The fact that the combined ratio came in at a very good 98.2 percent despite the major loss expenditure described above can be attributed to the favourable basic loss experience and the run-off profits booked on reserves constituted for previous years.
Board and Supervisory Board and also approved for the first time the new system of remuneration for the members of Hannover Re’s Executive Board.
the Market Consistent Embedded Value (MCEV) for life reinsurance business, the importance of the Chinese market for
Turning to the breakdown of our free float by countries, the proportionate holding attributable to Germany increased sharply in the year under review by 4.1% to 40.6%, while the
Exchange listings: Xetra, Frankfurt, Munich, Stuttgart, Hamburg, Berlin, Düsseldorf, Hannover (official trading: Xetra, Frankfurt and Hannover)
3. Compliance Observance of all external requirements in order to avoid business, liability and reputational risks
This can be attributed to the greater incentive to invest that resulted from the historically low interest rate level. Private consumption rose for the third time in succession in the summer quarter, although public-sector consumption surged even more strongly. Thanks to the economic upturn the state of the labour market continued to ease in 2010.
The European Commission’s Solvency II Directive continues to be of great significance to the insurance industry. Solvency II
(EUR 45.4 million). In view of increased fair values, the writedowns were opposed by write-ups of EUR 24.1 million (EUR
Group net income for the year under review substantially exceeded our expectations. A very good profit on ordinary activities was assisted by a special effect associated with a decision of the Federal Fiscal Court (BFH) which had a bearing on our company. After the BFH had confirmed in its ruling of
Gross Net Net expectancy for major losses1 1 Losses > EUR 5 million gross
After the unusually heavy loss expenditure incurred in the previous year, the major loss experience in the year under review was on the moderate side. The largest single loss was a fire at a spare parts storage facility of a Saudi Arabian airline, for which we have set aside net reserves of around EUR 13 million.
The economic crisis had prompted many competitors either to heavily curtail their involvement or entirely withdraw from credit business in 2009 and 2010. Hannover Re, on the other hand, made the most of the capacity squeeze and the accompanying substantial price increases to selectively enlarge its portfolio. This brought about further expansion of our already robust market position. Our premium growth in the year under review amounted to around 20%; the bulk of this derived from the reinsurance of trade credit business.
The experience of our political risks business was also satisfactory. Rates in this segment peaked at the beginning of 2010; modest rate erosion then ensued over the course of the year, albeit still on a good level.
Hannover Re is one of the two largest providers of structured reinsurance solutions in the world and can draw upon many years of experience as regards actuarial balance sheet, accounting and underwriting expertise. Our range of products is geared to optimising our clients’ cost of capital.
In the year under review we again observed a trend towards the increased purchase of non-proportional reinsurance arrangements. A greater awareness of major catastrophic events is prompting stronger demand for additional capacity in the area of natural catastrophe covers. We also observed higher limits in casualty business.
Although China was affected by a number of (natural) disasters in the year under review, the insured losses remained moderate. We did not incur any major losses.
Our offerings in Australia are complemented by a primary insurance license held by our subsidiary Inter Hannover. We continue to be a leading provider for catastrophe business and also maintain our involvement in the liability lines.
The bulk of Hannover Re’s catastrophe business is written out of Bermuda, which is considered the centre of competence for this line worldwide. Along with the expertise of our local team, our financial strength and excellent rating have made us a particularly highly sought-after partner for ceding companies and brokers for a number of years.
What is more, in the important US mortality market and in the
We were similarly able to build on our leading role in the UK
longevity market. We have a strong presence in new business involving personal annuities for individuals with a reduced life expectancy; in this area we support a number of particularly dynamic providers through quota share reinsurance models.
Life Re brand name. We also write the accident line in this business group, to the extent that it is transacted by life insurers, as well as some Islamic insurance products, the so-called family takaful products.
h A N N O V E R L i f E R E G E R m A N y i
The situation is different in the US reinsurance market, where we are exposed to a volatility risk through the market-oriented measurement of the securities deposited under ModCo rein-
Earnings per share in EUR 1.82 –26.3% 2.47 0.65 1.57 0.85 1 Adjusted on the basis of IAS 8 2 Operating result (EBIT)/net premium earned surance treaties. For 2010 this risk – the development of which is reflected on the accounting side through unrealised gains/
For the German life and annuity insurance market the year under review posed a number of challenges. These can be attributed to the changes in business conditions: the low interest rate level for euro-denominated government bonds, in conjunction with the ongoing debate about the credit risk of peripheral Eurozone countries, the discussions surrounding the implementation of Solvency II and the evident shift in demand which, as was already the case in 2009, is giving precedence to annuity and capitalisation products with a single premium payment.
Premium income in the year under review totalled EUR 343.0 million (EUR 389.8 million). The experience of the biometric risks of mortality and morbidity was very good, thereby enabling us to generate an attractive operating profit despite taking a write-down on deferred acquisition costs in connection with certain financing arrangements.
The gross premium booked by HLR UK totalled EUR 197.6 million (EUR 182.5 million), corresponding to growth of 8.3%.
1,267.2 million, of which EUR 1,174.6 million was retained for own account. The operating profit (EBIT) amounted to a healthy EUR 96.7 million, producing an EBIT margin of 8.2%.
in the year under review relative to the previous year’s figure of EUR 76.5 million. Profitability in these markets remains favourable.
As a market-leading reinsurer in Sweden and Norway, we focus on the reinsurance of unit-linked products in Sweden and on bancassurance relationships in Norway. The premium volume from Scandinavia, Turkey and Israel showed satisfactory growth of 17.0% to reach EUR 78.0 million. The biometric risk experience was very good, and as in previous years a sizeable operating profit was therefore recorded.
The development of the financial solutions segment was also gratifying, while we tended to reduce our acceptances in the
Kuala Lumpur and Hong Kong take on regional coordination and service functions in addition to their own direct market responsibilities.
The future and already existing (!) implications of a European solvency regime necessitate innovative and bespoke solutions: firstly, with an eye to the volatility of the business transacted by primary insurers and, secondly, as regards protection of the balance sheet and especially coverage of the underwriting risk. Solvency II makes the benefit and value-added of reinsurance more visible and quantifiable. Insurers will calculate their capital needs on the basis of factors such as volatility, exposure to catastrophe risks, premium volume and level of reserves. Hannover Re stands ready as a partner who is optimally prepared to tackle these challenges.
Re’s core business. In order to correctly assess risks, a constant transfer of knowledge between business and research
• Separation of functions between divisions that manage risks, on the one hand, and those that monitor risks, on the other
In addition, it forms the basis for the accomplishment of internal objectives and the fulfilment of external requirements imposed on Hannover Re. The ICS consists of systematically structured organisational and technical measures and controls
The price/premium risk lies primarily in the possibility of a random claims realisation that diverges from the claims expectancy on which the premium calculation was based. Regular and independent reviews of the models used for treaty quotation as well as central and local underwriting guidelines are vital management components. In addition, Hannover Re’s regional and treaty departments prepare regular reports on the progress of their respective renewals. The reporting in this regard makes reference inter alia to significant changes in conditions, risks (such as inadequate premiums) as well as to emerging market opportunities and the strategy pursued in order to accomplish targets.
Catastrophe losses and major claims1 in EUR million Date gross net
Tornados and hail damage in the United States 16 – 18 June 5.1 5.1
246.7 million (8.7%) of our accounts receivable from reinsurance business totalling EUR 2,841.3 million were older than 90 days as at the balance sheet date.
For further remarks on technical and other assets which were unadjusted but considered overdue as at the balance sheet date as well as on significant impairments in the year under review please see Section 5.4 “Technical assets “, Section 5.6
The hallmark of emerging risks (such as in the field of nanotechnology or in connection with climate change) is that the content of such risks cannot as yet be reliably assessed – especially with respect to our treaty portfolio. Such risks evolve gradually from weak signals to unmistakable tendencies. It is therefore vital to detect these risks at an early stage and then determine their relevance. For the purpose of early detection we have developed an efficient process that spans divisions and lines of business and ensured its linkage to risk management, thereby making it possible to pinpoint any necessary measures (e.g. ongoing observation and evaluation, the implementation of contractual exclusions or the development of new reinsurance products). This interdivisional and cross-line process is handled by an expert working group assembled specially for this task.
With Performance Excellence (PE) we have at our disposal a consistent method Group-wide that enables us to steer the development of the company and measure the extent to which we have achieved our strategic objectives, while at the same time accommodating the specific conditions of the various treaty departments and service units. The decentralised approach used by PE is of special importance in this context: every single organisational unit continuously examines its value contribution to the Hannover Re Group and develops improvement initiatives. At the same time, though, the “big picture” is never overlooked.
The equity including minorities at 10.9% (10.4%) of the balance sheet total as well as the loans and – especially – subordinated capital at 4.4% (3.6%) of the balance sheet total represent our most important sources of funds.
This increase derived primarily from the minority interest in profit of EUR 82.0 million generated in the year under review.
The net cash outflows from investing activities amounted to altogether EUR 2.0 billion in 2010, as against EUR 1.8 billion in the previous year. Along with the move back into equities and the acquisition of real estate, predominantly in the United
In addition, the retrocession covers in non-life and life business known as the “K” and “L” transactions contain standard market change-of-control clauses which in each case grant the other contracting party a right of termination if a significant change occurs in the ownership structure and participation ratios of the affected contracting party.
The Rules of Procedure of the Executive Board are intended to ensure that a consistent business policy is elaborated and implemented for the company in accordance with its strategic objectives. Within the framework of a consistent business policy, special importance attaches to the principle of “delegation of responsibility”. In the interests of shareholders, importance is expressly attached to an organisation that facilitates costeffective, quick and unbureaucratic decision processes. Open and trusting cooperation geared to the interest of the whole is the foundation of success. In this context, the members of the Executive Board bear joint responsibility for the overall management of business. Irrespective of their overall responsibility, each member of the Executive Board leads their own area of competence at their individual responsibility within the bounds of the resolutions adopted by the Executive Board.
Internal performance criterion (target performance defined by the Supervisory Board, expressed in „diluted earnings per share“ according to IAS 33) External performance criterion (movement in the share price in the allocation year relative to the RBS Global Reinsurance Index)
The remuneration (excluding pension payments) received by former members of the Executive Board totalled EUR 0.9 million (EUR 0.7 million).
not to specify the remuneration of the Executive Board on an individualised basis by name.
In addition, the members of the Finance and Audit Committee (previously: “Balance Sheet Committee”) formed by the
We are convinced that performance-based remuneration components foster individual initiative. Through the delegation of tasks, powers and responsibility as well as the agreement of exacting goals we create a culture of entrepreneurial thinking on all hierarchical levels – among the ranks of management and staff alike. This principle is reflected as far as possible in performance-based remuneration components.
For staff on the level of Manager or higher we introduced a remuneration model linked to the company’s success in 2004, namely the Group Performance Bonus (GPB). This tool is geared to the minimum return on equity of 750 basis points above the risk-free interest rate and the return on equity actually generated. For those participating in the GPB 14.15 monthly salary payments are guaranteed; a maximum of 16.7 salary payments is attainable. Since its launch the maximum amount of the GPB was paid out in 2006, 2007 and 2009.
GDP as calculated by the ifo-Institute is likely to increase by 2.4% in 2011. Manufacturing output in Germany should therefore again surpass the European average in the coming year.
The following sections describe the outlook for our major markets and lines of business.
Market portfolio is concerned, we expect another rise in premium volume (+15%) in the current financial year. On the back of improved conditions in motor insurance on the primary market as well as price increases in offshore energy business and in response to the implementation of Solvency
Given the double-digit premium growth on the primary insurance market in China, there will be no let-up in the existing fierce competition. We anticipate stable conditions in proportional reinsurance, but continued rate erosion in non-proportional business. All in all, we are looking to further profitable business opportunities in China in the years ahead.
We are targeting a return on investment of 3.5% for 2011.
Appreciation/depreciation (33,692) 71,195 net realised gains and losses on investments (162,003) (113,012)
Commission amendments to IFRS 7 Financial Instruments: Disclosures 1 July 2011 Pending
IFRS 4 “Insurance Contracts”. The first standard governing the accounting of insurance contracts, it divides the “Insurance Contracts” project into two phases. IFRS 4 “Insurance
2 Consists of: 1 (2) associated companies and 6 (5) companies which are included at equity in 1 (1) subgroup.
Hannover Finance (uK) Limited, Virginia Water/united Kingdom4 100.00 GBP 131,095 GBP –12
HR Hannover Re, Correduría de Reaseguros S.a., Madrid/Spain4 100.00 EuR 198 EuR 30
XS Direct Insurance Brokers Limited, Dublin/Ireland11 25.00 EuR 554 EuR 453
In July 2009 Hannover Re issued a catastrophe (“CAT”) bond with the aim of transferring to the capital market peak natural catastrophe exposures deriving from European windstorm events. The term of the CAT bond, which has a volume of nominally EUR 150.0 million, runs until 31 March 2012; it was placed with institutional investors from Europe and North
America by Eurus II Ltd., a special purpose entity domiciled in the Cayman Islands. Hannover Re does not exercise a controlling influence over the special purpose entity. Under IFRS
Penates A, Ltd., Tortola, British Virgin Islands, a company jointly owned by Hannover Re and E+S Rück, was liquidated effective 22 September 2010.
Government debt securities of Eu member states 2,091,535 29,356 28,204 27,268 2,119,955
Net book value at 31 December of the year under review 131,453 350 576,807
In life and health reinsurance the deferred acquisition costs associated with life and annuity policies with regular premium payments are determined in light of the period of the contracts, the expected surrenders, the lapse expectancies and the anticipated interest income.
Net book value at 31 December of the year under review 1,834,496 1,838,450
Net book value at 31 December of the year under review 45,773 44,393
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 66 et seq.
Loss and loss adjustment expense reserve 18,065,395 1,025,332 17,040,063 17,425,293 1,747,991 15,677,302
To some extent the loss and loss adjustment expense reserves are inevitably based upon estimations that entail an element of uncertainty. The difference between the previous year’s and current estimates is reflected in the net run-off result. In addition, owing to the fact that the period of some reinsurance treaties is not the calendar year or because they are concluded on an underwriting-year basis, it is frequently impossible in reinsurance business to make an exact allocation of claims expenditures to the current financial year and the previous year.
The run-off results shown reflect the changes in the ultimate loss arising in the 2010 financial year for the individual run-off years.
17,036.6 million (EUR 15,652.8 million) as at the balance sheet date.
Maturities of the technical reserves in eUr thousand loss and loss adjustment expense reserves Benefit reserve gross retro net gross retro net
Due after five through ten years 2,758,919 153,552 2,605,367 301,596 8,890 292,706
Net book value at 31 December of the year under review 8,939,190 347,069 8,592,121 7,952,640 104,868 7,847,772
N ot es 5.10 provisions for pensions anD oTher posT-employmenT benefiT obligaTions Notes
Effective 1 December 2002 Group employees have an opportunity to accumulate additional old-age provision at unchanged conditions by way of deferred compensation through membership of HDI-Gerling Pensionskasse AG. The benefits provided by HDI-Pensionskasse AG are guaranteed for its members and their surviving dependants and comprise traditional pension plans with bonus increases as well as unit-linked hybrid annuities.
Present value of defined benefit obligation 109,962 93,462 79,908 79,135 77,400 fair value of plan assets 10,464 9,317 7,051 9,372 7,302
Net premium earned 10,047,016 9,307,176 other technical income 16,845 14,362 total net technical income 10,063,861 9,321,538 claims and claims expenses paid 6,221,192 5,712,583 change in loss and loss adjustment expense reserve 786,863 835,510
Commissions and brokerage, change in deferred acquisition costs (net) 2,257,948 2,011,344 6.3 Reinsurance result other technical income in eUr thousand 2010 2009 other technical income (gross) 13,168 15,301 reinsurance recoverables (3,677) 939 other technical income (net) 16,845 14,362
The following table presents a breakdown of the deferred tax assets and liabilities into the balance sheet items from which they are derived.
Maturity structure of derivative financial instruments in eUr thousand less than three months
Hannover Re, with the consent of the Supervisory Board, introduced a virtual stock option plan that provides for the granting of stock appreciation rights to certain managerial staff. The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights.
Real Estate Holdings has furnished the usual collateral under such transactions to various banks, the amount of which totalled EUR 257.5 million (EUR 174.4 million) as at the balance sheet date.
Court answered this question in the negative and thereby confirmed a decision of the Lower Saxony Fiscal Court in the first instance. In the context of the annual review of the investment guidelines, the work concentrated on further clarification, the restructuring of issuer risks and the revised specification of real estate guidelines.
Report in the context of the Corporate Governance declaration. Further information on the topic of corporate governance is available on Hannover Re’s website.
Survival ratio: reflects the ratio of loss reserves to paid losses under a specific contract or several contracts in a balance sheet year.
Mortality (risk, solutions, cover, rates) 5 f, 36 f, 40, 42, 44, 60,