remained unchanged, while the stake held by private investors fell by 0.2% to 7.5%, hence fractionally pushing up the proportion in the hands of institutional investors to 42.3%.
The 2009 financial year passed off highly satisfactorily for Hannover Re: for the first time we were able to generate an operating profit (EBIT) in excess of one billion euro. The appeal of reinsurance as a capital management tool for our clients grew in the year under review, enabling us to push through appreciable rate increases. After years of declining premium income we achieved substantial growth in non-life reinsurance in 2009. We are also highly gratified by the development of life and health reinsurance. Given the weakened solvency position of life insurers, there was stronger demand here for reinsurance solutions. With the acquisition of a large US life reinsurance portfolio we have set course for further profitable growth in life and health reinsurance. We are similarly satisfied with the development of our investments.
In addition, the federal government backed up its previous steps to further stabilise the financial market with the “Act on the Further Development of Financial Market Stabilisation ”. Ailing financial institutions now have the possibility to set up so-called “bad banks”, enabling them to offload toxic assets from their balance sheets and hence step up their lending again to the business community.
Despite the prevailing difficult market climate, especially in the first half of the year, we were thus able to boost net investment income from assets under own management year-on-year back to the expected level of EUR 843.6 million (EUR 78.9 million). Our net investment income including income on funds withheld and contract deposits amounted to EUR 1.1 billion (EUR 276.8 million).
Business developed favourably in general liability insurance, which delivered a positive profit contribution thanks to a combined ratio under 100% and good cash flow revenue.
Hannover Re is a valued partner in North America. Given the cyclical nature of the North American market, it is important to play an active role even in softer phases so as to safeguard the possibility of renewed business expansion in coming “hard” market years. Market surveys confirm that we continue to be qualitatively very well positioned in the broker market.
Breakdown of gross written premium in target markets 49.1% North America 50.9% Germany
In terms of results, the year under review was unable to build on the very good performances of the past six years.
Against the backdrop of the economic and financial market crisis the pace of growth on the primary insurance markets of Central and Eastern Europe slowed. Although rates in original business for the most part declined in the face of increased competition, on the reinsurance side they broadly remained on a level commensurate with the risks. On average we were able to secure price increases in the order of 10%, hence posting healthy profit margins in the year under review.
We were broadly satisfied with the treaty renewals as at 1 January 2009. Price increases were obtained in many markets. Rates in Europe rose by an average of 5% to 7.5%. Business that had suffered losses in 2008, such as in the United States, recorded rate increases sometimes running into double-digit percentages.
Our acquisition and underwriting policy continues to be based on the “Five Pillar” business model under which five distinct customer-oriented product and service offerings are brought together under a single strategic umbrella. Each pillar features a specific marketing approach, which is supported by the worldwide network of Hannover
The conventional reinsurance business of mortality and morbidity risks traditionally accounted for the lion's share
The main factors with a bearing on the results of Hannover Life Re are derived from our business model and encompass the three components
These developments had a bearing principally on our benefit reserves deposited with ceding companies. They also significantly affected the additional assets of USD 1.3 billion assumed in February 2009 in connection with the US
The mortality in the portfolio assumed under our US life portfolio acquisition was in line with our expectations for gross account, while it was slightly higher than projected for the retention.
Developments on the German life and annuity insurance market were shaped in the year under review by the ongoing implementation of the amended Insurance Contract
The focus of our Nordic activities is on Sweden and Norway, where we have enjoyed a leading market position for some years now. Along with the financing of new business acquisition costs in connection with unit-linked products in Sweden, our emphasis is on reinsurance of the biometric risks of life and disability. We responded to the growing demand for system-supported solutions to handle the acquisition process in life insurance by launching a version of our point-of-sale system that was developed specifically for the Scandinavian market.
The gross written premium generated by HLR Africa totalled EUR 110.5 million in the year under review, of which EUR 78.0 million was retained for own account.
States, and further buildings are under review; the real estate allocation will therefore keep rising steadily as planned, and currently stands at 1.2%.
Re's own specific competency model, which encompasses the specialist and non-specialist qualifications of the various function groups and regularly reviews them with an eye to the relevant market requirements.
Along with expert seminars, we offer personality development seminars as a regular fixture to strengthen the methodological, managerial and social skills of our staff.
from our electricity supplier to promote the use of renewable forms of energy.
Hannover Re's commitment to climate protection is rounded off with our attendance at a number of conferences, including the one organised as part of the “Climate and Insurance” initiative.
(“Very strong”, negative outlook), while that of A.M. Best is “A” (“Excellent”, stable outlook).
potential of the liabilities. In life and health reinsurance we show the difference between IFRS measurement and market -consistent measurement according to the Market Consistent Embedded Value principles. The measurement adjustments for investments derive from the difference between fair value and book value.
Our qualitative methods and practices support our internal risk management and control system. The system is subject to a constant cycle of planning, action, control and improvement. The basic elements of the system, such as risk identification and risk reporting, are efficiently interlinked.
Available economic capital 7,323.6 5,451.3 diversification effect within the non-life reinsurance business group Risk capital per line of business for the 99.5% VaR in EUR million 54% Diversification
Tested by independent auditors, the IFRS reporting of the entities included in the consolidated financial statement is carried out using an intranet-based IT application. The individual items of the balance sheet, statement of income, statement of comprehensive income, consolidated statement of changes in shareholders' equity, consolidated cash flow statement and the relevant data for the segmental reporting, notes and consolidation are stored in a database; this data can be uploaded via automatic interfaces to a consolidation system, where it can be edited. Depending upon the results of preceding reconciliation procedures for internal transactions within the Group, these values are reviewed and – as necessary – corrected. Provision is made for manual bookings in the case of extraordinary or unusual transactions. The control measures described above – among other checks – are performed in order to avoid false statements.
Combined ratio (non-life reinsurance) 96.6 1 Including Financial Reinsurance and Specialty Insurance 2 Based on figures reported in accordance with US GAAP
The VaR of the Hannover Re Group determined in accordance with these principles specifies the decrease in the fair value of our total portfolio that with a probability of 95% will not be exceeded within ten trading days.
EUR 279.8 million (9.75%) of our accounts receivable from reinsurance business totalling EUR 2,869.9 million were older than 90 days as at the balance sheet date.
The chart shows the development of our reinsurance recoverables – split by rating quality – due from our retrocessionaires.
The PE check (consisting of output, strategy and input checks as well as activity planning) is used by the treaty departments and service units to develop – making allowance for the strategic parameters – detailed strategies and activity plans. These central documents also serve as a basis for the planning cycle – both for the operational planning and for the planning of resources and costs. The
6 The decrease in the value of new business was due to three special effects: details are provided in the EEV report published on our website.
Increase in the value of new business ≥ 10% n.a.5 41.4% 65.7% (24.2%)6 54.8%
Cash and cash equivalents at the beginning of the period 430.2 335.4
Cash and cash equivalents at the end of the period 457.4 430.2
305.2 million in dividends paid relative to the previous year, resulting principally from the omission of a distribution by the parent company Hannover Re in the year under review. In addition, receipts from the taking up of longterm financial liabilities amounting to EUR 77.0 million outweighed repayments totalling EUR 15.1 million.
For further information on our liquidity management please see page 67 et seq. of the risk report.
pose of the Code is to foster the trust of investors, clients, employees and the general public in German corporate governance. Under § 161 Stock Corporation Act (AktG) it is incumbent on the Management Board and Supervisory
work conditions in a timely manner and the latest legal developments are promptly codified in internal corporate standards. With this in mind, the Rules of Procedure of the Executive Board and Supervisory Board and its com­
A further essential consideration in the structuring of our corporate guidelines, other rules, business processes and our daily actions is the goal of avoiding liability and repu­
duct-e.pdf). The rules elaborated therein are intended to help our staff cope with all relevant legal and ethical chal­
sory Board shall ensure that they have sufficient time to discharge their mandate. The Supervisory Board meets at
sory Board on the content, formation, amendment and termination of contracts of employment with the members of the Executive Board with the exception of remunera­
Exercise of the stock appreciation 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 perform­
Board receives variable remuneration of 0.03‰ of the operating profit (EBIT) reported by the company in the consolidated financial statement drawn up in accordance with International Financial Reporting Standards (IFRS).
mittee (previously: “Balance Sheet Committee”) formed by the Supervisory Board receive an emolument of 30% of the previously described fixed and variable remuneration for their committee work. The members of the Standing
Profit bonus earnings per share (eps), calculated on a rolling three-year average, x individual eps basic amount (graduated according to area of responsibility and professional experience), limited to at most 1.5 times the average target EPS of the last three financial year
liquidity position of investors. We shall profit from this in multiple respects: on the one hand, in our function as a service provider for clients and investors that transfers
Total income and expense recognised after tax (34,628) (67,671) (11,059) (114,880) (34,317) (262,555)
Hannover Re is obliged to prepare a consolidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB).
The annual financial statements included in the consolidated financial statement were for the most part drawn up as at 31 December. Pursuant to IAS 27.27 there is no requirement to compile interim accounts for Group companies with diverging reporting dates because their closing dates are no earlier than three months prior to the closing date for the consolidated financial statement.
109Hannover Re Group annual report 2009 2. ACCOunTInG PRInCIPLES NOtes disclosures concerning fair value measurements. These new disclosures are clarified through the adoption of a breakdown for each class of financial instruments – based on a three-level fair value hierarchy – and an extended scope of disclosure requirements. These amendments to IFRS 7 shall be applied to financial years beginning on or after 1 January 2009. Hannover Re is availing itself of the option to dispense with the provision of comparative disclosures for the previous reporting period in the first year of application.
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts”) requires insurance contracts that transfer a significant technical risk from the ceding company to the reinsurer to be differentiated from those under which the risk transfer is of merely subordinate importance.
Hannover Euro Private Equity Partners II GmbH & Co, KG, Cologne/Germany4 57.81 EuR 14,521 EuR 4,210
GLL HRE CORE Properties, L.P., Wilmington/uSA7 95.07 uSD 79,061 uSD 982
4 Financial year as at 30 September 2009 5 The company was newly established. An annual financial statement is not yet available. The capital contribution of EuR 100,000 had not been paid in as at 31 December 2009.
IFRS 3 requires that this provisional recognition be completed within twelve months of the date of acquisition. Resulting changes in the values of recognised assets and liabilities are to be carried as if their adjusted fair value at the time of initial consolidation had been recognised from this point in time onwards. In the course of the year under review the provisional carrying amounts of the assets and liabilities assumed in this transaction were analysed and as a result partially adjusted.
133Hannover Re Group annual report 2009 6.1 InVESTMEnTS unDER OWn MAnAGEMEnT NOtes
Net book value at 31 December of the year under review 128,316 128,680
Cumulative depreciation after currency translation at 1 January of the year under review
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” as well as the remarks in the risk report on page 57 et seq.
In non-life reinsurance acquisition costs directly connected with the acquisition or renewal of contracts are deferred for the unearned portion of the premium.
The addition of EUR 104.3 million results from the present value of future cash flows from the business acquired that we have recognized as part of the acquisition of the ING life reinsurance portfolio. This intangible asset is amortised over the term of the underlying reinsurance contracts in proportion to the future premium income. The period of amortisation is 30 years. The PVFP is recognised under other assets. For further information please refer to our explanatory notes on intangible assets in Section 3.2 “Summary of major accounting policies”.
To some extent the loss and loss adjustment expense reserves are inevitably based upon estimations that entail an element of uncertainty. The difference between the previous year’s and current estimates is reflected in the net run-off result. In addition, owing to the fact that the period of some reinsurance treaties is not the calendar year or because they are concluded on an underwritingyear basis, it is frequently impossible in reinsurance business to make an exact allocation of claims expenditures to the current financial year and the previous year. The run-off triangles are therefore shown after adjustment for effects associated with the additional premium.
The benefit reserve is calculated on the basis of the following parameters: 1. interest income; 2. lapse rates; 3. mortality and morbidity rates.
The adequacy of the technical liabilities arising out of our reinsurance treaties is reviewed as at each balance sheet date. As part of the adequacy test for technical liabilities the anticipated future contractual payment obligations are compared with the anticipated future income. Hannover Re adopts the “loss recognition” method set out under US GAAP. Should the result of the test indicate that the anticipated future income will not be sufficient to fund future payments, the entire shortfall is recognised in income by first writing off capitalised acquisition costs corresponding to the shortfall. Any remaining difference is constituted as an additional provision.
The durations 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.
Funded status (present value of earned benefit entitlements less fund assets) 84,145
The structure of the asset portfolio underlying the plan assets was as follows: Portfolio structure of plan assets as % of plan assets 2009 2008
The fair value of the plan assets developed as follows: Change in plan assets in eUr thousand 2009 2008
Fair value of plan assets 9,317 7,051 9,372 7,302 10,500 surplus/(deficit) in the plan (84,145) (72,857) (69,763) (70,098) (74,733)
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
The actual and deferred taxes recognised directly in shareholders’ equity in the financial year amounted to –EUR 23.3 million (–EUR 53.5 million). They resulted from items that were charged or credited directly to equity.
Reconciliation of the expected expense for income taxes with the actual expense in eUr thousand
Protection Reinsurance Intermediaries AG grants Hannover Re and E+S Rück a preferential position as reinsurers of cedants within the Talanx Group. In addition, Hannover Re and E+S Rück are able to participate in the protection covers on the retention of Group cedants and share in the protection afforded by them.
The Group companies E+S Rück, Hannover Finance (Luxembourg) S.A., Hannover Reinsurance
ABN Amro Global Reinsurance Index. This index encompasses the performance of listed reinsurers worldwide. Depending upon the outperformance or underperformance of this index, the EPS basic number is increased – albeit by at most 400% of the EPS basic number – or reduced – although by no more than 50% of the EPS basic number.
Group, with 1,032 (963) employed in Germany and 1,037 (849) working for the consolidated Group companies abroad.
Personnel information 2009 2008 number of employees (excluding Board members) 1,973 2,011 2,053 2,069 1,984
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 1,587.8 million (EUR 1,388.8 million) as at the balance sheet date.
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 Board held five meetings in order to adopt the necessary resolutions after appropriate discussion. Resolutions were adopted by a written procedure with respect to three matters requiring attention at short notice. We received quarterly written reports from the Executive Board on the course of business and the position of the company and the Group. These reports describe, inter alia, the current planned and expected figures for the individual business groups. The reporting also covers strains from major losses as well as the investment portfolio, investment income, ratings and the development of the Group’s global workforce. The quarterly reports with the quarterly financial statements and key figures for the Hannover Re Group constituted a further important source of information for the Supervisory
Australia Hannover Life Re of Australasia Ltd level 7 70 Phillip street sydney nsw 2000
Hannover Rückversicherung AG Canadian Branch – Facultative office 150 york street, suite 1008 Toronto, Ontario m5h 3s5 office Manager: Klaus navarrete
Hannover Reinsurance Africa Limited P. O. Box 85321 emmarentia 2029 Johannesburg 2000
Fax (life) +46 8 617-5597 Fax (non-life) +46 8 617-5593 Managing Director: Thomas Barenthein
Deposits with ceding companies/deposits received from retrocessionaires (also: funds held by ceding companies/