1 Restated pursuant to IAS 8 (cf. section 3.1 of the notes) 2 Proposed dividend 3 Dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015 and dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014 4 Including expenses on funds withheld and contract deposits 5 Hannover Re Group’s net share for natural catastrophes and other major losses in excess of EUR 10 million gross as a percentage of net premium earned 6 Excluding effects from ModCo derivatives 7 Operating result (EBIT) / net premium earned
This was made possible, in the first place, because we avoided an underwriting deficit in property and casualty reinsurance despite the quite considerable large losses. Along with the good underlying claims experience, especially in our European and Asian business, we were further assisted here by the very conservatively calculated loss reserves that we have established over many years. This is true of large individual losses and applies equally to the reserves that we set aside for losses that have already been incurred but not yet reported (IBNR). The result consequently benefited from substantial releases of loss reserves, without this causing any significant change in the confidence level of our loss reserves as determined by internal and external analyses. Your company thus continues to enjoy very prudent and comfortably calculated loss reserves.
Your company’s shareholders’ equity contracted from EUR 9 billion to EUR 8.5 billion, a decrease attributable primarily to exchange rate movements and in particular the softening of the US dollar against the euro. The various parts of shareholders’ equity are affected accordingly, especially those that we hold in US dollars. This is opposed, however, by USD exposures on at least the same scale, with the result that the risk-bearing capacity of your company has in no way deteriorated; quite the contrary, it actually improved slightly.
Based on the year-end closing price of EUR 104.90, Hannover Re’s market capitalisation totalled EUR 12.7 billion at the end of the 2017 financial year, an increase of EUR 0.3 billion or roughly 2% compared to the previous year’s figure of EUR 12.4 billion. According to the rankings drawn up by Deutsche Börse AG, the company placed ninth in the MDAX at the end of December with a free float market capitalisation of EUR 6,450.6 million and nineteenth with a trading volume of EUR 3,850.2 million over the past twelve months.
2.8% Benelux 2.1% Rest of Europe 0.8% Rest of world3.5% Asia 3.6% Scandinavia 3.8% Switzerland 13.8% United Kingdom 8.3% Canada 7.9% France 30.8% United States 22.6% Germany
Hannover Re | Annual Report 2017 decade. In view of the very healthy cyclical demand, production capacity utilisation continued to increase and numerous sectors reached their capacity limits. Capacity utilisation remained exceptionally strong in the construction industry.
Income from assets under own management climbed 26.3% to EUR 1,539.0 million (EUR 1,218.3 million). The resulting annual return amounted to 3.8% (3.0%). We had forecast a level of 2.7% and subsequently revised this target higher to 3.0% in November 2017. Investment income including interest on funds withheld and contract deposits rose to EUR 1,773.9 million (EUR 1,550.4 million), an increase of 14.4% relative to the previous year. Interest on funds withheld and contract deposits totalled EUR 234.9 million (EUR 332.1 million).
The total policyholders’ surplus, consisting of shareholders’ equity, non-controlling interests and hybrid capital, amounted to EUR 10.8 billion (EUR 11.2 billion) as at 31 December 2017.
Gross premium growth for Property & Casualty reinsurance slight growth 1 +18.7% at constant exchange rates +16.4% not adjusted for currency effects
We settle claims quickly and straightforwardly to keep downtimes as short as possible.
Hannover Re is satisfied with the development of business in 2017, even though the company was unable to achieve all its targets due to the above-average burden of large losses. As a consequence of the severe catastrophe loss events that occurred primarily in the second half of the year, the profit target of more than EUR 1 billion was no longer attainable. The company did, however, meet the reduced guidance of around EUR 800 million announced in the autumn. The sale of the portfolio of listed equities in the third quarter was a positive factor in the solid level of Group net income.
Results of operations In the following sections we discuss the development of the financial year in our two strategic business groups, namely Property & Casualty reinsurance and Life & Health reinsurance, as well as the performance of our investments and the financial position and assets of our Group. Supplementary to the information provided here, the “Segment reporting” in section 5 of the notes to this Annual Report shows the key balance sheet items and profit components of the two business groups.
Considerably increased demand was evident on the customer side for reinsurance solutions providing solvency relief. Attractive opportunities to expand the portfolio also opened up in North America, most notably in Canada, as well as in credit and surety business and in the area of cyber covers. Yet in this round of renewals it was again the case that we did not renew all our treaties on account of our own profitability requirements. Despite this, we were able to enlarge the premium volume in the 1 January renewal season. We were similarly satisfied with the various treaty renewals that took place during the year, further boosting our premium volume in a number of regions and lines including North America and credit / surety.
Earnings per share in EUR 6.94 -11.8% 7.88 7.58 6.88 6.70 1 Operating result (EBIT) / net premium earned 2 Including expenses on funds withheld and contract deposits
Despite the already healthy growth recorded in 2016, the premium volume increased again in the year under review by a further 5.5% to EUR 1,708.3 million (EUR 1,619.7 million). Reflecting the loss situation, the combined ratio climbed to 111.3% (91.0%). Against this backdrop the operating profit (EBIT) declined to EUR 177.5 million (EUR 393.3 million).
The claims frequency was lower than in previous years, especially as regards mid-sized claims. Rates on both the primary and reinsurance side consequently moved slightly lower or remained unchanged.
Life and health reinsurance contributed a substantial 40% (previous year: 44%) share of Group gross premium in the year under review. The business is characterised by enduring mutual commitments, and we attach great value to a partnership -based approach. Thanks to our global network and our know-how, we are able to drive new developments in the markets on a local basis. We nevertheless consider the profitability and quality of the generated business to be the absolute overriding priority and we act accordingly.
Earnings per share in EUR 1.43 -31.7% 2.10 2.40 1.70 1.36 1 Restated pursuant to IAS 8 (cf. section 3.1 of the notes) 2 Operating result (EBIT) / net premium earned
Mortality Mortality-exposed business forms the core of traditional life and health reinsurance and, in terms of premium volume, still accounts for the lion’s share of our total premiums in this business group. We offer our customers reinsurance protection for the risk that the actually observed mortality may diverge negatively from the originally expected mortality, i. e. that people do not live as long as anticipated.
We aspire to be a long-term and expert partner in every situation. Consequently, along with the developments already discussed, we have also explored the more exacting capital requirements associated with, for example, Solvency II in Europe and C-ROSS in China, which are proving to be an ever greater strain for primary insurers. As a reinsurer, we traditionally assume the biometric risks of mortality, longevity and morbidity.
Net investment income from funds withheld and contract deposits 234.9 -29.3% 332.1 395.0 376.1 357.3 1 Excluding income and expenses on funds withheld and contract deposits 2 Including depreciation / impairments on real estate 3 Portfolio at fair value through profit or loss and trading
Hannover Re's investment policy continues to be guided by the following core principles: • generation of stable and risk-commensurate returns while at the same time maintaining the high quality standard of the portfolio
• ensuring the liquidity and solvency of Hannover Re at all times
Several Group companies have also taken up long-term debt – principally in the form of mortgage loans – amounting to EUR 250.1 million (EUR 313.4 million).
For further information on our liquidity management please see page 78 et seq. of the risk report.
Hannover Finance (Luxembourg) S.A., subordinated debt, EUR 500 million; 2010 / 2040 A aa-
All in all, the net investment result retreated to EUR 1,197.5 million (EUR 1,287.0 million). The balance of other income and charges changed from EUR -113.2 million to EUR -196.3 million.
Deposits with ceding companies, which are shown under the investments, fell marginally in the year under review to EUR 8.0 billion (EUR 8.3 billion).
Hannover Re expects to generate a good profit on ordinary activities for the current financial year. In terms of the dividend, we envisage a payout ratio in the range of 35% to 40% of the IFRS Group net income. This ratio may increase in light of capital management considerations if the present comfortable level of capitalisation remains unchanged.
Matrix of material sustainability issues and reportable non-financial aspects M 42
Generally speaking, the risk of human rights violations in connection with our business operations is minimal. We have focused in particular on respect for human rights within the supply chain. Since mid-2012 our Code of Conduct for Suppliers has been applied throughout large parts of the company at the Hannover location. The Code of Conduct for Suppliers was developed by the Facilities Management and Information Technology divisions with the support of Group Legal Services and updated in the year under review with an eye to the new legal requirements arising out of the UK Modern Slavery Act. It obliges all main suppliers and subcontractors to fulfil sustainability criteria, inter alia respect for human rights and observance of the core labour standards of the International Labour Organisation (ILO). Based on the criteria of the Code of Conduct for Suppliers, we have also developed an application -supported self-reporting process for suppliers and service providers. The process is used regularly by Facilities Management at the Hannover location, and we plan to roll it out progressively at the international offices.
When it comes to confidentiality, data privacy and data security, the most important rules are defined on a mandatory basis for all employees in our Code of Conduct as well as our Information Security and Data Privacy Policies. The existing structures of the established compliance organisation are used to implement the minimum standards required by data privacy law. The EU General Data Protection Regulation does not directly affect all Hannover Re companies if their registered office is located outside the European Union or European Economic Area. The respective national legal frameworks are determinative for these companies. Irrespective of the scope of application of the EU General Data Protection Regulation, the appointed Compliance Officers and contact persons are responsible for local data protection requirements. As necessary, they draw up additional local data privacy guidelines and serve as the interface to the Data Protection Officer at Hannover Re in Germany. The Data Protection Officer coordinates overarching aspects of the installed data privacy management system within the Hannover Re Group. He gives advice on how to resolve specific data privacy issues and monitors compliance with the EU General Data Protection Regulation and other data protection standards.
We are driving the expansion of products with a bearing on climate change, such as weather insurance and coverage solutions for energy-saving warranties in Germany, to other European countries.
are screened according to ESG criteria. The review of government issuers centres on the question of whether – and if so which – sanctions are currently imposed on them.
We employed 3,251 staff (previous year: 2,893) Group-wide as at the end of the year under review. Our company’s continuing growth prompted further expansion of the workforce in the financial year just ended. Consequently, there were no major job losses in the year under review, as was also the case in previous years.
Internationalisation of the surveys on employee satisfaction A worldwide employee survey was conducted in 2015 / 2016. Specific measures were examined in various areas of the company in the year under review and, where appropriate, implemented.
When it comes to aggregating the individual risks, we make allowance for dependencies between risk factors. Dependencies arise, for example, as a consequence of market shocks, such as the financial crisis, which simultaneously impact multiple market segments. What is more, several observation periods may be interrelated on account of market phenomena such as price cycles. In dealing with these dependencies, however, it is our assumption that not all extreme events occur at the same time. The absence of complete dependency is referred to as diversification. Hannover Re’s business model is based inter alia on building up the most balanced possible portfolio so as to achieve the greatest possible diversification effects and in order to deploy capital efficiently. Diversification exists between individual reinsurance treaties, lines, business segments and risks. We define the cost of capital to be generated per business unit according to the capital required by our business segments and lines and based on their contribution to diversification.
All natural catastrophe risks 1 200-year aggregate annual loss 1,815 1,634 1,409 1 Loss relative to the underwriting result
Risks associated with the outsourcing of functions can result from such outsourcing of functions, services and / or organisational units to third parties outside Hannover Re. Mandatory rules have been put in place to limit this risk; among other things, they stipulate that a risk analysis is to be performed prior to a material outsourcing. In the context of this analysis a check is carried out to determine, inter alia, what specific risks exist and whether outsourcing can even occur in the first place.
As an instrument of self-regulation for the business world, the German Corporate Governance Code – the latest version of which dates from 7 February 2017 – sets out recommendations and suggestions that are intended to maintain and foster the trust of investors, customers, employees and the general public in the management and supervision of German companies. Although the Code does not have binding legal force, the enterprises addressed by the Code are nevertheless required by § 161 Stock Corporation Act (AktG) to provide an annual declaration as to whether or not the recommendations of the Code were and are complied with in the reality of the company’s business activities. If recommendations were not acted upon, this is to be explained and disclosed as part of the Declaration of Conformity.
Code Section 4.2.3 Para. 4; Caps on severance payments in Management Board contracts Premature termination of a service contract without serious cause may only take the form of cancellation by mutual consent.
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, the principle of “delegation of responsibility” enjoys special status. In the interests of shareholders, importance is expressly attached to an organisation that facilitates cost- effective, 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. Only persons under the age of 65 may be appointed to the Executive Board. The term of appointment shall be determined such that it expires no later than the end of the month in which the member of the Executive Board turns 65. The Supervisory Board takes account of diversity considerations in the composition of the Executive Board.
In addition to the present Declaration on Corporate Governance, the Corporate Governance Report and the reports of recent years are published on our website pursuant to Item 3.10 of the German Corporate Governance Code (www.hannover-re.com/200801/declaration- of-conformity).
Roland Vogel Chief Financial Officer 1 This refers in each case to payment of the variable remuneration for the previous year. Remuneration for seats with Group bodies that is counted towards the variable remuneration accrues in the year of occurrence. The company’s Supervisory Board only decides on the final amount paid out for the 2017 financial year after the remuneration report has been drawn up.
Board member with divisional responsibility Coordinator of worldwide property & casualty reinsurance
Dr. Immo Querner 2 Member of the Supervisory Board Fixed remuneration 50.0 50.0
Rating agencies certify our excellent financial strength, which we have maintained despite financial crises and natural disasters.
Capital markets In 2018 financial markets are again likely to see promising growth opportunities but also an abundance of volatility and uncertainty. Most significantly, geopolitical risks and protectionism have continued potential for adverse repercussions in some areas. Attention will be focused on two main arenas: firstly, Europe, where it is still impossible to foresee how the Brexit vote will be translated into political and economic reality and, secondly, the United States, where moves by political actors are difficult to predict and may disturb the existing balance due to their impact on global politics.
In the other markets of Continental Europa the picture was a mixed one. Generally speaking, prices and conditions improved in the treaty renewals as at 1 January 2018. Pleasing growth was booked in Italy and we enlarged our market share in Western Europe. A stabilisation in prices was observed in Eastern Europe; the price increases under loss-affected programmes were very substantial.
The markets of South and Southeast Asia offer a broad spectrum of growth opportunities. We are concentrating on expanding our product development activities in retail business. In this way we want to support our customers in the early stages of their development.
The renewal season in India as at 1 April 2018 will see efforts to bring about a qualitative improvement in conditions as well as to further expand the business plan pursued by our branch in Mumbai.
In natural catastrophe (Cat XL) business we expect to see a continued inflow of cash from the capital markets in the current year as well as capacity growth at traditional insurers. Larger companies will continue to buy worldwide covers, hence reducing the number of reinsurers for such programmes. A further increase in the pressure for mergers & acquisitions is also anticipated. All in all, we do not anticipate a significant increase in demand for natural catastrophe covers. It is only because of the considerable losses caused by the forest fires in California that some primary insurers in this market are likely to buy additional covers. Rate increases were pushed through across a broad front on the back of the significant natural catastrophe losses. Programmes in the United States that been spared losses saw limited increases in the single-digit percentage range; in other countries the rate increases were in the order of 5%. Rate improvements of 20% to 40%, in some cases even higher, were achieved under loss-impacted programmes.
Diluted earnings per share 7.95 9.71 1 Restated pursuant to IAS 8 (cf. section 3.1 of the notes)
Cash flow from operating activities 1,693,853 2,331,283 1 Restated pursuant to IAS 8 (cf. section 3.1 of the notes)
As security for our technical liabilities and as collateral for liabilities arising out of existing derivative transactions Hannover Re has established blocked custody accounts and trust accounts in certain countries, while for liabilities in connection with real estate transactions – to the extent that is customary under such transactions – it has pledged assets in favour of third parties outside the Group. For further information please see our explanatory remarks in section 8.7 “Contingent liabilities and commitments”.
Hannover Services (UK) Limited 1, London / United Kingdom 100.00 GBP 893 126
Pipera Business Park S. r.l. 1, Bucharest / Romania 87.67 RON 86,254 7,377
MUA Insurance Acceptances (Pty) Ltd. 1, Cape Town / South Africa 70.00 ZAR 6,033 5,608
Garagesure Consultants and Acceptances (Pty) Ltd. 1, Johannesburg / South Africa 49.00 ZAR 884 2,120
Hannover Re Consulting Services India Private Limited 13, Mumbai / India 100.00 INR 112,771 10,978
International Insurance Company of Hannover SE, Canadian Branch, Toronto / Canada 54,364 65,761 417 1,036
The assets and liabilities of the acquired business as at the date of initial consolidation are as follows: Assets and liabil ities of the acquired business N 15 in EUR thousand 1.7.2017
The investments under own management also encompass investments in associated companies, real estate and real estate funds (also includes: investment property), other invested assets, short-term investments and cash. The recognition and measurement of these items is based on the respective applicable IFRS for this type of assets.
Debt securities issued by semi-governmental entities 5,259,815 41,765 254,479 37,088 5,477,206
Fixed-income securities – at fair value through profit or loss – – – – 44,042 – – 195,875 239,917
Fixed-income securities – available-for-sale 2,049,431 1,163,323 364,631 7,853,948 2,660,674 16,556,245 202,476 1,331,445 32,182,173
Financial information on investments in associated companies N 31 in EUR thousand 2017 2016
Net book value at 31 December of the year under review 91,692 64,609
Present value of future profits on acquired life reinsurance portfolios 63,285 76,592
Gross book value at 31 December of the previous year 136,053 131,701
Cumulative depreciation at 31 December of the previous year 59,461 53,440
Net book value at 31 December of the year under review 133,713 52,088
Net book value at 31 December of the year under review 8,977,946 959,533 8,018,413 10,313,952 1,189,420 9,124,532 1 Restated pursuant to IAS 8 (cf. section 3.1 of the notes)
Net book value after currency translation 3,148,590 122,837 3,025,753 3,219,417 169,681 3,049,736
Changes in the consolidated group – – – 4,694 3,167 1,527
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 61 in EUR thousand Parameter increase Parameter decrease
Defined contribution plans In addition to the defined benefit plans, some Group companies have defined contribution plans that are based on length of service and the employee’s income or level of contributions. The expense recognised for these obligations in the financial year in accordance with IAS 19 “Employee Benefits” was EUR 20.2 million (EUR 17.9 million), of which EUR 0,8 million
The sundry liabilities include accounts payable by our service companies, trade accounts payable as well as clearing balances. In addition, they include distributions within the year of EUR 6.9 million (EUR 76.9 million) from interests in private equity funds that had still to be recognised in income as at the balance sheet date.
The maturities of the sundry non-technical provisions as at the balance sheet date are shown in the following table: Maturities of the sundry non-technical provisions N 64 in EUR thousand 2017 2016
The increase in the other reserves arising out of currency translation, which is recognised in equity, was attributable in an amount of EUR 51.4 million (EUR 10.1 million) to the translation of long-term debt or loans with no maturity date extended to Group companies and branches abroad.
Breakdown of taxes on income The breakdown of actual and deferred income taxes was as follows: Income tax N 82 in EUR thousand 2017 2016
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 85 in EUR thousand 2017 2016
Within the contractually agreed framework Talanx Asset Management GmbH performs investment and asset management services for Hannover Rück SE and the vast majority of its subsidiaries. Assets in special funds are managed by Ampega Investment GmbH. Talanx Immobilien Management GmbH performs services for Hannover Re under a number of management contracts.
Neither in the year under review nor in the previous reporting period were there any dilutive effects. The weighted average of the issued shares was, as in the previous year, slightly lower than the value of the shares in circulation on the balance sheet date. In the context of the employee share option plan Hannover Re acquires treasury shares and sells them at a later date to eligible employees. The weighted average number of shares does not include 18,805 (16,413) treasury shares pro rata temporis for the duration of the holding period. For further details please see our comments in section 6.13 “Shareholders’ equity and treasury shares”.
Measurement using valuation models in consideration of parameters that can be derived from active markets is especially relevant to non-exchange-traded securities, other loans and derivatives. The scope for discretion is greater, the more input factors are used that are not observable on the market but are instead based on company estimates.
• we obtain sufficient suitable audit evidence for the accounting information of the companies or business activities within the Group in order to be able to provide audit opinions on the consolidated financial statement and on the combined management report. We are responsible for the direction, monitoring and conduct of the audit of the consolidated financial statement. We bear sole responsibility for our audit opinions.
Notwithstanding 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 decided not to comply with the recommendations contained in Code Section 4.2.3 Para. 2 regarding caps on the amount of variable compensation elements in management board contracts, in Code Section 4.2.3 Para. 4 concerning a cap on severance payments in management board contracts, in Code Section 5.3.2 Para. 3 Sentence 3 concerning the Chair of the Audit Committee and in Code Section 5.3.2 Para. 3 Sentence 2 concerning the independence of the Chair of the Audit Committee. Justification for these divergences is provided in the Declaration of Conformity pursuant to § 161 Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code, which is reproduced in this Annual Report as part of the Declaration on Corporate Governance. Further information on the topic of corporate governance is available on Hannover Re’s website.
Hannover Rück SE Succursale Française 33 Avenue de Wagram 75017 Paris Tel. Life & Health
Managing Director L & H & CEO: Debbie O’Hare Managing Director ASI: Kathrin Scherff
Hannover Life Reassurance Africa Limited Rosebank Towers Office Level 3 15 Biermann Ave Rosebank, Johannesburg 2196 P.O. Box 85321 Emmarentia 2029
Hannover Rück SE, Tyskland Filial Hantverkargatan 25 P.O. Box 22085 10422 Stockholm
International Insurance Company of Hannover SE (Scandinavian Branch) Hantverkargatan 25 P.O. Box 22085 10422 Stockholm
M 45 Goal to be achieved by 2017: Expansion of compliance concepts and guidelines in relation to specific topics 69
N 22 Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value 2016 191
N 25 Fair value of financial assets at fair value through profit or loss before and after accrued interest as well as accrued interest on such financial assets 193