthly fixed salary payable on reaching the age of 65. A non­pensionable fixed remuneration component was introduced in conjunction with the remuneration structure applicable from 2011 onwards.
In the event of pension entitlement, a claim to life­long retire­
acitated for work during the period of the contract of employ­
The early granting (before reaching the age of 65) of retire­
Executive Board may not have declined an extension of the contract on at least equivalent terms and there cannot have been any grounds for termination without notice on the part of the company.
muneration is contractually defined upon appointment and increases annually by 0.75 percentage points to 2 percentage points to a maximum of 50% or 65% upon reaching age 65.
For the purpose of calculating the retirement pay for Board members appointed from 1997 to 2008 in the event of a pen­
Until age 65 is reached 50% of other income earned by the
The commitments given to members of the Executive Board from 2009 onwards are based on a defined contribution scheme. An indirect commitment is granted by HDI Un­
A Board member who has reached the age of 65 and left the company’s employment receives a life­long retirement pen­
lated according to the reference date age (year of the refer­
An early retirement pension is paid to a member of the Execu­
tive Board who documents that he is receiving a full pension through submission of the pension notice.
tated for work during the period of the contract of employ­
ment – in the event that HDI Unterstützungskasse does not grant him a disability pension – a pension that the said HDI
A member of the Executive Board who leaves the company prior to occurrence of the pensionable event also retains the entitlement to pension benefits. The pension benefits are, however, only paid from the occurrence of the pensionable event onwards. The vesting of the benefits is contractually guaranteed.
If the member of the Executive Board dies after pension payments begin, the surviving spouse (appointment prior to 1997)/surviving spouse and alternatively dependent children
25% if the widow’s pension does not apply – of the retirement pay that the Board member received or would have received on the day of his death if the pensionable event had occurred owing to a permanent incapacity for work. The orphan’s pension is payable at most until the age of 27. Income from an employment or training relationship is partially counted towards the orphan’s pension (contracts from 1997 onwards).
The widow’s and orphan’s pension takes effect as soon as there is no further entitlement to continued payment of salary or retirement pay.
sions are reduced pro rata by the excess amount. If a widow’s or orphan’s pension ceases to apply, orphan’s pensions that have been reduced are increased accordingly.
Surviving dependant’s benefit (in the case of a contributionbased pension commitment)
fore occurrence of the pensionable event and provided the marriage existed until the date of the Board member’s death.
The surviving children receive an orphan’s pension. The orphan’s pension for each half­orphan amounts to 15% (30%
for each full orphan) of the pension that the deceased Board member received or would have received if he had been in­
completion of such education, although only for as long as child benefits could have been claimed for the child under the
The projected benefit obligation for Board­funded pension commitments of active members of the Executive Board amounted to EUR 1.5 million as at 31 December 2011; the corresponding projected benefit obligation for former mem­
bers of the Executive Board totalled EUR 0.8 million as at
Measurement under iFRS therefore uses the defined benefit method. An annual premium of EUR 80,000 (25% of the pensionable income) was paid for Mr. vogel in 2011. The guaranteed interest rate of his commitment is 3.25%.
In accordance with § 12 of the Articles of Association as amended on 3 May 2011, the members of the Supervisory
EUR 15,000 for their Committee work and the members of the
ance allowance of EUR 1,000 for their participation in each meeting of the Supervisory Board and the Committees in addition to the aforementioned remuneration. If a meeting of the Supervisory Board and one or more Committee meetings fall on the same day, the attendance allowance for this day is only paid once in total.
This arrangement applies for the first time to the 2011 finan­
cording to the average earnings per share of the years 2009,
Individual remuneration received by the members of the Supervisory Board in EUR thousand1 2011 2010
Name Function Type of remuneration dr. Klaus Sturany deputy chairman of the – Supervisory Board Member of the – Standing committee – Nomination committee (from 3 May 2011)
Wolf-dieter Baumgartl Member of the – Supervisory Board – Standing committee – Finance and Audit committee – Nomination committee
Uwe Kramp3 Member of the Supervisory Board Fixed remuneration 30.0 10.0 variable remuneration 19.3 34.3
Attendance allowances 3.0 2.0 dr. Andrea Pollak Member of the Supervisory Board (from 3 May 2011)
dr. immo Querner2 Member of the Supervisory Board Fixed remuneration 50.0 15.0 variable remuneration 55.4 59.6
Attendance allowances 5.5 3.5 dr. Erhard Schipporeit Member of the – Supervisory Board – Finance and Audit committee (independent financial expert)
Gert Wächtler3 Member of the Supervisory Board Fixed remuneration 30.0 10.0 variable remuneration 19.3 34.3
2 including supervisory board remuneration and remuneration for committee work received from entities affiliated with the company 3 Employee representatives
The individualised presentation of the remuneration shows the expense charged to the financial year in question. Since the remuneration for a financial year becomes due at the end of the Annual General Meeting that ratifies the acts of the
In order to avoid potential conflicts of interest, Hannover Re or its subsidiaries may only grant loans to members of the
Executive Board or Supervisory Board or their dependants with the approval of the Supervisory Board.
tioned individuals – in excess of EUR 5,000 are to be reported pursuant to § 15a Securities Trading Act (WpHG). No such reportable transactions took place in the 2011 financial year.
Hannover Re as well as their spouses or registered partners and first­degree relatives hold less than 1.0% of the issued shares. The total holding as at 31 December 2011 amounted to 0.055% (0.055%) of the issued shares, i.e. 65,862
formance Excellence criteria we ensure that the efforts of our staff contribute directly to the success of the business strategy.
ponents foster individual initiative. Through the delegation of tasks, powers and responsibility as well as the agreement of exacting goals we create a culture of entrepreneurial thinking on all hierarchical levels – among the ranks of both manage­
Group of participants and total number of eligible participants in variable remuneration systems
Managing director E1Md Management level 2 Management by Objectives (MbOs), stock appreciation rights
Hannover Re Group 140 managers worldwide out of altogether 141 participate in both the MbO process and the stock appreciation rights scheme director E2d Management level 3
Home Office Hannover 551 GPB-eligible staff out of altogether 1,001 staff below the management level
of a long­term remuneration component (stock appreciation rights) and, secondly, of short­term variable remuneration dependent upon accomplishment of the agreed goals for the year in question (Management by Objectives, MbO). Members of staff on the levels of Chief Manager, Senior Manager and
Bonus (GPB). The group of participants and the total number of eligible participants in the variable remuneration system of Hannover Re are set out in the table on the previous page.
For staff on the level of Manager or higher we introduced a remuneration model linked to the company’s success in 2004, namely the Group Performance Bonus (GPB). This tool is geared to the minimum return on equity of 750 basis points above the risk­free interest rate and the return on equity actually generated. For those participating in the GPB
14.15 monthly salary payments are guaranteed; a maximum of 16.7 salary payments is attainable. Since its launch the maximum amount of the GPB was paid out in 2006, 2007,
Outside Germany this ratio is not as clear­cut as it is at Home
The targets agreed in the context of the MbO bonus are broken down into economic and individual targets, as shown in the table on this page.
Since 2006 the degree of goal attainment has been indexed if goal attainment exceeds 80%. A good performance with at­
Offices abroad amounts on average to 10% of the total cash compensation.
ciation rights. Depending upon the extent to which the target level of the internal (EPS) and external (RBS Global Reinsur­
There are four exercise periods each year. In this respect, however, there is no entitlement to delivery of shares of Han­
nover Re, but merely to payment of a cash amount geared to the performance of the Hannover Re share. This is established from the difference between the market price of the Hannover
and the current market price at the time when the stock ap­
January 2012 which – in its basic principles and parameters –
The measurement of the variable remuneration is based on three elements: Group net income, business group targets and individual targets. The weighting of the elements is depend­
ent upon whether responsibility is carried in a treaty/regional department or in a service department. In the treaty/regional departments the Group net income is weighted at 20%, the business group targets at 40% and the individual targets also at 40%. In the service departments the Group net income carries a 40% weighting, while the individual targets account
Individual targets are agreed and measured for a period of one year. The degree of goal attainment is between 0% and 100%. Agreements on business group targets and individual targets as well as on their degree of goal attainment will con­
agement Level 2 (Managing Directors) 60% of the variable remuneration is paid out annually in cash and 40% is granted in the form of share awards. On Management Level 3 (Direct­
cording to the value per share of Hannover Re. This value is arrived at from the average of the closing prices of the shares in a period extending from 20 trading days before to 10 trad­
Following expiry of a vesting period of four years the value of one Hannover Re share calculated at the disbursement date is paid out for each share award. The value of the Hannover
When two parties pursuing their own interests meet in the middle, we have a „win-win“ situation.
Forecasts for 2012 are subject to considerable uncertainty since the development of the global economy will depend heavily on how the debt crisis in the Eurozone is handled. The
Ifo Institute, for example, has outlined a basic scenario for 2012 under which it is possible to calm financial markets on a lasting basis and prevent intensification of the European debt crisis. This is contingent upon appropriate efforts being made to put public finances back on a sound footing in the critical member states of the Eurozone. It is, however, far from certain that this basic scenario will materialise; numerous other scen­
According to this basic scenario, a further slowdown is to be anticipated in economic expansion in 2012 on account of the growing uncertainties and the debt problems facing many in­
dustrialised nations. The financing conditions for banks and businesses on the open market are likely to deteriorate and hence considerable consumer spending and capital expend­
itures will be postponed. The savings drive among private households should heavily curtail private consumption in some European countries and the United States. Not only that, fiscal policy in Europe and the US alike will probably have a heavily restrictive orientation. The softening economic trend in the industrialised countries may put the brakes on growth in emerging markets. Nevertheless, with growth rates still ex­
pected to be healthy, emerging markets should again prove to be a stabilising factor for the world economy in 2012. All in all, global output is therefore likely to show only weak growth.
sumption will struggle to pick up. The continued restrictive fiscal policy will likely have further negative implications for domestic demand. It is also anticipated that US companies will have a reduced appetite for capital spending in 2012. The Ifo
In the Eurozone the debt crisis and a strict budgetary policy in many countries should mean that the economy will manage only weak growth overall. In this context, the differences be­
able. Internal demand will in all likelihood barely rise, since public consumption will contract on account of spending cuts
After an upswing over the past two years, economic activity may soften again in Germany in 2012. Key factors here are the weaker global economy and the restraining effects of the
which tends to lag behind cyclical developments – will be sup­
ported by the favourable state of the labour market and a still healthy income situation, hence enjoying robust growth.
Contrary to many European countries, therefore, Germany is unlikely to slip into recession. The Ifo Institute forecasts an increase of 0.4% in gross domestic product in 2012.
Japanese GDP is expected to show growth of 2.0% in 2012.
Reserve Board will probably take initial steps towards a more restrictive monetary policy in 2013 at the earliest. Against the backdrop of the expansionary fiscal policy and the uncertainty stemming from the Eurozone debt crisis, German and US gov­
mental strategy adopted for solving the Euro debt crisis will lead to further volatility in the capital market environment.
The necessary consolidation of public finances will serve as a further drag on the economic climate.
– not only in Germany but also in many other industrialised nations.
mote not only the supply of but also demand for insurance protection.
insurance. The outcome of the renewals as at 1 January 2012
We achieved particularly substantial rate increases in the property catastrophe sector – and not only loss­impacted pro­
sible; in the US, too, we achieved percentage increases in the low double­digit range. The treaty renewals also passed off highly satisfactorily for us in Canada. Treaties in Japan and
ters in 2011 – are renewed within the year. We expect to see significant rate increases at this time.
ing us to stand by our highly selective approach to writing US
ance solutions that afford capital relief could be observed in the face of more exacting capital requirements associated with risk­based solvency models such as Solvency II.
Based on our very good rating (“AA–” from Standard & Poor’s and “A” from A.M. Best) we are a sought­after reinsurance partner among our clients, enabling us to profit in especially large measure from the available market opportunities.
age in August and September 2011 as well as claims from prior years contributed to the increase in premiums in own damage business, from which we – as the second­largest re­
insurance will become even more appealing in the eyes of many primary insurers.
America passed off satisfactorily. In US property business it was for the most part possible to push through rate increases.
Price rises of up to 30% were possible under loss­impacted programmes. It was also gratifying to note that the rate ero­
sion in US casualty business was halted. Rates in standard casualty business, an important line for our company, re­
mained stable. In the professional indemnity lines we were able to make the most of profitable opportunities. We were particularly satisfied with the outcome of the renewals in
sible to push through further improvements in conditions and prices on both the primary and reinsurance sides; this was true of property and casualty business alike. Our goal is to expand our portfolio in countries outside Western Europe and the United States. We shall move forward with our policy of consolidation in the energy sector.
Thanks to our very good positioning we continue to see at tract ­
ive business opportunities in aviation reinsurance. Although rates declined slightly, the business remains attractive. We were able to enlarge our client base, especially in the BRIC
insurance in 2012. As expected, the rate level is slightly below that of the previous year. Whether or not results in the current financial year can build on those of the comparable period will depend on how the broader economic environment shapes up.
We shall continue to step up our activities in the area of In­
surance­Linked Securities in the current financial year. In this context, our focus will be on packaging and structuring non­
life and life reinsurance risks. We shall also continue to play an active part as an investor in catastrophe bonds.
Our portfolio of global treaty reinsurance will generate a larger premium volume in 2012 than in the previous year.
In the markets of Central and Eastern Europe demand for high­quality reinsurance protection remains strong. In 2012, therefore, we see further good opportunities to write profit­
With competition intensifying in Latin America and given the low claims expenditure of the previous year, we expect prices for reinsurance covers to decline. In Brazil the two major sporting events – namely the 2014 Football World Cup and the 2016 Olympic Games – will deliver significant growth impetus for the country’s economy and hence boost demand for (re)
insurance covers. In Argentina new supervisory regulations enter into force in the year under review, bringing restrictions on the activities of foreign reinsurers; in this respect our pre­
In the Southeast Asian markets we also expect to see in­
cially true of Thailand, not only due to the impacts of the flood­
ing suffered by this country but also owing to its booming economy.
In view of the heavy losses stemming from natural disasters in the previous year, further price increases and considerable improvements in conditions are expected for the markets of
In the area of agricultural covers we obtained stable or slight­
come is likely to show further appreciable increases in 2012 and 2013. We shall also continue to support projects run by the World Bank and other international organisations in the field of micro­insurance, which protect individuals with scant financial means in the developing world against crop failures.
ucts can therefore be expected to increase, especially in the construction sector and in the liability lines. Gross premium volume is expected to rise in 2012.
erty catastrophe business, rates increased again in the treaty renewals as at the 1 January 2012 – especially under pro­
all. The price rises should be most marked in property catas­
trophe business. In the casualty sector, however, we do not yet anticipate a trend reversal; nevertheless, rates should at least hold stable. For the current financial year we are looking to profitably grow the premium volume in our facultative port­
Going forward, as in the past, we shall strive to be a reliable and sought­after business partner that offers its worldwide clients tailored and innovative reinsurance solutions. In so do­
ing, we shall gear our activities towards our long­standing successful business model founded on the five pillars of con­
surance and financial solutions. Our business model enables us to meet individual customer requirements, on the one hand, while at the same time achieving excellent diversifica­
Worldwide demographic change, progressive globalisation and the continuous improvement in living standards in emerging countries are the key factors that will ensure life and health reinsurance remains a growing market. Insurers and reinsurers alike have accepted the challenge of giving fresh impetus to the constantly changing market requirements. The leading life and health reinsurers are faced with the difficult balancing act of satisfying both the value­added expectations of their shareholders and the needs of their clients.
national financial and capital markets have also left their mark on the life insurance sector. The already established trend towards primary insurers making increased use of reinsurance as an equity substitute will continue in the coming year, opening up attractive business potential for our company as a financially strong reinsurer.
pliant reinsurance solutions. We are convinced that we can advance the development of these markets and further enlarge our business volume under the “new markets” pillar. Our lead­
In the case of small to mid­sized insurers and mutual insur­
rently working on an internal risk model that we are adjusting
tems of as many third countries as possible – including the
Irrespective of statements made regarding individual markets in non­life reinsurance, it should be noted that the probabil­
The 2011 financial year was overshadowed by a large number of natural disasters, which resulted in significant loss expend­
sociated with such modelling limitations will be countered with even more systematic risk management and the with­
fects serve to ratchet up even further the demands placed on a profit­oriented underwriting policy, which is reflected in an increased price level. Considerable uncertainties remain when it comes to estimating the number and amount of possible insolvencies that could take a toll on the credit and surety lines.
States, United Kingdom, Japan and Germany the progressive demographic shift is generating steadily growing demand for seniors’, long­term care and annuity insurance products. In emerging markets such as India, China and Brazil – as well as in Russia – the trend towards urbanisation continues. A mid­
ing demand for individual reinsurance solutions through which the required risk capital can be reduced for primary insurers. Under these conditions, we are convinced that the life and health reinsurance market will offer pleasing earnings opportunities for our company in the years ahead, as it has in the past.
In general terms, life and health reinsurance is characterised by its stable growth and minimal exposure to random fluctu­
tive orientation of our investment portfolio. Similarly, with regard to our holdings of corporate bonds from the financial sector we shall continue to attach considerable importance to broad diversification. The share of these instruments in our total portfolio will not be further expanded. What is more, we shall strive for a neutral interest rate positioning.
rently adopting a sceptical stance on investments in listed equities. New investments will only be made when the antici­
In the life and health reinsurance business group we are simi­
larly aiming to grow our gross premium income organically by 5% to 7%.
The expected positive cash flow that we generate from the technical account and our investments should – subject to stable exchange rates – lead to further growth in our asset portfolio. In the area of fixed­income securities we continue to stress the high quality and diversification of our portfolio.
pected level of around EUR 560 million and that there are no drastically adverse movements on capital markets. Given a growing volume of assets under management, a net return on investment in the order of 3.5% should be attainable. For 2012, as in recent years, we are therefore aiming for a divi­
dend in the range of 35% to 40% of Group net income.
Matters of special significance arising after the closing date for the consolidated financial statements are discussed in Sec­
tion 7.11 of the notes “Events after the balance sheet date”
ing – depending on the nature of the underlying business – an
On the Group level our return­on­equity target is at least 750 basis points above the risk­free interest rate. Both the earn­
1 ivc/net premium earned 2 Organic 3 McEv increase on the basis of the adjusted McEv of the previous year after elimination of capital changes and changes from currency effects 4 Risk-free interest rate + cost of capital 5 750 basis points above the risk-free return
Fixed-income securities – at fair value through profit or loss 5.1 161,130 217,597 equity securities – available for sale 5.1 40,387 536,755
Other financial assets – at fair value through profit or loss 5.1 21,026 54,756
Real estate and real estate funds 5.1 525,097 394,087 investments in associated companies 5.1 127,554 127,644 other invested assets 5.1 931,421 841,896 short-term investments 5.1 1,017,886 1,570,502 total investments and cash under own management 28,341,199 25,411,071 total investments 41,682,972 38,047,149
Provisions for pensions 5.10 88,299 81,657 deferred tax liabilities 6.5 1,723,265 1,632,527 long-term debt and subordinated capital 5.12 1,934,410 2,056,797 liabilities related to assets held for sale – 1,381,120 total liabilities 44,260,297 41,607,425 shareholders‘ equity nominal value: 120,597 Conditional capital: 60,299 5.13 additional paid-in capital 724,562 724,562
Change in ceded unearned premium (5,668) 33,300 net premium earned 10,751,511 10,047,016 ordinary investment income 6.2 966,171 880,521
other investment expenses 6.2 70,322 67,409 net income from investments under own management 1,045,503 942,527
Income/expense on funds withheld and contract deposits 6.2 338,538 316,368 net investment income 1,384,041 1,258,895 other technical income 6.3 8,841 16,845 total revenues 12,144,393 11,322,756
Commission and brokerage, change in deferred acquisition costs 6.3 2,336,128 2,257,948 other acquisition costs 10,675 5,302 other technical expenses 6.3 8,954 44,183 total technical expenses 11,296,175 10,248,919 other income and expenses 6.4 (6,801) 104,020
Operating profit/loss (EBIT) 841,417 1,177,857 interest on hybrid capital 5.12 99,169 89,323 net income before taxes 742,248 1,088,534 net income 676,488 830,905 thereof
Gains (losses) recognised directly in equity 257,798 353,614 transferred to the consolidated statement of income (138,484) (184,823)
Changes in ownership interest with no change of control status – – 26 (235) – (756) 7,204 6,239
Acquisition/disposal of treasury shares – – – – – (380) – (380)
total income and expense recognised after tax – – 64,513 81,021 (12,103) 605,973 65,376 804,780
Fixed-income securities – at fair value through profit or loss maturities, sales 78,924 55,650 equity securities – available for sale
Real estate and real estate funds short-term investments other changes (net) (17,447) 2,521
Cash flow from financing activities (449,866) 283,346 iV. exchange rate differences on cash (7) 46,922
At fair value through profit or loss 118,327 152,028 other invested assets 1,554,528 1,330,693 short-term investments 638,128 1,259,804 total investments and cash under own management 21,595,547 19,777,825
Reinsurance recoverables on other reserves 4,239 422 deferred acquisition costs 458,651 362,080 accounts receivable 1,977,106 1,805,883 other assets in the segment 1,469,312 1,262,674 assets held for sale 2,391 1,529,355 total assets 27,784,931 26,374,737 segmentation of technical and other liabilities in eUR thousand liabilities loss and loss adjustment expense reserve 18,030,010 15,634,491
Commission and brokerage, change in deferred acquisition costs and other technical income/expenses 1,367,299 1,273,906 administrative expenses 160,223 164,498 other income and expenses 22,553 75,984
net income before taxes 599,259 879,560 net income 521,641 659,197 thereof
Hannover Re and its subsidiaries are obliged to prepare a con­
solidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB).
port of Hannover Re have been drawn up in accordance with the International Financial Reporting Standards (IFRS) that are to be applied within the European Union. In addition, we have made allowance for the regulations that are also applic­
The consolidated financial statement reflects all IFRS in force as at 31 December 2011 as well as all interpretations issued by the International Financial Reporting Interpretations Com­
mittee (IFRIC), application of which was mandatory for the 2011 financial year. IFRS 4 “Insurance Contracts” requires disclosures on the nature and extent of risks stemming from reinsurance contracts, while IFRS 7 “Financial Instruments: Disclosures” requires similar information on risks from finan­
tion 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.
“International Financial Reporting Standards (IFRS)”; the standards dating from earlier years still bear the name “Inter­
national Accounting Standards (IAS)”. Standards are cited in our notes accordingly; in cases where the notes do not make explicit reference to a particular standard, the term IFRS is used.
The annual financial statements included in the consolidated financial statement were for the most part drawn up as at 31
Re is one of the largest reinsurance groups in the world. The company‘s network consists of more than 100 subsidiaries, affiliates, branches and representative offices worldwide with a total workforce of roughly 2,200. The Group‘s German busi­
ness is conducted by the subsidiary E+S Rück. The parent company is a joint-stock corporation, the registered office of which is located at Karl­Wiechert­Allee 50, 30625 Hannover,
tory application were of relevance to Hannover Re: A major new feature of the revised IAS 24 “Related Party
ticular event occurs in the future. The definitions of a related entity and a related person are also clarified. Hannover Re applied the revised IAS 24 for the first time with effect from the beginning of the financial year. There were no significant implications.
IFRSs (Issued May 2010)” the IASB published various minor modifications to IFRS, the majority of which are to be applied from the 2011 financial year onwards. Insofar as these amend­
ments were of practical relevance to the Group, they had no significant effect on the assets, financial position or net income of Hannover Re.
The IASB has issued the following standards, interpretations and amendments to existing standards with possible implica­
tions for the consolidated financial statement of Hannover Re, application of which is not yet mandatory for the year under review and which are not being applied early by Hannover Re: In May 2011 the IASB published five new or revised stand­
ards governing consolidation, the accounting of investments in associated companies and joint ventures and the related disclosures in the notes.
ests in joint ventures will no longer be permissible in future.
In addition, the disclosure requirements previously contained in IAS 27 and IAS 31 have been combined and restructured in IFRS 12 “Disclosure of Interests in Other Entities”. With the aim of clarifying for the users of financial statements the nature of an entity’s interest in other entities as well as the effects of those interests on its financial position, financial per­
financial statement. Insofar no interim financial statements have been prepared, allowance has been made for the effects of significant transactions between the diverging reporting dates and the closing date for the consolidated financial state­
The annual financial statements of all companies were drawn up in accordance with standard Group accounting and meas­
The present consolidated financial statement was prepared by the Executive Board on 13 February 2012 and hence released for publication.
Joint Ventures” extends the content of standards governing the accounting of investments in associated companies to in­
The requirements of IFRS 10, 11 and 12 as well as the revised
IAS 27 and 28 are to be applied to financial years beginning on or after 1 January 2013. All of these standards have still to be endorsed by the EU.
lished in May of this year, is intended to establish uniform and consistent requirements for the measurement of fair value, which had hitherto been contained in various standards. In this context, the fair value is defined as the exit price, the calculation of which shall be based as far as possible on rele­
vant observable inputs. In addition, extensive explanatory and qualitative disclosures are required; these are intended, in particular, to describe the quality of the calculation of fair value. IFRS 13 must be applied to financial years beginning on or after 1 January 2013 and has still to be endorsed by the EU.
In June 2011 the IASB published amendments to IAS 1 “Presentation of Financial Statements” and IAS 19 “Employee
to defer remeasurement impacts in connection with defined benefit obligations. Actuarial gains and losses will therefore have to be recognised entirely in OCI. In addition to extended disclosure requirements, the treatment of termination benefits is changed.
The amendments to IAS 1 are to be applied to financial years beginning on or after 1 July 2012. It is envisaged that the amended IAS 19 will be applicable for the first time to financial years beginning on or after 1 January 2013. The amendments to IAS 1 and IAS 19 have still to be endorsed by the EU.
struments. IFRS 9 is the first step in a three-phase project in­
tended to replace IAS 39 “Financial Instruments: Recognition and Measurement” with a new standard. IFRS 9 intro duces new requirements for classifying and measuring financial assets. The provisions of IFRS 9 were expanded in October 2010 with an eye to financial liabilities for which the fair value option is chosen. The standard has not yet been endorsed by the EU.
standards Applicable to financial years beginning on or after Endorsement by European
With respect to collateralised debt obligations, collateralised loan obligations and high yield funds Hannover Re has ad­
sents a change in an accounting estimate, which pursuant to IAS 8 “Accounting Policies, Changes in Accounting Esti­
mates and Errors” is to be performed prospectively in the period under review without adjustment of the comparative figures for previous years. Retention of the parameters and methods used until 31 December 2010 would have increased the impairments in the period under review by EUR 0.3 million and increased the write-ups by EUR 4.8 million. The amount recognised for the fair values of the specified instruments would have been EUR 1.4 million higher. The effect of this adjustment of the calculation logic in future reporting periods could only have been determined with a disproportionately high effort.
curring in the context of issuance were previously recognised in other income and expenses, while the nominal interest was recognised as interest on hybrid capital. In order to better reflect the character of the effective interest rate method we shall henceforth recognise all expenses consistently as inter­
est on hybrid capital. The amended recognition of the previous period pursuant to IAS 1 thus improved the other income and expenses by an amount of EUR 4.1 million to the detriment of the interest on hybrid capital.
IFRS 4 “Insurance Contracts”. The first standard governing the accounting of insurance contracts, it divides the “Insur­
Contracts” represents the outcome of Phase I and serves as a transitional arrangement until the IASB defines the meas­
Underwriting business is to be subdivided into insurance and investment contracts. Contracts with a significant insurance risk are considered to be insurance contracts, while contracts without significant insurance risk are to be classified as invest­
ance contracts. IFRS 4 contains fundamental rules governing specific circumstances, such as the separation of embedded derivatives and unbundling of deposit components. In con­
rivative financial instruments as at the settlement date. The recognition of fixed-income securities includes apportionable accrued interest.
The corresponding premiums or discounts are recognised in profit or loss across the duration of the instruments using the effective interest rate method. Depreciation is taken in the event of permanent impairment. Please refer to our comments on impairments in this section.
counts are deducted or added within the statement of income using the effective interest rate method until the amount re­
payable becomes due. Impairment is taken only to the extent that repayment of a loan is unlikely or no longer expected in the full amount. Please refer to our comments on impairments in this section.
Financial assets at fair value through profit or loss consist of securities held for trading and those classified as measured at fair value through profit or loss since acquisition. This refers principally to unsecured debt instruments issued by corpor ate issuers and derivative financial instruments. Within the scope of the fair value option provided under IAS 39 “Financial
Instruments: Recognition and Measurement”, according to which financial assets may be carried at fair value on first-time recognition subject to certain conditions, all structured securities that would have needed to have been broken down had they been recognised as available for sale or under loans and receivables are also recognised here. Hannover Re makes use of the fair value option solely for selected subport folios of its assets. In addition, derivative financial instruments that Han­
nover Re does not recognise as a valuation unit with under­
lying risks are recognised here. Securities held for trading and securities classified as measured at fair value through profit or loss since acquisition are carried at their fair value on the balance sheet date. If stock market prices are not available for use as fair values, the carrying values are determined using generally acknowledged measurement methods. All unreal­
ised gains or losses from this valuation are recognised in net investment income. The classification of financial assets at fair value through profit or loss is compatible with Hannover Re’s risk management strategy and investment strategy, which are oriented extensively towards economic fair value variables.
Financial assets classified as available for sale are carried at fair value; accrued interest is recognised in this context.
ences on monetary items – directly in shareholder’s equity after deduction of deferred taxes.
cial instrument on the balance sheet date. Insofar as market prices are listed on markets for financial instruments, their bid price is used. In other cases the fair values are established on the basis of the market conditions prevailing on the balance sheet date for financial assets with similar credit rating, duration and return characteristics or using recognised models of mathematical finance. Hannover Re uses a number of different valuation models for this purpose. The details are set out in the table on page 132. For further information please see our explanatory remarks on the fair value hierarchy in Section 5.1
ment” contains a list of objective, substantial indications for impairments of financial assets. In the case of fixed-income securities and loans reference is made, in particular, to the rating of the instrument, the rating of the issuer/borrower as well as the individual market assessment in order to establish whether they are impaired. With respect to held­to­maturity instruments as well as loans and receivables recognised at amortised cost, the level of impairment is arrived at from the difference between the book value of the asset and the present value of the expected future earnings flows. The book value is reduced directly by this amount which is then recognised as an expense. With the exception of value adjustments taken on accounts receivable, we recognize impairments directly on the assets side – without using an adjustment account – separately from the relevant items. If the reasons for the write­down no longer apply, a write­up is made in income up to at most the original amortised cost for fixed-income securities.
ciples, that a significant or prolonged decrease in fair value below acquisition cost constitutes objective evidence of im­
pairment. Hannover Re considers securities to be impaired under IAS 39 if their fair value falls significantly, i.e. by at least 20%, or for a prolonged period, i.e. at least nine months, below acquisition cost. In accordance with IAS 39 the reversal of impairment losses on equities to the statement of income once impairment has been taken is prohibited, as is adjust­
ities are only netted and recognised in the appropriate net amount if a corresponding legal claim (reciprocity; similar­
Investments in associated companies are valued at equity on the basis of the proportionate shareholders’ equity attribut­
able to the Group. Under IAS 28 “Investments in Associates”, which requires the application of the equity method based on the investor’s share of the results of operations of the investee, the goodwill apportionable to the associated companies must be recognised together with the investments in associated companies. The year­end result of an associated company re­
lating to the Group’s share is included in the net investment income and shown separately. The shareholders’ equity and net income are taken from the associated company’s latest available financial statement.
Contract deposits: under this item we report receivables and liabilities under insurance contracts that satisfy the test of a significant risk transfer to the reinsurer as required by IFRS
cant technical risk from the ceding company to the reinsurer to be differentiated from those under which the risk transfer is of merely subordinate importance. Since the risk transfer under the affected transactions is of subordinate importance, these contracts are recognised using the “deposit accounting”
The payment flows resulting from these contracts are shown in the cash flow statement under operating activities.
able, while all other write­downs are booked directly against the underlying position.
sition costs are capitalised and amortised over the expected period of the underlying reinsurance contracts. Deferred ac­
ing allocation of the goodwill it is necessary to determine for each CGU the recoverable amount, defined as the higher of the value in use and the fair value less costs to sell. The fair value is calculated using a discounted cash flow method on the basis of a five-year detailed plan and allowing for a perpetuity factor. The recoverable amount is to be compared with the book value of the CGU including goodwill. When the latter exceeds the recoverable amount, an impairment expense is to be recognised.
The other intangible assets largely consist of purchased and self-developed software. This is recognised at acquisition cost less scheduled depreciation. The other intangible assets also contain the present value of expected profits (PVFP) from ac­
quired life reinsurance portfolios at the time of acquisition; amortisation is taken according to the periods of the under­
lying acquired contracts. Intangible assets are regularly tested for impairment and impairment is taken where necessary.
Deferred tax assets: IAS 12 “Income Taxes” requires that assets­side 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 bal­
In this regard, there must be an intention – in every future period in which the discharge or realisation of substantial amounts of deferred tax liabilities/deferred tax assets is to be expected – either to bring about the settlement of the actual taxes owing and refund claims on a net basis or to discharge the liabilities at the same time as the claims are realised. The
recognition of deferred tax assets and deferred tax liabilities in the consolidated balance sheet makes no distinction between short­term and long­term.
Own-use real estate: The portfolio of own­use real estate is measured at cost less scheduled straight­line depreciation over useful lives of 10 to 50 years. The fair values are deter­
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.
curred but have not yet been settled. They are subdivided into reserves for reinsurance losses reported by the balance sheet date and reserves for reinsurance losses that have already been incurred but not yet reported (IBNR) by the balance sheet date. The loss and loss adjustment expense reserves are based on estimates that may diverge from the actual amounts payable. In reinsurance business a considerable period of time may elapse between the occurrence of an insured loss, notifi­
cation by the insurer and pro­rata payment of the loss by the reinsurer. For this reason the best estimate of the future settle­
ment amount is carried. With the aid of actuarial methods, the estimate makes allowance for past experience and assump­
ment” to classify financial liabilities in this category upon firsttime recognition.
shareholders’ equity: the items “common shares” and “additional paid-in capital” are comprised of the amounts paid in by the parent company’s shareholders on its shares. In add­
panies in previous periods. What is more, in the event of a retro spective change of accounting policies, the adjustment for previous periods is recognised in the opening balance sheet value of the retained earnings and comparable items of the earliest reported period. Unrealised gains and losses from the fair value measurement of financial instruments held as available for sale are carried in cumulative other comprehen­
N ot es 3.2 SuMMaRy OF MaJOR aCCOunTInG POLICIES NOtes ments according to their risk characteristics. A minimum dis­
able for sale and financial assets at fair value through profit or loss with the subcategories of trading and designated financial instruments). Essentially, the following classes of financial in­
tive for the type and structure of each disclosure in the notes.
ance, the disclosures are made on the basis of the facts and circumstances existing in the financial year and in light of the principle of materiality.
nies’ individual financial statements are converted into the functional currency at the transaction rate. In accordance with IAS 21 “The Effects of Changes in Foreign Exchange
come. Currency translation differences from the translation of non­monetary assets measured at fair value via the statement of income are recognised with the latter as profit or loss from fair value measurement changes. Exchange differences from non-monetary items – such as equity securities – classified as available for sale are initially recognised outside income in a separate item of shareholders’ equity and only booked to income when such non­monetary items are settled.
ing Segments” and on the principles set out in German Ac­
insurance and the segment information presented follow the system used for internal reporting purposes, on the basis of which the full Executive Board regularly evaluates the per­
formance of the segments and decides on the allocation of resources to the segments.
During the financial year no material changes occurred in the organisational structure that could have influenced the com­
position of the segments. Since the performance indicators used to steer the segments correspond to the system accord­
ing to which the consolidated financial statement is prepared, a separate reconciliation of the segment results with the Group result is not provided.
mation 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 re­
off is projected on the basis of statistical triangles from the original notifications of ceding companies. In this context it is generally assumed that the future rate of inflation of the loss run­off will be analogous to the average rate of the past inflation contained in the data. The more recent underwriting years in actuarial projections are of course subject to greater uncertainty, although this can be considerably reduced with the aid of a variety of additional information on improvements in the rates and conditions of the business written and on loss trends. The amounts arrived at as the difference between the ultimate losses and the reported losses are set aside as the
IBNR reserve for losses that have been incurred but are not yet known or have still to be reported.
teria are the age, sex and (non­)smoker status of the insured, tariff, policy period, period of premium payment and amount of insurance. The portfolio development is simulated for each model point, in which regard the key input parameters are ei­
tions are heavily dependent on country-specific parameters and on the sales channel, quality of the cedant’s underwriting and claims handling, type of reinsurance and other framework conditions of the reinsurance treaty. The superimposition of numerous model points gives rise to a projection, which incor­
In determining the carrying values for certain financial assets it is sometimes necessary to make assumptions in order to cal­
culate fair values. In this regard we would refer the reader to our remarks in Section 3.2 “Summary of major accounting pol­
icies” concerning financial assets at fair value through profit or loss and securities held as available for sale. Assumptions concerning the appropriate applicability criteria are necessary when determining the need for impairments on non­monetary financial assets held as available for sale. In this regard we would again refer the reader to our explanatory remarks in
vidually 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 com­
tionate shareholders’ equity of the subsidiary at the time when it is first included in the consolidated financial statement after the revaluation of all assets and liabilities. After recognition of all acquired intangible assets that in accordance with IFRS 3
“Business Combinations” are to be accounted for separately from goodwill, the difference between the revalued sharehold­
come and is shown separately after net income as a “thereof”
note, amounted to EUR 70.8 million (EUR 82.0 million) in the year under review.
Companies over which Hannover Re is able to exercise a sig­
Group directly or indirectly holds at least 20% – but no more than 50% – of the voting rights. Income from investments in associated companies is recognised separately in the consoli­
Receivables and liabilities between the companies included in the consolidated financial statement were offset against each other. Profits and expenses from business transactions within the Group were also eliminated. Transactions between a dis­
2 Consists of: 1 (1) associated companies and 5 (6) companies which are included at equity in 1 (1) subgroup.
Hannover Euro Private Equity Partners IV GmbH & Co. KG, Hannover/Germany3 60.17 EuR 82,836 EuR 5,812
Hannover Euro Private Equity Partners II GmbH & Co. KG, Hannover/Germany3 57.63 EuR 2,056 EuR 232
The following list of shareholdings is provided in full in the present Group annual financial report in accordance with the requirements of § 313 German Commercial Code (HGB) as amended by the Act on the Modernisation of Accounting Law
Hannover Life Reassurance (Ireland) Ltd., Dublin/Ireland4 100.00 EuR 981,765 EuR 31,700
Hannover Life Reassurance (uK) Ltd., Virginia Water/united Kingdom4 100.00 GBP 34,654 GBP (5,856)
Hannover Services (uK) Ltd., Virginia Water/united Kingdom 100.00 GBP 663 GBP (60)
Inter Hannover (no.1) Limited, London/united Kingdom4 100.00 GBP (1,314) GBP 1
Clarendon Insurance Group, Inc., Wilmington/uSa 100.00 uSD 221,640 uSD 66,885 atlantic Capital Corporation, Wilmington/uSa6,9,10 100.00 uSD (111,867) uSD 1,520
Hannover Reinsurance Group africa (Pty) Ltd., Johannesburg/South africa 100.00 ZaR 155,600 ZaR 109,787
Compass Insurance Company Limited, Johannesburg/South africa 100.00 ZaR 109,365 ZaR (21,717)
Micawber 185 (Pty) Ltd., Johannesburg/South africa 100.00 ZaR 20,355 ZaR 2,098
Lireas Holdings (Pty) Ltd., Johannesburg/South africa 51.00 ZaR 199,836 ZaR 57,019
Transit underwriting Managers (Pty) Ltd., Cape Town/South africa 51.00 ZaR 806 ZaR 1,474
Mua Insurance Company Ltd., Cape Town/South africa 51.00 ZaR 9,784 ZaR 111
Landmark underwriting agency (Pty) Ltd., Bloemfontein/South africa 38.51 ZaR 2,948 ZaR 3,802
SuM Holdings (Pty) Ltd., Johannesburg/South africa 36.82 ZaR 20,811 ZaR 5,689
Gem & Jewel acceptances (Pty) Ltd., Johannesburg/South africa4 35.70 ZaR 157 ZaR 998
Woodworking Risk acceptances (Pty) Ltd., Pietermaritzburg/South africa 30.60 ZaR 1,910 ZaR 2,409
Construction Guarantee (Pty) Ltd., Parktown/South africa 30.60 ZaR (831) ZaR 3,455
Film & Entertainment underwriters Sa (Pty) Ltd., northcliff/South africa 26.01 ZaR (1,479) ZaR (620)
Flexible accident and Sickness acceptances (Pty) Ltd., Johannesburg/South africa4 20.40 ZaR 5,053 ZaR 3,322
Clarendon Transport underwriting Managers (Pty) Ltd., Johannesburg/South africa4 19.04 ZaR 3,893 ZaR 47,912
Hannover Re Real Estate Holdings, Inc., Orlando/USA6 95.10 USD 280,345 USD 12,939
Hannover Re Real Estate Holdings, Inc. compiles its own subgroup financial statement in which the following companies are included: Consolidated companies 5115 Sedge Corporation, Chicago/USA6 95.10 USD 1,899 USD (585)
One Winthrop Square LLC, Wilmington/USA6 95.00 USD 23,816 USD 693 402 Santa Monica Blvd LLC, Wilmington/USA6 95.00 USD 32,352 USD 679 300 South Orange Avenue LLC, Wilmington/USA6 95.00 USD 56,694 USD 1,302 465 Broadway LLC, Wilmington/USA6 95.00 USD 43,175 USD 788 5115 Sedge Boulevard LP, Chicago/USA6 79.88 USD 149 USD (1,084)
GLL Terry Francois Blvd. LLC, Wilmington/USA6 48.40 USD 25,542 USD 741
HR Hannover Re, Correduría de Reaseguros S.A., Madrid/Spain4 100.00 EUR 231 EUR 33
LRA Superannuation Plan Pty Ltd., Sydney/Australia5 100.00 AUD – AUD –
Mediterranean Reinsurance Services Ltd., Hong Kong/China9,14 100.00 USD 125 USD –
Hannover Rückversicherung aG Escritório de Representação no Brasil Ltda., Rio de Janeiro/Brazil11 100.00 BRL 377 BRL 3
Hurst Holme Insurance Company Limited - account 2009 - 01 SCC, Hamilton/Bermuda11 28.50 uSD 1,577 uSD 1,440
3 Financial year as at 30 September 2011 4 Provisional (unaudited) figures 5 Company is inactive and does not compile an annual report 6 IFRS figures 7 Financial year as at 30 October 2010 8 Financial year as at 31 March 2011 9 Company is in liquidation 10 Certain equity items are not counted under IFRS, as a consequence of which the amount of capital and reserves can be negative here.
11 Figures as at 31 December 2010 12 Formerly WeHaCo unternehmensbeteiligungs-aG
13 Company was newly established in 2011; an annual financial statement is not yet available 14 Last annual financial statement compiled as at 31 December 1999 15 Formerly Energi Holdings, Inc. (until 5 December 2011)
dation. In cases where IFRS do not currently contain any spe­
cific standards, Hannover Re’s analysis – in application of IAS 8
ities (ILS) activities, Hannover Re has written a number of so­
In connection with the sale of the operational companies of the subgroup Clarendon Insurance Group, Inc. (CIGI), Wilmington, to Enstar Group Ltd., Hamilton/Bermuda, a partial portfolio of CIGI was retroceded to a special purpose entity. The retro­
Maricopa LLC. The special purpose entity carries extreme mortality risks securitised by the cedant above a contractually defined retention and transfers these risks by way of a fixed/
Hannover Re Group. The maximum capacity of the transaction is equivalent to EUR 386.2 million; an amount equivalent to
anteed by Hannover Re cover its payment obligations. By way of a compensation agreement Hannover Re is reimbursed by the cedant’s parent company for all payments resulting from the swap in the event of a claim. Since Hannover Re does not bear the majority of the economic risks or benefits arising out of its business relations with the special purpose entity and does not exercise a controlling influence over it, there is no consolidation requirement for Hannover Re. Under IAS 39 this transaction is to be recognised at fair value as a financial guar­
antee. To this end Hannover Re uses the net method, according to which the present value of the agreed fixed swap premiums is netted with the present value of the guarantee commitment.
sion on the liabilities side pursuant to IAS 37 is recognized at the point in time when utilization is considered probable. This was not the case as at the balance sheet date. In this case the reimbursement claims from the compensation agreement are to be capitalized separately from and up to the amount of the provision.
146 Hannover Re Group annual report 2011NOtes 4.3 MaJOR aCquISITIOnS anD nEW FORMaTIOnS
International Hannover Holding AG was established in the second quarter with its registered office in Hannover. The company, the share capital of which amounts to EUR 50,000, is a wholly owned subsidiary of International Insurance Com­
ticipating interest in Glencar Underwriting Managers, Inc., based in Chicago, United States, with a capital contribution of
lion were purchased in the course of the third quarter of 2011.
Hannover Re Group. In addition, a contingent purchase price payment of at most GBP 11.3 million was agreed; this is con­
ness acquired by Integra until 2014. Based on the probable business experience, the fair value of the contingent purchase price payments at the time of acquisition was around GBP
5.1 million, thereby increasing the difference arising in the context of initial consolidation.
text of allocation of the purchase price, no effects arose out of the measurement of the assumed assets, nor was it possible to identify any intangible assets or liabilities that had hitherto not been brought to account. For this reason, the difference of
In July 2009 Hannover Re issued a catastrophe (“CAT”) bond with the aim of transferring to the capital market peak nat­
storm events. The term of the CAT bond, which has a volume of nominally EUR 150.0 million, runs until 31 March 2012; it was placed with institutional investors from Europe and North
By way of its “K” transactions Hannover Re has raised further underwriting capacity for catastrophe risks on the capital market. The “K Cession” (formerly “K6”), which was placed with investors in North America, Europe and Asia, involves a quota share cession on worldwide natural catastrophe busi­
GBP 12.6 million arising in the context of initial consolidation was recognised in full as goodwill. In the period of its affiliation with the Group Integra generated a positive result after tax of GBP 0.3 million.
In the fourth quarter Funis GmbH & Co. KG also subscribed to 49% of the shares in the newly established Capital Systeme
Group Ltd., Hamilton, Bermuda, a company specialising in the run­off of insurance business. The transaction received the customary regulatory approvals on 8 July 2011; closing and deconsolidation subsequently took place on 12 July 2011.
In compliance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” we recognised the assets and li­
tions between the disposal group and the Group’s continuing operations were entirely eliminated in conformity with IAS 27
The assets and liabilities of the disposal group are presented in the following table and broken down into their major com­
Reinsurance recoverables on unpaid claims 782,520 831,093 accounts receivable 4,515 16,916
5. Notes on the individual items of the balance sheet 5.1 Investments under own management
N ot es 5.1 InVESTMEnTS unDER OWn ManaGEMEnT NOtes 1 Including accrued interest 2 Including short-term investments and cash
Available for sale due in one year2 3,063,034 3,070,822 4,127,663 4,146,256 due after one through two years 1,781,899 1,802,286 1,856,401 1,892,437 due after two through three years 2,197,915 2,228,729 1,841,265 1,892,893 due after three through four years 2,308,598 2,331,561 2,184,191 2,238,279 due after four through five years 1,807,404 1,844,680 2,277,464 2,294,991 due after five through ten years 5,204,281 5,299,165 3,710,502 3,727,430 due after more than ten years 2,074,463 2,276,517 1,629,312 1,703,603
Variable-rate bonds (so-called “floaters”) are shown under the maturities due in one year and constitute our interest­related, within­the­year reinvestment risk.
The carrying amount of the portfolio held to maturity is arrived at from the cost or amortised cost plus accrued interest.
curities are permanently available to the relevant companies of the Hannover Re Group in light of cash flow projections. The intention and the ability to hold them until maturity enable the companies to reduce balance sheet volatility.
Debt securities issued by semi-governmental entities 2,039,867 144,690 – 28,451 2,213,008
Government debt securities of Eu member states 1,514,373 67,635 12,909 19,062 1,588,161
Debt securities issued by semi-governmental entities 3,302,451 161,466 10,992 46,694 3,499,619
Hannover Re recognised in this category as at the balance sheet date derivative financial instruments in an amount of EUR 21.0 million (EUR 54.8 million) that are originally allocable to this item as well as fixed­income securities amounting to EUR 161.1 million (EUR 217.6 million) desig­
154 Hannover Re Group annual report 2011NOtes 5.1 InVESTMEnTS unDER OWn ManaGEMEnT
For further explanatory remarks on the impairment criteria please see Section 3.2 “Summary of major accounting poli­
Participating interests and other invested assets, real estate funds 1,075,051 15,569 940,538 7,976
Valuation of the available-for-sale portfolio affecting shareholders‘ equity in EuR thousand
Transfer of gains/losses from the fair-value measurement of the available-for-sale portfolio to the result for the period (126,617) (55,857)
Rating structure of fixed-income securities Figures in EuR thousand aaa aa a BBB BB B C Other Total
Fixed-income securities – at fair value through profit or loss 3,306 10,075 26,130 73,000 57,963 39,656 51 7,416 217,597
Other financial assets – at fair value through profit or loss – – 20,413 75 – 538 – – 21,026
Fixed-income securities – held to maturity 15,593 22,766 1,917,315 81,476 – 986,863 4,005 – 3,028,018
Fixed-income securities – at fair value through profit or loss – – 67,433 – – 116,699 33,465 – 217,597
Net book value at 31 December of the previous year 127,644 128,316
Cumulative depreciation at 31 December of the previous year 35,212 27,600
Cumulative depreciation at 31 December of the year under review 39,837 35,212
Net book value at 31 December of the year under review 397,037 303,422
In the year under review a property was classified as an asset held for sale pursuant to IFRS 5. The gross book value of the property amounted to EUR 5.0 million and the cumu­
536.4 million); in addition, unrealised gains of EUR 222.9 million (EUR 244.5 million) and unrealised losses of EUR 1.9 million (EUR 1.5 million) were recognised from these partici­
archy, which reflects characteristics of the price data and inputs used for measurement purposes, is structured as fol­
lows: – Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
sidered active as well as inputs derived from such prices or market data.
Total financial assets measured at fair value 6,619,985 12,021,857 913,599 19,555,441
Other financial assets – at fair value through profit or loss – 54,756 – 54,756
Total financial assets measured at fair value 9,161,803 9,103,513 862,067 19,127,383
160 Hannover Re Group annual report 2011NOtes 5.1 InVESTMEnTS unDER OWn ManaGEMEnT
In the year under review financial instruments with a fair value of EUR 306.8 million (EUR 289.4 million) were no longer allocable to level 1 – as in the previous year – but rather to level 2. The reclassification was necessary owing to the re­
duced liquidity of the instruments. Financial instruments with a fair value of EUR 103.5 million (EUR 21.6 million), which in the previous year were recognised as level 2 instruments, were allocated to level 1 in the current reporting period. The reclassifications principally affected fixed-income securities carried as available for sale.
Income and expenses from level 3 financial instruments in EuR thousand
If models are used to measure financial instruments included in level 3 under which the adoption of reasonable alternative inputs leads to a material change in fair value, IFRS 7 “Finan­
Hannover Re measures financial instruments with a volume of EUR 863.5 million (EUR 839.4 million) using the net asset value method, in respect of which alternative inputs within the meaning of the standard cannot reasonably be established.
The retrocessionaires’ portions of the technical provisions are based on the contractual agreements of the underlying re insurance treaties. For further details please refer to our comments on the technical provisions in Section 5.7 “Technical provisions” as well as the remarks in the risk report on page 76 et seq.
Net book value at 31 December of the year under review 1,926,570 1,834,496
11,920.7 million) represent the cash and securities deposits furnished by our company to our cedants that do not trigger any cash flows and cannot be realised by cedants without our consent. The maturities of these deposits are matched to the corresponding provisions. In the event of default on such a deposit our reinsurance commitment is reduced to the same extent. The rise in funds withheld was attributable principally to increased new business in the area of life reinsurance.
nise in adjustment accounts changed as follows in the year under review: In addition, we took specific value adjustments on reinsur­
We would refer the reader to the corresponding remarks on the loss and loss adjustment expense reserve in Section 5.7
Cumulative value adjustments at 31 December of the previous year 35,768 72,258
Currency translation at 1 January of the year under review 531 2,325
tion of E+S Rückversicherung AG as well as from the acquisi­
tion of a 75% interest in Integra Insurance Solutions Ltd. For further information on the method used to test impairment the reader is referred to our explanatory remarks in Section 3.2
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios in EuR thousand net book value at 31 December of the previous year 98,368 102,408
Development of goodwill in EuR thousand 2011 2010 net book value at 31 December of the previous year 45,773 44,393
Of this, other assets of EUR 6.3 million (EUR 5.2 million) are attributable to affiliated companies.
ance portfolio. This intangible asset is amortised over the term of the underlying reinsurance contracts in proportion to the future premium income. The period of amortisation amounts to altogether 30 years. The PVFP is recognised under other assets. For further information please refer to our explanatory notes on intangible assets in Section 3.2 “Summary of major accounting policies”.
Effective 1 July 2003 Hannover Re took out liability insurance for pension commitments. The commitments involve deferred annuities with regular premium payment under a group insur­
they were carried as a separate asset at fair value as at the balance sheet date in an amount of EUR 62.5 million (EUR
Gross book value at 31 December of the year under review 113,487 107,445
Cumulative depreciation at 31 December of the year under review 86,966 75,637
Net book value at 31 December of the year under review 26,521 31,808
ment, the reader is referred to our explanatory notes on the other assets in Section 3.2 “Summary of major accounting policies”.
The item includes EUR 5.7 million (EUR 6.6 million) for self­
The additions can be broken down into EUR 6.4 million (EUR
Credit risks may result from other financial assets that were not overdue or adjusted as at the balance sheet date. In this regard, the reader is referred in general to our comments on the credit risk contained in the risk report on page 74 et seq.
Cumulative depreciation at 31 December of the year under review 140,195 127,794
Net book value at 31 December of the previous year 39,799 56,871
Net book value after currency translation 18,292,739 1,042,632 17,250,107 18,509,841 1,869,760 16,640,081
Specific value adjustment for retrocessions – 2,247 (2,247) – 2,100 (2,100)
19,213.3 million (EUR 17,036.6 million) as at the balance sheet date.
To some extent the loss and loss adjustment expense reserves are inevitably based upon estimations that entail an element of uncertainty. The difference between the previous year’s and current estimates is reflected in the net run-off result. In addition, owing to the fact that the period of some reinsurance treaties is not the calendar year or because they are concluded on an underwriting-year basis, it is frequently impossible to make an exact allocation of claims expenditures to the current financial year or the previous year.
eign currencies are translated to euro at the current rate on the balance sheet date in order to show run­off results after adjustment for currency effects. In cases where the originally estimated ultimate loss corresponds to the actual ultimate loss in the original currency, it is ensured that after translation to the Group reporting currency (EUR) a run­off result indicated purely by currency effects is not shown.
The following table shows the net loss reserve for the non­life reinsurance business group in the years 2001 to 2011 as well as the run­off of the reserve (so­called run­off triangle). The figures reported for the 2001 balance sheet year also include the amounts for previous years that are no longer shown sep­
arately in the run-off triangle. The run-off results shown reflect the changes in the ultimate loss arising in the 2011 financial year for the individual run­off years.
Eight years later 9,869.1 10,297.8 10,150.9 nine years later 10,070.5 10,455.0
Eight years later 9,741.4 10,267.4 11,442.8 nine years later 9,607.3 9,871.3
The run-off profit of altogether EUR 317.9 million in the cur­
The average maturity of the loss and loss adjustment expense reserves was 5.1 years (5.2 years), or 5.1 years (5.3 years)
after allowance for the corresponding retrocession shares. The benefit reserve had an average maturity of 12.8 years (14.4 years) – or 13.2 years (14.7 years) on a net basis.
arial estimation methods and adjusted to reflect changes in payment behaviour and outside influences. The calculations can also be distorted by major losses, and these are there­
mium paid for periods subsequent to the date of the balance sheet was deferred from recognition within the statement of income. N
The benefit reserve is established for life, annuity, personal accident and health reinsurance contracts. Based on the dur­
tions about the three parameters are made and locked in for the purpose of calculating the benefit reserve. At the same time, safety/fluctuation loadings are built into each of these compon ents. In order to ensure at all times that the originally chosen assumptions continue to be adequate throughout the contract, checks are made on a regular – normally annual –
ciples set out in FASB ASC 944-40-30 and -35). The provisions are based on the Group companies’ information regarding mortality, interest and lapse rates.
303.9 million in the year under review from EUR 4,704.3 mil­
lion to EUR 5,008.2 million. The contract deposits item on the liabilities side encompasses balances deriving from non­
traditional life insurance contracts that are to be carried as liabilities. The rise was due principally to growth in new busi­
sion plan provides for retirement, disability, widows’ and orphans’ benefits. The pension entitlement is dependent on length of service; entitlements under the statutory pension in­
formance. The pension plan was closed to new participants with effect from 31 March 1999.
Development of the unearned premium reserve in eUr thousand gross retro net gross retro net net book value at 31 December of the previous year 1,910,422 83,224 1,827,198 1,512,840 47,651 1,465,189
Reclassifications pursuant to IFRS 5 – – – (108) (85) (23)
fall is recognised in income by first writing off capitalised ac­
Effective 1 December 2002 Group employees have an opportunity to accumulate additional old­age provision at un­
changed conditions by way of deferred compensation through membership of HDI-Gerling Pensionskasse AG.
bers of the Executive Board, in particular, enjoy individual commitments as well as commitments given under the bene­
IAS 19 “Employee Benefits” using the projected unit credit method. The pension plans are defined benefit plans. The basis of the valuation is the estimated future increase in the rate of compensation of the pension beneficiaries. The benefit entitlements are discounted by applying the capital market rate for highest­rated securities. The commitments to employ­
ees in Germany predominantly comprise benefit obligations financed by the Group companies. The pension plans are un­
Projected benefit obligation at the beginning of the year under review 109,962 93,462 current service cost for the year under review 3,341 2,818 interest cost 4,921 4,969
Projected benefit obligation at 31 December of the year under review 106,618 109,962
Measurement assumptions in % 2011 2010 germany australia germany australia projected long-term yield on plan assets – 7.00 – 7.00 rate of compensation increase 2.75 5.00 2.75 5.00
Change in plan assets in eUr thousand 2011 2010 fair value at 31 December of the previous year 10,464 9,317 expected return on plan assets 777 710 actuarial gain/loss (1,253) (448)
Fair value of plan assets at 31 December of the year under review 11,525 10,464
Funding of the defined benefit obligation in eUr thousand 2011 2010
N ot es 5.10 provisions for pensions anD oTher posT-employmenT BenefiT oBligaTions Notes
The following amounts were recognised for the year under review and prior years under the accounting of defined benefit plans: In the current financial year Hannover Re does not expect any contribution payments (previous year: none) under the pen­
Present value of defined benefit obligation 106,618 109,962 93,462 79,908 79,135 fair value of plan assets 11,525 10,464 9,317 7,051 9,372
nies have defined contribution plans that are based on length of service and the employee’s income or level of contribu­
lion (EUR 0.0 million) was due to obligations to members of staff in key positions.
Defined contribution plans other liabilities in eUr thousand 2011 2010 liabilities from derivatives 69,407 77,205
Direct minority interests in partnerships 35,418 38,470 sundry non-technical provisions 109,960 157,951 sundry liabilities 146,711 80,186
Of this, other liabilities of EUR 4.4 million (EUR 6.1 million)
N ot es 5.11 oTher liaBiliTies Notes in eUr thousand changes in consolidated group additions Utilisation release currency translation at 31 December
178 Hannover Re Group annual report 2011Notes 5.12 DeBT anD sUBorDinaTeD capiTal 5.12 Debt and subordinated capital
Hannover Finance (Luxembourg) S.A. The bond is perpetual and carries a fixed coupon of 5.00% in the first ten years. It may be redeemed by Hannover Re on 1 June 2015 at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of quarterly EURIBOR +268 basis points.
The interest will be serviced according to the same principles as those practised in the past. As part of the transaction, hold­
– were offered an opportunity to exchange their existing issue for holdings in the new bond. Participation in the exchange was nominally EUR 211.9 million, corresponding to EUR
Europe. The remaining volume of the bond issued in 2001 after the exchange was EUR 138.1 million and carried a fixed coupon of 6.25% until March 2011. The remaining bond vol­
Re, 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%. It may be redeemed by Hannover Re on 26 February 2014 at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of quarterly
Debt and subordinated capital figures in eUr thousand 2011 subordinated loans coupon
accrued interest fair value hannover finance (luxembourg) s.a., hannover finance (luxembourg) s.a., hannover finance (luxembourg) s.a., hannover finance (luxembourg) s.a., other long-term liabilities 66 – – 66
tion was not available, fair value was determined on the basis of the recognised effective interest rate method or estimated using other financial assets with similar rating, duration and return characteristics. Under the effective interest rate method the current market interest rate levels in the relevant fixedinterest ­rate periods are always taken as a basis.
In order to replace the syndicated facilities for letters of credit
(LoC) taken out in 2005 and 2006 Hannover Re obtained a credit line of EUR 772.5 million in 2011 in the form of an unse­
Ten to twenty years more than twenty years no maturity other long-term liabilities – – 33 – – – –
Maturities of financial liabilities in eUr thousand less than three months
Three months to one year one to five years five to ten years
For further information on the letters of credit provided please see our explanatory remarks in Section 7.7 “Contingent liabili­
A number of LOC facilities include standard market clauses that allow the banks rights of cancellation in the event of ma­
quirement on the part of Hannover Re to furnish collateral upon materialisation of major events, for example if our rating is significantly downgraded. Please see our explanatory re­
marks in the “Financial position” section of the management report, page 57, on the information pursuant to § 315 Para. 4
Shareholders’ equity is shown as a separate component of the financial statement in accordance with IAS 1 “Presenta­
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.
Non­controlling interests in the shareholders’ equity of the subsidiaries and amounted to EUR 636.0 million (EUR 608.9 million) as at the balance sheet date. They were principally attributable to non­controlling interests in the shareholders’
equity of E+S Rück in an amount of EUR 611.6 million (EUR
vertible bonds and bonds with warrants as well as to holders of participating bonds with conversion rights and warrants and has a time limit of 2 May 2016.
For the disclosures arising out of IAS 1 “Presentation of Fi­
nover Re acquired altogether 24,305 treasury shares in the course of the second quarter of 2011 and delivered them to eligible employees at preferential conditions. These shares are blocked until 31 May 2015. This transaction reduced the re­
tained earnings by EUR 0.4 million. The company was no longer in possession of treasury shares as at the balance sheet date.
6. Notes on the individual items of the statement of income 6.1 Gross written premium
ups of EUR 36.8 million (EUR 27.2 million) on investments that had been written down in previous periods. Of this total volume, EUR 17.3 million (EUR 3.0 million) was attributable to alternative assets, EUR 16.9 million (EUR 24.1 million) to fixed-income securities and EUR 2.5 million (EUR 0.1 million)
to real estate funds. The portfolio did not contain any overdue, unadjusted assets as at the balance sheet date since overdue securities are written down immediately.
The net gains and losses on investments held to maturity, loans and receivables and the available­for­sale portfolio shown in the following table are composed of interest income, realised gains and losses as well as impairments and appreciation. In the case of the fixed-income securities at fair value through profit or loss designated in this category and the other finan­
70.3 million (EUR 67.4 million), net income from assets under own management of altogether EUR 1,045.5 million (EUR
Profit or loss on shares in associated companies 3,088 3,857 realised gains on investments 262,853 244,694 realised losses on investments 83,293 82,691
impairments on real estate 10,532 7,314 impairments on equity securities 876 569