The book values of the assets and liabilities from the specified transactions with unconsolidated structured entities were as follows as at the balance sheet date: Book values from business relations with unconsolidated structured entities N 15 in EUR thousand
Fixed-income securities – at fair value through profit or loss – 78,451 –
Book values from business relations with unconsolidated structured entities N 16 in EUR thousand
In December 2018 Kubera Insurance (SAC) Ltd established its first segregated account, the owner of which is not
Hannover Re. The segregated account concluded a contract with a non-Group life insurance company for the assumption of a reinsurance portfolio, which is partially retroceded. In the context of this retrocession Hannover Re also concluded a reinsurance treaty with the segregated account to protect against the peak exposure through its wholly owned subsidiary Hannover Life Reassurance Company of America (Bermuda ) Ltd.
Within the 95.2%-owned US subgroup Hannover Re Real Estate Holdings, Inc., the special purpose property company 2530AUS LLC, Wilmington, USA, held by the subsidiary GLL HRE Core Properties, LP, for the purpose of real estate acquisition was consolidated for the first time following acquisition of an office building and commencement of business operations. An amount of roughly EUR 21.8 million was invested in this connection.
In the third quarter of 2019 Hannover Re participated in the newly established special purpose property company Morea Limited Liability Company, Tokyo / Japan, with a share of 99% through its 94.7%-owned subsidiary PAG Real Estate
Asia Select Fund Limited, George Town, Cayman Islands. A total amount of roughly EUR 88.4 million was invested in this connection.
Upon announcement of the intention to sell and until deconsolidation in the first quarter of 2019, HDI Global Specialty SE
was classified pursuant to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” as a disposal group measured at the lower of the carrying amount and fair value less costs to sell. This measurement did not give rise to any impairment expense.
The assets and liabilities attributable to the disposal group in the previous year are presented on a consolidated basis in the following table and broken down into their major components. The fixed-income securities of EUR 238.1 million are exclusively level 2 financial instruments. The real estate funds recognised in an amount of EUR 12.4 million, on the other hand, are level 3 financial instruments.
Assets and liabilities of the disposal group N 17 in EUR thousand 31.12.2018
With economic effect from 1 July 2019 FUNIS GmbH & Co. KG, Hannover, a wholly owned subsidiary of Hannover Rück SE, sold its 53% interest in Svedea AB, Stockholm / Sweden, to HDI Global Specialty SE. The purchase price was EUR 52.9 million. Deconsolidation of Svedea AB resulted in income of EUR 49.3 million, which was recognised in other income and expenses. Cumulative other comprehensive income from cur-
A n n u al f in an ci al s ta te m en ts rency translation was realised in an amount of EUR -0.4 million, which is included in the income.
On 3 September 2019 Hannover Re sold its entire interest in the amount of 27.1% of the shares in ITAS Vita S.p.A., Trento / Italy, for a price of EUR 48.0 million. Deconsolidation of the company, which had previously been recognised at equity, gave rise to income of EUR 0.8 million which was recognised under profit or loss from investments in associated companies. This included cumulative other comprehensive income of EUR -0.1 million, which was realised.
Hannover Insurance-Linked Securities GmbH & Co. KG, Hannover, which was wholly owned by Hannover Re, was liquidated effective 1 October 2019. Deconsolidation resulted in income of EUR 2.1 million, which was recognised in other income and expenses. In this context HILSP Komplementär GmbH, Hannover, was also deconsolidated at the end of the financial year. Deconsolidation gave rise to a minimal expense.
In the context of the acquisition of Generali Lebensversicherung AG by the Viridium Group the shareholding structure was reorganised. In this connection Hannover Re sold its indirectly held participation in Viridium, realising income of EUR 99.5 million that was recognised in investment income. At the same time Hannover Re participated again indirectly in the Viridium Group including Generali Lebensversicherung AG, with the result that it holds a participating interest of 17%.
5. Segment reporting Based on the “management approach” of IFRS 8, which requires segment information to be presented as it is reported internally to management and normally used by the chief operating decision maker to decide upon the allocation of resources to a segment and evaluate its performance, Hannover Re has identified the reportable segments of property & casualty reinsurance and life & health reinsurance. With regard to the object of business operations within the two segments please see our explanatory remarks on Hannover Re’s business model on page 25 of the management report. The report on economic position on page 30 et seq. contains remarks on the economic environment in which the Group operates.
Equity securities – available for sale 29,215 28,729 – – – – 29,215 28,729
Reinsurance recoverables on unpaid claims 1,868,390 1,903,289 181,724 181,341 – – 2,050,114 2,084,630
Reinsurance recoverables on benefit reserve – – 852,598 909,056 – – 852,598 909,056
Other assets in the segment 1,998,897 1,781,317 452,806 565,346 (1,264,561) (1,165,321) 1,187,142 1,181,342
Loss and loss adjustment expense reserve 28,364,351 24,542,826 4,631,880 4,215,749 – – 32,996,231 28,758,575
Financial assets at fair value through profit or loss 88,400 94,333 725,398 656,176 – – 813,798 750,509
Commission and brokerage, change in deferred acquisition costs and other technical income / expenses 3,554,571 3,033,430 1,251,374 1,263,529 – – 4,805,945 4,296,959 thereof
Non-controlling interest in profit or loss 85,897 84,418 3,302 1,616 – – 89,199 86,034
Hannover Re classifies investments according to the following categories: held-to-maturity, loans and receivables, financial assets at fair value through profit or loss and available -for-sale. The allocation and measurement of investments is determined by the investment intent and complies with the requirements of IAS 39 “Financial Instruments: Recognition and Measurement”.
due after four through five years – – 48,280 53,358 due after five through ten years – – – –
Loans and receivables due in one year 114,559 116,540 178,975 182,670 due after one through two years 292,962 302,232 200,522 209,143 due after two through three years 192,558 208,214 303,603 314,716 due after three through four years 214,525 236,356 213,694 232,687 due after four through five years 97,782 105,475 228,382 252,883 due after five through ten years 803,813 937,856 842,190 959,706 due after more than ten years 477,865 506,720 431,584 453,879
Variable-rate bonds (so-called “floaters”) are shown under the maturities due in one year and constitute an interest- related, within-the-year reinvestment risk.
Debt securities issued by semi-governmental entities 24,048 129 1,299 – 25,347
Debt securities issued by semi-governmental entities 1,228,959 20,108 134,288 – 1,363,247
Debt securities issued by semi-governmental entities 5,505,215 50,359 265,550 16,529 5,754,236
Other foreign government debt securities 288,315 271,933 – – 288,315 271,933
Fixed-income securities – held-to-maturity 137,415 37,352 48,282 – – – – – 223,049
Fixed-income securities – loans and receivables 1,475,126 131,265 93,367 240,953 – 6,557 – 246,796 2,194,064
Fixed-income securities – available-for-sale 16,256,013 5,912,584 6,069,245 7,457,803 1,033,472 282,076 33,638 1,023,628 38,068,459
Fixed-income securities – at fair value through profit or loss 53,955 288,315 – – 2,011 – – 234,498 578,779
Fixed-income securities – loans and receivables 1,767,020 145,622 85,243 211,295 19,316 – – 170,454 2,398,950
Fixed-income securities – available-for-sale 2,451,101 1,241,105 1,173,321 10,122,140 3,398,166 17,253,614 337,397 2,091,615 38,068,459
Fixed-income securities – loans and receivables 93,297 – 33,505 1,926,512 39,083 306,553 – – 2,398,950
Information on the percentage share held by the Hannover Re Group in the capital of the associated companies as well as on the amount of capital and reserves and the result for the last financial year of these companies is provided in the list of shareholdings in section 4.2 “Consolidated companies and complete list of shareholdings”.
Group share of income and expense recognised directly in equity 2,649 (4,024)
The carrying amount of the investments in associated companies changed as follows in the year under review: Investments in associated companies N 34 in EUR thousand 2019 2018
The additions to the companies measured at equity are attributable most notably in amounts of EUR 147.2 million to HDI
Global Specialty SE, Hannover, and EUR 24.0 million to Monument Insurance Group Limited, Hamilton.
Development of investment property N 35 in EUR thousand 2019 2018
Cumulative depreciation at 31 December of the year under review 185,691 159,476
Net book value at 31 December of the previous year 1,684,932 1,583,728
Net book value at 1 January of the year under review 1,702,796 1,617,257
Net book value at 31 December of the year under review 1,749,517 1,684,932
The addition from changes pursuant to IAS 8 results from the revised accounting of leases in accordance with IFRS 16 and refers to the initial recognition of a right-of-use asset in connection with a long-term land lease agreement in the United States. For further information please see section 8.8 “Leases ”. At the end of the financial year the amortised cost of the capitalised right-of-use asset was EUR 34.7 million.
The fair value of investment property excluding capitalised right-of-use assets amounted to EUR 2,003.9 million (EUR 1,945.4 million) as at the balance sheet date.
Real estate which is held for sale as defined by IFRS 5 is recognised separately in the consolidated balance sheet. Intentions to sell are substantiated by individual real estate market conditions and specific property circumstances, taking into consideration current and future opportunity / risk profiles. In the year under review one property was reclassified to assets held for sale. At the date of reclassification and at the end of the reporting period the gross book value of the property was EUR 40.0 million (previous year: none) and the cumulative depreciation amounted to EUR 3.7 million (previous year: none). Measurement of the property in connection with classification as a non-current asset held for sale did not give rise to any impairment.
Other invested assets The other invested assets consisted largely of participating interests in partnerships measured at fair value in an amount of EUR 1,702.6 million (EUR 1,491.0 million), the amortised cost of which amounted to EUR 1,343.6 million (EUR 1,145.8 million). The differences between the carrying amounts and the amortised costs were recognised as unrealised gains of EUR 380.7 million (EUR 362.1 million) and unrealised losses of EUR 21.7 million (EUR 16.9 million) under cumulative other comprehensive income.
Fair value hierarchy of financial assets and liabilities recognised at fair value N 37 in EUR thousand
Movements in level 3 financial assets and liabilities N 38 in EUR thousand
Movements in level 3 financial assets and liabilities N 39 in EUR thousand
Income and expenses recognised in the statement of income 29,037 (2,601) 41,735 (5,775)
The breakdown of income and expenses recognised in the statement of income in the financial year in connection with financial assets and liabilities assigned to level 3 is as follows: Income and expenses from level 3 financial assets and liabilities N 40 in EUR thousand
Thereof attributable to financial instruments included in the portfolio at 31 December of the year under review
Change in fair value of financial instruments 38,369 – 330 5,545
Income and expenses from level 3 financial assets and liabilities N 41 in EUR thousand
Change in fair value of financial instruments 29,037 – 350 5,775
Total depreciation, impairments and appreciation of investments – (2,601) (15,299) –
Of the financial assets included in level 3 with fair values of altogether EUR 2,536.5 million (EUR 2,214.2 million) as at the balance sheet date, Hannover Re measures financial assets with a volume of EUR 2,237.4 million (EUR 1,924.9 million) using the net asset value method. These items consist principally of shares in private equity and real estate funds. Assuming that the present values of the assets and liabilities contained in the funds would be 10% lower than used for measurement as at the balance sheet date, the fair values for these items would amount to EUR 2,013.6 million. The remaining financial assets included in level 3 with a volume of EUR 299.1 million (EUR 289.3 million) relate to investments, the valuation of which is based inter alia on technical parameters. Derivative financial instruments in connection with the reinsurance business were recognised under the other liabilities included in level 3 in the year under review. Their performance is dependent upon lapse rates within an underlying primary insurance portfolio. The application of alternative inputs and assumptions has no material effect on the consolidated financial statement.
Fair value hierarchy of financial assets and liabilities measured at amortised cost N 42 in EUR thousand
Fair value hierarchy of financial assets and liabilities measured at amortised cost N 43 in EUR thousand
Disclosures relating to deferred adoption of IFRS 9 The table below shows the financial assets that are to be recognised in future in accordance with IFRS 9 and splits them into a group that satisfies the cash flow criterion for financial assets as well as all other financial assets. The latter encompass the financial assets currently measured at fair value through profit or loss, especially equity instruments held and shares in investment funds that by their very nature cannot fulfil the cash flow criterion enshrined in IFRS 9. The cash flow criterion is met if the contractual conditions of the financial instrument give rise to cash flows at set times that are solely payments of principal and interest (SPPI test).
Other financial assets – at fair value through profit or loss – – 228,803 28,075
Fair value disclosures for financial assets N 45 in EUR thousand
Other financial assets – at fair value through profit or loss – – 173,865 (9,619)
Rating structure of financial assets that give rise to solely payments of principal and interest N 46 in EUR thousand 2019 2018
The retrocessionaires’ portions of the technical provisions are based on the contractual agreements of the underlying reinsurance treaties. For further details please refer to our comments on the technical provisions in section 6.7 “Technical provisions”. With regard to the nature and scope of risks arising out of insurance contracts we would also refer to the explanatory remarks on page 100 et seq. of the risk report.
In the case of reinsurance treaties for unit-linked life insurance policies classified as “universal life-type contracts” pursuant to SFAS 97, the capitalised acquisition costs are amortised on the basis of the estimated gross profit margins from the reinsurance treaties, making allowance for the period of the insurance contracts. A discount rate based on the interest for medium-term government bonds was applied to such contracts. In the case of annuity policies with a single premium payment, these values refer to the expected policy period or period of annuity payment.
Net book value at 31 December of the year under review 2,931,722 2,155,820
Gross book value of accounts receivable at 31 December of the year under review 5,303,632 4,005,281
Net book value of accounts receivable at 31 December of the year under review 5,269,792 3,975,778
“Technical provisions”. With regard to the credit risks resulting from technical assets we would also refer the reader to our comments on page 112 et seq. of the risk report.
For the purposes of the impairment test, the goodwill was allocated to the cash-generating units (CGUs) that represent the lowest level on which goodwill is monitored for internal management purposes. In the instances of goodwill recognised as at the balance sheet date, the CGUs are the respective legal entities. The recoverable amount is established on the basis of the value in use, which is calculated using the discounted cash flow method. In this context, the detailed planning phase draws on the planning calculations of the CGUs / companies covering the next five years. These planning calculations represent the outcome of a detailed planning process in which all responsible members of management are involved and where allowance is made for the latest market developments affecting the relevant entity (in relation to the sector and the economy as a whole). The subsequent perpetuity phase is guided by the profit margins and revenue growth rates that management believes can be sustainably generated. The capitalisation rate is based on the Capital Asset Pricing Model (CAPM) as well as growth rates that are considered realistic in light of the specific market environment. The risk-free basic interest rate is determined, where possible, using corresponding yield curve data from the respective national banks. If this data cannot be obtained or can only be obtained with a disproportionately high effort, reference is made to the yields of the respective 30-year government bonds. Both the yield curves and the government bonds reflect the current interest rate trend on financial markets.
The selection of the market risk premium is guided by the current recommendations of the Institute of Public Auditors in Germany (IDW). The beta factor is calculated for Hannover Rück SE on the basis of publicly accessible capital market data. The foreign exchange rates used for currency translation correspond to the situation on the balance sheet date.
The following capitalisation rates and growth rates were recognised for the individual cash-generating units: Capitalisation rates N 51
Sensitivity analyses were performed in which the capitalisation rates as well as material and value-influencing items of the relevant planning calculations (such as premium volumes, investment income or loss ratios) were varied. In this context individual parameters were each varied within appropriate ranges that could be anticipated in view of the prevailing market circumstances and developments. It was established that in the event of changes in parameters within ranges that could reasonably occur, the values in use were in each case higher than the corresponding book values. We would also refer to our basic remarks in section 3.2 “Summary of major accounting policies”.
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios N 53 in EUR thousand 2019 2018
Cumulative depreciation at 31 December of the previous year 86,969 58,574
Net book value at 31 December of the previous year 39,609 63,285
Gross book value at 31 December of the previous year 370,192 364,879
Cumulative depreciation at 31 December of the previous year 240,795 231,166
Net book value at 31 December of the year under review 134,092 129,397
The item includes EUR 34.8 million (EUR 37.8 million) for purchased software as at the balance sheet date, on which depreciation is taken over useful lives of three to ten years. Of the additions, an amount of EUR 6.6 million (EUR 8.7 million) is attributable to purchased software.
The gross book values include rights from long-term reinsurance treaties still existing as at the balance sheet date. The intangible assets resulting from these rights were recognised in the context of business acquisitions in the years 1997 and 2002 and were written off in full as at the balance sheet date.
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 92 et seq.
Loss and loss adjustment expense reserve 32,996,231 2,050,114 30,946,117 28,758,575 2,084,630 26,673,945
Net book value after currency translation 29,373,025 2,124,383 27,248,642 28,764,465 1,689,667 27,074,798
Reclassifications pursuant to IFRS 5 – – – (1,642,408) (87,253) (1,555,155)
Specific value adjustment for retrocessions – 5,351 (5,351) – 9,257 (9,257)
The following table shows the net loss reserve for the property and casualty reinsurance business group in the years 2009 to 2019 as well as the run-off of the reserve (so-called run-off triangle). The figures reported for the 2009 balance sheet year also include the amounts for previous years that are no longer shown separately in the run-off triangle. The run-off results shown reflect the changes in the ultimate loss arising in the 2019 financial year for the individual run-off years.
Net loss reserve and its run-off in the property and casualty reinsurance segment N 58 in EUR million
As percentage of original loss reserve 2.5 0.6 0.6 0.4 1.1 0.2 0.7 0.4 1.0 -1.9 1 Restated based on the disposal of International Insurance Company of Hannover SE in the financial year.
The run-off profit of altogether EUR 833.8 million (EUR 996.7 million) in the 2019 financial year derives above all from positive run-offs of reserves in the areas of general liability, motor, marine / aviation as well as in credit business.
Maturities of the technical reserves IFRS 4 “Insurance Contracts” requires information which helps to clarify the amount and timing of cash flows expected from reinsurance contracts. In the following tables we have shown the future maturities of the technical provisions broken down by the expected remaining times to maturity. As part of our maturity analysis we have immediately deducted the deposits put up as collateral for these reserves, since the cash inflows and outflows from these deposits are to be allocated directly to the ceding companies. For further explanation of the recognition and measurement of the reserves please see section 3.2 “Summary of major accounting policies”.
Due after five through ten years 5,083,742 324,170 4,759,572 674,078 44,806 629,272
The average maturity of the loss and loss adjustment expense reserves was 4.9 years (5.2 years), or 5.0 years (5.2 years) after allowance for the corresponding retrocession shares. The benefit reserve had an average maturity of 11.9 years (11.0 years) – or 13.5 years (12.3 years) on a net basis.
Net book value at 31 December of the previous year 9,184,356 909,056 8,275,300 8,977,946 959,533 8,018,413
Net book value after currency translation 9,524,897 930,768 8,594,129 9,039,817 987,917 8,051,900
Development of the unearned premium reserve N 62 in EUR thousand gross retro net gross retro net
Net book value at 31 December of the previous year 3,166,964 93,678 3,073,286 3,541,194 96,402 3,444,792
Net book value after currency translation 3,257,483 95,440 3,162,043 3,587,488 98,286 3,489,202
Net book value at 31 December of the year under review 4,391,848 116,176 4,275,672 3,166,964 93,678 3,073,286
The funds withheld under reinsurance treaties totalling EUR 1,157.8 million (EUR 969.3 million) represent the cash and securities deposits furnished to our company by our retrocessionaires that do not trigger any cash flows and cannot be realised without the consent of our retrocessionaires. The maturities of these deposits are matched to the corresponding shares of the reinsurers in the technical provisions. If such a share no longer exists the corresponding funds withheld are reduced to the same extent.
benefits. The scheme is based upon annual determination of the pension contributions, which are calculated according to the pensionable employment income and the company’s performance. The pension plan was closed to new participants with effect from 31 March 1999.
The calculation of the provisions for pensions is based upon the following assumptions: Measurement assumptions N 63 in %
Actuarial gain (–) / loss (+) from change in biometric assumptions 1,453 373 – – – –
Actuarial gain (–) / loss (+) from change in financial assumptions 20,324 4,597 – – – –
Experience gains (–) / losses (+) 2,985 2,618 – – – –
Return on plan assets, excluding amounts included in interest income – – 3,561 2,681 – –
Changes in the consolidated group (2,655) – (943) – (1) –
Position at 31 December of the financial year 249,636 223,604 47,759 39,989 – 41
Fair value of plan assets at 31 December of the financial year 47,759 39,989
Recognised pension obligations at 31 December of the financial year 201,877 183,656 thereof: Capitalised assets 75 349 thereof: Recognised pension obligations from IFRS 5 – 1,714
Sensitivity analysis An increase or decrease in the key actuarial assumptions would have the following effect on the present value of the defined benefit obligation as at the balance sheet date: Effect on the defined benefit obligation N 66 in EUR thousand Parameter increase Parameter decrease
The expense recognised for these obligations in the financial year in accordance with IAS 19 “Employee Benefits” was EUR 20.4 million (EUR 20.6 million), none of which (EUR 0 million) was attributable to commitments to employees in key positions. Of the expense for defined contribution plans, an amount of EUR 10.8 million (EUR 11.5 million) relates to state pension schemes, thereof EUR 8.3 million (EUR 7.9 million ) to contributions to the statutory pension insurance scheme in Germany.
With regard to the liabilities from derivatives in an amount of EUR 56.7 million (EUR 82.5 million), please see our explanatory remarks on derivative financial instruments in section 8.1 “Derivative financial instruments and financial guarantees ”.
On 9 October 2019 Hannover Re placed subordinated debt in a nominal amount of EUR 750 million on the European capital market. The bond has a total maturity of 20 years with a first scheduled call option on 9 July 2029. It carries a fixed coupon of 1.125% p. a. in the first ten years, after which the interest rate basis changes to a floating rate of 3-month EURIBOR +238 basis points.
On 15 September 2014 Hannover Rück SE placed a EUR 500.0 million subordinated bond on the European capital market. The issue has a perpetual maturity with a first scheduled call option on 26 June 2025 and may be redeemed at each coupon date thereafter. It carries a fixed coupon of 3.375% p. a. until 26 June 2025, after which the interest rate basis changes to 3-month EURIBOR +325 basis points.
Altogether five (four) bonds were recognised as at the balance sheet date with an amortised cost of EUR 2,977.7 million (EUR 2,235.6 million).
Long-term debt and notes payable N 71 in EUR thousand 2018
Shareholders’ equity is shown as a separate component of the financial statement in accordance with IAS 1 “Presentation of Financial Statements” and subject to IAS 32 “Financial Instruments: Disclosure and Presentation” in conjunction with IAS 39 “Financial Instruments: Recognition and Measurement ”. The change in shareholders’ equity comprises not only the net income deriving from the statement of income but also the changes in the value of asset and liability items not recognised in the statement of income.
The decrease in the other reserves arising out of currency translation, which is recognised in equity, was attributable in an amount of EUR 27.3 million (increase of EUR 16.0 million in the previous year) to the translation of long-term debt or loans with no maturity date extended to Group companies and branches abroad.
Treasury shares IAS 1 requires separate disclosure of treasury shares in shareholders ’ equity. As part of this year’s employee share option plan Hannover Rück SE acquired altogether 16,467 (16,530) treasury shares during the second and third quarter of 2019 on the legal basis of § 71 Para. 1 No. 2 Stock Corporation Act (AktG) and delivered them to eligible employees at preferential conditions. These shares are blocked until 31 May 2023. This transaction resulted in an expense of EUR 0.4 million (EUR 0.4 million), which was recognised under personnel expenditure, as well as a negligible change in retained earnings recognised in equity. The company was no longer in possession of treasury shares as at the balance sheet date.
Non-controlling interests in partnerships are reported in accordance with IAS 32 “Financial Instruments: Presentation” under long-term liabilities. The non-controlling interest in profit or loss, which forms part of net income and is shown separately after net income as a “thereof” note, amounted to EUR 89.2 million (EUR 86.0 million) in the year under review.
Net income 189,768 235,431 thereof attributable to non-controlling interests 66,814 82,892
The impairments taken on fixed-income securities amounted to just EUR 0.1 million (EUR 0.5 million).
Financial assets – at fair value through profit or loss 12,669 13,769
Net gains and losses on investments N 82 in EUR thousand
Income from contracts recognised in accordance with the deposit accounting method 297,411 206,525
Expenses from contracts recognised in accordance with the deposit accounting method 2,561 2,375
Brokerage commissions, performance fees and similar forms of remuneration 74,415 4,457
The brokerage commissions, performance fees and similar forms of remuneration in an amount of EUR 74.4 million (EUR 4.5 million) were realised at a point in time. Of this amount, EUR 65.6 million (none) is attributable to brokerage commissions earned by Group-internal insurance intermediaries on the North American, UK and Swedish markets. A further EUR 7.8 million (none) was earned in the form of structuring revenues on the North American market. In addition, EUR 0.5 million (EUR 0.5 million) was generated through activities on the Lloyd’s market in the United Kingdom.
A further EUR 2.1 million (EUR 0.2 million) was earned on the UK market from the performance of management services. The performance obligation is considered to have been fulfilled when the administrative activities specified in the contract were carried out.
An amount of EUR 2.1 million (EUR 3.6 million) was also earned on the North American market from the performance of administrative activities. The transaction price corresponds to the agreed contract price. The performance obligation is deemed to be satisfied when the administrative activities specified in the contract were carried out.
The reader is referred to the remarks in section 3.2 “Summary of major accounting policies” regarding the basic approach to the recognition and measurement of deferred taxes.
Tax-relevant bookings on the Group level are made using the Group tax rate unless they refer specifically to individual companies.
Change in deferred taxes due to changes in tax rates 100 (3,160)
Domestic / foreign breakdown of recognised tax expenditure / income N 90 in EUR thousand 2019 2018
Deferred tax assets and deferred tax liabilities of all Group companies N 91 in EUR thousand 2019 2018
The deferred tax assets and deferred tax liabilities are shown according to their origin in the above table. Deferred taxes resulting from a single transaction and with respect to which the corresponding temporary valuation differences are simultaneously reversed were already netted on recognition. Further netting was made based on the timing of the reversal of temporary differences and other offsetting possibilities, ultimately resulting in the following disclosure of deferred tax assets and deferred tax liabilities in the balance sheet: Netting of deferred tax assets and deferred tax liabilities N 92 in EUR thousand 2019 2018
Reconciliation of the expected expense for income taxes with the actual expense N 93 in EUR thousand 2019 2018
Tax expense / income not attributable to the reporting period 24,178 (26,752)
In the year under review the actual taxes on income were reduced by EUR 0.1 million (EUR 2.2 million) because loss carry -forwards were used for which no deferred tax assets were established.
The write-down of deferred tax assets recognised in previous years resulted in a deferred tax expense of EUR 2.8 million (EUR 0.8 million) in the year under review. This is not opposed by any deferred tax income (previous year: EUR 6.3 million) from the reversal of earlier write-downs.
No deferred taxes were established on liabilities-side taxable temporary differences amounting to EUR 43.5 million (EUR 40.6 million) in connection with interests in Group companies because the Hannover Re Group can control their reversal and will not reverse them in the foreseeable future.
Derivatives are financial instruments, the fair value of which is derived from an underlying trading instrument such as equities, bonds, indices or currencies. We use derivative financial instruments in order to hedge parts of our portfolio against interest rate and market price risks, optimise returns or realise intentions to buy / sell. In this context we take special care to limit the risks, select first-class counterparties and adhere strictly to the standards defined by investment guidelines.
The fair values of the derivative financial instruments were determined on the basis of the market information available at the balance sheet date. Please see section 3.2 “Summary of major accounting policies” with regard to the measurement models used.
Less than one year One to five years Five to ten years 31.12.2019
Maturity structure of derivative financial instruments N 96 in EUR thousand
Less than one year One to five years Five to ten years 31.12.2018
Hannover Re calculates the fair values of the embedded derivatives in ModCo treaties using the market information available on the valuation date on the basis of a credit spread method. Under this method the derivative has no value on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities. The derivative had a positive value of EUR 23.2 million (EUR 14.0 million) as at the balance sheet date and was recognised under other financial assets at fair value through profit or loss. In this connection an external cession led to recognition of other liabilities in an amount of EUR 0.7 million (EUR 0 million). In total, the change in the fair value of the derivative over the course of the year gave rise to income of EUR 8.1 million before tax (expense of EUR 11.9 million).
The performance of this derivative improved the result by EUR 20.2 million in the financial year (decrease in the result of EUR 2.6 million).
A retrocession agreement exists in the area of life and health reinsurance under which the premiums were deposited with Hannover Re and invested in a structured bond. The retrocessionaire has furnished a guarantee for its fair value. In accordance with the requirements of IFRS 4 this guarantee was to be unbundled from the retrocession agreement and is carried as a derivative financial instrument at fair value. The derivative was recognised with a positive fair value of EUR 14.1 million (EUR 22.7 million) as at the balance sheet date under other financial assets at fair value through profit or loss. In the course of the year the change in the fair value of the derivative resulted in a charge of EUR 9.2 million (income of EUR 19.8 million). Conversely, the performance of the structured bond, which is also measured at fair value, gave rise to income (expense) in the same amount.
In the area of life and health reinsurance a reinsurance treaty with a financing component was also written in the previous
A n n u al f in an ci al s ta te m en ts year under which the amount and timing of the return flows are dependent on lapse rates within an underlying primary insurance portfolio. This treaty and a corresponding retrocession agreement, which were classified as financial instruments pursuant to IAS 39, resulted in the recognition of other liabilities of EUR 30.0 million (EUR 24.5 million) and other financial assets at fair value through profit or loss in an amount of EUR 116.7 million (EUR 79.2 million). Altogether, these arrangements gave rise to an improvement in income of EUR 6.1 million (EUR 1.9 million) in the year under review.
At the end of the 2017 financial year under review an index -linked cover was written for longevity risks. The resulting derivative was recognised as at the balance sheet date with a positive fair value of EUR 5.2 million under other financial assets at fair value through profit or loss (EUR 45.5 million under other liabilities). The change in the fair value of the derivative gave rise to income of EUR 5.8 million (EUR 7.1 million) in the course of the year.
Financial guarantees Structured transactions were entered into in the life and health reinsurance business group in order to finance statutory reserves (so-called Triple-X or AXXX reserves) of US ceding companies. In each case such structures necessitated the involvement of a special purpose entity. The special purpose entities carry extreme mortality risks securitised by the cedants above a contractually defined retention and transfer these risks by way of a fixed / floating swap to a member company of the Hannover Re Group. The total amount of the contractually agreed capacities of the transactions is equivalent to EUR 3,345.1 million (EUR 3,268.7 million); an amount equivalent to EUR 2,742.3 million (EUR 2,623.4 million) had been taken up as at the balance sheet date. The variable payments to the special purpose entities that are guaranteed by the Hannover Re Group cover their payment obligations. Under some of the transactions the payments resulting from the swaps in the event of a claim are reimbursed by the parent companies of the cedants by way of compensation agreements. In this case the reimbursement claims from the compensation agreements are to be capitalised separately from and up to the amount of the provision.
Under IAS 39 these transactions are to be recognised at fair value as financial guarantees. 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. The fair value on initial recognition therefore amounted to zero. The higher of the fair value and the amount carried as a provision on the liabilities side pursuant to IAS 37 is recognised at the point in time when utilisation is considered probable. This was not the case as at the balance sheet date.
reinsurance business of HDI Global Specialty SE, a joint venture of Hannover Rück SE and HDI Global SE.
The reinsurance relationships with related parties in the year under review and the previous year are shown with their total amounts in the following table.
Business assumed and ceded in Germany and abroad N 99 in EUR thousand
Talanx AG performs various services in the area of taxes for a number of investment vehicles of the Hannover Re Group in the asset classes of private equity and real estate. In this regard corresponding agreements have been concluded with altogether nine Hannover Re companies.
Remuneration and shareholdings of the management boards of the parent company The remuneration of the active members of the Executive Board of Hannover Re amounted to altogether EUR 9.9 million (EUR 8.4 million). The pension payments to previous members of the Executive Board and their surviving dependants, for whom 18 (17) pension commitments existed, totalled EUR 2.0 million (EUR 1.7 million) in the year under review; altogether, a provision of EUR 34.2 million (EUR 26.0 million) has been set aside for these commitments.
The total remuneration of the Supervisory Board of Hannover Re amounted to EUR 0.9 million (EUR 1.0 million). There are no pension commitments to former members of the Supervisory Board or their surviving dependants.
The information required pursuant to IAS 24.17 “Related Party Disclosures” as well as all other information on the remuneration of the governing bodies, directors’ dealings and shareholdings as well as the structure of the remuneration system for the Executive Board is contained in the remuneration report from page 126 onwards. With regard to the disclosures required by IAS 24.17 we would refer in particular to the tables M 89 (Total remuneration of the active members of the Executive Board), M 93 (Pension commitments) and M 94 (Individual remuneration received by the members of the Supervisory Board). The remuneration report is based on the recommendations of the German Corporate Governance Code and contains information which also forms part of the notes to the 2019 consolidated financial statement as required by IAS 24 “Related Party Disclosures”. In addition, we took into account the more specific provisions of DRS 17 “Reporting on the Remuneration of Members of Governing Bodies”. Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in the remuneration report. Consequently, we have not provided any further explanation in the notes.
In the year under review the following share-based payment plans with cash settlement existed within the Hannover Re Group: 1. Stock Appreciation Rights Plan (in effect since 2000, cancelled in stages from 2011 onwards and currently being wound up)
Upon exercise of a stock appreciation right the amount paid out to the entitled party is the difference between the basic price and the current market price of the Hannover Rück SE share at the time of exercise. In this context, the basic price corresponds to the arithmetic mean of the closing prices of the Hannover Rück SE share on all trading days of the first full calendar month of the allocation year in question. The current market price of the Hannover Rück SE share at the time when stock appreciation rights are exercised is determined by the
A n n u al f in an ci al s ta te m en ts arithmetic mean of the closing prices of the Hannover Rück SE share on the last twenty trading days prior to the first day of the relevant exercise period.
The amount paid out is limited to a maximum calculated as a quotient of the total volume of compensation to be granted in the allocation year and the total number of stock appreciation rights awarded in the year in question. In the event of cancellation or termination of the employment relationship as a consequence of a termination agreement or a set time limit, a holder of stock appreciation rights is entitled to exercise all such rights in the first exercise period thereafter. Stock appreciation rights not exercised in this period and those in respect of which the waiting period has not yet expired shall lapse. Retirement, disability or death of the member of management shall not be deemed to be termination of the employment relationship for the purpose of exercising stock appreciation rights.
Stock appreciation rights of Hannover Rück SE N 100 in EUR thousand
Amounts paid out in the 2019 financial year (in EUR million) 0.22 0.42 0.04
Expense in the 2019 financial year (in EUR million) – – –
a termination agreement on an effective date prior to expiry of the vesting period.
The total number of share awards granted is based on the value per share of Hannover Rück SE. The value per share is established according to the unweighted arithmetic mean of the Xetra closing prices of the Hannover Re share. In the conditions applicable to members of the Executive Board a period of five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement for the financial year just-ended is envisaged for the calculation. For senior executives a period of twenty trading days before to ten trading days after the meeting of the Supervisory Board that approves the consolidated financial statement for the financial year just-ended has been agreed. The prices calculated in this way also determine the payout value of the share awards that have become payable. The total number of share awards granted is established by dividing the amount available for the granting of share awards to the respective eligible recipients by the value per share, rounded up to the next full share. For members of the Executive Board 20% and for senior executives 40% or 35% – according to management levels – of the defined variable remuneration shall be granted in the form of share awards.
In the event that the Board mandate or service relationship with the member of the Executive Board or the employment relationship with the manager ends, the eligible recipient shall retain his claims to payment of the value of already granted share awards after expiry of the applicable vesting period, unless such termination is based on resignation of office / voluntary termination on the part of the member of the Executive Board or voluntary termination on the part of the manager or dismissal by Hannover Re for a compelling reason. In the event of death the claims arising out of the already granted and / or still to be granted share awards pass to the heirs.
Number of allocated share awards in the allocation year 1 This figure results from originally granted share awards that have since lapsed.
Development of the provision for share awards of Hannover Rück SE N 102 in EUR thousand
Provision at 31 December of the previous year – 2,018 3,561 6,784 9,291 12,228 – 33,882
The aggregate provision – recognised under the sundry non-technical provisions – amounted to EUR 42.0 million (EUR 33.9 million) as at the balance sheet date.
In the year under review the 10,299 share awards of the Executive Board finally allocated in 2014 with a value of EUR 129.60 each plus the dividend entitlement of EUR 19.00 were paid out to the eligible members of the Executive Board. The 79,104 share awards of the senior executives for the 2014 financial year were paid out in 2019 with a value of EUR 129.38 each plus the dividend entitlement of EUR 19.00. The allocation to the provision for the 2014 share awards results from the difference between the share price as at the last balance sheet date (EUR 117.70) and the price from March 2019 on which the payout of the share awards was based (EUR 129.60 and EUR 129.38 respectively).
With regard to the effects of the equity swaps taken out to hedge price risks, please see our explanatory remarks in section 8.1 “Derivative financial instruments and financial guarantees”.
It will be proposed to the Annual General Meeting on 6 May 2020 that a dividend of EUR 4.00 per share as well as a special dividend of EUR 1.50 per share should be paid for the 2019 financial year. This corresponds to a total distribution of EUR 663.3 million. The dividend proposal does not form part of this consolidated financial statement.
Neither the outcome nor the duration of pending procedures can be definitively foreseen at the time when provisions are established. The final liabilities of Hannover Re may diverge considerably from the constituted provisions because the assessment of probability and the quantification of these uncertain liabilities in large measure require estimates that may prove not to be accurate as the proceedings in question continue to progress. This is also true of procedures for which no provisions were established. Insofar as a commitment exists under such procedures as at the balance sheet date that may possibly but will probably not result in a loss, the Hannover Re Group estimates this potential loss – where practicable – and reports a contingent liability. For estimation purposes Hannover Re takes into account a number of factors. These include, among others, the nature of the claim, the status of the procedure concerned, decision of courts and arbitration bodies, prior settlement discussions, experience from comparable cases as well as expert opinions and the assessments of legal advisers and other experts. If a provision has been established for a particular procedure, a contingent liability is not recognised.
Hannover Rück SE has secured by subordinated guarantee the subordinated debts issued by Hannover Finance (Luxembourg ) S. A. in the 2010 and 2012 financial years in amounts of EUR 500.0 million each.
Letter of credit (LoC) facilities existed with a number of financial institutions as at the balance sheet date in a total volume equivalent to EUR 3,039.5 million (EUR 2,417.3 million) and with various terms maturing at the latest in 2023.
As security for liabilities in connection with participating interests in real estate companies and real estate transactions the usual collateral under such transactions has been furnished to various banks, the amount of which totalled EUR 700.9 million (EUR 647.4 million) as at the balance sheet date.
Leased properties Hannover Re leases various office premises, technical facilities, office equipment and vehicles. A long-term land lease agreement also exists in connection with investment property.
The following items were recognised in the balance sheet as at 31 December 2019 in connection with leases.
The allocation to the right-of-use assets amounted to EUR 10.0 million in the financial year.
Future minimum lease payments receivable N 108 in EUR thousand Amounts receivable
The rental payments receivable result from the long-term renting out of properties by the Group’s real estate companies. The leases in question are operating leases. The rental income received in the financial year amounted to EUR 145.4 million.
The fees for other assurance services relate to legally or contractually required audits. A further distinction is made for fees for tax consultancy services. The fees for other services encompass, for example, consultancy services in connection with valuation services.
The auditor responsible for performance of the audit engagement as defined by § 38 Para. 2 of the Professional Charter for Accountants / Certified Auditors (Berufssatzung WP / vBP) as amended on 21 June 2016 is Mr. Mathias Röcker. He first served as the engagement partner responsible for the audit of the annual and consolidated financial statements effective 31 December 2018.
• the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to § [Article] 315e Abs. [paragraph] 1 HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at 31 December 2019, and of its financial performance for the financial year from 1 January to 31 December 2019, and
• the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our audit opinion on the group management report does not cover the content of those parts of the group management report listed in the “Other Information ” section of our auditor’s report.
(IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor ’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our
B es tä ti g u n g sv er m er k other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions on the consolidated financial statements and on the group management report.
In our view, the matters of most significance in our audit were as follows: (1) Fair value measurement of certain financial instruments
(3) Measurement of premium reserves (4) Calculation of estimated gross premium
Of these financial instruments, financial assets amounting to EUR 41,762.0 million are measured at fair value. Of those financial instruments in turn, the fair value of EUR 41,244.1 million is calculated using valuation models or based on third-party value indicators. The measurement of financial instruments whose fair value must be determined based on valuation models and third-party value indicators is subject to uncertainty because the most recent market data or comparable figures are not always available and therefore estimated values and parameters that cannot be currently observed on the market are also used.
(b) During our audit, we analyzed the financial instruments based on valuation models and third-party value indicators, with the focus on measurement uncertainties. Thereby, we assessed the appropriateness and effectiveness of the relevant controls for the measurement of these financial instruments and the model validation. Therewith, we evaluated, among other things, the integrity of the underlying data and the process for at the determination of the assumptions and estimates used in the valuation.
(c) The Company’s disclosures on the measurement of the financial instruments are contained in the sections “Accounting policies” and “Notes to the individual items of the balance sheet”, subsection “Assets under own management ” of the notes to the consolidated financial statements.
(a) In the consolidated financial statements of the Company technical provisions (“claims provisions”) amounting to EUR 32,996.2 million (46.2% of total assets) are reported under the”Provisions for unsettled claims” balance sheet item. Of that amount, EUR 28,364.4 million was attributable to the Property reinsurance segment.
(a) In the consolidated financial statements technical provisions amounting to EUR 9,028.0 million (12.7% of total consolidated assets) are reported under the “Premium reserves ” balance sheet item. The premium reserves were recognized primarily for the reinsurance activities in the life and health reinsurance segments.
The estimate of the sufficiency of the reported premium reserves, the estimates made in the absence of cedant settlements as well as model-driven calculations of the premium reserve is subject to considerable scope for judgment on the part of the executive directors and the associated uncertainties in the estimations made.
Against this background and due to the material significance of the amount of the premium reserves for the assets, liabilities and financial performance of the Group as well as the complexity of the underlying calculations, this matter was of particular significance in the context of our audit.
(b) Given the significance of premium reserves, as part of our audit we assessed together with our actuaries the methods used by the Company and the assumptions made by the executive directors. The assessment was based on our industry expertise and experience, among other things.
Based on our audit procedures, we were able to satisfy ourselves that the methods and assumptions used by the executive directors for measuring the premium reserves are appropriate overall.
(c) The Company’s disclosures on the premium reserve are contained in the sections “Accountingpolicies” and “Notes to the individual items of the balance sheet”, subsection “technical provisions” of the notes to the consolidated financial statements. Disclosures on risks are contained in the group management report in the section “Risk report”, subsection “Technical risks of personal reinsurance ”.
Assumed reinsurance premiums are accounted for in accordance with the terms and conditions of the reinsurance policies. In the absence of settlements of cedants, the Company made supplementary or complete estimates of the contributions. The estimates were based on assumptions and are therefore subject to considerable uncertainties and scope of judgment.
Due to the material significance of the amount of the estimated premiums for the assets, liabilities and financial performance of the Group as well as the considerable scope for judgment on the part of the executive directors and the associated uncertainties in the estimations made, this matter was of particular significance in the context of our audit.
(b) For the assessment of the estimated gross premium, we first conducted a design testing of the contribution and estimation process. In that connection, we identified the material key controls and analyzed their design. Based on that analysis, we conducted a functional testing regarding the effectiveness of the key controls implemented in the process and assessed the appropriateness of the material assumptions by verifying and analyzing the calculating method for deriving the estimated gross premium.
Based on our audit procedures, we were able to satisfy ourselves that the calculation procedures applied by the executive directors to derive the estimated gross premium are appropriate overall.
(c) The Company’s disclosures on the recognized and estimated gross premiums are contained in the sections “Accounting policies” and “Notes to the individual items of the income statement” of the notes to the consolidated financial statements.
• the non-financial statement pursuant to § 289b Abs. 1 HGB and § 315b Abs. 1 HGB included in section “Combined non-financial information statement” of the group management report
The other information comprises further the remaining parts of the annual report – excluding cross-references to external information – with the exception of the audited consolidated financial statements, the audited group management report and our auditor’s report.
Responsibilities of the Executive Directors and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report
Furthermore, the executive directors are responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, the executive directors are responsible for such arrangements and measures (systems ) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our audit opinions on the consolidated financial statements and on the group management report.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with § 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.
• Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an audit opinion on the effectiveness of these systems.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315e Abs. 1 HGB.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express audit opinions on the consolidated financial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinions.
• Perform audit procedures on the prospective information presented by the executive directors in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by the executive directors as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate audit opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.
Further information pursuant to Article 10 of the EU Audit Regulation
We were elected as group auditor by the supervisory board on 6 March 2019. We were engaged by the supervisory board on 26 June 2019. We have been the group auditor of the Hannover Rück SE, Hannover, without interruption since the financial year 2018.
We declare that the audit opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).
The German Public Auditor responsible for the engagement is Mathias Röcker.
This responsibility of Company’s executive directors includes the selection and application of appropriate methods of non-financial reporting as well as making assumptions and estimates related to individual non-financial disclosures which are reasonable in the circumstances. Furthermore, the executive directors are responsible for such internal control as they have considered necessary to enable the preparation of a Non-financial Statement that is free from material misstatement whether due to fraud or error.
We have complied with the German professional provisions regarding independence as well as other ethical requirements.
Our audit firm applies the national legal requirements and professional standards – in particular the Professional Code for German Public Auditors and German Chartered Auditors (“Berufssatzung für Wirtschaftsprüfer und vereidigte Buchprüfer “: “BS WP/vBP”) as well as the Standard on Quality
Reviews of Historical Financial Information, issued by the IAASB. This Standard requires that we plan and perform the assurance engagement to allow us to conclude with limited assurance that nothing has come to our attention that causes us to believe that the Company’s Non-financial Statement for the period from 1 January to 31 December 2019 has not been prepared, in all material aspects, in accordance with §§ 315c in conjunction with 289c to 289e HGB.
In a limited assurance engagement, the assurance procedures are less in extent than for a reasonable assurance en-
S on st ig es gagement, and therefore a substantially lower level of assurance is obtained. The assurance procedures selected depend on the practitioner’s judgment.
Within the scope of our assurance engagement, we performed amongst others the following assurance procedures and further activities: • Obtaining an understanding of the structure of the sustainability organization and of the conducted materiality analyses
• Identification of the likely risks of material misstatement of the Non-financial Statement
Based on the assurance procedures performed and assurance evidence obtained, nothing has come to our attention that causes us to believe that the Company’s Non-financial Statement for the period from 1 January to 31 December 2019 has not been prepared, in all material aspects, in accordance with §§ 315c in conjunction with 289c to 289e HGB.
We issue this report on the basis of the engagement agreed with the Company. The assurance engagement has been performed for purposes of the Company and the report is solely intended to inform the Company about the results of the limited assurance engagement. The report is not intended for any third parties to base any (financial) decision thereon. Our responsibility lies only with the Company. We do not assume any responsibility towards third parties.
Supervisory Board Report of the Supervisory Board of Hannover Rück SE
We received an analysis of the 2018 results in property & casualty and life & health reinsurance as well as a presentation from the Executive Board covering the profit expectations for the 2019 financial year and the operational planning for the 2020 financial year. In addition, the Chairman of the Supervisory Board was constantly kept informed by the Chairman of the Executive Board of major developments and impending decisions as well as of the risk situation within the company and the Group. All in all, we were involved in decisions taken by the Executive Board and assured ourselves of the lawfulness, regularity and efficiency of the company’s management as required by our statutory responsibilities and those placed upon us by the company’s Articles of Association.
of Hannover Re was singled out for special praise. We approved the resulting amendment to the schedule of responsibilities within the Executive Board. In addition, the variable remuneration of the members of the Executive Board was defined on the basis of the findings with respect to attainment of the respective targets for the 2018 financial year. In this context, as usual, we factored the findings of external surveys into our deliberations for the purpose of making a market comparison.
On 6 May 2019 the Executive Board reported to us on the first quarter of 2019 and we explored the overall results of the previous year in greater detail; in this regard the Executive Board presented relevant analyses regarding the quality of the loss reserves in property and casualty reinsurance and the intrinsic value creation (IVC). In addition to the outlook for the current financial year, the examination of the Own Risk and Solvency Assessment (ORSA) and the capitalisation under Solvency II constituted further key points of deliberation. Following up on this, the structure of the Regular Supervisory Report (RSR) and its differences and overlaps relative to the ORSA were explained. We also received a report on the return on investment as compared with peer companies and a detailed report on non-US life business. Lastly, a resolution was adopted that created the basis for issuance of subordinated capital later in the year. In view of the personnel changes on the Executive Board that had already been approved in the previous year, under which Mr. Jean-Jacques Henchoz was initially appointed as a member of the Executive Board and subsequently also as Chief Executive Officer, further adjustments to the schedule of responsibilities for the Executive Board were then approved.
On 7 August 2019 the Executive Board reported on the first half of 2019; in this context, as usual, it described the material indicators from the technical and non-technical accounts and outlined the attainment status of the strategic objectives. The outlook for the current financial year was followed by a discussion of the key insights from the risk report. Hannover Re’s activities in the insurance-linked securities (ILS) market, on which we received a detailed report, were another major focus of the August meeting. In addition, we considered a strategic transaction relating to a participating interest. We also received the audit report on the solvency balance sheet. With an eye to the self-assessment of the Supervisory Board’s areas of expertise that had once more been carried out, the Supervisory Board decided that the extensive list of topics which goes beyond the regulatory requirements will be used again in 2020.
Committees of the Supervisory Board Of the committees formed by the Supervisory Board within the meaning of § 107 Para. 3 Stock Corporation Act (AktG), the Finance and Audit Committee met on four occasions, with one resolution adopted by a written procedure, and the Standing Committee met three times. The Chairman of the Supervisory Board updated the full Supervisory Board on the major deliberations of the committee meetings at its next meeting and provided an opportunity for further questions.
The Finance and Audit Committee considered inter alia the consolidated financial statement and the quarterly reports drawn up in accordance with IFRS and the individual financial statement of Hannover Rück SE drawn up in accordance with the German Commercial Code (HGB), and it discussed with the independent auditors their reports on these financial statements. As in the previous years, an expert opinion on the adequacy of the loss reserves in property and casualty reinsurance was noted, the retrocession structure of the Hannover Re Group, the risk reports and the compliance report were discussed, and reports on the major subsidiaries were received and considered. In addition, the Committee examined the investment structure and investment income – including the stress tests with regard to the investments and their implications for net income and the equity base. The audit concentrations of the independent auditors for the 2019 financial year were defined. The Committee continued to be provided with ongoing detailed reports on the recognition and measurement of the risk-oriented book of US life reinsurance business acquired in 2009 from Scottish Re as well as on the rate increases that had been initiated and/or implemented.
ent Annual Report as part of the Declaration on Corporate Governance (cf. page 120 et seq.). Further information on the topic of corporate governance is available on the website of Hannover Rück SE.
The Supervisory Board concurred with the opinions of the auditors and approved the annual financial statements and the consolidated financial statements; the annual financial statements are thereby adopted. Our proposal regarding the appropriation of the disposable profit for 2019 is in accordance with that of the Executive Board.
Furthermore, in accordance with the provisions of the SE Participation Act (SEBG) the following employee representatives were elected to the Supervisory Board by the workforce with effect from the end of the Annual General Meeting on 8 May 2019:
Word of thanks to the Executive Board and members of staff The good result generated by Hannover Rück SE for the 2019 financial year was made possible by the exceptional performance of the Executive Board and the members of staff working for the company and the Group. The Supervisory Board would like to express its recognition and special appreciation to the Executive Board and all the employees for their efforts.
Chairman Chief Executive Officer of HDI Haftpflichtverband der Deutschen Industrie V.a.G. Chief Executive Officer of Talanx AG
Deputy Chairman Former Chief Executive Officer of Talanx AG and HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Independent management consultant Deputy Chairwoman of the Supervisory Board of Fronius International GmbH, Pettenbach, Austria 5
Burgwedel (until 8 May 2019) Employee 1 Member of the Standing Committee 2 Member of the Finance and Audit Committee 3 Member of the Nomination Committee 4 Staff representative 5 Date when member was first appointed / elected to the company’s
Details of memberships of legally required supervisory boards and comparable control boards at other domestic and foreign business enterprises are contained in the Annual Report of Hannover Rück SE.
Hannover Re (Bermuda) Ltd. Victoria Place, 2nd Floor, 31 Victoria Street Hamilton, HM 10
Hannover Rück SE Hong Kong Branch 2008 Sun Hung Kai Centre 20th Floor 30 Harbour Road Wanchai, Hong Kong
Hannover Services (México) S. A. de C. V. German Centre Oficina 4-4-28 Av. Santa Fé No. 170 Col. Lomas de Santa Fé C.P. 01219 México, D.F.
Compass Insurance Company Limited 5th floor, 90 Rivonia Rd. Sandton Johannesburg 2196 P.O. Box 37226 Birnam Park 2015 www.compass.co.za Managing Director: Paul Carragher
Hannover Reinsurance Africa Limited Rosebank Towers Office Level 3 15 Biermann Ave Rosebank, Johannesburg 2196 P.O. Box 85321 Emmarentia 2029
Hannover Rück SE Taipei Representative Office Rm. 902, 9F, No. 129, Sec. 3 Minsheng E. Road Taipei
Aggregate excess of loss treaty: the reinsurance treaty attaches if a ceding insurer incurs losses on a particular line of business during a specific period (usually twelve months) in excess of a stated amount.
American Depositary Receipt (ADR): share certificates written by US banks on foreign shares deposited there. The ADRs are traded instead of the foreign shares. In the United States Hannover Re has enabled trading on the OTC (over-the- counter) market through an ADR Level 1 program. New capital cannot be raised and the ADR is not listed on a US exchange under a Level 1 program. The main advantage of an ADR Level 1 program compared to higher-level programs is that there is no requirement for accounting or financial reporting in accordance with US GAAP.
Our internal capital model supplies key parameters such as the volatility of the covered business / investments and the contribution to diversification.
Deposit accounting: an accounting method originating in US GAAP for the recognition of short-term and multi-year insurance and reinsurance contracts with no significant underwriting risk transfer. The standard includes inter alia provisions relating to the classification of corresponding contract types as well as the recognition and measurement of a deposit asset or liability upon inception of such contracts.
Deposits with ceding companies / deposits received from retrocessionaires (also: funds held by ceding companies / funds held under reinsurance treaties): collateral provided to cover insurance liabilities that a (re-)insurer retains from the liquid funds which it is to pay to a reinsurer under a reinsurance treaty. In this case, the retaining company shows a deposit received, while the company furnishing the collateral shows a deposit with a ceding company.
Facultative reinsurance: participation on the part of the reinsurer in a particular individual risk assumed by the direct insurer. This is in contrast to obligatory (also: treaty) reinsurance.
Fair value: price at which a financial instrument is freely traded between two parties.
Financial Solutions: reinsurance transactions which – in addition to the transfer of biometric risks – also include financing components such as financing arrangements for new and existing business, reserve relief, smoothing of volatility in results, optimisation of the solvency position.
Frequency losses: losses that occur frequently in a foreseeable amount, i. e. where the underlying risks are associated with relatively high probabilities of occurrence and usually low loss amounts.
Internal model: economic capital model verified and approved by the Federal Financial Supervisory Authority that better reflects the company’s risk profile than the standard formula under Solvency II.
Premium: remuneration for the risks accepted from an insurance company. Unlike the earned premiums, the written premiums are not deferred.
Priority: direct insurer’s loss amount stipulated under non-proportional reinsurance treaties; if this amount is exceeded, the reinsurer becomes liable to pay. The priority may refer to an individual loss, an accumulation loss or the total of all annual losses.
Risk, insured: risk that can lead to the occurrence of a loss. The insured risk is the subject of the insurance contract.
Structured entity: entity with specific characteristics not bound to a particular legal form that is used to conduct closely defined activities or to hold assets and for which the traditional concept of consolidation – based on voting rights – is often inadequate for determining who exercises control over the entity.
The reinsurer’s liability is generally limited to a multiple of the ceding company’s retention.
Surplus relief treaty: reinsurance contract under which an admitted reinsurer assumes (part of) a ceding company’s portfolio to relieve stress on the cedant’s policyholders’ surplus.
Underwriting: process of examining, accepting or rejecting (re-)insurance risks and classifying those selected in order to charge the proper premium for each. The purpose of underwriting is to spread the risk among a pool of (re-)insureds in a manner that is equitable for the (re-)insureds and profitable for the (re-)insurer.
I 09 Highs and lows of the Hannover Re share 20 I 10 Relative performance of the Hannover Re share 21 I 11 Shareholding structure as at 31 December 2019 22 I 12 Geographical breakdown of the shares held by institutional investors 22 I 13 Basic information 23 I 14 Key figures 23
M 01 Target attainment 26 M 02 System of value-based management: Performance Excellence (PE) combines the strategic and operational levels 27
M 03 Intrinsic Value Creation and excess return on capital allocated 28
M 16 Property & Casualty reinsurance: Gross premium in Germany, Switzerland, Austria and Italy by lines of business 43
M 22 Breakdown of gross premium by markets 50 M 23 Value of New Business (VNB) growth 50 M 24 Breakdown of gross written premium by reporting categories 50 M 25 EBIT performance 50 M 26 Key figures for Life & Health reinsurance 51 M 27 Investment income 56 M 28 Development of investment income 56 M 29 Investment portfolio 57 M 30 Breakdown of investments under own management 58 M 31 Rating of fixed-income securities 58 M 32 Capital structure as at 31 December 2019 59 M 33 Development of policyholders’ surplus 60 M 34 Development of Group shareholders’ equity 61 M 35 Amortised cost of our bonds 61 M 36 Consolidated cash flow statement 62 M 37 Cash flow from operating activities 62 M 38 Financial strength ratings of the
M 40 Issue ratings of notes payable 63 M 41 Condensed profit and loss account of
Hannover Rück SE 66 M 42 Hannover Rück SE: Breakdown of gross premium by individual lines of business 67 M 43 Balance sheet structure of Hannover Rück SE 68 M 44 Materiality matrix 73 M 45 Goal to be achieved by 2020: Responsible corporate governance 75 M 46 Goal to be achieved by 2020: Compliance 78 M 47 Goal to be achieved by 2020: Stakeholder dialogue 79 M 48 Goal to be achieved by 2020: Risk expertise and risk assessment 80 M 49 Goal to be achieved by 2020: Sustainable insurance solutions 82 M 50 Goal to be achieved by 2020: ESG criteria in asset management 84 M 51 Goal to be achieved by 2020: Customer orientation and satisfaction 85 M 52 Number of employees by country 85 M 53 Breakdown of employees by country and gender 86 M 54 Goal to be achieved by 2020: Executive development / Employee advancement 87 M 55 Goal to be achieved by 2020: Employee retention 88 M 56 Goal to be achieved by 2020: Diversity 89 M 57 Goal to be achieved by 2020: Operational environmental protection 90 M 58 Goal to be achieved by 2020: Supplier management 90 M 59 Risk management through multiple levels of limits 92 M 60 Strategic targets for the risk position 93 M 61 Own funds and required risk capital 96 M 62 Central functions of risk monitoring and steering 97 M 63 Risk landscape of Hannover Re 101
M 70 Limit and threshold for the 200-year aggregate annual loss as well as utilisation thereof 105
M 71 Catastrophe losses and major claims in 2019 105 M 72 Ensuring the quality of our portfolios 106 M 73 Combined and catastrophe loss ratio 106 M 74 Required risk capital for underwriting risks in life and health reinsurance 107 M 75 Required risk capital for market risks 108 M 76 Utilisation of the trigger system 109 M 77 Value at Risk for the investment portfolio of the
Hannover Re Group 110 M 78 Scenarios for changes in the fair value of material asset classes 110 M 79 Rating structure of our fixed-income securities 112 M 80 Required risk capital for the counterparty default risk 112 M 81 Gross written premium retained 113 M 82 Reinsurance recoverables as at the balance sheet date 113 M 83 Required risk capital for operational risks 114 M 84 Opportunity management process 118 M 85 Measurement basis and payment procedures for fixed remuneration 127 M 86 Overview of the composition of variable remuneration 128 M 87 Measurement bases / conditions of payment for variable remuneration 129 M 88 Payment procedures for the total variable remuneration 130 M 89 Total remuneration of the active members of the Executive Board pursuant to DRS 17 (modified in 2010) 132
M 92 German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2018 and 2019) 138
M 96 Growth in gross domestic product (GDP) 147 M 97 Overall profitability above margin requirements in Property & Casualty reinsurance 2020 150 M 98 Life & Health reinsurance: Forecast development for 2020 153
Offsetting of foreign currency translation 171 N 10 Valuation models 173 N 11 Key exchange rates 179 N 12 Scope of consolidation 183 N 13 List of shareholdings 184 N 14 Material branches of the Group 191 N 15 Book values from business relations with unconsolidated structured entities 2019 194 N 16 Book values from business relations with unconsolidated structured entities 2018 195 N 17 Assets and liabilities of the disposal group 196 N 18 Consolidated segment report 198
N 22 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value 2018 204
N 23 Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value 2019 205
N 26 Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value 2018 207
N 54 Fixtures, fittings and equipment 225 N 55 Development of other intangible assets 226 N 56 Technical provisions 227 N 57 Loss and loss adjustment expense reserve 227 N 58 Net loss reserve and its run-off in the property and casualty reinsurance segment 229 N 59 Maturities of the technical reserves 2019 230 N 60 Maturities of the technical reserves 2018 230 N 61 Development of the benefit reserve 231 N 62 Development of the unearned premium reserve 232
N 92 Netting of deferred tax assets and deferred tax liabilities 250
N 94 Expiry of non-capitalised loss carry-forwards and temporary differences 252
Germany and abroad 256 N 100 Stock appreciation rights of Hannover Rück SE 259 N 101 Share awards of Hannover Rück SE 261 N 102 Development of the provision for share awards of Hannover Rück SE 261 N 103 Personnel information 262 N 104 Personnel expenditures 262 N 105 Calculation of the earnings per share 263 N 106 Leases in the balance sheet 265 N 107 Amortisation of right-of-use assets in connection with leases 265 N 108 Future minimum lease payments receivable 266 N 109 Fee paid to the auditor 266