Book value per share in EUR 87.30 +20.0% 72.78 70.72 74.61 66.90
Vogel: Looked at from the perspective of my thirty-year career with Hannover Re, I can state with confidence: our actions have always been driven by the self-image of an entrepreneur – and that will remain so going forward. By defining our self-image and codifying our values, we have put a good basis in place.
More than 3,000 staff who embody our self-image and our values in their daily work.
We make sure we always move with the times, guided by our purpose which embraces our past, present and future. We promise to work in concert with our clients, our partners, and our shareholders to do more than just preserve the status quo. Our relationship is one of equals.
Our employees are the basis on which Hannover Re has built this track record of success. I would like to thank them most sincerely, also on behalf of the entire Executive Board. As the Executive Board of Hannover Re, we similarly extend our thanks to you, our shareholders, just as we do to our customers and business partners for the trust that is placed in us. Going forward, as in the past, it remains our primary goal to lead Hannover Re responsibly, securely and with the necessary foresight into a profitable future.
The Hannover Re share stood at EUR 117.70 going into the year. On the first day of trading it slipped back to EUR 116.40 – a level that was to prove its lowest point of the year. Against a backdrop of encouraging news from the treaty renewals as at 1 January 2019, the share price rose steadily into the middle of February and then remained stable until the General Meeting and publication of the quarterly results in May. Brushing off geopolitical and economic uncertainties, the share price then moved consistently higher before ultimately peaking for the year – and recording a new all-time high – of EUR 175.20 on 17 December 2019. The Hannover Re share closed out the year with a gain of 46.4% at EUR 172.30 – equivalent to a performance of 52.5%, including reinvested dividends. Looked at over the year as a whole, the Hannover Re share thus comfortably outperformed its domestic benchmark indices as well as the international Global Reinsurance (Performance ) Index (+31.4%).
Throughout 2019, the Executive Board and representatives of the Investor Relations department once again cultivated an ongoing dialogue with institutional investors, analysts and private investors. The focus of their efforts remained on the financial centres of Europe and North America. The number of capital market conferences attended and roadshow days was virtually unchanged at 16 (previous year: 17) and 11 (10) respectively. Discussions focused in particular on the changes that had taken place on the company’s Executive Board and potentially associated shifts in its strategic orientation, the trend in the large loss situation and its implications for the rate level in property and casualty reinsurance as well as general growth prospects on the reinsurance market.
Our share register showed some 55,200 shareholders at the end of the year, another increase in the number of shareholders year-on-year (51,000). The largest shareholders at yearend were Talanx AG with 50.2% as well as the asset manager BlackRock, Inc., with a reported 3.05% and Deutsche Asset Management Investment GmbH with 3.02% of the voting rights. Of the remaining shares outstanding, by far the bulk – at 32.5% – were held by other institutional investors such as banks, insurers and investment companies (previous year in total: 40.9%); private investors held 11.2% (8.9%). Our shareholders include investors who pay particularly close attention to sustainability criteria.
Report on economic position Macroeconomic climate and industry-specific environment • Global economic growth lower than in the previous year • Low interest rate environment an ongoing drag on the insurance industry • Capital markets experiencing continued volatility • Considerable losses again incurred from natural catastrophes
The ongoing intensification of the trade dispute between the United States and China remained a major drag on the world economy. Trade policy tensions between the US and the European Union also worsened appreciably over the course of the year.
Capital markets The investment climate again proved to be highly volatile and challenging in the period under review owing to numerous geopolitical and economic policy issues. Among other things, ongoing tariff and trade disputes as well as the continued bumpy road towards the United Kingdom’s withdrawal from the European Union were unsettling factors. All in all, it was once again striking to see how heavily influenced financial markets were by political events that exacerbated uncertainties in relation to international trade patterns. The implications of increasingly widespread instances of social unrest on a local level in the reporting period will also need to be monitored going forward.
The gross premium in our total business rose by 17.8% as at 31 December 2019 to EUR 22.6 billion (EUR 19.2 billion). At constant exchange rates growth would have reached 15.2%. We thus outperformed our guidance – which we had raised in the third quarter – anticipating growth of around 10% adjusted for exchange rate effects. The level of retained premium decreased to 90.0% (90.7%). Net premium earned rose by 14.1% to EUR 19.7 billion (EUR 17.3 billion). At unchanged exchange rates the increase would have been 11.8%.
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.
The gross premium volume in Continental Europe and Africa grew by 17.0 % to EUR 910.0 million (EUR 777.9 million). The combined ratio was 97.2% (88.8%). The operating profit (EBIT) contracted to EUR 125.3 million (EUR 170.3 million ).
This marked turnaround opened up attractive business and growth opportunities for our company that we acted on in keeping with our technical underwriting approach and risk appetite.
The premium volume for our Aviation and Marine reporting category rose to EUR 547.5 million (EUR 458.0 million). The combined ratio amounted to 75.0% (53.6%). The operating profit (EBIT) fell to EUR 151.9 million (EUR 201.7 million).
The performance of our longevity business, among other lines, was thoroughly pleasing. From a global perspective, the high level of demand here for appropriate reinsurance solutions remained unchanged. The exacting capital requirements placed on primary insurers and pension funds in connection with such business were a key driver here.
Mortality Solutions Mortality-exposed business – i. e. mortality solutions – forms the core of traditional life and health reinsurance and, in terms of premium volume, accounts for the bulk of the total premium income in our Life & Health reinsurance business group. The business discussed in this reporting category consists of covers that provide reinsurance protection for our customers against the risk that insureds do not live as long as anticipated and hence the actual mortality negatively diverges from the originally expected mortality.
Result from participations in associated companies 26.4 5.0 16.0 9.1 19.2
Financial position and net assets • Risk-commensurate investment policy • Highly diversified investment portfolio • Equity base remains robust
A.M. Best and Standard & Poor’s, the rating agencies of particular relevance to the insurance industry, assess the financial strength of Hannover Re on the basis of an interactive rating process and have awarded it very good ratings. The rating agencies highlight in particular the strength of the Hannover Re Group’s competitive position, its capitalisation and its risk management.
The 2019 financial year was a pleasing one for Hannover Rück SE. The gross premium in total business increased by 23.4% to EUR 18.1 billion (previous year: EUR 14.6 billion). The level of retained premium dropped from 71.8% to 69.7%. Net premium earned grew by 17.4% to EUR 12.2 billion (EUR 10.4 billion).
Gross premium income in the other lines grew by 23.7% to EUR 3,962.4 million (EUR 3,202.8 million). The net loss ratio increased from 65.6% to 73.7%. The underwriting result came in at EUR -119.5 million after EUR 269.3 million in the previous year. An amount of EUR 18.1 million (EUR 39.4 million ) was allocated to the equalisation reserve and similar provisions.
As a company operating in the insurance industry, we are faced with a wide range of risks. We define our approach to these risks in our risk strategy, which is derived from the corporate strategy. Our risk management organisation is charged with implementation of the risk strategy. For a detailed description of our risk management please see the section “Risk report” on page 92 et seq. of the combined management report.
Implementation of a Web-based database for central recording of sustainability information 2019: Contract taken out and beginning of implementation
Generally speaking, the risk of human rights violations – another non-financial aspect – in connection with our business operations is minimal. We have nevertheless put special emphasis on respect for human rights within the supply chain. For further information we would refer to the section “Supplier management”.
Optimised classification of compliance risks 2019: Revision of the compliance risk matrix used to evaluate identified compliance risks
The Sustainability Strategy 2018-2020 defines the following goals with regard to this issue: Goal to be achieved by 2020: Stakeholder dialogue
Ongoing 2019: Cooperation with the Federal Ministry for Economic Cooperation and Development and the UK Department for International Development on the launch of a Natural Disaster Fund (NDF) to further reduce the protection gap in emerging and developing countries through a parametric cover to protect against the impacts of climate change and other natural disasters 2019: Continued support for weather-related products as well as insurance solutions for renewable energy sources such as solar, hydro and wind
Only around 10 percent of our total asset portfolio cannot be classified according to the aforementioned methodology and criteria. This includes, most notably, investments in real estate and private equity, which given their nature or structure can scarcely be measured reliably according to the ESG criteria that we use as a basis. In some instances, however, these assets also contribute to sustainable development; this is the case, for example, with real estate that has relevant certifications, sustainable products in the infrastructure sector or indeed impact investments.
Where qualifications are equivalent, vacant management posts are filled whenever possible from within our own ranks, and we therefore consider leadership potential even at the recruitment stage. As part of a standardised process that takes place every other year at the Hannover location, all positions from management level (General Manager / Director) upwards are reviewed at corporate headquarters and at selected international entities. With a view to achieving a better gender balance we strive for an increasing proportion of women on all levels of management.
In the financial year just ended we continued to focus in particular on the changing world of work. Our executives took the opportunity to explore change management and agility through various formats in order to apply relevant aspects in their daily working life where it makes sense to do so. Basic knowledge was communicated in a popular two-day seminar; the scope for application could be explored in all its facets – along with other topics – in the context of our tried and trusted, needs-based “practical training days” or examined in concrete terms by way of department-specific workshops. We also continued to cover the subject of “Wellness - Management Task and Individual Responsibility” and we offered workshops on issues in employment law with a bearing on management.
Our employees are paid according to their specific tasks, their skills and qualifications and their performance. At the same time, employees in Germany benefit from the security and advantages of the collective agreement for the private insurance industry. 94% of our employees at the Hannover location are covered by the collective bargaining agreement.
The remaining 6% can be attributed to some non-collective agreements with managers.
Fostering women in management positions 2019: The proportions of women on the second and third levels of management amounted to 17.4% (target: 18%) at the Hannover location and 17.1% Group-wide as at 31 December 2019
Promotion of measures for a healthy work / life balance by the employer
The risk strategy is the core element in our handling of opportunities and risks. It specifies more closely the goals of risk management and documents our understanding of risk. We have defined eight overriding principles within the risk strategy: 1. We monitor adherence to the risk appetite set by the Executive Board.
The Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), which was adopted on 14 November 2019 by the International Association of Insurance Supervisors (IAIS), establishes supervisory standards and provides guidance focusing on the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs). The Insurance Core Principles adopted by the IAIS contain requirements for the supervision of all insurers and insurance groups, irrespective of their size and the international scope of their operations. With ComFrame the IAIS has developed a framework designed specifically for the supervision of IAIGs, with the emphasis placed on effective group supervision. In view of the need to make corresponding legislative changes and/or modify supervisory practices, the IAIS will continue to explore the details of the timeline and the form of implementation review over the course of 2020. An integral element of the ComFrame is the Insurance Capital Standard (ICS), which was similarly adopted by the IAIS on 14 November 2019. The ICS is the first global, riskbased capital standard for IAIGs. According to the BaFin, there were three insurance groups in Germany (also including Talanx AG, the parent company of Hannover Rück SE) and 70 worldwide considered to be IAIGs. The qualification process for identifying IAIGs is currently under review by the responsible supervisory authorities. ICS version 2.0 opens up the possibility of globally comparable results. This requires the use of consistent approaches, including for example the market- and risk-appropriate measurement of investments and liabi lities. Roll-out of ICS 2.0 will start in 2020, initially with a monitoring phase. During this test run information is to be collected for purposes of improvement and further refinement in the run-up to final implementation in 2025.
As far as our investments are concerned, we anticipate continuing elevated volatility on global capital markets in the immediate future, although we also see this as an opportunity and believe that we are appropriately prepared with the current posture of our asset portfolio. For further information please see the “Investments” section of the management report on page 55 et seq.
All in all, our current analyses indicate that the implications of Brexit are manageable for the Hannover Re Group.
The risk landscape of Hannover Re encompasses: • underwriting risks in property & casualty and life & health reinsurance which originate from our business activities and manifest themselves inter alia in fluctuations in loss estimates as well as in unexpected catastrophes and changes in biometric factors such as mortality,
As the parent company, Hannover Re provides a guarantee to clients for the small number of low-risk structured transactions. In this context, it guarantees the payment of liabilities by Hannover Re under these specific transactions in the event that the subsidiary is unable to meet its assumed obligations. Since each of these guarantees is associated with a specific transaction and formulated in such a way that each potential payment can only arise once per corporate entity of Hannover Re (i. e. either at the subsidiary itself as part of the transaction or at Hannover Re as a consequence of the guarantee), the existence of a guarantee on the part of Hannover Re has no effect on the underwriting risk from Hannover Re’s property & casualty or life & health reinsurance business.
In selected market niches we transact primary insurance business that complements our reinsurance activities. In so doing, just as on the reinsurance side, we always work together with partners from the primary sector – such as insurance brokers and underwriting agencies. This gives rise to risks associated with distribution channels, although these are minimised through the careful selection of agencies, mandatory underwriting guidelines and regular checks.
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.
C om b in ed m an ag em en t re p or t fined by the German Corporate Governance Code (DCGK). The Supervisory Board currently meets the target set by the Code because Dr. Lipowsky, Dr. Ollmann and Dr. Pollak are independent. Dr. Schipporeit similarly largely fulfils the independence criteria according to the 2019 version of the Code, but in view of the fact that he was first appointed on 3 May 2007 he has already belonged to the body for slightly longer than 12 years.
II. Diversity concept for the composition of the Executive Board and Supervisory Board
Remuneration report The remuneration report summarises the principles used to determine the remuneration of the Executive Board of Hannover Rück SE and explains the structure, composition and amount of the components of the remuneration received by the Executive Board in the 2019 financial year on the basis of the work performed by the Board members for Hannover Rück SE and companies belonging to the Group.
Personal qualitative, quantitative targets (individual contribution to the overall result, leadership skills, innovative skills, entrepreneurial skills, specific features of area of responsibility).
The individual bonus for goal attainment of 100% is contractually stipulated. Over- and underfulfilment result in additions / deductions.
Further risks are posed by the simmering trade disputes, Brexit, an increased spread of the COVID-19 coronavirus as well as various geopolitical flashpoints.
The baseline economic situation can currently be described as rather muted in a number of powerhouse economies. The general pace of expansion appears to be slowing. Nevertheless, second-tier emerging markets may be able to deliver stable growth because in many instances the structural measures taken in past years are gaining traction. These are, however, vulnerable to civil unrest in some countries.
C om b in ed m an ag em en t re p or t and the stabilisation of emerging markets should continue to shape the economic environment.
For 2020, too, we anticipate continued hardening in the original market, especially in Lloyd’s business. With further syndicates pulling out of the market and others facing restricted scope for growth in a hardening market environment, we expect to see additional upward pressure on pricing. Motor business will likely bring moderately higher prices for primary insurers in response to the adjusted Ogden rate. We shall continue to push for price increases in all major reinsurance lines and we are looking to book a slightly expanded premium volume overall on the back of these higher prices.
In marine reinsurance the 1 January round of treaty renewals failed to live up to expectations in some respects. Still, it was evident that customers with a long-term perspective are increasingly concerned more about stability than mere pricing considerations. While rate increases were recorded for loss-affected programmes, it was possible to renew programmes that had not suffered losses at unchanged prices despite reduced exposures. It may otherwise be noted that the reinsurance market continued to experience an oversupply of capacity. The Asian market saw price increases driven by a higher frequency of losses, while our Continental European programmes were stable. The rate level for renewals on the London Market was slightly higher for the most part. All in all, we expect the premium volume in marine reinsurance to remain stable.
With the publication of IFRS 17 “Insurance Contracts” in May 2017, the IASB issued a standard that replaces the existing transitional arrangements of IFRS 4 and for the first time establishes a single common framework for the recognition, measurement and disclosure of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features. In addition, IFRS 17 requires extensive new disclosures in the notes.
Investment property is valued at cost less depreciation and impairment. Straight-line depreciation is taken over the expected useful life – at most 50 years. Under the impairment test the market value of investment property (recoverable amount) is determined using accepted valuation methods, compared with the book value and, where necessary, impairments are recognised. Maintenance costs and repairs are expensed. Value-enhancing expenditures are capitalised if they extend the useful life.
Lease liabilities are initially measured at the present value of essentially all lease payments that are not variable or dependent on an index or an (interest) rate. The discount factor used is the implicit interest rate of the lease contract or the lessee’s incremental borrowing rate.
Non-current assets held for sale and discontinued operations: in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, non-current assets and disposal groups are classified as held for sale if the relevant book value is realised largely through sale rather than through continued use. Components of an entity that can be clearly distinguished from the rest of the entity for operational and accounting purposes and were classified as sold or for sale are recognised as discontinued operations. Measurement is at the lower of book value and fair value less costs to sell. Depreciation or amortisation is not taken on non-current assets as long as they are classified as held for sale. Impairment losses on fair value less costs to sell are recognised in profit or loss; a gain for any subsequent increase in fair value less costs to sell leads to the realisation of profit up to the amount of the cumulative impairment. If the impairment loss to be taken on a disposal group exceeds the book value of the corresponding non-current assets, the need to establish a provision within the meaning of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” is reviewed.
HAPEP II Komplementär GmbH 1, Hannover / Germany 82.40 EUR 47 4
E+S Rückversicherung AG 1, Hannover / Germany 64.79 EUR 918,847 128,000
APCL Corporate Director No.2 Limited 1, 3, London / United Kingdom 100.00 GBP – –
Argenta Underwriting No.10 Limited 1, 3, London / United Kingdom 100.00 GBP (18) 36
Leine Investment General Partner S.à r.l. 1, 3, Luxembourg / Luxembourg 100.00 EUR 1,457 587
Broadway 101, LLC 1, 3, Wilmington / USA 95.15 USD 14,523 (450)
Orion No.1 Professional Investors Private Real Estate Investment LLC 1, Seoul / South Korea 94.39 KRW 27,524,567 1,042,184
Clarenfin (Pty) Ltd. 1, Johannesburg / South Africa 22.87 ZAR 104 (9)
Change in benefit reserve – – 10,793 50,791 – – 10,793 50,791
Hannover Re recognised in this category as at the balance sheet date designated fixed-income securities amounting to EUR 578.8 million (EUR 559.8 million) as well as derivative financial instruments in an amount of EUR 235.0 million (EUR 190.8 million) that are originally allocable to this item.
Other financial assets – at fair value through profit or loss 2,684 27 – 5,982 144,548 79,924 – 1,854 235,019
The additions to this item are attributable to investment activities at the relevant real estate companies belonging to the Hannover Re Group, specifically in the United States and Asia.
The following table shows the breakdown of financial assets and liabilities recognised at fair value into the three-level fair value hierarchy.
Gross book value at 31 December of the previous year 126,578 121,859
The increased amortisation in the previous year results from treaty recaptures made by individual cedants as a consequence of rate increases. For further information please refer to our explanatory notes on intangible assets in section 3.2 “Summary of major accounting policies”.
Fixtures, fittings and equipment N 54 in EUR thousand 2019 2018
Net book value at 31 December of the previous year 29,804 29,653
The reconciliation of the projected benefit obligations with the recognised provisions for pensions is as follows: Provisions for pensions N 65 in EUR thousand 2019 2018
With regard to the claims and claims expenses as well as the change in the benefit reserve the reader is also referred to section 8.1 “Derivative financial instruments and financial guarantees”. The change in the benefit reserve relates exclusively to the life and health reinsurance segment. The administrative expenses amounted to altogether 2.4% (2.4%) of net premium earned.
The other income includes revenues from contracts with customers set out below in accordance with IFRS 15.
An amount of EUR 50.6 million (EUR 44.1 million) was realised over time in the current financial year in connection with other insurance-related services.
In addition, other revenues known as “binding fees” were earned from administrative activities on the South African market in an amount of EUR 14.2 million (EUR 2.8 million). The transaction price is calculated from a percentage rate in relation to the acknowledged invoice amount. Binding fees are considered to be earned over a period of time as soon as the corresponding insurance service has been rendered.
Maturity structure of derivative financial instruments N 95 in EUR thousand
Number of employees (excluding Board members) 3,149 3,169 3,038 3,083 3,151 3,317 3,272
Outstanding capital commitments with respect to alternative investments exist on the part of the Group in an amount of EUR 1,429.9 million (EUR 1,326.4 million). These primarily involve as yet unfulfilled payment obligations from investment commitments given to private equity funds and venture capital firms.
Hannover Rück SE has provided an open-ended guarantee limited to EUR 11.1 million in favour of the pension fund “The Congregational & General Insurance Plc Pension and Life Assurance Scheme” at usual market conditions.
Independent Auditor’s Report (this auditor’s report is issued on financial statements prepared in German language)
Among other things, we evaluated the appropriateness of the design of the process for recognizing reserves as well as carried out functional tests in order to assess the effectiveness of the internal controls. We focused in particular on controls designed to ensure that the data used are appropriate and complete and that the calculation process is subject to a sufficient form of quality assurance.
(c) The Company’s disclosures on the property reinsurance claims provisions are contained in the sections “Accounting policies” and “Notes to the individual items of the balance sheet”, subsection “technical provisions” of the notes to the consolidated financial statements. Disclosures on risks are contained in the group management report in the section “Risk report”, subsection “Technical risks of property reinsurance”.
The premium reserve is measured by using actuarial methods to derive the present value of future benefits to cedants, less the present value of premiums still to be paid by cedants in future. The respective policies are initially recognized in accordance with recognized accounting bases. Depending on the structure of the relevant policy and the regular business, the calculation is based either on a combination of available cedant settlements, where necessary adjusted to account for estimates of the course of the policy for settlement periods not yet settled or based on model-driven own calculations of the premium reserve. In so doing, actuarial assumptions must be made with respect to interest rates, investment yields, mortality, invalidity, longevity, costs and future behavior of policyholders.
B es tä ti g u n g sv er m er k
We considered the report by the Executive Board on non- financial matters (cf. page 70 et seq. of the combined management report in the present Annual Report) and examined it. PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft also audited the information statement with limited assurance in accordance with the audit standard ISAE 3000 (Revised) (see here the Independent Auditor’s Report on page 268 et seq.).
Hannover Rück SE Canadian Branch 220 Bay Street, Suite 400 Toronto, Ontario M5J 2W4
Hannover Rück SE Korea Branch Room 414, 4th Floor Gwanghwamoon Officia Building 92, Saemunan-ro, Jongno-gu Seoul 03186
Glossary Accumulation loss: sum of several individual losses incurred by various policyholders as a result of the same loss event (e. g. windstorm, earthquake). This may lead to a higher loss for the direct insurer or reinsurer if several affected policyholders are insured by the said company.
Insurtech: term referring to new business models / companies in the insurance industry that focus primarily on the use of new technologies.
Letter of credit (LOC): bank guarantee under which, at the request of the guaranteed party, the bank undertakes to render payment to the said party up to the amount specified in the LOC. This method of providing collateral in reinsurance business is typically found in the USA.
M 04 Gross premium by business group 35 M 05 Business development in the year under review 35 M 06 Gross premium in Property & Casualty reinsurance 37 M 07 Geographical breakdown of gross premium
N 02 Consolidated statement of income 2019 160 N 03 Consolidated statement of comprehensive income 2019 161 N 04 Consolidated statement of changes in shareholders’ equity 2019 162 N 05 Consolidated cash flow statement 2019 164 N 06 Further IFRS Amendments and Interpretations 170 N 07 Changes pursuant to IAS 8 –
N 90 Domestic / foreign breakdown of recognised tax expenditure / income 249
N 91 Deferred tax assets and deferred tax liabilities of all Group companies 250