diff --git "a/Germany/19.Hannover Rück_$33.67 B_FInancial Service/2014/results.txt" "b/Germany/19.Hannover Rück_$33.67 B_FInancial Service/2014/results.txt" new file mode 100644--- /dev/null +++ "b/Germany/19.Hannover Rück_$33.67 B_FInancial Service/2014/results.txt" @@ -0,0 +1,229109 @@ +Key figures +104.3% +98.2% +Large losses as percentage of +net premium earned (property +and casualty reinsurance) 5 +6.1% +8.4% +Retention +87.6% +89.0% +7.0% +89.8% +16.5% +12.3% +91.2% +90.1% +Return on investment +(excl. funds withheld by +ceding companies)6 +3.3% +3.4% +4.1% +4.1% +4.0% +EBIT margin7 +11.8% +10.1% +95.8% +94.9% +94.7% +Combined ratio (property +and casualty reinsurance) 4 +361.8 +361.8 +253.3 +277.4 +Dividend per share in EUR +3.00+1.252.3 ++41.7% +3.00 +2.60+0.403 +2.10 +2.30 +Share price at year-end in EUR +11.4% +74.97 +62.38 +58.96 +38.325 +40.135 +Market capitalisation at year- +end +9,041.2 ++20.2% +7,522.8 +7,110.4 +4,621.9 +4,840.2 +Ratios ++20.2% ++41.7% +7.8% +Return on equity (after tax) +Market and Direct Business +Facultative Reinsurance +Global Reinsurance +• +Worldwide Treaty Reinsurance +Catastrophe XL (Cat XL) +Structured Reinsurance and +Insurance-Linked Securities +Hannover Re Group +Life & Health reinsurance +Financial Solutions +Risk Solutions +• Longevity +• +Mortality +• +Morbidity +108 +Key figures +The Group worldwide +Strategic business groups +An overview +Gross premium +in EUR million +101* +13,774.2 13,963.4 +• +United Kingdom, Ireland, London +• +Credit, Surety and Political Risks +14.7% +15.0% +15.4% +12.8% +18.2% +1 Adjusted pursuant to IAS 8 +2 Proposed dividend +3 +Dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014 as well as EUR 2.60 plus special dividend of EUR 0.40 for 2012 +4 Including funds withheld +5 +Hannover Re Group's net share for natural catastrophes and other major losses in excess of EUR 10 million gross as a percentage +of net premium earned (until 31 December 2011: in excess of EUR 5 million gross) +6 +11.7% +Excluding effects from ModCo derivatives and inflation swaps +The Group worldwide +107 +A complete list of our shareholdings is provided on page 163 et seq. of the notes. +The addresses of the Hannover Re Group's branch offices and subsidiaries abroad +are to be found in the section "Further information" on page 244 et seq. +Strategic business groups +Property & Casualty reinsurance +Target Markets +• North America +Continental Europe +Specialty Lines Worldwide +• Marine +• Aviation +• +7 Operating result (EBIT)/net premium earned +512.52 +Dividend +37.39 +(83.0) +(96.9) +(535.8) +(185.1) +Net investment income +1,471.8 ++4.3% +1,411.8 +1,655.7 +1,384.0 +1,258.9 +Operating profit (EBIT) +1,466.4 ++19.3% +1,229.1 +1,393.9 +841.4 +1,177.9 +Group net income +985.6 ++10.1% +895.5 +849.6 +606.0 +748.9 +(23.6) +Net underwriting result +10,047.0 +10,751.5 +14 +Annual Report +hannover re +Ⓡ +106 +2014 ++/- previous +2013 +20121 +2011 +2010 +Figures in EUR million +Balance sheet +year +Gross written premium +14,361.8 ++2.9% +13,963.4 +13,774.2 +12,096.1 +11,428.7 +Net premium earned +12,423.1 ++1.6% +12,226.7 +12,279.2 +Results +Policyholders' surplus +10,239.5 ++16.8% +31,875.2 +31,874.4 +28,341.2 +25,411.1 +Total assets +60,457.6 ++12.1% +53,915.5 +54,811.7 +49,867.0 +46,725.3 +Share ++13.7% +Earnings per share +8.17 ++10.1% +7.43 +7.04 +5.02 +6.21 +4 +62.61 ++28.2% +48.83 +50.02 +41.22 +(basic and diluted) in EUR +14,361.8 +36,228.0 +Investments (excl. funds with- +8,767.9 +8,947.2 +7,338.2 +6,987.0 +Equity attributable to +shareholders of Hannover +Rück SE +7,550.8 ++28.2% +5,888.4 +6,032.5 +4,970.6 +held by ceding companies) +4,509.0 +702.2 ++9.4% +641.6 +681.7 +636.0 +Hybrid capital +1,986.5 +-11.2% +2,237.8 +2,233.0 +1,731.6 +608.9 +1,869.1 +Non-controlling interests +15,000 +12,096.1 +11,428.7 +12,000 +Further information +244 +Letter from the Chairman of the Executive Board 2 +Executive Board of Hannover Rück SE +Branch offices and subsidiaries +6 +of the Hannover Re Group abroad +244 +The Hannover Re share +8 +Glossary +247 +Our strategy +12 +List of graphs, tables and charts* +252 +Financial calendar +255 +Contact information +256 +Combined management report +Annual financial statements +20 +20 +Imprint +257 +2 +For our investors +Contents +The rating agencies most relevant to the insurance industry have awarded both +Hannover Re and E+S Rück very good financial strength ratings: Standard & Poor's +"AA-" (Very Strong) and A.M. Best "A+" (Superior). +2 +-0.50. +2.60 +3.00 +1 +-1.80- +0 +2005 +2006 +2007 +2008 +2009 +137 +2010 +20121 +2013 +2014 +1 Adjusted pursuant to IAS 8 +2 +3 +Dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014 as well as EUR 2.60 plus special dividend of +EUR 0.40 for 2012 and EUR 1.80 plus special dividend of EUR 0.50 for 2007 +Proposed dividend +Key figures +The Group worldwide +Strategic business groups +About us +Hannover Re, with gross premium of more than EUR 14 billion, is the third-largest +reinsurer in the world. +We transact all lines of property & casualty and life & health reinsurance and are +present on all continents with roughly 2,500 staff. The German business of the +Hannover Re Group is transacted by our subsidiary E+S Rück. +2011 +Notes +147 +Supervisory Board +Finance and Accounting +Roland Vogel +Risk Management +Corporate Development +Corporate Communications +Human Resources Management +Internal Auditing +Business Opportunity Management +Compliance +Controlling +Ulrich Wallin +Chairman +United Kingdom/Ireland, North +America, Northern, Eastern and +Central Europe +• +Life & Health Reinsurance +Dr. Klaus Miller +• Longevity Solutions +Africa, Asia, Australia/New Zea- +land, Latin America, Western and +Southern Europe +Information Technology +Life & Health Reinsurance +Executive Board of Hannover Rück SE +For our investors +5 +Hannover Re | Annual Report 2014 +Chairman of the Executive Board +Ulrich Wallin +似 +Yours sincerely, +I would like to thank you, our valued shareholders, most sincerely for your trust - also on behalf of my +colleagues on the Executive Board. I would also like to express my appreciation to our employees for +their very good and reliable work in the year just ended. Going forward, as in the past, you can rest +assured that we shall do everything in our power to safeguard Hannover Re's successful development. +It is and will remain our goal to increase the value of your company on a sustainable basis. +When it comes to our total business, we expect the gross premium volume for the current year to +remain stable or show low single-digit percentage growth after adjustment for exchange rate effects. +We are targeting Group net income in the order of EUR 875 million. As always, these statements are +subject to the proviso that major losses stay within the expected bounds of EUR 690 million and that +there are no exceptionally adverse movements on capital markets. +In view of the substantially enlarged asset portfolio, we expect to be able to hold net income from +investments under own management broadly stable. This will, however, mean a decrease in the net +return on investment to an anticipated 3 percent. +Hannover Re | Annual Report 2014 +Claude Chèvre +1.60 +Investment and Collateral Management +Facility Management +Hannover Re | Annual Report 2014 +240 +Report by the Supervisory Board +240 +Supervisory Board of Hannover Rück SE +243 +* Graphs, tables and charts are numbered and listed +on page 252 et seq. +Ulrich Wallin, +Chairman of the +Executive Board +Dear Shareholders, +Ladies and Gentlemen, +- +When we published our results for the first nine months of 2013 in November of that year we provided +a first preview of our expectations for your company's performance in the 2014 financial year. At the +same time, we had explained in considerable detail why we anticipated good results for 2014 despite +a challenging climate characterised by significantly increased competition in property and casualty +reinsurance and a protracted period of low interest rates. It is with great pleasure that I can now inform +you that our performance in 2014 did indeed live up to these expectations – and in many areas actually +surpassed them. Net income in life and health reinsurance improved, for example, by EUR 41 million +or 25 percent. Despite the rather soft market, we also further boosted the underwriting profit in prop- +erty and casualty reinsurance and not only recorded stable investment income, but even appreciably +increased it in absolute terms. All this means that we surpassed the record result of 2013 by another +10 percent to deliver net income of EUR 986 million. Hannover Re's financial strength also developed +favourably in the year under review. Shareholders' equity excluding non-controlling interests rose by +28 percent from EUR 5.9 billion to EUR 7.6 billion. The key factors here were a substantial increase in +retained earnings due to the good result as well as a rise of more than EUR 1 billion in the valuation +reserves. Despite this substantial surge in shareholders' equity, the return on equity remained virtually +on a par with the previous year at 14.7 percent. The book value per share climbed to EUR 62.61, the +first time it has exceeded the EUR 60 level. +This gratifying business development enables us in turn to distribute to you, our valued shareholders, +an attractive dividend. The Supervisory Board and Executive Board will propose to the Annual General +Meeting that you should be paid a dividend of EUR 3.00 and a special dividend of EUR 1.25 per share. +This is a reflection of the fact that your company's capitalisation now comfortably exceeds the required +capital. With this in mind, such a special dividend makes sense as a capital management measure. +I would now like to explore below in greater detail the developments in our business groups of +Property & Casualty reinsurance and Life & Health reinsurance as well as on the investments side. +6 +2 +The state of the market in property and casualty reinsurance continues to be fiercely competitive. With +the supply of reinsurance capacity significantly exceeding demand, we are faced with what can only +be described as a buyer's market. This is due not least to the very good results enjoyed by reinsurers +in recent years and, furthermore, to the inflow of capital from so-called alternative markets. What is +more, the healthy capital resources of most primary insurers have prompted a tendency for them to +raise their retentions. As a consequence of these factors, covers to protect against losses from natural +catastrophes - in particular - could only be placed at appreciable price mark-downs. Rate reductions +were observed in many other reinsurance sectors too. In view of this general climate, we can be satis- +fied with the development of property and casualty reinsurance business at Hannover Re. Through dis- +ciplined underwriting and a concentration first and foremost on our renewal business, we succeeded +in preserving the quality of our portfolio on a good level. We were further helped by the fact that we +were able to purchase our reinsurance protection at more reasonable prices. Despite our quality-driven, +prudent underwriting policy, we thus modestly increased the premium volume in property and casualty +reinsurance to around EUR 8 billion. +- +The underwriting result additionally benefited from another decline year-on-year in the major loss +incidence for 2014. This was due above all to the absence of large natural disasters, supported in par- +ticular by another benign hurricane season. An exceptional accumulation of major losses was, however, +incurred in the aviation line. Despite this, expenditure on major losses – at EUR 426 million – was +substantially lower than the figure of EUR 670 million that we had budgeted. On the one hand this gave +us the latitude to maintain the very high confidence level of our loss reserves, while at the same time +positively affecting the underwriting result. The combined ratio consequently improved to 94.7 percent +after 94.9 percent in the comparable period. Combined with higher investment income in property and +casualty reinsurance and improved other income, this caused the operating profit in property and casu- +alty reinsurance to surge by an appreciable 12 percent to EUR 1.2 billion. +Turning now to life and health reinsurance, it is particularly gratifying here that after the somewhat +disappointing experience in 2013 we were able, as expected, to generate substantially better results. +While the international market environment was thoroughly challenging on account of stubbornly low +interest rates, our partnership-based relationships with our clients and our global presence nevertheless +enabled us to act on sufficient opportunities for sustainable growth. This is especially true of our size- +able growth in the field of reinsurance solutions for longevity risks relating to pension liabilities from +annuity policies. We have traditionally written this business mainly in the United Kingdom. Now, how- +ever, we are seeing lively interest in such reinsurance solutions outside the United Kingdom as well. In +the financial year just ended, for example, we reinsured a substantial block of pension commitments in +France for the first time. In addition, we successfully sustained our growth in Asia, and here especially +China, in Australia and in US mortality business. Gross premium in life and health reinsurance conse- +quently grew by a pleasing 5 percent - adjusted for currency translation effects to EUR 6.5 billion. +The operating profit (EBIT) in life and health reinsurance soared by 75 percent to EUR 264 million. The +surge in the result compared to the previous year, which had been impacted by losses in Australian dis- +ability business and to some extent also in US mortality business, shows that the steps taken to improve +profitability were effective. In addition, we booked a particularly pleasing profit contribution from our +underwriting of financially oriented reinsurance covers in the United States. +Hannover Re | Annual Report 2014 +3 +For our investors +Particularly bearing in mind that the general environment was by no means straightforward, we are +thoroughly satisfied with the development of our investments. Our portfolio of assets under own +management grew by an appreciable EUR 4 billion to EUR 36 billion. This was attributable to a con- +tinued very positive operating cash flow, a substantial rise in hidden reserves - especially for our +fixed-income securities – and exchange rate effects. Despite falling interest rates around the world, we +boosted net investment income by almost 4 percent to EUR 1.1 billion. It was highly gratifying to note +that the operating investment result also increased by around 3 percent. Particularly important positive +factors here were our increased exposure to real estate and income from private equity investments, +thereby offsetting the declines in interest rates. The net return on our investments stood at 3.3 per- +cent and thus beat the anticipated planned figure despite the considerably higher portfolio values. +We consider the net investment income including interest on funds withheld and contract deposits of +EUR 1.5 billion - equivalent to an increase of more than 4 percent - to be highly satisfactory. +Permit me, if I may, to close by taking a forward glance at the current financial year. +The general environment facing reinsurers continues to be highly challenging in 2015. Little has +changed, whether it comes to the fierce competitive intensity in property and casualty reinsurance or +the ongoing very low interest rates and their dampening effect on investment income. Nevertheless, we +remain convinced that we can generate another good result in the current year, provided major losses +do not come in significantly over budget and as long as capital markets are spared any distortions. +In property and casualty reinsurance it is our expectation that we can maintain the combined ratio +- depending on the burden of major losses - on the level of recent years. In this regard, we should +benefit from our good market position as a broadly diversified reinsurer as well as our low adminis- +trative expenses compared to our competitors. This was borne out by the treaty renewals as at +1 January 2015. Despite the soft market and associated rate erosion, we were able to preserve the +good quality of our portfolio. In so doing, we were helped by the fact that we concentrated primarily +on our renewal business; for the most part, our clients here recognise us as an enduring and reliable +partner. In addition, we wrote new business selectively, most notably in North America and Asia, +thereby enabling us to moderately enlarge our premium volume. Just as it was at the turn of the year, +the market environment is expected to remain intensely competitive over the months ahead. It is never- +theless our expectation that we can keep our premium volume stable at unchanged exchange rates. +Hannover Re | Annual Report 2014 +digerent +0.40 +2.10 +514.4 +(127.0) +102* +985.6 +849.6 +895.5 +733.7 +748.9 +606.0 +2005 +2006 +2007 +2008 +2009 +2010 +2011 +20121 +2013 +2014 +Policyholders' surplus +in EUR million +103* +12,000 +10,239.5 +8,947.2 +721.7 +-200 +0 +49.3 +10,274.8 +9,317.4 +9,289.3 +8,258.9 +8,120.9 +9,000 +6,000 +3,000 +0 +2005 +2006 +2007 +8,767.9 +2008 +2010 +2011 +20121 +2013 +2014 +Group net income (loss) +in EUR million +1,000 +800 +600 +400 +200 +2009 +10,000 +6,987.0 +7,338.2 +27.77 +21.57 +24.03 +23.47 +20 +Dividend +in EUR +2005 +2006 +2007 +2008 +2009 +30.80 +2010 +20121 +2013 +2014 +105* +4.252.3 +4 +3.002 +3.00 +1.25 +3 +2.302 +2.30 +2011 +2.10 +40 +41.22 +8,000 +6,000 +4,579.6 4,878.4 +5,295.1 +5,621.6 +4,708.4 +4,000 +2,000 +0 +2005 +2006 +2007 +37.39 +2008 +2010 +2011 +20121 +2013 +2014 +Book value per share +in EUR +104* +62.61 +60 +50.02 +48.83 +2009 +somewhat +Book value per share in EUR +In life and health reinsurance we anticipate a further rise in profitability for the current year. Among +other things, the substantial rate increases in Australian group business should leave a clearly positive +mark on our results. Similarly, our US portfolio and the business written by our branch in Paris are +expected to generate higher profits. Furthermore, we continue to identify healthy potential for growth, +especially at our newly established branch in Canada. In Asia we are seeing promising signs, not only +in China but also in Japan. For the coming year, therefore, we are looking to book slightly higher gross +premium-adjusted for exchange rate effects - in life and health reinsurance. +2010 +2009 +2008 +2007 +2006 +20051 +Combined ratio +(property and casualty +reinsurance) +94.7 +94.9 +95.8 +104.3 +98.2 +96.6 +95.4 +99.7 +Hannover Re | Annual Report 2014 +95 +Business +process +risks are associated with the risk of deficient +or flawed internal processes, which can arise as a consequence +of an inadequate process organisation. We have defined cri- +teria to evaluate the maturity level of the material processes, +e.g. for the reserving process. This enables us to ensure that +process risks are monitored. In cooperation with the process +participants, the process owner evaluates the risks of the meta- +process and develops measures for known, existing risks. Data +quality is also a highly critical success factor, especially in risk +management, because - among other things - the validity of +the results delivered by the internal model depends primarily +on the data provided. The overriding goal of our data quality +management is the sustainable improvement and safeguarding +of data quality within the Hannover Re Group. +Compliance risks are associated with the risk of breaches of +standards and requirements, non-compliance with which may +entail lawsuits or official proceedings with not inconsiderable +detrimental implications for the business activities of the Han- +nover Re Group. Regulatory compliance, compliance with the +company's Code of Conduct, data privacy and compliance with +anti-trust and competition laws have been defined as issues +of particular relevance to compliance. The compliance risk +also extends to tax and legal risks. Responsibilities within the +compliance organisation are regulated and documented Group- +wide and interfaces with risk management have been put in +place. The set of tools is rounded off with regular compliance +training programmes. For further information on compliance- +related topics, including for example lawsuits, contingent lia- +bilities and commitments, please see Section 8.6 "Lawsuits" +and Section 8.7 “Contingent liabilities and commitments” on +page 234 et seq. +In selected market niches we transact primary insurance busi- +ness 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 associ- +ated with such sales channels, although these are minimised +through the careful selection of agencies, mandatory under- +writing guidelines and regular checks. +Risks associated with the outsourcing of functions can result +from such outsourcing of functions, services and/or organisa- +tional units to third parties outside Hannover Re. Mandatory +rules have been put in place to limit this risk; among other +things, they stipulate that a risk analysis is to be performed +prior to a material outsourcing. In the context of this analysis a +check is carried out to determine, inter alia, what specific risks +exist and whether outsourcing can even occur in the first place. +2011 +Fraud risks refer to the risk of intentional violations of laws +or regulations by members of staff (internal fraud) and/or by +externals (external fraud). This risk is reduced by the internal +control system as well as by the audits conducted by Group +Auditing on a Group-wide and line-independent basis. +Information technology risks and information security risks +arise, inter alia, out of the risk of the inadequate integrity, con- +fidentiality or availability of systems and information. By way +of example, losses and damage resulting from the unauthor- +ised passing on of confidential information, the malicious over- +loading of important IT systems or from computer viruses are +material to the Hannover Re Group. Given the broad spectrum +of such risks, a diverse range of steering and monitoring meas- +ures and organisational standards, including for example the +requirement to conclude confidentiality agreements with ser- +vice providers, have been put in place. In addition, our employ- +ees are made more conscious of such security risks through +practically oriented tools provided online in the intranet or by +way of training opportunities. +When it comes to reducing business interruption risks, the +paramount objective is the quickest possible return to nor- +mal operations after a crisis, for example through implemen- +tation of existing contingency plans. Guided by internation- +ally accepted standards, we have defined the key framework +conditions and - among other measures - we have assembled +a crisis team to serve as a temporary body in the event of an +emergency. The system is complemented by regular exercises +and tests. In the 2014 financial year, for example, we compiled +a leaflet on correct behaviour in the event of a business inter- +ruption; this condenses in compact form the key information +that all employees need to know (e. g. information channels in +a crisis situation). Regular risk reporting to the Risk Committee +and the Executive Board has also been put in place. +96 +Hannover Re | Annual Report 2014 +112.8 +100.8 +The proper functioning and competitiveness of the Hannover +Re Group can be attributed in large measure to the expertise +and dedication of our staff. In order to minimise personnel +risks, we pay special attention to the skills, experience and +motivation of our employees and foster these qualities through +outstanding personnel development and leadership activities. +Regular employee surveys and the monitoring of turnover rates +ensure that such risks are identified at an early stage and scope +to take the necessary actions is created. +Within the overall framework of operational risks we consider, +in particular, business process risks, compliance risks, risks +associated with sales channels and outsourcing of functions, +fraud risks, personnel risks, information technology risks/infor- +mation security risks and business interruption risks. +2012 +2014 +Ensuring the quality of our portfolios +Calculation of the loss expectancy +• +Historical loss and exposure analysis +• Future inflation +. +Step 1 +Changes in the quality of underlying risks +88 +Changes in the quantity of underlying risks +Discounting of future cash flows +Cost estimation +• +Commissions +• Broker fees +Step 2 +• Internal administration +M66 +in % +M 67 +Combined and catastrophe loss ratio +In addition, Hannover Re's regional and treaty departments +prepare regular reports on the progress of their respective +renewals. The reporting in this regard makes reference inter +alia to significant changes in conditions, risks (such as inad- +equate premiums) as well as to emerging market opportuni- +ties and the strategy pursued in order to accomplish targets. +The development of the combined ratio in property and casu- +alty reinsurance in 2014 and prior years is shown in the table +below: +Hannover Re | Annual Report 2014 +Capital structure +2013 +. +to diversification +tility of the business covered and contribution +Level of capital allocation determined by vola- +• +Calculation of the cost of capital +Step 3 +• Expected return on equity +The change in risk capital in the 2014 financial year can be +attributed primarily to the increased business volume and the +resulting higher exposure for operational risks. +1 Required risk capital at a confidence level of 99.5% +296.8 +0 +22 +459 +297 +379 +440 +519 +264 +277 +313 +332 +101 +84 +1,376 +1,404 +117 +-98 +In terms of the Hannover Re Group's major companies, +EUR 219.1 million (7.0%) of our accounts receivable from +reinsurance business totalling EUR 3,114.0 million were +older than 90 days as at the balance sheet date. +The average default rate over the past four years was +0.3%. +Hannover Re | Annual Report 2014 +Combined management report +Retrocession gives rise to claims that we hold against our +retrocessionaires. These reinsurance recoverables - i. e. the +reinsurance recoverables on unpaid claims - amounted to +EUR 1,376.4 million (EUR 1,403.8 million) as at the balance +sheet date. +The following chart shows the development of our reinsur- +ance recoverables – split by rating quality – due from our +retrocessionaires. +- +1 +Reinsurance recoverables as at the balance sheet date M 75 +in EUR million +1,500 +1,025 +1,000 +-57 +1,551 +1,538 +2,000 +0 +500 +-345 +2. We manage operational risks proactively and +sustainably. +3. We consider events and scenarios that cover the entire +spectrum of operational risks. +4. We strive for appropriate risk reduction through our +measures. +5. We manage within defined limits and create transpar- +ency through measurements. +1. We integrate operational risk management into the +company and its culture. +With the aid of the Self-Assessment for Operational Risks we +determine the maturity level of our operational risk manage- +ment system and define action fields for improvements. The +assessment is carried out, for example, by assessing the matu- +rity level of the respective risk management function or of the +risk monitoring and reporting. The system enables us, among +other things, to prioritise operational risks and is used inter +alia to calculate the capital commitment in our internal model. +in EUR million +Operational risk +M76 +2014 +2013 +382.7 +Required risk capital¹ for operational risks +The price/premium risk lies primarily in the possibility of a +random claims realisation that diverges from the claims expec- +tancy on which the premium calculation was based. Regular +and independent reviews of the models used for treaty quota- +tion as well as central and local underwriting guidelines are +vital management components. We have put in place a multi- +step quotation process to ensure the quality of our portfolios: +Operational risks refer to the risk of losses occurring because +of the inadequacy or failure of internal processes or as a result +of events triggered by employee-related, system-induced or +external factors. In contrast to underwriting risks (e.g. the +reserve risk), which we enter into in a deliberate and con- +trolled manner in the context of our business activities, oper- +ational risks are an indivisible part of our business activities. +The focus is therefore on risk avoidance and risk minimisation. +As a derivation from our strategic principle "We manage risks +actively", we act according to the following principles in rela- +tion to operational risks: +Further remarks on technical and other assets which were +unadjusted but considered overdue as at the balance sheet +date as well as on significant impairments in the year under +review are provided in Section 6.4 “Technical assets" on +page 194 et seq., Section 6.6 “Other assets" on page 197 et seq. +and Section 7.2 "Investment result" on page 217 et seq. +1 +647 +664 +601 +553 +325 +Operational risks +0 +2011 +Secured AAA AA A +2012 +2013 +2014 + BBB +in EUR +million +in % +in % +in EUR +million +in EUR +million +in % +69.5 +5,468.0 +59.6 +3,909.0 +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 strate- +gic 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 man- +agement 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 per- +sons 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 mem- +ber of the Executive Board turns 65. The Supervisory Board +takes account of diversity considerations in the composition +of the Executive Board. +103 +The Rules of Procedure of the Supervisory Board provide inter +alia that each member of the Supervisory Board must have +the knowledge, skills and professional experience required +for orderly performance of their tasks and that the Supervisory +Board must have a sufficient number of independent mem- +bers. Currently, four of the six shareholder representatives are +independent as defined by Item 5.4.2 of the German Corporate +Governance Code. At least one independent member shall have +technical expertise in the fields of accounting and the audit- +ing of financial statements. Persons suggested to the Annual +General Meeting as candidates for election to the Supervisory +Board may not be older than 72 at the time of their election. +Nominations shall take account of the company's international +activities as well as diversity. For their part, each member of the +Supervisory Board shall ensure that they have sufficient time +to discharge their mandate. The Supervisory Board meets at +least twice each calendar half-year. If a member of the Super- +visory Board participates in less than half of the meetings of +the Supervisory Board in a financial year, this shall be noted +in the Supervisory Board's report. No more than two former +members of the company's Executive Board may belong to the +Supervisory Board. +In the year under review the Supervisory Board also carried +out another audit of the efficiency of its work. Experiences +gathered in connection with the electronic distribution of docu- +ments to the members of the Supervisory Board were evaluated +as part of this efficiency audit. +Hannover Re | Annual Report 2014 +Working practice of the Executive Board +and Supervisory Board +The Executive Board and Supervisory Board of Hannover Rück +SE work together on a trusting basis to manage and monitor +the company. In accordance with the Rules of Procedure of the +Executive Board, matters of fundamental importance require +the consent of the Supervisory Board. In addition, the Super- +visory Board is kept informed on a regular and timely basis +of the business development, the execution of strategic deci- +sions, material risks and planning as well as relevant compli- +ance issues. The Chairman of the Supervisory Board stays in +regular contact with the Chairman of the Executive Board in +order to discuss with him significant business occurrences. +The composition of the Executive Board (including areas of +responsibility) as well as of the Supervisory Board and its com- +mittees is set out on pages 6 et seq. and 243 respectively of +the present Annual Report. +Working practice of the committees +The Nomination Committee is tasked with proposing to the +Supervisory Board appropriate candidates for the nominations +that it puts forward to the Annual General Meeting for election +to the Supervisory Board. +In order to efficiently perform its tasks the Supervisory Board +has formed a number of committees: the Finance and Audit +Committee, the Standing Committee and the Nomination Com- +mittee. The Supervisory Board committees are each comprised +of three members and prepare matters within their scope of +competence for discussion and adoption of a resolution by the +full Supervisory Board. In addition, the committees are also +assigned their own authority to adopt resolutions. +The Finance and Audit Committee monitors the accounting +process and the effectiveness of the internal control system, +the risk management system and the internal auditing system. +It also handles issues relating to compliance and the informa- +tion system for the Supervisory Board and discusses the interim +reports as well as the semi-annual reports prior to their publi- +cation. It prepares the Supervisory Board's examination of the +annual financial statement, management report and proposal +for the appropriation of profit as well as of the consolidated +financial statement and Group management report. In this con- +text, the Finance and Audit Committee receives detailed infor- +mation on the auditor's view of the net assets, financial position +and results of operations as well as explanations of the effects +of any modified recognition and measurement principles on the +net assets, financial position and results of operations together +with available alternatives. In addition, the committee prepares +the Supervisory Board's decision on the commissioning of the +independent auditor for the financial statements. It considers +matters associated with the necessary independence of the +auditor, the awarding of the audit mandate to the independ- +ent auditor, the determination of the audit concentrations and +the fee agreement. The minutes of the meetings of the Finance +and Audit Committee are also made available to the members +of the Supervisory Board who do not sit on the committee. +The Standing Committee prepares personnel decisions for the +Supervisory Board. It bears responsibility for granting loans +to the group of persons specified in §§ 89 Para. 1, 115 Stock +Corporation Act and those considered equivalent pursuant to +§ 89 Para. 3 Stock Corporation Act as well as for approving +contracts with Supervisory Board members in accordance with +§ 114 Stock Corporation Act. It exercises the powers arising +out of § 112 Stock Corporation Act in lieu of the Supervisory +Board and in cooperation with the Executive Board - ensures +that long-term succession planning is in place. +For further details of the activities of the Supervisory Board +committees please see the explanations provided in the Super- +visory Board Report on pages 240 to 242. +Compliance +Hannover Rück SE considers a properly functioning compli- +ance structure to be an essential tool for ensuring compliance +with external rules and regulations as well as requirements +imposed internally by the company. Our compliance structure, +which consists of compliance modules precisely tailored to the +specific features of our Property & Casualty and Life & Health +reinsurance business groups, facilitates optimal application. +The compliance committees are comprised of members from +the respective business groups as well as from the areas of +Legal, Finance, Accounting and Investments. The chairs report +directly to the Executive Board. This structure safeguards +adherence to the standards that have been set. +Risk monitoring and steering +The goal defined in the Rules of Procedure to have at least two +women sitting on the Supervisory Board was again surpassed +in the year under review with three female members of the +Supervisory Board. In addition, one of the members of the +Supervisory Board's Nomination Committee is a woman. Once +again, the Executive Board and Supervisory Board considered +the programme for the advancement of women that had been +implemented within the workforce in 2012 and discussed the +progress that had been made. The primary objective of this +programme is to foster promising young female profession- +als through a variety of targeted measures and to enlarge the +proportion of women in management positions. +The compliance report for the 2014 calendar year will be sub- +mitted to the Finance and Audit Committee in March 2015. +The reporting sets out the structure and diverse range of activi- +ties of Hannover Re in this regard. The findings of the sepa- +rate data privacy reporting for the 2014 calendar year are also +included in the compliance report. After in-depth examination +of topics such as directors' dealings, ad hoc and other disclo- +sure requirements, the insider register, 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 in the future Hannover Re is in full conform- +ity with the internal and external requirements governing its +business activities. +of the Supervisory Board +Considerable time was once again devoted to the issue of +sustainability. The strategic orientation of Hannover Rück SE +towards sustainability constitutes an increasingly important +element of the enterprise strategy. The aim here is to achieve +commercial success on the basis of a solid business model in +accordance with the needs of our staff and the company as well +as with an eye to protecting the environment and conserving +natural resources. We strive to reduce as far as possible the +greenhouse gas emissions produced by our day-to-day busi- +ness activities in order to come closer to reaching our goal +of carbon neutrality. In so doing, we are demonstrably taking +responsibility for a sustainable future. In 2011 we defined for +the first time a concrete Sustainability Strategy setting out our +primary objectives in this field. Not only that, in the year under +review we again presented our Sustainability Report in the form +of a so-called "GRI Report” (Global Reporting Initiative). Fur- +ther information on the topic of sustainability is provided on +our website (www.hannover-re.com/sustainability/index.html). +Premature termination of a service contract may only take the +form of cancellation by mutual consent. Even if the Supervisory +Board insists upon setting a severance cap when concluding or +renewing an Executive Board contract, this does not preclude the +possibility of negotiations also extending to the severance cap in +the event of a member leaving the Executive Board. In addition, +the scope for negotiation over a member leaving the Executive +Board would be restricted if a severance cap were agreed, which +could be particularly disadvantageous in cases where there is +ambiguity surrounding the existence of serious cause for termi- +nation. In the opinion of Hannover Rück SE, it is therefore in the +interest of the company to diverge from this recommendation. +Combined management report +The variable compensation of the members of the Executive +Board is granted in part in the form of Hannover Re share +awards. The maximum number of share awards granted at +the time of allocation depends upon the total amount of vari- +able compensation, which is subject to an upper limit (cap), +i.e. the allocation of share awards is limited by the cap. The +share awards have a vesting period of four years. During this +period the members of the Executive Board therefore partici- +pate in positive and negative developments at the company, as +reflected in the share price. The equivalent value of the share +awards is paid out to the members of the Executive Board after +the end of the vesting period. The amount paid out is deter- +mined according to the share price of the Hannover Re share +applicable at the payment date plus an amount equivalent to +The risk management system applicable throughout the entire +Hannover Re Group is based on the risk strategy, which in turn +is derived from the corporate strategy. A core component is the +systematic and comprehensive recording of all risks that from +the current standpoint could conceivably jeopardise the com- +pany's profitability and continued existence. Further details in +this regard may be obtained from the risk report contained in +this Annual Report on page 74 et seq. +Hannover Re | Annual Report 2014 +101 +the total dividends per share distributed during the vesting +period. The share awards consequently follow the economic +fortunes of the Hannover Re share. +The amount of variable compensation deriving from the grant- +ing of share awards is thus capped at the time when the share +awards are allocated, but it is not capped again at the time of +payment. Bearing in mind the harmonisation of the interests +of shareholders and of the members of the Executive Board of +Hannover Rück SE that is sought through the share awards, +the company does not consider further limitation of the amount +of variable remuneration resulting from the granting of share +awards at the time of payment to be expedient. From the com- +pany's perspective, the use of Hannover Re share awards as a +method of payment constitutes – in economic terms – a com- +pulsory investment in Hannover Re shares with a four-year +holding period. +For formal purposes and as a highly precautionary measure, +Hannover Rück SE is therefore declaring a divergence from +Code Item 4.2.3 Para. 2. +Code Item 4.2.3 Para. 4; Caps on severance +payments in management board contracts +Pursuant to Item 4.2.3 Para. 4 of the Code, when management +board contracts are concluded care should be taken to ensure +that payments made to a member of the management board +upon premature termination of his or her contract of service +do not exceed a certain amount. +Code Item 5.2 Para. 2; Chair of the Audit Committee +Pursuant to Code Item 5.2 Para. 2, the Chair of the Supervisory +Board shall not chair the Audit Committee. +Sustainability of enterprise management +The current Chairman of the Supervisory Board of Hannover +Rück SE served as the company's Chief Financial Officer in the +period from 1994 to 2002. During this time he acquired superb +knowledge of the company and he is equipped with extensive +professional expertise in the topics that fall within the scope +of responsibility of the Finance and Audit Committee. With +this in mind, the serving Chairman of the Supervisory Board +is optimally suited to chairing the Audit Committee. In the +opinion of Hannover Rück SE, it is therefore in the interest of +the company to diverge from this recommendation. +Item 5.3.2 Sentence 3 of the Code recommends that the Chair +of the Audit Committee should be independent. +The current Chairman of the Finance and Audit Committee is +at the same time also the Chairman of the Board of Manage- +ment of the controlling shareholder and hence cannot, in the +company's legal assessment, be considered independent. As +already explained in advance in the justification for divergence +from Code Section 5.2 Para. 2, the current Chairman of the +Supervisory Board is, however, optimally suited to chairing +the Finance and Audit Committee. This assessment is also not +cast into question by the fact that the Committee Chairman +cannot therefore be considered independent within the mean- +ing of the German Corporate Governance Code. Furthermore, +since his service as Chief Financial Officer of Hannover Rück +SE dates back to a period more than ten years ago, it is also +the case that the reviews and checks performed by the Finance +and Audit Committee no longer relate to any timeframe within +which he himself was still a member of the Executive Board or +decisions initiated by him as a member of the Executive Board +were still being realised. In the opinion of Hannover Rück SE, +it is therefore in the interest of the company to diverge from +this recommendation. +Hannover, 4 November 2014 +Executive Board +Supervisory Board +Further enterprise management +principles of Hannover Re +In addition to the Corporate Governance principles, Hannover +Rück SE has adopted a more extensive Code of Conduct (www. +hannover-re.com/resources/cc/generic/codeofconduct-e.pdf). +Complementing our corporate strategy and the Corporate Gov- +ernance principles, it establishes rules governing integrity in +the behaviour of all employees of Hannover Rück SE and is +intended to help members of staff cope with the ethical and +legal challenges that they face as part of day-to-day work. The +rules defined in the Code of Conduct reflect the high ethical +and legal standards that guide our actions worldwide. It is our +belief that integrity in dealings with our stakeholders consti- +tutes the foundation of a successful enterprise. In both our +strategic planning and our day-to-day business activities, we +therefore aspire to consistently apply the highest ethical and +legal standards; for our actions and the way in which every +single one of us presents and conducts himself or herself are +crucial in shaping the image of Hannover Rück SE. +102 +Hannover Re | Annual Report 2014 +Code Item 5.3.2; Independence of the +Chair of the Audit Committee +104 +Function, responsibility, +length of service on the Ex- +ecutive Board +Combined management report +Measurement basis and payment procedures for fixed remuneration +Components +Basic remuneration; +M78 +Measurement basis/ +parameters +Condition of payment +Paid out +Contractual stipulations +12 equal monthly instalments +Non-cash compensation, +fringe benefits: +Accident, liability and lug- +gage insurance, company car +for business and personal use +(tax on the non-cash benefit +payable by the Board member), +reimbursement of travel ex- +penses and other expenditures +incurred in the interest of the +company +Remuneration reviewed by the +Supervisory Board normally at +two-year intervals. Since 2014 +gradual conversion of Execu- +tive Board contracts: review +of annual fixed salary during +the contract period no longer +applies. +Variable remuneration (approx. 60% of total +remuneration upon 100% goal attainment) +The profit- and performance-based remuneration (variable +remuneration) is contingent on certain defined results and the +attainment of certain set targets. The set targets vary according +to the function of the Board member in question. The variable +remuneration consists of a profit bonus and a performance +bonus. +The variable remuneration is defined at the Supervisory Board +meeting that approves the consolidated financial statement for +the financial year just ended. +The following chart summarises the make-up of the variable +remuneration components. For details of measurement and +payment procedures please see the two tables following the +chart. +106 +Hannover Re | Annual Report 2014 +Item 4.2.3 Para. 2 Sentence 6 of the Code recommends that +there should be a maximum limit on the amount of variable +compensation paid to members of the management board. +Fixed remuneration (approx. 40% of total +remuneration upon 100% goal attainment) +Hannover Re | Annual Report 2014 +105 +With an eye to these objectives, the remuneration system has +two components: fixed salary/non-cash compensation and var- +iable remuneration. The variable remuneration is designed +to take account of both positive and negative developments. +Overall, the remuneration is to be measured in such a way that +it reflects the company's sustainable development and is fair +and competitive by market standards. In the event of 100% +goal attainment the remuneration model provides for a split +into roughly 40% fixed remuneration and roughly 60% vari- +able remuneration. +Information regarding the following items is provided +in the remuneration report: +• +• +Remuneration report for the Executive Board +and disclosure of the remuneration received +by Supervisory Board members pursuant to +Items 4.2.5 and 5.4.6 of the German Corporate +Governance Code, +Securities transactions pursuant to Item 6.3 of +the German Corporate Governance Code, +Shareholdings pursuant to Item 6.3 of the +German Corporate Governance Code. +Information on share-based payment pursuant to +Item 7.1.3 of the German Corporate Governance Code +is provided in Section 8.3 of the notes "Share-based +payment", page 229 et seq., and in the remuneration +report with respect to the members of the Executive +Board. +In addition to the present Declaration on Corporate +Governance, the Corporate Governance Report and +the reports of the last 10 years are published on our +website pursuant to Item 3.10 of the German Corpo- +rate Governance Code (www.hannover-re.com/about/ +corporate/declaration/index.html). +Remuneration report +The remuneration report summarises the principles used to +determine the remuneration of the Executive Board of Han- +nover Rück SE and explains the structure, composition and +amount of the components of the remuneration received by +the Executive Board in the 2014 financial year on the basis of +the work performed by the Board members for Hannover Rück +SE and companies belonging to the Group. +In addition, the amount of remuneration paid to the Supervisory +Board on the basis of its work for Hannover Rück SE and com- +panies belonging to the Group as well as the principles accord- +ing to which this remuneration is determined are described; +we also explain the principles on which the remuneration for +managers below the level of Executive Board is based. +The remuneration report is guided by the recommendations of +the German Corporate Governance Code and contains infor- +mation which forms part of the notes to the 2014 consolidated +financial statement as required by IAS 24 “Related Party Dis- +closures". 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 dis- +cussed as a whole in this remuneration report and presented +in summary form in the notes. +The provisions of the Act on the Adequacy of Management +Board Remuneration (VorstAG) and of the Insurance Super- +vision Act (VAG) in conjunction with the Regulation on the +Supervisory Law Requirements for Remuneration Schemes +in the Insurance Sector (VersVergV) have been observed. In +addition, we took into account the more specific provisions of +DRS 17 (amended 2010) "Reporting on the Remuneration of +Members of Governing Bodies". +Remuneration of the Executive Board +Responsibility +In order to efficiently perform its tasks the Supervisory Board +has formed various committees. The Standing Committee pre- +pares remuneration-related matters of content relating to the +Executive Board for discussion and adoption of a resolution +by a full meeting of the Supervisory Board. +Objective, structure and system of Executive +Board remuneration +The total remuneration of the Executive Board and its split into +fixed and variable components conform to regulatory require- +ments - especially the provisions of the Act on the Adequacy of +Management Board Remuneration (VorstAG) and the Regula- +tion on the Supervisory Law Requirements for Remuneration +Schemes in the Insurance Sector (VersVergV). +The amount and structure of the remuneration of the Executive +Board are geared to the size and activities of the company, its +economic and financial position, its success and future pros- +pects as well as the customariness of the remuneration, making +reference to the benchmark environment (horizontal) and the +remuneration structure otherwise applicable at the company +(vertical). The remuneration is also guided by the tasks of the +specific member of the Executive Board, his or her individual +performance and the performance of the full Executive Board. +Hannover Re | Annual Report 2014 +Code Item 4.2.3 Para. 2; Caps on the amount of +variable compensation elements in management +board contracts +We would also refer to the explanatory remarks on the financial +strength ratings of our subsidiaries in the “Financial position" +section of the management report on page 59. In addition, the +risk trigger mechanism and internal monitoring system are +reviewed annually by the independent auditor. The Group-wide +risk management system is also a regular part of the audits +conducted by the internal audit function. For additional infor- +mation on the opportunities and risks associated with our busi- +ness please see the Forecast on page 130 et seq. +Declaration of Conformity pursuant to +§ 161 Stock Corporation Act (AktG) +Concrete specification +Analysis +Soft signals +Future factors +Ideas +Trends +Cyber-attacks on critical systems are becoming +increasingly common. They can cause considerable +financial losses and also damage corporate reputa- +tions. Not only that, they can severely hamper private +and public life, especially if critical infrastructures are +impacted such as the health, transportation/traf- +fic and energy sectors. In such instances supply bot- +tlenecks with lasting effects as well as major disrup- +tions to public safety may ensue. In a networked world +the repercussions of cyber-attacks are intensifying +because the volume of data stored around the world +is constantly growing - and in this context it is not +only one's own technical infrastructure that needs to +be secured. On the contrary, the trend towards cloud +computing is increasingly shifting the focus to third- +party infrastructures and the associated network con- +nection. As part of our holistic risk and opportunity +management activities, we are also tackling the ques- +tion of what new insurance products can be developed +in order to protect against the relevant threats. We +have been present in this market since 2007 and have +already developed corresponding products. +Cyber-risks +M77 +Opportunity management process +Hannover Re | Annual Report 2014 +98 +Since as long ago as 2010 the stand-alone service unit “Oppor- +tunity Management" has been assigned to the Chief Executive +Officer's area of responsibility. This is a clear reflection of the +considerable importance that Hannover Re attaches to oppor- +tunity management. The monitoring and active networking +carried out by the innovative minds involved give rise to close +links with other projects, working groups and bodies, such +as with the working group on "Emerging Risks und Scientific +Affairs" in regard to emerging risks and opportunities (see +page 97 "Other risks"). The working group carries out quali- +tative assessments of emerging risks. As a result, however, +not only are the potential risks analysed but also any available +business opportunities. In the year under review, for example, +issues such as general environmental pollution, climate change +and associated questions of liability, e-cigarettes and the risks +of lithium-ion batteries as well as cyber-risks were explored +by the working group. +Assessment +Opportunity management project +"Energy Savings Protect" +Key elements in Hannover Re's opportunity manage- +ment include its various market-specific innovations in the +Life & Health and Property & Casualty reinsurance business +groups (see the Forecast on page 132 et seq.). What is more, +innovative and creative ideas are generated by our employees. +If they can be successfully translated into additional profitable +premium volume, such ideas are financially rewarded. Further +elements are the working group on “Emerging Risks and Sci- +entific Affairs" and the “Future Radar" initiative. Not only that, +Hannover Re has set up a stand-alone organisational unit for +"Opportunity Management”. This service unit deals exclusively +and systematically with ideas and opportunities and it concen- +trates its activities on generating additional premium volume +with profit potential. To this end, ideas are translated into busi- +ness opportunities and business models with the backing of +project teams, and these are then acted upon in cooperation +with primary insurance partners. Such business approaches +are subsequently evaluated and fleshed out more concretely +by the "Opportunity Management" service unit. This unit also +supports selected projects from the conceptual design of holis- +tic business models right through to operational implementa- +tion or handover to line responsibility. The goal is to generate +new business and thereby sustainably promote Hannover Re's +profitable growth. Several initiatives and projects have grown +out of some 100 ideas contributed by the global network since +the unit was set up. As part of an attractive employee incentive +scheme, a number of projects have been financially rewarded +― including the opportunity management projects “Weather” +and "Energy Savings Protect": +Speed is one of the qualities used to measure a successful +knowledge transfer. Quick solutions and staying one step +ahead of the competition is the name of the game. Hanno- +ver Re searches systematically for new business opportunities +in order to generate sustainable growth and strengthen the +company's profitable development. With a view to identifying +opportunities and successfully translating ideas into business, +Hannover Re adopts a number of closely related approaches in +order to achieve holistic opportunity and risk management. Of +significance here is the interplay without overlaps of the vari- +ous functions within opportunity and risk management, which +is ensured by defined interfaces. +Opportunity report +97 +Hannover Re | Annual Report 2014 +The liquidity risk refers to the risk of being unable to meet our +financial obligations when they become due. The liquidity risk +consists of the refinancing risk, i. e. the necessary cash cannot +be obtained or can only be raised at increased costs, and the +market liquidity risk, meaning that financial market transactions +can only be completed at a poorer price than expected due to +a lack of market liquidity. Core elements of the liquidity man- +agement of our investments are, in the first place, management +of the maturity structure of our investments on the basis of the +planned payment profiles arising out of our technical liabilities +and, secondly, regular liquidity planning as well as the asset +structure of the investments. Above and beyond the foresee- +able payments, unexpected and exceptionally large payments +may pose a threat to liquidity. In reinsurance business, however, +significant events (major losses) are normally paid out after a +lead time that can be reliably planned. As part of our liquidity +management we have nevertheless defined asset holdings that +have proven to be highly liquid – even in times of financial stress +such as the 2008 financial crisis. Our holdings of unrestricted +German, UK and US government bonds as well as cash during +the year under review were larger than possible disbursements +for assumed extreme events, which means that our liquidity is +assured even in the unlikely case of financial crises coinciding +with an extreme event that needs to be paid out quickly. The +liquid asset reserve stood at EUR 3.9 billion as at the balance +sheet date. In addition, we manage the liquidity of the portfolio +by checking on each trading day the liquidity of the instruments +contained therein; their underlying parameters are verified on +a regular and ad hoc basis. These measures serve to effectively +reduce the liquidity risk. +Reputational risks refer to the risk that the trust put in our com- +pany by clients, shareholders, employees or the public at large +may be damaged. This risk has the potential to jeopardise the +business foundation of the Hannover Re Group. A good corpo- +rate reputation is therefore an indispensable prerequisite for our +core business as a reinsurer. Reputational risks may arise out +of all business activities conducted by the Hannover Re Group. +Reputational damage may be caused, inter alia, by a data mis- +hap that becomes public knowledge or financial difficulties on +account of an underwriting risk. In addition to the risk identifi- +cation methods already described, we use a number of different +techniques for risk minimisation, such as our defined communi- +cation channels (e.g. Crisis Communication Guideline), a profes- +sional approach to corporate communications, tried and tested +processes for specific crisis scenarios as well as our established +Code of Conduct. +Strategic risks derive from a possible imbalance between the +corporate strategy of the Hannover Re Group and the constantly +changing general business environment. Such an imbalance +might be caused, for example, by incorrect strategic policy deci- +sions, a failure to consistently implement the defined strategies +and business plans or an incorrect allocation of resources. We +therefore regularly review our corporate strategy in a multi-step +procedure and adjust our processes and the resulting guide- +lines as and when required. The Group Strategy was reviewed +in the year under review and the revised corporate strategy was +unveiled to investors at the Investors' Day held in London on +23 October. We have defined performance criteria and indicators +for the operational implementation of the strategic guidelines; +these are authoritative when it comes to determining fulfilment +of the various targets. With the "Strategy Cockpit" the Executive +Board and responsible managers have at their disposal a strategy +tool that assists them with the planning, elaboration and man- +agement of strategic objectives and measures and safeguards +their overall perspective on the company and its strategic risks. +In addition, the process for the management of strategic risks is +assessed annually as part of the monitoring of business process +risks. Further details on the topic of strategy are provided in the +section entitled "Our strategy” on page 12 et seq. +The hallmark of emerging risks is that the content of such risks +cannot as yet be reliably assessed - especially on the underwrit- +ing side with respect to our treaty portfolio. Such risks evolve +gradually from weak signals to unmistakable tendencies. It is +therefore vital to detect these risks at an early stage and then +determine their relevance. For the purpose of early detection +we have developed an efficient process that spans divisions and +lines of business and we have ensured its linkage to risk man- +agement. Operational implementation is handled by an expert +working group assembled specially for this task. The analyses +performed by this working group are used Group-wide in order +to pinpoint any necessary measures (e. g. the implementation of +contractual exclusions or the development of new reinsurance +products). By way of example, the risks arising out of aspects of +climate change (e.g. questions of liability) are analysed by this +working group. These problematic issues may also have impli- +cations for our treaty portfolio – in the form not only of risks but +also opportunities, e. g. through increased demand for reinsur- +ance products. +Of material importance to our company in the category of other +risks are primarily emerging risks, strategic risks, reputational +risks and liquidity risks. +Other risks +Combined management report +The Executive Board and Supervisory Board of Hannover Rück +SE declare pursuant to § 161 Stock Corporation Act (AktG) that - +with the following divergences - the company was and contin- +ues to be in conformity with the recommendations made by the +Government Commission on the German Corporate Governance +Code published by the Federal Ministry of Justice on 24 June +2014 in the official section of the Federal Gazette: +Opportunity management project "Weather" +The goal was to offer a heavily weather-dependent cli- +entele industry-specific solutions to protect against +fluctuations in the weather. The interest shown by +businesses in this product has grown sharply of late +on account of greater variability in weather conditions +and the higher profile of the product. It has taken on +special relevance for wind farms due to the turnaround +in German energy policy. +Handover to line +responsibility +This project was tasked with developing covers for +so-called energy-savings warranties in Germany. This +insurance solution enables providers of energy effi- +ciency solutions to take out protection in the event that +the promised energy savings fail to materialise. In this +case the company in question receives a compensatory +payment from the primary insurer. For its part, Hanno- +ver Re covers the energy saving warranties of its pri- +mary insurance clients. By building trust, the greater +planning reliability created by the product makes it +possible for many activities needed as part of Ger- +many's turnaround in energy policy to be undertaken +in the first place. Based on its considerable success, +reflected not only in the rewarding of those behind the +product but also in its singling out for an innovation +award, this product is now available Europe-wide and +is being modified for other fields of application. +Risk assessment in the +context of the "new product +process", as appropriate +The positive attitude of Hannover Rück SE towards the Code +is not contradicted by the fact that in the year under review +we again did not comply with certain Code recommendations, +since a well justified deviation from the recommendations of +the Code may - as in the present cases - be very much in the +interests of good corporate governance tailored to a particular +company, i. e. by reflecting enterprise- and industry-specific +features (cf. Foreword to the German Corporate Governance +Code). Based on what is still a high degree of fulfilment of the +recommendations and suggestions of the Code, Hannover Re +continues to rank very highly among the companies listed on +the DAX and MDAX. +Product launch under line +responsibility +annual declaration as to whether or not the recommendations +of the Code were and are complied with in the reality of the +company's business activities. If recommendations were not +acted upon, this is to be explained and disclosed as part of the +Declaration of Conformity. +As an instrument of self-regulation for the business world, +the German Corporate Governance Code - the latest version +of which dates from 24 June 2014 - sets out recommenda- +tions and suggestions that are intended to maintain and fos- +ter the trust of investors, customers, employees and the gen- +eral public in the management and supervision of German +companies. Although the Code does not have binding legal +force, the enterprises addressed by the Code are nevertheless +required by § 161 Stock Corporation Act (AktG) to provide an +Corporate Governance +Hannover Rück SE hereby provides insight into its enterprise +management practices as part of the Declaration on Corpo- +rate Governance pursuant to § 289 a Commercial Code (HGB): +The Executive Board and Supervisory Board of Hannover Rück +SE expressly support the suggestions and recommendations of +the German Corporate Governance Code that are practicable +for the reinsurance industry and recognise their central impor- +tance in guiding our activities. The principles of responsible and +good enterprise management therefore constitute the core of +our internal Corporate Governance principles (www.hannover- +re.com/resources/cc/generic/CGprinciples-e.pdf). We cultivate +integrity at all times in our dealings with business partners, +staff, shareholders and other stakeholder groups and support +the principles of value-based and transparent enterprise man- +agement and supervision defined in the German Corporate Gov- +ernance Code. The Supervisory Board, Executive Board and +employees of Hannover Rück SE identify with these principles, +which thus form part of our corporate self-image. The Execu- +tive Board ensures that the principles are observed Group-wide. +The objective of Hannover Rück SE continues to be to con- +solidate and further expand its position as one of the leading, +globally operating reinsurance groups of above-average prof- +itability. In aspiring towards this goal, it is particularly impor- +tant to observe and fulfil the principles of good and sustainable +enterprise management. In so doing, we not only comply with +the German Corporate Governance Code (DCGK, hereinafter +also referred to as the Code), but have also developed our +own model for responsible enterprise management which we +consistently pursue and adjust to the latest requirements in +accordance with our best practice standards. +Declaration on Corporate +Governance pursuant to +§ 289 a Commercial Code +(HGB) +Combined management report +Hannover Re | Annual Report 2014 +100 +Our own evaluation of the manageability of existing risks is +confirmed by various financial indicators and external assess- +ments. Key monitoring indicators, reporting limits and poten- +tial escalation steps are defined on a mandatory basis in our +central system of limits and thresholds for the material risks +of the Hannover Re Group. As a result, the system provides +us with a precise overview of potentially undesirable develop- +ments in the defined risk tolerances and enables us to react +in a timely manner. One testament to our financial stability, +for example, is the growth of our shareholders' equity. Since +2010 we have been able to increase our total policyholders' +surplus (hybrid capital, non-controlling interests and share- +holders' equity) by 150%. In this context, the necessary equity +resources are determined by the requirements of our economic +capital model, solvency regulations, the assumptions of rating +agencies with respect to our target rating and the expectations +of our clients and shareholders. This increase gives us a suf- +ficient capital cushion to be able both to absorb risks and act +on business opportunities that may arise. Similarly, our very +good ratings (see page 59) also testify to our financial stabil- +ity. 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 mon- +itoring systems and strategic risk management. The evaluation +encompasses above all the areas of risk culture, risk controls, +the management of emerging risks, risk models and strategic +risk management. This external appraisal confirms the quality +of our holistic approach to risk management. +As an internationally operating reinsurance group, we move +in a highly complex environment. Nevertheless, thanks to +our business activities in all lines of reinsurance we are able +to achieve optimal risk spreading through geographical and +risk-specific diversification while at the same time maintain- +ing a balanced opportunity/risk profile. We consider the risks +described in the above sections to be manageable, particularly +because our steering and monitoring measures are effectively +and closely interlinked. Despite these diverse mechanisms, +individual and especially accumulation risks can decisively +affect our assets, financial position and net income. In accord- +ance with our understanding of risk, however, we consider +not only risks but also at the same time opportunities. We +therefore only enter into those risks that go hand-in-hand with +opportunities. Our steering and monitoring tools as well as our +organisational and operational structure ensure that we identify +risks at an early stage and are able to act on our opportuni- +ties. Our central monitoring tool is the system of risk manage- +ment that we have installed Group-wide, which brings together +both qualitative and quantitative information for the purpose of +effective risk monitoring. Most notably, the interplay between +domestic and foreign risk management functions affords us a +holistic and Group-wide overview. +Enterprise management +our opportunity management plays an important part +in Hannover Re's profitable growth. +If a business idea is translated into reality and a new reinsur- +ance product results, the normal procedure - provided the cri- +teria defined for this purpose by Risk Management are appli- +cable is to work through the so-called new product process. +This process is supported by Risk Management at Hannover Re. +The process is always worked through if a contractual commit- +ment is to be entered into in a form not previously used by Han- +nover Re or if the exposure substantially exceeds the existing +scope of coverage. If this is the case, all material internal and +external influencing factors are examined beforehand by Risk +Management (e. g. implications for the overall risk profile or the +risk strategy) and an assessment is made. Risk Management +ensures that before it can be used or sold a new reinsurance +product must be approved by the Executive Board. +Corporate strategy +Long-term success in a competitive business +Hannover Re | Annual Report 2014 +99 +Overall assessment by the Executive +Board +Combined management report +our established system of risk management affords us +a transparent overview of the current risk situation at +all times +• +our overall risk profile is appropriate, and +• +Based on our currently available insights arrived from a holistic +analysis of the opportunities and risks, the Executive Board of +Hannover Re cannot discern any risks that could jeopardise +the continued existence of the Hannover Re Group in the short +or medium term or have a material and lasting effect on its +assets, financial position or net income. We are convinced that: +2013 +563.8 +15.3 +520.0 +Sven Althoff7 +678.4 +in EUR thousand +569.7 +2014 +Ulrich Wallin +Netted +remuneration +from seats with +2014 +Group bodies +16.2 +199.0 +348.7 +183.1 +60%³ +416.9 +13.2 +2014 +Claude Chèvre +340.4 +7.2 +9.5 +2013 +246.2 +6.4 +228.3 +2014 +André Arrago³ +320.0 +M82 +Handling of payment of variable remuneration +components in special cases +Short-term +Maximum value when awarded, amount paid out dependent upon the share price in the year of payment and the dividends paid until such time +(see also our Declaration of Conformity on page 99 et seq.). +110 +Hannover Re | Annual Report 2014 +Combined management report +2013 +In the event of voluntary resignation or termination/dismissal +by the company for a compelling reason or if an offered con- +tract extension on the same conditions (exception: the mem- +ber of the Executive Board has reached the age of 60 and has +served as a member of the Executive Board for two terms of +office) is declined, all rights to payment of the balances from +the bonus bank and from the HR-SAs are forfeited. +If the contractual relationship ends normally prior to the end +of the vesting period for the bonus bank or HR-SAs, and if a +contract extension is not offered, the member of the Execu- +tive Board retains his entitlements to payment from the bonus +bank - making reference to a defined forward projection of the +bonus bank - and for already awarded HR-SAs. +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 non- +reappointment, 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. +Variable remuneration under the old remuneration +structure (until 2011) +The virtual stock option plan with stock appreciation rights +existing under the old remuneration structure remains in +force for all members of the Executive Board until all stock +appreciation rights have been exercised or have lapsed. In the +2014 financial year no further stock appreciation rights were +granted to active Board members. Of the stock appreciation +rights granted in previous years, active and former Board mem- +bers exercised amounts totalling EUR 0.5 million (EUR 1.4 mil- +lion) in 2014. +As at 31 December 2014 active members of the Executive Board +had at their disposal a total of 228,957 (288,797) granted, but +not yet exercised stock appreciation rights with a fair value of +EUR 2.1 million (EUR 2.4 million). +Continued payment in case of disability +In the event of temporary incapacity for work the fixed annual +salary shall continue to be paid in the same amount, at most +until termination of the service contract. +If a member of the Executive Board is permanently incapaci- +tated for work during the period of the service contract, the +service contract shall terminate at the end of the sixth month +after which the permanent incapacity for work is established - +although no later than at the end of the service contract. +Other information +The contracts of the Board members do not include a com- +mitment to benefits in the event of a premature termination +of employment on the Executive Board owing to a change of +control. Only the conditions for the granting of share-based +remuneration in the form of stock appreciation rights provide +for special exercise options in the event of the merger, spin-off +or demerger of Hannover Re into another legal entity. +" +Performance-based remuneration 1 +Non-cash +compensation/ +fringe benefits² +Basic salary +Financial year +Non-performance-based remuneration +Name +Variable remuneration payable +Total remuneration of the active members of the Executive Board pursuant to DRS 17 (amended 2010) +Hannover Re | Annual Report 2014 +The remuneration (excluding pension payments) received by +former members of the Executive Board totalled EUR 0.2 mil- +lion (EUR 0.4 million). +The total remuneration received by the Executive Board of Han- +nover Rück SE on the basis of its work for Hannover Rück SE +and the companies belonging to the Group is calculated from +the sum of all the components set out in the following table +pursuant to DRS 17 (amended 2010). +Amount of remuneration received by the Executive +Board +If the company insists on a non-competition clause with +Mr. Wallin for two years after the termination of his service +contract, he shall be recompensed in a monthly amount of +50% of his most recent fixed remuneration. Income earned +through the application of his working capacity elsewhere shall +be counted towards this compensation insofar as such income +in combination with the compensation exceeds 100% of the +most recently received fixed remuneration. The non-compe- +tition clause shall not apply if the contract ends prior to the +age of 65 because the company does not extend it or because +Mr. Wallin declines an extension offered to him on what are +for him inferior terms, or if the premature termination or non- +extension is due to a compelling reason for which the com- +pany is responsible. +With regard to Item 4.2.3. Para. 2 "Caps on the amount of vari- +able compensation elements in management board contracts' +and Item 4.2.3 Para. 4 "Caps on severance payments in man- +agement board contracts" of the German Corporate Govern- +ance Code, we would refer the reader to our remarks in the +2014 Declaration of Conformity contained in the section "State- +ment of enterprise management practices” on page 101 et seq. +of this Group Annual Report. +111 +320.0 +Roland Vogel +329.6 +35.3 +2,731.2 +99.1 +2,580.0 +2013 +49.5 +1 +3,153.1 +2,865.1 +2014 +Total +Total +35.3 +347.0 +110.8 +15.7 +As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2014. +The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly. +The non-cash compensation has been carried in the amounts established for tax purposes. +The appointment of Mr. Arrago ended on age grounds on 31 August 2014. +8 +Mr. Althoff was appointed to the Executive Board on 1 August 2014. The amounts stated include his remuneration as a senior executive of Hannover Re +for the period from 1 January to 31 July 2014. +In order to calculate the number of share awards for 2014 reference was made to the Xetra closing price of the Hannover Re share on 30 December +2014 (EUR 74.97). The number to be actually awarded is established from the arithmetic mean of the Xetra closing prices of the Hannover Re share +in a period from five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial state- +ment in March 2015. The applicable market price of the Hannover Re share had decreased from EUR 62.38 (30 December 2013) to EUR 60.53 by the +allocation date (10 March 2014) of the share awards for 2013; the share awards actually allocated for 2013 are shown here, not those estimated in the +2013 Annual Report. +tion. The equivalent amount will be paid in 2019 at the prevailing share price of Hannover Re. In 2014 nominal amounts of EUR 35,900 more than had +been originally reserved were used as a basis for allocation of the 2013 share awards. +The nominal amount is stated; virtual Hannover Re share awards are automatically granted in an amount equivalent to 20% of the variable remunera- +2 +In 2014 altogether EUR 35,900 more than had been originally reserved was allocated to the bonus bank for 2013. +7 +6 +5 +4 +In 2014 altogether EUR 107,300 more in variable remuneration was paid out to Board members for 2013 than had been reserved. +3 +The nominal amount is stated; full or partial repayment in 2018, depending on the development until such time of the balance in the bonus bank. +13.3 +380.0 +49.5 +404.5 +13.9 +342.4 +2014 +Dr. Klaus Miller +473.2 +2013 +14.3 +2013 +456.4 +16.0 +428.0 +2014 +Jürgen Gräber +400.0 +2013 +320.0 +329.6 +398.9 +15.4 +406.6 +2014 +Any minus value of the variable total bonus for a financial year is transferred in full to the bonus bank (see "Medium-term" column). +347.6 +13.8 +17.2 +2013 +368.7 +22.5 +342.4 +2014 +Dr. Michael Pickel +320.0 +the Board member has no entitlement to the delivery +of shares. +Board according to its best +judgement +additional payment of the sum total of all dividends +per share paid out during the vesting period; +Goals according to area +of Board responsibility +Indicator for perfor- +mance measurement +Profit bonus +(50-70%) 1 +Group RoE +over the last 3 years +Performance bonus +(30-50%) 1 +Personal and divisional targets (IVC)² +for the financial year +Payment procedure +Cash +3 +Timing of payment +Annually (60%) +Variable remuneration +as per regulatory requirements +Bonus bank 3 +HR share awards³ +3 years (20%) +4 years (20%) +Profit bonus +Component +Measurement bases/conditions of payment for variable remuneration +Combined management report +M79 +107 +Measurement (variable remuneration) +Hannover Re | Annual Report 2014 +3 +An instrument of value-based management used to measure the attainment of long-term goals on the level of the Group, +business groups and operational units +Board members with divisional responsibility: 50% profit bonus, 50% performance bonus (25% personal targets/25% divisional targets) +1 Chief Executive Officer/Chief Financial Officer 70% profit bonus, 30% performance bonus (personal targets); +2 +Payment of variable remuneration +Split defined by legal minimum requirements +Approx. 60% variable remuneration +Upon 100% goal attainment +Approx. 40% fixed remuneration +80.0 +90.2 +1,336.6 +136.6 +856.6 +828.5 +82.8 +1,670.8 +1,070.8 +90.2 +97.9 +Service cost +1,033.7 +In the case of Mr. Althoff the dividend for 2013 refers to share awards from his work as a senior executive at Hannover Re. +112 +170.8 +90.2 +Proportion of variable +82.8 +Total remuneration +Overview of the composition of variable remuneration +116 +4 +3 +2 Year of payment. +1 The remuneration of Mr. Althoff and Mr. Arrago is shown as annual remuneration (not pro rata). +82.8 +1,419.4 +939.4 +908.5 +1,761.0 +261.0 +1,161.0 +1,119.5 +219.4 +changes in a cumulative amount of 10% or more in +the value of the HR-SAs caused by structural meas- +ures trigger an adjustment; +remuneration: +Chief Financial Officer: 70%; +Board member with divisional +responsibility: 50% +targets +(basis for 2013 and 2014: +divisional performance from +2013 onwards) +Contractual agreement +Decision of the Supervisory +Attainment of annual targets +Decision by the Supervisory +Board according to its best +judgement. +1 An instrument of value-based management used to measure the attainment of long-term goals on the level of the Group, business groups +and operational units (see also page 24). +Hannover Re | Annual Report 2014 +109 +Combined management report +Payment procedures for the total variable remuneration +Of the total amount of defined variable remuneration, a partial +amount of 60% is paid out in the month following the Super- +visory Board meeting that approves the consolidated financial +Payment procedures for the total variable remuneration +Short-term +60% of the variable remu- +neration with the next monthly +salary payment +following the Supervisory Board +resolution +Medium-term +value of the share on awarding/payment: unweight- +ed arithmetic mean of the Xetra closing prices five +trading days before to five trading days after the +meeting of the Supervisory Board that approves the +consolidated financial statement; +payment of the value calculated at the payment date +after a vesting period of four years; +Automatic granting of virtual Hannover Re share +awards (HR-SAs) with a value equivalent to 20% +of the variable remuneration; +M81 +Long-term +Negative variable total bonus = payment of EUR 0 variable remuneration. +Attainment of three-year +no interest is paid on credit balances. +a positive balance in the bonus bank is +carried forward to the following year after +deduction of any payment made; a negative +balance is not carried forward to the follow- +ing year; +an impending payment not covered by a pos- +itive balance in the bonus bank is omitted; +the positive amount contributed three years +prior to the payment date is available for +payment, provided this does not exceed the +balance of the bonus bank in light of credits/ +debits up to and including those for the +financial year just ended; +withheld for three years; +20% of the variable remuneration in the +bonus bank; +statement. The remaining amount of 40% is initially withheld +as explained below with a view to encouraging long-term value +creation: +loss of claims due from the bonus bank in +special cases: resignation from office without +a compelling reason; contract extension on +the same conditions is rejected; +The minimum individual bonus amounts to EUR 0 and the maximum +is double the bonus payable upon complete goal attainment. +The individual bonus for goal attainment of 100% is contractually +stipulated. Over- and underfulfilment result in additions/deductions. +individual contribution to the overall result, leadership skills, in- +novative skills, entrepreneurial skills, specific features of area of +responsibility. +Component +Hannover Re | Annual Report 2014 +108 +In view of the market inter- +est rate the Supervisory +Board has set the risk-free +interest rate at 1.8%. +Decision of the Supervisory +Board +M80 +Performance bonus +Attainment of three-year +targets +Condition of payment +The risk-free interest rate is the average market rate for 10-year Ger- +man government bonds over the past 5 years and is set at an agreed +level of 2.8%. The arrangements governing the profit bonus may be +adjusted if the risk-free interest rate of 2.8% changes to such an extent +that an (absolute) deviation of at least one percentage point arises. +The IFRS Group net income (excluding non-controlling interests) +and the arithmetic mean of the IFRS Group shareholders' equity +(excluding non-controlling interests) at the beginning and end of the +financial year are used to calculate the RoE. +An individually determined and contractually defined basic amount +is paid for each 0.1 percentage point by which the RoE of the past +three financial years exceeds the risk-free interest rate of 1.8%. Goal +attainment of 100% corresponds to an RoE of 10.6%. Goal attain- +ment can amount to a maximum of 200% and a minimum of -100%. +The profit bonus is dependent on the risk-free interest rate and the +average Group return on equity (ROE) of the past three financial years. +Measurement basis/parameters +Contractual stipulations +Chief Executive Officer/ +Measurement basis/parameters +The performance bonus for the Chief Executive Officer and the Chief Financial Officer is arrived at from individual qualitative and, +as appropriate, quantitative targets defined annually by the Supervisory Board that are to be accomplished in the subsequent year. +For members of the Executive Board with responsibility for a certain division, the performance bonus consists in equal parts of the +divisional bonus and the individual bonus. +Personal qualitative, quantitative targets; +Special arrangements for 2013 and 2014: the basis for the average +ROCA is the divisional performance from 2013 onwards; the mini- +mum divisional bonus is EUR 0. +The divisional bonus is determined by the Supervisory Board ac- +cording to its best judgement. The determination also takes into +account, in particular, the contribution made by the business under +the responsibility of the Board member concerned to the achieved +divisional performance and the relative change in the average IVC in +the remuneration year. The Supervisory Board may make additions +to or deductions from the arithmetically calculated values at any +time in the event of over- or underfulfilment of the criteria. +The method used to calculate the IVC as a basis for determining the +divisional performance is checked by independent experts. +Goal attainment can amount to a maximum of 200% and from 2015 +onwards a minimum of -100%. +Goal attainment of 100% is achieved in property and casualty rein- +surance with a RoCA of 9.1% and in life and health reinsurance with +a ROCA of 10.1%. These RoCA values are above the cost of capital +and thus generate positive intrinsic value creation (IVC). +Condition of payment +An individually determined amount specified in the service contract +is calculated for each 0.1 percentage point by which the average +3-year RoCA exceeds the level of 0%. +Chief Financial Officer: 30%; +Board member with divisional +responsibility: 25% +Chief Executive Officer/ +Individual bonus +Proportion of variable +remuneration: +Board member with divisional +responsibility: 25% +remuneration: +Divisional bonus +Proportion of variable +The basis for the divisional bonus is the return generated on the +capital allocated to the division in the respective 3-year period just +ended (= ROCA (Return on Capital Allocated)). +Hannover Re | Annual Report 2014 +116.6 +Performance-based remuneration 1 +120.8 +1,462.7 +114.3 +1,536.8 +114.3 +114.3 +13.9 +176.8 +2,336.8 +727.3 +13.9 +307.3 +13.9 +1,147.3 +Benefits granted +Jürgen Gräber +Board member with +divisional responsibility +Coordinator of worldwide property & +Dr. Klaus Miller +Board member with +divisional responsibility +M84 +casualty reinsurance +2013 +2014 +2014 +2013 +2014 +Total remuneration +2014 +Service cost +293.4 +168.0 +Dividend on share awards for 2012 +26.6 +0.0 +0.0 +0.0 +0.0 +0.0 +0.0 +Dividend on share awards for 20134 +0.0 +36.6 +36.6 +36.6 +6.2 +6.2 +6.2 +Total +1,341.9 +1,422.5 +62.5 +2,222.5 +713.4 +1,133.4 +2014 +in EUR thousand +(Min) +356.3 +356.3 +One-year variable remuneration +360.0 +360.0 +0.0 +720.0 +288.0 +288.0 +0.0 +576.0 +Multi-year variable remuneration +259.4 +266.8 +(273.2) +506.8 +206.7 +212.3 +(219.7) +404.3 +Bonus bank 2014 (2018²) +120.0 +120.0 +356.3 +333.8 +444.0 +444.0 +(Max) +(Min) +(Max) +Fixed remuneration +400.0 +428.0 +428.0 +428.0 +320.0 +342.4 +342.4 +0.0 +342.4 +14.3 +16.0 +16.0 +16.0 +13.8 +13.9 +13.9 +13.9 +Total +414.3 +444.0 +Fringe benefits +(300.0) +84.0 +0.0 +4 +The appointment of Mr. Arrago ended on age grounds on 31 August 2014. +114 +Hannover Re | Annual Report 2014 +Hannover Re | Annual Report 2014 +115 +Combined management report +The following two tables show the remuneration of the Execu- +tive Board in the 2014 financial year in accordance with the +recommendations of the German Corporate Governance Code: +German Corporate Governance Code, Item 4.2.5 Para. 3 - Table 1 +(target/minimum/maximum remuneration as nominal amounts) +Benefits granted +Ulrich Wallin +Chief Executive Officer +Sven Althoff¹ +Board member with +divisional responsibility +Date joined: 1 August 2014 +2013 +2014 +2014 +2014 +2014 +2014 +2014 +in EUR thousand +and a portion of the expense for share awards in the current financial year relate to his prior work as a senior executive at Hannover Re. +(Min) +Mr. Althoff was appointed to the Executive Board on 1 August 2014. The exercised stock appreciation rights, the share awards from previous years +3 +283.5 +2013 +44.3 +30.4 +91.4 +27.2 +193.3 +Total +Total +2014 +334.1 +306.4 +1,348.9 +311.6 +2,301.0 +2013 +1,007.2 +(335.3) +442.6 +235.2 +1,349.7 +1 The change in the reserve for share awards from previous years derives from the increased market price of the Hannover Re share, the dividend +approved for 2013 and the spreading of the expense for share awards across the remaining period of the individual service contracts. +2 +The expense for share awards is spread across the remaining period of the individual service contracts. This gives rise to a difference relative to the +nominal amount shown in the table of total remuneration. +(Max) +(Min) +(Max) +960.0 +252.0 +0.0 +504.0 +Multi-year variable remuneration +338.6 +356.6 +(523.4) +676.6 +174.2 +6.2 +342.2 +Bonus bank 2014 (2018²) +156.0 +160.0 +(560.0) +320.0 +84.0 +0.0 +168.0 +Share awards 2014 (20192)3 +156.0 +160.0 +0.0 +480.0 +468.0 +One-year variable remuneration +Fixed remuneration +520.0 +569.7 +569.7 +569.7 +280.0 +280.0 +280.0 +Fringe benefits +15.3 +16.2 +320.0 +16.2 +7.2 +7.2 +7.2 +Total +535.3 +585.9 +585.9 +585.9 +287.2 +287.2 +287.2 +16.2 +in EUR thousand +240.0 +96.0 +15,457 +7,230.3 +910.0 +910.0 +13,780 +8,231.4 +1,068.8 +1,033.6 +1,996 +973.9 +115.6 +115.6 +1,705 +1,086.9 +133.0 +133.0 +1,980 +916.4 +115.8 +115.8 +1,587 +979.4 +122.9 +Hannover Re | Annual Report 2014 +122.9 +113 +The following table shows the expense for share-based remu- +neration of the Executive Board in the financial year. +277.0 +84.7 +72.7 +2014 +Ulrich Wallin +allocated +in current +financial year² +years¹ +rights +in EUR thousand +share awards +from previous +appreciation +Total +Expense for +share awards +reserve for +Change in +Change in +reserve in +2014 for stock +exercised +Stock appre- +ciation rights +Name +Year +M83 +Total expense for share-based remuneration of the Executive Board +The table is to be viewed independently of the presentation +of the total remuneration received by active members of the +Executive Board pursuant to DRS 17. +Combined management report +1,875 +883.0 +109.8 +82.1 +1,049 +511.3 +78.6 +43.4 +3,321 +1,474.9 +187.9 +187.9 +2,842 +1,716.5 +226.1 +226.1 +2013 Actual +2014 Estimate +Number of share awards +Total +(allocation) 5 +20% +20% +(allocation) 4 +Share awards +Long-term +Bonus bank +Medium-term +82.1 +645.1 +1,058 +113.4 +109.8 +1,750 +1,030.6 +134.9 +134.9 +2,450 +1,202.9 +157.7 +157.7 +1,984 +1,204.8 +58.0 +152.2 +1,875 +882.5 +109.8 +109.8 +1,805 +1,056.8 +139.0 +139.0 +1,960 +896.7 +113.4 +152.2 +96.0 +492.4 +114.0 +20.3 +20.3 +Total +39.3 +175.9 +37.4 +30.9 +2014 +Roland Vogel +249.1 +23.2 +79.5 +(3.1) +149.5 +2013 +310.1 +29.7 +152.3 +49.3 +78.8 +2014 +Dr. Michael Pickel +12.8 +20.3 +22.0 +0.0 +26.8 +(240.0) +192.0 +Share awards 2014 (20192)³ +120.0 +120.0 +0.0 +240.0 +96.0 +96.0 +0.0 +192.0 +Dividend on share awards for 2012 +19.4 +0.0 +0.0 +0.0 +14.7 +0.0 +0.0 +0.0 +Dividend on share awards for 20134 +0.0 +26.8 +26.8 +(28.7) +19.5 +2013 +69.5 +109.9 +(439.2) +535.2 +2013 +381.1 +79.3 +217.1 +35.2 +49.5 +2014 +André Arrago 4 +136.1 +10.9 +86.1 +24.5 +14.6 +2014 +Sven Althoff³ +274.5 +40.3 +61.6 +58.6 +275.4 +Claude Chèvre +2014 +90.6 +197.1 +28.0 +148.6 +20.5 +2014 +Dr. Klaus Miller +301.9 +31.0 +108.2 +(1.5) +164.2 +2013 +2013 +40.4 +201.3 +54.8 +87.6 +2014 +Jürgen Gräber +42.7 +22.0 +20.7 +2013 +26.0 +384.1 +2014 +Hannover Re | Annual Report 2014 +3 +3,493.9 +90.2 +2013 +158.5 +2,133.3 +97.9 +Dr. Michael Pickel +2014 +125.6 +2,124.2 +89.9 +2013 +120.0 +158.5 +1,163.5 +Roland Vogel 1,3 +2014 +91.7 +1,652.3 +33.0 +2013 +80.4 +786.8 +38.1 +Total +2014 +Total +2013 +101.2 +2014 +13.9 +370.8 +An orphan's pension shall be granted in the amount of 15% - +in the case of full orphans 25% (final-salary pension commit- +ment) or 30% (contribution-based pension commitment) – of +the retirement pay that the Board member received or would +have received on the day of his death if the pensionable event +had occurred owing to a permanent incapacity for work. +Adjustments +The following parameters are used for adjustments to retire- +ment, widow's and orphan's benefits: the price index for the +cost of living of all private households in Germany (contracts +from 2001 onwards) or the price index for the cost of living of +four-person households of civil servants and higher-income +salaried employees (contracts from 1997 to 2000). +Current pensions based on the commitments given from 2009 +onwards (defined contribution commitment) are increased +annually by at least 1% of their most recent (gross) amount. +Pension payments to former members of the Executive +Board +The pension payments to former members of the Execu- +tive Board and their surviving dependants, for whom 16 +(14) pension commitments existed, totalled EUR 1.5 million +(EUR 1.4 million) in the year under review. The projected ben- +efit obligation of the pension commitments to former members +of the Executive Board amounted to altogether EUR 28.8 mil- +lion (EUR 21.4 million). +120 +Hannover Re | Annual Report 2014 +Defined benefit commitments +M86 +Name +in EUR thousand +Financial year +Attainable annual +DBO 31.12. +Personnel expense +pension (age 65) +Ulrich Wallin +2014 +229.1 +2013 +220.0 +5,159.5 +3,284.1 +114.3 +120.8 +Sven Althoff 1,2 +Jürgen Gräber +2014 +30.3 +635.2 +578.9 +If the Board member dies during the period of the service +contract, the surviving spouse - or alternatively the eligible +children - shall be entitled to continued payment of the fixed +monthly salary for the month in which the Board member dies +and the six months thereafter, at most until termination of the +service contract. If the member of the Executive Board dies +after pension payments begin, the surviving spouse and alter- +natively the dependent children shall receive continued pay- +ment of the retirement pension for the month of death and +the following six months. The widow's pension amounts to +60% of the retirement pay that the Board member received +or would have received if he had been incapacitated for work +at the time of his death. +12,800.7 +7,367.7 +358.0 +Total +2014 +169.2 +174.5 +2013 +117.1 +160.0 +1 Percentage of pensionable income (fixed annual remuneration as at the contractually specified reference date) +2 Guaranteed interest rate 2.25% +Remuneration of the Supervisory Board +The remuneration of the Supervisory Board is determined by the +Annual General Meeting of Hannover Rück SE and regulated by +the Articles of Association. +In accordance with § 14 of the Articles of Association as amended +on 18 July 2013 and the resolution of the Annual General Meeting +on 7 May 2013, the members of the Supervisory Board receive +fixed annual remuneration of EUR 30,000 per member in addition +to reimbursement of their expenses. Furthermore, each mem- +ber of the Supervisory Board receives variable remuneration +measured according to the average earnings per share (EPS) of +the company over the past three financial years preceding the +Annual General Meeting at which the actions of the Supervisory +Board for the last of these three years are ratified. The variable +remuneration amounts to EUR 330 for each EUR 0.10 average +earnings per share (EPS) of the company. The measurement of +this performance-based remuneration component according to +the average earnings per share of the last three financial years +ensures that the variable remuneration is geared to sustainable +corporate development. The variable remuneration is limited to +an annual maximum of EUR 30,000. The Chairman of the Super- +visory Board receives twice the aforementioned remuneration +amounts and the Deputy Chairman of the Supervisory Board +receives one-and-a-half times the said amounts. +Hannover Re | Annual Report 2014 +Total +121 +In addition, the members of the Finance and Audit Commit- +tee formed by the Supervisory Board receive remuneration of +EUR 15,000 for their committee work and the members of the +Standing Committee formed by the Supervisory Board receive +remuneration of EUR 7,500. In this case, too, the Chairman of +the Committee receives twice and the Deputy Chairman one-and- +a-half times the stated amounts. No remuneration is envisaged +for the Nomination Committee. +Members who have only belonged to the Supervisory Board or +one of its Committees for part of the financial year receive the +remuneration pro rata temporis. +All the members of the Supervisory Board receive an attendance +allowance of EUR 1,000 for their participation in each meeting +of the Supervisory Board and the Committees in addition to the +aforementioned remuneration. If a meeting of the Supervisory +Board and one or more committee meetings fall on the same day, +the attendance allowance for this day is only paid once in total. +Individual remuneration received by the members of the Supervisory Board +Name +in EUR thousand¹ +Herbert K. Haas² +Function +Chairman of the +• +Member of the +Type of remuneration +M88 +Combined management report +80.0 +48.7 +25% +1 +2 +3 +Mr. Althoff and Mr. Vogel were first granted a pension commitment prior to 2001 on the basis of their service to the company prior to their appoint- +ment to the Executive Board; the earned portion of the commitment from the Unterstützungskasse is therefore established as a proportion (in the ratio +[currently attained service years since entry]/[attainable service years from entry to exit age]) of the final benefit. Measurement under IFRS conse- +quently uses the defined benefit method. +An annual premium of EUR 13,600 was paid for Mr. Althoff for 2014. The first increased contribution based on his appointment to the Executive Board +is due on 1 July 2015. The guaranteed interest rate of his commitment is 3.25%. The values shown refer to his entitlements based on the remuneration +prior to appointment to the Executive Board (1 August 2014). +An annual premium of EUR 98,300 (25% of the pensionable income) was paid for Mr. Vogel for 2014. The guaranteed interest rate of his commitment +is 3.25%. The values shown include his entitlements prior to appointment to the Executive Board (1 April 2009), which in accordance with a resolu- +tion of the company's Supervisory Board (May 2014) shall remain unaffected by his pension commitment as a member of the Executive Board. +Defined contribution commitments +Name +M87 +Financial year +in EUR thousand +Claude Chèvre² +Annual funding +contribution¹ +Attainable annual +pension (age 65) +Premium +2014 +25% to October 2014 +39.5% from November 2014 +117.8 +91.7 +2013 +25% +68.4 +80.0 +Dr. Klaus Miller² +2014 +25% +51.4 +82.8 +2013 +341.3 +Provision for surviving dependants +In both contract variants (i. e. defined benefit and defined con- +tribution) 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). +A Board member who has reached the age of 65 and left the +company's employment receives a life-long retirement pension. +The amount of the monthly retirement pension is calculated +according to the reference date age (year of the reference date +less year of birth) and the funding contribution on the reference +date. The annual funding contribution for these contracts is +paid by the company in the amount of a contractually specified +percentage of the pensionable income (fixed annual remunera- +tion as at the contractually specified reference date). +13.2 +329.5 +234.7 +333.3 +361.9 +344.6 +355.8 +351.8 +340.5 +535.2 +49.5 +0.0 +0.0 +13.3 +180.5 +206.2 +0.0 +148.5 +49.5 +1,209.3 +640.0 +685.1 +702.4 +85.8 +86.8 +80.0 +91.7 +1,295.1 +0.0 +6.4 +9.5 +348.7 +90.2 +1,066.6 +80.0 +82.8 +765.6 +779.6 +2 +The principal lines of business in crop farming are Multi-Peril Crop Insurance (MPCI) or covers for single +perils such as hail. Extended coverage is available for forestry and greenhouses. In the case of bloodstock and +livestock, insurance can be taken out for the mortality, disease and transit risks in addition to general natural +perils. In the aquaculture sector risks such as algal bloom can also be covered. Furthermore, our involvement +in index-based insurance products opens up a variety of new business opportunities when it comes to insuring +agricultural risks. +4 +5 +6 +The stated values include the remuneration of Mr. Althoff as a senior executive of Hannover Re for the period from 1 January to 31 July 2014. +This refers in each case to payment of the variable remuneration for the previous year. Remuneration for seats with Group bodies that is counted +towards the variable remuneration accrues in the year of occurrence. The company's Supervisory Board does not decide on the final amount paid out +for the 2014 financial year until after the preparation of the remuneration report. +Stock appreciation rights were awarded in 2006, exercise option at the discretion of the Executive Board until 31 December 2016 in the following +tranches: 40% from 2009, 60% from 2010, 80% from 2011, 100% from 2012 onwards. +Stock appreciation rights were awarded in 2007, exercise option at the discretion of the Executive Board until 31 December 2017 in the following +tranches: 40% from 2010, 60% from 2011, 80% from 2012, 100% from 2013 onwards. +Stock appreciation rights were awarded in 2009, exercise option at the discretion of the Executive Board until 31 December 2019 in the following +tranches: 40% from 2012, 60% from 2013, 80% from 2014, 100% from 2015 onwards. +For details of the service cost see the tables "Defined benefit commitments" and "Defined contribution commitments" on page 121. +118 +Hannover Re | Annual Report 2014 +André Arrago +Board member with +divisional responsibility +Date left: 31 August 2014 +Claude Chévre +Board member with +divisional responsibility +2013 +2014 +2013 +2014 +320.0 +228.3 +320.0 +726.8 +765.1 +794.1 +Dr. Michael Pickel +0.0 +13.4 +0.0 +78.8 +78.8 +30.9 +30.9 +838.5 +803.1 +828.3 +829.5 +101.2 +89.9 +38.1 +33.0 +924.3 +893.0 +866.4 +862.5 +Hannover Re | Annual Report 2014 +119 +Combined management report +Sideline activities of the members of the +Executive Board +The members of the Executive Board require the approval of the +Supervisory Board to take on sideline activities. This ensures +that neither the remuneration granted nor the time required +for this activity can create a conflict with their responsibilities +on the Executive Board. If the sideline activities involve seats +on supervisory boards or comparable control boards, these are +listed and published in the Annual Report of Hannover Rück +SE. The remuneration received for such seats at Group com- +panies and other board functions is deducted when calculating +the variable bonus and shown separately in the table of total +remuneration. +Retirement provision +Final-salary pension commitment +(appointment before 2009) +The contracts of members of the Executive Board first appointed +prior to 2009 contain commitments to an annual retirement pen- +sion calculated as a percentage of the pensionable fixed annual +remuneration (defined benefit). The target pension is at most +50% of the monthly fixed salary payable on reaching the age +of 65. A non-pensionable fixed remuneration component was +introduced in conjunction with the remuneration structure +applicable from 2011 onwards. +Contribution-based pension commitment +(appointment from 2009 onwards) +The commitments given to members of the Executive Board +from 2009 onwards are based on a defined contribution +scheme. +70.7 +2014 +0.0 +0.0 +Board member with +divisional responsibility +Roland Vogel +Chief Financial Officer +2013 +2014 +2013 +2014 +320.0 +342.4 +380.0 +406.6 +17.2 +22.5 +15.7 +15.4 +337.2 +364.9 +395.7 +422.0 +351.8 +359.4 +388.3 +376.6 +149.5 +78.8 +44.3 +30.9 +0.0 +0.0 +2013 +Fixed remuneration +100.0 +Total +1 Amounts excluding reimbursed VAT +2 +3 +Including supervisory board remuneration and remuneration for committee work as well +as advisory board remuneration received from entities affiliated with the company +Employee representatives +4 +Former employee representative +1.0 +2.5 +11.1 +933.4 +893.5 +Remuneration for committee work +Attendance allowances +The individualised presentation of the remuneration shows the +expense charged to the financial year in question. Since the +remuneration for a financial year becomes due at the end of +the Annual General Meeting that ratifies the acts of the Super- +visory Board for the financial year, the relevant reserve allo- +cations for the variable remuneration are recognised allowing +for any fractional amounts. Value-added tax payable upon the +remuneration is reimbursed by the company. +Loans to members of the management +boards and contingent liabilities +In order to avoid potential conflicts of interest, Hannover Rück +SE or its subsidiaries may only grant loans to members of the +Executive Board or Supervisory Board or their dependants with +the approval of the Supervisory Board. +In 2014 no loan relationships existed with members of the +Executive Board or Supervisory Board of Hannover Rück SE, +nor did the company enter into any contingent liabilities for +members of the management boards. +Securities transactions and shareholdings +(directors' dealings) +Dealings in shares, options and derivatives of Hannover Rück +SE effected by members of the Executive Board or Supervi- +sory Board of Hannover Re or by other persons with manage- +rial functions who regularly have access to insider informa- +tion concerning the company and who are authorised to take +major business decisions - as well as such dealings conducted +by certain persons closely related to the aforementioned indi- +viduals in excess of EUR 5,000 are to be reported pursuant +to § 15a Securities Trading Act (WpHG). The reportable trans- +actions listed in the following table took place in the 2014 +financial year. +Hannover Re | Annual Report 2014 +123 +Combined management report +Securities transactions +M89 +Name +Type of +transaction +In the year under review no payments or benefits were granted +to members of the Supervisory Board in return for services +provided individually outside the committee work described +above, including for example consulting or mediation services, +with the exception of the remuneration paid to employee rep- +resentatives on the basis of their employment contracts. +4.6 +2.5 +Variable remuneration +21.6 +• +Finance and Audit Committee +Remuneration for committee work +15.0 +15.0 +Attendance allowances +6.0 +8.0 +78.1 +74.6 +Maike Sielaff³ +Member of the Supervisory Board +Fixed remuneration +30.0 +24.6 +Variable remuneration +24.0 +17.0 +Remuneration for committee work +Attendance allowances +4.0 +4.0 +58.0 +45.6 +Gert Wächtler4 +Member of the Supervisory Board +(until 19 March 2013) +Fixed remuneration +5.5 +Type of +security +ISIN +Transaction +date +Management level 2 +Management level 3 +General Manager +Chief Manager +Senior Manager +Manager +Variable remuneration +system +Cash bonus and Share +Award Plan +Group Performance +Bonus (GPB) +Attainment of the agreed IVC results in goal attainment of 100%. +Outperformance of the divisional targets, i. e. a degree of goal +attainment in excess of 100%, requires at least the agreement +and attainment of a positive IVC. Furthermore, a degree of goal +attainment in excess of 100% should be geared to a real com- +parison of planned IVC with actual IVC. A maximum degree of +goal attainment of 150% is conditional upon attainment of an +excellent positive IVC and implies that the actual IVC of the divi- +sion is significantly in excess of the planned IVC. +Individual targets are agreed and measured for a period of one +year. The degree of goal attainment is between 0% and 100%. +Amount and payment of variable remuneration +for senior executives +The overall degree of goal attainment determines the amount of +variable remuneration including share awards. On management +level 2 (Managing Director) 60% of the variable remuneration is +paid out annually in cash and 40% is granted in the form of share +awards. On management level 3 (Director and General Manager) +the variable remuneration is split into 65% cash payment and +35% granted as share awards. +On management level 3 (Director and General Manager) the mini- +mum variable remuneration amounts to EUR 0 on the premise that +the degree of attainment for all goals is 0%. For management +level 2 (Managing Director) in treaty/regional departments the +minimum limit for the variable remuneration is set at -10% if the +degree of goal attainment for Group net income is -50% while +at the same time goal attainment of 0% is determined for the +divisional targets and individual targets. For management level 2 +(Managing Director) in service departments -20% of the variable +remuneration is possible as the lower limit, if the degree of goal +attainment for Group net income is -50% and at the same time +goal attainment of 0% is determined for the individual targets. +In view of the fact that outperformance of up to 200% is possible +for Group net income and up to 150% for divisional targets, a +maximum total degree of goal attainment of 140% can be attained +in both treaty/regional departments and service departments. +Given outperformance of all targets, a maximum of 140% of the +variable remuneration can therefore be attained on management +levels 2 and 3. +Number of eligible participants in the variable +remuneration system +Hannover Re Group +All 160 Group senior executives worldwide +receive a cash bonus upon corresponding goal +attainment. 159 of them participate in the Share +Award Plan. +Home Office Hannover +623 staff (excl. seconded employees) out of the +altogether 1,269 at Hannover Home Office (incl. +94 senior executives) are GPB-eligible. +Allocation and payment of share awards +to senior executives +The total number of share awards allocated is determined +according to the value per share of Hannover Re. This value is +arrived at from the average of the closing prices of the shares +in a period extending from 20 trading days before to 10 trad- +ing days after the meeting of the Supervisory Board at which +the consolidated financial statement is approved. The number +of share awards is established by dividing the specified por- +tion of the total bonus (40% or 35%) by the value per share, +rounded up to the next full share. +Following expiry of a vesting period of four years the value of +one Hannover Re share calculated at the disbursement date +is paid out for each share award. The value of the Hannover +Re share is again determined from the average of the closing +prices of the shares in a period from 20 trading days before to +10 trading days after the meeting of the Supervisory Board that +approves the consolidated financial statement. In addition, a +sum in the amount of the dividend is paid out for each share +award, insofar as dividends were distributed to shareholders. +The level of the dividend payment is the sum total of all divi- +dends per share paid out during the period of the share awards +multiplied by the number of share awards. +In the case of the allocation and payment of share awards to +participants in the Share Award Plan who are located abroad, +the rate of exchange used to convert the average share price +is the average of the relevant exchange rate in a period from +20 trading days before to 10 trading days after the meeting of +the Supervisory Board that approves the consolidated financial +statement. For payment of the dividend to participants in the +Share Award Plan who are located abroad, the rate of exchange +used to convert the dividend per share is the average of the rel- +evant exchange rate in a period from 20 trading days before to +10 trading days after the Annual General Meeting that approves +the dividend payment for the financial year just ended. +The cash bonus for the 2013 financial year was paid out in June +2014. The share awards for the 2013 financial year were also +allocated in June 2014; they will be paid out in the spring of +2018 including dividends paid for the 2013, 2014, 2015 and +2016 financial years. +Hannover Re | Annual Report 2014 +125 +Combined management report +Agricultural crop and livestock +insurance +Demand is constantly growing for foodstuffs and agricultural commodities, while the arable land around the +world is limited. This encourages investment in agriculture, which coverage requirements are rising in light +of the expected increase in extreme weather events due to climatic change. In this context, agricultural crop +and livestock insurance is taking on added significance, not only in industrial nations but also in emerging +markets where governments are increasingly supporting farmers with premium subsidies. We therefore expect +demand in this business segment to continue growing. +Director +27.1 +Managing Director +M90 +Number of +shares +Price +Total volume +in EUR +André Arrago +Purchase +Share +DE0008402215 +11 March 2014 +1,600 +61.00 +in EUR +97,599.04 +1 +Rounded; average price = EUR 60.994 +Members of the Supervisory Board and Executive Board of Han- +nover Rück SE as well as their spouses or registered partners and +first-degree relatives hold less than 1.0% of the issued shares. +The total holding as at 31 December 2014 amounted to 0.004% +(0.056%) of the issued shares, i. e. 4,549 (67,103) shares. +Remuneration of staff and senior +executives +Structure and system +The remuneration scheme for senior executives below the +Executive Board (management levels 2 and 3) consists of a +fixed annual salary and a system of variable remuneration. This +is comprised of a short-term variable remuneration component, +the annual cash bonus, and a long-term share-based remunera- +tion component, the Share Award Plan. This variable remuner- +ation has been uniformly applied worldwide since 1 January +2012 to all Group senior executives (i. e. Managing Directors, +Directors and General Managers). It satisfies the requirements +of the Regulation on the Supervisory Law Requirements for +Remuneration Schemes in the Insurance Sector (VersVergV), +which entered into force on 13 October 2010, inasmuch as - +in its basic principles and parameters - it meets the special +requirements of § 4 VersVergV and is appropriately realised +according to the various management levels. As part of the +reorientation of the remuneration system for senior executives +the Share Award Plan of the Executive Board was consciously +extended to include management levels 2 and 3. Given that +at the same time the stock appreciation rights plan for senior +executives was cancelled with effect from the 2012 alloca- +tion year, this means that a uniform share-based remuneration +component has been maintained for the Executive Board and +senior executives alike. +Members of staff on the levels of Chief Manager, Senior Man- +ager and Manager are also able to participate in a variable +remuneration system through the Group Performance Bonus +(GPB). The Group Performance Bonus (GPB) is a remunera- +tion model launched in 2004 that is linked to the success of +the company. This tool is geared to the minimum return on +equity of 750 basis points above the risk-free interest rate and +the return on equity actually generated. For those participat- +ing in the GPB 14.15 monthly salary payments are guaranteed; +a maximum of 16.7 salary payments is attainable. Since its +launch the maximum amount of the GPB was paid out in 2006, +2007, 2009, 2010, 2012 and 2013. +The group of participants and the total number of eligible par- +ticipants in the variable remuneration systems of Hannover Re +are set out in the table on the following page. +Measurement of variable remuneration for senior +executives +The measurement of the variable remuneration is based on +three elements: Group net income, divisional targets and indi- +vidual targets. The weighting of the elements is dependent upon +whether responsibility is carried in a treaty/regional department +or in a service department. In the treaty/regional departments +the Group net income is weighted at 20%, the divisional tar- +gets at 40% and the individual targets also at 40%. In the ser- +vice departments the Group net income carries a 40% weight- +ing, while the individual targets account for 60%. Agreements +on divisional targets and individual targets as well as on their +degree of goal attainment are arrived at as part of the Manage- +ment by Objectives (MbO) process. +The Group net income is measured by the three-year average +return on equity (ROE) of the Hannover Re Group above the +risk-free interest rate. Goal attainment is calculated as follows: +for each individual financial year of the last three financial years +it is calculated by how many percentage points the RoE of the +Hannover Re Group exceeds the risk-free interest rate. The aver- +age of these three differences determines the three-year aver- +age RoE above the risk-free interest rate. The risk-free interest +rate is the average market interest rate over the past five years +for 10-year German government bonds. +If the three-year average RoE above the risk-free interest rate +reaches the expected minimum return on equity of 750 basis +points, goal attainment stands at 85%. Goal attainment of 100% +is recorded at 882 basis points. The maximum possible goal +attainment is 200%. A lower limit is placed on goal attainment of +-50% (penalty) for management level 2 (Managing Director) and +0% for management level 3 (Director and General Manager). +- +The measurement of the divisional targets – which in the case of +the treaty/regional departments account for 40% of overall goal +attainment - is geared to the actual value created. The Intrinsic +Value Creation (IVC) of the division encompassing the relevant +area of responsibility is therefore used as a one-year measure- +ment basis. Negative performance contributions are excluded +here – the minimum possible goal attainment is 0%. The maxi- +mum possible goal attainment is limited to 150%. +124 +Hannover Re | Annual Report 2014 +Group of participants and total number of eligible participants in variable remuneration systems +Valid: 31 December 2014 +Participants +1,142.8 +Variable remuneration +30.0 +97.6 +90.9 +Wolf-Dieter Baumgartl² +Member of the +Supervisory Board +Standing Committee +• Finance and Audit Committee +• Nomination Committee +Fixed remuneration +50.0 +50.0 +Variable remuneration +42.3 +38.3 +Remuneration for committee work +6.0 +22.5 +Attendance allowances +11.0 +12.0 +125.8 +122.7 +Frauke Heitmüller³ +Member of the Supervisory Board +Fixed remuneration +30.0 +30.0 +Variable remuneration +26.6 +21.3 +22.5 +5.0 +Attendance allowances +7.5 +100.0 +Supervisory Board +Variable remuneration +84.9 +76.4 +• +Standing Committee +Remuneration for committee work +85.0 +85.1 +Finance and Audit Committee +Attendance allowances +11.0 +15.0 +Dr. Klaus Sturany +• Nomination Committee +Deputy Chairman of the +Supervisory Board +Member of the Standing Committee +280.9 +276.5 +Fixed remuneration +45.0 +45.0 +Variable remuneration +40.1 +32.4 +Remuneration for committee work +7.5 +Remuneration for committee work +Attendance allowances +4.0 +4.0 +21.6 +Remuneration for committee work +Attendance allowances +4.0 +4.0 +60.6 +55.6 +122 +Hannover Re | Annual Report 2014 +Dr. Immo Querner² +Member of the Supervisory Board +Fixed remuneration +50.0 +50.0 +Variable remuneration +41.7 +38.2 +Remuneration for committee work +10.0 +10.0 +Attendance allowances +7.0 +7.0 +108.7 +105.2 +Dr. Erhard Schipporeit +Member of the +Supervisory Board +Fixed remuneration +26.6 +30.0 +Variable remuneration +30.0 +60.6 +55.3 +Uwe Kramp4 +Member of the Supervisory Board +(until 3 May 2012) +Fixed remuneration +Variable remuneration +Remuneration for committee work +Attendance allowances +0.3 +0.3 +Otto Müller³ +Member of the Supervisory Board +Fixed remuneration +30.0 +30.0 +Variable remuneration +26.6 +21.6 +Remuneration for committee work +Attendance allowances +4.0 +4.0 +60.6 +55.6 +Dr. Andrea Pollak +Member of the +Supervisory Board +• Nomination Committee +Fixed remuneration +30.0 +97.9 +મ +685.6 +86.8 +1,415.5 +80.0 +91.7 +900.6 +961.5 +91.7 +219.0 +91.7 +86.8 +215.5 +1,456.5 +Roland Vogel +Chief Financial Officer +2013 +2014 +2014 +2014 +2013 +Dr. Michael Pickel +Board member with +divisional responsibility +935.5 +909.3 +86.8 +0.0 +19.9 +19.9 +19.9 +0.0 +12.9 +12.9 +12.9 +823.5 +848.7 +128.7 +1,328.7 +820.6 +869.8 +127.3 +1,364.8 +85.8 +2014 +2014 +2014 +(Min) +364.9 +364.9 +395.7 +422.0 +422.0 +422.0 +288.0 +288.0 +0.0 +576.0 +288.0 +288.0 +0.0 +576.0 +206.6 +212.6 +(219.4) +364.9 +0.0 +337.2 +15.4 +(Max) +(Min) +(Max) +320.0 +342.4 +342.4 +342.4 +380.0 +406.6 +406.6 +406.6 +17.2 +22.5 +22.5 +22.5 +15.7 +15.4 +15.4 +404.6 +0.0 +7.3 +342.4 +342.4 +320.0 +348.7 +348.7 +348.7 +9.5 +342.4 +6.4 +6.4 +13.3 +13.2 +13.2 +13.2 +329.5 +348.8 +6.4 +320.0 +(Max) +(Min) +André Arrago +1 +Board member with +divisional responsibility +Claude Chévre +Board member with +divisional responsibility +Date left: 31 August 2014 +2013 +2014 +2014 +2014 +2013 +2014 +2014 +2014 +(Min) +(Max) +348.8 +348.8 +333.3 +361.9 +192.0 +96.0 +99.0 +(247.5) +198.0 +96.0 +96.0 +0.0 +192.0 +96.0 +99.0 +0.0 +198.0 +14.0 +0.0 +696.8 +0.0 +(240.0) +0.0 +96.0 +408.9 +361.9 +361.9 +288.0 +288.0 +0.0 +576.0 +288.0 +297.0 +0.0 +594.0 +206.0 +211.9 +(220.1) +403.9 +199.3 +210.9 +(234.6) +96.0 +208.8 +0.0 +(313.2) +Total +1,263.7 +1,261.6 +318.8 +Service cost +120.8 +114.3 +13.9 +Total remuneration +1,384.5 +1,375.9 +332.7 +Allocation +Jürgen Gräber +Board member with +divisional responsibility +Coordinator of worldwide property & +M 85 +casualty reinsurance +14.6 +in EUR thousand +72.7 +(2013-20195) +One-year variable remuneration² +614.5 +603.0 +98.0 +Multi-year variable remuneration +113.9 +72.7 +14.6 +Stock appreciation rights 2006 +(2009-2016³) +0.0 +0.0 +0.0 +Stock appreciation rights 2007 +(2010-20174) +41.2 +0.0 +0.0 +Stock appreciation rights 2009 +72.7 +206.2 +Fixed remuneration +Total +0.0 +340.5 +0.0 +Stock appreciation rights 2006 +(2009-2016³) +0.0 +0.0 +Stock appreciation rights 2007 +(2010-20174) +76.6 +0.0 - +Stock appreciation rights 2009 +(2013-20195) +Total +Service cost +Total remuneration +87.6 +1,057.0 +87.6 +976.4 +214.8 +87.6 +Fringe benefits +164.2 +351.8 +One-year variable remuneration² +2013 +2014 +2013 +2014 +400.0 +428.0 +320.0 +342.4 +14.3 +16.0 +13.8 +13.9 +414.3 +444.0 +333.8 +356.3 +478.5 +444.8 +Multi-year variable remuneration +585.9 +Dr. Klaus Miller +Board member with +divisional responsibility +7.2 +0.0 +0.0 +20.6 +20.6 +20.6 +0.0 +22.8 +22.8 +22.8 +831.8 +865.5 +101.2 +917.6 +89.9 +955.4 +145.5 +89.9 +235.4 +1,345.5 +892.5 +924.8 +108.8 +1,404.8 +0.0 +0.0 +16.8 +0.0 +406.8 +96.0 +535.3 +(240.0) +192.0 +96.0 +96.0 +(336.0) +192.0 +89.9 +1,435.4 +96.0 +0.0 +192.0 +96.0 +96.0 +0.0 +192.0 +14.6 +0.0 +0.0 +96.0 +38.1 +96.0 +930.6 +German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 2 (cash allocations in 2013 and 2014) +Allocation +Ulrich Wallin +Chief Executive Officer +Sven Althoff¹ +Board member +with divisional +responsibility +Date joined: +1 August 2014 +in EUR thousand +Fixed remuneration +Combined management report +Fringe benefits +2013 +2014 +520.0 +569.7 +199.0 +15.3 +16.2 +33.0 +Total +117 +2014 +33.0 +141.8 +33.0 +1,437.8 +Hannover Re | Annual Report 2014 +957.8 +132 +Aviation +The significant major losses incurred in aviation reinsurance +in 2014 have had only a qualified positive effect on rates. It +remains the case that insurance capacities are widely available, +and it is therefore our expectation that premiums in conven- +tional aviation reinsurance will tend to stabilise on the existing +level. Although we anticipate price increases for war covers, +these have not so far been as appreciable as originally antici- +pated. Based on our long-standing expertise in all lines of +aviation reinsurance, we nevertheless see attractive business +opportunities in the current financial year. All in all, though, +the premium volume is set to contract. +Credit, surety and political risks +The premium volume in the area of credit, surety and political +risks is expected to remain stable in 2015. We again slightly +boosted the share of our total portfolio deriving from politi- +cal risks in the context of the 1 January 2015 treaty renewals. +In view of the good results posted by insurers, the modest +pressure on conditions is likely to be sustained in the current +financial year and primary insurers can be expected to further +increase their premium retained for own account. +United Kingdom, London market and direct business +In the face of more intense competition we expect to see declin- +ing rates for our reinsurance business in the United Kingdom +this year. We were essentially able to preserve our portfo- +lio in the renewals as at 1 January 2015 thanks to our estab- +lished customer relationships. In addition, we succeeded in +expanding our short-tail business. On the back of the solid +rate increases booked in non-proportional motor business over +the past three years, prices again moved slightly higher or +remained unchanged. In direct business our subsidiary Inter +Hannover continues to focus on risk selection in order to fur- +ther enhance the quality of its portfolio. +Facultative reinsurance +The soft market phase prevailing in facultative reinsurance +is likely to continue and hence rates will remain stubbornly +low. Nevertheless, by taking a selective approach we also see +attractive business opportunities. For example, we anticipate +stronger demand in areas such as covers for renewables and +cyber-risks. Thanks to our very good rating, we should also +be able to profit from the pooling of reinsurance cessions at +large primary insurance groups. Our portfolio of facultative +risks is expected to deliver a stable premium volume in the +current financial year. +Hannover Re | Annual Report 2014 +133 +Global reinsurance +Worldwide treaty reinsurance +Hannover Re | Annual Report 2014 +136 +No matters of special significance occured after the closing +date for the consolidated financial statements. +overall in property and casualty reinsurance, the underwriting +result should come in on the level of 2014 – provided the major +loss incidence remains within the bounds of expectations. In +terms of the targeted combined ratio, we are aiming for a fig- +ure under 96%. The EBIT margin for property and casualty +reinsurance should amount to at least 10%. +- +stable customer relationships. Despite softer market conditions Events after the reporting date +Our strategic objective is to generate a minimum return on +equity within the Group that is 900 basis points above the +risk-free interest rate. We also seek to increase the earnings +per share by 6.5% and the book value per share (including +dividends paid) by at least 7.5% annually. +In terms of the dividend for the current financial year, Hanno- +ver Re envisages a payout ratio in the range of 35% to 40% +of its IFRS Group net income. This ratio may increase in light +of capital management considerations if the present comfort- +able level of capitalisation remains unchanged. +For 2015 we anticipate Group net income in the order of +EUR 875 million. This is subject to the proviso that the bur- +den of major losses does not significantly exceed the budgeted +level of EUR 690 million and that there are no exceptionally +adverse developments on capital markets. +The expected positive cash flow that we generate from the +technical account and our investments should - based on stable +exchange rates - lead to further growth in our asset portfolio. +We anticipate a return on investment of 3.0%. +In marine reinsurance we expect to see further softening of +insurance and reinsurance rates for the 2015 financial year. +The deterioration in reserves for removal of the wrecks of the +"Costa Concordia" and "Rena" have nevertheless prevented a +substantial price decline. Given the absence of major losses, +rates for the reinsurance of offshore energy risks are moving +slightly lower despite higher sums insured in the original mar- +ket. Overall, the trend towards reduced reinsurance cessions +driven by large insurance groups is likely to be sustained. This +may be offset, at least to some extent, by ceding companies +that make the most of the soft market to buy more reinsurance +capacity. When it comes to our own portfolio, we anticipate a +slightly reduced premium volume in 2015. +Marine +All in all, we achieved moderate growth of 1% in the treaty +renewals for Continental European markets. +In tandem with the existing surplus capacities, the trend +towards greater consolidation of reinsurance programmes at +large clients continued in North America, hence keeping up +the pressure on rates. On the reinsurance side this was true +of both the property and casualty lines, where the situation is +expected to bottom out in the medium term. We are adhering +to our strategy of a margin-oriented underwriting policy, even +if this compels us to relinquish volume growth. Nevertheless, +in view of our long-standing and robust customer relationships, +we expect to maintain our presence even in the soft market. +Overall, then, we were satisfied with the outcome of the renew- +als as at 1 January 2015. In part through targeted new business +acquisition, we were able to grow the premium volume in North +America by around 5%. In this context we expanded our niche +business in the professional indemnity line, where rates proved +to be firmer. It remains the case that we do not participate in +multi-line liability quota share reinsurance arrangements. Slight +rate increases were recorded in Canadian property business +owing to the losses incurred in 2013 and 2014. Looking ahead +to the treaty renewals on 1 June and 1 July 2015 – the time of +year when catastrophe XL covers, in particular, are renegoti- +ated - we currently anticipate further intense competition in +this segment. +Hannover Re | Annual Report 2014 +Target markets +North America +Expectations for the development of our property and casualty +reinsurance business are described in greater detail below. ++/- ++/- ++ ++ ++/- ++ ++/- ++ ++/- ++ +All lines with the exception of those reported separately +- below the cost of capital +With regard to the IVC targets that we use to map economic +value creation, we anticipate a minimum 2% xRoCA for prop- +erty and casualty reinsurance and at least 3% xROCA for life +and health reinsurance. ++/- = on a par with the cost of capital; +Combined management report +All in all, our North American portfolio is expected to show +modest growth in the current financial year. +Continental Europe +In Germany, the largest single market within our Continental +Europe segment, Hannover Re was again able to expand its +already excellent position. Here, too, competition nevertheless +remained keen and the trend towards primary insurers carry- +ing higher retentions was sustained. While the loss situation +of past years enabled us to catch up on rate increases or hold +prices stable in some lines, such as motor own damage and +homeowners comprehensive, the move observed in previous +years towards exposure-based rate increases ground to a halt. +Particularly in non-proportional motor liability business, the +premium increases needed on account of continuously ris- +ing long-term care costs in relation to bodily injury claims +proved to be unattainable. The strained situation in industrial +fire insurance also remained unchanged. Fierce competition +and a large number of basic losses put adequate results in this +segment out of reach. With this in mind, we wrote our busi- +ness here selectively. Our total portfolio in the domestic Ger- +man market closed with a premium gain due to a number of +new customer relationships. +In the other markets of Continental Europe the picture was +a mixed one: the expansion of existing customer accounts in +France enabled us to offset the pressure on prices in loss-free +programmes and the effect of discontinued treaties. In North- +ern European countries we maintained our market-leading +position. The markets of Southern and Eastern Europe became +considerably more competitive. Broadly speaking, though, we +consider reinsurance prices here to be commensurate with the +risks. Demand for non-proportional treaties surged sharply with +an eye to Solvency II requirements. ++above the cost of capital; +Specialty lines worldwide +In life and health reinsurance we shall continue to concentrate +on enlarging our range of services in the current year so as +to offer our customers an optimal combination of traditional +risk transfer and comprehensive reinsurance service. Adjusted +for exchange rate effects, we expect to book slightly higher +gross premium overall and an increased profit. The Value of +New Business (VNB) for 2015 should again be in excess of +EUR 180 million. We continue to aim for EBIT margins of 2% +for financial solutions and longevity business and 6% for mor- +tality and morbidity business. +Preparations for the impending implementation of the Sol- +vency II Framework Directive are also playing a major role. The +new reporting and disclosure requirements enter into effect +on 1 January 2016. In the course of the current year we shall +step up our efforts to ensure that all requirements are satisfied +as early as possible. As far as our business is concerned, we +shall cooperate even more closely with our customers in 2015 +in order to offer attractive reinsurance solutions for solvency +and capital relief under the new Solvency II regime. +In the current year, despite a challenging environment on the +capital market and in reinsurance business, we anticipate a +good overall result for the Hannover Re Group. Bearing in +mind developments both in property and casualty and in life +and health reinsurance, we expect to book stable or slightly +higher gross premium volume - based on constant exchange +rates for our total portfolio in the current financial year. +Risk solutions +Financial solutions +Forecast development for 2015 +Life & Health reinsurance: +2 +As a globally operating reinsurer, our focus in the prevailing +highly competitive climate is on sustainable success. In the cur- +rent financial year our business will be influenced above all by +developments on capital markets and the complex regulatory +requirements in individual regions. +Life & Health reinsurance +In the area of insurance-linked securities (ILS) it is our expec- +tation that demand will continue to grow. Along with protect- +ing our own peak exposures, we make use of the broad range +of opportunities available here, particularly in collateralised +reinsurance business. Over the coming years we expect to +see a positive and steadily rising profit contribution. We suc- +ceeded in renewing our "K cession", a collateralised modelled +quota share cession of non-proportional reinsurance treaties +that we have placed on the ILS market for many years - with +an increased capacity of USD 400 million for 2015. +Combined management report +Hannover Re | Annual Report 2014 +Longevity +134 +An oversupply of reinsurance capacity continues to be the +hallmark of natural catastrophe markets. In the first place the +influence of ILS markets is still rising, while at the same time +primary insurers have more capital at their disposal, as a con- +sequence of which fewer risks are being passed on to reinsur- +ers. As a further factor, the absence of major losses in 2014 +prompted additional rate reductions in the 1 January 2015 +renewals, including for example in US property catastrophe +business. Despite this, price increases were also attainable in +a variety of regions and segments. In Europe, and especially +in Germany, higher prices were obtained under programmes +that had been impacted by various hail and windstorm events. +Further developments in catastrophe business will depend on +the loss situation going forward, particularly in the US market. +Given the prevailing market climate the strategy pursued by our +subsidiary in Bermuda is to further expand in specialty lines. +Catastrophe XL (Cat XL) +We expect to write further profitable business for our retakaful +portfolio in the current financial year. Rising prices are antici- +pated above all under loss-impacted programmes. +Hannover Re expects demand to continue rising in the area +of agricultural risks. This can be attributed to the increased +demand for food and a greater need to protect against extreme +weather events. Not only that, we also see further growth +potential for index-linked microinsurance products in emerg- +ing markets, not least bearing in mind that the G8 nations have +defined agricultural insurance as a tool for fighting poverty. +Hannover Re expects its premium to come in higher for the +current financial year. +In South Africa we expect to record slightly higher premium +income and an improved result for 2015 in our reinsurance +portfolio and specialty business. +In Spain and Portugal conditions for proportional treaties were +mostly unchanged at the main renewal date – i.e. 1 January +2015-, while they deteriorated somewhat for non-proportional +programmes. Broadly speaking, we are satisfied with the devel- +opment of our business despite the ongoing economic chal- +lenges faced by both countries. We improved our market share +in Spain and booked modest premium growth in Portugal. +The outcome of the treaty renewals as at 1 January 2015 in +the Caribbean and Latin America were satisfactory on the +whole for our company. We were very successful in defending +our market position in the region despite soft conditions and +fierce competition over placements. The reinsurance market +is notable for an oversupply of capacity, as a consequence of +which a reinsurer's financial strength continues to be crucially +important a state of affairs from which Hannover Re prof- +ited. As expected, the renewals on 1 January 2015 for Latin +America - the main renewal season here is not until 1 July – +provided to be competitive, but prices were still commensurate +with the risks. In Brazil we were able to write new treaties and +enlarge existing relationships. Despite the difficult state of the +market we succeeded in holding our portfolio stable thanks to +our focus on Latin America as a whole. Premium income from +Venezuela and Ecuador may be curtailed in future by restrictive +regulatory regimes as well as inflation and negative exchange +rate effects. Nevertheless, even as we continue to adhere to +our selective underwriting policy we remain confident of gen- +erating further profitable growth for our portfolio from Latin +American markets in the current financial year. +- +Turning to Australia and New Zealand, thanks to our strong +local presence and established customer relationships we +expect to be able to preserve our portfolio in these markets +on a stable level. Particularly attractive opportunities for growth +may open up in niche markets. +++= significantly above the cost of capital; +Structured reinsurance and insurance-linked securities +Further healthy demand is anticipated for our Advanced Solu- +tions business and structured reinsurance in the current finan- +cial year. The key driver here is the growing integration of rein- +surance into companies' risk management. This development +has been prompted by the increasingly exacting capital require- +ments placed on insurers: with a growing number of countries +adopting risk-based solvency systems and the implementation +of Solvency II soon to become a reality, demand for products +that deliver capital relief is likely to remain brisk in 2015. +Mortality +Morbidity +Volume 1 +Outlook for the full 2015 financial year +Given the high capital requirements and potentially increased +volatility on equity markets – which are in part driven by liquid- +ity -, our cautious stance on investments in listed equities at +current valuation levels remains unchanged. +The enlargement of the asset portfolio is expected to have a +positive effect on investment income, although the average +return will decline owing to sustained low interest rates. In +view of the low returns on more secure investments, we shall +continue to invest in products offering attractive credit spreads +and selectively expand our portfolio in the areas of alternative +investments and real estate. +Bearing in mind the as yet unresolved European debt crisis and +the associated uncertainties, we shall maintain the conserva- +tive orientation of significant parts of our investment portfo- +lio. Nevertheless, irrespective of the sovereign debt issue, the +improved economic outlook will be reflected in selective risk- +taking. Our emphasis on broad diversification will be retained +unchanged. By way of a neutral modified duration we shall +continue to ensure that the interest rate risk is tightly managed. +Investments +135 +Hannover Re | Annual Report 2014 +In Continental European and international longevity markets +we expect to see further growth in demand. Against the back- +drop of progressively shifting demographics this will increas- +ingly extend also to emerging markets, including China and +Hong Kong, thereby generating additional business potential. +Turning to longevity business, the announcement in the United +Kingdom of new arrangements relaxing the rules on compul- +sory retirement already led to a decline in annuity business in +the year under review. With effect from 1 April 2015 pension- +ers will enjoy considerably greater flexibility in accessing and +using their pension lump sums on reaching retirement age. At +the same time the one-year transitional period will also come to +an end. It is to be anticipated that this will continue to affect the +UK annuity market in 2015. Nevertheless, it is our assumption +that the influence on the market volume of enhanced annuities +will, if anything, be rather slight, and hence the general outlook +for our enhanced annuity business is bright. Going forward, +therefore, we continue to expect substantial business volumes +for our UK longevity portfolio. Working in concert with our +customers in the interest of policyholders, we are confident +that we can offer solutions tailored to the new situation and +thereby tap into new business opportunities. +Changes in regulatory provisions will affect us not only in Ger- +many but also globally in the year ahead. China, for example, +plans to implement new solvency directives with effect from +2015: the new China Risk Oriented Solvency System (C-ROSS) +puts the focus on risk-based capital requirements and imposes +more detailed reporting. The adoption of C-ROSS will signifi- +cantly improve comparability with Solvency II - which in prin- +ciple must be viewed favourably with an eye to progressive +globalisation. We are monitoring the implications of C-ROSS +implementation particularly closely in order to be able to +respond flexibly and appropriately to the requirements. The +South African insurance industry is similarly seeing moves +to roll out risk-based capital requirements. This will serve to +close the gap and improve comparability both with Europe's +Solvency II regulatory regime and with other international risk- +oriented systems of prudential regulation. +These anticipated developments will therefore also affect our +business. Particularly in the case of traditional life insurance +policies, for example, the reduction of the guaranteed inter- +est rate from 1.75% to 1.25% as at 1 January 2015 will likely +mean a further contraction in the business volume. The order +of the day for both insurers and reinsurers alike is to explore +alternatives and attractive provision products that can gener- +ate demand. +In Germany it is our expectation that the low level of interest +rates will be sustained in 2015 and that the pressure on returns +facing primary insurers will remain correspondingly high. ++/- ++ ++/- +++ +Profitability2 +M93 +- below the cost of capital ++/- = on a par with the cost of capital; ++= above the cost of capital; +++= significantly above the cost of capital; +1 In EUR +The premium volume in property and casualty reinsurance is +expected to remain stable for 2015 based on constant exchange +rates. We shall continue to practise our systematic underwrit- +ing discipline, writing only business that satisfies our margin +requirements. We expect the treaty renewals during the year to +pass off favourably thanks to our good rating and long-standing +2 +The susceptibility of the economy to distortions that has been +witnessed in recent years will continue. Emerging upheavals +on financial markets, the exacerbation of geopolitical tensions +or changes of government in Europe's crisis-ridden nations +could at times severely undermine the expansion of the world +1 +World economy +Selected countries +United States +China +India +Japan +Germany +Source: Kiel Institute for the World Economy +2014 +(forecast from +previous year) +Economic areas +2014 +(provisional +calculation) +3.7 +3.4 +3.7 +0.9 +0.8 +1.2 +2.3 +2.2 +3.2 +7.5 +2015 +(forecast) +in % +M91 +economy. +Economic development +Group net income in the order of EUR 875 million expected +Return on investment of 3.0% for assets under own management +Profitability set to continue growing in life and health reinsurance +Solid prospects for 2015 despite soft market conditions in property and casualty reinsurance +New challenges due to worldwide regulatory changes +• +• +Forecast +Outlook +Dieter Kroll is a +General Manager +with Hannover Re. +Working out of the +company's Home +Office in Hannover, +he is responsible for +Asian life and health +business including +financial solutions +Our products serve as efficient and flexible tools of business financing and solvency management for life +insurers. In addition to more traditional cash financing, we offer our customers solutions designed to ease the +strain of reserving and provide solvency relief. They are based on reinsurance transactions with an appropriate +transfer of underwriting risks in accordance with the regulatory requirements applicable locally and else- +where. We have an extensive network and considerable international experience when it comes to rapidly +implementing efficient financial solutions models. In the context of China's adoption of a new solvency regime +(C-ROSS), the capital requirements placed on life insurers will change and demand for innovative financial +solutions models is set to grow. This is a challenge that we believe we are well equipped to meet. +Financial solutions in China +"Agricultural Risks" +in the area of +at Hannover Re +works as a Manager +Dr. Dina Dziuba +Global economy +The framework conditions for the global economy improved to +such an extent in the second half of 2014 that the forecasting +institutes anticipate a gradual pick-up in economic impetus for +2015. The Kiel Institute for the World Economy expects the +global economy to post slightly higher growth year-on-year of +3.7% by the close of 2015. +Monetary policy, which for the most part continued to be highly +expansionary, and the positive stimuli from the current low +price of oil are supporting progressive deleveraging processes +in the private sector and boosting business activity. This will +Growth in gross domestic product (GDP) +likely lead to stronger growth rates, especially in the mature +national economies. As a further factor, the restraining effects +of fiscal policy will probably diminish overall. Emerging econo- +mies should profit from rising demand in industrial nations, +although structural problems will hamper a rapid return to the +heady growth rates of past years. +7.4 +In EUR +7.0 +5.9 +Generating growth in a highly competitive environment is likely +to prove a challenging task in 2015. Industry experts estimate +that premium volume will be stable overall. What is more, if +the current year should also pass off with another very light +burden of major losses, the market will respond with a further +decline in prices - especially for natural catastrophe covers. +Hannover Re | Annual Report 2014 +131 +Property & Casualty reinsurance +Overview +After three consecutive years of low major losses and good +results, property and casualty reinsurance is once again seeing +intense competition in the current financial year. The healthy +capitalisation of ceding companies due to the absence of major +losses has resulted in fewer risks being ceded to reinsurers. +Furthermore, the inflow of capital from the market for catas- +trophe bonds (ILS) continues to create a surplus of capacity. +These factors also shaped the treaty renewals as at 1 January +2015, the date when some 65% of our property and casu- +alty reinsurance portfolio (excluding facultative business and +structured reinsurance) was renegotiated. Despite sometimes +appreciable price erosion and deteriorations in conditions in +certain areas, we were broadly satisfied with the outcome of +the renewals - even though the rate quality of the renewed +portfolio was somewhat lower than in the previous year. Rate +increases were obtained under programmes that had suffered +losses in 2014. This was especially true of our German busi- +ness. The significant losses incurred in the aviation line, on +the other hand, did little to boost prices. +The latest round of renewals showed that financially robust +reinsurers such as Hannover Re are more highly sought-after +by cedants. Based on our excellent ratings, our long-standing +customer relationships and our profit-oriented underwriting +policy, we are in a good position to adapt to the soft market +conditions. Hannover Re continues to practise its systematic +cycle management combined with rigorous underwriting disci- +pline and trusts in a broadly diversified portfolio of high-quality +existing business, complemented by opportunities that may +arise in niche and specialty lines. +Property & Casualty reinsurance: +Forecast development for 2015 +3 +In China, too, the regulatory requirements have grown enor- +mously in recent years. The local regulator, the China Insur- +ance Regulatory Commission (CIRC), already requires submis- +sion of regular reports both in writing and orally. Adoption +of the new regulatory regime C-ROSS (China Risk Oriented +Solvency System) is envisaged for 2015; this will require even +more detailed reporting and it will thus increase the workload +on companies. In terms of content, C-ROSS is geared towards +the European Solvency II guidelines, thereby further increas- +ing international comparability. +Target markets +North America +Continental Europe³ +3 +Credit, surety and political risks +UK, Ireland, London market and +direct business +Facultative reinsurance +Global reinsurance +Worldwide treaty reinsurance +Catastrophe XL (Cat XL) +Structured reinsurance and +insurance-linked securities +M92 +Volume +Profitability2 +Specialty lines worldwide +Marine +Aviation +Preparations for implementation of the European Solvency II +Framework Directive are progressing apace. To this end, the +European Commission has recently set in motion further deci- +sions ("delegated acts"), as has the federal government on the +German level. The new stipulations provide companies with +a guiding framework for the application of Solvency II from +2016 onwards. +The international insurance industry will likely find itself operat- +ing in a largely unchanged environment in 2015. Even though +experts believe that low interest rates will continue, the insur- +ance sector should remain on a stable course in the current year. +Insurance industry +6.5 +1.5 +0.2 +0.8 +1.7 +1.5 +1.7 +United States +The growth in output in the United States will probably rise +by one percentage point in the year ahead to 3.2%. The main +engine of growth is the continued improvement of the labour +market; this will progressively stimulate consumer spending +and accelerate wage growth. With sales prospects brightening +at home and abroad, investment activity will also pick up. It will +be boosted by the continued favourable financing environment. +130 +Hannover Re | Annual Report 2014 +Combined management report +Europe +Developments in the Eurozone are still overshadowed by struc- +tural problems affecting parts of the currency area, and hence +growth will only gather pace gradually. In 2015 it is expected +to come in slightly higher than in the previous year at around +1.2%. Not least owing to the very low price of oil, consumer +prices will probably rise by just 0.3%. Fears of deflation con- +sequently persist. Even if this should happen, however, the +economy will probably not suffer because such a scenario +would be driven essentially by energy prices and would not +therefore be accompanied by lower household and corpo- +rate earnings. Unemployment is expected to shrink further +to 11.2%. The United Kingdom should generate roughly the +same growth at 2.9% - as in the previous year. +Germany +Economic activity looks to be trending higher again in Ger- +many after a period of stagnation: the experts at the Kiel Insti- +tute for the World Economy anticipate a growth rate of 1.7% +and a medium-term positive tendency. In the early months of +the current year the economy will be driven primarily by pri- +vate consumption. Subsequently, cyclical upward forces will +increasingly kick in, and output should therefore surge sharply +in the second half of the year. The favourable financing climate +should serve to consistently stimulate investment activity. As +the global economy revives, export impetus should also rise. +The economic upturn will not be felt on the labour market until +the middle of the year because the first six months will still be +under the sluggish influence of the previous year. Overall, the +number of persons in gainful employment will likely continue +to grow and the jobless rate should fall slightly to 6.6%. +China, India, Japan +The room for manoeuvre in fiscal policy has contracted in many +emerging markets because their monetary policy was geared +more towards stabilising the exchange rate than stimulating +the economy. Although the upturn in economic activity in these +countries will therefore again be more vigorous, it will be on a +lower level. Growth of 7.0% is anticipated for China in 2015, +with an ongoing slowing tendency. In India, where the econ- +omy last year came in slightly ahead of expectations, the pre- +vious year's growth rate of 6.5% will probably be repeated. +Japan is forecast to deliver growth of around 0.8%. +Capital markets +The decision of the European Central Bank to stand by its low +interest rate policy and purchase government bonds is intended +to protect the Eurozone against the threat of deflation. The US +Federal Reserve, by contrast, set in motion the trend reversal +in its interest rate policy. This should be reflected in a contin- +ued strong US dollar. International bond markets will again +be shaped by below-average and increasingly divergent inter- +est rate levels in 2015. In the relevant currency areas for our +company we anticipate at most unchanged yield curves and +moderate interest rate rises. With respect to Treasury bonds +issued by the countries of the European Monetary Union with +higher risk premiums, which have been the focus of so much +attention of late, stabilisation may continue despite the cur- +rent deflation risk. Generally speaking, the very low volatility +seen on the capital market is not expected to be sustained. The +effects of currency and oil price movements should therefore +be all the more pronounced, although on balance the oppor- +tunities for the world economy will outweigh the risks. As a +further factor, the elections in a number of European countries +have the potential to unsettle the strategy of taking incremental +steps to resolve the Euro debt crisis. The necessary consolida- +tion of public finances in the industrial nations will therefore +continue to preoccupy the economic environment; it may, how- +ever, be overcompensated by resurgent private consumption +and investment demand. In view of the existing uncertainties, +broad diversification within the investment portfolio will there- +fore continue to be of considerable importance in the current +financial year. +5.0 +Eurozone +Premium income is expected to increase again for the Asia- +Pacific markets. Along with sustained rising demand for insur- +ance products in the expanding middle class of many emerging +markets, regulatory changes - above all in China and India - are +also having favourable implications for Hannover Re's posi- +tioning. We expect our Chinese reinsurance portfolio to post +another appreciable surge in premium volume. Nevertheless, +tendencies towards a contraction in the outflow of reinsurance +premiums into foreign markets can be anticipated in certain +Asian markets. +In Japan there will likely be a consolidation in demand for rein- +surance covers: rates for natural catastrophe risks and in other +lines will probably come under further pressure in the April +round of renewals. Overall, we expect to book slightly lower +premium in the original currency for our portfolio in Japan. +The region of South and Southeast Asia should again prove to +be the engine of growth in the current year. Consequently, our +portfolio here should show a further rise in premium volume +due to special initiatives that have already been launched. Rates +for most markets in South and Southeast Asia are expected to +be broadly adequate. +7.2 +Hannover Re | Annual Report 2014 +143 +Annual financial statements +Consolidated cash flow statement 2014 +in EUR thousand +I. +Cash flow from operating activities +1.1.-31.12.2014 +N05 +1.1.-31.12.2013 +Net income +Appreciation/depreciation +1,065,107 +939,249 +8,252,960 +702,202 +7,550,758 +5,402,926 +(31,776) +1,039,105 +43,649 +1,082,754 +985,649 +985,649 +58,384 +79,458 +(361,791) +(361,791) +(41,589) +(403,380) +(8,748) +(48,288) +1,065,107 +Net realised gains and losses on investments +(182,453) +30,622 +(144,151) +157,349 +193,824 +Changes in tax assets/provisions for taxes +182,543 +(89,114) +Changes in benefit reserve (net) +Changes in prepaid reinsurance premium (net) +57,841 +Changes in claims reserves (net) +1,106,308 +1,118,155 +Changes in deferred acquisition costs +(121,881) +67,431 +75,705 +(78,143) +119,362 +Net changes in contract deposits +7.5 +Change in fair value of financial instruments (through profit or loss) +33,257 +27,136 +Realised gains and losses on deconsolidation +(2,602) +(6,661) +Income from the recognition of negative goodwill +(173) +Amortisation of investments +83,382 +98,146 +Changes in funds withheld +(482,106) +(70,492) +707 +(13) +(13) +(13) +4,249,386 +6,032,472 +681,672 +6,714,144 +(1,349) +(1,349) +(24,417) +1,426 +(14,265) +(14,265) +115 +115 +(2,043) +(2,043) +5 +77 +(9,455) +instruments +Other +1,169,255 +190,454 +142 +Hannover Re | Annual Report 2014 +Continuation: Other reserves +Retained +Equity attributable +Non-controlling +Total +(cumulative other +comprehensive income) +earnings +to shareholders of +Hannover Rück SE +shareholders' +equity +Hedging +5 +Changes in other technical provisions +5 +(676,368) +5,888,436 +641,591 +6,530,027 +(60) +(2,637) +(628) +4,781,718 +(19,452) +(1,387) +(1,387) +4 +4 +(72) +(72) +(20,080) +(16,452) +(9,455) +6,530,027 +(20,603) +(696,971) +895,467 +895,467 +43,782 +939,249 +(361,791) +(361,791) +(48,493) +(410,284) +(9,455) +(16,452) +4,781,718 +5,888,436 +641,591 +7,965 +724,562 +38,995 +Changes in clearing balances +1,920 +Payment on capital measures +(4,769) +Structural change without loss of control +(20,080) +(6,096) +77 +876 +Dividends paid +(410,284) +Proceeds from long-term debts +554,095 +77,405 +Repayment of long-term debts +Acquisition/disposal of treasury shares +Cash flow from financing activities +(403,380) +Contribution from capital measures +1.1.-31.12.2013 +1.1.-31.12.2014 +Short-term investments +Changes +11,735 +(74,218) +Other changes (net) +(38,050) +(35,134) +Cash flow from investing activities +(1,195,341) +(1,761,518) +Hannover Re | Annual Report 2014 +145 +Annual financial statements +in EUR thousand +III. Cash flow from financing activities +(774,338) +Purchases +(10,705) +5 +Income taxes paid (on balance) +Dividend receipts² +Interest received +Interest paid +(113,032) +71,844 +(278,326) +2 +60,673 +1,457,912 +(175,025) +(168,701) +The income taxes paid, dividend receipts as well as interest received and paid are included entirely in the cash flow from operating activities. +Including dividend-like profit participations from investment funds +146 +Hannover Re | Annual Report 2014 +1,415,936 +Supplementary information on the cash flow statement¹ +642,936 +772,882 +(647,609) +(347,678) +IV. Exchange rate differences on cash +46,058 +(41,719) +Cash and cash equivalents at the beginning of the period +642,936 +572,188 +Change in cash and cash equivalents (I.+II.+III. + IV.) +134,000 +74,581 +Changes in the consolidated group +(4,054) +(3,833) +Cash and cash equivalents at the end of the period +(13) +70,075 +(508,308) +55,963 +1.1.-31.12.2013 +618,208 +912,993 +(1,395) +(46,980) +427,121 +(100,302) +1.1.-31.12.2014 +462,581 +Fixed-income securities - available for sale +Maturities, sales +11,304,019 +Purchases +(13,167,728) +8,220,723 +(10,519,496) +(283,585) +Purchases +Maturities, sales +Fixed-income securities - loans and receivables +73,975 +(106,432) +Changes in other assets and liabilities (net) +(256,569) +100,319 +Cash flow from operating activities +1,930,892 +2,225,496 +144 +Hannover Re | Annual Report 2014 +in EUR thousand +II. Cash flow from investing activities +Fixed-income securities - held to maturity +Maturities +Purchases +Fixed-income securities - at fair value through profit or loss +(230,502) +Maturities, sales +9,649 +(34,622) +142,588 +131,650 +(259,511) +(172,207) +Affiliated companies and participating interests +Sales +Purchases +Purchases +22,514 +(45,408) +(3,105) +Real estate and real estate funds +Sales +102,472 +24,688 +Sales +Other invested assets +(92) +79,646 +(12,074) +Equity securities - available for sale +Sales +10,932 +15,432 +Purchases +(9,793) +(12,302) +Other financial assets - at fair value through profit or loss +Sales +Purchases +59,706 +4,481 +(19,148) +Purchases +120,597 +436,836 +633,338 +Change in benefit reserves +7.3 +28,625 +Commission and brokerage, change in deferred acquisition costs +7.3 +2,579,368 +9,464,172 +1,907 +13,640,381 +146,691 +2,690,173 +Other acquisition costs +4,878 +5,608 +Other technical expenses +Administrative expenses +Total technical expenses +Other income and expenses +Operating profit/loss (EBIT) +Interest on hybrid capital +9,127,546 +7.3 +Claims and claims expenses +13,896,563 +97,309 +Net income from investments under own management +1,095,785 +1,054,462 +Income/expense on funds withheld and contract deposits +7.2 +376,056 +357,348 +Net investment income +1,471,841 +1,411,810 +Other technical income +Total revenues +7.3 +1,641 +7.3 +Cumulative foreign currency translation adjustment +7,461 +7.3 +Basic earnings per share +8.17 +7.43 +8.17 +7.43 +95,720 +1,370,670 +8.5 +126,670 +1,102,392 +305,563 +163,143 +1,065,107 +939,249 +140 +Hannover Re | Annual Report 2014 +7.5 +Earnings per share (in EUR) +43,782 +895,467 +79,458 +985,649 +363,859 +12,448,363 +333,674 +12,311,566 +7.4 +18,190 +1,466,390 +(99,753) +1,229,062 +6.12 +Diluted earnings per share +Net income before taxes +Taxes +Net income +thereof +Non-controlling interest in profit and loss +6.14 +Group net income +7,874 +Consolidated statement of comprehensive income 2014 NO3 +Changes from hedging instruments +Total other comprehensive income +7.2 +Ordinary investment income +9,414 +12,226,664 +12,423,081 +(3,294) +(203,238) +1,068,361 +(154,362) +1,781,064 +13,963,409 +14,361,801 +7.1 +1.1.-31.12.2013 +1.1.-31.12.2014 +1,542,921 +1,041,318 +Profit/loss from investments in associated companies +7.2 +Other investment expenses +19,098 +27,558 +7.2 +Total depreciation, impairments and appreciation of investments +(27,136) +(33,257) +7.2 +Change in fair value of financial instruments +144,151 +182,453 +7.2 +Realised gains and losses on investments +12,536 +1,042 +Notes +Other changes in cumulative other comprehensive income +Net premium earned +Change in gross unearned premium +1,302,673 +(16,452) +(48,288) +(9,455) +(8,748) +(246,279) +261,559 +190,454 +1,169,255 +Total liabilities +Total shareholders' equity +Non-controlling interests +Equity attributable to shareholders of Hannover Rück SE +Retained earnings +533,745 +5,402,926 +4,781,718 +7,550,758 +Ceded written premium +Gross written premium +in EUR thousand +N02 +Consolidated statement of income 2014 +Annual financial statements +139 +Hannover Re | Annual Report 2014 +53,915,544 +60,457,584 +641,591 +6,530,027 +8,252,960 +702,202 +6.14 +5,888,436 +Change in ceded unearned premium +in EUR thousand +Net income +Not reclassifiable to the consolidated statement of income +141 +Annual financial statements +Consolidated statement of changes +in shareholders' equity 2014 +Common +shares +Additional +paid-in capital +Hannover Re | Annual Report 2014 +in EUR thousand +120,597 +724,562 +Unrealised +gains/losses +987,918 +Changes in ownership interest with +no change of control status. +Changes in the consolidated group +Balance as at 1.1.2013 +219,099 +2,024,754 +Attributable to shareholders of Hannover Rück SE +Total recognised income and expense +thereof +1,487,942 +(791,101) +(147,025) +(123,676) +(258,163) +217,806 +1,082,754 +(696,971) +2,147,861 +242,278 +Attributable to non-controlling interests +123,107 +23,179 +Capital increases/additions +Tax income (expense) +Capital repayments +Total income and expense recognised +directly in equity +(246,279) +Changes in ownership interest with +no change of control status +2,172 +(103) +Changes in the consolidated group +533,745 +Capital increases/additions +Acquisition/disposal of treasury shares +Total income and expense recognised +in equity +Net income +Dividends paid +Balance as at 31.12.2014 +Capital repayments +724,562 +120,597 +Balance as at 1.1.2014 +Net income +Dividends paid +Balance as at 31.12.2013 +N04 +Other reserves +(cumulative other +comprehensive income) +Currency +translation +(16,119) +(454,173) +(230,160) +120,597 +724,562 +533,745 +(246,279) +Acquisition/disposal of treasury shares +Transferred to the consolidated statement of income +Gains (losses) recognised directly in equity +Total income and expense recognised directly in equity +(4,203) +(34,903) +8,903 +Reclassifiable to the consolidated statement of income +Unrealised gains and losses on investments +Gains (losses) recognised directly in equity +16,287 +1,051,409 +Transferred to the consolidated statement of income +(147,075) +(118,169) +Tax income (expense) +(240,809) +181,079 +(536,739) +Tax income (expense) +13,106 +(51,190) +1.1.-31.12.2014 +1.1.-31.12.2013 +1,065,107 +939,249 +Actuarial gains and losses +Gains (losses) recognised directly in equity +(51,190) +13,106 +Tax income (expense) +16,287 +(4,203) +(34,903) +8,903 +Income and expense recognised directly in equity that cannot be reclassified +Gains (losses) recognised directly in equity +663,525 +(473,829) +Currency translation +Gains (losses) recognised directly in equity +1,066 +(340) +726 +Reclassifiable income and expense recognised directly in equity +Gains (losses) recognised directly in equity +1,539,132 +(804,207) +Transferred to the consolidated statement of income +(147,025) +(123,676) +Tax income (expense) +(274,450) +222,009 +1,117,657 +(705,874) +Tax income (expense) +95,256 +Gains (losses) recognised directly in equity +1,712 +476,440 +(269,180) +Transferred to the consolidated statement of income +50 +(5,507) +Tax income (expense) +(33,301) +40,930 +443,189 +(233,757) +Changes from the measurement of associated companies +Gains (losses) recognised directly in equity +10,217 +1,712 +10,217 +Changes from hedging instruments +interests +Taxes +Consolidated statement of income 2014 +149,257 +139,039 +Reinsurance recoverables on other technical reserves +6.7 +5,446 +Deferred acquisition costs +6.4 +1,914,598 +Accounts receivable +6.7 +6.4 +6,893 +1,672,398 +2,945,685 +Goodwill +Deferred tax assets +Other assets +Assets held for sale +Total assets +6.5 +58,220 +57,070 +3,113,978 +7.5 +Prepaid reinsurance premium +676,219 +642,936 +Total investments and cash under own management +36,228,010 +31,875,242 +Funds withheld +6.2 +15,826,480 +14,267,831 +Contract deposits +344,154 +6.3 +Total investments +52,146,559 +75,541 +46,218,614 +Reinsurance recoverables on unpaid claims +6.7 +1,376,432 +1,403,804 +Reinsurance recoverables on benefit reserve +6.7 +92,069 +772,882 +393,923 +6.6 +6.7 +2,748,594 +2,405,497 +Other technical provisions +6.7 +324,240 +269,571 +Funds withheld +Contract deposits +Unearned premium reserve +Reinsurance payable +817,137 +648,026 +6.9 +6,072,338 +5,569,932 +1,101,317 +1,071,654 +Provisions for pensions +6.10 +6.8 +508,841 +10,631,451 +6.7 +618,280 +603,627 +4,672 +4,193 +6.1 +11,226 +60,457,584 +53,915,544 +138 +11,757,132 +Hannover Re | Annual Report 2014 +in EUR thousand +Notes +31.12.2014 +31.12.2013 +Loss and loss adjustment expense reserve +6.7 +24,112,056 +21,666,932 +Benefit reserve +Liabilities +171,501 +6.1 +549,138 +694,234 +6.11 +Other liabilities +1,712,392 +1,875,591 +7.5 +Deferred tax liabilities +222,795 +260,137 +605,895 +Consolidated financial statements +138 +140 +Consolidated statement of comprehensive income 2014 +141 +Consolidated statement of changes in shareholders' equity 2014 +142 +Consolidated cash flow statement 2014 +144 +Notes to the consolidated financial statements 2014 +Consolidated balance sheet as at 31 December 2014 +147 +Long-term debt and subordinated capital +2,270,347 +Unrealised gains and losses on investments +Cumulative other comprehensive income +845,159 +845,159 +724,562 +724,562 +6.13 +120,597 +120,597 +6.12 +6.13 +Additional paid-in capital +Conditional capital: 60,299 +Nominal value: 120,597 +Common shares +Shareholders' equity +47,385,517 +52,204,624 +Total liabilities +2,464,960 +Common shares and additional paid-in capital +Cash and cash equivalents +Annual financial statements +N01 +28,980 +Other financial assets - at fair value through profit or loss +6.1 +66,394 +70,082 +Real estate and real estate funds +6.1 +1,299,258 +1,094,563 +32,804 +Investments in associated companies +154,822 +144,489 +Other invested assets +6.1 +1,316,604 +1,023,214 +Short-term investments +6.1 +575,300 +6.1 +Consolidated balance sheet as at 31 December 2014 +6.1 +36,061 +Assets +in EUR thousand +Fixed-income securities - held to maturity +Fixed-income securities - loans and receivables +Fixed-income securities - available for sale +Notes +31.12.2014 +31.12.2013 +6.1 +Equity securities - available for sale +2,139,742 +6.1 +2,988,187 +3,209,100 +6.1 +26,817,523 +22,409,892 +Fixed-income securities – at fair value through profit or loss +6.1 +64,494 +2,666,787 +116,412 +Accrued interest and rent +to the extent that repayment of a loan is unlikely or no longer +expected in the full amount. Please refer to our comments on +impairments in this section. +194 +Funds withheld (assets) +6.2 +234 +Lawsuits +8.6 +178 +6.1 Investments under own management +233 +proposal +178 +balance sheet +Earnings per share and dividend +8.5 +6. Notes on the individual items of the +232 +Staff and expenditures on personnel +172 +8.1 +Derivative financial instruments +and financial guarantees +224 +8.2 +8.7 +Related party disclosures +5. Segment reporting +173 +8.3 +Share-based payment +229 +8.4 +227 +Other corporate changes +Contingent liabilities and +Contract deposits (assets) +the subsidiary E+S Rückversicherung AG. Hannover Rück SE +is a European Company, Societas Europaea (SE), and its regis- +tered office is located at Karl-Wiechert-Allee 50, 30625 Hanno- +ver, Germany. In total, 50.2% (rounded) of the shares of Han- +nover Rück SE are directly and indirectly held by Talanx AG, +which in turn is majority-owned - with an interest of 79% - by +HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI). +Hannover Rück SE and its subsidiaries (collectively referred to +as the "Hannover Re Group" or "Hannover Re”) transact all lines +of property & casualty and life & health reinsurance. With gross +premium of approximately EUR 14.4 billion, Hannover Re is the +third-largest reinsurance group in the world. The company's net- +work consists of more than 120 subsidiaries, affiliates, branches +and representative offices worldwide with a total workforce of +roughly 2,500. The Group's German business is conducted by +1. Company information +Annual financial statements +205 +Funds withheld (liabilities) +6.8 +200 +Technical provisions +6.7 +236 +Fee paid to the auditor +8.10 +197 +Other assets +6.6 +235 +194 +commitments +234 +6.4 +Technical assets +194 +6.3 +8.8 +235 +6.5 +Goodwill +196 +8.9 +Rents and leasing +Long-term commitments +2. Accounting principles +4.5 +8. Other notes +215 +6.14 Non-controlling interests +Major discretionary decisions +3.2 +214 +treasury shares +151 +6.13 Shareholders' equity and +Summary of major accounting +policies +3.1 +210 +Debt and subordinated capital +6.12 +151 +3. Accounting policies +209 +Other liabilities +Notes to the consolidated +financial statements 2014 +1. Company information +148 +6.9 +Contract deposits (liabilities) +and estimates +205 +Provisions for pensions and other +2. Accounting principles +148 +post-employment benefit obligations +205 +6.11 +6.10 +224 +159 +statement of income +172 +Major disposals and retirements +4.4 +172 +new formations +221 +7.5 Taxes on income +Major acquisitions and +4.3 +220 +Other income and expenses +7.4 +161 +complete list of shareholdings +219 +Reinsurance result +7.3 +216 +4. Consolidation +160 +7.1 +Premiums or discounts are deducted or added within the state- +ment of income using the effective interest rate method until +the amount repayable becomes due. Impairment is taken only +216 +7. Notes on the individual items of the +4.1 +160 +7.2 +Investment income +217 +4.2 +Consolidated companies and +Consolidation principles +Hannover Rück SE and its subsidiaries are required to pre- +pare a consolidated financial statement and group manage- +ment report in accordance with § 290 German Commercial +Code (HGB). +Gross written premium +The consolidated financial statement reflects all IFRS in force +as at 31 December 2014 as well as all interpretations issued +by the International Financial Reporting Interpretations Com- +mittee (IFRIC), application of which was mandatory for the +2014 financial year. IFRS 4 “Insurance Contracts” requires +disclosures on the nature and extent of risks stemming from +reinsurance contracts, while IFRS 7 “Financial Instruments: +Disclosures" requires similar information on risks from finan- +cial instruments. Additionally, § 315 Para. 2 Number 2 German +Commercial Code (HGB) also contains requirements for insur- +ance undertakings with regard to information on the manage- +ment of underwriting and financial risks that is to be provided +in the management report. The disclosures resulting from these +requirements are included in the risk report. We have dis- +pensed with an additional presentation of the same content in +the notes. In order to obtain a comprehensive overview of the +risks to which Hannover Re is exposed it is therefore necessary +to consider both the risk report and the relevant information in +the notes. We refer the reader accordingly to the correspond- +ing remarks in the risk report and the notes. +N06 +Financial assets at fair value through profit or loss consist of +securities held for trading and those classified as measured at +fair value through profit or loss since acquisition. This refers +principally to unsecured debt instruments issued by corpo- +rate issuers and derivative financial instruments. Within the +scope of the fair value option provided under IAS 39 "Finan- +cial Instruments: Recognition and Measurement", according +to which financial assets may be carried at fair value on first- +time recognition subject to certain conditions, all structured +securities that would have needed to have been broken down +had they been recognised as available for sale or under loans +and receivables are also recognised here. Hannover Re makes +use of the fair value option solely for selected subportfolios +of its financial assets. Securities held for trading and securi- +ties classified as measured at fair value through profit or loss +since acquisition are carried at their fair value on the balance +sheet date. If stock market prices are not available for use as +fair values, the carrying amounts are determined using gen- +erally acknowledged measurement methods. All changes in +fair values from this measurement are recognised in invest- +ment income. The classification of financial assets at fair value +through profit or loss is compatible with Hannover Re's risk +management strategy and investment strategy, which are ori- +ented extensively towards economic fair value variables. +Financial assets classified as available for sale are carried at +fair value; accrued interest is recognised in this context. We +allocate to this category those financial instruments that do not +satisfy the criteria for classification as held to maturity, loans +and receivables, at fair value through profit or loss, or trading. +Unrealised gains and losses arising out of changes in the fair +value of securities held as available for sale are recognised +with the exception of currency valuation differences on mon- +etary items - directly in shareholder's equity after deduction +of deferred taxes. +Establishment of the fair value of financial instruments +carried as assets or liabilities: we establish the fair value of +financial instruments carried as assets or liabilities using the +methods and models described below. The fair value of a finan- +cial instrument corresponds to the amount that Hannover Re +would receive or pay if it were to sell or settle the said finan- +cial instrument on the balance sheet date. Insofar as market +prices are listed on markets for financial assets, their bid price +is used; financial liabilities are valued at ask price. In other +cases the fair values are established on the basis of the market +conditions prevailing on the balance sheet date for financial +assets with similar credit rating, duration and return charac- +teristics or using recognised models of mathematical finance. +152 +Hannover Re | Annual Report 2014 +Hannover Re uses a number of different valuation models for +this purpose. The details are set out in the table on the previous +page. Financial assets for which no publicly available prices or +observable market data can be used as inputs (financial instru- +ments belonging to fair value hierarchy level 3) are for the most +part measured on the basis of proven valuations drawn up by +knowledgeable, independent experts, e. g. audited net asset +value, the plausibility of which has previously been subjected +to systematic review. For further information please see our +explanatory remarks on the fair value hierarchy in Section 6.1 +"Investments under own management". +Impairments: As at each balance sheet date we review our +financial assets with an eye to the need to take impairments. +Permanent impairments on all invested assets are recognised +directly in the statement of income. In this context we take as +a basis the same indicators as those subsequently discussed +for fixed-income securities and securities with the character +of equity. Qualitative case-by-case analysis is also carried out. +IAS 39 "Financial Instruments: Recognition and Measure- +ment" contains a list of objective, substantial indications for +impairments of financial assets. In the case of fixed-income +securities and loans reference is made, in particular, to the +rating of the instrument, the rating of the issuer/borrower as +well as the individual market assessment in order to establish +whether they are impaired. With respect to held-to-maturity +instruments as well as loans and receivables recognised at +amortised cost, the level of impairment is arrived at from the +difference between the book value of the asset and the present +value of the expected future earnings flows. The book value is +reduced directly by this amount which is then recognised as +an expense. With the exception of value adjustments taken on +accounts receivable, we recognize impairments directly on the +assets side - without using an adjustment account - separately +from the relevant items. If the reasons for the write-down no +longer apply, a write-up is made in income up to at most the +original amortised cost for fixed-income securities. +With respect to impairments on securities with the character of +equity, IAS 39 "Financial Instruments: Recognition and Meas- +urement" states, in addition to the aforementioned principles, +that a significant or prolonged decrease in fair value below +acquisition cost constitutes objective evidence of impairment. +Hannover Re considers equity securities to be impaired under +IAS 39 if their fair value falls significantly, i. e. by at least 20%, +or for a prolonged period, i. e. at least nine months, below +acquisition cost. In accordance with IAS 39 the reversal of +impairment losses on equities to the statement of income once +impairment has been taken is prohibited, as is adjustment of +the cost basis. Impairment is tested in each reporting period +using the criteria defined by Hannover Re. If an equity secu- +rity is considered to be impaired on the basis of these crite- +ria, IAS 39 requires that a value adjustment be recognised in +the amount of the fair value less historical cost and less prior +value adjustments, meaning that depreciation is taken on the +fair value as at the closing date – if available, on the publicly +quoted stock exchange price. We also apply this method to +participations in funds that invest in private equity. In order to +reflect the specific character of these funds (in this case initially +negative yield and liquidity flows from the so-called "J curve" +effect during the investment period of the funds), we take an +impairment to net asset value as an approximation of the fair +value for the first time after a two-year waiting period if there +is a significant or prolonged decrease in value. +Netting of financial instruments: financial assets and liabil- +ities are only netted and recognised in the appropriate net +amount if a corresponding legal claim (reciprocity; similarity +and maturity) exists or is expressly agreed by contract, in other +words if the intention exists to offset such items on a net basis +or to effect this offsetting simultaneously. +Other invested assets are for the most part recognised at +nominal value. Insofar as such financial assets are not listed +on public markets (e. g. participating interests in private equity +firms), they are carried at the latest available net asset value +as an approximation of the fair value. Loans included in this +item are recognised at amortised cost. +Investments in associated companies are valued at equity on +the basis of the proportionate shareholders' equity attributable +to the Group. Further information is provided in Section 4.1 +"Consolidation principles". +Hannover Re | Annual Report 2014 +153 +Annual financial statements +Real estate used by third parties (investment property) is +valued at cost less scheduled 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 real estate for third-party use (recoverable amount) is +determined using acknowledged valuation methods and com- +pared with the book value; arising impairments are recognised. +Maintenance costs and repairs are expensed. Value-enhancing +expenditures are capitalised if they extend the useful life. +Deferred tax assets may only be netted with deferred tax lia- +bilities if an enforceable right exists to net actual tax refund +claims with actual taxes owing. A precondition here is that the +deferred tax assets and deferred tax liabilities refer to income +taxes that are levied by the same revenue authority either for +(i) the same taxable entity or for (ii) different taxable entities. In +this regard, there must be an intention – in every future period +in which the discharge or realisation of substantial amounts of +deferred tax liabilities/deferred tax assets is to be expected - +either to bring about the settlement of the actual taxes owing +and refund claims on a net basis or to discharge the liabilities +at the same time as the claims are realised. +Deferred tax assets are also recognised on tax loss carry-for- +wards and tax credits. Insofar as the deferred taxes refer to +items carried directly in equity, the resulting deferred taxes are +also recognised directly in equity. Value adjustments are taken +on deferred tax assets as soon as realisation of the receivable +no longer appears likely. Deferred taxes are measured accord- +ing to the tax regulations specific to the country concerned +that are applicable or have been adopted as at the closing date. +Deferred tax assets: IAS 12 “Income Taxes” requires that +assets-side deferred taxes be established if assets have to be +recognised in a lower amount or liabilities in a higher amount +in the consolidated balance sheet than in the tax balance sheet +and if these temporary differences will lead to reduced tax bur- +dens in the future. In principle, temporary differences result +from the valuation differences between the tax balance sheets +drawn up in accordance with national standards and the IFRS +balance sheets of the companies included in the consolidated +financial statement drawn up in accordance with uniform group +standards as well as from consolidation processes. Deferred +tax assets and liabilities are not established if they arise out +of assets or liabilities, the book value of which upon first-time +recognition diverges from their initial tax base. +Hannover Re | Annual Report 2014 +154 +The other intangible assets largely consist of purchased and +self-developed software. This is recognised at acquisition cost +less scheduled depreciation. Intangible assets are regularly +tested for impairment and impairment is taken where neces- +sary. The other intangible assets also include the expected +profits from acquired life reinsurance portfolios. These are +carried at the present value of future profits (PVFP) at time of +acquisition, which is calculated as the present value of profits +expected from the acquired blocks of business disregarding +new business and tax effects. Scheduled amortisation is taken +according to the periods of the underlying acquired contracts. +The PVFP is regularly tested for impairment using a liability +adequacy test and impairments are taken if necessary. In this +regard please see Section 3.2 “Major discretionary decisions +and estimates". +Present value method +Intangible assets: in accordance with IFRS 3 “Business Com- +binations" goodwill is not amortised; instead, impairments may +be taken after an annual impairment test or as indicated. For +the purposes of the impairment test, goodwill is to be allocated +pursuant to IAS 36 “Impairment of Assets" to so-called "cash +generating units" (CGUs). Each CGU to which goodwill is allo- +cated should represent the lowest level on which goodwill is +monitored for internal management purposes and may not be +larger than a segment. Following allocation of the goodwill it is +necessary to determine for each CGU the recoverable amount, +defined as the higher of the value in use and the fair value less +costs to sell. For impaired goodwill the recoverable amount is +to be stated. The recoverable amount is to be compared with +the book value of the CGU including goodwill. When the lat- +ter exceeds the recoverable amount, an impairment expense is +to be recognised. For detailed information on the impairment +method used and the goodwill recognised as at the balance +sheet date, please see Section 6.5 "Goodwill". +Reinsurance recoverables on technical reserves: shares of +our retrocessionaires in the technical reserves are calculated +according to the contractual conditions on the basis of the +gross technical reserves. Appropriate allowance is made for +Deferred acquisition costs principally consist of commissions +and other variable costs directly connected with the acquisition +or renewal of existing reinsurance contracts. These acquisition +costs are capitalised and amortised over the expected period +of the underlying reinsurance contracts. Deferred acquisition +costs are regularly tested for impairment. +Accounts receivable: the accounts receivable under reinsur- +ance business and the other receivables are carried at nomi- +nal value; value adjustments are made where necessary on the +basis of a case-by-case analysis. We use adjustment accounts +for value adjustments taken on reinsurance accounts receiv- +able, while all other write-downs are booked directly against +the underlying position. +Contract deposits: under this item we report receivables and +liabilities under insurance contracts that satisfy the test of a +significant risk transfer to the reinsurer as required by IFRS 4 +"Insurance Contracts” but fail to meet the risk transfer required +by US GAAP. IFRS 4 in conjunction with SFAS 113 requires +insurance contracts that transfer a significant technical risk +from the ceding company to the reinsurer to be differentiated +from those under which the risk transfer is of merely subor- +dinate importance. Since the risk transfer under the affected +transactions is of subordinate importance, these contracts are +recognised using the "deposit accounting" method and hence +eliminated from the technical account. The compensation for +risk assumption booked to income under these contracts is +netted under other income and expenses. The payment flows +resulting from these contracts are shown in the cash flow state- +ment under operating activities. +Funds withheld are receivables due to reinsurers from their cli- +ents in the amount of the cash deposits contractually withheld +by such clients; they are recognised at acquisition cost (nomi- +nal amount). Appropriate allowance is made for credit risks. +Cash and cash equivalents are carried at face value. Cash col- +lateral that we have received for the hedging of positive fair +values of derivatives is shown under other liabilities. +credit risks. +Own-use real estate: The portfolio of own-use real estate is +measured at cost less scheduled straight-line depreciation over +useful lives of 10 to 50 years. The fair values are determined for +comparative purposes using the discounted cash flow method. +Black-Scholes +Net asset value method +Valuation models +Pursuant to EU Regulation (EC) No. 1606/2002, the present +consolidated financial statement and group management report +of Hannover Re have been drawn up in accordance with the +International Financial Reporting Standards (IFRS) that are to +be applied within the European Union. In addition, we have +made allowance for the regulations that are also applicable +pursuant to § 315a Para. 1 German Commercial Code (HGB) +and the supplementary provisions of the Articles of Association +of Hannover Rück SE as amended on 18 July 2013. +Financial instrument +Fixed-income securities +Unlisted plain vanilla bonds, interest +rate swaps +Unlisted structured bonds +Unlisted ABS/MBS, CDO/CLO +Parameter +Interest rate curve +Interest rate curve, volatility surfaces +Risk premiums, default rates, prepayment +speed and recovery rates +Pricing model +Present value method +Hull-White, Black-Karasinski, LIBOR +market model etc. +Present value method +Other invested assets +Unlisted equities and equity investments Acquisition cost, cash flows, EBIT +Fair values, actuarial parameters, +interest rate curve +Listing of the underlying share, implicit +volatilities, money-market interest rate, +dividend yield +rate curve +Interest rate curves, spot and forward rates +Inflation swap rates (Consumer Price +Index), historical index fixings, interest +Insurance derivatives +OTC stock options, OTC stock index +options +Interest parity model +Present value method with seasonality +adjustment +Inflation swaps +Audited net asset values (NAV) +Unlisted bond, equity and real estate +funds +Private equity funds, private equity real +estate funds +Net asset value method +Capitalised earnings method, discounted +cash flow method, multiple-based +approaches +multiples, as applicable book value +Other financial assets - at fair value through profit or loss +Currency forwards +Other assets are accounted for at amortised cost. +Audited net asset values (NAV) +Loss and loss adjustment expense reserves are constituted +for payment obligations from reinsurance losses that have +occurred but have not yet been settled. They are subdivided +into reserves for reinsurance losses reported by the balance +sheet date and reserves for reinsurance losses that have already +been incurred but not yet reported (IBNR) by the balance sheet +date. The loss and loss adjustment expense reserves are based +on estimates that may diverge from the actual amounts pay- +able. In reinsurance business a considerable period of time +may elapse between the occurrence of an insured loss, notifi- +cation by the insurer and pro-rata payment of the loss by the +reinsurer. For this reason the best estimate of the future settle- +ment amount is carried. With the aid of actuarial methods, the +estimate makes allowance for past experience and assumptions +relating to the future development. The interest rate-induced +portion of the change in the reserve is shown in the statement +of income on a consistent Group basis. With the exception of +a few reserves, future payment obligations are not discounted. +In July 2014 the IASB published the final version of IFRS 9 +“Financial Instruments”, which replaces all previous versions +of this standard. The standard now contains requirements gov- +erning classification and measurement, impairment based on +the new expected loss impairment model and general hedge +accounting. The originally included model for macro hedge +accounting, which considers risk management that assesses +risk exposures on a continuous basis and at a portfolio level, +is being treated separately from general hedge accounting by +the IASB outside of IFRS 9. Initial mandatory application of +the standard, which has still to be endorsed by the EU, is ten- +tatively set for annual periods beginning on or after 1 January +2018. Hannover Re is currently reviewing the implications of +this standard and anticipates significant implications for the +consolidated financial statement. +In September 2014 the IASB also published "Amendments to +IFRS 10 and IAS 28: Sales or Contributions of Assets between +an Investor and its Associate or Joint Venture". These clarify that +the extent of gain or loss recognition for transactions between +an investor and its associate or joint venture depends upon +whether the assets sold or contributed constitute a business. +The amendments are effective for annual periods beginning +on or after 1 July 2016 and have still to be endorsed by the EU. +In September 2014 the IASB published the “Annual Improve- +ments to IFRSs 2012-2014 Cycle". These annual improve- +ments involve amendments and clarifications relating to the +following standards: IFRS 5 "Non-current Assets Held for Sale +and Discontinued Operations", IFRS 7 “Financial Instruments: +Disclosures", IAS 19 “Employee Benefits" and IAS 34 "Interim +Financial Reporting". The amendments are effective for annual +periods beginning on or after 1 July 2016 and have still to be +endorsed by the EU. +In December 2014 the IASB also issued "Amendments to IAS 1: +Disclosure Initiative". The amendments provide clarifications +in relation to materiality considerations, the aggregation and +disaggregation of disclosures and the understandability and +comparability of the notes to the IFRS financial statements. +They are effective for annual periods beginning on or after +1 January 2016 and have still to be endorsed by the EU. +In December 2014 the IASB published "Amendments to IFRS 10, +IFRS 12 and IAS 28: Investment Entities: Applying the Con- +solidation Exception”. The amendments address issues that +have arisen in the context of applying the consolidation excep- +tion for investment entities. They are effective for annual peri- +ods beginning on or after 1 January 2016 and have still to be +endorsed by the EU. +The IASB has issued the following standards, interpretations +and amendments to existing standards with possible implica- +tions for the consolidated financial statement of Hannover Re, +application of which is not yet mandatory for the year under +review and which are not being applied early by Hannover Re: +Standards or changes in standards that have not yet entered into force +or are not yet applicable +annual periods beginning on or after 1 January 2014. The new +IFRS 10, 11, 12 and the revised IAS 27 and 28 as well as the +changes published in 2012 have now been endorsed in their +entirety by the EU. Initial application of the new and revised +standards on consolidation did not give rise to any changes in +Hannover Re's scope of consolidation. +The requirements of IFRS 10, 11 and 12 as well as the revised +IAS 27 and 28 were to be applied to financial years begin- +ning on or after 1 January 2013. The Accounting Regulatory +Committee (ARC) decided in June 2012, however, that applica- +tion of the aforementioned standards within the EU shall not +be mandatory until one year later, with an effective date for +Annual financial statements +149 +Hannover Re | Annual Report 2014 +The revised version of IAS 28 "Investments in Associates and +Joint Ventures" extends the content of standards governing the +accounting of investments in associated companies to include +rules governing the accounting of investments in joint ventures. +In both instances application of the equity method is required. +The revised version of IAS 27 consists solely of requirements +for the accounting of investments in subsidiaries, jointly con- +trolled entities and associates in separate (non-consolidated) +financial statements of the parent company. In this context, only +minimal changes were made relative to the previous wording +of the standard. +Further amendments were made to the standards in 2012. In +June 2012 the IASB issued "Consolidated Financial Statements, +Joint Arrangements and Disclosure of Interests in Other Enti- +ties: Transition Guidance - Amendments to IFRS 10, IFRS 11 +and IFRS 12". The requirement to provide adjusted compara- +tive information is limited upon initial application to only the +immediately preceding period; retrospective adjustments for +subsidiaries sold in the comparative period are not required. +Furthermore, it is not necessary to provide comparative infor- +mation on unconsolidated structured entities upon initial appli- +cation of IFRS 12. These amendments were endorsed by the +EU in April 2013. In October 2012 the IASB issued “Investment +Entities (Changes to IFRS 10, IFRS 12 and IAS 27)". Given that +the parent company of the Hannover Re Group does not meet +the definition of an investment entity, these amendments - +which were endorsed by the EU in November 2013 - are not +relevant to Hannover Re. +nomically. In accordance with IFRS 11 the proportionate inclu- +sion of interests in joint ventures - a practice not adopted by +Hannover Re- will no longer be permissible. Rather, inter- +ests in joint ventures must be accounted for using the equity +method. IFRS 12 "Disclosure of Interests in Other Entities" +encompasses the disclosure requirements for IFRS 10 and 11 +as well as IAS 27 and IAS 28. With the aim of clarifying for the +users of financial statements the nature of an entity's interest +in other entities as well as the effects of those interests on its +financial position, financial performance and cash flows, this +gave rise to expanded annual mandatory disclosures in com- +parison with the previous requirements. With the exception of +the rules governing investment entities, the new requirements, +especially with respect to disclosure requirements, were not +amended in IAS 34 "Interim Financial Reporting". The cor- +responding disclosures are mostly provided in Sections 4.1, +4.2, 6.1 and 6.14. +In this connection IFRS 10 "Consolidated Financial State- +ments" and IFRS 11 "Joint Arrangements" replaced the previ- +ous standards governing consolidated financial statements and +special purpose entities (IAS 27 "Consolidated and Separate +Financial Statements” and SIC-12 "Consolidation - Special Pur- +pose Entities") as well as the standards governing the account- +ing of interests in joint ventures (IAS 31 “Interests in Joint +Ventures" and SIC-13 "Jointly Controlled Entities - Non-Mon- +etary Contributions by Venturers”). The major new feature of +IFRS 10 is that it identifies control as the single basis for veri- +fying the consolidation requirement, irrespective of whether +control is substantiated in company law, contractually or eco- +Since 2002 the standards adopted by the International Account- +ing Standards Board (IASB) have been referred to as "Inter- +national Financial Reporting Standards (IFRS)"; the standards +dating from earlier years still bear the name “International +Technical reserves: the technical reserves are shown for gross +account in the balance sheet, i. e. before deduction of the share +attributable to our reinsurers; cf. here the remarks concerning +the corresponding assets. The reinsurers' portion is calculated +and accounted for on the basis of the individual reinsurance +contracts. +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 indi- +vidual insurance-specific standards of US GAAP using the des- +ignation "Statement of Financial Accounting Standard (SFAS)" +that was valid at that time. +The declaration of conformity required pursuant to § 161 Ger- +man Stock Corporation Act (AktG) regarding compliance with +the German Corporate Governance Code has been submitted +and, as described in the Declaration of the Executive Board +regarding the Corporate Governance of the Company, made +permanently available on the Hannover Re website. +The annual financial statements included in the consoli- +dated financial statement were for the most part drawn up as +at 31 December. Pursuant to IFRS 10 "Consolidated Finan- +cial Statements" there is no requirement to compile interim +accounts for Group companies with diverging reporting dates +because their closing dates are no earlier than three months +prior to the closing date for the consolidated financial state- +ment. Insofar as no interim accounts were drawn up, allow- +ance has been made for the effects of significant transactions +between the diverging reporting dates and the closing date for +the consolidated financial statement. +The annual financial statements of all companies were drawn +up in accordance with standard Group accounting and meas- +urement rules pursuant to IFRS. +In May 2014 the IASB issued IFRS 15 “Revenue from Contracts +with Customers”. The standard specifies when and in what +amount revenue is to be recognised and which disclosures are +required for this purpose. IFRS 15 provides a single five-step +model to be applied to all contracts with customers. Finan- +cial instruments and other contractual rights and obligations +which are to be recognised under separate standards as well as +(re)insurance contracts within the scope of IFRS 4 are expressly +exempted from the standard's scope of application. The stand- +ard is to be applied to an annual reporting period beginning on +or after 1 January 2017, but has still to be endorsed by the EU. +The consolidated financial statement was drawn up in euros +(EUR), the amounts shown have been rounded to EUR thou- +sands and provided this does not detract from transparency - +to EUR millions. Figures indicated in brackets refer to the pre- +vious year. +Hannover Re | Annual Report 2014 +The present consolidated financial statement was released for +publication by a resolution of the Executive Board on 26 Feb- +ruary 2015. +New accounting standards or accounting standards applied for the first time +In June 2013 the IASB issued "Novation of Derivatives and +Continuation of Hedge Accounting" (Amendments to IAS 39 +“Financial Instruments: Recognition and Measurement"). +These amendments allow a novation of an OTC derivative des- +ignated as a hedging instrument to be deemed to be a continu- +ation of the existing hedging relationship. The amendments, +which were endorsed by the EU in December 2013, have a +mandatory effective date for annual periods beginning on or +after 1 January 2014. The amendments did not have any impli- +cations for the carrying amounts in the consolidated financial +statement or for Group net income. +In December 2011 the IASB issued “Offsetting Financial Assets +and Financial Liabilities (Amendments to IAS 32)". While the +offsetting rules for financial instruments remain unchanged, +the application guidance of the standard clarifies the mean- +ing of "currently has a legally enforceable right to set-off" and +“simultaneous”. The amendments have a mandatory effective +date for annual periods beginning on or after 1 January 2014 +and were endorsed by the EU in December 2012. The amend- +ments did not have any implications for the carrying amounts in +the consolidated financial statement or for Group net income. +In May 2011 the IASB published five new or revised stand- +ards governing consolidation, the accounting of investments +in associated companies and joint ventures and the related +disclosures in the notes. +148 +In May 2014 the IASB also amended a number of existing +standards. +In May 2013 the IASB published IFRIC 21 "Levies". IFRIC 21 +provides guidance on the accounting of outflows imposed on +entities by governments that do not constitute outflows within +the scope of IAS 12 “Income Taxes". IFRIC 21 is effective for +annual periods beginning on or after 1 January 2014 and was +endorsed by the EU in June 2014. The interpretation did not +have any implications for the carrying amounts in the consoli- +dated financial statement or for Group net income. +The "Amendments to IFRS 11: Accounting for Acquisitions of +Interests in Joint Operations" clarify the accounting for acqui- +sitions of an interest in a joint operation when the operation +constitutes a business as defined in IFRS 11. These amend- +ments are effective for annual periods beginning on or after +1 January 2016, but have still to be endorsed by the EU. +Financial liabilities at fair value through profit or loss: +Hannover Re does not make use of the fair value option pro- +vided by IAS 39 “Financial Instruments: Recognition and Meas- +urement" to classify financial liabilities in this category upon +first-time recognition. +Debt and subordinated capital principally consists of subor- +dinated liabilities that can only be satisfied after the claims of +other creditors in the event of liquidation or bankruptcy. They +are measured at amortised cost using the effective interest rate +method. Both components of profit or loss arising out of the +amortisation of transaction costs and premiums/discounts in +connection with an issue and the nominal interest are shown +as interest on hybrid capital. +Share-based payment: The share-based payment models exist- +ing within the Hannover Re Group are remuneration plans +with cash settlement. In accordance with the requirements of +IFRS 2 "Share-based Payment”, the services rendered by the +eligible beneficiaries and the resulting liability are to be rec- +ognised at the fair value of the liability and expensed over the +vesting period. Until settlement of the liability the fair value of +the liability is remeasured at each closing date and at the set- +tlement date. All changes in fair value are recognised in profit +or loss for the period. +Partial retirement obligations are carried at present value +according to actuarial principles. During the phase when the +employee is still working a provision is set aside to cover the +liability amounting to the working hours not yet compensated. +Top-up payments are accumulated in instalments until the end +of the work phase. In periods when the employee is remuner- +ated according to the partial retirement arrangements without +performing any work, the provision is released. +Restructuring provisions are recognised if a detailed formal +plan for restructuring measures exists and steps to implement +it have already begun or if key details of the restructuring have +been published. The provisions cover only expenditures aris- +ing directly as a consequence of restructuring that are not con- +nected with the company's regular activities. +Sundry non-technical provisions are established according +to the best estimate of the amount required and shown under +the balance sheet item “Other liabilities”. Allocation to such +provisions is conditional upon the Group currently having a +legal or actual obligation that results from a past event and in +respect of which utilisation is probable and the amount can be +reliably estimated. The carrying amount of the provisions is +reviewed at each balance sheet date. +156 +Deferred tax liabilities: in accordance with IAS 12 "Income +Taxes" deferred tax liabilities must be recognised if assets are +to be recognised in a higher amount or liabilities in a lower +amount in the consolidated balance sheet than in the tax bal- +ance sheet and if these temporary differences will lead to +additional tax loads in the future; please see our explanatory +remarks on deferred tax assets. +Provisions for pensions are established in accordance with +IAS 19 "Employee Benefits” using the projected unit credit +method. They are calculated according to actuarial principles +and are based upon the commitments made by the Hannover +Re Group for retirement, disability and widows' benefits. The +amount of the commitments is determined according to length +of service and salary level. The pension plans are defined ben- +efit plans. The basis of the valuation is the estimated future +increase in the rate of compensation of the pension beneficiar- +ies. The benefit entitlements are discounted by applying the +capital market rate for highest-rated securities. All changes in +valuation, especially actuarial gains and losses, are captured +immediately in cumulative other comprehensive income. Ser- +vice cost and interest cost are recognised in the statement of +income. Returns on plan assets are determined using the same +interest rate as that used in the calculation of the present value +of the defined benefit obligation. +Annual financial statements +155 +The "Amendments to IAS 16 and IAS 38: Clarification of +Acceptable Methods of Depreciation and Amortisation” +pro- +vide additional guidance on the methods that can be used to +calculate depreciation or amortisation of property, plant and +equipment and intangible assets. The new guidelines are effec- +tive for annual periods beginning on or after 1 January 2016, +but have still to be endorsed by the EU. +Hannover Re | Annual Report 2014 +Benefit reserves are comprised of the underwriting reserves +for guaranteed claims of ceding companies in life and health +reinsurance. Benefit reserves are determined using actuarial +methods on the basis of the present value of future payments +to cedants less the present value of premium still payable by +cedants. The calculation includes assumptions relating to mor- +tality, disability, lapse rates and the future interest rate devel- +opment. The actuarial bases used in this context allow an ade- +quate safety margin for the risks of change, error and random +fluctuation. They correspond to those used in the premium +calculation and are adjusted if the original safety margins no +longer appear to be sufficient. +Contributions to defined contribution plans are expensed when +the beneficiary of the commitment has performed the work that +entitles them to such contributions. +Hannover Re | Annual Report 2014 +Under the balance sheet item Other liabilities we recognise +not only the sundry non-technical provisions but also minor- +ity interests in partnerships. Direct minority interests in part- +nerships, i. e. liabilities to holders of minority shares in part- +nerships arising out of long-term capital commitments, which +are puttable at fair value by the holder of the interest, are rec- +ognised as debt pursuant to IAS 32 and measured at the fair +value of the redemption amount as at the balance sheet date. +151 +Hannover Re | Annual Report 2014 +Annual financial statements +150 +In January 2014 the IASB issued IFRS 14 “Regulatory Defer- +ral Accounts". The standard permits an entity which is a first- +time adopter of IFRS to continue to account, with some lim- +ited changes, for "regulatory deferral account balances" in +accordance with its previous GAAP, both on initial adoption of +IFRS and in subsequent financial statements. Regulatory defer- +ral account balances, and movements in them, are presented +separately in the statement of financial position and statement +of profit or loss and other comprehensive income, and specific +disclosures are required. IFRS 14 applies to an entity's first +annual IFRS financial statements for a period beginning on or +after 1 January 2016, but has still to be endorsed by the EU. +In December 2013 the IASB issued "Annual Improvements +to IFRSS 2010-2012 Cycle" and "Annual Improvements to +IFRSS 2011-2013 Cycle". The annual improvements involve +minor amendments and clarifications relating to the follow- +ing standards: IFRS 2 "Share-based Payment", IFRS 3 “Busi- +ness Combinations”, IFRS 8 “Operating Segments”, IFRS 13 +"Fair Value Measurement", IAS 16 "Property, Plant and Equip- +ment", IAS 24 "Related Party Disclosures", IAS 38 "Intangible +Assets”, IFRS 1 “First-time Adoption of International Financial +Reporting Standards" and IAS 40 “Investment Property". Both +collections of improvements are effective for annual periods +beginning on or after 1 July 2014 and were endorsed by the +EU in December 2014. +3. Accounting policies +In November 2013 the IASB issued "Defined Benefit Plans: +Employee Contributions (Amendments to IAS 19)" and thereby +clarified the requirements that relate to how contributions from +employees or third parties that are linked to service should be +attributed to periods of service. The amendments are intended +to provide relief in that entities are allowed to deduct contri- +butions from service cost in the period in which the service +is rendered. The amendments are effective for annual periods +beginning on or after 1 July 2014 and were endorsed by the +EU in December 2014. +Reinsurance contracts: IFRS 4 "Insurance Contracts" repre- +sents the outcome of Phase I of the IASB project “Insurance +Contracts" and serves as a transitional arrangement until the +IASB defines the measurement of insurance contracts after +completion of Phase II. IFRS 4 sets out basic principles for +the accounting of insurance contracts. Underwriting business +is to be subdivided into insurance and investment contracts. +Contracts with a significant insurance risk are considered to +be insurance contracts, while contracts without significant +insurance risk are to be classified as investment contracts. +The standard is also applicable to reinsurance contracts. IFRS 4 +contains fundamental rules governing specific circumstances, +such as the separation of embedded derivatives and unbun- +dling of deposit components, but it does not set out any more +extensive provisions relating to the measurement of insurance +and reinsurance contracts. In conformity with the basic rules of +IFRS 4 and the IFRS Framework, reinsurance-specific transac- +tions therefore continue to be recognised in accordance with +the pertinent provisions of US GAAP (United States Generally +Accepted Accounting Principles) as applicable on the date of +initial application of IFRS 4 on 1 January 2005. +Financial assets: as a basic principle we recognise the pur- +chase and sale of directly held financial assets including deriva- +tive financial instruments as at the settlement date. The rec- +ognition of fixed-income securities includes apportionable +accrued interest. +Financial assets held to maturity are comprised of non-deriv- +ative assets that entail fixed or determinable payments on a +defined due date and are acquired with the intent and ability +to be held until maturity. They are measured at amortised cost. +The corresponding premiums or discounts are recognised in +profit or loss across the duration of the instruments using the +effective interest rate method. A write-down is taken in the +event of permanent impairment. Please refer to our comments +on impairments in this section. +Loans and receivables are non-derivative financial instruments +that entail fixed or determinable payments on a defined due +date and are not listed on an active market or sold at short +notice. They are carried at amortised cost. +Hannover Re | Annual Report 2014 +3.1 Summary of major accounting policies +Akvamarín Beta s.r.o., +109,499 +(3,221) +39,480 +Prague/Czech Republic¹ +1,315 +87.67 +CZK +27,806 +(17) +Luxembourg/Luxembourg 1 +87.67 +EUR +103,462 +HR GLL CDG Plaza S.r.l., +Bucharest/Romania 1 +87.67 +PLN +173,426 +RON +HR GLL Europe Holding S.à r.I., +87.67 +HR GLL Roosevelt Kft, +ODPOWIEDZIALNÓSCIA, +USD +21,971 +Mustela s.r.o., +54 +Hamilton/Bermuda¹ +88.00 +USD +418 +(321) +Budapest/Hungary¹ +87.67 +HUF +20,635,541 +628,492 +HR GLL Liberty Corner SPÓLKA Z OGRANICZONA +ODPOWIEDZIALNOSCIA, +Warsaw/Poland¹ +87.67 +PLN +48,489 +(3,233) +HR GLL Griffin House SPÓLKA Z OGRANICZONA +Warsaw/Poland¹ +Prague/Czech Republic¹ +1,760 +CZK +Transit Underwriting Managers (Pty) Ltd., +Cape Town/South Africa +45.90 +ZAR +940 +MUA Insurance Acceptances (Pty) Ltd., +Cape Town/South Africa +40.80 +ZAR +13,232 +5,603 +Cargo Transit Insurance (Pty) Ltd., +Helderkruin/South Africa 5, 10 +40.80 +ZAR +(4,499) +Landmark Underwriting Agency (Pty) Ltd., +Bloemfontein/South Africa +38.51 +95.15 +ZAR +204 +ZAR +51.00 +Cape Town/South Africa +1,234,391 +(21,671) +Integra Insurance Solutions Limited, +Bradford/United Kingdom 5 +74.99 +GBP +3,019 +2,035 +Svedea AB, +Stockholm/Sweden +87.67 +53.00 +13,976 +(16,764) +Lireas Holdings (Pty) Ltd., +3,211 +Johannesburg/South Africa +51.00 +ZAR +191,451 +21,623 +MUA Insurance Company Ltd., +SEK +258 +Orlando/USA 1,8 +USD +Hannover Reinsurance Mauritius Ltd., +Port Louis/Mauritius +100.00 +MUR +44,816 +(3,232) +Hannover Re Real Estate Holdings, Inc., +95.25 +USD +488,570 +19,289 +GLL HRE CORE Properties, L.P., +Wilmington/USA 8 +95.15 +USD +229,382 +15,889 +11 Stanwix, LLC, +Wilmington/USA +95.15 +USD +ZAR +36,711 +100.00 +Johannesburg/South Africa +2,114 +78,621 +Hannover Reinsurance Africa Limited, +Johannesburg/South Africa +100.00 +ZAR +752,060 +11,094 +Compass Insurance Company Limited, +Johannesburg/South Africa +100.00 +ZAR +132,364 +6,585 +Micawber 185 (Pty) Ltd., +Johannesburg/South Africa +100.00 +ZAR +18,880 +2,925 +Peachtree (Pty) Ltd., +10 +1,095 +402 Santa Monica Blvd, LLC, +Wilmington/USA⁹ +95.15 +USD +30,457 +49 +1225 West Washington, LLC, +Wilmington/USA8 +95.15 +USD +23,647 +1,067 +975 Carroll Square, LLC, +Wilmington/USA 8 +95.15 +USD +55,571 +1,897 +Broadway 101, LLC, +Wilmington/USA8 +River Terrace Parking, LLC, +Wilmington/USA³ +Kaith Re Ltd., +95.15 +Wilmington/USA⁹ +Nashville West, LLC, +10,040 +1,493 +95.15 +USD +28,158 +654 +164 +Hannover Re | Annual Report 2014 +Name and registered office of the company +Participation +Currency +Capital and +11,536 +in currency units of 1,000 +reserves +Result for the last +financial year +300 California, LLC, +Wilmington/USA 12 +95.15 +USD +300 South Orange Avenue, LLC, +Orlando/USA 8 +95.15 +USD +in % +Hospitality Industrial and Commercial Underwriting +Non-controlling interests are shares in the equity of affiliated +companies not held by companies belonging to the Group. IAS 1 +"Presentation of Financial Statements” requires that non-con- +trolling interests be recognised separately within Group share- +holders' equity. The non-controlling interest in profit or loss is +shown separately following the net income. Further informa- +tion is provided in Section 6.14 "Non-controlling interests". +Johannesburg/South Africa +L&E Holdings Limited, +London/United Kingdom' +100.00 +GBP +5 +London & European Title Insurance Services Limited, +London/United Kingdom¹ +100.00 +GBP +241 +Hannover Re Risk Management Services India Private +Limited, +New Delhi/India 1 +13 +100.00 +INR +36,451 +(3,549) +Hannover Re Services Italy S.R.L., +Milan/Italy +99.65 +EUR +849 +511 +2,083 +100.00 +10,573 +Hannover Life Re Consultants, Inc., +Orlando/USA¹ +100.00 +USD +187 +(18) +Hannover Services (México) S.A. de C.V., +Mexico City/Mexico 5 +100.00 +MXN +9,546 +225 +Hannover Re Services USA, Inc., +Itasca/USA +100.00 +978 +80 +Hannover Rück SE Escritório de Representação +no Brasil Ltda., +Rio de Janeiro/Brazil 5 +BRL +79,502 +69 +Sydney/Australia 12 +7,847 +Firedart Engineering Underwriting Managers (Pty) Ltd., +Johannesburg/South Africa 14 +29.78 +ZAR +1,497 +1,419 +Commercial & Industrial Acceptances (Pty) Ltd., +Johannesburg/South Africa +20.40 +ZAR +5,279 +20,366 +Clarendon Transport Underwriting Managers (Pty) Ltd., +Johannesburg/South Africa +19.02 +ZAR +13,204 +26,023 +166 +Hannover Re | Annual Report 2014 +611,281 +20,941 +HMIA Pty Ltd, +CHF +Vaduz/Liechtenstein 5 +55.00 +AUD +Svedea Skadeservice AB, +Stockholm/Sweden +12 +53.00 +SEK +Associated companies +Glencar Underwriting Managers, Inc., +Chicago/USA 5 +ITAS Vita S.p.A., +Trient/Italy5 +88.20 +USD +5,475 +2,973 +34.88 +EUR +85,794 +5,326 +ASPECTA Assurance International AG, +30.00 +INR +100.00 +13 +30.60 +ZAR +278 +449 +165 +Annual financial statements +Name and registered office of the company +in currency units of 1,000 +Participation +Currency +Capital and +Result for the last +in % +reserves +financial year +Construction Guarantee (Pty) Ltd., +Johannesburg/South Africa 5, 10 +30.60 +ZAR +Envirosure Underwriting Managers (Pty) Ltd., +Durban/South Africa +Hannover Re | Annual Report 2014 +30.60 +Johannesburg/South Africa +1,752 +36.82 +ZAR +1,640 +3,805 +SUM Holdings (Pty) Ltd., +Johannesburg/South Africa +36.82 +ZAR +16,361 +4,573 +Garagesure Consultants and Acceptances (Pty) Ltd., +Johannesburg/South Africa +35.70 +ZAR +1,491 +2,573 +Thatch Risk Acceptances (Pty) Ltd., +Johannesburg/South Africa +33.14 +ZAR +1,433 +Gem & Jewel Acceptances (Pty) Ltd., +ZAR +201 +161 +EUR +341 +39 +LRA Superannuation Plan Pty Ltd., +Sydney/Australia' +100.00 +AUD +Mediterranean Reinsurance Services Ltd., +Hong Kong/China 1, 10 +100.00 +USD +62 +52 +Hannover Re Services Japan, +Tokyo/Japan' +100.00 +JPY +97,785 +1,208 +Hannover Re Consulting Services India Private Limited, +Bombay/India +100.00 +HR Hannover Re, Correduría de Reaseguros, S.A., +Madrid/Spain¹ +63 +552 +Woodworking Risk Acceptances (Pty) Ltd., +Johannesburg/South Africa 10 +30.60 +ZAR +321 +1,473 +Synergy Targeted Risk Solutions (Pty) Ltd, +Johannesburg/South Africa +30.60 +ZAR +Managers (Pty) Ltd., +1,980 +Film & Entertainment Underwriters SA (Pty) Ltd., +Johannesburg/South Africa +26.01 +ZAR +(1,960) +32 +Affiliated non-consolidated companies +International Mining Industry Underwriters Limited, +London/United Kingdom 5 +100.00 +GBP +1,039 +Shareholders' equity: the items “common shares” and “addi- +tional paid-in capital” are comprised of the amounts paid in +by the shareholders of Hannover Rück SE on its shares. In +addition to the statutory reserves of Hannover Rück SE and +the allocations from net income, the retained earnings con- +sist of reinvested profits generated by the Hannover Re Group +companies in previous periods. What is more, in the event of +a retrospective change of accounting policies, the adjustment +for previous periods is recognised in the opening balance sheet +value of the retained earnings and comparable items of the ear- +liest reported period. Unrealised gains and losses from the fair +value measurement of financial instruments held as available +for sale are carried in cumulative other comprehensive income +under unrealised gains and losses on investments. Translation +differences resulting from the currency translation of sepa- +rate financial statements of foreign subsidiaries are recognised +under gains and losses from currency translation. +USD +1,865 +EUR +27.78 +10,335 +86,817 +EUR +32.96 +1,930 +59,842 +EUR +50.00 +(3) +69,805 +39 +100.00 +Other participations +Hannover/Germany 5 +HANNOVER Finanz GmbH, +Hannover/Germany5 +WeHaCo Unternehmensbeteiligungs-GmbH, +Hannover/Germany +Oval Office Grundstücks GmbH, +Associated companies +Hannover/Germany 1.4 +International Hannover Holding AG, +EUR +Affiliated non-consolidated companies +6,378 +Hildesheim/Germany 5,6 +Hannover Finance (UK) Limited, +financial year +reserves +Result for the last +Capital and +Currency +Participation +in % +in currency units of 1,000 +Name and registered office of the company +Annual financial statements +163 +b2b protect GmbH, +Hannover Re | Annual Report 2014 +54,353 +EUR +100.00 +Luxembourg/Luxembourg 1 +Hannover Finance (Luxembourg) S.A., +Affiliated consolidated companies +Foreign companies +(236) +467 +EUR +41.86 +28,830 +421 +8,203 +EUR +67.54 +Cologne/Germany¹ +Hannover Euro Private Equity Partners III GmbH & Co. KG, +3 +31 +EUR +82.40 +Hannover/Germany1 +HAPEP II Komplementär GmbH, +(27) +61,941 +EUR +EUR +HR GLL Central Europe Holding GmbH, +(292) +204,183 +EUR +87.67 +Munich/Germany 1 +HR GLL Central Europe GmbH & Co. KG, +8,791 +728,604 +EUR +87.68 +87.67 +32,077 +HEPEP III Holding GmbH, +Cologne/Germany1 +57.89 +Cologne/Germany1 +HEPEP II Holding GmbH, +3,096 +9,893 +EUR +57.89 +Cologne/Germany¹ +Hannover Euro Private Equity Partners II GmbH & Co. KG, +12,257 +50,416 +EUR +60.58 +Cologne/Germany1 +Hannover Euro Private Equity Partners IV GmbH & Co. KG, +126,000 +691,413 +EUR +64.79 +Hannover/Germany1 +E+S Rückversicherung AG, +(525) +12,857 +EUR +67.54 +London/United Kingdom¹ +Hannover/Germany' +100.00 +2,734 +100.00 +St Peter Port/Guernsey' +Hannover Re (Guernsey) PCC Limited, +USD +100.00 +Hamilton/Bermuda +1,8 +LI RE, +1,204 +75,040 +USD +EUR +100.00 +Luxemburg/Luxembourg +Leine Investment SICAV-SIF, +157 +38 +EUR +100.00 +Luxemburg/Luxembourg 1,8 +Leine Investment General Partner S.à r.I., +GBP +100.00 +London/United Kingdom' +1,8 +Inter Hannover (No. 1) Limited, +Fracom FCP, +Hannover Finance, Inc., +ZAR +100.00 +Johannesburg/South Africa +Hannover Life Reassurance Africa Limited, +4 +209,906 +ZAR +100.00 +Johannesburg/South Africa +Hannover Reinsurance Group Africa (Pty) Ltd., +(111,867) +Paris/France⁹ +USD +Wilmington/USA 8, 10, 11 +Atlantic Capital Corporation, +8,328 +440,055 +USD +100.00 +26,854 +1,140,137 +EUR +100.00 +Wilmington/USA 1,8 +100.00 +(6,300) +136,823 +GBP +EUR +100.00 +Dublin/Ireland1 +Hannover Re (Ireland) Limited, +117 +5,826 +USD +100.00 +Hamilton/Bermuda¹ +(Bermuda) Ltd., +Hannover Life Reassurance Company of America +1,452,048 +26,876 +USD +100.00 +Orlando/USA¹ +Hannover Life Reassurance Company of America, +38,085 +405,355 +USD +100.00 +Hamilton/Bermuda¹ +Hannover Life Reassurance Bermuda Ltd., +2,084 +212,052 +78,898 +Hannover Life Re of Australasia Ltd, +Sydney/Australia¹ +100.00 +London/United Kingdom 1.7 +International Insurance Company of Hannover SE, +109 +712 +GBP +100.00 +London/United Kingdom¹ +Hannover Services (UK) Limited, +7,125 +55,389 +BHD +100.00 +Manama/Bahrain' +Hannover ReTakaful B.S.C. (c), +243,214 +1,465,820 +USD +100.00 +Hamilton/Bermuda¹ +Hannover Re (Bermuda) Ltd., +26,770 +478,191 +AUD +100.00 +GBP +Hannover Re Euro RE Holdings GmbH, +Munich/Germany 1 +175,845 +1.3293 +1.3256 +1.3766 +1.2155 +8.6671 +9.1143 +8.9114 +9.4845 +4.2069 +4.3460 +4.5351 +14.1409 +4.2580 +1,395.8961 +1,452.2507 +1,333.7220 +10.3112 +10.2814 +10.6752 +9.4289 +0.8480 +0.8059 +0.8357 +0.7825 +1,452.1050 +14.4390 +14.3566 +12.8556 +The capital consolidation is carried out according to the require- +ments of IFRS 10 "Consolidated Financial Statements" on the +basis of a consistent consolidation model for all entities that +identifies control as the single basis for verifying the consolida- +tion requirement, irrespective of whether control is substantiated +in company law, contractually or economically. Group compa- +nies are consolidated from the point in time when Hannover Re +gains control over them. Control exists if Hannover Re directly +or indirectly has decision-making power over a Group company +on the basis of voting rights or other rights, if it has exposure or +rights to positive and negative variable returns from its involve- +ment with the Group company and if it can use its power to +influence these returns. All of these criteria must be met. Other +circumstances may also give rise to control, for example the +existence of a principal-agent relationship. In this case a party +outside the Group with decision-making powers (agent) acts for +Hannover Re, but does not control the company since it merely +exercises decision-making powers that have been delegated by +Hannover Re (principal). These principles are also applied to +structured entities, on which further information is provided in +Section 4.2 "Consolidated companies and complete list of share- +holdings". Group companies are consolidated until the Hanno- +ver Re Group loses control over them. The accounting policies +of Group companies are adjusted, where necessary, in order +to ensure consistent application of the Hannover Re Group's +accounting policies. +Capital consolidation +4.1 Consolidation principles +4. Consolidation +concerning the appropriate applicability criteria are necessary +when determining the need for impairments on non-monetary +financial assets held as available for sale. In this regard we +would again refer the reader to our explanatory remarks in +Section 3.1 "Summary of major accounting policies". +In determining the carrying amounts for certain financial assets +it is sometimes necessary to make assumptions in order to +calculate fair values. In this regard we would refer the reader +to our remarks in Section 3.1 "Summary of major accounting +policies" concerning financial assets at fair value through profit +or loss and securities held as available for sale. Assumptions +Annual financial statements +159 +Hannover Re | Annual Report 2014 +The projections, which cover various model scenarios (“con- +servative assumptions” versus “best estimate”), constitute the +starting point for numerous areas of application encompassing +quotation, the determination of carrying amounts and embed- +ded values as well as contract-specific analyses, e. g. regarding +the appropriateness of the recognised reinsurance liabilities +("liability adequacy test"). In this context we would refer the +reader to our comments on technical assets and provisions in +Section 3.1 "Summary of major accounting policies" and on the +liability adequacy tests in Section 6.7 “Technical provisions”. +2,385 +For further details, for example concerning the modelling of +natural catastrophe scenarios and the assumptions relating to +asbestos and pollution risks, the reader is referred to our com- +ments in the risk report on page 86 et seq. We would further +refer to our explanatory remarks on the technical reserves in +Section 3.1 "Summary of major accounting policies" and Sec- +tion 6.7 "Technical provisions". +By analysing a broad range of observable information it is +possible to classify losses as major individual loss events. +Measurement of the obligations existing in this connection is +carried out using a separate process, which is based largely +on contract-specific estimates. +In order to measure the ultimate liability in property and cas- +ualty reinsurance the expected ultimate loss ratios are calcu- +lated for all lines. Actuarial methods such as the “chain ladder" +method provide the starting point for these calculations. The +best possible estimated future settlement amount is recognised +in the balance sheet. The development until completion of the +run-off is projected on the basis of statistical triangles from +the original notifications of ceding companies. In this context +it is generally assumed that the future rate of inflation of the +loss run-off will be analogous to the average rate of the past +inflation contained in the data. The more recent underwriting +years in actuarial projections are of course subject to greater +uncertainty, although this can be considerably reduced with +the aid of a variety of additional information on improvements +in the rates and conditions of the business written and on loss +trends. The amounts arrived at as the difference between the +ultimate losses and the reported losses are set aside as the +IBNR reserve for losses that have been incurred but are not +yet known or have still to be reported. +In the consolidated financial statement it is to some extent +necessary to make estimates and assumptions which affect +the assets and liabilities shown in the balance sheet, the infor- +mation on contingent claims and liabilities as at the balance +sheet date and the disclosure of income and expenses dur- +ing the reporting period. Key facts and circumstances subject +to such assumptions and estimates include, for example, the +recoverability of contingent reinsurance liabilities, the recover- +ability of investments in associated companies, the valuation of +derivative financial instruments as well as assets and liabilities +relating to employee benefits. The actual amounts may diverge +from the estimated amounts. +3.2 Major discretionary decisions and estimates +depreciation is not taken on non-current assets 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. +Non-current assets held for sale and discontinued opera- +tions: 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. Scheduled +Hannover Re | Annual Report 2014 +158 +Taxes: the taxes are comprised of the actual tax load on cor- +porate profits of the Group companies, to which the applica- +ble local tax rates are applied, as well as changes in deferred +tax assets and liabilities. Income and expenses arising out of +interest or penalties payable to the revenue authorities are +shown under other income and expenses. The calculation +of the deferred tax assets and liabilities is based on tax loss +carry-forwards, unused tax credits and temporary differences +between the book values of assets and liabilities in the con- +solidated balance sheet of the Hannover Re Group and their +tax values. Further information on deferred taxes is provided +in our remarks on deferred tax assets and liabilities. +ume that is not booked to income. This applies principally to +property and casualty reinsurance and parts of accident and +health reinsurance. Premiums already collected that are attrib- +utable to future risk periods are deferred pro rata temporis and +recognised in conformity with the pertinent standards of US +GAAP. In this context, assumptions are to be made if the data +required for a calculation pro rata temporis is not available. +The unearned premium corresponds to the insurance protec- +tion afforded in future periods. +Premiums for reinsurance treaties are booked to income as +earned across the period of the contracts in proportion to the +insurance protection already provided or when they become +due. Unearned premiums are calculated individually for each +treaty in order to establish the portion of the premium vol- +Ceded reinsurance premiums are deducted from the gross writ- +ten premium for the purpose of reconciliation to net premium +earned. Assets and liabilities in connection with reinsurance +ceded are recognised on a gross basis. The reinsured por- +tions of the reserves are estimated on a basis consistent with +the reserves attributable to the reinsured risk. Income and +expenses in connection with reinsurance treaties are recog- +nised on a basis consistent with the underlying risk of the +reinsured business. +Earned premium and unearned premium: assumed reinsur- +ance premiums, commissions and claim settlements as well +as assumed portions of the technical reserves are recognised +according to the terms and conditions of the reinsurance trea- +ties, giving due consideration to the underlying contracts for +which reinsurance was taken out. +8.1738 +The capital consolidation is based on the acquisition method. +In the context of the acquisition method the acquisition costs, +measured at the fair value of the consideration rendered by the +parent company on the acquisition date, are netted with the +proportionate shareholders' equity of the subsidiary at the time +when it is first included in the consolidated financial statement +after the revaluation of all assets and liabilities. After recognition +of all acquired intangible assets that in accordance with IFRS 3 +8.1675 +7.5533 +ance Bermuda Ltd. and Hannover Re (Bermuda) Ltd. changed +from euro to US dollar. This changeover was prompted by +the regrouping of large parts of the securities portfolios held +by the companies to USD-denominated instruments. Taken in +conjunction with the fact that large parts of the insurance busi- +ness written by the companies are transacted in US dollars, the +currency of the primary economic environment in which the +Group companies operate is the US dollar. Currency translation +differences resulting from long-term loans or lendings with- +out specified maturity between Group companies are similarly +recognised outside the statement of income in a separate item +of shareholders' equity. +31.12.2014 +1 EUR corresponds to: +Key exchange rates +The individual companies' statements of income prepared in +the local currencies are converted into euro at the average +rates of exchange and transferred to the consolidated finan- +cial statement. The conversion of foreign currency items in the +balance sheets of the individual companies and the transfer of +these items to the consolidated financial statement are effected +at the mean rates of exchange on the balance sheet date. In +accordance with IAS 21 “The Effects of Changes in Foreign +Exchange Rates” differences from the currency translation of +financial statements of foreign Group companies must be rec- +ognised in the consolidated financial statement as a separate +item in shareholders' equity. Effective 1 January 2014 the func- +tional currency of the Group companies Hannover Life Reassur- +Annual financial statements +157 +Hannover Re | Annual Report 2014 +Transactions in foreign currencies reported in Group compa- +nies' individual financial statements are converted into the +functional currency at the transaction rate. In accordance with +IAS 21 "The Effects of Changes in Foreign Exchange Rates" the +recognition of exchange differences on translation is guided by +the nature of the underlying balance sheet item. Exchange dif- +ferences from the translation of monetary assets and liabilities +are recognised directly in the statement of income. Currency +translation differences from the translation of non-monetary +assets measured at fair value via the statement of income are +recognised with the latter as profit or loss from fair value meas- +urement changes. Exchange differences from non-monetary +items - such as equity securities - classified as available for +sale are initially recognised outside income in a separate item +of shareholders' equity and only booked to income when such +non-monetary items are settled. +Currency translation: financial statements of Group subsidiar- +ies were drawn up in the currencies corresponding to the eco- +nomic environment in which each subsidiary primarily oper- +ates. These currencies are referred to as functional currencies. +The euro is the reporting currency in which the consolidated +financial statement is prepared. +This grouping into classes is not, however, solely determina- +tive for the type and structure of each disclosure in the notes. +Rather, guided by the underlying business model of reinsur- +ance, the disclosures are made on the basis of the facts and +circumstances existing in the financial year and in light of the +principle of materiality. +N07 +• Other long-term liabilities +Long-term debt +Other liabilities +Other receivables +Other invested assets +Short-term investments +Other financial assets - at fair value through profit +or loss +Equities, equity funds and other variable-yield +securities +Fixed-income securities +• +• +• +Disclosures about financial instruments: IFRS 7 “Financial +Instruments: Disclosures" requires more extensive disclosures +according to classes of financial instruments. In this context, +the term "class" refers to the classification of financial instru- +ments according to their risk characteristics. A minimum dis- +tinction is required here between measurement at amortised +cost or at fair value. A more extensive or divergent distinction +should, however, be geared to the purpose of the correspond- +ing disclosures in the notes. In contrast, the term "category" +is used within the meaning of the measurement categories +defined in IAS 39 “Financial Instruments: Recognition and +Measurement" (held to maturity, loans and receivables, avail- +able for sale and financial assets at fair value through profit or +loss with the subcategories of trading and designated finan- +cial instruments). Essentially, the following classes of financial +instruments are established: +Subordinated debt +31.12.2013 +2014 +2013 +1.3726 +1.4652 +1.4751 +1.4131 +0.5012 +0.4997 +0.5190 +0.4583 +1.3842 +1.4789 +1.5513 +1.4879 +Mean rate of exchange +on the balance sheet date +ZAR +USD +SEK +MYR +KRW +HKD +GBP +CNY +CAD +BHD +AUD +Average rate of exchange +8.3445 +"Business Combinations" are to be accounted for separately +from goodwill, the difference between the revalued sharehold- +ers' equity of the subsidiary and the purchase price is recognised +as goodwill. Under IFRS 3 scheduled amortisation is not taken +on goodwill. Instead, impairment is taken where necessary on +the basis of annual impairment tests. Immaterial and negative +goodwill are recognised in the statement of income in the year of +their occurrence. Costs associated with acquisition are expensed. +In life business too the calculation of reserves and assets is +crucially dependent on actuarial projections of the covered +business. So-called model points are defined according to the +type of business covered. The main distinguishing criteria are +the age, sex and (non-)smoker status of the insured, tariff, pol- +icy period, period of premium payment and amount of insur- +ance. The portfolio development is simulated for each model +point, in which regard the key input parameters are either +predefined by the tariff (e.g. allowance for costs, amount of +premium, actuarial interest rate) or need to be estimated (e.g. +mortality or disability rates, lapse rates). These assumptions are +heavily dependent on country-specific parameters and on the +sales channel, quality of the cedant's underwriting and claims +handling, type of reinsurance and other framework conditions +of the reinsurance treaty. The superimposition of numerous +model points gives rise to a projection, which incorporates +inter alia assumptions concerning the portfolio composition +and the commencement of covered policies within the year. +Such assumptions are estimated at the inception of a reinsur- +ance treaty and subsequently adjusted to the actual projection. +160 +(3) +27 +EUR +100.00 +Hannover/Germany³ +HILSP Komplementär GmbH, +1,705,385 +EUR +100.00 +2,091,925 +EUR +Hannover Insurance-Linked Securities GmbH & Co. KG, +100.00 +Hannover/Germany +Hannover Life Re AG, +Hannover/Germany 1 +1,2 +Hannover Rück Beteiligung Verwaltungs-GmbH, +Affiliated consolidated companies +Domestic companies +in currency units of 1,000 +Result for the last +financial year +reserves +Capital and +Companies over which Hannover Re is able to exercise a signifi- +cant influence are consolidated as associated companies using +the equity method of accounting. We therefore measure invest- +ments in associated companies with the proportion of the share- +holders' equity attributable to the Group. According to the pro- +portionate interest method required by IAS 28 "Investments in +Associates", the goodwill attributable to associated companies is +recognised together with the investments in associated compa- +nies. The share of an associated company's year-end profit or loss +relating to the Group is included in the income from investments +and shown separately in the consolidated statement of income. +Shareholders' equity and profit or loss are taken from the associ- +ated company's latest available financial statement. A significant +influence is presumed to exist if a company belonging to the Han- +nover Re Group directly or indirectly holds at least 20% - but no +more than 50% - of the voting rights. We also derive evidence +of significant influence over an associated company from repre- +sentation on a governing body of such company, participation +in its policy-making processes - e. g. with respect to dividends +or other distributions -, the existence of material inter-company +transactions, the possibility of interchanging managerial person- +nel or the provision of key technical information for the company. +Further particulars on companies consolidated using the equity +method of accounting are provided in Section 6.1 "Investments +under own management” under "Associated companies". +Currency +Hannover/Germany³ +EUR +EUR +91.20 +Hannover/Germany' +Hannover Re Euro PE Holdings GmbH & Co. KG, +11,284 +15,611 +EUR +95.42 +Hannover/Germany¹ +HAPEP II Holding GmbH, +25,843 +100.00 +190,590 +95.42 +Hannover/Germany¹ +Hannover America Private Equity Partners II GmbH & +Co. KG, +2,854 +28,806 +EUR +100.00 +Hannover/Germany +FUNIS GmbH & Co. KG, +93 +198 +EUR +Participation +in % +1, 2 +N09 +18 +18 +2013 +2014 +N08 +Abroad +Total +Germany +Companies included at equity +Sum total +Abroad +Name and registered office of the company +60 +Total +Germany +Consolidated companies +Number of companies +Scope of consolidation +Information on subsidiaries +In addition to Hannover Rück SE as the parent company of the +Group, the scope of consolidation of the Hannover Re Group +encompasses the companies listed in the table below. +4.2 Consolidated companies and complete list of shareholdings +the Group were also eliminated. Transactions between a dis- +posal group and the continuing operations of the Group were +similarly eliminated in accordance with IFRS 10. +Only subsidiaries which are of minor importance - both individu- +ally and in their entirety - for the net assets, financial position +and results of operations of the Hannover Re Group are exempted +from consolidation. Hannover Re assesses whether a subsidiary +is of minor importance on the basis of the company's total assets +and net income relative to the corresponding values for the Group +as a whole on average over the last three years. For this reason +Consolidation of business transactions within the Group +Receivables and liabilities between the companies included in +the consolidated financial statement were offset against each +other. Profits and expenses from business transactions within +17 (15) companies at home and abroad were not consolidated +in the year under review. A further 14 (13) companies were not +included at equity in the consolidated financial statement for +the same reason. The business object of these altogether 31 +(28) companies is for the most part the rendering of services for +reinsurance companies within the Group. +Hannover Re | Annual Report 2014 +Abroad +59 +Consolidated structured entities +78 +Hannover Re | Annual Report 2014 +162 +With regard to the major acquisitions and disposals in the year +under review please see our remarks in the following para- +graphs of this section. +The figures for the capital and reserves as well as the result for +the last financial year are taken from the local financial state- +ments drawn up by the companies. +In conformity with Item 7.1.4 of the recommendations of the Ger- +man Corporate Governance Code as amended on 24 June 2014, +the following table also lists the percentage share in capital, +the capital and reserves and the result for the last financial year +for major participations in unconsolidated third companies. +The following list of shareholdings is provided in full in the +present Group annual financial report in accordance with +§ 313 Para. 2 German Commercial Code (HGB) as amended +by the Act on the Modernisation of Accounting Law (BilMoG). +The stipulations of IFRS 12.10 and IFRS 12.21 have also been +observed. +As security for our technical liabilities and as collateral for +liabilities arising out of existing derivative transactions Han- +nover Re has established blocked custody accounts and trust +accounts in certain countries, while for liabilities in connection +with real estate transactions - to the extent that is customary +under such transactions – it has pledged assets in favour of +third parties outside the Group. For further information please +see our explanatory remarks in Section 8.7 "Contingent liabili- +ties and commitments". +National provisions of company law or requirements of super- +visory law may in certain countries limit the ability of the Han- +nover Re Group to transfer assets between companies belong- +ing to the Group. These limitations result principally from local +minimum capital and solvency requirements as well as to a +lesser extent from foreign exchange restrictions. +Annual financial statements +161 +Hannover Re | Annual Report 2014 +The sale or transfer of shares of E+S Rückversicherung AG takes +place by way of an endorsement and is permissible only with the +approval of the company's Supervisory Board. The Supervisory +Board enjoys the right to grant or deny approval unconditionally, +without being obliged to state reasons in the event of denial. +List of shareholdings +10 +Information on the non-controlling interests in shareholders' +equity and profit or loss as well as on the major non-controlling +interests is provided in Section 6.14 “Non-controlling interests". +On the balance sheet date there were no significant restrictions +on access to or the use of Group assets due to protective rights +in favour of non-controlling interests. +77 +3 +3 +80 +81 +3 +8 +7 +11 +3 +Dover/USA 5 +USD +28.50 +7,878 +Energi Re, LLC, +Toronto/Canada 5 +(48) +CAD +28.50 +2,958 +Energi of Canada Ltd., +(11) +Hurst Holme Insurance Company Limited - +(415) +Hamilton/Bermuda 5, 10 +28.50 +USD +298 +Hurst Holme Insurance Company Limited - +account 2009-01 SCC, +Hamilton/Bermuda 5, 10 +28.50 +USD +518 +(390) +859 +account 2006-03 SCC, +(1,629) +1,376,432 +28.50 +XS Direct Holdings Limited, +Name and registered office of the company +in currency units of 1,000 +Camargue Underwriting Managers (Pty) Ltd., +Johannesburg/South Africa +Synergy XOL (Pty) Ltd., +Participation +in % +Currency +Capital and +Result for the last +reserves +financial year +14.79 +ZAR +13,783 +5,983 +Johannesburg/South Africa 12 +10.20 +ZAR +Other participations +Energi, Inc., +Peabody/USA5 +28.50 +USD +7,922 +1,875 +Energi Insurance Services, Inc., +Peabody/USA5 +USD +(1,519) +Dublin/Ireland 5 +EUR +92,069 +13,379,713 +14,702,622 +671,837 +495,722 +6,611,522 +7,591,142 +642,936 +772,882 +3,743 +6,168 +208,641 +186,224 +549,138 +575,300 +90,558 +575 +190,898 +332,262 +2,262,266 +2,770,684 +1,260 +1,945 +105,232 +123,922 +106,143 +130,888 +73,824 +22,385,833 +20,065,059 +495,722 +1,190,792 +1,061,041 +Operating profit/loss (EBIT) +Interest on hybrid capital +Net income before taxes +Taxes +1,190,792 +1,061,041 +296,084 +206,721 +894,708 +854,320 +Net income +thereof +19,280 +Non-controlling interest in profit or loss +46,587 +Group net income +829,148 +807,733 +176 +Hannover Re | Annual Report 2014 +236,532 +325,534 +75,541 +46,218,614 +14,267,831 +31,875,242 +36,228,010 +15,826,480 +92,069 +52,146,559 +671,837 +65,560 +12,978 +68,706 +54,262 +1,822,435 +2,042,408 +227,130 +283,855 +674,469 +358,836 +11,098 +4,285 +429,168 +442,211 +129,343 +158,410 +2,297,054 +26,714,715 +2,626,890 +Other liabilities in the segment +Long-term liabilities +Reinsurance payable +Contract deposits +Funds withheld +Provisions for contingent commissions +Unearned premium reserve +Benefit reserve +18,847,749 +20,797,820 +Loss and loss adjustment expense reserve +Liabilities +in EUR thousand +Total liabilities +(55,665) +24,438,446 +Hannover Re | Annual Report 2014 +28,980 +32,804 +22,409,892 +26,817,523 +413,440 +355,505 +5,768,474 +6,639,186 +3,209,100 +2,988,187 +26,035 +71,714 +76,077 +174 +2,666,787 +117,521 +118,551 +197,857 +179,209 +31.12.2013 +31.12.2014 +31.12.2013 +31.12.2014 +31.12.2013 +Total +Consolidation +31.12.2014 +Life and health reinsurance +2,139,742 +(4,265) +Other income and expenses +176,250 +1,173,731 +11,226 +27,011,828 +23,629,382 +(527,266) +(215,603) +60,457,584 +53,915,544 +3,315,694 +11,757,188 +2,820,702 +10,631,512 +(1,458) +(56) +(1,519) +1,075,095 +24,112,056 +(61) +11,757,132 +10,631,451 +121,704 +108,443 +2,748,594 +2,405,497 +165,830 +140,228 +324,240 +269,571 +374,926 +218,858 +21,666,932 +817,137 +(885,719) +551,240 +1,403,804 +676,219 +344,154 +676,219 +344,154 +1,470 +1,434 +(59) +(65) +149,257 +139,039 +5,025 +6,454 +(1,021,307) +5,446 +1,317,295 +1,181,040 +4 +4 +1,914,598 +1,672,398 +1,620,237 +1,243,469 +(167) +(141) +3,113,978 +2,945,685 +680,215 +6,893 +Segmentation of liabilities +648,026 +5,558,834 +Net premium earned +Net investment income +7,903,369 +7,817,866 +7,011,347 +6,866,317 +843,552 +781,192 +thereof +Change in fair value of financial instruments +(23,344) +(38,432) +Total depreciation, impairments and appreciation of investments +From insurance business with external third parties +27,429 +Income/expense on funds withheld and contract deposits +20,394 +14,947 +Claims and claims expenses +4,827,939 +4,821,804 +Change in benefit reserve +Commission and brokerage, change in deferred acquisition costs +and other technical income/expenses +1,643,705 +1,532,749 +Administrative expenses +188,198 +18,937 +6,068,053 +7,817,866 +Property and casualty reinsurance +1.1.-31.12.2014 +1.1.-31.12.2013 +6,072,338 +5,569,932 +742,649 +397,326 +1,982,821 +24,528,865 +1,690,822 +21,566,725 +(168) +1,986,492 +(1,023,766) +961,044 +(141) +1,101,317 +(1,459) +2,237,830 +2,270,347 +2,464,960 +7,903,369 +(855,763) +2,657,494 +1,380,346 +52,204,624 +47,385,517 +Hannover Re | Annual Report 2014 +175 +Annual financial statements +Consolidated segment report as at 31 December 2014 +Segment statement of income +in EUR thousand +Gross written premium +thereof +From insurance business with other segments +3,001,463 +25.00 +30,501,765 +11,226 +The following structured entities were consolidated as at the +balance sheet date: +Consolidated structured entities +A narrow and well-defined business objective; +Insufficient equity to allow it to finance its activities +without subordinated financial support; +Restricted activities; +• +• +• +Structured entities are entities designed in such a way that vot- +ing or similar rights are not the dominant factor in deciding +who controls the entity, such as when any voting rights relate to +administrative tasks only and the relevant activities are directed +by means of contractual arrangements. A structured entity fre- +quently has some or all of the following features or attributes: +Business relations with structured entities are to be examined +in accordance with IFRS 10 in conjunction with IFRS 12 with +an eye to their implications for consolidation. In the context of +their operational activities some companies belonging to the +Hannover Re Group enter into business relations with structured +entities that are to be analysed and accounted for according to +these new provisions. +Consolidation of structured entities +Annual financial statements +167 +Hannover Re | Annual Report 2014 +• +Financial year from 1 October 2012 to 31 December 2013 +Financial year from 2 August 2013 to 31 December 2014 +15 +14 Formerly Firedart & Construction Guarantee Underwriting Managers (Pty) Ltd. +13 Financial year as at 31 March 2014 +Company was newly established in 2014; an annual financial statement is not yet available. +12 +According to the local accounting practice relevant for supervisory purposes, the company is adequately capitalised. +Certain equity items are not counted under IFRS, as a consequence of which the amount of capital and reserves can be negative here. +11 +Company is in liquidation. +10 +9 Financial year as at 31 October 2014 +Formerly International Insurance Company of Hannover Plc/Limited +16 +8 IFRS figures +Hannover Re (Guernsey) PCC Limited, St Peter Port, +Guernsey +• LI RE, Hamilton, Bermuda +Book values from business relations with unconsolidated structured entities +Hannover Re | Annual Report 2014 +170 +The book values of the assets and liabilities from the specified +transactions with unconsolidated structured entities were as +follows as at the balance sheet date. +limit of these transactions remains uncollateralised or is col- +lateralised by less liquid assets. The maximum risk of loss from +these transactions is derived from the uncollateralised expo- +sure limit and the credit risk of the collateral and amounted +to EUR 1,942.4 million as at the balance sheet date. This does +not, however, correspond to the economic risk of loss, which is +established using recognised actuarial methods. The expected +loss on a modelled basis in a worst-case scenario of 10,000 +years amounts to at most EUR 50.0 million. +As part of its extended Insurance-Linked Securities (ILS) +activities, Hannover Re has concluded so-called collateralised +fronting arrangements under which risks assumed from ced- +ing companies are passed on to institutional investors outside +the Group using structured entities (special purpose entities). +The purpose of such transactions is to directly transfer clients' +business. The volume of the transactions is derived from the +ceded exposure limit of the underlying retrocession agree- +ments and amounted to EUR 3,135.3 million as at the balance +sheet date. Part of the ceded exposure limit is funded by con- +tractually defined investments in the form of cash and equiva- +lent liquid assets. In these cases the exposure limit is wholly +collateralised and to this extent there is no risk of an under- +writing loss for Hannover Re. A further part of the exposure +Insurance-linked securities (ILS) +Annual financial statements +169 +Hannover Re | Annual Report 2014 +By way of its "K” transactions Hannover Re has raised under- +writing capacity for catastrophe risks on the capital market. +The "K Cession", which was placed with investors in North +America, Europe and Asia, involves a quota share cession on +worldwide natural catastrophe business as well as aviation and +marine risks. The volume of the "K Cession" securitised via +structured entities was equivalent to EUR 169.2 million as at +the balance sheet date. The transaction has an indefinite term +and can be cancelled annually by the investors. Segregated +accounts of Kaith Re Ltd. are used for transformer purposes for +part of this transaction. Hannover Re also uses further segre- +gated accounts of Kaith Re Ltd. and other structured entities for +various retrocessions of its traditional covers, which are passed +on to institutional investors in securitised form. The volume +of these transactions is measured by the ceded exposure limit +of the underlying retrocession agreements and amounted to +EUR 847.9 million as at the balance sheet date. The structured +entities are in all cases fully funded by contractually defined +investments in the form of cash and equivalent liquid assets. +Given that the entire exposure limit of the structured entities +is therefore wholly collateralised in each case, there is no risk +of an underwriting loss for Hannover Re. +ments in the form of cash and equivalent liquid assets. Given +that the maximum liability of the structured entity is therefore +wholly collateralised, there is no risk of an underwriting loss +for Hannover Re. +In 2012 Hannover Re issued a catastrophe bond for the pur- +pose of transferring to the capital market peak natural catas- +trophe exposures deriving from European windstorm events. +The term of the CAT bond, which has a volume of nominally +EUR 100.0 million, runs until 31 March 2016; it was placed with +institutional investors from Europe, North America and Asia by +Eurus III Ltd. Eurus III Ltd. is a special purpose entity domiciled +in Hamilton/Bermuda that was registered in August 2012 as +a "special purpose insurer" under the Bermuda Insurance Act +1978. The retrocession contract concluded with the special +purpose entity under the transaction affords Hannover Rück +SE, E+S Rückversicherung AG and Hannover Re (Bermuda) +Ltd. protection against the aforementioned catastrophe risks. +The aforementioned volume of the transaction is measured +by the ceded exposure limit of the retrocession contract. The +structured entity is fully funded by contractually defined invest- +• Kaith Re Ltd., Hamilton, Bermuda +The securitisation of reinsurance risks is largely structured +through the use of structured entities. +Hannover Re participates through its subsidiary Leine Invest- +ment SICAV-SIF, Luxembourg, in a number of structured +entities that issue catastrophe bonds for the securitisation of +catastrophe risks by investing in such bonds. Leine Investment +General Partner S.à r.l. is the managing partner of the asset +management company Leine Investment SICAV-SIF, the busi- +ness object of which is to build, hold and manage a portfolio of +insurance-linked securities (catastrophe bonds) - including for +third-party investors outside the Group. The volume of these +transactions is derived from the book values of the respec- +tive investments and amounted to EUR 50.3 million as at the +balance sheet date. The maximum risk of loss corresponds to +the book values. +Investment including investments in catastrophe bonds (ILS) +Within the scope of its investment activities Hannover Re has +participated since 1988 inter alia in numerous structured enti- +ties. These are predominantly special purpose entities in the +form of funds, which for their part transact certain types of +equity and debt capital investments. These investments encom- +pass private equity funds, fixed income funds, collateralised +debt obligations, real estate funds, index funds and other pub- +lic funds. The volume of these transactions is derived from the +book values of the respective investments and amounted to +EUR 2,489.4 million as at the balance sheet date. The maxi- +mum risk of loss corresponds to the book values. +The business relations of Hannover Re Group companies with +structured entities set out below do not give rise to consolida- +tion because the criteria for control pursuant to IFRS 10 con- +tained in our consolidation principles are not met. +Unconsolidated structured entities +Hannover Re | Annual Report 2014 +168 +As at the balance sheet date Hannover Re had not rendered any +financial or other support for a consolidated structured entity. +Hannover Re does not intend to render financial or other sup- +port for one or more of such entities without being contractually +required to do so. +Effective 16 October 2014, LI RE was established as a segre- +gated account of Kaith Re Ltd., the purpose of which – as with +all segregated accounts under Kaith Re Ltd. - is the securitisa- +tion of underwriting risks. In contrast to the other segregated +accounts, the sole investor and hence the risk carrier of LI RE +is Hannover Re. +Pursuant to IFRS 10 we consider the general account and the +segregated accounts to be separate units to which the princi- +ples of so-called “silo accounting” are applied. In accordance +with this concept, Hannover Re is required to consolidate the +general account of Kaith Re Ltd. and is contractually responsi- +ble for the fees due to external service providers that are to be +covered from the general account's own funds. Each individual +segregated account is to be examined separately by the parties +concerned (investors) with an eye to a consolidation requirement +and is to be consolidated according to the particular contractual +arrangements in each case. +In accordance with the consistent consolidation model, a struc- +tured entity just like a subsidiary - must be consolidated if +Hannover Re gains control over the said entity. With regard to +the criteria for control please see also Section 4.1 "Consolidation +principles". Within the Hannover Re Group the requirement to +consolidate structured entities is examined as part of an analysis +that encompasses both transactions in which a structured entity +is initiated by us with or without the involvement of third parties +and those in which we enter into contractual relations with an +already existing structured entity with or without the involve- +ment of third parties. Consolidation decisions are reviewed as +necessary and at least once a year. The list of all consolidated +structured entities forms part of the list of shareholdings. +Financing in the form of multiple contractually linked +instruments issued to investors that create concentra- +tions of credit or other risks (tranches). +Kaith Re Ltd. is a so-called segregated accounts company (SAC), +the sole object of which is the securitisation of reinsurance risks +in the form of investment products. Under this transformation +a complete underwriting risk transfer always takes place to the +investor in question. In a SAC further segregated accounts exist +under a general account; it is in these segregated accounts, which +for liability purposes are entirely separate from one another and +from the general account, that the aforementioned securitisations +take place for the investors. +Hannover Re PCC (Guernsey) Ltd. was a so-called protected cell +company under the "Protected Cell Companies Ordinance 1997", +the primary objective of which was to offer services in the area +of direct insurance and reinsurance. The PCC has been closed to +new business since 2009 and was wound up effective 31 Decem- +ber 2014. The liquidation of the company, which is planned +for the first quarter of 2015, will merely give rise to a minimal +amount of residual commitments for Hannover Re. +Retrocession and securitisation of reinsurance risks +In connection with the sale of the operational companies of the +subgroup Clarendon Insurance Group, Inc. (CIGI), Wilmington, +to Enstar Group Ltd., Hamilton/Bermuda, a partial portfolio +of CIGI was retroceded to a structured entity with effect from +12 July 2011. The term of the retrocession arrangement ran +until the underlying obligations had been finally settled. The +contract was commuted and terminated effective 31 Decem- +ber 2014. +in EUR thousand +7 +6 +Bradford/United Kingdom +Iconica Business Services Limited, +Johannesburg/South Africa +Clarenfin (Pty) Ltd., +15 +St. Helier/Jersey' +Meribel Midco Limited, +St. Helier/Jersey 15 +Meribel Topco Limited, +(6) +EUR +25.00 +Dublin/Ireland 5, 10 +16 +New PF Limited, +113 +EUR +25.00 +Dublin/Ireland 5 +XS Direct Insurance Brokers Limited, +(14) +633 +EUR +25.00 +Dublin/Ireland 5 +SimShare Limited, +(392) +2,005 +(186) +Formerly Wetter Protect GmbH +20.11 +2,403 +5 Figures as at 31 December 2013 +Company is inactive. +4 +3 Financial year as at 30 September 2014 +2 Year-end result after profit transfer +1 Provisional (unaudited) figures +261 +8,742 +EUR +9.38 +Strasbourg/France 5 +Acte Vie S.A. Compagnie d' Assurances sur la +Vie et de Capitalisation, +ZAR +EUR +10.46 +Johannesburg/South Africa' +Vela Taxi Finance (Pty) Ltd, +(461) +(462) +GBP +18.75 +ZAR +19.02 +20,628 +246,851 +EUR +20.11 +(54) +12 +33,973,022 +Assets +31.12.2014 +2,155,774 +2,644,817 +Other invested assets +18,157 +63,648 +Financial assets at fair value through profit or loss +28,980 +32,804 +Equity securities - available for sale +16,227,978 +19,822,832 +Fixed-income securities - available for sale +3,111,351 +Short-term investments +2,912,110 +2,351,409 +1,841,982 +31.12.2013 +N 11 +31.12.2014 +Property and casualty reinsurance +Fixed-income securities - held to maturity +Assets +in EUR thousand +Segmentation of assets +Consolidated segment report as at 31 December 2014 +Annual financial statements +173 +Fixed-income securities - loans and receivables +Hannover Re | Annual Report 2014 +242,463 +Cash +1,508,210 +137,670 +439 +491,354 +1,702,357 +1,493,908 +1,416,187 +597,299 +421 +147,846 +Total assets +Assets held for sale +Other assets in the segment +Accounts receivable +Deferred acquisition costs +Reinsurance recoverables on other reserves +Reinsurance recoverables on benefit reserve +Prepaid reinsurance premium +267,682 +Reinsurance recoverables on unpaid claims +25,481,718 +29,265,004 +1,052,357 +Total investments +1,717 +Contract deposits +888,118 +1,123,858 +Funds withheld +24,591,883 +28,141,146 +Total investments and cash under own management +430,552 +580,490 +1,168,791 +Fixed-income securities - held to maturity +Both Hannover Life Reassurance Company of America (Ber- +muda) Ltd., which was consolidated for the first time with effect +from the first quarter of 2014, and the financial interest in Meri- +bel TopCo Limited are allocable to the life and health reinsur- +ance segment. Glencar Underwriting Managers Inc., which has +been included at equity in the consolidated financial statement +since the first quarter of 2014 as an associated company, and +the special purpose property company Mustela s.r.o., which +was consolidated for the first time in the period under review, +are allocable to the property and casualty reinsurance segment. +The "Consolidation” column includes not only the elimination +of cross-segment transactions but also, more significantly, com- +panies whose business operations cannot be unambiguously +allocated to property and casualty reinsurance or life and health +reinsurance. These are principally the service and financing +companies belonging to the Group. +22,514 +124,048 +securitisations and +ILS transactions +Retrocession: +N 10 +Total liabilities +Reinsurance payable +Liabilities +Total assets +Accounts receivable +Prepaid reinsurance premium +Reinsurance recoverables on unpaid claims +1,153,878 +29,824 +13,371 +Short-term investments +320,956 +Real estate and real estate funds +13,283 +Equity securities - available for sale +50,344 +Fixed-income securities - at fair value through profit or loss +951,578 +Fixed-income securities - available for sale +19,401 +Fixed-income securities - loans and receivables +491 +Investment in +catastrophe bonds +(ILS) +General investment +activities +Other invested assets +During the financial year no material changes occurred in the +organisational structure that could have influenced the com- +position of the segments. Since the performance indicators +used to steer the segments correspond to the system accord- +ing to which the consolidated financial statement is prepared, +a separate reconciliation of the segment results with the Group +result is not provided. +2,489,411 +159,933 +The segment information shown follows the system used for +internal reporting purposes, on the basis of which the full Exec- +utive Board regularly evaluates the performance of segments +and decides on the allocation of resources to them. +Based on the “management approach” of IFRS 8, which +requires segment information to be presented as it is reported +internally to management and normally used by the chief oper- +ating decision maker to decide upon the allocation of resources +to a segment and evaluate its performance, Hannover Re has +identified the reportable segments of property & casualty rein- +surance and life & health reinsurance. With regard to the object +of business operations within the two segments please see the +corresponding remarks in the management report. +5. Segment reporting +Hannover Re | Annual Report 2014 +172 +Effective 17 October 2014 Hannover Rück Beteiligung Ver- +waltungs-GmbH, Hannover, all shares of which are held by +Hannover Rück SE, acquired 838 shares in E+S Rückversi- +cherung AG for a purchase price of EUR 20.1 million from +a third party outside the Group. By way of an increase in its +shareholding of 1.1% with no change of control status Han- +nover Rück Beteiligung Verwaltungs-GmbH holds 64.79% of +the shares in E+S Rückversicherung AG upon closing of the +transaction. In connection with the acquisition of the shares +Hannover Rück SE contributed an amount of EUR 20.1 million +to the additional paid-in capital of Hannover Rück Beteiligung +Verwaltungs-GmbH. +In accordance with the purchase agreement of 3 February +2014 Hannover Rück SE assumed 15% of the shares in Han- +nover Re Euro RE Holdings GmbH, Hannover, previously held +through E+S Rückversicherung AG. The effects of the change +in the amount of holding were recognised in the consolidated +financial statement as an equity transaction pursuant to IFRS +10. Since it involves an internal transaction within the Group +between companies under common control, this purchase +transaction does not give rise to goodwill nor does it have any +implications for Group net income. +4.5 Other corporate changes +After Secquaero ILS Fund Ltd., Georgetown, Grand Cayman, +had been deconsolidated and carried as a participating interest +at net asset value in the previous year, the remaining shares +held by Hannover Rück SE were returned effective 31 Decem- +ber 2014 and the participation in the company was terminated. +consolidated financial statement. The derecognition of assets +and liabilities as well as recognition of the participating inter- +est at fair value gave rise to income of EUR 2.7 million, which +was carried under other income and expenses. In addition, +cumulative other comprehensive income of -EUR 0.1 million +was realised from currency translation. +Effective 24 March 2014 Funis GmbH & Co. KG ("Funis") +redeemed the voting puttable preference shares that it held in +Glencar Underwriting Managers Inc., Chicago, United States +(“Glencar”) and hence relinquished its majority voting interest +in the company. In the context of this transaction a change was +also made to the composition of Glencar's managing board as +per the contractual agreement, since Hannover Re no longer +had majority representation on this body. In view of the fact +that Hannover Re is therefore no longer able to exercise control +over Glencar, but continues to be able to exercise a significant +influence over the company, Glencar was deconsolidated as at +the end of the first quarter of 2014 and included at equity in the +4.4 Major disposals and retirements +Since March 2014 Hannover Rück SE has participated in Meri- +bel TopCo Limited, St. Helier, Jersey, in the form of a financial +interest in a direct amount of 19.9% of the company's shares. +The business object of the company is the indirect acquisition +of life insurance companies, inter alia Heidelberger Lebens- +versicherung AG, Heidelberg. Taken together with the shares +held by Hannover Re Euro PE Holdings GmbH & Co. KG through +a fund, Hannover Re directly and indirectly holds altogether +20.1% of the company's shares. With effect from the first quar- +ter of 2014 the shares in the company have been recognised in +the consolidated financial statement as an equity investment +measured at amortised cost. +50,344 +companies. The company commenced its business operations +in the first quarter of 2014 and has been included in full in +Hannover Re's consolidated financial statement since that date. +Under an agreement dated 6 August 2014 HR GLL Europe +Holding S.à r.l., Luxembourg, acquired all shares in the special +purpose property company Mustela s.r.o., Prague, which holds +and manages a commercial property in Prague, for a purchase +price of EUR 68.9 million. No contingent liabilities, conditional +payments or separate transactions as defined by IFRS 3 were +identified. The company is included in the consolidated finan- +cial statement with effect from the third quarter of 2014. +4.3 Major acquisitions and new formations +Annual financial statements +171 +Hannover Re | Annual Report 2014 +ties. Although Hannover Re is exposed to variable returns from +the business relations with such entities, these are independent +of the purpose and design of the respective structured entity. +Rather, these business relations correspond to regular cedant- +reinsurer relations and are therefore not the subject of this +disclosure. Some of the transactions include features that are +to be classified as financial guarantees. For the corresponding +disclosures please see our remarks in Section 8.1 "Derivative +financial instruments and financial guarantees". +With regard to commitments and obligations that we do not +consider to be support, particularly outstanding capital com- +mitments from special investments, please see our remarks in +Section 8.7 "Contingent liabilities and commitments”. +Some transactions in the life and health reinsurance segment +are effected with the involvement of ceding special purpose +entities as contracting parties that are established by parties +outside the Group and from which member companies of the +Hannover Re Group assume certain underwriting and/or finan- +cial risks. Given that the risks from such transfer transactions +are entirely recognised in the technical/non-technical account +of the Hannover Re Group, it is immaterial whether the active +reinsurance business is assumed from structured or other enti- +Life and health reinsurance assumed +As at the balance sheet date Hannover Re had not rendered +any financial or other support for an unconsolidated struc- +tured entity. Hannover Re does not intend to render financial +or other support for one or more of such entities without being +contractually required to do so. +The income and expenses from business relations with uncon- +solidated structured entities are shown in investment income +insofar as they result from general investment activities or +investments in catastrophe bonds and are recognised in the +technical account insofar as they are attributable to retroces- +sions and securitisations. +28,837 +28,837 +With effect from 3 March 2014 Hannover Re established the +company Hannover Life Reassurance Company of America (Ber- +muda) Ltd. based in Hamilton, Bermuda. All shares in the com- +pany are held by Hannover Life Reassurance Company of Amer- +ica, Orlando. The business object of the company is to assume +life insurance risks by way of reinsurance and using capital +market instruments as well as to transfer them to other Group +1,071,654 +186 +Hannover Re | Annual Report 2014 +Hannover Re | Annual Report 2014 +220,144 +390,647 +373,036 +due after one through two years +240,952 +237,228 +265,156 +261,575 +due in one year +Loans and receivables +2,791,639 +2,666,787 +2,237,872 +2,139,742 +2,255 +1,855 +568 +228,825 +491 +due after two through three years +283,396 +1,184,496 +1,106,317 +1,122,393 +979,791 +due after five through ten years +149,437 +141,240 +219,375 +197,584 +due after four through five years +298,656 +280,019 +152,077 +143,511 +due after three through four years +399,698 +376,062 +268,376 +due after more than ten years +Total +due after more than ten years +Total +264,473 +539,118 +due after one through two years +1,110,905 +1,089,446 +due in one year +Held to maturity +Fair value +Amortised cost¹ +Fair value +Amortised cost¹ +2013 +2014 +N 13 +in EUR thousand +Maturities of the fixed-income and variable-yield securities +Hannover Re | Annual Report 2014 +178 +561,992 +286,236 +587,925 +1,062,548 +due after two through three years +273,704 +234,795 +due after five through ten years +98,983 +95,480 +35,894 +32,696 +due after four through five years +148,806 +140,576 +103,592 +97,896 +due after three through four years +546,127 +513,930 +151,217 +145,300 +594,854 +1,114,378 +764,314 +954,282 +848,090 +2,182 +12,251 +12,251 +due after two through three years +4,337 +4,337 +2,433 +2,433 +due after one through two years +8,339 +8,339 +5,306 +5,306 +due in one year +Financial assets at fair value +through profit or loss +23,601,966 +23,175,589 +2,182 +28,165,705 +due after three through four years +20,590 +36,061 +36,061 +64,494 +64,494 +15,212 +15,212 +12,978 +12,978 +due after more than ten years +Total +146 +146 +due after five through ten years +10,790 +10,790 +due after four through five years +5,991 +5,991 +20,590 +26,919,324 +2,749,944 +2,657,402 +due after two through three years +2,838,390 +2,789,025 +2,449,568 +2,415,488 +due after one through two years +3,103,923 +3,095,796 +3,747,673 +3,731,723 +due in one year² +Available for sale +3,425,787 +3,209,100 +3,387,326 +2,988,187 +923,723 +2,908,199 +2,972,420 +1,848,794 +1,899,960 +3,543,151 +3,122,626 +due after more than ten years +Total +7,896,895 +7,765,540 +9,760,031 +9,181,834 +due after five through ten years +31,875,242 +2,728,465 +2,741,708 +2,655,178 +due after four through five years +2,384,389 +2,318,986 +2,951,154 +2,904,276 +due after three through four years +2,700,046 +1 Including accrued interest +36,228,010 +873,272 +66,394 +70,082 +130,189 +105,492 +699 +651 +130,888 +106,143 +183 +Annual financial statements +The carrying amounts of the financial assets at fair value +through profit or loss correspond to their fair values including +accrued interest. +Hannover Re recognised in this category as at the balance +sheet date derivative financial instruments in an amount of +EUR 66.4 million (EUR 70.1 million) that are originally allo- +cable to this item as well as fixed-income securities amount- +ing to EUR 64.5 million (EUR 36.1 million) designated in this +category. +Analysis of the fair value changes in the portfolio of fixed- +income securities at fair value through profit or loss indicated +that fair value changes of EUR 0.3 million (none) were due to +changes in ratings. +Carrying amounts before impairment +We additionally use an internal rating method to back up this +analysis. Our internal rating system is based on the corre- +sponding credit ratings of securities assigned by the agencies +Standard & Poor's and Moody's and in each case reflects the +lowest of the available ratings. +For further information please see the explanatory remarks +in Section 8.1 "Derivative financial instruments and financial +guarantees". +N21 +70,082 +in EUR thousand +66,394 +Total +Covered bonds/asset-backed +securities +11,547 +55 +11,602 +63,795 +35,410 +699 +651 +64,494 +36,061 +Other financial assets +Derivatives +66,394 +70,082 +66,394 +70,082 +Hannover Re | Annual Report 2014 +24,459 +2014 +Carrying amount +before impairment +3 +Participating interests and other +invested assets, real estate funds +1,643,408 +5,847 +Total +34,198,964 +7,847 +1,274,691 +30,139,362 +4,077 +4,851 +For further explanatory remarks on the impairment criteria +please see Section 3.1 “Summary of major accounting policies". +184 +Hannover Re | Annual Report 2014 +Rating structure of fixed-income securities +in EUR thousand +N22 +2014 +549,138 +28,983 +2013 +32,804 +575,300 +Impairment +Carrying amount +before impairment +Impairment +Fixed-income securities - held to maturity +2,139,742 +2,666,787 +Fixed-income securities - +loans and receivables +2,990,187 +2,000 +3,209,100 +Fixed-income securities - +available for sale +26,817,523 +22,410,663 +771 +Short-term investments +Equity securities - available for sale +64,494 +596 +699 +USA +17,543,543 +18,686,763 +7,377,339 +7,649,712 +1,644,587 +1,769,512 +2,396,053 +2,674,766 +6,125,564 +6,592,773 +2013 +2014 +N12 +Europe +Other +France +9,875,092 +Shares +8,478,865 +1,468,426 +321,665 +352,192 +1,469,415 +3,357,526 +4,376,122 +2,081,609 +2,556,507 +1,275,917 +1,819,615 +Other +Africa +Australasia +Australia +Asia +9,779,236 +11,343,518 +North America +1,300,371 +Other +Investment funds +12,588 +4,682 +Financial assets at fair value through +N20 +2014 +2013 +2014 +2013 +2014 +2013 +Fair value before +accrued interest +Accrued +interest +Fair value +profit or loss +Fixed-income securities +Corporate securities +63,795 +23,863 +in EUR thousand +Fair value of financial assets at fair value through profit or loss before and after accrued interest +as well as accrued interest on such financial assets +The carrying amounts of the fixed-income securities and equity +securities classified as available for sale as well as the short- +term investments allocated to this category correspond to their +fair values, in the case of interest-bearing assets including +accrued interest. +22,988,010 +1 +17,269 +8,452 +3,259 +11,711 +21,040 +7,941 +1 +Total +28,980 +549,138 +2,139 +549,138 +Total +22,553,693 +253,457 +664,799 +230,482 +Short-term investments +AAA +2 +Equity securities +2,954 +305,078 +42,250 +4,183,118 +semi-governmental entities +Debt securities issued by +1,810,728 +33,322 +27,294 +16,522 +1,816,756 +securities +Other foreign government debt +2,716,383 +4,904 +36,544 +7,145 +4,485,242 +2,684,743 +Corporate securities +140,368 +97,154 +1,343,535 +258,072 +25,571,142 +25,681 +72,618 +3,245,699 +7,547 +222,538 +33,214 +3,030,708 +Investment funds +securities +Covered bonds/asset-backed +11,881,725 +46,694 +557,169 +11,371,250 +98,299 +26,817,523 +US Treasury notes +1,733 +3,425,787 +14,846 +231,533 +50,483 +3,209,100 +1,043,760 +4,800 +71,141 +15,012 +977,419 +388,663 +5,492 +14,667 +5,501 +379,488 +1,993,364 +4,554 +The carrying amount of the loans and receivables is arrived at +from the amortised cost plus accrued interest. +2,579,447 +Hannover Re | Annual Report 2014 +Annual financial statements +169,231 +18,573 +2,411,949 +of EU member states +Government debt securities +Fair value +Unrealised +losses +Unrealised +gains +accrued interest +thereof +Amortised +cost including +accrued interest +2014 +N 18 +Fixed-income securities +Available for sale +in EUR thousand +Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments +classified as available for sale as well as their fair value +181 +Equity securities +Shares +Investment funds +117,838 +45,377 +3,849,195 +semi-governmental entities +Debt securities issued by +1,503,377 +34,698 +5,776 +10,484 +1,532,299 +securities +Other foreign government debt +1,707,632 +20,175 +15,141 +5,397 +1,712,666 +24,549 +US Treasury notes +Corporate securities +136,357 +656,858 +251,318 +21,983,515 +937 +14,114 +73,774 +2,880,399 +18,132 +167,867 +35,628 +2,730,664 +Investment funds +securities +Covered bonds/asset-backed +3,942,484 +10,361,760 +112,472 +295,414 +10,178,818 +1,927,289 +19,518 +40,708 +26,166,776 +Total +575,300 +3,886 +575,300 +Short-term investments +32,804 +17 +12,487 +20,334 +13,283 +5,272 +8,011 +19,521 +17 +7,215 +12,323 +261,958 +1,356,022 +97,171 +27,425,627 +18,075 +1,906,099 +of EU member states +Government debt securities +Fixed-income securities +Fair value +Unrealised +losses +Unrealised +gains +145,725 +accrued interest +Amortised +cost including +accrued interest +2013 +N 19 +Available for sale +in EUR thousand +Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments +classified as available for sale as well as their fair value +Hannover Re | Annual Report 2014 +182 +thereof +Including short-term investments, cash and cash equivalents +29,970 +Fair value +Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified +as held to maturity as well as their fair value +2,237,872 +1,622 +99,752 +33,722 +2,139,742 +Total +854,737 +59,316 +15,527 +795,421 +securities +Covered bonds/asset-backed +249,318 +159 +11,051 +3,189 +N 15 +238,426 +in EUR thousand +Amortised +3,622 +501,303 +US Treasury notes +16,775 +7,078 +396,720 +of EU member states +Government debt securities +Fixed-income securities +Investments held to maturity +losses +Fair value +Unrealised +Unrealised +gains +accrued interest +cost including +accrued interest +thereof +2013 +12,436 +Corporate securities +1,463 +Government debt securities +Fixed-income securities +Investments held to maturity +Fair value +Unrealised +losses +Unrealised +gains +accrued interest +thereof +Amortised +cost including +accrued interest +2014 +in EUR thousand +N14 +Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified +as held to maturity as well as their fair value +Variable-rate bonds (so-called "floaters") are shown under the +maturities due in one year and constitute our interest-related, +within-the-year reinvestment risk. +The stated maturities may in individual cases diverge from the +contractual maturities because borrowers may have the right to +call or prepay obligations with or without penalty. +Annual financial statements +179 +of EU member states +442,167 +391,809 +10,099 +16,019 +6,444 +427,611 +semi-governmental entities +Debt securities issued by +29,396 +200 +96 +29,196 +securities +Other foreign government debt +260,346 +3,067 +1,395 +257,279 +US Treasury notes +401,908 +7,071 +413,495 +513,739 +Other foreign government debt +46,715 +13,495 +869,297 +2,988,187 +483,955 +453 +20,578 +5,661 +463,830 +1,915,682 +260,622 +27,559 +1,655,060 +Fair value +Unrealised +losses +Unrealised +gains +accrued interest +thereof +118,402 +399,602 +Amortised +cost including +accrued interest +10 +463 +Unrealised +losses +Unrealised +gains +accrued interest +thereof +Amortised +cost including +accrued interest +2013 +N 17 +Total +securities +Covered bonds/asset-backed +Corporate securities +semi-governmental entities +Debt securities issued by +Loans and receivables +in EUR thousand +Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value +3,387,326 +987,689 +2014 +Total +securities +241,406 +1,653 +10,142 +3,142 +232,917 +Corporate securities +549,378 +23,185 +8,015 +526,193 +semi-governmental entities +Debt securities issued by +49,470 +406 +142 +49,064 +securities +Covered bonds/asset-backed +securities +960,590 +19,235 +Covered bonds/asset-backed +Corporate securities +semi-governmental entities +Debt securities issued by +Loans and receivables +in EUR thousand +N16 +Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value +1,852,193 +Hannover Re | Annual Report 2014 +The carrying amount of the portfolio held to maturity is arrived +at from the amortised cost plus accrued interest. +1,024,151 +2,791,639 +1,653 +126,505 +41,234 +2,666,787 +Total +63,561 +180 +230,481 +AA +BBB +11,394 +(9,083) +1,411,810 +1,471,841 +19,102 +14,088 +(830) +611,516 +12,226,664 +12,423,081 +500 +309 +5,359,847 +5,411,425 +614,201 +13,963,409 +(98) +(27,136) +28,620 +9,127,546 +9,464,172 +(10) +4,305,742 +357,348 +(33,257) +376,056 +4,636,243 +355,662 +19,098 +27,558 +161 +129 +342,401 +14,361,801 +6,145,543 +6,458,432 +119,709 314,829 1,348,182 +328,092 1,516,482 36,228,010 +35,642 405,008 +174,023 14,990,688 +73,385 +908,549 13,352,407 3,071,215 +46,533 235,930 +117,146 +1,886,554 +Total +1.1.-31.12.2014 +66,394 +5 2,770,684 +46,344 +1,337,537 +1,790 +1,427,513 +Other invested assets +Short-term +investments, cash +967 +19,083 +3,839 +6,458,669 +Life and health reinsurance +1.1.-31.12.2013 +173 +(237) +(173) +237 +13,963,409 +14,361,801 +173 +(237) +6,145,370 +1.1.-31.12.2013 +1.1.-31.12.2014 +1.1.-31.12.2013 +1.1.-31.12.2014 +Total +Consolidation +146,518 +5 +173 +28,625 +164,192 +204,978 +43,782 +79,458 +(2,805) +13,898 +(48,477) +939,249 +(76,458) +(48,477) +161,387 +218,876 +163,143 +305,563 +1,065,107 +(76,458) +985,649 +895,467 +A +United Kingdom +Germany +Regional origin +in EUR thousand +Investments +The following table shows the regional origin of the invest- +ments under own management. +The investments under own management also encompass +investments in associated companies, real estate and real estate +funds (also includes: investment property), other invested +assets, short-term investments and cash. +Hannover Re classifies investments according to the following +categories: held-to-maturity, loans and receivables, financial +assets at fair value through profit or loss and available-for-sale. +The allocation and measurement of investments are determined +by the investment intent. +Investments are classified and measured in accordance with +IAS 39 "Financial Instruments: Recognition and Measurement". +6.1 Investments under own management +6. Notes on the individual items of the balance sheet +Annual financial statements +177 +Hannover Re | Annual Report 2014 +(32,721) +through profit or loss +(35,462) +44,941 +(1,175) +(2,642) +(42,913) +25,097 +757 +(21) +363,859 +18,190 +156,667 +2,701,748 +2,590,066 +6 +1,168,993 +946,361 +146,691 +175,682 +333,674 +(99,753) +263,817 +1,102,392 +1,370,670 +(109,179) +(83,939) +150,530 +263,817 +126,670 +95,720 +126,670 +95,720 +1,229,062 +1,466,390 +17,491 +11,781 +150,530 +(10,857) +32,804 +86,951 +22,409,892 +13,395 +N23 +in EUR thousand +Rating structure of fixed-income securities +175,635 32,009,946 +17,576 +126,959 +2013 +12,599,614 6,189,547 7,751,897 4,307,181 841,537 +64,494 +12,330 +7,448 +35,220 +226 +9,203 +Total fixed-income +securities +AAA +AA +A +1,287,512 1,502,316 215,414 139,227 +and receivables +securities loans +Fixed-income +2,666,787 +887,752 1,254,110 407,966 116,959 +maturity +securities-held-to- +Fixed-income +Total +Other +C +B +BB +BBB +67 +46,910 +or loss +at fair +2,139,742 +5,069 +65,658 +474,167 +1,102,639 492,209 +maturity +Fixed-income +securities held-to- +Total +Other +C +B +BB +64,494 +Fixed-income +securities loans +and receivables +1,808,018 +securities +Fixed-income +103,651 26,817,523 +12,507 +114,779 +5,080,801 6,951,209 4,105,419 760,200 +for-sale +securities - available- +Fixed-income +59,654 2,988,187 +4,732 +46,117 +135,878 +317,318 +616,470 +value through profit +4,554 +9,688,957 +3,209,100 +45,092 +6,490 2,112,064 +1,273,877 154,598 +101,700 +Total +Other +609,567 +ZAR +JPY +GBP +EUR +CAD +AUD +2014 +USD +N24 +724,533 +100,008 2,988,187 +45,831 +13,167 +649 +18,014 +assets at fair value +Other financial +2,139,742 +Equity securities - +available-for-sale +value through profit +securities at fair +Fixed-income +204,544 1,101,640 26,817,523 +138,381 11,808,473 +753,826 8,246,517 2,794,734 +or loss +available-for-sale +1,769,408 +Fixed-income +1,484 +4,604 +18,099 +--11,874 +or loss +securities at fair +value through profit +Fixed-income +101,338 22,409,892 +13,835 +106,301 +644,251 +5,575,538 6,422,823 5,936,222 3,609,584 +securities - +securities - available- +for-sale +Fixed-income +36,061 +Total fixed-income +securities +19,409 +709,260 +Fixed-income +7,750,802 9,179,249 6,571,476 3,865,770 +and receivables +held to maturity +securities - +Fixed-income +in EUR thousand +securities loans +Breakdown of investments by currencies +185 +Hannover Re | Annual Report 2014 +The maximum credit risk of the items shown here corresponds +to their carrying amounts. +115,989 28,321,840 +18,389 +110,905 +Annual financial statements +5.7% +5.5% +5.1% +1.2 +1.3 +4.8% +5.7% +18.2% +Price-to-book (P/B) ratio +15.4% +15.0% +14.7% +Price-to-cash flow (P/CF) ratio' +Price/earnings (P/E) ratio 8 +Dividend yield (after tax) +Return on equity (after tax) 5 +13.94 +20.92 +21.87 +12.8% +1.2 +4.7 +1.1 +Dividend per share/year-end closing price +18.45 +6 +7 +5 Earnings per share/average of book value per share at start and end of year +Dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014 as well as EUR 2.60 plus special dividend of EUR 0.40 for 2012 +4 +Proposed dividend +Xetra daily closing prices from Bloomberg +0.9 +2 +2.9 +1.8 +2.7 +3.4 +6.5 +7.6 +8.4 +8.4 +9.2 +1 Adjusted pursuant to IAS 8 +3 +40.135 +Cash flow per share +Equity attributable to shareholders of +4,840.2 +4,621.9 +7,110.4 +7,522.8 +9,041.2 +Market capitalisation at year-end in EUR million +38.325 +58.96 +Hannover Rück SE in EUR million +62.38 +Year-ending price² +32.71 +40.135 +38.325 +58.96 +62.38 +Year-opening price² +41.38 +Year-end closing price/book value per share +74.97 +16.01 +7,550.8 +6,032.5 +2.30 +2.10 +2.60+0.404 +3.00 +3.00 +1.253,4 +Dividend per share +6.21 +5.02 +7.04 +5,888.4 +7.43 +Earnings per share (basic and diluted) +37.39 +41.22 +50.02 +48.83 +62.61 +Book value per share +4,509.0 +4,970.6 +8.17 +8 Year-end closing price/earnings per share +3 +Hannover Re | Annual Report 2014 +Hannover Re | Annual Report 2014 +Plan +Performance Excellence +Our strategy encompasses ten strategic principles for ensuring the realisation of our +vision “Long-term success in a competitive business” across business units. We imple- +ment the strategy in accordance with our holistic management system Performance +Excellence 2.0. This forward-looking management system is based on the Excellence +Model of the EFQM (European Foundation for Quality Management) and has a clear +strategic focus: each organisational unit of the Hannover Re Group defines its own +contribution to the Group strategy with the aid of the internal Strategy Guide and our +Strategy Cockpit tool. In this way, we ensure that all initiatives and activities within +Hannover Re are rigorously linked to the corporate strategy. +Our strategy in practice +10 +Ensure the rigorous derivation of strategic objectives across +all areas of the company +• +and continuous improvement +43.29 +10 We strive for Performance Excellence +Support considered and pragmatic principles of corporate govern- +• +Encourage sustainable actions with respect to all stakeholders +Ensure conformity with all legal requirements +• +We are committed to sustainability, +integrity and compliance +9 +Information and communication systems assure optimal support +for business processes in light of cost/benefit considerations +We use information technology to achieve +a competitive advantage +ance and recognise their central role in guiding our activities +Ensure a lower expense ratio than our competitors +10 +Processes +For our investors +115 +15 +Check +10 +Act +10 +6 +8 +Do +Partners and Resources +Employees +Strategy +Focus on +society +9 +5 +objectives +Focus on the Strategic +customer +the employee +Focus on +Management +We ensure low costs through an +efficient organisational set-up +7 +8 +Offer an attractive value proposition that makes us the preferred +business partner for our clients +We are a preferred business partner +Consistently pay an attractive dividend +Grow the premium volume (by more than the market average) +Outperform the Global Reinsurance Index (GloRe) over a +three-year period +Achieve profitability targets and generate a profit clearly in +excess of the cost of capital +Generate an IFRS return on equity of at least 900 basis points +above the risk-free interest rate +• +• +• +Foster customer relationships to both parties' mutual benefit +irrespective of the size of the account +. +We have ambitious profit and growth +targets +1 +2 +We are passionate about reinsurance and chart our own course. We are quick, +flexible and independent and we strive for excellence in our actions. By generating +innovative business opportunities from newly emerging risks we consistently expand +the scope of our business. With our organisation geared to efficiency, we offer our +business partners an attractive value proposition. +Excellent solutions for our business partners constitute the basis for strengthen- +ing and further expanding our position as a leading, globally operating reinsurance +group. They enable us to deliver long-term sustainable profitability and assert our +position as one of the most profitable reinsurers worldwide. +Our vision: Long-term success +in a competitive business +For our investors +113 +11 +• +3 +We aim for successful employees +• +• Optimise the overall cost of capital +capital model, solvency regulations, etc.) are met +Ensure that requirements for equity resources (economic +• +capitalisation +We maintain an adequate level of +6 +For our investors +Ensure protection of capital through +qualitative risk management +quantitative risk management +Ensure protection of capital through +• +We manage risks actively +5 +cost of capital +Achieve the target return - risk-free interest rate plus +We strive for an optimal balance between +stability and yield of our investments +4 +Foster the qualifications, experience and commitment of our staff +• +Offer attractive workplaces +9 Year-end closing price/cash flow (from operating activities) per share +59.81 +111 +75.92 +59.09 +58.88 +58.90 +59.89 +61.09 +60 +62.82 +63.24 +63.86 +55 +64.20 +61.85 +66.51 +62.28 +65 +64.44 +63.80 +65.26 +66.49 +65.91 +64.92 +71.31 +Jan +Mar +100 +150 +200 +200 +250 +110 +Relative performance of the Hannover Re share +in % +Hannover Re | Annual Report 2014 +Feb +Highs and lows (closing prices) +Dec +Nov +Oct +Sep +Aug +Jul +Jun +May +Apr +Monthly average +50 +66.81 +70 +Insurance-Linked Securities +Coordination of Property & Casualty +• Structured Reinsurance and +• +Worldwide Treaty Reinsurance +Global Reinsurance +Jürgen Gräber +Credit, Surety and Political Risks +United Kingdom, Ireland, London +Market and Direct Business +Facultative Reinsurance +Aviation +Marine +Business Group +• +Continental Europe +• +• North America +Reinsurance: +Target Markets in Property & Casualty +Run-Off Solutions +Group Legal Services +Dr. Michael Pickel +From left to right: Claude Chèvre, Dr. Klaus Miller, Ulrich Wallin, +Roland Vogel, Dr. Michael Pickel, Sven Althoff, Jürgen Gräber +Sven Althoff +Specialty Lines Worldwide +67.96 +Quotations +Hannover Re | Annual Report 2014 +71.76 +75.92 +75 +80 +8 +109 +The Hannover Re share stood at EUR 62.38 as 2014 got under- +way. In the early weeks of the year the share moved lower, +retreating to its lowest point of the year on 3 February 2014 +at EUR 58.88. This slide was prompted by the challenging +round of fiercely competitive renewals in property and casu- +alty reinsurance and the associated rate erosion. The price rally +that subsequently took hold was chiefly driven by a major loss +experience that was significantly lower than expected over- +all as well as analyst expectations surrounding the sustained +healthy profit outlook for Hannover Re. This latter assumption +is based on the recognition that Hannover Re, thanks to its +thoroughly comfortable capital resources and very conserva- +tively calculated loss reserves, should be in a position to deliver +good results even in a highly competitive market environment +and despite reduced growth prospects. The company's robust +capitalisation also triggered debate among investors as to the +possibility of a higher payout ratio or a share repurchase pro- +gramme. Against this backdrop the share ultimately soared to +its new record high of EUR 75.92 on 23 December. On the back +of its price rally in the fourth quarter the Hannover Re share +closed the financial year with a gain of 20.2% at EUR 74.97, +thereby delivering a performance of 25.8% including rein- +vested dividends. Over the year the Hannover Re share thus +clearly outperformed its benchmark indices, namely the DAX +(+2.7%) and MDAX (+2.2%), and also beat the Global Rein- +surance (Performance) Index (+24.4%). +Hannover Re share reaches new all-time +high of EUR 75.92 +Highs and lows of the Hannover Re share +in EUR +Retrocessions +- +After the record year of 2013 investors had to settle for a more +modest performance in 2014, especially on the German stock +market. The international financial landscape remained under +strain in the year just ended. Geopolitical crises, such as the +clashes in the Russia-Ukraine conflict, as well as flashpoints +in the Middle East, the sustained drop in the price of oil, poor +economic data from Europe and the termination of the US Fed- +eral Reserve's bond-buying programme all served to trigger +recurring uncertainty on markets throughout the year. At the +same time, though, positive economic data from the US and +an expansionary monetary policy on the part of the European +Central Bank led to growing optimism in some areas. This +was reflected in the volatility of movements on equity markets. +Volatile equity markets deliver reduced +overall return +Inclusion in FTSE4Good sustainability index achieved +Proposed dividend of EUR 3.00 per share plus special dividend of EUR 1.25 per share +surpasses strategic payout ratio +Share price reaches new record high of EUR 75.92 +• +The Hannover Re share +For our investors +7 +The German DAX stock index entered 2014 at a level of 9,552. +On 9 June, after some initial ups and downs, the index passed +the magic number of 10,000. Yet this new high proved impossi- +ble to sustain over the longer term. In October the index - com- +prised of Germany's 30 largest stocks - slipped back below +9,000, only to close the year after a fresh price rally in the fourth +quarter at 9,806, i. e. a gain of some 2.7%. The performance +of the MDAX was similarly volatile, which began the year at +16,574 points and closed 12 months later - after a rollercoaster +ride with a gain of 2.2% at 16,935. Driven by encouraging +economic data, the Dow Jones ended 2014 at an outstanding +level of 17,823, an increase of 7.5%. +64.34 +2012 +2013 +30 November 1994 +MDAX +American Depositary Receipts (Level 1 ADR program; 2 ADR = 1 share) +Prime Standard +Xetra, Frankfurt, Munich, Stuttgart, Hamburg, Berlin, Düsseldorf, Hannover +(official trading: Xetra, Frankfurt and Hannover) +HVRRY +HNRGn +HNR1 +DE 000 840 221 5 +840 221 +120,597,134 +Share class +Number of issued shares (as at 31 December 2014) +First listed +Index inclusion +Market segment +United States +Germany +Exchange listings +ADR +Thomson Reuters +Common shares (as at 31 December 2014) +Bloomberg +EUR 120,597,134.00 +Key figures +30.61 +29.31 +37.355 +52.42 +58.88 +120.6 +120.6 +120.6 +120.6 +No-par-value registered shares +120.6 +2011 +20121 +2013 +2014 +114 +Annual high² +Annual low² +Number of shares in million +in EUR +2010 +Hannover Re share (including dividend) DAX +Ticker symbols +Securities identification number +Shareholding structure +In addition, in the year just ended we again provided informa- +tion about our achievements as a responsible enterprise in the +form of a stand-alone sustainability report drawn up in accord- +ance with the internationally recognised reporting standards of +the Global Reporting Initiative (GRI). Based on this structured +reporting format, which was presented for the third year in +succession, Hannover Re's sustainability performance was also +assessed by the rating agency Oekom Research. Our above- +average fulfilment of industry-specific requirements was rec- +ognised with the award of “Prime” status. Furthermore, Han- +nover Re was added to the worldwide FTSE4Good Index Series +for the first time in the year under review by the FTSE4Good +Advisory Committee. Inclusion was based on our sustainabil- +ity rating according to ESG (environmental, sustainability and +governance) criteria in 2014. +Hannover Re's 17th Investors' Day was held on 23 October +2014 in London. Around 40 analysts and institutional inves- +tors took up our invitation to engage in an intensive exchange +of views with members of the Executive Board on the oppor- +tunities and risks associated with reinsurance business in the +current market climate. On this occasion the focus was on, +among other things, the 2014 review of the company's strategy +as well as discussions revolving around the opportunities and +challenges presented by a protracted low interest rate environ- +ment and at the same time soft reinsurance market, the general +hallmark of which is an oversupply of capacity. +In light of the sustained competitive market environment, espe- +cially in property and casualty reinsurance, we noted further +strong demand for information on the part of our investors in +2014. Our event activities were consequently stepped up to +altogether 15 capital market conferences (previous year: 14) +and 21 roadshows (18). Once again we concentrated on the +financial centres of Frankfurt and London, which we visited +at least once a quarter. Other destinations included the cities +of Amsterdam, Dublin, Edinburgh, Geneva, Copenhagen, Los +Angeles, Lugano, Luxembourg, Milan, Munich, Stockholm, +Vienna and Zurich. In 2014 we also had the opportunity for the +first time to meet interested investors in Lyon, Miami, Phila- +delphia, Singapore and Tokyo. +Need for information among our share- +holders remains high +For our investors +9 +In his address to shareholders Chief Executive Officer Ulrich +Wallin took the opportunity to look back once more on the very +pleasing 2013 financial year, in which the company had again +surpassed the profit generated in the previous year. A very good +underwriting performance in property and casualty reinsurance +had put in place the cornerstone for the new record result of +EUR 895.5 million. Against this backdrop, the Executive Board +and Supervisory Board proposed to the Annual General Meeting +that a gross dividend of EUR 3.00 per share should be distrib- +uted for the 2013 financial year. This proposal, together with +all the other items on the agenda, was approved by the Annual +General Meeting by a large majority. The Annual General Meet- +ing re-elected the existing shareholder representatives as mem- +bers of the Supervisory Board of Hannover Rück SE. All voting +results and the attendance were published on the company's +website following the Annual General Meeting. The next Annual +General Meeting will be held in Hannover on 6 May 2015. +The Annual General Meeting of Hannover Rück SE was held +on 7 May 2014 in Hannover. Numerous shareholders, share- +holder and bank representatives as well as guests took up the +invitation of the Executive Board and Supervisory Board to +attend the meeting in the HCC (Hannover Congress Centrum). +Altogether, including postal ballots a good 72.4% of the share +capital was represented. +The shareholding of Talanx AG in Hannover Re was unchanged +at 50.2%. The breakdown of the free float similarly remained +virtually unchanged year-on-year. The stake held by private +investors increased marginally by 0.5 percentage points to +8.3%, while the proportion in the hands of institutional inves- +tors decreased to 41.5%. +Annual General Meeting looks back on a +successful financial year +Hannover Re | Annual Report 2014 +The Executive Board and Supervisory Board intend to propose +to the Annual General Meeting on 6 May 2015 that a dividend +of EUR 3.00 plus a special dividend of EUR 1.25 per share +should be distributed. At around 52%, the proposed distri- +bution thus surpasses the strategically planned payout ratio +Proposed dividend again above the +strategic payout ratio +With a book value per share of EUR 62.61 the Hannover Re +share showed a price-to-book (P/B) ratio of 1.2 at the end of +the year under review; compared to the average MDAX P/B +ratio of 2.17 as at year-end the share thus continues to be very +moderately valued. +Based on the year-end closing price of EUR 74.97, the market +capitalisation of the Hannover Re Group totalled EUR 9.0 billion at +the end of the 2014 financial year, an increase of EUR 1.5 billion or +20.2% compared to the previous year's figure of EUR 7.5 billion. +According to the rankings drawn up by Deutsche Börse AG, the +company placed ninth in the MDAX at the end of December +with a free float market capitalisation of EUR 4,396.4 million. +Measured by trading volume over the past twelve months, the +share came in at number 11 in the MDAX with a volume of +EUR 3,311.7 million. All in all, the Hannover Re Group thus con- +tinues to rank among the 40 largest listed companies in Germany. +In a three-year comparison the Hannover Re share delivered +a performance (including reinvested dividends) of 125.2%. It +therefore once again clearly outperformed the DAX (66.3%) +and MDAX (90.2%) benchmark indices and the Global Rein- +surance Index (94.3%). +2014 +Global Reinsurance Index +MDAX +of 35% to 40% of Group net income after tax for the fourth +year in succession. Based on the year-end closing price of +EUR 74.97, this produces a dividend yield of 5.7%. +International Securities Identification Number (ISIN) +Shareholding structure as at 31 December 2014 +41.5% Institutional +investors +Basic information +Hannover Re | Annual Report 2014 +10 +10 +In total, around 270 analyst recommendations were published +for Hannover Re and the insurance sector in the 2014 finan- +cial year. By the end of the year 33 analysts had handed down +opinions on Hannover Re: six analysts (eleven) recommended +the Hannover Re share as “buy” or “overweight”; as in the +previous year, altogether 20 opinions were a "hold", making +this the most common, while “underweight” or “sell” recom- +mendations were issued a total of seven (three) times. The ana- +lysts' average price target climbed slightly in the course of the +year from EUR 63.18 at the outset to EUR 66.34 at year-end. +Analyst expectations slightly higher +57.6% Germany +1.4% Other +112 +8.3% Private investors +shares outstanding less Talanx holding +15.4% +United Kingdom +13.4% United States +1 +3.4% Switzerland +7.5% Benelux +0.8% Asia +0.5% France +Shareholding structure by countries/regions as at +31 December 2014 (free float) 1 +Based on the entries in the company's share register as at the +end of the financial year, there were significant shifts within our +free float away from foreign investors, particularly in the United +States and Benelux countries, in favour of German sharehold- +ers: the proportionate holding in the United States fell by an +appreciable 8.1 percentage points to 13.4%, while holdings +in the United Kingdom and Benelux countries decreased by +1.0 percentage points and 2.5 percentage points to 15.4% and +7.5% respectively. The proportionate holdings in Switzerland, +France and Asia similarly declined, albeit only marginally. The +total shareholding in Germany, on the other hand, rose from +44.2% to 57.6%. +50.2% Talanx AG +0 +67.34 +Catastrophe XL (Cat XL) +The South African life insurance market remains an abundant source of innovative, consumer-centric benefit +and process developments. At Hannover Re, we enjoy being at the forefront of such evolution through our +long-term partnerships, which have seen us implement a number of lifestyle-orientated initiatives tailored +to today's health-conscious and technology-savvy policyholders. These have included a first-to-market fully +automated, non-intermediated underwriting process; partnerships in the health and wellness rewards space, +providing health-improvement incentives to policyholders via premium discounts and rewards; and more +recently, enabling social impact through life insurance purchases. These projects share the theme of catering +to the millennial policyholders - digital natives who are health conscious and vested in addressing society's +challenges. At Hannover Re, we actively seek to address evolving policyholder requirements, which serve to +drive our cedant-specific solutions. +Lifestyle concepts +22,445,953 +55,045 +2,657 +5,627,855 +2,469,795 +1,038,579 +1,038,579 +5,625,198 +5,625,198 +Total +Level 3 +Level 2 +Level 1 +2014 +N35 +Total financial liabilities +Long-term debt and subordinated capital +Total financial assets +Other invested assets +Real estate and real estate funds +1,093,624 +Fixed-income securities +57,702 +6,721,479 +2,469,795 +875,321 +6,217,426 +Total +Level 3 +Level 2 +6,217,426 +Level 1 +2013 +N36 +Total financial liabilities +Long-term debt and subordinated capital +Total financial assets +Other invested assets +Real estate and real estate funds +Fixed-income securities +in EUR thousand +Fair value hierarchy of financial assets and liabilities measured at amortised cost +2,469,795 +2,469,795 +875,321 +in EUR thousand +Annual financial statements +Fixed-income +securities +2013 +N34 +(5,759) +(11) +3,604 +(3,014) +3,604 +(5,759) +(11) +(3,014) +in EUR thousand +Income and expenses from level 3 financial assets and liabilities +Total depreciation, impairments and appreciation of +investments +1 +Change in fair value of financial instruments +Thereof attributable to financial instruments +included in the portfolio at 31 December of the +year under review +Real estate and +real estate funds +Fair value hierarchy of financial assets and liabilities measured at amortised cost +Other invested +assets +Total in the financial year +193 +Hannover Re | Annual Report 2014 +volume of EUR 105.6 million (EUR 95.3 million) relate in very +large part to acquired life insurance policies, the valuation of +which is based on technical parameters. Derivative financial +instruments in connection with the reinsurance business were +recognised under the other liabilities included in level 3 in the +year under review. Their performance is dependent upon the +risk experience of an underlying group of primary insurance +contracts with statutory reserving requirements. The appli- +cation of alternative inputs and assumptions has no material +effect on the consolidated financial statement. +If models are used to measure financial assets and liabilities +included in level 3 under which the adoption of alternative +inputs leads to a material change in fair value, IFRS 13 requires +disclosure of the effects of these alternative assumptions. Of +the financial assets included in level 3 with fair values of alto- +gether EUR 1,580.4 million (EUR 1,205.0 million) as at the bal- +ance sheet date, Hannover Re measures financial assets with a +volume of EUR 1,474.8 million (EUR 1,109.7 million) using the +net asset value method, in respect of which alternative inputs +within the meaning of the standard cannot reasonably be estab- +lished. The remaining financial assets included in level 3 with a +987 +(3,544) +1,090 - (97) +Total depreciation, impairments and appreciation of +investments +Change in fair value of financial instruments +(3,544) +(494) +987 +(97) +Thereof attributable to financial instruments +included in the portfolio at 31 December of the +year under review +Total depreciation, impairments and appreciation of +investments +1,090 +Change in fair value of financial instruments +Other liabilities +1,260 +6,218,686 +33,197 +908,518 +The value adjustments on accounts receivable that we recog- +nise in adjustment accounts changed as follows in the year +under review: +The default risks associated with accounts receivable under +reinsurance business are determined and recognised on the +basis of case-by-case analysis. +Within the scope of our management of receivables we expect +to receive payment of accounts receivable within three months +of the date of creation of the debit entry - a period for which we +also make allowance in our risk analysis. Please see our com- +ments on the credit risk within the risk report on page 90 et seq. +one year +123,549 +More than +Three months +to one year +170,564 +More than +one year +142,102 +218,824 +Three months +to one year +2013 +2014 +N38 +Accounts receivable +in EUR thousand +Age structure of overdue accounts receivable +The age structure of the accounts receivable which were unad- +justed but considered overdue as at the balance sheet date is +presented below. +For further explanatory remarks please see Section 3.1 "Sum- +mary of major accounting policies". +Value adjustments on accounts receivable +1,672,398 +in EUR thousand +Currency translation at 1 January +42,221 +13,616 +16,071 +7,331 +21,635 +42,275 +36,657 +1,572 +667 +40,703 +2013 +2014 +35,990 +N39 +Cumulative value adjustments at 31 December of the year under review +Reversal +Value adjustments +Cumulative value adjustments after currency translation +Cumulative value adjustments at 31 December of the previous year +(3,162) +6,931 +1,914,598 +346,911 +Hannover Re | Annual Report 2014 +194 +In life and health reinsurance the deferred acquisition costs +associated with life and annuity policies with regular premium +payments are determined in light of the period of the contracts, +the expected surrenders, the lapse expectancies and the antici- +pated interest income. +on the basis of the estimated gross profit margins from the +reinsurance treaties, making allowance for the period of the +insurance contracts. A discount rate based on the interest for +medium-term government bonds was applied to such contracts. +In the case of annuity policies with a single premium payment, +these values refer to the expected policy period or period of +annuity payment. +In the case of reinsurance treaties for unit-linked life insurance +policies classified as "universal life-type contracts" pursuant +to SFAS 97, the capitalised acquisition costs are amortised +SFAS 60 requires that acquisition costs be capitalised as assets +and amortised in proportion to the earned premium. +The retrocessionaires' portions of the technical provisions are +based on the contractual agreements of the underlying rein- +surance treaties. For further details please refer to our com- +ments on the technical provisions in Section 6.7 "Technical +provisions" on page 200 et seq. as well as the remarks in the +risk report on page 86 et seq. +6.4 Technical assets +The contract deposits on the assets side increased by +EUR 16.6 million in the year under review from EUR 75.5 mil- +lion to EUR 92.1 million. +6.3 Contract deposits (assets) +the corresponding provisions. In the event of default on such +a deposit our reinsurance commitment is reduced to the same +extent. The increase in funds withheld was attributable princi- +pally to new business and exchange rate effects. +The funds withheld totalling EUR 15,826.5 million +(EUR 14,267.8 million) represent the cash and securities depos- +its furnished by our company to our cedants that do not trig- +ger any cash flows and cannot be realised by cedants without +our consent. The maturities of these deposits are matched to +6.2 Funds withheld (assets) +2,582,464 +2,582,464 +2,582,464 +2,582,464 +7,127,204 +34,457 +In property and casualty reinsurance acquisition costs directly +connected with the acquisition or renewal of contracts are +deferred for the unearned portion of the premium. +Development of deferred acquisition costs +in EUR thousand +Net book value at 31 December of the previous year +368,029 +279,480 +489,910 +1,742,991 +1,785,786 +(98,288) +113,388 +1,841,279 +Total depreciation, impairments and appreciation of +investments +1,672,398 +2014 +N37 +Net book value at 31 December of the year under review +Currency translation at 31 December +Amortisations +Additions +Net book value after currency translation +Currency translation at 1 January +2013 +Total +1 +Total in the financial year +Settlements +Sales +Purchases +equity +recognised directly in shareholders' +1 +recognised in the statement of income +Income and expenses +Net book value after currency +translation +649 +Currency translation at 1 January +5,179 +previous year +Net book value at 31 December of the +68,827 +1,034,679 +261,629 +597 +4,118 +8 +Transfers to level 3 +Currency translation at 31 December +139,710 +43,512 +57,281 +258,548 +86,018 +72,694 +14,031 +(3,604) +(8,773) +(11) +I +in EUR thousand +Movements in level 3 financial assets and liabilities +of the year under review +Net book value at 31 December +(592) +of the year under review +Transfers from level 3 +36,292 +5,828 +68,827 +68,827 +68,827 +24,330,310 +1,205,038 +22,521,127 +50,157 +50,157 +604,145 +549,138 +549,138 +988,757 +952,451 +36,306 +247,400 +247,400 +70,082 +70,082 +28,980 +8 +28,972 +118,984 +82,228 +118,984 +191 +952,451 +247,400 +14,229 +8 +assets +Other liabilities +N31 +securities +variable-yield +real estate funds +Real estate and Other invested +Equities, equity +funds and other +Fixed-income +securities +2014 +in EUR thousand +Movements in level 3 financial assets and liabilities +The following table provides a reconciliation of the fair values +of financial assets and liabilities included in level 3 at the begin- +ning of the financial year with the fair values as at 31 December +of the financial year. +Annual financial statements +Hannover Re | Annual Report 2014 +2,801 +5,173 +13,982 +the year under review +Currency translation at 31 December of +Transfers from level 3 +Transfers to level 3 +109,279 +33,381 +16,280 +1,335 +169,261 +116,065 +242 +18,653 +567 +27,572 +13,428 +(987) +(3,641) +841 +(494) +(958) +(2,316) +Other liabilities +Other invested +assets +Real estate and +real estate funds +Fixed-income +securities +2014 +N33 +in EUR thousand +Income and expenses from level 3 financial assets and liabilities +The breakdown of income and expenses recognised in the +statement of income in the financial year in connection with +financial assets and liabilities assigned to level 3 is as follows. +Hannover Re | Annual Report 2014 +192 +68,827 +952,451 +247,400 +8 +5,179 +Net book value at 31 December of the +year under review +(3,233) +Settlements +Sales +Purchases +27,329 +of the previous year +Net book value at 31 December +Other liabilities +Other invested +assets +Real estate and +real estate funds +2013 +N32 +variable-yield +securities +Equities, equity +funds and other +securities +Fixed-income +136,486 +1,258,903 +320,956 +8 +522 +Currency translation at 1 January +(850) +8 +156,301 +equity +recognised directly in shareholders' +1,090 +recognised in the statement of income +Income and expenses +(8,973) +(7,276) +Changes in the consolidated group +35,990 +54,812 +152,740 +8 +26,479 +Net book value after currency transla- +tion +(24,908) +(3,561) +54,812 +905,652 +880,744 +Change in fair value of financial instruments +Breakdown of investments by currencies +2,981,675 +Currency translation at 1 January +58 +Net book value after currency translation +144,547 +(906) +132,111 +Additions +Disposals +Profit or loss on investments in associated companies +Dividend payments +Change recognised outside income +Currency translation at 31 December +Net book value at 31 December of the year under review +5,297 +1,848 +264 +1,042 +12,536 +133,017 +6,667 +144,489 +2013 +N26 +in EUR thousand +2014 +2013 +Group share of net income from continuing operations +1,042 +12,536 +Group share of income and expense recognised directly in equity +Group share of total recognised income and expense +10,217 +1,712 +11,259 +14,248 +The carrying amount of the investments in associated compa- +nies changed as follows in the year under review: +Investments in associated companies +N27 +in EUR thousand +2014 +Net book value at 31 December of the previous year +Financial information on investments in associated companies +3,763 +1,712 +Reclassification to assets held for sale +Currency translation at 31 December +2014 +2013 +872,905 +505,727 +46,322 +(13,366) +919,227 +492,361 +144,407 +395,930 +41,388 +1,725 +4,766 +(11,968) +(3,731) +Reclassification +10,217 +Disposals +Gross book value after currency translation +650 +45 +154,822 +144,489 +No discontinued operations existed in the year under review +among the companies measured at equity. Insofar as there are +commitments from contingent liabilities of associated compa- +nies, the Hannover Re Group shares in such commitments in +proportion to its respective shareholding. +Public price listings are not available for companies valued at +equity. The net book value of associated companies includes +goodwill in the amount of EUR 23.1 million (EUR 19.4 million). +For further details of our major participating interests please +see Section 4 "Consolidation". +188 +Hannover Re | Annual Report 2014 +Real estate +Real estate is divided into real estate for own use and third- +party use (investment property). The investment property in +the portfolio which is used to generate income is shown under +the investments. Income and expenses from rental agreements +are included in the investment income. +Development of investment property +Own-use real estate is recognised under other assets. +Real estate is valued at cost of acquisition less scheduled depre- +ciation with useful lives of at most 50 years. +N28 +in EUR thousand +Gross book value at 31 December of the previous year +Currency translation at 1 January +Additions +Annual financial statements +187 +Hannover Re | Annual Report 2014 +119,696 1,498,316 145,257 +6,217 2,349,152 +42,221 +903,518 +707,590 +2,666,787 +103,920 3,209,100 +1,439,895 +659,360 7,638,934 2,401,680 +129,003 8,888,541 +232,899 1,019,580 22,409,892 +Fixed-income +securities +at fair +value through profit +or loss +Equity securities - +Total +available-for-sale +Other +USD +in EUR thousand +Fixed-income +securities - held +to maturity +Fixed-income +securities loans +and receivables +Fixed-income +securities - +available-for-sale +N25 +2013 +AUD +CAD +EUR +GBP +JPY +ZAR +Other financial +assets at fair value +through profit or loss +Other invested assets +Short-term invest- +ments, cash +Total +• +• +Oval Office Grundstücks GmbH, Hannover, Germany, +WeHaCo Unternehmensbeteiligungs-GmbH, Hannover, +Germany, +HANNOVER Finanz GmbH, Hannover, Germany, +Glencar Underwriting Managers, Inc., Chicago, +United States, +ITAS Vita S.p.A., Trento, Italy, +ASPECTA Assurance International AG, Vaduz, +Liechtenstein, +as well as the following companies included at equity within +the subgroup Hannover Reinsurance Group Africa (Pty) Ltd., +Johannesburg, South Africa: +• +Firedart & Construction Guarantee Underwriting +Managers (Pty) Ltd., Johannesburg, South Africa, +Commercial & Industrial Acceptances (Pty) Ltd., +Johannesburg, South Africa, +Clarendon Transport Underwriting Managers (Pty) +Ltd., Johannesburg, South Africa, +Camargue Underwriting Managers (Pty) Ltd., +Johannesburg, South Africa, +• Synergy XOL (Pty) Ltd., Johannesburg, South Africa. +Information on the percentage share held by the Hannover +Re Group in the capital of the associated companies as well +as on the amount of capital and reserves and the result for the +last financial year of these companies is provided in the list +of shareholdings in Section 4.2 "Consolidated companies and +complete list of shareholdings". +The following table shows combined financial information on +the Hannover Re Group's individual non-material investments +in associated companies. +• +• +• +The associated companies included at equity in the consoli- +dated financial statement that both on an individual basis and +in their entirety are not material for the Hannover Re Group +pursuant to IFRS 12 are comprised of +23,455 +575 +12,031 +—- —- 36,061 +-- 16,872 +12,108 +- - 28,980 +- 24,374 +1,103,840 +(1,693) +344 +2,157 +2,774 +70,082 +2,262,266 +128,449 +1,568,344 +24,416 328,904 53,613 +809,689 12,983,847 2,645,847 +7,442 379,868 +136,445 12,102,515 +52,670 216,712 1,192,074 +288,343 1,340,212 31,875,242 +The maximum credit risk of the items shown here corresponds +to their carrying amounts. +Associated companies +45,364 +1,153,495 +1,023,281 +872,905 +Gross book value at 31 December of the year under review +136,486 +240,246 +136,486 +240,246 +Fair value hierarchy of financial assets and liabilities recognised at fair value +in EUR thousand +Fixed-income securities +Equity securities +Other financial assets +Real estate and real estate funds +Other invested assets +Short-term investments +Total financial assets +Other liabilities +Total financial liabilities +N30 +2013 +103,760 +103,760 +Level 1 +29,137,440 +26,920,203 +32,796 +8 +N29 +Total +26,882,017 +32,804 +66,394 +66,394 +320,956 +320,956 +1,258,903 +1,258,903 +575,300 +575,300 +1,066 +1,066 +636,848 +1,580,389 +26,035 +Hannover Re | Annual Report 2014 +196 +2014 +N40 +Net book value at 31 December of the year under review +Net book value at 31 December of the previous year +Currency translation at 1 January +in EUR thousand +Development of goodwill +In accordance with IFRS 3 "Business Combinations" scheduled +amortisation is not taken on goodwill. Goodwill was subject to +an impairment test. +6.5 Goodwill +In addition, we took specific value adjustments on reinsurance +recoverables on unpaid claims in the year under review. We +would refer the reader to the corresponding remarks on the loss +and loss adjustment expense reserve in Section 6.7 "Technical +provisions". With regard to the credit risks resulting from tech- +nical assets we would also refer the reader to our comments +on page 94 et seq. of the risk report. +Annual financial statements +195 +Hannover Re | Annual Report 2014 +2,945,685 +3,113,978 +Net book value of accounts receivable at 31 December of the year under review +35,990 +42,221 +2013 +57,070 +59,099 +1,150 +Sensitivity analyses were performed in which the capitalisa- +tion rates as well as material and value-influencing items of +the relevant planning calculations (such as premium volumes, +investment income or loss ratios) were varied. In this context +it was established that in the event of changes in parameters +within ranges that could reasonably occur, the values in use +were in each case higher than the corresponding book values. +Please see also our basic remarks in Section 3.1 "Summary of +major accounting policies". +1.00% +1.00% +8.215% +7.400% +E+S Rückversicherung AG +Integra Insurance +Solutions Limited +rate +Growth rate +522 +Capitalisation +Capitalisation rates +The following capitalisation rates and growth rates were rec- +ognised for the individual cash-generating units: +For the purposes of the impairment test, the goodwill was +allocated to the cash-generating units (CGUs) that represent +the lowest level on which goodwill is monitored for internal +management purposes. In the instances of goodwill recog- +nised as at the balance sheet date, the CGUS are the respec- +tive business units/legal entities. The recoverable amount is +established on the basis of the value in use, which is calculated +using the discounted cash flow method. In this context, the +detailed planning phase draws on the planning calculations +of the CGUS/companies covering the next five years. These +planning calculations represent the outcome of a detailed plan- +ning process in which all responsible members of management +are involved. The subsequent perpetuity phase is guided by +the profit margins and revenue growth rates that management +believes can be sustainably generated. The capitalisation rate +is based on the Capital Asset Pricing Model (CAPM) as well as +growth rates that are considered realistic. The risk-free basic +interest rate is determined, where possible, using correspond- +ing yield curve data from the respective national banks. If this +data cannot be obtained or can only be obtained with a dis- +proportionately high effort, reference is made to the yields of +the respective 30-year government bonds. The selection of the +market risk premium is guided by the current recommenda- +tions of the Institute of Public Auditors in Germany (IDW). The +beta factor is calculated for Hannover Rück SE on the basis of +publicly accessible capital market data. +This item principally included the goodwill from the acquisi- +tion of E+S Rückversicherung AG as well as from the acquisi- +tion of a 75% interest in Integra Insurance Solutions Limited. +Level 3 +5,179 +57,070 +58,220 +(2,029) +N41 +3,156,199 +Level 3 +28,752 +Reclassification +1,997 +Reclassification to assets held for sale +(756) +Currency translation at 31 December +331 +(230) +Cumulative depreciation at 31 December of the year under review +44,979 +25,741 +Net book value at 31 December of the previous year +Net book value at 1 January of the year under review +Net book value at 31 December of the year under review +847,164 +491,660 +891,451 +478,688 +978,302 +59 +847,164 +126 +597 +Cumulative depreciation at 31 December of the previous year +25,741 +14,067 +Currency translation at 1 January +2,035 +(394) +Cumulative depreciation after currency translation +27,776 +13,673 +Disposals +4,835 +1,454 +Depreciation +18,513 +13,970 +Impairments +1,323 +Appreciation +The fair value of investment property amounted to EUR 1,038.6 mil- +lion (EUR 875.3 million) as at the balance sheet date. +The market value of the real estate was determined using the +discounted cash flow method. +The additions to this item are due to the increased investment +activities of the real estate companies belonging to the Han- +nover Re Group. They are attributable entirely to investments +in Europe. +Hannover Re | Annual Report 2014 +The following table shows the breakdown of financial assets +and liabilities recognised at fair value into the three-level fair +value hierarchy. +Fair value hierarchy of financial assets and liabilities recognised at fair value +in EUR thousand +Fixed-income securities +Equity securities +Other financial assets +Real estate and real estate funds +Other invested assets +Short-term investments +Other assets +Total financial assets +Other liabilities +Total financial liabilities +2014 +Level 1 +190 +In the year under review alternative investments with a fair +value of EUR 36.3 million were no longer allocable to level 2 +but rather to 3 as a consequence of model-based pricing. In +the previous year fixed-income securities with a fair value of +EUR 7,603.4 million, which were measured using average +prices from price service agencies, were no longer allocable +to level 1 but rather to level 2. For the most part they involved +bonds traded on the OTC market. Reallocation was carried out +in accordance with the position on accounting practice "IDW +RS HFA 47 Einzelfragen zur Ermittlung des Fair Value nach +IFRS 13" adopted by the Main Technical Committee of the +Institute of Public Auditors in Germany (IDW) on 6 December +2013, according to which average prices from service agencies +constitute level 2 inputs if the underlying data on which these +average prices are based are firm bid prices or observable +transaction-based prices. The previous year's reclassification +was therefore based neither on changed liquidity characteris- +tics of these instruments nor on a modified investment strategy. +No further reclassifications were made in the previous year. +The operational units responsible for coordinating and docu- +menting measurement are organisationally separate from the +operational units that enter into investment risks. All relevant +valuation processes and valuation methods are documented. +Decisions on fundamental valuation issues are taken by a valu- +ation committee that meets monthly. +In addition, acquired life insurance policies measured at fair value +through profit or loss were recognised under the other invested +assets in an amount of EUR 105.0 million (EUR 90.2 million). +In addition, we held indirect real estate investments measured +at fair values in an amount of EUR 321.0 million (EUR 247.4 mil- +lion) in the year under review, the amortised costs of which +amounted to EUR 260.1 million (EUR 204.9 million). The dif- +ferences between the carrying amounts and amortised costs +were recognised as unrealised gains of EUR 62.1 million +(EUR 43.7 million) and unrealised losses of EUR 1.2 million +(EUR 1.2 million) under cumulative other comprehensive income. +Hannover Re | Annual Report 2014 +189 +Annual financial statements +Real estate which is held for sale as defined by IFRS 5 is rec- +ognised separately in the consolidated balance sheet. Inten- +tions to sell are substantiated by individual real estate market +conditions and specific property circumstances, taking into +Other invested assets +The other invested assets consisted largely of participating inter- +ests in partnerships measured at fair value in an amount of +EUR 1,153.9 million (EUR 898.6 million), the amortised cost +of which amounted to EUR 749.7 million (EUR 622.7 million). +The differences between the carrying amounts and the amor- +tised costs were recognised as unrealised gains of EUR 409.0 mil- +lion (EUR 282.1 million) and unrealised losses of EUR 4.8 million +(EUR 6.2 million) under cumulative other comprehensive income. +Short-term investments +Level 2 +26,852,743 +This item comprises investments with a maturity of up to one +year at the time of investment. +For the purposes of the disclosure requirements pursuant to +IFRS 13 "Fair Value Measurement”, financial assets and lia- +bilities are to be assigned to a three-level fair value hierarchy. +The fair value hierarchy, which reflects characteristics of the +price data and inputs used for measurement purposes, is struc- +tured as follows: +• +Level 1: Assets or liabilities measured at (unadjusted) +prices quoted directly in active and liquid markets +Level 2: Assets or liabilities which are measured using +observable market data and are not allocable to level 1. +Measurement is based, in particular, on prices for compa- +rable assets and liabilities that are traded on active mar- +kets, prices on markets that are not considered active as +well as inputs derived from such prices or market data +• Level 3: Assets or liabilities that cannot be measured or +can only be partially measured using observable market +inputs. The measurement of such instruments draws prin- +cipally on valuation models and methods +If input factors from different levels are used to measure a +financial instrument, the level of the lowest input factor mate- +rial to measurement is determinative. +consideration current and future opportunity/risk profiles. In +the year under review no properties were reclassified to assets +held for sale. +Fair value hierarchy +Gross book value of accounts receivable at 31 December of the year under review +Cumulative value adjustments at 31 December of the year under review +Level 2 +22,414,739 +5,729 +11,436 +6,071 +3,852 +Cumulative depreciation at 31 December of the year under review +Net book value at 31 December of the previous year +Net book value at 31 December of the year under review +Currency translation at 31 December +Changes in consolidated group +Depreciation +Disposals +95,898 +102,551 +Cumulative depreciation after currency translation +(1,906) +2,943 +Currency translation at 1 January +97,804 +99,608 +Cumulative depreciation at 31 December of the previous year +9,880 +129,828 +(35) +521 +Gross book value at 31 December of the previous year +2013 +2014 +in EUR thousand +N45 +Development of other intangible assets +Other intangible assets +Hannover Re | Annual Report 2014 +198 +The changes in the consolidated group refer to the deconsol- +idation of Glencar Underwriting Managers, Inc.; please see +our explanatory remarks in Section 4.4 “Major disposals and +retirements". +With regard to the measurement of fixtures, fittings and equip- +ment, the reader is referred to our explanatory notes on the +other assets in Section 3.1 "Summary of major accounting +policies". +30,220 +24,011 +30,220 +33,167 +99,608 +110,621 +(117) +18 +143,788 +Gross book value at 31 December of the year under review +(472) +N44 +Fixtures, fittings and equipment +policy. In accordance with IAS 19 “Employee Benefits" they were +carried as a separate asset at fair value as at the balance sheet +date in an amount of EUR 76.6 million (EUR 71.6 million). +Fixtures, fittings and equipment +Effective 1 July 2003 Hannover Rück SE took out insurance for +pension commitments. The commitments involve deferred annui- +ties with regular premium payment under a group insurance +Insurance for pension commitments +Annual financial statements +197 +Hannover Re | Annual Report 2014 +The period of amortisation amounts to altogether 30 years. For +further information please refer to our explanatory notes on +intangible assets in Section 3.1 “Summary of major account- +ing policies". +This item consists of the present value of future cash flows +recognised on business acquired in 2009 in the context of the +acquisition of the ING life reinsurance portfolio. This intangi- +ble asset is amortised over the term of the underlying reinsur- +ance contracts in proportion to the future premium income. +85,270 +82,390 +351 +157 +3,761 +3,420 +in EUR thousand +Gross book value at 31 December of the previous year +Currency translation at 1 January +Gross book value after currency translation +700 +Currency translation at 31 December +(131) +Changes in consolidated group +6,272 +4,245 +Disposals +17,272 +196,689 +13,863 +133,601 +(2,584) +3,773 +121,815 +129,828 +2013 +2014 +Additions +119,231 +3,037 +184,725 +1,243 +net +retro +gross +2014 +in EUR thousand +Technical provisions +In order to show the net technical provisions remaining in the +retention the following table compares the gross provisions +with the corresponding retrocessionaires' shares, which are +shown as assets in the balance sheet. +6.7 Technical provisions +Annual financial statements +199 +Hannover Re | Annual Report 2014 +Credit risks may result from other financial assets that were +not overdue or adjusted as at the balance sheet date. In this +regard, the reader is referred in general to our comments on +the credit risk contained in the risk report on page 90 et seq. +The gross book values include rights from long-term reinsur- +ance treaties still existing as at the balance sheet date. The +intangible assets resulting from these rights were recognised +in the context of business acquisitions in the years 1997 and +2002 and were written off in full as at the balance sheet date. +The item includes EUR 2.2 million (EUR 3.2 million) for self- +created software and EUR 30.0 million (EUR 19.1 million) for +purchased software as at the balance sheet date. Scheduled +depreciation is taken over useful lives of three to ten years. +The additions can be broken down into EUR 18.0 million +(EUR 5.0 million) for purchased software and EUR 1.0 million +(EUR 0.9 million) for capitalised development costs for self- +created software. +30,843 +32,136 +30,843 +37,462 +gross +165,846 +2013 +N46 +2,405,497 +20,263,128 +10,287,297 +1,403,804 +344,154 +10,631,451 +21,666,932 +1,376,432 22,735,624 +676,219 11,080,913 +149,257 2,599,337 +5,446 +324,240 +38,942,022 +Total +Other technical provisions +2,748,594 +Unearned premium reserve +11,757,132 +Benefit reserve +24,112,056 +reserve +Loss and loss adjustment expense +net +retro +182,834 +4 +67 +220,296 +Gross book value at 31 December of the year under review +(19) +86 +405 +569 +Currency translation at 31 December +Disposals +13,243 +22,847 +Additions +(8) +Changes in the consolidated group +183,878 +197,932 +Gross book value after currency translation +(847) +196,689 +Cumulative depreciation at 31 December of the previous year +165,846 +152,589 +14,130 +16,525 +308 +25 +15 +Net book value at 31 December of the year under review +Net book value at 31 December of the previous year +Cumulative depreciation at 31 December of the year under review +Currency translation at 31 December +Currency translation at 1 January +Depreciation +468 +Disposals +152,045 +166,725 +Cumulative depreciation after currency translation +(544) +879 +Currency translation at 1 January +Appreciation +92,100 +85,270 +2013 +2,266,458 +139,039 +2,405,497 +2,599,337 +149,257 +2,748,594 +Net book value at 31 December +of the year under review +193,824 +(15,694) +9,414 +(896) +203,238 +(16,590) +(307) +157,656 +16,803 +(3,294) +3,602 +20,405 +Currency translation at 31 December +154,362 +Changes +307 +The adequacy of the technical liabilities arising out of our rein- +surance treaties is reviewed as at each balance sheet date. +In the context of the adequacy testing of technical liabilities +(liability adequacy test pursuant to IFRS 4 in conjunction with +loss recognition test as per US GAAP) the anticipated future +contractual payment obligations are compared with the antici- +Corporate changes +pated future income. Should the result of the test indicate that +the anticipated future income will not be sufficient to fund +future payments, the entire shortfall is recognised in income +by first writing off capitalised acquisition costs corresponding +to the shortfall. Any remaining difference is constituted as an +additional provision. +The funds withheld under reinsurance treaties totalling +EUR 817.1 million (EUR 648.0 million) represent the cash +and securities deposits furnished to our company by our ret- +rocessionaires that do not trigger any cash flows and cannot +be realised without the consent of our retrocessionaires. The +The defined benefit plans expose Hannover Re to the following +actuarial risks: +Provisions for pensions are established in accordance with +actuarial principles and are based upon the commitments made +by the Hannover Re Group for retirement, disability and wid- +ows' benefits. The amount of the commitments is determined +according to length of service and salary level. +The commitments to employees in Germany predominantly +comprise benefit obligations financed by the Group companies. +The pension plans are unfunded. The provisions for pensions in +Germany and abroad were calculated on the basis of uniform +standards according to prevailing economic circumstances. +In addition to these pension plans, managerial staff and mem- +bers of the Executive Board, in particular, enjoy individual +commitments as well as commitments given under the benefits +plan of the Bochumer Verband. +Effective 1 December 2002 Group employees have an opportu- +nity to accumulate additional old-age provision at unchanged +conditions by way of deferred compensation through member- +ship of HDI Pensionskasse AG. +As at 1 July 2000 the 2000 pension plan came into force for +the entire Group. Under this plan, new employees included in +the group of beneficiaries are granted an indirect commitment +from HDI Unterstützungskasse e. V. This pension plan provides +for retirement, disability and surviving dependants' benefits. +From 1997 onwards it has been possible to obtain pension +commitments through deferred compensation. The employee- +funded commitments included in the provisions for accrued +pension rights are protected by an insurance contract with HDI +Lebensversicherung AG, Cologne. +Annual financial statements +205 +Hannover Re | Annual Report 2014 +On 1 April 1993 (1 June 1993 in the case of managerial staff) +the 1993 pension plan came into effect. This pension plan +provides for retirement, disability and surviving dependants' +benefits. The scheme is based upon annual determination of +the pension contributions, which are calculated according to +the pensionable employment income and the company's per- +formance. The pension plan was closed to new participants +with effect from 31 March 1999. +Pension commitments are given in accordance with the rele- +vant version of the pension plan as amended. The 1968 pension +plan provides for retirement, disability, widows' and orphans' +benefits. The pension entitlement is dependent on length of +service; entitlements under the statutory pension insurance +scheme are taken into account. The pension plan was closed +to new participants with effect from 31 January 1981. +6.10 Provisions for pensions and other post-employment benefit obligations +balances deriving from non-traditional life insurance contracts +that are to be carried as liabilities. The increase was due prin- +cipally to exchange rate effects. +The contract deposits on the liabilities side increased +by EUR 502.4 million in the year under review from +EUR 5,569.9 million to EUR 6,072.3 million. The contract +deposits item on the liabilities side essentially encompasses +6.9 Contract deposits (liabilities) +maturities of these deposits are matched to the corresponding +shares of the reinsurers in the technical provisions. If such a +share no longer exists the corresponding funds withheld are +reduced to the same extent. +6.8 Funds withheld (liabilities) +2,088,328 +130,521 +2,218,849 +gross +net +retro +gross +2014 +in EUR thousand +Development of the unearned premium reserve +Hannover Re | Annual Report 2014 +204 +unearned premium was estimated using suitable methods. Pre- +mium paid for periods subsequent to the date of the balance +sheet was deferred from recognition within the statement of +income. +The unearned premium reserve derives from the deferral of +ceded reinsurance premium. The unearned premium is deter- +mined by the period during which the risk is carried and estab- +lished in accordance with the information supplied by ceding +companies. In cases where no information was received, the +10,287,297 +344,154 +10,631,451 +11,080,913 +676,219 +11,757,132 +2013 +retro +N52 +net +2,425,185 +148,642 +2,573,827 +translation +Net book value after currency +(113,108) +2,201,436 +138,373 +(7,852) +⚫ longevity +2,339,809 +(120,960) +9,603 +168,330 +Currency translation at 1 January +2,266,458 +139,039 +2,405,497 +of the previous year +Net book value at 31 December +158,727 +• +currency +• interest rate +64,785 +Other +Total +Other receivables +Fixtures, fittings and equipment +Tax refund claims +70,396 +67,699 +Own-use real estate +71,622 +76,601 +Insurance for pension commitments +30,843 +37,462 +Other intangible assets +85,270 +82,390 +Present value of future profits on acquired life reinsurance portfolios +181,326 +33,167 +30,220 +29,771 +2014 +Net book value at 31 December of the year under review +Currency translation at 31 December +Disposals +Amortisation +Net book value at 31 December of the previous year +in EUR thousand +N43 +2013 +Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios +As in the previous year, the other receivables do not include +any items that were overdue but unadjusted as at the balance +sheet date. On the basis of specific impairment analyses no +value adjustments (previous year: EUR 0.3 million) were taken +on other receivables in the year under review. +The item "Other" includes receivables of EUR 165.6 million +(EUR 73.6 million) which correspond to the present value of +future premium payments in connection with derivative finan- +cial instruments arising from transactions in the life and health +reinsurance business group. For further explanation please +see Section 8.1 "Derivative financial instruments and finan- +cial guarantees". +Of this, other assets of EUR 5.1 million (EUR 4.2 million) are +attributable to affiliated companies. +603,627 +618,280 +125,029 +226,405 +8,921 +Present value of future profits (PVFP) on acquired life reinsurance portfolios +139,039 +2014 +N42 +206 +Pension indexation +Rate of compensation increase +Discount rate +in % +Measurement assumptions +The calculation of the provisions for pensions is based upon +the following assumptions: +The rate of compensation increase entails the risk that the +increases in pensionable salaries factored into the trend +assumptions on a parallel basis do not adequately reflect the +actual developments. In addition, in the case of plans under +which the determinative income components above and below +the income threshold for contributions to the statutory pension +insurance scheme are differently weighted for the purpose of +calculating the benefit, there is a risk of a diverging trend in +the future with respect to salary and income threshold. +The pension progression entails the risk that the anticipated +development of the consumer price index factored into the +trend assumptions was too low and that increased benefit obli- +gations arise on account of the pension indexation required +by law. +Disablement entails the risk that the assumed number of retire- +ments from the subportfolio of eligible beneficiaries on grounds +of disability does not correspond to the actual experience and +for this reason increased benefit obligations have to be met. +Longevity entails the risk that the mortality contained in the +actuarial bases does not correspond to the actual mortality and +that pension payments have to be rendered and funded for a +longer duration than had been assumed. +rate of compensation increase +pension progression +disablement +• +• +• +N53 +2014 +2013 +Germany +Other assets +6.6 Other assets +Net book value at 31 December +of the year under review +Hannover Re | Annual Report 2014 +3.00 +2.06 +3.00 +1.65 +in EUR thousand +3.50 +3.50 +2.20 +Australia +3.94 +3.63 +2.60 +1.70 +Germany +Australia +2.75 +2,266,458 +69 +318,794 +36,734,668 +Changes +205,140 +176,515 +Portfolio entries/exits +126,506 +97,290 +Currency translation at 31 December +30,909 +23,594 +11,015,757 +28,625 +29,216 +7,315 +10,705,301 +178,894 +(257,122) +4,378 +499,438 +32,203 +(186,136) +(1,351) +10,205,863 +146,691 +(70,986) +Deposits +23,272,456 +845,260 +378,820 +11,248 +11,394,577 +Net book value after currency +gross +retro +2013 +net +gross +retro +net +Net book value at 31 December +of the previous year +10,631,451 +Currency translation at 1 January +763,126 +344,154 +34,666 +10,287,297 +728,460 +10,974,570 +(269,269) +507,257 +(7,819) +10,467,313 +(261,450) +translation +856,508 +992,961 +46,431 +Due after one through five years +368,073 +6,463,357 +410,537 +2,011,557 +Due in one year +net +retro +gross +net +retro +gross +expense reserves +Benefit reserve +Loss and loss adjustment +2014 +in EUR thousand +9,430,724 +530,791 +8,899,933 +1,403,573 +1,039,392 +Due after twenty years +532,476 +25,807 +558,283 +2,223,098 +100,496 +2,323,594 +2014 +Due after ten through twenty years +277,396 +1,186,478 +3,422,597 +182,255 +3,604,852 +Due after five through ten years +353,575 +1,061,417 +14,498 +342,156 +909,082 +in EUR thousand +N51 +The benefit reserve is established in accordance with the prin- +ciples set out in SFAS 60. The provisions are based on the +Group companies' information regarding mortality, interest +and lapse rates. +6,160,224 +Due in one year +net +retro +gross +net +retro +gross +N50 +Benefit reserve +2013 +Loss and loss adjustment +expense reserves +in EUR thousand +Maturities of the technical reserves +11,080,913 +676,219 +7,379,103 +394,571 +5,765,653 +190,264 +13,835 +101,954 +2,113,511 +Due after ten through twenty years +799,350 +186,716 +986,066 +3,006,408 +174,727 +5,114 +3,181,135 +577,063 +85,903 +662,966 +7,783,792 +551,507 +8,335,299 +Due after one through five years +176,429 +Due after five through ten years +N49 +7,384,217 +11,757,132 +3,701,810 +2,837,943 +5,921 +344,154 +7,449,354 +10,287,297 +Hannover Re | Annual Report 2014 +203 +Annual financial statements +The average maturity of the loss and loss adjustment expense +reserves was 5.0 years (5.2 years), or 5.0 years (5.2 years) after +allowance for the corresponding retrocession shares. The ben- +efit reserve had an average maturity of 10.7 years (12.6 years) - +or 11.5 years (13.1 years) on a net basis. +The average maturity of the reserves is determined using actu- +arial projections of the expected future payments. A payment +pattern is calculated for each homogenous category of our port- +folio - making allowance for the business sector, geographical +considerations, treaty type and the type of reinsurance – and +applied to the outstanding liabilities for each underwriting year +and run-off status. +The payment patterns are determined with the aid of actuarial +estimation methods and adjusted to reflect changes in payment +behaviour and outside influences. The calculations can also be +distorted by major losses, and these are therefore considered +separately using reference samples or similar losses. The pay- +ment patterns used can be compared year for year by contrast- +ing the projected payments with the actual amounts realised. +Liabilities in liability and motor reinsurance traditionally have +long durations, sometimes in excess of 20 years, while liabili- +ties in property business are settled within the first ten years. +The benefit reserve is established for life, annuity, personal +accident and health reinsurance contracts. Based on the dura- +tion of these contracts, long-term reserves are constituted for +life and annuity policies and predominantly short-term reserves +are set aside for health and personal accident business. +Development of the benefit reserve +The parameters used to calculate the benefit reserve are inter- +est income, lapse rates and mortality/morbidity rates. +The values for the first two components (interest income and +lapse rates) differ according to the country concerned, product +type, investment year etc. +The mortality and morbidity rates used are chosen on the basis +of national tables and the insurance industry standard. Empiri- +cal values for the reinsured portfolio, where available, are also +taken into consideration. In this context insights into the gen- +der, age and smoker structure are incorporated into the calcu- +lations, and allowance is also made for factors such as product +type, sales channel and the frequency of premium payment by +policyholders. +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 com- +ponents. In order to ensure at all times that the originally cho- +sen assumptions continue to be adequate throughout the con- +tract, checks are made on a regular – normally annual – basis +in order to determine whether these assumptions need to be +adjusted ("unlocked'). +- +2,207,354 +338,233 +3,176,176 +19,608,989 +653,667 7,455,275 +20,262,656 10,631,451 +671,105 +4,372,915 +22,001,946 +1,270,510 +106,094 +1,376,604 +839,600 +24,112,056 +36,203 +Total +532,946 +733,506 +22,735,452 +Due after twenty years +Deposits +Total +20,887,754 +779,178 +21,666,932 +56,006 +1,278,765 +125,511 +1,404,276 +1,041,579 +767,731 +15,576 +752,155 +1,097,585 +up as collateral for these reserves, since the cash inflows and +outflows from these deposits are to be allocated directly to the +ceding companies. For further explanation of the recognition +and measurement of the reserves please see Section 3.1 "Sum- +mary of major accounting policies". +6,873,894 +IFRS 4 “Insurance Contracts” requires information which helps +to clarify the amount and timing of cash flows expected from +reinsurance contracts. In the following tables we have shown +the future maturities of the technical provisions broken down +by the expected remaining times to maturity. As part of our +maturity analysis we have directly deducted the deposits put +Portfolio entries/exits +(451) +451 +(341) +341 +Reversal of impairments +(40) +40 +Specific value adjustment for retro- +cessions +Currency translation at 31 December +(449,729) (2,317,845) +(637,437) (5,753,205) +(1,087,166) (8,071,050) +(9,523,469) +(6,830,593) +Previous years +(2,692,876) +Year under review +Claims and claims expenses paid (net) +Less: +2,214,075 +9,127,546 +229,713 +1,044,902 +(471,824) (2,221,052) (2,767,574) +(691,203) (6,139,390) (6,390,642) +(1,163,027) (8,360,442) (9,158,216) +2,578 +103,137 +6,045 +2,578 +97,092 +The following table shows the net loss reserve for the property +and casualty reinsurance business group in the years 2004 to +2014 as well as the run-off of the reserve (so-called run-off tri- +angle). The figures reported for the 2004 balance sheet year +also include the amounts for previous years that are no longer +shown separately in the run-off triangle. The run-off results +shown reflect the changes in the ultimate loss arising in the +2014 financial year for the individual run-off years. +The run-off triangles show the run-off of the net loss reserve +(loss and loss adjustment expense reserve) established as at +each balance sheet date, this reserve comprising the provi- +sions constituted in each case for the current and preceding +occurrence years. +Annual financial statements +201 +Hannover Re | Annual Report 2014 +The run-off triangles provided by the reporting units are shown +after adjustment for the currency effects arising out of transla- +tion of the respective transaction currency into the local report- +ing currency. The run-off triangles of the reporting units deliv- +ered in foreign currencies are translated to euro at the current +rate on the balance sheet date in order to show run-off results +after adjustment for currency effects. In cases where the origi- +nally estimated ultimate loss corresponds to the actual ultimate +loss in the original currency, it is ensured that also after trans- +lation to the Group reporting currency (EUR) a run-off result +induced purely by currency effects is not shown. +Run-off of the net loss reserve in the property and casualty reinsurance segment +To some extent the loss and loss adjustment expense reserves +are inevitably based upon estimations that entail an element +of uncertainty. The difference between the previous year's and +current estimates is reflected in the net run-off result. In addi- +tion, owing to the fact that the period of some reinsurance trea- +ties is not the calendar year or because they are concluded on +an underwriting-year basis, it is frequently impossible to make +an exact allocation of claims expenditures to the current finan- +cial year or the previous year. +The total amount of the net reserve before specific value +adjustments, to which the following remarks apply, was +EUR 22,735.5 million (EUR 20,262.7 million) as at the bal- +ance sheet date. +In the year under review minimal (previous year: none) specific +value adjustments were established on retrocessions, i. e. on +the reinsurance recoverables on unpaid claims, while they were +reversed in the amount of EUR 0.3 million (EUR 0.5 million). +On balance, therefore, cumulative specific value adjustments +of EUR 0.2 million (EUR 0.5 million) were recognised in these +reinsurance recoverables as at the balance sheet date. +Including expenses recognised directly in shareholders' equity +1 +20,263,128 +1,403,804 +22,735,624 21,666,932 +1,376,432 +24,112,056 +Net book value at 31 December of the +year under review +(29,218) +(14,839) +61,660 +61,660 +(44,057) +2,443,788 +10,172,448 +6,913,471 +815,189 +7,728,660 +Net book value at 31 December of the +net +N 47 +retro +gross +net +2013 +retro +2014 +gross +in EUR thousand +Loss and loss adjustment expense reserve +Hannover Re | Annual Report 2014 +200 +The loss and loss adjustment expense reserves are in principle +calculated on the basis of the information supplied by ceding +companies. Additional IBNR reserves are established for losses +that have been incurred but not as yet reported. The develop- +ment of the loss and loss adjustment expense reserve is shown +in the following table. Commencing with the gross reserve, the +change in the reserve after deduction of the reinsurers' por- +tions is shown in the year under review and the previous year. +33,079,561 +1,893,890 +34,973,451 +262,678 +6,893 +269,571 +previous year +Net loss reserve and its run-off in the property and casualty reinsurance segment +21,666,932 +1,361,796 +6,721,454 +2,742,718 +9,464,172 +796,409 +240,501 +1,036,910 +10,501,082 +2,983,219 +Previous years +7,517,863 +Year under review +Incurred claims and claims expenses +(net) 1 +1,460,456 19,174,641 +20,635,097 +21,532,525 +1,496,203 +23,028,728 +translation +Net book value after currency +20,072,483 +(897,842) +(77,759) +1,538,215 +21,610,698 +(975,601) +20,263,128 +1,269,397 +1,403,804 +92,399 +Currency translation at 1 January +N48 +in EUR million +31.12. +2004 +56.8 +169.9 +Net run-off result +Change relative to previous year +12,238.0 +Ten years later +12,407.9 10,600.6 +Nine years later +12,561.1 10,827.3 10,128.2 +93.5 +Eight years later +Seven years later +Six years later +13,637.9 15,518.0 +13,148.1 +14,748.5 12,854.3 12,279.2 13,050.5 13,525.3 12,778.3 14,057.2 16,022.3 16,455.5 +14,006.9 12,311.7 12,193.7 12,558.4 12,679.7 12,191.5 +13,543.7 12,312.1 11,762.4 11,721.4 12,177.1 11,770.0 +13,580.3 11,940.7 10,999.4 11,366.8 11,839.4 11,292.8 +13,274.1 11,241.0 10,724.8 11,062.9 11,330.9 +Four years later +Five years later +Three years later +Two years later +One year later +12,690.9 11,040.5 10,448.4 10,651.0 +12,594.1 13,382.1 13,454.2 12,838.0 13,702.0 14,024.0 15,286.3 16,673.7 17,302.5 17,925.5 19,746.9 +15,014.5 13,915.4 12,708.5 13,127.0 14,801.8 13,512.3 14,665.0 16,368.5 16,879.3 17,649.9 +91.8 +(31.3) +Maturities of the technical reserves +Hannover Re | Annual Report 2014 +202 +The run-off profit of altogether EUR 275.6 million in the 2014 +financial year derives, as in the previous year, above all from +positive run-offs of reserves in the areas of marine/aviation +and short-tail property business. +-0.8 +-0.5 +0.1 +0.1 +-0.2 +96.6 +0.7 +0.7 +0.4 +1.3 +original loss reserve +As percentage of +(148.2) +(80.4) +14.3 +12.6 +0.7 +Maturities of the technical reserves +569,149 +Two years later +Ten years later +5,530.3 5,818.0 +6,040.1 +2,796.1 2,486.9 3,172.8 2,970.0 3,235.8 +6,225.3 5,062.4 4,350.5 4,341.2 4,644.5 4,040.8 4,149.7 4,940.0 4,608.8 +7,212.8 6,226.4 5,694.2 5,470.7 5,412.1 4,874.1 5,160.3 5,881.5 +8,000.6 7,360.9 6,505.9 6,026.3 6,007.7 +8,802.6 7,995.1 6,906.1 6,466.6 6,494.7 +9,264.3 8,315.1 7,249.8 +6,833.5 6,827.6 +9,536.8 8,586.4 7,525.7 7,113.4 +9,744.5 8,816.9 7,754.9 +9,928.1 9,002.9 +Nine years later +Five years later +Six years later +Seven years later +Eight years later +Four years later +Three years later +End of year +2,989.6 +3,024.7 2,587.4 2,522.7 +4,176.8 +One year later +Cumulative payments for the year in question and previous years +12,594.1 13,382.1 13,454.2 12,838.0 13,702.0 14,024.0 15,286.3 16,673.7 17,302.5 17,925.5 19,746.9 +Loss and loss adjustment expense reserve (from balance sheet) +2014 +31.12. +31.12. 31.12. 31.12. 31.12. 31.12. 31.12. +2008 2009 2010 2011 2012 2013 +31.12. 31.12. 31.12. +2005 2006 2007 +10,080.9 +Loss and loss adjustment expense reserve (net) for the year in question and previous years plus payments made to date on the original reserve +1,264,120 +13,502,177 +11,796,441 +1,225,113 +387,294 +(262,061) +2013 +2,619,728 +2014 +N66 +Europe +Other +France +United Kingdom +Germany +Regional origin +381,119 +in EUR thousand +Gross written premium +The following table shows the breakdown of the gross written +premium according to regional origin. +7.1 Gross written premium +7. Notes on the individual items of the statement of income +Annual financial statements +215 +Hannover Re | Annual Report 2014 +(130,000) +(111,409) +(252,691) +666,892 +2,489,788 +Total +11,292,700 +(11,125) +(95,720) +(8,668) +(126,670) +(106,845) +(135,338) +The ordinary expenses principally include interest expenses +of nominally EUR 90.4 million (EUR 121.9 million) resulting +from the issued subordinated debt. +Other financial facilities +Letter of credit (LOC) facilities exist with a number of finan- +cial institutions. A syndicated letter of credit facility taken +out in 2011 with a volume equivalent to EUR 822.7 million +(EUR 726.4 million) has a maturity until the beginning of 2019. +Unsecured letter of credit facilities with various terms (matur- +ing at the latest in 2022) and a total volume equivalent to +EUR 2,559.3 million (EUR 2,488.0 million) exist on a bilateral +basis with financial institutions; in addition, a long-term unse- +cured line of credit intended specifically for US life reinsur- +ance business taken out in December 2009 has a total volume +equivalent to EUR 226.2 million (EUR 363.2 million). +For further information on the letters of credit provided please +see our explanatory remarks in Section 8.7 "Contingent liabili- +ties and commitments”. +A number of LoC facilities include standard market clauses that +allow the banks rights of cancellation in the event of material +changes in our shareholding structure or trigger a requirement +on the part of Hannover Re to furnish collateral upon materi- +alisation of major events, for example if our rating is signifi- +cantly downgraded. Please see also our explanatory remarks +in the "Financial position" section of the management report, +page 59 et seq., on the information pursuant to § 315 Para. 4 +German Commercial Code (HGB). +Hannover Re | Annual Report 2014 +213 +Annual financial statements +6.13 Shareholders' equity and treasury shares +Shareholders' equity is shown as a separate component of the +financial statement in accordance with IAS 1 "Presentation of +Financial Statements” and subject to IAS 32 “Financial Instru- +ments: Disclosure and Presentation” in conjunction with IAS 39 +"Financial Instruments: Recognition and Measurement". The +change in shareholders' equity comprises not only the net +income deriving from the statement of income but also the +changes in the value of asset and liability items not recognised +in the statement of income. +The common shares (share capital of Hannover Rück SE) amount +to EUR 120,597,134.00. They are divided into 120,597,134 vot- +ing and dividend-bearing registered ordinary shares in the +form of no-par-value shares. The shares are paid in in full. +Each share carries an equal voting right and an equal divi- +dend entitlement. +Authorised capital of up to EUR 60,299 thousand is available +with a time limit of 3 May 2015. The subscription right of share- +holders may be excluded with the consent of the Supervisory +Board. New, no-par-value registered shares may be issued on +one or more occasions for contributions in cash or kind. Of +the total amount, up to EUR 1,000 thousand may be used to +issue employee shares. +In addition, conditional capital of up to EUR 60,299 thousand +is available. It can be used to grant shares to holders of con- +vertible bonds and bonds with warrants as well as to holders +of participating bonds with conversion rights and warrants and +has a time limit of 2 May 2016. +Treasury shares +IAS 1 requires separate disclosure of treasury shares in share- +holders' equity. As part of this year's employee share option +plan Hannover Rück SE acquired altogether 21,608 (18,750) +treasury shares during the second quarter of 2014 and deliv- +ered them to eligible employees at preferential conditions. +These shares are blocked until 31 May 2018. This transaction +613 +(4,813) +(4,200) +593 +(5,288) +(4,695) +(131,138) +(102,150) +749,593 +994,900 +493,337 +Excluding minority interests in partnerships, sundry non-technical provisions and derivative financial instruments; +the maturities of the latter two items are broken down separately +Net gains and losses from dept and subordinated capital +N64 +in EUR thousand +2014 +2013 +2014 +The Executive Board is authorised – with the consent of the +Supervisory Board - to acquire treasury shares of up to 10% +of the existing share capital. The authorisation is limited until +3 May 2015. +2013 +2013 +Ordinary income/expenses +Amortisation +Net result +Debt +Subordinated loans +565,698 +(11,718) +(90,432) +(9,281) +(121,857) +2014 +9,383,417 +The Annual General Meeting of Hannover Rück SE resolved +on 7 May 2014 that a dividend of EUR 3.00 per share should +be paid for the 2013 financial year. This corresponds to a total +distribution of EUR 361.8 million (EUR 361.8 million). +For the disclosures arising out of IAS 1 “Presentation of Finan- +cial Statements" with regard to the management of capital, the +reader is referred to the "Financial position" section on page 56 +of the management report. +95,661 +(50,845) +306,703 +53,115 +Shareholders' equity +1,908,328 +1,711,625 +thereof attributable to non-controlling interests +671,892 +621,563 +Dividends paid +thereof attributable to non-controlling interests +110,000 +130,000 +39,946 +47,208 +Assets +Liabilities +Cash flow from operating activities +Cash flow from investing activities +Cash flow from financing activities +37,752 +76,341 +103,960 +211,042 +resulted in an expense of EUR 0.4 million (EUR 0.4 million), +which was recognised under personnel expenditure, as well as +a negligible increase in retained earnings recognised in equity. +The company was no longer in possession of treasury shares +as at the balance sheet date. +214 +Hannover Re | Annual Report 2014 +6.14 Non-controlling interests +Non-controlling interests in the shareholders' equity of subsidi- +aries are reported separately within Group shareholders' equity +in accordance with IAS 1 "Presentation of Financial State- +ments". They amounted to EUR 702.2 million (EUR 641.6 mil- +lion) as at the balance sheet date. +Non-controlling interests in partnerships are reported in +accordance with IAS 32 “Financial Instruments: Presentation" +under long-term liabilities. +Subsidiaries with material non-controlling interests +The non-controlling interest in profit or loss, which forms part +of net income and is shown separately after net income as a +"thereof" note, amounted to EUR 79.5 million (EUR 43.8 mil- +lion) in the year under review. +N65 +in EUR thousand +The increase in the other reserves arising out of currency trans- +lation, which is recognised in equity, was attributable in an +amount of EUR 33.0 million (decrease recognised in equity +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. +Participation of non-controlling interests +Voting rights of non-controlling interests +thereof attributable to non-controlling interests +Income/expense recognised directly in equity +Total recognised income and expense +2014 +2013 +E+S Rückversicherung AG, Hannover, +Germany +35.21% +35.21% +36.31% +36.31% +Net income +1,626,667 +141,105 +6,008,460 +1,032 +(2,652) +519 +(2,701) +(15,643) +52,334 +553 +43 +(78) +207 +513 +Exchange differences +Change in asset ceiling +amounts included in interest income +Return on plan assets, excluding +(885) +(1,160) +Experience gains (-)/losses (+) +(11,705) +52,930 +in financial assumptions +Actuarial gain (-)/loss (+) from change +(352) +11 +biometric assumptions +Actuarial gain (-)/loss (+) from change in +comprehensive income +Recognised in cumulative other +2 +3 +(2,445) +(78) +43 +Other changes +32,326 +in EUR thousand +Provisions for pensions +The reconciliation of the projected benefit obligations with the +recognised provisions for pensions is as follows: +Annual financial statements +75 +207 +Hannover Re | Annual Report 2014 +The plan assets consist exclusively of qualifying insurance poli- +cies as defined by IAS 19. +13,510 +15,533 +129,602 +187,034 +Position at 31 December of the +financial year +545 +431 +(3,614) +(2,792) +(5) +(6) +99 +(3) +(2) +(3,608) +(2,891) +439 +600 +Additions and disposals +Benefit payments +Employer contributions +598 +1,726,952 +393 +7,890 +216 +13,963,409 +14,361,801 +853,033 +830,045 +476,183 +451,265 +2,414,019 +3,136,045 +776,991 +921,279 +1,637,028 +2,214,766 +Total +Other +Africa +Australasia +Australia +Asia +4,043,676 +3,935,986 +North America +679,595 +693,976 +Other +3,364,082 +3,242,010 +USA +6,176,498 +Hannover Re | Annual Report 2014 +N55 +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 +2 +3 +545 +393 +4,417 +4,547 +Net interest component +194 +Past service cost and plan curtailments +3,337 +3,149 +Current service costs +Recognised in profit or loss +30 +7,754 +75 +14,979 +13,510 +129,602 +Position at 1 January of the financial year +Fair value +of plan assets +Defined benefit +obligation +2013 +2014 +2013 +2014 +2013 +2014 +in EUR thousand +N54 +Impact of minimum funding +requirement/asset ceiling +197,032 +Projected benefit obligations at 31 December of the financial year +Fair value of plan assets at 31 December of the financial year +237,012 +7,400 +2,752 +1,484 +1,809 +294 +9 +2,142 +7,238 +15,736 +16,898 +367 +39 +117 +3,730 +19 +531 +(3) +3,215 +6,506 +5,870 +3,640 +(7) +8,729 +2,901 +5,826 +465 +103 +6,879 +N59 +2014 +2013 +81,252 +67,236 +69,668 +62,115 +4,952 +134,303 +6.12 Debt and subordinated capital +On 15 September 2014 Hannover Re placed another +EUR 500.0 million subordinated bond on the European capi- +tal market through Hannover Rück SE, Hannover. The issue +has a perpetual maturity with a first scheduled call option on +26 June 2025 and may be redeemed at each coupon date there- +after. It carries a fixed coupon of 3.375% p. a. until 26 June +2025, after which the interest rate basis changes to 3-month +EURIBOR +325 basis points. +5,368 +On 20 November 2012 Hannover Rück SE placed a +EUR 500.0 million subordinated bond in the European capital +market via its subsidiary Hannover Finance (Luxembourg) S.A. +The bond has a maturity of approximately 30 years with a first +scheduled call option on 30 June 2023 and may be redeemed at +each coupon date thereafter. It carries a fixed coupon of 5.00% +p. a. until this date, after which the interest rate basis changes +to a floating rate of 3-month EURIBOR +430 basis points. +Hannover Re | Annual Report 2014 +Balance at +1 January of the +year under review +Additions +Utilisation +Release +Currency +translation at +31 December +Balance at +31 December 2014 +5,953 +210 +3,064 +17 +3,359 +Subordinated loans +Coupon +Maturity Currency +Amortised +cost +Fair value +measurement +Accrued +interest +Fair value +Hannover Rück SE, 2014 +3.375 +n/a +2014 +EUR +8,221 +4,947 +506,632 +Hannover Finance +(Luxembourg) S.A., 2012 +5.00 +2043 +EUR +496,922 +89,933 +12,603 +493,464 +10 +in EUR thousand +Altogether four (four) subordinated bonds were recog- +nised as at the balance sheet date with an amortised cost of +EUR 1,986.5 million (EUR 2,237.8 million). +29,913 +24,737 +19,545 +194 +35,299 +3,944 +620 +19 +4,583 +74,430 +27,444 +N60 +137,367 +10,459 +58,267 +7,609 +8,373 +420 +84,226 +798 +154,779 +On 14 September 2010 Hannover Rück SE placed a subordi- +nated bond on the European capital market through its sub- +sidiary Hannover Finance (Luxembourg) S.A. This subordi- +nated debt of nominally EUR 500.0 million has a maturity of +30 years with a first scheduled call option after ten years and +may be redeemed at each coupon date thereafter. The bond car- +ries a fixed coupon of 5.75% in the first ten years, after which +the interest rate basis changes to a floating rate of 3-month +EURIBOR +423.5 basis points. +On 1 June 2005 Hannover Rück SE issued further subordinated +debt in the amount of EUR 500.0 million through its subsidiary +Hannover Finance (Luxembourg) S.A. The bond is perpetual +and carries a fixed coupon of 5.00% in the first ten years. It +may be redeemed on 1 June 2015 at the earliest and at each +Debt and subordinated capital +coupon +date thereafter. If the bond is not called at the end of +the tenth year, the coupon will step up to a floating-rate yield +of quarterly EURIBOR +268 basis points. The interest will be +serviced according to the same principles as those practised +in the past. +The subordinated debt issued in 2004 by Hannover Finance +(Luxembourg) S.A. with a volume of EUR 750.0 million was +cancelled by the issuer in the full nominal amount at the first +scheduled call date and repaid on 26 February 2014. +83,254 +599,458 +134,303 +73,152 +Parameter decrease ++17,058 +(+/-0.25%) +(+/-0.25%) ++934 ++5,657 +-875 +-5,193 +Furthermore, a change is possible with respect to the assumed +mortality rates and lifespans. The underlying mortality tables +were adjusted by reducing the mortalities by 10% in order to +determine the longevity risk. Extending the lifespans in this +way would have produced a EUR 5.3 million higher pension +commitment at the end of the financial year. +Defined contribution plans +In addition to the defined benefit plans, some Group compa- +nies have defined contribution plans that are based on length +of service and the employee's income or level of contributions. +The expense recognised for these obligations in the finan- +cial year in accordance with IAS 19 “Employee Benefits" was +EUR 18.7 million (EUR 17.4 million), of which EUR 1.2 million +(EUR 1.1 million) was due to obligations to members of staff in +key positions and EUR 6.5 million (EUR 6.0 million) to contri- +butions to the statutory pension insurance scheme in Germany. +208 +Hannover Re | Annual Report 2014 +Parameter increase +-15,186 +6.11 Other liabilities +in EUR thousand +Liabilities from derivatives +Interest +Deferred income +Direct minority interests in partnerships +Sundry non-technical provisions +Sundry liabilities +Total +N57 +2014 +2013 +240,246 +118,984 +Other liabilities +41,781 +(+/-0.5%) +Pension indexation +128 +15 +6,378 +2014 +2013 +187,034 +129,602 +15,533 +13,510 +Impact of minimum funding requirement/asset ceiling at 31 December +of the financial year +75 +N56 +Recognised pension obligations at 31 December of the financial year +thereof: Capitalised assets +Provisions for pensions +116,167 +245 +171,501 +116,412 +In the current financial year Hannover Re anticipates contri- +bution payments of EUR 0.8 million under the plans set out +above. The weighted average duration of the defined benefit +obligation is 14.8 years. +Sensitivity analysis +An increase or decrease in the key actuarial assumptions would +have the following effect on the present value of the defined +benefit obligation as at the balance sheet date: +Effect on the defined benefit obligation +in EUR thousand +Discount rate +Rate of compensation increase +171,501 +1,278 +73,096 +31,315 +in EUR thousand +Due in one year +Due after one through five years +Due after five years +Total +Balance at +31 December 2013 +N58 +Currency +translation at +1 January +5,899 +Maturities of the sundry non-technical provisions +54 +128 +7,017 +221 +3,723 +7 +2,866 +35 +28,951 +962 +3,693 +251 +2,624 +31,732 +The maturities of the sundry non-technical provisions as at the +balance sheet date are shown in the following table: +Restructuring +28,603 +30,993 +154,779 +134,303 +197,093 +217,204 +694,234 +605,895 +Of this, other liabilities of EUR 7.6 million (EUR 11.1 million) +are attributable to affiliated companies. +With regard to the liabilities from derivatives in an amount +of EUR 240.2 million (EUR 119.0 million), please see our +explanatory remarks on derivative financial instruments in +Section 8.1 "Derivative financial instruments and financial +guarantees". +The sundry liabilities include, most notably, distributions within +the year of EUR 87.5 million (EUR 72.0 million) from interests +in private equity funds that had still to be recognised in income +as at the balance sheet date. +Other +Total +Hannover Re | Annual Report 2014 +Annual financial statements +Development of sundry non-technical provisions +in EUR thousand +Provisions for +Audits and costs of publishing the annual financial statements +Consultancy fees +Suppliers' invoices +Partial retirement arrangements and early retirement obligations +Holiday entitlements and overtime +Anniversary bonuses +Management bonuses +209 +Hannover Finance +3,859 +154,779 +(Luxembourg) S.A., 2005 +36,390 +3,407 +115,025 +2,237,830 +749,593 +EUR +2024 +5.75 +(Luxembourg) S.A., 2004 +Hannover Finance +527,034 +14,589 +19,108 +493,337 +EUR +n/a +5.00 +(Luxembourg) S.A., 2005 +Hannover Finance +565,417 +(Luxembourg) S.A., 2010 +5.75 +2040 +EUR +498,447 +89,653 +72,089 +8,507 +789,390 +2,424,944 +Other long-term liabilities +Total +236,189 +33,993 +15,259 +Other financial liabilities 1 +Debt +No maturity +More than +twenty years +Ten to +twenty years +2014 +Five to ten +years +years +One to five +Three +months to +one year +in EUR thousand +N 62 +Maturities of financial liabilities +using other financial assets with similar rating, duration and +return characteristics. Under the effective interest rate method +the current market interest rate levels in the relevant fixed- +interest-rate periods are always taken as a basis. +The aggregated fair value of the extended subordinated loans +is based on quoted, active market prices. If such price informa- +tion was not available, fair value was determined on the basis +of the recognised effective interest rate method or estimated +2,655,638 +73,174 +117,504 +2,464,960 +15 +15 +230,679 +1,085 +2,479 +227,115 +Debt +39 +596,607 +5.00 +Maturity +Currency +Amortised +Fair value +8,507 +cost +measure- +ment +Accrued +interest +Fair value +Hannover Finance +(Luxembourg) S.A., 2012 +5.00 +2043 +EUR +496,653 +33,847 +12,603 +543,103 +Hannover Finance +(Luxembourg) S.A., 2010 +5.75 +2040 +58,663 +498,247 +EUR +Coupon +Hannover Finance +Subordinated loans +in EUR thousand +n/a +EUR +497,658 +1,986,491 +8,802 +196,609 +14,589 +40,646 +521,049 +2,223,746 +Debt +Other long-term liabilities +Total +Hannover Re | Annual Report 2014 +283,853 +2,839 +1,136 +287,828 +3 +3 +2,270,347 +199,448 +41,782 +2,511,577 +211 +Annual financial statements +Debt and subordinated capital +N 61 +2013 +247 +257,789 +Less than +three months +10,766 +Three +One to five +Five to ten +months to +one year +years +years +Ten to +twenty years +More than +twenty years +No maturity +82,362 +237,012 +1,443 +798 +13 +195,574 +31,528 +749,593 +994,900 +176 +493,337 +Other long-term liabilities +Total +Less than +three months +N63 +82,375 +Subordinated loans +Subordinated loans +2013 +995,369 +Other long-term liabilities +Total +3 +49,252 +236,231 +10,766 +995,545 +991,122 +258,036 +1 +212 +Excluding minority interests in partnerships, sundry non-technical provisions and derivative financial instruments; +the maturities of the latter two items are broken down separately +Hannover Re | Annual Report 2014 +1 +Maturities of financial liabilities +Debt +991,122 +Other financial liabilities +in EUR thousand +(82,102) +2,904,169 +(49,387) +2,327,217 +(33,820) +505,808 +34,945 +Hannover Re | Annual Report 2014 +469 +36,199 +Maturity structure of derivative financial instruments +Total +Interest rate hedges +N83 +2013 +Less than +three months +Three +months to +one year +One to five +Five to ten +636 +years +years +in EUR thousand +1,066 +17,344 +Other +collateral re- +Derivative receivables +Other +collateral re- +Cash col- +lateral re- +Fair values +Fair value +2013 +N85 +1,452 +14,245 +77,636 +10,140 +2,307 +2,307 +13,899 +94,188 +nished +nished +ceived/fur- +Net amount +Cash col- +lateral re- +ceived/fur- +Netting +agreement +Fair value +2014 +Hannover Re | Annual Report 2014 +Derivative liabilities +1,891,012 +Netting +agreement +Fair values +(2,629) +(12,527) +(32,712) +296,138 +in EUR thousand +2,767,888 +(370) +1,491 +14,324 +1,396,740 +(25,502) +1,594,181 +(11,397) +329,028 +(19,151) +1,437,956 +(22,945) +3,321,440 +Hannover Re enters into derivative transactions on the basis +of standardised master agreements that contain master net- +ting agreements. The netting agreements set out below nor- +Netting agreements +mally do not meet the criteria for netting in the balance sheet, +since Hannover Re has no legal right whatsoever at the pre- +sent moment in time to netting of the recognised amounts. The +right to netting can, as a matter of principle, only be enforced +upon occurrence of certain future defined events. Collateral +furnished or received is recognised per counterparty up to at +most the amount of the respective net liability or net asset. +N 84 +in EUR thousand +Derivative receivables +Derivative liabilities +Netting agreements +Net amount +The net changes in the fair value of these instruments resulted +in a charge of EUR 32.9 million to the result of the financial +year (EUR 33.1 million). +Notional values +(1,034) +1,033,794 +Fair values +1,234 +(1,395) +136,164 +31,963 +168,127 +Currency hedges +Fair values +(370) +15,358 +Notional values +(3,722) +Notional values +1,491 +362,946 +20,061 +927 +11,162 +385,425 +Inflation hedges +Notional values +Total hedging instruments +(104) +ceived/fur- +305,563 +nished +949,498 +3,085 +4,836 +72,029 +2013 +100,341 +2014 +Interest income +Dividends +969,644 +Income from real estate +N 67 +Investment income +7.2 Investment income +68,184 +Income from services +11,742 +10,806 +Deconsolidation +2,602 +in EUR thousand +6,661 +Other investment income +(3,440) +19,924 +Impairments on real estate +(27,136) +(33,257) +Change in fair value of financial instruments +32,881 +25,624 +Realised losses on investments +177,032 +13,686 +208,077 +319 +126 +Appreciation +12,536 +1,042 +Profit or loss on shares in associated companies +1,041,318 +1,068,361 +Ordinary investment income +Realised gains on investments +ceived/fur- +Other interest income +21,483 +The derivative components of another group of contracts in the +area of life and health reinsurance were measured on the basis +of stochastic considerations. The measurement produced a posi- +tive derivative value of EUR 5.7 million (EUR 6.5 million) on the +balance sheet date. The derivative was recognised under other +financial assets at fair value through profit or loss. The valuation +resulted in a charge against investment income of EUR 0.8 mil- +lion (EUR 1.1 million) as at 31 December 2014. +Hannover Re companies offer their contracting parties cover- +age for risks from possible future payment obligations arising +out of hedging instruments, are also to be classified as deriva- +tive financial instruments. The payment obligations result from +contractually defined events and relate to the development of an +underlying group of primary insurance contracts with statutory +reserving requirements. The contracts are to be categorised and +recognised as stand-alone credit derivatives pursuant to IAS 39. +These derivative financial instruments were carried in equity on +initial recognition because receivables recognised under other +assets were to be carried in the same amount. Please see Sec- +tion 6.6 "Other assets". The fair value of these instruments on +the balance sheet date was EUR 136.5 million (EUR 68.8 mil- +lion), which was recognised under other liabilities. The change in +value in subsequent periods is dependent upon the risk experi- +ence and led to an improvement of EUR 6.3 million (EUR 1.0 mil- +lion) in investment income in the financial year. +Structured transactions were entered into in the life and +health reinsurance business group in order to finance statu- +tory reserves (so-called Triple-X or AXXX reserves) of US ced- +ing companies. In each case such structures necessitated the +involvement of a special purpose entity. The special purpose +entities carry extreme mortality risks securitised by the ced- +ants above a contractually defined retention and transfer these +risks by way of a fixed/floating swap to a member company +of the Hannover Re Group. The total amount of the contrac- +tually agreed capacities of the transactions is equivalent to +Financial guarantees +A number of transactions concluded in the life and health rein- +surance business group in the previous year, under which +In the course of the year the change in the fair value of the +derivative gave rise to a charge against investment income of +EUR 6.8 million before tax (increase in investment income of +EUR 7.4 million). +Hannover Re calculates the fair values of the embedded deriva- +tives in ModCo treaties using the market information available +on the valuation date on the basis of a “credit spread" method. +Under this method the derivative is valued at zero on the date +when the contract commences and its value then fluctuates over +time according to changes in the credit spreads of the securi- +ties. The derivative had a positive value of EUR 44.8 million +(EUR 45.3 million) as at the balance sheet date and was recog- +nised under other financial assets at fair value through profit +or loss. +Within the scope of the accounting of “modified coinsurance" +and "coinsurance funds withheld" (ModCo) reinsurance treaties, +under which securities deposits are held by the ceding compa- +nies and payments rendered on the basis of the income from +certain securities of the ceding company, the interest-rate risk +elements are clearly and closely related to the underlying reinsur- +ance arrangements. Embedded derivatives consequently result +solely from the credit risk of the underlying securities portfolio. +A number of treaties in life and health reinsurance meet cri- +teria which require application of the prescriptions in IFRS 4 +"Insurance Contracts” governing embedded derivatives. These +accounting regulations require that certain derivatives embed- +ded in reinsurance contracts be separated from the underlying +insurance contract ("host contract"), reported separately at fair +value in accordance with IAS 39 “Financial Instruments: Recog- +nition and Measurement” and recognised under investments. +Fluctuations in the fair value of the derivative components are +to be recognised through profit and loss in subsequent periods. +All in all, application of the standards governing the accounting +for derivatives in connection with the technical account led to +recognition of assets totalling EUR 51.4 million (EUR 52.1 mil- +lion) as well as recognition of liabilities in an amount of +EUR 142.2 million (EUR 78.0 million) from the derivatives +resulting from technical items as at the balance sheet date. +Increases in investment income amounting to EUR 11.4 million +(EUR 8.5 million) as well as charges to income of EUR 7.5 mil- +lion (EUR 4.4 million) were recognised in the year under review +from all separately measured derivatives in connection with +the technical account. +Derivative financial instruments in connection with reinsurance +225 +8,509 +26,454 +4,349 +10,210 +3,472 +4,349 +18,031 +39,312 +nished +Annual financial statements +15,310 +EUR 3,079.4 million (EUR 1,372.2 million); an amount equiva- +lent to EUR 1,887.0 million (EUR 892.1 million) had been taken +up as at the balance sheet date. The variable payments to the +special purpose entities that are guaranteed by the Hannover Re +Group cover their payment obligations. Under some of the trans- +actions the payments resulting from the swaps in the event of a +claim are reimbursed by the parent companies of the cedants by +way of compensation agreements. In this case the reimburse- +ment claims from the compensation agreements are to be capi- +talised separately from and up to the amount of the provision. +Hannover Re | Annual Report 2014 +Sundry income +18,151 +14,595 +463,043 +318,858 +Other expenses +Other interest expenses +58,719 +77,028 +226 +Exchange losses +179,254 +Expenses from contracts recognised in accordance with the deposit accounting method +14,369 +14,521 +Separate value adjustments on receivables +21,753 +7,955 +Expenses for the company as a whole +322,131 +231,946 +1,568,881 +Five to ten +years +(27,325) +3,009,079 +2,856,274 +Deferred tax liabilities +1,481,668 +1,203,551 +1 Thereof on tax loss carry-forwards: -EUR 50,927 thousand (-EUR 45,551 thousand) +Total +The deferred tax assets and deferred tax liabilities are shown +unoffset in the above table. The deferred taxes are recognised +as follows in the balance sheet after appropriate netting: +in EUR thousand +Deferred tax assets +Deferred tax liabilities +Net deferred tax liabilities +222 +N79 +Netting of deferred tax assets and deferred tax liabilities +2014 +15,091 +Other valuation differences +476,105 +183,751 +Deferred acquisition costs +218,590 +319,989 +Accounts receivable/reinsurance payable +49,912 +109,280 +Valuation differences relating to investments +401,707 +199,532 +Present value of future profits on acquired life reinsurance portfolios (PVFP) +10,299 +10,659 +86,681 +(13,807) +(6,739) +(29,051) +Total +Value adjustments on deferred taxes +Change in deferred taxes due to changes in tax rates +Deferred taxes from loss carry-forwards +Deferred taxes due to temporary differences +Actual tax for other periods +Domestic/foreign breakdown of recognised tax expenditure/income +Actual tax for the year under review +Income tax +Deferred tax liabilities on profit distributions of significant +affiliated companies are established in the year when they are +received. +Tax-relevant bookings on the Group level are made using the +Group tax rate of 32% unless they refer specifically to indi- +vidual companies. +and a uniform trade earnings tax rate of 16.1%. The deferred +taxes at the companies abroad were calculated using the appli- +cable country-specific tax rates. +The breakdown of actual and deferred income taxes was as +follows: +Breakdown of taxes on income +in EUR thousand +in EUR thousand +Current taxes +Germany +(1,288) +82,053 +52,937 +(39,069) +(16,190) +131,873 +283,911 +2013 +2014 +N76 +Total +Abroad +Germany +Deferred taxes +Abroad +Funds withheld +The tax rate used to calculate the deferred taxes of the domestic +companies was unchanged from the previous year at 31.93% +(rounded to 32%). It is arrived at from the corporate income +tax rate of 15.0%, the German reunification charge of 5.5% +1,046,733 +Equalisation reserve +Deferred tax assets and deferred tax liabilities of all Group companies +N78 +in EUR thousand +Deferred tax assets +Tax loss carry-forwards +Loss and loss adjustment expense reserves +The following table presents a breakdown of the deferred tax +assets and liabilities into the balance sheet items from which +they are derived. +Benefit reserve +2014 +2013 +94,401 +90,467 +210,604 +200,328 +Other technical/non-technical provisions +79,596 +Annual financial statements +Hannover Re | Annual Report 2014 +163,143 +N77 +2014 +2013 +182,541 +9,015 +221 +85,181 +53,289 +91,174 +(15,448) +(20,836) +305,563 +163,143 +83,790 +43,071 +380,690 +341,699 +Total +(51,544) +1,527,411 +(64,600) +1,652,723 +Deferred tax liabilities +Loss and loss adjustment expense reserves +Value adjustments¹ +Benefit reserve +45,563 +27,711 +100,324 +880,026 +482,658 +86,101 +Other technical/non-technical provisions +33,926 +38,410 +Other valuation differences +Funds withheld +620,013 +948,054 +Deferred acquisition costs +44,298 +30,547 +Accounts receivable/reinsurance payable +78,881 +15,472 +Valuation differences relating to investments +31,308 +13,740 +Contract deposits +754 +19 +1,114,641 +The reader is referred to the remarks in Section 3.1 "Summary +of major accounting policies” regarding the basic approach to +the recognition and measurement of deferred taxes. +Domestic taxes on income, comparable taxes on income at +foreign subsidiaries as well as deferred taxes in accordance +with IAS 12 "Income Taxes" are recognised under this item. +7.5 Taxes on income +8.1 Derivative financial instruments and financial guarantees +Derivatives are financial instruments, the fair value of which is +derived from an underlying instrument such as equities, bonds, +indices or currencies. We use derivative financial instruments +in order to hedge parts of our portfolio against interest rate +and market price risks, optimise returns or realise intentions +to buy/sell. In this context we take special care to limit the +risks, select first-class counterparties and adhere strictly to +the standards defined by investment guidelines. +The fair values of the derivative financial instruments were +determined on the basis of the market information available +at the balance sheet date. Please see Section 3.1 "Summary +of major accounting policies” with regard to the measurement +models used. +Hannover Re holds derivative financial instruments to hedge +interest rate risks from loans connected with the financing of +real estate; these gave rise to recognition of other liabilities +in an amount of EUR 4.0 million (EUR 1.4 million) and other +financial assets at fair value through profit or loss in an amount +of EUR 0.5 million (none). +Hannover Re's portfolio contained derivative financial instru- +ments as at the balance sheet date in the form of forward +exchange transactions predominantly taken out to hedge cur- +Maturity structure of derivative financial instruments +8. Other notes +rency risks. These transactions gave rise to recognition of other +liabilities in an amount of EUR 30.6 million (EUR 5.5 million) +and other financial assets at fair value through profit or loss in +an amount of EUR 14.5 million (EUR 16.7 million). +In order to hedge the risk of share price changes in connec- +tion with the stock participation rights granted under the +share award plan, Hannover Re took out hedges in the form +of equity swaps. The fair value of these instruments amounted +to EUR 1.1 million (none) as at the balance sheet date and was +recognised under other financial assets at fair value through +profit or loss. The hedge gave rise to a change in equity from +hedging instruments recognised directly in equity in an amount +of EUR 1.1 million. +The maturities of the fair values and notional values of the +hedging instruments described above can be broken down +as follows: +N82 +in EUR thousand +Interest rate hedges +Fair values +Hannover Re also holds derivative financial instruments to +hedge inflation risks associated with the loss reserves. These +transactions resulted in the recognition of other liabilities +amounting to EUR 63.6 million (EUR 34.1 million and other +financial assets at fair value through profit or loss in an amount +of EUR 1.4 million). +Notional values +Annual financial statements +186,145 +Temporary differences +Loss carry-forwards +Total +Hannover Re | Annual Report 2014 +One to five +years +Six to ten +years +223 +More than +ten years +Total +3,220 +3,220 +3,083 +179,842 +182,925 +3,083 +183,062 +Unlimited +Currency hedges +Fair values +Notional values +Fair values +Notional values +Share price hedges +Fair values +1,066 +Notional values +Inflation hedges +17,344 +Fair values +Notional values +224 +(16,098) +787,528 +(36,263) +Total hedging instruments +26,860 +758,336 +2,332 +2014 +Less than +three months +Three +months to +one year +One to five +years +24,076 +Total +(90) +15,269 +(3,861) +469 +156,817 +36,199 +(3,482) +208,285 +(340) +(13,124) +(2,634) +in EUR thousand +N81 +Expiry of non-capitalised loss carry-forwards and temporary differences +Availability of loss carry-forwards that have not been capitalised: +15,060 +2013 +393,923 +508,841 +1,875,591 +1,712,392 +Depreciation, amortisation, impairments +1,481,668 +Hannover Re | Annual Report 2014 +In view of the unrealised gains on investments and on cur- +rency translation recognised directly in equity in the financial +year, actual and deferred tax expenditure - including amounts +attributable to non-controlling interests – of EUR 258.2 million +(EUR 217.8 million) was also recognised directly in equity. +The following table presents a reconciliation of the expected +expense for income taxes with the actual expense for income +taxes reported in the statement of income. The pre-tax result is +multiplied by the Group tax rate in order to calculate the Group's +expected expense for income taxes. +Reconciliation of the expected expense for income taxes with the actual expense +N80 +in EUR thousand +1,203,551 +54,080 +54,962 +Expenses for services +Hannover Re | Annual Report 2014 +220 +The separate value adjustments were attributable to accounts +receivable in an amount of EUR 21.7 million (EUR 7.9 million). +(99,753) +18,190 +Total +418,611 +444,853 +66,435 +39,115 +7,524 +10,489 +11,814 +13,500 +Sundry expenses +Profit before taxes on income +(63,588) +Group tax rate +Change in tax rates +(52,854) +(152,066) +(34,269) +5,233 +(13,807) +24,077 +20,402 +4,773 +305,563 +163,143 +The expense for income taxes in the financial year climbed +sharply year-on-year by EUR 142.4 million to EUR 305.6 mil- +lion (EUR 163.1 million). The increase is due in large measure +to the adjustment of deferred taxes made in the previous year +on the portion of the equalisation reserve attributable to perma- +nent establishments of Hannover Rück SE that are tax-exempt +under double taxation agreements. In addition, the larger vol- +Availability of non-capitalised loss carry-forwards +Unused tax loss carry-forwards and tax credits of EUR 352.8 mil- +lion (EUR 321.8 million) existed as at the balance sheet date. +Making allowance for local tax rates, EUR 183.1 million +(EUR 172.5 million) thereof was not capitalised since realisa- +tion is not sufficiently certain. +No deferred taxes were established on assets-side taxable +temporary differences amounting to EUR 135.0 million +(EUR 108.4 million) and liabilities-side temporary differences +ume of Group-internal retrocessions of certain portfolios in life +and health reinsurance, which results in tax-exempt income in +the country of origin but gives rise to expenses that are allow- +able for tax purposes in Germany, contributed to a reduction +in the tax burden in the previous year. The tax ratio amounted +to 22.3% (14.8%). +of EUR 52.3 million (EUR 36.6 million) in connection with +interests in Group companies because the Hannover Re Group +can control their reversal and will not reverse them in the fore- +seeable future. +5,400 +54,025 +(85,929) +(90,919) +Differences in tax rates affecting subsidiaries +Non-deductible expenses +Tax-exempt income +Tax expense/income not attributable to the reporting period +Value adjustments on deferred taxes/loss carry-forwards +Other +Actual expense for income taxes +2014 +2013 +1,370,670 +1,102,392 +32% +32% +438,614 +352,765 +(6,739) +Expected expense for income taxes +Impairments on equity securities +Hannover Re | Annual Report 2014 +Impairments on fixed-income securities +Fixed-income securities +At fair value through profit or loss +16,309 +71,440 +1,685 +760,013 +4,077 +16,101 +158 +16,151 +Short-term investments +59,416 +Other invested assets +3 +2,056 +759 +Equity securities +510 +106,758 +653,765 +Fixed-income securities +Available for sale +127,696 +10,566 +117,130 +Fixed-income securities +Loans and receivables +107,513 +3,259 +929 +104,254 +438 +3,758 +Ceded written premium +Gross written premium +in EUR thousand +N71 +Reinsurance result +7.3 Reinsurance result +Hannover Re | Annual Report 2014 +218 +1 Including income from associated companies, for reconciliation with the consolidated statement of income +2 Excluding other investment expenses +63,540 +1,151,771 +(27,136) +19,098 +144,151 +1,264 +(21,544) +1,811 +97,781 +1,053,854 +Total +Other +5,633 +644 +4,989 +Other invested assets +(5,816) +(7,500) +(688) +2,372 +Other financial assets +14,508 +Fixed-income securities +Held to maturity +management² +201 +1,810 +Fixed-income securities +At fair value through profit or loss +20,327 +82,773 +1,329 +823,634 +215 +20,112 +Short-term investments +5,847 +5,770 +(1,291) +82,850 +394 +935 +Equity securities +148,642 +674,992 +Fixed-income securities +Available for sale +118,749 +2,000 +15,588 +105,161 +Fixed-income securities +Loans and receivables +Other invested assets +720 +Other financial assets +3,175 +Net income from +assets under own +N70 +fair value +Change in +2013 +Impairments/ +appreciation +Realised gains +and losses +1 +Ordinary +investment +income +in EUR thousand +Net gains and losses on investments +1 Including income from associated companies, for reconciliation with the consolidated statement of income +2 Excluding other investment expenses +1,191,041 +(33,257) +27,558 +182,453 +61,574 +(24,340) +19,711 +10,350 +95,275 +1,069,403 +Total +Other +(2,226) +(3,014) +788 +Other invested assets +(1,100) +(4,612) +337 +Change in unearned premium +85,261 +Change in ceded unearned premium +Other technical income +4,642 +(1,384) +74,717 +27,119 +24,262 +20,065 +(67,095) +142,026 +232,381 +249,885 +2,761,122 +2,922,711 +2013 +Commissions and brokerage, change in deferred acquisition costs (net) +2014 +Reinsurance recoverables +Change in provision for contingent commissions (gross) +Reinsurance recoverables +Change in deferred acquisition costs (gross) +Reinsurance recoverables +Commissions paid (gross) +in EUR thousand +Commissions and brokerage, change in deferred acquisition costs +Annual financial statements +219 +Hannover Re | Annual Report 2014 +1,907 +1,641 +N73 +1,599 +2,579,368 +Other technical expenses +71,895 +Income from contracts recognised in accordance with the deposit accounting method +8,007 +4,448 +Reversals of impairments on receivables +189,122 +338,895 +Exchange gains +Other income +in EUR thousand +2013 +2014 +N75 +2,690,173 +7,874 +1,556 +(1,618) +9,430 +5,843 +2013 +2014 +N 74 +Other income/expenses +7.4 Other income and expenses +Other technical expenses (net) +Reinsurance recoverables +Other technical expenses (gross) +in EUR thousand +7,461 +1,223 +3,506 +2,864 +28,625 +Change in benefit reserve +9,127,546 +9,464,172 +Claims and claims expenses +1,056,496 +1,103,730 +Change in loss and loss adjustment expense reserve +8,071,050 +8,360,442 +Claims and claims expenses paid +12,228,571 +12,424,722 +146,691 +Total net technical income +1,641 +12,226,664 +12,423,081 +9,414 +(3,294) +(203,238) +(154,362) +1,542,921 +1,781,064 +13,963,409 +14,361,801 +3 +2014 +1,907 +Net change in benefit reserve +Commissions +Change in deferred acquisition costs +2013 +2014 +N72 +Other technical income (net) +Reinsurance recoverables +Other technical income (gross) +in EUR thousand +Other technical income +The administrative expenses amounted to altogether 2.9% +(2.7%) of net premium earned. +With regard to the claims and claims expenses as well as the +change in the benefit reserve the reader is also referred to +Section 6.7 "Technical provisions". The change in the benefit +reserve relates exclusively to the life and health reinsurance +segment. +(82,995) +(23,641) +333,674 +363,859 +7,874 +7,461 +5,608 +4,878 +70,075 +28,503 +(91,357) +121,961 +2,528,741 +2,672,826 +146,691 +28,625 +Other technical expenses +Administrative expenses +Net technical result +Other acquisition costs +Change in provision for contingent commissions +Net premium earned +168 +2013 +Fixed-income securities +The impairments totalling EUR 9.2 million (EUR 5.4 million) +were largely attributable in an amount of EUR 5.8 million +(EUR 3.5 million) to the area of alternative investments - specifi- +cally, exclusively to private equity investments. No impairments +were recognised on equities or equity funds in the year under +review or the comparable period 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. +122,539 +1,411,810 +1,471,841 +109,032 +479,887 +485,088 +Interest income on funds withheld and contract deposits +Interest expense on funds withheld and contract deposits +Total investment income +1,054,462 +1,095,785 +Net income from assets under own management +97,309 +95,256 +Other investment expenses +3,583 +5,760 +Impairments on participating interests and other financial assets +771 +- +2,000 +- +Interest income on investments +The net gains and losses on investments held to maturity, loans +and receivables and the available-for-sale portfolio shown in +the following table are composed of interest income, realised +gains and losses as well as impairments and appreciation. In +the case of the fixed-income securities at fair value through +profit or loss designated in this category and the other finan- +cial assets, which include the technical derivatives, income +and expenses from changes in fair value are also recognised. +969,644 +17,414 +20,248 +949,498 +958 +1,810 +720,753 +734,381 +120,461 +108,181 +2013 +110,058 +84,878 +2014 +N68 +Fixed-income securities - available for sale +Fixed-income securities - held to maturity +Fixed-income securities - loans and receivables +in EUR thousand +Impairments of EUR 2.0 million (EUR 0.8 million) were recog- +nised in the area of fixed-income securities. An impairment of +EUR 1.4 million (EUR 1.1 million) was taken on investments +in real estate. These impairments contrasted with write-ups of +EUR 0.1 million (EUR 0.3 million) on investments written down +in previous periods. The portfolio did not contain any overdue, +unadjusted assets as at the balance sheet date since overdue +securities are written down immediately. +85,093 +Financial assets - at fair value through profit or loss +Other +Total +217 +Net gains and losses on investments +in EUR thousand +Ordinary +investment +income +1 +N 69 +2014 +Realised gains +and losses +Impairments/ +appreciation +Change in +fair value +Net income from +assets under own +Making allowance for the other investment expenses of +EUR 95.3 million (EUR 97.3 million), net income from assets +under own management of altogether EUR 1,095.8 million +(EUR 1,054.5 million) was recognised in the year under review. +management² +Held to maturity +Annual financial statements +8.17 +7.43 +8.17 +7.43 +The earnings per share is calculated by dividing the net income +attributable to the shareholders of Hannover Rück SE by the +weighted average number of shares outstanding within the +period under review. +Neither in the year under review nor in the previous reporting +period were there any dilutive effects. +The weighted average of the issued shares was, as in the previ- +ous year, slightly lower than the value of the shares in circula- +tion on the balance sheet date. In the context of the employee +share option plan Hannover Re acquires treasury shares and +sells them at a later date to eligible employees. The weighted +Dividend per share +A dividend of EUR 361.8 million (EUR 361.8 million) was paid +in the year under review for the 2013 financial year. +average number of shares does not include 21,608 (18,750) +treasury shares pro rata temporis for the duration of the hold- +ing period. For further details please see our comments in Sec- +tion 6.13 “Shareholders' equity and treasury shares”. +There were no other extraordinary components of income +which should have been recognised or disclosed separately in +the calculation of the earnings per share. +2013 +895,467 +The earnings per share could potentially be diluted in future +through the issue of shares or subscription rights from the +authorised or conditional capital. +120,596,978 +Leased property +985,649 +120,596,954 +2014 +2013 +a) Wages and salaries +224,659 +203,056 +224,659 +203,056 +b) Social security contributions and expenditure on provisions and assistance +ba) Social security contributions +21,290 +18,481 +bb) Expenditures for pension provision +22,816 +22,748 +It will be proposed to the Annual General Meeting on 6 May +2015 that a dividend of EUR 3.00 per share as well as a spe- +cial dividend of EUR 1.25 per share should be paid for the +2014 financial year. This corresponds to a total distribution of +EUR 512.5 million. The dividend proposal does not form part +of this consolidated financial statement. +bc) Expenditures for assistance +3,711 +48,722 +44,940 +Total +273,381 +247,996 +8.5 Earnings per share and dividend proposal +Calculation of the earnings per share +Group net income in EUR thousand +Weighted average of issued shares +Basic earnings per share in EUR +Diluted earnings per share in EUR +N92 +2014 +4,616 +Hannover Re | Annual Report 2014 +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 3,173.7 mil- +lion (EUR 2,748.1 million) and EUR 24.4 million (EUR 21.5 mil- +lion) respectively as at the balance sheet date. The securities +held in the trust accounts are shown as available-for-sale invest- +ments. In addition, we furnished further collateral to ceding +companies in an amount of EUR 650.0 million (EUR 565.6 mil- +lion) in the form of so-called “single trust funds”. +Annual financial statements +N 93 +Hannover Re | Annual Report 2014 +Operating leasing contracts produced expenditures of +EUR 9.3 million (EUR 8.5 million) in the year under review. +Subsequent years +2019 +2018 +2017 +2016 +2015 +in EUR thousand +Hannover Re enters into contingent liabilities as part of its nor- +mal business operations. A number of reinsurance treaties con- +cluded by Group companies with outside third parties include +letters of comfort, guarantees or novation agreements under +which Hannover Rück SE guarantees the liabilities of the sub- +sidiary in question or enters into the rights and obligations +of the subsidiary under the treaties if particular constellations +materialise. +Hannover Re | Annual Report 2014 +In addition, we put up own investments with a book value of +EUR 78.9 million as collateral for existing derivative transac- +tions. In the previous year we kept own investments with a +book value of EUR 53.8 million in blocked custody accounts +for the provision of corresponding collateral. We received col- +lateral with a fair value of EUR 12.9 million (EUR 18.6 million) +for existing derivative transactions. +For liabilities in connection with participating interests in real +estate companies and real estate transactions the usual col- +lateral under such transactions has been furnished to vari- +ous banks, the amount of which totalled EUR 574.3 million +(EUR 459.9 million) as at the balance sheet date. +Outstanding capital commitments with respect to alternative +investments exist on the part of the Group in an amount of +EUR 665.6 million (EUR 598.5 million). These primarily involve +as yet unfulfilled payment obligations from investment commit- +ments given to private equity funds and venture capital firms. +8.8 Long-term commitments +The application of tax regulations may not have been resolved +at the time when tax items are brought to account. The calcu- +lation of tax refund claims and tax liabilities is based on what +we consider to be the regulations most likely to be applied in +each case. The revenue authorities may, however, take a dif- +fering view, as a consequence of which additional tax liabilities +could arise in the future. +Several Group companies are members of the association for +the reinsurance of pharmaceutical risks and the association +for the insurance of German nuclear reactors. In the event of +one of the other pool members failing to meet its liabilities, +an obligation exists to take over such other member's share +within the framework of the quota participation. +8.9 Rents and leasing +Payments +10,690 +9,638 +5,442 +8.6 Lawsuits +Member companies of the Hannover Re Group are involved in +judicial and supervisory procedures as well as in arbitration +proceedings as part of the conduct of insurance and reinsur- +ance business. Depending upon the subject matter of the pro- +cedure, the Hannover Re Group sets aside provisions for the +amount in dispute in such proceedings - for the most part in +the technical account and in exceptional cases as a charge to +other income and expenses - if and to the extent that the result- +ing commitments are likely to materialise and their amount +can be estimated with sufficient accuracy. The provision estab- +lished in each case covers the expense that can be expected +in our assessment as at the balance sheet date. +Neither the outcome nor the duration of pending procedures +can be definitively foreseen at the time when provisions are +established. The final liabilities of Hannover Re may diverge +considerably from the constituted provisions because the +assessment of probability and the quantification of these +uncertain liabilities in large measure require estimates that +8.7 Contingent liabilities and commitments +Hannover Rück SE has secured by subordinated guarantee the +subordinated debts issued by Hannover Finance (Luxembourg) +S.A. in the 2005, 2010 and 2012 financial years in amounts of +EUR 500.0 million each. +The guarantees given by Hannover Rück SE for the subordi- +nated debts attach if the issuer fails to render payments due +under the bonds. The guarantees cover the relevant bond vol- +umes as well as interest due until the repayment dates. Given +the fact that interest on the bonds is partly dependent on the +capital market rates applicable at the interest payment dates +(floating rates), the maximum undiscounted amounts that can +be called cannot be estimated with sufficient accuracy. Han- +nover Rück SE does not have any rights of recourse outside the +Group with respect to the guarantee payments. +Future leasing commitments +may prove not to be accurate as the proceedings in question +continue to progress. This is also true of procedures for which +no provisions were established. Insofar as a commitment exists +under such procedures as at the balance sheet date that may +possibly but will probably not result in a loss, the Hannover Re +Group estimates this potential loss – where practicable - and +reports a contingent liability. For estimation purposes Hanno- +ver Re takes into account a number of factors. These include, +among others, the nature of the claim, the status of the proce- +dure concerned, decision of courts and arbitration bodies, prior +settlement discussions, experience from comparable cases as +well as expert opinions and the assessments of legal advisers +and other experts. If a provision has been established for a +particular procedure, a contingent liability is not recognised. +The lawsuits pending in the year under review and as at the bal- +ance sheet date were not material for the Hannover Re Group +either individually or combined. Furthermore, no contingent lia- +bilities from lawsuits were to report as at the balance sheet date. +233 +As part of our business activities we hold collateral avail- +able outside the United States in various blocked custody +accounts and trust accounts, the total amount of which in rela- +tion to the Group's major companies was EUR 2,694.0 million +(EUR 2,514.4 million) as at the balance sheet date. +As security for our technical liabilities, various financial insti- +tutions have furnished sureties for our company in the form of +letters of credit. The total amount as at the balance sheet date +was EUR 2,899.1 million (EUR 2,895.1 million). The standard +market contractual clauses contained in some of the underlying +letter of credit facilities regarding compliance with stipulated +conditions are explained in greater detail in the "Financial posi- +tion" section of the management report, page 59 et seq., on +the information pursuant to § 315 Para. 4 German Commercial +Code (HGB) as well as in Section 6.12 "Debt and subordinated +capital" on other financial facilities. +234 +in EUR thousand +Rented property +Annual financial statements +235 +7,149 +3,871 +4,478 +The securities held in the blocked custody accounts and trust +accounts are recognised predominantly as available-for-sale +investments. +N91 +94 +The expenditures on insurance business, claims expenses +(claims settlement) and expenditures on the administration +of investments include the following personnel expenditures: +13,308 +16,631 +14,418 +16,452 +16,053 +22,232 +24,390 +Managers +85,159 +99,783 +91,660 +102,900 +100,531 +Other adjustments +Executive Board +Total +(1,421) +98,467 +115,897 +106,078 +117,931 +116,584 +22,232 +24,390 +Personnel expense +in EUR thousand¹ +1,534 +2,364 +1,379 +2,549 +(517) +1,839 +awards in the allocation year +38.33 +231 +Annual financial statements +The Share Award Plan of Hannover Rück SE gives rise to the +amounts shown in the following table. +Share awards of Hannover Rück SE +N88 +Allocation year +2014 +Probable +allocation +2013 +2012 +2011 +Final alloca- +tion in 2014 +for 2013 +Probable +allocation +Final alloca- +tion in 2013 +for 2012 +Probable +allocation +Number of allocated share +Valuation date +25.3.2014 +30.12.2013 +21.3.2013 +28.12.2012 +Final alloca- +tion in 2012 +for 2011 +21.3.2012 +Probable +allocation +30.12.2011 +Value per share award in EUR +74.97 +61.38 +62.38 +59.86 +58.96 +42.09 +30.12.2014 +529 +269 +thereof: Recognised divi- +2,442 +2,468 +2,510 +2,534 +2,475 +2,419 +2,376 +Nationality of employees in 2014 +N90 +German +USA +UK +South Australian +African +Swedish +members) +Irish +Total +Number of +employees +1,198 +289 +213 +154 +Altogether, non-cancellable contracts will produce the rental +income shown below in subsequent years: +91 +44 +451 +2,534 +232 +Hannover Re | Annual Report 2014 +Expenditures on personnel +Other +(excluding Board +Number of employees +Average +dend in EUR thousand² +Provision in EUR thousand +1,534 +297.8 +3,790 +403.7 +1,379 +5,830 +1,839 +66.7 +1,512 +269 +1 +2 +The personnel expense for share awards in the case of members of the Executive Board is spread on an accrual basis across the relevant term +of the share awards or the shorter term of the service contracts; in the case of managers the personnel expense is spread across the relevant term +of the share awards. +Dividend distributed for the allocation year, no allowance is made for expected dividend payments; dividend claims are recognised in the +discounted amounts. +On this basis the aggregate provisions - included in the sundry +non-technical provisions - amounted to EUR 12.7 million for +the 2014 financial year (EUR 5.7 million). The expense totalled +altogether EUR 7.0 million (EUR 3.2 million). +31.12. +Average +31.12. +30.9. +30.6. +31.3. +Personnel expenditures +2013 +N89 +Personnel information +by the Hannover Re Group, with 1,289 (1,219) employed in +Germany and 1,245 (1,200) working for the consolidated Group +companies abroad. +The average number of staff at the companies included in the +consolidated financial statement of the Hannover Re Group +during the reporting period was 2,475 (2,376). As at the bal- +ance sheet date altogether 2,534 (2,419) staff were employed +Staff +8.4 Staff and expenditures on personnel +2014 +Rental income +80,769 +2015 +Stock appreciation rights were first granted for the 2000 financial +year and were awarded separately for each subsequent financial +year (allocation year) until cancellation of the plan, provided the +performance criteria defined in the Conditions for the Granting +of Stock Appreciation Rights were satisfied. +The Conditions for the Granting of Stock Appreciation Rights +were cancelled for all eligible recipients. Awarded stock appre- +ciation rights continue to be exercisable until the end of their +period of validity. +With effect from 1 January 2000 the Executive Board of Hannover +Rück SE, with the consent of the Supervisory Board, introduced +a virtual stock option plan that provides for the granting of stock +appreciation rights to certain managerial staff. The content of +the stock option plan is based solely on the Conditions for the +Granting of Stock Appreciation Rights. All the members of the +Group's management are eligible for the award of stock appre- +ciation rights. Exercise of the stock appreciation rights does not +give rise to any entitlement to the delivery of shares of Hannover +Rück SE, but merely to payment of a cash amount linked to the +performance of the Hannover Rück SE share. +Stock Appreciation Rights Plan +2. Share Award Plan (valid since 2011) +1. Stock Appreciation Rights Plan (in effect since 2000, +cancelled in stages from 2011 onwards and currently +being wound up) +In the 2014 financial year the following share-based payment +plans with cash settlement existed within the Hannover Re +Group: +8.3 Share-based payment +Hannover Re | Annual Report 2014 +228 +All other information on the remuneration of the governing +bodies, directors' dealings and shareholdings as well as the +structure of the remuneration system for the Executive Board is +contained in the remuneration report from page 105 onwards. +This remuneration report is based on the recommendations of +the German Corporate Governance Code and contains infor- +mation which also forms part of the notes to the 2014 con- +solidated financial statement as required by IAS 24 "Related +Party Disclosures". In addition, we took into account the more +specific provisions of DRS 17 “Reporting on the Remuneration +of Members of Governing Bodies". 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 the remunera- +tion report. Consequently, we have not provided any further +explanation in the notes. +boards of the parent company +Furthermore, above and beyond the aforementioned remunera- +tion as Supervisory Board members at Group companies, the +members of the Supervisory Board were not in receipt of any +remuneration or benefits for personally rendered services as +defined by Item 5.4.6 Para. 3 of the German Corporate Gov- +ernance Code. +The members of the governing bodies did not receive any +advances or loans in the year under review. Nor were there +any other material reportable circumstances or contractual +relationships as defined by IAS 24 between companies of the +Hannover Re Group and the members of the governing bodies +or their related parties in the year under review. +The total remuneration of the Supervisory Board of Hannover +Re amounted to EUR 0.9 million (EUR 0.9 million). There are +no pension commitments to former members of the Supervisory +Board or their surviving dependants. +Remuneration and shareholdings of the management +The remuneration of the Executive Board of Hannover Re +amounted to altogether EUR 8.2 million (EUR 7.2 million). The +total remuneration (excluding pension payments) of former mem- +bers of the Executive Board and their surviving dependants stood +at EUR 0.2 million (EUR 0.4 million). The pension payments to +previous members of the Executive Board and their surviving +dependants, for whom 16 (14) pension commitments existed, +totalled EUR 1.5 million (EUR 1.4 million) in the year under +review; altogether, a provision of EUR 28.8 million (EUR 21.4 mil- +lion) has been set aside for these commitments. +Hannover Rück SE has concluded a service contract with +Talanx Service AG in the area of flight services as well as a +contract regarding the reciprocal provision of business conti- +nuity management services. +Since 2012 a service agreement has existed between Hannover +Rück SE and Talanx AG regarding the purchase of services for +operation of data acquisition software. +Talanx AG performs various services in the area of taxes for a +number of investment vehicles of the Hannover Re Group in +the asset classes of private equity and real estate. In this regard +corresponding agreements were concluded with altogether +13 Hannover Re companies in the financial year just ended. +Actuarial opinions with respect to the pension commitments +given to staff are drawn up for Hannover Rück SE and E+S Rück- +versicherung AG by Talanx Pensionsmanagement AG and HDI +Lebensversicherung AG under an actuarial service contract. +Furthermore, IT and management services were performed +for Talanx Reinsurance Broker AG, Hannover, under service +contracts. +Under long-term lease arrangements companies belonging to +the Hannover Re Group rented out business premises in 2014 +to Talanx Service AG, Hannover. In addition, lease agreements +exist with Talanx Service AG for use of a portion of the space +in our data-processing computer centre. +In the year under review Hannover Rück SE reached an agree- +ment with Talanx Asset Management GmbH that allows Talanx +Asset Management GmbH to use software for checking sanc- +tions lists. +Within the contractually agreed framework Talanx Asset Man- +agement GmbH performs investment and asset management +services for Hannover Rück SE and some of its subsidiaries. +Assets in special funds are managed by Ampega Investment +GmbH. Talanx Immobilien Management GmbH performs +services for Hannover Re under a number of management +contracts. +HDI Lebensversicherung AG, Cologne, participated in a nom- +inal amount of EUR 50.0 million in the subordinated bond +issued by Hannover Rück SE in September 2014 with a cou- +pon of 3.375%. +In the context of a bond issue by Talanx AG the Group compa- +nies Hannover Rück SE and E+S Rückversicherung AG invested +in a nominal amount of EUR 47.0 million in the issued bearer +debt, which has a coupon of 3.125%. The carrying amount of +the instrument, which is recognised under fixed-income securi- +ties held to maturity, was EUR 48.3 million (EUR 48.3 million) +including accrued interest of EUR 1.3 million (EUR 1.3 million). +The maximum period of the stock appreciation rights is ten years, +commencing at the end of the year in which they are awarded. +Stock appreciation rights which are not exercised by the end of +the 10-year period lapse. Stock appreciation rights may only be +exercised after a waiting period and then only within four exer- +cise periods each year. Upon expiry of a four-year waiting period +a maximum 60% of the stock appreciation rights awarded for an +allocation year may be exercised. The waiting period for each +additional 20% of the stock appreciation rights awarded for this +allocation year to a member of the managerial staff is one further +year. Each exercise period lasts for ten trading days, in each case +commencing on the sixth trading day after the date of publica- +tion of the quarterly report of Hannover Rück SE. +The reinsurance relationships with related parties in the year +under review are shown with their total amounts in the table. +Upon exercise of a stock appreciation right the amount paid out +to the entitled party is the difference between the basic price and +the current market price of the Hannover Rück SE share at the +time of exercise. In this context, the basic price corresponds to +the arithmetic mean of the closing prices of the Hannover Rück +SE share on all trading days of the first full calendar month of +the allocation year in question. The current market price of the +Hannover Rück SE share at the time when stock appreciation +rights are exercised is determined by the arithmetic mean of the +closing prices of the Hannover Rück SE share on the last twenty +trading days prior to the first day of the relevant exercise period. +Hannover Re | Annual Report 2014 +2007 +2009 +15.3.2010 +10 years +2 years +4 years +4 years +10 years +10 years +8.3.2011 +15.3.2012 +2010 +2011 +Allocation year +Fair value at 31 December 2014 +(in EUR) +Number of rights granted +Participants in year of issue +Basic price (in EUR) +Waiting period +Period +Award date +N87 +The allocations for the years 2006, 2007 and 2009 to 2011 gave +rise to commitments in the 2014 financial year shown in the fol- +lowing table. No allocations were made for 2005 or 2008. +agement shall not be deemed to be termination of the employ- +ment relationship for the purpose of exercising stock apprecia- +tion rights. +Stock appreciation rights of Hannover Rück SE +In the event of cancellation or termination of the employment +relationship as a consequence of a termination agreement or a +set time limit, a holder of stock appreciation rights is entitled +to exercise all such rights in the first exercise period thereafter. +Stock appreciation rights not exercised in this period and those +in respect of which the waiting period has not yet expired shall +lapse. Retirement, disability or death of the member of man- +Annual financial statements +229 +The amount paid out is limited to a maximum calculated as a +quotient of the total volume of compensation to be granted in +the allocation year and the total number of stock appreciation +rights awarded in the year in question. +2006 +Annual financial statements +Hannover Re | Annual Report 2014 +508,628 +27,104 +462,040 +result +Underwriting +Premium +Underwriting +result +Premium +2013 +2014 +Life and health reinsurance +Property and casualty reinsurance +Business assumed +in EUR thousand +N86 +The Hannover Re Group provides reinsurance protection for +the HDI Group. To this extent, numerous underwriting busi- +ness relations exist with related parties in Germany and abroad +which are not included in Hannover Re's consolidation. This +includes business both assumed and ceded at usual market +conditions. For the year under review and the previous year +these business relations can be broken down as follows: +Talanx Reinsurance Broker AG grants Hannover Rück SE and +E+S Rückversicherung AG a preferential position as reinsurers +of cedants within the Talanx Group. In addition, Hannover Rück +SE and E+S Rückversicherung AG are able to participate in the +protection covers on the retention of Group cedants and share +in the protection afforded by them. In certain circumstances +Hannover Rück SE and E+S Rückversicherung AG are obliged +to assume unplaced shares of the reinsurance of Group cedants +from Talanx Reinsurance Broker AG. +Companies belonging to the Talanx Group granted the +Hannover Re Group insurance protection inter alia in the areas +of public liability, building, group accident and business travel +insurance. Divisions of Talanx AG also performed services for +us in the areas of taxes and general administration. +Business assumed and ceded in Germany and abroad +In the previous year the responsible bodies of Hannover +Rück SE and E+S Rückversicherung AG decided to reorganise +the business relationship between the two companies under +the cooperation agreement with effect from 1 January 2014. In +property and casualty reinsurance a retrocession by Hannover +Rück SE to E+S Rückversicherung AG has been maintained. +The exclusive responsibilities of E+S Rückversicherung AG for +German business and of Hannover Rück SE for international +markets have been preserved. +Talanx AG directly and indirectly holds an unchanged major- +ity interest of altogether 50.22% in Hannover Rück SE. For its +part, HDI-Haftpflichtverband der Deutschen Industrie Versi- +cherungsverein auf Gegenseitigkeit, Riethorst 2, 30659 Han- +nover (HDI) holds a stake of 79.0% in Talanx AG and there- +fore indirectly holds 39.7% (rounded) of the voting rights in +Hannover Rück SE. +IAS 24 "Related Party Disclosures" defines related parties as +group entities of a common parent, associated entities, legal +entities under the influence of key management personnel and +the key management personnel of the entity itself. Transactions +between Hannover Rück SE and its subsidiaries, which are to be +regarded as related parties, were eliminated through consolida- +tion and are therefore not discussed in the notes to the consoli- +dated financial statement. In the year under review the follow- +ing significant business relations existed with related parties. +8.2 Related party disclosures +nition therefore amounted to zero. The higher of the fair value +and the amount carried as a provision on the liabilities side +pursuant to IAS 37 is recognised at the point in time when uti- +lisation is considered probable. This was not the case as at the +balance sheet date. +Under IAS 39 these transactions are to be recognised at fair +value as financial guarantees. To this end Hannover Re uses +the net method, according to which the present value of the +agreed fixed swap premiums is netted with the present value +of the guarantee commitment. The fair value on initial recog- +33,646 +227 +156,206 +184,373 +44,196 +624,044 +37,513 +562,055 +Total +(15,529) +(68,957) +(17,496) +(56,191) +(8,579) +(53,127) +(8,503) +(44,478) +Life and health reinsurance +(6,950) +(15,830) +(8,993) +(11,713) +Property and casualty reinsurance +Business ceded +59,725 +693,001 +55,009 +618,246 +26,079 +27,905 +28.3.2008 +10 years +13.3.2007 +10 years +2 years +Rand w +Vogel +Hannover Re | Annual Report 2014 +In the event that the Board mandate or service relationship +with the member of the Executive Board or the employment +relationship with the manager ends, the eligible recipient shall +retain his claims to payment of the value of already granted +share awards after expiry of the applicable vesting period, +unless such termination is based on resignation of office/vol- +untary termination on the part of the member of the Executive +Board or voluntary termination on the part of the manager or +dismissal by Hannover Re for a compelling reason. In the event +of death the claims arising out of the already granted and/or +still to be granted share awards pass to the heirs. The value of +all share awards shall be determined by the value per share of +Hannover Re calculated as at this disbursement date. +In addition, upon payment of the value of the share awards, +a sum shall be paid out in the amount of the dividend insofar +as dividends were distributed to shareholders. The amount of +the dividend is the sum total of all dividends per share paid out +during the term of the share awards multiplied by the number +of share awards due for disbursement to the eligible recipient +at the disbursement date. In the event of early disbursement +of the share awards, the value of the dividends shall only be +paid out for the period until occurrence of the event that trig- +gers early disbursement. No pro rata allowance shall be made +for dividends that have not yet been distributed. +The eligible recipient shall be paid an amount that corresponds +to the sum total of the values of the share awards calculated +at the disbursement date for which the vesting period of four +years has expired. The amount is to be paid in the month after +expiry of the determinative period for calculating the value per +share according to the preceding paragraphs. +The share awards are granted automatically without any +requirement for a declaration. Following expiry of a vesting +period of four years the value of one Hannover Re share cal- +culated at the disbursement date is paid out for each share +award. This value is calculated according to the provisions of +the preceding paragraph. +The total number of share awards granted is based on the +value per share of Hannover Rück SE. The value per share +is established according to the unweighted arithmetic mean +of the Xetra closing prices of the Hannover Re share. In the +conditions applicable to members of the Executive Board a +period of five trading days before to five trading days after the +meeting of the Supervisory Board that approves the consoli- +dated financial statement for the financial year just-ended is +envisaged for the calculation. For managers a period of twenty +trading days before to ten trading days after the meeting of +the Supervisory Board that approves the consolidated financial +statement for the financial year just-ended has been agreed. +The total number of share awards granted is established by +dividing the amount available for the granting of share awards +to the respective eligible recipients by the value per share, +rounded up to the next full share. For members of the Execu- +tive Board 20% and for managers 40% or 35% - according +to management levels of the defined variable remuneration +shall be granted in the form of share awards. +Share awards are granted separately for the first time for the +2011 financial year and then for each financial year (alloca- +tion year) thereafter. +The members of the Executive Board and management of Han- +nover Re who are eligible recipients under the Share Award +Plan are those who have been allowed a contractual claim to the +granting of share awards and whose service/employment rela- +tionship exists at the time when the share awards are granted +and does not end through cancellation or a termination agree- +ment on an effective date prior to expiry of the vesting period. +The Share Award Plan replaces the cancelled Stock Apprecia- +tion Rights Plan. Please see our remarks under "Stock Appre- +ciation Rights Plan" in this section. The share awards do not +establish any claim against Hannover Re to the delivery of +stock, but merely to payment of a cash amount in accordance +with the conditions set out below. +With effect from the 2011 financial year the Supervisory Board +of Hannover Rück SE implemented a Share Award Plan for the +members of the Executive Board of Hannover Re; this provides +for the granting of stock participation rights in the form of +virtual shares (referred to as "share awards"). The Executive +Board of Hannover Re decided to adopt a Share Award Plan for +certain management levels at Hannover Re as well with effect +from the 2012 financial year. +Share Award Plan +Hannover Re | Annual Report 2014 +230 +On this basis the aggregate provisions – included in the sun- +dry non-technical provisions – amounted to EUR 20.5 million +for the 2014 financial year (EUR 16.3 million). The expense +totalled altogether EUR 7.8 million (EUR 5.2 million). +- +3,438 stock appreciation rights from the 2006 allocation year, +23,179 stock appreciation rights from the 2007 allocation year +and 290,797 stock appreciation rights from the 2009 alloca- +tion year were exercised. The total amount paid out stood at +EUR 2.84 million. +In the 2014 financial year the waiting period expired for 100% +of the stock appreciation rights awarded in 2004, 2006 and +2007 and for 80% of those awarded in 2009. +The calculations were based on the price of the Hannover Re +share of EUR 71.89 as at the reference date of 15 December +2014, expected volatility of 24.12% (historical volatility on +a five-year basis), an expected dividend yield of 4.17% and +risk-free interest rates of 0.05% for the 2006 allocation year, +0.04% for the 2007 allocation year, 0.09% for the 2009 allo- +cation year, 0.20% for the 2010 allocation year and 0.32% for +the 2011 allocation year. +The existing stock appreciation rights are valued on the basis +of the Black-Scholes option pricing model. +0.56 +4.95 +2.31 +Expense in the 2014 financial year +(in EUR million) +Gräber +0.04 +J. Gräfer +56,698 +2016 +2017 +2018 +2019 +Subsequent years +Rental income totalled EUR 76.2 million (EUR 58.7 million) in +the +year under review. The rental income resulted principally +from the renting out of properties by the Group's real estate +companies. +8.10 Fee paid to the auditor +An expense of altogether EUR 3.7 million (EUR 3.5 million) +was incurred in the year under review for the fee paid to the +appointed auditor of the consolidated financial statement as +defined by § 318 German Commercial Code (HGB). Of this total +amount, EUR 1.4 million (EUR 1.3 million) was attributable to +the fee for auditing services in relation to the financial state- +ment, EUR 0.4 million (EUR 0.6 million) to other assurance ser- +vices, EUR 0.5 million (EUR 0.2 million) to tax consultancy ser- +vices and EUR 1.4 million (EUR 1.4 million) to other services. +Hannover, 6 March 2015 +Executive Board +No. +Wallin +на тему вийти +Althoff +Chèvre +236 +Miker Fickel +Dr. Miller +Dr. Pickel +N94 +Payments +to be received +71,260 +69,052 +62,561 +57,482 +0.25 +2.55 +financial year (in EUR million) +26.80 +Weighted exercise price +Maximum value (in EUR) +211,171 +109 +27.49 +817,788 +926,565 +1,569,855 +1,681,205 +263,515 +106 +110 +137 +129 +143 +30.89 +34.97 +22.70 +33.05 +40.87 +2 years +24.3.2005 +10 years +2004 +2 years +8.92 +8.76 +10.79 +10.32 +Amounts paid out in the 2014 +0.05 +0.27 +3.03 +12.76 +4.43 +(in EUR million) +Provisions at 31 December 2014 +4,831 +25,161 +345,690 +1,625,130 +in EUR thousand +256,402 +Number of rights existing at +24.62 +10.32 +10.79 +8.76 +24.62 +10.32 +10.79 +8.76 +8.92 +32.21 +24.62 +31 December 2014 +Hannover Re | Annual Report 2014 +Any entitlement to the granting of share awards after leaving +the company is excluded. This shall not apply with respect to +claims to variable remuneration acquired (pro rata) in the last +year of service of the eligible recipient in the event of exit from +the company on account of non-reappointment, occurrence of +the pensionable event or death. +13840 Ballantyne Corporate Place, +Suite 400 +Italy +Fax +91 22 6138-0810 +General Manager: +GLN Sarma +Tel. +91 22 6138-0808 +Mumbai 400059 +Andheri (East) +C&B Square +Sangam Complex +Unit 502, 5th Floor +Andheri-Kurla Rd, +Consulting Services +India Private Limited +Hannover Re +Hannover Re Services Italy S.r.l. +India +Fax +33 1 4006-0225 ++33 1 4561-7340 +Tel. (Property & Casualty) ++33 1 4561-7300 +Tel. (Life & Health) +Hannover Rück SE +Succursale Française +33 Avenue de Wagram +75017 Paris +France +General Manager: +Miguel Guarin +Managing Director: +Claude Vercasson +Fax +57 1 642-0273 +Via Dogana, 1 +Tel. +39 02 8068-1311 +Fax +39 02 8068-1349 +Head of Administration: +Giorgio Zandonella-Golin +Compass Insurance Company Limited +South Africa +Av. Santa Fé No. 170 +Col. Lomas de Santa Fé +C.P. 01210 México, D.F. +Tel. +52 55 9140-0800 +Fax +52 55 9140-0815 +General Manager: +Guadalupe Covarrubias +Hannover Services (México) +S. A. de C. V. +German Centre +Oficina 4-4-28 +Mexico +Tel. +82 2 3700-0600 +Fax +82 2 3700-0699 +General Manager: +Frank Park +Gwanghwamoon Officia Building +92 Seamunan-ro, Jongro-gu +Seoul, 110-999 +Room 414, 4th Floor +20123 Milan +Korea Branch +Korea +General Manager: +Takayuki Ohtomo +Fax +81 3 5214-1105 +Tel. +81 3 5214-1101 +Chiyoda-ku +Tokyo 102-0084 +3 10 Nibancho +Hannover Re Services Japan +Hakuyo Building, 7th Floor +Sweden +Hannover Rück SE +Tel. +57 1 642-0066 +Bogotá +Floor 5 +Hannover Rück SE +Shanghai Branch +Hannover Re | Annual Report 2014 +244 +Wanchai, Hong Kong +Tel. +852 2519-3208 +Fax +852 2588-1136 +General Manager: +Wilbur Lo +30 Harbour Road +20th Floor +2008 Sun Hung Kai Centre +Hannover Rück SE +Hong Kong Branch +Suite 3307, China Fortune Tower +China +Fax +1 416 867-9728 +International Insurance Company of +Hannover SE (Canadian Branch) +220 Bay Street, Suite 400, +Toronto, Ontario M5J 2W4 +Tel. +1 416 867-9712 +220 Bay Street, Suite 400 +Toronto, Ontario M5J 2W4 +Tel. +1 416 867-9712 +Fax +1 416 867-9728 +General Manager: +Laurel E. Grant +Hannover Rück SE +Canadian Branch +Canada +Tel. +55 21 2217-9500 +Fax +55 21 2217-9515 +Representative: +Jan Rössel +Rio de Janeiro +CEP 20 031 050 +Head of Canadian Branch: +Derek Spafford +1568 Century Boulevard +Pudong +200122 Shanghai +Tel. +86 21 2035-8999 +Carrera 9 No. 77 - 67 +Bogotá Oficina de Representación +Hannover Rück SE +Colombia +Integra Tower, The Intermark +348 Jalan Tun Razak +50400 Kuala Lumpur +Tel. +60 3 2687-3600 +Fax +60 3 2687-3760 +General Manager: +Rohan Kananathan +Suite 29-01 +Malaysian Branch +Hannover Rueck SE +Malaysia +Kathrin Scherff +Managing Director ASI: +Managing Director L&H & CEO: +Debbie O'Hare +Fax +353 1 633-8806 +Tel. +353 1 633-8800 +No. 4 Custom House Plaza, IFSC +Dublin 1 +Hannover Re (Ireland) Limited +Ireland +General Manager: +Tzu-chao Chen +Fax +86 21 5820-9396 +54 Peter Place, +Praça Floriano, 19 salas 1701/02 +Peter Place Office Park +Bryanston +Johannesburg +500 Park Blvd., Suite 805 +Itasca, Illinois 60143 +Tel. +1 630 250-5517 +Fax +1 630 250-5527 +General Manager: +Eric Arnst +246 +Hannover Re | Annual Report 2014 +Fax +34 91 319-9378 +Tel. +34 91 319-0049 +28010 Madrid +Hannover Re Services USA, Inc. +Campos 46 +HR Hannover Re, +Spain +Tel. +1 704 731-6300 +Fax +1 704 542-2757 +President & CEO: +Peter R. Schaefer +Charlotte, North Carolina 28277 +Office Charlotte +Orlando, Florida 32801 +Tel. +1 407 649-8411 +Fax +1 407 649-8322 +President & CEO: +Peter R. Schaefer +Hannover Life Reassurance +Company of America +200 South Orange Avenue +Suite 1900 +USA +Correduría de Reaseguros, S.A. +Paseo del General Martínez +Ryan Chou +President & CEO: +Peter R. Schaefer +Tel. +1 516 593-9733 +Hannover Rück SE, +Tyskland Filial +Hantverkargatan 25 +P.O. Box 22085 +10422 Stockholm +Tel. +46 8 617-5400 +Fax (Life & Health) ++46 8 617-5597 +Fax (Property & Casualty) ++46 8 617-5593 +Managing Director: +Thomas Barenthein +United Kingdom +Hannover Re UK Life Branch +10 Fenchurch Street +London EC3M 3BE +Tel. +44 20 3206-1700 +Fax +44 20 3206-1701 +Managing Director: +Stuart Hill +Hannover Services (UK) Limited +Fax +1 516 596-0303 +10 Fenchurch Street +London EC3M 3BE +Tel. +44 20 7015-4290 +Fax +44 20 7015-4001 +Managing Director: +Nick Parr +of Hannover SE (UK Branch) +10 Fenchurch Street +London EC3M 3BE +Tel. +44 20 7015-4000 +Fax +44 20 7015-4001 +Managing Director: +Nick Parr +Office Denver +1290 Broadway, Suite 1600 +Denver, Colorado 80203 +Tel. +1 303 860-6011 +Fax +1 303 860-6032 +President & CEO: +Peter R. Schaefer +Office New York +112 Main Street +East Rockaway, New York 11518 +International Insurance Company +Representative: +Tel. +886 2 8770-7792 +Fax +886 2 8770-7735 +Taipei Representative Office +Rm. 902, 9F, No. 129, Sec. 3 +Minsheng E. Road +Taipeh +Africa Limited +Hannover Reinsurance +Further information +245 +Hannover Re | Annual Report 2014 +Wesley Clay +Managing Director: +Fax +27 11 484-3330/32 +Hannover Re House +Tel. +27 11 481-6500 +Parktown, Johannesburg 2193 +P. O. Box 85321 +Cnr Hillside & Empire Roads +Hannover Re House +Africa Limited +Hannover Life Reassurance +Managing Director: +Paul Carragher +www.compass.co.za +P. O. Box 37226 +Birnam Park 2015 +Tel. +27 11 745-8333 +Fax +27 11 745-8444 +Emmarentia 2029 +Cnr Hillside & Empire Roads +Parktown, Johannesburg 2193 +P.O. Box 85321 +Emmarentia 2029 +Hannover Rück SE +Taiwan +Tel. +46 8 617-5400 +Fax +46 8 617-5590 +Managing Director: +Thomas Barenthein +P. O. Box 22085 +10422 Stockholm +Hannover SE (Scandinavian Branch) +Hantverkargatan 25 +International Insurance Company of +Achim Klennert +Managing Director: +Fax +27 11 484-3330/32 +Tel. +27 11 481-6500 +P. O. Box 85321 +Emmarentia 2029 +Parktown, Johannesburg 2193 +Cnr Hillside & Empire Roads +Group Africa (Pty) Ltd. +Hannover Re House +Hannover Reinsurance +Randolph Moses +Managing Director: +Fax +27 11 484-3330/32 +Tel. +27 11 481-6500 +Building G +no Brasil Ltda. +Japan +Hannover Rück SE +Supervisory Board +241 +Hannover Re | Annual Report 2014 +tion and the new requirements placed by German Accounting +Standard No. 20 (DRS 20) on the Group management report, +together with the examination of the underwriting-related inter- +nal control system (ICS) in selected lines and the review of the +ICS process for handling major losses. The additional audit +concentrations defined by the European Securities and Markets +Authority (ESMA) also formed part of the scope of the audit. The +mandate for the review report by the independent auditors on +the interim financial report as at 30 June 2014 was also awarded +again. The special challenges associated with the international +Audit of the annual financial statements and consolidated financial statements +The accounting, annual financial statements, consolidated finan- +cial statements and the combined management report were +audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The +Supervisory Board selected the auditor and the Chairman of +the Supervisory Board awarded the audit mandate. The auditor's +independence declaration was received. In addition to the usual +tasks performed by the auditors, key points of focus in the audit +were the performance of goodwill impairment tests, the scru- +tiny of business combinations, the accounting of defined benefit +pension commitments, the new standards governing consolida- +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 Super- +visory Board decided not to comply with the recommendations +contained in Code Item 4.2.3 Para. 2 regarding caps on the +amount of variable compensation elements in management +board contracts, 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 Com- +mittee and in Code Item 5.3.2 concerning the independence +of the Chair of the Audit Committee. The justification in these +respects is provided in the Declaration of Conformity pursu- +ant to § 161 German Stock Corporation Act regarding compli- +ance 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 Standing Committee dealt with the adequacy of the system +of remuneration for the members of the Executive Board, the +review of the fixed remuneration with respect to those mem- +bers of the Executive Board for whom a review was due and the +determination of the variable remuneration of the members of +the Executive Board for the 2013 financial year on the basis of +the findings with respect to attainment of their respective tar- +gets. In all these matters the Committee drew up corresponding +recommendations for the full Supervisory Board. The Commit- +tee also recommended the appointment of Mr. Althoff to the +Executive Board as the successor to Mr. Arrago and decided +upon the stipulation of his individual targets for 2014 by way +of a written circulation procedure. +mittee also received an explanation of the capital market risks +in life and health reinsurance and was provided with a detailed +report on the implications of downgrade clauses. The Finance +and Audit Committee approved the issuance of a perpetual sub- +ordinated bond to refinance hybrid capital. As in the previous +year, we were again updated on the status of the approval pro- +cedure for the internal model. +aspects of the audits were met without reservation. Since the +audits did not give rise to any objections KPMG AG Wirtschaft- +sprüfungsgesellschaft issued unqualified audit certificates. The +Finance and Audit Committee discussed the annual financial +statements and the combined management report with the par- +ticipation of the auditors and in light of the audit reports, and it +informed the Supervisory Board of the outcome of its examina- +tion. The audit reports were distributed to all members of the +Supervisory Board and scrutinised in detail – with the partici- +pation of the auditors - at the Supervisory Board meeting held +to consider the annual results. The auditors will also be present +at the Annual General Meeting. +Bearing in mind that the Government Commission on the Ger- +man Corporate Governance Code (DCKG) made only minimal +amendments to the Code in 2014, deliberations on the Code +were not a focus of the Supervisory Board's work. Neverthe- +less, the Supervisory Board was provided with an explanation +of the method used to calculate the vertical comparison of +remuneration pursuant to Item 4.2.2 of the Code. The Super- +visory Board also received a follow-up report from the Execu- +tive Board on the progress made in connection with the con- +cept for the advancement of female employees, a report on the +design of the remuneration schemes pursuant to § 3 Para. 5 +of the Regulation on the Supervisory Law Requirements for +Remuneration Schemes in the Insurance Sector (VersVergV) +as well as the compliance, internal audit and risk reports. As +part of the efficiency audit of the Supervisory Board's work the +experiences gathered in connection with the electronic mailing +of documents to the members of the Supervisory Board were +evaluated and it was decided to extend the system. Despite +Group and the accumulated prefinancing volume in life rein- +surance including a comparison of the expected return flows +with the repayments actually made, the risk reports, the com- +pliance report and the report on adherence to Corporate Gov- +ernance principles were discussed and reports on the major +subsidiaries were received and considered. In addition, the +Committee examined the investment structure and investment +income - including the stress tests with regard to the invest- +ments and their implications for net income and the equity +base and defined the audit concentrations for the 2014 finan- +cial year. The Committee was provided with detailed reports on +the current status of the participation in ITAS Vita S.p.A. and +considered the relocation of the registered office of International +Insurance Company of Hannover SE from London to Hannover +as well as the further development of this subsidiary. In addi- +tion, an audit report was submitted by KPMG AG Wirtschaft- +sprüfungsgesellschaft on the calculation of the intrinsic value +creation (IVC). The Committee prepared various resolutions to +be adopted by the Supervisory Board, including resolutions +on the revised corporate strategy, the acquisition of the shares +of International Insurance Company of Hannover SE and the +capital increase at Hannover Finance (UK) Limited. The Com- +Hannover Re | Annual Report 2014 +240 +The Finance and Audit Committee considered inter alia the +consolidated annual and quarterly financial statements drawn +up in accordance with IFRS and the corresponding individual +financial statements of Hannover Rück SE drawn up in accord- +ance with the German Commercial Code (HGB) and discussed +with the independent auditors their reports on these financial +statements. As in the previous year, an expert opinion on the +adequacy of the loss reserves in property and casualty reinsur- +ance was noted, the retrocession structure of the Hannover Re +Verwaltungs-GmbH in E+S Rückversicherung AG. With an eye +to § 3 Para. 1 Sentence 3 of the Regulation on the Supervisory +Law Requirements for Remuneration Schemes in the Insurance +Sector (VersVergV) the full Supervisory Board considered the +adequacy of the remuneration system for the members of the +Executive Board. The fixed remuneration of members of the +Executive Board as at 1 January 2015 was also reviewed. The +variable remuneration of the members of the Executive Board +was defined on the basis of the findings with respect to attain- +ment of the respective targets for the 2013 financial year. At +the constituent meeting of the Supervisory Board of Hannover +Rück SE the Chairman of the Supervisory Board and his Deputy +as well as the members and Chair of the Finance and Audit +Committee and the members of the Standing Committee and +of the Nomination Committee were confirmed. Mr. Althoff was +appointed to succeed Mr. Arrago on the Executive Board. The +retirement benefits of a member of the Executive Board were +also adjusted. +No audit measures pursuant to § 111 Para. 2 Sentence 1 German +Stock Corporation Act were required in the 2014 financial year. +sis of the 2013 results in property & casualty and life & health +reinsurance as well as a presentation from the Executive Board +covering the profit expectations for the 2014 financial year and +the operational planning for the 2015 financial year. In addition, +the Chairman of the Supervisory Board was constantly advised +by the Chairman of the Executive Board of major developments +and impending decisions as well as of the risk situation within +the company and the Group. All in all, we were involved in +decisions taken by the Executive Board and assured ourselves +of the lawfulness, regularity and efficiency of the company's +management as required by our statutory responsibilities and +those placed upon us by the company's Articles of Association. +Of the committees formed by the Supervisory Board within +the meaning of § 107 Para. 3 German Stock Corporation Act, +the Finance and Audit Committee met on four occasions and +the Standing Committee met twice. The Standing Committee +adopted one resolution by way of a written procedure. The +Chairman of the Supervisory Board updated the full Supervisory +Board on the major deliberations of the committee meetings +at its next meeting and provided an opportunity for further +questions. +Corporate Governance +Committees of the Supervisory Board +The report on the company's relations with affiliated companies +drawn up by the Executive Board has likewise been examined +by KPMG AG Wirtschaftsprüfungsgesellschaft and given the +following unqualified audit certificate: +1. its factual details are correct; +Burgwedel +Herbert K. Haas 1, 2, 4 +Supervisory Board of Hannover Rück SE +Hannover Re | Annual Report 2014 +242 +Herbert K. Haas +Chairman +For the Supervisory Board +Hannover, 9 March 2015 +"Having audited the report in accordance with our professional +duties, we confirm that +Word of thanks to the Executive Board and members of staff +The very good result once again generated by Hannover Rück +SE for the 2014 financial year was made possible by the excep- +tional performance of the Executive Board and the members +of staff working for the company and the Group. The Super- +visory Board would like to express its special appreciation to +the Executive Board and all the employees for their efforts. +Changes on the Supervisory Board and the Executive Board +The composition of the Supervisory Board and its commit- +tees did not change in the year under review. With effect from +1 August 2014 Mr. Althoff was appointed to the Executive +Board. Mr. Arrago stepped down from the Executive Board +The Supervisory Board thus concurred with the opinions of the +auditors and approved the annual financial statements and the +consolidated financial statements; the annual financial state- +ments are thereby adopted. Our proposal regarding the appro- +priation of the disposable profit for 2014 is in accordance with +that of the Executive Board. +Escritório de Representação +- in each case drawn up as at 31 December 2014 - and have +no objections. Nor do we have any objections to the statement +reproduced in the dependent company report. +b) the report of the Executive Board pursuant to § 312 Ger- +man Stock Corporation Act (Report on relations with affili- +ated companies) +a) the annual financial statements of the company, the finan- +cial statements of the Hannover Re Group and the com- +bined management report prepared by the Executive +Board for the company and the Group, and +We have examined +2. in the case of the transactions detailed in the report, the +expenditure of the company was not unreasonably high.” +with effect from 31 August 2014. The Supervisory Board thanks +Mr. Arrago, who had belonged to the Executive Board since +2001, for his many years of valuable service. +As in every year, we were regularly updated on the work of the +Supervisory Board committees and given a description of the +major pending legal proceedings. We approved an increase in +the capital participation of Hannover Rück SE in a consolidation +platform for German life insurance companies. The status of the +Market Consistent Embedded Value in life and health reinsur- +ance relative to competitors was also considered at length. A +further key point of deliberation was the adoption of a resolution +on the corporate strategy, which is reviewed and revised every +three years. The annual review of the investment guidelines +centred on the raising of the real estate allocation, the specifica- +tion as to real estate exposure and the updating and definition +of the minimum liquidity limit. The acquisition of International +Insurance Company of Hannover SE, which during 2014 was +engaged in relocating its registered office to Germany, from +Hannover Finance (UK) Limited and a capital increase at this +company were approved. In addition, a report was received on +an increase in the interest held by Hannover Rück Beteiligung +Key points of deliberation +In our function as the Supervisory Board we considered at +length during the 2014 financial year the position and develop- +ment of the company and its major subsidiaries. We advised the +Executive Board on the direction of the company and monitored +the management of business on the basis of written and ver- +bal reports from the Executive Board. The Supervisory Board +of Hannover Rück SE held four regular meetings and one con- +stituent meeting in order to adopt the necessary resolutions +after appropriate discussion. In addition, we were informed +by the Executive Board in writing and orally about the course +of business and the position of the company and the Group on +the basis of the quarterly financial statements. The quarterly +reports with the quarterly financial statements and key figures +for the Hannover Re Group constituted an important source of +information for the Supervisory Board. We received an analy- +Responsibility statement +Hannover Re | Annual Report 2014 +238 +Jungsthöfel +Wirtschaftsprüfer +Wirtschaftsprüfer +Husch +Wirtschaftsprüfungsgesellschaft +KPMG AG +To the best of our knowledge, and in accordance with the appli- +cable reporting principles, the consolidated financial state- +ments give a true and fair view of the assets, liabilities, finan- +cial position and profit or loss of the Group, and the Group +Hannover, 6 March 2015 +Our audit has not led to any reservations. +legal environment of the Group and expectations as to pos- +sible misstatements are taken into account in the determina- +tion of audit procedures. The effectiveness of the accounting- +related internal control system and the evidence supporting +the disclosures in the consolidated financial statements and +the combined management report are examined primarily +on a test basis within the framework of the audit. The audit +includes assessing the annual financial statements of those +entities included in consolidation, the determination of enti- +ties to be included in consolidation, the accounting and con- +solidation principles used and significant estimates made by +management, as well as evaluating the overall presentation of +the consolidated financial statements and combined manage- +ment report. We believe that our audit provides a reasonable +basis for our opinion. +We conducted our audit of the consolidated financial state- +ments in accordance with § 317 HGB and German generally +accepted standards for the audit of financial statements prom- +ulgated by the Institute of Public Auditors in Germany (IDW). +Those standards require that we plan and perform the audit +such that misstatements materially affecting the presentation +of the net assets, financial position and results of operations in +the consolidated financial statements in accordance with the +applicable financial reporting framework and in the combined +management report are detected with reasonable assurance. +Knowledge of the business activities and the economic and +We have audited the consolidated financial statements pre- +pared by Hannover Rück SE, Hannover - comprising the con- +solidated balance sheet, consolidated income statement, con- +solidated statement of comprehensive income, consolidated +statement of changes in equity, consolidated cash flow state- +ment and notes to the consolidated financial statements - as +well as the combined management report of the company and +the Group for the business year from 1 January to 31 Decem- +ber 2014. The preparation of the consolidated financial state- +ments and the combined management report in accordance +with IFRS, as adopted by the EU, and the additional require- +ments of German commercial law pursuant to § 315a Para. 1 +HGB are the responsibility of the parent company's manage- +ment. Our responsibility is to express an opinion on the con- +solidated financial statements and on the combined manage- +ment report based on our audit. +Auditors' report +Annual financial statements +237 +Hannover Re | Annual Report 2014 +In our opinion, based on the findings of our audit, the con- +solidated financial statements comply with IFRS, as adopted +by the EU, and the additional requirements of German com- +mercial law pursuant to § 315a Para. 1 HGB and give a true +and fair view of the net assets, financial position and results +of operations of the Group in accordance with these require- +ments. The combined management report is consistent with +the consolidated financial statements and as a whole provides +a suitable view of the Group's position and suitably presents +the opportunities and risks of future development. +management report includes a fair review of the development +and performance of the business and the position of the Group, +together with a description of the principal opportunities and +risks associated with the expected development of the Group. +Hannover, 6 March 2015 +Executive Board +of Hannover Rück SE +Report of the Supervisory Board +Supervisory Board +Miscellaneous +239 +Hannover Re | Annual Report 2014 +Vogel +Roho w +Dr. Pickel +Dr. Miller +Miker Tickel +Gräber +J. Grüßer +Chèvre +Althoff +Wallin +No. +ok for the Ch +认 +Chairman +Chairman of the Board of Management of Talanx AG +General Manager: +Eduardo Molinari +Dr. Klaus Sturany 1 +Further information +Branch offices and subsidiaries of the Hannover Re Group abroad +Australia +Hannover Life Re of +Australasia Ltd +Level 7 +Tel. +61 2 9251-6911 +Fax +61 2 9251-6862 +Managing Director: +Gerd Obertopp +Supervisory Board +Hannover Rueck SE +The Re Centre, Level 21 +Australia Square +264 George Street +Sydney NSW 2000 +G.P.O. Box 3973 +Sydney NSW 2001 +Tel. +61 2 9274-3000 +Fax +61 2 9274-3033 +Agent: +Ross Littlewood +Hannover Rueck SE +Australian Branch - +Property & Casualty Office +Level 12 +20 Bond Street +Sydney NSW 2000 +Australian Branch - Agency +243 +Vienna, Austria +Hannover Re | Annual Report 2014 +Chairman of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G. +Independent management consultant +Dr. Immo Querner +Celle +Member of the Board of Management of Talanx AG +Member of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G. +Dr. Erhard Schipporeit 2, 3 +Hannover +Member of various supervisory boards +Maike Sielaff5 +Burgwedel +Employee +1 Member of the Standing Committee +2 Member of the Finance and Audit Committee +3 +Independent financial expert on the Finance and Audit Committee +4 Member of the Nomination Committee +5 Staff representative +Details of memberships of legally required supervisory boards and comparable control boards at other domestic and foreign +business enterprises are contained in the individual report of Hannover Rück SE. +Tel. +61 2 8373-7580 +Fax +61 2 9274-3033 +Head of Facultative: +70 Phillip Street +Sydney NSW 2000 +Michael Eberhardt +Tel. +1 441 295-2827 +Fax +1 441 295-2844 +Managing Director: +Colin Rainier +Hannover Re (Bermuda) Ltd. +Victoria Place, 2nd Floor, +31 Victoria Street +Hamilton, HM 10 +Tel. +1 441 294-3110 +Fax +1 441 296-7568 +President & CEO: +Dr. Konrad Rentrup +Brazil +Dr. Andrea Pollak +Employee +Hannover +Otto Müller 5 +Employee +Hannover +Andrew Parker +Head of Treaty: +Former Chief Executive Officer of Talanx AG and HDI Haftpflichtverband der Deutschen Industrie V.a.G. +Berg +Wolf-Dieter Baumgartl 1, 2, 4 +Former member of the Executive Board of RWE AG +Deputy Chairman +Ascona, Switzerland +Victoria Place, 2nd Floor, +31 Victoria Street +Hamilton, HM 10 +P.O. Box 2373 +Hamilton, HM JX +Hannover Life Reassurance +Bermuda Ltd. +Frauke Heitmüller 5 +Fax +973 1721-4667 +General Manager: +Mahomed Akoob +International Insurance Company of +Hannover SE (Australian Branch) - +Underwriting Office +Level 12 +20 Bond Street +Sydney NSW 2000 +Tel. +61 2 8373-7580 +Fax +61 2 9274-3033 +Head of Branch: +Mark Fleiser +Bahrain +Al Zamil Tower +17th Floor +Hannover ReTakaful B.S.C. (c) +Manama Center 305 +Manama +Tel. +973 1721-4766 +Fax +973 1721-4667 +Managing Director: +Mahomed Akoob +Hannover Rueck SE +Bahrain Branch +Al Zamil Tower +17th Floor +Government Avenue +Manama Center 305 +Manama +Tel. +973 1721-4766 +Government Avenue +Bermuda +Further information +N54 Movements in net liability from defined benefit +206 +N53 Measurement assumptions +their fair value 2014 +N18 Amortised cost, unrealised gains and losses and +accrued interest on the portfolio of investments +classified as available for sale as well as +178 +Hannover Re | Annual Report 2014 +181 +as well as their fair value 2013 +pension plans +N12 Investments +253 +207 +183 +N55 Provisions for pensions +N 17 Amortised cost, unrealised gains and losses and +accrued interest on loans and receivables +211 +Debt and subordinated capital 2014 +N 60 +N20 Fair value of financial assets at fair value through +210 +182 +N58 Development of sundry non-technical provisions +N59 Maturities of the sundry non-technical provisions 210 +classified as available for sale as well as +209 +208 +N 56 Effect on the defined benefit obligation +N57 Other liabilities +N19 Amortised cost, unrealised gains and losses and +accrued interest on the portfolio of investments +208 +their fair value 2013 +174 +N10 Book values from business relations with +N11 Consolidated segment report as at +87 +M 64 Limit and threshold for the 200-year aggregate +annual loss as well as utilisation thereof +Item 4.2.5 Para. 3 - Table 1 (target/minimum/ +maximum remuneration as nominal amounts) +M85 German Corporate Governance Code, +116 +87 +M65 Catastrophe losses and major claims in 2014 +M 66 Ensuring the quality of our portfolios +M67 Combined and catastrophe loss ratio +88 +Item 4.2.5 Para. 3 - Table 2 (cash allocations +in 2013 and 2014) +118 +88 +80 +M86 Defined benefit commitments +89 +96 +M87 Defined contribution commitments +121 +M68 Required risk capital for underwriting risks +in life and health reinsurance +M88 Individual remuneration received by the members +89 +of the Supervisory Board +122 +M69 Required risk capital for market risks +121 +retrocessions +M 63 Stress tests for natural catastrophes after +M84 German Corporate Governance Code, +for variable remuneration +108 +shareholders' equity) +M58 Reconciliation (economic capital/ +M59 Required risk capital +M60 Risk landscape of Hannover Re +M81 Payment procedures for the total variable +85 +8 % 8 +83 +remuneration +110 +84 +M82 Total remuneration of the active members of the +Executive Board pursuant to DRS 17 +M61 Required risk capital for underwriting risks +in property and casualty reinsurance +(amended 2010) +112 +86 +M62 Survival Ratio in years and reserves for asbestas- +related claims and pollution damage +M83 Total expense for share-based remuneration +of the Executive Board +114 +87 +90 +M89 Securities transactions +124 +M70 Utilisation of the trigger system +shareholders' equity 2014 +142 +N14 Amortised cost, unrealised gains and losses and +accrued interest on the portfolio of investments +classified as held to maturity as well as +their fair value 2014 +180 +N 05 Consolidated cash flow statement 2014 +144 +N15 Amortised cost, unrealised gains and losses and +N06 Valuation models +152 +N07 Key exchange rates +158 +N08 Scope of consolidation +161 +accrued interest on the portfolio of investments +classified as held to maturity as well as +their fair value 2013 +180 +N09 List of shareholdings +163 +N16 Amortised cost, unrealised gains and losses and +accrued interest on loans and receivables +unconsolidated structured entities +171 +as well as their fair value 2014 +181 +N04 Consolidated statement of changes in +31 December 2014 +141 +179 +91 +M71 Value at Risk for the investment portfolio of the +Hannover Re Group +participants in variable remuneration systems +125 +91 +M91 Growth in gross domestic product (GDP) +130 +M72 Scenarios for changes in the fair value of +M92 Property & Casualty reinsurance: +material asset classes +92 +Forecast development for 2015 +132 +M73 Rating structure of our fixed-income securities +M74 Gross written premium retained +93 +M93 Life & Health reinsurance: +94 +Forecast development for 2015 +135 +N Notes +N01 Consolidated balance sheet as at 31 December 2014 138 +N02 Consolidated statement of income 2014 +140 +N 13 Maturities of the fixed-income and variable-yield +securities +N03 Consolidated statement of comprehensive +income 2014 +M90 Group of participants and total number of eligible +203 N92 Calculation of the earnings per share +N 61 +232 +N 48 Net loss reserve and its run-off in the property +and casualty reinsurance segment +202 +N 90 Nationality of employees in 2014 +N91 Personnel expenditures +232 +233 +N49 Maturities of the technical reserves 2014 +79 +233 +N50 Maturities of the technical reserves 2013 +203 +N93 Future leasing commitments +235 +N51 Development of the benefit reserve +204 +N 94 Rental income +236 +N52 Development of the unearned premium reserve +205 +N 89 Personnel information +254 +201 +232 +Netting agreements 2014 +N 85 Netting agreements 2013 +225 +225 +(PVFP) on acquired life reinsurance portfolios +197 +N 86 +N44 Fixtures, fittings and equipment +198 +Business assumed and ceded in Germany +and abroad +227 +N45 Development of other intangible assets +199 +N 87 +Stock appreciation rights of Hannover Rück SE +230 +N46 Technical provisions +200 +N 88 +Share awards of Hannover Rück SE +N47 Loss and loss adjustment expense reserve +Hannover Re | Annual Report 2014 +Financial calendar 2015/2016 +10 March 2015 +Hannover Re | Annual Report 2014 +255 +Further information +Contact information +Corporate Communications +Karl Steinle +Tel. +49 511 5604-1500 +Fax +49 511 5604-1648 +karl.steinle@hannover-re.com +Media Relations +Gabriele Handrick +Tel. +49 511 5604-1502 +Fax +49 511 5604-1648 +gabriele.handrick@hannover-re.com +A printed version of the Hannover Re Group's Annual Report +is also available in German. The report can additionally be +accessed online in English and German as an HTML version +and downloaded in PDF format. +This is a translation of the original German text; the German +version shall be authoritative in case of any discrepancies in +the translation. +We would also be pleased to send you copies of the Annual +Reports of the Hannover Re Group and Hannover Rück SE in +English or German. If you wish to receive paper copies of any +of these versions please contact Corporate Communications on: +Tel. +49 511 5604-1889 +Fax + 49 511 5604-1648 or order them online at +www.hannover-re.com under +"Investors/Results and reports". +Interim Report 3/2016 +10 November 2016 +Interim Report 2/2016 +4 August 2016 +Annual financial statements 2014 +Annual Results Press Conference, Hannover +Analysts' Meeting, London +6 May 2015 +Interim Report 1/2015 +Annual General Meeting +Hannover Congress Centrum +Theodor-Heuss-Platz 1-3 +30175 Hannover, Germany +5 August 2015 +Interim Report 2/2015 +4 November 2015 +N43 Development of the present value of future profits +Interim Report 3/2015 +Conference Call: Property and casualty treaty renewals +10 March 2016 +Annual financial statements 2015 +Annual Results Press Conference, Hannover +Analysts' Meeting, Frankfurt +10 May 2016 +Interim Report 1/2016 +Annual General Meeting +Hannover Congress Centrum +Theodor-Heuss-Platz 1-3 +30175 Hannover, Germany +3 February 2016 +profit or loss before and after accrued interest as +N 84 +N42 Other assets +Gross written premium +216 +N 67 +Investment income +217 +188 +N 68 +Interest income on investments +217 +188 +N69 +Net gains and losses on investments 2014 +218 +189 +N 70 +N71 +Net gains and losses on investments 2013 +Reinsurance result +218 +219 +N 66 +191 +187 +N 65 Material non-controlling interests +Debt and subordinated capital 2013 +212 +well as accrued interest on such financial assets +N21 Carrying amounts before impairment +183 +184 +N 62 +Maturities of financial liabilities 2014 +212 +N 63 +Tel. +49 511 5604-1529 +213 +N22 Rating structure of fixed-income securities 2014 +N23 Rating structure of fixed-income securities 2013 +N24 Breakdown of investments by currencies 2014 +N25 Breakdown of investments by currencies 2013 +N26 Financial information on investments in +associated companies +N27 Investments in associated companies +N28 Development of investment property +N29 Fair value hierarchy of financial assets and +liabilities recognised at fair value 2014 +N30 Fair value hierarchy of financial assets and +liabilities recognised at fair value 2013 +N31 Movements in level 3 financial assets and +liabilities 2014 +185 +N64 +185 +Net gains and losses from dept and +subordinated capital +213 +186 +215 +N72 Other technical income +219 +N73 Commissions and brokerage, change in +liabilities measured at amortised cost 2014 +N36 Fair value hierarchy of financial assets and +liabilities measured at amortised cost 2013 +N37 Development of deferred acquisition costs +N38 Age structure of overdue accounts receivable +N39 Value adjustments on accounts receivable +194 +N 80 Reconciliation of the expected expense for +income taxes with the actual expense +223 +194 +195 +N81 Expiry of non-capitalised loss carry-forwards +and temporary differences +223 +195 +N82 Maturity structure of derivative financial +195 +instruments 2014 +224 +N40 Development of goodwill +196 +N41 Capitalisation rates +196 +N 83 Maturity structure of derivative financial +instruments 2013 +225 +222 +N79 Netting of deferred tax assets and deferred +tax liabilities +N35 Fair value hierarchy of financial assets and +193 +191 +deferred acquisition costs +220 +N 74 Other technical expenses +220 +192 +N75 Other income/expenses +220 +N32 Movements in level 3 financial assets and +liabilities 2013 +197 +N76 Income tax +192 +N77 Domestic/foreign breakdown of recognised +N33 Income and expenses from level 3 financial +assets and liabilities 2014 +tax expenditure/income +221 +193 +N34 Income and expenses from level 3 financial assets +and liabilities 2013 +N78 Deferred tax assets and deferred tax liabilities +of all Group companies +222 +221 +M57 Central functions of risk monitoring and steering +Maturities of financial liabilities 2013 +78 +Life business: this term is used to designate business activities +in our life and health reinsurance business group. +Life and health (re-)insurance: collective term for the lines +of business concerned with the insurance of persons, i. e. life, +pension, health and personal accident insurance. +Letter of credit (LOC): bank guarantee; 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 typi- +cally found in the USA. +Leader: if several (re-)insurers participate in a contract, one +company assumes the role of leader. The policyholder deals +exclusively with this lead company. The lead (re-)insurer nor- +mally carries a higher percentage of the risk for own account. +Issuer: private enterprise or public entity that issues securi- +ties, e. g. the federal government in the case of German Treas- +ury Bonds and a joint-stock corporation in the case of shares. +IVC: cf. Intrinsic Value Creation +Longevity risk: in general terms, the actuarial risk that a per- +son receiving regular living benefits - such as annuities or +pensions - lives longer than expected. +Investment grade: investment grade ratings are awarded to +companies and assigned to securities that have a low risk pro- +file. They contrast with non-investment-grade ratings, which +by definition include speculative elements and therefore entail +a significantly higher risk. +- +International Securities Identification Number (ISIN): ten- +character universal code used to identify securities internation- +ally. It is prefixed by a country code that specifies the country +where the issuer entity is legally registered or in which it has +legal domicile, e. g. DE = Germany. +Hannover Re | Annual Report 2014 +248 +Inflation swap: derivative financial instrument to hedge infla- +tion risks, under which a fixed cash flow is swapped for a vari- +able cash flow dependent on the inflation trend. +Impairment: extraordinary amortisation taken when the pre- +sent value of the estimated future cash flow of an asset is less +than its book value. +Intrinsic value creation (IVC): the IVC is calculated accord- +ing to the following formula: real operating value creation = +adjusted operating profit (EBIT) – (capital allocated x weighted +cost of capital). IVC is a tool of value-based enterprise manage- +ment used to measure the accomplishment of long-term targets +on the level of the Group, the individual business groups and +the operating units (profit centres). +Loss, economic: total loss incurred by the affected economy +as a whole following the occurrence of a loss. The economic +loss must be distinguished from the insured loss. +Loss, insured: the insured loss reflects the total amount +of losses covered by the insurance industry (insurers and +reinsurers). +Loss ratio: proportion of loss expenditure (gross or net) rela- +tive to the (gross or net) premium earned. +Other securities, available-for-sale: securities that cannot be +clearly allocated to the "trading” or “held-to-maturity” port- +folios; these securities can be disposed of at any time and are +reported at their fair value at the balance sheet date. Changes +in fair value are not recognised in the statement of income. +Obligatory (also: treaty) reinsurance: reinsurance treaty under +which the reinsurer participates in a → cedant's total, precisely +defined insurance portfolio. This is in contrast to facultative +reinsurance. +Non-proportional reinsurance: reinsurance treaty under which +the reinsurer assumes the loss expenditure in excess of a +particular amount (→ priority) (e.g. under an excess of loss +treaty). This is in contrast to → proportional reinsurance. +Further information +249 +Hannover Re | Annual Report 2014 +Net: cf. Gross/Retro/Net +Mortality risk: in general terms, the actuarial risk that a per- +son upon whose death a benefit is payable lives shorter than +expected. From a (re)insurer's perspective, this is the risk that +the observed mortality experience in an underlying portfolio +deviates from what had previously been calculated on the basis +of actuarial assumptions. +Morbidity risk: in general terms, the actuarial risk that a per- +son receiving health, disability or long-term-care benefits trig- +gered by illness, malfunctioning of body parts, injury or frailty +experiences a higher or longer than expected morbidity or dis- +ability leading to a higher payment amount, higher frequency +or longer duration. +Modified Coinsurance- (Modco) treaty: type of reinsurance +treaty where the ceding company retains the assets with +respect to all the policies reinsured and also establishes and +retains the total reserves on the policies, thereby creating an +obligation to render payments to the reinsurer at a later date. +Such payments include a proportional share of the gross pre- +mium plus a return on the assets. +Matching currency cover: coverage of technical liabilities in +foreign currencies by means of corresponding investments in +the same currency in order to avoid exchange-rate risks. +Mark-to-market valuation: the evaluation of financial instru- +ments to reflect current market value or fair value. +Market Consistent Embedded Value (MCEV): a refinement +and closer specification of the previous principles of → Euro- +pean Embedded Value (EEV). In particular, the market-con- +sistent calculation method is intended to bring about better +comparability. The MCEV is established using risk-neutral +assumptions in relation to the expected investment income +and the discounting approach. In addition, the swap curve is +adopted as a risk-neutral interest rate structure. +Major loss budget: modelled loss expectancy for business with +natural perils exposure with respect to net losses larger than +EUR 10 million plus the average of the past 10 years for man- +made net losses larger than EUR 10 million. +Major loss: loss which has special significance for the direct +insurer or reinsurer due to the amount involved; it is defined +as a major loss in accordance with a fixed loss amount or other +criteria (in the case of Hannover Re more than EUR 10 mil- +lion gross). +IBNR (Incurred but not reported) reserve: provision for +claims which have already occurred but which have not yet +been reported. +Hybrid capital: debt structure which because of its subordina- +tion bears the character of both debt and equity +Gross/Retro/Net: gross items constitute the relevant sum total +deriving from the acceptance of direct insurance policies or +reinsurance treaties; retro items constitute the relevant sum +total deriving from own reinsurance cessions. The difference +is the corresponding net item (gross - retro = net, also: for +own account). +Goodwill: the excess of the cost of an acquired entity over the +net of the amounts assigned to assets acquired and liabilities +assumed. +Deposit accounting: an accounting method originating in US +accounting principles for the recognition of short-term and +multi-year insurance and reinsurance contracts with no sig- +nificant underwriting risk transfer. The standard includes inter +alia provisions relating to the classification of corresponding +contract types as well as the recognition and measurement of +a deposit asset or liability upon inception of such contracts. +DB 5: cf. contribution margin accounting level 5 +M80 Measurement bases/conditions of payment +Corporate Governance: serves to ensure responsible manage- +ment and supervision of enterprises and is intended to foster +the trust of investors, clients, employees and the general pub- +lic in companies. +Contribution margin accounting level 5 (DB 5): this level +of contribution margin accounting constitutes the clear profit +after earning the discounted claims expenditure plus all exter- +nal and internal costs including the cost of capital. +Confidence (also: probability) level: the confidence level +defines the probability with which the defined amount of risk +will not be exceeded. +Combined ratio: sum of the loss ratio and expense ratio. +Coinsurance Funds Withheld (CFW) Treaty: type of coinsur- +ance contract where the ceding company retains a portion of +the original premium at least equal to the ceded reserves. Simi- +lar to a →Modco contract the interest payment to the reinsurer +reflects the investment return on an underlying asset portfolio. +Claims and claims expenses: sum total of paid claims and +provisions for loss events that occurred in the business year; +this item also includes the result of the run-off of the provi- +sions for loss events from previous years, in each case after +the deduction of own reinsurance cessions. +Cession: transfer of a risk from the direct insurer to the reinsurer. +Cedant: direct insurer or reinsurer which passes on (also: +cedes) shares of its insured or reinsured risks to a reinsurer in +exchange for premium. +Cash flow statement: statement on the origin and utilisation +of cash and cash equivalents during the accounting period. It +shows the changes in liquid funds separated into cash flows +from operating, investing and financing activities. +components – a risk-averse interest rate, a market-specific +risk loading and an enterprise-specific risk assessment, the +beta coefficient. The cost of shareholders' equity is therefore +defined as follows: risk-averse interest rate + beta * enterprise- +specific risk assessment. +Hannover Re | Annual Report 2014 +Capital asset pricing model (CAPM): the CAPM is used to +explain the materialisation of prices/returns on the capital mar- +ket based on investor expectations regarding the future prob- +ability distribution of returns. Under this method, the oppor- +tunity cost rate for the shareholders' equity consists of three +247 +Other securities, held-to-maturity: investments in debt secu- +rities that can and are intended to be held to maturity. They +are measured at amortised cost. +Further information +Derivatives, derivative financial instruments: these are finan- +cial products derived from underlying primary instruments +such as equities, fixed-income securities and foreign exchange +instruments, the price of which is determined on the basis of +an underlying security or other reference asset. Notable types +of derivatives include swaps, options and futures. +Funds held by ceding companies/funds held under +reinsurance treaties: cf. → - deposits with ceding companies/ +deposits received from retrocessionaires +Financial Solutions: refers to reinsurance transactions which - +in addition to the transfer of biometric risks - also include +financing components. They generally employ the future prof- +its contained in a block of new or inforce business to enable a +ceding company to achieve a desired financial objective. Such +reinsurance solutions provide direct insurers with an alterna- +tive means of accessing capital in order, for example, to pursue +new lines of business or increase capital reserves. +Fair value: price at which a financial instrument would be +freely traded between two parties. +Facultative reinsurance: participation on the part of the +reinsurer in a particular individual risk assumed by the direct +insurer. This is in contrast to → obligatory (also: treaty) +reinsurance. +Exposure: level of danger inherent in a risk or portfolio of +risks; this constitutes the basis for premium calculations in +reinsurance. +Expense ratio: administrative expenses (gross or net) in rela- +tion to the (gross or net) premium earned. +Excess return on capital allocated (xRoCA): describes the +→ IVC in relation to the allocated capital and shows the rela- +tive excess return generated above and beyond the weighted +cost of capital. +Excess of loss treaty: cf. → non-proportional reinsurance +Earnings retention: non-distribution of a company's profits +leading to a different treatment for tax purposes than if prof- +its were distributed. +Earnings per share, diluted: ratio calculated by dividing the +consolidated net income (loss) by the weighted average num- +ber of shares outstanding. The calculation of the diluted earn- +ings per share is based on the number of shares including +subscription rights already exercised or those that can still +be exercised. +Dread disease (also: critical illness) coverages: personal rid- +ers on the basis of which parts of the sum insured which would +otherwise only become payable on occurrence of death are +paid out in the event of previously defined severe illnesses. +Diversification: orientation of business policy towards various +revenue streams in order to minimise the effects of economic +fluctuations and stabilise the result. Diversification is an instru- +ment of growth policy and risk policy for a company. +Discounting of loss reserves: determination of the present +value of future profits through multiplication by the corre- +sponding discount factor. In the case of the loss reserves this +is necessary because of the new profit calculation methods for +tax purposes applicable to German joint-stock corporations. +Direct (also: primary) insurer: company which accepts risks +in exchange for an insurance premium and which has a direct +contractual relationship with the policyholder (private indi- +vidual, company, organisation). +Direct business: business focused on narrowly defined → port- +folios of niche or other non-standard risks. +Deposits with ceding companies/deposits received from +retrocessionaires (also: funds held by ceding companies/ +funds held under reinsurance treaties): collateral provided +to cover insurance liabilities that a (re-)insurer retains from +the liquid funds which it is to pay to a reinsurer under a rein- +surance treaty. In this case, the retaining company shows a +deposit received, while the company furnishing the collateral +shows a deposit with a ceding company. +Block assumption transaction (BAT): proportional reinsur- +ance treaty on a client's life or health insurance portfolio, by +means of which it is possible, inter alia, for our clients to real- +ise in advance the future profits so as to be able to efficiently +ensure the attainment of corporate objectives, e. g. in the areas +of financial or solvency policy. +Other securities, trading: securities that are held principally +for short-term trading purposes. They are measured at their +fair value at the balance sheet date +(Insurance) Pool: a risk-sharing partnership under civil law +formed by legally and economically independent insurers and +reinsurers in order to create a broader underwriting base for +particularly large or unbalanced risks. The members under- +take to write certain risks only within the scope of the insur- +ance pool. They include such risks - while maintaining their +commercial independence – in the insurance pool against a +commission fee. Each insurer participates in the profit or loss +of the insurance pool according to its proportionate interest. +Reinsurance is often ceded or accepted in order to further +diversify the risk. Pools can be divided into two types: coin- +surance pools, in which all members take the role of primary +insurers according to their interests, and reinsurance pools, +in which a primary insurer writes the risks and then spreads +them among the participating insurers by way of reinsurance. +101 +Introductory Sections +| +Notes +N +Management Report +Gross premium +M +| +List of graphs, tables and charts +Further information +251 +Hannover Rück | Geschäftsbericht 2014 +XROCA: cf. → Excess Return on Capital Allocated +Introductory Sections +inside front cover 2 +102 +Group net income (loss) +Hannover Re | Annual Report 2014 +256 +julia.hartmann@hannover-re.com +Fax +49 511 5604-1648 +9 +800 +10 +Highs and lows of the Hannover Re share +Relative performance of the Hannover Re share +Shareholding structure as at 31 December 2014 +109 +110 +I11 +inside front cover 2 +inside front cover 2 +Book value per share +104 +Policyholders' surplus +103 +inside front cover 2 +Value of in-force business (VIF): present value of expected +future profit flows from the portfolio of in-force retained busi- +ness, discounted by a currency-specific risk discount rate. It +is determined in accordance with local accounting principles. +provision for unearned +Unearned premium reserve: cf. → +premiums +Underwriting: process of examining, accepting or rejecting +(re-)insurance risks and classifying those selected in order to +charge the proper premium for each. The purpose of under- +writing is to spread the risk among a pool of (re-)insureds in +a manner that is equitable for the (re-)insureds and profitable +for the (re-)insurer. +250 +Purchase cost, amortised: the cost of acquiring an asset +item including all ancillary and incidental purchasing costs; +in the case of wasting assets less scheduled and/or special +amortisation. +Provision for unearned premiums (also: unearned premium +reserve): premiums written in a financial year which are to be +allocated to the following period on an accrual basis. This item +is used to defer written premiums. +Provision: liability item as at the balance sheet date to dis- +charge obligations which exist but whose extent and/or due +date is/are not known. Technical provisions, for example, are +for claims which have already occurred but which have not +yet been settled, or have only been partially settled (= provi- +sion for outstanding claims, abbreviated to: claims provision). +Protection cover: protection of segments of an insurer's port- +folio against major losses (per risk/per event), primarily on a +non-proportional basis. +Proportional reinsurance: reinsurance treaties on the basis of +which shares in a risk or → portfolio are reinsured under the +relevant direct insurer's conditions. Premiums and losses +are shared proportionately on a pro-rata basis. This is in con- +trast to non-proportional reinsurance. +Property and casualty (re-)insurance: collective term for all +lines of business which in the event of a claim reimburse only +the incurred loss, not a fixed sum insured (as is the case in life +and personal accident insurance, for example). This principle +applies in all lines of property and casualty insurance. +Property & Casualty business: by way of distinction from oper- +ations in our Life & Health reinsurance business group, we use +this umbrella term to cover our business group comprised +essentially of property and casualty reinsurance, specialty lines +and structured reinsurance products. +Probability level: cf. → confidence level +Priority: direct insurer's loss amount stipulated under → non- +proportional reinsurance treaties; if this amount is exceeded, +the reinsurer becomes liable to pay. The priority may refer to +an individual loss, an accumulation loss or the total of all +annual losses. +Primary insurer: cf. direct insurer +Price earnings ratio (PER): a valuation ratio of a company's +share price compared to its per-share earnings. +Present value of future profits (PVFP): intangible asset pri- +marily arising from the purchase of life and health insurance +companies or portfolios. The present value of expected future +profits from the portfolio assumed is capitalised and amortised +according to schedule. +Premium: agreed remuneration for the risks accepted from an +insurance company. Unlike the earned premiums, the written +premiums are not deferred. +Portfolio: a) all risks assumed by an insurer or reinsurer in +a defined sub-segment (e.g. line of business, country) or in +their entirety; b) group of investments defined according to +specific criteria. +Hannover Re | Annual Report 2014 +- +Quota share reinsurance: form of proportional reinsurance +under which the reinsurer assumes a contractually set percent- +age share of the written risk. Since the insurer is responsible +for acquisition, pricing, policy administration and claims han- +dling, the administrative expenditure for the reinsurer is very +low. The latter therefore participates in the aforementioned +expenses through payment of a reinsurance commission. This +commission can amount to 15% to 50% of the original pre- +mium depending upon the market and cost situation. +Reinsurer: company which accepts risks or portfolio segments +from a direct insurer or another reinsurer in exchange for +an agreed premium. +obligatory reinsurance +Treaty reinsurance: cf. → +Technical result: balance of income and expenditure allocated +to the insurance business and shown in the technical state- +ment of income. +Survival ratio: reflects the ratio of loss reserves to paid losses +under a specific contract or several contracts in a balance sheet +year. +Surplus relief treaty: a reinsurance contract under which a +reinsurer assumes (part of) a ceding company's portfolio in +order to relieve strain on the insurer's policyholders' surplus. +Surplus reinsurance: form of proportional reinsurance under +which the risk is not spread between the insurer and reinsurer +on the basis of a previously agreed, set quota share. Instead, +the insurer determines a maximum sum insured per risk up to +which it is prepared to be liable. Risks that exceed the ceding +company's retention (surpluses) are borne by the reinsurer. +The reinsurer's lines thus vary according to the level of the +retention and the sum insured of the reinsured contract. The +reinsurer's liability is generally limited to a multiple of the ced- +ing company's retention. +Structured products: reinsurance with limited potential +for profits and losses; the primary objective is to strive for +risk equalisation over time and to stabilise the → cedant's +balance sheet. +Structured entity: entity with specific characteristics not +bound to a particular legal form that is used to conduct +closely defined activities or to hold assets and for which the +traditional concept of consolidation - based on voting rights - +is often inadequate for determining who exercises control over +the entity. +Spread loss treaty: treaty between an insurer and a reinsurer +that covers risks of a defined portfolio over a multi-year period. +Segment reporting: presentation of items in the balance sheet +and income statement split according to functional criteria such +as business sectors and regions. +Securitisation instruments: innovative instruments for trans- +ferring reinsurance business to the capital markets with the +goal of refinancing or placing insurance risks. +Risk, insured: defines the specific danger which can lead to +the occurrence of a loss. The insured risk is the subject of the +insurance contract. +Retrocession (also: Retro): ceding of risks or shares in risks +which have been reinsured. Retrocessions are ceded to other +reinsurers in exchange for a pro-rata or separately calculated +premium (cf. → Gross/Retro/Net). +Retention: the part of the accepted risks which an insurer/rein- +surer does not reinsure, i. e. shows as net (retention ratio: +percentage share of the retention relative to the gross written +premiums). +Reserve ratio: ratio of (gross or net) technical provisions to +the (gross or net) premiums. +Rate: percentage rate (usually of the premium income) of +the reinsured portfolio which is to be paid to the reinsurer +as reinsurance premium under a → non-proportional reinsur- +ance treaty. +Benefit reserves: value arrived at using mathematical methods +for future liabilities (present value of future liabilities minus +present value of future incoming premiums), primarily in life +and health insurance. +Critical illness coverages: cf. →dread disease coverages +Basic losses: Losses that occur frequently in a foreseeable +amount, i. e. where the underlying risks are associated with +relatively high probabilities of occurrence and usually low loss +M39 Condensed profit and loss account of +Hannover Rück SE +61 +M40 Fire +40 +M41 Casualty +40 +M16 Property & Casualty reinsurance: Breakdown of +gross written premium in worldwide specialty lines 41 +M17 Property & Casualty reinsurance: Breakdown of +gross written premium in facultative reinsurance +M18 Property & Casualty reinsurance: Breakdown of +gross written premium in global reinsurance +M43 Motor +M44 Aviation +43 +M45 Marine +M46 Life +44 +M47 Other lines +M42 Accident +59 +M38 Issue ratings of issued debt +59 +36 +M11 Property & Casualty reinsurance: Major loss trend +M12 Property & Casualty reinsurance: Key figures +37 +for individual markets and lines in 2014 +38 +M31 Development of policyholders' surplus +M32 Amortised cost of our subordinated bonds +M33 Development of Group shareholders' equity +M34 Consolidated cash flow statement +56 +57 +57 +58 +M13 Property & Casualty reinsurance: Breakdown of +gross written premium in target market +M14 Property & Casualty reinsurance: Breakdown of +gross written premium in North America by line +of business +M15 Property & Casualty reinsurance: Breakdown of +gross written premium in Continental Europe +by line of business +M35 Cash flow from operating activities +amounts. +39 +M36 Financial strength ratings of the Hannover Re Group 59 +M37 Financial strength ratings of subsidiaries +222222222 +62 +62 +62 +99 +M52 Operationalisation of the risk strategy +74 +M53 Strategic targets for the risk position +75 +M78 Measurement basis and payment procedures +for fixed remuneration +106 +M54 Solvency II: Hannover Re is well prepared +76 +M79 Overview of the composition of variable +M55 Available capital and required risk capital +77 +remuneration +107 +M56 Capitalisation ratios +95 +55 +M76 Required risk capital for operational risks +M77 Opportunity management process +M51 Resources consumed at Hannover Home Office +62 +62 +63 +63 +63 +252 +Hannover Re | Annual Report 2014 +M48 Balance sheet structure of Hannover Rück SE +64 +M75 Reinsurance recoverables as at the +M49 Staff turnover/absenteeism Hannover Home Office +M50 Breakdown of employees by country +65 +balance sheet date +95 +67 +69 +M30 Capital structure as at 31 December 2014 +58 +55 +107 +The Group worldwide +M10 Breakdown into business written through brokers +and direct business +114 +Key figures +108 +11 +Strategic business groups +115 +Performance Excellence +11 +15 +== +M Management Report +inside front cover 4 +Basic information +113 +inside front cover 3 +American Depositary Receipt (ADR): share certificates written +by US banks on foreign shares deposited there. The ADRs are +traded instead of the foreign shares. In the United States Han- +nover Re has enabled trading on the OTC (over-the-counter) +market through an ADR Level 1 program. New capital cannot +be raised and the ADR is not listed on a US exchange under a +Level 1 program. The main advantage of an ADR Level 1 pro- +gram compared to higher-level programs is that there is no +requirement for accounting or financial reporting in accord- +ance with US GAAP. +Alternative risk financing: use of the capacity available on +the capital markets to cover insurance risks, e. g. through the +securitisation of natural catastrophe risks. +Aggregate excess of loss treaty: a form of excess of loss treaty +reinsurance under which the reinsurer responds when a ceding +insurer incurs losses on a particular line of business during a +specific period (usually 12 months) in excess of a stated amount. +Acquisition cost, deferred (DAC): cost of an insurance com- +pany that arises from the acquisition or the renewal of an insur- +ance contract (e.g. commission for the closing, costs of pro- +posal assessment and underwriting etc.). Capitalisation results +in a distribution of the cost over the duration of the contract. +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. +Glossary +Investor Relations +112 +105 +Dividend +inside front cover 2 +Shareholding structure by countries/regions as at +31 December 2014 (free float) +10 +106 +Key figures +M01 Target attainment +22 +inside front cover 4 +M19 Property & Casualty reinsurance: Breakdown of gross +written premium in worldwide treaty reinsurance +36 +M25 Investment income +M08 Geographical breakdown of gross written premium +in 2014 +M26 Investment income +36 +M27 Investment portfolio +M09 Breakdown of proportional and non-proportional +treaties by volume +36 +M28 Breakdown of investments under own management 54 +M29 Rating of fixed-income securities +SSSSS +50 +M02 System of value-based management: +53 +54 +vs. target margins 2014 +35 +52 +34 +M24 EBIT-margin per reporting category +Performance Excellence (PE) combines +the strategic and operational levels +M03 Intrinsic Value Creation and excess return +on capital allocated +23 +24 +M04 Gross premium by business group +M05 Business development in the year under review +M06 Key figures for Property & Casualty reinsurance +M07 Gross written premium +30 +Julia Hartmann +M20 Key figures for Life & Health reinsurance +M21 Breakdown of gross premium by markets +M22 Value of New Business (VNB) growth +M23 Breakdown of gross written premium by +reporting categories +450 +44 +49 +50 +50 +33 +50 +FSC +MIX +Paper from +responsible sources +www.fsc.org FSC® C002727 +house gas emissions +Printed on paper from environmentally +responsible, socially compatible and +economically viable forest management +carbon neutral +natureOffice.com | DE-141-158500 +print production +www.hannover-re.com +Printed carbon neutral to offset green- +Eberl Print GmbH, Immenstadt +Fax +49 511 5604-1188 +www.whitepark.de +Concept, design and realisation +Whitepark GmbH & Co., Hamburg +Tel. +49 511 5604-0 +Karl-Wiechert-Allee 50 +30625 Hannover, Germany +Published by +Hannover Rück SE +Page 16, 18, 29, 71, 73, 126 +Corbis +Page 27 +Patrick Wack, Shanghai, China +Page 128 +Page 2, 6/7, 19, 26, 28, 70, 72, 127, 129 +Werner Bartsch, Hamburg +Credits +Imprint +Print +Getty Images +As a reinsurer, Hannover Re does not have its own R&D depart- +ment but it does develop products and solutions for its own +benefit and that of its clients as part of day-to-day business +operations. By way of example, our move to give capital mar- +ket players direct access to insurance risks as far back as the +mid-1990s through our "K" transactions puts us among the +industry pioneers. The intervening years have seen the evolu- +tion of a market for so-called insurance-linked securities, which +is one of the fastest growing markets in the insurance sector. +Another example of Hannover Re's development activities is +the creation of its own internal model for risk management +under Solvency II that caters to the requirements of various +stakeholders (regulators, rating agencies, capital providers). +Not only that, through our active involvement and the pro- +vision of financial assistance we support scientific initiatives +geared to developing products, solutions or markets that will +be crucial success factors going forward in the viability of any +reinsurance undertaking. +ment/Contingency" +EUR 314 +EUR 309 +EUR 448 +Value of New Business (VNB) +growth +6.6% +9.8% +Reinsurance business is founded on the comprehensive under- +standing and active management of risks. Our specialists there- +fore continuously analyse known risks with an eye to changes +in their structure and probability of occurrence, while at the +same time focusing on the early detection of newly emerg- +ing risks and working to provide our clients with appropriate +solutions tailored to their needs (cf. here also the Opportunity +report on page 98 et seq.). +4.9% +5-7% +10 +Gross premium growth +Life & Health +reinsurance +EUR 357 +7.2% +4.7% +10.7% +≥ 2% +16.1% +15.9% +15.5% +17.0% +≥ 10% +95.1% +95.8% +94.9% +94.7% +6.0% +> EUR 180 million +million +million +3 +Average annual growth, otherwise weighted averages +2 +1 Adjusted pursuant to IAS 8 +5.0% +-1.3% +8.4% +7.5% +≥ 3% +3.8% +5.2% +1.2% +4.8% +≥ 6% +5.1% +5.0% +5.2% +5.0% +≥ 2% +XROCA⁹ +Mortality/Morbidity +8, 11 +EBIT margin +Financial Solutions/Longevity +EBIT margin 8, 11 +million +million +≤96%7 +Combined ratio +4.6% +9.3% +Investment return 3 +Group +0 2012-20142 +20121 +2013 +2014 +Target attainment +Targets for 2014 +Key data +Business group +M01 +Target attainment +Combined management report +21 +2 +Hannover Re | Annual Report 2014 +Our integrated system of enterprise management is central +to the accomplishment of our strategic objectives. Located at +its core are, first and foremost, our profit and growth targets, +which are summarised for the Group and its business groups +in the so-called target matrix. In addition to traditional perfor- +mance indicators geared to the IFRS balance sheet, our system +of strategic targets also includes economic targets derived from +our internal capital model. The targets are regularly analysed +and adjusted as necessary, for example in the context of the +strategy review for the 2015-2017 cycle. Our focus is on long- +term strategic target attainment. +Value-based management +Management system +In life and health reinsurance we are recognised - as customer +surveys confirm +- as one of the top players and the leading +provider of innovative solutions. We have achieved this stand- +ing by opening up new markets and by fulfilling future cus- +tomer requirements through the identification and forecasting +of emerging trends. +In property and casualty reinsurance we consider ourselves to +be a reliable, flexible and innovative market player that ranks +among the best in any given market. Cost leadership, effective +cycle management and superlative risk management are the +key elements of our competitive position. +Our subsidiary E+S Rückversicherung AG, as the “dedicated +reinsurer for the German market", offers a range of products +and services tailored to the specific features of the German mar- +ket. Of special importance here are the mutual insurers with +whom we have established a particularly trusting cooperation +that is underscored through their participation in E+S Rück. +As a reinsurance specialist, we transact primary insurance in +selected market niches as a complement to our reinsurance +activities. In this context, we always work together with part- +ners from the primary insurance sector. +With a view to securing our financial strength on a lasting +basis, we steer our business with an eye to preserving a capital +base that is commensurate with the long-term nature of our +business opportunities. This goal is achieved through rigorous +risk management aligned with our clearly defined risk appetite. +Through the acceptance of largely uncorrelated reinsurance +risks by our Property & Casualty and Life & Health business +groups in all lines of business and based on our global pres- +ence, we are able to achieve efficient risk diversification. In +conjunction with our capital management, this is the key to +our comparatively low cost of capital. +We generate competitive advantages to the benefit of our cli- +ents and shareholders by conducting our insurance business +with lower capital costs and administrative expenses than our +rivals. In this way we deliver above-average profitability while +at the same time being able to offer our customers reinsurance +protection on competitive terms. +The business models in both property & casualty and life & health +reinsurance support our Group's paramount mission, namely: +"Long-term success in a competitive business". Our entire +business operations are geared to our goal of being the best +option for our business partners when they come to choose +their reinsurance provider. It is for this reason that our clients +and their concerns form the focus of our activities. +≥ 3.2% +Excluding effects from Mod Co derivatives and inflation swaps +3.3% +4.1% +3.5% +1.2% +3-5% +Gross premium growth +XROCA⁹ +EBIT margin⁹ +Property & +Casualty +reinsurance +19.7% +26.4% +3.6% +34.4% +≥ 10% +Value creation per share 5 +17.6% +40.2% +5.4% +10.1% +≥ 10% +(year-on-year comparison) +Growth in earnings per share +15.0% +15.4% +15.0% +14.7% +≥ 9.2% +Return on equity4 +3.6% +3.4% +With a gross premium volume of around EUR 14.0 billion, Han- +nover Re is the third-largest reinsurer in the world. We trans- +act reinsurance in our Property & Casualty and Life & Health +business groups. +4 +5 Growth in book value per share including dividends paid +226.6 +7.5% +175.7 +Life and health reinsurance +4.7% +255.7 +(39.8) +295.5 +10.7% +616.2 +Property and casualty +reinsurance +xROCA +2.0 +Final IVC +Reported IVC +xRoCA +IVC +2013 +2014 +in EUR million +M 03 +The adjusted operating profit (EBIT) is comprised of two fac- +tors: the IFRS Group net income recognised after tax and the +change in the balancing items for differences between eco- +nomic valuations and amounts stated in the IFRS balance sheet. +By way of the latter we make allowance for changes in the fair +values of assets not recognised in income under IFRS, discount +effects of the loss reserves and the Embedded Value Not Rec- +ognised (EVNR) in life/health reinsurance. In addition, inter- +est on hybrid capital already recognised in the IFRS Group net +income and the non-controlling interest in profit and loss are +included back in the calculation. +- +The IVC (Intrinsic Value Creation) is calculated according to +the following formula: +Adjusted operating profit (EBIT) – (capital allocated weighted +cost of capital) = IVC +measure strategy contributions with an eye to our +demanding profit and growth targets. +identify opportunities and risks and +Adjustment¹ +228.6 +8.4% +Investments² +A number of IFRS-based financial performance indicators are +also embedded in our strategic system of targets and coordi- +nated with our parameters for value creation derived from the +economic capital model. We use these indicators for opera- +tional management within the year, in part because they are +available promptly and also because they already provide ini- +tial pointers as to whether we are likely to achieve our higher- +order strategic objectives. These are for both business groups +the growth in gross premium, for property and casualty rein- +surance the combined ratio, for life and health reinsurance +the EBIT margin and for the Group as a whole the return on +investment. Non-financial performance indicators, on the other +hand, are not used for operational management within the year. +Operational management system +Since comparison of absolute amounts is not always meaningful, +we have introduced the xRoCA (excess return on capital allo- +cated) in addition to the IVC. This describes the IVC in relation +to the allocated capital and shows us the relative excess return +generated above and beyond the weighted cost of capital. +In calculating the cost of capital, our assumption - based on a +Capital Asset Pricing Model (CAPM) approach - is that the inves- +tor's opportunity costs are 450 basis points above the risk-free +interest rate, meaning that value is created above this threshold. +Our new strategic return on equity target of 900 basis points +above risk-free - which comes into effect from 2015 onwards - +thus already contains a substantial target value creation. We +allocate equity sparingly and use equity substitutes to optimise +our average cost of capital. At 5.6%, our average cost of capital +is comparatively low. +shareholders' equity including non-controlling interests, the +balancing items for differences between economic valuations +and amounts stated in the IFRS balance sheet and the hybrid +capital. In this context, capital that is not at risk (excess capital) +is disregarded, i. e. it is not broken down into business activi- +ties. Capital is allocated to the profit centres as described above +according to the risk content of the business in question. A +systematic distinction is made here between the assumption of +underwriting risks, on the one hand, and investment risks, on +the other. Under the IVC calculation, therefore, only risk-free +interest income on the generated cash flows is allocated to the +business segments of property/casualty and life/health rein- +surance. The investment income above and beyond risk-free +is allocated in its entirety to the functional area of investments +and included in the IVC after deduction of the risk-appropriate +cost of capital and the administrative expenses. +The allocated capital consists of three components: the IFRS Research and development +Above and beyond this, Hannover Re makes systematic efforts +to identify new business opportunities in order to achieve sus- +tainable growth and strengthen the profitable development +of the company. The goal is to generate new business and +thereby support Hannover Re's profitable growth on a lasting +basis. For further details please see the Opportunity report on +page 98 et seq. +Hannover Re | Annual Report 2014 +24 +24 +Income above risk-free after deduction of risk-appropriate cost of capital +Adjustment based on amended allocation of economic effects (property and casualty reinsurance/investments) and final MCEV calculation +(life and health reinsurance) +2 +1 +5.4% +568.9 +(48.2) +617.1 +12.0% +1,401.5 +Group +5.6% +98.1 +(10.5) +108.6 +26.2% +615.5 +optimise the allocation of capital and resources, +• +With the aid of the IVC ratio it is possible to compare the value +contributions of the Group as a whole, its two business groups +and the individual operational units. This enables us to reliably +identify value creators and value destroyers. In this way, we can +Hannover Re | Annual Report 2014 +Planning year -1 +process +Planning +PE Check2 +by Objectives +Management +Ressources +Risks +Results +Performance +Excellence +Executive Board +retreat/GMF 1 +Strategy +Plan +Performance Excellence (PE) combines the strategic and operational levels +System of value-based management: +In Performance Excellence (PE) we have at our disposal a con- +sistent method Group-wide that enables us to steer the develop- +ment of the company and measure the extent to which we have +achieved our strategic objectives. The decentralised approach +used by PE is of special importance in this context: every sin- +gle organisational unit defines and continuously examines its +contributions to execution of the Hannover Re Group strategy +and develops improvement initiatives. +Hannover Re | Annual Report 2014 +22 +Organic growth only; annual average growth (5 years); at constant exchange rates +Reclassification of treaties +11 +10 +Excess return on allocated economic capital +9 +8 EBIT/net premium earned +Including major loss budget of EUR 670 million +7 +6 Average over the reinsurance cycle at constant exchange rates +Implementation +After tax; target value: 750 basis points above the 5-year average return on 10-year German government bonds +Agreement on targets +Planning year +the foundation of our enterprise management, we strive to +generate a profit in excess of the cost of capital. This return - +which is the decisive ratio for the management of our busi- +ness activities - is referred to as Intrinsic Value Creation (IVC). +Intrinsic Value Creation and excess return on capital allocated +In order to fine-tune the portfolios and individual treaties we +apply underwriting-year-oriented measurement principles +based on expected cash flows that appropriately accommodate +the specific characteristics of property/casualty and life/health +reinsurance. The accomplishment of targets in a particular +financial year is also of interest - especially from the stand- +point of shareholders. Based on our economic capital model, +IVC - the decisive management ratio +The basis of value-based management is the risk-appropriate +allocation of capital to the individual business activities. This +enables us to evaluate the acceptance of underwriting risks +and investment risks both in light of individual risk/return +aspects and against the backdrop of our overall risk appetite. +Our economic capital model supplies the key parameters for +this purpose. In addition, along with considerations of business +policy, outside influencing factors such as the requirements of +regulatory authorities and rating agencies also play a major +role in the allocation of capital. Allowance is therefore made for +them in the form of collateral conditions on the various alloca- +tion levels. Starting out from the Group's overall risk situation, +capital is first allocated to the functional areas of underwriting +and investments. We then further divide the capital within the +underwriting sector, first between the business segments of +property/casualty reinsurance and life/health reinsurance and +then between the various reinsurance products and according +to risk categories/treaty types and lines. In this way, we ensure +that our profit targets including risk, cost and return considera- +tions are consistently factored into the evaluation and pricing +of our various reinsurance products. +Capital allocation +Combined management report +M02 +23 +Hannover Re | Annual Report 2014 +The annual Management Reporting presents in detail the +degree of target attainment for each individual treaty/regional +department and service unit as well as for the two business +groups of Property & Casualty and Life & Health and for the +Group as a whole. On this basis appropriate performance con- +trolling is carried out, potential scope for improvement and +refinement is identified and performance-oriented remunera- +tion components defined in the context of Management by +Objectives are established. +Management Reporting +The targets that emerge out of the planning process are inte- +grated into the individual agreements on objectives with man- +agers. When it comes to the definition of objectives, the par- +ticipants take into account not only standardised financial +indicators but also non-financial variables derived from the +strategic parameters. +Management by Objectives +The planning process spans the three levels of Results, Risks +and Resources, which are closely interrelated. These three lev- +els are planned by the responsible officers with central sup- +port and are reviewed and approved by the Executive Board. +On the basis of the corporate strategy and the corresponding +strategy contributions of all treaty/regional departments and +service units, the planning is adopted by the Executive Board +and subsequently communicated within the Group. +Planning process +Planning year +1 +Attainment of targets +Management +Reporting +Verification and elaboration of contributions to the Group strategy +from around the world for the purpose of defining strategic orientations. +1 The Global Management Forum (GMF) brings together senior managers of the Hannover Re Group +2 +PE Check2 +PE Check² +Executive Board +retreat/GMF1 +Evaluation +Executive Board +retreat/GMF1 +Competitive advantages due to our low cost of capital and administrative expense ratio +Financial strength secured through rigorous risk management +5.1% +Business model +30 +Business development +Overall assessment of the business position 35 +Results of operations +Property & Casualty reinsurance +Life & Health reinsurance +Investments +Financial position and net assets +Information on Hannover Rück SE +specific environment +35 +1112236 +As the third-largest reinsurer in the world, we transact all lines of property & casualty +and life & health reinsurance with the goal of achieving the most balanced possible regional +and line-based diversification +52 +60 +Other success factors +65 +Our staff +65 +Sustainability at Hannover Re +35 +Macroeconomic climate and industry- +30 +Report on economic position +Eduardo Llorente +Aguilera is a Senior +Underwriter with +Hannover Re work- +ing in the area of +"Personal Accident, +Sports and Entertain- +25 +Dipa Dass works as +a Manager, Client +Management, in the +area of "Life and +health reinsurance +South Africa" +Making natural disasters insurable +The increasing accumulation of values in high-risk areas, growing affluence, greater insurance densities and +climate changes are leading to a rise in insured losses from natural perils all around the world. In order to +ensure that such losses and damage can continue to be insured in the future, our scientists, actuaries and +underwriters work hand-in-hand on the risk-appropriate assessment of natural hazards. +Our long-standing experience and excellent risk management enable us to strike a fair balance between risk +acceptance and premium – to the benefit of our clients, the impacted regions and our company. In this way, +coverage can continue to be provided going forward for losses caused by hurricanes, typhoons, earthquakes +and other natural disasters. +POSTED +PREADINGT +Dr. Ole Hanekop +works as a Senior +Actuarial Analyst +at Hannover Re in +the field of natural +hazards modelling +Combined management report +Foundations of the Group +Business model +Management system +Research and development +21 +21 +21 +25 +67 +Opportunity and risk report +48 +Enterprise management +74 +Opportunity report +98 +101 +Declaration on Corporate Governance +101 +Remuneration report +105 +Outlook +130 +Forecast +130 +Events after the reporting date +136 +Foundations of the Group +Risk report +74 +Combined management report +Combined ratio 3 +Business development in the year under review +stable to slightly higher gross premium volume in the original +currencies. The level of retained premium retreated slightly to +87.6% (89.0%), while net premium earned rose by 1.6% to +EUR 12.4 billion (EUR 12.2 billion). At unchanged exchange +rates growth would have come in at 1.5%. +We are absolutely satisfied with the development of our +results for the 2014 financial year. The operating profit (EBIT) +improved by a further substantial 19.3% on the very good pre- +vious year to reach EUR 1,466.4 million (EUR 1,229.1 million). +Despite the broadly challenging environment, both in reinsur- +ance business and on capital markets, we generated the highest +Group net income in our company's history at EUR 985.6 mil- +lion (EUR 895.5 million). Along with the healthy investment +income, this was driven by a very good result in property and +casualty reinsurance and the considerably improved perfor- +mance of life and health reinsurance. Earnings per share for +the Hannover Re Group amounted to EUR 8.17 (EUR 7.43). +The equity attributable to shareholders of Hannover Re also +developed favourably in the year under review: in view of the +increase in retained earnings, sharply higher valuation reserves +and positive movements in exchange rates, shareholders' +equity grew by a substantial 28.2% relative to the position +at year-end 2013 to reach EUR 7.6 billion (EUR 5.9 billion). +Despite this vigorous increase, we generated another very good +return on equity of 14.7% (15.0%). This figure is clearly in +excess of our minimum target of 9.2%. The book value per +share also rose substantially: it reached EUR 62.61 for 2014 +compared to EUR 48.83 at the end of the previous year; this +is the highest book value per share in the company's history. +The total policyholders' surplus, consisting of shareholders' +equity, non-controlling interests and hybrid capital, amounted +to EUR 10.2 billion (EUR 8.8 billion) as at 31 December 2014. +Gross premium growth (Group) +Gross premium growth for +Property & Casualty reinsurance +Gross premium growth for +Life & Health reinsurance +Return on investment³ +Group net income +At constant exchange rates +Forecast 2014 +stable to slightly higher +gross premium volume¹ +stable 1 +growth in the low to mid-single-digit +percentage range 1.2 +≈ 3.2% +EUR 850 million 4 +M05 +Target attainment 2014 ++2.8% at constant exchange rates ++2.9% not adjusted for currency effects ++1.2% at constant exchange rates ++1.1% not adjusted for currency effects ++4.9% at constant exchange rates ++5.1% not adjusted for currency effects +3.3% +EUR 985.6 million +The gross premium in our total business increased slightly by +2.9% as at 31 December 2014 to EUR 14.4 billion (EUR 14.0 bil- +lion). At constant exchange rates the increase would have been +2.8%. We thus achieved our guidance, which had anticipated +Total result +Net realised gains on investments as at 31 December 2014 +rose sharply to EUR 182.5 million (EUR 144.2 million), con- +trasting with negative fair value changes of -EUR 33.3 million +(-EUR 27.1 million) in our financial assets measured at fair +value through profit or loss. Write-downs were again taken in +only a minimal volume in the year under review, the vast bulk +of them being due to scheduled depreciation on real estate. +Although conditions on financial markets remained challeng- +ing, income from assets under own management surpassed the +previous year's level to reach a pleasing EUR 1,095.8 million +(EUR 1,054.5 million). The resulting annual return (excluding +ModCo derivatives and inflation swaps) amounted to 3.3% +(3.4%). It thus came in slightly higher than our anticipated +figure of 3.2%; this was due to higher net realised gains in +connection with the change in reporting currency at our Ber- +muda subsidiaries and the redemption of a bond issued in +2004. Steps taken to act on opportunities for realising gains in +the real estate sector were also a positive factor here. Invest- +ment income including interest on funds withheld and con- +tract deposits consequently increased to EUR 1,471.8 million +(EUR 1,411.8 million), a gain of 4.3%. +Despite the sustained low level of interest rates, ordinary +investment income excluding interest on funds withheld and +contract deposits came in at EUR 1,068.4 million, a slightly +higher level than in the previous year (EUR 1,041.3 million). +Interest on funds withheld and contract deposits improved to +EUR 376.1 million (EUR 357.3 million). +7,717 +6,826 +6,339 +3,000 +7,903 +Investments +Bearing in mind the protracted low interest rate environment, +we are thoroughly satisfied with the development of our total +investments as at 31 December 2014. The portfolio of invest- +ments under own management stood at EUR 36.2 billion, a +level comfortably higher than at the end of the previous year +(31 December 2013: EUR 31.9 billion). The increase derived +in large measure from the currency revaluation of our holdings +in US dollars and pound sterling. Additional factors were the +positive operating cash flow as well as a further increase in the +hidden reserves for our fixed-income securities due to declining +yields on government bonds in our main currency areas. +0 +Assuming stable capital markets and/or major loss expenditure in 2014 that does not exceed EUR 670 million +2010 +2012 +2013 +2014 +Property & Casualty reinsurance +Life & Health reinsurance +Hannover Re | Annual Report 2014 +33 +Combined management report +2011 +7,818 +2 Organic growth only +Excluding inflation swaps and ModCo derivatives +2012 +2011 +2010 +in EUR million +Gross written premium +7,903.4 +previous year ++1.1% +7,817.9 +7,717.5 +6,825.5 +6,339.3 +Net premium earned +7,011.3 ++2.1% +6,866.3 +6,854.0 +6.88 +2013 ++/- +2014 +1 +4 +34 +34 +Hannover Re | Annual Report 2014 +Overall assessment of the business position +The Executive Board of the Hannover Re Group is satisfied +with the development of business in 2014. Not only did the +company achieve its targets for important key indicators such +as the operating profit (EBIT) and Group net income, return +on equity and combined ratio, in some cases it also clearly +surpassed them. The investment income and the generated +return on investment developed successfully bearing in mind +the continued low level of interest rates. Group net income +reached the highest level ever recorded in the company's his- +tory. The company's shareholders' equity also showed a very +pleasing increase, as a consequence of which the total policy- +holders' surplus now stands at a new record high. At the time +of preparing the management report, the business position +of the Hannover Re Group remains highly favourable and its +financial strength has been further strengthened. +Results of operations +3 +In the following sections we discuss the development of the +financial year in our two strategic business groups, namely +Property & Casualty reinsurance and Life & Health reinsurance, +as well as the performance of our investments and the financial +position and assets of our Group. Supplementary to the informa- +tion provided here, the segment reporting in Section 5 of the +notes to this Annual Report shows the key balance sheet items +and profit components of the two business groups. +• +Highest-ever Group net income of EUR 829.1 million +Major loss expenditure significantly below expectations at EUR 425.7 million +Pleasing combined ratio of 94.7% +Currency-adjusted premium growth of +1.2% according to plan +Accounting for 55% of our premium volume, Property & Casu- +alty reinsurance is Hannover Re's largest business group. Effec- +tive 1 September 2014 we reorganised the responsibilities in +property and casualty reinsurance owing to a change on the +Key figures for Property & Casualty reinsurance +Executive Board, as a result of which the composition of our +Board areas of responsibility – “Target markets”, “Specialty +lines worldwide" and "Global reinsurance” – differs somewhat +from the previous year in terms of markets and regions. +M06 +Property & Casualty reinsurance ++2.7% +6,000 +9,000 +state also played its part in growth - boosting arms spending, +for example, to an extent not seen for years. Gainful employ- +ment continued to rise on the labour market, causing the jobless +rate to fall to its lowest level in a long time in October at 5.8%. +Europe +While the Eurozone economy recovered in 2014, it remained +weak overall. After the decline of the previous year (-0.4%), +modest growth of 0.8% was recorded in 2014. Two key factors +in the persistently unsatisfactory development of the economy +were the protracted sluggish growth in Italy (-0.4%) and the +fact that Germany's uptick came very late in the year. In France, +too, economic output climbed only marginally (+0.4%). In cri- +sis-ridden Greece the recovery was sustained (+1.0%) and in +Spain, too, the economy began to rally (+1.3%). The European +labour market continued to stabilise, although unemployment +was still high at 11.6% and the disparities between individual +countries were in some cases considerable. The rise in con- +sumer prices was again smaller than in the previous year at +just 0.5%. +Growth in Europe was supported by further monetary policy +measures taken by the European Central Bank (ECB) in June +and September of 2014 as well as by the sharp drop in the price +of oil towards year-end. +Germany +Buoyed by the mild winter weather, the economy in Germany got +off to a good start in 2014. However, the investment climate soon +began to cool appreciably during the spring. It was not until the +end of the year that signs of a recovery began to emerge again. +For the year as a whole gross domestic product grew by 1.5%. +Private consumption was a major driver of the upswing, with low +interest rates and modest energy prices further helping to boost +consumption. The overall economic development was also helped +by foreign trade: exports grew more strongly than imports during +the six summer months. All in all, though, it was the domestic +economy that remained the most significant growth engine. The +recovery on the labour market was sustained over the year as a +whole, with the working population reaching a record level of +43.1 million in November (+1.0%). +Hannover Re | Annual Report 2014 +Combined management report +Prices in Germany continued to trend higher in 2014, although +low energy costs put a significant brake on inflation. Consumer +prices rose by 1.0%. On the domestic producer side prices for +intermediate, capital and consumer goods moved higher, while +the upsurge in the cost of construction work was sustained. +The increase in residential property prices was comparatively +moderate. +Asia +After showing marked weakness in the first half of 2014, pro- +duction rallied in most major emerging economies in the sec- +ond half of the year. In China the recovery had already set in +during the spring, although the full-year growth figure of 7.4% +was moderate by that country's standards. What is more, it was +assisted by temporary economic policy stimuli. On the market +side the Chinese economy benefited from particularly lively +foreign demand; it came under strain, on the other hand, from +the downturn on the property market. This depressed prices +for residential accommodation and curtailed the impetus for +higher consumer prices. +India extended its growth rate year-on-year to 5.9%, although +the pace of the increase in industrial output was already slow- +ing towards year-end. +In Japan the hike in value-added tax in the spring prompted +a steep drop in demand among consumers, which dissipated +only hesitantly as the year progressed. Business activity was +also noticeably depressed, slumping particularly sharply in +the second quarter of 2014. This prompted the central bank to +resort once more to monetary policy measures. By year-end the +signs were again pointing towards recovery. All in all, growth +came in at 0.2% for 2014. +Capital markets +The lingering effects of the Euro debt crisis on capital markets +were merely indirect in 2014. Markets were considerably more +influenced, especially towards year-end in the Eurozone, by +concerns among market players that deflation might take hold. +The expansionary monetary policy pursued by central banks +in our main currency areas (euro and US dollar) was there- +fore maintained. The European Central Bank (ECB) trimmed +the main interest rate for Euroland twice in the course of the +year from 0.25% to the current level of 0.05%, while the US +Federal Reserve left key interest rates unchanged in the low +range of 0.00% to 0.25% - where they have been since 2008. +It should, however, be noted that the Federal Reserve discon- +tinued its supportive purchases on the US bond market in the +fourth quarter, whereas the ECB put just such a bond-buying +programme on the table at year-end for the Euro government +bond market. Over the year as a whole German and UK govern- +ment bonds saw sometimes marked declines in yields across all +maturities. The yield on ten-year German government bonds, +for example, retreated from 1.9% to 0.5% in the course of +the year. These declines were facilitated by the anticipation +of impending active market intervention by the ECB as well +as by considerable liquidity in the markets and the search for +safe investment opportunities. In the case of US Treasuries, +isolated modest yield rises could be observed only in the short- +to medium-term maturity segments; here too, however, longer +maturities saw yields drop. The return on ten-year US Treas- +uries, for example, fell from 3.0% to 2.2% over the course +of the year. This decline can be attributed primarily to muted +inflation expectations. As for the European nations with higher +risk premiums that have been the focus of so much attention +in recent years, the picture was largely one of recovery. Greek +government bonds reflected emerging uncertainties at the end +of the year about the country's future economic policy with +rising yields. Risk premiums on investment grade corporate +bonds in our main currency areas decreased somewhat as the +year progressed. The picture in the sub-Investment grade seg- +ment was a mixed one. The declines in yields that ultimately +ensued were fuelled principally by the interest rate component. +Major equity markets moved higher in the course of the year, +in some cases soaring to new record highs, although only the +US market was able to book appreciable price gains over the +year as whole. In contrast, European indices were, if anything, +left treading water year-on-year. Here, too, markets were influ- +enced by the continued expansionary monetary policy pursued +by central banks and by the quest among investors for high- +return investments. Ultimately, though, the elevated price lev- +els could only partially be explained by the underlying funda- +mentals. The development of the world's economy continues +to be subject to a broad range of uncertainties and risks. Most +notably, the global patchwork of differing economic develop- +ments and local flashpoints such as in Ukraine may be men- +tioned as causal factors here. These disparities are being fur- +ther exacerbated by the precipitous fall in the price of oil, +which has a beneficial economic effect on countries with a +large appetite for energy but jeopardises the budgets of oil- +producing nations. +The US economy was able to put its upward trend on a stable +footing: gross domestic product (GDP) recorded a growth rate +of 2.2%, just as in the previous year. The economy in the US +thus expanded more vigorously than virtually any other indus- +trialised nation. Exports picked up, but other sectors of the +economy also showed impressive gains. Along with increased +investment by companies and higher consumer spending, the +United States +Economic developments in emerging markets gave more +grounds for satisfaction in 2014, although the underlying ten- +dency remains muted. China and India saw the onset of a low- +level revival during the course of the year. This was also true +of Latin America, where Brazil turned the corner after sinking +to an economic low point. While Russia did not experience +the anticipated decline in total economic output thanks to a +record grain harvest, the political crisis in relation to Ukraine +cast an increasingly dark shadow over its investment climate. +In advanced economies and economic regions the cyclical +trend also varied rather widely: positive signals came out of +the United States and United Kingdom. Thanks to the consid- +erably brighter state of their labour markets, the expansion- +ary trend in both countries gathered appreciable momentum. +In the Eurozone, on the other hand, business activity picked +up only marginally - after the economic recovery had actually +ground to a complete halt in the spring – because there was +no significant improvement in the basic framework conditions. +Japan even slipped back into recession, although this is likely +to be merely temporary. +Sport and entertainment +Sport has grown into an important economic factor, as evidenced by the rising number of investors buying +up football clubs from the richest leagues. Yet business success is dependent not only on sporting success +but also on good risk management, especially when it comes to major events faced with the possibility of +cancellation or relocation due to terrorist attacks, severe weather, boycotts, political unrest etc. +Hannover Re offers insurance solutions designed to minimise the uncertainties associated with risks, for +example, in connection with the accident-related absence of sporting figures or the loss of income or profits +due to weather events or other natural disasters. +Top-flight football clubs increasingly have a vested interest in protecting their balance sheets by taking out +coverage for their human capital so as to be compensated for the equivalent value if one of their players is +incapacitated due to accident or illness. +Karin Fröhling is a +General Manager +with responsibility +for the longevity +business written +by Hannover Re +worldwide +Regular premium annuity treaty +Retirement related liabilities substantially increased during the last years due to improved life expectancy +and current low interest rates. For corporations offering occupational pensions and pension funds this is +problematic as the uncertainty about future liabilities makes mergers and acquisitions difficult. In addition, +corporations are frequently pressurised from shareholders to focus on their core business. Therefore, they are +looking for a way to reduce their longevity risk. Hannover Re offers a solution that conserves the company's +liquidity position while providing planning reliability about future liabilities: the regular premium annuity +treaty. Hannover Re considers the diversification for its portfolio to be beneficial and is therefore able to offer +competitive conditions to its clients for longevity transactions. +30 +The euro dropped sharply year-on-year against the US dollar +from USD 1.38 to USD 1.22. It similarly depreciated consider- +ably against the pound sterling as well as the Australian and +Canadian dollar, especially in the second half of the year. This +can be attributed in large measure to the prevailing low level +of returns offered by the euro area, but also reflects the mini- +mal expectations as to a recovery any time soon. +30 +Macroeconomic climate and industry-specific environment +• +Global economy shows patchy growth; deflation concerns in Europe +Sustained low interest rates remain a challenge for insurers +Solvency II Directive set for Europe-wide implementation in 2016 +Modest losses from natural disasters +Macroeconomic climate +The global economy grew by 3.4% in 2014, a figure slightly +higher than in the previous year (3.2%). From a medium-term +perspective this represents a moderate growth rate. Within the +year, however, the development of the world's economy can +be split into two phases: after only a very restrained increase +in output during the first six months of the year, it picked up +sharply in the second half. Global trade also moved in step +with output. +Report on economic position +-5,090 +For more detailed remarks on the development of Hannover +Re's investments please see the "Investments" section on +page 52 et seq. +31 +15,000 +13,774 +13,963 +12,096 +12,000 +11,429 +14,362 +M04 +Life & Health reinsurance +As anticipated, our life and health reinsurance business showed +a pleasing development in the financial year just ended. Despite +the fresh challenges faced by life and health reinsurance as a +consequence of the appreciable increase in international com- +petition and the strained state of capital and financial markets, +we boosted our gross premium volume by 5.1% to EUR 6.5 bil- +lion (EUR 6.1 billion). Adjusted for exchange rate effects, the +growth of 4.9% was within the bounds of our expectations for +2014. The planned target of more than EUR 180 million for the +Value of New Business was clearly surpassed in the year under +review at EUR 448.4 million. For more detailed information +in this regard and on the Market Consistent Embedded Value +(MCEV) please see the MCEV Report published separately on +our website. +Investment income improved slightly by 0.4% to EUR 614.2 mil- +lion (EUR 611.5 million). Of this, EUR 258.5 million +(EUR 269.1 million) was attributable to assets under own man- +agement; the remaining EUR 355.7 million (EUR 342.4 mil- +lion) derived from securities deposited with ceding companies. +The operating profit (EBIT) normalised in the reporting period +and reached a level of EUR 263.8 million (EUR 150.5 million). +The sharp rise of 75.3% year-on-year was due largely to +reduced strengthening of reserves as well as lower losses in +Australian disability business. The EBIT margin for mortality +and morbidity business consequently developed favourably +in the reporting period compared to the previous year, but at +4.8% it still fell short of our 6% target. Financial solutions and +longevity business, on the other hand, which delivered EBIT +margins of 6.5% and 2.9% respectively, comfortably beat their +2% target and clear reflected the pleasing profitability of the +underlying business. +The normalised and generally positive business development +in life and health reinsurance caused Group net income for this +business group to improve substantially on the previous year's +performance: it came in at EUR 205.0 million (EUR 164.2 mil- +lion) for the financial year just ended, thereby boosting the +relative contribution made to overall Group net income. +6,459 +6,145 +6,058 +5,270 +in EUR million +Gross premium by business group +The underwriting result was also thoroughly gratifying +at EUR 351.5 million (EUR 335.5 million). With major loss +expenditure coming in well below the expected level, the com- +bined ratio of 94.7% showed another slight improvement on +the previous year's very good figure (94.9%). The operating +profit (EBIT) as at 31 December 2014 climbed by 12.2% to +EUR 1,190.8 million (EUR 1,061.0 million). The EBIT margin +amounted to 17.0% (15.5%), thereby comfortably beating the +target of at least 10% and reflecting the outstanding perfor- +mance in property and casualty reinsurance. Group net income +in property and casualty reinsurance reached EUR 829.1 mil- +lion (EUR 807.7 million), the highest figure to date in the +company's history. This represents an increase of 2.7% on +the previous year. +Investment income from assets under own management for +property and casualty reinsurance rose by 7.4% year-on-year to +reach EUR 823.2 million (EUR 766.2 million). This was assisted +inter alia by an improved result from the fair value develop- +ment of the inflation swaps, which stood at -EUR 28.8 million +after -EUR 41.0 million in the comparable period, and higher +realised gains. We use inflation swaps to help hedge inflation +risks associated with part of the loss reserves in our techni- +cal account. +Industry-specific environment +The tense economic climate and the associated economic pol- +icy measures still in place in some areas again shaped the land- +scape for the international insurance industry in 2014: faced +with protracted low interest rates, particularly great impor- +tance attaches to preserving the value of investments and the +stability of returns. +The interest rate situation continued to be reflected in the tech- +nical pricing of premiums on primary and reinsurance markets. +Discipline was once again the order of the day in 2014 so as +to offset further declines in investment income. +With investors searching for higher-return investments, +the market for insurance-linked securities (ILS) once again +attracted very substantial (re)insurance capacity: additional +alternative capital here came up against an unchanged level of +demand. Pressure on prices and conditions consequently inten- +sified still further, especially in natural catastrophe business. +In addition, (re)insurers were heavily preoccupied in the year +under review with the impending implementation of the Sol- +vency II Directive - which is now planned for 2016. Most sig- +nificantly, the preparations for the new requirements presented +companies with considerable challenges: in 2014, for example, +a stress test was conducted under Solvency II conditions by the +European regulator EIOPA (European Insurance and Occupa- +tional Pensions Authority) – supported inter alia by Germany's +Federal Financial Supervisory Authority (BaFin) – as a form of +dress rehearsal for insurance undertakings. The participants +on the German side included property/casualty as well as life +and health insurers. It was evident from the test that the rein- +surance industry, in particular, meets and in some cases com- +fortably surpasses all requirements to the necessary extent. +The announced reform of the UK Pensions Act by the Chancel- +lor of the Exchequer in March of the year under review caused +a stir in that country's pensions market. For the longevity (re) +insurance industry, it means that the current tried and tested +insurance solutions will have to be reworked and modified in +line with the changed conditions and requirements. +Generally speaking, though, the favourable development of lon- +gevity business in Europe - including for example in France, +Spain and Scandinavia – has given grounds for satisfaction. +Stronger demand for reinsurance protection in this segment +has reaffirmed our expectation that due to shifts in demograph- +ics the insurance market for longevity risks offers a promising +business potential which extends well beyond the borders of +the United Kingdom. +Hannover Re | Annual Report 2014 +In 2014 the industry incurred relatively slight insured losses +from extreme weather events. A winter storm that impacted +Japan in February was the most expensive natural catastro- +phe for the (re)insurance sector, measured by the total eco- +nomic losses. In Europe storm Ela, which swept across France, +Belgium and western Germany over the Pentecost weekend, +caused the heaviest losses. +Highest Group net income in Hannover Re's history +Very good result in property and casualty reinsurance +Major loss expenditure well below the expected level +Pleasing development in life and health reinsurance +Very good investment income despite challenging conditions +Further strengthening of capital base +Return on equity surpasses target at 14.7% +We are thoroughly satisfied with the development of our busi- +ness in the year under review. We further improved on the +record profit of 2013 and - at EUR 985.6 million achieved +the highest ever Group net income in company history. This is +especially gratifying in view of the fact that market conditions +for reinsurers in the financial year just ended were even more +challenging than in the comparable period and the protracted +low level of interest rates has curtailed opportunities to gener- +ate returns on the investment side. +Please find below a brief summary of the development of our +two business groups - Property & Casualty and Life & Health +reinsurance - and our investments. More detailed information +is to be found on pages 35 to 53. +32 +32 +Hannover Re | Annual Report 2014 +Property & Casualty reinsurance +We are highly satisfied overall with the development of our +business in property and casualty reinsurance, even though +competition was even more intense than in the previous year. +Despite our selective underwriting policy, we were able to mod- +estly grow our premium income. Gross premium increased by +1.1% as at 31 December 2014 to EUR 7.9 billion (previous +year: EUR 7.8 billion). At constant exchange rates the increase +would have been 1.2%. +Business development +6.70 +5.68 +3.78 +M09 +Breakdown of proportional and non-proportional +Target markets Specialty lines worldwide Global reinsurance +2014 +2013 +2012 +2011 +2010 +0 +2,194 +2,048 +2,521 +2,619 +2,634 +2,329 +16.1% Asia +2,289 +treaties by volume +and direct business +in % and in EUR million +Breakdown into business written through brokers +(37%) +6,339 +2,878 +(36%) +2,880 +6,826 +7,903 +7,818 +7,717 +2,725 +6,000 +6,826 +8,000 +7,903 +7,818 +7,717 +8,000 +M 10 +in % and in EUR million +6,339 +3,066 +(39%) +2,576- +Rest of Europe +2.2% Australia +Geographical breakdown of gross written premium +in 2014 +M07 +Gross written premium in P&C reinsurance +in EUR million +Property & Casualty reinsurance at a glance +Combined management report +35 +Hannover Re | Annual Report 2014 +Including expenses on funds withheld and contract deposits +3 +2 Operating result (EBIT)/net premium earned +1 Adjusted pursuant to IAS 8 +98.2% +104.3% +95.8% +94.9% +94.7% +7,717 +7,818 +7,903 +8,000 +20.3% +United Kingdom +13.3% +24.8% North America +M08 +1,962 +2,342 +2,000 +2,717 +4,000 +12.4% Germany +2,471 +2,467 +2,708 +6,339 +7.4% Latin America +6,826 +3.5% Africa +6,000 +6,000 +2,517 +(37%) +2,509 +(40%) +Net investment income +843.6 ++8.0% +781.2 +944.5 +845.4 +721.2 +Operating result (EBIT) +1,190.8 ++12.2% +1,061.0 +1,091.4 +599.3 +879.6 +Group net income +829.1 ++2.7% +82.4 +(268.7) +272.2 +335.5 +4.82 +EBIT margin² +17.0% +15.5% +15.9% +10.1% +16.3% +581.0 +807.7 +Retention +89.9% +90.2% +91.3% +5,960.8 +5,393.9 +Underwriting result +351.5 ++4.8% +90.6% +685.6 +455.6 +Hannover Re | Annual Report 2014 +5,096 +5,359 +(69%) +5,267 +(68%) +(64%) +4,752 +(61%) +4,837 +(63%) +4,309 +-(63%) +-3,830 +(60%) +(64%) +2,000 +4,000 +4,000 +2,409 +(38%) +2,526 +(37%) +(36%) +2,807 +2,459 +(31%) +2,450 +(32%) +5,025 +88.9% +2,000 +4,300 +-(63%) +direct business +2014 +2013 +2012 +business written through brokers +non-proportional +proportional +2011 +-3,930 +(62%) +2010 +2013 +2012 +2011 +2010 +0 +0 +36 +36 +2014 +Earnings per share in EUR +Property & Casualty reinsurance: +Continental Europe +500 +885 +819 +0 +2010 +2011 +2012 +2013 +2014 +North America +Continental Europe +North America +M13 +1,406 +1,213 +The North American (re)insurance market is the largest single +market both worldwide and for Hannover Re. Our business is +written through brokers. +After pausing for breath in the first half of 2014, the US econ- +omy picked up the pace of growth again as the year progressed, +hence also pushing up the premium volume in the original +market. Given the continued absence of significant natural +catastrophe events in the United States, the combined ratio +for the reinsurance market was once again better than that of +the primary market. +The rate increases that have prevailed in the original market +since 2011 flagged appreciably over the course of the year +under review. In most lines, however, increases of 1% to 2% +were still recorded. In some property insurance lines the trend +turned negative. This was especially true of large programmes, +whereas under small and mid-sized programmes the situation +remained relatively stable. Casualty business in the original +market continued to see rate increases, albeit at a declining +pace. Conditions here for the most part remained unchanged. +Sporadic rate increases were observed in Canada on the back +of the flood losses in 2013, but overall rates here were flat or +softened slightly. +1,177 +Intense competition was the hallmark of the US property rein- +surance market in the year under review. An absence of mar- +ket-changing major losses coupled with reduced reinsurance +cessions on the part of primary insurers led to further rate +cuts, sometimes running into double-digit percentages. Only +for loss-impacted programmes were modestly positive price +adjustments recorded. Some softening in conditions could also +be observed, for example in the form of longer hours clauses +or poorer reinstatement conditions. +1,124 +1,229 +99.4% +38 +Hannover Re | Annual Report 2014 +Combined management report +Target markets +We classify North America and Continental Europe as target +markets. The premium volume remained virtually unchanged +at EUR 2,619.4 million (EUR 2,634.2 million). This puts us +in line with our planning. The combined ratio improved to +92.5% (100.4%), as a consequence of which the operating +profit (EBIT) rose very substantially to EUR 507.6 million +(EUR 277.2 million). +Breakdown of gross written premium in target markets +in EUR million +3,000 +2,634 +2,619 +2,521 +2,500 +2,194 +2,048 +2,000 +1,457 +1,397 +1,500 +-1,309 +1,000 +Rates in the US catastrophe XL market came under additional +pressure due to the inflow of capital from alternative markets +and the sustained decline in prices - a reflection of the favour- +able loss experience for US hurricanes. +The pressure on rates similarly intensified in US casualty busi- +ness in the year under review. Under proportional programmes +conditions also deteriorated for reinsurers. This included +instances of coverage extensions, more limits of liability or +increased cost reimbursements. +Even though no particularly notable loss events occurred in the +casualty sector, the greater awareness of cyber-risks - given +the topicality of this issue - will trigger stronger demand in +this area. +40 +Hannover Re | Annual Report 2014 +The loss situation in Germany was once again notable in the +year under review for a number of extreme weather events. +The largest such loss event was storm Ela in June 2014, which +cost the German insurance industry some EUR 650 million. +Rest of Continental Europe +European markets are still intensely competitive; this is true +not only of countries in Central and Eastern Europe but also of +most mature markets such as France. Along with difficult eco- +nomic conditions, surplus capacities put the insurance indus- +try under strain; rate reductions and poorer conditions were +therefore once again a feature of the French market, especially +in the industrial lines. We nevertheless succeeded in maintain- +ing our market share, in part by increasing our shares with +selected cedants and also by writing additional business in +less competitive lines. Hailstorm Ela caused sizeable losses in +France and Belgium as well, both in the property lines and in +motor own damage. +Despite a slow economic recovery in Spain and Portugal, the +insurance industry is still suffering from a contraction in pre- +mium volume. With this in mind, the margins that can be +erated are limited. +The premium volume for specialty lines contracted in the year +under review from EUR 2,716.8 million to EUR 2,575.6 million. +The combined ratio deteriorated from 93.0% to 100.2%. The +operating profit (EBIT) for specialty lines fell to EUR 169.4 mil- +lion (EUR 339.6 million). +Property & Casualty reinsurance: Breakdown of gross M 16 +written premium in worldwide specialty lines +in EUR million +3,000 +2,500 +2,329 +2,289 +2,000 +-669 +-603 +2,725 +2,717 +2,576 +Once again we made personal accident business a special focus +of our attention. In the year under review, for example, we +successfully completed development work on our functional +disability insurance product for children. Children aged four +or older now have access to comprehensive accident and dis- +ability coverage encompassing an accident annuity, an annu- +ity for diminished organ function, pension benefits due to the +loss of one or more basic skills and pension benefits based +on a need for long-term care from care level 1 or higher (LTC +annuity). With the aid of the “EsmerIT” underwriting tool that +we have developed in-house and make available to our ceding +companies free of charge, quick and uncomplicated underwrit- +ing can be performed directly at the point of sale. +Motor liability insurance continued to stabilise in the year +under review on the back of tariff increases. Allowing for the +run-off from previous years, the combined ratio for the year as +a whole is likely to reach a level of 96% market-wide. General +liability business in Germany will similarly see the technical +income statement close in positive territory. +The impact of moves to rehabilitate the motor own damage +line was curtailed in the face of heavy losses from storm Ela +in June which also left its mark on homeowners insurance - +as well as belatedly reported claims from the storms of the +previous year. Yet the line closed in the black for the first time +since 2007. Given the increased frequency of extreme weather +events in Germany and the associated higher loss expenditure, +there is now greater awareness of the resulting risks. Using +highly specialised analysis programmes, we assist our custom- +ers with the individual exposure mapping of their own dam- +age portfolios and draw on these insights to develop bespoke +reinsurance solutions. +The state of property and casualty insurance in Germany +revealed a clear dichotomy in the year under review: whereas +the premium quality in retail lines improved, especially in +motor and homeowners business, industrial lines - above all +fire insurance - were fiercely competitive. A further factor is +that loss ratios here have been rising steadily since 2010, yet +underwriting profits have not been generated market-wide +since 2011. Despite slight premium increases in industrial fire +business in 2013 and 2014, it remained the case that in the +year under review - with a combined ratio well in excess of +100% the market showed no effects of the efforts made to +restore business to profitability. Against this backdrop, we are +adhering to a highly selective underwriting approach. +Hannover Re is very well positioned in the North American +market and thanks to its excellent rating, its financial standing +and its experience the company is a valued partner for its cli- +ents. This is especially important in long-tail liability business. +Access to the entire market spectrum enables us to optimally +diversify our portfolio: we write business in the United States +and Canada with some 600 clients. +On the claims side North America experienced a number of +smaller natural catastrophe events, which resulted in merely +moderate losses for reinsurers. This was particularly the case +with the hurricane season, which again passed off thoroughly +benignly in the year under review. We incurred a loss from +only one event. In addition, Hannover Re booked a major loss +of EUR 15.8 million for net account from a fire loss. +Hannover Re | Annual Report 2014 +39 +Property & Casualty reinsurance: Breakdown of gross +written premium in North America by line of business +8.5% Motor +41.9% Liability +M14 +49.6% Property +94.1% +Despite the competitive climate and our margin-oriented under- +writing policy, the gross premium for our business in North +America rose slightly to EUR 1,213.4 million (EUR 1,177.3 mil- +lion). The combined ratio improved in the year under review +to 91.8% (93.1%). The operating profit (EBIT) climbed to +EUR 258.2 million (EUR 236.4 million), a performance with +which we are highly satisfied. +We group together the markets of Northern, Eastern and Cen- +tral Europe as Continental Europe. The largest single mar- +ket here is Germany. The premium volume for our business +in Continental Europe in the year under review came in at +EUR 1,406.1 million (EUR 1,456.9 million). The combined ratio +stood at 93.1% (106.1%). The operating profit (EBIT) improved +to EUR 249.4 million (EUR 40.7 million). +M 15 +Property & Casualty reinsurance: Breakdown of gross +written premium in Continental Europe by line of business +9.9% Other +30.6% Motor +Germany +36.0% Property +23.5% Liability +The German market - the second-largest in the world for prop- +erty and casualty reinsurance - is served within the Hanno- +ver Re Group by our subsidiary E+S Rück. As the "dedicated +reinsurer for Germany", the company is a sought-after part- +ner thanks to its very good rating and the continuity of its +business relationships. E+S Rück is superbly positioned in its +domestic market and a market leader in property and casualty +reinsurance. +46 +102.6 +617.8 +48.6% +-5.2% +2,716.8 +169.4 +100.2% +95.9% +Marine +280.6 +-4.1% +292.7 +85.7 +67.2% +94.2% +Aviation +364.0 +-9.4% +401.7 +(2.4) +112.1% +97.3% +2,575.6 +Specialty lines worldwide +96.5% +93.1% +(MtCR) +Target markets +2,619.4 +-0.6% +2,634.2 +507.6 +92.5% +95.9% +North America +Credit, surety and political +1,213.4 +1,177.3 +258.2 +91.8% +95.1% +Continental Europe +1,406.1 +-3.5% +1,456.9 +249.4 +3.1% +752 +risks +-10.3% +91.6% +95.9% +Worldwide treaty reinsurance +1,480.7 +0.2% +1,477.6 +225.6 +98.5% +98.1% +Catastrophe XL (Cat XL) +310.0 +-16.6% +371.5 +185.6 +39.3% +75.5% +Structured reinsurance and +Insurance-linked securities +917.7 +513.8 +2,466.9 +9.8% +2,708.4 +592.5 +87.2 +92.2% +96.0% +UK, Ireland, London market +and direct business +442.0 +-21.2% +561.2 +531.4 +(12.8) +95.5% +Facultative reinsurance +957.6 +10.2% +868.7 +11.8 +103.9% +95.8% +Global reinsurance +110.3% +869 +958 +641 +-1,124 +0 +2010 +2011 +2012 +2013 +2014 +Worldwide treaty reinsurance ☐ Catastrophe XL +Structured reinsurance and ILS +Worldwide treaty reinsurance +310 +1,481 +We were satisfied with the development of our worldwide treaty +reinsurance portfolio. The gross premium volume nudged +higher in line with our expectations to reach EUR 1,480.7 mil- +lion (EUR 1,477.6 million). The combined ratio deteriorated +from 95.0% to 98.5%. The operating profit (EBIT) increased +to EUR 225.6 million (EUR 217.9 million). +Property & Casualty reinsurance: Breakdown of gross +written premium in worldwide treaty reinsurance +10.7% Other +23.4% Motor +6.7% Liability +Asia-Pacific region +0 +M19 +500 +1,378 +1,277 +1,478 +Breakdown of gross written premium in global reinsurance +in EUR million +3,000 +2,500 +1,962 +2,000 +2,708 +2,471 +2,467 +2,342 +59.2% Property +918 +735 +766 +564 +372 +358 +1,500 +299 +274 +1,000 +618 +M 18 +The Asia-Pacific countries continue to be a growth region for +Hannover Re, and with this in mind we further expanded our +position in the year under review. Developments in the individ- +ual markets varied widely; the region was the scene of increas- +ing competition on account of the available growth opportuni- +ties. Although the loss expenditure incurred in certain markets +was striking, it can still be assessed as satisfactory overall. +- +Combined management report +The losses and damage caused by natural disasters in the +year under review were largely attributable to the earth- +quake in Chile and hurricane Odile, which swept across Mex- +ico. The resulting strains for the (re)insurance industry were +nevertheless moderate. Hannover Re recorded a net loss of +EUR 18.8 million from the hurricane. +Overall, we are highly satisfied with the development of our +business in Latin America. +Agricultural risks +Lower prices for corn, soya, wheat and other products in the +year under review led to reduced sums insured and hence to +a moderate premium decline for agricultural risks. Driven by +rising demand for food and with extremes of weather becoming +increasingly common, we nevertheless continue to see this area +as a growth market. Index-linked products are taking on greater +importance relative to traditional multi-risk insurance policies. +Rates and conditions remained broadly stable on the primary +insurance side. Prices in reinsurance business came under +pressure due to new market players; still, the influence of alter- +native capital on the US market fortunately remained limited. +Hannover Re continues to be one of the largest providers of +agricultural covers and also plays an active role in product +development. We entered into cooperative ventures with gov- +ernments and international organisations in the year under +review with a view to expanding protection for agricultural +risks. +We were successful in our efforts to further diversify the port- +folio mix in terms of both countries and lines of business; a +contributory factor here, for example, was an enlarged propor- +tion of microinsurance products. +We are satisfied with the development of our agricultural risks +business. The losses incurred by Hannover Re were moderate +overall: sizeable hail events occurred inter alia in Southeast +Europe and the United States. In Turkey much of the apricot +and hazelnut crop was destroyed by frost. In each case the +resulting strains were in the low single-digit million euros. We +did not incur any major losses. +Retakaful business +We write retakaful business, i. e. reinsurance transacted in +accordance with Islamic law, both on the Arabian Peninsula +and in Southeast Asia. We are present in Bahrain with a dedi- +cated subsidiary for this business and also maintain a branch +responsible for writing traditional reinsurance in the Arab +world. All in all, we are satisfied with the development of our +business. +- +The member states of the Gulf Cooperation Council (GCC) - +namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the +United Arab Emirates – posted further robust growth in the +year under review. Investments in infrastructure projects are +delivering substantial economic stimuli. These major construc- +tion projects are reliant primarily on government funding. +Bearing in mind that takaful and retakaful markets have +become intensely competitive, brisker premium growth is off- +set by lower rates. New international providers on the rein- +surance markets served to keep up the pressure on rates. On +the other hand, the influence of alternative capital (ILS) in the +region continues to be negligible. +Hannover Re has been present in Bahrain with its subsidi- +ary since 2006 and is strongly positioned in retakaful busi- +ness. The largest single market for our company is still Saudi +Arabia, where we enjoyed further growth in the year under +review. Our branch established in 2014 in Labuan, Malaysia, +delivered additional growth impetus. Industrial fire business, +where we similarly succeeded in expanding our portfolio, is +the largest single line. +In view of the highly competitive state of the markets, we are +not currently guided by any specific premium targets but focus +instead on preserving the profitability of our portfolio. Never- +theless, we believe that the retakaful market will continue to +generate dynamic growth rates going forward. +The largest loss event for our company in the year under review +was a fire which caused extensive damage to a large bakery +plant in Saudi Arabia. +Catastrophe XL (Cat XL) +We write the bulk of our catastrophe business out of Bermuda, +which has established itself as a worldwide centre of compe- +tence. In the interest of diversifying the portfolio our subsidi- +ary Hannover Re (Bermuda) Ltd. has also written some of the +specialty lines since 2013. +45 +G +Hannover Re | Annual Report 2014 +We succeeded in preserving our market leadership in Argen- +tina despite the restrictions placed on foreign reinsurers. In +the English-speaking Caribbean we have been able to enlarge +our market share in recent years, while staying firmly focused +on the profitability of the business. +Aside from one snowstorm, catastrophe covers - an important +area of business for Japan – did not suffer any notable loss +events in the year under review. We did, however, set aside an +appreciable reserve for a pharmaceutical claim in the casualty +line, which had been spared losses for many years. Against +this backdrop we were satisfied with the performance of our +Japanese portfolio. +The Chinese insurance market again delivered double-digit +percentage growth in the year under review. Hannover Re, +which is present in the country with a locally licensed branch, +was able to successfully pursue the strategy that it had fol- +lowed in previous years - namely consolidating its business +relationships with selected clients. The development of our +Chinese portfolio received a boost from discussions surround- +ing the adoption of a nuanced system of solvency require- +ments (C-ROSS), which will benefit local reinsurance place- +ments going forward. All in all, the market remained highly +competitive, as reflected not only in original business but also +in conditions for reinsurance treaties. Our selective underwrit- +ing policy nevertheless enabled us to further enlarge the pre- +mium volume. Given the absence of sizeable losses, we are +satisfied with the result in the year under review. +44 +Hannover Re | Annual Report 2014 +In South and Southeast Asia we were again able to signifi- +cantly improve our market penetration. Almost all the primary +markets in this region are growing disproportionately strongly +compared to the more mature Asian markets. Key drivers here +above all, the rising insurance density and urbanisation. +are, +Our portfolio in many parts of this region consists predomi- +nantly of property, motor and accident business. We further +scaled back the proportion of catastrophe-exposed business in +the year under review because, in our assessment, the consid- +erable capacity surplus on the reinsurance side had resulted in +conditions that were no longer commensurate with the risks. +The service company established in India last year, which con- +centrates its efforts exclusively on the growing segment of +microinsurance, has gained a good footing in the market. This +segment already recorded growth in the year under review and +will play an even greater role for us going forward. +Despite a number of loss events, we are thoroughly satisfied +with the development and performance of our business in +South and Southeast Asian markets. The result came under +strain from floods in Pakistan and India as well as a cyclone +that impacted India, typhoons in the Philippines and a large +fire at a semiconductor factory in Thailand. The premium vol- +ume from this region once again surged vigorously in the year +under review. +In Japan, a key market for our company, continued market +consolidation led to a contraction in ceded reinsurance pre- +miums – a trend which also impacted Hannover Re. Thanks to +our broadly diversified product range and our long-standing +loyalty to our Japanese cedants, however, we successfully set +ourselves apart from our competitors. Conditions came under +pressure after the light losses incurred in both 2012 and 2013, +but they are still adequate. Our premium volume was down +slightly as planned. +Other Asian markets such as Korea, Taiwan and Hong Kong +delivered a pleasing result with stable or slightly lower pre- +mium income. +South Africa +- +Our business in South Africa is written through our subsidiary +Hannover Reinsurance Africa Limited. This market is notable +for what is still a relatively low insurance density; most vehi- +cles on public roads, for example, are uninsured. While a large +section of the population has not taken out any insurance for +property damage or bodily injury, the situation with respect +to commercial undertakings is nevertheless comparable with +that of industrial nations. +The insurance market only grew in step with inflation in the +year under review. Competition remains intense, thereby cur- +tailing profitability. The underwriting result for the insurance +market nevertheless closed in marginally positive territory +in 2014. A number of major losses occurred in the reporting +period, primarily impacting reinsurers - and hence also our +subsidiary Hannover Re Africa. Yet the company was still able +to generate a modestly positive business result thanks to its +disciplined underwriting approach. +We also write direct business in South Africa. These activities +are conducted through Compass Insurance Company Limited, +a subsidiary for so-called agency business. Although primary +insurers were certainly able to push through rate increases for +existing business based on a higher level of retained premium, +it cannot be assumed that general hardening of the market +has set in. What is more, the industry suffered a number of +substantial major losses in the year under review. Despite the +difficult environment prevailing in the South African market +overall, Compass Insurance Company Limited succeeded in +delivering a positive result. +Latin America +Hannover Re is well positioned in Latin America and a market +leader in some countries. The most important markets for our +company are Brazil, where we are present with a representative +office, as well as Mexico, Argentina, Colombia and Ecuador. +Most Latin American markets have enjoyed very vigorous +growth in recent years and are still showing solid gains. The +strong demand for reinsurance covers remains undiminished +owing to the considerable exposure to natural catastrophe +risks. Nevertheless, premium growth has been somewhat +curbed in certain countries due to a number of different fac- +tors, including local market regulation, adverse exchange rate +effects and higher retentions carried by primary insurers. +Movements in reinsurance rates varied; prices differed region- +ally from country to country and also by lines. Particularly in +property business, larger Latin American markets experienced +sometimes marked premium erosion of 10% to 15% under +non-proportional treaties and an increase in commissions for +proportional covers. We were nevertheless able to act on busi- +ness opportunities that satisfied our margin requirements. In +niche markets where we are market leader there was no decline +in prices. In casualty business, where particularly great impor- +tance is attached to a reinsurer's know-how and very good +rating, we made the most of growth opportunities in all our +markets and stepped up our acceptances. +Australia and New Zealand looked set to close with a very good +result as the year progressed, only for the Greater Brisbane +area to be hit by a severe hailstorm in November. With primary +insurers carrying higher retentions, however, this event led +to a merely moderate strain for our company as a reinsurer. +Other than that, the year passed off relatively benignly as far +as natural catastrophes were concerned. In common with other +market players, we were nevertheless compelled in the year +under review to strengthen our IBNR reserve for the New Zea- +land earthquakes of 2010 and 2011. Based on our good market +position, we were able to assert our status as the third-largest +property and casualty reinsurer in Australia. Despite this, our +premium volume declined slightly in the year under review - +a reflection of the ongoing market consolidation, sustained +pressure on conditions and our selective underwriting policy. +tolerable +combined ratio +Property & Casualty reinsurance: +We combine all markets worldwide under global reinsurance +with the exception of our target markets and specialty lines. +This segment also encompasses global catastrophe business, +the reinsurance of agricultural risks and Sharia-compliant +retakaful business. +268 +2011 +233 +2012 +307 +2013 +293 +Marine Aviation Credit, surety and political risks +UK, London market and direct business +Facultative reinsurance +Marine +2014 +281 +After years of heavy expenditure on major losses such as the +wrecked cruise ship "Costa Concordia" and Superstorm Sandy, +which had led to marked rate increases, marine business now +finds itself at the onset of a soft market phase. In the case of +offshore energy risks, where the last significant major losses +date back even further, the rate decline was consequently even +more appreciable. +Unlike in other lines, alternative capital - originating for exam- +ple from hedge funds - does not directly influence the price +trend in the marine and offshore energy market. This is because +the medium- to long-term nature of many products as well +as the fact that loss amounts sometimes takes years to final- +ise diminish the appeal of this business for investors. To this +extent, the additional capacity in the marine market derives +from reinsurers who are looking for, among other things, +greater diversification effects relative to their other property +and casualty lines. Prices came under further pressure because +large insurance groups are increasingly purchasing their rein- +surance on a centralised basis, as a result of which the total +ceded premium volume has contracted. +Hannover Re | Annual Report 2014 +41 +111 +Combined management report +2010 +0 +Under specialty lines we include marine and aviation rein- +surance, credit and surety reinsurance, business written on +the London Market as well as direct business and facultative +reinsurance. +Specialty lines worldwide +561 +1,500 +464 +495 +442 +1,000 +-611 +-593- +551 +Surplus capacities were especially prevalent in the hull mar- +ket in the year under review. Cargo covers, which had long +been rather profitable for most ceding companies, proved less +attractive in the financial year just ended. Declining profitabil- +ity was evident in the energy offshore segment: after the low +loss burdens and associated good results recorded in recent +years, rates here saw marked decreases running into double- +digit percentages. +579 +gen- +500 +377 +414 +402 +379 +364 +In Northern European countries the competition was less +intense in retail lines than in large industrial programmes, +where rates were under pressure. In terms of losses, the region +was impacted by another series of extreme weather events +in the year under review after experiencing several violent +storms in 2013. +Developments in Central and Eastern Europe varied: compared +to Western European primary markets, growth rates here are +still better than average. Competition therefore remains intense +and original rates in most markets are under pressure. On the +reinsurance side, however, it was again possible to obtain risk- +appropriate rates and conditions in the year under review and +hence we were able - as forecast - to enlarge our premium vol- +ume. On the claims side the region was impacted by numerous +small and mid-sized events. In addition, more sizeable losses +resulted from an explosion at a refinery in Russia, flooding in +Southeast Europe and a hailstorm in Bulgaria. +531 +The premium volume increased in the year under review by +9,8% to EUR 2,708.4 million (EUR 2,466.9 million). This is +in line with our forecast of continuous and stable growth. The +combined ratio deteriorated slightly from 90.8% to 91.6%. +The operating profit (EBIT) improved from EUR 444.3 million +to EUR 513.8 million. +Hannover Re's underwriting policy remains unswerving in its +focus on selective diversification of the portfolio, both region- +ally and in terms of individual lines. We continue to take a +restrictive approach to writing offshore energy risks in the Gulf +of Mexico on account of the considerable potential for natural +hazards exposure. +The loss situation in the year under review was dominated +above all by the removal of the wreck of the "Costa Concordia", +which led to a significantly increased market loss of around +EUR 1.5 billion. In view of this, we strengthened our reserves +by an additional EUR 23 million to almost EUR 82 million in +total. The loss expenditure for the wrecked container vessel +"Rena" similarly came in higher than originally estimated. +- +highly competitive - was in line with expectations. +The gross premium booked from the United Kingdom, London +market and direct business contracted from EUR 561.2 million +to EUR 442.0 million. The combined ratio stood at 110.3% +(105.9%). The operating result (EBIT) slipped into negative +territory at EUR 12.8 million (EUR 6.8 million). +Facultative reinsurance +In contrast to obligatory reinsurance, a reinsurer underwrites +primarily individual risks in facultative business. The general +environment for both types of reinsurance in the various mar- +kets is, however, for the most part comparable. +Property & Casualty reinsurance: Breakdown of gross +written premium in facultative reinsurance +14.6% Other +10.5% Motor +M 17 +43.4% Property +31.5% Liability +In facultative reinsurance, too, the story was one of excess +capacity and hence lively competition. This state of affairs +was exacerbated by the fact that many reinsurance customers +raised their retentions. Thanks to our very good rating, how- +ever, we were frequently able to stand up to this price war +because many primary insurers and brokers prefer to cooper- +ate with reinsurers who have proven their long-term reliability. +In the year under review we stepped up our involvement in +Latin American markets and in Turkey. Driven also in part by +increased acceptances in very new segments such as renewa- +bles, our premium volume consequently remained stable over- +all. Particularly long and solid partnerships proved advanta- +geous in that we were able to preserve a large portion of the +portfolio at viable prices. +Rate movements - while generally trending lower - varied from +market to market. The spectrum ranged from moderate reduc- +tions of 5% to 10% to as much as 50% or more. +Price drops were most marked in property business, as in the +case of fire and construction risks, and in the energy lines. Less +significant decreases were recorded in liability business and +in specialty lines such as personal accident and sports covers. +Hannover Re | Annual Report 2014 +43 +Despite the soft market, we are broadly satisfied with the +development of our total facultative portfolio in the year +under review: we grew and continued to diversify our busi- +ness. Our premium volume increased to EUR 957.6 million +(EUR 868.7 million). Virtually no major losses were recorded, +but there was an accumulation of mid-sized losses - which +also impacted our portfolio. As a result, the combined ratio +climbed to 103.9% (94.7%). The operating profit (EBIT) fell +well short of the previous year's figure at EUR 11.8 million +(EUR 101.1 million). +Global reinsurance +Inter Hannover's business written in Sweden again performed +satisfactorily overall in 2014 despite a number of sizeable +losses in the aviation sector. The development of business at +the branches in Australia and Canada markets which are +Compared to 2013, the economic climate in the United King- +dom once again failed to show any significant improvement. +The brisk competition among insurers and reinsurers writing +business in this market continued to intensify. Inevitably, this +was reflected in a declining rate level in many lines. Most lines +suffered under rate erosion, including not only motor insur- +ance but also private homeowners insurance and commercial +covers for small and mid-sized businesses. We responded by +further trimming our exposures from agency acceptances in +these areas in 2014. +We also write direct business through our subsidiary in the +United Kingdom, International Insurance Company of Han- +nover SE (Inter Hannover). This essentially involves tightly +defined portfolios of niche or other non-standard business that +complements our principal commercial activity as a reinsurer. +Direct business +The underwriting result for our marine business was a +clear improvement on the previous year. The combined +ratio decreased to 67.2% (78.3%). The operating profit +(EBIT) reached a satisfactory level of EUR 85.7 million +(EUR 66.0 million). +Aviation +Compared to previous years, the year under review was a very +costly one for the international aviation (re)insurance industry. +Several hundred people perished in crashes involving two pas- +senger aircraft operated by Malaysia Airlines as well as two +other passenger planes in Mali and Indonesia. Not only that, +armed clashes in Libya caused considerable damage to Tripoli +airport in the reporting period. +The sum total of airline losses far exceeded the corresponding +annual premium. Despite this, the ensuing rate increases fell +short of expectations owing to both existing and new capaci- +ties. Depending on the risk, original business in the airline +segment presented a very mixed picture that ranged from sta- +ble premiums to significant rate increases. Nor could a sin- +gle unambiguous trend be discerned in general aviation busi- +ness, although further rate declines under existing business +were largely avoided. Given recent loss events, expectations +for price increases were especially high when it came to war +covers. While we did observe premium increases in this seg- +ment, they did not match up to our expectations. +In terms of our underwriting strategy, we retained a clear focus +on non-proportional business; we operate here as one of the +market leaders, contrasting with the selective approach that we +adopt in our underwriting of proportional business. +The premium volume for our total aviation portfolio contracted +sharply to EUR 364.0 million (EUR 401.7 million). +The largest single loss for our company in the year under +review - coming in at EUR 63.4 million for net account - was +the event in Tripoli. Reflecting these loss expenditures, the +underwriting result – after years of robust profitability – posted +a marked decline in the year under review. The combined ratio +slipped to 112.1% (78.8%). The operating result (EBIT) conse- +quently deteriorated to -EUR 2.4 million (EUR 101.0 million). +Credit, surety and political risks +Hannover Re ranks among the market leaders in worldwide +credit and surety reinsurance. +Gross premium for our marine portfolio contracted by 4.1% +to EUR 280.6 million (EUR 292.7 million). +With the global economy showing tepid growth and faced with +continued difficult economic conditions, the level of insolven- +cies remained consistently high. Only in a few countries, includ- +ing Germany, did numbers come down. Despite this challeng- +ing overall situation, a disciplined underwriting policy made +it possible to hold claims rates in credit insurance on a good +level. This led into a growing risk appetite and hence reduced +reinsurance cessions on the primary insurance side. All in all, +moderate erosion in reinsurance rates could be observed. +Despite greater risk awareness, the claims burden in the area +of political risks remained minimal. Prices in this line conse- +quently moved moderately lower. +Having substantially enlarged our credit and surety portfolio in +2009 and 2010, we see no reason – given the current capacity +surplus and the associated diminished appeal of treaty condi- +tions to further expand our market share. We continued to +follow through on our strategy of boosting the proportion of +the total portfolio deriving from business with political risks. +42 +Hannover Re | Annual Report 2014 +Combined management report +Total gross premium income contracted by 10.3% in 2014 to +EUR 531.4 million (EUR 592.5 million). +Our results in the area of credit, surety and political risks were +satisfactory. We did not incur any major losses in 2014 and +basic losses were also lower overall. The crisis in Ukraine +only gave rise to relatively minor loss events in the year under +review. The combined ratio improved to 92.2% (94.5%). +The operating profit (EBIT) was boosted to EUR 87.2 million +(EUR 64.6 million). +United Kingdom, London market and direct business +Traditional reinsurance +We are largely satisfied with the reinsurance business that +we write in the United Kingdom and on the London market. +While fierce competition raged in the primary sector with rate +reductions running into double-digit percentages, especially +in motor insurance, conditions on the reinsurance side were +more favourable. In non-proportional motor business it was +possible to push through further rate hikes in 2014 - building +on appreciable increases in the previous year -, although these +levelled off towards year-end. Rates in the other property lines +broadly remained stable or slipped slightly lower. As planned, +we expanded our portfolio in the United Kingdom. +Although the prevalence of mid-sized losses in the surety line +was considerably diminished in the year under review com- +pared to 2012 and 2013, the losses recorded in previous years +failed to bring about a fundamental improvement in conditions +owing to the intensely competitive climate. Under loss-free pro- +grammes conditions came under pressure, and a trend towards +rising retentions was evident. +As expected, catastrophe business became even more com- +petitive in the year under review in most markets, and espe- +cially in the United States. The principal drivers here were the +continued absence of major losses, additional capacities from +the capital markets and reduced reinsurance cessions from +ceding companies enjoying a healthy level of capitalisation. +Overall, rates declined in almost all markets in the financial +year just ended, albeit not always as sharply as they did in +the United States. In markets where alternative capital is not +a factor- such as Latin America - rates also slipped back, but +on a more moderate scale. In regions that had been impacted +by major losses, such as Europe and Canada, the price level +was in large measure maintained in the treaty renewals as at +1 January 2014; indeed, improved rates were actually obtained +under some programmes. +2013 in +EUR million +Combined +ratio +121 107 +0 +2005 +2006 +1,730 +672 +314 +863 +458 +291 240 +410 +285 +530 +500 +662 +378 +500 +1,000 +2014 in +EUR million +Hannover Re | Annual Report 2014 +In many property and casualty reinsurance markets compe- +tition intensified still further in the year under review. This +was driven by the renewed absence of market-changing major +losses as well as the tendency among ceding companies to +carry more risks in their retention thanks to their healthy capi- +tal resources. As a further factor, additional capacities from the +market for catastrophe bonds (ILS) and alternative capacities, +especially in US natural catastrophe business, led to appreci- +able price erosion. +Hannover Re counters this fiercely competitive climate with a +profit-oriented underwriting policy and is thus well placed to +handle the challenging market conditions. In regions and lines +where prices failed to satisfy our profitability requirements we +systematically reduced our shares. In areas where margins were +commensurate with the risks we expanded our business. This +strategy of active cycle management enables us - despite soft +market conditions - to preserve the high rate quality of our +portfolio. Overall, Hannover Re again benefited from its endur- +ing customer relationships as well as its position as one of the +world's leading and most financially robust reinsurance groups. +We are broadly satisfied with the outcome of the various rounds +of treaty renewals during the year under review. The largest +business volume was renewed on 1 January 2014, the date when +almost two-thirds of our treaties in traditional reinsurance were +renegotiated. Thanks to our underwriting discipline we were for +the most part able to achieve adequate margins. Rate increases +were booked above all under loss-impacted programmes: this +Property & Casualty reinsurance: Major loss trend�� +in EUR million +was especially true of catastrophe covers in Germany and Can- +ada as well as marine business, which had incurred significant +losses in 2012 and 2013. We acted on opportunities for further +growth in the markets of Asia, Latin America as well as Central +and Eastern Europe. On the other hand, rate reductions had to +be accepted for property catastrophe business in the United +States and in the aviation line owing to very good underwriting +results from the previous year. Although property and casualty +reinsurance as a whole was overshadowed by soft market con- +ditions and rate erosion, we nevertheless also discerned some +positive signals in the second half of the year. +The total gross premium volume for our Property & Casualty rein- +surance business group climbed in the year under review – not +least thanks to new business opportunities - by a modest 1.1% +to EUR 7.9 billion (previous year: EUR 7.8 billion); at constant +exchange rates growth would have reached 1.2%. We had antici- +pated a broadly stable currency-adjusted premium volume. The +level of retained premium rose to 90.6% (89.9%). Net premium +earned increased by 2.1% to EUR 7.0 billion (EUR 6.9 billion); +growth would have also been 2.1% at constant exchange rates. +As in the previous year, the burden of major losses that we +incurred in 2014 remained moderate. The year under review +was, however, one of heavy losses for the aviation line. A num- +ber of crashes involving passenger aircraft cost hundreds of +lives. In addition, several planes were destroyed on the ground +at Tripoli airport. +M 11 +2,500 +2,373 +2,000 +1,500 +1,070 +428 +450 +46 +2007 +Hannover Re | Annual Report 2014 +37 +Combined management report +Even though the hurricane season in North America and the +Caribbean again passed off thoroughly innocuously, the year +under review still saw a number of natural catastrophe events. +In Western Europe the heaviest losses were caused by storm +Ela, with a net strain of EUR 49.1 million for Hannover Re's +account. These and other major losses (see also page 88) +resulted in net loss expenditure for our company totalling +EUR 425.7 million (EUR 577.6 million), a figure well below +our expected level of EUR 670 million. +We improved further on the good combined ratio of the previ- +ous year (94.9%) to post a figure of 94.7% in the year under +review, once again comfortably beating the target mark of 96%. +The underwriting result including administrative expenses also +showed another modest improvement to reach EUR 351.5 mil- +lion (EUR 335.5 million). +On the following pages we report in detail on developments +in the individual markets and lines of our Property & Casualty +reinsurance group, which is split into the three areas of Board +responsibility referred to at the beginning of this section. +Property & Casualty reinsurance: Key figures for individual markets and lines in 2014 +Gross +premium +Change in gross +premium relative +to previous year +M12 +Maximum +Gross +premium +EBIT in +EUR million +360 +1 Natural catastrophes and other major losses in excess of EUR 10 million gross (until 31 December 2011: in excess of EUR 5 million gross) +2014 +Investment income in the Property & Casualty reinsurance +group climbed in the year under review by a very pleasing +8.0% to EUR 843.6 million (EUR 781.2 million). The oper- +ating profit (EBIT) increased by 12.2% to EUR 1,190.8 mil- +lion, clearly demonstrating that profitability was maintained +on a high level even in such a competitive environment. Group +net income for the Property & Casualty reinsurance business +group, which had been positively influenced by a tax effect +in the previous year, improved again to EUR 829.1 million +(EUR 807.7 million); this is the highest figure ever recorded. +Earnings per share stood at EUR 6.88 (EUR 6.70) for this busi- +ness group. +2012 +| Gross Net O Net expectancy for major losses' +2013 +724 +662 +559 +578 +478 +670 +981 +560 +426 +2008 +2009 +2011 +2010 +625 +(36.7) +(19.2) +53.0 +Operating result (EBIT) +263.8 ++75.3% +217.6 +279.0 +284.4 +Net income after tax +205.0 ++24.8% +164.2 +(42.9) +150.5 +25.1 +653.5 +118.7 +619.7 +222.5 +Commissions +946.4 +-19.0% +1,169.0 +1,098.0 +985.8 +1,022.8 +Own administrative expenses +175.7 ++12.1% +156.7 +144.1 +130.6 +Other income/expenses +182.3 +5.1% +Earnings per share in EUR +Financial solutions +- +We categorise reinsurance solutions that focus on our clients' +capital and liquidity management and thereby assist them with +- among other things – new business financing and/or help to +optimise their capital or solvency structure as financial solu- +tions. There is less emphasis on the transfer of biometric risks +with this form of reinsurance, although it is always present. +Hannover Re is equipped with long-standing expertise in +the financial solutions business segment and ranks as one of +the leading providers in a number of markets, including the +United States. A special hallmark of our business philosophy +is that we make virtually no use of standardised reinsurance +solutions. Particularly when it comes to financial solutions +transactions, we offer financing solutions as well as concepts +designed to provide relief for capital and reserves that are indi- +vidually tailored to our customers' needs. This has enabled us +to further enlarge our portfolio and generate a pleasing profit +contribution. The rigorous and complex supervisory require- +ments in the US insurance market, which is one of the most +highly developed in the world, are the key factor driving the +stable strong demand for financial solutions and the pleas- +ing development of this business segment. In addition, we +again significantly expanded our financial solutions business +in Asia - most notably in Japan and China. Not only that, we +are also enjoying successes on the African continent, where +we assumed a substantial portfolio of life insurance policies +from a leading South African client. Traditional new business +financing arrangements in Europe - including Southern and +Eastern Europe – were another key driver of this segment in +the reporting period just ended. We benefited here from lively +demand for individual, innovative financing solutions. +- +All in all, against the backdrop of the developments described +above, gross premium contracted by 16.7% owing to a strictly +profit-oriented underwriting policy. We deliberately relin- +quished premium volume in cases where we were unable to +fully satisfy our margin requirements. The gross premium +for the year under review amounted to EUR 1,295.2 million +(EUR 1,554.3 million), equivalent to 20.1% of the total gross +premium income booked in life and health reinsurance. The +operating result (EBIT) of EUR 74.6 million fell well short of +the previous year's figure (EUR 128.5 million). +2 Operating result (EBIT)/net premium earned +Longevity +Our portfolio consists principally of enhanced annuities on a +single premium basis as well as large-volume annuity blocks +with regular premium payments, in return for which we take +over the annuity payments that will become due in the future. +In the United Kingdom, which continues to be our largest lon- +gevity market by premium volume, demand has become more +selective and competition more intense. Thanks to our market +leadership, our decades of experience and our extensive data- +base, we are well positioned and were able to act on profitable +business opportunities despite growing competition. In the +financial year just ended, reflecting the global demographic +trend, we received an increased number of specific inquir- +ies concerning the transfer of longevity portfolios outside the +United Kingdom. Our international know-how was evidenced +by our closing of the first reinsurance treaty for longevity risks +Hannover Re | Annual Report 2014 +44 +49 +Combined management report +50 +Our longevity reporting category encompasses all annuity and +pension reinsurance business, insofar as the material risks here +are longevity risks. With few exceptions we predominantly +cover policies in the pay-out phase. +1 Adjusted pursuant to IAS 8 +6.1% +4.5% +1.70 ++24.8% +1.36 +1.84 +1.51 +1.82 +Retention +EBIT margin² +83.9% +4.9% +87.7% +89.3% +91.0% +91.7% +2.8% +529.4 +219.6 +146.5 +Investment income +28.6 +Combined management report +Life & Health reinsurance +• +Growth expectations for currency-adjusted gross premium achieved at 4.9% +First transaction for longevity risks in France successfully completed +Results from Australian disability business on the expected level +Profit targets accomplished +Our strategic business group of Life & Health reinsurance +accounted for 45% (previous year: 44%) of Group gross pre- +mium in the financial year just ended. This clearly shows the +significant role played by these lines in Hannover Re's overall +portfolio. Thanks to partnership-based business relationships +with our customers, our expertise and our worldwide presence, +we not only identify trends and new markets; we also shape +them and generate sustained, profitable growth. +Total business +The international market climate in life and health reinsur- +ance was influenced by a number of different effects in the +reporting period just ended. In mature insurance markets such +as the United States, Germany, the United Kingdom, France +and Scandinavia the pressure on companies to consolidate +increased. The strained state of capital and financial markets +was also a factor in the generally moderate development of rou- +tine business in these regions. Turning to the major emerging +and growth markets, the implementation of regulatory meas- +ures has been and continues to be - stepped up, thereby +increasingly opening up fresh business opportunities. This is +especially evident in Asia. The growing prevalence of regula- +tory changes consistently poses new challenges for the entire +international insurance sector. In many instances established +product solutions have to be reworked or even entirely rede- +signed in order to satisfy the new requirements for all parties +concerned. With this in mind, the development of Hannover +Re's life and health reinsurance business was very pleasing. +- +Our gross premium income for the year under review totalled +EUR 6,458.7 million (EUR 6,145.4 million). This represents an +increase of 5.1%. With growth of 4.9% adjusted for exchange +rate fluctuations, we almost achieved the anticipated currency- +adjusted gross premium growth of 5% to 7%. The level of +retained premium developed as planned in the financial year +just ended to stand at 83.9% (87.7%). Net premium improved +slightly by 1.0% to EUR 5,411.4 million (EUR 5,359.8 million). +Adjusted for exchange rate effects, the change in net premium +would have been 0.7%. +Investment income in life and health reinsurance consists of +two earnings components: on the one hand, from our assets +under own management and, secondly, from securities depos- +ited with ceding companies. In the financial year just ended +income of EUR 258.5 million (EUR 269.1 million) was gener- +ated from the assets under own management, while the income +from securities deposited with ceding companies came in at +EUR 355.7 million (EUR 342.4 million). Taken together, the +investment income in life and health reinsurance climbed by +a modest 0.4% to EUR 614.2 million (EUR 611.5 million). This +performance is especially gratifying in view of the protracted +low level of interest rates and the correspondingly strained +state of capital markets. +The development of the operating result (EBIT) was highly +pleasing. Compared to the previous year - which had been sub- +stantially impacted by losses in Australian disability business - +EBIT surged by a significant 75.3% and has now normalised +relative to 2013 at EUR 263.8 million (EUR 150.5 million). +In the following section we discuss in detail developments +in life and health reinsurance. Our business is split into the +reporting categories of financial solutions and risk solutions. +Reflecting the differentiation by biometric risks, risk solutions +is further divided into longevity, mortality and morbidity and +hence corresponds to the breakdown used within our internal +risk management system. +48 +Hannover Re | Annual Report 2014 ++2 +Key figures for Life & Health reinsurance +47 +In the year under review we continued to expand our coop- +eration with selected managers of investor funds in the area +of collateralised reinsurance business and thereby generated +attractive margins. When it comes to investing in catastrophe +bonds, on the other hand, we showed restraint on account of +the sharp decline in prices. +As in the previous years, losses were very much on the mod- +erate side for both insurers and reinsurers; there were no +major natural disasters resulting in heavy losses. Neither the +storms in Europe and Canada nor the earthquake in Chile had +any implications for pricing on account of the relatively slight +market losses. The largest single loss incurred by our com- +pany from natural catastrophe business was the low pressure +area known as Ela, which swept across France, Belgium and +Germany causing net loss expenditure of EUR 49.1 million. +The hurricane season in the United States and the Caribbean +also passed off comparatively quietly in the year under review. +Only hurricane Gonzalo, which primarily impacted Bermuda, +resulted in loss expenditure for Hannover Re's account. +Bearing in mind the enormous competition over property +catastrophe covers, our subsidiary in Bermuda wrote busi- +ness extremely selectively and reduced its premium volume. +On the other hand, we booked growth in the liability and spe- +cialty lines, where more adequate prices could be obtained. +The gross premium volume for our global catastrophe +business contracted by 16.6% in the year under review to +EUR 310.0 million (EUR 371.5 million). The combined ratio +improved to 39.3% (49.5%). The operating profit (EBIT) came +in at EUR 185.6 million (EUR 188.2 million). +Structured reinsurance and Insurance-linked securities +Structured reinsurance +Hannover Re is one of the largest providers in the world of +structured reinsurance solutions. These products are designed, +among other things, to optimise the cost of capital for our ced- +ing companies. +As forecast, demand for bespoke alternative reinsurance solu- +tions continued to grow in the year under review. This trend +also extends to aggregate excess of loss covers, which protect +the net retention of our clients against a large number of basic +losses in lower layers. +Structured reinsurance is benefiting from growth impetus +associated in particular with preparations for the adoption of +Solvency II in the European Union as well as with the imple- +mentation of risk-based capital requirements in various other +countries. +In keeping with our objective we pressed ahead with the +enlargement of our customer base and further improved the +regional diversification of our portfolio in the year under +review. We also stepped up our involvement in the area of +corporate captives. Quota share arrangements in motor busi- +ness designed to provide solvency relief continued to enjoy +brisk demand. +The premium volume for the area of Advanced Solutions/struc- +tured reinsurance increased in the year under review. Results +were good and lived up to our expectations. +Insurance-linked securities (ILS) +Demand on the capital market for ILS products shows no signs +of easing. Thus, for example, we were able to renew our “K +cession" - a modelled quota share cession consisting of non- +proportional reinsurance treaties in the property, catastrophe, +aviation and marine (including offshore) lines that we have +placed inter alia on the ILS market for 20 years now - on an +unchanged level of roughly USD 320 million for 2014. +Yet in addition to using the capital market to protect our own +property catastrophe risks, we also transfer risks to it in a +structured and packaged form on behalf of our cedants. Not +only that, we take the role of investor ourselves by investing +in catastrophe bonds. +The year under review, in common with the two previous years, +brought another strong inflow of cash into the ILS market. In +the first place, investors value the low correlation with other +financial assets and the associated diversification, while at the +same time they also find the market for insurance risks rela- +tively appealing in comparison with other investments. As a +result, there has been no let-up in the lively demand for catas- +trophe bonds among investors. Prices for these bonds have +consequently fallen considerably. At the same time, though, +the issuance of catastrophe bonds has become a more attrac- +tive proposition. The volume of new issues in the market was +once again higher at USD 8.7 billion (USD 7.7 billion). +The available funds currently exceed by far the opportunities +for new investments in catastrophe bonds. This has prompted +investors to look for other means of investing in the reinsurance +sector. So-called collateralised reinsurance programmes again +enjoyed particularly strong growth in the year under review +and surpassed the volume of funds invested in catastrophe +bonds. Under collateralised reinsurance business the investor +assumes reinsurance risks that are normally collateralised in +the amount of the limit of liability. +Hannover Re's product range encompasses the entire spec- +trum of activities typically associated with the ILS market. +We thereby offer investors optimised and customised access +to the capital market. In the year under review, for example, +we successfully transferred windstorm risks with a volume of +USD 400 million to the capital market for the Texas Wind- +storm Insurance Association (TWIA) in the form of a catas- +trophe bond. +Hannover Re | Annual Report 2014 +M20 +2014 ++/- +previous +50 +614.2 ++0.4% +611.5 +685.1 +512.6 +508.2 +Claims and claims expenses +4,636.2 ++7.7% +4,305.7 +4,023.5 +3,328.6 +3,135.8 +Change in benefit reserve +4,653.9 +4,788.9 +5,425.6 +5,359.8 +2013 +20121 +2011 +2010 +in EUR million +Gross written premium +year +-80.5% +6,458.7 +6,145.4 +6,057.9 +5,270.1 +5,090.1 +Net premium earned +5,411.4 ++1.0% ++5.1% +Life & Health reinsurance at a glance +284 +M21 +2,950 +2,624 +3,000 +2,000 +884 +-885 +1,012 +885 +1,000 +0 +2011 +1,537 +1,554 +1,118 +1,295 +2,834 +2012 +2,825 +2.9 +314 +309 +448 +2012 +2013 +2014 +M22 +M23 +EBIT-margin per reporting category +M24 +vs. target margins 2014 +in % +≥2 +1,202 +873 +≥2 +4,000 +|Value of New Business (VNB) +-Value of New Business - target +2013 +Financial solutions Longevity Mortality Morbidity +Mortality +The mortality reporting category encompasses our mortality- +exposed business, which traditionally constitutes the core busi- +ness of life and health reinsurance and accounts for the larg- +est share of our total life and health reinsurance portfolio. The +risk that we assume as a reinsurer is that the actually observed +mortality may diverge negatively from the expected mortality. +The US mortality market ranks as one of our most important +markets. We are present here with our subsidiary and have +been an established and sought-after business partner for more +than 30 years. +Our new business in the US developed broadly as we had antic- +ipated. The positive performance of large parts of our existing +business was cancelled out by elevated risk experiences in the +in-force portfolio covering policies from before 2005. On bal- +ance, this business fell somewhat short of our expectations. +In the European market the appeal of traditional, fixed-income +risk-oriented products such as life insurance has further dimin- +ished owing to the low interest rate environment. Particularly +for the German reinsurance market, growth in the area of mor- +tality-exposed risk solutions remains limited. The development +in Southern Europe, where mortality business has remained +on a consistently high level despite the generally strained eco- +nomic situation, should therefore be viewed in a correspond- +ingly favourable light. The high quality of bancassurance and +credit life business in Italy goes hand in hand with the prudent +approach to lending adopted by banks since the outbreak of the +financial crisis. Sharia-compliant retakaful reinsurance, an area +in which we have further expanded our portfolio and our mar- +ket leadership, also continued to fare well. Similarly, in Eastern +Europe and Asia we achieved a pleasing enlargement of our +mortality business in the reporting period just ended. Particu- +larly in certain Latin American countries, the basic conditions +for writing reinsurance business have become more challeng- +ing due to the exertion of political influence. Nevertheless, we +succeeded in boosting our business to a gratifying extent and +maintained our leading position in most countries. We were +thus able to increase the gross premium for our worldwide +mortality business to EUR 2,949.5 million (EUR 2,833.5 mil- +lion). At 45.7%, the mortality portfolio consequently contrib- +utes the lion's share of our total gross premium income from +life and health reinsurance (EUR 6.5 billion). +Morbidity +Morbidity business refers to the risk of deterioration in a per- +son's state of health due to disease, injury or infirmity. This +reporting category is notable for extensive product diversity, +ranging from strict (any occupation) disability and occupational +disability to long-term care insurance. +On the whole, morbidity business normalised in 2014 after +the adverse impacts of Australian disability risks in the pre- +vious year. The intensive efforts undertaken market-wide to +counteract the elevated risk experiences brought about the +first positive movements: it will, however, likely taken further +time before the underlying treaties deliver consistently prof- +itable results. It is nevertheless gratifying to note the rever- +sal of the unfavourable trend, which suggests the onset of an +encouraging upswing in results going forward. Other regions +of the world, for the most part, are meanwhile playing a posi- +tive part in the growth of morbidity business. In the Nether- +lands, for example, we have assumed appreciable premium +volumes under disability risk coverage. Demand for disabil- +ity policies was similarly strong in Asian markets. In Korea +we recorded poorer than anticipated risk experiences for our +assumed morbidity business. The general rise in demand for +long-term rate guarantees for such risks therefore necessitates +a more selective underwriting policy. In the Indian market the +growth of microinsurance business in the health insurance +sector was very pleasing. These developments are reflected in +highly gratifying premium growth of 37.7%. Gross premium +income in the financial year surged sharply to EUR 1,202.1 mil- +lion (EUR 872.9 million). +Taken together, we generated significant growth in the operating +result for the reporting categories of mortality and morbidity: +EBIT rose to EUR 165.5 million (EUR 39.2 million). +Hannover Re | Annual Report 2014 +51 +Quite aside from the development of business in the various +reporting categories of our Life & Health reinsurance business +group, there were further pleasing developments to note: the +service component - as in many other sectors too - is taking +on ever greater importance. We are actively responding to this +trend and successfully supported our customers in the year +under review with, among other things, our expertise in the +field of automated underwriting. When it comes to medical +underwriting, our newly launched newsletter "ReCent" puts the +spotlight on current and relevant topics in health and medicine. +In addition, our customers are benefiting from a revision of +our underwriting manual, which assists primary insurers with +risk assessment. We have also made promising progress in the +development of alternative, Web-based sales channels in life +insurance, the first positive effects of which on our business +should be felt in the next few years. Issues such as "big data", +the use of information and technological advances continue to +be of growing interest to the (re)insurance industry. +Investments +Return on investment somewhat better than forecast at 3.3% +• Ordinary income slightly higher despite low interest rates +Sharp rise in valuation reserves +In the following section we present a consolidated account of +the mortality and morbidity reporting categories. In view of +the fact that in the international (re)insurance markets these +two risk types are frequently covered as part of the same busi- +ness relationship or even under the same reinsurance treaty, +it makes sense to consider them together. +2014 +Mortality and morbidity +Combined management report +≥6 +4.8 +6.5 +0 +1 +2 +3 +4 +5 +6 +7 +EBIT margin financial solutions +EBIT margin longevity +EBIT margin mortality/morbidity +■ Target margin +Hannover Re | Annual Report 2014 +in France. Under this transaction we assumed pension liabilities +in the order of EUR 750 million from a leading French insurer. +In the European market Solvency II-oriented covers are a par- +ticular focus of interest. In the US market new, far more con- +servative assumptions relating to mortality improvement have +been published, adding impetus to the local longevity market. +Notwithstanding the general demand for longevity products +in various regions of the world, we have observed increased +demand for reinsurance solutions in which the cash flows are +geared to the performance of a contractually defined index. In +view of this broad range of favourable developments, we were +able to boost our gross premium for international longevity +business to a pleasing EUR 1,012.0 million (EUR 884.7 mil- +lion). This increase was carried over in a corresponding profit +contribution (EBIT) of EUR 23.7 million (-EUR 17.2 million). +Breakdown of gross premium by markets +in EUR million +2011 +6,145 +188 +5,000 +617 +589 +322 +157 +750 +585 +583 +557 +300 +4,000 +420 +584 +942 +693 +491 +199 +222 +7,000 +Value of New Business (VNB) growth +in EUR million +500 +6,459 +6,058 +6,145 +176 +242 +6,000 +188. +200 +249 +274 +5,270 +400 +241 +3,000 +1,457 +Asia +Rest of Europe +Central and Latin America +Germany Africa +Breakdown of gross written premium +by reporting categories +in EUR million +7,000 +6,058 +6,000 +5,270 +5,000 +644 +813 +6,459 +■ Australia/New Zealand +1,550 +North America United Kingdom +2013 +200 +1,439 +≥ 180 +1,474 +2,000 +100 +1,000 +-2,082 +2,041 +1,966- +1,663 +0 +2011 +0 +2012 +2014 +750 +Hannover Re is guided in its capital management by the +requirements and expectations of the rating agencies that +assess the Group with an eye to its targeted rating. Further- +more, while making appropriate allowance for business policy +considerations and factors that influence market presence, the +allocation of capital to the Group's operational companies is +based upon the economic risk content of the business group +in question. The Group companies are also subject to national +capital and solvency requirements. All Group companies met +the applicable local minimum capital requirements in the year +under review. Adherence to these capital requirements is con- +tinuously monitored by the responsible organisational units +on the basis of the latest actual figures as well as the corre- +sponding planned and forecast figures. If, despite the capi- +tal allocation mechanisms described above, a scenario occurs +in which there is a danger of minimum capital requirements +being undershot, suitable options are immediately discussed +and measures set in motion to counteract such an eventuality. +From the Group perspective we manage Hannover Re's solvency +using our internal capital model, which is described in greater +detail on page 75 et seq. of the opportunity and risk report. +Ordinary investment income excluding interest on funds with- +held and contract deposits showed a pleasing development to +reach EUR 1,068.4 million (previous year: EUR 1,041.3 mil- +lion) despite the continued low level of interest rates. Interest +on funds withheld and contract deposits improved slightly on +the previous year to EUR 376.1 million (EUR 357.3 million). +Net realised gains on disposals were considerably higher than +in the previous year at EUR 182.5 million (EUR 144.2 million). +This was due in part to the change in reporting currency at our +Bermuda subsidiaries, the redemption of our bond issued in 2004 +and regrouping moves as part of regular portfolio management, +although we also acted on opportunities in the real estate sector. +23 +19 +20 +20 +23 +23 +23 +21 +21 +25 +35 +34 +30 +321 +15 +23 +16 +21 +19 +Compared to the previous year, we kept the allocation of our +assets to the individual classes of securities largely unchanged. +We merely moved to further slightly increase the share attrib- +utable to real estate as part of the strategic expansion of this +asset category and scaled back the proportion of covered +bonds in favour of corporate bonds. In all other classes we +made only minimal changes in the context of regular portfolio +maintenance. +Our portfolio of assets under own management grew consid- +erably more strongly than expected in the course of 2014; it +closed significantly higher than the previous year's level at +EUR 36.2 billion (EUR 31.9 billion). This was based in part +on a rise in the valuation reserves against the backdrop of +the observed yield declines on government bonds in our main +currency areas. Above all, though, the weakness of the euro +against the major investment currencies substantially accen- +tuated this effect; the cash flow was once again gratifyingly +positive. +Investments +Hannover Re | Annual Report 2014 +54 +Corporate bonds Covered Bonds, ABS Private Equity +Real estate Other Short-term investments and cash +Semi-government bonds +2014 +2013 +2012 +Government bonds +2011 +2010 +0 +-19 +19 +The portfolio of fixed-income securities excluding short-term +assets rose to EUR 32.0 billion (EUR 28.3 billion). Hidden +reserves for available-for-sale fixed-income securities rec- +ognised in shareholders' equity totalled EUR 1,246.4 million +(EUR 426.4 million). This reflects the yield decreases observed +in the course of the reporting period, especially in the area of +government bonds in our main currency areas. As to the qual- +ity of the bonds - measured in terms of rating categories -, +the proportion of securities rated “A” or better remained on a +consistently high level as at year-end at 82.9% (83.0%). +14 +2 +By adjusting the maturity pattern of our fixed-income securities +to the expected payment patterns of our liabilities we reduce +the economic exposure to the interest rate risk. In the current +reporting period we slightly increased the modified duration +of our fixed-income portfolio, as a result of which it stood at +4.6 (previous year: 4.4) as at 31 December 2014. Furthermore, +through active and regular management of the currency spread +in our fixed-income portfolio we bring about extensive match- +ing of currencies on the assets and liabilities sides of the bal- +ance sheet, as a consequence of which fluctuations in exchange +rates have only a limited effect on our result. +dation for the asset allocation of the entire Hannover Re Group +and the individual portfolios. In addition, we ensure that we +are able to meet our payment obligations at all times. Within +the scope of our asset/liability management (ALM) the alloca- +tion of investments by currencies and maturities is determined +by the technical liabilities. The modified duration of our bond +portfolio is geared largely to the technical liabilities. +2 +-2 +90 +2 +8 +100 +in % +M28 +Breakdown of investments under own management +38,047 +41,683 +46,625 +46,219 +At year-end 2014 we held 36.9% (40.7%) of our investments +in euro, 41.4% (38.0%) in US dollars, 8.5% (8.3%) in pound +sterling and 5.2% (4.9%) in Australian dollars. +17 +80 +70 +2 +4 +4 +2 +2 +4 +4 +16 +10 +20 +30 +40 +50 +0 +60 +60 +52,147 +Rating of fixed-income securities +We were again able to increase our real estate allocation some- +what in the course of the year. Various properties in Germany +and Central/Eastern Europe were acquired for this purpose; +further projects are under review, and the real estate allocation +will therefore keep rising steadily as planned. Despite selective +sales in the course of the reporting period, it currently stands +at 3.9% (3.6%). +-7,551- +4,000 +609 +636 +484 +486 +6,000 +642 +682 +1,385 +493 +1,246 +490 +6,987 +702 +6,032 +1,744 +5,888 +4,509 +Shareholders' equity ■ Non-controlling interests +Hybrid capital, no maturity Hybrid capital, limited maturity +2014 +2013 +2011 +2010 +0 +Hannover Re uses "Intrinsic Value Creation" (IVC) as its cen- +tral value-based management tool. With the aid of this tool we +apply the principles of economic allocation of equity and effi- +cient use of debt as an equity substitute in order to achieve the +lowest possible weighted cost of capital. This concept as well +as the objectives and principles in accordance with which we +conduct our enterprise management and capital management +are described in greater detail in our remarks on value-based +management on page 21 et seq. of this report. +The policyholders' surplus totalled EUR 10,239.5 million +(EUR 8,767.9 million) as at the balance sheet date, an increase +of 16.8% in the year under review due to changes in cumulative +other comprehensive income and the rise in retained earnings. +hybrid capital used as an equity substitute, which encom- +passes our subordinated debt. +shareholders' equity excluding non-controlling interests, +composed of the common shares, additional paid-in capi- +tal, other comprehensive income and retained earnings, +non-controlling interests and +• +• +The preservation of its capital is a key strategic objective for +Hannover Re. In the 2014 financial year and in recent years +hybrid capital was issued as an equity substitute in order to +keep the cost of capital on a low level. The policyholders' sur- +plus is a key management ratio in the context of Hannover +Re's comprehensive capital management. The policyholders' +surplus is defined as follows: +Management of policyholders' surplus +2,000 +4,971 +M29 +-1,743 +8,000 +Hannover Re | Annual Report 2014 +Holdings of alternative investment funds increased slightly. +As at 31 December 2014 an amount of EUR 684.9 million +(EUR 574.3 million) was invested in private equity funds, a +further EUR 551.5 million (EUR 402.9 million) predomi- +nantly in high-yield bonds and loans; in addition, altogether +EUR 373.7 million (EUR 252.1 million) was invested in struc- +tured real estate investments. The uncalled capital with +respect to the aforementioned alternative investments totalled +EUR 716.3 million (EUR 598.5 million). +19.3% AA +39.4% AAA +24.2% A +13.5% BBB +3.6% 90% +95.4% +Probability of complete loss +of shareholders' equity +<0.03% +The risk strategy is similarly specified with an increasing +degree of detail on the various levels of the company. +0.01% +<0.03% +<0.01% +Major external factors influencing risk +management in the financial year just +ended +Regulatory developments: Solvency II is a reform of insurance +supervision law in Europe, the implementation of which on +1 January 2016 poses enormous challenges for the entire (re) +insurance industry. Along with redefining capital requirements, +Solvency II places additional demands on companies' internal +management systems and on the information to be disclosed by +undertakings to the regulator and the public at large. Further +more specific aspects of Solvency II were defined in 2014, and +among other things there is a new draft of the delegated act. +Hannover Re has been progressively implementing the new +requirements in recent years. Our internal target capitalisation +with a confindence level of 99.97% comfortably exceeds the +target level of 99.5% under Solvency II. The core functions +of Solvency II - the risk management function, the actuarial +function, the compliance function and the internal audit func- +tion have been implemented along existing processes and +organisational structures at Hannover Re. Additional staff had +to be taken on and extra systems deployed as part of the launch +phase, first and foremost in order to be able to meet internal +and external reporting requirements. +Parallel to the regulatory developments in Europe, we are seeing +adjustments worldwide to the regulation of (re)insurance +undertakings. It is often the case that various local supervisory +authorities take their lead from the principles of Solvency II or +the requirements set out by the International Association of +Insurance Supervisors (IAIS). +Above and beyond this, further capital requirements for large, +internationally operating (re)insurance groups are to be antici- +pated in the future. These requirements are under development +by the IAIS and the Financial Stability Board (FSB). +Hannover Re | Annual Report 2014 +75 +Combined management report +Solvency II: Hannover Re is well prepared +Solvency II +of economic capital +Capital requirements +20101 +4,984,000 +Bahrain +45 +Bermuda +43 +43 +Colombia +26 +25 +Italy +11 +Canada +11 +Korea +10 +50 +Japan +India +8 +8 +Spain +7 +7 +Mexico +6 +6 +Taiwan +4 +4 +Brazil +4 +9 +Total +48 +52 +M50 +2013 +85 +50 +42 +2014 +Germany +1,289 +1,219 +USA +285 +280 +United Kingdom +200 +Ireland +208 +164 +164 +Australia +100 +Sweden +89 +89 +China +70 +56 +Malaysia +53 +43 +France +South Africa +8,123,000 +2,534 +Word of thanks to our staff +Hannover Re | Annual Report 2014 +4 +3 +Environmental protection and social +commitment +Hannover Re makes every effort to keep negative environmen- +tal impacts of its business operations as low as possible. With +this in mind, we focus in particular on reducing carbon diox- +ide (CO2) emissions from our electricity consumption and the +heating of our premises as well as those caused by business +travel. Our goal is to operate on a climate-neutral basis at Han- +nover Home Office by the year 2015. In addition, we are com- +Imitted to the economical and environmentally friendly use of +(raw) materials such as paper and water in our offices. Major +steps taken towards achieving this goal were the changeover +to power generated from purely renewable sources, the instal- +lation of a photovoltaic system on the roof of our main office +building in Hannover and the implementation of an environ- +mental management system. Shortly after its launch in 2012 +this was successfully certified according to DIN EN ISO 14001; +its conformity was recertified in the context of the 2014 main- +tenance audit. +Hannover Re's carbon dioxide emissions at its German loca- +tion in 2014 amounted to 7,798 (previous year: 7,203) tonnes, +some 8.3% more than in the previous year. This is equivalent +to per capita CO2 emissions of 6.0 tonnes (+2.4% compared +to the previous year). +In 2014, as in previous years, we compensated for our unavoid- +able CO2 emissions of 7,514 (6,859) tonnes caused by airline +travel by making voluntary offsetting payments to the interna- +tional organisation "atmosfair" and thereby supported selected +climate protection projects in developing and emerging coun- +tries. No offsetting payments had to be made in the financial +year just ended for emissions resulting from rail travel because +Hannover Re participates in Deutsche Bahn's corporate cus- +tomer programme under which every kilometre of train travel +within Germany is powered by 100% green energy. +In the financial year just ended, as in prior years, we reported +on our climate strategy and our measures to reduce carbon +dioxide emissions as part of the international initiative over- +seen by the Carbon Disclosure Project (CDP). +The table below breaks down Hannover Re's consumption and +emissions over the past five years. +Resources consumed at Hannover Home Office +M51 +Number of staff +20143 +1,289 +20133 +68 +20123 +Electricity (in kWh) +Heat (in kWh) +Water (in I) +Paper (in sheets) +Waste (in kg) +Business trips (in km) +CO2 emissions* (in kg) +4 +1,164 +8,969,975 9,114,482 8,802,262 +2,748,014 3,359,694 2,319,854 +15,176,000 15,778,000 14,961,000 +7,551,200 8,502,060 8,766,000 +193,760 +214,250 +205,790 +20,447,867 18,185,062 16,654,504 +7,798,000 +1,219 +1,110 +8,214,917 +1,859,119 2,383,918 +14,464,500 14,722,000 +9,172,180 9,074,300 +257,400 +17,658,598 +1,089 +8,055,429 +297,000 +16,018,500 +7,203,000 +20112 +2,419 +We also stress the importance of enabling our employees to +strike the right balance between their career and private life. +Consequently, we offer individually customisable part-time and +telecommuting models as well as flexitime working arrange- +ments with no core hours. By offering such flexibility we want +to help our employees organise their daily routine in various +stages of life such as starting a family or preparing for retire- +ment. One of the cornerstones of our successful business activi- +ties, along with skills and commitment, is the high degree of +diversity in our workforce - since this is vital to safeguarding +our high global quality standard. +Successful employees +12 +5 +9 +10 +4 +The Executive Board would like to thank all employees for their +dedication in the past year. At all times the workforce iden- +tified with the company's objectives and pursued them with +motivation. We would also like to express our appreciation to +the representatives of staff and senior management who par- +ticipated in our co-determination bodies for their critical yet +always constructive cooperation. +Sustainability at Hannover Re +The sustainability strategy of the +Hannover Re Group +As a leading player in the reinsurance industry, the commercial +success of Hannover Re is crucially dependent on the correct +assessment of present and emerging risks. In the process of +evaluating risks we are faced today with growing complexity as +a consequence of the increasing importance attached to vari- +ous aspects of sustainability. In some instances these also have +direct strategic and operational relevance to our reinsurance +products and our investments. Our goal, therefore, is to achieve +economic success on the basis of a profit-oriented business +model – while at the same time acting in accordance with the +needs of our staff and the company and giving due considera- +tion to conservation of the environment and natural resources. +With this in mind, in 2011 we drew up a Sustainability Strat- +egy for Hannover Re in which we explicitly committed to our +strategic objective of sustainable value creation. This Sustain- +ability Strategy is based on the implementation of all compli- +ance requirements and fleshes out in more concrete terms +the higher-level corporate strategy of the Hannover Re Group. +We systematically adhered to this Sustainability Strategy in +the 2014 financial year. The inclusion of Hannover Re in the +internationally recognised sustainability index FTSE4Good in +the fourth quarter of 2014 is a testament to our achievements. +Sustainable action is not, however, something which is static; +rather, it must take place dynamically and in accordance with +changing environmental circumstances. In conformity with the +Group Strategy, therefore, our sustainability considerations are +regularly reviewed every three years and revised as necessary. +Going forward, our refined Sustainability Strategy for the years +2015 to 2017 defines the following four action fields as well as +specific goals and measures: +• +Governance and dialogue +Given that our employees are absolutely crucial to the success +of our company, we have defined strategic principles for our +human resources management. In order to ensure that we are +always perceived as an attractive employer by our existing staff +and potential new junior recruits, we pay special attention to +their skills and further growth. The health and well-being of +our staff are also vital to the sustainable development of our +business. The focus of our efforts is therefore on the preven- +tion of disease, e. g. through medical check-ups by the com- +pany physician, workplace inspections, advice and treatment +relating to matters of general medicine as well as a range of +sporting opportunities designed to promote a healthy lifestyle. +Product responsibility +Environmental protection and social commitment +Governance and dialogue +As an internationally operating company, Hannover Re bears +responsibility in various senses. This is true of its compliance +with relevant laws and regulations, but also applies to its rela- +tionship with staff, shareholders, the public at large and the +cultures within which the company operates. In this respect, +the Group Strategy, our Corporate Governance principles and +the defined Code of Conduct form the basis of our enterprise +management. As a European company (SE) based in Germany, +the formal framework that shapes our corporate governance +is determined by national (German) law. Consequently, the +company's management structure is composed of three bod- +ies: the Executive Board, the Supervisory Board and the Gen- +eral Meeting. Their interaction is regulated by law and by the +company's articles of association. +In addition to our continuous engagement with the changing +legal framework conditions, since 2003 we have provided an +annual Declaration of Conformity with the German Corporate +Governance Code (DCKG); this is published on our corporate +website and can also be found on page 101 et seq. of the pre- +sent Annual Report. The Corporate Governance principles of +Hannover Re | Annual Report 2014 +67 +Hannover Rück SE are also subject to regular review and ful- +fil the recommendations of the currently valid version of the +German Corporate Governance Code. Furthermore, given that +the trust of our stakeholder groups and an immaculate repu- +tation are vital to the success of our company, we make every +effort to cultivate an active dialogue with representatives of +the capital market and society as a whole as well as with our +clients and staff. +In 2014 Hannover Re's sustainability performance was again +evaluated by the rating agency Oekom Research; our company +was awarded "Prime" status in recognition of its above-average +fulfilment of industry-specific requirements. In addition, Han- +nover Re was added to the worldwide FTSE4Good Index Series +in the financial year just ended by the FTSE4Good Advisory +Committee. The company's inclusion was based on its sus- +tainability rating according to ESG (environmental, social and +governance) criteria for 2014. We have thus achieved another +major objective of our Sustainability Strategy. +In the year just ended we again reported on our achievements +as a responsible enterprise in the form of a stand-alone Sus- +tainability Report. In this regard we follow the currently appli- +cable and internationally recognised guidelines of the Global +Reporting Initiative (GRI); we fulfil Application Level B - the +intermediate level of transparency - as defined by the GRI. +Our detailed Sustainability Report can be accessed at +www.hannover-re.com/sustainability/index.html +Product responsibility +As one of the world's leading reinsurers, we essentially bear +responsibility for two specialist areas when it comes to our core +business: in the first place for our reinsurance business, and +secondly for the management of our investments. +Our range of reinsurance products and services is geared to the +needs of the market and our clients. Hannover Re is active in +virtually all lines of reinsurance business. Our products range +from traditional reinsurance to complex individual solutions for +risk transfer and the optimisation of our clients' capital require- +ments. In response to changing social challenges, new eco- +nomic, social and ecological risks – known as emerging risks - +are increasingly reflected in our risk assessment. Examples of +emerging risks include demographic change, the formation +of megacities, shortages of resources, climate change and its +impacts on global development (natural disasters, environmen- +tal damage) as well as pandemics and risks associated with +technological progress (such as cyber-risks). We use all inter- +nally and externally acquired insights in order to be able to offer +better or innovative (re)insurance solutions. +When it comes to the management of our investment portfolio, +we aim to generate a commensurate market return in the inter- +ests of our clients and shareholders. This is done in accordance +with our Sustainability Strategy by incorporating ESG (envi- +ronmental, social and governance) criteria into our investment +policy. Specifically, since 2012 we have been guided by the ten +principles of the United Nations Global Compact and thus also +recognise the aspects of human rights, working conditions, the +environment and anti-corruption. Since 2013 our investments +have been reviewed half-yearly to verify compliance with these +ESG standards. If a failure to comply is identified, we part with +the instrument in question and exclude it from our investment +universe. As we develop and continuously review our invest- +ment strategy, we work together with an established service +provider that specialises in sustainability. +Successful employees +For details of Hannover Re's new Sustainability Strategy please +see www.hannover-re.com/sustainability/index.html. +7,685,000 +Combined management report +Solvency margin¹ +Underwriting risk in life and health reinsurance +Market risk +2,738.6 +4,459.9 +3,101.1 +5,023.1 +Confidence level +99.5% +Confidence level +99.97% +99.5% +99.97% +Underwriting risk in property and casualty reinsurance +in EUR million +Confidence level +Confidence level +2013 +2014 +3,327.2 +1,906.9 +2,607.3 +1,434.3 +(5,687.1) +Diversification +296.8 +510.7 +382.7 +595.4 +Operational risk +M59 +324.0 +254.7 +756.3 +Counterparty default risk +2,032.9 +3,609.5 +3,521.6 +5,141.9 +739.5 +to as diversification. Hannover Re's business model is based +inter alia on building up the most balanced possible portfolio +so as to achieve the greatest possible diversification effects +and in order to deploy capital efficiently. Diversification exists +between individual reinsurance treaties, lines, business seg- +ments and risks. We define the cost of capital to be generated +per business unit according to the capital required by our busi- +ness segments and lines and based on their contribution to +diversification. +Required risk capital +When it comes to aggregating the individual risks, we make +allowance for dependencies between risk factors. Dependen- +cies arise, for example, as a consequence of market shocks, +such as the financial crisis, which simultaneously impact mul- +tiple market segments. What is more, several observation peri- +ods may be interrelated on account of market phenomena such +as price cycles. In dealing with these dependencies, however, +it is our assumption that not all extreme events occur at the +same time. The absence of complete dependency is referred +1,540.7 +health reinsurance +Value adjustments for life and +1,627.8 +1,138.6 +and casualty reinsurance +Value adjustments for property +6,530.0 +8,253.0 +Shareholders' equity +2013 +2014 +in EUR million +M58 +(economic capital/shareholders' equity) +1,116.5 +Value adjustments for assets +under own management +Value adjustments due to tax +Combined management report +83 +Hannover Re | Annual Report 2014 +The internal capital model is based on current methods from +actuarial science and financial mathematics. In the case of +underwriting risks, we are able to draw on a rich internal data +history to estimate the probability distributions, e. g. for the +reserve risk. For risks from natural perils we use external mod- +els, 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 inter- +nal data is enhanced by way of parameters set by our internal +experts. These parameters are especially significant in rela- +tion to extreme events that have not previously been observed. +Default risks decreased owing to the improved average credit +status of our counterparties and a reduced volume of receiva- +bles due from retrocessionaires. To some extent the reduction +was cancelled out by model adjustments. Due to the rise in the +required capital for almost all risk categories, the diversifica- +tion effect also increased. +The underwriting risks in property and casualty reinsurance +increased on account of the larger volume of reserves. In addi- +tion, parameters in the reserve risk model were strengthened for +risks at the end of run-off. The premium risk (incl. catastrophe +risk) has scarcely changed. The increase in the underwriting +risks in life and health reinsurance, particularly in the area +of longevity risks, was primarily due to the larger business +volume. The operational risks also increased in step with the +underlying business volumes. +The required risk capital of the Hannover Re Group at the tar- +get confidence level of 99.97% rose in the year under review +from EUR 6,896.9 million to EUR 7,786.6 million. The bulk of +the increase resulted from a model- and volume-driven rise in +market risks. The market risks rose due to the strengthening +of several model parameters in the credit and spread model as +well as of the dependency parameters between risk factors in +conjunction with substantially higher investment volumes due +to exchange rate movements and positive cash flows. +(3,299.6) +357.6 +Available economic capital +Hybrid capital +Economic equity +(725.8) +8,906.1 +2,237.8 +11,143.9 +10,457.4 +1,986.5 +12,443.9 +(1,030.4) +effects and other +555.5 +(3,905.2) +(2,187.7) +Tax effects +2,079.4 +(incl. catastrophe risk) +Premium risk +in EUR million +2013 +2014 +M 61 +Required risk capital¹ for underwriting risks +in property and casualty reinsurance +Diversification within the Property & Casualty reinsurance busi- +ness group is actively managed through allocation of the cost +of capital according to the contribution made to diversification. +A high diversification effect arises out of the underwriting of +business in different lines and different regions with different +business partners. In addition, the active limitation of individual +risks - such as natural catastrophes - enhances the diversifica- +tion effect. The risk capital with a confidence level of 99.5% +for underwriting risks in property and casualty reinsurance +breaks down as follows: +Risk management in property and casualty reinsurance has +defined various overall guidelines for efficient risk steering. +These include, among other things, the limited use of retro- +cessions to reduce volatility and conserve capital. It is also +crucially important to consistently maximise the available risk +capacities on the basis of the risk management parameters of +the Hannover Re Group and to steer the acceptance of risks +systematically through the existing central and local under- +writing guidelines. Our conservative reserving level is a cru- +cial factor in our risk management. We make a fundamental +distinction between risks that result from business operations +of past years (reserve risk) and those stemming from activities +in the current or future years (price/premium risk). In the lat- +ter case, special importance attaches to the catastrophe risk. +Underwriting risks in property and +casualty reinsurance +At the present time our most significant risks are the credit +and spread risks within the market risks, the reserving and +catastrophe risks within the underwriting risks of property +and casualty reinsurance and the risk of changes in mortality +within the underwriting risks of life and health reinsurance. +With regard to mortality risks, as a general principle annuity +portfolios are impacted by improvements in mortality while +death benefit portfolios are adversely affected by deteriorations +in mortality. The specific risk characteristics and the principal +monitoring and steering mechanisms are described in the fol- +lowing sections. +Combined management report +85 +Hannover Re | Annual Report 2014 +Reserve risk +1,907.0 +2,015.3 +1,528.4 +Diversification +Debt leverage² +Hannover Re | Annual Report 2014 +Required risk capital with a confidence level of 99.5% +1 +86 +In order to partially hedge inflation risks Hannover Re has +taken out inflation swaps (USD and EUR zero coupon swaps) +and invested in inflation-linked instruments that protect +parts of the loss reserves against inflation risks. An inflation +risk exists particularly inasmuch as the liabilities (e.g. loss +reserves) could develop differently than assumed at the time +when the reserve was constituted because of inflation. Infla- +tion protection was purchased for the first time in the second +quarter of 2010 with terms of 4 and 5 years; it was increased +in the first quarter of 2011 (term of 8 years). Since 2012 we +have also increasingly obtained parts of the inflation protection +for our loss reserves by purchasing bonds with inflation-linked +coupons and redemption amounts. +In the case of asbestos- and pollution-related claims it is dif- +ficult to reliably estimate future loss payments. The adequacy +of these reserves can be estimated using the so-called “sur- +vival ratio". This ratio expresses how many years the reserves +would cover if the average level of paid claims over the past +three years were to continue. +External events +Our own actuarial calculations regarding the adequacy of the +reserves are also subject to annual quality assurance reviews +conducted by external firms of actuaries and auditors. For fur- +ther remarks on the reserve risk please see our comments in +the section "Technical provisions" on page 200 et seq. +The reserve risk, i. e. the risk of under-reserving losses and the +resulting strain on the underwriting result, is the overriding pri- +ority in our risk management. We attach the utmost importance +to a conservative reserving level and therefore traditionally +have a high confidence level (> 50%). In order to counter the +risk of under-reserving we calculate our loss reserves based on +our own actuarial estimations and establish, where necessary, +additional reserves supplementary to those posted by our ced- +ants as well as the segment reserve for losses that have already +occurred but have not yet been reported to us. Liability claims +have a major influence on the segment reserve. The segment +reserve is calculated on a differentiated basis according to risk +categories and regions. The segment reserve established by +the Hannover Re Group amounted to EUR 6,107.4 million in +the year under review. +2,738.6 +3,101.1 +and casualty reinsurance +Underwriting risk in property +(805.1) +(885.3) +The statistical run-off triangles are another monitoring tool +used by our company. They show the changes in the reserve +over time as a consequence of paid claims and in the recalcula- +tion of the reserves to be established as at each balance sheet +date. Their adequacy is monitored using actuarial methods. +Reconciliation +Credit and spread +risk +Processes +The risk landscape of Hannover Re encompasses: +Risk landscape of Hannover Re +In the context of its business operations the Hannover Re +Group enters into a broad variety of risks. These risks are delib- +erately accepted, steered and monitored in order to be able to +act on the associated opportunities. The parameters and deci- +sions of the Executive Board with respect to the risk appetite +of the Hannover Re Group, which are based on the calculations +of risk-bearing capacity, are fundamental to the acceptance +of risks. Through our business operations on all continents +and the diversification between our Property & Casualty and +Life & Health reinsurance business groups we are able to effec- +tively allocate our capital in light of opportunity and risk consid- +erations and generate a higher-than-average return on equity. +Along with our principal business operations as a reinsurer of +property & casualty and life & health business, we also transact +primary insurance in selected niche markets as a complement +to our core reinsurance business. With this approach we are +well positioned for further profitable growth. In this context +crucial importance attaches to our risk management in order +to ensure that, among other things, risks to the reinsurance +portfolio remain calculable and also exceptional major losses +do not have an unduly adverse impact on the result. +Risk landscape of Hannover Re +Hannover Re | Annual Report 2014 +84 +3,375.2 +6,896.9 +4,353.1 +7,786.6 +Required risk capital of the Hannover Re Group +(1,263.7) +(1,124.8) +(1,514.3) +(1,370.2) +• +• +underwriting risks in property & casualty and life & health +reinsurance which originate from our business activi- +ties and manifest themselves inter alia in fluctuations in +loss estimates as well as in unexpected catastrophes and +changes in biometric factors such as mortality, +market risks which arise in connection with our invest- +ments and also as a consequence of the valuation of +sometimes long-term payment obligations associated +with the technical account, +counterparty default risks resulting from our diverse busi- +ness relationships and payment obligations inter alia with +clients and retrocessionaires, +People +Systems +Lapse risk +Catastrophe risk +Morbidity and +disability risk +Longevity and +mortality risk +Operational risks +Other risks +Reputational risk +Strategic risk +Liquidity risk +Emerging risks +Share price risk +Interest rate risk +Real estate risk +Currency risk +Market risks +Counterparty default risks +Underwriting risks +Life and health reinsurance +Property and casualty reinsurance +Price/premium risk +Catastrophe risk +Reserving risk +other risks, such as reputational and liquidity risks. +operational risks which may derive, for example, from +deficient processes or systems and +Risk landscape of +Hannover Re +from a higher assessment of the valuation reserve for the loss +reserves. The valuation adjustments for life and health rein- +surance increased due to the favourable development of new +business and positive effects from economic changes associ- +ated with interest rates and exchange rates. This is opposed by +a higher risk premium - above all for the increased longevity +risks - as well as negative effects from revised assumptions +and model adjustments. The item “Valuation adjustments due +to tax effects and other" decreased primarily owing to higher +tax effects from valuation adjustment. The available capital +from subordinated bonds was reduced in the period under +review owing to redemption of a hybrid bond, which was only +partially replaced with a new issue. +M60 +82 +72.9% +71.7% +82.4% +2010 +2011 +2012 +2013 +2014 +M56 +4 Net reserves/net premium earned +EBIT/interest on hybrid capital +3 +Hybrid capital/shareholders' equity +2 +1 +68.3% +69.5% +24.1% +34.3% +so-called "3 lines of defence". The first line of defence consists +of risk steering and the original risk responsibility on the divi- +sional or company level. The second line of defence consists of +the core functions of risk management, the actuarial function +and the compliance function. These units are responsible for +monitoring and control. The third line of defence is the process- +independent monitoring performed by the internal audit func- +tion. The following chart provides an overview of the central +functions and bodies within the overall system as well as of their +major tasks and powers. +Hannover Re has set up risk management functions and bodies +Group-wide to safeguard an efficient risk management system. +The organisation and interplay of the individual functions in +risk management are crucial to our internal risk steering and +control system. The central functions of risk management are +closely interlinked in our system and the roles, tasks and report- +ing channels are clearly defined and documented in terms of the +Organisation and processes +of risk management +275.1% +292.7% +268.4% +270.6% +(Shareholders' equity+hybrid capital)/net premium earned +295.7% +8.5x +13.3x +9.7x +15.3x +36.5% +30.9% +33.3% +13.8x +Reserves/premium4 +Interest coverage³ +at Risk (VaR) of the economic change in value over a period of +one year with a confidence level of 99.97%. This reflects the +goal of not exceeding a one-year ruin probability of 0.03%. +The internal target capitalisation of the Hannover Re Group +is therefore significantly higher than the confidence level of +99.5% which will be required in future under Solvency II. It +goes without saying that Hannover Rück SE also meets the +current capital requirements set by regulators. The capital +adequacy ratio of Hannover Rück SE under Solvency I stood +at 136% as at 31 December 2014. Since the corresponding +calculation is neither market-consistent nor risk-based a rel- +evant comparison with the coverage ratio under the internal +capital model is not possible. +3,375.2 +4,657.3 +159.8% +8,090.8 +4,247.0 +7,768.6 +285.9% +161.6% +6,896.9 +330.2% +Hannover Re | Annual Report 2014 +77 +Combined management report +Hannover Re is well capitalised and our available capital sig- +nificantly exceeds the current capital requirement, as is also +reflected in the following management ratios. +Capitalisation ratios +Hannover Re | Annual Report 2014 +Management ratios +"A+" (Superior, stable outlook) by A.M. Best. Standard & Poor's +evaluates Hannover Re's risk management as "Very Strong", +the best possible rating. The ratings highlight, in particular, the +company's very good risk management, the consistent and sys- +tematic implementation of corporate strategy by management +and the excellent capital resources. Hannover Re's internal +capital model is also examined as part of the rating. Based on +this review, Standard & Poor's factors the results of the internal +capital model of the Hannover Re Group into the determination +of the target capital for the rating. +78 +4,353.1 +99.5% +The Hannover Re Group is seeking approval of its internal +model for the determination of regulatory capital under Sol- +vency II. If approval is given and depending on the final meas- +urement rules of Solvency II, the capitalisation with a confi- +dence level of 99.5% constitutes an indication of the fulfilment +of future regulatory requirements. Our excess capital cover- +age at the target confidence level of 99.97% is currently very +comfortable. Hannover Re is well capitalised and our available +capital comfortably exceeds the currently required capital: +Available capital and required risk capital +M55 +in EUR million +Available economic capital +Confidence level +Required risk capital +7,786.6 +Capital adequacy ratio +2013 +2014 +12,443.9 +11,143.9 +99.97% +99.5% +99.97% +We hold additional capital above all to meet the requirements +of the rating agencies for our target rating and to be able to +act flexibly on business opportunities. We strive for a rating +from the rating agencies most relevant to our industry that +facilitates and secures our access to all reinsurance business +worldwide. Hannover Re is analysed by the rating agencies +Standard & Poor's (S&P) and A.M. Best as part of an interac- +tive rating process, meaning that both these rating agencies +are also given access to confidential information about Han- +nover Re. The current financial strength ratings are assessed +as "AA" (Very Strong, stable outlook) by Standard & Poor's and +Hannover Re | Annual Report 2014 +Excess capital +Supervisory Board +Our risk reporting provides systematic and timely information +about all material risks and their potential implications. The +central risk reporting system consists primarily of regular risk +reports, e. g. on the overall risk situation, adherence to the +parameters defined in the risk strategy or on the capacity utili- +sation of natural catastrophe scenarios. Complementary to the +regular risk reporting, immediate internal reporting on material +risks that emerge at short notice takes place as necessary. The +already existing range of risk reports will be supplemented in +the context of Solvency II implementation by further reports, +including for example the “Regular Supervisory Report” (RSR) +and the "Solvency and Financial Condition Report" (SFCR). +Risk reporting +Risk management is firmly integrated into our operational pro- +cesses. It is assisted by transparent risk communication and +the open handling of risks as part of our risk culture. Risk com- +munication takes the form, for example, of internal and exter- +nal risk reports, information on current risk complexes in the +intranet and training opportunities for staff. The regular sharing +of information between risk-steering and risk-monitoring units is +also fundamental to the proper functioning of risk management. +Risk communication and risk culture +Combined management report +Hannover Re | Annual Report 2014 +60 +Process-integrated/-independent monitoring and +quality assurance +80 +Risk monitoring +The steering of all material risks is the task of the operational +business units on the divisional and company level. In this con- +text, the identified and analysed risks are either consciously +accepted, avoided or minimised. The risk/reward ratio and the +required capital are factored into the division's decision. Risk +steering is assisted by, among other things, the parameters of +the central and local underwriting guidelines and by defined +limits and thresholds. +Risk steering +In principle, every risk that is identified and considered mate- +rial is quantitatively assessed. Only risk types for which quan- +titative risk measurement is currently impossible or difficult +are qualitatively assessed (e.g. strategic risks or reputational +risks). Qualitative assessment takes the form of inter alia expert +evaluations. Quantitative assessment of material risks and the +overall risk position is performed by Group Risk Management +using the Hannover Re risk model. The model makes allowance +as far as possible for risk accumulations and concentrations. +Risk analysis and assessment +A key source of information for monitoring risks is the risk iden- +tification carried out on a rotating basis. All identified risks are +documented in the central register containing all material risks. +Risk identification takes the form of, for example, structured +assessments, interviews or scenario analyses. External insights +such as recognised industry know-how from relevant bodies or +working groups are incorporated into the process. Risk iden- +tification is important for ensuring that our risk management +consistently remains up-to-date. +Risk identification +The monitoring of all identified material risks is a core task of +Group Risk Management. This includes, inter alia, monitoring +execution of the risk strategy as well as adherence to the +defined limits and thresholds and to risk-related methods and +processes. A further major task of risk monitoring is the ascer- +tainment of whether risk steering measures were carried out +and whether the planned effect of the measures is sufficient. +The establishment of the risk-bearing capacity involves deter- +mining the total available risk coverage potential and calcu- +lating how much of this is to be used for covering all material +risks. This is done in conformity with the parameters of the +risk strategy and the risk appetite defined by the Executive +Board. The quantitatively measurable individual risks and the +risk position as a whole are evaluated using our risk model. A +central system of limits and thresholds is in place to monitor +material risks. This system incorporates - along with other +risk-related key figures - in particular the indicators derived +and calculated from the risk-bearing capacity. Adherence to +the overall risk appetite is verified using the results of the risk +model. The calculation is updated half-yearly. +The Executive Board is responsible for the orderly organisation +of the company's business irrespective of internally assigned +competencies. This also encompasses monitoring of the inter- +nal risk steering and control system. Process-independent mon- +itoring and quality assurance of risk management is carried out +by the internal audit function and external instances (regula- +tors, independent auditors and rating agencies). Most notably, +the independent auditors review the trigger mechanism and +the internal monitoring system. The entire system is rounded +off with process-integrated procedures and rules, such as those +of the internal control system. +We organise our business activities in such a way that they are +always in conformity with all legal requirements. The internal +control system (ICS) is an important subsystem that serves, +among other things, to secure and protect existing assets, pre- +vent and reveal errors and irregularities and comply with laws +and regulations. The core elements of Hannover Re's ICS are +documented in a Framework Guideline that establishes a com- +mon understanding of the differentiated execution of the nec- +essary controls. In the final analysis, it is designed to system- +atically steer and monitor the implementation of our corporate +strategy. The Framework Guideline defines concepts, stipulates +responsibilities and provides a guide for the description of con- +trols. In addition, it forms the basis for the accomplishment of +internal objectives and the fulfilment of external requirements +imposed on Hannover Re. The ICS consists of systematically +structured organisational and technical measures and controls +within the enterprise. This includes, among other things: +In the following section we compare the available economic +capital with the required risk capital. Hannover Re calculates +the economic equity as the difference between the market-con- +sistent value of the assets and the market-consistent value of +the liabilities. The corresponding measurement principles also +largely apply to the Intrinsic Value Creation (IVC) (see the sec- +tion "Management system" on page 24 et seq.). While fair val- +ues are available for most investments, the market-consistent +valuation of reinsurance treaties necessitates a specific valua- +tion model. We establish the market-consistent value of tech- +nical items as the present value of projected payments using +actuarial methods. This is adjusted by a risk loading that factors +in the fluctuation in future payments. Such fluctuations result +from risks that cannot be hedged by means of capital market +products, such as underwriting risks. We use risk-free interest +rates derived from yields on the highest-quality government +bonds for discounting of our future cash flows. Market prices +for options and guarantees embedded in insurance contracts +are determined or approximated using option valuation mod- +els from the field of financial mathematics. The methods used +are the same as those adopted in the calculation of our Market +Consistent Embedded Value (MCEV) (for further remarks on the +Market Consistent Embedded Value please see our comments +in the section "Underwriting risks in life and health reinsur- +ance" on page 89 et seq.). The significance of these options +and guarantees in our portfolio is, however, minimal. The val- +uation reserves for investments shown in the following table +indicate the difference between fair value and book value of +those investments recognised under IFRS at book values. Other +valuation adjustments encompass above all deferred tax assets +and liabilities that arise in connection with valuation adjust- +ments. The available economic capital, which is available as +liable capital for policyholders, is composed of the economic +equity and the hybrid capital. +Central functions of risk monitoring and steering +Internal risk assessment +Within the scope of our control system the Group companies +are responsible for Group-wide adherence to the accounting +policies and the internal control guidelines. The managing +directors and chief financial officers of the Group companies +defined as material in our control system affirm to the Execu- +tive Board of Hannover Rück SE at each closing date the com- +pleteness, correctness and reliability of the financial data that +they pass on to Group Accounting. Data for the preparation of +the consolidated financial statement is delivered using a Web- +based IT application. The relevant data for Group financial +reporting is collected in a database and processed via auto- +matic interfaces in a consolidation system. As part of the finan- +cial reporting process we perform preventive and detective +checks on the reported figures in order to minimise the prob- +ability and reduce the impacts of a potentially incorrect disclo- +sure. Depending upon the results of our checks, these figures +can be corrected if necessary. Given that our Group financial +reporting is heavily dependent on IT systems, these systems +also need to be subject to controls. Authorisation concepts +regulate system access and for each step content-based as well +as system-side checks have been implemented, by means of +which errors are analysed and promptly eliminated. +the accompanying controls are consistently documented. In +order to safeguard and continuously improve the adequacy of +the control system it is subject to regular review and evalua- +tion. In this regard, the internal audit function ensures that the +quality of the control system is constantly monitored. All rel- +evant accounting principles are collated in a Group Accounting +Manual that sets out uniform Group-wide rules for the recogni- +tion, measurement and reporting of items in the consolidated +financial statement. The process for updating and, if neces- +sary, adjusting these rules is clearly regulated with respect to +information channels, responsibilities and period of validity. +Not only that, we provide prompt Group-wide notification of +significant developments and modified requirements in Group +financial reporting. +81 +Hannover Re | Annual Report 2014 +Internal control system +We use a central IT solution with standardised accounting and +consolidation processes, posting rules and interfaces for data +delivery in order to draw up the consolidated financial state- +ment. Access rights for the reporting systems are assigned +through an approval process. All components of the account- +ing-related internal control system, the processes for the organ- +isation and implementation of consolidation tasks and for the +preparation of the consolidated financial statement as well as +and technical plausibility checks and access privileges +in the IT systems. +documentation of the controls within processes, +separation of functions, +the principle of dual control, +• +• +The available economic capital increased in the period under +review from EUR 11,143.9 million to EUR 12,443.9 million. This +was due principally to the successful business result in 2014, +positive effects from the weakening of the euro against our +major currencies and a rise in the valuation reserves for invest- +ments, principally owing to yield declines on government bonds +in our main currency areas and also in some cases to reduced +credit spreads. As a consequence of a decrease in the discount- +ing effect for the loss reserves, the low interest rate environ- +ment gave rise to opposing effects in the valuation adjustments +for property and casualty reinsurance. A further factor was an +increase in the risk premium, which reflects the higher capital +requirements in this business group. Positive effects derived +The proper functioning of the ICS necessitates the involve- +ment of management, executive staff and employees on all +levels. The financial reporting of the parent company and the +Group must satisfy international and national financial report- +ing standards as well as regulatory requirements. This is safe- +guarded in the area of accounting and financial reporting by +processes with integrated controls which ensure the complete- +ness and accuracy of the annual and consolidated financial +statements. A structure made up of differentiated criteria, con- +trol points and materiality thresholds assures our ability to +identify and minimise the risk of material errors in the annual +and consolidated financial statements at an early stage. +Risk-bearing capacity concept +• +Our risk strategy, the Framework Guideline on Risk Manage- +ment and the system of limits and thresholds for material risks +of the Hannover Re Group describe the central elements of +our risk management system. The risk management system +is subject to a constant cycle of planning, action, control and +improvement. Systematic risk identification, analysis, meas- +urement, steering and monitoring as well as risk reporting are +especially crucial to the effectiveness of the system as a whole. +Compliance +function +Monitoring of +areas where mis- +conduct can result +in civil actions or +criminal/adminis- +trative proceedings +and underlying +models in relation +to calculation of the +technical provisions +Ensures adequacy +of the methods used +Actuarial +function +Chief Risk +Officer +Responsibility for +holistic risk monitor- +ing across the Group +as a whole and the +business groups of +all material risks +from the Group +perspective +Group Risk +Management +Risk monitoring +across the Group +as a whole and the +business groups of +all material risks +from the company +perspective +body as well as implementation and safeguarding of a consistent +Group-wide risk management culture +Group +Auditing +Process-independ- +ent and Group- +wide monitoring +on behalf of the +Executive Board +Operational risk management, monitoring and coordinating +3rd line of defence +2nd line of defence +2nd line of defence +Overall responsibility for Group-wide risk management and definition of the risk strategy +Executive Board +The Framework Guideline on Risk Management describes, +among other things, the major tasks, rights and responsibili- +ties, the organisational framework conditions and the risk con- +trol process. The rules, which are derived from the corporate +strategy and the risk strategy, additionally take account of the +regulatory minimum requirements for risk management as well +as international standards and developments relating to appro- +priate enterprise management. +inter alia with respect to risk management, on the basis of the Supervisory Board's Rules of Procedure +Advising and supervising the Executive Board in its management of the company, +supported by +Risk Committee +functions +Key elements of our risk management +system +Combined management report +local risk management +M57 +79 +Hannover Re | Annual Report 2014 +and assessment on the divisional and company level +The risk management functions meet regularly, e. g. in the +context of the Group Risk Management Meeting (GRIMM), in +order to support Group-wide risk communication and establish +an open risk culture. +supported by +local compliance +functions +supported by +supported by +local actuarial +functions +1st line of defence +functions +Subsidiaries, branches, service companies, representative offices as well as +treaty/regional and service divisions within the business groups of Property & +Casualty reinsurance, Life & Health reinsurance and investments +Risk steering and original risk responsibility for risk identification +local risk management +Specialty Lines Worldwide +• Continental Europe +• +Credit, Surety and Political Risks +Aviation +• +United Kingdom, Ireland, London +• Marine +• +• +Catastrophe XL (Cat XL) +Facultative Reinsurance +Global Reinsurance +• +Worldwide Treaty Reinsurance +Structured Reinsurance and +Insurance-Linked Securities +Life & Health reinsurance +Financial Solutions +Risk Solutions +Longevity +• +Market and Direct Business +• North America +2 Proposed dividend +Property & Casualty reinsurance +Return on equity (after tax) +7.8% +11.4% +14.7% +14.7% +15.0% +15.4% +12.8% +1 Adjusted pursuant to IAS 8 +3 Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015, EUR 3.00 plus special dividend of EUR 1.25 for 2014 and +EUR 2.60 plus special dividend of EUR 0.40 for 2012 +Target Markets +4 +5 +Hannover Re Group's net share for natural catastrophes and other major losses in excess of EUR 10 million gross as a percentage +of net premium earned (until 31 December 2011: in excess of EUR 5 million gross) +6 +Excluding effects from ModCo derivatives and inflation swaps +7 Operating result (EBIT)/net premium earned +The Group worldwide +107 +A complete list of our shareholdings is provided on page 160 et seq. of the notes. +The addresses of the Hannover Re Group's branch offices and subsidiaries abroad +are to be found in the section "Further information" on page 242 et seq. +Strategic business groups +Hannover Re Group +Including expenses on funds withheld and contract deposits +• +849.6 +Morbidity +2015 +Group net income (loss) +in EUR million +102* +1,150.7 +1,200 +985.6 +895.5 +1,000 +721.7 +2014 +733.7 +800 +606.0 +514.4 +600 +400 +200 +0 +4.1% +(200) +2006 +748.9 +Mortality +2013 +2011 +108 +An overview +Gross premium +in EUR million +101* +20,000 +17,068.7- +15,000 +9,289.3 +10,274.8 +20121 +11,428.7 12,096.1 +10,000 +8,258.9 +8,120.9 +5,000 +0 +2006 +2007 +2008 +2009 +2010 +13,774.2 13,963.4 14,361.8 +4.1% +31,875.2 +11.8% +31,874.4 +28,341.2 +Total assets +63,214.9 ++4.6% +60,457.6 +53,915.5 +54,811.7 +49,867.0 +Share +36,228.0 +Earnings per share +9.54 ++16.7% +8.17 +7.43 +7.04 +5.02 +Book value per share in EUR +66.90 ++6.9% +62.61 +(basic and diluted) in EUR +48.83 ++8.6% +held by ceding companies) +shareholders of Hannover +2007 +Rück SE +8,068.3 ++6.9% +7,550.8 +5,888.4 +6,032.5 +4,970.6 +Non-controlling interests +39,346.9 +709.1 +702.2 +641.6 +Hybrid capital +1,489.9 +-25.0% +1,986.5 +2,237.8 +681.7 +2,233.0 +636.0 +1,731.6 +Investments (excl. funds with- ++1.0% +3.4% +10.1% +50.02 +Dividend +Combined ratio (property and +casualty reinsurance) 4 +94.4% +94.7% +94.9% +95.8% +104.3% +Large losses as percentage of +net premium earned (proper- +ty and casualty reinsurance) 5 +7.1% +Retention +87.0% +Ratios +6.1% +87.6% +7.0% +89.8% +16.5% +91.2% +Return on investment +(excl. funds withheld by +ceding companies) 6 +3.5% +3.3% +EBIT margin +12.0% +8.4% +89.0% +41.22 +4,621.9 +7,522.8 +572.82 +Dividend per share in EUR +3.25 +1.502,3 +Share price at year-end in EUR +105.65 ++11.8% ++11.8% ++40.9% +512.5 +361.8 +361.8 +253.3 +7,110.4 +3.00+1.253 +3.00 +62.38 +2.60+0.403 +2.10 +58.96 +38.325 +Market capitalisation +at year-end +12,741.1 ++40.9% +9,041.2 +74.97 +2008 +Both on the basis of its capitalisation under the newly implemented solvency regime (Solvency II) and +in the assessment of the rating agencies, Hannover Re is comfortably capitalised. With this in mind, +we had already distributed a special dividend to you last year with an eye to capital management +considerations. In view of the gratifying development of our business, the Executive Board and Super- +visory Board intend to propose a further increase in both the basic dividend and the additional special +dividend to the Annual General Meeting in May 2016. Consequently, it is envisaged that the total +distribution should be raised to EUR 4.75 per share, split into a dividend of EUR 3.25 per share and +a special dividend of EUR 1.50 per share. The increase in the basic dividend reflects your company's +stronger profitability. +2010 +22 +Imprint +254 +255 +Annual financial statements +135 +Notes +Supervisory Board +Report by the Supervisory Board +Supervisory Board of Hannover Rück SE +145 +Combined management report +238 +238 +241 +* Graphs, tables and charts are numbered and listed +on page 250 et seq. +Ulrich Wallin, +Chairman of the +Executive Board +Dear Shareholders, +Ladies and Gentlemen, +The 2015 financial year was an exceptionally successful one for your company. This is reflected firstly +in the record profit that we can report for what is now the fourth consecutive time. Even more signifi- +cant, however, is the fact that in 2015 we were able to substantially strengthen the platform that we +have put in place for achieving our financial goals going forward. In property and casualty reinsurance, +for example, we again appreciably increased the confidence level of our loss reserves despite the diffi- +cult market environment. This should help us to post continued good underwriting results even in the +challenging years to come. In life and health reinsurance we further boosted the value of new business +and, what is more, we improved the profitability of the existing portfolio by taking targeted actions. We +have thus cemented a robust foundation for further increasing the underlying profitability of our life +and health reinsurance business. When it comes to our investments, we took purposeful structural steps +that should enable us to keep the return on investment broadly stable in absolute terms. This was sup- +ported by further considerable growth in the portfolio of assets under own management, facilitated by +a sharply higher operating cash flow compared to the previous year. +As our valued shareholders, you can therefore rest assured that your company has established a very +good basis for continued success in the coming years, which will be shaped by a challenging general +business climate. Our foundation is the successful implementation of our strategic approach geared to +"long-term success in a competitive business”. +As we consider the highly satisfactory figures more closely, I would like to highlight the increase of +around 17 percent in Group net income to EUR 1.15 billion. This is the first time that we can report a +net profit for the Group in excess of EUR 1 billion. It is also pleasing to note that despite an intensely +competitive market we enlarged our gross premium volume to EUR 17 billion. This is equivalent to +currency-adjusted growth of some nine percent. Similarly, your company's shareholders' equity rose by +almost seven percent to EUR 8 billion. The average shareholders' equity, the basis on which we calcu- +late the return on equity, actually increased by more than 16 percent. The return on equity nevertheless +remained stable at a very pleasing 14.7 percent. This shows that we have succeeded in boosting the +profitability of your company in step with the growth in shareholders' equity. +2 +* +Hannover Re | Annual Report 2015 +Contact information +Financial calendar +Hannover Re, with gross premium of more than EUR 17 billion, is the third-largest +reinsurer in the world. +We transact all lines of property & casualty and life & health reinsurance and are +present on all continents with roughly 2,500 staff. Established in 1966, the Hannover +Re Group today has a network of more than 100 subsidiaries, branches and represent- +ative offices worldwide. The German business of the Hannover Re Group is transacted +by our subsidiary E+S Rück. +The rating agencies most relevant to the insurance industry have awarded both +Hannover Re and E+S Rück very good financial strength ratings: Standard & Poor's +"AA-" (Very Strong) and A.M. Best "A+" (Superior). +Contents +For our investors +2 +Further information +242 +Letter from the Chairman of the Executive Board 2 +Branch offices and subsidiaries +253 +Executive Board of Hannover Rück SE +of the Hannover Re Group abroad +242 +The Hannover Re share +10 +Glossary +245 +Our strategy +16 +List of graphs, tables and charts* +250 +6 +About us +I would also like to mention at this juncture how particularly pleased we were in the context of the new +solvency regulations (Solvency II) to receive approval from the Federal Financial Supervisory Authority +for the use of our internal capital model to calculate the quantitative solvency for the Hannover Re +Group as early as the third quarter of the year under review. In the fourth quarter the same was then +also true of the individual companies Hannover Rück SE, E+S Rück and Hannover Re Ireland. We are +better able to map the risk structure of our business using our internal model rather than the standard +model and hence we can efficiently implement the capital requirements according to Solvency II. +The market environment in property and casualty reinsurance remained intensely competitive in the +year under review with the associated rate reductions. The key driver here is the fact that natural +catastrophe losses were below the expected levels over the past four years, as a consequence of which +reinsurers posted generally good results. This prompted an increased inflow of capacity into the mar- +kets both from traditional reinsurers as well as in the form of so-called alternative capital from pension +funds, hedge funds and other investors. The supply of reinsurance capacity thus rose considerably +more sharply than demand. +Finance and Accounting +Information Technology +Investment and Collateral Management +Facility Management +Ulrich Wallin +Chairman +Business Opportunity Management +Compliance +Controlling +Human Resources Management +Internal Auditing +Risk Management +Corporate Development +Roland Vogel +Corporate Communications +Life & Health Reinsurance +Africa, Asia, Australia/New +Zealand, Latin America, +Western and Southern Europe +Longevity Solutions +Dr. Klaus Miller +Life & Health Reinsurance +United Kingdom/Ireland, +North America, Northern, +Eastern and Central Europe +6 +Hannover Re | Annual Report 2015 +Equity attributable to +Claude Chèvre +I would now like to explore in greater detail the developments in our business groups of +Property & Casualty and Life & Health reinsurance and on the investments side. +but +hannover re +Thanks to our very good market position Hannover Re nevertheless achieved a business development +in the year under review with which we can be thoroughly satisfied. Our long-standing, stable customer +relationships and our good ratings were particularly crucial in enabling us to write business selectively +and only at conditions that satisfied our margin requirements. Despite this, we boosted the premium +volume by eight percent - adjusted for exchange rate effects - to more than EUR 9 billion. What is +particularly gratifying is that the rise in premium income was accompanied by an even more significant +increase in the underwriting result to EUR 432 million. The combined ratio improved from 94.7 percent +to 94.4 percent. The quality of the underwriting result is also borne out by the fact that the growth was +not generated at the expense of the confidence level of our loss reserves. Quite the contrary: the confi- +dence level actually showed further improvement. +The major loss expenditure of EUR 573 million was higher than in 2014, when it came in at +EUR 426 million. Nevertheless, this figure was still well below our budgeted level of EUR 690 million. +The largest single loss was the devastating series of explosions at the port of the Chinese city of Tianjin, +costing EUR 111 million. The operating profit (EBIT) in property and casualty reinsurance grew by +almost 13 percent to an exceptionally pleasing EUR 1.3 billion. +We improved the operating result (EBIT) in life and health reinsurance by some 54 percent to +EUR 405 million. Our financial solutions business, in particular, played a vital part in this gratifying +development. The very good underlying profitability here was bolstered by positive non-recurring +effects. Our mortality and morbidity business, on the other hand, incurred negative one-off effects, such +as those recorded at our branch in France. In terms of the underwriting result, these effects - which +each ran into the mid-double-digit million euro range - largely offset one another; the posted under- +writing result is therefore a good reflection of the underlying profitability in the year under review. +The special effect of roughly EUR 40 million recognised in investment income in relation to an early +termination fee for a cancelled contract will not, however, be so readily repeated in the coming years. +Hannover Re | Annual Report 2015 +3 +For our investors +US mortality business, and especially a block of business that we had acquired in 2009, again per- +formed unsatisfactorily. Still, it is pleasing to report that we were able to implement measures in this +area that should lead to improved profitability. We substantially reduced the annual collateralisation +costs while at the same time raising the reinsurance rates for a number of very poorly performing +treaties. This should improve the profit outlook for this segment by an amount in the mid-double-digit +millions of euros. +We moved forward on our expansionary course in life and health reinsurance in the financial year just +ended. Gross premium adjusted for exchange rate effects rose by around ten percent to EUR 7.7 billion. +As already mentioned, this growth went hand-in-hand with an even stronger increase in the +earnings figures. +Given that the general business environment is by no means straightforward, we are also highly satis- +fied with the development of our investment income. The portfolio of assets under own management +grew to more than EUR 39 billion, thanks not least to a continued positive cash flow. This is all the +more remarkable because the valuation reserves fell again - on the back of higher risk premiums on +corporate bonds - and we paid a substantially increased dividend of EUR 513 million. Despite the drop +in interest rates, we boosted the investment income from assets under own management by a size- +able 16 percent to EUR 1.3 billion. The key contributory factors here are our increased exposure to real +estate as well as income from private equity investments. The net return on assets under own manage- +ment stood at 3.4 percent and thus came in comfortably better than planned. Including interest on +funds withheld and contract deposits, net investment income grew to a very pleasing EUR 1.7 billion, +equivalent to growth of 13 percent. +As I mentioned at the outset, your company has entered the current year in a very healthy financial +state. In view of the intense competition prevailing in both property & casualty and life & health +reinsurance, our primary emphasis for 2016 is on achieving a result that meets our financial targets. +Growing our premium volume is less of a priority. With this in mind, it is our expectation that gross +premium income will remain stable or may contract slightly. On the other hand, despite the fiercely +competitive state of the property and casualty reinsurance market, the combined ratio is expected to +again come in below our strategic target of 96 percent. This is subject to the proviso that major losses +do not significantly exceed our increased budget of EUR 825 million. In life and health reinsurance the +underlying trend of improving results is expected to be sustained in the current year. As far as the profit +expectation is concerned, it must of course be borne in mind that we cannot anticipate another positive +one-off effect. Turning to the investments, we expect to see further growth in our asset holdings. This +should enable us to keep the investment income broadly stable in absolute terms, despite a lower +expected return of 2.9 percent. +hany +4 +All in all, we are again expecting to post very good business results for your company in 2016. Provided +major losses remain within the bounds of expectations and as long as there are no exceptional distor- +tions on the investment side, we anticipate Group net income in the order of EUR 950 million. +I would like to take this opportunity to thank you, our valued shareholders, most sincerely for your +trust - also on behalf of my colleagues on the Executive Board. I would also like to express my appreci- +ation to our employees for their very good and reliable work. Going forward, as in the past, you can rest +assured that we shall do everything in our power to safeguard Hannover Re's successful development. +It is and will remain our goal to increase the value of your company on a sustainable basis. +Yours sincerely, +似 +Ulrich Wallin +Chairman of the Executive Board +Hannover Re | Annual Report 2015 +5 +For our investors +Executive Board of Hannover Rück SE +Hannover Re | Annual Report 2015 +2009 +as well as EUR 2.60 plus special dividend of EUR 0.40 for 2012 and EUR 1.80 plus special dividend of EUR 0.50 for 2007 +Proposed dividend +3 +2008 +2009 +2010 +2011 +20121 +2013 +2014 +2015 +Book value per share +in EUR +2007 +104* +66.90 +62.61 +60 +50.02 +48.83 +41.22 +37.39 +40 +30.80 +27.77 +80 +24.03 +2006 +2,000 +2011 +20121 +2013 +2014 +2015 +Policyholders' surplus +in EUR million +103* +12,000 +10,239.5 10,267.3 +0 +10,000 +8,767.9 +6,987.0 +7,338.2 +8,000 +4,878.4 +5,295.1 +5,621.6 +6,000 +4,708.4 +4,000 +8,947.2 +Dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015; EUR 3.00 plus special dividend of EUR 1.25 for 2014 +23.47 +0 +0.40 +1.60 +2 +-0.50 +2.60 +3.00 +3.25 +1 +1.80 +0 +2.10 +2006 +2008 +2009 +2010 +2011 +20121 +2013 +2014 +2015 +1 Adjusted pursuant to IAS 8 +2 +2007 +20 +2.30 +2.302 +2006 +2007 +2008 +2009 +2010 +2011 +20121 +2013 +2014 +2015 +2.10 +Dividend +105* +4.752,3 +5 +4.252 +4 +3.00² +3.00 +1.25 +1.50 +3 +in EUR +7,338.2 +• +8,767.9 +12,279.2 +12,226.7 +12,423.1 ++17.5% +14,593.0 +Net premium earned +12,096.1 +13,774.2 +13,963.4 +14,361.8 ++18.8% +17,068.7 +Gross written premium +Results +year +Figures in EUR million +2011 +20121 +2014 ++/- +previous +2015 +106 +Key figures +hannover re +Annual Report 2015 +15 +digerent +somewhat +8,947.2 +10,751.5 +Net underwriting result +2013 +(23.6) +93.8 +10,239.5 ++0.3% +10,267.3 +Policyholders' surplus +Balance sheet +849.6 +895.5 +985.6 ++16.7% +1,150.7 +Group net income +841.4 +1,393.9 +606.0 +1,466.4 +(83.0) +1,229.1 +(96.9) +(535.8) +Net investment income ++13.1% +1,471.8 +1,665.1 +1,655.7 +1,384.0 +Operating profit (EBIT) +1,755.2 ++19.7% +1,411.8 +Currency risks are especially relevant if there is a currency +imbalance between the technical liabilities and the assets. +Through extensive matching of currency distributions on the +assets and liabilities side, we reduce this risk on the basis +of the individual balance sheets within the Group. The short- +term Value at Risk therefore does not include quantification +of the currency risk. We regularly compare the liabilities per +currency with the covering assets and optimise the currency +coverage by regrouping assets. In so doing, we make allowance +for collateral conditions such as different accounting require- +ments. Remaining currency surpluses are systematically quan- +tified and monitored within the scope of economic modelling. +A detailed presentation of the currency spread of our invest- +ments is provided in Section 6.1 of the notes entitled "Invest- +ments under own management" on page 184 et seq. +Rating classes +with the same maturity. Changes in these risk premiums, which +are observable on the market, result – analogously to changes +in pure market yields - in changes in the fair values of the cor- +responding securities. +Real estate risks result from the possibility of unfavourable +changes in the value of real estate held either directly or +through fund units. They may be caused by a deterioration in +particular qualities of a property or by a general downslide in +market values. Real estate risks continued to grow in impor- +tance for our portfolio owing to our ongoing involvement in +this sector. We spread these risks through broadly diversified +investments in high-quality markets of Germany, Europe as +a whole and the United States; each investment is preceded +by detailed analyses of the property, manager and market +concerned. +89 +Combined management report +We use derivative financial instruments only to the extent +needed to hedge risks. The primary purpose of such financial +instruments is to hedge against potentially adverse develop- +ments on capital markets. At the start of the year under review +we had still held inflation swaps to hedge part of the infla- +tion risks associated with the loss reserves in our technical +account. Some of these inflation swaps reached their maturity +date during the year and were not renewed. The remaining +instruments were terminated, as a result of which our inflation +protection is now ensured exclusively by means of bonds with +inflation-linked coupons and redemption amounts. In addition, +as in the previous year, a portion of our cash flows from the +insurance business as well as currency risks was hedged using +forward exchange transactions because currency matching +could not be efficiently achieved. Hannover Re holds further +derivative financial instruments to hedge interest rate risks +from loans taken out to finance real estate. In addition, Han- +nover Re has taken out hedges in the form of equity swaps to +hedge price risks in connection with the stock appreciation +rights granted in the first quarter of 2014 under the Share +Award Plan. These are intended to neutralise changes in the +fair values of the awarded stock appreciation rights. Contracts +are concluded with reliable counterparties and for the most +Rating structure of our fixed-income securities¹ +Government bonds +Covered bonds/ +asset-backed securities +We then assess the credit risk first on the level of individual +securities (issues) and in subsequent steps on a combined basis +on the issuer level. In order to limit the risk of counterparty +default we set various limits on the issuer and issue level as +well as in the form of dedicated rating quotas. A comprehen- +sive system of risk reporting ensures timely reporting to the +functions entrusted with risk management. +Securities issued +by semi-governmental +entities² +Corporate bonds +M66 +in % +in EUR +million +Hannover Re | Annual Report 2015 +in % +part collateralised on a daily basis so as to avoid credit risks +associated with the use of such transactions. The remaining +exposures are controlled according to the restrictive parame- +ters set out in the investment guidelines. Our investments entail +credit risks that arise out of the risk of a failure to pay (inter- +est and/or capital repayment) or a change in the credit status +(rating downgrade) of issuers of securities. We attach equally +vital importance to exceptionally broad diversification as we +do to credit assessment conducted on the basis of the qual- +ity criteria set out in the investment guidelines. We me +measure +credit risks in the first place using the standard market credit +risk components, especially the probability of default and the +potential amount of loss - making allowance for any collateral +and the ranking of the individual instruments depending on +their effect in each case. +The portfolio of fixed-income securities is exposed to the +interest rate risk. Declining market yields lead to increases +and rising market yields to decreases in the fair value of the +fixed-income securities portfolio. The credit spread risk should +also be mentioned. The credit spread refers to the interest rate +differential between a risk-entailing bond and risk-free bond +-673,8 +Further significant risk management tools - along with the +various stress tests used to estimate the loss potential under +extreme market conditions - include sensitivity and duration +analyses and our asset/liability management (ALM). The inter- +nal capital model provides us with quantitative support for +the investment strategy as well as a broad diversity of VaR +calculations. In addition, tactical duration ranges are in place, +within which the portfolio can be positioned opportunistically +according to market expectations. The parameters for these +ranges are directly linked to our calculated risk-bearing capac- +ity. Further information on the risk concentrations of our invest- +ments can be obtained from the tables on the rating structure +of fixed-income securities as well as on the currencies in which +investments are held. Please see our comments in Section 6.1 +of the notes entitled "Investments under own management" +on page 176 et seq. +in EUR +million ++246.7 ++246.7 +Fixed-income securities +Yield increase +50 basis points +-770,1 +Yield increase +100 basis points +-1.506,3 +Share price risks derive from the possibility of unfavourable +changes in the value of equities, equity derivatives or equity +index derivatives in our portfolio. In addition to such assets +held to date on only a very modest scale as part of strategic +participations, we acted on market opportunities in the course +of the year to rebuild a broadly diversified equity portfolio. +Please see our comments in Section 6.1 of the notes entitled +"Investments under own management" on page 176 et seq. +-1.317,9 ++793,3 ++692,4 ++1.618,4 ++1.411,9 +Real estate +Real estate market values -10% +Real estate market values +10% +-175.8 ++175.8 +-93.2 ++38.4 +Yield decrease -50 basis points +Yield decrease -100 basis points +in % +4.5 +in % +2.8 +181.2 +39.1 +4,997.2 +7.9 +314.3 +BBB ++123.4 +800.0 +467.5 +84.0 +36.9 +4,714.6 +6.7 +265.6 +