Source: http://annual-report.hannover-re.com/reports/hannoverre/annual/2017/gb/English/7070/auditor_s-report.html
Timestamp: 2018-09-23 00:29:04
Document Index: 348322360

Matched Legal Cases: ['§ 315', '§ 315', '§ 315', '§ 322', '§ 317', '§ 315', '§ 317', '§ 315']

Hannover Re - Annual Report 2017
10 year overview
Investor relations activities
Sustainability reporting and ratings
Foundations of the Group
Operational management system
Macroeconomic climate and industry-specific environment
Macroeconomic climate
Industry-specific environment
Overall assessment of the business position
Financial position and net assets
Analysis of the capital structure
Management of policyholders’ surplus
Group shareholders’ equity
Financing and Group debt
Analysis of the consolidated cash flow statement
Information pursuant to § 315
Information on Hannover Rück SE
Development of the individual lines of business
Assets and financial position
Group non-financial information statement
Description of the business model
Group and sustainability strategy
Responsible enterprise management
Sustainable insurance solutions
ESG criteria in asset management
Customer orientation and satisfaction
Executive development / Employee advancement
Major external factors
Risk landscape of Hannover Re
Underwriting risks in property and casualty reinsurance
Underwriting risks in life and health reinsurance
Opportunity report
Further enterprise management principles
Working practice of the Executive Board and Supervisory Board
Risk monitoring and steering
Remuneration Executive Board
Remuneration Supervisory Board
Loans to members of the management boards and contingent liabilities
Securities transactions and shareholdings
Remuneration of staff and senior executives
Statement of changes in shareholders’ equity
Supervisory Board Members
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Property & Casualty reinsurance Life & Health reinsurance Investments Total result
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Investment policy Investments Analysis of the capital structure Management of policyholders’ surplus Group shareholders’ equity Financing and Group debt Analysis of the consolidated cash flow statement Financial strength ratings Information pursuant to § 315
Results of operations Development of the individual lines of business Assets and financial position Risks and opportunities Other information Outlook
Introduction Description of the business model Group and sustainability strategy Responsible enterprise management Compliance Stakeholder dialogue Sustainable insurance solutions ESG criteria in asset management Customer orientation and satisfaction Executive development / Employee advancement Employee retention Diversity
Strategy implementation Major external factors Risk capital Risk management Risk management system Internal control system Risk landscape of Hannover Re Internal risk assessment Underwriting risks in property and casualty reinsurance Underwriting risks in life and health reinsurance Market risks Counterparty default risks Operational risks Other risks
Corporate Governance Declaration of Conformity Further enterprise management principles Working practice of the Executive Board and Supervisory Board Compliance Risk monitoring and steering
Remuneration Executive Board Remuneration Supervisory Board Loans to members of the management boards and contingent liabilities Securities transactions and shareholdings Remuneration of staff and senior executives
Economic developments Property & Casualty reinsurance Life & Health reinsurance Investments Outlook 2018
Consolidated balance sheet Statement of income Statement of comprehensive income Statement of changes in shareholders’ equity Cash flow statement Notes Auditor's report Responsibility statement
Report of the Supervisory Board Supervisory Board Members
Global presence Strategic business groups History
to Hannover Rück SE, Hannover
Statement on the audit of the consolidated financial statement and the combined management report
Audit opinions
Hannover Rück SE, Hannover, and its subsidiaries (the Group) – comprising the consolidated balance sheet as at 31 December 2017, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in shareholders’ equity and the consolidated cash flow statement for the financial year from 1 January to 31 December 2017 as well as the notes to the consolidated financial statement, including a summary of major accounting policies. In addition, we audited the combined management report of Hannover Rück SE for the financial year from 1 January 2017 to 31 December 2017. In accordance with German statutory requirements, we did not audit the contents of the non-financial information statement and the declaration on corporate governance, which are contained in the section “Non-financial information statement” and in the section “Enterprise management” within the combined management report, or the disclosures identified as unaudited that are contained in the combined management report.
In our opinion, based on the findings of the audit,
the attached consolidated financial statement complies in all material respects with IFRS, as applicable in the EU, and with the additional requirements of German law applicable pursuant to § 315e Para. 1 Commercial Code (HGB) and gives a true and fair view of the net assets and financial position of the Group as at 31 December 2017 as well as its results of operations for the financial year from 1 January to 31 December 2017 in accordance with these requirements, and
the attached combined management report provides an accurate view overall of the position of the Group. In all material respects this combined management report is consistent with the consolidated financial statement, complies with German legal requirements and suitably presents the opportunities and risks of future development. Our audit opinion on the combined management report does not extend to the contents of the aforementioned components of the non-financial information statement and of the declaration on corporate governance or to the disclosures of the combined management report identified as unaudited that are contained in the combined management report.
Pursuant to § 322 Para. 3 Sentence 1 Commercial Code (HGB), we confirm that our audit did not give rise to any reservations concerning the accuracy of the consolidated financial statement and the combined management report.
Basis of the audit opinions
We conducted our audit of the consolidated financial statement and the combined management report in conformity with § 317 Commercial Code (HGB) and the EU Audit Regulation (No. 537 / 2014) with due regard to German generally accepted standards for the auditing of financial statements promulgated by the Institute of Public Auditors in Germany (IDW). Our responsibility according to these requirements and principles is described more extensively in the section of our audit report entitled “Responsibility of the auditor for the auditing of the consolidated financial statement and the combined management report”. We are independent of the Group companies in conformity with the requirements of European law as well as German commercial law and professional standards and we fulfilled our other German professional duties in conformity with these requirements. Furthermore, we confirm pursuant to Article 10 (2) letter f) EU Audit Regulation that we did not provide any prohibited non-audit services as defined by Article 5 (1) EU Audit Regulation. We are of the opinion that the audit evidence obtained is sufficient and appropriate to serve as a basis for our audit opinions on the consolidated financial statement and the combined management report.
Audit matters of particular importance in the auditing of the consolidated financial statement
Audit matters of particular importance are those matters that, in our professional judgement, are of the greatest significance to our audit of the consolidated financial statement for the financial year from 1 January 2017 to 31 December 2017. These matters were considered in the context of our audit of the consolidated financial statement as a whole and in forming our audit opinion thereon; we do not provide a separate audit opinion on these matters. The presentation below follows the breakdown of the balance sheet items in the consolidated financial statement.
Measurement of financial instruments measured using valuation models
With regard to the accounting policies please see the explanatory remarks in the notes to the consolidated financial statement. In addition, further information on the items in the financial statement is provided on 6.1 Investments under own management. Remarks on the risks deriving from financial instruments are provided in the combined management report.
The risk for the consolidated financial statement
The investments amount to EUR 50,960.3 million as at the balance sheet date. Of these investments, financial assets amounting to EUR 34,603.0 million – as shown in the notes – are measured at fair value. In turn, of these financial instruments, fair values of EUR 33,574.8 million are determined using valuation models or values indicated by third parties.
The measurement of financial instruments, the fair values of which have to be determined using valuation models or values indicated by third parties, is subject to uncertainty. 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.
Extensive disclosures in the notes are required regarding the valuation methods and scope for discretion in connection with the measurement of financial instruments.
Our approach in the audit
Our audit of the financial instruments was conducted with the support of valuation specialists on a risk-oriented basis. In particular, it included the following principal activities:
We audited the process used to enter the portfolio data and measurement parameters (interest rate curves, spreads) in the portfolio management system, including the controls set up in this regard. We convinced ourselves of the effectiveness of the installed controls by means of functional checks.
In the case of financial instruments measured using a valuation model, we assessed IFRS conformity and the adequacy of the respective models as well as of the determination of the assumptions and parameters incorporated into the valuation for a selection based on risk considerations.
On the basis of risk considerations, we verified the calculated fair values of selected items according to our own calculations or made a comparison with external information. The checks for financial instruments were made with the support of our valuation specialists. In this regard, we derived parameters incorporated into the calculation from market data, calculated our own fair values and compared them with the company’s results.
Based on the fair values determined by the company, we convinced ourselves that the subsequent balance sheet valuation and the implications for profit or loss are accurate. In this connection we assessed whether write-ups and write-downs were suitably taken and recognised.
We reviewed the disclosures in the notes to verify whether they comply with the accounting standards and, in so doing, we paid particular attention to the suitable presentation of the valuation methods.
The measurement models used are consistent with IFRS and appropriate overall. The input factors used by the company are appropriate overall. The explanatory remarks and disclosures contained in the notes to the consolidated financial statement are in conformity with the accounting standards.
Measurement of the loss and loss adjustment expense reserve in property and casualty reinsurance
With regard to the accounting policies please see the explanatory remarks in the company’s notes as well as for further breakdowns of the loss and loss adjustment expense reserve. Risk information is provided in the Group’s combined management report.
The gross loss and loss adjustment expense reserve amounts to EUR 28,378.5 million (roughly 46.4% of the balance sheet total). A major part of the loss and loss adjustment expense reserve is attributable to property and casualty reinsurance.
The loss and loss adjustment expense reserve in property and casualty reinsurance is arrived at from the information provided by the prior insurers and by following actuarial procedures using statistical methods that necessitate a sufficiently long data history and stability of the observed data. This includes assumptions regarding premiums, ultimate loss ratios, run-off periods, factors and speed that are built upon past experience. Taking into account the results of the actuarial procedures and further information in relation to the uncertainties associated with the calculations, management finally determines the amount of the loss and loss adjustment expense reserve. Large losses are considered separately in the measurement of the reserve.
The measurement of the loss and loss adjustment expense reserve is subject to uncertainties and is highly discretionary. Particularly in the case of large losses such as those caused by hurricane events, it may take a sizeable period of time until all loss advices have been received from ceding companies. Insofar as sufficient loss advices have not yet been received, the reserves for these large losses are estimated on the basis of internal analyses of the market loss and the impact on the company itself based on the existing covers.
In auditing the loss and loss adjustment expense reserve in property and casualty reinsurance, we used our own actuaries as part of the audit team and performed the following major audit procedures:
We surveyed the process for calculating the reserves, identified material controls and tested them for adequacy and effectiveness. The controls encompass both the completeness and correctness of the data used and the qualitative and quantitative elements of the valuation.
We assessed the plausibility of the material assumptions used – including loss ratios. We devoted particularly close attention to the calculation of the IBNR reserve.
With regard to the losses from the hurricane events “Harvey”, “Irma” and “Maria”, we assessed the assumptions in relation to the loss amount based on interviews and inspection of documentation.
We performed independent reserve calculations for significant segments that we selected on the basis of risk considerations. In this regard, we established a point estimate (best estimate) as well as an appropriate range in each case using actuarial methods and compared them with the company’s calculations.
The methods used and the underlying assumptions for the measurement of the loss and loss adjustment expense reserve in property and casualty reinsurance are appropriate.
Measurement of the benefit reserve
With regard to the accounting policies please see the explanatory remarks in the notes as well as for further breakdowns of the benefit reserve. Risk information is provided in the company’s combined management report.
The company reports a benefit reserve of EUR 8,978.0 million (roughly 14.7% of the balance sheet total) in its annual financial statement.
The measurement of the benefit reserve is derived in accordance with actuarial methods from the present value of future benefits payable to ceding companies less the present value of future premiums still to be paid by ceding companies. Hannover Rück SE carries over the values from the statements of account of ceding companies or performs its own measurement. In cases where Hannover Rück SE arrives at the assessment that the reported technical provisions are not adequate, additional reserves are constituted on the basis of its own assumptions.
An annual liability adequacy test is performed on the level of portfolios managed as a unit in order to verify whether the benefit reserve is sufficient and whether the capitalised acquisition costs are impaired. The test is based on the expected future gross margins, calculated according to current realistic actuarial bases, and is therefore dependent on the same assumptions as the benefit reserve. If a shortfall is determined in the context of the impairment test, the first step is to write down the capitalised acquisition costs. If there is still a deficit above and beyond this, the benefit reserve is to be increased accordingly.
Uncertainties exist primarily with regard to the estimation of the measurement parameters, particularly in relation to the biometric actuarial bases that are to be considered realistic – such as probabilities for mortality, the mortality trend or disability as well as socioeconomic factors such as the assumed behaviour of policyholders, e. g. cancellation.
In our audit of the benefit reserve we deployed our own actuaries as part of the audit team. In particular, we performed the following principal audit procedures:
We surveyed the process used to calculate the benefit reserve, identified significant controls that are performed and tested them with an eye to their design and effectiveness. We devoted particularly close attention to controls that ensure that new products are correctly classified and changes in assumptions are correctly implemented in the systems.
We assessed the adequacy of the material assumptions by analysing the actuarial methods used to arrive at them.
We analysed the development of the benefit reserve compared to the previous year, especially with an eye to whether the assumptions reflect the current business development as well as our expectations based on market observations.
We evaluated the liability adequacy test as to whether the actuarial bases and methods used were applied in conformity with IFRS and appropriately. If market interest rates were used for measurement purposes, we reviewed the adequacy of the discount rates used through comparison with parameters that could be observed on the market. In this context, we devoted particularly close attention to the adequacy test for US mortality solutions business.
The measurement assumptions used in the measurement of the benefit reserve are adequate and balanced overall. The explanatory remarks and disclosures provided in the notes to the consolidated financial statement are appropriate.
Calculation of the estimated gross premium
With regard to the accounting policies please see the explanatory remarks in the notes as well as die further breakdowns of the item.
The company reports gross written premium of EUR 17,790.5 million in its consolidated financial statement.
Premiums for reinsurance assumed are recognised according to the terms and conditions of the reinsurance treaties. Where statements of account from ceding companies are missing, the company has made supplementary or complete estimates of the premiums. The estimation is based on assumptions and is subject to considerable uncertainty and therefore highly discretionary.
We conducted the following principal audit procedures, in particular:
We surveyed the process for calculating premiums. In this context, we devoted particularly close attention to the subprocess “calculation of estimated premiums”, identified the material controls performed and tested them with an eye to their design and effectiveness.
We assessed the adequacy of the material assumptions by analysing the methods used to derive them; this was done especially with an eye to whether the assumptions reflect the current business development.
We compared the premiums expected by the company in the previous year with the actual figures and thus drew conclusions about the quality of estimation.
The methods used and the underlying assumptions for estimating the premiums are adequate and on the whole balanced.
The legal representatives are responsible for the other information. The other information encompasses:
the declaration on corporate governance, and
the disclosures identified as unaudited that are contained in the combined management report and
the other parts of the Annual Report, with the exception of the audited consolidated financial statement and Group management report as well as our audit report.
Our audit opinions on the consolidated financial statement and on the Group management report do not extend to the other information, and hence we do not express an audit opinion or draw any other form of audit conclusion in this regard.
In connection with our audit our responsibility is to read the other information and assess whether the other information
shows material inconsistencies with the consolidated financial statement, the Group management report or knowledge that we obtained as part of the audit or
appears to be materially misstated in other respects.
Responsibility of the legal representatives and of the Supervisory Board for the consolidated financial statement and the combined management report
The legal representatives are responsible for preparation of the consolidated financial statement, which in all material respects is in conformity with IFRS, as applicable in the EU, and the supplementary applicable German legal requirements in accordance with § 315e Para. 1 Commercial Code (HGB), and for ensuring that the consolidated financial statement gives a true and fair view – in compliance with these provisions – of the Group’s net assets, financial position and results of operations. In addition, the legal representatives are responsible for the internal controls that they have determined to be necessary in order to facilitate preparation of a consolidated financial statement that is free of material misstatements, whether intended or unintended.
In preparing the consolidated financial statement, the legal representatives are responsible for assessing the capacity of the Group to continue business operations. Furthermore, they are responsible for declaring facts and circumstances connected with the continuation of business operations, where relevant. In addition, they are responsible for financial reporting on the basis of the accounting principle of continuation of business operations, unless there is an intention to liquidate the Group or cease business operations or there is no other realistic alternative.
Moreover, the legal representatives are responsible for the preparation of the combined management report, which overall gives an accurate view of the position of the Group and in all material respects is consistent with the consolidated financial statement, complies with German legal requirements and suitably reflects the opportunities and risks of future development. The legal representatives are also responsible for the safeguards and measures (systems) that they considered necessary in order to facilitate the preparation of a Group management report in conformity with applicable German legal requirements and in order to be able to provide sufficient appropriate evidence for the statements contained in the Group management report.
The Supervisory Board is responsible for monitoring the financial reporting process used by the Group for drawing up the consolidated financial statement and the combined management report.
Responsibility of the auditor for the auditing of the consolidated financial statement and the combined management report
Our objective is to obtain reasonable assurance as to whether the consolidated financial statement as a whole is free of material – intended or unintended – misstatements and whether overall the combined management report gives an accurate view of the Group’s position and in all material respects is consistent with the consolidated financial statement as well as with the insights gained from the audit, is in conformity with German legal requirements and suitably presents the opportunities and risks of future development; it is also our goal to provide an audit report that contains our audit opinions on the consolidated financial statement and on the combined management report.
Reasonable assurance is a high degree of assurance, but not a guarantee, that an audit performed in conformity with § 317 Commercial Code (HGB) and the EU Audit Regulation and with due regard to German generally accepted standards for the auditing of financial statements promulgated by the Institute of Public Auditors in Germany (IDW) always detects a material misstatement. Misstatements may be due to fraud or error and are considered to be material if it could reasonably be expected that individually or as whole they influence the economic decisions made by users on the basis of this consolidated financial statement and Group management report.
During the audit we exercise our due discretion and maintain a fundamentally critical attitude. In addition,
we identify and assess the risks of material – intended or unintended – misstatements in the consolidated financial statement and in the combined management report, plan and conduct audit procedures in response to these risks and obtain audit evidence that is sufficient and appropriate to serve as a basis for our audit opinions. The risk of material misstatements not being detected is greater with fraud than with error, because fraud may involve fraudulent collaboration, falsifications, wilful incompleteness, misleading representations or the bypassing of internal controls.
we obtain an understanding of the internal control system relevant to the audit of the consolidated financial statement and the safeguards and measures relevant to the audit of the combined management report in order to plan audit procedures that are appropriate under the existing circumstances, albeit not with the aim of providing an audit opinion on the effectiveness of these systems.
we assess the adequacy of the accounting policies applied by the legal representatives as well as the reasonableness of the estimated values presented by the legal representatives and associated disclosures.
we draw conclusions regarding the adequacy of the accounting principle of continuation of business operations applied by the legal representatives as well as, on the basis of the audit evidence obtained, regarding whether material uncertainty exists in connection with events or circumstances that can raise significant doubts about the capacity of the Group to continue business operations. If we conclude that material uncertainty exists, we are required in the audit report to draw attention to the associated disclosures in the consolidated financial statement and in the combined management report or, if these disclosures are inadequate, to modify our audit opinion. We arrive at our conclusions on the basis of the audit evidence obtained until the date of our audit report. Future events or circumstances may, however, result in the Group no longer being able to continue its business operations.
we assess the overall presentation, the structure and the content of the consolidated financial statement including the disclosures as well as whether the consolidated financial statement presents the underlying business transactions and events in such a way that the consolidated financial statement in compliance with IFRS, as applicable in the EU, and with the additional requirements of German law applicable pursuant to § 315e Para. 1 Commercial Code (HGB) gives a true and fair view of the net assets, financial position and results of operations of the Group.
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.
we assess the consistency of the combined management report with the consolidated financial statement, its conformity with the law and the view of the position of the Group that it conveys.
we conduct audit procedures with respect to the forward- looking statements presented by the legal representatives in the combined management report. In particular, based on sufficient suitable audit evidence we verify the major assumptions taken as a basis by the legal representatives for the forward-looking statements and assess the proper derivation of the forward-looking statements from these assumptions. We do not provide an independent audit opinion on the forward-looking statements or on the underlying assumptions. There is a considerable unavoidable risk that future events may differ substantially from the forward-looking statements.
We discuss with those charged with governance, among other things, the planned scope and the timetable of the audit as well as significant audit findings, including any deficiencies in the internal control system that we identify during our audit.
We provide to those charged with governance a declaration to the effect that we complied with the relevant independence requirements, and we discuss with them all relationships and other matters that can reasonably be assumed to affect our independence as well as the safeguards implemented in this respect.
We determine from among the matters that we discussed with those charged with governance those matters that were most relevant to the current reporting period in the audit of the consolidated financial statement and therefore constitute the particularly important audit matters. We describe these matters in the audit report, unless laws or other legal provisions prevent public disclosure of the matter.
Miscellaneous statutory and other legal requirements
Other information pursuant to Article 10 EU Audit Regulation
We were selected as the auditor of the consolidated financial statement by the Supervisory Board on 8 March 2017. We received the audit mandate from the Chairman of the Supervisory Board on 12 May 2017. We have served as the auditor of the consolidated financial statement of Hannover Rück SE without interruption for more than 25 years.
We declare that the audit opinions contained in this audit report are consistent with the additional report to the Audit Committee in accordance with Article 11 EU Audit Regulation (“Additional report to the audit committee”).
Lead engagement partner
The lead engagement partner for the audit is Mr. Florian Möller.
Hannover, 7 March 2018
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