Impairments on participating interests and other financial assets 14,115 7,976 other investment expenses 70,322 67,409
Interest income on investments in eUr thousand 2011 2010 fixed-income securities – held to maturity 127,697 124,539 fixed-income securities – loans and receivables 97,708 90,063 fixed-income securities – available for sale 652,365 583,968
Unrealised gains and losses net income from assets under own management2 held to maturity fixed-income securities 136,413 501 – – 136,914 loans and receivables available for sale short-term investments 30,152 1,291 – – 31,443
Net gains and losses on investments figures in eUr thousand ordinary investment income1 realised gains and losses impairments/ appreciation
Reinsurance result in eUr thousand 2011 2010 gross written premium 12,096,113 11,428,717 ceded written premium 1,069,745 1,127,465 change in unearned premium (269,189) (287,536)
Net premium earned 10,751,511 10,047,016 other technical income 8,841 16,845 total net technical income 10,760,352 10,063,861 claims and claims expenses paid 6,266,166 6,221,192 change in loss and loss adjustment expense reserve 1,763,729 786,863
change in provision for contingent commissions (gross) 22,723 22,373 reinsurance recoverables 5,504 1,260
Commissions and brokerage, change in deferred acquisition costs (net) 2,336,128 2,257,948 6.3 Reinsurance result other technical income in eUr thousand 2011 2010 other technical income (gross) 8,841 13,168 reinsurance recoverables – (3,677)
ly from the interest portion of the tax refund arising out of the Federal Fiscal Court (BFH) decision of the previous year.
The breakdown of actual and deferred income taxes was as follows: Breakdown of taxes on income
Domestic/foreign breakdown of recognised tax expenditure/income in eUr thousand 2011 2010
The tax rate used to calculate the deferred taxes of the do­
Group tax rate of 32% unless they refer specifically to indi­
Tax loss carry-forwards 81,178 45,433 loss and loss adjustment expense reserves 271,615 201,132
Benefit reserve 54,846 36,148 other technical/non-technical provisions 216,240 170,844 funds withheld 586,554 308,411 accounts receivable/reinsurance payable 7,156 6,243 valuation differences relating to investments 19,210 14,517 contract deposits 5,230 84 other valuation differences 79,000 278,904 value adjustments1 (43,203) (44,377)
Deferred tax liabilities loss and loss adjustment expense reserves 22,542 13,228
Benefit reserve 515,207 190,521 other technical/non-technical provisions 125,659 95,284 equalisation reserve 933,711 802,480 funds withheld 39,951 51,402
Deferred acquisition costs 372,436 363,468 accounts receivable/reinsurance payable 62,800 53,593 valuation differences relating to investments 174,914 183,523
Present value of future profits on acquired life reinsurance portfolios (PVFP) 11,873 12,155 other valuation differences 59,110 262,076
The deferred tax assets and deferred tax liabilities are shown unoffset in the above table. The deferred taxes are recognised as follows in the balance sheet after appropriate netting: 1 Thereof on tax loss carry-forwards: –eUr 42,760 thousand (–eUr 43,787 thousand)
The following table presents a reconciliation of the expected expense for income taxes with the actual expense for income taxes reported in the statement of income. The pre-tax result is multiplied by the Group tax rate in order to calculate the
Profit before income taxes 742,248 1,088,534 expected tax rate 32% 32%
expected expense for income taxes 237,519 348,331 change in deferred tax rates (324) (899)
Actual expense for income taxes 65,460 257,629 expiry of non-capitalised loss carry-forwards in eUr thousand one to five years six to ten years more than ten years
No deferred taxes were established on taxable temporary differences in connection with interests in Group companies amounting to EUR 73.2 million (EUR 50.7 million) because the Hannover Re Group can control their reversal and will not reverse them in the foreseeable future.
Availability of loss carry-forwards and tax credits that have not been capitalised: On the basis of a decision of the Federal Fiscal Court (BFH)
Ltd. were rendered immaterial by cancellation notices dated 8 February 2011 and 31 March 2011 respectively. Subsequent assessment notices regarding corporation tax were issued for
Industrie V.a.G. In total, the refund of taxes and interest re­
190 Hannover Re Group annual report 2011Notes 7.1 DerivaTive financial insTrUmenTs
Derivatives are financial instruments, the fair value of which is derived from an underlying instrument such as equities, bonds, indices or currencies. We use derivative financial instruments in order to hedge parts of our portfolio against inter est rate and market price risks, optimise returns or real­
Hannover Re holds derivative financial instruments to hedge interest rate risks from loans connected with the financing of real estate; these gave rise to recognition of other liabilities in an amount of EUR 3.2 million (EUR 2.3 million).
ments as at the balance sheet date in the form of forward exchange transactions predominantly taken out to hedge cash flows from reinsurance contracts. These transactions gave rise to recognition of other liabilities in an amount of EUR 20.7 million (other liabilities of EUR 34.9 million).
Three months to one year one to five years five to ten years 31.12.
tive components are to be recognised in income in subsequent periods.
tives in ModCo treaties using the market information available on the valuation date on the basis of a “credit spread” method.
Under this method the derivative is valued at zero on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities. The derivative had a negative value of EUR 12.9 million as at the balance sheet date and was recognised under other liabilities (EUR 45.2 million under other financial assets at fair value through profit or loss).
The derivative components of another group of contracts in the area of life and health reinsurance were measured on the basis of stochastic considerations. The measurement pro­
rivative, the fair value of which as at 31 December 2011 was
IAS 24 “Related Party Disclosures” defines related parties as group entities of a common parent, associated entities, legal entities under the influence of key management personnel and the key management personnel of the entity itself. Transac­
tions between Hannover Re and its subsidiaries, which are to be regarded as related parties, were eliminated through con­
ness and renewals written on the German market have been the responsibility of E+S Rück, while Hannover Re has handled foreign markets. Internal retrocession arrangements ensure that the percentage breakdown of the business applicable to the previously existing underwriting partnership is largely pre­
GmbH) performs investment and asset management services for Hannover Re and some of its subsidiaries. Assets in spe­
7.2 Related party disclosures ment resulted in an improvement of EUR 6.7 million in income in the year under review (charge against income of EUR 5.3 million). We would refer the reader to the explanatory remarks in Section 4. “Consolidation” regarding the securitisation of reinsurance risks.
as well as charges to income of EUR 56.4 million (EUR 22.2 million) were recognised in the year under review from all separately measured derivatives in connection with the tech­
The reinsurance relationships with related parties in the year under review are shown with their total amounts in the table.
tended a loan due on 31 May 2012 with a coupon of 4.98% to
nover Re (Bermuda) Ltd. invested in a nominal amount of EUR
As part of long-term lease arrangements companies belonging to the Hannover Re Group rented out business premises in 2011 to HDI Direkt Versicherung AG, Hannover. In addition, lease agreements exist with Talanx Service AG, Hannover,
Leben Betriebsservice GmbH, Brühl, for use of a portion of the space in our data­processing computer centre.
Actuarial opinions with respect to the pension commitments given to staff are drawn up for Hannover Re and E+S Rück by HDI-Gerling Pensionsmanagement AG under an actuarial service contract.
ants stood at EUR 0.1 million (EUR 0.9 million). The pension payments to previous members of the Executive Board and their surviving dependants, for whom 13 (13) pension com­
Board is contained in the remuneration report from page 87 onwards. This remuneration report is based on the recom­
mendations of the German Corporate Governance Code and contains information which also forms part of the notes to the 2011 consolidated financial statement as required by IAS 24
With effect from 1 January 2000 the Executive Board of Han­
Conditions for the Granting of Stock Appreciation Rights. All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock ap­
preciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. Recognition of transactions involving share­based re­
teria defined in the Conditions for the Granting of Stock Ap­
get performance defined by the Supervisory Board, which is expressed in terms of the diluted earnings per share calcu­
Reinsurance Index. This index encompasses the performance of listed reinsurers worldwide. Depending upon the outper­
tion year) the waiting period is extended by one year. Each exercise period lasts for ten trading days, in each case com­
mencing on the sixth trading day after the date of publication of the quarterly report of Hannover Re.
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 Re share at the time of exercise. In this context, the basic price corresponds to the arithmetic mean of the closing prices of the
Waiting period 4 years 2 years 2 years 2 years 2 years 2 years 2 years
In the 2011 financial year the waiting period expired for 100% of the stock appreciation rights awarded in 2002 to 2004, 80% of those awarded in 2006 and 60% of those awarded in 2007.
Development of the stock appreciation rights of Hannover Re allocation year granted in 2003 – – – – – – 710,429 exercised in 2003 – – – – – – –
The stock appreciation rights of Hannover Re have developed as follows:
location year were exercised. The total amount paid out stood at EUR 4.7 million.
With effect from the 2011 financial year the Supervisory Board of Hannover Re resolved to implement a “Share Award Plan” for the members of the Executive Board of Hannover Re; this pro­
celled with effect from the year under review. Please see our remarks under “Stock Appreciation Rights Plan” in this section.
With effect from the 2012 financial year the Executive Board of
Re to the delivery of stock, but merely to payment of a cash amount in accordance with the conditions set out below.
ployment relationship exists at the time when the share awards are granted and does not end through cancellation or a termina­
tion agreement on an effective date prior to expiry of the vest­
Executive Board for the first time for the 2011 financial year and then for each financial year (allocation year) thereafter.
visory Board that approves the consolidated financial statement for the financial year just-ended. The total number of share awards granted is established by dividing the amount available for the granting of share awards to the relevant member of the
quirement for a declaration by Hannover Re or the member of the Executive Board. 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. This value is calculated according to the provisions of the preceding paragraph.
The member of the Executive Board shall be paid an amount that corresponds to the sum total of the values of the share awards calculated at the disbursement date for which the vest­
ecutive Board shall retain his claims to payment of the value of already granted share awards after expiry of the vesting period, unless the termination of the Board mandate or con­
untary termin ation on the part of the Board member with the
Board member’s contract of employment by Hannover Re for a compelling reason, or (iv) dismissal of the Board member for a compelling reason within the meaning of § 84 Para. 3 German
If a change occurs in the share capital of Hannover Re or re­
The adjustment shall be made by the Supervisory Board of Han­
The provisional fair value amounts to EUR 38.325 per share with a probable allocation of altogether 24,390 shares plus the total present value of the dividend entitlements acquired until the end of the period. No allowance is made for expected dividend payments. No entitlements from dividends in the year under review had arisen as at the balance sheet date. The fair value is measured according to the market price of the share on the valuation date (30 December 2011). In this context, the share price is multiplied by the probable number of shares to be allocated. The regular determination of the value per share according to the unweighted arithmetic mean of the Xetra clos­
The personnel expense from share awards is spread on an ac­
crual basis across the period of the contracts of employment of the Board members. Personnel expenses of EUR 0.2 million were allocated to the provision for share awards for the first time in the year under review in the context of the propor­
As at the balance sheet date altogether 2,217 (2,192) staff were employed by the Hannover Re Group, with 1,110 (1,089)
Personnel expenditures in eUr thousand 2011 2010 a) wages and salaries 171,362 155,124 b) social security contributions and expenditure on provisions and assistance ba) social security contributions 20,750 18,787 bb) expenditures for pension provision 17,585 16,404 bc) expenditures for assistance 3,254 2,530
Trenton/USA, by Hannover Finance, Inc., Wilmington/USA – a subsidiary of Hannover Re –, a legal dispute existed with the former owners of Lion Insurance Company regarding the re­
lease of a trust account in an amount of around USD 14 million that served as security for liabilities of the former owners in connection with a particular business segment. The proceed­
ings were terminated by way of a partial settlement and court decision of August 2011 under which the trust account was divided between the parties involved.
Neither in the year under review nor in the previous report­
age of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the bal­
253.3 million. The dividend proposal does not form part of this consolidated financial statement.
Calculation of the earnings per share 2011 2010 group net income in eUr thousand 605,973 748,890 weighted average of issued shares 120,596,999 120,596,877
ordinated guarantee both the debt issued in 2004, the volume of which amounts to EUR 750.0 million, and the debts from the 2005 and 2010 financial years in amounts of EUR 500.0 million each.
(Luxembourg) S.A. in an amount of EUR 350.0 million had a first scheduled call option as at 14 March 2011 and a re­
The guarantees given by Hannover Re for the subordinated debts attach if the issuer fails to render payments due under the bonds. The guarantees cover the relevant bond volumes as well as interest due until the repayment dates. Given the fact that interest on the bonds is partly dependent on the capital market rates applicable at the interest payment dates (floating rates), the maximum undiscounted amounts that can be called cannot be estimated with sufficient accuracy. Hannover Re does not have any rights of recourse outside the Group with respect to the guarantee payments.
As security for technical liabilities to our US clients, we have established two trust accounts (master trust and supplemental trust) in the United States. They amounted to EUR 2,756.1 million (EUR 2,576.3 million) and EUR 12.1 million (EUR 9.5 million) respectively as at the balance sheet date. The secur­
As part of our business activities we hold collateral available outside the United States in various blocked custody accounts and trust accounts, the total amount of which in relation to the Group’s major companies was EUR 2,017.4 million (EUR
Code (HGB) as well as in Section 5.12 “Debt and subordinated capital” on other financial facilities.
In addition, we keep own investments with a book value of
actions. We received collateral with a fair value of EUR 5.2 million (EUR 0.0 million) for existing derivative transactions.
Real Estate Holdings has furnished the usual collateral under such transactions to various banks, the amount of which totalled EUR 309.3 million (EUR 257.5 million) as at the bal­
Following the termination of the German Aviation Pool with effect from 31 December 2003, our participation consists of the run­off of the remaining contractual relationships.
Operating leasing contracts produced expenditures of EUR 6.6 million (EUR 8.2 million) in the year under review.
Altogether, non-cancellable contracts will produce the rental income shown below in subsequent years: Rental income totalled EUR 28.6 million (EUR 29.3 million) in the year under review. The rental income resulted principally from the renting out of properties by the Group’s real estate companies.
The fee paid to the appointed auditor of the consolidated fi­
0.6 million (EUR 0.5 million) was incurred for assurance and other services performed for the parent or subsidiary com­
In a press release dated 26 January 2012 we announced that
We have audited the consolidated financial statements prepared by Hannover Rückversicherung AG, Hannover – comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, notes to the consolidated financial statements, consolidated cash flow statement, consolidated statement of changes in equity and segmental report – as well as the group management report for the business year from 1 January to 31 December 2011. The preparation of the consolidated financial statements and the group management report in accordance with
IFRS, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Para 1 HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.
Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance.
In our function as the Supervisory Board we considered at length during the 2011 financial year the position and development of the company and its major subsidiaries. We advised the Executive Board on the direction of the company and monitored the management of business on the basis of written and verbal reports from the Executive Board. The Supervisory
Para. 2 Sentence 1 German Stock Corporation Act were required in the 2011 financial year.
Of the committees formed by the Supervisory Board within the meaning of § 107 Para. 3 German Stock Corporation Act, the
(HGB) and discussed with the independent auditors their reports on these financial statements. As in the previous year, an expert opinion on the adequacy of the loss reserves in non­life reinsurance, a review of the accumulated prefi nancing volume in life reinsurance including a comparison of the expected return flows with the repayments actually made, the risk report pursuant to the Act on Control and Transparency in Business
The Standing Committee dealt with the determination of the performance bonuses of the members of the Executive Board for the 2010 financial year, the total number of stock participation rights to be awarded to the Executive Board and the basic number of stock participation rights for the 2011 financial year and drew up corresponding recommendations for the full Supervisory Board. Substantial time was devoted to discussing and adopting a resolution on the individual targets for 2012 of the members of the Executive Board in accordance with their contracts of employment. The Standing Committee also considered at length the personnel changes on the company ’s Executive Board, discussed the medium­ and long­term succession arrangements for the Executive Board and recommended to the full Supervisory Board the appointment of
§ 87 Para. 1 Sentence 1 German Stock Corporation Act, the full Supervisory Board again considered the definition of the performance bonuses of the members of the Executive Board.
The accounting, annual financial statements, consolidated financial statements and the corresponding management reports were audited by KPMG AG Wirtschaftsprüfungsgesell­
ation of the accounting­related internal control system with an eye to completeness and documentation. The mandate for the review report by the independent auditors on the interim financial report as at 30 June 2011 was also awarded again. The special challenges associated with the international aspects of the audits were met without reservation. Since the audits did not give rise to any objections KPMG AG issued unqualified audit certificates. The Finance and Audit Committee discussed the annual financial statements and the management reports with the participation of the auditors and in light of the audit reports, and it informed the Supervisory Board of the outcome of its examination. The audit reports were distributed to all members of the Supervisory Board and scrutinised in detail
Executive Board and c) the report of the Executive Board pursuant to § 312 German Stock Corporation Act (Report on relations with affiliated companies)
Social Responsibility strategy defined by the Executive Board and the strategic orientation of Hannover Re towards sustainability were noted with approval after extensive discussion.
Board for the most recent of these three years. The greater weighting of the fixed remuneration and the orientation of the variable remuneration towards a three­year average is in the spirit of sustainability and will reduce the volatility of the
Supervisory Board remuneration. The revised remuneration system conforms to both legal provisions and those of the
German Corporate Governance Code (DCGK) and reflects the more exacting requirements placed on supervisory board work as well as the increased liability risks. An outside expert opinion confirms that the new remuneration concept is appropriate in all respects. Despite the high importance that the
Supervisory Board attaches to the standards of good and responsible enterprise management defined in the German Corporate Governance Code, the Supervisory Board again decided not to comply with the recommendation in Code Item 4.2.3 Para. 4 of the German Corporate Governance Code concerning a cap on severance payments in management board contracts. The justification in this respect is provided in the
ation. Further information on the topic of corporate governance is available on Hannover Re’s website.
Following Mr. Karl Heinz Midunsky’s resignation of his seat on the Supervisory Board with effect from 3 May 2011, Dr.
Annual General Meeting that decides upon ratification of the actions of the Supervisory Board for the 2011 financial year.
Becke left the Executive Board at the end of 2011. The Supervisory Board thanked Dr. Becke for his constructive contribution and praised the considerable achievements made during his many years of service on the company’s Executive Board.
Most notably, the development of Hannover Life Re and the life and health reinsurance business group are closely associated with his name.
– in each case drawn up as at 31 December 2011 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report. The Super­
Herbert K. Haas1,2,4 Burgwedel Chairman Chairman of the Board of Management of Talanx AG Chairman of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Gauting (until 3 May 2011) Former Corporate Vice President and Treasurer Siemens AG
Dr. Immo Querner Hannover Member of the Board of Management of Talanx AG Member of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Hong Kong Branch 2008 Sun Hung Kai Centre 30 Harbour Road
Accumulation loss: sum of several individual losses incurred by various policyholders as a result of the same loss event (e.g.
Capital asset pricing model (CAPM): the CAPM is used to explain the materialisation of prices/returns on the capital market based on investor expectations regarding the future probability distribution of returns. Under this method, the opportunity cost rate for the shareholders’ equity consists of three components – a risk­averse interest rate, a market­specific risk loading and an enterprise­specific risk assessment, the beta coefficient. The cost of shareholders’ equity is therefore defined as follows: risk­averse interest rate + beta * enterprise ­specific risk assessment.
Cession: transfer of a risk from the direct insurer to the re­
Coinsurance Funds Withheld­ (CFW) Treaty: type of coinsurance contract where the ceding company retains a portion of the original premium at least equal to the ceded reserves.
accounting principles for the recognition of short­term and multi­year 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.
Derivatives, derivative financial instruments: these are financial products derived from underlying primary in struments such as equities, fixed­income securities and foreign exchange instruments, the price of which is determined on the basis of an underlying security or other ref erence asset. Not­
ponding discount factor. In the case of the loss reserves this is necessary because of the new profit calculation methods for tax purposes applicable to German joint­stock corporations.
Earnings retention: non­distribution of a company’s profits leading to a different treatment for tax purposes than if profits were distributed.
International Securities Identification Number (ISIN): tencharacter universal code used to identify securities internationally. It is prefixed by a country code that specifies the country where the issuer entity is legally registered or in which it has legal domicile, e.g. DE = Germany.
Loss, economic: total loss incurred by the affected econ omy as a whole following the occurrence of a loss. The economic loss must be distinguished from the insured loss.
Loss, insured: the insured loss reflects the total amount of losses covered by the insurance industry (insurers and re­
Other securities, trading: securities that are held principally for short­term trading purposes. They are measured at their market value at the balance sheet date.
(Insurance) Pool: a risk­sharing partnership under civil law formed by legally and economically independent insurers and reinsurers in order to create a broader underwriting base for particularly large or unbalanced risks. The members undertake to write certain risks only within the scope of the insurance pool. They include such risks – while maintaining their commercial independence – in the insurance pool against a commission fee. Each insurer participates in the profit or loss of the insurance pool according to its proportionate interest.
Reinsurance is often ceded or accepted in order to further diversify the risk. Pools can be divided into two types: coinsurance pools, in which all members take the role of primary insurers according to their interests, and reinsurance pools, in which a primary insurer writes the risks and then spreads them among the participating insurers by way of reinsurance.
Retrocession (also: Retro): ceding of risks or shares in risks which have been reinsured. Retrocessions are ceded to other reinsurers in exchange for a pro­rata or separately calculated premium (cf. Gross/Retro/Net).
Segmental reporting: presentation of items from the annual financial statements separated according to function al criteria such as segments and regions.
Specialty insurance: a specialty form of non­life primary insurance that focuses on narrowly defined, homogenous portfolios of niche or other non­standard risks (specialty business), whereby the typical insurer functions (acquisition, under­
writing, policy issuing, premium collection, policy administration, claims settlement, etc.) can be outsourced to specialized managing general agents (MGAs) or third­party administrators (TPAs).
Surplus reinsurance: form of proportional reinsurance under which the risk is not spread between the insurer and re insurer on the basis of a previously agreed, set quota share. Instead, the insurer determines a maximum sum insured per risk up to which it is prepared to be liable. Risks that exceed the ceding company’s retention (surpluses) are borne by the reinsurer.
Not all the provisions which together constitute US GAAP have been codified. In addition to the authoritative standards of the
Value of in­force business (VIF): present value of expected future profit flows from the portfolio of in­force retained business, discounted by a currency­specific risk discount rate. It is determined in accordance with local accounting principles.
Asbestos­ and pollution­related claims, asbestos­related claims and pollution damage, asbestos and pollution risks
Catastrophy risk(s, business, losses, bond) 2 f, 6, 8, 18, 20, 207 f
Life (reinsurance, insurance, business) 5, 20 f, 32, 39, 42 ff,
Morbidity (risk, cover, rates) 39 ff, 44, 48, 68, 71, 110, 171
Picture credits Manfred Zimmermann: portrait on page 2; group photo on page 9