We transact all lines of non-life and life and health reinsurance and are present on all continents with around 2,400 staff. The German business of the Hannover Re Group is transacted by our subsidiary E+S Rück.
Letter from the Chairman of the Executive Board 2 Executive Board of Hannover Rück SE 6 The Hannover Re share 10 Our strategy 16
Aside from these negative effects, our life and health reinsurance portfolio continued to develop well on the whole. Most notably, we made significant advances with an eye to the current and future profitability of the risk-oriented life portfolio acquired from Scottish Re in 2009. On the one hand, we were able to commute by mutual agreement contracts with ceding companies that in the past had been a considerable drag on profitability. What is more, we were also able to sharply reduce the collateral costs for the loss reserves to the benefit of our US subsidiary. Our growing book of business from South America, Scandinavia, Asia and South Africa continued to deliver very positive profit contributions.
The Hannover Re share • Share price reaches new all-time high of EUR 64.34 • Attractive dividend proposal of EUR 3.00 per share • Increased need for information owing to rising competition
Based on the year-end closing price of EUR 62.38, the market capitalisation of the Hannover Re Group totalled EUR 7.5 billion at the end of the 2013 financial year, an increase of EUR 0.4 billion or 5.8% compared to the previous year’s figure of EUR 7.1 billion. According to the rankings drawn up by Deutsche Börse AG, the company placed eighth in the MDAX at the end of December with a free float market capitalisation of EUR 3,659.4 million. Measured by trading volume over the past twelve months, the share came in at number 9 in the MDAX with a volume of EUR 3,039.9 million. The Hannover Re Group thus continues to rank among the 40 largest listed companies in Germany.
Our 16th Investors’ Day was held on 23 October 2013 in Frankfurt / Main. Around 35 analysts and institutional investors took up our invitation to engage in an intensive exchange of views with the Executive Board on the opportunities and risks offered by non-life reinsurance in the current market climate. The discussions focused on, among other things, the inflow of alternative capital into the reinsurance market for US natural catastrophe risks and the resulting intensification of competitive pressure as well as the medium-term strategic challenges facing the company in light of the protracted low interest rate environment.
We aspire to be the best option for our business partners when it comes to choosing a reinsurance provider.
Europe By the middle of the year the Eurozone economy was able to move out of the protracted recession that had lasted more than twelve months. This development was encouraged by the easing of fiscal policy and implementation of the OMT (Outright Monetary Transactions) programme by the European Central Bank (ECB). Since October 2012 this scheme has served to safeguard at no expense sovereign bonds issued by crisis-ridden countries, thereby easing their cost of borrowing and helping them to raise new debt.
The loss experience in our domestic market was particularly elevated in the year under review owing to extreme weather events. Following extensive flooding in June with insured losses in the order of EUR 2 billion, (re)insurers found themselves facing further losses of around EUR 3 billion within just a few weeks as a consequence of severe hail events. The enormous scale of damage was caused by the exceptionally large hailstones and the storm track across densely populated areas. Property insurance and motor own damage insurance were especially hard hit by these events. The net losses for the Hannover Re Group from the hail events “Manni” and “Andreas” totalled EUR 137 million. Germany suffered additional heavy losses from windstorms “Christian” and “Xaver”.
North America The North American (re)insurance market is the largest single market both worldwide and for Hannover Re. Our business is written through brokers.
In view of the heavy losses incurred by reinsurers from shipping accidents – especially the incident involving the “Costa Concordia” cruise ship in 2012 –, it was possible to secure appreciable price changes for P&I (Protection & Indemnity) reinsurance arrangements under loss-impacted programmes in the renewals at the beginning of 2013. Even in areas that saw increased exposures for primary insurers, such as offshore business, rising prices and structural adjustments were obtained on the reinsurance side. Additional capacities from
The underwriting result for our marine business was considerably better than in the previous year of heavy losses. The combined ratio was very good at 76.2% (114.8%). The operating profit (EBIT) climbed appreciably to EUR 71.5 million (EUR 2.5 million).
Inter Hannover’s business written in Sweden continued to perform highly satisfactorily. The focus there is on the marine and aviation lines. The development of business at the branches in Australia and Canada – markets which are highly competitive – was in line with expectations.
Retakaful business We write retakaful business – that is to say, reinsurance transacted in accordance with Islamic law – both on the Arabian Peninsula and in Southeast Asia. We maintain a dedicated subsidiary for this business in Bahrain (Hannover ReTakaful) as well as a branch that bears responsibility for writing traditional reinsurance in the Arab world.
In the following section we discuss in detail developments in our reporting categories in the year under review.
The Morbidity risk is generally considered to be the risk of deterioration in a person’s state of health due to disease, injury or infirmity. Typical products are strict (any occupation) disability, occupational disability and long-term care insurance. Gross premium in this reporting category increased to EUR 872.9 million (EUR 813.0 million). Growth was generated principally in South America and Asia.
Hannover Finance (Luxembourg) S.A. subordinated debt, EUR 750 million; 2004 / 2024 26.2.2004 5.75 749.6 748.8
The annual financial statement of Hannover Rück SE is drawn up in accordance with German accounting principles. The consolidated financial statement, on the other hand, conforms to International Financial Reporting Standards (IFRS). This gives rise to various divergences in accounting policies affecting, above all, intangible assets, investments, technical assets and liabilities, financial instruments and deferred taxes.
The 2013 financial year passed off satisfactorily for Hannover Rück SE. The gross premium of Hannover Rück SE in total business increased by 5.6% to EUR 11.1 billion (previous year: EUR 10.5 billion). The level of retained premium retreated slightly from 76.0% to 75.2%. Net premium earned grew by 5.1% to EUR 8.2 billion (EUR 7.8 billion).
After a thoroughly untroubled first quarter we incurred numerous major losses in the course of 2013. Germany and Canada were especially heavily impacted by considerable losses from natural disasters. The hurricane season in North America and the Caribbean, on the other hand, again passed off unremarkably. The largest single losses in the year under review for Hannover Re were the hail event “Andreas” in Germany with a net loss of EUR 11.6 million and the flooding in Germany and other European countries at a cost of EUR 21.6 million. These and other major losses caused total net expenditure in 2013 of EUR 283.2 million (EUR 318.3 million).
All in all, our net investment result therefore contracted to EUR 1,116.6 million (EUR 1,233.9 million).
The previous year had been overshadowed by significant strains from major losses due to the wreck of the “Costa Concordia ” cruise ship as well as Hurricane “Sandy”. An amount of EUR 123.3 million (EUR 35.3 million) was allocated to the equalisation reserve and similar provisions.
Hannover Rück SE maintains branches in Australia, Bahrain, Canada, China, France, Korea, Malaysia, Sweden and the United Kingdom.
Profit and value creation are indispensable prerequisites for sustainable development in the interests of our clients, shareholders, staff and business partners. As a leading player in the reinsurance industry, our commercial success is crucially dependent on the correct assessment and evaluation of present and emerging risks. Sustainability therefore not only forms an important part of how we see our business in general, it also has a direct bearing on our operational activities. Our goal is to achieve economic success in conformity with legal regulations and in light of the needs of our clients, staff and the company, while also giving due consideration to conservation of the environment. In so doing, our premises of financing growth through self-generated profits and avoiding imbalances that could necessitate capital measures continue to apply unchanged. Our operations are thus guided primarily by profitability considerations and we concentrate on attractive segments of reinsurance business.
Hannover Re’s commitment as a sponsor in the areas of art and culture as well as research and learning goes back to its founding in 1966. Essentially, our social involvement is subdivided into four areas: sponsorship, foundation support, donations and voluntary activities performed by our staff as well as their passing on of know-how on a local basis at our various locations worldwide.
Our Group-wide risk management is geared to making a significant contribution to profitable growth and hence to implementation of our strategy through the systematic weighing up of opportunities and risks. Profit and value creation constitute the foundation of our sustainable development in the interests of our clients, shareholders, employees and business partners.
The available economic capital, which is available as liable capital for policyholders, is comprised of the economic equity measured as described above and the hybrid capital. The internal capital model is based on current methods from actuarial science and financial mathematics. In the case of technical risks, we are able to draw on a rich internal data history to estimate the probability distributions, e.g. for the reserving risk. For risks from natural perils we use external models, which are adjusted in the context of a detailed internal review process such that they reflect our risk profile as closely as possible. In the area of life and health reinsurance long-term payment flows are modelled under various scenarios. With respect to all the aforementioned risks we use internal data to define scenarios and probability distributions. The internal data is enhanced by way of parameters set by our internal experts. These parameters are especially significant in relation to extreme events that have not previously been observed.
Required risk capital of the Hannover Re Group 6,896.9 3,375.2 6,292.1 3,190.5 1 In the year under review the presentation of the risks was modified and the figures for the previous year were restated accordingly. In the interests of more transparent presentation of the diversification and tax effects the individual risks are now shown before allowance for tax effects and as a change relative to the expected value (instead of the initial value).
Since the business that we accept is not always fully retained, but instead portions are retroceded as necessary, the credit risk is also material for our company in reinsurance transactions. Our retrocession partners are carefully selected and monitored in light of credit considerations in order to keep the risk as small as possible. This is also true of our broker relationships, which entail a risk inter alia through the potential loss of the premium paid by the cedant to the broker. We minimise these risks, among other things, by reviewing all broker relationships once a year with an eye to criteria such as the existence of professional indemnity insurance, payment performance and proper contract implementation. The credit status of retrocessionaires is continuously monitored. On the basis of this ongoing monitoring a Security Committee decides on measures where necessary to secure receivables that appear to be at risk of default. This process is supported by a Web-based risk management application, which specifies cession limits for the individual retrocessionaires participating in protection cover programmes and determines the capacities still available for short-, medium- and long-term business. Depending on the type and expected run-off duration of the reinsured business, the selection of reinsurers takes into account not only the minimum ratings of the rating agencies Standard & Poor’s and A. M. Best but also internal and external expert assessments (e.g. market information from brokers).
• In terms of the Hannover Re Group’s major companies, EUR 300.9 million (10.2%) of our accounts receivable from reinsurance business totalling EUR 2,945.7 million were older than 90 days as at the balance sheet date.
These business approaches are subsequently evaluated and given concrete shape by the Opportunity Management service unit. This unit also supports selected projects from the conceptual design of integrated business models to their operational implementation or until their handover to line responsibility. The goal is to generate new business and thereby sustainably foster Hannover Re’s profitable growth. Since the unit was set up several initiatives and projects have evolved out of the roughly 100 ideas developed by the worldwide network. Under an attractive employee incentive system various project groups have already been financially rewarded, including those working on the opportunity management projects “Weather” and “Energy Savings Protect” (“Energie Einspar Protect = EEP”): Business opportunity management project “Weather” The goal was to offer a clientele heavily dependent on the weather industry-specific solutions to protect against weather fluctuations. The interest shown by customers in this product has grown sharply of late on account of greater variability in weather conditions and the higher profile of the product.
Similarly, our very good ratings (see page 57) also testify to our financial stability. The quality of our Enterprise Risk Management (ERM) is evaluated separately by Standard & Poor’s. In the year under review Standard & Poor’s gave our risk management its highest possible grade of “very strong”. Most notably, our established risk culture promotes the development of appropriate risk monitoring systems and strategic risk management.
We support sensible and pragmatic Corporate Governance principles and recognise their central importance in guiding our activities. The principles of responsible and good enterprise management constitute the core of our Corporate Governance principles, which were extensively revised in the year under review ( com / resources / cc / generic / CGprinciples-e.pdf). Our efforts are intended to ensure integrity at all times in our dealings with business partners, staff, shareholders and other stakeholder groups. On this basis Hannover Re supports the principles of value-based and transparent enterprise management and supervision as defined in the German Corporate Governance Code (DCGK). The Supervisory Board, Executive Board and employees of Hannover Rück SE identify with these principles, which are aligned with the German Corporate Governance Code. The Executive Board ensures that the principles are observed Group-wide.
The compliance report for the 2012 calendar year was submitted to the Finance and Audit Committee in March 2013. The report for the 2013 calendar year will be presented in March 2014. The reporting sets out the structure and diverse range of activities of Hannover Re in this regard. After in-depth examination of topics such as directors’ dealings, ad hoc and other reporting requirements, the insider register, adherence to internal guidelines, consulting agreements, data protection, international sanctions and the Group-wide whistleblower system, the report concludes that only a few circumstances have been identified which point to breaches of relevant compliance standards. After detailed exploration of these incidents, the necessary safeguards were put in place to ensure that such breaches do not occur again in the future.
• Shareholdings pursuant to Item 6.6 of the German Corporate Governance Code.
The remuneration report is guided by the recommendations of the German Corporate Governance Code and contains information which forms part of the notes to the 2013 consolidated financial statement as required by IAS 24 “Related Party Disclosures ”. Under German commercial law, too, this information includes data specified as mandatory for the notes (§ 314 HGB) and the management report (§ 315 HGB). These details are discussed as a whole in this remuneration report and presented in summary form in the notes.
A RoCa of 9.1% corresponds to goal attainment of 100%. Allowing for the planned cost of capital, this level corresponds to a return which is above the planned cost of capital and hence constitutes positive intrinsic value creation (IVC 1).
All claims to the allocation of amounts to the bonus bank and / or awarding of HR-SAs after leaving the company are excluded. In cases where an individual leaves the company because of nonreappointment, retirement or death this shall not apply with respect to claims to variable remuneration acquired (pro rata) in the final year of the Board member’s work for the company.
Financial year Non-performance-based remuneration Performance-based remuneration 1 Performance-based remuneration 1 Total Number of share awards 6 2012 = Actual 2013 = Estimate
Total remuneration of the active members of the Executive Board pursuant to DRS 17 (amended 2010)
The equivalent amount will be paid in 2018 at the prevailing share price of Hannover Re. In 2013 nominal amounts of EUR 10,700 more than had been originally reserved were used as a basis for allocation of the 2012 share awards.
In both contract variants (i. e. defined benefit and defined contribution ) other income received while drawing the retirement pension is taken into account pro rata or in its entirety under certain circumstances (e.g. in the event of incapacity for work or termination of the service contract before reaching the age of 65).
The treaty renewals as at 1 January 2014 for business in North America passed off satisfactorily for our company; we generated premium growth of around 5%. Although rates for US property business came under pressure due to a year of relatively low losses, the rate reductions proved to be smaller than anticipated; the level is still adequate. Broadly stable rates and conditions were obtained in US casualty business, prompting us to selectively expand our portfolio here. Appreciable rate increases were booked in Canadian property business owing to heavy losses from the 2013 flood events. Rates in the casualty lines were for the most part unchanged. We expect to see further price erosion in the renewals as at 1 June and 1 July 2014 – the date when, most notably, catastrophe XL covers are renegotiated. This is not likely to be the case with lossimpacted programmes in Canada.
Facultative reinsurance In facultative reinsurance, too, the climate is becoming more competitive. The good results posted by insurers in 2013 as well as an adequate supply of capacity are keeping up the pressure on rates and conditions. Despite this, we anticipate attractive business opportunities. We are looking to book further growth in our portfolio of facultative risks in the current financial year. In addition, we set up a new department for the energy lines in order to further strengthen our position here.
In view of the relatively soft market conditions in non-life reinsurance and our correspondingly selective underwriting policy, the premium volume for the current year is expected to remain broadly stable. Going forward, too, we shall not make any concessions to our systematic underwriting discipline and we shall reduce our shares in areas where the risks are not adequately priced. In terms of the targeted combined ratio, we expect a figure under 96%. We are aiming to generate an EBIT margin of at least 10%.
For our total life and health reinsurance portfolio we are looking to book organic, currency-adjusted growth in the low to mid-single-digit percentage range for 2014. The Value of New Business (VNB) should be in excess of EUR 180 million. We continue to anticipate EBIT margins of 2% for Financial Solutions and Longevity business and 6% for Mortality and Morbidity business.
Commission and brokerage, change in deferred acquisition costs 7.3 2,690,173 2,649,693
Since 2002 the standards adopted by the International Accounting Standards Board (IASB) have been referred to as “International Financial Reporting Standards (IFRS)”; the standards dating from earlier years still bear the name “International Accounting Standards (IAS)”. Standards are cited in our notes accordingly; in cases where the notes do not make explicit reference to a particular standard, the term IFRS is used. In view of the fact that reinsurance contracts, in conformity with IFRS 4 “Insurance Contracts”, are recognised according to the pertinent provisions of United States Generally Accepted Accounting Principles (US GAAP) as applicable on the date of initial application of IFRS 4 on 1 January 2005, we cite individual insurance-specific standards of US GAAP using the designation “Statement of Financial Accounting Standard (SFAS)” that was valid at that time.
In December 2011 the IASB issued “Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)”. The amendments were adopted by the EU in December 2012 and have a mandatory effective date for annual periods beginning on or after 1 January 2013. The amendments require disclosures on all recognised financial instruments that are offset in accordance with IAS 32. The amendments also require disclosures to be provided on all recognised financial instruments that are subject to an enforceable master netting or similar agreement, even if they are not offset in accordance with IAS 32. As at the balance sheet date such constellations existed in the form of derivative transactions that were effected on the basis of standardised master agreements and contain master netting agreements. For the corresponding disclosures please see our explanatory remarks in Section 8.1 “Derivative financial instruments and financial guarantees”.
Hannover Rück Beteiligung Verwaltungs-GmbH, Hannover / Germany 1, 2 100.00 EUR 2,071,855 –
Hannover ReTakaful B.S.C. (c), Manama / Kingdom of Bahrain 1 100.00 BHD 45,880 4,810
Glencar Underwriting Managers, Inc., Chicago / USA 5 95.30 USD 3,013 1,224
Woodworking Risk Acceptances (Pty) Ltd., Pietermaritzburg / South Africa 30.60 ZAR 1,790 2,249
Firedart & Construction Guarantee Underwriting Managers (Pty) Ltd., Johannesburg / South Africa 1 25.45 ZAR 9,403 3,082
Energi Insurance Services, Inc., Peabody / USA 5 28.50 USD 983 245
Energi of Canada Ltd., Toronto / Canada 5, 14 28.50 CAD (36) (36)
Government debt securities of EU member states 393,836 28,425 – 7,097 429,358
Gross book value at 31 December of the previous year 505,727 436,874
Income and expenses from level 3 financial assets and liabilities in EUR thousand 2013
Net book value at 31 December of the year under review 85,270 92,100
Net book value at 31 December of the year under review 30,220 24,011
At the inception of every reinsurance contract, assumptions about the three parameters are made and locked in for the purpose of calculating the benefit reserve. At the same time, safety / fluctuation loadings are built into each of these components. In order to ensure at all times that the originally chosen assumptions continue to be adequate throughout the contract, checks are made on a regular – normally annual – basis in order to determine whether these assumptions need to be adjusted (“unlocked”).
Development of the benefit reserve in EUR thousand 2013 2012 gross retro net gross retro net
Net book value at 31 December of the previous year 10,974,570 507,257 10,467,313 10,309,066 380,714 9,928,352
From 1997 onwards it has been possible to obtain pension commitments through deferred compensation. The employeefunded commitments included in the provisions for accrued pension rights are protected by an insurance contract with HDI-Gerling Lebensversicherung AG, Cologne.
The movements in the net pension liability for the Group’s various defined benefit plans were as follows: Movements in net liability from defined benefit pension plans
Position at 31 December of the financial year 129,602 141,105 13,510 14,979 75 30
The decrease in the other reserves arising out of currency translation, which is recognised in equity, was attributable in an amount of EUR 69.2 million to the translation of long-term debt or loans with no maturity date extended to Group companies and branches abroad.
The impairments totalling EUR 5.4 million (EUR 11.4 million ) in the reporting period were attributable in an amount of EUR 3.5 million (EUR 5.8 million) to the area of alternative investments – specifically, exclusively to private equity investments. No impairments (EUR 2.2 million) were recognised on equities or equity funds in the year under review, because their fair values did not fall significantly – i. e. by at least 20% – or for a prolonged period – i. e. for at least nine months – below acquisition cost. In the area of fixed-income securities impairments were recognised solely on structured fixed-income securities in an amount of EUR 0.8 million (EUR 0.6 million). An impairment of EUR 1.1 million (EUR 2.2 million) was taken on investments in real estate.
The separate value adjustments were attributable to accounts receivable in an amount of EUR 7.7 million (EUR 26.9 million) and to other receivables in an amount of EUR 0.3 million (previous year: minimal amount).
Deferred tax assets and deferred tax liabilities of all Group companies in EUR thousand 2013 2012 1
The maturities of the fair values and notional values of the hedging instruments described above can be broken down as follows: Maturity structure of derivative financial instruments 2013 in EUR thousand 2013
Remuneration and shareholdings of the management boards of the parent company The remuneration of the Executive Board of Hannover Re amounted to altogether EUR 7.2 million (EUR 7.3 million). The total remuneration (excluding pension payments) of former members of the Executive Board and their surviving dependants stood at EUR 0.4 million (EUR 2.4 million). The pension payments to previous members of the Executive Board and their surviving dependants, for whom 14 (13) pension commitments existed, totalled EUR 1.4 million (EUR 1.4 million) in the year under review; altogether, a provision of EUR 21.4 million (EUR 22.5 million) has been set aside for these commitments.
Number of rights existing at 31 December 2013 259,005 1,640,070 639,295 48,340 8,269 –
Staff The average number of staff at the companies included in the consolidated financial statement of the Hannover Re Group during the reporting period was 2,376 (2,263). As at the balance sheet date altogether 2,419 (2,312) staff were employed by the Hannover Re Group, with 1,219 (1,164) employed in Germany and 1,200 (1,148) working for the consolidated Group companies abroad.
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 2,748.1 million (EUR 2,855.7 million) and EUR 21.5 million (EUR 11.9 million ) respectively as at the balance sheet date. The securities held in the trust accounts are shown as available-for-sale investments. In addition, we furnished further collateral to ceding companies in an amount of EUR 565.6 million (EUR 549.3 million ) in the form of so-called “single trust funds”.
Corporate Governance The Supervisory Board once again devoted considerable attention to the issue of Corporate Governance. The Supervisory Board considered the various new items contained in the German Corporate Governance Code (DCKG) as amended on 13 May 2013 and made the differentiations recommended pursuant to Item 4.2.2 of the Code for the vertical comparison of remuneration. The Supervisory Board again deliberated on the definition of the appropriate number of independent Supervisory Board members within the meaning of Item 5.4.2 of the Code. Furthermore, the Supervisory Board was advised by the Executive Board of the progress made in the context of the concept to promote the advancement of female employees and was provided with the compliance report and the risk report. Intensive discussion was devoted to the findings of the efficiency audit of the Supervisory Board’s work and the possibilities for mailing documents electronically to the members of the Supervisory Board. 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 decided not to comply with the recommendations contained in Code Item 4.2.3 Para. 4 concerning a cap on severance payments in management board contracts, in Code Item 5.2 Para. 2 concerning the Chair of the Audit Committee and in Code Item 5.3.2 concerning the independence of the Chair of the Audit Committee. Purely as a precautionary measure, a divergence from Code Item 4.2.3 Para. 2 regarding caps on the amount of variable compensation elements in management board contracts was also declared. The justification in these respects is provided in the Declaration of Conformity pursuant to § 161 German Stock Corporation Act 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.
The report on the company’s relations with affiliated companies drawn up by the Executive Board has likewise been examined by KPMG AG and given the following unqualified audit certificate: “Having audited the report in accordance with our professional duties, we confirm that 1. its factual details are correct; 2. in the case of the transactions detailed in the report, the expenditure of the company was not unreasonably high.”
Hannover Rück SE Escritório de Representação no Brasil Ltda. Praça Floriano, 19 / 1701
Print Eberl Print GmbH, Immenstadt Printed on paper from environmentally responsible, socially compatible and economically viable forest management
Printed carbon neutral to offset greenhouse gas emissions carbon neutral natureOffice.com | DE-141-717066 print production