Hannover Re | Annual Report 2016
95.8%
Large losses as percentage of
net premium earned (proper-
ty and casualty reinsurance) 5
7.8%
Retention
89.3%
7.1%
87.0%
6.1%
87.6%
8.4%
89.0%
7.0%
89.8%
Return on investment
(excl. funds withheld by
ceding companies) 6
94.9%
3.0%
EBIT margin
11.7%
12.0%
3.3%
11.8%
3.4%
10.1%
4.1%
11.4%
Return on equity (after tax)
13.7%
14.7%
14.7%
15.0%
3.5%
94.7%
94.4%
93.7%
512.5
361.8
361.8
Dividend per share in EUR
3.50+1.50 2.3
+5.3%
3.25 +1.50³
3.00+1.253
3.00
2.60+0.40³
Share price at year-end in EUR
102.80
-2.7%
105.65
74.97
62.38
58.96
Market capitalisation
at year-end
12,397.4
-2.7%
12,741.1
9,041.2
7,522.8
7,110.4
Ratios
Combined ratio (property and
casualty reinsurance) 4
15.4%
1 Adjusted pursuant to IAS 8
2 Proposed dividend
3 Dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015,
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*
20,000
17,068.7
16,353.6
13,963.4 14,361.8
15,000
10,274.8
11,428.7 12,096.1
•
572.8
Worldwide Treaty Reinsurance
Global Reinsurance
4
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
Including expenses on funds withheld and contract deposits
5
Hannover Re Group's net share for natural catastrophes and other major losses in excess of EUR 10 million gross as a percentage
of net premium earned
6
Excluding effects from Mod Co derivatives
7 Operating result (EBIT)/net premium earned
The Group worldwide
107
A complete list of our shareholdings is provided on page 158 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
Property & Casualty reinsurance
Target Markets
• North America
• Continental Europe
Specialty Lines Worldwide
• Marine
•
Aviation
•
Credit, Surety and Political Risks
•
United Kingdom, Ireland, London
•
Market and Direct Business
Facultative Reinsurance
•
+5.3%
603.02
Dividend
115.9
+23.6%
93.8
(23.6)
(83.0)
(96.9)
Net investment income
1,550.4
-6.9%
1,665.1
1,471.8
1,411.8
1,655.7
Operating profit (EBIT)
1,689.3
-3.8%
1,755.2
1,466.4
1,229.1
1,393.9
Group net income
1,171.2
+1.8%
1,150.7
985.6
895.5
849.6
Net underwriting result
Balance sheet
12,279.2
12,423.1
somewhat
digerent
50
years
Annual Report 2016
hannover re
Key figures
Figures in EUR million
106
2016
+/-
previous
2015
2014
2013
20121
year
Results
Gross written premium
16,353.6
-4.2%
17,068.7
14,361.8
13,963.4
13,774.2
Net premium earned
14,417.6
-1.2%
14,593.0
12,226.7
8,258.9
Policyholders' surplus
+9.4%
39,346.9
36,228.0
31,875.2
31,874.4
Total assets
63,528.6
+0.5%
63,214.9
60,457.6
53,915.5
54,811.7
Share
Earnings per share
(basic and diluted) in EUR
9.71
+1.8%
9.54
8.17
7.43
7.04
Book value per share in EUR
74.61
+11.5%
66.90
62.61
48.83
50.02
+6.2%
11,231.4
41,793.5
Investments (excl. funds with-
10,267.3
10,239.5
8,767.9
8,947.2
Equity attributable to
shareholders of Hannover
Rück SE
8,997.2
+11.5%
8,068.3
7,550.8
5,888.4
6,032.5
Non-controlling interests.
743.3
+4.8%
709.1
702.2
641.6
681.7
Hybrid capital
1,490.8
+0.1%
1,489.9
1,986.5
2,237.8
2,233.0
held by ceding companies)
8,120.9
13,774.2
5,000
of the Hannover Re Group abroad
242
The Hannover Re share
8
Glossary
245
Our strategy
14
List of graphs, tables and charts*
250
Imprint
253
Contact information
Combined management report
20
Financial calendar
254
255
Annual financial statements
133
Notes
Supervisory Board
Report by the Supervisory Board
Supervisory Board of Hannover Rück SE
143
238
*
238
6
241
Executive Board of Hannover Rück SE
Letter from the Chairman of the Executive Board 2
1
1.80
0
10,000
2008
2009
2010
2011
20121
2013
2014
2015
2016
1 Adjusted pursuant to IAS 8
2 Dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015,
EUR 3.00 plus special dividend of EUR 1.25 for 2014, 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
3
Proposed dividend
About us
Hannover Re, with gross premium of more than EUR 16 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 2,900 staff. Established in 1966, the Hannover
Re Group today has a network of more than 100 subsidiaries, branches and represen-
tative offices worldwide. The German business of the Hannover Re Group is trans-
acted 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
Branch offices and subsidiaries
2.60
* Graphs, tables and charts are numbered and listed
on page 250 et seq.
Dear Shareholders,
Executive Board of Hannover Rück SE
Roland Vogel
Claude Chèvre (left) and Dr. Klaus Miller (right)
Ulrich Wallin
Roland Vogel
Finance and Accounting
Information Technology
Investment and Collateral Management
Facility Management
Ulrich Wallin
Chairman
Innovation Management
Compliance
Controlling
Human Resources Management
Internal Auditing
Risk Management
Corporate Development
Corporate Communications
Claude Chèvre
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
For our investors
Ulrich Wallin,
Chairman of the
Executive Board
5
Chairman of the Executive Board
Ladies and Gentlemen,
The 2016 financial year marked Hannover Re's fiftieth year of doing business: on 6 June your company
celebrated the first half-century of its existence. It is with great pleasure that I am able to present to you
another very good business result for this special year in your company's history. As we have already
reported in our ad hoc disclosure in early February, we were able to further improve on the very good
result of the previous year and generated a fifth consecutive record profit with Group net income of
EUR 1.17 billion.
Once again, the Property & Casualty reinsurance business group played the largest part. This shows
that even in a difficult market climate your company can operate successfully in property and casualty
reinsurance thanks to its good competitive positioning and low administrative expenses. Yet in life and
health reinsurance, too, we achieved a solid result that entirely lived up to our expectations. It is also
especially gratifying to note that despite the protracted low interest rate environment we again booked
very good investment income that exceeded our targeted return on investment.
Nevertheless, it is also the case that for the first time in many years we recorded a decrease in gross
premium, which fell by a modest 2 percent adjusted for exchange rate effects. This can be attributed
on the one hand to the sustained competition in property and casualty reinsurance, which necessitates
a profit-oriented, selective underwriting policy. As an additional factor, in life and health reinsurance a
number of sizeable treaties from the previous year were not renewed for a variety of reasons. Ultimately,
however, it must be stated that in the prevailing market climate the pursuit of profit targets clearly takes
precedence over growth targets.
2
Hannover Re | Annual Report 2016
Shareholders' equity also developed satisfactorily, rising by around 12 percent compared to the position
at the beginning of the year to reach EUR 9 billion as at 31 December 2016. Above all, this is a reflection
of the further reinforcement of your company's financial strength. The higher shareholders' equity has
inevitably had a restraining effect on the return on equity. Amounting to 13.7 percent, it nevertheless
remains quite clearly above our minimum target. The capitalisation of the Hannover Re Group remains
very comfortable, not least due to the increased IFRS shareholders' equity. This is the case both in
terms of the requirements imposed by the Solvency II framework, which – as you know – entered into
force in 2016, and with an eye to the important ratings that we receive from the rating agencies. With
this in mind, it is our intention to adjust the further increase in shareholders' equity in keeping with the
development of our business by distributing another special dividend. By taking this step we are seek-
ing, among other things, to ensure a continued attractive return on equity going forward. In view of the
pleasing business development, the Executive Board and Supervisory Board will therefore propose to the
Annual General Meeting in May of this year that a dividend of altogether EUR 5.00 per share should be
distributed. This is comprised of an increased regular dividend of EUR 3.50 and an unchanged special
dividend year-on-year of EUR 1.50 per share.
I would now like to discuss in greater depth developments in our two business groups - Property &
Casualty and Life & Health reinsurance - as well as on the investments side:
Property and casualty reinsurance remains under considerable competitive pressure. This is due not
least to the overall good results posted by reinsurers since 2012. Investors such as pension funds and
hedge funds, which as sources of so-called alternative capital are increasingly providing reinsurance
capacity in the context of collateralised reinsurance arrangements, have similarly generated satisfac-
tory results on the whole. The availability of reinsurance capacity from both traditional reinsurers and
collateralised reinsurers backed by alternative capital has consequently continued to grow, with the
result that supply far exceeds demand. This trend has been further facilitated by the fact that in each of
the years since 2012 natural catastrophe losses, in particular, came in below the expected loss levels.
This was also true of 2016, even though total expenditure on large losses was higher than in the previ-
ous years. Despite these general framework conditions, it should be noted that developments certainly
varied across the individual lines and geographical regions. The market thus responded to loss-impacted
reinsurance programmes, as it has in the past, with rate increases. Furthermore, in some areas of
liability insurance - most notably in the motor sector - it continues to be possible to push through the
higher rates needed to safeguard margins that are required from a technical risk perspective on account
of lower interest rates. We also observed stronger demand in the North American market, extending
among other things to reinsurance covers for cyber risks. Demand for reinsurance solutions offering
solvency relief, which has been driven by more exacting capital adequacy regulations both in Europe
and Asia, continued to rise. We benefited from these trends thanks to our very good market position.
All in all, the premium volume for property and casualty reinsurance remained virtually stable - adjusted
for exchange rate effects - at EUR 9 billion.
The most costly event for our company in 2016 was the devastating forest fires in the Canadian province
of Alberta, with net loss expenditure of EUR 128 million. Further substantial losses were incurred from
Hurricane Matthew and the earthquakes in Ecuador and New Zealand. Total net expenditure on large
losses in the year under review came to around EUR 627 million, thereby exceeding the amount of
EUR 573 million incurred in 2015. The burden of large losses for 2016 was, however, still well below our
budgeted level of EUR 825 million. Our loss ratio consequently improved again to stand at 93.7 percent
in the year under review, assisted in part by the release of reserves from prior years that were no longer
required. The operating profit for property and casualty reinsurance remained stable on a thoroughly
pleasing level at EUR 1.3 billion.
Hannover Re | Annual Report 2016
3
For our investors
In life and health reinsurance we achieved a good result with EBIT of EUR 343 million. The fact that
this figure came in below the previous year can be attributed largely to the non-recurrence of a special
effect that had supported the operating result in the prior year. Earnings were impacted by adverse
effects from parts of our US mortality portfolio, as had been the case in previous years. The vast bulk of
our other business is nevertheless notable for its rising profitability. This is especially true of financial
solutions business, which once again delivered very good results. Furthermore, it is our expectation that
the steps taken to optimise our US mortality business will continue to contribute to improved profitabil-
ity as could already be seen to some extent in 2016. In the year under review we saw a rise in demand
for reinsurance relating to the coverage of longevity risks, especially from pension funds. Similarly, the
requirements of Solvency II have stimulated stronger demand for tailor-made reinsurance solutions.
-
After the vigorous growth booked in the previous year, the gross premium volume in life and health rein-
surance contracted slightly in 2016 to EUR 7 billion owing to the fact that a number of large contracts
were not renewed. Net premium, on the other hand, rose moderately - at constant exchange rates - on
the back of an increased retention.
As mentioned at the outset, in the absence of any easing in the challenging framework conditions we
are thoroughly satisfied with the development of our investments. The portfolio of assets under own
management grew by six percent to around EUR 42 billion, driven primarily by the continued positive
operating cash flow. This favourable performance was further assisted by increased hidden reserves
and the appreciation of the US dollar against our reporting currency, the euro.
Income from our investments under own management reached another very gratifying level of
EUR 1.2 billion, even though it did not quite match up to the previous year's figure owing to the non-
recurrence of a special effect in life and health reinsurance.
For the current financial year, too, we see good prospects of achieving another healthy year-end result.
We should benefit here from our position as one of the leading reinsurers and from our low administra-
tive expense ratio relative to our competitors. As a further factor, profitability in property and casualty
reinsurance is very well safeguarded by the continued high confidence level of our loss reserves. In life
and health reinsurance, too, we have been able to write attractive new business, thereby establishing
the platform for increased earnings. Although the return on our investments is expected to decline, we
anticipate broadly stable income based on the growing portfolio.
We enjoyed a highly satisfactory round of treaty renewals as at 1 January 2017 in traditional property
and casualty reinsurance. Particularly in North America, and here above all in Canada, as well as in parts
of Europe and in credit and surety business, we were able to enlarge our portfolio. On the other hand,
in keeping with our profit-oriented underwriting policy, we relinquished premium volumes in some
Asian markets and in the aviation line, for example. With the total premium volume remaining virtually
stable, we were thus able to preserve the quality and profitability of our portfolio in traditional property
and casualty reinsurance. In addition, considerable growth was generated in the area of structured
reinsurance, where we were able to leverage the increased demand for customised reinsurance solutions
designed to provide solvency relief. We also wrote attractive new business in life and health reinsurance,
most notably in Asia and North America.
4
Hannover Re | Annual Report 2016
With this in mind, we are revising upwards our growth expectation for 2017 and - adjusted for exchange
rate effects – now anticipate a low single-digit percentage increase in gross premium. Furthermore, we
are raising our guidance for Group net income. Reflecting the fact that we have been able to successfully
close several financial solutions contracts in life and health reinsurance, we now expect Group net
income to exceed EUR 1 billion. Our forecast is always subject to the proviso that major losses remain
within the budget of EUR 825 million and assumes that there are no unforeseen distortions on capital
markets. We anticipate a return on investment of 2.7 percent.
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, 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
Hannover Re | Annual Report 2016
3.50
2007
3.00
-200
2007
2008
2009
2010
2011
20121
2013
2014
2015
2016
Policyholders' surplus
in EUR million
103*
11,231.4
12,000
10,239.5 10,267.3
8,947.2
10,000
8,767.9
6,987.0
7,338.2
3.25
5,295.1
5,621.6
6,000
4,708.4
0
4,000
☐ (127.0) =========
400
0
2007
2008
2009
2010
2011
20121
2013
2014
2015
2016
Group net income (loss)
in EUR million
102*
1,200
1,000
721.7
800
1,150.7
1,171.2
985.6
849.6
895.5
733.7
748.9
606.0
600
200
2,000
8,000
2007
2011
20121
2013
2014
0
2016
Dividend
in EUR
105*
4.752
5.002.3
5
4.252
4
3.002
3.00
-1.50-
1.50
1.25
3
2.302
2.10
2.30
2.10
0.40
2
-0.50
2010
2009
2015
2007
2008
2009
2010
2011
20121
2013
2008
2015
2016
Book value per share
in EUR
104*
74.61
2014
66.90
80
20
23.47
27.77
30.80
40
0
6
41.22
48.83
- 50.02
60
62.61
37.39
Future factors
Soft signals
Analysis
Concrete specification
Assessment
Ideas
Product launch under line
responsibility
Risk assessment in the
context of the "new product
process", as appropriate
Long-term success in a competitive business
96
Hannover Re | Annual Report 2016
Handover to line
responsibility
Corporate strategy
Cyber risks
Opportunity management process
Real estate market values -10%
Real estate market values +10%
-194.4
+194.4
-73.3
+43.6
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.
Equity risks derive from the possibility of unfavourable changes
in the value of equities, equity derivatives or equity index deri-
vatives in our portfolio. In addition to the holdings acquired
in the course of the previous year, we again acted on market
opportunities at the start of the year under review 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.
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
Real estate
also be mentioned. The credit spread refers to the interest rate
differential between a risk-entailing bond and risk-free bond
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
Hannover Re | Annual Report 2016
89
Combined management report
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.
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. As in the previous year, a portion of
our cash flows from the insurance business as well as foreign
exchange risks was hedged using forward exchange trans-
actions 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, Hannover Re has taken out
hedges in the form of equity swaps to hedge price risks in
connection with the stock appreciation rights granted in 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 part collateralised on a daily basis so as to avoid
Rating structure of our fixed-income securities
Foreign exchange 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 quantifi-
cation of the foreign exchange risks. We regularly compare
the liabilities per currency with the covering assets and opti-
mise the currency coverage by regrouping assets. In so doing,
we make allowance for collateral conditions such as differ-
ent accounting requirements. Remaining currency surpluses
are systematically quantified and monitored within the scope
of economic modelling. A detailed presentation of the cur-
rency spread of our investments is provided in section 6.1 of
the notes entitled "Investments under own management" on
page 184 et seq.
+1,707.0
+1,912.3
+834.5
-168.7
-168.7
-337.5
-337.5
+168.7
+168.7
+337.5
+337.5
Fixed-income securities
Yield increase +50 basis points
-903.5
-808.3
Yield increase +100 basis points
-1,760.1
-1,575.0
Yield decrease -50 basis points
Yield decrease -100 basis points
+934.6
credit risks associated with the use of such transactions. The
remaining exposures are controlled according to the restrictive
parameters set out in our investment guidelines. Our invest-
ments entail credit risks that arise out of the risk of a failure
to pay (interest 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 diversi-
fication as we do to credit assessment conducted on the basis
of the quality criteria set out in the investment guidelines.
We 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.
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.
M65
Rating classes
1.0
131.3
67.1
2,460.2
11.5
1,332.5
27.9
2,000.8
13.4
1,732.9
14.1
518.5
6.2
725.7
2.3
166.0
35.5
4,711.0
Change in equity
before tax
65.6
76.8
AAA
AA
A
BBB
<BBB
Total
Government bonds
Securities issued
by semi-governmental
entities²
Corporate bonds
Covered bonds/
asset-backed securities
in %
in EUR
million
in %
in EUR
million
in %
in EUR
million
in %
in EUR
million
8,952.8
Portfolio change on
a fair value basis
Share prices +20%
Share prices +10%
1,283.5
1,109.5
Real estate risk
526.3
Diversification
(2,887.9)
436.9
(2,057.3)
4,225.4
3,903.1
Market risk
1 Required risk capital at a confidence level of 99.5%
Including Private Equity
With a view to preserving the value of our assets under own
management, we constantly monitor adherence to a trigger
mechanism based on a clearly defined traffic light system
that is applied across all portfolios. This system defines clear
thresholds and escalation channels for the cumulative fluctu-
ations in fair value and realised gains/losses on investments
since the beginning of the year. These are unambiguously
defined in conformity with our risk appetite and trigger speci-
fied information and escalation channels if a corresponding
fair value development is overstepped.
Interest rate and spread markets, in particular, saw highly
volatile movements across the most important investment cur-
rencies over the course of the year under review. Despite its
conservative posture our investment portfolio benefited sub-
stantially from these developments. Even though the very high
levels of hidden reserves recorded above all in the third quar-
ter decreased at year-end owing to rising interest rates in our
main currency areas, a significant increase in hidden reserves
was nevertheless booked over the year as a whole.
At no time were the escalation levels of the trigger system
reached in this connection.
Hannover Re | Annual Report 2016
87
Utilisation of the trigger system
Equity risk²
in %
874.7
Foreign exchange risk
Combined management report
Through our quality assurance measures we ensure that the
reserves established by ceding companies in accordance with
local accounting principles satisfy all requirements with respect
to the calculation methods used and assumptions made (e.g.
use of mortality and morbidity tables, assumptions regarding
the lapse rate). New business is written in all regions in com-
pliance with underwriting guidelines applicable worldwide,
which set out detailed rules governing the type, quality, level
and origin of risks and how these considerations are factored
into the pricing. These global guidelines are revised annually
and approved by the Executive Board. Special underwriting
guidelines give due consideration to the particular features
of individual markets. By monitoring compliance with these
underwriting guidelines we minimise the risk of an inability to
pay or of deterioration in the financial status of cedants. Reg-
ular reviews and holistic analyses (e.g. with an eye to lapse
risks) are carried out with respect to new business activities
and the assumption of international portfolios. The actuarial
reports and documentation required by local regulators ensure
that regular scrutiny also takes place on the level of the sub-
sidiaries. The interest rate risk, which in the primary sector
is important in life business owing to the guarantees that are
given, is of only minimal relevance to our company thanks to
the design of our reinsurance treaties. We have confidence
in the entrepreneurial abilities of our underwriters and grant
them the most extensive possible powers. In our decentralised
organisation we manage risks where they arise using a con-
sistent Group-wide approach in order to obtain an overall view
of the risks in life and health reinsurance. Our global under-
writing guidelines provide underwriters with an appropriate
framework for this purpose. The risks arising out of life and
health reinsurance are reflected in the internal capital model.
Market risks
Faced with a challenging capital market climate, particularly
high importance attaches to preserving the value of assets
under own management and the stability of the return. Han-
nover Re's portfolio is therefore guided by the principles of a
balanced risk/return profile and broad diversification. Based
on a risk-averse asset mix, the investments reflect both the
currencies and durations of our liabilities. Market price risks
include equity risks, interest rate risks, foreign exchange risks,
real estate risks, default and spread risks. Our portfolio cur-
rently consists in large part of fixed-income securities, and
hence default and spread risks account for the bulk of the
market risk. We minimise interest rate and foreign exchange
risks through the greatest possible matching of payments
from fixed-income securities with the projected future pay-
ment obligations from our insurance contracts. Market risks
derive from the investments managed by Hannover Re itself
and from investment risks of ceding companies that we assume
in connection with insurance contracts. The following table
shows the risk capital with a confidence level of 99.5% for
the market risks from investments under own and third-party
management.
Required risk capital¹ for market risks
2
in EUR million
M61
31.12.2016
30.9.2015
Default and spread risk
2,827.9
2,777.4
Interest rate risk
1,179.1
761.9
1,296.5
4,606.3
200
160
1.2
0.9
0.6
Q1 2016
Q2 2016
VaR upper limit according to Hannover Re's investment guidelines: 2.5%
Q3 2016
Q4 2016
Hannover Re | Annual Report 2016
Stress tests are conducted in order to be able to map extreme
scenarios as well as normal market scenarios for the purpose
of calculating the Value at Risk. In this context, the loss poten-
tials for fair values and shareholders' equity (before tax) are
simulated on the basis of already occurred or notional extreme
events.
Scenarios for changes in the fair value of material asset classes
M64
Scenario
in EUR million
Equity securities and private
equity
M69
Share prices -20%
1.5
180
1
M63
140
120
100
80
60
40
Q1 2016
Utilisation by Hannover Re --- Warning level 1
Q2 2016
Warning level 2
Q3 2016
Q4 2016
Warning level 3
M62
The short-term loss probability measured as the "Value at Risk"
(VAR) is another vital tool used for monitoring and managing
market price risks. It is calculated on the basis of historical
data, e. g. the volatility of the securities positions under own
management and the correlation between these risks. As part
of these calculations the decline in the fair value of our port-
folio is simulated with a certain probability and within a cer-
tain period. The VaR of the Hannover Re Group determined in
accordance with these principles specifies the decrease in the
fair value of our securities portfolio under own management
that with a probability of 95% will not be exceeded within
ten trading days. A multi-factor model is used to calculate the
VaR indicators for the Hannover Re Group. It is based on time
series of selected representative market parameters (equity
prices, yield curves, spread curves, exchange rates, commodity
prices and macro-economic variables). All asset positions are
mapped on the level of individual positions within the multi-
factor model; residual risks (e.g. market price risks that are
not directly explained by the multi-factor model) can be deter-
mined through back-calculation and are incorporated into the
overall calculation. The model takes into account interest rate
risks, default and spread risks, systematic and specific equity
risks, commodity risks and option-specific risks. Against the
backdrop of what was still a difficult capital market environ-
ment, the volatilities of fixed-income assets, in particular, and
hence the market price risks increased in the year under review
relative to the previous year. Based on continued broad risk
diversification and the orientation of our investment portfolio,
our Value at Risk was nevertheless clearly below the Value
at Risk upper limit defined in our investment guidelines. It
amounted to 1.2% (1.0%) as at the end of the reporting period.
Value at Risk for the investment portfolio of the Hannover Re Group
in %
88
5.4
Share prices -10%
4.1
2013
Secured AAA AA A
2014
2015
2016
<BBB, NR
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 192 et
seq., section 6.6 “Other assets” on page 195 et seq. and sec-
tion 7.2 "Investment result" on page 215 et seq.
22
92
Hannover Re | Annual Report 2016
Combined management report
Operational risks
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 exter-
nal factors. In contrast to underwriting risks (e.g. the reserve
risk), which we enter into in a deliberate and controlled man-
ner in the context of our business activities, operational risks
are an indivisible part of our business activities. The focus is
therefore on risk avoidance and risk minimisation.
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 to calcu-
late the capital commitment in our internal capital model. The
assessment process was refined even further in the context of
the model change for operational risks.
Required risk capital¹ for operational risks
in EUR million
Operational risk
2012
M68
0
581
264
348
343
1,000
440
379
459
371
0
22
0
0
0
500
647
664
553
715
277
31.12.2016
503.9
94
24
Hannover Re | Annual Report 2016
Combined management report
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 liquid-
ity management we have nevertheless defined asset holdings
that have proven to be highly liquid - even in times of finan-
cial 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 6.3 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. These measures serve
to effectively reduce the liquidity risk.
Opportunity report
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. Hannover
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
various functions within opportunity and risk management,
which is ensured by defined interfaces.
Key elements in Hannover Re's opportunity management
include its various market-specific innovations in the Life &
Health and Property & Casualty reinsurance business groups
(see the Forecast on page 124 et seq.). What is more, innovative
and creative ideas are developed by our employees. Those that
can be successfully translated into additional profitable pre-
mium volume are financially rewarded. Further elements are
the working group on "Emerging Risks and Scientific Affairs"
and the "Future Radar” initiative.
Not only that, Hannover Re has set up an organisational unit for
"Innovation Management" within the Chief Executive Officer's
scope of responsibility. This service unit deals systematically
with ideas and potential business possibilities and it concen-
trates its activities on opening up additional growth oppor-
tunities. To this end, promising opportunities are translated
into business models with the support of project teams. New
solutions that meet with a positive response are subsequently
launched on the market in cooperation with primary insurance
partners. The goal is to cultivate new business and thereby
promote Hannover Re's profitable growth. Several of the more
than 115 ideas contributed by the global network since the unit
was set up have been realised as innovative insurance solutions
and successfully handed over to line responsibility; they are
now being sold on the market by primary insurers.
A key project conducted in 2016 went by the name “Journey
Re". It forged a connection to students, university graduates
and young professionals with a view to developing new busi-
ness models for primary insurance and reinsurance and trans-
lating the creativity that exists outside the industry into new
business opportunities. The project activities were focused on
locations in Berlin, Dublin, Boston and Johannesburg.
Hannover Re | Annual Report 2016
95
The networking of the innovative minds involved gives rise to
close links with other projects, working groups and bodies,
such as with the working group on “Emerging Risks und Sci-
entific Affairs" in regard to emerging risks and opportunities
(see page 94 et seq. “Other risks"). This working group car-
ries out qualitative assessments of emerging risks. As a result,
however, not only are the potential risks explored but also any
available business opportunities. In the year under review, for
example, issues such as "Political crimes” and “Regulatory
environment" were analysed by the working group.
Cyber attacks on critical systems are becoming increas-
ingly common. They can cause considerable financial
losses and also damage corporate reputations. Not
only that, they can severely hamper private and public
life, especially if critical infrastructures are impacted -
such as the health, transportation/traffic and energy
sectors. In such instances supply bottlenecks with last-
ing effects as well as major disruptions 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 con-
trary, the trend towards cloud computing is increas-
ingly shifting the focus to third-party infrastructures
and the associated network connection. As part of our
holistic risk and opportunity management activities,
we are also tackling the question of what new insur-
ance products can be developed in order to protect
against the relevant threats. Our presence in this mar-
ket thus goes as far back as 2007 and we have already
developed corresponding products.
-
If a business idea is translated into reality and a new reinsur-
ance product results, the normal procedure - provided the
criteria 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 com-
mitment is to be entered into in a form not previously used by
Hannover Re or if a new type of risk is to be insured. If this is
the case, all material internal and external influencing factors
are examined beforehand by Risk Management (e. g. implica-
tions for the overall risk profile or the risk strategy) and eval-
uated. Risk Management ensures that before it can be used
or sold a new reinsurance product must be approved by the
Executive Board.
196.2
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 (necessary cash could not be
obtained or could only be obtained at increased costs) and the
market liquidity risk (financial market transactions could only
be completed at a poorer price than expected due to a lack
of market liquidity). Core elements of the liquidity manage-
ment 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 foreseeable
30.9.2015
Reputational risks refer to the risk that the trust put in our
company by clients, shareholders, employees or the public at
large may be damaged. This risk has the potential to jeopard-
ise the business foundation of the Hannover Re Group. A good
corporate 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 mishap that becomes public knowledge or financial dif-
ficulties on account of an underwriting risk. In addition to the
risk identification methods already described, we use a num-
ber of different techniques for risk minimisation, such as our
defined communication channels (e.g. Crisis Communication
Guideline), a professional approach to corporate communica-
tions, tried and tested processes for specific crisis scenarios
as well as our established Code of Conduct.
The hallmark of emerging risks is that the content of such risks
cannot as yet be reliably assessed - especially on the under-
writing side with respect to our treaty portfolio. Such risks
evolve gradually from weak signals to unmistakable tenden-
cies. 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 link-
age to risk management. Operational implementation is han-
dled 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 develop-
ment of new reinsurance products). By way of example, risks
associated with possible climate change are analysed by this
working group. Global warming would affect not only natural
perils, but also human health, the world economy, the agricul-
tural sector and much more besides. These problematic issues
may also have implications for our treaty portfolio - in the
form of not just risks but also opportunities, such as increased
demand for reinsurance products. Further examples of emerg-
ing risks include technology risks, shortage of resources and
supply chain risks.
1 Required risk capital at a confidence level of 99.5%
431.1
Within the overall framework of operational risks we consider,
in particular, business process risks (including data quality),
compliance risks, risks associated with the outsourcing of
functions (including our distribution channels), fraud risks,
personnel risks, information/IT security risks and business
interruption risks.
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 criteria
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 partici-
pants, the process owner evaluates the risks of the metaprocess
and develops measures for known, existing risks. Data quality
is a highly critical success factor in this regard, especially in
risk management, because - among other things - the validity
of the results delivered by the internal capital model depends
primarily on the data provided.
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. We use sanctions screening soft-
ware on parts of the Hannover Re Group's portfolio to filter out
individuals who are subject to sanctions on account of a crimi-
nal or terrorist background. Suitable steps are taken if such
individuals are identified. Business partners are also screened
in this way. Responsibilities within the compliance organisa-
tion 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 liabilities and commitments,
please see section 8.6 “Lawsuits” and section 8.7 "Contingent
liabilities and commitments" on page 233 et seq.
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.
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 associated
with such distribution channels, although these are minimised
through the careful selection of agencies, mandatory underwrit-
ing guidelines and regular checks.
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 outstand-
ing 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.
Fraud risks refer to the risk of intentional violations of laws or
regulations by members of staff (internal fraud) and/or by exter-
nals (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 and IT security risks arise, inter alia, out of the
risk of the inadequate integrity, confidentiality or availability
of systems and information. By way of example, losses and
damage resulting from the unauthorised passing on of confi-
dential information, the malicious overloading 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 measures and organisational
standards, including for example the requirement to conclude
Hannover Re | Annual Report 2016
93
confidentiality agreements with service providers, have been
put in place. In addition, our employees are made more con-
scious of such security risks through practically oriented tools
provided online in the intranet, by way of training opportunities
and through a staff information campaign.
When it comes to reducing business interruption risks, the par-
amount objective is the quickest possible return to normal oper-
ations after a crisis, for example through implementation of
existing contingency plans. Guided by internationally 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. A leaf-
let is available setting out the correct behaviour in the event of
a business interruption; this condenses in compact form the
key information that all employees need to know (such as the
information channels in a crisis situation). Regular risk report-
ing to the Risk Committee and the Executive Board has also
been put in place.
Other risks
Of material importance to our company in the category of other
risks are primarily emerging risks, strategic risks, reputational
risks and liquidity risks.
Strategic risks derive from a possible imbalance between the
corporate strategy of the Hannover Re Group and the con-
stantly changing general business environment. Such an
imbalance might be caused, for example, by incorrect stra-
tegic policy decisions, a failure to consistently implement the
defined strategies and business plans or an incorrect alloca-
tion of resources. We therefore regularly review our corporate
strategy in a multi-step procedure and adjust our processes
and the resulting guidelines as and when required. We have
defined performance criteria and indicators for operational
implementation of the strategic principles and objectives; these
are authoritative when it comes to determining fulfilment of
the various targets. With the "Strategy Cockpit" the Execu-
tive Board and responsible managers have at their disposal a
strategy tool that assists them with the planning, elaboration
and management of strategic objectives and measures and
safeguards their overall perspective on the company and its
strategic risks. The process for the management of strategic
risks continues to be assessed annually as part of the moni-
toring of business process risks. Further details on the topic
of strategy are provided in the section entitled "Our strategy"
on page 14 et seq.
346
Trends
95
3,665.8
Securities held through investment funds are recognised pro rata with their corresponding individual ratings.
2 Including government-guaranteed corporate bonds
90
90
Hannover Re | Annual Report 2016
The measurement and monitoring mechanisms that have been
put in place safeguard a prudent, broadly diversified invest-
ment strategy.
On a fair value basis EUR 4,001.9 million of the corporate
bonds held by our company were issued by entities in the finan-
cial sector. Of this amount, EUR 3,288.9 million was attribut-
able to banks. The vast majority of these bank bonds (72.1%)
are rated “A” or better. Our investment portfolio under own
management does not contain any written or issued credit
default swaps.
Counterparty default risks
The counterparty default risk consists primarily of the risk of
complete or partial failure of the counterparty and the associ-
ated default on payment. The required risk capital for counter-
party defaults with the confidence level of 99.5% amounted to
EUR 296.5 million as at 31 December 2016.
Since the business that we accept is not always fully retained,
but instead portions are retroceded as necessary, the coun-
terparty default risk is also material for our company in rein-
surance transactions. Our retrocession partners are carefully
selected and monitored in light of credit considerations in order
to keep the risk as small as possible. This is also true of our
Gross written premium retained
in %
Hannover Re Group
Property and casualty reinsurance
Life and health reinsurance
broker relationships, which entail a risk inter alia through the
potential loss of the premium paid by the cedant to the broker.
We minimise these risks, among other things, by reviewing all
broker relationships once a year with an eye to criteria such
as the existence of professional indemnity insurance, payment
performance and proper contract implementation. The credit
status of retrocessionaires is continuously monitored. On the
basis of this ongoing monitoring a Security Committee decides
on measures where necessary to secure receivables that appear
to be at risk of default. This process is supported by a Web-
based risk management application, which specifies cession
limits for the individual retrocessionaires participating in pro-
tection cover programmes and determines the capacities still
available for short-, medium- and long-term business. Depend-
ing on the type and expected run-off duration of the reinsured
business, the selection of reinsurers takes into account not only
the minimum ratings of the rating agencies Standard & Poor's
and A.M. Best but also internal and external expert assess-
ments (e.g. market information from brokers). Overall, retro-
cessions conserve our capital, stabilise and optimise our results
and enable us to act on opportunities across a broader front,
e.g. following a major loss event. Regular visits to our retro-
cessionaires give us a reliable overview of the market and put
us in a position to respond quickly to capacity changes. The
following table shows how the proportion of assumed risks
that we do not retrocede (i. e. that we run in our retention) has
changed in recent years:
M66
100.0
2016
4.0
100.0
313
478.2
1.2
82.5
41.6
5,397.3
9.4
343.0
1.4
165.7
3.0
212.6
8.5
100.0
11,654.9
100.0
7,173.0
1,109.2
12,976.9
2015
147.9
2013
47.5% of our recoverables from reinsurance business are
secured by deposits or letters of credit. For the majority of our
retrocessionaires we also function as reinsurer, meaning that
in most cases recoverables can potentially be set off against
our own liabilities. In terms of the Hannover Re Group's major
companies, EUR 218.7 million (5.9%) of our accounts receiv-
able from reinsurance business totalling EUR 3,678.0 million
were older than 90 days as at the balance sheet date.
The average default rate from retrocessions over the past four
years was 0.01%.
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 1,506.3 million (previous year: EUR 1,395.3 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.
Reinsurance recoverables as at the balance sheet date
in EUR million
2,000
1,500
1,404
117
1,376
101
1,395
M 67
1,506
84
2014
103
Counterparty default risks are also relevant to our investments
and in life and health reinsurance, among other things because
we prefinance acquisition costs for our ceding companies. Our
clients, retrocessionaires and broker relationships as well as
our investments are therefore carefully evaluated and limited
in light of credit considerations and are constantly monitored
and controlled within the scope of our system of limits and
thresholds.
Alongside traditional retrocessions in property and casualty
reinsurance we also transfer risks to the capital market.
1,538
87.0
2012
89.3
Combined management report
87.6
89.0
89.8
89.3
90.6
89.9
88.5
90.4
84.2
83.9
87.7
89.3
Hannover Re | Annual Report 2016
91
90.2
Function, responsibility,
length of service on the
Executive Board
Hannover Re | Annual Report 2016
Remuneration reviewed by the
Supervisory Board normally
at two-year intervals. Since
2014 gradual conversion of
Executive 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.
104
Overview of the composition of variable remuneration
Group RoE
over the last 3 years
Upon 100% goal attainment
Approx. 60% variable remuneration
Measurement variable remuneration
Goals according to area
of Board responsibility
Indicator for perfor-
mance measurement
Profit bonus
(50-70%) 1
Measurement basis/
parameters
Approx. 40% fixed remuneration
Non-cash compensation, fringe
benefits: Accident, liability and
luggage insurance, company
car for business and – if de-
sired personal use (tax on the
non-cash benefit payable by
the Board member), reimburse-
ment of travel expenses and
other expenditures incurred in
the interest of the company
Responsibility
Components
Performance bonus
(30-50%)¹
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 "Reporting on the Remuneration of Members of Gov-
erning Bodies".
Remuneration of the Executive Board
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 of Art.
275 Commission Delegated Regulation (EU) 2015/35 and
supplemented by those of the Regulation on the Supervisory
Law Requirements for Remuneration Schemes in the Insur-
ance Sector (VersVergV). An independent expert's report from
July 2016 confirms that the system of remuneration meets the
requirements of Art. 275 Commission Delegated Regulation
(EU) 2015/35 for a remuneration policy and remuneration
practices that are in line with the undertaking's business, strat-
egy and risk profile.
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.
Basic remuneration;
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.
103
M70
Condition of payment
Paid out
Contractual stipulations
12 equal monthly instalments
Fixed remuneration (approx. 40% of total
remuneration upon 100% goal attainment)
Measurement basis and payment procedures for fixed remuneration
Hannover Re | Annual Report 2016
Personal and divisional targets (IVC)²
for the financial year
In view of the market
interest rate the Supervisory
Board decided on 9 March
2016 that the risk-free
interest rate, which was set
at an agreed level of 1.8%
for the previous year, will be
adjusted annually.
Cash 3
Proportion of variable
remuneration:
Chief Executive Officer/Chief
Financial Officer: 70%;
Board member with divisional
responsibility: 50%
Performance bonus
Measurement basis/parameters
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.
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. Goal attain-
ment of 100% corresponds to an ROE of 9.7%. Goal attainment can
amount to a maximum of 200% and a minimum of -100%.
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.
Profit bonus
The risk-free interest rate is the average market rate for 10-year Ger-
man government bonds over the past five years, with the average be-
ing calculated on the basis of the respective interest rate at year-end.
Contractual stipulations
Attainment of three-year
targets
M72
Decision of the Supervisory
Board
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 2016 consolidated
financial statement as required by IAS 24 "Related Party Dis-
closures". Under German commercial law, too, this informa-
tion includes data specified as mandatory for the notes (§ 314
HGB) and the management report (§ 315 HGB). These details
are discussed as a whole in this remuneration report and pre-
sented in summary form in the notes.
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.
106
Hannover Re | Annual Report 2016
Condition of payment
Payment procedure
Component
Combined management report
Timing of payment
Annually (60%)
Variable remuneration
as per regulatory requirements
Bonus bank 3
HR share awards³
3 years (20%)
4 years (20%)
Measurement bases/conditions of payment for variable remuneration
Payment of variable remuneration
1 Chief Executive Officer/Chief Financial Officer 70% profit bonus, 30% performance bonus (personal targets);
Board members with divisional responsibility: 50% profit bonus, 50% performance bonus (25% personal targets/25% divisional targets)
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
3
Split defined by legal minimum requirements
Hannover Re | Annual Report 2016
105
M71
2
In addition, the amount of remuneration paid to the Super-
visory Board on the basis of its work for Hannover Rück SE
and companies belonging to the Group as well as the princi-
ples according to which this remuneration is determined are
described; we also explain the principles on which the remu-
neration for senior executives below the level of the Executive
Board is based.
Sustainability of enterprise management
Remuneration 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
continues to be in conformity with the recommendations made
by the Government Commission on the German Corporate Gov-
ernance Code published by the Federal Ministry of Justice on
12 June 2015 in the official section of the Federal Gazette:
Code Item 4.2.3 Para. 2; Caps on the amount of
variable compensation elements in management
board contracts
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.
98
Hannover Re | Annual Report 2016
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 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.
Declaration of Conformity pursuant to
§ 161 Stock Corporation Act (AktG)
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.
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 termination. In the opinion of Hannover Rück SE, it
is therefore in the interest of the company to diverge from this
recommendation.
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.
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 opin-
ion of Hannover Rück SE, it is therefore in the interest of the
company to diverge from this recommendation.
Code Item 5.3.2; Independence of the
Chair of the Audit Committee
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 Man-
agement of the controlling shareholder and hence cannot 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 inde-
pendent within the meaning of the German Corporate Gover-
nance 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.
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.
Hannover, 9 November 2016
The positive attitude of Hannover Rück SE towards the Code
is not contradicted by the fact that in the year under review
we 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.
-
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:
•
•
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
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 opportu-
nities. Our steering and monitoring tools as well as our organi-
sational and operational structure ensure that we identify risks
at an early stage and are able to act on our opportunities. Our
central monitoring tool is the system of risk management that
we have installed Group-wide, which efficiently brings together
both qualitative and quantitative information. Most notably,
the interplay between domestic and foreign risk management
functions affords us a holistic and Group-wide overview.
Our own evaluation of the manageability of existing risks is
confirmed by various financial indicators and external assess-
ments. Specific monitoring indicators, corresponding notifica-
tion thresholds and potential 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 developments 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 share-
holders' equity: the total policyholders' surplus (hybrid capital,
non-controlling interests and shareholders' equity) stands at
153% of the corresponding figure from 2011. In this context,
our necessary equity resources are determined by the require-
ments 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 sufficient 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 et
seq.) also testify to our financial stability. The quality of our
Enterprise Risk Management (ERM) is evaluated separately by
Standard & Poor's. In the year under review Standard & Poor's
gave our risk management its highest possible grade of “Very
Strong". Most notably, our established risk management cul-
ture - one of the rating agency's benchmark criteria - pro-
motes the development of appropriate risk monitoring systems
and strategic risk management. The evaluation further encom-
passes the areas of risk controls, emerging risk management
and risk models. This external appraisal confirms the quality
of our holistic approach to risk management.
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 60. 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 124 et seq.
As an instrument of self-regulation for the business world,
the German Corporate Governance Code the latest version
of which dates from 5 May 2015 - sets out recommendations
and suggestions that are intended to maintain and foster the
trust of investors, customers, employees and the general pub-
lic in the management and supervision of German companies.
Although the Code does not have binding legal force, the enter-
prises addressed by the Code are nevertheless required by
§ 161 Stock Corporation Act (AktG) to provide an annual dec-
laration 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.
Hannover Re | Annual Report 2016
97
Combined management report
Enterprise management
Declaration on Corporate
Governance pursuant to
§§ 289a, 315 Para. 5
Commercial Code (HGB)
The objective of Hannover Re continues to be to consolidate
and further expand its position as one of the leading, globally
operating reinsurance groups of above-average profitability.
In aspiring towards this goal, it is particularly important to
observe and fulfil the principles of good and sustainable enter-
prise 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 con-
sistently pursue and adjust to the latest requirements in accord-
ance with our best practice standards.
The Executive Board and Supervisory Board of Hannover Rück
SE expressly support the suggestions and recommendations
of the German Corporate Governance Code that are practica-
ble for the reinsurance industry and recognise their central
importance in guiding our activities. The principles of respon-
sible and good enterprise management therefore constitute the
core of our internal Corporate Governance principles (www.
hannover-re.com/50889/corporate-governance-principles.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 enter-
prise management and supervision defined in the German
Corporate Governance Code. The Supervisory Board, Execu-
tive Board and employees of Hannover Re identify with these
principles, which thus form part of our corporate self-image.
The Executive Board ensures that the principles are observed
Group-wide.
Hannover Rück SE hereby provides insight into its enterprise
management practices as part of the Declaration on Corporate
Governance pursuant to § 289a Commercial Code (HGB) and
pursuant to § 315 Para. 5 Commercial Code (HGB) in conjunc-
tion with § 289a Commercial Code (HGB) for the Hannover
Re Group:
Corporate Governance
2
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 2016 financial year on the basis of
the work performed by the Board members for Hannover Rück
SE and companies belonging to the Group.
Executive Board, Supervisory Board
99
Hannover Re | Annual Report 2016
101
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.
For further details of the activities of the Supervisory Board
committees please see the explanations provided in the Super-
visory Board Report on pages 238 to 240.
Risk monitoring and steering
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 compa-
ny's profitability and continued existence. Further details in this
regard may be obtained from the risk report contained in this
Annual Report on page 73 et seq.
Compliance
Hannover Re considers a properly functioning compliance
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, which examine questions of risk transfer as well as
other compliance aspects associated with the Group's reinsur-
ance treaties, 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.
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.
The compliance report for the 2016 calendar year will be sub-
mitted to the Finance and Audit Committee in March 2017. The
reporting sets out the structure and diverse range of activities
of Hannover Re in this regard. The findings of the separate data
privacy reporting for the 2016 calendar year are also included
in the compliance report. After in-depth examination of topics
such as directors' dealings, ad hoc and other disclosure require-
ments, the insider register, consulting agreements, data protec-
tion, 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 nec-
essary safeguards were put in place to ensure that in the future
Hannover Re is in conformity with the internal and external
requirements governing its business activities.
•
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 Gov-
ernance Code,
Securities transactions pursuant to Item 6.2 of
the German Corporate Governance Code,
Shareholdings pursuant to Item 6.2 of the Ger-
man 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 227 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 recent years are published on our web-
site pursuant to Item 3.10 of the German Corporate
Governance Code (www.hannover-re.com/200801/
declaration-of-conformity).
102
Hannover Re | Annual Report 2016
Combined management report
Information regarding the following items is provided
in the remuneration report:
Hannover Re | Annual Report 2016
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 information
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 independent
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.
Working practice of the committees of
the Supervisory Board
Further enterprise management
principles of Hannover Re
In addition to the Corporate Governance principles, Hannover
Rück SE has adopted its own more extensive Code of Conduct
(www.hannover-re.com/50943/code-of-conduct.pdf) that is
applied Group-wide as a set of minimum standards. Comple-
menting our corporate strategy and the Corporate Governance
principles, it establishes rules governing integrity in the behav-
iour of all employees of Hannover Re 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 integ-
rity in dealings with our stakeholders constitutes the founda-
tion 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 pre-
sents and conducts himself or herself are crucial in shaping
the image of Hannover Re.
The strategic orientation of Hannover Re towards sustainability
Targets pursuant to §§ 76 Para. 4, 111
Para. 5 Stock Corporation Act
-
In accordance with the Act for the Equal Participation of
Women and Men in Leadership Positions in the Private Sector
and the Public Sector, the Supervisory Board of the company
was required by 30 September 2015 to define a target quota
for women on the Supervisory Board and Executive Board of
the company in the period until 30 June 2017. After extensive
deliberations the Supervisory Board decided, in due consid-
eration of the term of office of the Supervisory Board and the
current mandates and contracts of service of the members of
the Executive Board, to define within the specified period
without prejudice to possible decisions to the contrary that may
be taken as warranted when the time comes a target quota
for women on the Supervisory Board of 30% and an antici-
pated continued quota of zero for the Executive Board. Should
events result in the currently unforeseeable appointment of a
new member of the Executive Board, the Supervisory Board
shall give preference to a potential female candidate in case
of equal personal aptitude and professional qualifications. The
company's Executive Board defined a target quota of 16.8%
with the same deadline for the two levels of senior manage-
ment below the Executive Board.
constitutes an important element of the enterprise strategy. The Working practice of the Executive Board
aim is to achieve commercial success on the basis of a results-
driven 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. As part of the
regular review of our Group Strategy and Sustainability Strat-
egy and based upon a materiality analysis, we adjusted our
Sustainability Strategy for the years 2015-2017 to the chang-
ing economic framework conditions. The current Sustainability
Strategy defines four action fields and specifies concrete goals
and measures that are to be implemented in the strategy cycle.
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.
We thus strive to reduce as far as possible the greenhouse gas
emissions produced by our day-to-day business activities in
order to come closer to reaching our goal of carbon neutral-
ity. Furthermore, we have defined strategic principles for our
human resources management, since we consider our employ-
ees to be a crucial factor in the success of our company. Along
with skills, qualifications and commitment, a high degree of
diversity is one of the cornerstones of our successful business
operations. The mentoring programme launched in 2012, for
example, brings female members of staff together with sea-
soned senior executives for a purposeful, regular dialogue and
is intended to help these female employees to actively shape
their future career path. Three of the members of the Super-
visory Board of Hannover Rück SE in the year under review
were women. In addition, one of the members of the Super-
visory Board's Nomination Committee is a woman. Detailed
information on the topic of sustainability is provided on our
website (www.hannover-re.com/60729/sustainability).
The Executive Board and Supervisory Board of Hannover Rück
SE work together on a trusting basis to manage and moni-
tor the company and the Group as a whole. In accordance
with the Rules of Procedure of the Executive Board, matters
of fundamental importance require the consent of the Super-
visory Board. The Supervisory Board is comprised of nine
members. Six members are elected by the shareholders at the
Annual General Meeting, three members are appointed by the
Employee Council. The Supervisory Board appoints the mem-
bers of the Executive Board. Since members of the Supervisory
Board cannot at the same time belong to the Executive Board, a
high degree of independence in the oversight of the Executive
Board is thus already ensured by structural means. In addition,
the Supervisory Board is kept informed on a regular and timely
basis of the business development, the execution of strategic
decisions, material risks and planning as well as relevant com-
pliance 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 241 respectively of
the present Annual Report.
100
Hannover Re | Annual Report 2016
Combined management report
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.
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
and shall normally not belong to the Supervisory Board as a
member for longer than three full consecutive terms of office;
the term of office commencing from the end of the 2014 Annual
General Meeting shall be counted as the first term of office in
this regard. Nominations shall take account of the company's
international activities as well as diversity. Furthermore, it shall
be ensured that the proposed person can allocate the expected
amount of time. For their part, each sitting member of the
Supervisory Board shall also 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 has only participated in half of the meetings of
the Supervisory Board and the committees or less 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 2015 the Supervisory Board carried out an efficiency audit
of its work as part of a regular procedure. A comprehensive
survey covered a range of topics including, among other things,
organisational aspects relating to the Supervisory Board and
the course of its meetings, the cooperation between the Exe-
cutive Board and the Supervisory Board and the supply of infor-
mation to the Supervisory Board. The findings were presented
and discussed at the first Supervisory Board meeting held in
2016. Various optimisations were made as a result, most nota-
bly relating to the provision of information.
and Supervisory Board
our opportunity management plays an important
part in Hannover Re's profitable growth.
Overall assessment by the
Executive Board
167.1
1,680.4
563.5
56.6
470.7
0.0
(319.0)
355.2
2015
170.1
34.3
(308.7)
427.3
(72.0)
89.2
2016
Jürgen Gräber
245.7
30.7
215.0
0.0
2015
146.6
40.0
106.6
56.5
2016
Claude Chèvre
195.6
Dr. Klaus Miller
41.0
2016
(12.0)
Roland Vogel
426.1
40.2
353.3
0.0
(287.1)
319.7
2015
270.7
71.3
(142.3)
326.2
(64.8)
80.3
2016
Dr. Michael Pickel
376.8
34.1
336.7
0.0
(38.6)
44.6
2015
208.7
48.4
(171.9)
329.3
14.9
2016
131.8
(40.8)
Total
Expense for
M75
Change in
reserve in
2016 for stock
Change in
reserve for
share awards
from previous
years
Payment of
share awards
Name
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.
The following table shows the expense for share-based remu-
neration of the Executive Board in the financial year.
in EUR thousand
exercised
Stock appre-
ciation rights
Year
Combined management report
111
Hannover Re | Annual Report 2016
11,244
8,050.8
1,025.3
1,024.0
10,704
8,965.4
1,209.5
1,209.5
1,402
1,058.6
share awards
0.0
allocated
in current
63.6
2015
92.0
24.1
60.9
0.0
(37.6)
44.6
2016
Sven Althoff³
754.8
79.8
633.4
0.0
(338.8)
380.4
2015
236.3
60.5
(452.8)
608.8
(82.8)
102.6
2016
Ulrich Wallin
financial year²
rights
appreciation
44.6
(36.0)
389.7
0.0
252.0
252.0
1,008.0
0.0
504.0
504.0
One-year variable remuneration
295.6
295.6
295.6
294.8
610.6
610.6
610.6
611.2
Total
15.6
15.6
15.6
14.8
14.2
14.2
14.2
14.8
Fringe benefits
280.0
504.0
280.0
Multi-year variable remuneration
390.8
62.1
Dividend on share awards for 20143
168.0
0.0
84.0
84.0
336.0
0.0
168.0
168.0
2016 (20211) 2
Share Awards 2015 (20201)/
(169.0)
84.0
84.0
336.0
(588.0)
168.0
168.0
2016 (20201)
Bonusbank 2015 (20191)/
356.7
(148.3)
188.7
181.3
726.8
(533.2)
398.1
280.0
280.0
596.4
3
2
1 The change in the reserve for share awards from previous years derives from the lower market price of the Hannover Re share, the dividend approved
3,041.2
336.5
2,547.4
0.0
1,272.7
304.7
(1,240.8)
2.137.8
(305.2)
(1,170.9)
376.3
1,328.2
2015
2016
Total
Total
478.7
54.1
406.5
0.0
(146.6)
164.7
2015
91.8
26.1
(332.6)
for 2015, the spreading of the expense for share awards across the remaining period of the individual service contracts and the payout of the share
awards allocated for 2011.
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.
The expenses for stock appreciation rights of Mr. Althoff relate to his work as a senior executive until 2014.
112
596.4
596.4
596.4
Fixed remuneration
(Max)
(Min)
2016
2016
2016
2015
2016
(Max)
(Min)
in EUR thousand
124.2
2016
2015
Board member with divisional responsibility
Sven Althoff
M76
Chief Executive Officer
Ulrich Wallin
Benefits granted
German Corporate Governance Code, Item 4.2.5 Para. 3 - Table 1
(target/minimum/maximum remuneration as nominal amounts)
The following two tables show the remuneration of the Exec-
utive Board in the 2016 financial year in accordance with the
recommendations of the German Corporate Governance Code:
Combined management report
113
Hannover Re | Annual Report 2016
Hannover Re | Annual Report 2016
2016
0.0
124.2
1,190.9
seats with Group
bodies
neration from
Netted remu-
60%³
M 74
Variable remuneration payable
Short-term
Performance-based remuneration 1
benefits²
Non-cash com-
pensation/fringe
Basic salary
Financial year
Non-performance-based remuneration
Name
Total remuneration of the active members of the Executive Board pursuant to DRS 17
109
Hannover Re | Annual Report 2016
The remuneration (excluding pension payments) received by
former members of the Executive Board totalled EUR 0.3 mil-
lion (EUR 0.7 million).
The total remuneration received by the Executive Board of
Hannover 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.
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 con-
tract, 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 combina-
tion with the compensation exceeds 100% of the most recently
received fixed remuneration. The non-competition 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 com-
pelling reason for which the company is responsible.
With regard to Item 4.2.3. Para. 2 "Caps on the amount of
variable compensation elements in management board con-
tracts" and Item 4.2.3 Para. 4 "Caps on severance payments in
management board contracts" of the German Corporate Gov-
ernance Code, we would refer the reader to our remarks in
the 2016 Declaration of Conformity contained in the section
"Statement of enterprise management practices" on page 98
of this Group Annual Report.
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.
Other information
If a member of the Executive Board is permanently incapac-
itated 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.
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.
Continued payment in case of disability
in EUR thousand
As at 31 December 2016 active members of the Executive
Board had at their disposal a total of 39,585 (79,464) granted,
but not yet exercised stock appreciation rights with a fair value
of EUR 0.4 million (EUR 0.7 million).
Ulrich Wallin
596.4
445.1
2016
Jürgen Gräber
440.1
12.8
380.0
2015
476.8
13.6
380.0
2016
Claude Chèvre
334.2
14.8
280.0
2015
419.0
15.6
280.0
2016
Sven Althoff
650.4
14.8
596.4
2015
788.0
14.2
2016
7.1
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 appreci-
ation rights have been exercised or have lapsed. In the 2016
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 members
exercised amounts totalling EUR 0.7 million (previous year:
EUR 2.0 million) in 2016.
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.
Hannover Re | Annual Report 2016
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 et seq.).
Decision by the Supervisory
Board according to its best
judgement.
Attainment of annual targets
Decision of the Supervisory
Board according to its best
judgement
Contractual agreement
Attainment of three-year
targets
Condition of payment
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,
innovative skills, entrepreneurial skills, specific features of area
of responsibility.
The divisional bonus is determined by the Supervisory Board
according 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.
Personal qualitative, quantitative targets;
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 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).
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%.
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)).
Measurement basis/parameters
Chief Executive Officer/Chief
Financial Officer: 30%;
Board member with divisional
responsibility: 25%
Proportion of variable
remuneration:
Individual bonus
Board member with divisional
responsibility: 25%
remuneration:
Proportion of variable
Divisional bonus
Component
1,505.4
144.2
1,649.6
107
Variable remuneration under the old remuneration
structure (until 2011)
Combined management report
Payment procedures for the total variable remuneration
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.
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.
Handling of payment of variable remuneration
components in special cases
Combined management report
Hannover Re | Annual Report 2016
108
Any minus value of the variable total bonus for a financial year is transferred in full to the bonus bank
(see "Medium-term" column).
the Board member has no entitlement to the deliv-
ery of shares.
changes in a cumulative amount of 10% or more in
the value of the HR-SAs caused by structural meas-
ures trigger an adjustment;
additional payment of the sum total of all dividends
per share paid out during the vesting period;
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;
M73
Long-term
Negative variable total bonus = payment of EUR 0 variable remuneration.
no interest is paid on credit balances.
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;
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 cred-
its/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;
Medium-term
following the Supervisory Board
resolution
60% of the variable remuner-
ation with the next monthly
salary payment
Short-term
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
statement. The remaining amount of 40% is initially withheld
as explained below with a view to encouraging long-term value
creation:
615.3
2015
445.1
1,188.2
158.9
158.9
1,238
851.9
112.1
110.8
1,215
994.0
139.7
139.7
2,450
1,695.2
216.8
216.8
2,305
1,924.0
262.7
262.7
2015 = Actual
2016 Estimate
Number of share awards
Total
20%
(allocation) 5
(allocation) 4
20%
Share awards
1,492
Long-term
146.7
1,126.3
150.2
150.2
1,412
1,038.4
134.1
134.1
1,387
1,165.3
159.3
159.3
1,332
970.5
122.1
122.1
1,254
1,025.3
133.6
133.6
1,826
1,309.9
169.3
169.3
1,733
1,477.7
205.1
205.1
1,584
146.7
Bonus bank
Medium-term
Performance-based remuneration 1
2015
58.2
450.6
17.0
422.9
2016
Roland Vogel
402.1
12.0
356.1
2015
478.0
12.6
356.1
2016
Dr. Michael Pickel
366.5
3.7
356.1
2015
400.8
1.2
356.1
2016
Dr. Klaus Miller
508.1
18.1
422.9
14.8
372.5
38.6
in EUR thousand
Hannover Re | Annual Report 2016
110
In order to calculate the number of share awards for 2016 reference was made to the Xetra closing price of the Hannover Re share on 30 Decem-
ber 2016 (EUR 102.80). 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
statement in March 2017. The applicable market price of the Hannover Re share had decreased from EUR 105.65 (30 December 2015) to EUR 97.64
by the allocation date (17 March 2016) of the share awards for 2015; the share awards actually allocated for 2015 are shown here, not those estimated
in the 2015 Annual Report.
The nominal amount is stated; virtual Hannover Re share awards are automatically granted in an amount equivalent to 20% of the variable remuner-
ation. The equivalent amount will be paid in 2021 at the prevailing share price of Hannover Re. In 2016 nominal amounts of EUR 109,500 more than
had been originally reserved were used as a basis for allocation of the 2015 share awards.
In 2016 altogether EUR 109,500 more than had been originally reserved was allocated to the bonus bank for 2015.
The nominal amount is stated; full or partial repayment in 2020, depending on the development until such time of the balance in the bonus bank.
6
5
4
In 2016 EUR 328,400 more in variable remuneration was paid out to Board members for 2015 than had been reserved.
3
The non-cash compensation has been carried in the amounts established for tax purposes.
1,318
2
1
38.6
3,073.9
91.0
2,836.6
2015
58.2
3,628.5
81.3
2,836.6
2016
Total
Total
As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2016.
The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly.
0.0
168.0
13.3
2016
(Max)
2015
2016
2016
2016
(Min)
(Max)
380.0
380.0
380.0
380.0
445.1
445.1
445.1
445.1
12.8
Hannover Re | Annual Report 2016
13.6
13.6
13.6
18.1
7.1
7.1
7.1
392.8
393.6
393.6
(Min)
393.6
2016
2015
89.0
89.0
Total remuneration
962.0
957.4
117.4
1,437.4
147.1
1,030.6
123.4
1,004.3
123.4
123.4
164.3
1,484.3
1
Year of payment
2
3
Maximum value when awarded, amount paid out dependent upon the share price in the year of payment and the dividends paid until such time.
In the case of Mr. Althoff the dividend also refers to share awards from his work as a senior executive at Hannover Re.
4
For details of the service cost see the table "Pension commitments" on page 119.
114
Hannover Re | Annual Report 2016
Claude Chèvre
Board member with divisional responsibility
Jürgen Gräber
Board member with divisional responsibility
Coordinator of worldwide property & casualty
reinsurance
2016
89.0
463.2
452.2
0.0
240.0
24.6
0.0
0.0
0.0
45.9
0.0
0.0
0.0
0.0
32.6
32.6
32.6
0.0
0.0
41.5
41.5
987.4
996.2
25.1
1,566.2
1,109.1
1,093.7
43.7
1,693.7
150.1
1,137.5
120.0
452.2
120.0
0.0
452.2
342.0
342.0
0.0
684.0
360.0
360.0
0.0
720.0
252.6
260.6
(368.5)
488.6
285.9
281.5
(408.5)
521.5
114.0
114.0
(401.1)
228.0
120.0
120.0
(450.0)
240.0
114.0
114.0
228.0
87.3
Service cost4
1,360.9
356.1
356.1
356.1
356.1
356.1
356.1
356.1
356.1
Fringe benefits
3.7
1.2
1.2
1.2
12.0
12.6
12.6
12.6
Total
359.8
357.3
357.3
357.3
368.1
368.7
368.7
368.7
One-year variable remuneration
Fixed remuneration
288.0
(Max)
(Max)
77.4
2,345.4
728.1
736.3
147.3
1,156.3
144.2
144.2
221.6 2,489.6
750.6
1,478.7
37.4
773.7
37.4
184.7
37.4
1,193.7
Benefits granted
Dr. Klaus Miller
Dr. Michael Pickel
Board member with divisional responsibility
Board member with divisional responsibility
2015
2016
2016
2016
2015
2016
2016
2016
in EUR thousand
(Min)
(Min)
288.0
0.0
576.0
192.0
Dividend on share awards for 2014
34.9
0.0
0.0
0.0
35.4
0.0
0.0
0.0
Dividend on share awards for 2015
0.0
31.1
31.1
31.1
0.0
32.2
32.2
32.2
Total
874.7
868.4
28.4
1,348.4
883.5
880.9
40.9
0.0
96.0
96.0
192.0
288.0
288.0
0.0
576.0
Multi-year variable remuneration
226.9
223.1
(328.9)
415.1
227.4
224.2
(327.8)
416.2
150.1
Bonusbank 2015 (20191)/
96.0
96.0
(360.0)
192.0
96.0
96.0
(360.0)
192.0
Share Awards 2015 (20201)/
2016 (20211) 2
96.0
96.0
0.0
2016 (20201)
150.1
41.5
175.2
356.1
356.1
356.1
3.7
1.2
12.0
12.6
Total
359.8
357.3
368.1
368.7
One-year variable remuneration 1
384.0
390.0
396.0
413.4
Multi-year variable remuneration
170.6
461.5
444.4
523.8
Bonus bank 2011/2012
126.0
117.3
124.8
117.3
356.1
Share Awards 2011
Fixed remuneration
Fringe benefits
2015
Stock participation rights 2011
(2016-20214)
Total
Service cost 5
Total remuneration
0.0
0.0
0.0
28.3
1,873.8
2,244.4
557.7
702.6
1,146.3
2,040.9
144.2
2,388.6
750.6
37.4
1,308.3
740.0
Allocation
Dr. Klaus Miller
Board member with divisional responsibility
Dr. Michael Pickel
Board member with divisional responsibility
in EUR thousand
2015
2016
2016
0.0
329.3
0.0
1
2
3
4
5
116
This refers in each case to payment of the variable remuneration for the previous year. Remuneration for seats with Group bodies that is counted
towards the variable remuneration accrues in the year of occurrence. The company's Supervisory Board only decides on the final amount paid out
for the 2016 financial year after the remuneration report has been drawn up.
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.
Stock appreciation rights were awarded in 2010, exercise option at the discretion of the Executive Board until 31 December 2020 in the following
tranches: 60% from 2015, 80% from 2016, 100% from 2017 onwards.
Stock appreciation rights were awarded to Mr. Althoff in 2011 as a senior executive, exercise option discretionary until 31 December 2021 in the
following tranches: 60% from 2016, 80% from 2017, 100% from 2018 onwards
For details of the service cost see the table "Pension commitments" on page 119. The service cost for 2015 includes a past service cost of
EUR 704,500 for Mr. Althoff.
Total remuneration
Service cost4
1,513.3
Total
20.7
20.7
20.7
0.0
54.8
54.8
54.8
0.0
Dividend on share awards for 2015
0.0
0.0
0.0
1,429.3
123.4
1,305.9
0.0
326.2
Stock participation rights 2009
(2013-20192)
0.0
0.0
78.8
0.0
Stock participation rights 2010
(2015-2020³)
44.6
14.9
240.8
80.3
16.3
Stock participation rights 2011
Total
Service cost5
Total remuneration
0.0
0.0
0.0
914.4
1,208.8
1,208.5
87.3
1,001.7
89.0
1,297.8
147.1
1,355.6
(2016-20214)
49.0
167.1
307.7
576.0
230.4
224.8
(303.2)
416.8
96.0
96.0
(336.0)
192.0
96.0
96.0
0.0
192.0
38.4
0.0
102.6
0.0
0.0
32.8
32.8
32.8
956.1
952.7
136.7
1,432.7
62.8
53.8
0.0
1,018.9
288.0
439.9
150.1
1,716.3
109.2
1,218.3
95.1
95.1
95.1
1,188.8
138.8
1,788.8
Roland Vogel
Chief Financial Officer
2015
2016
2016
2016
(Min)
(Max)
422.9
422.9
422.9
422.9
14.8
17.0
17.0
17.0
437.7
439.9
439.9
288.0
1,006.5
0.0
53.8
649.2
717.6
199.3
362.4
Multi-year variable remuneration
613.4
916.2
63.6
44.6
Bonus bank 2011/2012
233.0
53.8
190.5
0.0
0.0
Share Awards 2011
0.0
608.8
0.0
0.0
Stock participation rights 2009
(2013-20192)
72.7
0.0
14.6
0.0
Stock participation rights 2010
(2015-2020³)
One-year variable remuneration 1
295.6
204.8
610.6
294.8
1,486.5
Hannover Re | Annual Report 2016
115
Combined management report
German Corporate Governance Code, Item 4.2.5 Para. 3 - Table 2 (cash allocations in 2015 and 2016)
Allocation
Ulrich Wallin
M77
Sven Althoff
Board member with divisional responsibility
in EUR thousand
2015
2016
Chief Executive Officer
2016
611.2
2015
15.6
14.8
14.2
14.8
Fringe benefits
Total
280.0
596.4
596.4
Fixed remuneration
280.0
Combined management report
125
International bond markets will again see below-average and
increasingly divergent interest rate levels in 2017. In the rele-
vant currency areas for our company we expect yield curves to
slope steeply upwards. For the most part, government bonds
with higher risk premiums issued by countries of the European
Monetary Union that have been the focus of so much atten-
tion of late should continue to stabilise. The prevailing credit
cycle in the United States, which has proven its durability, and
the stabilisation of emerging markets will continue to shape
The US Federal Reserve, by contrast, will move further away
from an expansionary interest rate policy and press ahead with
its cycle of rate hikes. This will likely be reflected in a contin-
ued strong US dollar. The Federal Reserve's next steps and
communications are awaited with considerable anticipation,
as it seeks to walk a fine line between the potential need for
additional interest rate moves and the risk of depriving other
markets of cash flows through precisely these measures.
The European Central Bank's decision to maintain its low inter-
est rate policy on a historically low level and purchase bonds
over an even more extended timeframe is intended to support
the Eurozone economy and bring inflation closer to the ECB's
2% target. An increasingly large chorus of voices is, however,
warning about the growing risks of this policy for the economy
and for markets.
53.0
While the Chinese government was initially successful in reviv-
ing the economy in 2016 through accommodative monetary
and fiscal policy actions, economic expansion is expected to
slow over the coming years. This can be attributed to the con-
tinued existence of far-reaching structural problems such as
inefficient capital allocation and an inadequate capacity for
innovation. These can be obscured at most in the short term
through state intervention. What is more, the already very high
indebtedness of companies and local government will become
even more bloated. For 2017 growth of 6.4% is anticipated,
while for 2018 the figure is put at 5.9%.
India's economy continues to live up to expectations with its
good development and will generate growth of 6.8% in 2017, a
figure marginally lower than in the previous year. In Japan eco-
nomic growth remains weak despite the boost of massive eco-
nomic stimulus. Growth will probably come in slightly higher
than in the previous year at 1.2%, albeit trending lower for
the year thereafter.
China, India, Japan
Hannover Re | Annual Report 2016
The upswing on the labour market will probably continue and
go hand-in-hand with further wage increases. The Kiel Insti-
tute for the World Economy expects the jobless rate to fall by
a further 0.2 percentage points in 2017 to 5.9%.
Assisted by improved price competitiveness, exports will con-
tinue to pick up. Most notably, rising demand is anticipated
from the United States - depending on developments affect-
ing trade agreements -, the Eurozone and emerging markets.
On the other hand, the lively domestic economy will lead to
significant growth rates in imports. Business conditions will
deteriorate slightly in this regard.
Capital markets
the economic environment. This may potentially be positively
influenced by the ending of the austerity drives undertaken
by several industrial nations and by a worldwide upswing in
private consumption.
Hannover Re | Annual Report 2016
All in all, 2017 will be distinguished by a very particular com-
bination of geopolitical and monetary policy uncertainty, which
will manifest itself in the form of increased volatility on finan-
cial markets. In view of this outlook, broad diversification
within the investment portfolio will continue to be of consid-
erable importance in 2017.
Insurance industry
The insurance industry will still find itself operating in a chal-
lenging environment in 2017. Faced with the low interest
rate environment and diminished returns, market players are
increasingly focusing their attention on efficiency, shoring up
profitability and innovation. The Brexit decision in the United
Kingdom and the new administration in the United States will
bring additional uncertainties. One positive signal coming out
of the US is the Federal Reserve's move to turn its back on
expansionary monetary policy. In Europe inflation is tracking
away from zero into positive territory, which at least in the
medium term holds the promise of an improved general envi-
ronment. Despite the numerous challenges, experts foresee
another stable trend in the current year for premiums in the
insurance industry.
Responding to tighter solvency requirements, insurers have
further optimised their capital and risk management. In con-
junction with the increasingly widespread adoption of Enter-
prise Risk Management (ERM), they and large undertakings
are tending to take out their (re)insurance protection on a cen-
tralised basis in order to be able to manage their growth and
risks in an integrated manner. This, too, will likely add to the
pressure for consolidation in the market.
Given the pressure on margins and surplus capacities, reinsur-
ers will increasingly shift the focus of their products towards
the quality factor. This also corresponds to the growing need
for individualised solutions. In so doing, they will create tai-
lor-made insurance products that at the same time actively
support the strategic objectives and growth targets of their
business partners.
The current changes on the insurance market present not
only risks but also growth opportunities. An increasing need
to protect against climate change, elevated political risks and
the ever more important category of cyber risks are creating
numerous entry points for the industry to launch new offerings.
Digitisation will likely prove a particularly significant driver of
change going forward. Not only will it open up new avenues
for loss prevention, for example, it will also prompt the indus-
try to cooperate more closely in future with partners from the
technology sector. Cooperative ventures for the development
of special underwriting tools and short-term policies and even
extending as far as the cultivation of joint new business seg-
ments are possible.
Property & Casualty reinsurance
Overview
Overall, there has been little change in the situation in world-
wide property and casualty reinsurance compared to the pre-
vious year. The significant competition in the markets has
been sustained. It remains the case that the supply of reinsur-
ance capacity far outstrips supply. These factors were once
again instrumental in shaping the treaty renewals as at 1 Jan-
uary 2017, the date when 64% of our property and casualty
reinsurance portfolio (excluding facultative business and struc-
tured reinsurance) was renegotiated. We were satisfied with
the outcome on the whole, even though the anticipated rate
stability has not yet set in across the board. A further contribu-
tory factor here was the continued absence of market-changing
large losses in the year under review. Nevertheless, 2016 did
see increased loss activity compared to the previous year, with
positive implications for prices at least on a local level. All in
all, though, the state of the international property and casualty
reinsurance markets remains challenging.
Based on our excellent ratings, our long-standing customer
relationships and our profit-oriented underwriting policy, we
are well placed to handle the soft market conditions. Hannover
Re continues to practise its systematic cycle management com-
bined with rigorous underwriting discipline and our company
trusts in a broadly diversified portfolio of high-quality exist-
ing business, complemented by opportunities that may arise
in niche and specialty lines. The treaty renewals as at 1 Janu-
ary 2017 presented a range of attractive opportunities to expand
the portfolio, above all in North America, in credit and surety
business and in the area of cyber covers. We also enjoyed a
surge in demand for reinsurance solutions designed to pro-
vide solvency relief, hence enabling us to book strong premium
growth in Europe as well as in North and Latin America.
Expectations for the development of individual markets and
lines of property and casualty reinsurance are described in
greater detail below, broken down into the areas of Board
responsibility.
126
The German economy is poised for further growth, which will
be driven by domestic stimuli. The experts at the Kiel Institute
for the World Economy anticipate a growth rate of 1.7% for
the current year with a rising tendency. The business commu-
nity will step up its capital expenditures because prospects are
encouraging - with capital utilisation already above average -
and financing conditions remain attractive. Above all, construc-
tion investments are likely to grow at a rapid tempo. Private
consumption will also continue to rise in view of the favourable
state of the labour market and the considerable increases in
federal state transfer payments. Overall, though, the pace of
expansion will slow somewhat because the purchasing power
of private households will shrink as the oil price moves higher.
In this environment public budgets will continue to generate
surpluses against a backdrop of appreciably higher revenues
and expenditures.
Compared to the soaring valuations of US shares, which already
performed exceptionally well in 2016, equities in Europe and
emerging markets are lagging somewhat behind the cycle.
The extent to which the effects of Donald Trump's election to
the office of US President - which had already been factored
into valuations - will be reversed by negative geopolitical or
trade-restrictive measures remains one of the key questions
for 2017, the implications of which will not leave Europe and
emerging economies untouched.
Germany
2015
The Eurozone economy looks set to maintain its moderate
course and expand by 1.7%, as in the previous year. France
should be able to stabilise its weak growth (+1.2%) and Spain
will likely continue its expansion at a slower pace (+2.6%). In
Italy the prospects of further reforms to overcome sluggish
growth have deteriorated with the rejection of constitutional
reform. Growth here will probably remain on a stubbornly low
level (+0.8%). Greece is expected to experience a continued
recovery (+1.9%), whereas the pace of growth in the United
Kingdom will continue to soften (+1.2%). Bearing in mind
that parliamentary elections are upcoming this year in four
of the five largest EU Member States (Germany, France, Italy,
Netherlands), the direction of economic policy is clouded by
uncertainties.
2015
reinsurance
Board member with divisional responsibility
Coordinator of worldwide property & casualty
Jürgen Gräber
Board member with divisional responsibility
Claude Chèvre
Consumer prices are expected to rise by 1.2% in the Eurozone
and will hence remain on a low level despite the upward trend.
The jobless numbers continue to trend lower: unemployment
is forecast to retreat by 0.6 percentage points to 9.5%.
25%
87.3
Dr. Michael Pickel
2016
135.5
2,509.2
123.4
2015
129.0
1,875.6
147.1
Roland Vogel 2,5
2016
94.3
1,623.5
53.8
25%
105.7
2015
94.0
1,524.2
62.8
2016
25%
2015
380.0
0.0
0.0
427.3
0.0
56.5
0.0
159.5
163.5
117.3
21.6
676.0
518.7
173.8
21.6
534.6
500.4
463.8
399.0
452.2
463.2
393.6
392.8
7.1
18.1
13.6
12.8
445.1
445.1
380.0
2016
87.6
103.7
2016
Standing Committee
M79
Type of remuneration
2016
2015
Fixed remuneration
100.0
100.0
Variable remuneration
92.5
82.7
•
Finance and Audit Committee
Remuneration for committee work
85.0
85.0
• Nomination Committee
Attendance allowances
18.0
13.0
295.5
280.7
Dr. Klaus Sturany
Deputy Chairman of the
Supervisory Board
Member of the Standing
Committee
Fixed remuneration
45.0
45.0
Variable remuneration
44.0
• Supervisory Board
Total
Total
.
Function
905.3
15,708.7
453.9
414.8
2015
877.9
11,926.2
1,236.8
383.2
1
2
3
4
Percentage of pensionable income (fixed annual remuneration as at the contractually specified reference date).
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 IAS 19 conse-
quently uses the defined benefit method. The values shown include the entitlements prior to appointment to the Executive Board, which in accordance
with a resolution of the company's Supervisory Board shall remain unaffected by the pension commitment as a member of the Executive Board.
The personnel expenditure in 2015 includes a past service cost of EUR 704,500. The guaranteed interest rate is 3.25%.
Measured under IAS 19 as a defined benefit commitment for the first time as at 31 December 2016. The guaranteed interest rate is 2.25%.
5 The guaranteed interest rate is 3.25%.
Remuneration of the Supervisory Board
The remuneration of the Supervisory Board is determined by
the Annual General Meeting of Hannover Rück SE and regu-
lated by the Articles of Association.
In accordance with § 14 of the Articles of Association as
amended on 30 May 2016 and the resolution of the Annual
General Meeting on 7 May 2013, the members of the Super-
visory Board receive fixed annual remuneration of EUR 30,000
per member in addition to reimbursement of their expenses.
Furthermore, each member of the Supervisory Board receives
variable remuneration measured according to the average earn-
ings per share (EPS) of the company over the past three finan-
cial 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 remu-
neration 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 Supervisory Board receives
twice the aforementioned remuneration amounts and the Dep-
uty Chairman of the Supervisory Board receives one-and-a-half
times the said amounts.
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.
Hannover Re | Annual Report 2016
119
Combined management report
All the members of the Supervisory Board receive an attend-
ance allowance of EUR 1,000 for their participation in each
meeting of the Supervisory Board and the Committees in addi-
tion 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
Chairman of the
0.0
0.0
0.0
37.4
1,185.3
92.2
2016
Sven Althoff 2,3
167.1
4,532.7
229.1
2015
144.2
5,370.1
229.1
2016
Premium
Annual funding
contribution¹
Personnel
expense
DBO 31.12.
Attainable annual
pension (age 65)
Financial year
Ulrich Wallin
in EUR thousand
Name
M78
Pension commitments
Hannover Re | Annual Report 2016
118
The pension payments to former members of the Execu-
tive Board and their surviving dependants, for whom 16
(16) pension commitments existed, totalled EUR 1.6 million
(EUR 1.6 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 25.3 mil-
lion (EUR 25.0 million).
Pension payments to former members of
the Executive Board
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.
25%
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).
70.0
91.9
89.0
25%
557.8
53.3
2016
Dr. Klaus Miller4
109.2
3,094.8
162.8
2015
95.1
3,731.1
182.5
2016
Jürgen Gräber
150.1
39.5%
118.1
2015
150.1
39.5%
731.7
118.4
2016
Claude Chèvre 4
42.1
25%
750.6
898.9
2015
Adjustments
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.
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.
126.0
149.1
560.3
313.8
430.1
379.1
439.9
437.7
17.0
14.8
422.9
422.9
2016
2015
Chief Financial Officer
Roland Vogel
1,591.5
1,181.3
963.5
150.1
150.1
1,482.3
1,031.2
813.4
0.0
0.0
0.0
89.2
267.6
0.0
389.7
30.9
0.0
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.
Provision for surviving dependants
In both contract variants (i. e. defined benefit and defined
contribution) other income received while drawing the retire-
ment 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 reach-
ing 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 remuner-
ation as at the contractually specified reference date).
The commitments given to members of the Executive Board
from 2009 onwards are based on a defined contribution scheme.
Defined contribution pension commitment
(appointment from 2009 onwards)
The contracts of members of the Executive Board first
appointed prior to 2009 contain commitments to an annual
retirement pension calculated as a percentage of the pension-
able 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 remunera-
tion structure applicable from 2011 onwards.
Defined benefit pension commitment
(appointment before 2009)
Retirement provision
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
companies and other board functions is deducted when cal-
culating the variable bonus and shown separately in the table
of total remuneration.
the Executive Board
Sideline activities of the members of
Combined management report
117
40.1
1,757.9
1,662.8
109.2
0.0
Hannover Re | Annual Report 2016
1,484.1
53.8
1,430.3
1,193.4
62.8
1,130.6
0.0
0.0
44.6
133.8
95.1
Remuneration for committee work
In 2017 financial markets are again likely to see promising
growth opportunities but also an abundance of volatility. Most
significantly, geopolitical risks, protectionism and populism
have the potential for adverse repercussions in some areas.
Attention will be focused on two main arenas: firstly, Europe,
where the Brexit vote has still to be translated into political and
economic practice, and secondly, the United States, where the
handover of power in the White House is highly anticipated.
7.5
On management level 3 (Director and General Manager) the
minimum 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 tar-
gets. 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.
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.
Amount and payment of variable remuneration
for senior executives
Individual targets are agreed and measured for a period of one
year. The degree of goal attainment is between 0% and 100%.
The measurement of the business group targets - which in the
case of the treaty/regional departments accounts 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 was used as a one-year meas-
urement basis for the last time to calculate the variable remu-
neration for the 2015 financial year. From 2016 onwards this
indicator has been replaced with the Excess Return on Capital
Allocated (xRoCA) of the business group (Property & Casualty
(P&C) and Life & Health (L&H)) encompassing the relevant
area of responsibility. The xRoCA describes the IVC in relation
to the allocated capital and shows the relative excess return
generated above and beyond the weighted cost of capital. Goal
attainment of 100% exists if the P&C xRoCA reaches 2% or
the L&H XROCA reaches 3%. Negative performance contribu-
tions are excluded; the minimum goal attainment is 0%. The
maximum possible goal attainment is 150%.
Combined management report
Hannover Re | Annual Report 2016
703 staff (excl. seconded employees) out of the
altogether 1,349 at Hannover head office
(incl. 92 senior executives) are GPB-eligible.
Head office Hannover
All 158 Group senior executives worldwide receive
a cash bonus upon corresponding goal attainment
and participate in the Share Award Plan.
Hannover Re Group
Number of eligible participants in the variable
remuneration system
In view of the fact that outperformance of up to 200% is pos-
sible for Group net income and up to 150% for business group
targets, a maximum total degree of goal attainment of 140%
can be attained in both treaty/regional departments and ser-
vice departments. Given outperformance of all targets, a maxi-
mum of 140% of the variable remuneration can therefore be
attained on management levels 2 and 3.
Group Performance
Bonus (GPB)
Variable remuneration
system
122
Senior Manager
Manager
Chief Manager
General Manager
Management level 2
Management level 3
Director
Managing Director
Participants
M80
Group of participants and total number of eligible participants in variable remuneration systems
Valid: 31 December 2016
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 possi-
ble goal attainment is 200%. A lower limit is placed on goal
attainment of -50% (penalty) for management level 2 (Man-
aging Director) and 0% for management level 3 (Director and
General Manager).
Cash bonus and Share
Award Plan
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.
India
China
United States
Selected countries
Eurozone
World economy
Economic areas
in %
M81
The risks to the economy of recent years remain in play: the
US administration has announced numerous changes - giving
rise to considerable uncertainties on both the economic and
political fronts. Not only that, elections are upcoming in sev-
eral major European nations that may give rise to fundamen-
tal shifts in economic policy. It also remains unclear to date
how the United Kingdom will navigate its withdrawal from the
European Union. Quite apart from that, monetary policy and
low interest rates are now reaching their limits: especially in
the financial sector, for example, the negative repercussions of
ultra-low interest rates are making themselves felt.
rebound in commodity prices should also play a part here. In
Russia output is expected to pick up again, whereas in Brazil
the economic recovery will still take a while to materialise.
Growth in gross domestic product (GDP)
The upturn in developed economies will gain somewhat in
momentum, albeit at a tempered pace. Growth will be sup-
ported by a continued accommodative monetary policy, fiscal
stimuli and a slight strengthening of demand in developing
and emerging nations. While China probably will not quite be
able to sustain its growth rates, expansion in the other emerg-
ing economies will likely continue to accelerate. The recent
Economic experts expect 2017 to bring a modest pickup in
cyclical momentum: in its year-end forecast the Kiel Insti-
tute for the World Economy anticipates growth of 3.6% for
the global economy in 2017, which is 0.5 percentage points
stronger than in 2016.
Global economy
Economic developments
Group net income expected to exceed EUR 1 billion
Return on investment target of 2.7% for assets under own management
Further increase in profitability anticipated in life and health reinsurance.
Solid prospects for 2017 in property and casualty reinsurance despite protracted soft market phase
.
Forecast
Outlook
123
Hannover Re | Annual Report 2016
The cash bonus for the 2015 financial year was paid out in June
2016. The share awards for the 2015 financial year were also
allocated in June 2016; they will be paid out in the spring of
2020 including dividends paid for the 2015, 2016, 2017 and
2018 financial years.
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 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 average of these three differences determines the three-
year average 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.
In service departments the variable remuneration is based on
Group net income and individual targets with a corresponding
weighting of 40% and 60%. The degree of goal attainment
is defined for both the Group net income and the business
groups. Individual targets and the degree of goal attainment
are agreed between the senior executive and their supervisor.
The measurement of the variable remuneration is based on
three elements: Group net income, targets in the P&C and L&H
business groups and individual 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 measurement of the var-
iable remuneration is based on weightings of 20% for Group
net income, 40% for goal attainment in the respective P&C or
L&H business group and 40% for individual goal attainment.
senior executives
30.0
30.0
Fixed remuneration
Member of the Supervisory Board
Maike Sielaff³
78.7
83.4
7.0
9.0
Attendance allowances
15.0
15.0
Remuneration for committee work
26.7
29.4
Variable remuneration
30.0
30.0
Fixed remuneration
• Finance and Audit Committee
Supervisory Board
Member of the
Dr. Erhard Schipporeit
Hannover Re | Annual Report 2016
120
108.4
7.5
Variable remuneration
Japan
29.4
Remuneration for committee work
Attendance allowances
Measurement of variable remuneration for
The
group o of participants and the total number of eligible par-
ticipants in the variable remuneration system of Hannover Re
are set out in the following table.
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, 2013, 2014 and 2015.
The remuneration scheme for senior executives below the
Executive Board (management levels 2 and 3) and for key func-
tion holders in Germany belonging as a matter of principle to
the ranks of senior executives 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 remuneration component,
the Share Award Plan. This variable remuneration has been
uniformly applied worldwide since 1 January 2012 to all Group
senior executives (i. e. Managing Directors, Directors and Gen-
eral Managers). As part of the reorientation of the remuneration
system for senior executives the Share Award Plan of the Exe-
cutive Board was consciously extended to include management
levels 2 and 3. Given that at the same time the stock apprecia-
tion rights plan for senior executives was cancelled with effect
from the 2012 allocation year, this means that a uniform share-
based remuneration component has been maintained for the
Executive Board and senior executives alike.
Structure and system
Remuneration of staff and
senior executives
Combined management report
121
Hannover Re | Annual Report 2016
Members of the Supervisory Board and Executive Board of
Hannover 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 2016
amounted to 0.004% (0.004%) of the issued shares, i. e. 4,625
(4,585) shares.
Dealings in shares, options and derivatives of Hannover Rück
SE effected by members of the Executive Board or Supervisory
Board of Hannover Re or by other persons with managerial
functions who regularly have access to insider information con-
cerning 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 individ-
uals in excess of EUR 5,000 are to be reported pursuant to
§ 15a Securities Trading Act (WpHG). No such reportable trans-
actions took place in the 2016 financial year.
Securities transactions and sharehold-
ings (directors' dealings)
In 2016 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.
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.
Loans to members of the management
boards and contingent liabilities
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.
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.
3 Employee representatives
Including supervisory board remuneration and remuneration for committee work as well as advisory board remuneration received from
entities affiliated with the company
2
1 Amounts excluding reimbursed VAT
934.1
979.9
Total
60.7
63.4
4.0
26.7
Germany
4.0
2016
(forecast from
30.0
Variable remuneration
29.4
26.7
Remuneration for committee work
-
Attendance allowances
4.0
4.0
63.4
60.7
Otto Müller³
30.0
Member of the Supervisory Board
30.0
30.0
Variable remuneration
29.4
26.7
Remuneration for committee work
Attendance allowances
4.0
4.0
63.4
60.7
Dr. Andrea Pollak
Fixed remuneration
Fixed remuneration
Member of the Supervisory Board
Frauke Heitmüller³
Attendance allowances
Source: Kiel Institute for the World Economy
5.0
6.0
101.5
98.6
Wolf-Dieter Baumgartl²
•
Member of the
• Supervisory Board
Standing Committee
Fixed remuneration
50.0
50.0
Variable remuneration
46.2
41.4
Finance and Audit Committee
Remuneration for committee work
22.5
22.5
• Nomination Committee
Attendance allowances
14.0
11.0
132.7
124.9
•
Member of the
•
• Nomination Committee
of capital market players for US fiscal policy in 2017. At the same
time, it must be assumed that the US administration will take a
critical stance on any strengthening of international trade ties.
Such a protectionist approach may - in combination with emerg-
ing institutional uncertainty – lead to economic constraints in
the medium term. For the current 2017 financial year, however,
growth is expected to expand by 0.9 percentage points to 2.5%.
The economic implications of the transition in the White House
are hard to evaluate. Although the new President's election mani-
festo has hitherto remained largely unspecific, clearly expan-
sionary signs can be discerned when it comes to fiscal policy.
Substantial tax cuts have been promised and extensive spending
programmes announced. Rising prices on US stock markets in
the weeks following the election testify to the high expectations
United States
1.7
1.9
2.2
1.2
1.0
1.0
6.8
7.1
7.2
6.4
6.6
6.5
2.5
1.6
1.7
1.7
1.7
3.6
3.5
3.4
2017
(forecast)
Supervisory Board
2016
(provisional
calculation)
previous year)
124
Hannover Re | Annual Report 2016
2.8
113.2
30.0
Variable remuneration
30.0
Europe
Fixed remuneration
29.4
26.7
Remuneration for committee work
Attendance allowances
4.0
4.0
63.4
60.7
Dr. Immo Querner²
-
Fixed remuneration
10.0
Member of the Supervisory Board
7.0
Attendance allowances
Remuneration for committee work
41.4
10.0
46.2
Variable remuneration
50.0
50.0
7.0
With an eye to the outcome of the US presidential election and
the stabilising tendencies in Europe, coupled with political and
economic uncertainties around the world, the conservative pos-
ture of substantial parts of our investment portfolio will be pre-
served. Nevertheless, irrespective of the sovereign debt issue,
the improved economic outlook will also be reflected in appro-
priate risk-taking. Our emphasis on broad diversification will
be retained unchanged. By way of a neutral modified duration
we shall ensure that the interest rate risk is tightly managed.
Hannover Re | Annual Report 2016
Hannover Re | Annual Report 2016
Combined management report
Investments
The enlargement of the asset portfolio is expected to have a
positive effect on investment income, although the average
return will decline owing to persistently low interest rates. The
interest rate increases observed since the end of the period
under review in our main currency areas could bring some
relief in this respect. 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.
In view of the high capital requirements and possibly increased
volatility on equity markets, which are in part liquidity-driven,
we are for the time being adopting a more cautious stance on
additional new exposures to listed equities given the prevail-
ing valuation levels.
130
In our worldwide life and health reinsurance business we
expect to book moderate organic gross premium growth for
the current year after adjustment for exchange rate effects.
The forecast EBIT margins for the individual reporting cat-
egories remain unchanged at the following target levels: for
financial solutions and longevity business an EBIT margin of at
least 2% is expected. The planning for mortality and morbid-
ity business envisages an unchanged EBIT margin of at least
6%. We also continue to aim for a Value of New Business in
excess of EUR 220 million.
In the current financial year, despite the challenging envi-
ronment in reinsurance business and on the capital market,
we anticipate a very 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 post
low single-digit percentage growth in gross premium – based
on constant exchange rates - for our total portfolio in the cur-
rent financial year.
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.
In view of the expected positive cash flow that we generate
from the technical account and our investments, our asset port-
folios should – based on stable exchange rates – continue to
grow. We are looking to deliver a return on investment of 2.7%.
For 2017 we anticipate Group net income of more than
EUR 1 billion. This is subject to the proviso that the burden of
major losses does not significantly exceed the budgeted level
of EUR 825 million and that there are no exceptional distor-
tions on capital markets.
Matters of special significance occurring after the closing date
for the consolidated financial statements are described in sec-
tion 8.10 of the notes “Events after the balance sheet date"
on page 235.
Furthermore, the dynamic advances being made in technol-
ogy and digitisation, in particular, will in future enable, for
example, the transfer of insurance data in real time to the (re)
insurer. In this way it will be possible to calculate premiums
and risk loadings on a person-specific level and hence make
life insurance part of active living. We shall press ahead with
our intensive exploration of these developments in order to
help shape future innovations that combine lifestyle and well-
ness with life insurance.
In property and casualty reinsurance we expect to modestly Events after the reporting date
increase the premium volume based on unchanged exchange
rates. The primary driver here is the strong demand in struc-
tured reinsurance business. Yet opportunities to expand the
portfolio also opened up in North America and in credit and
surety business in the context of the treaty renewals as at
1 January 2017. We shall nevertheless stand by our selective
underwriting policy, under which in large part we write only
business that satisfies our margin requirements. Thanks to our
good ratings and long-standing stable customer relationships,
we expect another solid outcome from the treaty renewals dur-
ing the year.
Even though market conditions in property and casualty rein-
surance will likely remain soft, we anticipate a good under-
writing result. This is conditional upon major loss expenditure
coming in within the bounds of our expectations. In terms of
our targeted combined ratio, we continue to aim for a figure
under 96%. The EBIT margin for property and casualty rein-
surance should amount to at least 10%.
Outlook for the full 2017 financial year
The challenges that lie ahead in life and health reinsurance
remain diverse in nature and their effects on the market will be
complex. Along with the anticipated business-specific devel-
opments in the various markets described above, we expect
demand for automated, paperless underwriting processes to
grow even more vigorously than in 2016. In view of the positive
feedback received to date and already existing firm inquiries,
we are confident of implementing our automated underwrit-
ing system with numerous additional customers in the com-
ing year.
+/- = on a par with the cost of capital
In the Asian life (re)insurance market we are very optimistic
that we can build on the success of the year just ended. Par-
ticularly in health reinsurance business, we are a sought-after
and capable partner for customers who benefit from our inter-
national experience.
Life & Health reinsurance:
Forecast development for 2017
Financial Solutions
131
Risk Solutions
Longevity
Mortality
Morbidity
1
In EUR
Demand in longevity business is expected to remain brisk
around the world in 2017. Life expectancy will continue to
rise, while at the same time regulatory authorities are impos-
ing more rigorous reporting and capital management require-
ments. This creates a challenge for the insurance industry.
Given that we are equipped with more than 20 years of know-
how in this market segment, we are well placed to play a central
role in the global development of the longevity (re)insurance
market going forward.
2 ++= significantly above the cost of capital
- below the cost of capital
M 83
Volume 1
Profitability2
++
+/-
+/-
+/-
In Germany the implications of the launch of the new long-term
care insurance system for LTC products are awaited with keen
anticipation. Starting 1 January 2017, instead of the familiar
three care levels there are now five grades of care that facilitate
a more detailed assessment of the need for assistance. In the
year under review we explored this innovation at length and
made preparations to support our customers with (re)insur-
ance solutions tailored to the new long-term care insurance
scheme. In addition, the requirements of Solvency II and the
establishment of the supplementary reserves needed for life
products promising guaranteed returns in excess of an official
reference rate (Zinszusatzreserve) will pose further major chal-
lenges for German life insurers in the coming year. In the rest
of Europe, too, we anticipate rising demand for reinsurance
solutions that deliver capital relief and/or solvency optimisa-
tion. In the financial year just ended we developed concepts
for this purpose in order to implement customised solutions
for customers. In the United Kingdom it is our expectation
that the market will again prove to be extremely competitive
in the year ahead and that the price level will remain under
strain owing to considerable international competition. The US
financial solutions market is known for its marked innovation
potential. As a market leader, we expect to build on the good
development to date in the coming financial year. We are con-
fident of our ability to cover the continued growth in demand
among US life insurers for reinsurance solutions designed to
provide capital and reserve relief.
+above the cost of capital
Consolidated financial statements
2,869,865
134
6.1
2,563,594
Fixed-income securities - available for sale
6.1
32,182,173
29,616,448
Fixed-income securities - at fair value through profit or loss
6.1
Fixed-income securities - loans and receivables
239,917
Equity securities - available for sale
6.1
905,307
452,108
Other financial assets - at fair value through profit or loss
6.1
As an internationally operating reinsurer, we are active in
all areas of life and health reinsurance. For the most part we
assume far more than the pure underwriting risk for our cus-
tomers. We are closely involved in the process at an early stage
in order to work together on jointly identifying their exact
reinsurance needs.
57,665
108,982
1,007,665
484,955
6.1
Consolidated statement of income 2016
136
Consolidated statement of comprehensive income 2016
137
Consolidated statement of changes in shareholders' equity 2016
138
Consolidated cash flow statement 2016
140
Notes to the consolidated financial statements 2016
143
Annual financial statements
Consolidated balance sheet as at 31 December 2016
N01
Assets
in EUR thousand
Fixed-income securities - held to maturity
Notes
31.12.2016
31.12.20151
Consolidated balance sheet as at 31 December 2016
Life & Health reinsurance
1
Hannover Re | Annual Report 2016
기
+/-
Facultative reinsurance
Global reinsurance
Worldwide treaty reinsurance ³
Catastrophe XL (Cat XL)
Structured reinsurance and
insurance-linked securities
In EUR
2
++= significantly above the cost of capital
+above the cost of capital
+/- on a par with the cost of capital
- below the cost of capital
+
+/-
→
3 All lines with the exception of those reported separately
Target markets
direct business
North America
UK, Ireland, London market and
Credit, surety and political risks
39,602
Combined management report
Property & Casualty reinsurance:
Forecast development for 2017
Target markets
North America 3
Continental Europe ³
Specialty lines worldwide
Marine
Aviation
M82
Volume1 Profitability2
기
لا
+
+/-
+/-
-
+/-
(기
129
+/-
In view of the heightened sensitivity that now exists in the mar-
ket towards potential loss events, demand for cyber covers is
likely to continue growing.
Worldwide treaty reinsurance
Insurance markets in the Asia-Pacific region look set to stay
on their growth track in 2017. Thanks to the establishment of
a branch in India and the superb regional positioning of our
other locations in Asia and Australia, we should continue to be
able to act on opportunities for profitable growth.
Profits and the quality of conditions for reinsurers in Japa-
nese business are particularly dependent on the development
of natural catastrophe events. We expect our Japanese liabil-
ity portfolio to show considerable improvement in the current
financial year.
As far as the development of our reinsurance business in China
is concerned, it is our expectation that over the medium term
ceding companies will not focus exclusively on their growth
targets, but will also pay significantly greater attention to
profitability.
This will require improved risk management, actuarial pricing
and the expansion of the existing portfolio into new business
fields. Hannover Re will focus more heavily on achieving its
margins and hence on cyclical underwriting and it will drive
forward the diversification of its existing portfolio.
128
Hannover Re | Annual Report 2016
Combined management report
The region of South and Southeast Asia should deliver con-
tinued growth, albeit at a slightly slower pace than in the pre-
vious year. Our branch in Malaysia is pressing ahead with the
expansion of its niche business, with the resulting premium
expected to more than make up for possible reductions in the
existing portfolio.
Australia and New Zealand remain challenging markets. By
further stepping up our contacts with strategic target custom-
ers, we are nevertheless able to position ourselves successfully
in the competitive environment and generate further growth
opportunities. Our basic premise continues to be adherence to
a strictly profit-oriented underwriting policy while at the same
time boosting gross premium income.
All in all, we expect to see significant growth in reinsurance
treaties that cover specific needs of our customers and are only
placed with selected reinsurers such as Hannover Re.
In South Africa the risk-based solvency regime SAM (Solvency
Assessment and Management) will be adopted for the insur-
ance industry in the course of 2017. We anticipate a stable
premium trend for our reinsurance portfolio and specialty busi-
ness in the current year.
The market and the placement of reinsurance cessions are just
as fiercely competitive in Latin America as they are in other
regions. Based on our exceptionally good market position and
our outstanding financial strength, we expect prices in the
main renewals as at 1 July 2017 to come under less pressure
in view of natural catastrophe events recorded in 2016 such as
the earthquake in Ecuador and Hurricane Matthew. Despite the
challenging state of the market, we were able to keep our port-
folio stable thanks to our focus on Latin America as a whole. In
Argentina - one of the largest markets in Latin America - we
expect to see a continued business-friendly policy. A similar
tendency is also likely in Brazil. To this extent, we are confi-
dent of generating further profitable growth for our portfolio
from Latin American markets in the current financial year by
pursuing our selective underwriting policy.
Hannover Re expects demand for the coverage of agricultural
risks to continue rising: the increasing need for agricultural
commodities and foodstuffs as well as the growing prevalence
of extreme weather events are generating stronger demand for
reinsurance covers, particularly in emerging and developing
markets. At Hannover Re we engage both in traditional rein-
surance and in intensified cooperation with our customers and
partners on the development of new original insurance tools.
In this regard, we see further growth potential for index-linked
products as part of direct and indirect insurance concepts in
emerging and developing economies. Owing to the discontin-
uation of a small number of large treaties, however, we expect
premium income to contract in 2017.
Rates in our retakaful business are likely to remain stable or
decline in the current financial year. New business opportu-
nities should open up in niche areas such as motor insurance
riders or in credit and surety business. Overall, the premium
volume generated should be on a par with the previous year.
Catastrophe XL (Cat XL)
Although the inflow of capacity from capital markets into natu-
ral catastrophe business has slowed appreciably, the market
is still overshadowed by an oversupply of reinsurance capacity.
The current soft market phase will only come to an end when
the majority of market players reach a level of profitability that
is insufficient - whether through high loss expenditures, inad-
equate reserving levels or influencing effects from the capi-
tal market. Price reductions recorded in the 1 January 2017
treaty renewals were offset by increased shares in profitable
programmes, with the result that premium growth of 2.9 per-
cent was booked for the renewed portfolio. Premium income
is expected to remain stable for the full year.
Structured reinsurance and insurance-linked securities
Owing to the implementation of risk-based models for cal-
culating solvency requirements not only within but also out-
side the European Union, demand for structured reinsurance
has surged sharply higher. The key driver here continues to
be the growing integration of reinsurance into insurers' risk
management as a means of offsetting the increasingly exact-
ing capital requirements placed upon them. In addition, the
increasing pressure on the profit margins of our customers
around the world is creating a greater need for tailor-made
reinsurance solutions that can optimise the costs of reinsur-
ance. For the current year we are expecting a substantial
increase in premium.
In the area of insurance-linked securities (ILS) we expect to
see steadily growing demand. Investors are seeking a negative
or minimal correlation with other financial investments and
hence the diversification that this brings. What is more, the
market for insurance risks is perceived by investors as relatively
attractive compared to other investments. We are responding to
this market situation with a strong emphasis on service, offer-
ing individually tailored products - from collateralised reinsur-
ance to catastrophe bonds - for property and life reinsurance
risks. Over the coming years we expect our ILS activities to
deliver a positive and consistently rising profit contribution.
Global reinsurance
In North America we expect to see further mergers and acquisi-
tions in the current year, both in the insurance and reinsurance
market. We do not, however, anticipate any adverse repercus-
sions on our market position. Thanks to our long-standing, close
customer relationships and financial strength, we even expect
to tap into greater opportunities as a result. It is our expecta-
tion that in 2017 we will be able to further profitably enlarge
our portfolio. Our focus here will be on existing client accounts.
For the current financial year we anticipate a stable premium
volume and sustained good results in our specialty lines. In
this context we expect to be able to offset declining premium
with new business.
Facultative reinsurance
Although it remains competitive, the North American primary
insurance market has proven to be rather stable; for the most
part, therefore, we were similarly highly satisfied with the out-
come of the treaty renewals as at 1 January 2017. The destructive
forest fires of the previous year in Canada led to appreciable rate
increases for loss-impacted programmes. Yet even for treaties
that had been spared losses it proved possible to push through
moderate price increases. The rate level for hurricane-exposed
business in the United States was stable or slightly higher.
All in all, we expect to be able to profitably expand our portfolio
in North America. In the treaty renewals as at 1 January the pre-
mium volume rose by 6.5% on an underwriting-year basis. As
things currently stand, we expect to see sustained competition
in this segment in the renewals as at 1 June and 1 July 2017 -
the time of year when catastrophe XL covers, in particular, are
renegotiated. On the whole, our North American business is
nevertheless expected to deliver a slightly higher premium vol-
ume in the current financial year.
Continental Europe
In Germany, the largest single market within our Continen-
tal Europe segment, we were able to assert our prominent
position in the treaty renewals. Yet here, too, competition is
fierce. On the whole, though, reinsurance rates remained sta-
ble. Although improved conditions were obtained in industrial
fire insurance which had recorded heavy losses, these are
still not adequate. We were therefore selective in our accept-
ances here. In motor business, our most important single line,
we expect to further grow our premium income.
When it comes to covers for cyber risks and natural hazards
risks, we expect to see rising demand – not least on account
of the increased concentration of these risks, which are also
insured against so-called extended natural hazards.
The premium volume for our domestic market is expected to
remain broadly unchanged in 2017.
In the other markets of Continental Europe the picture was a
mixed one: The treaty renewals in the Netherlands and North-
ern European countries passed off very successfully and we
were able to expand our portfolios. Business in Central and
Eastern Europe, on the other hand, proved to be highly com-
petitive in the treaty renewals as at 1 January 2017, with rates
coming under sustained pressure. Nevertheless, we also
obtained higher prices in some markets, including for exam-
ple in Poland.
For Continental Europe as a whole we expect to book a
modestly lower premium volume.
Hannover Re | Annual Report 2016
127
Specialty lines worldwide
Marine
In marine reinsurance we expect the pace of rate reductions to
slow in the 2017 financial year; this was already evident in the
treaty renewals as at 1 January 2017. Even over the medium
term, however, the market environment for our ceding compa-
nies is unlikely to change. The losses recorded in recent years
have significantly eaten into reinsurers' margins and lent added
impetus towards a bottoming out in prices. In view of the fact
that our customers have also seen a contraction in premium
income, we anticipate a reduced premium volume in 2017.
Aviation
Aviation reinsurance is experiencing a considerable excess
supply of insurance capacity. Against this backdrop, market
rates fell by up to 10 percent in the treaty renewals. While we
moved to scale back our proportional acceptances, in particu-
lar, non-proportional business - in which the price erosion
was more moderate - remained stable. We do not expect any
positive effects for the rate trend to make themselves felt in
the 2017 financial year. With this in mind, we shall continue
to write our business highly selectively and expect to book a
reduced premium volume for our portfolio.
Credit, surety and political risks
The slowdown in economic growth and the moderate rise in
loss ratios in emerging markets will impact our business. While
the risk appetite of primary insurers has increased steadily in
recent years, we now expect modestly higher reinsurance ces-
sions on account of the more demanding capital requirements
associated with Solvency II. Although conditions will still be
under pressure in the current 2017 financial year, it will likely
only be slight. For this reason, we anticipate an expanding pre-
mium volume and an improved profit contribution.
United Kingdom, Ireland, London Market and
direct business
In general terms, we are looking at declining reinsurance rates
for 2017 - especially in the property lines - on account of sus-
tained competition. In addition, we anticipate a further dete-
rioration in conditions on the primary insurance side. In UK
non-proportional motor business, however, we are benefiting
from stable rates and growth in the underlying business. We
are also expecting to tap into opportunities for new business,
especially from the new start-up syndicates at Lloyd's. Fur-
ther risk selection and increased diversification should serve
to boost the portfolio quality of our direct business, which is
again expected to deliver stable earnings in 2017. In the treaty
renewals as at 1 January 2017 we largely preserved our port-
folio thanks to our established customer relationships. For the
current year we expect to book a slightly higher premium vol-
ume because we have acted on various market opportunities,
for example in cyber business.
In facultative reinsurance we have focused even more heavily
on our core business. Agency business and primary insurance
activities were reallocated within the Hannover Re Group. This
realignment enables us to cater even better to our customers'
changing facultative reinsurance needs. This also includes a
stronger orientation towards regional entities, which enables
us to be even more attentive to the requirements of our cus-
tomers. With this in mind, we anticipate new business potential
and continued growth in the coming years. The investments
that we have made in recent years in the areas of cyber risks
and renewables will also lead to attractive premium growth
in the future.
Real estate and real estate funds
1,395,281
1,792,919
(29,808)
(259,834)
(156,575)
2,219,094
1,749,624
17,068,663
14,417,615
16,353,622
1.1.-31.12.2015
1.1.-31.12.2016
Notes
Net premium earned
Change in ceded unearned premium
Change in gross unearned premium
7.1
Ceded written premium
3,307
14,593,042
7.2
901
26,066
7.2
Change in fair value of financial instruments
135,847
206,296
Ordinary investment income
7.2
19,169
9,101
7.2
Profit/loss from investments in associated companies
1,253,443
1,161,976
Realised gains and losses on investments
Total depreciation, impairments and appreciation of investments
Gross written premium
N02
(6,703)
509,189
680,082
712,001
904,196
Total liabilities
(1,217)
Total shareholders' equity
Equity attributable to shareholders of Hannover Rück SE
Retained earnings
Total other comprehensive income
Other changes in cumulative other comprehensive income
Changes from hedging instruments
Cumulative foreign currency translation adjustment
Non-controlling interests
in EUR thousand
(53,778)
1,523,797
Consolidated statement of income 2016
6.1
135
Hannover Re | Annual Report 2016
8,777,470
63,214,938
63,528,602
(36,571)
9,740,547
743,317
6.14
8,068,344
8,997,230
6,039,783
1,183,402
709,126
Unrealised gains and losses on investments
7.2
38,098
1,226,426
391,229
7.5
84,316
1,670,920
71,693
1,617,655
6.12
456,207
1,214,713
(3,684)
1,755,236
7.4
14,500,505
398,512
401,545
14,302,150
7.3
1,348
22,993
1,689,348
5,652
Taxes
thereof
Hannover Re | Annual Report 2016
136
9.54
9.54
9.71
9.71
Diluted earnings per share
Net income
Basic earnings per share
Earnings per share (in EUR)
63,988
1,150,725
55,197
1,171,229
Group net income
6.14
Non-controlling interest in profit and loss
8.5
76,028
16,292
3,997
Net income before taxes
Other technical income
395,033
1,665,093
1,550,420
Net investment income
332,149
7.2
Total revenues
Income/expense on funds withheld and contract deposits
1,218,271
Net income from investments under own management
101,202
109,140
7.2
Other investment expenses
1,270,060
7.3
7.3
15,968,505
Interest on hybrid capital
Other technical expenses
Administrative expenses
Total technical expenses
Other income and expenses
Operating profit/loss (EBIT)
Other acquisition costs
101,157
2,918,429
1,290
16,259,425
11,075,407
2,988,479
470
7.3
80,512
7.3
Change in benefit reserves
10,811,325
7.3
Claims and claims expenses
Commission and brokerage, change in deferred acquisition costs
Cumulative other comprehensive income
Annual financial statements
845,159
3,678,030
6.4
Accounts receivable
2,198,089
6.4
Deferred acquisition costs
8,687
2,094,671
3,665,937
12,231
Reinsurance recoverables on other technical reserves
164,023
134,927
6.7
845,159
1,367,173
6.7
1,189,420
Goodwill
Other assets
Total assets
7,527
9,978
15,086
680,543
674,389
6.6
Deferred tax assets
433,500
7.5
60,244
64,609
6.5
Assets held for sale
Accrued interest and rent
408,292
1
6.7
1,506,292
Cash and cash equivalents
1,084,739
838,987
6.1
Short-term investments
1,544,533
6.1
1,764,678
Other invested assets
128,008
114,633
6.1
Investments in associated companies
1,673,958
6.1
Reinsurance recoverables on benefit reserve
848,667
Total investments and cash under own management
6.7
Reinsurance recoverables on unpaid claims
188,604
53,337,352
13,801,845
39,346,903
53,637,259
820,995
Total investments
6.3
Contract deposits
11,673,259
6.2
Funds withheld
41,793,495
170,505
Adjusted pursuant to IAS 8 (cf. section 3.1 of the notes)
Prepaid reinsurance premium
63,214,938
Long-term debt and subordinated capital
698,933
680,396
6.11
Other liabilities
1,932,722
6.12
1,842,973
Deferred tax liabilities
271,674
409,023
7.5
Taxes
150,299
7.5
180,680
1,804,218
Total liabilities
724,562
63,528,602
6.13
120,597
120,597
6.13
1,798,337
Common shares and additional paid-in capital
Conditional capital: 60,299
Nominal value: 120,597
Common shares
Shareholders' equity
54,437,468
53,788,055
Additional paid-in capital
6.10
724,562
1,390,006
10,289,854
6.7
Benefit reserve
26,556,388
28,129,418
6.7
Loss and loss adjustment expense reserve
31.12.2015
31.12.2016
Notes
in EUR thousand
Liabilities
Hannover Re | Annual Report 2016
134
Provisions for pensions
12,206,699
Unearned premium reserve
6,628,274
3,340,651
6.7
4,298,343
6.9
1,265,035
1,234,073
6.8
Reinsurance payable
4,682,484
Funds withheld
3,159,363
Contract deposits
Other technical provisions
1,216,036
362,390
325,528
6.7
Transferred to the consolidated statement of income
Changes from the measurement of associated companies
18,997
Tax income (expense)
9,101
(18,788)
13,276
Reclassifiable to the consolidated statement of income
Unrealised gains and losses on investments
Gains (losses) recognised directly in equity
382,225
(481,349)
(5,721)
Currency translation
(162,990)
325,652
173,829
(13,672)
(5,365)
Tax income (expense)
339,324
(163,222)
179,194
Gains (losses) recognised directly in equity
(480,331)
219,744
164,008
741
Tax income (expense)
Gains (losses) recognised directly in equity
(7,836)
(5,825)
Transferred to the consolidated statement of income
Net income
Not reclassifiable to the consolidated statement of income
1.1.-31.12.2016
1,226,426
1.1.-31.12.2015
1,214,713
Actuarial gains and losses
Gains (losses) recognised directly in equity
(27,889)
18,997
Tax income (expense)
9,101
(5,721)
(18,788)
2,831
13,276
Gains (losses) recognised directly in equity
Reclassifiable income and expense recognised directly in equity
7,601
(5,530)
(1,819)
295
Tax income (expense)
9,420
Gains (losses) recognised directly in equity
Changes from hedging instruments
2,407
(9,087)
(424)
(1,251)
Income and expense recognised directly in equity that cannot be reclassified
Gains (losses) recognised directly in equity
(27,889)
Purchases
(129,774)
post-employment benefit obligations
203
6.11
Other liabilities
207
3. Accounting policies
144
146
Debt and subordinated capital
208
3.1
Changes in accounting policies
146
6.13 Shareholders' equity and
6.12
3.2
Provisions for pensions and other
203
1,509,625
(253,533)
(182,910)
2 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
3
142
6.10
Hannover Re | Annual Report 2016
financial statements 2016
1. Company information
2. Accounting principles
144
6.9
Contract deposits (liabilities)
Notes to the consolidated
1,543,699
Summary of major accounting policies
treasury shares
4.2
Consolidated companies and
7.2
Investment income
215
complete list of shareholdings
214
157
Reinsurance result
217
4.3
Major acquisitions and
7.4
Other income and expenses
7.3
147
Gross written premium
156
212
3.3
Major discretionary decisions and
6.14 Non-controlling interests
213
estimates
7.1
155
4. Consolidation
156
statement of income
214
4.1
Consolidation principles
7. Notes on the individual items of the
162,612
151,914
(311,241)
(1,711,550)
(2,107,554)
1
Adjusted pursuant to IAS 8 (cf. section 3.1 of the notes)
Hannover Re | Annual Report 2016
141
Cash flow from investing activities
Annual financial statements
III. Cash flow from financing activities
1.1.-31.12.2016
1.1.-31.12.20151
Contribution from capital measures
Payment on capital measures
Structural change without loss of control
in EUR thousand
141
(30,771)
(590,536)
59,723
(76,217)
(28,453)
Real estate and real estate funds
Sales
79,428
(27,960)
104,414
(458,294)
Purchases
Short-term investments
Changes
Other changes (net)
255,823
(204,044)
Dividends paid
(612,953)
7,762
820,995
854,503
Change in cash and cash equivalents (I.+II.+III. + IV.)
27,672
(33,508)
Cash and cash equivalents at the end of the period
Cash and cash equivalents at the beginning of the period
848,667
Supplementary information on the cash flow statement²
Income taxes paid (on balance)
Dividend receipts³
Interest received
Interest paid
1 Adjusted pursuant to IAS 8 (cf. section 3.1 of the notes)
(271,440)
820,995
23,964
34,852
IV. Exchange rate differences on cash
(20,048)
(3,604)
(2,509)
(557,435)
4,007
Proceeds from long-term debts
226
Repayment of long-term debts
Other changes (net)
Cash flow from financing activities
(2,028)
23,400
(518,642)
(13)
(10)
(626,913)
(1,054,793)
218
new formations
169
7.5
The amendments to existing standards listed below were appli-
cable for the first time in the year under review and had no sig-
nificant implications overall for the net assets, financial position
or result of operations of the Hannover Re Group.
•
•
Investment Entities: Applying the Consolidation Excep-
tion (Amendments to IFRS 10, IFRS 12 and IAS 28)
Disclosure Initiative (Amendments to IAS 1)
•
New accounting standards or accounting standards applied for the first time
•
and Amortisation (Amendments to IAS 16 and IAS 38)
Accounting for Acquisitions of Interests in Joint
Operations (Amendments to IFRS 11)
Annual Improvements to IFRSS 2010-2012 Cycle
Defined Benefit Plans: Employee Contributions
(Amendments to IAS 19)
Standards or changes in standards that have not yet entered into force or
are not yet applicable
In January 2016 the IASB issued IFRS 16 “Leases" setting
out new principles governing the recognition, measurement,
presentation and disclosure of leases. The most significant
new requirements relate principally to accounting by lessees.
In future, the lessee shall as a general principle recognise a
lease liability for all leases. At the same time it shall recog-
nise a right to use the underlying asset. Accounting by les-
sors remains comparable with current practice, according to
which the lessor classifies each lease as an operating lease or
a finance lease. The standard is to be applied to annual peri-
ods beginning on or after 1 January 2019 and has still to be
endorsed by the EU. Hannover Re has still to begin a detailed
analysis of the new requirements.
In July 2014 the IASB published the final version of IFRS 9
"Financial Instruments", which supersedes all previous ver-
sions of this standard and replaces the existing IAS 39 "Finan-
cial Instruments: Recognition and Measurement”. The standard
contains requirements governing classification and meas-
urement, impairment based on the new expected credit loss
impairment approach and general hedge accounting. Initial
mandatory application of the standard, which was endorsed
by the EU in November 2016, is set for annual periods begin-
ning on or after 1 January 2018. In September 2016, however,
the IASB published "Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts (Amendments to IFRS 4)".
These amendments, which had still to be endorsed by the
EU as at the balance sheet date, address the implications of
the different effective dates for initial application of IFRS 9
and the anticipated new standard governing the accounting
for insurance and reinsurance contracts. Under the so-called
deferral approach provided for in the amendments, entities
whose predominant activity is issuing insurance and rein-
surance contracts within the scope of IFRS 4 are granted an
optional temporary exemption from recognising their financial
instruments in accordance with IFRS 9 until the recognition of
insurance and reinsurance contracts has been finally settled,
although this option may not be used after 1 January 2021.
Hannover Re reviewed the application requirements based on
the consolidated financial statement as at 31 December 2015
with a positive outcome and decided to make use of the deferral
approach. Irrespective of the deferral, Hannover Re is currently
reviewing the implications of IFRS 9 and expects that they will
relate primarily to the classification of financial instruments.
Annual Improvements to IFRSS 2012-2014 Cycle
Clarification of Acceptable Methods of Depreciation
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 framework to be applied to all contracts with customers.
In the "Clarifications to IFRS 15 Revenue from Contracts with
Customers", which were published in April 2016, the IASB
clarified various principles of IFRS 15 and included additional
transition relief provisions. Financial 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 “Insurance Contracts” are expressly
exempted from the standard's scope of application. Both the
standard and the clarifications are to be applied for the first
time to annual periods beginning on or after 1 January 2018.
The standard was endorsed by the EU in September 2016,
but the clarifications have not yet been endorsed. Hannover
Re subjected the service contracts existing as at the balance
sheet date to analysis and does not anticipate any significant
changes relative to current practice. The predominant activity
of the Hannover Re Group falls within the scope of application
of IFRS 4. Consequently, the services falling within the scope
of application of IFRS 15 will probably not have any signifi-
cant implications overall for the Group's net assets, financial
position or result of operations. Hannover Re intends to opt
for the modified retrospective approach on initial application
of IFRS 15, according to which the cumulative effect of apply-
ing the new standard is recognised in retained earnings as at
1 January 2018. In addition, the practical transition relief pro-
vided in the standard with respect to completed contracts and
contract modifications will be utilised.
Hannover Re | Annual Report 2016
The present consolidated financial statement was released
for publication by a resolution of the Executive Board on
23 February 2017.
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 16.4 billion, Hannover Re is the
third-largest reinsurance group in the world. The company's net-
work consists of more than 130 subsidiaries, affiliates, branches
and representative offices worldwide with a total workforce of
roughly 2,900. The Group's German business is conducted by
the subsidiary E+S Rückversicherung AG. Hannover Rück SE
is a European Company, Societas Europaea (SE), which has its
registered office at Karl-Wiechert-Allee 50, 30625 Hannover,
Germany, and is entered in the commercial register of Hannover
County Court under the number HR Hannover B 6778. 50.2%
(rounded) of the shares of Hannover Rück SE are held by Talanx
AG, Hannover, which in turn is majority-owned – with an inter-
est of 79% - by HDI Haftpflichtverband der Deutschen Industrie
V.a.G. (HDI), Hannover.
-
2. Accounting 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).
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 pur-
suant to § 315a Para. 1 German Commercial Code (HGB) and
the supplementary provisions of the Articles of Association of
Hannover Rück SE as amended on 30 May 2016.
144
The consolidated financial statement reflects all IFRS in force
as at 31 December 2016 as well as all interpretations issued
by the International Financial Reporting Interpretations Com-
mittee (IFRIC), application of which was mandatory for the
year under review. 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.
Accounting Principles (US GAAP) as applicable on the date of
initial application of IFRS 4 on 1 January 2005, we cite individ-
ual insurance-specific standards of US GAAP using the desig-
nation "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.
-
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 transpar-
ency to EUR millions. Figures indicated in brackets refer to
the previous year.
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
Hannover Re | Annual Report 2016
145
Annual financial statements
Initial application to annual periods beginning on
or after the following date:
1 January 2018 (still to be endorsed by the EU)
1 January 2018 (still to be endorsed by the EU)
1 January 2018 (still to be endorsed by the EU)
1 January 2018 (still to be endorsed by the EU)
1 January 2017 (still to be endorsed by the EU)
1 January 2017 (still to be endorsed by the EU)
IFRS 14 Regulatory Deferral Accounts
deferred (still to be endorsed by the EU)
3. Accounting policies
3.1 Changes in accounting policies
For 2016 Hannover Re changed the disclosure of overnight
money deposits in order to better reflect the extremely short-
term and highly liquid nature of this asset class. These assets
are now allocated to the balance sheet item "Cash and cash
equivalents”, whereas in previous years they had been recog-
nised under the balance sheet item “Short-term investments".
This represents a change in an accounting policy, which pur-
suant to IAS 8 "Accounting Policies, Changes in Accounting
Estimates and Errors” is to be performed retrospectively with
restatement of the comparative figures for previous periods.
The effects of this change on the individual items of the consol-
idated balance sheet and the consolidated cash flow statement
are shown in the following table. There were no implications
for the consolidated statement of income.
146
Hannover Re | Annual Report 2016
1 January 2016 (still to be endorsed by the EU)
Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture (Amendments to
IFRS 10 and IAS 28)
Classification and Measurement of Share-based
Payment Transactions (Amendments to IFRS 2)
Disclosure Initiative (Amendments to IAS 7)
Recognition of Deferred Tax Assets for
Unrealised Losses (Amendments to IAS 12)
Annual Improvements to IFRS Standards
2014-2016 Cycle
In addition to the accounting principles described above,
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 was not yet mandatory for the year under
Further IFRS Amendments and Interpretations
review and which are not being applied early by Hannover Re.
Initial application of these new standards is not expected to
have any significant implications for Hannover Re's net assets,
financial position or result of operations:
N06
Published:
Title
December 2016
December 2016
December 2016
June 2016
January 2016
January 2016
September 2014
January 2014
Transfers of Investment Property
(Amendments to IAS 40)
IFRIC Interpretation 22, Foreign Currency
Transactions and Advance Consideration
1. Company information
41,068
Annual financial statements
Events after the balance sheet date
6. Notes on the individual items of the
8.3
Share-based payment
227
balance sheet
176
225
8.4
231
6.1
Investments under own management
176
8.5
Earnings per share and
Staff and expenditures on personnel
6.2
Related party disclosures
222
Taxes on income
219
4.4
Major disposals and retirements
170
4.5 Other corporate changes
8.2
170
222
8.1
Derivative financial instruments
5. Segment reporting
171
and financial guarantees
8. Other notes
Funds withheld (assets)
192
dividend proposal
195
8.8
Rents and leasing
234
6.7
Technical provisions
Other assets
198
Fee paid to the auditor
234
6.8
Funds withheld (liabilities)
203
8.10
8.9
6.6
233
commitments
232
6.3
Contract deposits (assets)
192
8.6
Lawsuits
232
6.4
Technical assets
192
8.7
Contingent liabilities and
6.5
Goodwill
194
235
547,758
Purchases
Affiliated companies and participating interests
(8,748)
Continuation: Other reserves
(cumulative other comprehensive income)
Retained
earnings
Equity attributable
Non-controlling
instruments
Total
interests
shareholders'
equity
Other
(48,288)
5,402,926
to shareholders of
Hannover Rück SE
7,550,758
Hedging
138
Capital increases/additions
Capital repayments
Acquisition/disposal of treasury shares
Total income and expense recognised
in equity
Net income
Hannover Re | Annual Report 2016
Dividends paid
192,195
170,784
120,597
724,562
904,196
680,082
Balance as at 31.12.2016
109
702,202
(1,320)
1,150,725
63,988
1,214,713
(512,538)
(512,538)
(44,897)
1,150,725
(557,435)
(36,571)
6,039,783
8,068,344
709,126
8,777,470
(1,217)
(1,217)
8,252,960
(131,395)
(119,271)
(1,320)
(1,189)
(2,509)
966
966
189
(12,124)
189
(9)
(10)
(10)
(10)
7,531
11,717
(9)
no change of control status
Changes in ownership interest with
509,189
360,168
(131,395)
Total recognised income and expense
1,586,594
1,083,318
thereof
142,796
Attributable to non-controlling interests
Attributable to shareholders of Hannover Rück SE
1,511,515
51,864
1,031,454
Hannover Re | Annual Report 2016
137
Annual financial statements
75,079
Consolidated statement of changes
4,772
(163,414)
Transferred to the consolidated statement of income
(164,473)
(163,414)
Tax income (expense)
(4,329)
148,517
Tax income (expense)
378,956
Total income and expense recognised directly in equity
Gains (losses) recognised directly in equity
519,869
(110,777)
Transferred to the consolidated statement of income
(164,473)
(144,671)
in shareholders' equity 2016
Common
shares
Additional
paid-in capital
1,169,255
Currency
translation
190,454
(457,254)
318,735
gains/losses
120,597
712,001
509,189
Balance as at 1.1.2016
120,597
724,562
712,001
724,562
Unrealised
(cumulative other comprehensive income)
Other reserves
in EUR thousand
Balance as at 1.1.2015
120,597
Changes in ownership interest with
no change of control status
Changes in the consolidated group
Capital increases/additions
Capital repayments
Acquisition/disposal of treasury shares
Total income and expense recognised
directly in equity
Net income
Dividends paid
Balance as at 31.12.2015
724,562
N04
(36,571)
6,039,783
8,068,344
709,126
Cash flow from operating activities
2,331,283
3,104,875
140
Hannover Re | Annual Report 2016
in EUR thousand
(147,658)
II. Cash flow from investing activities
Maturities
Fixed-income securities - loans and receivables
Maturities, sales
Purchases
1.1.-31.12.2016
1.1.-31.12.20151
Fixed-income securities - held to maturity
504,293
(60,887)
(97,390)
256,527
88,078
159,250
(1,120,740)
(958,105)
1,123,269
Changes in other assets and liabilities (net)
1,229,670
(97,673)
Changes in other technical provisions
20,254
(9,106)
Changes in clearing balances
(161,164)
(89,149)
1,184,382
533,319
(224,906)
358,350
(153,057)
Other financial assets - at fair value through profit or loss
Sales
30,025
74,043
Purchases
(16,064)
(402,902)
(33,312)
Sales
Purchases
260,882
183,271
(385,936)
(379,296)
Other invested assets
(504,713)
Purchases
5,284
Fixed-income securities - available for sale
Maturities, sales
10,744,087
Purchases
(12,721,891)
10,400,105
(12,362,146)
Fixed-income securities - at fair value through profit or loss
Maturities, sales
in EUR thousand
53,995
(185,375)
20,211
(58,570)
Equity securities - available for sale
Sales
132,636
182,385
Sales
(1,923,135)
3,454,332
1,171,229
55,197
1,226,426
(572,836)
(572,836)
(40,117)
1,171,229
(612,953)
(53,778)
6,628,274
8,997,230
743,317
9,740,547
Hannover Re | Annual Report 2016
(6,703)
139
360,168
340,286
8,777,470
(9,889)
(9,780)
(980)
(10,760)
210
19,882
210
(1)
(13)
(13)
(13)
(5,486)
(17,207)
(1)
Annual financial statements
Consolidated cash flow statement 2016
in EUR thousand
(835)
Income from the recognition of negative goodwill
(10,543)
Amortisation of investments
74,224
96,540
(1,995)
Changes in funds withheld
Changes in prepaid reinsurance premium (net)
Changes in tax assets/provisions for taxes
Changes in benefit reserve (net)
Changes in claims reserves (net)
Changes in deferred acquisition costs
1,592,162
Net changes in contract deposits
Realised gains and losses on deconsolidation
(901)
(26,066)
I.
Cash flow from operating activities
1.1.-31.12.2016
N05
1.1.-31.12.2015
Net income
Appreciation/depreciation
1,226,426
1,214,713
105,358
64,493
Net realised gains and losses on investments
(206,296)
(135,847)
Change in fair value of financial instruments (through profit or loss)
(404,033)
Consolidated statement of comprehensive income 2016 NO3
Currency forwards
SEK
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, notification
by the insurer and pro-rata payment of the loss by the rein-
surer. For this reason the realistically estimated future settle-
ment amount based on long-standing established practice is
carried. Recognised actuarial methods are used for estimation
purposes. In this regard we make allowance for past experi-
ence, currently known facts and circumstances, the expertise
of the market units as well as other assumptions relating to the
future development, in particular economic, social and tech-
nical influencing factors. Subsequently, based on Group-wide
analyses, we give separate consideration in this context to the
inherent volatility of the reserves constituted for the reinsur-
ance business, e. g. due to large losses. The interest rate-in-
duced portion of the change in the reserve is shown in the
statement of income on a consistent Group basis.
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
mortality, disability, lapse rates and the future interest rate
development. The actuarial bases used in this context allow
an adequate safety margin for the risks of change, error and
random fluctuation. They correspond to those used in the pre-
mium calculation and are adjusted if the original safety margins
no longer appear to be sufficient.
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.
Contributions to defined contribution plans are expensed when
the beneficiary of the commitment has performed the work that
entitles them to such contributions.
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.
Under the balance sheet item Other liabilities we recognise
not only the sundry non-technical provisions but also minority
interests in partnerships. Direct minority interests in partner-
ships, i. e. liabilities to holders of minority shares in partner-
ships arising out of long-term capital commitments, which are
puttable at fair value by the holder of the interest, are recog-
nised as debt pursuant to IAS 32 and measured at the fair
value of the redemption amount as at the balance sheet date.
Hannover Re | Annual Report 2016
151
Annual financial statements
Sundry non-technical provisions are established according to
a realistic 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.
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
arising directly as a consequence of restructuring that are not
connected with the company's regular activities.
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.
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 recognised
at the fair value of the liability and expensed over the vesting
period. Until settlement of the liability the fair value of the lia-
bility is remeasured at each closing date and at the settlement
date. All changes in fair value are recognised in profit or loss
for the period.
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.
Financial liabilities at fair value through profit or loss: Han-
nover Re does not make use of the fair value option provided
by IAS 39 "Financial Instruments: Recognition and Measure-
ment" to classify financial liabilities in this category upon first-
time recognition.
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.
Own-use real estate: The portfolio of own-use real estate is
measured at cost less scheduled straight-line depreciation over
a useful life of no more than 50 years. The fair values are
determined for comparative purposes using the discounted
cash flow method.
(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.
Hannover Re | Annual Report 2016
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.
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 (nom-
inal amount). Appropriate allowance is made for credit risks.
Hannover Re | Annual Report 2016
149
Annual financial statements
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.
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.
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.
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.
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 latter
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".
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 nec-
essary. 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 3.3 “Major discretionary decisions
and estimates".
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.
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 may only be netted with deferred tax liabil-
ities 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
150
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
credit risks.
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-enhanc-
ing expenditures are capitalised if they extend the useful life.
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-controlling interests be recognised separately within
Group shareholders' equity. The non-controlling interest in
profit or loss is shown separately following the net income. Fur-
ther information is provided in section 6.14 “Non-controlling
interests".
Hannover Re | Annual Report 2016
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 2016 the functional currency of the Group
entity Hannover Re (Ireland) Designated Activity Company,
Dublin, changed from the euro to the US dollar. This change
was prompted by the regrouping of large parts of the securi-
ties portfolio held by the company into US dollar-denominated
instruments. Taken together with the fact that major portions of
the insurance business written by the company are transacted
in US dollars, the currency of the primary economic environ-
ment in which the Group entity operates is now the US dollar.
Currency translation differences resulting from long-term loans
or lendings without specified maturity between Group compa-
nies are similarly recognised outside the statement of income
in a separate item of shareholders' equity.
Hannover Re | Annual Report 2016
153
Annual financial statements
Key exchange rates
N09
31.12.2016
31.12.2015
2016
2015
Mean rate of exchange
Average rate of exchange
1 EUR corresponds to:
AUD
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 sub-
sidiaries were drawn up in the currencies corresponding to
the economic environment in which each subsidiary primarily
operates. These currencies are referred to as functional cur-
rencies. The euro is the reporting currency in which the con-
solidated 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.
Subordinated debt
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:
•
•
Fixed-income securities
Equities, equity funds and other variable-yield
securities
Other financial assets - at fair value through
profit or loss
Certain financial assets in the balance sheet item
"Real estate and real estate funds"
152
•
•
Short-term investments
• Certain financial assets in the balance sheet item
"Other assets"
• Certain financial assets in the balance sheet item
"Other liabilities”
•
•
Long-term debt
Other invested assets
on the balance sheet date
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".
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.
6,249
28,391
3.2 Summary of major accounting policies
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
derivative financial instruments as at the settlement date. The
recognition of fixed-income securities includes apportionable
accrued interest.
Financial assets held to maturity are comprised of non-
derivative 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 include fixed or determinable payments on a defined due
date, are not listed on an active market and are not sold at short
notice. They are carried at amortised cost.
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
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.
Hannover Re | Annual Report 2016
147
Annual financial statements
Valuation models
Financial instrument
Fixed-income securities
Unlisted plain vanilla bonds,
interest rate swaps
(59,479)
81,621
1.1.-31.12.2015
(28,391)
28,391
Restatements pursuant to IAS 8
in EUR thousand
Consolidated balance sheet
Short-term investments
Cash and cash equivalents
in EUR thousand
Consolidated cash flow statement
Unlisted structured bonds
Cash and cash equivalents at the beginning of the period
Exchange rate differences on cash
Cash and cash equivalents at the end of the period
N07
1.1.2015
31.12.2015
(81,621)
81,621
Cash flow from investing activities
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.
Unlisted ABS/MBS, CDO/CLO
Parameter
Interest rate curves, spot and forward rates
Listing of the underlying share, implicit
volatilities, money-market interest rate,
dividend yield
Fair values, actuarial parameters, interest
rate curve
Net asset value method
Interest parity model
Black-Scholes
Present value method
N08
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 corporate
issuers and derivative financial instruments. Within the scope
of the fair value option provided under IAS 39 "Financial Instru-
ments: Recognition and Measurement”, according to which
financial assets may be carried at fair value on first-time rec-
ognition 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 receiv-
ables are also recognised here. Hannover Re makes use of the
fair value option solely for selected subportfolios of its finan-
cial assets. Securities held for trading and securities classified
as measured at fair value through profit or loss since acquisi-
tion 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 generally acknowl-
edged measurement methods. All changes in fair values from
this measurement are recognised in investment income. The
classification of financial assets at fair value through profit or
loss is compatible with Hannover Re's risk management strat-
egy and investment strategy, which are oriented 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 financial
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 condi-
tions prevailing on the balance sheet date for financial assets
with similar credit rating, duration and return characteristics or
using recognised models of mathematical finance. Hannover Re
uses a number of different valuation models for this purpose.
The details are set out in the table above. Financial assets for
148
Hannover Re | Annual Report 2016
which no publicly available prices or observable market data
can be used as inputs (financial instruments belonging to fair
value hierarchy level 3) are for the most part measured on the
basis of proven valuations drawn up by knowledgeable, inde-
pendent 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.
Insurance derivatives
OTC stock index options
OTC stock options,
Other financial assets - at fair value through profit or loss
Interest rate curve
Interest rate curve, volatility surfaces
Risk premiums, default rates, prepayment
speed and recovery rates
Unlisted equities and equity investments Acquisition cost, cash flows, EBIT
Pricing model
Present value method
Hull-White, Black-Karasinski,
LIBOR market model etc.
Present value method
Other invested assets
multiples, as applicable book value
Audited net asset values (NAV)
Capitalised earnings method,
discounted cash flow method,
multiple-based approaches
Net asset value method
real estate funds
Unlisted bond, equity and
real estate funds
Audited net asset values (NAV)
Private equity funds, private equity
1.4591
Other assets are accounted for at amortised cost.
1.4858
Hannover Re | Annual Report 2016
154
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. Sched-
uled 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.
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-for-
wards, unused tax credits and temporary differences between
the book values of assets and liabilities in the consolidated
balance sheet of the Hannover Re Group and their tax val-
ues. Further information on deferred taxes is provided in our
remarks on deferred tax assets and liabilities.
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 volume
that is not booked to income. This applies principally to prop-
erty and casualty reinsurance and parts of accident and health
reinsurance. Premiums already collected that are attributa-
ble 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.
Ceded reinsurance premiums are deducted from the gross
written premium for the purpose of reconciliation to net pre-
mium earned. Assets and liabilities in connection with rein-
surance ceded are recognised on a gross basis. The reinsured
portions 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 rec-
ognised 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.
3.3 Major discretionary decisions and estimates
14.2609
16.8447
14.4632
ZAR
1.1128
1.1025
1.0927
1.0540
16.1886
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.
By analysing a broad range of observable information it is pos-
sible to classify losses as major individual loss events. Meas-
urement of the obligations existing in this connection is carried
out using a separate process, which is based largely on con-
tract-specific estimates.
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 73 et seq. We would further
refer to our explanatory remarks on the technical reserves in
section 3.2 "Summary of major accounting policies” and sec-
tion 6.7 "Technical provisions".
1.4981
Hannover Re | Annual Report 2016
156
Only subsidiaries which are of minor importance – both indi-
vidually and in their entirety - for the net assets, financial posi-
tion 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 19 (18) companies at home and abroad were not
consolidated in the year under review. A further 18 (12) com-
panies were not included at equity in the consolidated financial
statement for the same reason. The business object of these
altogether 37 (30) companies is for the most part the render-
ing of services for reinsurance companies within the Group.
-
Companies over which Hannover Re is able to exercise a sig-
nificant influence are consolidated as associated companies
using the equity method of accounting. We therefore measure
investments in associated companies with the proportion of the
shareholders' equity attributable to the Group. According to the
proportionate interest method required by IAS 28 "Investments
in Associates", the goodwill attributable to associated compa-
nies is recognised together with the investments in associated
companies. 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 associated company's latest available finan-
cial statement. A significant influence is presumed to exist if
a company belonging to the Hannover 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 representation on a govern-
ing body of such company, participation in its policy-making
processes-e. g. with respect to dividends or other distribu-
tions, the existence of material inter-company transactions,
the possibility of interchanging managerial personnel 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".
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 state-
ment after the revaluation of all assets and liabilities. After rec-
ognition of all acquired intangible assets that in accordance
with IFRS 3 "Business Combinations" are to be accounted for
separately from goodwill, the difference between the revalued
shareholders' 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. Immate-
rial and negative goodwill are recognised in the statement of
income in the year of their occurrence. Costs associated with
acquisition are expensed.
The capital consolidation is carried out according to the
requirements of IFRS 10 "Consolidated Financial Statements"
on the basis of a consistent consolidation model for all enti-
ties that identifies control as the single basis for verifying the
consolidation requirement, irrespective of whether control is
substantiated in company law, contractually or economically.
Group companies are consolidated from the point in time when
Hannover Re gains control over them. Control exists if Han-
nover 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 involvement 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 shareholdings”. Group compa-
nies are consolidated until the Hannover Re Group loses con-
trol 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
Annual financial statements
155
Hannover Re | Annual Report 2016
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 3.2 "Summary of major accounting
policies" concerning financial assets at fair value through profit
or loss and securities held as available for sale as well as in
section 6.1 "Investments under own management" concerning
investment property. Assumptions concerning the appropri-
ate 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 3.2 “Summary of
major accounting policies".
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 3.2 "Summary of major accounting policies" and on the
liability adequacy tests in section 6.7 “Technical provisions".
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.
USD
9.3450
In order to measure the ultimate liability in property and
casualty reinsurance the expected ultimate loss ratios are cal-
culated for all lines. Actuarial methods such as the “chain lad-
der" method provide the starting point for these calculations.
The realistically estimated future settlement amount is recog-
nised 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. The more
recent underwriting years in actuarial projections are of course
subject to greater uncertainty, although this can be considera-
bly 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 dif-
ference 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
applying statistical methods, separate consideration is given
to large losses.
9.1938
GBP
6.9934
7.3246
7.0970
7.3206
1.4241
1.4630
1.5158
1.4191
CAD
0.4197
0.4155
0.4122
0.3972
BHD
9.4499
1.4840
0.8553
0.7381
CNY
1,257.9722
4.3356
4.5774
4.6929
4.7293
MYR
1,278.7281
1,281.5964
0.8162
1,266.9800
9.5524
8.6269
8.5567
8.4692
8.1753
HKD
0.7289
KRW
Hannover Finance (Luxembourg) S.A.,
Luxembourg/Luxembourg 1
Affiliated consolidated companies
(18)
44,618
100.00
630,154
EUR
Foreign companies
EUR
2,703
288
Hannover Finance (UK) Limited,
London/United Kingdom'
100.00
GBP
Hamilton/Bermuda¹
1.75
Hannover Life Reassurance Bermuda Ltd.,
34,647
(3,470)
Hildesheim/Germany'
EUR
11,324
Other participations
100.00
b2b protect GmbH,
48.98
EUR
378
(361)
Internationale Schule Hannover Region GmbH,
25,253
Hannover/Germany 8, 9
EUR
3,689
302
FinLeap GmbH,
Berlin/Germany
Nürnberger Beteiligungs-AG,
Nuremberg/Germany 7.9
1,10
8.26
9.17
USD
4,080
34,588
Hamilton/Bermuda¹
100.00
USD
1,237,845
201,363
Hannover ReTakaful B.S.C. (c),
Manama/Bahrain¹
Hannover Services (UK) Limited,
London/United Kingdom'
Hannover Re (Bermuda) Ltd.,
100.00
65,810
74,801
100.00
GBP
794
(66)
Inter Hannover (No. 1) Limited,
London/United Kingdom'
100.00
BHD
391,271
2,466
AUD
Hannover Life Reassurance Company of America,
Orlando/USA¹
100.00
USD
333,442
25,033
Hannover Life Reassurance Company of America
(Bermuda) Ltd.,
Hamilton/Bermuda¹
100.00
480,863
USD
2,395
Hannover Re (Ireland) Designated Activity Company,
Dublin/Ireland1
100.00
USD
1,709,897
105,225
Hannover Life Re of Australasia Ltd,
Sydney/Australia'
100.00
9,233
EUR
HAPEP II Komplementär GmbH,
11,857
in currency units of 1,000
Name and registered office of the company
Hannover Re | Annual Report 2016
10,848
5,434
EUR
60.58
Hannover Euro Private Equity Partners IV GmbH & Co. KG,
Cologne/Germany 1
125,000
Participation
696,413
64.79
Hannover/Germany¹
E+S Rückversicherung AG,
1,618
2,627
EUR
67.54
Cologne/Germany1
HEPEP III Holding GmbH,
EUR
11,738
Currency
in %
Hannover/Germany 4,5
GBP
HANNOVER Finanz GmbH,
International Hannover Holding AG,
Affiliated non-consolidated companies
1,226
(1,760)
22
EUR
Capital and
57.89
Cologne/Germany1
HEPEP II Holding GmbH,
EUR
57.89
Cologne/Deutschland
Hannover Euro Private Equity Partners II GmbH & Co. KG,
year
Result for the
last financial
reserves
1,044
27.78
633
67.54
Hannover Re Euro RE Holdings GmbH,
20,291
Oval Office Grundstücks GmbH,
Hannover/Germany
Associated companies
1,4,6
WeHaCo Unternehmensbeteiligungs-GmbH,
Hannover/Germany'
Hannover/Germany?
Hannover/Germany¹
100.00
39
(2)
50.00
EUR
1,589
(21)
32.96
EUR
83,207
EUR
EUR
87.68
886,721
Cologne/Germany1
Hannover Euro Private Equity Partners III GmbH & Co. KG,
3
39
EUR
82.40
Hannover/Germany1
1,183
61,419
EUR
EUR
Munich/Germany¹
HR GLL Central Europe Holding GmbH,
4,334
326,930
EUR
87.67
Munich/Germany1
HR GLL Central Europe GmbH & Co, KG,
21,602
87.67
251,203
(35)
Bradford/United Kingdom'
87.67
PLN
34,480
(3,629)
Akvamarín Beta s.r.o.,
Prague/Czech Republic¹
87.67
CZK
87,899
34,132
Warsaw/Poland 1
HR GLL Europe Holding S.à r.I.,
HR GLL CDG Plaza S.r.I.,
Bucharest/Romania¹
Pipera Business Park S.r.l.,
Bucharest/Romania 1
87.67
EUR
159,740
932
87.67
RON
155,292
Luxembourg/Luxembourg 1
ODPOWIEDZIALNÓSCIA,
HR GLL Griffin House SPÓLKA Z OGRANICZONA
(2,185)
915
(327)
HR GLL Roosevelt Kft,
Budapest/Hungary¹
87.67
HUF
19,635,268
1,388,757
Hannover Re | Annual Report 2016
Name and registered office of the company
in currency units of 1,000
HR GLL Liberty Corner SPÓLKA Z OGRANICZONA
Participation
in %
Currency
Capital and
reserves
Result for the
last financial
year
ODPOWIEDZIALNÓSCIA,
Warsaw/Poland¹
87.67
PLN
45,973
6,219
USD
87.67
94,520
SEK
6,119
626
SUM Holdings (Pty) Ltd.,
Johannesburg/South Africa 1
50.54
ZAR
20,150
12,628
Firedart Engineering Underwriting Managers (Pty) Ltd.,
53.00
Johannesburg/South Africa 1
ZAR
610
127
Garagesure Consultants and Acceptances (Pty) Ltd.,
Johannesburg/South Africa'
49.00
ZAR
1,464
2,887
Thatch Risk Acceptances (Pty) Ltd.,
49.00
Stockholm/Sweden'
Svedea AB,
(4,499)
8,930
Mustela s.r.o.,
Prague/Czech Republic¹
87.67
CZK
1,276,016
19,021
Lireas Holdings (Pty) Ltd.,
Johannesburg/South Africa 1
70.00
ZAR
199,372
34,180
MUA Insurance Acceptances (Pty) Ltd.,
Cape Town/South Africa 1
70.00
ZAR
8,925
4,709
Cargo Transit Insurance (Pty) Ltd.,
Helderkruin/South Africa 4, 15
56.00
ZAR
RON
88.00
Hamilton/Bermuda¹
Kaith Re Ltd.,
Wilmington/USA 1, 11
95.15
USD
36,373
1,411
402 Santa Monica Blvd, LLC,
Wilmington/USA 1, 11
95.15
USD
775
11 Stanwix, LLC,
823
Wilmington/USA 14
95.15
USD
1110RD LLC,
Wilmington/USA 1, 11
140EWR LLC,
1,11
Wilmington/USA₁₁
95.15
USD
300 California, LLC,
445
51,322
USD
100.00
ZAR
195,883
33,692
Peachtree (Pty) Ltd.,
Johannesburg/South Africa 4, 13
100.00
ZAR
Hannover Re Real Estate Holdings, Inc.,
Orlando/USA 11
95.25
USD
654,438
8,864
GLL HRE CORE Properties, L.P.,
Wilmington/USA 1, 11
95.15
USD
557,316
(310)
101BOS LLC,
Wilmington/USA 1, 11
95.15
73,529
2,418
95.15
USD
Wilmington/USA 1, 11
95.15
USD
12,518
626
River Terrace Parking, LLC,
Wilmington/USA 1, 11
95.15
USD
20,028
364
3290ATL LLC,
Wilmington/USA 1, 11
95.15
USD
69,861
160
Commercial & Industrial Acceptances (Pty) Ltd.,
Johannesburg/South Africa
88.00
ZAR
6,680
25,811
Broadway 101, LLC,
Johannesburg/South Africa
1,156
USD
79,402
(2,589)
75501AD LLC,
Wilmington/USA 1, 11
95.15
USD
76,260
1,151
Nashville West, LLC.
Wilmington/USA 1, 11
95.15
USD
29,140
987
1225 West Washington, LLC,
Wilmington/USA 1, 11
95.15
USD
24,082
1,020
975 Carroll Square, LLC,
Wilmington/USA 1, 11
95.15
51,145
Integra Insurance Solutions Limited,
49.00
2,733
Johannesburg/South Africa 1
Hannover Reinsurance Africa Limited,
31,770
555,797
ZAR
100.00
Johannesburg/South Africa 1
Hannover Life Reassurance Africa Limited,
209,916
219,820
100.00
ZAR
Johannesburg/South Africa¹
Hannover Reinsurance Group Africa (Pty) Ltd.,
(117)
11,883
USD
100.00
Burlington/USA1
Sand Lake Re, Inc.,
7,617
163,451
100.00
ZAR
728,000
59,243
GBP
5
London & European Title Insurance Services Limited,
London/United Kingdom¹
100.00
GBP
390
91
Iconica Business Services Limited,
Bradford/United Kingdom?
100.00
GBP
1,760
122
Hannover Re Risk Management Services India
Private Limited,
New Delhi/India 16
100.00
INR
67,945
15,719
Hannover Re Services Italy S.r.l.,
Milan/Italy
USD
100.00
100.00
Hannover Finance, Inc.,
509
550
EUR
100.00
Hannover Re | Annual Report 2016
Leine Investment General Partner S.à r.I.,
Luxembourg/Luxembourg 1, 11
757
5,985
USD
100.00
159
Chicago/USA7
2,891
11,920
GBP
100.00
Company, Bradford/United Kingdom¹
The Congregational & General Insurance Public Limited
2,748
2,789
GBP
100.00
Glencar Underwriting Managers, Inc.,
Annual financial statements
Name and registered office of the company
in currency units of 1,000
18,479
1,219,475
EUR
100.00
Paris/France 12
Fracom FCP,
3,095
USD
100.00
65,509
USD
100.00
year
Result for the
last financial
reserves
Capital and
Currency
Participation
in %
Hamilton/Bermuda 1, 11
AUD
LI RE,
160
Leine Investment SICAV-SIF,
Luxembourg/Luxembourg 1, 11
Wilmington/USA 1, 11
London/United Kingdom¹
L&E Holdings Limited,
483
35.70
ZAR
3,212
1,944
Synergy Targeted Risk Solutions (Pty) Ltd,
Johannesburg/South Africa
35.70
ZAR
2,042
Film & Entertainment Underwriters SA (Pty) Ltd.,
Durban/South Africa
Johannesburg/South Africa'
ZAR
(709)
583
Affiliated non-consolidated companies
International Mining Industry Underwriters Limited,
London/United Kingdom'
100.00
GBP
131
23
HR Hannover Re. Correduría de Reaseguros. S.A.,
Madrid/Spain
35.70
Envirosure Underwriting Managers (Pty) Ltd.,
201
415
2,135
Landmark Underwriting Agency (Pty) Ltd.,
Bloemfontein/South Africa 1
45.85
ZAR
4,490
2,988
Hospitality Industrial and Commercial Underwriting
Managers (Pty) Ltd.,
Johannesburg/South Africa
1
45.49
ZAR
1,327
5,043
Construction Guarantee (Pty) Ltd.,
Johannesburg/South Africa 4, 15
42.00
ZAR
Transit Underwriting Managers (Pty) Ltd.,
Cape Town/South Africa
39.67
ZAR
100.00
EUR
424
47
Mumbai/India 16
100.00
INR
101,793
10,523
Hannover Services (México) S.A. de C.V.,
Mexico City/Mexico'
100.00
MXN
8,025
(909)
Hannover Re Services USA, Inc.,
Itasca/USA
100.00
USD
3,474
(31)
Hannover Rück SE Escritório de Representação
no Brasil Ltda.,
Rio de Janeiro/Brazil 7
100.00
BRL
2,923
Hannover Re Consulting Services India Private Limited,
ZAR
year
reserves
LRA Superannuation Plan Pty Ltd.,
Sydney/Australia 14
100.00
AUD
Mediterranean Reinsurance Services Ltd.,
Hong Kong/China 4.7
100.00
USD
52
Hannover Re Services Japan,
Tokyo/Japan¹
100.00
JPY
114,354
11,892
Hannover Re | Annual Report 2016
161
Annual financial statements
Name and registered office of the company
in currency units of 1,000
Participation
in %
Currency
Capital and
Result for the
last financial
EUR
(313)
Hannover/Germany¹
Annual financial statements
163
Hannover Re | Annual Report 2016
21 Formerly Weisshorn Re Ltd., Hamilton/Bermuda
20 Financial year from 5 June 2015 to 31 December 2016
19 Financial year from 24 August 2015 to 31 December 2015
Company was newly established in 2016; an annual financial statement is not yet available.
18
17 Financial year from 7 October 2014 to 31 December 2015
Financial year as at 31 March 2016
16
15 Figures as at 31 December 2013
Company is inactive
14
Figures as at 31 December 2014
Material branches of the Group
13
We define the branch of a Group company as an unincor-
porated business unit that is physically and organisationally
separate from the Group company, is bound by the latter's
instructions in their internal relationship and has its own inde-
pendent market
presence.
Group company/Branch
30,686
11,261
135,928
170,556
Sydney/Australia
Hannover Rueck SE Australian Branch,
Hannover Rück SE
Figures in EUR thousand
2015
Net income 1
2016
2015
2016
Gross written premium¹
N 12
The Hannover Re Group companies listed in the following table
maintain branches that we consider to be material to an under-
standing of the Group's position.
Material branches of the Group
12
IFRS figures
11
Liberty Life Insurance Public Company Ltd,
92
9,088
EUR
9.38
Schiltigheim/France'
Acte Vie S.A.,
(18)
20,608
CHF
12.31
Zurich/Switzerland 7, 10
Weisshorn Re AG,
(9,262)
34,418
Nicosia/Cyprus 7,9
3.30
EUR
11,427
Financial year as at 31 October 2016
10 Addition in 2016 financial year, listed based on requirement of Accounting Directive Implementing Act (BilRUG)
9 Listed for the first time based on requirement of Accounting Directive Implementing Act (BilRUG)
Financial year as at 31 July 2016
8
7 Figures as at 31 December 2015
Abbreviated financial year from 1 April 2016 to 31 December 2016
Hannover Rück SE Canadian Branch,
6
5
Company is in liquidation
4
3 Financial year as at 30 September 2016
2 Year-end result after profit transfer
1 Provisional (unaudited) figures
821
Abbreviated financial year from 1 January 2015 to 30 June 2015
USD
Toronto/Canada
206,295
23,966
32,558
International Insurance Company of Hannover SE,
Australian Branch, Sydney/Australia
International Insurance Company of Hannover SE
2,114
12,356
299,435
284,357
London/United Kingdom
Hannover Re UK Life Branch,
2,631
2,086
46,013
46,789
Seoul/South Korea
59
Hannover Rück SE Korea Branch,
789
65,761
1 Figures before consolidation
(1,078)
3,532
412,952
333,358
International Insurance Company of Hannover SE,
UK Branch, London/United Kingdom
4,359
4,249
186,020
192,910
International Insurance Company of Hannover SE,
Scandinavian Branch, Stockholm/Sweden
International Insurance Company of Hannover SE,
Italian Branch, Milan/Italy2
(247)
1,036
33,450
International Insurance Company of Hannover SE,
Canadian Branch, Toronto/Canada
20,465
11,466
1,254,150
Hannover Rück SE, Tyskland Filial,
23,345
27,222
354,915
427,194
Kuala Lumpur/Malaysia
Hannover Rueck SE Malaysian Branch,
6,999
17,858
171,721
260,814
Wanchai/Hong Kong
Hannover Rück SE, Hong Kong Branch,
35,161
34,712
Stockholm/Sweden
235,154
220,102
21,719
697,727
Shanghai/China
Hannover Rück SE Shanghai Branch,
(2,707)
1,258
145,992
129,902
254,702
Manama/Bahrain
(26,442)
34,762
710,849
710,352
Paris/France
Hannover Rück SE Succursale Francaise,
2,895
Hannover Rueck SE Bahrain Branch,
2 Branch is in liquidation.
12.31
(456)
Toronto/Canada'
Energi of Canada Ltd.,
289
1,021
USD
28.50
Peabody/USA?'
Energi Insurance Services, Inc.,
(1,437)
20,168
USD
28.50
Peabody/USA7
Energi, Inc.,
1,092
28.50
10,433
CAD
(559)
Peabody/USA 14
E Claims Management. Inc.,
(69)
160
USD
28.50
Hamilton/Bermuda 4,7
account 2006-03 SCC,
Hurst Holme Insurance Company Limited -
749
22,264
USD
28.50
Wilmington/USA'
Energi RE, LLC,
42
USD
30.00
Guayaquil/Ecuador
Clarendon Transport Underwriting Managers (Pty) Ltd.,
4,014
98,161
EUR
34.88
Trento/Italy?
ITAS Vita S.p.A.,
Associated companies
234
284
SEK
53.00
17
Stockholm/Sweden
(185)
Johannesburg/South Africa'
26.11
ZAR
17,431
Reaseguradora del Ecuador S.A.,
Other participations
(2,036)
(2,849)
ZAR
14.36
1
28.50
Johannesburg/South Africa
(30)
126
ZAR
26.11
Johannesburg/South Africa'
Clarenfin (Pty) Ltd,.
12,782
Vela Taxi Finance (Pty) Ltd.,
(364)
USD
162
20.00
Hamilton/Bermuda 18
Monument Re Limited,
USD
20.00
George Town/Cayman Islands 18
Monument Finco Limited,
I
USD
20.00
Hamilton/Bermuda 18
Monument Midco Limited,
USD
20.00
Hamilton/Bermuda 18
USD
Monument Insurance Group Limited,
Inlife Holding (Liechtenstein) AG,
15.00
USD
14.82
Hamilton/Bermuda 7, 10, 21
Somerset Reinsurance Ltd.,
Wilmington/USA 1,8, 10
Sureify Labs, Inc.,
36,776
38,776
CHF
15.00
Zurich/Switzerland 1,9, 20
Life Invest Holding AG,
7,450
10,713
CHF
Triesen/Liechtenstein 9, 19
92,352
57,248
EUR
in currency units of 1,000
Result for the
last financial
reserves
in %
Capital and
Currency
Participation
Name and registered office of the company
Hannover Re | Annual Report 2016
USD
28.50
USD
28.50
E-Risk Solutions, Inc.,
Peabody/USA 18
Peabody/USA 18
year
E-Technology Services. Inc,.
Peabody/USA 18
28.50
20.11
St. Helier/Jersey¹
Meribel Midco Limited,
20,543
2,490
EUR
20.11
E-Marketing Strategies, Inc.,
St. Helier/Jersey¹
191
148
GBP
21.00
Solihull/United Kingdom 1. 16
David Edwards Insurance Brokers Limited,
USD
Meribel Topco Limited,
In addition, other companies belonging to the Hannover Re
Group maintain further branches in New Zealand, Canada and
Bahrain that both individually and collectively are to be classi-
fied as immaterial to the Group.
164
Hannover Re | Annual Report 2016
reserves
Result for the
last financial
year
158
Hannover/Germany
1,2
100.00
EUR
Capital and
2,341,925
Hannover/Germany1
1,2
100.00
EUR
1,873,188
HILSP Komplementär GmbH,
Hannover/Germany³
100.00
Hannover Life Re AG,
Currency
Participation
in %
N 11
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.
National provisions of company law or requirements of super-
visory law may in certain countries limit the ability of the
Hannover Re Group to transfer assets between companies
belonging 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.
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 liabil-
ities and commitments".
Hannover Re | Annual Report 2016
157
Annual financial statements
List of shareholdings
The following list of shareholdings is provided in the present
Group annual financial report in accordance with § 313 Para. 2
German Commercial Code (HGB). In the year under review, in
the context of initial application of the provisions amended by
the Accounting Directive Implementing Act (BilRUG), all com-
panies were included in this list in which shares are held with
the intention of serving the investor's own business interests
through creation of a lasting relationship. Previously applica-
ble participation thresholds no longer apply. The number of
companies to be listed in the Group annual financial report has
List of shareholdings
Name and registered office of the company
in currency units of 1,000
Domestic companies
Affiliated consolidated companies
91.20
Johannesburg/South Africa 1
Hannover Rück Beteiligung Verwaltungs-GmbH,
consequently increased slightly. The stipulations of IFRS 12.10
and IFRS 12.21 have also been observed.
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.
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.
EUR
33
3
International Insurance Company of Hannover SE,
GmbH & Co. KG,
Hannover/Germany'
95.42
EUR
237,381
40,194
HAPEP II Holding GmbH,
Hannover/Germany'
95.42
EUR
6,010
909
Hannover Re Global Alternatives GmbH & Co KG,
Hannover/Germany¹
94.72
EUR
41,628
2,852
Hannover Re Euro PE Holdings GmbH & Co. KG,
Hannover America Private Equity Partners II
Information on the non-controlling interests in shareholders'
equity and profit or loss as well as on the major non-con-
trolling 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 pro-
tective rights in favour of non-controlling interests.
(1)
EUR
Hannover/Germany 1,2
100.00
EUR
165,845
Hannover Insurance-Linked Securities GmbH & Co. KG,
Hannover/Germany³
100.00
EUR
20,388
53
FUNIS GmbH & Co. KG,
Hannover/Germany1
100.00
EUR
75,123
3,875
HR Verwaltungs-GmbH,
Hannover/Germany¹
100.00
12
10
Compass Insurance Company Limited,
7
PLN
(22)
Abroad
(27)
U FOR LIFE SDN. BHD.,
Petaling Jaya/Malaysia'
60.00
(6,177)
87.67
(5,487)
Sydney/Australia'
Svedea Skadeservice AB,
55.00
Hannover Re | Annual Report 2016
166
on worldwide natural catastrophe business as well as aviation
and marine risks. Of the total volume of the “K Cession", a large
part equivalent to EUR 384.4 million (EUR 304.0 million) was
securitised via structured entities 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 trans-
action. Hannover Re also uses further segregated accounts of
Kaith Re Ltd. and other structured entities outside the Group
for various retrocessions of both its traditional and ILS covers,
which in each case 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 altogether EUR 1,844.7 million
(EUR 1,872.6 million) as at the balance sheet date. The struc-
tured 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 loss for Hannover Re.
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) - includ-
ing for third-party investors outside the Group. In addition,
a portfolio of such securities is also managed by Hannover
Insurance-Linked Securities GmbH & Co. KG, Hannover. The
volume of these transactions is derived from the book values of
the respective investments and amounted to EUR 70.3 million
(EUR 108.3 million) as at the balance sheet date. The maximum
risk of loss corresponds to the book values.
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 and
South America, Europe and Asia, involves a quota share cession
HMIA Pty Ltd,
Warsaw/Poland¹
odpowiedzialnoscia,
Dowset Investments Spólka z organiczona
6
Germany
Companies included at equity
Total
Abroad
Germany
Consolidated companies (Group companies)
Number of companies
Scope of consolidation
Information on subsidiaries
Group, the scope of consolidation of the Hannover Re Group
encompasses the companies listed in the table below.
In addition to Hannover Rück SE as the parent company of the
4.2 Consolidated companies and complete list of shareholdings
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
the Group were also eliminated.
Transactions between a disposal group and the continuing
operations of the Group were similarly eliminated in accord-
ance with IFRS 10.
99.65
EUR
365
102
The catastrophe bond (CAT bond) Eurus III was issued by Han-
nover Re for the purpose of transferring to the capital market
peak natural catastrophe exposures deriving from European
windstorm events. The CAT bond, which had a volume of nom-
inally EUR 100.0 million and a maturity date of 31 March 2016,
was placed by Eurus III Ltd., a special purpose entity domiciled
in Hamilton/Bermuda. The structured entity was fully funded
by contractually defined investments in the form of cash and
equivalent liquid assets. Given that the maximum liability of
the structured entity was therefore wholly collateralised, there
was no risk of loss for Hannover Re. The transaction had ended
as at the balance sheet date.
Retrocession and securitisation of reinsurance risks
The securitisation of reinsurance risks is largely structured
through the use of structured entities.
MYR
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.
•
.
•
Structured entities are entities designed in such a way that
voting 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 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
Total
N 10
2016
Investing activities and 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 3,239.4 million (EUR 2,893.3 million) as at the bal-
ance sheet date. The maximum risk of loss corresponds to the
book values.
21
25
65
66
86
91
2
3
4
•
Restricted activities;
2015
without subordinated financial support;
A narrow and well-defined business objective;
Insufficient equity to allow it to finance its activities
Unconsolidated structured entities
Annual financial statements
165
Hannover Re | Annual Report 2016
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 contractu-
ally required to do so.
general account of Kaith Re Ltd. and is contractually respon-
sible for the fees due to external service providers that are to
be covered from the general account's own funds. Each indi-
vidual 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 par-
ticular 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 "Consolida-
tion principles". Within the Hannover Re Group the require-
ment 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 involve-
ment of third parties and those in which we enter into contrac-
tual relations with an already existing structured entity with or
without the involvement of third parties. Consolidation deci-
sions are reviewed as necessary and at least once a year. The
list of all consolidated structured entities forms part of the list
of shareholdings.
-
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
LI RE is a segregated account of Kaith Re Ltd., the purpose of
which - as with all segregated accounts under Kaith Re Ltd. - is
the securitisation of underwriting risks. In contrast to the other
segregated accounts, the sole investor and hence the risk car-
rier of LI RE is the Hannover Re Group through its subsidiary
Leine Investment SICAV-SIF, Luxembourg.
LI RE, Hamilton, Bermuda
•
Kaith Re Ltd., Hamilton, Bermuda
•
The following structured entities were consolidated as at the
balance sheet date:
Kaith Re Ltd. is a so-called segregated accounts company
(SAC), the sole object of which is the securitisation of rein-
surance 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 seg-
regated 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.
Consolidated structured entities
Financing in the form of multiple contractually linked
instruments issued to investors that create concentra-
tions of credit or other risks (tranches).
Prepaid reinsurance premium
Unearned premium reserve
Loss and loss adjustment expense reserve
Liabilities
Accrued interest and rent
Accounts receivable
Deferred tax assets
Deferred acquisition costs
Reinsurance recoverables on unpaid claims
Reinsurance payable
Other assets
Provisions for pensions
Other liabilities
1,395
1.5.2016
4,845
1,116
13,699
2,629
2,733
3,313
2,903
440
2,583
Cash and cash equivalents
Hannover Re | Annual Report 2016
Net assets
Investments in associated companies
Assets and liabilities of the acquired business
Fixed-income securities - available for sale
Short-term investments
85,778
Reinsurance recoverables on unpaid claims
Prepaid reinsurance premium
Accounts receivable
Total assets
Liabilities
Reinsurance payable
Total liabilities
Retrocession:
securitisations and
ILS transactions
398,113
49,037
7,558
3,239,417
70,291
454,708
241,597
241,597
Hannover Re | Annual Report 2016
167
Annual financial statements
712,434
Other invested assets
390,207
Real estate and real estate funds
Collateralised fronting (ILS)
As part of its extended Insurance-Linked Securities (ILS)
activities, Hannover Re has concluded so-called collateralised
fronting arrangements under which risks assumed from ceding
companies are passed on to institutional investors outside the
Group using structured entities. The purpose of such trans-
actions is to directly transfer clients' business. The volume
of the transactions is derived from the ceded exposure limit
of the underlying retrocession agreements and amounted to
EUR 4,914.2 million (EUR 4,701.0 million) as at the balance
sheet date. Part of the ceded exposure limit is funded and col-
lateralised by contractually defined investments in the form of
cash and equivalent liquid assets, while a further part remains
uncollateralised or is collateralised by less liquid assets. The
maximum risk of loss from these transactions is derived from
the uncollateralised exposure limit and the credit risk of the col-
lateral and amounted to EUR 2,860.6 million (EUR 2,779.9 mil-
lion) 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 (EUR 50.0 million).
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:
Book values from business relations with unconsolidated structured entities
N 13
in EUR thousand
Assets
Fixed-income securities - held to maturity
31.12.2016
Book values from business relations with unconsolidated structured entities
General investing
activities
bonds (ILS)
996
Fixed-income securities - loans and receivables
11,870
Fixed-income securities - available for sale
1,782,279
Fixed-income securities - at fair value through profit or loss
70,291
Equity securities - available for sale
255,853
Investment
in catastrophe
Equity securities - available for sale
Assets
General investing
activities
N14
Retrocession:
securitisations and
ILS transactions
137,892
29,869
188
2,893,251
108,273
167,949
32,256
32,256
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.
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.
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”.
168
Hannover Re | Annual Report 2016
4.3 Major acquisitions and new formations
On 10 May 2016 Hannover Re acquired all the shares in the
company The Congregational & General Insurance Public Lim-
ited Company (CGI), Bradford, UK, through its subsidiary Inter-
national Insurance Company of Hannover SE, Hannover. The
purchase price of the shares amounted to EUR 11.3 million.
Along with the company, Hannover Re also acquired its 25%
stake in Integra Insurance Solutions Limited, Bradford, UK.
In total, therefore, Hannover Re holds all the shares through
various subsidiaries.
The business was included in the consolidated financial state-
ment for the first time as at 1 May 2016. For the purposes of
initial consolidation and in accordance with appropriate meas-
urement methods, the fair values of the acquired assets and
assumed liabilities were to some extent established on the
basis of assumptions and estimations. The assumptions and
estimates that had been made were put into concrete terms as
at the balance sheet date, and initial consolidation was there-
fore finalised within the measurement period.
The assets and liabilities of the acquired business as at the date
of initial consolidation are as follows:
N 15
in EUR thousand
Assets
Total liabilities
Reinsurance payable
Liabilities
Total assets
31.12.2015
Investment
in catastrophe
bonds (ILS)
968
Fixed-income securities - loans and receivables
16,357
Fixed-income securities - available for sale
1,628,911
Fixed-income securities - at fair value through profit or loss
Fixed-income securities - held to maturity
108,273
139,745
Real estate and real estate funds
371,254
Other invested assets
717,253
Short-term investments
18,763
Reinsurance recoverables on unpaid claims
Prepaid reinsurance premium
Accounts receivable
Equity securities - available for sale
in EUR thousand
342,793
35,768
Consolidation
1.1.-31.12.2015
Life and health reinsurance
7,149,023
1.1.-31.12.2016
Hannover Re | Annual Report 2016
174
914,727
949,891
Group net income
58,198
51,337
Non-controlling interest in profit or loss
Total
thereof
112
1,001,228
368,383
339,064
1,341,308
1,340,292
Net income before taxes
Taxes
Interest on hybrid capital
Operating profit/loss (EBIT)
1,341,308
1,340,292
(35,900)
(39,720)
Net income
1.1.-31.12.2016
1.1.-31.12.2015
1.1.-31.12.2016
(88)
50
23,702
1,665,093
1,550,420
10,958
10,603
709,173
638,898
14,593,042
14,417,615
913
181
6,492,412
6,432,387
17,068,663
16,353,622
7,730,690
7,149,068
(195)
45
195
(45)
17,068,663
16,353,622
(195)
45
7,730,885
1.1.-31.12.2015
Other income and expenses
26,066
201,962
Administrative expenses
Gross written premium
in EUR thousand
Segment statement of income
Consolidated segment report as at 31 December
Annual financial statements
173
Hannover Re | Annual Report 2016
54,437,468
53,788,055
659,480
794,709
3,053,628
3,113,072
thereof
1,798,337
1,489,853
(829,559)
1,490,840
(696,723)
1,747,491
24,287,181
1,659,712
22,091,679
1,390,006
1,216,036
(178)
786
735,027
539,581
4,682,484
4,298,343
4,678,036
1,804,218
From insurance business with other segments
From insurance business with external third parties
Net premium earned
1,849,059
1,975,912
other technical income/expenses
Commission and brokerage, change in deferred acquisition costs and
Change in benefit reserve
5,616,450
5,330,662
20,162
24,031
851
35,556
75,997
2,452
Claims and claims expenses
Income/expense on funds withheld and contract deposits
Total depreciation, impairments and appreciation of investments
Change in fair value of financial instruments
thereof
944,962
900,919
8,099,717
7,985,047
9,337,973
9,204,554
9,337,973
1.1.-31.12.2015
9,204,554
1.1.-31.12.2016
Property and casualty reinsurance
Net investment income
199,380
4,301,971
901
177
2,705,587
7,039,131
7,512,169
2015
2016
N17
Europe
Other
France
United Kingdom
Germany
Regional origin
in EUR thousand
2,959,291
Investments
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
175
Hannover Re | Annual Report 2016
63,988
1,150,725
1,171,229
(53,591)
(31,547)
289,589
The following table shows the regional origin of the invest-
ments under own management.
1,834,876
1,605,671
6,850,690
176
39,346,903
41,793,495
Total
334,691
1,723,958
403,407
1,916,401
4,781,572
4,645,649
2,352,170
2,435,296
2,429,402
2,210,353
Other
Africa
Australasia
Australia
Asia
14,138,753
15,924,716
North America
1,613,473
1,783,517
Other
12,525,280
14,141,199
USA
18,367,929
18,903,322
6,763,836
252,885
31
55,197
3,860
(704)
192
197,254
201,973
2,924,139
3,008,298
2
2
1,075,078
1,032,384
101,157
80,512
34
67,122
22
80,490
11,075,407
10,811,325
370
5,458,957
5,480,293
395,033
332,149
374,871
308,118
38,098
76,028
2,365
101,123
35,919
(4,409)
(3,703)
456,207
1,214,713
1,226,426
(53,591)
(31,547)
295,379
256,745
391,229
(21,889)
(34,357)
109,713
86,522
84,316
1,670,920
1,617,655
(75,480)
(65,904)
405,092
343,267
71,693
84,316
71,693
1,755,236
1,689,348
8,836
5,789
405,092
343,267
(3,684)
398,512
401,545
22,993
5,790
1,265,035
972,925
839,675
2,167,691
1,334,802
2,130,342
1,115,251
15,086
39,098,511
696,406
758,429
6,860
3,590
162,529
133,858
Total assets
Assets held for sale
Other assets in the segment
Accounts receivable
Deferred acquisition costs
36,804,360
Reinsurance recoverables on other reserves
Reinsurance recoverables on unpaid claims
31,365,692
1,070,380
33,691,185
1,250,770
Total investments
497
(105)
Contract deposits
1,284,958
1,263,533
Funds withheld
30,080,237
32,427,757
Total investments and cash under own management
Reinsurance recoverables on benefit reserve
Prepaid reinsurance premium
Segmentation of liabilities
in EUR thousand
Liabilities
1
29,490,807
30,901,667
Total liabilities
2,135,696
2,150,083
Other liabilities in the segment
308,484
313,378
Long-term liabilities
655,157
675,669
4,448
(3,628)
425,360
456,877
119,668
127,865
3,019,217
3,171,056
Reinsurance payable
Contract deposits
Funds withheld
Provisions for contingent commissions
Unearned premium reserve
Benefit reserve
22,822,777
24,010,367
Loss and loss adjustment expense reserve
638,305
Adjusted pursuant to IAS 8 (cf. section 3.1)
579,112
244,817
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 operating deci-
sion maker to decide upon the allocation of resources to a seg-
ment and evaluate its performance, Hannover Re has identified
the reportable segments of property & casualty reinsurance and
life & health reinsurance. With regard to the object of business
operations within the two segments please see the correspond-
ing remarks in the management report.
5. Segment reporting
Hannover Re | Annual Report 2016
170
Hannover Re (Ireland) Limited, the change of legal form took
place effective 8 December 2016. This change has no implica-
tions for the business operations of the company or for the net
assets, financial position or result of operations of the Group.
The Irish Companies Act 2014 requires all insurance companies
to change their legal form to a Designated Activity Company
(DAC). In the case of the Group company Hannover Re (Ire-
land) Designated Activity Company, Dublin, Ireland, formerly
4.5 Other corporate changes
Within the US subgroup Hannover Re Real Estate Holdings,
Inc., the special purpose property company 300 South Orange
Avenue, LLC, Orlando, was liquidated in December 2016. The
property previously held by the company had already been
sold at the end of 2014.
quarter of 2016 and since then the company has been recog-
nised as a participating interest at amortised cost. The expense
resulting from deconsolidation was in a negligible amount.
Following the sale of the property that it held and repatriation
of the capital in the previous year, Oval Office Grundstücks
GmbH, Hannover, ceased its business operations. Against
this backdrop, the measurement of the company at equity was
discontinued on materiality grounds with effect from the first
Atlantic Capital Corporation, Wilmington, which was owned
by Hannover Finance, Inc., Wilmington, was liquidated on
22 December 2016. Deconsolidation had no effect on income.
4.4 Major disposals and retirements
Within the 95.1%-owned US subgroup Hannover Re Real
Estate Holdings, Inc., the special purpose property companies
101BOS LLC and 3290ATL LLC, both of which have their regis-
tered office in Wilmington, were established via the subsidiary
GLL HRE Core Properties, LP, for the purpose of real estate
acquisition. Altogether, an amount of roughly EUR 114.0 mil-
lion was invested in this connection.
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.
statements, was therefore consolidated as a subsidiary from
the first quarter of 2016 onwards. Derecognition of the assets
and liabilities and measurement of the previous shares at fair
value gave rise to an expense of EUR 0.7 million that was rec-
ognised in investment income. In addition, cumulative other
comprehensive income from currency translation amounting to
EUR 1.2 million was realised. A purchase price of EUR 5.6 mil-
lion was paid for the acquisition of the remaining shares. In
the context of the purchase price allocation, the calculation
of the fair values of acquired assets and assumed liabilities
undertaken for the purposes of initial consolidation gave rise
to goodwill of EUR 5.4 million.
169
Hannover Re | Annual Report 2016
Effective 8 January 2016 Funis GmbH & Co. KG ("Funis"), a
wholly owned subsidiary of Hannover Rück SE, increased its
interest in the share capital of Glencar Underwriting Manag-
ers Inc. ("Glencar”), Chicago, USA, from 49% to 100% and
thereby acquired control of the company. Glencar, which had
previously been included at equity in the consolidated financial
The gross written premium of the assumed business from
the date of initial consolidation until the balance sheet date
amounted to EUR 1.7 million. For the same period net income
of EUR 0.8 million was booked from the assumed business.
This does not include the other operating income resulting
from reversal of the negative goodwill.
This non-recurring item from the transaction is accounted for
in the consolidated statement of income under other operat-
ing income. The negative goodwill resulted primarily from the
limitation of the revaluation of the assumed pension provisions
to the amount that was to be recognised in accordance with
IAS 19 as required by IFRS 3.26.
In view of the fact that the fair values of the recognised, iden-
tifiable assets, liabilities and contingent commitments exceed
the acquisition costs associated with the transaction, the capital
consolidation gave rise to negative goodwill of EUR 10.5 mil-
lion which was recognised immediately in income in accord-
ance with the requirements of IFRS 3.34.
21,871
13,897
1,163
1,353
2,047
4,926
4,408
Annual financial statements
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.
During the financial year no material changes occurred in the
organisational structure that could have influenced the compo-
sition of the segments. Since the performance indicators used
to steer the segments correspond to the system according to
which the consolidated financial statement is prepared, a sepa-
rate reconciliation of the segment results with the Group result
is not provided.
Both The Congregational & General Insurance Public Limited
Company (CGI), Bradford, UK, Glencar Underwriting Managers
Inc., Chicago, USA, and the special purpose property compa-
nies 101BOS LLC and 3290ATL LLC, both of which have their
registered office in Wilmington, USA – which were consolidated
for the first time in 2016 - and Oval Office Grundstücks GmbH,
Hannover, and 300 South Orange Avenue, LLC, Orlando, USA -
which were deconsolidated - are allocated to the property and
casualty reinsurance segment.
259,598
Short-term investments
3,236,748
3,391,140
Other invested assets
110,836
73,352
Financial assets at fair value through profit or loss
452,108
905,307
Equity securities - available for sale
21,779,850
24,337,185
1,234,073
2,539,270
31.12.20151
N 16
31.12.2016
Property and casualty reinsurance
Fixed-income securities - available for sale
Fixed-income securities - loans and receivables
Fixed-income securities - held to maturity
Assets
in EUR thousand
Segmentation of assets
Consolidated segment report as at 31 December
Annual financial statements
171
Hannover Re | Annual Report 2016
Cash and cash equivalents
172
810,256
2,807,317
Life and health reinsurance
(190)
(52)
1,498,436
1,547,740
2,094,671
2,198,089
1
1,398,264
1,439,660
8,687
12,231
164,023
134,927
3,678,030
(23)
8,641
1,069
1,367,173
1,189,420
1,367,173
1,189,420
1,395,281
1,506,292
(614)
(194)
325,515
255,716
53,337,352
1,517
1,827
3,665,937
723,648
675,435
Hannover Re | Annual Report 2016
777,196
325,528
362,390
205,860
234,525
3,159,363
3,340,651
140,146
169,595
12,206,699
10,289,854
26,556,388
28,129,418
(614)
(22)
(194)
3,734,225
12,206,721
10,289,854
4,119,245
63,214,938
63,528,602
(551,155)
(574,562)
26,961,733
15,086
1,181,814
1,157,268
(828,423)
(681,631)
53,637,259
278,094
25,004,653
21,693,566
148,584
297,582
37,748
224,230
452,108
905,307
29,616,448
2,869,865
1,007,665
484,955
2,563,594
32,182,173
238,445
13,099
7,598,153
210,413
7,831,889
33,519
8,117
163,890
134,045
31.12.20151
31.12.2016
31.12.20151
31.12.2016
31.12.20151
Total
Consolidation
107,315
31.12.2016
24,324
109,574
62,548
177
188,604
70,677
170,505
188,107
170,610
13,801,845
11,673,259
12,516,887
19,838,759
39,346,903
41,793,495
278,094
107,315
8,988,572
9,258,423
10,409,726
848,667
3,346,499
820,995
565,899
839,122
13,490
800
838,987
3,672,230
267,623
177,537
1,932
5,153
1,084,739
2,572,827
2,866,629
3,827,843
due after three through four years
2,820,187
3,748,106
3,841,259
3,803,539
3,829,675
due after four through five years
3,134,627
3,190,102
3,915,469
11,588,659
11,351,605
due after five through ten years
2,624,891
due after two through three years
2,869,865
3,889,262
706,009
858,523
9,449,584
Total
2,563,594
2,894,369
3,229,099
3,915,448
Available for sale
4,470,510
4,479,500
4,088,058
4,096,488
due after one through two years
3,382,457
3,404,847
due in one year²
9,659,645
due after four through five years
4,234,143
53,432
53,432
due after three through four years
9,828
9,828
19,841
19,841
7,881
2,979
Total
239,917
239,917
108,982
108,982
1 Including accrued interest
543,506
2,979
7,881
due after two through three years
19,027
4,498,831
3,253,590
3,482,398
33,141,635
33,869,827
30,886,535
31,522,182
Financial assets at fair value
through profit or loss
due in one year
11,698
11,698
13,703
13,703
due after one through two years
210,510
210,510
19,027
due after more than ten years
Total
483,097
90,601
1,035,482
30,907
92,480
96,765
due after three through four years
35,083
40,284
28,933
28,500
31,692
140,256
162,586
35,024
40,966
due after five through ten years
48,276
54,398
due after four through five years
due after two through three years
147,242
142,835
2 Including short-term investments, cash and cash equivalents
Maturities of the fixed-income and variable-yield securities
in EUR thousand
Held to maturity
N 18
2016
Amortised cost 1
Fair value
2015
Amortised cost 1
Fair value
due in one year
144,327
145,003
516,518
523,403
due after one through two years
87,517
190,907
due after more than ten years
219,086
996
152,075
159,589
due after three through four years
228,296
247,919
200,139
219,242
198,725
due after four through five years
354,351
220,728
243,500
due after five through ten years
987,545
1,194,792
898,664
329,506
185,067
due after two through three years
289,989
311
968
323
484,955
524,090
1,007,665
1,059,477
Loans and receivables
due in one year
209,243
210,524
411,608
422,774
due after one through two years
140,840
144,552
280,642
due after more than ten years
Total
Hannover Re | Annual Report 2016
5,477,206
Annual financial statements
239,917
108,566
416
239,917
108,566
416
239,917
239,917
108,982
108,982
Other financial assets
Derivatives
57,665
39,602
57,665
39,602
Fair value
Total
57,665
57,665
39,602
39,602
297,582
148,168
416
297,582
148,584
181
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 57.7 million (EUR 39.6 million) that are originally alloca-
ble to this item as well as fixed-income securities amounting
to EUR 239.9 million (EUR 109.0 million) designated in this
category. The increase in this item is largely attributable to a
structured bond that was acquired in connection with a retro-
cession treaty in the area of life and health reinsurance.
Analysis of the fair value changes in the portfolio of fixed-in-
come securities at fair value through profit or loss indicated
that fair value reductions of EUR 2.2 million were attributa-
ble to a changed credit risk. In the previous year no fair value
changes were due to changes in credit risks.
Carrying amounts before impairment
Hannover Re | Annual Report 2016
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.
Accrued interest
2015
139,745
416,353
40,734
4,979
452,108
1,084,739
1,585
1,084,739
Total
30,481,893
261,541
952,874
281,472
31,153,295
Fair value before
accrued interest
1
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.
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
N25
in EUR thousand
Financial assets at fair value
through profit or loss
Fixed-income securities
Corporate securities
2016
2015
2016
2015
2016
Adjusted pursuant to IAS 8 (cf. section 3.1)
14,001
For further information please see the explanatory remarks
in section 8.1 "Derivative financial instruments and financial
guarantees".
2016
Total
39,176,542
46,172
36,957,958
11,345
1 Adjusted pursuant to IAS 8 (cf. section 3.1)
For further explanatory remarks on the impairment criteria
please see section 3.2 “Summary of major accounting policies”.
182
Hannover Re | Annual Report 2016
Rating structure of fixed-income securities
in EUR thousand
Fixed-income
N27
2016
6,694
AAA
A
BBB
BB
B
C
Other
Total
securities -
held-to-maturity
303,675 118,989
52,291
10,000
484,955
Fixed-income
AA
N26
1,922,482
2,170,696
20151
in EUR thousand
Fixed-income securities -
held to maturity
Fixed-income securities -
loans and receivables
Carrying amount
before impairment
Impairment
Carrying amount
before impairment
Impairment
484,955
1,010,030
2,365
2,563,594
15,342
2,869,865
available for sale
32,182,862
689
29,616,845
397
Short-term investments
838,987
1,084,739
Equity securities - available for sale
935,448
30,141
453,997
1,889
Participating interests and other invested
assets, real estate funds
Fixed-income securities -
125,744
312,363
4,979
156,406
16,659
113,265
42,546
31,453,981
259,405
1,050,529
322,337
2,843,317
155,811
32,182,173
Equity securities
Shares
Investment funds
554,419
212,293
26,666
766,712
5,079
649,454
255,853
5,079
905,307
Short-term investments
838,987
2,367
838,987
Total
33,059,680
261,772
1,194,203
327,416
100,114
43,560
143,674
33,926,467
2,703,570
securities
2,402,598
16,815
167,294
11,931
US Treasury notes
6,791,606
23,616
19,277
148,893
2,557,961
6,661,990
Other foreign government
debt securities
2,310,277
19,932
Investment funds
21,163
2,300,857
Debt securities issued by
semi-governmental entities
5,259,815
41,765
254,479
37,088
Corporate securities
11,872,850
130,611
389,364
77,183
12,185,031
Covered bonds/asset-backed
30,583
180
Hannover Re | Annual Report 2016
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
236,064
11,728
Corporate securities
11,911,422
140,011
320,712
168,280
4,660,805
12,063,854
Covered bonds/asset-backed
securities
2,599,092
27,919
147,909
19,549
41,568
2,727,452
107,603
33,096
1,444
28,980,801
259,956
912,140
276,493
139,255
29,616,448
Equity securities
Shares
Investment funds
Short-term investments
290,609
26,733
Investment funds
4,436,469
semi-governmental entities
Debt securities issued by
in EUR thousand
Available for sale
Fixed-income securities
Government debt securities
N24
20151
Amortised
cost including
accrued interest
thereof
accrued interest
Unrealised
gains
Unrealised
losses
Fair value
of EU member states
2,394,804
19,460
135,191
3,849
2,135,412
38,766
25,602
18,299
2,148,576
debt securities
securities loans
Other foreign government
32,877
13,566
12,699
5,382,835
US Treasury notes
2,526,146
5,363,524
and receivables
1,729,470 454,311 175,440 176,365
25,213
securities -
at fair value through
profit or loss
Equity securities -
available-for-sale
Other financial
assets at fair value
through profit or loss
-- - 5,061
709
103,212
108,982
-- - 333,222
118,886
- - 452,108
Other invested assets
9,045
1,670,086
1,265
181,058 1,207,972 29,616,448
2,592
10,032
10,441
39,602
3,346,499
Short-term
investments, cash
Total
86,202
2,009,534
22,175 407,697
325,441
62,564
490,382 99,771
411,502 1,905,734
967,972 687,356 12,121,298 3,247,532 18,392,435 290,861 1,629,915 39,346,903
The maximum credit risk of the items shown here corresponds
to their carrying amounts.
29,292
1,653,348
Associated companies
15,131,219
1,923,332 886,984
2015
in EUR thousand
AUD
CAD
CNY
EUR
GBP
USD
ZAR
Other
Total
Fixed-income
securities -
held to maturity
191,808 7,042,147 3,051,928
Fixed-income
and receivables
58,813
628,496
80,673
239,683
- - 1,007,665
87,851 2,107,800
47,801
626,413
- - 2,869,865
securities -
Fixed-income
available-for-sale
Fixed-income
securities - loans
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
•
WeHaCo Unternehmensbeteiligungs-GmbH,
Hannover, Germany,
263
113
Net book value after currency translation
128,271
154,935
Disposals
6,395
33,952
Profit or loss on investments in associated companies
9,101
19,169
Dividend payments
Change recognised outside income
Currency translation at 31 December
Currency translation at 1 January
Net book value at 31 December of the year under review
14,713
(9,087)
2,407
(99)
114,633
162
128,008
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.
Real estate
Real estate is divided into real estate for own use and third-
party use (investment property). Own-use real estate is recog-
nised under other assets.
The investment property in the portfolio which is used to gen-
erate income is shown under the investments. Income and
expenses from rental agreements are included in the invest-
ment income.
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 18.5 million (EUR 21.9 million).
For further details please see Section 4 "Consolidation".
Real estate is valued at cost of acquisition less scheduled depre-
ciation with useful lives of at most 50 years.
186
Hannover Re | Annual Report 2016
7,158
154,822
128,008
Net book value at 31 December of the previous year
HANNOVER Finanz GmbH, Hannover, Germany,
ITAS Vita S.p.A., Trento, Italy,
as well as the following companies included at equity within
the subgroup Hannover Reinsurance Group Africa (Pty) Ltd.,
Johannesburg, South Africa:
•
•
Clarendon Transport Underwriting Managers (Pty)
Ltd., Johannesburg, South Africa,
Clarenfin (Pty) Ltd., Johannesburg, South Africa,
Vela Taxi Finance (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".
Hannover Re | Annual Report 2016
185
Annual financial statements
The following table shows combined financial information on
the Hannover Re Group's individually non-material investments
in associated companies.
Financial information on investments in associated companies
N31
in EUR thousand
2016
2015
2015
2016
in EUR thousand
N32
Investments in associated companies
The carrying amount of the investments in associated compa-
nies changed as follows in the year under review:
N30
21,576
2,407
(9,087)
Group share of income and expense recognised directly in equity
Group share of total recognised income and expense
19,169
9,101
Group share of net income from continuing operations
14
Fair value
Breakdown of investments by currencies
184
Other
Total
594,316 218,555 136,257
58,537
1,007,665
and receivables
1,869,317 551,144 184,580 157,506
82,178
4,925
20,215
2,869,865
Fixed-income securi-
ties available-for-sale 12,270,732 5,002,570 5,971,866 5,329,934
806,651 114,680
C
6,258
Fixed-income
securities -
at fair value through
profit or loss
54,033
8,982
45,967
108,982
Total fixed-income
securities
14,734,365 5,772,269 6,292,703 5,545,977 942,862 128,587
6,258
179,939 33,602,960
The maximum credit risk of the items shown here corresponds
to their carrying amounts.
Hannover Re | Annual Report 2016
183
113,757 29,616,448
Annual financial statements
B
BBB
2,795 2,563,594
Fixed-income securi-
ties - available-for-sale 14,222,049 5,011,396 5,466,586 6,114,696
921,352 151,673
3,251
291,170 32,182,173
Fixed-income
securities -
at fair value through
profit or loss
44,042
195,875
239,917
Total fixed-income
securities
BB
16,255,194 5,584,696 5,694,317 6,301,061
3,251
489,840 35,470,639
Rating structure of fixed-income securities
in EUR thousand
Fixed-income
securities -
held-to-maturity
Fixed-income
securities loans
N28
2015
AAA
AA
A
990,607 151,673
Breakdown of investments by currencies
in EUR thousand
Fixed-income
at fair value through
profit or loss
Equity securities -
available-for-sale
Other financial
assets at fair value
through profit or loss
213,432
474,201
58,519
372,587
239,917
905,307
Other invested assets
securities -
6,198
1,695,019
1,910
45,804
1,964,905
143
7,955
57,665
2,441 3,672,230
Short-term
investments, cash
94,924
25,678 100,026
219,013
90,994
475,326
Total
2,144,355 1,208,193 479,848 12,640,843 2,903,797 20,190,306
152,809 528,884 1,687,654
363,383 1,862,770 41,793,495
5,520
202,476 1,331,445 32,182,173
7,853,948 2,660,674 16,556,245
364,631
securities -
N29
2016
AUD
CAD
CNY
EUR
GBP
USD
ZAR
Other
Total
Fixed-income
held to maturity
securities loans
19,192
359,148
2,049,431 1,163,323
Fixed-income
available-for-sale
securities -
Fixed-income
- - 2,563,594
Hannover Re | Annual Report 2016
500,318
2,006,831
15,191
and receivables
484,955
61,689
44,926
41,254
Unrealised
losses
26,485
accrued interest
65
65
20,139
Debt securities issued by
semi-governmental entities
219,019
6,503
225,522
Corporate securities
92,070
1,521
7,635
81
99,624
Covered bonds/asset-backed
securities
430,608
9,255
35,808
645
465,771
Total
1,007,665
19,930
52,545
733
20,074
1,059,477
debt securities
165,594
82,827
689
524,090
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
in EUR thousand
Investments held to maturity
N20
2015
Amortised
cost including
accrued interest
thereof
accrued interest
Unrealised
gains
Unrealised
Fair value
losses
Fixed-income securities
Government debt securities
of EU member states
163,206
4,126
2,395
7
US Treasury notes
82,688
646
139
Other foreign government
The carrying amount of the portfolio held to maturity is arrived
at from the amortised cost plus accrued interest.
178
Hannover Re | Annual Report 2016
679,282
39,394
336,120
5,345
2,894,369
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value
N22
in EUR thousand
Loans and receivables
Debt securities issued by
semi-governmental entities
Corporate securities
Covered bonds/asset-backed
securities
Total
2015
Amortised
cost including
accrued interest
thereof
accrued interest
Unrealised
gains
Unrealised
losses
Fair value
1,595,127
26,617
177
93,537
10,334
585,745
2,563,594
383,608
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value
N21
in EUR thousand
Loans and receivables
Debt securities issued by
semi-governmental entities
Corporate securities
Covered bonds/asset-backed
securities
Total
2016
Amortised
cost including
accrued interest
39,824
thereof
Unrealised
gains
Unrealised
losses
Fair value
1,609,907
25,638
225,273
3,701
1,831,479
367,942
3,422
17,310
1,644
accrued interest
9,522
4,317
Total
484,955
101,457
12,968
806,131
1,839,060
482,479
4,732
18,604
907,560
5,906
1
243,934
Unrealised
gains
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.
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.
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
N 19
468,607
2016
2,869,865
363,995
thereof
Amortised
cost including
accrued interest
2016
N23
of EU member states
Government debt securities
Fixed-income securities
45,491
Available for sale
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
Annual financial statements
179
Hannover Re | Annual Report 2016
The carrying amount of the loans and receivables is arrived at
from the amortised cost plus accrued interest.
3,229,099
4,761
in EUR thousand
in EUR thousand
28
thereof
of EU member states
60,967
1,147
1,195
4
62,158
US Treasury notes
9,694
165
2
9,696
Debt securities issued by
semi-governmental entities
85,877
1,247
3,915
89,792
Corporate securities
91,683
1,522
8,732
100,415
Covered bonds/asset-backed
securities
236,734
5,441
25,980
Amortised
cost including
accrued interest
262,029
Government debt securities
Fixed-income securities
685
Investments held to maturity
Fair value
Unrealised
losses
Unrealised
gains
accrued interest
1
101.35
104.25
103.15
105.35
106.20
109
80
.93.27
90
100
105.65
110
Highs and lows of the Hannover Re share
in EUR
8
The Hannover Re share started 2016 at a price of EUR 105.65.
The poor performance of stock markets early in the year, driven
in particular by uncertainties surrounding the global economy,
was also reflected in the development of the Hannover Re share.
This was exacerbated by the ongoing intensely competitive
environment in the reinsurance industry. The share continued
to slide until mid-February, touching its lowest point of the
year on 11 February 2016 at EUR 84.12. On the back of broadly
more positive market sentiment and the publication of another
record result for the financial year just ended, this negative
trend reversed itself and the share posted steady price gains
until 14 April 2016 - the date on which it reached its high
for the year of EUR 106.20. In the months that followed the
price was impacted by an elevated burden of large losses in
the second quarter, causing the share to trend modestly lower.
In the third quarter the share moved sideways. Towards year-
end the share climbed slightly again, bolstered by favourable
Group net income after nine months and a positive expectation
for the result of the full 2016 financial year. In a protracted, rela-
tively low interest rate environment the attractive dividend yield
of the Hannover Re share also played a significant part here.
The Hannover Re share closed the 2016 financial year down
2.7% at EUR 102.80; it thus recorded a performance of 2.1%
including reinvested dividends in a stock market year shaped
by a high degree of political and global economic uncertainties.
Over the year the Hannover Re share thus performed some-
what more poorly than its benchmark indices, namely the DAX
(+6.9%), MDAX (+6.8%) and the Global Reinsurance (Perfor-
mance) Index (+16.5%) - although it should be noted that the
considerably stronger performance of the Global Reinsurance
Volatile development of the
Hannover Re share
The MDAX turned in an almost parallel performance: having
opened the year at 20,775 points, it fell to its lowest point of
the year (17,595 points) in early February. The ensuing roller-
coaster ride left the index at 22,189 points after twelve months
with a gain of 6.8%. The Dow Jones fared considerably more
positively to close the year up 15.3% at 20,330 points.
-
After the pleasing returns enjoyed in 2015, German blue chips
suffered their worst trading start in over 15 years right out
of the gate on the first day of 2016 with a fall of 4.3%. The
downward slide was triggered by poor economic data out of
China as well as the expiry of holding periods for equities that
had been imposed there in the summer of 2015 on account
of stock market turmoil. Taken together with renewed trading
suspensions on the Chinese stock market, the terrorist attack
in Istanbul and fears of deflation in the Eurozone, this caused
the DAX to touch its low for the year as early as 11 February at
8,753 points. A number of issues prompted heightened anxiety
on the German stock exchange as the year progressed, leading
to sometimes marked price volatility: the UK's possible with-
drawal from the European Union which was confirmed by
the result of the referendum on 24 June –, terrorist attacks in
Brussels and Nice, political unrest in Turkey and speculation
about the outcome of the US presidential election. From the
third quarter onwards the mood became increasingly more
settled, enabling the German DAX bellwether index to close
out the year at 11,481 points with a gain of 6.9%.
Stock markets influenced by political
and global economic uncertainties
Proposed dividend of EUR 3.50 plus special dividend of EUR 1.50 per share
above the strategic payout ratio
Share performance of 2.1% including reinvested dividends
101.90
Dec
100.70
97.63
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
- Monthly average
Feb
Jan
70
84.12
86.80
89.35
89.36
91.33
92.65
93.29
96.04
97.81
99.21
94.06
99.42
95.85
96.27
The Hannover Re share
For our investors
Quotations
Retrocessions
Jürgen Gräber
Dr. Michael Pickel
Sven Althoff
2012
2013
2014
We are a preferred business partner
2015
2016
€
€
EUR 5.00
2016
Our vision: Long-term success
in a competitive business
Excellent solutions for our business partners constitute the basis for strengthening
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.
We are passionate about reinsurance and chart our own course. We are quick,
flexible and undogmatic 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.
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
•
•
•
•
•
We have ambitious profit and growth
targets
Sven Althoff
7
Specialty Lines Worldwide
Marine
2
Business Group
Coordination of Property & Casualty
Insurance-Linked Securities
Continental Europe
Hannover Re | Annual Report 2016
Market and Direct Business
Facultative Reinsurance
•
• North America
United Kingdom, Ireland, London
•
Structured Reinsurance and
Catastrophe XL (Cat XL)
•
Target Markets in Property & Casualty
Reinsurance
Credit, Surety and Political Risks
•
Aviation
•
Worldwide Treaty Reinsurance
Global Reinsurance
Jürgen Gräber
Run-Off Solutions
Group Legal Services
Dr. Michael Pickel
•
Highs and lows (closing prices)
Based on the year-end closing price of EUR 102.80, Hannover
Re's market capitalisation totalled EUR 12.4 billion at the end
of the 2016 financial year, a decrease of EUR 0.3 billion or
2.7% compared to the previous year's figure of EUR 12.7 bil-
lion. According to the rankings drawn up by Deutsche Börse AG,
the company placed seventh in the MDAX at the end of Decem-
ber with a free float market capitalisation of EUR 6,169.8 million
and thirteenth with a trading volume of EUR 3,827.4 million
over the past twelve months.
Relative performance of the Hannover Re share
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
public offering
Increase in free
float to 49.8%
through second
Conversion to no-par-value
registered shares
1:3 stock split
2004
Market capitalisation: EUR 1,084 million
30 November 1994
Initial public offering on
adjusted for 1:3 stock split
1
1994-2016¹
Share price performance
Talanx AG
50.2%
Institutional
investors
(including
BlackRock, Inc.
3.1%)
41.6%
2016
49.8%
Private investors
8.2%
Issue price EUR 38.35 (DM 75)
2005
2006
2007
74.61
Earnings per share (basic and diluted)
9.71
Dividend per share
Cash flow per share
Return on equity (after tax) 5
2011
2010
2009
Market capitalisation: EUR 12,397 million
31 December 2016
Closing price: EUR 102.80
2006
EUR 1.60
€
Dividend per share
ww
"In three of the eight years from 2001 to
2008 we were unable to pay a dividend
owing to the volatility of our results. As
the new Chief Executive Officer, I there-
fore considered it important to reduce
volatility and restore a consistent, at-
tractive dividend payment. These goals
were successfully achieved in the years
that followed."
Market capitalisation
€
EUR 1.1 billion
1994
12% Annual
as at 31 December 2016
total shareholder
return incl.
dividends
€
Chief Executive Officer
Ulrich Wallin
EUR 12.4 billion
2016
All-time high: EUR 111.50
2 December 2015
EUR 14.2 billion
Value creation
since IPO incl.
dividends
Shareholding structure
30
offering took place on 30 November
5.7%
4.5%
4.9%
Proposed dividend
3
Xetra daily closing prices from Bloomberg
2
1 Adjusted pursuant to IAS 8
9
Price-to-cash flow (P/CF) ratio
Price/earnings (P/E) ratio
Price-to-book (P/B) ratio7
Dividend yield
15.4%
15.0%
14.7%
14.7%
62.61
48.83
8.17
7.43
50.02
7.04
3.00 +1.254
4.8%
3.00
19.33
25.75
16.01
18.45
21.87
13.7%
2.60+0.404
Book value per share
5.1%
1.6
Hannover Re's initial public
1994
1994
25%
Free float
For our investors
11
Hannover Re | Annual Report 2016
9 Year-end closing price/cash flow (from operating activities) per share
Year-end closing price/earnings per share
8
Year-end closing price/book value per share
7
Dividend per share/year-end closing price
6
5 Earnings per share/average of book value per share at start and end of year
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
1.2
1.3
1.2
10.6
11.1
9.2
1.4
8.4
5.3
4.1
4.7
3.4
2.7
Dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, EUR 3.25 plus special dividend of EUR 1.50 for 2015,
8.4
Hannover Re | Annual Report 2016
6,032.5
7,550.8
50.2% Talanx AG
I11
At the end of November 2016 an analysis of the company's
shareholding structure was carried out. It determined that the
geographical breakdown of the shares held by institutional
investors is as follows:
Geographical breakdown of the shares
held by institutional investors
112
Sustainability reporting
In the year just ended Hannover Re again provided informa-
tion about its 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 struc-
tured reporting format, which was published for the fifth year
in succession, the company's sustainability performance was
also assessed by the rating agency Oekom Research; its above-
average fulfilment of industry-specific requirements was con-
firmed with the award of "Prime" status. Hannover Re also
retained its place in the worldwide FTSE4Good Index Series
in the financial year just ended.
3.7% Switzerland
3.8% France
3.9% Benelux
4.1% Scandinavia
4.2% Asia
10.0% Canada
13.8% United Kingdom
1.2% Rest of Europe
0.7% Rest of world
0
32.6% United States
Analysts assess Hannover Re share
more favourably and further increase
price target
In total, around 270 analyst studies were published on Han-
nover Re and the insurance sector in the 2016 financial year.
By the end of the year 34 analysts had handed down opinions
on Hannover Re: 10 analysts (3) recommended the Hannover
Re share as “buy” or “overweight”. Altogether 17 opinions (8)
were a "hold", making this the most common. "Underweight"
or "sell" recommendations were issued a total of 7 (21) times.
10
10
Hannover Re | Annual Report 2016
Overall, then, the analysts assessed Hannover Re and the share
performance more favourably than in the previous year. This
development is particularly pleasing in view of what is still a
relatively superior valuation measured against peer companies.
Basic information
Securities identification number
International Securities Identification Number (ISIN)
840 221
The analysts' average price target also moved in a positive
direction in the year under review, increasing further from
EUR 91.88 at the start of the financial year to EUR 101.34 at
year-end.
DE 000 840 221 5
113
Ticker symbols
22.0% Germany
41.6% Institutional
investors
(including BlackRock,
Inc. 3.1%)
8.2% Private investors
Shareholding structure as at 31 December 2016
in %
200
150
100
мили
50
2014
Hannover Re share (including dividend) DAX MDAX
2015
Global Reinsurance Index
2016
Index can be attributed in particular to positive exchange rate
effects from the translation of the US dollar. The Global Rein-
surance Index tracks the share performance including dividend
payments of the world's 20 largest reinsurers. Hannover Re
measures its performance by this benchmark index.
In a three-year comparison the Hannover Re share delivered
a performance (including reinvested dividends) of 89.7%. It
therefore once again clearly outperformed the DAX (20.2%),
MDAX (33.9%) and Global Reinsurance Index (78.1%) bench-
mark indices.
Offer an attractive value proposition that makes us the preferred
business partner for our clients
With a book value per share of EUR 74.61 the Hannover Re
share showed a price-to-book (P/B) ratio of 1.38 at the end of
the year under review; compared to the average MDAX P/B
ratio of 2.04 as at year-end the share thus continues to be very
moderately valued.
Proposed dividend again includes
payment of a special dividend
The Executive Board and Supervisory Board intend to propose to
the Annual General Meeting on 10 May 2017 that a dividend of
EUR 3.50 plus a special dividend of EUR 1.50 per share should
be distributed. In keeping with the previous year, the special div-
idend will be paid as a capital management measure because the
Our share register showed some 41,000 shareholders (37,000)
at the end of the year. The largest shareholders as at year-end
were Talanx AG with 50.2% and the asset manager BlackRock,
Inc. with a reported 3.05% of the voting rights. Of the remain-
ing shares outstanding, by far the bulk - at 38.5% - were held
by institutional investors such as banks, insurers and invest-
ment companies (42.0%); private investors held 8.2% (7.8%).
Our shareholders include investors who pay particularly close
attention to sustainability criteria.
Shareholding structure
Complementing these activities, we held Hannover Re's 19th
Investors' Day on 20 October 2016. Around 40 analysts and
institutional investors assembled in London to engage in an
intensive exchange of views with members of the Executive
Board. On the occasion of the company's fiftieth anniversary,
the Executive Board took the opportunity to review the com-
pany's evolution into one of the world's foremost reinsurance
groups with a presentation of selected key figures. It also set
out the reasons why reinsurance demand will continue to grow
in future and described how the company intends to share in
this growth. Discussions relating to the risk profile and the
capitalisation under Solvency II also featured on the agenda,
as did the implications of the protracted low interest rate envi-
ronment for strategic capital management and a presentation
of the growth opportunities in the North American property and
casualty reinsurance market. In common with many of our other
IR events, the Investors' Day is broadcast live on our website.
Against the backdrop of political and economic uncertain-
ties and the continued intensely competitive market environ-
ment in reinsurance, Hannover Re experienced further strong
demand for information from capital market players in 2016.
We use primarily roadshows and investor conferences in order
to initiate or maintain as well as consolidate our dialogue with
institutional investors. Altogether, members of the Executive
Board and representatives of the Investor Relations department
attended 14 international capital market conferences (previous
year: 16) and 19 roadshows (19). The focus of our efforts was
on the financial centres of Europe and North America.
Strong presence on the capital market
For our investors
Bloomberg
110
Hannover Re | Annual Report 2016
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 on 10 May 2017 in
Hannover.
In his address to shareholders Chief Executive Officer Ulrich
Wallin took the opportunity to mark the company's fiftieth anni-
versary by profiling its historical development on the basis of
selected key figures. He then looked back on the 2015 financial
year, which had closed with a new record profit for Hannover
Re of EUR 1.15 billion. The two business groups of Prop-
erty & Casualty and Life & Health reinsurance as well as very
good investment income all contributed to this successful per-
formance. In light of this good result and the company's very
healthy capitalisation, the shareholders accepted the proposal
of the Executive Board and Supervisory Board that a gross divi-
dend of EUR 4.75 per share should be paid. The payout took
the form of a dividend of EUR 3.25 per share and a special
dividend of EUR 1.50 per share, with the special dividend to
be considered a capital management measure. This proposal,
together with all other proposed resolutions put to the vote, was
approved by the Annual General Meeting by a large majority.
The Annual General Meeting of Hannover Rück SE was held
on 10 May 2016 at Hannover Congress Centrum (HCC). Alto-
gether, including postal ballots around 81% of the share cap-
ital was represented.
Annual General Meeting looks back on
50 years of company history and a fourth
consecutive record profit
company's capitalisation continues to be comfortably in excess
of the required capital. Based on the year-end closing price of
EUR 102.80, this produces a dividend yield of 4.9%.
9
Thomson Reuters
ADR
HNR1
73.81
58.88
52.42
37.355
106.20
111.50
75.92
64.34
59.81
Year-opening price²
105.65
74.97
62.38
58.96
38.325
Year-ending price²
102.80
8,068.3
8,997.2
Rück SE in EUR million
Equity attributable to shareholders of Hannover
7,110.4
7,522.8
84.12
9,041.2
12,397.4
Market capitalisation at year-end in EUR million
58.96
62.38
74.97
105.65
12,741.1
5,888.4
120.6
120.6
HNRGn
HVRRY
Exchange listings
Germany
United States
Market segment
Index inclusion
First listed
Number of issued shares (as at 31 December 2016)
Common shares (as at 31 December 2016)
Share class
Xetra, Frankfurt, Munich, Stuttgart, Hamburg, Berlin, Düsseldorf, Hannover
(official trading: Xetra, Frankfurt and Hannover)
American Depositary Receipts (Level 1 ADR program; 2 ADR = 1 share)
Prime Standard
MDAX
30 November 1994
120,597,134
EUR 120,597,134.00
120.6
120.6
20121
2013
2014
2015
120.6
2016
Annual high²
Annual low²
Number of shares in million
in EUR
Key figures
No-par-value registered shares
114
Foster customer relationships to both parties' mutual benefit
irrespective of the size of the account
3.50+1.50 3,4
We aim for successful employees
• Optimise the overall cost of capital
8
7
We ensure low costs through an
efficient organisational set-up
•
3
We use information technology to achieve
a competitive advantage
Information and communication systems assure optimal support
for business processes in light of cost/benefit considerations
capital model, solvency regulations, etc.) are met
9
•
•
Ensure conformity with all legal requirements
Encourage sustainable actions with respect to all stakeholders
Support considered and pragmatic principles of corporate govern-
ance and recognise their central role in guiding our activities
10 We strive for Performance Excellence
and continuous improvement
Ensure the rigorous derivation of strategic objectives across
all areas of the company
66.90
9.54
3.25 +1.504
We are committed to sustainability,
integrity and compliance
Ensure that requirements for equity resources (economic
Ensure a lower expense ratio than our competitors
capitalisation
quantitative risk management
Ensure protection of capital through
•
We manage risks actively
5
cost of capital
Ensure protection of capital through
qualitative risk management
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
•
•
•
-
For our investors
Offer attractive workplaces
We maintain an adequate level of
6
22,575
674,389
271,391
296,951
8,533
8,921
28,707
27,234
96,986
Other
Total
680,543
Other receivables
Fixtures, fittings and equipment
Tax refund claims
66,736
67,171
Own-use real estate
82,152
58,129
Of this, other assets of EUR 3.9 million (EUR 4.6 million) are
attributable to affiliated companies.
The item "Other" includes receivables of EUR 209.0 million
(EUR 194.7 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".
48,712
53,440
Cumulative depreciation at 31 December of the previous year
131,700
136,053
Gross book value at 31 December of the year under review
598
4,352
131,102
2015
Currency translation at 1 January
Gross book value at 31 December of the previous year
in EUR thousand
N48
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios
Present value of future profits (PVFP) on acquired life reinsurance portfolios
The other receivables include items of EUR 0.2 million (previ-
ous year: none) that were overdue by between three and twelve
months but unadjusted as at the balance sheet date.
87,303
Insurance for pension commitments
52,088
Currency translation at 1 January
N46
Capitalisation rates
The following capitalisation rates and growth rates were rec-
ognised for the individual cash-generating units:
growth rates that are considered realistic in light of the spe-
cific market environment. The risk-free basic interest rate is
determined, where possible, using corresponding yield curve
data from the respective national banks. If this data cannot be
obtained or can only be obtained with a disproportionately high
effort, reference is made to the yields of the respective 30-year
government bonds. Both the yield curves and the government
bonds reflect the current interest rate trend on financial mar-
kets. The selection of the market risk premium is guided by the
current recommendations 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. The
foreign exchange rates used for currency translation correspond
to the situation on the balance sheet date.
For the purposes of the impairment test, the goodwill was allo-
cated to the cash-generating units (CGUs) that represent the
lowest level on which goodwill is monitored for internal man-
agement purposes. In the instances of goodwill recognised as
at the balance sheet date, the CGUs are the respective business
units/legal entities. The recoverable amount is established on
the basis of the value in use, which is calculated using the dis-
counted cash flow method. In this context, the detailed planning
phase draws on the planning calculations of the CGUs/compa-
nies covering the next five years. These planning calculations
represent the outcome of a detailed planning process in which
all responsible members of management are involved and where
allowance is made for the latest market developments affecting
the relevant entity (in relation to the sector and the economy
as a whole). 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
This item principally includes the goodwill from the acquisition
of E+S Rückversicherung AG as well as from the acquisition of
the shares of Integra Insurance Solutions Limited. Goodwill
equivalent to altogether EUR 5.4 million was added in the con-
text of the initial consolidation of Glencar Underwriting Man-
agers, Inc.
60,244
64,609
(342)
197
2,365
5,368
58,221
59,044
1
(1,200)
58,220
Capitalisation
Growth rate
rate
E+S Rückversicherung AG
Integra Insurance
Solutions Limited
Other intangible assets
78,261
76,592
Present value of future profits on acquired life reinsurance portfolios
2015
2016
in EUR thousand
N 47
47,777
Other assets
market circumstances and developments. 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. We would also
refer to our basic remarks in Section 3.2 “Summary of major
accounting policies".
Sensitivity analyses were performed in which the capitali-
sation 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 con-
text individual parameters were each varied within appropri-
ate ranges that could be anticipated in view of the prevailing
Hannover Re | Annual Report 2016
194
1.000%
7.312%
0.800%
6.000%
6.6 Other assets
1,478
Cumulative depreciation after currency translation
60,244
110,621
118,752
Cumulative depreciation at 31 December of the previous year
147,459
155,812
Gross book value at 31 December of the year under review
(100)
262
Currency translation at 31 December
196
794
993
7,848
3,281
Changes in consolidated group
Reclassifications
Disposals
Currency translation at 1 January
1,067
2,740
Cumulative depreciation after currency translation
128,578
Cumulative depreciation at 31 December of the year under review
(48)
9
Currency translation at 31 December
144
490
Changes in consolidated group
7,352
419
10,812
Reclassifications
Depreciation
7,349
2,552
Disposals
113,361
119,819
12,225
598
9,288
146,866
78,261
76,592
Net book value at 31 December of the year under review
82,390
78,261
Net book value at 31 December of the previous year
53,439
59,461
Cumulative depreciation at 31 December of the year under review
(1,057)
200
Currency translation at 31 December
5,186
4,343
Amortisation
49,310
54,918
Hannover Re | Annual Report 2016
195
Annual financial statements
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.
148,749
Gross book value after currency translation
3,078
1,290
Currency translation at 1 January
143,788
147,459
Gross book value at 31 December of the previous year
Additions
2015
in EUR thousand
N49
Fixtures, fittings and equipment
Benefits" they were carried as a separate asset at fair value
as at the balance sheet date in an amount of EUR 87.3 million
(EUR 82.2 million).
The period of amortisation amounts to altogether 30 years. For
further information please refer to our explanatory notes on
intangible assets in Section 3.2 “Summary of major account-
ing policies".
Fixtures, fittings and equipment
Effective 1 July 2003 Hannover Rück SE took out insur-
ance for pension commitments. The commitments involve
deferred annuities with regular premium payment under a
group insurance policy. In accordance with IAS 19 "Employee
Insurance for pension commitments
2016
2015
2016
Net book value at 31 December of the year under review
57,894
1,458,792
4,287,558
11,224
4,288,576
1,388,656
Total
Level 3
12,242
1,388,656
Level 2
4,276,334
Level 1
2015
N41
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
69,118
5,746,350
1,969,384
1,969,384
1,969,384
Net book value at 31 December of the previous year
in EUR thousand
N42
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 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.
Hannover Re | Annual Report 2016
192
Fair value hierarchy of financial assets and liabilities measured at amortised cost
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
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.
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 198 et seq. as well as the remarks in the
risk report on page 73 et seq.
6.4 Technical assets
The contract deposits on the assets side decreased by
EUR 18.1 million in the year under review from EUR 188.6 mil-
lion to EUR 170.5 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 decrease in funds withheld was attributable prin-
cipally to partial withdrawals for specific underwriting years
in relation to our UK single premium business.
The funds withheld totalling EUR 11,673.3 million
(EUR 13,801.8 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)
1,969,384
SFAS 60 requires that acquisition costs be capitalised as assets
and amortised in proportion to the earned premium.
1,977,801
1,977,801
1,977,801
Fixed-income securities
in EUR thousand
Fair value hierarchy of financial assets and liabilities measured at amortised cost
Annual financial statements
191
Hannover Re | Annual Report 2016
level 3 with a volume of EUR 190.8 million (EUR 79.4 million)
relate to investments, the valuation of which is based inter
alia 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 expe-
rience of an underlying group of primary insurance contracts
with statutory reserving requirements. The application of alter-
native 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 2,044.6 million (EUR 1,846.7 million) as at the
balance sheet date, Hannover Re measures financial assets
with a volume of EUR 1,853.8 million (EUR 1,767.3 million)
using the net asset value method, in respect of which alterna-
tive inputs within the meaning of the standard cannot reason-
ably be established. The remaining financial assets included in
Real estate and real estate funds
(5,851)
of investments
Total depreciation, impairments and appreciation
17,771
8,131
Thereof attributable to financial instruments included in
the portfolio at 31 December of the year under review
Change in fair value of financial instruments
(5,852)
(842)
Total depreciation, impairments and appreciation
of investments
(842)
Currency translation at 1 January
Other invested assets
Long-term debt and subordinated capital
1,977,801
5,070,336
1,691,454
3,378,882
110,776
96,821
13,955
1,541,101
Total financial assets
3,418,459
3,364,927
Total
Level 3
Level 2
Level 1
2016
N40
Total financial liabilities
53,532
1,541,101
118,752
Net book value after currency translation
Additions
35,992
40,468
Cumulative value adjustments at 31 December of the year under review
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
14,855
10,319
10,892
15,533
Utilisation
Reversal
23,565
30,602
38,174
35,718
(4,047)
(274)
42,221
35,992
3,718,498
3,701,929
40,468
35,992
Currency translation at 31 December
Additions
Net book value after currency translation
Currency translation at 1 January
Net book value at 31 December of the previous year
in EUR thousand
N45
provisions”. With regard to the credit risks resulting from tech-
nical assets we would also refer the reader to our comments
on page 90 et seq. of the risk report.
2015
Development of goodwill
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
Annual financial statements
193
Hannover Re | Annual Report 2016
3,665,937
3,678,030
Net book value of accounts receivable at 31 December of the year under review
In accordance with IFRS 3 "Business Combinations" scheduled
amortisation is not taken on goodwill. Goodwill was subject to
an impairment test.
2016
Value adjustments
Cumulative value adjustments after currency translation
2,094,671
6,480
11,894
2,198,089
498,666
525,581
600,389
614,050
1,327
The age structure of the accounts receivable which were unad-
justed but considered overdue as at the balance sheet date is
presented below.
71,870
1,986,468
2,094,671
1,728
2015
2016
2,096,399
For further explanatory remarks please see Section 3.2 "Sum-
mary of major accounting policies".
Net book value at 31 December of the year under review
Currency translation at 31 December
Amortisations
1,914,598
Changes in the consolidated group
Age structure of overdue accounts receivable
Accounts receivable
Currency translation at 1 January
Cumulative value adjustments at 31 December of the previous year
in EUR thousand
N44
Value adjustments on accounts receivable
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.
in EUR thousand
140,600
More than
one
Three months
to one year
236,444
More than
one year
117,141
to one year
218,703
Three months
2015
2016
N43
year
Net book value at 31 December of the previous year
28,707
33,167
10
5,733
32,916
156,144
1,475,415
371,254
5,686
10
Other liabilities
Other invested
assets
Real estate
and real estate
funds
N36
2016
variable-yield
securities
Equities, equity
funds and other
securities
Fixed-income
in EUR thousand
376,940
1,508,331
161,877
(3,081)
Equities, equity
funds and other
168,943
1,653,902
390,676
10
311
7,391
(501)
Movements in level 3 financial assets and liabilities
(3,559)
78,120
25,771
383,328
84,792
(9,386)
10,646
(22,575)
14,666
250,428
variable-yield
securities
of the year under review
170,004
170,004
156,144
156,144
33,150,547
1,846,679
1,999
1,999
29,732,954
13,860
13,860
1,570,914
1,084,739
1,084,739
1,475,415
371,254
371,254
1,475,415
39,602
39,602
452,108
10
Hannover Re | Annual Report 2016
189
Annual financial statements
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.
Net book value at 31 December
of the year under review
Currency translation at 31 December
Transfers from level 3
Transfers to level 3
Settlements
Sales
Purchases
Fixed-income
shareholders' equity
recognised in the statement of income
Income and expenses
Net book value after currency
translation
Currency translation at 1 January
of the previous year
Net book value at 31 December
in EUR thousand
Movements in level 3 financial assets and liabilities
recognised directly in
452,098
securities
2015
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 2016
190
156,144
1,475,415
371,254
10
(11,665)
Net book value at 31 December
78
(2,496)
(376)
(14)
of the year under review
Currency translation at 31 December
Transfers from level 3
in EUR thousand
Total in the financial year
Ordinary investment income
Realised gains and losses on investments
214
2,924
(11,664)
(3,081)
22,575
2,924
214
23,192
Other liabilities
N38
Transfers to level 3
2016
Other invested
assets
Income and expenses from level 3 financial assets and liabilities
of investments
Total depreciation, impairments and appreciation
Change in fair value of financial instruments
Ordinary investment income
Thereof attributable to financial instruments included in
the portfolio at 31 December of the year under review
Total depreciation, impairments and appreciation
of investments
Change in fair value of financial instruments
Real estate and
real estate funds
N37
567
182,540
Net book value after currency
15,339
88,473
136,486
1,258,903
320,956
17,605
2
59
Currency translation at 1 January
8
522
of the previous year
Net book value at 31 December
funds
Other liabilities
Other invested
assets
Real estate
and real estate
translation
581
10
338,561
99,962
53,050
368,895
143,631
(41,991)
(9,679)
(17,771)
(13,829)
31,038
(921)
Sales
Purchases
shareholders' equity
recognised directly in
recognised in the statement of income
Income and expenses
151,825
1,347,376
Settlements
29,725,430
Total
Level 3
28,885
Depreciation
2,748
1,592
Disposals
47,381
72,862
Cumulative depreciation after currency translation
2,402
1,260
Currency translation at 1 January
44,979
71,602
Cumulative depreciation at 31 December of the previous year
1,374,305
1,502,800
Gross book value at 31 December of the year under review
23,750
Impairments
3,619
Appreciation
The additions to this item are attributable to the increased
investment activities of the real estate companies belonging
to the Hannover Re Group, principally due to investments in
the United States.
The fair value of investment property amounted to
EUR 1,541.1 million (EUR 1,388.7 million) as at the balance
sheet date.
1,302,703
1,015,340
1,323,560
1,402,243
978,302
1,302,703
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
3,832
71,602
Cumulative depreciation at 31 December of the year under review
190
675
Currency translation at 31 December
26
Reclassification
616
273
100,557
In terms of diversification across various real estate sectors the
focus is on office properties (78%), followed by retail prop-
erties (17%). The allocation is complemented by investments
in further sectors, including for example logistics and parking
facilities. In geographical terms, exposures are spread across
the United States (50%), Europe (excluding Germany; 29%)
as well as Germany (21%).
5,095
6,935
real estate funds
2015
Other invested
assets
Other liabilities
in EUR thousand
Total in the financial year
Realised gains and losses on investments
Change in fair value of financial instruments
(79)
(16,108)
8,131
17,771
Hannover Re | Annual Report 2016
196
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 3.2 "Summary of major accounting
policies".
28,707
27,234
Net book value at 31 December of the year under review
Real estate and
N39
Development of investment property
N33
17,969
Currency translation at 31 December
Reclassification
Disposals
314,661
119,252
Additions
1,062,721
26
1,396,422
39,440
2015
1,023,281
2016
1,374,305
22,117
Currency translation at 1 January
Gross book value at 31 December of the previous year
in EUR thousand
Gross book value after currency translation
The real estate in the investment portfolio is normally subject to
internal and external valuation by an appraiser as at the balance
sheet date. The two analyses do not differ from one another
in the methodology used, which means that the findings are
comparable at all times and on a continuous basis. Generally
speaking, the fair value of the real estate is determined using
the discounted cash flow (DCF) method, with rental income
capitalised in consideration of the associated management
costs. The valuation result is also influenced by increases and
reductions based on specific property circumstances (upkeep,
vacancies, rent divergences from the market level, etc.). The
evaluation of international real estate also draws primarily on
the discounted cash flow method. The main feature of this
method is the present value estimation of projected annual
free cash flows.
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
consideration current and future opportunity/risk profiles. In
the year under review one property was reclassified to assets
held for sale. At the time of reclassification and at the end of the
reporting period the gross book value of the property amounted
to EUR 16.6 million (previous year: none) and the cumulative
depreciation totalled EUR 1.5 million (previous year: none).
Measurement of the property in the context of classification
as a non-current asset held for sale did not give rise to an
impairment loss.
168,943
17,820
36,269,421
2,044,588
32,441,946
1,782,887
794
794
838,987
838,987
1,653,902
390,676
390,676
1,653,902
Total financial liabilities
Other liabilities
Total financial assets
Other assets
186,763
17,820
168,943
186,763
Level 2
29,691,353
34,077
Level 1
20151
1 Adjusted pursuant to IAS 8 (cf. section 3.1)
Total financial liabilities
Other liabilities
Total financial assets
Short-term investments
Other assets
Other invested assets
Real estate and real estate funds
Other financial assets
Equity securities
Fixed-income securities
in EUR thousand
N35
Fair value hierarchy of financial assets and liabilities recognised at fair value
Short-term investments
Other invested assets
Real estate and real estate funds
57,665
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.
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 55.1 million
(EUR 79.4 million).
of EUR 6.9 million (EUR 6.7 million) under cumulative other
comprehensive income.
costs were recognised as unrealised gains of EUR 70.8 mil-
lion (EUR 56.4 million) and unrealised losses of EUR 3.7 mil-
lion (EUR 1.2 million) under cumulative other comprehensive
income.
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.
Level 1: Assets or liabilities measured at (unadjusted)
prices quoted directly in active and liquid markets
•
The fair value hierarchy, which reflects characteristics of the
price data and inputs used for measurement purposes, is struc-
tured as follows:
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 val-
uation committee that meets monthly.
For the purposes of the disclosure requirements pursuant to
IFRS 13 "Fair Value Measurement”, financial assets and liabil-
ities are to be assigned to a three-level fair value hierarchy.
This item comprises investments with a maturity of up to one
year at the time of investment.
Short-term investments
The other invested assets consisted largely of participating
interests in partnerships measured at fair value in an amount
of EUR 1,463.1 million (EUR 1,396.0 million), the amortised
cost of which amounted to EUR 1,042.2 million (EUR 976.5 mil-
lion). The differences between the carrying amounts and
the amortised costs were recognised as unrealised gains of
EUR 427.8 million (EUR 426.2 million) and unrealised losses
Other invested assets
In addition, we held indirect real estate investments measured
at fair values in an amount of EUR 390.7 million (EUR 371.3 mil-
lion) in the year under review, the amortised costs of which
amounted to EUR 323.5 million (EUR 316.0 million). The
differences between the carrying amounts and amortised
Annual financial statements
187
Hannover Re | Annual Report 2016
Fair value hierarchy
(1,264)
In the financial year just ended, as in the previous year, no
investments were allocable to another level of the fair value
hierarchy.
188
57,665
Other financial assets
905,307
10
905,297
32,422,090
Total
Level 3
The following table shows the breakdown of financial assets
and liabilities recognised at fair value into the three-level fair
value hierarchy.
Level 2
32,383,487
Level 1
2016
N34
Equity securities
Fixed-income securities
in EUR thousand
Fair value hierarchy of financial assets and liabilities recognised at fair value
Hannover Re | Annual Report 2016
38,603
of the year under review
2016
131,701
8,143.5 7,729.0
59,955
1,432,703 25,139,266
74,983 1,482,466
1,507,686 26,621,732
26,571,969
1,557,449
28,129,418
Total
Deposits
1,240,032
Due after twenty years
501,536
4,983
506,519
2,597,309
128,750
1,180,077
2,726,059
989,438
71,956
1,061,394
3,935,988
224,772
4,160,760
Due after five through ten years
474,165
1,087,890
853,841
1,941,731
10,151,087
Due after ten through twenty years
1,197,415
117,231
1,080,184
gross
889,225
2,074,902
9,953,217
561,676
10,514,893
Due after one through five years
6,916,092
391,609
7,307,701
Due in one year
net
retro
gross
in EUR thousand
Benefit reserve
Loss and loss adjustment expense reserves
2015
N55
Maturities of the technical reserves
9,100,434
4,967,221
3,515
1,189,420
4,970,736
10,289,854
4,133,213
1,185,905
5,319,118
661,217
10,812,304
Due after one through five years
137,894
0.7
0.6
1.5
original loss reserve
As percentage of
(240.9)
43.0
276.3
17.7
134.8
153.0
42.3
100.6
76.1
201.2
Net run-off result
Change relative to previous year
10,272.6 10,335.9 10,540.5
9,656.1
Ten years later
9,857.3 10,058.7
Nine years later
Eight years later
Seven years later
Six years later
0.3
retro
1.0
0.1
net
retro
gross
612,059
7,274,805
358,009
7,632,814
Due in one year
net
retro
gross
in EUR thousand
Benefit reserve
Loss and loss adjustment expense reserves
2016
N54
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 3.2 "Sum-
mary of major accounting policies".
Maturities of the technical reserves
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
Maturities of the technical reserves
Hannover Re | Annual Report 2016
200
The run-off profit of altogether EUR 804.1 million in the 2016
financial year derives, as in the previous year, above all from
positive run-offs of reserves in short-tail property business
as well as in the areas of marine/aviation, motor third party
liability.
-1.1
0.2
1.5
0.8
net
448,136
441,089
1,189,420
10,289,854
Net book value at 31 December
of the year under review
11,749,415
101,157
(1,059,262)
48,216
724,360
401,304
245,745
(4,236)
12,473,775
502,461
(813,517)
43,980
10,219,316
80,512
(1,201,251)
1,857
1,371,995
116,507
(327,771)
28,689
30,546
Currency translation at 31 December
(1,529,022)
Portfolio entries/exits
197,019
Changes
11,591,311
translation
Net book value after currency
11,080,913
668,502
676,219
48,141
11,757,132
716,643
10,839,526
(620,210)
1,367,173
4,822
(615,388)
Currency translation at 1 January
12,206,699
9,100,434
of the previous year
12,206,699
The development in the year under review was influenced by
portfolio withdrawals attributable principally to partial with-
drawals from specific underwriting years in relation to UK
single premium business.
114,612
20,023
2,748,594
2,995,340
164,023
5,658
25,681
Currency translation at 1 January
3,159,363
of the previous year
Net book value at 31 December
net
N57
retro
gross
net
2015
retro
2016
gross
in EUR thousand
Development of the unearned premium reserve
Hannover Re | Annual Report 2016
202
established in accordance with the information supplied by
ceding companies. In cases where no information was received,
the unearned premium was estimated using suitable methods.
Premium paid for periods subsequent to the date of the bal-
ance 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
1,367,173 10,839,526
10,592.8 10,755.0 10,918.3 10,385.4
Net book value at 31 December
retro
20,569
1,076,414
1,126,812
55,298
1,308,536 24,092,337
86,891 1,068,624
1,395,427 25,160,961
25,400,873
1,155,515
26,556,388
Total
Deposits
1,182,110
Due after twenty years
687,735
34,890
722,625
2,414,812
112,346
2,527,158
Due after ten through twenty years
1,005,621
69,053
1,074,674
3,681,404
187,607
3,869,011
Due after five through ten years
1,284,660
790,242
1,055,845
net
5,837,840
4,474,950
gross
net
2015
retro
gross
2016
in EUR thousand
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.
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 compo-
nents. In order to ensure at all times that the originally chosen
assumptions continue to be adequate throughout the contract,
checks are made on a regular – normally annual – basis in order
to determine whether these assumptions need to be adjusted
("unlocked").
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.
The values for the first two components (interest income and
lapse rates) differ according to the country concerned, product
type, investment year etc.
The parameters used to calculate the benefit reserve are inter-
est income, lapse rates and mortality/morbidity rates.
Development of the benefit reserve
A benefit reserve is established for life, annuity, personal acci-
dent and health reinsurance contracts. Based on the duration
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.
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 liabil-
ities in property business are settled within the first ten years.
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 average maturity of the loss and loss adjustment expense
reserves was 5.1 years (5.0 years), or 5.1 years (5.0 years) after
allowance for the corresponding retrocession shares. The ben-
efit reserve had an average maturity of 10.7 years (9.9 years) -
or 12.1 years (11.8 years) on a net basis.
Annual financial statements
201
Hannover Re | Annual Report 2016
10,839,526
1,367,173
6,364,576
4,283
6,368,859
12,206,699
1,362,890
10,870.7 11,167.3 11,407.9 10,805.5 12,094.4
11,145.6 11,472.8 11,917.2 11,336.3 12,667.6 14,321.8
11,988.9 11,828.6 12,255.1 11,813.6 13,234.1 15,029.7 15,331.6
1,506,292
28,129,418
expense reserve
Loss and loss adjustment
net
N51
retro
gross
net
2015
retro
gross
2016
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
197
Hannover Re | Annual Report 2016
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.
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 item includes EUR 0.8 million (EUR 1.6 million) for self-cre-
ated software and EUR 37.3 million (EUR 31.2 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 10.1 million
(EUR 13.4 million) for purchased software and EUR 0.3 mil-
lion (EUR 1.1 million) for capitalised development costs for
self-created software.
47,777
37,462
Benefit reserve
47,777
52,088
10,289,854
3,340,651
N52
retro
gross
net
2015
retro
gross
2016
in EUR thousand
Loss and loss adjustment expense reserve
Hannover Re | Annual Report 2016
198
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.
39,312,814
2,935,164
316,841
8,687
2,995,340
164,023
25,161,107
10,839,526
1,395,281
1,367,173
26,623,126 26,556,388
9,100,434 12,206,699
3,205,724 3,159,363
350,159
325,528
39,279,443 42,247,978
1,189,420
134,927
12,231
2,842,870
362,390
42,122,313
Other technical provisions
Total
Unearned premium reserve
net
199,996
Cumulative depreciation at 31 December of the year under review
(130)
632
635
Currency translation at 31 December
Disposals
22,773
17,727
Additions
6,131
202
Changes in the consolidated group
220,517
248,056
Gross book value after currency translation
2015
220,296
221
2016
283
Currency translation at 1 January
247,773
Gross book value at 31 December of the previous year
in EUR thousand
N50
Development of other intangible assets
Other intangible assets
(1,016)
213,132
Gross book value at 31 December of the year under review
247,773
(266)
127
17,466
13,924
17
5
Net book value at 31 December of the year under review
Net book value at 31 December of the previous year
Currency translation at 31 December
Depreciation
Appreciation
174
555
Disposals
50
Changes in the consolidated group
182,937
199,641
Cumulative depreciation after currency translation
103
(355)
Currency translation at 1 January
182,834
199,996
Cumulative depreciation at 31 December of the previous year
265,220
149,257
6,266
Net book value at 31 December
26,556,388
Cumulative payments for the year in question and previous years
13,646.5 13,017.0 13,882.1 14,179.4 15,465.5 16,823.2 17,439.3 18,029.3 19,859.1 21,851.1 22,759.8
in EUR million
Loss and loss adjustment expense reserve (from balance sheet)
2016
31.12.
31.12. 31.12. 31.12. 31.12. 31.12. 31.12.
2010 2011 2012 2013 2014 2015
31.12. 31.12. 31.12.
2007 2008 2009
31.12.
2006
N53
Net loss reserve and its run-off in the property and casualty reinsurance segment
triangle). The figures reported for the 2006 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
2016 financial year for the individual run-off years.
The following table shows the net loss reserve for the property
and casualty reinsurance business group in the years 2006 to
2016 as well as the run-off of the reserve (so-called run-off
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
199
Hannover Re | Annual Report 2016
The run-off triangles provided by the reporting units are
shown after adjustment for the currency effects arising out
of translation of the respective transaction currency into the
local reporting currency. The run-off triangles of the reporting
units delivered 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 originally estimated ultimate loss corresponds to the
actual ultimate loss in the original currency, it is ensured that
also after translation 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 loss reserves con-
stituted in the previous year and the losses paid out of these
reserves is reflected in the net run-off result. In this regard,
owing to the fact that the period of some reinsurance treaties
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 financial
year or the previous year.
The total amount of the net reserve before specific value
adjustments, to which the following remarks apply, was
EUR 26,621.7 million (EUR 25,161.0 million) as at the bal-
ance sheet date.
In the year under review, as in the previous year, minimal
specific value adjustments were established and reversed on
retrocessions, i. e. on the reinsurance recoverables on unpaid
claims. On balance, therefore, cumulative specific value adjust-
ments of EUR 1.4 million (EUR 0.1 million) were recognised in
these reinsurance recoverables as at the balance sheet date.
1 Including expenses recognised directly in shareholders' equity
25,161,107
1,395,281
26,623,126 26,556,388
1,506,292
One year later
28,129,418
Two years later
Four years later
Five years later
Four years later
12,419.9 12,747.0 12,763.5 12,234.1 13,717.1 15,650.3 16,057.3 16,125.7
Three years later
Two years later
One year later
12,494.1 13,239.1 13,690.3 12,832.4 14,136.6 16,143.6 16,570.7 17,127.7 18,296.8
12,911.4 13,307.8 14,977.3 13,643.3 14,773.9 16,519.8 16,984.2 17,769.4 19,341.7 21,046.1
13,646.5 13,017.0 13,882.1 14,179.4 15,465.5 16,823.2 17,439.3 18,029.3 19,859.1 21,851.1 22,759.8
End of year
Loss and loss adjustment expense reserve (net) for the year in question and previous years plus payments made to date on the original reserve
8,308.8
Ten years later
Nine years later
7,906.7 7,515.6 7,530.0
Eight years later
7,677.4 7,222.7 7,264.6 6,957.0
Seven years later
6,942.7 6,915.5 6,604.3 7,208.4
7,400.7
Six years later
2,643.2 2,569.4 3,041.8 2,832.7 2,521.3 3,220.0 2,999.0 3,265.1 3,587.9 3,353.0
4,446.5 4,427.5 4,721.7 4,086.3 4,202.5 5,002.4 4,654.5 5,096.2 5,364.9
5,826.6 5,576.2 5,494.2 4,923.5 5,220.5 5,954.9 5,872.9 6,233.0
6,133.3 6,092.3 5,584.1 5,881.8 6,908.0 6,736.1
6,574.5 6,581.8 6,095.8 6,655.3 7,636.4
7,056.1
Five years later
6,654.7
Three years later
of the previous year
of the year under review
133,665
Less:
865,140 8,041,247
177,307 3,034,160
1,042,447 11,075,407
8,906,387
3,211,467
12,117,854
615,771 8,175,827
350,342 2,635,498
966,113 10,811,325
8,791,598
2,985,840
11,777,438
Previous years
Year under review
expenses (net) 1
Incurred claims and claims
1,432,430 23,797,798
25,230,228
25,506,881
1,432,935
26,939,816
translation
Net book value after currency
1,062,174
55,998
22,735,624
1,376,432
25,161,107 24,112,056
345,774 1,118,172
37,654
383,428
Currency translation at 1 January
1,395,281
Claims and claims expenses paid (net)
Net book value at 31 December
Year under review
Previous years
(15,333)
118,332
(9,837)
(2,425)
(12,262)
Currency translation at 31 December
(176)
176
Portfolio entries/exits
(29)
29
(3)
3
(1,250)
(3)
1,250
3
Reversal of impairments
retrocessions
Specific value adjustment for
(444,929) (2,451,389)
(619,536) (7,394,172)
(1,064,465) (9,845,561)
(231,712) (2,522,038) (2,896,318)
(659,985) (7,166,018) (8,013,708)
(891,697) (9,688,056) (10,910,026)
1,566
2,613
4,179
Changes in the consolidated group
(10,579,753)
(7,826,003)
(2,753,750)
2,599,337
108,346
N56
translation
123
40
(431)
47
39,322
(18,827)
(403)
11,501
14
137
40
10
Other changes
11,904
Employer contributions
5,084
Employee contributions and deferred
compensation
Benefit payments
Additions and disposals
Effects of plan settlements
27
382
(4,701)
(20,191)
(2)
11,605
(92)
6,839
123
(1,155)
Exchange differences
amounts included in interest income
Current service costs
3,169
4,274
Past service cost and plan curtailments
1,285
Net interest component
3,459
2,636
133
37
6,628
8,195
Change in asset ceiling
133
Recognised in cumulative other
comprehensive income
Actuarial gain (-)/loss (+) from change
in biometric assumptions
Actuarial gain (-)/loss (+) from change
in financial assumptions
21,998
(17,840)
Experience gains (-)/losses (+)
17,755
(1,034)
Return on plan assets, excluding
37
Recognised in profit or loss
10,311
(16,247)
(225)
214
150,299
180,680
150,299
In the current financial year Hannover Re anticipates contribu-
tion payments of EUR 2.4 million under the plans set out above.
The weighted average duration of the defined benefit obligation
is 17.9 (17.5) 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
Pension indexation
N 61
Parameter increase Parameter decrease
180,680
(+/- 0.5%)
(+/- 0.25%)
-15,848
1,034
6,106
20,409
-1,013
-5,818
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
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 17.9 million (EUR 20.0 million), of which EUR 7.2 mil-
lion (EUR 6.6 million) was attributable to the most signif-
icant defined contribution commitment, the contribution to
determine the longevity risk. Extending the lifespans in this
way would have produced a EUR 6.9 million (EUR 5.0 million)
higher pension commitment at the end of the financial year.
the statutory pension insurance scheme in Germany. The
other amounts recognised here result from defined contribu-
tion plans of the Group companies abroad. The 2000 pension
plan, which had also been recognised in the previous years as
a defined contribution plan, was for the first time in its entirety
no longer estimated as a defined contribution plan as at the
balance sheet date, but rather it was measured as a defined
benefit plan.
206
Hannover Re | Annual Report 2016
Net book value after currency
(+/- 0.25%)
(224)
(21,570)
Recognised pension obligations at 31 December of the financial year
Provisions for pensions
4,533
10,814
(11,174)
Position at 31 December of the
financial year
207,621
154,832
26,981
4,533
40
The plan assets consist exclusively of qualifying insurance pol-
icies as defined by IAS 19.
The actuarial gains and losses from the change in financial
assumptions for defined benefit obligations were chiefly influ-
enced in the financial year just ended by the decrease in the
discount rate compared to the previous year.
As a consequence of developments on the capital markets,
funding of the minimum adjustment to current benefits from
the surplus participation can no longer be anticipated. From a
longer-term perspective, a required excess interest share of at
least 1% p. a. can no longer be assumed. For this reason, cer-
tain pension commitments given through provident funds were
actuarially measured for the first time in the year under review
in accordance with the requirements for defined benefit plans.
The modified measurement of these pension commitments is
reflected in the rise in experience losses to EUR 17.8 million
(experience gain of EUR 1.0 million). This reclassification fur-
ther gives rise to an increase in the return on plan assets to
EUR 11.9 million (EUR 0.1 million).
40
The additions shown under the "Other changes" reflect the
acquisition of CGI in the 2016 financial year.
205
Annual financial statements
The reconciliation of the projected benefit obligations with the
recognised provisions for pensions is as follows:
Provisions for pensions
N60
2015
in EUR thousand
Projected benefit obligations at 31 December of the financial year
2016
207,621
154,832
Fair value of plan assets at 31 December of the financial year
Effect of minimum funding requirement on asset ceiling
Hannover Re | Annual Report 2016
15,533
26,981
187,034
3,205,724
3,159,363
164,023
2,995,340
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 (lia-
bility adequacy test pursuant to IFRS 4 in conjunction with loss
recognition test as per US GAAP) the anticipated future con-
tractual payment obligations are compared with the anticipated
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 addi-
tional provision.
6.8 Funds withheld (liabilities)
The funds withheld under reinsurance treaties totalling
EUR 1,234.1 million (EUR 1,265.0 million) represent the cash
and securities deposits furnished to our company by our retro-
cessionaires that do not trigger any cash flows and cannot
be realised without the consent of our retrocessionaires. The
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.
6.9 Contract deposits (liabilities)
The contract deposits on the liabilities side decreased
by EUR 384.2 million in the year under review from
EUR 4,682.5 million to EUR 4,298.3 million. The contract
deposits item on the liabilities side essentially encompasses
balances deriving from non-traditional life insurance contracts
that are to be carried as liabilities. The decrease was due prin-
cipally to partial withdrawals from specific underwriting years
in relation to UK single premium business.
134,927
6.10 Provisions for pensions and other post-employment benefit obligations
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.
Hannover Re | Annual Report 2016
203
Annual financial statements
From 1997 onwards it has been possible to obtain pension
commitments through deferred compensation. The employ-
ee-funded commitments included in the provisions for accrued
pension rights are protected by an insurance contract with HDI
Lebensversicherung AG, Cologne.
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.
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.
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.
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.
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 defined benefit plans expose Hannover Re to the follow-
ing actuarial risks:
⚫ longevity
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.
•
3,340,651
31,130
3,185,044
4,533
169,681
3,015,363
2,863,206
155,523
2,707,683
Changes in the consolidated group
4,694
3,167
1,527
Changes
Net book value at 31 December
of the year under review
156,575
186,383
259,834
3,307
Portfolio entries/exits
(9,917)
(5,919)
Currency translation at 31 December
4,255
(2,194)
(3,998)
6,449
36,323
5,193
(29,808)
currency
256,527
•
3.00
2.35
2.50
3.50
2.17
3.00
2.15
1.86
3.00
204
Hannover Re | Annual Report 2016
The movements in the net pension liability for the Group's
various defined benefit plans were as follows:
1.59
Movements in net liability from defined benefit pension plans
2016
2015
2015
2016
2015
Defined benefit obligation
Fair value of plan assets
in EUR thousand
Impact of minimum funding
requirement/asset ceiling
• interest rate
154,832
Position at 1 January of the financial year
N59
Rate of compensation increase
Pension indexation
2016
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
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.
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.
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.
pension progression
The calculation of the provisions for pensions is based upon
the following assumptions:
disablement
N58
2016
2015
Measurement assumptions
•
2.36
2.70
in %
3.62
1.65
3.60
Australia
Germany
United Kingdom
Australia
Germany
Discount rate
Ten to
twenty years
2016
Five to ten
years
years
One to five
Three
months to
one year
219,933
63,754
40,165
More than
twenty years
Total
Less than
three months
N 67
210
1
Total
Subordinated loans
No maturity
Debt
Other financial liabilities¹
65,972
985
Hannover Re | Annual Report 2016
185,234
liabilities
Net income from
assets under own
management²
Other long-term
2015
Subordinated loans
Debt
Other financial liabilities
in EUR thousand
Maturities of financial liabilities
1
494,471
494,471
997,013
996,370
Excluding minority interests in partnerships, sundry non-technical provisions and derivative financial instruments;
the maturities of the latter two items are broken down separately
24,224
186,219
283,687
106,137
24,224
643
in EUR thousand
186,935
Fixed-income securities
6,694
Short-term investments
18,659
72
18,731
At fair value through profit or loss
Fixed-income securities
3,215
110
Other financial assets
1,099
(5,684)
(260)
(25,823)
3,065
(30,408)
9,468
N68
Other invested assets
(23,525)
646
Held to maturity
192,983
342
61,646
981
2,365
60,262
Loans and receivables
Fixed-income securities
103,734
3,975
107,709
Available for sale
Fixed-income securities
733,577
170,517
397
903,697
Equity securities
2,117
114
1,889
Other invested assets
Less than
three months
211
One to five
The disclosures on capital management arising out of IAS 1
"Presentation of Financial Statements” are provided in the
"Financial position" section on page 56 et seq. of the man-
agement report, to which the reader is referred. This includes
both a presentation of our capital management objectives and
procedures and a description of our policyholders' surplus,
together with a summary of the diverse capital requirements to
which we are subject. The Solvency II regulatory framework, in
particular, gives rise to capital requirements and consequences
for capital management, which we discuss more closely in the
risk report on page 73 et seq.
The increase in the other reserves arising out of currency trans-
lation, which is recognised in equity, was attributable in an
amount of EUR 10.1 million (decrease recognised in equity
of EUR 11.9 million) to the translation of long-term debt or
loans with no maturity date extended to Group companies and
branches abroad.
The Annual General Meeting of Hannover Rück SE resolved
on 10 May 2016 that a gross dividend of EUR 4.75 per share
should be paid for the 2015 financial year. This corresponds to
a total distribution of EUR 572.8 million (EUR 512.5 million).
The distribution consists of a dividend of EUR 3.25 per share
and a special dividend of EUR 1.50 per share.
The Executive Board is further authorised, with the consent of
the Supervisory Board, to acquire treasury shares – including
through the use of derivatives - up to an amount of 10% of the
share capital. The authorisation has a time limit of 5 May 2020.
-
Conditional capital of up to EUR 60,299 thousand is available;
it can be used to grant shares to holders of bonds and/or
profit-sharing rights with conversion rights and warrants.
Authorised capital is also available in an amount of up to
EUR 60,299 thousand. Both have a time limit of 9 May 2021;
the subscription right of shareholders may be excluded with the
consent of the Supervisory Board under certain conditions. The
Executive Board is authorised, with the consent of the Super-
visory Board, to use an amount of up to EUR 1,000 thousand
of the existing authorised capital to issue employee shares.
The common shares (share capital of Hannover Rück SE)
amount to EUR 120,597,134.00. They are divided into
120,597,134 voting and dividend-bearing registered ordinary
shares in the form of no-par-value shares. The shares are paid
in full. Each share carries an equal voting right and an equal
dividend entitlement.
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.
Treasury shares
6.13 Shareholders' equity and treasury shares
Hannover Re | Annual Report 2016
The ordinary expenses principally include interest expenses of
nominally EUR 70.7 million (EUR 81.0 million) resulting from
the issued subordinated debt.
(95,446)
(82,880)
(2,630)
(207)
(92,816)
(82,673)
Annual financial statements
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 16,413 (12,922)
treasury shares during the second quarter of 2016 and deliv-
ered them to eligible employees at preferential conditions.
These shares are blocked until 31 May 2020. This transaction
resulted in an expense of EUR 0.4 million (EUR 0.3 million),
which was recognised under personnel expenditure, as well as
a negligible change in retained earnings recognised in equity.
The company was no longer in possession of treasury shares
as at the balance sheet date.
212
35.21%
Net income
(14,057)
35.21%
2015
N70
35.21%
35.21%
Hannover, Germany
E+S Rückversicherung AG,
2016
Voting rights of non-controlling interests
Participation of non-controlling interests
in EUR thousand
Subsidiaries with material non-controlling interests
Non-controlling interests in partnerships are reported in
accordance with IAS 32 "Financial Instruments: Presenta-
tion" under long-term liabilities. 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 55.2 million (EUR 64.0 million) in the year under review.
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 743.3 million (EUR 709.1 mil-
lion) as at the balance sheet date.
6.14 Non-controlling interests
Hannover Re | Annual Report 2016
(84,316)
(71,693)
(11,130)
(11,187)
Net gains and losses from debt and subordinated capital
Excluding minority interests in partnerships, sundry non-technical provisions and derivative financial instruments;
the maturities of the latter two items are broken down separately
23,319
247,010
295,106
1
55,112
23,319
246,117
39,047
893
256,058
55,112
No maturity
More than
twenty years
Five to ten Ten to twenty
years
years
years
months to
one year
in EUR thousand
Debt
Three
Subordinated loans
995,903
732
(3,362)
780
(987)
(80,954)
(70,706)
(11,862)
(11,967)
Net result
Amortisation
Ordinary income/expenses
2015
2016
2015
2016
2015
2016
N 69
493,950
995,903
493,950
Total
Other
Hannover Re | Annual Report 2016
(11,359)
2,008,821
209
Annual financial statements
Debt and subordinated capital
N66
in EUR thousand
2015
Subordinated loans
317,774
Coupon
Currency
Amortised
cost
Fair value
measure-
Accrued
interest
Fair value
ment
Hannover Rück SE, 2014
Maturity
1,218
31,020
173,583
1,804,218
12,603
591,378
Hannover Finance
(Luxembourg) S.A., 2010
5.75
2040
EUR
498,859
71,986
8,507
579,352
1,490,841
170,404
29,802
1,691,047
Debt
Total
313,377
3,179
3.375
81,264
n/a
493,950
Other long-term
liabilities
Total
308,483
6,130
in EUR thousand
1,188
315,801
Debt
1
1,798,337
171,047
30,908
2,000,292
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
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-in-
terest-rate periods are always taken as a basis.
Maturities of financial liabilities
133,367
1
585,979
1,684,490
8,484
29,720
164,917
4,025
8,668
506,643
Hannover Finance
(Luxembourg) S.A., 2012
5.00
2043
EUR
497,246
82,054
12,568
591,868
Hannover Finance
(Luxembourg) S.A., 2010
5.75
2040
EUR
498,657
78,838
1,489,853
EUR
497,511
EUR
2043
26,066
76,028
206,296
1,171,077
112,904
16,695
29,877
(2,374)
1,327,411
128,460
(245)
333
1,933
5,836
5,253
(3)
9,924
747
4,481
1 Including income from associated companies, for reconciliation with the consolidated statement of income
Excluding other investment expenses
2
Net gains and losses on investments
Total
1,272,612
135,847
26,753
38,098
17,516
134,986
901
1,371,262
1
2
Including income from associated companies, for reconciliation with the consolidated statement of income
Excluding other investment expenses
216
Hannover Re | Annual Report 2016
Impair-
ments/appre-
ciation
and losses
Realised gains
2015
1
Ordinary
investment
income
27
10
4,418
128
Coupon
Maturity Currency
Amortised
cost
Fair value
measurement
Accrued
Fair value
interest
Hannover Rück SE, 2014
3.375
n/a
EUR
494,471
17,154
8,692
520,317
Hannover Finance
(Luxembourg) S.A., 2012
5.00
Subordinated loans
155,582
2016
N65
29,884
23,985
438
90
43,159
45
43,210
27,067
10,640
151
125,892
168
98,360
80,678
11,824
269
199,626
Altogether three (three) subordinated bonds were recog-
nised as at the balance sheet date with an amortised cost of
EUR 1,490.8 million (EUR 1,489.9 million).
Debt and subordinated capital
in EUR thousand
147,794
5,240
46,956
170,004
31,387
30,908
32,579
28,819
6,475
25,155
199,626
186,763
191,711
252,336
680,396
698,933
Of this, other liabilities of EUR 7.6 million (EUR 10.4 million)
are attributable to affiliated companies.
With regard to the liabilities from derivatives in an amount of
EUR 186.8 million (EUR 170.0 million), please see our explana-
tory 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 76.9 million (EUR 84.6 million) from interests
in private equity funds that had still to be recognised in income
as at the balance sheet date.
Hannover Re | Annual Report 2016
207
223,566
2015
2016
N62
1,218,271
Net income from assets under own management
101,202
109,140
Other investment expenses
5,851
13,526
Impairments on participating interests and other financial assets
2,762
689
Impairments on fixed-income securities
6.11 Other liabilities
Other liabilities
in EUR thousand
Liabilities from derivatives
Interest
Deferred income
Direct minority interests in partnerships
Sundry non-technical provisions
Sundry liabilities
Total
Annual financial statements
1,270,060
Development of sundry non-technical provisions
Provisions for
2,511
Holiday entitlements and overtime
9,233
111
9,344
Anniversary bonuses
3,664
24
(7)
3,688
36,886
594
37,480
Other
Total
119,473
720
120,193
Management bonuses
2,518
Partial retirement arrangements and early retirement obligations
11,161
Balance at
31 December
2015
Currency
translation
at 1 January
N63
Balance at
1 January of
the year under
review
Audits and costs of publishing the annual financial statements
7,092
41
7,133
Consultancy fees
1,805
16
1,821
Suppliers' invoices
11,040
121
in EUR thousand
Interest income on funds withheld and contract deposits
Interest expense on funds withheld and contract deposits
Total investment income
453,643
462,898
7,060
21,152
Equity securities
905,183
668
161,068
744,783
Fixed-income securities
30,141
Available for sale
2,841
95,858
Fixed-income securities
Loans and receivables
23,478
(8)
23,486
Fixed-income securities
98,699
(1,929)
Other invested assets
138,302
1,588
15,177
15,177
(5,836)
(9,458)
Total
Other
Other invested assets
Other financial assets
3,622
Fixed-income securities
At fair value through profit or loss
15,449
35
15,414
Short-term investments
159,046
15,342
36,086
Held to maturity
in EUR thousand
management²
Net income from
assets under own
106,911
96,696
61,439
25,280
2015
2016
N73
Total
Financial assets - at fair value through profit or loss
Other
Fixed-income securities - available for sale
Fixed-income securities - held to maturity
Fixed-income securities - loans and receivables
in EUR thousand
Interest income on investments
These write-downs contrasted with write-ups of EUR 0.3 mil-
lion (EUR 0.6 million) made on investment property that had
been 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.
fixed-income securities. In the real estate sector EUR 3.1 mil-
lion (EUR 4.5 million) of the investments were recognised as
impaired.
The impairments totalling EUR 47.4 million (EUR 15.0 mil-
lion) were attributable in an amount of EUR 30.1 million
(EUR 1.9 million) to equities or equity funds because their
fair values had fallen either significantly (by at least 20%) or
for a prolonged period (for at least nine months) below acqui-
sition cost. Impairments of EUR 11.7 million (EUR 5.9 million)
were taken on alternative investments, thereof EUR 11.4 mil-
lion (EUR 5.9 million) on private equity. An impairment loss of
just EUR 0.7 million (EUR 2.8 million) was taken in the area of
67,865
1,665,093
1,550,420
121,494
798,618
191,711
802,858
3,215
fair value
Change in
N74
ciation
income 1
Impair-
ments/appre-
Realised gains
and losses
investment
Ordinary
2016
Net gains and losses on investments
Making allowance for the other investment expenses of
EUR 109.1 million (EUR 101.2 million), net income from assets
under own management of altogether EUR 1,218.3 million
(EUR 1,270.1 million) was recognised in the year under review.
Annual financial statements
215
Hannover Re | Annual Report 2016
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.
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
18,795
993,218
19,900
943,682
3,188
thereof attributable to non-controlling interests
1,620
The maturities of the sundry non-technical provisions as at the
balance sheet date are shown in the following table:
USA
6,606,588
6,338,176
1,776,980
1,880,892
701,380
682,894
2,759,809
4,566,467
2,532,399
1,241,991
2015
2016
N71
Europe
Other
France
United Kingdom
1,368,419
4,318,201
Other
766,434
898,001
503,754
454,514
3,958,261
1,008,059
913,780
3,330,030
3,652
2,950,202
2,416,250
Total
Other
Africa
Australasia
Australia
Asia
5,089,930
5,332,901
North America
771,729
Germany
910,130
Regional origin
Gross written premium
38,729
thereof attributable to non-controlling interests
120,000
110,000
Dividends paid
667,096
696,615
thereof attributable to non-controlling interests
42,250
1,894,706
Shareholders' equity
106,378
193,840
(41,416)
60,473
Total recognised income and expense
Income/expense recognised directly in equity
52,036
1,978,546
Assets
Liabilities
Cash flow from operating activities
premium according to regional origin.
The following table shows the breakdown of the gross written
7.1 Gross written premium
7. Notes on the individual items of the statement of income
Annual financial statements
213
Hannover Re | Annual Report 2016
(124,365)
(110,000)
(239,012)
(187,314)
358,705
293,299
9,426,790
8,649,394
11,321,496
10,627,940
Cash flow from financing activities
Cash flow from investing activities
in EUR thousand
16,353,622
17,068,663
214
Utilisation
Release
Currency
translation at
31 December
Balance at
31 December 2016
(1)
6,974
6,515
Additions
55
7,574
2,380
1,783
170
(3)
2,245
(4)
9,574
38
Changes in
consolidated group
Hannover Re | Annual Report 2016
208
Maturities of the sundry non-technical provisions
in EUR thousand
Due in one year
Due after one through five years
Due after five years
Total
N64
2016
2015
98,652
86,075
94,488
101,640
6,486
199,626
3,996
191,711
6.12 Debt and subordinated capital
On 15 September 2014 Hannover Rück SE placed a
EUR 500.0 million subordinated bond on the European cap-
ital market. The issue has a perpetual maturity with a first
scheduled call option on 26 June 2025 and may be redeemed
at each coupon date thereafter. 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.
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.
On 14 September 2010 Hannover Rück SE placed a subordi-
nated bond on the European capital market through its subsidi-
ary Hannover Finance (Luxembourg) S.A. This subordinated
debt of 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 carries 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.
15,715
521
(14)
1,889
Ordinary investment income
112,303
47,857
Other investment income
993,218
943,682
6,928
27,481
140,994
2015
2016
142,956
Interest income
Dividends
Income from real estate
in EUR thousand
N72
Investment income
7.2 Investment income
Hannover Re | Annual Report 2016
1,161,976
193,331
1,253,443
9,101
N75
30,141
Impairments on equity securities
28,212
31,966
Impairments on real estate
901
26,066
Change in fair value of financial instruments
98,618
87,721
Realised losses on investments
234,465
294,017
Realised gains on investments
616
294
Appreciation
19,169
Profit or loss on shares in associated companies
Change in
fair value
4,268
54
71,228
Other technical/non-technical provisions
156,980
135,794
Benefit reserve
229,865
325,929
Loss and loss adjustment expense reserves
118,379
105,940
Tax loss carry-forwards
Deferred tax assets
in EUR thousand
20151
2016
N83
Deferred tax assets and deferred tax liabilities of all Group companies
The following table presents a breakdown of the deferred tax
assets and liabilities into the balance sheet items from which
they are derived.
Annual financial statements
219
Hannover Re | Annual Report 2016
456,207
391,229
(8,639)
8,632
186,898
(97,845)
82,064
67,379
55,897
195,884
Funds withheld
22,780
98,954
108,894
Other technical/non-technical provisions
124,232
149,531
Benefit reserve
55,223
215,852
Loss and loss adjustment expense reserves
Deferred tax liabilities
642,912
808,826
Total
(45,352)
(27,527)
Value adjustments²
41,680
46,841
Other valuation differences
3,196
6,787
36,748
Valuation differences relating to investments
13,989
45,183
Accounts receivable/reinsurance payable
41,907
44,434
Deferred acquisition costs
21,060
413,063
2015
2016
in EUR thousand
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 unless they refer specifically to individual
companies.
arrived at from the unchanged corporate income tax rate of
15.0%, the unchanged German solidarity surcharge of 5.5%
and a trade earnings tax rate of 16.8% (16.1%). The Group
tax rate showed a corresponding increase to 32.7% (32.0%).
The deferred taxes at the companies abroad were calculated
using the applicable country-specific tax rates.
The breakdown of actual and deferred income taxes was as
follows:
Breakdown of taxes on income
A tax rate of 32.63% (rounded to 32.7%; previous year:
31.93%, rounded to 32.0%) was therefore used to calcu-
late the deferred taxes of the major domestic companies. It is
Effective 1 January 2016 the raising of the trade tax multi-
plier for the City of Hannover from 460.0% to 480.0% was
approved.
The reader is referred to the remarks in Section 3.2 "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
Hannover Re | Annual Report 2016
218
The separate value adjustments were attributable to accounts
receivable in an amount of EUR 30.6 million (EUR 23.6 million).
(3,684)
22,993
Total
561,743
696,121
52,723
39,887
7,961
27,593
14,060
12,182
Sundry expenses
Expenses for services
Depreciation, amortisation, impairments
Actual tax for the year under review
Actual tax for other periods
Deferred taxes due to temporary differences
Deferred taxes from loss carry-forwards
N82
456,207
391,229
(4,963)
(17,995)
21,548
(2,676)
(24,905)
7,482
186,579
(76,024)
16,620
20,425
261,328
Equalisation reserve
460,017
2016
N81
Total
Abroad
Germany
Deferred taxes
Abroad
Germany
Current taxes
in EUR thousand
Domestic/foreign breakdown of recognised tax expenditure/income
Total
Value adjustments on deferred taxes
Change in deferred taxes due to changes in tax rates
2015
1,119,135
1,214,395
Funds withheld
Loss carry-forwards
Temporary differences
in EUR thousand
N86
Expiry of non-capitalised loss carry-forwards and temporary differences
Availability of loss carry-forwards that have not been capitalised:
No deferred taxes were established on liabilities-side taxa-
ble temporary differences amounting to EUR 40.2 million
(EUR 57.5 million) in connection with interests in Group com-
panies because the Hannover Re Group can control their rever-
sal and will not reverse them in the foreseeable future.
The effective tax rate amounted to 24.2% (27.3%).
Availability of non-capitalised loss carry-forwards
Unused tax loss carry-forwards and tax credits of EUR 459.4 mil-
lion (EUR 455.4 million) existed as at the balance sheet date.
Making allowance for local tax rates, EUR 109.7 million
(EUR 164.4 million) thereof was not capitalised since realisa-
tion is not sufficiently certain.
The expense for income taxes in the financial year was
EUR 65.0 million lower than in the previous year at
EUR 391.2 million (EUR 456.2 million).
456,207
6,263
2,644
391,229
(24,597)
(39,645)
Actual expense for income taxes
Other
Trade tax modifications
(4,963)
(17,995)
Value adjustments on deferred taxes/loss carry-forwards
16,117
30,435
Tax expense/income not attributable to the reporting period
(39,216)
(41,654)
Tax-exempt income
66,902
44,122
Total
One to five
years
Six to ten
years
More than
ten years
Fair values
Share price hedges
Notional values
Fair values
Currency hedges
Notional values
Fair values
Interest rate hedges
in EUR thousand
Maturity structure of derivative financial instruments
Hannover Re | Annual Report 2016
222
The maturities of the fair values and notional values of the
hedging instruments described above can be broken down
as follows:
In order to hedge the risk of share price changes in connec
tion with the stock appreciation rights granted under the share
award plan, Hannover Re has taken out hedges since 2014
in the form of so-called equity swaps. The fair value of these
instruments amounted to EUR 0.8 million (EUR 2.0 million)
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 decrease in equity from hedging instruments
recognised directly in equity in an amount of EUR 0.9 million
(increase in equity recognised directly in equity of EUR 5.9 mil-
lion); ineffective components of the hedge were recognised
in a minimal amount under other investment expenses and
income of EUR 1.1 million was realised through profit or loss.
Non-deductible expenses
Hannover Re's portfolio contained derivative financial instru-
ments as at the balance sheet date in the form of forward
exchange transactions taken out to hedge currency risks. These
transactions gave rise to recognition of other liabilities in an
amount of EUR 10.0 million (EUR 3.1 million) and other finan-
cial assets at fair value through profit or loss in an amount of
EUR 16.8 million (EUR 15.0 million). The reduction in equity
from hedging instruments recognised directly in equity pur-
suant to IAS 39 in an amount of EUR 4.9 million derived solely
from the forward exchange transactions taken out to hedge cur-
rency risks from long-term investments in foreign operations.
These hedging instruments resulted in the recognition of other
liabilities in an amount of EUR 2.3 million. Ineffective com-
ponents of the hedge were recognised in profit or loss under
other investment expenses in an amount of EUR 0.6 million.
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 3.2 "Summary
of major accounting policies” with regard to the measurement
models used.
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.
8.1 Derivative financial instruments and financial guarantees
8. Other notes
Annual financial statements
221
Hannover Re | Annual Report 2016
109,680
109,680
105,876
3,804
3,804
105,876
Total
Unlimited
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 2.5 million (EUR 3.6 million) and other
financial assets at fair value through profit or loss in an amount
of EUR 0.2 million (EUR 0.1 million).
57,986
(120,541)
Differences in tax rates affecting subsidiaries
Thereof on tax loss carry-forwards: -EUR 26,880 thousand (-EUR 44,737 thousand)
2
For the year under review expanded netting opportunities arose in the calculation of deferred taxes. The previous year's figures were restated
accordingly for the sake of comparability. There are no implications for recognition in the balance sheet.
1
1,499,222
1,434,681
Deferred tax liabilities
2,142,134
2,243,507
Total
113,144
34,044
Other valuation differences
9,783
9,574
Present value of future profits on acquired life reinsurance portfolios (PVFP)
76,859
Contract deposits
239,012
255,699
Valuation differences relating to investments
63,613
71,446
Accounts receivable/reinsurance payable
205,227
186,623
Deferred acquisition costs
18,551
15,850
The deferred tax assets and deferred tax liabilities are shown
according to their origin in the above table. Deferred taxes
resulting from a single transaction and with respect to which
the corresponding temporary valuation differences are simul-
taneously reversed were already netted on recognition. Further
Netting of deferred tax assets and deferred tax liabilities
netting was made based on the timing of the reversal of tem-
porary differences and other offsetting possibilities, ultimately
resulting in the following disclosure of deferred tax assets and
deferred tax liabilities in the balance sheet:
N84
21,548
(2,677)
534,694
528,973
32.0%
32.7%
1,670,920
1,617,655
2015
2016
Change in tax rates
Expected expense for income taxes
Group tax rate
Profit before taxes on income
(112,973)
in EUR thousand
Reconciliation of the expected expense for income taxes with the actual expense
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.
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 4.8 million
(EUR 142.8 million) was also recognised directly in equity.
Hannover Re | Annual Report 2016
433,500
1,932,722
1,499,222
1,434,681
408,292
1,842,973
2015
2016
220
Net deferred tax liabilities
Deferred tax liabilities
Deferred tax assets
in EUR thousand
N85
9,969
64,814
23,570
Currency hedges
Fair values
Notional values
Share price hedges
Fair values
Notional values
Total hedging instruments
Fair values
Notional values
A87
2016
Less than
one year
One to five years
Five to ten years
31.12.2016
(337)
(1,973)
44,918
120,414
(2,310)
165,332
10,398
(3,172)
(354)
6,872
814,730
28,534
2,093
845,357
794
Notional values
32,294
Fair values
in EUR thousand
1,290
14,594,332
14,418,085
Total net technical income
470
14,593,042
14,417,615
3,307
(29,808)
(259,834)
(156,575)
2,219,094
1,749,624
17,068,663
16,353,622
2015
2016
Other technical income
Net premium earned
Change in ceded unearned premium
Change in unearned premium
Ceded written premium
Gross written premium
in EUR thousand
N76
Reinsurance result
7.3 Reinsurance result
Fair values
Notional values
Maturity structure of derivative financial instruments
Interest rate hedges
794
32,294
10,855
do not meet the criteria for netting in the balance sheet, since
Hannover Re has no legal right whatsoever at the present
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.
Hannover Re | Annual Report 2016
223
Annual financial statements
Netting agreements
in EUR thousand
Derivative receivables
Derivative liabilities
Netting agreements
in EUR thousand
Derivative receivables
Derivative liabilities
2016
A89
Fair value
Netting
agreement
Cash
Other
Net amount
collateral
collateral
received/
received/
furnished
furnished
18,640
4,268
13,842
476
Hannover Re enters into derivative transactions on the basis
of standardised master agreements that contain global netting
agreements. The netting agreements set out below normally
The net changes in the fair value of these instruments resulted
in a charge of EUR 6.6 million to the result of the financial year
(improvement in the result of EUR 4.0 million).
924,010
10,369
(5,145)
891,942
148,948
(354)
2,093
5,356
1,042,983
N88
2015
Less than
one year
One to five years
Five to ten years
31.12.2015
(709)
83,781
(2,776)
119,813
Claims and claims expenses paid
(3,485)
8,891
655,412
2,403
561
11,855
33,122
6,396
694,930
1,999
25,486
1,999
25,486
10,181
764,679
(373)
152,935
561
6,396
203,594
9,688,056
9,845,561
Change in loss and loss adjustment expense reserve
Exchange gains
Other income
2015
2016
in EUR thousand
N80
1,348
3,997
832
1,437
2,180
5,434
2015
2016
N79
Other income/expenses
7.4 Other income and expenses
Other technical expenses (net)
Reinsurance recoverables
Other technical expenses (gross)
in EUR thousand
Other technical expenses
2,918,429
2,988,479
Commissions and brokerage, change in deferred acquisition costs (net)
3,463
3,407
(5,643)
23,661
496,755
374,351
Reversals of impairments on receivables
15,536
31,885
Separate value adjustments on receivables
35,718
35,246
Expenses from contracts recognised in accordance with the deposit accounting method
289,467
457,884
Exchange losses
80,258
26,630
Other interest expenses
Other expenses
558,059
719,114
22,245
28,033
Sundry income
43,810
30,120
Other interest income
412
2,265
Deconsolidation
2,156
26,338
Income from services
98,377
105,858
Income from contracts recognised in accordance with the deposit accounting method
10,920
42,242
Expenses for the company as a whole
(81,223)
7,927
93,827
398,512
401,545
115,935
1,348
3,997
5,652
16,292
(9,106)
20,254
97,673
89,150
3,025,208
3,057,375
101,157
80,512
Other technical expenses
Administrative expenses
Net technical result
Other acquisition costs
Change in provision for contingent commissions
Change in deferred acquisition costs
Commissions
Net change in benefit reserve
101,157
80,512
Change in benefit reserve
11,075,407
10,811,325
Claims and claims expenses
1,229,846
1,123,269
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. The administrative expenses amounted to altogether
2.8% (2.7%) of net premium earned.
Other technical income
in EUR thousand
288,093
183,454
3,313,301
3,240,829
2015
2016
N78
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
119,918
Commissions and brokerage, change in deferred acquisition costs
217
Hannover Re | Annual Report 2016
1,290
470
2,784
3,640
4,074
4,110
2015
2016
N77
Other technical income (net)
Reinsurance recoverables
Other technical income (gross)
Annual financial statements
Contract deposits
Total hedging instruments
Hannover Re | Annual Report 2016
(43,113)
738,213
36,515
628,712
23,909
158,803
21,470
149,279
(67,022)
579,410
Notional values
15,045
result
Underwriting
Premium
Underwriting
result
Premium
2015
2016
Total
Life and health reinsurance
Property and casualty reinsurance
479,433
(5,095)
(10,784)
(2,377)
487
226
contract.
Actuarial opinions with respect to the pension commitments
given to staff are drawn up for Hannover Rück SE and E+S
Rückversicherung AG by Talanx Pensionsmanagement AG
and HDI Lebensversicherung AG under an actuarial service
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 2015
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 2014 Hannover Rück SE reached an agreement with Talanx
Asset Management GmbH that allows Talanx Asset Manage-
ment GmbH to use software for checking sanctions lists.
Within the contractually agreed framework Talanx Asset Man-
agement GmbH performs investment and asset management
services for Hannover Rück SE and the vast majority of its
subsidiaries. Assets in special funds are managed by Ampega
Investment GmbH. Talanx Immobilien Management GmbH
performs services for Hannover Re under a number of man-
agement 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 secu-
rities 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 reinsurance relationships with related parties in the year
under review are shown with their total amounts in the table.
(56,453)
660,153
20,219
587,384
(13,340)
(78,060)
(16,296)
(41,328)
(10,963)
(67,276)
(11,201)
(34,237)
Business ceded
Life and health reinsurance
(7,091)
Business assumed
Derivative financial instruments in connection with reinsurance
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.
A derivative financial instrument was also unbundled from
another similarly structured transaction. This gave rise to rec-
ognition of other financial assets at fair value through profit
or loss in an amount of EUR 4.1 million (other liabilities of
EUR 3.5 million). The performance of this derivative improved
the result by EUR 7.5 million in the financial year (charge to
the result of EUR 3.6 million).
9,320
1,468
1,678
1,802
5,081
1,678
17,881
3,146
furnished
furnished
Within the scope of the accounting of "modified coinsurance"
and "coinsurance funds withheld" (ModCo) reinsurance trea-
ties, under which securities deposits are held by the ceding
companies 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 underly-
ing reinsurance arrangements. Embedded derivatives con-
sequently result solely from the credit risk of the underlying
securities portfolio.
received/
collateral
collateral
Net amount
Other
Cash
Netting
agreement
Fair value
2015
A90
Property and casualty reinsurance
received/
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
securities. The derivative had a positive value of EUR 24.6 mil-
lion (EUR 23.2 million) as at the balance sheet date and was
recognised under other financial assets at fair value through
profit or loss. In the course of the year the change in the fair
value of the derivative gave rise to income of EUR 0.5 million
before tax (expense of EUR 26.1 million).
5,214
A retrocession agreement was concluded in the financial year
in the area of life and health reinsurance, under which the
premiums are deposited with Hannover Re and invested in
a structured bond, the fair value of which has been guaran-
teed by the retrocessionaire. In accordance with the require-
ments of IFRS 4 this guarantee was to be unbundled from the
A number of transactions concluded in the life and health rein-
surance business group in previous years, under which Han-
nover Re companies offer their contracting parties coverage
for risks from possible future payment obligations arising out
of hedging instruments, are also to be classified as derivative
financial instruments. The payment obligations result from con-
tractually 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 section 6.6 "Other assets". The fair value of these
instruments was EUR 168.9 million (EUR 156.1 million) on
the balance sheet date and was recognised under other liabil-
ities. The change in value in subsequent periods is depend-
ent upon the risk experience and led to an improvement of
EUR 22.6 million (EUR 17.8 million) in investment income in
the financial
year.
N91
For the year under review and the previous year these business
relations can be broken down as follows:
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.
Business assumed and ceded in Germany and abroad
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.
Annual financial statements
225
Hannover Re | Annual Report 2016
Companies belonging to the Talanx Group granted the Han-
nover Re Group insurance protection inter alia in the areas of
public liability, building, contractors all risks, group accident
and business travel insurance. Divisions of Talanx AG also per-
formed services for the Hannover Re Group in the areas of
taxes and general administration.
The business relationship between Hannover Rück SE and its
subsidiary E+S Rückversicherung AG is based on a coopera-
tion agreement. A retrocession by Hannover Rück SE to E+S
Rückversicherung AG exists in property and casualty reinsur-
ance. The exclusive responsibilities of E+S Rückversicherung
AG for German business and of Hannover Rück SE for inter-
national markets have been preserved.
in EUR thousand
the event of a claim are reimbursed by the parent companies of
the cedants by way of compensation agreements. In this case
the reimbursement claims from the compensation agreements
are to be capitalised separately from and up to the amount of
the provision.
(EUR 24.5 million) as well as recognition of liabilities in an
amount of EUR 174.3 million (EUR 163.3 million) from the
derivatives resulting from technical items as at the balance
sheet date. Improvements in investment income amounting
to EUR 40.9 million (EUR 18.5 million) as well as charges to
income of EUR 1.8 million (EUR 29.7 million) were recognised
in the year under review from all separately measured deriva-
tives in connection with the technical account.
Talanx AG holds an unchanged majority interest of 50.22% in
Hannover Rück SE. For its part, HDI Haftpflichtverband der
Deutschen Industrie Versicherungsverein auf Gegenseitigkeit
(HDI), Hannover, holds a stake of 79.0% in Talanx AG and
therefore 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 con-
solidation and are therefore not discussed in the notes to the
consolidated financial statement. In the year under review the
following significant business relations existed with related
parties.
8.2 Related party disclosures
Structured transactions were entered into in the life and
health reinsurance business group in order to finance stat-
utory reserves (so-called Triple-X or AXXX reserves) of US
ceding companies. In each case such structures necessitated
the involvement of a special purpose entity. The special pur-
pose entities carry extreme mortality risks securitised by the
cedants above a contractually defined retention and transfer
these risks by way of a fixed/floating swap to a member com-
pany of the Hannover Re Group. The total amount of the con-
tractually agreed capacities of the transactions is equivalent to
EUR 3,674.6 million (EUR 3,544.4 million); an amount equiv-
alent to EUR 2,745.8 million (EUR 2,483.4 million) had been
taken up as at the balance sheet date. The variable payments
to the special purpose entities that are guaranteed by the Han-
nover Re Group cover their payment obligations. Under some
of the transactions the payments resulting from the swaps in
Financial guarantees
All in all, application of the standards governing the account-
ing for derivatives in connection with the technical account
led to recognition of assets totalling EUR 40.6 million
retrocession agreement and is carried as a derivative financial
instrument at fair value. The derivative was recognised with a
positive fair value of EUR 10.6 million as at the balance sheet
date under other financial assets at fair value through profit or
loss. In the course of the year the change in the fair value of the
derivative resulted in income of EUR 10.1 million. Conversely,
the performance of the structured bond, which is also meas-
ured at fair value, gave rise to a charge in the same amount.
Hannover Re | Annual Report 2016
224
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-
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
utilisation is considered probable. This was not the case as at
the balance sheet date.
pated
allocation
2015 for
2014
allocation
Final
allocation
2016 for
2015
Antici-
Final
Antici-
pated
allocation
Final
allocation
2014 for
2013
pated
Final
Antici-
pated
allocation
allocation
2013 for
2012
allocation
30.12.2016 17.3.2016 30.12.2015 17.3.2015 30.12.2014 18.3.2014
30.12.2013 14.3.2013 28.12.2012
30.12.2016 24.3.2016 30.12.2015 24.3.2015 30.12.2014 25.3.2014
Antici-
pated
allocation
30.12.2013 21.3.2013 28.12.2012
Antici-
2012
Share awards of Hannover Rück SE
2014
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.
Share awards were granted separately for the first time for the
2011 financial year and then for each financial year (allocation
year) thereafter. The first payout of share awards took place in
the 2016 financial year for those share awards that had been
allocated in the 2011 financial year to the eligible members of
the Executive Board.
The total number of share awards granted is based on the value
per share of Hannover Rück SE. The value per share is estab-
lished 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 consolidated financial
statement for the financial year just-ended is envisaged for the
calculation. For senior executives a period of twenty trading
days before to ten trading days after the meeting of the Super-
visory Board that approves the consolidated financial statement
for the financial year just-ended has been agreed. The prices
calculated in this way also determine the payout value of the
share awards that have become payable. The total number of
share awards granted is established by dividing the amount
available for the granting of share awards to the respective eli-
gible recipients by the value per share, rounded up to the next
full share. For members of the Executive Board 20% and for
senior executives 40% or 35% - according to management
levels of the defined variable remuneration shall be granted
in the form of share awards.
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 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.
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 triggers
early disbursement. No pro rata allowance shall be made for
dividends that have not yet been distributed.
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.
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.
Hannover Re | Annual Report 2016
2013
229
The Share Award Plan of Hannover Rück SE gives rise to the
amounts shown in the following table.
Valuation date
Executive
Board
Senior
executives
Value per
share award
N93
Allocation year
2016
2015
Annual financial statements
in EUR
Wirtschaftsprüfer
Board
Board
10,704
11,244
9,355
12,172
13,308
16,631
14,418
16,452
16,053
Executive
Senior
81,322
79,383
65,107
85,460
85,159
99,783
91,660
102,900
100,531
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.
executives
Executive
tion year
share awards
102.80
97.64
105.65
89.06
74.97
60.53
62.38
61.54
58.96
Senior
in the alloca-
executives
95.30
105.65
87.26
74.97
61.38
62.38
59.86
58.96
Number of
allocated
102.80
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.
Number of rights granted
On this basis the aggregate provisions – included in the sun-
dry non-technical provisions - amounted to EUR 7.3 million
(EUR 13.5 million) for the 2016 financial year. The expense
totalled altogether EUR 1.1 million (EUR 3.6 million).
2011
Award date
15.3.2012
Allocation year
2010
8.3.2011
2009
Period
Waiting period
Basic price (in EUR)
10 years
10 years
15.3.2010
10 years
4
years
4 years
40.87
33.05
2 years
22.70
2007
28.3.2008
10 years
2 years
N92
The allocations for the years 2007 and 2009 to 2011 gave rise to
commitments in the 2016 financial year shown in the following
table. No allocations were made for the years 2005 or 2008.
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. In the event of cancella-
tion or termination of the employment relationship as a conse-
quence 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 management shall not be
deemed to be termination of the employment relationship for
the purpose of exercising stock appreciation rights.
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.
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 have been concluded with
altogether 14 Hannover Re companies.
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.
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.
Remuneration and shareholdings of the management boards of the parent company
The remuneration of the active members of the Executive
Board of Hannover Re amounted to altogether EUR 9.0 million
(EUR 8.1 million). The total remuneration (excluding pension
payments) of former members of the Executive Board and their
surviving dependants stood at EUR 0.3 million (EUR 0.7 mil-
lion). The pension payments to previous members of the
Executive Board and their surviving dependants, for whom
16 (16) pension commitments existed, totalled EUR 1.6 mil-
lion (EUR 1.6 million) in the year under review; altogether, a
provision of EUR 25.3 million (EUR 25.0 million) has been set
aside for these commitments.
above and beyond the aforementioned remuneration as Super-
visory Board members at Group companies, the members of
the Supervisory Board were not in receipt of any remunera-
tion or benefits for personally rendered services as defined by
Item 5.4.6 Para. 3 of the German Corporate Governance Code.
The total remuneration of the Supervisory Board of Hannover
Re amounted to EUR 1.0 million (EUR 0.9 million). There are
no pension commitments to former members of the Super-
visory Board or their surviving dependants.
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. Furthermore,
8.3 Share-based payment
In the 2016 financial year the following share-based payment
plans with cash settlement existed within the Hannover Re
Group:
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 103 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 2016 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 remuner-
ation report. Consequently, we have not provided any further
explanation in the notes.
34.97
1. Stock Appreciation Rights Plan (in effect since 2000,
cancelled in stages from 2011 onwards and currently
being wound up)
Stock Appreciation Rights Plan
With effect from 1 January 2000 the Executive Board of Han-
nover 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 appreciation 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.
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.
Stock appreciation rights were first granted for the 2000 finan-
cial 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.
Hannover Re | Annual Report 2016
227
Annual financial statements
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 exercise 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 appreci-
ation 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 publication of the quarterly
report of Hannover Rück SE.
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 of Hannover Rück SE
2. Share Award Plan (valid since 2011)
Participants in year of issue
Other ad-
143
8,356
Provisions at 31 December 2016 (in EUR million)
3.25
3.56
0.37
0.09
Amounts paid out in the 2016
financial year (in EUR million)
Expense in the 2016 financial year (in EUR million)
4.40
42,159
2.73
0.03
0.65
0.54
(0.05)
The existing stock appreciation rights are valued on the basis
of the Black-Scholes option pricing model.
The calculations were based on the price of the Hannover Re
share of EUR 103.00 as at the reference date of 15 Decem-
ber 2016, expected volatility of 21.09% (historical volatility
on a five-year basis), an expected dividend yield of 4.61% and
risk-free interest rates of -0.79% for the 2007 allocation year,
-0.71% for the 2009 allocation year, -0.59% for the 2010 allo-
cation year and -0.43% for the 2011 allocation year.
In the 2016 financial year the waiting period expired for 100%
of the stock appreciation rights awarded in 2007 and 2009, for
80% of those awarded in 2010 and for 60% of those awarded
in 2011. 2,443 stock appreciation rights from the 2007 alloca-
tion year, 20,809 stock appreciation rights from the 2009 allo-
cation year, 305,726 stock appreciation rights from the 2010
allocation year and 136,746 stock appreciation rights from the
2011 allocation year were exercised. The total amount paid out
stood at EUR 7.3 million.
228
Hannover Re | Annual Report 2016
-
0.18
Share Award Plan
398,639
Number of rights existing at 31 December 2016
129
137
110
263,515
1,681,205
1,569,855
926,565
Fair value at 31 December 2016 (in EUR)
32.13
8.92
110,310
8.76
Maximum value (in EUR)
32.21
8.92
8.76
10.79
Weighted exercise price
32.21
8.92
8.76
10.79
10.79
justments
(284)
(3,047)
2019
2018
2017
in EUR thousand
Rental income
Altogether, non-cancellable contracts will produce the rental
income shown below in subsequent years:
Rented property
Operating leasing contracts produced expenditures of
EUR 11.3 million (EUR 10.8 million) in the year under review.
Subsequent years
2021
2020
2019
2018
2017
N98
2020
under which Hannover Rück SE guarantees the liabilities of
the subsidiary in question or enters into the rights and obli-
gations of the subsidiary under the treaties if particular con-
stellations materialise.
2021
Payments
Rental income totalled EUR 94.8 million (EUR 87.8 million) in
the year under review. The rental income resulted principally
95,066
70,654
77,208
80,844
84,775
89,118
Payments to be received
N99
7,100
5,471
6,354
7,835
9,425
9,874
Subsequent years
in EUR thousand
Future leasing commitments
Leased property
8.7 Contingent liabilities and commitments
Hannover Re | Annual Report 2016
232
The lawsuits pending in the year under review and as at the
balance sheet date were not material for the Hannover Re
Group either individually or combined. Furthermore, no con-
tingent liabilities from lawsuits were to report as at the balance
sheet date.
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 Han-
nover 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.
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
may prove not to be accurate as the proceedings in question
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.
8.6 Lawsuits
a special dividend of EUR 1.50 per share should be paid for the
2016 financial year. This corresponds to a total distribution of
EUR 603.0 million. The dividend proposal does not form part
of this consolidated financial statement.
It will be proposed to the Annual General Meeting on
10 May 2017 that a dividend of EUR 3.50 per share as well as
A dividend of EUR 572.8 million (EUR 512.5 million) was paid
in the year under review for the 2015 financial year.
Dividend per share
The earnings per share could potentially be diluted in future
through the issue of shares or subscription rights from the
authorised or conditional capital.
There were no other extraordinary components of income
which should have been recognised or disclosed separately in
the calculation of the earnings per share.
The weighted average number of shares does not include
16,413 (12,922) treasury shares pro rata temporis for the
duration of the holding period. For further details please
see our comments in section 6.13 "Shareholders' equity and
treasury shares".
Hannover Rück SE has secured by subordinated guarantee
the subordinated debts issued by Hannover Finance (Luxem-
bourg) S.A. in the 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.
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 3,850.7 mil-
lion (EUR 3,511.5 million) and EUR 45.6 million (EUR 27.2 mil-
lion) respectively as at the balance sheet date. The securities
held in the trust accounts are shown as available-for-sale
investments. In addition, we furnished further collateral
to ceding companies in an amount of EUR 1,857.5 mil-
lion (EUR 1,810.3 million) in the form of so-called "single
trust funds". This amount includes a sum equivalent to
EUR 1,328.7 million (EUR 1,281.2 million) which was furnished
by investors as security for potential reinsurance obligations
from ILS transactions.
As part of our business activities we hold collateral availa-
ble 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 2,954.6 million
(EUR 2,775.8 million) as at the balance sheet date.
8.8 Rents and leasing
Hannover Re | Annual Report 2016
Hannover Re enters into contingent liabilities as part of its
normal business operations. A number of reinsurance trea-
ties concluded by Group companies with outside third parties
include letters of comfort, guarantees or novation agreements
Annual financial statements
233
Hannover Re | Annual Report 2016
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.
from the renting out of properties by the Group's real estate
companies.
Group companies are members of the association for the rein-
surance of pharmaceutical risks and several atomic and nuclear
pools. The failure of one of the other pool members to meet
its liabilities would result in an additional call according to the
quota participation.
As security for liabilities in connection with participating inter-
ests in real estate companies and real estate transactions the
usual collateral under such transactions has been furnished to
various banks, the amount of which totalled EUR 594.4 million
(EUR 592.7 million) as at the balance sheet date.
We put up own investments with a book value of EUR 49.8 mil-
lion (EUR 57.9 million) as collateral for existing derivative
transactions. We received collateral with a fair value of
EUR 17.7 million (EUR 6.9 million) for existing derivative
transactions.
A number of LoC facilities include standard market contractual
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 materialisation of major events, for example if our rating
is significantly downgraded. Please see also our explanatory
remarks in the "Financial position" section of the management
report, page 60 et seq., on the information pursuant to § 315
Para. 4 German Commercial Code (HGB).
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 1,343.7 million (EUR 1,335.2 million). In a departure
from the previous year, this figure does not include letters of
credit furnished in favour of Group companies in an amount
of EUR 996.3 million (EUR 1,729.4 million).
Letter of credit facilities with various terms (maturing at the
latest in 2021) and a total volume equivalent to EUR 2,826.0 mil-
lion (EUR 2,764.4 million) exist on a bilateral basis with finan-
cial institutions.
Letter of credit (LoC) facilities existed with a number of finan-
cial institutions as at the balance sheet date. A syndicated letter
of credit facility taken out in 2011 with a volume of nominally
USD 1.0 billion originally had a term maturing at the begin-
ning of 2019. It was terminated in January 2016 and partially
refinanced through bilateral credit facilities.
The securities held in the blocked custody accounts and trust
accounts are recognised predominantly as available-for-sale
investments.
Outstanding capital commitments with respect to alternative
investments exist on the part of the Group in an amount of
EUR 1,096.4 million (EUR 837.1 million). These primarily involve
as yet unfulfilled payment obligations from investment commit-
ments given to private equity funds and venture capital firms.
8.9 Fee paid to the auditor
The appointed auditor of the consolidated financial statement
of Hannover Re as defined by § 318 German Commercial Code
(HGB) is KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG
AG). The expense recognised for the fees paid to KPMG AG
and worldwide member firms of KPMG International (KPMG)
in the year under review can be broken down as follows:
Dr. Pickel
Pickel
Althoff
Dr. Miller
Mikar
на рыму вийти
Wallin
Noh.
Executive Board
Hannover, 7 March 2017
Africa Limited and Hannover Life Reassurance Africa Limited,
both with their registered office in Johannesburg, were put on
credit watch negative on 12 December 2016. In order to avert a
possible downgrade, Hannover Rück SE (guarantor) furnished
a guarantee for each of the companies effective 1 January 2017.
The guarantees extend to all payment obligations of the com-
panies arising out of the insurance and reinsurance contracts
written by them. No conditions are attached to the guarantees,
which are ongoing and binding upon the guarantor, and the
commitments under the guarantees are equally ranked with all
other unsecured liabilities of the guarantor. Upon recognition
of the guarantees by S&P the negative credit watch was lifted
on 8 February 2017 and both companies received the group
rating (AA-/stable outlook).
On 2 December 2016 the rating agency Standard & Poor's (S&P)
downgraded South Africa's local debt rating to BBB. Conse-
quently, the ratings of our subsidiaries Hannover Reinsurance
-
In a press release dated 28 December 2016 we announced
that we had been given final approval to establish a branch
in India. After Hannover Re received this approval from the
Insurance Regulatory and Development Authority of India
(IRDAI) in December 2016, an application was submitted to
the Indian Registrar of Companies in January 2017 for registra-
tion of the Hannover Rück SE-India Branch with its registered
office in Mumbai. The branch, which writes both property and
casualty reinsurance – including agricultural risks – and life
and health reinsurance, commenced its business operations
on 1 February 2017.
8.10 Events after the balance sheet date
Chèvre
J. Grüßer
Gräber
Rand w
Bock
Wirtschaftsprüfer
Möller
Wirtschaftsprüfungsgesellschaft
KPMG AG
Hannover, 7 March 2017
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, complies with the legal
requirements and as a whole provides a suitable view of the
Group's position and suitably presents the opportunities and
risks of future development.
the engagement partner responsible for the audit of the annual
and consolidated financial statements for the first time as at
31 December 2015.
Our audit has not led to any reservations.
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 presenta-
tion of the net assets, financial position and results of opera-
tions 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 eco-
nomic and legal environment of the Group and expectations
We have audited the consolidated financial statements prepared
by Hannover Rück SE, Hannover – comprising the consolidated
balance sheet, consolidated income statement, consolidated
statement of comprehensive income, consolidated statement
of changes in equity, consolidated cash flow statement 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 December 2016.
The preparation of the consolidated financial statements and
the combined management report in accordance with IFRS, as
adopted by the EU, and the additional requirements of German
commercial law pursuant to § 315a Para. 1 HGB are the respon-
sibility of the parent company's management. Our responsi-
bility is to express an opinion on the consolidated financial
statements and on the combined management report based
on our audit.
Auditors' report
Annual financial statements
235
Hannover Re | Annual Report 2016
Vogel
as to possible misstatements are taken into account in the
determination of audit procedures. The effectiveness of the
accounting-related internal control system and the evidence
supporting the disclosures in the consolidated financial state-
ments 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 entities to be included in consolidation, the accounting and
consolidation principles used and significant estimates made
by management, as well as evaluating the overall presentation
of the consolidated financial statements and combined man-
agement report. We believe that our audit provides a reason-
able basis for our opinion.
9.71
The auditor responsible for performance of the audit engage-
ment as defined by § 38 Para. 2 of the Professional Charter for
Accountants/Certified Auditors (Berufssatzung WP/vBP) as
amended on 21 June 2016 is Mr. Florian Möller. He served as
11,525
KPMG AG
worldwide
thereof
KPMG
2015
2016
N 100
Other services
Total
Tax consultancy services
Other assurance services
Services relating to auditing of the financial statements
in EUR thousand
Fee paid to the auditor
Hannover Re | Annual Report 2016
234
KPMG
worldwide
thereof
KPMG AG
8,540
2,445
5,368
11,902
3,242
3,253
2,088
2,283
152
5,425
614
678
428
534
320
401
1,603
7,124
515
236
9.54
1,150,725
120,597,026
8,078
4,636
1,658
previous year
Provision at 31 December of the
15,104
1,036
5,020
4,288
3,102
1,658
Allocation 2015
6,976
529
2,549
10,850
2,364
2,548
Allocation 2016
4,087
1,918
Provision at 31 December of the
year under review
103
103
Release 2016
2,445
2,445
Utilisation 2016
10,577
2,133
2,177
1,920
2,429
1,918
27,770
1,534
Allocation 2014
3,153
N 94
Development of the provision for share awards of Hannover Rück SE
This figure results from originally granted share awards that have since lapsed.
1
116,584
(5,756)
113,596
106,078
111,619
98,467
94,585
74,462
90,343
92,026
Total
(4,795)
Allocation year
Total
in EUR thousand
2016
285
1,442
1,426
Allocation 2013
2,248
409
1,839
6,556
Allocation 2012
289
Allocation 2011
2011
2012
2013
2014
2015
289
10,255
12,983
35,799
5,016
bc) Expenditures for assistance
25,430
25,520
bb) Expenditures for pension provision
23,037
22,082
ba) Social security contributions
b) Social security contributions and expenditure on provisions and assistance
246,391
258,111
246,391
258,111
2015
2016
4,784
52,618
53,251
Total
1,171,229
120,596,997
2015
2016
Neither in the year under review nor in the previous reporting
period were there any dilutive effects. The weighted average
of the issued shares was, as in the previous year, slightly lower
than the value of the shares in circulation on the balance sheet
date. In the context of the employee share option plan Han-
nover Re acquires treasury shares and sells them at a later date
to eligible employees.
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.
Diluted earnings per share in EUR
Basic earnings per share in EUR
N96
Group net income in EUR thousand
Weighted average of issued shares
Calculation of the earnings per share
8.5 Earnings per share and dividend proposal
Annual financial statements
231
Hannover Re | Annual Report 2016
299,642
310,729
N97
9.71
a) Wages and salaries
Personnel expenditures
2016
N95
Personnel information
operational insurance business. As at the balance sheet date
altogether 2,893 (2,762) staff were employed by the Hannover
Re Group, with 1,349 (1,337) employed in Germany and 1,544
(1,425) 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 2,804 (2,747); of this number,
2,575 (2,553) were employed at Group companies allocable to
Staff
8.4 Staff and expenditures on personnel
With regard to the effects of the equity swaps taken out to
hedge price risks, please see our explanatory remarks in
Section 8.1 "Derivative financial instruments and financial
guarantees".
In the year under review the 22,232 share awards finally allo-
cated in 2011 with a value of EUR 97.64 each plus the dividend
entitlement of EUR 12.35 each were paid out to the eligible
members of the Executive Board. The release of the provision
for this tranche results from the difference between the share
price of EUR 105.65 as at the last balance sheet date and the
price of EUR 97.64 from March 2016 on which the payout
was based.
the service contracts; in the case of senior executives the per-
sonnel expense is spread across the relevant term of the share
awards. The allocation of the financial year recognised in the
expenditures on personnel totalled altogether EUR 10.6 mil-
lion (EUR 15.1 million). This consists of the expense for share
awards of the 2015 financial year as well as the dividend claim
and the additionally earned portion of the share awards granted
in earlier financial years. The value of the share awards finally
granted is also influenced by movements in the share price. The
sum total of the dividends included in the expenditures on per-
sonnel for earlier financial years amounted to EUR 2.0 million
(EUR 1.4 million). The distributed dividend is recognised, with
no allowance made for expected dividend payments. Dividend
claims are recognised in the discounted amounts.
Hannover Re | Annual Report 2016
230
The personnel expense for share awards in the case of mem-
bers of the Executive Board is spread on an accrual basis across
the relevant term of the share awards or the shorter term of
-
The aggregate provision - recognised under the sundry
non-technical provisions – amounted to EUR 35.8 million
(EUR 27.8 million) as at the balance sheet date.
2015
31.3.
30.6.
30.9.
The expenditures on insurance business, claims expenses
(claims settlement) and expenditures on the administration
of investments include the following personnel expenditures:
Expenditures on personnel
2,747
2,762
2,804
2,893
2,794
in EUR thousand
2,789
members)
(excluding Board
Number of employees
Average
31.12.
Average
31.12.
2,780
9.54
Hannover Rück SE
Korea Branch
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
Office Level 3
Rosebank Towers
Africa Limited
Hannover Reinsurance
Wesley Clay
Fax +27 11 484-3330/32
Managing Director:
Tel. +27 11 481-6500
P. O. Box 85321
Emmarentia 2029
Rosebank, Johannesburg 2196
15 Biermann Ave
15 Biermann Ave
Rosebank Towers
Africa Limited
Hannover Life Reassurance
Further information
243
Hannover Re | Annual Report 2016
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
Office Level 3
Johannesburg 2193
Rosebank, Johannesburg 2196
Emmarentia 2029
Fax (Property & Casualty)
+46 8 617-5597
Fax (Life & Health)
Tel. +46 8 617-5400
Hannover Rück SE,
Tyskland Filial
Hantverkargatan 25
P. O. Box 22085
10422 Stockholm
Sweden
Achim Klennert
Managing Director:
Fax +27 11 484-3330/32
P.O. Box 85321
Tel. +27 11 481-6500
Rosebank, Johannesburg 2196
15 Biermann Ave
Office Level 3
Rosebank Towers
Hannover Reinsurance
Group Africa (Pty) Ltd.
Randolph Moses
Managing Director:
Fax +27 11 484-3330/32
Tel. +27 11 481-6500
P. O. Box 85321
Emmarentia 2029
+46 8 617-5593
Managing Director:
Parktown
Ground Floor
Gräber
Miker Tickel
Dr. Miller
Rand w
Vogel
Hannover Re | Annual Report 2016
237
Miscellaneous
Supervisory Board
Grüße
Report of the Supervisory Board
In our function as the Supervisory Board we considered at
length during the 2016 financial year the position and devel-
opment of the company and its major subsidiaries. We advised
the Executive Board on the direction of the company and mon-
itored the management of business on the basis of written
and verbal reports from the Executive Board. The Supervisory
Board of Hannover Rück SE held four regular meetings in order
to adopt the necessary resolutions after appropriate discussion.
With the exception of two meetings that one member of the
Supervisory Board did not attend, all nine Supervisory Board
members took part in each of the Supervisory Board meet-
ings held in 2016. Two representatives of the Federal Finan-
cial Supervisory Authority participated in one meeting on a
routine basis. 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
components of the financial statements and key figures for the
Hannover Re Group constituted an important source of infor-
mation for the Supervisory Board.
Key points of deliberation
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. In addition, we received a
report on the status of the Market Consistent Embedded Value
in life and health reinsurance. A further key point of deliber-
ation was the examination of the various reports in accord-
ance with Solvency II (including ORSA, Day 1 Report). The
Information Policy for the Supervisory Board was also revised
against this backdrop. In addition, the Rules of Procedure for
the Executive Board were updated. In the annual review of
the investment guidelines the table of permitted share indices
was revised. The updating of the minimum liquidity limit and
the revision of the corresponding guideline also came under
Committees of the Supervisory Board
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 three times. 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.
The Finance and Audit Committee considered inter alia the
consolidated financial statement and the quarterly reports
drawn up in accordance with IFRS and the individual financial
238
We received an analysis of the 2015 results in property & casualty
and life & health reinsurance as well as a presentation from the
Executive Board covering the profit expectations for the 2016
financial year and the operational planning for the 2017 finan-
cial 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.
No audit measures pursuant to § 111 Para. 2 Sentence 1 Ger-
man Stock Corporation Act were required in the 2016 finan-
cial year.
of Hannover Rück SE
St. Andrews Road
J. Grifer
Althoff
Compass Insurance Company Limited
KPMG Wanooka Place
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
Oficina 4-4-28
Hannover Services (México)
S.A. de C. V.
German Centre
Mexico
Suite 29-01
Malaysian Branch
Hannover Rueck SE
Chèvre
Malaysia
Gwanghwamoon Officia Building
92, Saemunan-ro, Jongno-gu
Seoul 03186
Responsibility statement
To the best of our knowledge, and in accordance with the
applicable reporting principles, the consolidated financial
statements give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group, and the Group
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, 7 March 2017
Executive Board
似
No. for fled C
Wallin
Tel. +82 2 3700-0600
Fax +82 2 3700-0699
General Manager:
Frank Park
scrutiny. Furthermore, a report was received on the return on
investment in comparison with competitors. Extensive con-
sideration was also given to the EU Audit Reform and the cor-
responding resolution (including in relation to the updated
Rules of Procedure for the Finance and Audit Committee). In
addition, the strategic approach of acquiring capital participa-
tions in a Lloyd's syndicate was discussed at length. As in every
year, the full Supervisory Board considered the adequacy of the
remuneration system for the members of the Executive Board.
The variable remuneration of the members of the Executive
Board was defined on the basis of the findings with respect to
attainment of the respective targets for the 2015 financial year.
Thomas Barenthein
P. O. Box 22085
10422 Stockholm
Tel. +46 8 617-5400
Fax +46 8 617-5590
Managing Director:
Thomas Barenthein
Critical illness coverages: cf. →dread disease coverages
DB 5: cf. → contribution margin accounting level 5
Further information
245
Hannover Re | Annual Report 2016
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.
Similar to a ModCo contract the interest payment to the rein-
surer reflects the investment return on an underlying asset
portfolio.
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 signif-
icant 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.
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.
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.
Capital asset pricing model (CAPM): the CAPM is used to
explain the materialisation of prices/returns on the capital
market based on investor expectations regarding the future
probability distribution of returns. Under this method, the
opportunity cost rate for the shareholders' equity consists
of three components – a risk-averse interest rate, a market-
specific risk loading and an enterprise-specific risk assess-
ment, the beta coefficient. The cost of shareholders' equity is
therefore defined as follows: risk-averse interest rate + beta *
enterprise-specific risk assessment.
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.
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.
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 ced-
ing insurer incurs losses on a particular line of business dur-
ing a specific period (usually twelve 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
insurance contract (e.g. commission for the closing, costs of
proposal assessment and underwriting etc.). Capitalisation
results in a distribution of the cost over the duration of the
contract.
Cession: transfer of a risk from the direct insurer to the
reinsurer.
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.
Deposits with ceding companies/deposits received from ret-
rocessionaires (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 reinsurance
treaty. In this case, the retaining company shows a deposit
received, while the company furnishing the collateral shows a
deposit with a ceding company.
Direct business: business focused on narrowly defined port-
folios of niche or other non-standard risks.
Room 414, 4th Floor
Hannover Re | Annual Report 2016
246
Goodwill: the excess of the cost of an acquired entity over the
net of the amounts assigned to assets acquired and liabilities
assumed.
Funds held by ceding companies/funds held under reinsur-
ance treaties: cf. → deposits with ceding companies/deposits
received from retrocessionaires
Frequency losses: Losses that occur frequently in a foresee-
able amount, i. e. where the underlying risks are associated
with relatively high probabilities of occurrence and usually
low loss amounts.
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.
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.
Exposure: level of danger inherent in a risk or portfolio of
risks; this constitutes the basis for premium calculations in
reinsurance.
Excess return on capital allocated (xRoCA): describes the
IVC in relation to the allocated capital and shows the relative
excess return generated above and beyond the weighted cost
of capital.
non-proportional reinsurance
Excess of loss treaty: cf. →>>
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 individ-
ual, company, organisation).
Expense ratio: administrative expenses (gross or net) in rela-
tion to the (gross or net) premium earned.
International Insurance Company of
Hannover SE (Scandinavian Branch)
Hantverkargatan 25
Glossary
244
Office Denver
Tel. +1 704 731-6300
Fax +1 704 542-2757
President & CEO:
Peter R. Schaefer
Charlotte, North Carolina 28277
13840 Ballantyne Corporate Place,
Suite 400
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
Tel. +44 20 7015-4000
Fax +44 20 7015-4001
Managing Director:
Nick Parr
1290 Broadway, Suite 1600
Denver, Colorado 80203
London EC3M 3BE
Hannover SE (UK Branch)
International Insurance Company of
Ryan Chou
Representative:
Tel. +886 2 8770-7792
Fax +886 2 8770-7735
Taipeh
Taipei Representative Office
Rm. 902, 9F, No. 129, Sec. 3
Minsheng E. Road
Hannover Rück SE
Taiwan
10 Fenchurch Street
Hannover Re | Annual Report 2016
Tel. +1 303 860-6011
Fax +1 303 860-6032
President & CEO:
Peter R. Schaefer
HR Hannover Re,
Tel. +1 630 250-5517
Fax +1 630 250-5527
General Manager:
Eric Arnst
Itasca, Illinois 60143
500 Park Blvd., Suite 805
Hannover Re Services USA, Inc.
East Rockaway, New York 11518
Tel. +1 516 593-9733
Fax +1 516 596-0303
President & CEO:
Peter R. Schaefer
Office New York
112 Main Street
Nick Parr
Managing Director:
Tel. +44 20 7015-4290
Fax +44 20 7015-4001
Spain
London EC3M 3BE
Hannover Services (UK) Limited
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
United Kingdom
General Manager:
Eduardo Molinari
Fax +34 91 319-9378
Tel. +34 91 319-0049
28010 Madrid
Campos 46
Correduría de Reaseguros, S.A.
Paseo del General Martínez
10 Fenchurch Street
statement of Hannover Rück SE drawn up in accordance with
the German Commercial Code (HGB) and discussed with the
independent auditors their reports on these financial state-
ments. As in the previous year, an expert opinion on the ade-
quacy of the loss reserves in property and casualty reinsurance
was noted, the retrocession structure of the Hannover Re Group
and the accumulated prefinancing volume in life reinsurance
including a comparison of the expected return flows with
the repayments actually made, the risk reports, the compli-
ance report and the report on adherence to Corporate Gov-
ernance principles were discussed and reports on the major
Dr. Pickel
-
Rio de Janeiro
Tel. +55 21 2217-9500
Fax +55 21 2217-9515
Representative:
Jan Rössel
Canada
Hannover Re (Ireland) DAC
Canadian Life Branch
220 Bay Street, Suite 400
Toronto, Ontario M5J 2W4
Tel. +1 416 607-7824
Fax +1 416 867-9728
General Manager:
Amhlaoibh Lynch
Hannover Rück SE
Canadian Branch
220 Bay Street, Suite 400
Toronto, Ontario M5J 2W4
Tel. +1 416 867-9712
Fax +1 416 867-9728
General Manager:
Laurel E. Grant
International Insurance Company of
Hannover SE (Canadian Branch)
220 Bay Street, Suite 400,
Toronto, Ontario M5J 2W4
CEP 20 031 050
Tel. +1 416 867-9712
Head of Canadian Branch:
Derek Spafford
Hannover Re | Annual Report 2016
China
Hannover Rück SE
Hong Kong Branch
2008 Sun Hung Kai Centre
20th Floor
30 Harbour Road
Wanchai, Hong Kong
Tel. +852 2519-3208
Fax +852 2588-1136
General Manager:
Wilbur Lo
Fax +1 416 867-9728
Hannover Rück SE
Praça Floriano, 19 salas 1701/02
Escritório de Representação
Hannover ReTakaful B.S.C. (c)
Al Zamil Tower
17th Floor
Government Avenue
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
no Brasil Ltda.
Tel. +973 1721-4766
Fax +973 1721-4667
Bermuda
Hannover Life Reassurance
Bermuda Ltd.
Victoria Place, 2nd Floor,
31 Victoria Street
Hamilton, HM 10
P. O. Box 2373
Hamilton, HM JX
Tel. +1 441 295-2827
Fax +1 441 295-2844
Managing Director:
Chantal Cardinez
Hannover Re (Bermuda) Ltd.
Victoria Place, 2nd Floor,
Hannover Re | Annual Report 2016
Tel. +1 441 294-3110
Fax +1 441 296-7568
President & CEO:
Dr. Konrad Rentrup
Brazil
Hannover Rück SE
General Manager:
Mahomed Akoob
Shanghai Branch
Suite 701-703, Building 1,
Lujiazui Century Financial Plaza
Tel. +91 22 6138-0808
Fax +91 22 6138-0810
General Manager:
GLN Sarma
Ireland
Hannover Re (Ireland)
Designated Activity Company
No. 4 Custom House Plaza, IFSC
Dublin 1
Tel. +353 1 633-8800
Fax +353 1 633-8806
Managing Director L&H & CEO:
Debbie O'Hare
Managing Director ASI:
Kathrin Scherff
Consulting Services
India Private Limited
C&B Square
Sangam Complex
Unit 502, 5th Floor
Andheri-Kurla Rd,
Andheri (East)
Mumbai 400059
Italy
Via Dogana, 1
20123 Milan
Tel. +39 02 8068-1311
Fax +39 02 8068-1349
Head of Administration:
Giorgio Zandonella-Golin
Japan
Hannover Re Services Japan
Hakuyo Building, 7th Floor
3-10 Nibancho
Chiyoda-ku
Tokyo 102-0084
Tel. +81 3 5214-1101
Fax +81 3 5214-1105
General Manager:
Takayuki Ohtomo
Korea
Hannover Re Services Italy S.r.l.
Hannover Re
India
Fax +33 1 4006-0225
Managing Director:
Raphaël Rimelin
729 South Yanggao Road
200127 Shanghai
Tel. +86 21 2035-8999
Fax +86 21 5820-9396
General Manager:
Fook-Kong Lye
Colombia
Hannover Rück SE
Bogotá Oficina de Representación
Carrera 9 No. 77-67
Floor 5
Bogotá
Tel. +57 1 642-0066
Fax +57 1 642-0273
General Manager:
Miguel Guarin
France
Hannover Rück SE
Succursale Française
33 Avenue de Wagram
75017 Paris
Tel. (Life & Health)
+33 1 4561-7300
Tel. (Property & Casualty)
+33 1 4561-7340
Bahrain
242
31 Victoria Street
Hamilton, HM 10
Fax +61 2 9274-3033
Word of thanks to the Executive Board and members of staff
The very good result once again generated by Hannover Rück
SE for the 2016 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 recognition and special
appreciation to the Executive Board and all the employees for
their efforts.
Head of Branch:
Mark Fleiser
For the Supervisory Board
Herbert K. Haas
Chairman
240
Hannover Re | Annual Report 2016
Supervisory Board of Hannover Rück SE
Herbert K. Haas
Burgwedel
Chairman
1,2,4
Chairman of the Board of Management of Talanx AG
Chairman of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Dr. Klaus Sturany¹
Ascona, Switzerland
Deputy Chairman
Former member of the Executive Board of RWE AG
Wolf-Dieter Baumgartl'
Berg
The composition of the Supervisory Board and its committees
as well as of the Executive Board did not change in the year
under review. Mr. Sven Althoff, Mr. Jürgen Gräber, Mr. Roland
Vogel and Mr. Ulrich Wallin were reappointed as members of
the Executive Board, with the latter at the same time being
appointed as Chairman of the Executive Board.
Changes on the Supervisory Board and 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 2016 is in accordance with
that of the Executive Board.
- in each case drawn up as at 31 December 2016 - and have
no objections. Nor do we have any objections to the statement
reproduced in the dependent company report.
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 2016 finan-
cial year. The Committee was provided with detailed reports on
the purchase of The Congregational & General Insurance Pub-
lic Limited Company (CGI) as well as on the recognition and
measurement of the risk-oriented book of US life reinsurance
business acquired in 2009 from Scottish Re. The Committee
also received an explanation of the capital market risks in life
and health reinsurance and considered various M&A projects.
Furthermore, the future form of the company's regular finan-
cial reporting with an eye to transposition of the EU Transpar-
ency Directive into national law was explored. The Committee
prepared various resolutions to be adopted by the Supervisory
Board, including a resolution on the approach to be taken in
connection with the EU audit reform. The reporting on the
Auditor Supervision Act and the Audit Reform Act as well as
the resulting considerations and measures were a major point
of emphasis in the work of the Finance and Audit Committee.
Once it had been agreed that the independent auditor of the
company's individual and consolidated financial statements
Corporate Governance
The Government Commission on the German Corporate Gov-
ernance Code (DCKG) did not make any changes to the German
Corporate Governance Code in 2016. The Supervisory Board
nevertheless devoted considerable attention to the topic of cor-
porate governance. For example, the results of the efficiency
evaluation of the Supervisory Board's activities in accordance
with Item 5.6 of the Code as well as the optimisation measures
to be adopted on this basis were considered at length. It also
determined the differentiations that are required for the verti-
cal comparison of remuneration pursuant to Item 4.2.2 of the
Code. In addition, the Supervisory Board received a report on
the design of the remuneration schemes as well as the com-
pliance, internal audit and risk reports.
In connection with the implementation of Solvency II the com-
pany offered the Supervisory Board an internal training event
in 2016. This enabled the members of the Supervisory Board to
improve their knowledge of the new regulatory developments
resulting from the laws and policies adopted in the context of
Solvency II. Topical concentrations included, among others,
should be changed early for the 2018 financial year, a project
was set in motion to prepare and initiate the tender procedure.
At an extraordinary meeting of the Committee on 30 Novem-
ber 2016 three auditing firms presented and enlarged upon
the bids that they had submitted in writing. The validation of
the report compiled by the company on the conclusions drawn
by the Finance and Audit Committee in the selection process
as well as the adoption of board resolutions in this connection
will take place in the 2017 financial year.
The Standing Committee dealt among other things with the
adequacy of the system of remuneration for the members of
the Executive Board, the determination of the variable remu-
neration of the members of the Executive Board for the 2015
financial year on the basis of the findings with respect to attain-
ment of their respective targets and the examination of the
remuneration for the Board members who were due for review.
In all these matters the Committee drew up corresponding rec-
ommendations for the full Supervisory Board. The Committee
deliberated at length on the medium- and long-time succession
arrangements for the Executive Board and recommended to the
full Supervisory Board the reappointment of Mr. Ulrich Wallin,
Mr. Sven Althoff, Mr. Jürgen Gräber and Mr. Roland Vogel.
the special demands placed on the Supervisory Board, require-
ments with respect to the business organisation and key func-
tions as well as the company's internal model. Notwithstanding
the high importance that the Supervisory Board attaches to the
standards of good and responsible enterprise management
defined in the German Corporate Governance Code, the 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. Justification for these
divergences is provided in the Declaration of Conformity pur-
suant to § 161 German Stock Corporation Act regarding com-
pliance 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.
Audit of the annual financial statements and consolidated financial statements
The accounting, annual financial statements, consolidated
financial statements and the combined management report
were audited by KPMG AG Wirtschaftsprüfungsgesellschaft.
The Supervisory Board chose the auditor and the Chairman
of the Supervisory Board awarded the audit mandate. The
auditor's independence declaration was received. Along with
the audit concentrations of the German Financial Reporting
Enforcement Panel (DPR), the additional audit concentrations
defined by the European Securities and Markets Authority
(ESMA) also formed part of the scope of the audit. The mandate
Hannover Re | Annual Report 2016
1, 2, 4
for the review report by the independent auditors on the Half-
yearly Financial Report as at 30 June 2016 was also awarded
again. The special challenges associated with the international
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
participation of the auditors and in light of the audit reports,
and it informed the Supervisory Board of the outcome of its
Supervisory Board
examination. The audit reports were distributed to all members
of the Supervisory Board and scrutinised in detail - with the
participation of the auditors – at the Supervisory Board meet-
ing held to consider the annual results. The auditors will also
be present at the Annual General Meeting.
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:
“Having audited the report in accordance with our professional
duties, we confirm that
1. its factual details are correct;
2. in the case of the transactions detailed in the report,
the expenditure of the company was not unreasonably
high."
We have examined
a) the annual financial statements of the company, the
financial statements of the Hannover Re Group and the
combined management report prepared by the Execu-
tive Board for the company and the Group, and
b) the report of the Executive Board pursuant to § 312
German Stock Corporation Act (Report on relations
with affiliated companies)
239
Former Chief Executive Officer of Talanx AG and HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Hannover, 8 March 2017
Hannover
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.
Hannover Re | Annual Report 2016
241
Supervisory Board
Further information
Branch offices and subsidiaries of the Hannover Re Group abroad
Australia
Hannover Life Re of
Australasia Ltd
5 Staff representative
Level 7
Sydney NSW 2000
Tel. +61 2 9251-6911
Fax +61 2 9251-6862
Managing Director & CEO:
Gerd Obertopp
Hannover Rueck SE
Australian Branch
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
General Manager -
Property & Casualty:
Michael Eberhardt
Agent:
Frauke Heitmüller 5
International Insurance Company of
Hannover SE (Australian Branch) -
Underwriting Office
Level 12
20 Bond Street
Sydney NSW 2000
Tel. +61 2 8373-7580
70 Phillip Street
4 Member of the Nomination Committee
Ross Littlewood
3
Independent financial expert on the Finance and Audit Committee
Otto Müller 5
Hannover
Employee
Dr. Andrea Pollak
Vienna, Austria
Independent management consultant
Dr. Immo Querner
Celle
Member of the Board of Management of Talanx AG
Employee
2,3
Member of the Board of Management of HDI Haftpflichtverband der Deutschen Industrie V.a.G.
1 Member of the Standing Committee
Burgwedel
Maike Sielaff 5
Employee
Member of various supervisory boards
Hannover
Dr. Erhard Schipporeit 2, 3
2 Member of the Finance and Audit Committee
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.
Rate: percentage rate (usually of the premium income) of the
reinsured portfolio which is to be paid to the reinsurer as rein-
surance premium under a non-proportional reinsurance treaty.
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: per-
centage 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.
Reinsurer: company which accepts risks or portfolio segments
from a direct insurer or another reinsurer in exchange for an
agreed premium.
Securitisation instruments: innovative instruments for trans-
ferring reinsurance business to the capital markets with the
goal of refinancing or placing insurance risks.
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.
Hannover Re | Annual Report 2016
248
Segment reporting: presentation of items in the balance sheet
and income statement split according to functional criteria such
as business sectors and regions.
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 (= provision 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 contrast
to non-proportional reinsurance.
Property and casualty (re-)insurance: collective term for the
lines of business concerned with the insurance of property,
including for example liability, fire, hail or marine insurance.
Probability level: cf. confidence level
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.
Spread loss treaty: treaty between an insurer and a reinsurer
that covers risks of a defined portfolio over a multi-year period.
Surplus relief treaty: A reinsurance contract under which an
admitted reinsurer assumes (part of) a ceding company's port-
folio to relieve stress on the cedant's policyholders' surplus.
Structured products: reinsurance with limited potential for prof-
its and losses; the primary objective is to strive for risk equal-
isation over time and to stabilise the cedant's balance sheet.
Introductory Sections
Priority: direct insurer's loss amount stipulated under non-pro-
portional 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.
|
List of graphs, tables and charts
Further information
249
Hannover Re | Annual Report 2016
XROCA: cf. → Excess Return on Capital Allocated
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.
Treaty reinsurance: cf. → obligatory reinsurance
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 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 reinsurance: reinsurance with limited potential
for profits and losses. In most cases customers strive for risk
equalisation over time or solvency relief, both of which have
a stabilising effect on the ceding company'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 tradi-
tional concept of consolidation - based on voting rights - is
often inadequate for determining who exercises control over
the entity.
Primary insurer: cf. direct insurer
Quarterly Statement as at 30 September 2017
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.
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 typ-
ically 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
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.
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).
-
International Securities Identification Number (ISIN):
ten-character universal code used to identify securities inter-
nationally. 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.
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.
Impairment: extraordinary amortisation taken when the pres-
ent value of the estimated future cash flow of an asset is less
than its book value.
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).
M
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.
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 in the retention
relative to the (gross or net) premium earned.
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.
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.
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.
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 par-
ticular amount (priority) (e.g. under an excess of loss treaty).
This is in contrast to proportional reinsurance.
Net: cf. Gross/Retro/Net
Price earnings ratio (PER): a valuation ratio of a company's
share price compared to its per-share earnings.
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.
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.
Further information
247
Hannover Re | Annual Report 2016
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.
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 million
gross).
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.
Management Report
N
Notes
N78 Commissions and brokerage, change in
deferred acquisition costs
190
N36 Movements in level 3 financial assets and
liabilities 2016
217
N77 Other technical income
189
217
216
N 75 Net gains and losses on investments 2015
N76 Reinsurance result
189
216
N74 Net gains and losses on investments 2016
215
Interest income on investments
N73
187
215
N71 Gross written premium
186
186 N72 Investment income
213
interests
N70 Subsidiaries with material non-controlling
185
211
subordinated capital
218
184
N37 Movements in level 3 financial assets and
liabilities 2015
218
221
N 86 Expiry of non-capitalised loss carry-forwards
and temporary differences
193
193
221
N 85 Reconciliation of the expected expense for
income taxes with the actual expense
193
192
220
N 84 Netting of deferred tax assets and deferred
tax liabilities
192
220
N 83 Deferred tax assets and deferred tax liabilities
of all Group companies
191
219
tax expenditure/income
N39 Income and expenses from level 3 financial
assets and liabilities 2015
N40 Fair value hierarchy of financial assets and
liabilities measured at amortised cost 2016
N41 Fair value hierarchy of financial assets and
liabilities measured at amortised cost 2015
N42 Development of deferred acquisition costs
N43 Age structure of overdue accounts receivable
N44 Value adjustments on accounts receivable
N45 Development of goodwill
N82 Domestic/foreign breakdown of recognised
191
219
N81 Income tax
N38 Income and expenses from level 3 financial
assets and liabilities 2016
218
N 80 Other income/expenses
190
N79 Other technical expenses
194
N69 Net gains and losses from dept and
Maturities of financial liabilities 2015
accrued interest on the portfolio of investments
classified as available for sale as well as
their fair value 2016
172
31 December
169
N15 Assets and liabilities of the acquired business
N16 Consolidated segment report as at
179
as well as their fair value 2015
N23 Amortised cost, unrealised gains and losses and
168
N14 Book values from business relations with
unconsolidated structured entities 2015
accrued interest on loans and receivables
167
N22 Amortised cost, unrealised gains and losses and
N13 Book values from business relations with
unconsolidated structured entities 2016
179
as well as their fair value 2016
164
N12 Material branches of the Group
accrued interest on loans and receivables
158
N11 List of shareholdings
N21 Amortised cost, unrealised gains and losses and
157
N10 Scope of consolidation
178
accrued interest on the portfolio of investments
classified as held to maturity as well as
their fair value 2015
180
211
Hannover Re | Annual Report 2016
Further information
N 68
210
Maturities of financial liabilities 2016
N 67
210
Debt and subordinated capital 2015
N 66
181
182
183
183
N32 Investments in associated companies
N33 Development of investment property
N34 Fair value hierarchy of financial assets and
liabilities recognised at fair value 2016
N35 Fair value hierarchy of financial assets and
liabilities recognised at fair value 2015
associated companies
N26 Carrying amounts before impairment
N27 Rating structure of fixed-income securities 2016
N28 Rating structure of fixed-income securities 2015
N29 Breakdown of investments by currencies 2016
N30 Breakdown of investments by currencies 2015
N31 Financial information on investments in
209
Debt and subordinated capital 2016
N 65
N63 Development of sundry non-technical provisions 208
N64 Maturities of the sundry non-technical provisions 208
N25 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
181
207
N 62 Other liabilities
206
N61 Effect on the defined benefit obligation
206
N 60 Provisions for pensions
their fair value 2015
N24 Amortised cost, unrealised gains and losses and
accrued interest on the portfolio of investments
classified as available for sale as well as
251
154
N 87 Maturity structure of derivative financial
194
Tel. +49 511 5604-1502
Gabriele Handrick
Media Relations
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.
karl.steinle@hannover-re.com
Fax +49 511 5604-1648
Tel. +49 511 5604-1500
Karl Steinle
Corporate Communications
Contact information
Further information
253
Hannover Re | Annual Report 2016
www.silvestergroup.com
Silvester Group,
Hamburg, Germany
Consulting, design
and realisation
Karl-Wiechert-Allee 50
30625 Hannover, Germany
Tel. +49 511 5604-0
Fax +49 511 5604-1188
Hannover Rück SE
Published by
Manfred Zimmermann, Hannover
page 7
page 2, 6/7
Werner Bartsch, Hamburg
Credits
Imprint
Hannover Re | Annual Report 2016
Fax +49 511 5604-1648
252
gabriele.handrick@hannover-re.com
Julia Hartmann
8 November 2017
20th International Investors' Day, Frankfurt am Main
19 October 2017
Half-yearly Financial Report 2017
10 August 2017
30175 Hannover
Theodor-Heuss-Platz 1-3
Hannover Congress Centrum
Annual General Meeting
Quarterly Statement as at 31 March 2017
10 May 2017
Annual Results Press Conference, Hannover
Analysts' Meeting, London
Annual financial statements 2016
9 March 2017
Financial calendar 2017
Hannover Re | Annual Report 2016
254
Fax + 49 511 5604-1648 or order them online at
www.hannover-re.com under
"Investors/Results and reports"
Tel. +49 511 5604-2343
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 Communi-
cations on:
This is a translation of the original German text; the German
version shall be authoritative in case of any discrepancies in
the translation.
www.hannover-re.com
julia.hartmann@hannover-re.com
Fax +49 511 5604-1648
Tel. +49 511 5604-1529
Investor Relations
N46 Capitalisation rates
235
205
N53 Net loss reserve and its run-off in the property
199
N52 Loss and loss adjustment expense reserve
226
Business assumed and ceded in Germany
and abroad
198
N51 Technical provisions
N91
197
N50 Development of other intangible assets
224
224
Netting agreements 2016
N 90 Netting agreements 2015
196
N49 Fixtures, fittings and equipment
N89
195
(PVFP) on acquired life reinsurance portfolios
223
N 88 Maturity structure of derivative financial
instruments 2015
N48 Development of the present value of future profits
195
N47 Other assets
223
instruments 2016
N92 Stock appreciation rights of Hannover Rück SE
N93 Share awards of Hannover Rück SE
N 100 Fee paid to the auditor
228
and casualty reinsurance segment
234
N 99 Rental income
N59 Movements in net liability from defined benefit
pension plans
234
N98 Future leasing commitments
204
N58 Measurement assumptions
232
N97 Calculation of the earnings per share
203
N57 Development of the unearned premium reserve
231
N 96 Personnel expenditures
202
N56 Development of the benefit reserve
231
N 95 Personnel information
201
N55 Maturities of the technical reserves 2015
230
of Hannover Rück SE
201
N54 Maturities of the technical reserves 2016
N94 Development of the provision for share awards
200
230
N09 Key exchange rates
148
N08 Valuation models
36
M10 Key figures for Property & Casualty reinsurance
M11 Property & Casualty reinsurance: Major loss trend
M12 Property & Casualty reinsurance: Key figures
55
34 M28 Breakdown of investments under own management 55
M29 Rating of fixed-income securities
M09 Breakdown into business written through brokers
and direct business
M08 Breakdown of proportional and non-proportional
treaties by volume
34
54
52
M26 Development of investment income
M27 Investment portfolio
34
51
48
M24 Key figures for Life & Health reinsurance
M25 Investment income
34
46
vs. target margins 2016
33
M23 EBIT-margin per reporting category
32
46
46
46
46
43
37
M19 Property & Casualty reinsurance: Breakdown of gross
written premium in worldwide treaty reinsurance
M20 Breakdown of gross premium by markets
M21 Value of New Business (VNB) growth
M22 Breakdown of gross written premium by
reporting categories
M30 Capital structure as at 31 December 2016
M31 Development of policyholders' surplus
M32 Development of Group shareholders' equity
M33 Amortised cost of our subordinated bonds
56
42
67
66
64
M41 Balance sheet structure of Hannover Rück SE
M42 Staff turnover/absenteeism Hannover head office
M43 Breakdown of employees by country
62
M40 Hannover Rück SE: Breakdown of gross premium
by individual lines of business
39
61
64
M39 Condensed profit and loss account of
Hannover Rück SE
38
5660
M38 Issue ratings of issued debt
M36 Financial strength ratings of the Hannover Re Group 59
M37 Financial strength ratings of subsidiaries
38
59
M35 Cash flow from operating activities
M13 Property & Casualty reinsurance: Breakdown of
gross written premium in target markets
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
M16 Property & Casualty reinsurance: Breakdown of
gross written premium in worldwide specialty lines 40
M17 Property & Casualty reinsurance: Breakdown of
gross written premium in facultative reinsurance
M18 Property & Casualty reinsurance: Breakdown of
gross written premium in global reinsurance
59
M34 Consolidated cash flow statement
37
for individual markets and lines in 2016
58
57
56
42
24
M05 Business development in the year under review
M06 Gross written premium in P&C reinsurance
M07 Geographical breakdown of gross written premium
in 2016
inside front cover 2
Dividend
105
112
inside front cover 2
Book value per share
104
9
860
Relative performance of the Hannover Re share
Shareholding structure as at 31 December 2016 10
I11
inside front cover 2
Policyholders' surplus
103
110
inside front cover 2
Group net income (loss)
102
Highs and lows of the Hannover Re share
109
inside front cover 2
Gross premium
101
Introductory Sections
|
Geographical breakdown of the shares held by
institutional investors
2333
106
inside front cover 3
M04 Gross premium by business group
23
the strategic and operational levels
M03 Intrinsic Value Creation and excess return
on capital allocated
Performance Excellence (PE) combines
M02 System of value-based management:
22
M01 Target attainment
M Management Report
17
11
11
10
O===
Performance Excellence
115
inside front cover 4
Strategic business groups
108
Key figures
114
inside front cover 4
The Group worldwide
107
Basic information
113
Key figures
M44 Resources consumed at Hannover head office
M45 Risk management through multiple levels of limits
M46 Strategic targets for risk position
72
73
M66 Gross written premium retained
127
Forecast development for 2017
90
M65 Rating structure of our fixed-income securities
124
M81 Growth in gross domestic product (GDP)
M82 Property & Casualty reinsurance:
89
material asset classes
M64 Scenarios for changes in the fair value of
122
participants in variable remuneration systems
88
M80 Group of participants and total number of eligible
M 63 Value at Risk for the investment portfolio of the
Hannover Re Group
120
of the Supervisory Board
88
M62 Utilisation of the trigger system
M79 Individual remuneration received by the members
87
M61 Required risk capital for market risks
119
M78 Pension commitments
86
91
116
M83 Life & Health reinsurance:
Forecast development for 2017
147
N07 Restatements pursuant to IAS 8
N20 Amortised cost, unrealised gains and losses and
146
N06 Further IFRS Amendments and Interpretations
178
N 19 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 2016
140
N 05 Consolidated cash flow statement 2016
138
shareholders' equity 2016
N04 Consolidated statement of changes in
137
177
N 18 Maturities of the fixed-income and variable-yield
securities
N03 Consolidated statement of comprehensive
income 2016
136
176
N17 Investments
N01 Consolidated balance sheet as at 31 December 2016 134
N02 Consolidated statement of income 2016
N Notes
92
balance sheet date
4
130
M 67 Reinsurance recoverables as at the
Item 4.2.5 Para. 3 - Table 2 (cash allocations
in 2015 and 2016)
M60 Required risk capital for underwriting risks
life and health reinsurance
86
M72 Measurement bases/conditions of payment
M52 Required risk capital for underwriting risks
property and casualty reinsurance
105
remuneration
82
M71 Overview of the composition of variable
81
104
M70 Measurement basis and payment procedures
for fixed remuneration
M51 Required risk capital
shareholders' equity)
M50 Reconciliation (economic capital/
80
96
93
880
M 68 Required risk capital for operational risks
M69 Opportunity management process
77
76
17
M48 Central functions of risk monitoring and steering
M49 Risk landscape of Hannover Re
M47 Available capital and required risk capital
Hannover Re | Annual Report 2016
250
74
83
83
for variable remuneration
106
M59 Combined and catastrophe loss ratio
114
Item 4.2.5 Para. 3 - Table 1 (target/minimum/
maximum remuneration as nominal amounts)
M77 German Corporate Governance Code,
LO
85
85
M57 Catastrophe losses and major claims in 2016
M58 Ensuring the quality of our portfolios
84
M76 German Corporate Governance Code,
112
M75 Total expense for share-based remuneration
of the Executive Board
84
www.hannover-re.com
54
retrocessions
M55 Stress tests for natural catastrophes after
110
Executive Board pursuant to DRS 17
84
M74 Total remuneration of the active members of the
M54 Survival Ratio in years and reserves for asbestas-
related claims and pollution damage
108
M73 Payment procedures for the total variable
remuneration
83
83
M53 Required risk capital for the four largest natural
hazards scenarios
M56 Limit and threshold for the 200-year aggregate
annual loss as well as utilisation thereof
4
214
9.4%
124
Events after the reporting date
131
Foundations of the Group
Business model
Worldwide reinsurance, transacting all lines of property & casualty and life & health
reinsurance with the goal of achieving the broadest and most balanced possible regional
and line-based diversification
Competitive advantages due to our low cost of capital and administrative expense ratio
Financial strength secured through rigorous risk management
With a gross premium volume of around EUR 16 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.
Forecast
The strategy pursued in both property & casualty and life &
health reinsurance supports 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.
We also strive for the broadest possible diversification and
hence an efficient risk balance. This is achieved by accepting
reinsurance risks with mostly little or no correlation in our
Property & Casualty and Life & Health business groups across
all lines of business as well as by maintaining a global pres-
ence. In conjunction with our capital management, this is the
key to our comparatively low cost of capital.
Guided by a clearly defined risk appetite, our risk management
steers the company so as to be able to act on business opportu-
nities while securing our financial strength on a lasting basis.
We transact primary insurance in selected market niches as
a complement to our core reinsurance activities. In this con-
text, we always work together with partners from the primary
insurance sector.
Our subsidiary E+S Rückversicherung AG (E+S Rück), as the
"dedicated reinsurer for the German market", offers a range
of products and services tailored to the specific features of the
German market. Of special importance here are the mutual
insurers with whom we maintain a strategic partnership that
is underscored through their participation in E+S Rück.
In the Property & Casualty reinsurance business group we con-
sider 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.
In the Life & Health reinsurance business group we are recog-
nised - as customer surveys confirm – as one of the top players
and the leading provider of innovative solutions. We achieve
this standing by opening up new markets for our company and
by identifying trends in order to anticipate the future needs
of our customers.
Hannover Re | Annual Report 2016
24
We generate competitive advantages to the benefit of our cli-
ents and shareholders by conducting our insurance business
with lower 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.
21
124
103
Information on Hannover Rück SE
Other success factors
61
Our staff
Sustainability at Hannover Re
666
66
66
Outlook
70
Opportunity report
Enterprise management
Declaration on Corporate Governance
Remuneration report
73
95
98
331 00 00
73
Opportunity and risk report
Risk report
54
Combined management report
Value-based management
14.7%
14.3%
Growth in earnings per
share (year-on-year
comparison)
≥ 6.5%
1.8%
16.7%
14.7%
10.1%
≥ 7.5%
18.6%
13.6%
34.4%
21.0%
EBIT margin?
Gross premium growth
3-5% 5
Value creation per share 4
Management system
13.7%
Return on equity³
Our integrated system of enterprise management constitutes
the basis for attainment 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 certified internal capital model. The targets are regularly
analysed and adjusted in the context of the strategy review
conducted at periodic intervals. Our primary focus is on long-
term attainment of the strategic targets.
Target attainment
Business group
Key data
M01
Targets for 2016
Target attainment
2016
≥ 9.9%
2015
0 2014-20161
Group
Investment return²
≥ 2.9%
3.0%
3.5%
3.3%
3.3%
2014
51
46
35
5
9
Focus on
society
10
Act
10
Check
17
objectives
115
From in-house reinsurer
to global player
all locations
1979
North America
1998
Latin America
2007
1981
For our investors
Africa
Strategic
Processes
Our strategy in practice
Our strategy encompasses ten strategic principles for ensuring the realisation of our
vision “Long-term success in a competitive business" across business units. We im-
plement 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.
Performance Excellence
10
Plan
Hannover Re | Annual Report 2016
10
Do
Focus on the
customer
Focus on
3
Strategy
Employees
Management
Partners and Resources
2
6
8
the employee
1966
Europe
1966
Report on economic position
Macroeconomic climate and industry-
specific environment
Business development
21
21
22
26
Research and development
28
31
Overall assessment of the business position 35
Results of operations
Property & Casualty reinsurance
Life & Health reinsurance
Investments
Financial position and net assets
35
28
Management system
Business model
Foundations of the Group
Establishment of "Aktien-
gesellschaft für Transport- und
Rückversicherung" (ATR) – our
original company
50 somewhat
digerent
Since 2005 the claim "somewhat different” has
described our quick, flexible and undogmatic
business approach. In 2016 we celebrated the
company's 50th anniversary.
2,893
employees
1990
Asia
The Hannover Re Group currently
employs 2,893 staff. While the under-
writing of risks on a local basis is
becoming more important, the cor-
porate group continues to be steered
centrally from Hannover.
"We want to cherry-pick."
1985
Australia
Wilhelm Zeller, Chief Executive Officer of Hannover Re, on
strategies and market position (Finanz und Wirtschaft, 14.3.1998)
1996
Today's Group logo has been
in use for 20 years.
hannover re
1991
25th anniversary: Hannover Re has
grown profitably; in 1991 the Hannover
Re Foundation is set up to benefit the
Sprengel Museum in Hannover.
Combined management report
-0.2%
8.1%
Property &
Casualty
reinsurance
3.0%
IVC - the strategic management ratio
In order to manage the portfolios and individual treaties we
apply underwriting-year-oriented measurement principles
based on expected cash flows that appropriately accommo-
date the specific characteristics of property & casualty and
life & health reinsurance. The attainment of targets in a particu-
lar financial year is also of interest - especially from the stand-
point of shareholders. Based on our internal capital model, the
foundation of our enterprise management, we strive to gener-
ate a profit in excess of the cost of capital. This return – which
is the decisive ratio for the management of our business activ-
ities - is referred to as Intrinsic Value Creation (IVC).
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.
Intrinsic Value Creation and excess return on capital allocated
In this way, we can
•
optimise the allocation of capital and resources,
• identify opportunities and risks and
Combined management report
•
The IVC (Intrinsic Value Creation) is calculated according to
the following formula:
Adjusted operating profit (EBIT) – (capital allocated × weighted
cost of capital) = IVC
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 in the value determi-
nation for changes in the fair values of assets not recognised
in income under IFRS as well as for the change in economic
effects in the technical Solvency II balance sheet items that are
not recognised in the IFRS balance sheet. In addition, interest
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.
M03
in EUR million
Property and casualty reinsurance
Life and health reinsurance
Investments
measure strategy contributions with an eye to our
demanding profit and growth targets.
Group
M02
Hannover Re | Annual Report 2016
Planning year -1
1.2%
Planning year
Evaluation
Executive Board
retreat/GMF/GE=1
PE Check2
PE Check²
Management
Reporting
23
Attainment of targets
1 The Global Management Forum (GMF) and the Global Executive Forum (GEF) bring together senior managers of the Hannover Re Group from around
the world for the purpose of defining strategic orientations. The parameters developed here serve as the basis for the subsequent planning process.
Verification and elaboration of contributions to the Group strategy
2
Management by Objectives
The key indicators from the target matrix are integrated into
the individual agreements on objectives with managers. When
it comes to the definition of objectives, the participants take
into account not only standardised financial indicators but also
non-financial variables derived from the strategic parameters.
Management Reporting
The annual Management Reporting presents in detail the
respective 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
reinsurance and for the Group as a whole. On this basis appro-
priate performance controlling is carried out, potential scope
for improvement and refinement is identified and perfor-
mance-oriented remuneration components defined in the con-
text of Management by Objectives are established.
Capital allocation
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 internal capital model supplies the key parameters for this
purpose. 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 accord-
ing to risk categories/treaty types and lines. In this way, we
ensure consistent adherence to our profit targets - allowing
for risk, cost and return considerations - in the evaluation and
pricing of our various reinsurance products.
Planning year +1
1
2016
2015
24
Hannover Re | Annual Report 2016
The allocated capital consists of three components: the share-
holders' equity including non-controlling interests, the bal-
ancing items for differences between economic valuations
pursuant to Solvency II and amounts stated in the IFRS bal-
ance sheet and the hybrid capital. 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 reinsurance. The invest-
ment 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.
In calculating the cost of capital, our assumption - based on
a Capital Asset Pricing Model (CAPM) approach - is that the
investor's opportunity costs are 450 basis points above the
risk-free interest rate, meaning that value is created above this
threshold. Our strategic return on equity target of 900 basis
points above risk-free thus already contains a substantial tar-
get value creation. We allocate equity sparingly and use equity
substitutes to optimise our average cost of capital. At 4.8%,
our average cost of capital is comparatively low.
Since comparison of absolute amounts is not always mean-
ingful, we have introduced the xRoCA (excess return on cap-
ital allocated) 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.
Through the close interlinking of our internal capital model
with the capital allocation and value-based management, we
fulfil the requirements of the Solvency II use test.
Operational management system
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
internal capital model. We use these indicators for operational
management within the year, in part because they are available
promptly and also because they already provide initial pointers
as to whether we are likely to achieve our higher-order strate-
gic objectives. These are for both business groups the growth
in gross premium, for property and casualty reinsurance the
combined ratio, for life and health reinsurance the EBIT mar-
gin 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.
24
Hannover Re | Annual Report 2016
Combined management report
Research and development
Exploring market trends and developing innovative prod-
ucts are tasks assigned to the market units at Hannover Re.
In addition, business opportunities and innovations that cut
across markets and segments are coordinated by the "Regu-
latory Affairs and Innovation” team and pursued by means of
interdisciplinary projects in which various market and service
units play key roles. In this way, we develop products and
solutions that deliver value added both for Hannover Re and
for our clients. By way of example, our move to give capital
market 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
evolution of a market for so-called insurance-linked securi-
ties, which is one of the fastest growing markets in the insur-
ance sector. Another example of Hannover Re's development
activities is the creation of its own internal model for risk man-
agement under Solvency II that caters to the requirements of
various stakeholders (regulators, rating agencies, capital pro-
viders) and was one of the first to be approved in Europe. Not
only that, through our active involvement and the provision 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 reinsur-
ance undertaking.
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 95 et seq.).
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. In the financial year just ended we launched
a competition under the name “Journey Re” in which teams
composed of talented young people – so-called Millennials – at
four different locations (Berlin, Boston, Dublin and Johannes-
burg) were tasked with developing new product and business
ideas, The three most promising ideas were recognised with
prize money of EUR 80,000. The fruits of this initiative are
now being transformed into projects and will be refined into
marketable commodities over the coming months. For further
details please see the Opportunity report on page 95 et seq.
26
26
Hannover Re | Annual Report 2016
25
Income above risk-free interest after deduction of risk-appropriate cost of capital
1
5.4%
IVC
xRoCA
IVC
xRoCA
355.7
7.1%
454.9
7.4%
102.7
3.5%
251.8
8.9%
325.5
6.2%
(16.4)
-0.6%
783.7
5.9%
688.7
process
Planning
Agreement on targets
by Objectives
4.9%
3.2%
Value of New Business
(VNB) 10
> EUR 220
EUR 893
EUR 543
EUR 448
million
9.5%
million
million
EBIT margin7
Financial Solutions/
Longevity
PE Check²
9.4%
11.0%
5.0%
million
8.6%
-4.3%
Gross premium growth
Combined ratio
≤96%6
93.7%
94.4%
94.7%
94.3%
≥ 10%
16.8%
5-7%9
16.6%
16.8%
xROCA 8
≥ 2%
7.1%
7.4%
10.7%
8.4%
Life & Health
reinsurance
17.0%
EBIT margin7
≥ 2%
≥ 6%
Since 2016 based on Solvency II principles and pre-tax reporting; until 2015 MCEV principles
(cost of capital already increased from 4.5% to 6% in 2015) and post-tax reporting
Hannover Re | Annual Report 2016
Mortality/Morbidity
System of value-based management:
Performance Excellence (PE) combines the strategic and operational levels
Plan
Implementation
10
Executive Board
retreat/GMF/GEF
1
Executive Board
retreat/GMF/GEF1
Performance
Excellence
Results
Risks
Resources
Management
Strategy
22
In Performance Excellence (PE) we have at our disposal a
consistent method Group-wide that enables us to steer the
development of the company as well as to measure and hence
also evaluate the extent to which we have achieved our stra-
tegic objectives. The decentralised approach used by PE is of
special importance in this context: every single organisational
unit defines and continuously examines its contributions to
execution of the Hannover Re Group strategy and develops
improvement initiatives.
8 Excess return on allocated economic capital
3.4%
3.6%
4.8%
3.9%
9 Organic growth only; annual average growth (5 years); at constant exchange rates
≥ 3%
3.5%
8.9%
7.3%
XROCA 8
6.5%
6 Including major loss budget of EUR 825 million
5 Average over the reinsurance cycle; at constant exchange rates
Growth in book value per share including dividend paid
7 EBIT/net premium earned
3 After tax; target value: 900 basis points above the 5-year average return on 10-year German government bonds
1 Average annual growth, otherwise weighted averages
Excluding effects from Mod Co derivatives
2
4
89.9%
16.8%
16.6%
17.0%
15.5%
15.9%
Retention
88.5%
89.3%
90.6%
90.2%
Property & Casualty
reinsurance
93.7%
94.4%
94.7%
94.9%
95.8%
1 Adjusted pursuant to IAS 8
2 Operating result (EBIT)/net premium earned
3 Including expenses on funds withheld and contract deposits
36
Hannover Re | Annual Report 2016
EBIT margin²
Combined ratio 3
5.68
The Hannover Re Group at a glance
6.88
7,731
16,354
M04
7,149
As reported at the outset, the operating profit (EBIT) fell short
of the level in the previous year, which had been boosted by a
positive one-off effect. We are nevertheless satisfied with the
generated result of EUR 343.3 million (EUR 405.1 million). The
EBIT margins achieved within the individual reporting catego-
ries were as follows: in mortality and morbidity business we
missed the 6% target with an EBIT margin of 3.4%; longevity
business reached its stated target of 2% with an EBIT mar-
gin of 2.2%; the EBIT margin for financial solutions business
amounted to 18.5%, thereby comfortably beating the minimum
target of 2%. All in all, life and health reinsurance business thus
contributed an amount of EUR 252.9 million (EUR 289.6 mil-
lion) to Group net income.
5,000
9,338
9,205
17,069
7,717
7,903
0
2012
2013
2014
2015
Property & Casualty reinsurance Life & Health reinsurance
Life & Health reinsurance
7,818
2016
10,000
6,145
We are thoroughly satisfied with the development of busi-
ness in the 2016 financial year. With Group net income of
EUR 1,171.2 million we actually surpassed the anticipated level
of at least EUR 950 million. We thus improved by a further
1.8% on the record result of the previous year. This develop-
ment is particularly gratifying because market conditions for
reinsurers remain extremely challenging and the low level of
interest rates is increasingly restricting our potential returns.
The year-end result was once again supported by a burden of
major losses that came in below the envisaged budget.
-
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 52.
Property & Casualty reinsurance
Market conditions in property and casualty reinsurance contin-
ued to be fiercely competitive. Reinsurance capacity substan-
tially exceeded demand. Furthermore, additional capacities
from the insurance-linked securities (ILS) market put prices
and conditions under sustained pressure. Against this back-
drop we wrote our business highly selectively, causing gross
premium – as anticipated - to contract slightly. It fell by 1.4%
as at 31 December 2016 to EUR 9.2 billion (previous year:
EUR 9.3 billion). At constant exchange rates the premium vol-
ume would have remained stable.
Investment income from assets under own management in
property and casualty reinsurance declined by 5.2% year-on-
year to EUR 876.9 million (EUR 924.8 million). We are never-
theless highly satisfied with this performance. Reflecting the
protracted low interest rate environment, ordinary income con-
tracted in line with our expectations by 5.1% to EUR 899.3 mil-
lion (EUR 947.4 million).
All in all, the results in property and casualty reinsurance were
thoroughly satisfactory. The underwriting result improved
again on the already exceptionally positive level of the pre-
vious year to reach EUR 479.1 million (EUR 432.2 million).
Expenditure on large losses was higher than in the previous
year at EUR 626.6 million (EUR 572.9 million), but still within
the expected bounds. The combined ratio of 93.7% (94.4%)
came in well below our targeted maximum of 96%. The oper-
ating profit (EBIT) as at 31 December 2016 remained stable
at EUR 1,340.3 million (EUR 1,341.3 million). Reflecting the
very good development of our business, the EBIT margin of
16.8% (16.6%) once again beat our minimum target of 10%.
Group net income came in at a pleasing EUR 949.9 million
(EUR 914.7 million) and thereby surpassed the record level of
the comparable period.
Hannover Re | Annual Report 2016
6,459
31
Gross premium by business group
in EUR million
20,000
14,362
15,000
13,774
13,963
6,058
Combined management report
Very healthy investment income despite challenging conditions
Reduced return on equity of 13.7% highly satisfactory
Life and health reinsurance business delivered another size-
able contribution to total Group net income in the reporting
period just ended. The positive development and stability
clearly demonstrated the underlying profitability of the port-
folio. Bearing in mind that the sustained profitability of what is
in some cases very long-term business does not always begin
immediately when a treaty is written, a multi-year perspec-
tive is essential in order to make well-founded assessments.
Non-recurring effects – both positive and negative - can lead
to volatility in the results.
Gross premium decreased by 7.5% and amounted to
EUR 7.1 billion (EUR 7.7 billion). Adjusted for exchange rate
effects, this is equivalent to a decline of 4.3%. The decisive
factor here was the extraordinary premium growth in 2015.
The Value of New Business totalled EUR 893 million and thus
beat the targeted level of EUR 220 million.
3
Excluding ModCo derivatives
4
Forecast 2016
stable to slightly lower¹
slightly lower¹
slight increase, stable
1, 2
~ 2.9%
~ EUR 950 million 4
2 Organic growth only
M05
Assuming stable capital markets and/or major loss expenditure in 2016 that does not exceed EUR 825 million
EUR 1,171.2 million
Hannover Re | Annual Report 2016
33
Combined management report
Property & Casualty reinsurance at a glance
Gross written premium in P&C reinsurance
M06
Target attainment 2016
-2.1% at constant exchange rates
-4.2% not adjusted for currency effects
-0.2% at constant exchange rates
-1.4% not adjusted for currency effects
-4.3% at constant exchange rates
-7.5% not adjusted for currency effects
3.0%
The result for the year under review is largely in line with our
expectations for the overall profitability of our life business.
The operating profit for 2015 had, however, been boosted by
a one-time positive effect of EUR 39 million due to the early
termination of a large contract, and to this extent the result in
the
year under review came in lower.
1 At constant exchange rates
Return on investment³
Our investment income declined to EUR 638.9 million
(EUR 709.2 million) in the financial year just ended. This
decrease is in line with our expectations. Of the total invest-
ment income, EUR 330.8 million (EUR 334.3 million) was attrib-
utable to assets under own management and the remaining
EUR 308.1 million (EUR 374.9 million) derived from securities
deposited with ceding companies.
Investments
Given the sustained low interest rate environment and in
some instances even further reductions in rates, we are again
highly satisfied with the development of our investments as at
31 December 2016. The portfolio of investments under own
management stood at EUR 41.8 billion and was thus signifi-
cantly higher than the comparable level at the end of the pre-
vious year (31 December 2015: EUR 39.3 billion). The increase
was driven in large measure by positive exchange rate effects -
especially associated with the strong US dollar - and higher
hidden reserves in the areas of listed equities and private
equity, although the primary factor here was a gratifyingly
positive operating cash flow.
With interest rates remaining on a low level, ordinary invest-
ment income excluding interest on funds withheld and contract
deposits fell short of the comparable period at EUR 1,162.0 mil-
lion (EUR 1,253.4 million), but was exactly in line with our
expectations for the year under review.
Net realised gains on investments as at 31 December 2016 com-
fortably exceeded the previous year's figure at EUR 206.3 mil-
lion (EUR 135.8 million). Write-downs increased in the year
under review to EUR 76.3 million (EUR 38.7 million). They
derived from scheduled depreciation taken on real estate
as well as impairments due to temporary price losses on
equity markets following the Brexit referendum. Income
from assets under own management retreated as anticipated
to EUR 1,218.3 million (EUR 1,270.1 million). The result-
ing annual return (excluding ModCo derivatives) amounted
to 3.0% and thus beat the 2.9% target. The figure for the
previous year had been 3.5%. Investment income including
interest on funds withheld and contract deposits contracted to
EUR 1,550.4 million (EUR 1,665.1 million), a decline of 6.9%
relative to 2015. Interest on funds withheld and contract depos-
its totalled EUR 332.1 million (EUR 395.0 million).
32
Hannover Re | Annual Report 2016
Total result
Group net income
The gross premium in our total business decreased by 4.2%
as at 31 December 2016 to EUR 16.4 billion (EUR 17.1 bil-
lion). At constant exchange rates the decline would have been
2.1%. This is in line with our expectation of a stable or slightly
lower business volume. The level of retained premium climbed
to 89.3% (87.0%). Net premium earned consequently fell by
just 1.2% to EUR 14.4 billion (EUR 14.6 billion). At unchanged
exchange rates growth of 1.0% would have been booked.
The equity position remains highly robust: the equity attribut-
able to shareholders of Hannover Re increased to EUR 9.0 bil-
lion (EUR 8.1 billion) as at 31 December 2016. We nevertheless
generated another pleasing return on equity of 13.7% (14.7%).
The book value per share reached EUR 74.61, beating the pre-
vious year's record high (EUR 66.90). All in all, Hannover Re
largely achieved the forecasts provided for the 2016 financial
year as shown in the following table “Business development
in the year under review".
The total policyholders' surplus, consisting of shareholders'
equity, non-controlling interests and hybrid capital, amounted
to EUR 11.2 billion (EUR 10.3 billion) as at 31 December 2016.
With the publication of the annual financial statement we are
also releasing the capital adequacy ratio of the Hannover Re
Group calculated in accordance with the requirements of Sol-
vency II. It increased relative to the previous year to reach a
level of 230% as at 31 December 2016 (30 September 2015:
221%).
Business development in the year under review
Gross premium growth (Group)
Gross premium growth for
Property & Casualty reinsurance
Gross premium growth for
Life & Health reinsurance
Despite the elimination of a non-recurring effect from the
previous year in an amount of EUR 39 million, we generated
an operating profit (EBIT) of EUR 1,689.3 million in the year
under review. This was only narrowly below the level of the
record result posted in 2015 (EUR 1,755.2 million). Group net
income improved on the previous year to EUR 1,171.2 million
(EUR 1,150.7 million), thereby clearly surpassing our guidance
for Group net income of at least EUR 950 million. Earnings
per share for the Hannover Re Group amounted to EUR 9.71
(EUR 9.54).
Solid result in life and health reinsurance
•
Very good profit in property and casualty reinsurance
since 2009:
third-largest reinsurer
63.5
2016
Research and
development
Since 2010 Hannover Re has supported the Global
Earthquake Model (GEM). GEM's mission is to
improve public understanding and awareness of
earthquake risks worldwide and to reduce the
impacts of earthquakes on populations.
Report on economic position
Macroeconomic climate and industry-specific environment
(DM 10.3 billion)
Persistently weak global economic growth
.
Capital markets subject to volatility
Losses from natural disasters exceed four-year average
Macroeconomic climate
Looking at the year as a whole, the expansion of the global
economy in 2016 once again fell short of the previous year at
3.1% (previous year: 3.2%). In the second half of the year the
economy benefited from a tangible upward trend: the growth
rate of 0.9% recorded in the third quarter was actually the
strongest in two and a half years.
The pace of growth in the advanced economies remained mod-
erate, even though manufacturing picked up appreciably from
the summer onwards. Impetus derived from, among others,
the United States, where inventory investments and exports
increased sharply after a depressed first six months. In Japan
total economic output rose slightly thanks to a boost from
exports. The Eurozone economy continued to expand in 2016,
sustaining its moderate growth of the past three years. It was
stimulated by private and public consumption and in regional
terms enjoyed broad-based support.
Growth in emerging markets was again stronger in 2016,
although the economic challenges facing individual countries
remain considerable. In China, India and other Southeast Asian
nations output surged sharply higher over the six months of
summer-driven in part by an expansionary economic policy.
In Latin America it was above all Mexico and the Andean coun-
tries that picked up on this trend. Brazil, Argentina and Vene-
zuela, on the other hand, remained mired in recession. Output
in Russia stabilised again after a soft spring. Economic activity
in Turkey suffered an outright collapse following the political
turmoil of the summer.
United States
Low interest rate environment remains a drag on the insurance industry
The US economy proved unable to maintain the previous year's
pace of growth. Gross domestic product (GDP) rose by just
1.6% in 2016, a full percentage point less than in the year
before. The principal factor here was a soft first six months.
While private consumption was still lively, businesses in par-
ticular showed marked reticence with their investments in
equipment. The trend reversal in the summer was crucially
driven by the fact that companies began to rebuild their stocks
after five quarters of reductions. What is more, exports started
1996
in EUR billion
Life & Health
reinsurance
Gross premium in EUR billion
+6.3% p.a.
+6.2% p.a.
6.8
9.2
5.3
7.2
5.3
2011
2011
2016
10 times "Reinsurer of the Year"
Hannover Re was first crowned "Reinsurer of the Year"
by the "The Review" in 1998.
Growth in the
Position on the
balance sheet total
world market
2016
to pick up again. Consumer prices showed another year-on-
year gain (+1.3% as against +0.1% in the previous year) and
unemployment fell by a further 0.4 percentage points to a com-
paratively low level of 4.9%, suggesting a fundamentally pos-
itive basic tendency in the United States.
Europe
The economic climate in the Eurozone maintained its moderate
expansionary course: the growth rate fell slightly by 0.2 per-
centage points to 1.7%. The growth contribution stemming
from foreign trade remained modestly negative in the year just
ended at -0.2%. In regional terms, the economic expansion
was broad-based, with all the nations in the single currency
area managing to boost their economic output. Even countries
currently facing an intensified struggle with economic difficul-
ties Portugal (+1.3%), Italy (+0.9%) and Greece (+0.4%) -
charted a growth course. The UK economy expanded by 0.5%
in the third quarter, notwithstanding the vote in favour of leav-
ing the European Union. Not only private consumption and
corporate investments but also exports surged appreciably,
contributing to growth of 1.6% for the year.
Stock markets, which we had begun to look at more closely Industry-specific environment
again in the context of our move to rebuild an equity portfolio,
climbed to new - in some cases - historic highs in the course
of the year. The US market, in particular, booked appreciable
price gains over the year. Most European indices, on the other
hand, found themselves treading water year-on-year, although
the DAX 30 performed relatively well with a gain of some 7%.
Markets in emerging economies also delivered a pleasing per-
formance, especially bearing in mind their slump at the start
of the year. European equity markets were driven above all by
the continued expansionary monetary policy of the ECB and
the search by investors for high-return investment opportu-
nities. With this in mind, though, the high price levels were
ultimately only partially justified by fundamental metrics. All
in all, stock markets once again proved to be broadly robust in
the face of crisis warnings. While this is a cause for satisfac-
tion, it can also entail the risk of bubbles forming. It was only
growing concerns about the strength of the Chinese economy
following a currency devaluation in combination with slumping
commodity prices that prompted a marked downturn on stock
markets at the beginning of the period under review.
The development of the world economy remains subject to var-
ious uncertainties and risks, first and foremost of a geopolitical
nature. Global heterogeneity associated with varying economic
trends and local flashpoints may be mentioned here as particu-
larly significant considerations. The ongoing risk of terrorism
is another factor that needs to be monitored, even though cap-
ital markets have hitherto responded to this in robust fashion.
The euro declined again against the US dollar over the course
of the year from USD 1.08 to USD 1.05. It also suffered some
modest losses against the Australian dollar. The pound ster-
ling, on the other hand, fell sharply against the euro as a
consequence of the Brexit vote, with the euro climbing from
GBP 0.74 to GBP 0.86.
For more detailed remarks on the development of Hannover
Re's investments please see the "Investments" section on page
51 et seq.
For the international (re)insurance industry the omens were
virtually unchanged: the general environment continued to be
highly challenging in 2016. In view of the protracted low level
of interest rates, the focus remained firmly on preserving the
value of investments and generating stable returns.
The year under review was also one of new developments on
the regulatory side for the insurance industry. In Europe har-
monised insurance supervisory law was successfully imple-
mented in the form of Solvency II. Reflecting an integrated
approach to risk, these refined solvency requirements for insur-
ers put in place new measurement principles for assets and lia-
bilities, which are to be recognised at their fair values in future.
In China, too, a new risk-based solvency regime (C-ROSS) came
into effect at the beginning of the year; it is intended to promote
domestic reinsurance placement. The planned launch of a new
solvency system in South Africa, known as Solvency Assess-
ment and Management (SAM), was postponed until mid-2017.
The Indian insurance market similarly witnessed some regu-
latory adjustments: at the end of 2016, for example, the local
insurance regulator gave its approval to a small number of for-
eign reinsurers to establish branches, thereby opening up the
growing Indian reinsurance market to international players.
30
The digital revolution was once again a major preoccupation
for the insurance industry in 2016. This can be attributed in
part to the cost pressure on primary insurers, which was driven
above all by the protracted low level of interest rates and by the
competitive environment. For insurers, then, the focus was not
only on the development of new products, the optimisation of
business processes or innovative impetus in the areas of cus-
tomer care and acquisition; there was also an industry-wide
trend towards participation in and cooperation with start-ups
and insurtechs. The (re)insurance industry also leveraged dig-
itisation in the year just ended to optimise its point-of-sale
systems and structure internal value-added chains even more
efficiently. This trend looks set to continue in the coming years.
Hannover Re | Annual Report 2016
Against the backdrop of advancing digitisation, demand
increased in the year under review for covers to protect against
cyber risks. While the vast bulk of the worldwide insurance
premium was generated in the United States, growing inter-
est could also be discerned in Europe as the year progressed.
The sustained low interest rate environment similarly had impli-
cations for life and health reinsurance in the area of traditional
life insurance products, which have now not only lost a consid-
erable part of their appeal but have also to some extent been
supplanted by new policies which have been adapted to the
changed interest rate situation. Furthermore, in the context of
the new Solvency II regulations, many European insurers were
compelled to grapple with increased capital requirements – pri-
marily in relation to longevity business. As the year progressed,
therefore, a growing demand for reinsurance was observed.
This is also true of the Eastern European market, which is sim-
ilarly coming under more exacting regulatory requirements.
Demographic change is driving sustained demand for old-age
provision products - on the reinsurance as well as the insur-
ance side. Lifestyle products, which offer risk protection tai-
lored to the policyholder's specific life situation, also played
a more prominent role. Policies under which the premium is
linked to the insured's health-related behaviour enjoyed a
particularly brisk surge in demand in the year under review.
Although the purchasers of such products have hitherto tended
to be in Anglo-Saxon and Asian markets, a tangible interest in
this trend can now also be detected in Europe.
Business development
New record net income generated
•
In property and casualty reinsurance the pressure of competi-
tion remained high in 2016. This was due in part to the healthy
capital resources enjoyed by primary insurers, which enabled
them to carry high retentions. Another factor was the contin-
ued inflow of capital from the ILS sector into the reinsurance
market, as a consequence of which the supply of capacity in
the market comfortably outstripped demand - hence again put-
ting prices and conditions under pressure in 2016. The burden
of major losses was thoroughly moderate in the year under
review, as it had been in prior years. However, a number of
severe earthquakes and windstorm events led to the heaviest
losses from natural catastrophe events in four years.
30
29
Hannover Re | Annual Report 2016
-
The state of the labour market in Europe continued to improve.
The average jobless rate decreased by 0.8 percentage points
to 10.1%, with above all Greece and Spain still struggling
to cope with high levels of unemployment. Consumer prices,
which had been flat in the previous year, increased by 0.2%.
Germany
Having enjoyed an upswing over the past three years, the Ger-
man economy stayed on its expansionary track in 2016. Growth
increased again by a modest 0.2 percentage points year-on-
year to reach 1.9%. In view of the political uncertainties in
the international arena, the willingness of companies to invest
softened appreciably over the six months of summer. By year-
end, however, economic activity was clearly trending higher
again. Low interest rates continued to stimulate spending by
private households. The construction industry, in particular,
was still operating at the limits of its capacity, with orders on
hand standing at their highest level in 16 years at year-end.
Private consumption once again played a pivotal role in the
favourable economic development: it benefited from a healthy
28
Hannover Re | Annual Report 2016
Combined management report
jobs market, rising real wages and an oil price that was still
moderate. German exports overcame a temporary period of
softness to put on 2.5% over the year as a whole. Furthermore,
industrial new orders from countries outside the Eurozone also
surged vigorously in the final months of the year.
The state of the labour market was positive: according to fig-
ures published by the Federal Statistical Office, the average
number of persons employed over the year increased by 1.0%
to a new record high of 43.5 million. The jobless number fell
to a historically low 1.76 million, equivalent to an adjusted
unemployment rate of 4.1%.
The price trend was positive in 2016 despite the restraining
effect of low energy prices. Consumer prices rose by an annual
average of 0.5% (0.2%). In December they increased by as
much as 1.7% compared to the same month of the previous
year.
Asia
After the rather moderate pace of expansion in 2015 growth
was still sluggish as 2016 got underway, but it picked up
perceptibly over the course of the year. In China, most nota-
bly, gross domestic product rallied strongly during the year
thanks to an expansionary economic policy and by year-end it
modestly surpassed the growth target set by the government.
At 6.7%, however, the increase fell 0.2 percentage points short
of the previous year.
In India the implementation of currency reform in late autumn
severely hampered economic activity towards the end of the
year. Despite this, the growth of 7.1% recorded by Asia's sec-
ond-largest national economy was not far short of the previ-
ous year's good performance (+7.3%). Growth was similarly
sustained in the other emerging nations of Southeast Asia: the
four economies of Indonesia, Thailand, Malaysia and the Phil-
ippines expanded by an average of 4.8%.
Japan was able to boost its exports to the Asian region in the
second half of the year despite a strengthening yen. Private and
public consumption as well as gross investments remained flat,
however, as a consequence of which the country's economy
continued to show only slow growth of 1.0% over the year as
a whole (+1.2%).
Capital markets
The investment environment in the period under review was
once again challenging and notable for a high degree of uncer-
tainty. Even as the year got underway China unnerved finan-
cial markets by devaluing its national currency; this prompted
concerns about the state of its economy. The fall in commodity
prices as a consequence of excessive supply capacities, global
growth worries and a strong US dollar impacted emerging
economies first and foremost, but also had sharply negative
implications for Western equity markets. The European Central
Bank (ECB) and the Bank of Japan responded by extending
their expansionary policy, and the pause in the cycle of interest
rate hikes announced by the US Federal Reserve (Fed) in the
fourth quarter unleashed a rally on stock markets.
The general mood of uncertainty prevailing on financial mar-
kets was further exacerbated by the referendum held among
the UK population in the middle of the year on leaving the
European Union (“Brexit”). From the end of June onwards
the doubts surrounding the outcome of this vote gave way
to political and legal uncertainties in relation to the concrete
procedure for leaving the EU. This situation led to protracted
volatility in the United Kingdom, where further sharp declines
in yields were observed across all maturity segments until the
beginning of the fourth quarter as a consequence of support
buying by the Bank of England. German and US government
bonds, however, similarly saw clear decreases in yields until the
same point in the year. Yet as the fourth quarter began a trend
reversal towards rising yields emerged - and subsequently
gained further momentum following Donald Trump's victory
in the US presidential election in early November. Looking
at the entire year, US Treasury securities showed increases
in yields across all maturity bands. When it came to the euro
and pound sterling, on the other hand - despite the upticks in
yields in the fourth quarter -, further considerable declines in
what was already a low yield level were seen over the year as
a whole. German government bonds at times delivered clearly
negative returns almost into the ten-year maturity segment.
Uncertainty also left its mark within the year on the valuation
of markets for corporate bonds - primarily at the start of the
year in emerging economies - and initially prompted sharp
rises in risk premiums. Over the course of the year, however,
these increasingly retreated again across all rating classes -
sometimes falling appreciably below their respective level in
the previous year.
The policies pursued by central banks in our main currency
areas varied. Following its cut to 0.05% in 2014, the European
Central Bank (ECB) further trimmed the key interest rate for
the Eurozone at the beginning of the current reporting period
to the historically low level of 0.00%. The Bank of England -
which had left the prime rate for pound sterling untouched
since 2009 - followed suit by reducing it from 0.5% to 0.25%
in response to the Brexit vote. The Fed, on the other hand,
raised the base rate for the US dollar slightly from an average
of 0.38% to 0.63%.
in EUR million
Gross premium in EUR billion
10,000
7,818
2015
2016
direct business
Hannover Re | Annual Report 2016
Overall assessment of the business position
Hannover Re is highly satisfied with the development of busi-
ness in 2016. The company achieved its targets for impor-
tant key indicators such as the return on investment, Group
net income, return on equity as well as the EBIT margin and
combined ratio in property and casualty reinsurance. This is
all the more pleasing because the business environment for
reinsurers remained challenging. The generated investment
income and return on investment were very satisfactory despite
the continued low level of interest rates. Group net income
again surpassed EUR 1 billion. The company's shareholders'
equity showed a thoroughly gratifying increase, causing the
total policyholders' surplus to climb to a new record high. At
the time of preparing the management report, the business
position of the Hannover Re Group remains very good and its
financial strength has been further reinforced.
Results of operations
2014
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
Property & Casualty reinsurance
•
•
Gross premium volume stable on a currency-adjusted basis
Large loss expenditure of EUR 627 million lower than budgeted level of EUR 825 million
Very pleasing combined ratio of 93.7%
Group net income rises by almost 4%
Accounting for 56% of our premium volume, Property &
Casualty reinsurance is Hannover Re's largest business group.
It is structured according to our Board areas of responsibil-
ity, namely "Target markets”, “Specialty lines worldwide" and
"Global reinsurance".
position and assets of our Group. Supplementary to the infor-
mation 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.
Given the continued absence of market-changing large losses,
intense competition once again shaped the development of
business in the year under review. Primary insurers remain in a
position to carry high retentions thanks to their healthy capital
resources. At the same time, capital is increasingly flowing into
the reinsurance market from the steadily expanding ILS sector
(including catastrophe bonds and collateralised reinsurance)
owing to the lack of higher-yield investment alternatives. As
a result, the available capacity in the reinsurance market con-
tinues to clearly outstrip demand.
business written through brokers
proportional
6,392
(69%)
(69%)
5,096
(68%)
(64%)
2,000
2,000
34
non-proportional
34
0
2012
2013
2014
2015
2016
2012
2013
0
(66%)
These factors again cast a shadow over the treaty renewals as
at 1 January 2016. Even though the price decline was consid-
erable in some markets, we were still able to preserve healthy
profitability for our portfolio thanks to our broad-based diversi-
fication. Business with agricultural risks was relatively divorced
from the soft property and casualty reinsurance market. Avi-
ation and marine business, on the other hand, saw sharp rate
declines, prompting us to scale back our premium volume here.
In the further rounds of renewals during the year the rate trend
In this challenging environment it was particularly important
for Hannover Re to systematically pursue its margin-oriented
underwriting. It remains the case that we expand our busi-
ness only in areas where the margins are commensurate with
the risks. On the other hand, we reduce our involvement in
regions and lines where the prices do not meet our profita-
bility standards. We focused heavily on our existing business,
and were thus again able in the year under review to benefit
from our long-standing customer relationships and our posi-
tion as one of the world's leading and most financially robust
reinsurance groups.
7,903.4
7,817.9
7,717.5
Net premium earned
7,985.0
-1.4%
8,099.7
7,011.3
9,338.0
6,866.3
Underwriting result
479.1
+10.8%
432.2
351.5
335.5
272.2
Net investment income
6,854.0
largely continued along these lines, although indications of a
stabilisation in reinsurance prices did emerge in individual
lines and markets, including for example in North America.
-1.4%
Gross written premium
Gross premium contracted as expected in the year under
review by a modest 1.4% to EUR 9.2 billion (previous year:
EUR 9.3 billion); at constant exchange rates it would have
remained stable. This is in line with our forecast of a slight
decline in the currency-adjusted gross premium volume. The
level of retained premium retreated to 88.5% (89.3%). Net
premium earned fell by 1.4% to EUR 8.0 billion (EUR 8.1 bil-
lion); adjusted for exchange rate effects, it would have been
unchanged.
Hannover Re | Annual Report 2016
35
Combined management report
The most notable large losses in the 2016 financial year were
a number of major earthquakes and windstorm events; various
man-made losses were also incurred. All in all, however, the
burden of losses for our account was in line with our expecta-
tions. The most expensive event for our company was the dev-
astating forest fires in the Canadian province of Alberta, with
a net loss of EUR 127.9 million. After several years of rather
benign storm seasons in the United States and the Caribbean,
the year under review brought a costly event in the shape of
Hurricane Matthew: the resulting net strain for Hannover Re
amounted to EUR 70.3 million. The earthquakes in Ecuador
and New Zealand similarly gave rise to significant losses. Total
net major loss expenditure for the year under review amounted
to EUR 626.6 million (EUR 572.9 million). While this figure is
higher than in the previous year, it is still below our budget of
EUR 825 million. For a detailed list of our catastrophe and large
losses please see page 85. The underwriting result climbed by
10.8% to EUR 479.1 million (EUR 432.2 million). The com-
bined ratio for the year under review of 93.7% (94.4%) was
clearly better than our targeted mark of 96%. Aside from the
Key figures for Property & Casualty reinsurance
favourable development of the technical account, this was also
partly due to the reversal of reserves from prior years that were
no longer required.
Investment income for the Property & Casualty reinsur-
ance business group contracted as expected by 4.7% to
EUR 900.9 million (EUR 945.0 million). The operating profit
(EBIT) was once again very pleasing at EUR 1,340.3 million;
it thus fell fractionally short of the record level in the compa-
rable period (EUR 1,341.3 million). The EBIT margin climbed
from 16.6% to 16.8%, hence clearly beating our minimum tar-
get of 10%. Group net income came in at EUR 949.9 million,
surpassing the previous year's result of EUR 914.7 million by
3.8%. Earnings per share for this business group amounted
to EUR 7.88 (EUR 7.58).
9,204.6
On the following pages we report in detail on developments
in the individual markets and lines of our Property & Casualty
reinsurance business group, split into the three areas of Board
responsibility referred to at the beginning of this section.
2016
+/-
previous
2015
2014
2013
20121
in EUR million
year
M 10
5,267
5,359
6,143
2,920
2,647
2,717
4,000
-2,725
-2,576
2,000
2,926
Rest of Europe
3,007
2,634
2,619
0
2012
2013
Target markets
2014
2015
2,521
2016
14.6% Asia
10.9% Germany
7,903
8,000
2,467
2,471
2,708
6,000
Geographical breakdown of gross written premium
in 2016
M07
19.0%
2.6% Africa
9,338
9,205
6.4% Latin America
35.0%
North America
9.0% United Kingdom
3,492
3,551
2.5% Australia
Specialty lines worldwide Global reinsurance
Breakdown of proportional and non-proportional
M08
(36%)
2,880
(37%)
3,066
(39%)
2,878
(36%)
6,000
2,450
2,459
(32%)
2,812-
(31%)
(31%)
6,000
4,000
4,000
6,103
(65%)
4,837
(63%)
4,752
(61%)
5,025
(64%)
5,854
(64%)
2,807
(36%)
-3,195
(34%)
3,351
8,000
treaties by volume
in % and in EUR million
10,000
Breakdown into business written through brokers
and direct business
in % and in EUR million
9,338
10,000
9,205
9,338
9,205
M09
7,717
7,818
7,903
8,000
3,235
(35%)
7,717
7,818
7,903
7,717
900.9
6.70
944.5
-4.7%
945.0
843.6
781.2
Operating result (EBIT)
1,340.3
-0.1%
1,341.3
1,061.0
1,091.4
1,190.8
949.9
7.58
+3.8%
7.88
Group net income
685.6
Earnings per share in EUR
829.1
914.7
+3.8%
807.7
In the year under review, as had been the case in 2015, rein-
surance premiums declined. The downward trend can be attri-
buted to the devaluation of some Latin American currencies
and to the higher retentions carried by primary insurers.
The insurance of agricultural risks was one of Hannover Re's
fastest growing segments in the year under review. We further
expanded our market position and rank among the preferred
partners for agricultural covers. In addition, we have been tak-
ing on an increasingly active role in the development of origi-
nal products. We entered into cooperative arrangements with
governments, development banks and international organisa-
tions in the year under review with a view to expanding pro-
tection for agricultural risks.
In Argentina we took an increasingly selective approach to
writing our business in order to ensure that we met our mar-
gin requirements. We maintained our position in Brazil despite
ongoing concentration on the primary insurance side. The pri-
mary market here is progressively stabilising, albeit on a low
level. At the same time a tendency towards consolidation can
be discerned.
Broadly speaking, we are satisfied with the development of our
business in Latin America.
44
Agricultural risks
Rates and conditions largely held stable on the primary insur-
ance side. Conditions in reinsurance business came under pres-
sure in the established markets due to new market players.
506
We are satisfied with the development of our agricultural risks
business. Particularly in the southern hemisphere, the loss sit-
uation in 2016 was influenced by the prevailing, exceptionally
intense El Niño phenomenon: this was associated with, among
other things, algae blooms in the Pacific as well as heavy rain-
fall and hail events in South America. There were also periods
of drought in Australia and bushfires exacerbated by the dry
weather. Leaving aside hail and outwintering losses, results for
multi-risk insurance in the northern hemisphere were satisfac-
tory. To this extent, the continued improvement in the diver-
sification of our portfolio adequately alleviated and offset the
extent of the negative results.
Retakaful business
We write retakaful business, i. e. reinsurance transacted in
accordance with Islamic law, worldwide. Our focus is currently
on the Middle East, North Africa and Southeast Asia. This busi-
ness is written by our subsidiary in Bahrain. We also maintain
a branch there with responsibility for traditional reinsurance in
the Middle East. Our retakaful business has been growing very
vigorously for some years now and we enjoy a strong position
in the market. Overall, we are satisfied with the development
of business in the year under review.
As we had already observed in the previous year, the takaful and
retakaful markets have now become extremely competitive - in
part also owing to the entry of new market players. Rates con-
tinued to be under pressure - as we had anticipated -, with the
exception of a few areas. The most notable decline in the year
under review was for construction risks written on a facultative
basis. This was also a reflection of the slowing pace of economic
growth in the region and the fall in oil prices.
We responded to this soft market environment by writing our
business highly selectively. This led to a moderate contraction
in the premium booked in the year under review.
The severe earthquake in Ecuador gave rise to net loss expend-
iture of EUR 58.3 million for Hannover Re's account; see also
the list of major losses on page 85. Treaty conditions con-
sequently improved appreciably in the subsequent round of
renewals.
We were successful in our efforts to further diversify our port-
folio mix in terms of both countries and lines of business. A
contributory factor here, for example, was an enlarged share
of business involving insurance products for small farmers,
predominantly in emerging and developing countries.
Most Latin American markets are continuing to enjoy very
dynamic growth. Primary insurance premiums are increasing
by between 5% and 15% a year depending on the market.
Growth is even stronger in Argentina and Venezuela, although
high inflation rates are the principal driver here. The strong-
est demand for reinsurance covers is in the area of natural
catastrophe risks, not only within individual markets but also
increasingly across national boundaries.
Primary insurance markets in South and Southeast Asia con-
tinue to generate disproportionately strong growth. We have
been represented in this region for more than 20 years by a
branch in Kuala Lumpur. Even though the underlying market
conditions have been detrimentally affected by the underlying
market conditions, we have nevertheless succeeded in expand-
ing new and less competitive business segments. Not only has
this led to appreciable premium growth, it also improved the
balance of the book of business written. The business perfor-
mance in the year under review was thoroughly gratifying,
reflecting the absence of sizeable natural disasters in the region
as well as a generally low burden of attritional losses.
Latin America
The development of our business in Japan – one of our most
important markets – was thoroughly satisfactory. Thanks to our
excellent market position, our share of Japanese property and
casualty reinsurance business continued to grow despite con-
solidation in the domestic market of Japanese cedants. Reinsur-
ance conditions softened further under sustained competitive
pressure, making this market, too, a challenge.
On the claims side the year under review was notable for the
Kumamoto earthquake in April and a highly active typhoon
season. In addition, the result in Japanese liability business
was adversely impacted by pharmaceutical losses. Thanks to
our broad-based positioning with our core customers in Japan
across all lines of business, we were able to generate another
positive profit contribution for Hannover Re despite the loss
expenditure.
In China we again booked premium growth in the double dig-
its. Working in close cooperation with the specialists back in
Hannover, our locally licensed branch in Shanghai successfully
expanded the portfolio with a small number of selected cli-
ents in our preferred lines and hence put our overall business
relationships in China on a broader footing.
Results in the year under review were nevertheless overshad-
owed by an above-average number of mid-sized natural events,
including several months of flooding in areas along the Yangtze
River as well as various windstorms. The resulting losses were
reflected not only in the reinsurance treaties but also in the
books of many of our customers. From an overall perspec-
tive, the underlying conditions have not improved sufficiently
despite the losses from the explosions at a container terminal in
the Port of Tianjin and they are in need of further adjustment.
Hannover Re | Annual Report 2016
Having taken the initial steps in 2015 towards licensing of a
branch in India, Hannover Re received final approval from the
Indian insurance regulator on 23 December 2016.
Despite the sustained competitive environment, Hannover Re
is very 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.
In Australia and New Zealand the growth in gross premium
was sustained - as in the previous year too - by large individual
transactions. There was no change in the extremely competitive
state of these markets. The first three quarters of the year under
review passed off unusually favourably in this region. This was
attributable to the fact that natural catastrophe events largely
failed to materialise. The fourth quarter, on the other hand, was
impacted by claims associated with the series of earthquakes
in New Zealand in November. The area to the north of the city
of Christchurch extending as far as the capital Wellington was
particularly hard hit. Australia was additionally affected by a
number of regional weather events that further increased the
loss expenditure prior to year-end.
Our property and casualty reinsurance business in South Africa
is supported by three companies: our subsidiary Hannover Rein-
surance Africa Limited writes reinsurance in all lines. Com-
pass Insurance is responsible for direct business generated
through so-called underwriting management agencies (UMAs).
The third company, Lireas Holdings, holds interests in sev-
eral of these UMAS. This enables us to comprehensively steer
and control the business. Agency business forms the pillar of
our activities in South Africa, although reinsurance business
is also written on the open market in South Africa and other
African countries.
The economy on the African continent generated minimal
growth in the year under review, in part owing to protracted
political uncertainties. The planned solvency regime SAM
(Solvency Assessment and Management) did not have any
effects on our South African portfolio in the year under review,
with implementation postponed to mid-2017.
Hannover Re | Annual Report 2016
43
In the face of unchanged heavy competition, results in direct
insurance improved only slightly in the year under review. The
major loss situation remained moderate.
Against this backdrop both Compass Insurance and Hannover
Reinsurance Africa performed satisfactorily in the 2016 finan-
cial year. The premium volume remained stable.
South Africa
Combined management report
The strong demand on the capital market for (re)insurance
risks remains undiminished, particularly given the diversify-
ing nature of such investments. The worldwide volume of risks
transferred to the capital market continued to grow in the year
Hannover Re writes the bulk of its catastrophe business out of
Bermuda, the worldwide centre of competence for this seg-
ment. In the interest of diversifying the portfolio, our subsidiary
Hannover Re (Bermuda) Ltd. has also written risks in some of
the specialty lines since 2013. Furthermore, the company has
established itself as a provider of reinsurance products in the
area of cyber risks.
-212
294
7,000
237
7,149
228
1.000
7,731
8,000
in EUR million
M21
Value of New Business (VNB) growth¹
in EUR million
M20
Breakdown of gross premium by markets
Life & Health reinsurance at a glance
45
Given that large losses again came in below expectations - with
the associated good results for insurers and reinsurers - and in
view of considerable surplus capacities, catastrophe business
continues to be intensely competitive.
With this in mind, the pressure on rates in US property catastro-
phe business was sustained, although increases were only in
the single-digit percentage range at a pace that was clearly
slowing. As anticipated, rates similarly declined in the mature
markets of Europe, in Japan and in Australia. Only in isolated
cases, primarily under loss-impacted programmes, did rates
move higher.
Although more natural catastrophe events were recorded in
the year under review than in the previous year, losses were
for the most part moderate for insurers and reinsurers alike
and they remained within the modelled claims expectations.
Nevertheless, our company was impacted by three sizeable
events. In the first place, the forest fires in the area around
Fort McMurray in the Canadian province of Alberta resulted
in a net strain of EUR 127.9 million for our account. Secondly,
the United States and the Caribbean suffered their first fairly
costly windstorm event for some time in the shape of Hurricane
Matthew. This storm did not, however, prove to be as destruc-
tive as originally anticipated. The net loss incurred by Hannover
Re from Hurricane Matthew amounted to EUR 70.3 million. In
addition, the serious earthquake in New Zealand gave rise to
loss expenditure of EUR 56.3 million.
The gross premium volume for our global catastrophe busi-
ness decreased from EUR 374.9 million to EUR 357.2 mil-
lion. The combined ratio deteriorated to 55.9% (50.2%).
The operating profit (EBIT) was stable at EUR 154.9 million
(EUR 154.6 million).
Structured reinsurance and insurance-linked securities
Structured reinsurance
-
Catastrophe XL (Cat XL)
Operating under its Advanced Solutions brand, Hannover Re
is one of the largest providers in the world for structured and
tailor-made reinsurance solutions, the purpose of which -
among other things – is to optimise the cost of capital for our
ceding companies. In this area we also offer alternative reinsur-
ance solutions that provide solvency relief or protect our clients
against frequency losses. The implementation of Solvency II
in Europe and other risk-based solvency regimes in various
countries has altered the risk-awareness of our customers, as
a result of which we enjoyed further growth in demand in the
2016 financial year.
Insurance-linked securities (ILS)
In the year under review Hannover Re again booked profit-
able growth in a fiercely competitive and strategically signif-
icant region.
under review.
Through our activities we leverage the entire spectrum of
opportunities offered by the so-called insurance-linked secu-
rities market. On the one hand we take out reinsurance with
ILS investors, while at the same time we transfer risks for our
customers to the capital market as a service. This is done in
the form of catastrophe bonds or through collateralised rein-
surance. We are also active ourselves as an investor in catas-
trophe bonds.
Thus, for example, we were able to renew the protection cover
for Hannover Re known as the "K cession" - a modelled quota
share cession consisting of non-proportional reinsurance trea-
ties in the property, catastrophe, aviation and marine (includ-
ing offshore) lines that has been placed inter alia on the ILS
market for more than 20 years now - at an increased level of
roughly USD 520 million for 2016. In addition to the K cession
we use the ILS market for other protection covers as well. In
this regard, we attach special significance to the fact that ILS
investors must furnish collateral for their liabilities to us.
Hannover Re | Annual Report 2016
In keeping with our objective we continued to enlarge our
customer base and further improved the regional diversifica-
tion of our portfolio in the year under review. The adoption
of new capital requirements (C-ROSS) in China prompted the
discontinuation of large-volume quota share arrangements on
motor business. This decrease was, however, offset by new
quota share cessions for capital management purposes in North
America and Europe. The premium volume in structured rein-
surance therefore remained stable in the year under review
while the number of contracts increased.
63.1% Property
Worldwide treaty reinsurance
Asia-Pacific region
618
918
°
31.1% Liability
17.1% Motor
2,500
2,467
2,471
9.3% Other
1,307
1,309
2,708
3,000
3,500
M 17
Property & Casualty reinsurance: Breakdown of gross
written premium in facultative reinsurance
3,492
11
Combined management report
The gross premium booked from the United Kingdom, Ire-
land, the London Market and direct business retreated by 2.7%
from EUR 519.7 million to EUR 505.6 million. The combined
ratio stood at 95.6% (86.6%). The operating profit (EBIT) con-
tracted accordingly to EUR 97.5 million (EUR 153.7 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.
Extended coverage concepts and price reductions were
observed across all areas in the year under review. In the case
of offshore business as well as oil and gas risks, in particular,
there was no sign of a trend reversal despite elevated claims
activity. In view of this market climate we wrote our business
selectively, and the premium income for these lines conse-
quently declined.
735
Global reinsurance
The premium volume increased by 1.7% in the year under
review to EUR 3,550.9 million (EUR 3,492.1 million). The
combined ratio deteriorated from 93.1% to 97.1%. The
operating profit (EBIT) declined from EUR 377.7 million to
EUR 294.3 million.
Property & Casualty reinsurance:
M 18
Breakdown of gross written premium in global reinsurance
in EUR million
4,000
3,551
We combine all markets worldwide under global reinsurance
with the exception of our target markets and specialty lines.
This segment also encompasses global catastrophe busi-
ness, the reinsurance of agricultural risks, Sharia-compli-
ant retakaful business as well as structured reinsurance and
insurance-linked securities.
2,000
357
-375
The strategy that we put in place in recent years to expand
our writing of cyber risks, personal accident/sports covers and
renewables has already led to premium growth in these areas.
The reorientation in US casualty business also began to bear
fruit in 2016. What is more, it ensures that we will be able to
generate additional growth in the years ahead.
Despite the protracted soft market we are highly satisfied with
the development of our overall facultative portfolio in the year
under review. The premium volume remained stable, even after
deduction of a one-off special effect recorded in 2015.
The 2016 financial year did not bring any particularly conspic-
uous developments in facultative reinsurance. Losses were
incurred across all regions and lines, however, with an elevated
frequency of natural catastrophe losses compared to previous
years. Our results benefited from our limited risk appetite with
respect to regions with natural hazards exposure. On the other
hand, our portfolio was again impacted by losses from heavy
industry. Here, too, however, our defensive strategy avoided
any disproportionate strain on the total result. The combined
ratio came in higher than the previous year (94.1%) at 95.6%.
The operating profit (EBIT) decreased to EUR 95.0 million
(EUR 118.3 million).
Worldwide treaty reinsurance
Structured reinsurance and ILS
6,459
Catastrophe XL
2016
We are satisfied with the development of our worldwide treaty
reinsurance business. The gross premium volume grew in line
with our expectations to EUR 1,885.0 million (EUR 1,810.4 mil-
lion). The combined ratio of 103.9% was higher than in the
previous year (95.7%). The operating profit (EBIT) contracted
from EUR 165.7 million to EUR 65.5 million.
Hannover Re | Annual Report 2016
Combined management report
Property & Casualty reinsurance: Breakdown of gross
written premium in worldwide treaty reinsurance
11.6% Other
19.7% Motor
5.6% Liability
42
M 19
2015
2013
42.5% Property
372
310
1,500
358
1,000
2014
1,810
1,478
1,481
1,378
500
0
2012
1,885
236
249
6,145
10
18.5
3.081
3,562
3.4
26
2.2
1,625
≥2
-1,416
7,149
≥2
vs. target margins 2016
in %
M23
EBIT-margin per reporting category
M22
1 Since 2016 based on Solvency II principles and pre-tax reporting; until
2015 MCEV principles (cost of capital already increased from 4.5% to
6% in 2015) and post-tax reporting
6,145
1,202
873
7,731
2012
2013
15
543
2014
2015
≥ 220
893
2016
Value of New Business (VNB) - Target 2012-2015 - Target 2016
448
20
4,000
-2,834
1,271
961
0
2012
2013
2014
1,295
2015
Financial Solutions Longevity Mortality Morbidity
EBIT margin mortality/morbidity
■ Target margin
1
Including a longevity treaty that was previously classified
under financial solutions
Hannover Re | Annual Report 2016
2016
6,459
1,537
446
2,825
2,950
3,000
0
5
2,000
1,554
-885.
1,482
EBIT margin financial solutions
-1,482-
1,012
EBIT margin longevity¹
1,000
8841
6,058
813
6,000
942
750
584
Property & Casualty reinsurance: Major loss trend¹
4,000
1,071
583
585
600
1,323
750
-617
5,000
682
589
693
199
774
309
176
800
6,000
188
1,877
242
274
41
-817
284
842
222
-200
400
3,000
-1,706-
2015
2016
Asia
North America United Kingdom
☐ Australia/New Zealand Rest of Europe
Latin America
2014
Germany
Breakdown of gross written premium
by reporting categories
in EUR million
8,000
7,000
6,058
Africa
5,000
2013
0
314
309
1,550
1,457
1,439
2,000
2012
200
2,082
2,156
2,117
1,000
-2,041
-1,966-
≥ 180
1,000
Hannover Re | Annual Report 2016
We also write primary insurance business through our subsidi-
ary International Insurance Company of Hannover 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.
96.7%
Marine
277.5
-6.6%
297.1
138.1
38.5%
93.3%
Aviation
278.7
-26.1%
377.3
108.9
72.8%
99.4%
90.9%
Credit, surety and
447.8
-9.4%
1,619.7
+8.4%
1,493.8
393.3
91.0%
96.9%
Continental Europe
1,387.3
-3.1%
1,431.7
204.9
94.3%
93.8%
Specialty lines worldwide
2,646.6
2,920.4
North America
political risks
+1.3%
Global reinsurance
3,550.9
+1.7%
3,492.1
294.3
97.1%
95.4%
Worldwide treaty reinsurance
1,885.0
+4.1%
1,810.4
65.5
103.9%
96.1%
Catastrophe XL (Cat XL)
97.2%
613.5
95.6%
1,120.7
605.6
8.3
104.9%
94.9%
UK, Ireland, London market
and direct business
505.6
-2.7%
519.7
97.5
95.6%
97.6%
-611
971.4
-13.3%
95.0
95.4%
92.5%
598.2
240
530
500
410-285
500
450
428
360
0
2007
2008
2009
981
M 11
846
458
559
291
662
442
-520
1,500
561
641
958
971
869
1,121
in EUR million
2,000
1,500
1,000
672
863
1,730
724
714 573
825
Gross
premium
Change in gross
premium relative
to previous year
Gross
premium
M 12
EBIT in
EUR million
Combined
Maximum
ratio
2015 in
EUR million
tolerable
combined ratio
(MtCR)
Target markets
3,007.0
+2.8%
2,925.5
Property & Casualty reinsurance: Key figures for individual markets and lines in 2016
2016 in
EUR million
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)
| Gross Net O Net expectation for major losses¹
662
578
690
627
478
670
625
357.2
560
2010
2011
2012
2013
2014
2015
2016
426
We write a large portion of this direct business in the London
Market and through our Swedish branch, although it increas-
ingly derives from Canada, Australia and Germany as well. The
result from direct business was again substantially boosted
in the financial year just ended. This is a very good perfor-
mance, especially bearing in mind the intensive competition
prevailing among the insurers and reinsurers writing business
in these markets.
-4.7%
154.9
M 16
2,920
2,725
2,717
2,647
2,576
752
-593-
-606
531
613
500
-414.
-402
364
gross
-377
2,000
3,000
On the reinsurance side the German market showed signifi-
cantly greater stability. Scarcely any sharp upward or down-
ward deviations were observed here. Improved conditions were
obtained under proportional treaties in various fire and fire
loss of profits programmes. Premium income in proportional
motor insurance showed modest growth, driven primarily by
higher-value motor vehicle equipment – which is pushing up
the costs associated with both collision damage and the rap-
idly rising theft losses.
Two developments are taking on growing significance in the
German market: in the first place, the trend towards greater
protection against cyber attacks in commercial and industrial
insurance lines and, secondly, the technological advances
being made in motor insurance. The proliferation of (par-
tially) self-driving vehicles is expected to bring a reduction
in claims expenditure and, as a result, a drop in motor pre-
miums. With an eye to the roll-out of telematics tariffs, E+S
Rück has entered into a cooperation arrangement with a mobile
telephony provider in order to offer its customers support in
this new subsegment.
Losses from natural catastrophes were lower in the year under
review than in the previous year. From a long-term perspec-
tive, however, it is apparent that the alternation between years
of light and heavy losses is shortening in duration. Localised
events, in particular, caused significant losses in the 2016
financial year. Storms alone cost insurers some EUR 2 bil-
lion in 2016, for example, although this amount was around
20% lower than the average of recent years. Costing around
EUR 1 billion, half of the losses were caused by the heavy rain-
storm events Elvira and Friederike.
All in all, we are satisfied with the development of our German
portfolio. Premium income for the year under review showed
moderate growth; we had anticipated a slight contraction in
premium volume in our guidance.
Hannover Re | Annual Report 2016
39
Rest of Continental Europe
There was no change in the fierce competition prevailing on
European markets; this was especially true of most nature
markets such as France and Northern Europe. Along with
challenging economic circumstances, surplus capacities con-
tinued to adversely impact the insurance industry; the Northern
European and French markets consequently saw further rate
reductions and deteriorations in conditions. We nevertheless
preserved our market share in France by expanding some exist-
ing customer relationships and writing more business in less
competitive lines. In long-tail liability business, above all in the
motor sector, we are continuing to see a challenging environ-
ment and participate only selectively.
We successfully asserted our leading position in builder's risk
insurance in France. Another focus of our activities continues
to be the accident line, in which we have enlarged our premium
volume over recent years.
Developments in the Netherlands, where we expanded our
portfolio across all lines of business, were pleasing.
Overall, despite fierce competition in Central and Eastern Euro-
pean markets, growth rates here were above the European
average. Over the medium to long term Hannover Re antici-
pates further growth in the premium volume from these mar-
kets. Given the intensely competitive climate, the reinsurance
market for the most part saw price reductions. This did not
apply, however, to motor business in Poland and Hungary,
where rates climbed on the back of increased loss expectan-
cies. On the whole, we obtained rates and conditions that were
broadly commensurate with the risks for the region of Central
and Eastern Europe in the year under review, hence enabling
us - on the back of stable premium volume – to generate satis-
factory results. On the claims side the region was impacted by
a number of smaller events.
Specialty lines worldwide
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.
The premium volume for specialty lines in the year under
review amounted to EUR 2,646.6 million (EUR 2,920.3 mil-
lion). The combined ratio was stable at 90.9%. The operating
profit (EBIT) for specialty lines contracted to EUR 447.8 mil-
lion (EUR 518.5 million), in part also due to reduced invest-
ment income.
Property & Casualty reinsurance: Breakdown of
written premium in worldwide specialty lines
in EUR million
2,500
The situation in retail business was also strained. The largest
line motor insurance - offered little scope to cover the cost of
capital in view of the higher average claim cost. Homeowners'
comprehensive insurance failed to move back into the black
despite the steps taken in recent years to restore business to
profitability. The positive results booked in the general liability,
householders' and accident lines nevertheless ensured that -
taken together and allowing for run-off profits - all lines of
property and casualty insurance closed with a combined ratio
of less than 100%.
279
2012
Aviation
International aviation (re)insurance remained under strain
in 2016, even though at the reporting date - aside from the
burden of attritional losses – the market had only incurred
two large claims that marginally exceeded a loss amount of
USD 100 million.
The aviation line continues to experience a considerable sup-
ply of surplus capacity. In the case of the airline sector, this
was equally true of the original market and the reinsurance
side. The situation in general aviation business was somewhat
more stable, although here too an excess supply of insurance
capacities and the associated premium reductions were the
dominant factors.
We adhered to our disciplined underwriting strategy in this
soft market phase and kept a clear focus on non-proportional
business. In this segment we operate as one of the market
leaders. In proportional reinsurance, on the other hand, we
reduced our shares - especially in customer portfolios domi-
nated by airline business.
The premium volume for our total aviation portfolio contracted
sharply in the year under review from EUR 377.3 million to
EUR 278.7 million. Given that the large loss expenditure was
more moderate than in the previous year, the combined ratio
improved to 72.8%. The operating profit (EBIT) for our avia-
tion portfolio grew to EUR 108.9 million (EUR 70.5 million).
Credit, surety and political risks
Hannover Re ranks among the market leaders in worldwide
credit and surety reinsurance.
Economic growth around the world was rather weak on the
whole in 2016. To some extent, the trend was downwards in
certain emerging markets owing to the decline in commodity
prices. Global growth in the primary insurance market there-
fore remained minimal. Reinsurance cessions rose slightly, in
part because the more exacting capital requirements associ-
ated with Solvency II led to a greater need to pass on business.
We write a large share of our acceptances in credit, surety and
political risks in the form of proportional treaties, under which
cost reimbursements in the year under review increased only
moderately.
Gross premium income in these lines climbed by 1.3% in 2016
to EUR 613.5 million (EUR 605.6 million). Premium growth was
boosted by modestly increased reinsurance cessions as well
as the acquisition of new clients and the expansion of existing
customer relationships.
The claims frequency in credit and surety business increased
in the year under review, particularly in emerging markets.
In addition, a few sizeable insolvency losses were recorded.
The loss ratio in political risk insurance also rose slightly
from a low level. The combined ratio of 104.9% for the entire
portfolio was thus higher than in the previous year (98.9%).
The operating profit (EBIT) shrank by 87.0% to EUR 8.3 mil-
lion (EUR 63.7 million).
United Kingdom, Ireland, London Market and
direct business
United Kingdom, Ireland and the London Market
The property and casualty business that we reinsure for compa-
nies in the United Kingdom and on the London Market devel-
oped largely satisfactorily in 2016. The intense competition in
the primary sector was sustained in most lines and led to rate
reductions. Based on our long-standing experience in the mar-
ket we are a sought-after partner not only for our existing cus-
tomers but also for start-ups, most notably Lloyd's syndicates.
This enabled us to offset the premium erosion in existing busi-
ness with new business. Pleasing double-digit rate increases
were recorded in UK and Irish motor insurance business.
On the reinsurance side the rate reductions were not quite as
marked overall as they were in original business. In non-pro-
portional UK motor business - following at times appreciable
increases in the years 2011 to 2014 - rates remained stable
or rose slightly at the beginning of 2016, as in the previous
year. Based on the increases in original business, it is pleas-
ing to note that we are also expecting higher premium income
through adjustments. In the other property and casualty lines
we saw an easing in the pressure on rates compared to the
past two years. Coverage extensions were also in demand. In
keeping with our cycle management we scaled back our shares
in programmes under which the prices or conditions were not
considered attractive. No major losses were incurred.
Direct business
Hannover Re | Annual Report 2016
0
40
In the year under review the market was not confronted with a
marine loss on the scale of the explosions at the Port of Tianjin
in 2015. Nevertheless, the insurance industry was not spared
losses in this year either. The damage to a production facil-
ity off the coast of Ghana in combination with the subsequent
business interruption resulted in a significant offshore energy
loss. In view of the conservatively oriented underwriting pol-
icy that we had pursued in prior years, the impact of this loss
on our account was disproportionately slight relative to our
market share.
Marine
307
2013
293
2014
281
2015
297
Aviation Credit, surety and political risks
2016
United Kingdom, Ireland, London market and direct business
Facultative reinsurance
Marine
277
As anticipated, the rate decline in marine insurance was sus-
tained in 2016. Underlying factors such as the low oil price,
faltering global economy and surplus capacities in the market
for the transportation of freight and cargo have left their mark
on our customers. In the face of falling prices for commodi-
ties and other goods, the premium volume in the market con-
tracted significantly for the first time in years. Combined with a
slight increase in the supply of capacity, this has further stepped
up the pressure on original rates in both offshore energy and
marine insurance business.
The gross premium for our marine portfolio consequently fell
by 6.6% to EUR 277.5 million (EUR 297.1 million). Despite
the aforementioned loss expenditure and assisted, inter alia,
by a positive run-off of loss reserves from old underwriting
years, the combined ratio improved to 38.5% (60.0%) and
the underwriting result consequently increased. The operating
profit (EBIT) rose to EUR 138.1 million (EUR 112.3 million).
Owing to the intensely competitive environment, there was
no easing in the pressure on conditions in industrial prop-
erty insurance. Only in general liability business and the engi-
neering insurance lines could adequate rates be obtained. The
development of the industrial fire line was once again unsatis-
factory on account of heavy losses.
The German insurance market also remains under considerable
competitive pressure, especially in commercial and industrial
business. New competitors with additional capacities entered
the market despite protracted insufficient profitability, as a
consequence of which the rehabilitation efforts undertaken by
established providers proved partially ineffective.
The German market – the second-largest in the world for
property and casualty reinsurance - is served within the Han-
nover Re Group by our subsidiary E+S Rück. As the "dedi-
cated reinsurer for Germany", the company is a sought-after
partner 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.
Property & Casualty reinsurance: Breakdown of gross M14
written premium in North America by line of business
3,007
2,926
3,000
8.1% Motor
2,634
2,619
2,521
2,500
1,387
1,432
2,000
1,457
1,406
42.3% Liability
We are a valued and respected partner in North America thanks
to our long-standing experience and robust financial strength.
This has been borne out for more than ten years now by the
findings of the "Flaspöhler Broker Survey", in which Hannover
Re placed first in the "Best Overall Reinsurer” category. In the
year under review we added a very good second place in the
corresponding “Cedant Survey”. Particularly bearing in mind
that in North America we only operate through brokers, this
is a pleasing testimony to our efforts. We further enlarged our
customer base in the year under review.
1,397
M 13
Breakdown of gross written premium in target markets
in EUR million
55.9%
79.0%
Structured reinsurance and
insurance-linked securities
1,308.7
+0.1%
1,306.8
73.9
97.3%
98.9%
Hannover Re | Annual Report 2016
37
Combined management report
Target markets
Hannover Re classifies North America and Continental Europe
as target markets. The premium volume here increased by
2.8% to EUR 3,007.0 million (EUR 2,925.5 million). Growth
lived up to our expectations. The combined ratio improved sub-
stantially from 99.0% to 92.5%. The operating profit (EBIT)
consequently rose to EUR 598.2 million (EUR 445.1 million).
Property & Casualty reinsurance:
3,500
1,500
1,000
1,494
As far as large losses in North America are concerned, mention
should be made of two natural disasters: the loss situation in
Canada was dominated by the forest fires in the region around
Fort McMurray. Hurricane Matthew caused considerable dam-
age in the Bahamas and on the East Coast of the United States
between Florida and South Carolina. Details of these losses
are provided in the section entitled "Natural catastrophe busi-
ness" on page 45.
Positive price adjustments are evident in both the United States
and Canada. Particularly under loss-impacted programmes and
in Canada, we benefited from newly purchased reinstatement
covers. In general liability business the rate situation has sta-
bilised somewhat; in the professional indemnity lines we suc-
cessfully pushed through modest price increases to a limited
extent. We are seeing stronger demand for covers in the area
of cyber risks, to which we are responding with appropriate
capacities.
After exceptionally strong growth in the comparable year, the
premium volume for our business in North America rose by
a further 8.4% to EUR 1,619.7 million (EUR 1,493.8 million).
Mid-single-digit percentage growth was similarly booked after
adjustment for exchange rate effects. The combined ratio was
lower than in the previous year at a very pleasing 91.0%
(99.6%). The operating profit (EBIT) climbed to EUR 393.3 mil-
lion (EUR 242.0 million), a result with which we are thoroughly
satisfied.
38
Hannover Re | Annual Report 2016
Combined management report
Continental Europe
We group together the markets of Northern, Eastern and Cen-
tral Europe as Continental Europa. 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 1,387.3 million (EUR 1,431.7 million). The combined
ratio improved to 94.3% (98.4%). The operating profit (EBIT)
nudged higher to EUR 204.9 million (EUR 203.2 million).
Property & Casualty reinsurance: Breakdown of gross
written premium in Continental Europe by line of business
M 15
8.7% Other
34.9% Motor
Germany
35.5% Property
20.9% Liability
Overall, modest reductions in rates were observed; towards
the end of the financial year a trend towards stability could be
discerned. On the reinsurance side conditions in US casualty
business remained broadly stable and an increase in premium
was recorded. Non-proportional property business saw slight
rate reductions - especially under profitable, loss-free pro-
grammes, but conditions held up rather well.
Even though the US economy paused for breath in 2016 and
recorded slower growth than in the comparable year, our cli-
ents primary insurers - booked an increase in premium
volume, especially in the loss-prone lines of workers' com-
pensation and motor business, for which prices improved. The
general rate trend, however, remained negative and ceding
companies additionally struggled to cope with low investment
income. Some market players are no longer able to generate
their target return on equity. Against this backdrop, the level
of reserves is dropping and at some companies - particularly
those with high exposures to the commercial motor line - there
is already a need to set aside additional reserves.
-
The North American (re)insurance market is the largest single
market both worldwide and for Hannover Re. Our business here
is written almost exclusively through brokers.
1,620
500
1,124
1,177
1,213
0.3% Other
0
374.9
49.3% Property
2012
2013
2014
2015
2016
North America Continental Europe
North America
0
Facultative reinsurance
15.7% AA
1,000
1.0
6,346.0
Development of assets under own
management 1966-2016 in EUR million
2016
2011
2006
2001
1996
1991
1986
1981
1976
1971
1966
16,353.6
12,096.1
9,289.3
11,507.5
3,272.6
161.3
61.8
0.1
396.0
753.3
1,060.0
(1966-2016) in EUR million
Development of gross premium
166.0
Africa
1,140.0
41,793.5
Investment portfolio
With these goals in mind we engage in active risk management
based on balanced risk/return analyses. To this end we adhere
to centrally implemented investment guidelines and incorpo-
rate insights gained from dynamic financial analysis. They form
the basis for investment ranges which are specified in light
of the prevailing state of the market and the requirements on
the liabilities side and within which operational management
of the portfolio takes place. These measures are intended to
safeguard the generation of an appropriate level of return. In
so doing, we pay strict attention to compliance with our clearly
defined risk appetite, which is reflected in the risk capital allo-
cated to the investments and constitutes the foundation for
the asset allocation of the entire Hannover Re Group and the
limitation of currency exposures and maturity risks
through matching currencies and maturities.
high diversification of risks;
ensuring the liquidity and solvency of Hannover Re
at all times;
generation of stable and risk-commensurate returns
while at the same time maintaining the high quality
standard of the portfolio;
•
•
•
Hannover Re's investment policy continues to be guided by
the following core principles:
Investment policy
Further strengthening of shareholders' equity thanks to another excellent Group result
Asset allocation adjusted to safeguard the return
Diversification of high-quality investment portfolio improved even further
Risk-commensurate investment policy
•
Financial position and net assets
year to date in the history of
Hannover Re.
Wilma made 2005 the costliest
Hurricanes Katrina, Rita and
The losses caused by
2016
2006
1996
1986
1976
1966
19,079.0
individual portfolios. Our ability to meet our payment obliga-
tions at all times is also ensured in this way. Within the scope of
our asset/liability management (ALM) the allocation of invest-
ments by currencies and maturities is determined by the tech-
nical liabilities. With this in mind the modified duration of our
bond portfolio is geared largely to the technical liabilities.
2.8%
Australia
500
1,096
1,054
1,218
1,270
1,300
332
395
M26
357
376
-356
1,412
1,500
1,472
1,550
1,665
1,656
2,000
in EUR million
Development of investment income
Impairments and depreciation totalling EUR 76.3 million
(EUR 38.7 million) were taken, thereof EUR 30.1 million
(EUR 1.9 million) on equities - primarily on account of lower
prices following the Brexit decision. These write-downs have,
however, to a large extent since been opposed by a reversal,
which has correspondingly increased the valuation reserves.
Impairments of EUR 11.7 million (EUR 5.9 million) were rec-
ognised on alternative investments. The write-downs taken
on fixed-income securities amounted to just EUR 0.7 million
(EUR 2.8 million). Scheduled depreciation on directly held real
estate rose to EUR 28.9 million (EUR 23.7 million), a reflec-
tion of the further increase in our involvement in this sector.
These write-downs contrasted with write-ups of altogether
EUR 0.3 million (EUR 0.6 million).
We recognise a derivative for the credit risk associated with
special life reinsurance treaties (ModCo) under which secu-
rities deposits are held by cedants for our account; the per-
formance of this derivative in the year under review gave
rise to positive fair value changes recognised in income of
EUR 0.5 million (-EUR 26.1 million). Altogether, the positive
changes in the fair values of our financial assets recognised at
fair value through profit or loss amounted to EUR 26.1 million
(EUR 0.9 million). The principal items recognised here are var-
ious derivative financial instruments relating to the technical
account or taken out as currency or interest rate hedges as well
as fixed-income assets for which the fair value option provided
by IAS 39 was applied.
of our fixed-income portfolio (see here also the subsection on
investments in the section "Financial position and net assets"
on page 55).
Combined management report
51
Hannover Re | Annual Report 2016
0
5.5% Latin America
2012
2014
Germany
5.5%
7.6%
14.8% Asia
15.5% United Kingdom
15.7% Rest of Europe
32.6% North America
2016
M
252.9
2016
2011
182.3
Life & Health reinsurance
2011
Total gross premium
by regions (2016)
949.9
455.6
Property & Casualty reinsurance
in EUR million
Development of Group net income
Hannover Re | Annual Report 2016
52
52
Investment income from assets under own management
Income and expenses on funds withheld and contract deposits
2016
2015
2013
By adjusting the maturity pattern of our fixed-income secu-
rities to the expected payment patterns of our liabilities we
reduce the economic exposure to the interest rate risk. In the
current reporting period we kept the modified duration of our
fixed-income portfolio broadly neutral, as a result of which it
stood at 5.0 (previous year: 4.4) as at 31 December 2016. The
higher figure reflects a modest business-related increase on
the liabilities side which had to be covered by the portfolio.
Furthermore, through active and regular management of the
currency spread in our fixed-income portfolio we bring about
extensive matching of currencies on the assets and liabilities
sides of the balance sheet, as a consequence of which fluctua-
tions in exchange rates have only a limited effect on our result.
At year-end 2016 we held 30.2% (30.8%) of our investments
in euro, 48.3% (46.7%) in US dollars, 6.9% (8.3%) in pound
sterling and 5.1% (5.1%) in Australian dollars.
M27
Short-term investments and cash
16.1% A
Semi-government bonds Corporate bonds
Private Equity
Covered Bonds, ABS
Real estate ☐ Other
Government bonds
2016
2015
2014
2013
2012
17.8% BBB
0
4.6% <BBB
19
19
-21
10
28
26
Rating of fixed-income securities
The portfolio of fixed-income securities excluding short-term
assets rose to EUR 35.5 billion (EUR 33.6 billion). Hidden
reserves for available-for-sale fixed-income securities, which
are allocable to shareholders' equity, totalled EUR 728.2 million
(EUR 635.6 million). This reflects the yield decreases observed
in the course of the reporting period, especially in the area of
EUR- and GBP-denominated sovereign bonds, and above all
lower risk premiums on corporate bonds. As to the quality of
the bonds - measured in terms of rating categories -, the pro-
portion of securities rated “A” or better remained on a virtu-
ally unchanged high level as at year-end at 77.6% (79.8%).
continued stable returns, while maintaining the overall risk
level of our fixed-income portfolio virtually unchanged. We
also expanded the share of the portfolio attributable to invest-
ments in emerging markets. In addition, we moved to further
enlarge our portfolio of listed equities in view of more attrac-
tive purchase prices. Another step that we took as early as the
first quarter was the streamlining of our private equity portfolio
through the sale of older exposures. We also moved to further
increase slightly the share attributable to real estate as part
of the strategic expansion of this asset category. In all other
asset classes we made only minimal changes in the context of
regular portfolio maintenance.
17
M28
9
4
M29
17
45.8% AAA
Our portfolio of assets under own management improved to
EUR 41.8 billion, a level considerably higher than at the end
of the previous year (31 December 2015: EUR 39.3 billion).
This growth was due in part to positive exchange rate effects -
primarily associated with the strong US dollar – as well as
increased hidden reserves in the areas of listed equities and
private equity and, above all, to a gratifyingly positive oper-
ating cash flow.
Hannover Re | Annual Report 2016
56
56
Hannover Re uses "Intrinsic Value Creation" (IVC) as its central
value-based management tool. As part of this methodology, 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 22 et seq. of this report.
The policyholders' surplus totalled EUR 11,231.4 million
(EUR 10,267.3 million) as at the balance sheet date. The increase
was due principally to the rise in retained earnings, in the for-
eign currency gains and losses recognised in equity and in the
unrealised gains and losses, which are similarly recognised in
equity. Overall, the policyholders' surplus recorded significant
growth with an increase of 9.4%.
hybrid capital used as an equity substitute, which takes
the form of subordinated bonds.
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
A key strategic objective of Hannover Re is long-term capital
preservation. Just as in previous years, we issued hybrid capi-
tal as an equity substitute in order to keep the cost of capi-
tal on a low level. The policyholders' surplus is an important
management ratio in the context of Hannover Re's compre-
hensive capital management. The total policyholders' surplus
is defined as follows:
Management of policyholders' surplus
We ensure that our business is sufficiently capitalised at all
times through continuous monitoring and by taking appro-
priate steering actions as necessary. For further information
please see the following section “Management of policyhold-
ers' surplus".
The equity including non-controlling interests at 15.3%
(13.9%) of the balance sheet total as well as the loans and -
especially - subordinated capital at altogether 2.8% (2.8%) of
the balance sheet total represent our most important sources
of funds.
The technical provisions and liabilities shown above, which
include funds withheld/contract deposits and reinsurance pay-
able, make up 77.0% (78.5%) of the balance sheet total and
are more than covered by our investments, (assets-side) funds
withheld/contract deposits, accounts receivable and reinsur-
ance recoverables.
77.0% Technical
provisions and liabilities
2.8% Loans and
subordinated capital
M30
15.3% Equity
4.9% Other liabilities
Capital structure as at 31 December 2016
The capital structure and the composition of the liabilities of
Hannover Re are shaped by our activity as a reinsurer. By far the
largest share is attributable to technical provisions and liabil-
ities. Further elements are equity and equity substitutes, which
help to substantially strengthen our financial base and optimise
our cost of capital. The following chart shows our capital struc-
ture as at 31 December 2016, broken down into percentages of
the balance sheet total.
Analysis of the capital structure
At the end of the year under review we held a total amount
of EUR 1.7 billion (EUR 1.9 billion) in short-term investments
and cash. Funds withheld amounted to EUR 11.8 billion
(EUR 14.0 billion).
Combined management report
55
Hannover Re | Annual Report 2016
As already mentioned above, we were again able to somewhat
increase our real estate allocation in the course of the year. Two
properties were acquired in the United States for this purpose;
further projects are presently under review, and the real estate
allocation should therefore keep rising steadily as planned. It
currently stands at 4.6% (4.4%).
Holdings of alternative investment funds increased apprecia-
bly. As at 31 December 2016 an amount of EUR 722.4 million
(EUR 781.5 million) was invested in private equity funds; a
further EUR 750.7 million (EUR 678.8 million) was attributable
predominantly to investments in high-yield bonds and loans. In
addition, altogether EUR 390.7 million (EUR 371.3 million) was
invested in structured real estate investments. The uncalled
capital with respect to the aforementioned alternative invest-
ments totalled EUR 1,096.4 million (EUR 837.1 million).
In response to the challenging interest rate environment we
adjusted the allocation of our investments to the individual
classes of securities in the year under review such that we
further enlarged our holding of fixed-income securities rated
BBB or lower while at the same time increasing the propor-
tion of government bonds in our portfolio. In this way we
can achieve increased liquidity of the portfolio and generate
Investments
20
20
19
Breakdown of investments under own management
Hannover Re | Annual Report 2016
54
46,625
46,219
52,147
53,337
53,637
Total
31,874
31,875
36,228
39,347
41,793
Investments under own management
14,751
14,343
15,919
13,990
11,844
Funds withheld
2012
2013
2014
2015
2016
in EUR million
in %
100
3
00
-23-
30
40
50
35
34
321
60
70
80
14
15
10
Portfolio at fair value through profit or loss and trading
17
3
2
2
5
4
4
2
1
1
2
5
4
90
4
3
Our investment income (including interest and expenses on
funds withheld and contract deposits) came in below the pre-
vious year's level at EUR 1,550.4 million (EUR 1,665.1 million);
bearing in mind the low interest rate level, the maturity and
currency matching of liabilities and the elimination of positive
effects from the previous year, it is nevertheless thoroughly
satisfactory and indeed even somewhat better than our expec-
tations. Income from assets under own management accounted
for an amount of EUR 1,218.3 million (EUR 1,270.1 million).
This produces a return on investment of 3.0%, which is also
slightly higher than our target of 2.9%. The primary drivers
here were our exposures to high-yield bonds and private equity
as well as our investments in emerging markets, which gen-
erated somewhat stronger income than originally forecast.
Interest on funds withheld and contract deposits decreased to
EUR 332.1 million (EUR 395.0 million).
2
405.1
-15.3%
343.3
Operating result (EBIT)
(36.7)
(42.9)
25.1
35.9
+86.9%
67.1
Other income/expenses
144.1
156.7
175.7
197.3
+2.4%
202.0
Own administrative expenses
529.4
1,098.0
1,169.0
946.4
1,075.1
-3.9%
1,032.6
Commissions
146.5
28.6
263.8
101.1
150.5
Net income after tax
In the year under review we generated gross premium of
EUR 7,149.0 million (EUR 7,730.9 million) in life and health
reinsurance, a decline of 7.5%; the decrease was 4.3%
adjusted for exchange rate effects. The determining factor here
was the exceptional premium growth booked in 2015. The level
of retained premium stood at 90.4% (84.2%). Net premium
earned reached EUR 6,432.4 million (EUR 6,492.4 million),
equivalent to growth of 2.2% after adjustment for exchange
rate effects.
2 Operating result (EBIT)/net premium earned
1 Adjusted pursuant to IAS 8
5.1%
2.8%
Including depreciation/impairments on real estate
6.2%
89.3%
87.7%
83.9%
84.2%
90.4%
5.3%
EBIT margin²
Retention
1.84
1.36
1.70
2.40
-12.7%
2.10
Earnings per share in EUR
222.5
164.2
205.0
289.6
-12.7%
252.9
279.0
-20.4%
80.5
Change in benefit reserve
2015
+/-
previous
2016
M24
Key figures for Life & Health reinsurance
Combined management report
47
+2
Hannover Re | Annual Report 2016
-
As a reinsurer, we grow particularly strongly wherever the
insurance market is growing. We have therefore focused closely
on leveraging new business potentials outside of traditional (re)
insurance by entering into partnerships with start-up compa-
nies such as fintechs - as a strategic investment. For compa-
nies such as these equipped with innovative ideas, the robustly
capitalised Hannover Re - with its long-standing, international
experience – represents an attractive partner. Partnerships
such as these create an optimal platform for addressing, in
particular, the members of a generation who are both tech-
savvy and attach great importance to their health and quality
of life: given how difficult such individuals are to reach via the
traditional distribution channels of the life insurance industry,
we seek to play an active part in these trends.
Furthermore, topics such as digitisation and online insurance
sales - which are preoccupying the worldwide insurance indus-
try as a whole played a prominent role in our talks with
clients. We have explored these issues and the potential busi-
ness opportunities in depth and already embarked on a num-
ber of activities.
-
Quite aside from this, our longevity business also devel-
oped thoroughly favourably. International inquiries about
longevity protection continued to increase in the financial
year just ended.
In Germany many of our activities are concentrated on the
implications of the Solvency II regime implemented on 1 Jan-
uary 2016. Fulfilment of the required capital adequacy ratio
posed a major challenge for German life insurers. Yet beyond
Germany's borders too - and in fact right across Europe -
Solvency II has affected the (re)insurance industry. It was
evident that the increase in regulatory requirements consti-
tutes a global trend. Regulators in China, Australia and South
Africa have either adopted or are currently planning more rig-
orous supervisory regimes. For the (re)insurance industry this
means a constant need to adapt to changing requirements.
Drawing on our global expertise, we engage intensively with
the new policies in order to be able to cater to the resulting,
country-specific needs of our customers and offer potential
reinsurance concepts.
All in all, the financial year just ended developed in line with
our expectations. Conditions in the individual markets were
often very dynamic.
Total business
Life and health reinsurance contributed 44% (previous year:
45%) of Group gross premium in the financial year just ended.
One of our two business groups, Life & Health reinsurance plays
a key part in the success of our Group: in the first place through
its positive stable business results and, secondly, through its
diversification with property and casualty reinsurance. The
consistency and enduring nature of its partnership-based busi-
ness relations are particular hallmarks of life and health rein-
surance. Thanks to our global network and our know-how, we
retain our ability to shape developments and especially to drive
innovations in the markets. The profitability and quality of the
generated business nevertheless remain our overriding priority.
Automated underwriting system hr | ReFlex continues its success story following 2015 launch
Result confirms the profitability of underlying business
Participations in innovative start-up companies
•
Life & Health reinsurance
The gross premium volume in structured reinsurance and from
ILS activities was stable at EUR 1,308.7 million. The combined
ratio stood at 97.3% (98.4%). The operating profit (EBIT)
increased to EUR 73.9 million (EUR 57.4 million).
In addition, we successfully transferred further life reinsurance
risks to the capital market.
Re assists its clients with the transfer of reinsurance risks to the
capital market; the company maintained its cooperation with
selected fund managers on a consistently high level in the year
under review and generated attractive margins.
Under collateralised reinsurance programmes the investor
assumes reinsurance risks that are normally collateralised in
the amount of the limit of liability. In this business Hannover
It remains the case that the currently available capital exceeds
the available opportunities for making new investments in
catastrophe bonds. This has prompted investors to look for
other means of investing in the reinsurance sector. Collateral-
ised reinsurance, in particular, grew market-wide in the year
under review and surpasses by far the volume of funds invested
in catastrophe bonds. A modest decline in the area of catas-
trophe bonds was more than offset by collateralised reinsur-
ance business.
2014
2013
20121
in EUR million
685.1
4,023.5
4,305.7
4,636.2
5,459.0
+0.4%
5,480.3
Claims and claims expenses
611.5
614.2
709.2
-9.9%
638.9
Investment income
In view of the low level of interest rates, investment income in
life and health reinsurance contracted - as expected - year-
on-year and totalled EUR 638.9 million (EUR 709.2 million).
The share of the income attributable to assets under own
management amounted to EUR 330.8 million (EUR 334.3 mil-
lion), while the contribution made by income from securities
deposited with ceding companies came in at EUR 308.1 million
(EUR 374.9 million).
5,425.6
5,411.4
6,492.4
-0.9%
6,432.4
Net premium earned
6,057.9
6,145.4
6,458.7
7,730.9
-7.5%
7,149.0
year
Gross written premium
5,359.8
The operating result (EBIT) in life and health reinsurance
fell short of the previous year's figure at EUR 343.3 million
(EUR 405.1 million); this was due in particular to the elimina-
tion of a one-off effect in the amount of EUR 39 million. We are
satisfied with this very solid result, since it reflects the sustain-
able profitability and quality of the underlying portfolio. Group
net income for life and health reinsurance contracted by 12.7%
to EUR 252.9 million (EUR 289.6 million).
4.9%
morbidity. In the final section on underwriting services we
provide a summary account of our extensive range of services
that go above and beyond pure risk transfer.
21.7
19.4
27.7
38.7
+97.1%
76.3
Depreciation, amortisation, impairments²
2.7
0.3
0.1
0.6
-52.3%
0.3
Appreciation
227.5
10.4
12.5
144.2
182.5
1.0
19.2
135.8
We report below on developments in life and health reinsur-
ance in greater detail. The reporting is structured according
to our internal risk management system and hence is split into
the categories of financial solutions and risk solutions. For the
purposes of differentiation by biometric risks, the category of
risk solutions is further divided into longevity, mortality and
206.3
Realised gains/losses
-52.5%
9.1
companies
1,088.4
Change in fair value of
1,041.3
financial instruments 3
0.9
1 Excluding income and expenses on funds withheld and contract deposits
355.5
1,655.7
357.3
1,411.8
376.1
1,471.8
395.0
1,665.1
-6.9%
-15.9%
332.1
1,550.4
Total investment income
Net investment income from funds
withheld and contract deposits
1,300.2
1,054.5
1,095.8
1,270.1
-4.1%
1,218.3
Net investment income from assets
under own management
96.4
97.3
95.3
101.2
+7.8%
109.1
Investment expenses
89.3
(27.1)
(33.3)
26.1
1,068.4
+51.9%
2012
Morbidity
50
50
Combined management report
44
49
1,253.4
The gross premium in the mortality reporting category amounted
to EUR 3,080.9 million (EUR 3,561.6 million). Altogether, it
accounted for 43.1% (46.1%) of the total gross premium income
booked in life and health reinsurance.
The Latin American market proved to be extremely competitive
in the financial year just ended. It is therefore all the more grati-
fying that we were able to successfully renew our large treaties
with existing customers, especially in our company's key mar-
kets of Mexico, Colombia, Peru and Chile. On European markets,
too, we were able to at least maintain – and here and there even
improve our current market position. In Italy, for example, we
significantly grew our portfolio, primarily in the bancassurance
sector. Bearing in mind the comparatively poor result posted in
2015, the business development in France was very positive: our
branch in Paris generated a pleasing profit from its new business
and the total result has also returned to its accustomed level. In
addition, new business in Africa and the Middle East also devel-
oped favourably.
-
US mortality business is an important market for our company.
We are a sought-after business partner and we offer the entire
spectrum of mortality-oriented reinsurance solutions. Part of our
existing business has fared more poorly than anticipated and
also affected the result for the year under review. Nevertheless,
the US life insurance market is distinguished by its considerable
power of innovation, which consistently generates new business
potential. In the financial year just ended we wrote substantial
volumes of new business, thereby all but offsetting the afore-
mentioned negative effect.
Mortality-exposed business forms the core of our traditional life
and health reinsurance portfolio. We provide reinsurance solu-
tions that protect our customers against the risk that the actually
observed mortality may diverge negatively from the originally
expected mortality.
Mortality
The biometric risks of mortality and morbidity are often joint
elements of a business relationship in international (re)insur-
ance business, and in some cases they are even covered under
the same reinsurance treaties. We therefore measure the profit
contribution made by these two reporting categories on a con-
solidated basis. Consequently, only the significant develop-
ments of the past year in the two reporting categories are
discussed separately.
Mortality and Morbidity
On a global level the gross premium for longevity business
totalled EUR 1,482.4 million (EUR 1,482.1 million) in the finan-
cial year just ended. The operating result (EBIT) amounted
to EUR 25.7 million (EUR 54.0 million). Bearing in mind our
deliberately prudent reserving policy, the result is entirely in
line with our expectations.
Worldwide, too, demand for reinsurance solutions to protect
against the longevity risk has risen in response to increased
regulatory reporting and risk management requirements in the
international insurance industry as well as the parallel increase
in life expectancy. Substantial, long-term commitments are
putting primary insurers under ever greater strain. Yet most
insurance companies have hitherto had little or no experience
with the transfer of longevity risks, and what is more there is
already considerable global competition. We engage in inten-
sive discussions with our customers, in which we contribute
our robust, wide-ranging expertise in order to devise bespoke
reinsurance structures for them.
In the financial year just ended the United Kingdom continued
to be not only the world's largest but also its most competitive
longevity market. Particularly in this market, the implemen-
tation of Solvency II has increased the capital requirements
for annuity insurance business, hence prompting a surge in
demand for commensurate reinsurance protection. There are
even some instances where individual customers have with-
drawn entirely from the longevity market. It is therefore excep-
tionally pleasing to report that in the United Kingdom we were
able to successfully launch our new product with deferred
annuity payments aimed specifically at older generations.
We classify reinsurance business under which the longevity risk
constitutes the primary risk as longevity business. This consists
principally of traditional annuity policies, pensions blocks taken
out for new business and so-called enhanced annuities, which
guarantee annuitants with a pre-existing condition a higher
annuity payment for their remaining shortened life expectancy.
By far the bulk of our portfolio is made up of business that is
already in the pay-out phase.
Longevity
Altogether, gross premium of EUR 961.2 million
(EUR 1,271.3 million) was generated in the financial solutions
reporting category. This corresponds to a share of 13.4% of the
total gross premium income booked in life and health reinsur-
ance. The operating result (EBIT) came in at EUR 168.0 million
(EUR 203.2 million).
Financial solutions business in Asia developed less vigorously
than had been anticipated in some areas, although on balance
the positive effects outweigh the negative. We view European
markets with similar satisfaction. Stimulated by the require-
ments of Solvency II, we saw increased demand in the year
under review for reinsurance solutions geared both to provid-
ing capital relief and covering longevity risks. In our domestic
German market, in particular, customers showed consider-
able interest in reinsurance financing solutions that reduce
the supplementary reserves needed for life products promis-
ing guaranteed returns in excess of an official reference rate
("Zinszusatzreserve"). We were particularly pleased to suc-
cessfully close the first contracts protecting against the risk of
excessive policyholder lapse rates on the basis of Solvency II
requirements.
Hannover Re | Annual Report 2016
48
Our US subsidiary played a vital part in the success of our
financial solutions business. Complex reinsurance solutions
designed to optimise solvency and provide capital and reserve
relief are a key driver of the Value of New Business in the
United States. Numerous new contracts were once again
written in the financial year just ended, and particularly in
future reporting periods these will deliver an appreciable profit
contribution.
The financial solutions reporting category encompasses rein-
surance solutions that focus on the management of our clients'
solvency and capital position. They can take many different
forms and are always tailored to the individual customer. Addi-
tional elements may, for example, be the optimisation of liquid-
ity management or the (pre)financing of our customers' new
business. The decisive criterion is that while biometric risks
are transferred in principle, this does not constitute the pri-
mary motivation for the reinsurance coverage. The focus of
these product solutions is on optimising and supporting the
financial situation of our clients. The central importance of
financial solutions business is reflected not only in the busi-
ness volume – which has been growing year by year and which
we write successfully in all parts of the world - but also in our
long-standing experience and broad-ranging expertise. Our
international teams work closely with our customers on indi-
vidual, complex reinsurance structures optimally tailored to
their varying requirements.
Financial solutions
In the morbidity reporting category we group together the
business that covers the risk of deterioration in a person's
state of health due to disease, injury or infirmity. A hallmark
of this business is the wide range of possible combinations of
different covered risks, including for example strict (any occu-
pation) disability, occupational disability and various forms
of long-term care insurance. A specialist team of staff stands
ready to support our entities worldwide, thereby enabling our
local customers to optimally benefit from our global expertise.
In Central and Eastern Europe we are engaged in an inten-
sive dialogue with primary insurance customers with a view
to promoting the development of the private health insurance
sector in these regions. In the United Kingdom we are already
an established and sought-after reinsurance partner. This mar-
ket is, however, notable for its exceptionally competitive and
price-sensitive environment. Solid profitability is therefore a
fundamental prerequisite for the acquisition of new business.
Our book of US health reinsurance clearly outperformed our
expectations and plays a major part in our total morbidity port-
folio. The development of the Asian market was also extremely
gratifying: we enjoyed brisk demand for reinsurance solutions
for health insurance business and were thus able to roll out
numerous new critical illness products here in cooperation
with our local customers. The scope of coverage provided by
the individual products is entirely new to these markets and
enables policyholders to obtain enhanced and more all-round
insurance protection. In India we are also involved in what are
known as mass health schemes. Aimed particularly at more
deprived sections of the population, these government-spon-
sored health insurance schemes open up access to a basic
form of coverage.
Hannover Re | Annual Report 2016
Our worldwide morbidity business generated a gross premium
volume of EUR 1,624.6 million (EUR 1,415.9 million) in the
financial year just ended.
2013
2014
2015
+/-
previous
year
-7.3%
1,162.0
Result from participations in associated
The dynamic growth observed in Asia demonstrates the con-
siderable demand existing in these increasingly ageing, large
populations. In these markets we are seeing a steady rise in
demand for products designed to protect against disease, dis-
ability and the need for long-term care.
Ordinary investment income¹
in EUR million
2016
M25
Net realised gains on disposals totalled EUR 206.3 million
(EUR 135.8 million) and were in large measure attributable
to regrouping moves as part of regular portfolio maintenance,
the streamlining of our private equity portfolio through the
sale of older exposures as well as internal capitalisation and
financing measures within the Group. Gains were also real-
ised in connection with the adjustment of the rating structure
level, it entirely lived up to our expectations. The challenging
interest rate environment is increasingly making itself felt here,
along with the elimination of the positive special effect from
life and health reinsurance in the previous year. We were nev-
ertheless able to partially make up for the diminished potential
returns associated with the protracted low interest rate level
through stronger income from dividends.
We are highly satisfied with the development of our invest-
ments. Although the year under review was another challeng-
ing one owing to continued low interest rates and a global
economic trend influenced by a range of uncertainties and
risks, we were spared defaults in our fixed-income portfolio
and even in the aftermath of the unexpected outcome of
the Brexit referendum halfway through the year - were com-
pelled to take only moderate temporary impairments in our
equity portfolio. Our exposures to the credit risk, emerging
markets and private equity were also rewarded by the good
performance of these markets. This is similarly true of the real
estate sector. Ordinary investment income excluding interest
on funds withheld and contract deposits delivered a gratify-
ing performance to reach EUR 1,162.0 million (previous year:
EUR 1,253.4 million). While it fell short of the previous year's
Investment income
Very good investment income despite challenging climate
Return on investment at 3.0% slightly above the target figure
Taken together, the two reporting categories of mortality and
morbidity produced gross premium of EUR 4,705.5 million
(EUR 4,977.5 million). This gave rise to an operating result
(EBIT) of EUR 149.5 million (EUR 147.8 million).
Underwriting services
Our relations with our customers are grounded on a partner-
ship-based exchange. In the financial year just ended it was
very evident that services above and beyond pure risk transfer
have increased enormously in importance and are now con-
sidered by life insurers to be a major component of the busi-
ness relationship.
High-quality investment portfolio even more diversified through equity exposure
First launched in 2015, we actively pressed ahead with the
roll-out of our automated underwriting system hr | ReFlex in
2016. For example, we were able to successfully implement
hr | ReFlex at customers in Norway, Sweden, France and Amer-
ica. In the United States, for example, it has been honoured
with the distinction of "Most Transformative Solution". A host
of international clients have signalled their interest in this
underwriting system. In the coming year numerous imple-
mentations are already planned at notable primary insurance
customers. Not only that, we are continuing with our market-
ing efforts and expect to see a further rise in interest around
the world. We consider the integration of policyholders into
the underwriting process to be crucially important. Accessi-
ble from anywhere and capable of concluding insurance con-
tracts in a quick and uncomplicated manner – these are the
essential criteria for future (re)insurance solutions. Along with
these implementation activities, we also entered into coop-
eration arrangements with (online) platforms specialising in
insurance products in the 2016 financial year. This secures
access for us to the valuable group of customers who take their
health and quality of life seriously and tend to keep a constant
eye on their bio-signs using mobile, wearable technology. It
is especially important to raise awareness of insurance prod-
ucts among this generation. Such partnerships offer a superb
basis for addressing the needs of these younger generations,
in particular. In addition, they enable us – as a reinsurer –
to access the underlying insurance business. Combining the
application process with the lifestyle habits of policyholders
facilitates a more appropriate and individual risk assessment.
Hannover Re | Annual Report 2016
Demand for automated underwriting processes was especially
strong in the context of the digitisation of customer communi-
cation. Our own underwriting systems, specifically hr | Reflex
and hr| Quirc, enable us to optimally cover local and mar-
ket-specific customer requirements. Thanks to its modular
structure, hr | ReFlex can be adjusted with the utmost flexibil-
ity to fit the individual customer's particular situation. The sys-
tem makes standardised and consistent underwriting decisions,
thereby reducing the operational risk. Furthermore, hr | ReFlex
offers detailed management evaluation options that facilitate
targeted analysis and constant monitoring. An undogmatic
and quickly implemented alternative, hr | Quirc is a particularly
interesting option for developing markets. It has been used
in South Africa for several years with considerable success.
As a traditional reinsurer we assume biometric risks from life
insurers. In view of developments on capital markets and the
more exacting requirements imposed by Solvency II in rela-
tion to the coverage of capital market risks, many insurance
companies have signalled a need to pass on not only the biom-
etric risk but also capital market risks. In order to ensure that
we remain able to offer our customers the accustomed support
in all situations, we have acquired minority interests in two
companies specialising in the transfer of capital market risks.
Our customers are the absolute focus of our attention in every
situation. A long-term and expert partner, we always make
every effort to anticipate current and future requirements in
the international (re)insurance markets.
Investments
For policyholders, this is reflected in premiums and benefits
that are customised to their needs. There is an unmistakeable
trend towards life insurance products increasingly taking on
a more direct lifestyle relevance, with the actual insurance
product merely constituting one component rather than being
the exclusive focus.
6,000
-702-
1,744
490
493
682
642
4,000
-1,743
7,551
6,032
5,888
2,000
0
2012
2013
-8,068-
8,000
in EUR million
991
Shareholders' equity
Development of policyholders' surplus
in EUR million
12,000
10,000
8,947
8,768
10,239
10,267
11,231
M31
996
495
995
996
743
494
709
Amortised cost of our subordinated bonds
2014
Non-controlling interests
a+
The common shares (share capital) of Hannover Rück SE
amount to EUR 120,597,134.00. They are divided into
120,597,134 registered no-par shares.
The Executive Board of the company is not aware of any restric-
tions relating to voting rights or the transfer of shares, includ-
ing cases where these may arise out of agreements between
shareholders.
The following companies hold direct or indirect capital par-
ticipations that exceed 10% of the voting rights: Talanx AG,
Hannover, directly holds 50.2% (rounded) of the company's
voting rights. HDI-Haftpflichtverband der Deutschen Indus-
trie Versicherungsverein auf Gegenseitigkeit, Hannover, which
holds a stake of 79.0% in Talanx AG, therefore indirectly holds
39.7% (rounded) of the voting rights in the company.
There are no shares with special rights granting their holders
powers of control, nor is there any specially structured voting
control for employees who have capital participations and do
not directly exercise their rights of control.
The appointment and recall of members of the Executive Board
are determined by §§ 84 et seq. Stock Corporation Act. Amend-
ment of the Articles of Association is governed by §§ 179 et
seq. Stock Corporation Act in conjunction with § 18 Para. 2 of
the Articles of Association of Hannover Rück SE.
The powers of the Executive Board with respect to the issue
and repurchase of shares are defined in the Articles of Asso-
ciation of Hannover Rück SE as well as in §§ 71 et seq. Stock
Corporation Act. In this connection the Annual General Meet-
ing authorised the Executive Board on 6 May 2015 pursuant
to § 71 Para. 1 Number 8 Stock Corporation Act to acquire
treasury shares on certain conditions for a period of five years,
ending on 5 May 2020.
The following paragraphs explain major agreements con-
cluded by the company that are subject to reservation in the
event of a change of control, inter alia following a takeover
bid, and describe the resulting effects. Some letter of credit
lines extended to Hannover Rück SE contain standard market
change-of-control clauses that entitle the banks to early termi-
nation of a credit facility if Talanx AG loses its majority interest
or drops below the threshold of a 25% participation or if a third
party acquires the majority interest in Hannover Rück SE. For
details of the letter of credit lines please see our explanatory
remarks on the letter of credit (LoC) facilities in the notes, sec-
tion 8.7 "Contingent liabilities and commitments", page 233.
In addition, retrocession covers in property & casualty and
life & health business contain standard market change-of-con-
trol clauses which in each case grant the other contracting
party a right of termination if a significant change occurs in
the ownership structure and participation ratios of the affected
contracting party.
The company has not concluded any compensation agreements
with the members of the Executive Board or with employees
in the event of a takeover bid being made.
60
60
Hannover Re | Annual Report 2016
Information on
Hannover Rück SE
(condensed version in accordance with the Commercial Code
(HGB))
Hannover Re avails itself of the option to present a combined
Group and company management report pursuant to § 315
Para. 3 of the Commercial Code (HGB) in conjunction with
§ 298 Para. 3 of the Commercial Code (HGB). Supplementary
to the reporting on the Hannover Re Group, we discuss below
the development of Hannover Rück SE.
The annual financial statement of Hannover Rück SE is drawn
up in accordance with German accounting principles (HGB).
The consolidated financial statement, on the other hand, con-
forms to International Financial Reporting Standards (IFRS).
This gives rise to various divergences in accounting policies
affecting, above all, intangible assets, investments, technical
assets and liabilities, financial instruments and deferred taxes.
The annual financial statement of Hannover Rück SE – from
which the balance sheet and profit and loss account in particu-
lar are reproduced here in condensed form – has been submit-
ted to the operator of the electronic Federal Gazette and can
be accessed via the webpage of the Companies Register. This
annual financial statement can also be accessed on the com-
pany's website (www.hannover-re.com) and may be requested
from Hannover Rück SE, Karl-Wiechert-Allee 50, 30625 Han-
nover, Germany.
Hannover Rück SE transacts reinsurance business in the busi-
ness groups of Property & Casualty and Life & Health reinsur-
ance. Through its global presence and activities in all lines of
reinsurance the company achieves optimal risk diversification.
Since 1 January 1997 Hannover Rück SE has written active
reinsurance for the Group - with few exceptions - solely in
foreign markets. Responsibility within the Hannover Re Group
for German business rests with the subsidiary E+S Rückver-
sicherung AG.
Results of operations
The 2016 financial year passed off highly satisfactorily for
Hannover Rück SE. The gross premium of Hannover Rück
SE in total business decreased as anticipated by 15.7% to
EUR 11.9 billion (previous year: EUR 14.1 billion). The level
of retained premium contracted from 73.0% to 72.4%. Net
premium earned also fell, declining by 16.1% to EUR 8.5 bil-
lion (EUR 10.2 billion).
Condensed profit and loss account of Hannover Rück SE
M39
in EUR thousand
2016
2015
a+
Information pursuant to § 315 Para. 4
German Commercial Code (HGB)
A
EUR 500 million; 2010/2040
Designated Activity Company
AA-
A+
Hannover Re (Bermuda) Ltd.
AA-
A+
Hannover ReTakaful B.S.C. (c)
A+
International Insurance Company
of Hannover SE
AA-
A+
1 With regard to the financial strength ratings of the South African
subsidiaries we would also refer to our remarks in section 8.10 of the
notes "Events after the balance sheet date" on page 235.
Issue ratings of issued debt
Earned premiums, net of retrocession
As part of the process of rating Hannover Re the rating agen-
cies also assess the debt issued by the Hannover Re Group.
Issue ratings of issued debt
Standard &
Poor's
A.M. Best
Hannover Rück SE, subordinated
debt, EUR 500 million;
2014/undated
A
a
Hannover Finance (Luxembourg)
S.A., subordinated debt,
EUR 500 million; 2012/2043
A
Hannover Finance (Luxembourg)
S.A., subordinated debt,
M38
Hannover Re (Ireland)
8,534,768
237,271
171,464
160,761
Other charges
284,704
281,979
Profit or loss on ordinary activities before tax
1,241,772
1,063,973
Taxes on profit and income and other taxes
292,540
158,172
Profit for the financial year
949,232
905,801
Profit brought forward from previous year
Allocations to other retained earnings
Disposable profit
85,163
395
2,462
250,263
1,034,000
658,000
Hannover Re | Annual Report 2016
61
Combined management report
The underwriting result (before changes in the equali- Development of the individual lines
sation reserve) improved in the year under review from
EUR 158.4 million to EUR 336.8 million. Following an alloca-
tion of EUR 136.1 million in the previous year, an amount of
EUR 8.7 million was withdrawn from the equalisation reserve
and similar provisions.
Major loss expenditure in the year under review was notable
for several severe earthquakes as well as windstorm events.
Man-made losses were also recorded. Altogether, the burden
of large losses for Hannover Rück SE was in line with expec-
tations, despite coming in higher than in the previous year.
The largest single loss for our account was the earthquake
in Ecuador with a net strain of EUR 46.3 million. In addition,
after several years of moderate storm seasons in the United
States and the Caribbean, a costly event was incurred in the
shape of Hurricane Matthew. The resulting loss for our com-
pany amounted to EUR 39.8 million. The total net expenditure
from large losses for Hannover Rück SE was EUR 340.1 million
(EUR 330.6 million).
Ordinary investment income including deposit interest fell
clearly short of the previous year's level at EUR 1,197.9 mil-
lion (EUR 1,737.8 million). This was due principally to the
non-recurrence of special distributions made by our investment
holding companies in the previous year as well as to reduced
income from funds withheld and contract deposits owing to
expiring contracts at our branch in China. This decrease is off-
set by the corresponding non-recurrence of interest expenses
on funds withheld and contract deposits associated with the
very same contracts, as reflected under other income and
charges. Net gains of EUR 132.9 million (EUR 94.0 million)
were realised on disposals. Write-downs of just EUR 34.9 mil-
lion (EUR 83.2 million) were taken on investments. They were
attributable principally to bearer debt securities held as cur-
rent assets. The write-downs contrasted with write-ups of
EUR 25.9 million (EUR 5.1 million) that were made on assets
written down in previous periods in order to reflect increased
fair values.
Other income
(532,949)
(277,463)
Allocated investment return transferred to the technical account
10,178,602
328,840
Other technical income, net of retrocession
15
Claims incurred, net of retrocession
6,905,906
Changes in other technical provisions, net of retrocession
331,795
7,222,016
(1,020,247)
Bonuses and rebates, net of retrocession
30
(12)
Operating expenses, net of retrocession
1,860,197
2,105,799
Allocated investment return transferred from the non-technical account, net of retrocession
Other technical charges, net of retrocession
Subtotal
336,799
1,056
158,351
Change in the equalisation reserve and similar provisions
8,724
Net technical result
345,523
(136,129)
22,222
Investment income
1,385,001
1,862,593
Investment charges
98,049
166,675
902
All in all, our net investment result retreated to EUR 1,287.0 mil-
lion (EUR 1,695.9 million).
A+
AA-
20151
(1,054.8)
24.0
in EUR million
Cash flow from operating activities
2,331.3
3,104.9
Cash flow from investing activities
(1,711.6)
(2,107.6)
Cash flow from financing activities
(626.9)
Exchange rate differences on cash
34.9
Change in cash and
cash equivalents
27.7
The following table presents an overview of the amortised cost
of the issued bonds.
Cash and cash equivalents
at the beginning of the period
821.0
854.5
Change in cash and cash
equivalents according to
cash flow statement
27.7
(33.5)
Cash and cash equivalents
1
848.7
2016
M34
Consolidated cash flow statement
Hannover Re | Annual Report 2016
Hannover Finance (Luxembourg) S.A., subordinated debt,
EUR 500 million; 2010/2040
M33
Issue date Coupon in %
2016
2015
14.9.2010
5.75
498.9
498.7
Hannover Finance (Luxembourg) S.A., subordinated debt,
EUR 500 million; 2012/2043
20.11.2012
5.00
497.5
497.2
821.0
Hannover Rück SE, subordinated debt, EUR 500 million;
2014/undated
15.9.2014
3.375
494.5
494.0
1,490.9
1,489.9
Several Group companies have also taken up long-term debt-
principally in the form of mortgage loans - amounting to
EUR 313.4 million (EUR 308.5 million).
For further explanatory information please see our remarks in
the notes to this report, section 6.12 “Debt and subordinated
capital", page 208 et seq., and section 6.13 "Shareholders'
equity and treasury shares", page 212.
Various financial institutions have provided us with letters
of credit for the collateralisation of technical liabilities. Both
bilateral agreements and an unsecured syndicated guarantee
facility existed as at the balance sheet date with a number
of financial institutions for this purpose. The guarantee facil-
ity was terminated in January 2016 and partially refinanced
through bilateral credit facilities. We report in detail on exist-
ing contingent liabilities in the notes, section 8.7 "Contingent
liabilities and commitments", page 233 et seq.
Analysis of the consolidated cash
flow statement
Liquidity
We generate liquidity primarily from our operational reinsur-
ance business, investments and financing measures. Regular
liquidity planning and a liquid investment structure ensure that
Hannover Re is able to make the necessary payments at all
times. Hannover Re's cash flow is shown in the consolidated
cash flow statement on page 140 et seq.
Hannover Re does not conduct any automated internal cash
pooling within the Group. Liquidity surpluses are managed and
created by the Group companies. Various loan relationships
exist within the Hannover Re Group for the optimal structuring
and flexible management of the short- or long-term allocation
of liquidity and capital.
58
Total
BBB+
at the end of the period
Cash flow from operating activities
2013
2014
2015
2016
Hannover Re | Annual Report 2016
59
Combined management report
Financial strength ratings of subsidiaries
M37
A.M. Best
A+
Standard &
Poor's
E+S Rückversicherung AG
AA-
Hannover Life Reassurance
Africa Ltd. 1
BBB+
Hannover Life Reassurance
Bermuda Ltd.
AA-
A+
Hannover Life Reassurance
Company of America
AA-
Hannover Life Re
of Australasia Ltd.
Hannover Reinsurance
Africa Ltd. 1
2012
0
500
1,000
The cash flow from operating activities, which also includes
inflows from interest received and dividend receipts, amounted
to EUR 2,331.3 million in the year under review as opposed to
EUR 3,104.9 million in the previous year. The reduction of alto-
gether EUR 773.6 million was essentially due to the payment of
retrocession premiums for certain financial solutions contracts
in life and health reinsurance, under which the corresponding
premiums for assumption of the business had already been
received in the previous year. The lower premium level was also
a factor in the decreased cash flow from operating activities.
Cash flow from operating activities
in EUR million
3,500
3,105
M35
Cash flow from investing activities
The balance of cash inflows and outflows from operating activ-
ities and financing activities in an amount of EUR 1,711.6 mil-
lion (EUR 2,107.6) million was invested in accordance with the
company's investment policy, giving particular consideration to
matching of currencies and maturities on the liabilities side of
the technical account. Regarding the development of the invest-
ment portfolio please see also our remarks at the beginning of
this section.
Cash flow from financing activities
The cash outflow from financing activities decreased from
-EUR 1,054.8 million to -EUR 626.9 million in the year under
review. The higher outflow in the previous year was mainly due
to redemption of a EUR 500.0 million subordinated debt.
Overall, allowing for the restatements pursuant to IAS 8, the
cash and cash equivalents therefore increased year-on-year by
EUR 27.7 million to EUR 848.7 million.
For further information on our liquidity management please see
page 95 of the risk report.
Financial strength ratings
A.M. Best and Standard & Poor's, the rating agencies of par-
ticular relevance to the insurance industry, assess the financial
strength of Hannover Re on the basis of an interactive rating
process and have awarded it very good ratings. The rating
agencies highlight in particular the strength of the Hannover
Re Group's competitive position, its capitalisation and its risk
management.
Financial strength ratings of the Hannover Re Group
Restated pursuant to IAS 8 (see section 3.1 of the notes
"Changes in accounting policies")
M36
Standard &
Poor's
AA-
A.M. Best
A+
Outlook
(Very Strong)
stable
(Superior)
stable
3,000
2,637
2,500
2,331
2,225
1,931
2,000
1,500
Rating
2015
The profit on ordinary activities increased to EUR 1,241.8 mil-
lion (EUR 1,064.0 million). The year under review closed with
a profit for the year of EUR 949.2 million (EUR 905.8 million).
The following section describes the development of the various
lines of business. We would like to point out that with effect
from the beginning of the 2014 financial year the exchange
of business under joint underwriting arrangements between
Hannover Rück SE and E+S Rückversicherung AG was reorgan-
ised. In property and casualty reinsurance, however, a retro-
cession from Hannover Rück SE to E+S Rückversicherung AG
has been maintained. The proportion of Hannover Rück SE's
gross written premium attributable to business accepted from
E+S Rückversicherung AG stood at 0.2% (0.2%) in the year
under review and relates to the run-off of the 2013 and prior
underwriting years.
Staff turnover/absenteeism Hannover head office
in %
5
3.8
4
3.6
3.5
3.4
3
2.8
.2.8
2
1
0
1.5
2.5
2012
2013
2014
2015
Turnover
Absenteeism
3.1
3.9
2016
M42
Health management expanded
The expansion of our strategic health management was a focus
of our activities in the financial year just ended. In so doing, we
are responding to the demands of shifting demographics and
helping to preserve the capacity of our managers and staff to
do their job and to cope with the challenges placed upon them.
By way of introduction to this topic, we offered our managers
a presentation event on working capacity, coping and health
management that was geared to their concerns. The most visi-
ble measure, however, was undoubtedly the first company-wide
health day, at which we communicated holistic knowledge on
various issues of in-house health management in the form of
talks and activities. A range of hands-on measures made for a
lively setting and provided our managers and staff alike with
pointers for initiating wellness-promoting measures on a direct
and individual basis.
Given that relaxation know-how was an aspect that met with a
particularly positive reception, we took this as an opportunity
to design a specially tailored seminar as part of our regular
in-house programme of further training. This training activity
enables participants to create their own personal relaxation
profile and to learn how to integrate the insights gained into
their everyday routine.
The Hannover Re Group employed 2,893 staff as at 31 Decem-
ber 2016 (previous year: 2,762). The turnover ratio at our head
office in Hannover of 3.1% (2.5%) was higher than the level
of the previous year. The rate of absenteeism - at 3.9% - was
slightly higher than in the previous year (3.8%). The turnover
ratio and rate of absenteeism continue to be below the average
expected across the industry as a whole.
Key personnel ratios
Our staff
Other success factors
30,285,024
531,367
408,726
2,286,675
1,159,116
8,795,263
1,596,213
4
8
39,022,996
44,874,950
Our portfolio of assets under own management grew in the
year under review to EUR 27.3 billion (EUR 25.7 billion). This
corresponds to an increase of 6.4% and is reflected above all
in the increased portfolio of bearer debt securities. The bal-
ance of unrealised gains on fixed-income securities and bond
funds climbed to EUR 685.1 million (EUR 610.3 million). This
reflects the yield decreases observed in the course of the year
under review for EUR- and GBP-denominated bonds as well
as reduced risk premiums for corporate bonds across all rating
classes. Opposing effects derived from US Treasuries, which
recorded yield increases across all maturity segments over the
year as a whole.
Deposits with ceding companies, which are shown under the
investments, fell to EUR 8.3 billion (EUR 15.6 billion) in the
year under review; this was attributable primarily to expiring
contracts at our branch in China.
Our capital and reserves - excluding the disposable profit
stood at EUR 1,631.7 million (EUR 1,631.7 million). The total
capital, reserves and technical provisions - comprised of the
capital and reserves excluding disposable profit, the subordi-
nated liabilities, the equalisation reserve and similar provisions
as well as the net technical provisions - increased during the
year under review to EUR 34,011.8 million (EUR 33,416.7 mil-
lion). The balance sheet total of Hannover Rück SE decreased
to EUR 39.0 billion (EUR 44.9 billion).
A dividend of EUR 3.25 plus a special dividend of EUR 1.50
per share, equivalent to EUR 572.8 million (EUR 512.5 million),
was paid in the year under review for the 2015 financial year.
A further important component of our health management is
the Employee Assistance Programme. This has been available
to our managers, staff and their family members since August
2016. The programme offers free and anonymous immediate
counselling on personal, professional and psychological/health
concerns as well as a service for families. This measure, too,
contributes to wellness and serves a preventive function,
thereby helping to ensure that challenges do not become bur-
dens and that working capacity is preserved for the long term -
in the interests of both our employees and the company.
It will be proposed to the Annual General Meeting on
10 May 2017 that a dividend of EUR 3.50 plus a special dividend
of EUR 1.50 per share should be paid for the 2016 financial
year. This corresponds to a total distribution of EUR 603.0 mil-
lion. The dividend proposal does not form part of this consol-
idated financial statement.
44
Hannover Re | Annual Report 2016
Risks and opportunities
The business development of Hannover Rück SE is essentially
subject to the same risks and opportunities as that of the Han-
nover Re Group. As a general principle, Hannover Rück SE
shares in the risks of participating interests and subsidiaries
according to the amount of its respective holding. The risks
are set out in the risk report. The relations with participating
interests of Hannover Rück SE may also give rise to losses from
legal or contractual contingent liabilities (particularly novation
clauses and guarantees). Please see our explanatory remarks
in the notes to this report.
Other information
We received an adequate consideration for all transactions with
affiliated companies according to the circumstances of which
we were aware at the time when the transactions were effected.
We incurred no losses requiring compensation as defined by
§ 311 Para. 1 Stock Corporation Act (AktG).
Hannover Rück SE maintains branches in Australia, Bahrain,
Canada, China, France, Korea, Malaysia, Sweden and the
United Kingdom.
Outlook
In view of the interrelations between the parent company and
the Group companies and the former's large share of business
within the Group, we would refer here to our remarks con-
tained in the section entitled "Outlook for 2017" on page 131,
which also reflect in particular the expectations for Hannover
Rück SE.
Given that the loss-heavy year of 2001 will no longer be
included in the 15-year observation period used to calculate
the equalisation reserve, Hannover Rück SE additionally antici-
pates a positive one-off effect from the release of equalisation
reserves in 2017 that is expected to significantly increase the
profit for the financial year reported under the German Com-
mercial Code (HGB).
In terms of the dividend for the current financial year, we envis-
age a payout ratio in the range of 35% to 40% of the IFRS
Group net income. This ratio may increase in light of capital
management considerations if the present comfortable level
of capitalisation remains unchanged.
Hannover Re | Annual Report 2016
65
Combined management report
64
30,880,118
66
Hannover Re | Annual Report 2016
8,777
9,741
743
M32
3,886
3,400
4,000
895
850
6,000
642
682
6,530
6,714
8,000
10,000
in EUR million
Development of Group shareholders' equity
The Group net income for 2016 attributable to the sharehold-
ers of the Hannover Re Group climbed to EUR 1,171.2 million
(EUR 1,150.7 million). The non-controlling interest in the profit
generated in the year under review totalled EUR 55.2 million
(EUR 64.0 million).
Non-controlling interests in shareholders' equity increased
by EUR 34.2 million to EUR 743.3 million as at 31 Decem-
ber 2016. The bulk of this - in an amount of EUR 696.6 mil-
lion – is attributable to the non-controlling interests in E+S
Rückversicherung AG.
The foreign currency gains and losses climbed by
EUR 170.9 million from EUR 509.2 million to EUR 680.1 mil-
lion as a consequence of exchange rate movements of foreign
currencies against the euro in the financial year. The rise in
the reserve for currency translation adjustment resulted princi-
pally from the appreciation of the US dollar and translation of
the shareholders' equity of those subsidiaries whose equity is
denominated in USD.
Net unrealised gains on investments stood at EUR 904.2 mil-
lion, a rise of EUR 192.2 million compared to the beginning
of the year under review. This increase was mainly due to
price gains on fixed-income securities, equities and invest-
ment funds.
The book value per share increased accordingly by a substan-
tial 11.5% to EUR 74.61. The changes in shareholders' equity
were shaped chiefly by the following developments:
In view of another very positive result, the development of the
shareholders' equity of the Hannover Re Group was pleasing.
Compared to the position as at 31 December 2015, it surged
by EUR 963.1 million - or 11.0% – in the year under review
to EUR 9,740.5 million. After adjustment for non-controlling
interests, it rose by EUR 928.9 million to EUR 8,997.2 million.
Group shareholders' equity
In its capital management Hannover Re is guided 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 corres-
ponding planned and forecast figures. If, despite the capital
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 sol-
vency using our internal capital model (cf. "Opportunity and
risk report", page 73 et seq.).
8,997-
Hybrid capital, no maturity Hybrid capital, limited maturity
2016
8,253
709
1,171
702
Our subordinated bonds supplement our equity with the aim
of reducing the cost of capital and also help to ensure liquid-
ity at all times. As at the balance sheet date altogether three
subordinated bonds had been placed on the European capi-
tal market through Hannover Rück SE and Hannover Finance
(Luxembourg) S.A.
In addition to the financing effect of the changes in share-
holders' equity described above, debt financing on the capital
market is a significant component of Hannover Re's financing.
It was essentially composed of subordinated bonds issued to
ensure lasting protection of our capital base – in part also
in observance of rating requirements. The total volume of
debt and subordinated capital stood at EUR 1,804.2 million
(EUR 1,798.3 million) as at the balance sheet date.
Financing and Group debt
Combined management report
57
40
Hannover Re | Annual Report 2016
845
2016
Common shares and additional paid-in capital
Cumulative other comprehensive income
Retained earnings excluding Group net income (loss)
Group net income (loss) Non-controlling interests
845
2015
845
2014
66
2013
2012
0
845
262
1,524
1,183
1,303
938
2,000
4,889
4,417
5,457
986
1,151
845
of business
1,500,000
2,289,716
379
414
344
405
434
435
6.000
5.999
4.108
9.000
3.000
Fire
0
2012
3.894
3.912
4.082
2.736
2.842
2.137
2.609
2.275
2013
2014
2015
2016
Aviation Motor
Other lines Life Marine
Accident Casualty Fire
Total gross premium income for the fire line climbed by 2.2% in
the 2016 financial year to EUR 1,625.5 million (EUR 1,590.3 mil-
lion). The net loss ratio rose in the year under review from 53.9%
to 67.7%. The underwriting profit contracted to EUR 57.5 mil-
lion (EUR 149.4 million). An amount of EUR 211.6 million
(EUR 83.6 million) was withdrawn from the equalisation reserve
and similar provisions in the year under review.
385
749
273
942
Hannover Rück SE: Breakdown of gross premium
by individual lines of business
in EUR million
15.000
12.000
10.457
11.048
10.865
1.376
14.139
M40
1.590
11.917
1.401
330
62
1.626
1.424
1.272
1.444
350
-1.228
-1.175
437
1.260
334
362
316
913
288
654
1.298
1,500,000
62
Combined management report
Subordinated liabilities
Technical provisions
Provisions for other risks and charges
Deposits received from retrocessionaires
Other liabilities
Accruals and deferred income
Total liabilities
M41
2016
2015
76,359
35,646,313
77,960
41,338,228
2,753,154
2,959,324
384,729
331,197
162,441
168,241
39,022,996
44,874,950
120,597
120,597
880,608
880,608
630,511
630,511
1,034,000
658,000
2,665,716
Capital and reserves
Disposable profit
Retained earnings
Capital reserve
Casualty
Gross premium in casualty business climbed by 3.1% to
EUR 1,443.7 million (EUR 1,400.9 million). The loss ratio
decreased from 82.6% to 78.0%. The underwriting result
improved to -EUR 17.4 million (-EUR 69.5 million). An amount
of EUR 190.3 million was allocated to the equalisation reserve
and similar provisions in the year under review; the allocation
in the previous year had totalled EUR 139.6 million.
Accident
Gross premium increased for the accident line by a modest
1.2% to EUR 333.8 million (EUR 329.8 million). The loss ratio
decreased from 70.3% to 64.8%. The underwriting result came
in at EUR 22.0 million, after EUR 9.9 million in the previous
year. An amount of EUR 20.6 million (EUR 23.7 million) was
withdrawn from the equalisation reserve and similar provisions.
Motor
Gross premium income for the motor line contracted by 35.9%
to EUR 913.1 million (EUR 1,423.6 million). The loss ratio also
decreased to 68.1% (85.5%). The underwriting result closed at
EUR 53.2 million after -EUR 159.4 million in the previous year.
An amount of EUR 106.5 million was allocated to the equali-
sation reserve and similar provisions in the year under review,
after a withdrawal of EUR 13.1 million in the previous year.
Aviation
The gross premium volume fell by 21.9% from EUR 349.7 mil-
lion to EUR 273.0. The loss ratio decreased again, improving
from 77.8% to 57.7% in the year under review. The underwrit-
ing result came in at EUR 39.3 million (EUR 2.5 million). An
amount of EUR 23.3 million (EUR 15.5 million) was allocated
to the equalisation reserve and similar provisions in the year
under review.
Marine
Gross written premium for the marine line contracted by 13.3%
to EUR 378.7 million (EUR 436.9 million). The net loss ratio
decreased markedly from 74.3% to 30.8%. Against this back-
drop the underwriting result increased very substantially from
EUR 8.2 million to EUR 105.7 million. Releases of loss reserves
from prior years that were no longer required were a particu-
larly key factor here. An amount of EUR 86.7 million was with-
drawn from the equalisation reserve and similar provisions in
the year under review, after an allocation of EUR 48.2 million
in the previous year.
Life
Gross premium income in the life line fell by 31.5% in the finan-
cial year just ended to EUR 4,107.8 million (EUR 5,998.7 mil-
lion). This contraction had been anticipated in view of the
above-average premium growth booked in 2015. Develop-
ments in the international markets were highly dynamic in
many instances, opening up both new business opportuni-
ties and challenges. The protracted low level of interest rates,
for example, continued to impact the development of busi-
ness around the world, most notably causing the appeal of
traditional (re)insurance products with savings components to
further diminish. Regulatory changes such as the newly imple-
mented Solvency II regime in Europe also ranked among the
international challenges. It was particularly noticeable that pri-
mary insurers are increasingly seeking relief from the strain
associated with capital-intensive longevity business.
The underwriting result in life business closed at EUR 97.0 mil-
lion (EUR 163.3 million) in the year under review.
Other lines
Hannover Re | Annual Report 2016
The lines of health, credit and surety, other indemnity insur-
ance and other property insurance are reported together under
other lines. Other property insurance consists of the extended
coverage, comprehensive householder's (contents), compre-
hensive householder's (buildings), burglary and robbery, water
damage, plate glass, engineering, loss of profits, hail, livestock
and windstorm lines. Other indemnity insurance encompasses
legal protection, fidelity as well as other pure financial losses
and property damage.
Hannover Re | Annual Report 2016
63
Assets and financial position
Balance sheet structure of Hannover Rück SE
in EUR thousand
Assets
Intangible assets
Investments
Receivables
Other assets
Prepayments and accrued income
Total assets
Liabilities
Subscribed capital
The total gross premium volume in the other lines climbed
by 8.9% to EUR 2,841.6 million (EUR 2,609.4 million). The
net loss ratio rose in the year under review from 68.4% to
72.5%. The underwriting result closed at -EUR 20.5 million,
after EUR 54.0 million in the previous year. An amount of
EUR 9.8 million was withdrawn from the equalisation reserve
and similar provisions, following an allocation of EUR 53.4 mil-
lion in the previous year.
(33.5)
1,219
9,114,482
3,359,694
Russian
8,802,262
1,164
1,289
8,969,975
2,748,014
15,176,000 15,778,000
7,551,200 8,502,060
193,760
20,447,867
20121
20131
20141
2,319,854
20152
1,337
8,868,345
2,746,698
17,088,000
6,600,810
156,880
20,530,043
8,581,000
3
CO2 emissions (in kg) ³
Business trips (in km)
Waste (in kg)
Paper (in sheets)
Water (in I)
9,008,650
3,097,942
16,664,000
5,753,750
162,890
20,738,566
9,023,000
14,961,000
8,766,000
214,250
18,185,062
Our risk management system continuously monitors newly added and changing risks and
is able to respond flexibly to changes in internal and external factors.
Hannover Re has a very strong capital position, which is constantly reviewed against
the backdrop of possible changes in the risk profile.
.
Risk report
Opportunity and risk report
Hannover Re | Annual Report 2016
22
72
3
2
1 Karl-Wiechert-Allee 50, Roderbruchstraße 21 and 26 as well as infant daycare centre, Karl-Wiechert-Allee 57 (pro rata), Hannover
Karl-Wiechert-Allee 50, Roderbruchstraße 21 and 26 as well as infant daycare centre, Karl-Wiechert-Allee 57, Hannover
Radiative Forcing Index: 2.7
4,984,000
7,203,000
7,798,000
205,790
16,654,504
Heat (in kWh)
20162
1,349
Electricity (in kWh)
Number of staff
As far as our core business is concerned, in the growing mar-
ket for microinsurance products we intensified our cooperation
with primary insurers in Pakistan, the Philippines and Indone-
sia. Furthermore, the protection of agricultural production is of
considerable relevance to the development of more deprived
regions. We therefore continued our cooperative efforts with
government and international organisations to expand agri-
cultural insurance. We have encouraged the development of
products in response to climate change, such as weather insur-
ance and coverage for energy-saving warranties, among other
things by supporting the extension of energy-saving warran-
ties to other European countries. In life and health reinsurance
demographic changes around the world are leading to stronger
demand for reinsurance in the area of longevity solutions. We
are also seeing rising demand for so-called lifestyle insurance
products, where the premium is linked to an insured's healthy
lifestyle (e.g. fitness and nutritional habits).
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
requirements. As a leading player in the reinsurance industry,
the commercial success of Hannover Re is crucially depend-
ent on the correct assessment of present and emerging risks.
These include not only the recent proliferation of geopolitical
and economic uncertainties, but also developments such as
demographic change, shifting mobility patterns in populations,
increasing digitisation and the resulting cyber risks as well as
climate changes and the associated discussions centred on
food and water security. By organising topically specific con-
ferences, visiting clients and attending trade fairs and expert
gatherings we enable our customers to share our knowledge
and we use the internally and externally acquired experience
in order to be able to offer them better or innovative (re)insur-
ance solutions and to strengthen our customer relationships.
Sustainable insurer and
responsible investor
Combined management report
Hannover Re | Annual Report 2016
10
70
In our annually published Sustainability Report we provide
ongoing information about our achievements as a responsible
company. In this regard we follow the currently applicable
and internationally recognised guidelines of the Global Report-
ing Initiative (GRI). Furthermore, a favourable rating testifies
to the fact that our sustainability communication lives up to
the transparency requirements of Environmental, Social and
Governance (ESG) rating agencies: in June 2015 Hannover Re
received confirmation for the first time of its inclusion in the
worldwide FTSE4Good Index Series from the FTSE Environ-
mental, Social and Governance Advisory Committee - an index
on which it has been listed since that date.
Given that the trust of our stakeholder groups and an immac-
ulate reputation advance the success of our company, we also
make every effort to continuously maintain an active dialogue
with our stakeholders. Through conferences, roadshows and
one-to-one meetings, for example, we stay in contact with rep-
resentatives of the capital market. Our employees cultivate the
dialogue with our worldwide customers through direct, face-to-
face discussions. Furthermore, we regularly measure customer
satisfaction with the assistance of external market research
institutes. We similarly engage in an ongoing dialogue with
political decision-makers, supervisory authorities and insur-
ance industry associations. The primary focus here is on topical
issues in insurance supervision and financial market regulation
in Germany, the European Union and on the international level.
In this context Hannover Re contributes its specialist expertise
from business practice to the public debate. Hannover Re is
also a member of various associations, advocacy groups and
organisations.
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 (DCGK); this is published on our corporate
website and reproduced on page 98 et seq. of the present
Annual Report. The Corporate Governance principles of Han-
nover Rück SE are also subject to regular review and fulfil the
recommendations of the currently valid version of the German
Corporate Governance Code as amended.
Meeting. The interplay between these bodies is regulated by
German stock corporation law and by the company's Articles
of Association. Furthermore, our Group Strategy, the Corpo-
rate Governance principles and our Code of Conduct form the
basis of our enterprise management. The highest authority for
sustainability issues is the Executive Board, whose members
pursue the sustainability objectives on a collective basis.
As an internationally operating company, Hannover Re bears
responsibility in various senses. This is true of its compli-
ance with relevant laws and regulations, but also applies to its
relationship with staff, shareholders, the public at large and
the cultures within which the company operates. As a Euro-
pean company (Societas Europaea – SE) based in Germany,
the formal framework that shapes Hannover Re's corporate
governance is determined by German law. The fundamen-
tal hallmarks of this corporate governance are a two-tier sys-
tem with its transparent and effective split into management
(Executive Board) and its oversight (Supervisory Board), the
appointment of shareholder and employee representatives to
the Supervisory Board and the rights of co-administration and
Corporate Governance and dialogue
We set out below our primary avenues for moving forward on
sustainability and the most significant developments in 2016.
The Sustainability Report of the Hannover Re Group contain-
ing detailed information on our strategy, our approach and our
advances in matters of sustainability can be accessed on our
corporate website at hannover-re.com/60729/sustainability.
Our current Sustainability Strategy for the years 2015 to 2017
was developed on the basis of a materiality analysis. It defines
four action fields and further specifies 14 concrete goals and
42 measures.
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 (environ-
mental, 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. Altogether around 90% of our investments are
screened every six months according to ESG criteria.
Strategy implementation
Attractive employer
One of the cornerstones of our successful business activities,
along with our employees' skills and commitment, is the con-
siderable degree of diversity in the workforce - since this is
vital to safeguarding our high global quality standard. At Han-
nover head office alone the members of staff come from 39 dif-
ferent nations, a reflection of the international dimension of our
business operations. By expanding our mentoring programme
we help women at our company to reflect on their professional
development so far and take active steps to shape their future
career path. Our range of seminars serves to develop all the
company's employees and is designed to encourage a positive
attitude towards life-long learning, even among our more sea-
soned staff. The co-determination of our staff is enshrined in
their right to have a say through the Group-wide and/or local
Employee Council. In addition, the three employee represent-
atives on the Supervisory Board of Hannover Re ensure the
participation of our staff in this oversight body.
M44
Resources consumed at Hannover head office
Detailed explanatory remarks on our consumption of resources
as well as extensive information on our social commitment
can be found at www.hannover-re.com/60729/sustainability.
Our commitment to society has a long tradition. Hannover
Re has been active as a sponsor of culture and social projects
for several decades. Our activities extend beyond our loca-
tion in Germany to our subsidiaries with their specific projects
catering to social concerns in their own country. Content-wise,
we concentrate our non-profit activities today on the areas of
research, learning, art and music as well as on assisting our
employees with their voluntary contributions to society.
The table below breaks down Hannover Re's consumption and
emissions over the past five years.
In the financial year just ended, as in prior years, we reported
on our measures to reduce carbon dioxide emissions as part
of the international initiative overseen by the Carbon Disclo-
sure Project (CDP); in this context we achieved a score of B
(Management).
In 2016, as in previous years, we compensated for our unavoid-
able CO2 emissions caused by business travel by making vol-
untary offsetting payments to the international organisation
"atmosfair". In addition, the 2016 financial year was the first
one in which we offset emissions from the use of district heating
and from our paper consumption by purchasing climate certifi-
cates for the moorland project of Friends of the Earth Germany
(BUND - Bund für Umwelt und Naturschutz Deutschland). We
were thus successful for the first time in operating with a net
zero carbon footprint at the Hannover location.
Hannover Re's carbon dioxide emissions at its German loca-
tion in 2016 amounted to 9,023 (previous year: 8,581) tonnes,
some 5.2% more than in the previous year. This is equivalent
to per capita CO2 emissions of 6.7 tonnes (+4.2% compared
to the previous year).
The focus of our efforts to conserve the environment is on
reducing carbon dioxide (CO2) emissions associated with the
supply of electricity and heating to our premises as well as
with our business travel. Having already converted our power
supply at the German location to renewables, we now want to
extend this progressively to our international offices as well.
In the year under review Hannover Re completed the successful
changeover and certification of its environmental management
system according to DIN EN ISO 14001:2015. In addition, we
drew up our first environmental statement in accordance with
the Eco Management and Audit Scheme (EMAS) Regulation
and had it validated by an environmental verifier. Major fea-
tures of the EMAS Regulation include a rigorous orientation
towards continuous improvement of environmental efficiency,
the use of consistent performance indicators in relation to key
environmental aspects as well as verification of compliance
with legal requirements.
71
Hannover Re | Annual Report 2016
The environmental impacts of Hannover Re's business oper-
ations are comparatively slight. We nevertheless take our
responsibility for the environment very seriously and with
the implementation of our environmental management sys-
tem - which was certified according to DIN EN ISO 14001 in
2012 - we have put in place standard processes for dealing
with environmental protection and specified concrete measures
in our environmental programme.
Environmental management and
social responsibility
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 vari-
ous stages of life such as starting a family or preparing for
retirement, e.g. through partial retirement opportunities for
older staff.
Our employees are one of our company's most important suc-
cess factors. Employing successful staff on a long-term basis
is one of the ten key points of our Group Strategy. With this
in mind, we systematically support the professional growth,
personal development and health-related well-being of our
employees and enshrine this approach in the strategic prin-
ciples governing our human resources management. When it
comes to preserving the well-being of our staff, we are contin-
uing our commitment to health management with a focus on
the prevention of disease.
For Hannover Re, sustainability means a commitment to long-
term value creation combined with the forward-looking concept
of good corporate governance, a voluntary undertaking to con-
serve the environment and social responsibility. Our day-to-day
business as a reinsurer involves the professional handling of
highly diverse risks. Our value contribution lies in our ability to
bring together our extensive risk expertise with sophisticated
underwriting practice. In so doing, we help to make risks in
both private and business life manageable. An anticipatory
approach to dealing with risks in the areas of reinsurance and
investment management is of special importance inasmuch
as we must keep our payment promises to our clients not only
today but also 20 or 30 years from now. With this in mind, in
2011 we drew up a Sustainability Strategy for Hannover Re that
reflects in concrete terms the corporate strategy of the Group
and in which we explicitly commit to our strategic objective
of sustainable value creation.
Our current corporate strategy encompasses ten guiding prin-
ciples that safeguard the realisation of our vision "Long-term
success in a competitive business" across the various divisions.
For further information on the corporate strategy and the stra-
tegic principles please see the section entitled “Our strategy"
on page 14 et seq.
•
74
Capital market environment: Another major external influ-
encing factor is the protracted low level of interest rates, espe-
cially with an eye to the return that can be generated on our
investments. The move by the European Central Bank to extend
its purchases of corporate bonds and the United Kingdom's
decision to leave the European Union led to a further drop in
interest rates (in the United Kingdom). For further informa-
tion please see the "Investments" section of the management
report on page 51 et seq.
Parallel to the regulatory developments in Europe, we are see-
ing 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).
We comprehensively fulfilled the supervisory reporting require-
ments, inter alia by compiling a Day 1 report and a report
on the Own Risk and Solvency Assessment (ORSA) for Han-
nover Rück SE and other European insurance companies within
the Group.
Hannover Re received approval from the regulatory authorities
to calculate its solvency requirements using a partial internal
capital model when Solvency II entered into effect. The model
approved by regulators covers the underwriting, market and
counterparty default risks that are most relevant to enterprise
management. Our internal capital model enables us to opti-
mally map the risk structure of our reinsurance business and
our investments, which would not be possible using a stand-
ard model. Regulatory approval also means that the risks can
be better reflected when determining the regulatory capital
requirements. Our internal target capitalisation with a confi-
dence level of 99.97% comfortably exceeds the target level of
99.5% set by Solvency II, thereby ensuring a comfortable level
of capital adequacy under Solvency II if the internal target is
achieved. Our next step will be a full internal capital model
that also includes the operational risks.
Regulatory developments: Effective 1 January 2016 the new
insurance supervisory regime Solvency II entered into force.
Hannover Re implemented the extensive standards relat-
ing to capital requirements, governance and reporting in a
timely manner.
14
Major external factors influencing
risk management in the financial year
just ended
<0.03%
economic equity
Probability of loss of
0.01%
<0.03%
holders' equity under IFRS
<0.01%
Hannover Re | Annual Report 2016
Risk capital
In the interests of our shareholders and clients we strive to
ensure that our risks remain commensurate with our capital
resources. Our quantitative risk management provides a uni-
form framework for the evaluation and steering of all risks
affecting the company as well as of our capital position. In
this context, the internal capital model is our central tool. The
internal capital model of the Hannover Re Group is a stochas-
tic enterprise model. It covers all subsidiaries and business
groups of the Hannover Re Group. The central variable in risk
and enterprise management is the economic capital, which is
calculated according to market-consistent measurement princi-
ples and also constitutes the basis for calculating the own funds
under Solvency II. Hannover Re's internal capital model reflects
all risks that influence the development of the economic capital.
These are split into underwriting risks, market risks, counter-
party default risks and operational risks. For each of these risk
classes we have identified a number of risk factors for which we
define probability distributions. These risk factors include, for
example, economic indicators such as interest rates, exchange
rates and inflation indices, but also insurance-specific indica-
tors such as the mortality of a particular age group within our
portfolio of insureds in a particular country or the number of
natural catastrophes in a certain region and the insured loss
amount per catastrophe. The specification of the probability
distributions for the risk factors draws upon historical and pub-
lically available data as well as on the internal data resources of
the Hannover Re Group. This process is further supplemented
by the know-how of internal and external experts. The fit of the
probability distributions is regularly checked by our special-
ist departments, although more importantly it is also verified
in the context of the regular, company-wide use of the capital
model when assessing risks and allocating the cost of capital.
Hannover Re calculates the required risk capital as the Value
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% required under Solvency II.
Available economic
30.9.2015
(Solvency II)
(economic)
30.9.2015
31.12.2016
(Solvency II)
(economic)
in EUR million
31.12.2016
M47
Available capital and required risk capital
Hannover Re is well capitalised and our available capital com-
fortably exceeds the required capital, both from the economic
and the regulatory perspective:
Combined management report
75
Hannover Re | Annual Report 2016
The capitalisation prescribed by regulatory requirements
diverges from the capitalisation shown in accordance with the
Hannover Re Group's internal capital model. In the first place,
non-controlling interests cannot be fully recognised according
to Solvency II parameters, while on the other hand the sub-risk
comprised of operational risks is calculated according to the
parameters of the Solvency II standard formula. The solvency
ratio calculated in accordance with Solvency II stood at 230.2%
as at 31 December 2016.
Probability of loss of share-
98.1%
>90%
income under IFRS
Risk Strategy
Corporate
Strategy
Risk management through multiple levels of limits
8. We ensure the independence of the risk management
function.
7. We make balanced use of both quantitative and
qualitative methods.
6. We act in light of materiality and proportionality
considerations.
5. We fulfil the requirements of rating agencies.
4. We fulfil regulatory requirements.
3. We promote an open risk culture and the transparency
of our risk management system.
2. We integrate risk management into value-based
management.
1. We adhere to the risk appetite set by the
Executive Board.
The risk strategy is the core element in our handling of opportu-
nities and risks. It specifies more closely the goals of risk man-
agement and documents our understanding of risk. We have
defined eight overriding principles within the risk strategy:
We maintain an adequate level of capitalisation.
We are committed to sustainability, integrity and
compliance.
We manage risks actively.
•
Risk and Capital
Our risk strategy is derived from the corporate strategy. The
following principles of the corporate strategy constitute the
key strategic points of departure for our Group-wide risk
management:
Management Guideline
Investment and Underwriting Guidelines
Probability of positive net
31.12.2016
Limit
M46
Strategic targets for risk position
We manage our total enterprise risk such that we can expect
to generate positive IFRS Group net income with a probabil-
ity of 90% p. a. and the likelihood of the complete loss of our
economic capital and shareholders' equity under IFRS does
not exceed 0.03% p. a. These indicators are monitored using
our internal capital model and the Executive Board is informed
quarterly about adherence to these key parameters as part of
regular reporting. The necessary equity resources are deter-
mined according to the requirements of our economic capi-
tal model, regulatory parameters, the expectations of rating
agencies with respect to our target rating and the expectations
of our clients. Above and beyond that, we maintain a capital
cushion in order to be able to act on new business opportu-
nities at any time.
The risk strategy, risk register and central system of limits and
thresholds - as integral components of our Risk and Capital
Management Guideline - are reviewed at least once a year. In
this way we ensure that our risk management system is kept
up-to-date.
Combined management report
73
Limit per transaction
Limit for the catastrophe risk
Limits per risk category
Strategic limits
M45
Hannover Re | Annual Report 2016
Exposure Management Guideline
capital/Eligible capital
Sustainability strategy of the
Hannover Re Group
Kazakh
7
Spain
7
9
Japan
10
7
9
11
12
Italy
27
18
16
Korea
Mexico
7
7
Malaysia
China
Reinsurance is a business that often needs some form of expla-
nation, even for many young professionals and qualified grad-
uates. We tackle this challenge by using recruitment tools that
lend themselves particularly well to closing this knowledge
gap. Thus, for example, we are increasingly placing employee
reports in university magazines and on online platforms and
we are expanding our use of testimonial films. These short
films present the varied range of tasks and job profiles within
our company and map out a successful entry to the reinsur-
ance industry. Factors such as an adequate work-life balance
as well as support for diversity and equal treatment at our
company - all concerns of increasing importance to our target
groups are also addressed.
Among the new tools that we have drawn on in order to advance
our recruiting efforts particular mention should be made of
online chat sessions with HR consultants or the improved indi-
vidual support offered to students, to name just two examples.
Furthermore, with a view to specifically addressing (young)
professionals even better as a group, the profile of the Han-
nover Re Group in the business network Xing was reworked
with a more polished look.
The Employer Value Proposition elaborated on the basis of
these insights forms the basis of our personnel marketing com-
munication. On the one hand it is integrated into our estab-
lished recruiting processes and tools, while at the same time
we use it as a platform for picking up on new trends so as to
reach out even better to our target groups.
As our starting point, we evaluated a number of external studies,
some of which were specially oriented towards our needs. We
were able to obtain up-to-date and detailed information about
the career expectations and employer preferences of our pri-
mary applicant target groups. We combined these findings
with insights gained from internal surveys. This produced a
clear picture of the messages that we, as an employer, should
communicate externally in a genuine manner.
In our recruitment efforts we find ourselves faced with a
tightening applicant market and increasingly challenging
demographic factors. Nevertheless, going forward it remains
incumbent upon us to ensure that at the right moment we are
able to attract those candidates who are the best fit both for
the company in general and for the specific position. With this
in mind, we have revamped our recruitment activities.
Recruitment efforts intensified
2,762
2,893
4
4
4
5
Brazil
23
Canada
India
27
27
180
156
235
United Kingdom
Sweden
271
276
South Africa
284
312
1,337
1,349
Germany
USA
2015
2016
M43
170
France
Australia
103
Colombia
51
43
Ireland
46
45
45
46
Bermuda
54
55
53
62
72
71
98
Sustainability at Hannover Re supervision exercised by shareholders at the Annual General
Bahrain
Total
Japanese
German
Spanish
Israeli
Uruguayan
Ecuadorian
British
Turkish
Romanian
Brazilian
Serbian
Italian
Georgian
Austrian
11
Dutch
Uzbek
Slovak
Belgian
years is the average length of
service with the Hannover Re
Group (Hannover head office).
Portuguese Lithuanian Argentinian
Mexican
Venezuelan
French
Swedish
American
Maltese
Greek
Korean
Peruvian
Colombian
Moldovan Ukrainian Polish Chilean
Czech
Chinese
Nepalese
Belarusian
at Hannover head office is 42.
The average age of all employees
1,881
Americas
420
as at 31 December 2016
Workforce by continents
Hannover Re | Annual Report 2016
68
The Executive Board would like to thank all employees for
their dedication in the past year. At all times the workforce
identified with the company's objectives and successfully pur-
sued them. We would like to express our appreciation to the
members of staff and the representatives who participated in
our co-determination bodies for their critical yet always con-
structive cooperation.
Word of thanks to our staff
In the financial year just ended we also continued to engage
with the findings of the first international employee survey
conducted within the Hannover Re Group. Once all the units
had received their results, they were tasked with developing
individual measures to leverage identified potentials and safe-
guard existing strengths. Activities here centred around com-
munication and information, further training and delegation
as well as the fostering of (international) cooperation. All in
all, our assessment of the first international employee survey
is positive, both in terms of the pleasing survey findings and
the quality of the measures that have been initiated.
Results of the employee survey acted on
Combined management report
52
67
Hannover Re | Annual Report 2016
Europe
Taiwan
218
Growth in staff numbers
+42
(2016)
Nationalities at Hannover head office
2016
53%
47%
Gender distribution
(2016, Hannover head office)
Australia
98
2,893
Africa
276
1966
2
(international)
Asia
Breakdown of employees by country
13,484.9
12,614.7
7,488.4
6,553.6
Capital adequacy ratio
129.9%
261.9%
230.2%
131.5%
3,021.7
246.1%
The figures shown above refer to the Hannover Re Group. In
addition, Hannover Rück SE is also subject to regulatory cap-
ital requirements; these were clearly fulfilled with a solvency
ratio of 242.6% as at 31 December 2016. The solvency ratio of
Hannover Rück SE is normally higher than the solvency ratio
of the Hannover Re Group because there are no restrictions
with regard to the use of own funds attributable to non-con-
trolling interests.
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 inter-
active rating process. The current financial strength ratings
are assessed as "AA-" (Very Strong, stable outlook) by Stand-
ard & Poor's and "A+" (Superior, stable outlook) by A. M. Best.
Standard & Poor's evaluates Hannover Re's risk management
as "Very Strong", the best possible rating. In this regard par-
ticular mention was made of the company's very good risk
management, the consistent and systematic implementation
of corporate strategy by management and its excellent capi-
tal resources. Hannover Re's internal capital model was also
subjected to expert appraisal. As a result of this review, Stand-
ard & Poor's factors the results of the Hannover Re Group's
internal capital model into the determination of the target cap-
ital for the rating.
Organisation and processes of
risk management
-
76
Hannover Re | Annual Report 2016
12,859.2
221.3%
7,273.3
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 so-called "3 lines of defence". The first line of defence
consists of risk steering and the original risk responsibility
on the divisional or company level. Risk management ensures
the second line of defence risk monitoring. It is supported
in this regard by the actuarial function and the compliance
function. The third line of defence is the process-independ-
ent monitoring performed by the internal audit function. 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.
3,103.2
8,335.4
Confidence level
99.97%
11,956.3
99.5%
99.97%
99.5%
99.5%
99.5%
Solvency capital requirement
10,381.7
5,149.5
5,585.9
9,593.0
5,126.3
5,402.7
Required risk capital/
Excess capital
16-17 April 2016
59.3
58.3
35.2
35.2
20.3
14 April 2016
21.7
Earthquake, Taiwan
6 February 2016
21.6
Earthquake, Japan
1 credit claim
Hurricane "Matthew", Caribbean, United States
56.3
85.2
13 November 2016
Earthquake, New Zealand
70.3
91.3
3-8 October 2016
97.3
116.0
4 property claims
66.5
124.6
127.9
19.2
Earthquake, Ecuador
Storm "Elvira", Germany, France
12.3
18.5
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:
Natural catastrophes and other major claims in excess of EUR 10 million gross
1
626.6
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 recalcu-
lation of the reserves to be established as at each balance sheet
date. Their adequacy is monitored using actuarial methods.
846.5
8.4
11.4
12.2
12.2
13-14 September 2016
10-16 April 2016
11.1
190.8
13.2
13.2
1 June-31 July 2016
9.1
15.1
30 July 2016
9.2
18.2
22-23 June 2016
Severe weather/hail, United States
Total
Typhoon "Meranti", Taiwan, China
1 aviation claim
Severe weather/flooding, China
Hail, Canada
Storms/hail, Netherlands, Germany
11.9
27-28 May 2016
30 April 5 May 2016
100-year loss
gross
(623.5)
250-year loss
All natural
(343.7)
(363.1)
Actual
utilisation
(July 2016)
100-year loss
in EUR million
2016
Limit Threshold
2016
Earthquake Japan
(265.1)
(281.9)
250-year loss
(204.7)
(223.9)
100-year loss
M56
Limit and threshold for the 200-year aggregate
annual loss as well as utilisation thereof
Typhoon Japan
(772.7)
(1,003.7)
(1,139.4)
250-year loss
(850.3)
100-year loss
Hurricane US/Caribbean
(541.4)
250-year loss
(391.4)
(606.0)
net
catastrophe risks 1
100-year loss
Date
4 marine claims
Forest fires, Canada
in EUR million
M57
Catastrophe losses and major claims¹ in 2016
Net expenditure on major losses in the year under review
amounted to EUR 626.6 million (EUR 572.9 million). Our
company incurred the following catastrophe losses and major
claims in the 2016 financial year:
Hannover Re | Annual Report 2016
the limit and threshold system for the natural catastrophe risk and the
corresponding analyses (see tables M54 and M57)
Converted to aggregate annual loss on grounds of consistency with
84
(400.6)
(432.3)
(202.8)
(201.0)
250-year loss
Ensuring the quality of our portfolios
Loss relative to the underwriting result
Earthquake Australia
1
(823.2)
(795.4)
250-year loss
1,519
1,645
1,827
200-year aggregate
annual loss
(519.4)
(440.6)
Earthquake US West Coast
Step 1
M58
•
Within the scope of this process, the Executive Board defines
the risk appetite for natural perils once a year on the basis of
the risk strategy by specifying the portion of the economic capi-
tal that is available to cover risks from natural perils. This is a
key basis for our underwriting approach in this segment. As
part of our holistic approach to risk management across busi-
ness groups, we take into account numerous relevant scenarios
and extreme scenarios, determine their effect on portfolio and
performance data, evaluate them in relation to the planned fig-
ures and identify alternative courses of action.
For the purposes of risk limitation, maximum amounts are also
stipulated for various extreme loss scenarios and return peri-
ods in light of profitability criteria. Risk management ensures
adherence to these maximum amounts. The Executive Board,
Risk Committee and P&C Executive Committee are kept regu-
larly updated on the degree of capacity utilisation. The limits
and thresholds for the 200-year aggregate loss as well as the
utilisation thereof are set out in the following table:
Hannover Re | Annual Report 2016
86
Diversification is a central management tool for our company.
We seek to spread risks as far as possible across different risk
classes and different regions. In our pricing of reinsurance trea-
ties we provide incentives to further increase diversification.
Expense risk is now shown separately. Previously, expense risk was
included in the total underwriting risk life and health figure, only.
Required risk capital at a confidence level of 99.5%
Expense risk²
2
2,109.6
2,117.9
Underwriting risk life and health
(2,012.8)
(2,121.0)
Diversification
172.3
271.7
646.6
603.2
371.3
395.0
Morbidity and disability risk
Lapse risk
1,314.8
1,331.6
1,617.4
1,637.4
30.9.2015
31.12.2016
M60
The previous approach (based on the maximum annual loss)
was replaced in 2016 with an approach based on the aggre-
gate annual loss. The figures for 2015 were recalculated retro-
actively using this approach. This changeover was motivated
by the fact that our limit and threshold system for the natural
catastrophe risk is geared to the aggregate annual loss and
not individual losses. This is applicable both to the global and
local risk measures and to the underwriting capacities. To this
extent, the new approach is consistent with the approaches in
natural catastrophe risk management and with the analysis of
the required risk capital on page 82.
Longevity risk
(469.6)
(570.1)
2015
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
section 6.7 "Technical provisions" on page 198 et seq.
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.
Hannover Re | Annual Report 2016
83
Survival ratio in years and reserves for asbestos-related claims and pollution damage
in EUR million
Asbestos-related claims/
pollution damage
M54
2016
2015
Individual loss
reserves
IBNR
reserves
Survival ratio
in years
Individual loss
reserves
IBNR
reserves
Survival ratio
in years
35.5
210.5
24.6
36.0
203.3
26.9
In order to partially hedge inflation risks Hannover Re holds
inflation-linked instruments in its portfolio 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. This inflation pro-
tection was initially ensured by way of inflation swaps. From
2012 onwards we also increasingly obtained parts of the infla-
tion protection for our loss reserves by purchasing bonds with
inflation-linked coupons and redemption amounts. In 2015
the inflation protection was converted to the exclusive use of
such bonds.
Licensed scientific simulation models, supplemented by the
expertise of our own specialist departments, are used to assess
our material catastrophe risks from natural hazards (especially
earthquake, windstorm and flood). Furthermore, we establish the
risk to our portfolio from various scenarios in the form of proba-
bility distributions. The monitoring of the risks resulting from nat-
ural hazards is rounded out by realistic extreme loss scenarios.
Stress tests for natural catastrophes after retrocessions M55
Aggregate annual loss¹
in EUR million
2016
Effect on forecast net income
Calculation of the loss expectancy
Mortality risk
Required risk capital¹ for underwriting risks
life and health reinsurance
2010
2011
2012
2013
2014
2015
2016
in %
M59
Combined and catastrophe loss ratio
In addition, Hannover Re's regional and treaty departments pre-
pare regular reports on the progress of their respective renew-
als. The reporting in this regard makes reference inter alia to
significant changes in conditions, risks (such as inadequate
premiums) as well as to emerging market opportunities and the
strategy pursued in order to accomplish targets. The develop-
ment of the combined ratio in property and casualty reinsurance
in 2016 and prior years is shown in the table below:
Combined management report
85
Capital structure
Expected return on equity
• Level of capital allocation determined by vola-
tility of the business covered and contribution
to diversification
Calculation of the cost of capital
Step 3
• Internal administration
Step 2
• Broker fees
• Commissions
•
Cost estimation
Hannover Re | Annual Report 2016
Changes in the quantity of underlying risks
Discounting of future cash flows
Changes in the quality of underlying risks
· Historical loss and exposure analysis
•
2009
in EUR million
2008
Combined ratio (property
some of our contracts we pay death benefits, while under oth-
ers we pay survival benefits. The volume of our annuity port-
folio has continued to grow and contributes to diversification
within life and health reinsurance. We calculate the diversifi-
cation effect between mortality and longevity risks prudently
in view of the fact that the contracts are normally taken out
for different regions, age groups and individuals. The required
risk capital with a confidence level of 99.5% for underwriting
risks in life and health reinsurance breaks down as follows:
The reserves are determined on the basis of secure biometric
actuarial bases in light of the information provided by our cli-
ents. The biometric actuarial bases used and the lapse assump-
tions are continuously reviewed with an eye to their adequacy
and if necessary adjusted. This is done using the company's
own empirical data as well as market-specific insights. Our cur-
rent risk profile in life and health reinsurance is dominated by
mortality and longevity risks. This is due to the fact that under
All risks directly connected with the life of an insured person
are referred to as biometric risks. They include in particular
the miscalculation of mortality, life expectancy, morbidity and
occupational disability. Biometric risks are the material risks
for our company in the area of life and health reinsurance. Our
goal is to strike a balance between biometric risks. Further-
more, we are exposed to lapse risks because the cash flows
resulting from our reinsurance treaties are in part dependent
on lapse rates among policyholders. Counterparty default risks
are also material since we partly prefinance our cedants' new
business acquisition costs. Furthermore, we are exposed to
catastrophe risks, especially events involving a high number
of fatalities in our insurance portfolio.
Underwriting risks in life and health
reinsurance
For further information on the run-off of the loss reserves
please see our explanatory remarks in the section "Run-off of
the net loss reserve in the property and casualty reinsurance
segment" on page 199 et seq.
1 Net share of the Hannover Re Group for natural catastrophes and other major claims 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)
6.3
10.7
4.6
12.3
16.5
7.0
8.4
6.1
7.1
7.8
losses
Thereof catastrophe
99.7
95.4
96.6
98.2
104.3
95.8
94.9
94.7
94.4
93.7
and casualty reinsurance)
2007
100-year loss
Winter storm Europe
Market risk
Adjustments for technical provisions including risk margin
In contrast to the Annual Report 2015 the deduction of foreseeable
dividends is not included in this position, but shown separately.
The figures are based on the Solvency II reporting as of 31 December
2016. The related audits are at present (not fully) completed.
The required risk capital of the Hannover Re Group at the target
confidence level of 99.5% rose slightly to EUR 5,149.5 million
as at 31 December 2016, compared to EUR 5,126.3 million
as at 30 September 2015. The bulk of the increase was due
to the weaker euro against our major foreign currencies and
the associated higher foreign-currency volumes underlying
the risks, including for example the volume of investments.
These increases in volume driven by exchange rate movements
caused the risk capital to climb in all risk categories.
The elevated risk in relation to market risks was not only vol-
ume-driven but also reflected the higher allocation of equity
in the investment portfolio. As a further factor, the exchange
rate risk increased owing to a larger proportion of own funds
held in US dollars.
The underwriting risks in property and casualty reinsurance
increased primarily on account of higher catastrophe risks,
which can be attributed above all to the stronger US dollar.
The underwriting risks in life and health reinsurance remained
largely stable. Counterparty default risks increased principally
as a result of a larger volume with respect to ceding companies
and retrocessionaires.
Hannover Re | Annual Report 2016
81
The model for operational risks was revised. The stand alone
operational risk rose as a consequence of the model change,
although the new model also makes explicit allowance for
diversification effects with other risk categories. All in all, the
model change for operational risks therefore led to a decrease
in the total required risk capital.
The increase in the tax effects reflects model refinements relat-
ing to the calculation of the loss-absorbing effect of taxes.
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
models, which are adjusted in the context of a detailed internal
review process such that they reflect our risk profile as closely
as possible. In the area of life and health reinsurance long-term
payment flows are modelled under various scenarios. With
respect to all the aforementioned risks we use internal data
to define scenarios and probability distributions. The inter-
nal data is enhanced by way of parameters set by our internal
experts. These parameters are especially significant in relation
to extreme events that have not previously been observed.
Required risk capital
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
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.
M51
31.12.2016
30.9.2015
in EUR million
Underwriting risk property and casualty reinsurance
Confidence level 99.5%
Confidence level 99.5%
3,552.9
3,408.9
Underwriting risk life and health reinsurance
2,117.9
3
2
1
Available economic capital³
31.12.2016
30.9.2015
Shareholders' equity including
minorities
9,740.6
8,428.1
Adjustments for assets under
own management
513.4
510.6
Adjustments for technical
provisions1
3,870.6
3,791.0
2,109.6
Adjustments due to tax
(1,648.8)
(1,318.6)
12,475.8
11,411.1
1,656.1
1,583.6
(647.0)
(380.0)
13,484.9
12,614.7
Economic equity
Hybrid capital
effects and other²
M50
4,225.4
Counterparty default risk
2,237.4
2,292.5
(1,121.0)
Underwriting risk
property and casualty
3,552.9
3,408.9
1 Required risk capital at a confidence level of 99.5%
The largest share of the required risk capital for the premium
risk (including catastrophe risk) is attributable to risks from
natural disasters. The following table shows the required risk
capital for our four largest natural hazards scenarios:
Required risk capital¹ for the four largest
natural hazards scenarios
M53
in EUR million
2016
2015
Hurricane US/Caribbean
1,477.3
1,338.0
Earthquake US West Coast
Winter storm Europe
Earthquake Japan
1,035.8
1,103.9
698.8
828.6
750.4
780.0
1 Required risk capital with a confidence level of 99.5% on an
aggregate annual loss basis
The reserve risk, i. e. the risk of under-reserving losses and the
resulting strain on the underwriting result, is a high priority
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 7,413.6 million in
the year under review.
2,470.4
2,281.8
(1,199.3)
Diversification
Reserve risk
(including catastrophe risk)
296.5
279.9
Operational risk
503.9
431.1
Diversification
(3,773.8)
(3,329.5)
Tax effects
(1,773.3)
(1,676.8)
Required risk capital of the Hannover Re Group
3,903.1
5,149.5
82
Hannover Re | Annual Report 2016
Combined management report
Underwriting risks in property and
casualty reinsurance
Risk management in property and casualty reinsurance has
defined various overall guidelines for efficient risk steering.
These include, among other things, the use of retrocessions
to reduce volatility and conserve capital. It is also crucially
important to consistently maximise the available risk capac-
ities on the basis of the risk management parameters of the
Hannover Re Group and to steer the acceptance of risks syste-
matically through the existing central and local underwriting
guidelines. Our conservative reserving level is a key 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 latter case, special
importance attaches to the catastrophe risk.
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 diversifi-
cation effect. The risk capital with a confidence level of 99.5%
for underwriting risks in property and casualty reinsurance
breaks down as follows:
Required risk capital¹ for underwriting risks
property and casualty
M52
31.12.2016
30.9.2015
in EUR million
Premium risk
5,126.3
in EUR million
Foreseeable dividends
Reconciliation
(economic capital/shareholders' equity)
M48
Combined management report
Key elements of our
risk management system
Our risk strategy and our Risk and Capital Management Guide-
line including the system of limits and thresholds for material
risks of the Hannover Re Group describe the central elements
of our risk management system. This is subject to a constant
cycle of planning, action, control and improvement. System-
atic risk identification, analysis, measurement, steering and
monitoring as well as risk reporting are especially crucial to
the effectiveness of the system as a whole.
This guideline describes, among other things, the major tasks,
rights and responsibilities, the organisational framework condi-
tions and the risk control 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 develop-
ments relating to appropriate enterprise management.
Risk-bearing capacity concept
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 on an ongoing basis.
Risk identification
A key source of information for monitoring risks is the risk
identification carried out on a periodic basis. All identified
risks are documented in a central register containing all mate-
rial risks. Risk identification takes the form of, among other
things, structured assessments, interviews or scenario analy-
ses. External insights such as recognised industry know-how
from relevant bodies or working groups are incorporated into
the process. Risk identification is important for ensuring that
our risk management consistently remains up-to-date.
Risk analysis and assessment
Hannover Re | Annual Report 2016
In principle, every risk that is identified and considered mate-
rial is quantitatively assessed. Only risk types for which quanti-
tative risk measurement is currently impossible or difficult are
qualitatively assessed (e.g. strategic risks, reputational risks
or emerging risks). Qualitative assessment can take the form
of, for example, expert evaluations. Quantitative assessment of
material risks and the overall risk position is performed using
the Hannover Re risk model. The model makes allowance for
risk concentration and risk diversification.
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 is fac-
tored into the division's decision. Risk steering is assisted by
the parameters of the central and local underwriting guidelines
and by defined limits and thresholds.
Risk monitoring
The monitoring of all identified material risks is a core task of
Group Risk Management. This includes, inter alia, monitor-
ing 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.
Risk communication and risk culture
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
communication takes the form, for example, of internal and
external 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-moni-
toring units is also fundamental to the proper functioning of
risk management.
Risk reporting
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, from
2017 onwards). In recent years Hannover Re has already made
every effort to include the foreseeable contents of the public
SFCR in its IFRS reporting.
78
Hannover Re | Annual Report 2016
Combined management report
Process-integrated/-independent monitoring
and quality assurance
Risk steering
Irrespective of internally assigned competencies, the Execu-
tive Board is responsible for the orderly organisation of the
company's business. This also encompasses monitoring of the
internal risk steering and control system. Process-independent
monitoring and quality assurance of risk management is car-
ried out by the internal audit function and external instances
(regulators, independent auditors and rating agencies). Most
notably, the independent auditors review the trigger mecha-
nism 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.
Group-wide risk communication and an open risk culture are
important to our risk management. Regular global meetings
attended by the actuarial units and risk management functions
serve as a major anchor point for strategic considerations in
relation to risk communication.
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
Central functions of risk monitoring and steering
Supervisory Board
Advising and supervising the Executive Board in its management of the company,
inter alia with respect to risk management, on the basis of the Supervisory Board's Rules of Procedure
Executive Board
Overall responsibility for Group-wide risk management and definition of the risk strategy
2nd line of defence
Risk Committee
Operational risk management, monitoring and coordi-
nating body as well as implementation and safeguard-
ing of a consistent Group-wide risk management
culture
2nd line of defence
3rd line of defence
Risk steering and original risk responsibility for risk identification
and assessment on the divisional and company level
Risk Management
Risk monitoring across
the Group as a whole and
the business groups of all
material risks from the
company perspective
Actuarial
Functions
Ensures adequacy of the
methods used and under-
lying models in relation to
calculation of the technical
provisions
Compliance
function
Monitoring of areas
where misconduct can
result in civil actions or
criminal/administrative
proceedings
Group
Auditing
Process-independent and
Group-wide monitoring
on behalf of the Execu-
tive Board
supported by
local risk management
functions
1st line of defence
supported by
local actuarial
functions
supported by
local compliance functions
Function
Internal control system
77
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,
prevent and reveal errors and irregularities and comply with
laws and regulations. The core elements of Hannover Re's
ICS are documented in a guideline that establishes a common
understanding of the differentiated execution of the necessary
controls. In the final analysis, it is designed to systematically
steer and monitor the implementation of our corporate strat-
egy. The guideline defines concepts, stipulates responsibili-
ties and provides a guide for the description of controls. 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:
80
Underwriting risks
M49
People
Systems
Longevity and
mortality risk
Morbidity and
disability risk
Lapse risk
Catastrophe risk
Expense risk
Equity risk
Interest rate risk
Real estate risk
Foreign exchange
risk
Default and spread
risk
Processes
External events
Counterparty default risks
Risk landscape of
Hannover Re
Market risks
Reputational risk
Strategic risk ◄
Liquidity risk
Emerging risks
Other risks
Operational risks
Hannover Re | Annual Report 2016
Combined management report
Internal risk assessment
In this section we compare the available economic capital with
the required risk capital in greater detail. 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. While fair values are available for most investments,
the market-consistent valuation of reinsurance treaties necessi-
tates a specific valuation model. We establish the market-con-
sistent value of technical 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. For the
discounting of future cash flows we use the risk-free basic yield
curves without volatility adjustment or matching adjustment cal-
culated in accordance with Solvency II rules. Market prices for
options and guarantees embedded in insurance contracts are
determined or approximated using option valuation models from
the field of financial mathematics. The volume of these options
and guarantees in our portfolio is, however, comparatively slight.
The adjustments for assets under own management shown in
the following table indicate the difference between fair value
and book value of those investments recognised under IFRS at
book values. Other adjustments encompass above all the deferred
taxes. The available economic capital, which is available as liable
capital for policyholders, is composed of the economic equity and
the hybrid capital and includes the deduction of foreseeable divi-
dends as required by Solvency II. Hybrid capital is recognised at
market-consistent value as required by Solvency II, with changes
in the own credit risk not being included in the valuation.
80
Life and health reinsurance
The available economic capital increased to EUR 13,484.9 million
as at 31 December 2016 compared to EUR 12,614.7 million as at
30 September 2015. This was due principally to the successful
business performance in the last five quarters as well as positive
effects from the weakening of the euro against our major foreign
currencies, in particular the US dollar. The economic valuation of
the technical provisions is largely stable relative to the position
as at 30 September 2015. The change in the other items derives
primarily from an increased valuation of the subordinated liabil-
ities attributable principally to the decline in Eurozone interest
rates. Conversely, the value of the available capital from hybrid
capital also rose. The changes relating to taxes resulted from the
aforementioned valuation differences as well as from refinements
in accounting policies. The deduction for foreseeable dividends
is higher because allowance was not made for special dividends
as at 30 September 2015.
Price/premium risk
Catastrophe risk
Reserving risk
Property and casualty reinsurance
the principle of dual control,
.
•
•
separation of functions,
documentation of the controls within processes,
and technical plausibility checks and access privileges
in the IT systems.
The proper functioning of the ICS necessitates the involvement
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 reporting
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.
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
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 rele-
vant 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.
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 net-
worked 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 reg-
ulate 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.
Hannover Re | Annual Report 2016
•
Risk landscape of Hannover Re
79
Risk landscape of Hannover Re
The specific risk characteristics and the principal monitor-
ing and steering mechanisms are described in the following
sections.
At the present time our most significant risks are the default
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 deteriora-
tions in mortality.
•
other risks, such as reputational and liquidity risks.
counterparty default risks resulting from our diverse busi-
ness relationships and payment obligations inter alia with
clients, retrocessionaires and banks,
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,
•
The risk landscape of Hannover Re encompasses:
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.
• operational risks which may derive, for example, from
deficient processes or systems and
8,997.2
743.3
1,490.8
10,778.5
+0.1%
1,492.0
8,068.3
709.1
1,489.9
ceding companies)
702.2
1,986.5
Investments
(excl. funds withheld by
1,493.1
7,550.8
Hybrid capital
+2.9%
+0.9%
765.2
Non-controlling interests
8,528.5
8,776.8
Hannover Rück SE
shareholders of
Equity attributable to
10,239.5
10,267.3
11,231.4
42,197.3
758.1
+5.3%
8.79
Total assets
+2.4%
3.75 +1.50 2,3
Dividend per share in EUR
+5.0%
633.1
Dividend
74.61
70.72
+2.9%
72.78
Book value per share in EUR
8.17
9.54
9.71
7.95
+10.5%
(basic and diluted) in EUR
Earnings per share
Share
60,457.6
63,214.9
36,228.0
39,346.9
41,793.5
63,594.5
61,196.8
+5.4%
64,508.6
40,057.5
11,035.1
0
Balance sheet
+10.6%
17,289.1
Net premium earned
17,068.7
16,353.6
17,790.5
+7.8%
19,176.4
Gross written premium
Results
year
Figures in EUR million
15,631.7
2014
20161
2017
+/-
previous
2018
1 06
Key figures
hannover re
Annual Report
18
digerent
somewhat
+5.0%
2015
14,410.3
14,593.0
14,361.8
12,423.1
985.6
1,150.7
1,171.2
958.6
+10.5%
1,059.5
Group net income
1,466.4
1,755.2
1,689.3
1,364.4
+17.0%
1,596.6
Operating profit (EBIT)
1,471.8
1,665.1
1,550.4
1,773.9
-13.7%
1,530.0
Net investment income
(23.6)
93.8
115.9
(488.5)
(51.1)
Net underwriting result
Policyholders' surplus
1
603.0
3.50 +1.503
66.90
572.8
6
Hannover Re | Annual Report 2018
3.00
3.25
-3.75
-3.50
-3.50
2
Longevity Solutions
1.25
1.50
1.50
1.50
0.40
2.10
2.30
3.00
3.00
-1.50
4.25
Western and Southern Europe
•
Hannover Re | Annual Report 2018
5
For our investors
Executive Board of Hannover Rück SE
As of 31 December 2018
Ulrich Wallin
Chairman
Innovation Management
Compliance
Controlling
New Zealand, Latin America,
Human Resources Management
Risk Management
Corporate Development
Corporate Communications
Dr. Klaus Miller
Life & Health Reinsurance
•
United Kingdom/Ireland,
North America, Northern,
Eastern and Central Europe
Claude Chèvre
Life & Health Reinsurance
Africa, Asia, Australia/
Internal Auditing
2.10
3
4
20
30.80
40
37.39
41.22
48.83
50.02
60
0
62.61
70.72
66.90
80
74.61
in EUR
Book value per share
2018
2017
72.78
2009
2010
2011
Dividend
5.00
5.00
4.75
Special dividend
5
5.252
6
| 05
1 04
in EUR
Dividend
2018
2017
2016
2015
2014
2013
20121
Chairman of the Executive Board
2016
Ulrich Wallin
Yours sincerely,
280
Letter from the Chairman of the
Executive Board
2
Supervisory Board
281
Executive Board of Hannover Rück SE
6
Report of the Supervisory Board
Responsibility statement
281
12
Supervisory Board of Hannover Rück SE
286
Combined management report
18
Further information
287
Branch offices and subsidiaries of the
The Hannover Re share
Annual financial statements
2
Contents
2009
2010
2011
20121
2013
2014
2015
2016
For our investors
2017
1 Restated pursuant to IAS 8
2
Proposed dividend
Hannover Re | Annual Report 2018
About us
Hannover Re, with gross premium of more than EUR 19 billion, is the
fourth-largest reinsurer in the world.
We transact all lines of property & casualty and life & health reinsurance and
are present on all continents with more than 3,300 staff. Established in 1966,
the Hannover Re Group today has a network of more than 170 subsidiaries,
branches and representative 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 outstanding financial strength ratings:
Standard & Poor's AA- "Very Strong” and A.M. Best A+ “Superior”.
2018
161
Hannover Re Group abroad
287
success of our investments as well as the good underlying quality of our portfolio in both property &
casualty and life & health reinsurance. This result marks the third occasion - after 2015 and 2016-
that we have achieved Group net income in excess of EUR 1 billion. The return on equity comfortably
outperformed our minimum target of 900 basis points above the risk-free interest rate to reach a level
of 12.2 percent. Based on this good performance, the Executive Board and Supervisory Board will
propose to the Annual General Meeting that an increased dividend of EUR 5.25 per share should be
distributed to you, our valued shareholders, for the 2018 financial year. The total dividend payment is
split into an ordinary dividend of EUR 3.75 per share plus an unchanged special dividend of EUR 1.50
per share.
The premium income booked by Hannover Re in the year under review grew to EUR 19.2 billion. This
is equivalent to a gain of 11.6 percent adjusted for exchange rate effects and is particularly notable for
dynamic expansion in property and casualty reinsurance, where we achieved a currency-adjusted
increase of 16.2 percent. In life and health reinsurance, too, we boosted the premium volume by
4.6 percent adjusted for exchange rate effects, an increase that is within our target corridor of 3 to
5 percent per year.
Furthermore, we increased the operating profit (EBIT) in both life & health and property & casualty
reinsurance by double-digit percentages. This is all the more remarkable in the case of life and health
reinsurance bearing in mind the aforementioned one-time charges.
In 2018, as in prior years, we generated another very pleasing profit contribution from our invest-
ments; even in times where the state of capital markets is becoming increasingly difficult and challeng-
ing, our asset portfolio has shown itself to be a reliable source of income. The performance of our real
estate portfolio has proven to be particularly gratifying. With a return on investment of 3.2 percent
from assets under own management we comfortably beat the minimum target of 2.7 percent that we
had set ourselves for 2018. This can be attributed not least to the continued very positive cash flow
from operating activities, which once again amounted to more than EUR 2 billion in 2018 and was a
contributory factor in the favourable development of the investment portfolio.
Shareholders' equity also increased again in 2018 to reach a level of EUR 8.8 billion.
Among all the developments affecting our company in 2018, it is with our deepest regret that we must
report one very sad event. Jürgen Gräber, a long-standing member of our Executive Board, passed
away suddenly and entirely unexpectedly in November 2018. We shall miss Jürgen Gräber as a friend
and esteemed colleague, and we shall cherish the memory of his considerable service to Hannover Re.
Hannover Re | Annual Report 2018
3
Hannover Re | Annual Report 2018
For our investors
Personnel changes are coming to the Executive Board of Hannover Re in 2019. Firstly, at its meeting
on 6 March 2019 the Supervisory Board appointed Silke Sehm to Hannover Re's Executive Board.
Secondly, Jean-Jacques Henchoz has been appointed as a member of Hannover Re's Executive Board
with effect from 1 April 2019 and – in accordance with an appropriate resolution adopted by the
Supervisory Board - he will take the reins as Chief Executive Officer following the end of the Annual
General Meeting on 8 May 2019. Ms. Sehm has served Hannover Re as an accomplished senior
executive for many years and, most notably, she has been exceptionally successful in developing the
area of structured reinsurance solutions. With the addition of Mr. Henchoz we have been able to
recruit a proven expert with a long-standing track record in reinsurance to join our ranks at Hannover
Re. I have no doubt that in its new composition the Executive Board of Hannover Re will assure the
sustained success of your company going forward, as it has in the past.
As 2019 got underway HDI Global Specialty SE, the joint venture undertaken by our specialty insurer
Inter Hannover SE and HDI Global SE, commenced its business operations. We are convinced that
Inter Hannover SE, which is at the heart of this joint venture, will be able to grow even more success-
fully in this new configuration. As Hannover Re, we are now in a position to focus on our core business
of reinsurance. At the same time, we shall continue to participate in the development of the company's
specialty business through a corresponding quota share reinsurance arrangement, and we can thus
expect to share in the company's successful development on a long-term basis.
The renewal season in property and casualty reinsurance as at 1 January 2019 once more passed off
very successfully for Hannover Re. Despite the competitive pressure that remains in place, we were
able to moderately improve the premium quality of the renewed business. Growth was again very
vigorous, coming in at 15.4 percent in relation to our portfolio of traditional property and casualty
reinsurance.
In life and health reinsurance we expect to see a substantial surge in profitability for 2019. This is
because, thanks to the portfolio management actions successfully implemented in 2018, the strains on
this business will be substantially lighter in 2019. The good underlying quality of our book of world-
wide life and health reinsurance as well as our US financial solutions business will therefore be more
clearly reflected in the result.
4
Hannover Re | Annual Report 2018
In view of the sustained positive cash flow that we expect to generate from the technical account and
the investments themselves, our asset portfolio should continue to grow. Against a backdrop of further
single-digit percentage growth in the premium volume, we anticipate Group net income in the order of
EUR 1.1 billion for the current financial year. This guidance is subject to the proviso that major loss
expenditure does not significantly exceed the budgeted amount of EUR 875 million and assumes that
there are no unforeseen distortions on the capital markets.
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. A special word of thanks goes to our
employees for their successful, very good and responsible work. Without them, Hannover Re's achieve-
ments would not have been possible.
I would like now to turn my attention to the upcoming 2019 financial year.
2
This should not, however, blind us to the fact that 2018 has also posed special challenges. In life and
health reinsurance, for example, we had to absorb a substantial one-time strain from our US mortality
portfolio relating to a large block of business acquired at the beginning of 2009. In this regard we were
compelled to exercise our right to raise reinsurance rates across a broad front; this led to extensive
treaty recaptures, which in turn adversely impacted the statement of income for 2018. Allowing for the
necessary release of an expense reserve set aside for the same business, we incurred one-off charges
in the order of EUR 200 million before tax. In property and casualty reinsurance, too, we were faced
with significant major losses that exceeded - albeit only marginally - our large loss budget. The fact
that we still generated Group net income of EUR 1.06 billion can be attributed to the outstanding
For the tenth consecutive year it is my pleasure to present here the annual financial statement of your
company, Hannover Re. I am especially delighted that the 2018 financial year proved to be another
successful one for Hannover Re: for the tenth year in a row we are reporting a double-digit return on
equity and are able to propose a dividend that can be described as thoroughly attractive in light of the
company's market capitalisation.
Glossary
290
Notes
171
List of graphs, tables and charts
296
Imprint
300
Independent Auditor's Report
270
Contact information
2.60
Financial calendar
302
For our investors
Ulrich Wallin,
Chairman of the Executive Board
Dear Shareholders,
Ladies and Gentlemen,
Nok
603.0
3.50 +1.50³
2015
2013
Excluding effects from ModCo derivatives
6
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
5
4 Including expenses on funds withheld and contract deposits
Dividend of EUR 3.75 plus special dividend of EUR 1.50 for 2018, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017,
dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2016, dividend of EUR 3.25 plus special dividend of EUR 1.50 for 2015 and
dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014
3
Proposed dividend
7 Operating result (EBIT)/net premium earned
2
3.3%
11.8%
14.7%
3.5%
12.0%
14.7%
13.7%
10.9%
12.2%
Return on equity (after tax)
3.0%
11.7%
8.7%
1 Restated pursuant to IAS 8
9.2%
The Group worldwide
A complete list of our shareholdings is provided on page 186 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 287 et seq.
•
Global Reinsurance
Facultative Reinsurance
Market and Direct Business
•
United Kingdom, Ireland, London
.
Credit, Surety and Political Risks
1 07
•
• Marine
Specialty Lines Worldwide
Continental Europe
North America
•
Target Markets
Property & Casualty reinsurance
Strategic business groups
• Aviation
EBIT margin
3.8%
3.2%
12,741.1
12,397.4
12,650.6
+12.2%
14,194.3
at year-end
Market capitalisation
74.97
9,041.2
105.65
104.90
+12.2%
117.70
in EUR
Share price at year-end
3.00 +1.253
3.25 +1.50³
62.61
512.5
102.80
Ratios
Combined ratio (property and
casualty reinsurance) 4
96.5%
ceding companies) 6
(excl. funds withheld by
Return on investment
6.1%
87.6%
7.1%
87.0%
7.8%
89.3%
90.5%
90.7%
Retention
12.3%
7.9%
reinsurance) 5
(property and casualty
of net premium earned
Large losses as percentage
94.7%
94.4%
93.7%
99.8%
•
2014
Worldwide Treaty Reinsurance
Structured Reinsurance and
2013
20121
2011
2010
2009
0
500
606.0
2014
733.7
895.5
849.6
1,000
1,059.5
958.6
985.6
1,171.2
1,150.7
748.9
2015
2016
2017
20121
2011
2010
2009
0
5,000
5,621.6
6,987.0 7,338.2
8,947.2. -8,767.9
10,000
11,035.1
10,778.5
10,239.5 10,267.3
11,231.4
15,000
103
in EUR million
Policyholders' surplus
2018
Catastrophe XL (Cat XL)
1 02
1,500
Group net income (loss)
| 01
in EUR million
Gross premium
An overview
Strategic business groups
The Group worldwide
Key figures
1 08
20,000
Morbidity
Mortality
• Longevity
Risk Solutions
Financial Solutions
Life & Health reinsurance
Hannover Re Group
Hannover Re | Annual Report 2018
Insurance-Linked Securities
•
in EUR million
17,068.7
19,176.4
2018
2017
2016
2015
2014
2013
20121
2011
17,790.5
2010
0
5,000
10,000
10,274.8
11,428.7 12,096.1
15,000
13,963.4 14,361.8
13,774.2
16,353.6
2009
301
51.3%
48.7%
46.7%
51.8%
An employee survey was not carried out in the year under review.
Instead, a new round of management feedback was launched in
order to enable employees working under a defined group of
managers to give their direct supervisors feedback on how their
leadership style is experienced.
M 53
The staff turnover rate as at 31 December 2018 was 4.1%
Results
Holding of Group-wide employee surveys on a recurring basis
(participation rate of at least 60%)
Maintaining strong employee affinity (low staff turnover rate of
3-5% at the Hannover location)
Measures
48.2%
Hannover Re | Annual Report 2018
88
Furthermore, we offer our employees a number of additional
voluntary benefits. All members of our staff are granted the
same benefits in proportion to their working hours.
Our employees are paid according to their specific tasks,
their skills and qualifications and their performance. At the
same time, employees in Germany benefit from the security
and advantages of the collective agreement for the private
insurance industry. 93% of our employees at the Hannover
location are covered by the collective bargaining agreement.
The remaining 7% can be attributed to some non-collective
agreements with managers.
communicated. In 2018 we initiated a new implementation
round of what we refer to as management feedback: the em-
ployees working under a defined group of managers are able
to give their direct supervisors feedback on just how their
style of leadership is experienced. This raw feedback is then
aggregated into a results report that forms the basis for dis-
cussion between the manager and his or her staff, thereby
making it possible to identify measures for improving man-
agement effectiveness and teamwork.
We attach great importance to the satisfaction of our employ-
ees in order to remain a consistently attractive employer.
Regular feedback from our staff is taken very seriously and
we therefore offer various channels through which this can be
Diversity
We also operate our own company daycare centre at the Han-
nover location that provides all-day care for infants up to the
age of three.
Employee retention
In the financial year just ended the EAP once again proved to be a
helpful and popular support tool.
In 2017 the average number of training days per employee was 4.0
at the Hannover location. The number of training days Group-wide
was 2.7. As at the reporting date a complete record of the number
of training days per employee for the 2018 financial year was not
yet available.
M 52
Results
Staff at our Hannover head office also enjoy access to an ex-
tensive range of fitness opportunities, including company
sports groups dedicated to various types of sport and cooper-
ation arrangements with fitness studios. When it comes to
individual workstations, we take care to provide an optimal
room layout and ergonomic furnishings.
Last but by no means least, we took steps to further improve
our occupational reintegration management, a process that
is required by law in Germany. A company agreement was
concluded in this regard in 2018, ensuring a harmonised
internal process with the participation of all relevant areas of
the company.
ly members, including access to a service for families. This
support tool once again proved helpful and popular in the fi-
nancial year just ended.
Promote, preserve and restore the physical and mental well-being
of employees, including through our Employee Assistance
Programme (EAP)
Optimisation of further training measures for employees and
executives (training days per employee and year > 4 days
(Group-wide))
Measures
Executive development/Employee advancement
Goal to be achieved by 2020:
The Employee Assistance Programme is another component
of our health management. This provides external and anon-
ymous immediate counselling on personal, professional and
health concerns for our employees, managers and their fami-
We believe in enabling our employees to strike a healthy bal-
ance between their professional and private life. With this in
mind, we offer part-time and teleworking models that can be
individually structured and flexible working-time arrange-
ments without core hours. Through this flexibility we want to
make it easier for our employees to organise everyday life in
phases such as starting a family or preparing for the end of
their professional career, e. g. through partial retirement ar-
rangements. These benefits are reflected in a low staff turno-
ver rate and the long periods of time that our employees stay
with the Group.
The health management programme, which has been ex-
panded in recent years, continued unchanged in the year un-
der review. Seminars and workshops geared to enhancing the
resilience and relaxation skills of our staff and managers are
integral components of our preventive support measures.
One of the cornerstones of our successful business activities,
along with our employees' skills and commitment, is a con-
siderable degree of diversity in the workforce. At our Han-
nover location, for example, the members of staff come from
altogether 43 different nations, a reflection of the internation-
al dimension of our operations. Our worldwide Code of Con-
duct stipulates that nobody may be disadvantaged on grounds
of his or her gender, ethnic origin, religion or ideology, disa-
bility, age or sexual persuasion. Salary increases and promo-
tions follow a clearly defined process. Our employees are
paid according to their specific tasks, their skills and qualifi-
cations and their performance.
Goal to be achieved by 2020:
Diversity
Supplier management
Hannover Re | Annual Report 2018
90
In relation to our direct environmental aspects we have set various
operational goals to be achieved by 2020, which are published in
our EMAS environmental statement. These include, inter alia,
reducing our power consumption by 10% per employee, cutting
the need for climate-neutral heating energy by 5%, lowering paper
consumption by 15% and maintaining our levels of water
consumption and CO2 emissions.
Since 2016 our Hannover location has been carbon-neutral. In
2018 we began to record the business trips made by plane at our
offices in the Asia-Pacific region. The goal is to fully offset the CO₂
emissions caused there by plane travel from 2020 onwards.
M 55
Results
We actively support the work of local and international initia-
tives for climate protection. For example, we are engaged in
a number of environmental conservation projects, including
the local initiative "Climate Alliance Hannover 2020".
Having already converted our power supply at the Hannover
location to renewables, we now want to extend this progres-
sively to our international offices as well.
The focus of our efforts to conserve the environment is on
reducing CO₂ emissions caused by the supply of electricity
and heat to our premises as well as those resulting from our
business travel. We have operated with a net zero carbon
footprint at the Hannover location since 2016. The changeo-
ver to renewable energy and the offsetting of greenhouse gas
emissions caused by air travel through payments to the cli-
mate protection organisation atmosfair were key factors in
this achievement.
ance Company of Hannover SE (Inter Hannover SE) as well as
the associated infant daycare centre and hence covers rough-
ly 43% of the global workforce.
Continuous refinement of environmental management
Measures
Operational environmental protection
Diversity and the advancement of women are topics that have
come under increasing public scrutiny in recent years. Within
the Hannover Re Group, too, it is evident that women are un-
der-represented in the company's higher hierarchical levels.
With a view to changing this, the Executive Board initiated a
number of measures geared specifically to furthering women
in their professional development. In 2017 we therefore
launched another implementation round of our in-house
mentoring programme for women at the Hannover location,
which ended in March 2018. A further round is already
planned for 2019/2020.
Goal to be achieved by 2020:
The environmental impacts of our commercial operations are
comparatively slight, deriving principally from business trips
taken by our employees and their commuting to and from
work as well as the operation of our office premises. Never-
theless, we take our responsibility for the environment very
seriously. In our Sustainability Strategy we regularly define
concrete targets and measures for protecting the environ-
ment and conserving resources.
Operational environmental protection
Combined management report
89
Hannover Re | Annual Report 2018
In the year under review we pressed ahead with our measures
relating to the conditions needed for a healthy work/life balance.
Along with our part-time and teleworking models, these include
our flexitime arrangements and an in-house infant daycare centre.
Proportion of women on the second and third levels of manage-
ment at the Hannover location on the reference date of 31
December 2018: 15.6%
M 54
Results
In a survey conducted after its completion both mentees and
mentors alike expressed considerable satisfaction with the
process and the individually attained learning outcomes. This
positive feedback strengthened our resolve to continue the
programme. Two informational events were already held in
2018, giving interested employees an opportunity to learn
more about the contents and objectives and subsequently to
apply for the next implementation round in 2019/2020.
The specific focus of the internal mentoring programme on a
purely female group of participants is part of our initiative to
give targeted support to promising junior female managers
by raising their profile in the organisation and giving them
individual support. The number of participants was expanded
to seven mentoring tandems. Female employees (mentees)
are paired with senior managers (mentors) for a period of
twelve months to engage in a targeted, regular dialogue. In
the course of the mentoring programme the mentees are en-
couraged to reflect on their professional development to date
and to take steps to actively shape their future career. They
also gain insights into new fields of work and are able to learn
from their mentor's experience. We are particularly pleased
that as many as three members of our company's Executive
Board participated as mentors in the 2017/2018 round of the
programme.
Improving the conditions needed to ensure a healthy work/life
balance for our employees
Promoting diversity and equal opportunities (proportion of women
on the second and third levels of management 18% at the
Hannover location)
Measures
Back in 2012 we put in place standard processes at the Han-
nover location to address environmental protection and we
specified concrete measures in our environmental pro-
gramme. Our environmental management system has since
been recertified annually, from 2016 onwards according to
the revised standard DIN EN ISO 14001:2015. Since 2016 we
have also published annually a validated EMAS III Environ-
mental Statement in fulfilment of the Europe-wide legal re-
quirement to perform energy audits. The environmental man-
agement system records the consumption and emissions data
for the Hannover sites of Hannover Rück SE, E+S Rückver-
sicherung AG and (until the end of 2018) International Insur-
ment Task and Individual Responsibility" and "Gender-
specific Communication”; the latter event also supports our
mentoring programme for women on the management level.
At the same time our managers were offered special expert
seminars, including for example updated and redesigned
workshops on matters of employment law.
Combined management report
88
57.8%
40.9%
59.1%
Bermuda
56.2%
43.8%
56.5%
43.5%
Ireland
39.6%
60.4%
45.7%
54.3%
Bahrain
42.2%
53.4%
51.8%
48.2%
France
63.2%
36.8%
60.8%
39.2%
Malaysia
45.3%
54.7%
50.0%
50.0%
China
53.3%
46.6%
Canada
51.9%
48.1%
87
Hannover Re | Annual Report 2018
We also supported our managers by holding “practical train-
ing days" on which the challenges of a manager's daily rou-
tine were explored by small groups operating in a safe space
with the help of a trainer and issues could be worked through
with the aid of coaching and conflict resolution techniques.
We continued to cover subjects such as "Wellness - - Manage-
In the financial year just ended we focused our training and
development activities especially on supporting our employ-
ees and managers in dealing with the implications of marked-
ly changing work environments. In this context the effects of
agile forms of working or automated and digitalised work-
flows play a particularly important role. For example, we
launched a new workshop called “Fit for changes". This event
has a preparatory purpose inasmuch as change processes are
simulated for both employees and managers in order to pre-
vent the stressful situations that can arise. The workshop is
thus consciously designed to serve as a bridge between the
topics of change and health.
When it comes to expanding and establishing our personnel
development measures, we set particularly great store by a
range of activities tailored to specific needs and target groups.
Our programme of further training, which is open to all em-
ployees, encompasses above all offerings in the fields of rein-
surance, information technology, social and methodological
skills as well as language courses. The range of measures is
continuously reviewed and extended.
gender balance we strive for an increasing proportion of
women on all levels of management.
Where qualifications are equivalent, vacant management
posts are filled whenever possible from within our own ranks,
and we therefore consider leadership potential even at the
recruitment stage. As part of a standardised process that
takes place every other year at the Hannover location, all po-
sitions from management level (General Manager/Director)
upwards are reviewed at corporate headquarters and at se-
lected international entities. With a view to achieving a better
The basis of our common corporate culture is the greatest
possible delegation of tasks, responsibilities and authority. In
this way we ensure that our employees are able to act in a
quick and flexible manner. This is supported through man-
agement by objectives, and we expect our managers to instil
a sense of individual accountability in their staff. Our manag-
ers therefore play a particularly important role. They lead
their staff according to our management principles. We sup-
port them in developing their leadership qualities, inter alia
with the aid of the management feedback process that gives
members of staff an opportunity to provide feedback to their
supervisor on how his or her management style is experi-
enced. For further information we would refer to the section
"Employee retention".
As a global entity, we are able to offer our employees an at-
tractive workplace that fosters motivation, dedication and
teamwork. Our attractiveness as an employer is further rein-
forced by systematic career development programmes. We
are committed to clearly expressing our appreciation of em-
ployees and we enable them to participate in the sustained
success of the business.
52.8%
47.2%
53.0%
47.0%
50.0%
50.0%
50.0%
50.0%
44.0%
56.0%
India
66.7%
33.3%
80.0%
As a reinsurer, our business activities have lower impacts on
the environment than other industries. Through our selection
of suppliers and based on specifications for the production
process used by our suppliers, we are nevertheless able to
indirectly influence labour practices.
20.0%
77.8%
22.2%
77.8%
22.2%
Luxembourg
Total
Korea
Since mid-2012 our Code of Conduct for Suppliers has been
applied throughout large parts of the company at the Han-
nover location. Reviewed on a regular basis and adjusted as
necessary, it obliges all main suppliers and subcontractors to
fulfil sustainability criteria, inter alia respect for human rights
and observance of the core labour standards of the Interna-
Goal to be achieved by 2020:
Employee retention
Altogether, we procure goods for IT, the operation of our
premises and the conduct of our business from some 360
suppliers. Roughly two-thirds of these suppliers are from
Germany or indeed the Greater Hannover region. In addition,
we purchase IT products from primarily the European Union
and the United States.
96
In the interests of our shareholders and clients we strive to
ensure that our risks remain commensurate with our capital
resources. Our quantitative risk management provides a uni-
form framework for the evaluation and steering of all risks
affecting the company as well as of our capital position. The
internal capital model 1 - a stochastic enterprise model - is a
central tool in this context. It covers all subsidiaries and busi-
ness groups of the Hannover Re Group. The core variable in
risk and enterprise management is the economic equity,
which is calculated according to market-consistent measure-
ment principles and also constitutes the basis for calculating
the own funds under Solvency II. Hannover Re's internal cap-
ital model reflects all risks that influence the development of
the economic equity. These are split into underwriting risks,
market risks, counterparty default risks and operational risks.
For each of these risk classes we have identified a number of
risk factors for which we define probability distributions.
These risk factors include, for example, economic indicators
such as interest rates, exchange rates and inflation indices,
but also insurance-specific indicators such as the mortality of
a particular age group within our portfolio of insureds in a
particular country or the number of natural catastrophes in a
certain region and the insured loss amount per catastrophe.
Risk capital
Joint venture with HDI Global Specialty: In the year under
review Hannover Rück SE and HDI Global SE already began
making preparations, under the umbrella of Talanx AG, to
launch a joint initiative in worldwide specialty business. To
this end, the two companies are transferring their specialty
activities to a new joint venture. The new company, HDI Glob-
al Specialty SE, will write agency and specialty business in
lines including professional indemnity, directors' & officers'
liability, legal expenses, sports and entertainment, aviation,
offshore energy and pet and farm pack. Subject to regulatory
approval, the joint venture will commence operational busi-
ness on 1 January 2019.
Risks from US mortality business: The actual mortality ex-
perience of the portfolio acquired by Hannover Re at the be-
ginning of 2009 proved to be better than expected in 2018. As
part of our inforce management measures we initiated rate
adjustments for the portfolio concerned. In a few remaining
isolated instances one-time charges to the IFRS result may
arise if cedants affected by rate adjustments exercise their
right of recapture. We are monitoring the further develop-
ment of the underlying mortality on an ongoing basis.
Natural catastrophe risks and climate change: 2017 was no-
table for an above-average number of natural disasters. Large
losses caused by typhoons and hurricanes left their mark on
2018 as well. The scale of the natural disasters recorded in
the financial year was reflected in the assumptions underly-
ing the natural perils models which are used for pricing and
managing catastrophe risks. The possibility that the increased
storm activity of recent years is due in part to progressive
global warming cannot be ruled out. Hannover Re works to-
gether with partners to closely monitor the implications of
global warming for extreme weather events so as to be able
to incorporate the insights gained into the models and the
management of risks.
Risks from electronic data retention: Recent years have
seen the increasing emergence of risks relating to electronic
systems and their data. Hannover Re, in common with other
companies, is at risk of attacks on its IT systems and has put
in place extensive safeguards. Furthermore, Hannover Re of-
fers reinsurance coverage for risks connected with electronic
systems and the associated data. The dynamic pace of devel-
opments in the context of digitalisation presents a particular
challenge to the assessment of such risks.
US tax reform: The changes in tax legislation adopted by the
US administration at the end of 2017 entered into force on
1 January 2018. They provide for new tax regulations that have
far-reaching financial implications for subsidiaries operating
in the United States. On the one hand, the reform cuts the
corporate tax rate from 35% to 21%. On the other hand, the
legislative package includes the introduction of the so-called
"Base Erosion and Anti-Abuse Tax" (BEAT). In this connec-
tion, premiums for ceded insurance risks within the corporate
group are also included in the taxable base and will in future
be taxed at a rate of 5% to 12.5% (rising over the next nine
years). We have undertaken some restructuring activities
within the Group in order to avert this increased burden of
taxation. Most notably, US life reinsurance business previ-
ously written through Hannover Re Ireland was transferred to
a Bermuda-based subsidiary. The latter is subject to US taxa-
tion, thereby avoiding a substantial tax loss; the solvency ra-
tio decreased, however, due to a higher risk margin for the
Hannover Re Group.
All in all, our current analyses indicate that the implications of
Brexit are manageable for the Hannover Re Group.
nover, Ireland and Bermuda. In this regard we do not antici-
pate any significant changes as a result of Brexit.
95
Hannover Re | Annual Report 2018
The Hannover Re Life UK Branch will be materially affected.
In order to be able to continue its activities even after a "hard"
Brexit, an application to operate under the so-called tempo-
rary permissions regime (TPR) has been filed and already ap-
proved by the financial regulator. Increased administrative
expenses and higher capital costs cannot be ruled out over
the medium term. Argenta Holdings Limited is a wholly
owned subsidiary of Hannover Re that operates on a stand-
alone basis in the United Kingdom and is already authorised
as a member of Lloyd's. We also write reinsurance business
in the United Kingdom through Group companies in Han-
Brexit: The terms of the United Kingdom's withdrawal from
the European Union have still not been determined. The pos-
sibility of the UK leaving the EU without an agreement con-
tinues to exist. The Hannover Re Group is prepared for this
and all other scenarios and a Group-wide working group has
been set up to address readiness measures.
Hannover Re | Annual Report 2018
-
Parallel to the regulatory developments in Europe, we are
seeing adjustments worldwide to the regulation of (re)insur-
ance undertakings.
the specified individual companies are now calculating their
capital requirements under Solvency II on the basis of a full
internal model. In addition, Hannover Re was granted ap-
proval by the BaFin in 2018 to use volatility adjustments pur-
suant to § 82 VAG. This is intended to mitigate the effect of
value fluctuations on the bond market.
In the year under review the reinsurance entities belonging to
the Hannover Re Group in the European Union received ap-
proval from the Federal Financial Supervisory Authority (Ba-
Fin) to calculate their operational risks using the internal
model with retroactive effect from the year-end reporting
2017. The Hannover Re Group has already had such approval
since 2017. This means that both the Hannover Re Group and
Regulatory developments: A review of selected aspects of
Solvency II was conducted in the year under review at the
instigation of the European Commission. In this regard the
European Insurance and Occupational Pensions Authority
(EIOPA) made technical recommendations to the European
Commission. Implementation of the new rules is still pend-
ing, but will most likely do not have any material implications
for the Hannover Re Group.
Major external factors influencing
risk management in the financial year
just ended
0.01%
<0.03%
economic equity
Probability of loss of
0.02%
< 0.03%
shareholders' equity under IFRS
Probability of loss of
> 90%
Capital market environment: A major external influencing
factor is the protracted low level of interest rates, especially
with an eye to the return that can be generated on our invest-
ments. While significant rate increases are now being seen on
the USD and GBP side, negative yields persist on euro area
government bonds well into the medium maturity segment.
The ending of the ECB's programme of monthly corporate
sector purchases (CSPP) at year-end, protracted uncertainty
surrounding the process for the United Kingdom's exit from
the European Union and numerous geopolitical flashpoints as
well as simmering trade and tariff wars impacted the capital
market climate in the period under review. As a result, many
areas of the capital market were rather unsettled. Thus, for
example, risk premiums on corporate bonds increased
sometimes markedly - in the course of the year, while the
losses seen on stock markets towards the end of the year
were in some instances appreciable. Owing to the liquidation
of our equity portfolio in the previous year, however, we re-
mained unaffected. As far as our investments are concerned,
we anticipate elevated volatility on global equity and credit
markets in the immediate future, although we also see this as
an opportunity and believe that we are appropriately pre-
pared with the currently more defensive posture of our asset
portfolio. For further information please see the "Invest-
ments" section of the management report on page 58 et seq.
income under IFRS
Breakdown of employees by country and gender
2018
48.9%
51.1%
48.3%
51.7%
48.5%
51.5%
40.7%
59.3%
40.4%
59.6%
70.7%
29.3%
71.0%
29.0%
M 51
Australia
United States
United Kingdom
South Africa
52.6%
47.4%
52.9%
47.1%
tional Labour Organisation (ILO). We rate new suppliers
based on self-reporting and using an application-supported
process; those that are assessed critically in an ESG risk cat-
egory are assigned to a blacklist, as a consequence of which
no further orders are placed with them. The process is used
as warranted by Facility Management and IT at the Hannover
location.
Men
Women
Men
Germany
Country
2017
Sweden
Probability of positive net
Women
96.2%
We maintain an adequate level of capitalisation.
•
We manage risks actively.
•
Our risk strategy is derived from the corporate strategy. The
following principles of the corporate strategy constitute the
key strategic points of departure for our Group-wide risk
management:
Our current corporate strategy encompasses ten guiding
principles that safeguard the realisation of our vision
“Creating value through reinsurance” across the various
divisions. For further information on the corporate strategy
and the strategic principles we would refer to our website
(www.hannover-re.com/135441/group-strategy-at-a-glance).
Strategy implementation
Our risk management system continuously monitors newly added and changing risks and is able
to respond flexibly to changes in internal and external factors.
the backdrop of possible changes in the risk profile.
Hannover Re has a very strong capital position, which is constantly reviewed against
Risk report
Opportunity and risk report
Combined management report
prices for flood damage covers as well.
Loss scenarios for windstorm risks can be reliably
simulated using existing models. We are continu-
ously developing and refining our risk models in
order to calculate affordable, risk-appropriate
In the private sphere, householders and car
owners are particularly hard hit by inadequate
protection: some half a million vehicles were
written off in the region flooded by Harvey. In
industry, too, flood damage to structures is often
not covered - or the indemnity limits are too low.
Depending on the timing and duration of the bad
weather, losses can also result from business
interruption and crop failures and they may
impact shipping and aviation.
Storm surge damage is normally covered in the
US under private and industrial windstorm
insurance. Flood damage resulting from heavy
rainfall, on the other hand, often needs to be
covered separately. Torrential rain from Hurricane
Harvey caused extensive damage throughout
South Texas in 2017, while precipitation from
Hurricane Katrina in 2005 flooded parts of
New Orleans.
Goal to be achieved by 2020:
Supplier management
in EUR million
Measures
Ongoing evaluation of ~90% of suppliers (measured by purchas-
ing volume) according to environmental and social standards
Results
M 56
•
80% of the purchasing volume in Facility Management and more
than 90% in the IT sector are currently evaluated according to
these ESG criteria.
91
Combined management report
NO LEFT
TUD.
Expertise in demand
Extreme weather events
meet rising insured values
Hannover Re | Annual Report 2018
We are committed to sustainability, integrity and
compliance.
Risk
models
The risk strategy is the core element in our handling of oppor-
tunities and risks. It specifies more closely the goals of risk
management and documents our understanding of risk. We
have defined eight overriding principles within the risk
strategy:
M 58
Limit
Strategic targets for the risk position
We manage our total enterprise risk such that we can expect
to generate positive IFRS Group net income with a probability
of 90% p.a. and the likelihood of the complete loss of our
economic capital and shareholders' equity under IFRS does
not exceed 0.03% p. a. Our solvency ratio must amount to at
least 180%, although 200% is already considered to be a
threshold; countermeasures would be triggered if the solven-
cy ratio were to fall below this threshold. These indicators are
monitored using our internal capital model and the Executive
Board is informed quarterly about adherence to these key
parameters as part of regular risk reporting. The necessary
equity resources are determined according to the require-
ments of our economic capital model, regulatory parameters,
the expectations of rating agencies with respect to our target
rating and the expectations of our clients. Above and beyond
that, we maintain a capital cushion in order to be able to act
on new business opportunities at any time.
The risk strategy, risk register and central system of limits
and thresholds - as integral components of our Risk and Cap-
ital Management Guideline are reviewed at least once a
year. In this way we ensure that our risk management system
is kept up-to-date.
-
Indicator as at
31.12.2018
Hannover Re | Annual Report 2018
Limits per transaction
Limits for catastrophe risks
Limit per risk category
Strategic risk limits
M 57
Investment and Underwriting Guidelines
Exposure Management Guideline
Combined management report
Risk and Capital
Management Guideline
2. We integrate risk management into value-based
management.
3. We promote an open risk culture and the transparency
of our risk management system.
1. We monitor adherence to the risk appetite set by the
Executive Board.
5. We fulfil the requirements of rating agencies.
6. We act in light of materiality and proportionality
considerations.
7. We make balanced use of both quantitative and
qualitative methods.
4. We fulfil regulatory requirements.
Risk management through multiple levels of limits
24
94
Corporate
Strategy
Risk Strategy
8. We ensure the independence of the risk management
function.
2018
2017
Individual loss
reserves
IBNR
reserves
Survival ratio
in years
Individual loss
reserves
155.3
Survival ratio
in years
19.5
157.9
30.0
20.1
27.2
In order to partially hedge inflation risks Hannover Re holds
securities in its portfolio with inflation-linked coupons and
redemption amounts. An inflation risk exists particularly inas-
much as the liabilities (e.g. loss reserves) could develop dif-
ferently than assumed at the time when the reserve was con-
stituted because of inflation. The specified bonds protect
these parts of the loss reserves against inflation risks.
For the purpose of assessing our material catastrophe risks
from natural hazards (especially earthquake, windstorm and
flood) we use licensed scientific simulation models, supple-
mented by the expertise of our own specialist departments,
that deliver probability distributions for losses from natural
catastrophes. The monitoring of the risks resulting from
natural hazards is rounded out by scenario analyses. Major
scenarios and stress tests are shown in the following table:
Stress tests for natural catastrophes
IBNR
reserves
Asbestos-related claims/
pollution damage
609.77
M 66
after retrocessions
1,774.51
1,605.57
1,437.56
1,071.20
707.44
613.91
Hurricane US/Caribbean
Earthquake US West Coast
Earthquake Japan
Winter storm Europe
665.15
1 Required risk capital with a confidence level of 99.5% on an
aggregate annual loss basis
The reserve risk, i. e. the risk of under-reserving losses and
the resulting strain on the underwriting result, is a high prior-
ity in our risk management. We attach importance to main-
taining a conservative reserving level. In order to counter the
risk of under-reserving we calculate our loss reserves based
on our own actuarial estimations and establish, where neces-
sary, additional reserves supplementary to those posted by
our cedants as well as the segment reserve for losses that
have already occurred but have not yet been reported to us.
Hannover Re | Annual Report 2018
105
Combined management report
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 re-
serve established by the Hannover Re Group amounted to
EUR 7,134.6 million in the year under review.
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 recalcu-
lation of the reserves to be established as at each balance
sheet date. Their adequacy is monitored using actuarial
methods.
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
further remarks on the reserve risk please see our comments
in section 6.7 "Technical provisions" on page 229 et seq.
In the case of asbestos- and pollution-related claims it is diffi-
cult 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.
Survival ratio in years and reserves for asbestos-related claims and pollution damage
in EUR million
Aggregate annual loss
250-year loss
Winter storm Europe
100-year loss
250-year loss
250-year loss
(664.3)
(522.0)
Earthquake US West Coast
100-year loss
(634.8)
(420.2)
(1,194.7)
(921.7)
Earthquake Australia
100-year loss
(191.9)
(154.4)
250-year loss
(499.8)
(445.3)
Within the scope of this process, the Executive Board defines
the risk appetite for natural perils once a year on the basis of
the risk strategy by specifying the portion of the economic
equity that is available to cover risks from natural perils. This
is a key basis for our underwriting approach in this segment.
As part of our holistic approach to risk management across
Hannover Re | Annual Report 2018
2017
(282.2)
in EUR million
(344.3)
106
2018
M 67
2017
Effect on forecast
net income
(312.0)
(378.2)
(526.0)
(542.5)
Hurricane US/Caribbean
(1,033.2)
(921.0)
(1,471.6)
(1,274.8)
100-year loss
250-year loss
Typhoon Japan
100-year loss
250-year loss
(216.4)
(183.1)
(294.0)
(256.6)
100-year loss
2018
Earthquake Japan
M 65
Process-integrated/-independent monitoring and
quality assurance
Irrespective of internally assigned competencies, the Execu-
tive Board is responsible for the orderly organisation of the
company's business. This also encompasses monitoring of
the internal risk steering and control system. Process-inde-
pendent monitoring and quality assurance of risk manage-
ment is carried out by the internal audit function and external
instances (regulators, independent auditors and rating agen-
cies). Most notably, the independent auditors review the trig-
ger mechanism and the internal monitoring system. The risk
management system is rounded off with process-integrated
procedures and rules, such as those of the internal control
system.
Internal control system
We organise our business activities in such a way that they
are always in conformity with all legal requirements. The in-
ternal control system (ICS) is an important subsystem that
serves, among other things, to secure and protect existing
assets, prevent and reveal errors and irregularities and com-
ply with laws and regulations. The core elements of Hannover
Re's ICS are documented in a guideline that establishes a
common understanding of the differentiated execution of the
necessary controls. In the final analysis, it is designed to sys-
tematically steer and monitor the implementation of our cor-
porate strategy. The guideline defines concepts, stipulates
responsibilities and provides a guide for the description of
controls. In addition, it forms the basis for the accomplish-
ment of internal objectives and the fulfilment of external re-
quirements imposed on Hannover Re. The ICS consists of
systematically structured organisational and technical meas-
ures and controls within the enterprise. These include, among
other things, the principle of dual control, separation of func-
tions, documentation of the controls within processes as well
as technical plausibility checks and access privileges in the IT
systems.
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 reporting
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 com-
pleteness and accuracy of the annual and consolidated finan-
cial statements. A structure made up of differentiated criteria,
control points and materiality thresholds assures our ability
to identify and minimise the risk of material errors in the an-
nual and consolidated financial statements at an early stage.
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
statement. Access rights for the reporting systems are as-
signed through an approval process. All components of the
accounting-related internal control system, the processes for
the organisation and implementation of consolidation tasks
and for the preparation of the consolidated financial state-
ment as well as the accompanying controls are consistently
documented. In order to safeguard and continuously improve
the adequacy of the control system it is subject to regular re-
view and evaluation. In this regard, the internal audit function
ensures that the quality of the control system is constantly
monitored. All relevant accounting principles are collated in a
Group Accounting Manual that sets out uniform Group-wide
rules for the recognition, measurement and reporting of items
in the consolidated financial statement. The process for up-
dating and, if necessary, adjusting these rules is clearly regu-
lated 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.
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 net-
worked 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 fi-
nancial reporting process we perform preventive and detec-
tive checks on the reported figures in order to minimise the
probability and reduce the impacts of a potentially incorrect
disclosure. 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 con-
tent-based as well as system-side checks have been imple-
mented, by means of which errors are analysed and promptly
eliminated.
Combined management report
Hannover Re | Annual Report 2018
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
deliberately accepted, steered and monitored in order to be
able to act on the associated opportunities. The parameters
and decisions 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 Pro-
perty & Casualty and Life & Health reinsurance business
groups we are able to effectively allocate our capital in light
of opportunity and risk considerations and generate a high-
er-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 reinsur-
ance 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 even exceptional major losses do not have an
unduly adverse impact on the result.
The risk landscape of Hannover Re encompasses:
•
•
•
•
underwriting risks in property & casualty and life & health
reinsurance which originate from our business activities
and manifest themselves inter alia in fluctuations in loss
estimates as well as in unexpected catastrophes and
changes in biometric factors such as mortality,
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,
101
counterparty default risks resulting from our diverse
business relationships and payment obligations inter
alia with clients, retrocessionaires and banks,
Hannover Re | Annual Report 2018
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 uti-
lisation of natural catastrophe scenarios. Complementary to
the regular risk reporting, immediate internal reporting on
material risks that emerge at short notice takes place as nec-
essary.
Group-wide risk communication and an open risk culture are
important to our risk management. Regular global meetings
attended by the actuarial units and risk management func-
tions serve as a major anchor point for strategic considera-
tions in relation to risk communication. In addition, risk man-
agement requirements are formulated in guidelines that are
communicated throughout the organisation.
Key elements of our
risk management system
Our risk strategy and our Risk and Capital Management
Guideline including the system of limits and thresholds for
material risks of the Hannover Re Group describe the central
elements of our risk management system. This is subject to a
constant cycle of planning, action, control and improvement.
Systematic risk identification, analysis, measurement, steer-
ing and monitoring as well as risk reporting are especially
crucial to the effectiveness of the system as a whole.
This guideline describes, among other things, the major
tasks, rights and responsibilities, the organisational frame-
work conditions and the risk control process. The rules, which
are derived from the corporate strategy and the risk strategy,
additionally take account of the regulatory requirements for
risk management as well as international standards and de-
velopments relating to appropriate enterprise management.
Risk-bearing capacity concept
The establishment of the risk-bearing capacity involves deter-
mining the total available risk coverage potential and calcu-
lating the funds required to cover all risks. This is done in
conformity with the parameters of the risk strategy and the
risk appetite defined by the Executive Board. The quantita-
tively 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 on an ongoing basis.
-
Risk identification
100
-
Risk analysis and assessment
In principle, every risk that is identified and considered ma-
terial is quantitatively assessed. Only risk types for which
quantitative risk measurement is currently impossible or dif-
ficult are qualitatively assessed (e.g. strategic risks, reputa-
tional risks or emerging risks). Qualitative assessment can
take the form of, for example, expert evaluations. Quantitative
assessment of material risks and the overall risk position is
performed using Hannover Re's internal capital model. The
model makes allowance for risk concentration and risk diver-
sification.
Risk steering
The steering of all material risks is the task of the operational
business units on the divisional and company level. In this
context, the identified and analysed risks are either con-
sciously accepted, avoided or minimised. The risk/reward
ratio is factored into the division's decision. Risk steering is
assisted by the parameters of the central and local underwrit-
ing guidelines and by defined limits and thresholds.
Risk monitoring
The monitoring of all identified material risks is a core func-
tion of risk management. This includes, inter alia, monitoring
execution of the risk strategy as well as adherence to the de-
fined limits and thresholds and to risk-related methods and
processes. A further major task of risk monitoring is the as-
certainment of whether risk steering measures were carried
out and whether the planned effect of the measures is suffi-
cient.
Risk communication and risk culture
Risk management is firmly integrated into our operational
processes. It is assisted by transparent risk communication
and the open handling of risks as part of our risk culture. Risk
communication takes the form, for example, of internal and
external risk reports, information on current risk complexes
in the intranet and training activities for staff. The regular
sharing of information between risk-steering and risk-moni-
toring units is also fundamental to the proper functioning of
risk management.
Risk reporting
A key source of information for monitoring risks is the risk
identification carried out on a periodic basis. All identified
risks are documented in a central register containing all ma-
terial risks. Risk identification takes the form of, among other
things, structured assessments, interviews or scenario analy-
ses. External insights such as recognised industry know-how
from relevant bodies or working groups are incorporated into
the process. Risk identification is important for ensuring that
our risk management consistently remains up-to-date.
Combined management report
operational risks which may derive, for example, from
reputational risks, liquidity risks, strategic risks and
emerging risks.
Processes
External events
Internal risk assessment
In this section we compare the available economic capital
with the required risk capital in greater detail. Hannover Re
calculates the economic equity as the difference between the
market-consistent value of the assets and the market-consist-
ent value of the liabilities. While fair values are available for
most investments, the market-consistent valuation of reinsur-
ance treaties necessitates a specific valuation model. We es-
tablish the market-consistent value of technical items as the
present value of projected payments using actuarial methods.
This is adjusted by a risk loading that factors in the potential
fluctuation in future payments. Such fluctuations result from
risks that cannot be hedged by means of capital market prod-
ucts, such as underwriting risks. For the discounting of future
cash flows we use the risk-free basic yield curves calculated
in accordance with Solvency II requirements and also for the
first time effective 31 December 2018 the static volatility ad-
justment approved by the supervisory authority. Market pric-
es for options and guarantees embedded in insurance con-
tracts are determined or approximated using option valuation
models from the field of financial mathematics. The volume of
these options and guarantees in our portfolio is, however,
comparatively slight. The adjustments for assets under own
management shown in the following table indicate the differ-
ence between fair value and book value of those investments
recognised under IFRS at book values. Other adjustments en-
compass above all the deferred taxes. The available economic
capital, which is available as liable capital for policyholders,
is composed of the economic equity and the hybrid capital
and includes the deduction of foreseeable dividends as re-
quired by Solvency II. Hybrid capital is recognised at mar-
ket-consistent value as required by Solvency II, with changes
in the own credit risk not being included in the valuation.
The available economic capital increased to EUR 13,323.1
million as at 31 December 2018, compared to EUR 13,041.0
million as at 31 December 2017 (pursuant to the final Solven-
cy II year-end reporting for 31 December 2017). The primary
factors here were the positive business result and the adop-
tion of the volatility adjustment. The development of share-
holders' equity was adversely impacted by, among other
things, the increase in credit spreads and associated valua-
tion declines in fixed-income securities, the large loss ex-
penditure in property and casualty reinsurance and one-time
charges in US mortality business.
Hannover Re | Annual Report 2018
103
M 61
People
Systems
Combined management report
(economic capital/shareholders' equity) 1
M 62
in EUR million
31.12.20182
31.12.20173
Shareholders' equity including
minorities
9,542.0
9,286.6
Reconciliation
deficient processes or systems and
Operational risks
Reputational risk
Strategic risk
Liquidity risk
Emerging risks
At the present time our most significant individual risks are
the default and spread risks within the market risks, the re-
serving 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 rein-
surance. 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 dete-
riorations in mortality.
The specific risk characteristics and the principal monitoring
and steering mechanisms are described in the following sec-
tions.
102
Hannover Re | Annual Report 2018
Risk landscape of Hannover Re
Price/premium risk
Catastrophe risk
Reserving risk
Property and casualty reinsurance
Life and health reinsurance
Underwriting risks
Other risks
Counterparty default risks
Market risks
Longevity and
mortality risk
Morbidity and
disability risk
Lapse risk
Catastrophe risk
Expense risk
Equity risk
Interest rate risk
Real estate risk
Foreign exchange
risk
Default and
spread risk
Risk landscape of
Hannover Re
M 60
99
Hannover Re | Annual Report 2018
Solvency capital requirement
10,990.5
5,135.4
5,135.4
9,877.3
4,729.0
4,729.0
in EUR million
2,332.5
Required risk capital/
8,187.7
3,163.7
8,312.0
7,566.8
Capital adequacy ratio
121.2%
259.4%
245.7%
132.0%
275.8%
7,480.8
260.0%
99.5%
99.97%
The specification of the probability distributions for the risk
factors draws upon historical and publically available data
exclusive industry data and the internal data resources of the
Hannover Re Group. This process is further supplemented by
the know-how of internal and external experts. The fit of the
probability distributions is regularly checked by our specialist
departments, although more importantly it is also verified in
the context of the regular, company-wide use of the capital
model when assessing risks and allocating the cost of capital.
Hannover Re calculates the required risk capital as the Value
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% required under Solvency II. For its capitalisa-
tion under Solvency II Hannover Re has set a limit of 180%
and a threshold of 200% for the capital adequacy ratio.
Available capital and required risk capital¹
The capitalisation prescribed by regulatory requirements di-
verges from the capitalisation shown in accordance with the
Hannover Re Group's internal capital model. Since approval
was given to use the model for operational risks, the differ-
ence now rests solely in the Solvency II requirements that
non-controlling interests are to be treated as partially ineligi-
ble. The solvency ratio calculated in accordance with Solven-
cy II stood at 245.7% as at 31 December 2018. The key risk
indicators and own funds shown for the Hannover Re Group
and Hannover Rück SE as at 31 December 2018 reflect the
static volatility adjustment of the yield curves.
Hannover Re is thus well capitalised and our available capital
comfortably exceeds the required capital, both from the eco-
nomic and the regulatory perspective:
in EUR million
Available economic capital/
Eligible capital
Confidence level
31.12.2018
(internal)
99.5%
31.12.2018
(Solvency II) 2
M 59
31.12.2017
(Solvency II) ³
13,323.1
12,616.2
13,041.0
12,295.8
99.97%
99.5%
99.5%
31.12.2017
(internal)
1
This table contains information that has not been audited by the independent auditor.
2
Operational risk manage-
ment, monitoring and
coordinating body as well
as implementation and
safeguarding of a con-
sistent Group-wide risk
management culture
Committee
Monitoring and coordi-
nating body in relation to
the Actuarial Function
Risk Management
Function
Risk monitoring across
the Group as a whole and
the business groups of all
material risks from the
company perspective
Actuarial
Functions
Ensures adequacy of the
methods used and under-
lying models in relation to
calculation of the technical
provisions
Compliance
function
Monitoring of areas
where misconduct can
result in civil actions or
criminal/administrative
proceedings
3rd line of defence
Group
Auditing
supported by
local risk management
functions
1st line of defence
supported by
local actuarial
functions
supported by
local compliance functions
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
and assessment on the divisional and company level
Process-independent and
Group-wide monitoring
2nd line of defence
Actuarial
Risk Committee
The figures were based on the Solvency II reporting as at 31 December 2018.
3
Minor differences for 31 December 2017 compared to the Annual Report 2017. Figures based on final Solvency II year-end reporting as presented in
the Solvency and Financial Condition Report.
The figures shown above refer to the Hannover Re Group. In
addition, Hannover Rück SE is also subject to regulatory cap-
ital requirements, which in accordance with Solvency II report-
ing were clearly fulfilled as at 31 December 2018 with a sol-
vency ratio of 250.5%. The solvency ratio of Hannover Rück
SE is normally higher than the solvency ratio of the Hannover
Re Group because there are no restrictions with regard to the
use of own funds attributable to non-controlling interests.
The details provided here regarding the solvency ratio of the
solo entity Hannover Rück SE constitute information that has
not been audited by the independent auditor.
We strive for a rating from the rating agencies most relevant
to our industry that facilitates and secures our access to al
reinsurance business worldwide. Hannover Re is analysed by
the rating agencies Standard & Poor's (S&P) and A.M. Best as
part of an interactive rating process. The current financial
strength ratings are assessed as “AA-" (Very Strong, stable
outlook) by Standard & Poor's and "A+" (Superior, stable out-
look) by A.M. Best. Standard & Poor's evaluates Hannover Re's
risk management as “Very Strong”, the best possible rating.
In awarding these ratings the agencies highlighted the com-
pany's very good risk management, the consistent and sys-
tematic implementation of corporate strategy by manage-
ment and its excellent capital resources. Hannover Re's
internal capital model was also subjected to expert appraisal.
As a result of this review, Standard & Poor's factors the results
of the Hannover Re Group's internal capital model into the
determination of the target capital for the rating.
Hannover Re | Annual Report 2018
46
97
Combined management report
Organisation and processes of
risk management
Hannover Re has set up risk management functions and bod-
ies Group-wide to safeguard an efficient risk management
system. The organisation and interplay of the individual func-
tions in risk management are crucial to our internal risk steer-
ing and control system. The central functions of risk manage-
ment are closely interlinked in our system and the roles, tasks
and reporting channels are clearly defined and documented
in terms of the so-called "three lines of defence". The first
line of defence consists of risk steering and the original risk
responsibility on the divisional or company level. The second
line of defence is made up of the core risk management func-
tions, 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 function. 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.
98
Hannover Re | Annual Report 2018
Central functions of risk monitoring and steering
Supervisory Board
Advising and supervising the Executive Board in its management of the company,
inter alia with respect to risk management
Executive Board
Overall responsibility for Group-wide risk management and definition of the risk strategy
2nd line of defence
Adjustments for assets under
own management
Excess capital
637.0
The decrease in operational risks can be attributed above all
to an updated expert assessment regarding the impact of in-
dividual scenarios.
The loss-absorbing effect of taxes remained stable. The slight
decline in the diversification effect reflects the increase in
certain key risks, namely the market risk and the underwrit-
ing risk in property and casualty reinsurance.
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
models, which are adjusted in the context of a detailed inter-
nal 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 biome-
tric and lapse scenarios. With respect to all the aforemen-
tioned risks we use internal data to define scenarios and
probability distributions. The internal data is enhanced by
way of parameters set by our internal experts. These parame-
ters are especially significant in relation to extreme events
that have not previously been observed.
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 pe-
riods 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 oc-
cur at the same time. The absence of complete dependency is
referred to as diversification. Hannover Re's business model
is based inter alia on building up the most balanced possible
portfolio so as to achieve the greatest possible diversification
effects and in order to deploy capital efficiently. Diversifica-
tion exists between individual reinsurance treaties, lines,
business segments and risks. We define the cost of capital to
be generated per business unit according to the capital re-
quired by our business segments and lines and based on their
contribution to diversification.
104
Hannover Re | Annual Report 2018
Required risk capital
M 63
31.12.2018
31.12.2017
in EUR million
Confidence level 99.5%
Confidence level 99.5%
Underwriting risk property and casualty reinsurance
3,819.3
3,485.4
Underwriting risk life and health reinsurance
2,212.5
2,354.7
Market risk
Counterparty default risk
Along with the larger volumes, elevated default and spread
risks as are also evident in the generally higher spread level
- are a major reason for the increase in market risks. The
underwriting risks in property and casualty reinsurance in-
creased primarily as a consequence of higher underwriting
capacities for natural perils and model adjustments made to
specific large loss models. The underwriting risks in life and
health reinsurance decreased due to a reduced exposure to
longevity and mortality risks. This contrasts with a higher ex-
posure to morbidity risks resulting from expansion of the
business. The increase in counterparty default risks can be
attributed principally to a higher volume of receivables due
from ceding companies and retrocessionaires as well as ele-
vated volatility of the modelled losses due to generally in-
creased credit spreads.
The required risk capital of the Hannover Re Group with the
target confidence level of 99.5% increased to EUR 5,135.4
million as at 31 December 2018, compared to EUR 4,729.0
million as at 31 December 2017. This was driven principally
by the larger business volumes, which led to an increase in
market risks and underwriting risks in property and casualty
reinsurance. In addition, the weakening of the euro against
the US dollar contributed to a rise in foreign-currency vol-
umes and an increase in risks in euro.
property & casualty reinsurance including risk margin.
Minor differences for 31 December 2017 compared to the Annual
Report 2017. Figures based on final Solvency II year-end reporting as
presented in the Solvency and Financial Condition Report.
Adjustments for technical provisions in life & health and
502.7
Adjustments for technical
provisions4
4,055.3
3,980.3
Adjustments due to tax effects
and other
(1,719.0)
Economic equity
12,391.9
Operational risk
Hybrid capital
Foreseeable dividends
Available economic capital
(685.9)
13,323.1
(1,698.4)
12,071.2
1,626.2
(656.4)
13,041.0
1
4
This table contains information that has not been audited by the
independent auditor.
2 The figures were based on the Solvency II reporting as at
31 December 2018.
3
1,617.1
513.6
Diversification
Required risk capital of the Hannover Re Group
Premium risk
(including catastrophe risk)
Tax effects
2,472.0
Reserve risk
2,275.7
2,253.8
31.12.2017
Diversification
(1,240.4)
Underwriting risk property and
casualty
3,819.3
1 Required risk capital with a confidence level of 99.5%
3,485.4
The largest share of the required risk capital for the premium
risk (including catastrophe risk) is attributable to risks from
natural disasters. They constitute the main concentration risk
in property and casualty reinsurance. The following table
shows the required risk capital for four of our largest natural
hazards scenarios:
Required risk capital¹ for four
natural hazards scenarios
(1,318.7)
31.12.2018
2,862.3
M 64
3,833.5
3,462.2
312.6
in EUR million
575.3
(3,648.2)
(3,710.2)
(1,969.6)
282.0
5,135.4
4,729.0
The required risk capital with a confidence level of 99.5%
reflects the loss from the respective risk that with a probabil-
ity of 0.5% will not be exceeded. The risk capital required for
specific risks is shown in each case before tax.
Required risk capital¹ for underwriting risks
in property and casualty reinsurance
Underwriting risks in property and
casualty reinsurance
Risk management in property and casualty reinsurance has
defined various overall guidelines for efficient risk steering.
These include, among other things, the use of retrocessions
to reduce volatility and conserve capital. It is also crucially
important to consistently maximise the available risk capaci-
ties on the basis of the risk management parameters of the
Hannover Re Group and to steer the acceptance of risks sys-
tematically through the existing central and local underwrit-
ing guidelines. Our conservative reserving level is a key 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 latter
case, special importance attaches to the catastrophe risk.
Diversification within the Property & Casualty reinsurance
business group is actively managed through allocation of the
cost of capital according to the contribution made to diversi-
fication. A high diversification effect arises out of the under-
writing of business in different lines and different regions
with different business partners. In addition, the active limita-
tion of individual risks - such as natural catastrophes - en-
hances the diversification effect. The risk capital with a confi-
dence level of 99.5% for underwriting risks in property and
casualty reinsurance breaks down as follows:
(1,782.1)
Personnel risk
Fraud risk
Outsourcing risk
Compliance risk
Business process and data quality risk
•
Subcategories of operational risks
•
637.0
31.12.2017
•
Information security risk
M 81
575.3
90.7
91.7
90.4
84.2
83.9
Alongside traditional retrocessions in property and casualty
reinsurance we also transfer risks to the capital market.
Counterparty default risks are also relevant to our invest-
ments and in life and health reinsurance, among other things
because we prefinance acquisition costs for our ceding com-
panies. Our cedants, retrocessionaires and broker relation-
ships as well as our investments are therefore carefully evalu-
ated and limited in light of credit considerations and are
constantly monitored and controlled within the scope of our
system of limits and thresholds.
Lastly, short-term deposits at banks are also at risk of coun-
terparty default.
69.6% of our recoverables from reinsurance business are se-
cured by deposits or letters of credit. For the majority of our
retrocessionaires we also function as reinsurer, meaning that
in most cases recoverables can potentially be set off against
our own liabilities. In terms of the Hannover Re Group's ma-
jor companies, EUR 241.8 million (6.1%) of our accounts re-
ceivable from reinsurance business totalling EUR 3,975.8
million were older than 90 days as at the balance sheet date.
The average default rate from retrocessions over the past four
years was 0.09%.
Retrocession gives rise to claims that we hold against our ret-
rocessionaires. These reinsurance recoverables - i. e. the re-
insurance recoverables on unpaid claims – amounted to EUR
2,084.6 million (EUR 1,651.3 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 ret-
rocessionaires.
-
Reinsurance recoverables as at the balance sheet date
in EUR million
2,500
2,000
S
M 80
2,085
44
345
Life and health reinsurance
90.6
89.3
88.5
Required risk capital with a confidence level of 99.5%
282.0
Since the business that we accept is not always fully retained,
but instead portions are retroceded as necessary, the coun-
terparty default risk is also material for our company in rein-
surance transactions. Our retrocession partners are carefully
selected and monitored in light of credit considerations in
order to keep the risk as small as possible. This is also true of
our broker relationships, which entail a risk inter alia through
the potential loss of the premium paid by the cedant to the
broker. We minimise these risks, among other things, by re-
viewing all broker relationships with an eye to criteria such as
the existence of professional indemnity insurance, payment
performance and proper contract implementation. The credit
status of retrocessionaires is continuously monitored. On the
basis of this ongoing monitoring a Security Committee de-
cides on measures where necessary to secure receivables
that appear to be at risk of default. This process is supported
by a Web-based risk management application, which speci-
fies cession limits for the individual retrocessionaires partici-
pating in protection cover programmes and determines the
capacities still available for short-, medium- and long-term
business. Depending on the type and expected run-off dura-
tion of the reinsured business, the selection of reinsurers
takes into account not only the minimum ratings of the rating
agencies Standard & Poor's and A.M. Best but also internal
and external expert assessments (e.g. market information
from brokers). Overall, retrocessions conserve our capital,
stabilise and optimise our results and enable us to act on op-
portunities across a broader front, e. g. following a major loss
event. Regular visits to our retrocessionaires give us a relia-
ble overview of the market and put us in a position to respond
quickly to capacity changes. The following table shows how
the proportion of assumed risks that we do not retrocede (i. e.
that we run in our retention) has changed in recent years:
114
Hannover Re | Annual Report 2018
Gross written premium retained
M 79
in %
2018
2017
1,651
2016
2014
Hannover Re Group
90.7
90.5
89.3
87.0
87.6
Property and casualty reinsurance
90.7
89.7
2015
1 Required risk capital with a confidence level of 99.5%
1,506
245
2014
2015
2016
2017
2018
AAA
AA
A ≤ BBB, NR
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
222 et seq., section 6.6 “Other assets" on page 225 et seq.
and section 7.2 "Investment result" on page 246 et seq.
The amount of assets subject to collateral arrangements is
well below 60% of Hannover Re's total assets. This statement
is relevant for the calculation of the counterparty default risk
with respect to Hannover Re.
As the parent company, Hannover Re provides a guarantee to
clients for the small number of low-risk structured transac-
tions. In this context, it guarantees the payment of liabilities
by Hannover Re under these specific transactions in the event
that the subsidiary is unable to meet its assumed obligations.
Since each of these guarantees is associated with a specific
transaction and formulated in such a way that each potential
payment can only arise once per corporate entity of Hannover
Re (i. e. either at the subsidiary itself as part of the transaction
or at Hannover Re as a consequence of the guarantee), the
existence of a guarantee on the part of Hannover Re has no
effect on the underwriting risk from Hannover Re's proper-
ty & casualty or life & health reinsurance business.
Hannover Re | Annual Report 2018
115
Combined management report
Operational risks
Operational risks refer to the risk of losses occurring because
of the inadequacy or failure of internal processes or as a re-
sult 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 minimisation. Unlike market,
counterparty default and underwriting risks, operational risks
are categorised as non-financial risks.
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 ma-
turity level of the risk management function or the respective
risk monitoring and reporting. The system enables us, among
other things, to prioritise operational risks. In order to calcu-
late the capital commitment in our internal capital model we
perform extensive scenario analyses and use the findings as a
basis for specifying the parameters for the stochastic model.
Required risk capital¹ for operational risks
in EUR million
Operational risk
31.12.2018
581
553
715
941
1,500
1,376
1,395
103
0
352
101
95
346
264
76
348
1,000
3
343
459
371
1,451
0
0
500
Secured
278
Business interruption risk
Ensuring the quality of our portfolios
•
22.3
24.7
19-20 July 2018
11.0
25.2
29 June-6 July 2018
24.3
49.5
17-18 January 2018
31.2
54.4
48.4
77.1
28 April 11 June 2018
Storm, Europe
"Carr" forest fire, United States
1 liability claim
Earthquake, Papua New Guinea
Tornadoes, United States
Typhoon "Prapiroon", Japan
Storm "Friederike", Europe
1 marine claim
Torrential rain, Colombia
37.4
81.7
Typhoon "Mangkhut", Guam, Philippines, China
14-20 September 2018
10-19 September 2018
12.3
Hannover Re | Annual Report 2018
The price/premium risk lies in the possibility of a random
claims realisation that diverges from the claims expectancy
on which the premium calculation was based. Regular and
independent reviews of the models used for treaty quotation
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:
1 Natural catastrophes and other major claims in excess of EUR 10 million gross
849.8
1,722.1
12.3
12.3
20 December 2018
Total
Hailstorm, Australia
7.7
14.0
24-26 May 2018
Cyclone "Mekunu", Oman
11.4
14.2
27-30 October 2018
8.0
13.4
23 July-30 August 2018
16.4
16.4
12.9
22.1
25-26 February 2018
24.4
•
Hurricane "Florence", United States
102.5
Net expenditure on major losses in the year under review
amounted to EUR 849.8 million (EUR 1,127.3 million). Our
company incurred the following catastrophe losses and major
claims in the 2018 financial year:
1 Loss relative to the underwriting result
1,446
1,686
1,873
Actual
utilisation
(July 2018)
Threshold
2018
Limit
2018
M 68
200-year aggregate
annual loss
in EUR million
All natural
catastrophe risks1
Limit and threshold for the 200-year aggregate
annual loss as well as utilisation thereof
For the purposes of risk limitation, maximum amounts are
also stipulated for various extreme loss scenarios and return
periods in light of profitability criteria. Risk management en-
sures adherence to these maximum amounts. The Executive
Board, Risk Committee and P&C Executive Committee are
kept regularly updated on the degree of capacity utilisation.
The limits and thresholds for the 200-year aggregate loss as
well as the utilisation thereof are set out in the following
table:
business groups, we take into account numerous relevant
scenarios and extreme scenarios, determine their effect on
portfolio and performance data, evaluate them in relation to
the planned figures and identify alternative courses of action.
1
Combined management report
Hannover Re | Annual Report 2018
116
Outsourcing risks can result from the outsourcing of func-
tions, services and/or organisational units to third parties
outside Hannover Re. Mandatory rules have been put in place
to limit this risk; among other things, they stipulate that a risk
analysis is to be performed prior to a material outsourcing. In
the context of this analysis a check is carried out to deter-
mine, inter alia, what specific risks exist and whether out-
We use sanctions screening software on the main parts of the
Hannover Re Group's portfolio as well as on loss advices to
filter out individuals who are subject to sanctions on account
of a criminal or terrorist background. Suitable steps are taken
if such individuals are identified. Business partners are also
screened in this way. 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 liabilities
and commitments, please see section 8.6 “Lawsuits" and sec-
tion 8.7 "Contingent liabilities and commitments" on page
266 et seq.
Within the overall framework of operational risks we consid-
er, in particular, business process and data quality risks, com-
pliance risks, outsourcing risks, fraud risks, personnel risks,
information security risks and business interruption risks.
vance.
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
Hannover Re Group. Compliance with regulatory standards,
the company's Code of Conduct, tax regulations, data privacy
requirements as well as the stipulations of anti-trust and com-
petition law have been defined as issues of particular rele-
Business process risks are associated with the risk of defi-
cient or flawed internal processes, which can arise inter alia
as a consequence of an inadequate process organisation. We
have defined criteria for managing the risk that result in a
high process quality. Data quality is similarly a highly critical
success factor, especially in risk management, because for
example the validity of the internal model is largely based on
the data provided.
•
Catastrophe losses and major claims¹ in 2018
102.5
in EUR million
M 69
5 credit claims
26.9
107.2
28 September-1 October 2018
Typhoon "Trami", Japan
90.5
111.3
6 property claims
63.8
122.7
8-22 November 2018
"Woolsey" forest fire, United States
46.3
144.0
10-16 October 2018
Hurricane "Michael", United States
134.7
352.2
4 September 2018
129.5
352.6
8 November-3 December 2018
net
gross
Date
"Camp" forest fire, United States
Typhoon "Jebi", Japan
Counterparty default risk
0
312.6
Market risks
Faced with a challenging capital market climate, particularly
high importance attaches to preserving the value of assets
under own management and the stability of the return. Han-
nover Re's portfolio is therefore guided by the principles of a
balanced risk/return profile and broad diversification. Based
on a risk-averse asset mix, the investments reflect both the
currencies and durations of our liabilities. Market price risks
include equity risks, interest rate risks, foreign exchange
risks, real estate risks, default and spread risks. Our portfolio
currently consists in large part of fixed-income securities,
and hence default and spread risks account for the bulk of the
market risk. We minimise interest rate and foreign exchange
risks through the greatest possible matching of payments
from fixed-income securities with the projected future pay-
ment obligations from our insurance contracts. Market risks
derive from the investments managed by Hannover Re itself
and from investment risks of ceding companies that we as-
sume in connection with insurance contracts. The following
table shows the risk capital with a confidence level of 99.5%
for the market risks from investments under own and
third-party management.
Required risk capital¹ for market risks
With a view to preserving the value of our assets under own
management, we constantly monitor adherence to a trigger
mechanism based on a clearly defined traffic light system that
is applied across all portfolios. This system defines clear
thresholds and escalation channels for the cumulative fluctu-
ations in fair value and realised gains/losses on investments
since the beginning of the year. They are unambiguously de-
fined in conformity with our risk appetite and trigger speci-
fied information and escalation channels if a corresponding
fair value development is overstepped.
Interest rate and spread markets were relatively volatile over
the course of the year under review. Needless to say, our con-
servatively oriented investment portfolio was not left unaf-
fected by these market movements. While EUR interest rates
were rather stable on a low level, USD and GBP interest rates
recorded appreciable increases and risk premiums on corpo-
rate bonds fluctuated sharply during the year before settling
for the most part on a substantially higher level at year-end
than at the beginning of the reporting period. A significant
decrease albeit one in line with our planning – was thus
booked in the hidden reserves for fixed-income securities
over the year as a whole.
-
The predefined discussion and analysis mechanisms in con-
nection with a triggering of the early-warning system's esca-
lation levels reached the assessment in each case that the
general market movements would not have any intolerable or
strategy-altering implications for our portfolio or our eco-
nomic capitalisation. For this reason, our trigger system did
not cause us to make any changes to the asset allocation in
the reporting period.
The risks arising out of life and health reinsurance are reflect-
ed in the internal capital model.
M 73
31.12.2018
31.12.2017
Default and spread risk
Interest rate risk
2,689.3
711.6
2,403.2
1,038.4
in EUR million
Foreign exchange risk
Based on the information available to us today, we continue
to assume a positive VIF for our US mortality business as a
whole. Should additional information lead to the determina-
tion that this is no longer the case, this would result in a one-
off charge to the IFRS result. Similarly, one-time charges to
the IFRS result may arise in a small number of remaining in-
dividual cases, insofar as the cedants affected by rate adjust-
ments exercise their right of recapture.
109
206.5
Diversification
(2,146.6)
1,922.0
1,531.4
632.4
422.7
217.1
(2,370.9)
2,212.5
2,354.7
in EUR million
The actual mortality experience for the portfolio in question
proved to be better than expected in 2018. We are monitoring
the further development of the underlying mortality on an on-
going basis.
1 Required risk capital with a confidence level of 99.5%
Mortality risk incl. catastrophe risk
Diversification is a central management tool for our company.
We seek to spread risks as far as possible across different
risk classes and different regions. In our pricing of reinsur-
ance treaties we provide incentives to further increase diver-
sification.
Through our quality assurance measures we ensure that the
reserves established by ceding companies in accordance with
local accounting principles satisfy all requirements with re-
spect to the calculation methods used and assumptions made
(e.g. use of mortality and morbidity tables, assumptions re-
garding the lapse rate). In addition, the assumptions are con-
tinuously reviewed on the basis of empirical data and modi-
fied if necessary. New business is written in all regions in
compliance with underwriting guidelines applicable world-
wide, which set out detailed rules governing the type, quality,
level and origin of risks and how these considerations are
factored into the pricing. These global guidelines are revised
annually and approved by the Executive Board. Special un-
derwriting guidelines give due consideration to the particular
features of individual markets. By monitoring compliance
with these underwriting guidelines we minimise the risk of an
inability to pay or of deterioration in the financial status of
cedants. Regular reviews and holistic analyses (e.g. with an
eye to lapse risks) are carried out with respect to new busi-
ness activities and the assumption of international portfolios.
Large transactions are also examined by our risk manage-
ment department. Individual actuarial reports and documen-
tation ensure that regular scrutiny also takes place on the
level of the subsidiaries. The interest rate risk, which in the
primary sector is important in life business owing to the guar-
antees that are given, is of only minimal relevance to our
company thanks to the design of our reinsurance treaties. We
have confidence in the entrepreneurial abilities of our under-
writers and grant them the most extensive possible powers.
In our decentralised organisation we manage risks where
they arise using a consistent Group-wide approach in order to
obtain an overall view of the risks in life and health reinsur-
ance. Our global underwriting guidelines provide underwrit-
ers with an appropriate framework for this purpose.
In recent years we have reported regularly on the results of
our US mortality business, which have been poorer than an-
ticipated. The reason for this development was the negative
earnings performance of a large portfolio that we, as reported
at the time, acquired at the beginning of 2009.
As part of our inforce management measures we initiated rate
adjustments for the portfolio concerned. It is to be anticipated
that individual cedants will seek arbitration proceedings with
respect to the implemented rate increases. Based on the in-
formation currently available to us, we take a favourable view
of our legal position.
Hannover Re | Annual Report 2018
2
Expense risk
1,177.9
Equity risk²
60
80
60
40
40
20
20
100
M 74
Q2 2018
Q3 2018
Q4 2018
Utilisation by Hannover Re
Warning level 1
Warning level 2
Warning level 3
Q1 2018
901.1
120
Utilisation of the trigger system
932.3
820.6
Real estate risk
608.9
549.5
Diversification
(2,286.5)
in %
(2,250.6)
3,833.5
3,462.2
110
1 Required risk capital with a confidence level of 99.5%
2
Including private equity
Hannover Re | Annual Report 2018
Market risk
The short-term loss probability measured as the Value at Risk
(VAR) is another vital tool used for operational monitoring
and management of the market price risks associated with
our securities positions. It is calculated on the basis of histor-
ical data, e. g. the volatility of the securities positions under
own management and the correlation between these risks. As
part of these calculations the decline in the fair value of our
securities portfolio is simulated with a certain probability and
within a certain period. The VaR of the Hannover Re Group
determined in accordance with these principles specifies the
decrease in the fair value of our securities portfolio under
own management that with a probability of 95% will not be
exceeded within ten trading days. A standard market model is
used to calculate the VaR indicators for the Hannover Re
Group; the risk model used in the previous reporting period
was replaced with a more state-of-the-art variant in the year
under review as part of our continuous efforts to strengthen
our risk models. It is based on historical time series of rele-
vant market parameters (equity prices, yield curves, spread
curves and exchange rates). Against the backdrop of what
was still a difficult capital market and interest rate environ-
ment, volatilities - especially of fixed-income assets - were
again on a high level in the year under review. Based on con-
tinued broad risk diversification and the orientation of our
investment portfolio, our VaR was nevertheless clearly below
the VaR upper limit defined in our investment guidelines. It
amounted to 0.5% (previous year: adjusted 0.5%) as at the
end of the reporting period.
426.6
881.1
Capital structure
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 inade-
quate premiums) as well as to emerging market opportunities
and the strategy pursued in order to accomplish targets. The
development of the combined ratio in property and casualty
reinsurance in 2018 and prior years is shown in the table be-
low:
Combined and catastrophe loss ratio
M 71
in %
2018
2017
Expected return on equity
2016
2014
2013
2012
2011
2010
2009
Combined ratio (property and
2015
casualty reinsurance)
of the business covered and contribution
to diversification
.
Step 1
Calculation of the loss expectancy
• Historical loss and exposure analysis
•
Changes in the quality of underlying risks
Changes in the quantity of underlying risks
Discounting of future cash flows
Step 2
Cost estimation
Level of capital allocation determined by volatility
•
⚫ Broker fees
•
• Internal administration
Step 3
M 70
Calculation of the cost of capital
•
Commissions
Lapse risk
96.5
93.7
108
Hannover Re | Annual Report 2018
Combined management report
Underwriting risks in life and
health reinsurance
All risks directly connected with the life of an insured person
are referred to as biometric risks. They include in particular
the miscalculation of mortality, life expectancy, morbidity and
occupational disability. Biometric risks are the material risks
for our company in the area of life and health reinsurance.
Our goal is to strike a balance between biometric risks. Fur-
thermore, we are exposed to lapse risks because the cash
flows resulting from our reinsurance treaties are in part de-
pendent on lapse rates among policyholders. Counterparty
default risks are also material since we partly prefinance our
cedants' new business acquisition costs. Furthermore, we are
exposed to catastrophe risks, especially events involving a
high number of fatalities in our insurance portfolio.
The reserves are determined on the basis of secure biometric
actuarial bases in light of the information provided by our
clients. The biometric actuarial bases used and the lapse as-
sumptions are continuously reviewed with an eye to their ad-
equacy and if necessary adjusted. This is done using the com-
pany's own empirical data as well as market-specific insights.
Our current risk profile in life and health reinsurance is dom-
inated by mortality and longevity risks. This is due to the fact
that under some of our contracts we pay death benefits, while
under others we pay survival benefits. The volume of our an-
nuity portfolio contributes to diversification within life and
health reinsurance. We calculate the diversification effect be-
tween mortality and longevity risks prudently in view of the
fact that the contracts are normally taken out for different re-
gions, age groups and individuals. The required risk capital
with a confidence level of 99.5% for underwriting risks in life
and health reinsurance breaks down as follows:
Required risk capital¹ for underwriting risks
in life and health reinsurance
For further information on the run-off of the loss reserves
please see our explanatory remarks in the section "Run-off of
the net loss reserve in the property and casualty reinsurance
segment" on page 230 et seq.
in EUR million
31.12.2018
31.12.2017
Mortality risk²
1,668.3
Longevity risk
1,176.6
Morbidity and disability risk
M 72
99.8
1 Net share of the Hannover Re Group for natural catastrophes and other major claims 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)
12.3
94.4
94.7
94.9
95.8
104.3
98.2
96.6
4.6
Thereof catastrophe losses 1
12.3
7.8
7.1
6.1
8.4
7.0
16.5
7.9
Hannover Re | Annual Report 2018
Underwriting risk life and health
111
77.0
11,517.6
60.8
4,031.7
1.2
141.1
60.9
million
1,844.0
1,935.2
25.1
1,665.0
13.7
1,628.1
23.8
722.5
13.0
5.4
million
in %
Total
1
2
Government bonds
Securities issued
by semi-governmental
M 77
Corporate bonds
in EUR
Covered bonds/
asset-backed securities
in %
in EUR
in %
million
in EUR
million
in %
in EUR
entities²
< BBB
800.8
407.1
6,634.8
100.0
1,012.7
11,849.7
1.0
30.1
100.0
3,031.0
100.0
Securities held through investment funds are recognised pro rata with their corresponding individual ratings.
Including government-guaranteed corporate bonds
Combined management report
Counterparty default risks
The counterparty default risk consists primarily of the risk of
complete or partial failure of the counterparty and the associ-
ated default on payment. The following table shows the re-
quired risk capital for counterparty defaults with a confidence
level of 99.5%.
Required risk capital¹ for the
counterparty default risk
M 78
31.12.2018
31.12.2017
In general terms, Hannover Re gears its investment portfolio
to the principles of a balanced risk/return ratio coupled with
broad diversification. Accordingly, we counter the risk con-
centrations that nevertheless arise in individual asset classes
with the broadest possible spread of different issuers per as-
set class. This is just as much a key component of our invest-
ment policy as credit rating assessment and management
based on the quality criteria defined in the investment guide-
lines.
6.1
14,932.8
8.5
30.1
3,564.2
10.9
331.4
2.7
401.3
1.2
100.0
77.6
5,503.6
3.4
103.0
1.9
278.0
6.8
453.4
46.5
BBB
On a fair value basis EUR 4,126.2 million of the corporate
bonds held by our company were issued by entities in the fi-
nancial sector. Of this amount, EUR 3,285.4 million was at-
tributable to banks. The vast majority of these bank bonds
(65.7%) are rated “A” or better. Our investment portfolio un-
der own management does not contain any written or issued
credit default swaps.
AA
M 76
Portfolio change on
Change in equity
a fair value basis
before tax
-92.6
-92.6
extreme events.
-185.2
+92.6
+92.6
+185.2
+185.2
in EUR million
Equity securities and private equity
Share prices -10%
-185.2
tentials for fair values and shareholders' equity (before tax)
are simulated on the basis of already occurred or notional
Scenario
Scenarios for changes in the fair value of material asset classes
A
1
in %
Value at Risk¹ for the investment portfolio of the Hannover Re Group
M 75
0.8
40
0.7
0.6
0.5
0.4
Q1 2018
Q2 2018
VaR upper limit according to Hannover Re's investment guidelines: 2.5%
Q3 2018
Q4 2018
Stress tests are conducted in order to be able to map extreme
scenarios as well as normal market scenarios for the purpose
of calculating the Value at Risk. In this context, the loss po-
Share prices -20%
Share prices +10%
107
Fixed-income securities
Combined management report
Equity risks derive from the possibility of unfavourable
changes in the value of equities, equity derivatives or equity
index derivatives in our portfolio. Their relevance to our in-
vestments decreased sharply in the year under review, how-
ever, because we liquidated our holdings of non-strategic
listed equities and equity funds at the end of the previous
year. This leaves only a minimal portfolio in the context of
strategic holdings. Our exposure to the private equity market
remains unchanged. Changes in fair value here tend to be
prompted less by general market conditions and more by en-
tity-specific assessments. The risks are associated principally
with the business model and profitability and less so with the
interest rate component in the consideration of cash flow
forecasts. Please see our comments in section 6.1 of the notes
entitled "Investments under own management" on page 204
et seq.
The portfolio of fixed-income securities is exposed to the in-
terest 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 with the same maturity. Changes in these risk
premiums, which are observable on the market, result - anal-
ogously to changes in pure market yields - in changes in the
fair values of the corresponding securities. We minimise
interest rate risks by matching the durations of payments
from fixed-income securities as closely as possible with the
projected future payment obligations under our insurance
contracts.
Foreign exchange 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 quantifi-
cation of the foreign exchange risks. We regularly compare
the liabilities per currency with the covering assets and opti-
mise the currency coverage by regrouping assets. In so do-
ing, we make allowance for collateral conditions such as dif-
ferent accounting requirements. Remaining currency
surpluses are systematically quantified and monitored within
the scope of economic modelling. A detailed presentation of
the currency spread of our investments is provided in section
6.1 of the notes entitled "Investments under own manage-
ment" on page 212.
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 worldwide; each invest-
ment is preceded by detailed analyses of the property, man-
ager and market concerned.
Hannover Re | Annual Report 2018
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. A portion of our cash flows from
the insurance business as well as foreign exchange risks aris-
ing because currency matching cannot be efficiently achieved
are hedged to some extent using forward exchange transac-
tions. Hannover Re holds further derivative financial instru-
ments to hedge interest rate risks from loans taken out to fi-
nance real estate. In addition, Hannover Re holds hedges in
the form of equity swaps to hedge price risks in connection
with the stock appreciation rights granted under the Share
Award Plan. These are intended to neutralise changes in the
fair values of the awarded stock appreciation rights. Con-
tracts are concluded with reliable counterparties and for the
most part collateralised on a daily basis so as to avoid credit
risks associated with the use of such transactions. The re-
maining exposures are controlled according to the restrictive
parameters set out in our investment guidelines.
Our investments entail credit risks that arise out of the risk of
a failure to pay (interest and/or capital repayment) or a
change in the credit status (rating downgrade) of issuers of
securities. We attach equally vital importance to exceptional-
ly broad diversification as we do to credit assessment con-
ducted on the basis of the quality criteria set out in the invest-
ment guidelines. We 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.
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 counter-
party default we set various limits on the issuer and issue
level as well as in the form of dedicated rating quotas. A com-
prehensive system of risk reporting ensures timely reporting
to the functions entrusted with risk management.
Hannover Re | Annual Report 2018
113
AAA
Rating classes
Share prices +20%
Derivatives connected with the technical account play a mi-
nor role in Hannover Re's portfolio.
112
Rating structure of our fixed-income securities¹
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 in-
ternal 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
Yield increase +50 basis points
ranges are directly linked to our calculated risk-bearing ca-
pacity. It should be borne in mind that the issued subordinat-
ed bonds and resulting induced interest rate exposure are
actively factored into our ALM. Further information on the
risk concentrations of our investments 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 204 et seq.
-836.5
Yield increase +100 basis points
-1,769.2
-1,632.2
Yield decrease -50 basis points
+954.5
-906.4
Yield decrease -100 basis points
-99.0
+44.6
+1,961.6
+1,812.3
Real estate
Real estate market values -10%
Real estate market values +10%
+881.5
-239.2
+239.2
Soft signals
M 82
Product launch under line
responsibility
Handover to line
responsibility
Assessment
Concrete specification
Ideas
Future factors
Trends
Opportunity management process
Combined management report
119
Corporate strategy
Creating value through reinsurance
Hannover Re | Annual Report 2018
Analysis
Overall assessment by the
Executive Board
ment.
our established system of risk management affords us
a transparent overview of the current risk situation at
all times
This subsection is a section of the report that the
legislator has expressly exempted from the audit of
the financial statement/audit of the management re-
port (§ 317 Para. 2 Sentence 6 and Sentence 4 German
Commercial Code (HGB); unaudited information).
Declaration on Corporate
Governance pursuant to
§§ 289f, 315d German
Commercial Code (HGB)
Enterprise management
Combined management report
121
Hannover Re | Annual Report 2018
Based on our currently available insights arrived from a holis-
tic 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:
We would also refer to the explanatory remarks on the finan-
cial strength ratings of our subsidiaries in the “Financial po-
sition" section of the management report on page 66. In addi-
tion, 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 information on the opportunities and risks as-
sociated with our business please see the Forecast on page
150 et seq.
120
Our own evaluation of the manageability of existing risks is
confirmed by various financial indicators and external assess-
ments. Specific monitoring indicators, corresponding notifi-
cation thresholds and potential 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 developments in the defined risk tol-
erances and enables us to react in a timely manner. One tes-
tament to our financial stability, for example, is the growth of
our shareholders' equity: the total policyholders' surplus (hy-
brid capital, non-controlling interests and shareholders' equi-
ty) stands at 150% of the corresponding figure from 2011. In
this context, our 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 sufficient capital cush-
ion to be able both to absorb risks and act on business oppor-
tunities that may arise. Similarly, our very good ratings (see
page 66) also testify to our financial stability. The quality of
our Enterprise Risk Management (ERM) is evaluated sepa-
rately by Standard & Poor's. In the year under review Stand-
ard & Poor's gave our risk management its highest possible
grade of "Very Strong". Most notably, our established risk
management culture - one of the rating agency's benchmark
criteria-promotes the development of appropriate risk mon-
itoring systems and strategic risk management. The evalua-
tion further encompasses the areas of risk controls, emerging
risk management and risk models. This external appraisal
confirms the quality of our holistic approach to risk manage-
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, particular-
ly because our steering and monitoring measures are effec-
tively and closely interlinked. Despite these diverse mecha-
nisms, individual and especially accumulation risks can
decisively affect our assets, financial position and net income.
In accordance with our understanding of risk, however, we
consider not only risks but also at the same time opportuni-
ties. We therefore only enter into those risks that hand-in-
go
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 opportunities. Our central monitoring tool is the system
of risk management that we have installed Group-wide, which
efficiently brings together both qualitative and quantitative
information. Most notably, the interplay between domestic
and foreign risk management functions affords us a holistic
and Group-wide overview.
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
our opportunity management plays an important part
in Hannover Re's profitable growth.
our overall risk profile is appropriate, and
Hannover Re | Annual Report 2018
If a business idea is translated into reality and a new reinsur-
ance product results, the normal procedure - provided the
criteria defined for this purpose by Risk Management are
applicable – 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 con-
tractual commitment is to be entered into in a form not pre-
viously used by Hannover Re or if a new type of risk is to be
insured. If this is the case, all material internal and external
influencing factors are examined beforehand by Risk Manage-
ment (e.g. implications for the overall risk profile or the risk
strategy) and evaluated. Risk Management ensures that be-
fore it can be used or sold a new reinsurance product must be
approved by the Executive Board.
117
Cyber risks
Reputational risk
Liquidity risk
Strategic risk
Emerging risk
Subcategories included under other risks
Under other risks we include emerging risks, strategic risks,
reputational risks and liquidity risks. Reputational risks are
categorised as non-financial risks.
Other risks
•
Regular quarterly risk reporting to the Risk Committee and
the Executive Board takes place with regard to all operational
risks. Risks are also evaluated as part of the reporting.
When it comes to reducing business interruption risks, the
paramount objective is the quickest possible return to normal
operations after a crisis, for example through implementation
of existing contingency plans. Guided by internationally ac-
cepted standards, we have defined the key framework condi-
tions and among other measures - we have assembled a
crisis team to act as a temporary steering body in the event of
an emergency. The system is complemented by regular exer-
cises and tests. A leaflet is available setting out the correct
Information security risks arise, inter alia, out of the risk of
the inadequate integrity, confidentiality or availability of sys-
tems and information. By way of example, losses and damage
resulting from the unauthorised passing on of confidential
information, the malicious overloading of important IT sys-
tems 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 measures and organisation-
al standards, including for example the requirement to con-
clude confidentiality agreements with service providers, have
been put in place. In addition, our employees are made more
conscious of such security risks through practically oriented
tools provided online in the intranet, by way of training op-
portunities and through a staff information campaign.
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) in order to obtain a personal gain.
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.
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.
In selected market niches we transact primary insurance
business that complements our reinsurance activities. In so
doing, just as on the reinsurance side, we always work to-
gether with partners from the primary sector - such as insur-
ance brokers and underwriting agencies. This gives rise to
risks associated with distribution channels, although these
are minimised through the careful selection of agencies,
mandatory underwriting guidelines and regular checks.
sourcing can even occur in the first place. Our external part-
ners are additionally subject to regular due diligence checks.
behaviour in the event of a business interruption; this con-
denses in compact form the key information that all employ-
ees need to know, such as the information channels to use in
a crisis situation.
The hallmark of emerging risks is that the content of such
risks cannot as yet be reliably assessed - especially on the
underwriting side with respect to our treaty portfolio. Such
risks evolve gradually from weak signals to unmistakable ten-
dencies. 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 management. 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 meas-
ures (e. g. the implementation of contractual exclusions or the
development of new reinsurance products). By way of exam-
ple, risks associated with possible climate change are ana-
lysed by this working group. Global warming would affect not
only natural perils, but also human health, the world econo-
my, the agricultural sector and much more besides. These
problematic issues may also have implications for our treaty
portfolio - in the form of not just risks but also opportunities,
such as increased demand for reinsurance products. Further
examples of emerging risks include pandemics (spread of
disease across multiple countries or continents), supply chain
risks and autonomous machines.
Strategic risks derive from a possible imbalance between
the corporate strategy of the Hannover Re Group and the
Hannover Re | Annual Report 2018
The networking of the innovative minds at work within
Hannover Re gives 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 117 et seq. “Oth-
er risks"). This working group carries out qualitative assess-
ments of emerging risks. As a result, however, not only are
the potential risks explored but also any available business
opportunities.
A key project initiated back in 2016 went by the name "Jour-
ney Re". It forged a connection to students, university gradu-
ates and young professionals with a view to developing new
business models for primary insurance and reinsurance and
translating the creativity that exists outside the industry into
new business opportunities. The project activities were fo-
cused on locations in Berlin, Dublin, Boston and Johannes-
burg. Based on the project results, Hannover Re partnered
with investors on the launch of three insurtechs in 2018. The
young start-ups have also been recognised with a number of
international prizes and awards.
Trends are systematically identified and analysed with the
support of external sources and partners and the needs of our
clients are anticipated along the entire insurance-related val-
ue-added chain. Targeted consideration is given to new busi-
ness opportunities that promise access to innovative technol-
ogies and enhance our appeal in the eyes of customers. To
this end Hannover Re cultivates business-related partner-
ships with accelerators, incubators, company builders, start-
ups and research institutes in order to boost our competitive-
ness in the insurtech sector and the area of digital solutions.
A competence centre has been set up specifically to evaluate
the strategic and technical significance of innovative new dig-
ital technologies.
Hannover Re | Annual Report 2018
118
Key elements in Hannover Re's opportunity management in-
clude its various market-specific innovations in the Life &
Health and Property & Casualty reinsurance business groups
(see the Forecast on page 150 et seq.).
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. Hannover
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 busi-
ness, Hannover Re adopts a number of closely related ap-
proaches in order to achieve holistic opportunity and risk
management. Of significance here is the interplay without
overlaps of the various functions within opportunity and risk
management, which is ensured by defined interfaces.
Opportunity report
As part of the risk management process we also take into ac-
count the impacts on the operational and reputational risks of
aspects of environmental management, employee matters,
social matters, respect for human rights and the combating of
corruption and bribery, as required by the CSR Directive Im-
plementation Act in accordance with § 289b and c German
Commercial Code (HGB) and § 315c German Commercial
Code (HGB).
Regular quarterly risk reporting to the Risk Committee and
the Executive Board takes place with regard to the other
risks. Risks are also evaluated as part of the reporting.
foreseeable payments, unexpected and exceptionally large
payments may pose a threat to liquidity. In reinsurance busi-
ness, 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 larg-
er 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 4.9 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.
These measures serve to effectively reduce the liquidity risk.
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 (necessary cash could not
be obtained or could only be obtained at increased costs) and
the market liquidity risk (financial market transactions could
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, manage-
ment 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
Reputational risks refer to the risk that the trust put in our
company by clients, shareholders, employees or the public at
large may be damaged. This risk has the potential to jeopard-
ise the business foundation of the Hannover Re Group. A
good corporate reputation is therefore an indispensable pre-
requisite 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 mishap that becomes public knowledge or
financial difficulties on account of an underwriting risk. In
addition to the risk identification methods already described,
we use a number of different techniques for risk minimisa-
tion, such as our defined communication channels (e.g. Crisis
Communication Guideline), a professional approach to corpo-
rate communications, tried and tested processes for specific
crisis scenarios as well as our established Code of Conduct.
The reputational risk also relates to our social responsibility
and is thus a control point in the context of our sustainability
efforts.
constantly changing general business environment. Such an
imbalance might be caused, for example, by incorrect strate-
gic policy decisions, a failure to consistently implement the
defined strategies and business plans or an incorrect alloca-
tion of resources. We therefore regularly review our corporate
strategy in a multi-step procedure and adjust our processes
and the resulting guidelines as and when required. We have
defined performance criteria and indicators for operational
implementation of the strategic principles and objectives;
these are authoritative when it comes to determining fulfil-
ment of the various targets. With the "Strategy Cockpit" the
Executive Board and responsible managers have at their dis-
posal a strategy tool that assists them with the planning, elab-
oration and management of strategic objectives and meas-
ures and safeguards their overall perspective on the company
and its strategic risks. The process for the management of
strategic risks continues to be assessed annually as part of
the monitoring of business process risks. For more informa-
tion on the topic of strategy please see the section “Combined
non-financial information statement" on page 75 et seq.
The objective of Hannover Re continues to be to consolidate
and further expand its position as one of the leading, globally
operating reinsurance groups of above-average profitability.
In aspiring towards this goal, it is particularly important to
observe and fulfil the principles of good and sustainable en-
terprise 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.
Cyber attacks on critical systems are becoming in-
creasingly common. They can cause considerable fi-
nancial losses and also damage corporate reputations.
Not only that, they can severely hamper private and
public life, especially if critical infrastructures are im-
pacted - such as the health, transportation/traffic and
energy sectors. In such instances supply bottlenecks
with lasting effects as well as major disruptions to
public safety may ensue. In a networked world the re-
percussions of cyber attacks are intensifying because
the volume of data stored around the world is con-
stantly 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
connection. As part of our holistic risk and opportuni-
ty management activities, we are also tackling the
question of what new insurance products can be de-
veloped in order to protect against the relevant threats.
Our presence in this market thus goes as far back as
2007 and we have already developed corresponding
products.
The Executive Board and Supervisory Board of Hannover
Rück SE expressly support the suggestions and recommenda-
tions of the German Corporate Governance Code that are
practicable for the reinsurance industry and recognise their
central importance in guiding our activities. The principles
of responsible and good enterprise management therefore
constitute the core of our internal Corporate Governance prin-
ciples (www.hannover-re.com/50889/corporate-governance-
principles.pdf). These remained unchanged in the year under
review. 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 trans-
parent enterprise management and supervision defined in the
German Corporate Governance Code. The Supervisory Board,
Executive Board and employees of Hannover Re identify with
these principles, which thus form part of our corporate
self-image. The Executive Board ensures that the principles
are observed Group-wide.
For formal purposes and as a highly precautionary measure,
Hannover Rück SE is therefore declaring a divergence from
Code Section 4.2.3 Para. 2.
Code (HGB) in conjunction with § 289f German Commercial
Code (HGB) for the Hannover Re Group:
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 sys-
tem. It also handles issues relating to compliance and the in-
formation system for the Supervisory Board and discusses
the Quarterly Statements as well as the Half-yearly Financial
Report prior to their publication. It prepares the Supervisory
Board's examination of the annual financial statement, man-
agement report and proposal for the appropriation of profit as
well as of the consolidated financial statement and Group
management report. In this context, the Finance and Audit
Committee receives detailed information on the auditor's
view of the net assets, financial position and results of opera-
tions 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 con-
siders matters associated with the necessary independence of
the auditor, the awarding of the audit mandate to the inde-
pendent auditor, the determination of the audit concentra-
tions 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.
comprised of three members and prepare matters within their
scope of competence for discussion and adoption of a resolu-
tion by the full Supervisory Board. In addition, the committees
are also assigned their own authority to adopt resolutions.
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
Committee. The Supervisory Board committees are each
Working practice of the committees of the
Supervisory Board
The Rules of Procedure of the Supervisory Board provide in-
ter 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 Superviso-
ry Board must have a sufficient number of independent mem-
bers. Currently, at least two of the six shareholder represent-
atives are independent as defined by Item 5.4.1 Para. 4 of the
German Corporate Governance Code. 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 and shall normally not belong to the Superviso-
ry Board as a member for longer than three full consecutive
terms of office; the term of office commencing from the end
of the 2014 Annual General Meeting shall be counted as the
first term of office in this regard. Nominations shall take ac-
count of the company's international activities as well as di-
versity. Furthermore, it shall be ensured that the proposed
person can allocate the expected amount of time. For their
part, each sitting member of the Supervisory Board shall also
ensure that they have sufficient time to discharge their man-
date. The Supervisory Board meets at least twice each calen-
dar half-year. If a member of the Supervisory Board has only
participated in half of the meetings of the Supervisory Board
and the committees or less 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 be-
long to the Supervisory Board.
The Rules of Procedure of the Executive Board are intended
to ensure that a consistent business policy is elaborated and
implemented for the company in accordance with its strategic
objectives. Within the framework of a consistent business
policy, the principle of "delegation of responsibility" enjoys
special status. In the interests of shareholders, importance is
expressly attached to an organisation that facilitates cost-ef-
fective, 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 responsibil-
ity, each member of the Executive Board leads their own area
of competence at their individual responsibility within the
bounds of the resolutions adopted by the Executive Board.
Only persons under the age of 65 may be appointed to the
Executive Board. The term of appointment shall be deter-
mined such that it expires no later than the end of the month
in which the member of the Executive Board turns 65. The
Supervisory Board takes account of diversity considerations
in the composition of the Executive Board.
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 (AktG) and those considered equiva-
lent pursuant to § 89 Para. 3 Stock Corporation Act (AktG) as
well as for approving contracts with Supervisory Board mem-
bers in accordance with § 114 Stock Corporation Act (AktG).
It exercises the powers arising out of § 112 Stock Corporation
Act (AktG) in lieu of the Supervisory Board and - in coopera-
tion with the Executive Board - ensures that long-term suc-
cession planning is in place.
Combined management report
124
The Executive Board and Supervisory Board of Hannover
Rück SE work together on a trusting basis to manage and
monitor the company and the Group as a whole. In accord-
ance with the Rules of Procedure of the Executive Board,
matters of fundamental importance require the consent of the
Supervisory Board. The Supervisory Board is comprised of
nine members. Six members are elected as shareholder rep-
resentatives by the shareholders at the Annual General Meet-
ing. The three seats held by employee representatives, which
are currently allocated to Germany pursuant to Part III. § 13
(3) of the Agreement regarding the Participation of Employ-
ees in Hannover Rück SE of 23 January 2013, are elected in
accordance with the provisions of the SE Participation Act
(SEBG) by the responsible representative body (currently the
joint Employee Council of Hannover Rück SE and E+S
Rückversicherung AG). The Supervisory Board appoints the
members of the Executive Board. Since members of the Su-
pervisory Board cannot at the same time belong to the Exec-
utive Board, a high degree of independence in the oversight
of the Executive Board is thus already ensured by structural
means. In addition, the Supervisory Board is kept informed
on a regular and timely basis of the business development,
the execution of strategic decisions, material risks and plan-
ning as well as relevant compliance issues. The Chairman of
the Supervisory Board stays in regular contact with the Chair-
man of the Executive Board in order to discuss with him sig-
nificant business occurrences. The composition of the Execu-
tive Board (including areas of responsibility) as well as of the
Supervisory Board and its committees is set out on pages 6 et
seq. and 286 respectively of the present Annual Report.
Working practice of the Executive Board
and Supervisory Board
Following a by-election four of the members of the Supervisory
Board of Hannover Rück SE in the year under review were
women. In addition, one woman sits on the Supervisory Board's
Finance and Audit Committee and one is a member of the Nom-
We thus strive to reduce as far as possible the greenhouse gas
emissions produced by our day-to-day business activities in
order to come closer to reaching our goal of a net zero carbon
footprint. Furthermore, we have defined strategic principles
for our human resources management, since we consider our
employees to be a crucial factor in the success of our compa-
ny. Along with skills, qualifications and commitment, a high
degree of diversity is one of the cornerstones of our success-
ful business operations. Performance indicators have there-
fore been defined for personnel development and advance-
ment. Employee retention is encouraged, while diversity and
equal opportunities are promoted.
The strategic orientation of Hannover Re towards sustainabil-
ity constitutes an important element of the enterprise strate-
gy. The aim is to achieve commercial success on the basis of
a results-driven business model in accordance with the needs
of our staff and the company as well as with an eye to protect-
ing the environment and conserving natural resources. The
current Sustainability Strategy for the period from 2018 to
2020 defines four action fields and specifies concrete goals
and measures that are to be implemented in the strategy cy-
cle. In accordance with the CSR Directive Implementation Act
of 11 April 2017, Hannover Rück SE has also published a
combined non-financial statement which can be found on
page 75 et seq. of this year's Group Annual Report.
Hannover Re | Annual Report 2018
The Nomination Committee is tasked with proposing to the
Supervisory Board appropriate candidates for the nomina-
tions that it puts forward to the Annual General Meeting for
election to the Supervisory Board.
For further details of the activities of the Supervisory Board
committees please see the explanations provided in the Su-
pervisory Board Report on page 281 et seq..
Hannover Re | Annual Report 2018
Combined management report
Hannover Re | Annual Report 2018
126
In order to ensure that the relevant selection criteria are met,
the Supervisory Board followed the recommendation of the
Nomination Committee and defined a requirements profile
for Supervisory Board members; this is intended, among oth-
-
The composition of the Supervisory Board shall be such that
overall its members are equipped with the knowledge, abili-
ties and specialist experience necessary for proper perfor-
mance of the tasks. The make-up of the Supervisory Board
shall ensure that the Executive Board in an internationally
operating, broadly positioned reinsurance group receives
qualified supervision and advice from the Supervisory Board.
Above and beyond the legally required specialist expertise in
investing, underwriting and accounting, the topics of inter-
nationality, taxation, M&A, human resources, risk manage-
ment, IT and compliance have been taken into account on a
voluntary basis. The goal is that the Supervisory Board as a
whole has all the know-how and experience considered to be
material in light of the activities of the Hannover Re Group. In
addition, special attention is to be paid to the integrity, char-
acter, commitment, professionalism and independence of in-
dividuals put forward for election. In accordance with the
Code of Conduct of the Supervisory Board, for example,
members of the Supervisory Board shall ensure that they
have sufficient time at their disposal for their activities and
that potential conflicts of interest are avoided. Furthermore,
candidates shall be put forward to the Annual General Meet-
ing for election to the Supervisory Board only if they will not
have passed the age of 72 by the time of their election and –
with effect from the election of the new Supervisory Board in
2014 – provided they have not sat on the Supervisory Board
for more than three full consecutive terms of office. With re-
gard to the appropriate number of independent Supervisory
Board members from the perspective of the Supervisory
Board, the Supervisory Board has decided that it shall have at
least two independent members as defined by Section 5.4.2
German Corporate Governance Code (DCGK). The Superviso-
ry Board currently meets this target. Staff representatives on
the Supervisory Board are disregarded in this context.
considerations including the principle of diversity. Wide-rang-
ing qualifications, expertise and relevant experience on the
part of the members of the Executive Board and Supervisory
Board facilitate a nuanced evaluation of the commercial op-
portunities and risks associated with business operations and
enable balanced and professional actions and decisions to be
taken on this basis. Due consideration is given to the aspect
of diversity when members of the Executive Board and Super-
visory Board are appointed. In addition to specialist and per-
sonal qualifications (competencies), this aspect encompasses
in particular age, gender, education and professional career.
With a view to ensuring that the concept of diversity is ap-
plied on an ongoing basis, an assessment is made in the con-
text of every new appointment to the Executive Board or Su-
pervisory Board as to whether the envisaged appointment is
also in keeping with the diversity concept.
When appointments are made to the Executive Board and Su-
pervisory Board, Hannover Rück SE is guided by a number of
Diversity concept - Goals for the
composition of the Executive Board and
Supervisory Board as well as status of
implementation (§ 289f Para. 2 Number 6
German Commercial Code (HGB))
The risk management system applicable throughout the en-
tire 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 company's profitability and continued existence. Further
details in this regard may be obtained from the risk report
contained in this Annual Report on pages 94 et seq.
Risk monitoring and steering
The compliance report for the 2018 calendar year will be sub-
Imitted to the Finance and Audit Committee in March 2019.
The reporting sets out the structure and diverse range of ac-
tivities of Hannover Re in this regard. The findings of the sep-
arate data privacy reporting for the 2018 calendar year are
also included in the compliance report. After in-depth exami-
nation of topics such as directors' dealings, ad hoc and other
disclosure 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 ex-
ploration of these incidents, the necessary safeguards were
put in place to ensure that in the future Hannover Re is in
conformity with the internal and external requirements gov-
erning its business activities.
Hannover Re considers a properly functioning compliance
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 struc-
ture, 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, which examine
questions of risk transfer as well as other compliance aspects
associated with the Group's reinsurance treaties, are com-
prised of members from the respective business groups as
well as from the areas of Legal, Finance, Accounting and In-
vestments. The chairs report directly to the Executive Board.
This structure safeguards adherence to the standards that
have been set.
Compliance
125
Sustainability of enterprise management
Hannover Rück SE hereby provides insight into its enterprise
management practices as part of the Declaration on Corpo-
rate Governance pursuant to § 289f German Commercial
Code (HGB) and pursuant to § 315d German Commercial
The proportion of women serving on the Supervisory Board in
2018 was 44% and thus exceeded the 30% target currently
defined pursuant to §§ 76 Para. 4, 111 Para. 5 Stock Corpora-
tion Act (AktG) for the period from 1 July 2017 to 30 June
2022. This is equivalent to an increase of 33% compared to
the previous year. The target for the Executive Board is 14%,
which means that one woman shall serve as a member of the
Executive Board in the specified period.
ination Committee. Detailed information on the topic of sustain-
ability is provided on our website (www.hannover-re.com/
60729/sustainability).
Caps on the amount of variable compensation
elements in Management Board contracts
Code Section 4.2.3 Para. 2;
The Executive Board and Supervisory Board declare pursuant
to § 161 Stock Corporation Act (AktG) that in its implementa-
tion of the German Corporate Governance Code Hannover
Rück SE diverges in three respects from the recommendations
contained in the version of the Code dated 7 February 2017:
Code Government Commission” published by the Federal
Ministry of Justice or to explain which recommendations of
the Code were/are not applied.
Combined management report
Hannover Re | Annual Report 2018
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 determined according to the share price of the Han-
nover Re share applicable at the payment date plus an amount
equivalent to the total dividends per share distributed during
the vesting period. The share awards consequently follow the
economic fortunes of the Hannover Re share.
122
Declaration of Conformity pursuant to
§ 161 Stock Corporation Act (AktG)
regarding compliance with the
German Corporate Governance Code at
Hannover Rück SE
The positive attitude of Hannover Rück SE towards the Code
is not contradicted by the fact that in the year under review
we 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 in-
terests 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.
-
-
As an instrument of self-regulation for the business world, the
German Corporate Governance Code - the latest version of
which dates from 7 February 2017 - sets out 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
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.
Corporate Governance
The German Corporate Governance Code sets out major stat-
utory requirements governing the management and supervi-
sion of German listed companies. It contains both nationally
and internationally recognised standards of good and respon-
sible enterprise management. The purpose of the Code is to
foster the trust of investors, clients, employees and the gener-
al public in German enterprise management. Under § 161
Stock Corporation Act (AktG) it is incumbent on the Manage-
ment Board and Supervisory Board of German listed compa-
nies to provide an annual declaration of conformity with the
recommendations of the "German Corporate Governance
The amount of variable compensation deriving from the
granting 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 grant-
ing of share awards at the time of payment to be expedient.
From the company's perspective, the use of Hannover Re
share awards as a method of payment constitutes -
in eco-
nomic terms a compulsory investment in Hannover Re
shares with a four-year holding period.
Code Section 4.2.3 Para. 4;
Caps on severance payments in Management
Board contracts
In addition to the Corporate Governance principles, Hannover
Rück SE has adopted its own more extensive Code of Conduct
(www.hannover-re.com/50943/code-of-conduct.pdf) that is
applied Group-wide as a set of minimum standards. Comple-
menting our corporate strategy and the Corporate Govern-
ance principles, it establishes rules governing integrity in the
behaviour of all employees of Hannover Re and is intended to
help members of staff cope with the ethical and legal chal-
lenges 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 Re.
Further enterprise management
principles of Hannover Re
123
Hannover Re | Annual Report 2018
Executive Board, Supervisory Board
Hannover, 7 November 2018
We are in compliance with all other recommendations of the
Code.
In the opinion of Hannover Rück SE, it is therefore in the in-
terest of the company to diverge from the recommendation
contained in Section 5.3.2 Para. 3.
This assessment is also not cast into question by the fact that
the Committee Chair cannot be considered independent with-
in the meaning of the German Corporate Governance Code
for the period from 1 January 2018 to 8 May 2018. Further-
more, since his service as Chief Financial Officer of Hannover
Rück SE dates back to a period that is already some fifteen
years ago, it is also the case that the reviews and checks per-
formed 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 period from 1994 to 2002 he served as the company's
Chief Financial Officer. 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 Chair of the Supervisory Board is
optimally suited to chairing the Audit Committee.
The current Chair of the Supervisory Board and Chair of the
Finance and Audit Committee of Hannover Rück SE at the
same time also served as the Chair of the Board of Manage-
ment of the controlling shareholder until the end of the Annu-
al General Meeting of Talanx AG on 8 May 2018 and hence
cannot, in the company's legal assessment, be considered
independent.
Independence of the Chair of the Audit Committee
and recommendation that the Chair of the
Supervisory Board and Chair of the Audit
Committee shall not be the same person
Code Section 5.3.2 Para. 3;
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
nego-
tiation 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 ambigu-
ity surrounding the existence of serious cause for termina-
tion. In the opinion of Hannover Rück SE, it is therefore in the
interest of the company to diverge from the recommendation
contained in Code Section 4.2.3 Para. 4.
Premature termination of a service contract without serious
cause may only take the form of cancellation by mutual con-
sent. Even if the Supervisory Board insists upon setting a sev-
erance cap when concluding or renewing an Executive Board
Targets pursuant to § 289f Para. 4
Sentence 1 in conjunction with Para. 2
No. 4 German Commercial Code (HGB)
The target for the two levels of senior management below the
Executive Board is 18%.
Risk assessment in the
context of the "new product
process", as appropriate
932.1
Dr. Klaus Miller
446.9
15.0
463.4
2017
455.8
13.4
429.2
2018
Jürgen Gräber
404.1
1.8
380.0
2017
346.2
10.9
380.0
2018
2018
389.3
322.8
2018
Roland Vogel
3.3
321.7
19.8
374.0
2017
5.0
459.5
14.7
440.0
2018
Dr. Michael Pickel
333.0
3.1
374.0
2017
1.5
460.0
Claude Chèvre
16.7
When it comes to selecting candidates who are to be put for-
ward to the Annual General Meeting for election to the Super-
visory Board, care is taken to ensure that the individuals con-
cerned have the necessary knowledge, skills and specialist
experience. The principle of diversity is also reflected in the
selection process. Four women currently sit on the Superviso-
ry Board. Moreover, one woman belongs to the Finance and
Audit Committee and one is a member of the Nomination
Committee. On the level of the Executive Board, the goal is
that at least one woman should be appointed to the compa-
ny's Executive Board by June 2022.
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,
Shareholdings.
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 262 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 recent years are published on our
website pursuant to Item 3.10 of the German
Corporate Governance Code (www.hannover-re.com/
200801/declaration-of-conformity).
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 2018 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 Supervi-
sory Board on the basis of its work for Hannover Rück SE and
companies belonging to the Group as well as the principles
according to which this remuneration is determined are de-
scribed; we also explain the principles on which the remuner-
ation for senior executives below the level of the Executive
Board is based.
The remuneration report is guided by the recommendations
of the German Corporate Governance Code and contains in-
formation which forms part of the notes to the 2018 consoli-
dated financial statement as required by IAS 24 “Related Par-
ty Disclosures". Under German commercial law, too, this
information includes data specified as mandatory for the
notes (§ 314 HGB) and the management report (§ 315 HGB).
These details are discussed as a whole in this remuneration
report and presented in summary form in the notes.
The provisions of the Act on the Adequacy of Management
Board Remuneration (VorstAG) and of the Insurance Supervi-
sion Act (VAG) in conjunction with the Regulation on the Su-
pervisory Law Requirements for Remuneration Schemes in
the Insurance Sector (VersVergV) have been observed. In ad-
dition, we took into account the more specific provisions of
DRS 17 "Reporting on the Remuneration of Members of Gov-
erning Bodies".
Remuneration of the Executive Board
Responsibility
In order to efficiently perform its tasks the Supervisory Board
has formed various committees. The Standing Committee
prepares remuneration-related matters of content relating to
the Executive Board for discussion and adoption of a resolu-
tion 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 re-
quirements especially the provisions of the Act on the Ade-
quacy of Management Board Remuneration (VorstAG) and of
Art. 275 Commission Delegated Regulation (EU) 2015/35
and supplemented by those of the Regulation on the Supervi-
sory Law Requirements for Remuneration Schemes in the
With an eye to Hannover Re's international orientation, it is to
be ensured that a sufficient number of members with
long-standing international experience belong to the Super-
visory Board. Based on their current or former service as a
board member/chief executive officer or in a comparable role
as managing director with internationally operating under-
takings or organisations, all the shareholder representatives
on the Supervisory Board have long-standing international
experience. In the opinion of the Supervisory Board, due con-
sideration is given to the international dimension of opera-
tions. The goal is to maintain the currently existing interna-
tional profile.
305.8
of the expertise needed to cover all the Group's areas of busi-
ness. In addition, Supervisory Board members may not hold
mandates on governing bodies at major competitors of the
company or of a Group undertaking, nor may they perform
individual advisory tasks for such competitors.
Combined management report
296.7
2017
335.5
16.7
320.0
2018
Sven Althoff
682.6
13.9
605.9
2017
700.7
13.5
630.4
2018
Ulrich Wallin
Group bodies
er things, to assure the availability on the Supervisory Board Remuneration report
Hannover Re | Annual Report 2018
16.2
Hannover Re | Annual Report 2018
101.9
917
896.0
111.9
111.9
2,007
1,757.4
227.5
227.5
1,982
1,811.8
233.6
233.6
2017 = Actual
2018 Estimate
Number of share awards
Total
M 87
101.9
(allocation) 5
823.0
115.3
107.6
107.6
1,446
1,223.3
149.0
149.0
1,432
1,202.2
151.9
151.9
1,127
1,055.5
134.8
134.8
1,017
967.7
115.3
982
521.5
20%
Long-term
70.3
2,991.5
86.8
2,944.7
2017
65.8
3,142.0
86.9
3,048.9
2018
Total
Total
67.0
497.4
16.5
450.7
2017
1 As at the balance sheet date no Board resolution was available regarding the performance-based remuneration for 2018.
The variable remuneration is recognised on the basis of estimates and the provisions constituted accordingly.
Share awards
2
3
(allocation) 4
20%
Bonus bank
Medium-term
Performance-based remuneration 1
in EUR thousand
Hannover Re | Annual Report 2018
134
The variable remuneration to be approved at the Supervisory Board meeting held to consider the consolidated financial statements in March 2019
will be paid out to the heirs.
In order to calculate the number of share awards for 2018 reference was made to the Xetra closing price of the Hannover Re share on
28 December 2018 (EUR 117.70). 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 statement in March 2019. The applicable market price of the Hannover Re share had increased from
EUR 104.90 (29 December 2017) to EUR 111.65 by the allocation date (16 March 2018) of the share awards for 2017; the share awards
actually allocated for 2017 are shown here, not those estimated in the 2017 Annual Report.
the variable remuneration. The equivalent amount will be paid in 2023 at the prevailing share price of Hannover Re. In 2018 nominal
amounts of EUR 11,200 more than had been originally reserved were used as a basis for allocation of the 2017 share awards.
7
6
5 The nominal amount is stated; virtual Hannover Re share awards are automatically granted in an amount equivalent to 20% of
The nominal amount is stated; full or partial repayment in 2022, depending on the development until such time of the balance in
the bonus bank. In 2018 altogether EUR 11,200 more than had been originally reserved was allocated to the bonus bank for 2017.
4
In 2018 EUR 33,600 more in variable remuneration was paid out to Board members for 2017 than had been reserved.
The non-cash compensation has been carried in the amounts established for tax purposes.
127
Insurance Sector (VersVergV). An independent expert's re-
port from September 2018 confirms that the system of remu-
neration meets the requirements of Art. 275 Commission Del-
egated Regulation (EU) 2015/35 for a remuneration policy
and remuneration practices that are in line with the undertak-
ing's business, strategy and risk profile.
The amount and structure of the remuneration of the Execu-
tive Board are geared to the size and activities of the compa-
ny, its economic and financial position, its success and future
prospects 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
Attainment of annual targets
in EUR thousand
from seats with
remuneration
Netted
60% 3
Variable remuneration payable
Short-term
Non-cash
compensation/
fringe benefits²
Basic salary
Financial year
Performance-based remuneration 1
Non-performance-based remuneration
Name
Total remuneration of the active members of the Executive Board pursuant to DRS 17 (modified in 2010)
133
Hannover Re | Annual Report 2018
Condition of payment
The remuneration (excluding pension payments) received by
former members of the Executive Board totalled EUR 54.1
million (EUR 0.2 million).
The minimum individual bonus amounts to EUR 0 and the
maximum is double the bonus payable upon complete goal
attainment.
additions/deductions.
The divisional bonus is determined by the Supervisory Board
according 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 underfulfil-
ment of the criteria.
Attainment of three-year targets
Contractual agreement
Decision of the Supervisory
Board according to its best
judgement
1
130
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 22 et seq.).
Hannover Re | Annual Report 2018
Component
Individual bonus
Proportion of variable
remuneration:
Chief Executive Officer/
Chief Financial Officer: 30%;
Board member with divisional
responsibility: 25%
Measurement basis/parameters
Personal qualitative, quantitative targets (individual contribution
to the overall result, leadership skills, innovative skills, entrepre-
neurial skills, specific features of area of responsibility).
The individual bonus for goal attainment of 100% is
contractually stipulated. Over- and underfulfilment result in
A General Performance Bonus geared to the individual overall
performance of the member of the Executive Board can be
determined by the Supervisory Board as part of the individual
bonus.
The method used to calculate the IVC as a basis for determining
the divisional performance is checked by independent experts.
The total remuneration received by the Executive Board of
Hannover 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.
With regard to Item 4.2.3. Para. 2 "Caps on the amount of
variable compensation elements in management board con-
tracts" and Item 4.2.3 Para. 4 "Caps on severance payments
in management board contracts" of the German Corporate
Governance Code, we would refer the reader to our remarks
in the 2018 Declaration of Conformity contained in the sec-
tion "Statement of enterprise management practices" on
page 123 et seq. of this Group Annual Report.
M 86
Long-term
Negative variable total bonus = payment of EUR 0 variable remuneration.
no interest is paid on credit balances.
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;
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 following year;
an impending payment not covered by a positive
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;
Medium-term
60% of the variable remunera-
tion with the next monthly
salary payment
following the Supervisory Board
resolution
Short-term
Payment procedures for the total variable remuneration
Payment procedures for the total variable remuneration
Of the total amount of defined variable remuneration, a par-
tial amount of 60% is paid out in the month following the
Supervisory Board meeting that approves the consolidated
financial statement. The remaining amount of 40% is initially
withheld as explained below with a view to encouraging long-
term value creation:
Combined management report
131
Automatic granting of virtual Hannover Re
share awards (HR-SAs) with a value equivalent
to 20% of the variable remuneration;
Amount of remuneration received by the
Executive Board
payment of the value calculated at the payment
date after a vesting period of four years;
additional payment of the sum total of all
dividends per share paid out during the vesting
period;
The contracts of the Board members do not include a commit-
ment to benefits in the event of a premature termination of
employment on the Executive Board owing to a change of
control.
Other information
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.
In the event of temporary incapacity for work the fixed annu-
al salary shall continue to be paid in the same amount, at
most until termination of the service contract.
Continued payment in case of disability
The virtual stock option plan with stock appreciation rights
existing under the old remuneration structure has been ter‐
minated because all stock appreciation rights have been exer-
cised. Of the stock appreciation rights granted in previous
years, active and former members of the Executive Board ex-
ercised amounts totalling EUR 63.6 thousand (previous year:
EUR 0.6 million) in 2018.
Variable remuneration under the old remuneration
structure (until 2011)
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 ac-
quired (pro rata) in the final year of the Board member's work
for the company.
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.
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.
Handling of payment of variable remuneration
components in special cases
Combined management report
Hannover Re | Annual Report 2018
132
Any minus value of the variable total bonus for a financial year is transferred in full to the bonus bank
(see "Medium-term" column).
the Board member has no entitlement to the
delivery of shares.
changes in a cumulative amount of 10% or more
in the value of the HR-SAs caused by structural
measures trigger an adjustment;
value of the share on awarding/payment:
unweighted 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;
Goal attainment can amount to a maximum of 200% and a
minimum of -100%.
Goal attainment of 100% is achieved in property and casualty
reinsurance with a RoCA of 9.1% and in life and health reinsur-
ance with a ROCA of 10.1%. These RoCA values are above the
cost of capital and thus generate positive intrinsic value creation
(IVC).1
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%.
chart.
128
Hannover Re | Annual Report 2018
2
1
Overview of the composition of variable remuneration
Approx. 40% fixed remuneration
Upon 100% goal attainment
Approx. 60% variable remuneration
Measurement of variable remuneration
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
Variable remuneration
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
as per regulatory requirements
The variable remuneration is defined at the Supervisory
Board meeting that approves the consolidated financial state-
ment for the financial year just ended.
12 equal monthly instalments
Fixed remuneration (approx. 40% of total
remuneration upon 100% goal attainment)
tasks of the specific member of the Executive Board, his or
her individual performance and the performance of the full
Executive Board.
With an eye to these objectives, the remuneration system has
two components: fixed salary/non-cash compensation and
variable remuneration. The variable remuneration is designed
to take account of both positive and negative developments.
Overall, the remuneration is 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.
Measurement basis and payment procedures for fixed remuneration
Components
Basic remuneration;
Non-cash compensation, fringe
benefits: Accident, liability and
luggage insurance, company car
for business and if desired -
personal use (tax on the non-cash
benefit payable by the Board
member), reimbursement of
travel expenses and other
111.0
expenditures incurred in the
interest of the company
Measurement basis/
parameters
Function, responsibility,
length of service on the
Executive Board
The annual fixed salary is
determined upon appointment
for the entire term of the
appointment.
M 83
Condition for payment
Paid out
Contractual stipulations
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 ac-
cording to the function of the Board member in question. The
variable remuneration consists of a profit bonus and a perfor-
mance bonus.
Payment procedure
Cash 3
Bonus bank 3
Performance bonus
Measurement basis/parameters
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.
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.
Goal attainment of 100% corresponds to an RoE of 8.8% plus
the risk-free interest rate (2018: 0.42%). Goal attainment can
amount to a maximum of 200% and a minimum of -100%.
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.
The risk-free interest rate is the average market rate for 10-year
German government bonds over the past five years, with the
average being calculated on the basis of the respective interest
rate at year-end.
Condition of payment
Contractual stipulations
M 85
Attainment of three-year targets
Decision of the Supervisory
Board
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.
Divisional bonus
Proportion of variable
remuneration:
Board member with divisional
responsibility: 25%
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)).
Chief Financial Officer: 70%;
Board member with divisional
responsibility: 50%
Chief Executive Officer/
Proportion of variable
remuneration:
Profit bonus
HR share awards 3
Timing of payment
Annually (60%)
3 years (20%)
4
years (20%)
Payment of variable remuneration
Chief Executive Officer/Chief Financial Officer 70% profit bonus, 30% performance bonus (personal targets);
928.8
Board members with divisional responsibility: 50% profit bonus, 50% performance bonus (25% personal targets/25% divisional targets)
3
Split defined by legal minimum requirements
Hannover Re | Annual Report 2018
129
M 84
Combined management report
Measurement bases/conditions of payment for variable remuneration
Component
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
945
60.8
Decision by the Supervisory
Board according to its best
judgement.
21.4
429.3
2017
14.9
(14.9)
232.8
(119.0)
166.7
21.0
Dr. Michael Pickel
2018
254.7
177.8
29.6
462.1
2017
134.8
241.2
2018
Dr. Klaus Miller
232.8
(35.8)
45.9
242.9
Jürgen Gräber
2018
315.2
471.7
168.5
955.4
2017
89.2
(89.2)
316.6
(93.9)
32.4
255.1
80.3
2017
(80.3)
(175.0)
1,886.9
1,771.2
478.9
4,137.0
(355.6)
1,781.3
(566.1)
(9.4)
249.6
1 The change in the reserve for share awards from previous years derives from the higher market price of the Hannover Re share, the dividend
approved for 2017, the spreading of the expense for share awards across the remaining period of the individual service contracts and the payout of
the share awards allocated for 2013.
2
3
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.
The expenses for stock appreciation rights of Mr. Althoff and the payment of share awards to him relate to his work as a senior executive until 2014.
136
Hannover Re | Annual Report 2018
1,466.5
9.4
357.3
2017
2018
21.9
79.7
2018
256.8
188.7
40.3
485.8
2017
44.6
(44.6)
111.0
250.1
(72.7)
31.5
208.9
Total
Total
232.8
405.7
Roland Vogel
141.5
997.2
997.2
8,017.4
9,060
Hannover Re | Annual Report 2018
135
Combined management report
9,010
The following table shows the expense for share-based remu-
neration of the Executive Board in the financial year.
Total expense for share-based remuneration of the Executive Board
Name
Year
Stock
appreciation
rights
exercised
Change in
reserve in 2018
Payment of
share awards
The table is to be viewed independently of the presentation of
the total remuneration received by active members of the Ex-
ecutive Board pursuant to DRS 17.
8,372.4
1,047.3
1,487
23.0
948
153.2
153.2
1,220.6
1,260
107.2
107.2
929.9
1,063
173.8
173.8
1,345.3
1,457
165.8
165.8
1,296.2
for stock
appreciation
in EUR thousand
1,047.3
reserve for
share awards
from previous
years
2018
9.4
(9.4)
150.6
152.3
23.5
2017
25.7
(24.0)
109.6
18.9
20.3
150.5
Claude Chèvre
2018
rights
241.2
Sven Althoff 3
394.6
326.4
Total
76.6
share awards
Change in
allocated in
current
M 88
financial year 2
Ulrich Wallin
2018
427.2
472.5
172.6
1,072.3
2017
102.6
(102.6)
406.6
(88.6)
Expense for
The pension payments to former members of the Executive
Board and their surviving dependants, for whom 17 (17) pen-
sion commitments existed, totalled EUR 1.7 million (EUR 1.6
million) in the year under review. The projected benefit obli-
gation of the pension commitments to former members of the
Executive Board amounted to altogether EUR 26.0 million
(EUR 24.7 million).
Pension payments to former members of the
Executive Board
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.
The contracts of members of the Executive Board first appoint-
ed prior to 2009 contain commitments to an annual retire-
ment pension calculated as a percentage of the pensionable
fixed annual remuneration (defined benefit). The target pen-
sion is at most 50% of the monthly fixed salary payable when
leaving the company as contractually agreed on reaching the
age of 65. A non-pensionable fixed remuneration component
was introduced in conjunction with the remuneration struc-
ture applicable from 2011 onwards.
Hannover Re | Annual Report 2018
2
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).
Pension commitments
142
Adjustments
Defined contribution pension commitment
(appointment from 2009 onwards)
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.
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
alternatively the dependent children shall receive continued
payment of the retirement pension for the month of death and
the following six months.
Provision for surviving dependants
In both contract variants (i. e. defined benefit and defined
contribution) other income received while drawing the retire-
ment 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 reach-
ing 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 pen-
sion. The amount of the monthly retirement pension is calcu-
lated according to the reference date age (year of the refer-
ence 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 contrac-
tually specified percentage of the pensionable income (fixed
annual remuneration as at the contractually specified refer-
ence date).
The commitments given to members of the Executive Board
from 2009 onwards are based on a defined contribution
scheme.
Defined benefit pension commitment
(appointment before 2009)
Name
An orphan's pension shall be granted in the amount of
15% in the case of full orphans 25% (final-salary pension
commitment) or 30% (contribution-based pension commit-
ment) – of the retirement pay that the Board member received
or would have received on the day of his death if the pension-
able event had occurred owing to a permanent incapacity for
work.
in EUR thousand
1,362.5
M 91
92.5
Retirement provision
2017
129.4
97.5
2018
Sven Althoff 1,2
163.2
5,830.6
Ulrich Wallin
257.5
172.5
6,874.2
257.5
2018
pension (age 65)
Personnel expense
DBO 31.12.
Attainable annual
Financial year
2017
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 activi-
ties involve seats on supervisory boards or comparable con-
trol boards, these are listed and published in the Annual
Report of Hannover Rück SE. The remuneration received for
such seats at Group companies and other board functions is
deducted when calculating the variable bonus and shown
separately in the table of total remuneration.
140.2
Combined management report
460.0
450.7
2018
2017
Chief Financial Officer
Roland Vogel
1,408.8
1,661.1
1,282.6
1,342.3
0.0
109.6
140.1
1,408.8
1,551.5
1,142.5
1,202.1
0.0
1,222.4
16.5
16.2
467.2
476.2
141
Hannover Re | Annual Report 2018
1,408.3
53.5
1,358.2
53.8
1,304.4
1,354.8
0.0
Sideline activities of the members of the
Executive Board
0.0
44.6
256.8
250.2
130.0
120.8
386.8
415.6
491.8
421.6
0.0
46.9
374.0
2018
859.2
129.4
46.9
172.5
2,132.0
In addition, the members of the Finance and Audit Committee
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.
amounts.
the Supervisory Board receives one-and-a-half times the said
In accordance with § 14 of the Articles of Association as
amended on 30 May 2016 and the resolution of the Annual
General Meeting on 7 May 2013, the members of the Super-
visory Board receive fixed annual remuneration of EUR
30,000 per member in addition to reimbursement of their ex-
penses. Furthermore, each member 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 remunera-
tion 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 sus-
tainable corporate development. The variable remuneration
is limited to an annual maximum of EUR 30,000. The Chair-
man of the Supervisory Board receives twice the aforemen-
tioned remuneration amounts and the Deputy Chairman of
The remuneration of the Supervisory Board is determined by
the Annual General Meeting of Hannover Rück SE and regu-
lated by the Articles of Association.
Remuneration of the Supervisory Board
The personnel expense for 2018 includes a past service cost of EUR 82.8 thousand.
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 defined benefit obligation 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. The values shown include the entitlements
prior to appointment to the Executive Board, which in accordance with a resolution of the company's Supervisory Board shall remain unaffected by
the pension commitment as a member of the Executive Board.
1
752.6
16,801.6
963.1
2017
849.9
17,558.2
1,003.1
Allocation
Dr. Klaus Miller
Board member with divisional responsibility
390.8
377.1
Total
14.7
19.8
1.5
3.1
Fringe benefits
440.0
971.5
374.0
0.0
Fixed remuneration
2018
2017
2018
2017
in EUR thousand
Board member with divisional responsibility
Dr. Michael Pickel
389.3
2,215.6
2018
Total
749.0
57.7
2018
Dr. Klaus Miller
109.6
3,840.2
182.5
2017
109.9
88.1
2,851.9
2018
Jürgen Gräber
140.2
868.8
118.7
2017
140.1
1,033.2
119.0
182.5
Claude Chèvre
2017
652.2
Total
53.8
1,674.9
96.9
2017
53.5
1,705.9
97.3
2018
55.0
Roland Vogel¹
2,712.5
160.0
2017
156.4
2,981.5
160.0
2018
Dr. Michael Pickel
86.1
152.8
0.0
33.8
0.0
140.1
1,699.4
109.6
1,276.8
1,120.1
(6.4)
1,763.9
Roland Vogel
Chief Financial Officer
2017
2018
2018
2018
(Min)
(Max)
450.7
460.0
460.0
131.9
1,129.4
1,124.1
140.1
Claude Chèvre
Hannover Re | Annual Report 2018
138
For details of the service cost see the table "Pension commitments" on page 143.
4
In the case of Mr. Althoff the dividend also refers to share awards from his work as a senior executive at Hannover Re.
Maximum value when awarded, amount paid out dependent upon the share price in the year of payment and the dividends paid until such time.
3
460.0
2
(8.2)
1,559.3
1,167.2
1,120.1
(6.4)
1,763.9
140.2
140.1
989.3
16.5
16.2
16.2
30.7
0.0
0.0
0.0
0.0
28.2
28.2
28.2
276.0
1,135.4
64.0
1,884.4
53.8
53.5
53.5
53.5
1,189.2
1,247.9
1,194.4
Board member with divisional responsibility
0.0
127.5
16.2
467.2
476.2
476.2
476.2
382.5
414.0
0.0
138.0
828.0
304.2
(412.2)
580.2
127.5
138.0
(440.4)
1 Year of payment
276.0
285.7
Jürgen Gräber
Board member with divisional responsibility
Coordinator of worldwide property & casualty reinsurance
1 January 9 November 2018
114.0
257.5
(482.8)
128.8
130.0
228.0
(427.5)
114.0
114.0
114.0
(449.0)
291.3
298.8
484.4
(399.1)
256.4
260.1
772.5
548.8
0.0
0.0
130.0
33.8
33.8
0.0
28.4
28.4
28.4
0.0
0.0
228.0
0.0
38.8
0.0
0.0
0.0
32.1
257.5
0.0
128.8
0.0
117.5
386.3
684.0
463.4
380.0
380.0
380.0
380.0
(Max)
(Min)
(Max)
429.2
(Min)
2018
2018
2017
2018
2018
2018
2017
M 89
2018
390.0
429.2
1.8
0.0
342.0
342.0
442.6
442.6
442.6
478.4
390.9
429.2
390.9
381.8
13.4
13.4
13.4
15.0
10.9
10.9
10.9
390.9
1,937.9
Hannover Re | Annual Report 2018
139
1,130.1
1,077.4
1,238.0
1,198.9
86.1
1,216.2
88.1
1,165.5
152.8
156.4
0.0
1,390.8
1 This refers in each case to payment of the variable remuneration for the previous year. Remuneration for seats with Group bodies that is
counted towards the variable remuneration accrues in the year of occurrence. The company's Supervisory Board only decides on the final
amount paid out for the 2018 financial year after the remuneration report has been drawn up.
2
In the case of Mr. Althoff the payment of share awards relates to his work as a senior executive before his appointment as a member
of the Executive Board.
3 Stock appreciation rights were awarded in 2010, exercise option at the discretion of the Executive Board until 31 December 2020 in the following
tranches: 60% from 2015, 80% from 2016, 100% from 2017 onwards.
4
Stock appreciation rights were awarded to Mr. Althoff in 2011 as a senior executive, exercise option discretionary until 31 December 2021 in
the following tranches: 60% from 2016, 80% from 2017, 100% from 2018 onwards
5
For details of the service cost see the table "Pension commitments" on page 143.
1,355.3
140
0.0
0.0
119.8
132.0
Share Awards 2012/20132
232.8
241.2
232.8
254.7
Stock participation rights 2010
0.0
(2015-2020) 3
0.0
80.3
0.0
Stock participation rights 2011
(2016-2021)4
Total
Service cost 5
Total remuneration
14.9
128.0
Hannover Re | Annual Report 2018
Claude Chèvre
377.4
519.0
484.2
346.3
374.2
554.1
482.0
113.5
474.0
133.0
166.8
232.8
241.2
316.6
315.2
0.0
0.0
89.2
148.3
M 90
442.6
390.9
Board member with divisional responsibility
Jürgen Gräber
Board member with divisional responsibility
Coordinator of worldwide
property & casualty reinsurance
1 January 9 November 2018
2017
2018
2017
478.4
2018
380.0
463.4
429.2
1.8
10.9
15.0
13.4
381.8
380.0
983.9
113.5
386.7
Total
619.8
643.9
313.4
336.7
One-year variable remuneration 1
722.4
672.0
16.7
363.6
Multi-year variable remuneration
710.2
643.6
135.3
208.2
Bonus bank 2013/2014
201.0
216.4
328.8
0.0
16.7
13.9
Combined management report
German Corporate Governance Code, Item 4.2.5 Para. 3 - Table 2
(cash allocations in 2017 and 2018)
Allocation
Ulrich Wallin
Chief Executive Officer
Sven Althoff
Board member with divisional responsibility
in EUR thousand
13.5
2017
2017
2018
Fixed remuneration
605.9
630.4
296.7
320.0
Fringe benefits
2018
Bonus bank 2013/2014
48.2
406.6
Total remuneration
1,957.2
244.8
156.4
156.4
1,800.8
88.4
1,140.8
156.4
1,297.2
163.2
904.5
152.8
1,057.3
391.8
317.4
411.3
357.5
Multi-year variable remuneration
361.2
369.2
432.9
One-year variable remuneration 1
Share Awards 2012/20132
Service cost 5
812.3
427.2
109.6
150.6
Stock participation rights 2010
(2015-2020) 3
102.6
0.0
16.3
873.7
0.0
(2016-2021)4
0.0
0.0
9.4
9.4
Total
2,052.4
1,959.5
Stock participation rights 2011
0.0
Board member with divisional responsibility
2017
1,475.5
88.1
Benita Bierstedt³
(from 1 June 2018
to 6 July 2018)
98.8
33.9
9.0
4.0
Attendance allowances
22.5
7.9
Remuneration for committee work
33.8
11.4
Variable remuneration
33.5
10.6
Member of the Supervisory Board
Fixed remuneration
Supervisory Board
Member of the
•
Standing Committee
•
(until 7 May 2018)
Wolf-Dieter Baumgartl²
104.0
39.7
6.0
4.0
Attendance allowances
7.5
2.6
Finance and Audit Committee
Nomination Committee
Fixed remuneration
3.0
Variable remuneration
Attendance allowances
☐ ☐
9.8
Remuneration for committee work
18.6
Variable remuneration
19.5
Fixed remuneration
Finance and Audit Committee
Supervisory Board
Member of the
.
Dr. Ursula Lipowsky
(since 7 May 2018)
64.3
66.0
4.0
6.0
2.9
Remuneration for committee work
Attendance allowances
5.9
Frauke Heitmüller 3
Member of the Supervisory Board
Remuneration for committee work
Fixed remuneration
30.0
Variable remuneration
30.0
30.3
Remuneration for committee work
Attendance allowances
30.0
45.5
17.2
Variable remuneration
.
85.0
68.4
Remuneration for committee work
Finance and Audit Committee
Standing Committee
•
100.7
100.1
Variable remuneration
100.0
100.0
Fixed remuneration
Supervisory Board
Chairman of the
Herbert K. Haas²
in EUR thousand¹
1,563.6
393.8
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 attend-
ance allowance of EUR 1,000 for their participation in each
meeting of the Supervisory Board and the Committees in ad-
dition 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.
Hannover Re | Annual Report 2018
143
Nomination Committee
Combined management report
Name
Function
M 92
Type of remuneration
2018
2017
Individual remuneration received by the members of the Supervisory Board
5.0
Attendance allowances
14.0
45.0
15.9
Fixed remuneration
116.8
7.0
Attendance allowances
14.6
Remuneration for committee work
47.0
Variable remuneration
48.2
Fixed remuneration
Standing Committee
Member of the
• Supervisory Board
Deputy Chairman of the
Nomination Committee
283.5
299.7
Torsten Leue
(since 7 May 2018)
•
Dr. Klaus Sturany
15.0
(until 7 May 2018)
•
Deputy Chairman of the
Supervisory Board
Member of the
Standing Committee
Finance and Audit Committee
.
Hannover Re | Annual Report 2018
52.9
(until 31 May 2018 and
since 12 July 2018)
In 2018 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.
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 depend-
ants with the approval of the Supervisory Board.
Loans to members of the management
boards and contingent liabilities
In the year under review no payments or benefits were grant-
ed to members of the Supervisory Board in return for services
provided individually outside the committee work described
above, including for example consulting or mediation servic-
es, with the exception of the remuneration paid to employee
representatives on the basis of their employment contracts.
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
Supervisory Board for the financial year, the relevant reserve
allocations for the variable remuneration are recognised al-
lowing for any fractional amounts. Value-added tax payable
upon the remuneration is reimbursed by the company.
3 Employee representatives
2 Including supervisory board remuneration and remuneration for committee work as well as advisory board remuneration received from
entities affiliated with the company
1 Amounts excluding reimbursed VAT
959.3
980.1
Total
64.3
66.0
4.0
Securities transactions and
shareholdings (directors' dealings)
6.0
30.3
30.0
Variable remuneration
30.0
30.0
Fixed remuneration
Member of the Supervisory Board
Maike Sielaff³
82.3
80.2
7.0
10.0
Attendance allowances
Standing Committee
Remuneration for committee work
Attendance allowances
Dealings in shares, options and derivatives of Hannover Rück
SE effected by members of the Executive Board or Superviso-
ry Board of Hannover Re or by other persons with managerial
functions who regularly have access to insider information
concerning the company and who are authorised to take ma-
jor 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). No reportable trans-
actions took place in the 2018 financial year.
Members of the Supervisory Board and Executive Board of
Hannover Rück SE as well as their spouses or registered part-
ners and first-degree relatives hold less than 1.0% of the is-
sued shares. The total holding as at 31 December 2018
amounted to 0.004% (0.004%) of the issued shares, i. e.
4,741 (4,681) shares.
Hannover Re | Annual Report 2018
Hannover Re | Annual Report 2018
796 staff (excl. seconded employees) out of the
altogether 1,426 at Hannover head office
(incl. 90 senior executives) are GPB-eligible.
Head office Hannover
All 157 Group senior executives worldwide
receive a cash bonus upon corresponding
goal attainment and participate in the
Share Award Plan.
Hannover Re Group
Number of eligible participants in the
variable remuneration system
Group Performance Bonus
(GPB)
Cash bonus and Share
Award Plan
Variable remuneration
system
146
Senior Manager
Manager
Chief Manager
General Manager
Management level 2
Management level 3
Director
Managing Director
Participants
145
Combined management report
Remuneration of staff and
senior executives
Structure and system
The remuneration scheme for senior executives below the
Executive Board (management levels 2 and 3) and for key
function holders in Germany belonging as a matter of princi-
ple to the ranks of senior executives consists of a fixed annu-
al salary and a system of variable remuneration. This is com-
prised 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 remu-
neration has been uniformly applied worldwide since 1 Janu-
ary 2012 to all Group senior executives (i. e. Managing
Directors, Directors and General Managers). As part of the
reorientation of the remuneration system for senior execu-
tives the Share Award Plan of the Executive Board was con-
sciously extended to include management levels 2 and 3. Giv-
en that at the same time the stock appreciation rights plan for
senior executives was cancelled with effect from the 2012 al-
location year, this means that a uniform share-based remu-
neration 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 guaran-
teed; a maximum of 16.7 salary payments is attainable.
15.0
The group of participants and the total number of eligible
participants in the variable remuneration system of Hannover
Re are set out in the following table.
Measurement of variable remuneration for
senior executives
The measurement of the variable remuneration is based on
three elements: Group net income, targets in the Property &
Casualty and Life & Health business groups and individual tar-
gets. The weighting of the elements is dependent upon
whether responsibility is carried in a treaty/regional depart-
ment or in a service department. In the treaty/regional de-
partments the measurement of the variable remuneration is
based on weightings of 20% for Group net income, 40% for
goal attainment in the respective Property & Casualty or
Life & Health business group and 40% for individual goal at-
tainment. In service departments the variable remuneration is
based on Group net income and individual targets with a cor-
responding weighting of 40% and 60%. The degree of goal
attainment is defined for both the Group net income and the
business groups. Individual targets and the degree of goal
attainment are agreed between the senior executive and their
supervisor.
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 fol-
lows: for each individual financial year of the last three finan-
cial years it is calculated by how many percentage points the
ROE of the Hannover Re Group exceeds the risk-free interest
rate. The average of these three differences determines the
three-year average 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 at-
tainment of -50% (penalty) for management level 2 (Manag-
ing Director) and 0% for management level 3 (Director and
General Manager).
M 93
Group of participants and total number of eligible participants in
variable remuneration systems
Valid: 31 December 2018
10.2
Remuneration for committee work
(since 7 May 2018)
Hannover Re | Annual Report 2018
144
64.3
66.0
4.0
6.0
Attendance allowances
Remuneration for committee work
30.3
30.0
Variable remuneration
30.0
30.0
Fixed remuneration
Nomination Committee
Supervisory Board
Member of the
Member of the Supervisory Board
Fixed remuneration
26.6
30.0
Variable remuneration
26.8
Name
30.3
Attendance allowances
6.0
4.0
59.4
64.3
Dr. Andrea Pollak
Remuneration for committee work
Otto Müller 3
in EUR thousand¹
Type of remuneration
(until 7 May 2018)
Finance and Audit Committee
•
30.3
30.0
Variable remuneration
30.0
30.0
Fixed remuneration
Supervisory Board
Member of the
•
Dr. Erhard Schipporeit
117.3
109.8
7.0
8.0
2018
2017
Dr. Immo Querner2
Member of the Supervisory Board
Fixed remuneration
50.0
Function
50.0
50.0
50.3
Remuneration for committee work
1.7
10.0
Attendance allowances
Variable remuneration
137
454.7
The following two tables show the remuneration of the Exe-
cutive Board in the 2018 financial year in accordance with the
recommendations of the German Corporate Governance
Total
22.0
22.0
22.0
0.0
45.7
45.7
45.7
0.0
1,543.6
Dividend on share awards for 20173
0.0
0.0
23.0
0.0
0.0
0.0
52.2
Dividend on share awards for 20163
192.0
0.0
Service cost4
Total remuneration
163.2
1,706.8
(Min)
Fixed remuneration
in EUR thousand
2018
2018
2017
Dr. Michael Pickel
Board member with divisional responsibility
Dr. Klaus Miller
Benefits granted
129.4
1,448.1
129.4
136.5
129.4
968.1
46.9
828.3
1,318.7
7.1
838.7
781.4
2,567.1
32.5
172.5
172.5
205.0 2,739.6
1,628.4
172.5
1,800.9
0.0
2018
(Max)
96.0
375.5
0.0
288.0
267.0
1,126.5
0.0
563.3
523.0
One-year variable remuneration
336.7
576.0
336.7
313.4
643.9
643.9
643.9
619.8
Total
16.7
16.7
16.7
336.7
Multi-year variable remuneration
Combined management report
421.2
0.0
187.8
174.3
2018 (20231) 2
Share Awards 2017 (20221)/
192.0
(351.6)
96.0
89.0
375.5
(657.1)
187.8
174.3
2018 (20221)
Bonus bank 2017 (20211)/
406.0
(329.6)
214.0
201.0
796.7
(611.4)
89.0
16.7
2018
2018
0.0
29.3
Dividend on share awards for 20163
264.0
0.0
132.0
96.0
212.0
0.0
0.0
106.0
2018 (20231) 2
Share Awards 2017 (20221)/
264.0
(392.4)
132.0
96.0
212.0
(366.4)
106.0
96.0
0.0
30.7
0.0
88.1
137.2
1,033.6
88.1
86.1
972.5
Total remuneration
Service cost4
49.1
945.5
886.4
Total
26.1
26.1
26.1
0.0
24.7
24.7
24.7
0.0
Dividend on share awards for 20173
0.0
0.0
96.0
2018
2018 (20221)
554.1
Total
14.7
14.7
14.7
19.8
1.5
1.5
1.5
3.1
377.1
Fringe benefits
440.0
440.0
374.0
389.3
389.3
389.3
374.0
(Max)
(Min)
440.0
390.8
390.8
390.8
(366.3)
290.1
222.7
448.7
(341.7)
236.7
221.3
Multi-year variable remuneration
792.0
0.0
396.0
288.0
636.0
0.0
318.0
288.0
One-year variable remuneration
454.7
454.7
454.7
393.8
Bonus bank 2017 (20211)/
13.5
400.8
13.5
13.5
Code:
Benefits granted
German Corporate Governance Code, Item 4.2.5 Para. 3 – Table 1
(target/minimum/maximum remuneration as nominal amounts)
Chief Executive Officer
Sven Althoff
Board member with divisional responsibility
2017
2018
2018
in EUR thousand
(Min)
2018
(Max)
2017
2018
Ulrich Wallin
2018
2018
13.9
320.0
320.0
320.0
296.7
Fringe benefits
630.4
630.4
605.9
Fixed remuneration
(Max)
630.4
(Min)
The basic starting point for the world economy should never-
theless still be viewed as positive. While the general pace of
expansion appears to be flagging, the resurgent emerging
economies can still deliver stable growth. Just as the drop in
the price of oil has the potential to hamper growth in the
oil-exporting part of the world, it can stimulate growth in pe-
troleum-processing economies.
In 2019 financial markets will once again bring promising op-
portunities but also an abundance of volatility and uncertain-
ty. Above all, geopolitical risks and protectionism have con-
tinued potential for adverse repercussions in some areas.
Populist moves may increasingly leave their mark on the real
economy. One of the primary arenas here remains Europe,
where it is still impossible to foresee how the Brexit vote will
be translated into political and economic reality. The second
focus of attention is the United States, where the behaviour of
political actors is difficult to predict and there is a risk of
growing instability in view of their impact on global politics.
It will be especially important to keep a close eye on trade
disputes with China and other countries. Similarly, though,
the tense ongoing dialogue between the European Union and
Italy, France's partial abandonment of its reform programme
and the political shift in Brazil all have the potential to move
markets.
Capital markets
151
Supported by a successfully implemented programme of re-
forms, India's economy will be able to very nearly sustain its
high rate of expansion and is likely to grow by 7.5%. The
country is thus on the verge of overtaking the United King-
dom and France to claim fifth spot among the world's largest
economies.
The growth rate in Japan, the world's third-largest economy,
is set to increase to a modest 1.0% in 2019. With a view to
mitigating an economic cooldown resulting from a planned
hike in the consumption tax, the government approved a re-
cord amount of public spending in December for the budget
year starting in April 2019.
Growth in China will continue to slow in 2019 and is forecast
to contract by 0.5 percentage points to 6.1%. The tax cuts
and public spending programmes recently approved by the
government are aimed less at stimulating the economy -
which was the case in past years - and more at containing the
effects of possible punitive tariffs that may be imposed by the
United States.
China, India, Japan
The job market will see continued employment growth and a
further rise in wages driven by the increasingly scarce supply
of labour. The jobless rate will retreat from an annual average
of 5.2% in the previous year to 4.8% in the current year. The
upsurge in prices seen in the previous year (+1.9%) is ex-
pected to gain momentum and climb to a good two percent in
2019.
Hannover Re | Annual Report 2018
The announcement by the ECB that it would finally be termi-
nating its programme of corporate sector purchases at the
end of 2018 after almost four years appears to herald a nor-
malisation phase. This is despite the fact that in light of glob-
al political tensions and moves towards economic isolation-
ism the ECB's assessment of the economic outlook is no
longer so rosy. Yet there are also no plans for an abrupt end
to the anti-crisis mode, since the curtailment of bond pur-
chases only applies to the investment of new funds; funds
from maturing government and corporate bonds will contin-
ue to be reinvested. It does now appear that a first step to-
wards raising the interest rate on deposits can be taken in
2019. Nevertheless, the ECB is expected to leave the key in-
terest rate for the Eurozone at the historically low level of
0.00% at least until mid-year. The change in leadership at the
helm of the ECB upcoming in the autumn is not likely to bring
any significant shifts in the central bank's approach.
152
may also be reflected in an even stronger US currency. The
implications of personnel changes at the Fed for its policy
going forward are a subject of considerable anticipation. The
new team will similarly be challenged to keep inflation in
check without jeopardising domestic consumption as well as
to counteract systemic risks through an adequate overall pol-
icy. If it is to succeed in this balancing act, it must avoid mar-
ket overheating without stifling the momentum for growth. It
would seem that the central bankers at the Fed have so far
been able to resist the actions urged by politicians and pre-
serve their independence.
International bond markets will therefore once again see
largely below-average and continued divergent interest rate
levels in 2019. In the relevant currency areas for our company
we expect slightly upsloping yield curves. For the most part,
sovereign bonds with higher risk premiums issued by coun-
tries of the European Monetary Union that of late have been
the focus of considerable attention should continue to stabi-
lise, particularly in light of recent indications of a more har-
monious interaction between the EU and Italy. The prevailing
credit cycle in the United States - despite slowing momentum
and higher premiums - as well as the stabilisation of emerg-
ing markets will continue to shape the economic environ-
ment. This can still be positively influenced by stable private
consumption.
Having tended to move sideways (albeit on a high level) over
large parts of 2018, equity markets came under pressure that
was significant in some areas towards the end of the year as
they became caught up in global uncertainties and a pervasive
sense of unease. It is our expectation that this will continue in
2019 to varying degrees, although the upside potential is rath-
er limited. Sharply higher risk premiums of late on industrials
and financials also suggest that a great deal of uncertainty has
already been priced in, although the speculative scope for
price jumps would seem to be on the modest side. However,
we only expect to see appreciable price declines if national
economies drift into recession. On US markets it remains to be
seen how lasting the effects of tax reform and higher govern-
ment spending will be, because many economic actors are
likely aware that lower tax receipts combined with higher ex-
penditures create funding gaps that ultimately have to be
filled with higher tax inflows in the future. Nor will Europe or
the emerging markets escape the resulting uncertainties un-
scathed. In the latter case, however, we still see a positive sce-
nario going forward as they have largely been able to channel
the outside pressure of the past years into economic and fiscal
optimisations. Based on more flexible labour markets and
with inflation in check - a few exceptions notwithstanding ·
we anticipate a sideways tendency here on the domestic econ-
omy side and stabilisation in foreign trade.
=
Hannover Re | Annual Report 2018
Combined management report
Once again, then, 2019 will be a year distinguished by an
unusual and challenging combination of geopolitical and
monetary policy uncertainty. In view of the increasing risks,
even greater attention must be paid to the risk/reward ratio
when making investment decisions. Consequently, broad di-
versification within the investment portfolio will continue to
be of considerable importance in 2019.
Insurance industry
Even though the insurance industry still finds itself facing
numerous in some cases considerable - challenges in the
current financial year, the mood throughout the sector is
gradually lifting. The reasons here include the prevailing up-
beat business sentiment overall and the positive approach
taken by the industry in addressing the demands of change.
This includes the fact that many companies are now actively
partnering with insurtechs, as new market entrants, in their
business models and finding numerous nexus points for the
development of new products.
The insurance industry continues to be preoccupied with the
sustained, generally low level of interest rates and increasing-
ly exacting regulatory requirements: the decision taken by
the ECB in January of 2019 to keep the key reference rate at
zero percent indicates that the Eurozone will not see any
quick turning away from the ultra-low rate environment. Life
insurers are particularly hard hit, having no choice but to ad-
just their business models. The US Federal Reserve, on the
other hand, will likely press ahead along the path towards
higher interest rates in 2019. Going forward, there is at least
the prospect that this will also lead to a normalisation of inter-
est rates in Europe. On the regulatory side it is evident that
insurance supervisory authorities around the world are now
expanding the focus of their attention to include not only
solvency issues but also the supervision of market conduct.
The topic of market conduct has, for example, already been
included as a content item in the five-year strategic plan
drawn up by the International Association of Insurance
Supervisors (IAIS).
In contrast, having already hiked rates in four increments in
the year under review, the US Federal Reserve will continue
to move away from the past expansionary policy in response
to the economic upswing in the United States and is expected
to press ahead along the path towards normalisation in 2019,
albeit at a reduced tempo. This will further accentuate the
interest differential between the US dollar and euro areas and
Exports are set to bounce back in the current year after the
dip seen in 2018 and expected to rise by 3.6% (2018: 2.0%).
Imports will be further bolstered by the brisk domestic econ-
omy, with the result that the value of imported goods will in-
crease by 5.2% in 2019 (2018: 3.3%).
2.3
Even in the current phase of slightly fading upward momen-
tum, unemployment in the Eurozone will continue to fall in
2019; the jobless rate is forecast to retreat from 8.2% in the
previous year to 7.7%. Although core inflation is gradually
picking up, the inflation rate of 1.5% in the current year will
be slightly lower than in the previous year and remain below
the target set by the ECB.
2.5
6.8
6.6
6.1
6.4
7.7
7.5
1.8
0.8
1.0
As far as Germany is concerned, the Kiel-based economists
expect the positive trend to continue in 2019. Even though
the federal government trimmed its expectation for 2019 GDP
growth in January, the ending of temporary production curbs
- especially in car manufacturing - will likely have positive
implications for the pace of economic growth. Moreover,
wide-ranging tax cuts and benefit extensions will increase the
disposable income of households and give private consumer
spending an added boost. Capacity bottlenecks in the con-
struction sector will hamper more vigorous expansion and
drive building costs even higher. Business investments will
be on the level of the previous year against the backdrop of
recurring uncertainties on international markets.
The industry also remains intensely preoccupied with chang-
es in customer expectations. Against a backdrop of advancing
digitalisation, consumers are showing greater agility in their
behaviour. Customer expectations are also shifting signifi-
cantly when it comes to benefits and services. Insurers are
responding by enhancing the quality of their services, step-
ping up customer contact management and developing new
products that live up to shifting requirements.
1.8
Hannover Re | Annual Report 2018
Combined management report
United States
After an upward trend that has been sustained for close to ten
years, the US economy has in all likelihood passed its peak.
Investment activity was already significantly more muted in
the second half of 2018; employment growth similarly slowed
appreciably. This trend is set to continue in 2019. A further
factor is the absence of additional stimuli from monetary and
fiscal policy, as a consequence of which the pace of expan-
sion will decline by 0.4 percentage points in 2019 to 2.5%.
Growth continues to be supported by rising incomes and sus-
tained positive consumer sentiment. Exports will soften
sharply in 2019, not least due to trade wars. Despite all the
trade policy actions taken, the US current account deficit will
likely grow by a further 0.4 percentage points to 3.2%.
Europe
In the Eurozone, too, the pace of expansion is gradually eas-
ing. Growth will slow by 0.2 percentage points to 1.7%. Con-
tinued favourable financing conditions and an expansionary
fiscal policy are nevertheless helping to keep the economy on
an upward track. In addition, stronger impetus is set to come
from foreign trade in the years ahead after a softer 2018. In
France (+1.4%) and Italy (+0.7%) growth will slow further in
the face of continued doubts surrounding reforms. Particular-
ly in Italy, the pressure from financial markets may keep in-
creasing in view of the high level of debt. While Portugal
(+2.0%) will probably not be able to sustain the growth tem-
po of the previous year, growth in Greece (+2.5%) continues
to trend higher.
-
-
In the United Kingdom the uncertainties surrounding what
form Brexit will ultimately take remain in place for the time
being and according to calculations by the Kiel-based ex-
perts have likely so far led to lost production in the order of
2% for the economy as whole. Irrespective of the new politi-
cal and economic framework arrived at by the European Un-
ion and the United Kingdom, growth in the UK will decline
again in 2019 to 1.0% owing to depressed consumer senti-
ment and a reluctance to invest. In this context it is to be an-
ticipated that little will change in the trading relationship in
the short term, given that the future arrangements still have
to be elaborated in detail.
1.5
The pressure to act on cutting costs remains considerable,
prompting market players to accelerate the drive towards dig-
italisation of their business processes. They are expanding
Continental Europe³
Reinsurers are continuing to shift their focus towards the
quality of their products and services. This move is also
prompted by the demand side, since their insurance partners
are increasingly calling for bespoke solutions. Against this
backdrop insurance products are created that actively sup-
port their partners' strategic objectives and growth targets.
Thus, for example, the increasing need to protect against cli-
mate change, elevated political risks and the ever more im-
portant segment of cyber risks continue to present the indus-
try with numerous entry points for the launch of new products.
The digital transformation of the industry, in particular, is
opening up new avenues for loss prevention and for closer
cooperation with partners from the technology sector.
+/-
+
Facultative reinsurance
Global reinsurance
Worldwide treaty reinsurance³
3
7
+/-
Catastrophe XL (Cat XL)
7
+/-
Structured reinsurance and
insurance-linked securities
+/-
higher under loss-impacted programmes, while modest price
erosion was observed for programmes that had remained
loss-free. In US property business we were able to enlarge the
portfolio written with existing clients at improved conditions
overall. Prices and conditions in US liability business were for
the most part on a satisfactory level, enabling us to further
expand our premium volume in some lines of this segment.
We expect to see a continued positive pricing tendency for
the rounds of treaty renewals in June and July 2019 - when
the bulk of the loss-impacted programmes come up for re-
newal. Through our cooperation with insurtechs we are also
acting on business opportunities associated with progressive
digitalisation. Within our defined risk appetite we are able to
comprehensively support our clients who continue to seek
out our financial strength.
Continental Europe
In Germany, the largest single market within our Continental
Europe segment, we were able to consolidate our prominent
position in the treaty renewals as at 1 January 2019 and in-
deed extended it on the basis of specific treaties. Against a
backdrop of broadly stable rates and conditions, we expect to
book premium growth in the double-digit percentage range
overall. After the challenging market conditions seen in in-
dustrial fire and property insurance in Germany for quite a
number of years, some moves by primary insurers to remedi-
ate the business can now be discerned in the market. With
this in mind we partially expanded the portfolio in keeping
with our selective underwriting policy. In motor insurance,
our most important individual line of business, we expect to
see a stable premium development. Demand for reinsurance
protection has been stimulated by rising awareness of the
dangers posed by cyber risks as well as by regulatory require-
ments.
3
1
In EUR, development in original currencies can be different
2
++= significantly above the cost of capital
+= above the cost of capital
+
automation of their back office processes and enhancing the
flexibility of their IT structures, at the same time opening up
further scope to improve customer care. The consolidation
process that has already been ongoing in the reinsurance
sector for a number of years will continue in 2019. Surplus
capacities are thereby eliminated and efficiency is increased.
+
+
Property & Casualty reinsurance
Overview
After four years of declining reinsurance rates the heavy nat-
ural catastrophe losses incurred in 2017 and again in 2018
caused the rate level to move higher as 2018 got underway
and subsequently stabilise overall as the year progressed.
The supply of reinsurance capacity – from both the traditional
reinsurance sector and the ILS (insurance-linked securities)
market - nevertheless still outstrips demand. In the treaty re-
newals as at 1 January 2019 the prices that could be obtained
for reinsurance programmes and in regions that had been
spared losses came under slightly more pressure compared
to the situation in 2018. On the other hand, rate increases
running into double-digit percentages were recorded for pro-
grammes that had once again suffered losses.
Adjusted for exchange rate effects, we boosted our premium
volume as at 1 January in traditional property and casualty
reinsurance by altogether 15.4% to EUR 6,406 million (EUR
5,551 million). On this date 66% of the traditional property
and casualty reinsurance portfolio (excluding facultative rein-
surance, ILS business and structured reinsurance) was up for
renewal.
In contrast to the situation just one year ago, alternative cap-
ital providers for ILS business took a more restrained ap-
proach in the 1 January 2019 renewals. The capacity originat-
ing from the ILS sector nevertheless remains a significant
part of the reinsurance market.
Hannover Re | Annual Report 2018
153
Reinsurance prices were generally commensurate with the
risks in the renewal season at the beginning of the year, and
viewed from an overall perspective we were able to secure
slightly improved conditions. As one of the world's leading
reinsurers we continue to benefit from our very robust finan-
cial strength as well as a trend among primary insurers to-
wards consolidation of their reinsurance partners. Particular-
ly attractive opportunities to expand the portfolio opened up
in Asia, North America and Germany.
Expectations for the development of individual markets and
lines in property and casualty reinsurance are described in
greater detail below, broken down into the areas of Board
responsibility.
Property & Casualty reinsurance:
Forecast development for 2019
Target markets
North America ³
2.9
Specialty lines worldwide
Marine
Aviation
Credit, surety and political risks
UK, Ireland, London market and
direct business
M 95
Volume
Profitability 2
→
+
2.3
United States
1.9
Successful treaty renewals in property and casualty reinsurance as at 1 January 2019
Significant premium growth anticipated in property and casualty reinsurance as well as
moderate growth in life and health reinsurance
Return on investment target of at least 2.8% for assets under own management
Group net income in the order of EUR 1.1 billion expected
Economic developments
Global economy
Economic growth will continue to trend higher in 2019, albe-
it at a reduced pace. In its year-end forecast the Kiel Institute
for the World Economy expects growth to slow by 0.3 per-
centage points in 2019 to 3.4%. One of the reasons here is
that capacity utilisation in the advanced economies will
scarcely increase further. What is more, output in the emerg-
ing economies will expand at only a moderate tempo in view
of a challenging fiscal climate and in many instances an unfa-
vourable general environment. As a further factor, the deteri-
oration in the trading environment will likely curb business
activity.
The upswing seen in the advanced economies will lose mo-
mentum in the face of a slow tightening of expansionary mon-
etary policy, diminishing stimuli on the fiscal policy side and
only a moderate rise in demand from developing and emerg-
ing nations: after an increase of 2.4% in the year just ended
output in the group of advanced economies is expected to
rise by 2.1% in the current year.
The pace of growth in China is set to retreat again. Expansion
will soften in the other emerging economies owing to more
Growth in gross domestic product (GDP)
challenging fiscal framework conditions, but it is neverthe-
less expected to remain vigorous for the most part. Following
an election year overshadowed by political uncertainty in
Brazil and Mexico, growth in both of these Latin American
powerhouse economies will pick up again in the current year.
The negative growth contributions from Venezuela and Chile
will likely be less marked in 2019. The Turkish economy is
currently fading sharply in the midst of the crisis facing the
country's currency, and the growth rate in 2019 is expected
to be just 0.4%.
Hannover Re | Annual Report 2018
156
When it comes to the 1 April renewals in Japan, the previous-
ly mentioned typhoon losses could appreciably affect demand
for reinsurance capacity. It is our expectation that the rise in
prices will be in the order of 30%. For the 1 June and 1 July
renewals we anticipate stronger rate increases than those
seen as at 1 January, because by that stage a clearer picture
will emerge of the results achieved by reinsurers and hence
In general terms, we plan to grow our business only under
selected programmes given the current market conditions.
This is motivated by, among other things, the fact that certain
cedants now tend to request significant capacities solely from
preferred business partners - including our company.
In the treaty renewals as at 1 January 2019 we obtained ap-
preciable rate increases under loss-impacted programmes.
All in all, though, the Cat XL market remains challenging. In
areas that had escaped losses it was at most possible to
achieve minimal price increases in occasional instances. Fur-
thermore, the tendency towards multi-year programmes and
early treaty renewals still prevails.
In natural catastrophe (Cat XL) business we expect the ad-
ditional inflow of capacity from the capital markets to be on
the moderate side. This is due to the loss experience of 2017
and 2018 as well as a pricing response that many capacity
providers found disappointing. Given that reinsurance rates
remain low, it is our expectation that the retentions carried by
primary insurers will continue to be on a low level.
In our retakaful business we anticipate a predominantly soft
rate level on account of the competition-induced excess sup-
ply of capacity as well as a comparatively low oil price. Risk
selection and good customer relations will therefore play a
pivotal role in our underwriting of profitable business. Our
focus in 2019 will be on specialty lines. We are also moving
forward with our cautious entry into proportional motor busi-
ness because the available rates are rising on the back of
newly implemented motor tariffs in 2017. All in all, we expect
the premium volume to remain stable.
tural commodities and foodstuffs as well as the growing prev-
alence of extreme weather events are generating stronger
demand for corresponding reinsurance covers, particularly in
emerging and developing markets. At Hannover Re we en-
gage both in traditional reinsurance and in intensified coop-
eration with our customers and partners on the development
of new tools for primary insurance. In this regard, we see
further growth potential for index-linked products as part of
direct and indirect insurance concepts in emerging and de-
veloping economies. The more widespread implementation
of public-private partnerships offers us new opportunities to
write profitable business in markets that have still to establish
themselves.
Hannover Re expects demand for insurance against agricul-
tural risks to continue rising: the increasing need for agricul-
The market for reinsurance is just as competitive in Latin
America as it is in other insurance markets, although the pic-
ture shows sometimes sharp variations from country to coun-
try. In view of a number of large losses in the year under re-
view as well as a shortage of capacity for proportional
earthquake covers, conditions for these programmes im-
proved significantly in the renewals as at 1 January 2019
compared to the beginning of 2018. Based on our good mar-
ket position and superb financial strength, we benefited from
offers of new business and improved treaty conditions in the
renewals. In addition, we shall continue to pay closer atten-
tion to an adequate level of primary insurance rates in Latin
America and the Caribbean and we shall make our capacity
available accordingly. Thanks to our selective underwriting
policy and needs-oriented reinsurance solutions, and reflect-
ing the improvement in primary insurance conditions, it is
our assumption that we shall be able to profitably expand our
portfolio in Latin American markets and the Caribbean in the
current 2019 financial year.
In South Africa our organisation is well established within
the local insurtech ecosystem. Over the coming years we
want to extend this to the continent as a whole, since we view
this as a promising strategy for the profitable growth of our
portfolio. Based on a stabilisation in reinsurance prices, we
expect to book premium growth for our reinsurance and spe-
cialty business in the current year.
In Australia and New Zealand the market players expect to
see clear improvements in conditions in the run-up to the
1 January and 1 July renewals. Demand for natural catastro-
phe capacity is still rising, which should have implications for
pricing in Australia and New Zealand too.
The renewal season in India as at 1 April 2019 will see efforts
to bring about a qualitative improvement in conditions as well
as to further expand the business plan pursued by our branch
in Mumbai. Given appropriate conditions, we would be pre-
pared to expand our business substantially in keeping with
our ambitions for the Indian market.
•
The markets of South and Southeast Asia similarly offer a
broad spectrum of growth opportunities. Our activities are
focused on supporting our customers in the development of
products, processes and systems.
Forecast
Combined management report
Combined management report
The measurement of the business group targets
-
which in
the case of the treaty/regional departments accounts for
40% of overall goal attainment - is geared to the economic
value created. The Excess Return on Capital Allocated (xRoCA)
of the business group encompassing the respective area of
responsibility, namely Property & Casualty reinsurance or
Life & Health reinsurance, is therefore taken as a one-year
measurement basis. The xRoCA describes the IVC in relation
to the allocated capital and shows the relative excess return
generated above and beyond the weighted cost of capital.
Goal attainment of 100% exists if the xRoCA in Property &
Casualty reinsurance reaches 2% and the xRoCA in
Life & Health reinsurance reaches 2%. Negative performance
contributions are excluded; the minimum goal attainment is
0%. The maximum possible goal attainment is 150%.
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 man-
agement level 2 (Managing Director) 60% of the variable re-
muneration 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
minimum 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 de-
partments -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 pos-
sible for Group net income and up to 150% for business
group 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 tar-
gets, a maximum of 140% of the variable remuneration can
therefore be attained on management levels 2 and 3.
Allocation and payment of share awards
to senior executives
The total number of share awards allocated is determined ac-
cording 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 addi-
tion, a sum in the amount of the dividend is paid out for each
share award, insofar as dividends were distributed to share-
holders. The level of the dividend payment is the sum total of
all dividends 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 finan-
cial statement. For payment of the dividend to participants in
the Share Award Plan who are located abroad, the rate of ex-
change used to convert the dividend per share is the average
of the relevant 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 2017 financial year was paid out in
June 2018. The share awards for the 2017 financial year were
also allocated in June 2018; they will be paid out in the spring
of 2022 including dividends paid for the 2017, 2018, 2019
and 2020 financial years.
Hannover Re | Annual Report 2018
147
Expertise in demand
Diversi-
fication
Active in all lines of business
Spreading the burden of large risks across many
shoulders is the principle at the heart of reinsur-
ance. The more diversified the portfolio, the
easier it is to offset losses in individual lines or
regions with positive loss experiences elsewhere.
Hannover Re is active worldwide in all classes of
property & casualty and life & health reinsurance.
The company writes business in an extremely
diverse range of lines, including for example
high-risk sports.
We are a leading professional reinsurer with
numerous specialist fields of expertise. This
enables us to write business that others may
consider too risky: by practising systematic cycle
management we are able to act on business
opportunities where rates are commensurate with
the risks.
Outlook
partners. In traditional reinsurance business we consider our-
selves optimally positioned but anticipate a continued over-
supply of capacity, which means that a greater emphasis on
innovation will play an important strategic role in the cultiva-
tion of new business.
155
Hannover Re | Annual Report 2018
Target markets
All lines with the exception of those reported separately
- below the cost of capital
+/- = on a par with the cost of capital
Risks are posed in particular by a further ratcheting up of
trade war tensions: although the spiralling disputes over mar-
ket access that prompted the United States and China to im-
pose reciprocal tariffs have been put on hold for the time be-
ing, the uncertainties swirling around the trade policy
framework remain. Further potential for conflict exists be-
tween the United States and the European Union, where is-
sues relating to the balance of trade are being fought over
indirectly through the automobile manufacturing sector. In
Europe the question of debt sustainability in Italy, the delays
over implementing reforms in France and the possibility of a
disorderly Brexit will be reflected in poorer economic growth
than anticipated.
M 94
in %
Economic areas
World economy
Eurozone
Selected countries
China
India
Japan
Germany
Sources: Kiel Institute for the World Economy; figures for Germany are calendar-adjusted.
150
2018
(forecast from
previous year)
2018
(provisional
calculation)
2019
(forecast)
3.8
3.7
3.4
2.4
North America
In North America the primary insurance market should con-
tinue to develop favourably, also bearing in mind the general
economic climate. The considerable losses incurred in the
last two years from windstorm events, forest fires and floods
further highlighted the benefit of risk-mitigating insurance
and reinsurance solutions and led to stronger demand. The
North American market is of strategic importance to Han-
nover Re and over the years we have expanded our long-
standing customer relationships and added new clients.
A stable to slightly positive price trend was evident in the
treaty renewals as at 1 January 2019. Rates moved notably
In the other markets of Continental Europe the picture was
a mixed one. Generally speaking, it may be stated that the
treaty renewals as at 1 January 2019 saw a demand for more
reinsurance protection at stable prices. We achieved parti-
cularly pleasing growth in Italy. In Western Europe we
maintained the premium level from the previous year. In
Eastern Europe price stabilisation was evident; some of the
price increases under loss-affected programmes were very
significant.
China continues to be the focus of our activities in Asia. Par-
ticularly against the backdrop of rapid digitalisation, we are
seeking new business opportunities with existing and new
As far as our business in Japan is concerned, it is our expec-
tation that the previously mentioned losses will bring higher
reinsurance prices for the renewals on 1 April, especially for
natural catastrophe covers. Certain customised individual
transactions that are currently in the initiation phase will like-
ly help us to significantly grow our portfolio in Japan.
Our organisational set-up with decentralised underwriting at
our local branches - under strategic management from Han-
nover Home Office - is very well received by our customers
and will enable us to put our Group capital efficiently on risk
going forward, just as we have in the past. The extent to
which natural catastrophe losses from typhoons, earthquakes
and floods in Japan, for example, will influence general rein-
surance capacities and prices in Asia remains to be seen.
Insurance markets in the Asia-Pacific region should stay on
their growth track in 2019. Consequently, we see good oppor-
tunities here to enlarge our portfolio.
Worldwide treaty reinsurance
Global reinsurance
Based on our progressive accumulation of know-how and en-
hanced customer support, we similarly anticipate a rising
premium volume and continued good results for our specialty
lines.
The current financial year is expected to bring increased de-
mand for facultative reinsurance at improved conditions on
the whole. This will be driven by the above-average loss inci-
dence in the previous year and hence also reflects the shift in
our clients' risk appetite. Given our strong focus on the cus-
tomer, we should be able to benefit disproportionately strong-
ly from the potential market opportunities. We shall enlarge
our reinsurance portfolio in those regions and lines where we
have been able to push through higher prices. Particularly
healthy premium growth is anticipated in the United States,
Europe and Southeast Asia. Overall, we expect to see an in-
crease in premium income for our facultative business in the
current financial year and better results than in 2018.
Facultative reinsurance
ary 2019 and writes agency business and speciality insurance
in a range of lines including errors & omissions liability insur-
ance, directors' and officers' (D&O) liability insurance, legal
expenses, sports and entertainment, aviation and offshore
energy. As early as 2019 annual gross premium income is
expected to exceed EUR 1 billion. Hannover Re will continue
to reinsure a large portion of the business written by HDI
Global Specialty. A premium decline will nevertheless be re-
corded due to deconsolidation in the amount of the former
Inter Hannover's retention.
As already announced in the year under review, Hannover Re
and HDI Global have concentrated their primary insurance
activities in specialty lines in a new joint venture named HDI
Global Specialty SE. The majority interest (50.2%) in Inter
Hannover was acquired by HDI Global for this purpose. HDI
Global Specialty commenced operational activities on 1 Janu-
1.7
Direct business
United Kingdom, Ireland and London Market
Following a revival in the global economy in 2018, growth will
likely slow in the coming year. As a consequence, the number
of insolvencies around the world may rise slightly from the
existing low level. Against this backdrop, we expect loss ra-
tios in credit and surety business as well as in the area of
political risks to remain stable or increase moderately. In the
context of the progressive regional diversification of our port-
folio it is our expectation that premium growth will be sus-
tained going forward, although the tempo in credit and surety
business will be held back by general economic conditions. In
the area of political risks, on the other hand, demand is likely
to remain high in view of the elevated risk situation around
the world. All in all, we are looking for a stable market envi-
ronment in the current financial year despite a slowdown in
global economic growth. Against this backdrop, we expect to
book modestly increased premium income and a good result.
Credit, surety and political risks
After years of intense competition the consolidation drive in
aviation reinsurance appears to have been largely completed.
Improved conditions are evident in original business. Similar-
ly, the rate erosion observed in non-proportional reinsurance
was extensively halted in this year's 1 January round of re-
newals. Based on rising premiums in the original market, we
also expect a modest increase for our proportional portfolio.
Aviation
discontinuation of marine acceptances in the London Market
as well as some corporate mergers, we anticipate a reduced
premium volume in marine reinsurance.
Combined management report
Hannover Re | Annual Report 2018
154
In marine reinsurance the renewals as at 1 January 2019
passed off largely satisfactorily. Rate increases for loss-im-
pacted programmes were in some instances appreciable.
Other than that, the Asian market was still shaped by surplus
capacity and Continental European programmes also came
under modest pressure. The treaty renewals on the London
Market for the most part remained on a constant level. Cus-
tomers were nevertheless differentiated here according to
their specific changes in exposures and losses. Owing to our
Specialty lines worldwide
Marine
Rates were stable across all lines in the round of 1 January
treaty renewals, with modest erosion observed in motor third
party liability. Market players now expect the Ogden rate to
be increased in 2019, which may lead to an improved claims
run-off. To some extent this effect was pre-empted by other
market players and prices were adjusted downwards. For our
part, however, we maintained our conservative stance on
pricing. Prices were also stable for property reinsurance pro-
grammes on the London Market. Given the keen focus put on
profit, which is pursued especially vigorously by Lloyd's of
London, we expect to see hardening on the primary insur-
ance market. We similarly anticipate positive implications for
our portfolio from improvements in the business written by
our clients, both in qualitative terms and on the pricing side.
For the current year we are expecting a stable premium vol-
ume overall.
Germany
Cash and cash equivalents
50,791
120,597
Unrealised
gains/losses
Balance as at 1.1.2017
in EUR thousand
(cumulative other comprehensive income)
Other reserves
724,562
Additional
paid-in capital
shareholders' equity 2018
Consolidated statement of changes in
Annual financial statements
165
Hannover Re | Annual Report 2018
133,670
Common
shares
853,106
904,196
no change of control status
120,597
(742,630)
(85,846)
680,082
Currency
translation
Balance as at 31.12.2017
Changes in ownership interest with
Dividends paid
directly in equity
Total income and expense recognised
Acquisition/disposal of treasury shares
Capital repayments
Capital increases/additions
Changes in the consolidated group
Net income
Attributable to shareholders of Hannover Rück SE
57,683
62,374
63,379
185,302
Tax income (expense)
(362,273)
(67,306)
Transferred to the consolidated statement of income
(226,964)
(557,705)
Gains (losses) recognised directly in equity
Reclassifiable income and expense recognised directly in equity
397
3,137
476
(91)
(344,960)
(856,599)
Total income and expense recognised directly in equity
Gains (losses) recognised directly in equity
Attributable to non-controlling interests
191,353
915,480
(853,224)
(230,047)
61,785
186,698
(362,273)
(67,306)
(552,736)
(349,439)
thereof
Total recognised income and expense
Tax income (expense)
Transferred to the consolidated statement of income
724,562
(79)
818,350
Balance as at 1.1.2018
Notes
1.1.-31.12.2018
1.1.-31.12.2017
7.1
19,176,358
17,790,506
Net premium earned
1,778,826
(437,768)
19,869
(24,986)
17,289,133
15,631,670
Ordinary investment income
1,696,082
7.2
Change in ceded unearned premium
Ceded written premium
6.14
Total shareholders' equity
765,237
9,542,028
758,080
Total liabilities
64,508,637
Change in gross unearned premium
9,286,558
61,196,846
163
Annual financial statements
N 02
Consolidated statement of income 2018
in EUR thousand
Gross written premium
Hannover Re | Annual Report 2018
1,321,712
1,289,033
Profit/loss from investments in associated companies
Dividends paid
Net income
Total income and expense recognised in
equity
Acquisition/disposal of treasury shares
Capital repayments
Capital increases/additions
Balance as at 31.12.2018
Changes in the consolidated group
no change of control status
Changes in ownership interest with
(62,548)
818,350
724,562
120,597
(1,171)
(470,670)
263,917
120,597
7.2
4,977
16,006
Realised gains and losses on investments
7.2
127,659
377,093
Change in fair value of financial instruments
7.2
31,160
Hannover Re | Annual Report 2018
166
201,369
346,509
724,562
(62,548)
Non-controlling interests
3,228
Gains (losses) recognised directly in equity
17,406,381
12,193,079
Change in benefit reserves
7.3
Commission and brokerage, change in deferred acquisition costs
7.3
4,271,736
12,569,150
(571)
3,499,270
21,018
Other technical expenses
7.3
Administrative expenses
Total technical expenses
Other income
Other acquisition costs
Other expenses
7.3
18,819,761
Net income from investments under own management
1,322,042
1,538,974
Income/expense on funds withheld and contract deposits
7.2
207,987
Claims and claims expenses
Net investment income
234,915
1,773,889
Other technical income
Total revenues
7.3
599
822
1,530,029
Other income/expenses
Operating profit/loss (EBIT)
Financing costs
Net income
thereof
Non-controlling interest in profit and loss
6.14
Group net income
Earnings per share (in EUR)
Taxes
8.5
1,518,388
71,736
1,292,619
7.5
372,861
1,145,527
248,042
1,044,577
86,034
1,059,493
Basic earnings per share
Net income before taxes
78,261
6.12
7.3
4,804
423,343
17,340,842
14,141
3,781
411,297
16,120,997
7.4
1,084,511
990,174
7.4
966,781
911,203
7.4
117,730
78,971
1,596,649
1,364,355
110,778
Tax income (expense)
114,342
Other investment expenses
184,801
(362,273)
(67,306)
246,129
(610,978)
Tax income (expense)
13,060
Transferred to the consolidated statement of income
Unrealised gains and losses on investments
Reclassifiable to the consolidated statement of income
3,375
(3,083)
(1,594)
1,396
Gains (losses) recognised directly in equity
Tax income (expense)
(493,483)
Currency translation
Changes from hedging instruments
(936)
(4,024)
(936)
(4,024)
Gains (losses) recognised directly in equity
(103,084)
Changes from the measurement of associated companies
267,406
592
Tax income (expense)
(802,819)
266,814
Gains (losses) recognised directly in equity
49,843
(752,976)
4,969
(4,479)
Gains (losses) recognised directly in equity
Consolidated statement of comprehensive
Hannover Re | Annual Report 2018
164
7.95
8.79
7.95
income 2018
8.79
86,022
958,555
38,569
Total depreciation, impairments and appreciation of investments
7.2
49,124
70,949
Diluted earnings per share
in EUR thousand
Net income
N 03
Income and expense recognised directly in equity that cannot be reclassified
3,375
(3,083)
(1,594)
1,396
Tax income (expense)
4,969
(4,479)
Gains (losses) recognised directly in equity
Actuarial gains and losses
Not reclassifiable to the consolidated statement of income
1,044,577
1,145,527
1.1.-31.12.2017
1.1.-31.12.2018
7.2
8,528,478
(128,268)
Equity attributable to shareholders of Hannover Rück SE
31.12.2018
31.12.2017
6.1
249,943
336,182
6.1
Notes
2,398,950
Fixed-income securities - available for sale
6.1
33,239,685
31,281,908
Fixed-income securities - at fair value through profit or loss
6.1
2,455,164
559,750
Fixed-income securities - loans and receivables
in EUR thousand
income 2018
165
Consolidated statement of changes in
shareholders' equity 2018
166
Consolidated cash flow statement 2018
Fixed-income securities - held to maturity
168
financial statements 2018
171
Annual financial statements
N 01
Consolidated balance sheet as at 31 December 2018
Assets
Notes to the consolidated
212,042
Equity securities - available for sale
6.1
6.1
1,805,281
1,761,678
Short-term investments
6.1
421,950
121,075
958,669
1,072,915
835,706
Total investments and cash under own management
42,197,338
40,057,478
Funds withheld
6.1
110,545
6.1
Other invested assets
28,729
37,520
Other financial assets - at fair value through profit or loss
6.1
190,759
88,832
Investment property
8,776,791
1,684,932
1,583,728
Real estate funds
6.1
433,899
384,974
Investments in associated companies
Consolidated statement of comprehensive
6.2
164
162
→
+/-
+/-
+/-
기
In EUR, development in original currencies can be different
+
1
++= significantly above the cost of capital
+above the cost of capital
+/- = on a par with the cost of capital
- below the cost of capital
Regulatory issues relating to capital adequacy and solvency
ratios have dominated the more mature markets for a number
of years. We expect this trend to continue in the upcoming
reporting period. As an established and long-standing valued
partner, our clients trust in our expertise and we consider
ourselves well prepared for potential new developments.
Looking at individual regions, Australia is particularly likely
to see a tightening of the regulatory requirements governing
the financial services sector. Just what form developments ac-
tually take will become clearer in the course of 2019.
2
In the German market it appears that market consolidation
will remain a defining issue. The regulatory requirements im-
posed by the Federal Financial Supervisory Authority (BaFin)
in combination with a complex set of market circumstances
- such as low interest rates, a decline in business with tradi-
tional life insurance policies and higher capital adequacy ra-
tios are presenting the insurance industry with considerable
challenges. It remains to be seen whether the market is al-
ready equipped to tackle them. Notwithstanding the above,
we believe that insurance products aimed at senior citizens
offer potential opportunities, given how growth in this area is
driven by an ageing German population.
++
Volume 1
Combined management report
the pressure on capital market investors will likely grow in
light of market and interest rate factors.
We anticipate further attractive opportunities for leading re-
insurers since larger companies will continue to follow the
trend towards purchasing worldwide covers. The number of
reinsurers for such programmes will steadily diminish. What
is more, there will be no easing in the considerable pressure
when it comes to mergers and acquisitions. In view of the
sizeable losses from floods and forest fires, primary insurers
in the affected regions will likely seek to secure additional
coverage.
Owing to the implementation of risk-based models for calcu-
lating solvency requirements not only within but also outside
the European Union, demand for structured reinsurance
products is likely to keep on rising. The key driver here con-
tinues to be the growing integration of reinsurance into insur-
ers' risk management as a means of offsetting the increasing-
ly exacting capital requirements placed upon these
companies. In addition, the increasing pressure on the profit
margins of our customers around the world is creating a
greater need for tailor-made reinsurance solutions that can
optimise the cost of capital.
In the area of insurance-linked securities (ILS) we essential-
ly expect to see continued growth in demand. Investors are
seeking a negative or minimal correlation with other financial
investments and hence greater diversification. We are re-
sponding to this market situation with a strong emphasis on
service, offering individually tailored solutions - from collat-
eralised reinsurance to the transformation of catastrophe
bonds for property and life reinsurance risks. Over the com-
ing years we expect our ILS activities to deliver a positive and
consistently rising profit contribution. The capital market re-
mains an important element in the retrocession coverage tak-
en out by our own company. For example, we were able to
renew the protection cover for Hannover Re known as the 'K
cession" - which has been placed inter alia on the ILS market
since 1994 - with an increased capacity of roughly USD 650
million (USD 600 million) for 2019.
Life & Health reinsurance
Profitability2
In the international life and health reinsurance market we ex-
pect new business opportunities to open up in 2019. It is our
assumption that emerging markets, in particular, will contin-
ue to make up economic ground. Based on the associated rise
in incomes and improvement in living standards, demand for
insurance protection – including for example disability, acci-
dent and pure mortality covers as well as for products
geared to retirement provision can be expected to rise.
Life & Health reinsurance:
Forecast development for 2019
Financial Solutions
Risk Solutions
Longevity
Mortality
Morbidity
M 96
-
As it looks towards Brexit, the United Kingdom is on the cusp
of an event with far-reaching implications for the local econ-
omy and for the entire European Union. It is still too soon to
make any detailed observations, given that only the vaguest
key points about the country's withdrawal are known. We are,
however, keeping a close eye on developments and are posi-
tioned to respond flexibly to the changes that lie ahead.
We consider Asia to be the continent that offers the greatest
growth potential. The Chinese market, in particular, is record-
ing very dynamic growth, and we therefore anticipate contin-
ued promising new business in the coming year.
Hannover Re | Annual Report 2018
In view of the expected positive cash flow that we generate
from the technical account and the investments themselves,
and assuming stable exchange rates and interest rate levels,
our asset portfolios should continue to grow. We are looking
to deliver a return on investment of at least 2.8% for 2019.
For the current financial year we anticipate Group net income
of EUR 1.1 billion. This is subject to the proviso that large loss
expenditure does not significantly exceed the budgeted level
of EUR 875 million – which has been adjusted to reflect the
growth in the underlying business - and assumes that there
are no unforeseen distortions on capital markets.
Hannover Re continues to anticipate a payout ratio for the
ordinary dividend in the range of 35% to 45% of its IFRS
Group net income. The ordinary dividend will be supplement-
ed by payment of a special dividend in light of capital man-
agement considerations if the comfortable level of capitalisa-
tion remains unchanged.
derwriting result, provided the burden of large losses remains Events after the
within our expectations. For 2019 we have raised our net
large loss budget for the first time in three years; it now
stands at EUR 875 million as against EUR 825 million in the
previous years. This adjustment reflects the growth in the un-
derlying business.
The EBIT margin for property and casualty reinsurance
should amount to at least 10%. We are aiming for a combined
ratio here of less than 97%.
With regard to the IVC targets that we use to map economic
value creation, it remains our expectation that a minimum
XROCA of 2% will be generated for property and casualty re-
insurance and for life and health reinsurance.
In life and health reinsurance the current financial year is ex-
pected to deliver moderate premium growth. On the earnings
side, the strains in US mortality business should decrease
quite substantially. This should give rise to an unusually
strong surge in profitability, with EBIT expected to be in the
order of EUR 400 million. The targeted level for the value of
new business remains unchanged at a minimum of EUR 220
million per year.
No matters of special significance occured after the closing
date for the consolidated financial statements.
Hannover Re | Annual Report 2018
159
Consolidated financial statements
Consolidated balance sheet as at
31 December 2018
reporting date
Thanks to our good ratings, long-standing stable customer
relationships and low expense ratio, a solid outcome should
once again be attainable. We therefore anticipate a good un-
In property and casualty reinsurance we expect significant
growth at largely stable conditions based on the outcome of
the treaty renewals as at 1 January 2019. We shall retain un-
changed our selective underwriting policy, under which in
large part we write only business that satisfies our margin
requirements. Looking ahead to the subsequent rounds of re-
newals during the year, the situation is generally expected to
be similar to the one at the start of the year. An exception
here is likely to be the segments that have been particularly
hard hit by natural disasters, such as covers for hurricanes in
the United States, typhoons in Japan and forest fires in Cali-
fornia; we anticipate stronger rate increases in these cases,
because as the year progresses a clearer picture will emerge
of the results achieved by reinsurers and hence the pressure
on capital market investors will likely grow in light of market
and interest rate factors.
For the 2019 financial year we anticipate a good overall result
for Hannover Re. Bearing in mind the developments in prop-
erty and casualty as well as life and health reinsurance, we
are looking to book single-digit percentage growth in gross
premium - based on constant exchange rates.
157
In our assessment, microinsurance is another area that offers
further business opportunities. Drawing on innovative net-
works of a wide range of sales partners, the goal is to enable
groups of individuals to access insurance who cannot be
reached through normal distribution channels. This is par-
ticularly important for less developed economies. Thanks to
our global network, we are able support providers as they
expand their product range in these countries, thereby open
opening up access to insurance for more people.
Turning to our automated underwriting systems, we are sim-
ilarly optimistic that we can build on the success story written
so far. Numerous new deployments of hr|ReFlex are already
envisaged for the coming year. What is more, the growing
demand for lifestyle insurance products that combine
health-related aspects (e.g. fitness and nutritional habits)
with insurance protection will remain a trend in 2019 and
have major implications for the life insurance industry around
the world.
In general terms, we increasingly see ourselves as more than
just a pure risk carrier. In our role as an expert partner, we
draw on our worldwide know-how spanning a wide range of
topics to give our customers comprehensive support. We at-
tach just as much importance to the advantages of already
being closely integrated into the business process in advance
so as to jointly identify the exact reinsurance requirement as
we do to staying involved throughout the process and keep-
ing track of the business experience. The business relation-
ships with our customers are routinely of a long-term nature
because life and health reinsurance typically involves long-du-
ration treaty types. This makes it all the more important to
generate sustainable value for all parties concerned in their
mutual interest.
We anticipate that the forecast developments in the markets
will affect our key earnings figures as follows: gross premium
income is expected to show organic growth averaging be-
tween 3% and 5% (assuming constant exchange rates; over
a three-year period). The operating result (EBIT) should grow
by more than 5% on average over a three-year period. The
value of new business should exceed the minimum target of
EUR 220 million.
Investments
Geopolitical and populist developments harbour growing un-
certainties. As a consequence of the unusual capital market
constellations experienced in recent years, the behaviour of
capital market players can no longer be wholly explained by
fundamentals. With this in mind, we shall remain risk-aware
in investing substantial parts of our investment portfolio.
Nevertheless, the brighter economic outlook in certain mar-
kets and countries will also be reflected in appropriate
risk-taking. Our emphasis on broad diversification will re-
main in place. By maintaining the most neutral possible mod-
ified duration we shall ensure that the interest rate risk is
tightly managed.
The enlargement of the asset portfolio should have a positive
effect on investment income. Despite the persistently low
euro interest rate level, we expect to maintain a stable aver-
age return on our investments thanks to higher US interest
rates and wider credit spreads. In view of the low returns on
more secure investments, we shall continue to invest in prod-
ucts offering attractive credit spreads such as corporate
bonds, although in this regard we shall increasingly move
back towards higher-quality segments. The widening of
spreads towards the end of the year under review is putting a
more healthy risk/reward ratio within reach again. In the ar-
eas of alternative investments, real estate and emerging mar-
kets we also intend to selectively expand our holdings.
If the valuation levels of listed equities experience further
corrections or stabilise, we are ready to enter the market on a
moderate scale.
In our assessment, the Brexit issue remains, if anything, an
indirect source of uncertainty affecting capital markets, but
not a direct factor influencing our asset management activi-
ties. It is our assumption that markets have already priced in
the uncertainty surrounding the withdrawal process.
158
Hannover Re | Annual Report 2018
Combined management report
Outlook for the full 2019 financial year
Consolidated statement of income 2018
10,691,768
6.1
Contract deposits
Deferred tax liabilities
7.5
1,700,082
1,819,867
Other liabilities
6.11
319,845
612,093
Long-term debt and notes payable
6.12
2,558,884
1,742,073
Liabilities related to assets held for sale
4.4
10,735,012
2,246,129
244,093
Taxes
Contract deposits
Reinsurance payable
Provisions for pensions
6.8
969,261
974,786
7.5
6.9
3,949,207
1,156,231
980,241
6.10
182,291
177,786
3,611,654
Total liabilities
54,966,609
51,910,288
201,369
(62,548)
Changes from hedging instruments
(3,160)
(6,292)
Other changes in cumulative other comprehensive income
Cumulative foreign currency translation adjustment
(53,364)
Total other comprehensive income
491,354
698,912
Retained earnings
7,440,278
6,984,407
(50,598)
818,350
346,509
Unrealised gains and losses on investments
Shareholders' equity
Common shares
6.13
120,597
120,597
Nominal value: 120,597
Conditional capital: 60,299
Additional paid-in capital
Common shares and additional paid-in capital
6.13
724,562
724,562
845,159
845,159
Cumulative other comprehensive income
Funds withheld
394,460
654,338
6.7
6.7
7,170
Deferred acquisition costs
6.4
2,155,820
7,301
2,228,246
Reinsurance recoverables on other technical reserves
Accounts receivable
3,975,778
3,821,124
Goodwill
Deferred tax assets
Other assets
Accrued interest and rent
6.4
96,402
93,678
6.7
6.3
172,873
167,854
Total investments
53,061,979
50,960,344
Reinsurance recoverables on unpaid claims
575,996
2,084,630
1,651,335
Reinsurance recoverables on benefit reserve
6.7
909,056
959,533
Prepaid reinsurance premium
Assets held for sale
Total assets
6.7
85,588
31.12.2018
31.12.2017
Loss and loss adjustment expense reserve
6.7
28,758,575
28,378,545
Benefit reserve
Unearned premium reserve
Other technical provisions
6.7
8,977,946
6.7
3,166,964
3,541,194
6.5
Notes
in EUR thousand
9,184,356
Hannover Re | Annual Report 2018
Liabilities
7.5
454,608
91,692
6.6
629,420
904,253
466,564
11,726
10,052
4.4
1,039,184
64,508,637
61,196,846
162
(602,986)
(602,986)
1,044,577
86,022
958,555
(853,224)
411
(28,339)
(824,885)
(54)
3,180
958,555
(44,081)
758,080
(6,292)
(50,598)
6,984,407
8,528,478
9,286,558
(6,292)
(50,598)
6,984,407
8,528,478
(54)
9,286,558
758,080
(647,067)
(19)
(54)
559
(643)
1.1.-31.12.2018
Continuation: Other reserves
(cumulative other comprehensive income)
Retained
earnings
Equity attributable
to shareholders of
Hannover Rück SE
Hedging
instruments
Other
(6,703)
(53,778)
6,628,274
618
(19)
8,997,230
Non-controlling
Total
interests
shareholders'
equity
743,317
9,740,547
618
160
778
461
461
559
N 04
(1,814)
1.1.-31.12.2017
(2,120)
8.7
Contingent liabilities and
6.5
Goodwill
224
commitments
266
6.6
Other assets
225
8.8
Rent and leases
267
6.7
Technical provisions
229
8.9
Fee paid to the auditor
268
6.8
Funds withheld (liabilities)
234
8.10
Events after the balance sheet date
269
222
Technical assets
6.4
265
Related party disclosures
257
6. Notes on the individual items of the
8.3
Share-based payment
260
balance sheet
204
8.4
Staff and expenditures on personnel
264
6.1
6.9
Investments under own management
8.5
Earnings per share and
6.2
Funds withheld (assets)
222
dividend proposal
265
6.3
Contract deposits (assets)
222
8.6
Lawsuits
204
Contract deposits (liabilities)
234
6.10 Provisions for pensions and other
Amendments as part of the "Annual Improvements to
IFRS Standards 2014 - 2016 Cycle" with respect to
IAS 28 "Investments in Associates and Joint Ventures"
and IFRS 1 "First-time Adoption of International
Financial Reporting Standards"
IFRIC 22 "Foreign Currency Transactions and Advance
Consideration".
Standards or changes in standards that have not yet entered into force or
are not yet applicable
In May 2017 the IASB published the final version of IFRS 17
"Insurance Contracts", which has still to be endorsed by the
EU. IFRS 17 replaces IFRS 4 and thereby establishes for the
first time consistent principles for the recognition, measure-
ment, presentation and disclosure of insurance contracts, re-
insurance contracts and investment contracts with discretion-
ary participation features. The measurement model of IFRS
17 requires entities to measure groups of insurance contracts
based on estimates of discounted future cash flows with an
explicit risk adjustment for non-financial risks ("fulfilment
cash flows") as well as a contractual service margin, repre-
senting the expected (i.e. unearned) profit for the provision
of insurance coverage in the future.
Instead of reporting premium income when it is received, in-
surance revenue is reported when it is earned by recognising
in each period the changes in the liability for providing cover-
age for which the insurance entity receives compensation as
well as the part of the premiums that covers acquisition costs.
Receipts and payments relating to savings components are
not recognised as revenue or as profit or loss in the statement
of income. Insurance finance income and expenses result
from discounting effects and financial risks. For each portfo-
lio of insurance contracts they may either be recognised in
profit or loss in the statement of income or in other compre-
hensive income.
Changes in assumptions that do not relate to interest rates or
financial risks are not recognised directly in the statement of
income but are booked against the contractual service margin
and hence spread across the remaining coverage period.
Changes in estimates are only recognised immediately in
Hannover Re | Annual Report 2018
173
Annual financial statements
profit or loss in the case of those groups of insurance con-
tracts that are expected to be loss-making.
Subject to endorsement in EU law and based on a tentative
decision of the IASB, application of IFRS 17 is mandatory for
annual reporting periods beginning on or after 1 January
2022.
Classification and Measurement of Share-based
Payment Transactions (Amendments to IFRS 2),
Transfers of Investment Property: Amendments to
IAS 40 "Investment Property"
Given that the standard affects Hannover Re's core business
activity, significant implications are expected for the consoli-
dated financial statement. In view of the special significance
of the new accounting rules, a multi-year implementation
project was launched back in 2017 to explore the implications
of the standard for the consolidated financial statement - in-
cluding the interdependency with IFRS 9 - and the necessary
implementation steps were defined and initiated. The ac-
counting principles are currently being elaborated in order to
subsequently begin implementing the extensive adjustments
to the processes and systems. At this moment, therefore, it is
not yet possible to quantify the implications for the consoli-
dated financial statement.
In July 2014 the IASB published the final version of IFRS 9
"Financial Instruments", which supersedes all previous ver-
sions of this standard and replaces the existing IAS 39 “Fi-
nancial Instruments: Recognition and Measurement". The
standard contains requirements governing classification and
measurement, impairment based on the new expected credit
loss impairment approach and general hedge accounting.
The new classification requirements result in more financial
instruments being measured at fair value through profit or
loss. Initial mandatory application of the standard, which was
endorsed by the EU in November 2016, is set for annual peri-
ods beginning on or after 1 January 2018. In September 2016,
however, the IASB published "Applying IFRS 9 Financial In-
struments with IFRS 4 Insurance Contracts (Amendments to
IFRS 4)". Under the deferral approach provided for in the
amendments, entities whose predominant activity is issuing
insurance and reinsurance contracts within the scope of
IFRS 4 are granted an optional temporary exemption from
recognising their financial instruments in accordance with
IFRS 9 until probable entry into force of IFRS 17 on 1 January
2022. Hannover Re reviewed the application requirements
based on the consolidated financial statement as at 31 De-
cember 2015 with a positive outcome (the proportion of in-
surance activities conducted by the Group stood at 98.0%,
a change in activity has not occurred in the meantime) and
decided to make use of the deferral approach. Hannover Re
primarily anticipates implications for the classification of
financial instruments. The IFRS 9 implementation project is
running parallel to and in close coordination with the IFRS 17
implementation project. Disclosures regarding the fair values
of financial instruments currently in the portfolio split accord-
ing to the cash flow criterion as well as disclosures about the
credit risks of securities that solely generate payments of
principal and interest are provided in section 6.1 of the notes
to the consolidated financial statement "Investments under
own management”.
In addition to the accounting principles described above, the
IASB has issued the following standards, interpretations and
amendments to existing standards with possible implications
for the consolidated financial statement of Hannover Re, ap-
plication of which was not yet mandatory for the year under
review and which are not being applied early by Hannover
Re. Initial application of these new standards is not expected
to have any significant implications for Hannover Re's net as-
sets, financial position or result of operations:
174
Hannover Re | Annual Report 2018
Further IFRS Amendments and Interpretations
Published
Title
October 2018
October 2018
March 2018
February 2018
In January 2016 the IASB issued IFRS 16 "Leases" setting out
new principles for the accounting of leases. The most signif-
icant new requirements relate principally to accounting by
lessees. In future, the lessee shall as a general principle rec-
ognise a lease liability for all leases. At the same time it shall
recognise a right to use the underlying asset. Accounting by
lessors remains comparable with current practice, according
to which the lessor classifies each lease as an operating lease
or a finance lease. The standard is to be applied to annual
periods beginning on or after 1 January 2019. Hannover Re
intends to apply the standard using a modified retrospective
approach and will recognise the cumulative effect of applica-
tion of the standard in retained earnings as at 1 January 2019.
At the end of 2017 a detailed analysis was carried out of the
implications for Hannover Re's consolidated financial state-
ment, which was adjusted at the end of 2018 to reflect current
exchange rates. The analysis determined that the consolidat-
ed balance sheet will probably be extended by around EUR
108 million at the time of initial application through the rec-
ognition of rights of use and lease liabilities. The expense
from leases will in future be recognised in the form of impair-
ments taken on rights of use and interest on lease liabilities.
8.2
•
•
post-employment benefit obligations
234
Annual financial statements
1. Company information
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 19.2 billion, Hannover
Re is the fourth-largest reinsurance group in the world. The
company's network consists of more than 170 subsidiaries,
affiliates, branches and representative offices worldwide with
a total workforce of roughly 3,300. The Group's German busi-
ness is conducted by the subsidiary E+S Rückversicherung
2. Accounting 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).
Pursuant to EU Regulation (EC) No. 1606/2002, the present
consolidated financial statement and group management re-
port 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 applica-
ble pursuant to § 315e Para. 1 German Commercial Code
(HGB) and the supplementary provisions of the Articles of As-
sociation of Hannover Rück SE as amended on 30 May 2016.
The consolidated financial statement reflects all IFRS in force
as at 31 December 2018 as well as all interpretations issued
by the International Financial Reporting Interpretations Com-
mittee (IFRIC), application of which was mandatory for the
year under review. IFRS 4.38 et seq. “Insurance Contracts"
requires disclosures on the nature and extent of risks stem-
ming from reinsurance contracts, while IFRS 7.31-42 "Finan-
cial Instruments: Disclosures” requires similar information on
risks from financial instruments. Furthermore, § 315 Para. 2
Number 1 German Commercial Code (HGB) also contains re-
quirements for insurance undertakings with regard to infor-
mation on the management 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. With regard to the disclosures required by
IFRS 4 and IFRS 7, we would refer in particular to pages 105
to 109 "Underwriting risks in property and casualty reinsur-
ance/Underwriting risks in life and health reinsurance" and
to pages 110 to 114 “Market risks” respectively. 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 neces-
sary to consider both the risk report and the relevant informa-
tion in the notes. We refer the reader accordingly to the cor-
responding remarks in the risk report and the notes.
AG. Hannover Rück SE is a European Company, Societas Eu-
ropaea (SE), which has its registered office at Karl-Wiechert-
Allee 50, 30625 Hannover, Germany, and is entered in the
commercial register of Hannover County Court under the
number HR Hannover B 6778. 50.2% (rounded) of the shares
of Hannover Rück SE are held by Talanx AG, Hannover, which
in turn is majority-owned - with an interest of 79% - by HDI
Haftpflichtverband der Deutschen Industrie V.a.G. (HDI),
Hannover.
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 Accept-
ed Accounting Principles (US GAAP) as applicable on the
date of initial application of IFRS 4 on 1 January 2005, we cite
individual insurance-specific standards of US GAAP using the
designation "Statement of Financial Accounting Standard
(SFAS)" that was valid at that time.
•
The declaration of conformity required pursuant to § 161
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 of all companies were drawn
up in accordance with standard Group accounting and meas-
urement rules pursuant to IFRS.
-
The consolidated financial statement was drawn up in euros
(EUR), the amounts shown have been rounded to EUR
thousands and provided this does not detract from transpar-
ency to EUR millions. Figures indicated in brackets refer to
the previous year.
The present consolidated financial statement was released
for publication by a resolution of the Executive Board on
4 March 2019.
172
Hannover Re | Annual Report 2018
New accounting standards or accounting standards applied for the first time
The IASB published amendments to IFRS 4 “Applying IFRS 9
Financial Instruments with IFRS 4 Insurance Contracts'
which give certain insurance entities the option to defer man-
datory application of IFRS 9 "Financial Instruments" to 2021.
At its meeting on 14 November 2018 the IASB also tentatively
decided to defer the date of initial application of IFRS 17 "In-
surance Contracts” by one year to annual reporting periods
beginning on or after 1 January 2022. In this connection it
was further decided to correspondingly extend the period for
exercise of the optional temporary exemption from applying
IFRS 9 that is available to companies whose activities are pre-
dominantly connected with insurance. Hannover Re is exer-
cising the deferral option, inter alia due to the interdependen-
cy between the recognition of financial instruments and
insurance contracts. The new disclosures required as part of
the deferral approach, which are intended to facilitate some
comparability with entities already applying IFRS 9, are pro-
vided for the first time in section 6.1 of the notes to the con-
solidated financial statement "Investments under own man-
agement".
Hannover Re is applying IFRS 15 “Revenue from Contracts
with Customers" for the first time with effect from 1 January
2018. The standard specifies when and in what amount reve-
nue is to be recognised and which disclosures are required
for this purpose. Financial instruments and other contractual
rights and obligations which are to be recognised under sep-
arate standards as well as (re)insurance contracts within the
scope of IFRS 4 “Insurance Contracts" are expressly exempt-
ed from the standard's scope of application. The predominant
activity of the Hannover Re Group falls within the scope of
application of IFRS 4. As expected, therefore, the services
falling within the scope of application of IFRS 15 did not have
any significant implications overall for the Group's net assets,
financial position or results of operations. The modified retro-
spective approach was chosen for initial application. In addi-
tion, the practical transition relief provided in the standard
with respect to completed contracts and contract modifica-
tions was utilised. Disclosure of the amount restated for each
item of the financial statement affected by application of IFRS
15 in the year of initial application, which arises due to the
adjustment of prior-year comparatives recognised according
to the requirements of IAS 18 and associated interpretations
applicable prior to the change, is similarly omitted in accord-
ance with the materiality concept. Disclosures regarding
revenue as defined by IFRS 15 are provided in section 7.4 of
the notes to the consolidated financial statement "Other in-
come/expenses".
In addition, the amendments to existing standards listed be-
low were applicable for the first time in the year under review
and had no significant implications overall for the net assets,
financial position or result of operations of Hannover Re.
•
The annual financial statements included in the consolidated
financial statement were for the most part drawn up as at
31 December. Pursuant to IFRS 10 "Consolidated Financial
Statements" there is no requirement to compile interim ac-
counts 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.
254
and financial guarantees
199
835,706
848,667
315,803
(12,961)
Cash and cash equivalents at the end of the period
1,151,509
835,706
Thereof cash and cash equivalents from IFRS 5
78,594
Cash and cash equivalents at the end of the period excluding the disposal group
1,072,915
835,706
170
Supplementary information on the cash flow statement'
(361,093)
(387,247)
Dividend receipts²
Interest received
Interest paid
(306)
268,916
1,568,239
1,454,903
(300,418)
(272,831)
1
Income taxes paid (on balance)
2
(74,520)
(690,044)
Contribution from capital measures
44
559
Payment on capital measures
(53)
(4,508)
Structural change without loss of control
(601)
778
Dividends paid
(657,728)
(647,067)
16,919
Proceeds from long-term debts
57,734
Repayment of long-term debts
Other changes (net)
Cash flow from financing activities
IV. Exchange rate differences on cash
Cash and cash equivalents at the beginning of the period
Change in cash and cash equivalents (I. + II. + III. + IV.)
(1,641)
(97,486)
7
(54)
149,513
809,485
December 2017
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.
Notes to the consolidated
4.1
Consolidation principles
184
7.3
Reinsurance result
248
4.2
Consolidated companies and
7.4
Other income/expenses
249
complete list of shareholdings
246
185
Taxes on income
251
4.3
Major acquisitions and new formations 197
4.4
Major disposals and retirements
198
8. Other notes
254
8.1
Derivative financial instruments
5. Segment reporting
7.5
Hannover Re | Annual Report 2018
Investment income
184
financial statements 2018
1. Company information
2. Accounting principles
172
6.11 Other liabilities
238
172
6.12 Long-term debt and notes payable
6.13 Shareholders' equity and
240
treasury shares
242
3. Accounting policies
7.2
175
243
3.1
Summary of major accounting policies 175
3.2 Major discretionary decisions and
7. Notes on the individual items of the
estimates
183
statement of income
245
7.1
Gross written premium
245
4. Consolidation
6.14 Non-controlling interests
October 2017
212,751
June 2017
Changes in other assets and liabilities (net)
(581,817)
(442,522)
Changes in clearing balances
57,219
187,329
Changes in other technical provisions
(129,259)
(48,109)
1,871,147
1,129,417
(545,687)
225,625
Changes in deferred acquisition costs
Changes in claims reserves (net)
Changes in benefit reserve (net)
(105,658)
(586)
462,495
108,401
(25,992)
(444,520)
Changes in tax assets/provisions for taxes
Changes in prepaid reinsurance premium (net)
Net changes in contract deposits
275,497
(163,133)
Cash flow from operating activities
2,224,573
Maturities, sales
Fixed-income securities - at fair value through profit or loss
10,061,559
(11,384,950)
(20,958,519)
Purchases
18,746,680
Maturities, sales
Fixed-income securities - available for sale
229,949
(181,016)
(291,581)
360,109
135,297
54,510
1.1.-31.12.2017
1.1.-31.12.2018
Purchases
Maturities, sales
Fixed-income securities - loans and receivables
Maturities
Fixed-income securities - held to maturity
Cash flow from investing activities
II.
in EUR thousand
Hannover Re | Annual Report 2018
168
1,693,853
83,954
146,330
Changes in funds withheld
57,735
7,440,278
(53,364)
(3,160)
(657,728)
(54,742)
(602,986)
(602,986)
1,145,527
86,034
1,059,493
1,059,493
(230,047)
8,776,791
(23,660)
(2,766)
3,132
7
7
7
(53)
(53)
44
44
(160)
(160)
October 2017
(206,387)
Purchases
765,237
Hannover Re | Annual Report 2018
8,399
Amortisation of investments
(191)
(2,459)
Realised gains and losses on deconsolidation
(38,569)
(31,160)
Change in fair value of financial instruments (through profit or loss)
(377,093)
(127,659)
Net realised gains and losses on investments
113,569
9,542,028
95,063
1,044,577
1,145,527
Net income
Cash flow from operating activities
I.
1.1.-31.12.2017
in EUR thousand
N 05
1.1.-31.12.2018
Consolidated cash flow statement 2018
Annual financial statements
167
Appreciation/depreciation
1,643,108
Amendments to IAS 1 and IAS 8:
Definition of Material
6,569
Changes
Short-term investments
Purchases
(481,126)
(246,824)
167,121
93,726
Sales
Real estate and real estate funds
(118,912)
(31,193)
3,873
530,981
11,591
Sales
Affiliated companies and participating interests
(327,224)
(386,219)
247,258
403,606
Purchases
Reinsurance contracts: IFRS 4 "Insurance Contracts" repre-
sents the outcome of Phase I of the IASB project “Insurance
Contracts" and constitutes a transitional arrangement. IFRS
17, which was issued by the IASB in May 2017, establishes
binding principles for the measurement of insurance con-
tracts effective for annual reporting periods beginning on or
after 1 January 2021. At a meeting of the IASB in November
2018 it was tentatively decided to defer mandatory applica-
tion of IFRS 17 by one year to 1 January 2022.
IFRS 4 sets out basic principles for the accounting of insur-
ance contracts. Underwriting business is to be subdivided
into insurance and investment contracts. Contracts with a sig-
nificant insurance risk are considered to be insurance con-
tracts, while contracts without significant insurance risk are
to be classified as investment contracts. The standard is also
applicable to reinsurance contracts. IFRS 4 contains funda-
mental rules governing specific circumstances, such as the
separation of embedded derivatives and unbundling of de-
posit components, but it does not set out any more extensive
provisions relating to the measurement of insurance and rein-
surance contracts. In conformity with the basic rules of IFRS
4 and the IFRS Framework, reinsurance-specific transactions
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 de-
rivative financial instruments as at the settlement date. The
recognition of fixed-income securities includes apportionable
accrued interest.
Financial assets held to maturity are comprised of non-
derivative 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 amortis-
ed cost. The corresponding premiums or discounts are recog-
nised in profit or loss across the duration of the instruments
using the effective interest rate method. An impairment loss
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 instru-
ments that include fixed or determinable payments on a de-
fined due date, are not listed on an active market and are not
sold at short notice. They are carried at amortised cost.
Purchases
Premiums or discounts are deducted or added within the
statement of income using the effective interest rate method
until the amount repayable becomes due. An impairment loss
is taken only 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.
(180,377)
(33,760)
Amendment to IFRS 3 Business Combinations
Amendments to References to the Conceptual
Framework in IFRS Standards
(1,987,845)
Amendments to IAS 19: Plan Amendment,
Curtailment or Settlement
Annual Improvements to IFRS Standards
2015-2017 Cycle
Amendments to IFRS 9: Prepayment Features
with Negative Compensation
Amendments to IAS 28: Long-term Interests
in Associates and Joint Ventures
IFRIC Interpretation 23 Uncertainty
over Income Tax Treatments
Initial application to annual periods beginning on
or after the following date:
1 January 2020 (still to be endorsed by the EU)
1 January 2020 (still to be endorsed by the EU)
1 January 2020 (still to be endorsed by the EU)
1 January 2019 (still to be endorsed by the EU)
1 January 2019 (still to be endorsed by the EU)
1 January 2019 (endorsed by the EU)
Other changes (net)
1 January 2019 (endorsed by the EU)
3. Accounting policies
3.1 Summary of major accounting policies
Cash flow from financing activities
III.
in EUR thousand
Annual financial statements
169
Hannover Re | Annual Report 2018
(942,250)
(2,075,202)
Cash flow from investing activities
(13,125)
1 January 2019 (endorsed by the EU)
Hannover Re | Annual Report 2018
N 06
Annual financial statements
Listing of the underlying share, implicit
volatilities, money-market interest rate,
dividend yield
Fair values, actuarial parameters, yield curve
Interest parity model
Black-Scholes
Present value method
N 07
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
corporate issuers and derivative financial instruments. Within
the scope of the fair value option provided under IAS 39
“Financial 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. Han-
nover Re makes use of the fair value option solely for selected
subportfolios of its financial assets. Securities held for trading
and securities 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 avail-
able for use as fair values, the carrying amounts are deter-
mined using generally acknowledged measurement methods.
All changes in fair values from this measurement are recog-
nised in investment 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 oriented 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 recog-
nised directly in shareholder's equity after deduction of de-
ferred 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
financial instrument corresponds to the amount that Hannover
Re would receive or pay if it were to sell or settle the said fi-
nancial instrument on the balance sheet date. Insofar as mar-
ket 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
characteristics or using recognised models of mathematical
finance. Hannover Re uses a number of different valuation
models for this purpose. The details are set out in the table
above. Financial assets for which no publicly available prices
or observable market data can be used as inputs (financial
176
Hannover Re | Annual Report 2018
Sales
Other invested assets
Yield curves, spot and forward rates
(90,223)
42,674
117,324
Purchases
Other financial assets - at fair value through profit or loss
(35,373)
(5,824)
Purchases
975,776
14,323
175
Equity securities - available for sale
Sales
(138,839)
Insurance derivatives
Sales
OTC stock options,
Fixed-income securities
OTC stock index options
Valuation models
Unlisted plain vanilla bonds,
interest rate swaps
Unlisted structured bonds
Unlisted ABS/MBS, CDO/CLO
Other invested assets
Financial instrument
Private equity funds,
private equity real estate funds
Unlisted bond,
equity and real estate funds
Parameter
Yield curve
Yield curve, volatility surfaces
Unlisted equities and equity investments
Risk premiums, default rates, prepayment
speed and recovery rates
Currency forwards
Net asset value method
Net asset value method
Capitalised earnings method,
discounted cash flow method,
multiple-based approaches
Hull-White, Black-Karasinski,
LIBOR market model etc.
Present value method
Audited net asset values (NAV)
Pricing model
Audited net asset values (NAV)
Acquisition cost, cash flows, EBIT multiples,
as applicable book value
Present value method
Other financial assets - at fair value through profit or loss
25
EUR
20,393
EUR
100.00
Hannover/Germany
Hannover Insurance-Linked Securities GmbH & Co. KG ³,
168,845
1
Hannover/Germany
International Insurance Company of Hannover SE 1, 2,
EUR
1,563,377
35
EUR
100.00
Hannover/Germany
HILSP Komplementär GmbH³,
100.00
FUNIS GmbH & Co. KG 1,
Hannover America Private Equity Partners II
100.00
EUR
95.42
100.00
Hannover/Germany
HAPEP II Holding GmbH 1,
61,024
424,437
EUR
95.42
Hannover/Germany
Hannover/Germany
(5)
3
EUR
100.00
Hannover/Germany
HR Verwaltungs-GmbH 1,4,5,
11,503
106,750
EUR
GmbH & Co. KG 1,
Hannover/Germany
Information on the non-controlling interests in shareholders'
equity and profit or loss as well as on the major non-con-
trolling interests is provided in section 6.14 “Non-controlling
interests". On the balance sheet date there were no signifi-
cant restrictions on access to or the use of Group assets due
to protective rights in favour of non-controlling interests.
2,341,925
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.
7
8
5
6
2
2
114
116
Under a purchase agreement concluded on 1 August 2018
with HDI Global SE, Hannover Rück SE sold 50.2% of the
shares in International Insurance Company of Hannover SE.
Hannover Rück SE gave an undertaking in the purchase
agreement - as is customary with such transactions - not to
dispose of and, in particular, not to encumber the shares prior
to payment of the purchase price and transfer of the shares.
This commitment remained in force beyond the balance sheet
date. Following payment of the agreed purchase price the
shares were transferred to the purchaser on 8 January 2019.
98
16
16
2017
2018
N 09
Total
Abroad
3,994
Germany
100
Hannover Life Re AG 1,2,
National provisions of company law or requirements of super-
visory law may in certain countries limit the ability of the
Hannover Re Group to transfer assets between companies
belonging 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.
The following list of shareholdings is provided in the present
Group annual financial report in accordance with § 313
Para. 2 German Commercial Code (HGB). The stipulations of
IFRS 12.10 and IFRS 12.21 have also been observed.
EUR
100.00
Hannover/Germany
Hannover Rück Beteiligung Verwaltungs-GmbH 1,2,
Affiliated consolidated companies
Domestic companies
Result for the last
financial year
reserves
Capital and
List of shareholdings
Currency
N 10
in currency units of 1,000
Name and registered office of the company
List of shareholdings
Annual financial statements
185
Hannover Re | Annual Report 2018
With regard to the major acquisitions and disposals in the
year under review please see our remarks in the following
paragraphs 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
statements drawn up by the companies.
Participation
in %
90
10,278
Hannover/Germany
669
EUR
18.72
Berlin/Germany
Perseus Technologies GmbH 7,
Other participations
21,044
84,553
EUR
27.78
Hannover/Germany
HANNOVER Finanz GmbH 7,
Companies included at equity
89,719
EUR
32.96
Hannover/Germany
WeHaCo Unternehmensbeteiligungs-GmbH 7,
Associated companies
(1,354)
FinLeap GmbH 7,
Berlin/Germany
9.49
667,338
EUR
1.75
(3,370)
7,527
EUR
6.72
Nuremberg/Germany
Nürnberger Beteiligungs-Aktiengesellschaft,
999
Berlin/Germany
193
4,402
EUR
9.17
Hannover/Germany
Internationale Schule Hannover Region GmbH 8,
(5,934)
40,297
EUR
ELEMENT Insurance AG 7,
1,628
EUR
50.00
EUR
87.67
Munich/Germany
HR GLL Central Europe GmbH & Co. KG 1,
19,339
908,380
EUR
87.68
Hannover/Germany
350,734
Hannover Re Euro RE Holdings GmbH 1,
301,283
EUR
91.20
Hannover/Germany
Hannover Re Euro PE Holdings GmbH & Co. KG¹,
6,845
318,374
EUR
94.72
55,983
Hannover Re Global Alternatives GmbH & Co. KG 1,
4,850
Munich/Germany
Hannover/Germany
Oval Office Grundstücks GmbH 4,6
Affiliated non-consolidated companies
170,000
1
940,847
EUR
64.79
43
HR GLL Central Europe Holding GmbH,
EUR
Hannover/Germany
E+S Rückversicherung AG1,
Hannover/Germany
186
HAPEP II Komplementär GmbH¹,
1,086
60,667
EUR
87.67
82.40
Total
4.7590
Germany
•
•
•
Other invested assets
•
• Real estate funds
Other financial assets - at fair value through profit or
loss
securities
Equities, equity funds and other variable-yield
Fixed-income securities
•
•
•
Hannover Re | Annual Report 2018
180
Disclosures about financial instruments: IFRS 7 "Financial
Instruments: Disclosures” requires more extensive disclo-
sures according to classes of financial instruments. In this
context, the term "class" refers to the classification of finan-
cial instruments according to their risk characteristics. A min-
imum distinction 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
corresponding disclosures in the notes. In contrast, the term
"category" is used within the meaning of the measurement
categories defined in IAS 39 “Financial Instruments: Recog-
nition and Measurement" (held to maturity, loans and receiv-
ables, available for sale and financial assets at fair value
through profit or loss with the subcategories of trading and
designated financial instruments). Essentially, the following
classes of financial instruments are established:
Non-controlling interests are shares in the equity of affiliat-
ed companies not held by companies belonging to the Group.
IAS 1 “Presentation of Financial Statements” requires that
non-controlling interests be recognised separately within
Group shareholders' equity. The non-controlling interest in
profit or loss is shown separately following the net income.
Further information is provided in section 6.14 “Non-con-
trolling interests".
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 consist
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 earliest reported period. Unrealised gains and losses from
the fair value measurement of financial instruments held as
available for sale are carried in cumulative other comprehen-
sive income under unrealised gains and losses on invest-
ments. Translation differences resulting from the currency
translation of separate financial statements of foreign subsid-
iaries are recognised under cumulative foreign currency
translation adjustments.
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
Measurement" to classify financial liabilities in this category
upon first-time recognition.
Short-term investments
Certain financial assets in the balance sheet item
"Other assets"
Certain financial assets in the balance sheet item
"Other liabilities"
Long-term debt
1.6208
on the balance sheet date
1 EUR corresponds to:
AUD
2017
N 08
Average rate of exchange
2018
Mean rate of exchange
31.12.2017
costs.
31.12.2018
Annual financial statements
181
Hannover Re | Annual Report 2018
Currency translation differences resulting from long-term
loans or lendings without specified maturity between Group
companies are similarly recognised outside the statement of
income in a separate item of shareholders' equity.
the balance sheets of the individual companies and the trans-
fer 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 compa-
nies must be recognised in the consolidated financial state-
ment as a separate item in shareholders' equity.
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
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 differences from the translation of monetary assets
and liabilities are recognised directly in the statement of in-
come. Currency translation differences from the translation of
non-monetary assets measured at fair value via the statement
of income are recognised as profit or loss from fair value
measurement changes. Exchange differences from non-mon-
etary 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 subsidi-
aries were drawn up in the currencies corresponding to the
economic environment in which each subsidiary primarily
operates. These currencies are referred to as functional cur-
rencies. The euro is the reporting currency in which the con-
solidated financial statement is prepared.
Notes payable
Key exchange rates
1.5347
The balance sheet item Long-term debt and notes payable
consists principally of issued bonds, some of which involve
subordinated liabilities that can only be satisfied after the
claims of other creditors in the event of liquidation or bank-
ruptcy. Both long-term debt and notes payable are measured
at amortised cost using the effective interest rate method.
The transaction costs as well as premiums/discounts arising
in connection with the issuance of bonds are amortised and
recognised together with the nominal interest as financing
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 compensat-
ed. Top-up payments are accumulated in instalments until the
end of the work phase. In periods when the employee is re-
munerated according to the partial retirement arrangements
without performing any work, the provision is released.
Intangible assets: in accordance with IFRS 3 "Business
Combinations" goodwill is not amortised; instead, impair-
ments 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 allocated should represent the lowest level
on which goodwill is monitored for internal management pur-
poses and may not be larger than a segment. Following allo-
cation 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
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. An appropriate impairment is taken
to allow for objective substantial indications of credit risks
that are based on an event after initial recognition and sug-
gest impairment, insofar as this can be reliably measured.
Deferred acquisition costs principally consist of commis-
sions and other variable costs directly connected with the ac-
quisition or renewal of existing reinsurance contracts. These
acquisition costs are capitalised and amortised over the ex-
pected period of the underlying reinsurance contracts. De-
ferred 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 ac-
counts for value adjustments taken on reinsurance accounts
receivable, 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 re-
quired by US GAAP. IFRS 4 in conjunction with SFAS 113 re-
quires insurance contracts that transfer a significant techni-
cal risk from the ceding company to the reinsurer to be
differentiated from those under which the risk transfer is of
merely subordinate 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 un-
der these contracts is netted under other income/expenses.
The payment flows resulting from these contracts are shown
in the cash flow statement under operating activities.
Annual financial statements
177
Hannover Re | Annual Report 2018
Funds withheld are receivables due to reinsurers from their
clients in the amount of the cash deposits contractually with-
held by such clients; they are recognised at acquisition cost
(nominal amount). Appropriate allowance is made for credit
risks.
Cash and cash equivalents are carried at face value. Cash
collateral that we have received for the hedging of positive
fair values of derivatives is shown under other liabilities.
Investment property is valued at cost less depreciation and
impairment. Straight-line depreciation is taken over the ex-
pected useful life - at most 50 years. Under the impairment
test the market value of investment property (recoverable
amount) is determined using accepted valuation methods,
compared with the book value and, where necessary, impair-
ments are recognised. Maintenance costs and repairs are ex-
pensed. Value-enhancing expenditures are capitalised if they
extend the useful life.
Investments in associated companies are valued at equity
on the basis of the proportionate shareholders' equity attrib-
utable to the Group. Further information is provided in sec-
tion 4.1 "Consolidation principles".
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 equi-
ty firms), they are carried at the latest available net asset val-
ue as an approximation of the fair value. Loans included in
this item are recognised at amortised cost.
Netting of financial instruments: financial assets and liabili-
ties 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 oth-
er words if the intention exists to offset such items on a net
basis or to effect this offsetting simultaneously.
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 ap-
proximation of the fair value for the first time after a two-year
waiting period if there is a significant or prolonged decrease
in value. If, however, significant changes in value occur with-
in the funds during this period that are not attributable to the
J curve effect in addition to the increased investment expens-
es, the resulting impairment is recognised directly as a write-
down.
With respect to impairments on securities with the character
of equity, IAS 39 “Financial Instruments: Recognition and
Measurement" states, in addition to the aforementioned prin-
ciples, that a significant or prolonged decrease in fair value
below acquisition cost constitutes objective evidence of im-
pairment. Hannover Re considers equity securities to be im-
paired 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 security is considered to be impaired on the basis of
these criteria, IAS 39 requires that a value adjustment be rec-
ognised 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
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 pres-
ent value of the expected future cash 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 - sep-
arately 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.
instruments 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. audit-
ed 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 hierar-
chy in section 6.1 "Investments under own management".
63,059
goodwill the recoverable amount is to be stated. The recover-
able amount is to be compared with the book value of the
CGU including goodwill. When the latter exceeds the recov-
erable 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".
The other intangible assets 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 busi-
ness and tax effects. 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 impairment losses are taken if necessary. In this regard
please see section 3.2 "Major discretionary decisions and
estimates”. Separately identifiable intangible assets in connec-
tion with business combinations, such as customer base or
contractual/legal rights, are also recognised under this item.
Purchased and proprietary software is recognised at acquisi-
tion cost less depreciation. Intangible assets are regularly
tested for impairment and an impairment loss is recognised
where necessary.
Deferred tax assets: IAS 12 “Income Taxes” requires that as-
sets-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 burdens 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 estab-
lished if they arise out of assets or liabilities, the book value
of which upon first-time recognition diverges from their ini-
tial tax base.
Restructuring provisions are recognised if a detailed formal
plan for restructuring measures exists and steps to imple-
ment it have already begun or if key details of the restructur-
ing have been published. The provisions cover only expendi-
tures arising directly as a consequence of restructuring that
are not connected with the company's regular activities.
Sundry non-technical provisions are established according
to a realistic estimate of the amount required and shown un-
der the balance sheet item "Other liabilities". Allocation to
such provisions is conditional upon the Group currently hav-
ing 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.
recognised as debt pursuant to IAS 32 and measured at the
fair value of the redemption amount as at the balance sheet
date.
Annual financial statements
179
Hannover Re | Annual Report 2018
Under the balance sheet item Other liabilities we recognise
not only the sundry non-technical provisions but also minori-
ty 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
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 ad-
ditional tax loads in the future; please see our explanatory
remarks on deferred tax assets.
Contributions to defined contribution plans are expensed
when the beneficiary of the commitment has performed the
work that entitles them to such contributions.
Share-based payments: The share-based payment models
existing within the Hannover Re Group are remuneration
plans with cash settlement. In accordance with the require-
ments of IFRS 2 "Share-based Payments", the services ren-
dered by the eligible beneficiaries and the resulting liability
are to be recognised at the fair value of the liability and ex-
pensed over the vesting period. Until settlement of the liabil-
ity the fair value of the liability is remeasured at each closing
date and at the settlement date. All changes in fair value are
recognised in profit or loss for the period.
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 de-
fined benefit plans. The basis of the valuation is the estimated
future increase in the rate of compensation of the pension
beneficiaries. The benefit entitlements are discounted by ap-
plying 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. Service 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.
in the reserve is shown in the statement of income on a con-
sistent Group basis.
Loss and loss adjustment expense reserves are constituted
for payment obligations from reinsurance losses that have oc-
curred 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 payable. In reinsurance business a considerable pe-
riod of time may elapse between the occurrence of an insured
loss, notification by the insurer and pro-rata payment of the
loss by the reinsurer. For this reason the realistically estimat-
ed future settlement amount based on long-standing estab-
lished practice is carried. Recognised actuarial methods are
used for estimation purposes. In this regard we make allow-
ance for past experience, currently known facts and circum-
stances, the expertise of the market units as well as other as-
sumptions relating to the future development, in particular
economic, social and technical influencing factors. Subse-
quently, based on Group-wide analyses, we give separate
consideration in this context to the inherent volatility of the
reserves constituted for the reinsurance business, e. g. due to
large losses. The interest rate-induced portion of the change
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.
Other assets are accounted for at amortised cost.
Own-use real estate: The portfolio of own-use real estate is
measured at cost less straight-line depreciation over a useful
life of no more than 50 years. The fair values are determined
for comparative purposes using the discounted cash flow
method.
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 in-
come taxes that are levied by the same revenue authority ei-
ther 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 substan-
tial 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 dis-
charge the liabilities at the same time as the claims are real-
ised.
Hannover Re | Annual Report 2018
178
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 re-
ceivable no longer appears likely. Deferred taxes are meas-
ured according to the tax regulations specific to the country
concerned that are applicable or have been adopted as at the
closing date.
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
mortality, disability, lapse rates and the future interest rate
development. The actuarial bases used in this context allow
an adequate 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.
1.5799
1.4772
BHD
risks. We would further refer to our explanatory remarks on
the technical reserves in section 3.1 "Summary of major ac-
counting policies" and section 6.7 “Technical provisions".
For further particulars, including information required by
IFRS 4, the reader is referred to our remarks on the under-
writing risks in property and casualty reinsurance on page
105 et seq. of the management report – including, for exam-
ple, with regard to the modelling of natural catastrophe sce-
narios and the assumptions relating to asbestos and pollution
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
casualty reinsurance the expected ultimate loss ratios are cal-
culated for all lines. Actuarial methods such as the "chain lad-
der" method provide the starting point for these calculations.
The realistically estimated future settlement amount is recog-
nised 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. 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 re-
ported 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 applying statistical methods, separate considera-
tion is given to large losses.
Supplementary or complete estimates of the corresponding
profit and loss items, assets and liabilities including relevant
retrocessions are made where ceding company accounts with
substantial premium income are missing. Missing ceding
company accounts with a low premium volume are included
in the following year.
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 in-
formation on contingent claims and liabilities as at the bal-
ance sheet date and the disclosure of income and expenses
during the reporting period. Key facts and circumstances
subject to such assumptions and estimates include, for exam-
ple, the recoverability of contingent reinsurance liabilities,
the recoverability of investments in associated companies,
the valuation of derivative financial instruments as well as as-
sets and liabilities relating to employee benefits. The actual
amounts may diverge from the estimated amounts.
3.2 Major discretionary decisions and estimates
Hannover Re | Annual Report 2018
182
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 rele-
vant 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 operation-
al and accounting purposes and were classified as sold or for
sale are recognised as discontinued operations. Measure-
ment is at the lower of book value and fair value less costs to
sell. Depreciation or amortisation is not taken on non-current
assets as long as they are classified as held for sale. Impair-
ment 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, Contin-
gent Liabilities and Contingent Assets" is reviewed.
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/expenses. The calculation of the
deferred tax assets and liabilities is based on tax loss car-
ry-forwards, unused tax credits and temporary differences
between the book values of assets and liabilities in the consol-
idated balance sheet of the Hannover Re Group and their car-
rying amounts in the tax balance sheet. Further information
on deferred taxes is provided in our remarks on deferred tax
assets and liabilities.
Taxes: the taxes are comprised of the actual tax load on cor-
porate profits of the Group companies, to which the applica-
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 volume
that is not booked to income. This applies principally to prop-
erty and casualty reinsurance and parts of accident and health
reinsurance. Premiums already collected that are attributable
to future risk periods are deferred pro rata temporis and rec-
ognised 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.
Ceded reinsurance premiums are deducted from the gross
written premium for the purpose of reconciliation to net pre-
mium earned. Assets and liabilities in connection with rein-
surance ceded are recognised on a gross basis. The reinsured
portions 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 rec-
ognised 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.
15.0052
15.5416
14.8140
1.1305
In life and health reinsurance, too, the calculation of reserves
and assets is crucially dependent on actuarial projections of
the covered business. So-called model points are defined ac-
cording to the type of business covered. The main distin-
guishing criteria are the age, sex and (non-)smoker status of
the insured, tariff, policy period, period of premium payment
and amount of insurance. The portfolio development is simu-
lated for each model point, in which regard the key input pa-
rameters 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 su-
perimposition of numerous model points gives rise to a pro-
jection, 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 reinsurance treaty and subsequently adjust-
ed to the actual projection.
The projections, which cover various model scenarios ("con-
servative assumptions” versus “best estimate”), constitute
the starting point for numerous areas of application encom-
passing quotation, the determination of carrying amounts
and embedded values as well as contract-specific analyses,
e.g. regarding the appropriateness of the recognised reinsur-
ance 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".
In determining the carrying amounts for certain financial as-
sets 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 ac-
counting policies" concerning financial assets at fair value
through profit or loss and securities held as available for sale
as well as in section 6.1 "Investments under own manage-
ment" concerning investment property. Assumptions con-
cerning the appropriate applicability criteria are necessary
when determining the need for impairments on non-mone-
tary 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”.
Hannover Re | Annual Report 2018
Consolidated companies (Group 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
Hannover Re | Annual Report 2018
184
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 the Group were also eliminated. Transactions between
a disposal group and the continuing operations of the Group
were similarly eliminated in accordance with IFRS 10.
1.1814
Only subsidiaries which are of minor importance - both indi-
vidually 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 cor-
responding values for the Group as a whole on average over
the last three years. For this reason 12 (14) companies at
home and abroad were not consolidated in the year under
review. A further 5 (4) individual companies as well as 1 (2)
subgroup account(s) with altogether 14 (17) individual com-
panies were not included at equity in the consolidated finan-
cial statement for the same reason. The business object of
these altogether 31 (35) companies is for the most part the
rendering of services for reinsurance companies within the
Group.
using the equity method of accounting. We therefore meas-
ure investments in associated companies with the proportion
of the shareholders' equity attributable to the Group. Accord-
ing to the proportionate interest method required by IAS 28
"Investments in Associates", the goodwill attributable to as-
sociated companies is recognised together with the invest-
ments in associated companies. The share of an associated
company's year-end profit or loss relating to the Group is in-
cluded in the income from investments and shown separately
in the consolidated statement of income. Shareholders' equi-
ty and profit or loss are taken from the associated company's
latest available financial statement. A significant influence is
presumed to exist if a company belonging to the Hannover 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 rep-
resentation on a governing body of such company, participa-
tion in its policy-making processes - e.g. with respect to div-
idends or other distributions -, the existence of material
inter-company transactions, the possibility of interchanging
managerial personnel or the provision of key technical infor-
mation for the company. Further particulars on companies
consolidated using the equity method of accounting are pro-
vided in section 6.1 "Investments under own management"
under "Associated companies".
Companies over which Hannover Re is able to exercise a sig-
nificant influence are consolidated as associated companies
The capital consolidation is based on the acquisition method.
Goodwill derives from the acquisition of subsidiaries and cor-
responds to the sum of the consideration rendered, the
amount of all non-controlling interests in the acquired com-
pany and the fair value of the equity interests previously held
in the acquired company less the fair value of the acquired
net assets. Under IFRS 3 goodwill is not amortised, but in-
stead 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.
The capital consolidation is carried out according to the re-
quirements of IFRS 10 “Consolidated Financial Statements"
on the basis of a consistent consolidation model for all enti-
ties that identifies control as the single basis for verifying the
consolidation requirement, irrespective of whether control is
substantiated in company law, contractually or economically.
Group companies 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 pow-
er over a Group company on the basis of voting rights or oth-
er rights, if it has exposure or rights to positive and negative
variable returns from its involvement with the Group compa-
ny 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 princi-
pal-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 Han-
nover 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
shareholdings". Group companies are consolidated until the
Hannover 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
Annual financial statements
183
-
1.1994
1.1451
16.4522
ZAR
HKD
0.8744
0.8870
0.8875
0.9028
GBP
7.6306
7.8174
7.8051
8.9680
7.8768
1.4677
1.5313
1.5047
1.5591
CAD
0.4263
0.4457
0.4523
0.4316
CNY
Abroad
9.3728
8.8091
USD
9.6370
10.2621
9.8387
10.2769
SEK
4.8507
4.7681
4.8552
9.2579
MYR
1,295.1269
1,280.3000
1,277.8700
KRW
73.6295
80.4111
76.6076
80.2219
INR
1,276.2746
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.
Hannover Re | Annual Report 2018
Roland Vogel
120.6
2014
2015
2016
2017
2018
I 14
120.6
Annual high¹
Number of shares in million
in EUR
Key figures
No-par-value registered shares
EUR 120,597,134.00
120,597,134
30 November 1994
Annual low¹
MDAX
120.6
120.6
62.38
74.97
105.65
102.80
104.90
Year-opening price 1
75.92
120.6
111.50
115.65
125.30
58.88
73.81
84.12
95.95
104.70
106.20
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)
Share class
For our investors
15
Hannover Re | Annual Report 2018
22.2% Germany
United Kingdom
15.3%
34.4% United States
Basic information
0.7% Rest of world
I 12
50.2% Talanx AG
6.4% France
5.2% Canada
3.8% Switzerland
3.6% Benelux
3.4% Asia
1.7% Rest of Europe
Securities identification number
International Securities Identification Number (ISIN)
Ticker symbols
Common shares (as at 31 December 2018)
Number of issued shares (as at 31 December 2018)
First listed
Index inclusion
Market segment
United States
Germany
Exchange listings
113
HVRRY
HNRGn
HNR1
ADR
Thomson Reuters
Bloomberg
DE 000 840 221 5
840 221
Year-ending price 1
3.3% Scandinavia
117.70
102.80
7.5
6.4
Price-to-cash flow (P/CF) ratio 8
9.2
11.1
10.6
13.2
5.3
13.4
1.6
1.4
1.5
1.6
Price-to-book (P/B) ratio 6
5.7%
4.5%
1.2
4.9%
4.1
1 Xetra daily closing prices from Bloomberg
Finance and Accounting
Hannover Re | Annual Report 2018
Year-end closing price/cash flow (from operating activities) per share
8
7 Year-end closing price/earnings per share
Year-end closing price/book value per share
6
4.7
Dividend per share/year-end closing price
Earnings per share/average of book value per share at start and end of year
4
Dividend of EUR 3.75 plus special dividend of EUR 1.50 for 2018, dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017 and 2016, dividend
of EUR 3.25 plus special dividend of EUR 1.50 for 2015 and dividend of EUR 3.00 plus special dividend of EUR 1.25 for 2014
16
3
Proposed dividend
2
5
4.8%
4.5%
Dividend yield 5
3.75 +1.502,3
Dividend per share
70.72
7.95
8,528.5
8,776.8
72.78
8.79
Earnings per share (basic and diluted)
Book value per share
3.50 +1.50³
Equity attributable to shareholders of Hannover
Rück SE in EUR million
12,741.1
12,397.4
12,650.6
14,194.3
Market capitalisation at year-end in EUR million
74.97
105.65
9,041.2
8,997.2
74.61
9.71
3.50 +1.50³
8,068.3
7,550.8
14.7%
14.7%
13.7%
16.01
25.75
19.33
14.05
10.9%
12.2%
Return on equity (after tax) 4
18.45
Cash flow per share
3.00 +1.253
3.25 +1.50³
8.17
9.54
62.61
66.90
104.90
held by institutional investors
Price/earnings (P/E) ratio?
0
Equity markets dragged down by
geopolitical and economic uncertainties
Proposed dividend of EUR 3.75 plus special dividend of EUR 1.50 per share above the previous
year's level
Share performance of 17.1% including reinvested dividends
The Hannover Re share
For our investors
expense ratio in the industry - a competitive edge
that enables us to take the long view even in
protracted soft market phases.
We operate with the lowest management
Capital markets proved to be highly volatile and challenging
in the year under review in the face of numerous geopolitical
and economic issues. The relatively carefree year enjoyed by
investors in 2017 thanks to low interest rates, low inflation
and robust economic growth gave way to a marked shift in
sentiment in 2018 against the backdrop of the threat and ini-
tiation of tariff and trade wars between the United States and
China, the repeated flare-up of concerns around Italy's stabil-
ity and the protracted lack of clarity surrounding the outcome
of Brexit negotiations. While factors such as the overhaul of
international trade agreements and increasing challenges as-
sociated with forming a government in Germany had little
impact on financial markets in the first quarter, hope of real
growth stimuli materialised in the US at the start of the year
in the shape of large-scale tax reform. The picture that be-
came evident globally as the year progressed was a nuanced
one. While China maintained its growth impetus, central
banks in other emerging economies were compelled to adopt
a significantly tighter monetary policy in order to protect
their currencies. This led to an appreciable softening in the
pace of growth and initial price reactions on capital markets.
powers assigned to our highly skilled and
dedicated staff around the world, we deliver
tailor-made solutions for our clients.
Going about things differently - that is precisely
what sets Hannover Re apart. Thanks to lean
structures and an efficient organisation, we are
able to respond quickly, flexibly and pragmati-
cally to market opportunities and customer
requirements.
Our self-image
Somewhat
different
Expertise in demand
For our investors
He has left a deep void not only in his family and among his relatives, but
also for us. The Supervisory Board, the Executive Board and the mem-
bers of staff will honour his memory.
We have lost a colleague and friend in Jürgen Gräber, who played
his part with exemplary dedication, a profound sense of responsibility
and powerful charisma. Both within and beyond the ranks of our com-
pany he gained an enduring reputation. The successful development of
Hannover Re was inextricably linked to the name of Jürgen Gräber.
Our considerable performance capability is
entirely at the service of our customers. We
concentrate on what matters. Purposeful and
efficient in our approach and assisted by flat
hierarchies and the extensive decision-making
After graduating in economics Jürgen Gräber embarked on his profes-
sional career in 1981 as an underwriter with Hannover Re. In 1997 he
was appointed to the Executive Board, most recently overseeing the co-
ordination of the Property & Casualty reinsurance business group. Over
the years Jürgen Gräber took on a broad range of regional and specialist
responsibilities. His knowledge and energy have left an indelible mark
on our company.
The German DAX index started the year at 12,918 points and
climbed as high as 13,560 points in January - a level which
was also its highest for the year. German blue chips began to
see their first price corrections over the remainder of the
year, unsettled by clouds on the economic horizon and early
profit warnings coming out of export-oriented companies.
The announcement by the European Central Bank in mid-De-
cember to the effect that it would be terminating its purchas-
in EUR
124.00
125.30
110
112.80
112.50
114.90
117.90
Highs and lows of the Hannover Re share
118.60
130
12
1 09
The Hannover Re share stood at EUR 104.90 going into the
year. By 3 January 2018 it had already touched its lowest
point of the year at EUR 104.70. Against the backdrop of the
numerous large losses incurred in 2017, Hannover Re made
the most of the opportunities on the reinsurance markets in
the treaty renewals as at 1 January 2018 and substantially
expanded its portfolio in keeping with the company's selec-
tive and margin-focused underwriting policy. In this context
the share price rose steadily until March and remained stable
through the second quarter. With a view to stemming the
Hannover Re share reaches
a new all-time high
The performance of the MDAX, which entered the year at
26,201 points and touched its highest level of 27,455 on
19 January 2018, was not significantly better. It moved side-
ways in the months that followed, albeit showing elevated
volatility. The MDAX ultimately closed out the year down by
17.6% at 21,588. The S&P 500 and Dow Jones Industrial in-
dices fared less poorly, retreating by 5.2% and 6.7% respec-
tively on the year thanks to support from growth stimuli asso-
ciated with US tax reform. The MSCI World index ended the
year 8.8% lower at 1,920 points.
es of new government and corporate sector bonds at year-
end accelerated the downward slide on European stock
markets. On 27 December, one day before the close of trad-
ing, the German bellwether index sank to its lowest level of
the year at 10,382 points. The DAX closed out the final trad-
ing day down on the year for the first time since 2011 at
10,559 (-18.3%).
120
of 62.
We were deeply saddened by the news of Jürgen Gräber's passing. On
9 November 2018 he died suddenly and entirely unexpectedly at the age
* 18 September 1956 † 9 November 2018
•
•
Aviation
•
Specialty Lines Worldwide
• Marine
Sven Althoff
Hannover Re | Annual Report 2018
United Kingdom, Ireland,
Continental Europe
Property & Casualty Reinsurance
Target Markets in
Run-Off Solutions
Dr. Michael Pickel
Group Legal Services
Investment and Collateral Management
Facility Management
Information Technology
Geographical breakdown of the shares
• North America
•
London Market and
Direct Business
Jürgen Gräber
For our investors
7
Retrocessions
Quotations
Business Group
Coordination of Property & Casualty
Structured Reinsurance and
Insurance-Linked Securities
Catastrophe XL (Cat XL)
•
Worldwide Treaty Reinsurance
•
Global Reinsurance
Until 9 November 2018
Jürgen Gräber
Facultative Reinsurance
124.00
122.30
Credit, Surety and Political Risks
119.20
-
The Annual General Meeting of Hannover Rück SE was held
on 7 May 2018 at Hannover Congress Centrum (HCC). Alto-
gether, including postal ballots around 82% of the share
capital (previous year: 77%) was represented.
Annual General Meeting looked back on
a satisfactory Group result despite a year
of heavy losses
For our investors
I 10
13
Hannover Re | Annual Report 2018
In his address to shareholders Chief Executive Officer Ulrich
Wallin took the opportunity to look back on the 2017 financial
year, which was notable for significantly more loss events af-
ter five comparatively benign years. In particular, hurricanes
Harvey, Irma and Maria - along with other natural catastro-
phes inflicted heavy insured losses. Hannover Re, in com-
mon with other market players, was substantially impacted.
The company nevertheless generated a result that translated
into a return on equity of 10.9% and comfortably beat the
minimum target of 900 basis points above the risk-free inter-
est rate. Bearing in mind the loss experience, the Group net
income of EUR 959 million constituted a satisfactory result.
The Executive Board and Supervisory Board intend to pro-
pose to the Annual General Meeting on 8 May 2019 that a
dividend of EUR 3.75 plus a special dividend of EUR 1.50 per
share should be distributed. The total dividend of EUR 5.25 is
thus EUR 0.25 higher than in the previous year. In keeping
with the previous year, the special dividend will be paid as a
capital management measure because the company's capital-
isation continues to exceed the required capital. Based on the
year-end closing price of EUR 117.70, this produces a divi-
dend yield of 4.5%.
ued.
With a book value per share of EUR 72.78 the Hannover Re
share showed a price-to-book (P/B) ratio of 1.62 at the end of
the year under review; compared both to the average MDAX
P/B ratio of 1.55 as at year-end and the P/B ratio for the peer
group, the share thus continues to be significantly better val-
Based on the year-end closing price of EUR 117.70, Hannover
Re's market capitalisation totalled EUR 14.2 billion at the end
of the 2018 financial year, an increase of EUR 1.5 billion or
12.2% compared to the previous year's figure of EUR 12.7
billion. According to the rankings drawn up by Deutsche
Börse AG, the company placed fifth in the MDAX at the end of
December with a free float market capitalisation of EUR
7,146.4 million and eighteenth with a trading volume of EUR
4,921.5 million over the past twelve months.
(3.9%) indices as well as the Global Reinsurance Index
(13.9%).
In a three-year comparison the Hannover Re share delivered
a performance (including reinvested dividends) of 27.6%.
From a longer-term perspective it thus also continues to com-
fortably outperform the benchmark DAX (-1.7%) and MDAX
At the end of the financial year the Hannover Re share closed
with a gain of 12.2% at EUR 117.70, delivering a perfor-
mance of 17.1% including reinvested dividends. Looked at
over the year as a whole, the Hannover Re share thus signifi-
cantly outperformed its domestic benchmark indices, namely
the DAX (-18.3%) and MDAX (-17.6%) as well as the interna-
tional Global Reinsurance (Performance) Index (+7.2%).
Since 2018 the Global Reinsurance Index has tracked the
share performance including dividend payments of the
world's largest 10 (previously largest 15) reinsurers. Han-
nover Re measures its performance by this benchmark index.
negative earnings situation that had prevailed for a number of
years in US mortality business, management exercised its
right to implement consistent rate increases across the board.
The resulting right of ceding companies to recapture treaties,
however, led to considerable pre-tax strains on the IFRS re-
sult in life and health reinsurance over the year as a whole.
The announcement of this development in connection with
the half-yearly results was, however, well received thanks to
the clear delimitation of the losses, the associated favourable
earnings prospects going forward and the confirmed profit
guidance for the full year. The share consequently continued
to rise in price and on 9 November, a day after the nine-month
results were released, it climbed to its highest point of the
year and new all-time high - of EUR 125.30. The upward
trend was also supported by a shift in market sentiment.
Against a backdrop of geopolitical and economic uncertain-
ties as well as early indications of a slowdown in global eco-
nomic growth, defensive securities such as insurance and
reinsurance stocks moved back into focus for investors.
Dividend increase planned for the 2018
financial year
The shareholders accepted the proposal of the Executive
Board and Supervisory Board that a gross dividend of EUR
5.00 per share should be paid. As in the previous year, the
payout took the form of an ordinary dividend of EUR 3.50 per
share and a special dividend of EUR 1.50 per share. In view of
the fact that Mr. Wolf-Dieter Baumgartl and Mr. Klaus Stu-
rany resigned their seats at the end of the Annual General
Meeting on 7 May 2018, two by-elections for shareholder
representatives on the Supervisory Board were also on the
agenda. The two proposed candidates, Dr. Ursula Lipowsky
and Mr. Torsten Leue, were each elected to the Supervisory
Board on an individual basis by a substantial majority. The
election of Dr. Ursula Lipowsky further increased the propor-
tion of women on Hannover Re's Supervisory Board to 44%.
Furthermore, the Annual General Meeting approved the pro-
posed resolutions put to the vote by management under all
other items on the agenda by a comfortable three-quarters
majority.
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 on Wednesday,
8 May 2019 in Hannover.
Dialogue with the capital market
ment GmbH, 3.0%)
118.30
Institutional investors
(including Black Rock,
Inc. 3.1% and
Deutsche Asset
Management Invest-
40.9%
8.9% Private investors
By the end of the year 30 analysts had handed down opinions
on Hannover Re: three analysts (nine) recommended the
Hannover Re share as "buy" or "overweight”. Altogether
17 opinions (18) were a “hold”, making this the most common.
"Underweight” or “sell” recommendations were issued a to-
tal of ten (five) times. The analysts' average price target con-
tinued to move higher in the year under review from EUR
110.49 at the start of the financial year to EUR 116.20 at year-
end. This development is particularly pleasing in view of what
is still a relatively superior valuation measured against peer
companies.
Analyst ratings
I 11
Shareholding structure as at 31 December 2018
Shareholder structure
Hannover Re | Annual Report 2018
14
In the year just ended Hannover Re once again provided in-
formation about its achievements as a responsible enterprise
in the form of a stand-alone sustainability report drawn up in
accordance with the current internationally recognised re-
porting standards of the Global Reporting Initiative (GRI).
Based on its seventh Sustainability Report, the company's
sustainability performance was assessed by more than ten
rating agencies, including RobecoSAM, MSCI, FTSE4Good,
Sustainalytics, ISS, VigeoEIRIS and oekom research. Further-
more, Hannover Re conducted a stakeholder survey with an
external partner in the financial year just ended with the aim
of identifying non-financial matters of material significance to
the company's business activities. In this context considera-
tion was given to the various materiality approaches of the
Global Reporting Initiative (GRI), which forms the basis of the
company's extensive annual Sustainability Report, and to the
CSR Directive Implementation Act, on which the non-finan-
cial information statement is based. Representatives of the
following stakeholder groups were surveyed: clients, brokers,
the capital market, employees, non-governmental organisa-
tions and the public sector. The findings were incorporated
for the first time into the Group non-financial information
statement, which is part of the Group management report.
Sustainability reporting and ratings
The developments in US mortality business were also ad-
dressed at Hannover Re's 21st Investors' Day, which was held
on 18 October 2018 in London and carried as a parallel web-
cast on the company's website. The Executive Board addi-
tionally took the opportunity to provide insights into new
business prospects in life reinsurance outside the US as well
as an update on the company's capitalisation and risk profile.
Discussions about the relevance of the cash flow in property
and casualty reinsurance similarly featured on the agenda,
a did the likely effects of implementation of the IFRS 17
accounting standard on financial reporting by (re)insurance
undertakings.
capital market conferences attended was unchanged year-on-
year at 17, the interest shown by institutional investors in on-
site visits in the context of roadshows was sharply lower.
While the latter were down by almost half compared to the
previous year, the company nevertheless noted a substantial
rise in demand among investors for visits to its Hannover
headquarters as well as individually tailored conference calls.
As the year got underway a particularly pivotal topic of dis-
cussion was the impact of the US tax reform on Hannover Re.
As the months passed the negative earnings situation in US
mortality business came to play a prominent role, as did the
countermeasures taken by the company and their implica-
tions for the full-year profit guidance.
The Executive Board and representatives of the Investor Re-
lations department cultivated the dialogue with institutional
investors continuously throughout the financial year just
ended. The focus of their efforts remained on the financial
centres of Europe and North America. While the number of
Global Reinsurance Index
MDAX
Our share register showed some 51,000 shareholders at the
end of the year, another increase in the number of sharehold-
ers year-on-year (48,000). The largest shareholders as at
year-end were Talanx AG with 50.2% and the asset manager
BlackRock, Inc., with a reported 3.05% and Deutsche Asset
Management Investment GmbH with 3.02% of the voting
rights. Of the remaining shares outstanding, by far the bulk
- at 37.8% were held by other institutional investors such
as banks, insurers and investment companies (previous year
in total: 35.5%); private investors held 8.9% (11.2%). Our
shareholders include investors who pay particularly close
attention to sustainability criteria.
201620172018
Mar
Feb
Jan
100
104.70
106.00
106.10
106.30
106.90
108.00
112.30
114.50
111.90
115.50
114.00
■ DAX
117.40
Apr
May
110.90
Jul
100
Jun
m
in %
80
120
Hannover Re share (including dividend)
140
Hannover Re | Annual Report 2018
Relative performance of the Hannover Re share
Highs and lows (closing prices)
Monthly average
Dec
Nov
Oct
Aug
Sep
27.10
Johannesburg/South Africa
Clarenfin (Pty) Ltd. 1,
13,306
15,311
Johannesburg/South Africa
22.87
EUR
Clarendon Transport Underwriting Managers (Pty) Ltd. ¹,
3,660
104,540
Trento/Italy
ZAR
22.87
Durban/South Africa
97
(25)
Pineapple Tech (Pty) Ltd 1,
Johannesburg/South Africa
Vela Taxi Finance (Pty) Ltd 1,
Johannesburg/South Africa
Marmic Taxi Parts (Pty) Ltd 15,
17.50
ZAR
1,927
(3,254)
12.58
ZAR
ITAS Vita S.p.A. 7,
(5,316)
6.86
(1,394)
ZAR
Associated companies
(9,723)
SEK
40
Hannover Rück SE Escritório de Representação
ZAR
no Brasil Ltda. 7,
Rio de Janeiro/Brasil
100.00
BRL
3,016
457
Hannover Re Risk Management Services India
Private Limited 14,
New Delhi/India
100.00
INR
50
49,875
Milan/Italy
99.65
EUR
471
93
U FOR LIFE SDN. BHD. 1,
Petaling Jaya/Malaysia
60.00
MYR
(24,057)
(2,153)
Svedea Skadeservice AB 7,
Stockholm/Sweden
53.00
Hannover Re Services Italy S. r.I.,
2,484
Hannover Re | Annual Report 2018
Other participations
Somerset Reinsurance Ltd. 19,
Hamilton/Bermuda
196
320,033
320,033
1,202,527
86,281
2,916,478
23,254
54,268
1,125,005
securitisations and
ILS transactions
Retrocession:
N 12
Total liabilities
Reinsurance payable
Liabilities
Total assets
Accounts receivable
Prepaid reinsurance premium
Reinsurance recoverables on unpaid claims
918,069
416,966
10,638
86,281
Other invested assets
Real estate and real estate funds
40
Equity securities - available for sale
Zürich/Schweiz
Life Invest Holding AG,
Triesen/Liechtenstein
Inlife Holding (Liechtenstein) AG 7,
Reaseguradora del Ecuador S.A. 1,
Guayaquil/Equador
30.00
USD
17,381
2,274
Sureify Labs, Inc. 1,8
Wilmington/USA
20.69
USD
(489)
(2,134)
Meribel Topco Limited 1,
St. Helier/Jersey
2,484
20.11
(4,775)
(162)
Monument Insurance Group Limited 16, 17,
Hamilton/Bermuda
20.00
GBP
58,472
11,640
Trinity Underwriting Managers Ltd. 18,
Toronto/Canada
20.00
CAD
(1,711)
29
EUR
340
Stockholm/Sweden
100.00
Johannesburg/South Africa
70.00
ZAR
1,721
3,087
SUM Holdings (Pty) Ltd. 1,
Johannesburg/South Africa
70.00
ZAR
44,599
7,624
Hospitality Industrial and Commercial Underwriting
Managers (Pty) Ltd. 1,
Johannesburg/South Africa
63.00
ZAR
2,509
9,245
Svedea AB 1,
53.00
SEK
20,073
15,006
Firedart Engineering Underwriting Managers (Pty) Ltd.,
Johannesburg/South Africa
49.00
ZAR
1,225
(620)
Garagesure Consultants and Acceptances (Pty) Ltd. 1,
3,280
7,062
ZAR
Fixed-income securities - at fair value through profit or loss
190,580
720
HR GLL CDG Plaza S. r.l. 1,
Bucharest/Romania
87.67
RON
143,433
7,762
Pipera Business Park S. r.I. 1,
Bucharest/Romania
87.67
RON
99,320
Thatch Risk Acceptances (Pty) Ltd. 1,
13,069
Johannesburg/South Africa
79.20
ZAR
15,996
30,662
Lireas Holdings (Pty) Ltd. 1,
Johannesburg/South Africa
70.00
ZAR
283,916
65,690
MUA Insurance Acceptances (Pty) Ltd. 1,
Cape Town/South Africa
70.00
Commercial & Industrial Acceptances (Pty) Ltd. ¹,
Johannesburg/South Africa
49.00
ZAR
139,207
12,290
Hannover Re Consulting Services India Private Limited 14,
Mumbai/India
100.00
INR
110,806
(1,965)
Hannover Re | Annual Report 2018
Name and registered office of the company
in currency units of 1,000
Participation
in %
Currency
Capital and
Result for the last
JPY
reserves
Hannover Services (México) S. A. de C. V.7
Mexico City/Mexico
100.00
MXN
7,877
828
Hannover Re Services USA, Inc.,
Itasca/USA
100.00
USD
3,889
111
Hannover Mining Engineering Services LLC,
Itasca/USA
financial year
USD
100.00
Hannover Re Services Japan 1,
2,559
4,437
Landmark Underwriting Agency (Pty) Ltd.',
Bloemfontein/South Africa
45.85
ZAR
5,025
5,341
Construction Guarantee (Pty) Ltd. 4, 13,
Johannesburg/South Africa
42.00
ZAR
Film & Entertainment Underwriters SA (Pty) Ltd. 1,
Johannesburg/South Africa
Tokyo/Japan
35.70
537
549
Affiliated non-consolidated companies
International Mining Industry Underwriters Limited 7, 10,
London/United Kingdom
100.00
GBP
238
12
HR Hannover Re, Correduría de Reaseguros, S. A.,
Madrid/Spain
100.00
EUR
585
88
ZAR
1,566,318
2017
3,671
Material branches of the Group
Hannover Re | Annual Report 2018
192
21 Financial year as at 30 June 2018
20 Company was newly established in 2018; an annual financial statement is not yet available.
Financial year as at 31 August 2017
19
18 Figures as at 31 December 2016
Consolidated figures
17
16 Figures for the period from 9 March 2016 (establishment) to 31 December 2017
Financial year as at 28 February 2017
15
14 Financial year as at 28 February 2018
The company holds 35 subsidiaries with capital and reserves of altogether EUR 0.5 million.
Financial year as at 31 October 2018
Figures as at 31 December 2013
13
12
11
10 Company is inactive
IFRS figures
9
Financial year as at 31 July 2018
8
Figures as at 31 December 2017
7
Figures as at 30 November 2018
6
Company was wound up with effect from the end of 31 December 2018
We define the branch of a Group company as an unincorpo-
rated business unit that is physically and organisationally
separate from the Group company, is bound by the latter's
instructions in their internal relationship and has its own in-
dependent market presence.
Material branches of the Group
Group company/Branch
Figures in EUR thousand
397,170
Kuala Lumpur/Malaysia
Hannover Rueck SE Malaysian Branch,
15,456
11,803
288,928
291,101
Wanchai/Hong Kong
Hannover Rück SE, Hong Kong Branch,
23,472
19,432
225,366
247,225
Toronto/Canada
5
Hannover Rück SE Canadian Branch,
16,168
220,125
489,319
Sydney/Australia
Hannover Rueck SE Australian Branch,
Hannover Rück SE
2017
2018
EUR
2018
Net income¹
Gross written premium¹
N 11
The Hannover Re Group companies listed in the following ta-
ble maintain branches that we consider to be material to an
understanding of the Group's position.
(1,737)
Company is in liquidation
4
3 Financial year as at 30 September 2018
Centaur Animal Health, Inc. 21,
in currency units of 1,000
Name and registered office of the company
Annual financial statements
191
CHF
7.94
194
9,453
EUR
9.38
(1,262)
1,818
SEK
Participation
10.71
411,713
USD
12.31
15,583
43,631
CHF
15.00
1,996
3,803
CHF
15.00
Hannover Re | Annual Report 2018
B3i Services AG 20
Zurich/Switzerland
Acte Vie S.A. 7,
Schiltigheim/France
9,247
376,970
Currency
Result for the last
Year-end result after profit transfer
2
Provisional (unaudited) figures
1
331
8,222
EUR
3.30
Nicosia/Cyprus
Liberty Life Insurance Public Company Ltd 7,
(2,332)
4,866
ZAR
3.84
Capital and
Cape Town/South Africa
(3,881)
772
ZAR
4.61
Johannesburg/South Africa
Kopano Ventures (Pty) Ltd 1,
150
1,968
USD
6.90
Olathe/USA
financial year
reserves
in %
The Sociotech Institute Proprietary Limited 1,
Fixed-income securities - available for sale
44,681
Hannover Rück SE, Tyskland Filial,
In accordance with the consistent consolidation model, a
structured entity - just like a subsidiary - must be consolidat-
ed if Hannover Re gains control over the said entity. With re-
gard 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 exam-
ined as part of an analysis that encompasses both transac-
tions 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 involvement of third par-
ties. 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).
•
Pursuant to IFRS 10 we consider the general account and the
segregated accounts to be separate units to which the princi-
Kubera Insurance (SAC) Ltd is similarly a segregated ac-
counts company, the object of which is to establish segregat-
ed accounts that are made available to non-Group companies
for structured finance transactions.
Kaith Re Ltd. is a so-called segregated accounts company
(SAC), the sole object of which is the securitisation of reinsur-
ance 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 seg-
regated 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.
Kubera Insurance (SAC) Ltd, Hamilton, Bermuda
LI RE, Hamilton, Bermuda
•
•
• Kaith Re Ltd., Hamilton, Bermuda
The following structured entities were consolidated as at the
balance sheet date:
Consolidated structured entities
without subordinated financial support;
A narrow and well-defined business objective;
Insufficient equity to allow it to finance its activities
Restricted activities;
•
•
•
Structured entities are entities designed in such a way that
voting or similar rights are not the dominant factor in decid-
ing 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 struc-
tured entity frequently has some or all of the following fea-
tures or attributes:
Business relations with structured entities are to be examined
in accordance with IFRS 10 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 provi-
sions.
Consolidation of structured entities
Annual financial statements
193
Hannover Re | Annual Report 2018
In addition, other companies belonging to the Hannover Re
Group maintain further branches in New Zealand, Canada,
Malaysia and Australia that both individually and collectively
are to be classified as immaterial to the Group.
Effective 1 January 2019 renamed HDI Global Specialty SE
3
2 Branch is in liquidation.
1 IFRS figures before consolidation.
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 Kubera Insurance (SAC)
Ltd and is contractually responsible for the fees due to exter-
nal service providers that are to be covered from the general
account's own funds. Each individual segregated account is
to be examined separately with an eye to a consolidation
requirement and consolidated according to the particular
contractual arrangements in each case.
LI RE is a segregated account of Kaith Re Ltd., the purpose of
which - as with all segregated accounts under Kaith Re Ltd. -
is the securitisation of underwriting risks. In contrast to the
other segregated accounts, the sole investor and hence the
risk carrier of LI RE is the Hannover Re Group through its
subsidiary Leine Investment SICAV-SIF, Luxembourg.
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 support for one or more of such entities without being
contractually required to do so.
194
Fixed-income securities - loans and receivables
816
bonds (ILS)
in catastrophe
Investment
31.12.2018
General investing
activities
Fixed-income securities - held to maturity
Assets
in EUR thousand
Book values from business relations with unconsolidated structured entities
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:
assets. The maximum risk of loss from these transactions is
derived from the uncollateralised exposure limit and the cred-
it risk of the collateral and amounted to EUR 3,063.1 million
(EUR 2,775.4 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 ex-
pected loss on a modelled basis in a worst-case scenario of
10,000 years amounts to at most EUR 50.0 million (EUR 50.0
million).
As part of its extended insurance-linked securities (ILS) activ-
ities, 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. The purpose of such
transactions is to directly transfer clients' business. The vol-
ume of the transactions is derived from the ceded exposure
limit of the underlying retrocession agreements and amount-
ed to EUR 6,131.3 million (EUR 5,235.2 million) as at the bal-
ance sheet date. Part of the ceded exposure limit is funded
and collateralised by contractually defined investments in the
form of cash and equivalent liquid assets; a further part
remains uncollateralised or is collateralised by less liquid
(200)
Collateralised fronting (ILS)
195
Hannover Re | Annual Report 2018
Re.
for part of this transaction. Hannover Re also uses further
segregated accounts of Kaith Re Ltd. and other structured en-
tities outside the Group for various retrocessions of both its
traditional and ILS covers, which in each case 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 al-
together EUR 2,992.4 million (EUR 2,635.3 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 ex-
posure limit of the structured entities is therefore wholly col-
lateralised in each case, there is no risk of loss for Hannover
ues.
tities that issue catastrophe bonds for the securitisation of
catastrophe risks by investing in such bonds. Leine Invest-
ment General Partner S.à.r.l. is the managing partner of the
asset management company Leine Investment SICAV-SIF, the
business object of which is to build, hold and manage a port-
folio of insurance-linked securities (catastrophe bonds) - in-
cluding for third-party investors outside the Group. In addi-
tion, a portfolio of such securities is also managed by
Hannover Insurance-Linked Securities GmbH & Co. KG, Han-
nover. The volume of these transactions is derived from the
book values of the respective investments and amounted to
EUR 86.3 million (EUR 56.0 million) as at the balance sheet
date. The maximum risk of loss corresponds to the book val-
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
and South America, Europe and Asia, involves a quota share
cession on worldwide natural catastrophe business as well as
aviation and marine risks. Of the total volume of the "K Ces-
sion”, a large part equivalent to EUR 389.0 million (EUR
349.3 million) was securitised via structured entities 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
Retrocession and securitisation of reinsurance risks
The securitisation of reinsurance risks takes place largely
through the use of structured entities.
Hannover Re participates through its subsidiary Leine Invest-
ment SICAV-SIF, Luxembourg, in a number of structured en-
ues.
Investing activities and investments in catastrophe bonds (ILS)
Within the scope of its investment activities Hannover Re par-
ticipates inter alia in numerous structured entities. 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 encompass private
equity funds, fixed income funds, collateralised debt obliga-
tions, real estate funds, index funds and other public funds.
The volume of these transactions is derived from the book
values of the respective investments and amounted to EUR
2,916.5 million (EUR 3,016.9 million) as at the balance sheet
date. The maximum risk of loss corresponds to the book val-
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 2018
Annual financial statements
(10,454)
368,196
373,283
Hannover Re UK Life Branch,
3,315
2,889
47,134
47,822
Seoul/South Korea
Hannover Rück SE Korea Branch,
8,325
25,515
775,684
1,193,529
Shanghai/China
Hannover Rück SE Shanghai Branch,
(414)
London/United Kingdom
(12,523)
101,820
Manama/Bahrain
Hannover Rueck SE Bahrain Branch,
26,197
42,425
777,357
783,872
Paris/France
Hannover Rück SE Succursale Francaise,
29,188
35,184
242,045
253,390
Stockholm/Sweden
125,675
10,363
307,867
(5,150)
UK Branch, London/United Kingdom
International Insurance Company of Hannover SE,
108
2,652
198,462
230,861
Scandinavian Branch, Stockholm/Sweden
International Insurance Company of Hannover SE,
Italian Branch, Milan/Italy
International Insurance Company of Hannover SE²,
417
577
54,364
62,858
298,933
Canadian Branch, Toronto/Canada
2,151
1,945
62,296
81,407
Australian Branch, Sydney/Australia
International Insurance Company of Hannover SE,
International Insurance Company of Hannover SE3
(2,547)
(5,203)
58,437
104,217
Mumbai/India
Hannover Rück SE - India Branch,
(31,338)
International Insurance Company of Hannover SE,
87.67
(847)
HR GLL Europe Holding S.à r. I. ¹,
Argenta Underwriting No.2 Limited 1,9,
London/United Kingdom
100.00
GBP
1,299
(3,693)
Argenta Underwriting No.3 Limited 1,9,
London/United Kingdom
100.00
GBP
466
(1,845)
Argenta Underwriting No.4 Limited 1,9,
22
London/United Kingdom
GBP
(152)
Argenta Underwriting No.7 Limited 1.9,
London/United Kingdom
100.00
GBP
Argenta Underwriting No.8 Limited 1,9,
London/United Kingdom
100.00
GBP
(32)
(8)
Argenta Underwriting No.9 Limited 19,
100.00
GBP
100.00
London/United Kingdom
Argenta SLP Continuity Limited 1,9,
Edinburgh/United Kingdom
100.00
GBP
Argenta Syndicate Management Limited 1.9,
London/United Kingdom
100.00
GBP
7,474
1,580
Argenta Tax & Corporate Services Limited 1,9
London/United Kingdom
100.00
GBP
712
462
Hannover Re | Annual Report 2018
187
Annual
financial statements
Name and registered office of the company
in currency units of 1,000
Participation
Currency
Capital and
in %
reserves
Result for the last
financial year
Argenta Underwriting No.1 Limited 1.9,
London/United Kingdom
GBP
100.00
791
Argenta Underwriting Asia Pte. Ltd. 1,9,
Singapore/Singapore
100.00
SGD
1,687
308
Argenta Underwriting Labuan Ltd 1,9,
Labuan/Malaysia
100.00
USD
71
Glencar Underwriting Managers, Inc. 7,
Chicago/USA
GBP
100.00
5,148
325
Glencar Insurance Company 1,
Orlando/USA
100.00
USD
76,206
Luxembourg/Luxembourg
Kubera Insurance (SAC) Ltd⁹,
Hamilton/Bermuda
100.00
USD
889
USD
100.00
London/United Kingdom
Residual Services Corporate Director Limited 1.9,
(580)
Argenta Underwriting No.10 Limited 1,9,
London/United Kingdom
100.00
GBP
(53)
(16)
Argenta Underwriting No.11 Limited 1.9,
London/United Kingdom
100.00
GBP
(30)
3
Argenta No.13 Limited 1.9,
London/United Kingdom
100.00
GBP
Argenta No.14 Limited 1.9,
London/United Kingdom
100.00
GBP
Argenta No.15 Limited 1,9,
London/United Kingdom
100.00
GBP
Residual Services Limited 1,9, 11
London/United Kingdom
100.00
GBP
GBP
100.00
London/United Kingdom
Argenta LLP Services Limited 1,9,
Hannover Life Reassurance Company of America
(Bermuda) Ltd. 1, Hamilton/Bermuda
100.00
USD
1,122,202
64,825
Hannover Re (Ireland) Designated Activity Company 1,
Dublin/Ireland
100.00
USD
857,255
68,234
Hannover Life Re of Australasia Ltd',
36,288
Sydney/Australia
AUD
469,676
(11,637)
Hannover Re (Bermuda) Ltd. 1,
Hamilton/Bermuda
Hannover ReTakaful B. S.C. (c)¹,
Manama/Bahrain
100.00
USD
1,234,010
163,495
100.00
BHD
100.00
551,466
USD
100.00
Name and registered office of the company
in currency units of 1,000
Foreign companies
Affiliated consolidated companies
Hannover Finance (Luxembourg) S.A.1,
Luxembourg/Luxembourg
Hannover Finance (UK) Limited 1,
Participation
in %
Currency
Capital and
reserves
Result for the last
financial year
100.00
EUR
35,030
678
London/United Kingdom
100.00
GBP
2,694
(13)
Hannover Life Reassurance Bermuda Ltd. 1,
Hamilton/Bermuda
100.00
USD
452,380
55,988
Hannover Life Reassurance Company of America',
Orlando/USA
63,150
1,287
100.00
GBP
GBP
I
Argenta Insurance Research Limited 1, 9, 10,
London/United Kingdom
100.00
GBP
Fountain Continuity Limited 19,
Edinburgh/United Kingdom
100.00
GBP
|
Names Taxation Service Limited 1,9,
London/United Kingdom
100.00
GBP
10
I
Argenta Secretariat Limited 1,9
London/United Kingdom
100.00
GBP
Argenta Continuity Limited 1.9,
London/United Kingdom
100.00
GBP
Argenta General Partner Limited 1.9,
Edinburgh/United Kingdom
100.00
GBP
100.00
(111)
London/United Kingdom
GBP
968
75
Hannover Services (UK) Limited¹,
London/United Kingdom
Inter Hannover (No. 1) Limited 1,
London/United Kingdom
100.00
GBP
Integra Insurance Solutions Limited 7,
Bradford/United Kingdom
100.00
GBP
4,859
(978)
Argenta Holdings Limited 19,
London/United Kingdom
100.00
GBP
46,436
3,720
Argenta Private Capital Limited 1.9,
London/United Kingdom
100.00
GBP
4,852
1,802
APCL Corporate Director No.1 Limited 1,9,
London/United Kingdom
100.00
APCL Corporate Director No.2 Limited 19,
Leine Investment General Partner S.à r. I. 1.9,
(16,897)
100.00
AUD
67,100
(500)
Markham Real Estate Partners (KSW) Pty Limited 1,
Sydney/Australia
94.72
AUD
PAG Real Estate Asia Select Fund Limited 1,
George Town/Cayman Islands
94.72
USD
173,810
972
94.72
HR US Infra Debt LP 1,9
94.71
USD
118,517
3,721
Orion No.1 Professional Investors Private Real Estate
Investment LLC 1,
Seoul/South Korea
94.39
KRW
28,889,876
1,671,894
Peace G. K. 1,
Tokyo/Japan
George Town/Cayman Islands
Sydney/Australia
M8 Property Trust',
439
975 Carroll Square, LLC 1,9,
Wilmington/USA
95.15
USD
47,090
(308)
Luxembourg/Luxembourg
Wilmington/USA
95.15
USD
13,174
(2)
River Terrace Parking, LLC 1,9,
Wilmington/USA
95.15
USD
18,553
254
3290ATL LLC 1,9,
Wilmington/USA
95.15
USD
70,595
3,821
1600FLL LLC 1,9
Wilmington/USA
95.15
USD
30,795
Kaith Re Ltd. 1,
Hamilton/Bermuda
3541 PRG s. r.o. 1,
Prague/Czech Republic
HUF
20,102,378
1,120,922
HR GLL Liberty Corner SPÓLKA Z OGRANICZONA
ODPOWIEDZIALNÓSCIA1,
Warsaw/Poland
87.67
PLN
47,995
(1,391)
HR GLL Griffin House SPÓLKA Z OGRANICZONA
ODPOWIEDZIALNÓSCIA1,
Warsaw/Poland
87.67
PLN
36,064
(1,413)
92601 BTS s. r.o. 1,
Bratislava/Slovakia
87.67
EUR
2,490
301
Akvamarín Beta s. r.o.1,
Prague/Czech Republic
87.67
CZK
68,433
16,397
87.67
6,878
Budapest/Hungary
18,515
93.77
JPY
5,081,293
88.00
USD
175,556
373
(181)
87.67
CZK
901,512
17,955
Hannover Re | Annual Report 2018
189
Annual financial statements
Name and registered office of the company
Participation
in %
Currency
Capital and
Result for the last
reserves
financial year
in currency units of 1,000
Mustela s. r.o. 1,
190
Prague/Czech Republic
87.67
CZK
1,094,807
HR GLL Roosevelt Kft 1,
33,123
Broadway 101, LLC 1.9,
95.15
Johannesburg/South Africa
100.00
ZAR
201,825
95,297
Hannover Life Reassurance Africa Limited 1,
Johannesburg/South Africa
100.00
ZAR
565,752
37,502
Hannover Re | Annual Report 2018
Name and registered office of the company
Hannover Reinsurance Group Africa (Pty) Ltd. 1,
in currency units of 1,000
Participation
Currency
Capital and
Result for the last
in %
reserves
financial year
USD
ZAR
820,846
87,934
Compass Insurance Company Limited 1,
Johannesburg/South Africa
Hannover Reinsurance Africa Limited 1,
Johannesburg/South Africa
(1,224,375)
96,097
USD
EUR
869
363
Leine Investment SICAV-SIF 1,9
Luxembourg/Luxembourg
100.00
USD
96,470
1,030
LI RE 1,9
188
Hamilton/Bermuda
Fracom FCP 12,
Paris/France
100.00
USD
100.00
EUR
1,316,056
12,321
Hannover Finance, Inc. 9,
Wilmington/USA
100.00
USD
1,404,793
436
Sand Lake Re, Inc. 1,
Burlington/USA
100.00
100.00
ZAR
100.00
55,312
USD
Lidingö/Schweden
931
1110RD LLC 1,9,
Wilmington/USA
140EWR LLC 1.9
250,242
95.15
USD
69,582
2,370
95.15
USD
61,889
(1,390)
75501AD LLC 1,9,
Wilmington/USA
95.15
USD
68,438
428
Nashville West, LLC 1.9,
Wilmington/USA
95.15
USD
27,324
964
1225 West Washington, LLC 1,9,
Wilmington/USA
95.15
Wilmington/USA
Wilmington/USA
1,545
Hannover Re Real Estate Holdings, Inc.,
Orlando/USA
95.25
USD
828,831
25,011
402 Santa Monica Blvd, LLC 1,9,
Wilmington/USA
95.25
USD
32,528
(328)
320AUS LLC 1,9,
Wilmington/USA
HR US Infra Equity LP 1,9,
USD
95.15
50,439
USD
95.15
Wilmington/USA
101 BOS LLC 1.9.
(275)
Qinematic AB 7,
USD
95.15
Wilmington/USA
GLL HRE CORE Properties, L. P. 1,9,
3,354
92,447
656,081
773,316
Short-term investments
105,868
Reinsurance recoverables on unpaid claims
Prepaid reinsurance premium
Accounts receivable
Total assets
Total liabilities
Reinsurance payable
N 13
Retrocession:
securitisations and
ILS transactions
633,344
39,798
Liabilities
45,307
Effective 11 January 2018 Hannover Re acquired all the
shares in The Omaha Indemnity Company, Madison, via its
55,952
Australia
Australasia
Africa
Other
3,201,846
2,353,786
2,723,189
2,496,589
5,925,035
Asia
4,850,375
442,684
1,693,194
Total
42,197,338
40,057,478
204
Hannover Re | Annual Report 2018
Maturities of the fixed-income and variable-yield securities
N 17
341,005
1,958,050
2018
15,257,262
North America
Europe
N 16
2018
2017
7,781,666
6,999,285
3,274,473
3,286,400
1,299,239
16,138,543
1,419,423
6,108,855
17,834,705
17,813,963
USA
14,348,172
13,380,576
Other
1,790,371
1,876,686
5,479,327
2017
Amortised cost 1
Fair value
due after five through ten years
due after more than ten years
Total
48,278
54,789
816
266
828
263
249,943
53,358
269,917
366,158
Loans and receivables
due in one year
178,975
182,670
129,159
130,841
due after one through two years
200,522
336,182
48,280
due after four through five years
156,064
Amortised cost 1
Fair value
in EUR thousand
Held to maturity
due in one year
27,597
28,255
85,411
86,359
due after one through two years
35,210
37,680
28,055
29,586
due after two through three years
138,040
150,358
35,145
39,097
due after three through four years
138,465
Other
209,143
France
Germany
50,791
(571)
50,791
(571)
1,263,529
1,081,775
227
4,296,959
3,516,370
12,193,079
216,854
318
149
423,343
411,297
172,062
170,589
(4,772)
(4,829)
117,730
210,708
275,890
12,569,150
5,341,606
19,176,358
17,790,506
159
17,289,133
15,631,670
3,994
1,530,029
1,773,889
30,632
5,666,843
31
44
172,177
217,126
31,160
38,569
49,124
70,949
207,987
234,915
36,500
245,210
(1,816)
(1,052)
6,282
86,034
86,022
185,926
172,634
(55,541)
(51,419)
1,059,493
958,555
1,616
Hannover Re | Annual Report 2018
Annual financial statements
6. Notes on the individual items of the balance sheet
6.1 Investments under own management
Hannover Re classifies investments according to the follow-
ing categories: held-to-maturity, loans and receivables, finan-
cial assets at fair value through profit or loss and availa-
ble-for-sale. The allocation and measurement of investments
is determined by the investment intent and complies with the
requirements of IAS 39 "Financial Instruments: Recognition
and Measurement".
The investments under own management also encompass in-
vestments in associated companies, real estate and real es-
tate funds (also includes: investment property), other invest-
ed assets, short-term investments and cash. The recognition
and measurement of these items is based on the respective
applicable IFRS for this type of assets.
The following table shows the regional origin of the invest-
ments under own management.
Investments
in EUR thousand
Regional origin
203
1,044,577
1,145,527
(51,419)
1,596,649
78,971
1,364,355
78,261
71,736
78,261
71,736
275,890
245,210
(80,077)
(72,788)
1,518,388
1,292,619
88,348
66,294
(24,536)
(21,369)
372,861
248,042
187,542
178,916
(55,541)
United Kingdom
179,739
188,653
due after two through three years
accrued interest
Unrealised
gains
Unrealised
losses
Fair value
accrued interest
23,833
130
1,865
70,804
thereof
1,449
25,698
76,409
155,306
3,002
13,054
550
167,810
249,943
4,581
5,605
20,524
Amortised cost
including
Total
212,042
212,042
1 Including accrued interest
2 Including short-term investments, cash and cash equivalents
Hannover Re | Annual Report 2018
205
Annual financial statements
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.
Variable-rate bonds (so-called "floaters") are shown under
2018
the maturities due in one year and constitute an interest-re-
lated, within-the-year reinvestment risk.
N 18
in EUR thousand
Investments held to maturity
Fixed-income securities
Debt securities issued by
semi-governmental entities
Corporate securities
Covered bonds/
asset-backed securities
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
550
269,917
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
437
2,433
31,926
91,286
1,522
8,037
99,323
186,779
3,872
29,493
19,600
205,814
336,182
6,048
30,541
565
366,158
The carrying amount of the portfolio held to maturity is
arrived at from the amortised cost plus accrued interest.
206
Hannover Re | Annual Report 2018
565
29,095
471
217
in EUR thousand
Investments held to maturity
Fixed-income securities
Government debt securities of EU
member states
Debt securities issued by
semi-governmental entities
Corporate securities
Covered bonds/
asset-backed securities
Total
N 19
2017
Amortised cost
including
thereof
accrued interest
Unrealised
gains
Unrealised
losses
Fair value
accrued interest
28,624
559,750
559,750
18,713
18,713
2,605,684
2,455,164
2,740,485
Available for sale
due in one year²
6,159,368
6,157,352
5,345,018
5,346,842
2,398,950
due after one through two years
3,230,856
2,711,972
2,721,829
due after two through three years
3,264,200
3,253,202
3,310,919
3,364,264
due after three through four years
3,217,098
505,538
467,953
453,879
303,603
314,716
218,893
233,670
due after three through four years
213,694
232,687
302,243
320,436
due after four through five years
228,382
252,883
214,455
235,151
due after five through ten years
842,190
959,706
942,722
1,126,196
due after more than ten years
Total
431,584
2,828,576
1.1.-31.12.2017
2,831,536
3,675,048
due after one through two years
86,411
86,411
8,620
177,634
8,620
due after two through three years
13,075
13,075
due after three through four years
177,634
10,358
due after four through five years
17,740
17,740
7,075
7,075
due after five through ten years
4,248
4,248
due after more than ten years
Total
10,358
427,918
427,918
due in one year
due after four through five years
3,047,032
3,043,361
2,748,835
2,814,657
due after five through ten years
10,040,715
10,051,258
9,992,925
10,218,549
due after more than ten years
Total
6,086,028
6,166,985
4,601,225
4,935,094
34,643,017
34,734,550
32,370,215
33,076,283
Financial assets at fair value
through profit or loss
3,659,321
1.1.-31.12.2018
Total
N 15
1,269
841,911
774,751
2,689,084
2,458,038
1,781,317
1,351,426
1,041,043
42,309,185
38,829,952
96,383
Segmentation of liabilities
Liabilities
Loss and loss adjustment expense reserve
24,542,826
24,130,443
Benefit reserve
Unearned premium reserve
2,915,904
3,332,083
Provisions for contingent commissions
in EUR thousand
300,093
543
Total assets
Total investments and cash under own management
32,092,110
31,000,184
Funds withheld
1,931,254
1,636,993
Contract deposits
Total investments
2,180
34,025,544
93,614
(121)
32,637,056
1,443,869
Reinsurance recoverables on unpaid claims
Reinsurance recoverables on benefit reserve
Prepaid reinsurance premium
Reinsurance recoverables on other reserves
Deferred acquisition costs
Accounts receivable
Other assets in the segment
Assets held for sale
1,903,289
162,620
Funds withheld
389,754
31.12.2018
31.12.2017
31.12.2018
31.12.2017
51,347
71,898
5,000
34,635
37,270
31.12.2017
15,049
7,617,113
19,512
2,085
249,943
2,398,950
33,239,685
336,182
2,455,164
31,281,908
28,729
37,520
656,176
244,222
8,531,051
Total
Consolidation
N 15
400,290
Contract deposits
71,607
72,056
Reinsurance payable
772,313
512,372
Long-term debt and notes payable
323,235
250,122
Other liabilities in the segment
1,718,949
1,948,148
Liabilities related to assets held for sale
Total liabilities
2,246,129
33,280,810
30,808,134
200
Hannover Re | Annual Report 2018
Life and health reinsurance
31.12.2018
610,585
734,942
Cash and cash equivalents
342,744
198
Hannover Re | Annual Report 2018
Assets and liabilities of the disposal group
in EUR thousand
Assets
Fixed-income securities - loans and receivables
Fixed-income securities - available for sale
Real estate and real estate funds
Short-term investments and other invested assets
Cash and cash equivalents
Reinsurance recoverables on unpaid claims
Prepaid reinsurance premium
The assets and liabilities are presented on a consolidated ba-
sis in the following table and broken down into their major
components. The fixed-income securities of EUR 238.1 mil-
lion are exclusively level 2 financial instruments. The real
estate funds recognised in an amount of EUR 12.4 million,
on the other hand, are level 3 financial instruments.
Deferred acquisition costs
Other assets
Assets held for sale
Liabilities
Loss and loss adjustment expense reserve
Unearned premium reserve
Other liabilities
Liabilities related to assets held for sale
N 14
31.12.2018
Accounts receivable
In compliance with IFRS 5 "Non-current Assets Held for Sale
and Discontinued Operations” we recognise the assets and
liabilities of the disposal group in corresponding balance
sheet items. Transactions between the disposal group and the
other consolidated companies continue to be entirely elimi-
nated in conformity with IFRS 10 "Consolidated Financial
Statements".
The cumulative other comprehensive income of EUR -4.6 mil-
lion arising out of the currency translation of the assets and
liabilities belonging to the disposal group will only be real-
ised in the context of deconsolidation. In addition, actuarial
gains and losses in an amount of EUR -0.5 million were netted
directly in equity as at the balance sheet date.
Pursuant to IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations" Inter Hannover was classified as at
the balance sheet date as a disposal group, which is to be
measured at the lower of the carrying amount and fair value
less costs to sell. This measurement did not give rise to any
impairment expense.
718,449
231,232
The income and expenses from business relations with un-
consolidated structured entities are shown in investment in-
come 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 retro-
cessions and securitisations.
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 be-
ing contractually required to do so.
In December 2018 Kubera Insurance (SAC) Ltd established
its first segregated account, the owner of which is not Han-
nover Re. Effective 31 December 2018 the segregated ac-
count concluded a contract with a non-Group life insurance
company for the assumption of a reinsurance portfolio, which
is partially retroceded. In the context of this retrocession
Hannover Re also concluded a reinsurance treaty with the
segregated account to protect against the peak exposure
through its wholly owned subsidiary Hannover Life Reassur-
ance Company of America (Bermuda) Ltd.
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".
4.3 Major acquisitions and new formations
Within the 95.2%-owned US subgroup Hannover Re Real Es-
tate Holdings, Inc., the special purpose property company
1600FLL LLC, Wilmington, USA, was established via the sub-
sidiary GLL HRE Core Properties, LP, for the purpose of real
estate acquisition. An amount of roughly EUR 30.4 million
was invested in this connection.
Other invested assets
wholly owned subsidiary Hannover Finance, Inc., Wilming-
ton. The company now trades as Glencar Insurance Company,
Orlando. The purchase price of the shares amounted to EUR
21.2 million. The business was included in the consolidated
financial statement in the first quarter. In the context of pur-
chase price allocation, goodwill of EUR 3.5 million resulted
from the calculation of the fair values of the acquired assets
and liabilities made for initial consolidation.
Hannover Re | Annual Report 2018
197
Annual financial statements
In the fourth quarter of 2018 Hannover Re established the
special purpose property company M8 Property Trust as well
as Markham Real Estate Partners (KSW) Pty Limited, both
Sydney, Australia, via its 94.7%-owned subsidiary PAG Real
Estate Asia Select Fund Limited, George Town, Cayman Is-
lands, for the purpose of real estate acquisition. A total
amount of roughly EUR 85.2 million was invested in this
connection.
Effective 5 October 2018 Hannover Re established the segre-
gated accounts company Kubera Insurance (SAC) Ltd, Hamil-
ton, Bermuda. All shares of the general account are held by
Hannover Finance, Inc., Wilmington.
4.4 Major disposals and retirements
On 11 May 2018 the Executive Board of Hannover Re an-
nounced the plan to sell the majority of the shares in Interna-
tional Insurance Company of Hannover SE, Hannover (Inter
Hannover), a wholly owned subsidiary of Hannover Rück SE,
to HDI Global SE, Hannover.
With economic effect from 1 January 2019 HDI Global SE ac-
quired 50.2% of the shares in Inter Hannover for a purchase
price of EUR 107.2 million. Inter Hannover was subsequently
rebranded as HDI Global Specialty SE. HDI Global SE is trans-
ferring its specialty portfolio to the new company. The re-
maining shares in HDI Global Specialty SE will continue to be
held by Hannover Re. Upon closing of the transaction the
company will be deconsolidated in the first quarter of 2019
and included at equity in the consolidated financial state-
ment.
21,750
750,509
216,349
7,041
Fixed-income securities - held to maturity
Fixed-income securities - loans and receivables
Fixed-income securities - available for sale
Equity securities - available for sale
Property and casualty reinsurance
31.12.2018
31.12.2017
198,596
2,349,266
259,284
2,417,894
24,689,122
Assets
23,662,710
37,520
Financial assets at fair value through profit or loss
94,333
56,652
Other invested assets
3,735,054
3,612,795
Short-term investments
262,068
28,729
in EUR thousand
Segmentation of assets
Consolidated segment report
78,594
87,253
26,567
126,833
443,459
18,968
1,039,184
1,642,408
564,230
39,491
2,246,129
5. Segment reporting
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 operating deci-
sion maker to decide upon the allocation of resources to a seg-
ment and evaluate its performance, Hannover Re has identified
the reportable segments of property & casualty reinsurance and
life & health reinsurance. With regard to the object of business
operations within the two segments please see our explanatory
remarks on Hannover Re's business model on page 19 of the
management report. The report on economic position on page
26 et seq. contains remarks on the economic environment in
which the Group operates.
The segment information shown follows the system used for in-
ternal reporting purposes, on the basis of which the full Execu-
tive Board regularly evaluates the performance of segments and
decides on the allocation of resources to them.
The "Consolidation" column includes not only the elimination of
cross-segment transactions but also, more significantly, compa-
nies whose business operations cannot be unambiguously allo-
cated to property and casualty reinsurance or life and health re-
insurance. These are principally the service and financing
companies belonging to the Group.
During the financial year no material changes occurred in the
organisational structure that could have influenced the composi-
tion of the segments. Since the performance indicators used to
steer the segments correspond to the system according to which
the consolidated financial statement is prepared, a separate rec-
onciliation of the segment results with the Group result is not
provided.
There are no cross-segment gross premiums between the two
segments of property & casualty reinsurance and life & health
reinsurance. To this extent, the gross premiums shown are exclu-
sively amounts from business with external third parties.
The life and health reinsurance segment now includes the com-
pany Kubera Insurance (SAC) Ltd, Hamilton, Bermuda, which
was established in October 2018. All other companies consolidat-
ed for the first time or deconsolidated in 2018 are allocated to the
property and casualty reinsurance segment. The same is true of
International Insurance Company of Hannover SE, Hannover,
which is classified as a disposal group.
Hannover Re | Annual Report 2018
199
Annual financial statements
12,370
3,016,881
300,874
189,441
Property and casualty reinsurance
1.1.-31.12.2018
11,976,000
1.1.-31.12.2017
10,710,944
10,804,172
1,035,108
9,158,732
1,209,298
Net investment income
thereof
Total depreciation, impairments and appreciation of investments
Income/expense on funds withheld and contract deposits
Claims and claims expenses
528
2,069
49,093
70,905
35,810
17,789
Change in fair value of financial instruments
7,227,544
Net premium earned
in EUR thousand
1,705,864
2,235,649
(1,173,150)
1,491,951
2,558,884
1,742,073
(682,176)
2,738,559
2,971,836
2,246,129
Gross written premium
20,623,300
1,062,499
809,581
54,966,609
51,910,288
Hannover Re | Annual Report 2018
201
Annual financial statements
Consolidated segment report
Segment statement of income
20,292,573
6,526,236
Change in benefit reserve
Commission and brokerage, change in deferred acquisition costs and other
79,740
Group net income
929,108
837,340
202
Hannover Re | Annual Report 2018
Life and health reinsurance
Consolidation
1.1.-31.12.2018
84,418
1.1.-31.12.2017
1.1.-31.12.2017
7,200,358
7,079,562
6,484,807
6,472,779
154
491,801
560,597
3,120
1.1.-31.12.2018
Non-controlling interest in profit or loss
thereof
Net income
technical income/expenses
3,033,430
2,434,368
Administrative expenses
206,171
200,440
Other income/expenses
(49,560)
(86,789)
Operating profit/loss (EBIT)
1,322,575
1,120,197
Financing costs
Net income before taxes
Taxes
1,322,575
1,120,197
309,049
203,117
1,013,526
917,080
2,192,760
980,241
1,156,231
467,869
18,961,231
18,254,928
75,204
181,341
207,660
68,360
(194)
172,873
53,061,979
167,854
50,960,344
167,975
2,084,630
909,056
959,533
909,056
959,533
64
19
93,678
96,402
6,627
1,651,335
170,693
10,735,012
40,057,478
35,686
49,219
4,034,657
3,851,455
159,867
615,925
15
421,950
958,669
333,031
213,065
4,942
12,056
10,030,024
8,988,934
75,204
68,360
8,760,514
9,098,019
1,072,915
42,197,338
10,691,768
835,706
6,032
263,917
7,170
1,381,069
28,758,575
9,184,356
28,378,545
8,977,946
251,060
209,111
3,166,964
3,541,194
275,903
231,840
8,977,946
575,996
579,507
574,496
969,261
974,786
3,540,047
3,877,151
3,611,654
3,949,207
383,918
394,460
9,184,356
(194)
4,248,296
1,287,072
1,386,335
1,363,610
2,155,820
2,228,246
(378)
(524)
3,975,778
3,821,124
565,346
792,297
23,291,806
22,970,414
(1,165,321)
(1,859)
(1,092,354)
(671,162)
1,181,342
1,472,561
1,039,184
(603,520)
64,508,637
61,196,846
4,215,749
7,301
384,693
231,232
11,326
Book values from business relations with unconsolidated structured entities
in EUR thousand
Assets
Fixed-income securities - held to maturity
General investing
activities
31.12.2017
Investment
in catastrophe
Real estate and real estate funds
828
Fixed-income securities - loans and receivables
6,015
Fixed-income securities - available for sale
1,734,835
Fixed-income securities - at fair value through profit or loss
55,952
Equity securities - available for sale
bonds (ILS)
958,669
Total
31,560,168
206,385
251,666
924,314
240
The carrying amounts of the fixed-income securities and eq-
uity 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 in-
cluding accrued interest.
58
219
958,851
Short-term investments
37,520
32,278,097
12,080
25,659
18,355
202
5,692
5,582
Hannover Re | Annual Report 2018
in EUR thousand
Annual financial statements
Other foreign government debt
56,144
289
55,855
US Treasury notes
Fair value
Accrued interest
2017
2018
2017
2018
N 24
Fair value before
accrued interest
2017
2018
Fixed-income securities
Financial assets at fair value through
profit or loss
12,865
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
209
Investment funds
12,794
17
119,725
10,945,807
Corporate securities
5,276,914
45,058
183,998
37,859
5,137,974
semi-governmental entities
Debt securities issued by
1,904,187
16,290
26,766
16,513
1,893,711
securities
Other foreign government debt
6,866,979
97,721
401,952
19,165
29,217
Covered bonds/
6,388
securities
Shares
Equity securities
154,369
31,281,908
205,926
912,176
246,084
30,575,658
929
31,690
123,608
Investment funds
2,537,497
6,497
116,370
23,942
2,427,624
asset-backed securities
11,318,542
271,933
318
Corporate securities
Total
invested assets, real estate funds
Participating interests and other
3,681
958,669
41,201
309
31,282,217
510
4
421,954
28,729
Equity securities - available for sale
Short-term investments
33,240,195
available for sale
Fixed-income securities -
2,455,164
2,398,950
loans and receivables
Fixed-income securities -
336,182
2,257,080
38,596,851
249,943
17,900
18,414
21,342
25,332
Total
Other
C
B
BB
BBB
A
AA
AAA
2018
N 26
held-to-maturity
securities -
Fixed-income
in EUR thousand
Rating structure of fixed-income securities
Hannover Re | Annual Report 2018
210
For further explanatory remarks on the impairment criteria
please see section 3.1 “Summary of major accounting poli-
cies".
2,167,994
37,241,427
Impairment
Carrying amount
before impairment
Impairment
Total
88,832
190,759
88,832
190,759
Derivatives
Other financial assets
212,042
559,750
186
607
211,856
559,143
212,042
231,673
186
19,192
211,856
231,355
190,759
88,832
190,759
88,832
Carrying amount
before impairment
2017
2018
held to maturity
Fixed-income securities -
in EUR thousand
N 25
For further information please see the explanatory remarks in
section 8.1 "Derivative financial instruments and financial
guarantees".
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.
271,933
that, just as in the previous year, no fair value changes were
attributable to a changed credit risk.
Analysis of the fair value changes in the portfolio of fixed-in-
come securities at fair value through profit or loss indicated
Hannover Re recognised in this category as at the balance
sheet date designated fixed-income securities amounting to
EUR 559.8 million (EUR 212.0 million) as well as derivative
financial instruments in an amount of EUR 190.8 million
(EUR 88.8 million) that are originally allocable to this item.
The carrying amounts of the financial assets at fair value
through profit or loss correspond to their fair values including
accrued interest.
300,874
750,509
186
607
300,688
749,902
Carrying amounts before impairment
28,144
10,214
US Treasury notes
591,469
78,032
9,331
513,437
Covered bonds/asset-backed securities
Total
421,328
1,454
25,988
2,326
396,794
Corporate securities
1,727,688
5,221
187,976
22,830
1,544,933
semi-governmental entities
accrued interest
Fair value
2,455,164
Unrealised
losses
34,487
6,675
accrued interest
losses
Fair value
Unrealised
Unrealised
gains
accrued interest
thereof
Amortised cost
including
2018
N 22
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
Annual financial statements
207
Hannover Re | Annual Report 2018
The carrying amount of the loans and receivables is arrived at
from the amortised cost plus accrued interest.
2,740,485
291,996
Unrealised
gains
accrued interest
thereof
1,581,634
2,487
132,424
22,045
1,451,697
semi-governmental entities
accrued interest
losses
Fair value
Unrealised
Unrealised
gains
accrued interest
thereof
Amortised cost
including
2018
N 20
Debt securities issued by
Loans and receivables
in EUR thousand
Corporate securities
482,638
2,776
16,857
Amortised cost
including
2017
N 21
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
2,605,684
5,231
Government debt securities of EU
211,965
2,398,950
Total
527,299
62,684
7,511
464,615
Covered bonds/asset-backed securities
496,751
2,744
32,332
6,945,508
member states
24,143
407,213
509,634
255,820
33,587,943
Total
421,950
9
145
4,813
421,814
Short-term investments
28,729
10,888
17,841
10,638
4,991
5,647
Investment funds
18,091
33,690,364
5,897
208
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
3,223,420
164,531
132,208
19,901
3,101,426
member states
Government debt securities of EU
accrued interest
losses
Fair value
Unrealised
2017
Unrealised
gains
accrued interest
thereof
Amortised cost
including
N 23
Fixed-income securities
Available for sale
in EUR thousand
Hannover Re | Annual Report 2018
12,194
Shares
Equity securities
41,088
5,039,941
semi-governmental entities
Debt securities issued by
2,137,943
26,084
17,738
17,987
2,146,289
securities
Other foreign government debt
4,909,251
7,518,121
111,169
8,952
24,653
7,620,338
US Treasury notes
8,016
104,587
144,688
25,358
Corporate securities
11,064,028
86,412
33,239,685
407,204
498,601
251,007
33,148,288
611
12,635
74,388
Investment funds
4,812,680
2,411,047
56,340
22,052
2,390,624
asset-backed securities
Covered bonds/
5,159,271
11,017,640
200,049
153,661
121,084
35,917
37,132
1,767,020 145,622
Fixed-income
Change recognised outside income
Dividend payments
Profit or loss on investments in associated companies
Disposals
Additions
Net book value after currency translation
Currency translation at 1 January
Net book value at 31 December of the previous year
in EUR thousand
Investments in associated companies
The carrying amount of the investments in associated compa-
nies changed as follows in the year under review:
(936)
15,070
953
(4,024)
Group share of income and expense recognised directly in equity
Group share of total recognised income and expense
16,006
4,977
Group share of net income from continuing operations
2017
Currency translation at 31 December
2018
Net book value at 31 December of the year under review
2018
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
companies, the Hannover Re Group shares in such commit-
ments in proportion to its respective shareholding.
121,075
110,545
5
2
(936)
(4,024)
9,000
9,861
16,006
4,977
1,829
389
334
114,611
120,946
(22)
2017
114,633
121,075
(129)
N 31
N 30
in EUR thousand
Financial information on investments in associated companies
The maximum credit risk of the items shown here corre-
sponds to their carrying amounts.
558,386 1,794,375
404,621 1,954,345 40,057,478
65,322 155,369 149,182 518,588 184,820
552,214 12,058,653 3,301,046 18,245,780
2,351,801 1,189,018
Total
32,278
130,430
investments, cash
Short-term
88,832
3,851,455
7,087 122,471
29,033
1,767,771
58,964
6,177
1,947,949
Other invested assets
835
- - 37,520
17,580
102
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
•
•
The following table shows combined financial information on
the Hannover Re Group's individually non-material invest-
ments in associated companies.
Annual financial statements
213
Hannover Re | Annual Report 2018
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".
Pineapple Tech (Pty) Ltd., Johannesburg, South Africa.
•
Marmic Taxi Parts (Pty) Ltd., Durban, South Africa,
•
Real estate
as well as the following companies included at equity within
the subgroup Hannover Reinsurance Group Africa (Pty) Ltd.,
Johannesburg, South Africa:
•
HANNOVER Finanz GmbH, Hannover, Germany,
•
WeHaCo Unternehmensbeteiligungs-GmbH,
Hannover, Germany,
•
Vela Taxi Finance (Pty) Ltd., Johannesburg, South
Africa,
Clarenfin (Pty) Ltd., Johannesburg, South Africa,
Clarendon Transport Underwriting Managers (Pty) Ltd.,
Johannesburg, South Africa,
•
ITAS Vita S.p.A., Trento, Italy,
19,838
Real estate is divided into real estate for own use and invest-
ment property. Own-use real estate is recognised under other
assets.
The investment property in the portfolio which is used to gen-
erate income is shown under the investments. Income and
expenses from rental agreements are included in the invest-
ment income.
The real estate in the investment portfolio is normally subject
to internal and external valuation by an appraiser as at the
balance sheet date. The two analyses do not differ from one
another in the methodology used, which means that the find-
ings are comparable at all times and on a continuous basis.
Generally speaking, the fair value of the real estate is deter-
mined using the discounted cash flow (DCF) method, with
rental income capitalised in consideration of the associated
In terms of diversification across various real estate sectors
the focus is on office properties (68%), followed by retail
properties (19%). The allocation is complemented by invest-
ments in further sectors, including for example logistics and
parking facilities. In geographical terms, exposures are
spread across the United States (36%), Europe (excluding
Germany; 33%) as well as Germany (20%) and Asia (11%).
The additions to this item are attributable to investment activ-
ities at the relevant real estate companies belonging to the
Hannover Re Group, specifically in Australia and the United
States.
The fair value of investment property amounted to EUR
1,945.4 million (EUR 1,743.6 million) as at the balance sheet
date.
1,583,728
1,318,675
1,617,257
1,684,932
1,402,243
1,583,728
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
128,939
159,476
Cumulative depreciation at 31 December of the year under review
(1,294)
405
Currency translation at 31 December
912
3,616
15,642
management costs. The valuation result is also influenced by
increases and reductions based on specific property circum-
stances (upkeep, vacancies, rent divergences from the market
level, etc.). The evaluation of international real estate also
draws primarily on the discounted cash flow method. The
main feature of this method is the present value estimation of
projected annual free cash flows.
324
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
consideration current and future opportunity/risk profiles. In
the year under review no property had to be reclassified to
assets held for sale.
Hannover Re | Annual Report 2018
The following table shows the breakdown of financial assets
and liabilities recognised at fair value into the three-level fair
value hierarchy.
In the financial year just ended, as in the previous year, no
investments were allocable to another level of the fair value
hierarchy.
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 val-
uation committee that meets monthly.
If input factors from different levels are used to measure a fi-
nancial instrument, the level of the lowest input factor mate-
rial to measurement is determinative.
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 38.6 million (EUR 38.2
million). Loans granted in an amount of EUR 141.1 million
(EUR 107.9 million) were similarly recognised under other
invested assets.
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
principally on valuation models and methods.
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
comparable assets and liabilities that are traded on
active markets, prices on markets that are not consid-
ered active as well as inputs derived from such prices
or market data.
Level 1: Assets or liabilities measured at (unadjusted)
prices quoted directly in active and liquid markets
•
•
The fair value hierarchy, which reflects characteristics of the
price data and inputs used for measurement purposes, is
structured as follows:
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.
Fair value hierarchy
This item comprises investments with a maturity of up to one
year at the time of investment. This includes overnight and
time deposits as well as shares in investment funds that invest
in such securities.
Short-term investments
The other invested assets consisted largely of participating
interests in partnerships measured at fair value in an amount
of EUR 1,491.0 million (EUR 1,507.6 million), the amortised
cost of which amounted to EUR 1,145.8 million (EUR 1,124.5
million). The differences between the carrying amounts and
the amortised costs were recognised as unrealised gains of
EUR 362.1 million (EUR 398.0 million) and unrealised losses
of EUR 16.9 million (EUR 14.8 million) under cumulative oth-
er comprehensive income.
Other invested assets
Annual financial statements
215
In addition, we held indirect real estate investments meas-
ured at fair values in an amount of EUR 433.9 million (EUR
385.0 million) in the year under review, the amortised costs of
which amounted to EUR 379.8 million (EUR 327.2 million).
The differences between the carrying amounts and amortised
costs were recognised as unrealised gains of EUR 57.5 mil-
lion (EUR 59.5 million) and unrealised losses of EUR 3.4 mil-
lion (EUR 1.7 million) under cumulative other comprehensive
income.
31,013
34,001
9,895
117,253
Additions
1,413,060
1,749,327
Gross book value after currency translation
(89,740)
36,660
Currency translation at 1 January
1,502,800
1,712,667
Gross book value at 31 December of the previous year
2017
2018
in EUR thousand
N 32
Development of investment property
Hannover Re | Annual Report 2018
214
Real estate is valued at cost of acquisition less depreciation
with useful lives of at most 50 years.
388,308
Disposals
Currency translation at 31 December
23,166
3,708
94,385
132,070
(6,172)
3,131
Appreciation
Impairments
Depreciation
Disposals
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 18.8 million (EUR 18.8 mil-
lion). For further details please see section 4 "Consolidation".
Cumulative depreciation after currency translation
100,557
128,939
Cumulative depreciation at 31 December of the previous year
1,712,667
1,844,408
Gross book value at 31 December of the year under review
(6,248)
994
82,453
Currency translation at 1 January
48,280
212,042
212,714 1,273,420 31,281,908
180,499 212,042
31,543
or loss
value through profit
securities - at fair
Fixed-income
328,717 31,281,908
1,847
170,001
1,105,067
13,754,622 4,892,769 5,138,558 5,890,327
available-for-sale
60,020 2,455,164
336,182
securities -
Fixed-income
19,030
1,745,927 272,116 136,439 221,632
receivables
Total fixed-income
securities
securities loans and
15,697,003 5,242,619 5,326,990 6,121,960 1,155,640
1,847
USD
GBP
EUR
CNY
CAD
AUD
2018
N 28
Fixed-income
held to maturity
securities -
Fixed-income
in EUR thousand
Breakdown of investments by currencies
Annual financial statements
211
Hannover Re | Annual Report 2018
The maximum credit risk of the items shown here corre-
sponds to their carrying amounts.
569,236 34,285,296
170,001
Fixed-income
10,001
51,993
27,611
56,144 271,933
or loss
476,801 33,239,685
1,433
637,336 237,103
15,546,636 5,496,061 4,970,072 5,874,243
170,454 2,398,950
249,943
value through profit
securities at fair
Fixed-income
Amortised cost, unrealised gains and losses and accrued interest on loans and
receivables as well as their fair value
securities -
Fixed-income
19,316
85,243 211,295
receivables
securities - loans and
204,062 559,750
Total fixed-income
securities
17,534,331 5,950,748 5,103,595 6,085,538
684,263 237,103
77,734
196,454
held-to-maturity
securities -
Fixed-income
in EUR thousand
Total
Other
C
ZAR
B
BBB
A
AA
AAA
2017
N 27
Rating structure of fixed-income securities
851,317 36,448,328
1,433
BB
212,042
Other
securities -
loans and receivables
securities -
Total
Other
ZAR
USD
GBP
EUR
CNY
CAD
AUD
2017
N 29
Fixed-income
held to maturity
securities -
Fixed-income
in EUR thousand
Breakdown of investments by currencies
22,805
Hannover Re | Annual Report 2018
Fixed-income
available-for-sale
453,079 7,672,596 3,003,948 15,314,560
2,198,566 1,153,025
68 2,455,164
-- 336,182
39,755 374,777
33,813 1,983,946
11,429
42,918
278,120
3,715
through profit or loss
assets at fair value
Other financial
available-for-sale
Equity securities -
profit or loss
at fair value through
securities -
Fixed-income
securities -
212
141,828 282,085 1,494,865
401,170 2,131,089 42,197,338
194,212 501,116
3,257,371 19,338,325
2,398,950
249,943
39,083 306,553
33,505 1,926,512
9,486
13,972
226,485
Other financial
available-for-sale
Equity securities -
profit or loss
at fair value through
securities -
Fixed-income
available-for-sale
securities -
Fixed-income
93,297
loans and receivables
2,222,892 1,098,885 685,210 8,428,778 2,908,509 16,191,456
253,826 1,450,129 33,239,685
19,527
18,091
50,829 189,124
769,544 12,666,196
2,501,959 1,131,684
Total
32,799
102,872
investments, cash
Short-term
235 190,759
4,034,657
126,707
Total
5,516
2,296
1,855,383
82,898
Other invested assets
through profit or loss
assets at fair value
28,729
271,933 559,750
10,638
268,290
87,515 100,713
14,080 1,950,073
available-for-sale
Hannover Re | Annual Report 2018
216
2018
17,440,918
5,642,495
5,067,975
6,017,406
936,185
630,371
175,447
35,910,798
221
Annual financial statements
6.2 Funds withheld (assets)
The funds withheld totalling EUR 10,691.8 million (EUR
10,735.0 million) represent the cash deposits furnished by
our company to our cedants that do not trigger any cash flows
and cannot be realised by cedants without our consent. The
maturities of these deposits are matched to the correspond-
ing provisions. In the event of default on such a deposit our
reinsurance commitment is reduced to the same extent.
6.3 Contract deposits (assets)
The contract deposits on the assets side increased slightly by
EUR 5.0 million in the year under review from EUR 167.9
million to EUR 172.9 million.
6.4 Technical assets
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”. With regard to the nature and scope of risks aris-
ing out of insurance contracts we would also refer to the ex-
planatory remarks on page 102 et seq. of the risk report.
Carrying amount
before impairment
2018
Hannover Re | Annual Report 2018
The fair value for financial assets that meet the cash flow cri-
terion and have more than a low credit risk corresponds to
the carrying amount before impairment shown in the table.
146,641
933
36,278,597
(122,761)
3,273,571
1,767
(170,796)
The above table shows the financial assets that are to be rec-
ognised in future in accordance with IFRS 9 and splits them
into a group that satisfies the cash flow criterion for financial
assets as well as all other financial assets. The latter encom-
pass the financial assets currently measured at fair value
through profit or loss, especially equity instruments held and
shares in investment funds that by their very nature cannot
fulfil the cash flow criterion enshrined in IFRS 9. The cash
flow criterion is met if the contractual conditions of the finan-
cial instrument give rise to cash flows at set times that are
solely payments of principal and interest (SPPI test).
Rating structure of financial assets that give rise to solely payments of principal and interest
N 42
in EUR thousand
AAA
AA
A
BBB
BB or lower
No rating
low credit risk
more than a low credit risk
Total
SFAS 60 requires that acquisition costs be capitalised as as-
sets and amortised in proportion to the earned premium.
In the case of reinsurance treaties for unit-linked life insur-
ance policies classified as “universal life-type contracts" pur-
suant to SFAS 97, the capitalised acquisition costs are amor-
tised on the basis of the estimated gross profit margins from
the reinsurance treaties, making allowance for the period of
Development of deferred acquisition costs
in EUR thousand
530,606
(64,252)
(16,796)
(126,833)
6,382
(11,877)
2,155,820
2,228,246
668,351
222
For further explanatory remarks please see section 3.1 "Sum-
mary of major accounting policies”.
The age structure of the accounts receivable which were un-
adjusted but considered overdue as at the balance sheet date
is presented below.
Age structure of overdue accounts receivable
in EUR thousand
Accounts receivable
2018
2017
Three months
to one year
241,637
Hannover Re | Annual Report 2018
676,407
782,122
2,111,118
Net book value at 31 December of the previous year
Currency translation at 1 January
Net book value after currency translation
Additions
Amortisations
Portfolio entries/exits
Reclassifications pursuant to IFRS 5
Currency translation at 31 December
Net book value at 31 December of the year under review
the insurance contracts. A discount rate based on the interest
for medium-term government bonds was applied to such con-
tracts. 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 life and health reinsurance the deferred acquisition costs
associated with life and annuity policies with regular premi-
um payments are determined in light of the period of the con-
tracts, the expected surrenders, the lapse expectancies and
the anticipated interest income.
In property and casualty reinsurance acquisition costs direct-
ly connected with the acquisition or renewal of contracts are
deferred for the unearned portion of the premium.
N 43
2018
2,228,246
2017
2,264,034
(1,494)
(152,916)
2,226,752
345
41,360
(78,798)
1,537,851
7,917
2,993,321
121,376
129,293
1,986,247
4,979,568
1,977,559
39
1,977,598
3,106,643
1,743,632
1,977,559
1,977,598
220
Hannover Re | Annual Report 2018
Disclosures relating to deferred adoption of IFRS 9
Fair value disclosures for financial assets
2018
N 41
in EUR thousand
39
Total
Level 3
121,239
1,743,632
Level 2
2,985,404
2,256,186
4,984,064
2,677,938
35
2,677,973
2,677,938
35
2,677,973
Fair value hierarchy of financial assets and liabilities measured at amortised cost
in EUR thousand
Fixed-income securities
Investment property
Other invested assets
Total financial assets
Long-term debt and notes payable
Total financial liabilities
N 40
2017
Level 1
Fixed-income securities -
More than one year
held to maturity
loans and receivables
(18,879)
559,750
(19,933)
28,729
(1,170)
Equity securities - available for sale
Other financial assets -
at fair value through profit or loss
493,247
Real estate funds
Short-term investments
Other assets
Total
173,865
(9,619)
433,899
(41,181)
133,262
380,590
(1,525)
(532)
Other invested assets
(70,690)
32,746,438
(3,544)
Fixed-income securities -
available for sale
Fixed-income securities -
at fair value through profit or loss
Financial assets that give rise solely to
payments of principal and interest
Fair value
as at 31.12.
Fair value change in
the financial year
(14,398)
All other financial assets
Fair value
as at 31.12.
Fair value change in
266
the financial year
269,651
216
2,602,013
(35,616)
3,671
Fixed-income securities -
Three months
to one year
More than one year
90,747
64,036
83,173
78,016
29,804
29,653
74,018
58,491
115,906
63,551
386,270
904,253
The item "Other" includes receivables of EUR 50.4 million
(EUR 286.8 million) which correspond to the present value of
future premium payments in connection with derivative fi-
nancial instruments arising from transactions in the life and
health reinsurance business group. For further explanation
please see section 8.1 “Derivative financial instruments and
financial guarantees".
The other receivables include unadjusted items of EUR 0.3
million (EUR 0.3 million) that were overdue by more than
twelve months as at the balance sheet date.
Hannover Re | Annual Report 2018
225
Annual financial statements
Present value of future profits (PVFP) on acquired life reinsurance portfolios
629,420
90,789
93,962
133,713
under the other income/expenses in the property and
casualty reinsurance segment.
We would also refer to our basic remarks in section 3.1 "Sum-
mary of major accounting policies".
6.6 Other assets
Other assets
in EUR thousand
Present value of future profits on acquired life reinsurance portfolios
Other intangible assets
Insurance for pension commitments
Own-use real estate
Tax refund claims
Fixtures, fittings and equipment
Receivables from advance payments and services
Other
Total
N 48
2018
2017
39,609
63,285
129,397
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios
CGU. The value adjustment on the level of Glencar Under-
writing Managers Inc. amounts to EUR 5.0 million and en-
compasses the entire goodwill. The value adjustment taken
on the level of Integra Insurance Solutions Limited amounts
to EUR 3.4 million. The expense was in each case recognised
in EUR thousand
Currency translation at 1 January
54,552
25,859
4,267
818
(245)
86,969
58,574
63,285
60,292
76,592
63,285
This item comprises 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.
The period of amortisation amounts to altogether 30 years.
Insurance for pension commitments
Effective 1st of July 2003 Hannover Rück SE took out insur-
ance for pension commitments. The commitments involve
deferred annuities with regular premium payment under a
group insurance policy. In accordance with IAS 19 “Employee
The increased amortisation results from treaty recaptures
made by individual cedants as a consequence of rate increas-
es. For further information please refer to our explanatory
notes on intangible assets in section 3.1 “Summary of major
accounting policies".
Benefits" they were carried as a separate asset at fair value as
at the balance sheet date in an amount of EUR 94.0 million
(EUR 90.8 million).
226
Hannover Re | Annual Report 2018
39,609
(4,909)
1,718
59,461
Gross book value at 31 December of the year under review
Cumulative depreciation at 31 December of the previous year
Currency translation at 1 January
Cumulative depreciation after currency translation
Amortisation
Currency translation at 31 December
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
N 49
2018
2017
121,859
136,053
4,719
(14,194)
126,578
121,859
58,574
Gross book value at 31 December of the previous year
Hannover Re | Annual Report 2018
224
Based on the current financial planning, it was necessary to
make value adjustments on the goodwill allocated to the
cash-generating units Glencar Underwriting Managers Inc.
and Integra Insurance Solutions Limited because the recover-
able amount in each case fell short of the book value of the
9,299
5,506
31,427
1,500
628
Reclassifications pursuant to IFRS 5
(215)
Cumulative value adjustments at 31 December of the year under review
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
Net book value of accounts receivable at 31 December of the year under review
19,151
29,503
4,005,281
3,838,515
29,503
3,975,778
17,391
3,821,124
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 "Tech-
nical provisions". With regard to the credit risks resulting
from technical assets we would also refer the reader to our
comments on page 114 et seq. of the risk report.
Hannover Re | Annual Report 2018
223
17,391
40,147
17,573
(321)
303,242
130,437
Within the scope of our management of receivables we ex-
pect to receive payment of accounts receivable within three
months of the date of creation of the debit entry unless other-
wise agreed a period for which we also make allowance in
our risk analysis. Please see our comments on the counter-
party default risk within the risk report on page 114 et seq.
-
The default risks associated with accounts receivable under
reinsurance business are determined and recognised on the
basis of case-by-case analyses.
The value adjustments on accounts receivable that we recog-
nise in adjustment accounts changed as follows in the year
under review:
Value adjustments on accounts receivable
in EUR thousand
Cumulative value adjustments at 31 December of the previous year
Currency translation at 1 January
Cumulative value adjustments after currency translation
Value adjustments
Reversal
Utilisation
N 45
2018
17,391
2017
40,468
182
Annual financial statements
6.5 Goodwill
In accordance with IFRS 3 “Business Combinations" amorti-
sation is not taken on goodwill. Goodwill was subject to an
impairment test.
Development of goodwill
This item principally includes the goodwill from the acquisi-
tions of E+S Rückversicherung AG, Integra Insurance Solu-
tions Limited, Glencar Underwriting Managers Inc. and Ar-
genta Holdings Limited.
For the purposes of the impairment test, the goodwill was al-
located 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 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 plan-
ning calculations represent the outcome of a detailed plan-
ning process in which all responsible members of manage-
ment are involved and where allowance is made for the latest
market developments affecting the relevant entity (in relation
to the sector and the economy as a whole). 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 As-
set Pricing Model (CAPM) as well as growth rates that are
considered realistic in light of the specific market environ-
ment. The risk-free basic interest rate is determined, where
possible, using corresponding yield curve data from the re-
spective national banks. If this data cannot be obtained or can
only be obtained with a disproportionately high effort, refer-
ence is made to the yields of the respective 30-year govern-
ment bonds. Both the yield curves and the government bonds
reflect the current interest rate trend on financial markets.
The selection of the market risk premium is guided by the
current recommendations 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. The foreign exchange rates used for currency transla-
tion correspond to the situation on the balance sheet date.
The following capitalisation rates and growth rates were rec-
ognised for the individual cash-generating units:
Capitalisation rates
Argenta Holdings Limited
E+S Rückversicherung AG
Glencar Underwriting
Managers Inc.
Integra Insurance
Solutions Limited
N 47
Capitalisation
Growth rate
rate
7.320%
1.000%
6.650%
0.900%
9.280%
1.000%
7.920%
1.000%
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
individual parameters were each varied within appropriate
ranges that could be anticipated in view of the prevailing mar-
ket circumstances and developments. It was established that
in the event of changes in parameters within ranges that
could reasonably occur, the values in use of Argenta Holdings
Limited and E+S Rückversicherung AG were in each case
higher than the corresponding book values.
91,692
2,727,878
(287)
8,389
in EUR thousand
Net book value at 31 December of the previous year
Currency translation at 1 January
Net book value after currency translation
Additions
Value adjustments
Currency translation at 31 December
Net book value at 31 December of the year under review
N 46
2018
2017
91,692
64,609
(1,289)
(1,405)
90,403
63,204
3,506
28,775
68
85,588
163,062
N 44
8,089
Other liabilities
variable-yield
securities
102
49,039
(2)
2,326
384,973
31,152
Other
invested assets
1,639,065
46,691
8,796
100
51,365
416,125
1,685,756
194,294
185,498
29,037
funds
Other financial
assets
Annual financial statements
The following table provides a reconciliation of the fair values
of financial assets and liabilities included in level 3 at the be-
ginning of the financial year with the fair values as at 31 De-
cember of the financial year.
Movements in level 3 financial assets and liabilities
in EUR thousand
Net book value at 31 December of the
previous year
Currency translation at 1 January
Real estate
Net book value after currency
Income and expenses
recognised in the statement of income
recognised directly in shareholders'
equity
N 35
2018
Equities, equity
funds and other
translation
(2,601)
41,735
(5,775)
(2,636)
1,399
2,468
(6,871)
Net book value at 31 December of the
year under review
132,339
2
433,899
24,548
Movements in level 3 financial assets and liabilities
in EUR thousand
Net book value at 31 December of the
N 36
2017
Equities, equity
funds and other
variable-yield
securities
1,647,992
Currency translation at 31 December
Transfers from level 3
Transfers to level 3
(3,298)
(57,796)
Transfers
Purchases
Sales
Settlements
Reclassifications pursuant to IFRS 5
(102)
103,507
75,906
374,508
48,934
41,262
393,933
7,814
164,914
4,746
(12,370)
217
Hannover Re | Annual Report 2018
264,336
185,498
33,799,435
28,729
28,729
58,420
132,339
190,759
433,899
Total
433,899
1,647,992
421,950
988
988
478,719
33,830,803
57,940
1,647,992
Level 3
Level 2
33,771,395
28,040
154,973
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 funds
Other invested assets
Short-term investments
421,950
Other assets
Total financial assets
Other liabilities
Total financial liabilities
N 33
2018
Level 1
57,940
Other financial
assets
2,214,230
24,548
24,548
82,488
Other invested assets
384,973
1,639,065
384,973
1,639,065
Short-term investments
Total financial assets
Total financial liabilities
Real estate funds
958,669
1,028,233
31,501,597
2,073,179
34,603,009
78,838
78,838
185,498
264,336
958,669
88,832
49,039
37,520
82,488
Fair value hierarchy of financial assets and liabilities recognised at fair value
N 34
2017
in EUR thousand
Fixed-income securities
Equity securities
Other financial assets
Level 1
34,043
Level 2
31,459,907
Level 3
Total
31,493,950
35,521
1,897
39,793
102
36,523,752
Real estate
Other liabilities
Other Other liabilities
invested assets
Other Other liabilities
funds and
assets
funds
invested assets
other varia-
ble-yield
securities
Real estate
Total in the financial year
Realised gains and losses on investments
(79)
Change in fair value of
financial instruments
Total depreciation, impairments and
appreciation of investments
(9)
Ordinary investment income
Other financial
Equities, equity
2017
ble-yield
securities
Income and expenses from level 3 financial assets and liabilities
in EUR thousand
(10)
56,694
350
5,775
29,037
(2,601)
(15,299)
(10)
512
5,775
29,037
(2,601)
(15,299)
N 38
Thereof attributable to financial
invested assets
instruments included in the portfolio at
Ordinary investment income
N 39
in EUR thousand
Fixed-income securities
Investment property
Other invested assets
Total financial assets
Long-term debt and notes payable
Fair value hierarchy of financial assets and liabilities measured at amortised cost
Total financial liabilities
Level 2
2,719,789
Level 3
155,812
Total
2,875,601
1,945,401
funds
1,945,401
Level 1
for measurement as at the balance sheet date, the fair values
for these items would amount to EUR 1,732.4 million. The
remaining financial assets included in level 3 with a volume of
EUR 289.3 million (EUR 180.6 million) relate to investments,
the valuation of which is based inter alia on technical para-
meters. 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 lapse rates within an under-
lying primary insurance portfolio. The application of alter-
native 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 re-
quires disclosure of the effects of these alternative assump-
tions. Of the financial assets included in level 3 with fair val-
ues of altogether EUR 2,214.2 million (EUR 2,073.2 million)
as at the balance sheet date, Hannover Re measures financial
assets with a volume of EUR 1,924.9 million (EUR 1,892.6
million) using the net asset value method. These items con-
sist principally of shares in private equity and real estate
funds. Assuming that the present values of the assets and lia-
bilities contained in the funds would be 10% lower than used
Annual financial statements
Change in fair value of
financial instruments
(9)
Hannover Re | Annual Report 2018
108
15,538
1,887
29,818
2,024
(2,341)
(8,440)
2,024
108
1,392
29,818
(2,341)
(8,440)
219
31 December of the year under review
funds
Total depreciation, impairments and
appreciation of investments
funds and
other varia-
2,024
(2,341)
9,093
(29,818)
recognised directly in shareholders'
equity
(5,842)
(88)
Purchases
78
66,331
92,817
18,232
72,043
35,188
320,334
245,092
69,113
Sales
recognised in the statement of income
Income and expenses
1,522,952
previous year
Currency translation at 1 January
assets
10
(1)
Net book value after currency
translation
Changes in the consolidated group
9
103
390,676
1,653,902
168,943
(18,082)
(130,950)
(20,481)
372,594
1
Transfers to level 3
148,462
Currency translation at 31 December
financial instruments
Total depreciation, impairments and
appreciation of investments
Thereof attributable to financial
instruments included in the portfolio at
31 December of the year under review
Real estate
Ordinary investment income
Realised gains and losses on investments
Change in fair value of
Total depreciation, impairments and
appreciation of investments
N 37
2018
Equities, equity
Transfers from level 3
Other Other liabilities
financial instruments
Ordinary investment income
Change in fair value of
in EUR thousand
(1)
(1,084)
(212)
(3,410)
(2,259)
Net book value at 31 December of the
year under review
102
Total in the financial year
49,039
Other financial
1,639,065
185,498
218
Hannover Re | Annual Report 2018
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:
Income and expenses from level 3 financial assets and liabilities
384,973
The total amount of the net reserve before specific value ad-
justments was EUR 26,619.3 million (EUR 26,682.7 million)
as at the balance sheet date.
the actual ultimate loss in the original currency, it is ensured
that also after translation to the Group reporting currency
(EUR) a run-off result induced purely by currency effects is
not shown.
Annual financial statements
229
1 Excluding effects from portfolio entries/exits recognised in income
Hannover Re | Annual Report 2018
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 loss reserves con-
stituted in the previous year and the losses paid out of these
reserves is reflected in the net run-off result. In this regard,
owing to the fact that the period of some reinsurance treaties
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 fi-
nancial year or the previous year.
On balance, cumulative specific value adjustments of EUR
54.6 million (EUR 44.5 million) were recognised in these re-
insurance recoverables as at the balance sheet date.
2,171
(135,786)
1,651,335
26,673,945 28,378,545
2,084,630
28,758,575
year under review
Net book value at 31 December of the
The run-off triangles provided by the reporting units are
shown after adjustment for the currency effects arising out of
translation of the respective transaction currency into the lo-
cal reporting currency. The run-off triangles of the reporting
units delivered 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 originally estimated ultimate loss corresponds to
(20,752)
2,171
(156,538)
(4,886)
16,784
26,727,210
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.
in EUR million
230
Two years later
(3,274)
(2,205)
Three years later
One year later
Cumulative payments for the year in question and previous years
13,625.3 13,945.3 15,206.4 16,555.1 17,178.8 17,746.8 19,644.7 21,672.5 22,592.5 22,727.8 24,194.71
2011
Loss and loss adjustment expense reserve (from balance sheet)
2018
2017
2016
2015
2014
2013
2012
31.12.
31.12. 31.12. 31.12. 31.12. 31.12. 31.12. 31.12.
31.12. 31.12.
2009 2010
31.12.
2008
N 54
Net loss reserve and its run-off in the property and casualty reinsurance segment
Hannover Re | Annual Report 2018
The following table shows the net loss reserve for the proper-
ty and casualty reinsurance business group in the years 2008
to 2018 as well as the run-off of the reserve (so-called run-off
triangle). The figures reported for the 2008 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 2018 financial year for the individual run-off years.
(8,160)
14,579
1,385,757 24,825,910
Portfolio entries/exits
2,781,604
9,411,475
1,022,795
382,340
1,405,135
1,383,873 10,169,755 10,434,270
450,520 2,399,395 3,163,944
1,834,393 12,569,150 13,598,214
2,849,915
14,403,543
11,553,628
Previous years
Year under review
(net) 1
12,193,079
Incurred claims and claims expenses
1,689,667 27,074,798
(87,253) (1,555,155)
(1,642,408)
Reclassifications pursuant to IFRS 5
28,764,465
Net book value after currency
translation
(1,797,216)
1,506,292
(120,535)
Four years later
26,623,126
26,211,667
Less:
Claims and claims expenses paid (net) 1
Year under review
(519)
(43,609)
43,609
519
(1,155)
1,155
Reversal of impairments
(9,257)
9,257
retrocessions
Specific value adjustment for
122,849
41,964
(10,324,103)
(1,117,679)
(7,807,070)
(724,128)
(2,517,033)
(393,551)
(3,435,681) (145,670) (3,290,011) (2,910,584)
(9,337,763) (1,192,926) (8,144,837) (8,531,198)
(12,773,444) (1,338,596) (11,434,848) (11,441,782)
164,813
Changes in the consolidated group
Previous years
Currency translation at 31 December
Five years later
retro
6,106.1 6,517.7 6,534.7
5,452.1 5,722.8 6,724.0 6,564.7 7,098.9 7,511.2
5,957.8 6,483.4 7,442.5 7,355.9 7,911.2
2018
N 55
deposits put 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 re-
serves please see section 3.1 “Summary of major account-
ing policies".
Maturities of the technical reserves
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 immediately deducted the
Maturities of the technical reserves
Annual financial statements
231
Hannover Re | Annual Report 2018
Loss and loss adjustment
expense reserves
The run-off profit of altogether EUR 996.7 million (EUR
1,058.0 million) in the 2018 financial year derives, as in the
previous year, above all from positive run-offs of reserves in
the areas of general liability and marine/aviation as well as in
short-tail property business.
0.1
(0.0)
0.5
0.8
0.6
0.2
1.6
0.6
0.6
1 The net loss reserve shown in the run-off triangle for the 2018 financial year in an amount of EUR 24,194.7 million includes the assets and liabilities
held for sale in connection with assets held for sale of International Insurance Company of Hannover SE in an amount of EUR 1,555.2 million.
1.2
Benefit reserve
gross
837,926
28,129,418
(1,917,751)
Due after five through ten years
573,539
1,411,465
9,406,853
956,613
10,363,466
Due after one through five years
in EUR thousand
943,478
980,953
7,280,738
485,851
7,766,589
Due in one year
net
gross
net
retro
37,475
29.2
(8.0)
109.8
13,465.6 12,674.5 13,960.8 15,867.4 16,343.6 16,922.2 18,031.5 19,349.6 20,457.2
14,728.2 13,430.2 14,565.5 16,263.2 16,697.7 17,558.2 19,146.1 20,777.6 21,424.6 21,731.1
13,625.3 13,945.3 15,206.4 16,555.1 17,178.8 17,746.8 19,644.7 21,672.5 22,592.5 22,727.8 24,194.7
End of year
reserve
Loss and loss adjustment expense reserve (net) for the year in question and previous years plus payments made to date on the original
7,899.0
Ten years later
7,661.0 7,425.7
One year later
Nine years later
Eight years later
6,808.5 7,463.5 8,525.0
7,109.9
Seven years later
6,459.9 7,026.2 8,037.0 7,994.7
6,763.2
Six years later
2,958.7 2,755.7 2,445.8 3,127.5 2,899.2 3,185.9 3,509.3 3,267.6 3,732.6 4,430.3
4,602.2 3,984.5 4,085.4 4,856.9 4,518.3 4,988.8 5,252.3 5,175.1 5,800.2
5,363.2 4,805.9 5,073.6 5,788.3
5,951.1
5,715.3
7,372.5 7,136.9 7,849.4
Two years later
Three years later
12,597.5 12,097.9 13,516.2 15,421.6 15,823.4 15,884.1 17,062.9 18,374.2
150.4
99.0
27.2
257.8
89.5
80.9
160.9
9,865.3
10,026.2 9,575.8
original loss reserve
Nine years later
Ten years later
Change relative to
previous year
Net run-off result
As percentage of
10,451.7 9,817.6 11,030.0
10,778.1 10,313.0 11,361.3 12,896.0
11,266.3 10,680.5 11,961.4 13,485.1 13,792.2
11,761.3 11,210.0 12,492.2 14,133.0 14,408.4 14,297.4
12,101.3 11,669.8 13,060.1 14,797.0 15,122.4 15,012.6 16,197.3
Eight years later
Seven years later
Six years later
Five years later
Four years later
6,432.9
26,727,210
347,588
2018
385,920
Hannover Re | Annual Report 2018
With regard to the measurement of fixtures, fittings and
equipment, the reader is referred to our explanatory notes on
the other assets in section 3.1 "Summary of major accounting
policies".
29,653
29,804
Net book value at 31 December of the year under review
27,234
29,653
Net book value at 31 December of the previous year
127,858
227
129,561
97
(125)
Currency translation at 31 December
(4,119)
Reclassifications pursuant to IFRS 5
294
(39)
Change in the consolidated group
(793)
Cumulative depreciation at 31 December of the year under review
8,047
Annual financial statements
Development of other intangible assets
Reclassifications pursuant to IFRS 5
Disposals
Additions
Reclassifications
85,853
(289)
Changes in the consolidated group
264,443
362,276
Other intangible assets
Gross book value after currency translation
(2,603)
Currency translation at 1 January
265,220
364,879
Gross book value at 31 December of the previous year
2017
2018
in EUR thousand
N 51
(777)
10,042
Reclassifications
Depreciation
12,743
Disposals
Reclassifications
Change in the consolidated group
Reclassifications pursuant to IFRS 5
Currency translation at 31 December
5,567
3,974
(4,451)
11,791
(64)
(5,101)
(158)
159
Gross book value at 31 December of the year under review
159,365
157,511
Cumulative depreciation at 31 December of the previous year
4,426,226
127,858
2,696
Additions
150,338
158,464
3,773
5,199
Disposals
123,986
129,001
Cumulative depreciation after currency translation
(4,592)
1,143
Currency translation at 1 January
128,578
Fixtures, fittings and equipment
Fixtures, fittings and equipment
in EUR thousand
Gross book value at 31 December of the previous year
157,511
N 50
2017
155,812
Currency translation at 1 January
953
(5,474)
Gross book value after currency translation
Currency translation at 31 December
4,451
21,800
11,775
568,826
38,591,357
26,673,945
8,275,300
3,073,286
2,084,630
909,056
93,678
7,170
3,094,534
41,685,891
575,996
9,184,356
3,166,964
28,758,575
net
retro
28,378,545
8,977,946
3,541,194
394,460
41,292,145
gross
2017
retro
gross
2018
Other technical provisions
Total
Unearned premium reserve
Benefit reserve
reserve
Loss and loss adjustment expense
net
1,651,335
959,533
26,727,210
8,018,413
Currency translation at 1 January
28,378,545
Net book value at 31 December of the
previous year
net
retro
gross
net
2017
retro
gross
2018
in EUR thousand
N 53
serve is shown in the following table. Commencing with the
gross reserve, the change in the reserve after deduction of the
reinsurers' portions is shown in the year under review and
the previous year.
Loss and loss adjustment expense reserve
The loss and loss adjustment expense reserves are in princi-
ple 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 development of the loss and loss adjustment expense re-
38,577,574
387,159
7,301
2,714,571
3,444,792
96,402
in EUR thousand
1,651,335
38,332
with the corresponding retrocessionaires' shares, which are
shown as assets in the balance sheet.
In order to show the net technical provisions remaining in the
retention the following table compares the gross provisions
793
Reclassifications
203
212,763
230,351
(3)
Changes in the consolidated group
Cumulative depreciation after currency translation
(369)
(815)
Disposals
Currency translation at 1 January
231,166
Cumulative depreciation at 31 December of the previous year
364,879
370,192
Gross book value at 31 December of the year under review
(1,459)
(57)
(13,538)
184
213,132
149
Depreciation
18,965
6.7 Technical provisions
Hannover Re | Annual Report 2018
228
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 94 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 37.8 million (EUR 33.7 million) for
purchased software as at the balance sheet date, on which
depreciation is taken over useful lives of three to ten years. Of
the additions, an amount of EUR 8.7 million (EUR 3.6 million)
is attributable to purchased software.
133,713
129,397
Net book value at 31 December of the year under review
52,088
133,713
Net book value at 31 December of the previous year
231,166
240,795
Cumulative depreciation at 31 December of the year under review
(58)
(202)
Currency translation at 31 December
(8,316)
Reclassifications pursuant to IFRS 5
17,614
Technical provisions
349,296
95
777,725
1.75
2.90
2.87
1.60
Discount rate
United
Kingdom
2017
Australia
Germany
United
Kingdom
3.62
in %
Germany
N 59
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 as-
sumptions 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 be-
low 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 diverg-
ing 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 ob-
ligations arise on account of the pension indexation required
by law.
Disablement entails the risk that the assumed number of re-
tirements from the subportfolio of eligible beneficiaries on
grounds of disability does not correspond to the actual expe-
rience 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
2018
Australia
pension progression
2.60
2.50
2018
2017
N 60
Movements in net liability from defined benefit pension plans
The movements in the net pension liability for the Group's
various defined benefit plans were as follows:
Annual financial statements
235
Hannover Re | Annual Report 2018
2.15
Rate of compensation increase
3.00
2.15
3.00
1.74
Pension indexation
2.25
3.00
2.50
2.15
3.00
1.74
disablement
•
•
The adequacy of the technical liabilities arising out of our re-
insurance 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 antic-
ipated future income. Should the result of the test indicate
3,444,792
96,402
3,541,194
3,073,286
93,678
3,166,964
Net book value at 31 December
of the year under review
(43,456)
that the anticipated future income will not be sufficient to
fund future payments, the entire shortfall is recognised in in-
come by first writing off capitalised present values of future
profits on acquired life reinsurance portfolios and acquisition
costs corresponding to the shortfall. Any remaining differ-
ence is constituted as an additional provision.
(1,449)
(259)
(44,905)
13,346
2,090
15,436
Currency translation at 31 December
2
2
Portfolio entries/exits
462,754
(259)
6.8 Funds withheld (liabilities)
The funds withheld under reinsurance treaties totalling EUR
969.3 million (EUR 974.8 million) represent the cash and se-
curities deposits furnished to our company by our retroces-
sionaires that do not trigger any cash flows and cannot be
realised without the consent of our retrocessionaires. The
maturities of these deposits are matched to the correspond-
ing shares of the reinsurers in the technical provisions. If
such a share no longer exists the corresponding funds with-
held are reduced to the same extent.
•
• interest rate
• currency
longevity
•
The defined benefit plans expose Hannover Re to the follow-
ing 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
widows' benefits. The amount of the commitments is deter-
mined according to length of service and salary level.
The commitments to employees in Germany predominantly
comprise benefit obligations financed by the Group compa-
nies. 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, senior executives and
members of the Executive Board, in particular, enjoy individ-
ual commitments as well as commitments given under the
benefits plan of the Bochumer Verband.
Effective 1 December 2002 Group employees have an oppor-
tunity to accumulate additional old-age provision at un-
changed conditions by way of deferred compensation through
membership 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 commit-
ment from HDI Unterstützungskasse e.V. This pension plan
provides for retirement, disability and surviving dependants'
benefits.
Hannover Re | Annual Report 2018
234
From 1997 onwards it has been possible to obtain pension
commitments through deferred compensation. The employ-
ee-funded commitments included in the provisions for ac-
crued pension rights are protected by an insurance contract
with HDI Lebensversicherung AG, Cologne.
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.
On 1 April 1993 (1 June 1993 in the case of senior executives)
the 1993 pension plan came into effect. This pension plan
provides for retirement, disability and surviving dependants'
Pension commitments are given in accordance with the rele-
vant version of the pension plan as amended. The 1968 pen-
sion plan provides for retirement, disability, widows' and or-
phans' 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
liabilities side essentially encompasses balances deriving
from non-traditional life insurance contracts that are to be
carried as liabilities.
The contract deposits on the liabilities side decreased by EUR
337.5 million in the year under review from EUR 3,949.2 mil-
lion to EUR 3,611.7 million. The contract deposits item on the
6.9 Contract deposits (liabilities)
2017
2018
Defined benefit obligation
2017
Fair value of plan assets
the financial year
223,604
210,855
39,989
33,675
41
135
The plan assets consist exclusively of qualifying insurance
policies as defined by IAS 19.
236
Position at 31 December of
Hannover Re | Annual Report 2018
2,341
(1,213)
7,191
1
1,408
(340)
(589)
(397)
94
5,562
560
3,198
(4,402)
Other changes
Employer contributions
Employee contributions and deferred
compensation
Benefit payments
Additions and disposals
Effects of plan settlements
3,489
989
63
24
(5)
(4,358)
(4,438)
(313)
(442)
31
12
27
13
(4,264)
(113)
(24,986)
(113)
Exchange differences
3,787
Net interest component
81
725
Past service cost and plan curtailments
5,450
5,310
Current service costs
Recognised in profit or loss
3,318
40
26,981
33,675
207,621
210,855
year
Position at 1 January of the financial
Impact of minimum funding
requirement/asset ceiling
in EUR thousand
2018
135
775
572
19
Change in asset ceiling
amounts included in interest income
Return on plan assets, excluding
3,145
2,618
Experience gains (-)/losses (+)
(7,176)
4,597
in financial assumptions
Actuarial gain (-)/loss (+) from change
3,407
373
in biometric assumptions
Actuarial gain (-)/loss (+) from change
comprehensive income
Recognised in cumulative other
19
572
775
8,849
9,822
2,681
437,768
3,025,753
122,837
Due after twenty years
199,333
(1,711)
197,622
2,216,879
120,616
2,337,495
Due after ten through twenty years
432,730
1,021,827
58,694
3,674,413
237,354
3,911,767
Due after five through ten years
927,041
764,857
1,691,898
381,299
111,831
491,424
Deposits
Total
26,202,175
2,176,370
28,378,545
Hannover Re | Annual Report 2018
232
A benefit reserve is established for life, annuity, personal
accident and health reinsurance contracts. Based on the
duration of these contracts, long-term reserves are consti-
tuted for life and annuity policies and predominantly short-
term reserves are set aside for health and personal accident
business.
ment 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 payment patterns used can be compared year for
year by contrasting the projected payments with the actual
amounts realised. Liabilities in liability and motor reinsur-
ance traditionally have long durations, sometimes in excess
of 20 years, while liabilities in property business are settled
within the first ten years.
The payment patterns are determined with the aid of actuari-
al estimation methods and adjusted to reflect changes in pay-
-
The average maturity of the reserves is determined using ac-
tuarial projections of the expected future payments. A pay-
ment pattern is calculated for each homogenous category of
our portfolio making allowance for the business sector, ge-
ographical considerations, treaty type and the type of reinsur-
ance - and applied to the outstanding liabilities for each un-
derwriting year and run-off status.
-
The average maturity of the loss and loss adjustment expense
reserves was 5.2 years (4.6 years), or 5.2 years (4.6 years)
after allowance for the corresponding retrocession shares.
The benefit reserve had an average maturity of 11.0 years
(11.1 years) or 12.3 years (13.6 years) on a net basis.
8,018,413
4,972,620
2,753
959,533
4,975,373
8,977,946
3,045,793
956,780
4,002,573
1,105,390
23,109
1,128,499
968,338
24,575,492
2,107,234
26,682,726
53,489
1,626,683
69,136
1,695,819
net
The parameters used to calculate the benefit reserve are in-
terest income, lapse rates and mortality/morbidity rates.
retro
7,399,296
778,008 10,316,566
2,049,903
28,758,575
Total
Deposits
26,708,672
1,203,016
18,970
1,221,986
1,129,511
85,827
2,084,680
54,553
2,139,233
1,215,338
481,402
113,647
595,049
2,729,960
207,093
2,937,053
Due after ten through twenty years
614,282
163,443
Due after twenty years
24,623,992
4,987,178
907,074
11,094,574
Due after one through five years
437,216
net
retro
gross
7,836,512
Due in one year
in EUR thousand
Benefit reserve
Loss and loss adjustment
expense reserves
2017
N 56
Maturities of the technical reserves
8,275,300
909,056
9,184,356
4,195,196
1,982
4,197,178
1,995,350
26,619,342
4,080,104
gross
493,130
4,076,930
The values for the first two components (interest income and
lapse rates) differ according to the country concerned, prod-
uct type, investment year etc.
Development of the benefit reserve
Net book value at 31 December
net
N 58
retro
gross
net
2017
retro
gross
of the previous year
2018
Development of the unearned premium reserve
Annual financial statements
233
Hannover Re | Annual Report 2018
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 es-
tablished in accordance with the information supplied by ced-
ing companies. In cases where no information was received,
the unearned premium was estimated using suitable meth-
ods. Premium paid for periods subsequent to the date of the
balance sheet was deferred from recognition within the state-
ment of income.
The development in the year under review was influenced by
portfolio entries attributable principally to UK single premi-
um business.
8,018,413
959,533
8,977,946
in EUR thousand
3,541,194
Currency translation at 1 January
46,294
3,148,590
3,489,202
(537,663)
108,399
19,869
128,268
Changes
(26,567)
(564,230)
Reclassifications pursuant to IFRS 5
98,286
3,587,488
currency translation
Net book value after
(221,818)
(12,090)
(233,908)
44,410
3,247,571
134,927
3,382,498
3,444,792
96,402
1,884
8,275,300
The mortality and morbidity rates used are chosen on the ba-
sis of national tables and the insurance industry standard.
Empirical values for the reinsured portfolio, where available,
are also taken into consideration. In this context insights into
the gender, age and smoker structure are incorporated into
the calculations, and allowance is also made for factors such
as product type, sales channel and the frequency of premium
payment by policyholders.
909,056
of the year under review
10,313,952
(675,675)
8,018,413
33,487
959,533
28,384
61,871
Currency translation at 1 January
8,977,946
of the previous year
Net book value at 31 December
net
1,189,420
(123,427)
retro
net
2017
retro
gross
2018
in EUR thousand
N 57
The benefit reserve is established in accordance with the
principles set out in SFAS 60. The provisions are based on the
Group companies' information regarding mortality, interest
and lapse rates.
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
contract, checks are made on a regular - normally annual -
basis in order to determine whether these assumptions need
to be adjusted ("unlocked").
gross
9,124,532
(552,248)
Net book value after
Net book value at 31 December
(8,183)
(545,117)
(571)
42,309
(153,049)
4,280
8,572,284
1,065,993
9,638,277
41,738
(698,166)
(3,903)
8,051,900
50,791
174,834
(2,225)
628
(1,597)
Currency translation at 31 December
(1,691)
173,143
Portfolio entries/exits
(77,798)
(27,007)
Changes
987,917
9,039,817
currency translation
9,184,356
4,154
N 52
205,345
Balance at
Cash flow
Non-cash items
Balance at
31 December
31 December
2016
in EUR thousand
N 72
Currency
translation
2017
Long-term debt
313,377
(39,791)
(22,746)
Notes payable
1,490,841
(757)
1,110
Other changes
250,083
Reconciliation of long-term debt and notes payable
1,984
Balance at
31 December
2017
Currency
translation
Other changes
2018
250,083
1,491,951
65,841
742,003
2,558,884
6,987
1,695
323,200
2,235,649
39
(4)
35
1,742,073
807,844
6,983
289
1,491,951
Other long-term liabilities
Total
39
vided in the "Financial position" section of the management
report, to which the reader is referred. This includes both a
presentation of our capital management objectives and
procedures (page 60 et seq., section entitled "Investment
policy") and a description of our policyholders' surplus (page
62 et seq., section entitled "Management of policyholders'
surplus"), together with a summary of the diverse external
capital requirements to which we are subject. The Solvency II
regulatory framework, in particular, gives rise to capital re-
quirements and consequences for capital management,
which we discuss more closely on pages 95 et seq. of the risk
report.
ditions. These shares are blocked until 31 May 2022. This
transaction resulted in an expense of EUR 0.4 million (EUR
0.4 million), which was recognised under personnel expendi-
ture, as well as a negligible change in retained earnings rec-
ognised in equity. The company was no longer in possession
of treasury shares as at the balance sheet date.
Hannover Re | Annual Report 2018
243
Annual financial statements
Subsidiaries with material non-controlling interests
in EUR thousand
Participation of non-controlling interests
Non-controlling interests in partnerships are reported in ac-
cordance with IAS 32 "Financial Instruments: Presentation"
under long-term liabilities. 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 86.0 million (EUR 86.0 million) in the year under review.
Voting rights of non-controlling interests
E+S Rückversicherung AG,
Hannover, Germany
35.21%
35.21%
N 73
2017
35.21%
35.21%
2018
Non-controlling interests in the shareholders' equity of sub-
sidiaries are reported separately within Group shareholders'
equity in accordance with IAS 1 "Presentation of Financial
Statements". They amounted to EUR 765.2 million (EUR
758.1 million) as at the balance sheet date.
6.14 Non-controlling interests
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 16,530 (18,805)
treasury shares during the second quarter of 2018 on the le-
gal basis of § 71 Para. 1 No. 2 Stock Corporation Act (AktG)
and delivered them to eligible employees at preferential con-
39
1,804,218
(39,752)
(22,746)
353
1,742,073
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 In-
struments: Disclosure and Presentation" in conjunction with
IAS 39 "Financial Instruments: Recognition and Measure-
ment". 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 voting and dividend-bearing registered ordinary
shares in the form of no-par-value shares. The shares are paid
in full. Each share carries an equal voting right and an equal
dividend entitlement.
Conditional capital of up to EUR 60,299 thousand is available;
it can be used to grant shares to holders of bonds and/or
profit-sharing rights with conversion rights and warrants. Au-
thorised capital is also available in an amount of up to EUR
60,299 thousand. Both have a time limit of 9 May 2021; the
subscription right of shareholders may be excluded with the
consent of the Supervisory Board under certain conditions.
The Executive Board is authorised, with the consent of the
Supervisory Board, to use an amount of up to EUR 1,000
thousand of the existing authorised capital to issue employee
shares.
The Executive Board is further authorised, with the consent
of the Supervisory Board, to acquire treasury shares - includ-
ing through the use of derivatives - up to an amount of 10%
of the share capital. The authorisation has a time limit of 5
May 2020.
The Annual General Meeting of Hannover Rück SE resolved
on 7 May 2018 that a gross dividend of EUR 5.00 per share
should be paid for the 2017 financial year. This corresponds
242
Hannover Re | Annual Report 2018
to a total distribution of EUR 603.0 million (EUR 603.0 mil-
lion). The distribution consists of a dividend of EUR 3.50 per
share and a special dividend of EUR 1.50 per share.
The increase in the other reserves arising out of currency
translation, which is recognised in equity, was attributable in
an amount of EUR 16.0 million (EUR 51.4 million) to the
translation of long-term debt or loans with no maturity date
extended to Group companies and branches abroad.
The disclosures on capital management arising out of IAS
1.134 - 136 "Presentation of Financial Statements" are pro-
Treasury shares
31 December
Net income
Non-cash items
N 71
months
one year
Other financial liabilities1
76,155
124,661
Long-term debt
77,826
5,168
134,684
in EUR thousand
2,672
37,573
Other long-term liabilities
Total
76,155
202,487
1
139,853
40,245
996,918
Notes payable
996,918
No maturity
Ten to
twenty years
495,616
Other long-term liabilities
35
Total
93,888
322,839
211,841
786,397
More than
twenty years
997,496
1 Excluding sundry non-technical provisions and derivative financial instruments; the maturities of these items are broken down separately.
Maturities of financial liabilities
N 69
Less than
three
Three
months to
One to
five years
2017
Five to
ten years
495,616
495,033
38
495,071
(9,077)
(76,566)
(70,626)
(84,976)
(80,460)
(1,695)
(1,984)
(1,110)
(353)
(78,261)
(86,960)
(8,699)
(71,736)
The ordinary expenses principally include interest expenses
of nominally EUR 76.6 million (EUR 70.6 million) resulting
from the issued subordinated and senior bonds.
The following table shows the movements in long-term debt,
notes payable and other long-term liabilities with respect to
cash and non-cash changes.
Reconciliation of long-term debt and notes payable
in EUR thousand
Long-term debt
Notes payable
Other long-term liabilities
Total
(80,813)
757
(289)
(9,834)
1 Excluding sundry non-technical provisions and derivative financial instruments; the maturities of these items are broken down separately.
Hannover Re | Annual Report 2018
241
Annual financial statements
Net gains and losses from long-term debt and notes payable
N 70
2018
2017
2018
2017
2018
2017
in EUR thousand
Long-term debt
Notes payable
Total
Ordinary income/expenses
Amortisation
Net result
(8,410)
Balance at
235,431
thereof attributable to non-controlling interests
82,892
Appreciation
3,616
912
Realised gains on investments
286,253
447,969
Realised losses on investments
158,594
16,006
70,876
31,160
38,569
Impairments on real estate
36,927
48,995
Impairments on equity securities
3,681
Impairments on fixed-income securities
Change in fair value of financial instruments
510
4,977
1,289,033
in EUR thousand
Income from real estate
Dividends
Interest income
2018
172,466
N 75
2017
Profit or loss on shares in associated companies
171,447
22,290
929,337
934,802
Other investment income
217,383
160,494
Ordinary investment income
1,321,712
2,526
309
Impairments on participating interests and other financial assets
15,303
N 76
2018
2017
11,116
13,803
83,186
80,324
792,161
Total
803,855
11,515
29,105
929,337
25,305
934,802
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 in-
come, 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 financial assets, which include the technical deriva-
tives, income and expenses from changes in fair value are
also recognised.
Making allowance for the other investment expenses of EUR
114.3 million (EUR 110.8 million), net income from assets un-
der own management of altogether EUR 1,322.0 million (EUR
1,539.0 million) was recognised in the year under review.
246
Hannover Re | Annual Report 2018
13,769
Financial assets - at fair value through profit or loss
Other
Fixed-income securities - available for sale
Fixed-income securities - held to maturity
Fixed-income securities - loans and receivables
18,876
Other investment expenses
114,342
110,778
Net income from assets under own management
1,322,042
1,538,974
Interest income on funds withheld and contract deposits
Interest expense on funds withheld and contract deposits
Total investment income
333,069
372,726
125,082
137,811
1,530,029
1,773,889
Of the impairments totalling EUR 18.7 million (EUR 40.8 mil-
lion), an amount of EUR 15.3 million (EUR 8.4 million) was
attributable to private equity. An impairment loss of EUR 2.9
million (EUR 18.0 million) was recognised on real estate and
real estate funds. These impairments contrasted with appre-
ciation of EUR 3.6 million (EUR 0.9 million) recognised on
real estate that had been written down in previous periods.
The impairments taken on fixed-income securities amounted
to just EUR 0.5 million (EUR 0.3 million).
The portfolio did not contain any overdue, unadjusted assets
as at the balance sheet date since overdue securities are writ-
ten down immediately.
Interest income on investments
in EUR thousand
Investment income
7.2 Investment income
Annual financial statements
245
Cash flow from financing activities
10,022,883
10,190,050
8,017,477
8,195,018
79,866
214,794
80,399
Cash flow from investing activities
(87,569)
(125,000)
244
Hannover Re | Annual Report 2018
7. Notes on the individual items of the statement of income
7.1 Gross written premium
The following table shows the breakdown of the gross written
premium according to regional origin.
Gross written premium
in EUR thousand
(151,566)
Cash flow from operating activities
Liabilities
Assets
72,299
Income/expense recognised directly in equity
Total recognised income and expense
(73,491)
(63,859)
161,940
141,486
Shareholders' equity
2,005,406
1,995,032
thereof attributable to non-controlling interests
706,072
702,419
Dividends paid
thereof attributable to non-controlling interests
151,566
125,000
53,364
44,011
Regional origin
997,496
Germany
France
Australia
Australasia
Africa
Other
Total
2,955,658
2,535,295
1,263,171
Asia
997,036
3,532,331
524,109
495,844
892,942
966,289
19,176,358
17,790,506
Hannover Re | Annual Report 2018
4,218,829
6,160,822
6,608,779
North America
Other
Europe
N 74
2018
2017
1,168,186
2,560,443
1,215,478
2,455,796
813,904
748,266
2,389,166
2,215,680
6,931,699
6,635,220
USA
5,812,457
5,479,354
Other
796,322
681,468
United Kingdom
40,152
742,537
Cash flow
3,708
4,492
75,793
The maturities of the sundry non-technical provisions as at
the balance sheet date are shown in the following table:
Maturities of the sundry non-technical provisions
in EUR thousand
Due in one year
Due after one through five years
Due after five years
11,033
Total
2018
2017
100,971
92,214
74,905
83,032
4,536
6,100
N 65
180,412
181,178
71,580
(16)
(37)
111
5,282
1,235
(148)
(2)
8,948
(168)
2,772
1,233
(159)
10,874
41
4,533
71,738
181,346
311
(158)
76,104
5,134
181,346
238
Hannover Re | Annual Report 2018
(28)
(52)
3,257
3,681
807
95
3,918
(24)
5,878
845
772
(7)
1,371
(626)
(19)
6,047
6,208
21
96
(2)
271
1,324
Reclassifications
Reclassifications
pursuant to
IFRS 5
and other
changes
Changes in
consolidated
Additions Utilisation
Release
group
Currency
translation at
31 December
Balance at
31 December
2018
(10)
5,323
6,803
750
(10)
6,698
4,703
Notes payable
Balance at
N 64
Currency
In the current financial year Hannover Re anticipates contri-
bution payments of EUR 3.3 million under the plans set out
above. The weighted average duration of the defined benefit
obligation is 18.0 (18.3) 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
Pension indexation
N 62
177,786
(+/- 0.5%)
(+/- 0.25%)
Parameter increase
(17,832)
470
6,224
Parameter decrease
20,372
(463)
(5,931)
Furthermore, a change is possible with respect to the as-
sumed 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
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 contribu-
tions. The expense recognised for these obligations in the fi-
nancial year in accordance with IAS 19 “Employee Benefits”
was EUR 20.6 million (EUR 20.2 million), none of which
(EUR 0.8 million) was attributable to commitments to em-
ployees in key positions. Of the expense for defined contribu-
tion plans, an amount of EUR 11.5 million (EUR 10.8 million)
relates to state pension schemes, thereof EUR 7.9 million
(EUR 7.6 million) to contributions to the statutory pension
insurance scheme in Germany.
(+/- 0.25%)
182,291
1,714
thereof: Recognised pension obligations from IFRS 5
Provisions for pensions
The reconciliation of the projected benefit obligations with
the recognised provisions for pensions is as follows:
Provisions for pensions
in EUR thousand
Projected benefit obligations at 31 December of the financial year
2018
223,604
N 61
2017
210,855
33,675
Fair value of plan assets at 31 December of the financial year
39,989
Effect of minimum funding requirement on asset ceiling
41
135
Recognised pension obligations at 31 December of the financial year
183,656
177,315
thereof: Capitalised assets
349
471
in this way would have produced a EUR 6.6 million (EUR 6.6
million) higher pension commitment at the end of the finan-
cial year.
(15)
Hannover Re | Annual Report 2018
Annual financial statements
654,338
With regard to the liabilities from derivatives in an amount
of EUR 82.5 million (EUR 264.3 million), please see our
explanatory remarks on derivative financial instruments in
section 8.1 "Derivative financial instruments and financial
guarantees".
Development of sundry non-technical provisions
The sundry liabilities include, among other things, trade
accounts payable and clearing balances. In addition, they
include distributions within the year of EUR 19.1 million
(EUR 6.9 million) from interests in private equity funds that had
still to be recognised in income as at the balance sheet date.
in EUR thousand
Provisions for
Audits and costs of publishing the annual financial statements
Consultancy fees
Suppliers' invoices
612,093
Partial retirement arrangements and early retirement obligations
Anniversary bonuses
Management and staff bonuses
Other
Total
Balance at
31 December
2017
8,964
2,809
Holiday entitlements and overtime
97,309
125,790
181,346
6.11 Other liabilities
Other liabilities
in EUR thousand
Liabilities from derivatives
Interest
Deferred income and prepayments received
Sundry non-technical provisions
Sundry liabilities
Total
N 63
2018
2017
82,488
264,337
40,674
32,437
182,729
78,909
180,412
237
10,032
translation 1 January of the
at 1 January year under review
(143)
N 67
Accrued
interest
Fair value
ment
Notes payable -¨¨¨*** -
Hannover Rück SE, 2014
3.375
n/a
2017
EUR
59,342
8,692
563,067
Hannover Finance
(Luxembourg) S.A., 2012
5.00
2043
EUR
495,033
104,038
Fair value
measure-
Amortised
Total
323,200
2,498
747
326,445
35
35
2,558,884
cost
119,089
2,714,463
240
Hannover Re | Annual Report 2018
Long-term debt and notes payable
in EUR thousand
Coupon
Maturity
Currency
36,490
12,603
614,463
Hannover Finance
mated using other financial assets with similar rating, dura-
tion and return characteristics. Under the effective interest
rate method the current market interest rate levels in the rel-
evant fixed-interest-rate periods are always taken as a basis.
Maturities of financial liabilities
N 68
2018
Less than
three
in EUR thousand
months
The aggregated fair value of the extended subordinated loans
is based on quoted, active market prices. If such price infor-
mation was not available, fair value was determined on the
basis of the recognised effective interest rate method or esti-
Other financial liabilities'
Long-term debt
Three
months to
one year
248,687
74,152
One to
five years
Five to
ten years
Ten to
twenty years
More than
twenty years
No maturity
2,910
208,896
93,888
2,008,318
30,720
235,525
(Luxembourg) S.A., 2010
5.75
2040
EUR
499,096
71,004
1,491,951
234,384
8,507
29,802
578,607
1,756,137
Long-term debt
Other long-term liabilities
Total
250,083
1,141
918
252,142
39
39
1,742,073
Other long-term liabilities
Long-term debt
497,822
477
180,412
Hannover Re | Annual Report 2018
239
Annual financial statements
6.12 Long-term debt and notes payable
On 18 April 2018 Hannover Rück SE placed a senior bond
with a volume of EUR 750.0 million on the European capital
market. The bond has a maturity date of 18 April 2028 and
may be redeemed at any time from 18 January 2028 onwards,
although not later than 18 April 2028. It carries a fixed cou-
pon of 1.125% p. a.
On 15 September 2014 Hannover Rück SE placed a EUR
500.0 million subordinated bond on the European capital
market. The issue has a perpetual maturity with a first sched-
uled call option on 26 June 2025 and may be redeemed at
each coupon date thereafter. 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.
On 20 November 2012 Hannover Rück SE placed a EUR 500.0
million subordinated bond on the European capital market via
its subsidiary Hannover Finance (Luxembourg) S.A. The
bond has a maturity of approximately 30 years with a first
13,888
Long-term debt and notes payable
On 14 September 2010 Hannover Rück SE placed a subor-
dinated bond on the European capital market through its
subsidiary Hannover Finance (Luxembourg) S.A. This su-
bordinated debt of 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
carries 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.
Altogether four (three) bonds were recognised as at the bal-
ance sheet date with an amortised cost of EUR 2,235.6 mil-
lion (EUR 1,492.0 million).
N 66
in EUR thousand
Notes payable
2018
Coupon
Maturity
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.
54,779
70,311
(81)
546,802
2,387,983
22
4
4,849
(2,223)
36,943
29,501
3,357
(17)
77,949
(21)
(124)
13,465
6,468
8,682
(33)
69,717
(3,037)
693
Currency
Amortised
15
35,743
(Luxembourg) S.A., 2012
5.00
2043
EUR
498,150
68,550
579,303
Hannover Finance
Hannover Finance
(Luxembourg) S.A., 2010
2040
EUR
499,346
38,949
8,507
2,235,649
116,591
Fair value
5.75
520,577
12,603
16,269
cost
8,692
Accrued
interest
Fair value
ment
Hannover Rück SE, 2018
1.125
2028
EUR
742,537
measure-
5,941
741,301
Hannover Rück SE, 2014
3.375
n/a
EUR
495,616
(7,177)
82,671
Other valuation differences
7,911
168,049
26,684
42,264
Contract deposits
Present value of future profits on acquired life reinsurance portfolios (PVFP)
Total
2,134,805
1,353,304
Deferred tax liabilities
1,245,474
1
Thereof on tax loss carry-forwards: EUR -68,488 thousand (EUR -80,933 thousand)
The deferred tax assets and deferred tax liabilities are shown
according to their origin in the above table. Deferred taxes
resulting from a single transaction and with respect to which
the corresponding temporary valuation differences are simul-
taneously reversed were already netted on recognition. Fur-
Netting of deferred tax assets and deferred tax liabilities
in EUR thousand
205,389
3,207,154
70,868
Loss and loss adjustment expense reserves
88,884
Deferred tax assets
Benefit reserve
Other technical/non-technical provisions
129,821
96,960
1,307,439
307,960
Equalisation reserve
Funds withheld
64,601
1,063,392
57,159
1,108,655
8,492
10,784
Deferred acquisition costs
178,598
182,155
Accounts receivable/reinsurance payable
133,223
Valuation differences relating to investments
Deferred tax liabilities
54,397
ther netting was made based on the timing of the reversal of
temporary differences and other offsetting possibilities, ulti-
mately resulting in the following disclosure of deferred tax
assets and deferred tax liabilities in the balance sheet:
422,686
(3,160)
(30,430)
Differences in tax rates affecting subsidiaries
(72,848)
(62,843)
Non-deductible expenses
47,807
496,513
76,312
(37,374)
(140,821)
Tax expense/income not attributable to the reporting period
(26,752)
(42,861)
Value adjustments on deferred taxes/loss carry-forwards
(7,595)
Deferred tax liabilities
Tax-exempt income
32.7%
32.7%
1,292,619
N 88
1,245,474
2017
466,564
1,819,867
1,353,303
2018
454,608
1,700,082
252
Hannover Re | Annual Report 2018
Expected expense for income taxes
In view of the unrealised components of profit and loss actual
and deferred tax expenditure - including amounts attributa-
ble to non-controlling interests of EUR 186.7 million (EUR
61.8 million) was also recognised directly in equity. The fol-
lowing table presents a reconciliation of the expected ex-
pense 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
in EUR thousand
Profit before taxes on income
Group tax rate
Change in tax rates
N 89
2018
2017
1,518,388
Net deferred tax liabilities
781,502
Deferred taxes from loss carry-forwards
(81,431)
(473,668)
(24,482)
(3,160)
(30,430)
(7,595)
54,397
372,861
248,042
(28,873)
N 86
2017
249,690
254,125
45,335
23,305
30,306
(74,067)
47,530
2018
562,259
(13,245)
(33,330)
Trade tax modifications
Deferred taxes due to temporary differences
Change in deferred taxes due to changes in tax rates
Value adjustments on deferred taxes
Total
Domestic/foreign breakdown of recognised tax expenditure/income
in EUR thousand
Actual taxes
Germany
Abroad
Deferred taxes
Germany
Abroad
Total
N 85
2018
2017
328,355
290,675
44,679
372,861
248,042
Hannover Re | Annual Report 2018
26,905
Deferred acquisition costs
6,149
15,094
Accounts receivable/reinsurance payable
13,714
19,253
Valuation differences relating to investments
69,640
24,257
Contract deposits
504,403
1,908
Other valuation differences
57,460
19,940
Value adjustments¹
Total
(69,102)
84,627
1,961,680
Funds withheld
79,217
251
Annual financial statements
The following table presents a breakdown of the deferred tax
assets and liabilities into the balance sheet items from which
they are derived.
Deferred tax assets and deferred tax liabilities of all Group companies
N 87
2018
2017
in EUR thousand
Deferred tax assets
Tax loss carry-forwards
610,922
133,057
Loss and loss adjustment expense reserves
413,488
438,531
Benefit reserve
191,162
132,926
Other technical/non-technical provisions
51,062
Other
Realised gains
and losses
(27,288)
454,791
(779)
34,775
(779)
34,775
(11,238)
504,931
(5,891)
138,515
(17,129)
643,446
43,583
The net changes in the fair value of these instruments in-
creased the result of the financial year by EUR 3.2 million
(reduction in the result of EUR 3.8 million).
mally do not meet the criteria for netting in the balance sheet,
since Hannover Re has no legal right whatsoever at the pres-
ent 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.
Hannover Re | Annual Report 2018
255
Annual financial statements
Netting agreements
in EUR thousand
Derivative receivables
Derivative liabilities
Hannover Re enters into derivative transactions on the basis
of standardised master agreements that contain global net-
ting agreements. The netting agreements set out below nor-
411,208
(15,854)
(5,635)
897,155
988
24,572
988
24,572
14,203
976,270
(2,945)
44,492
11,258
1,020,762
N 92
Less than one year
2017
One to five years
31.12.2017
(240)
58,948
(256)
94,932
(496)
153,880
(10,219)
Netting agreements
10,670
in EUR thousand
Derivative liabilities
Other collateral
received/
Net amount
furnished
4,565
18,676
2,043
2,043
3,595
2,522
10,239
received/
furnished
2,799
Derivative financial instruments in connection with reinsurance
A number of treaties in life and health reinsurance meet crite-
ria which require application of the stipulations contained in
IFRS 4 “Insurance Contracts” governing embedded deriva-
tives. These accounting regulations require that certain deriv-
atives embedded in reinsurance contracts be separated from
the underlying insurance contract (“host contract"), reported
separately at fair value in accordance with IAS 39 “Financial
Instruments: Recognition and Measurement" and recognised
under investments. Fluctuations in the fair value of the deriv-
ative components are to be recognised through profit and
loss in subsequent periods.
Within the scope of the accounting of "modified coinsurance"
and "coinsurance funds withheld" (ModCo) reinsurance trea-
ties, under which securities deposits are held by the ceding
companies and payments rendered on the basis of the income
from certain securities of the ceding company, the inter-
est-rate risk elements are clearly and closely related to the
underlying reinsurance arrangements. Embedded derivatives
consequently result solely from the credit risk of the underly-
ing securities portfolio.
Hannover Re calculates the fair values of the embedded de-
rivatives 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 has no val-
ue on the date when the contract commences and its value
then fluctuates over time according to changes in the credit
spreads of the securities. The derivative had a positive value
of EUR 14.0 million (EUR 25.1 million) as at the balance sheet
date and was recognised under other financial assets at fair
value through profit or loss. In the course of the year the
change in the fair value of the derivative gave rise to a charge
of EUR 11.9 million before tax (income of EUR 3.7 million).
A number of transactions concluded in the life and health re-
insurance business group in previous years, under which
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 deriv-
ative financial instruments. The payment obligations result
from contractually defined events and relate to the develop-
ment of an underlying group of primary insurance contracts
with statutory reserving requirements. The contracts are to
be categorised and recognised as stand-alone credit deriva-
tives pursuant to IAS 39. These derivative financial instru-
ments were carried in equity on initial recognition. Please see
section 6.6 "Other assets". The fair value of these instruments
was EUR 53.2 million on the balance sheet date and was rec-
ognised under other financial assets at fair value through
profit or loss (EUR 165.1 million under other liabilities). The
change in value in subsequent periods is dependent upon the
risk experience and led to an improvement of EUR 32.9 mil-
lion (EUR 30.0 million) in investment income in the financial
year.
A retrocession agreement exists in the area of life and health
reinsurance under which the premiums were deposited with
Hannover Re and invested in a structured bond. The retroces-
sionaire has furnished a guarantee for its fair value. In ac-
cordance with the requirements of IFRS 4 this guarantee was
to be unbundled from the retrocession agreement and is car-
ried as a derivative financial instrument at fair value. The de-
256
Hannover Re | Annual Report 2018
Actual tax for other periods
A derivative financial instrument was also unbundled from
another similarly structured transaction. This gave rise to rec-
ognition of other financial assets at fair value through profit
or loss in an amount of EUR 4.8 million (EUR 7.4 million). The
performance of this derivative reduced the result by EUR 2.6
million in the financial year (improvement in the result of
EUR 3.5 million).
Cash collateral
Netting
agreement
Fair value
N 93
2018
Fair value
Netting
agreement
Cash collateral
Other collateral
Net amount
received/
furnished
received/
furnished
17,349
6,140
573
15,312
573
304
4,638
1,464
625
N 94
2017
Derivative receivables
886,485
10,222
(2,980)
N 90
One to
five years
Six to
ten years
More than
Unlimited
Total
ten years
3,613
Total
3,613
325,743
329,356
329,356
8. Other notes
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 in-
struments in order to hedge parts of our portfolio against in-
terest 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 0.5 million (EUR 1.0 million) and other fi-
nancial assets at fair value through profit or loss in an amount
of EUR 0.5 million (EUR 0.5 million).
325,743
Loss carry-forwards
Temporary differences
in EUR thousand
(32,769)
3,558
372,861
4,371
248,042
The expense for income taxes in the financial year was EUR
124.8 million higher than in the previous year at EUR 372.9
million (EUR 248.0 million). In addition to the increased pre-
tax profit compared to the previous year, this was due largely
Availability of non-capitalised loss carry-forwards
Unused tax loss carry-forwards, deductible temporary differ-
ences and tax credits of EUR 2,924.7 million (EUR 601.2 mil-
lion) existed as at the balance sheet date. The increase is at-
tributable primarily to the transfer of extensive portfolios of
reinsurance treaties to US Group companies as part of the
restructuring of US mortality business. Of existing tax loss
carry-forwards, EUR 329.4 million (EUR 367.3 million) was
not capitalised in consideration of local tax rates since reali-
sation is not sufficiently certain.
The assets-side unadjusted deferred taxes on loss carry-for-
wards and tax credits amounting to EUR 545.6 million (EUR
55.1 million) will probably be realised in an amount of EUR
18.1 million (EUR 15.5 million) within one year and in an
amount of EUR 527.5 million (EUR 39.6 million) in the subse-
quent years.
In the year under review the actual taxes on income were
reduced by EUR 2.2 million (EUR 5.2 million) because loss
carry-forwards were used for which no deferred tax assets
were established.
to considerable tax-exempt income from the disposal of equi-
ties and equity funds.
The effective tax rate amounted to 24.6% (19.2%).
The write-down of deferred tax assets recognised in previous
years resulted in a deferred tax expense of EUR 0.8 million
(EUR 10.1 million) in the year under review. This is opposed
by deferred tax income of EUR 6.3 million (none) from the
reversal of earlier write-downs.
Excess deferred tax assets are recognised with respect to
losses in the year under review or in the previous year only to
the extent that, based on strong evidence, it is likely that the
company concerned will generate sufficiently positive taxable
results in the future. This evidence was provided for deferred
tax assets of EUR 60.7 million (EUR 23.0 million).
No deferred taxes were established on liabilities-side taxable
temporary differences amounting to EUR 40.6 million (EUR
50.6 million) in connection with interests in Group companies
because the Hannover Re Group can control their reversal
and will not reverse them in the foreseeable future.
Hannover Re | Annual Report 2018
253
Annual financial statements
Availability of loss carry-forwards that have not been capital-
ised:
Expiry of non-capitalised loss carry-forwards and temporary differences
Hannover Re's portfolio contained derivative financial instru-
ments as at the balance sheet date in the form of forward ex-
change transactions taken out to hedge currency risks. These
transactions gave rise to recognition of other liabilities in an
amount of EUR 6.1 million (EUR 17.7 million) and other fi-
nancial assets at fair value through profit or loss in an amount
of EUR 16.4 million (EUR 2.0 million). The increase in equity
from hedging instruments recognised directly in equity pur-
suant to IAS 39 in an amount of EUR 2.9 million (EUR 1.4
million) derived solely from the forward exchange transac-
tions taken out to hedge currency risks from long-term invest-
ments in foreign operations. These hedging instruments re-
sulted in the recognition of other financial assets at fair value
through profit or loss in an amount of EUR 3.8 million (other
liabilities of EUR 2.4 million). Ineffective components of the
hedge were recognised in profit or loss under other invest-
ment expenses in an amount of EUR 0.1 million (other invest-
ment income of EUR 0.2 million).
In order to hedge the risk of share price changes in connec-
tion with the stock appreciation rights granted under the
share award plan, Hannover Re has taken out hedges since
2014 in the form of so-called equity swaps. The fair value of
these instruments amounted to EUR 1.0 million as at the bal-
ance sheet date and was recognised under other financial as-
sets at fair value through profit or loss (EUR 0.8 million rec-
ognised under other liabilities). The hedge gave rise to an
increase in equity from hedging instruments recognised di-
rectly in equity in an amount of EUR 0.3 million (decrease in
equity of EUR 1.5 million recognised directly in equity). Inef-
fective components of the hedge were recognised in a mini-
mal amount under other investment income.
254
Notional values
Share price hedges
Fair values
Notional values
Total hedging instruments
Fair values
Notional values
N 91
2018
Less than one year
One to five years
31.12.2018
13
65,213
35
48
33,822
99,035
13,202
Fair values
Actual expense for income taxes
Currency hedges
Fair values
Hannover Re | Annual Report 2018
The maturities of the fair values and notional values of the
hedging instruments described above can be broken down as
follows:
Maturity structure of derivative financial instruments
in EUR thousand
Interest rate hedges
Fair values
Notional values
Currency hedges
Fair values
Notional values
Share price hedges
Fair values
Notional values
Total hedging instruments
Fair values
Notional values
Maturity structure of derivative financial instruments
in EUR thousand
Interest rate hedges
Notional values
Actual tax for the year under review
4.804
Income tax
Other invested assets
Other
Total
7,809
19,745
2,972
2,972
(5,915)
Other financial assets
2,449
136,363
1,305,039
6,709
45,617
25,339
122,794
377,093
70,949
38,569
(3,466)
11,936
Fixed-income securities
At fair value through profit or loss
Fixed-income securities
772,776
129,982
309
902,449
Equity securities
20,565
226,502
3,681
243,386
Other invested assets
254,202
16,998
21,342
249,858
Short-term investments
20,711
41
20,752
1,649,752
Available for sale
1
Hannover Re | Annual Report 2018
15,631,670
599
822
Total net technical income
17,289,732
15,632,492
Claims and claims expenses paid
11,438,631
17,289,133
10,324,103
1,130,519
1,868,976
Claims and claims expenses
12,569,150
12,193,079
Change in benefit reserve
50,791
(571)
Change in loss and loss adjustment expense reserve
(24,986)
19,869
(437,768)
247
Annual financial statements
7.3 Reinsurance result
Reinsurance result
N 79
in EUR thousand
Gross written premium
Ceded written premium
Change in unearned premium
Change in ceded unearned premium
Net premium earned
Other technical income
2018
2017
19,176,358
17,790,506
1,778,826
1,696,082
(128,268)
Including income from associated companies, for reconciliation with the consolidated statement of income
2 Excluding other investment expenses
Net change in benefit reserve
79,133
76,339
Available for sale
Fixed-income securities
835,225
17,275
510
851,990
Equity securities
935
115,284
800
Other invested assets
219,298
64,382
17,900
265,780
Short-term investments
25,729
246
1,735
36,373
78,911
Fixed-income securities
in EUR thousand
Net gains and losses on investments
PN 77
in EUR thousand
Ordinary
investment
Realised gains
and losses
2018
Impairments/
appreciation
fair value
income 1
Change in
Net income from
assets under own
management²
Held to maturity
Fixed-income securities
10,078
(18)
10,060
Loans and receivables
4
2,794
25,971
Fixed-income securities
1,436,384
1
Including income from associated companies, for reconciliation with the consolidated statement of income
2 Excluding other investment expenses
Net gains and losses on investments
N 78
in EUR thousand
2017
Ordinary
investment
income 1
31,160
Impairments/
appreciation
Net income from
assets under own
management²
Held to maturity
Fixed-income securities
12,147
(18)
12,129
Loans and receivables
Fixed-income securities
Change in
fair value
49,124
127,659
1,326,689
14,165
2,431
(20,324)
(3,728)
Other financial assets
2,558
34,317
Other invested assets
24
(981)
2,423
1,466
Other
142,324
4,593
30,710
14,744
130,951
Total
At fair value through profit or loss
Commissions
36,875
Change in provision for contingent commissions
2,375
5,951
Separate value adjustments on receivables
32,948
64,280
Expenses for the company as a whole
88,923
71,891
Expenses from contracts recognised in accordance with the deposit accounting method
Depreciation, amortisation, impairments
Sundry expenses
11,790
10,261
46,555
36,085
88,241
42,062
966,781
Expenses for services
655,614
681,786
Exchange losses
198,088
Income from services
72,064
47,712
Deconsolidation
2,459
191
Other interest income
27,599
28,881
Sundry income
45,381
37,812
1,084,511
990,174
Other expenses
Other interest expenses
14,163
25,059
911,203
206,525
Total
78,971
On the North American market revenues of EUR 3.9 million
were earned by performing administrative tasks. Revenues of
EUR 1.0 million were generated from the transfer of use of
application software used for the underwriting of insurance
risks.
In addition, revenues of EUR 28.0 million were realised at a
point in time in the current financial year from other insur-
ance-related services.
In this context revenues of EUR 15.7 million were generated
on the North American market by taking on underwriting ac-
tivities in relation to insurance policies. The amount of the
revenues to be recognised is calculated according to the writ-
ten premiums. A further EUR 3.6 million was earned from the
performance of administrative activities. The transaction
price corresponds to the agreed contract price. The perfor-
mance obligation is deemed to be satisfied when the admin-
istrative activities specified in the contract were carried out.
A further EUR 3.3 million was earned from the sale of expert
reports on improving mine safety. These studies were con-
ducted primarily in Australia, Canada and South Africa and
supported the subsequent underwriting process for the risks
in the respective countries. The transaction price is calculat-
ed according to the surveyor's daily rates, which are agreed
in advance, plus travel expenses. The revenues described
here are deemed to be earned at a point in time upon hando-
ver of the report to the customer.
Revenues of EUR 3.0 million connected with commis-
sion-based business were realised in the South African mar-
ket. The transaction price is arrived at as a percentage of the
underlying gross premium share.
250
Hannover Re | Annual Report 2018
the year.
7.5 Taxes on income
The reader is referred to the remarks in section 3.1 "Summa-
ry of major accounting policies” regarding the basic approach
to the recognition and measurement of deferred taxes.
An unchanged tax rate of 32.63% (rounded to 32.7%) was
used to calculate the deferred taxes of the major domestic
companies. It is arrived at from the corporate income tax rate
of 15.0%, the German solidarity surcharge of 5.5% and a
Breakdown of taxes on income
The breakdown of actual and deferred income taxes was as
follows:
trade earnings tax rate of 16.8%. The Group tax rate conse-
quently also amounts to 32.7% (32.7%). The deferred taxes
at the companies abroad were calculated using the applicable
country-specific tax rates.
Tax-relevant bookings on the Group level are made using the
Group tax rate unless they refer specifically to individual
companies.
Change in deferred acquisition costs
Deferred tax liabilities on profit distributions of significant af-
filiated companies are established in the year when they are
received.
Actual taxes on income at the domestic companies, compara-
ble actual taxes on income at foreign subsidiaries as well as
deferred taxes in accordance with IAS 12 "Income Taxes" are
recognised under this item.
In addition, other revenues were realised on the South Afri-
can market from claims settlement in an amount of EUR 5.6
million as well as other revenues from administrative activi-
ties, known as "binding fees”, in an amount of EUR 2.8 mil-
lion. The transaction price is calculated from a percentage
rate in relation to the acknowledged invoice amount. Binding
fees are considered to be earned as soon as the underlying
gross premium was realised. The revenues from claims settle-
ment were generated on an evenly spread basis throughout
This involves revenues from administrative services amount-
ing to EUR 24.2 million that were generated on the Lloyd's
markets in the United Kingdom and in the Asia-Pacific re-
gion. The transaction prices are essentially calculated accord-
ing to the general fee scales as well as a percentage share of
the gross premium. The revenues from the administrative
services described here are largely earned over a period of
three to four years and for the most part realised pro rata
temporis.
An amount of EUR 44.1 million was realised over time in the
current financial year in connection with other insurance-
related services.
Hannover Re | Annual Report 2018
249
Annual financial statements
Of the separate value adjustments, an amount of EUR 19.2
million (EUR 19.6 million) was attributable to accounts re-
ceivable and EUR 9.3 million (EUR 43.6 million) to retroces-
sion recoverables.
The sundry expenses include the goodwill impairment of
EUR 8.4 million (none) as well as the amortisation of the
PVFP in an amount of EUR 25.9 million (EUR 4.3 million). For
details we would refer to sections 6.5 "Goodwill" and 6.6
"Other assets".
The other income includes revenues from contracts with cus-
tomers set out below in accordance with IFRS 15.
With regard to the fundamental approach adopted for first-
time application of IFRS 15 we would refer to the remarks in
section 2 "Accounting principles".
Revenue categories
in EUR thousand
Brokerage commissions, performance fees and similar forms of remuneration1
Other insurance-related services²
Total
1 Revenue realised at a point in time
N 84
2018
4,457
72,064
76,521
The brokerage commissions, performance fees and similar
forms of remuneration in an amount of EUR 4.5 million were
realised at a point in time in the current financial year. Of this
amount, EUR 4.0 million is attributable to revenues earned in
the South African market. A further EUR 0.5 million is con-
nected with activities on the Lloyd's market in the United
Kingdom.
117,730
Income from contracts recognised in accordance with the deposit accounting method
2 Revenue largely realised over time
6,661
Reinsurance recoverables
Other technical income (net)
N 80
2018
2017
1,769
3,657
1,170
2,835
599
822
248
Hannover Re | Annual Report 2018
Commissions and brokerage, change in deferred acquisition costs
in EUR thousand
Commissions paid (gross)
Reinsurance recoverables
Change in deferred acquisition costs (gross)
Reinsurance recoverables
Other technical income (gross)
Change in provision for contingent commissions (gross)
in EUR thousand
reserve relates exclusively to the life and health reinsurance
segment. The administrative expenses amounted to altogeth-
er 2.4% (2.6%) of net premium earned.
Other acquisition costs
Other technical expenses
Administrative expenses
Net technical result
31,946
50,791
(571)
4,198,598
3,588,106
112,361
146,055
185,499
57,219
21,018
14,141
4,804
3,781
423,343
(51,110)
(488,505)
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
Other technical income
Reinsurance recoverables
411,297
2018
7.4 Other income/expenses
Other income/expenses
in EUR thousand
Other income
N 82
2018
2017
5.537
5.901
2.120
3.781
N 83
2018
2017
Exchange gains
Reversals of impairments on receivables
N 81
645,544
723,822
Other technical expenses (net)
Reinsurance recoverables
733
in EUR thousand
3,801,302
212,516
Other technical expenses (gross)
4,411,114
2017
213,196
113,861
1,500
(17,589)
128,466
52,849
Other technical expenses
(268)
3,499,270
(4,370)
185,231
4,271,736
Commissions and brokerage, change in deferred acquisition costs (net)
1,426
2014
2013
2012
Allocation 2012
1,839
1,442
1,839
2015
Allocation 2013
2,868
2016
N 98
2018
in EUR thousand
Total
Allocation year
Development of the provision for share awards of Hannover Rück SE
This figure results from originally granted share awards that have since lapsed.
1
98,467
92,026
91,614
Allocation 2014
86,625
74,462
2017
1,534
2,127
2,549
1,559
of the previous year
84,228
4,045
Provision at 31 December
13,864
13,864
Utilisation 2017
12,121
881
2,861
2,409
2,284
1,559
Allocation 2017
10,577
2,133
2,177
1,920
2,429
1,918
Allocation 2016
14,068
5,020
4,288
3,102
1,658
Allocation 2015
6,447
2,364
74,439
107.15
76,431
102.80
107.03
74.97
89.06
105.65
97.64
102.80
104.90
104.90
111.65
111.32
117.70
Senior executives
117.70
Executive Board
95.30
Value per share
award in EUR
Senior executives
Executive Board
2014
2015
allocation
2015 for
allocation
2016 for
pated
allocation
6,371
pated
allocation
28.12.2018 16.03.2018 29.12.2017 16.03.2017 30.12.2016 17.03.2016 30.12.2015 17.03.2015 30.12.2014
28.12.2018 23.03.2018 29.12.2017 23.03.2017 30.12.2016 24.03.2016 30.12.2015 24.03.2015 30.12.2014
105.65
87.26
74.97
Total
(6,018)
(4,002)
(3,341)
(657)
Other adjustments¹
85,159
85,460
65,107
79,383
81,322
77,325
64,902
57,642
67,421
Senior executives
13,308
12,172
9,355
11,244
10,704
10,244
9,537
9,060
9,010
Executive Board
allocation year
share awards in the
Number of allocated
66,045
8,965
N 101
Allocation 2018
Dividend per share
Neither in the year under review nor in the previous reporting
period were there any dilutive effects. The weighted average
of the issued shares was, as in the previous year, slightly low-
er than the value of the shares in circulation on the balance
sheet date. In the context of the employee share option plan
Hannover Re acquires treasury shares and sells them at a lat-
er date to eligible employees. The weighted average number
The earnings per share is calculated by dividing the net in-
come attributable to the shareholders of Hannover Rück SE
by the weighted average number of shares outstanding with-
in the period under review.
7.95
7.95
8.79
8.79
2017
958,555
120,596,977
1,059,493
120,596,995
2018
Basic earnings per share in EUR
Diluted earnings per share in EUR
Group net income in EUR thousand
Weighted average of issued shares
Calculation of the earnings per share
8.5 Earnings per share and dividend proposal
A dividend of EUR 603.0 million (EUR 603.0 million) was paid
in the year under review for the 2017 financial year.
Hannover Re | Annual Report 2018
331,128
344,124
Total
56,753
57,112
4,716
4,067
bc) Expenditures for assistance
26,551
26,117
bb) Expenditures for pension provision
25,486
26,928
264
b) Social security contributions and expenditure on provisions and assistance
ba) Social security contributions
It will be proposed to the Annual General Meeting on 8 May
2019 that a dividend of EUR 3.75 per share as well as a spe-
There were no other extraordinary components of income
which should have been recognised or disclosed separately in
the calculation of the earnings per share.
Hannover Re enters into contingent liabilities as part of its
normal business operations. A number of reinsurance treaties
concluded by Group companies with outside third parties in-
clude letters of comfort, guarantees or novation agreements
under which Hannover Rück SE guarantees the liabilities of
the subsidiary in question or enters into the rights and obliga-
tions of the subsidiary under the treaties if particular constel-
lations materialise.
pated
allocation
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 liabili-
ties could arise in the future.
Hannover Rück SE has provided an open-ended guarantee
limited to EUR 11.1 million in favour of the pension fund “The
Congregational & General Insurance Plc Pension and Life As-
surance Scheme" of the now extinguished Congregational &
General Insurance Plc., Bradford, United Kingdom, at usual
market conditions.
Group companies are members of the association for the re-
insurance of pharmaceutical risks and several atomic and nu-
clear pools. The failure of one of the other pool members to
meet its liabilities would result in an additional call according
to the quota participation.
Outstanding capital commitments with respect to alternative
investments exist on the part of the Group in an amount of
EUR 1,326.4 million (EUR 1,201.9 million). These primarily
involve as yet unfulfilled payment obligations from invest-
ment commitments given to private equity funds and venture
capital firms.
As security for liabilities in connection with participating in-
terests in real estate companies and real estate transactions
the usual collateral under such transactions has been fur-
nished to various banks, the amount of which totalled EUR
647.4 million (EUR 508.2 million) as at the balance sheet date.
We put up own investments with a book value of EUR 5.6
million (EUR 17.2 million) as collateral for existing derivative
transactions. We received collateral with a fair value of EUR
15.6 million (EUR 3.0 million) for existing derivative transac-
tions.
collateral upon materialisation of major events, for example if
our rating is significantly downgraded. Please see also our
explanatory remarks in the "Financial position" section of the
management report, page 66 et seq., on the information pur-
suant to § 315a Para. 1 German Commercial Code (HGB).
A number of LoC facilities include standard market contractu-
al 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
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 1,330.3 million (EUR 1,216.9 million).
Letter of credit (LOC) facilities existed with a number of finan-
cial institutions as at the balance sheet date in a total volume
equivalent to EUR 2,417.3 million (EUR 2,890.9 million) and
with various terms maturing at the latest in 2023.
The securities held in the blocked custody accounts and trust
accounts are recognised predominantly as available-for-sale
investments.
of shares does not include 16,530 (18,805) treasury shares
pro rata temporis for the duration of the holding period. For
further details please see our comments in section 6.13
“Shareholders' equity and treasury shares”.
As part of our business activities we hold collateral available
outside the United States in various blocked custody accounts
and trust accounts, the total amount of which in relation to
the Group's major companies was EUR 2,915.0 million (EUR
3,173.0 million) as at the balance sheet date.
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.
Hannover Rück SE has secured by subordinated guarantee
the subordinated debts issued by Hannover Finance (Luxem-
bourg) S. A. in the 2010 and 2012 financial years in amounts
of EUR 500.0 million each.
8.7 Contingent liabilities and commitments
Annual financial statements
265
Hannover Re | Annual Report 2018
The lawsuits pending in the year under review and as at the
balance sheet date were not material for the Hannover Re
Group either individually or combined. Furthermore, there
were no contingent liabilities from lawsuits to report as at the
balance sheet date.
tinue 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 Han-
nover Re takes into account a number of factors. These in-
clude, among others, the nature of the claim, the status of the
procedure concerned, decision of courts and arbitration bod-
ies, 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 recog-
nised.
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 as-
sessment of probability and the quantification of these uncer-
tain liabilities in large measure require estimates that may
prove not to be accurate as the proceedings in question con-
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/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 es-
tablished in each case covers the expense that can be expect-
ed in our assessment as at the balance sheet date.
8.6 Lawsuits
cial dividend of EUR 1.50 per share should be paid for the
2018 financial year. This corresponds to a total distribution of
EUR 633.1 million. The dividend proposal does not form part
of this consolidated financial statement.
The earnings per share could potentially be diluted in future
through the issue of shares or subscription rights from the
authorised or conditional capital.
As security for technical liabilities to our US clients, we have
established two trust accounts (master trust and supplemen-
tal trust) in the United States. They amounted to EUR 3,904.8
million (EUR 3,716.4 million) and EUR 132.3 million (EUR
71.5 million) respectively as at the balance sheet date. The
securities held in the trust accounts are shown as availa-
ble-for-sale investments. In addition, we furnished further
collateral to ceding companies in an amount of EUR 2,555.3
million (EUR 1,946.5 million) in the form of so-called "single
trust funds". This amount includes a sum equivalent to EUR
2,042.6 million (EUR 1,634.5 million) which was furnished by
investors as security for potential reinsurance obligations
from ILS transactions.
274,375
287,012
274,375
With regard to the effects of the equity swaps taken out to
hedge price risks, please see our explanatory remarks in sec-
tion 8.1 "Derivative financial instruments and financial guar-
antees".
sheet date (EUR 104.90) and the price from March 2018 on
which the payout of the share awards was based (EUR 111.65
and EUR 111.32 respectively).
In the year under review the 16,631 share awards of the Ex-
ecutive Board finally allocated in 2013 with a value of EUR
111.65 each plus the dividend entitlement of EUR 17.00 were
paid out to the eligible members of the Executive Board. The
94,988 share awards of the senior executives for the 2013 fi-
nancial year were paid out in 2018 with a value of EUR 111.32
each plus the dividend entitlement of EUR 17.00. The alloca-
tion to the provision for the 2013 share awards results from
the difference between the share price as at the last balance
Annual financial statements
263
Hannover Re | Annual Report 2018
EUR 14.2 million (EUR 12.1 million). This consists of the ex-
pense for share awards of the 2018 financial year as well as
the dividend claim and the additionally earned portion of the
share awards granted in earlier financial years. The value of
the share awards finally granted is also influenced by move-
ments in the share price. The sum total of the dividends in-
cluded in the expenditures on personnel for earlier financial
years amounted to EUR 1.6 million (EUR 2.0 million). The
distributed dividend is recognised, with no allowance made
for expected dividend payments. Dividend claims are recog-
nised in the discounted amounts.
The personnel expense for share awards in the case of mem-
bers 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 senior executives
the personnel expense is spread across the relevant term of
the share awards. The allocation of the financial year recog-
nised in the expenditures on personnel totalled altogether
The aggregate provision recognised under the sundry
non-technical provisions amounted to EUR 33.9 million
(EUR 34.1 million) as at the balance sheet date.
33,882
14,328
14,154
34,056
8.4 Staff and expenditures on personnel
12,228
6,784
3,561
2,018
of the year under review
Provision at 31 December
14,328
Utilisation 2018
1,212
3,263
2,920
2,739
2,002
2,018
9,291
Staff
The average number of staff at the companies included in the
consolidated financial statement of the Hannover Re Group
during the reporting period was 3,272 (3,089). As at the bal-
ance sheet date altogether 3,317 (3,251) staff were employed
by the Hannover Re Group, with 1,426 (1,385) employed in
Germany and 1,891 (1,866) working for the consolidated
Group companies abroad.
2017
2018
287,012
a) Wages and salaries
in EUR thousand
N 100
Personnel expenditures
The expenditures on insurance business, claims expenses
(claims settlement) and expenditures on the administration of
investments include the following personnel expenditures:
Expenditures on personnel
3,089
3,251
3,272
3,317
3,282
3,272
3,239
Board members)
(excluding
Number of employees
Average
31.12.
Average
31.12.
30.9.
30.6.
31.3.
2017
2018
N 99
Personnel information
13,116
2017
Funds withheld
pated
allocation
1,245,644
87,199
49,734
1,189,813
50,189
16,615
37,010
33,119
51,541
16,050
35,491
65,804
33,153
32,651
55,831
961,194
906,427
54,767
Liabilities
Accounts receivable
Assets
Material items in the balance sheet
24,072
14,846
9,226
(42,729)
14,792
(57,521)
Underwriting result
560,200
90,038
470,162
439,883
Deferred acquisition costs
90,619
Loss and loss adjustment
1,166,164
Within the contractually agreed framework Ampega Asset
Management GmbH (name change in January 2019, former-
ly: Talanx Asset Management GmbH) performs investment
and asset management services for Hannover Rück SE and
the vast majority of its subsidiaries. A total amount of EUR
42.2 million (EUR 43.2 million) was expensed for the render-
ing of these services in the financial year just ended. Assets in
special funds are managed by Ampega Investment GmbH.
Ampega Real Estate GmbH (name change in January 2019,
formerly: Talanx Immobilien Management GmbH) performs
services for Hannover Re under a number of management
contracts.
of 3.375%.
HDI Lebensversicherung AG, Cologne, participated in a nom-
inal amount of EUR 50.0 million in the subordinated bond is-
sued by Hannover Rück SE in September 2014 with a coupon
In the context of a bond issue by Talanx AG the Group com-
panies Hannover Rück SE and E+S Rückversicherung AG in-
vested 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-in-
come securities held to maturity, was EUR 48.3 million (EUR
48.3 million) including accrued interest of EUR 1.3 million
(EUR 1.3 million).
Under a purchase agreement dated 1 August 2018, 50.22%
of the shares in International Insurance Company of Han-
nover SE, which is wholly owned by Hannover Rück SE, were
sold to HDI Global SE, a subsidiary of Talanx AG, with eco-
nomic effect from 1 January 2019 for a purchase price of
EUR 107.2 million. For details please refer to the information
provided in section 4.4 "Major disposals and retirements".
In addition, other assets of EUR 3.4 million (EUR 3.5 mil-
lion) as well as other liabilities of EUR 18.3 million (EUR
17.6 million) exist with respect to Talanx AG and its subsi-
diaries which are not part of the scope of consolidation of
Hannover Re.
Hannover Re | Annual Report 2018
258
75,055
1,047,908
1,047,908
10,380
64,675
131,458
expense reserve
1,186,446
129,674
131,182
1,136,189
1,212,717
118,207
92,668
770,066
33,317
6,252
27,065
Reinsurance payable
770,066
Contract deposits
25
92,643
Unearned premium reserve
46,553
118,207
Benefit reserve
50,257
129,674
276
In 2014 Hannover Rück SE concluded an agreement with Am-
pega Asset Management GmbH that allows Ampega Asset
349,264
Total
Life and
health
reinsurance
Property and
casualty
reinsurance
2018
N 95
Material items in the statement of
income
in EUR thousand
Business assumed and ceded in Germany and abroad
The reinsurance relationships with related parties in the year
under review and the previous year are shown with their total
amounts in the following table.
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 consolida-
tion. This includes business both assumed and ceded at usual
market conditions.
sicherung AG are obliged to assume unplaced shares of the
reinsurance of Group cedants from Talanx Reinsurance Bro-
ker GmbH.
Talanx Reinsurance Broker GmbH grants Hannover Rück SE
and E+S Rückversicherung AG a preferential position as rein-
surers of cedants within the Talanx Group. In addition, Han-
nover Rück SE and E+S Rückversicherung AG are able to par-
ticipate in the protection covers on the retention of Group
cedants and share in the protection afforded by them. In cer-
tain circumstances Hannover Rück SE and E+S Rückver-
Companies belonging to the Talanx Group granted the Han-
nover Re Group insurance protection inter alia in the areas of
public liability, building, contractors all risks, group accident
and business travel insurance. Divisions of Talanx AG also
performed services for the Hannover Re Group in the areas of
taxes and general administration.
Annual financial statements
Total
257
The business relationship between Hannover Rück SE and its
subsidiary E+S Rückversicherung AG is based on a coopera-
tion agreement. A retrocession by Hannover Rück SE to E+S
Rückversicherung AG exists in property and casualty reinsur-
ance. The exclusive responsibilities of E+S Rückversicherung
AG for German business and of Hannover Rück SE for inter-
national markets have been preserved.
Talanx AG holds an unchanged majority interest of 50.22% in
Hannover Rück SE. For its part, HDI Haftpflichtverband der
Deutschen Industrie Versicherungsverein auf Gegenseitigkeit
(HDI), Hannover, holds a stake of 79.0% in Talanx AG
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. Trans-
actions between Hannover Rück SE and its subsidiaries,
which are to be regarded as related parties, were eliminated
through consolidation and are therefore not discussed in the
notes to the consolidated financial statement. In the year un-
der review the following significant business relations existed
with related parties.
8.2 Related party disclosures
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-
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
utilisation is considered probable. This was not the case as at
the balance sheet date.
swaps in the event of a claim are reimbursed by the parent
companies of the cedants by way of compensation agree-
ments. In this case the reimbursement claims from the com-
pensation agreements are to be capitalised separately from
and up to the amount of the provision.
All in all, application of the standards governing the account-
ing for derivatives in connection with the technical account
led to recognition of assets totalling EUR 173.9 million (EUR
86.3 million) as well as recognition of liabilities in an amount
of EUR 75.9 million (EUR 244.7 million) from the derivatives
resulting from technical items as at the balance sheet date.
Improvements in investment income amounting to EUR 62.4
million (EUR 40.2 million) as well as charges to income of
EUR 14.5 million (EUR 8.6 million) were recognised in the
year under review from all separately measured derivatives in
connection with the technical account.
At the end of the previous financial year under review an in-
dex-linked cover was written for longevity risks. The resulting
derivative was recognised as at the balance sheet date with a
negative fair value of EUR 45.5 million (EUR 52.6 million)
under other liabilities. The change in the fair value of the de-
rivative gave rise to income of EUR 7.1 million (EUR 0 mil-
lion) in the course of the year.
Structured transactions were entered into in the life and
health reinsurance business group in order to finance statuto-
ry 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 com-
pany of the Hannover Re Group. The total amount of the con-
tractually agreed capacities of the transactions is equivalent
to EUR 3,268.7 million (EUR 3,229.1 million); an amount
equivalent to EUR 2,623.4 million (EUR 2,525.9 million) had
been taken up as at the balance sheet date. The variable pay-
ments to the special purpose entities that are guaranteed by
the Hannover Re Group cover their payment obligations. Un-
der some of the transactions the payments resulting from the
Financial guarantees
In the area of life and health reinsurance a reinsurance treaty
with a financing component was also written in the previous
year under which the amount and timing of the return flows
are dependent on lapse rates within an underlying primary
insurance portfolio. This treaty and a corresponding retroces-
sion agreement, which were classified as financial instru-
ments pursuant to IAS 39, resulted in the recognition of other
liabilities of EUR 24.5 million (EUR 20.4 million) and other
financial assets at fair value through profit or loss in an
amount of EUR 79.2 million (EUR 49.0 million). Altogether,
these arrangements gave rise to an improvement in income of
EUR 1.9 million (EUR 1.8 million) in the year under review.
rivative was recognised with a positive fair value of EUR 22.7
million (EUR 2.2 million) as at the balance sheet date under
other financial assets at fair value through profit or loss. In
the course of the year the change in the fair value of the de-
rivative resulted in income of EUR 19.8 million (charge of
EUR 7.4 million). Conversely, the performance of the struc-
tured bond, which is also measured at fair value, gave rise to
an expense (income) in the same amount.
266
Hannover Re | Annual Report 2018
Premium
Property and
casualty
reinsurance
Total
(22,843)
(9,319)
(13,524)
(11,074)
(9,555)
(1,519)
Underwriting result
(71,150)
(59,248)
(11,902)
(62,187)
(58,792)
(3,395)
2017
Life and
health
reinsurance
Premium
46,915
631,350
149,286
24,165
482,064
22,750
(31,655)
24,347
(56,002)
502,070
149,411
352,659
Underwriting result
Premium
Business assumed
Business ceded
Management GmbH to use screening software for checking
sanctions lists.
Under long-term lease arrangements companies belonging to
the Hannover Re Group rented out business premises in 2015
to HDI Service AG, Hannover (name change in January 2019,
formerly: Talanx Service AG). In addition, lease agreements
exist with HDI Service AG for use of a portion of the space in
our data centre.
Furthermore, IT and management services were performed
for Talanx Reinsurance Broker GmbH, Hannover, under ser-
vice contracts.
The members of the Executive Board and management of
Hannover 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/em-
ployment relationship exists at the time when the share
awards are granted and does not end through cancellation or
a termination agreement on an effective date prior to expiry
of the vesting period.
The Share Award Plan replaced the cancelled Stock Appreci-
ation Rights Plan. Please see our remarks under "Stock Ap-
preciation 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
On this basis the aggregate provisions - included in the sun-
dry non-technical provisions - amounted to EUR 1.1 million
(EUR 3.1 million) for the 2018 financial year. No expense
(EUR 0.3 million) was recognised in the year under review.
In the 2018 financial year the waiting period expired for
100% of the stock appreciation rights awarded in 2009, 2010
and 2011. 17,460 stock appreciation rights from the 2009 al-
location year, 24,276 stock appreciation rights from the 2010
allocation year and 49,972 stock appreciation rights from the
2011 allocation year were exercised. The total amount paid
out stood at EUR 2.0 million.
The calculations were based on the price of the Hannover Re
share of EUR 118.80 as at the reference date of 12 December
2018, expected volatility of 19.74% (historical volatility on a
five-year basis), an expected dividend yield of 4.21% and
risk-free interest rates of -0.68% for the 2009 allocation year,
-0.62% for the 2010 allocation year and -0.53% for the 2011
allocation year.
The existing stock appreciation rights are valued on the basis
of the Black-Scholes option pricing model.
0.15
0.22
1.61
Expense in the 2018 financial year (in EUR million)
Amounts paid out in the 2018 financial year
(in EUR million)
Share awards were granted separately for the first time for
the 2011 financial year and then for each financial year (allo-
cation year) thereafter. The first payout of share awards took
place in the 2016 financial year for those share awards that
had been allocated in the 2011 financial year to the eligible
members of the Executive Board. In the 2017 financial year
0.04
0.44
Provisions at 31 December 2018 (in EUR million)
5,050
70,266
13,561
Number of rights existing at 31 December 2018
8.76
8.92
32.21
Weighted exercise price
8.76
8.92
32.21
0.63
Maximum value (in EUR)
Hannover Re | Annual Report 2018
Annual financial statements
Antici-
Final
Antici-
Final
Antici-
Final
Antici-
Final
allocation
2018 for
2014
2015
2016
Allocation year
2017
261
N 97
2018
Valuation date
Share awards of Hannover Rück SE
Hannover Re | Annual Report 2018
262
The Share Award Plan of Hannover Rück SE gives rise to the
amounts shown in the following table.
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, occur-
rence of the pensionable event or death.
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 of-
fice/voluntary 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 rea-
son. 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.
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 divi-
dends shall only be paid out for the period until occurrence
of the event that triggers 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 corre-
sponds to the sum total of the values of the share awards cal-
culated 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 re-
quirement for a declaration. Following expiry of a vesting pe-
riod of four years the value of one Hannover Re share calcu-
lated 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 con-
ditions applicable to members of the Executive Board a peri-
od 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 senior executives a period
of twenty trading days before to ten trading days after the
meeting of the Supervisory Board that approves the consoli-
dated financial statement for the financial year just-ended has
been agreed. The prices calculated in this way also determine
the payout value of the share awards that have become paya-
ble. 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
Executive Board 20% and for senior executives 40% or 35%
- according to management levels of the defined variable
remuneration shall be granted in the form of share awards.
the first payout was also made to the participating senior ex-
ecutives.
Antici-
pated
allocation
8.76
8.92
32.21
260
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. In the event of cancel-
lation or termination of the employment relationship as a con-
sequence 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 ap-
preciation rights not exercised in this period and those in re-
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.
four-year waiting period a maximum 60% of the stock appre-
ciation rights awarded for an allocation year may be exer-
cised. 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 ex-
ercise period lasts for ten trading days, in each case com-
mencing on the sixth trading day after the date of publication
of the quarterly report of Hannover Rück SE.
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 exercise periods each year. Upon expiry of a
Stock appreciation rights were first granted for the 2000 fi-
nancial year and were awarded separately for each subse-
quent financial year (allocation year) until cancellation of the
plan, provided the performance criteria defined in the Condi-
tions for the Granting of Stock Appreciation Rights were sat-
isfied.
The Conditions for the Granting of Stock Appreciation Rights
were cancelled for all eligible recipients. Awarded stock ap-
preciation rights continue to be exercisable until the end of
their period of validity.
With effect from 1 January 2000 the Executive Board of Han-
nover 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 appreciation 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 year under review the following share-based payment
plans with cash settlement existed within the Hannover Re
Group:
8.3 Share-based payment
Hannover Re | Annual Report 2018
the Executive Board), M 91 (Pension commitments) and M 92
(Individual remuneration received by the members of the Su-
pervisory Board). The remuneration report is based on the
recommendations of the German Corporate Governance Code
and contains information which also forms part of the notes
to the 2018 consolidated 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 remuneration report. Consequently, we have
not provided any further explanation in the notes.
more, above and beyond the aforementioned remuneration as
Supervisory Board members at Group companies, the mem-
bers of the Supervisory Board were not in receipt of any re-
muneration or benefits for personally rendered services as
defined by section 5.4.6 Para. 3 of the German Corporate
Governance Code.
Annual financial statements
259
Hannover Re | Annual Report 2018
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 bod-
ies or their related parties in the year under review. Further-
The total remuneration of the Supervisory Board of Hannover
Re amounted to EUR 1.0 million (EUR 1.0 million). There are
no pension commitments to former members of the Supervi-
sory Board or their surviving dependants.
The remuneration of the active members of the Executive
Board of Hannover Re amounted to altogether EUR 8.4 mil-
lion (EUR 8.0 million). The total remuneration (excluding
pension payments) of former members of the Executive Board
and their surviving dependants stood at EUR 0.1 million (EUR
0.3 million). The pension payments to previous members of
the Executive Board and their surviving dependants, for
whom 17 (17) pension commitments existed, totalled EUR 1.7
million (EUR 1.6 million) in the year under review; altogether,
a provision of EUR 26.0 million (EUR 24.7 million) has been
set aside for these commitments.
Remuneration and shareholdings of the management boards of the parent company
Since 2004 a service agreement has existed between Han-
nover Rück SE, E+S Rückversicherung AG and Talanx Rein-
surance Broker GmbH regarding the use of market security
services and access to the business partner information sys-
tem of Hannover Rück SE.
Hannover Rück SE has concluded a service contract with HDI
Service AG in the area of flight services as well as a contract
regarding the reciprocal provision of business continuity
management services.
Since 2012 a service agreement has existed between Han-
nover Rück SE and Talanx AG regarding the purchase of ser-
vices 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 re-
gard corresponding agreements have been concluded with
altogether nine Hannover Re companies.
Actuarial opinions with respect to the pension commitments
given to staff are drawn up for Hannover Rück SE and E+S
Rückversicherung AG by HDI Pensionsmanagement AG
(name change in January 2019, formerly: Talanx Pensions-
management AG) and HDI Lebensversicherung AG under an
actuarial service contract.
The information required pursuant to IAS 24.17 “Related Par-
ty Disclosures" as well as all other information on the remu-
neration 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 remunera-
tion report from page 127 onwards. With regard to the disclo-
sures required by IAS 24.17 we would refer in particular to
the tables M 87 (Total remuneration of the active members of
spect of which the waiting period has not yet expired shall
lapse. Retirement, disability or death of the member of man-
agement shall not be deemed to be termination of the em-
ployment relationship for the purpose of exercising stock
appreciation rights.
Stock appreciation rights of Hannover Rück SE
The allocations for the years 2009 to 2011 gave rise to com-
mitments in the 2018 financial year shown in the following
table. No commitments exist for years prior to 2009.
Fair value at 31 December 2018 (in EUR)
1,569,855
1,681,205
263,515
22.70
137
129
143
Number of rights granted
Participants in year of issue
33.05
40.87
Basic price (in EUR)
2 Jahre
10 Jahre
2009
15.3.2010
4 Jahre
4 Jahre
10 Jahre
10 Jahre
8.3.2011
2010
15.3.2012
2011
Allocation year
Waiting period
Period
Award date
in EUR thousand
N 96
allocation
Hannover Re | Annual Report 2018
2017 for
2016
•
The determination of the loss reserve requires discretion-
ary decisions, estimates and assumptions on the part of
Management. Minimal changes to these assumptions and
the methods used can materially affect the measurement
of this provision.
Against this backdrop, and also bearing in mind the mate-
rial significance (in terms of amount) of this provision for
the net assets and results of operations of the Group, the
measurement of this provision was of particular signifi-
cance in the context of our audit.
(b) As part of the audit, in light of the significance of the loss
reserve, we evaluated the methods used by the company
and the assumptions made by Management in coopera-
tion with our own actuaries. In so doing, we worked on
the basis of, among other things, our industry expertise
and our industry experience.
Among other things, we assessed the adequacy of the de-
sign of the reserving process and performed functional
checks in order to evaluate the effectiveness of the inter-
nal controls. In so doing, we focused especially on con-
trols that ensure the data used are adequate and complete
and that the calculation process is subject to a sufficient
form of quality assurance.
Building on the review of the controls, we conducted fur-
ther analytical and substantive audit procedures in rela-
tion to the measurement of the loss reserve. Bearing in
mind the significance of the loss reserve for the compa-
ny's total business, our internal measurement specialists
evaluated the adequacy of the methods used by the com-
pany. Furthermore, our internal measurement specialists
assessed the models used by the company and assump-
tions made by Management on the basis of industry ex-
pertise and experience with general accepted actuarial
practices. In this context, the consistent application of the
measurement methods was also reviewed.
On the basis of our audit procedures we were able to as-
sure ourselves that the estimates and assumptions made
by Management with regard to the loss reserve are appro-
priate overall.
(c) The information provided by the company on the loss re-
serves in property and casualty reinsurance is contained
in the sections of the notes to the consolidated financial
statement entitled “Accounting policies” and “Notes on
the individual items of the balance sheet", subsection
"Technical provisions". Risk information is provided in
the section of the Group management report entitled
"Risk report", subsection "Underwriting risks in property
and casualty reinsurance".
272
Hannover Re | Annual Report 2018
(3) Measurement of the benefit reserve
(a) Technical provisions of altogether EUR 9,184.4 million
(14.2% of the consolidated balance sheet total) are recog-
nised in the company's consolidated financial statement
under the balance sheet item “benefit reserve". The ben-
efit reserve was established largely for reinsurance trans-
acted in the lines of life and health reinsurance.
The loss reserves in property and casualty reinsurance are
estimated based on empirical values in light of the infor-
mation provided by ceding companies. The measurement
of the loss reserves is derived using actuarial methods
that necessitate a sufficiently long data history and stabil-
ity of the observed data. The mathematical methods in-
corporate assumptions regarding premiums, ultimate loss
ratios and run-off patterns that are built upon an expert
assessment based on past experience. Taking into ac-
count the results of the actuarial procedures and other
influencing factors in relation to the uncertainties associ-
ated with the calculations, Management determines the
amount of the loss reserves.
An annual liability adequacy test is performed on the level
of portfolios managed as a unit in order to verify whether
the technical provisions, and hence in particular the ben-
efit reserve, established as at the balance sheet date using
the actuarial bases for initial recognition, less existing de-
ferred acquisition costs, are sufficient to cover the best
estimate as at the balance sheet date of the expected pres-
ent value of future payments less the present value of pre-
miums payable from the portfolios managed as a unit.
ties.
Against this backdrop and in view of the material signifi-
cance (in terms of amount) of the benefit reserve for the
Group's net assets and results of operations as well as the
complexity of the underlying calculations, this matter was
of particular significance in the context of our audit.
(b) As part of our audit, in light of the significance of the ben-
efit reserve, we evaluated the methods used by the com-
pany and the assumptions made by Management in coop-
eration with our actuaries. In so doing, we worked on the
basis of, among other things, our industry expertise and
our industry experience.
For the purposes of our evaluation, we assessed the de-
sign and effectiveness of the controls put in place to de-
termine and document the benefit reserve. A special focus
here was on the controls that ensure new products and
contracts are correctly classified and that changes in as-
sumptions are correctly implemented in the systems.
Building on the review of the controls, we conducted fur-
ther analytical and substantive audit procedures in rela-
tion to the measurement of the benefit reserve. With the
involvement of our actuaries, we compared the actuarial
methods applied in each case and the material assump-
tions made with generally recognised actuarial practices
and industry standards and we examined the extent to
which they are suitable for measurement. In the context
of case-by-case checks we assessed the correct and ap-
propriate use of statements of account available from ced-
ing companies in the determination of the benefit reserve.
In this connection we also evaluated the adequacy of the
material assumptions by analysing the actuarial methods
used to arrive at them.
Based on the liability adequacy tests performed, we
formed an opinion on whether the actuarial bases and
methods used were appropriately applied. If market inter-
est rates were used for measurement purposes, we re-
viewed the adequacy of the discount rates used through
comparison with parameters that could be observed on
the market. In this context, we devoted particularly close
attention to the liability adequacy test for US mortality
solutions business on account of the significance of this
business to the Group. Furthermore, we analysed the de-
velopment of the benefit reserve compared to the previ-
ous year, in particular with an eye to whether the assump-
tions consistently reflect the latest available cedant
information as well as current business developments at
ceding companies and our expectations based on market
observations.
On the basis of the audit procedures that we conducted,
we were able to assure ourselves that the methods and
assumptions used by Management for measurement of
the benefit reserve are appropriate overall.
(c) The information provided by the company on the benefit
reserve is contained in the sections of the notes to the
consolidated financial statement entitled "Accounting
policies" and "Notes on the individual items of the balance
sheet", subsection "Technical provisions". Risk informa-
tion is provided in the section of the Group management
report entitled “Risk report", subsection "Underwriting
risks in life and health reinsurance".
Hannover Re | Annual Report 2018
273
Independent Auditor's Report
(4) Calculation of the estimated gross premium
The assessment of the adequacy of the reported benefit
reserve, the estimates made in cases where statements of
account from ceding companies were not available and
the model-based calculations of the benefit reserve are
subject to considerable scope for discretion on the part of
Management and hence associated estimation uncertain-
(a) The company reports gross written premium of EUR
19,176.4 million in the statement of income contained in
its consolidated financial statement.
(a) Technical provisions (known as “loss reserves") of EUR
28,758.6 million (44.6% of the consolidated balance
sheet total) are recognised in the company's consolidated
financial statement under the balance sheet item “loss
and loss adjustment expense reserve". Of this, EUR
24,542.8 million is attributable to the area of property and
casualty reinsurance.
(c) The information provided by the company regarding the
measurement of financial instruments is contained in the
sections of the notes to the consolidated financial state-
ment entitled "Accounting policies” and “Notes on the
individual items of the balance sheet", subsection "Invest-
ments under own management".
(1) Measurement of certain financial instruments at
fair value
(2)
Measurement of the loss and loss adjustment expense
reserve in property and casualty reinsurance
Measurement of the benefit reserve
(3)
(4)
Calculation of the estimated gross premium
We have structured our presentation of these key audit mat-
ters as follows:
(a)
(b)
Facts of the matter and problem
Approach taken in the audit and insights gained
(c) Reference to further information
The key audit matters are presented below:
(2) Measurement of the loss and loss adjustment expense reserve in property and casualty reinsurance
(1) Measurement of certain financial instruments at fair value
statement.
Of these financial instruments, financial assets in an
amount of EUR 36,523.8 million are measured at fair val-
ue. In turn, of these financial instruments, fair values of
EUR 36,045.1 million are determined using valuation
models or values indicated by third parties. The measure-
ment of financial instruments, the fair values of which
have to be determined using valuation models or values
indicated by third parties, is subject to uncertainty be-
cause the most up-to-date market data/comparative val-
ues are not available for measurement in all cases and
hence estimated values and parameters not currently ob-
servable on the market are also used.
Financial instruments measured using models are subject
to an increased valuation risk in this connection owing to
a reduced scope for objectivity and the underlying discre-
tionary decisions, estimates and assumptions of Manage-
ment. Given that the estimates and assumptions used,
especially those in relation to interest rates and cash
flows, as well as the applied measurement methods can
potentially have material implications for the measure-
ment of these financial instruments and for the net assets
and results of operations of the Group and also bearing in
mind that extensive disclosures in the notes are required
on measurement methods and scope for discretion, this
was a key audit matter in the context of our audit.
(b) In the context of our audit we analysed the financial in-
struments measured using valuation models and values
indicated by third parties, with our focus being on the
measurement uncertainties. In this regard, we evaluated
the adequacy and effectiveness of the relevant controls
used for measurement of these financial instruments and
for model validation. In so doing, among other things, we
assessed the integrity of the underlying data and the pro-
cess for establishing the assumptions and estimates in-
cluded in the valuation.
With the support of our internal specialists in financial
mathematics, we also evaluated the adequacy of the
methods adopted by Management to test assets for im-
pairment and the parameters used for this purpose. We
compared the methods and assumptions used to calculate
measurement adjustments in the financial year with rec-
ognised practices and industry standards and examined
Hannover Re | Annual Report 2018
271
Independent Auditor's Report
the extent to which they are appropriate for proper recog-
nition in the balance sheet.
On the basis of the audit procedures performed we were
able to assure ourselves that the methods and assump-
tions used by Management to measure certain financial
instruments (those measured on the basis of models and
values indicated by third parties) are suitable overall and
the remarks and disclosures presented in the notes to the
consolidated financial statement are appropriate.
(a) Financial instruments in an amount of EUR 53,062.0 mil-
lion (82.3% of the consolidated balance sheet total)
are recognised in the company's consolidated financial
In our assessment, the following matters were of the greatest
significance in our audit:
Premiums for reinsurance assumed are recognised ac-
cording to the terms and conditions of the reinsurance
treaties. Where statements of account from ceding com-
panies are not yet available, the company has made
supplementary or complete estimates of the premiums.
The estimates are based on assumptions and are there-
fore subject to considerable uncertainty and highly dis-
cretionary.
(b) For the purpose of auditing the estimated gross premium,
as a first step we conducted the structural audit of the
premium and estimation process. In this connection we
identified the material key controls and analysed their
design. On this basis, as part of the functional audit, we
During the audit we exercise our due discretion and maintain
a fundamentally critical attitude. In addition,
•
•
-
we identify and assess the risks of material - intended or
unintended misstatements in the consolidated finan-
cial statement and in the Group management report,
plan and conduct audit procedures in response to these
risks and obtain audit evidence that is sufficient and ap-
propriate to serve as a basis for our audit opinions. The
risk of material misstatements not being detected is
greater with fraud than with error, because fraud may
involve fraudulent collaboration, falsifications, wilful in-
completeness, misleading representations or the by-
passing of internal controls.
we obtain an understanding of the internal control sys-
tem relevant to the audit of the consolidated financial
statement and the safeguards and measures relevant to
the audit of the Group management report in order to
plan audit procedures that are appropriate under the ex-
isting circumstances, albeit not with the aim of provid-
ing an audit opinion on the effectiveness of these sys-
tems.
we assess the adequacy of the accounting policies ap-
plied by Management as well as the reasonableness of
the estimated values presented by Management and as-
sociated disclosures.
Hannover Re | Annual Report 2018
275
Independent Auditor's Report
•
Reasonable assurance is a high degree of assurance, but not a
guarantee, that an audit performed in conformity with § 317
Commercial Code (HGB) and the EU Audit Regulation and
with due regard to German generally accepted standards for
the auditing of financial statements promulgated by the Insti-
tute of Public Auditors in Germany (IDW) always detects a ma-
terial misstatement. Misstatements may be due to fraud or
error and are considered to be material if it could reasonably
be expected that individually or as whole they influence the
economic decisions made by users on the basis of this consol-
idated financial statement and Group management report.
•
.
we draw conclusions regarding the adequacy of the go-
ing concern accounting principle applied by Manage-
ment as well as, on the basis of the audit evidence ob-
tained, regarding whether material uncertainty exists in
connection with events or circumstances that can raise
significant doubts about the capacity of the Group to
continue as a going concern. If we conclude that materi-
al uncertainty exists, we are required in the audit report
to draw attention to the associated disclosures in the
consolidated financial statement and in the Group man-
agement report or, if these disclosures are inadequate,
to modify our audit opinion. We arrive at our conclu-
sions on the basis of the audit evidence obtained until
the date of our audit report. Future events or circum-
stances may, however, result in the Group no longer be-
ing able to continue as a going concern.
we assess the overall presentation, the structure and the
content of the consolidated financial statement includ-
ing the disclosures as well as whether the consolidated
financial statement presents the underlying business
transactions and events in such a way that the consoli-
dated financial statement gives a true and fair view of
the net assets, financial position and results of opera-
tions of the Group in conformity with IFRS, as applicable
in the EU, and with the additional requirements of Ger-
man law applicable pursuant to § 315e Para. 1 Commer-
cial Code (HGB).
we obtain sufficient suitable audit evidence for the ac-
counting information of the companies or business ac-
tivities within the Group in order to be able to provide
audit opinions on the consolidated financial statement
and on the Group management report. We are responsi-
ble for the direction, monitoring and conduct of the au-
dit of the consolidated financial statement. We bear sole
responsibility for our audit opinions.
we assess the consistency of the Group management re-
port with the consolidated financial statement, its con-
•
formity with the law and the view of the position of the
Group that it conveys.
we conduct audit procedures with respect to the pro-
spective information presented by Management in the
Group management report. In particular, based on suffi-
cient suitable audit evidence we verify the major as-
sumptions taken as a basis by Management for the pro-
spective information and assess the proper derivation of
the prospective information from these assumptions. We
do not provide an independent audit opinion on the pro-
spective information or on the underlying assumptions.
There is a considerable unavoidable risk that future
events may differ substantially from the prospective in-
formation.
We discuss with those charged with governance, among
other things, the planned scope and the timetable of the audit
as well as significant audit findings, including any deficien-
cies in the internal control system that we identify during our
audit.
We provide to those charged with governance a declaration to
the effect that we complied with the relevant independence
requirements, and we discuss with them all relationships and
other matters that can reasonably be assumed to affect our
independence as well as the safeguards implemented in this
respect.
We determine from among the matters that we discussed
with those charged with governance those matters that were
most relevant to the current reporting period in the audit of
the consolidated financial statement and therefore constitute
the key audit matters. We describe these matters in the audit
report, unless laws or other legal provisions prevent public
disclosure of the matter.
•
In view of the material significance (in terms of amount)
of the estimated premium volume for the Group's net as-
sets and results of operations as well as the considerable
discretionary scope of Management and the associated
estimation uncertainties, this matter was of particular sig-
nificance in the context of our audit.
Our objective is to obtain reasonable assurance as to whether
the consolidated financial statement as a whole is free of ma-
terial intended or unintended - : misstatements and whether
overall the Group management report gives an accurate view
of the Group's position and in all material respects is consist-
ent with the consolidated financial statement as well as with
the insights gained from the audit, is in conformity with Ger-
man legal requirements and suitably presents the opportuni-
ties and risks of future development; it is also our goal to pro-
vide an audit report that contains our audit opinions on the
consolidated financial statement and on the Group manage-
ment report.
consolidated financial statement and the Group management report
tested the effectiveness of the key controls implemented
in the process and evaluated the adequacy of the mate-
rial assumptions by reproducing and analysing the cal-
culation method used to arrive at the estimated gross
premium.
In the context of audit procedures conducted on a case-
by-case basis we critically examined the key assumptions
underlying an estimate and had the company provide us
with corresponding justifications for the estimate that was
made. Using information on the premiums expected in
the previous year, we made a comparison with the actual
figures and were thus able to draw conclusions about the
quality of the estimates.
On the basis of our audit procedures we were able to as-
sure ourselves that the calculation methods used by Man-
agement to arrive at the estimated gross premium are
appropriate overall.
(c) The information provided by the company on written and
estimated gross premium is contained in the sections of
the notes to the consolidated financial statement entitled
"Accounting policies" and "Notes on the individual items
of the statement of income".
Other information
Management is responsible for the other information. The
other information encompasses the following components of
the Group management report, the content of which was not
audited:
•
•
the declaration on corporate governance pursuant to
§ 289f Commercial Code (HGB) and § 315d Commercial
Code (HGB) contained in the section of the Group man-
agement report entitled “Enterprise management"
the non-financial information statement pursuant to
§ 289b Para. 1 Commercial Code (HGB) and § 315b
Para. 1 Commercial Code (HGB) contained in the section
of the Group management report entitled "Combined
non-financial information statement"
the disclosures contained in the Group management re-
port that are identified as unaudited in connection with
Solvency II reporting
The other information additionally encompasses the other
parts of the Annual Report - excluding further cross-referenc-
es to external information -, with the exception of the audited
consolidated financial statement, the audited Group manage-
ment report and our audit report.
-
Our audit opinions on the consolidated financial statement
and on the Group management report do not extend to the
other information, and hence we do not express an audit opin-
ion or draw any other form of audit conclusion in this regard.
•
•
shows material inconsistencies with the consolidated
financial statement, the Group management report or
knowledge that we obtained as part of the audit or
appears to be materially misstated in other respects.
274
Hannover Re | Annual Report 2018
Responsibility of Management and of the Supervisory Board for the
consolidated financial statement and the Group management report
Management is responsible for preparation of the consolidat-
ed financial statement, which in all material respects is in
conformity with IFRS, as applicable in the EU, and with the
additional requirements of German law applicable pursuant
to § 315e Para. 1 Commercial Code (HGB) and for ensuring
that the consolidated financial statement gives a true and fair
view of the Group's net assets, financial position and results
of operations in accordance with these requirements. In addi-
tion, Management is responsible for the internal controls that
they have determined to be necessary in order to facilitate
preparation of a consolidated financial statement that is free
of material misstatements, whether intended or unintended.
In preparing the consolidated financial statement, Manage-
ment is responsible for assessing the capacity of the Group to
continue as a going concern. Furthermore, they are responsi-
ble for declaring facts and circumstances connected with
continuation as a going concern, where relevant. In addition,
they are responsible for financial reporting on the going con-
cern basis of accounting, unless there is an intention to liqui-
date the Group or cease operations or there is no other real-
istic alternative.
Moreover, Management is responsible for the preparation of
the Group management report, which overall gives an accu-
rate view of the position of the Group and in all material re-
spects is consistent with the consolidated financial statement,
complies with German legal requirements and suitably re-
flects the opportunities and risks of future development. Man-
agement is also responsible for the safeguards and measures
(systems) that they considered necessary in order to facilitate
the preparation of a Group management report in conformity
with applicable German legal requirements and in order to be
able to provide sufficient appropriate evidence for the state-
ments contained in the Group management report.
The Supervisory Board is responsible for monitoring the fi-
nancial reporting process used by the Group for drawing up
the consolidated financial statement and the Group manage-
ment report.
Responsibility of the auditor for the auditing of the
In connection with our audit, our responsibility is to read the
other information and assess whether the other information
Key audit matters are those matters that, in our professional
judgement, are of the greatest significance to our audit of the
consolidated financial statement for the financial year from 1
January to 31 December 2018. These matters were con-
sidered in the context of our audit of the consolidated finan-
cial statement as a whole and in forming our audit opinion
thereon; we do not provide a separate audit opinion on these
matters.
Key audit matters in the auditing of the consolidated financial statement
opinion that the audit evidence obtained is sufficient and ap-
propriate to serve as a basis for our audit opinions on the
consolidated financial statement and the Group management
report.
163,852
N 103
Amounts receivable
106,090
104,500
95,519
81,388
69,309
188,778
Hannover Re | Annual Report 2018
267
Annual financial statements
8,086
8.9 Fee paid to the auditor
Fee paid to the auditor
fined by § 318 German Commercial Code (HGB). The expense
recognised for the fees paid to PwC GmbH and worldwide
member firms of PwC International Limited (PwC) in the year
under review can be broken down as follows:
in EUR thousand
Services relating to auditing of the financial statements
Other assurance services
Tax consultancy services
Other services
Total
N 104
2018
2017
PwC
worldwide
thereof
PwC GmbH
At its meeting on 8 March 2018 the Supervisory Board of
Hannover Re appointed PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft (PwC GmbH) as the auditor
of the consolidated financial statement of Hannover Re as de-
KPMG
worldwide
8,461
12,906
8.8 Rent and leases
Non-cancellable operating leases will give rise to the follow-
ing future minimum payments payable and receivable in sub-
sequent years.
Leased properties
Future minimum lease payments payable
in EUR thousand
2019
2020
2021
2022
2023
Subsequent years
In the year under review expenses from operating leases of
11,296
EUR 15.3 million (EUR 13.7 million) were included in the re-
sult for the period.
Future minimum lease payments receivable
in EUR thousand
2019
2020
2021
2022
2023
Subsequent years
The rental payments receivable result principally from the
long-term renting out of properties by the Group's real estate
companies.
N 102
Amounts payable
16,013
Rented properties
thereof
KPMG AG
7,521
2,671
Chèvre
Miler Fickel Romo w
Dr. Miller
Dr. Pickel
Vogel
Hannover Re | Annual Report 2018
269
Annual financial statements
Reproduction of the independent auditor's report
In accordance with the final outcome of our audit, we issued
the following unqualified auditor's report dated 5 March
2019:
Independent Auditor's Report
to Hannover Rück SE, Hannover
Althoff
Report on the audit of the consolidated financial
statement and the Group management report
We have audited the consolidated financial statement of Han-
nover Rück SE, Hannover, and its subsidiaries (the Group) -
comprising the consolidated balance sheet as at 31 December
2018, the consolidated statement of income, the consolidated
statement of comprehensive income, the consolidated state-
ment of changes in shareholders' equity and the consolidated
cash flow statement for the financial year from 1 January to 31
December 2018 as well as the notes to the consolidated finan-
cial statement, including a summary of major accounting pol-
icies. In addition, we audited the Group management report of
Hannover Rück SE, which is combined with the management
report of the company, for the financial year from 1 January to
31 December 2018. In accordance with German statutory re-
quirements, we did not audit the content of the components of
the Group management report specified in the "Other infor-
mation" section of our independent auditor's report.
In our opinion, based on the findings of the audit,
the attached consolidated financial statement complies
in all material respects with IFRS, as applicable in the
EU, and with the additional requirements of German law
applicable pursuant to § 315e Para. 1 Commercial Code
(HGB) and gives a true and fair view of the net assets
and financial position of the Group as at 31 December
2018 as well as its results of operations for the financial
year from 1 January to 31 December 2018 in accordance
with these requirements, and
the attached Group management report provides an ac-
curate view overall of the position of the Group. In all
material respects this Group management report is
consistent with the consolidated financial statement,
complies with German legal requirements and suitably
presents the opportunities and risks of future develop-
ment. Our audit opinion on the Group management re-
port does not extend to the content of the components of
the Group management report specified in the section
"Other information".
Pursuant to § 322 Para. 3 Sentence 1 Commercial Code
(HGB), we confirm that our audit did not give rise to any
reservations concerning the correctness of the consolidated
financial statement and the Group management report.
Basis of the audit opinions
We conducted our audit of the consolidated financial state-
ment and the Group management report in conformity with
§ 317 Commercial Code (HGB) and the EU Audit Regulation
(No. 537/2014) with due regard to German generally accept-
ed standards for the auditing of financial statements promul-
gated by the Institute of Public Auditors in Germany (IDW).
Our responsibility according to these requirements and prin-
ciples is described more extensively in the section of our au-
dit report entitled "Responsibility of the auditor for the audit-
ing of the consolidated financial statement and the Group
management report". We are independent of the Group com-
panies in conformity with the requirements of European law
as well as German commercial law and professional stand-
ards and we fulfilled our other German professional duties in
270
Hannover Re | Annual Report 2018
conformity with these requirements. Furthermore, we con-
firm pursuant to Article 10 (2) letter f) EU Audit Regulation
that we did not provide any prohibited non-audit services as
defined by Article 5 (1) EU Audit Regulation. We are of the
Audit opinions
Wallin
Jhalf hum
似
8,953
3,328
74
36
548
432
11
11
214
21
202
1,311
1,093
7,808
2,718
11,026
4,874
The fee for services relating to auditing of the financial state-
ments performed by PwC GmbH includes above all the fees
for the auditing of the consolidated financial statement in-
cluding legally required extensions of the mandate, the re-
view report on the interim report as well as audits of annual
financial statements and audits of the Solvency II balance
sheets of the subsidiaries included in the consolidated finan-
cial statement.
The auditor responsible for performance of the audit engage-
ment as defined by § 38 Para. 2 of the Professional Charter for
Accountants/Certified Auditors (Berufssatzung WP/vBP) as
amended on 21 June 2016 is Mr. Mathias Röcker. He served
as the engagement partner responsible for the audit of the
annual and consolidated financial statements for the first time
as at 31 December 2018.
Within the Group an amount of roughly EUR 980 thousand
was subsequently paid to KPMG in 2018 for audit services
dating from 2017.
268
Hannover Re | Annual Report 2018
8.10 Events after the balance sheet date
No significant events beyond the scope of ordinary business
activities have occurred since the balance sheet date.
Hannover, 4 March 2019
Executive Board
276
Hannover Re | Annual Report 2018
The measurement of the benefit reserve is derived using
actuarial methods from the present value of future pay-
ments to ceding companies less the present value of fu-
ture premiums still to be paid by ceding companies. De-
fined actuarial bases are applied upon initial recognition
of the treaty in question. Depending on the structuring of
the treaty and the regular course of business, the calcula-
tion is based either on a combination of available state-
ments of account from ceding companies, as necessary
adjusted by estimates of the treaty experience for ac-
counting periods not yet available, or on model-based
own calculations of the benefit reserve. In this regard, ac-
tuarial assumptions are made in connection with interest
rates, investment income, mortality, morbidity, longevity,
expenses and future policyholder behaviour.
• Identifying probable risks of material misstatements in
the non-financial information statement
Audit of the annual financial statements and consolidated financial statements
The accounting, annual financial statements, consolidated fi-
nancial statements and the combined management report
were audited by PricewaterhouseCoopers GmbH Wirtschafts-
prüfungsgesellschaft. The Supervisory Board chose the audi-
tor and the Chairman of the Supervisory Board awarded the
audit mandate. The auditor's independence declaration was
received. Along with the audit concentrations of the German
Financial Reporting Enforcement Panel (DPR), 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 independ-
ent auditors on the Half-yearly Financial Report as at 30 June
2018 was also awarded again. The special challenges associ-
ated with the international aspects of the audits were met
without reservation. Since the audits did not give rise to any
objections PricewaterhouseCoopers GmbH Wirtschaftsprü-
fungsgesellschaft issued unqualified audit certificates. It was
also determined that the annual financial statement contains
the information pursuant to § 289f German Commercial Code
(HGB). The Finance and Audit Committee discussed the fi-
nancial statements and the combined management report
with the participation of the auditors and in light of the audit
reports, and it informed the Supervisory Board of the out-
come of its reviews. The audit reports were distributed to all
the members of the Supervisory Board and explored in detail
- with the participation of the auditors at the Supervisory
Board meeting held to consider the annual results. The audi-
tors will also be present at the Annual General Meeting.
-
The report on the company's relations with affiliated compa-
nies drawn up by the Executive Board has likewise been ex-
amined by PricewaterhouseCoopers GmbH Wirtschaftsprü-
Changes on the Supervisory Board and the Executive
There were changes in the composition of the Supervisory
Board, its committees and the Executive Board in the year
under review.
On the Supervisory Board Mr. Baumgartl and Dr. Sturany in-
formed the Chairman of the Supervisory Board that they
would be resigning their Supervisory Board mandates with
effect from the end of the Annual General Meeting of Han-
nover Rück SE on 7 May 2018. Mr. Baumgartl also sat on the
Standing Committee, the Finance and Audit Committee and
the Nomination Committee. Dr. Sturany belonged to the
Standing Committee. Dr. Lipowsky and Mr. Leue were elect-
ed to the Supervisory Board in the scheduled by-election held
at the Annual General Meeting on 7 May 2018 with effect
from the end of the Annual General Meeting.
At the extraordinary Supervisory Board meeting held after
the Annual General Meeting Dr. Erhard Schipporeit resigned
his mandate as a member of the Finance and Audit Commit-
tee. Dr. Lipowsky and Mr. Leue were subsequently elected to
the Finance and Audit Committee. Mr. Leue and Dr. Schippo-
fungsgesellschaft and given the following unqualified audit
certificate:
Supervisory Board
"Having audited the report in accordance with our profes-
sional duties, we confirm that
2.
in the case of the transactions detailed in the report,
the expenditure of the company was not unreasonably
high."
We have examined
a.
the annual financial statements of the company, the
financial statements of the Hannover Re Group and the
combined management report prepared by the
Executive Board for the company and the Group, and
b. the report of the Executive Board pursuant to § 312
Stock Corporation Act (AktG) (Report on relations with
affiliated companies)
- in each case drawn up as at 31 December 2018 - and have
no objections. Nor do we have any objections to the state-
ment reproduced in the dependent company report.
The Supervisory Board thus concurred with the opinions of
the auditors and approved the annual financial statements
and the consolidated financial statements; the annual finan-
cial statements are thereby adopted. Our proposal regarding
the appropriation of the disposable profit for 2018 is in ac-
cordance with that of the Executive Board.
Board
1. the factual details of the report are correct;
283
Hannover Re | Annual Report 2018
Notwithstanding the high importance that the Supervisory
Board attaches to the standards of good and responsible en-
terprise management defined in the German Corporate Gov-
ernance Code, the Supervisory Board decided not to fully
comply with the recommendations contained in Code Section
4.2.3 Para. 2 regarding caps on the amount of variable com-
pensation elements in management board contracts, in Code
Section 4.2.3 Para. 4 concerning a cap on severance pay-
ments in management board contracts, in Code Section 5.3.2
Para. 3 Sentence 3 concerning the Chair of the Audit Commit-
tee and in Code Section 5.3.2 Para. 3 Sentence 2 concerning
the independence of the Chair of the Audit Committee. Justi-
fication for these divergences is provided in the Declaration
of Conformity pursuant to § 161 Stock Corporation Act (AktG)
regarding compliance with the German Corporate Govern-
ance Code, which is reproduced in the Group Annual Report
as part of the Declaration on Corporate Governance (cf. page
122 et seq.). Further information on the topic of corporate
governance is available on the website of Hannover Rück SE.
Of the committees formed by the Supervisory Board within
the meaning of § 107 Para. 3 Stock Corporation Act (AktG),
the Finance and Audit Committee met on four occasions, the
Standing Committee met three times and the Nomination
Committee met twice. 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.
The Finance and Audit Committee considered inter alia the
consolidated financial statement and the quarterly reports
drawn up in accordance with IFRS and the individual finan-
cial statement of Hannover Rück SE drawn up in accordance
with the German Commercial Code (HGB) and it discussed
with the independent auditors their reports on these financial
statements. As in the previous year, an expert opinion on
the extensive list of topics which goes beyond the regulatory
requirements will be used again in 2019. Responding to the
insights gained from this self-assessment in the previous
year, the Supervisory Board took part in an IT training ses-
sion. The Supervisory Board also received a report on the de-
velopment of the investment dating from 2016 in Somerset
Re, a Bermuda-based reinsurer. In August the Supervisory
Board was additionally introduced to Mr. Jean-Jacques Hen-
choz as a potential successor to Mr. Ulrich Wallin in the role
of Chief Executive Officer.
At the last meeting of the year on 7 November 2018, we de-
liberated at length on the key preliminary results in the busi-
ness performance together with the outlook for the current
financial year. We were provided with the report on employee
capacities. The Executive Board also presented the opera-
tional planning for 2019; we considered this in detail and sub-
sequently approved the annual/results planning submitted to
us. We discussed the latest insights from the risk report and
were informed of the status of major pending legal proceed-
ings. The ongoing project "Nukleus" and our associated deci
sion to terminate the control and profit transfer agreement
with International Insurance Company of Hannover SE was
another focus of our deliberations. As in every year, the full
Supervisory Board considered the adequacy of the remunera-
tion system for the members of the Executive Board. We re-
ceived a report on the allocation, structure and profitability of
the real estate portfolio. Based on the findings of the "Fit &
Proper" self-assessment that had been conducted, we en-
gaged in an extensive exchange of views on a development
plan for the full Supervisory Board. Furthermore, we dedicat-
ed a significant part of our discussion to corporate govern-
ance issues and in this regard we approved a revised diversity
concept and the updated Declaration of Conformity (see also
further information below).
As in every year, we were regularly briefed on the work of the
Supervisory Board committees.
the adequacy of the loss reserves in property and casualty
reinsurance was noted, the retrocession structure of the
Hannover Re Group and the accumulated prefinancing vol-
ume in life reinsurance including a comparison of the expect-
ed return flows with the repayments actually made, the risk
reports, the compliance report and the report on adherence
to corporate governance principles were discussed and re-
ports on the major subsidiaries were received and consid-
ered. In addition, the Committee examined the investment
structure and investment income – including the stress tests
with regard to the investments and their implications for net
income and the equity base - and prepared the audit concen-
trations for the 2018 financial year for adoption by the full
Supervisory Board.
282
Hannover Re | Annual Report 2018
The Committee was provided with detailed reports on the rec-
ognition and measurement of the risk-oriented book of US life
reinsurance business acquired in 2009 from Scottish Re
(Brock portfolio) as well as on the rate increases that had
been initiated. The Committee also considered the allocation,
structure and profitability of the real estate portfolio. Further-
more, the Committee prepared various resolutions to be
adopted by the Supervisory Board. Consideration of the US
tax reform and its implications for the reinsurance business
transacted by Hannover Rück SE was another focus of delib-
erations in the work carried out by the Finance and Audit
Committee. The Committee's discussions also gave appropri-
ate consideration to the joint growth initiative in specialty
lines between Hannover Rück SE and HDI Global SE.
A further subject of discussion was the review of the success-
ful completion of the transition phase between the previous
and currently mandated auditing firm. The Finance and Audit
Committee subsequently assured itself - including through
direct dialogue with the auditors in the context of a meeting
- that the change of auditing firm had been completed in an
orderly fashion.
The Standing Committee dealt with, among other things, the
adequacy of the system of remuneration for the members of
the Executive Board, the determination of the variable remu-
neration of the members of the Executive Board for the 2017
financial year based on the findings with respect to attain-
ment of their respective targets and the examination of the
Corporate Governance
The Government Commission on the German Corporate Gov-
ernance Code (DCKG) did not make any changes to the Ger-
man Corporate Governance Code in 2018. We nevertheless
devoted considerable attention to the topic of corporate gov-
ernance. For example, the Supervisory Board expanded the
diversity concept in the year under review (cf. page 126 of the
combined management report in the Annual Report) and re-
ported on the manner of its implementation as well as the
results achieved in the financial year. Furthermore, diversity
on the Supervisory Board and Executive Board was increased
in the financial year and steps were initiated to bring about a
further improvement in the coming years.
We considered the report by the Executive Board on non-
financial matters (cf. page 75 et seq. of the combined
management report in the Annual Report) and examined it.
Besides PricewaterhouseCoopers GmbH Wirtschaftsprü-
fungsgesellschaft audited the information statement with
limited assurance in accordance with the audit standard
ISAE 3000 (Revised) (see here the Independent Auditor's
Report on page 270 et seq.).
In addition, the Supervisory Board received a report on the
design of the remuneration schemes as well as the compli-
remuneration for the Board members who were due for re-
view. In all these matters the Committee drew up correspond-
ing recommendations for the full Supervisory Board. The
Committee deliberated at length on the medium- and long-
time succession arrangements for the Executive Board and
recommended to the full Supervisory Board the appointment
of Mr. Henchoz as a member of the Executive Board, his nom-
ination as Chief Executive Officer to succeed Mr. Wallin and
the reappointment of Mr. Claude Chèvre.
The Nomination Committee recommended to the Supervisory
Board the candidates for the necessary by-elections to the
Supervisory Board. On this basis the Supervisory Board rec-
ommended the candidates to the Annual General Meeting on
7 May 2018, which followed the recommendation and elected
the candidates to the Supervisory Board. In addition, the
Nomination Committee discussed suitable candidates for the
upcoming election of new shareholder representatives to the
Supervisory Board in the coming year. When recommending
candidates for nomination, the Committee takes into account
the legal and supervisory stipulations, the goals set by the
Supervisory Board itself for the composition of the body, the
guidelines regarding the specialist and personal require-
ments for the members of the Supervisory Board - which the
latter had approved in updated form in 2017 - as well as the
current self-assessments of each of the members of the Su-
pervisory Board and the self-assessments of the candidates
for the Supervisory Board.
-
ance, internal audit and risk reports. The Supervisory Boards
further noted that at least two of its members namely
Dr. Andrea Pollak and Dr. Ursula Lipowsky – are to be consid-
ered independent members of the Supervisory Board.
reit were elected to the Standing Committee. In addition, Mr.
Leue was elected to the Nomination Committee.
As a member of the Supervisory Board and employee repre-
sentative on the company's Supervisory Board, Mr. Otto
Müller stepped down from the Supervisory Board effective
31 May 2018 at the end of his active employment relationship
with the company. Ms. Benita Bierstedt succeeded Mr. Müller
on the Supervisory Board as the appointed personal substi-
tute member with effect from 1 June 2018. Ms. Bierstedt then
resigned her mandate as a Supervisory Board member and
employee representative on the company's Supervisory
Board for personal reasons effective 6 July 2018. In the
by-election that was then held for the vacant seat as an
employee representative, Mr. Müller was re-elected to the
Supervisory Board as an external employee representative
with effect from 12 July 2018.
Mr. Henchoz was appointed as a member of the Executive
Board with effect from 1 April 2019 and nominated as Chair-
man of the Executive Board with effect from the end of the
284
285
Supervisory Board
Supervisory Board of Hannover Rück SE
Herbert K. Haas 1,2,3
Burgwedel
Chairman
Former Chief Executive Officer of Talanx AG and
HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Torsten Leue 1,2,3
Hannover
Deputy Chairman
Chairman of the Board of Management of
HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Chairman of the Board of Management of Talanx AG
Dr. Klaus Sturany 1
Ascona, Switzerland
(until 7 May 2018)
Deputy Chairman
Former member of the Executive Board of RWE AG
Wolf-Dieter Baumgartl¹,
1,2,3
Otto Müller4
Hannover Re | Annual Report 2018
Committees of the Supervisory Board
Müller
Sielaff
Hannover Re | Annual Report 2018
Annual General Meeting on 8 May 2019; from this date on-
wards he will therefore take over as Chief Executive Officer
from Mr. Wallin, who is retiring. Mr. Chèvre was reappointed
as a member of the Executive Board.
On 9 November 2018 Mr. Jürgen Gräber, a long-serving
member of the Executive Board, passed away suddenly and
entirely unexpectedly. Mr. Gräber had joined the company as
an underwriter in 1981 after graduating from university. He
was appointed to the Executive Board in 1997, most recently
overseeing the areas of Worldwide Treaty Reinsurance, Ca-
tastrophe XL business, Structured Reinsurance and Insur-
ance-Linked Securities as well as coordination of the Proper-
ty&Casualty reinsurance business group; he was additionally
responsible for Quotations and Retrocessions. Thanks to his
efforts and dedication, Mr. Gräber was directly involved in
shaping the excellent underwriting results recorded by the
company over the past years.
Word of thanks to the Executive Board and members of staff
The good result generated by Hannover Rück SE for the 2018
financial year was made possible by the exceptional perfor-
mance of the Executive Board and the members of staff work-
ing for the company and the Group. The Supervisory Board
would like to express its recognition and special appreciation
to the Executive Board and all the employees for their efforts.
Hannover, 6 March 2019
The Supervisory Board
M. Man
Haas
Jun un 4. Heitmüller
Нилии
Leue
Heitmüller
hipously
станая Лишивший айти
Dr. Pollak
Dr. Querner
Dr. Schipporeit
Dr. Lipowsky
кабар
Mhille
Hannover
On 8 August 2018 the Executive Board reported on the first
half of 2018; in this context, as usual, it described the materi-
al indicators from the technical and non-technical accounts
and outlined the attainment status of the strategic objectives
based on the target matrix. The outlook for the current finan-
cial year was followed by a discussion of the key insights from
the risk report. In addition, the management measures cho-
sen by the company in connection with the so-called US
Brock portfolio and the description of the recognition and de-
velopment of the business concerned were a major focus of
the August meeting. The corresponding project "Reboot Up-
date" was also considered at length in the meetings of the
Finance and Audit Committee. We also received the audit re-
port on the solvency balance sheet. Furthermore, the Super-
visory Board received a detailed explanation of the compa-
ny's digitalisation strategy from the Executive Board, which it
subsequently discussed. With an eye to the self-assessment
of the Supervisory Board's areas of expertise that had once
more been carried out, the Supervisory Board decided that
the current financial year, the examination of the Own Risk
and Solvency Assessment (ORSA) and the capitalisation un-
der Solvency II constituted further key points of deliberation.
Following up on this, the structure of the Regular Supervisory
Report (RSR) and its differences and overlaps relative to the
ORSA were explained. We also received a report on the return
on investment as compared with peer companies. The delib-
erations on the joint growth initiative in specialty lines be-
tween Hannover Rück SE and HDI Global SE formed another
major part of our work on the Supervisory Board.
We are independent in conformity with the requirements of
German professional standards and we fulfilled our other pro-
fessional duties in accordance with these requirements.
Our audit firm applies the national statutory regulations and
professional pronouncements - especially those of the Pro-
fessional Code for Certified Accountants and Sworn Auditors
(BS WP/vBP) as well as of Quality Assurance Standard 1
"Requirements for Quality Assurance in the Practice of Audit
Firms" (IDW QS 1) issued by the Institute of Public Auditors
in Germany (IDW) - and accordingly maintains an extensive
quality assurance system that comprises documented rules
and measures in relation to compliance with ethical require-
ments, professional standards and pertinent statutory and
other legal requirements.
Responsibility of the independent auditor
Our responsibility is to express a limited assurance conclu-
sion on the disclosures in the non-financial information state-
ment based on the assurance engagement that we have per-
formed.
An assessment of external documentation sources or expert
opinions, to which reference is made in the non-financial in-
formation statement, did not form part of our engagement.
We conducted our assurance engagement in accordance with
the International Standard on Assurance Engagements (ISAE)
3000 (Revised): “Assurance Engagements other than Audits
or Reviews of Historical Financial Information", issued by the
IAASB. This standard requires that we plan and perform the
assurance engagement in such a way as to obtain limited as-
surance about whether facts and circumstances have become
known to us that lead us to believe that the company's non-fi-
nancial information statement for the period from 1 January
2018 to 31 December 2018 has not been prepared, in all
material respects, in conformity with §§ 315b and 315c in
conjunction with 289b to 289e Commercial Code (HGB). In a
limited assurance engagement the assurance procedures car-
ried out are less extensive than for a reasonable assurance
engagement, and hence a substantially lower level of assur-
ance is obtained. The assurance procedures are selected ac-
cording to the auditor's professional judgement.
Independence and quality assurance on the part of the auditor
In the context of our assurance engagement we performed,
inter alia, the following assurance procedures and other ac-
tivities:
Hannover Re | Annual Report 2018
Gaining insight into the structure of the sustainability
organisation and into the performance of the materiality
analysis
Questioning Management and relevant employees in-
volved in the preparation of the non-financial informa-
tion statement about the process of preparing the non-fi-
nancial information statement, about the internal control
system relating to this process and about the disclosures
in the non-financial information statement
•
Analytical evaluation of disclosures in the non-financial
information statement
Reconciling disclosures with the corresponding data in
the consolidated financial statement and combined
management report
• Evaluating the presentation of the disclosures
278
well as making assumptions and estimates regarding individ-
ual non-financial disclosures which are reasonable in the
circumstances. Furthermore, the legal representatives are
responsible for the internal controls that they have deter-
mined to be necessary in order to facilitate the preparation of
a non-financial information statement that is free from mate-
rial misstatements, whether due to fraud or error.
§§ 289b und 315b Commercial Code (HGB), which is con-
tained in the section of the combined management report en-
titled "Combined non-financial information statement" (here-
inafter the "non-financial information statement"), for the
period from 1 January to 31 December 2018.
This responsibility of Management involves selecting and ap-
plying appropriate methods for non-financial reporting as
Miscellaneous statutory and other legal requirements
Other information pursuant to Article 10 EU Audit Regulation
We were selected as the auditor of the consolidated financial
statement by the Supervisory Board on 8 March 2018. We
received the audit mandate from the Supervisory Board on
13 June 2018. We have served as the auditor of the consoli-
dated financial statement of Hannover Rück SE, Hannover,
since the 2018 financial year.
We declare that the audit opinions contained in this audit re-
port are consistent with the additional report to the Audit
Committee in accordance with Article 11 EU Audit Regulation
(long-form audit report).
Lead engagement partner
The lead engagement partner for the audit is Mathias Röcker.
Hannover, 5 March 2019
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft
Mathias Röcker
Wirtschaftsprüfer
ppa. Dennis Schnittger
Wirtschaftsprüfer
Hannover Re | Annual Report 2018
277
Miscellaneous
Report by the independent auditor on a limited
assurance engagement for the non-financial reporting
To Hannover Rück SE, Hannover
We have performed a limited assurance engagement on the
combined non-financial information statement of Hannover
Rück SE, Hannover (hereinafter the "Company") according to
Responsibility of Management
The legal representatives of the Company are responsible for
the preparation of the non-financial information statement in
conformity with §§ 315b and 315c in conjunction with 289b
to 289e Commercial Code (HGB).
Assurance conclusion
Based on the assurance procedures performed and the assur-
ance evidence obtained, we are not aware of any facts or cir-
cumstances that lead us to believe that the Company's non-fi-
nancial information statement for the period from 1 January
to 31 December 2018 has not been prepared, in all material
respects, in conformity with §§ 315b and 315c in conjunction
with 289b to 289e Commercial Code (HGB).
Intended use of the assurance report
Dr. Pickel
Vogel
280
Hannover Re | Annual Report 2018
Supervisory Board
Report of the Supervisory Board
of Hannover Rück SE
In our function as the Supervisory Board we considered at
length during the 2018 financial year the position and devel-
opment of the company and its major subsidiaries. We ad-
vised the Executive Board on the direction of the company
and monitored the management of business on the basis of
written and verbal reports from the Executive Board. The Su-
pervisory Board of Hannover Rück SE held four regular meet-
ings and two extraordinary meetings in order to adopt the
necessary resolutions after appropriate discussion. In addi-
tion, the Supervisory Board adopted two resolutions in the
reporting period by a written procedure. All nine Supervisory
Board members took part in each of the Supervisory Board
meetings held in 2018. Two representatives of the Federal
Financial Supervisory Authority attended one meeting on a
routine basis. In addition, we were informed by the Executive
Board in writing and orally on the basis of the quarterly state-
ments about the course of business as well as the position of
the company and the Group. The quarterly reports with the
components of the financial statements and key figures for
Key points of deliberation
On 12 February 2018 we held an extraordinary meeting ded-
icated to addressing the US tax reform and its implications
for the reinsurance business transacted by Hannover Rück SE
as well as specific financing measures.
At the meeting on 8 March 2018 the Supervisory Board dis-
cussed the audited annual and consolidated financial state-
ments as well as the Executive Board's proposal for the ap-
propriation of the disposable profit for the 2017 financial
year. In this regard, as in the previous year, the Executive
Board described all material indicators from the technical and
non-technical accounts as well as key data on the investment
side and the independent auditor directly presented the re-
sults of the audit and elaborated on the audit procedure. The
Executive Board outlined the prospects for the current 2018
financial year and we discussed the major insights from the
compliance, audit and risk reports. Among the steps taken as
part of the annual revision of the investment guidelines, the
product catalogue was expanded to include cross-currency
swaps and adjustments were made to asset allocations in a
few specific cases in response to market developments. Fol-
lowing the announcement that two members of the Supervi-
sory Board - namely Mr. Wolf-Dieter Baumgartl and Dr. Klaus
Sturany - would be stepping down with effect from the end of
the Annual General Meeting in May, the Supervisory Board
the Hannover Re Group constituted an important source of
information for the Supervisory Board.
We received an analysis of the 2017 results in property &
casualty and life & health reinsurance as well as a presenta-
tion from the Executive Board covering the profit expecta-
tions for the 2018 financial year and the operational planning
for the 2019 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 lawful-
ness, 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.
No audit measures pursuant to § 111 Para. 2 Sentence 1
Stock Corporation Act (AktG) were required in the 2018 finan-
cial year.
discussed the corresponding by-elections of Mr. Torsten Leue
and Dr. Ursula Lipowsky, who attended the meeting as guests
for this purpose. In this connection consideration was given
to the areas of expertise within the body as a whole as well as
the envisaged changes to the composition of the committees.
The other agenda items to be dealt with at the upcoming An-
nual General Meeting were also determined. Having chosen
the preferred auditing firm in 2017 as recommended by the
Finance and Audit Committee following the selection proce-
dure, the Supervisory Board appointed Pricewaterhouse-
Coopers GmbH Wirtschaftsprüfungsgesellschaft as the inde-
pendent auditor for the first time in accordance with this
determination. Furthermore, the variable remuneration of the
members of the Executive Board was defined on the basis of
the findings with respect to attainment of the respective tar-
gets for the 2017 financial year and, after an in-depth explo-
ration of the matter, a capital increase was approved at the
subsidiary Glencar Insurance Company.
On 4 May 2018 the Executive Board reported to us on the first
quarter of 2018 and we explored the overall results of the
previous year in greater detail; in this regard the Executive
Board presented relevant analyses regarding the quality of
the loss reserves in property and casualty reinsurance and the
intrinsic value creation (IVC). In addition to the outlook for
Hannover Re | Annual Report 2018
281
Supervisory Board
Dr. Miller
At the extraordinary meeting of the Supervisory Board on
7 May 2018 the necessary by-elections on the committees
were held after the Annual General Meeting, together with a
by-election for our Deputy Chairman. The personnel particu-
lars in this regard are to be found below in the present report
("Changes on the Supervisory Board and the Executive
Board").
Xickel Rand w
Althoff
We issue this report on the basis of the assurance engage-
ment agreed with the Company. The assurance engagement
has been performed for the purposes of the Company and the
report is intended solely to inform the Company about the
result of the assurance engagement.
Frankfurt, 5 March 2019
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft
The report is not intended to assist third parties in making
(investment) decisions. Our responsibility is solely to the
Company and we assume no responsibility, liability or other
obligations towards third parties.
Nicolette Behncke
ppa. Juliane v. Clausbruch
Wirtschaftsprüfer
Hannover Re | Annual Report 2018
279
Miscellaneous
Responsibility statement
To the best of our knowledge, and in accordance with the
applicable reporting principles, the consolidated financial
statements give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group, and the
Group management report includes a fair review of the devel-
opment and performance of the business and the position of
the Group, together with a description of the principal oppor-
tunities and risks associated with the expected development
of the Group.
Hannover, 4 March 2019
Executive Board
似
Wallin
Miler
рылу
Chèvre
(until 31 May 2018 and since 12 July 2018)
Employee
(since 7 May 2018)
Vienna, Austria
Benita Bierstedt 4
Hannover
(from 1 June 2018 to 6 July 2018)
Employee
Frauke Heitmüller4
Employee
Dr. Ursula Lipowsky 2
Member of the Nomination Committee
4 Staff representative
Munich
Member of the Supervisory Board of the Association,
Association of German Dioceses (VDD),
Corporation under Public Law
Details of memberships of legally required supervisory boards
and comparable control boards at other domestic and foreign
business enterprises are contained in the Annual Report of
Hannover Rück SE.
286
Hannover Re | Annual Report 2018
Dr. Andrea Pollak³
(since 7 May 2018)
3
Hannover
HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Independent management consultant
Member of the Finance and Audit Committee
Celle
Member of the Board of Management of
HDI Haftpflichtverband der Deutschen Industrie V.a.G.
Member of the Board of Management of Talanx AG
Dr. Erhard Schipporeit¹
Hannover
Member of various supervisory boards
Maike Sielaff4
Burgwedel
Employee
Dr. Immo Querner
(until 7 May 2018)
1
Former Chief Executive Officer of Talanx AG and
Member of the Standing Committee
2
Berg
60
122
Declaration on Corporate Governance
122
Enterprise management
EUR 290
118
Opportunity report
Opportunity and risk report
Risk report
94
75
75
information statement
Combined non-financial
70
Information on Hannover Rück SE
Remuneration report
94
127
Our subsidiary E+S Rückversicherung AG (E+S Rück), as the
"dedicated reinsurer for the German market", offers a range
of products and services tailored to the specific features of
the German market. Of special importance here are the mutu-
al insurers with whom we maintain a strategic partnership
that is underscored through their participation in E+S Rück.
150
In the Life & Health reinsurance business group we are recog-
nised as customer surveys confirm - as one of the top play-
ers and a leading provider of innovative solutions. We achieve
this standing by opening up new markets for our company
and by identifying trends in order to anticipate the future
needs of our customers.
In the Property & Casualty reinsurance business group 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 po-
sitioning.
Financial position and net assets
Guided by a clearly defined risk appetite, our risk manage-
ment steers the company so as to be able to act on business
opportunities while securing our financial strength on a last-
ing basis.
ence. In conjunction with our capital management, this is the
key to our comparatively low cost of capital.
We also strive for the broadest possible diversification and
hence an efficient risk balance. This is achieved by accepting
reinsurance risks with mostly little or no correlation in our
Property & Casualty and Life & Health business groups across
all lines of business as well as by maintaining a global pres-
We generate competitive advantages to the benefit of our cli-
ents and shareholders by conducting our reinsurance busi-
ness with lower 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 pro-
tection on competitive terms.
The strategy pursued in both property & casualty and
life & health reinsurance supports our Group's paramount
mission, namely: “Creating value through reinsurance”. 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.
With a gross premium volume of more than EUR 19 billion,
the Hannover Re Group is the fourth-largest reinsurer in the
world. Hannover Rück SE is a European Company, Societas
Europaea (SE), based in Hannover, Germany. We transact
reinsurance in our Property & Casualty and Life & Health
business groups.
Competitive advantages due to our low cost of capital and administrative expense ratio
Financial strength secured through sophisticated risk management
Worldwide reinsurance, transacting all lines of property & casualty and life & health
reinsurance with the goal of achieving the broadest and most balanced possible regional
and line-based diversification
Business model
Foundations of the Group
159
Events after the reporting date
150
Forecast
Outlook
58
2222
53
EUR 364
million
EUR 893
million
EUR 516
million
12.5%
-28.6%
-15.3%
-12.0%
≥ 2%
-2.4%
-8.5%
2.8%
-3.0%
2
1 Annual average growth, otherwise weighted averages
Excluding effects from Mod Co derivatives
3
After tax; target: 900 basis points above the five-year average return on ten-year German government bonds
4 Growth in the economic equity including dividend paid
million
million
≥ 5% 12
Management system
Research and development
≈≈≈333
37
37
37
31
26
Life & Health reinsurance
Property & Casualty reinsurance
Investments
Results of operations
Business development
industry-specific environment
Macroeconomic climate and
26
Report on economic position
Hannover Re | Annual Report 2018
23
20
Overall assessment of the business position
19
Investment return²
Management system
93.7%
99.8%
96.5%
≤96%7
Combined ratio
11.2%
-0.2%
18.7%
16.2%
3-5%6
Gross premium growth
8
EBIT margin
XROCA⁹
Property &
Casualty
reinsurance
244.3%
229.8%
260.3%
96.8%
245.7%
≥ 10%
12.2%
Target: 600 basis points above the five-year average return on ten-year German government bonds
0.5%
-4.3%
1.4%
4.6%
3-5% 10
Gross premium growth
EBIT growth 13
XROCA⁹
Value of New Business
(VNB)11
Life & Health
reinsurance
5.8%
7.1%
1.1%
9.0%
≥ 2%
13.5%
16.8%
12.2%
≥ 200%
Solvency ratio 5,13
7.2%
3.2%
≥ 2.7%
Group
0 2016-20181
2016
2017
2018
Target attainment
Targets for 2018
Key data
Business group
20
M 01
regulator and from the economic equity pursuant to Solvency
II reporting. The targets are regularly analysed and adjusted
in the context of the strategy review conducted at periodic
intervals. Thus, for example, with effect from the strategy cy-
cle commencing in 2018 we added a target for our solvency
ratio to the target matrix. In general terms, our primary focus
is on medium- and long-term attainment of the strategic tar-
gets.
Target attainment
Our integrated system of enterprise management constitutes
the basis for attainment 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 sys-
tem of strategic targets also includes economic targets de-
rived from our internal capital model approved by the
Value-based management
3.8%
3.0%
Return on equity³
≥ 9.4%
12.4%
2.1%
8.1%
≥ 6.4%
creation 4,13
> EUR 220
Economic value
-2.7%
Combined management report
1.8%
10.5%
≥ 5%
per share
Growth in earnings
3.3%
12.3%
13.7%
10.9%
12.2%
-18.2%
5
Capital markets subject to continued volatility
6
Property and casualty
reinsurance
459.7
9.0%
Life and health reinsurance
(83.1)
-2.4%
51.6
(290.3)
(0.2)
51.4
1.1%
0.0
(290.3)
-8.5%
Investments 2
(7.0)
-0.1%
xRoCA
592.1
Final IVC
Reported IVC
With the aid of the IVC ratio it is possible to compare the val-
ue 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
•
optimise the allocation of capital and resources,
• identify opportunities and risks and
•
measure strategy contributions with an eye to our
demanding profit and growth targets.
The IVC (Intrinsic Value Creation) is calculated according
to the following formula:
Adjusted economic profit -
(capital allocated × weighted cost of capital) = IVC
The adjusted economic profit is comprised of two factors: the
IFRS Group net income recognised after tax and the change
in the balancing items for differences between economic val-
uations and amounts stated in the IFRS balance sheet. By way
of the latter we make allowance in the value determination for
changes in the fair values of assets not recognised in income
under IFRS as well as for the change in economic effects in
the technical Solvency II balance sheet items that are not rec-
ognised in the IFRS balance sheet. In addition, interest on
hybrid capital already recognised in the IFRS Group net in-
come and the non-controlling interest in profit and loss are
included back in the calculation.
Intrinsic Value Creation and excess return on capital allocated
M 03
2018
2017
in EUR million
IVC
xRoCA
Adjustment1
0.0
592.1
9.4%
Hannover Re | Annual Report 2018
23
Combined management report
Expertise in demand
Rethink
insurance
Innovation is crucial for insurers
to stay ahead of their competition
hr equarium, Hannover Re's exclusive online
platform, brings together digital innovators and
insurtechs with insurance companies ready to
shape the future of insurance. Digital disruption,
shifting demographics and evolving buyer
preferences have created a challenging operating
environment for insurers. Today, more than ever,
product and distribution innovation are crucial
factors for insurers to stay ahead of their
competition and to meet consumer needs.
Although insurtechs are offering a wide range of
solutions and services along the insurance value
chain, many of our clients find it challenging to
cut through the noise in order to find the best-fit
solution. Start-up insurtechs, on the other hand,
require direct access to insurance decision
makers to market their solutions at lowest
possible cost.
With extensive contacts in the global insurance
industry, Hannover Re is well placed to host an
innovation platform allowing insurtechs to market
their solutions exclusively to our clients. Our
clients in turn have direct access to a pool of
services and solutions, as well as business cases
demonstrating successful implementations
around the world.
Combined management report
Report on economic position
Macroeconomic climate and industry-specific environment
•
•
•
Global economic growth on a par with the previous year
Low interest rate environment an ongoing drag on the insurance industry
Reinsurance business is founded on the comprehensive un-
derstanding and active management of risks. Our specialists
therefore 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 new-
ly emerging risks and working to provide our clients with ap-
propriate solutions tailored to their needs. Above and beyond
this, Hannover Re makes systematic efforts to identify new
business opportunities in order to achieve sustainable growth
and strengthen the profitable development of the company
(cf. here also the Opportunity report on page 118 et seq.).
Exploring market trends and developing innovative products
are tasks assigned to the individual market units at Hannover
Re. In addition, business opportunities and innovations that
cut across markets and segments are coordinated by the
"Regulatory Affairs and Innovation" team and pursued by
means of interdisciplinary projects in which various market
and service units participate. In this way, we develop prod-
ucts and solutions that deliver value added both for Hannover
Re and for our clients. By way of example, our move to give
capital market 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 subsequent evolution of a market for so-called insur-
ance-linked securities, which is one of the fastest growing
markets in the insurance sector. Another example of Han-
nover Re's development activities is our own internal model
for risk management under Solvency II that caters to the re-
quirements of various stakeholders (regulators, rating agen-
cies, capital providers) and was one of the first in Europe to
be approved by a national financial regulator (Federal Finan-
cial Supervisory Authority = BaFin). Not only that, through
our active involvement and the provision of financial assis-
tance 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 un-
dertaking.
the year.
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
internal capital model. We use these indicators for operation-
al management within the year, in part because they are avail-
able promptly and also because they already provide initial
pointers as to whether we are likely to achieve our higher-or-
der 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 growth 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
Group
369.5
2.5%
353.2
(0.2)
353.0
In accordance with our internal capital model and Solvency II requirements
1
In order to manage the portfolios and individual treaties we
apply underwriting-year-oriented measurement principles
based on expected cash flows that appropriately accommo-
date the specific characteristics of property & casualty and
life & health reinsurance. The attainment of targets in a par-
ticular financial year is also of interest - especially from the
standpoint of shareholders. Based on our economic measure-
ment according to Solvency II principles and our internal cap-
ital model, 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
business activities - is referred to as Intrinsic Value Creation
(IVC).
Restatement based on final Solvency II shareholders' equity as at year-end
The allocated capital consists of three components: the share-
holders' equity including non-controlling interests, the bal-
ancing items for differences between economic valuations
pursuant to Solvency II and amounts stated in the IFRS bal-
ance sheet and the hybrid capital. Capital is allocated to the
profit centres as described above according to the risk con-
tent 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 seg-
ments of property & casualty and life & health reinsurance.
The investment income above and beyond risk-free is allocat-
ed 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.
In calculating the cost of capital, our assumption - based on a
Capital Asset Pricing Model (CAPM) approach - is that the
investor's opportunity costs are 450 basis points above the
risk-free interest rate, meaning that value is created above
this threshold. Our strategic return on equity target of 900
basis points above risk-free thus already contains a substan-
tial target value creation. We allocate equity sparingly and
use equity substitutes to optimise our average cost of capital,
which amounted to 4.6% in 2018.
Since comparison of absolute amounts is not always mean-
ingful, we have introduced the xROCA (excess return on cap-
ital allocated) in addition to the IVC. This describes the IVC in
relation to the allocated capital and shows us the relative ex-
cess return generated above and beyond the weighted cost of
capital.
22
Hannover Re | Annual Report 2018
Through the close interlinking of our internal capital model Research and development
with the capital allocation and value-based management, we
fulfil the requirements of the Solvency II use test.
Operational management system
2 Income above risk-free interest rate after deduction of risk-appropriate cost of capital
IVC - the strategic management ratio
2.4%
M 02
year.
The trade measures adopted by the US since the beginning of
2018 in pursuit of its economic policy goals significantly ag-
gravated the potential for conflict not only with China but also
with western industrialised nations. So far, however, this has
not adversely impacted the upward trend in the country's
economy. Whereas in other advanced industrial nations the
economy slowed appreciably in the third quarter, GDP growth
in the US was only a little softer than in the previous quarter.
Over the year as a whole US manufacturing output rose by
0.7 percentage points to 2.9% on the back of normal capacity
utilisation. Unemployment continued to fall year-on-year to
an extremely low level of 3.9%. The increase of 2.5% in con-
sumer prices was again more marked than in the previous
United States
sion that this group of countries could suffer economic down-
turns similar in scale to those of 1997/98 owing to the intense
pressure on financial markets proved unfounded. This is due
in part to the fact that emerging nations have now largely
adopted more flexible exchange rate regimes and hence are
less vulnerable to currency speculation. In Asian countries
the growth rates remained high overall despite slight contrac-
tions in GDP, while in India the pace actually increased. Man-
ufacturing in Russia continued to trend clearly higher, and in
Brazil growth in output recently began to pick up again -
albeit from a low level.
13 Strategic target since the 2018 financial year
Looked at over the year, the pace of growth in the advanced
economies faded in 2018, primarily owing to the slowdown in
expansion during the second six months. The US economy,
on the other hand, proved relatively robust on the back of a
continued rise in consumer demand. In Japan, contrary to ex-
pectations, the economy softened both domestically and on
the international front. Momentum in the Eurozone economy
was similarly slowed by a number of factors, including the
decline in car manufacturing owing to the adoption of new
standards for exhaust emissions measurement. Manufactur-
ing output in the United Kingdom contracted again from the
moderate level already seen in the previous year.
While economic developments across countries had moved in
step with one another in the previous year, the picture in
2018 was more nuanced: the pace of expansion in the US
gained added momentum from fiscal measures, whereas in
the Eurozone and Japan the economy slowed. In emerging
economies the story was a similar one: growth in manufactur-
ing output eased only marginally in many Asian countries, in
Russia and in parts of Latin America, while Argentina and
Turkey slipped into recession.
The growth of the world economy lost momentum in 2018.
The increase in global gross domestic product (GDP) was on
a par with the previous year at 3.7% (previous year: 3.7%).
Two major reasons here were rising trade tensions and the
tightening of monetary policy in the United States. The latter
prompted a reversal in the flow of international capital, hence
putting the brakes on expansion first and foremost in emerg-
ing markets. After a moderate opening quarter global output
put on another vigorous surge going into the summer, before
suffering a sharp drop in impetus from the third quarter on-
wards. While business sentiment in advanced economies
picked up again towards year-end, it remained depressed in
emerging nations. This was exacerbated by a worsening eco-
nomic outlook in China.
Macroeconomic climate
Hannover Re | Annual Report 2018
In Performance Excellence (PE) we have at our disposal a
consistent method Group-wide that enables us to steer the
development of the company as well as to measure and hence
also evaluate the extent to which we have achieved our stra-
tegic objectives. The decentralised approach used by PE is of
special importance in this context: every single organisation-
al unit defines and continuously examines its contributions to
execution of the Hannover Re Group strategy and develops
improvement initiatives.
System of value-based management:
Performance Excellence (PE) combines the strategic and operational levels
Strategy
Performance
Excellence
Europe
Results
The Eurozone economy was unable to sustain the vigorous
upward course that it had charted in the previous year: the
pace of growth slowed by 0.6 percentage points year-on-year
to 1.9%. The economy already suffered a sharp drop in mo-
mentum in the first six months, only to lose further impetus in
the second half of the year. Domestic economic forces were
even more crucial to driving expansion in 2018 than in the
previous year. The role played by external factors diminished
against a backdrop of falling imports and exports. While cap-
ital expenditure rose again slightly thanks to a favourable in-
terest rate environment, private consumption expanded at a
considerably reduced pace. Government consumption ex-
penditures were also substantially more restrained than in the
previous year.
Hannover Re | Annual Report 2018
Combined management report
Average over the reinsurance cycle; at constant exchange rates
7
Including large loss budget of EUR 825 million
8
9
Value contribution relative to allocated economic capital
10
EBIT/net premium earned
Organic growth only; target: annual average growth over a three-year period; at constant exchange rates
11
Based on Solvency II principles; pre-tax reporting
12
Annual average growth over a three-year period
Considerable losses again incurred from natural catastrophes
26
Risks
Even though emerging market economies came under pres-
sure in 2018, they were still comparatively stable. With the
exception of Argentina and Turkey, the decline in their man-
ufacturing output was merely modest. Fears voiced on occa-
Management
by Objectives
19
Hannover Re | Annual Report 2018
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 internal capital model supplies the key parameters for
this purpose. Starting out from the Group's overall risk situa-
tion, capital is first allocated to the functional areas of under-
writing 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 prod-
ucts according to risk categories/treaty types and lines. In
this way, we ensure consistent adherence to our profit targets
- allowing for risk, cost and return considerations - in the
evaluation and pricing of our various reinsurance products.
Business model
Capital allocation
The annual Management Reporting presents in detail the re-
spective degree of target attainment for each individual trea-
ty/regional department and service unit as well as for the two
business groups of Property & Casualty and Life & Health rein-
surance and for the Group as a whole. On this basis appropri-
ate performance controlling is carried out, potential scope
for improvement and refinement is identified and perfor-
mance-oriented remuneration components defined in the
context of Management by Objectives are established.
Management Reporting
21
The key indicators from the target matrix are integrated into
the individual agreements on objectives with managers.
When it comes to the definition of objectives, the participants
take into account not only standardised financial indicators
but also non-financial variables derived from the strategic
parameters.
Management by Objectives
Resources
19
Foundations of the Group
Combined management report
For our investors
2
1 The Global Management Forum (GMF) and the Global Executive Forum (GEF) bring together senior managers of the Hannover Re Group from around
the world for the purpose of defining strategic orientations. The parameters developed here serve as the basis for the subsequent planning process.
Verification and elaboration of contributions to the Group strategy
Planning year +1
Attainment of targets
Plan
Executive Board
retreat/GMF/GEF1
PE Check 2
Planning process
Planning year -1
Implementation
17
Agreement on targets
Evaluation
Executive Board
retreat/GMF/GEF1
PE Check 2
PE Check 2
Planning year
Management
Reporting
Executive Board
retreat/GMF/GEF1
Hannover Re | Annual Report 2018
South Africa
Hannover Services (México)
Av. Santa Fé No. 170
Col. Lomas de Santa Fé
Oficina 4-4-28
German Centre
S. A. de C. V.
Compass Insurance Company Limited
Mexico
General Manager:
Simon Jun Chong
C.P. 01210 México, D.F.
Tel. +52 55 9140-0800
Fax +52 55 9140-0815
General Manager:
Alejandra Bautista
KPMG Wanooka Place
P. O. Box 37226
St. Andrews Road
Parktown
Johannesburg 2193
Birnam Park 2015
Tel. +27 11 745-8333
Fax +27 11 745-8444
www.compass.co.za
Managing Director:
Paul Carragher
Hannover Life Reassurance
Africa Limited
Rosebank Towers
Office Level 3
Tel. +82 2 3700-0600
Fax +82 2 3700-0699
Ground Floor
Gwanghwamoon Officia Building
92, Saemunan-ro, Jongno-gu
Seoul 03186
Fax +33 1 4006-0225
General Manager:
Raphaël Rimelin
Korea Branch
+33 1 4561-7300
Tel. (Property & Casualty)
+33 1 4561-7340
15 Biermann Ave
India
Hannover Rück SE - India Branch
Unit 604, 6th Floor B Wing, Fulcrum
Sahar Road
Andheri (East)
Mumbai 400 099
Tel. +91 22 6138-0808
Fax +91 22 6138-0810
General Manager & CEO:
GLN Sarma
Italy
Hannover Re Services Italy S.r.l.
Room 414, 4th Floor
Via Dogana, 1
Tel. +39 02 8068-1311
Fax +39 02 8068-1349
Head of Administration:
Giorgio Zandonella-Golin
Japan
Hannover Re Services Japan
Hakuyo Building, 7th Floor
3-10 Nibancho
Chiyoda-ku
Tokyo 102-0084
Tel. +81 3 5214-1101
Fax +81 3 5214-1105
General Manager:
Takayuki Ohtomo
Korea
Hannover Rück SE
20123 Milan
Rosebank, Johannesburg 2196
Sweden
Emmarentia 2029
Paseo del General Martínez
Campos 46
28010 Madrid
Tel. +34 91 319-0049
Fax +34 91 319-9378
General Manager:
Eduardo Molinari
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
Correduría de Reaseguros, S.A.
Fax (Property & Casualty)
Managing Director:
Thomas Barenthein
Taiwan
Tel. +44 0 20 7825 7200
70 Gracechurch Street
London EC3V OXL
Argenta Holdings Limited
5th Floor
United Kingdom
Tel. +886 2 8770-7792
Fax +886 2 8770-7735
Representative:
Ryan Chou
Taipei
Taipei Representative Office
Rm. 902, 9F, No. 129, Sec. 3
Minsheng E. Road
Hannover Rück SE
Tel. (Life & Health)
+46 8 617-5593
HR Hannover Re,
Spain
Achim Klennert
Tel. +27 11 481-6500
Fax +27 11 484-3330/32
Managing Director:
Wesley Clay
Hannover Re | Annual Report 2018
Hannover Reinsurance
Africa Limited
Rosebank Towers
Office Level 3
15 Biermann Ave
Rosebank, Johannesburg 2196
P. O. Box 85321
Emmarentia 2029
Tel. +27 11 481-6500
Fax +27 11 484-3330/32
Managing Director:
Randolph Moses
Hannover Reinsurance
Group Africa (Pty) Ltd.
Rosebank Towers
Office Level 3
15 Biermann Ave
Rosebank, Johannesburg 2196
P. O. Box 85321
Emmarentia 2029
Tel. +27 11 481-6500
Fax +27 11 484-3330/32
Managing Director:
P. O. Box 85321
Hannover Rück SE
Succursale Française
33 Avenue de Wagram
75017 Paris
288
Fax +57 1 642-0273
General Manager:
Miguel Guarin
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
Fax +973 1721-4667
General Manager:
Mahomed Akoob
Bermuda
Government Avenue
Hannover Life Reassurance
Bermuda Ltd.
31 Victoria Street
Hamilton, HM 10
P. O. Box 2373
Hamilton, HM JX
Tel. +1 441 295-2827
Fax +1 441 295-2844
Managing Director:
Chantal Cardinez
Hannover Life Reassurance Company
of America (Bermuda) Ltd.
Canon's Court,
22 Victoria Street
Hamilton, HM 12
Tel. +1 441 194-3240
President & CEO:
Jeffrey Robert Burt
Victoria Place, 2nd Floor,
17th Floor
Al Zamil Tower
Hannover ReTakaful B.S.C. (c)
65
65
64
64
63
62
GGOTA 2 9 9
Fax +44 0 20 7825 7212
CEO:
Further information
Branch offices and subsidiaries of the
Hannover Re Group abroad
Australia
Hannover Life Re of
Australasia Ltd
Tower 1, Level 33
100 Barangaroo Avenue
Sydney NSW 2000
Tel. +61 2 9251-6911
Fax +61 2 9251-6862
Managing Director & CEO:
Gerd Obertopp
Hannover Rueck SE
Australian Branch
Tower 1, Level 33
100 Barangaroo Avenue
Sydney NSW 2000
Tel. +61 2 9274-3000
Fax +61 2 9274-3033
General Manager -
Property & Casualty:
Michael Eberhardt
Agent:
Ross Littlewood
Bahrain
Hannover Re (Bermuda) Ltd.
France
Victoria Place, 2nd Floor,
31 Victoria Street
Hamilton, HM 10
Brazil
General Manager:
Fook-Kong Lye
Ireland
Hannover Re (Ireland)
Designated Activity Company
No. 4 Custom House Plaza, IFSC
Dublin 1
Tel. +353 1 633-8800
Fax +353 1 633-8806
Managing Director L&H & CEO:
Debbie O'Hare
Managing Director ASI:
Fax +86 21 5820-9396
Kathrin Scherff
Hannover Rueck SE
Malaysian Branch
Suite 29-01
Integra Tower, The Intermark
348 Jalan Tun Razak
50400 Kuala Lumpur
Tel. +60 3 2687-3600
Fax +60 3 2687-3760
General Manager:
Daniel Gunawan
Colombia
Hannover Rück SE
Bogotá Oficina de Representación
Carrera 9 No. 77-67
Floor 5
Bogotá
Tel. +57 1 642-0066
Malaysia
Tel. +86 21 2035-8999
200127 Shanghai
729 South Yanggao Road
Hannover Rück SE
Escritório de Representação
no Brasil Ltda.
Praça Floriano, 19 salas 1701/02
CEP 20 031 050
Rio de Janeiro
Tel. +55 21 2217-9500
Fax +55 21 2217-9515
Representative:
Joao Caproni
Canada
Hannover Re (Ireland) DAC
Canadian Life Branch
220 Bay Street, Suite 400
Toronto, Ontario M5J 2W4
Tel. +1 416 607-7824
Fax +1 416 867-9728
General Manager:
Amhlaoibh Lynch
Hannover Rück SE
Canadian Branch
220 Bay Street, Suite 400
Toronto, Ontario M5J 2W4
Tel. +1 416 867-9712
Fax +1 416 867-9728
General Manager:
Laurel E. Grant
China
Hannover Rück SE
Hong Kong Branch
2008 Sun Hung Kai Centre
20th Floor
30 Harbour Road
Wanchai, Hong Kong
Tel. +852 2519-3208
Fax +852 2588-1136
General Manager:
Wilbur Lo
Hannover Re | Annual Report 2018
287
Further information
Hannover Rück SE
Shanghai Branch
Suite 701-703, Building 1,
Lujiazui Century Financial Plaza
Tel. +1 441 294-3110
Fax +1 441 296-7568
President & CEO:
Dr. Konrad Rentrup
Andrew J. Annandale
Hannover Re | Annual Report 2018
Book value per share: shareholders' equity divided by the
number of shares outstanding
Survival ratio: ratio of loss reserves to paid losses under a
specific contract or several contracts in a balance sheet year.
Target solvency capital: regulatory solvency capital require-
ment in accordance with Solvency II standards. At Hannover
Re this is calculated using an internal model.
Technical result: balance of income and expenditure allocat-
ed to the insurance business and shown in the technical state-
ment of income.
Treaty reinsurance: cf. →>
obligatory reinsurance
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.
Unearned premium reserve: cf. →
premiums
provision for unearned
Volatility adjustment: Addition to the risk-free curve used
under Solvency II to calculate technical provisions. Its use
must be approved by the responsible supervisory authority
and is intended to smooth volatility in the measurement of
bonds due to changes in credit spreads.
XROCA: cf. → Excess Return on Capital Allocated
Hannover Re | Annual Report 2018
295
Further information
List of graphs, tables and charts
|
Introductory Sections
M
Management Report
N
Notes
|
Introductory Sections
101
Gross premium
inside front cover 2
109
Highs and lows of the Hannover Re share
Surplus relief treaty: reinsurance contract under which an
admitted reinsurer assumes (part of) a ceding company's
portfolio to relieve stress on the cedant's policyholders' sur-
plus.
Surplus reinsurance: form of proportional reinsurance under
which the risk is not spread between the insurer and reinsur-
er on the basis of a previously agreed, set quota share. In-
stead, 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 lev-
el of the retention and the sum insured of the reinsured con-
tract. The reinsurer's liability is generally limited to a multiple
of the ceding company's retention.
Hannover Re | Annual Report 2018
294
Price/earnings ratio (PER): a valuation ratio of a company's
share price compared to its per-share earnings.
Primary insurer: cf. → direct insurer
Priority: direct insurer's loss amount stipulated under
non-proportional reinsurance treaties; if this amount is ex-
ceeded, the reinsurer becomes liable to pay. The priority may
refer to an individual loss, an accumulation loss or the total of
all annual losses.
Probability level: cf. confidence level
Hannover Re | Annual Report 2018
293
Further information
Property and casualty (re-)insurance: collective term for the
lines of business concerned with the insurance of property,
including for example liability, fire, hail or marine insurance.
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 contrast
to non-proportional reinsurance.
Protection cover: protection of segments of an insurer's
portfolio against major losses (per risk/per event), primarily
on a non-proportional basis.
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).
Provision for unearned premiums (also: unearned premi-
um 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.
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 amorti-
sation.
12
Quota share reinsurance: form of proportional reinsurance
under which the reinsurer assumes a contractually set per-
centage share of the written risk. Since the insurer is respon-
sible for acquisition, pricing, policy administration and claims
handling, the administrative expenditure for the reinsurer is
very low. The latter therefore participates in the aforemen-
tioned expenses through payment of a reinsurance commis-
sion.
Reinsurance: passing on of a primary insurer's or reinsurer's
risks to a reinsurer.
Reinsurer: company which accepts risks or portfolio seg-
ments from a direct insurer or another reinsurer in exchange
for an agreed premium.
Reserve ratio: ratio of (gross or net) technical provisions to
the (gross or net) premiums.
Retention: the part of the accepted risks which an insurer/
reinsurer does not reinsure, i. e. shows as net (retention ratio:
percentage share of the retention relative to the gross written
premiums).
Retrocession (also: Retro): ceding of risks or shares in risks
which have been reinsured. Retrocessions are ceded to other
risk carriers (retrocessionaires) in exchange for a pro-rata or
separately calculated premium (cf. → Gross/Retro/Net).
Risk, insured: risk that can lead to the occurrence of a loss.
The insured risk is the subject of the insurance contract.
Securitisation instruments: instruments for transferring
reinsurance business to the capital markets with the goal of
refinancing or placing insurance risks.
Segment reporting: presentation of items in the balance
sheet and income statement split according to functional cri-
teria such as business sectors and regions.
Solvency II: European directive for the insurance industry.
The new European regulatory regime for (re)insurers that
entered into force on 1 January 2016 on the basis of the
Solvency II Directive (Directive 2009/138/EC) is comprised
of risk-based capital requirements and imposes quantitative,
qualitative and reporting-related requirements in three main
areas known as pillars.
Solvency capital ratio: Percentage coverage of the supervi-
sory capital requirement (target solvency capital) under Sol-
vency II by eligible own funds.
Spread loss treaty: treaty between an insurer and a reinsurer
that covers risks of a defined portfolio over a multi-year peri-
od.
Structured entity: entity with specific characteristics not
bound to a particular legal form that is used to conduct close-
ly defined activities or to hold assets and for which the tradi-
tional concept of consolidation – based on voting rights – is
often inadequate for determining who exercises control over
the entity.
Structured reinsurance: reinsurance with limited potential
for profits and losses. In most cases customers strive for risk
equalisation over time or solvency relief, both of which have
a stabilising effect on the ceding company's balance sheet.
Rate: percentage rate (usually of the premium income) of the
reinsured portfolio which is to be paid to the reinsurer as re-
insurance premium under a non-proportional reinsurance
treaty.
102
Group net income (loss)
inside front cover 2
inside front cover 4
M
Management Report
M01 Target attainment
M02 System of value-based management:
M 03
Performance Excellence (PE) combines
the strategic and operational levels
Intrinsic Value Creation and excess return
on capital allocated
M04 Gross premium by business group
M 05
Business development in the year under review
M06 Gross written premium in P&C reinsurance
M07 Geographical breakdown of gross written
20
20
Strategic business groups
M18 Property & Casualty reinsurance: Breakdown
45
21
21
Breakdown of gross written premium in
worldwide treaty reinsurance
45
32
www N
22
M20
M21
Breakdown of gross premium by markets
Value of New Business (VNB) growth
422
52
of gross written premium in global reinsurance
M19 Property & Casualty reinsurance:
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 amor-
tised according to schedule.
108
16
110
103
Policyholders' surplus
inside front cover 2
I11
Relative performance of the Hannover Re share 13
Shareholding structure as at 31 December 2018 15
235
104
Book value per share
inside front cover 2
112
105
Dividend
16
inside front cover 2
held by institutional investors
106
Key figures
inside front cover 3
113
Basic information
107
The Group worldwide
inside front cover 4
114
Key figures
566
15
Geographical breakdown of the shares
Premium: remuneration for the risks accepted from an insur-
ance company. Unlike the earned premiums, the written pre-
miums 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.
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.
Combined ratio: sum of the loss ratio and expense ratio.
Coinsurance Funds Withheld (CFW) Treaty: reinsurance
treaty under which the ceding company retains a portion of
the original premium at least equal to the ceded reserves.
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 rein-
surer.
Cedant: direct insurer or reinsurer which passes on (also:
cedes) shares of its insured or reinsured risks to a reinsurer in
exchange for premium.
Cat. bonds: securitised (re)insurance risks in respect of which
the payment of interest and/or repayment of capital is de-
pendent on the occurrence and severity of a predefined in-
sured event. Purchasers of a catastrophe bond assume the
risk carried by the (re)insurer upon occurrence of the cata-
strophic event. Catastrophe bonds are part of the insur-
ance-linked securities market. Cf. → securitisation instru-
ments
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.
Capital asset pricing model (CAPM): model used to explain
the materialisation of prices/returns on the capital market
based on investor expectations regarding the future probabil-
ity distribution of returns. Under this method, the opportunity
cost rate for the shareholders' equity consists of three compo-
nents - a risk-averse interest rate, a market-specific risk load-
ing and an enterprise-specific risk assessment, the beta coef-
ficient. The cost of shareholders' equity is therefore defined
as follows: risk-averse interest rate + beta * enterprise-specif-
ic risk assessment.
Our internal capital model supplies key parameters such as
the volatility of the covered business/investments and the
contribution to diversification.
Capital allocation: risk-appropriate allocation of the econom-
ic capital to the business segments of property & casualty re-
insurance and life & health reinsurance as well as the invest-
ments on the basis of the respective economic risk content.
Hybrid capital: debt structure which because of its subordi-
nation bears the character of both debt and equity.
Benefit reserves: value arrived at using mathematical meth-
ods for future liabilities (usually prospectively as present val-
ue of future liabilities minus present value of future incoming
premiums), primarily in life and health insurance (that is
transacted in a similar way to life insurance).
BaFin: Federal Financial Supervisory Authority (Bundesan-
stalt für Finanzdienstleistungsaufsicht)
Compliance: compliance by an enterprise with legal require-
American Depositary Receipt (ADR): share certificates writ-
ten by US banks on foreign shares deposited there. The ADRs
are traded instead of the foreign shares. In the United States
Hannover Re has enabled trading on the OTC (over-the-
counter) market through an ADR Level 1 program. New capi-
tal cannot be raised and the ADR is not listed on a US ex-
change under a Level 1 program. The main advantage of an
ADR Level 1 program compared to higher-level programs is
that there is no requirement for accounting or financial
reporting in accordance with US GAAP.
Allocated capital: cf. → capital allocation
Aggregate excess of loss treaty: the reinsurance treaty at-
taches if a ceding insurer incurs losses on a particular line of
business during a specific period (usually twelve 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 in-
surance contract (e.g. commission for the closing, costs of
proposal 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 policy-
holders are insured by the said company.
Glossary
Further information
289
Hannover Re | Annual Report 2018
Tel. +1 630 250-5517
Fax +1 630 250-5527
General Manager:
Eric Arnst
500 Park Blvd., Suite 805
Itasca, Illinois 60143
Hannover Re Services USA, Inc.
Peter R. Schaefer
Fax +1 516 596-0303
CEO:
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.
Tel. +1 516 593-9733
ments.
Hannover Re | Annual Report 2018
Goodwill: the excess of the cost of an acquired entity over the
net of the amounts assigned to assets acquired and liabilities
assumed.
Funds held by ceding companies/funds held under rein-
surance treaties: cf. → deposits with ceding companies/de-
posits received from retrocessionaires
Further information
291
Hannover Re | Annual Report 2018
Frequency losses: losses that occur frequently in a foreseea-
ble amount, i. e. where the underlying risks are associated
with relatively high probabilities of occurrence and usually
low loss amounts.
Financial Solutions: reinsurance transactions which - in ad-
dition to the transfer of biometric risks - also include financ-
ing components such as financing arrangements for new and
existing business, reserve relief, smoothing of volatility in
results, optimisation of the solvency position.
Fair value: price at which a financial instrument is freely trad-
ed between two parties.
ance.
Facultative reinsurance: participation on the part of the rein-
surer in a particular individual risk assumed by the direct in-
surer. This is in contrast to obligatory (also: treaty) reinsur-
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): indicator which
describes the IVC in relation to the allocated capital and
shows the relative excess return generated above and beyond
the weighted cost of capital.
290
non-proportional reinsurance
Earnings retention: non-distribution of a company's profits
leading to a different treatment for tax purposes than if profits
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) cover: personal rider on
the basis of which typically a lump-sum cash payment is
made in the event of previously defined severe illnesses.
Diversification: orientation of business policy towards vari-
ous revenue streams in order to mitigate the effects of e.g.
economic fluctuations or natural catastrophes and thereby
minimise the volatility of results. 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 corpora-
tions.
Direct (also: primary) insurer: company which accepts risks
in exchange for payment of an insurance premium and pays
indemnification for the insured loss in the event of a claim. A
direct insurer has a direct contractual relationship with the
policyholder (private individual, company, organisation).
Derivatives, derivative financial instruments: financial
products derived from underlying primary instruments such
as equities, fixed-income securities and foreign exchange in-
struments, 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.
Deposits with ceding companies/deposits received from
retrocessionaires (also: funds held by ceding compa-
nies/funds held under reinsurance treaties): collateral pro-
vided to cover insurance liabilities that a (re-)insurer retains
from the liquid funds which it is to pay to a reinsurer under a
reinsurance treaty. In this case, the retaining company shows
a deposit received, while the company furnishing the collater-
al shows a deposit with a ceding company.
Deposit accounting: an accounting method originating in US
GAAP for the recognition of short-term and multi-year insur-
ance and reinsurance contracts with no significant underwrit-
ing 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.
Critical illness cover: cf. → dread disease cover
Credit spread: Mark-up between a risky and a risk-free inter-
est-bearing security with the same maturity, as a risk premi-
um for the credit risk entered into by the investor.
Corporate Governance: serves to ensure responsible man-
agement and supervision of enterprises and is intended to
foster the trust of investors, clients, employees and the gener-
al public in companies.
Confidence (also: probability) level: the confidence level de-
fines the probability with which the defined amount of risk
will not be exceeded.
Excess of loss treaty: cf. →
52
East Rockaway, New York 11518
Office New York
-
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 weight-
ed cost of capital). IVC is a tool of value-based enterprise
management 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).
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 en-
tail a significantly higher risk.
IVC: cf. Intrinsic value creation
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.
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.
Letter of credit (LOC): bank guarantee under which, at the
request of the guaranteed party, the bank undertakes to ren-
der payment to the said party up to the amount specified in
the LOC. This method of providing collateral in reinsurance
business is typically found in the USA.
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.
Life business: this term is used to designate business activi-
ties in our life and health reinsurance business group.
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.
292
Hannover Re | Annual Report 2018
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.
International Securities Identification Number (ISIN):
ten-character universal code used to identify securities inter-
nationally. 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.
Loss, insured: the insured loss reflects the total amount of
losses covered by the insurance industry (insurers and rein-
surers).
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
million gross).
Major loss budget: annual budget for major losses deter-
mined from the modelled loss expectancy for business with
natural perils exposure as well as for man-made net losses
larger than EUR 10 million.
Mark-to-market valuation: the evaluation of financial instru-
ments to reflect current market value or fair value.
296
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.
Modified Coinsurance (ModCo) treaty: type of reinsurance
treaty where the ceding company retains the assets with re-
spect 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.
Morbidity risk: in general terms, the actuarial risk that the
state of health of a person is adversely impacted by illness,
malfunctioning of organs or other body parts (functional dis-
ability), injury or frailty and that higher costs are triggered by
medical treatment, long-term care or protracted periods of
disability.
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 port-
folio deviates from what had previously been calculated on
the basis of actuarial assumptions.
Net: cf. Gross/Retro/Net
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.
Obligatory (also: treaty) reinsurance: reinsurance treaty un-
der which the reinsurer participates in a cedant's total, pre-
cisely defined insurance portfolio. This is in contrast to facul-
tative reinsurance.
Other securities, available-for-sale: securities that cannot
be clearly allocated to the “trading” or “held-to-maturity”
portfolios; 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.
Other securities, held-to-maturity: investments in debt se-
curities that can and are intended to be held to maturity. They
are measured at amortised cost.
Loss ratio: proportion of loss expenditure in the retention rel-
ative to the (gross or net) premium earned.
112 Main Street
Internal model: economic capital model verified and ap-
proved by the Federal Financial Supervisory Authority that
better reflects the company's risk profile than the standard
formula under Solvency II.
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.
Peter R. Schaefer
Tel. +1 303 860-6011
Fax +1 303 860-6032
CEO:
Glendale, CO 80246
4500 Cherry Creek Drive South,
Suite 1100
Office Denver
Peter R. Schaefer
Fax +1 704 542-2757
CEO:
Tel. +1 704 731-6300
Charlotte, North Carolina 28277
13840 Ballantyne Corporate Place,
Suite 400
Office Charlotte
Peter R. Schaefer
CEO:
Insurtech: term referring to new business models/compa-
nies in the insurance industry that focus primarily on the use
of new technologies.
Fax +1 407 648-1468
Orlando, Florida 32801
Hannover Life Reassurance
Company of America
200 South Orange Avenue
Suite 1900
Patrick Fee
Fax +1 630 250-5527
President:
Glencar Insurance Company
500 Park Blvd., Suite 805
Itasca, Illinois 60143
Tel. +1 630 250-5528
USA
Fax +44 20 7015-4001
Managing Director:
Nick Parr
Hannover Services (UK) Limited
10 Fenchurch Street
London EC3M 3BE
Tel. +44 20 7015-4290
Tel. +44 20 3206-1700
Fax +44 20 3206-1701
Managing Director:
Stuart Hill
Hannover Re UK Life Branch
10 Fenchurch Street
London EC3M 3BE
IBNR (Incurred but not reported) reserve: provision for
claims which have already occurred but which have not yet
been reported.
Impairment: extraordinary amortisation taken when the
present value of the estimated future cash flow of an asset is
less than its book value.
Insurance-linked securities (ILS): securitised insurance
risks, such as catastrophe bonds, derivatives or collateralised
reinsurance.
Tel. +1 407 649-8411
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 differ-
ence is the corresponding net item (gross - retro = net, also:
for own account).
Group net income: Group net income under IFRS corre-
sponds to the profit for the year available to the shareholders
of Hannover Re.
M40
59
59
60
M 09
Breakdown of gross premium by distribution
M28
channel: through brokers/direct
53
M10
Key figures for Property & Casualty reinsurance
Property & Casualty reinsurance:
38
36
Breakdown of investments under own
management
38
M29
Rating of fixed-income securities
M11
52
52
223666
M22
36
Breakdown of gross written premium
by reporting categories
M23
EBIT performance
premium in 2018
36
M24
M 08
Breakdown of gross premium by treaty types:
proportional and non-proportional treaties
by volume
M25
Key figures for Life & Health reinsurance
Investment income
M26 Development of investment income
36
36
M27
Investment portfolio
M30
33
Major loss trend
M31
premium by individual lines of business
Balance sheet structure of Hannover Rück SE
Materiality matrix
M42
M17 Property & Casualty reinsurance: Breakdown of
M41
42
Breakdown of gross written premium in
worldwide specialty lines
Hannover Rück SE: Breakdown of gross
237
Financial strength ratings of subsidiaries
Issue ratings of issued debt
71
Condensed profit and loss account of
Hannover Rück SE
41
M39
Breakdown of gross written premium in
Continental Europe by line of business
66
66
M16 Property & Casualty reinsurance:
72
73
77
Capital structure as at 31 December 2018
Development of policyholders' surplus
M12 Property & Casualty reinsurance: Key figures
for individual markets and lines in 2018
M32
Development of Group shareholders' equity
39
M13 Property & Casualty reinsurance: Breakdown
of gross written premium in target markets
M14 Property & Casualty reinsurance:
Breakdown of gross written premium in
North America by line of business
M33 Amortised cost of our bonds
M34
Consolidated cash flow statement
40
40
40
M37
M15 Property & Casualty reinsurance:
M38
M35 Cash flow from operating activities
M36 Financial strength ratings of the
Hannover Re Group
gross written premium in facultative reinsurance 44
39
66
666
Responsible corporate governance
N35
liabilities recognised at fair value 2018
Fair value hierarchy of financial assets and
liabilities recognised at fair value 2017
Movements in level 3 financial assets and
liabilities 2018
217
N 73
Subsidiaries with material non-controlling
interests
244
217
N74
Gross written premium
245
N 75
Investment income
246
218
N76
Interest income on investments
N34
242
payable 2017
Fair value hierarchy of financial assets and
Financial information on investments in
notes payable
242
associated companies
214
N71
Reconciliation of long-term debt and notes
N31
246
Investments in associated companies
payable 2018
242
N32
Development of investment property
215
N 72
Reconciliation of long-term debt and notes
N33
214
N36
Movements in level 3 financial assets and
N77
85
82
79
111
Utilisation of the trigger system
M74
110
Required risk capital for market risks
M75
M73
109
in life and health reinsurance
M72 Required risk capital for underwriting risks
Goal to be achieved by 2020:
M43 Allocation of material issues to the reportable
non-financial aspects pursuant to the
German Commercial Code (HGB)
M46
78
M45 Goal to be achieved by 2020: Compliance
Value at Risk for the investment portfolio
112
Net gains and losses on investments 2018
247
liabilities 2017
218
N78
Net gains and losses on investments 2017
247
N37
of the Hannover Re Group
Income and expenses from level 3
Reinsurance result
248
financial assets and liabilities 2018
219
N 80
Other technical income
248
M76 Scenarios for changes in the fair value
N79
M44 Goal to be achieved by 2020:
83
www.hannover-re.com
N 103 Future minimum lease payments receivable
267
N 104 Fee paid to the auditor
268
Hannover Re | Annual Report 2018
299
267
Further information
Credits
Alamy
Zoonar/chungking; page 34/35; Juergen Schonnop: page 68/69
Werner Bartsch
page 2, 6, 7, 8
Gettyimages
Imprint
Tom Werner/DigitalVision: page 24/25; Hero Images/Hero Images: page 50/51; vm/E+, page 148/149
N 102 Future minimum lease payments payable
N 101 Calculation of the earnings per share
Stock appreciation rights of Hannover Rück SE
261
N 97
Share awards of Hannover Rück SE
263
N 98
265
Development of the provision for share awards
N99
Personnel information
N100 Personnel expenditures
263
264
264
of Hannover Rück SE
Hüttner Photographer
page 10/11
Plainpicture
Tel. +49 511 5604-1502
Fax +49 511 5604-1648
oliver.suess@hannover-re.com
Investor Relations
Julia Hartmann
Tel. +49 511 5604-1529
Fax +49 511 5604-1648
Oliver Süß
julia.hartmann@hannover-re.com
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 5604-2343
Fax +49 511 5604-1648 or order them online at
www.hannover-re.com under
"Investors/Results and reports"
Hannover Re | Annual Report 2018
This is a translation of the original German text; the German
version shall be authoritative in case of any discrepancies in
the translation.
Media Relations
www.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.
Dana Edmunds photography: page 92/93
Published by
Hannover Rück SE
Karl-Wiechert-Allee 50
30625 Hannover, Germany
Tel. +49 511 5604-0
Fax +49 511 5604-1188
300
Hannover Re | Annual Report 2018
Contact information
Corporate Communications
Karl Steinle
Tel. +49 511 5604-1500
Fax +49 511 5604-1648
karl.steinle@hannover-re.com
N96
258
Germany and abroad
Business assumed and ceded in
Annual Results Press Conference, Hannover
Analysts' Meeting, London
Annual financial statements 2018
7 March 2019
Financial calendar 2019/2020
Hannover Re | Annual Report 2018
N 81
7 May 2019
Commissions and brokerage, change in deferred
249
N82
Other technical expenses
249
N 83
Other income/expenses
acquisition costs
Quarterly Statement as at 31 March 2019
8 May 2019
Annual General Meeting
Hannover Re | Annual Report 2018
302
Annual Results Press Conference
Analysts' Meeting
Annual financial statements 2019
11 March 2020
Results of 1 January treaty renewals
5 February 2020
Quarterly Statement as at 30 September 2019
6 November 2019
22nd International Investors' Day, Frankfurt am Main
23 October 2019
Half-yearly Financial Report 2019
8 August 2019
30175 Hannover
Hannover Congress Centrum
Theodor-Heuss-Platz 1-3
249
N30
N 84
250
254
N 91
Maturity structure of derivative financial
instruments 2018
255
N92 Maturity structure of derivative financial
Expiry of non-capitalised loss carry-forwards
and temporary differences
instruments 2017
N93 Netting agreements 2018
256
N94
Netting agreements 2017
256
N 95
255
N 90
253
income taxes with the actual expense
N 85
Income tax
251
N 86
Domestic/foreign breakdown of recognised
tax expenditure/income
251
N 87
Deferred tax assets and deferred tax liabilities
of all Group companies
252
N88 Netting of deferred tax assets and deferred
tax liabilities
252
N89
Reconciliation of the expected expense for
Revenue categories
33
Net gains and losses from long-term debt and
213
M65 Required risk capital for four
(cash allocations in 2017 and 2018)
140
natural hazards scenarios
105
M91
Pension commitments
143
M66 Survival ratio in years and reserves for
M92
Individual remuneration received by the
M 67
asbestos-related claims and pollution damage
Stress tests for natural catastrophes
after retrocessions
106
members of the Supervisory Board
Item 4.2.5 Para. 3 - Table 2
105
in property and casualty reinsurance
German Corporate Governance Code,
136
M61
Risk landscape of Hannover Re
103
M 62
Reconciliation
M89 German Corporate Governance Code,
Item 4.2.5 Para. 3 - Table 1
144
(economic capital/shareholders' equity)
M63 Required risk capital
105
(target/minimum/maximum remuneration as
nominal amounts)
138
M64
Required risk capital for underwriting risks
M90
104
M93 Group of participants and total number of eligible
106
participants in variable remuneration systems
N
Notes
N01
Consolidated balance sheet as at
N 04
Consolidated statement of changes in
31 December 2018
157
N02
162
164
shareholders' equity 2018
166
N 05
Consolidated cash flow statement 2018
168
N 03
Consolidated statement of income 2018
M88 Total expense for share-based remuneration
of the Executive Board
Forecast development for 2019
Life & Health reinsurance:
M 68
Limit and threshold for the 200-year aggregate
annual loss as well as utilisation thereof
M94
Growth in gross domestic product (GDP)
146
150
107
108
M95
M69 Catastrophe losses and major claims in 2018
107
Forecast development for 2019
154
M70 Ensuring the quality of our portfolios
M71 Combined and catastrophe loss ratio
108
M96
Property & Casualty reinsurance:
Consolidated statement of comprehensive
M 60 Central functions of risk monitoring and steering 99
M59 Available capital and required risk capital
M 80
Reinsurance recoverables as at the
Customer orientation and satisfaction
M50
M51
M52
Number of employees by country
Breakdown of employees by country and gender 87
Goal to be achieved by 2020:
8 80 80
86
balance sheet date
115
86
M81
Required risk capital for operational risks
116
115
114
Gross written premium retained
M79
of material asset classes
112
M47
Goal to be achieved by 2020:
M77
Rating structure of our fixed-income securities 114
Sustainable insurance solutions
M82
84
M78
Required risk capital for the counterparty
M48
Goal to be achieved by 2020:
ESG criteria in asset management
M49 Goal to be achieved by 2020:
default risk
85
-
Opportunity management process
120
M83
M56
Goal to be achieved by 2020:
M86 Payment procedures for the total variable
Supplier management
91
57
remuneration
130
132
Risk management through multiple
levels of limits
M87 Total remuneration of the active members of
94
M58 Strategic targets for the risk position
95
the Executive Board pursuant to DRS 17
(modified in 2010)
134
M57
97
for variable remuneration
90
Measurement basis and payment procedures
M53
M 54
Executive development/Employee advancement 88
Goal to be achieved by 2020: Employee retention 89
Goal to be achieved by 2020: Diversity
for fixed remuneration
128
M84
90
Overview of the composition of
variable remuneration
129
M55
Goal to be achieved by 2020:
M 85
Measurement bases/conditions of payment
Operational environmental protection
89
N 70
income 2018
N 06
N 07
232
N 56
Maturities of the technical reserves 2017
232
207
N 57
Development of the benefit reserve
233
N22
N23
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 2018
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 2017
N 58
Development of the unearned premium reserve
234
Maturities of the technical reserves 2018
N 55
Amortised cost, unrealised gains and losses and
accrued interest on loans and receivables as well
as their fair value 2017
N21
N51
Development of other intangible assets
228
206
N 52
Technical provisions
229
N59
N20
N 53
Loss and loss adjustment expense reserve
229
N 54
207
Net loss reserve and its run-off in the property
and casualty reinsurance segment
231
Amortised cost, unrealised gains and losses and
accrued interest on loans and receivables as well
as their fair value 2018
Measurement assumptions
235
N 60
Maturities of the sundry non-technical
provisions
238
N 66
Long-term debt and notes payable 2018
240
N 67
N 68
N 65
Long-term debt and notes payable 2017
Maturities of financial liabilities 2018
241
212
N 69
Maturities of financial liabilities 2017
241
N29
Breakdown of investments by currencies 2017
241
227
238
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 210
Carrying amounts before impairment
210
N26 Rating structure of fixed-income securities 2018 211
N27 Rating structure of fixed-income securities 2017 211
Breakdown of investments by currencies 2018
Movements in net liability from defined benefit
208
pension plans
236
N61
Provisions for pensions
237
N64 Development of sundry non-technical
provisions
N 62
Effect on the defined benefit obligation
Other liabilities
237
238
209
N24
N25
N28
N 63
165
Fixtures, fittings and equipment
(PVFP) on acquired life reinsurance portfolios 226
193
N39
N12
Book values from business relations with
unconsolidated structured entities 2018
196
N 40
N 13
Stakeholder dialogue
unconsolidated structured entities 2017
197
N41
Fair value hierarchy of financial assets and
liabilities measured at amortised cost 2018
Fair value hierarchy of financial assets and
liabilities measured at amortised cost 2017
Fair value disclosures for financial assets
220
220
Material branches of the Group
N11
219
financial assets and liabilities 2017
Further IFRS Amendments and Interpretations 175
Valuation models
176
N 08
Key exchange rates
182
Hannover Re | Annual Report 2018
297
221
Further information
Scope of consolidation
185
N 38
Income and expenses from level 3
N 10
List of shareholdings
186
N09
N14
Assets and liabilities of the disposal group
199
N 18
N 19
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 2018
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 2017
N 46
Development of goodwill
224
223
N 47
224
N 48
Other assets
225
206
N 49
Development of the present value of future profits
Capitalisation rates
N 50
Value adjustments on accounts receivable
205
N42
N 15
Consolidated segment report
200
N16
Investments
204
N 45
N43
Maturities of the fixed-income and
N44
Rating structure of financial assets that give rise
to solely payments of principal and interest
Development of deferred acquisition costs
Age structure of overdue accounts receivable
221
222
223
variable-yield securities
N 17
Book values from business relations with
301
298
Further information
Hannover Re | Annual Report 2018
Business development in the year under review
Gross premium growth (Group)
Gross premium growth for
Property & Casualty reinsurance
Gross premium growth for
Life & Health reinsurance
Return on investment4
Group net income
1 At constant exchange rates
2
Forecast 2018
Gross premium growth in the single-digit
percentage range or > 10% 1,2
3 to 5% 1
3 to 5% 1,3
≥ 2.7%
> EUR 1 billion 5
M 05
Target attainment 2018
+11.6% at constant exchange rates
+7.8% not adjusted for currency effects
+16.2% at constant exchange rates
+11.8% not adjusted for currency effects
+4.6% at constant exchange rates
+1.7% not adjusted for currency effects
3.2%
EUR 1,059.5 million
In the context of publication of the quarterly statement as at 31 March 2018 the guidance for gross premium growth (Group) was raised to
more than 10%.
With the publication of the annual financial statement we are
also releasing the capital adequacy ratio of the Hannover Re
Group calculated in accordance with the requirements of
Solvency II. It decreased relative to the previous year to a
level of 245.7% as at 31 December 2018 (31 December 2017:
260.3%).
The total policyholders' surplus, consisting of shareholders'
equity, non-controlling interests and hybrid capital, amount-
ed to EUR 11.0 billion (EUR 10.8 billion) as at 31 December
2018.
The operating profit (EBIT) improved by 17.0% to EUR
1,596.6 million (EUR 1,364.4 million). Group net income was
higher than in the previous year at EUR 1,059.5 million (EUR
958.6 million). We thus achieved our guidance of more than
EUR 1 billion. Earnings per share for the Hannover Re Group
stood at EUR 8.79 (EUR 7.95).
3 Organic growth only
9,338
9,205
7,903
0
2014
2015
2016
Property & Casualty reinsurance
Investments
The equity position remains very robust: the equity attributa-
ble to shareholders of Hannover Re totalled EUR 8.8 billion
(EUR 8.5 billion) as at 31 December 2018. The return on eq-
uity amounted to 12.2% (10.9%). The book value per share
reached EUR 72.78 (EUR 70.72). Thanks to the fact that busi-
ness developed largely in line with our expectations in the
year under review, we were able to achieve and in some cases
even substantially outperform the forecasts shown in the fol-
lowing table "Business development in the year under re-
view".
2017
2018
Capital markets once again proved to be difficult and chal-
lenging in 2018. With this in mind, we are thoroughly satis-
fied with the development of our investments as at 31 Decem-
ber 2018. Our portfolio of investments under own management
grew to EUR 42.2 billion (31 December 2017: EUR 40.1 bil-
lion). Exchange rate effects and the issuance of a bond in the
second quarter more than offset the valuation declines on
fixed-income securities. The operating cash flow of more
than EUR 2 billion is a pivotal factor in the portfolio growth.
Despite the low level of interest rates, ordinary investment
income excluding interest on funds withheld and contract de-
posits came in slightly higher than the previous year at EUR
1,321.7 million (EUR 1,289.0 million).
Net realised gains on investments as at 31 December 2018
contracted sharply from EUR 377.1 million to EUR 127.7 mil-
lion. They reverted to a normal level after the liquidation of
our equity portfolio in the previous year. The impairments
taken in the year under review were again only minimal.
Income from assets under own management fell by 14.1% to
EUR 1,322.0 million (EUR 1,539.0 million). The resulting an-
nual return stood at 3.2% (3.8%), compared to our forecast
figure of 2.7%. We beat our guidance above all because the
interest rate level in the USD area rose more sharply than
anticipated in the course of the year under review, hence en-
abling us to generate very pleasing growth in our interest in-
come. As a further factor, we had based our guidance on rath-
er conservative distribution assumptions with regard to our
32
investments both in private equity and the real estate sector.
Investment income including interest on funds withheld and
contract deposits declined to EUR 1,530.0 million (EUR
1,773.9 million), a decrease of 13.7% relative to the previous
year. Interest on funds withheld and contract deposits totalled
EUR 208.0 million (EUR 234.9 million).
Total result
The gross premium in our total business increased by 7.8%
as at 31 December 2018 to EUR 19.2 billion (EUR 17.8 bil-
lion). Growth of 11.6% would have been booked at constant
exchange rates. We thus met our guidance, which had antic-
ipated an increase of more than 10%. The level of retained
premium remained stable at 90.7% (90.5%). Net premium
earned rose by 10.6% to EUR 17.3 billion (EUR 15.6 billion).
At unchanged exchange rates the increase would have been
14.5%.
Life & Health reinsurance
4
Excluding ModCo derivatives
5
3,551
2,708
6,000
Geographical breakdown of gross written premium
in 2018
M 07
11,976
4.3% Latin America
10,711
5,601
3,492
4,788
2,920
2,647
4,000
2,576
2,000
2,926
3,007
3,156
3,456
2,768
5,000
8,000
9,205
Assuming stable capital markets and/or major loss expenditure in 2018 that does not exceed EUR 825 million
Hannover Re | Annual Report 2018
33
Combined management report
Expertise in demand
Multiline
programmes
Increasing complexity calls
for sophisticated approaches
The concentration of values, interdependencies
between industries and stricter regulatory
requirements are making the world a more
complex place. As a result, demand is constantly
growing for covers that provide comprehensive
protection for a wide range of property and
casualty risks.
7,903
In traditional reinsurance business we are well
diversified. We accept risks in a variety of lines
-including for example property and liability
risks connected with infrastructure projects.
Based on our long-standing experience we can
design complex covers for portfolios comprised of
diverse risks. Our financial strength also enables
us to carry the associated risks.
Combined management report
Property & Casualty reinsurance at a glance
Gross written premium in P&C reinsurance
in EUR million
M 06
36
12,000
10,000
9,338
In non-traditional reinsurance we offer our
expertise in leveraging diversification effects. Our
structured reinsurance solutions cater to our
clients' business situation in its entirety and help
them to optimise their fulfilment of solvency
requirements through the use of reinsurance.
10,711
11,976
7,149
The euro gave back some of the previous year's gains against
the US dollar in the course of the year and fell from USD 1.20
to USD 1.15. Having already suffered heavy losses in the pre-
vious two years as a consequence of the Brexit vote, pound
sterling again slipped slightly lower against the euro from
GBP 0.89 to GBP 0.90. The Australian dollar similarly sof-
tened against the euro from AUD 1.53 to AUD 1.62.
The development of the world economy remains subject to
various uncertainties and risks, first and foremost of a geopo-
litical nature or in connection with trade policy. Varying eco-
nomic trends, isolationist efforts and local flashpoints may be
mentioned here as factors driving the mixed global picture. A
close eye must also be kept on the policy pursued by central
banks as they seek to strike a delicate balance between show-
ing resolve and a readiness to act, on the one hand, without
unsettling financial markets through overly bold actions, on
the other.
For more detailed remarks on the development of Hannover
Re's investments please see the “Investments" section on
page 58 et seq.
28
Hannover Re | Annual Report 2018
Combined management report
Industry-specific environment
The international (re)insurance industry was once again faced
with a challenging environment in 2018.
The US tax reform passed by the administration at the end of
2017 came into effect in the United States on 1 January 2018.
This put in place new tax regulations, include a general cut in
corporate taxes from 35% to 21%, the implementation of a
30% interest expense deduction limitation as well as the
elimination of the so-called "alternative minimum tax". Like-
wise, special new regulations applicable to the insurance in-
dustry in the US were implemented with far-reaching impli-
cations. Furthermore, the legislative package included the
roll-out of the base erosion and anti-abuse tax (BEAT) regime
and hence disadvantageous tax arrangements for Group-
internal retrocessions with entities considered foreign from
the US perspective. In this context, the tax assessment base
also includes premiums for ceded insurance risks within a
corporate group. Thus, for example, premiums were initially
taxed at a rate of 5% in 2018; from 2019 to 2026 they will be
taxed at 10% and thereafter at 12.5%. The tax reform
prompted market players to make adjustments to cession
strategies and corporate structures.
The ongoing arduous negotiations between the EU and the
UK following the outcome of the British population's Brexit
vote led to continuing uncertainty in the insurance industry.
No agreement had been reached by year-end and markets
were preoccupied with the risk of a "hard Brexit" on 31 March
2019. The lack of clarity surrounding the definitive shape of
future economic and trade relations between the EU and UK
as well as regarding freedom of movement for workers is,
however, also generally detrimental to the national econo-
mies of the remaining EU member states since it impacts
planning reliability and the readiness of companies to invest.
In the year under review, not long after the reform of Euro-
pean insurance supervisory law by the Solvency II Directive
in 2016, the European Commission initiated the first review of
the standard formula used to calculate the regulatory Solven-
cy Capital Requirement. Among the key topics addressed
were simplifications to the standard formula as well as the
calibration of the interest rate risk, the premium and reserve
risk in non-life insurance, the deferred taxes and the risk mar-
gin. In this regard the European Insurance and Occupational
Pensions Authority (EIOPA) submitted technical advice on the
delegated regulation to the European Commission in the year
under review. These recommendations were based on the ex-
perience of national regulators and insurance companies
themselves in the preparatory phase and early years of appli-
cation of Solvency II. The Solvency II review conducted by the
European Commission ran until 31 December 2018. The first
comprehensive review of the Solvency II Directive by the Eu-
ropean Commission is scheduled for 2020.
The planned adoption of the new international accounting
standard IFRS 17 by the International Accounting Standards
Board (IASB) continued to be an important concern in the
year under review. IFRS 17 replaces the interim standard
IFRS 4, which has been in force since 2005, and is intended
to make it easier to compare insurers through a consistent
worldwide basis for the recognition of insurance contracts.
The new measurement model is expected to bring particular-
ly far-reaching changes for the accounting of long-duration
contracts. It is still too early to foresee what implications the
implementation of IFRS 17 will ultimately have for the volatil-
ity of business results. At a meeting in November 2018 the
IASB provisionally decided to postpone the effective date of
IFRS 17 by one year. The new financial reporting standards
will thus likely come into effect starting 1 January 2022, al-
though they are only mandatory for the consolidated financial
statements of capital-market-oriented insurance companies.
In this context the IASB also decided to extend the temporary
exemption for insurers from applying the new financial in-
struments standard, IFRS 9, by one year until 2022 so as to
require all insurers to first apply IFRS 9 and IFRS 17 at the
same time.
In Germany the government changed the formula used to de-
termine the reference interest rate for the additional reserve
for the interest rate risk ("Zinszusatzreserve') in October, a
reform that benefited both insureds and insurers. The re-
quirement to establish this provision was adopted in 2011 to
provide security for legacy contracts with high guaranteed
returns in order to ensure that life insurers can still generate
the interest guarantees promised to their customers even in
times of sustained low interest rates. The calculation had
come to be regarded as overly rigorous since it imposed an
onerous burden on life insurers. The safeguarding role played
by the additional reserve for the interest rate risk has been
preserved even after recalibration of the calculation method;
however, an interest rate corridor now prevents excessive
swings in the reserve - in either direction. In this way, the
expenses associated with building up the provision and the
income generated from its release are better harmonised with
current investment income and interest guarantee require-
ments. According to calculations made by the rating agency
S&P, the change will bring considerable financial relief for
the insurance sector.
The insurance industry in the United Kingdom continued to
be impacted in the year under review by the UK government's
decision in 2017 to lower the rate used for discounting com-
pensation payments in connection with personal injury claims
(Ogden rate) from 2.5% to -0.75%. This means, for example,
that severe personal injuries from a motor vehicle accident
can lead to higher payments under liability covers. In view of
the fact that the change affects not only future claims but also
outstanding claims that have still to be run off, insurers and
reinsurers were compelled to set aside substantial additional
reserves. In this connection additional rate increases running
Hannover Re | Annual Report 2018
29
well into double-digit percentages were again obtained for
the motor liability line in the year under review, although they
fell short of expectations. The basis for another adjustment to
the Ogden rates was established with the passing of the Civil
Liability Act 2018 on 20 December 2018. The adjustment will
be made in the course of the year, which means that the re-
serves set aside by the various insurers and reinsurers can be
corrected in 2019.
In India the IRDAI (Insurance Regulatory and Development
Authority of India) approved a new reinsurance regulation in
December 2018 that was already implemented on 1 January
2019. The regulation provides for a reform of the so-called
"order of preference” for non-life reinsurance. Foreign rein-
surers represented by a branch in India are now able to write
non-life reinsurance on equal terms with other Indian rein-
surers, provided this business was not previously placed with
a local reinsurer entitled to preferential treatment. The order
of preference does not apply to retrocessions.
The market environment in worldwide property and casualty
reinsurance remained challenging. The enormous natural ca-
tastrophe losses of the previous year prompted increases in
reinsurance rates in the impacted regions and programmes,
albeit on a smaller scale than anticipated. Rates for pro-
grammes that had been spared losses tended to stabilise in
the
year under review. This development can be attributed to
unchanged intense competition, with the associated implica-
tions for pricing. At the same time, most primary insurers still
enjoyed a healthy capital position, which was reflected in a
correspondingly high retention and adversely impacted de-
mand for reinsurance. As a further factor, there was no
change in the considerable capacities made available by the
insurance-linked securities (ILS) market in 2018, as a conse-
quence of which supply outstripped demand and the pressure
on conditions and prices remained undiminished. As the year
progressed, however, a cooling could be felt in industry sen-
timent. As had been the case in 2017, the first half of 2018
saw a moderate large loss experience – followed by an elevat-
ed large loss incidence in the second six months. After hurri-
canes Harvey, Irma and Maria had left their mark on 2017,
the picture in the second half of 2018 was dominated by ty-
phoons in Japan, hurricanes and forest fires in California.
On equity markets the expectation of higher interest rates in
response to an anticipated pick-up in inflation was reflected
in the first quarter in corrections and sharply elevated volatil-
ity around the world. By the middle of the year things ap-
peared to have settled back onto a calmer footing, only for the
pent-up unease to flare up again on the markets - especially
in the fourth quarter - with sometimes appreciable price cor-
rections. Although the US market escaped relatively un-
scathed, it posted its poorest annual performance since 2008.
European equities and the emerging markets sector came
under even heavier pressure. European stock markets were
still influenced primarily by the ECB's ongoing expansionary
monetary policy, although by year-end they were already re-
flecting the scaling back of bond purchases as well as com-
ments by the President of the ECB to the effect that he antic-
ipated a relatively vigorous surge in inflation. The stock
market turmoil had scarcely any repercussions on other
markets.
rose in some instances markedly - in the period under re-
view in virtually all rating classes. For the most part, the risk
premiums are still very low by historical standards owing to
the declines of recent years.
Bond markets continued to be shaped in part by a generally
low level of interest rates. An exception here was once again
the US dollar area, which recorded further appreciable rate
increases. Pound sterling bonds similarly saw rate rises, al-
though they were limited to the short and medium maturity
segments. Yields on euro bonds, however, which had already
started the year on a low level, even experienced further de-
clines in the medium and long maturity segments. As a result,
negative returns persisted well into the medium maturity
range. Risk premiums on European and US corporate bonds
Sluggish progress towards reaching a deal between the Euro-
pean Union and the United Kingdom as a consequence of the
British people's vote in favour of Brexit led to continued un-
certainty throughout 2018. In the year under review this man-
ifested itself in renewed modest losses for pound sterling
against the euro and US dollar as well as in the downturn on
UK stock markets. The protracted lack of clarity surrounding
the definitive shape of future economic and trade relations
between the EU and UK as well as regarding freedom of
movement for workers is, however, also generally detrimental
to the national economies of the remaining EU member states
since it impacts planning reliability and the readiness of com-
panies to invest.
-
Looked at individually, it is evident that some Eurozone coun-
tries including Germany - were increasingly coming up
against capacity constraints in 2018. In other countries, most
notably Italy (GDP: +1.0%) and France (GDP: +1.6%), eco-
nomic development is hampered by structural problems. The
two crisis-hit countries of the past years, namely Portugal
(GDP: +2.1%) and Greece (GDP: +2.3%), were able to stabi-
lise their growth trajectory. The UK economy posted growth
of 1.3% amid a cloud of uncertainty surrounding what form
Brexit will take, a figure which was again poorer year-on-
year.
The state of the labour market continued to improve, with the
average jobless rate in the Eurozone falling by 0.9 percentage
points relative to the previous year to stand at 8.2%. Never-
theless, Greece, Spain and Italy still struggled with very high
levels of unemployment.
The harmonised index of consumer prices increased by 0.3 per-
centage points year-on-year to 1.8%, hence approaching the
ECB's target of 2%.
Germany
In 2018 the German economy was able to sustain the upswing
seen in recent years. Growth is, however, progressively grind-
ing to a halt. Indeed, economic output actually contracted for
the first time in three years in the third quarter. The reasons
- productions disruptions in Germany's vitally important au-
tomobile manufacturing industry and transportation difficul-
ties on inland waterways - are merely temporary in nature.
Nevertheless, businesses are finding it increasingly difficult
to keep expanding production at a vigorous pace in view of
the high capacity utilisation rate. This is especially obvious in
the construction sector. Viewed over the year as a whole and
after working days adjustment, gross domestic product rose
by 1.5%, a drop of 0.7 percentage points compared to the
previous twelve months.
The decline in vehicle manufacturing not only impacted up-
stream and downstream sectors of the economy, it also had
implications for the domestic and external expenditure com-
ponents of consumption, capital expenditure and exports.
Private households exercised restraint despite rising in-
comes, with spending increasing by 1.1% (1.8%). Compa-
nies were similarly hesitant to boost their capital expendi-
tures - the increase of 2.3% contrasted with 2.9% in the
previous year. Exports grew by 2.0% (4.6%) in 2018. While
exports to the United Kingdom and Russia were sharply low-
er, there was a strong surge in goods shipped to the United
States and China. The increase in imports was also slower at
3.3%, compared with 4.8% in the previous year.
The jobless rate in 2018 fell to 5.2% (5.7%) and continues to
trend lower. The number of persons employed domestically
rose by more than 565,000. Consumer prices rose by an aver-
age of 1.9% (1.8%) over the year.
Asia
The protracted low interest rate environment in Germany
similarly had implications for life and health reinsurance in
the area of traditional life insurance products: not only have
they now lost a considerable part of their appeal, they have
also to some extent been supplanted by new policies which
have been adapted to the changed interest rate situation. De-
mand for solvency-oriented reinsurance solutions remained
robust following the implementation of Solvency II and - es-
pecially for longevity business - the associated more exacting
capital requirements. On a global scale the progressive demo-
graphic shift and increasing ageing of the population contin-
ue to drive stronger demand for retirement provision prod-
ucts on the reinsurance as well as the insurance side.
Lifestyle products, which primarily offer risk coverage tailored
to protecting the policyholder's specific life situation, are also
enjoying a surge in demand. These include, in particular, pol-
icies under which the premium is linked to the insured's
health-related behaviour (e.g. fitness, nutrition). Although
the purchasers of such products have hitherto tended to be in
Anglo-Saxon and Asian markets, a tangible interest in this
trend can now also be detected in Europe. The issue of "digi-
talisation" is attracting growing attention. Requests for pro-
cess optimisations and the - to some extent associated - de-
ployment of automated underwriting systems are increasingly
prevalent. Power of innovation is called for here in order not
only to keep pace with the competition but also to stay one
step ahead.
Expansion in Asia remained brisk in 2018 at 6.6% (6.5%),
although in China the rate of growth slowed slightly by
0.2 percentage points to 6.6%. The flattening in the pace of
expansion is in line with the country's goals: it is evident that
the government is charting a more socially and environmen-
tally sustainable path towards economic development. At the
same time, it is making every effort to reduce the substantial
risks posed by the recent sharp rise in debt levels, among
other things by curbing bank lending.
Capital markets
The investment climate proved to be highly volatile and chal-
lenging in the period under review owing to numerous geo-
political and economic policy issues. Among other things, the
threat and initiation of tariff and trade disputes as well as the
ongoing uncertainty surrounding the outcome of Brexit nego-
tiations were unsettling factors. All in all, the extent to which
financial markets were influenced by political events was
striking. Concerns about Italy's stability also resurfaced, add-
ing to the unease felt by market players.
Factors such as the overhaul of international trade agree-
ments and the troubled waters in which the German govern-
ment was operating initially had little effect on financial mar-
kets, which opened the year in astonishingly robust shape.
On US markets hope of real growth stimuli from the Trump
administration materialised at the start of the year in the
shape of large-scale tax reform. Some emerging economies
found themselves in funding difficulties as a consequence of
higher interest rates in the US and saw their currencies de-
preciate as investors withdrew their funds. Hannover Re has
so far remained unaffected by the crises in Turkey and Argen-
tina because it does not hold any direct investments in the
currency of either country.
The pace of China's growth, on the other hand, continues to
dominate the increasingly important role played by emerging
markets in recent years. The consistent worldwide expansion
that was still evident in 2017 thus gave way to a more nu-
anced picture in 2018. While US economic growth accelerat-
ed sharply and China also ended the year with better-than-ex-
pected GDP growth, central banks in some emerging
economies were compelled to adopt a significantly tighter
monetary policy in order to protect their currencies. This led
to an appreciable softening in the pace of growth. The result-
ing decline in demand from emerging markets was in turn
also a reason for softer growth in the Eurozone.
Hannover Re | Annual Report 2018
22
27
Combined management report
In mid-December the European Central Bank announced that
after almost four years it would be terminating its programme
of corporate sector purchases at the end of the year. It did so
despite the fact that in light of global political tensions and
moves towards economic isolationism the ECB's assessment
of economic prospects was less favourable than at the start of
the year. Yet there are also no plans for an abrupt end to the
anti-crisis mode, since the ending of bond purchases only ap-
plies to the investment of new funds. Funds from maturing
government and corporate bonds will continue to be reinvest-
ed. All in all, the policy pursued by central banks in our main
currency areas was inconsistent. The ECB left the key interest
rate for the Eurozone at a historically low 0.0%, while the
Bank of England, which had raised the prime rate for pound
sterling for the first time since 2007 to 0.5% in 2017, made
another modest hike in the year under review to 0.75%. Once
again, the US Federal Reserve moved much further along the
path towards normalisation of monetary policy, raising the
base rate for the US dollar in four increments to an average of
2.38% and thereby further widening the interest differential
between the US dollar area and the Eurozone.
Gross domestic product in Japan increased by 0.8% year-on-
year, a slower pace than in the previous year (1.9%). Both
domestic consumption and exports contracted; capital spend-
ing was also sharply lower year-on-year. While business in-
vestment was still close to the growth rate recorded in the
previous year, investment in housing and public-sector
spending slumped heavily.
Digitalisation continued to be a topic of growing importance
to the insurance industry in 2018. The focus was on develop-
ing new products, delivering more innovative customer support
and optimising internal cost structures as well as business
processes. Participations in and cooperative ventures with
start-ups and insurtechs saw another sharp increase. This
trend is expected to be sustained in the coming years.
In the context of advancing digitalisation, the market for in-
surance against cyber risks continued to expand rapidly in
2018. The premium volume has risen substantially in recent
years, although the same is true of claim numbers. Similarly,
premium volumes continue to grow in Germany, although the
level here is still low compared to other European countries.
The vast bulk of the worldwide insurance premium was still
generated in the United States, but interest in such products
continued to grow in Europe, too.
30
Hannover Re | Annual Report 2018
31
New business growth in Asia and good results in many parts
of Europe, for example, were highly gratifying. Viewed from
a global perspective, there was high demand for reinsurance
solutions to cover longevity risks, driven in part by the exact-
ing capital requirements placed on primary insurers for such
business. Consequently, we booked another increase in the
profit contribution from our financial solutions business. The
performance of the legacy US mortality portfolio that we had
acquired in 2009 was less satisfactory. Treaty recaptures
prompted by our announced rate increases led to a one-time
charge to earnings here of EUR 272.6 million. Allowing for
the necessary release of an expense reserve, non-recurring
pre-tax strains of EUR 185.4 million were incurred.
Gross premium income in life and health reinsurance rose by
a modest 1.7% to EUR 7.2 billion (EUR 7.1 billion). Adjusted
for exchange rate effects, growth would have come in at
4.6%. The Value of New Business (VNB) amounted to EUR
290 million, again beating the targeted level of EUR 220 mil-
lion.
Investment income decreased by 12.3% in the financial year
to EUR 491.8 million (EUR 560.6 million) owing to lower re-
alised gains. Of the total investment income, EUR 319.6 mil-
lion (EUR 343.5 million) was attributable to assets under own
management and the remaining EUR 172.2 million (EUR
217.1 million) to securities deposited with ceding companies.
The operating profit (EBIT) rose by 12.5% to EUR 275.9 mil-
lion (EUR 245.2 million) on the back of the good underlying
risk experience. The improved profitability is pleasing be-
cause the aforementioned recaptures in legacy US mortality
business gave rise to a one-off charge to the result, but fur-
ther strains going forward are thereby largely eliminated.
Group net income for our Life&Health reinsurance business
group increased by 7.7% to EUR 185.9 million (EUR 172.6
million).
Gross premium by business group
in EUR million
20,000
The result posted in life and health reinsurance was adversely
affected in the year under review by one-time charges associ-
ated with treaty recaptures in our legacy US mortality portfo-
lio. This contrasted with, among other things, the positive
underlying development of our business in international life
and health reinsurance.
15,000 14,362
10,000
M 04
19,176-
17,791
17,069
16,354
7,080
7,200
7,731
6,459
2,619
Life & Health reinsurance
Investment income from assets under own management in
property and casualty reinsurance delivered a pleasing per-
formance. Ordinary income increased, helped by very healthy
earnings from real estate and private equity, by a modest
0.9% to EUR 1,024.3 million (EUR 1,014.7 million). Total in-
vestment income nevertheless contracted by 16.1% to EUR
999.3 million (EUR 1,191.5 million). The decline can be at-
tributed to the elimination of the extraordinary income
booked from the sale of our listed equities in 2017.
Hannover Re | Annual Report 2018
Combined management report
Business development
•
•
Currency-adjusted growth in gross premium of 11.6% beats target
Property and casualty reinsurance posts stronger-than-expected growth and improves segment
result by 11.0% to EUR 929.1 million
One-time charges in life and health reinsurance connected with legacy US mortality business
within the bounds of expectations
Return on investment comfortably surpasses target at 3.2%
We are satisfied with the result in property and casualty rein-
surance. After the considerable large loss expenditure of the
previous year, the underwriting result including interest and
expenses on funds withheld and contract deposits improved
to EUR 372.8 million (EUR 15.5 million). The operating profit
(EBIT) as at 31 December 2018 increased to EUR 1,322.6 mil-
lion (EUR 1,120.2 million). The EBIT margin held stable and
at 12.2% it was higher than the 10% minimum target. Group
net income in property and casualty reinsurance rose by
11.0% to EUR 929.1 million (EUR 837.3 million).
Group net income reaches EUR 1.06 billion, meeting full-year target for 2018 of more than
EUR 1 billion
The development of business in 2018 was impacted by,
among other factors, major loss expenditure in excess of the
expected level – albeit considerably lower than the heavy bur-
den incurred in the previous year - and one-time charges re-
sulting from steps taken to improve our US mortality business
in life and health reinsurance.
Group net income improved by 10.5% to EUR 1,059.5 million
(previous year: EUR 958.6 million) and is thus in line with our
guidance of more than EUR 1 billion. This performance was
supported by better-than-expected investment income.
-
Please find below a brief summary of the development of our
two business groups Property & Casualty reinsurance and
Life & Health reinsurance - and our investments. More de-
tailed information is to be found on pages 37 to 59.
Property & Casualty reinsurance
In property and casualty reinsurance we continue to find our-
selves facing an intensely competitive market. Even after the
record losses of 2017, reinsurance capacity still clearly out-
stripped demand. Furthermore, additional capital originating
from the ILS market left prices and conditions in the property
lines under sustained pressure. We were nevertheless able to
act on profitable growth opportunities as business came up
for renewal. In the area of structured reinsurance we noted a
sharp rise in demand on the customer side for reinsurance
solutions offering solvency relief and we expanded our book
of business accordingly.
Against this backdrop, gross premium rose by 11.8% to EUR
12.0 billion (EUR 10.7 billion). At constant exchange rates
growth would have reached 16.2% and thus came in clearly
better than we had anticipated.
The financial year just ended was once again dominated by
major losses that exceeded market expectations. While 2017
went down as the year with the heaviest burden of large loss-
es in Hannover Re's history, the strains incurred on a net ba-
sis in the 2018 financial year came in only slightly higher than
our large loss budget thanks to our traditionally prudent un-
derwriting policy and the protective effect of our own reinsur-
ance cessions. After the first half of 2018 passed off with a
thoroughly moderate large loss experience, a significantly
higher burden was incurred in the third and especially the
fourth quarter. Altogether, Hannover Re's net expenditure on
large losses amounted to EUR 849.8 million (EUR 1,127.3
million). The combined ratio of 96.5% (99.8%) was slightly
higher than our maximum full-year target of 96%.
Return on equity climbs to 12.2%
0
2,919
2015
0
2,000
(64%)
(65%)
5,025
(64%)
(67%)
5,854
6,103
7,133
4,000
(68%)
4,000
8,100
6,000
(36%)
2,807
2,812
(31%)
3,195
(34%)
3,762
(31%)
2014
3,230
(30%)
2015
non-proportional
2014
Hannover Re | Annual Report 2018
direct business
2018
2017
2016
business written through brokers
2015
2014
2018
2017
2016
0
2,000
7,481
(70%)
6,392
(69%)
6,143
(66%)
5,096
8,214
(69%)
proportional
8,000
(64%)
9,205
19.7% Rest of Europe
38.5% North America
0
13.2% Asia
United Kingdom
9.0%
8.1% Germany
4.8% Australia
Breakdown of gross premium by distribution channel:
2.4% Africa
Breakdown of gross premium by treaty types:
proportional and non-proportional treaties by volume
Global reinsurance
Specialty lines worldwide
Target markets
2018
2017
7,903
2016
in % and in EUR million
through brokers/direct
M 08
11,976
10,711
9,338
in % and in EUR million
11,976
M 09
6,000
2,878
(36%)
3,351
(36%)
8,000
7,903
3,235
(35%)
3,876
(32%)
10,000
12,000
12,000
9,205
9,338
10,000
3,578
(33%)
10,711
Target markets
3,000
2,926
3,007
3,156
Property & Casualty reinsurance: Breakdown of gross
written premium in target markets
in EUR million
Combined management report
40
2,619
Hannover Re classifies North America and Continental Eu-
rope as target markets. The premium volume rose by 9.5% to
EUR 3,455.8 million (EUR 3,155.6 million). Growth thus sur-
passed our expectations. The combined ratio improved from
102.8% to 100.0%. The operating profit (EBIT) fell to EUR
416.6 million (EUR 441.8 million) owing to lower investment
income.
3,500
2,500
Latin America
1,406
1,500
Hannover Re | Annual Report 2018
46
46
The markets of Central and South America continue to see
above-average growth rates, albeit with considerable differ-
ences from country to country. Heightened demand for
high-quality risk protection still holds sway in most countries,
enabling financially robust reinsurers to book business at ad-
equate prices. Recent acquisitions of sizeable portfolios by
primary insurers in Latin America have prompted increased
demand for reinsurance capacities, a development from
which our company will continue to benefit.
Despite the competitive landscape, we are very well posi-
tioned in Latin America and a market leader in several coun-
tries on the continent. The most important markets for our
company are Brazil, where we are also present with a repre-
sentative office, as well as Mexico, Argentina, Chile, Colum-
bia and Ecuador. The main lines in Latin America and the
Caribbean are property and motor insurance; liability lines
are growing more slowly. We consistently offer our customers
tailored solutions and suggest various alternative options.
Our business relations have been cultivated in some instanc-
es over many years both on a direct basis and through rein-
surance brokers. Above all in countries exposed to natural
catastrophes, very attractive growth opportunities have
opened up of late. Local insurers here specifically seek out
our expertise and capacity.
Our involvement in insurtech activities also gave grounds for
satisfaction in the year under review. These include, among
others, Pineapple. This start-up evolved directly out of our
innovation competition held in 2016 under the name Journey
Re, which delivered valuable stimuli for our business and led
to the founding of several new start-ups. Not only has Pine-
apple gone on to commence insurance operations, it has
also won numerous national and international awards. Taking
the role of a digital broker, the company offers an insurance
solution that enables its customers to participate in positive
insurance results within a self-defined risk pool. Above and
beyond this, we are involved in various other promising initi-
atives and start-ups in the South African market in what is a
very dynamic environment.
We see considerable potential to further grow our agency
business. Additional expansion into other African markets is
also conceivable, as soon as the local regulatory authorities
give their backing to cross-border reinsurance solutions.
The African insurance and reinsurance market was unre-
markable in the year under review, with significantly fewer
large losses than in the 2017 financial year. The market hard-
ening observed in the previous year therefore continued to
stabilise.
39
Our property and casualty reinsurance business in South
Africa is produced by three companies: our subsidiary
Hannover Reinsurance Africa Limited writes reinsurance in
all lines. Compass Insurance is responsible for direct busi-
ness generated mostly through underwriting management
agencies (UMAs). Our third subsidiary, Lireas Holdings,
holds interests in several of these UMAS. This enables us to
comprehensively steer and control the business. Agency
business forms the pillar of our activities in South Africa,
although traditional reinsurance is also written in South
Africa and other African countries.
South Africa
We have had a presence in Australia and New Zealand for
more than three decades and are positioned as the number
three among Australian property and casualty reinsurers.
Australia, in particular, remains fiercely competitive. We gen-
erated especially strong growth here with multi-line covers.
Reinsurers such as ourselves with a very good rating,
long-standing expertise and excellent business relationships
have opportunities here to obtain more attractive prices than
the market as a whole. We can therefore look back on a very
pleasing overall result for the region. Australia and New Zea-
land continue to be attractive catastrophe markets for global
reinsurance capacities.
2,000
Hannover Re | Annual Report 2018
43
97.7%
In India we have been operating as a local reinsurer since
2017 and are thus able to share in the promising growth op-
portunities offered by this country. Outside of agricultural in-
surance, however, our business did not perform satisfactorily
in the financial year just ended. Among other things, this was
due to flood losses and the ongoing generally difficult market
conditions.
The loss experience was characterised by a stable claims fre-
quency and loss amounts for individual claims that were on a
similar level to prior years. Against this backdrop, prices and
conditions were mostly unchanged on both the insurance and
reinsurance side.
Growth in the global primary insurance market picked up
somewhat, albeit coming off a low level. Reinsurance ces-
sions, on the other hand, were broadly stable relative to pre-
vious years, nudging higher only in the area of political risks.
Hannover Re writes the bulk of this business in the form of
proportional treaties. It ranks among the market leaders in
worldwide credit and surety reinsurance and in the reinsur-
ance of political risks. Existing accounts were expanded and
new clients added in the year under review, thereby further
diversifying the portfolio.
Gross premium consequently increased by a very pleasing
11.5% in the 2018 financial year to EUR 743.2 million (EUR
666.7 million). The combined ratio for the entire segment
amounted to 85.8% (91.1%). The operating profit (EBIT)
reached EUR 155.0 million (EUR 112.8 million).
United Kingdom, Ireland, London Market and
direct business
The gross premium booked from the United Kingdom, Ire-
land, the London Market and direct business rose from EUR
791.2 million to EUR 992.5 million. The combined ratio for
this segment improved to 111.8% (140.9%). The operating
profit (EBIT) totalled EUR 21.3 million (EUR -106.5 million).
United Kingdom, Ireland and London Market
The result of the property and casualty business that we rein-
sure for companies in the United Kingdom and on the London
Market was satisfactory in 2018. In general terms, the market
climate in the UK was still highly competitive, primarily due
to excess capacity.
Rates in most lines on the London Market stabilised in the
year under review. The increase in natural catastrophe losses
caused by various hurricanes and the major fires in California
did not, however, give rise to an additional strain for our port-
folio. Further premium increases running well into dou-
ble-digit percentages were obtained for the motor third party
liability line, which covers private customer portfolios and
had been adversely affected by the reduction of the Ogden
rates in 2017. Prices in property reinsurance similarly rose
sharply for business that had been impacted by Hurricanes
"Harvey", "Irma" and "Maria" in 2017.
Hannover Re | Annual Report 2018
The Ogden rate (= discount rate used in the UK to calculate
lump-sum compensation payments for personal injuries) was
left unchanged in 2018 after the change made in 2017 -
which had necessitated significant adjustments to loss re-
serves. We were, however, successful in our push to find a
commercial solution for exposures to acts of terrorism com-
mitted in the UK where a motor vehicle is used to kill or in-
jure. As a result, with effect from 1 January 2019 this risk is
now excluded under reinsurance treaties across the entire UK
motor reinsurance market and is instead placed as a stand-
alone cover.
Direct business
98.5%
We write a large portion of our direct business in the London
Market and through our Swedish branch. We were satisfied
with the development of this segment despite the prevailing
intense competition, even though profitability in direct busi-
ness was particularly impacted by the business that we wrote
in the London Market. While this year's hurricane season was
noticeably more benign and caused appreciably fewer losses,
some markets and products saw hardening in the second half
of the year. Rather than continuing to fall, the premium level
here held stable or even trended higher. We were able to act
on promising business opportunities in the year under review
and enlarged our premium volume.
Its activities essentially remain centred on primary insurance,
as has been the case to date. The business predominantly
consists of tightly defined portfolios of niche or other
non-standard business for which we provide reinsurance.
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.
In the first six months of the year under review it remained
the case that extended coverage concepts and price reduc-
tions were observed in many areas. Faced with this market
environment, we wrote our business selectively and increas-
ingly focused on major, long-established customer relation-
ships.
Property & Casualty reinsurance: Breakdown of gross
written premium in facultative reinsurance
5.7% Other
12.2% Motor
27.5% Liability
0
2,926.1
12.2%
2,606.8
129.3
With effect from 1 January 2019 we are participating in a joint
venture with HDI Global SE that focuses on specialty lines in
primary business. In this connection we sold the majority in-
terest in our subsidiary International Insurance Company of
Hannover SE (Inter Hannover) to the Talanx subsidiary HDI
Global.
In general terms, we are committed to further diversifying
our range of covers and our regional footprint in Asia. Sys-
tematic expansion of our business in defined areas assures
profitability and growth over the medium term, especially
from tailor-made reinsurance solutions.
3,551
45
-354-
.357
-375
2,000
918
1,307
1,309
2,607
4,788
3,492
2,708
3,000
4,000
310
5,000
in EUR million
Property & Casualty reinsurance: Breakdown of gross M 18
written premium in global reinsurance
The premium volume increased by 17.0% in the year under
review to EUR 5,600.8 million (EUR 4,787.7 million). The
combined ratio improved to 95.4% (98.2%). The operating
profit (EBIT) climbed to EUR 484.8 million (EUR 328.9 mil-
lion).
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, Sharia-compliant re-
takaful business as well as structured reinsurance and insur-
ance-linked securities.
Global reinsurance
Hannover Re | Annual Report 2018
44
Despite a challenging year, we are satisfied with the develop-
ment of our overall facultative portfolio in the financial year
just ended. Along with the expenditures on catastrophe loss-
es, substantial strains were also incurred in industrial fire in-
surance across all regions. The combined ratio improved only
slightly on the previous year at 101.9% (103.7%). The oper-
ating profit (EBIT) came in at EUR 43.1 million (EUR 39.7
million).
Thanks to greater decentralisation of our underwriting activi-
ties and the associated expansion of competencies at regional
entities, we were able to significantly strengthen our custom-
er relationships. This led to potential avenues for new busi-
ness and corresponding additional premium income in our
target regions of the United States, Asia and Australia. What
is more, the investments that we had made in past years in
the areas of cyber risks and renewables were rewarded with
attractive premium growth in the year under review.
Following on from the costly 2017 financial year, natural ca-
tastrophe losses remained on a high level. In contrast to the
previous year, the results posted in facultative business in
2018 also reflected a growing number of mid-sized man-
made losses. This unusual accumulation of medium-sized
market losses, coupled with continuing large losses, led to
capacity shortages in the affected regions and market seg-
ments. We responded to the attractive business opportunities
opened up by this turnaround in keeping with our prudent
underwriting approach and risk appetite.
54.6% Property
M 17
Credit, surety and political risks
6,000
Combined management report
1,000
1,827
45
Hannover Re | Annual Report 2018
Along with China, the region of Southeast and South Asia
continues to drive growth in the Asia-Pacific. We achieved
good results here across the board, although we note that
profitable growth in the primary market does not necessarily
carry over to the reinsurance markets. Margins here continue
to be very squeezed in many areas - a state of affairs that will
likely continue in the years to come, especially in those mar-
kets that are not affected by large losses. Thanks to our fo-
cused underwriting policy, we generated a very pleasing re-
sult in the region of Southeast and South Asia served by our
branch in Kuala Lumpur, Malaysia.
In China we further cemented our market position as a local
reinsurer. Thanks to our very good relationships with selected
customers and our innovative market presence, we were able
to substantially grow our portfolio despite sustained intense
competition. Profitability was in line with our expectations.
Highly destructive natural disasters such as typhoons and
tsunamis shaped the market in the Asia-Pacific region. Most
notably, Typhoons “Jebi”, “Trami” and “Prapiroon" caused
considerable windstorm and flood losses in Japan. Although
we observed further modest price reductions in Japan for ca-
tastrophe covers during the first half of the year, the large
losses should have an appreciable effect on demand for rein-
surance capacities as well as on prices. Bearing in mind the
general environment described above, our market position
in Japan remained stable. Our result, however, declined sig-
nificantly year-on-year due to the high level of catastrophe
losses.
57.3% Property
Asia-Pacific region
9.1% Liability
24.4% Motor
9.2% Other
Property & Casualty reinsurance: Breakdown of gross M 19
written premium in worldwide treaty reinsurance
We are thoroughly satisfied with the development of our
worldwide treaty reinsurance. Gross premium income grew
to EUR 2,298.3 million (EUR 1,826.7 million). The combined
ratio of 93.0% was considerably better than in the previous
year (96.3%). The operating profit (EBIT) increased to EUR
304.6 million (EUR 237.4 million).
2,298
1,885
376
Worldwide treaty reinsurance
Structured reinsurance and ILS
| Worldwide treaty reinsurance
Catastrophe XL
2018
2017
2016
2015
5,601
2014
0
1,810
1,481
2,926
aside for prior underwriting years that were no longer re-
quired.
Overall assessment of the business position
Our underwriting strategy in this phase remained disciplined.
We kept our focus on the non-proportional segment, where
we operate as one of the market leaders.
Hannover Re | Annual Report 2018
Combined management report
On the whole, we were satisfied with our results in North
America. We are a valued partner based on our expertise and
robust financial strength. On this basis, we were able to ac-
quire new clients while at the same time expanding
long-standing customer relationships and we thereby further
extended our market footprint. In the year under review we
continued to cautiously expand our portfolio of program busi-
ness, a form of primary insurance that we write through man-
aging agents in North America.
We are now authorised as a "Certified Reinsurer" in 37 US
states, a status which enables us to post significantly lower
collateral in favour of US-based ceding insurers. The reduc-
tion in the level of collateral from the previous 100% to just
10% for technical reserves had positive implications for our
result. The situation should improve still further going for-
ward because under the bilateral agreement signed between
the United States and the European Union in September 2017
collateral requirements for business written in the US will be
entirely eliminated after a transitional period of five years.
Notwithstanding the good growth already generated in 2017,
the premium volume in North America increased by a further
10.8% in the year under review to EUR 1,893.2 million (EUR
1,708.3 million). The combined ratio improved to 102.5%
(111.3%). Against this backdrop, the operating profit (EBIT)
climbed to EUR 227.2 million (EUR 177.5 million) despite a
drop in investment income.
Continental Europe
We group together the markets of Northern, Eastern and Cen-
tral Europe as Continental Europe. The largest single market
here is Germany. The premium volume for our business in
Continental Europe totalled EUR 1,562.6 million (EUR 1,447.3
million) in the year under review. The combined ratio deteri-
orated to 97.1% (93.1%). The operating profit (EBIT) de-
clined to EUR 189.4 million (EUR 264.3 million).
M 15
Property & Casualty reinsurance: Breakdown of gross
written premium in Continental Europe by line of business
7.5% Other
37.6% Motor
37.9% Property
17.0% Liability
While major loss expenditure in 2018 was lower than in the
previous year, the loss events resulted in a total strain slightly
in excess of our expectations. Detailed figures on our large
losses are provided on page 107. It is pleasing to note that in
the financial year just ended the losses impacted Hannover
Re less heavily than our market shares would have suggested
– something which can be attributed to our prudent under-
writing policy in highly exposed zones and our retrocession
strategy.
Germany
The German insurance market was stable in the year under
review and recorded modest premium growth. The largest in-
creases in property and casualty insurance were seen in the
highest-volume lines, namely motor and property insurance,
and in the latter case especially in homeowners' insurance as
well as industrial and commercial lines. Altogether, the origi-
nal market for property and casualty insurance probably grew
by around 3%, hence keeping up the pace of the previous
year. However, claims expenditure rose considerably more
sharply than premium income, leading to a deterioration in
overall market profitability. This was especially true of fire
insurance for industrial customers, where the combined ratio
is expected to clearly exceed 120%.
German insurers continued to raise their retentions in view of
their healthy capital resources. So-called alternative capital,
i. e. risk transfer to the capital markets, did not play a signifi-
cant role in the German reinsurance market. On the whole,
Hannover Re obtained slightly improved rates and conditions
in the 2018 treaty renewals. This was also the case in indus-
trial fire insurance, although the rate adjustments here were
still not sufficient in view of the high frequency of large loss-
es. Given the intensity of the competition, we have only writ-
ten risks in this segment on a highly selective basis in recent
years. Positive results were, however, booked in the motor,
general liability, householders' and accident lines.
In natural catastrophe business Storm “Friederike" resulted
in a loss of EUR 24 million on the Group level. Localised flood
events caused by heavy rainfall were also recorded. Given the
increasing prevalence of natural disasters, covers for extend-
ed natural perils are likely to become ever more important.
Cyber insurance is another area of growing significance in
Germany. In 2018 we continued to expand our service and
pricing models in order to cater to the rising demand for
these covers. In addition, we partnered with FinLeap, a fin-
tech incubator, to create Perseus. Perseus offers SMEs a plat-
form for insurance protection and IT solutions in connection
with cyber risks.
All in all, we are satisfied with the development of our prop-
erty and casualty reinsurance portfolio in the German mar-
ket. Premium income surged appreciably in the year under
review through the expansion of existing customer relation-
ships; we had anticipated a slight decrease in premium in
our guidance.
Hannover Re | Annual Report 2018
41
Rest of Continental Europe
Primary insurance markets in Continental Europe were once
again intensely competitive in the year under review on ac-
count of surplus capacities; this was especially true of mature
markets such as France and Northern Europe. The situation
was particularly competitive in the fire/industrial lines and in
motor business.
On the reinsurance side, too, a competitive environment pre-
vailed. Somewhat more lively demand, most notably for be-
spoke reinsurance solutions offering solvency relief, had a
stabilising effect on prices and conditions. Tighter require-
ments placed on insurers' capital resources by Solvency II
and more rigorous supervision by regulators, coupled with
the anticipated changes in accounting principles, additionally
played a role here.
In Western Europe we continued to expand our market share
on the back of stable, risk-appropriate rates. Growth was
spread across various lines, including long-tail liability and
accident business. We consolidated our good market position
in builder's risk insurance in France. Our motor business in
the Netherlands also fared well.
-
Growth rates in the countries of Central, Eastern and South-
ern Europe for both the primary and reinsurance market -
were still stronger overall than the European average. Prices
largely held stable in the treaty renewals in the face of sus-
tained intense competition. Exceptions here were loss-im-
pacted programmes, especially in Russia, where sometimes
substantial adjustments were necessary. Rates in motor busi-
ness in Poland remained stubbornly on the previous year's
level in 2018 - after the sharp upward trend observed in prior
years.
The German market is served within the Hannover Re Group
by our subsidiary E+S Rück. As the "dedicated reinsurer for
Germany", the company is a sought-after partner thanks to its
very good rating and the continuity of its business relation-
ships. E+S Rück is superbly positioned in its domestic market
and a market leader in property and casualty reinsurance.
The bulk of our activities in North America are conducted in
liability and property business. Modest rate increases were
obtained for liability business, which is split into the three
subsegments of standard, special and professional liability.
Against this backdrop we enlarged our premium volume. Se-
lective growth was booked in the area of cyber covers; rising
demand here was prompted by loss events and regulatory
changes. In property insurance, too, we made the most of the
improved rate quality to expand our business volume.
The price increases observed on the primary insurance side
in 2017 were sustained throughout 2018. The most striking
rate increases were recorded in industrial property business.
The US economy continued its growth trajectory in 2018.
This favourable development was shaped by a generally sta-
ble financial situation, a further decline in the unemployment
rate and increased consumer spending. The move by the Fed-
eral Reserve to raise the key interest rate, hence making it
possible to generate higher investment income in the US dol-
lar area, was also gratifying. The stronger growth in the Unit-
ed States of course also had positive implications for premi-
um growth in the insurance industry. All in all, the normalised
premium growth was likely in the mid-single-digit percentage
range.
1,387
M 13
3,456
1,563
However, even lines whose performance had been particular-
ly unsatisfactory in recent years - such as general liability and
directors' and officers' insurance showed positive tenden-
cies in the year under review. Rates moved appreciably high-
er at the end of the year in light of further large loss events in
the United States, including for example Hurricanes "Flor-
ence" and "Michael" as well as the forest fires.
Even though exceptionally high losses were incurred on the
reinsurance side in 2017, they did not impact the overall mar-
ket capacity. To this extent, the pricing adjustments were less
marked than many market players had expected. While rate
increases were booked under loss-affected programmes, sig-
nificant improvements failed to materialise and there were no
implications for loss-free programmes. What is more, the price
trend lost further momentum as the year progressed. The
sharply higher loss frequency in the second half of the year,
however, subsequently ushered in some rate improvements.
Property & Casualty reinsurance: Breakdown of gross M 14
written premium in North America by line of business
8.6% Motor
1,893
1,000
1,708
1,620
1,494
1,213
500
0
2014
2015
2016
2017
2018
North America
Continental Europe
41.9 % Liability
0
0.4% Other
49.1% Property
North America
The North American (re)insurance market is the largest sin-
gle market both worldwide and for our company. Our busi-
ness here is written largely through brokers.
In Northern Europe we further cemented our position through
our local footprint and boosted our premium income despite
a difficult market climate. Notwithstanding an increased fre-
quency of mid-sized losses, mostly the result of fires, we were
able to generate an underwriting profit.
On the whole, we were satisfied with the premium develop-
ment and rate movements in Continental European markets.
By expanding long-established customer relationships with
both larger and smaller companies, we achieved further en-
couraging growth.
Specialty lines worldwide
Under specialty lines we include marine and aviation reinsur-
ance, credit and surety reinsurance, business written on the
London Market as well as direct business and facultative rein-
surance.
248
227
281
insurance-linked securities
297
277
260
231
0
2014
2015
Aviation
Marine
2016
2017
Credit, surety and political risks
United Kingdom, Ireland, London market and direct business
Facultative reinsurance
Marine
2018
After somewhat softer prior years, marine reinsurance largely
stabilised in 2018 on the level of the previous year. Given the
continued low price of oil, despite a brief surge in the middle
of the year, oil companies held back from making investments
and insurance demand remained unchanged. The excess ca-
pacities still existing in the market for transportation of
freight and cargo did nothing to ease a highly competitive
situation. The resulting further slight market softening made
itself felt in the insurance terms and conditions.
The Lloyd's of London insurance market was among those im-
pacted by these difficult market conditions. Results in a num-
ber of marine lines were still in the red. Customers responded
by scaling back or entirely discontinuing their acceptances in
selected marine lines.
42
Hannover Re | Annual Report 2018
Combined management report
On the reinsurance side the supply of capacity remained un-
changed. This did not, however, lead to premium reductions.
The hurricanes in the third quarter of 2017 ensured that pric-
es remained largely stable, albeit without having adverse run-
off implications. Overall, the losses incurred in marine rein-
surance were below average in 2018. The only exceptions
here were a loss incurred in builder's risk hull insurance in
Germany, which was covered in the portfolios written by
some Lloyd's insurers, as well as Typhoon “Jebi”, which af-
fected the Japanese marine market and hence also the rein-
surance programmes.
In view of our market position as one of the world's leading
marine reinsurers, the aforementioned losses also left their
mark on our books.
The gross premium for our marine portfolio contracted by
11.3% to EUR 230.8 million (EUR 260.1 million). The under-
writing result improved to EUR 125.4 million (EUR 6.6 mil-
lion) owing to the low loss expenditure. The operating profit
(EBIT) increased to EUR 146.0 million (EUR 35.7 million).
Aviation
After a protracted soft market phase on the aviation insurance
market that had lasted several years, the encouraging tenden-
cies already evident at the end of 2017 were sustained. One of
the key drivers behind this development was a reduction in
the available underwriting capacities which - depending on
the particular segment - was in some cases substantial. Rate
increases were especially marked for general aviation busi-
ness in the United States, which accounts for roughly 50% of
the global general aviation market. Nevertheless, appreciable
signs of improvement could also be discerned in other seg-
ments, too, such as airline business.
The positive developments in the primary market only partial-
ly filtered through to the reinsurance side. This was to some
extent due to the fact that improved results - as a reflection of
the course of business – take time to show up in the reinsur-
ers' books. As a further factor, the available capacity essen-
tially remained constant aside from some minor changes. In
sum, it may be stated that the market environment was more
favourable than it had been one year earlier.
279
The premium volume for our total aviation portfolio contract-
ed slightly in the year under review to EUR 227.2 million
(EUR 247.9 million). The combined ratio stood at 84.4%. The
operating profit (EBIT) of EUR 55.7 million (EUR 267.8 mil-
lion) fell well short of the previous year's EBIT, although this
had been massively influenced by the release of reserves set
377
500
The premium volume for specialty lines in the year under re-
view amounted to EUR 2,919.5 million (EUR 2,767.6 million).
The combined ratio improved to 94.3% (98.8%). The operat-
ing profit (EBIT) for specialty lines increased to EUR 421.2
million (EUR 349.5 million).
Property & Casualty reinsurance: Breakdown of gross
written premium in worldwide specialty lines
in EUR million
3,000
2,500
M 16
2,920
2,919
2,768
2,647
2,576
726
1,121
802
971
958
2,000
993
520
791
1,500
442
506
1,000
606
531
613
667
743
364
Structured reinsurance and
0
88.3%
88.5%
89.7%
90.7%
Retention
17.0%
16.6%
16.8%
12.2%
12.2%
EBIT margin 1
6.88
7.58
7.88
89.3%
6.94
7.70
Earnings per share in EUR
829.1
914.7
949.9
837.3
+11.0%
929.1
Group net income
1,190.8
1,341.3
1,340.3
1,120.2
+11.0%
+18.1%
90.6%
96.5%
1,790
981
2011
2010
Gross
2009
1,447
450
500
500
530
240
291
Combined ratio²
1,730
863
1,000
1,500
2,000
in EUR million
Property & Casualty reinsurance: Major loss trend¹
Hannover Re | Annual Report 2018
2 Including expenses on funds withheld and contract deposits
1 Operating result (EBIT)/net premium earned
94.7%
94.4%
93.7%
99.8%
662
1,322.6
Operating result (EBIT)
843.6
Key figures for Property & Casualty reinsurance
The 2018 financial year was not dominated by major losses to
the same extent as the previous year, which went down in
Hannover Re's history as the year with the heaviest burden of
large losses. After a very moderate major loss experience in
the first half of 2018, the loss incidence in the third quarter
was essentially in line with our quarterly expectations. The
most significant losses incurred in the third quarter included
Typhoon "Jebi" in Japan, with an anticipated net strain for our
account of EUR 134.7 million. We expect a net loss of EUR
37.4 million for Hurricane "Florence". Expenditure on large
Against this backdrop gross premium rose by 11.8% in the
calendar year to EUR 12.0 billion (previous year: EUR 10.7
billion). At constant exchange rates the increase would have
been 16.2%, a figure well ahead of our expectations. The lev-
el of retained premium climbed to 90.7% (89.7%). Net pre-
mium earned increased by 18.0% to EUR 10.8 billion (EUR
9.2 billion); adjusted for exchange rate effects, growth would
have amounted to 22.5%.
We were similarly satisfied with the various rounds of treaty
renewals that took place during the year. In the area of natu-
ral catastrophe covers we adhered to our profit-oriented un-
derwriting policy and the exposure consequently remained
comfortably with our risk appetite, which was unchanged
from the previous year. We were able to significantly improve
our position on a number of sizeable customer accounts, es-
pecially in North America and Europe.
In addition, we were thoroughly satisfied with the treaty
renewals in North America as well as in Western and Eastern
Europe. In the area of cyber covers, too, attractive opportuni-
ties opened up to expand our portfolio. We noted a sharp rise
in demand among customers for reinsurance solutions de-
signed to provide solvency relief, enabling us to book further
appreciable gains in the structured reinsurance segment.
Combined management report
37
Hannover Re | Annual Report 2018
We were satisfied with the outcome of the treaty renewals as
at 1 January 2018 - when 65% of our portfolio in property
and casualty reinsurance (excluding facultative business and
structured reinsurance) was renegotiated. The rate increases
in catastrophe business following the previous year's devas-
tating hurricane losses nevertheless fell short of market ex-
pectations. Although the treaty renewals proved challenging,
we benefited from our customer intimacy and our ability to
offer tailor-made reinsurance solutions. The increases were
particularly marked in Australia, Asia and the United Kingdom.
mains challenging. Stronger demand for reinsurance covers
could, however, be observed in some loss-affected regions
and among certain clients.
Property and casualty reinsurance markets around the world
continue to be shaped by an oversupply of capital available
for risk coverage. The heavy hurricane losses in the United
States in 2017 and 2018 have done little to change this state
of affairs. At the same time, prices and conditions are under
sustained pressure from additional capacities originating
from the insurance-linked securities (ILS) market. The envi-
ronment in which Hannover Re is operating therefore re-
Accounting for 62% of our premium volume, Proper-
ty & Casualty reinsurance is Hannover Re's largest business
group. It is structured according to our Board areas of re-
sponsibility, namely “Target markets”, “Specialty lines world-
wide" and "Global reinsurance".
Segment result increases by 11.0% to EUR 929.1 million
losses in the fourth quarter, however, went significantly over
our budget, with the forest fires in California topping the list
of major loss events. A net loss of EUR 129.5 million is antic-
ipated for the so-called "Camp Fire", while the cost of the
"Woolsey Fire" is put at EUR 63.8 million for net account. The
net strain from Hurricane "Michael" is expected to amount to
EUR 46.3 million. Our total net major loss expenditure in the
2018 financial year came to EUR 849.8 million (EUR 1,127.3
million), a figure slightly in excess of our large loss budget of
EUR 825 million. For a detailed list of these large losses
please see page 107. The underwriting result including inter-
est and expenses on funds withheld and contract deposits
increased appreciably to EUR 372.8 million (EUR 15.5 mil-
lion). The combined ratio improved to 96.5% (99.8%) and
was thus slightly higher than our 96% target for the financial
year.
Property and casualty reinsurance market challenging in the face of sustained high losses
Gross premium volume up by 16.2% adjusted for exchange rate effects and clearly
beats expectations
•
•
•
Property & Casualty reinsurance
the information provided here, the "Segment reporting" in
section 5 of the notes to this Annual Report shows the key
balance sheet items and profit components of the two busi-
ness groups.
Hannover Re's shareholders' equity continues to be robust.
At the time of preparing the management report, both the
business position of the Group and its financial strength re-
main good. With this in mind, the Executive Board and Su-
pervisory Board will propose to the Annual General Meeting
that a dividend of EUR 5.25 per share should be paid. The
distribution consists of an ordinary dividend of EUR 3.75 per
share and a special dividend of EUR 1.50 per share.
In property and casualty reinsurance we cannot discern any
appreciable improvement in market conditions for reinsurers,
despite the losses incurred over the past two years. Rates
have stayed on a generally low, adequate level. The situation
on global reinsurance markets is still shaped by undiminished
intense competition.
years, and we therefore anticipate a substantial improvement
in profitability.
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 reinsur-
ance, as well as the performance of our investments and the
financial position and assets of our Group. Supplementary to
Results of operations
In life and health reinsurance we continue to see promising
business opportunities in international markets, for example
in the area of individual longevity products. In US mortality
business better-than-expected mortality rates and the release
of an expense reserve counteracted the strains from treaty
recaptures in the year under review. Future losses will be
largely eliminated for the relevant treaties in subsequent
Hannover Re is satisfied with the development of business in
2018. On the Group level we achieved or surpassed all our
targets for the financial year. The burden of large losses
caused by typhoons in Japan, forest fires in California and
hurricanes in the United States remained within the bounds
of our expectations overall, while the steps taken to remedi-
ate our US mortality business adversely impacted the result
for the segment. Our investments delivered another highly
pleasing contribution to Group net income, supported by very
healthy earnings from real estate and private equity.
Large loss expenditure of EUR 849.8 million somewhat higher than budgeted EUR 825 million
Combined ratio improves to 96.5%
The investment income booked in the Property & Casualty re-
insurance business group was very pleasing. Against a back-
drop of stable ordinary investment income, the income from
assets under own management contracted by 16.1% to EUR
999.3 million (EUR 1,191.5 million). The sharp decrease rela-
tive to the previous year can be attributed to the exceptional-
ly high gains realised in that year from the liquidation of our
portfolio of listed equities. With major loss expenditure com-
ing in lower than in the previous year, the operating profit
(EBIT) climbed to EUR 1,322.6 million (EUR 1,120.2 million).
The EBIT margin was stable at 12.2% (12.2%). We thus
achieved our minimum target of 10%. Group net income im-
proved by 11.0% to EUR 929.1 million (EUR 837.3 million).
On the following pages we report in detail on developments
in the individual markets and lines of our Property & Casualty
reinsurance business group, split into the three areas of
Board responsibility referred to at the beginning of this
section.
38
945.0
900.9
371.9
452.4
503.1
7,011.3
8,099.7
7,985.0
7,903.4
9,338.0
9,204.6
10,710.9
9,158.7
15.5
1,209.3
-14.4%
1,035.1
Net investment income
372.8
Underwriting result²
2014
2015
2016
2017
+/-
previous
year
+11.8%
+18.0%
10,804.2
Net premium earned
11,976.0
Gross written premium
in EUR million
2018
M 10
1,722
88.6%
M 11
850
direct business
UK, Ireland, London market and
94.1%
85.8%
155.0
666.7
11.5%
743.2
Credit, surety and political risks
97.0%
84.4%
55.7
247.9
992.5
-8.4%
Aviation
89.6%
9.9%
146.0
260.1
-11.3%
230.8
Marine
96.2%
94.3%
421.2
2,767.6
5.5%
227.2
2,919.5
25.4%
21.3
50.9
354.2
6.3%
376.4
Catastrophe XL (Cat XL)
95.8%
93.0%
304.6
1,826.7
25.8%
2,298.3
Worldwide treaty reinsurance
96.9%
791.2
95.4%
4,787.7
17.0%
5,600.8
Global reinsurance
95.8%
101.9%
43.1
801.7
-9.5%
725.7
Facultative reinsurance
98.1%
111.8%
484.8
1,127
Specialty lines worldwide
97.1%
Gross
premium
Property & Casualty reinsurance: Key figures for individual markets and lines in 2018
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)
2018
2017
2016
2015
2014
2013
2012
Net ○ Net expectation for major losses 1
426
560
2018 in
EUR million
625
690
(670
478
578
662
825
825
825
573
724
714
559
846
627
95.9%
Change
in gross
premium
Gross
premium
2017 in
189.4
1,447.3
8.0%
1,562.6
95.1%
102.5%
227.2
1,708.3
10.8%
1,893.2
Continental Europe
North America
95.5%
M 12
100.0%
3,155.6
EBIT in
EUR million
Combined
Ratio
Maximum
tolerable
combined
relative to EUR million
416.6
ratio
previous
(MtCR)
year
Target markets
3,455.8
9.5%
1,432
-
It is to be expected that the high frequency and severity of
windstorm events in the Caribbean will continue. Particularly
with this in mind, we offer our clients solutions designed to
close potential gaps in coverage, such as for flood losses.
In 2018 the volume of new exposures that we transferred to
the capital market in the form of catastrophe bonds was in the
region of USD 1.5 billion. The largest transaction this year
was a USD 500 million catastrophe bond for the Federal
Emergency Management Agency (FEMA). The bond provides
protection against floods in the United States that result di-
Retakaful business
We successfully moved forward with the geographical and
line-based diversification of our portfolio. Our result was
highly satisfactory thanks to the absence of large losses and
our healthy diversification.
Rates and conditions were stable in primary insurance busi-
ness. On the reinsurance side, sustained pressure on prices
and intense competition were evident in mature markets such
as the United States and Canada.
The increasingly widespread implementation of public-pri-
vate partnerships presents new opportunities for our compa-
ny to write profitable business in markets that have still to
mature. The growing availability of new technologies, such as
remote sensing by satellites, will enable us to further enlarge
our scope of business through innovative and efficient insur-
ance products such as parametric covers.
We expanded our market position for the coverage of agricul-
tural risks. Particularly in emerging and developing economies,
the growing need for agricultural commodities and foodstuffs
combined with the increased prevalence of extreme weather
events are generating stronger demand for insurance and
reinsurance solutions. For example, the InsuResilience initia-
tive of the G7 nations - in which we are participating - has set
itself the goal of offering insurance protection against climate
risks to millions of poor and at-risk individuals in developing
countries by the year 2020. In Europe, too, the unusually dry
summer prompted discussions around the subject of crop
insurance.
Agricultural risks
Broadly speaking, we are satisfied with the development of
our business in Latin America and the Caribbean, which de-
livered a clearly pleasing result in the year under review.
We write retakaful business, i.e. reinsurance transacted in
accordance with Islamic law, worldwide. Our focus is current-
ly on the Middle East, North Africa and Southeast Asia. To
this end, we are represented by our Bahrain-based subsidiary
Hannover ReTakaful B.S.C. We also maintain a branch in Bah-
rain with responsibility for traditional reinsurance in the Mid-
dle East. Furthermore, we have established two branches in
Labuan, Malaysia, that specialise in family-owned enterprises
and retakaful business in the local markets.
In the financial year just ended most Latin American markets
continued to show very vigorous growth. Primary insurance
premiums are currently rising here - depending on the mar-
ket by between 5% and 15% annually. This is driven not
only by high rates of inflation, but also by the growing pur-
chasing power of the middle class. The strongest demand for
reinsurance covers was in the area of catastrophe risks, not
only within individual markets but also increasingly across
national borders.
1
Since 2016 based on Solvency II principles and pre-tax reporting; until
2015 MCEV principles (cost of capital already increased from 4.5% to
6% in 2015) and post-tax reporting
EBIT performance
in EUR million
500
7,149
7,200
- Target since 2016
7,080
Our retakaful business has grown very vigorously since we
entered the segment in 2006 and we are now optimally posi-
tioned in the market. The development of our business in the
year under review was satisfactory on the whole. The insur-
ance markets of the Middle East and North Africa continue to
post dynamic growth rates, with the United Arab Emirates
and Saudi Arabia still constituting the largest single markets.
Bearing in mind this market climate, we again put the focus
on selective underwriting in the financial year just ended. Our
premium income was consequently slightly lower.
Insurance-linked securities (ILS)
Going forward, we see further strong growth opportunities in
North America, Europe and Asia. The purchasing habits of
many customers have shifted of late towards holistic reinsur-
ance solutions. This trend shows no signs of easing and will
result in more and more customers seeking structured con-
tracts with increasingly complex arrangements in the future.
In general terms, though, premium income in this business
can fluctuate sharply given that it is routinely based on large
individual contracts.
as in Europe, and played a significant part in the premium
growth booked in our property and casualty reinsurance port-
folio. Not only did the average premium per contract increase,
but also the number of contracts in absolute terms. Looking
to the future, we anticipate continued growth in demand for
innovative and tailored reinsurance solutions. Over the past
ten years we have tripled our premium volume in structured
reinsurance to around EUR 2.6 billion. Altogether, almost half
our business in structured reinsurance originates from the
United States and roughly a third from Europe.
Growth in the financial year just ended was appreciable in
many regions, especially in North and South America as well
With our Advanced Solutions segment we rank as one of the
largest providers in the world for structured and tailor-made
reinsurance solutions. In this context we assist our clients
with their capital management and offer alternative reinsur-
ance solutions that provide solvency relief or protection
against the strain of frequency losses.
Structured reinsurance
Structured reinsurance and insurance-linked securities
Our major markets nevertheless remain highly competitive.
Even though the stubbornly low price of oil is a drag on eco-
nomic momentum, the inflow of international underwriting
capacities remains undiminished. A positive factor here is the
action currently being taken to significantly improve the reg-
ulatory framework in the Middle East and North America
(MENA) region. This is likely to increase the spread of insur-
ance and open up opportunities for retakaful business and the
broader reinsurance market.
The gross premium volume for our global catastrophe busi-
ness grew to EUR 376.4 million (EUR 354.2 million). Given
the reduced burden of large losses compared to the previous
year, the combined ratio improved to 88.3% (121.1%). The
operating profit (EBIT) also improved to EUR 50.9 million
(EUR -3.3 million).
After the historically high windstorm losses of 2017, the rein-
surance of natural catastrophes continued to be a focus of
renewal negotiations in the financial year just ended. The
dominant factors were an unchanged excess supply of capac-
ity and sustained high capital inflows from the ILS market, as
a consequence of which prices increased only slightly. Rate
increases were higher under loss-affected programmes, al-
though they fell short of market expectations. In Florida, for
example, increases of around 20% were booked under pro-
grammes that had suffered losses. Furthermore, certain pro-
grammes impacted by forest fires and mudslides in California
saw rate rises of up to 30% in the course of the year under
review. We are seeing growing demand for reinsurance cov-
ers from government programmes offering protection against
flood risks.
We write the bulk of our catastrophe business out of Bermu-
da, the worldwide centre of competence for this segment. In
the interest of diversifying the portfolio, our subsidiary Han-
nover Re (Bermuda) Ltd. has also written risks in some spe-
cialty lines.
Catastrophe XL (Cat XL)
Combined management report
+2
Hannover Re | Annual Report 2018
47
While our expenditure on large losses in the first six months
of the year came in below expectations, the second half of the
year was significantly more eventful for the entire insurance
sector. Along with losses from typhoons in Japan, hurricanes
in the United States and forest fires in California, an increase
in the cost of losses from the previous year - especially for
Hurricane "Irma" - took a toll on results industry-wide. Cali-
fornia was impacted by devastating forest fires for the second
year in a row, and the coverage of such risks is therefore like-
ly to draw even more attention.
1,416
405
400
245
1,295
1,271
928
961
895
0
276
2014
2015
2016
Financial Solutions Longevity Mortality
2017
2018
Morbidity
2014
0
M 23
343
1,000
1,625
1,728
1,956
300
264
3,562
3,200
3,081
3,040
200
2,000
1,012
1,482
1,482
100
1,257
1,276
Demand on the capital market for insurance and reinsurance
risks essentially remains strong, particularly due to the diver-
sifying nature of such investments. The worldwide volume of
newly issued catastrophe bonds was again in the order of
USD 11 billion in 2018. The entire ILS market likely reached
a volume of USD 95 billion. According to our estimates, up to
two-thirds of this amount derives from collateralised reinsur-
ance, under which insurers and investors conclude private
risk transfer agreements which are secured by collateral held
in trust accounts. We support these transactions through so-
called fronting arrangements.
2015
Investors have not lost faith in the ILS market despite taking
a hit from various loss events in recent years. This under-
scores the important role played by the ILS markets in pro-
tecting against catastrophe risks.
48
705
682
693
840
842
817
249
692
849-
6,000
800
176
354
375
309
774
242
196
5,000
750
2,000
1,483
1,465
1,439
1,706
3,000
400
600
1,877
543
942
4,000
1,374
1,192
1,071
1,323
448
6,459
198
236
We can provide well-rounded support including
new underwriting process design, implementa-
tion of our automated underwriting system at the
point of sale as well as medical training by our
experienced physicians. Our core competence is
biometric risk assessment and we are flexible
with regard to reinsurance solutions that mitigate
these risks.
People around the world are facing the challenge
of securing a lifelong income at retirement age
and finding a flexible retirement product to suit
their individual needs. Drawing on our global
experience and capacity, we are well placed to
support insurance companies in developing
tailor-made retirement solutions that meet a wide
range of individual security needs in old age.
Flexible retirement products with
the right level of security
protection
Individual
Expertise in demand
Combined management report
Combined management report
Hannover Re | Annual Report 2018
49
The gross premium volume in structured reinsurance and
from ILS activities grew by 12.2% to EUR 2,926.1 million
(EUR 2,606.8 million). The combined ratio stood at 97.7%
(97.7%). The operating profit (EBIT) increased to EUR 129.3
million (EUR 94.8 million).
Re known as the “K cession” at a level of roughly USD 600
million for 2018. This is a modelled quota share cession con-
sisting of non-proportional reinsurance treaties in the proper-
ty, catastrophe, aviation and marine (including offshore) lines
that has been placed inter alia on the ILS market since 1994.
In addition to the K cession we use the ILS market for other
protection covers as well.
The key role played by the capital market in our purchasing of
retrocession protection remains unchanged. Thus, for exam-
ple, we were able to renew the protection cover for Hannover
In collateralised reinsurance business we continued to step
up our cooperation with selected fund managers and in so
doing generated attractive margins. It was also pleasing to
note that we were able to further expand the transfer of life
reinsurance risks to the capital market.
rectly or indirectly from a named storm. This was the first
time that FEMA transferred risks to the capital market using
such an instrument.
Hannover Re | Annual Report 2018
44
Life & Health reinsurance at a glance
Breakdown of gross premium by markets
in EUR million
236-
241
-212
294.
7,000
7,200
7,080
7,149
237
Hannover Re | Annual Report 2018
1,000
7,731
8,000
in EUR million
M 21
Value of New Business (VNB) growth¹
M 20
We leverage the entire spectrum of opportunities offered by
the insurance-linked securities market. On the one hand we
take out reinsurance with ILS investors, while at the same
time we transfer risks for our customers to the capital market
as a service. This is done in the form of catastrophe bonds or
through collateralised reinsurance. We are also active our-
selves as an investor in catastrophe bonds.
2016
2017
2018
2 Operating result (EBIT)/net premium earned
Hannover Re | Annual Report 2018
53
Combined management report
The highlights of the reporting period included thoroughly
pleasing new business growth in Asia and good results in
large parts of Europe as well as the opening of our new Abid-
jan representative office in Côte d'Ivoire. We have laid the
foundation for the future with this local presence, enabling us
to work closely with our customers on the spot in a develop-
ing region that offers considerable promise.
Insurers in our domestic German market are increasingly pre-
occupied with the capital adequacy and solvency ratios pre-
scribed by the European Solvency II Directive. Reinsurance
covers offer one possible solution for meeting the required
ratios. Demand for reinsurance solutions was, however, more
subdued in the year under review owing to transitional meas-
ures that allow insurers to satisfy reduced requirements for a
certain period of time.
From a global perspective, we saw strong demand for rein-
surance solutions to cover longevity risks - driven in part by
the exacting capital requirements for such business on the
primary insurance side. New business avenues also opened
up to us through digitalisation initiatives and insurtechs. In
most cases these are small start-up enterprises that are nor-
mally reliant on cooperations with experienced, cash-rich
partners. By partnering with insurtechs we also generate
benefits for primary insurers and policyholders. Through this
type of partnership we are able to help our customers re-
spond to the changing needs of policyholders and bring inno-
vations to market.
1 Restated pursuant to IAS 8
The total gross premium income booked in life and health
reinsurance for the year under review amounted to EUR
7,200.4 million (EUR 7,079.6 million). This is equivalent to
modest growth of 1.7%; the increase would have been 4.6%
at constant exchange rates, which was in line with our expec-
tations. The level of retained premium stood at 90.7%
(91.7%). Net premium earned was stable at EUR 6,484.8 mil-
lion (EUR 6,472.8 million), corresponding to growth of 3.2%
adjusted for exchange rate effects.
The operating result (EBIT) reached EUR 275.9 million (EUR
245.2 million). Bearing in mind the charge to income associ-
ated with the aforementioned recaptures in legacy US mortal-
ity business, this is a pleasing performance. Group net in-
come for life and health reinsurance improved by 7.7% to
EUR 185.9 million (EUR 172.6 million).
We provide below a more detailed discussion of develop-
ments in the individual reporting categories of "Financial
Solutions", "Longevity Solutions" and "Mortality and Mor-
bidity Solutions" as well as an overview of our extensive
range of services under the heading "Underwriting Services".
Financial Solutions
In our financial solutions business we concentrate on reinsur-
ance solutions geared to optimising the solvency, liquidity
and capital position of our customers. These forms of reinsur-
ance are highly diverse and individually structured because
they are always tailored to the customer's needs. The decisive
differentiating feature is that the customer's primary motiva-
tion is not exclusively the coverage of biometric risks, but
rather the protection of its financial and balance sheet posi-
tion. We can draw on decades of global expertise in this field.
The US has long been an extremely important insurance
market for us in this segment. Our financial solutions busi-
ness performed superbly here and once again delivered a
clearly positive contribution to the total result for the report-
ing category.
Primary insurers in Germany showed considerable interest in
Solvency II issues, as they had in the previous year. While the
minimal capital adequacy ratios required by the regulator
(BaFin) were met by the companies across the board, the ra-
tios varied sometimes markedly. Applying our expertise to
the elaboration of possible solutions, we stand ready to sup-
port our customers as a reliable partner and we were able to
successfully place corresponding business.
In view of the unchanged low level of interest rates, invest-
ment income in life and health reinsurance contracted as ex-
pected and totalled EUR 491.8 million (EUR 560.6 million).
The share of the income attributable to our assets under own
management amounted to EUR 319.6 million (EUR 343.5 mil-
lion), while the contribution made by income from securities
deposited with ceding companies came in at EUR 172.2 mil-
lion (EUR 217.1 million).
Demand for financing solutions to help fund the additional
interest rate reserve ("Zinszusatzreserve") eased somewhat.
The reserve requirements were softened through regulatory
adjustments, as a consequence of which primary insurers
were not under quite as much pressure as they had been in
the previous year.
4.9%
5.3%
Earnings per share in EUR
1.54
+7.7%
1.43
2.10
2.40
1.70
6.2%
Retention
91.7%
90.4%
84.2%
83.9%
EBIT margin²
4.3%
3.8%
90.7%
In general terms, considerable activity could be observed in
the area of financial solutions on various European markets.
In addition to Germany, we were successful in generating
new business in Western and Central Europe and implement-
ed financing solutions for a range of customers. Interest in
reinsurance solutions with a bearing on Solvency II was also
evident in the Scandinavian markets. This significance at-
tached to this subject has increased in these markets, too,
and we are engaging individual customers in an active dia-
logue.
54
Hannover Re | Annual Report 2018
profit contribution. Market competition was noticeably more
intense in northern parts of Europe, especially in Sweden.
Despite this, our business here lived up to our expectations.
The market in Australia was already undergoing a period of
consolidation as large Australian banks have either sold their
life insurance subsidiaries or are currently trying to do so.
The banks are focusing on their core business which, in their
assessment, offers the potential for higher margins than their
insurance activities. It is evident that international players are
usually the ones buying stakes in these life insurance opera-
tions and hence more and more Australian insurers are com-
ing under foreign ownership. As a reinsurer, we are closely
monitoring the ongoing developments and we are talking
both to our own customers and new market entrants.
Gross premium for mortality business contracted by 5.0% to
EUR 3,039.5 million (EUR 3,200.1 million). Altogether, it con-
tributed 42.2% of the total gross premium income booked in
life and health reinsurance (EUR 7.2 billion).
Morbidity Solutions
Within the morbidity solutions reporting category, we cover
business centred around the risk of deterioration in a per-
son's state of health due to disease, injury or infirmity. A
hallmark of this business is the wide range of possible com-
binations of different covered risks, including for example
strict (any occupation) disability, occupational disability and
various forms of long-term care insurance. A dedicated team
of staff equipped with both specialist expertise and access
to our network of business centres stands ready to assist
with transactions of this type. In this way, our customers are
able to optimally benefit from our global know-how on a
local basis.
Mature markets were increasingly preoccupied with the issue
of long-term care (insurance) in old age. In Germany, for ex-
ample, we have consistently expanded our range of solutions
as part of an ongoing dialogue with our customers.
In the countries of Central and Eastern Europe, too, a greater
awareness of life situations with critical health implications
could be discerned in the reporting period just ended. In ad-
dition to the coverage offered by state-run schemes, the level
of which is still inadequate, it is becoming increasingly
important to have sufficient private provision. Consequently,
it was evident that our customers generally showed stronger
interest in critical illness products and health insurance
coverage.
99
In the United States we continued to build on our leading
position in the ACO (Accountable Care Organization) market.
ACOs are groups of healthcare providers who come together
voluntarily to give coordinated high-quality care to their pa-
tients. The goal is to ensure that patients – especially those
with chronic diseases – get the best possible care at the right
time through appropriate treatment. We have been a reliable
partner of ACOs for some years now and provide actuarial
and risk-related support for these organisations, which are
managed exclusively by healthcare providers such as doctors
and hospitals. From an overall perspective, our health and
special risk business in the US developed as anticipated and
delivered a healthy profit contribution.
In Australia we observed a market-wide deterioration in indi-
vidual occupational disability business. The higher-than-
expected losses adversely affected our result – in common
with that of other market players - in this reporting category.
In Asia, on the other hand, our morbidity business fared ex-
ceptionally well. The Chinese market showed the most dy-
namic growth in the year under review. Most notably, we
were able to substantially grow our critical illness business
because, among other things, the Chinese regulator is en-
couraging more active marketing of these solutions. Along
with the traditional critical illness product, modifications in
the form of additional risk inclusions were also widely used.
In China, alone, we consequently acquired numerous new
customers and treaties, with appreciable positive effects on
the premium volume. Our business in the other Asian markets
developed largely in line with our expectations.
Gross premium for morbidity business grew by 13.3% in the
financial year just ended to EUR 1,956.5 million (EUR 1,727.5
million).
Gross premium for our total mortality and morbidity solutions
business increased by 1.4% to EUR 4,996.0 million (EUR
4,927.6 million). The operating result (EBIT) for the two re-
porting categories came in at EUR -49.1 million (EUR 1.4 mil-
lion).
Underwriting Services
Under the heading of Underwriting Services we report on the
activities and services that we perform for our customers
above and beyond pure risk transfer. Our automated under-
writing systems and the associated process automation for
our customers are a major feature in this regard. In the year
under review it was again evident that these services consti-
tute a key competitive advantage and cement our business
relationships with our customers. Furthermore, our automat-
ed underwriting systems help our customers to structure the
underwriting process more efficiently, expand their product
range and hence respond to the needs of individual policy-
holders in an optimal and timely manner.
-
56
55
Hannover Re | Annual Report 2018
Combined management report
-
Customers in Asia - especially China showed a lively inter-
est in the area of financial solutions and we were thoroughly
successful in writing such business. Gross premium income
from financial solutions rose by 3.7% to EUR 928.2 million
(EUR 895.1 million). The written premium corresponds to
12.9% of the total gross premium booked in life and health
reinsurance. Furthermore, financial solutions delivered an-
other appreciable EBIT contribution from contracts with a
reduced risk transfer, with income of EUR 197.0 million being
recognised in other income/expenses. The operating result
(EBIT) came in at a very pleasing EUR 319.4 million (EUR
223.8 million).
Longevity Solutions
In the longevity solutions reporting category we group to-
gether all reinsurance business where the primary risk cov-
ered is the longevity risk. We develop innovative annuity
products tailored to the individual needs of policyholders in
various life situations. The bulk of the business in this catego-
ry consists of traditional annuity policies, pensions blocks
taken out for new business and enhanced annuities - under
which pensioners with a pre-existing condition are guaran-
teed a higher annuity payment for their remaining shortened
life expectancy.
International demand for longevity solutions in the financial
year was again sharply up on previous years. Interest in our
tailor-made product solutions is no longer restricted just to
our former core markets such as the United Kingdom and the
Netherlands, but rather it spans the globe - with a focus on
Canada, Asia, Australia and South Africa. Through these ac-
tivities we are also able to play a part in the fight against
poverty in old age, which is a major problem in some of these
regions.
In Australia, for example, longevity was a dominant topic on
the market following a change to retirement provision due to
a regulatory adjustment. This compelled insurers to take ac-
tion in relation to existing covers, hence opening up new
business potential both for ourselves and our customers.
Another factor in the increased demand worldwide was the
exacting solvency-based capital requirements imposed on in-
surers under the various local prudential regimes. Where lon-
gevity risks are involved, primary insurers need to hold very
high reserves as collateral for pension commitments that are
often still in the distant future. In some instances financial
solutions arrangements can also be considered here, as dis-
cussed above.
The United Kingdom continues to be our largest and most
mature market for longevity solutions. Minimal mortality im-
provements on the market could be discerned (provisionally)
during the reporting period. On the one hand, this had posi-
tive implications for our existing book of longevity business.
On the other hand, it also led to considerably more capacity
in the longevity market and the associated pressure on prices.
We have made a conscious choice not to follow this price
trend at the present time, but instead only write selected
risks.
In total, the gross premium for longevity business increased
in the year under review by 1.5% to EUR 1,276.1 million
(EUR 1,256.9 million). The operating result (EBIT) reached a
level of EUR 5.6 million (EUR 20.0 million).
Mortality and Morbidity Solutions
In the global (re)insurance industry it is standard practice for
mortality and morbidity risks to form a common element of
one and the same business relationship, and in some cases
both risks are even covered under one reinsurance treaty. In
our reporting we therefore consolidate the profit contribu-
tions of these two reporting categories and provide below
merely an overview of significant developments in the past
year affecting our mortality and morbidity business.
Mortality Solutions
Mortality-exposed business forms the core of traditional life
and health reinsurance and, in terms of premium volume, still
accounts for the bulk of our total premium income in this
business group. The business discussed in this reporting cat-
egory consists of covers that protect our customers against
the risk that people do not live as long as anticipated and
hence the actual mortality negatively diverges from the origi-
nally expected mortality.
The most significant impact on the result for this reporting
category in the financial year just ended derived from part of
our legacy US mortality portfolio that we had acquired in
2009. In view of past experience we initiated rate increases
for the relevant treaties in the second quarter of 2018. This
prompted treaty recaptures on the part of the ceding compa-
nies. The total loss recognised in the balance sheet in this
connection added up to EUR 273 million or USD 322 million.
We are consciously willing to accept these losses because fur-
ther strains on the corresponding treaties in subsequent
years can be largely avoided. For 2019 we already expect to
see an appreciable improvement in the result - in part also
because new US mortality business written in the reporting
period delivered a pleasing profit contribution.
Markets in Europe similarly showed dynamic growth. In
Western and Central Europe we acquired new customers and
were successful in generating new business. In Italy and
Spain, for example, we enjoyed a robust business develop-
ment throughout the reporting period and achieved a healthy
205.0
289.6
252.9
172.6
7,079.6
7,149.0
7,730.9
6,458.7
Net premium earned
6,484.8
+0.2%
+1.7%
6,472.8
6,492.4
5,411.4
Investment income
491.8
-12.3%
Claims and claims expenses
5,341.6
6,425.0
7,200.4
Gross written premium
year
Hannover Re | Annual Report 2018
Life & Health reinsurance
•
Currency-adjusted gross premium growth of 4.6% in line with expectations
One-time charge from recaptures in legacy US mortality business within the anticipated bounds
US financial solutions business delivers another very good result
Life and health reinsurance contributed a substantial 38%
share of Group gross premium in the year under review.
Thanks to our global network and our know-how, we are able
to drive both traditional business and new developments on
the markets. We nevertheless consider the profitability and
quality of the generated business to be the absolute overrid-
ing priority and we act accordingly.
Total business
Numerus positive developments in our international life and
health reinsurance portfolio helped us to achieve a solid re-
sult in the financial year just ended. Treaty recaptures
prompted by our announcement of rate increases in legacy
US mortality business gave rise to a charge to income of EUR
272.6 million. Allowing for the necessary release of an ex-
pense reserve in an amount of EUR 87 million, we achieved
an operating result (EBIT) of EUR 275.9 million (previous
year: EUR 245.2 million). This reflected the consistently good
quality and solid profitability of the portfolio outside of the
book of US mortality business acquired in 2009.
Key figures for Life & Health reinsurance
M 24
2018
+/-
previous
2017
20161
2015
2014
in EUR million
-5.7%
200
Change in benefit reserve
560.6
5,666.8
0.6
172.1
+0.9%
170.6
67.1
35.9
25.1
Operating result (EBIT)
Other income/expenses
275.9
245.2
343.3
405.1
263.8
Net income after tax
185.9
+7.7%
+12.5%
175.7
197.3
202.0
Commissions
1,263.6
+16.8%
1,081.8
638.9
5,480.3
(83.0)
1,020.4
709.2
614.2
5,459.0
4,636.2
101.1
28.6
1,075.1
946.4
Own administrative expenses
216.9
+2.9%
210.7
(50.8)
2,156
228
2,093
62
5,000
1,202
4,000
2,950
3,000
-7,731
M 22
893
52
364
≥ 220
2014
2015
2016
2017
2018
Value of New Business (VNB)
- Target 2014-2015
2,117
290
6,000
The prevailing price level is commensurate with the risks
given the available worldwide capacities. When it comes to
proportional capacity for the coverage of catastrophe risks,
capacity would appear to be in somewhat short supply.
7,000
≥ 180
1,000
1,988
1,966
0
2014
6,459
2016
2017
2018
2015
Australia/New Zealand
North America
in EUR million
by reporting categories
Breakdown of gross written premium
8,000
Germany
Latin America
Asia
United Kingdom
Rest of Europe
Africa
1,183
1,524
1,303
2,000
The following table presents an overview of the amortised
cost of the issued bonds.
Our bonds supplement our equity with the aim of reducing
the cost of capital and also help to ensure liquidity at all times.
As at the balance sheet date altogether four bonds had been
placed on the European capital market through Hannover
Rück SE and Hannover Finance (Luxembourg) S.A.
In addition to the financing effect of the changes in share-
holders' equity described above, debt financing on the capital
market is a significant component of Hannover Re's financ-
ing. It was essentially composed of bonds issued to ensure
lasting protection of our capital base - in part also in obser-
vance of rating requirements. The total volume of long-term
debt and notes payable stood at EUR 2,558.9 million (EUR
1,742.1 million) as at the balance sheet date.
Financing and Group debt
6,381
986
765
9,542
M 32
4,000
4,417
4,889
6,026
5,457
6,000
1,059
699
Common shares and additional paid-in capital
845
1,151
2017
2018
Coupon in %
Issue date
in EUR million
M 33
Amortised cost of our bonds
2018
492
2017
| Cumulative other comprehensive income
2016
2015
2014
0
845
845
845
845
Retained earnings excluding Group net income
Group net income
Non-controlling interests
-702
The foreign currency gains and losses grew by EUR 263.9
million from EUR -62.5 million to EUR 201.4 million as a con-
sequence of exchange rate movements of foreign currencies
against the euro in the financial year. The rise in the reserve
for currency translation adjustments resulted principally from
the appreciation of the US dollar and translation of the share-
holders' equity of those subsidiaries whose equity is denomi-
nated in USD.
8,253
2017
2016
2015
2014
0
2,000
4,000
7,551
8,068
8,777
8,529
8,997
496
6,000
-702
8,000
709
991
758
2018
Group shareholders' equity
Compared to the position as at 31 December 2017, Group
shareholders' equity increased in the year under review by
EUR 255.5 million, equivalent to 2.8%, to EUR 9,542.0 mil-
lion. After adjustment for non-controlling interests, it rose by
EUR 248.3 million to EUR 8,776.8 million. The book value per
share increased accordingly by 2.9% to EUR 72.78. The
changes in shareholders' equity were shaped chiefly by the
following developments:
Hannover Finance (Luxembourg) S.A.
subordinated debt, EUR 500 million;
2010/2040
959
1,171
709
758
8,777
743
9,287
9,741
10,000
8,000
in EUR million
Combined management report
63
Hannover Re | Annual Report 2018
The Group net income for 2018 attributable to the sharehold-
ers of the Hannover Re Group amounted to EUR 1,059.5 mil-
lion (EUR 958.6 million). The non-controlling interest in the
profit generated in the year under review totalled EUR 86.0
million (EUR 86.0 million).
Non-controlling interests in shareholders' equity increased
by EUR 7.2 million to EUR 765.2 million as at 31 December
2018. The bulk of this - in an amount of EUR 706.1 million -
is attributable to the non-controlling interests in E+S Rückver-
sicherung AG.
Net unrealised gains on investments stood at EUR 346.5 mil-
lion, a drop of EUR 471.8 million compared to the beginning
of the year under review. This reflected the yield increases
observed in the course of the reporting period, especially in
the area of USD- and GBP-denominated sovereign bonds, as
well as higher risk premiums on corporate bonds across all
rating categories.
In its capital management Hannover Re is guided by the re-
quirements and expectations of the rating agencies with an
eye to its targeted rating. Furthermore, while making appro-
priate allowance for business policy considerations and fac-
tors that influence market presence, the allocation of capital
to the Group's operational companies is based upon the eco-
nomic risk content of the business group in question. The
Group companies are also subject to national capital and sol-
vency requirements. All Group companies met the applicable
local minimum capital requirements in the year under review.
Adherence to these capital requirements is continuously
monitored by the responsible organisational units on the ba‍
sis of the latest actual figures as well as the corresponding
planned and forecast figures. If, despite the capital allocation
mechanisms described above, a scenario occurs in which
there is a danger of minimum capital requirements being un-
dershot, suitable options are immediately discussed and
measures set in motion to counteract such an eventuality.
From the Group perspective we manage Hannover Re's sol-
vency using our internal capital model (cf. "Opportunity and
risk report", page 94 et seq.).
Shareholders' equity
Hybrid capital, no maturity Hybrid capital, limited maturity
| Non-controlling interests
Development of Group shareholders' equity
14.9.2010
742.5
2,235.6
499.3
149.5
activities
Cash flow from financing
(942.3)
(2,075.2)
activities
Cash flow from investing
1,693.9
2,224.6
(690.0)
activities
in EUR million
2017
2018
2018
2017
2016
2015
2014
M 34
Cash flow from operating
0
Exchange rate differences on
16.9
equivalents from IFRS 5
Thereof cash and cash
835.7
1,151.5
the end of the period
Cash and cash equivalents at
(13.0)
315.8
flow statement
cash
equivalents according to cash
848.7
835.7
beginning of the period
Cash and cash equivalents at the
(13.0)
315.8
equivalents
Change in cash and cash
(74.5)
Change in cash and cash
5.75
2,225
1,931
1.125
18.4.2018
495.0
495.6
3.375
15.9.2014
Total
senior bond, EUR 750 million
2018/2028
Hannover Rück SE,
494
2014/undated
Hannover Rück SE,
497.8
498.2
5.00
20.11.2012
2012/2043
subordinated debt, EUR 500 million;
Hannover Finance (Luxembourg) S.A.
499.1
subordinated debt, EUR 500 million;
1,694
1,492.0
For further explanatory information please see our remarks in
the notes to this report, section 6.12 “Long-term debt and
notes payable", page 240 et seq., and section 6.13 "Share-
holders' equity and treasury shares", page 242 et seq.
2,000
2,331
Consolidated cash flow statement
500
1,000
1,500
2,500
Hannover Re does not conduct any automated internal cash
pooling within the Group. Liquidity surpluses are managed
and created by the Group companies. Various loan relation-
ships exist within the Hannover Re Group for the optimal
structuring and flexible management of the short- or long-
term allocation of liquidity and capital.
We generate liquidity from our operational reinsurance busi-
ness, investing activities and financing measures. Regular li-
quidity planning and a liquid investment structure ensure that
Hannover Re is able to make the necessary payments at all
times. Hannover Re's cash flow is shown in the consolidated
cash flow statement on page 168 et seq.
Several Group companies have also taken up long-term debt
- principally in the form of mortgage loans - amounting to
EUR 323.2 million (EUR 250.1 million).
Liquidity
Analysis of the consolidated
3,000
3,105
3,500
M 35
Cash flow from operating activities
in EUR million
Hannover Re | Annual Report 2018
64
Various financial institutions have provided us with letters of
credit for the collateralisation of technical liabilities. We re-
port in detail on existing contingent liabilities in the notes,
section 8.7 "Contingent liabilities and commitments", page
266 et seq.
cash flow statement
765
hybrid capital used as an equity substitute, which takes
the form of subordinated bonds.
495
period excluding disposal group
non-controlling interests and
interests, composed of the common shares, additional
paid-in capital, other comprehensive income and
retained earnings,
shareholders' equity excluding non-controlling
•
•
•
A key strategic objective of Hannover Re is long-term capital
preservation. Just as in previous years, we issued hybrid cap-
ital as an equity substitute in order to keep the cost of capital
on a low level. The policyholders' surplus is an important
management ratio in the context of Hannover Re's compre-
hensive capital management. The total policyholders' surplus
is defined as follows:
Management of policyholders' surplus
We ensure that our business is sufficiently capitalised at all
times through continuous monitoring and by taking appropri-
ate steering actions as necessary. For further information in
this regard please see the following section "Management of
policyholders' surplus".
-
The equity including non-controlling interests at 14.8%
(15.2%) of the balance sheet total as well as the long-term
debt and especially notes payable at altogether 4.0%
(2.8%) of the balance sheet total represent our most impor-
tant sources of funds.
The technical provisions and liabilities shown above, which
include funds withheld/contract deposits and reinsurance
payable, make up 73.5% (77.1%) of the balance sheet total
and are more than covered by our investments, (assets-side)
funds withheld/contract deposits, accounts receivable and
reinsurance recoverables.
73.5% Technical
provisions and liabilities
4.0% Long-term debt
and notes payable
M 30
0
14.8% Equity
7.7% Other liabilities
1,072.9
835.7
Cash flow from operating activities
The cash flow from operating activities, which also includes
inflows from interest received and dividend receipts, amount-
ed to EUR 2,224.6 million in the year under review as opposed
to EUR 1,693.9 million in the previous year. The increase of
altogether EUR 530.7 million was essentially due to higher
claims paid in the previous year as a consequence of the com-
paratively heavy burden of losses in 2017.
A.M. Best
Standard &
Poor's
M 38
Issue ratings of issued debt
As part of the process of rating Hannover Re the rating agen-
cies also assess the debt issued by the Hannover Re Group.
Issue ratings of issued debt
Outlook
Rating
Financial strength ratings of the
Hannover Re Group
Capital structure as at 31 December 2018
A.M. Best and Standard & Poor's, the rating agencies of par-
ticular relevance to the insurance industry, assess the finan-
cial strength of Hannover Re on the basis of an interactive
rating process and have awarded it very good ratings. The
rating agencies highlight in particular the strength of the
Hannover Re Group's competitive position, its capitalisation
and its risk management.
Combined management report
65
Hannover Re | Annual Report 2018
For further information on our liquidity management please
see page 94 et seq. of the risk report.
Overall, the cash and cash equivalents therefore increased
year-on-year by EUR 315.8 million to EUR 1,151.5 million.
The cash inflow from financing activities amounted to
EUR 149.5 million (cash outflow of EUR 690.0 million) in the
year under review. This item includes primarily the dividends
paid out by Group companies in the financial year totalling
EUR 657.7 million (EUR 647.1 million) and the receipts from
issuance of a senior bond in a nominal amount of EUR 750.0
million.
Cash flow from financing activities
The balance of cash inflows and outflows from operating ac-
tivities and investing activities in an amount of EUR 2,075.2
million (EUR 942.3 million) was invested in accordance with
the company's investment policy, giving particular consid-
eration to the matching of currencies and maturities on the
liabilities side of the technical account. Regarding the devel-
opment of the investment portfolio please see also our remarks
at the beginning of this section.
Cash flow from investing activities
Financial strength ratings
In terms of amount, the technical provisions and liabilities are
of course by far the most significant item in our balance
sheet. Further elements are equity and equity substitutes,
which help to substantially strengthen our financial base and
optimise our cost of capital. The following chart shows our
capital structure as at 31 December 2018, broken down into
percentages of the balance sheet total.
Analysis of the capital structure
As at the end of the year under review we held a total amount
of EUR 1.5 billion (EUR 1.8 billion) in short-term investments
and cash. Funds withheld amounted to EUR 10.9 billion (EUR
10.9 billion).
capital market as well as for financing transactions in life re-
insurance. In addition, we improved the quality of our portfo-
lio of covered bonds.
35
16
29
7
2
6
M 28
Semi-government bonds
We further boosted our real estate portfolio as part of the stra-
tegic expansion of this asset category by acquiring one prop-
erty in the United States and one in Australia. We also acted
on market opportunities in the United States and sold one of
our properties. The real estate allocation of our total asset
portfolio thus increased slightly to reach the current level of
5.6% (5.3%). In all other asset classes we made only minimal
changes in the context of regular portfolio maintenance.
2016
Government bonds
21
24
26
28
30
17
17
17
2015
AA-
The portfolio of fixed-income securities excluding short-term
assets rose to EUR 36.5 billion (EUR 34.3 billion). This in-
crease can similarly be attributed not only to the positive op-
erating cash flow but also to the aforementioned issuance of
a senior bond in the second quarter and exchange rate ef-
fects, which more than offset the valuation declines on
fixed-income securities. Hidden reserves for available-for-sale
fixed-income securities, which are included in shareholders'
equity, totalled EUR 91.4 million (EUR 706.2 million). This
reflects the yield increases observed in the course of the re-
porting period, especially in the area of USD-denominated
sovereign bonds and debt securities issued by semi-govern-
mental entities, as well as the broadly higher risk premiums
on corporate bonds. As to the quality of the bonds measured
in terms of rating categories, the proportion of securities rat-
ed "A" or better remained on a consistently high level and
stood at 78.4% (76.6%) as at year-end.
2018
Combined management report
61
Hannover Re | Annual Report 2018
Holdings of alternative investment funds increased slightly
overall. As at 31 December 2018 an amount of EUR 896.8
million (EUR 776.3 million) was invested in private equity
funds; a further EUR 675.3 million (EUR 818.3 million) was
attributable predominantly to investments in high-yield bonds
and loans. In addition, altogether EUR 433.9 million (EUR
385.0 million) was invested in structured real estate invest-
ments. The uncalled capital with respect to the aforemen-
tioned alternative investments totalled EUR 1,326.4 million
(EUR 1,201.9 million).
16.3% AA
14.0% A
Our portfolio of assets under own management amounted to
EUR 42.2 billion, a level significantly higher than at the end of
the previous year (31 December 2017: EUR 40.1 billion).
Along with the positive operating cash flow, this reflects the
fact that the issuance of a senior bond in the second quarter
and exchange rate effects more than offset valuation declines
on fixed-income securities. We adjusted the allocation of our
investments to the individual classes of securities in the re-
porting period in that we somewhat modified the nature of
our government bond holdings and expanded our portfolio of
instruments with inflation-linked coupons and redemption
amounts. By taking this step we are counteracting inflation
risks in our property and casualty reinsurance business.
Through the reduction of certain positions in the area of high-
yield bonds we also smoothed the risk profile of our invest-
ments and generated liquidity for future opportunities in the
Investments
48.1% AAA
2017
equivalents at the end of the
16.7% BBB
4.9% <BBB
Short-term investments and cash
Other
Real estate
Private Equity
Covered Bonds, ABS
Rating of fixed-income securities
Corporate bonds
M 29
Hannover Rück SE
senior bond, EUR 750 m;
2018/2028
M 36
Hannover Rück SE
The Executive Board of the company is not aware of any re-
strictions relating to voting rights or the transfer of shares,
including cases where these may arise out of agreements be-
tween shareholders.
The common shares (share capital) of Hannover Rück SE
amount to EUR 120,597,134.00. They are divided into
120,597,134 registered no-par shares.
Information pursuant to § 315a Para. 1
German Commercial Code (HGB)
2
1 Hannover Reinsurance Africa Ltd. and Hannover Life Reassurance
Africa Ltd. benefit from parental guarantees issued by Hannover Rück
SE (the "Guarantor"). The guarantees cover all of the payment
obligations of HR SA and HLR SA in respect of insurance and
reinsurance contracts issued by them. The guarantees are uncondi-
tional and continuing and shall be binding upon the Guarantor. The
owners of the insurance and reinsurance contracts issued by these
subsidiaries are express third party beneficiaries of these guarantees.
The obligations of the Guarantor under these guarantees rank pari
passu with all other unsecured indebtedness of such Guarantor.
International Insurance Company of Hannover SE was renamed HDI
Global Specialty effective 1 January 2019.
A+
A+
Company of Hannover SE2
International Insurance
The following companies hold direct or indirect capital par-
ticipations that exceed 10% of the voting rights: Talanx AG,
Hannover, directly holds 50.2% (rounded) of the company's
voting rights. HDI-Haftpflichtverband der Deutschen Indus-
trie Versicherungsverein auf Gegenseitigkeit, Hannover,
which holds a stake of 79.0% in Talanx AG, therefore indi-
rectly holds 39.7% (rounded) of the voting rights in the com-
pany.
A+
A+
AA-
Hannover Re (Bermuda) Ltd.
A+
AA-
Designated Activity Company
Hannover Re (Ireland)
A-
Africa Ltd. 1
Hannover ReTakaful B.S.C. (c)
Hannover Reinsurance
There are no shares with special rights granting their holders
powers of control, nor is there any specially structured voting
control for employees who have capital participations and do
not directly exercise their rights of control.
Hannover Re | Annual Report 2018
996
995
-495
10,000
997
996
10,267
10,239
10,779
The appointment and recall of members of the Executive
Board are determined by §§ 84 et seq. Stock Corporation Act.
Amendment of the Articles of Association is governed by
§§ 179 et seq. Stock Corporation Act in conjunction with § 18
Para. 2 of the Articles of Association of Hannover Rück SE.
11,231
997
11,035
M 31
in EUR million
Development of policyholders' surplus
Hannover Re | Annual Report 2018
62
Hannover Re uses “Intrinsic Value Creation" (IVC) as its cen-
tral value-based management tool. As part of this methodolo-
gy, we apply the principles of economic allocation of equity
and efficient 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 cap-
ital management are described in greater detail in our re-
marks on value-based management on page 20 et seq. of this
report.
The policyholders' surplus totalled EUR 11,035.1 million
(EUR 10,778.5 million) as at the balance sheet date. Retained
earnings increased by EUR 455.9 million to EUR 7,440.3 mil-
lion (EUR 6,984.4 million) on the back of the good Group net
income booked in the year under review. On the other hand,
the foreign currency gains and losses and the net gains on
investments recognised in equity were lower in total. Overall,
the policyholders' surplus consequently increased by 2.4%.
12,000
743
AA-
Hannover Life Re of
M 37
aa-
A
subordinated debt, EUR 500 m;
2010/2040
(Luxembourg) S.A.
Hannover Finance
stable
aa-
A
Standard &
2012/2043
(Very Strong)
stable
subordinated debt, EUR 500 m;
(Luxembourg) S.A.
Hannover Finance
A.M. Best
Standard &
Poor's
AA-
a+
A
subordinated debt, EUR 500 m;
2014/undated
A+ (Superior)
Australasia Ltd.
A.M. Best
AA-
A+
AA-
(Bermuda) Ltd.
Company of America
Hannover Life Reassurance
A+
AA-
Company of America
Hannover Life Reassurance
Poor's
A+
Bermuda Ltd.
Hannover Life Reassurance
A-
Africa Ltd. 1
Hannover Life Reassurance
E+S Rückversicherung AG
66
Financial strength ratings of subsidiaries
A+
AA-
78.6
Thereof cash and cash
1,500
100
4
4
5
2
1
4
4
90
90
2
5
2
3
8
10
9
14
80
70
60
60
35
in %
50
Breakdown of investments under own management
60
in EUR million
2018
2017
2016
2015
Funds withheld
10,865
10,903
11,844
13,990
2014
15,919
Investments under own management
42,197
40,057
41,793
39,347
36,228
Total
53,062
50,960
53,637
53,337
52,147
Hannover Re | Annual Report 2018
40
30
19
In the French market, too, a change in the law drove the need
for innovation in the credit life sector. We support primary
insurance partners by reinsuring a newly launched form of
credit life insurance that rewards a healthy active lifestyle.
Preferential rates are available to insureds who follow a de-
fined but basic programme of sports activities.
der review. This innovative combination of online sales with
our underwriting system hr|ReFlex delivers a cost-efficient
and flexible solution for end consumer and provider alike. In-
itial results indicate that this solution has been well received
by policyholders.
In the United States, for example, we worked together with a
US insurtech on the successful implementation of our under-
writing system hr|ReFlex. Our cooperation partner uses on-
line and mobile channels to sell life insurance directly to end
consumers. This was a first for the US life insurance market.
Sales were expanded to virtually all US states in the year un-
In the context of the complex range of issues relating to digi-
talisation and innovation, we have increasingly engaged in a
dialogue with start-ups specialising in insurance solutions -
frequently in the form of (online) platforms. The trend to-
wards policyholders tracking and systematically evaluating
their health with the aid of wearables - small, smart electron-
ic devices worn on the body - is no longer a new one. Quite
the contrary, an attractive market has grown up around digi-
tal wellness - one in which we, too, are seeking to get active-
ly involved. Working with our cooperation partners, we offer
insurance products geared to a healthy and responsible life-
style. These products enable insurers to combine broad-rang-
ing technical solutions for health-conscious consumers with
an innovative, digital experience while at the same time pro-
viding insurance coverage. The blend of our long-standing
worldwide underwriting expertise and technical innovation
opens up new possibilities in risk analysis, product design
and health management.
Similarly, we were thoroughly satisfied with the progressive
global roll-out of our state-of-the-art and flexibly customisa-
ble system hr|ReFlex in the reporting period. Along with the
implementations already completed in prior years, we were
again successful in launching hr|ReFlex with a large number
of existing and new customers in the year under review.
We are currently in talks regarding our underwriting system
hr Quirc not only with customers in Africa and the Middle
East but also with an increasing number of Asian insurance
providers, who have signalled their interest in implementation.
Our expectations for the development and take-up rate of our
underwriting systems were far exceeded. Most importantly,
the consistently positive feedback received from our custom-
ers confirms that we have found the right concept for trans-
lating our experience into a future-ready and appropriately
tailored solution. The combination of a state-of-the-art and
flexibly customisable underwriting system that efficiently or-
ganises the application process with a comprehensive range
of support and other services is seen as a clear win in the eyes
of our customers.
Digitalisation, innovation and automation have significantly
influenced the entire insurance industry around the world.
This trend, which was already clearly evident in the previous
reporting period, continued to shape the 2018 financial year.
16.0
-68.9%
5.0
associated companies
Result from participations in
1,068.4
1,253.4
31.2
1,162.0
2015
2014
in EUR million
year
Ordinary investment income
1,321.7
All in all, the focus of all our activities – taking into consider-
ation our corporate objectives - is on the needs of our cus-
tomers. We aspire to be a reliable expert partner over the
long term in every situation and for the widest possible range
of concerns. Along with traditional reinsurance solutions, this
means keeping a close eye on new products and developing
concepts designed to satisfy supervisory requirements. Not
only that, we must move with the times and keep pace with
the trend towards increasing innovation and more technolo-
gy, and we must also be willing to take on capital market
risks. With minority interests in two companies specialising
in the transfer of capital market risks, we have expanded our
range of solutions and ensured that we can also meet this
need on the part of primary insurers.
Hannover Re | Annual Report 2018
57
57
20
10
0
2014
32
33
34
2016
2017
+/-
previous
2018
M 27
M 25
Hannover Re | Annual Report 2018
58
Impairments and depreciation totalling EUR 52.7 million
(EUR 71.9 million) were taken. An impairment loss of EUR
15.3 million (EUR 8.4 million) was recognised on alternative
investments. The write-downs on fixed-income securities
amounted to just EUR 0.5 million (EUR 0.3 million). Impair-
ments were also taken on our real estate portfolio in a volume
of EUR 2.9 million (EUR 18.0 million). Depreciation on direct-
ly held real estate increased to EUR 34.0 million (EUR 31.0
million), reflecting the further increase in our involvement in
this sector. These write-downs contrasted with write-ups of
EUR 3.6 million (EUR 0.9 million).
We recognise a derivative for the credit risk associated with
special life reinsurance treaties (ModCo) under which securi-
ties deposits are held by cedants for our account; the perfor-
mance of this derivative in the year under review gave rise to
negative fair value changes recognised in income of EUR 11.9
million (positive changes of EUR 3.7 million). Altogether, the
positive changes in the fair values of our financial assets rec-
ognised at fair value through profit or loss amounted to EUR
31.2 million (EUR 38.6 million). The principal items recog-
nised here are various derivative financial instruments relat-
ing to the technical account or taken out as currency or inter-
est rate hedges as well as fixed-income assets for which the
fair value option provided by IAS 39 was applied.
grouping moves due to the steeper US yield curve. We were
nevertheless able to more than offset this through attractive
gains realised on the disposal of high-yield bonds. As a fur-
ther factor, we benefit from rising interest rates in our rein-
vestment activities. We report further on this in the following
section "Financial position and net assets" under the subsec-
tion "Investments" on page 61 et seq.
Net realised gains on disposals totalled EUR 127.7 million
(previous year: EUR 377.1 million). The sharp decline can be
attributed to the exceptionally high income realised in the
previous year from the liquidation of our portfolio of listed
equities. It also reflects the fact that we recognised not incon-
siderable hidden charges in connection with our portfolio re-
We are highly satisfied with the development of our invest-
ments. While the year under review was once again a chal-
lenging one in view of the continued low level of interest rates
and global economic movements driven by a range of uncer-
tainties and risks, we were nevertheless compelled to recog-
nise only a minimal volume of impairments. We were able to
outperform our targets despite quite appreciable portfolio
regrouping in support of financing measures in life and health
reinsurance, the tax reform in the United States, issuance of
a senior bond and our amended strategy. Nor were we held
back by a decrease in reserves due to USD interest rate hikes
and widening credit spreads. Our exposures to emerging
markets were also rewarded by the good performance of
these markets and delivered stable earnings. This was again
true of the real estate sector as well, the income from which
- driven by the higher weighting in the portfolio - helped to
push our ordinary investment income (excluding interest on
funds withheld and contract deposits) to a very pleasing EUR
1,321.7 million, a level roughly on a par with the previous
year (EUR 1,289.0 million). The partial reduction of our cred-
it risk exposures in the course of the year proved advanta-
geous as spreads widened towards year-end. Despite the dif-
ficult interest rate environment, our returns on fixed-income
securities came in on a gratifying level that even surpassed
the previous year. We were thus able to very comfortably
make up for the dividend income lost after the liquidation of
our equity portfolio in the previous year.
Stronger earnings from fixed-income securities more than offset loss of dividend income
Return on investment beats target at 3.2%
Another good investment performance with stable ordinary income despite challenging
environment
Investments
Combined management report
Investment income
Investment portfolio
By adjusting the maturity pattern of our fixed-income securi-
ties to the expected payment patterns of our liabilities we re-
duce the economic exposure to the interest rate risk. In the
current reporting period this gave rise to a broadly neutral
modified duration of our bond portfolio, which stood at 4.8
(previous year: 4.8) as at 31 December 2018. Through active
and regular management of the currency spread in our
fixed-income portfolio we bring about extensive matching of
currencies on the assets and liabilities sides of the balance
sheet, as a consequence of which fluctuations in exchange
rates have only a limited effect on our result. As at year-end
2018 we held 30.1% (30.1%) of our investments in euros,
45.8% (45.5%) in US dollars, 7.7% (8.2%) in pound sterling
and 5.9% (5.9%) in Australian dollars.
foundation for the asset allocation of the entire Hannover Re
Group and the individual portfolios. Our ability to meet our
payment obligations at all times is also ensured in this way.
Within the scope of our asset/liability management (ALM)
the allocation of investments by currencies and maturities is
determined by the technical liabilities. The modified dura-
tion of our bond portfolio is geared largely to the technical
liabilities.
(33.3)
Investment expenses
114.3
+3.2%
110.8
109.1
101.2
95.3
Net investment income from assets
under own management
1,322.0
-14.1%
1,539.0
1,218.3
1,270.1
1,095.8
Net investment income from funds
withheld and contract deposits
208.0
-11.5%
1,530.0
-13.7%
234.9
1,773.9
0.9
26.1
38.6
19.2
instruments 3
Change in fair value of financial
27.7
38.7
76.0
71.9
-26.6%
52.7
impairments²
Depreciation, amortisation,
0.1
332.1
1,550.4
0.6
0.9
3.6
Appreciation
182.5
135.8
206.3
377.1
-66.1%
127.7
Realised gains/losses
1.0
0.3
+2.5%
395.0
1,665.1
Total investment income
0
2014
2015
2016
2017
2018
Investment income from assets under own management
Income and expenses on funds withheld and contract deposits
59
208
1,322
Combined management report
Financial position and net assets
Risk-commensurate investment policy
Highly diversified investment portfolio
Equity base remains robust
Investment policy
Hannover Re's investment policy continues to be guided by
the following core principles:
•
generation of stable and risk-commensurate returns
while at the same time maintaining the high quality
standard of the portfolio
• ensuring liquidity and solvency at all times
•
high diversification of risks
limitation of currency exposure and maturity risks
through matching currencies and maturities
With these goals in mind we engage in active risk manage-
ment based on balanced risk/return analyses. To this end we
adhere to centrally implemented investment guidelines and
incorporate insights gained from dynamic financial analysis.
Both form the basis for investment ranges which are specified
in light of the prevailing state of the market and the require-
ments on the liabilities side and within which operational
management of the portfolio takes place. These measures are
intended to safeguard the generation of an appropriate level
of return. In so doing, we pay strict attention to compliance
with our clearly defined risk appetite, which is reflected in the
risk capital allocated to the investments and constitutes the
500
1,096
1,218
1,270
1
Excluding income and expenses on funds withheld and contract deposits
2
Including depreciation/impairments on real estate
3
Portfolio at fair value through profit or loss and trading
Development of investment income
M 26
in EUR million
Despite reduced income from funds withheld and contract
deposits as well as lower realised gains, we were thus able to
generate very healthy investment income of EUR 1,530.0 mil-
lion (EUR 1,773.9 million). Key drivers here were the pleasing
rise in ordinary income booked on fixed-income securities as
well as very good earnings from real estate and private equity.
Income from assets under own management accounted for
EUR 1,322.0 million (EUR 1,539.0 million), producing an av-
erage return (excluding effects from ModCo derivatives) of
3.2%. We thus clearly beat our originally anticipated 2.7%
target.
2,000
376.1
1,471.8
9.1
Hannover Re | Annual Report 2018
1,665
1,472
376
1,774
1,550
395
332
235
1,530
1,539
1,000
1,289.0
-19.2%
Outlook
Operating expenses, net of retrocession
Other technical charges, net of retrocession
2,685,118
2,593,164
23
Subtotal
(196)
277
(12,658)
(139)
Change in the equalisation reserve and similar provisions
165,944
Net technical result
25,074
153,286
Investment income
1,450,018
1,302,933
Investment charges
25,270
218,338
(177,799)
Bonuses and rebates, net of retrocession
Accident
Gross premium in casualty business rose by a modest 0.4%
to EUR 1,590.1 million (EUR 1,584.0 million). The loss ratio
increased from 44.3% to 91.9%. The underwriting result
consequently deteriorated in the year under review to EUR
-195.1 million (EUR 349.5 million). An amount of EUR 64.4
million was withdrawn from the equalisation reserve and sim-
ilar provisions; the allocation in the previous year had totalled
EUR 305.1 million.
Casualty
Total gross premium income for the fire line climbed by
12.7% in the 2018 financial year to EUR 2,213.3 million (EUR
1,963.4 million). The net loss ratio was virtually unchanged at
75.2% (75.7%). The underwriting result improved to EUR
-56.5 million (EUR -122.5 million). An amount of EUR 54.1
million (EUR 337.2 million) was withdrawn from the equalisa-
tion reserve and similar provisions.
3,203
4,237
225
Fire
(144,470)
(50)
Casualty
Motor
Aviation
Marine
Life
Claims incurred, net of retrocession
7,787,352
7,636,262
Changes in other technical provisions, net of retrocession
Accident
105,401
Allocated investment return transferred to the technical account
(204,465)
1,336,000
1,274,000
The underwriting result (before changes in the equalisation
reserve) improved in the year under review from EUR -12.7
million to EUR -0.2 million. Following a withdrawal of EUR
165.9 million in the previous year, an amount of EUR 25.3
million was withdrawn from the equalisation reserve and sim-
ilar provisions in the year under review.
After a thoroughly moderate major loss experience in the first
half of 2018, the volume of losses incurred in the third and
especially the fourth quarter was significantly higher. The
burden of large losses consequently came in slightly above
the large loss budget that we had set aside. The total net ex-
penditure on major losses incurred by Hannover Rück SE was
EUR 536.6 million (EUR 689.8 million).
Ordinary investment income including deposit interest was
clearly higher than in the previous year at EUR 1,234.0 mil-
lion (EUR 1,002.9 million), principally due to increased distri-
butions from our investment holding companies as well as
stronger ordinary income from fixed-income securities. De-
spite the continued low level of interest rates, the latter
showed a pleasing rise to EUR 458.6 million (EUR 419.0 mil-
lion) based on the substantial asset volume. Net gains of EUR
140.9 million (EUR 247.9 million) were realised on disposals.
The sharp decline can be attributed for the most part to the
liquidation of our portfolio of non-strategic listed equities in
the previous year. Write-downs of EUR 88.4 million (EUR
20.7 million) were taken on investments, primarily on bearer
debt securities held as current assets. The write-downs con-
trasted with write-ups of EUR 1.2 million (EUR 13.7 million)
that were made on assets written down in previous periods in
order to reflect increased fair values.
All in all, the net investment result climbed to EUR 1,231.7
million (EUR 1,197.5 million). The balance of other income
and charges changed from EUR -196.3 million to EUR -182.6
million.
The profit on ordinary activities decreased to EUR 869.7 mil-
lion (EUR 968.0 million). The year under review closed with a
profit for the year of EUR 665.4 million (EUR 843.4 million).
414
Development of the individual lines
of business
Hannover Re | Annual Report 2018
71
Combined management report
1,907,577
by individual lines of business
in EUR million
M 40
2,213
The following section describes the development of the vari-
ous lines of business. With effect from the beginning of the
2014 financial year the cooperation and exchange of business
between Hannover Rück SE and E+S Rückversicherung AG
was reorganised. In this context a quota share retrocession
from Hannover Rück SE to E+S Rückversicherung AG has
since been maintained in property and casualty reinsurance.
369
431,014
671,014
(186,558)
10,208,864
Other income
162,730
176,862
Other charges
345,311
373,123
Profit or loss on ordinary activities before tax
869,708
967,999
Taxes on profit and income and other taxes
204,353
124,599
10,412,941
Profit for the financial year
665,355
843,400
Profit brought forward from previous year
Allocations to other retained earnings
Disposable profit
Gross premium income for the accident line increased by
16.4% in the year under review to EUR 391.1 million (EUR
336.1 million). The net loss ratio retreated to 48.9% (64.6%).
The underwriting result came in at EUR 34.7 million (EUR
18.0 million). After a withdrawal of EUR 24.9 million in the
previous year, an amount of EUR 13.3 million was allocated to
the equalisation reserve and similar provisions.
1,590
Motor
Aviation
2,967,716
1,274,000
1,336,000
630,511
The powers of the Executive Board with respect to the issue
and repurchase of shares are defined in the Articles of Asso-
ciation of Hannover Rück SE as well as in §§ 71 et seq. Stock
Corporation Act. In this connection the Annual General Meet-
ing authorised the Executive Board on 6 May 2015 pursuant
to § 71 Para. 1 Number 8 Stock Corporation Act to acquire
treasury shares on certain conditions for a period of five
years, ending on 5 May 2020.
The following paragraphs explain major agreements conclud-
ed by the company that are subject to reservation in the event
of a change of control, inter alia following a takeover bid, and
describe the resulting effects. Some letter of credit lines ex-
tended to Hannover Rück SE contain standard market change-
of-control clauses that entitle the banks to early termination
of a credit facility if Talanx AG loses its majority interest or
drops below the threshold of a 25% participation or if a third
party acquires the majority interest in Hannover Rück SE. For
details of the letter of credit lines please see our explanatory
remarks on the letter of credit (LoC) facilities in the notes,
section 8.7 "Contingent liabilities and commitments", page
266.
In addition, retrocession covers in property & casualty and
life & health business contain standard market change-of-con-
trol clauses which in each case grant the other contracting
party a right of termination if a significant change occurs in
the ownership structure and participation ratios of the affect-
ed contracting party.
The company has not concluded any compensation agree-
ments with the members of the Executive Board or with em-
ployees in the event of a takeover bid being made.
2,905,716
In view of the interrelations between the parent company and
the Group companies and the former's large share of busi-
ness within the Group, we would refer here to our remarks
contained in the section entitled "Outlook for 2019" on page
150 et seq., which also reflect the expectations for Hannover
Rück SE.
630,511
880,608
880,608
120,597
120,597
37,882,340
40,831,918
165,263
Hannover Re | Annual Report 2018
180,444
1,500,000
31,543,107
2,172,283
40,831,918
970,404
37,882,340
Our portfolio of assets under own management grew in the
year under review to EUR 28.7 billion (EUR 26.5 billion),
equivalent to an increase of 8.7%. Along with the positive
operating cash flow, this reflects the fact that the issuance of
a senior bond in the second quarter and exchange rate effects
more than offset the valuation declines on fixed-income secu-
rities. The balance of unrealised gains on fixed-income secu-
rities and bond funds decreased to EUR 366.6 million (EUR
662.9 million). In addition to the yield increases on USD- and
GBP-denominated sovereign bonds already mentioned, this
is a reflection of sometimes substantially higher risk premi-
ums on corporate bonds across all rating categories.
Deposits with ceding companies, which are shown under the
investments, remained stable in the year under review at EUR
8.1 billion (EUR 8.0 billion).
-
Our capital and reserves excluding the disposable profit
stood at EUR 1,631.7 million (EUR 1,631.7 million). The total
capital, reserves and technical provisions - comprised of the
capital and reserves excluding disposable profit, the subordi-
nated liabilities, the equalisation reserve and similar provi-
sions as well as the net technical provisions – increased dur
ing the year under review to EUR 34,674.8 million (EUR
33,358.4 million). The balance sheet total of Hannover Rück
SE grew to EUR 40.8 billion (EUR 37.9 billion).
A dividend of EUR 3.50 plus a special dividend of EUR 1.50
per share, equivalent to EUR 603.0 million (EUR 603.0 mil-
lion), was paid out in the year under review for the 2017 fi-
nancial year.
1,500,000
It will be proposed to the Annual General Meeting on 8 May
2019 that a dividend of EUR 3.75 plus a special dividend of
EUR 1.50 per share should be paid for the 2018 financial year.
This corresponds to a total distribution of EUR 633.1 million.
The dividend proposal does not form part of this consolidated
financial statement.
174
Other technical income, net of retrocession
185,841
203,602
Allocated investment return transferred from the non-technical account, net of retrocession
371,949
402,140
30,226,694
Hannover Re | Annual Report 2018
292,824
417,488
2,894,030
Intangible assets
Assets
in EUR thousand
Balance sheet structure of Hannover Rück SE
Assets and financial position
loss ratio decreased from 80.9% to 65.6%. The underwriting
result came in at EUR 269.3 million after EUR -202.3 million
in the previous year. An amount of EUR 39.4 million (EUR
37.2 million) was allocated to the equalisation reserve and
similar provisions.
The total gross premium volume in the other lines grew by
11.9% to EUR 3,202.8 million (EUR 2,862.4 million). The net
hail, livestock and windstorm lines. Other indemnity insur-
ance encompasses legal protection, fidelity as well as other
pure financial losses and property damage.
Investments
Hannover Re | Annual Report 2018
The lines of health, credit and surety, other indemnity insur-
ance and other property insurance are reported together un-
der other lines. Other property insurance consists of the ex-
tended coverage, comprehensive householder's (contents),
comprehensive householder's (buildings), burglary and rob-
bery, water damage, plate glass, engineering, loss of profits,
Other lines
The underwriting result in life business amounted to alto-
gether EUR 29.6 million (EUR 29.3 million) for the reporting
period.
Gross premium income in the life line totalled EUR 4,236.5
million (EUR 4,104.9 million) for the period under review.
Life and health reinsurance business has a clear international
focus. We write our business on all continents and in many
instances we are directly available as a local point of contact
thanks to our extensive network. In addition to traditional
mortality-oriented life reinsurance we write financial solu-
tions business as well as health and longevity risks on a
worldwide basis.
Life
Gross written premium for the marine line fell by 4.1% in the
2018 financial year to EUR 329.3 million (EUR 343.2 million).
The net loss ratio improved appreciably from 96.2% to
37.9%. The underwriting result closed at EUR 75.8 million
(EUR -35.8 million). An amount of EUR 9.8 million was allo-
cated to the equalisation reserve and similar provisions in the
year under review, following a withdrawal of EUR 28.6 mil-
lion in the previous year.
Marine
The gross premium volume contracted by 5.3% from EUR
238.1 million to EUR 225.4 million. The loss ratio deteriorat-
ed sharply to 63.1% (-42.7%). The negative figure in the pre-
vious year had been influenced by the ending of a legal dis-
pute, which led to the release of reserves. The underwriting
result came in at EUR 18.6 million (EUR 198.6 million). An
amount of EUR 3.3 million was allocated to the equalisation
reserve and similar provisions in the year under review, after
a withdrawal of EUR 57.1 million in the previous year.
72
Receivables
Other assets
Prepayments and accrued income
3,294,186
69,384
34,460,839
65,655
36,874,145
2017
2018
M 41
Total liabilities
Other liabilities
Deposits received from retrocessionaires
Provisions for other risks and charges
Technical provisions
Subordinated liabilities
Capital and reserves
Disposable profit
Retained earnings
Capital reserve
Subscribed capital
Liabilities
Total assets
Gross premium for the motor line grew by 31.8% to EUR
2,452.3 million (EUR 1,860.8 million). The loss ratio de-
creased from 85.6% to 78.4%. The underwriting result
closed at EUR -176.5 million after EUR -247.5 million in the
previous year. An amount of EUR 27.5 million was allocated
to the equalisation reserve and similar provisions, following a
withdrawal of EUR 60.5 million in the previous year.
15,000
Hannover Rück SE: Breakdown of gross premium
14,139
Condensed profit and loss account of Hannover Rück SE
in EUR thousand
•
•
Enhance the commercial success of our clients
through our risk solutions and services (attractive
value proposition)
Maintain excellent ratings from the rating agencies
most relevant to our industry
3. We aim for successful employees
•
Hannover Re | Annual Report 2018
•
•
Harmonise the size and skills of our workforce with
the current and future requirements of our global
market presence as well as with the requirements of
increasing digitalisation
Foster motivation, dedication and teamwork
through excellent leadership practices
Facilitate the greatest possible delegation of tasks,
responsibilities and authority
Increase the proportion of women on all levels of
management
4. We strive for an optimal balance between stability and
yield of our investments
•
Achieve the target return – risk-free interest rate
plus cost of capital
•
5. We manage risks actively
0
The 2018 financial year was a pleasing one for Hannover
Rück SE. The gross premium of Hannover Rück SE in total
business grew by 10.1% to EUR 14.6 billion (previous year:
EUR 13.3 billion). The level of retained premium retreated
from 78.4% to 71.8%. Net premium earned increased by
2.0% to EUR 10.4 billion (EUR 10.2 billion).
Financial
strength
An excellent rating is
the key to attractive business
Rating agencies testify to our excellent credit
status and financial strength. Their assessment
focuses on our company's stable profitability and
superb competitive position.
We conduct our business with a sophisticated
risk-based capital model. This enables us to
optimally allocate our capital to business groups,
regions and lines and to leverage potential scope
for diversification. Our rigorous, selective
underwriting policy establishes the basis for a
stable operating performance.
Our robust capital resources – with an eye to both
solvency requirements and our risk profile - are
flexibly supported by a prudent reserving policy,
hybrid capital and retrocession programmes.
Thanks to a superlative rating we can act on
business opportunities at any time. Safeguarding
our strong rating through outstanding and
consistently practised risk management is
therefore especially important.
Combined management report
Information on
70
Hannover Rück SE
Hannover Re exercises the option to present a combined
Group and company management report pursuant to § 315
Para. 3 of the German Commercial Code (HGB) in conjunction
with § 298 Para. 3 of the German Commercial Code (HGB).
Supplementary to the reporting on the Hannover Re Group,
we discuss below the development of Hannover Rück SE.
The annual financial statement of Hannover Rück SE is drawn
up in accordance with German accounting principles (HGB).
The consolidated financial statement, on the other hand, con-
forms to International Financial Reporting Standards (IFRS).
This gives rise to various divergences in accounting policies
affecting, above all, intangible assets, investments, technical
assets and liabilities, financial instruments and deferred taxes.
-
from
The annual financial statement of Hannover Rück SE
which the balance sheet and profit and loss account in par-
ticular are reproduced here in condensed form - has been
submitted to the operator of the electronic Federal Gazette
and can be accessed via the webpage of the Companies
Register. This annual financial statement can also be ac-
cessed on the company's website (www.hannover-re.com)
and may be requested from Hannover Rück SE, Karl-
Wiechert-Allee 50, 30625 Hannover, Germany.
Hannover Rück SE transacts reinsurance business in the
business groups of Property & Casualty and Life & Health rein-
surance. Through its global presence and activities in all lines
of reinsurance the company achieves extensive risk diversifi-
cation.
Since 1 January 1997 Hannover Rück SE has written active
reinsurance for the Group - with few exceptions - solely in
foreign markets. Responsibility within the Hannover Re
Group for German business rests with the subsidiary E+S
Rückversicherung AG.
Results of operations
(condensed version in accordance with the German Commer-
cial Code (HGB))
Expertise in demand
•
6. We maintain an adequate level of capitalisation
Ensure the rigorous derivation of strategic
objectives across all areas of the company
In response to the progressive digital transformation in the
world of business over the coming years, we have developed
an additional digitalisation strategy for the strategy cycle
2018-2020. This considers in detail the opportunities and
risks associated with digitalisation – with an eye to both our
business processes and our work as a reinsurer.
Sustainability also forms an integral part of our actions. Our
goal is to harmonise our business operations with environ-
mental and social requirements. To do this, we have refined a
sustainability strategy that complements the guiding model
of our Group strategy. This defines four action fields (Govern-
ance and Dialogue, Product Responsibility, Employees, Envi-
ronment and Society) as well as concrete goals and measures,
while also taking into account the major requirements and
interests of our stakeholders. Of particular relevance here are
our customers, our investors and our employees.
76
Hannover Re | Annual Report 2018
Earned premiums, net of retrocession
2017
2018
M 39
•
Hannover Re | Annual Report 2018
74
Hannover Re expects to generate a good profit on ordinary
activities for the current financial year, although it will proba-
bly not quite reach the level of 2018. In terms of the ordinary
dividend, Hannover Re envisages a payout ratio in the range
of 35% to 45% of its IFRS Group net income. The ordinary
dividend will be supplemented by payment of a special divi-
dend if the present comfortable level of capitalisation remains
unchanged in light of capital management considerations.
73
Combined management report
Risks and opportunities
The business development of Hannover Rück SE is essentially
subject to the same risks and opportunities as that of the Han-
nover Re Group. As a general principle, Hannover Rück SE
shares in the risks of participating interests and subsidiaries
according to the amount of its respective holding; these are
described in the risk report. The relations with participating
interests of Hannover Rück SE may give rise to losses from
legal or contractual contingent liabilities (particularly nova-
tion clauses and guarantees). Please see our explanatory re-
marks in the notes to this report.
Other information
We received an adequate consideration for all transactions
with affiliated companies according to the circumstances of
which we were aware at the time when the transactions were
effected. We incurred no disadvantages as defined by § 311
Stock Corporation Act (AktG).
Hannover Rück SE maintains branches in Australia, Bahrain,
Canada, China, France, India, Hong Kong, Korea, Malaysia,
Sweden and the United Kingdom.
14
Ensure protection of capital through quantitative
and qualitative risk management
10. We strive for Performance Excellence and continuous
improvement
Ensure conformity with all legal requirements, our
own corporate policies and high ethical standards
Support social objectives particularly in the area of
qualified training, not only within but also outside
the company
•
•
Other lines
•
Ensure that requirements for equity resources
(economic capital model, solvency regulations etc.)
are met
Optimise the overall cost of capital
Use special dividends to balance equity growth with
profit growth
7. We conduct our business with lower costs than our
competitors due to our high efficiency
Encourage sustainability in the transaction of our
business, with a special focus on the avoidance of
adverse impacts on the environment
•
8. We support our business through efficient information
technology and take advantage of digitalisation and
automation
•
•
Develop new business opportunities on the basis of
digitalisation and automation
Optimise internal processes and shape the inter-
action with our clients as efficiently as possible
9. We are committed to sustainability, integrity and
compliance
•
•
•
Ensure a lower expense ratio than our competitors
through an effective and efficient organisation
14,641
11
52
316
913
942
273
238
379
344
343
1,861
434
6,000
4,082
3,000
Fire
4,108
4,105
2,842
2,862
5,999
Combined management report
334
2,452
13,293
1,590
11,917
1,963
12,000
1,401
10,865
330
437
1,626
391
1,298
1,424
1,444
336
9,000
-1.175
350
1,584
2,609
2,246,672
Pursuant to § 315b (1) Sentence 3 German Commercial Code
(HGB), reference is also made to non-financial information
provided elsewhere in the combined management report with
respect to certain aspects. Unless otherwise stated, all infor-
mation refers to the Hannover Re Group.
The present combined Group non-financial information state-
ment was drawn up in accordance with §§ 315b and 315c in
conjunction with 289b to 289e German Commercial Code
(HGB). It combines the disclosures for the Group and the par-
ent company Hannover Rück SE. Unless indicated separately,
the disclosures are equally applicable to the Group and the
parent company. The combined non-financial information
statement contains the legally required information relating
to significant environmental matters, employee matters, so-
cial matters, respect for human rights and combatting cor-
ruption and bribery. Within these individual aspects the un-
derlying concepts and due diligence processes are discussed
and available findings are reported. In addition, the combined
non-financial information statement is to be used to report on
material risks pursuant to § 289c (3) No. 3 and 4 German
Commercial Code (HGB) to the extent necessary for an un-
derstanding of the business development, business result,
position of Hannover Rück SE and the Group and implications
for non-financial matters. In view of the fact that we purpose-
fully enter into numerous risks in the context of our business
operations, we have put in place an extensive and effective
risk management system. For a description of the risk man-
agement system please see the "Risk report" section under
"Opportunity and risk report” in the combined management
report.
Within the Hannover Re Group risks are evaluated in light of
risk-mitigating measures. In connection with non-financial
aspects no material risks were identified by the established
organisation for sustainability management or within risk
management that are linked to our own business activities or
the company's business relations, products or services and
which are very likely to materialise and have or will have se-
rious adverse implications for non-financial matters. Emerg-
ing risks, the content of which cannot yet be evaluated with
any certainty, are monitored in the context of Group-wide risk
management.
Hannover Re has defined exclusively financial management
ratios and key financial performance indicators. For this rea-
son, no non-financial performance indicators pursuant to
§ 289c (3) No. 5 German Commercial Code (HGB) are availa-
ble that are relevant to the management of the Hannover Re
Group's business.
•
References to information outside the combined manage-
ment report and the consolidated and individual financial
statement do not form part of the combined non-financial in-
formation statement.
The combined non-financial information statement is guided
in the description of material issues by the internationally ac-
cepted framework of the Global Reporting Initiative (GRI) and
reflects both the materiality definition of the GRI and that of
the German Commercial Code (HGB). For more detailed in-
formation on the definition of materiality we would refer to
the section entitled "Materiality analysis".
A detailed description of Hannover Re's sustainability efforts,
which go above and beyond the legal requirements of the
combined non-financial information statement, is provided in
a separate sustainability report compiled annually by the
Group on a voluntary basis.
Description of the business model
For a detailed description of the business model please see
the section “Business model" under "Foundations of the
Group" in the combined management report.
Hannover Re | Annual Report 2018
75
Combined management report
Group and sustainability strategy
Our Group strategy encompasses ten strategic principles that
apply to all business units and help to ensure realisation of
our vision for the strategy cycle 2018 to 2020 "Creating value
through reinsurance". The objectives of our Group strategy
are pursued in accordance with our holistic management sys-
tem Performance Excellence 2.0. Based on the Excellence
Model of the European Foundation for Quality Management
(EFQM), this requires each organisational unit of our Group
to explore and define its contribution to the Group strategy.
In this way, we ensure that all initiatives and measures within
our Group are rigorously linked to the Group strategy. Indica-
tors for the status of target attainment are mapped centrally
in our Target Matrix. For further details please see the section
"Value-based management" in the combined management
report.
Introduction
The combined non-financial information statement is
a section of the report that the legislator has expressly
exempted from the audit of the financial statements
(§ 317 (2) Sentence 6 and Sentence 4 German Com-
mercial Code (HGB); unaudited information). The
combined non-financial information statement pre-
sented here has, however, been audited with limited
assurance by the auditing firm of Pricewaterhouse-
Coopers in accordance with the audit standard ISAE
3000 (Revised) (see here the Independent Auditor's
Report on page 270 et seq.).
Combined non-financial
information statement
2018
67
2. We are a preferred business partner
Consistently pay an attractive dividend
basis points above the risk-free interest rate
Outperform the Global Reinsurance Index (GloRe)
over a three-year period
Generate an IFRS return on equity of at least 900
Generate a profit in excess of the cost of capital
Grow the premium volume (by more than the
market average)
•
Group strategy 2018-2020
•
•
2,275
0
2014
2015
2016
2017
•
1. We have ambitious economic growth targets
2
Hannover Re | Annual Report 2018
86
25
18
20
9
9
3,251
2
3,317
Total
Luxembourg
Malaysia
45
solutions 1
X
X
ESG criteria in asset
management
X
X
X
X
X
Customer orientation and
satisfaction 1
Employees
Executive development and
employee advancement
Employee retention
Diversity
Sustainable insurance
Environment and Society Operational environmental
X
assessment
X
X
X
X
Risk management
X
X
X
Stakeholder dialogue
X
X
X
X
Product Responsibility
Risk expertise and risk
X
X
1
Supplier management¹
Hannover Re | Annual Report 2018
by independent experts, we ensure that our remuneration
policy is in keeping with our business and strategy and appro-
priately risk-adjusted. A detailed description of the remuner-
ation scheme for both the Executive Board and Supervisory
Board is provided in the “Remuneration report” on page 127
et seq. of the combined management report. Given that the
trust of our various stakeholder groups and an immaculate
reputation advance the success of our company, we make
every effort to continuously maintain an active dialogue with
our stakeholders. For more information on the dialogue with
stakeholders we would refer to the section "Stakeholder dia-
logue".
In our annually published sustainability report we provide
regular updates on our achievements as a responsible enter-
prise. In so doing, we follow the currently applicable and in-
ternationally recognised guidelines of the GRI. In our sustain-
ability communication we also fulfil the transparency
requirements of environmental, social and governance (ESG)
rating agencies, as reflected in the favourable evaluations of
our company. Hannover Re is rated by the following rating
agencies specialising in sustainability: FTSE4Good, Robeco
SAM, Oekom Research, Sustainalytics, VigeoEiris, CDP and
MSCI. In addition, we are included in the FTSE4Good Index,
the Global Challenges Index initiated by the Hannover Stock
Exchange parent company BÖAG Börsen AG as well as in ma-
jor STOXX indices.
Goal to be achieved by 2020:
Responsible corporate governance
Measures
Optimisation of sustainability management
Raise employee awareness of the topic of sustainability by
expanding internal communication and developing a training
concept
Enhance our appeal in the eyes of value- and sustainability-mind-
ed investors by participating in major sustainability ratings
Refinement and optimisation of reporting on sustainability topics
in accordance with the GRI standards
Results
M 44
Our sustainability management is regularly reviewed and continu-
ously improved. It is envisaged that a Web-based database will be
created for central recording of sustainability information.
Along with the intranet and the corporate website, sustainability
information has been published through other internal communi-
cation platforms since 2018. Work is ongoing on a training
concept.
As part of the annual rating processes we engage in an ongoing
dialogue on rating-specific sustainability issues and participate in
various ratings. In 2018 we were again listed in the FTSE4Good
Index and retained the "Prime" rating from oekom research. In
March 2017 we were accepted for the first time into the Global
Challenges Index (GCX) administered by the Hannover Stock
Exchange and oekom. Based on our favourable evaluation from the
CDP, we are included in the major STOXX family indices.
The Sustainability Report 2017 was drawn up in conformity with
the GRI standards (2016) that have been mandatory since July
2018 and responds more closely to the information requirements
of rating agencies. For further details please see the Sustainability
Report 2017.
Compliance
The term "compliance" can be defined as the totality of all
content-related and organisational safeguards that ensure
lawful conduct on the part of the Hannover Re companies, the
members of their governing bodies and their employees with
regard to all legal and ethical standards as well as the internal
corporate policies in the major areas of the organisation and
operating processes.
78
protection
By aligning the remuneration structure with regulatory re-
quirements and having the system of compensation reviewed
these bodies is regulated by German stock corporation law
and by the company's Articles of Association. Furthermore,
our Group Strategy, the Corporate Governance principles and
our Code of Conduct form the basis of our enterprise man-
agement.
X
X
X
X
X
X
X
X
X
X
X
Matter identified as non-material according to the dimensions of the German Commercial Code (HGB), but which has a high stakeholder
relevance/impact on business operations and on which we therefore additionally report in conformity with the materiality approach of the GRI.
Responsible corporate governance
As an internationally operating company, Hannover Re bears
responsibility in various senses. This is true of compliance
with relevant laws and regulations, but also applies to the re-
lationship with staff, shareholders, the public at large and the
cultures within which the company operates.
As a listed European company (Societas Europaea - SE)
based in Germany, the formal framework that shapes Han-
nover Re's corporate governance is determined by national
law. The fundamental hallmarks of this corporate governance
structure are a two-tier system with its transparent and effec-
tive split into management (Executive Board) and its over-
sight (Supervisory Board), the appointment of shareholder
and employee representatives to the Supervisory Board and
the rights of co-administration and supervision exercised by
shareholders at the General Meeting. The interplay between
In addition to our continuous engagement with the changing
general legal framework, since 2003 we have provided an an-
nual Declaration of Conformity with the German Corporate
Governance Code (DCGK) which is published on our compa-
ny's website and reproduced in the present management re-
port. The Corporate Governance principles of Hannover Rück
SE are also subject to regular review and fulfil the recommen-
dations of the currently valid version of the German Corpo-
rate Governance Code as amended.
We consider efficiently functioning compliance management
to be essential, since legally correct, responsible and ethical
actions constitute the fundamental precondition for trust in
our company and for its competitiveness as well as for ensur-
Compliance
X
5
Diversity
4.5
Operational
environmental
protection
Social commitment
3.5
4
3
Stakeholder relevance < 5 (non-material according to GRI)
Stakeholder relevance ≥ 5 (material according to GRI)
2.5
2.5
3
3.5
Hannover Re | Annual Report 2018
Supplier management
material according to GRI and German Commercial Code (HGB)
Stakeholder dialogue
Sustainable insurance solutions
Impacts on business operations
The sustainability strategy, goals and measures are reviewed
and approved by the Executive Board. Sustainability meas-
ures are implemented on a decentralised basis in the various
market and service departments. The coordination of strate-
gic goals and measures as well as the collection of data for
reporting purposes are handled by an interdisciplinary team
composed of representatives of all relevant business units.
Materiality analysis
With a view to identifying material non-financial topics, we
conducted another stakeholder survey with an external part-
ner in 2018. Representatives of the stakeholder groups com-
prised of customers, brokers, the capital market, employees,
non-governmental organisations (NGOs) and the public sec-
tor were surveyed by means of an online questionnaire and
telephone interviews. On this basis, our already existing ma-
teriality analysis was reviewed and adjusted. In this context,
we took into account the various materiality approaches of
the GRI, which constitutes the basis for our extensive annual
sustainability report, and the German Commercial Code
(HGB), on which this combined non-financial information
statement is based. As a first step, potential issues were iden-
tified using internal sources and already received stakeholder
Materiality matrix
feedback as well as information obtained from media analy-
sis, a peer comparison and global standards. The issues were
then categorised according to our four action fields in the
context of the sustainability strategy. While the external sur-
vey developed on this basis focused on the relevance of these
issues, the internal survey carried out among our employees
included additional dimensions, namely “business relevance"
and "impacts on business operations". All three dimensions
were rated on a scale of 1 to 7, with the lowest figure indicat-
ing very low relevance and the highest reflecting a very high
degree of relevance. We considered issues rated 5.0 and
higher to be material for our company within the meaning of
this legislation. The survey findings were discussed and ap-
proved at an internal workshop attended by representatives
of various specialist units and management.
In total, we identified 13 material sustainability issues in ac-
cordance with the German Commercial Code (HGB) and the
GRI, which we discuss below in our non-financial information
statement and will report on going forward on a voluntary
basis in our annual sustainability report compiled in accord-
ance with GRI standards.
M 42
7.5
material according to GRI
6.5
7
6
ESG criteria in
asset management
5.5
X
Risk management
Responsible corporate governance
M 43
Non-financial aspect
Environ-
mental
Employee
matters
Social
matters
Respect for
human rights
Strategic action field
Material issue
matters
Combating
corruption
and bribery
Governance and
Dialogue
Responsible corporate
governance
X
Allocation of material issues to the reportable non-financial aspects pursuant to the
German Commercial Code (HGB)
Employee retention
overlaps with the aspects. The individual material issues are
then discussed.
Combined management report
Compliance
Executive development/Employee advancement
Risk expertise and risk assessment
Customer orientation
and satisfaction
4
4.5
5
5.5
6
6.5
7
Business relevance
7.5
77
The following table compares the reportable aspects as de-
fined by the German Commercial Code (HGB) with the mate-
rial issues identified by our company and pinpoints thematic
27
ing that licences to pursue our business activities are main-
tained and not denied. In our view, conformity with applica-
ble legal requirements is a self-evident prerequisite for
enduring successful business operations. This includes laws
and regulations relating to the environment just as it does
those with a bearing on, among other things, fighting corrup-
tion, the prevention of money laundering, data privacy and
tax compliance. In addition, the compliance function is one of
the four key functions of the system of governance pursuant
to the Solvency II Directive and an important element of the
internal control system under these rules governing Europe-
an insurers and reinsurers.
79
85
Combined management report
Goal to be achieved by 2020:
Customer orientation and satisfaction
Measures
Fostering customer dialogue including on ESG-related topics
Results
M 49
In the year under review we continued to actively promote
knowledge sharing with our customers in the context of product-
and/or market-specific seminars and workshops.
In April and May 2018, for example, we held customer seminars in
Istanbul and China on the topic of digitalisation.
In the Life&Health reinsurance business group we developed a
concept in 2018 for an online platform that is designed to enable
customers and external business partners to exchange (re)
insurance products and services on an independent basis in the
future.
Executive development/
Employee advancement
The success of our company depends directly on the success-
ful work of our employees. We therefore pay particularly
close attention to the qualifications, experience and commit-
ment of our staff and foster these attributes through our ex-
cellent personnel development and leadership practices. Our
strategic human resources planning enables us to harmonise
the size and skills of our workforce with the current and fu-
ture requirements of our global market presence as well as
with the requirements of increasing digitalisation.
We employed 3,317 staff (previous year: 3,251) Group-wide
as at the end of the year under review. Our company's contin-
uing growth prompted further expansion of the workforce in
the financial year just ended. Consequently, there were no
major job losses in the year under review, as was also the
case in previous years.
Number of employees by country
Hannover Re | Annual Report 2018
Country
We conduct regular surveys to measure the satisfaction of our
customers not only independently but also with the support
of external market research institutes when it comes to cer-
tain markets. In view of the importance that we attach to ac-
commodating the specific features of individual markets, we
consciously do not carry out any general uniform survey of
customer satisfaction on a global basis across all our divi-
sions. We process the results of our customer surveys and
studies in-house so as to identify potential action fields. The
steps taken not only served to improve the perception of our
brand, they also made our services and products stronger. In
recent years, for example, we have enhanced our automated
underwriting systems according to the wishes of our custom-
ers and we have brought new product ideas to market.
It is crucial to our company's success that we are perceived
by our customers as a preferred business partner. If we are to
achieve this, we must offer prices commensurate with the
risks, adequate capacities and a reliable value proposition. In
addition, we foster an active dialogue with our clients. In the
context of customer events we initiate an exchange of know-
ledge on current insurance topics and developments and we
enable our customers to give feedback on our products and
services in face-to-face discussions.
Our investments are subject to negative screening every six
months by an external service provider to verify compliance
with these ESG criteria. Securities of issuers defined as
"non-adequate" are actively reduced while minimising the
market impact. In addition, potential new investments are
checked in advance to see whether the issuers violate the de-
fined ESG criteria. Such exposure is avoided if this is found to
84
Hannover Re | Annual Report 2018
be the case. The portfolio subjected to this screening encom-
passes major asset classes such as fixed-income securities
(government debt securities and debt securities issued by
semi-governmental entities, corporate bonds and covered
bonds) and listed equities. Altogether, depending on strategi-
cally motivated allocation changes, virtually 90% of our in-
vestments under own management (EUR 42,197.3 million)
are therefore screened according to ESG criteria.
In the year under review we also implemented a “best-in-
class" investment approach as an additional tool within our
responsible investment policy. An ESG officer on the invest-
ment team assures the development and application of our
Goal to be achieved by 2020:
ESG criteria in asset management
Measures
Refinement of the sustainability approach in asset management
sustainable investment guideline. In addition, major invest-
ment decisions are discussed and approved by the Invest-
ment Committee, two of whose members belong to the Exec-
utive Board.
Given that the proportion of listed equities in our asset port-
folio accounts for less than 1% of our investments under own
management, we have not adopted any voting guidelines to
date on environmental and social issues in connection with
the sustainable orientation of our investments, nor have we
defined any corresponding processes or measures. Should
the proportion of listed equities in our portfolio increase sig-
nificantly, we shall revisit the topic of active ownership.
Results
M 48
The existing ESG Investment Guideline was expanded in 2018 to
include sustainability criteria in the area of fossil fuels. Investments
in issuers who generate 25% or more of their turnover from coal
mining and coal-based energy generation are excluded. Further-
more, a best-in-class investment approach was developed and
technically implemented as an additional tool.
Customer orientation and satisfaction
Customer relationships at our company are normally man-
aged on the level of individual divisions. In property and
casualty reinsurance we cultivate our customer relationships
both through reinsurance brokers and directly by making reg-
ular business trips or holding videoconferences. Further-
more, our employees attend trade fairs and expert conferenc-
es worldwide. In life and health reinsurance we have a direct
local presence in most markets due to our decentralised ap-
proach and are thus able to engage in a quick and flexible
exchange with our customers. In addition to business trips to
visit individual clients, we also organise seminars – usually on
specific topics - and training workshops in the markets where
we operate so as to keep our customers informed about the
latest issues and developments relating to life and health re-
insurance as well as underwriting.
that fail to respect human rights or are complicit in human
rights abuses are excluded from our investment universe, as
are issuers that disregard basic labour standards and environ-
mental protection considerations. Similarly, exposures to
companies that have been noted for their use of compulsory/
child labour or their involvement in discrimination or corrup-
tion are also avoided. In our review of government issuers the
focus is on whether they are currently subject to sanctions
and, if so, what these sanctions are. Furthermore, we avoid
exposures to issuers who are involved in the development
and proliferation of controversial weapons. With regard to the
fossil fuels sector, from 2018 onwards we are no longer
purchasing securities of issuers who generate 25% or more
of their turnover from coal mining and coal-based energy
generation.
Sweden
M 50
86
75
74
68
France
56
58
Bahrain
46
48
Ireland
46
48
Bermuda
Canada
India
Korea
44
China
Australia
105
199
2018
2017
Germany
1,426
1,385
South Africa
479
488
United Kingdom
371
386
United States
293
290
227
113
Hannover Re | Annual Report 2018
Investors, analysts and clients are increasingly taking an in-
terest in how we incorporate social and environmental as-
pects into the management of our investments. In general
terms, when it comes to the management of our asset portfo-
lio we aim to generate a stable and commensurate market
return in the interests of our clients and shareholders. We
also take into account environmental, social and governance
(ESG) criteria. Our sustainability approach on the investment
side is defined in writing in our "Responsible Investment Pol-
icy", which we developed in 2011 and have subsequently al-
ready updated on two occasions. Specifically, we are guided
here by, inter alia, the ten principles of the United Nations
Global Compact, i. e. we also take into account considerations
relating to human rights, working conditions, the environ-
ment and anti-corruption. Instruments issued by companies
ESG criteria in asset management
Goal to be achieved by 2020:
Compliance
Measures
Optimisation of compliance management
Results
M 45
Appropriate measures to improve compliance standards are
regularly coordinated in the context of the meetings of European
Compliance Officers and routine conference calls.
Furthermore, new legislative developments such as the statutory
requirements of the European Insurance Distribution Directive
were examined and appropriate processes were put in place at the
Hannover location. The processes for implementation of this
directive, which applies Europe-wide, are progressively being
established at our European locations in accordance with local
legal and timing requirements.
As a consequence of the roll-out of the new General Data Protec-
tion Regulation (GDPR), we specified our existing policies in
greater detail and also created new processes, including for
example the conduct of a data protection impact assessment if a
particular instance of data processing will likely pose considerable
risks to the rights and freedoms of natural persons.
Risk management
Our Group-wide risk management minimises the business
risk on all levels and is vital to the long-term success of our
company. It therefore constitutes a material issue that we also
consider as part of our sustainability activities. A detailed de-
scription of our risk management is provided in the “Risk re-
port" on page 94 et seq. of the combined management report.
Stakeholder dialogue
We maintain an open and ongoing dialogue with our stake-
holders. By sharing information and opinions with them, we
are able to integrate, as far as possible, the expectations and
aspirations of the company's various stakeholder groups into
our business operations. Furthermore, this dialogue helps us
to identify risks and opportunities at an early stage and serves
to build trust. Key stakeholders are determined by our busi-
ness operations and our geographical presence. The follow-
ing stakeholder groups are particularly relevant to us: our
clients, our employees, the capital market, the public sector
and non-governmental organisations (NGOs).
Through conferences, roadshows and one-to-one meetings,
for example, we stay in contact with representatives of the
capital market, rating agencies and private investors. In addi-
tion, analysts and institutional investors use our annual Inves-
tors' Day and the analysts' conference to participate in an in-
tensive exchange with management. We continue to expand
the dialogue with ESG rating agencies. Our employees en-
gage with our worldwide customers through direct, face-to-
face discussions. For further information we would refer to
the section "Customer orientation and satisfaction".
81
We similarly engage in an ongoing dialogue with political de-
cision-makers, supervisory authorities and insurance indus-
try associations - mostly in relation to topical issues in insur-
ance supervision and financial market regulation in Germany,
the EU and on the wider international level. In this context we
contribute our specialist expertise from business practice to
the public debate; in return, we are able to integrate helpful
insights gained from such exchanges into our business activ-
ities and reporting.
Hannover Re | Annual Report 2018
Observance of sanctions regulations
Combined management report
The Corporate Compliance Organisational Manual summaris-
es the major activities and defines the responsibilities within
our company, the interfaces and the elements of the compli-
ance organisation. Our compliance structure was reviewed
most recently in 2015 against the backdrop of the compliance
requirements associated with Solvency II. The Compliance
department and the Chief Compliance Officer keep employ-
ees informed of changes in legislation, insofar as they affect
their work. A worldwide network of compliance officers re-
ports to and supports the Chief Compliance Officer in his du-
ties. With a view to improving cooperation within the compli-
ance network on the European level, we organise an annual
gathering of European compliance officers. Conference calls
are also held on a regular basis. The Chief Compliance Officer
works to ensure compliance with internal corporate policies
by cooperating with other departments, including Group Au-
diting, and updates the Executive Board on material compli-
ance issues and developments in an annual compliance re-
port. A Web-based whistleblower system is also in place for
the companies within the Group. This enables employees,
customers and third parties to report compliance violations
anonymously in their local language or in English. Relevant
tips and any countermeasures initiated are included in the
annual compliance report. In the year under review no tips
were received through the Group-wide whistleblower system
regarding potential wrongdoing. Furthermore, no lawsuits
were filed against our company in the reporting period on
grounds of anti-competitive or anti-trust practices. Similarly,
we were not required to pay any significant fines in the period
under review due to violations of legal provisions; nor were
any non-monetary sanctions imposed on our company.
Our Code of Conduct is accepted by our employees as an in-
tegral component of their employment contract and therefore
has binding effect. It encompasses, among other things, spe-
cific rules of conduct in the form of instructions for the avoid-
ance and disclosure of conflicts of interest, for the granting
and acceptance of benefits, gifts and invitations, for the ar-
rangement of donations and sponsorships as well as with re-
spect to sideline activities and involvement in other compa-
nies and business transactions. The Compliance Officer is to
be notified of any suspicious cases. As a general principle, all
employees receive compliance training when they join the
Group. In the year under review four training activities were
held for altogether 107 employees. In order to stay updated
on compliance issues such as combating corruption, we use
traditional communication channels including intranet por-
tals and online newsletters. Important information of compa-
ny-wide relevance is made available to staff in the intranet.
As a listed company, we also emphasise to our employees the
necessity of observing rules on insider trading and we specify
blocking periods during which shares may not be traded.
Generally speaking, the risk of human rights violations in
connection with our business operations is minimal. We have
nevertheless put special emphasis on respect for human
rights within the supply chain. For further information we
would refer to the section "Supplier management".
With the aid of our Tax Guideline, which applies throughout
the Group, a Tax Compliance System that is currently under
development and the associated review of all relevant task
areas, processes and responsibilities, we want to ensure – go-
ing forward, as in the past - that despite growing complexity
we satisfy tax liabilities arising out of our international busi-
ness operations in accordance with the respective national
legal requirements.
Data privacy and security
As part of our business activities we process and store per-
sonal data. The data are required primarily in the context of
underwriting, for providing customer and contract-related
services as well as in claims and benefit management. Fur-
thermore, personal data are collected, processed and stored
in connection with, among other things, human resources
management and shareholder administration. We also pro-
cess personal data in order to assert our own legitimate inter-
ests or those of third parties. In particular, this may be neces-
sary in order to safeguard IT security and IT operations and to
meet official requirements. It is incumbent on the Hannover
Re Group to uphold the statutory data privacy rights of data
subjects, and we have implemented appropriate procedures
and methods for this purpose. The general principle is that
personal data may only be collected, processed and stored by
Group employees to the extent that this is necessary for a
precisely defined purpose as part of their lawful task fulfil-
ment or a corresponding basis exists in law. We make use of
external service providers to some extent in order to perform
our contractual and statutory duties. These external data re-
cipients are to be viewed as part of the data processing oper-
ations, as is the case with brokers, outside experts, business
partners etc. All external recipients are contractually bound
to comply with statutory data protection requirements and
are checked in this regard. The EU General Data Protection
Regulation does not directly affect all Hannover Re compa-
nies if their registered office is located outside the European
Union or European Economic Area. The respective national
legal frameworks are primarily determinative for these com-
80
Hannover Re | Annual Report 2018
Combined management report
panies. The existing structures of the established compliance
organisation are used to implement the minimum standards
required by data privacy law. Irrespective of the scope of ap-
plication of the EU General Data Protection Regulation, the
designated Compliance Officers and contact persons are re-
sponsible for local data protection requirements. As neces-
sary, they draw up additional local data privacy guidelines
and serve as the interface to the Data Protection Officer at
Hannover Re in Germany. The Data Protection Officer coordi-
nates overarching aspects of the installed data privacy man-
agement system within the Hannover Re Group. He gives
advice on how to resolve specific data privacy issues and
monitors compliance with the EU General Data Protection
Regulation and other data protection standards. In this con-
text, the monitoring of data privacy requirements takes place
in close coordination with Group Auditing. The findings of the
separate reporting on data protection are integrated into the
annual compliance report. No complaints were received
about privacy breaches affecting personal data or the loss of
such data during the period under review. There was there-
fore no requirement to fulfil the duty to notify data breaches
pursuant to Articles 33 and 34 of the GDPR.
An information security management system geared to
ISO 27001 has been set up Group-wide for operational assur-
ance of the protection requirements under data privacy law as
well as for ensuring the security of all other sensitive informa-
tion within the company. In organisational terms, information
security management is coordinated centrally by the Group
Information Security function and incorporates all other rele-
vant functions, including for example Group IT for matters of
IT security or Facility Management with respect to building
security. In addition, awareness among our employees of
such security risks is raised through practically oriented as-
sistance measures, training activities and a staff information
campaign.
Risks arising out of the areas of data protection and informa-
tion security are integrated into the system of risk manage-
ment as operational risks and monitored here.
In addition to an annual self-assessment, we participate in
various cooperative projects undertaken by our industry and
engage in a regular dialogue with advocacy groups such as
the Bundesverband der IT-Anwender e.V. in the context of the
Cyber Security Competence Center.
Observance of applicable sanctions regulations plays a cen-
tral role for us on account of our international orientation. We
have enshrined compliance with relevant sanctions provi-
sions in our Code of Conduct and Underwriting Guidelines. In
addition, a Sanctions Screening Guideline is in place, stipu-
lating when members of staff must perform sanctions screen-
ing with respect to the initiation of contracts and/or the pay-
ment of claims. A software-supported check continuously
verifies whether the company's data inventories include the
names of persons who are subject to sanctions and hence
with whom no business may be transacted. Each working day
staff in Group Legal Services check the Official Journal of the
European Union for changes in sanctions law on the EU level
and publicise relevant changes Group-wide without delay.
The compliance training given to new members of staff also
includes basic instruction in sanctions law. New underwriters
and claims managers receive additional training in the use of
the screening software as well as in the scenarios in which a
sanctions check must be made. In addition, all underwriting
and accounting departments received training in the topic of
trade embargos in the year under review.
Along with our direct impacts on the environment and socie-
ty, we are able to make a positive contribution to sustainable
development through our investing activities by avoiding so-
cially harmful investments. Sustainability in asset manage-
ment is therefore a major concern for our company.
Furthermore, we take part in various initiatives that address
the financial costs of natural disasters in developing and
emerging countries due to underinsurance. To this end we
engage in an exchange with state actors such as the Federal
Ministry for Economic Cooperation and Development and we
work with the German Corporation for International Coopera-
tion (GIZ). Not only that, in the context of the InsurResilience
Solutions Fund we are partnering with a leading broker and
an NGO on a pilot project for the development of an innova-
Hannover Re | Annual Report 2018
Combined management report
Furthermore, we encourage the expansion of products in re-
sponse to climate change, such as weather insurance and
coverage for energy-saving warranties, and by delivering in-
surance solutions in areas such as microinsurance and agri-
cultural risks we also play a part in the societal development
of more structurally deprived regions. These enable people
with scant financial means to protect themselves against fun-
damental risks such as illness, disability, impacts of natural
disasters or crop failures. We are also taking an active part in
the development of index-based disaster finance concepts
Goal to be achieved by 2020:
Sustainable insurance solutions
Measures
Supporting, developing and expanding sustainable insurance
solutions
that guarantee rapid financial assistance for countries in
South America and Asia in the event of natural catastrophes.
In life and health reinsurance demographic changes around
the world are leading to stronger demand for the reinsurance
of longevity risks. We are also seeing rising demand for so-
called lifestyle products, which principally involve insurance
solutions under which the premium is linked to an insured's
healthy lifestyle (e. g. fitness and nutritional habits).
Results
M 47
We continue to support weather-related products as well as
insurance solutions for renewable energy sources such as solar,
hydro and wind power.
We also support energy-saving warranty products in California.
In 2018 we wrote a premium volume in the mid-triple-digit millions
of euros in the area of agricultural risks, roughly three quarters of
which stemmed from developing and emerging markets of South
America, Asia and Africa.
In addition to developing agricultural insurance products, we are
involved in various initiatives and projects. For example, we
assume risks through African Risk Capacity, which offers insurance
covers against extreme weather events for African countries.
83
82
Hannover Re | Annual Report 2018
Our business activities do not give rise to any direct negative
impacts on society or the environment. Rather, our reinsur-
ance services help to ensure that societal and environmental
risks can be adequately insured and that the effects in the
event of loss or damage can be rectified or mitigated. At its
very heart, the business of insurance involves cushioning the
burden caused by loss events and providing financial protec-
tion for companies and private individuals alike through the
transfer and spreading of risks. In this way, we can prevent
risks having adverse impacts on society and our company.
Often, it is only the backing of internationally operating rein-
surers such as Hannover Re that enables primary insurers to
cover large individual risks and the risks associated with nat-
ural perils. We thereby help to increase insurance density,
especially in emerging and developing countries, and pro-
mote social and financial inclusion. Furthermore, by offering
sustainable reinsurance solutions and supporting sustainable
primary insurance solutions, we are able to respond to the
opportunities and risks associated with these issues and
come up with innovations. With this in mind, we support sus-
tainable insurance solutions that are designed to minimise
negative environmental and social repercussions. It is never-
theless important to bear in mind the potential indirect envi-
ronmental and social impacts of the reinsurance industry.
Extensive exclusions can, for example, even cause the insur-
ance gap to grow inasmuch as the protection in place against
risks becomes inadequate. It is therefore vital to give compre-
hensive consideration to all possible implications.
tive coverage concept designed to protect communities in
Colombia against natural disasters. In addition, we partici-
pate in the Munich Climate Insurance Initiative (MCII) and we
Goal to be achieved by 2020:
Stakeholder dialogue
Measures
Intensification of the stakeholder dialogue
are a member of the Insurance Development Forum, the CRO
Forum and the “Extreme Events and Climate Risks” working
group of the Geneva Association.
Results
M 46
We maintain an ongoing dialogue with our stakeholders in a
variety of ways. Through conferences, roadshows and one-to-one
meetings, for example, we stay in contact with representatives of
the capital market, rating agencies and private investors.
We are also a member of the Insurance Development Forum, the
Chief Risk Officer (CRO) Forum and the "Extreme Events and
Climate Risks" working group of the Geneva Association. We have
been a sponsor of the Global Earthquake Model Foundation for ten
years.
Risk expertise and risk assessment
In the context of our business operations we knowingly enter
into a broad range of risks. As a leading player in the reinsur-
ance industry, our commercial success is crucially dependent
on the correct assessment of present and emerging risks.
This process of evaluating risks is growing in complexity ow-
ing to the constant monitoring and analysis of new and
emerging risks, trends and future-related factors; sustainabil-
ity aspects are also playing a greater role here. In some in-
stances these have direct strategic and operational relevance
to our reinsurance products and the management of our in-
vestments. We can gain insights from the risks and opportu-
nities for our own risk management and also use them as a
basis for product and service innovations. In this way, we
constantly adjust to societal changes and the needs of our
clients. Not only does this enhance our competitiveness, it
also boosts trust among our customers and business part-
ners.
A detailed description of our risk expertise and risk assess-
ment is provided in the “Opportunity and risk report" starting
on page 94 et seq. of the combined management report.
Sustainable insurance solutions
The consideration given to sustainability in our business op-
erations relates principally to our reinsurance products and
services as well as the management of our investments and is
taking on added importance given the growing awareness
among the general public of sustainability issues.
In property reinsurance we support the expansion of renewa-
ble energy sources, ranging from wind power generated on-
and offshore to photovoltaic and geothermal energy. Insur-
ance protection begins with the construction phase and
accompanies the customer through many years of operation.
In the year under review work began on the creation of a Group-
wide compliance plan and a consistent Group-wide Compliance
Risk Matrix was elaborated in cooperation with the European
locations. The compliance reports of the international offices are
evaluated and analysed on an ongoing basis.
2016
3.5%
1,853.2
1,214.1
+42.9%
1,734.8
Operating profit (EBIT)
1,773.9
1,530.0
1,757.1
1,685.5
+15.3%
1,943.0
Net investment income
(253.6)
156.9
(9.7)
(691.0)
(211.1)
Net underwriting result²
15,631.7
1,596.6
1,364.4
Group net income
1,231.3
Non-controlling interests
10,995.0
+8.1%
11,885.0
Rück SE
shareholders of Hannover
Equity attributable to
10,778.5
11,035.1
17,289.1
13,588.9
+11.8%
15,733.6
Policyholders' surplus
Balance sheet
958.6
1,059.5
1,284.2
883.1
+39.4%
14,071.0
871.2
19,729.7
+13.0%
2020
2019
2018
2017
2016
2015
2014
2013
20121
0
1
2.60
3.25
3.00
-4.00
-3.75
-3.50
-3.50
2
2021
1 Restated pursuant to IAS 8
2
Proposed dividend
24,143.7
Net premium earned
17,790.5
19,176.4
22,597.6
24,770.3
+12.1%
27,762.3
Gross written premium
21,360.8
year
2018
2019
20201
+/-
previous
2021
E 06
Results
in EUR million
Key figures
2017
0.40
+3.2%
2014
20,778.9
15,713.8
+28.3%
20,157.8
year-end
Market capitalisation at
104.90
117.70
172.30
130.30
+28.3%
167.15
Share price at year-end in EUR
3.50 +1.504
3.75 +1.504
603.0
70.72
72.78
633.1
663.3
4.00 +1.504
14,194.3
12,650.6
Ratios
Combined ratio (property and
casualty reinsurance) 2
ceding companies)
(excl. funds withheld by
Return on investment
90.5%
90.7%
90.0%
90.1%
89.5%
Retention
4.504
12.3%
7.5%
11.2%
7.5%
Large losses as percentage of
net premium earned (property
and casualty reinsurance) 5
99.8%
96.5%
98.2%
101.6%
97.7%
7.9%
844.4
+27.8%
Dividend per share in EUR
Total assets
40,057.5
42,197.3
47,629.4
49,001.6
+14.7%
56,213.2
withheld by ceding companies)
Investments (excl. funds
758.1
1,492.0
1,493.1
2,234.4
2,231.6
+33.4%
2,977.4
Hybrid capital
765.2
8,528.5
8,776.8
82,902.3
+16.0%
71,437.5
71,356.4
542.7
+27.8%
693.4
Dividend
87.30
91.17
+8.1%
98.55
Book value per share in EUR
4.50 +1.25 3,4
7.95
10.65
7.32
+39.4%
10.21
(basic and diluted) in EUR
Earnings per share
Share
61,196.8
64,508.6
8.79
3
1.25
3.00
74.61
87.30
91.17
100
98.55
E 04
in EUR
Book value per share
2021
2020
2019
2018
2017
2016
2015
2014
2013
20121
0
80
70.72
-72.78
66.90
Index-based protection against weather risks
Parametric insurance products also known as
-
index-based covers have already been used in
agricultural business for a number of years. These
products insure and settle losses on the basis of
defined parameters that can be unambiguously
established. In cases where risks are insurable, para-
metric products can help to make coverage more
accessible, settle claims more quickly and hence
close the protection gap in many areas. Hannover Re
develops and explores products offering parametric
protection for risks such as floods or heatwaves - not
to mention cyber risks. By making claims settlement
quicker and more straightforward, these insurance
products deliver added value because the customer
experiences a direct and immediate benefit. These
solutions, which are frequently developed in
public-private partnerships, could take on added
significance in connection with climate change.
"We see considerable potential in
parametric covers and are taking a keen
interest in them."
(Dr. Michael Pickel, member of the Executive Board)
Climate change - designing innovative
products to protect against extreme
weather events
6
5,000
Hannover Re | Annual Report 2021
0
20
40
40
48.83
50.22
60
60
62.61
Dividend
Parametric covers
8,767.9.
10,000
895.5
849.6
1,000
1,059.5
958.6
985.6
1,231.3
1,171.2
1,150.7
1,284.2
1,500
E 02
in EUR million
Group net income
2021
20201
2019
2018
2017
883.1
500
0
20121
11,035.1
10,778.5
11,231.4
10,267.3
10,239.5
13,588.9 14,071.0
15,000
15,733.6
E 03
8,947.2
in EUR million
2021
2020
2019
2018
2017
2016
2015
2014
2013
Policyholders' surplus
5
Hannover Re | Annual Report 2021
10011
2019
2018
2017
2016
2015
2014
2013
20121
in EUR
clients and partners
For more than 50 years Hannover Re has generated profitable growth and created added
value through reinsurance. We deploy our expertise and power of innovation to sustainably
develop profitable products and solutions that deliver reliable and affordable risk protection
for our customers and ultimately for insureds.
"It is only through profitable growth
that we remain a reliable partner
for our clients over the long term.
This has been and continues to be
our focus going forward."
Jean-Jacques Henchoz, Chief Executive Officer
In so doing, we pay special attention to the comprehensive
understanding and assessment of risks. In addition to techni-
cal pricing that adequately reflects the risk, we look at the
entire value chain and optimise it with all the tools offered by
reinsurance. In this way, we ensure that risk covers are and
remain calculable and affordable. Despite the Covid-19
pandemic, we have grown considerably over the past three
years - large and financially robust partners are especially
sought-after in times of crisis.
With our highly diversified portfolio we are active worldwide.
As one of the market leaders in numerous specialty lines and
with our expertise in traditional and alternative risk transfer,
we create new opportunities for our clients and partners
particularly with an eye to current and future changes that we
are able to monitor very closely and even anticipate.
Thanks to our worldwide network of experts, we are in a po-
sition not only to respond quickly to sudden changes but also
to assess long-term trends strategically in terms of their busi-
ness potential, thereby enabling us to leverage profitable op-
portunities. In this context, we prefer to explore possible av-
enues for supporting the development of new and sustainable
technologies with our solutions.
We have no doubt: the great challenges of our time - climate
change, digitalisation, shifting demographics, and indeed
changes in economic framework conditions – can only be
mastered through joint efforts. Together with our customers
and partners, we shape the future and secure major invest-
ments for a better life.
2
Hannover Re | Annual Report 2021
2020
2021
E 05
1.25
3.00
-1.50
4
1.50
1.50
1.50
4.50
5.752
1.50
Digitalisation
Dividend
4.75
5.00
5.00
Special dividend
5
5.25
5.50
6
-4.50
4.25
• Industry 4.0
Innovative sales channels
• Ecosystem building
for insurers and reinsurers
• Protracted low interest rate environment
• Trade restrictions
3
Growth in traditional reinsur-
ance business - we team up to
create opportunities
4
Standardised products, some of which have already been on
the market for a very long time, can now be automated or
optimised. This means that they stay competitive and can
address larger customer groups thanks to optimised cost
structures. Hannover Re is able to do this, for example,
through the smart use of automated underwriting or with
the aid of innovative parametric covers. New risks such as
cyber exposures, on the other hand, need to be evaluated
using a constantly expanding data pool so as to provide
adequate coverage.
Hannover Re | Annual Report 2021
Underwriting automation
Optimising standard processes
Application
• Rules governing capital requirements
Rule design
deployment
Point of Sale
Ling
Examining and accepting risks - in other words, un-
derwriting - are routine processes in the insurance
industry. They are based on large quantities of data,
empirical values from the past and assumptions
regarding future developments. By making correct
use of these data resources, we can appreciably
streamline or even - depending on the risk -
k - 
entirely
automate the decision processes.
Example: With "hr | ReFlex" we are able to offer a
modular, automated underwriting system that facili-
tates immediate, risk-appropriate decision-making
directly at the point of sale. It supports all sales chan-
nels and makes integration of new products or func-
tions a breeze - enabling us to offer primary insurers
the flexibility, responsiveness and expertise that they
have already come to expect from us now in digital
form too.
Wherever reliable tools are able to step in, it leaves
underwriters free to devote themselves to challenging
new issues and individual solutions.
1010
Digitalisation - Maximising the possibili-
0010 ties of digitalisation and making standard
products leaner and more efficient
alysis
3.2%
Economic
framework conditions
• Protection gaps
• Data analytics
• Automation opportunities
Cyber crime
Megatrends
Climate change
• Extreme weather events
• Food security
• Risks to infrastructure
⚫ Health risks (e.g. from heat)
• Competitive pressure
1010
0010
0011
• Longevity
• Healthcare costs
• Mortality
• Urbanisation/Megacities
• Value concentrations in urban centres
• Economic shifts
Hannover Re | Annual Report 2021
Economic
growth in
Asia
• Region with rapidly
growing economies
Demographics
3.0%
10,528.0
826.5
E 01
Hannover Re | Annual Report 2021
abroad
of the Hannover Re Group
Branch offices and subsidiaries
284 Further information
Hannover Rück SE
283 Supervisory Board of
Board
278 Report of the Supervisory
278 Supervisory Board
277 Responsibility statement
266 Independent Auditor's Report
173 Notes to the consolidated
financial statements 2021
statement 2021
288
170 Consolidated cash flow
167 Consolidated statement of
164 Consolidated balance sheet
as at 31 December 2021
166 Consolidated statement of
income 2021
statements
163 Consolidated financial
Somewhat different.
Within just 50 years Hannover Re has
grown into a global company that tackles.
risk and opportunity with equal success.
We intend to write the next chapter of
our success story as a reinsurer - with a
partnership-based approach, a power of
innovation that spans the world and the
extensive decision-making powers
entrusted to our experts.
118 Enterprise management
153 Outlook
Opportunity and risk report
86
information statement
Combined non-financial
70
Report on economic position
31
comprehensive income 2021
168 Consolidated statement of
changes in shareholders'
equity 2021
294
298
Glossary
3.2%
2015
Annual Report
2021
somewhat
digerent
hannover re
An overview
Gross premium
in EUR million
30,000
27,762.3
24,770.3
25,000
22,597.6
19,176.4
20,000
17,068.7
List of graphs, tables and charts
Contact information
299 Financial calendar
300 Imprint
1
We grow with our
2013
Foundations of the Group
20121
5,000
10,000
15,000
13,774.2 13,963.4 14,361.8
16,353.6
17,790.5
0
26
285
25
Property & Casualty reinsurance
Hannover Re Group
Strategic business groups
A complete list of our shareholdings is provided on page 190 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 285 et seq.
E 07
The Group worldwide
Operating result (EBIT)/net premium earned
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
special dividend of EUR 1.50 for 2019, dividend of EUR 3.75 plus special dividend of EUR 1.50 for 2018 and dividend of EUR 3.50 plus
special dividend of EUR 1.50 for 2017
Dividend of EUR 4.50 plus special dividend of EUR 1.25 for 2021, Dividend of EUR 4.50 for 2020, dividend of EUR 4.00 plus
6
5
4
Proposed dividend
3
2 Including interest on funds withheld and contract deposits
1 Restated pursuant to IAS 8
3.8%
EBIT margin
6
7.2%
5.7%
Combined management report
Regional Markets
9.2%
Return on equity (after tax)
10.8%
8.2%
13.3%
12.2%
10.9%
8.7%
EMEA (including CIS)
9.4%
•
• Morbidity
E 08
Growth
through
innovation
Contents
13
For our investors
Mortality
14
the Executive Board
18
Hannover Rück SE
20
The Hannover Re share
Americas
Letter from the Chairman of
Longevity
Executive Board of
Risk Solutions
•
Worldwide Markets
• Structured Reinsurance and
•
Insurance-Linked Securities
Facultative Reinsurance
•
APAC
• Aviation and Marine
•
Agricultural Risks
Financial Solutions
Credit, Surety and Political Risks
Life & Health reinsurance
Risk monitoring across
the Group as whole and
the business groups of all
material risks from the
company perspective
Actuarial
Function
Ensures adequacy of the
methods used and under-
lying models in relation to
calculation of the technical
provisions
Compliance
Function
Monitoring of areas
where misconduct can
result in civil actions or
criminal/administrative
proceedings
supported by
Treaty/regional and service divisions within the business
groups of Property & Casualty reinsurance, Life & Health
reinsurance and investments
and branches
supported by
actuarial functions
of the subsidiaries
and branches
Risk Management
Function
supported by
compliance functions
of the subsidiaries
and branches
1st line of defence
risk management functions
of the subsidiaries
Actuarial
Committee
Monitoring and
coordinating body
Compliance
Committee
in relation to the
Actuarial Function
Monitoring and
coordinating body
Operational risk manage-
ment, monitoring and
coordinating body as well
as implementation and
safeguarding of a con-
sistent Group-wide risk
management culture
Risk Committee
2nd line of defence
2nd line of defence
Overall responsibility for Group-wide risk management and definition of the risk strategy
Risk steering and original risk responsibility for risk identification
and assessment on the divisional and company level
Advising and supervising the Executive Board in its management of the company,
inter alia with respect to risk management
Executive Board
in relation to the
Compliance Function
3rd line of defence
Irrespective of internally assigned competencies, the Execu-
tive Board is responsible for the orderly organisation of the
company's business. This also encompasses monitoring of
the internal risk steering and control system. Process-inde-
pendent monitoring and quality assurance of risk manage-
ment is carried out by the internal audit function and external
instances (regulators, independent auditors and rating agen-
cies). Most notably, the independent auditors review the trig-
ger mechanism and the internal monitoring system in rela-
tion to the accounting. The risk management system is
rounded off with process-integrated procedures and rules,
such as those of the internal control system.
Group
Auditing
Process-independent and
Group-wide monitoring
Supervisory Board
Risk landscape of Hannover Re
At a time when the workforce is teleworking from home on
account of Covid-19, it is particularly important to perform
the controls that would otherwise have been performed in
person using electronic means.
disclosure. 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 con-
tent-based as well as system-side checks have been imple-
mented, by means of which errors are analysed and promptly
eliminated.
Risk landscape of Hannover Re
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 net-
worked 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 fi-
nancial reporting process we perform preventive and detec-
tive checks on the reported figures in order to minimise the
probability and reduce the impacts of a potentially incorrect
ment as well as the accompanying controls are consistently
documented. In order to safeguard and continuously improve
the adequacy of the control system it is subject to regular re-
view and evaluation. In this regard, the internal audit function
ensures that the quality of the control system is constantly
monitored. All relevant accounting principles are collated in a
Group Accounting Manual that sets out uniform Group-wide
rules for the recognition, measurement and reporting of items
in the consolidated financial statement. The process for up-
dating and, if necessary, adjusting these rules is clearly regu-
lated 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.
93
Hannover Re | Annual Report 2021
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
statement. Access rights for the reporting systems are as-
signed through an approval process. All components of the
accounting-related internal control system, the processes for
the organisation and implementation of consolidation tasks
and for the preparation of the consolidated financial state-
The financial reporting must satisfy international and national
financial reporting standards as well as regulatory require-
ments. This is safeguarded in the area of accounting and fi-
nancial reporting by processes with integrated controls which
ensure the completeness and accuracy of the annual and con-
solidated financial statements. A structure made up of differ-
entiated criteria, control points and materiality thresholds
assures our ability to identify and minimise the risk of errors
in the annual and consolidated financial statements at an
early stage.
The proper functioning of the ICS necessitates the involve-
ment of management, executive staff and employees on all
levels.
The internal control system (ICS) is an important subsystem
that serves, among other things, to secure and protect exist-
ing assets, prevent and reveal errors and irregularities and
comply with laws and regulations. The core elements of Han-
nover Re's ICS are documented in a guideline that establishes
a common understanding of the differentiated execution of
the necessary controls. The guideline defines concepts, stip-
ulates responsibilities and provides a guide for the descrip-
tion of controls. The ICS consists of systematically structured
organisational and technical measures and controls within
the enterprise. These include, among other things, the princi-
ple of dual control, separation of functions, documentation of
the controls within processes as well as technical plausibility
checks and access privileges in the IT systems.
Internal control system
Process-integrated/-independent monitoring and
quality assurance
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 uti-
lisation 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.
Risk reporting
Risk management is firmly integrated into our operational
processes. It is assisted by transparent risk communication
and the open handling of risks as part of our risk culture. Risk
communication takes place, for example, through internal
and external risk reports, in the context of committee and
project work, through information on current risk complexes
in the intranet and by way of training activities for staff.
Risk communication and risk culture
The monitoring of all identified material risks is a core func-
tion of risk management. This includes, inter alia, monitoring
execution of the risk strategy as well as adherence to the de-
fined limits and thresholds and to risk-related methods and
processes. A further major task of risk monitoring is the as-
certainment of whether risk-steering measures were carried
out and whether the planned effect of the measures is
sufficient.
Risk monitoring
The steering of all risks is the task of the operational business
units on the divisional and company level. In this context, the
identified and analysed risks are either consciously accepted,
avoided, increased or minimised. The risk/reward ratio is
factored into the division's decision. Risk steering is assisted
by the parameters of the central and local underwriting and
investment guidelines incl. the 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 primarily assessed qualitatively. This encompasses strate-
gic risks, sustainability and reputational risks and emerging
risks. Qualitative assessment can take the form of, for exam-
ple, expert evaluations. Quantitative assessment of risks and
the overall risk position is performed using Hannover Re's
internal capital model. The model makes allowance for risk
concentration and risk diversification.
Risk analysis and assessment
Combined management report
Hannover Re | Annual Report 2021
M 48
92
strong support from central banks in our main currency are-
as, which largely pressed ahead with their expansionary in-
terest rate policy adopted in the prior year. Both the Federal
Reserve and the European Central Bank left their key rates on
the previous year's low level. The Bank of England, on the
other hand, was the first major central bank to modestly in-
crease its key lending rate in December primarily in re-
sponse to inflationary tendencies. The ECB - in common with
the Fed and the Bank of England – continued its extensive
asset purchase programme for bonds issued by governments
and corporate entities in order to support them in this time of
crisis. Overall, then, the policies pursued by central banks in
our main currency areas were essentially consistent – supple-
mented by significant fiscal interventions –, although they
varied in scale and the measures taken. We view these world-
wide interventions by governments and central banks with
their enormous money supply as a not inconsiderable chal-
lenge because in some ways they divorce the financial world
from the natural, reciprocal control mechanisms of the finan-
cial markets and it is unclear to what extent the current or
future valuation levels are supported by fundamentals. The
worldwide progress of vaccination campaigns and their effec-
tiveness will be pivotal to economic development going for-
ward. In conjunction with continued catch-up effects and
higher inflation, this may still lead to very high - but poten-
tially unstable - valuation levels on credit and equity markets.
91
16,783.7
Eligible own funds
15,210.9
17,464.1
Available economic capital
31.12.2020
31.12.20211
in EUR million
M 47
resources.
In the interests of our shareholders and clients we strive to
ensure that our risks remain commensurate with our equity
Risk capital
14,557.5
Own funds and required risk capital
Biometric risks: We continuously monitor the development
of our mortality business (especially in the United States) as
well as of our worldwide morbidity business, particularly with
an eye to the impacts of the Covid-19 pandemic. It is to be
anticipated that the Covid-19 pandemic will lead to further
strains in 2022. Mention should be made here of not only the
US portfolio but also, most notably, the book of South African
and South American mortality business.
Increasingly exacting regulatory requirements governing
corporate responsibility for human rights and other sustaina-
bility concerns, especially as they relate to supply chains, will
continue to grow in importance for the international business
community over the coming years.
Combined management report
68
89
Hannover Re | Annual Report 2021
Supply chain risks: It has become clear over the course of
the current pandemic that global supply chains - especially in
combination with lower inventories - pose risks to the conti-
nuity of operations in many sectors. This can result in higher
claims expenditures on account of increased procurement
costs or business interruptions.
Inflation on the underwriting side: The higher rates of infla-
tion worldwide have the potential to affect multiple factors in
our business activities, including for example the premium
calculation, the loss reserves, the large loss budget, the in-
vestments (as described in the previous section) and the man-
agement expenses. We have developed measures to deal with
inflation in all these respects. It should be borne in mind here
that the general rise in inflation (e.g. as measured by the US
CPI) needs to be differentiated from the drivers of claims and
cost inflation relevant to our company. The Hannover Re-spe-
cific claims inflation index is a blend of different regions and
currencies and dependent on the line of business. Mention
should be made here of wages and salaries for liability busi-
ness, construction costs for property insurance including nat-
ural perils and medical expenses for life and health insurance.
Inflation is considered in our reserving process. Essentially,
this process is based on average past inflation rates; we work
with loadings if there are indications of a future rise in infla-
tion. Adequate reserving processes are especially important
in long-tail lines because multiple underwriting years can be
affected at the same time. We monitor inflation drivers over
the entire course of the business and reduce them by, among
other things, making appropriate allowance in the premium
calculation and by means of index clauses and sliding-scale
commissions.
As far as our investments are concerned, we anticipate con-
tinuing elevated volatility on global capital markets in the im-
mediate future, although we also see this as an opportunity
and believe that we are appropriately prepared with our cur-
rent investment posture. For further information please see
the "Investments" section of the management report on page
55 et seq. Geopolitical tensions and armed conflict, as cur-
rently seen in Ukraine, pose corresponding risks to the polit-
ical balance of power in Europe. Adverse impacts on financial
markets are possible. Resulting increases in energy prices
may push inflation even higher.
modified expectations for contractual conditions as well as
probabilities of lease extensions or new leases, these changed
market parameters are reflected in adjusted fair values for
real estate. Pandemic-related developments are therefore fac-
tored into the real estate valuations. This is true not only of
the directly held portfolio but also - with the usual slight time
delay of the real estate fund holdings.
The pandemic has proven to be an additional factor directly
affecting the conditions and dynamics on real estate markets.
If the economic weakness results (temporarily) in reduced de-
mand for space, this could give rise to flat or declining rental
income or rising vacancy rates. Taken in combination with
In the context of its business operations the Hannover Re
Group is confronted with a broad variety of risks. These risks
are deliberately accepted, steered and monitored in order to
be able to act on the associated opportunities. The parame-
ters and decisions 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. In this context crucial importance at-
taches to our risk management in order to ensure that, among
other things, risks to the reinsurance portfolio remain calcu-
lable and even exceptional major losses do not have an undu-
ly adverse impact on the result.
nover Re Group. This process is further supplemented by the
know-how of internal and external experts. The fit of the
probability distributions is regularly checked by our specialist
departments, although more importantly it is also verified in
the context of the regular, company-wide use of the capital
model when assessing risks and allocating the cost of capital.
The Hannover Re Group calculates the required risk capital as
the Value at Risk (VaR) of the economic change in value over
a period of one year with a confidence level of 99.5%. This
corresponds to the requirements of Solvency II. For its capi-
talisation under Solvency II Hannover Re has set a limit of
180% and a threshold of 200% for the capital adequacy ra-
tio. It remains the case that the limit and threshold are clearly
exceeded.
Solvency capital requirement/
Required risk capital at the
confidence level of 99.5%
Our quantitative risk management provides a uniform frame-
work for the evaluation and steering of all risks affecting the
company as well as of our capital position. The internal capi-
tal model - a stochastic enterprise model – is a central tool in
this context. It covers all subsidiaries and business groups of
the Hannover Re Group. The core variable in risk and enter-
prise management is the economic equity, which is calculat-
ed according to market-consistent valuation principles and
also constitutes the basis for calculating the own funds under
Solvency II. Hannover Re's internal capital model reflects all
risks that influence the development of the economic equity.
These are split into underwriting risks, market risks, counter-
party default risks and operational risks. For each of these
risk categories we have identified a number of risk factors for
which we define probability distributions. These risk factors
include, for example, economic indicators such as interest
rates, exchange rates and inflation indices, but also insur-
ance-specific indicators such as the mortality of a particular
age group within our portfolio of insureds in a particular
country or the number of natural catastrophes in a certain
region and the insured loss amount per catastrophe. The
specification of the probability distributions for the risk fac-
tors draws upon historical and publicly available data, exclu-
sive industry data and the internal data resources of the Han-
Excess capital (Solvency II)
Hannover Re | Annual Report 2021
A key source of information for monitoring risks is the risk
identification carried out on a periodic basis. All identified
risks are documented in a central register containing all ma-
terial risks. Risks are identified through, among other things,
interviews and scenario analyses as well as in the evaluation
of new products and large transactions. External insights
from bodies and working groups are incorporated into the
process. Risk identification is important for ensuring that our
risk management consistently remains up-to-date.
Risk identification
The establishment of the risk-bearing capacity involves deter-
mining the total available risk coverage potential and calcu-
lating the funds required to cover all risks. This is done in
conformity with the parameters of the risk strategy and the
risk appetite defined by the Executive Board. Individual risks
and the risk position as a whole are measured using our inter-
nal capital model. A central system of limits and thresholds is
in place to monitor material risks. This system incorporates
the limits and thresholds derived from the corporate strategy.
Adherence is verified on an ongoing basis.
Risk-bearing capacity concept
This guideline describes, among other things, the major
tasks, rights and responsibilities, the organisational frame-
work conditions and the risk control process. The rules, which
are derived from the corporate strategy and the risk strategy,
additionally take account of the regulatory requirements for
risk management as well as international standards and de-
velopments relating to appropriate enterprise management.
Our risk strategy and our Risk and Capital Management
Guideline including the system of limits and thresholds for
material risks of the Hannover Re Group describe the central
elements of our risk management system. This is subject to a
constant plan, do, check and adjust cycle of improvement.
Systematic risk identification, analysis, measurement, steer-
ing and monitoring as well as risk reporting are especially
crucial to the effectiveness of the system as a whole.
Key elements of our
risk management system
attended by the actuarial units and risk management func-
tions serve as a major anchor point for strategic considera-
tions in relation to risk communication. In addition, risk man-
agement requirements are formulated in guidelines that are
discussed and published throughout the organisation.
Group-wide risk communication and an open risk culture are
important to our risk management. Regular global meetings
Hannover Re has set up risk management functions and bod-
ies Group-wide to safeguard an efficient risk management
system. The organisation and interplay of the individual func-
tions in risk management are crucial to our internal risk steer-
ing and control system. The central functions of risk manage-
ment are closely interlinked in our system and the roles, tasks
and reporting channels are clearly defined and documented
in terms of the so-called "three lines of defence". The first
line of defence consists of risk steering and the original risk
responsibility on the divisional or company level. The second
line of defence is made up of the core risk management func-
tions, the actuarial function and the compliance function.
These functions are responsible for process-integrated moni-
toring and control. The third line of defence is the process-in-
dependent 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.
Organisation and processes of
risk management
Against the backdrop of the planned growth of our business
in property and casualty reinsurance and selected areas of life
and health reinsurance, we continuously track the impacts on
capital adequacy and our rating. In order to ensure our capi-
tal adequacy and our rating we initiate measures promptly
and also consider the issuance of further hybrid capital sub-
ject to an appropriate capital market environment.
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 interactive rating process. The current financial
strength is assessed as "AA-" (Very Strong, stable outlook) by
Standard & Poor's and "A+" (Superior, stable outlook) by A.M.
Best. In this context both Standard & Poor's and A.M. Best
consider Hannover Re's risk management to be a very impor-
tant aspect in the evaluation of financial strength and rate it
as very good. Hannover Re's internal capital model was also
subjected to expert appraisal. As a result of this review,
Standard & Poor's factors the results of the Hannover Re
Group's internal capital model into the determination of cap-
ital requirements.
Combined management report
Hannover Re | Annual Report 2021
90
In addition, Hannover Rück SE is subject to regulatory capital
requirements. The solvency ratio of Hannover Rück SE is nor-
mally higher than the solvency ratio of the Hannover Re
Group because there are no restrictions with regard to the
use of own funds attributable to non-controlling interests.
The eligible own funds for regulatory purposes are lower than
the available economic capital because the non-controlling
interests under Solvency II are in part treated as non-eligible.
The available economic capital and the eligible own funds in-
clude the static volatility adjustment, whereas the required
risk capital includes the dynamic volatility adjustment. These
risk indicators refer to the Hannover Re Group.
1 The figures regarding the available economic capital are based on the
Solvency II reporting as at 31 December 2021. The relevant Solvency II
audit procedures conducted by the independent auditor have still to be
completed. The solvency capital requirement and the non-eligible
non-controlling interests (and hence the eligible own funds) involve
information that has not been audited by the independent auditor.
235.2%
243.1%
8,367.1
9,879.5
6,190.4
6,904.2
Capital adequacy ratio (Solvency II)
Central functions of risk monitoring and steering
M 49
other
Price/premium risk
Catastrophe risk
Reserving risk
The loss-mitigating effect from taxes and the diversification
effect remain largely stable.
The changes in the operational risk are attributable above all
to updated expert assessments regarding the impact of indi-
vidual scenarios.
The underwriting risks in life and health reinsurance in-
creased primarily due to the business expansion in the areas
of longevity and morbidity risks as well as the appreciation of
foreign currencies. The rise in counterparty default risks can
be attributed principally to a higher volume of receivables
due from retrocessionaires.
growth, the large loss expenditure and accompanying higher
reserves as well as stronger foreign currencies.
The underwriting risks in property and casualty reinsurance
increased primarily as a consequence of higher premium and
reserves. The enlarged volumes are driven by the business
The increase in the market risk is a reflection first and fore-
most of the larger volume due to higher fair value measure-
ment and new investments in the areas of private equity and
real estate. The larger volumes of fixed-income securities on
account of growth in the business are a further factor here.
The required risk capital of the Hannover Re Group at the
confidence level of 99.5% rose over the course of the year.
This was driven principally by the larger business volumes,
which have led to an increase in underwriting risks and mar-
ket risks. The weaker euro against foreign currencies also
contributes to a higher risk.
property & casualty reinsurance including risk margin.
Adjustments for technical provisions in life & health and
Minor differences for 31 December 2020 compared to Annual Report
2020 only in the allocation of adjustments for assets under own manage-
ment and technical provisions.
1 The figures are based on the Solvency II reporting as at 31 December
2021. The relevant Solvency II audit procedures conducted by the
independent auditor have still to be completed.
(586.7)
15,210.9
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
models, which are adjusted in the context of a detailed inter-
nal 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 biome-
tric and lapse scenarios. With respect to all the aforemen-
tioned risks we use internal data to define scenarios and
probability distributions. The internal data is enhanced by
way of parameters set by our internal experts. These parame-
ters are especially significant in relation to extreme events
that have not previously been observed.
3
(1,389.0)
13,434.1
2,363.5
15,156.0
3,029.7
(721.6)
17,464.1
Available economic capital
Foreseeable dividends
Hybrid capital
Economic equity
(1,591.5)
Adjustments due to tax effects and
2,398.4
3,364.7
provisions 3
Adjustments for technical
2
626.6
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 pe-
riods 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 oc-
cur at the same time. The absence of complete dependency is
referred to as diversification. Hannover Re's business model
is based inter alia on building up the most balanced possible
portfolio so as to achieve the greatest possible diversification
effects and in order to deploy capital efficiently. Diversifica-
tion exists between individual reinsurance treaties, lines,
business segments and risks. We define the cost of capital to
be generated per business unit according to the capital re-
quired by our business segments and lines and based on their
contribution to diversification.
Hannover Re | Annual Report 2021
threshold; countermeasures would be triggered if the solven-
cy ratio were to fall below this threshold. Currently, the sol-
vency ratio (unaudited by the independent auditor) stands at
243%, i.e. above the threshold. These indicators are moni-
tored using our internal capital model and the Executive
Board is informed quarterly about adherence to these key pa-
rameters as part of regular risk reporting. The necessary eq-
uity resources are determined according to the requirements
of our economic capital model, regulatory parameters, the
expectations of rating agencies with respect to our target rat-
ing and the expectations of our clients.
Major external factors influencing
risk management
This subsection describes external factors that were particu-
larly relevant in 2021 and could continue to influence risk
management in subsequent years.
-
Covid-19 pandemic: The Crisis Management Team set up in
2020 continued to manage operations prudently in 2021.
Business travel remained constrained. Working from home
which applied to large parts of the workforce - went smooth-
ly, in part thanks to the use of videoconferencing and exten-
sively digitalised business processes. Consequently, in 2021
we once again did not identify any material impacts of the
Covid-19 pandemic on our operations. After an initial, gradu-
al return to the company's business premises in the second
half of the year, employees were, once again, urged to
work from home in the fourth quarter - depending on their
location due to the accelerating spread of infections around
the world.
We continue to evaluate our financial strength and profitabil-
ity on a regular basis using stress tests and sensitivity analy-
ses and will take measures as needed to reduce risks or
strengthen our equity resources. In this regard, the largest
reserves on the reinsurance side were for coverage of busi-
ness interruption, excess mortality, credit insurance and
event cancellations. With the pandemic still ongoing, any
forecasts are still subject to considerable uncertainty. It re-
mains to be seen how well the vaccines and boosters current-
ly available will work against new variants of the virus.
We are also monitoring the long-term post-infection effects.
The so-called "post-Covid syndrome" would have negative
implications for the coverage of sickness costs and disability.
Early study results suggest that these patients suffer not only
from fatigue and a general loss of energy, but also increasing-
ly from anxiety disorders and depression.
The biometric effects of the pandemic on our reinsurance
portfolios are discussed in a separate subsection.
Regulatory developments: The recommendations of the
European Insurance and Occupational Pensions Authority
(EIOPA) for the overhaul of the European prudential regime
Solvency II were submitted to the European Commission,
which then published its proposals in September 2021. In
some instances the Commission diverged from EIOPA's rec-
ommendations. The European Parliament and the member
states in the Council will now negotiate the final legislative
texts based on the Commission's proposals. The proposals
include, among other things, new macroprudential supervi-
sory powers as well as changes to yield curves and revisions
to the calculation of the risk margin. Depending on the final
outcome of the ongoing legislative process, these proposals
could have considerable implications for the European insur-
ance industry.
EIOPA has also proposed extensive changes to reporting
rules for insurance undertakings, namely the revision of the
Quantitative Reporting Templates (QRTs) and changes to the
Implementing Technical Standards (ITS).
In the year under review the European Financial Reporting
Advisory Group (EFRAG) also endorsed the IFRS 17 standard,
with European insurers now making preparations for its im-
plementation.
Numerous regulatory developments relating to sustainability
occurred in 2021 on the international, European and national
level. In the EU they are linked to the European Green Deal
strategy pursued by the European Commission. The Europe-
an Commission renewed the high-level goals for sustainable
finance, which were first set out in the Commission's 2018
action plan. The Commission also published a delegated act
proposing how the disclosure duties under the Taxonomy
Regulation are to be fulfilled, and in which the specific re-
quirements for (re)insurance undertakings are elaborated in
greater depth. Initial limited reporting pursuant to the Taxon-
omy Regulation is provided in the present report. Further
new regulation introduced relates to the consideration given
to climate change scenarios.
Hannover Re | Annual Report 2021
In the course of 2021, EIOPA carried out multiple compara-
tive studies of internal models, in which Hannover Re partici-
pated. Aspects such as the diversification, parameters and
results of the market risk models as well as those for the non-
life underwriting risk were compared. The studies and their
findings are intended to harmonise supervisory approaches
in the EU and hence refine the supervision of internal models
88
87
Combined management report
above and beyond the existing tools. This poses, among other
issues, a systemic risk that company-specific approaches may
be too heavily restricted as a consequence of the findings.
Turning to new and upcoming regulatory requirements and
expectations, compliance risks are taking on ever greater sig-
nificance at both the national and international level. Espe-
cially in the context of IT regulation, more exacting supervi-
sory standards have been adopted on the security and
governance of Information and Communication Technology.
Furthermore, at the end of 2021 the Federal Financial Super-
visory Authority (BaFin) began work on a revision of the Su-
pervisory Requirements for IT in Insurance Undertakings
(VAIT) in order to harmonise them with European laws and
regulations.
Market access risks continue to emerge worldwide. Growing
protectionism is a particularly unfortunate trend at a time
when, a global, large and persistent gap exists between the
level of economic losses (especially following catastrophic
events) and the level of insured losses. In its work programme
for 2022, EIOPA announced its intention to assess harmonisa-
tion of the rules for EU market access regarding third-country
reinsurers as part of its mission to bring about convergence
of international supervisory standards. Should Europe decide
to impose more exacting restrictions, there is a risk that this
may lead to reciprocal actions by international jurisdictions.
Corporate taxes: In 2021 the OECD presented its so-called
model rules for reform of the international tax system to as-
sist in implementation of a minimum 15% global corporate
income tax rate. The OECD model rules are intended to serve
as a template for adoption into national law by the individual
member states. The OECD is proposing implementation as
early as 2023.
Risks from the processing of electronic data: Recent years
have seen the increasing emergence of risks relating to elec-
tronic data and systems. Hannover Re, in common with other
companies, is at risk of outside attacks on its own IT systems
and has put in place extensive safeguards. Furthermore,
Hannover Re offers reinsurance coverage for risks connected
with electronic systems and data (cyber risks). The systems
used to manage these cyber risks are continuously refined so
that the risks can be appropriately limited. In this context,
care is taken to ensure that cyber risks are largely assumed
deliberately in reinsurance treaties and not unknowingly in-
cluded as incidental risks under the cover provided (silent
cyber).
Natural catastrophe risks and climate change: In 2021
Hannover Re was again impacted by natural catastrophe
events in various parts of the world (Europe, the United
States, Australia). Particularly noteworthy in the year under
review were winter storm Uri, intense rainfall event Bernd,
Hurricane Ida and a series of tornados in the US.
Natural disasters should be viewed as inextricably linked to
climate change. The associated impacts present a major chal-
lenge for risk management. We use both external and internal
risk models to simulate the impacts of catastrophic events.
The monitoring of risks resulting from natural perils is com-
plemented by stress tests as well as scenario and sensitivity
analyses. Further specifics are provided in the separate sec-
tion "Climate change".
Capital market environment: The persistently low level of
interest rates is a major external factor influencing the return
that can be generated on our investments. Interest rate in-
creases - which in some instances were very marked - were
recorded not only for euro-denominated bonds but also in the
US dollar and sterling markets in the first quarter of the year.
Despite renewed modest declines subsequently seen in the
area of the US dollar and British pound, we benefit from the
higher rate level overall when making new investments and in
our reinvesting activities. Yields on euro area government
bonds were negative well beyond the 10-year maturity point.
Credit spreads also retreated from the beginning of the year
onwards for bonds issued by developing countries and in the
case of lower-quality issuers, while in other sectors they re-
mained very largely stable or showed at most modest declines
over a long period. Here, too, however, emerging nervous-
ness on financial markets in connection with new variants of
the coronavirus was reflected in slightly higher risk premi-
ums by year-end. All in all, the economic repercussions of the
Covid-19 pandemic on financial markets continued to be ex-
tensively cushioned by fiscal and monetary backstopping.
This was reinforced by the vaccination progress made world-
wide and a slow easing in the consumption backlog. This im-
pressive development is also reflected in rising raw materials
and transport costs. These, in turn, are passed on in the form
of generally higher prices. The systematic inflation concerns
of other market participants currently still appear fragile
when it comes to their potential longevity. It is still too soon
to make any definitive judgement on the indications of struc-
tural and protracted higher inflation. As growth normalises
and the kinks in the supply chain are ironed out again, it is
our expectation that inflation may fade and secondary effects
such as wage pressures can be curbed. We are nevertheless
keeping close track of the situation with an eye to any oppor-
tunities that may arise. The economy continues to enjoy
88
Hannover Re | Annual Report 2021
management
Adjustments for assets under own
11,839.4
Hannover Re | Annual Report 2021
Outsourcing risks
Information security risks
Human resources risks
Fraud risks
Compliance risks
quality risks
Business continuity risks
Business process and data
spread risk
Default and
risk
Interest rate risk
Real estate risk
Foreign exchange
Combined management report
Equity risk
Longevity and
mortality risk
Morbidity and
Operational risks
Other risks
Strategic risk◄
Liquidity risk
Emerging risks
reputational risks
Sustainability and
Market risks
Risk landscape of
Hannover Re
Counterparty default risks
Underwriting risks
Life and health reinsurance
Property and casualty reinsurance
disability risk
Lapse risk
Catastrophe risk
Expense risk
The risk landscape of Hannover Re encompasses:
•
underwriting risks in property & casualty and
life & health reinsurance which originate from our
business activities and manifest themselves inter alia in
fluctuations in loss estimates as well as in unexpected
catastrophes and changes in biometric factors such as
mortality,
12,756.2
minorities
Shareholders' equity including
31.12.2020²
31.12.20211
in EUR million
585.3
M 50
(economic capital/shareholders' equity)¹
Reconciliation
In the first quarter Hannover Re issued a new hybrid bond
with a volume of EUR 750 million, resulting in a further in-
crease in the available economic capital.
The economic investment income was above expectations,
especially in the areas of private equity and real estate. Unfa-
vourable movements in interest rates were offset by positive
exchange rate effects and effects associated with credit
spreads.
96
96
95
Hannover Re | Annual Report 2021
The available economic capital increased to EUR 17,461.1
million as at 31 December 2021, compared to EUR 15,210.9
million as at 31 December 2020. In life and health reinsur-
ance the operating performance was adversely affected by
Covid-19 and changes in assumptions, while favourable de-
velopments were driven by new business above target. For
property and casualty reinsurance we experienced large
losses above the budgeted level, which were cushioned by a
positive effect from the actuarial assumption changes.
Hannover Re calculates the economic equity as the difference
between the market-consistent value of the assets and the
market-consistent value of the liabilities. While fair values are
available for most investments, the market-consistent valua-
tion of reinsurance treaties necessitates a specific valuation
model. We establish the market-consistent value of technical
items as the present value of projected payments using actu-
arial methods. This is adjusted by a risk loading that factors
in the potential fluctuation in future payments. Such fluctua-
tions result from risks that cannot be hedged by means of
capital market products, such as underwriting risks. For the
discounting of future cash flows we use the risk-free basic
yield curves calculated in accordance with Solvency II re-
quirements increased by the volatility adjustment. Market
prices for options and guarantees embedded in insurance
contracts are determined or approximated using option valu-
ation models from the field of financial mathematics. The vol-
ume of these options and guarantees in our portfolio is, how-
ever, comparatively slight. The adjustments for assets under
own management shown in the following table indicate the
difference between fair value and book value of those invest-
ments recognised under IFRS at book values. Other adjust-
ments encompass above all the deferred taxes. The available
economic capital, which is available as liable capital for poli-
cyholders, is composed of the economic equity and the hy-
brid capital and includes the deduction of foreseeable divi-
dends as required by Solvency II. Hybrid capital is recognised
at market-consistent value as required by Solvency II, with
changes in the own credit risk not being included in the
valuation.
In this subsection we compare the available economic capital
with the required risk capital.
Internal risk assessment
The specific risk characteristics and the principal monitoring
and steering mechanisms are described in the following
sections.
At the present time our most significant individual risks are
the default and spread risks within the market risks, the re-
serving and catastrophe risks within the underwriting risks of
property and casualty reinsurance and the longevity risks
within the underwriting risks of life and health reinsurance.
It has become common practice to differentiate be-
tween the risks caused by ESG issues to which a com-
pany is exposed (outside-in perspective) and the im-
pacts that a company has on people and the
environment (inside-out perspective). Sustainability
risks corresponding to the outside-in perspective are
financial risks due to the potential financial repercus-
sions of environmental, social and governance (ESG)
issues on Hannover Re. These financial risks encom-
pass market, underwriting, counterparty default and
operational risks and are integrated into the risk man-
agement processes for such risks. The inside-out per-
spective refers to situations in which the activities of
Hannover Re would be harmful to the environment or
social norms or would reflect a failure of governance.
Reputational risks form the bridge between the out-
side-in and the inside-out perspective. Due to a - per-
ceived or real - external impact of the company, a
reputational risk arises for the company from the in-
side-out perspective. As a general principle, we inte-
grate sustainability risks (outside-in) into our regular
risk management processes. According to the in-
side-out perspective, reputational risks relate to trans-
gressions against environmental and social concerns,
governance failings are defined as a failure to comply
with internal guidelines, codes of conduct and other
internal policies.
Sustainability risks can affect all areas of our risk
landscape in connection with environmental, social
and governance (ESG) issues. Examples include the
implications for property and casualty insurance of
potentially more widespread natural disasters due to
climate change or the decline in value of certain in-
vestments in conjunction with the changeover to a
world free of greenhouse gas emissions in the future.
• sustainability and reputational risks, liquidity risks,
strategic risks and emerging risks.
counterparty default risks resulting from our diverse
business relationships and payment obligations inter
alia with clients, retrocessionaires and banks,
operational risks which may derive, for example, from
deficient processes or systems and
market risks which arise in connection with our
investments and also as a consequence of the valuation
of sometimes long-term payment obligations associated
with the technical account,
94
We continue to have exposure to the private equity market.
Fair value changes here tend to be less influenced by general
market conditions and more by company-specific evalua-
tions. The risks are therefore primarily associated with the
business model and profitability and to a lesser extent with
the interest rate component in a consideration of cash flow
forecasts. Thus, for example, we also view the need to take
higher write-downs in the previous year on isolated assets in
response to the Covid-19 pandemic not as a reflection of a
generally elevated risk in the market, but rather in the context
of the risk profile specific to this asset class and set of compa-
ny characteristics. The write-downs taken in the period under
review were already back to the average level of previous
years. The significance of real estate risks remains substantial
for us owing to our consistent participation in this sector. We
spread these risks through broadly diversified investments in
high-quality markets around the world, with each investment
decision being preceded by extensive analyses of the relevant
property, manager and market.
18.4
M 58
(1,107)
(1,452)
(1,959)
100-year loss
250-year loss
Effect on forecast net income
2020
M 55
2021
Hurricane US
in EUR million
Aggregate annual loss
Stress tests for natural catastrophes after
retrocessions
For the purpose of assessing our material catastrophe risks
from natural hazards (especially earthquake, windstorm and
flood) we use licensed scientific simulation models, supple-
mented by the experience of our own specialist departments.
The monitoring of the risks resulting from natural hazards is
rounded out by scenario analyses. Major scenarios and stress
tests are shown in the following table:
In order to partially hedge inflation risks Hannover Re holds
securities in its portfolio with inflation-linked coupons and
redemption amounts. An inflation risk exists particularly inas-
much as the liabilities (e.g. loss reserves) could develop dif-
ferently than assumed at the time when the reserve was con-
stituted because of inflation. The specified bonds help to
provide partial protection for these parts of the loss reserves
against inflation risks.
32.2
75.0
13.5
26.5
78.9
15.0
in years
reserves
Survival ratio
IBNR reserves
Individual loss
Survival ratio
in years
(1,594)
Earthquake US West Coast
100-year loss
(839)
In recent years we have reported regularly on the results of
our US mortality business, which have been poorer than an-
ticipated. The reason for this development was the negative
earnings performance of a large portfolio that we, as reported
at the time, acquired at the beginning of 2009.
local accounting principles satisfy all requirements with re-
spect to the calculation methods used and assumptions made
(e.g. use of mortality and morbidity tables, assumptions re-
garding the lapse rate). In addition, the assumptions are con-
tinuously reviewed on the basis of empirical data and modi-
fied if necessary. New business is written in all regions in
compliance with underwriting guidelines applicable world-
wide, which set out detailed rules governing the type, quality,
level and origin of risks and how these considerations are
factored into the pricing. These global guidelines are revised
annually and approved by the Executive Board. Special un-
derwriting guidelines give due consideration to the particular
features of individual markets. By monitoring compliance
with these underwriting guidelines we minimise the risk of an
inability to pay or of deterioration in the financial status of
cedants. Regular reviews and holistic analyses (e.g. with an
eye to lapse risks) are carried out with respect to new busi-
ness activities and the assumption of international portfolios.
Large transactions are also examined by our risk manage-
ment department. Individual actuarial reports and documen-
tation ensure that regular scrutiny also takes place at the sub-
sidiary level. The interest rate risk, which in the primary
sector is important in life business owing to the guarantees
that are given, is of only minimal relevance to our company
thanks to the design of our reinsurance treaties. We have con-
fidence in the entrepreneurial abilities of our underwriters
and grant them the most extensive possible powers. In our
decentralised organisation we manage risks where they arise
using a consistent Group-wide approach in order to obtain an
overall view of the risks in life and health reinsurance. Our
global underwriting guidelines provide underwriters with an
appropriate framework for this purpose.
Hannover Re | Annual Report 2021
Hannover Re | Annual Report 2021
(777)
(1,277)
(223)
(493)
250-year loss
100-year loss
Earthquake Chile
(747)
reserves
(1,203)
(347)
(758)
100-year loss
Earthquake Japan
(631)
(1,009)
250-year loss
(377)
(667)
(554)
(1,184)
(1,615)
250-year loss
Winter storm Europe
100-year loss
250-year loss
Individual loss IBNR reserves
2021
2020
5,473.5
Underwriting risk property and
casualty
(1,348.2)
(1,663.2)
Diversification
2,595.0
3,225.8
3,344.6
3,910.9
(including catastrophe risk)
Reserve risk
in EUR million
Premium risk
31.12.2020
4,591.4
31.12.2021
Required risk capital¹ for underwriting risks
in property and casualty reinsurance
-
Diversification within the Property & Casualty reinsurance
business group is actively managed through allocation of the
cost of capital according to the contribution made to diversi-
fication. A high diversification effect arises out of the under-
writing of business in different lines and different regions
with different business partners. In addition, the active limita-
tion of individual risks such as natural catastrophes - en-
hances the diversification effect. The risk capital with a confi-
dence level of 99.5% for underwriting risks in property and
casualty reinsurance breaks down as follows:
For risk management purposes we make a fundamental dis-
tinction 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). Particu-
larly in the latter case, special importance attaches to the ca-
tastrophe risk.
Risk management in property and casualty reinsurance has
defined various overall guidelines for efficient risk steering.
These include, among other things, the use of retrocessions
to reduce volatility and conserve capital. It is also crucially
important to consistently maximise the available risk capaci-
ties on the basis of the risk management parameters of the
Hannover Re Group and to steer the acceptance of risks sys-
tematically through the existing central and local underwrit-
ing guidelines. Our conservative reserving level is a key factor
in our risk management.
Underwriting risks in property and
casualty reinsurance
Climate change can result in shifts that are reflected in
stronger demand for reinsurance products to protect
against natural catastrophes and also in new opportu-
nities. Hannover Re offers a wide range of products
that help customers to protect themselves against in-
creased losses and damage (both in terms of frequen-
cy and severity) from natural disasters. What is more,
changes in temperature extremes around the world
I can lead to higher rates of mortality, which in turn
may trigger stronger demand for our products in life
and health reinsurance.
goals and operational measures. Our decision to join
the Net-Zero Insurance Alliance in the year under
review should be mentioned in this context as part of
an industry-wide effort to fight climate change.
Combined management report
97
Hannover Re | Annual Report 2021
In addition, ESG risks - in common with compliance
risks that are generally associated with laws and regu-
lations relating to environmental law or ESG standards
- are subject to scrutiny under every New Products
Process (NPP). Our Risk & Capital Management Guide-
line, which contains supplementary work instructions
and definitions regarding climate change and other
ESG issues, is applicable throughout the Group. The
Property & Casualty Executive Committee, the Invest-
ment Committee and the Environmental Officer simi-
larly develop and discuss climate-related strategic
M 52
As part of our inforce management measures we had initiated
rate adjustments for the portfolio concerned in 2018. For the
1 Required risk capital with a confidence level of 99.5%;
information not audited by the independent auditor
1
Asbestos-related claims/
pollution damage
in EUR million
M 54
Survival ratio in years and reserves for asbestos-related claims and pollution damage
Asbestos- and pollution-related claims account for only a
small share of the Hannover Re Group's loss reserves. It is
particularly difficult to reliably estimate future loss payments
for such claims. The adequacy of these reserves can be
estimated using the so-called “survival 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.
Our own actuarial calculations regarding the adequacy of the
reserves are also subject to annual quality assurance reviews
in the form of an external analysis. For further remarks on the
reserve risk please see our comments in section 6.7 "Techni-
cal provisions" on page 225 et seq.
In calculating the reserves, we use actuarial methods based
on run-off triangles. Run-off triangles show the changes in
the reserve over time due to paid claims and in the recalcula-
tion of the reserves to be established at each balance sheet
date. Their adequacy is monitored using actuarial methods.
Hannover Re | Annual Report 2021
98
The reserve risk, i.e. the risk of under-reserving already in-
curred or foreseeable losses and the resulting strain on the
underwriting result, is a high priority in our risk manage-
ment. We attach importance to maintaining a conservative
reserving level. In order to counter the risk of under-reserv-
ing we calculate our loss reserves based on our own actuarial
estimations and establish, where necessary, additional re-
serves supplementary to those posted by our cedants 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 lines and
regions. The segment reserve established by the Hannover
Re Group amounted to EUR 9,379.3 million (EUR 8,095.6 mil-
lion) in the year under review.
Required risk capital with a confidence level of 99.5% on an aggregate
annual loss basis; information not audited by the independent auditor
1,387.5
A large share of the required risk capital for the premium risk
(including catastrophe risk) is attributable to risks from natu-
ral disasters. They constitute the main concentration risk in
property and casualty reinsurance. The following table shows
the required risk capital for five of our largest natural hazards
scenarios:
873.5
792.5
1,148.3
1,389.1
1,784.2
2,027.0
2,355.4
2020
2021
M 53
Earthquake US West Coast
Winter storm Europe
Earthquake Japan
Earthquake Chile
in EUR million
Hurricane US
Required risk capital¹ for the five largest
natural hazards scenarios
1,477.2
majority of the underlying business, these rate adjustments
have been successfully implemented or the cedant has recap-
tured the business. We are currently engaged in arbitration
procedures with a small number of individual cedants in re-
spect of the implemented rate increases. Another arbitration
procedure with a cedant was successfully concluded in the
past year. Based on the information currently available to us,
we take a favourable view of our legal position for the remain-
ing proceedings.
Rate increases for further selected treaties were initiated in
the course of 2021.
The actual risk experience for the portfolio in question was
again influenced by the Covid-19 pandemic in 2021. We are
monitoring the further development of the underlying mortal-
ity, especially as the Covid-19 pandemic unfolds, on an ongo-
ing basis.
-412.3
-206.2
-206.2
Change in equity
before tax
a fair value basis
Portfolio change on
M 64
Share prices +20%
Share prices +10%
Share prices -20%
Share prices -10%
Equity securities and
private equity
-412.3
in EUR million
Scenarios for changes in the fair value of material asset classes
M 63
Q4 2021
Q3 2021
extreme events.
Stress tests are conducted in order to be able to map extreme
scenarios as well as normal market scenarios for the purpose
of calculating the Value at Risk. In this context, the loss po-
tentials for fair values and shareholders' equity (before tax)
are simulated on the basis of already occurred or notional
1 VaR upper limit according to Hannover Re's investment guidelines: 2.5%
Q2 2021
Q1 2021
0.6
0.7
0.8
Scenario
0.9
+206.2
+412.3
Combined and catastrophe loss ratio
Hannover Re | Annual Report 2021
106
Equity risks derive from the possibility of unfavourable
changes in the value of equities, equity derivatives or equity
index derivatives in our portfolio. Their relevance to our in-
ed bonds and resulting induced interest rate exposure are
actively factored into our ALM. Further information on the
risk concentrations of our investments 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 204 et seq.
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 in-
ternal 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 ca-
pacity. It should be borne in mind that the issued subordinat-
-
-130.0
+80.6
-310.6
+310.6
Real estate market values +10%
Real estate market values -10%
Real estate
+206.2
+3,014.6
Yield decrease -100 basis points
+1,460.4
+1,508.5
Yield decrease -50 basis points
-2,675.9
-2,766.8
Yield increase +100 basis points
-1,375.8
-1,422.2
Yield increase +50 basis points
Fixed-income securities
+412.3
+3,113.3
Physical risks affect us as a risk carrier primarily in
property and casualty reinsurance, but also in life and
health reinsurance, Climatic changes and weather
events can, for example, cause higher and more fre-
quent losses in property and casualty reinsurance as
well as elevated numbers of deaths among the insured
groups of persons. Many forecasts in this connection
are subject to uncertainty, especially if they refer to
periods further in the future. In order to assess the
possible consequences, we have developed scenarios
to enable us to evaluate the implications of climate
change for all our business activities and initiate ap-
propriate measures for steering the business. Various
natural catastrophe scenarios are modelled, such as
floods, regional droughts and tropical cyclones. Our
interdisciplinary team for natural hazards modelling
takes account of the insights gained in pricing for re-
insurance solutions and in risk management. In addi-
tion, we conduct internal studies and explore the issue
in international working groups so as to assess the
risks posed by climate change. Currently, we primarily
look at two scenarios (rise in temperature of 2 degrees
Celsius or 4 degrees Celsius), under which we focus
on the windstorm, flood and wildfire perils in the con-
text of physical risks. The results of the analyses are
presented to the Risk Committee and included in the
Own Risk and Solvency Assessment (ORSA).
1.0
Combined management report
755.4
(3,423.4)
Diversification
Real estate risk
2,048.3
Equity risk²
1,593.4
Foreign exchange risk
1,082.2
Interest rate risk
31.12.2020
2,902.0
2,818.9
Default and spread risk
Market risk
31.12.2021
M 61
Required risk capital' for market risks
2
Faced with a challenging capital market climate, particularly
high importance attaches to preserving the value of assets
under own management and the stability of the return.
Hannover Re's portfolio is therefore guided by the principles
of a balanced risk/return profile and broad diversification.
Based on a risk-averse asset mix, the investments reflect both
the currencies and durations of our liabilities. Market price
risks include equity risks, interest rate risks, foreign exchange
risks, real estate risks, spread and default risks. Our portfolio
currently consists in large part of fixed-income securities,
and hence default and spread risks account for the bulk of the
market risk. We minimise interest rate and foreign exchange
risks through the greatest possible matching of payments
from fixed-income securities with the projected future pay-
ment obligations from our insurance contracts. Market risks
derive from the investments managed by Hannover Re itself
and from investment risks of ceding companies that we as-
sume in connection with insurance contracts. The following
table shows the risk capital with a confidence level of 99.5%
for the market risks from investments under own and
third-party management.
Market risks
Combined management report
103
Hannover Re | Annual Report 2021
The risks arising out of life and health reinsurance are reflect-
ed in the internal capital model.
The impacts of Covid-19 on the rest of our morbidity portfolio
have been limited to date. We continuously track the potential
implications of the Covid-19 pandemic for our worldwide life
and health reinsurance business. It is to be anticipated that
the Covid-19 pandemic will lead to further strains in 2022.
Along with US business, particular mention should be made
here of the South African and Latin American mortality port-
folio. Special protection covers have been taken out to limit
the mortality risk.
We monitor developments in the worldwide morbidity portfo-
lio on an ongoing basis.
Based on the information available to us today, we continue
to assume a positive VIF for our US mortality business as a
whole. Should additional information lead to the determina-
tion that this is no longer the case, this would result in a one-
off charge to the IFRS result.
in EUR million
Value at Risk¹ for the investment portfolio of the Hannover Re Group
in %
4,874.8
1 Required risk capital with a confidence level of 99.5%;
information not audited by the independent auditor
Including private equity
M 62
105
Hannover Re | Annual Report 2021
used to calculate the VaR indicators for the Hannover Re
Group. It is based on historical time series of relevant market
parameters (equity prices, yield curves, spread curves and
exchange rates). Against the backdrop of a very turbulent
capital market and interest rate environment, volatilities - es-
pecially of fixed-income assets - again reached a high level at
times in the year under review. Based on continued broad
risk diversification and the orientation of our investment port-
folio, our VaR was nevertheless clearly below the VaR upper
limit defined in our investment guidelines. It amounted to
0.8% (previous year: 0.8%) as at the end of the reporting
period.
The short-term loss probability measured as the Value at Risk
(VAR) is another vital tool used for operational monitoring
and management of the market price risks associated with
our securities positions. It is calculated on the basis of histor-
ical data, e.g. the volatility of the securities positions under
own management and the correlation between these risks. As
part of these calculations the decline in the fair value of our
securities portfolio is simulated with a certain probability and
within a certain period. The VaR of the Hannover Re Group
determined in accordance with these principles specifies the
decrease in the fair value of our securities portfolio under
own management that with a probability of 95% will not be
exceeded within ten trading days. A standard market model is
Warning level 3
Warning level 2
Warning level 1
Utilisation by Hannover Re
Q4 2021
Q3 2021
Q2 2021
4,395.7
Q1 2021
150
Utilisation of the trigger system
in %
100
50
50
0
Hannover Re | Annual Report 2021
104
The predefined discussion and analysis mechanisms upon
triggering of the escalation levels of the early-warning system
were activated in the course of the year under review on ac-
count of interest rate volatility as well as possible central bank
moves in response to inflationary tendencies. In accordance
with our guidelines, the Investment Committee therefore reg-
ularly discussed the potential implications for our invested
asset classes and the current portfolio composition in each
case. Thanks to the broad diversification and conservative
posture of our investments, there was no need to modify the
strategic orientation of our portfolios towards a more defen-
sive investment strategy during the reporting period.
Interest rate markets were again highly volatile over the
course of the year under review. In contrast to the previous
years, which had seen continued declines in the rate level,
rates moved higher in the year under review across virtually
all maturities in our main currency areas. While the increases
in euro rates were on the modest side, they were in some in-
stances appreciable on the US dollar and pound sterling mar-
kets. After the very sharp rises and highest-ever level of vola-
tility recorded in the previous year, risk premiums on
corporate bonds remained relatively stable throughout the
entire period under review on the low level seen prior to the
coronavirus. Overall, a substantial decrease in the hidden re-
serves for fixed-income securities was booked over the year
as a whole.
With a view to preserving the value of our assets under own
management, we constantly monitor adherence to a trigger
mechanism based on a clearly defined traffic light system that
is applied across all portfolios. This system defines clear
thresholds and escalation channels for the cumulative fluctu-
ations in fair value and realised gains/losses on investments
since the beginning of the year. They are unambiguously de-
fined in conformity with our risk appetite and trigger speci-
fied information and escalation channels if a corresponding
fair value development is overstepped.
767.7
1,024.1
1,618.9
646.5
(2,563.5)
try
analysis is currently on changes in the frequency and
severity of natural catastrophes (physical risks). In ad-
dition, we analyse investments and liability treaties in
relation to risks from climate change.
945.4
This transformation and the transition to a world
largely free of greenhouse gas emissions also entails
risks. Shares or bonds issued by corporate entities
could, for example, gradually or abruptly drop in value
if the company's profitability declines.
11-21 February
310.5
156.0
222.6
218.9
113.3
69.6
10-11 December
111.9
65.6
47.9
30.2
304.9
42.1
Thunderstorm Australia
The consequences of climate change affect all areas of
our business, not only in property & casualty and life &
health reinsurance but also in our investing activities.
At the same time, the implications of climate change
represent the most significant sustainability risk for
our company and are therefore closely analysed, mon-
itored and controlled. The focus of climate change risk
35.3
23.1
2 Aviation Losses
32.5
15.9
1 Credit Loss
21.5
21.5
Wildfire "Dixie" Northern America, USA
13 July-25 October
34.8
11.5
790.5
208.4
2021
in %
Within the scope of this process for the management of natu-
ral catastrophes, the Executive Board defines the risk appe-
tite and the limit for natural perils once a year on the basis of
the risk strategy.
Risk management considers numerous scenarios and ex-
treme scenarios, determines their effect on portfolio and per-
formance data, evaluates them in relation to the planned fig-
ures and identifies alternative courses of action.
99
Combined management report
Date
8-16 July
21-25 June
16-22 July
For the purposes of risk limitation, maximum amounts are
also stipulated for various extreme loss scenarios and return
periods; the limits set take into account the profitability of the
business in question. Risk management ensures adherence to
these maximum amounts. The Executive Board, Risk Com-
mittee and P&C Executive Committee are kept regularly up-
dated on the degree of capacity utilisation.
Catastrophe losses and major claims¹ in 2021
26 August-4 September
in EUR million
Hurricane "Ida", Caribbean, USA
Winterfreeze, USA
8 Man-made losses
Storm "Volker", Germany
Tornados, USA
3 Marine Losses
Floods, China
Net expenditure on major losses in the year under review
amounted to EUR 1,250.2 million (EUR 1,594.9 million). Our
company incurred the following catastrophe losses and major
claims in the 2021 financial year:
M 56
Gross
Net
801.8
Flood "Bernd", Europe
2020
Hail/Storm/Flood, Australia
17.6
100
Hannover Re | Annual Report 2021
1
The price/premium risk lies in the possibility of a random
claims realisation that diverges from the claims expectancy
on which the premium calculation was based. Regular and
independent reviews of the models used for treaty quotation
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:
In addition, Hannover Re's regional and treaty departments
prepare regular reports on the progress of their respective
renewals. They report on, among other things, significant
changes in conditions, risks (e.g. in relation to the premium
level) and also on emerging market opportunities as well as
the strategy pursued in order to accomplish targets. The de-
velopment of the combined ratio in property and casualty re-
insurance in 2021 and prior years is shown in the table below:
Ensuring the quality of our portfolios
Step 1
Calculation of the loss expectancy
• Historical loss and exposure analysis
.
Changes in the quality of underlying risks
Changes in the quantity of underlying risks
Discounting of future cash flows
Natural catastrophes and other major claims in excess of EUR 10 million gross
Cost estimation
Step 2
• Broker fees
• Internal administration
M 57
Calculation of the cost of capital
• Level of capital allocation determined by volatility
of the business covered and contribution
to diversification
Expected return on equity
Capital structure
Step 3
•
• Commissions
18-23 March
1
2,649.4
12.7
Storm "Filomena", Spain
7-8 January
16.6
15.1
Earthquake Fukusihma, Japan
13-14 February
14.8
14.3
Cyclone "Seroja", Australia
Drought Canada
Storm "Xero", Germany, Austria, Switzerland
1,250.2
Frost France
11-14 April
14.3
13.4
1 April
14.0
13.1
28 June-1 July
13.1
10.6
7 April
10.7
10.6
Total
2019
25-30 October
2017
31.12.2021
in EUR million
M 51
Required risk capital at the confidence level of 99.5% 1
102
Through our quality assurance measures we ensure that the
reserves established by ceding companies in accordance with
Diversification is a central management tool for our com-
pany. We seek to spread risks as far as possible across differ-
ent risk classes and different regions. In our pricing of
reinsurance treaties we provide incentives to further increase
diversification.
-1 to 0
-1 to 0
-2 to 0
-2 to 0
-5 to -2
31.12.2020
-5 to -2
-4 to -2
-10 to -7
-8 to -5
2020
M 60
2021
Mortality +5%
(excluding annuity business)
Morbidity +5%
Mortality -5%
(annuity business only)
Lapse rate +10%
Costs +10%
Sensitivities of the underwriting risks
(impact corridors in % of the available
economic capital)
The monitoring of the risk exposure is complemented by reg-
ular stress tests performed with regard to selected underlying
underwriting risk factors. The impact (in % of the available
economic capital) is within the following ranges:
2 Mortality risk incl. catastrophe risk
Required risk capital with a confidence level of 99.5%;
information not audited by the independent auditor
1
-4 to -2
3,144.9
Underwriting risk property and casualty reinsurance
4,591.4
In order to combat climate change the international
community reached agreement in 2015 on ambitious
goals to protect the climate at the UN Climate Change
Conference in Paris. Signed by 195 countries, the Par-
is Agreement seeks to limit the rise in the global aver-
age temperature to well below 2 degrees, preferably to
1.5 degrees Celsius, compared to pre-industrial levels.
The path to achieving the Paris climate goal depends
on a fundamental shift in the economic system and in
human habits.
Climate change, defined as naturally occurring or hu-
man-caused climatic changes, and the associated ef-
fects are already influencing our lives today. This was
made clear at the UN Climate Change Conference in
Glasgow (COP26) and in the publications of the Inter-
governmental Panel on Climate Change (IPCC) last
year. Climate change already poses a significant mac-
roeconomic risk and has wide-ranging implications
for the (re)insurance industry in common with many
other sectors.
Climate change
The risk capital at the confidence level of 99.5% reflects the
loss from the respective risk that with a probability of 99.5%
will not be exceeded. The risk capital required for specific
risks is shown in each case before tax.
6,190.4
6,904.2
(2,314.7)
(2,630.2)
(4,624.3)
(5,238.5)
2018
626.9
5,473.5
449.0
4,395.7
4,874.8
3,144.9
3,329.7
1 This information has not been audited by the independent auditor.
Required risk capital of the Hannover Re Group
Tax effects
Diversification
Operational risk
Counterparty default risk
Market risk
Underwriting risk life and health reinsurance
468.0
3,329.7
548.4
(3,441.8)
6.1
7.1
7.8
12.3
7.9
7.5
11.2
7.5
Thereof catastrophe losses¹
95.8
94.9
94.7
8.4
94.4
99.8
96.5
98.2
101.6
97.7
casualty reinsurance)
2012
2013
2014
2015
Underwriting risk life and health
2016
93.7
7.0
Combined ratio (property and
For further information on the run-off of the loss reserves
please see our explanatory remarks in the section "Run-off of
the net loss reserve in the property and casualty reinsurance
segment" on page 226 et seq.
Diversification
(3,481.0)
Net share of the Hannover Re Group for natural catastrophes and other major claims in excess of EUR 10 million gross as a percentage
of net premium earned
222.8
163.2
396.8
353.7
1,488.3
1,671.6
Morbidity and disability risk
Lapse risk
2,302.5
2,505.9
Longevity risk
Expense risk
2,116.3
2,176.3
Underwriting risks in life and
health reinsurance
101
The reserves are determined on the basis of secure biometric
actuarial bases in light of the information provided by our
clients. The biometric actuarial bases used and the lapse as-
sumptions are continuously reviewed with an eye to their ad-
equacy and if necessary adjusted. This is done using the com-
pany's own empirical data as well as market-specific insights.
Our current risk profile in life and health reinsurance is dom-
inated by mortality and longevity risks. This is due to the fact
that under some of our contracts we pay death benefits, while
under others we pay survival benefits. The volume of our an-
nuity portfolio contributes to diversification within life and
health reinsurance. We calculate the diversification effect be-
tween mortality and longevity risks prudently in view of the
fact that the contracts are normally taken out for different re-
gions, age groups and individuals. Morbidity risks are also
playing an increasingly significant role. The required risk
capital with a confidence level of 99.5% for underwriting
risks in life and health reinsurance breaks down as follows:
Required risk capital¹ for underwriting risks
in life and health reinsurance
All risks directly connected with the life of an insured person
are referred to as biometric risks. They include in particular
the miscalculation of mortality, life expectancy, morbidity and
occupational disability. Biometric risks are the material risks
for our company in the area of life and health reinsurance.
Our goal is to strike a balance between biometric risks. Fur-
thermore, we are exposed to lapse risks because the cash
flows resulting from our reinsurance treaties are in part de-
pendent on lapse rates among policyholders. Counterparty
default risks are also material since we partly prefinance our
cedants' new business acquisition costs. Furthermore, we are
exposed to catastrophe risks, especially events involving a
high number of fatalities in our insured portfolio such as the
Covid-19 pandemic in 2021.
in EUR million
Mortality risk²
31.12.2021
Hannover Re | Annual Report 2021
31.12.2020
M 59
Combined management report
7,634.1
12.7
43.4
121.0
1.6
796.7
4.1
435.8
1,778.0
34.6
613.7
7.9
9.2
462.0
13.5
1,886.1
10.7
11.5
1,852.5
23.9
6,088.2
393.5
100.0
297.1
Counterparty default risk
1,884.8
in EUR million
Required risk capital' for the
counterparty default risk
The counterparty default risk consists primarily of the risk of
complete or partial failure of the counterparty and the associ-
ated default on payment. The following table shows the re-
quired risk capital for counterparty defaults with a confidence
level of 99.5%.
Counterparty default risks
On a fair value basis EUR 6,465.2 million of the corporate
bonds held by our company were issued by entities in the fi-
nancial sector. Of this amount, EUR 5,158.4 million was at-
tributable to banks. The vast majority of these bank bonds
(75.3%) are rated “A” or better. Our investment portfolio un-
der own management does not contain any written or issued
credit default swaps.
In general terms, Hannover Re gears its investment portfolio
to the principles of a balanced risk/return ratio coupled with
broad diversification. Accordingly, we counter the risk con-
centrations that nevertheless arise in individual asset classes
with the broadest possible spread of different issuers per
asset class. This is just as much a key component of our
investment policy as credit rating assessment and manage-
ment based on the quality criteria defined in the investment
guidelines.
1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings.
2 Including government-guaranteed corporate bonds
85.1
3,421.3
100.0
17,573.5
7,749.3
100.0
19,303.1
100.0
2.5
1,844.6
10.5
1,037.0
13.4
1.5
9.8
entities²
59.8
Securities issued by
semi-governmental
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 counter-
party default we set various limits on the issuer and issue
level as well as in the form of dedicated rating quotas. A com-
prehensive system of risk reporting ensures timely reporting
to the functions entrusted with risk management.
-
ly broad diversification as we do to credit assessment con-
ducted on the basis of the quality criteria set out in the invest-
ment guidelines. We 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.
Government bonds
Rating structure of our fixed-income securities¹
Rating classes
Our investments entail credit risks that arise out of the risk of
a failure to pay (interest and/or capital repayment) or a
change in the credit status (rating downgrade) of issuers of
securities. We attach equally vital importance to exceptional-
Insurance derivatives connected with the technical account
are also recognised under the investments due to IFRS finan-
cial reporting requirements. For a more detailed presentation
of the underlying underwriting risks we would refer to the
subsection "Derivative financial instruments in connection
with reinsurance" in section 8.1 "Derivative financial instru-
ments and financial guarantees".
Since 2019 we have entered into term repurchase agreements
as a supplementary liquidity management tool. The holdings
exchanged in this context are fully collateralised.
107
Hannover Re | Annual Report 2021
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. A portion of our cash flows from
the insurance business as well as foreign exchange risks aris-
ing because currency matching cannot be efficiently achieved
are hedged to some extent using forward exchange transac-
tions. Hannover Re holds further derivative financial instru-
ments to hedge interest rate risks from loans taken out to fi-
nance real estate. In addition, Hannover Re holds hedges in
the form of equity swaps to hedge price risks in connection
with the stock appreciation rights granted under the Share
Award Plan. These are intended to neutralise changes in the
fair values of the awarded stock appreciation rights. Con-
tracts are concluded with reliable counterparties and for the
most part collateralised on a daily basis so as to avoid credit
risks associated with the use of such transactions. The re-
maining exposures are controlled according to the restrictive
parameters set out in our investment guidelines.
The realities and dynamics of real estate markets are indirect-
ly subject to another influencing factor as a consequence of
the pandemic. If the economic softness (temporarily) reduces
demand for space, this could result in flat or even declining
rental price trends or indeed a rising vacancy rate. In combi-
nation with modified expectations as regards contract condi-
tions and the likelihood of lease extensions or new leases,
these changes in parameters will be reflected in adjusted fair
values of the properties. Pandemic-related developments
have therefore been factored into the real estate valuations.
This applies to both the directly held portfolio and - with the
usual slight time delay - the portfolio of real estate funds.
The pandemic also has implications for real estate markets.
Against a backdrop of travel restrictions and business clo-
sures, the hardest hit areas have been the restaurant, hotel
and retail industries, and to some extent also the office sec-
tor. In our real estate portfolio we are seeing concrete im-
pacts on directly held properties, above all in the retail sector
and especially in relation to lessees in the restaurant industry.
Rent reductions and defaults here in the financial year just
ended led to shortfalls in regular income of EUR 3.1 million.
Overall, though, an increase in the vacancy rate was not ob-
served in this connection. Hannover Re is not directly invest-
ed in the hotel sector. Exposures are solely through diversi-
fied funds and account for less than 2% of the total real estate
portfolio.
investments in high-quality markets worldwide; each invest-
ment is preceded by detailed analyses of the property, man-
ager and market concerned.
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
Foreign exchange 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 quantifi-
cation of the foreign exchange risks. We regularly compare
the liabilities per currency with the covering assets and opti-
mise the currency coverage by regrouping assets. In so do-
ing, we make allowance for collateral conditions such as dif-
ferent accounting requirements. Remaining currency
surpluses are systematically quantified and monitored within
the scope of economic modelling. A detailed presentation of
the currency spread of our investments is provided in section
6.1 of the notes entitled "Investments under own manage-
ment" on page 204 et seq.
The portfolio of fixed-income securities is exposed to the in-
terest 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 in-
terest rate differential between a risk-entailing bond and risk-
free bond with the same maturity. Changes in these risk
premiums, which are observable on the market, result – anal-
ogously to changes in pure market yields - in changes in the
fair values of the corresponding securities. We minimise in-
terest rate risks by matching the durations of payments from
fixed-income securities as closely as possible with the pro-
jected future payment obligations under our insurance con-
tracts.
vestments was, however, very slight because we acted on
market opportunities to dispose of equity funds in what was
already our minimal portfolio of equities and equity funds go-
ing into the year under review. Our equity allocation thus
stands at just 0.5%. Our exposure to the private equity mar-
ket remains unchanged. Changes in fair value here tend to be
prompted less by general market conditions and more by en-
tity-specific assessments. The risks are associated principally
with the business model and profitability and less so with the
interest rate component in the consideration of cash flow
forecasts. Please see our comments in section 6.1 of the notes
entitled "Investments under own management" on page 204
et seq.
Combined management report
M 66
Corporate bonds
2,044.7
M 65
AAA
120.5
0.7
4,125.0
53.2
14,546.4
75.4
million
in EUR
in %
in EUR
million
in %
in EUR
million
million
in %
in EUR
in %
Total
< BBB
BBB
A
AA
Covered bonds/
asset-backed securities
31.12.2021
EUR 2,674.1 million (EUR 1,883.3 million) as at the balance
sheet date.
468.0
111
Outsourcing risks
Outsourcing risks can result from the outsourcing of func-
tions, services and/or organisational units to third parties.
They also include intra-group outsourcings. Mandatory rules
have been put in place to limit this risk; among other things,
they stipulate that a risk analysis and partner assessment are
to be performed prior to outsourcing. In the context of these
analyses a check is carried out to determine, inter alia, which
specific risks are associated with the outsourcing and what
risk management measures need to be taken. The results of
the analyses are subject to regular review.
In selected market niches we transact primary insurance
business that complements our reinsurance activities. In so
doing, just as on the reinsurance side, we always work to-
gether with partners from the primary sector - such as insur-
ance brokers and underwriting agencies. This gives rise to
risks associated with distribution channels, although these
are minimised through the careful selection of agencies,
mandatory underwriting guidelines and regular checks. The
distribution channel risk forms an integral part of manage-
ment of the outsourcing risk.
Cyber attacks and loss of sensitive data
Cyber attacks and the loss of sensitive information can
be associated with considerable financial losses and
also reputational risks. In our highly networked world
it has therefore become increasingly important in re-
cent years to protect information and defend against
cyber attacks. This has become all the more true dur-
ing the Covid-19 pandemic given extensive working
from home and the associated changed risks.
With a view to protecting against these risks, Han-
nover Re has implemented an Information Security
Management System (ISMS) that is closely aligned
with international standards - principally ISO 27001
- and harmonised with other management systems
such as data protection or outsourcing management.
The central document is the "Information Security
Policy", which is valid for all locations worldwide. To-
gether with specific guidelines and standards, it regu-
lates all technical and organisational measures includ-
ing those relating to the confidentiality, integrity and
availability of information assets. Consideration is giv-
en to all types of digital and physical information as-
sets. Appropriate allowance has been made in the IT
processes.
The Executive Board bears overall responsibility for
information security. It is supported by the Risk Com-
mittee. The Information Risk & Security Committee
(IRSC) is a sub-committee of the Risk Committee and
is comprised of the Head of Risk Management, the
Chief Information Security Officer (CISO) and the
Head of IT. The IRSC evaluates and monitors the cor-
responding risks and steers any conflicts of interest in
relation to information and IT security. It acts - in
common with the risk management function and the
CRO - independently of any instructions. The full
Executive Board is provided with information at least
annually by way of an information security report and
also within the year if necessary. The Risk Committee
receives information on a quarterly basis.
The CISO, as the main process owner, is responsible
for the planning, implementation and ongoing devel-
opment of the ISMS as well as for coordinating the
corresponding tasks within the Hannover Re Group.
He is supported by local contacts and additionally
bears responsibility Group-wide for the definition and
monitoring of controls. The CISO cooperates closely
with Information Risk Management (IRM), the central
Compliance function and the Data Protection Officer.
Both the CISO and the other specified functions form
part of the second line of defence. Furthermore, every
single member of staff is responsible for adhering to
the relevant guidelines and instructions. To this end,
all employees receive training in information security
topics annually and at the time of their appointment
and receive awareness-raising within the year.
When it comes to a transfer of knowledge in relation to
our own (operational) risks in connection with cyber
risks (cyber resilience), we participate in various co-
operative projects undertaken by our industry and en-
gage in a regular dialogue with, among others, the
Bundesverband der IT-Anwender e. V. in the context
of the Cyber Security Competence Center.
Cyber risks in underwriting practice
Hannover Re offers reinsurance protection for cyber
risks. The risks stemming from the cyber portfolio are
monitored and managed using, among other things,
the internal model. The management approach also
encompasses cyber exposures from insurance con-
tracts that do not primarily cover this risk (silent cyber
risk), although these diminished in importance last
year due to the implementation of exclusions. In addi-
tion, part of the risk is ceded through an external pro-
tection cover.
The issues of information security and cyber security
as well as the associated risks in underwriting practice
are also addressed by our working group on emerging
risks, which supports monitoring across the various
departments.
112
Hannover Re | Annual Report 2021
Combined management report
Other risks
Under other risks we include emerging risks, strategic risks,
sustainability and reputational risks as well as liquidity risks.
Management of other risks
Other risks are managed primarily using qualitative methods
and on the basis of risk indicators. Risk management moni-
tors and reduces the other risks through mitigation measures
such as company-wide working groups and guidelines. Regu-
lar quarterly risk reporting to the Risk Committee and the Ex-
ecutive Board takes place with regard to the other risks. Risks
are also evaluated as part of the reporting.
Within the risk management processes we also take into ac-
count the impacts on operational and reputational risks of
aspects of environmental management, employee matters,
social concerns, respect for human rights and the combating
of corruption and bribery, as required by the CSR Directive
Implementation Act in accordance with § 289b and c German
Commercial Code (HGB) and § 315c German Commercial
Code (HGB).
Reputational risks are included under non-financial risks.
Risks connected with ESG topics can arise, in particular, in
the subcategories of emerging and strategic risks as well as
sustainability and reputational risks.
Emerging risks
Hannover Re | Annual Report 2021
Information security risks arise, inter alia, out of the risk of
inadequate integrity, confidentiality or availability of informa-
tion as well as impacts from or on other assets such as sys-
tems, processes, buildings/premises or persons. By way of
example, losses and damage resulting from the unauthorised
passing on of confidential information, the malicious over-
loading of important IT systems or from computer viruses/
ransomware are material to the Hannover Re Group. Given
the broad spectrum of such risks, a diverse range of technical
steering and monitoring measures and organisational stand-
ards, including for example the requirement to conclude con-
fidentiality agreements with service providers, have been put
in place. In addition, our employees are made aware of such
security risks through practically oriented tools provided on-
line in the intranet, by way of training opportunities and
through targeted information.
Information security risks
Hannover Re has at its disposal specific indicators for the ear-
ly detection and monitoring of material risks. Along with a
determination of the weighted level of maturity, this also en-
compasses continuous succession planning, ensuring the
timely (re)staffing of vacant positions and monitoring turno-
ver rates based on industry benchmarks.
Business continuity risks arise from natural or man-made
hazards that threaten or disrupt the business operations. The
risk also includes IT service continuity risks. Our Business
Continuity Management (BCM) system reduces the risk
through preventive measures, such as an emergency power
supply, alternative infrastructures and contingency plans that
are regularly tested. A special organisational and operational
structure has been set up to deal reactively with a crisis event.
This has proven itself, inter alia in connection with the cur-
rent Covid-19 pandemic, and there were no material impacts
on our business operations.
110
Hannover Re | Annual Report 2021
Combined management report
Overall, our focus in BCM is on the following five scenarios:
non-availability/shortage of personnel,
e. g. as a consequence of a pandemic
•
loss of the workplace environment
• failure of local/central IT
•
Emerging risks are risks that are in the process of forming or
may shortly become relevant due to current developments.
Emerging risks evolve gradually from weak signals to unmis-
takable tendencies. They can directly impact our treaty port-
folio in both property & casualty and life & health reinsurance
and influence our investments. A further hallmark is that their
risk content cannot be reliably assessed, especially with re-
spect to our treaty portfolio. Emerging risks include, for ex-
ample, scarcity of resources and shortage of water as well as
the loss of biodiversity.
•
Business process and data quality risks
Business process risks are associated with the risk of inade-
quate or failed internal processes, which can arise inter alia
as a consequence of an inadequate process organisation. We
have defined criteria for managing the risk that result in a
high process quality. Data quality is similarly a very critical
success factor, especially in risk management, because for
example the validity of the internal model is largely based on
the data provided. As part of our data quality management,
we have defined extensive automatic routines that continu-
ously determine data quality in central systems.
Compliance risks
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
Hannover Re Group. Compliance with regulatory standards,
the company's Code of Conduct, tax regulations, data privacy
requirements as well as the stipulations of anti-trust and
competition law have been defined as issues of particular
relevance.
In conformity with a risk-based approach, sanctions screen-
ing software is used on the relevant parts of the Hannover Re
Group's portfolio as well as on loss advices to filter out indi-
viduals who are subject to sanctions. Suitable steps are taken
if such individuals are identified. Business partners are also
screened in this way. 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.
We report on our compliance management system as part of
our combined non-financial information statement on page
70 et seq. For further information on compliance-related top-
ics, including for example lawsuits, contingent liabilities and
commitments, please see section 8.6 “Lawsuits" on page 261
and section 8.7 "Contingent liabilities and commitments" on
page 261 et seq.
Fraud risks
Fraud risks refer to the risk that results from intentional viola-
tions of laws or rules from own employees and/or from third
parties in order to gain an advantage. 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. Should an instance of fraud nevertheless occur, estab-
lished escalation processes to involve all relevant functions
are in place and a risk-specific analysis (e.g. forensic investi-
gation) is conducted including determination of appropriate
measures.
Human resources risks
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. These measures are supported by ongoing talent
management and regular employee surveys.
failure of external infrastructures/service providers
security incidents (life and limb of employees at risk)
Early detection and subsequent evaluation of risks are cru-
cially important when it comes to emerging risks. For this
reason, we deploy Hannover Re's internal, interdepartmental
and multi-line expert working group on “Emerging Risks &
Scientific Affairs" and we ensure its linkage to risk manage-
ment. The analyses performed by this working group are
used Group-wide in order to pinpoint any necessary meas-
ures. The working group is currently exploring around 20
megatrends so as facilitate the identification and adequate
evaluation of not only existing but also emerging risks. Meg-
atrends are defined as developments with a trend cycle of at
least 30 years. They are not presently associated with direct
impacts on operations, but may potentially evolve in this di-
rection. The monitored megatrends of ESG relevance include,
among others, the decline in biodiversity, global warming
and scarcity of resources. Megatrends are considered in con-
nection with emerging risks and resulting opportunities.
Thus, for example, the megatrend towards a decline in biodi-
versity can be viewed in conjunction with emerging risks as-
sociated with scarcity of resources, air pollution, genetically
modified organisms or food security and availability - but
also goes hand-in-hand with a need for innovative (insurance)
solutions and services. Action on climate change means new
or refined technologies, such as renewable energies or hy-
drogen concepts and their various possible applications, for
which insurance coverages are needed.
Another observed trend is urbanisation. The steady increase
in urbanisation means the growth and change of cities. Those
leaving the countryside and moving to the city are mostly
young, hence altering both rural and urban age distributions.
Correlated trends such as the ageing society and new types of
mobility, increasingly against a backdrop of sustainability, are
throwing up major questions. The significance of these trends
and the speed of change are compelling the insurance indus-
try to plan which role it wants to play in helping to shape the
future. In this context it is important to consider both busi-
ness opportunities and risks. Given that all this is affected by
climate change, people's property - especially when value
concentrations form in future megacities – will have to be in-
sured against natural perils. In a worst-case scenario, this
could mean that certain regions and risks become uninsura-
ble if adequate urban planning - taking account of natural
hazards – is neglected in the spread of large cities around the
world. Urbanisation not only means new buildings, technolo-
gies and lifestyles that have to be insured; rather, living close
together also has implications for people's physical and men-
tal well-being, which is relevant to our portfolio of life and
health insurance.
M 70
Trends
Ideas
Future factors
Soft signals
Analysis
Concrete specification
Assessment
Handover to line
responsibility
Product launch under line
responsibility
Risk assessment in the
context of the "new product
process", as appropriate
Opportunity management process
Corporate strategy
-
If a business idea is translated into reality and a new reinsur-
ance product results, the normal procedure provided the
criteria defined for this purpose by Risk Management are
applicable 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 commitment is to be entered into in a form not
previously used by Hannover Re or if a new type of risk is to
be insured. If this is the case, all material internal and exter-
nal influencing factors are examined beforehand by Risk
Management (e.g. implications for the overall risk profile or
the risk strategy) and evaluated. Risk Management ensures
that before it can be used or sold a new reinsurance product
must be approved by the Executive Board.
Overall assessment by the
Executive Board
Based on our currently available insights arrived at 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:
•
•
our established system of risk management affords us a
transparent overview of the current risk situation at all
times
31.12.2020
our opportunity management plays an important part in
Hannover Re's sustainable and profitable growth.
116
Hannover Re | Annual Report 2021
Creating value through reinsurance
Business continuity risks
Cyber attacks on critical systems are becoming increas-
ingly common. They can cause considerable financial
losses and also damage corporate reputations. Not only
that, they can severely hamper private and public life,
especially if critical infrastructures are impacted - such
as the health, transportation/traffic and energy sectors.
In such instances supply bottlenecks with lasting ef-
fects as well as major disruptions to public safety may
ensue. In a networked world the repercussions of cyber
attacks are intensifying because the volume of globally
stored data and the extent of system dependencies are
constantly growing - and in this context it is not only
one's own technical infrastructure that needs to be se-
cured. On the contrary, the trend towards cloud com-
puting is increasingly shifting the focus to third-party
infrastructures and the associated network connection.
As part of our holistic approach to risk and business
opportunity management, we are also tackling the
question of what new insurance products can be devel-
oped in order to protect against the relevant risks. The
constant refinement of our systemic analyses for the
assessment of cyber risks forms the basis for develop-
ing new (re)insurance solutions. We aim to bring trans-
parency to the customer's cyber risks and we seek to
cover the need for risk-mitigating measures by offering
suitable solutions. To this extent, we also see an oppor-
tunity to generate additional reinsurance premium in
this line of business.
115
Hannover Re publishes position papers on various emerging
risks which can be accessed on our website. In the year under
review the papers on pandemics, medical advances and mi-
croplastics, among others, were updated. A position paper on
social media was made available for internal purposes.
Hannover Re, represented by members of staff from Risk
Management and other units, is a member of the Chief Risk
Officer (CRO) Forum and a constant participant in the CRO
Forum's Emerging Risk Initiative, which continuously tracks
and analyses various emerging risks, publishes information
on megatrends and associated risks and conducts corre-
Hannover Re | Annual Report 2021
113
sponding impact analyses. The megatrends considered in-
clude ageing and health, consumer habits and digitalisation,
economic stability, environment and climate change, shifting
geopolitical landscapes, technological advances as well as ur-
banisation and social changes. New topics added in the year
under review were digital misinformation, plastics & mi-
croplastics as well as the skills shortage and retraining. The
"pandemic" issue was upgraded from "first significant im-
pacts expected in 1-5 years" to "significant impacts on insur-
ance claims". The publications are publicly accessible on the
CRO Forum website. An exploration of the carbon intensity of
insured portfolios (Carbon footprinting methodology for un-
derwriting portfolios) is also available there.
Strategic risks
Strategic risks derive from a possible imbalance between the
corporate strategy of the Hannover Re Group and the con-
stantly changing general business environment. Such an im-
balance might be caused, for example, by incorrect strategic
policy decisions, a failure to consistently implement the de-
fined 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 guidelines as and when required. We have
defined performance criteria and indicators for operational
implementation of the strategic principles and objectives;
these are authoritative when it comes to determining fulfil-
ment of the various targets. The process for the management
of strategic risks continues to be assessed annually as part of
the monitoring of business process risks.
Sustainability and reputational risks
Reputational risks refer to the risk that the trust put in our
company by clients, shareholders, employees or the public at
large may be damaged. This risk has the potential to signifi-
cantly jeopardise the business foundation of the Hannover Re
Group. A good corporate reputation is therefore an indispen-
sable prerequisite for our core business as a reinsurer. Repu-
tational risks may arise out of all business activities conduct-
ed by the Hannover Re Group. Reputational damage may be
caused, inter alia, by a data mishap that becomes public
knowledge or financial difficulties on account of an under-
writing risk. In addition to the risk identification methods al-
ready described, we use a number of different techniques for
risk mitigation, such as our defined communication channels
(e.g. Crisis Communication Guideline), a professional ap-
proach to corporate communications, tried and tested pro-
cesses for specific crisis scenarios as well as our established
Code of Conduct.
Above and beyond the general influence that sustainability
risks have on a number of other risk categories (outside-in
perspective), we also see a correlation between reputational
and ESG risks (inside-out perspective). Risk Management and
Corporate Communications work together closely to identify
ESG and reputational risks. This applies both to the assess-
ment of ESG risks and to the monitoring of media reports, the
analysis of NGO activities and the dialogue cultivated with
relevant stakeholder groups.
In the year under review we therefore extensively updated
our Framework Guideline on Sustainability and Reputational
Risk Management with an eye to the ESG perspective.
Cyber insurance
Liquidity risks
114
Hannover Re | Annual Report 2021
Combined management report
Opportunity report
Speed is one of the qualities used to measure a successful
knowledge transfer. The name of the game is quick and effec-
tive solutions and staying one step ahead of the competition.
Hannover Re searches systematically for new business op-
portunities 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 ensure holistic opportunity
and risk management. Of significance here is the interplay
without overlaps of the various functions within opportunity
and risk management, which is assured by defined interfaces.
Key elements in Hannover Re's opportunity management in-
clude its various market-specific innovations in the
Life & Health and Property & Casualty reinsurance business
groups (see the Forecast on page 141 et seq.).
Trends affecting these business groups are systematically
identified and analysed with the support of external sources
and partners and the needs of our clients are anticipated
along the entire insurance-related value-added chain. New
business opportunities that promise access to innovative
technologies and enhance our appeal in the eyes of custom-
ers are specifically pinpointed. With this in mind, Hannover
Re cultivates business-related partnerships with accelerators,
incubators, company builders, start-ups and research insti-
tutes in order to boost our competitiveness in the insurtech
sector and the area of digital solutions. Various competence
centres have been set up in the Hannover Re Group to evalu-
ate the strategic and technical significance of innovative new
digital technologies and the goals pursued by these innova-
tion units have been put on a strategic footing. The interplay
between these units is based on a dedicated approach that
enhances the activities with specific expertise and efficiency.
In concrete terms, new accelerator units have been estab-
lished in the areas network, business (in each case in the P&C
and L&H business group), technology and parametrics. The
tasks performed by these organisational units include, among
others, global scaling of existing regional products and solu-
tions, developing new sector- and customer-specific digital
assets as well as providing systematic support for insurtechs
as they build their digital business models. This broad spec-
trum of tasks is geared to the clearly defined goals of gener-
ating new premium potential for the Group, cultivating new
strategic partnerships and acquiring new capabilities in the
fields of digitalisation and data analytics.
Closing the protection gap
The economic costs of natural disasters have risen
sharply as catastrophes have grown in number and se-
verity. The heightened risk is primarily due to eco-
nomic development and population growth, a greater
concentration of assets in exposed regions and in-
creasingly also to climate change. The gap between
uninsured and insured losses is particularly large in
emerging and developing countries. Against this
backdrop, Hannover Re is stepping up its involvement
through cooperation with both the public sector and
private enterprise so as to further close the insurance
gap for protection against natural disasters – especial-
ly those that are climate-related - in developing and
emerging countries. By way of example, this is
achieved in selected exposed countries in the context
of the trilateral agreement between the Insurance De-
velopment Forum, the Federal Ministry for Economic
Cooperation and Development and the United Nations
Development Programme. In substantive terms, we
provide capacity for the Natural Disaster Fund and
participate in regional risk pools against natural perils
as well as a number of other programmes with a
bearing on reinsurance. For example, Hannover Re is
currently involved in projects for the development
of insurance products in Jordan, Argentina and
Colombia.
The dynamic networking of the members of staff active in the
field of innovation at Hannover Re gives 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 113
et seq. “Other risks”). This working group carries out qualita-
tive assessments of emerging risks. As a result, however, not
only are the potential risks explored but also any available
business opportunities. Analyses are compiled here exploring
how Hannover Re can counter megatrends such as climate
change, digitalisation or shifting demographics with novel
(re)insurance products or capital investments. In the year
under review, for example, issues such as "Social media",
"Demographics”, “Long Covid” and “Supply chain risks in
medicine" were analysed by the working group.
Hannover Re | Annual Report 2021
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 (necessary cash could not
be obtained or could only be obtained at increased costs) and
the market liquidity risk (financial market transactions could
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, manage-
ment 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
foreseeable payments, unexpected and exceptionally large
payments may pose a threat to liquidity. In reinsurance busi-
ness, 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 larg-
er 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 6.7 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.
These measures serve to effectively reduce the liquidity risk.
Unlike market, counterparty default and underwriting risks,
operational risks are categorised as non-financial risks. We
discuss below the subcategories of operational risks. Risks
connected with ESG issues can occur in particular in the sub-
categories of business continuity, compliance, human re-
sources, information security and outsourcing.
our overall risk profile is appropriate, and
1 Required risk capital with a confidence level of 99.5%;
information not audited by the independent auditor
89.8
89.5
90.7
91.7
Alongside traditional retrocessions in property and casualty
reinsurance we also transfer risks to the capital market. Any
counterparty default risks associated with investors in a capi-
tal market transfer are collateralised via LOCs or a trust ac-
count (e.g. using cash) in favour of Hannover Re.
61.4% of our recoverables from reinsurance business are se-
cured by deposits or letters of credit. For the majority of our
retrocessionaires we also function as reinsurer, meaning that
in most cases recoverables can potentially be set off against
our own liabilities.
The following chart shows the development of our reinsur-
ance recoverables
split by rating quality due from our
retrocessionaires.
-
Reinsurance recoverables as at the balance sheet date
in EUR million
M 68
3,000
2,500
2,674
81
2,085
754
2,050
In terms of the Hannover Re Group's major companies,
EUR 537.6 million (7.5%) of our accounts receivable from
reinsurance business totalling EUR 7,207.7 million were
older than 90 days as at the balance sheet date.
44
40
2,000
1,883-
88.2
89.7
90.7
90.3
548.4
449.0
108
Hannover Re | Annual Report 2021
Since the business that we accept is not always fully retained,
but instead portions are retroceded as necessary, the coun-
terparty default risk is also material for our company in rein-
surance transactions. Our retrocession partners are carefully
selected and monitored in light of credit considerations in
order to keep the risk as small as possible. This is also true of
our broker relationships, which entail a risk inter alia through
the potential loss of the premium paid by the cedant to the
broker. We minimise these risks, among other measures, by
reviewing broker relationships with an eye to criteria such as
the existence of professional indemnity insurance, payment
performance and proper contract implementation. The credit
status of retrocessionaires is continuously monitored. The Se-
curity Committee decides on measures where necessary to
secure receivables that appear to be at risk of default. This
process is supported by a risk management application,
which specifies cession limits for the individual retrocession-
aires participating in protection cover programmes and de-
termines the capacities still available for short-, medium- and
long-term business. Depending on the type and expected
run-off duration of the reinsured business, the selection of
reinsurers takes into account not only the minimum ratings of
the rating agencies Standard & Poor's and A.M. Best but also
internal and external expert assessments. Overall, retroces-
sions conserve our capital, stabilise and optimise our results
and enable us to act on market opportunities across a broader
front, e. g. following a major loss event. Regular visits to our
retrocessionaires give us a reliable overview of the market
and put us in a position to respond quickly to capacity chang-
es. The following table shows how the proportion of assumed
risks that we do not retrocede (i.e. that we run in our reten-
tion) has changed in recent years:
Gross written premium retained
in %
Hannover Re Group
Property and casualty reinsurance
Life and health reinsurance
345
M 67
2020
2019
2018
2017
89.5
90.1
90.0
90.7
90.5
90.1
90.3
2021
265
1 Required risk capital with a confidence level of 99.5%;
information not audited by the independent auditor
1,650
2018
2019
2020
2021
< BBB, NR
109
Combined management report
The volume of assets subject to collateral arrangements is
well below 60% of Hannover Re's total assets. This statement
is relevant for the calculation of the counterparty default risk
with respect to Hannover Re.
Counterparty default risks, among other risks, are also rele-
vant to our investments and in life and health reinsurance
because we prefinance acquisition costs for our ceding
companies. Our cedants, retrocessionaires and broker rela-
tionships as well as our investments are therefore carefully
evaluated and limited in light of credit considerations and are
constantly monitored and controlled within the scope of our
system of limits and thresholds.
Lastly, short-term deposits at banks are also at risk of coun-
terparty default.
As the parent company, Hannover Re provides a guarantee to
clients for a small number of low-risk structured transactions.
In this context, it guarantees the payment of liabilities by
Hannover Re under these specific transactions in the event
that the subsidiary is unable to meet its assumed obligations.
Since each of these guarantees is associated with a specific
transaction and formulated in such a way that each potential
payment can only arise once per corporate entity of Hannover
Re (i.e. either at the subsidiary itself as part of the transaction
or at Hannover Re as a consequence of the guarantee), the
existence of a guarantee on the part of Hannover Re has no
effect on the underwriting risk from Hannover Re's proper-
ty & casualty or life & health reinsurance business.
Operational risks
Operational risks refer to the risk that arises from inadequate
or failed internal processes, or from personnel and systems,
or from external evetns. Within the overall framework of op-
erational risks, we pay particularly close attention to business
continuity risks, business process and data quality risks, com-
pliance risks, fraud risks, human resources risks, information
security risks and outsourcing risks.
Management of operational risks
In contrast to underwriting risks (e. g. the reserve risk), which
we enter into in a deliberate and controlled manner in the
context of our business activities, operational risks are an in-
divisible part of our business activities. The focus is therefore
on risk minimisation. With the aid of half-yearly Group-wide
self-assessments, in which all relevant corporate operations
are actively involved, we determine the maturity level of our
risk management system for operational risks and define ac-
tion fields for improvements. The assessment is carried out
by evaluating the maturity level of the corporate governance,
the risk management function and the respective risk identi-
fication, analysis, evaluation, steering, monitoring and re-
porting. The assessment of the maturity level enables us,
among other things, to prioritise operational risks. In order to
calculate the capital commitment in our internal capital mod-
el we perform extensive scenario analyses and take the find-
ings as a basis for specifying the parameters for the stochas-
tic model. In this context, experts across all disciplines
establish assumptions for the loss frequency and losses in
joint workshops. In addition, internal loss events and
near-losses are systematically recorded and examined with
an eye to possible measures for improving the control system.
The internal data are enhanced with insights gained from ex-
ternal events, which either become known through public
channels or were reported through a loss data consortium of
which we are a member.
Regular quarterly risk reporting to the Risk Committee and
the Executive Board takes place with regard to all operational
risks. In the context of the reporting, risks are also evaluated
on the basis of risk indicators.
Required risk capital¹ for
operational risks
in EUR million
Operational risk
M 69
31.12.2021
33
2017
AAA AA A
Secured
31.12.2020
941
197
0
373
76
0
245
362
1,500
0
352
0
245
626.9
The average default rate over the past four years was 0.2%.
0
1,233
1,383
1,451
1,642
500
1,000
278
Hannover Re | Annual Report 2021
Retrocession gives rise to claims that we hold against our
retrocessionaires. These reinsurance recoverables - i. e. the
reinsurance recoverables on unpaid claims amounted to
-
3
M 71
Previous remuneration system up to
and including the 2020 financial year
Fixed
remuneration
Fixed remuneration
Fringe benefits
New remuneration system from
the 2021 financial year onwards
Fixed remuneration
Fixed
remuneration
Fringe benefits
Pension scheme
Immediate amount paid out
(short-term)
60%
Short-term incentive
The material modifications to the system of Executive Board
remuneration applicable until 2020 are summarised in the
following overview:
Bonus bank (long-term)
20%
Variable
remuneration
Long-term incentive
HR share awards (long-term)
20%
(HR performance share awards)
HR Hannover Re
Pension scheme
Variable
remuneration
Insofar as no material changes are made to the remuneration
system, the system of remuneration will be resubmitted to the
General Meeting at least every four years for its approval.
Changes in the remuneration system of the Executive Board
With a view to ensuring that the concept of diversity is ap-
plied on an ongoing basis, an assessment is made in the con-
text of every new appointment to the Executive Board or Su-
pervisory Board as to whether the envisaged appointment is
also in keeping with the diversity concept.
40%
The composition of the Supervisory Board shall be such that
overall its members are equipped with the knowledge, abili-
ties and specialist experience necessary for proper perfor-
mance of the tasks. The make-up of the Supervisory Board
shall ensure that the Executive Board in an internationally
operating, broadly positioned reinsurance group receives
qualified supervision and advice from the Supervisory Board.
Above and beyond the legally required specialist expertise in
investing, insurance practice and accounting, the topics of
internationality, taxation, M&A, human resources, risk man-
agement, IT and compliance have been taken into account on
a voluntary basis. The goal is that the Supervisory Board as a
whole has all the know-how and experience considered to be
material in light of the activities of the Hannover Re Group.
Moreover, special attention is to be paid to the integrity, char-
acter, commitment, professionalism and independence of in-
dividuals put forward for election. In accordance with the
Rules of Procedure for the Supervisory Board, for example,
members of the Supervisory Board shall ensure that they
have sufficient time at their disposal for their activities and
that potential conflicts of interest are avoided. Furthermore,
candidates shall be put forward to the Annual General Meet-
ing for election to the Supervisory Board only if they will not
have passed the age of 72 by the time of their election and -
with effect from the election of the new Supervisory Board in
2014 provided they have not sat on the Supervisory Board
for more than three full consecutive terms of office. With re-
gard to the appropriate number of independent Supervisory
Board members from the perspective of the Supervisory
Board, the Supervisory Board has decided that it shall have
three independent members as defined by the German Cor-
porate Governance Code (DCGK). Employee representatives
on the Supervisory Board are disregarded in this context.
-
In order to ensure that the relevant selection criteria are met,
the Supervisory Board followed the recommendation of the
Nomination Committee and defined a requirements and com-
petence profile for Supervisory Board members; this is in-
tended, among other things, to assure the availability on the
Supervisory Board of the expertise needed to cover all the
Group's areas of business. In addition, Supervisory Board
members may not hold mandates on governing bodies at ma-
jor competitors of the company or of a Group undertaking,
nor may they perform individual advisory tasks for such com-
petitors.
With an eye to Hannover Re's international orientation, it is to
be ensured that a sufficient number of members with
long-standing international experience belong to the Super-
visory Board. Based on their current or former service as a
Hannover Re | Annual Report 2021
123
board member/chief executive officer or in a comparable role Remuneration report
as managing director with internationally operating under-
takings or organisations, all the shareholder representatives
on the Supervisory Board have long-standing international
experience. In the opinion of the Supervisory Board, due con-
sideration is given to the international dimension of opera-
tions. The goal is to maintain the currently existing interna-
tional profile.
When it comes to selecting candidates who are to be put for-
ward to the Annual General Meeting for election to the Super-
visory Board, care is taken to ensure that the individuals con-
cerned have the necessary knowledge, skills and specialist
experience. The principle of diversity is also reflected in the
selection process.
In selecting members of the Executive Board the goal is to
ensure that the members have the skills and experience need-
ed to properly perform their tasks. The Supervisory Board
considers diversity in the composition of the Executive Board.
Moreover, on the level of the Executive Board the aim is to
appoint another woman as a member of the company's Exec-
utive Board by the year 2024. The age limit for the Executive
Board is set at 65. The members of the Executive Board are
appointed by the Supervisory Board for a term of at most five
years. Members of the Executive Board are initially appointed
for no more than three years.
124
The remuneration report describes the structure and system
of the remuneration for the Executive Board and Supervisory
Board and provides detailed information about the individual
remuneration of present and former members of the Execu-
tive Board and Supervisory Board of Hannover Rück SE that
is granted and owing to them for their work in the 2021 finan-
cial year.
Remuneration of the Executive Board
Modification of the remuneration system effective
1 January 2021/
Procedure for determining and implementing the
remuneration system
The changed legal and regulatory requirements for the remu-
neration system of the Executive Board due to the entry into
force of the Act Implementing the Second Shareholders'
Rights Directive (ARUG II) and the revised version of the Ger-
man Corporate Governance Code (DCGK) prompted the Su-
pervisory Board of Hannover Rück SE to review and compre-
hensively overhaul the system of remuneration for the
members of the Executive Board. In his context the Supervi-
sory Board also took into account the expectations of our in-
vestors and other key stakeholders.
In its elaboration of the current remuneration system the Su-
pervisory Board was supported by the Standing Committee,
which in particular put forward recommendations for the or-
ganisation of the system in light of the defined guidelines. As
part of the elaboration and determination of the remuneration
system, the Supervisory Board made use of its option to call
upon the services of an external remuneration consultant who
is independent of the Executive Board and the company.
The new remuneration system for the Executive Board was
decided on by the Supervisory Board at its meeting on 4 Au-
gust 2020 and – in view of the material changes – presented
to the General Meeting on 5 May 2021 for its approval. The
General Meeting approved the new remuneration system of
the Executive Board with a majority of 85.54%.
Hannover Re | Annual Report 2021
The new remuneration system has been applicable to all
members of the Executive Board with effect from 1 January
2021. It is in full conformity with the amended legal and reg-
ulatory requirements and the recommendations of the Ger-
man Corporate Governance Code (DCGK).
Due to the reduction in the number of variable remuneration
components and the focus on altogether fewer, yet at the
same time central financial and non-financial performance
criteria derived from Hannover Re's Group strategy, the re-
muneration system is structured more transparently and
comprehensibly overall. The considerable relevance of the
variable remuneration and the reinforcement of the concept
of "pay-for-performance” remain front and centre in this re-
gard. The measurement of performance also takes account of
sustainability criteria. In addition, the remuneration of the
Executive Board is geared even more closely to the interests
of our investors through a stronger share correlation based
on the use of a Performance Share Plan and relative measure-
ment of the Hannover Re share's performance in comparison
with our competitors. Furthermore, the implementation of
malus und clawback provisions makes it possible to reduce or
claw back variable remuneration components in the event of
serious compliance violations.
Due to the entry into force of the Act Implementing the Second
Shareholders' Rights Directive (ARUG II) on 12 December
2019, the Executive Board and Supervisory Board have drawn
up the remuneration report for the 2021 financial year for the
first time on the basis of the new regulatory requirements of
§ 162 Stock Corporation Act (AktG). The report is in conformity
with the recommendations and suggestions of the German
Corporate Governance Code (DCGK) as amended on 16 Decem-
ber 2019 and takes account of relevant regulatory provisions.
Sustainability targets (ESG) integrated into the measurement of variable remuneration
Malus and
.
•
.
Variable remuneration can fluctuate between zero and a cap
Remuneration of Executive Board members commensurate with the tasks and
performance of the respective Board member and the position of the company
Allowance for internal and external remuneration ratios
Caps on the individual variable remuneration components and total remuneration
Harmonisation of the interests of the Executive Board with those of our shareholders
Malus and clawback provisions apply to entire variable remuneration
Relative performance measurement creates incentives for long-term outperformance of
our competitors on the capital market
Allowance for current market practice of relevant peers in the Board remuneration
Ensuring conformity with legal and regulatory requirements relevant to Hannover Re
.
•
Ex-post disclosure of target values and target attainment
Ex-post disclosure of the individual premium/deduction per Board member
Remuneration structure
The idea of "pay-for-performance" and the long-term orienta-
tion are paramount concepts central to the remuneration sys-
tem for the Executive Board of Hannover Re.
In order to reinforce the concept of pay-for-performance, the
target direct remuneration (sum of fixed remuneration and
target amounts of the variable remuneration components in
the event of 100% target attainment) is comprised of 40%
fixed remuneration and 60% variable remuneration compo-
nents. The variable remuneration consists of a short-term in-
centive (STI) and a long-term incentive (LTI) with a perfor-
mance period of four years.
The remuneration structure is geared to the sustainable and
long-term development of the Hannover Re Group. The STI
accounts for 40% of the variable remuneration components
and thus contributes 24% to the target direct remuneration.
The LTI, which accounts for a 60% share of the variable re-
muneration components, represents 36% of the target direct
remuneration.
Review of the appropriateness of the
Executive Board remuneration
The remuneration of the members of the Executive Board is
determined by the Supervisory Board on the basis of the re-
muneration system in accordance with the recommendations
of the Standing Committee. When determining the remuner-
ation of the members of the Executive Board, the Supervisory
Board considers the responsibility and tasks of the individual
members of the Executive Board, their individual perfor-
mance, the economic situation and the success and future
prospects of the company.
The customary nature of the remuneration in comparison to
other similar companies (horizontal comparison) and in terms
of the amount of remuneration as well as the remuneration
structure within the company (vertical comparison) was re-
viewed as part of the overhaul of the remuneration system in
2020. Companies listed on the DAX and MDAX (excluding
Hannover Re) as at 1 May 2020 were used on a combined
basis as a peer group for the horizontal comparison of remu-
neration. The vertical comparison is based on the proportion
126
When appointments are made to the Executive Board and Su-
pervisory Board, Hannover Rück SE is guided by a number of
considerations including the principle of diversity. Wide-rang-
ing qualifications, expertise and relevant experience on the
part of the members of the Executive Board and Supervisory
Board facilitate a nuanced evaluation of the opportunities and
risks associated with business operations and enable bal-
anced and professional actions and decisions to be taken on
this basis. Due consideration is given to the aspect of diversi-
ty when members of the Executive Board and Supervisory
Board are appointed. In addition to specialist and personal
qualifications (competencies), this aspect encompasses in
particular age, gender, education and professional career.
.
•
•
⚫ Bulk of target direct remuneration comprised of variable remuneration components
Adequate and ambitious defined performance criteria
clawback
Maximum remuneration
Combined management report
Remuneration of the Executive Board in
the 2021 financial year
Basic principles for determining the remuneration
The strategy of the Hannover Re Group is geared to sustaina-
ble outperformance in the interests of the Group's stakehold-
ers (in particular investors, clients and employees). In remu-
nerating the Executive Board our focus is therefore on the
principles of continuity, financial strength and profitability.
With a rigorous underwriting policy, partnership-based cus-
tomer relationships, a lean operating model and our highly
efficient risk and capital management, we aim to preserve our
outstanding position as one of the world's leading and most
profitable reinsurance groups on an enduring basis and be
the market leader in terms of profitability, earnings growth
and cost efficiency. In our “Striving for sustainable outper‐
formance", governance, risk management, compliance and
corporate social responsibility constitute the foundations for
our growth as a trusted global reinsurance partner.
Risk management and corporate social responsibility are de-
fined more closely in specific strategies derived from the
Group strategy. For further information about the risk man-
agement system we would refer to the "Opportunity and risk
report" from page 86 onwards. For further information on
corporate social responsibility and the compliance manage-
ment system please see the non-financial information state-
ment from page 70 onwards. We report on the basic princi-
ples of our corporate governance from page 118 onwards.
The remuneration of the Executive Board makes a substantial
contribution to the advancement of our Group strategy and
the long-term and sustainable development of the Hannover
Re Group. The remuneration ensures a transparent, perfor-
mance-related incentive, strongly focused on the company's
long-term success, which in particular depends on perfor-
mance criteria derived from the Group strategy and on the
performance of the Hannover Rück SE share, including in
comparison with our competitors. In addition, an excessive
risk appetite is discouraged.
Hannover Re | Annual Report 2021
125
The members of the Executive Board are remunerated in light
of the company's position and according to their performance
and their scope of activity and responsibility. The require-
ments of the Stock Corporation Act (AktG), the provisions of
Article 275 of Delegated Regulation (EU) 2015/35 with
amendments by Delegated Regulation (EU) 2016/2283 and
of the Insurance Supervision Act in conjunction with the Reg-
ulation on the Supervisory Law Requirements for Remunera-
tion Schemes in the Insurance Sector (VersVergV) as well as
the recommendations for the remuneration of the manage-
ment board contained in Section G of the German Corporate
Governance Code (DCGK) establish the regulatory frame-
work.
In determining the remuneration for the Executive Board of
Hannover Re, the Supervisory Board followed the guidelines
set out below:
Guiding principles for the Executive Board remuneration of Hannover Re
Promoting the corporate strategy
Long-termism and sustainability
Pay-for-performance
Adequacy of remuneration
Linkage to shareholder interests
Allowance for market practice and
regulatory compliance
Transparency
Performance criteria derived from the corporate strategy
• Variable remuneration largely share-based with a multi-year orientation
•
M 72
60%
II. Diversity concept for the composition of the Executive
Board and Supervisory Board
et seq.
The diversity of the Executive Board with respect to female
members remained unchanged in 2021. The goal of appoint-
ing at least one additional woman as a member of the compa-
ny's Executive Board by the year 2022 is factored into succes-
sion planning as far as possible.
-
In the period from 1994 to 2002 Mr. Haas served as the com-
pany's Chief Financial Officer. 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 Commit-
tee. His additional long-standing experience on the compa-
ny's Supervisory Board in part also as Chair similarly
marks him out for fulfilling with the utmost diligence both the
preparatory tasks of the Committee and the tasks that were
assigned to the Committee by law or by the full Supervisory
Board at its own responsibility. In electing him as Chair of the
Committee, the Supervisory Board took into account Mr.
Haas' wealth of experience and considered this to be valua-
ble.
Mr. Haas is optimally suited to chairing the Audit Committee,
and in the opinion of Hannover Rück SE it is therefore in the
interest of the company to diverge from Recommendation
C.10 in conjunction with C.7.
Aside from this divergence discussed above, the company
will also continue in future to comply with all recommenda-
tions of the Code in the version dated 16 December 2019.
Hannover, 3 November 2021
The Executive Board, The Supervisory Board
Remuneration
Remuneration of the Executive Board
The applicable system of remuneration for the members of the
Executive Board of Hannover Rück SE was adopted by the Su-
pervisory Board at its meeting on 4 August 2020. This was
further presented to the Annual General Meeting on 5 May
2021, where it was approved by a majority of 76.31%. The
remuneration system was developed by the Supervisory Board
with the support of an independent consultant and is in con-
formity with the requirements of the Stock Corporation Act
(AktG) as well as the recommendations of the German Corpo-
rate Governance Code (DCGK) as amended on 16 December
2019 (published in the Federal Gazette on 20 March 2020).
The agenda and the invitation to the Annual General Meeting
2021, incl. the description of the remuneration system under
agenda item 8, can be viewed on the company's website,
https://www.hannover-re.com/1671472/invitation-agenda.
-
pdf.
https://www.hannover-re.com/remuneration-report-2022.
Remuneration of the Supervisory Board
The system of remuneration for the members of the Supervi-
sory Board is geared to the legal requirements and reflects the
recommendations and suggestions of the German Corporate
Governance Code. It is governed by § 14 of the company's
Articles of Association, https://www.hannover-re.com/34118/
statute-hannover-ruck-se.pdf.
The remuneration of the members of the Supervisory Board is
balanced overall and commensurate with the responsibility
and tasks of the Supervisory Board members and the position
of the company, with consideration also given to the remuner-
ation arrangements of comparable listed companies. The re-
muneration arrangements as well as the remuneration system
are regularly reviewed by the Supervisory Board with an eye
to their adequacy, in which regard the advice of external con-
sultants may also be sought. The Annual General Meeting
considers the remuneration of the Supervisory Board mem-
bers at least every four years and if changes to the remunera-
tion arrangements are proposed. This was most recently the
case at the Annual General Meeting on 5 May 2021. The An-
nual General Meeting can confirm the existing system of re-
muneration for the Supervisory Board or adopt a resolution to
amend it.
The agenda and the invitation to the Annual General Meeting
2021, including the description of the remuneration system
under agenda item 9, can be viewed on the company's web-
Hannover Re | Annual Report 2021
119
site, https://www.hannover-re.com/1671472/invitation-agen- Sustainability of enterprise management
da.pdf. The individual remuneration of the members of the
Supervisory Board for the 2021 financial year is itemised on
page 148 et seq. of the Annual Report.
The remuneration report 2021 can be found on page 124 et
seq. and at
Independence of the Chair of the Audit Committee
from the company and the Management Board
Pursuant to Recommendation C.10 of the Code, the Chair of
the Audit Committee shall be independent of the company
and the Management Board. Pursuant to Recommendation
C.7 of the Code, when assessing the independence of the Su-
pervisory Board's members from the company and the Man-
agement Board, the shareholder representatives shall par-
ticularly take into consideration whether the respective
Supervisory Board member has belonged to the Supervisory
Board for more than twelve years. Mr. Haas, the Chair of the
Finance and Audit Committee, was first elected to the Super-
visory Board of Hannover Rück SE on 24 May 2002 and has
therefore already belonged to it for more than twelve years.
Recommendation C.7
Code Recommendation C.10 in conjunction with
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, particular-
ly because our steering and monitoring measures are effec-
tively and closely interlinked. Despite these diverse mecha-
nisms, individual and especially accumulation risks can
decisively affect our assets, financial position and net income.
In accordance with our understanding of risk, however, we
consider not only risks but also at the same time opportuni-
ties. 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 opportunities. Our central monitoring tool is the system
of risk management that we have installed Group-wide, which
brings together both qualitative and quantitative information.
Our own evaluation of the manageability of existing risks is
confirmed by various financial indicators as well as by exter-
nal assessments of rating agencies. Specific monitoring indi-
cators, corresponding notification thresholds and potential
escalation steps are defined on a mandatory basis in our cen-
tral 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. Our necessary equity resources are deter-
mined 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. We have a sufficient capital cushion to be
able both to absorb risks and act on business opportunities
that may arise. Similarly, our very good financial strength rat-
ings (see page 63) also testify to our financial stability. The
quality of our Enterprise Risk Management (ERM), for exam-
ple, is assessed by Standard & Poor's as a key factor in the
rating process. Special consideration is given to our estab-
lished risk management culture, which promotes the devel-
opment of appropriate risk monitoring systems and supports
strategic risk management. The rating encompasses in par-
ticular the areas of risk culture, risk controls, emerging risk
management, risk models and strategic risk management.
This external appraisal confirms the quality of our holistic ap-
proach to risk management.
We would also refer to the explanatory remarks on the finan-
cial strength ratings of our subsidiaries in the “Financial po-
sition" section of the management report on page 63. In addi-
tion, the risk trigger mechanism and internal monitoring
system are reviewed annually by the independent auditor in
relation to the financial reporting. The Group-wide risk man-
agement system is also a regular part of the audits conducted
by the internal audit function.
Hannover Re | Annual Report 2021
117
Combined management report
Enterprise management
Declaration on Corporate
Governance pursuant to
§§ 289f, 315d German
Commercial Code (HGB)
This subsection is a part of the report that the legis-
lator has expressly exempted from the audit of the
financial statement/audit of the management report
(§ 317 Para. 2 Sentence 6 and Sentence 4 German
Commercial Code (HGB); unaudited information).
Hannover Re's objective continues to be to consolidate its po-
sition as one of the leading, most profitable reinsurance
groups operating worldwide. In aspiring towards this goal, it
is particularly important to observe and fulfil the principles of
good and sustainable corporate governance. 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 enter-
prise management which we consistently pursue and adjust
to the latest requirements in accordance with our best prac-
tice standards.
The Executive Board and Supervisory Board of Hannover
Rück SE expressly support the suggestions and recommenda-
tions of the German Corporate Governance Code and are
guided by them in our activities. The principles of responsible
and good enterprise management therefore constitute the
core of our internal Corporate Governance principles (www.
hannover-re.com/50889/corporate-governance-principles.
pdf). These are reviewed and revised regularly, most recently
in May 2021. We cultivate integrity at all times in our dealings
with business partners, staff, shareholders and other stake-
holder groups and we support the principles of value-based
and transparent enterprise management and supervision for-
mulated in the German Corporate Governance Code. The Su-
pervisory Board, Executive Board and employees of Han-
nover Re identify with these principles, which thus form part
of our corporate self-image. The Executive Board ensures
that the principles are observed Group-wide.
Hannover Rück SE hereby provides insight into its enterprise
management practices as part of the Declaration on Corpo-
rate Governance pursuant to § 289f German Commercial
Code (HGB) and pursuant to § 315d German Commercial
Code (HGB) in conjunction with § 289f German Commercial
Code (HGB) for the Hannover Re Group:
118
Corporate Governance
As an instrument of self-regulation for the business world, the
German Corporate Governance Code defines current best
practices for corporate governance and is intended to make the
German system of corporate governance transparent and com-
prehensible. It seeks to foster the trust of international and na-
tional investors, customers, employees and the general public
in the management and supervision of German listed compa-
nies. Although the Code does not have binding legal force, the
enterprises addressed by the Code are nevertheless required
by § 161 Stock Corporation Act (AktG) to provide an annual
declaration as to whether or not the recommendations of the
Code were and are complied with in the reality of the com-
pany's business activities. If recommendations were not acted
upon, this is to be explained and disclosed as part of the Dec-
laration of Conformity. Supplementary to the present declara-
tion, the Declarations of Conformity pursuant to § 161 Stock
Corporation Act (AktG) regarding compliance with the German
Corporate Governance Code for recent years are published
on our website (https://www.hannover-re.com/200801/
declaration-of-conformity).
The positive attitude of Hannover Rück SE towards the Code
is not contradicted by the fact that in the year under review
we did not comply with one recommendation, since a justi-
fied deviation from the recommendations of the Code may -
as in the present case - be very much in the interests of good
corporate governance tailored to a particular company, i.e. by
reflecting enterprise- and industry-specific features.
Based on such a high degree of fulfilment of the recommen-
dations and suggestions of the Code, Hannover Rück SE con-
tinues to place well overall among the companies listed on
the DAX and MDAX - as is borne out again this year by the
findings of the analysis conducted by the German Association
for Financial Analysis and Asset Management (DVFA).
Declaration of Conformity pursuant to
§ 161 Stock Corporation Act (AktG)
regarding compliance with the
German Corporate Governance Code at
Hannover Rück SE
Under § 161 Stock Corporation Act (AktG) it is incumbent on
the Management Board and Supervisory Board of German
listed companies to provide an annual declaration of con-
formity with the recommendations of the “German Corporate
Governance Code Government Commission" published by
the Federal Ministry of Justice and Consumer Protection or to
explain which recommendations of the Code were/are not
applied and why this is the case.
Hannover Re | Annual Report 2021
Combined management report
The Executive Board and Supervisory Board therefore de-
clare pursuant to § 161 Stock Corporation Act (AktG) that in
its fulfilment of the German Corporate Governance Code
Hannover Rück SE diverges in one respect from the recom-
mendations contained in the version of the Code dated
16 December 2019 (published in the Federal Gazette on
20 March 2020):
Remuneration of senior executives below the
Executive Board
The structure and system underlying the remuneration
scheme for senior executives below the Executive Board
(management levels 2 and 3) and for the domestic key func-
tion holders belonging as a matter of principle to the ranks of
senior executives are specified in greater detail on pages 151
Information on share-based payment is provided in the sec-
tion of the notes "Share-based payment" on page 256 et seq.
and in the remuneration report with respect to the members
of the Executive Board.
Further enterprise management
principles of Hannover Re
Hannover Re | Annual Report 2021
121
then established the basis for exploration of the insights
gained at the next meeting of the Supervisory Board. All in
all, the picture that emerged from the self-assessment was
extremely satisfactory.
Working practice of the committees of
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
Committee. The Supervisory Board committees are each
comprised of three members (further details of the names of
the members and background information on the individual
committee members can be found on page 283 of the report)
and prepare matters within their scope of competence for dis-
cussion and adoption of a resolution by the full Supervisory
Board. Moreover, the committees are also assigned their own
authority to adopt resolutions. The number of meetings of the
committees in the period under review as well as the attend-
ance of the committee members are discussed in greater
detail in the Report of the Supervisory Board on page 278 et
seq.
The Finance and Audit Committee was made up of Mr. Her-
bert Haas (Chairman), Mr. Torsten Leue and Dr. Ursula Lip-
owsky as an independent financial expert in the reporting
period. The committee monitors the accounting process and
the effectiveness of the internal control system, the risk man-
agement system and the internal auditing system. It also han-
dles issues relating to compliance and the information system
for the Supervisory Board and discusses the Quarterly State-
ments as well as the Half-yearly Financial Report prior to
their publication. It prepares the Supervisory Board's exami-
nation 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 re-
port. In this context, the Finance and Audit Committee re-
ceives detailed information 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 independent auditor, the determina-
tion of the audit concentrations, the fee agreement and the
quality of auditing. The agendas and 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.
Mr. Torsten Leue (Chairman), Mr. Herbert Haas and Dr. Er-
hard Schipporeit came together in the period under review as
the Standing Committee. The body prepares personnel deci-
sions for the Supervisory Board. It bears responsibility for
granting loans to the group of persons specified in §§ 89
Para. 1, 115 Stock Corporation Act (AktG) and those consid-
ered equivalent pursuant to § 89 Para. 3 Stock Corporation
Act (AktG) as well as for approving contracts with Supervisory
Board members in accordance with § 114 Stock Corporation
Act (AktG). It exercises the powers arising out of § 112 Stock
Corporation Act (AktG) in lieu of the Supervisory Board and
- in cooperation with the Executive Board - ensures that
long-term succession planning is in place. A systematic ap-
proach is taken in this regard and a list of potential candi-
dates with their associated development periods is main-
tained, regularly updated and discussed by the committee in
light of the diversity targets. This routinely constitutes an
item for reporting and deliberation in the committee meet-
ings and it is explored in detail – also in connection with the
Executive Board's strategic objectives in the area of talent
management.
The Nomination Committee
-
Mr. Torsten Leue (Chairman),
Mr. Herbert Haas and Dr. Andrea Pollak - is tasked with pro-
posing to the Supervisory Board appropriate candidates for
the nominations that it puts forward to the Annual General
Meeting for election to the Supervisory Board.
For further details of the activities of the Supervisory Board
committees in the year under review, please see the explana-
tory remarks provided in the Report of the Supervisory Board
on page 278 et seq.
Targets pursuant to § 289f Para. 4
Sentence 1 in conjunction with Para. 2
No. 4 German Commercial Code (HGB)
Five members of the Supervisory Board of Hannover Rück SE
were women in the year under review. In addition, it remains
the case that one woman sits on the Supervisory Board's Fi-
nance and Audit Committee and one is a member of its Nom-
ination Committee. The proportion of women serving on the
Supervisory Board was therefore 56% in 2021. The propor-
tion is thus in excess of the 30% target currently defined pur-
suant to §§ 76 Para. 4, 111 Para. 5 Stock Corporation Act
(AktG) for the period from 1 July 2017 to 30 June 2022.
On the level of the Executive Board, the goal continues to be
to appoint another women as a member of the company's
Executive Board by the year 2024. Currently, one woman
serves on the body, which has altogether seven members.
The target for the two levels of senior management below the
Executive Board is 18% (corresponding to 16 women), again
to be reached by 30 June 2022.
122
Hannover Re | Annual Report 2021
Combined management report
Diversity concept - Goals for the
composition of the Executive Board and
Supervisory Board as well as status of
implementation (§ 289f Para. 2 Number 6
German Commercial Code (HGB)
I. Implementation of the diversity concept in the 2021 finan-
cial year
Diversity on the Supervisory Board and Executive Board con-
tinued to be a major focus in the 2021 financial year. Since
the end of the Annual General Meeting on 8 May 2019 alto-
gether five women have belonged to the Supervisory Board.
It remains the case that female members of the Supervisory
Board sit on two of the three Supervisory Board committees.
One woman serves on the Finance and Audit Committee and
one is a member of the Nomination Committee.
Furthermore, the Supervisory Board considers it important
that an adequate number of Supervisory Board members are
independent as defined by the German Corporate Govern-
ance Code (DCGK). In its own assessment, the Supervisory
Board currently meets the target set by the Code because Dr.
Lipowsky, Dr. Ollmann and Dr. Pollak are independent within
the meaning of Code Recommendation C.6. Dr. Schipporeit
similarly largely fulfils the independence criteria according to
the Code, but in view of the fact that he was first appointed on
3 May 2007 he has already belonged to the body for longer
than twelve years.
The Supervisory Board decides in individual cases whether
external advice should also be sought as a decision-making
aid. A regular self-assessment is intended to survey the gen-
eral efficiency of its working approach and assure it on a last-
ing basis. In the year under review this self-assessment was
conducted in accordance with the German Corporate Govern-
ance Code. For this purpose, the individual assessments of
the Supervisory Board members were first surveyed in ad-
vance. The consolidated anonymised evaluation of this survey
The age diversity on the Executive Board ranged from 51 to
61 in the 2021 financial year. On the Supervisory Board the
age range was from 48 to 72.
The Rules of Procedure of the Supervisory Board provide in-
ter 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 a sufficient
number of independent members on the shareholder side
shall belong to the Supervisory Board. Currently, at least
three of the six shareholder representatives are independent
as defined by the German Corporate Governance Code. Per-
sons 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 and shall normally not belong
to the Supervisory Board as a member for longer than three
full consecutive terms of office; the term of office commenc-
ing from the end of the 2014 Annual General Meeting is the
first term of office to be counted for this purpose. Nomina-
tions shall take account of the company's international activi-
ties as well as diversity. Furthermore, it shall be ensured that
the proposed person can allocate the expected amount of
time. For their part, each sitting member of the Supervisory
Board shall also ensure that they have sufficient time to dis-
charge their mandate. The Supervisory Board meets at least
twice each calendar half-year. The Supervisory Board's report
provides information about the attendance of individual Su-
pervisory Board members at the meetings. No more than two
former members of the company's Executive Board may be-
long to the Supervisory Board.
The Chairman of the Supervisory Board stays in regular con-
tact with the Chairman of the Executive Board in order to dis-
cuss with him significant business occurrences. The compo-
sition of the Executive Board (including areas of
responsibility) as well as of the Supervisory Board and its
committees (including period of membership) is set out on
page 18 et seq. and page 283 respectively of the present An-
nual Report.
In addition to the Corporate Governance principles, Hannover
Rück SE has adopted its own Code of Conduct (www.han-
nover-re.com/50943/code-of-conduct.pdf) that is applied
Group-wide as a set of minimum standards. Complementing
our corporate strategy and the Corporate Governance princi-
ples, it establishes rules governing integrity in the behaviour
of all employees of Hannover Re 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 standards that guide our
actions worldwide. It is our belief that integrity in dealings
with our stakeholders constitutes the foundation of a success-
ful 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 Re.
Risk monitoring and steering
The risk management system applicable throughout the en-
tire 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 conceiv-
able risks that from the current standpoint could potentially
jeopardise the company's profitability and continued exist-
ence. Further details in this regard may be obtained from the
risk report contained in the present Annual Report on pages
86 et seq.
The Rules of Procedure of the Executive Board are intended
to ensure that a consistent business policy is elaborated and
implemented for the company in accordance with its strategic
objectives. Within the framework of a consistent business
policy, the principle of “delegation of responsibility” enjoys
special status. In the interests of shareholders, importance is
expressly attached to an organisation that facilitates cost-ef-
fective, 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 responsibil-
ity, each member of the Executive Board leads their own area
of competence at their individual responsibility within the
bounds of the resolutions adopted by the Executive Board.
Only persons under the age of 65 may be appointed to the
Executive Board. The term of appointment shall be deter-
mined such that it expires no later than the end of the month
in which the member of the Executive Board turns 65.
The Executive Board is responsible for the underlying strate-
gies, the implementation of corresponding structures and
provision of appropriate resources as well as the definition of
responsibilities in the organisational guidelines. The Supervi-
sory Board is tasked with providing advice and oversight for
the Executive Board in its leadership of the company, inter
alia with an eye to the handling of sustainability risks.
The Executive Board adopted a new ESG governance struc-
ture in the year under review with a view to strengthening
governance as it relates to ESG-relevant issues. Core ele-
ments are the newly created “Sustainability Function” and
the "ESG Management Team". The tasks of the sustainability
function, which is assigned to the Chief Executive Officer's
scope of responsibility, include inter alia central coordination
of all ESG activities, identifying, analysing and evaluating
ESG topics, leading ESG projects (e.g. for implementation of
the EU Taxonomy), advising the specialist units on ESG is-
sues, presenting proposals for long-term ESG goals to the
Executive Board, regular reporting to the Executive Board
and coordinating an annual ESG programme. The ESG man-
agement team is composed of high-calibre participants from
a range of different departments. The ESG management team
ensures coordinated dovetailing with the Group strategy and
serves as the interface to local units as well as the central
point of contact for fulfilment of ESG-related regulatory re-
quirements. The described ESG governance structure pro-
vides for quarterly reporting to the Executive Board. Further-
more, ESG and the sustainability strategy were topics of
discussion in the year under review at the meetings of the
Supervisory Board and its Finance and Audit Committee.
In view of the special significance of sustainability issues and
ESG risks, there is also close cooperation with Group Risk
Management. The meetings of the Risk Committee are rou-
tinely presented with information on ESG-related and reputa-
tional risk topics. The Executive Board also approved a "Sus-
tainability/RepRisk Framework" in the year under review.
For more extensive information on risk management and the
In the year under review it was again evident that ESG issues
continued to take on greater strategic and regulatory signifi-
cance. The associated risks and opportunities go hand-in-
hand with increasing expectations placed on the role of cor-
porate governance. Requirements derive from, among other
things, the G20/OECD Principles of Corporate Governance,
Solvency II, the Corporate Sustainability Reporting Directive
(CSRD), the BaFin Guidance Notice on Dealing with Sustain-
ability Risks, the German Corporate Governance Code (DCGK)
as well as the recommendations made by the Task Force on
Climate-Related Financial Disclosures (TCFD). It is envisaged
that corporate governance will assume a prominent role in
shaping ESG topics and integrate them into enterprise man-
agement.
Hannover Re | Annual Report 2021
120
The Executive Board and Supervisory Board of Hannover
Rück SE work together on a trusting basis to manage and
supervise the company and the Group as a whole. In accord-
ance with the Rules of Procedure of the Executive Board,
matters of fundamental importance require the consent of the
Supervisory Board. The Supervisory Board is comprised of
nine members. Six members are elected as shareholder rep-
resentatives by the shareholders at the Annual General Meet-
ing. The three seats held by employee representatives, which
are currently allocated to Germany pursuant to Part III. § 13
(3) of the Agreement regarding the Participation of Employ-
ees in Hannover Rück SE of 23 January 2013, are elected in
accordance with the provisions of the SE Participation Act
(SEBG) by the responsible representative body (currently the
joint Employee Council of Hannover Rück SE and E+S
Rückversicherung AG). The Supervisory Board appoints the
members of the Executive Board. Since members of the Su-
pervisory Board cannot at the same time belong to the Exec-
utive Board, a high degree of independence in the oversight
of the Executive Board is thus already ensured by structural
means. In addition, the Supervisory Board is kept informed
on a regular and timely basis of the business development,
the execution of strategic decisions, material risks and plan-
ning as well as relevant compliance issues.
Working practice of the Executive Board
and Supervisory Board
Hannover Re | Annual Report 2021
Compliance
integration of ESG topics, we would refer to the "Opportunity
and risk report" from page 86 onwards.
Combined management report
Hannover Re considers a properly functioning compliance
structure to be an essential tool for ensuring compliance with
external rules and regulations as well as requirements im-
posed internally by the company. Further details of the com-
pliance management system are provided in the combined
non-financial information statement contained in this Annual
Report on pages 70 et seq. The results of our compliance ac-
tivities are documented annually in the compliance report,
which is submitted to the Finance and Audit Committee of the
Supervisory Board and the full Supervisory Board; in the re-
gard please see the Report of the Supervisory Board on pages
278 et seq.
mponents
Structure of the target direct remuneration
The following tables show the target remuneration for each
member of the Executive Board for the 2021 financial year.
The target remuneration encompasses the remuneration
commitment for the financial year that is granted in the event
of 100% target attainment.
In the context of the overhaul of the remuneration system, the
Supervisory Board also modified the amount of target remu-
neration of the members of the Executive Board with effect
from 1 January 2021, i.e. at the same time as the entry into
force of the new remuneration system. This was done on the
basis of the development of remuneration at the major peers
used for comparative purposes as well as the development of
business at the company. In keeping with the pay-for-perfor-
mance concept and the long-term focus of the Executive
Board remuneration, the remuneration modification centred
on the LTI as the remuneration component with a long-term
orientation and multi-year structure. As a consequence of the
remuneration modification, the target remuneration of the
members of the Executive Board is in the customary range for
a company the size of Hannover Re.
Every member of the Executive Board is given a contractual
commitment to customary target remuneration. This is
aligned with their scope of responsibility and with their ex-
pertise and experience that are relevant to the role.
Determination of target remuneration
of the remuneration of the Executive Board relative to the
remuneration of the total workforce of Hannover Re in
Germany. Both the status quo and the development over time
of the remuneration ratios were taken into consideration. The
remuneration ratios between the Executive Board and the
total workforce were also compared with the remuneration
ratios of selected peers from the insurance industry, where
available.
remuneration
relative improvement of the OHC 1 score in
certain focus areas
136
60.0
780.0
59.7
1,300.7
100.0
1,307.0
100.0
136.1
203.9
Silke Sehm
(Board member with
divisional responsibility)
2021
in EUR thousand
in %
Basic remuneration
400.0
39.6
Fringe benefits 1
10.4
1.0
Fixed remuneration components
410.4
40.6
One-year variable remuneration (STI)
240.0
23.8
Multi-year variable remuneration (LTI) 2,3
(performance share awards 2021)
780.0
Service cost 4
Variable remuneration components
Total target remuneration
35.8
2021
in EUR thousand
in %
in EUR thousand
in %
Basic remuneration
Fringe benefits¹
520.0
40.0
520.0
39.8
0.7
0.0
7.0
360.0
0.5
520.7
40.0
527.0
40.3
One-year variable remuneration (STI)
312.0
24.0
312.0
23.9
Multi-year variable remuneration (LTI) 2,3
(performance share awards 2021)
468.0
36.0
468.0
Fixed remuneration components
2021
35.6
600.0
Target
•
M 75
Attracting and retaining the most suitable
Board members
Remunerating the scope of responsibility,
expertise and experience of the individual
Board members
Granting customary fringe benefits and
pension schemes to attract and retain the
most suitable Board members
Variable remuneration components
Hannover Re | Annual Report 2021
incentive (LTI)
Maximum
remuneration
Malus and
clawback
•
•
Hannover Re Group ROE
Individual performance criteria (financial and non-financial,
including ESG targets)
Cap: 200% of the STI target amount
Performance Share Plan
("Hannover Re Performance Shares")
Four-year performance period
LTI allocation value is dependent on the determined target
attainment for:
• Hannover Re Group ROE of the financial year
Individual performance criteria of the financial year
Performance criteria:
• Performance of the Hannover Re share (plus dividends)
•
Relative Total Shareholder Return (TSR) compared to
relevant peers
Cap: 400% of the LTI target amount (max. 200% LTI
allocation value + max. 200% measured by the TSR)
Chief Executive Officer: EUR 5,000,000
Other Board members: EUR 3,000,000
Option of the Supervisory Board to partially or fully withhold
("malus") or claim back ("clawback") the variable
remuneration in the event of gross misconduct or an incorrect
consolidated financial statement
•
Performance criteria:
Defined contribution commitment: annual funding contribu-
tion amounting to 25% of the defined measurement basis
Dr. Pickel: continuation of a defined benefit commitment
(legacy commitment): commitment to a pension calculated as
a percentage of the pensionable fixed annual remuneration
Target bonus model
Vehicle for business and personal use, accident, luggage and
D&O insurance in an appropriate amount
The fixed remuneration is paid in cash in twelve equal
monthly instalments.
59.4
Total target remuneration
1,010.4
100.0
Service cost4
188.7
Excluding insurance under group contracts
The LTI tranche 2021 (Hannover Re performance share awards 2021) is allocated at the start of the 2022 financial year. The LTI amount payable is
determined and paid out at the end of the four-year performance period in the 2026 financial year under the terms of the plan (see detailed description
of the LTI).
In the 2021 financial year the members of the Executive Board received further benefits from multi-year variable remuneration that refer to earlier
financial years. This table shows the target remuneration for the 2021 financial year without entitlements from previous years.
4
For details of the service cost see the table "Pension commitments" on page 142.
Hannover Re | Annual Report 2021
129
Combined management report
Variable remuneration components
130
The Supervisory Board has determined an upper limit for
each member of the Executive Board based on the amount for
the total of fixed remuneration, fringe benefits, STI and LTI as
well as pension service cost (“maximum remuneration") in
accordance with § 87a Para. 1 Sentence 2 No. 1 Stock Corpo-
ration Act (AktG). The maximum remuneration limits all pay-
ments that result from the commitment for a financial year,
irrespective of the date of receipt. The maximum remunera-
tion is EUR 5,000,000 for the Chief Executive Officer and EUR
3,000,000 for all other members of the Executive Board.
It is only possible to report definitively on adherence to the
maximum remuneration for the 2021 financial year after the
LTI tranche awarded for 2021 has been paid out, which will
occur in 2026. Should the payment made from the LTI lead to
the maximum remuneration being exceeded, the amount
paid out will be reduced accordingly so as to ensure adher-
ence to the maximum remuneration.
Application of the remuneration system in
the 2021 financial year
The following table provides an overview of the components
of Hannover Re's remuneration system in the 2021 financial
year and the associated targets:
Remuneration components and their target
Remuneration component/ Measurement basis/parameter
Remuneration condition
Fixed
remuneration components
Fixed remunera-
tion
Fringe benefits
Pension scheme
Short-term
incentive (STI)
Adherence to maximum remuneration
(Board member with
divisional responsibility)
Dr. Michael Pickel
(Board member with
divisional responsibility)
1.2
130.0
5.8
0.0
Fixed remuneration components
984.1
43.8
536.1
40.7
One-year variable remuneration (STI)
504.0
22.5
312.0
23.7
Multi-year variable remuneration (LTI) 2,3
(performance share awards 2021)
756.0
33.7
468.0
35.6
Variable remuneration components
Total target remuneration
Service cost4
1,260.0
56.2
780.0
59.3
2,244.1
100.0
16.1
0.6
14.1
39.5
36% long-term incentive
- 40% fixed remuneration-
24%
short-term
incentive
/делел %09
Hannover Re | Annual Report 2021
127
M 73
Combined management report
Target remuneration
M 74
Jean-Jacques Henchoz
(Chief Executive Officer)
Sven Althoff
1,316.1
(Board member with
Coordinator of the Property & Casualty
reinsurance business group)
2021
2021
in EUR thousand
in %
in EUR thousand
in %
Basic remuneration
Fringe benefits¹
Signing bonuses
840.0
37.4
520.0
divisional responsibility/
100.0
215.0
288.7
35.6
360.0
35.7
Variable remuneration components
780.0
59.3
600.0
59.5
Total target remuneration
1,315.0
100.0
1,008.0
100.0
Service cost 4
468.0
148.7
1
2
3
Excluding insurance under group contracts
The LTI tranche 2021 (Hannover Re performance share awards 2021) is allocated at the start of the 2022 financial year. The LTI amount payable is
determined and paid out at the end of the four-year performance period in the 2026 financial year under the terms of the plan (see detailed description
of the LTI).
In the 2021 financial year the members of the Executive Board received further benefits from multi-year variable remuneration that refer to earlier
financial years. This table shows the target remuneration for the 2021 financial year without entitlements from previous years.
4
For details of the service cost see the table "Pension commitments" on page 142.
128
Hannover Re | Annual Report 2021
3
1
2
Dr. Klaus Miller
103.2
•
(performance share awards 2021)
23.8
Claude Chèvre
(Board member with
divisional responsibility)
Clemens Jungsthöfel
(Chief Financial Officer)
2021
2021
in EUR thousand
in %
in EUR thousand
in %
Basic remuneration
520.0
39.6
Multi-year variable remuneration (LTI) 2,3
400.0
Fringe benefits 1
15.0
1.1
8.0
0.8
Fixed remuneration components
535.0
40.7
408.0
40.5
One-year variable remuneration (STI)
312.0
23.7
240.0
39.7
•
Long-term
Incentivising attainment or outper-
formance of the annual corporate and
business group targets and remuneration
relative improvement of the OHC¹ score in
certain focus areas
Change in OHC score 2020/2021;
relative improvement of the OHC1 score in
certain focus areas
Change in OHC score 2020/2021;
Change in OHC score 2020/2021;
relative improvement of the OHC¹ score in
certain focus areas
Change in OHC score 2020/2021;
relative improvement of the OHC¹ score in
certain focus areas
Change in OHC score 2020/2021;
relative improvement of the OHC¹ score in
certain focus areas
Change in OHC score 2020/2021;
relative improvement of the OHC¹ score in
certain focus areas
Sustainability
Contribution to the sustainability strategy
Ongoing development of the HR sustainability
strategy; Implementation of catalogue of
measures
Promoting sustainability in the action fields
"ESG5 in insurance business" and "Sustainable
protection"
15.0
Promoting sustainability in the action fields
"ESG5 in insurance business" and "Sustainable
protection"
5.0
Promoting sustainability in the action field
"ESG5 in asset management"
15.0
Promoting sustainability in the action fields
"ESG5 in insurance business" and "Sustainable
protection"
0,0
Promoting sustainability in the action fields
"ESG5 in insurance business" and "Sustainable
protection"
5.0
Promoting sustainability in the action fields
"ESG5 in insurance business" and "Sustainable
protection"
15.0
Hannover Re | Annual Report 2021
Change in OHC score 2020/2021;
Leadership/Commitment (OHC¹)
15.0
Individual premium/deduction
in %
IVC2 Property & Casualty
reinsurance
Silke Sehm
IVC2 Property & Casualty
reinsurance
Individual contribution to the result
Dividend continuity/
distribution
Dividend continuity of
Hannover Rück SE
Dividend continuity of
Hannover Rück SE
Dividend continuity of
Hannover Rück SE
Dividend continuity of
Hannover Rück SE
Dividend continuity of
Hannover Rück SE
Dividend continuity of
Hannover Rück SE
Dividend continuity of
Hannover Rück SE
Strategic target
Successful launch of strategy cycle 2021-2023;
Implementation of the strategic initiatives
135
Successful launch of strategy cycle 2021-2023
with concentrations on ongoing development of
P&C³ strategy, implementation of strategic initiative
APAC 4 P & C³
Successful launch of strategy cycle 2021-2023 with
concentrations on implementation of IFRS 17, develop-
ment of IT strategy and support for HDI Global Specialty
Successful launch of strategy cycle 2021-2023 with
concentration on expansion of Financial Solutions
business, inforce management
Successful launch of strategy cycle 2021-2023 with
concentration on implementation of strategic initiative
Client Excellence
Successful launch of strategy cycle 2021-2023 with
concentration on implementation of strategic initiatives
Client Excellence and innovation und digital strategy
1 OHC (Organisational Health Check) = Employee survey that measures the health of an organisation and hence provides an indicator of how an
organisation aligns itself, optimally executes its plans and innovates in order to achieve its targets on a lasting basis.
2
IVC (Intrinsic Value Creation) = A tool of value-based enterprise management used to measure the attainment of long-term targets on the level
of the Group, the business groups and the operational units.
•
P&C = Property & Casualty reinsurance
4 APAC = Asia-Pacific region
5
ESG = Environmental, Social and Governance
6 L&H= Life & Health reinsurance
134
Hannover Re | Annual Report 2021
Successful launch of strategy cycle 2021-2023 with
concentrations on implementation of strategic initiative
APAC 4 L&H6, Client Excellence, innovation & digital
strategy
Dr. Michael Pickel
M 79
IV. Overall target attainment and amount paid out under
120.5%
15.0%
135.5%
325.2
Dr. Klaus Miller
312
120.5%
0.0%
120.5%
376.0
Dr. Michael Pickel
312
120.5%
5.0%
125.5%
391.6
Silke Sehm
240
120.5%
15.0%
135.5%
325.2
Total
2,232
2,915.3
Multi-year variable remuneration components
In the new remuneration system the multi-year variable re-
muneration consists of a long-term incentive (LTI), which is
structured as a Performance Share Plan. The amount of the
LTI allocation depends on the overall target attainment deter-
mined for the respective financial year in connection with the
short-term incentive (STI). The allocation of the LTI tranche
2021 (Hannover Re Performance Share Awards 2021) there-
fore takes place at the beginning of the 2022 financial year.
The LTI tranche 2022 will be paid out in the 2026 financial
year following the four-year performance period.
Within the 2021 financial year, payments due under multi-
year variable remuneration components of the legacy remu-
neration system were made. The Hannover Re share awards
allocated on the basis of the target attainment for the 2016
financial year in the 2017 financial year (Hannover Re share
awards 2016) as well as the amount contributed to the bonus
bank on the basis of the target attainment for the 2017 finan-
cial year in the 2018 financial year (bonus bank 2017) were
paid out. Details are provided under “Amounts paid out under
multi-year variable remuneration components” on page 140
et seq.
The following chart provides an overview of the multi-year
variable remuneration components that are still to be paid out
in subsequent years:
240
Clemens Jungsthöfel
391.6
125.5%
the STI 2021
The following table shows the overall target attainment as
well as the resulting amount paid out to each member of the
Executive Board for the STI 2021:
Overall target attainment and amount paid out under STI 2021
Member of the
Executive Board
M 80
Target amount
in EUR thousand
Group RoE
Target attainment Individual premium/
deduction
Overall target
Amount paid out
attainment
in EUR thousand
Combined management report
Jean-Jacques Henchoz
120.5%
15.0%
135.5%
682.9
Sven Althoff
312
120.5%
15.0%
135.5%
422.8
Claude Chèvre
312
120.5%
5.0%
504
IVC² Life & Health
reinsurance
3
Covered by performance
criterion Group RoE
(STI)
Individual targets
(premium/deduction)
•
Allocation value depending on STI
target attainment
•
Higher incentivising for target attainment in the STI
Dr. Klaus Miller
Share performance
•
Linkage of share performance and Board remuneration
Long-term
•
• Allowance for the individual contribution made by Board members and the
results of the areas under their responsibility
Implementation of sustainability targets in Board remuneration
Strengthening of the pay-for-performance concept
Harmonisation of the interests of the Board and those of shareholders
incentive
(LTI)
Four-year performance period
•
Orientation towards long-term success and assuring the long-term
development of Hannover Re
Relative TSR
•
Incentivising long-term outperformance of relevant peers on the capital
market
Hannover Re | Annual Report 2021
131
Combined management report
Short-Term Incentive (STI)
incentive
Target value consistent with the target set for attainment of sustainable
value creation
.
ROE: one of Hannover Re's strategic KPIs
of the individual contribution to the result
and to sustainability
Recognising the performance in the
financial year
Incentivising the creation of long-term
shareholder value
Motivating outperformance of peers
Limiting the total remuneration promised
for a financial year
Fulfilment of regulatory standards of the
Stock Corporation Act (AktG)
Strengthening the position of the
Supervisory Board in the event of severe
compliance violations
Further provisions
In addition, reduction or elimination of the variable
remuneration is possible if required by the regulator
Hannover Re | Annual Report 2021
Fixed remuneration components
Fixed remuneration
The fixed remuneration is paid out in cash in twelve equal
monthly instalments. It is aligned in particular with the scope
of tasks and professional experience of the respective mem-
ber of the Executive Board.
I. Fundamentals
Fringe benefits
Retirement provision
With the exception of Dr. Pickel, whose annual pension is
based on a defined benefit commitment, the members of the
Executive Board have defined contribution commitments.
Further information in this regard is provided in the subsec-
tion "Benefits on leaving the company".
Variable remuneration components
The variable remuneration components consist of a short-
term incentive (STI), which is assessed on the basis of the
respective financial year, and a long-term incentive (LTI) with
a performance period of four years.
The performance criteria for measuring and evaluating target
attainment are derived from Hannover Re's corporate strate-
gy. To this end, the variable remuneration components are
structured in such a way as to promote the long-term devel-
opment of the Hannover Re Group. The following overview
shows the close linkage between the performance criteria
and other aspects of the variable remuneration and the corpo-
rate strategy and explains how the variable remuneration pro-
motes Hannover Re's long-term development.
Performance criteria for the variable remuneration and their relevance to the corporate strategy/development
Remuneration
Performance criterion/aspect
Strategy relevance/Promotion of long-term development
M 76
component
Group ROE
Short-term
•
The members of the Executive Board additionally receive cer-
tain non-performance-based fringe benefits in the customary
scope; these are reviewed at regular intervals. A vehicle is
made available for company and personal use for the duration
of the Board appointment. The member of the Executive
Board is responsible for paying tax on the pecuniary advan-
tage associated with personal use of the company car. In ad-
dition, the company grants the members of its Executive
Board an appropriate amount of insurance protection under
group policies (accident, luggage and D&O insurance).
The STI is geared to Hannover Re's commercial success in
the relevant financial year. In addition to the financial perfor-
mance criterion of the return on equity (RoE) generated by
the Hannover Re Group pursuant to the consolidated finan-
cial statement of Hannover Rück SE ("Group RoE"), an indi-
vidual premium or deduction is considered in the determina-
tion of the amount paid out which comprises both financial
and non-financial performance criteria, in particular sustain-
ability targets, and makes allowance for the respective divi-
sional responsibilities of the individual members of the Exec-
utive Board in addition to the overall responsibility of the
•
The basis for payment of the STI consists of the contractually
defined STI target amount, which is based on overall target
attainment of 100%. The overall target attainment (including
the individual premium or deduction) can reach values be-
tween 0% and 200% of the STI target amount. The amount
that can be paid out under the STI is thus limited to 200% of
the target amount.
17.96%
1,800 basis points above
the risk-free interest rate
Hannover Re | Annual Report 2021
RoE
Group RoE
10.8%
Risk-free
-0.04%
interest rate
Target RoE
8.96%
Target attainment
120.5%
133
900 basis points above
the risk-free interest rate
Combined management report
-
By applying an individual premium or deduction to target at-
tainment of the performance criterion Group RoE, the Super-
visory Board can consider - in addition to the financial suc-
cess of the Hannover Re Group – the individual contribution
made by the member of the Executive Board and, as appro-
priate, the division under their responsibility to the result as
well as the attainment of sustainability targets in the context
of the STI. The amount of the premium or deduction, which
can range from -25 percentage points to +25 percentage
points, is determined by the Supervisory Board at its reason-
able discretion. The criteria and indicators for determination
of the individual premium or deduction are in each case
defined in advance by the Supervisory Board for the coming
financial year and communicated to the members of the
Executive Board.
For the 2021 financial year the Supervisory Board determined
for the individual members of the Executive Board the follow-
ing criteria and indicators as well as - on this basis – the fol-
lowing individual premiums and deductions subsequent to
the financial year:
Individual targets and target attainment of the member of the Executive Board
Executive Board. In this way, the STI addresses the goal of a
high and stable return on equity for the Hannover Re Group,
promotes action on Board- or division-specific focus topics
and integrates the interests of our clients, employees and oth-
er key stakeholders.
Jean-Jacques Henchoz
Performance
Covered by performance
criterion Group RoE
Sven Althoff
IVC² Property & Casualty
reinsurance
Claude Chèvre
IVC2 Life & Health
reinsurance
Clemens Jungsthöfel
III. Individual targets (premium or deduction)
8.96%
Member of the
Executive Board
-0.04%
0 basis points above
the risk-free interest rate
Calculation of the short-term incentive (STI)
Group ROE
(strategic target return)
STI target amount
+
Premium / deduction
based on individual
performance
Amount paid out
in EUR
(Cap: 200% of the
Possible target attainment
+/- 25 percentage points
STI target amount)
0-200%
Measurement period = financial year
Possible overall target attainment incl. premium / deduction 0-200%
M 77
in EUR
Hannover Re | Annual Report 2021
132
100%
200%
0%
The risk-free interest rate on 10-year German government
bonds over a five-year average amounted to -0.04% as at the
end of 2021. For the 2021 financial year the target Group RoE
therefore stands at 896 basis points. In the 2021 financial
year a Group RoE of 10.8% (1080 basis points) was generat-
ed. This corresponds to target attainment of the performance
criterion Group RoE of 120.5%.
For the 2021 financial year the Supervisory Board defined a
target value (100% target attainment) of 900 basis points
above the riskfree interest rate for the Group RoE. This is con-
sistent with the company's strategic target of generating sus-
tainable value creation through a return on equity of at least
900 basis points above the risk-free interest rate. The lower
threshold was defined as the risk-free interest rate without a
spread, while the upper threshold was set at 1,800 basis
points above the risk-free interest rate.
M 78
Target attainment Group RoE in the 2021 financial year
The target value for the Group-RoE as well as the target
corridor with upper and lower thresholds are in each case
defined in advance by the Supervisory Board for the coming
The determinative financial performance criterion for the STI
is - with a weighting of 100% - the Group RoE for the finan-
cial year in comparison with a strategic target return, which
is established on the basis of the risk-free interest rate on a
5-year average plus an ambitious spread. The risk-free inter-
est rate is the average market rate over the past five years for
ten-year German government bonds, with the average being
calculated on the basis of the respective interest rate at year-
end. The Group RoE is one of the central performance indica-
tors in Hannover Re's management system and as such is also
implemented in the remuneration of the Executive Board.
Hannover Re pursues the goal of generating a high return on
equity. The Group's focus here is on long-term value en-
hancement. The use of the Group RoE as a determinative
performance criterion for the STI creates incentives for
accomplishment of this goal.
II. Financial performance criterion
Target attainment
financial year. In this context, the target value is aligned with
the strategic target return of the Hannover Re Group at the
time when it was determined.
Variable remuneration components
384.8
220.0
Share Awards 2016 (4 years)
224.0
166.0
Bonus bank 2017 (3 years)
608.8
386.0
0
in EUR
thousand
Fixed remuneration components
Multi-year variable remuneration1
in %
in EUR
thousand
in %
in %
in EUR
thousand
2021
(until 31 August 2014)
André Arrago
386.0
0
29
100
70
Ulrich Wallin
(until 5 May 2019)
2021
Hannover Re | Annual Report 2021
146
In the case of Mr. Vogel remuneration for seats held on Group bodies is counted in an amount of EUR 30 thousand.
1
100
128.9
100
867.1
66.9
608.8
1,340.6
Total target remuneration
100
128.9
30
258.3
Pension payments
71
954.6
the service contract
Payment to compensate claims under
Service cost
2021
1,014.0
M 91
Severance pay
If the employment relationship or the term of office on the
Executive Board ends prior to the end of the performance
period for a reason other than those specified below before
the end of a financial year, the participant in the plan has an
entitlement to a pro rata temporis LTI for this financial year.
In this event, the determination and payment of the variable
remuneration components is normally made in accordance
with the provisions of the plan conditions for the LTI. Early
payment prior to the end of the respective performance peri-
od of the LTI is not envisaged in such instances. If the em-
ployment relationship or the term of office on the Executive
Board ends during the financial year due to resignation from
office or notice given by the member of the Executive Board
(exception: resignation from office or notice given by the
member of the Executive Board for a compelling reason), the
refusal by the member of the Executive Board to accept an
offer of extension on at least equal contractual conditions (ex-
ception: the member of the Executive Board has reached the
age of 60 and served as a member of the Executive Board for
two terms of office), extraordinary termination without notice
of the service contract of the member of the Executive Board
by the company for a compelling reason or revocation of the
appointment of the member of the Executive Board for a com-
pelling reason as defined by § 84 Para. 3 Stock Corporation
Act (AktG) (exception: vote of no confidence passed by the
General Meeting), all conditionally allocated Hannover Re
performance shares shall be cancelled without replacement
or compensation.
II. Long-Term Incentive (LTI)
If the employment relationship of a member of the Executive
Board ends during a financial year for a compelling reason
that is not the responsibility of the member of the Executive
Board in accordance with § 626 Para. 1 Civil Code (BGB), the
participant in the plan has an entitlement to a pro rata tempo-
ris STI for this financial year. If the employment relationship
is terminated by the company without notice prior to the end
of the financial year for a compelling reason that is the re-
sponsibility of the member of the Executive Board in accord-
ance with § 626 Para. 1 Civil Code (BGB), the entitlement to
STI for this financial year shall be cancelled without replace-
ment or compensation.
Short-Term Incentive (STI)
I.
Variable remuneration in case of early termination of the
employment relationship
Hannover Re | Annual Report 2021
142
The personnel expense includes a past service cost due to a premium increase and change in measurement of EUR 259.5 thousand (2020) and
EUR 144.9 thousand (2021).
The personnel expense includes a past service cost due to a premium increase of EUR 88.5 thousand (2020) and EUR 211.9 thousand (2021).
Mr. Althoff and Ms. Sehm were first granted a pension commitment prior to 2001 on the basis of their service to the company before their appointment
to the Executive Board; the earned portion of the defined benefit obligation 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. The values shown include the entitlements prior to
appointment to the Executive Board, which in accordance with a resolution of the company's Supervisory Board shall remain unaffected by the pension
commitment as a member of the Executive Board.
The service contracts of the Executive Board make no provi-
sion for claims to severance pay. Commitments to benefits in
connection with the early termination of employment on the
Executive Board as a consequence of a change of control are
similarly not envisaged in the service contracts of the mem-
bers of the Executive Board.
3
1
10,916.8
11,024.0
968.9
1,284.3
564.2
1,194.5
1,257.6
326.2
188.7
58.6
65.8
615.9
2
Remuneration granted and owing in
the 2021 financial year
Current members of the Executive Board
in EUR
2020
2021
2020
2021
reinsurance business group)
Coordinator of the Property & Casualty
(Board member with
divisional responsibility/
Sven Althoff
M 90
Jean-Jacques Henchoz
(Chief Executive Officer)
Remuneration granted and owing in the 2021 financial year
Combined management report
143
Hannover Re | Annual Report 2021
The tables also show the relative shares of the individual re-
muneration components in the total remuneration granted
and owing.
In addition, the service cost for the pension commitments for
the 2021 financial year is disclosed in the tables as part of the
Executive Board remuneration.
the share awards allocated for the 2016 financial year,
which were paid out in the 2021 financial year
the amount contributed to the bonus bank for the 2017
financial year, which was paid out in the 2021 financial
year
the fringe benefits accruing in the 2021 financial year
the STI determined for the 2021 financial year with
payment in 2022
the 2021 financial year
the fixed remuneration paid out in
•
•
•
•
The following tables set out the remuneration granted and
owing to the individual members of the Executive Board pur-
suant to § 162 Para. 1 Sentence 2 No. 1 Stock Corporation Act
(AktG). Remuneration granted refers to remuneration for
which the activity was performed in full in the year under re-
view. Remuneration owing encompasses remuneration that is
due but has not yet actually been received. In this context, the
disclosure for the 2021 financial year covers:
Total
in %
4,235.9
180.5
52.8
58.2
(age 65)
DBO 31.12.
2020
2021
IAS 19
2020
2021
Personnel expense
Attainable annual pension
Dr. Michael Pickel
Silke Sehm 1,3
Dr. Klaus Miller
Clemens Jungsthöfel
215.0
Claude Chèvre
in EUR thousand
Jean-Jacques Henchoz
2020
2021
M 89
Pension commitments
The pension entitlements pursuant to IAS 19 for the active
members of the Executive Board are set out in the following
table.
Dr. Pickel was granted a pension commitment through a life-
long pension and a surviving dependants' benefit. The
amount of the pension benefits is calculated according to a
length-of-service-based percentage ranging from 25% to at
most 50% of the pensionable income (last monthly salary re-
ceived). In conjunction with the remuneration structure valid
from 2011 onwards a non-pensionable fixed remuneration
component was implemented. Of the fixed remuneration
amounting to altogether EUR 520 thousand, EUR 320 thou-
sand carries a pension entitlement. If the pension is drawn
before reaching the age of 65 50% of other income received
is counted towards the pension. Regular pensions are adjust-
ed annually according to changes in the consumer price in-
dex for Germany.
disability benefits. At the request of the member of the Exec-
utive Board the retirement benefit is paid as a one-time lump
sum. The pension benefits are provided through HDI Unter-
stützungskasse e.V. The latter takes out insurance covers with
HDI Lebensversicherung AG to fund the benefits. The amount
of the pension benefits corresponds to the payments under
the insurance covers on the basis of the funding contributions
rendered annually by the company in an amount of 25% of
the pensionable income (annual fixed remuneration). Regular
annuities are increased annually by at least 1% of their last
(gross) amount.
The members of the Executive Board, with the exception of
Dr. Pickel, have been granted defined contribution pension
commitments through retirement, surviving dependants' and
Benefits on leaving the company
Retirement provision
No clawback or reduction occurred in the 2021 financial year,
nor was there any restriction or omission of payment of vari-
able remuneration components.
In addition, a restriction or complete omission of payment of
the variable remuneration components is permissible in the
event of a final or immediately enforceable ruling of the Fed-
eral Financial Supervisory Authority (BaFin) in which the pay-
ment is prohibited or restricted (such as: if the equity capital
is lower or at risk of becoming lower than the solvency capital
requirement), and also if this is required in accordance with
Art. 275 Para. 2 letter e of the Delegated Regulation (EU)
2015/35 of 10 October 2014.
Sven Althoff 1,2
127.9
509.3
370.7
203.9
160.0
160.0
1,118.3
1,150.2
76.5
136.1
58.1
61.5
166.0
256.0
33.6
103.2
26.2
46.1
1,565.5
1,473.2
72.4
148.7
100.0
106.1
2,265.9
2,290.0
151.8
288.7
108.5
118.2
4,087.7
thousand
in EUR
thousand
in EUR
thousand
325.2
487.8
391.6
One-year variable remuneration (STI) 2
109.5
56
408.0
455.4
41
535.0
Fixed remuneration components
2.8
118.2
8.0
15.0
Fringe benefits 1
106.7
400.0
440.0
520.0
Basic remuneration
2020
in EUR
thousand
in %
in EUR
thousand
in EUR
thousand
thousand
15.4
Multi-year variable remuneration
378.3
409.9
3
2
1
33.6
103.2
227.7
100
733.2
1,353.1
72.4
148.7
Service cost 3
100
1,304.9
Total remuneration
118.2
44
325.2
897.7
59
769.9
Variable remuneration components
251.9
252.5
Share Awards 2016/2015 (4 years)
158.0
125.8
Bonus bank 2017/2016 (3 years)
in %
in EUR
2020
2021
409.8
422.8
805.8
682.9
One-year variable remuneration (STI) 2
425.3
42
536.1
910.9
59
984.1
Fixed remuneration components
130.0
130.0
Signing bonuses
16.5
16.1
30.9
14.1
Fringe benefits 1
408.8
520.0
750.0
840.0
Basic remuneration
in EUR
thousand
in %
Multi-year variable remuneration
Furthermore, a member of the Executive Board shall pay back
variable remuneration already paid out to them in the event
that, and insofar as, it emerges after payment has been made
that the audited and adopted consolidated financial statement
used as a basis for the calculation of the amount paid out was
incorrect and must therefore be corrected according to perti-
nent financial reporting standards and a lower amount – or no
amount at all - would have been owed from the variable remu-
neration on the basis of the corrected and audited consolidat-
ed financial statement and the relevant remuneration system.
303.4
Bonus bank 2017/2016 (3 years)
Share Awards 2016/2015 (4 years)
Clemens Jungsthöfel
(Chief Financial Officer)
since 1 September 2020
2021
Claude Chèvre
(Board member with
divisional responsibility)
The disclosure in the 2020 financial year refers to amounts paid out from the one-year variable remuneration for 2020 that was received in 2021.
For details of the service cost see the table "Pension commitments"
3
151.8
288.7
1,153.2
100
1,262.3
1,716.7
127.9
100
1,667.0
215.0
727.9
58
726.2
805.8
41
682.9
Excluding insurance under group contracts
2
1
Service cost 3
Variable remuneration components
Total remuneration
196.9
193.8
121.2
109.6
318.1
Excluding insurance under group contracts
Combined management report
Hannover Re | Annual Report 2021
587.3
125.5%
468.0
Dr. Michael Pickel
Silke Sehm
563.9
120.5%
468.0
Dr. Klaus Miller
487.8
135.5%
360.0
Clemens Jungsthöfel
360.0
587.3
468.0
Claude Chèvre
634.1
135.5%
468.0
1,024.4
135.5%
756.0
Jean-Jacques Henchoz
Sven Althoff
Allocation
Target Overall target
amount attainment of
in EUR the STI 2021
thousand
amount
in EUR
thousand
125.5%
135.5%
487.8
Total
Performance period = 4 years
(measured against individual peer group)
Possible target attainment 0 - 200%
Relative TSR
in EUR
amount
Base payment
M 85
LTI allocation value + max. 200% measured by the relative
TSR) - provided that the sum total of all remuneration compo-
nents does not exceed the maximum remuneration pursuant
to § 87a Para. 1 Sentence 2 No. 1 Stock Corporation Act
(AktG).
Calculation of the LTI amount paid out
The final amount to be paid out is determined from the base
payment amount and the target attainment of the relative to-
tal shareholder return ("relative TSR") measured against a
peer group. The amount paid out for the LTI is limited to
200% of the LTI allocation value and can thus amount to alto-
gether at most 400% of the LTI target amount (max. 200%
Hannover Re | Annual Report 2021
138
Ø share price
plus dividends
(at the end of the
performance period)
Performance period = 4 years
Number of allocated HR performance share awards
Ø share price
(at the beginning of the
performance period)
M 84
in EUR
amount
Base payment
At the end of the four-year performance period the base pay-
ment amount is initially calculated on the basis of the Han-
nover Re share price performance. This base amount is deter-
mined from the allocated number of Hannover Re performance
shares and the average share price of Hannover Rück SE over
a period extending from 15 trading days before to 15 trading
days after the meeting of the Supervisory Board that approves
the consolidated financial statement in the year when the per-
formance period ends plus the dividends paid out during the
performance period. The performance thus fully reflects the
total shareholder return.
LTI target amount)
allocation value
(Cap: 200% of the
LTI
Calculation of the LTI base payment amount
4,372.6
3,348.0
M 83
Amount paid out
in EUR
Member of the
Executive Board
The following table presents the most important aspects of
the allocation of the LTI tranche 2021.
Bonus bank 2019
Variable
remuneration
Hannover Re share awards 2018
2018
Bonus bank 2018
Variable
remuneration
Hannover Re share awards 2017
2017
Bonus bank 2017
Variable
remuneration
Hannover Re share awards 2016
2016
2019
Bonus bank 2016
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
Multi-year variable remuneration components
Variable
-remuneration
Hannover Re share awards 2019
Variable
remuneration
Bonus bank 2020
The LTI tranche 2021 is allocated in the 2022 financial year
on the basis of the overall target attainment for the STI 2021
(Hannover Re performance share awards). The number of al-
located Hannover Re performance shares is determined from
the LTI allocation value as well as the average Hannover Re
share price over a period extending from 15 trading days be-
fore to 15 trading days after the meeting of the Supervisory
Board that approves the consolidated financial statement.
The Hannover Re performance shares have a total term of
four years ("performance period”). The LTI tranche 2021 will
be paid out in the 2026 calendar year following the four-year
performance period.
Combined management report
M 81
137
LTI
allocation value
(Cap: 200% of the
LTI target amount)
Possible overall target attainment incl. premium/deduction 0-200%
Measurement period = financial year
Hannover Re | Annual Report 2021
+/- 25 percentage points
0-200%
Possible target attainment
Premium deduction
based on individual
performance
+
☑
LTI target amount
in EUR
Group RoE
(strategic target return)
M 82
The LTI is structured in the form of a performance share plan
and thereby incentivises increases in the value of the Han-
nover Re share in the interests of our investors. The amount
of the LTI allocation value is based on the contractually agreed
LTI target amount (target attainment 100%) and depends on
the target attainment for the financial performance criterion
Group RoE determined in the context of the STI for the re-
spective financial year as well as the individual premium or
deduction defined by the Supervisory Board for the financial
year.
Calculation of the long-term incentive (LTI) allocation value
The LTI plays a key role in aligning the interests of the Exe-
cutive Board with those of our shareholders. Through relative
measurement of the Hannover Re share performance incen-
tives are created for long-term outperformance of our com-
petitors on the capital market.
a) Fundamentals
I. Long-Term Incentive (LTI)
(Hannover Re performance share awards 2021)
LTI tranche 2021
STI
2021
Hannover Re share awards 2020
2020
LTI 2021 allocation
(Cap: 400% of the
LTI target amount)
b) Financial performance criterion
The determinative performance criterion for the final LTI
amount to be paid out is the relative TSR. By means of the
relative TSR, an external performance criterion geared to the
capital market is integrated into the variable remuneration
that facilitates relative performance measurement as well as
alignment of the interests of the Executive Board and those of
shareholders. The relative TSR maps the development of the
Hannover Re share price during the four-year performance
period including gross dividends in comparison with a peer
group comprised of relevant competitors in the insurance in-
dustry. In this way, the LTI creates incentives for the strong
performance of the Hannover Re share on the capital market
on a long-term and sustainable basis.
The positive amount contributed to the bonus bank in 2018
was due to be paid out in 2021, insofar as it did not exceed
the balance of the bonus bank after allowance for credits/deb-
its during the three-year performance period (2018 - 2020).
The variable total bonus could be negative in the remunera-
tion system applicable until 2020. This minus value would
potentially have been carried over in full to the bonus bank,
meaning that the level of the bonus bank could be reduced
even without an amount being paid out.
Following determination of the variable remuneration for the
2017 financial year, 20% of this remuneration was contribut-
ed to a bonus bank in the 2018 financial year.
b) Bonus bank 2017
The amount paid out to Ms. Silke Sehm refers to HR SA that were allocated to her for her work as a senior executive before her appointment
as a member of the Executive Board.
141.6
5,096
545.8
Total
since 6 March 2019
Silke Sehm1
217.4
20.75
The amounts contributed for 2017 were paid out in full. Pend-
ing payments not covered by a positive balance in the bonus
bank would have lapsed.
150.42
107.15
136.0
Dr. Michael Pickel
208.7
20.75
150.42
1,219
107.15
130.6
Dr. Klaus Miller
since 1 September 2020
Clemens Jungsthöfel
1,270
The amounts paid out correspond to the values contributed in
2018 (20% of the variable remuneration for 2017) because
the level of the bonus bank at the time of payment in 2021
was sufficient for the contributed values to be paid out in full.
The following table provides an overview of the bonus bank
2017:
Bonus bank 2017
In making its discretionary decision, the Supervisory Board
considers the severity of the violation, the degree of fault on
the part of the member of the Executive Board as well as the
material and immaterial damage incurred by the company.
If a member of the Executive Board intentionally violates one
of their fundamental due diligence obligations pursuant to §
93 Stock Corporation Act (AktG), a cardinal obligation under
their service contract or other fundamental company princi-
ples governing conduct, e.g. from the Code of Conduct or the
compliance guidelines, the Supervisory Board may, at its dis-
cretion, withhold in part or in full variable remuneration that
has not yet been paid out ("malus") or reclaim in part or in
full the gross amount of the variable remuneration already
paid out ("clawback"). A clawback of remuneration is exclud-
ed if the significant breach occurred more than five years ago.
459.8
459.8
Malus and clawback, risk adjustment
since 6 March 2019
Total
Silke Sehm
118.6
118.6
Dr. Michael Pickel
105.8
105.8
Dr. Klaus Miller
since 1 September 2020
Clemens Jungsthöfel
125.8
125.8
109.6
109.6
in EUR
thousand
out 2021
2017 variable
remuneration)
in EUR thousand
Jean-Jacques Henchoz
since 1 April 2019
Sven Althoff
Claude Chèvre
Member of the
Executive Board
Amount paid
Amount contributed
(2018) (20% of the
M 88
252.5
20.75
150.42
1,475
M 86
Hannover Re | Annual Report 2021
The following table provides an overview of the Hannover Re
share awards 2016:
a) Hannover Re share awards 2016
After the variable remuneration had been established for the
2016 financial year, Hannover Re share awards were auto-
matically allocated in the equivalent amount of 20% of the
determined variable remuneration. The value per share upon
allocation in 2017 was established on the basis of the un-
weighted arithmetic mean of the XETRA closing prices over a
period of five trading days before to five trading days after the
meeting of the Supervisory Board that approved the consoli-
dated financial statement in March 2017. After a vesting peri-
od of four years the value of the Hannover Re share awards
calculated at the payment date was paid out in 2021. In this
context, the value of the share was established on the basis of
the unweighted arithmetic mean of the XETRA closing prices
over a period of five trading days before to five trading days
after the meeting of the Supervisory Board that approved the
consolidated financial statement in March 2021. In addition,
the sum total of all dividends per share distributed during the
vesting period was paid out in accordance with the remuner-
ation system.
In the old remuneration system that applied until the end of
the 2020 financial year, the variable remuneration for a finan-
cial year consisted of a Group bonus and an individual bonus
as well as - in the case of members of the Executive Board
with responsibility for a certain division - a divisional bonus.
60% of the amount determined for each member of the Exec-
utive Board was paid out after the end of the respective finan-
cial year, while 20% was allocated as virtual shares (Han-
nover Re share awards) and a further 20% was contributed to
a so-called bonus bank. The Hannover Re share awards allo-
cated in the 2017 financial year on the basis of the target at-
tainment for the variable remuneration of the 2016 financial
year (Hannover Re share awards 2016) as well as the amount
contributed to the bonus bank in the 2018 financial year on
the basis of the target attainment for the variable remunera-
tion of the 2017 financial year (bonus bank 2017) were paid
out in 2021.
II. Amounts paid out from multi-year variable
remuneration components
The target attainment for the LTI tranche 2021 will be dis-
closed in the 2026 remuneration report after the end of the
performance period.
+100 percentage points
0 percentage points
TSR outperformance
-100 percentage points
0%
100%
200%
Target attainment curve relative TSR
Target attainment
140
Combined management report
139
Hannover Re | Annual Report 2021
If the TSR of the Hannover Re share corresponds to the un-
weighted average TSR of the peer group, the target attain-
ment for the relative TSR amounts to 100%. Each percentage
point by which the TSR of the Hannover Re share exceeds or
falls short of the unweighted average TSR of the peer group
results in a corresponding increase or reduction in the target
attainment (linear scaling). If the TSR of the Hannover Re
share exceeds the unweighted average TSR of the peer group
by 100 percentage points or more, the target attainment for
the relative TSR amounts to 200%. Any further increase in
the relative TSR will not lead to a further increase in the tar-
get attainment. If the TSR of the Hannover Re share is 100
percentage points or more below the unweighted average
TSR of the peer group, the target attainment for the relative
TSR amounts to 0%.
RGA (Reinsurance Group of America)
SCOR
•
•
• Everest Re
• Swiss Re
Munich Re
The target attainment for the relative TSR is established by
comparing the TSR of the Hannover Re share with the shares
of companies in the peer group during the four-year perfor-
mance period. For this purpose, the TSR of the Hannover Re
share in the respective performance period is compared with
the unweighted average TSR of the peer group. The Supervi-
sory Board reviews the peer group before the start of each
performance period of a new LTI tranche. For the LTI tranche
2021 it is composed of the following companies:
1
141
HR Share Awards (HR SA) 2016
Jean-Jacques Henchoz
107.15
158.0
193.8
20.75
150.42
1,132
107.15
121.2
Claude Chèvre
Sven Althoff
since 1 April 2019
in EUR
thousand
out 2021
Amount paid
M 87
in EUR
in EUR
in EUR
Roland Vogel
(until 30 September 2020)
payout 2021
dividends
share price on
allocated
HR SA
Average Total distributed
Number of
Average share
price on
allocation 2017
Allocation value
20% of the variable
remuneration 2016
in EUR thousand
Member of the
Executive Board
The disclosure in the 2020 financial year refers to amounts paid out from the one-year variable remuneration for 2020 that was received in 2021.
For details of the service cost see the table "Pension commitments"
per share
Hannover Re | Annual Report 2021
Service cost³
188.7
1
Excluding insurance under group contracts
2
The disclosure in the 2020 financial year refers to amounts paid out from the one-year variable remuneration for 2020 that was received in 2021.
3
For details of the service cost see the table "Pension commitments"
Hannover Re | Annual Report 2021
145
Combined management report
Former members of the Executive Board
The remuneration granted and owing to former members of
the Executive Board of Hannover Re in the 2021 financial
year pursuant to § 162 Stock Corporation Act (AktG) is shown
below.
793.5
Former members of the Executive Board - remuneration granted and owing
Silke Sehm
(Board member with
divisional responsibility)
For details of the service cost see the table "Pension commitments"
Payments for seats held on Group bodies received in 2021 are counted towards the one-year variable remuneration (STI 2021) to be paid out in
April 2022. Allowance for seats on Group bodies: Dr. Miller EUR 75 thousand, Dr. Pickel EUR 5 thousand.
The disclosure in the 2020 financial year refers to amounts paid out from the one-year variable remuneration for 2020 that was received in 2021,
incl. seats held on Group bodies that were counted towards the amount paid out. Allowance for seats on Group bodies: Dr. Miller: EUR 75 thousand,
Dr. Pickel EUR 4.4 thousand.
Excluding insurance under group contracts
180.5
203.9
76.5
136.1
Service cost 4
1,240.6
100
1,254.6
144
100
877.2
Total remuneration
2021
2020
in EUR
thousand
in %
in EUR
thousand
Basic remuneration
400.0
320.0
Fringe benefits 1
10.4
14.8
Fixed remuneration components
410.4
47
334.8
One-year variable remuneration (STI) 2
325.2
323.4
Multi-year variable remuneration
141.6
135.3
Bonus bank 2017/2016 (3 years)
Share Awards 2016/2015 (4 years)
141.6
135.3
Variable remuneration components
466.8
53
458.7
1,232.5
100
326.2
Total remuneration
0.9
7.0
5.6
Fixed remuneration components
520.7
43
420.9
527.0
42
445.6
One-year variable remuneration (STI) 2,3
376.0
469.2
391.6
434.4
Multi-year variable remuneration
314.5
342.4
336.0
360.6
Bonus bank 2017/2016 (3 years)
0.7
105.8
Fringe benefits 1
520.0
4
3
1
1,211.2
Dr. Klaus Miller
(Board member with
divisional responsibility)
Dr. Michael Pickel
(Board member with
divisional responsibility)
2021
2020
2021
2020
in EUR
in %
thousand
in EUR
thousand
in EUR
thousand
in %
in EUR
thousand
Basic remuneration
520.0
420.0
440.0
130.6
2
118.6
727.6
811.6
57
690.5
Variable remuneration components
224.6
217.4
211.8
208.7
Share Awards 2016/2015 (4 years)
136.0
795.0
58
Jean-Jacques Henchoz
1,667.0
1,716.7
-2.9
Sven Althoff
1,262.3
1,153.2
9.5
Claude Chèvre
1,304.9
1,353.1
M 96
Active members of the Executive Board
33.5
40.8
186.5
135.5
37.6
79.0
63.4
24.6
79.0
63.4
24.6
79.0
-3.6
63.4
108.0
81.4
32.7
79.0
63.4
24.6
79.0
63.4
24.6
96.0
71.9
24.6
Clemens Jungsthöfel (since 1 September 2020)
Dr. Michael Pickel
227.7
1.5
867.1
889.0
-2.5
Employees in Germany
Average
108.5
107.7
0.8
Earnings trend
Profit for the year of Hannover Rück SE according to HGB in EUR million
Group net income in EUR million
701.2
386.8
81.3
1,231.3
883.1
39.4
1,320.3
733.2
-1.2
128.9
1,340.6
222.0
Dr. Klaus Miller
1,211.2
1,232.5
-1.7
249.7
1,254.6
1,240.6
1.1
Silke Sehm
877.2
793.5
10.5
Former members of the Executive Board
André Arrago (until 31 August 2014)
Roland Vogel (until 30 September 2020)
Ulrich Wallin (until 5. May 2019)
130.4
1 Amounts excluding reimbursed VAT
351.5
Change
2020/2021
4.0
4.0
4.0
0
0
O O O
0
I
I
0
186.5
79.0
63.4
79.0
63.4
7.0
- 0-
108.0
81.4
4.0
135.5
0
9.0
5555
249.7
65.0
35
37.5
9.0
0
4.0
0
☐
75
0
4.0
4.0
25.0
23
30
15.0
8.0
|
4.0
I
79.0
63.4
4.0
855.5
Hannover Re | Annual Report 2021
149
Comparative presentation of the change in remuneration and earnings trend
In conformity with the requirements of § 162 Para. 1 Sen-
tence 2 No. 2 Stock Corporation Act (AktG), the following ta-
ble presents a comparison of the change in the remuneration
of the members of the Executive Board, the members of the
Supervisory Board as well as the employees and the earnings
trend of the company.
The presentation of the remuneration of the Executive Board
and the Supervisory Board is geared to the remuneration
granted and owing pursuant to § 162 Stock Corporation Act
(AktG).
The presentation of the average remuneration of the employ-
ees is geared to the workforce of Hannover Re in Germany.
The employee remuneration shown encompasses the person-
nel expense (excluding the expense for Executive Board re-
muneration) for wages and salaries, employer contributions
to social security, the variable remuneration components
allocable to the financial year as well as - in the case of share-
based payment - the amounts received in the financial year.
Comparative presentation
Active members of the Supervisory Board¹
1,137.0
Torsten Leue
Natalie Bani Ardalan²
Frauke Heitmüller²
Ilka Hundeshagen²
Dr. Ursula Lipowsky
Dr. Michael Ollmann
Dr. Andrea Pollak
Dr. Erhard Schipporeit
2021
in EUR
thousand
2020
in EUR
thousand
M 93
Herbert K. Haas
92.0
71.9
96.0
5
4.0
0
79.0
63.4
40
I
0
15.0
160.0
16
7.5
6.0
14
90.0
52.0
65
5.0
50.0
100.0
09
Combined management report
in %
2 Employee representative
The group of participants and the total number of eligible
participants in the variable remuneration system of Hannover
Re are set out in the following table.
Hannover Re | Annual Report 2021
2021
(provisional
calculation)
2022
(forecast)
6.1
5.7
4.5
4.9
5.0
3.5
2021
(forecast from
previous year)
3.7
4.4
9.2
7.8
4.1
11.6
7.6
11.7
3.7
5.6
M 95
Hannover Re | Annual Report 2021
Source: Kiel Institute for the World Economy
Return on investment target of at least 2.3% for assets under own management
Economic developments
Global economy
Faced with rising infections and supply chain bottlenecks in
industry, the global economic rebound lost impetus in the
second half of 2021. The Chinese economy is also currently
growing only at a relatively modest pace. The upswing in the
early months of 2022 will therefore likely remain muted until
the economy rallies over the remainder of the year. The Kiel
Institute for the World Economy (IfW) expects output for the
full year to grow by 4.5% (previous year: 5.7%).
The economic impacts of the new waves of infections will
probably be less marked than in the previous year. In some
countries the vaccination rates are high and a large propor-
tion of the population has already come into contact with the
virus. Against this backdrop, sectors such as tourism, travel
Growth in gross domestic product (GDP)
and entertainment will step up their activities back towards a
normal level. Similarly, the supply shortages will ease gradu-
ally as production capacities are increasingly adjusted.
The Kiel-based experts expect the elevated level of inflation
to retreat slightly on account of falling energy prices. It should
still remain appreciably above the pre-crisis level. With a view
to putting the brakes on soaring prices, central banks in the
advanced economies such as the United States, United
Kingdom and also Central and Eastern European countries -
are moving to tighten monetary policy. This will likely con-
strict the financial framework conditions in emerging econo-
mies. At the same time, high commodity prices serve as a
stimulating factor for many emerging countries, with the re-
sult that further economic recovery in this group of countries
should be sustained.
in %
Economic areas
World economy
Eurozone
Selected countries
United States
China
India
Japan
Germany1
1
adjusted for price, calendar and seasonal effects
1.5
Life and health reinsurance: sustained strong demand for financial solutions
2.8
2.6
We expect the advance of digitalisation to inject fresh, posi-
tive stimuli into the economy. As far as capital markets are
concerned, we initially anticipate a higher level of interest
rates and rising volatility on equity and credit markets. With
regard to alternative and real asset classes, upward revalua-
tions are likely to be significantly constrained. Should interest
rates move lower again as the year progresses, however, ap-
preciation pressure in these asset classes can be expected to
intensify. It is our expectation that catch-up effects on the
consumption side will fade. On the other hand, we expect to
see a revival in investment demand from the corporate sector
as well as positive developments in the service sector.
As a consequence of the unusual capital market constella-
tions seen in recent years, the behaviour of capital market
participants can no longer be consistently explained by mar-
ket fundamentals. With this in mind, we shall continue to in-
vest major parts of our asset portfolio conservatively. At the
same time, due consideration will be paid to the economic
prospects offered by certain markets and countries by enter-
ing into commensurate risks. However, we are not planning
any significant changes in our asset allocation. We shall con-
tinue to attach great importance to broad diversification. The
interest rate risk will be tightly managed through as neutral a
modified duration as possible.
Insurance industry
In 2022 the global insurance industry will once again find it-
self faced with a myriad of already known as well as new chal-
lenges. The Covid-19 pandemic is ongoing and continues to
affect the insurance sector, although the associated uncer-
tainties appear more manageable and Covid-19 will become
easier to deal with. This is made possible by the numerous
vaccines and advances in the development of additional vac-
cines and medications. Higher inflation rates as well as ongo-
ing climate change - together with the associated increase in
extreme climate events - pose further challenges.
The digital transformation will continue to shape the insur-
ance industry in 2022 and has gained added impetus from the
pandemic. Working from home has become the norm and
permanently changed the world of work. Covid-19 has led to
greater agility, which will be manifested in the work environ-
ment on a lasting basis. In this context, the acceptance of
online offerings and digital communication with customers
have also continued to grow and will play an even more prom-
inent role going forward.
Digitalisation and hence also the cyber risks segment are
therefore creating a basis for new insurance products. The
industry will increasingly partner with insurtechs. Not only
that, global climate change is generating a greater need for
insurance solutions across a wide range of lines and regions.
On the investment side, the insurance industry remains pre-
occupied with the continued low level of interest rates. In our
main currency areas, however, sometimes appreciable in-
creases in interest rates were recorded in the reporting peri-
od a trend that could be sustained in 2022. It is our expec-
tation, however, that this will go hand-in-hand with sharply
higher volatility. We anticipate this development in the Euro-
zone, too, albeit with a time delay and on a lower level -
meaning that the Eurozone will continue to see rates that are
on the low side overall. Hardest hit here are life insurers: they
find themselves challenged to adjust their business models
and develop new products tailored to market circumstances.
In this context, the support provided by central banks will re-
main a key pillar of stability for the moment. The US Federal
Reserve has announced its intention to progressively taper its
measures throughout the spring. It is our expectation that the
ECB to follow suit in the course of the year. As far as govern-
ment support programmes around the world are concerned,
we expect stimulus to be substantially phased out. The extent
to which the existing measures will be conducive on a lasting
basis to inflationary tendencies, market overheating or even
instances of countries becoming insolvent remains to be
seen. The concerns of market players about systemic inflation
currently still appear fragile in terms of their potential longev-
ity. It is too soon to draw any definitive conclusions at the
present time as to whether we will have to live with higher
inflation as a structural and more protracted phenomenon. As
the demand for goods normalises and the kinks in supply
chains are ironed out again, we anticipate that inflation may
fade and secondary effects such as wage pressures could be
curbed. Furthermore, it should not be forgotten that even be-
fore the pandemic geopolitical and populist currents were
fanning uncertainty on the markets. These will continue to be
an influencing factor going forward.
Hannover Re | Annual Report 2021
Property & Casualty reinsurance
Overview
The treaty renewals in property and casualty reinsurance as
at 1 January 2022 passed off satisfactorily. Hannover Re again
wrote more business at sometimes substantially better prices
and conditions. The inflation- and risk-adjusted price in-
crease on the renewed business averaged 4.1%, with prices
in non-proportional reinsurance rising by 6.1% and hence
more strongly than in proportional reinsurance, where they
improved by 3.4%.
Of the total premium volume booked in the previous year on
an underwriting-year basis amounting to EUR 13,801 million
in traditional property and casualty reinsurance (excluding
facultative reinsurance, ILS business and structured reinsur-
ance), treaties with a volume of altogether EUR 7,808 million
- or 62% of the business - were up for renewal as at 1 Janu-
ary 2022. The premium volume due for renewal has been ad-
justed for a reinsurance cession of EUR 1,107 million received
by Hannover Re from HDI Global Specialty. This was reduced
to EUR 576 million in the 1 January 2022 renewals in connec-
tion with the sale of the participation.
Of the EUR 7,808 million up for renewal, a premium volume
of EUR 7,284 million was renewed, while treaties worth EUR
524 million were either cancelled or renewed in modified
form. Including increases of EUR 1,176 million from new
treaties and from changes in prices and treaty shares, the to-
tal renewed premium volume came in at EUR 8,460 million
and was thus 8.3% higher than the previous year's level.
In part because of the ongoing considerable losses from nat-
ural catastrophes, the renewal of our retrocession covers
proved challenging. Based on our long-standing cooperation
with our retrocessionaires, we were nevertheless again able
to arrange a well-diversified retrocession programme. We
thus covered our requirements according to our risk appetite,
even though the capacity of the retrocession programme was
smaller than in the previous year.
Expectations for the development of individual markets and
lines in property and casualty reinsurance are described in
greater detail below.
4
155
The course of the pandemic and its scope and impacts on
economies around the world will continue to affect 2022 - al-
beit on a significantly lesser scale than in the two previous
years. Easing production bottlenecks and supply chain issues
will still come up against robust demand for the time being,
while the growth already observed in the year under review
will soften but should nevertheless remain on an adequate
level.
Capital markets
Combined management report
4.0
153
Combined management report
United States
Faced with an inflation rate most recently in excess of 6%,
the US Federal Reserve plans to scale back its bond buying
programme faster than anticipated and progressively raise its
key interest rate. Parallel to this, the Biden administration is
planning for approval of the Build Back Better Plan. Overall,
the IfW expects economic output to grow by 4.4% (5.6%) in
2022. The propensity towards private consumption should re-
main intact, but the gain of 4.0% will be lower than in the
previous year (8.0%). Capital investment will likely also fall
short of the previous year at 3.0% (7.9%). In foreign trade
the tendency is reversing: while exports should rise by 9.1%
(4.0%), import growth is expected to soften to 5.4% (13.2%).
The recovery on the labour market is set to continue, with the
jobless rate expected to fall from 5.4% to 3.8% and hence
return to virtually the pre-crisis level.
Europe
-
After a modest contraction during the six winter months, IfW
estimates suggest that economic activity in the Eurozone will
pick up again in the spring. The supply shortages will proba-
bly ease gradually and enable vigorous value-added growth
in manufacturing industry. Growth of 3.5% (5.0%) is expect-
ed for the full year. Expenditures for consumption are fore-
cast to rise by 4.5% (3.3%). While growth in exports and
imports at 4.3% and 4.2% respectively - will probably be
softer than in the previous year (9.5% and 7.1%), it should
remain robust. The pricing pressure on energy costs will like-
ly fade. At the same time, the price buoyancy on industrial
goods will probably intensify, with the result that inflation in
2022 at 2.8% - will likely be significantly higher than the
central bank's inflation target. Unemployment is forecast to
fall to 6.9% and hence the lowest level since the existence of
monetary union. With the Pandemic Emergency Purchase
Programme for bonds set to expire in March, however, a re-
duction in the supply of liquidity is planned.
Volume 1
Germany
As in the previous year, the German economy's recovery has
been interrupted by a softer winter half-year. In addition to
the pandemic, economic activity has initially been impacted
by supply shortages. The moderating effect cannot, however,
be compared to the previous year. For the year as a whole, the
IfW anticipates growth of 4.0% (2.6%). Industry should
move forward in its recovery process, and this is also likely to
be reflected in more upbeat corporate investments. Activity in
the building sector is favourably poised and expected to re-
main intact: construction investments should increase by
2.9% (1.6%).
The price buoyancy in international trade should continue to
intensify. Exports will likely rise at a pace of 6.0% (7.5%) as
bottlenecks constraining output ease and new business out-
side Germany grows. Imports are benefiting from, among
other things, the resurgence in travel and will probably rise
by 6.3% (7.8%).
The labour market will see only a short interruption in em-
ployment growth. The upturn from the spring onwards is ex-
pected to coincide with an increase in the minimum wage to
EUR 12 effective 1 July 2022. This will to some extent put the
brakes on employment growth. Looked at over the year as
whole, the working population is expected to grow by
386,000. The jobless rate is forecast to fall from 5.7% to
5.2%. At 3.1%, inflation is expected to remain on the high
level of the previous year and only come down going forward.
Supply chain constraints are continuing to push up manufac-
turing costs and restrict the availability of consumer goods.
At the same time, the purchasing power of EUR 200 billion
that has built up among consumers since the start of the pan-
demic is running up against tight supply.
Asia
Output in Asia is estimated to grow by 6.3% in 2022 (6.9%).
This will be driven in part by India (11.7%), although other
Asian emerging economies such as Indonesia (6.4%), Thai-
land (5.7%) and the Philippines (7.6%) are also expecting
clearly favourable growth numbers. In China, steps taken to
contain the pandemic, an energy crisis and consolidation in
the real estate sector will suppress total economic output and
hence restrict the growth in gross domestic product to 4.1%.
In December the central bank cut the reserve requirement
ratio and eased economic conditions for small and mid-sized
business in an effort to support the economy.
Japan's growth rate should reach 2.8% (1.5%) in the current
year, thereby confirming the positive economic trend. Expan-
sion will be helped by corporate investments with an expect-
ed gain of 5.0%, private consumption with growth of 2.9%
and foreign trade, with exports and imports forecast to grow
by 3.6% and 4.1% respectively. Inflation should remain low
at 1.0%. For Japan, therefore, there is no end in sight to the
extremely accommodative monetary policy.
154
Hannover Re | Annual Report 2021
3.1
Major loss budget for property and casualty reinsurance raised to EUR 1.4 billion
Property and casualty reinsurance: target for combined ratio of no more than 96%
Gross premium for the Group expected to grow by at least 5%
Hannover Office
Of the altogether 1,477 employees at the
Hannover Office (incl. 90 senior executives),
891 staff (excl. seconded employees) are
GPB-eligible.
-
The measurement of the business group targets
which in
the case of the treaty/regional departments accounts for
40% of overall target attainment - is geared to the economic
Hannover Re | Annual Report 2021
156
After the heavy losses due to natural perils events in 2021, we
benefited from greater risk awareness and rising prices when
For 2022 Hannover Re expects a return to stronger growth on
the primary market in Germany compared to the previous
year. With an eye to the considerable expenditures in 2021
caused by fire losses in industrial insurance and the strain
from natural catastrophe events, sizeable growth can be ex-
pected again in the property line- which will likely get a fur-
ther boost from the increasing inclusion of natural perils cov-
ers in the private segment. In the motor line, on the other
hand, growth will be on the moderate side in 2022 despite
rising average claims owing to continuing restrictions on mo-
bility put in place to fight the pandemic.
All 157 Group senior executives worldwide
receive a cash bonus upon corresponding target
attainment and participate in the Share Award
Plan.
The generally favourable premium growth in the region is op-
posed by a reduced reinsurance cession from HDI Global
Specialty, which was scaled back as planned in conjunction
with the sale of the participating interest.
Europe, Middle East and Africa
Regional Markets
Decrease due to reduced obligatory cession from HDI Global Specialty
+/-
+
+/-
+
+
In the markets of Continental Europe we again achieved
broadly higher prices in the 1 January treaty renewals. We are
looking for a continued favourable development in the pricing
momentum. Demand for superlative reinsurance protection
also remains on a high level and is especially sought-after
during the pandemic.
Hannover Re Group
Number of eligible participants in the variable
remuneration system
Group Performance Bonus
(GPB)
Combined management report
Remuneration of staff and senior executives
Structure and system
The remuneration system for senior executives below the Ex-
ecutive Board (management levels 2 and 3) and for key func-
tion holders in Germany belonging as a matter of principle to
the ranks of senior executives consists of a fixed annual sala-
ry and variable remuneration. This is comprised of short-term
variable remuneration, the annual cash bonus and long-term
share-based remuneration, the Share Award Plan. This varia-
ble remuneration has been uniformly applied worldwide
since 1 January 2012 to all Group senior executives (i.e. Man-
aging Directors, Directors and General Managers).
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 GPB is a remuneration 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 actually generated
return on equity. For those participating in the GPB 14.15
monthly salary payments are guaranteed; a maximum of
16.7 salary payments is attainable.
Property & Casualty reinsurance:
Forecast development for 2022
Measurement of variable remuneration for
senior executives
The measurement of the variable remuneration is based on
three elements: Group net income, targets in the Property &
Casualty and Life & Health business groups and individual tar-
gets. The weighting of the elements is dependent upon
Group of participants and total number of eligible participants
in variable remuneration systems - valid: 31 December 2021
Participants
Managing Director
Director
General Manager
Chief Manager
Senior Manager
Manager
whether responsibility is carried in a treaty/regional depart-
ment or in a service department. In the treaty/regional de-
partments the measurement of the variable remuneration is
based on weightings of 20% for Group net income, 40% for
target attainment in the respective Property & Casualty or
Life & Health business group and 40% for individual target
attainment. In service departments the variable remuneration
is based on Group net income and the individual targets with
a corresponding weighting of 40% and 60%. The degree of
target attainment is defined for both the Group net income
and the business groups. Individual targets and the degree of
target attainment are agreed between the senior executive
and their supervisor.
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. Target attainment is calculated as fol-
lows: for each individual financial year of the last three finan-
cial years it is calculated by how many percentage points the
RoE of the Hannover Re Group exceeds the risk-free interest
rate. The average of these three differences determines the
three-year average 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, target attainment stands at 85%. Target attainment of
100% is recorded at 882 basis points. The maximum possible
target attainment is 200%. A lower limit is placed on target
attainment of -50% (malus) for management level 2 (Manag-
ing Director) and 0% for management level 3 (Director and
General Manager).
Management level 2
Management level 3
Variable
remuneration system
Cash bonus and
Share Award Plan
M 94
+/-
+
+
3 All lines of business except those stated separately
On management level 3 (Director and General Manager), the
minimum variable remuneration amounts to EUR 0 based on
the premise that the degree of attainment for all targets is
0%. For management level 2 (Managing Director) in treaty/
regional departments, the minimum limit for the variable re-
muneration is set at -10% if the degree of target attainment
for Group net income is -50% while at the same time target
attainment of 0% is determined for the divisional targets and
individual targets. For management level 2 (Managing Direc-
tor) in service departments, -20% of the variable remunera-
tion is possible as the lower limit if the degree of target attain-
ment for Group net income is -50% and at the same time
target attainment of 0% is determined for the individual tar-
gets.
In view of the fact that outperformance of up to 200% is pos-
sible for Group net income and up to 150% for business
group targets, a maximum degree of overall target attainment
of 140% can be attained in both treaty/regional departments
and service departments. Given outperformance of all tar-
gets, a maximum of 140% of the variable remuneration can
therefore be attained on management levels 2 and 3.
Allocation and payment of share awards for
senior executives
The total number of share awards allocated is determined ac-
cording 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 ten trad-
ing days after the meeting of the Supervisory Board that ap-
proves the consolidated financial statement. The number of
share awards is established by dividing the specified portion
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
ten trading days after the meeting of the Supervisory Board
that approves the consolidated financial statement. In addi-
tion, a sum in the amount of the dividend is paid out for each
share award, insofar as dividends were distributed to share-
holders. The level of the dividend payment is the sum total of
all dividends 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 ten trading days after the meeting
of the Supervisory Board that approves the consolidated fi-
nancial statement. For payment of the dividend to partici-
pants 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 relevant exchange rate in a period from 20
trading days before to ten trading days after the Annual Gen-
eral Meeting that approves the dividend payment for the fi-
nancial year just ended.
The cash bonus for the 2020 financial year was paid out in
June 2021. The share awards for the 2020 financial year were
also allocated in June 2021; they will be paid out in the spring
of 2025 including dividends paid for the 2020, 2021, 2022
and 2023 financial years.
Refinement of the system of remuneration for
senior executives effective 1 January 2022
In the 2021 financial year the modifications made to its sys-
tem of remuneration prompted the Executive Board of Han-
nover Rück SE to review and overhaul the system of remuner-
ation for senior executives (management levels 2 and 3). With
effect from 1 January 2022 the Executive Board therefore
approved refinements to the measurement bases and their
weighting, while the amount of variable remuneration includ-
ing share awards continues to be determined by the degree of
overall target attainment. No change was made to the split of
cash bonus/share awards.
152
Hannover Re | Annual Report 2021
Outlook
Forecast
•
•
•
•
•
Group net income guidance: EUR 1.4 billion to EUR 1.5 billion
The degree of overall target 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.
150
Amount and payment of variable remuneration for
senior executives
or Life & Health reinsurance, is therefore taken as a one-
year measurement basis. The xRoCA describes the IVC in re-
lation to the allocated capital and shows the relative excess
return generated above and beyond the weighted cost of
capital. Target attainment of 100% exists if the XROCA in
Property & Casualty reinsurance reaches 2% and the xRoCA
in Life & Health reinsurance reaches 2%. Negative perfor-
mance contributions are excluded; the minimum target at-
tainment is 0%. The maximum possible target attainment is
150%.
- below the cost of capital
+/- = cost of capital earned
+above the cost of capital
351.5
++= significantly above the cost of capital
2
1
In EUR, development in original currencies can be different
Agricultural Risks
Credit, Surety and Political Risks
Aviation and Marine 4
Facultative Reinsurance
Structured Reinsurance and
Insurance-Linked Securities
Worldwide Markets
Europe, Middle East and Africa
(including CIS countries) 3,4
Americas ³
Asia-Pacific ³
Regional Markets
Profitability2
value created. The Excess Return on Capital Allocated
(XROCA) of the business group encompassing the respective
area of responsibility, namely Property & Casualty reinsurance
Hannover Re | Annual Report 2021
151
Individual targets are agreed and measured for a period of
one year. The degree of target attainment is between 0% and
100%.
92.0
Despite the elimination of fiscal supports, GDP growth in the
United Kingdom will likely show another robust increase of
4.5% in 2022 (6.9%). The economy will, however, have to
find a fresh footing in international trade following the exit
from the European Single Market. With inflation expected to
come in at 4.1%, monetary policy will probably also be
appreciably tightened.
Member of the Supervisory Board
0
45.0
60
112.5
Nomination Committee
-
44.0
Standing Committee
Audit Committee
Chairman of the Finance and
Supervisory Board
Deputy Chairman of the
Herbert K. Haas
58.7
Member of the
Natalie Bani Ardalan²
Member of the Supervisory Board
75.0
75.0
Member of the Supervisory Board
29.4
0
30.0
95
75.0
Member of the Supervisory Board
Dr. Ursula Lipowsky
Ilka Hundeshagen²
Frauke Heitmüller²
29.4
0
30.0
95
0
60.0
55
187.5
- Supervisory Board
Chairman of the
Torsten Leue
Individual remuneration of the members of the Supervisory Board
Combined management report
147
Hannover Re | Annual Report 2021
In the year under review no remuneration was paid to the
members of the Supervisory Board for services provided indi-
vidually outside the committee work described above, e.g. for
consulting or mediation services, with the exception of the
remuneration paid to employee representatives on the basis
of their employment contract.
The individualised presentation of the remuneration shows
the remuneration actually due in the respective year under
review for the year under review as well as the attendance
allowances granted in the year under review. Value-added tax
payable on the remuneration, insofar as it accrues, is reim-
bursed by the company.
In addition to the specified remuneration for participation in
the meetings of the Supervisory Board and the Committees,
each member of the Supervisory Board receives an attend-
ance allowance of EUR 1,000 per meeting. 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.
Members who have only belonged to the Supervisory Board
or one of its Committees for part of the financial year receive
the remuneration amounts pro rata temporis.
The members of the Finance and Audit Committee formed by
the Supervisory Board additionally receive remuneration of
EUR 25,000 (until 31 December 2020: EUR 15,000) for their
committee work and the members of the Standing Committee
formed by the Supervisory Board receive remuneration of
EUR 15,000 (until 31 December 2020: EUR 7,500). The Chair
of each Committee receives twice the stated amounts. No
remuneration is envisaged for the Nomination Committee.
A new resolution was adopted on the Supervisory Board re-
muneration with effect from 1 January 2021; in accordance
with the amended version of § 14 of the Articles of Associa-
tion as amended on 5 May 2021, the members of the Supervi-
sory Board receive fixed annual remuneration of EUR 75,000
(until 31 December 2020: EUR 30,000) in addition to reim-
bursement of their expenses. The Chairman of the Superviso-
ry Board receives two-and-a-half times (until 31 January
2020: twice) the aforementioned remuneration amounts and
the Deputy Chairman one-and-a-half times the amounts. Var-
iable remuneration, formerly limited to at most EUR 30,000
annually, is no longer granted under the amendment of § 14
of the Articles of Association with effect from the 2021 finan-
cial year onwards.
Against this backdrop, the remuneration system was refined
and the variable remuneration of the Supervisory Board was
eliminated. With a view to strengthening the independence of
the Supervisory Board and ensuring the objective perfor-
mance of its monitoring and advisory role, the members of
the Supervisory Board are granted a customary fixed remu-
neration in the new remuneration system. In addition, the
members of the Supervisory Board receive committee remu-
neration to recompense the increased time required for mem-
bership of committees as well as an attendance allowance for
participation in meetings.
In view of amendments to the Stock Corporation Act, the
Annual General Meeting in 2021 was also required to adopt a
resolution on the remuneration system of the Supervisory
Board. The existing remuneration system of the Supervisory
Board dated back to a resolution of the General Meeting in
2011 and had since remained unchanged.
-
95
· Standing Committee
Member of the Finance and
Audit Committee
in EUR
thousand¹
in %
in EUR
thousand¹
in EUR
thousand
in %
in EUR
thousand¹
2020
2021
2020
2021
Variable remuneration
Remuneration for Supervisory Board work
Fixed remuneration
M 92
Nomination Committee
Remuneration of the Supervisory Board
30.0
29.4
55.0
16
30.0
9.0
3
9.0
in EUR
thousand¹
100.0
2020
Total remuneration
from Group entities
Supervisory board remuneration
Hannover Re | Annual Report 2021
148
28
in EUR
thousand
thousand¹
in %
2021
2020
in %
in EUR
thousand
in EUR
thousand¹
in %
in EUR in EUR
thousand¹ thousand¹
in EUR
thousand 1
Remuneration for committee work
Attendance allowances
2021
2021
2020
in EUR
2 Employee representative
1 Amounts excluding reimbursed VAT
308.5
0
29.4
-0
30.0
95
75.0
Dr. Michael Ollmann
Dr. Andrea Pollak
29.4
- 0
30.0
69
75.0
Finance and Audit Committee
-
- Supervisory Board
Member of the
Member of the
0
Supervisory Board
75.0
315.0
73
825.0
Total
29.4
- 0
30.0
78
75.0
Supervisory Board
Standing Committee
Dr. Erhard Schipporeit Member of the
29.4
- 0
30.0
95
Nomination Committee
2020
2021
thereof
++
3
Profitability2
Volume1
Morbidity
Mortality
Financial Solutions
Risk Solutions
Longevity
3
2
1
Turning to the Longevity Solutions reporting category, it is
our expectation that coverage of longevity-related risks will
remain a focus of attention and interest in corresponding
solutions will continue to grow - not only in the leading UK
market. Along with declining interest rates, a major driver
here is the exacting capital requirements placed on primary
insurers and pension funds in connection with such business.
In Financial Solutions business it is our assumption that the
favourable trend on markets such as Asia will continue. Spe-
cial mention should be made here of China, where - as in the
preceding years - we see considerable potential for 2022. We
similarly take an optimistic view of the Latin American market
and are looking forward to healthy demand and opportunities
to write new business.
For the 2022 financial year we anticipate additional pandem-
ic-related strains in life and health reinsurance. We have
placed an extreme mortality cover on the capital market as
partial protection against extreme mortality. Aside from the
challenges associated with the pandemic and the persistent
intense competition, we nevertheless still see attractive op-
portunities for life and health reinsurance. The low interest
rate environment continues to adversely impact the invest-
ment income generated by the insurance industry – a scenar-
io that opens up additional opportunities for financially ro-
bust reinsurers such as Hannover Re, including for example
in the financial solutions segment.
Life & Health reinsurance
M 97
Life & Health reinsurance:
Forecast development for 2022
Our customers increasingly see Hannover Re no longer as
just a pure risk carrier, but rather as an expert and financially
strong partner that stands ready to support them with its
worldwide know-how as they face up to a diverse range of
issues.
7
In the area of Underwriting Services it is our expectation
that our automated underwriting systems "hr | ReFlex" and
"hr | Quirc" will continue to stimulate considerable interest
among our customers as part of the progressive march to-
wards digitalisation.
+
++= significantly above the cost of capital
Based on the satisfactory treaty renewals as at 1 January
2022, we expect further growth in gross premium in property
and casualty reinsurance in the current financial year adjust-
ed for exchange rate effects. We shall retain unchanged our
selective underwriting policy, under which in large part we
write only business that satisfies our margin requirements.
Based on the sustained improvement in prices and conditions
in primary insurance and reinsurance, we are looking to book
growth of at least 5% in Group gross premium for total busi-
ness at constant exchange rates.
Outlook for the 2022 financial year
Given the persistent low level of interest rates, we anticipate
an average return of at least 2.3% on our investments for
2022.
If the valuation levels of listed equities experience significant
corrections and stabilise, we are prepared to moderately in-
crease the equity portfolio.
The further enlargement of the asset portfolio, supported by
a good operating cash flow from the favourable development
of business, is expected to have a positive effect on invest-
ment income. The interest rate increases observed during the
reporting period in our main currency areas will prove bene-
ficial in this respect. In view of the generally low returns on
high-quality investments, we shall press ahead with our activ-
ities relating to products offering attractive credit spreads.
With this in mind, we shall somewhat expand the portfolio of
real assets or financing of such asset classes, although we
shall maintain a particular focus on attractive risk-return pro-
files going forward. We also intend to selectively grow our
exposure, as appropriate, to the areas of private equity and
emerging markets.
Combined management report
159
Hannover Re | Annual Report 2021
Given the uncertainties associated with geopolitical develop-
ments and the pandemic, we shall continue to invest major
parts of our asset portfolio conservatively. Nevertheless, we
also envisage appropriate risk-taking in response to the re-
cently increased albeit still low overall - level of interest
rates against the backdrop of a likely acceleration effect trig-
gered by more extensive containment of the pandemic's im-
pacts. Our emphasis on broad diversification will remain in
place. By maintaining the most neutral possible modified du-
ration, we shall ensure that the interest rate risk is tightly
managed.
-
Investments
Including contracts for which no premium income is booked
- below the cost of capital
cost of capital earned
+/-
+above the cost of capital
In EUR, development in original currencies can be different
Thanks to our good rating, our long-standing stable customer
relationships and our low expense ratio, we should be able to
generate another good result in property and casualty rein-
surance, provided the burden of large losses remains within
our expectations. We continue to aim for a combined ratio of
no more than 96%.
In the area of Mortality and Morbidity Solutions, the pan-
demic will likely continue to negatively affect results – at least
in the first half of 2022. Due to the elevated mortality we an-
ticipate further loss expenditures. The strains from the pan-
demic may be opposed by the effect of an extreme mortality
cover that we have placed on the capital market in regular
tranches since 2013. It is not yet possible, however, to quan
tify the income that this will generate.
ing markets, are generating stronger demand for correspond-
ing reinsurance covers. We engage both in traditional
reinsurance and in intensified cooperation with our custom-
ers and partners on the development of innovative tools for
primary insurance. Index-linked products and parametric
covers, which can also be used to mitigate adverse impacts of
climate change, offer growth potential. In addition, the more
widespread implementation of public-private partnerships
opens up new opportunities to write profitable business in
markets that have still to establish themselves as well as to
close protection gaps, especially in emerging and developing
countries.
In Australia we anticipate further rate adjustments for 2022,
above all in natural catastrophe business including corre-
sponding frequency covers, in part as a reflection of the in-
creased exposures. Additional rate increases are to be ex-
pected in the primary market, which should have positive
implications for proportional reinsurance treaties.
The major reinsurers have recalibrated their risk models and
hence their risk assessment and exposures for the coverage
of typhoons in Japan. The increase in rates for industrial and
fire business recorded on the primary insurance side estab-
lishes a favourable basis for Hannover Re to maintain its sus-
tainable positioning in the market.
tomers.
The hardening tendencies on other markets were evident to
only a limited extent in Greater China. All in all, a stable to
positive development can be observed. Over the year as a
whole we intend to cement our position a reinsurer of choice
in the region. This also includes expanding our book of busi-
ness through initiatives and close cooperation with our cus-
For the renewals as at 1 April 2022 Hannover Re anticipates
stable or improved reinsurance conditions and prices. Trea-
ties affected by the pandemic or other losses should see
clearly positive changes.
The Asia-Pacific region is developing into one of the largest
insurance markets globally. This growth is opening up further
significant business opportunities, not least because the in-
surance density is still lower than in more mature markets.
We therefore anticipate substantial growth rates both in prop-
erty and casualty reinsurance and in the area of health and
provision in the APAC region over the medium and long term.
Following the launch of our Asia-Pacific growth initiative,
Hannover Re should be superbly placed to share in the fur-
ther above-average growth of the APAC region.
Asia-Pacific
In Latin America we continue to see heightened awareness
of the exposure to natural catastrophes. This is joined by new
products aimed at end consumers as well as stronger interest
in parametric covers. Large parts of the portfolio in Latin
America are, however, only renewed by Hannover Re later in
the year. All in all, we are looking to a further improvement in
conditions on the reinsurance market.
nities as the reinsurance partner of choice for our customers
and reinsurance brokers.
Building on the improvements in conditions achieved in pre-
vious years, the treaty renegotiations in North America for
1 January 2022 brought additional adjustments, thereby
making it possible to further boost the profitability of the
business. With the return to normalisation of raw materials
availability and supply chains, together with the resulting
economic upswing, Hannover Re expects to book solid
growth from the written portfolio for 2022. We anticipate at
least stable or slightly stronger earnings potential. Our broad
and diversified positioning combined with close customer re-
lationships will help us to continue to act on market opportu-
Americas
In South Africa the 1 January 2022 treaty renewals brought
further improvements in conditions. This enabled us to write
a number of new shares in reinsurance programmes that we
had declined in recent years owing to inadequate margins.
The business generated through our managing general
agents (MGAs) and Compass Insure nevertheless still makes
up the bulk of our property and casualty reinsurance portfo-
lio.
Our premium volume in the Middle East and in our retakaful
business should remain stable. We nevertheless anticipate
moderate growth in conjunction with the economic rebound
after the pandemic as well as through new initiatives. For
2022 we are planning to further enlarge our product range in
collaboration with our market experts. We shall also continue
to stress the importance of selective underwriting in order to
preserve the profitability of our portfolio.
In the United Kingdom, Ireland and the London Market we
achieved price increases in all major reinsurance lines in the
treaty renewals as at 1 January 2022. Continued hardening,
albeit less marked, is expected on the original market in
2022. Our customer base has continued to grow through the
formation of various Lloyd's syndicates, giving us additional
opportunities to profitably expand our book of business. Es-
pecially where cyber covers are concerned, we shall discuss
and implement capacity restrictions under proportional trea-
ties in cooperation with our long-standing clients.
Along with opportunities in emerging segments such as tele-
matics or cyber, we see new developments first and foremost
in the motor segment. Market players are increasingly re-
sponding actively to changes in their customers' mobility
habits and developing new concepts. We bring our expertise
to bear as we support our clients with these issues and with
the development of modified or new coverage concepts.
reinsurance treaties were renewed as at 1 January 2022. In so
doing, we maintained our leadership position and obtained
improved prices and conditions in many instances.
Combined management report
Hannover Re | Annual Report 2021
The cooperation entered into in 2019 with Global Paramet‐
rics, a provider of parametric covers, the Federal Ministry of
Economic Cooperation and Development, Kreditanstalt für
Wiederaufbau and the UK Department for International De-
velopment continues to represent a promising initiative for
our company. Together, we have developed an innovative
concept for the protection of climate risks in developing
countries on the basis of parametric indices.
157
Structured Reinsurance and Insurance-Linked Securities
Given the improvements in market conditions benefiting rein-
surers, we expect further growth in demand in structured
reinsurance. The considerable expenditures incurred by in-
surers in North America and Europe from natural catastrophe
losses are facilitating the shift towards a provider market.
Based on new business written and the favourable develop-
ment of the already existing portfolio, we are looking for sig-
nificantly stronger growth than in traditional reinsurance for
2022.
Hannover Re | Annual Report 2021
158
We anticipate further growth in our portfolio of agricultural
risks. The increasing need for agricultural commodities and
foodstuffs as well as the more widespread prevalence of ex-
treme weather events, particularly in emerging and develop-
Agricultural Risks
After promising improvements in the previous year, initial
tendencies towards consolidation already emerged in marine
business in 2021. Customers were prepared to carry more
risk themselves and a surplus of reinsurance capacity was still
available. This trend continued in the treaty renewals as at 1
January 2022. Based on our market position and long-stand-
ing customer relationships, we anticipate a stable portfolio
with adequate prices in the marine and offshore reinsurance
lines despite the competitive landscape.
All in all, we are looking for another rise in the absolute mar-
ket premium for aviation and space insurance. Hannover Re
will participate directly in this development through its expo-
sure in proportional reinsurance. As for non-proportional
covers, the trend towards price increases will continue to lev-
el off. Given that losses from the previous years have not yet
been fully compensated, we are still seeking to push through
higher rates.
Based on the combination of these effects - and allowing for
a reduced reinsurance cession from HDI Global Specialty
we expect an increased premium volume in this segment. The
reinsurance cession from HDI Global Specialty to Hannover
Re was scaled back as planned in conjunction with the sale of
the participating interest.
-
For 2022 we expect rates for aviation business to stabilise on
the primary market for airline risks, insofar as the further
course of the pandemic allows a return to the largely orderly
transportation of passengers. As for the other segments (gen-
eral aviation and product liability), we anticipate continued
rate increases albeit on a lower level than in the previous
year. The positive pricing trend in the space market should be
sustained, additionally influenced by a sharp rise in launch
activity.
Aviation and Marine
A gradual economic recovery is anticipated for 2022 and par-
allel to this a progressive elimination of government supports.
Against this backdrop, loss ratios will likely rise moderately
from a comparatively low level and prices on both the insur-
ance and reinsurance side will remain broadly stable. A good
result is expected for 2022.
Credit, Surety and Political Risks
Sustainability is an increasingly prominent issue that is very
much in keeping with our corporate strategy and our corpo-
rate values. At the heart of our approach is our striving to
avoid facilitating unsustainable practices in economic activity
through our reinsurance support and to actively assist the
transformation to a sustainable economy through facultative
reinsurance coverage.
Considerable growth potential is identified in Asia. We intend
here to step up our participation in the associated business
opportunities and will expand our activities in the region ac-
cordingly. Yet in other regions, too, we shall press ahead on
our growth track in facultative business.
We expect to see a stable continuation of the current market
development in facultative reinsurance over the coming
12 months. In the 2022 financial year we anticipate further
strong demand for facultative reinsurance.
Facultative Reinsurance
In the area of insurance-linked securities (ILS) we anticipate
rising demand over the long term. Investors are seeking a
minimal correlation with other financial investments and
hence greater diversification. We are responding to this de-
mand with a strong emphasis on service, offering individually
tailored solutions for the transfer of property and life reinsur-
ance risks to the capital market. Over the coming years we
expect further growth in business volumes not only in collat-
eralised reinsurance but also when it comes to supporting
catastrophe bond issues and the transfer of life reinsurance
risks. All in all, we are looking for our ILS activities to deliver
a positive and consistently rising profit contribution. The cap-
ital market also remains an important element in our own ret-
rocession protection.
Worldwide Markets
Net income
In life and health reinsurance we expect to generate further
growth in gross premium for the current financial year based
on constant exchange rates. The value of new business should
amount to at least EUR 250 million.
In view of the expected positive cash flow that we generate
from the technical account and the investments themselves,
and assuming roughly stable exchange rates and interest rate
levels, our portfolio of investments should continue to grow.
We are looking to deliver a return on investment of at least
2.3% for 2022.
1,123,871
1,651,790
90,204
83,037
6.12
378,422
314,453
6.1
Equity securities - available for sale
105,711
81,308
6.1
Fixed-income securities - at fair value through profit or loss
38,851,723
45,473,677
6.1
Fixed-income securities - available for sale
7.5
185,577
2,312,840
351,569
1,300,221
918,785
Non-controlling interest in profit and loss
6.14
Group net income
68,887
1,231,334
35,712
883,073
Earnings per share (in EUR)
Taxes
Basic earnings per share
10.21
7.32
10.21
7.32
Diluted earnings per share
1 Restated pursuant to IAS 8
166
Hannover Re | Annual Report 2021
205,086
With regard to the IVC targets that we use to map economic
value creation, it remains our expectation that a minimum
XROCA of 2% will be generated for property and casualty re-
insurance and for life and health reinsurance.
2,443,629
48,632
Consolidated statement of comprehensive
166
Consolidated statement of income 2021
164
at 31 December 2021
Consolidated balance sheet as
Consolidated financial statements
Combined management report
161
Hannover Re | Annual Report 2021
Hannover Re | Annual Report 2021
160
Hannover Re aims to pay an ordinary dividend that at least
remains stable compared to the previous year. This will be
supplemented by a special dividend provided the capitalisa-
tion exceeds the capital required for future growth and the
earnings guidance is achieved.
As usual, all forward-looking statements regarding future tar-
gets are based on the premise that there are no unforeseen
distortions on capital markets, that major loss expenditure
remains within the budgeted level and that the Covid-19 pan-
demic does not significantly affect the result in life and health
reinsurance.
In view of the sharply higher business volume and marginally
increased retention in property and casualty reinsurance,
Hannover Re raised its net major loss budget for 2022 to EUR
1.4 billion (EUR 1.1 billion).
Group net income is expected to be in the range of EUR 1.4
billion to EUR 1.5 billion.
For the 2022 financial year we again expect to achieve a re-
turn on equity above our minimum target, which we define as
an additional 900 basis points above the five-year average
return on ten-year German government bonds. As far as the
solvency ratio is concerned, we continue to anticipate a level
in excess of our minimum 200% target.
income 2021
6.1
167
shareholders' equity 2021
6.1
31.12.20201
31.12.2021
Notes
N 01
Fixed-income securities - loans and receivables
Fixed-income securities – held to maturity
in EUR thousand
Assets
Consolidated balance sheet as at 31 December 2021
Annual financial statements
173
statements 2021
Notes to the consolidated financial
170
Consolidated cash flow statement 2021
168
Consolidated statement of changes in
8.5
Cumulative other comprehensive income
6.1
Notes
1.1.-31.12.2021
1.1.-31.12.20201
Other financial assets - at fair value through profit or loss
27,762,314
24,770,342
Net premium earned
2,905,054
(737,631)
(1,028,172)
24,023
24,143,652
61,345
21,360,795
Ordinary investment income
2,442,720
7.2
Change in ceded unearned premium
Ceded written premium
871,228
12,756,231
82,902,252
844,370
11,839,416
71,437,475
1
Common shares and additional paid-in capital
Change in gross unearned premium
Restated pursuant to IAS 8
165
Annual financial statements
N 02
Consolidated statement of income 2021
in EUR thousand
Gross written premium
Hannover Re | Annual Report 2021
Total liabilities
1,555,591
Profit/loss from investments in associated companies
129,034
Net income from investments under own management
1,674,762
1,463,703
Income/expense on funds withheld and contract deposits
7.2
146,047
268,250
1,943,012
221,765
1,685,468
Other technical income
Total revenues
7.3
114
Net investment income
1,240,420
7.2
129,393
7.2
35,743
88,129
Realised gains and losses on investments
7.2
281,026
Other investment expenses
329,610
7.2
36,114
63,971
Total depreciation, impairments and appreciation of investments
7.2
87,665
Change in fair value of financial instruments
Total shareholders' equity
6.14
Non-controlling interests
6.9
3,586,740
3,255,453
2,380,681
1,777,761
6.10
582,316
208,750
7.5
92,023
132,736
7.5
2,836,374
2,731,648
229,252
6.11
632,195
701,577
Notes
31.12.2021
31.12.20201
6.7
40,777,703
33,929,230
6.8
6.7
7,217,988
6.7
6,195,961
5,070,009
6.7
841,591
7,541,881
681,867
538,813
6.12
(8,618)
(8,678)
Other changes in cumulative other comprehensive income
(71,851)
(83,792)
Total other comprehensive income
Changes from hedging instruments
2,054,074
Retained earnings
8,985,770
8,297,114
Equity attributable to shareholders of Hannover Rück SE
11,885,003
10,995,046
1,852,773
(330,693)
366,231
Cumulative foreign currency translation adjustment
4,370,255
3,431,276
70,146,021
59,598,059
6.13
120,597
120,597
6.13
724,562
724,562
845,159
845,159
Unrealised gains and losses on investments
1,768,312
2,275,936
15
26,086,778
7.1
7.3
6.7
Prepaid reinsurance premium
192,135
192,039
6.7
Reinsurance recoverables on benefit reserve
204,597
1,883,270
6.7
Reinsurance recoverables on unpaid claims
58,959,777
67,519,731
Total investments
298,344
2,674,107
503,412
165,916
6.7
Total assets
Accrued interest and rent
Other assets
Deferred tax assets
Goodwill
5,605,803
Reinsurance recoverables on other technical reserves
7,207,750
Accounts receivable
1,106
3,073,117
3,350,633
6.4
Deferred acquisition costs
2,703
6.4
1
6.3
9,659,807
238,110
6.1
Other invested assets
Investments in associated companies
582,296
805,912
361,617
6.1
1,589,238
1,818,754
6.1
Investment property
234,689
248,233
Real estate funds
Contract deposits
6.1
2,794,016
10,803,071
6.2
Funds withheld
49,001,626
56,213,248
Total investments and cash under own management
2,941,633
1,278,071
6.1
Cash and cash equivalents
Claims and claims expenses
443,793
6.1
Short-term investments
1,355,114
Restated pursuant to IAS 8
327,426
83,933
Other income
Other expenses
Other income and expenses
Operating profit/loss (EBIT)
Financing costs
Net income before taxes
22,273,572
7.4
823,391
7.4
503,631
382,022
7.4
271,185
774,816
441,369
24,623,136
4,466
478,182
6.5
18,617,725
23,046,278
16,782,658
Change in benefit reserves
7.3
(298,645)
Total technical expenses
(103,487)
7.3
5,788,582
5,111,753
Other acquisition costs
7.3
4,767
510,707
Commission and brokerage, change in deferred acquisition costs
1,734,827
Administrative expenses
Additional paid-in capital
Liabilities
Hannover Re | Annual Report 2021
164
71,437,475
82,902,252
18,264
in EUR thousand
18,248
6.6
597,986
676,344
7.5
1,214,075
80,965
972,167
Loss and loss adjustment expense reserve
859,136
Unearned premium reserve
Conditional capital: 24,119
Benefit reserve
Nominal value: 120,597
Common shares
Shareholders' equity
Financing liabilities
Other liabilities
Total liabilities
Taxes
Provisions for pensions
Other technical provisions
Reinsurance payable
Contract deposits
Deferred tax liabilities
Funds withheld
Contingent liabilities and commitments 261
Contract deposits (liabilities)
8.7
Other assets
6.6
Lawsuits
6.7
261
222
Technical provisions
230
8.8
Leases
263
6.8
Funds withheld (liabilities)
8.9
Fee paid to the auditor
264
8.6
6.9
225
221
219
6.5
6.1
230
Investments under own management
204
8.3
Share-based payment
256
6.2 Funds withheld (assets)
8.4
Staff and expenditures on personnel
260
6.3
Contract deposits (assets)
220
8.5
Earnings per share and
6.4
Technical assets
220
dividend proposal
260
Goodwill
8.10
The measurement model of IFRS 17 requires entities to meas-
ure groups of insurance contracts based on estimates of dis-
counted future cash flows with an explicit risk adjustment for
non-financial risks ("fulfilment cash flows") as well as a con-
265
-
At the reporting date Hannover Re's portfolio contained 337
contracts with a fair value of altogether EUR 709.2 million
that make reference in their contractual terms to the interest
rate benchmarks that are to be transitioned and will be affect-
ed by the interest rate benchmark transition. It is our assump-
tion that the transition will not have any appreciable effects
on net income.
In March 2021 the IASB issued "Amendment to IFRS 16
'Leases': Covid-19-Related Rent Concessions beyond 30 June
2021" in order to facilitate for lessees the accounting of con-
cessions, e.g. deferral of rent payments and rent reductions,
granted in connection with the outbreak of the coronavirus
pandemic. The amendment is applicable to financial years
beginning on or after 1 April 2021 and was adopted by the EU
in August 2021. Earlier application is permitted. Hannover Re
did not apply the amendment in the financial year.
Apart from the above, there were no other amendments to
existing standards that would have had to have been applied
in the 2021 financial year.
Standards or changes in standards that have not yet entered into force or
are not yet applicable
With the publication of IFRS 17 "Insurance Contracts" in May
2017, the IASB issued a standard that replaces the existing
transitional arrangements of IFRS 4 and for the first time es-
tablishes a single common framework for the recognition,
measurement and disclosure of insurance contracts, reinsur-
ance contracts and investment contracts with discretionary
participation features. In addition, IFRS 17 requires extensive
new disclosures in the notes.
tractual service margin, representing the expected (i.e. un-
earned) profit for the provision of insurance coverage in the
future.
Furthermore, the standard fundamentally changes the pres-
entation in the consolidated statement of income and intro-
duces the new concept of insurance revenue instead of the
disclosure of gross written premium. Insurance revenue is
reported when it is earned by recognising in each period the
changes in the liability for providing coverage for which the
insurance entity receives compensation as well as the part of
the premiums that covers acquisition costs. Receipts and pay-
ments relating to savings components are not recognised as
Hannover Re | Annual Report 2021
175
Annual financial statements
revenue or as profit or loss in the statement of income. Insur-
ance finance income and expenses result from discounting
effects and financial risks. In accordance with the transition
choices offered by IFRS 17, for each portfolio of insurance
contracts they may be recognised either in profit or loss in the
statement of income or directly in equity.
Changes in assumptions that do not relate to interest rates or
financial risks are not recognised directly in the statement of
income but are booked against the contractual service margin
and hence spread across the remaining coverage period. Rec-
ognition in profit or loss is only immediate in the case of those
groups of insurance contracts that are expected to be
loss-making.
Initial application of the standard was originally mandatory
on a retrospective basis for annual reporting periods begin-
ning on or after 1 January 2021. In view of the considerable
complexity of the rules and the associated implementation
effort, the IASB published an exposure draft of proposed
amendments to IFRS 17 in June 2019, including deferral of
the date of the standard's initial application to annual report-
ing periods beginning on or after 1 January 2022 and other
content-related changes. Based on this draft and having re-
gard to additional content-related changes, the IASB issued
"Amendments to IFRS 17" in June 2020, thereby deferring
the date of initial application of the standard including the
changes for another year, i.e. to financial years beginning on
or after 1 January 2023. The standard was endorsed by the
EU in November 2021.
The exemption from initial application of IFRS 9 "Financial
Instruments" granted to insurance and reinsurance entities
has similarly been extended until 1 January 2023, thereby
continuing to facilitate first-time application of both stand-
ards at the same time. In this connection we would also refer
to our remarks on IFRS 9 in this section.
In December 2021 the IASB issued "Amendment to IFRS 17
Insurance Contracts; Initial Application of IFRS 17 and IFRS 9
· Comparative Information". The amendment is a transition
option relating to comparative information about financial as-
sets presented on initial application of IFRS 17. The amend
ment is aimed at helping entities to avoid temporary account-
ing mismatches between financial assets and insurance
contract liabilities, and therefore improve the usefulness of
comparative information for users of financial statements.
The amendment is similarly effective for annual reporting pe-
riods beginning on or after 1 January 2023.
Given that the standard affects Hannover Re's core business
activity, major implications are expected for the consolidated
financial statement. In view of the special significance of the
new accounting rules, a multi-year implementation project
was launched back in 2017 to explore the implications of the
standard for the consolidated financial statement - including
the interdependency with IFRS 9 - and the necessary imple-
mentation steps were defined and initiated. Analyses of the
implications of the standard for Group financials were carried
out in the year under review. The implementation of the fi-
nancial reporting standard is expected to have effects that
reduce total shareholders' equity, especially in life and health
reinsurance, and more than offset the positive effect in prop-
erty and casualty reinsurance, above all from the discounting
of loss reserves. At this point in time, however, it is not yet
possible to determine in detail the specific quantitative ef-
fects on the consolidated financial statement.
In July 2014 the IASB published the first version of IFRS 9
"Financial Instruments" (last amended in October 2017),
which supersedes all previous versions of this standard and
replaces the existing IAS 39 “Financial Instruments: Recogni-
tion and Measurement". The standard contains requirements
governing classification and measurement, impairment based
on the new expected credit loss impairment approach and
general hedge accounting. The new classification require-
ments result in more financial instruments being measured at
fair value through profit or loss. Initial mandatory application
of the standard, which was endorsed by the EU in November
2016, is set for annual periods beginning on or after 1 Janu-
ary 2018. In September 2016, however, the IASB published
"Applying IFRS 9 Financial Instruments with IFRS 4 Insur-
ance Contracts (Amendments to IFRS 4)" and in June 2020
"Amendments to IFRS 4: Extension of the Temporary Exemp-
tion from Applying IFRS 9". Under the deferral approach pro-
vided for in the amendments, entities whose predominant
activity is issuing insurance and reinsurance contracts within
the scope of IFRS 4 are granted an optional temporary ex-
emption from recognising their financial instruments in ac-
cordance with IFRS 9 until probable entry into force of IFRS
17 on 1 January 2023. Hannover Re reviewed the application
requirements based on the consolidated financial statement
as at 31 December 2015 with a positive outcome and decided
to make use of the deferral approach. Since the review of the
application requirements there has been no change in busi-
ness activity that would have necessitated a re-evaluation of
the predominant activity.
176
Hannover Re | Annual Report 2021
253
It should be pointed out that measurement effects may also
arise with respect to certain assets in our portfolio whose
contractual terms do not make explicit reference to the re-
formed interest rate benchmarks if the determination of
their fair value draws on such reference interest rates.
The transition to the new interest rate benchmarks has been
implemented progressively since 2021. Measurement effects
above a previously defined de minimis/materiality limit are
offset through the exchange of compensatory payments with
the respective counterparties.
A separate implementation project was initiated to explore
the implications of the IBOR reform for Hannover Re and en-
sure a smooth transition to alternative interest rate bench-
marks. The investigation was conducted at the level of indi-
vidual contracts. The implications for the measurement of
financial assets and the corresponding adjustments that need
to be made in the IT systems were also considered. In addi-
tion to a status assessment, the effects on the accounting and
financial reporting were analysed as at 31 December 2021
and our investment strategy was modified accordingly. Fur-
thermore, Group-wide communication took place and we also
communicated with counterparties and issuers.
In the context of Phase 2 of the Interest Rate Benchmark Re-
form project the IASB published "Amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Re-
form” in August 2020. The amendments to these standards
were adopted by the EU in January 2021 and are effective for
financial years beginning on or after 1 January 2021. The
changes address specific issues that may arise in connection
with replacement of an existing interest rate benchmark with
an alternative reference interest rate.
Annual financial statements
1. Company information
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 27.8 billion,
Hannover Re is the third-largest reinsurance group in the
world. The company's network consists of more than 170
subsidiaries, affiliates, branches and representative offices
worldwide with a total workforce of roughly 3,300. The
Group's German business is conducted by the subsidiary
2. Accounting 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).
Pursuant to EU Regulation (EC) No. 1606/2002, the present
consolidated financial statement and group management re-
port 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 applica-
ble pursuant to § 315e Para. 1 German Commercial Code
(HGB) and the supplementary provisions of the Articles of As-
sociation of Hannover Re.
The consolidated financial statement reflects all IFRS in force
as at 31 December 2021 as well as all interpretations issued
by the International Financial Reporting Interpretations Com-
mittee (IFRIC), application of which was mandatory for the
year under review. IFRS 4.38 et seq. “Insurance Contracts”
requires disclosures on the nature and extent of risks stem-
ming from reinsurance contracts, while IFRS 7.31-42 "Finan-
cial Instruments: Disclosures” requires similar information on
risks from financial instruments. Furthermore, § 315 Para. 2
Number 1 German Commercial Code (HGB) also contains re-
quirements for insurance undertakings with regard to infor-
mation on the management 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. With regard to the disclosures required by
IFRS 4 and IFRS 7, we would refer in particular to pages 98 to
103 "Underwriting risks in property and casualty reinsur-
ance/Underwriting risks in life and health reinsurance" and
to pages 104 to 108 "Market risks" respectively. 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 neces-
sary to consider both the risk report and the relevant informa-
E+S Rückversicherung AG. Hannover Rück SE is a European
Company, Societas Europaea (SE), which has its registered
office at Karl-Wiechert-Allee 50, 30625 Hannover, Germany,
and is entered in the commercial register of Hannover County
Court under the number HR Hannover B 6778. 50.2% (round-
ed) of the shares of Hannover Rück SE are held by Talanx AG,
Hannover, which in turn is majority-owned – with an interest
of 79% - by HDI Haftpflichtverband der Deutschen Industrie
V.a.G. (HDI), Hannover.
-
tion in the notes. We refer the reader accordingly to the cor-
responding remarks in the risk report and the notes.
Events after the balance sheet date
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 Accept-
ed Accounting Principles (US GAAP) as applicable on the
date of initial application of IFRS 4 on 1 January 2005, we cite
individual insurance-specific standards of US GAAP using the
designation "Statement of Financial Accounting Standard
(SFAS)" that was valid at that time.
The annual financial statements included in the consolidated
financial statement were for the most part drawn up as at
31 December. Pursuant to IFRS 10 "Consolidated Financial
Statements" there is no requirement to compile interim ac-
counts 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.
The consolidated financial statement was drawn up in euros
(EUR), the amounts shown have been rounded to EUR
thousands and provided this does not detract from transpar-
174
Hannover Re | Annual Report 2021
ency to EUR millions. Figures indicated in brackets refer to
the previous year.
Hannover Re is publishing its consolidated financial state-
ment as at 31 December 2021 in accordance with the provi-
sions of the German ESEF Implementation Act (European
Single Electronic Format).
The present consolidated financial statement was released for
publication by a resolution of the Executive Board on 4 March
2022.
New accounting standards or accounting standards applied for the first time
The declaration of conformity required pursuant to § 161
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.
Related party disclosures
871,228
204
Unrealised
gains/losses
1,287,907
724,562
120,597
Additional
paid-in capital
shares
comprehensive income)
Other reserves
(cumulative other
Total recognised income and expense
in equity
Total income and expense recognised directly
Net income
Balance as at 1.1.2020
in EUR thousand
I
Common
Annual financial statements
167
Hannover Re | Annual Report 2021
63,132
1,130,139
1,432,309
Attributable to shareholders of Hannover Rück SE
72,507
Attributable to non-controlling interests
thereof
1,193,271
1,504,816
274,486
204,595
Consolidated statement of changes in
shareholders' equity 2021
Currency
translation
385,153
(330,693)
2,275,936
724,562
120,597
Balance as at 31.12.2021
Acquisition/disposal of treasury shares
Capital repayments
Capital increases/additions
Changes in the consolidated group
Changes in ownership interest with no
change of control status
Dividends paid
Total recognised income and expense
Total income and expense recognised in
equity
Net income
Balance as at 1.1.2021
(330,693)
2,275,936
724,562
120,597
Balance as at 31.12.2020
Acquisition/disposal of treasury shares
Capital repayments
Capital increases/additions
change of control status
Changes in ownership interest with no
Dividends paid
(715,846)
(715,846)
988,029
988,029
(192,034)
178,547
(235,899)
(253,582)
Transferred to the consolidated statement of income
Gains (losses) recognised directly in equity
Changes from the measurement of associated companies
(726,193)
706,198
78,208
(92,474)
Tax income (expense)
(804,401)
798,672
Gains (losses) recognised directly in equity
Currency translation
1,029,438
(514,379)
(282,509)
277,353
(235,899)
(254,497)
1,547,846
(537,235)
Tax income (expense)
Transferred to the consolidated statement of income
Gains (losses) recognised directly in equity
Unrealised gains and losses on investments
Reclassifiable to the consolidated statement of income
(19,594)
13,293
(28,614)
9,020
(6,094)
(1,493)
| | | | | |
(1,670)
(578)
702,419
279,630
Total recognised income and expense
Tax income (expense)
Transferred to the consolidated statement of income
Gains (losses) recognised directly in equity
Total income and expense recognised directly in equity
294,080
191,302
(201,054)
184,641
(235,899)
(253,582)
731,033
260,243
Tax income (expense)
Transferred to the consolidated statement of income
Gains (losses) recognised directly in equity
Reclassifiable income and expense recognised directly in equity
(7,495)
61
3,247
(238)
(10,742)
299
Tax income (expense)
Gains (losses) recognised directly in equity
Changes from hedging instruments
(1,670)
915
120,597
(507,624)
696,924
(341)
313
313
(341)
556
172
384
(326)
326
384
(588,480)
(45,793)
(542,687)
(542,687)
1,504,816
72,507
1,432,309
1,231,334
11,615
204,595
3,620
200,975
11,615
60
60
1,300,221
68,887
1,231,334
1,231,334
11,839,416
844,370
(49)
10,995,046
(49)
(8,618)
12,756,231
Hannover Re | Annual Report 2021
169
Annual financial statements
Consolidated cash flow statement 2021
1.1.-31.12.2021
N 05
in EUR thousand
1.1.-31.12.20201
I.
Cash flow from operating activities
Net income
1,300,221
918,785
Appreciation/depreciation
150,664
165,100
Realised gains and losses on investments
(281,026)
(329,610)
Change in fair value of financial instruments (through profit or loss)
(36,114)
(63,971)
Realised gains and losses on deconsolidation
(9,906)
Amortisation
(45,907)
8,985,770
(71,851)
(49)
Tax income (expense)
8,297,114
(8,678)
35,712
883,073
883,073
11,354,479
826,490
10,527,989
8,077,123
(66,077)
shareholders'
equity
interests
Total
Non-controlling
Equity attributable to
shareholders of
Hannover Rück SE
earnings
Retained
N 04
Other
(1,276)
instruments
Hedging
(cumulative other
comprehensive income)
Continuation: Other reserves
Hannover Re | Annual Report 2021
168
366,231
1,768,312
724,562
696,924
(507,624)
918,785
(83,792)
(7,402)
247,066
11,839,416
844,370
10,995,046
8,297,114
(83,792)
(8,678)
(33)
(33)
(33)
(115)
(115)
31
31
620
385
235
235
(708,837)
(45,553)
(663,284)
(663,284)
1,193,271
63,132
1,130,139
883,073
(17,715)
(7,402)
274,486
27,420
(17,715)
8.2
19,387
Income and expense recognised directly in equity that cannot be reclassified
Change in cash and cash equivalents (I.+II.+III. + IV.)
Cash and cash equivalents at the end of the period
77,043
1,355,114
187,219
1,278,071
11,885,003
Supplementary information on the cash flow statement²
Income taxes paid (on balance)
Dividend receipts ³
Interest received
Interest paid
(137,064)
(268,859)
1,090,852
326,072
1,538,887
1,595,027
(418,895)
(439,884)
1
Restated pursuant to IAS 8
2
3
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
Hannover Re | Annual Report 2021
Notes to the consolidated
financial statements 2021
1. Company information
176,068
1,278,071
Cash and cash equivalents at the beginning of the period
(73,190)
in EUR thousand
III. Cash flow from financing activities
1.1.-31.12.2021
1.1.-31.12.20201
Contribution from capital measures
313
31
Payment on capital measures
(341)
(112)
Structural change without loss of control
556
620
Dividends paid
(588,480)
(708,837)
Proceeds from long-term debts
881,102
Repayment of long-term debts
Other changes (net)
Cash flow from financing activities
(15,592)
509,001
(526,712)
(49)
(33)
277,509
(726,042)
IV. Exchange rate differences on cash
120,134
174
6.10 Provisions for pensions and other
post-employment benefit obligations
230
2. Accounting principles
7.2
Investment income
242
complete list of shareholdings
189
7.3
Reinsurance result
244
4.3
Major acquisitions and new formations 198
7.4
Other income/expenses
245
4.4
Major disposals and retirements
198
7.5
Taxes on income
247
5. Segment reporting
199
8. Other notes
250
8.1
Derivative financial instruments and
6. Notes on the individual items of
financial guarantees
250
the balance sheet
Consolidated companies and
Annual financial statements
4.2
Gross written premium
174
6.11 Other liabilities
234
6.12
Financing liabilities
236
3. Accounting policies
177
6.13
Shareholders' equity and
3.1
Summary of major accounting policies
178
treasury shares
238
3.2 Major discretionary decisions and
6.14 Non-controlling interests
239
estimates
186
7. Notes on the individual items of
4. Consolidation
188
the statement of income
241
4.1
Consolidation principles
188
7.1
241
171
Hannover Re | Annual Report 2021
(2,031,820)
Change in other assets and liabilities
Cash flow from operating activities
(514,338)
111,208
(41,422)
(108,890)
713,607
966,827
241,332
(65,753)
(136,539)
(691,060)
4,312,687
2,867,687
(106,018)
(295,722)
104,705
75,532
(844,022)
(407,067)
132,538
(231,439)
4,940,462
3,018,271
170
Hannover Re | Annual Report 2021
in EUR thousand
II. Cash flow from investing activities
Fixed-income securities - held to maturity
Change in accounts receivable/payable
Maturities
Change in other technical provisions
Change in claims reserves
(272)
96
(272)
96
Gains (losses) recognised directly in equity
Changes from the measurement of associated companies
9,020
(19,322)
13,197
(6,094)
(28,342)
19,291
Tax income (expense)
Gains (losses) recognised directly in equity
Actuarial gains and losses
Not reclassifiable to the consolidated statement of income
Net income
918,785
1.1.-31.12.2020
N 03
1,300,221
1.1.-31.12.2021
in EUR thousand
Consolidated statement of comprehensive income 2021
106,644
Changes in funds withheld
Net changes in contract deposits
Changes in prepaid reinsurance premium
Change in tax assets/provisions for taxes
Change in benefit reserve
Change in deferred acquisition costs
Gains (losses) recognised directly in equity
Fixed-income securities - loans and receivables
Purchases
Other invested assets
Sales
Purchases
Affiliated companies and participating interests
Sales
Purchases
Real estate and real estate funds
Sales
Purchases
Short-term investments
Changes
Other changes
Cash flow from investing activities
1,551,915
(1,356,674)
1,456,900
(2,011,242)
224,603
279
(87,164)
(73,958)
249,030
199,743
(558,290)
(196,588)
(100,508)
106,915
30,063
(77,924)
(5,261,062)
(127,143)
Maturities, sales
(25,815)
58,999
1.1.-31.12.2021
1.1.-31.12.20201
135,125
34,895
310,648
(345,506)
367,534
(527,266)
Fixed-income securities - available for sale
Maturities, sales
18,401,741
Purchases
(23,910,783)
14,227,952
(15,774,256)
Fixed-income securities - at fair value through profit or loss
Maturities, sales
Purchases
39,192
1,131,435
(6,970)
(673,087)
Equity securities - available for sale
Sales
154,476
25,719
Purchases
(25,144)
(269,983)
Other financial assets - at fair value through profit or loss
Sales
Purchases
148,255
172
186
Repurchase agreements (repo transactions): fully collateral-
ised, term repurchase agreements (repos) are entered into as
a supplementary liquidity management tool. In this context
the Group sells securities and at the same time commits to
repurchase them at a later date for an agreed price. Given
that the material risks and opportunities associated with the
financial instruments remain within the Group, we continue
to recognise these assets. The repurchase commitment aris-
ing out of the payment received is accounted for under “sun-
dry liabilities"; any difference between the amount received
for the transfer of the securities and the amount agreed for
their repurchase is spread across the term of the repo using
the effective interest rate method and shown in investment
income.
nised in investment 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 oriented extensively towards economic
fair value variables.
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 re-
fers principally to unsecured debt instruments issued by cor-
porate issuers and derivative financial instruments. Within
the scope of the fair value option provided under IAS 39 “Fi-
nancial Instruments: Recognition and Measurement", ac-
cording 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. Han-
nover Re makes use of the fair value option solely for selected
subportfolios of its financial assets. Securities held for trading
and securities 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 avail-
able for use as fair values, the carrying amounts are deter-
mined using generally acknowledged measurement methods.
All changes in fair values from this measurement are recog-
Present value method
Present value method
Present value method
Fair values, actuarial parameters, yield curve
Yield curve, currency spot rates
Listing of underlying, yield curve
Cross-currency swaps
Total return swaps
Insurance derivatives
Black-Scholes
Interest parity model
Net asset value method
Capitalised earnings method,
discounted cash flow method,
multiple-based approaches
Net asset value method
Hull-White, Black-Karasinski,
LIBOR market model etc.
Present value method
Present value method
Pricing Model
Listing of the underlying share, implicit
volatilities, money-market interest rate,
dividend yield
Yield curves, spot and forward rates
OTC stock options, OTC stock index
options
Other financial assets - at fair value through profit or loss
Forward exchange transactions, foreign
exchange swaps, non-deliverable forwards
interest rate swaps
Unlisted structured bonds
Unlisted ABS/MBS, CDO/CLO
Other invested assets
Unlisted equities and equity investments
Private equity funds, private equity real
estate funds
Unlisted bond, equity and
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 recog-
nised directly in shareholder's equity after deduction of de-
ferred taxes.
real estate funds
Yield curve
Yield curve, volatility surfaces
Risk premiums, default rates, prepayment
speed and recovery rates
Acquisition cost, cash flows, EBIT multiples,
as applicable book value
Audited net asset values (NAV)
Audited net asset values (NAV)
Parameter
Unlisted plain vanilla bonds,
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 fi-
179
Right-of-use assets are amortised on a straight-line basis over
the term of the lease contract.
Right-of-use assets from lease contracts are measured at
amortised cost in the amount of the initial measurement of
the lease liability (cf. here the paragraph below), adjusted by
prepaid lease payments, lease incentives received, initial
direct costs incurred and probable restoration costs.
Own-use real estate: the portfolio of own-use real estate is
measured at cost less straight-line depreciation over a useful
life of no more than 50 years. The fair values are determined
for comparative purposes using the discounted cash flow
method.
to be expected - either to bring about the settlement of the
actual taxes owing and refund claims on a net basis or to dis-
charge the liabilities at the same time as the claims are real-
ised.
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 in-
come taxes that are levied by the same revenue authority ei-
ther 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 substan-
tial amounts of deferred tax liabilities/deferred tax assets is
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 re-
ceivable no longer appears likely. Deferred taxes are meas-
ured according 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 as-
sets-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 burdens 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 estab-
lished if they arise out of assets or liabilities, the book value
of which upon first-time recognition diverges from their ini-
tial tax base.
Purchased and proprietary software is recognised at acquisi-
tion cost less depreciation. Intangible assets are regularly
tested for impairment and an impairment loss is recognised
where necessary.
Annual financial statements
181
Hannover Re | Annual Report 2021
The other intangible assets 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
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 al-
located pursuant to IAS 36 “Impairment of Assets" to so-
called "cash generating units" (CGUs). Each CGU to which
goodwill is allocated should represent the lowest level on
which goodwill is monitored for internal management pur-
poses and may not be larger than a segment. Following allo-
cation 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 recover-
able amount is to be compared with the book value of the
CGU including goodwill. When the latter exceeds the recov-
erable 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. An appropriate impairment is taken
to allow for objective substantial indications of credit risks
that are based on an event after initial recognition and sug-
gest impairment, insofar as this can be reliably measured.
Deferred acquisition costs principally consist of commis-
sions and other variable costs directly connected with the ac-
quisition or renewal of existing reinsurance contracts. These
acquisition costs are capitalised and amortised over the ex-
pected period of the underlying reinsurance contracts. De-
ferred 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 ac-
counts for value adjustments taken on reinsurance accounts
receivable, while all other write-downs are booked directly
against the underlying position.
The payment flows resulting from these contracts are shown
in the cash flow statement under operating activities.
N 08
Annual financial statements
nancial instrument corresponds to the amount that Hannover
Re would receive or pay if it were to sell or settle the said fi-
nancial instrument on the balance sheet date. Insofar as mar-
ket 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
characteristics or using recognised models of mathematical
finance. Hannover Re uses a number of different valuation
models for this purpose. The details are set out in the table
above. Financial assets for which no publicly available prices
or observable market data can be used as inputs (financial
instruments 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. audit-
ed 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 hierar-
chy 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 pres-
ent value of the expected future cash 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 – sep-
arately 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 in the case of fixed-income
securities.
With respect to impairments on securities with the character
of equity, IAS 39 “Financial Instruments: Recognition and
Measurement" states, in addition to the aforementioned prin-
ciples, that a significant or prolonged decrease in fair value
below acquisition cost constitutes objective evidence of im-
pairment. Hannover Re considers equity securities to be im-
paired 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 security is considered to be impaired on the basis of
these criteria, IAS 39 requires that a value adjustment be rec-
ognised 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 ap-
proximation of the fair value for the first time after a two-year
waiting period if there is a significant or prolonged decrease
in value. If, however, significant changes in value occur with-
in the funds during this period that are not attributable to the
J curve effect in addition to the increased investment expens-
es, the resulting impairment is recognised directly as a write-
down.
Netting of financial instruments: financial assets and liabili-
ties 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 oth-
er words if the intention exists to offset such items on a net
basis or to effect this offsetting simultaneously.
Hannover Re | Annual Report 2021
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 equi-
ty firms), they are carried at the latest available net asset val-
ue as an approximation of the fair value. Loans included in
this item are recognised at amortised cost.
180
Hannover Re | Annual Report 2021
Investment property is valued at cost less depreciation and
impairment. Straight-line depreciation is taken over the ex-
pected useful life - at most 50 years. Under the impairment
test the market value of investment property (recoverable
amount) is determined using accepted valuation methods,
compared with the book value and, where necessary, impair-
ments are recognised. Maintenance costs and repairs are ex-
pensed. Value-enhancing expenditures are capitalised if they
extend the useful life.
Cash and cash equivalents are carried at face value. Cash
collateral that we have received for the hedging of positive
fair values of derivatives is shown under other liabilities.
Funds withheld: are receivables due to reinsurers from their
clients in the amount of the cash deposits contractually with-
held by such clients; they are recognised at acquisition cost
(nominal amount). Appropriate allowance is made for credit
risks.
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 re-
quired by US GAAP. IFRS 4 in conjunction with SFAS 113 re-
quires insurance contracts that transfer a significant techni-
cal risk from the ceding company to the reinsurer to be
differentiated from those under which the risk transfer is of
merely subordinate 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 un-
der these contracts is netted under other income/expenses.
Investments in associated companies are valued at equity
on the basis of the proportionate shareholders' equity attrib-
utable to the Group. Further information is provided in sec-
tion 4.1 "Consolidation principles".
Fixed-income securities
Financial instrument
Valuation models
After fresh, in-depth analysis of the contractual details of the
transaction, however, we consider a combined view of the
components of the transaction from the perspective of the
Hannover Re Group as unified reporting subject matter to be
a more appropriate presentation for providing reliable and
relevant information with respect to the financial implications
of the transaction.
Annual financial statements
177
Hannover Re | Annual Report 2021
In the 2020 consolidated financial statement the portfolio of
life insurance portfolios, on the one hand, and the securities
taken up, on the other, were presented separately in accord-
ance with the provisions of IFRS 4 and IAS 39.
payment was financed through the involvement of a cell of a
segregated accounts company, which issued suitably struc-
tured securities. Some of these securities were taken up by
Hannover Rück SE.
to participate in the opportunities and risks associated with
the future development of the portfolio, the commission
-
In the fourth quarter of 2020 Hannover Re wrote a portfolio of
life insurance policies through its Australian subsidiary. The
mediation and administration of the policies as well as sales
and marketing of new business in this connection are handled
by a specialised company. Payment of a commission for the
mediation of existing and future policies was agreed based on
the projected experience of this portfolio. With a view to ena-
bling other interested investors along with Hannover Re-
Change in accounting policies
3. Accounting policies
1 January 2023 (still to be endorsed by the EU)
1 January 2023 (still to be endorsed by the EU)
1 January 2023 (still to be endorsed by the EU)
1 January 2023 (still to be endorsed by the EU)
Initial application to annual periods beginning on or
after the following date:
Amendments to IAS 12 Income Taxes: Deferred Tax
related to Assets and Liabilities arising from a Single
Transaction
Hannover Re | Annual Report 2021
Hannover Re primarily anticipates implications for the classi-
fication of financial instruments. The portfolio of financial in-
struments to be recognised at fair value through profit or loss
will increase as a consequence of the new classification rules.
In addition, the Group expects the new impairment model to
have implications for debt instruments. Based on initial test
calculations, the risk provision as at 31 December 2021 is ex-
pected to be in the mid-double-digit millions. What is more,
the final implications of IFRS 9 can only be fully determined
by taking into consideration the interaction with the financial
reporting standard IFRS 17. Consequently, it was not yet pos-
sible to reliably establish the effects on the net assets, finan-
cial position and results of operations at the time when this
consolidated financial statement was published.
The IFRS 9 implementation project is running parallel to and
in close coordination with the IFRS 17 implementation pro-
ject. Disclosures regarding the fair values of financial instru-
Further IFRS Amendments and Interpretations
ments currently in the portfolio split according to the cash
flow criterion as well as disclosures about the credit risks of
securities that solely generate payments of principal and in-
terest are provided in section 6.1 of the notes to the consoli-
dated financial statement "Investments under own manage-
ment". This information is intended to facilitate some
comparability with entities that are already applying IFRS 9.
In addition to the accounting principles described above, the
IASB has issued the following standards, interpretations and
amendments to existing standards with possible implications
for the consolidated financial statement of Hannover Re,
application of which was not yet mandatory for the year
under review and which are not being applied early by
Hannover Re. Initial application of these new standards
is not expected to have any significant implications for
Hannover Re's net assets, financial position or results of
operations:
In accordance with this perspective, the transaction is equiv-
alent overall to an insurance contract in its economic effect
and with its payment flows. The commission payment is
therefore capitalised under the balance sheet item “Deferred
acquisition costs" and amortised in line with the business ex-
perience.
N 06
February 2021
February 2021
May 2021
Title
Amendments to IAS 1 Presentation of Financial
Statements: Classification of Liabilities as Current or
Non-current and Classification of Liabilities as
Current or Non-current - Deferral of Effective Date
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2: Disclo-
sure of Accounting Policies
Amendments to IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors: Definition of
Accounting Estimates
Published
January/July 2020
In view of this change in the presentation of the transaction,
the comparative figures for previous periods were restated.
The effects of this change on the individual items of the con-
solidated balance sheet and the consolidated statement of
income are shown in the following table. There were no impli-
cations for Group net income.
Restatements pursuant to IAS 8
(2.225)
3.1 Summary of major accounting policies
Reinsurance contracts: 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 circum-
stances, such as the separation of embedded derivatives and
unbundling of deposit components, but it does not set out any
more extensive provisions relating to the measurement of in-
surance and reinsurance contracts. In conformity with the
basic rules of IFRS 4 and the IFRS Framework, reinsur-
ance-specific transactions therefore continue to be recog-
nised 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.
IFRS 4 "Insurance Contracts" represents the outcome of
Phase I of the IASB project “Insurance Contracts” and consti-
tutes a transitional arrangement. IFRS 17, which was issued
by the IASB in May 2017, establishes binding principles for
the measurement of insurance contracts effective for annual
reporting periods beginning on or after 1 January 2021. With
the amendments to IFRS 17 published in June 2019 and June
2020, the IASB ultimately proposed a deferral of the date of
initial application to 1 January 2023 as well as further con-
tent-related amendments to the standard.
(2.655)
pur-
Financial assets held to maturity are comprised of non-de-
rivative assets that entail fixed or determinable payments on
a defined due date and are acquired with the intent and abili-
ty to be held until maturity. They are measured at amortised
cost. The corresponding premiums or discounts are recog‐
nised in profit or loss across the duration of the instruments
using the effective interest rate method. An impairment loss
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 instru-
ments that include fixed or determinable payments on a de-
fined due date, are not listed on an active market and are not
sold at short notice. They are carried at amortised cost.
178
Hannover Re | Annual Report 2021
Premiums or discounts are deducted or added within the
statement of income using the effective interest rate method
until the amount repayable becomes due. An impairment loss
is taken only 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.
Financial assets: as a basic principle we recognise the
chase and sale of directly held financial assets including de-
rivative financial instruments as at the settlement date. The
recognition of fixed-income securities includes apportionable
accrued interest.
Revenue from contracts with customers is realised when
control of the promised goods or services is transferred to the
customer. The amount of revenue realised corresponds to the
consideration that the Group expects to receive in return for
the transfer of goods or services to the customer. Under its
contracts that fall within the scope of application of IFRS 15
the Group generally acts as a principal, because it normally
controls the services or goods before transferring them to the
customer.
4.880
Ordinary investment income
in EUR thousand
Consolidated balance sheet
Fixed-income securities -
loans and receivables
Deferred acquisition costs
Other assets
Other liabilities
in EUR thousand
Commission and brokerage, change in
deferred acquisition costs
Group net income
N 07
(219.306)
216.046
966
(2.294)
1.1.2020-31.12.2020
Consolidated statement of income
Gross written premium
31.12.2020
Other assets are accounted for at amortised cost.
from the acquired blocks of business disregarding new busi-
ness and tax effects. 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 impairment losses are taken if necessary. In this regard
please see section 3.2 "Major discretionary decisions and es-
timates". Separately identifiable intangible assets in connec-
tion with business combinations, such as customer base or
contractual/legal rights, are also recognised under this item.
Loss and loss adjustment expense reserves are constituted
for payment obligations from reinsurance losses that have oc-
curred 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 payable. In reinsurance business a considerable pe-
riod of time may elapse between the occurrence of an insured
loss, notification by the insurer and pro-rata payment of the
1,348.4900
84.5591
87.5195
90.1030
84.3918
8.8827
9.2128
9.5286
8.8474
0.8869
0.8617
0.9041
0.8393
7.8887
7.6408
8.0199
7.2297
Average rate of exchange
on the balance sheet date
1.5596
1.6030
1.5800
1.6533
1,335.8500
0.4277
0.4469
0.4320
1.4491
1.5704
1.4882
1.5326
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.
1,352.9939
1,346.0585
4.7381
Hannover Re | Annual Report 2021
185
Annual financial statements
ognised 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.
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/expenses. The calculation of the
deferred tax assets and liabilities is based on tax loss car-
ry-forwards, unused tax credits and temporary differences
between the book values of assets and liabilities in the consol-
idated balance sheet of the Hannover Re Group and their car-
rying amounts in the tax balance sheet. Further information
on deferred taxes is provided in our remarks on deferred tax
assets and liabilities.
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 rele-
vant 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 operation-
al and accounting purposes and were classified as sold or for
sale are recognised as discontinued operations. Measure-
ment is at the lower of book value and fair value less costs to
sell. Depreciation or amortisation is not taken on non-current
assets as long as they are classified as held for sale. Impair-
ment 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, Contin-
gent Liabilities and Contingent Assets" is reviewed.
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 volume
that is not booked to income. This applies principally to prop-
erty and casualty reinsurance and parts of accident and health
reinsurance. Premiums already collected that are attributable
to future risk periods are deferred pro rata temporis and rec-
3.2 Major discretionary decisions and estimates
Risks connected with the impacts of climate change are of
great significance to a reinsurance company's business mod-
el. The estimation of occurrence probabilities and loss
amounts for climate-related storms, floods or droughts is a
major integral component of our risk management system. It
exerts a considerable influence on our underwriting policy
for catastrophe-exposed risks and requires appropriate risk
capital to be kept available. Physical risks such as extreme
weather events and their consequences as well as long-term
changes in climatic and environmental conditions, such as
precipitation amounts, the rise in sea levels or the increase in
average temperatures, can also affect the value of our real
estate holdings or the measurement of securities in our in-
vestment portfolio.
Along with the influence of these physical risks, the measure-
ment of our investment portfolio is also subject to transition
risks as a consequence of climate change. Transition risks re-
fer to those risks connected with the effects of climate change
that result from the shift towards a low-carbon economy. This
transition is initiated and supported by political regulatory
policies. Insofar as such regulatory measures negatively af-
fect, for example, issuers of shares or corporate bonds in our
asset portfolio, there are corresponding implications for the
measurement of these instruments.
All in all, the evaluation of climate risks is considered inter
alia in the context of the impairment test for non-financial
assets, including goodwill pursuant to IAS 36, in the determi-
nation of the useful life and residual value of assets pursuant
to IAS 16 or IAS 38 as well as in the establishment of provi-
sions and the disclosure of contingent liabilities pursuant to
IAS 37 and IFRS 4.
Estimates and assumptions are also significant in connection
with the ongoing Covid-19 pandemic. Key facts and circum-
stances subject to such assumptions and estimates include,
for example, the recoverability of contingent reinsurance lia-
bilities, the recoverability of investments in associated com-
panies, 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.
The Covid-19 pandemic heavily influenced the entire global
economy in the year under review and hence also had impli-
cations for Hannover Re's consolidated financial statement.
Against the backdrop of the pandemic, the critical issues in
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 in-
formation on contingent claims and liabilities as at the bal-
ance sheet date and the disclosure of income and expenses
during the reporting period.
Mean rate of exchange
and expenses in connection with reinsurance treaties are rec-
ognised 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.
4.9613
4.8966
4.7958
10.2351
10.0560
10.1461
Ceded reinsurance premiums are deducted from the gross
written premium for the purpose of reconciliation to net pre-
mium earned. Assets and liabilities in connection with rein-
surance ceded are recognised on a gross basis. The reinsured
portions of the reserves are estimated on a basis consistent
with the reserves attributable to the reinsured risk. Income
10.4782
18.0275
1.2291
18.0114
1.1853
1.1449
17.6160
18.6678
1.1344
2020
0.4634
31.12.2020
• Real estate funds
at fair value through profit or loss
• Other financial assets -
variable-yield securities
Equities, equity funds and other
Fixed-income securities
•
•
2021
Further information is provided in section 6.14 “Non-con-
trolling interests".
Non-controlling interests are shares in the equity of affiliat-
ed companies not held by companies belonging to the Group.
IAS 1 “Presentation of Financial Statements” requires that
non-controlling interests be recognised separately within
Group shareholders' equity. The non-controlling interest in
profit or loss is shown separately following the net income.
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 consist
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 earliest reported period. Unrealised gains and losses from
the fair value measurement of financial instruments held as
available for sale are carried in cumulative other comprehen-
sive income under unrealised gains and losses on invest-
ments. Translation differences resulting from the currency
translation of separate financial statements of foreign subsid-
iaries are recognised under cumulative foreign currency
translation adjustments.
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
Measurement" to classify financial liabilities in this category
upon first-time recognition.
Lease liabilities are initially measured at the present value of
essentially all lease payments that are not variable or depend-
ent on an index or (interest) rate. The discount factor used is
the implicit interest rate of the lease contract or the lessee's
incremental borrowing rate.
Financing liabilities consist of liabilities from lease contracts
and above all long-term debt and notes payable. In some in-
stances these involve subordinated liabilities that can only be
satisfied after the claims of other creditors in the event of
liquidation or bankruptcy. Both long-term debt and notes
payable are measured at amortised cost using the effective
interest rate method. The transaction costs as well as premi-
ums/discounts arising in connection with the issuance of
bonds are amortised and recognised together with the nomi-
nal interest as financing costs.
date and at the settlement date. All changes in fair value are
recognised in profit or loss for the period.
Annual financial statements
182
Hannover Re | Annual Report 2021
loss by the reinsurer. For this reason the realistically estimat-
ed future settlement amount based on long-standing estab-
lished practice is carried. Recognised actuarial methods are
used for estimation purposes. In this regard we make allow-
ance for past experience, currently known facts and circum-
stances, the expertise of the market units as well as other as-
sumptions relating to the future development, in particular
economic, social and technical influencing factors. Subse-
quently, based on Group-wide analyses, we give separate
consideration in this context to the inherent volatility of the
reserves constituted for the reinsurance business, e. g. due to
large losses. The interest rate-induced portion of the change
in the reserve is shown in the statement of income on a con-
sistent Group basis.
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
mortality, disability, lapse rates and the future interest rate
development. The actuarial bases used in this context allow
an adequate 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.
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 de-
fined benefit plans. The basis of the valuation is the estimated
future increase in the rate of compensation of the pension
beneficiaries. The benefit entitlements are discounted by ap-
plying 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. Service 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.
Contributions to defined contribution plans are expensed
when the beneficiary of the commitment has performed the
work that entitles them to such contributions.
• Other invested assets
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 ad-
ditional tax loads in the future; please see our explanatory
remarks on deferred tax assets.
Sundry non-technical provisions are established according
to a realistic estimate of the amount required and shown un-
der 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.
Restructuring provisions are recognised if a detailed formal
plan for restructuring measures exists and steps to imple-
ment it have already begun or if key details of the restructur-
ing have been published. The provisions cover only expendi-
tures arising directly as a consequence of restructuring that
are not connected with the company's regular activities.
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 compensat-
ed. Top-up payments are accumulated in instalments until the
end of the work phase. In periods when the employee is re-
munerated according to the partial retirement arrangements
without performing any work, the provision is released.
Share-based payments: The share-based payment models
existing within the Hannover Re Group are remuneration
plans with cash settlement. In accordance with the require-
ments of IFRS 2 "Share-based Payments", the services ren-
dered by the eligible beneficiaries and the resulting liability
are to be recognised at the fair value of the liability and ex-
pensed over the vesting period. Until settlement of the liabil-
ity the fair value of the liability is remeasured at each closing
Hannover Re | Annual Report 2021
183
Under the balance sheet item Other liabilities we recognise
not only the sundry non-technical provisions but also minori-
ty 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
recognised as debt pursuant to IAS 32 and measured at the
fair value of the redemption amount as at the balance sheet
date.
•
Disclosures about financial instruments: IFRS 7 "Financial
Instruments: Disclosures" requires more extensive disclo-
sures according to classes of financial instruments. In this
context, the term "class" refers to the classification of finan-
cial instruments according to their risk characteristics. A min-
imum distinction 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
corresponding disclosures in the notes. In contrast, the term
"category" is used within the meaning of the measurement
categories defined in IAS 39 “Financial Instruments: Recog-
nition and Measurement" (held to maturity, loans and receiv-
ables, available for sale and financial assets at fair value
through profit or loss with the subcategories of trading and
designated financial instruments). Essentially, the following
classes of financial instruments are established:
Short-term investments
AUD
BHD
CAD
CNY
GBP
HKD
1 EUR corresponds to:
INR
MYR
SEK
USD
ZAR
N 09
31.12.2021
•
Currency translation differences resulting from long-term
loans or lendings without specified maturity between Group
companies are similarly recognised outside the statement of
income in a separate item of shareholders' equity.
KRW
Key exchange rates
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 trans-
fer 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 compa-
nies must be recognised in the consolidated financial state-
ment as a separate item in shareholders' equity.
Certain financial assets in the balance sheet item
"Other assets
• Certain financial assets in the balance sheet item
"Other liabilities"
•
Long-term debt
Notes payable
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.
•
Transactions in foreign currencies reported in Group compa-
nies' individual financial statements are converted into the
184
Hannover Re | Annual Report 2021
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 differences from the translation of monetary assets
and liabilities are recognised directly in the statement of in-
come. Currency translation differences from the translation of
non-monetary assets measured at fair value via the statement
of income are recognised as profit or loss from fair value
measurement changes. Exchange differences from non-mon-
etary 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.
The individual companies' statements of income prepared in
the local currencies are converted into euro at the average
Currency translation: financial statements of Group subsidi-
aries were drawn up in the currencies corresponding to the
economic environment in which each subsidiary primarily
operates. These currencies are referred to as functional cur-
rencies. The euro is the reporting currency in which the con-
solidated financial statement is prepared.
"Innovation has always been fundamental
to the life sector, you don't get any
business without it."
Demographics - creating innovative
products for longevity risks
(Silke Sehm, member of the Executive Board)
(Claude Chèvre, member of the Executive Board)
Longevity
Refining innovative solutions
Longevity is a traditional biometric risk. Many mar-
kets are experiencing the demographic shift, people
are living longer, the savings phase ends, the payout
phase begins. Our customers want solutions that
make their payments more predictable.
The associated risk cannot be absorbed through
traditional reinsurance alone. Hannover Re is there-
fore working on suitable types of financial instru-
ments to enable placement on the capital market with
the goal of serving the longevity market not only as
risk carrier but also as facilitator. A further focus is on
the development of individual annuity products that
increase policyholders' willingness to retire. This is a
decisive contribution to the avoidance of poverty in
old age. Today, we have successfully transferred
annuity insurance solutions developed in the past
primarily for the UK market to other regions of the
world. Our customers testify to our long-standing
expertise in dealing with longevity risks in a recent
study conducted by an international consulting firm.
10
APAC growth - maximising economic
opportunities in booming markets
Financial Solutions
The pursuit of competitive
capital management
Financial Solutions are structured reinsurance solu-
tions under which the risk transfer takes the back
seat. The goals pursued are primarily financial. In the
first place, they help our customers to manage their
capital competitively in an increasingly complex reg-
ulatory environment. Regulatory requirements and
their implications vary sometimes considerably -
from market to market and can change. We therefore
keep close track of their development so as to make
potential solutions available to our customers in a
timely fashion.
-
Furthermore, Financial Solutions can also help our
customers to grow – whether it be through new busi-
ness financing or through acquisitions. Particularly
in the booming Asia-Pacific economic region, both
aspects coincide - and we are booking substantial
growth here together with our customers.
Regulatory issues - finding answers to
evolving regulatory environments
"Financial Solutions business is pure
"More and more customers are drawing on
our expertise and strong track record in the
securitisation of natural catastrophe risks."
innovation, the solutions are always individual."
Hannover Re | Annual Report 2021
Climate change - designing innovative
solutions for risk coverage
15
tors on the capital market. Examples include cover-
age for flood risks, liability risks from wildfires or
earthquake risks by means of catastrophe bonds,
which we support in the role of securitisation partner.
(Claude Chèvre, member of the Executive Board)
Cyber risks
Risks from digitalisation
and cyber crime
་་་་་་་
"With greater availability of data resources
and more accurate empirical values, we can
better evaluate cyber exposures and develop
products that adequately reflect the risk."
(Sven Althoff, member of the Executive Board)
Unlike the traditional line of marine insurance, for ex-
ample, protecting against cyber risks is a very new
risk scenario that has become even more acute since
the onset of the pandemic in 2020. The number of
cyber attacks and the volume of ransom demands
rose sharply in 2021. According to figures provided
by the Federal Office for Information Security (BSI),
in February 2021 alone an average of 553,000 new
malware variants were detected every day.
Insurers already have robust insurance products that
Hannover Re supports through obligatory and facul-
tative arrangements. They have, however, imple-
mented exclusions for non-modelled risks (silent
cyber exposures) on account of the potential for
systemic losses. Hannover Re would like to extend
its range of cyber products and is continuously ex-
panding its expert network in this field. Furthermore,
it seeks to encourage digital innovations by bringing
together potential partners and their specialist know-
how on its platform "hr|equarium".
Regulatory issues - finding answers to
evolving regulatory environments
1010
0010
Hannover Re | Annual Report 2021
7
Growth through individual
solutions - beyond risk
sharing
8
We take "solutions business" to mean contracts, products
or transactions that are individually tailored to the needs of
our customers. Here, too, our reinsurance expertise - the
assessment of risks – constitutes the basis for our growth.
When the task at hand is developing bespoke solutions that
respond to our customers' specific needs, our approach is
highly flexible: multiline covers, structured reinsurance,
financial solutions, special transactions for the coverage of
longevity risks and a wide range of capital market trans-
actions (cat bonds, insurance-linked securities). To do this
we not only need an intimate knowledge of our markets, we
also have to keep close track of major trends and upcoming
developments such as an evolving regulatory environment.
Hannover Re | Annual Report 2021
Increasing access to capital
The current loss situation reduces the capacity of
the traditional market and generally leads to con-
siderable earnings volatility, which insurers are
required to cushion with a corresponding capital
base on account of local regulatory requirements.
As an internationally operating reinsurer we can
help with traditional reinsurance solutions, but also
through structured reinsurance.
One way of leveraging additional risk capital for our
customers is risk sharing with institutional inves-
Digitalisation - Identifying risks and
opportunities from advances in digitalisa-
0011 tion in all areas as well as developing and
delivering appropriate products
Hannover Re | Annual Report 2021
Securitisation of natural
catastrophe risks
11
14
Hannover Re | Annual Report 2021
Our sympathies go out to all those who have lost family or friends to the pandemic or natural catastro-
phes or who have been otherwise impacted by them. Hannover Re will continue to play its part in
mitigating the financial impacts of such misfortunes. I would like to take this opportunity to expressly
extend my thanks to our employees, whose dedication has been a crucial factor in our success and
helps to ensure that we - as a company - are able to operate in such a seamless, prudent and reliable
manner.
Hannover Re's commercial success is the cornerstone that puts us in a position to fulfil our commit-
ments to our customers at all times. Hannover Re is well placed, in both operational and financial
terms. In these challenging times we are thus able to support our customers through both our advice
and our actions. We shall further step up our efforts in matters of risk protection, for example by
contributing our risk management expertise to debates and ideas centred around preventing future
losses and by helping to design innovative coverage concepts.
Despite all this, though, we cannot lose sight of the greatest challenge of our time: global warming.
The disastrous flooding in Europe, record high temperatures and the series of damaging tornados in
North America have once again shown us in 2021 what lies ahead if the change in the climate contin-
ues to progress. On a positive note, we have seen that the Climate Change Conference in Glasgow
brought the fight against climate change back into sharper focus. The fact that the insurance industry
is increasingly moving towards greater sustainability also gives me a sense of optimism. As one of the
largest reinsurers in the world, we shall work with our customers to actively shape this change.
We are conscious of the responsibility for our planet. Now that Hannover Re has joined the UN-con-
vened Net-Zero Insurance Alliance we have taken the next concrete step in the progressive expansion
of our commitment to sustainability. We support the transition to a climate-friendly economy.
With a successful business policy and solid results we establish the foundation that gives us the
greatest possible scope for action when it comes to sustainability. This is all the more important
in times of uncertainty. In addition to the pandemic and natural disasters, the world economy is
facing new challenges. The sharp rise in inflation appears to be bringing to an end the policy of
quantitative easing pursued by central banks for more than a decade. It remains to be seen what
the consequences of this will ultimately be.
Hannover Re | Annual Report 2021
As a reinsurer, our task is to make the financial impacts of such catastrophic events manageable. In the
2021 financial year Hannover Re consequently made significant payments to its customers in connec-
tion with the pandemic. Additional expenditures were incurred for losses from devastating natural
disasters such as the flash floods in Germany caused during the summer by the low-pressure system
"Bernd" or hurricane "Ida" in the United States.
For our investors
That we are staying the course is borne out by the good result for the financial year just ended
with Group net income up by 39 percent to EUR 1.23 billion and a solid capital adequacy ratio
under Solvency II of 243 percent. We are further underscoring our financial stability and profitability
by adjusting our dividend policy, which sees us aiming for at least a stable ordinary dividend going
forward. Our dividend proposal for the financial year just ended therefore amounts to EUR 5.75.
This consists of an unchanged ordinary dividend of EUR 4.50 and a special dividend of EUR 1.25.
The message is clear: we offer our capital providers, our customers and our business partners
reliability in an uncertain world.
In closing, I would like to express the hope that in the coming year I will only be reporting in passing
on Covid-19 and that we will all be living with fewer restrictions. I would also like to thank you most
sincerely for the trust that you, our valued shareholders as well as our clients and business partners,
place in us each and every day. I do this on behalf of the entire Executive Board and all the employees
of Hannover Re.
We shall continue to do our utmost to ensure that Hannover Re remains just the way it is: reliable,
profitable and "somewhat different".
Yours sincerely,
N/K->
Chairman of the Executive Board
16
Hannover Re | Annual Report 2021
9604
At Hannover Re we shall therefore continue to do everything in our power to preserve our major
strengths: profitable growth and successful cycle management, long-term and partnership-based
customer relationships, a lean operating model and highly efficient capital management.
When I wrote to you here last year the world was in the grips of an "exceptional situation". One
year on and Covid-19 is still affecting our everyday lives. Faced with new variants and waves of the
virus, it seems as if we are still far removed from the long-awaited return to normality. Yet considerable
progress has certainly been made in fighting the virus. Multiple vaccines offering robust protection
against the most severe disease are now available, and there are effective treatment methods and drug
therapies. Nevertheless, we have still to put the pandemic behind us and the coronavirus continues to
take a toll on human life.
Jean-Jacques Henchoz
Dear Shareholders,
Ladies and Gentlemen,
growth, driven by innovation. From modest
beginnings we have transformed a success-
ful business approach into what it is today.
Within just 50 years we have become the
third-largest reinsurer in the world. Now we
want to celebrate good ideas: not merely our
own, but also those of our customers and
partners. We grow together through the
development of individual and innovative.
solutions, but also by adapting ideas to fit
other markets, regions and risks.
-
12
Hannover Re | Annual Report 2021
About us
Hannover Re, with gross premium of more than EUR 27 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 more than 3,000 staff. Established in 1966, the
Hannover Re Group today has a network of more than 170 subsidiaries, branches
and representative 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".
For our investors
Beyond risk sharing – we team
up to create opportunities.
Executive Board of Hannover Rück SE
Chairman of the
Executive Board
Letter from the Chairman of the
Executive Board
Jean-Jacques Henchoz,
For our investors
100 2
Hannover Re's success story is one of
20
18
14
The Hannover Re share
tionally
59.50
(FL) AG,
Triesen/Liechtenstein
15.00
Thatch Risk Acceptances (Pty) Ltd.,
Johannesburg/South Africa
49.00
(CH) AG,
tionally
Freienbach/Switzerland
15.00
Hannover Re | Annual Report 2021
Propor-
Propor-
Johannesburg/South Africa
SWISS INSUREVOLUTION PARTNERS Holding
192
Johannesburg/South Africa
SWISS INSUREVOLUTION PARTNERS Holding
Durban/South Africa
calculated
63.00
Garagesure Consultants and Acceptances (Pty)
Ltd.,
Trinity Underwriting Managers Ltd.,
Toronto/Canada
20.37
Johannesburg/South Africa
Underwriting Managers (Pty) Ltd.,
63.00
20.34
MUA Insurance Acceptances (Pty) Ltd.,
Cape Town/South Africa
59.50
Meribel Mottaret Limited,
St. Helier/Jersey
18.96
Hospitality Industrial and Commercial
Kopano Ventures (Pty) Ltd 25,
calculated
Dublin/Ireland
participation
Sureify Labs, Inc.,
B3i Services AG,
Wilmington/USA
10.03
Zurich/Switzerland
1.46
Acte Vie S.A.,
Schiltigheim/France
1
9.38
The company holds 45 subsidiaries with capital and reserves of
altogether EUR 0.7 million.
Different Technology (Pty) Ltd,
2
The company is inactive.
Johannesburg/South Africa
8.61
1.71
participation
30.00
Johannesburg/South Africa
Name and registered office of the company
Mosaic Insurance Holdings Limited,
Hamilton/Bermuda
in %
Name and registered office of the company
in %
15.00
The Sociotech Institute Proprietary Limited,
Cape Town/South Africa
6.56
Somerset Reinsurance Ltd.,
Liberty Life Insurance Public Company Ltd,
Hamilton/Bermuda
11.70
Nicosia/Cyprus
3.30
Pineapple Tech (Pty) Ltd,
LifeQ Global Limited,
10.28
Guayaquil/Equador
70.00
Reaseguradora del Ecuador S.A.,
ODPOWIEDZIALNOŚCIĄ,
New Delhi/India
100.00
Warsaw/Poland
87.67
Dynastic Underwriting Limited,
92601 BTS s.r.o.,
London/United Kingdom
100.00
Bratislava/Slovakia
87.67
Bristol Re Ltd.,
Akvamarín Beta s.r.o.,
Hamilton/Bermuda
100.00
Prague/Czech Republic
87.67
Private Limited,
HR GLL Griffin House SPÓŁKA Z OGRANICZONĄ
Hannover Re Risk Management Services India
87.67
Hannover Re Services USA, Inc.,
Itasca/USA
100.00
Prague/Czech Republic
87.67
Hannover Mining Engineering Services LLC,
HR GLL Roosevelt Kft,
Itasca/USA
Hannover Re Services Italy S.r.l.,
100.00
87.67
Hannover Rück SE Escritório de Representação
HR GLL Liberty Corner SPÓŁKA Z OGRAN-
no Brasil Ltda.,
ICZONĄ ODPOWIEDZIALNOŚCIĄ,
Rio de Janeiro/Brasil
100.00
Warsaw/Poland
Budapest/Hungary
Transit Underwriting Managers (Pty) Ltd.,
HR GLL Europe Holding S.à r.I.,
99.65
Clarendon Transport Underwriting Managers
Johannesburg/South Africa
70.00
(Pty) Ltd.,
Firedart Engineering Underwriting Managers
Johannesburg/South Africa
22.87
(Pty) Ltd.,
Inqaku FC (Pty) Ltd,
Johannesburg/South Africa
70.00
Port Elizabeth/South Africa
14.72
Film & Entertainment Underwriters SA (Pty) Ltd.,
Other participations
Johannesburg/South Africa
68.18
SUM Holdings (Pty) Ltd.,
26.35
Johannesburg/South Africa
3
Luxembourg/Luxembourg
87.67
Associated companies
HR GLL CDG Plaza S.r.l.,
Monument Insurance Group Limited 4,
Bucharest/Romania
87.67
Hamilton/Bermuda
Milan/Italia
20.00
Monument Midco Limited 4,
Johannesburg/South Africa
74.80
Hamilton/Bermuda
24.35
Lireas Holdings (Pty) Ltd.,
Investsure Technologies Proprietary Limited,
Johannesburg/South Africa
Commercial & Industrial Acceptances (Pty) Ltd.,
Centaur Animal Health, Inc.,
Hannover Rueck SE Malaysian Branch,
4
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 support for one or more of such entities without being
contractually required to do so.
194
Hannover Re | Annual Report 2021
Unconsolidated structured entities
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.
Investing activities and investments in catastrophe bonds (ILS)
Within the scope of its investment activities Hannover Re par-
ticipates inter alia in numerous structured entities. 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 encompass private
equity funds, fixed income funds, collateralised debt obliga-
tions, real estate funds, index funds and other public funds.
The volume of these transactions is derived from the book
values of the respective investments and amounted to EUR
4,587.4 million (EUR 3,799.9 million) as at the balance sheet
date. The maximum risk of loss corresponds to the book
values.
Retrocession and securitisation of reinsurance risks
The securitisation of reinsurance risks takes place largely
through the use of structured entities.
By way of its "K" transactions Hannover Re has raised un-
derwriting capacity for catastrophe risks on the capital mar-
ket. The "K Cession", which was placed with investors in
North and South America, Europe and Asia, involves a quota
share cession on worldwide natural catastrophe business as
well as aviation and marine risks. Of the total volume of the
"K Cession", a large part equivalent to EUR 398.5 million
(EUR 432.3 million) was securitised via structured entities as
at the balance sheet date. The transaction has an indefinite
term and can be cancelled annually by the investors. Segre-
gated accounts of Kaith Re Ltd. are used for transformer
purposes for part of this transaction. Hannover Re also uses
further segregated accounts of Kaith Re Ltd. and other struc-
tured entities outside the Group for various retrocessions of
both its traditional and ILS covers, which in each case are
passed on to institutional investors in securitised form. The
volume of these transactions is measured by the ceded expo-
sure limit of the underlying retrocession agreements and
amounted to altogether EUR 4,730.9 million (EUR 4,063.4
million) as at the balance sheet date. The structured entities
are in all cases fully funded by contractually defined invest-
ments 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
loss for Hannover Re.
Hannover Re | Annual Report 2021
195
Annual financial statements
Collateralised fronting (ILS)
As part of its extended insurance-linked securities (ILS) activ-
ities, 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. The purpose of such
transactions is to directly transfer clients' business. The vol-
ume of the transactions is derived from the ceded exposure
limit of the underlying retrocession agreements and amount-
ed to EUR 4,550.0 million (EUR 3,919.9 million) as at the bal-
ance sheet date. Part of the ceded exposure limit is funded
and collateralised by contractually defined investments in the
form of cash and equivalent liquid assets; a further part re-
mains uncollateralised or is collateralised by less liquid as-
sets. The maximum risk of loss from the uncollateralised ex-
posure limit amounted to EUR 1,174.1 million (EUR 1,365.6
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 38.4 million (EUR 35.9 million).
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:
Book values from business relations with unconsolidated structured entities
LI RE is a segregated account of Kaith Re Ltd., the purpose of
which as with all segregated accounts under Kaith Re Ltd.
- is the securitisation of underwriting risks. In contrast to the
other segregated accounts, the sole investor and hence the
risk carrier of LI RE is the Hannover Re Group through its
subsidiary Leine Investment SICAV-SIF, Luxembourg.
N 13
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 Kubera Insurance (SAC)
Ltd and is contractually responsible for the fees due to exter-
nal service providers that are to be covered from the general
account's own funds. Each individual segregated account is
to be examined separately with an eye to a consolidation re-
quirement and consolidated according to the particular con-
tractual arrangements in each case.
financing in the form of multiple contractually linked
instruments issued to investors that create concentra-
tions of credit or other risks (tranches).
Consolidation of structured entities
Business relations with structured entities are to be examined
in accordance with IFRS 10 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 provi-
sions.
Structured entities are entities designed in such a way that
voting or similar rights are not the dominant factor in decid-
ing 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 struc-
tured entity frequently has some or all of the following fea-
tures or attributes:
•
•
•
restricted activities;
a narrow and well-defined business objective;
insufficient equity to allow it to finance its activities
without subordinated financial support;
Consolidated structured entities
The following structured entities were consolidated as at the
balance sheet date:
• Kaith Re Ltd., Hamilton, Bermuda
•
Kubera Insurance (SAC) Ltd, Hamilton, Bermuda
• LI RE, Hamilton, Bermuda
Kaith Re Ltd. is a so-called segregated accounts company
(SAC), the sole object of which is the securitisation of reinsur-
ance 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 seg-
regated 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 inves-
tors.
Kubera Insurance (SAC) Ltd is similarly a segregated ac-
counts company, the object of which is to establish segregat-
ed accounts that are made available to non-Group companies
for structured finance transactions.
•
In accordance with the consistent consolidation model, a
structured entity - just like a subsidiary - must be consolidat-
ed 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 trans-
actions 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 involvement of third par-
ties. 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.
in EUR thousand
Assets
Fixed-income securities - held to maturity
Total assets
Liabilities
Reinsurance payable
Total liabilities
212
1,230,181
76,735
209,570
285,581
4,587,363
77,518
1,802,279
782,835
782,835
196
Hannover Re | Annual Report 2021
87.67
Accounts receivable
Deferred acquisition costs
Prepaid reinsurance premium
Reinsurance recoverables on unpaid claims
31.12.2021
General investing
activities
Investment in
catastrophe bonds
(ILS)
Retrocession incl.
securitisations and
ILS transactions
346
Fixed-income securities - loans and receivables
438
In addition, other companies belonging to the Hannover Re
Group maintain further branches that both individually and
collectively are to be classified as immaterial to the Group.
Fixed-income securities - available for sale
Fixed-income securities - at fair value through profit or loss
77,518
Equity securities - available for sale
Real estate and real estate funds
314,453
525,148
Other invested assets
1,726,487
Contract deposits
2,020,491
Annual financial statements
193
Hannover Re | Annual Report 2021
941,784
606,071
(38,410)
38,612
Hannover Rück SE Succursale Francaise,
Paris/France
874,728
934,771
32,658
(6,621)
Hannover Rueck SE Australian Branch,
Sydney/Australia
649,229
540,523
5,563
9,886
Hannover Rück SE Canadian Branch,
Kuala Lumpur/Malaysia
(13,535)
22,122
2,186,683
6.90
Investment fund
The company is included in measurement at equity through a
consolidated financial statement.
5 The company is in liquidation.
Material branches within the Group
Hannover Rück SE maintains branches that are listed below
according to the amount of gross written premium in the cur-
rent financial year.
Material branches within the Group
Group Company/Branch
Toronto/Canada
Figures in EUR thousand
N 12
Gross written premium¹
2021
2020
Net income¹
2021
2020
Hannover Rück SE Shanghai Branch,
Shanghai/China
2,024,182
Hannover Rück SE
Olathe/USA
551,028
65,541
125,322
13,398
5,669
Hannover Rueck SE Bahrain Branch,
Manama/Bahrain
124,701
137,951
15,651
(29,911)
Hannover Rück SE Korea Branch,
Seoul/South Korea
46,936
47,634
1,368
2,586
1
IFRS figures before consolidation.
199,076
Mumbai/India
Hannover Rück SE - India Branch,
862
(1,194)
Hannover Rück SE, Tyskland Filial,
Stockholm/Sweden
430,680
400,662
36,072
7,604
Hannover Re UK Life Branch,
433,932
London/United Kingdom
288,609
(35,657)
15,568
Hannover Rück SE, Hong Kong Branch,
Wanchai/Hongkong
265,118
292,796
(24,918)
353,285
100.00
Hannover Re participates through its subsidiary Leine Invest-
ment SICAV-SIF, Luxembourg, in a number of structured en-
tities that issue catastrophe bonds for the securitisation of
catastrophe risks by investing in such bonds. Leine Invest-
ment General Partner S.à.r.l. is the managing partner of the
asset management company Leine Investment SICAV-SIF, the
business object of which is to build, hold and manage a port-
folio of insurance-linked securities (catastrophe bonds) - in-
cluding for third-party investors outside the Group. The vol-
ume of these transactions is derived from the book values of
the respective investments and amounted to EUR 77.5 million
(EUR 100.5 million) as at the balance sheet date. The maxi-
mum risk of loss corresponds to the book values.
Hannover Services (México) S.A. de C.V.,
Hannover/Germany
64.79
Inter Hannover (No. 1) Limited,
London/United Kingdom
100.00
Affiliated non-consolidated companies
Integra Insurance Solutions Limited,
HILSP Komplementär GmbH,
Hannover/Germany
100.00
Bradford/United Kingdom
100.00
Associated companies
Argenta Holdings Limited,
London/United Kingdom
100.00
WeHaCo Unternehmensbeteiligungs-GmbH,
Hannover/Germany
Argenta Private Capital Limited,
London/United Kingdom
100.00
HANNOVER Finanz GmbH,
Hannover/Germany
E+S Rückversicherung AG,
27.78
100.00
Hannover Services (UK) Limited,
Dublin/Ireland
100.00
Hannover Re Euro RE Holdings GmbH,
Hannover/Germany
87.68
Hannover Life Re of Australasia Ltd,
HR GLL Central Europe GmbH & Co. KG,
Sydney/Australia
100.00
Munich/Germany
87.67
Hannover Re (Bermuda) Ltd.,
Hamilton/Bermuda
100.00
HR GLL Central Europe Holding GmbH,
Munich/Germany
87.67
Hannover ReTakaful B.S.C. (c),
Manama/Bahrain
100.00
HAPEP II Komplementär GmbH,
Hannover/Germany
82.40
London/United Kingdom
Company,
APCL Corporate Director No.1 Limited,
100.00
100.00
ELEMENT Insurance AG,
Berlin/Germany
6.08
Argenta General Partner Limited,
Edinburgh/United Kingdom
100.00
190
Hannover Re | Annual Report 2021
Propor-
Propor-
tionally
calculated
tionally
calculated
participation
participation
Name and registered office of the company
Argenta General Partner II Limited,
Edinburgh/United Kingdom
in %
Name and registered office of the company
in %
Hannover Africa Limited,
London/United Kingdom
London/United Kingdom
Argenta Continuity Limited,
Berlin/Germany
Other participations
APCL Corporate Director No.2 Limited,
myKonzept Holding
London/United Kingdom
100.00
Deutschland GmbH & Co. KG AG,
Fountain Continuity Limited,
Göttingen/Germany
15.00
Edinburgh/United Kingdom
100.00
Neue SEBA Beteiligungsgesellschaft mbH,
Names Taxation Service Limited,
Nürnberg/Germany
12.07
London/United Kingdom
100.00
Internationale Schule Hannover Region GmbH,
Hannover/Germany
9.17
Argenta Secretariat Limited,
London/United Kingdom
100.00
FinLeap GmbH,
8.41
91.20
Hannover/Germany
Hannover Re (Ireland) Designated Activity
within the Group were also eliminated. Transactions between
a disposal group and the continuing operations of the Group
were similarly eliminated in accordance with IFRS 10.
4.2 Consolidated companies and complete list of shareholdings
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.
Information on subsidiaries
Scope of consolidation
Number of companies
Consolidated companies (Group companies)
Germany
Abroad
Total
Companies included at equity
Germany
Abroad
Total
N 10
2021
2020
11
11
104
102
115
113
in the consolidated financial statement were offset against
each other. Profits and expenses from business transactions
2
Consolidation of business transactions within the Group
Receivables and liabilities between the companies included
188
Orlando/USA
Mexico City/Mexico
the areas of investments, goodwill impairment and reinsur-
ance obligations, in particular, were subjected to closer anal-
ysis. For further information we would refer to our explanato-
ry remarks in section 6.5 "Goodwill", 7.2 "Investment
income" and 7.3 “Reinsurance result".
Supplementary or complete estimates of the corresponding
profit and loss items, assets and liabilities including relevant
retrocessions are made where ceding company accounts with
substantial premium income are missing. Missing ceding
company accounts with a low premium volume are included
in the following year.
In order to measure the ultimate liability in property and
casualty reinsurance the expected ultimate loss ratios are cal-
culated for all lines. Actuarial methods such as the "chain lad-
der" method provide the starting point for these calculations.
The realistically estimated future settlement amount is recog-
nised 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. 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 re-
ported 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 applying statistical methods, separate considera-
tion is given to large losses.
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.
For further particulars, including information required by
IFRS 4, the reader is referred to our remarks on the under-
writing risks in property and casualty reinsurance on page 98
et seq. of the management report - for example, with regard
to the modelling of natural catastrophe scenarios and the as-
sumptions relating to asbestos and pollution risks. We would
further refer to our explanatory remarks on the technical re-
serves in section 3.1 “Summary of major accounting policies"
and section 6.7 "Technical provisions".
In life and health reinsurance, too, the calculation of reserves
and assets is crucially dependent on actuarial projections of
the covered business. So-called model points are defined ac-
cording to the type of business covered. The main distin-
guishing criteria are the age, sex and (non-)smoker status of
the insured, tariff, policy period, period of premium payment
and amount of insurance. The portfolio development is simu-
lated for each model point, in which regard the key input pa-
rameters 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 su-
perimposition of numerous model points gives rise to a pro-
jection, 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 reinsurance treaty and subsequently adjust-
ed to the actual projection.
The projections, which cover various model scenarios ("con-
servative assumptions” versus “best estimate"), constitute
the starting point for numerous areas of application encom-
passing quotation, the determination of carrying amounts
and embedded values as well as contract-specific analyses,
e. g. regarding the appropriateness of the recognised reinsur-
ance 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 test in section
6.7 "Technical provisions".
In determining the carrying amounts for certain financial as-
sets 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 ac-
counting policies" concerning financial assets at fair value
through profit or loss and securities held as available for sale
as well as in section 6.7 "Technical provisions" concerning
investment property. Assumptions concerning the appropri-
ate 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".
Hannover Re | Annual Report 2021
187
Annual financial statements
4. Consolidation
4.1 Consolidation principles
Capital consolidation
The capital consolidation is carried out according to the re-
quirements of IFRS 10 "Consolidated Financial Statements"
on the basis of a consistent consolidation model for all enti-
ties that identifies control as the single basis for verifying the
consolidation requirement, irrespective of whether control is
substantiated in company law, contractually or economically.
Group companies 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 pow-
er over a Group company on the basis of voting rights or oth-
er rights, if it has exposure or rights to positive and negative
variable returns from its involvement with the Group compa-
ny 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 princi-
pal-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
shareholdings". Group companies are consolidated until the
Hannover 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.
The capital consolidation is based on the acquisition method.
Goodwill derives from the acquisition of subsidiaries and cor-
responds to the sum of the consideration rendered, the
amount of all non-controlling interests in the acquired com-
pany and the fair value of the equity interests previously held
in the acquired company less the fair value of the acquired
net assets. Under IFRS 3 goodwill is not amortised, but in-
stead 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.
Companies over which Hannover Re is able to exercise a sig-
nificant influence are consolidated as associated companies
using the equity method of accounting. We therefore meas-
ure investments in associated companies with the proportion
of the shareholders' equity attributable to the Group. Accord-
ing to the proportionate interest method required by IAS 28
“Investments in Associates and Joint Ventures", the goodwill
attributable to associated companies is recognised together
with the investments in associated companies. 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
associated company's latest available financial statement. A
significant influence is presumed to exist if a company be-
longing to the Hannover 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 asso-
ciated company from representation 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 personnel or the pro-
vision of key technical information for the company. Further
particulars on companies consolidated using the equity meth-
od of accounting are provided in section 6.1 "Investments
under own management" under the subsection "Associated
companies".
-
Only subsidiaries which are of minor importance - both indi-
vidually 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 cor-
responding values for the Group as a whole on average over
the last three years. For this reason 12 (12) companies at
home and abroad were not consolidated in the year under
review. A further 3 (2) individual companies were not includ-
ed at equity in the consolidated financial statement for the
same reason. The business object of these altogether 15 (14)
companies is for the most part the rendering of services for
reinsurance companies within the Group.
Hannover Re | Annual Report 2021
4
6
36
9
Hannover/Germany
100.00
London/United Kingdom
100.00
Hannover America Private Equity Partners II
Hannover Re Holdings (UK) Ltd.,
GmbH & Co. KG,
London/United Kingdom
100.00
Hannover/Germany
95.42
Hannover Life Reassurance Company of America,
HAPEP II Holding GmbH,
100.00
Hannover/Germany
95.42
Hannover Re Global Alternatives GmbH & Co. KG,
Hannover Life Reassurance Company of America
(Bermuda) Ltd.,
Hannover/Germany
94.72
Hamilton/Bermuda
100.00
Hannover Re Euro PE Holdings GmbH & Co. KG,
Hannover Finance (UK) Limited,
FUNIS GmbH & Co. KG,
100.00
Affiliated consolidated companies
Hannover Finance (Luxembourg) S.A.,
Leudelange/Luxembourg
Information on the non-controlling interests in shareholders'
equity and profit or loss as well as on the major non-con-
trolling interests is provided in section 6.14 “Non-controlling
interests". On the balance sheet date there were no signifi-
cant restrictions on access to or the use of Group assets due
to protective rights in favour of non-controlling interests.
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.
National provisions of company law or requirements of super-
visory law may in certain countries limit the ability of the
Hannover Re Group to transfer assets between companies
belonging 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.
Hannover Re | Annual Report 2021
189
Annual financial statements
List of shareholdings
The following information is the list of shareholdings in ac-
cordance with § 313 Para. 2 German Commercial Code (HGB).
We make use of the exemptions pursuant to § 313 Para. 3
German Commercial Code (HGB). The stipulations of IFRS
List of shareholdings
12.10 and IFRS 12.21 have also been observed. With regard
to the major acquisitions and disposals in the year under re-
view, please see our remarks in the following subsections of
this section.
100.00
N 11
tionally
calculated
participation
Propor-
tionally
Name and registered office of the company
in %
Domestic companies
Name and registered office of the company
Foreign companies
calculated
participation
in %
Affiliated consolidated companies
Hannover Rück Beteiligung Verwaltungs-GmbH,
Hannover/Germany
100.00
Propor-
Johannesburg/South Africa
32.96
Argenta LLP Services Limited,
94.72
Hannover Finance, Inc.,
Markham Real Estate Partners (KSW) Pty Limited,
Wilmington/USA
100.00
Sydney/Australia
94.72
Sand Lake Re, Inc.,
PAG Real Estate Asia Select Fund Limited,
Burlington/USA
100.00
George Town/Cayman Islands
94.72
100.00
Ubitech Hub Pte. Ltd.,
Johannesburg/South Africa
100.00
Singapore/Singapore
94.72
Hannover Re South Africa Limited,
ASF Spectrum Limited,
Johannesburg/South Africa
100.00
Sydney/Australia
100.00
M8 Property Trust,
95.15
2530AUS LLC,
Hamilton/Bermuda
100.00
Wilmington/USA
95.15
Leine Investment General Partner S.à r.I.,
7550BWI LLC,
Luxembourg/Luxembourg
100.00
Wilmington/USA
95.15
George Town/Cayman Islands
Leine Investment SICAV-SIF,
Luxembourg/Luxembourg
100.00
Wilmington/USA
95.15
LI RE,
7653BWI LLC,
Hamilton/Bermuda
Fracom FCP³,
Paris/Frannce
100.00
Wilmington/USA
7659BWI LLC,
Kubera Insurance (SAC) Ltd,
94.72
191
HR Hannover Re, Correduría de Reaseguros, S.A.,
Tokyo/Japan
93.77
Madrid/Spain
100.00
Morea Limited Liability Company,
Hannover Re Services Japan,
Tokyo/Japan
93.77
Tokyo/Japan
100.00
Rocky G.K.,
Hannover Re Consulting Services India Private
Tokyo/Japan
93.77
Limited,
Kaith Re Ltd.,
Hamilton/Bermuda
Highgate sp. z o.O.,
Warsaw/Poland
3541 PRG s.r.o.,
Mumbai/India
100.00
90.40
Peace G.K.,
Affiliated non-consolidated companies
94.39
Seoul/South Korea
Annual financial statements
Propor-
Propor-
tionally
tionally
calculated
calculated
participation
participation
Name and registered office of the company
in %
Hannover Re | Annual Report 2021
Name and registered office of the company
HR US Infra Debt LP,
Landmark Underwriting Agency (Pty) Ltd.,
George Town/Cayman Islands
94.71
Bloemfontein/South Africa
45.85
Orion No.1 Professional Investors Private Real
Real Assist (Pty) Ltd.,
Estate Investment LLC,
Pretoria/South Africa
38.15
in %
95.15
Hannover Reinsurance Group Africa (Pty) Ltd.,
100.00
100.00
Wilmington/USA
95.15
Argenta Underwriting No.3 Limited,
101BOS LLC,
London/United Kingdom
100.00
Wilmington/USA
95.15
Argenta Underwriting No.4 Limited,
402 Santa Monica Blvd, LLC,
London/United Kingdom
100.00
Wilmington/USA
95.15
Argenta Underwriting No.7 Limited,
1110RD LLC,
London/United Kingdom
100.00
Wilmington/USA
95.15
Argenta Underwriting No.9 Limited,
140EWR LLC,
London/United Kingdom
100.00
Wilmington/USA
95.15
London/United Kingdom
GLL HRE CORE Properties, L.P.,
Argenta Underwriting No.2 Limited,
95.15
Compass Insurance Company Limited,
London/United Kingdom
100.00
Johannesburg/South Africa
100.00
Argenta SLP Continuity Limited,
Annuity Reinsurance Cell A1,
Edinburgh/United Kingdom
100.00
Hamilton/Bermuda
Wilmington/USA
Argenta Syndicate Management Limited,
Hannover Re Real Estate Holdings, Inc.,
Argenta Underwriting No.10 Limited,
London/United Kingdom
Orlando/USA
95.25
Argenta Tax & Corporate Services Limited,
HR US Infra Equity LP,
London/United Kingdom
100.00
Wilmington/USA
95.24
Argenta Underwriting No.1 Limited,
320AUS LLC,
London/United Kingdom
100.00
Wilmington/USA
100.00
75501AD LLC,
100.00
100.00
Broadway 101, LLC,
London/United Kingdom
100.00
Wilmington/USA
95.15
Argenta Underwriting Labuan Ltd²,
River Terrace Parking, LLC,
Labuan/Malaysia
100.00
Orlando/USA
Glencar Insurance Company,
95.15
Wilmington/USA
100.00
Chicago/USA
3290ATL LLC,
Glencar Underwriting Managers, Inc.,
95.15
1600FLL LLC,
Argenta Underwriting Asia Pte. Ltd.,
95.15
Singapore/Singapore
100.00
Wilmington/USA
95.15
Argenta Underwriting No.11 Limited,
Nashville West, LLC,
London/United Kingdom
100.00
Wilmington/USA
95.15
Wilmington/USA
Wilmington/USA
Wilmington/USA
Residual Services Limited',
London/United Kingdom
590ATL LLC,
975 Carroll Square, LLC,
London/United Kingdom
100.00
Residual Services Corporate Director Limited,
95.15
1,556,351
(1,888,847)
22,932,534
5,688,280
71,437,475
(1,660,413)
24,957,109
82,902,252
701,577
7,541,881
582,316
632,195
239,896
249,089
1,750,692
841,591
306,281
4,734,876
328,311
6,195,961
7,217,988
33,929,230
40,777,703
7,541,881
360,780
400,112
7,217,988
5,070,009
(1,702,174)
1,903,596
470,282
44,876
41,958
67,519,731
58,959,777
146,191
152,763
2,674,107
1,883,270
192,039
192,135
192,039
192,135
141
1,257
82
204,597
165,916
544
2,703
1,106
1,876,191
3,558,519
3,350,633
3,073,117
1,570,165
1,450,628
(197)
7,207,750
5,605,803
526,930
(1,933,723)
3,175,084
70,146,021
3,255,453
1.1.-31.12.20201
16,744,058
14,205,380
987,489
thereof
Change in fair value of financial instruments
Total depreciation, impairments and appreciation of investments
(165,713)
Other income and expenses
Income/expense on funds withheld and contract deposits
223,557
245,050
Administrative expenses
1,343,056
3,911,440
other technical income/expenses
Commission and brokerage, change in deferred acquisition costs and
Change in benefit reserve
50,452
10,344,343
11,514,353
48,527
127,600
87,634
964
2,279
Claims and claims expenses
109,495
18,762,504
4,529,517
3,586,740
16,623,863
1.1.-31.12.2021
750,361
37,787
620,111
2,380,681
1,777,761
35,010
3,741,717
2,975,918
4,370,255
3,431,276
3,188,682
21,743,022
2,863,934
19,553,960
(1,957,573)
(1,709,646)
19,224,174
3,819,014
1,784,144
1,266,272
59,598,059
Hannover Re | Annual Report 2021
201
Annual financial statements
Consolidated segment report
Segment statement of income
in EUR thousand
Gross written premium
Net premium earned
Net investment income
Property and casualty reinsurance
3,632,449
20,644,195
In the third quarter of 2021 Hannover Re participated in
the newly established special purpose property company
Rocky G. K., Tokyo/Japan, with a share of 99% through its
94.7%-owned subsidiary PAG Real Estate Asia Select Fund
Limited, George Town/Cayman Islands. The company
acquired a logistics property. In the third quarter PAG also
established the holding company ASF Spectrum Limited,
503,412
31.12.2021
Property and casualty reinsurance
Fixed-income securities - loans and receivables
Fixed-income securities - held to maturity
Assets
in EUR thousand
Segmentation of assets
Consolidated segment report
Annual financial statements
199
Hannover Re | Annual Report 2021
The business activity of Annuity Reinsurance Cell A1, Hamil-
ton/Bermuda, which was consolidated for the first time in the
reporting period, is allocable to the life and health reinsur-
ance segment.
The acquisitions of real estate companies referred to in the
subsection on major acquisitions and new formations are al-
located to the property and casualty reinsurance segment.
The same is true of the shares in HDI Global Specialty Hold-
ing GmbH, Hannover, which have now been sold.
There are no cross-segment gross premiums between the two
segments of property & casualty reinsurance and life & health
reinsurance. To this extent, the gross premiums shown are
exclusively amounts from business with external third par‐
ties.
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.
The "Consolidation” column includes not only the elimination
of cross-segment transactions but also, more significantly,
companies whose business operations cannot be unambigu-
ously allocated to property and casualty reinsurance or life
and health reinsurance. These are principally the service and
financing companies belonging to the Group.
The segment information shown follows the system used for
internal reporting purposes, on the basis of which the full Ex-
ecutive Board regularly evaluates the performance of seg-
ments 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 re
ported internally to management and normally used by the
chief operating 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 reinsurance and life & health reinsurance.
With regard to the object of business operations within the
two segments please see our explanatory remarks on Han-
nover Re's business model on page 26 of the management
report. The report on economic position on page 31 et seq.
contains remarks on the economic environment in which the
Group operates.
5. Segment reporting
Hannover Re | Annual Report 2021
198
EUR 9.9 million, which was recognised under profit or loss
from investments in associated companies. This includes cu-
mulative other comprehensive income of EUR -0.9 million,
which was realised. In addition, actuarial gains and losses of
EUR -0.3 million were recognised directly in equity.
In the fourth quarter Hannover Re gained control over Annu-
ity Reinsurance Cell A1 through its wholly owned subsidiary
Hannover Life Reassurance Company of America (Bermuda)
Ltd., both Hamilton/Bermuda (ARCA1), because 100% of the
voting shares were acquired. ARCA1 is a segregated account
of Kubera Insurance (SAC) Ltd, Hamilton/Bermuda. The pur-
pose of the cell is to assume reinsurance portfolios and per-
form transformation services for the capital market.
31.12.20201
48,286
1,954,457
Fixed-income securities - available for sale
Contract deposits
2,569,420
3,247,068
Funds withheld
37,580,491
43,580,302
Total investments and cash under own management
901,989
907,873
Cash
244,474
George Town/Cayman Islands, which acquired all shares in
the special purpose property company Ubitech Hub Pte. Ltd.,
Singapore/Singapore. The acquired company holds an office
building. A total amount of roughly EUR 245.3 million was
invested.
379,437
4,384,139
5,050,754
Other invested assets
110,304
87,403
Financial assets at fair value through profit or loss
378,422
314,453
Equity securities - available for sale
139,867
1,998,611
29,422,685
34,837,639
Short-term investments
With economic effect from 31 December 2021 Hannover Re
sold the entire 49.8% interest that it held in HDI Global Spe-
cialty SE, Hannover, for a price of EUR 159 million to HDI
Global Specialty Holding GmbH, Hannover. The purchase
price was paid in January 2022. Deconsolidation of the com-
pany previously recognised at equity gave rise to income of
4.4 Major disposals and retirements
Operating profit/loss (EBIT)
Deferred acquisition costs
Prepaid reinsurance premium
Reinsurance recoverables on unpaid claims
Contract deposits
1,232,162
Other invested assets
403,740
Real estate and real estate funds
377,799
Equity securities - available for sale
100,488
Accounts receivable
Fixed-income securities - at fair value through profit or loss
Fixed-income securities - available for sale
1,060
Fixed-income securities - loans and receivables
600
Investment in
catastrophe bonds
(ILS)
General investing
activities
31.12.2020
Fixed-income securities - held to maturity
Assets
in EUR thousand
Book values from business relations with unconsolidated structured entities
1,784,580
3,290
Total assets
Reinsurance payable
Within the 95.2%-owned US subgroup Hannover Re Real Es-
tate Holdings, Inc., Orlando/USA, the special purpose proper-
ty company 7653BWI LLC established in the third quarter of
2021 for the purpose of real estate acquisition by the subsid-
iary GLL HRE Core Properties, LP, both Wilmington/USA, was
consolidated for the first time. A property was placed with the
new company.
4.3 Major acquisitions and new formations
Annual financial statements
197
Hannover Re | Annual Report 2021
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".
of issued bonds which was made available to an Australian
intermediary of insurance business under a swap agreement
for the financing of the latter's business. Repayment of the
bonds is contingent on the development of the intermediary's
business. Hannover Rück SE is an investor in the bond along
with other external parties. The segregated account can be
used flexibly for additional rounds of financing. Hannover Re
is not the owner of the segregated account.
In September 2020 Kubera Insurance (SAC) Ltd established a
segregated account that gathered investor capital by means
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 be-
ing contractually required to do so.
The income and expenses from business relations with un-
consolidated structured entities are shown in investment in-
come 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 retro-
cessions and securitisations.
552,360
Liabilities
552,360
100,488
3,799,941
126,630
217,012
74,090
5,545
842,277
ILS transactions 1
Retrocession incl.
securitisations and
N 14
1 Restated pursuant to IAS 8
Total liabilities
1,265,554
Total investments
46,830,660
2,527,916
230,096
242,138
378,422
314,453
38,851,723
185,577
2,312,840
48,632
2,443,629
45,473,677
15,049
15,049
15,810
9,429,038
10,620,228
329,541
299,180
45,710
346
31.12.20201
N 15
31.12.2021
31.12.20201
31.12.2021
31.12.20201
Total
Consolidation
31.12.2021
474,123
Life and health reinsurance
340,400
920,960
292,940
500,122
9,659,807
1,278,071
49,001,626
1,355,114
56,213,248
10,803,071
7,090,387
7,556,003
41,958
44,876
11,379,177
12,588,070
753,655
4,110
371,972
434,657
327,426
443,793
731
1,433
82,221
62,923
5,327,167
5,804,409
22,068
12,584
298,344
Hannover Re | Annual Report 2021
38,777,827
Loss and loss adjustment expense reserve
Liabilities
in EUR thousand
Segmentation of liabilities
50,165,354
59,833,990
Total assets
2,788,243
3,157,485
Other assets in the segment
4,155,372
35,089,423
5,637,585
1,169,521
1,474,442
Deferred acquisition costs
165,834
562
1,446
Reinsurance recoverables on other reserves
204,456
Prepaid reinsurance premium
Reinsurance recoverables on benefit reserve
Reinsurance recoverables on unpaid claims
5,404
40,155,315
1,730,507
Accounts receivable
200
29,194,354
Unearned premium reserve
46,618,855
2,478,161
2,587,905
420,348
590,751
1,157,650
80,369
28,221
342,420
383,106
395,296
Benefit reserve
513,280
5,795,849
Restated pursuant to IAS 8
Total liabilities
Other liabilities in the segment
Financing liabilities
1
1,630,320
Reinsurance payable
Contract deposits
Funds withheld
Provisions for contingent commissions
4,709,229
Financing costs
N 16
823,024
due after two through three years
28,145
28,145
25,999
25,999
due after one through two years
29,009
29,009
8,882
8,882
due in one year
profit or loss
Financial assets at fair value through
40,457,220
38,109,983
47,272,584
45,973,468
Total
7,236,121
6,397,959
9,683,145
9,166,253
due after more than ten years
37,144
37,144
31,446
31,446
3 Restated pursuant to IAS 8
2 Including short-term investments, cash and cash equivalents
Including accrued interest
1
105,711
105,711
81,308
81,308
1,172
1,172
due after more than ten years
Total
15,567,648
4,232
4,606
4,606
due after five through ten years
3,757
3,757
due after four through five years
9,122
9,122
3,505
3,505
due after three through four years
4,232
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.
14,567,732
15,819,565
2,312,840
2,589,767
2,443,629
Total
395,661
346,801
450,179
418,444
due after more than ten years
778,086
674,921
315,823
286,294
due after five through ten years
152,813
136,620
453,370
404,066
due after four through five years
99,564
92,742
147,510
136,589
2,517,966
Available for sale
due in one year²
5,364,684
due after five through ten years
3,485,182
3,347,071
5,393,570
5,197,728
due after four through five years
3,077,189
2,919,887
3,368,832
3,318,090
due after three through four years
16,239,970
3,413,253
3,604,426
3,545,176
due after two through three years
3,359,359
3,278,457
3,597,590
3,561,972
due after one through two years
4,318,468
1,512,286
5,385,051
3,294,465
Variable-rate bonds (so-called "floaters") are shown under
the maturities due in one year and constitute an interest-re-
lated, within-the-year reinvestment risk.
Hannover Re | Annual Report 2021
semi-governmental entities
Debt securities issued by
interest
Fair value
Unrealised
losses
Unrealised
gains
interest
Amortised cost thereof accrued
including accrued
2021
N 20
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
The carrying amount of the portfolio held to maturity is
arrived at from the amortised cost plus accrued interest.
191,475
383
6,281
4,049
185,577
Total
115,976
383
2,327
846,636
12,514
80,541
927,177
Hannover Re | Annual Report 2021
206
2,589,767
2,335
148,473
54,064
2,443,629
Total
6,692
78
6,692
2,627
Other
1,010
41,646
6,337
370,427
Covered bonds/asset-backed securities
1,244,835
1,325
26,286
35,135
1,219,874
Corporate securities
411,063
114,032
Covered bonds/asset-backed securities
51,685
1
345
Covered bonds/asset-backed securities
50,020
1,733
1,292
48,287
Corporate securities
losses
Fair value
Unrealised
217
2021
Unrealised
gains
interest
accrued interest
including
Amortised cost thereof accrued
Fixed-income securities
Investments held to maturity
in EUR thousand
the portfolio of investments classified as held to maturity as well as their fair value
Amortised cost, unrealised gains and losses and accrued interest on
Annual financial statements
205
N 18
due after three through four years
Total
1,293
3,400
1,292
48,285
Corporate securities
23,814
554
130
23,260
semi-governmental entities
Debt securities issued by
Fair value
48,632
Unrealised
losses
2020
N 19
Amortised cost thereof accrued
including
interest
accrued interest
Fixed-income securities
Investments held to maturity
in EUR thousand
the portfolio of investments classified as held to maturity as well as their fair value
Amortised cost, unrealised gains and losses and accrued interest on
128
50,148
217
1,733
Unrealised
gains
613,668
4,304,412
355,108
597,031
336,267
438,729
478,182
510,707
518
414
254,107
265,243
5,116,204
5,793,235
1,204,764
1,263,718
(103,487)
(298,645)
(103,487)
(298,645)
16,782,658
18,617,725
6,438,315
7,103,372
221,765
268,250
(4,393)
271,185
441,369
223,257
330,663
197,649
205,086
351,569
(27,979)
(32,449)
60,842
24,107
1,123,871
90,204
83,037
1,651,790
171,313
(88,562)
391,505
221,756
86,596
79,454
1,512
1,501
1,214,075
1,734,827
(1,966)
(716)
393,017
(80,170)
219,723
129,393
87,665
1.1.-31.12.2020
1.1.-31.12.2021
Consolidation
Life and health reinsurance
Hannover Re | Annual Report 2021
202
Restated pursuant to IAS 8
1
33,927
614,778
1,082,445
67,848
1.1.-31.12.2021
Non-controlling interest in profit or loss
Group net income
Net income
648,705
1,150,293
172,223
359,911
Taxes
820,928
1,510,204
Net income before taxes
2,096
2,082
thereof
(47,721)
1.1.-31.12.2020
8,026,284
1,793
31
63,971
36,114
63,007
33,835
1,685,468
1,943,012
2,719
21,360,795
24,143,652
8,538,140
226
27,762,314
1.1.-31.12.20201
1.1.-31.12.2021
Total
N 15
1,197
695,260
598,759
332
7,155,189
7,519,457
24,770,342
(60,583)
(1,831)
918,785
139,574
136,693
Fair value 3
2020
Amortised cost 1,3
Fair value
Amortised cost¹
2021
N 17
due after one through two years
due in one year
Held to maturity
in EUR thousand
Maturities of the fixed-income and variable-yield securities
Hannover Re | Annual Report 2021
204
1 Restated pursuant to IAS 8
49,001,626
56,213,248
Total
335,887
2,517,490
359,741
2,616,142
8,027,559
9,457,452
48,287
50,020
due after two through three years
due after three through four years
due after four through five years
48,284
348,624
due after two through three years
200,587
191,024
668,913
654,345
due after one through two years
277,587
273,701
198,864
195,267
2,982,749
due in one year
191,475
185,577
50,148
48,632
217
600
128
345
due after more than ten years
Total
1,300,221
51,684
Loans and receivables
3,156,317
due after five through ten years
6,301,135
France
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 in-
vestments in associated companies, real estate and real es-
tate funds (also includes: investment property), other invest-
ed assets, short-term investments and cash. The recognition
and measurement of these items is based on the respective
applicable IFRS for this type of assets.
Hannover Re classifies investments according to the follow-
ing categories: held-to-maturity, loans and receivables, finan-
cial assets at fair value through profit or loss and availa-
ble-for-sale. The allocation and measurement of investments
are determined by the investment intent and comply with the
requirements of IAS 39 “Financial Instruments: Recognition
and Measurement".
6.1 Investments under own management
6. Notes on the individual items of the balance sheet
Other
Annual financial statements
883,073
1,231,334
(60,583)
(47,721)
328,878
196,610
35,712
68,887
1,785
1,039
5,044,810
Hannover Re | Annual Report 2021
Europe
203
20201
Other
2021
Africa
Australasia
Australia
Asia
17,986,029
North America
2,364,724
2,891,774
Other
15,621,305
22,731,643
19,839,869
7,520,389
8,206,449
3,525,675
3,673,652
1,439,647
2,113,298
6,814,913
21,048,270
20,134,661
USA
7,888,908
N 22
in EUR thousand
interest
including
accrued interest
Amortised cost thereof accrued
the portfolio of investments classified as available for sale as well as their fair value
1 Restated pursuant to IAS 8
from the amortised cost plus accrued interest.
The carrying amount of the loans and receivables is arrived at
2,312
2,517,966
2021
Unrealised
gains
Amortised cost, unrealised gains and losses and accrued interest on
Unrealised
losses
9,198,765
Available for sale
Fixed-income securities
Government debt securities of
EU member states
5,221,089
19,591
341,147
23,036
5,539,200
US Treasury notes
29,293
380,096
207,438
Fair value
35,520
Amortised cost thereof accrued
including accrued
interest
Total
11,937
Amortised cost, unrealised gains and losses and accrued interest on loans and
receivables as well as their fair value
N 21
2020
Unrealised
gains
Unrealised
Fair value
losses
interest
in EUR thousand
Loans and receivables
Debt securities issued by
semi-governmental entities
2,312,840
Corporate securities¹
17,285
124,022
1,241,257
817,108
11,836
24,756
2,312
839,552
Covered bonds/asset-backed securities
378,497
6,399
58,660
437,157
1,117,235
9,566,924
314,453
securities
Hannover Re | Annual Report 2021
211
Annual financial statements
The following table shows combined financial information on
the Hannover Re Group's individually non-material invest-
ments in associated companies.
Financial information on investments in associated companies
in EUR thousand
N 30
2021
2020
Group share of net income from continuing operations
35,743
88,129
Group share of income and expense recognised directly in equity
Group share of total recognised income and expense
(482)
(1,942)
35,261
86,187
N 31
Net book value at 31 December of the year under review
Currency translation at 31 December
Change recognised outside income
Dividend payments
Profit or loss on investments in associated companies
Information on the percentage share held by the Hannover Re
Group in the capital of the associated companies is provided
in the list of shareholdings in section 4.2 “Consolidated com-
panies and complete list of shareholdings".
Disposals
Net book value after currency translation
Currency translation at 1 January
Net book value at 31 December of the previous year
in EUR thousand
Investments in associated companies
The carrying amount of the investments in associated com-
panies changed as follows in the year under review:
Additions
Inqaku FC (Pty) Ltd, Port Elizabeth, South Africa,
Investsure Technologies Proprietary Limited,
Johannesburg, South Africa,
Clarendon Transport Underwriting Managers (Pty) Ltd.,
Johannesburg, South Africa,
•
47,047
138,705
cash
Short-term investments,
234,689
5,327,167
6,539 211,261
Total
234
10,750 182,598
2,336,290
81,203
Other invested assets
(9,766)
at fair value through
profit or loss
Other financial assets -
50,873
80,489 2,611,385
2021
361,617
3,395,934 1,411,655
539,512
3,747,753 20,204,539
•
•
as well as the following companies included at equity within
the subgroup Hannover Reinsurance Group Africa (Pty) Ltd.,
Johannesburg, South Africa:
Hamilton, Bermuda,
Monument Insurance Group Limited,
•
77,627 104,174 314,490
1,873,790 15,308,117
HANNOVER Finanz GmbH, Hannover, Germany,
•
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
Associated companies
The maximum credit risk of the items shown here corre-
sponds to their carrying amounts.
1 Restated pursuant to IAS 8
98,413 285,529 1,605,497
411,376 2,648,462 49,001,626
WeHaCo Unternehmensbeteiligungs-GmbH,
Hannover, Germany,
2020
245,478
(2)
(182)
(3,760)
3,958
107,641
123,413
Currency translation at 31 December
Disposals
2,083,011
61,528
Additions
1,847,634
1,867,577
Gross book value after currency translation
(87,574)
69,816
334,889
Currency translation at 1 January
1,797,761
Cumulative depreciation at 31 December of the previous year
36,609
38,402
Depreciation
8,099
10,029
Disposals
Gross book value at 31 December of the year under review
175,689
Cumulative depreciation after currency translation
(10,002)
10,452
Currency translation at 1 January
185,691
208,523
218,975
378,422
1,935,208
Gross book value at 31 December of the previous year
238,110
36
22
(1,942)
(482)
1,236
361,617
19,682
35,743
214,154
31,334
75,048
245,296
361,615
88,129
1,797,761
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
companies, the Hannover Re Group shares in such commit-
ments in proportion to its respective shareholding.
attributable in an amount of EUR 159.0 million to HDI Global
Specialty SE, Hannover, Germany (HGS).
2020
2021
in EUR thousand
N 32
Development of investment property
Hannover Re | Annual Report 2021
Additions of EUR 73.1 million and disposals of EUR 54.2 mil-
lion result from a conversion of preference shares in connec-
tion with a restructuring measure at Monument Insurance
Group Limited, Hamilton, Bermuda. Further disposals are
212
The investment property in the portfolio which is used to gen-
erate income is shown under the investments. Income and
expenses from rental agreements are included in the invest-
ment income.
assets.
Real estate is divided into real estate for own use and invest-
ment property. Own-use real estate is recognised under other
Real estate
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 11.7 million (EUR 17.7 mil-
lion). For further details please see section 4 "Consolidation".
The profit or loss on investments in associated companies in-
cludes income from deconsolidation of HGS amounting to
EUR 9.9 million.
Real estate is valued at cost of acquisition less depreciation
with useful lives of at most 50 years.
Impairments
9,697 248,623
-- 105,711
Total fixed-income
securities
18,754,999 5,755,180 7,267,701 7,280,562 1,107,957
297,430
15,340
976,682 41,455,851
1 Restated pursuant to IAS 8
The maximum credit risk of the items shown here corre-
sponds to their carrying amounts.
Breakdown of investments by currencies
in EUR thousand
Fixed-income
securities -
held to maturity
Fixed-income
N 28
2021
AUD
CAD
Fixed-income
available-for-sale
securities -
Fixed-income
29,771
loans and receivables
105,711
securities -
Other
ZAR
USD
GBP
EUR
CNY
Total
105,711
through profit or loss
securities at fair value
Other
C
B
BB
BBB
A
Total
AA
2020
N 27
Fixed-income
held-to-maturity
securities -
Fixed-income
AAA
securities - at fair value
100,863
48,284
Fixed-income
774,897 38,851,723
15,340
297,430
17,200,308 5,677,906 6,787,056 7,020,943 1,077,843
Other foreign government debt
36,430
securities -
96,074 2,312,840
30,114
40,844 432,361 259,619
loans and receivables 1 1,453,828
securities -
185,577
Fixed-income
through profit or loss
Equity securities -
available-for-sale
AUD
2020
N 29
available-for-sale
Equity securities -
through profit or loss
CAD
securities - at fair value
available-for-sale
securities -
Fixed-income
loans and receivables1
securities -
Fixed-income
Fixed-income
held to maturity
CNY
GBP
105,711
306,424 2,151,438 38,851,723
3,176,026 1,374,374 1,374,186 11,054,552 3,141,105 16,273,618
-- 2,312,840
366,094
5,591
EUR
421,977 1,519,178
13,783
163,071
Total
Other
ZAR
USD
8,723 ___- _—___________- 185,577
- - - 120,102
securities -
in EUR thousand
208,979
7,880
97,594
314,453
- - 81,308
81,308
Other financial assets -
334,442 2,332,281 45,473,677
2,443,629
48,632
243,063
346
753,113 1,417,682
48,286
3,416,331 1,688,265 1,663,735 12,157,995 3,324,741 20,555,887
Fixed-income
at fair value through
Other invested assets
Short-term investments,
Breakdown of investments by currencies
Hannover Re | Annual Report 2021
210
221,519 1,798,907
76,483
417,473 2,984,278 56,213,248
50,479 139,572 226,890 142,309 761,654
1,738,744 2,556,420 16,366,648 3,638,524 24,857,869
profit or loss
180,001
3,653,292
cash
429,045 5,804,409
6,548
1,433 248,233
45,800 161,715 96,990
2,372,401
1,879 2,909,642
(57,705)
84,894
Total
in EUR thousand
16,873
Appreciation
215
Annual financial statements
Movements in level 3 financial assets and liabilities
in EUR thousand
Net book value at 31 December of
the previous year
Currency translation at 1 January
Net book value after currency
translation
Income and expenses
N 36
2020
Equity
securities
Other
financial assets
Real
estate funds
Other
invested assets
Other
liabilities
income
recognised in the statement of
27,349
1,732,302
511,156
146,042
Hannover Re | Annual Report 2021
(2,693)
(23,583)
- (14,376)
30,042
1,841,392
534,739
160,418
(109,090)
22,240
2,297,589
805,911
56,221
shareholders' equity
recognised directly in
(7,246)
83,778
(7,905)
218,386
29,857
recognised in the statement of
Income and expenses
translation
Net book value after currency
28,700
2,087,905
income
recognised directly in
Purchases
223,401
161,024
the year under review
Net book value at 31 December of
(338)
4,437
5,981
Sales
(607)
Transfers from level 3
Transfers to level 3
1,124
465,770
562,687
77,362
35,836
Currency translation at 31 December
147
37,895
(12,936)
29,857
Change in fair value of financial
instruments
7,246
(878)
109,610
(23)
Total depreciation, impairments and
appreciation of investments
Other
liabilities
Real
estate funds
financial assets
Other
Equity
securities
2021
N 37
Other
invested assets
26,488
(7,905)
Thereof attributable to financial
Hannover Re | Annual Report 2021
216
(24,931)
(7,905)
Total depreciation, impairments and
appreciation of investments
29,857
(24,931)
instruments
(23)
Ordinary investment income
7,246
(266)
at 31 December the year under
review
instruments included in the portfolio
Change in fair value of financial
605,575
1,982,592
154,689
45,170
90,714
5,154
416,927
135,059
56,397
165,302
Sales
65,668
(2,934)
(147)
shareholders' equity
(6,563)
(53,155)
Purchases
582,296
425
Transfers from level 3
973
(13,848)
(2,879)
5,069
Realised gains and losses on invest-
ments
Ordinary investment income
Transfers to level 3
Total in the financial year
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:
the year under review
Net book value at 31 December for
of the year under review
Currency translation at 31 December
in EUR thousand
6,069
167,610
105,313
time deposits as well as shares in investment funds that invest
in such securities.
If input factors from different levels are used to measure a fi-
nancial instrument, the level of the lowest input factor mate-
rial to measurement is determinative.
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 val-
uation committee that meets monthly.
In the financial year just ended, as in the previous year, no
investments were allocable to another level of the fair value
hierarchy.
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
N 33
2021
Level 1
30,051
Level 2
45,524,934
Level 3
Total
45,554,985
314,453
314,453
87,209
22,240
22,240
52,844
52,844
2,012
49,666,976
3,264,524
45,614,155
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 14.2 million (EUR 16.6
million). Loans granted in an amount of EUR 362.1 million
(EUR 183.5 million) were similarly recognised under other
invested assets.
788,297
443,793
2,297,588
805,912
805,912
2,297,588
248,233
161,024
2,012
• 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
principally on valuation models and methods.
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
comparable assets and liabilities that are traded on
active markets, prices on markets that are not consid-
ered active as well as inputs derived from such prices
or market data.
•
1,589,238
1,818,754
1,671,945
1,648,602
1,749,517
1,589,238
With regard to the right-of-use assets included as part of the
accounting of leases, please see section 8.8 "Leases".
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
264,257
Cumulative depreciation at 31 December of the year under review
(1,745)
1,181
Currency translation at 31 December
1,145
208,523
75,084
75,084
The fair value of investment property excluding capitalised
right-of-use assets amounted to EUR 2,266.6 million (EUR
1,897.4 million) as at the balance sheet date.
Changes in this item are attributable to investment activities
at the relevant real estate companies belonging to the
Hannover Re Group.
The fair value hierarchy, which reflects characteristics of the
price data and inputs used for measurement purposes, is
structured as follows:
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.
Fair value hierarchy
This item comprises investments with a maturity of up to one
year at the time of investment. This includes overnight and
Short-term investments
The other invested assets consisted largely of participating
interests in partnerships measured at fair value in an amount
of EUR 2,228.9 million (EUR 1,867.7 million), the amortised
cost of which amounted to EUR 1,605.8 million (EUR 1,493.1
million). The differences between the carrying amounts and
the amortised costs were recognised as unrealised gains of
EUR 638.8 million (EUR 415.8 million) and unrealised losses
of EUR 15.7 million (EUR 41.1 million) under cumulative oth-
er comprehensive income.
In terms of diversification across various real estate sectors,
the focus is on office buildings (58%), complemented by
logistics properties (23%) and retail (17%). In geographical
terms, exposures are spread across the United States (38%),
Europe (excluding Germany; 18%) as well as Germany (21%)
and Asia (23%).
Other invested assets
213
Hannover Re | Annual Report 2021
In addition, we held indirect real estate investments meas-
ured at fair values in an amount of EUR 805.9 million (EUR
582.3 million) in the year under review, the amortised costs of
which amounted to EUR 691.6 million (EUR 527.9 million).
The differences between the carrying amounts and amortised
costs were recognised as unrealised gains of EUR 118.7 mil-
lion (EUR 58.6 million) and unrealised losses of EUR 4.4 mil-
lion (EUR 4.2 million) under cumulative other comprehensive
income.
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
consideration current and future opportunity/risk profiles. In
the year under review no properties were reclassified to as-
sets held for sale.
management costs. The valuation result is also influenced by
increases and reductions based on specific property circum-
stances (upkeep, vacancies, rent divergences from the market
level, etc.). The evaluation of international real estate also
draws primarily on the discounted cash flow method. The
main feature of this method is the present value estimation of
projected annual free cash flows.
The real estate in the investment portfolio is normally subject
to internal and external valuation by an appraiser as at the
balance sheet date. The two analyses do not differ from one
another in the methodology used, which means that the find-
ings are comparable at all times and on a continuous basis.
Generally speaking, the fair value of the real estate is deter-
mined using the discounted cash flow (DCF) method, with
rental income capitalised in consideration of the associated
Annual financial statements
in EUR thousand
Fixed-income securities
Equity securities
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 be-
ginning of the financial year with the fair values as at 31 De-
cember of the financial year.
85,286
26,488
58,798
Total financial liabilities
N 35
85,286
58,798
Other liabilities
42,462,859
2,719,577
39,015,133
327,426
26,488
327,426
728,149
2021
Equity
securities
26,488
1,982,592
582,296
23,279
12,921
Currency translation at 1 January
154,689
in EUR thousand
the previous year
liabilities
Other
Other
invested assets
Real
estate funds
financial assets
Other
Net book value at 31 December of
2,212
Total financial assets
1,982,592
Fixed-income securities
in EUR thousand
Fair value hierarchy of financial assets and liabilities recognised at fair value
Hannover Re | Annual Report 2021
214
Total financial liabilities
Level 1
22,301
Other liabilities
Other assets
443,793
Short-term investments
Other invested assets
Real estate funds
Other financial assets
Total financial assets
Short-term investments
2020
Level 2
38,935,133
378,422
1,982,592
Other invested assets
582,296
582,296
Real estate funds
234,689
Level 3
154,689
Other financial assets
378,422
Equity securities
38,957,434
Total
N 34
80,000
Rating structure of fixed-income securities
available-for-sale
209
18,538
2,390,407
Covered bonds/asset-backed securities
12,950,620
8,595
818,711
116,310
12,140,504
Corporate securities
6,267,624
3,523
400,193
46,222
5,870,954
semi-governmental entities
Debt securities issued by
3,859,554
380,394
1,540
US Treasury notes
7,260,239
24,856
505,067
102,621
11,222
Other foreign government debt
securities
3,700,451
31,029
165,774
6,671
5,391,820
7,754,084
20,970
8,271
Investment funds
39,557,571
40,303
2,497,933
259,580
37,099,941
Total
327,426
199
54
1,655
327,571
Short-term investments
378,422
377,799
110,357
110,393
268,029
267,442
128,820
14,726
282
36,504,341
257,925
2,387,486
2,484,757
40,104
Equity securities
Shares
587
36
623
Investment funds
143,264
38,851,723
EU member states
Government debt securities of
Fixed-income securities
158,199
45,473,677
Equity securities
Investment funds
Short-term investments
Total
Hannover Re | Annual Report 2021
183,529
183,529
130,924
130,924
Annual financial statements
314,453
314,453
443,752
1,375
138
97
2020
N 23
Available for sale
in EUR thousand
the portfolio of investments classified as available for sale as well as their fair value
Amortised cost, unrealised gains and losses and accrued interest on
1,876
271,883
Annual financial statements
46,231,923
271,980
1,702,020
296,931
44,801,883
443,793
207
1,570,958
295,556
44,174,602
56,544
6,707,198
semi-governmental entities
Debt securities issued by
4,143,276
28,855
238,642
109,036
4,063,095
Amortised cost thereof accrued
including accrued
interest
Unrealised
gains
Unrealised
losses
Fair value
interest
29,735
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
43,138
Corporate securities
9,107
150,968
Investment funds
3,050,509
17,154
56,351
6,902,702
20,188
Covered bonds/asset-backed securities
16,112,867
145,887
436,579
140,205
15,822,175
3,011,312
to their fair values, in the case of interest-bearing assets
including accrued interest.
5,012,966
N 24
held-to-maturity
securities -
Fixed-income
in EUR thousand
Rating structure of fixed-income securities
For further explanatory remarks on the impairment criteria
please see section 3.1 "Summary of major accounting poli-
cies".
1 Restated pursuant to IAS 8
87,143
45,519,443
33,605
75,243
3,451,555
33,249
3,780,794
52,505,334
Total
invested assets, real estate funds
Participating interests and other
2,443,629
2,312,840
Fixed-income securities - available for sale
45,473,910
233
38,863,495
N 26
11,772
443,916
123
327,554
128
Equity securities - available for sale
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
Short-term investments
2021
AAA
AA
securities -
available-for-sale
19,660,717 6,044,440 8,093,145 8,700,797 1,389,160
354,901
23,027 1,207,490 45,473,677
Fixed-income
Fixed-income
securities - at fair value
Total fixed-income
securities
20,836,704 6,085,424 8,901,166 8,945,362 1,432,590 354,901
Hannover Re | Annual Report 2021
81,308
81,308
23,027 1,468,072 48,047,246
through profit or loss
loans and receivables1
179,274 2,443,629
40,638 759,735 244,565
A
BBB
BB
B
C
Other
43,430
Total
48,286
48,632
Fixed-income
securities -
loans and receivables
1,175,987
346
Fixed-income securities -
378,422
185,577
(39)
248,233
234,689
248,248
234,728
(15)
(39)
248,233
234,689
Total
208
328,944
(15)
339,735
665
329,541
340,400
Hannover Re | Annual Report 2021
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 designated fixed-income securities amounting to
EUR 81.3 million (EUR 105.7 million) as well as derivative fi-
nancial instruments in an amount of EUR 248.2 million (EUR
234.7 million) that are originally allocable to this item.
Analysis of the fair value changes in the portfolio of fixed-in-
come securities at fair value through profit or loss indicated
Carrying amounts before impairment
that, just as in the previous year, no fair value changes were
attributable to a changed credit risk. We additionally use an
internal rating method to back up this analysis. Our internal
rating system is based on the corresponding 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".
N 25
2021
597
234,728
248,248
Derivatives
in EUR thousand
Financial assets at fair value through
profit or loss
Fixed-income securities
Corporate securities
2021
2020
2021
2020
2021
2020
Fair value before
Accrued interest
Fair value
accrued interest
80,696
105,007
704
81,308
105,711
80,696
105,007
612
704
81,308
105,711
Other financial assets
2020
in EUR thousand
612
Impairment
Carrying amount
before impairment
Impairment
Fixed-income securities - held to maturity
48,632
Carrying amount
before impairment
Investment property
Fixed-income securities
in EUR thousand
(12,936)
Fair value hierarchy of financial assets and liabilities measured at amortised cost
for measurement as at the balance sheet date, the fair values
for these items would amount to EUR 2,731.4 million. The
remaining financial assets included in level 3 with a volume of
EUR 229.7 million (EUR 269.6 million) relate to investments,
the valuation of which is based inter alia on technical param-
eters. Derivative financial instruments in connection with the
reinsurance business were recognised under the other liabil-
ities included in level 3 in the year under review. Their perfor-
mance is dependent upon lapse rates within an underlying
primary insurance portfolio. The application of alternative
inputs and assumptions has no material effect on the consol-
idated 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 re-
quires disclosure of the effects of these alternative assump-
tions. Of the financial assets included in level 3 with fair val-
ues of altogether EUR 3,264.5 million (EUR 2,719.6 million)
as at the balance sheet date, Hannover Re measures financial
assets with a volume of EUR 3,034.9 million (EUR 2,450.0
million) using the net asset value method. These items con-
sist principally of shares in private equity and real estate
funds. Assuming that the present values of the assets and lia-
bilities contained in the funds would be 10% lower than used
(52,724)
Total financial assets
Financing liabilities
Total financial liabilities
Hannover Re | Annual Report 2021
Other invested assets
N 39
Hannover Re | Annual Report 2021
2021
- (289)
- 37,895
(52,724)
(12,936)
6,989
(289)
(426)
(151)
37,895
-- 9
147
Other
liabilities
invested assets
6,989
Level 1
Level 2
2,309,373
Level 3
330,542
2,266,593
Fixed-income securities¹
Investment property
Other invested assets
Total financial assets
Financing liabilites
Total financial liabilities
1 Restated pursuant to IAS 8
Level 1
2020
Level 2
2,460,747
Level 3
248,694
Total
2,709,441
1,897,351
1,897,351
87,260
in EUR thousand
N 40
Fair value hierarchy of financial assets and liabilities measured at amortised cost
Annual financial statements
Total
2,639,915
2,266,593
4,016
4,016
6,467
633,520
644,003
2,315,840
estate funds
3,230,655
4,160,613
238,127
4,398,740
4,160,613
238,127
4,398,740
217
5,550,511
financial assets
Equity
securities
Real
25,951
32,324
15,139
7,580
3,655
7,058
1,008
886
Cumulative value adjustments at 31 December of the year under review
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
Net book value of accounts receivable at 31 December of the year under review
(3,645)
36,549
24,943
7,244,299
5,630,746
7,903
36,549
7,207,750
33,840
2020
Within the scope of our management of receivables we ex-
pect to receive payment of accounts receivable within three
months of the date of creation of the debit entry unless other-
wise agreed
- a period for which we also make allowance in
our risk analysis. Please see our comments on the counter-
party default risk within the risk report on page 108 et seq.
The default risks associated with accounts receivable under
reinsurance business are determined and recognised on the
basis of case-by-case analyses.
The value adjustments on accounts receivable that we recog-
nise in adjustment accounts changed as follows in the year
under review:
Value adjustments on accounts receivable
in EUR thousand
83,933
24,943
Cumulative value adjustments at 31 December of the previous year
Cumulative value adjustments after currency translation
Value adjustments
Reversal
Utilisation
N 46
2021
Currency translation at 1 January
Other
24,943
In addition, we took specific value adjustments on reinsur-
ance 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 3.1
Ordinary investment income
Realised gains and losses on invest-
ments
Change in fair value of financial
instruments
Total depreciation, impairments and
appreciation of investments
Thereof attributable to financial
instruments included in the portfolio
2,968
at 31 December the year under
review
Change in fair value of financial
instruments
Total depreciation, impairments and
appreciation of investments
N 38
2020
174,921
Other
Ordinary investment income
5,605,803
88,303
2021
"Summary of major accounting policies". With regard to the
credit risks resulting from technical assets we would also re-
fer the reader to our comments on page 108 et seq. of the risk
report.
6.5 Goodwill
In accordance with IFRS 3 "Business Combinations" amorti-
sation is not taken on goodwill. Goodwill was subject to an
impairment test.
Development of goodwill
in EUR thousand
Net book value at 31 December of the previous year
80,965
725,062
Net book value after currency translation
Value adjustments
Currency translation at 31 December
Net book value at 31 December of the year under review
N 47
2020
Currency translation at 1 January
812,322
(3,069)
2,871,107
18,731,863
6,385,404
6,045,082
8,861,601
7,136,068
8,721,294
7,081,788
1,695,478
1,320,595
1,120,019
183,731
47,773,481
727,536
128,690
41,171,622
6.2 Funds withheld (assets)
The funds withheld totalling EUR 10,803.1 million (EUR
9,659.8 million) represent the cash deposits furnished by our
company to our cedants that do not trigger any cash flows
and cannot be realised by cedants without our consent. The
maturities of these deposits are matched to the correspond-
ing provisions. In the event of default on such a deposit our
reinsurance commitment is reduced to the same extent.
Hannover Re | Annual Report 2021
219
Annual financial statements
6.3 Contract deposits (assets)
20,805,954
2020
2021
N 43
1,970,964
(14,830)
327,426
Total
93,721
41,492,650
21,791
258,068
4,165,961
161,194
1 Restated pursuant to IAS 8
The contract deposits on the assets side increased by EUR
205.1 million in the year under review from EUR 298.3 mil-
lion to EUR 503.4 million.
Rating structure of financial assets that give rise to solely payments of principal and interest
AAA
AA
A
BBB
BB or lower
No rating
low credit risk
more than a low credit risk¹
Total
1 Restated pursuant to IAS 8
The fair value for financial assets that meet the cash flow cri-
terion and have more than a low credit risk corresponds to
the carrying amount before impairment shown in the table.
in EUR thousand
6.4 Technical assets
The retrocessionaires' portions of the technical provisions are
based on the contractual agreements of the underlying
reinsurance treaties. For further details please refer to our
comments in section 6.7 “Technical provisions”. With regard
to the nature and scope of risks arising out of insurance
contracts we would also refer to the explanatory remarks on
page 94 et seq. of the risk report.
SFAS 60 requires that acquisition costs be capitalised as as-
sets and amortised in proportion to the earned premium.
1,511,101
1,198,387
23,177
3,350,633
(14,197)
3,073,117
The age structure of the accounts receivable which were un-
adjusted but classified as overdue at the balance sheet date is
presented below.
Age structure of overdue accounts receivable
in EUR thousand
Accounts receivable
220
1,494,109
N 45
2020
Three months to
one year
479,549
More than
one year
271,037
Three months to
one year
More than
one year
339,613
84,658
Total in the financial year
2021
4,961
1,617,119
3,221,438
In the case of reinsurance treaties for unit-linked life insur-
ance policies classified as "universal life-type contracts" pur-
suant to SFAS 97, the capitalised acquisition costs are amor-
tised on the basis of the estimated gross profit margins from
the reinsurance treaties, making allowance for the period of
Development of deferred acquisition costs
in EUR thousand
Net book value at 31 December of the previous year
Currency translation at 1 January
Net book value after currency translation
Additions
Amortisations
Currency translation at 31 December
Net book value at 31 December of the year under review
2,791,592
1 Restated pursuant to IAS 8
the insurance contracts. A discount rate based on the interest
for medium-term government bonds was applied to such con-
tracts. 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 life and health reinsurance the deferred acquisition costs
associated with life and annuity policies with regular premi-
um payments are determined in light of the period of the con-
tracts, the expected surrenders, the lapse expectancies and
the anticipated interest income.
In property and casualty reinsurance acquisition costs direct-
ly connected with the acquisition or renewal of contracts are
deferred for the unearned portion of the premium.
N 44
2021
20201
3,073,117
2,931,722
148,321
(140,130)
For further explanatory remarks please see section 3.1 "Sum-
mary of major accounting policies".
2,548,007
389,585
582,296
Short-term investments
Other assets
Total
2021
All other financial assets
N 41
Fair value at 31.12.
Fair value change in
the financial year
(46,109)
7,129
(247)
(17,277)
549,219
(8,213)
81,308
85
314,453
56,757
231,707
(32,891)
805,912
Other invested assets
Real estate funds
at fair value through profit or loss
Other financial assets -
5,419,114
3,518,114
3,518,114
110,444
110,444
3,628,558
3,628,558
Disclosures relating to deferred adoption of IFRS 9
The table below shows the financial assets that are to be rec-
ognised in future in accordance with IFRS 9 and splits them
into a group that satisfies the cash flow criterion for financial
assets as well as all other financial assets. The latter encom-
pass the financial assets currently measured at fair value
through profit or loss, especially equity instruments held and
shares in investment funds that by their very nature cannot
fulfil the cash flow criterion enshrined in IFRS 9. The cash
flow criterion is met if the contractual conditions of the finan-
cial instrument give rise to cash flows at set times that are
solely payments of principal and interest (SPPI test).
Fair value disclosures for financial assets
Financial assets that give rise to
solely payments of principal and
interest (SPPI criterion)
Fair value change in
the financial year
(4,552)
101,348
in EUR thousand
Fixed-income securities - held to maturity
50,148
Fixed-income securities -
loans and receivables
2,582,638
Fixed-income securities - available for sale
44,924,458
Fixed-income securities -
at fair value through profit or loss
Equity securities - available for sale
Fair value at 31.12.
356,184
2,448
2,249,029
1,061
(205)
Fixed-income securities - available for sale
38,300,963
281,845
550,760
(5,316)
Fixed-income securities -
at fair value through profit or loss
Equity securities - available for sale
(26,081)
Other financial assets -
105,711
22,782
378,422
104,396
227,530
41,329
Real estate funds
Other invested assets
Short-term investments
Other assets
at fair value through profit or loss
16,107
2,516,906
Fair value at 31.12.
295,855
443,793
(440)
290,131
48,203,559
(65,490)
34,426
4,716,976
2,071
414,325
218
Hannover Re | Annual Report 2021
Fair value change in
the financial year
Fair value disclosures for financial assets
2020
All other financial assets
N 42
in EUR thousand
Fixed-income securities - held to maturity
Fixed-income securities -
loans and receivable 1
Fair value at 31.12.
191,475
Fair value change in
the financial year
(2,657)
Financial assets that give rise to
solely payments of principal and
interest (SPPI criterion)
3,935
(1,516)
242
80,965
N 53
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
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 98 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 30.4 million (EUR 32.5 million) for
purchased software as at the balance sheet date, on which
depreciation is taken over useful lives of three to ten years. Of
the additions, an amount of EUR 6.8 million (EUR 7.0 million)
is attributable to purchased software. Among other things,
the amortised cost of the intangible assets identified in
connection with the acquisition of Argenta Holdings Limited
in an amount of EUR 81.2 million (EUR 76.8 million) is also
recognised under other intangible assets.
131,695
138,487
134,092
131,695
262,307
283,734
(60)
159
20,198
21,406
2021
2020
in EUR thousand
gross
32,045,960
7,025,853
1,883,270
192,135
net
retro
gross
33,929,230
7,217,988
5,070,009
38,103,596
7,349,842
5,991,364
2,674,107
192,039
204,597
2,703
3,073,446
841,591
55,357,136
16,094
Total
6,195,961
Unearned premium reserve
7,541,881
Benefit reserve
40,777,703
Loss and loss adjustment expense reserve
net
retro
Other technical provisions
1,332
Net book value at 31 December of the year under review
Net book value at 31 December of the previous year
23,104
Additions
387,191
401,588
Gross book value after currency translation
(6,897)
7,586
Currency translation at 1 January
23,819
394,088
Gross book value at 31 December of the previous year
2020
2021
in EUR thousand
N 52
Development of other intangible assets
Other intangible assets
Hannover Re | Annual Report 2021
394,002
165,916
Disposals
2,483
Cumulative depreciation at 31 December of the year under review
Currency translation at 31 December
Depreciation
Disposals
258,263
263,501
Cumulative depreciation after currency translation
(1,733)
Currency translation at 31 December
1,194
259,996
262,307
Cumulative depreciation at 31 December of the previous year
394,002
422,221
Gross book value at 31 December of the year under review
12
17,008
Currency translation at 1 January
4,904,093
838,888
52,283,690
701,577
46,918,804
(20,746)
(8,810)
95,216
15,966
111,182
Currency translation at 31 December
Portfolio entries/exits
(4,392)
4,392
(9,002)
(637)
(40)
(315)
40
315
Reversal of impairments
Specific value adjustment for retrocessions
(216,675) (3,972,596)
(1,829,034) (9,930,631)
(2,045,709) (13,903,227)
(4,189,271)
(11,759,665)
(15,948,936)
(910,023) (3,899,052)
(1,039,301) (10,405,986)
(1,949,324) (14,305,038)
(4,809,075)
(11,445,287)
(16,254,362)
637
Previous years
(11,744)
(19,978)
in EUR thousand
Hannover Re | Annual Report 2021
226
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.
The run-off triangles provided by the reporting units are
shown after adjustment for the currency effects arising out of
translation of the respective transaction currency into the lo-
cal reporting currency. The run-off triangles of the reporting
units delivered 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 originally estimated ultimate loss corresponds to
the actual ultimate loss in the original currency, it is ensured
that also after translation 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 loss reserves con-
stituted in the previous year and the losses paid out of these
reserves is reflected in the net run-off result. In this regard,
owing to the fact that the period of some reinsurance treaties
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 fi-
nancial year or the previous year.
The total amount of the net reserve before specific value ad-
justments was EUR 38,047.8 million (EUR 31,994.0 million)
as at the balance sheet date.
11,168
On balance, cumulative specific value adjustments of EUR
55.8 million (EUR 52.0 million) were recognised in these re-
insurance recoverables as at the balance sheet date.
1
32,045,960
1,883,270
33,929,230
38,103,596
2,674,107
40,777,703
Net book value at 31 December of the
year under review
excluding effects from portfolio entries/exits recognised in income
224
Year under review
Less:
net
retro
gross
net
2020
retro
gross
2021
Net book value at 31 December of the
previous year
in EUR thousand
serve is shown in the following table. Commencing with the
gross reserve, the change in the reserve after deduction of the
reinsurers' portions is shown in the year under review and
the previous year.
Loss and loss adjustment expense reserve
The loss and loss adjustment expense reserves are in princi-
ple 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 development of the loss and loss adjustment expense re-
Annual financial statements
225
Hannover Re | Annual Report 2021
700,471
44,676,377
1,106
2,242,427
N 54
Claims and claims expenses paid (net) 1
33,929,230
Net book value after currency translation
3,441,693
16,782,658
2,012,537
18,795,195
1,178,440
4,620,133
13,340,965
834,097
14,175,062
Currency translation at 1 January
2,002,255 14,749,253
611,254 3,868,472
2,613,509 18,617,725
Previous years
Year under review
(net) 1
Incurred claims and claims expenses
2,050,114 30,946,117
(139,593) (1,744,111)
1,910,521 29,202,006
32,996,231
(1,883,704)
31,112,527
1,883,270 32,045,960
110,411 1,650,008
1,993,681 33,695,968
1,760,419
35,689,649
16,751,508
4,479,726
21,231,234
With regard to the leased assets contained in this table we
would refer to section 8.8 "Leases".
With regard to the measurement of fixtures, fittings and
equipment, the reader is referred to our explanatory notes on
the other assets in section 3.1 "Summary of major accounting
policies".
31,318
255,292
Sundry1
69,282
87,997
Receivables from advance payments and services
31,318
35,529
Fixtures, fittings and equipment
304,288
196,826
Tax refund claims
105,168
129,806
Own-use real estate
99,994
102,530
Insurance for pension commitments
91,584
972,167
859,136
Total
Cumulative depreciation at 31 December of the year under review
Currency translation at 31 December
Amortisation
Cumulative depreciation after currency translation
Currency translation at 1 January
Cumulative depreciation at 31 December of the previous year
Gross book value at 31 December of the year under review
Currency translation at 1 January
131,695
Gross book value at 31 December of the previous year
Development of the present value of future profits (PVFP) on acquired life reinsurance portfolios
Present value of future profits (PVFP) on acquired life reinsurance portfolios
the sundry assets. For details we would refer to section 4.4
"Major disposals and retirements". The sundry assets contain
unadjusted other receivables of EUR 0.4 million (EUR 0.3 mil-
lion) that were overdue by more than twelve months as at the
balance sheet date.
The purchase price receivable from the sale of HDI Global
Specialty SE in an amount of EUR 159.0 million is included in
With regard to the right-of-use assets from lease contracts
included in the items "Own-use real estate", "Fixtures, fit-
tings and equipment” and “Sundry”, please see section 8.8
"Leases".
Hannover Re | Annual Report 2021
222
1 Restated pursuant to IAS 8
in EUR thousand
138,487
Other intangible assets
25,807
2020
2021
2020
2021
Capitalisation rate
N 48
Integra Insurance Solutions Limited
E+S Rückversicherung AG
Argenta Holdings Limited
Growth rate
in EUR thousand
spective national banks. If this data cannot be obtained or can
only be obtained with a disproportionately high effort, refer-
ence is made to the yields of the respective 30-year govern-
ment bonds. Both the yield curves and the government bonds
reflect the current interest rate trend on financial markets.
The selection of the market risk premium is guided by the
ranges currently recommended by 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. The foreign exchange rates used for currency
translation correspond to the situation on the balance sheet
date.
Capitalisation rates
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 plan-
ning calculations represent the outcome of a detailed plan-
ning process in which all responsible members of manage-
ment are involved and where allowance is made for the latest
market developments affecting the relevant entity (in relation
to the sector and the economy as a whole). 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 As-
set Pricing Model (CAPM) as well as growth rates that are
considered realistic in light of the specific market environ-
ment. The risk-free basic interest rate is determined, where
possible, using corresponding yield curve data from the re-
Annual financial statements
221
Hannover Re | Annual Report 2021
For the purposes of the impairment test, the goodwill was al-
located 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 legal entities. The recoverable amount is established on
This item principally includes the goodwill from the acquisi-
tions of E+S Rückversicherung AG (EUR 36.1 million, pre-
vious year: EUR 36.1 million)), Integra Insurance Solutions
Limited (EUR 11.4 million, previous year: EUR 10.6 million)
and Argenta Holdings Limited (EUR 30.1 million, previous
year: 28.0 million).
The following capitalisation rates and growth rates were rec-
ognised for the individual cash-generating units:
Net book value at 31 December of the previous year
6.93%
5.65%
1.00%
25,700
Present value of future profits on acquired life reinsurance portfolios
2020
2021
in EUR thousand
N 49
Other assets
6.6 Other assets
6.66%
opments. It was established that where changes were made
to parameters in areas that could reasonably occur, the values
in use were above the corresponding book values. We would
also refer to our basic remarks in section 3.1 “Summary of
major accounting policies".
1.00%
1.00%
6.36%
6.64%
0.00%
0.00%
5.38%
1.00%
The capitalisation rates as well as material/value-influencing
items of the respective planning calculations (inter alia pre-
mium volumes, investment income or loss ratios) were varied
as part of sensitivity analyses. In this context, individual pa-
rameters were changed within appropriate bands that can be
expected in light of the current market situations and devel-
83,933
Net book value at 31 December of the year under review
2021
119,850
(3,867)
3,052
Currency translation at 1 January
137,167
122,498
Cumulative depreciation at 31 December of the previous year
153,816
157,347
Cumulative depreciation after currency translation
Gross book value at 31 December of the year under review
93
Currency translation at 31 December
2
Changes in the consolidated group
21,583
16,053
Disposals
15,483
238
15,694
125,550
Disposals
35,529
Net book value at 31 December of the year under review
27,003
31,318
Net book value at 31 December of the previous year
122,498
121,818
Cumulative depreciation at 31 December of the year under review
133,300
145
Currency translation at 31 December
1
Changes in the consolidated group
10,311
12,105
Depreciation
21,259
15,729
(108)
N 50
Additions
157,613
25,807
25,700
94,043
101,891
(366)
97
5,344
2,166
89,065
33,815
99,628
5,585
95,335
94,043
119,850
127,591
(9,300)
7,741
2020
129,150
(6,270)
25,807
This item comprises 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 intan-
gible asset is amortised over the term of the underlying rein-
surance contracts in proportion to the future premium in-
Insurance for pension commitments
Gross book value after currency translation
(4,494)
3,797
Currency translation at 1 January
164,170
153,816
Gross book value at 31 December of the previous year
2020
159,676
2021
N 51
Fixtures, fittings and equipment
Fixtures, fittings and equipment
Annual financial statements
223
Hannover Re | Annual Report 2021
come. The period of amortisation amounts to altogether
30 years. For further information please refer to our explana-
tory notes on intangible assets in section 3.1 "Summary of
major accounting policies".
Effective 1 July 2003 Hannover Rück SE took out insurance
for pension commitments. The commitments involve deferred
annuities with regular premium payment under a group in-
surance policy. In accordance with IAS 19 "Employee Bene-
fits" they were carried as a separate asset at fair value as at
the balance sheet date in an amount of EUR 102.5 million
(EUR 100.0 million).
in EUR thousand
Income and expenses from level 3 financial assets and liabilities
1,904
4
507
36,151
499,239
EUR
2043
5.00
(Luxembourg) S.A., 2012
Hannover Finance
556,602
8,692
50,420
497,490
EUR
n/a
3.375
Hannover Rück SE, 2014
797,146
5,941
46,291
744,914
12,603
EUR
547,993
134,331
Position at 31 December of the
financial year
269,961
286,162
61,699
56,910
The actuarial gain from change in financial assumptions re-
sults primarily from an increase in the discount rate, which to
some extent is offset by the increase in the rate of compensa-
tion and the pension progression.
The plan assets contain assets held by a long-term employee
benefit fund and qualifying insurance policies as defined by
IAS 19. The plan assets are attributable in an amount of EUR
21.4 million (EUR 18.3 million) to assets with quoted market
prices.
232
Hannover Re | Annual Report 2021
Hannover Re | Annual Report 2021
543,101
4,436,168
1,008
37,428
6,707
141,038
535,386
4,257,702
236
Total
Long-term debt
3,893,067
36,420
3,722,316
2028
1.125
Hannover Rück SE, 2018
Notes payable
in EUR thousand
Fair value
Accrued
interest
Fair value
measure-
ment
cost
Amortised
Currency
Maturity
Coupon
2021
N 67
Altogether six (five) bonds were recognised as at the balance
sheet date with an amortised cost of EUR 3,722.3 million
(EUR 2,975.7 million).
On 20 November 2012 Hannover Rück SE placed a EUR 500.0
million subordinated bond on 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.
On 15 September 2014 Hannover Rück SE placed a EUR
500.0 million subordinated bond on the European capital
market. The issue has a perpetual maturity with a first sched-
uled call option on 26 June 2025 and may be redeemed at
each coupon date thereafter. 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.
market. The bond has a maturity date of 18 April 2028 and
may be redeemed at any time from 18 January 2028 onwards,
although not later than 18 April 2028. It carries a fixed cou-
pon of 1.125% p. a.
Long-term debt and notes payable
On 18 April 2018 Hannover Rück SE placed a senior bond
with a volume of EUR 750.0 million on the European capital
On 9 October 2019 Hannover Rück SE placed subordinated
debt in the amount of EUR 750 million on the European cap-
ital market. The bond has a total maturity of 20 years with a
first scheduled call option on 9 July 2029. It carries a fixed
coupon of 1.125% p.a. in the first ten years, after which the
interest rate basis changes to a floating rate of 3-month EU-
RIBOR +238 basis points.
Hannover Rück SE, 2021
1.375
2042
EUR
737,496
1,919
(6,406)
741,983
EUR
2039
1.125
Hannover Rück SE, 2019
512,583
5,411
2,038
495,433
EUR
2040
1.75
Hannover Rück SE, 2020
741,247
5,227
(7,237)
743,257
15,112
On 8 July 2020 Hannover Rück SE placed subordinated debt
in the amount of EUR 500.0 million on the European capital
market. The bond has a total maturity of around 20 years with
a first scheduled call option on 8 July 2030. It carries a fixed
coupon of 1.75% p.a. in the first roughly ten years, after
which the interest rate basis changes to a floating rate of
3-month EURIBOR +300 basis points.
5,406
(5,326)
47,759
Recognised in profit or loss
Current service costs
8,172
5,502
Past service cost and plan curtailments
357
2,761
Net interest component
1,151
2,163
440
641
9,680
10,426
440
641
Recognised in cumulative other
comprehensive income
56,910
Actuarial gain (-)/loss (+) from change in
249,636
Position at 1 January of the financial year
2.85
2.49
1.96
1.69
Hannover Re | Annual Report 2021
231
Annual financial statements
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
N 61
2021
2020
2021
2020
Defined benefit obligation
Fair value of plan assets
in EUR thousand
2021
Impact of minimum funding
requirement/asset ceiling
2020
286,162
biometric assumptions
838
Actuarial gain (-)/loss (+) from change in
Employer contributions and deferred
5,834
5,745
compensation
Benefit payments
(5,148)
(5,233)
(347)
(352)
Additions and disposals
(88)
(61)
(81)
(8)
Changes in the consolidated group
Effects of plan settlements
(90)
(56)
26
Employer contributions
Other changes
7
3,099
financial assumptions
(23,389)
29,205
Experience gains (-)/losses (+)
663
3,117
Return on plan assets, excluding amounts
included in interest income
Change in asset ceiling
(5,350)
Exchange differences
3,931
7
1,333
(872)
1,263
(832)
(20,555)
31,450
(1,057)
(2,320)
On 22 March 2021 Hannover Rück SE placed subordinated
debt in the amount of EUR 750.0 million on the European
capital market. The bond has a total maturity of around 21
years and a first scheduled call option on 30 December 2031.
It carries a fixed coupon of 1.375% p.a. in the first roughly
eleven years, after which the interest rate basis changes to a
floating rate of 3-month EURIBOR +233 basis points.
6.12 Financing liabilities
Annual financial statements
N 63
(+/- 0.5%)
Parameter increase
(22,548)
Parameter decrease
25,486
(+/- 0.25%)
(+/- 0.25%)
1,410
8,088
(1,406)
(7,745)
Furthermore, a change is possible with respect to the as-
sumed 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
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 contribu-
tions. The expense recognised for these obligations in the fi-
nancial year in accordance with IAS 19 “Employee Benefits”
was EUR 23.5 million (EUR 22.2 million), none of which (EUR
0 million) was attributable to commitments to employees in
key positions. Of the expense for defined contribution plans,
an amount of EUR 10.2 million (EUR 10.3 million) relates to
state pension schemes, thereof EUR 7.7 million (EUR 8.0 mil-
lion) to contributions to the statutory pension insurance
scheme in Germany.
in this way would have produced a EUR 10.1 million (EUR
10.1 million) higher pension commitment at the end of the
financial year.
Hannover Re | Annual Report 2021
233
Annual financial statements
6.11 Other liabilities
Other liabilites
In the current financial year Hannover Re anticipates contri-
bution payments of EUR 5.9 million under the plans set out
above. The weighted average duration of the defined benefit
obligation is 17.8 (18.7) years.
N 64
Rate of compensation increase
Pension indexation
in EUR thousand
Provisions for pensions
in EUR thousand
Projected benefit obligations at 31 December of the financial year
Fair value of plan assets at 31 December of the financial year
Effect of minimum funding requirement on asset ceiling
Recognised pension obligations at 31 December of the financial year
thereof: Capitalised assets
Provisions for pensions
N 62
2021
269,961
2020
286,162
61,699
56,910
7
208,269
229,252
481
208,750
229,252
Of the total provisions for pensions, an amount of EUR
205.8 million (EUR 226.0 million) is attributable to employ-
er-funded obligations and EUR 3.0 million (EUR 3.3 million)
to employee-funded obligations.
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
Discount rate
2020
in EUR thousand
Liabilities from derivatives
in EUR thousand
Provisions for
Balance at
31 December 2020
Currency
Balance at
translation at 1 January of the
1 January year under review
Audits and costs of publishing the annual financial statements
Consultancy fees
6,775
164
6,939
3,038
226
3,264
Suppliers' invoices
4,538
161
4,699
Partial retirement arrangements and early retirement obligations
1,900
The following table shows the net loss reserve for the proper-
ty and casualty reinsurance business group in the years 2011
to 2021 as well as the run-off of the reserve (so-called run-off
triangle). The figures reported for the 2011 balance sheet
We enter into term repurchase agreements (repos) as a sup-
plementary liquidity management tool. The asset portfolios
exchanged in this context are fully collateralised. As at the
balance sheet date the liabilities from repos recognised in the
sundry liabilities amounted to EUR 89.8 million (EUR 24.1
million).
2.3 million) from interests in private equity funds that had still
to be recognised in income as at the balance sheet date.
538,813
681,867
Interest
Deferred income and prepayments received
Sundry non-technical provisions
Sundry liabilities1
Total
1 Restated pursuant to IAS 8
With regard to the liabilities from derivatives in an amount of
EUR 75.1 million (EUR 85.3 million), please see our explana-
tory remarks on derivative financial instruments in section
8.1 "Derivative financial instruments and financial guaran-
tees".
The sundry liabilities include, among other things, trade ac-
counts payable and clearing balances. In addition, they in-
clude distributions within the year of EUR 11.0 million (EUR
Development of sundry non-technical provisions
The reconciliation of the projected benefit obligations with
the recognised provisions for pensions is as follows:
2021
85,286
40,601
34,958
144,329
96,919
182,623
175,892
239,230
145,758
75,084
Holiday entitlements and overtime
13,197
183
8,194
2,344
4
129
(186)
379
17,705
448
608
3,009
16,175
2,798
(69)
509
2,635
2,747
7,044
(2)
312
7,514
8
14,068
687
235
Hannover Re | Annual Report 2021
182,623
111
38,674
61,932
102,920
54,838
164
5,743
36,472
26,159
77,616
(446)
33,605
42,417
6,210
4
137
11
9,601
Rate of compensation increase
Pension indexation
6,162
translation at 31 December 2021
Maturities of the sundry non-technical provisions
The maturities of the sundry non-technical provisions as at
the balance sheet date are shown in the following table:
180,198
4,306
175,892
Total
74,588
722
73,866
Other
69,757
2,754
67,003
Management and staff bonuses
5,667
92
5,575
Anniversary bonuses
13,380
in EUR thousand
Due in one year
Due after one through five years
Due after five years
Balance at
N 65
Currency
Release
Utilisation
Additions
Hannover Re | Annual Report 2021
175,892
182,623
31 December
6,253
70,198
39,714
99,441
135,874
2020
2021
N 66
234
Total
7,035
1.12
7
Discount rate for current service costs
23,507
463,624
Due after ten through twenty years
3,596,204
203,007
3,393,197
489,823
1,611
488,212
Due after twenty years
1,532,264
Deposits
Total
38,419,155
2,358,548
40,777,703
74,750
2,675,923 35,743,232
54,016
2,729,939
1,457,514
1,598,438
3,115
1,595,323
487,131
4,175,093
5,633,143
6,099,433
retro
net
Due in one year
11,505,643
604,687
10,900,956
gross
1,035,542
retro
net
1,460
1,034,082
Due after one through five years
15,685,611
1,327,189
14,358,422
564,159
6,049
558,110
Due after five through ten years
466,290
35,742
4,139,351
2,304,532
38,047,764
1,126
914,897
Due after one through five years
13,080,012
973,471
12,106,541
668,698
5,832
662,866
Due after five through ten years
5,027,070
318,810
4,708,260
489,109
33,802
455,307
Due after ten through twenty years
2,887,331
144,737
916,023
9,227,642
403,350
9,630,992
3,366,788
156,297
3,210,491
7,541,881
192,039
7,349,842
Maturities of the technical reserves
N 57
2020
gross
Loss and loss adjustment
expense reserves
in EUR thousand
gross
retro
net
gross
retro
net
Due in one year
Benefit reserve
in EUR thousand
N 56
Benefit reserve
Seven years later
8,581.9
8,547.2 9,193.2 9,532.7
Eight years later
8,882.8
9,057.8 9,448.0
Nine years later
9,313.1
9,260.5
Ten years later
9,472.2
Loss and loss adjustment expense reserve (net) for the year in question and previous years plus payments made to date on
the original reserve
End of year
One year later
Two years later
Three years later
Four years later
Five years later
16,597.7 17,221.6 17,788.1 19,697.5 21,709.2 22,663.5 22,814.8 24,252.7 26,489.9 27,902.3 32,561.5
16,308.8 16,739.3 17,602.5 19,191.3 20,837.5 21,496.6 22,070.1 23,411.9 25,878.8 27,054.4
8,070.6 8,075.0 8,609.2 9,201.8 8,997.3
7,474.6 7,384.6 8,026.5 8,452.8 8,555.2 8,977.0
Six years later
Five years later
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 2021 financial year for the individual run-off years.
Net loss reserve and its run-off in the property and casualty reinsurance segment
N 55
31.12. 31.12. 31.12. 31.12.
2011 2012 2013 2014
31.12. 31.12. 31.12. 31.12. 31.12.
2015 2016 2017 2018 2019
31.12.
2020
31.12.
2021
One year later
15,914.6 16,385.8 16,962.0 18,061.1 19,403.3 20,511.9 20,768.9 22,503.9 24,749.2
Two years later
Four years later
5,738.7 6,122.9 6,533.8 6,663.3 7,262.0 8,519.0 8,999.5
6,753.8 6,590.9 7,119.9
in EUR million
Loss and loss adjustment expense reserve (from balance sheet)
16,597.7 17,221.6 17,788.1 19,697.5 21,709.2 22,663.5 22,814.8 24,252.7 26,489.9 27,902.3 32,561.5
Cumulative payments for the year in question and previous years
3,139.4 2,913.3 3,197.1 3,515.1 3,275.4 3,754.3 4,795.1 4,874.7 5,599.1 5,466.0
4,878.1 4,539.5 5,002.5 5,262.9 5,192.0 6,010.7 6,855.9 7,573.2 7,900.5
5,814.9
7,614.2 7,650.5 8,366.1 9,436.1
Three years later
2,742,594
15,468.0 15,867.7 15,912.5 17,109.4 18,408.0 19,437.5 20,008.7 21,657.2
14,172.2 14,456.2 14,294.7 15,390.5 16,760.0 18,073.0
0.1
0.4
0.4
0.3
0.2
0.8
1.1
(1.0)
The run-off profit of altogether EUR 848.0 million (EUR 590.5
million) in the 2021 financial year derives above all from pos-
Maturities of the technical reserves
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 bro-
ken down by the expected remaining times to maturity. As
part of our maturity analysis we have immediately deducted
itive run-offs of reserves in the areas of property business as
well as marine and aviation.
the deposits put up as collateral for these reserves, since the
cash inflows and outflows from these deposits are to be allo-
cated directly to the ceding companies. For further explana-
tion of the recognition and measurement of the reserves
please see section 3.1 “Summary of major accounting poli-
cies".
Hannover Re | Annual Report 2021
227
0.56
Maturities of the technical reserves
Loss and loss adjustment
expense reserves
2021
0.3
1.9
As percentage of
original loss reserve
(281.6)
13,534.3 13,769.0 13,491.1 14,746.0 16,219.4
12,849.0 13,164.3 12,959.5 14,302.7
Six years later
Seven years later
Eight years later
12,315.3 12,749.5 12,590.0
Nine years later
12,028.9 12,391.0
11,715.3
14,846.1 15,156.2 15,057.4 16,225.0 17,431.7 18,683.2 19,347.8
Ten years later
Change relative to
previous year
313.7
44.8
11.0
73.9
97.2
69.6
50.7
185.8
282.9
Net run-off result
326,997
Annual financial statements
325,004
116,176
(9,212)
4,275,672
(267,587)
106,964
4,008,085
1,028,172
(73,212)
61,345
(2,393)
966,827
(70,819)
Net book value at 31 December of the
year under review
6,195,961
204,597
5,991,364
5,070,009
165,916
4,904,093
The adequacy of the technical liabilities arising out of our re-
insurance 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 antic-
ipated 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 in-
come by first writing off capitalised present values of future
profits on acquired life reinsurance portfolios and acquisition
costs corresponding to the shortfall. Any remaining differ-
ence is constituted as an additional provision.
Hannover Re | Annual Report 2021
4,391,848
(276,799)
4,115,049
4,904,093
307,895
5,211,988
713,608
65,768
165,916
12,116
178,032
24,023
2,542
737,631
68,310
Development of the unearned premium reserve
unearned premium was estimated using suitable methods.
Premium paid for periods subsequent to the date of the
balance sheet was deferred from recognition within the state-
ment of income.
N 59
in EUR thousand
2021
gross
retro
2020
net
229
gross
net
Net book value at 31 December of the
previous year
5,070,009
Currency translation at 1 January
320,011
Net book value after currency translation
5,390,020
Changes
Currency translation at 31 December
retro
The unearned premium reserve derives from the deferral of
reinsurance premium. The unearned premium is determined
by the period during which the risk is carried and established
in accordance with the information supplied by ceding
companies. In cases where no information was received, the
Annual financial statements
maturities of these deposits are matched to the correspond-
ing shares of the reinsurers in the technical provisions. If
such a share no longer exists the corresponding funds with-
held are reduced to the same extent.
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 ob-
ligations arise on account of pension indexation required by
law.
The rate of compensation increase entails the risk that the
increases in pensionable salaries factored into the trend as-
sumptions 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 be-
low 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 diverg-
ing trend in the future with respect to salary and income
threshold.
The calculation of the provisions for pensions is based upon
the following assumptions:
rate of compensation increase
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.
Disablement entails the risk that the assumed number of re-
tirements from the subportfolio of eligible beneficiaries on
grounds of disability does not correspond to the actual expe-
rience and for this reason increased benefit obligations have
to be met.
Measurement assumptions
in %
A 60
2021
2020
Discount rate for defined
benefit obligation
1.20
0.56
Discount rate for net interest component
0.68
1,993
0.86
pension progression
•
disablement
•
6.9 Contract deposits (liabilities)
The contract deposits on the liabilities side increased by EUR
331.2 million in the year under review from EUR 3,255.5 mil-
lion to EUR 3,586.7 million. The contract deposits item on the
liabilities side essentially encompasses balances deriving
from non-traditional life insurance contracts that are to be
carried as liabilities.
6.10 Provisions for pensions and other post-employment benefit obligations
Pension commitments are given in accordance with the rele-
vant version of the pension plan as amended. The 1968 pen-
sion plan provides for retirement, disability, widows' and or-
phans' 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.
On 1 April 1993 (1 June 1993 in the case of senior executives)
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.
Insurance coverage has been taken out for both the afore-
mentioned pension plans.
From 1997 onwards it has been possible to obtain pension
commitments through deferred compensation. The employ-
ee-funded commitments included in the provisions for ac-
crued pension rights are protected by an insurance contract
with HDI Lebensversicherung AG, Cologne.
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 commit-
ment from HDI Unterstützungskasse e. V. This pension plan
provides for retirement, disability and surviving dependants'
benefits. The provident fund takes out insurance coverage
with HDI Lebensversicherung AG that maps the entire spec-
trum of benefits (matching coverage). These pension commit-
ments are considered to be contribution-based pension bene-
fits under German employment law, and for economic
purposes the pension scheme is classified as a defined bene-
fit plan. The relevant assets of the provident fund are recog-
nised as plan assets.
The funds withheld under reinsurance treaties totalling EUR
632.2 million (EUR 582.3 million) represent the cash and se-
curities deposits furnished to our company by our retroces-
sionaires that do not trigger any cash flows and cannot be
realised without the consent of our retrocessionaires. The
Employees also have the option to accumulate additional, in-
surance-type retirement provision by way of deferred com-
pensation. Pension provisions are not recognised in this re-
gard.
The commitments to employees in Germany predominantly
comprise benefit obligations financed by the Group compa-
nies. The provisions for pensions in Germany and abroad
230
Hannover Re | Annual Report 2021
were calculated on the basis of uniform standards according
to prevailing economic circumstances.
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
widows' benefits. The Heubeck "2018 G standard tables"
were used as the biometric actuarial basis for pension
commitments in Germany. The amount of the commitments is
determined according to length of service and salary level.
The defined benefit plans expose Hannover Re to the follow-
ing actuarial risks:
longevity
currency
• interest rate
In addition to these pension plans, senior executives and
members of the Executive Board, in particular, enjoy individ-
ual commitments as well as commitments given under the
benefits plan of the Bochumer Verband.
7,025,853
6.8 Funds withheld (liabilities)
7,217,988
The parameters used to calculate the benefit reserve are in-
terest 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, prod-
uct type, investment year etc.
The mortality and morbidity rates used are chosen on the ba-
sis of national tables and the insurance industry standard.
228
Hannover Re | Annual Report 2021
Empirical values for the reinsured portfolio, where available,
are also taken into consideration. In this context insights into
the gender, age and smoker structure are incorporated into
the calculations, 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
are made about the aforementioned three parameters and
locked in for the purpose of calculating the benefit reserve. At
the same time, safety/fluctuation loadings are built into each
Development of the benefit reserve
of these components. In order to ensure at all times that the
originally chosen assumptions continue to be adequate
throughout the contract, checks are made on a regular - nor-
mally annual basis in order to determine whether these as-
sumptions need to be adjusted ("unlocked").
The benefit reserve is established in accordance with the
principles set out in SFAS 60. The provisions are based on the
Group companies' information regarding mortality, interest
and lapse rates.
N 58
2021
in EUR thousand
gross
retro
2020
net
gross
retro
ness.
amounts realised. Liabilities in liability and motor reinsur-
ance traditionally have long durations, sometimes in excess
of 20 years, while liabilities in property business are settled
within the first ten years.
The payment patterns are determined with the aid of actuari-
al estimation methods and adjusted to reflect changes in pay-
ment 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 payment patterns used can be compared year for
year by contrasting the projected payments with the actual
-
Due after twenty years
1,090,257
192,135
31,715,662
Deposits
Total
2,213,568
33,929,230
48,143
1,888,511 29,827,151
46,719 2,166,849
1,935,230 31,994,000
1,042,114
net
1,240,193
1,237,528
3,641,020
45,418
3,576,968
7,217,988
146,717
192,135
3,595,602
3,430,251
7,025,853
The average maturity of the loss and loss adjustment expense
reserves was 4.8 years (4.6 years), or 4.8 years (4.6 years)
after allowance for the corresponding retrocession shares.
The benefit reserve had an average maturity of 14.5 years
(13.1 years) - or 14.5 years (13.2 years) on a net basis.
The average maturity of the reserves is determined using ac-
tuarial projections of the expected future payments. A pay-
ment pattern is calculated for each homogenous category of
our portfolio making allowance for the business sector, ge-
ographical considerations, treaty type and the type of reinsur-
ance and applied to the outstanding liabilities for each un-
derwriting year and run-off status.
2,665
Net book value at 31 December of the
A benefit reserve is established for life, annuity, personal ac-
cident 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 re-
serves are set aside for health and personal accident busi-
(238,945)
(391,427)
192,039
Portfolio entries/exits
162,110
4
162,106
(826,518)
(587,573)
Currency translation at 31 December
(7,177)
(240)
(6,937)
58,900
42,015
16,885
Net book value at 31 December of the
year under review
7,349,842
previous year
7,541,881
(494,914)
(298,645)
(103,487)
(15,240)
7,217,988
Currency translation at 1 January
482,845
Net book value after currency translation
7,700,833
192,135
15,380
207,515
7,025,853
852,598
8,175,402
467,465
9,028,000
7,700,028
(72,106)
(475,374)
7,493,318
8,480,520
780,492
(547,480)
Changes
(313,885)
44,011
Assets
Liabilities
Cash flow from operating activities
10,644,455
11,819,576
9,713,753
8,486,738
Cash flow from investing activities
44,011
1,753,635
125,000
thereof attributable to non-controlling interests
Dividends paid
759,698
741,427
thereof attributable to non-controlling interests
2,157,717
563,547
2,105,823
Shareholder's equity
125,000
275,181
N 75
(152,497)
165,558
1,998,499
3,722,549
2020
2021
Europe
Other
France
United Kingdom
Germany
Regional origin
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
Hannover Re | Annual Report 2021
240
(125,000)
(125,000)
Cash flow from financing activities
(455,683)
73,106
(12,177)
(17,711)
(73,518)
Non-controlling interests in partnerships are reported in ac-
cordance with IAS 32 "Financial Instruments: Presentation"
under long-term liabilities. 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 68.9 million (EUR 35.7 million) in the year under review.
Non-controlling interests in the shareholders' equity of sub-
sidiaries are reported separately within Group shareholders'
equity in accordance with IAS 1 “Presentation of Financial
Statements”. They amounted to EUR 871.2 million (EUR
844.4 million) as at the balance sheet date.
6.14 Non-controlling interests
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 15,766 (16,511)
treasury shares during the second quarter of 2021 on the le-
gal basis of § 71 Para. 1 No. 2 Stock Corporation Act (AktG)
and delivered them to eligible employees at preferential con-
The Annual General Meeting of Hannover Rück SE resolved
on 5 May 2021 that a gross dividend of EUR 4.50 per share
should be paid for the 2020 financial year, corresponding to a
total distribution of EUR 542.7 million (EUR 633.3 million).
The Executive Board is further authorised, with the consent
of the Supervisory Board, to acquire treasury shares - includ-
ing through the use of derivatives - up to an amount of 10%
of the share capital. The authorisation has a time limit of 5
May 2025.
Conditional capital of up to EUR 24,119 thousand is available.
It can be used to grant shares to holders of bonds and/or
profit-sharing rights with conversion rights and warrants and
has a time limit of 4 May 2026. In addition, authorised capital
is available in an amount of up to EUR 24,119 thousand,
which similarly has a time limit of 4 May 2026. The subscrip-
tion right of shareholders may be excluded with the consent
of the Supervisory Board under certain conditions. The Exec-
utive Board is authorised, with the consent of the Supervisory
Board, to use an amount of up to EUR 1,000 thousand of the
existing authorised capital to issue employee shares.
Hannover Re | Annual Report 2021
238
The common shares (share capital of Hannover Rück SE)
amount to EUR 120,597,134.00. They are divided into
120,597,134 voting and dividend-bearing registered ordinary
shares in the form of no-par-value shares. The shares are paid
in full. Each share carries an equal voting right and an equal
dividend entitlement.
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 In-
struments: Disclosure and Presentation” in conjunction with
IAS 39 "Financial Instruments: Recognition and Measure-
ment". 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.
6.13 Shareholders' equity and treasury shares
372,705
2,975,730
82,841
3,431,276
313
3,262
10,908
14,483
(5,091)
(27,464)
3,461,968
89,201
(5,256)
(22,373)
3,406,117
2,977,724
The increase in the other reserves arising out of currency
translation, which is recognised in equity, was attributable in
a net amount of EUR 97.1 million (decrease of EUR 61.2 mil-
lion in the previous year) to the translation of long-term debt
or loans with no maturity date extended to Group companies
and branches abroad.
The disclosures on capital management arising out of IAS
1.134 136 "Presentation of Financial Statements" are pro-
vided in the "Financial position and net assets" subsection of
the management report, to which the reader is referred. This
includes both a presentation of our capital management ob-
jectives and procedures (page 57 et seq., subsection entitled
"Investment policy”) and a description of our policyholders'
surplus (page 59 et seq., subsection entitled "Management of
policyholders' surplus"), together with a summary of the di-
verse external capital requirements to which we are subject.
The Solvency II regulatory framework, in particular, gives rise
to capital requirements and consequences for capital man-
agement, which we discuss more closely on pages 87 et seq.
of the risk report.
ditions. These shares are blocked until 31 May 2025. This
transaction resulted in an expense of EUR 0.5 million (EUR
0.5 million), which was recognised under personnel expendi-
ture, as well as a negligible change in retained earnings rec-
ognised in equity. The company was no longer in possession
of treasury shares as at the balance sheet date.
Hannover Re | Annual Report 2021
Total recognised income and expense
Income/expense recognised directly in equity
25,210
51,624
thereof attributable to non-controlling interests
71,603
146,624
Net income
35.21%
35.21%
93,955
2020
35.21%
35.21%
Hannover, Germany
E+S Rückversicherung AG,
2021
Participation of non-controlling interests
Voting rights of non-controlling interests
in EUR thousand
Subsidiaries with material non-controlling interests
Annual financial statements
239
N 74
1,034,597
1 Restated pursuant to IAS 8
3,253,195
11,772
233
Impairments on fixed-income securities
55,615
63,180
Impairments on real estate
63,971
36,114
Change in fair value of financial instruments
70,222
225,867
Realised losses on investments
399,832
506,893
Realised gains on investments
1,145
Appreciation
88,129
35,743
Profit or loss on investments in associated companies
1,240,420
Impairments on participating interests and other financial assets
25,397
62,006
Other investment expenses
1 Restated pursuant to IAS 8
(278)
Financial assets - at fair value through profit or loss
Other
Total
Fixed-income securities - available for sale
Fixed-income securities - held to maturity
Fixed-income securities - loans and receivables1
in EUR thousand
Interest income on investments
The portfolio did not contain any overdue, unadjusted assets
as at the balance sheet date since overdue securities are writ-
ten down immediately.
The impairments taken on fixed-income securities amounted
to just EUR 0.2 million (EUR 11.8 million).
Of the impairments totalling EUR 50.4 million (EUR 92.8 mil-
lion), an amount of EUR 24.9 million (EUR 32.3 million) was
attributable to private equity. An impairment loss of EUR 24.8
million (EUR 19.0 million) was recognised on real estate and
real estate funds.
1,555,591
1,685,468
194,562
1,943,012
Interest expense on funds withheld and contract deposits
Total investment income
347,788
462,812
Interest income on funds withheld and contract deposits
1,463,703
1,674,762
Net income from assets under own management
129,034
146,047
126,023
Ordinary investment income
81,214
365,224
1,848,562
4,340,543
4,463,120
1 Restated pursuant to IAS 8
Total
Other
Africa
Australasia
Australia
Asia
1,653,305
8,185,890
North America
1,126,354
1,494,412
Other¹
7,059,536
8,194,528
USA
9,010,246
10,008,840
2,751,329
9,688,940
1,099,165
6,311,682
622,441
Other investment income
990,246
1,006,895
4,532
6,363
2020
164,428
N 76
177,109
2021
Interest income1
5,993,848
Dividends
in EUR thousand
Investment income
7.2 Investment income
Annual financial statements
241
Hannover Re | Annual Report 2021
1,062,273
24,770,342
27,762,314
1,130,411
518,085
Income from real estate
395,043
2020
Other
Changes
Long-term debt
in EUR thousand
N 69
mated using other financial assets with similar rating, dura-
tion and return characteristics. Under the effective interest
rate method the current market interest rate levels in the rel-
evant fixed interest periods are always taken as a basis.
Net gains and losses from long-term debt and notes payable
The aggregated fair value of the extended subordinated loans
is based on quoted, active market prices. If such price infor-
mation was not available, fair value was determined on the
basis of the recognised effective interest rate method or esti-
381,586
3,660,694
32,136
280,123
943
7,938
372,705
3,348,435
Long-term debt
Total
3,279,108
31,193
272,185
2,975,730
571,098
12,603
59,636
498,859
Notes payable
Total
2021
2020
The ordinary expenses principally include interest expenses
of nominally EUR 75.6 million (EUR 83.3 million) resulting
from the issued subordinated and senior bonds.
(95,476)
(89,393)
(3,575)
(86,595)
(79,331)
(8,881)
(10,062)
(313)
(3,262)
(358)
(3,779)
(4,137)
EUR
(91,901)
(83,333)
(8,568)
(9,704)
(75,552)
Net result
Amortisation
Ordinary income/expenses
2020
2021
2020
2021
(85,256)
2043
5.00
Hannover Finance
(Luxembourg) S.A., 2012
40,513
494,942
EUR
2040
1.75
Hannover Rück SE, 2020
Notes payable
in EUR thousand
Fair value
Accrued
interest
2,038
measure-
ment
Fair value
Amortised
Currency
Maturity
Coupon
2020
N 68
Long-term debt and notes payable
1
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 in-
come, 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 financial assets, which include the technical deriva-
tives, income and expenses from changes in fair value are
also recognised.
cost
Maturities of financial liabilities
537,493
1.125
572,297
8,692
66,761
496,844
EUR
n/a
3.375
Hannover Rück SE, 2014
828,901
5,941
Hannover Rück SE, 2019
78,848
EUR
2028
1.125
Hannover Rück SE, 2018
769,319
1,919
26,427
740,973
EUR
2039
744,112
31 Decem-
ber 2020
in EUR thousand
Long-term debt
Notes payable
in EUR thousand
Long-term Debt
Reconciliation of financing liabilities
Total
Lease liabilities
Notes payable
Long-term Debt
in EUR thousand
Reconciliation of financing liabilities
The following table shows the movements in long-term debt,
notes payable and other long-term liabilities with respect to
cash and non-cash changes.
1 Excluding sundry non-technical provisions and derivative financial instruments; the maturities of the these items are broken down separately
496,844
531,425
1,238,209
32,566
496,844
498,859
1,235,915
99,666
744,112
13,578
857,356
29,757
306,142
4,250
177,101
Lease liabilities
Total
Balance at
Cash Flow
31 December
2020
Non-cash items
Exchange
Rate
Difference
2019
Cash Flow
Balance at
31 December
Balance at
N 73
535,386
3,722,316
112,553
4,370,255
358
3,779
38,375
42,512
5,803
30,957
865,510
2,690
104,128
(14,466)
25,154
137,169
372,705
2,975,730
82,841
3,431,276
ber 2021
31 Decem-
Balance at
N 72
Other
Changes
Rate
Difference
Non-cash items
Exchange
742,807
Total
Lease liabilities
Notes payable
497,490
1,242,496
35,568
28,945
1,237,416
3,489
153,642
744,914
33,733
933,000
31,277
364,171
4,525
332,458
3,961
119,382
711
3,410
329,484
No maturity
1,269,850
More than
twenty years
Five to
ten years
One to
five years
Three
months to
one year
304,618
23,315
115,421
Less than
three months
2021
N 70
Total
Lease liabilities
Notes payable
Ten to
twenty years
Other financial liabilities1
1,278,064
Excluding sundry non-technical provisions and derivative financial instruments; the maturities of these items are broken down separately
2,294
3,346
273,039
Long-term debt
No maturity
More than
twenty years
Ten to
twenty years
ten years
five years
Five to
One to
497,490
Three
months to
one year
172,851
Other financial liabilities¹
in EUR thousand
three months
Less than
N 71
2020
Maturities of financial liabilities
Annual financial statements
237
Hannover Re | Annual Report 2021
101,438
N 77
Treasury shares
2021
20201
2021
N 82
Reinsurance recoverables
Change in deferred acquisition costs (gross)
Reinsurance recoverables
Commissions paid (gross)
in EUR thousand
Commission and brokerage, change in deferred acquisition costs
Hannover Re | Annual Report 2021
244
15
114
15
114
2020
2021
6,073,534
5,567,985
283,639
236,042
in EUR thousand
Other income/expenses
7.4 Other income/expenses
Restated pursuant to IAS 8
1
5,111,753
5,788,582
Commissions and brokerage, change in deferred acquisition costs (net)
N 81
(8,159)
67,373
106,273
Reinsurance recoverables
Change in provision for contingent commissions (gross)
(35,726)
(3,192)
259,996
102,826
1,568
Other income
Other technical income (net)
Other technical income (gross)
(298,645)
Commissions
Net change in benefit reserve
(103,487)
(298,645)
Change in benefit reserve
16,782,658
18,617,725
Claims and claims expenses
2,879,431
4,312,687
Change in loss and loss adjustment expense reserve
13,903,227
14,305,038
Claims and claims expenses paid
21,360,810
24,143,766
(103,487)
5,789,895
5,331,943
Change in deferred acquisition costs
in EUR thousand
Other technical income
ment.
The effects of the Covid-19 pandemic increased the losses in
the year under review by altogether EUR 582.0 million. They
are entirely allocable to the life and health reinsurance seg-
With regard to the claims and claims expenses as well as the
change in the benefit reserve, the reader is also referred to
section 8.1 “Derivative financial instruments and financial
guarantees". The change in the benefit reserve relates exclu-
sively to the life and health reinsurance segment. The admin-
istrative expenses amounted to altogether 2.1% (2.2%) of
net premium earned.
Restated pursuant to IAS 8
1
478,182
(912,762)
Reinsurance recoverables
4,466
75,532
104,705
Net technical result
Administrative expenses
Other acquisition costs
Change in provision for contingent commissions
295,722
106,018
4,767
510,707
(479,370)
2021
N 83
2020
Other insurance-related services
47,717
38,521
Brokerage commissions, performance fees and similar forms of remuneration
Revenue realised at a point in time
2020
N 84
2021
in EUR thousand
Revenue categories
Annual financial statements
245
Hannover Re | Annual Report 2021
With regard to the fundamental approach adopted for app-
lication of IFRS 15 we would refer to the remarks in section
3.1 "Summary of major accounting policies".
The other income includes revenues from contracts with cus-
tomers set out below in accordance with IFRS 15.
The sharp decline in exchange gains and the increase in ex-
change losses are essentially the result of the US dollar's up-
ward revaluation against the euro. The sundry income in-
cludes a fee for early contract termination in our US mortality
portfolio amounting to EUR 59.1 million. The sundry expens-
es include the amortisation of the PVFP in an amount of EUR
2.2 million (EUR 5.3 million). For details we would refer to
section 6.6 "Other assets".
441,369
6,913
6,934
Revenue realised over time
Other insurance-related services
Total
Hannover Re | Annual Report 2021
246
Further revenues of EUR 0.0 million (EUR 0.1 million) were
generated in this revenue category.
An amount of EUR 0.5 million (EUR 1.1 million) was also
earned on the North American market from the performance
of administrative activities. The transaction price corresponds
to the agreed contract price. The performance obligation is
deemed to be satisfied when the administrative activities
specified in the contract were carried out.
In this context revenues of EUR 6.4 million (EUR 5.7 million)
were realised on the South African market which are connect-
ed with commission-based business but cannot be character-
ised as commissions. The transaction price is arrived at as a
percentage of the underlying gross premium share. The per-
formance obligation is deemed to be fulfilled at a point in
time upon issuance of the insurance certificate for the end
customer.
In addition, revenues of EUR 6.9 million (EUR 6.9 million)
were realised at a point in time in the year under review from
other insurance-related services.
Further revenues of EUR 0.8 million (EUR 1.1 million) were
generated in this revenue category.
An amount of EUR 5.2 million (EUR 3.5 million) was earned
on the UK and Swedish markets from the performance of
management services. The performance obligation is consid-
ered to have been fulfilled when the administrative activities
specified in the contract were carried out. The transaction
prices in this regard are measured essentially by the underly-
ing general fee scales.
271,185
tractually agreed services. Further revenues as defined by
IFRS 15 were generated from the transfer of use of applica-
tion software used for the underwriting of insurance risks.
These amounted to EUR 4.1 million (EUR 3.5 million) in the
year under review and are deemed to be earned over a period
of time when the customer makes use of the software. In both
cases the transaction price is derived from the contractually
agreed contract prices.
On the German market revenues of EUR 8.6 million
(EUR 7.9 million) were generated. These relate in large part
to transfers of use for IT. The underlying transaction prices
are derived from the contractually agreed contract prices and
are realised pro rata temporis as the customer makes use of
the IT.
In addition, other revenues known as "binder fees" were
earned from administrative activities on the South African
market in an amount of EUR 16.1 million (EUR 14.1 million).
The transaction price is calculated from a percentage rate in
relation to the gross premium of the underlying insurance
contracts. Binding fees are earned over a period of time.
This involves revenues from administrative services amount-
ing to EUR 28.0 million (EUR 25.4 million) that were generat-
ed on the Lloyd's markets in the United Kingdom and in the
Asia-Pacific region. The transaction prices are essentially cal-
culated according to the underlying general fee scales as well
as a percentage share of the gross premium. The revenues
from the administrative services described here are largely
earned over a period of three to four years and realised pro
rata temporis in accordance with the contractual term.
An amount of EUR 66.4 million (EUR 59.3 million) was real-
ised over time in the current financial year in connection with
other insurance-related services.
Further revenues of EUR 0.8 million (EUR 0.8 million) were
generated in this revenue category.
The brokerage commissions, performance fees and similar
forms of remuneration in an amount of EUR 38.5 million
(EUR 47.7 million) were realised at a point in time. Of this
amount, EUR 37.7 million (46.9 million) is attributable to bro-
kerage commissions earned by Group-internal insurance in-
termediaries.
59,330
113,981
66,429
111,863
On the North American market revenues of EUR 3.6 million
(EUR 3.8 million) were earned from the assumption of admin-
istrative tasks. The performance obligation is considered to
have been fulfilled when the company has rendered the con-
Total
382,022
503,631
774,816
17,191
80,616
Sundry income
54,562
50,036
Other interest income
112,326
823,391
Income from services
387,663
Income from contracts recognised in accordance with the deposit accounting method
11,465
3,970
Reversals of impairments on receivables
280,300
140,205
Exchange gains
344,592
Total net technical income
Other expenses
15,283
53,760
69,137
73,855
68,786
89,666
99,842
Sundry expenses
Expenses for the company as a whole
Expenses for services
Other interest expenses
18,952
Separate value adjustments on receivables
2,181
985
Expenses from contracts recognised in accordance with the deposit accounting method
131,165
217,739
Exchange losses
12,443
31,859
15
115,281
61,345
21,360,795
384
4,198
Fixed-income securities
At fair value through profit or loss
11,021
123
127
11,017
Short-term investments
470,181
33,250
149,528
353,903
Other invested assets
49,858
49,296
562
4,582
Other financial assets
2,278
31,193
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
1,820,809
36,114
87,665
281,026
177,055
(360)
Equity securities
54,059
174,634
1,591,334
Total
Other
4,917
4,897
20
Other invested assets
33,471
56,840
in EUR thousand
989,027
22,967
PN 78
Net gains and losses on investments
Hannover Re | Annual Report 2021
242
Making allowance for the other investment expenses of EUR
146.0 million (EUR 129.0 million), net income from assets un-
der own management of altogether EUR 1,674.8 million (EUR
1,463.7 million) was recognised in the year under review.
990,246
23,732
20,295
1,006,895
13,275
4,198
862,853
897,154
82,175
81,041
8,211
4,207
114
in EUR thousand
Ordinary
investment
income 1
Realised gains
966,293
Fixed-income securities
76,711
153
76,558
Fixed-income securities
Loans and receivables
3,986
233
(183)
Fixed-income securities
Held to maturity
management²
Net income from
assets under own
Change in
fair value
2021
Impairments/
appreciation
and losses
4,169
2020
Available for sale
Realised gains
Including income from associated companies, for reconciliation with the consolidated statement of income
2 Excluding other investment expenses
1
1,592,737
63,971
129,393
329,610
199,515
(3,988)
3 Restated pursuant to IAS 8
42,249
5,533
746
4,787
65,461
65,461
18,568
1,752
228,469
1,328,549
17,283
Total
3,541
Annual financial statements
24,023
24,143,652
Ordinary
investment
income 1
(1,028,172)
(737,631)
2,442,720
20201
24,770,342
N 80
27,762,314
2,905,054
243
2021
Net premium earned
Change in ceded unearned premium
Change in unearned premium
Ceded written premium
Gross written premium
in EUR thousand
Reinsurance result
7.3 Reinsurance result
Other technical income
Other
Hannover Re | Annual Report 2021
Other financial assets
Fixed-income securities
81,781
4,003
77,778
Fixed-income securities 3
Loans and receivables
7,802
(61)
789,598
7,863
Held to maturity
Net income from
assets under own
management2
N 79
fair value
Change in
Other invested assets
and losses
Impairments/
appreciation
Fixed-income securities
293,281
Available for sale
129
Fixed-income securities
19,297
115,544
8,129
11,772
105
19,321
Short-term investments
75,243
(65)
190,852
Other invested assets
6,736
1,393
Equity securities
1,071,107
13,275
At fair value through profit or loss
One to
Less than
one year
100,164
(704)
(909)
2021
5,946
Notional values
five years
Fair values
Fair values
Notional values
Fair values
Share price hedges
Notional values
Fair values
Inflation hedges
Notional values
N 91
Currency hedges
Notional values
Total hedging instruments
Five to
(9)
More than
ten years
2,012
Fair values
27,064
641
(9)
641
27,064
2,012
3,720,541
46,141
401,221
311,335
2,961,844
(34,291)
(5,105)
(11,517)
(8,966)
(8,703)
106,110
(1,613)
31.12.2021
ten years
Interest rate hedges
Total
Maturity structure of derivative financial instruments
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.
Derivatives are financial instruments, the fair value of which
is derived from an underlying trading instrument such as eq-
uities, bonds, indices or currencies. We use derivative finan-
cial 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 spe-
cial care to limit the risks, select first-class counterparties and
adhere strictly to the standards defined by investment guide-
lines.
8.1 Derivative financial instruments and financial guarantees
8. Other notes
Annual financial statements
249
302,930
288,211
14,719
14,719
185,412
200,131
14,257
14,257
88,542
88,542
Unlimited
More than
ten years
Six to
ten years
One to
five years
N 90
Hannover Re | Annual Report 2021
(7,395)
2,994,854
Total
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 1.8 million (EUR 4.2 million) and other fi-
nancial assets at fair value through profit or loss in an amount
of EUR 0.1 million (EUR 0.0 million).
in EUR thousand
Hannover Re's portfolio contained derivative financial instru-
ments as at the balance sheet date in the form of forward ex-
change transactions taken out to hedge currency risks. These
transactions gave rise to recognition of other liabilities in an
The decrease in equity from hedging instruments recognised
directly in equity pursuant to IAS 39 in an amount of EUR 0.4
million (EUR 0.8 million) derived solely from the forward ex-
change transactions taken out to hedge currency risks from
long-term investments in foreign operations. These hedging
instruments resulted in the recognition of other liabilities of
EUR 0.3 million (EUR 1.0 million).
Notional values
Fair values
Total hedging instruments
Notional values
Fair values
Share price hedges
Notional values
Fair values
Inflation hedges
Notional values
Fair values
Currency hedges
Notional values
Fair values
Interest rate hedges
in EUR thousand
Maturity structure of derivative financial instruments
Hannover Re | Annual Report 2021
250
The maturities of the fair values and notional values of the
hedging instruments described above can be broken down as
follows:
In order to hedge the risk of share price changes in connec-
tion with the stock appreciation rights granted under the
share award plan, Hannover Re has taken out hedges since
2014 in the form of so-called equity swaps. The fair value of
these instruments was recognised in an amount of EUR 2.0
million under other receivables (EUR 0.0 million recognised
under other liabilities) as at the balance sheet date. The
hedge gave rise to an increase in equity from hedging instru-
ments recognised directly in equity in an amount of EUR 0.7
million (decrease of EUR 10.0 million recognised directly in
equity).
amount of EUR 50.3 million (EUR 46.5 million) and other fi-
nancial assets at fair value through profit or loss in an amount
of EUR 16.4 million (EUR 7.2 million).
(9,884)
412,140
A number of transactions concluded in the Life & Health rein-
surance business group in previous years, under which Han-
nover Re companies offer their contracting parties coverage
for risks from possible future payment obligations arising out
of hedging instruments, are also to be classified as derivative
financial instruments. The payment obligations result from
contractually defined events and relate to the development of
an underlying group of primary insurance contracts with stat-
utory reserving requirements. The contracts are to be catego-
rised and recognised as stand-alone credit derivatives pursu-
ant to IAS 39. These derivative financial instruments were
carried in equity on initial recognition. Please see section 6.6
"Other assets". The fair value of these instruments was EUR
25.3 million (EUR 31.6 million) on the balance sheet date and
was recognised under other financial assets at fair value
through profit or loss. The change in value in subsequent pe-
riods is dependent upon the risk experience and led to an
improvement in investment income of EUR 34.8 million (EUR
38.6 million) in the financial year.
(5,105)
46,141
7,159
46,468
Net amount
Other collateral
received/
furnished
received/
furnished
Cash collateral
Netting
agreement
Fair value
2020
N 94
3,464
34,416
5,788
5,585
49,253
5,897
6,640
5,585
18,122
received/
furnished
furnished
received/
5,975
Net amount
1,184
18,625
Loss carry-forwards
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. Trans-
actions between Hannover Rück SE and its subsidiaries,
which are to be regarded as related parties, were eliminated
through consolidation and are therefore not discussed in the
notes to the consolidated financial statement. In the year un-
8.2 Related party disclosures
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-
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
utilisation is considered probable. This was not the case as at
the balance sheet date.
swaps in the event of a claim are reimbursed by the parent
companies of the cedants by way of compensation agree-
ments. In this case the reimbursement claims from the com-
pensation agreements are to be capitalised separately from
and up to the amount of the provision.
All in all, application of the standards governing the account-
ing for derivatives in connection with the technical account
led to recognition of assets totalling EUR 231.9 million (EUR
227.5 million) as well as recognition of liabilities in an amount
of EUR 22.6 million (EUR 33.7 million) from the derivatives
resulting from technical items as at the balance sheet date.
Improvements in investment income amounting to EUR 90.6
million (EUR 82.5 million) as well as charges to income of
EUR 50.2 million (EUR 7.6 million) were recognised in the
year under review from all separately measured derivatives in
connection with the technical account.
At the end of the 2017 financial year an index-linked cover
was written for longevity risks. The resulting derivative was
recognised as at the balance sheet date with a positive fair
value of EUR 4.6 million under other financial assets at fair
value through profit or loss (EUR 2.2 million under other lia-
bilities). The change in the fair value of the derivative gave
rise to income of EUR 9.6 million (expense of EUR 1.6 mil-
lion) in the course of the year.
Structured transactions were entered into in the life and
health reinsurance business group in order to finance statuto-
ry 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 com-
pany of the Hannover Re Group. The total amount of the con-
tractually agreed capacities of the transactions is equivalent
to EUR 2,651.7 million (EUR 2,447.3 million); an amount
equivalent to EUR 1,988.1 million (EUR 1,901.8 million) had
been taken up as at the balance sheet date. The variable pay-
ments to the special purpose entities that are guaranteed by
the Hannover Re Group cover their payment obligations. Un-
der some of the transactions the payments resulting from the
Financial guarantees
In the area of life and health reinsurance a reinsurance treaty
with a financing component was also written in the past un-
der which the amount and timing of the return flows are de-
pendent on lapse rates within an underlying primary insur-
ance portfolio. This treaty and a corresponding retrocession
agreement, which were classified as financial instruments
pursuant to IAS 39, resulted in the recognition of other liabil-
ities of EUR 22.2 million (EUR 26.5 million) and other finan-
cial assets at fair value through profit or loss in an amount of
EUR 135.8 million (EUR 123.1 million). Altogether, these ar-
rangements gave rise to an improvement in income of EUR
2.3 million (EUR 6.3 million) in the year under review.
tastrophes or terrorist attacks. The risk swap is indexed
against a weighted combination of US, UK and Australian
population mortality. Payment under the cover is triggered
proportionately between 110% and 120% of the mortality
index. The derivative was recognised with a positive fair val-
ue of EUR 39.2 million (EUR 4.7 million under other liabili-
ties) under other financial assets at fair value through profit
or loss. The change in the fair value of the derivative gave rise
to income of EUR 43.9 million (EUR 3.7 million) in the course
of the year.
Hannover Re | Annual Report 2021
252
The portfolio contains a hedge against an extreme increase in
mortality that protects the Hannover Re Group against a rise
in mortality rates, for example due to pandemics, natural ca-
A derivative financial instrument was also unbundled from
another similarly structured transaction in previous years.
This gave rise to recognition of other financial assets at fair
value through profit or loss in an amount of EUR 26.0 million
(EUR 57.6 million). The performance of this derivative re-
duced the result by EUR 35.2 million (improvement of EUR
33.9 million) in the financial year.
course of the year gave rise to an expense of EUR 15.0 million
before tax (EUR 6.0 million).
reinsurance
Hannover Re calculates the fair values of the embedded de-
rivatives 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 has no value on the
date when the contract commences and its value then fluctu-
ates over time according to changes in the credit spreads of
the securities. The derivative had a positive value of EUR 1.0
million (EUR 15.2 million) as at the balance sheet date and
was recognised under other financial assets at fair value
through profit or loss together with an amount of EUR 0.4
million (EUR 0.3 million) recognised under other liabilities. In
total, the change in the fair value of the derivative over the
Within the scope of the accounting of "modified coinsurance"
and "coinsurance funds withheld" (ModCo) reinsurance trea-
ties, under which securities deposits are held by the ceding
companies and payments rendered on the basis of the income
from certain securities of the ceding company, the inter-
est-rate risk elements are clearly and closely related to the
underlying reinsurance arrangements. Embedded derivatives
consequently result solely from the credit risk of the underly-
ing securities portfolio.
Derivative financial instruments in connection with
A number of treaties in life and health reinsurance meet crite-
ria which require application of the stipulations contained in
IFRS 4 "Insurance Contracts” governing embedded deriva-
tives. These accounting regulations require that certain deriv-
atives embedded in reinsurance contracts be separated from
the underlying insurance contract (“host contract"), reported
separately at fair value in accordance with IAS 39 "Financial
Instruments: Recognition and Measurement" and recognised
under investments. Fluctuations in the fair value of the deriv-
ative components are to be recognised through profit and
loss in subsequent periods.
4,248
5,975
Other collateral
Cash collateral
Netting
agreement
1,141,322
(40,249)
(10,033)
(20,492)
(9,724)
99,063
95,880
3,183
(4,200)
(3,359)
(841)
ten years
31.12.2020
More than
Five to
ten years
One to
five years
Less than
one year
2020
N 92
3,854,356
(33,901)
598,729
173,105
1,913,156
(11)
22,943
Fair value
2021
N 93
Derivative liabilities
Derivative receivables
in EUR thousand
Netting agreements
Derivative liabilities
Derivative receivables
in EUR thousand
(11,517)
401,221
Netting agreements
251
Hannover Re | Annual Report 2021
mally do not meet the criteria for netting in the balance sheet,
since Hannover Re has no legal right whatsoever at the pres-
ent 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.
Hannover Re enters into derivative transactions on the basis
of standardised master agreements that contain global net-
ting agreements. The netting agreements set out below nor-
The net changes in the fair value of these instruments re-
duced the result of the financial year by EUR 3.8 million (EUR
12.3 million).
(44,460)
2,035,162
(11)
22,943
(10,033)
173,105
(23,851)
694,609
(10,576)
1,167,448
Annual financial statements
Temporary differences
Total
Expiry of non-capitalised loss carry-forwards and temporary differences
409,274
422,689
Tax loss carry-forwards
Deferred tax assets
2020
2021
in EUR thousand
N 87
Deferred tax assets and deferred tax liabilities of all Group companies
The following table presents a breakdown of the deferred tax
assets and liabilities into the balance sheet items from which
they are derived.
Annual financial statements
247
Hannover Re | Annual Report 2021
205,086
351,569
96,818
(39,225)
122,873
200,429
(18,940)
112,764
Loss and loss adjustment expense reserves
4,335
653,572
Benefit reserve
Value adjustments¹
50,843
62,886
Other valuation differences
57,395
87,990
Valuation differences relating to investments
505,768
712,092
Accounts receivable/reinsurance payable
11,462
1,820
Deferred acquisition costs
90,229
96,924
Funds withheld
70,567
71,671
Other technical/non-technical provisions
187,742
65,986
504,809
Total
77,601
N 86
in EUR thousand
Domestic/foreign breakdown of recognised tax expenditure/income
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
Actual tax for the year under review
in EUR thousand
Income tax
Deferred tax liabilities on profit distributions of significant af-
filiated companies are established in the year when they are
received.
Tax-relevant bookings on the Group level are made using the
Group tax rate unless they refer specifically to individual
companies.
tax rates.
16.8%. This therefore gives rise to a Group tax rate (rounded)
of 32.7% (32.7%). The deferred taxes at the companies
abroad were calculated using the applicable country-specific
The breakdown of actual and deferred income taxes was as
follows:
Breakdown of taxes on income
An unchanged tax rate of 32.63% was used to calculate the
deferred taxes of the major domestic companies. It is arrived
at from the corporate income tax rate of 15.0%, the German
solidarity surcharge of 5.5% and a trade earnings tax rate of
The reader is referred to the remarks in section 3.1 "Summa-
ry of major accounting policies” regarding the basic approach
to the recognition and measurement of deferred taxes.
Actual taxes on income at the domestic companies, compara-
ble actual 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
Current taxes
2020
Germany
Deferred taxes
2021
205,086
351,569
19,651
(22,719)
8,601
22,134
(27,436)
28,313
218,875
133,476
(72,172)
(59,664)
57,567
250,029
2020
2021
N 85
der review the following significant business relations existed
with related parties.
Abroad
Germany
Abroad
(75,962)
(87,571)
2,099,668
(82,582)
Tax-exempt income
74.471
126,484
Non-deductible expenses
(145.007)
(157,250)
Differences in tax rates affecting subsidiaries
8.601
22,134
Change in tax rates
367.506
540,135
Expected expense for income taxes
32.7%
32.7%
Group tax rate
2020
1,123,871
N 89
1,651,790
Profit before taxes on income
(61.789)
2021
Tax expense/income not attributable to the reporting period
(41.633)
Availability of loss carry-forwards that have not been capital-
ised:
No deferred taxes were established on liabilities-side taxable
temporary differences amounting to EUR 24.3 million
(EUR 50.4 million) in connection with interests in Group
companies because the Hannover Re Group can control their
reversal and will not reverse them in the foreseeable future.
Excess deferred tax assets are recognised with respect to
losses in the year under review or in the previous year only to
the extent that, based on strong evidence, it is likely that the
company concerned will generate sufficiently positive taxable
results in the future. This evidence was provided for deferred
tax assets of EUR 30.9 million (EUR 1.1 million).
der review (previous year: EUR 16.2 million). This is opposed
by deferred tax income of EUR 25.5 million (previous year:
none) from the reassessment of earlier write-downs.
largely by a significantly increased pre-tax profit and a slight-
ly higher effective tax rate than in the previous year of 21.3%
(18.2%).
The write-down of deferred tax assets recognised in previous
years did not result in a deferred tax expense in the year un-
In the year under review the actual taxes on income were
reduced by EUR 0.8 million (EUR 2.3 million) because loss
carry-forwards were used for which no deferred tax assets
were established.
The assets-side unadjusted deferred taxes on loss carry-
forwards amounting to EUR 349.8 million (EUR 329.7 mil-
lion) will probably be realised in an amount of EUR 34.1 mil-
lion (EUR 67.7 million) within one year and in an amount of
EUR 315.7 million (EUR 262.0 million) in the subsequent
years.
Availability of non-capitalised loss carry-forwards
Unused tax loss carry-forwards of EUR 1,875.6 million
(EUR 1,828.2 million) existed as at the balance sheet date.
Of existing tax loss carry-forwards, EUR 302.9 million
(EUR 385.6 million) was not capitalised in consideration of
local tax rates because their realisation is not sufficiently
certain.
The expense for income taxes in the financial year was EUR
146.5 million higher than in the previous year at EUR 351.6
million (EUR 205.1 million). This development was driven
205.086
999
8,204
351,569
(17.713)
(68,131)
Actual expense for income taxes
Other
Trade tax modifications
19.651
(22,719)
Value adjustments on deferred taxes/loss carry-forwards
(14,706)
in EUR thousand
Reconciliation of the expected expense for income taxes with the actual expense
Hannover Re | Annual Report 2021
983
1,263
27,958
1,349,086
1,502,324
Deferred tax liabilities
Total
Other valuation differences
Valuation differences relating to investments
Accounts receivable/reinsurance payable
Deferred acquisition costs
Funds withheld
Equalisation reserve
29,222
Other technical/non-technical provisions
42,668
1,213,550
1,577,804
Benefit reserve
39,957
Loss and loss adjustment expense reserves
Deferred tax liabilities
1,800,518
235,015
199,370
169,698
303,788
248
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.
In view of the unrealised components of profit and loss recog-
nised directly in equity in the financial year, actual and de-
ferred tax income including amounts attributable to
non-controlling interests – of EUR 178.5 million (tax expense
of EUR (192.0) million) was also recognised directly in equity.
2020
597,986
2,731,648
2,133,662
N 88
676,344
2,836,374
2,160,030
2021
ther netting was made based on the timing of the reversal of
temporary differences and other offsetting possibilities, ulti-
mately resulting in the following disclosure of deferred tax
assets and deferred tax liabilities in the balance sheet:
Net deferred tax liabilities
Deferred tax liabilities
in EUR thousand
Deferred tax assets
Netting of deferred tax assests and deferred tax liabilities
The deferred tax assets and deferred tax liabilities are shown
according to their origin in the above table. Deferred taxes
resulting from a single transaction and with respect to which
the corresponding temporary valuation differences are simul-
taneously reversed were already netted on recognition. Fur-
1 Thereof on tax loss carry-forwards: EUR -72.871 thousand (EUR -79.543 thousand)
2,133,662
3,934,180
4,259,698
2,160,030
117,316
147,757
679,461
556,658
in EUR thousand
Talanx AG holds an unchanged majority interest of 50.22% in
Hannover Rück SE. For its part, Haftpflichtverband der
Deutschen Industrie Versicherungsverein auf Gegenseitigkeit
(HDI), Hannover, holds a stake of 79.0% in Talanx AG.
17,620
Premium
1,817,764
70,662
(13,626)
7,939
1,888,426
(5,687)
1,689,044
71,511
1,760,555
(46,776)
20,427
(75,713)
(65,277)
Assets
Funds withheld
Deferred acquisition costs
Accounts receivable
85,289
280,676
688,885
10,436
933,151
17,668
11,564
(62,496)
(9,417)
13,232
2021
Property and
casualty
reinsurance
Life and
health
reinsurance
Total
Property and
casualty
reinsurance
20201
Life and
health
reinsurance
Total
1,804,465
(38,018)
29,844
142,586
19,099
1,673,324
(105,557)
134,007
19,853
1,807,331
(85,704)
13,299
24,392
(71,924)
(11,160)
(58,625)
15,720
1,947,051
(18,919)
Material items in the balance sheet
1,018,440
298,344
700,449
784,123
Restated pursuant to IAS 8 for own additional reserves not recognised in the prior year that were established in previous years supplementary to the
actual figures provided by cedants.
254
1
43,043
18,676
24,367
663,479
663,479
Hannover Re | Annual Report 2021
828,212
2,930,497
46,269
95,746
98
828,114
2,884,228
3,422,207
91,708
972,152
810,913
90,753
22,352
68,401
Reinsurance payable
95,746
51,966
In addition, other assets of EUR 162.0 million (EUR 3.0 mil-
lion) as well as other liabilities of EUR 33.8 million (EUR 36.3
million) exist with respect to Talanx AG and its subsidiaries
which are not part of the scope of consolidation of Hannover
Re.
HDI Lebensversicherung AG, Cologne, participated in a nom-
inal amount of EUR 50.0 million in the subordinated bond is-
sued by Hannover Rück SE in September 2014 with a coupon
of 3.375%.
836,089
245,179
21,942
267,121
521,810
14,566
536,376
Liabilities
In the context of a bond issue by Talanx AG the Group com-
panies Hannover Rück SE and E+S Rückversicherung AG in-
vested 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-in-
come securities held to maturity, was EUR 48.3 million (EUR
48.3 million) including accrued interest of EUR 1.3 million
(EUR 1.3 million).
Loss and loss adjustment expense
3,371,974
Benefit reserve
Unearned premium reserve
972,009
50,233
91,708
143
Remuneration and shareholdings of the management
A provision of altogether EUR 9.4 million (EUR 8.6 million)
was established for the remuneration of the active members
of the Executive Board of Hannover Re. Of this, EUR 3.8 mil-
lion (EUR 3.5 million) is fixed remuneration and an anticipat-
ed EUR 5.6 million (EUR 5.1 million) variable remuneration.
In the event of 100% target attainment the remuneration of
the Executive Board consists of a 40% short-term fixed com-
ponent and a 60% variable component. Each member of the
Executive Board receives a contractual commitment to cus-
tomary target remuneration which is aligned with their scope
of responsibility and their expertise and experience of rele-
vance to the position. The long-term incentive is paid out at
the end of the four-year performance period in the 2026
financial year.
Hannover Rück SE has concluded agreements with Ampega
Asset Management GmbH, HDI Global Specialty SE, Talanx
Reinsurance Broker GmbH and Svedea AB that enable these
companies to use software for screening sanctions lists.
Within the contractually agreed framework Ampega Asset
Management GmbH performs investment and asset manage-
ment services for Hannover Rück SE and the vast majority of
its subsidiaries. A total amount of EUR 52.6 million (EUR 48.7
million) was expensed for the rendering of these services in
the financial year just ended. Ampega Real Estate GmbH also
performed services for Hannover Re until June 2021 under a
number of management contracts, although in the course of
the year it was merged into Ampega Asset Management
GmbH. These contracts have been continued by Ampega As-
set Management GmbH.
reserve
Underwriting result
Contract deposits
Total
Since 2004 a service agreement has existed between Han-
nover Rück SE, E+S Rückversicherung AG and Talanx Rein-
surance Broker GmbH regarding the use of market security
services and access to the business partner information sys-
tem of Hannover Rück SE.
boards of the parent company
mance share awards). For a detailed explanation of the long-
term incentive (LTI) we would refer to section 8.3 "Share-
based payment". The short-term incentive (STI) is geared to
Hannover Re's commercial success in the respective financial
year. The basis for payment under the STI is the contractually
defined STI target amount, which is based on overall target
attainment of 100%. The overall target attainment (including
the individual premium or deduction) can range from 0% to
200%. The amount paid out under the STI is thus limited to
200% of the target amount. In addition to the return on equi-
ty as a financial performance criterion, an individual premium
or deduction is also determinative for the STI. The latter en-
compasses both financial and non-financial performance cri-
teria, particularly including sustainability targets. The amount
of the premium or deduction, which can range from -25 per-
centage points to +25 percentage points, is determined by the
Supervisory Board at its reasonable discretion. The criteria
and key performance indicators used to establish the individ-
Hannover Re | Annual Report 2021
255
Annual financial statements
ual premium or deduction are defined by the Supervisory
Board in advance for the coming financial year and communi-
cated to the members of the Executive Board. The STI for the
2021 financial year amounts to EUR 2.2 million. In the pre-
vious year the total amount was split into EUR 3.1 million
short-term, EUR 1.0 million medium-term and EUR 1.0 mil-
lion long-term variable remuneration.
The fixed remuneration is granted in three components,
namely fixed remuneration, fringe benefits and retirement
provision. The fixed remuneration is aligned with the scope of
duties and the professional experience of the individual mem-
ber of the Executive Board. In addition, each member of the
Executive Board receives certain, non-performance-based
fringe benefits in the customary scope, for example a compa-
ny car and insurance coverage. These amounted to EUR 0.1
million (EUR 0.1 million). The benefits after termination of
the employment relationship for the most part consist of a
defined contribution retirement plan, which only takes the
form of a final salary pension commitment for one member of
the Executive Board. Altogether, a pension expense for the
active members of the Executive Board amounting to EUR 1.3
million (EUR 1.0 million) was recognised for 2021.
The total remuneration of former members of the Executive
Board and their surviving dependants, for whom 16 (17) pen-
sion commitments existed, amounted to EUR 1.8 million
(EUR 3.7 million) in the year under review. Of this, EUR 1.9
million was attributable in the previous year to payments due
to the termination of an employment relationship. Altogether,
a provision of EUR 31.2 million (EUR 34.5 million) has been
set aside for pension commitments.
The exclusively short-term total remuneration of the Supervi-
sory Board of Hannover Re amounted to EUR 1.1 million
(EUR 0.9 million). Of this, EUR 0.8 million (EUR 0.3 million)
was fixed remuneration; a variable component no longer ex-
isted in 2021 (in 2020: EUR 0.3 million). In addition, remu-
neration of EUR 0.2 million (EUR 0.1 million) was paid for
committee work together with EUR 0.1 million (EUR 0.1 mil-
lion) in attendance allowances. A further EUR 0.1 million
(EUR 0.1 million) arose in connection with supervisory board
remuneration at Group companies. There are no pension
commitments for former members of the Supervisory Board
or their surviving dependants.
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 bod-
ies or their related parties in the year under review. Further-
more, above and beyond the aforementioned remuneration as
supervisory board members at Group companies, the mem-
bers of the Supervisory Board were not granted any remuner-
ation or benefits for personally rendered services.
8.3 Share-based payment
In the year under review the following share-based payment
plans with cash settlement existed within the Hannover Re
Group:
810,913
•
Stock Appreciation Rights Plan (in effect since 2000,
cancelled in stages from 2011 onwards and currently
being wound up)
• Share Award Plan (valid since 2011)
Stock Appreciation Rights Plan
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 mana-
gerial staff. The content of the stock option plan is based sole-
ly 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 appreciation rights. Exercise of
the stock appreciation rights does not give rise to any entitle-
ment to the delivery of shares of Hannover Rück SE, but
merely to payment of a cash amount linked to the perfor‐
mance of the Hannover Rück SE share.
The Conditions for the Granting of Stock Appreciation Rights
were cancelled for all eligible recipients. Awarded stock ap-
preciation rights continue to be exercisable until the end of
their period of validity.
Stock appreciation rights were first granted for the 2000 fi-
nancial year and were awarded separately for each subse-
quent financial year (allocation year) until cancellation of the
plan, provided the performance criteria defined in the Condi-
tions for the Granting of Stock Appreciation Rights were sat-
isfied.
The term of the stock appreciation rights is ten years, com-
mencing 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 exercise 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 appreci-
ation rights awarded for this allocation year to a member of
Hannover Rück SE has concluded a service contract with HDI
Service AG in the area of flight services as well as a contract
regarding the reciprocal provision of business continuity
management services.
Since 2012 a service agreement has existed between Han-
nover Rück SE and Talanx AG regarding the use of data ac-
quisition software for Group accounting purposes.
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 re-
gard corresponding agreements have been concluded with
altogether nine Hannover Re companies.
tract.
Underwriting result
Premium
Business ceded
Underwriting result
Premium
Business assumed
income
Material items in the statement of
in EUR thousand
N 95
The reinsurance relationships with related parties in the year
under review and the previous year are shown with their total
amounts in the following table.
256
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 that are not included in the Hannover Re Group's con-
solidation. This includes business both assumed and ceded
at usual market conditions. By far the bulk of the premium
from business assumed in an amount of EUR 1.4 billion
(EUR 1.3 billion) - is attributable to Hannover Rück SE and its
subsidiaries.
Business assumed and ceded in Germany and abroad
Talanx Reinsurance Broker GmbH and Talanx AG grant Han-
nover Rück SE and E+S Rückversicherung AG a preferential
position as reinsurers of cedants within the Talanx Group. In
Companies belonging to the Talanx Group granted the
Hannover Re Group insurance protection inter alia in the are-
as of public liability, building, contractors all risks, group ac-
cident and business travel insurance. Divisions of Talanx AG
also performed services for the Hannover Re Group in the
areas of taxes and general administration. Divisions of
Hannover Rück SE performed services in connection with the
insurance and reinsurance business of HDI Global Specialty
SE, a joint venture of Hannover Rück SE and HDI Global SE.
The business relationship between Hannover Rück SE and its
subsidiary E+S Rückversicherung AG is based on a coopera-
tion agreement. A retrocession by Hannover Rück SE to E+S
Rückversicherung AG exists in property and casualty reinsur-
ance. E+S Rückversicherung AG and Hannover Rück SE bear
exclusive responsibility for German business and for interna-
tional markets respectively.
Annual financial statements
253
Hannover Re | Annual Report 2021
With effect from 1 January 2021 the variable component of
the Executive Board remuneration is split into a short-term
incentive (40%) and a long-term incentive (60%) (HR perfor-
Under long-term lease arrangements companies belonging to
the Hannover Re Group rented out business premises in 2015
to HDI Service AG, Hannover.
Furthermore, IT and management services were performed
for Talanx Reinsurance Broker GmbH, Hannover, under ser-
vice contracts.
Actuarial opinions with respect to the pension commitments
given to staff are drawn up for Hannover Rück SE and E+S
Rückversicherung AG by HDI Pensionsmanagement AG and
HDI Lebensversicherung AG under an actuarial service con-
addition, Hannover Rück SE and E+S Rückversicherung AG
are able to participate in the protection covers on the reten-
tion 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 GmbH or Talanx AG.
Hannover Re | Annual Report 2021
2019
4,981
57,642
64,902
Other adjustments1
(837)
(1,835)
Total
69,607
53,200
62,679
53,419
52,381
65,516
76,431
64,867
7,198
74,439
This figure results from originally granted share awards that have since lapsed.
Development of the provision for share awards of Hannover Rück SE
Allocation year
Total
2021
2020
2018
2017
2016
2015
in EUR thousand
Provision at
31 December 2019
1,895
1
N 101
45,103
58,471
Share Award-Plan
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. The Annual Gen-
eral Meeting 2021 modified and expanded the share awards
exercised. The total amount paid out stood at EUR 0.13 mil-
lion.
for the Executive Board with effect from the 2021 financial
year ("performance shares").
The Share Award Plan replaced the cancelled Stock Appreci-
ation Rights Plan. The share awards do not establish any
claim against Hannover Re to the delivery of stock, but mere-
ly to payment of a cash amount in accordance with the condi-
tions set out below.
Hannover Re | Annual Report 2021
257
Annual financial statements
The members of the Executive Board and management of
Hannover 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/em-
ployment relationship exists at the time when the share
awards are granted and does not end through cancellation or
a termination agreement on an effective date prior to expiry
of the vesting period.
Share awards were granted separately for the first time for
the 2011 financial year and then for each financial year (allo-
cation year) thereafter. The first payout of share awards took
place in the 2016 financial year for those share awards that
had been allocated in the 2011 financial year to the eligible
members of the Executive Board. In the 2017 financial year
the first payout was also made to the participating senior ex-
ecutives.
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 con-
ditions applicable to members of the Executive Board a peri-
od of five trading days before to five trading days (from 2021
onwards in each case 15 trading days) after the meeting of
the Supervisory Board that approves the consolidated finan-
cial statement for the financial year just-ended is envisaged
for the calculation. For senior executives a period of 20 trad-
ing 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 prices calculated in this way also determine the payout
value of the share awards that have become payable. The to-
tal 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 Executive Board
20% (from 2021 onwards 60%) and for senior executives
40% or 35% - according to management levels - of the de-
fined variable remuneration shall be granted in the form of
share awards. From the 2021 financial year onwards the cal-
culation of the share awards for the Executive Board is based
on the target amount, which - depending on the entrepre-
neurial and personal target achievement - produces an allo-
cation value that is at most 200% of the target amount.
The share awards are granted automatically without any re-
quirement for a declaration. Following expiry of a vesting pe-
riod of four years the value of one Hannover Re share calcu-
lated at the disbursement date is paid out for each share
award. This value is calculated according to the provisions of
the preceding paragraph. The amount paid out for the perfor-
mance shares is additionally influenced by the development
of the Total Shareholder Return (TSR). The TSR captures the
share price performance as well as the dividends during the
vesting period. The TSR of Hannover Re is considered in re-
lation to the unweighted average TSR of a peer group, com-
prised of Munich Re, Swiss Re, Everest Re, RGA and SCOR,
and produces the relative TSR. The base amount paid out de-
rived from the share price and dividends is multiplied by this
TSR, producing the final amount paid out – which is at most
200% of the base amount paid out.
The eligible recipient shall be paid an amount that corre-
sponds to the sum total of the values of the share awards cal-
culated 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.
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 divi-
dends shall only be paid out for the period until occurrence of
the event that triggers early disbursement. No pro rata
allowance shall be made for dividends that have not yet been
distributed.
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 of-
fice/voluntary 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 rea-
son. 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.
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, occur-
rence of the pensionable event or death.
The Share Award Plan of Hannover Rück SE gives rise to the
amounts shown in the following table.
258
Hannover Re | Annual Report 2021
Share awards of Hannover Rück SE
Valuation date
2021
2020
Anticipated
allocation
In the 2021 financial year the waiting period expired for
100% of the stock appreciation rights awarded in 2011. 4,147
stock appreciation rights from the 2011 allocation year were
0.13
32.21
32.21
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 publication of the quarterly
report of Hannover Rück SE.
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.
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. In the event of cancel-
lation or termination of the employment relationship as a con-
sequence 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 ap-
preciation rights not exercised in this period and those in re-
spect of which the waiting period has not yet expired shall
lapse. Retirement, disability or death of the member of man-
agement shall not be deemed to be termination of the em-
ployment relationship for the purpose of exercising stock ap-
preciation rights.
The allocation for the year 2011 gave rise to commitments in
the 2021 financial year shown in the following table. No fur-
ther commitments exist after the 2021 financial year.
Stock appreciation rights of Hannover Rück
Award date
Period
Waiting period
Basic price (in EUR)
Participants in year of issue
Number of rights granted
Fair value at 31 December 2021 (in EUR)
Final Anticipated
Maximum value (in EUR)
Number of rights existing at 31 December 2021
Provisions at 31 December 2021 (in EUR million)
Amounts paid out in the 2021 financial year (in EUR million)
Expense in the 2021 financial year (in EUR million)
N 96
Allocation year
2011
15.3.2012
10 years
4 years
40.87
143
263,515
32.21
Weighted exercise price
67,421
Final Anticipated
2019
156.39
172.30
129.38
117.70
111.32
104.90
Number of allocated
share awards in the
allocation year
Executive Board
25,130
7,851
9,214
7,993
7,278
7,882
9,010
9,060
9,537
Senior Executives
44,477
45,349
53,465
45,426
12,187
130.30
147.06
167.15
104.90
2018
Final Anticipated
allocation allocation
2021 for
allocation allocation
2020 for
allocation
allocation
2019 for
2020
2019
2018
N 97
2017
Allocation year
Final Anticipated
allocation allocation
2018 for
Senior Executives
Valuation per share
award in EUR
Executive Board
30.12.2021 17.03.2021 30.12.2020 18.03.2020 30.12.2019 14.03.2019 28.12.2018 16.03.2018 29.12.2017
30.12.2021 24.03.2021 30.12.2020 25.03.2020 30.12.2019 21.03.2019 28.12.2018 23.03.2018 29.12.2017
Executive Board
Senior Executives
167.15
150.42
130.30
139.04
172.30
129.60
117.70
111.65
2017
15,691
N 98
Allocation 2020
2024
2025
2026
Subsequent years
The rental payments receivable result from the long-term
renting out of properties by the Group's real estate compa-
nies. The leases in question are operating leases. The rental
income received in the financial year amounted to EUR 137.0
million (EUR 139.6 million).
Hannover Re | Annual Report 2021
2023
N 104
100,487
97,533
87,940
74,145
67,856
207,926
Amounts receivable
2022
(EUR 0.3 million). The total amounts payable for leases came
to EUR 14.5 million (EUR 12.2 million).
in EUR thousand
N 103
2020
429
2021
413
11,728
51
891
10,966
13,083
80
893
12,368
The interest expenses for lease liabilities totalled EUR 3.7
million (EUR 3.6 million). Expenses in connection with short-
term leases were recognised in an amount of EUR 0.4 million
Rented properties
Future minimum lease payments receivable
263
The following amounts were recognised in the statement of
income in connection with leases.
Annual financial statements
At its meeting on 8 March 2018 the Supervisory Board of
Hannover Re appointed PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft (PwC GmbH) as the auditor
of the consolidated financial statement of Hannover Re as de-
301
10,000
190
391
325
3,392
9,606
41,952
2,898
The fees for other assurance services relate to legally or con-
tractually required reviews. The fees for other services en-
compass, for example, consultancy services in connection
with the adoption of IFRS 17.
The auditor responsible for performance of the audit engage-
ment as defined by § 38 Para. 2 of the Professional Charter for
Accountants/Certified Auditors (Berufssatzung WP/vBP) as
amended on 21 June 2016 is Mr. Mathias Röcker. He first
served as the engagement partner responsible for the audit of
the annual and consolidated financial statements effective
31 December 2018.
264
Hannover Re | Annual Report 2021
8.10 Events after the balance sheet date
The impacts of the armed conflict that broke out in February
on the territory of Ukraine cannot be assessed at the present
point in time. Even though direct consequences of war are
normally excluded from reinsurance coverage, the possibility
cannot be ruled out that losses may occur in specialty lines
and that the sanctions threatened in this connection could
indirectly affect Hannover Re.
The fee for services relating to auditing of the financial state-
ments performed by PwC GmbH includes above all the fees
for the auditing of the consolidated financial statement in-
cluding legally required extensions of the mandate, the re-
view report on the interim report as well as audits of annual
financial statements and audits of the Solvency II balance
sheets of the subsidiaries included in the consolidated finan-
cial statement.
186
135
225
Fee paid to the auditor
fined by § 318 German Commercial Code (HGB). The expense
recognised for the fees paid to PwC GmbH and worldwide
member firms of PwC International Limited (PwC) in the year
under review can be broken down as follows:
in EUR thousand
Services relating to auditing of the financial
statements
Other assurance services
Other services
Total
2021
PwC worldwide
N 105
2020
thereof
PwC GmbH
PwC worldwide
thereof
PwC GmbH
9,474
3,067
9,029
8.9 Fee paid to the auditor
A number of large loss events have already occurred in the
early weeks of 2022. They include severe winter storms that
swept across Central Europe with high wind speeds and a car
carrier adrift on fire southwest of the Azores in the Atlantic.
The amount of the insured losses and our participation in
them cannot yet be reliably estimated. Nevertheless, we do
not currently expect our pro rata large loss budget for the first
quarter to be exceeded as a consequence of this group of
claims.
Total
Own-use real estate
The lawsuits pending in the year under review and as at the
balance sheet date were not material for the Hannover Re
Group either individually or combined. Furthermore, there
were no contingent liabilities from lawsuits to report as at the
balance sheet date.
8.7 Contingent liabilities and commitments
Hannover Rück SE has secured by subordinated guarantee
the subordinated debt issued by Hannover Finance (Luxem-
bourg) S.A. in the 2012 financial year in an amount of EUR
500.0 million.
The guarantee given by Hannover Rück SE for the subordi-
nated debt attaches if the issuer fails to render payments due
under the bonds. The guarantee covers the nominal amount
as well as interest due until the repayment dates. Given the
fact that interest on the bond is partly dependent on the cap-
ital 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.
Hannover Re | Annual Report 2021
tinue 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
Hannover Re takes into account a number of factors. These
include, among others, the nature of the claim, the status of
the procedure concerned, decision of courts and arbitration
bodies, prior settlement discussions, experience from compa-
rable cases as well as expert opinions and the assessments of
legal advisers and other experts. If a provision has been es-
tablished for a particular procedure, a contingent liability is
not recognised.
261
As security for technical liabilities to our US clients, we have
established two trust accounts (master trust and supplemen-
tal trust) in the United States. They amounted to EUR 4,305.4
million (EUR 3,939.7 million) and EUR 295.9 million (EUR
208.6 million) respectively as at the balance sheet date. The
securities held in the trust accounts are shown as availa-
ble-for-sale investments. In addition, we furnished further
collateral to ceding companies in an amount of EUR 3,947.1
million (EUR 2,814.5 million) in the form of so-called "single
trust funds”. This amount includes a sum equivalent to EUR
3,131.8 million (EUR 2,464.4 million) which was furnished by
investors as security for potential reinsurance obligations
from ILS transactions.
As part of our business activities we hold collateral available
outside the United States in various blocked custody accounts
and trust accounts, the total amount of which in relation to
the Group's major companies was EUR 3,210.1 million (EUR
3,065.2 million) as at the balance sheet date.
The securities held in the blocked custody accounts and trust
accounts are recognised predominantly as available-for-sale
investments.
Letter of credit (LoC) facilities existed with a number of finan-
cial institutions as at the balance sheet date in a total volume
equivalent to EUR 2,646.8 million (EUR 2,816.2 million) and
with various terms maturing at the latest in 2026.
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 1,264.2 million (EUR 1,448.4 million).
A number of LoC facilities include standard market contractu-
al 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 materialisation of major events, for example if
our rating is significantly downgraded. Please see also our
explanatory remarks in the “Financial position and net as-
sets" subsection of the management report, page 63 et seq.,
on the information pursuant to § 315a Para. 1 German Com-
mercial Code (HGB).
Annual financial statements
-
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 as-
sessment of probability and the quantification of these uncer-
tain liabilities in large measure require estimates that may
prove not to be accurate as the proceedings in question con-
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/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 es-
tablished in each case covers the expense that can be expect-
ed in our assessment as at the balance sheet date.
2021
1,231,334
120,597,003
10.21
10.21
2020
883,073
120,596,996
7.32
7.32
Hannover Re | Annual Report 2021
The earnings per share is calculated by dividing the net in-
come attributable to the shareholders of Hannover Rück SE
by the weighted average number of shares outstanding with-
in 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 previous year, slightly low-
er than the value of the shares in circulation on the balance
sheet date. In the context of the employee share option plan
Hannover Re acquires treasury shares and sells them at a lat-
er date to eligible employees. The weighted average number
Dividend per share
A dividend of EUR 542.7 million (EUR 663.3 million) was paid
in the year under review for the 2020 financial year.
It will be proposed to the Annual General Meeting on 4 May
2022 that a dividend of EUR 4.50 as well as a special dividend
of shares does not include 15,766 (16,511) treasury shares
pro rata temporis for the duration of the holding period. For
further details please see our comments in section 6.13
"Shareholders' equity and treasury shares".
There were no other extraordinary components of income
which should have been recognised or disclosed separately in
the calculation of the earnings per share.
The earnings per share could potentially be diluted in future
through the issue of shares or subscription rights from the
authorised or conditional capital.
of EUR 1.25 per share should be paid for the 2021 financial
year. This corresponds to a total distribution of EUR 693.4
million. The dividend proposal does not form part of this con-
solidated financial statement.
8.6 Lawsuits
We put up own investments with a book value of EUR 41.9
million (EUR 37.3 million) as collateral for existing derivative
Fixtures, fittings and equipment
Sundry assets
transactions. We received collateral with a fair value of EUR
14.4 million (EUR 2.8 million) for existing derivative transac-
tions.
Outstanding capital commitments with respect to alternative
investments exist on the part of the Group in an amount of
EUR 1,588.2 million (EUR 1,275.6 million). These primarily
involve as yet unfulfilled payment obligations from invest-
ment commitments given to private equity funds and venture
capital firms.
2020
33,391
31,215
68,636
42,821
140
2021
54
1,456
82,841
The allocation to the right-of-use assets amounted to
EUR 35.7 million (EUR 9.2 million) in the financial year.
The increase can be attributed primarily to the long-term
leasing of new office space.
Amortisation of right-of-use assets in connection with leases
in EUR thousand
Investment property
1,159
112,553
N 102
Lease liabilities
Sundry assets
Group companies are members of the association for the re-
insurance of pharmaceutical risks and several atomic and nu-
clear pools. The failure of one of the other pool members to
meet its liabilities would result in an additional call according
to the quota participation.
Hannover Rück SE has provided an open-ended guarantee
limited to EUR 11.9 million in favour of the pension fund "The
Congregational & General Insurance Plc Pension and Life As-
surance Scheme" at usual market conditions.
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 liabili-
ties could arise in the future.
Hannover Re enters into contingent liabilities as part of its
normal business operations. A number of reinsurance treaties
concluded by Group companies with outside third parties in-
clude letters of comfort, guarantees or novation agreements
under which Hannover Rück SE guarantees the liabilities of
the subsidiary in question or enters into the rights and obliga-
tions of the subsidiary under the treaties if particular constel-
lations materialise.
262
Hannover Re | Annual Report 2021
8.8 Leases
Leased properties
Hannover Releases various office premises, technical faci-
lities, office equipment and vehicles. A long-term land
lease agreement also exists in connection with investment
property.
The following items were recognised in the balance sheet as
at 31 December 2021 in connection with leases.
Leases in the balance sheet
in EUR thousand
Investment property
Own-use property
Fixtures, fittings and equipment
As security for liabilities in connection with participating in-
terests in real estate companies and real estate transactions
the usual collateral under such transactions has been fur-
nished to various banks, the amount of which totalled EUR
922.4 million (EUR 662.3 million) as at the balance sheet
date.
Hannover, 4 March 2022
2,469
104
까
EUR 15.5 million (EUR 4.9 million). This consists of the ex-
pense for share awards of the 2021 financial year as well as
the dividend claim and the additionally earned portion of the
share awards granted in earlier financial years. The value of
the share awards finally granted is also influenced by move-
ments in the share price. The sum total of the dividends in-
cluded in the expenditures on personnel for earlier financial
years amounted to EUR 1.0 million (EUR 1.4 million). The
distributed dividend is recognised, with no allowance made
for expected dividend payments. Dividend claims are recog-
nised in the discounted amounts.
The personnel expense for share awards in the case of mem-
bers 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 senior executives
the personnel expense is spread across the relevant term of
the share awards. The allocation of the financial year recog-
nised in the expenditures on personnel totalled altogether
-
non-technical provisions
recognised under the sundry
amounted to EUR 31.1 million
(EUR 30.9 million) as at the balance sheet date.
The aggregate provision
Hannover Re | Annual Report 2021
- - 31,065
8,741
5,326
3,765
2,638
31 December 2021
Provision at
10,595
259
Annual financial statements
Executive Board
31.12.
Average
31.12.
30.9.
30.6.
31.3.
2020
2021
N 99
Personnel information
by the Hannover Re Group, with 1,477 (1,407) employed in
Germany and 1,869 (1,811) 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 3,298 (3,132). As at the bal-
ance sheet date altogether 3,346 (3,218) staff were employed
Staff
8.4 Staff and expenditures on personnel
With regard to the effects of the equity swaps taken out to
hedge price risks, please see our explanatory remarks in sec-
tion 8.1 "Derivative financial instruments and financial guar-
antees".
1,973
Average
608
655
1,209
14,747
14,747
944
105
90
70
Provision at
Release 2020
4,853
13
500
1,040
1,398
1,902
Utilisation 2020
31 December 2020
1,902
3,293
Release 2021
13,322
15,511
1,227
13,322
Utilisation 2021
3,595
3,500
2,688
1,863
2,638
Allocation 2021
30,849
12,095
7,608
5,951
710
Number of employees
In the year under review the 8,629 share awards of the Exec-
utive Board finally allocated in 2016 with a value of EUR
150.42 each plus the dividend entitlement of EUR 20.75 were
paid out to the eligible members of the Executive Board. The
69,744 share awards of the senior executives for the 2016 fi-
nancial year were paid out in 2021 with a value of EUR 147.06
each plus the dividend entitlement of EUR 20.75.
Executive Board)
We have audited the consolidated financial statements of
Hannover Rück SE, Hanover, and its subsidiaries (the Group),
which comprise the consolidated statement of financial posi-
tion as at December 31, 2021, and the consolidated statement
of comprehensive income, consolidated statement of profit or
loss, consolidated statement of changes in equity and con-
solidated statement of cash flows for the financial year from
January 1 to December 31, 2021, and notes to the consoli-
dated financial statements, including a summary of signifi-
cant accounting policies. In addition, we have audited the
group management report of Hannover Rück SE, which is
combined with the Company's management report - which
comprise the content included to comply with the German
legal requirements as well as remuneration report pursuant
to § [Article] 162 AktG [Aktiengesetz: German Stock Corpo-
ration Act], including the related disclosures, included in sec-
tion,,Remuneration report" of the group management report
for the financial year from January 1 to December 31, 2021.
In accordance with the German legal requirements, we have
not audited the content of those parts of the group manage-
ment report listed in the "Other Information" section of our
auditor's report.
In our opinion, on the basis of the knowledge obtained in the
audit,
•
•
the accompanying consolidated financial statements
comply, in all material respects, with the IFRSS as adopt-
ed by the EU, and the additional requirements of Ger-
man commercial law pursuant to § 315e Abs. [para-
graph] 1 HGB [Handelsgesetzbuch: German Commercial
Codel and, in compliance with these requirements, give
a true and fair view of the assets, liabilities, and financial
position of the Group as at December 31, 2021, and of
its financial performance for the financial year from
January 1, to December 31, 2021, and
the accompanying group management report as a whole
provides an appropriate view of the Group's position. In
all material respects, this group management report is
consistent with the consolidated financial statements,
complies with German legal requirements and appro-
priately presents the opportunities and risks of future
development. Our audit opinion on the group manage-
ment report does not cover the content of those parts of
the group management report listed in the "Other Infor-
mation" section of our auditor's report.
Audit Opinions
Pursuant to § 322 Abs. 3 Satz [sentence] 1 HGB, we declare
that our audit has not led to any reservations relating to the
legal compliance of the consolidated financial statements and
of the group management report.
We conducted our audit of the consolidated financial state-
ments and of the group management report in accordance
with § 317 HGB and the EU Audit Regulation (No. 537/2014,
referred to subsequently as “EU Audit Regulation") in com-
pliance with German Generally Accepted Standards for
Financial Statement Audits promulgated by the Institut der
Wirtschaftsprüfer [Institute of Public Auditors in Germany]
(IDW). We performed the audit of the consolidated financial
statements in supplementary compliance with the Interna-
tional Standards on Auditing (ISAs). Our responsibilities un-
der those requirements, principles and standards are further
described in the “Auditor's Responsibilities for the Audit of
the Consolidated Financial Statements and of the Group Man-
agement Report" section of our auditor's report. We are inde-
pendent of the group entities in accordance with the require-
ments of European law and German commercial and
266
Hannover Re | Annual Report 2021
Basic earnings per share in EUR
Diluted earnings per share in EUR
Weighted average of issued shares
Basis for the Audit Opinions
(excluding members of the
To Hannover Rück SE, Hannover
(Translation of the auditor's report issued in German language of the annual/consolidated financial statements prepared in
German language by the management of Hannover Rück SE)
D/K->
Henchoz
на рыму или
Jungsthöfel Miker
Althoff
Chèvre
Tickel S. Sel-
Sehm
Jungsthöfel
Dr. Miller
Dr. Pickel
Hannover Re | Annual Report 2021
265
Annual financial statements
Independent Auditor's Report
Group net income in EUR thousand
Calculation of the earnings per share
Report on the audit of the consolidated financial statements
and of the group management report
341,906
2020
2021
in EUR thousand
N 100
The expenditures on insurance business, claims expenses
(claims settlement) and expenditures on the administration of
investments include the following personnel expenditures:
Expenditures on personnel
a) Wages and salaries
3,132
3,298
3,346
3,333
3,308
3,286
8.5 Earnings per share and dividend proposal
3,218
302,594
Personnel expenditures
Total
361,516
285,111
56,795
58,922
4,792
4,750
28,851
29,028
bc) Expenditures for assistance
23,152
260
25,144
b) Social security contributions and expenditure on provisions and assistance
ba) Social security contributions
285,111
302,594
bb) Expenditures for pension provision
Independent Auditor's Report
Of that amount, EUR 35,089.4 million was attributable to
the Property reinsurance segment.
(c) The Company's disclosures on the measurement of the
financial instruments are contained in the sections of the
notes to the consolidated financial statements entitled
"Accounting policies" and "Notes to the individual items
of the balance sheet", subsection "Assets under own man-
agement".
our industry expertise and experience, among other
things.
(2) Measurement of provisions for unsettled claims in the property reinsurance business segment
(a) In the consolidated financial statements of the Company
technical provisions ("claims provisions") amounting to
EUR 40,777.7 million (49.2% of total assets) are reported
under the "Provisions for unsettled claims" consolidated
balance sheet item.
The claims provisions under property reinsurance are
estimated based on cedant information based on expe-
rience. The provision is measured based on actuarial
methods which require a sufficiently long data history and
stability of the observed data.
Based on our audit procedures, we were able to satisfy
ourselves that the estimates and assumptions made by the
executive directors with respect to the claims provisions
are appropriate overall.
The executive directors calculate the amount of the
provision taking into account the results of the actuarial
methods and other factors in relation to calculation uncer-
tainty.
The calculation of the claims provision required the use of
judgments, estimates and assumptions by the executive
directors. Minor changes to those assumptions or to the
methods used may have a material impact on the meas-
urement of this provision.
Against this background and also due to the material sig-
nificance of the amount of these provisions for the assets
liabilities and financial performance of the Group, the
measurement of these provisions was of particular signif-
icance in the context of our audit.
(b) Given the significance of the claims provision, as part of
our audit we worked with our actuaries to assess the
methods used by the Company and the assumptions made
by the executive directors. The assessment was based on
Among other things, we assessed the appropriateness of
the design of the process for recognizing reserves and
carried out functional tests in order to assess the effec-
tiveness of the internal controls. We focused in particular
on controls designed to ensure that the data used are
appropriate and complete and that the calculation process
is subject to a sufficient form of quality assurance.
Based on the testing of controls, we carried out additional
analytical and substantive audit procedures relating to the
measurement of the claims provision. In light of the sig-
nificance of the claims provision for the overall business
of the Company, our internal valuation specialists as-
sessed the appropriateness of the methods used by the
Company. Furthermore, our internal valuation specialists
also assessed the models and assumptions used by the
executive directors based on industry expertise and expe-
rience with recognized actuarial practice, and assessed
the consistent application of the valuation methods. In
this context, we also assessed the executive directors'
estimate as to the impact of the coronavirus crisis on
the business as a whole.
267
The mathematical methods use assumptions concerning
premiums, ultimate loss ratios and run-off patterns, which
are based on an expert estimate derived from past experi-
ence. This also includes the expected impact of the ongo-
ing coronavirus crisis on the recognition of the claims
provision for the business as a whole.
Hannover Re | Annual Report 2021
professional law, and we have fulfilled our other German pro-
fessional responsibilities in accordance with these require-
ments. In addition, in accordance with Article 10 (2) point (f)
of the EU Audit Regulation, we declare that we have not pro-
vided non-audit services prohibited under Article 5 (1) of the
With the help of our internal financial mathematics spe-
cialists, we also assessed the appropriateness of the
methods used by the executive directors to test the assets
for impairment and the inputs used for that purpose. In
this context, we also assessed the executive directors' es-
timate as to the impact of the coronavirus crisis on recov-
erability. We have compared the methods and assump-
tions used to calculate valuation adjustments in the
financial year with recognized practices and industry
standards and ascertained to what extent these are suita-
ble for determining an appropriate accounting treatment.
(c) The Company's disclosures on the property reinsurance
claims provisions are contained in the sections of the
notes to the consolidated financial statements entitled
"Accounting policies" and "Notes to the individual items
of the balance sheet", subsection "Technical provisions".
Disclosures on risks are contained in the Group manage-
ment report in the section entitled “Risk report", subsec-
tion "Technical risks of property reinsurance".
EU Audit Regulation. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis
for our audit opinions on the consolidated financial state-
ments and on the group management report.
Key Audit Matters in the Audit of the Consolidated Financial Statements
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the con-
solidated financial statements for the financial year from Jan-
uary 1 to December 31, 2021. These matters were addressed
in the context of our audit of the consolidated financial state-
ments as a whole, and in forming our audit opinion thereon;
we do not provide a separate audit opinion on these matters.
In our view, the matters of most significance in our audit were
as follows:
(1) Fair value measurement of certain financial instruments
(2) Measurement of provisions for unsettled claims in the
property reinsurance business segment
(3) Measurement of premium reserves
(4) Calculation of estimated gross premium
Our presentation of these key audit matters has been struc-
tured in each case as follows:
(a) Matter and issue
(b) Audit approach and findings
(c) Reference to further information
Hereinafter we present the key audit matters:
(1) Fair value measurement of certain financial instruments
(a) Financial instruments amounting to EUR 67,519.7 million
(81.4% of total assets) are reported in the Company's
consolidated financial statements.
Of these financial instruments, financial assets amounting
to EUR 49,666.9 million were measured at fair value. Of
those financial instruments in turn, the fair value of
EUR 45,614.2 million was calculated using valuation
models or based on third-party inputs. The measurement
of financial instruments whose fair value must be deter-
mined based on valuation models and third-party inputs
are subject to uncertainty including in light of the
impacts of the coronavirus crisis - because the most re-
cent market data or comparable figures are not always
available and therefore estimates must be used in lieu of
currently observable market parameters.
In this context, financial instruments measured using
models are subject to an increased measurement risk due
to their lower objectivity and the underlying judgments,
estimates and assumptions of the executive directors, in-
cluding in light of the impacts of the coronavirus crisis.
Since the estimates and assumptions, in particular with
regard to interest rates and cash flows, and the valuation
methods applied could materially affect the measurement
of these financial instruments and the assets, liabilities
and financial performance of the Group and also signifi-
cant notes disclosures on measurement methods and
judgments are necessary, this matter was of particular
significance in the context of our audit.
(b) In the course of our audit, we analyzed the financial in-
struments valued based on models and third-party inputs,
with the focus being placed on measurement uncertain-
ties. We assessed the appropriateness and effectiveness
of the relevant controls for the measurement of the finan-
cial instruments and the model validation. Therewith, we
assessed, among other things, the integrity of the under-
lying data and the process for arriving at the assumptions
and estimates used in the valuation.
Based on our audit procedures, we were able to satisfy
ourselves that the methods and assumptions used by the
executive directors to measure certain financial instru-
ments (valued based on models and third-party inputs)
are suitable overall and that the notes and disclosures
contained in the notes to the consolidated financial state-
ments are appropriate.
268
Independent Auditor's Report
(3) Measurement of premium reserves
Hannover, 7 March 2022
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft
sgd. Mathias Röcker
Wirtschaftsprüfer
(German Public Auditor)
sgd. Dennis Schnittger
Wirtschaftsprüfer
(German Public Auditor)
274
Hannover Re | Annual Report 2021
Independent Practitioner's Report on a Limited Assurance
Engagement on Non-financial Reporting
(PricewaterhouseCoopers GmbH has performed a limited assurance engagement on the German version of the combined
non-financial statement and issued an independent practitioner's report in German language, which is authoritative. The
following text is a translation of the independent practitioner's report.)
To Hannover Rück SE, Hannover
We have performed a limited assurance engagement on the
combined non-financial statement of Hannover Rück SE,
Hannover, (hereinafter the "Company") for the period from
1 January to 31 December 2021 (hereinafter the "Combined
Non-financial Statement") included in section “Combined
Non-financial Statement" of the combined management report.
Not subject to our assurance engagement are the external
sources of documentation or expert opinions mentioned in
the Combined Non-financial Statement.
Responsibility of the Executive Directors
The executive directors of the Company are responsible for
the preparation of the Combined Non-financial Statement in
accordance with §§ (Articles) 315c in conjunction with 289c
to 289e HGB ("Handelsgesetzbuch”: “German Commercial
Code") and Article 8 of REGULATION (EU) 2020/852 OF
THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of
18. June 2020 on establishing a framework to facilitate sus-
tainable investment and amending Regulation (EU) 2019/
2088 (hereinafter the “EU Taxonomy Regulation”) and the
Delegated Acts adopted thereunder, as well as for making
their own interpretation of the wording and terms contained
in the EU Taxonomy Regulation and the Delegated Acts
adopted thereunder, as set out in section "Disclosures under
Article 8 of the EU Taxonomy Regulation" of the Combined
Non-financial Statement.
This responsibility includes the selection and application of
appropriate non-financial reporting methods and making
assumptions and estimates about individual non-financial
disclosures of the Group that are reasonable in the circum-
stances. Furthermore, the executive directors are responsible
for such internal controls as the executive directors consider
necessary to enable the preparation of a Combined Non-
financial Statement that is free from material misstatement
whether due to fraud or error.
The EU Taxonomy Regulation and the Delegated Acts issued
thereunder contain wording and terms that are still subject to
considerable interpretation uncertainties and for which clari-
fications have not yet been published in every case. There-
fore, the executive directors have disclosed their interpreta-
tion of the EU Taxonomy Regulation and the Delegated Acts
adopted thereunder in section "Disclosures under Article 8 of
the EU Taxonomy Regulation" of the Combined Non-financial
Statement. They are responsible for the defensibility of this
interpretation. Due to the immanent risk that indeterminate
legal terms may be interpreted differently, the legal conform-
ity of the interpretation is subject to uncertainties.
is Mathias Röcker.
Independence and Quality Control of the Audit Firm
The German Public Auditor responsible for the engagement
report and do not take their place. In particular, the "Report
on the Assurance on the Electronic Rendering of the Conso-
lidated Financial Statements and the Group Management
Report Prepared for Publication Purposes in Accordance with
§ 317 Abs. 3a HGB" and our assurance opinion contained
therein are to be used solely together with the assured ESEF
documents made available in electronic form.
273
Independent Auditor's Report
Group Auditor's Responsibilities for the Assurance Work on the ESEF Documents
Our objective is to obtain reasonable assurance about wheth-
er the ESEF documents are free from material non-compli-
ance with the requirements of § 328 Abs. 1 HGB, whether due
to fraud or error. We exercise professional judgment and
maintain professional skepticism throughout the assurance
work. We also
•
•
Identify and assess the risks of material non-compliance
with the requirements of § 328 Abs. 1 HGB, whether due
to fraud or error, design and perform assurance proce-
dures responsive to those risks, and obtain assurance
evidence that is sufficient and appropriate to provide a
basis for our assurance opinion.
Obtain an understanding of internal control relevant to
the assurance work on the ESEF documents in order to
design assurance procedures that are appropriate in the
circumstances, but not for the purpose of expressing an
assurance opinion on the effectiveness of these controls.
•
•
•
Evaluate the technical validity of the ESEF documents,
i.e., whether the electronic file containing the ESEF doc-
uments meets the requirements of the Delegated Regu-
lation (EU) 2019/815 in the version in force at the date
of the consolidated financial statements on the technical
specification for this electronic file.
Evaluate whether the ESEF documents provide an
XHTML rendering with content equivalent to the audit-
ed consolidated financial statements and to the audited
group management report.
Evaluate whether the tagging of the ESEF documents
with Inline XBRL technology (iXBRL) in accordance
with the requirements of Articles 4 and 6 of the Dele-
gated Regulation (EU) 2019/815, in the version in force
at the date of the consolidated financial statements,
enables an appropriate and complete machine-readable
XBRL copy of the XHTML rendering.
Further Information pursuant to Article 10 of the EU Audit Regulation
We were elected as group auditor by the supervisory board
on March 10, 2021. We were engaged by the supervisory
board on December 3, 2021. We have been the group auditor
of Hannover Rück SE, Hanover, without interruption since the
financial year 2018.
We declare that the audit opinions expressed in this auditor's
report are consistent with the additional report to the audit
committee pursuant to Article 11 of the EU Audit Regulation
(long-form audit report).
Reference to an Other Matter - use of the Auditor's Report
Our auditor's report must always be read together with the
audited consolidated financial statements and the audited
group management report as well as the assured ESEF docu-
ments. The consolidated financial statements and the group
management report converted to the ESEF format - including
the versions to be published in the Federal Gazette - are
merely electronic renderings of the audited consolidated
financial statements and the audited group management
German public auditor responsible for the engagement
We have complied with the German professional provisions
regarding independence as well as other ethical require-
ments.
-
Reconciliation of selected disclosures with the corre-
sponding data in the consolidated financial statements
and combined management report
Evaluation of the presentation of the Combined
Non-financial Statement
Evaluation of the process to identify taxonomy-eligible
economic activities and the corresponding disclosures
in the Combined Non-financial Statement
In determining the disclosures in accordance with Article 8
of the EU Taxonomy Regulation, the executive directors are
required to interpret undefined legal terms. Due to the imma-
nent risk that undefined legal terms may be interpreted
differently, the legal conformity of their interpretation and,
accordingly, our assurance engagement thereon are subject
to uncertainties.
Assurance Opinion
Based on the assurance procedures performed and evidence
obtained, nothing has come to our attention that causes us to
believe that the Combined Non-financial Statement of the Com-
pany for the period from 1 January to 31 December 2021 is not
prepared, in all material respects, in accordance with §§ 315c
in conjunction with 289c to 289e HGB and the EU Taxonomy
Regulation and the Delegated Acts issued thereunder as well as
the interpretation by the executive directors disclosed in
section "Disclosures under Article 8 of the EU Taxonomy
Regulation" of the Combined Non-financial Statement.
Restriction of Use
We draw attention to the fact that the assurance engagement
was conducted for the Company's purposes and that the
report is intended solely to inform the Company about the
result of the assurance engagement. Consequently, it may not
be suitable for any other purpose than the aforementioned.
Frankfurt am Main, 7 March 2022
PricewaterhouseCoopers GmbH
Wirtschaftsprüfungsgesellschaft
Accordingly, the report is not intended to be used by third
parties for making (financial) decisions based on it. Our
responsibility is to the Company. We do not accept any
responsibility to third parties. Our assurance opinion is not
modified in this respect.
Nicolette Behncke
Wirtschaftsprüferin
[German public auditor]
ppa. Christopher Hintze
Wirtschaftsprüfer
[German public auditor]
276
Hannover Re | Annual Report 2021
Hannover Re | Annual Report 2021
Combined Non-financial Statement
Analytical procedures on selected disclosures in the
the Combined Non-financial Statement
Identification of likely risks of material misstatement in
Our audit firm applies the national legal requirements and
professional standards in particular the Professional Code
for German Public Auditors and German Chartered Auditors
("Berufssatzung für Wirtschaftsprüfer und vereidigte Buch-
prüfer": "BS WP/vBP") as well as the Standard on Quality
-
Control 1 published by the Institut der Wirtschaftsprüfer (In-
stitute of Public Auditors in Germany; IDW): Requirements to
quality control for audit firms (IDW Qualitätssicherungs-
standard 1: Anforderungen an die Qualitätssicherung in der
Wirtschaftsprüferpraxis – IDW QS 1) – and accordingly main-
tains a comprehensive system of quality control including
documented policies and procedures regarding compliance
with ethical requirements, professional standards and appli-
cable legal and regulatory requirements.
Responsibility of the Assurance Practitioner
Our responsibility is to express a conclusion with limited
assurance on the Combined Non-financial Statement based
on our assurance engagement.
Hannover Re | Annual Report 2021
We conducted our assurance engagement in accordance with
International Standard on Assurance Engagements (ISAE)
3000 (Revised): Assurance Engagements other than Audits or
275
Independent Auditor's Report
Hannover Re | Annual Report 2021
Reviews of Historical Financial Information, issued by the
IAASB. This Standard requires that we plan and perform the
assurance engagement to obtain limited assurance about
whether any matters have come to our attention that cause us
to believe that the Company's Combined Non-financial State-
ment, other than the external sources of documentation or
expert opinions mentioned in the Combined Non-financial
Statement, are not prepared, in all material respects, in ac-
cordance with §§ 315c in conjunction with 289c to 289e HGB
and the EU Taxonomy Regulation and the Delegated Acts is-
sued thereunder as well as the interpretation by the executive
directors disclosed in section "Disclosures under Article 8 of
the EU Taxonomy Regulation” of the Combined Non-financial
Statement.
In the course of our assurance engagement, we have, amongst
other things, performed the following assurance procedures
and other activities:
•
•
•
•
•
•
Inquiries of the executive directors and relevant
employees involved in the preparation of the Combined
Non-financial Statement about the preparation process,
about the internal control system relating to this
process and about disclosures in the Combined
Non-financial Statement
In a limited assurance engagement the procedures performed
are less extensive than in a reasonable assurance engage-
ment, and accordingly a substantially lower level of assurance
is obtained. The selection of the assurance procedures is
subject to the professional judgement of the assurance
practitioner.
The supervisory board is responsible for overseeing the
process for preparing the ESEF documents as part of the
financial reporting process.
We do not express an assurance opinion on the external
sources of documentation or expert opinions mentioned in the
Combined Non-financial Statement.
necessary to enable the preparation of ESEF documents that
are free from material non-compliance with the requirements
of § 328 Abs. 1 HGB for the electronic reporting format,
whether due to fraud or error.
Based on our audit procedures, we were able to satisfy
ourselves that the calculation procedures used by the
executive directors to derive the estimated gross pre-
mium are appropriate overall.
(c) The Company's disclosures on the recognized and esti-
mated gross premiums are contained in the sections of
the notes to the consolidated financial statements entitled
"Accounting policies" and "Notes to the individual items
of the income statement".
Other Information
The executive directors are responsible for the other infor-
mation. The other information comprises the following
non-audited parts of the group management report:
•
the statement on corporate governance pursuant to
§ 289f HGB and § 315d HGB included in section,,Corpo-
rate governance" of the group management report
the non-financial statement pursuant to § 289b Abs. 1
HGB and § 315b Abs. 1 HGB included in section "Com-
bined non-financial statement" of the group manage-
ment report.
270
•
the disclosures on Solvency II reporting included in
the group management report that are marked as un-
audited.
Hannover Re | Annual Report 2021
The other information comprises further all remaining parts
of the annual report - excluding cross-references to external
information - with the exception of the audited consolidated
financial statements, the audited group management report
and our auditor's report.
Our audit opinions on the consolidated financial statements
and on the group management report do not cover the other
information mentioned above, and consequently we do not
express an audit opinion or any other form of assurance con-
clusion thereon.
In connection with our audit, our responsibility is to read the
other information and, in so doing, to consider whether the
other information
•
is materially inconsistent with the consolidated financial
statements, with the group management report disclo-
sures audited in terms of content or with our knowledge
obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in
this regard.
Responsibilities of the Executive Directors and the Supervisory Board for the
Consolidated Financial Statements and the Group Management Report
The executive directors are responsible for the preparation
of the consolidated financial statements that comply, in all
material respects, with IFRSS as adopted by the EU and the
additional requirements of German commercial law pursuant
to § 315e Abs. 1 HGB and that the consolidated financial
statements, in compliance with these requirements, give a
true and fair view of the assets, liabilities, financial position,
and financial performance of the Group. In addition the exec-
utive directors are responsible for such internal control as
they have determined necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In tests of details, we critically reviewed the material
assumptions underlying an estimate and asked the Com-
pany to explain to us the grounds for such estimates.
Based on information on the premiums expected in the
previous year, we reconciled the expectations against the
actual events and thus were able to draw conclusions as to
the quality of the estimates.
in the process and to assess the appropriateness of the
material assumptions by verifying and analyzing the pro-
cedure for calculating and deriving the estimated gross
premium. In this context, we also assessed the executive
directors' estimate as to the impact of the coronavirus
crisis.
(b) For the purposes of auditing the estimated gross premi-
um, we first evaluated the design of the contribution and
estimation process. In that connection, we identified the
material key controls and analyzed their design. Based on
that analysis, we evaluated the operating effectiveness by
testing the effectiveness of the key controls implemented
The estimates are based on assumptions and are there-
fore subject to considerable uncertainty and judgment,
including with respect to the impact of the coronavirus.
Due to the material significance of the estimated premi-
ums for the assets, liabilities and financial performance of
the Group as well as the considerable scope for judgment
on the part of the executive directors and the associated
uncertainties in the estimations made, this matter was of
particular significance in the context of our audit.
(a) Technical provisions amounting to EUR 7,541.9 million
In addition, the executive directors of the Company are re-
sponsible for such internal control as they have considered
(9.1% of total consolidated assets) are reported under the
"Premium reserves" balance sheet item in the consolidat-
ed financial statements. The premium reserves were rec-
ognized primarily for the reinsurance activities in the life
and health reinsurance segments.
The premium reserve is measured by using actuarial
methods to derive the present value of future benefits to
cedants, less the present value of premiums still to be
paid by cedants in future. The respective policies are ini-
tially recognized in accordance with recognized account-
ing bases. Depending on the structure of the relevant pol-
icy and the regular business, the calculation is based
either on a combination of previous cedant settlements,
where necessary adjusted to account for estimates of the
course of the policy for settlement periods not yet settled
or based on model-driven own calculations of the premi-
um reserve. In so doing, actuarial assumptions must be
made with respect to interest rates, investment yields,
mortality, invalidity, longevity, costs and future behavior
of policyholders.
Annual appropriateness tests are conducted to verify at
the level of portfolios subject to standardized manage-
ment whether the actuarial provisions calculated as of the
reporting date in accordance with the accounting bases
used upon initial recognition, and hence the premium re-
serve in particular, less existing deferred costs of conclud-
ing the policy, are sufficient to cover the present value of
future benefits as best estimated at the reporting date,
less the present value of premiums to be paid in connec-
tion with the portfolios subject to standardized manage-
ment. This also includes the expected impact of the ongo-
ing coronavirus crisis on the premium reserves.
The estimate of the sufficiency of the reported premium
reserves, the estimates made in the absence of cedant set-
tlements as well as model-driven calculations of the pre-
mium reserve is subject to considerable judgement to be
exercised by the executive directors and the associated
estimate uncertainties. Against this background and due
to the material significance of the amount of the premium
reserves for the assets liabilities and financial perfor-
mance of the Group and the complexity of the underlying
calculations, this matter was of particular significance in
the context of our audit.
(b) Given the significance of premium reserves, as part of our
audit we worked with our actuaries to assess the methods
used by the Company and the assumptions made by the
executive directors. The assessment was based on our in-
dustry expertise and experience, among other things.
Based on the testing of controls, we carried out additional
analytical and substantive audit procedures relating to the
measurement of the premium reserves.
With the help of our actuaries, we have compared the
respective actuarial methods applied and the material
assumptions with generally recognized actuarial practices
and industry standards and ascertained to what extent
these are appropriate for the valuation. In tests of details
we assessed the correct and proper use of the available
cedant settlements when calculating the premium
In preparing the consolidated financial statements, the exec-
utive directors are responsible for assessing the Group's abil-
ity to continue as a going concern. They also have the respon-
sibility for disclosing, as applicable, matters related to going
concern. In addition, they are responsible for financial report-
ing based on the going concern basis of accounting unless
there is an intention to liquidate the Group or to cease opera-
tions, or there is no realistic alternative but to do so.
reserves.
Based on the tests of appropriateness conducted, we
formed an opinion as to whether the accounting bases
and methods were appropriately applied. Where market
rates of interest were used in the valuation, we verified
the appropriateness of the discount rates used by compar-
ing these with observable market parameters. Given the
significance of the business for the Group, we focused in
particular on the appropriateness test for the business of
covering mortality risks in the USA in the Mortality Solu-
tions division. Furthermore we analyzed the development
of premium reserves as compared to the previous year,
particularly in light of the fact that the assumptions con-
sistently correspond to the currently available cedant in-
formation, current business developments of the cedants
and our expectations based on market observations.
Hannover Re | Annual Report 2021
269
Independent Auditor's Report
In this context, we also assessed the executive directors'
estimate as to the impact of the coronavirus crisis.
Based on our audit procedures, we were able to satisfy
ourselves that the methods and assumptions used by the
executive directors to measure premium reserves are
appropriate overall.
(c) The Company's disclosures on the premium reserve are
contained in the sections of the notes to the consolidated
financial statements entitled “Accounting policies" and
"Notes to the individual items of the balance sheet", sub-
section "Technical provisions”. Disclosures on risks are
contained in the Group management report in the section
entitled "Risk report", subsection "Technical risks of
personal reinsurance".
(4) Calculation of estimated gross premium
(a) In its consolidated financial statements, the Company
reported gross premiums of EUR 27,762.3 million in the
income statement.
Acquired reinsurance premiums are accounted for in
accordance with the terms and conditions of the reinsur-
ance policies. In the absence of invoices for cedants, the
Company made supplementary or complete estimates of
the premiums.
We also assessed the appropriateness of the material
assumptions by analyzing how the actuarial methods
applied were derived.
Furthermore, the executive directors are responsible for the
preparation of the group management report that, as a whole,
provides an appropriate view of the Group's position and is,
For the purposes of the assessment, we also evaluated the
design and effectiveness of the controls established by the
Company for the purpose of calculating and recording the
premium reserves. We focused in particular on controls
designed to ensure that new products and policies are
correctly classified and that changes in assumptions are
correctly implemented in the systems.
The supervisory board is responsible for overseeing the
Group's financial reporting process for the preparation of the
consolidated financial statements and of the group manage-
ment report.
Obtain sufficient appropriate audit evidence regarding
the financial information of the entities or business ac-
tivities within the Group to express audit opinions on the
consolidated financial statements and on the group
management report. We are responsible for the direc-
tion, supervision and performance of the group audit.
We remain solely responsible for our audit opinions.
Evaluate the consistency of the group management re-
port with the consolidated financial statements, its con-
formity with German law, and the view of the Group's
position it provides.
Perform audit procedures on the prospective informa-
tion presented by the executive directors in the group
management report. On the basis of sufficient appropri-
ate audit evidence we evaluate, in particular, the signifi-
cant assumptions used by the executive directors as a
basis for the prospective information, and evaluate the
proper derivation of the prospective information from
these assumptions. We do not express a separate audit
opinion on the prospective information and on the as-
sumptions used as a basis. There is a substantial una-
voidable risk that future events will differ materially
from the prospective information.
We communicate with those charged with governance re-
garding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify
during our audit.
We also provide those charged with governance with a state-
ment that we have complied with the relevant independence
272
Hannover Re | Annual Report 2021
requirements, and communicate with them all relationships
and other matters that may reasonably be thought to bear on
our independence, and where applicable, the related safe-
guards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial state-
ments of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report
unless law or regulation precludes public disclosure about
the matter.
Other legal and regulatory requirements
Report on the Assurance on the Electronic Rendering of the
Consolidated Financial Statements and the Group Management Report Prepared for
Publication Purposes in Accordance with § 317 Abs. 3a HGB
Assurance Opinion
We have performed assurance work in accordance with § 317
Abs. 3a HGB to obtain reasonable assurance as to whether
the rendering of the consolidated financial statements and
the group management report (hereinafter the "ESEF docu-
ments") contained in the electronic file Hannover RueckSE_
KA_LB 2021-12-31-de.zip and prepared for publication pur-
poses complies in all material respects with the requirements
of § 328 Abs. 1 HGB for the electronic reporting format
("ESEF format"). In accordance with German legal require-
ments, this assurance work extends only to the conversion of
the information contained in the consolidated financial state-
ments and the group management report into the ESEF for-
mat and therefore relates neither to the information contained
within these renderings nor to any other information con-
tained in the electronic file identified above.
We conducted our assurance work on the rendering of the
consolidated financial statements and the group management
report contained in the electronic file identified above in ac-
cordance with § 317 Abs. 3a HGB and the IDW Assurance
Standard: Assurance Work on the Electronic Rendering, of
Financial Statements and Management Reports, Prepared for
Publication Purposes in Accordance with § 317 Abs. 3a HGB
In our opinion, the rendering of the consolidated financial
statements and the group management report contained in
the electronic file identified above and prepared for publica-
tion purposes com-plies in all material respects with the re-
quirements of § 328 Abs. 1 HGB for the electronic reporting
format. Beyond this assurance opinion and our audit opinion
on the accompanying consolidated financial statements and
the accompanying group management report for the financial
year from January 1 to December 31, 2021 contained in the
"Report on the Audit of the Consolidated Financial State-
ments and on the Group Management Report" above, we do
not express any assurance opinion on the information con-
tained within these renderings or on the other information
contained in the electronic file identified above.
Responsibilities of the Executive Directors and the Supervisory Board for the ESEF Documents
The executive directors of the Company are responsible for
the preparation of the ESEF documents including the elec-
tronic renderings of the consolidated financial statements
and the group management report in accordance with § 328
Abs. 1 Satz 4 Nr. [number] 1 HGB and for the tagging of the
consolidated financial statements in accordance with § 328
Abs. 1 Satz 4 Nr. 2 HGB.
in all material respects, consistent with the consolidated
financial statements, complies with German legal require-
ments, and appropriately presents the opportunities and risks
of future development. In addition, the executive directors
are responsible for such arrangements and measures
(systems) as they have considered necessary to enable the
preparation of a group management report that is in accord-
ance with the applicable German legal requirements, and to
be able to provide sufficient appropriate evidence for the
assertions in the group management report.
(IDW ASS 410 (10.2021)) and the International Standard on
Assurance Engagements 3000 (Revised). Our responsibility
in accordance therewith is further described in the "Group
Auditor's Responsibilities for the Assurance Work on the
ESEF Documents" section. Our audit firm applies the
IDW Standard on Quality Management 1: Requirements for
Quality Management in the Audit Firm (IDW QS 1).
Evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements present the underlying transactions and
events in a manner that the consolidated financial state-
ments give a true and fair view of the assets, liabilities,
financial position and financial performance of the
Group in compliance with IFRSs as adopted by the EU
and the additional requirements of German commercial
law pursuant to § 315e Abs. 1 HGB.
in the auditor's report to the related disclosures in the
consolidated financial statements and in the group man-
agement report or, if such disclosures are inadequate, to
modify our respective audit opinions. Our conclusions
are based on the audit evidence obtained up to the
date of our auditor's report. However, future events or
conditions may cause the Group to cease to be able to
continue as a going concern.
Basis for the Assurance Opinion
•
•
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or
error, and whether the group management report as a whole
provides an appropriate view of the Group's position and, in
all material respects, is consistent with the consolidated
financial statements and the knowledge obtained in the audit,
complies with the German legal requirements and appropri-
Hannover Re | Annual Report 2021
271
ately presents the opportunities and risks of future develop-
ment, as well as to issue an auditor's report that includes our
audit opinions on the consolidated financial statements and
on the group management report.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with § 317
HGB and the EU Audit Regulation and in compliance with
German Generally Accepted Standards for Financial State-
ment Audits promulgated by the Institut der Wirtschafts-
prüfer (IDW) and supplementary compliance with the ISAs
will always detect a material misstatement. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these consolidated financial statements and
this group management report.
We exercise professional judgment and maintain professional
skepticism throughout the audit. We also
•
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements and
of the Group Management Report
•
The executive directors and the supervisory board are further
responsible for the preparation of the remuneration report,
including the related disclosures, which is included in a sep-
arate section of the group management report and complies
with the requirements of § 162 AktG. They are also responsi-
ble for such internal control as they determine is necessary to
enable the preparation of a remuneration report, including
the related disclosures, that is free from material misstate-
ment, whether due to fraud or error.
•
Conclude on the appropriateness of the executive direc-
tors' use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a mate-
rial uncertainty exists related to events or conditions
that may cast significant doubt on the Group's ability to
continue as a going concern. If we conclude that a mate-
rial uncertainty exists, we are required to draw attention
•
Evaluate the appropriateness of accounting policies
used by the executive directors and the reasonableness
of estimates made by the executive directors and related
disclosures.
Obtain an understanding of internal control relevant to
the audit of the consolidated financial statements and of
arrangements and measures (systems) relevant to the
audit of the group management report in order to design
audit procedures that are appropriate in the circum-
stances, but not for the purpose of expressing an audit
opinion on the effectiveness of these systems.
Identify and assess the risks of material misstatement of
the consolidated financial statements and of the group
management report, whether due to fraud or error, de-
sign and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and ap-
propriate to provide a basis for our audit opinions. The
risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as
fraud may involve collusion, forgery, intentional omis-
sions, misrepresentations, or the override of internal
controls.
•
285
Fax +44 20 3206-1701
Managing Director:
Debbie O'Hare
Further information
Hannover Services (UK) Limited
10 Fenchurch Street
London EC3M 3BE
Hannover Re | Annual Report 2021
Tel. +44 20 7015-4290
Unit 604, 6th Floor B Wing, Fulcrum
India
Hannover Rück SE - India Branch
Sahar Road
Andheri (East)
Tel. +44 20 3206-1700
Tel. +91 22 6138-0808
Fax +91 22 6138-0810
General Manager:
GLN Sarma
Fax +44 20 7015-4001
Managing Director:
Debbie O'Hare
Mumbai 400 099
+33 1 4561-7340
Hannover Re UK Life Branch
10 Fenchurch Street
Shanghai Branch
6th Floor, KAISA Finance Center
1188 Minsheng Road, Pudong New
Area
Hannover Rück SE
Ireland
200135 Shanghai
Tel. +86 21 2035-8999
Fax +86 21 5820-9396
Director:
Fook-Kong Lye
France
London EC3M 3BE
Hannover Rück SE
Succursale Française
33 Avenue de Wagram
75017 Paris
Tel. Property & Casualty
Fax +33 1 4006-0225
General Manager:
Raphaël Rimelin
United Kingdom
Argenta Holdings Limited
5th Floor
70 Gracechurch Street
London EC3V OXL
Tel. +44 20 7825-7200
Fax +44 20 7825-7212
CEO:
Andrew J. Annandale
Tel. Life & Health
+33 1 4561-7300
Hannover Re (Ireland)
Louis Kerba
Tel. +353 1 633-8800
Chief Agent:
Laurel E. Grant
Colombia
Hannover Rück SE
Bogotá Oficina de Representación
Carrera 9 No. 77-67
Floor 5
Bogotá
Tel. +57 1 642-0066
Fax +57 1 642-0273
General Manager:
Miguel Guarín
Korea
Hannover Rück SE
Korea Branch
Room 414, 4th Floor
Gwanghwamun Officia Building
92, Saemunan-ro, Jongno-gu
Wanchai, Hong Kong
Tel. +852 2519-3208
Fax +852 2588-1136
General Manager:
Marian Leung
Seoul 03186
Tel. +82 2 3700-0600
Fax +82 2 3700-0699
General Manager:
Simon Jun Chong
Paul Carragher
Designated Activity Company
No. 4 Custom House Plaza, IFSC
Dublin 1
General Manager:
Hannover Rück SE
Canadian Branch
Fax +353 1 633-8806
CEO:
Kathrin Scherff
Italy
Hannover Re Services Italy S.r.l.
Via Dogana, 1
20123 Milan
Tel. +39 02 8068-1311
Fax +39 02 8068-1349
Head of Administration:
Giorgio Zandonella-Golin
Japan
Hannover Re Services Japan
Hakuyo Building, 7th Floor
3-10 Nibancho
Chiyoda-ku
Tokyo 102-0084
Tel. +81 3 5214-1101
Fax +81 3 5214-1105
General Manager:
Takayuki Ohtomo
Canada
Hannover Re (Ireland) DAC
Canadian Life Branch
220 Bay Street, Suite 400
Toronto, Ontario M5J 2W4
Tel. +1 416 607-7824
Fax +1 416 867-9728
General Manager:
220 Bay Street, Suite 400
Toronto, Ontario M5J 2W4
Tel. +1 416 867-9712
Fax +1 416 867-9728
30 Harbour Road
300
Hannover Rück SE
Hong Kong Branch
Details of memberships of legally required supervisory boards
and comparable control boards at other domestic and foreign
business enterprises are contained in the Annual Report of
Hannover Rück SE.
Hannover Re | Annual Report 2021
283
Supervisory Board
Further information
Branch offices and subsidiaries of the
Hannover Re Group abroad
Date when member was first appointed/elected to the company's
Supervisory Board. Current term of office for the entire Supervisory
Board commenced at the end of the Annual General Meeting on
8 May 2019.
285
288
List of graphs, tables and charts
294
Contact information
298
Financial calendar
299
Glossary
5
4 Staff representative
3 Member of the Nomination Committee
Ilka Hundeshagen 4
Hannover
Malaysia
(since 8 May 2019) 5
Employee
Dr. Ursula Lipowsky 2
Munich
(since 7 May 2018) 5
Member of various supervisory boards
Dr. Michael Ollmann
Hamburg
(since 8 May 2019) 5
Member of various supervisory boards
Dr. Andrea Pollak 3
Vienna, Austria
(since 3 May 2011) 5
Independent management consultant
Dr. Erhard Schipporeit¹
Hannover
(since 3 May 2007) 5
Independent management consultant
1 Member of the Standing Committee
2 Member of the Finance and Audit Committee
Imprint
Branch offices and subsidiaries of the
Hannover Re Group abroad
Australia
Hannover Life Re of
Australasia Ltd
Tel. +1441 294-3240
President & CEO:
Peter R. Schaefer
Hannover Re (Bermuda) Ltd.
Victoria Place, 2nd Floor,
31 Victoria Street
Hamilton, HM 10
Tel. +1 441 294-3110
Fax +1 441 296-7568
CEO:
Chantal Cardinez
Brazil
Hannover Rück SE
Escritório de Representação
no Brasil Ltda.
Praia de Botafogo, n°. 228
15° Floor, wing B, Botafogo
CEP 22250-145
Rio de Janeiro
Tel. +55 21 2217-9500
Fax +55 21 2217-9500
Representative:
Joao Caproni
China
29 Victoria Street
Hamilton, HM 10
2008 Sun Hung Kai Centre
20th Floor
of America (Bermuda) Ltd.
Purvis House, First Floor
Bermuda
Tower 1, Level 33
100 Barangaroo Avenue
Sydney NSW 2000
Tel. +61 2 9251-6911
Fax +61 2 9251-6862
CEO:
Gerd Obertopp
Hannover Rueck SE
Australian Branch
Tower 1, Level 33
100 Barangaroo Avenue
Sydney NSW 2000
Tel. +61 2 8373-7580
Fax +61 2 9274-3033
Managing Director:
Michael Eberhardt
Bahrain
Hannover ReTakaful B.S.C. (c)
17th Floor Zamil Tower
Government Avenue
Manama Center 305
Manama
Tel. +973 1757-4766
Fax +973 1757-4667
Managing Director:
Adham El-Muezzin
Hannover Rueck SE
Bahrain Branch
17th Floor Zamil Tower
Government Avenue
Manama Center 305
Manama
Tel. +973 1757-4766
Fax +973 1757-4667
Managing Director:
Adham El-Muezzin
Hannover Life Reassurance Company
Hannover Rueck SE
Malaysian Branch
Level 32, Mercu 2
No. 3, Jalan Bangsar
KL Eco City
Key points of deliberation in the full meetings of
the Supervisory Board
Managing Director:
Daniel Gunawan
100
4/4
Torsten Leue
Participation in meetings of the Finance and Audit Committee
75
3/4
Dr. Erhard Schipporeit
Herbert K. Haas
100
Dr. Andrea Pollak
100
4/4
100
4/4
100
4/4
4/4
4/4
100
Dr. Ursula Lipowsky
the current 2021 financial year. The insights gained from the
important renewals in property and casualty reinsurance as at
1 January 2021 were described, providing us with a good im-
pression of the development of market conditions and Han-
nover Re's positioning. We discussed the major findings from
the compliance, audit and risk reports. The respective func-
tion holders of the key functions were available to answer
questions for this purpose. We adopted a resolution on the
annual revision of the investment guidelines, in which regard
no significant change to the general investment strategy was
proposed. At the recommendation of the Finance and Audit
Committee, PricewaterhouseCoopers GmbH Wirtschaftsprü-
fungsgesellschaft – following its initial appointment for the
audit of the 2018 financial year - was again awarded the man-
date to audit the annual financial statements. In preparation
for the Annual General Meeting on 5 May 2021, the agenda
was discussed and approved; in view of the ongoing pandem-
ic situation, we opted to hold the General Meeting in a virtual
format without physical attendance. In terms of content, we
had already explored at length in the previous year the remu-
neration system for the Executive Board to be presented to
the General Meeting for approval and decided on its contrac-
tual implementation at the turn of the year. The remuneration
of the Supervisory Board, which had also already been a topic
of consideration in 2020, was prepared for adoption of a res-
olution by the General Meeting. Details of the systems can be
found in the Declaration on Corporate Governance on page
118 et seq. as well as in the remuneration report for 2021 on
page 124 et seq. In addition, we deliberated on the issuance
of a subordinated bond and approved - following a further
recommendation of the Finance and Audit Committee the
proposed near-term issuance of regulatory subordinated cap-
ital. Placement was consequently completed successfully on
22 March 2021 in the planned volume and with an attractive
coupon of 1.375% (https://www.hannover-re.com/1673190/
bonds). Furthermore, after in-depth consideration we ap-
proved the modification of the schedule of responsibilities
for the Executive Board, according to which the global mar-
kets in P&C were strategically regrouped under Mr. Althoff
and Dr. Pickel. Additionally, the variable remuneration of the
members of the Executive Board was defined on the basis of
the findings with respect to attainment of the respective indi-
vidual targets for the 2020 financial year. In this context, as
usual, we factored the findings of external remuneration
surveys into our deliberations for the purpose of making a
market comparison. Dr. Schipporeit was unable to attend one
meeting and cast his votes on the relevant resolutions in
writing pursuant to § 12 (2) of the Articles of Association of
Hannover Rück SE.
-
Hannover Re | Annual Report 2021
278
At its meeting on 10 March 2021 the Supervisory Board dis-
cussed in detail the audited annual and consolidated financial
statements as well as the Executive Board's proposal for the
appropriation of the disposable profit for the 2020 financial
year. In this regard, as in the previous year, the Executive
Board described all material indicators from the technical and
non-technical accounts as well as key data on the investment
side. The independent auditors presented the results of the
audit and elaborated on the audit procedure. The assurance
report on the non-financial information statement was also
discussed. The Executive Board outlined the prospects for
100
100
100
4/4
Dr. Erhard Schipporeit
4/4
Herbert K. Haas
100
4/4
Torsten Leue
Participation in meetings of the Standing Committee
4/4
year.
100
4/4
100
277
Hannover Re | Annual Report 2021
Sehm
Dr. Pickel
Dr. Miller
Jungsthöfel
Jungsthöfel Miker Tickel S. Sel-
Chèvre
Althoff
Henchoz
까
MIK> for folkhalf Chin
opment and performance of the business and the position of
the Group, together with a description of the principal oppor-
tunities and risks associated with the expected development
of the Group.
Executive Board
Hannover, 4 March 2022
To the best of our knowledge, and in accordance with the
applicable reporting principles, the consolidated financial
statements give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group, and the
Group management report includes a fair review of the devel-
Frauke Heitmüller 4
Hannover
Miscellaneous
-
Supervisory Board
of Hannover Rück SE
4/4
100
4/4
4/4
No audit measures pursuant to § 111 Para. 2 Sentence 1 Stock
Corporation Act (AktG) were required in the 2021 financial
We received an analysis of the 2020 results in property &
casualty and life & health reinsurance as well as a presentation
from the Executive Board covering the profit expectations for
the 2021 financial year and the operational planning for the
2022 financial year. In addition, the Chairman of the Supervi-
sory Board was constantly kept informed by the Chairman of
the Executive Board of major developments and impending
decisions as well as of the company's risk situation. 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.
We were informed by the Executive Board in writing and orally
on the basis of the quarterly statements about the course of
business as well as the position of the company and the Group.
With regard to reports on topics that fall under the responsibil-
ity of key functions, we had an opportunity to engage directly
in a dialogue with the respective function holders. The quarter-
ly reports with the components of the financial statements and
the key figures for the Hannover Re Group constituted an im-
portant source of information for the Supervisory Board. We
also held discussions without the presence of the Executive
Board, inter alia regarding personnel matters on the level of
the Executive Board and regularly in relation to matters of the
Supervisory Board's internal organisation.
100
Participation rate
Number of
in %
meetings
Dr. Ursula Lipowsky
Dr. Michael Ollmann
Ilka Hundeshagen
Frauke Heitmüller
Natalie Bani Ardalan
Herbert K. Haas
Torsten Leue
Participation in full meetings of the
Supervisory Board
In our function as the Supervisory Board we considered at
length during the 2021 financial year the position and devel-
opment of the company and its major subsidiaries. The impli-
cations of the Covid-19 crisis remained a focus of our deliber-
ations. We advised the Executive Board on the direction of
the company and monitored the management of business on
the basis of written and verbal reports. The Supervisory Board
of Hannover Rück SE held four regular meetings in order to
adopt the necessary resolutions after appropriate discussion.
In conformity with the applicable safeguards to reduce the
risk of infection with Covid-19 the meetings were held in a
hybrid format, i.e. with partially physical and partially virtual
attendance. With the exception of the meeting in March, in
which Dr. Schipporeit was unable to participate, all the Su-
pervisory Board members took part in the Supervisory Board
meetings held in 2021. The meetings of the committees were
duly attended in all cases by all the members of the respective
bodies. In addition, two representatives of the Federal Finan-
cial Supervisory Authority attended one meeting of the Su-
pervisory Board on a virtual basis. The individual participa-
tion in the meetings is shown in the following table:
Report by the Supervisory Board
At the meeting held on 4 May 2021 the Executive Board re-
ported on the first quarter of 2021, in which regard we also
considered at length the objectives of the current strategy cy-
cle (2021-2023) against the backdrop of the uncertainties as-
sociated with the pandemic. We explored the overall results
of the previous year in greater depth, with the underlying ef-
fects on intrinsic value creation (IVC) considered in detail. We
also received a report on the return on investment in a peer
comparison. In addition to the outlook for the current finan-
cial year -
which was similarly shaped by the uncertainties
around the Covid-19 crisis -, the examination of the Own Risk
and Solvency Assessment (ORSA) and the capitalisation un-
der Solvency II constituted further key points of deliberation.
Following up on this, the structure of the Regular Supervisory
Report (RSR) and its differences and overlaps relative to the
ORSA were explained. Another focus of the meeting was the
discussion of the IT strategy. In light of the increasing impor-
tance of digitalisation and innovation and the attention paid
to them in all areas of the company, we shall continue to ap-
proach this topic more intensively going forward. We also
used the meeting to review the Corporate Governance Princi-
ples with an eye to their up-to-dateness and the conformity of
their language with the other documents describing corpo-
rate governance. The version approved by us was published
on the company's website following the meeting
(https://www.hannover-re.com/50889/corporate-govern-
ance-principles.pdf). With regard to the self-assessment of
the Supervisory Board's areas of expertise that had once
more been carried out, the Supervisory Board decided that
the present extensive list of topics which goes beyond the
regulatory requirements will be used again in 2022.
On 3 August 2021, in a meeting that lasted the entire day, the
Executive Board reported on the first half of 2021, describing
as usual key performance indicators from the underwriting
and non-underwriting side and outlining the progress made
in attaining the strategic targets. We discussed the major in-
sights from the risk report and the Chief Risk Officer present-
ed the final conclusions of the expert opinion submitted to us
on the adequacy of the loss reserves in property and casualty
reinsurance. We also received the audit report on the Solven-
cy II balance sheet. Another key topic at the August meeting
was the internal approach to dealing with cyber risks. The
Supervisory Board was able to obtain a solid picture of the
risk management processes. Based on a separate item of the
reporting, we also looked at the metrics used to steer the life
and health reinsurance business. We received a detailed re-
port on the status of implementation of the new financial re-
porting standard (IFRS 17) within the company. In this con-
text, more extensive content-related information was provided
about the new standard - building on the training in which
the Supervisory Board had participated in the previous year.
Furthermore, following the necessary process changes com-
pleted in the previous year, an account of related party trans-
actions was provided. It was concluded that there were no
transactions in the reporting period that fall under the legal
requirements governing mandatory approval (§ 111b Stock
Corporation Act (AktG)) or compulsory disclosure (§ 111c
Hannover
Torsten Leue 1, 2, 3
Supervisory Board of Hannover Rück SE
Hannover Re | Annual Report 2021
282
J.
в. Али белая
Dr. Schipporeit
Dr. Pollak
Dr. Ollmann
Dr. Lipowsky
Олипи
hipousy
Hundeshagen
Heitmüller
Bani Ardalan
Natalie Bani Ardalan F. Heitmüller Ilka thundestagen
(since 7 May 2018) 5
Haas
Chairman
Chief Executive Officer of Talanx AG, Hannover
Mexico
Hannover Services (México)
S.A. de C. V.
German Centre
Oficina 4-4-28
Av. Santa Fé No. 170
Col. Lomas de Santa Fé
C.P. 01219 México, D.F.
Tel. +52 55 9140-0800
Fax +52 55 9140-0815
General Manager:
Alejandra Bautista
286
Hannover Re | Annual Report 2021
Employee
(since 8 May 2019) 5
Springe
Natalie Bani Ardalan 4
HDI Haftpflichtverband der Deutschen Industrie V.a.G.,
Hannover
Former Chief Executive Officer of Talanx AG and
Deputy Chairman
(since 24 May 2002) 5
Burgwedel
Herbert K. Haas 1, 2, 3
Chief Executive Officer of HDI Haftpflichtverband der
Deutschen Industrie V.a.G., Hannover
59200 Kuala Lumpur
Tel. +60 3 2687-3600
Fax +60 3 2687-3760
M. Mam
Нилии
informed the Supervisory Board of the outcome of its reviews.
The audit reports were distributed to all the members of the
Supervisory Board and explored in detail - with the participa-
tion of the auditors - at the Supervisory Board meeting held
to consider the annual results. The auditors will also be pres-
ent at the Annual General Meeting.
The accounting, annual financial statements, consolidated fi-
nancial statements and the combined management report
were audited by PricewaterhouseCoopers GmbH Wirtschafts-
prüfungsgesellschaft. The Supervisory Board chose the audi-
tor and the Chairman of the Supervisory Board awarded the
audit mandate. The auditor's independence declaration was
received. Along with the audit concentrations defined by the
European Securities and Markets Authority (ESMA), auditing
activities relating to the implementation of IFRS 17 were also
included in the scope of the audit. The mandate for the review
report by the independent auditors on the Half-yearly Finan-
cial Report and the Solvency II balance sheet was also award-
ed again. The special challenges associated with the interna-
tional aspects of the audits were met without reservation.
Since the audits did not give rise to any objections, Pricewa-
terhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft is-
sued unqualified audit certificates. It was also determined
that the annual financial statement contains the information
pursuant to § 289f German Commercial Code (HGB). The Fi-
nance and Audit Committee discussed the financial state-
ments and the combined management report with the partic-
ipation of the auditors and in light of the audit reports, and it
Audit of the annual financial statements and
consolidated financial statements
As in the previous years, among other things, the Standing
Committee reviewed the adequacy of the remuneration
scheme for the members of the Executive Board, determined
the variable remuneration of the members of the Executive
Board for the 2020 financial year based on the findings per-
taining to attainment of their respective targets and examined
the remuneration for the Board members who were due for
review. We exchanged views with the Chairman of the Exec-
utive Board regarding the aforementioned change to the
schedule of responsibilities in the area of property and
casualty reinsurance. With regard to all these matters the
Committee drew up corresponding recommendations for the
full Supervisory Board. In the context of the extensions of the
terms of office for individual members of the Executive Board
that were up for discussion in 2021, we engaged in an ongo-
ing dialogue on medium- and long-term succession arrange-
ments. Furthermore, the individual targets of the members of
the Executive Board for 2022 were defined on the basis of the
new remuneration scheme and prepared for adoption of a
resolution by the full Supervisory Board.
Manager and the Executive Board, we examined in detail the
process for compiling the non-financial information state-
ment with an eye to existing and new regulatory require-
ments. The implementation of the new financial reporting
standard (IFRS 17) was another point of emphasis in the
Committee's deliberations in the 2021 financial year.
Hannover Re | Annual Report 2021
280
The Finance and Audit Committee considered inter alia the
consolidated financial statement and the quarterly reports
drawn up in accordance with IFRS and the individual finan-
cial statement of Hannover Rück SE drawn up in accordance
with the German Commercial Code (HGB), and it discussed
with the independent auditors their reports on these financial
statements. As in the previous years, an expert opinion on the
adequacy of the loss reserves in property and casualty rein-
surance was noted, the retrocession structure of the Han-
nover Re Group as well as reports of the key functions were
received and considered. In addition, the Committee exam-
ined the investment structure and investment income - in-
cluding the stress tests with regard to the investments and
their implications for net income and the equity base. The
audit concentrations of the independent auditors for the 2021
financial year were defined. The review of the quality of the
auditing was carried out using the system defined in the pre-
vious year. The Committee continued to be provided with on-
going detailed reports on the recognition and measurement
of the risk-oriented book of US life reinsurance business ac-
quired in 2009 from Scottish Re as well as on the rate increas-
es that had been initiated and/or implemented. In one meet-
ing we focused on the capital market risks in life and health
reinsurance, while in another we concentrated specifically on
the mapping of currencies in the IFRS consolidated financial
statement. The increasingly significant issue of sustainabili-
ty/ESG was also discussed by the Committee on multiple oc-
casions. In cooperation with the Corporate Sustainability
Of the committees formed by the Supervisory Board within
the meaning of § 107 Para. 3 Stock Corporation Act (AktG),
the Finance and Audit Committee and the Standing Commit-
tee each met on four occasions in 2021. The committee chairs
updated the full Supervisory Board on the major deliberations
of the committee meetings at its next meeting and provided
an opportunity for further questions.
Committees of the Supervisory Board
As in every year, we were regularly briefed on the work of the
Supervisory Board committees.
Supervisory Board. It was again the case this year that the
individual members of the Supervisory Board attended nu-
merous advanced training measures in relation to various
core topics; the costs incurred in this connection were paid
by the company. Topics covered in 2021 included, among
others, Solvency II, financial reporting, sustainability/ESG,
cyber and recent market developments relating to the pan-
demic. We also discussed and approved the individual targets
for members of the Executive Board for 2022. The focus here
was on the findings of the Organisational Health Check, sus-
tainability and the strategic objectives.
At the last meeting of the year held on 3 November 2021, we
deliberated at length on the key preliminary results in the
business performance together with the outlook for the cur-
rent financial year. The large losses in property and casualty
reinsurance, which confronted the entire industry with ex-
ceptional challenges in the year under review, were our pri-
mary focus. The Executive Board also presented to us the
operational planning for 2022; we considered this in detail
and subsequently approved the annual and results planning
submitted to us. We discussed the latest insights from the risk
report and were informed of the status of major pending legal
proceedings. The Executive Board provided routine reporting
on employee capacities and the elaboration of the remunera-
tion system for senior executives pursuant to § 3 Para. 5 of
the Regulation on the Supervisory Law Requirements for Re-
muneration Schemes in the Insurance Sector (VersVergV).
The resolutions to be adopted by us on internal restructuring
measures within the Group were a point of emphasis in the
meeting. After in-depth discussion of the proposed transac-
tion, we approved the strategic sale of the shares in HDI Glob-
al Specialty SE. Following on from the training activities at
the August meeting, we received an update on the progress of
implementation of IFRS 17 in the internal accounting process
as well as a report on the prospects for dealing with relevant
new framework conditions in tax law. In addition, we were
provided with pertinent information on the sustainability
strategy in the current strategy cycle and the latest status of
implementation. For this purpose we were able to engage di-
rectly with the newly instituted function of Corporate Sustain-
ability Manager. We also devoted a significant part of our
discussions in the meeting to corporate governance issues
and hence approved the modified Declaration of Conformity
(for further details see the Declaration on Corporate Govern-
ance on page 118 et seq. of the combined management re-
port). Based on the findings of the "Fit and Proper" self-as-
sessment that had been conducted among the Supervisory
Board members, the Supervisory Board engaged in an exten-
sive exchange of views on a development plan for the entire
Stock Corporation Act (AktG)). Within the subject area of cor-
porate governance we also explored the efficiency of the Su-
pervisory Board's working procedure. The German Corporate
Governance Code (DCGK) requires a self-assessment to be
conducted regularly in this respect. For this purpose, our in-
dividual assessments were surveyed in advance. The consoli-
dated anonymised evaluation of this survey then formed the
basis for exploring the findings at the meeting. Similarly
building on our further training in the previous year, we again
had the opportunity to learn about the latest developments in
the area of (group) tax law in reinsurance and their relevance
to the company from the responsible expert present at the
meeting.
Supervisory Board
279
Hannover Re | Annual Report 2021
The report on the company's relations with affiliated com-
panies drawn up by the Executive Board has likewise been
examined by PricewaterhouseCoopers GmbH Wirtschafts-
prüfungsgesellschaft and given the following unqualified
audit certificate:
Leue
"Having audited the report in accordance with our profes-
sional duties, we confirm that
2. in the case of the transactions detailed in the report,
the expenditure of the company was not unreasonably
high."
The Supervisory Board
Hannover, 8 March 2022
The Supervisory Board would like to express its recognition
and special appreciation to the Executive Board and above all
to the employees for their efforts.
Thanks to the extraordinary performance and prudent
management of the Executive Board in this and past years
and even though the 2021 financial year once again pre-
sented enormous challenges, Hannover Rück SE generated a
good result. A great debt of gratitude is owed here in parti-
cular to the employees of the company and the Group for
their dedication and their considerable flexibility.
Word of thanks to the Executive Board and
members of staff
Nor were any changes made to the composition of the Exec-
utive Board in the year under review.
There were no changes in the composition of the Supervisory
Board or its committees in the year under review. The term of
office of the company's Supervisory Board ends pursuant to
§ 10 (3) of the Articles of Association of Hannover Rück SE
at the end of the General Meeting that ratifies the acts of
management for the 2023 financial year.
Executive Board
Changes on the Supervisory Board and the
Supervisory Board
281
Hannover Re | Annual Report 2021
We considered the report by the Executive Board on
non-financial matters (cf. page 70 et seq. of the combined
management report in the present Annual Report) and exam-
ined it. PricewaterhouseCoopers GmbH Wirtschaftsprüfungs-
gesellschaft also reviewed the information statement with
limited assurance in accordance with the audit standard ISAE
3000 (Revised) (see here the Independent Auditor's Report
on page 275 et seq.).
The Supervisory Board concurred with the opinions of the
auditors and approved the annual financial statements and
the consolidated financial statements; the annual financial
statements are thereby adopted. Our proposal regarding the
appropriation of the disposable profit for 2021 is in accord-
ance with that of the Executive Board.
- in each case drawn up as at 31 December 2021 - and have
no objections in this regard; nor do we have any objections to
the statement made by the Executive Board at the end of the
report on relations with affiliated companies.
a. the annual financial statements of the company, the
financial statements of the Hannover Re Group and the
combined management report prepared by the
Executive Board for the company and the Group, and
b. the report of the Executive Board pursuant to § 312
Stock Corporation Act (AktG) (Report on relations with
affiliated companies)
We have examined
1. the factual details of the report are correct,
(since 3 May 2012) 5
Employee
Responsibility statement
60
10,528.0
10,995.0
11,885.0
Hannover Rück SE in EUR million
Equity attributable to shareholders of
12,650.6
14,194.3
20,778.9
15,713.8
20,157.8
Market capitalisation at year-end in EUR million
104.90
117.70
172.30
130.30
167.15
Year-ending price¹
102.80
104.90
117.70
172.30
8,776.8
8,528.5
Book value per share
98.55
Dividend yield 5
14.05
10.9%
12.2%
13.3%
8.2%
10.8%
Return on equity (after tax) 4
18.45
20.81
26.79
130.30
40.97
3.50 +1.50³
3.75 +1.50³
70.72
7.95
72.78
8.79
87.30
10.65
4.00 +1.50³
91.17
7.32
4.503
4.50 +1.25 2,3
Dividend per share
10.21
Earnings per share (basic and diluted)
Cash flow per share
3.1%
Year-opening price 1
125.30
EUR 120,597,134.00
120,597,134
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)
HNR1 (Bloomberg), HNRGn (Reuters), HVRRY (ADR)
DE 000 840 221 5
840 221
Share class
Common shares
(as at 31 December 2021)
Number of issued shares
First listed
Index membership
Market segment
United States
Germany
Exchange listings
Ticker symbols
International Securities Identification Number (ISIN)
No-par-value registered shares
| 14
Key figures
in EUR
175.20
192.40
167.95
Annual high1
95.95
104.70
116.40
107.50
128.00
120.6
115.65
120.6
120.6
120.6
2017
2018
2019
2020
2021
I 15
Annual low¹
Number of shares in million
120.6
3.5%
3.2%
4.5%
115
Opportunity report
86
86
Opportunity and risk report
Risk report
70
information statement
Combined non-financial
65
57
55
35
38
37
37
GGGGWww w w
31
Information on Hannover Rück SE
Financial position and net assets
Investments
51
Enterprise management
118
Declaration on Corporate Governance
118
Hannover Re | Annual Report 2021
26
26
In the Life & Health reinsurance business group we are recog-
nised as customer surveys confirm - as one of the top play-
ers for traditional covers and a leading provider of structured
solutions. We achieve this standing by opening up new mar-
kets for our company and by identifying trends in order to
anticipate the future needs of our customers.
In the Property & Casualty reinsurance business group 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 po-
sitioning.
Our subsidiary E+S Rückversicherung AG (E+S Rück), as the
"Reinsurer for Germany", offers a range of products and ser-
vices tailored to the specific features of the German market.
Of special importance here are the mutual insurers with
whom we maintain a strategic partnership that is underscored
through their participation in E+S Rück.
Guided by a clearly defined risk appetite, the Executive Board
steers the company using risk management techniques so as
to be able to act on business opportunities while securing our
financial strength on a lasting basis.
Furthermore, we strive for the broadest possible diversifica-
tion and hence an efficient risk balance. This is achieved by
accepting reinsurance risks with mostly little or no correla-
tion across all lines and regions of property & casualty and
life & health reinsurance. In conjunction with efficient capital
management, this is the key to our comparatively low cost of
capital.
We also generate competitive advantages to the benefit of our
clients and shareholders by conducting our reinsurance busi-
ness with lower 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 pro-
tection on competitive terms.
The strategy pursued in both property & casualty and
life & health reinsurance supports our Group's paramount
mission, namely: "Striving for sustainable outperformance".
Our entire business operations are geared to our goal of be-
ing the preferred business partner for our clients. It is for this
reason that our clients and their concerns form the focus of
our activities.
Life & Health reinsurance
With a gross premium volume of more than EUR 24 billion,
the Hannover Re Group is the third-largest reinsurer in the
world. Hannover Rück SE is a European Company, Societas
Europaea (SE), based in Hannover, Germany. We transact re-
insurance in our Property & Casualty and Life & Health busi-
ness groups.
Worldwide reinsurance, transacting all lines of property & casualty and life & health reinsurance
with the goal of achieving the broadest and most balanced possible regional and line-based
diversification
Business model
Foundations of the Group
Combined management report
153
153
Forecast
Outlook
124
Remuneration report
Competitive advantages due to our low cost of capital and administrative expense ratio
Financial strength secured through sophisticated risk management
Property & Casualty reinsurance
Results of operations
Overall assessment of the business position
2
Xetra daily closing prices from Bloomberg
1
7.5
6.4
8.3
4.9
4.1
Price-to-cash flow (P/CF) ratio 8
13.2
Proposed dividend
13.4
17.8
16.9
Price/earnings (P/E) ratio?
1.5
1.6
2.0
1.4
1.7
Price-to-book (P/B) ratio6
4.8%
16.2
Securities identification number
3
4
Business development
industry-specific environment
Macroeconomic climate and
31
Report on economic position
30
Research and development
27
Management system
26
Dividend of EUR 4.50 plus special dividend of EUR 1.25 for 2021, dividend of EUR 4.50 for 2020, dividend of EUR 4.00 plus special dividend of EUR 1.50
for 2019, dividend of EUR 3.75 plus special dividend of EUR 1.50 for 2018 and dividend of EUR 3.50 plus special dividend of EUR 1.50 for 2017
Business model
Foundations of the Group
Combined management report
Hannover Re | Annual Report 2021
24
8 Year-end closing price/cash flow (from operating activities) per share
Year-end closing price/earnings per share
7
6 Year-end closing price/book value per share
5 Dividend per share/year-end closing price
Earnings per share/average of book value per share at start and end of year
26
Basic information
80
23
The Annual General Meeting 2021 of Hannover Rück SE was
held on 5 May 2021 for the second consecutive time without
the physical presence of shareholders or their authorised
proxies. In view of the ongoing Covid-19 pandemic, the com-
pany had again decided on a virtual format to reduce risks to
the health of all participants. Altogether, around 76% of the
share capital was represented, a similar figure to the previous
year.
The shareholders approved the proposal made by the Execu-
tive Board and Supervisory Board to pay an ordinary dividend
of EUR 4.50 per share for the 2020 financial year - an in-
crease of EUR 0.50 - and to omit payment of a special divi-
dend. In his address to the meeting Chief Executive Officer
Jean-Jacques Henchoz looked back on a 2020 financial year
shaped by the Covid-19 pandemic, in which Hannover Re
generated Group net income of EUR 883.1 million despite the
challenging circumstances. At the same time, Jean-Jacques
Henchoz highlighted the growing importance of sustainabili-
ty for the Group's strategy.
All items on the agenda were adopted by a majority of more
than 85% of the represented voting rights. The results of the
votes and the attendance were published on the company's
website following the Annual General Meeting.
Dialogue with the capital market
considered a high priority
Even with the ongoing Covid-19 pandemic throughout the
2021 financial year, an active and open dialogue with the cap-
ital market retained the highest priority. With travel restric-
tions still in place worldwide, investor conferences and road-
shows have been held almost exclusively in a virtual format as
audio or video broadcasts. The Executive Board and repre-
sentatives of the Investor Relations department were thereby
once again able to maintain the dialogue with institutional
investors, analysts and private investors and share extensive
insights into Hannover Re's strategy and business operations.
In regional terms, the focus of our efforts remained on the fi-
nancial centres of Europe and North America. While the num-
ber of participations in capital market conferences rose to 18
(previous year: 13), the roadshow days were virtually un-
changed at 13 (12).
Direct contact with the Investor Relations department contin-
ued to play a major role in communication activities. Ques-
tions about the impacts of the Covid-19 pandemic on
Hannover Re were again a central theme in these discussions
in 2021. Rising inflation and concerns about the influence of
climate change on losses from natural catastrophes also took
on added significance as the year progressed.
Growth opportunities in property & casualty reinsurance and
life & health reinsurance as well as the current development
of business in line with the Group strategy were major themes
of Hannover Re's 24th Investors' Day, which was broadcast
on 14 October 2021 as a webcast from Hannover. A modest
adjustment to the dividend policy was also announced and
the continuity of the dividend payment was emphasised. Go-
ing forward, it is envisaged that the regular distribution of an
ordinary dividend should at least remain stable. A payout ra-
tio will no longer be set as a target. Payment of a special div-
idend will remain a capital management tool to be considered
if the capitalisation exceeds the capital required for future
growth and the earnings guidance is achieved. In general
terms, a growing tendency to align investments with sustain-
ability criteria can be observed among investors, as a conse-
quence of which questions relating to Hannover Re's sustain-
ability efforts as well as ESG (environmental, social and
governance) issues also continued to be asked more widely.
22
22
Hannover Re | Annual Report 2021
Sustainability ratings improved
Along with traditional financial considerations, non-financial
key performance indicators are coming to play an increasing-
ly important role in the evaluation of companies on the capital
market. In the financial year just ended, therefore, Hannover
Re again reported extensively on sustainability and ESG top-
ics. The disclosures took the form of a combined non-finan-
cial information statement as an integral component of the
Group management report. In this connection we also report
for the first time how and to what extent our activities fall
within the frame of reference of the EU taxonomy for sustain-
able economic activities. In addition, we publish annual sus-
tainability reports compiled in accordance with the interna-
tionally recognised reporting standards of the Global
Reporting Initiative (GRI). In 2021, as in prior years, we culti-
vated a regular dialogue with a number of different stake-
holders on sustainability issues. Particularly among investors
and analysts, a marked increase in discussions of specific
ESG topics can be observed. In addition, Hannover Re partic-
ipates in the feedback processes of various ESG rating agen-
cies. The company has ratings from, among others, CDP, ISS
ESG, MSCI, Sustainalytics and VigeoEiris and is listed in the
FTSE4Good, the Global Challenges Index and the sustainabil-
ity index of Deutsche Börse AG (DAX50 ESG). Hannover Re
also became a signatory to the UN Principles for Sustainable
Insurance (UN PSI) and joined the Net-Zero Insurance Alli-
ance (NZIA) in the year under review.
Shareholder structure as at 31 December 2021
12.1% Private investors
37.7%
Institutional investors
161.35
158.30
Attendance at the Annual General
Meeting again around 76%
157.15
The Executive Board and the Supervisory Board intend to
propose to the Annual General Meeting on 4 May 2022 that a
dividend of EUR 5.75 per share should be distributed. Against
the backdrop of a comfortable level of capitalisation and
achievement of the profit guidance, the ordinary dividend of
EUR 4.50 will be supplemented by a special dividend of
EUR 1.25. This would put the ordinary dividend on the level
of the previous year and is thus in line with the company's
goal of pursuing a consistent dividend policy. Based on the
year-end closing price, this produces a dividend yield of
3.4%.
For our investors
2021
Closing
price
2021
DAX
13,718.78
15,884.61
MDAX
S&P 500
Dow Jones Industrial
MSCI World
31,013.05 35,123.25
3,764.61 4,766.18
30,627.47 36,338.30
2,690.04 3,231.73
15.8%
14.1%
26.9%
18.7%
20.1%
The Hannover Re share performed well
The performance of the Hannover Re share was similarly less
volatile in 2021 than in 2020, even though the Covid-19 pan-
demic continued to impact the (re)insurance industry.
The share stood at EUR 131.40 going into January and had
already touched its low for the year of EUR 128.00 by the end
of the month. Buoyed by a positive outlook coming out of the
treaty renewals, the share price then rose appreciably before
reaching its highest point of the year so far of EUR 157.20 on
30 March 2021. Worries about the repercussions of rising in-
flation on the (re)insurance industry and the forecast of an
unusually active hurricane season then caused the price to
slump abruptly to EUR 137.85 on 19 July 2021. The price
subsequently showed indications of a rally that did not gather
significant momentum until the end of July - further bolstered
by the publication of highly satisfactory half-year results in
August. In the second half of the year the Hannover Re share
was adversely affected by the heavy loss expenditures antici-
pated from Storm Bernd and Hurricane Ida as well as by the
spread of the Omicron variant and the associated uncertainty.
Hannover Re | Annual Report 2021
The capital market nevertheless responded robustly and the
Hannover Re share also rose steadily from the end of Novem-
ber onwards, reaching its highest point at year-end. The
Hannover Re share thus closed out the 2021 financial year
with a gain of 28.3% at EUR 167.15 and outperformed its
main peers Munich Re (+7.3%), Swiss Re (+8.3%) and Scor
(+3.8%).
The performance including reinvested dividends amounted to
+32.1%. From an annual perspective, the Hannover Re share
thus fared significantly better than the domestic benchmark
DAX (+15.8%) and MDAX (+14.1%) indices. In a three-year
comparison, the Hannover Re share delivered a performance
(including reinvested dividends) of 58.2%. It therefore per-
formed on a similar level to the benchmark DAX and MDAX
indices.
Based on the year-end closing price, Hannover Re's market
capitalisation totalled EUR 20.2 billion at the end of the finan-
cial year. According to the MDAX rankings drawn up by
Deutsche Börse AG, the company placed first at the end of
December in terms of its free float market capitalisation. With
a book value per share of EUR 98.55, the Hannover Re share
showed a price-to-book ratio of 1.70 at the end of the year
under review; it was thus below the average MDAX price-to-
book ratio of 2.14 at year-end. Compared to the average
price-to-book ratio for its peer group, the Hannover Re share
continues to be significantly better valued.
By year-end 2021 22 analysts had handed down opinions on
our company: twelve analysts recommended the Hannover Re
share as "buy" or "overweight". Altogether six opinions were
a "hold". "Underweight" or "sell" recommendations were is-
sued by only four analysts.
21
I 10
Dividend proposal envisages a
higher distribution
155.20
157.50
147.30
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Monthly average
Highs and lows (closing prices)
20
20
Hannover Re | Annual Report 2021
Relative performance of the Hannover Re share (including reinvested dividends)
in %
200
180
160
140
120
Apr
Mar
Feb
Jan
147.40
150
153.25
154.65
144.00
150.65
151.00
140
137.20
in EUR
144.40
140.00
139.90
137.85
130
128.00
128.90
120
110
100
142.90
price
Opening
Change
Life & Health Reinsurance
Regional responsibility:
North America,
United Kingdom, Ireland,
Northern, Eastern and
Central Europe
Dr. Klaus Miller
Europe
Latin America, Middle East,
Western and Southern
Africa, Asia, Australia,
Regional responsibility:
•
Life & Health Reinsurance
Worldwide responsibility:
Longevity Solutions
Claude Chèvre
Finance and Accounting
Information Technology
Investment and
Collateral Management
Facility Management
Clemens Jungsthöfel
Hannover Re | Annual Report 2021
18
Innovation Management
Human Resources
Management
Internal Auditing
Risk Management
Corporate Development
Corporate Communications
Compliance
Controlling
Chairman
Jean-Jacques Henchoz
London Market
• United Kingdom, Ireland and
Hannover Re | Annual Report 2021
19
For our investors
The Hannover Re share
165.10
170
167.95
180
190
200
109
On 17 November 2021 the DAX charted a new all-time high of
16,251 points, before the spread of the Omicron variant of the
coronavirus unsettled markets and prompted another sharp
price decline on the DAX. Despite all the risks associated with
the Covid-19 pandemic, supply chain shortages and rising in-
flation, the stock market year ended on a positive note for the
DAX as well as for the US benchmark indices and MSCI World
index.
In the months that followed the German equity market was
unable to make further pricing advances. As part of the index
reform undertaken by Deutsche Börse AG in September 2021,
the DAX was expanded through the addition of ten MDAX-
listed companies, as a consequence of which the MDAX was
reduced to 50 members and hence lost a good 40% of its
market capitalisation. Yet the combination of uncertainty
around monetary policy and economic concerns cast a
shadow over the new enlarged DAX 40. At the end of Sep-
tember 2021 the DAX was hovering slightly below the level of
the previous quarter at 15,261 points. The parliamentary
elections on 26 September 2021 had at least put an end to the
considerable political uncertainty in Germany.
• North America
mon with the world economy - was shaped by the effects of
the global coronavirus pandemic, improvements in the real
economy compared to the previous year were particularly
conducive to a favourable performance overall on equity mar-
kets. On 30 March 2021 the DAX broke through 15,000 points
for the first time to close the day at 15,009 - a gain of a good
9% altogether since the beginning of the year. Particularly
key drivers of this trend were the hope of a global economic
upswing as well as the containment of the pandemic.
The German DAX index had entered the year at 13,719 points.
Although the first half of the 2021 stock market year - in com-
Essentially, 2021 proved to be a satisfactory year for global
equity markets, even though initial hopes that the corona-
virus pandemic would soon be contained as vaccines became
available failed to materialise. The expectation of a compre-
hensive fiscal package from newly elected US President Joe
Biden helped to drive markets higher as the year got under-
way. While the economic upswing continued throughout the
year, global economic growth was nevertheless curtailed by
moderating effects. A wide range of different factors made
themselves felt here. A scarcity of raw materials and prob-
lems in the global supply chain, for example, led to a chip
shortage that affected the automobile industry and many oth-
er sectors. Furthermore, the rapid rise in inflation from the
summer months onwards stoked fears that central banks
would move sooner than previously anticipated to end their
ultra-accommodative monetary policy, one of the major
drivers of equity markets in recent years. Fresh uncertainty
was triggered in the second half of the year by the spread of
the Delta and subsequently Omicron variants of the corona-
virus, which brought rising case numbers and accompanying
fears of renewed lockdowns. Ultimately, a wide range of re-
lated adverse factors prompted a new wave of uncertainty
and an economic slowdown that was reflected on capital
markets in indices tending to move sideways. On top of this,
the softening economic trend - especially in China owing to
tighter regulation and turmoil in the real estate sector – put
markets under pressure.
Dynamic equity markets
Dividend proposal: Ordinary dividend of EUR 4.50 and special dividend of EUR 1.25
€ 157.20
157.85
For our investors
Share price clearly outperforms the MDAX in 2021 with a gain of 32.1%
•
Highs and lows of the Hannover Re share
in EUR
100
Regional responsibility:
.
Dr. Michael Pickel
Property & Casualty Reinsur-
ance; Group Legal Services
Worldwide responsibility:
• Run-Off Solutions
Agricultural Risks
Regional responsibility:
Asia, Australia and
Middle East
As of 31 December 2021
of Hannover Rück SE
Executive Board
For our investors
17
Hannover Re | Annual Report 2021
40
2019
2020
2021
Hannover Re share (including dividend)
■ DAX
MDAX
Munich Re
Swiss Re
■ SCOR
Performance of benchmark indices
| 11
Germany, Switzerland,
Austria and Italy
• Latin America,
Iberian Peninsula
Silke Sehm
Political Risks
Credit, Surety and
•
• Aviation and Marine
•
Continental Europe and
Africa
Worldwide responsibility:
Casualty Reinsurance Business
Group
Coordination of Property &
Facultative Reinsurance
Quotations
Sven Althoff
Regional responsibility:
Insurance-Linked Securities
Retrocessions
•
• Structured Reinsurance and
Catastrophe XL (Cat XL)
•
Worldwide responsibility:
Reinsurance
Property & Casualty
•
80
160
1.7% Scandinavia
3.4% Asia
3.7% Switzerland
5.1% Benelux
I 12
50.2% Talanx AG
Geographical breakdown of the shares held by
institutional investors
I 13
0
5.1% Canada
7.8% France
15.3%
1.2% Rest of Europe
0.2% Rest of world
28.6% United States
27.9% Germany
Number of shareholders
continues to grow
Our share register showed some 70,560 shareholders at the
end of the year, another increase in the number of sharehold-
ers year-on-year (64,200). The largest shareholders at year-
end were Talanx AG with 50.2% as well as BlackRock, Inc.
with a reported 3.0%, Deutsche Asset Management Invest-
ment GmbH with a reported 3.0% and FMR LLC with a re-
ported 3.0% of the voting rights. Within the free float, insti-
tutional investors accounted for 37.7% (38.1%) of the total
shares outstanding, while private investors held 12.1%
(11.7%). Our shareholders include investors who pay par-
ticularly close attention to sustainability criteria.
Hannover Re | Annual Report 2021
United Kingdom
Development of investment income
M24
M 07
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.
38
M25
Investment portfolio
Gross premium by lines of business in 2021
38
reinsurance
M23
M06 Geographical breakdown of gross premium
in 2021
Key figures for Life & Health reinsurance
M22
88
38
SSSSS
Investment income
gross premium by individual lines of business
Balance sheet structure of Hannover Rück SE
Allocation of the non-financial aspects to
the material topics
Frequency losses: losses that occur frequently in a foresee-
able amount, i. e. where the underlying risks are associated
with relatively high probabilities of occurrence and usually
low loss amounts.
Impairment: extraordinary amortisation taken when the pre-
sent value of the estimated future cash flow of an asset is less
than its book value.
Excess of loss treaty: cf. → non-proportional reinsurance
Excess return on capital allocated (xRoCA): indicator which
describes the IVC in relation to the allocated capital and
shows the relative excess return generated above and beyond
the weighted cost of capital.
Expense ratio: administrative expenses (gross or net) in rela-
tion to the (gross or net) premium earned.
Exposure: level of danger inherent in a risk or portfolio of
risks; this constitutes the basis for premium calculations in
reinsurance.
Hannover Re | Annual Report 2021
289
Further information
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.
Fair value: price at which a financial instrument is freely tra-
ded between two parties.
Financial Solutions: reinsurance transactions which - in ad-
dition to the transfer of biometric risks - also include finan-
cing components such as financing arrangements for new
and existing business, reserve relief, smoothing of volatility in
results, optimisation of the solvency position.
EBIT performance
Funds held by ceding companies/funds held under rein-
surance treaties: cf. deposits with ceding companies/depo-
sits received from retrocessionaires
Goodwill: the excess of the cost of an acquired entity over the
net of the amounts assigned to assets acquired and liabilities
assumed.
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 diffe-
rence is the corresponding net item (gross - retro = net, also:
for own account).
Group net income: Group net income under IFRS corres-
ponds to the profit for the year available to the shareholders
of Hannover Re.
Hybrid capital: debt structure which because of its subordi-
nation bears the character of both debt and equity.
IBNR (Incurred but not reported) reserve: provision for
claims which have already occurred but which have not yet
been reported.
Insurance-linked securities (ILS): securitised insurance ris-
ks, such as catastrophe bonds, derivatives or collateralised
reinsurance.
M21
M04 Business development and guidance in
51
Management Report
M
20
Highs and lows of the Hannover Re share
109
24
24
M01 Target attainment
23
115
inside front cover 4
Strategic business groups
108
Basic information
114
inside front cover 4
Key figures
27
M02
Intrinsic Value Creation and excess return
on capital allocated
by reporting categories
36
36
the year under review
Breakdown of gross written premium
M20
Excess capital: the amount of available capital in excess of
the required capital
51
51
48
M17 Property & Casualty reinsurance: Gross premium
in Facultative Reinsurance by lines of business
Breakdown of gross premium by markets
Value of New Business (VNB) growth
M19
36
Gross premium by business group
M 03
M18
28
M05 Gross premium in Property & Casualty
ESG (Environmental, Social, Governance): sustainability
risks are all risks involving environmental, social and gover-
nance (ESG) issues. It has become common practice to distin-
guish the risks a company faces (outside-in view) caused by
ESG issues and the impacts a company has on people and the
environment (inside-out view).
Deposits with ceding companies/deposits received from
retrocessionaires (also: funds held by ceding compa-
nies/funds held under reinsurance treaties): collateral pro-
vided to cover insurance liabilities that a (re-)insurer retains
from the liquid funds which it is to pay to a reinsurer under a
reinsurance treaty. In this case, the retaining company shows
a deposit received, while the company furnishing the collate-
ral shows a deposit with a ceding company.
Earnings retention: non-distribution of a company's profits
leading to a different treatment for tax purposes than if profits
were distributed.
Fax +1 303 860-6032
President & CEO:
Peter R. Schaefer
Hannover Re | Annual Report 2021
Office New York
112 Main Street
East Rockaway, New York 11518
51
Tel. +1 516 593-9733
Fax +1 516 596-0303
President & CEO:
Tel. +1 303 860-6011
Peter R. Schaefer
500 Park Blvd., Suite 805
Itasca, Illinois 60143
Tel. +1 630 250-5529
Fax +1 630 250-5527
General Manager:
Eric Arnst
287
Hannover Re Services USA, Inc.
Glendale, Colorado 80246
4500 Cherry Creek Drive South,
Suite 1100
Office Denver
52
Taipei Representative Office
Rm. 902, 9F, No. 129, Sec. 3
Minsheng E. Road
Taipei
Tel. +886 2 8770-7792
Fax +886 2 8770-7735
Representative:
Ryan Chou
USA
Glencar Insurance Company
200 South Orange Avenue
Suite 1900
Orlando, Florida 32801
Tel. +1 800 214-2424
Fax +1 630 735-2341
President:
Patrick Fee
Hannover Life Reassurance
Company of America
200 South Orange Avenue
Suite 1900
Orlando, Florida 32801
Tel. +1 407 649-8411
Fax +1 407 649-8322
President & CEO:
Peter R. Schaefer
Office Charlotte
15720 Brixham Hill Avenue
Suite 300
Charlotte, North Carolina 28277
Tel. +1 704 731-6300
Fax +1 704 542-2757
President & CEO:
Peter R. Schaefer
Further information
Economic capital model: cf. → internal model
Glossary
Acquisition cost, deferred (DAC): cost of an insurance com-
pany that arises from the acquisition or the renewal of an in-
surance contract (e.g. commission for the closing, costs of
proposal assessment and underwriting etc.). Capitalisation
results in a distribution of the cost over the duration of the
contract.
Hannover Re | Annual Report 2021
Compliance: compliance by an enterprise with legal require-
ments.
Confidence (also: probability) level: the confidence level de-
fines the probability with which the defined amount of risk
will not be exceeded.
Corporate Governance: serves to ensure responsible ma-
nagement and supervision of enterprises and is intended to
foster the trust of investors, clients, employees and the gene-
ral public in companies.
Corporate Social Responsibility: the voluntary contribution
made by a company to sustainable development
Credit spread: Mark-up between a risky and a risk-free inte-
rest-bearing security with the same maturity, as a risk premi-
um for the credit risk entered into by the investor.
288
Critical illness cover: personal rider on the basis of which
typically a lump-sum cash payment is made in the event of
previously defined severe illnesses
The Group worldwide
Derivatives, derivative financial instruments: financial pro-
ducts derived from underlying primary instruments such as
equities, fixed-income securities and foreign exchange inst-
ruments, 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.
Direct (also: primary) insurer: company which accepts risks
in exchange for payment of an insurance premium and pays
indemnification for the insured loss in the event of a claim. A
direct insurer has a direct contractual relationship with the
policyholder (private individual, company, organisation).
Discounting of loss reserves: determination of the present
value of future profits through multiplication by the corres-
ponding discount factor. In the case of the loss reserves this
is necessary because of the profit calculation methods for tax
purposes applicable to German joint-stock corporations.
Diversification: orientation of business policy towards vari-
ous revenue streams in order to mitigate the effects of e.g.
economic fluctuations or natural catastrophes and thereby
minimise the volatility of results. Diversification is an instru-
ment of growth policy and risk policy for a company.
Dynamic volatility adjustment: long-term insurance guaran-
tees can be dynamically adjusted due to potentially increased
volatility in valuations on capital markets
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 ear-
nings per share is based on the number of shares including
subscription rights already exercised or those that can still be
exercised.
Deposit accounting: an accounting method originating in
US GAAP for the recognition of short-term and multi-year in-
surance and reinsurance contracts with no significant under-
writing risk transfer. The standard includes inter alia provisi-
ons relating to the classification of corresponding contract
types as well as the recognition and measurement of a depo-
sit asset or liability upon inception of such contracts.
Coinsurance Funds Withheld (CFW) Treaty: reinsurance
treaty under which the ceding company retains a portion of
the original premium at least equal to the ceded reserves.
Combined ratio: sum of the loss ratio and expense ratio.
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 provisi-
ons for loss events from previous years, in each case after the
deduction of own reinsurance cessions.
surer.
Aggregate excess of loss treaty: the reinsurance treaty atta-
ches if a ceding insurer incurs losses on a particular line of
business during a specific period (usually twelve months) in
excess of a stated amount.
Allocated capital: cf. → capital allocation
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.
American Depositary Receipt (ADR): share certificates writ-
ten by US banks on foreign shares deposited there. The ADRs
are traded instead of the foreign shares. In the United States
Hannover Re has enabled trading on the OTC (over-the-coun-
ter) 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 Le-
vel 1 program compared to higher-level programs is that the-
re is no requirement for accounting or financial reporting in
accordance with US GAAP.
Asset/liability management: matching of the invested assets
with the liabilities arising out of the reinsurance business.
BaFin: Federal Financial Supervisory Authority (Bundesan-
stalt für Finanzdienstleistungsaufsicht)
Benefit reserves: value arrived at using mathematical me-
thods for future liabilities (usually prospectively as present
value of future liabilities minus present value of future inco-
ming premiums), primarily in life and health insurance (that
is transacted in a similar way to life insurance).
Book value per share: shareholders' equity divided by the
number of shares outstanding
Business continuity management: integrated set of
ses to maintain business operations
proces-
Capital adequacy ratio: the adequacy ratio is derived from
the ratio of the available capital (or own funds) to the required
capital - the solvency capital requirement (SCR).
Capital allocation: risk-appropriate allocation of the econo-
mic capital to the business segments of property & casualty
reinsurance and life & health reinsurance as well as the inves-
tments on the basis of the respective economic risk content.
Our internal capital model supplies key parameters such as
the volatility of the covered business/investments and the
contribution to diversification.
Capital asset pricing model (CAPM): model used to explain
the materialisation of prices/returns on the capital market
based on investor expectations regarding the future probabi-
lity distribution of returns. Under this method, the opportuni-
ty cost rate for the shareholders' equity consists of three com-
ponents - 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 de-
fined as follows: risk-averse interest rate + beta * enterpri-
se-specific risk assessment.
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.
Cat. bonds: securitised (re)insurance risks in respect of which
the payment of interest and/or repayment of capital is depen-
dent on the occurrence and severity of a predefined insured
event. Purchasers of a catastrophe bond assume the risk car-
ried by the (re)insurer upon occurrence of the catastrophic
event. Catastrophe bonds are part of the insurance-linked se-
curities market. Cf. securitisation instruments
Cedant: direct insurer or reinsurer which passes on (also: ce-
des) shares of its insured or reinsured risks to a reinsurer in
exchange for premium.
Cession: transfer of a risk from the direct insurer to the rein-
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 policyhol-
ders are insured by the said company.
107
held by institutional investors
inside front cover 3
Silent cyber: unintended coverage of cyber-related losses in
traditional reinsurance treaties
Segment reporting: presentation of items in the balance
sheet and income statement split according to functional cri-
teria such as business sectors and regions.
Hannover Re | Annual Report 2021
292
Securitisation instruments: instruments for transferring
reinsurance business to the capital markets with the goal of
refinancing or placing insurance risks.
Risk capital: the capital at risk notionally allocated to a risk
category
Risk, insured: risk that 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
risk carriers (retrocessionaires) in exchange for a pro-rata or
separately calculated premium (→ Gross/Retro/Net).
57
Retention: the part of the accepted risks which an insurer/
reinsurer 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.
Reinsurer: company which accepts risks or portfolio seg-
ments from a direct insurer or another reinsurer in exchange
for an agreed premium.
Reinsurance: passing on of a primary insurer's or reinsurer's
risks to a reinsurer.
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 reinsurance
treaty.
Quota share reinsurance: form of proportional reinsurance
under which the reinsurer assumes a contractually set percen-
tage share of the written risk. Since the insurer is responsible
for acquisition, pricing, policy administration and claims
handling, the administrative expenditure for the reinsurer is
very low. The latter therefore participates in the aforementi-
oned expenses mostly through payment of a reinsurance
commission.
case of wasting assets less scheduled and/or special amorti-
sation.
Purchase cost, amortised: the cost of acquiring an asset item
including all ancillary and incidental purchasing costs; in the
Provision for unearned premiums (also: unearned premi-
um 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.
Retakaful: reinsurance in accordance with Islamic law (Sha-
ria-compliant). The business model is similar in form to that
of mutual insurance and addresses, among other things, the
prohibition of interest in Islam.
M08 Breakdown of proportional and
M26
Breakdown of investments under
42
Solvency II: European directive for the insurance industry.
The new European regulatory regime for (re)insurers that en-
tered into force on 1 January 2016 on the basis of the Solven-
cy II Directive (Directive 2009/138/EC) is comprised of
risk-based capital requirements and imposes quantitative,
qualitative and reporting-related requirements in three main
areas known as pillars.
M30 Development of Group shareholders' equity
Development of policyholders' surplus
M29
41
Key figures for Property & Casualty reinsurance
Property & Casualty reinsurance:
M11
M10
Capital structure as at 31 December 2021
M28
39
Rating of fixed-income securities
M27
Breakdown into business written through
brokers and direct business
M 09
own management
39
non-proportional treaties by volume
Provision: liability item as at the balance sheet date to
discharge 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 (=
provision for outstanding claims, abbreviated to: claims pro-
vision).
M31
Protection cover: protection of segments of an insurer's
portfolio against major losses (per risk/per event), primarily
on a non-proportional basis.
Property and casualty (re-)insurance: collective term for the
lines of business concerned with the insurance of property,
including for example liability, fire, hail or marine insurance.
Major loss budget: annual budget for major losses deter-
mined from the modelled loss expectancy for business with
natural perils exposure as well as 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
million gross).
Loss ratio: proportion of loss expenditure in the retention re-
lative to the (gross or net) premium earned.
Loss, insured: the insured loss reflects the total amount of
losses covered by the insurance industry (insurers and rein-
surers).
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 underta-
ke to write certain risks only within the scope of the insurance
pool. They include such risks - while maintaining their com-
mercial independence - in the insurance pool against a com-
mission 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.
Insurtech: term referring to new business models/compa-
nies in the insurance industry that focus primarily on the use
of new technologies.
Internal model: economic capital model verified and appro-
ved by the Federal Financial Supervisory Authority that better
reflects the company's risk profile than the standard formula
under Solvency II.
International Securities Identification Number (ISIN):
ten-character universal code used to identify securities inter-
nationally. 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.
Mark-to-market valuation: the evaluation of financial instru-
ments to reflect current market value or fair value.
Intrinsic value creation (IVC): the IVC is calculated accor-
ding to the following formula: real operating value creation =
adjusted operating profit (EBIT) – (capital allocated x weigh-
ted cost of capital). IVC is a tool of value-based enterprise
management 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).
IVC: cf. Intrinsic value creation
Issuer: private enterprise or public entity that issues secu-
rities, e.g. the federal government in the case of German
Treasury Bonds and a joint-stock corporation in the case of
shares.
290
Hannover Re | Annual Report 2021
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.
Letter of credit (LOC): bank guarantee under which, at the
request of the guaranteed party, the bank undertakes to ren-
der payment to the said party up to the amount specified in
the LOC. This method of providing collateral in reinsurance
business is typically found in the USA.
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, insofar as
the latter is written by life insurers.
-
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.
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.
Modified Coinsurance (ModCo) treaty: type of reinsurance
treaty where the ceding company retains the assets with res-
pect to all the policies reinsured and also establishes and re-
tains 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.
Probability level: cf. → confidence level
Priority: direct insurer's loss amount stipulated under
non-proportional reinsurance treaties; if this amount is excee-
ded, 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 amorti-
sed according to schedule.
Premium: remuneration for the risks accepted from an in-
surance company. Unlike the earned premiums, the written
premiums are not deferred.
Further information
291
Hannover Re | Annual Report 2021
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.
Parametric cover: index-based type of insurance, e.g. to pro-
tect against weather risks
Other securities, trading: securities or financial instruments
that are held solely for short-term trading purposes. They are
measured at their fair value at the balance sheet date.
Other securities, held-to-maturity: securities or financial in-
struments that can and are intended to be held until maturity.
They are measured at amortised cost.
Other securities, available-for-sale: securities or financial
instruments that cannot be clearly allocated to the "trading"
or "held-to-maturity” portfolios; these securities can be dis-
posed 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 un-
der which the reinsurer participates in a cedant's total, preci-
sely defined insurance portfolio. This is in contrast to faculta-
tive 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.
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 port-
folio deviates from what had previously been calculated on
the basis of actuarial assumptions.
Morbidity risk: in general terms, the actuarial risk that the
state of health of a person is adversely impacted by illness,
malfunctioning of organs or other body parts (functional disa-
bility), injury or frailty and that higher costs are triggered by
medical treatment, long-term care or protracted periods of
disability.
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 contrast
to non-proportional reinsurance.
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.
Amortised cost of our bonds
M32
Gross premium
Introductory Sections
101
|
Notes
N
Management Report
M
102
Introductory Sections
List of graphs, tables and charts
Further information
293
Hannover Re | Annual Report 2021
xROCA: cf. Excess Return on Capital Allocated
Volatility adjustment: addition to the risk-free curve used
under Solvency II to calculate technical provisions. Its use
must be approved by the responsible supervisory authority
and is intended to smooth volatility in the measurement of
bonds due to changes in credit spreads.
tion
Value-at-Risk: the measure of risk for a company's risk posi-
|
Group net income
103
Policyholders' surplus
Key figures
106
21
21
222
Shareholding structure as at 31 December 2021 23
Geographical breakdown of the shares
113
inside front cover 2
Dividend
105
112
inside front cover 2
Book value per share
104
Performance of benchmark indices
I11
Relative performance of the Hannover Re share
(including reinvested dividends)
110
inside front cover 2
inside front cover 2
inside front cover 2
provision for unearned
M12 Property & Casualty reinsurance: Key figures for
individual markets and lines in 2021
Unearned premium reserve: cf. →
premiums
Treaty reinsurance: cf. → obligatory reinsurance
63
63
61
59
59
58
22222222640
Issue ratings of notes payable
63
M36
Financial strength ratings of Hannover Rück SE
Financial strength ratings of subsidiaries
M35
M34
M13 Property & Casualty reinsurance: Gross premium
in Europe, the Middle East and Africa
(including CIS countries) by lines of business
Cash flow from operating activities
M33
42
Consolidated cash flow statement
45
M14 Property & Casualty reinsurance: Gross premium
in the Americas by lines of business
M37
45
Technical result: balance of income and expenditure alloca-
ted to the insurance business and shown in the technical sta-
tement of income.
Target solvency capital: regulatory solvency capital require-
ment in accordance with Solvency II standards. At Hannover
Re this is calculated using an internal model.
Survival ratio: ratio of loss reserves to paid losses under a
specific contract or several contracts in a balance sheet year.
ceding company's retention (surpluses) are borne by the rein-
surer. 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 ceding company's retention.
Surplus reinsurance: form of proportional reinsurance under
which the risk is not spread between the insurer and reinsu-
rer on the basis of a previously agreed, set quota share. Ins-
tead, the insurer determines a maximum sum insured per risk
up to which it is prepared to be liable. Risks that exceed the
Structured reinsurance: reinsurance with limited potential
for profits and losses. In most cases customers strive for risk
equalisation over time or solvency relief, both of which have
a stabilising effect on the ceding company's balance sheet.
Structured entity: entity with specific characteristics not
bound to a particular legal form that is used to conduct clo-
sely defined activities or to hold assets and for which the tra-
ditional 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.
Solvency capital ratio (SCR): percentage coverage of the su-
pervisory capital requirement (target solvency capital) under
Solvency II by eligible own funds.
48
M40
M39
M16 Property & Casualty reinsurance: Gross premium
in Structured Reinsurance and Insurance-Linked
Securities by lines of business
47
M38 Hannover Rück SE: Breakdown of
M15 Property & Casualty reinsurance: Gross premium
in Asia-Pacific by lines of business
66
66
Condensed profit and loss account of
Hannover Rück SE
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.
Major loss trend
Sweden
68
Material branches within the Group
Book values from business relations with
N13
N12
Movements in level 3 financial assets and
N 36
190
List of shareholdings
N11
215
193
215
Fair value hierarchy of financial assets and
liabilities recognised at fair value 2021
Fair value hierarchy of financial assets and
liabilities recognised at fair value 2020
Movements in level 3 financial assets and
liabilities 2021
189
N 10 Scope of consolidation
N 35
185
Key exchange rates
N09
179
Valuation models
214
liabilities 2020
216
N 37
205
variable-yield securities
N 40
Maturities of the fixed-income and
N 17
204
Investments
N16
N39
200
Consolidated segment report
N 15
197
unconsolidated structured entities 2020
216
level 3 financial assets and liabilities 2021
Income and expenses from
N 38
196
unconsolidated structured entities 2021
Book values from business relations with
N14
Income and expenses from
N 08
N34
178
Restatements pursuant to IAS 8
211
Breakdown of investments by currencies 2020
N 29
166
Consolidated statement of income 2021
N 02
210
Breakdown of investments by currencies 2021
Rating structure of fixed-income securities 2020 210
N 27
N 28
164
31 December 2021
Consolidated balance sheet as at
N01
Notes
N
Further information
295
Hannover Re | Annual Report 2021
159
Forecast development for 2022
N 03
level 3 financial assets and liabilities 2020
Fair value hierarchy of financial assets and
liabilities measured at amortised cost 2021
Fair value hierarchy of financial assets and
liabilities measured at amortised cost 2020
Consolidated statement of comprehensive
income 2021
N07
177
Further IFRS Amendments and Interpretations
N06
N 33
170
Consolidated cash flow statement 2021
N 05
213
Development of investment property
N32
168
shareholders' equity2021
212
Investments in associated companies
N31
Consolidated statement of changes in
N 04
212
Financial information on investments in
associated companies
167
N 30
217
217
218
N58
208
228
Maturities of the technical reserves 2020
N 57
228
Maturities of the technical reserves 2021
N 56
227
and casualty reinsurance segment
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 2020
N23
Net loss reserve and its run-off in the property
N 55
207
226
Loss and loss adjustment expense reserve
N 54
225
Technical provisions
N 53
Development of the benefit reserve
225
229
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
Hannover Re | Annual Report 2021
296
233
Effect on the defined benefit obligation
N 63
N26 Rating structure of fixed-income securities 2021 209
233
Provisions for pensions
N 62
209
N25 Carrying amounts before impairment
232
defined benefit pension plans
208
Movements in net liability from
N61
231
Measurement assumptions
N 60
Development of the unearned premium reserve 229
N59
N24
110
Development of other intangible assets
224
221
220
220
219
Rating structure of financial assets that give rise
to solely payments of principal and interest
Development of deferred acquisition costs
Age structure of overdue accounts receivable
Value adjustments on accounts receivable
N 46
N 45
N44
Amortised cost, unrealised gains and losses
and accrued interest on the portfolio of
investments classified as held to maturity
N 19
206
as well as their fair value 2021
219
218
Fair value disclosures for financial assets 2021
Fair value disclosures for financial assets 2020
N 42
N 43
investments classified as held to maturity
and accrued interest on the portfolio of
N41
Amortised cost, unrealised gains and losses
N 18
as well as their fair value 2020
N52
206
Development of goodwill
Fixtures, fittings and equipment
N51
207
223
reinsurance portfolios
future profits (PVFP) on acquired life
Development of the present value of
N 50
206
receivables as well as their fair value 2021
Amortised cost, unrealised gains and losses
and accrued interest on loans and
receivables as well as their fair value 2020
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 2021
N22
N21
222
Other assets
N49
222
Capitalisation rates
N 48
Amortised cost, unrealised gains and losses
and accrued interest on loans and
N20
221
N47
67
M69 Required risk capital for operational risks
109
Own funds and required risk capital
M47
M73
126
M72 Guiding principles for the Executive Board
remuneration of Hannover Re
82
M45 Fighting corruption and bribery: Selected goals
M46 Risk management through multiple levels
of limits
Hannover Rück SE,
Tyskland Filial
Hantverkargatan 25
M 48
P.O. Box 22085
10422 Stockholm
Fax Life & Health
+46 8 617-5597
Fax Property & Casualty
+46 8 617-5593
Managing Director:
55
Thomas Barenthein
Spain
HR Hannover Re,
Correduría de Reaseguros, S. A.
Paseo del General Martínez
Campos 46
Tel. +46 8 617-5400
M49
Central functions of risk monitoring and steering 92
Risk landscape of Hannover Re
༄྾ཨྰཿ
Calculation of the short-term incentive (STI)
M77
96
(economic capital/shareholders' equity)
131
corporate strategy/development
Reconciliation
M50
remuneration and their relevance to the
94
Performance criteria for the variable
M76
130
Remuneration components and their target
M75
90
128
127
Structure of the target direct remuneration
Target remuneration
M74
86
28010 Madrid
Tel. +34 91 319-0049
Fax +34 91 319-9378
General Manager:
Eduardo Molinari
Taiwan
Hannover Rück SE
81
M44 Respect for human rights: Selected goals
125
Executive Board
80
Social matters: Selected goals
Changes in the remuneration system of the
M71
78
116
M70 Opportunity management process
76
Environmental matters: Selected goals
M43
M42 Employee matters: Selected goals
M41
Hannover Re | Annual Report 2021
294
72
Achim Klennert
132
Fax +27 11 484-3330/32
CEO:
P.O. Box 85321
Emmarentia 2029
South Africa
Compass Insurance Company Limited
5th floor, 90 Rivonia Rd.
Sandton
Johannesburg 2196
P.O. Box 37226
Birnam Park 2015
Tel. +27 11 745-8333
Fax +27 11 745-8444
www.compass.co.za
Managing Director:
Ismail E. Ismail
Hannover Re South Africa Limited
Rosebank Towers
Office Level 3
15 Biermann Ave
Rosebank, Johannesburg 2196
P.O. Box 85321
Emmarentia 2029
Tel. +27 11 481-6500
Fax +27 11 484-3330/32
CEO:
Achim Klennert
Managing Director L&H:
Wesley Clay
Managing Director P&C:
Randolph Moses
Hannover Reinsurance
Group Africa (Pty) Ltd.
Rosebank Towers
Office Level 3
15 Biermann Ave
Rosebank, Johannesburg 2196
Tel. +27 11 481-6500
M51 Required risk capital at the confidence level
of 99.5%
M78
Target attainment Group RoE in the
Comparative presentation
M93
M64 Scenarios for changes in the fair value of
148
M92 Individual remuneration of the members of
the Supervisory Board
106
M 63 Value at Risk for the investment portfolio
of the Hannover Re Group
146
remuneration granted and owing
105
Former members of the Executive Board
M91
104
M61 Required risk capital for market risks
M 62 Utilisation of the trigger system
144
the 2021 financial year
102
Remuneration granted and owing in
M90
142
Pension commitments
150
M 89
material asset classes
M94
balance sheet date
156
Property & Casualty reinsurance:
Forecast development for 2022
Reinsurance recoverables as at the
M 68
M96
109
Gross written premium retained
M 67
153
Growth in gross domestic product (GDP)
M95
108
counterparty default risk
151
systems - valid: 31 December 2021
M66 Required risk capital for the
eligible participants in variable remuneration
108
M65 Rating structure of our fixed-income securities
Group of participants and total number of
106
M97 Life & Health reinsurance:
M60 Sensitivities of the underwriting risks
(impact corridors in % of the available
economic capital)
Bonus bank 2017
137
Calculation of the long-term incentive (LTI)
allocation value
M55 Stress tests for natural catastrophes after
M 82
99
66
137
Multi-year variable remuneration components
M81
M54 Survival ratio in years and reserves for
asbestos-related claims and pollution damage
136
M80 Overall target attainment and amount paid out
under STI 2021
98
134
M79 Individual targets and target attainment of the
member of the Executive Board
98
M52 Required risk capital for underwriting risks
in property and casualty reinsurance
M53 Required risk capital for the five largest
natural hazards scenarios
133
2021 financial year
47
97
retrocessions
141
99
LTI 2021 allocation
M 88
102
141
HR Share Awards (HR SA) 2016
M87
M59 Required risk capital for underwriting risks
in life and health reinsurance
140
Target attainment curve relative TSR
M86
101
M58 Combined and catastrophe loss ratio
139
Calculation of the LTI amount paid out
M 85
101
138
Calculation of the LTI base payment amount
M84
100
M56 Catastrophe losses and major claims in 2021
M57 Ensuring the quality of our portfolios
138
M83
56
Hannover Re | Annual Report 2021
Maturity structure of derivative financial
Analysts' Meeting
3 May 2023
Annual General Meeting
www.hannover-re.com
299
Further information
Imprint
Published by
Hannover Rück SE
Karl-Wiechert-Allee 50
30625 Hannover, Germany
Tel. +49 511 5604-0
Fax +49 511 5604-1188
Credits
Werner Bartsch
page 2, 18/19
fizkes/Adobe Stock
page 5
Savo Ilic/Adobe Stock, sima/Adobe Stock
page 6
onephoto/Adobe Stock
Publication of the annual financial statements 2022
Annual Results Press Conference
9 March 2023
Results of treaty renewals as at 1 January
8 February 2023
The Annual Report of Hannover Rück SE is also available
here in English and German.
Investor Relations
Axel Bock
Tel. +49 511 5604-1736
Fax +49 511 5604-1648
axel.bock@hannover-re.com
298
Hannover Re | Annual Report 2021
Financial calendar 2022/2023
10 March 2022
Publication of the annual financial statements 2021
page 7
Annual Results Press Conference
4 May 2022
Quarterly Statement as at 31 March 2022
4 May 2022
Annual General Meeting
4 August 2022
Half-yearly Financial Report 2022
6 October 2022
25th International Investors' Day
3 November 2021
Quarterly Statement as at 30 September 2022
Analysts' Meeting
This is a translation of the original German text; the German
version shall be authoritative in case of any discrepancies in
the translation.
xy/Adobe Stock, skarie/Adobe Stock
page 9
Dragonlmages/Adobe Stock
income taxes with the actual expense
236
Long-term debt and notes payable 2021
N 67
Reconciliation of the expected expense for
N 89
234
248
deferred tax liabilities
Maturities of the sundry non-technical
provisions
N 66
Netting of deferred tax assests and
N 88
234
of all Group companies
Development of sundry non-technical
provisions
N 65
Deferred tax assets and deferred tax liabilities
N 87
234
N 64 Other liabilites
249
N68
Long-term debt and notes payable 2020
237
page 11
300
Hannover Re | Annual Report 2021
www.hannover-re.com
238
Maturities of financial liabilities 2020
N71
251
instruments 2021
237
Artem Varnitsin/Adobe Stock
page 10
Maturities of financial liabilities 2021
Maturity structure of derivative financial
N 91
237
notes payable
249
and temporary differences
Net gains and losses from long-term debt and
N 69
Expiry of non-capitalised loss carry-forwards
N 90
N 70
oliver.suess@hannover-re.com
Tel. +49 511 5604-1502
Fax +49 511 5604-1648
Oliver Süß
242
N 96
Stock appreciation rights of Hannover Rück
257
N77
Interest income on investments
242
N 97
Share awards of Hannover Rück SE
259
N78
Net gains and losses on investments 2021
243
N 98
Development of the provision for share awards
N79
Net gains and losses on investments 2020
243
of Hannover Rück SE
259
N 80
Investment income
N76
254
and abroad
N 72
Reconciliation of financing liabilities 2021
238
instruments 2020
251
N73
Reconciliation of financing liabilities 2020
238
N 93
Netting agreements 2021
Reinsurance result
252
Subsidiaries with material non-controlling
interests
N 94
Netting agreements 2020
252
240
N 95
Business assumed and ceded in Germany
N 75
Gross written premium
241
N74
244
N 99
Personnel information
N 85
Income tax
247
N 86
Domestic/foreign breakdown of
N 104 Future minimum lease payments receivable
N 105 Fee paid to the auditor
263
264
recognised tax expenditure/income
247
263
Hannover Re | Annual Report 2021
Further information
Contact information
Corporate Communications
Karl Steinle
Tel. +49 511 5604-1500
Fax +49 511 5604-1648
karl.steinle@hannover-re.com
For reasons of sustainability Hannover Re does not print or
mail out the annual and interim reports. The present Group
Annual Report of Hannover Re can be accessed online in
English and German as an HTML version and downloaded in
PDF format:
www.hannover-re.com
Media Relations
297
N 92
connection with leases
Revenue categories
260
N 81
Other technical income
244
N 100
Personnel expenditures
260
N 82
Commission and brokerage, change in
246
N 101
260
deferred acquisition costs
245
N 102 Leases in the balance sheet
263
N 83
Other income/expenses
245
N 103 Amortisation of right-of-use assets in
N 84
Calculation of the earnings per share
248
Combined management report
Capital allocation
5.6%
Target attainment 2021
+12.8%
5 The expected return on investment was revised with the publication of the Q3 statement.
The expected gross premium growth was revised with the publication of the Q1 statement.
4
Assuming stable capital markets and/or major loss expenditure in 2021 that does not exceed EUR 1.1 billion.
around 2.4% or more than 2.4% 5
between EUR 1.15 and 1.25 million 3
growth of at least 3%²
gross premium growth of around 5%
or in the upper single-digit percentage range 4
growth of around 5%
Guidance 2021
3
2
1 At constant exchange rates
Group net income
Return on investment
Life & Health reinsurance1
+16.3%
+5.5%
3,2%
EUR 1.23 billion
2019
Target attainment
20201
2021
Targets for 2021
Key data
Business group
M 01
Gross premium growth for
rived from our internal capital model approved by the
regulator and from the economic equity pursuant to Solvency
II reporting. The targets are regularly analysed and adjusted
in the context of the strategy review conducted at periodic
intervals. Given that reinsurance business is subject to cycli-
cal fluctuations, our primary focus is on medium- and long-
term attainment of the strategic targets across the cycle.
Our integrated system of enterprise management constitutes
the basis for attainment 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 sys-
tem of strategic targets also includes economic targets de-
Value-based management
Management system
9
Hannover Re | Annual Report 2021
Hannover Re | Annual Report 2021
36
Target attainment
Gross premium growth for
Property & Casualty reinsurance¹
Gross premium growth (Group) 1
M 04
19,176
20,000
8,026
8,538
22,597
25,000
24,770
17,791
27,762
The total policyholders' surplus, consisting of shareholders'
equity, non-controlling interests and hybrid capital, increased
measured in terms of the
capital adequacy ratio which is still comfortably in excess of
threshold levels - remains very robust. The equity attributa-
ble to shareholders of Hannover Re rose to EUR 11.9 billion
(EUR 11.0 billion) as at 31 December 2021. The return on
equity increased to 10.8% (8.2%). The book value per share
reached EUR 98.55 (EUR 91.17). We were able to achieve all
- and in some cases even substantially outperform - the fore-
casts shown in the table “Business development and guid-
ance in the year under review", some of which we had revised
higher in the course of the financial year.
-
Hannover Re's equity position
M 03
30,000
Gross premium by business group
in EUR million
Business development and guidance in the year under review
02019-20212
15,000
7,200
Life & Health reinsurance
Property & Casualty reinsurance
1 Restated pursuant to IAS 8
2021
20201
2019
2018
2017
7,816
0
10,711
11,976
14,781
16,744
10,000
19,224
7,080
5,000
―
Group
900 bps above
≥ 2%
XROCA 4,8
EUR 589
million
EUR 663
million
million
EUR 778
-6.8%
106.6%
-31.0%
6.7%
4.7%
5.5%
-43.2%
EUR 326
million
million
> EUR 250
Value of New Business
(VNB)4,9
-11.3%
17.6%
11.8%
6.5%
27
Excess return (one-year economic profit in excess of the cost of capital) on allocated economic capital
Based on Solvency II principles; pre-tax reporting
8
7 Average annual growth
Average annual growth at constant exchange rates
6
According to our internal capital model and Solvency II requirements
≥ 5%7
After tax; risk-free: five-year average return of ten-year German government bonds
This information has not been audited by the independent auditor
4
3
Annual average growth/weighted averages
2
Restated pursuant to IAS 8
1
5
EBIT growth
≥ 3% 6
Gross premium growth
17.5%
20.4%
15.8%
16.3%
≥ 5% 6
Gross premium growth
Property & Casualty
reinsurance
10.7%
242.8%
235.2%
243.1%
≥ 200%
Solvency ratio 4,5
8.2%
10.8%
risk-free
13.3%
250.7%
Return on equity 3
EBIT growth
83.7%
Life & Health
reinsurance
4.4%
0.1%
0.9%
11.9%
≥ 2%
XROCA 4,8
≥ 5%7
99.1%
101.6%
97.7%
≤ 96%
Combined ratio
4.6%
-2.8%
-36.0%
98.2%
A detailed overview of the development of our two business
groups Property & Casualty reinsurance and Life & Health
reinsurance and the performance of our investments is pro-
vided on pages 37 et seq.
Organic growth only
The operating profit (EBIT) improved sharply by 42.9% to
EUR 1,734.8 million (EUR 1,214.1 million). Group net income
was up by 39.4% at EUR 1,231.3 million (EUR 883.1 million).
We thus achieved our Group earnings guidance of EUR 1.15
billion to EUR 1.25 billion. Earnings per share stood at
EUR 10.21 (EUR 7.32).
(384.0)
-11.3%
653.5
17.6%
421.8
11.8%
Investments 2
Life and health reinsurance
663.5
245.4
4.1%
483.4
8.4%
Group
996.4
6.5%
11.0%
952.6
0.1%
0.9%
M 02
in EUR million
2021
2020
2019
IVC
xRoCA
5.2
IVC
IVC
xRoCA
Property and casualty
reinsurance
717.0
11.9%
53.9
xRoCA
Intrinsic Value Creation and excess return on capital allocated¹
6.0%
6.2%
Reinsurance business is founded on the comprehensive un-
derstanding and active management of risks. Our specialists
therefore 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 new-
ly emerging risks and working to provide our clients with ap-
propriate solutions tailored to their needs. This has signifi-
cantly supported growth over the past five years, especially in
structured reinsurance. Above and beyond this, Hannover Re
makes systematic efforts to identify new business opportuni-
ties in order to achieve sustainable growth and strengthen the
profitable development of the company.
In organisational terms, the exploration of market trends and
development of innovative products at Hannover Re are tasks
assigned to the individual market units. In addition, business
opportunities and innovations that cut across markets and
segments are coordinated by the "Group Performance & Strat-
egy Development" team and pursued by means of inter-
disciplinary projects in which various market and service
units participate.
30
Hannover Re | Annual Report 2021
Combined management report
Report on economic position
Macroeconomic climate and industry-specific environment
Not only that, through our active involvement and the provi-
sion 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. In recent years, for example, we
have launched and held two ideas competitions in which we
opened up new business opportunities on both the primary
and reinsurance side. In addition, we work for and with our
customers to develop fresh business approaches and sales
channels and we make our proprietary IT applications availa-
ble for risk assessment in the underwriting process. Another
example of Hannover Re's development activities is our own
internal model for risk management under Solvency II that
caters to the requirements of various stakeholders (regula-
tors, rating agencies, capital providers) and was one of the
first in Europe to be approved by the national financial regu-
lator (Federal Financial Supervisory Authority = BaFin).
•
Slowdown in most regions in the second half of the year
Significant stabilisation in movements on capital markets
Market environment for insurers shaped by low interest rates, inflation and catastrophe losses
Macroeconomic climate
United States
The geopolitical landscape remained tense in 2021. A hard-
ening of relations between the United States and China
loomed large under the new Biden administration. In Eastern
Europe the conflict between NATO and Russia intensified.
In the advanced economies the upswing lost appreciable mo-
mentum in the second half of the year. The same was true of
emerging economies, although the picture here was a more
nuanced one. In Latin America, for example, the economy
picked up markedly in the Andean states of Chile, Peru and
Colombia, whereas output in the large economies of Brazil,
Mexico and Argentina declined. Growth here was in part de-
pressed by drought-related crop failures and rising prices.
Global economy recovers after pandemic-induced slump in the previous year
910.2
By way of example, our move to give capital market players
direct access to insurance risks as far back as the mid-1990s
through our "K" transactions puts us among the industry pio-
neers. The intervening years have seen the subsequent evolu-
tion of a market for so-called insurance-linked securities,
which is one of the fastest growing markets in the insurance
sector.
Research and development
1 This information has not been audited by the independent auditor
Income above risk-free interest rate after deduction of risk-appropriate cost of capital
2
28
to EUR 15.7 billion (EUR 14.1 billion) as at 31 December
2021, in part due to the issuance of a subordinated bond.
Hannover Re | Annual Report 2021
The allocated capital consists of the economic equity pursu-
ant to Solvency II including non-controlling interests and the
hybrid capital. Capital is allocated to the profit centres as de-
scribed 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 in-
vestment risks, on the other. Under the IVC calculation, there-
fore, only risk-free interest income on the generated cash
flows is allocated to the business segments of proper-
ty & casualty and life & health reinsurance. The investment in-
come 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.
In calculating the cost of capital, our assumption - based on a
Capital Asset Pricing Model (CAPM) approach - is that the
investor's opportunity costs are 625 basis points above the
risk-free interest rate, meaning that economic value is creat-
ed above this threshold. Our strategic return on equity target
of 900 basis points above risk-free thus already contains a
substantial target value creation. We allocate equity sparingly
and use equity substitutes to optimise our average cost of
capital, which amounted to (unaudited by the independent
auditor) 4.6% in 2021 (previous year: 4.1%).
In the context of our innovation activities we continuously de-
velop products and solutions that deliver value added both for
Hannover Re and for our clients. Our innovation and digitali-
sation initiatives are enshrined in our Group strategy.
Since comparison of absolute amounts is not always mean-
ingful, we have introduced the xRoCA (excess return on cap-
ital allocated) in addition to the IVC. This describes the IVC in
relation to the allocated capital and shows us the relative ex-
cess return generated above and beyond the weighted cost of
capital.
Operational management system
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
internal capital model. We use these indicators for operation-
al 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 high-
er-order strategic objectives. These are for both business
groups the growth in gross premium, for property and
casualty reinsurance the combined ratio, for life and health
reinsurance the EBIT growth 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.
Management by Objectives
The key indicators from the target matrix are integrated
into the individual agreements on objectives with managers.
When it comes to the definition of objectives, the participants
take into account not only standardised financial indicators
but also non-financial variables derived from the strategic
parameters.
29
Hannover Re | Annual Report 2021
Combined management report
The close interlinking of our internal capital model with the
capital allocation and value-based management helps us to
fulfil the requirements of the Solvency II use test.
Despite the economic recovery, the Covid-19 pandemic con-
tinued to have a significant effect on economic activity. Coun-
tries with higher vaccination rates were also increasingly able
to tolerate higher case numbers without having to implement
containment measures. In the summer the rising numbers of
infections led to economic reverses, especially in Asia. The
repercussions were milder in the United States and Europe.
By year-end the economy faced new risks with the emergence
of the new virus variant Omicron and rising inflationary pres-
sures. Supply chain shortages continued.
The adjusted economic profit is comprised of two factors: the
IFRS Group net income recognised after tax and the change
in the balancing items for differences between economic val-
uations and amounts stated in the IFRS balance sheet. By way
of the latter we make allowance in the value determination for
changes in the fair values of assets not recognised in income
under IFRS as well as for the change in economic effects in
the technical Solvency II balance sheet items that are not rec-
ognised in the IFRS balance sheet. In addition, interest on
hybrid capital already recognised in the IFRS Group net in-
come and the non-controlling interest in profit and loss are
included back in the calculation.
measure strategy contributions with an eye to our
demanding profit and growth targets.
•
Business development
Hannover Re | Annual Report 2021
34
The issue of digitalisation was once again of special signifi-
cance to the (re)insurance industry in the year under review.
The pandemic has sharply accelerated the pace of the digital
transformation, particularly due to the deep inroads made
into public life around the world as part of efforts to slow the
spread of the virus and the associated shift towards more
widespread working from home. This will have an enduring
effect on the industry, including through the growing adop-
tion of hybrid forms of work and communication, in the de-
sign of digital insurance solutions and in increasing cross-sec-
tor partnerships. Technological progress is now so advanced
that computer systems are able to analyse enormous quanti-
ties of data and provide ever more useful support in many
areas of work and life. At the same time, the risks posed by
cybercrime must not be underestimated.
closure standards for reporting on sustainability matters.
All in all, the issue of sustainability has increasingly moved
front and centre for political institutions and corporations in
recent years. The topic attracted greater attention in Europe
with the unveiling of the Green Deal by the European Com-
mission in December 2019. The primary objective of the
Green Deal is to establish Europe as the world's first cli-
mate-neutral continent by 2050. This will involve a complete
transformation of the energy sector, industry, transportation
and agriculture in a shift away from fossil-based energy to-
wards sustainability and climate protection. Against this
backdrop, there were a number of regulatory developments
relating to sustainability in the year under review. Many of
them tie in with the European Commission's Green Deal, in-
cluding for example the aforementioned revision of the Sol-
vency II regime. The IFRS Foundation also announced the
creation of its International Sustainability Standards Board
(ISSB) in November at the UN Climate Change Conference in
Glasgow. It is intended that this will develop international dis-
Group gross premium grows by 12.1%
33
In Europe the Solvency II prudential regime is currently un-
dergoing a multi-step review process. In September 2021 the
European Commission submitted extensive proposals for an
overhaul of EU insurance rules, which will now be considered
by the European Parliament and the European Council. The
main aim of the review is to enable insurance undertakings to
step up their long-term investment in the European Union's
recovery from the Covid-19 pandemic. The European Com-
mission would also like to make the (re)insurance industry
more resilient so that it is even better equipped to weather
future crises and hence better protect policyholders. As a fur-
ther step, it is envisaged that simplified and more proportion-
ate rules will be adopted for certain smaller insurance compa-
nies. At the same time, the commitment of insurers to greater
sustainability will be strengthened. Insurers are to be incenti-
vised to scale up long-term capital investment in the economy
and hence contribute to the Green Deal and the Capital Mar-
kets Union in their dual role as protector and investor.
The planned adoption of the new international accounting
standard IFRS 17 by the International Accounting Standards
Board (IASB) continued to be an important concern in the
year under review. With effect from 1 January 2023 IFRS 17
will replace the interim standard IFRS 4, which has been in
force since 2005, and is intended to make it easier to compare
insurers through a consistent basis for the recognition of in-
surance contracts. Application of the standard is mandatory
for the consolidated financial statements of capital-mar-
ket-oriented insurance companies. At the same time, the ap-
plication of the financial instruments standard IFRS 9 was
deferred, with the result that all affected insurers will be able
to apply IFRS 9 and IFRS 17 simultaneously from 2023 on-
wards.
For the international (re)insurance industry, 2021 turned out
to be another challenging year. The Covid-19 pandemic fea-
tured particularly prominently for the second year in succes-
sion. Once again, business operations were extensively con-
ducted through home-based working as a means to contain
the pandemic. Only limited business travel was possible. In
addition, low interest rates, sharply higher inflation in some
cases and significant losses from natural disasters - such as
the severe floods in Europe and Hurricane Ida in the United
States took a toll on the results posted by insurers and rein-
surers. While the investment climate remained challenging, it
was nevertheless considerably more stable compared to the
turmoil of 2020.
Industry-specific environment
The euro largely gave back the previous year's gains against
the US dollar over the course of the year. It retreated from
USD 1.23 to USD 1.13. The euro similarly lost ground against
the British pound, falling from GBP 0.90 to GBP 0.84, and
also softened against the Australian dollar (from AUD 1.60
to AUD 1.56) and the Canadian dollar (from CAD 1.57 to
CAD 1.45).
The economy continued to enjoy strong support from central
banks in our main currency areas, which largely pressed
ahead with their expansionary interest rate policy adopted in
the prior year. Both the US Federal Reserve and the European
Central Bank left their key rates on the previous year's low
level. The Bank of England, on the other hand, was the first
major central bank to modestly increase its key lending rate
in December - primarily in response to inflationary tenden-
cies. The ECB - in common with the Fed and the Bank of
England continued its extensive asset purchase programme
for bonds issued by governments and corporate entities in
order to support them in this time of crisis. Overall, then, the
policies pursued by central banks in our main currency areas
were essentially consistent, supplemented by significant fis-
cal interventions. We view these worldwide interventions by
governments and central banks with their enormous money
supply as a not inconsiderable challenge because in some
ways they divorce the financial world from the natural, recip-
rocal control mechanisms of the financial markets and it is
unclear to what extent the current or future valuation levels
are supported by fundamentals.
es and the kinks in the supply chain are ironed out again, it is
conceivable that inflation may fade and secondary effects
such as wage pressures can be curbed. Even after some
potential easing, we nevertheless anticipate a slightly higher
level of inflation overall compared to the past decade.
Hannover Re | Annual Report 2021
.
.
•
Other income contracted by 38.6% to EUR 271.2 million
(EUR 441.4 million). This was due to a decline in the ba-
lance of exchange gains and losses to EUR -77.5 million
(EUR 149.1 million). This effect was, however, partially
opposed by stronger income of EUR 386.7 million
(EUR 342.4 million) from treaties recognised according to the
deposit accounting method.
Combined management report
35
Hannover Re | Annual Report 2021
The investment income generated by Hannover Re per-
formed significantly better than expected with income
from assets under own management rising by 14.4% to
EUR 1,674.8 million (EUR 1,463.7 million) – and thus played
an important part in the overall result for the year under re-
view. Earnings benefited from, among other things, strong
income from our portfolio of inflation-linked bonds and from
alternative investments such as private equity funds. The re-
turn on investment stood at 3.2% and thus very clearly beat
our target of more than 2.4%, which we had revised upwards.
The Group gross premium booked by Hannover Re increased
by 12.1% as at 31 December 2021 to EUR 27.8 billion
(EUR 24.8 billion). At constant exchange rates growth would
have reached 12.8%. We thus beat our guidance, which we
had revised upwards to growth in the upper single-digit
percentages. The level of retained premium was virtually
unchanged at 89.5% (90.1%). Net premium earned rose by
13.0% to EUR 24.1 billion (EUR 21.4 billion). The increase
would have been 13.7% at unchanged exchange rates.
In our Life & Health reinsurance business group we were
able to grow the gross premiums considerably more strongly
than our anticipated guidance of at least 3% with an increase
of 5.5% adjusted for exchange-rate effects. The result was,
however, impacted by the effects of the pandemic in the fi-
nancial year just ended. Altogether, the expenditures in-
curred here amounted to EUR 582.0 million. The bulk of them
stemmed from illnesses and deaths in the United States, our
largest single market, and South Africa. The pandemic-relat-
ed losses were opposed by positive one-time income of
EUR 131.7 from a restructuring measure in the US mortality
book as well as a positive special effect of EUR 121.9 million
in business with longevity covers. The pandemic-related
strains for the entire insurance industry further boosted what
had already been generally strong demand for reinsurance
covers - including for example in financial solutions busi-
ness, where we offer our customers individual reinsurance
solutions designed to improve their solvency, liquidity and
capital position.
surers in the world, we enjoy sustained very good access to
profitable business.
Gross premium in the Property & Casualty reinsurance busi-
ness group grew by 16.3% at constant exchange rates, com-
fortably beating our guidance of around 5%. The main fac-
tors here were the favourable market climate and improved
prices. On the other hand, no pandemic-related losses were
recorded for our account overall beyond the reserves set
aside in 2020. Nevertheless, the burden of large losses sur-
passed our budgeted expectation of EUR 1.1 billion. This was
due primarily to substantial losses from natural catastrophes
in the third quarter. The combined ratio in property and
casualty reinsurance improved in the financial year just end-
ed to 97.7% (previous year: 101.6%). Due to the considera-
ble major loss expenditure and on account of the protracted
low interest rate environment, the sustained improvement in
prices and conditions for reinsurance protection in property
and casualty business continued, although at the same time
retrocession covers saw a moderate price increase as the year
progressed. Thanks to its comparatively low administrative
expenses and cost of capital as well as its above-average
financial strength, Hannover Re has been and remains able to
successfully assert itself in the market. Based on our position-
ing as one of the largest and most robustly capitalised rein-
In the 2021 financial year we had to deal with, among other
things, pandemic-related expenditures in life and health rein-
surance and catastrophe losses in property and casualty rein-
surance. Once again, we demonstrated our robust risk-carry-
ing capacity and profitability. All in all, the business
development was pleasing.
For a number of years now the global reinsurance markets
have been fiercely competitive and overshadowed by rising
costs from natural catastrophes. Above and beyond this, the
low interest rate environment, higher inflation and the
Covid-19 pandemic present further challenges for the
industry.
As the third-largest reinsurer in the world, Hannover Re has a
far-reaching international network and extensive underwrit-
ing expertise. On this basis, we are able to offer our custom-
ers traditional, tailor-made and innovative reinsurance solu-
tions and we work with them to open up new business
opportunities.
Shareholders' equity rises to EUR 11.9 billion; return on equity reaches 10.8%
Group net income of EUR 1.23 billion at the upper end of expectations
Return on investment significantly higher than target at 3.2%
Life and health reinsurance delivers good underlying result, albeit with high pandemic-related
losses of EUR 582.0 million
Property and casualty reinsurance posts double-digit growth on the back of improved prices and
conditions; large loss expenditure higher than expected
Combined management report
The IVC (Intrinsic Value Creation) is calculated according to
the following formula: adjusted economic profit - (capital
allocated x weighted cost of capital) = IVC.
Hannover Re | Annual Report 2021
32
Gross domestic product in the United Kingdom expanded by
6.9% (-9.8%). This growth was heavily propped up by the
government, which boosted its spending by 16%. Along with
the effects of Covid-19, Brexit impacts were a considerable
drag on the economy: supply chain bottlenecks, labour short-
ages and the logistical reorientation clearly emerged as re-
strictive factors. Foreign trade was soft: exports fell by 2.2%,
while imports were up by a modest 1.6%.
In the Eurozone, the recovery from the pandemic-induced de-
cline in output continued virtually undiminished. After mod-
est contractions over the winter months, overall economic
output picked up sharply in the second and third quarters.
The first faint sights of a fresh slowdown could be discerned
towards year-end, however, as containment measures were
put in place again to curb the pandemic. Looked at over the
year as a whole, economic output rose by 5.0% (-6.5%). The
national picture varied widely in some instances. Ireland was
a major growth engine with a gain of 14.9%. The growth
rates in France, Italy and Spain stood at 6.6%, 6.2% and
4.2% respectively. Consumption in the Eurozone was up by
3.3% (-8.0%). Consumer prices climbed by 2.5% (0.3%)
against the backdrop of soaring energy costs. Unemployment
fell slightly to 7.6% (7.8%).
Europe
The US economy rallied after the previous year's downturn.
Gross domestic product increased by 5.6% (previous year:
-3.4%). Private consumption surged by a vigorous 8%
(-3.8%). Exports grew by 4.0% (-13.9%), while imports
soared by 13.2% (-8.9%). Investments in equipment also
shot up by 13.3% (-8.3%). The jobless rate retreated to 5.4%
(8.1%). Fiscal policy remained expansionary, although Con-
gress tended to scale back its stimulus spending compared
with the programmes of the two previous years. Higher ener-
gy prices saw inflation rise to 4.7% (1.2%), a level in excess
of the target set by the US Federal Reserve.
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 internal capital model supplies the key parameters for
this purpose. Starting out from the Group's overall risk situa-
tion, capital is first allocated to the functional areas of under-
writing 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 prod-
ucts according to risk categories/treaty types and lines. In
this way, we ensure consistent adherence to our profit targets
- allowing for risk, cost and return considerations - in the
evaluation and pricing of our various reinsurance products.
IVC - the strategic management ratio
-
In order to manage the portfolios and individual treaties we
apply underwriting-year-oriented measurement principles
based on expected cash flows that appropriately accommo-
date the specific characteristics of property & casualty and
life & health reinsurance. The attainment of targets in a par-
ticular financial year is also of interest – especially from the
standpoint of shareholders. Based on our economic measure-
ment according to Solvency II principles and our internal cap-
ital model, 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
business activities - is referred to as Intrinsic Value Creation
(IVC).
With the aid of the IVC ratio it is possible to compare the val-
ue 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
•
•
•
optimise the allocation of capital and resources,
identify opportunities and risks and
2
31
Hannover Re | Annual Report 2021
Gross domestic product grew by 2.6% year-on-year in Ger-
many (-4.6%). Softness over the winter months was followed
by a robust upswing in the summer. Restrictions began to
make themselves felt again towards year-end. As the year
progressed, private consumer spending bounced back sharp-
ly to almost pre-crisis levels. Looked at over the year as
whole, private consumption nudged modestly higher by
0.3% (-5.9%). Corporate spending rose by 2.1% (-5.5%),
with supply chain bottlenecks and materials shortages
which became even more acute in the summer - putting the
brakes on any further increase. Construction investments
were accompanied by record price increases, the pace of
which slowed in 2021 to 1.6% (2.5%).
The development of the global economy was also reflected in
rising raw materials and transport costs. These, in turn, have
been passed on in the form of a general rise in prices. It is
currently too soon to draw any definitive conclusions as to
whether we will have to live with higher inflation as a struc-
tural and more protracted phenomenon. As growth normalis-
The massive monetary and fiscal programmes undertaken by
individual governments, which especially in some European
countries and in Japan took on considerable dimensions rela-
tive to the respective gross domestic product, made them-
selves felt as in the previous year. Given that such supportive
actions make it easier for bubbles to form, it will be important
to keep a close eye on the timing and steps taken as these
supports are withdrawn. We expect to see elevated volatility
again on capital markets in this context.
Alternative investments held up exceptionally well in the
course of 2021. Most notably, valuations of investments in
private equity and in the real estate sector trended higher,
reflecting not only what were certainly more cautious valua-
tions at the end of the previous year but also brisk risk-taking
during the year.
On equity markets the picture was largely favourable. Gener-
ally speaking, broader-based demand re-emerged after the
temporary emphasis on tech stocks. The markets in estab-
lished economic regions closed the year with robust gains,
while those in developing economic areas were affected so
significantly by the upheavals on the Chinese market that
losses were posted here overall from an annual perspective.
Interest rates with minimal risk on the important fixed-in-
come markets for our company recorded in some cases very
sharp increases, especially for USD- and sterling-denominat-
ed bonds. This was also true, albeit to a lesser extent, of the
euro area. All in all, we benefited from the higher interest rate
level in our reinvesting activities. Credit spreads on corporate
bonds remained on a low pre-crisis level throughout virtually
the entire period under review after the very marked increas-
es and volatility seen in the previous year.
After the turmoil of the previous year the investment climate
- which in recent years had repeatedly proven challenging.
was considerably more stable in 2021, while also showing the
effects of the coronavirus pandemic and other geopolitical
and economic challenges. Global supply chains, which had
already been under strain from the pandemic, were disrupted
further by the incident involving the "Ever Given" in the Suez
Canal in March. Markets nevertheless remained largely sta-
ble, thanks to the supportive policy of central banks, fiscal
measures and a slow easing of the backlog in consumption.
The generally positive trend was sustained even after brief
setbacks due to the emergence of new coronavirus variants
and despite upheavals on Chinese real estate markets.
Capital markets
Germany
Gross domestic product in Japan rose by 1.5% (-4.7%). Ex-
ports were a key growth driver with a gain of 11.2% (-11.8%).
Compared to many other countries, however, the recovery in
the overall economy was softer. The Olympic Games held in
the summer failed to give the economy any appreciable boost.
Given the low vaccination rate - it was still around 40% in
August - case numbers began to rise again in late summer,
prompting the reimposition of restrictions and causing con-
sumers to rein in their spending.
In keeping with its strict zero Covid policy, China took
far-reaching containment measures in some instances which
had appreciable impacts at times on international supply
chains. Problems affecting the energy supply and the real es-
tate crisis were two other sensitive factors hampering growth
in the country. In the third quarter the pace of economic
growth in China almost came to a standstill at just 0.2%.
Viewed over the year as a whole, the Chinese economy
achieved a gain of 7.8% (2.3%).
Emerging markets in Asia maintained the vigorous pace of
growth seen in the second half of 2020. From an annual per-
spective, gross domestic product grew by 6.9% (-1.1%).
Asia
The jobless rate fell by 0.2 percentage points year-on-year to
5.7%. The increase in consumer prices was 3.1% (0.5%) av-
eraged over the year as a whole, driven primarily by higher
commodity and wholesale prices.
Boosted by exports of services, which include the resurgence
in the travel sector, exports rose by 7.5% in 2021 (-9.3%).
Imports were up by 7.8% (-8.6%). Import prices, in particu-
lar, increased appreciably on account of rising costs for raw
materials and intermediate goods.
After suffering a renewed pandemic-induced downturn in the
spring, the Indian economy rallied over the remainder of the
year and posted an increase in economic output of 7.6%
(-7.0%) for 2021.
The world economy bounced back in 2021 from the previous
year's pandemic-induced slump. The Kiel Institute for the
World Economy (IfW) estimates that global output surged by
5.7% after a contraction of 3.1% in the previous year. The
economy showed particularly marked improvement in the
early months of the year despite repeated pandemic-driven
setbacks. The effects of the pandemic remained largely re-
stricted to the service sector. Industrial output and global
trade expanded vigorously up until the spring. In the second
half of the year the pace of the economic turnaround slowed
in most regions.
Including interest on funds withheld and contract deposits
2
1 Restated pursuant to IAS 8
3
478
Hannover Re | Annual Report 2021
in EUR
million
2020 in
premium
2021 in
premium
gross
Gross EBIT 2021
premium
Gross Change in
Property & Casualty reinsurance: Key figures for individual markets and lines in 2021
Natural catastrophes and other major losses in excess of EUR 10 million gross
2021
2020
2019
2018
2017
2016
2015
975
Combined
ratio 2021
1,100
Target
combined
EUR
million
99.8%
94.8%
107.3%
161.9
3,713.1
2,104.3
+15.0%
2,420.7
Asia-Pacific
4,374.3 +17.8%
Americas
ratio 2020
Combined
M 12
Regional Markets
previous
year
in EUR
million
ratio
2021
EUR
million
relative
to
EBIT 2020
956
1,250
M 11
2020
846
1,000
850
1,127
1,497
1,595
1,722
1,790
2,127
1,500
2,000
2,500
3,000
in EUR million
Property & Casualty reinsurance: Major loss trend¹
Combined management report
11
41
714
724
573
825
2,649
875
| Net Net expectation for major losses 1
2014
2013
Gross
2012
0
1
Operating result (EBIT)/net premium earned
500
560
625
627
690
670
578
662
825
825
426
96.5%
2020
101.6%
3,000
(70%)
9,883
(67%)
8,214
(69%)
7,481
8,100
(68%)
7,133
(67%)
6,000
(66%)
10,887
(65%)
6,000
12,683
13,486
(70%)
11,773
(70%)
10,472
(71%)
9,000
9,000
4,898
(33%)
5,857
(35%)
3,000
0
0
2017
• Stable net reserves overall for the Covid-19 pandemic
Combined ratio improves to 97.7%
Operating profit up by 83.7%
Large loss expenditure higher than budgeted after catastrophic flooding in Europe and
hurricane Ida
Continued improvement in prices and conditions
•
Gross premium grows by 14.8%
•
Property & Casualty reinsurance
direct business
business written through brokers
6,541
(34%)
non-proportional
2021
299.6
2019
2018
2017
2021
2020
2019
2018
proportional
14,781
16,744
M 09
11,976
15,000
18,000
21,000
treaties by volume
in % and in EUR million
Breakdown of proportional and non-proportional
Hannover Re | Annual Report 2021
47.9% Property
22.4% Motor
12,000
17.7% Liability
Agricultural Risks
38
Aviation and Marine
Structured Reinsurance and
Insurance-Linked Securities
■ Facultative Reinsurance
Worldwide Markets
EMEA (including CIS)
APAC
■ Americas
Credit, Surety and
Political Risks
Accounting for 69% of the Group's gross premium, Pro-
perty & Casualty reinsurance is Hannover Re's largest busi-
ness group.
10,711
3,876
(32%)
19,224
3,762
(31%)
3,230
(30%)
10,711
12,000
11,976
4,309
(29%)
(30%)
4,971
3,578
(33%)
15,000
5,738
(30%)
16,744
18,000
19,224
21,000
in % and in EUR million
and direct business
Breakdown into business written through brokers
M 08
14,781
Global markets for property and casualty reinsurance faced a
range of challenges in the financial year just ended. The pan-
demic continued to impact life in society and the economic
landscape. Overall, however, in the 2021 financial year we did
not incur any further pandemic-related strains for our ac-
count in our Property & Casualty reinsurance business group
beyond the losses reported in 2020. On the other hand, large
loss expenditure clearly showed the effects of natural disas-
ters, most notably flood damage in Europe and storm damage
in the United States. This was especially true of the third
quarter. While the low interest rate environment persisted,
inflation rates also rose - sharply in some areas - over the
course of the year.
The profitability of the underwriting results therefore re-
mained our highest priority. The improvement in prices and
conditions in many regions and lines on both the primary and
reinsurance side continued. Further adjustments were need-
ed to secure the industry's risk-carrying ability for the long
term. In addition, insurers are increasingly looking for
high-quality reinsurance protection and tailored solutions de-
signed to deliver solvency relief.
614.8
+76.1%
1,082.4
Group net income
1,120.2
1,322.6
1,285.8
823.0
+83.7%
871.7
1,512.3
1,209.3
1,035.1
1,069.4
987.5
+36.0%
1,343.1
Net investment income
15.5
372.8
Operating result (EBIT)
235.4
929.1
Earnings per share in EUR
97.7%
Combined ratio 2
89.7%
90.7%
90.3%
90.3%
90.1%
Retention
12.2%
837.3
12.2%
5.8%
9.1%
EBIT margin³
6.94
7.70
7.23
5.10
+76.1%
8.98
10.0%
98.2%
(223.5)
Net underwriting result²
Hannover Re | Annual Report 2021
40
40
On the following pages we report in detail on developments
in our Property & Casualty reinsurance business group. This is
split into a number of reporting categories, sorted according
to regional markets and worldwide markets.
The investment income booked for the Property & Casualty
reinsurance business group surged by 36.0% to EUR 1,343.1
million (EUR 987.5 million). The operating profit (EBIT)
soared by 83.7% to EUR 1,512.3 million (EUR 823.0 million).
The contribution made by property and casualty reinsurance
to Group net income improved by 76.1% to EUR 1,082.4 mil-
lion (EUR 614.8 million).
The underwriting result including interest and expenses on
funds withheld and contract deposits stood at EUR 383.5 mil-
lion (EUR -223.5 million). The combined ratio improved to
97.7% (101.6%).
The largest individual losses for net account were hurricane
Ida at EUR 304.9 million, the storm damage connected with
low-pressure area Bernd in an amount of EUR 208.4 million,
the extreme cold snap in the US in February at a net cost of
EUR 156.0 million and unrest in South Africa to the tune of
EUR 100.1 million. We generally consider events for which
we expect gross loss payments of more than EUR 10 million
to be major losses.
Major losses in the 2021 financial year exceeded our ex-
pectations for the fifth consecutive year. In terms of large
loss expenditure, heavy strains were incurred primarily
in the third quarter from flood damage in Europe, storm
damage in the United States and unrest in South Africa. Our
net burden of major losses added up to EUR 1,250.2 million
(EUR 1,594.9 million). This was higher than our budgeted ex-
pectation of EUR 1,100 million.
adjusted for exchange rate effects, growth would have
amounted to 18.4%.
Key figures for Property & Casualty reinsurance
earned grew by 17.0% to EUR 16.6 billion (EUR 14.2 billion);
ance.
In natural catastrophe business we continued to pursue our
profit-oriented underwriting policy. Our risk appetite for the
coverage of natural catastrophes grew at a slower pace rela-
tive to the overall growth in property and casualty reinsur-
This positive trend continued in the 1 June and 1 July rounds
of renewals, when parts of the North American portfolio, nat-
ural catastrophe risks and some risks in credit and surety re-
insurance were renewed. The main renewal season in Aus-
tralia and New Zealand also took place at this time. We
boosted the premium volume by 14.7%, while the average
price increase came to 3.2%. In general terms, it was particu-
larly loss-affected programmes or regions that saw some-
times very appreciable premium increases.
In the 1 April treaty renewals we traditionally renegotiate our
business in Japan and – albeit on a smaller scale - in Austral-
ia, New Zealand, the other Asian markets and North America.
We were able to grow the premium volume here by 7.4% and
increase prices by 5.0%.
In the main property and casualty reinsurance renewals as at
1 January 2021 we saw a continuation of the previous year's
pricing momentum and further pleasing growth in our re-
newed business at significantly improved prices and condi-
tions. On 1 January 2021 67% of our portfolio in traditional
property and casualty reinsurance (excluding facultative
business, ILS business and structured reinsurance) was up
for renewal. We boosted the premium volume here by 8.5%.
The average price increase was 5.5%.
Combined management report
39
Hannover Re | Annual Report 2021
The various rounds of treaty renewals in property and casualty
reinsurance during the year consequently passed off favoura-
bly for Hannover Re.
Gross written premium in the Property & Casualty reinsurance
business group rose by 14.8% to EUR 19.2 billion (previous
year: EUR 16.7 billion). At constant exchange rates the in-
crease would have been 16.3%. The level of retained premi-
um edged slightly lower to 90.1% (90.3%). Net premium
383.5
M 10
+/-
previous
9,158.7
10,804.2
12,797.6
14,205.4
+17.0%
16,623.9
Net premium earned
10,710.9
11,796.0
2021
14,781.3
+14.8%
19,224.2
Gross written premium
year
in EUR million
2017
2018
2019
20201
16,744.1
91.6%
559
97.3
163.5
1.2% Other
M 14
9.0% Motor
Gross premium in the Americas by lines of business
in %
Property & Casualty reinsurance:
The treaty renewals for 2021 got off to a thoroughly satisfac-
tory start for Hannover Re. We were able to secure improve-
ments in prices and conditions in all lines. This trend contin-
ued over the course of the financial year, even though it
tended to soften slightly. Exceptions here were the profes-
sional indemnity lines and cyber covers, where we booked
consistent price increases and improvements in conditions
throughout the year.
The gross premium volume in our reporting category Europe,
Middle East and Africa rose by 9.1% to EUR 4,746.2 million
(EUR 4,352.2 million). The combined ratio improved slightly
to 101.3% (103.5%). The operating result (EBIT) amounted
to EUR 222.4 million (EUR 140.2 million).
47.5% Property
23.6% Liability
19.0% Motor
The financial year was also impacted by various large losses.
Particularly costly events were winter storm Uri, which
caused considerable losses on the insurance and reinsurance
side, and hurricane Ida, which took a toll through wind and
flood damage on the East Coast and especially in the region
around New York City. Further windstorm events were also
recorded. While the wildfires in the western states of the US
began very early in 2021, they did not ultimately lead to any
significant insured losses. Taken together, these various loss
events meant that we were unable to achieve our targeted
combined ratio of around 95% for the North American
market.
Inflation surged sharply higher in 2021 in North America, as
in other regions. This added to the pricing pressure in both
the property and liability lines.
M 13
9.8% Other
Gross premium in Europe, the Middle East and Africa
(including CIS countries) by lines of business in %
Property & Casualty reinsurance:
-
-
With effect from 1 January 2021 we have operated in South
Africa under the name Hannover Re South Africa as well as
with two subsidiaries Compass Insure and the investment
company Lireas
that hold our shares in MGAs and in-
surtechs.
largely met their budgets. The loss ratios were exceptionally
pleasing. Compass Insure, the primary insurer belonging to
our subsidiary in South Africa, posted a gross loss ratio of
52%.
Hannover Re | Annual Report 2021
44
We generate a large part of our property and casualty reinsur-
ance business in South Africa through managing general
agents (MGAs) in which we hold shares. These agencies
adapted very well to the difficult conditions in 2021 and
The economy in South Africa unfortunately continues to
suffer under the effects of Covid-19. Even though some sec-
tors - most notably commodities - developed favourably, un-
employment kept on rising. The insurance industry is still
busy dealing with the settlement of Covid-19-related business
interruption claims from the tourism sector. Now that the le-
gal position has been clarified in favour of the insureds, the
insurers are making efforts to settle – but loss adjustment bot-
tlenecks and the sluggish delivery of information by insureds
is making the settlement process difficult. The loss reserves
that we had set aside in the previous year are currently prov-
ing to be adequate, and we therefore did not face any finan-
cial impacts from the business interruption losses in the year
under review.
In the 2021 financial year coming on top of Covid-19 -
South Africa suffered unrest in July. The imprisonment of
ex-president Jacob Zuma triggered a wave of violence, de-
struction and looting in the province of KwaZulu-Natal which
spread as far as Gauteng province, the economic heart of
South Africa. The resulting losses are mostly covered by the
state-owned monopoly insurer Sasria, in whose reinsurance
we have participated for many years.
Americas
In the Middle East we conduct both traditional reinsurance
and business in accordance with Islamic law, known as re-
takaful. The latter is written not only in the Middle East and
North Africa but also in Southeast Asia, thereby supporting
the strategic growth initiative launched by Hannover Re in
Asia. In the financial year just ended a modest recovery from
the impacts of the pandemic and a partial return to normal
could be observed on Middle Eastern markets. After the price
increases and improvements in conditions seen in the previ-
ous year, prices on the reinsurance market tended to remain
stable.
We combine our business in North and Latin America in the
Americas reporting category.
The economic landscape in North America was once again
dominated by Covid-19 in 2021. The legal disputes surround-
ing business interruption losses connected with the pandem-
ic were mostly decided by the courts in favour of the insurers.
46
Responsibility for Australia and New Zealand rests with our
branch in Sydney. A high frequency of catastrophe events to-
gether with considerable uncertainty around the pandemic
had led to substantial losses in the previous year, prompting
significant rate improvements on both the original and the
reinsurance market. The resulting growth impetus was sus-
tained in 2021 and we were able to expand our portfolio.
Large losses were on the low side in 2021, as reflected in a
pleasing underwriting result.
The situation facing our branch in India remains highly com-
petitive. We were nevertheless able to keep on growing in the
property insurance lines. The burden of losses and hence also
the result were, however, in line with our expectations.
The 2021 financial year in Southeast Asia was notable for vig-
orous growth and increased loss expenditure compared to
the previous year. Among other things, we incurred losses
in Thailand from business with a bearing on the pandemic.
Given the price adjustments and general improvements in
conditions anticipated for 2022, we consider ourselves well
placed to share further in the growth of the Southeast Asian
region moving forward.
In Korea we delivered on our customer-centric concept and
extended our position as a major market player. At the same
time, we have achieved broad portfolio diversification. Busi-
ness in Korea developed favourably.
Our branch in Malaysia is responsible for Japan, Korea and
Southeast Asia. We continued to grow our footprint in the
region during the year under review, including in Japan. Spe-
cial emphasis is put on customer-centric concepts as well as
on risk-oriented covers to support the expansion of the local
infrastructure. In Japan the expenditures on fire losses and
natural catastrophes remained within reasonable bounds in
the year under review, compared to the previous years which
in some instances had been very costly.
Thanks to rigorous controls, the Covid-19 pandemic affected
Greater China to only a very limited extent in the financial
year just ended. The insurance industry faced challenges,
however, due to regulatory changes as well as the establish-
ment of a new state-backed reinsurance company for agricul-
tural business. Aside from serious flooding in Henan Province
in July, no other appreciable insured catastrophe losses oc-
curred in China. All in all, the business developed profitably.
Our local branch positioned itself through (product) partner-
ships and expanded its portfolio.
Back in 2019 Hannover Re had already launched an Asia-Pa-
cific strategic initiative so as to leverage the region's growth
potential even more heavily. We attach special importance to
innovative and customer-centric concepts and to the expan-
sion of efficient local decision channels, prompting us for ex-
ample to relocate our Asian business in property and casualty
reinsurance previously written out of Hannover to Asia.
Hannover Re continued to expand its APAC footprint in 2021.
We assist our clients in this growth region with their develop-
ment as they face up to the challenges of the coming years
through concepts designed to reinforce their capital resourc-
es or, for example, by optimising the distribution and design
of their products.
The Asia-Pacific was the region with the strongest economic
growth in the world despite Covid-19 and is developing into
one of the largest insurance markets globally. This growth
opens up business opportunities, not least because the insur-
ance density is still lower than in more mature markets.
Asia-Pacific
The premium volume in our Americas reporting category
again surged sharply in the year under review by 17.8% to
EUR 4,374.3 million (EUR 3,713.1 million). The combined ra-
tio of 107.3% was higher than in the previous year (107.8%),
principally due to losses from natural catastrophes. The
operating profit (EBIT) increased to EUR 161.9 million
(EUR 97.3 million).
In collaboration with the United Nations Development Pro-
gramme (UNDP), Global Parametrics and other market play-
ers, Hannover Re is working on concepts for the coverage of
natural catastrophe risks in Argentina and Colombia and has
positioned itself as a long-term term reinsurance partner for
public-private partnerships.
Interest in extended warranties and similar covers for end
consumers continued to grow in 2021. With this in mind, we
offer innovative reinsurance solutions to our cedants in auto-
mated form so as to tap into the available attractive margins.
Demand for catastrophe covers remained high and continued
to trend upwards on account of various losses in the region.
Movements in original rates again resulted in appreciably
more attractive margins in Chile and Brazil.
insurers and reinsurers alike made considerable adjust-
ments - especially in the assessment of political risks and
pricing for corresponding covers.
Combined management report
45
49
Hannover Re | Annual Report 2021
The Latin American region was again shaken by unrest in
multiple countries in 2021. In view of this elevated exposure,
In Latin America, too, Covid-19 heavily impacted the local
economies. It will take some time before the growth in gross
domestic product returns to pre-pandemic levels. At the same
time, the state of the economy also has direct implications for
the underlying growth in insured values. Nevertheless, posi-
tive tendencies can already be discerned in some countries
that point to concrete and profitable business opportunities.
35.7% Liability
54.1% Property
The US economy proved to be rather resilient on the whole
despite Covid-19. The premium volume in primary insurance
therefore increased and hence the basis for reinsurance also
expanded somewhat. Furthermore, insurers were able to
push through additional rate increases, which reflected a cer-
tain degree of uncertainty in the markets.
97.0%
In the year under review, we were able to support our clients
across all lines with a consistent risk appetite. Our portfolio
continued to grow in 2021 on the back of rate increases in the
original market, which make themselves felt in our propor-
tional business, and price rises in the non-proportional book.
vestors in insurance-linked securities. In cyber reinsurance,
which for the most part we write on a proportional basis, we
benefited from the appreciable price increases booked by our
customers.
Substantial rate increases were recorded on the reinsurance
side in liability business and for business interruption covers.
Price gains driven by worldwide losses from natural perils in
past years were given added momentum by the latest major
loss events. As a further factor, there were indications of a
contraction in the risk appetite on the market and among in-
673
14.5% Asia
17.1% Rest of Europe
651
4,544
Gross premium by lines of business in 2021
M 07
791
394
577
3,543
11,976
12,000
746
3,604
10,711
355
482
896
667
346
527
9,000
2,926
823
559
843
United Kingdom
39.4% North America
Lloyd's pressed ahead with the initiative to improve market
rates and conditions in 2021, causing capacity shortages on
the market to continue. At the same time, the number of new
syndicates permitted by Lloyd's to commence business activ-
ities increased significantly. These new market players will
seek to benefit from the sizeable price increases in specific
lines and grow their business. It remains to be seen whether
this will put the brakes on rate growth in the market.
Compared to the previous year, however, belated notifica-
tions of Covid-19-related claims were few and far between.
Motor business in the UK benefited from a reduced volume of
traffic during the strict lockdowns. In view of the sharply low-
er number of claims, our customers passed on price reduc-
tions to their insureds.
Insurers in the United Kingdom, Ireland and the London
Market secured further rate increases in the year under re-
view. Although these were less marked than in the previous
year, sometimes appreciable increases were pushed through
in specific lines. Cyber covers, in particular, as well as some
liability lines benefited from the state of the market as a con-
sequence of adverse claims trends in past years. In property
insurance, on the other hand, only moderate rate gains were
recorded. Our customers with international portfolios were
particularly hard hit by large loss events such as the frost
damage in Texas, hurricane Ida and the floods in Europe.
With this in mind, further price increases in property insur-
ance are to be anticipated.
In the cyber line, progressive digitalisation and sustained
growth combined with increasing cyber attacks are leading to
greater risk awareness and adjustments in conditions. Silent
cyber risks, i. e. cyber exposures from insurance contracts
that do not primarily cover this risk, were more heavily re-
stricted market-wide with an eye to potential accumulation
scenarios and in many instances they were excluded.
Natural perils covers are still insufficiently widespread in
some regions, and this issue took on added urgency in con-
nection with the major flash flooding in July. This prompted
the German Insurance Association (GDV) to put forward a
proposal for improving insurance density, which E+S Rück
supports.
43
Hannover Re | Annual Report 2021
In motor insurance, the claims side was still heavily influ-
enced by reduced mobility. The number of accident claims
was thus well below the level of 2019 and even slightly lower
than in 2020. At the same time, the costs of spare parts and
repairs continued to rise. Bearing in mind the hail and flood
events, the results generated in the motor line in the year
under review therefore took a significant turn for the worse
compared to the previous year. All in all, though, E+S Rück
was still able to benefit from the comparatively moderate
claims situation on the motor insurance market.
Premium growth in the German primary insurance market
was around 2.2% in 2021 compared to the previous year. The
motor line saw only minimal growth, in part against the back-
drop of the reduced traffic volume overall. On the other hand,
the high-volume property insurance lines namely home-
owners' insurance and industrial lines - continued to deliver
above-average premium growth – albeit short of the previous
year's level. As a result, the combined ratio on the market is
expected to be around 102% for 2021. This is influenced pri-
marily by the exceptionally high combined ratio in the prop-
erty line of roughly 130%, which was heavily impacted not
only by the catastrophe losses but also by an elevated fre-
quency of large fire losses in the industrial segment.
-
-
The continuing pandemic situation in 2021 and the steps tak-
en to contain it left a mark on the insurance industry in com-
mon with many other sectors. Supply chain disruptions, for
example, impacted the industrial segment and indirectly also
motor insurance business owing to a decline in new vehicle
registrations. Rising inflation, especially as it affects con-
struction costs, also led to an increase in claims expenditures.
Pandemic-related losses in business closure insurance, on
the other hand, were barely a factor in 2021 compared to the
previous year.
46
Business in Germany was heavily shaped by natural catastro-
phe losses in 2021. The disastrous flooding in July caused by
low-pressure area Bernd alone resulted in considerable in-
sured losses. Further hail and heavy rainfall events came on
top of this, leading overall to an extreme loss burden from
natural catastrophes in Germany.
On the whole, we were again satisfied with the development
of premiums and rates in Continental European markets in
2021. Demand for high-quality reinsurance capacity was par-
ticularly evident this year, enabling us to further expand our
position in the market.
In Northern Europe we further improved the quality of our
portfolio and were able to increase the rates under loss-af-
fected programmes. Hannover Re particularly benefits here
from its local presence in the market.
Economic growth in the markets of Central and Eastern Eu-
rope was slowed by the pandemic. Our premiums held stable
while at the same time the premium quality improved. In this
region we incurred numerous frequency losses in natural ca-
tastrophe and fire business. Prices consequently rose on the
reinsurance side. Even more appreciable increases are need-
ed, however. Premiums also have to be adjusted to better re-
flect the risks as part of the ongoing need for remediation in
industrial business.
In Spain, natural catastrophes brought about a hardening of
reinsurance conditions over the year under review, although
the bulk of the losses were absorbed by the local state-owned
pool Consorcio.
Geographical breakdown of gross premium in 2021
M 06
3.6% Latin America
3.7% Australia
9.2% Germany
1.7% Africa
19,224
10.8%
Responsibility for the German market within the Hannover
Re Group is assigned to our subsidiary E+S Rückversicherung
AG. As the dedicated "reinsurer for Germany", E+S Rück is a
sought-after partner thanks to its very good rating and the
continuity of its business relationships, and it is one of the
market leaders in property and casualty reinsurance with a
share of around 17% in its domestic market.
Hannover Re | Annual Report 2021
North America is the largest insurance market in the world.
Our business here is written largely through brokers.
653
124.2
98.5%
Aviation and Marine
672.5
+3.3%
651.0
239.3
69.8%
95.0%
235.7
62.0%
Agricultural Risks
559.0
-14.3%
652.5
59.5
95.0%
92.9%
(17.0)
106.3%
Credit, Surety and
Political Risks
843.3
+1.4%
832.0
98.7%
227.7
M 05
3,542.8
107.8%
98.7%
Europe, Middle East and
Africa (including CIS countries)
4,746.2
+9.1%
4,352.2
222.4
101.3%
95.4%
140.2
103.5%
Worldwide Markets
Facultative Reinsurance
1,064.4
+18.8%
896.2
144.0
92.3%
96.5%
182.1
88.2%
Structured Reinsurance and
Insurance-Linked Securities
4,543.7
+28.3%
157.9
79.9%
96.7%
(103.0)
726
802
6,000
2,607
Regional Markets
Overall assessment of the business position
The development of Hannover Re's business in 2021 was af-
fected by considerable losses from natural catastrophes and
the pandemic. Covid-19 continues to have substantial adverse
impacts on life in society and on the world economy. Corona-
virus infections are still claiming lives. We make the agreed
payments to our clients for deaths and illnesses. As a result,
we faced further significant strains from the pandemic in life
and health reinsurance in the financial year just ended, espe-
cially for deaths in the United States and South Africa.
In our Property & Casualty reinsurance business group, on the
other hand, we did not record any pandemic-related losses in
the 2021 financial year over and above the reserves estab-
lished in 2020. However, expenditures incurred here from
natural catastrophes and other large losses exceeded our ex-
pectations for the fifth year in a row. At the same time, inter-
est rates remained on a low level, while inflation rose - appre-
ciably in some cases. In response to these challenges, the
sustained improvement in prices and conditions seen in many
lines on both the insurance and reinsurance side continued.
The investment income generated by Hannover Re improved
sharply on the previous year. This was primarily due to earn-
ings booked from inflation-linked bonds and from alternative
investments, such as in the private equity segment.
Despite the protracted global crisis and the substantial pay-
ments made to our customers, we were able to deliver a
Group profit in line with our expectations.
The shareholders' equity of Hannover Re continued to grow
and constitutes the foundation for our superb positioning as
one of the largest and most financially robust reinsurers in
the world.
At the time of preparing the management report, it remains
the case that both the business position of the Group and its
financial strength can be assessed as very good. Within the
framework of our Group strategy we determine our necessary
equity resources according to the requirements of our inter-
nal capital model, solvency regulations, the expectations of
rating agencies for our target rating and the expectations of
our clients and shareholders.
3,728
Results of operations
Hannover Re | Annual Report 2021
37
Combined management report
Property & Casualty reinsurance at a glance
Gross premium in Property & Casualty reinsurance
in EUR million
21,000
18,000
15,000
14,781
16,744
832
94.5%
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 reinsur-
ance, as well as the performance of our investments and the
financial position and assets of our Group.
3,078
2021
3,000
2,749
42
Hannover Re | Annual Report 2021
Combined management report
Regional markets
Europe, Middle East and Africa (including CIS countries)
In Continental Europe the situation in primary and reinsur-
ance business remained uneven overall. Surging inflation, a
persistent low interest rate level, claims from Covid-19 that
had still to be fully settled and an elevated loss frequency
from natural catastrophes led to further price improvements
for Hannover Re. This also had positive implications for the
quality of the treaties.
Although Western Europe, and here especially France, had
been hard hit by the pandemic in the previous year, the re-
serves set aside for losses were sufficient overall. In the 2021
financial year this region suffered an above-average number
of catastrophe losses, particularly effecting the agricultural
sector. In addition, the low-pressure area Bernd resulted in
considerable losses in the Netherlands and Belgium.
In Italy, numerous bad weather events such as severe rainfall
in Sicily caused considerable damage in the year under re-
view and became a dominant issue in the renewal negotia-
tions as at 1 January 2022. In both the motor own damage
and fire lines this led to a need for adjustments on the insur-
ance and reinsurance side.
2019
2018
2017
0
2,174
119.8%
3,168
2,381
1,281
840
1,696
2,104
4,352
1,064
4,746
2,421
4,374
3,713
12.0% Other
According to our estimates, roughly two-thirds of the ILS
market can be attributed to collateralised reinsurance, under
which insurers and investors conclude private risk transfer
agreements which are secured by collateral held in trust ac-
counts. We support these transactions as a so-called fronting
company.
The market for insurance-linked securities (ILS) was rough-
ly stable on the level of the previous year in 2021 with a ca-
pacity of around USD 95 billion. The further hardening of the
rate level as well as the prospect of additional price increases
led to cash inflows, while loss payments and dissatisfaction
with the general loss situation prompted outflows. A volume
of some USD 15 billion to USD 20 billion in trapped collateral
for claims that have still to be settled further reduced the
funds available for reinvestment. In addition, investors fo-
cused more heavily on natural catastrophe reinsurance on an
excess-of-loss basis and paid less attention to quota share
and aggregate covers than in previous years.
The worldwide volume of newly issued catastrophe bonds in-
creased again. At almost USD 14 billion, it was higher than
the level in the previous record year of 2020.
Catastrophe bonds have been less impacted by losses in re-
cent years than collateralised reinsurance. For this reason,
catastrophe bonds looked somewhat more attractive than col-
lateralised reinsurance with an eye to risk considerations
although the relative proportions did not change.
Hannover Re | Annual Report 2021
Hannover Re leverages the entire spectrum of opportunities
offered by the ILS market. On the one hand, we take out rein-
surance with ILS investors, while at the same time we transfer
our customers' risks to the capital market as a service. This is
done in the form of catastrophe bonds or through collateral-
ised reinsurance, under which our partners on the investment
side are primarily specialised ILS funds. We also invest our-
selves in catastrophe bonds.
In 2021 the volume of new exposures that we transferred to
the capital market in the form of catastrophe bonds was in the
region of USD 2.7 billion split into eleven transactions. This
substantially exceeded past numbers both in terms of the vol-
ume and number of transactions. The largest transactions
were catastrophe bonds with volumes of USD 575 million for
the Federal Emergency Management Agency to protect
against flooding in the US and USD 500 million for the Texas
Windstorm Insurance Association as coverage against risks
from named storms and tornados.
Collateralised reinsurance, which remains by far our largest
segment in the ILS sector, showed pleasing growth in the
year under review.
The purchasing habits of many customers have continued to
shift towards holistic reinsurance solutions. This trend
showed no signs of easing and resulted in more and more
clients seeking complex structured contractual arrange-
ments. Given that this business is to some extent based on
large-volume transactions, premium income in structured re-
insurance can generally fluctuate sharply.
47
-
Overall, structured reinsurance fared better than expected in
the 2021 financial year and the premium volume increased
appreciably. We were again able to grow our customer base
and also substantially increased the number of treaties. In to-
tal, more than half of our premium income derived from the
United States and roughly a third from Europe.
46.9% Property
In structured reinsurance we rank as one of the largest pro-
viders in the world. With our Advanced Solutions we offer our
clients support for their capital management as well as inno-
vative and bespoke reinsurance concepts. These provide sol-
vency relief and thus have a positive effect on the client's rat-
ing or protect against the strain of frequency losses.
Structured concepts also offer an alternative in cases where
traditional reinsurance capacity cannot be accessed to the full
Structured Reinsurance and Insurance-Linked Securities
In the Structured Reinsurance and Insurance-Linked Secu-
rities reporting category we combine our business involving
tailor-made property and casualty reinsurance solutions and
insurance-linked securities (ILS).
Worldwide markets
The gross premium volume in the Asia-Pacific region grew
by 15.0% to EUR 2,420.7 million (EUR 2,104.3 million).
The combined ratio improved to 91.6% (98.7%). The
operating profit (EBIT) climbed to EUR 299.6 million
(EUR 163.5 million).
M 15
12.6% Liability
27.8% Motor
12.7% Other
Gross premium in Asia-Pacific by lines of business
in %
Property & Casualty reinsurance:
The important role played by the capital market in our pur-
chasing of retrocession protection was unchanged. For exam-
ple, we have placed a protection cover for Hannover Re
known as the "K quota share” – a modelled quota share ces-
sion consisting of non-proportional reinsurance treaties in
the property, catastrophe, aviation and marine (including off-
shore) lines inter alia on the ILS market since as long ago as
1994. In addition to the K quota share, we made use of the ILS
market for other protection covers as well and were able over-
all to purchase the desired risk capacity despite the challeng-
ing environment.
Combined management report
extent.
Property & Casualty reinsurance:
Hannover Re has enshrined sustainability goals as part of its
Group strategy and implements appropriate measures. In re-
cent years, for example, we have taken a very conservative
approach to the coverage of thermal coal and oilsands risks
and from 2020 onwards we have no longer written any new
business in these areas. Not only that, we included the sus-
tainability issues of human rights and biodiversity in our re-
view processes. If we identify violations of internationally
recognised conventions, we decline the business in question.
48.9% Motor
Aviation and Marine
-
The wave of insolvencies anticipated at year-end 2020 has so
far failed to materialise on any appreciable scale, enabling us
to reduce the corresponding reserve in the area of credit,
surety and political risks at the end of 2021 and reallocate
them to other segments – although we still have adequate
provision for catch-up effects on the insolvency front.
Loss ratios were lower in credit and surety insurance as well
as in the political risks segment despite the global economic
challenges. This reflects wide-ranging government support
programmes on the fiscal and monetary side, which were
launched in 2020 and continued in 2021. The state guarantee
schemes also rolled out in 2020 in favour of mostly European
credit insurance business expired at the end of June 2021,
although the loss-mitigating effects of the guarantees contin-
ued to be felt for a few months. The elimination of premium
cessions to the government in connection with the furnished
guarantees at the end of June - combined with a general eco-
nomic revival – led to a visible rise in premium volumes. This
trend was supported by rising demand in view of the contin-
ued uncertainties in the economic landscape. The increased
price level on the insurance and reinsurance side was for the
most part maintained.
Credit, Surety and Political Risks
Hannover Re | Annual Report 2021
48
The gross premium volume in our reporting category Facul-
tative Reinsurance grew by 18.8% to EUR 1,064.4 million
(EUR 896.2 million). The combined ratio stood at 92.3%
(88.2%). The operating profit (EBIT) amounted to EUR 144.0
million (EUR 182.1 million).
68.7% Property
18.5% Liability
1.5% Other
M 17
Gross premium in Structured Reinsurance and
Insurance-Linked Securities by lines of business in %
11.3% Motor
Property & Casualty reinsurance:
Despite the increased number of loss events, facultative rein-
surance can look back on a successful 2021 financial year.
The market environment again opened up attractive business
and growth opportunities that we acted on in keeping with
our technical underwriting approach and risk appetite. The
greater decentralisation of our underwriting activities has
strengthened our customer relationships. Hannover Re is in-
creasingly and actively sought after as a reinsurance partner.
Whereas 2020 had been shaped primarily by pandemic-relat-
ed losses, natural catastrophe and human-caused losses were
increasingly evident again in 2021. Sizeable losses that im-
pacted the result in facultative reinsurance included those
resulting from winter storm Uri, the severe flooding in Europe
caused by low-pressure area Bernd and hurricane Ida. On the
other hand, no significant additional strains from the pan-
demic were observed in 2021, and hence there was no need
to further strengthen the reserves established in the previous
year.
Demand for facultative reinsurance solutions stabilised on a
high level in the year under review. Customers continued to
attach importance to obtaining coverage for their facultative
reinsurance needs from financially robust reinsurers. This de-
velopment could be observed globally and enabled us to gen-
erate further substantial growth on the back of 2019 and
2020.
The tendencies towards market hardening that began in 2019
were sustained in the 2021 financial year. We saw capacity
reductions on the primary insurance side and improvements
in rates and conditions across virtually all lines and regions.
In contrast to obligatory reinsurance, we write primarily indi-
vidual risks in facultative reinsurance. The general frame-
work conditions for both types of reinsurance in the various
markets are extensively correlated.
Facultative Reinsurance
The gross premium volume in the Structured Reinsurance
and ILS reporting category increased by 28.3% to
EUR 4,543.7 million (EUR 3,542.8 million). The combined
ratio was 96.7% (98.5%). The operating profit (EBIT) climbed
to EUR 157.9 million (EUR 124.2 million).
4.2% Liability
45.1% Property
1.8% Other
M 16
Gross premium in Facultative Reinsurance by lines
of business in %
The gross premium for the Credit, Surety and Political Risks
reporting category increased in the financial year by 1.4% to
EUR 843.3 million (EUR 832.0 million). Given that the loss
experience trended lower in the reporting period, this
prompted us to release reserves in some cases that had been
set aside in the previous year. The combined ratio amounted
to 79.9% (119.8%). The operating profit (EBIT) came in at
EUR 227.7 million (EUR -103.0 million).
4,000
The positive rate movements on the primary market for avia-
tion covers continued in 2021, albeit on a significantly lower
level. We expect to see a stabilisation in rates for the airline
segment, which in large part is renewed in December. This is
due to the recent resurgence in the risk appetite on the mar-
ket as well as appreciably reduced exposures compared to
the state of the market before the pandemic. In the general
aviation segment, on the other hand, we still recorded rate
increases. These were, however, smaller than in the previous
year.
662
Hannover Re | Annual Report 2021
Combined management report
When it comes to solutions for the coverage of longevity risks,
stronger demand was again observed in other countries be-
yond the traditionally important UK market. The exacting
capital requirements placed on primary insurers and pension
funds in connection with such business are one of the driving
factors here.
Digital insurance solutions and automation are playing an in-
creasingly important role in virtually all market segments.
This is true not only of cooperation with start-ups but also of
joint projects conducted with primary insurers and other
cedants.
Gross written premium in the Life & Health reinsurance busi-
ness group climbed by 6.4% to EUR 8.5 billion (previous
year: EUR 8.0 billion); at constant exchange rates the increase
would have been 5.5%. The level of retained premium stood
at 88.2% (89.8%). Net premium earned increased by 5.1%
to EUR 7.5 billion (EUR 7.2 billion), corresponding to growth
of 4.4% adjusted for exchange rate effects.
The result in life and health reinsurance was clearly impacted
by the aforementioned pandemic-related expenditures. The
underwriting result including interest and expenses on funds
withheld and contract deposits therefore declined to EUR
-594.5 million (EUR -467.2 million). Not included here are
large parts of the result in Financial Solutions business that
we disclose according to the deposit accounting method in
other income/expenses on account of the minimal risk trans-
fer. Consequently, no gross premium is booked for this busi-
ness either.
The investment income for the Life & Health reinsurance busi-
ness group fell by 13.9% to EUR 598.8 million (EUR 695.3
million). In the year under review we recognised positive in-
come of EUR 43.9 million from our extreme mortality cover,
tranches of which we have brought to the capital market reg-
ularly since 2013; this was recognised under the assets meas-
ured at fair value through profit or loss in the investments on
the life and health reinsurance side.
The operating result (EBIT) contracted by 43.2% to EUR
223.3 million (EUR 393.0 million). The contribution made by
life and health reinsurance to Group net income declined by
40.2% to EUR 196.6 million (EUR 328.9 million).
-
We provide below a more detailed discussion of develop-
ments in the individual reporting categories – Financial Solu-
tions, Longevity Solutions and Mortality and Morbidity Solu-
tions as well as an overview of the extensive support that we
provide as part of our Underwriting Services.
52
Financial Solutions
The United States has traditionally been an exceptionally im-
portant insurance market for our financial solutions business
and in 2021 again played a considerable part in the total re-
sult. As in previous years, new business in Asia - and espe-
cially China - continued to develop favourably.
Gross premium income in the Financial Solutions reporting
category climbed by 4.7% to EUR 1,329.5 million (EUR
1,270.4 million). The operating result (EBIT) fell by 2.0% to
EUR 416.0 million (EUR 424.5 million). This includes an EBIT
contribution of EUR 356.2 million (EUR 329.5 million) from
business with a reduced risk transfer, which we recognise in
other income/expenses owing to the reduced risk transfer
and for which no gross premium is booked.
Longevity Solutions
In the Longevity Solutions reporting category, we group to-
gether all reinsurance business under which the primary risk
covered for our customers is the longevity risk. We develop
innovative annuity products, for example, that are tailored to
the individual needs of policyholders in various life situations.
The bulk of our longevity solutions consists of traditional an-
nuity policies, pensions blocks taken out for new business
and enhanced annuities under which pensioners with a
pre-existing condition are guaranteed a higher annuity pay-
ment for their remaining shortened life expectancy.
-
The United Kingdom remains the largest market for coverage
of longevity risks. In addition, growing demand continues to
be evident in other countries, such as Germany and the Neth-
erlands. The exacting capital requirements faced by primary
insurers and pension funds in connection with such business
are a driving force here.
Hannover Re | Annual Report 2021
53
Overall, the market environment for longevity solutions con-
tinued to be intensely competitive. The volume of disposals
for sizeable blocks of pension obligations was smaller than in
the previous year. In a reflection of this, we saw an increased
number of smaller and mid-sized transactions as well as a
larger share of deferred annuities.
The gross premium for the Longevity Solutions reporting cat-
egory rose by 11.9% to EUR 1,493.3 million (EUR 1,334.6
million). The operating result (EBIT) increased to EUR 183.5
million (EUR 77.2 million).
Mortality and Morbidity Solutions
In the Financial Solutions reporting category, we offer our
customers bespoke reinsurance solutions designed to opti-
mise their solvency, liquidity and capital position. The gener-
ally good level of demand here is supported by the persistent
low interest rate environment. Our reinsurance solutions in
this segment are always tailored to the customer's specific
needs and hence highly diverse and individually structured.
Given that the customer's primary motivation here is not ex-
clusively to secure coverage for biometric risks, a hallmark of
such solutions is that they also seek to deliver financial and
regulatory benefits.
2 Operating result (EBIT)/net premium earned
1 Restated pursuant to IAS 8
3.8%
275.9
245.2
Net income after tax
196.6
-40.2%
328.9
471.6
185.9
172.6
Earnings per share in EUR
1.63
-40.2%
2.73
Retention
88.2%
89.8%
3.91
89.5%
1.54
90.7%
1.43
91.7%
EBIT margin²
3.0%
5.5%
8.2%
4.3%
In the global (re)insurance industry it is standard practice for
mortality and morbidity risks to form a common element of
one and the same business relationship, and in some cases
both risks are even covered under one reinsurance treaty. In
our reporting we therefore consolidate the profit contribu-
tions of these two reporting categories, but nevertheless pro-
vide below a separate overview of significant developments in
the financial year just ended.
Mortality Solutions
Mortality Solutions generate the lion's share of premium in-
come in our Life & Health reinsurance business group. We
provide reinsurance protection here for our customers against
the risk that their insureds do not live as long as anticipated
and hence the actual mortality negatively diverges from the
originally expected mortality.
The Covid-19 pandemic and the large number of resulting
deaths continued to negatively affect results. Mortality covers
accounted for the bulk of pandemic losses in life and health
reinsurance. Along with the United States, Hannover Re's
largest single market, considerable losses were also incurred
in South Africa.
+/−
previous
year
+25.4%
20201
2019
2018
2017
1,240.4
1,380.8
1,321.7
1,289.0
Result from participations in
associated companies
35.7
-59.4%
88.1
26.4
5.0
16.0
Realised gains/losses
281.0
-14.7%
329.6
273.7
127.7
377.1
Appreciation
1,555.6
569.9
Ordinary investment income²
2021
With regard to the management actions initiated some years
ago to improve the profitability of a large portfolio within our
book of legacy US mortality business, we were able to settle
one additional legal action through arbitration proceedings.
The gross premium in the Mortality Solutions reporting
category rose by 6.0% to EUR 3,218.2 million (EUR 3,035.7
million).
Morbidity Solutions
Within the Morbidity Solutions reporting category, we cover
business centred around the risk of deterioration in a per-
son's state of health due to disease, injury or infirmity. A hall-
mark of this business is the wide range of possible combina-
tions of different covered risks, including for example strict
(any occupation) disability, occupational disability and long-
term care insurance.
Pandemic-related losses were also reported in health busi-
ness, albeit on an appreciably lesser scale than under mortal-
ity covers. The underlying business developed in line with
expectations.
The gross premium for morbidity business grew by 4.7% to
EUR 2,497.2 million (EUR 2,385.5 million).
The gross premium for our total mortality and morbidity port-
folio increased by 5.4% to EUR 5,715.4 million (EUR 5,421.2
million). The operating result (EBIT) for the Mortality and
Morbidity Solutions reporting category totalled EUR -376.2
million (EUR -108.6 million).
Underwriting Services
Under the heading of Underwriting Services we report on
the activities and services that we provide for our customers
above and beyond pure risk transfer. Our automated under-
writing systems under the "hr| ReFlex" and "hr Quirc"
brands and the associated process automation for our cus-
tomers are a major feature in this regard.
In general terms, our customers continue to take a keen inter-
est in issues of digitalisation and innovation. Furthermore, we
are engaged in an intensive exchange with numerous start-
ups and primary insurers with an eye to the development of
innovative, digital coverage concepts. Our innovation plat-
form "hr equarium" enables our customers, on the one hand,
to access a wide range of insurance-specific products and
solutions. At the same time, it opens up access for insurtechs
and other start-ups to our global client network.
54
Hannover Re | Annual Report 2021
Investments
•
Very pleasing investment performance despite continued challenging market environment
Higher income from inflation-linked bonds and private equity
Return on investment surpasses target of more than 2.4% to reach 3.2%
Volume of assets under own management grows by 15% to EUR 56.2 billion
Against the backdrop of the continued challenging state of
global financial markets, we are highly satisfied with the per-
formance of our investments. The ordinary investment in-
come excluding interest on funds withheld and contract de-
posits amounting to EUR 1,555.6 million as at 31 December
2021 came in significantly higher than in the previous year
(previous year: EUR 1,240.4 million) and was thus even
slightly ahead of our expectations.
Income from fixed-income securities reflected above all
sharply higher inflation expectations, leading to increased
amortisation amounts in our portfolio of inflation-linked
bonds. We also booked substantially higher distributions
from our investments in private equity.
Our real estate and real estate funds similarly contributed to
our result with slightly higher earnings.
The income recognised from measurement at equity declined
to EUR 35.7 million (EUR 88.1 million), primarily reflecting
special income booked in the previous year associated with
measurement of one of our participating interests. Interest on
funds withheld and contract deposits increased to EUR 268.3
million (EUR 221.8 million).
Impairments and depreciation totalling EUR 88.8 million
(EUR 129.4 million) were taken. Of this, an amount of EUR
24.9 million (EUR 32.3 million) was attributable to private eq-
uity. An impairment loss of EUR 24.8 million (EUR 19.0 mil-
lion) had to be recognised in our portfolio of real estate and
real estate funds. On the whole, the sectors hardest hit by the
pandemic did not play a significant role in our investment
portfolio. Write-downs of EUR 0.2 million (EUR 11.8 million)
were taken on other fixed-income securities. Depreciation on
directly held real estate was slightly higher at EUR 38.4 mil-
lion (EUR 36.6 million) due to the growth of the portfolio.
Investment income
M 23
in EUR million
1.1
393.0
223.3
Restated pursuant to IAS 8
Hannover Re | Annual Report 2021
570
393
223
2018
2019
20201
2021
M 19
M 21
1
51
Life & Health reinsurance
•
Gross premium up by 6.4%
Sustained customer interest particularly in financial solutions and longevity covers
Strains from the pandemic amount to EUR 582.0 million
Positive one-time effects in the US mortality portfolio and in longevity business
Operating result down by 43.2%
Life & Health reinsurance is Hannover Re's second major
business group. It contributed a 31% share of our Group
gross premium in the year under review.
Covid-19 remained a dominant issue in the market for life and
health reinsurance. The pandemic sadly continues to take a
heavy toll on human life and remains a challenge for medical
experts and society alike as new virus variants emerge and
spread. We make the agreed payments to our cedants for
deaths and illnesses, especially in the area of mortality covers.
Altogether, we faced pandemic-related strains of EUR 582.0
million in the 2021 financial year (previous year: EUR 261.1
million). The bulk of these were attributable to the United
States and South Africa.
The pandemic-related expenditures were opposed by positive
one-time income from a restructuring measure in US mortal-
ity business amounting to EUR 131.7 million. In this context
collateral structures were partially liquidated and assets-side
Key figures for Life & Health reinsurance
funds withheld transferred to our investments under own
management.
Combined management report
1 Restated pursuant to IAS 8
2017
0
3,200
3,040
3,260
200
1,493
2,000
1,335
100
1,257
1,276
1,274
1,270
1,330
895
928
981
0
2017
2018
2019
20201
2021
Financial Solutions Longevity
Mortality
Morbidity
A further positive special effect of EUR 121.9 million was re-
corded in business with longevity covers from the revaluation
of portfolios.
Leaving aside the losses due to the pandemic and the positive
one-off effects, the business developed in line with our expec-
tations.
In general terms, global life and health reinsurance markets
remained intensely competitive in the 2021 financial year and
were shaped by a persistent low interest rate environment in
many regions. This had negative implications for the invest-
ment income generated by insurers and reinsurers. At the
same time, though, it opened up additional opportunities for
financially robust reinsurers such as Hannover Re - for exam-
ple in the area of financial solutions.
M 22
+4.9%
1,204.8
7,816.4
6,931.9
684.5
5,817.5
(10.8)
1,254.8
7,200.4
6,484.8
7,079.6
6,472.8
491.8
5,341.6
(50.8)
1,263.6
560.6
5,666.8
0.6
1,081.8
Own administrative expenses
265.2
+4.4%
254.1
255.7
216.9
210.7
Other income/expenses
438.7
+30.5%
336.3
289.0
172.1
170.6
Operating result (EBIT)
1,263.8
-43.2%
Commissions
+188.6%
2021
+/-
previous
20201
2019
2018
2017
in EUR million
year
Gross written premium
8,538.1
+6.4%
8,026.3
Net premium earned
7,519.5
+5.1%
7,155.2
Investment income
598.8
-13.9%
Claims and claims expenses
7,103.4
+10.3%
695.3
6,438.3
Change in benefit reserve
298.6
103.5
3,036
3.6
Depreciation, amortisation, impairments 3
1,657
1,489
1,483
1,465
290
326
400
364
4,000
1,374
1,192
1,518
1,673
1,650
692
705
1,043
763
849
840
600
1,132
6,000
883
1,712
≥ 220
2,000
200
2021
2020
2019
2018
Africa
Rest of Europe
Asia
2021
20201
2019
1 Restated pursuant to IAS 8
Latin America Germany
Australia/New Zealand
North America United Kingdom
2017
2018
0
2,106
1,920
2,125
1,988
2,093
2017
0
≥ 250
354
963
375
196
Life & Health reinsurance at a glance
Hannover Re | Annual Report 2021
50
Altogether, the gross premium volume in the Agricultural
Risks reporting category fell by an appreciable 14.3% to EUR
559.0 million (EUR 652.5 million). One reason here was
the establishment of a new state-backed reinsurance firm
in China. The combined ratio was 95.0% (106.3%). The
operating profit (EBIT) increased to EUR 59.5 million
(EUR 17.0 million).
In general terms, movements in rates and conditions in agri-
cultural business on both the primary and reinsurance side
were commensurate with the risk. Rates for catastrophe cov-
ers, such as for forest insurance, remained on a high level.
In addition, the increasingly widespread availability of new
technologies such as remote sensing by satellites - facili-
tates further expansion of the segment with innovative and
efficient insurance products. Our team specialising in in-
dex-based and parametric covers supports our customers
around the world not only with reinsurance but also in the
development and implementation of parametric coverage
concepts. Along with our technical know-how, we draw on
our growing network of insurtechs and partners and we offer
solution options that also extend beyond the bounds of tradi-
tional agricultural business.
-
The increasing number of public-private partnerships, not
only in emerging and developing countries but also in more
advanced economies, presents new opportunities for our
company to write profitable agricultural business in markets
that have still to mature. Acceptance of drought insurance
products has continued to grow in recent years, not least due
to the increase in extremely dry years. Given that comprehen-
sive agricultural insurance is too expensive for many farmers,
parametric covers have become established as a prob-
lem-solving approach.
In the year under review we continued to grow our position in
some markets for agricultural risks. Particularly in emerging
and developing countries, the growing need for agricultural
commodities and foodstuffs combined with the accumulation
of extreme weather events led to stronger demand for insur-
ance and reinsurance solutions. In this area Hannover Re of-
fers its customers both comprehensive traditional reinsur-
ance concepts and parametric covers that optimally
complement existing insurance solutions.
Agricultural risks
The premium volume for our Aviation and Marine reporting
category rose by 3.3% to EUR 672.5 million (EUR 651.0 mil-
lion). The combined ratio was 69.8% (62.0%). The operating
profit (EBIT) came in at EUR 239.3 million (EUR 235.7 mil-
lion).
Based on our strong international positioning as one of the
leading reinsurers in the marine and offshore energy seg-
ment, we were able to cement and further expand existing
customer relationships. As in previous years, we systemati-
cally restructured or relinquished inadequate business and
wrote promising new business.
сар-
Aside from catastrophe losses caused by the low-pressure
area Bernd in Germany and hurricane Ida in the United
States, the losses incurred in the year under review were at-
tributable primarily to individual risks. They include a sunken
drilling rig in the waters off Malaysia, a container vessel
stranded in the Suez Canal and a cargo ship going down off
the coast of Sri Lanka. Among other events, mention should
be made of the unrest in South Africa and an oil spill off the
coast of California. As had already been the case in the previ-
ous year, we were again compelled to post additional reserves
for the P&I liability loss associated with a car carrier that
sized in 2019 off the coast of the US state of Georgia.
shall continue to move forward together with our customers
along the path mapped out in 2021.
Combined management report
49
44
Hannover Re | Annual Report 2021
In offshore energy business both the insurance and reinsur-
ance markets were stable with slightly higher prices. Losses
were once again moderate. Oil and gas prices surged appre-
ciably around the world in the year under review. Efforts to
explore and develop these resources were therefore stepped
up after years of stagnation, hence also giving rise to in-
creased insurance volumes and an easing in the pressure on
costs. Looking to the future, a significant shift in existing cus-
tomer portfolios towards alternative energies and away from
the traditional offshore industry is to be anticipated against
the backdrop of sustainability issues and climate protection
concerns. As one of the leading reinsurers in this line, we
After a significant but short slump in global trade due to pan-
demic restrictions, commercial shipping and the transport of
goods picked up sharply in 2021 while the cruise ship indus-
try continued to work towards a fresh start. The year under
review provided confirmation that insurers and reinsurers in
the marine market were less affected by direct pandemic loss-
es than other insurance lines.
The upward trajectory in the marine market that has been
clearly evident since 2020 was initially sustained in the year
under review, only to stabilise in the second half of the year.
This was especially true of cargo insurance but also applied
to marine hull and specie insurance. Heavy competition and
excess capacities to some extent put the brakes on ongoing
remediation efforts by insurers. In all the various rounds of
treaty renewals we were nevertheless able to secure modest
improvements, both in terms of pricing and treaty conditions.
Special mention should be made of the marked price increas-
es in longer-tail liability lines such as protection & indemnity
(PGI) insurance.
The trend reversal that had already set in over the past two
years on the reinsurance side was sustained in 2021. The
pace slowed over the year, however, owing to renewed growth
in the risk appetite and new capacities. At the beginning of
the year, for example, we were still able to push through sig-
nificant price increases for non-proportional business, where-
as the risk-adjusted rate increases of late only barely reached
the double-digit percentages. In the proportional segment,
we were able to renew a large part of our portfolio based on
the improvements in conditions obtained in prior years.
rate increases for both launch and in-orbit policies. Overall,
though, 2021 saw a comparatively low number of launches,
with corresponding implications for the absolute market pre-
mium.
The picture was similar in product liability business, although
developments in this part of the market were generally some-
what less volatile. In the space segment we observed further
Breakdown of gross premium by markets
Value of New Business (VNB) - Target 2016-2020
in EUR million
M 18
663
198
997
457
236
241
424
203
202
442
244
245
7,200
7,081
800
778
238
295
8,026
7,815
8,000
8,538
1,000
in EUR million
Value of New Business (VNB) growth 1,2
10,000
0.9
- Target since 2021
2 This information has not been audited by the independent auditor
Net investment income from
funds withheld
268.3
+21.0%
Total investment income
1,943.0
+15.3%
221.8
1,685.5
206.4
1,757.1
208.0
1,530.0
234.9
1,773.9
1,539.0
1
2
Excluding interest on funds withheld and contract deposits
3 Including depreciation/impairments on real estate
4
Portfolio measured at fair value through profit or loss and held for trading
Hannover Re | Annual Report 2021
55
Combined management report
Net realised gains on disposals totalled EUR 281.0 million
(EUR 329.6 million). The high level of hidden reserves due to
low interest rates made itself felt in our portfolio of fixed-in-
come securities, again benefiting the net realised gains. In
addition, we generated pleasing realised gains in connection
with the reorganisation of our high-yield portfolio. In the
United States and East Asia we also very successfully made
the most of conditions on real estate markets to dispose of
two large properties. The sale of some of our equity funds as
part of portfolio restructuring measures at the beginning of
the year was also a highly positive factor in our net realised
gains.
Altogether, the unrealised gains in our assets recognised at
fair value through profit or loss amounted to EUR 36.1 million
(EUR 64.0 million). Our extreme mortality cover, tranches of
which we have brought to the capital market regularly since
2013, is recognised under this item in a positive amount of
EUR 43.9 million (EUR 3.7 million).
The investment income of EUR 1,943.0 million (EUR 1,685.5
million) was 15.3% higher than in the comparable period.
Income from assets under own management accounted for
EUR 1,674.8 million (EUR 1,463.7 million), producing an an-
nualised average return (including effects from ModCo) of
3.2%. The pleasing clear outperformance of our guidance of
more than 2.4% can be attributed, in the first place, to infla-
tion expectations, which turned out to be higher than antici-
pated. Consequently, we booked higher amortisation amounts
Restated pursuant to IAS 8
1,322.0
1,550.6
1,463.7
88.8
-31.4%
129.4
80.6
52.7
71.9
Change in fair value of
financial instruments 4
36.1
-43.5%
64.0
72.9
31.2
38.6
Investment expenses
146.0
+13.2%
129.0
122.5
114.3
110.8
Net investment income from assets
under own management
1,674.8
+14.4%
on our inflation-linked bonds. Secondly, we received larger
distributions from our private equity investments and, fur-
thermore, net realised gains proved to be appreciably higher
than had been assumed at the beginning of the reporting
period on account of the aforementioned effects.
Development of investment income
in EUR million
2,000
1
3,218
276
300
1,956
400
2,301
2,386
2,497
7,200
7,816
500
8,026
8,538
600
1,728
6,000
7,080
8,000
10,000
in EUR million
in EUR million
by reporting categories
EBIT performance
M 20
Breakdown of gross written premium
Hannover Re | Annual Report 2021
1 Based on Solvency II principles and pre-tax reporting
56
Investment income from assets under own management
1,500
1,774
1,757
1,686
235
206
1,530
208
222
M 24
1,943
268
1,000
1,675
1,539
1,551
1,464
1,322
500
0
2017
2018
2019
20201
2021
| Other income from funds withheld and contract deposits
Restated pursuant to IAS 8
245
.
66
3,000
0
2017
2018
2019
2020
2021
Shareholders' equity
Hybrid capital, no maturity
Non-controlling interests
| Hybrid capital, limited maturity
11,885
In its capital management Hannover Re is guided by the re-
quirements and expectations of the rating agencies with an
eye to its targeted rating. Furthermore, while making appro-
priate allowance for business policy considerations and fac-
tors that influence market presence, the allocation of capital
to the Group's operational companies is based upon the eco-
nomic risk content of the business group in question. The
Group companies are also subject to national capital and sol-
vency requirements. All Group companies met the applicable
local minimum capital requirements in the year under review.
Adherence to these capital requirements is continuously
monitored by the responsible organisational units on the ba‍
sis of the latest actual figures as well as the corresponding
planned and forecast figures. From the Group perspective we
manage Hannover Re's solvency extensively using our inter-
nal capital model (cf. "Opportunity and risk report", page 86
et seq.).
Cumulative foreign currency gains amounting to EUR 366.2
million were recorded as at the balance sheet date as a con-
sequence of exchange rate movements of foreign currencies
against the euro. Compared to the cumulative foreign curren-
cy losses of EUR 330.7 million in the previous year, this con-
stitutes an increase of EUR 696.9 million in the foreign cur-
rency gains and losses recognised directly in equity. This
increase in the currency translation reserve from the transla-
tion of the shareholders' equity of foreign subsidiaries result-
ed principally from the devaluation of the euro against almost
all relevant currencies, especially the US dollar.
8,777
Net unrealised gains on investments stood at EUR 1,768.3
million, a decrease of EUR 507.6 million compared to the be-
ginning of the year under review. This reflects the general
rise in interest rates observed in our main currency areas in
the course of the year under review.
The Group net income for 2021 attributable to the sharehold-
ers of Hannover Rück SE amounted to EUR 1,231.3 million
(EUR 883.1 million). The non-controlling interest in the profit
generated in the year under review totalled EUR 68.9 million
(EUR 35.7 million).
Development of Group shareholders' equity
in EUR million
14,000
12,000
M 30
12,756
11,839
871
11,354
844
1,231
826
883
Non-controlling interests in shareholders' equity increased
by EUR 26.8 million to EUR 871.2 million as at 31 December
2021. The bulk of this - in an amount of EUR 740.1 million -
is attributable to the non-controlling interests in E+S Rückver-
sicherung AG.
8,529
10,528
10,995
hybrid capital used as an equity substitute, which takes
the form of subordinated bonds.
The policyholders' surplus totalled EUR 15,733.6 million
(EUR 14,071.0 million) as at the balance sheet date, an in-
crease of 11.8%. Retained earnings rose by EUR 688.7 mil-
lion to EUR 8,985.8 million (EUR 8,297.1million) on the back
of the good Group net income booked in the year under re-
view. In addition, the foreign currency gains and losses and
the net gains on investments recognised in equity were high-
er by altogether EUR 189.3 million. In the year under review
a subordinated bond in a nominal amount of EUR 750.0 mil-
lion was issued.
Hannover Re uses "Intrinsic Value Creation" (IVC) as its cen-
tral value-based management tool. As part of this methodolo-
gy, we apply the principles of economic allocation of equity
and efficient use of debt as an equity substitute in order to
achieve an attractive 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 27 et seq. of this report.
Hannover Re | Annual Report 2021
59
Combined management report
Development of policyholders' surplus
in EUR million
18,000
15,000
Hannover Re | Annual Report 2021
15,734
2,480
14,071
13,589
1,735
1,739
6,000
758
-765-
9,000
495
496
10,000
997
497
844
496
826
11,035
10,779
498
871
12,000
997
non-controlling interests and
9,287
1,284
In addition to the financing effect of the changes in share-
holders' equity described above, debt financing on the capital
market is a significant component of Hannover Re's financ-
ing. It is essentially composed of bonds issued to ensure last-
ing protection of our capital base - in part also in observance
of rating requirements. The total volume of long-term debt
and notes payable stood at EUR 4,257.7 million (EUR 3,348.4
million) as at the balance sheet date.
Our bonds supplement our equity resources with the aim of
reducing the cost of capital and also help to ensure liquidity
at all times. As at the balance sheet date altogether six bonds
had been placed on the European capital market through
Hannover Rück SE and Hannover Finance (Luxembourg) S. A.
The following table presents an overview of the amortised
cost of the issued bonds.
Amortised cost of our bonds
in EUR million
Hannover Finance (Luxembourg) S.A.,
subordinated bond,
EUR 500 million; 2012/2043
Hannover Rück SE,
subordinated bond,
EUR 500 million; 2014/undated
Hannover Rück SE,
M 31
Issue date
Financing and Group debt
Coupon in %
2020
11/20/2012
5.00
499.2
498.9
9/15/2014
3.375
497.5
496.8
senior bond,
EUR 750 million; 2018/2028
4/18/2018
1.125
744.9
2021
Hannover Re | Annual Report 2021
60
2021
765
758
1,059
-959
8,000
Group shareholders' equity
6,000
6,381
6,026
4,000
7,754
7,414
6,793
Compared to the position as at 31 December 2020, Group
shareholders' equity increased in the year under review by
EUR 916.8 million, equivalent to 7.7%, to EUR 12,756.2 mil-
lion. After adjustment for non-controlling interests, it rose by
EUR 890.0 million to EUR 11,885.0 million. The book value
per share increased accordingly by 8.1% to EUR 98.55. The
changes in the shareholders' equity were shaped chiefly by
the following developments:
2,000
2,054
1,606
2020
Common shares and additional paid-in capital
Cumulative other comprehensive income
Retained earnings excluding Group net income
Group net income Non-controlling interests
845
2019
2018
2017
9,542
0
845
845
845
492
699
1,853
845
744.1
interests, composed of the common shares, additional
paid-in capital, other comprehensive income and
retained earnings,
•
53,061.9
50,960.4
Hannover Re | Annual Report 2021
57
57
Combined management report
Breakdown of investments under own management
in %
100
3
3
4
M 26
3
58,903.2
3
5
5
90
00
3
2
3
4
7
80
70
60
50
6
6
58,959.8
67,519.7
Total
Financial position and net assets
•
Risk-commensurate investment policy
Highly diversified investment portfolio
Equity base remains robust
Investment policy
Hannover Re's investment policy continues to be guided by
the following core principles:
•
generation of stable and risk-commensurate returns
while at the same time maintaining the high quality
standard of the portfolio
ensuring liquidity and solvency at all times
high diversification of risks
limitation of currency exposure and maturity risks
through matching currencies and maturities
With these goals in mind, we engage in active risk manage-
ment based on balanced risk/return analyses. To this end we
adhere to centrally implemented investment guidelines and
incorporate insights gained from dynamic financial analysis.
They form the basis for investment ranges which are speci-
fied in light of the prevailing state of the market and the re-
quirements on the liabilities side and within which operation-
al management of the portfolio takes place. These measures
are intended to safeguard the generation of an appropriate
level of return. In so doing, we pay strict attention to compli-
ance with our clearly defined risk appetite, which is reflected
in the risk capital allocated to the investments and constitutes
Investment portfolio
the foundation for the asset allocation of the entire Hannover
Re Group and the individual portfolios. Our ability to meet our
payment obligations at all times is also ensured in this way.
Within the scope of our asset/liability management (ALM)
the allocation 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 liabili-
ties.
By adjusting the maturity pattern of our fixed-income securi-
ties to the expected payment patterns of our liabilities we re-
duce the economic exposure to the interest rate risk. In the
current reporting period this gave rise to a broadly neutral
modified duration of our bond portfolio, which stood at 5.8
(previous year: 5.8) as at 31 December 2021. Through active
and regular management of the currency spread in our
fixed-income portfolio we also aim for extensive matching of
currencies on the assets and liabilities sides of the balance
sheet, as a consequence of which fluctuations in exchange
rates have only a limited effect on our result. As at year-end
2021 we held 29.1% (31.2%) of our investments in euros,
44.2% (41.2%) in US dollars, 6.5% (7.6%) in pound sterling
and 6.5% (6.9%) in Australian dollars.
M 25
in EUR million
2017
10,902.9
40,057.5
42,197.3
47,629.4
49,001.6
56,213.2
Investments under own management
31
2018
10,864.6
9,958.2
11,306.5
Funds withheld
2019
2020
2021
11,273.8
shareholders' equity excluding non-controlling
29
32
Investments
Our portfolio of assets under own management amounted to
EUR 56.2 billion, a considerably higher level than in the pre-
vious year (31 December 2020: EUR 49.0 billion). With credit
spreads narrowing only slightly overall, higher interest rates
I gave rise to declines in the fair values of our fixed-income
securities. These were clearly more than offset by positive
effects from currency translation - especially in connection
with the US dollar and pound sterling. As additional factors,
cash inflows from issuance of a bond and the one-time reallo-
The portfolio of fixed-income securities excluding short-term
assets rose to EUR 48.0 billion (EUR 41.5 billion). As already
outlined with respect to the investment portfolio as a whole,
this reflects, on the one hand, interest rate increases that re-
duced fair values, while on the other hand currency effects
and cash inflows as well as a reallocation of technical hold-
ings to the investments led to rising total portfolios. The net
hidden reserves for available-for-sale fixed-income securi-
ties, which are included in shareholders' equity, totalled EUR
1,299.1 million (EUR 2,347.4 million). This reduction can be
attributed primarily to the interest rate increases seen on gov-
ernment bonds in the course of the reporting period. As to the
quality of the bonds measured in terms of rating categories,
the proportion of securities rated “A” or better remained on a
consistently high level and stood at 74.6% (76.7%) as at
year-end.
58
Hannover Re | Annual Report 2021
Rating of fixed-income securities
6.8% <BBB
18.6% BBB
M 27
43.4% AAA
The technical provisions and liabilities shown above, which
include funds withheld/contract deposits and reinsurance
payable, make up 74.7% (73.5%) of the balance sheet total
and are more than covered by our investments, (assets-side)
funds withheld/contract deposits, accounts receivable and re-
insurance recoverables.
18.6% A
12.7% AA
Holdings of alternative investment funds increased overall in
the reporting period. As at 31 December 2021 an amount of
EUR 1,747.2 million (EUR 1,300.7 million) was invested in
private equity funds; a further EUR 556.5 million (EUR 635.6
million) was attributable predominantly to investments in
high-yield bonds and in the credit sector – with the decrease
here reflecting the aforementioned regrouping of this asset
class away from funds towards direct investments. In addi-
tion, altogether EUR 805.9 million (EUR 582.3 million) was
invested in structured real estate investments. The uncalled
capital with respect to the aforementioned alternative invest-
ments totalled EUR 1,435.3 million (EUR 1,275.6 million).
Short-term investments and cash
At the end of the year under review we held a total amount of
EUR 1.8 billion (EUR 1.6 billion) in short-term investments
and cash. Funds withheld amounted to EUR 11.3 billion
(EUR 10.0 billion).
The technical provisions and liabilities are of course by far
the most significant item in our balance sheet. Further ele-
ments are equity and equity substitutes, which help to sub-
stantially strengthen our financial base and optimise our cost
of capital. The following chart shows our capital structure as
at 31 December 2021, broken down into percentages of the
balance sheet total.
Capital structure as at 31 December 2021
4.6% Other liabilities
15.4% Equity
0
M 28
5.3% Long-term debt
and notes payable
74.7% Technical
provisions and liabilities
-
-
The equity including non-controlling interests at 15.4%
(16.6%) of the balance sheet total as well as the long-term
debt and especially notes payable at altogether 5.3%
(4.8%) of the balance sheet total represent our most impor-
tant sources of funds.
We ensure that our business is sufficiently capitalised at all
times through continuous monitoring and by taking appropri-
ate steering actions as necessary.
Management of policyholders' surplus
A key strategic objective of Hannover Re is long-term capital
preservation. We have issued hybrid capital as an equity sub-
stitute in order to keep the cost of capital on a low level. The
policyholders' surplus is an important management ratio in
the context of Hannover Re's comprehensive capital manage-
ment. The total policyholders' surplus is defined as follows:
Analysis of the capital structure
1 Restated pursuant to IAS 8
Other
Real estate
40
17
30
20
10
0
16
16
15
15
35
35
34
30
2017
2018
Government bonds
Private Equity
Covered Bonds, ABS
nance.
We adjusted the allocation of our investments to the individu-
al classes of securities in that we acted on market opportuni-
ties in the first quarter and sold parts of our equity holdings.
As far as our fixed-income securities were concerned, when it
came to reinvesting or making new investments we increas-
ingly focused throughout the year on instruments that - - giv-
ing due consideration to their risk profiles - offer higher re-
turns than government bonds. We expanded our holding of
inflation-linked bonds so as to adjust it to requirements from
the underwriting side as part of regular portfolio mainte-
nance. Similarly, we further expanded our exposure to the
areas of infrastructure and private equity. We substantially
enlarged our real estate portfolio in Asia, making the most of
attractive acquisition opportunities in Singapore and Japan,
as well as in Germany and Poland. In the United States and
South Korea we very successfully acted on the state of the
real estate market to dispose of two large properties. Overall,
we thus slightly increased our real estate allocation to 5.5%
(5.1%). In the high-yield bond sector we progressively rea-
ligned our portfolios away from fund structures towards di-
rect investments. We kept the modified duration of our
fixed-income portfolio stable compared to the end of the pre-
vious year at 5.8 (5.8). In all other asset classes we made only
minimal changes in the context of regular portfolio mainte-
cation of technical holdings to the investments under own
management as part of a restructuring move in US mortality
business favourably affected the portfolio. The unrealised
gains and losses on our fixed-income securities contracted
sharply overall to EUR 1,446.7 million (EUR 2,558.4 million),
primarily against the backdrop of rising interest rates across
our main currencies.
34
30
14
6
Corporate bonds
2021
20201
Semi-government bonds
2019
32
Hannover Rück SE,
M 29
EUR 750 million; 2019/2039
The following companies hold direct or indirect capital par-
ticipations that exceed 10% of the voting rights: Talanx AG,
Hannover, directly holds 50.2% (rounded) of the company's
voting rights. This participation is indirectly allocable to
HDI Haftpflichtverband der Deutschen Industrie Versiche-
rungsverein auf Gegenseitigkeit, Hannover, which holds the
majority stake in Talanx AG.
The Executive Board of the company is not aware of any re-
strictions relating to voting rights or the transfer of shares,
including cases where these may arise out of agreements be-
tween shareholders.
The common shares (share capital) of Hannover Rück SE
amount to EUR 120,597,134.00. They are divided into
120,597,134 registered no-par shares.
Information pursuant to § 315a Para. 1
German Commercial Code (HGB)
1 Hannover Re South Africa Ltd. (HRe SA) benefits from parental
guarantees issued by Hannover Rück SE (the "Guarantor"). The
guarantees cover all of the payment obligations of HRE SA in respect of
insurance and reinsurance contracts issued by them. The guarantees are
unconditional and continuing and shall be binding upon the Guarantor.
The owners of the insurance and reinsurance contracts issued by these
subsidiaries are third party beneficiaries of these guarantees.
A+
Glencar Insurance Company
Hannover Re | Annual Report 2021
A+
A+
AA-
Hannover Re (Bermuda) Ltd.
A+
AA-
Designated Activity Company
Hannover Re (Ireland)
Hannover ReTakaful B.S.C.(c)
AA-
63
There are no shares with special rights granting their holders
powers of control, nor is there any specially structured voting
control for employees who have capital participations and do
not directly exercise their rights of control.
Hannover Rück SE transacts reinsurance business in the
business groups of Property & Casualty and Life & Health rein-
surance. Through its global presence and activities in all lines
of reinsurance, the company achieves extensive risk diversifi-
cation.
to the operator of the electronic Federal Gazette and can be
accessed via the website of the Companies Register. This an-
nual financial statement can also be accessed on the compa-
ny's website (www.hannover-re.com).
The annual financial statement of Hannover Rück SE - from
which the balance sheet and profit and loss account in par-
ticular are reproduced here in condensed form - is submitted
The annual financial statement of Hannover Rück SE is drawn
up in accordance with German accounting principles (HGB).
The consolidated financial statement, on the other hand, con-
forms to International Financial Reporting Standards (IFRS).
This gives rise to numerous divergences in accounting poli-
cies affecting, above all, intangible assets, investments, tech-
nical assets and liabilities, financial instruments and deferred
taxes.
Hannover Re exercises the option to present a combined
management report pursuant to § 315 Para. 5 of the German
Commercial Code (HGB) in conjunction with § 298 Para. 2 of
the German Commercial Code (HGB). Supplementary to the
reporting on the Hannover Re Group, we discuss below the
development of Hannover Rück SE.
(condensed version in accordance with the German Commer-
cial Code (HGB))
Hannover Rück SE
63
Information on
Hannover Re | Annual Report 2021
64
The company has not concluded any compensation agree-
ments with the members of the Executive Board or with em-
ployees in the event of a takeover bid being made.
In addition, retrocession covers in property & casualty and
life & health business contain standard market change-of-
control clauses which in each case grant the other contract-
ing party a right of termination if a significant change occurs
in the ownership structure and participation ratios of the af-
fected contracting party.
We describe below major agreements concluded by the com-
pany that are subject to reservation in the event of a change
of control, inter alia following a takeover bid, as well as the
resulting effects. Some letter of credit lines extended to Han-
nover Rück SE contain standard market change-of-control
clauses that entitle the banks to early termination of a credit
facility if Talanx AG loses its majority interest or drops below
the threshold of a 25% participation or if a third party ac-
quires the majority interest in Hannover Rück SE.
The powers of the Executive Board with respect to the issue
and repurchase of shares are defined in the Articles of Asso-
ciation of Hannover Rück SE (§ 6 "Contingent capital" and
§ 7 "Authorised capital") as well as in §§ 71 et seq. Stock Cor-
poration Act (AktG). In this connection the Annual General
Meeting authorised the Executive Board on 6 May 2020 pur-
suant to § 71 Para. 1 Number 8 Stock Corporation Act (AktG)
to acquire treasury shares on certain conditions for a period
of five years, ending on 5 May 2025.
The appointment and recall of members of the Executive
Board are determined by §§ 84 et seq. Stock Corporation Act
(AktG). Amendment of the Articles of Association is governed
by §§ 179 et seq. Stock Corporation Act (AktG) in conjunction
with § 18 (2) of the Articles of Association of Hannover Rück
SE.
Hannover Re | Annual Report 2021
Since 1 January 1997 Hannover Rück SE has written active
reinsurance for the Group - with few exceptions - solely in
foreign markets. Responsibility within the Hannover Re
Group for German business rests with the subsidiary E+S
Rückversicherung AG.
South Africa Ltd. 1
AA-
E+S Rückversicherung AG
a+
A
2014/undated
EUR 500 million;
Poor's
subordinated bond,
AA-
A.M. Best
Hannover Rück SE
AA-
2018/2028
M 35
Financial strength ratings of
subsidiaries
senior bond, EUR 750 million;
Hannover Rück SE
Standard &
Hannover Reinsurance
A+
Hannover Life Reassurance
Australasia Ltd.
Hannover Life Re of
A+
AA-
Ltd.
aa-
A
Hannover Finance
2012/2043
EUR 500 million;
Hannover Life Reassurance
subordinated bond,
A+
AA-
(Luxembourg) S.A.
Company of America
Company of America (Bermuda)
A
Results of operations
65
776,010
Profit or loss on ordinary activities before tax
366,123
356,833
Other charges
186,711
315,449
393,769
Other income
(197,485)
Allocated investment return transferred to the technical account
129,998
226,000
Investment charges
1,803,280
1,913,417
(196,977)
Investment income
Taxes on profit and income and other taxes
6,956
66
The profit on ordinary activities rose to EUR 776.0 million
(EUR 393.8 million). The year under review closed with a
profit for the year of EUR 701.2 million (EUR 386.8 million).
million (EUR 485.0 million). Net gains of EUR 280.4 million
(EUR 166.2 million) were realised on disposals. The increase
resulted principally from the release of substantial hidden re-
serves in connection with the regrouping of our equity hold-
ings and the portfolio of high-yield bonds. Write-downs of
EUR 31.6 million (EUR 34.3 million) were taken on invest-
ments, for the most part on bearer debt securities held as
current assets, in the area of alternative investments and on
deposits with ceding companies. The write-downs contrasted
with write-ups of EUR 6.0 million (EUR 1.5 million) that were
made on assets written down in previous periods in order to
reflect increased fair values. All in all, the net investment re-
sult increased slightly to EUR 1,687.4 million (EUR 1,673.3
million).
Ordinary investment income including deposit interest came
in below the previous year's level at EUR 1,505.7 million
(EUR 1,600.6 million), primarily due to a one-time effect from
our investment holding companies in the previous year. Ordi-
nary income from fixed-income securities totalled EUR 478.5
Large losses again exceeded our expectations in the 2021 fi-
nancial year. Particularly notable major losses were incurred
from disastrous flooding in Europe, hurricanes and other
weather phenomena in the United States as well as losses
from unrest in South Africa. The total net expenditure on ma-
jor losses for Hannover Rück SE amounted to EUR 598.4 mil-
lion (EUR 1,186.4 million).
The underwriting result (before changes in the equalisation
reserve) came in at EUR -126.9 million (EUR -209.1 million).
An amount of EUR 545.7 million (EUR 694.0 million) was al-
located to the equalisation reserve and similar provisions in
the year under review.
1,100,000
74,801
1,258,000
522
subordinated bond,
557,313
Profit brought forward from previous year
Allocations to other retained earnings
Disposable profit
386,813
701,209
Profit for the financial year
529
Hannover Rück SE recorded a pleasing business develop-
ment in the 2021 financial year. The gross premium in total
business grew by 14.2% to EUR 21.9 billion (previous year:
EUR 19.2 billion). The level of retained premium increased to
69.0% (68.3%). Net premium earned climbed by 14.3% to
EUR 14.8 billion (EUR 12.9 billion).
(903,124)
Net technical result
Claims incurred, net of retrocession
0
Other technical income, net of retrocession
189,357
187,951
Allocated investment return transferred from the non-technical account, net of retrocession
12,923,326
11,346,793
14,768,338
2020
2021
in EUR thousand
M 37
Condensed profit and loss account of Hannover Rück SE
Combined management report
65
Earned premiums, net of retrocession
(672,538)
9,923,590
(103,362)
(694,004)
(545,672)
Change in the equalisation reserve and similar provisions
(209,120)
(126,866)
Subtotal
374
Changes in other technical provisions, net of retrocession
262
3,632,733
Other technical charges, net of retrocession
Operating expenses, net of retrocession
17
5
Bonuses and rebates, net of retrocession
(101,263)
3,296,559
2019/2039
713,716
in EUR million
Cash flow from financing activities
The balance of cash inflows and outflows from operating ac-
tivities and financing activities in an amount of EUR -5,261.1
million (EUR -2,031.8 million) was invested in accordance
with the company's investment policy, giving particular con-
sideration to the matching of currencies and maturities on the
liabilities side of the technical account. Regarding the devel-
opment of the investment portfolio, please see also our re-
marks at the beginning of this subsection.
The cash flow from operating activities, which also includes
inflows from interest received and dividend receipts, amount-
ed to EUR 4,940.5 million in the year under review as op-
posed to EUR 3,018.2 million in the previous year. The in-
crease of altogether EUR 1,922.3 million was due to the
positive development of operational business.
Cash flow from operating activities
1 Restated pursuant to IAS 8
1.278,1
1.355,1
at the end of the period
Cash and cash equivalents
187,2
77,0
statement
equivalents according to cash flow
Change in cash and cash
1.090,9
1.278,1
beginning of the period
Cash and cash equivalents at the
187,2
77,0
equivalents
20201
3.018,2
(2.031,8)
(726,0)
(73,2)
120,1
Exchange rate differences on cash
277,5
The cash inflow from financing activities amounted on bal-
ance to EUR 277.5 million (EUR -726.0 million) in the year
under review. This item includes primarily the dividends paid
out in the financial year by Hannover Rück SE, E+S Rückver-
sicherung AG and other Group companies to parties outside
the Group totalling EUR 588.5 million (EUR 708.8 million) as
well as the balance from the issuance and repayment of long-
term debt, especially bonds, in an amount of EUR 865.5 mil-
lion (EUR -17.7 million).
Overall, the cash and cash equivalents therefore increased
year-on-year by EUR 77.0 million to EUR 1,355.1 million.
For further information on our liquidity management please
see page 86 et seq. of the "Opportunity and risk report".
62
EUR 750 million;
Hannover Rück SE
subordinated bond,
A+ (Superior)
stable
(Very Strong)
stable
A
EUR 500 million:
2020/2040
A.M. Best
Standard &
Poor's
AA-
Outlook
Rating
Hannover Rück SE
subordinated bond,
Hannover Rück SE
Cash flow from financing activities
A
Combined management report
A.M. Best
Standard &
Poor's
M 36
Hannover Rück SE
subordinated bond,
EUR 750 million;
2021/2042
Issue ratings of notes payable
As part of the process of rating Hannover Re, the rating agen-
cies also assess the debt issued by the Hannover Re Group.
Issue ratings of notes payable
Financial strength ratings of
A.M. Best and Standard & Poor's, the rating agencies of par-
ticular relevance to the insurance industry, assess the finan-
cial strength of Hannover Rück SE on the basis of an interac-
tive rating process and have awarded it very good ratings.
The rating agencies highlight in particular the profitability,
strong competitive position, capitalisation and risk manage-
ment of Hannover Rück SE.
Financial strength ratings
Hannover Re | Annual Report 2021
M 34
(5.261,1)
Change in cash and cash
Cash flow from operating activities
Cash flow from investing activities
61
Hannover Re | Annual Report 2021
Various financial institutions have provided us with letters of
credit for the collateralisation of technical liabilities. We re-
port in detail on existing contingent liabilities in the notes,
section 8.7 "Contingent liabilities and commitments”, page
261 et seq.
For further explanatory information please see our remarks in
the notes to this report, section 6.12 “Financing liabilities",
page 236 et seq., and section 6.13 "Shareholders' equity and
treasury shares", page 238 et seq.
2021
4.940,5
Several Group companies have also taken up long-term debt
- principally in the form of mortgage loans – amounting to
EUR 535.4 million (EUR 372.7 million).
2,975.7
3,722.3
743.3
1.375
3/22/2021
Total
Combined management report
EUR 750 million; 2021/2042
Hannover Rück SE,
494.9
495.4
1.75
7/8/2020
EUR 500 million; 2020/2040
subordinated bond,
Hannover Rück SE,
741.0
742.0
1.125
10/9/2019
subordinated bond,
Cash flow from operating activities
in EUR million
-
Analysis of the consolidated
1 Restated pursuant to IAS 8
M 32
Consolidated cash flow statement
2021
M 33
2019
2018
2017
0
Cash flow from investing activities
4,941
1,694
20201
2,225
2,509
3,018
1,000
3,000
4,000
5,000
Hannover Re does not conduct any automated internal cash
pooling within the Group. Liquidity surpluses are managed
and created by the Group companies. Various loan relation-
ships exist within the Hannover Re Group for the optimal
structuring and flexible management of the short- or long-
term allocation of liquidity and capital.
We generate liquidity from our operational reinsurance busi-
ness, investing activities and financing measures. Through
regular liquidity planning and by managing the fungibility of
our investments, we ensure that Hannover Re is able to make
the necessary payments at all times. Hannover Re's cash flow
is shown in the consolidated cash flow statement on page 170
et seq.
Liquidity
cash flow statement
2,000
69
Combined management report
Introduction
Hannover Re | Annual Report 2021
Combined non-financial
information statement
Hannover Rück SE maintains branches in Australia, Bahrain,
Canada, China, France, Hong Kong, India, Korea, Malaysia,
Sweden and the United Kingdom.
Outlook
Other information
The business development of Hannover Rück SE is essentially
subject to the same risks and opportunities as that of the Han-
nover Re Group. As a general principle, Hannover Rück SE
shares in the risks of participating interests and subsidiaries
according to the amount of its respective holding; these risks
are described in the risk report. The relations with participat-
ing interests of Hannover Rück SE may give rise to losses
from legal or contractual contingent liabilities (particularly
novation clauses and guarantees). Please see our explanatory
remarks in the notes to this report.
Risks and opportunities
In view of the interrelations between the parent company and
the Group companies and the former's large share of busi-
ness within the Group, we would refer here to our remarks
contained in the section entitled "Outlook for 2022" on page
147 et seq., which also reflect the expectations for Hannover
Rück SE. We expect the profit reported for the 2022 financial
year under the German Commercial Code (HGB) to improve
significantly on the previous year.
It will be proposed to the Annual General Meeting on 4 May
2022 that a dividend of EUR 4.50 per share plus a special
dividend of EUR 1.25 per share should be paid for the 2021
financial year. This corresponds to a total distribution of EUR
693.4 million. The dividend proposal does not form part of
this consolidated financial statement.
Para. 3 No. 3 and 4 German Commercial Code (HGB) to the
extent necessary for an understanding of the business devel-
opment, business result, position of Hannover Rück SE and
the Group as well as of the implications for non-financial mat-
ters. Information pursuant to requirements of Article 8 of the
EU Taxonomy Regulation has been integrated for the first
time.
We received an adequate consideration for all transactions
with affiliated companies according to the circumstances of
which we were aware at the time when the transactions were
effected. We incurred no disadvantages as defined by § 311
Stock Corporation Act (AktG).
An ordinary dividend of EUR 4.50 per share, equivalent to
EUR 542.7 million (EUR 633.3 million), was paid out in the
year under review for the 2020 financial year.
Pursuant to § 315b (1) Sentence 3 German Commercial Code
(HGB), reference is also made to non-financial disclosures
provided elsewhere in the combined management report with
respect to certain aspects. References to information outside
the combined management report and the consolidated and
annual financial statement do not form part of the combined
non-financial information statement.
A detailed description of Hannover Re's sustainability efforts,
which go above and beyond the legal requirements of the
combined non-financial information statement, is provided in
a separate sustainability report compiled annually in accord-
ance with the GRI Standards.
Exclusions further tightened,
overachieved
Development of an internal
position paper and inclusion of
further ESG criteria, on target
Annual reduction on target
Valid evaluation of the figures
not possible due to the
ongoing pandemic
Concept approved by the
Executive Board, on target
Employee matters
Qualified and motivated people are at the heart of a compa-
ny's business activities. Growing importance is attached to
sustainability-related aspects in all phases of their employ-
ment. Most notably, the demographic shift in industrial coun-
tries is leading to intensified competition for well-qualified
junior staff. It is evident that members of Generations X, Y
and Z are especially likely to consider not only monetary as-
pects when it comes to choosing their employer. Other as-
pects move front and centre, such as adherence to principles
of responsible corporate governance, measures to realise
sustainable development in the core business, a company's
reputation, culture and work atmosphere, compatibility of
work and family life, the availability of development and ca-
reer opportunities and other additional benefits - summed up
as the "total reward". On top of this, the Covid-19 pandemic
continued to present companies around the world with spe-
cial challenges. At the same time, existing trends such as mo-
bile working and virtual/hybrid meetings gained added im-
petus.
Employees are part of a company and part of social structures
outside that company. All measures taken strengthen
Hannover Re's position on the labour market while at the
same time having external implications. For this reason, we
have chosen not to consider the impacts separately below.
The Covid-19 pandemic, the direct and indirect effects of
which affected Hannover Re and its employees, among oth-
ers, was a crucial factor as in the previous year. For informa-
tion about the impacts on the business development please
see the section of the same name. For information about the
impacts on the risk management systems please see the "Op-
portunity and risk report” in the combined Group manage-
ment report.
Impacts on our operations and
impacts of our operations
As a service provider in the insurance industry, Hannover Re
operates in a highly specialised environment and at the same
time finds itself faced with the framework conditions de-
scribed above. A risk could arise if vacancies cannot be filled
quickly enough or candidates of the necessary quality cannot
76
Hannover Re | Annual Report 2021
Combined management report
Expansion of data recording for relevant environ-
mental aspects to at least 75% of the global
workforce. The assessed locations are to become
100% climate-neutral
Hannover Re | Annual Report 2021
Reinsurance covers for individual risks are written in faculta-
tive reinsurance, i.e. the treaties can be allocated to specific
projects or policyholders. In this segment, reinsurance has no
longer been provided for planned new coal-fired plants or
thermal coal mines since April 2019. Moreover, from Febru-
ary 2020 onwards our facultative division has excluded any
new business connected with thermal coal or the associated
infrastructure. Thermal coal infrastructure encompasses
mines, coal-fired power plants and facilities as well as port
and rail operations allocable exclusively to the coal industry.
In the case of mixed groups, companies are excluded that
generate more than 30% of their revenues from activities in
thermal coal. In addition, since 2020 the facultative division
has no longer accepted any new individual risks for compa-
nies that hold 20% or more of their oil reserves in oil sands
and it excludes oil sands extraction and processing opera-
tions. Oil sands extraction and processing encompass the
extraction of bituminous sand (both in surface mining and in
the form of in-situ extraction) from bitumen, refinement into
synthetic crude oil, further processing of this synthetic crude
into petroleum products and the associated transportation by
pipeline or rail. The exclusions for oil and gas were expanded
in the year under review. From mid-2022 onwards the facul-
tative division will no longer take on any new covers for pro-
ject policies associated with the exploration and/or develop-
ment of new oil and gas reserves (upstream) or for project
policies that exclusively support the transportation and stor-
age (midstream) of new oil and gas reserves. Complementary
to this, the facultative division adopted an ESG manual in the
year under review that addresses other environmental con-
cerns. Transactions are to be declined if they may entail dam-
age to protected areas classified as IUCN category 1a/b, wet-
lands protected under the Ramsar Convention or world
cultural heritage sites. Furthermore, the facultative division
no longer accepts any new risks connected with projects for
the extraction of oil and gas in Arctic regions. These are de-
fined as the zone around the Arctic Circle which runs in a
circle of latitude 66.34° north of the Equator. This includes
the Arctic National Wildlife Refuge (ANWR) in the United
States. In addition, no risks are written that are connected
with the development of new oil and gas deposits in deep
tion from power plant and thermal coal by the year 2038 in
the entire portfolio of property and casualty reinsurance busi-
ness. Work began in the year under review on the elaboration
of our internal positioning for the property and casualty rein-
surance sector. This will flesh out the approach in greater de-
tail and address further issues (such as oil and gas). The po-
sition paper is applicable to both facultative and obligatory
business.
At the same time, Hannover Re is consistently seeking to re-
duce its exposure to fossil fuels. The goal is to no longer cov-
er any risks connected with the mining of and power genera-
Fossil fuels are considered to be one of the major drivers of
climate change. With a view to countering this and facilitating
the transformation to a lower carbon economy, Hannover Re
encourages the expansion of renewable energy sources in
property and casualty reinsurance that range from wind ener-
gy (both onshore and offshore) through photovoltaic energy
and hydroelectric power to geothermal energy.
Impacts of our operations
Insurance business
In support of the goals of the Paris Agreement on climate
change, Hannover Re also adopted concrete targets in the
year under review for the achievement of net zero emissions:
net zero in reinsurance business by 2050, net zero in invest-
ments by 2050 and net zero in our own business operations
by 2030. These targets are associated with a range of impacts
on our operations.
The risks posed by climate change can affect numerous risk
categories of the risk register and are extensively monitored
through the risk management system. ESG topics are also ad-
dressed as part of the management of sustainability and rep-
utational risks. For information on the corresponding con-
cepts and implemented stress test mechanisms the reader is
referred to the "Opportunity and risk report" in the combined
Group management report. When it comes to evaluating im-
pacts and risks, one advantage is that business in property
and casualty reinsurance is normally renewed annually. This
means that it is possible to adjust the premiums or risk appe-
tite each year according to the conducted risk assessment
and hence manage the exposure on a risk-oriented basis. For
information on the industry-specific environment and the re-
sults of operations in property and casualty reinsurance,
please see the section "Report on economic position".
Climate change goes hand-in-hand with a range of impacts
on Hannover Re's operations, e.g. due to an increase in the
frequency and/or severity of losses (physical risks) or chang-
ing framework conditions with implications for reinsurance
business and investments (transitory risks). Furthermore, on
the societal level an increase in environment-related lawsuits
against businesses and public institutions can be observed
(litigation risks) that may adversely affect the insurance in-
dustry.
Impacts on operations
73
Hannover Re | Annual Report 2021
In view of these comprehensive environmental, economic and
social impacts, climate change is at the heart of numerous
national and international regulatory initiatives and meas-
ures. The goals of the Paris Agreement on climate change,
under which the international community committed in 2015
to limit the rise in the global average temperature to well be-
low 2°C, preferably to 1.5°C, compared to pre-industrial lev-
els, are considered a key driving force here. In the closing
statement of the UN Climate Change Conference 2021 in
Glasgow, known as COP26, the participating countries recon-
firmed the 1.5 °C target.
In connection with environmental matters, special impor-
tance attaches to the active exploration of the causes and
consequences of progressive climate change. The impacts
can be felt ever more clearly. Extreme weather events and
natural disasters such as heatwaves and droughts, severe
precipitation events and storms, as well as continuous pro-
cesses such as glacier melting and rising sea levels, have
far-reaching implications for society and the economy and
lead to considerable economic and insured losses. What is
more, further environmental concerns, such as the proper
functioning of ecosystems or the water resources of ground
and surface waters, are directly affected by climate change. If
the earth's temperature were to continue rising unchecked,
this would increase the scale of such phenomena and risks.
Yet the sought-after transition to a climate-friendly, re-
source-saving economy is also associated with a number of
social and economic impacts.
74
Reduction of greenhouse gas emissions at the
Hannover location by 25% per employee (base year
2019)
Goal tightened: reduction of the carbon footprint
(corporate bonds, covered bonds, equities) by 30%
by 2025 (base year 2019)
No underwriting of facultative new business in
coal-fired power plants or mines for thermal coal
Phased withdrawal according to step-by-step plan
- completion of the evaluation phase and beginning
of the implementation phase; complete withdrawal
by 2038
In the year under review Hannover Re became a signatory to
the UN Principles for Sustainable Insurance (UN PSI).
Investments
ESG criteria are similarly applied on the asset management
side. These have been defined in writing in an internal Re-
sponsible Investment Policy, application of which is ensured
by an ESG officer on the investment team.
-
Within the portfolio of assets under own management,
fixed-income securities (government and semi-government
bonds, corporate bonds and covered bonds [with the excep-
tion of collateralised debt obligations – CDOs]) and listed eq‐
uities have been subject to half-yearly negative screening
since 2012. Only a few niche funds or asset classes, such as
real estate, private equity or structured investments, cannot
be analysed using this system. Similarly, before any new in-
vestments are made corresponding screening is carried out
with an eye to existing ESG criteria. Issuers who do not satis-
fy our criteria are actively scaled back.
In its investments, too, Hannover Re is aiming to consistently
reduce its carbon footprint. We use concrete, climate-related
exclusions for this purpose and exclude from our investing
activities, for example, companies that generate more than
25% of their revenues from the mining of or power genera-
tion from thermal coal or extract oil through the exploitation
of oil sands. In the year under review we adopted interim
goals for our net zero emissions target by the year 2050. The
focus is on progressive decarbonisation of the asset portfolio.
We shall do this, in the first place, by reducing the carbon
footprint (Scope 1 and 2) of our assets under own manage-
ment from the areas of corporate bonds, covered bonds and
equities by 30% by the year 2025, compared with the base
year of 2019. Our decarbonisation efforts are guided by an
external "carbon risk rating" that gives us an extensive over-
view of our investment portfolio's carbon footprint.
In addition to our negative screening, we are increasingly
adding to our portfolio sustainable investments that support
the transformation towards a resource-efficient economy.
These include, for example, infrastructure assets such as re-
newable energies or clean transportation as well as dedicated
impact funds. Our goal is to increase the volume by at least
10% by the end of 2023 compared to the end of 2020.
Not only that, the implementation of the best-in-class invest-
ment approach that was completed in 2019 makes possible
ongoing monitoring of the existing portfolio's sustainability
quality.
Since 2020 Hannover Re has been a signatory to the UN Prin-
ciples for Responsible Investment (UN PRI).
Opportunities
Changing general framework conditions, increasing values
and hence a greater need for protection, combined with the
transition to a net zero greenhouse gas economy - inter alia
in connection with the EU Action Plan for Financing Sustain-
able Growth and the European Green Deal -, will bring new
business opportunities. Such opportunities will open up, for
example, through an expansion of parametric covers, growth
in natural catastrophe business and further solutions for mit-
igation of/adaptation to climate-related risks or increased
premiums in the renewable energy sector.
Hannover Re | Annual Report 2021
75
Environmental matters: Selected goals
M 41
Goal
Supporting the goals of the Paris Agreement on
climate change
Target indicator by 2023
Definition of measures to reduce emissions,
enhance transparency, increase adaptability and
mitigate the impacts of climate change in the action
fields
Promoting the development of actuarial methods for Active involvement in and financial sponsorship of
the assessment of risks from natural perils and
various market initiatives and events
climate change
Advancing a global energy transition through the
reinsurance of renewable energy sources
No new business in the insurance of individual risks
in coal-fired power plants or mines for thermal coal
Reducing the CO2 load in connection with coal-fired
power plants or mines for thermal coal in obligatory
insurance portfolios
Asset management: reducing the CO2 load in the
asset portfolio
Reducing greenhouse gas emissions at the Han-
nover location
Increasing transparency around greenhouse gas
emissions at the worldwide locations
Status 31.12.2021
Cross-cutting goal, ongoing
Ongoing, on target
Increase of 60% in the facultative premium volume Increase on the planned scale
for renewable energies
not achieved, under observa-
tion
Environmental matters
For further information we would refer to the "Opportunity
and risk report" in the combined Group management report.
Should members of staff or indeed persons outside the com-
pany become aware of compliance violations, harmful behav-
iour or risks, such suspicions can be reported to the CCO or
the Compliance department or, if so desired, anonymously
through an online speak-up system.
compliance-related issues. On joining the Group, all new
members of staff take compliance training. In addition, fo-
cused training activities are held on various compliance top-
ics throughout the year for specific target groups. This is sup-
plemented by dedicated compliance pages in the intranet
containing more extensive information. In 2020 Hannover Re
also launched a 12-month compliance campaign to raise
awareness among the workforce. This was concluded in the
year under review.
Sustainable protection
Climate change
Material topic
Fighting corruption and bribery
Respect for human rights
Social matters
Employee matters
Environmental matters
Non-financial aspect
Allocation of the non-financial aspects to the material topics
Combined management report
71
Hannover Re | Annual Report 2021
Hannover Re regularly conducts materiality analyses in order
to identify material ESG (environmental, social and govern-
ance) issues, most recently in the spring of 2020 in the form
of interviews/workshops with internal and external experts.
The basis consisted of a list of possible topics derived from
the materiality analysis conducted in 2018, dialogues with
stakeholders and non-governmental organisations, media re-
ports and the GRI Framework. All experts were encouraged to
indicate other topics.
Materiality analysis and material topics
In view of its considerable significance, the topic of Covid-19
had already been picked up on last year as an additional topic
in the non-financial reporting. In the year under review the
Executive Board validated the materiality analysis and includ-
ed Covid-19 as a supplementary material topic.
The analysis looked at two dimensions (so-called double ma-
teriality): positive/negative impacts of Hannover Re's opera-
tions on the respective topic (inside-out perspective) and pos-
itive/negative impacts of the respective topic on Hannover
Re's operations (outside-in perspective). Each topic was
scored on a scale of 1 to 5 in this regard. Extensive interviews
were conducted with the external experts (stakeholder group:
asset managers, ESG analysts, representatives of non-govern-
mental organisations, representatives of the trade press as
well as representatives of foundations and associations). All
topics that received an average score of at least 3.75 were
marked as material. Four workshops were held with the inter-
nal experts (stakeholder group: employees) from various
market and service units to score the topics on the list. In this
case, too, the materiality threshold was set at 3.75. Some top-
ics were clustered at the workshops. The topics were trans-
ferred to a materiality matrix as averaged values from the in-
ternal and external scores. In this context, those topics that
fell below the threshold after averaging also continued to be
material. As a result, 13 material topics were identified.
We have also defined financial targets for the strategy cycle
2021-2023. We report on these targets and target attainment
on page 27 et seq. of the section "Management system" in
this combined management report.
Our system of strategic targets encompasses qualitative and
quantitative goals. Along with traditional, balance sheet-ori-
ented IFRS indicators we have defined economic targets that
are derived from our certified internal capital model and the
Solvency II reporting.
The strategic programme is supported and monitored by the
division Group Performance & Strategy Development and pro-
gress reports are provided to the Executive Board quarterly
(reporting on strategic initiatives) and half-yearly (manage-
ment reporting).
Altogether, our strategic programme encompasses 25
cross-functional strategy contributions that support the
Group strategy. “Corporate Social Responsibility" is one of
these subject areas that we shall refine in the strategy cycle
2021-2023 and in which we pursue non-financial goals,
among others. Associated topics are specified more closely in
our Sustainability Strategy 2021-2023. This is comprised of
the four action fields Transparency, Employees, Core Busi-
ness and Commitment as well as underlying measures and
goals. The sustainability strategy is publicly available on our
website.
forming the industry average in terms of the return on equity.
We have launched four strategic initiatives - Customer Excel-
lence, the Innovation and Digital Strategy, the Asia-Pacific
Growth Initiative and Talent Management – that we consider
especially crucial and we intend to work on them intensively
throughout the entire strategy cycle.
Hannover Re | Annual Report 2021
70
-
In our "Striving for sustainable outperformance" strong gov-
ernance, risk management, integrated compliance and corpo-
rate social responsibility constitute the foundations for our
growth as a reliable global reinsurance partner. Three perfor-
mance drivers – preferred business partner, innovation cata-
lyst, earnings growth are based on proven strengths and
address the global trends affecting the insurance and reinsur-
ance industry. Three performance enablers empowered
people, a lean operating model and effective capital manage-
ment have proven essential over the last decade for outper-
The Group strategy of Hannover Re was revised most recent-
ly in 2020. It is valid for the 2021 - 2023 strategy cycle.
For a description of the business model the reader is referred
to the subsection "Business model" under "Foundations of
the Group".
The combined non-financial information statement encom-
passes unless presented separately - the disclosures for the
Group and the parent company Hannover Rück SE. It con-
tains the legally required information relating to material en-
vironmental matters, employee matters, social matters, re-
spect for human rights and fighting corruption and bribery.
Within the individual aspects, the underlying concepts and
internal due diligence processes are discussed and available
findings are reported. The identified material issues were al-
located to the aspects (see section "Materiality analysis"). In
addition, the combined non-financial information statement
is to be used to report on material risks pursuant to § 289c
ESG in insurance business
ESG in asset management
The present combined non-financial information statement
was drawn up in accordance with §§ 315c in conjunction with
289c to 289e German Commercial Code (HGB) as well as Ar-
ticle 8 of Regulation (EU) 2020/852 of the European Parlia-
ment and of the Council of 18 June 2020 on the establishment
of a framework to facilitate sustainable investment, and
amending Regulation (EU) 2019/2088 (hereinafter EU Taxon-
omy Regulation). The identification of material contents re-
flected the materiality definitions of the Global Reporting Ini-
tiative (GRI) and the German Commercial Code (HGB). The
description of concepts is guided by the structure of the GRI
Standards, Standard GRI 103-1 to GRI 103-3 (Management Strategic orientation
Approach).
Attractiveness as an employer
Learning and development
Covid-19
Attentive and trained employees are a crucial component of a
functioning compliance management system - both in order
to avoid unconscious violations and to recognise and prevent
deliberate violations and associated risks. Hannover Re uses
various training activities in order to sensitise employees to
The CCO works closely with Risk Management to ensure a
consistent approach to operational risks, which include com-
pliance risks. Several compliance committees also exist, com-
prised of members from the operational business groups as
well as from the areas of Group Legal, Finance, Accounting
and Investments. Among other things, the compliance com-
mittees examine reinsurance treaties with a special eye to
compliance with supervisory requirements and accounting
standards and they take fundamental decisions on dealing
with sanctions.
The Executive Board is responsible for and tasked with ensur-
ing adequate and effective compliance structures. Execution
falls to the Chief Compliance Officer (CCO), who reports in a
direct line to the Executive Board on material compliance is-
sues and developments. The annual compliance report is also
submitted to the Supervisory Board and its Finance and Audit
Committee. The CCO is supported in his work by the Compli-
ance department, specially designated officers and a world-
wide network of local compliance officers. Monitoring proce-
dures are conducted for the management of compliance risks.
Checks can also take place on an ad hoc basis where there are
grounds for suspicion. The underlying compliance risk analy-
sis is updated annually.
• Identifying and assessing material compliance risks
(risk function)
emerging compliance risks (identification function)
Identifying and evaluating specific current and
Advising the Executive Board and the employees on
compliance with laws (advisory function)
Examining and evaluating changes in the legal/
regulatory environment and determining measures
(monitoring function)
•
•
Compliance encompasses not only compliance with statutory
and regulatory requirements (legal compliance) but also ful-
filment of external standards such as corporate governance
principles as well as internal guidelines. At Hannover Re,
compliance topics are addressed in a compliance manage-
ment system. This is geared to international standards and
ensures that the core tasks of a compliance function are per-
formed:
Compliance management system
Combined management report
M 40
Risk management
Hannover Re | Annual Report 2021
72
For further information we would refer to the "Opportunity
and risk report" in the combined Group management report.
The Executive Board approved a framework for the manage-
ment of sustainability and reputational risks with Group-wide
validity in the year under review in order to underscore the
importance of the topic.
Sustainability risks do not constitute a risk category of their
own, but can instead have implications for all risk categories.
In the year under review the meta-risk of sustainability and
reputational risks was added to “Other risks" in the risk reg-
ister.
In the context of its risk management system Hannover Re
also considers risks that arise in connection with environ-
mental concerns, social issues or corporate governance - so-
called sustainability or ESG risks. These may be associated
with negative implications for the net assets, financial posi-
tion and results of operations (outside-in) as well as negative
implications for the ESG landscape (inside-out). Both risks
can affect, among other things, the company's reputation.
In the course of its operations as a reinsurance company Han-
nover Re knowingly enters into many different risks. It is
equipped with an adequate and effective risk management
system for ongoing monitoring of these and other risks.
Risk management system
Compliance
Good governance
ESG in insurance business
ESG in asset management
Human rights
ESG in asset management
Sustainable protection
Dialogue
Health and wellness of employees
Diversity and equal opportunities
Hannover Re | Annual Report 2021
The combined non-financial information statement is a
section of the report that the legislator has expressly
exempted from the audit of the financial statements
(§ 317 [2] Sentence 6 and Sentence 4 German Com-
mercial Code [HGB]). The combined non-financial in-
formation statement presented here has, however,
been reviewed with limited assurance by the auditing
firm of PricewaterhouseCoopers in accordance with
the audit standard ISAE 3000 (Revised) (see here the
Independent Auditor's Report on page 275 et seq.).
Our capital and reserves - excluding the disposable profit
stood at EUR 1,631.7 million (EUR 1,631.7 million). The total
capital, reserves and technical provisions - comprised of the
capital and reserves excluding disposable profit, the subordi-
nated liabilities, the equalisation reserve and similar provi-
sions as well as the net technical provisions – increased dur-
ing the year under review to EUR 44,182.2 million (EUR
37,586.4 million). Among other things, the issuance of a sub-
ordinated bond had a positive effect here. The balance sheet
total of Hannover Rück SE grew to EUR 52.7 billion (EUR 44.9
billion).
2,862
3,203
4,441
4,820
3,962
4,105
0
5,000
4,758
5,026
5,679
225
1,861
454
4,237
2017
2018
2019
Gross premium for the motor line grew by 16.9% to EUR
3,197.2 million (EUR 2,734.7 million). The loss ratio climbed
to 75.4% (66.5%). The underwriting result closed at EUR
-75.9 million (EUR 31.3 million). An amount of EUR 46.3 mil-
lion (EUR 209.1 million) was allocated to the equalisation re-
serve and similar provisions.
Motor
Gross premium income for the accident line contracted by
25.6% to EUR 379.1 million (EUR 509.7 million). The net loss
ratio rose to 68.6% (42.2%). The underwriting result came in
at EUR 10.3 million (EUR 48.1 million). An amount of EUR
19.4 million was withdrawn from the equalisation reserve and
similar provisions, after an allocation of EUR 22.8 million in
the previous year.
Accident
Gross premium in liability business rose by 24.1% to EUR
2,991.9 million (EUR 2,410.2 million). The loss ratio increased
to 78.8% (71.4%). The underwriting result closed at EUR
-171.4 million (EUR 4.5 million). An amount of EUR 217.1
million (EUR 311.9 million) was allocated to the equalisation
reserve and similar provisions.
Liability
Gross premium income for the fire line climbed by 21.2% to
EUR 4,015.5 million (EUR 3,312.7 million). The net loss ratio
increased to 65.0% (63.9%). The underwriting result closed
at EUR 152.9 million (EUR 114.2 million). An amount of EUR
85.6 million (EUR 128.7 million) was allocated to the equali-
sation reserve and similar provisions.
Accident Casualty Fire
Fire
Motor
Aviation
Marine
Other lines Life
2021
2020
258
Aviation
2,452
336
4,015
21,941
M 38
2,937
3,313
18,073
2,992
19,217
20,000
25,000
in EUR million
Hannover Rück SE: Breakdown of gross premium
by individual lines of business
The following section describes the development of the vari-
ous lines of business. The cooperation and exchange of busi-
ness between Hannover Rück SE and E+S Rückversicherung
AG was reorganised with effect from the beginning of the
2014 financial year and slightly adjusted in the 2019 financial
year. Since 2014 a quota share retrocession from Hannover
Rück SE to E+S Rückversicherung AG has been maintained in
property and casualty reinsurance.
Development of the individual lines of
business
14,640.
315
544
15,000
2,410
10,000
322
391
1,584
2,945
2,735
1,590
1,963
442
3,197
510
2,213
2,317
13,292
379
460
68
Gross premium income fell by 2.1% to EUR 315.5 million
(EUR 322.4 million). The loss ratio climbed to 55.8% (46.3%).
The underwriting result closed at EUR 43.4 million (EUR 65.4
million). An allocation of EUR 16.1 million (EUR 38.0 million)
was made to the equalisation reserve and similar provisions.
The gross premium volume for the marine line grew by
18.2% to EUR 543.8 million (EUR 459.9 million). The net loss
ratio increased to 62.9% (55.9%). The underwriting result
stood at EUR 30.3 million (EUR 31.9 million). An amount of
EUR 41.6 million (EUR 25.5 million) was allocated to the
equalisation reserve and similar provisions.
1,258,000
630,511
630,511
880,608
880,608
120,597
1,100,000
120,597
52,685,867
188,787
238,500
672,932
622,690
4,996,983
44,864,195
2,889,716
2,731,716
3,000,000
In obligatory reinsurance, large-volume portfolios with some-
times heterogenous contents are accepted. We are engaged
in talks with our customers in order to obtain an overview of
the CO2 intensity of the business ceded to us. In 2021
Hannover Re joined the Net-Zero Insurance Alliance (NZIA)
so as to work with other participants on the development of
metrics and targets. On this basis we shall identify measures
for the progressive reduction of our carbon footprint.
Deposits with ceding companies, which are shown under the
investments, increased to EUR 8.7 billion (EUR 7.6 billion).
Our portfolio of assets under own management increased to
EUR 36.9 billion (EUR 31.4 billion). The balance of unrealised
gains on fixed-income securities and bond funds declined to
EUR 1,078.2 million (EUR 1,578.6 million). Along with the
moderate realisation of reserves, this was primarily a reflec-
tion of decreases in valuations due to higher interest rates,
which were not offset by very largely stable risk premiums on
corporate bonds.
44,864,195
52,685,867
0
58
3,332,731
2,498,571
3,204,212
3,714,568
346,509
326,864
33,704,668
39,550,449
2,250,000
6,227,938
Marine
61,439
38,944,054
2020
Intangible assets
Assets
in EUR thousand
Balance sheet structure of Hannover Rück SE
Assets and financial position
Gross premium income in the other lines grew by 8.5% to
EUR 4,819.5 million (EUR 4,441.3 million). The net loss ratio
retreated to 69.7% (85.6%). The underwriting result closed
at EUR -51.7 million (EUR -462.4 million). After a withdrawal
of EUR 42.0 million in the previous year, an allocation of EUR
158.4 million was made to the equalisation reserve and simi-
lar provisions.
Investments
The lines of health insurance, credit and surety, other indem-
nity insurance and other property insurance are reported
together under other lines. Other property insurance consists
of the extended coverage, comprehensive householder's
(contents), comprehensive householder's (buildings), burg-
lary and robbery, water damage, plate glass, engineering,
loss of profits, hail, livestock and windstorm lines. Other in-
demnity insurance encompasses legal protection, fidelity as
well as other pure financial losses and property damage.
Combined management report
67
52
Hannover Re | Annual Report 2021
The gross premium in the life line grew by 13.0% to EUR
5,678.9 million (EUR 5,026.2 million). Life and health reinsur-
ance business has a clear international focus. We write our
business on all continents and in many instances we are di-
rectly available as a local point of contact thanks to our exten-
sive network. In addition to traditional life reinsurance, we
write financial solutions business as well as health and lon-
gevity risks on a worldwide basis. The financial year just end-
ed was crucially shaped by the Covid-19 pandemic. This is
clearly reflected in the result, which was reduced by an in-
creased burden of losses - thereby overshadowing a number
of positive developments in our strategic business segments.
The underwriting result in life business amounted to alto-
gether EUR -64.8 million (EUR -42.1 million).
Life
Other lines
Receivables
Other assets
Prepayments and accrued income
M 39
2021
Accruals and deferred income
Total liabilities
Other liabilities
Deposits received from retrocessionaires
Provisions for other risks and charges
Technical provisions
Subordinated liabilities
Capital and reserves
Disposable profit
Retained earnings
Capital reserve
Subscribed capital
Liabilities
Total assets
61,356
45,535,383
waters below 5,000 feet. The facultative underwriters at all
locations were already provided with training in ESG topics
and the ESG manual in 2020.
Insurance business
Limits per transaction
Impacts on our operations
81
Hannover Re | Annual Report 2021
state and can become a threat to state legitimacy as well as to
democratic institutions. On the economic level, corruption
distorts competition and causes business transactions to be-
come more expensive while preventing the efficient use of
resources. The fight against corruption and bribery forms
part of our compliance management.
Corruption, as the abuse of entrusted power for personal
gain, has numerous negative repercussions. On the political
and administrative level, corruption influences decision-mak-
ing and the execution of approved measures in favour of indi-
viduals or parts of the population. This erodes trust in the
Fighting corruption and bribery
Cross-cutting goal, ongoing
Status 31.12.2021
M 44
Definition of measures in conformity with the United
Nations Guiding Principles on Business and Human Rights
We do not see any particular opportunities in connection with
this non-financial aspect.
Opportunities
With regard to our activities in asset management, we would
refer the reader to the remarks made in connection with the
aspect "Environmental matters" and the negative screening
process described there. This is based on the Ten Principles
of the United Nations Global Compact (UNGC); six of these
Principles explicitly address the issues of human rights and
labour standards. Our investment guidelines also exclude is-
suers involved in the development and proliferation of inter-
nationally banned weapons.
Investments
With regard to our activities in insurance business, we would
refer the reader to the remarks made in connection with the
aspect "Environmental matters". Based on our risk analysis,
we identified the greatest risk of potentially detrimental im-
pacts on human rights in the following, particularly exposed
areas: large construction projects (incl. dams, oil and gas pro-
jects, mines and pipelines), mining operations as well as com-
panies connected with internationally banned weapons. The
facultative division's ESG manual, in which the facultative
underwriters around the world receive training, provides for
a screening process in order to identify and decline transac-
tions that entail an inherent risk of severe breaches of funda-
mental human rights.
Insurance business
of 31 December 2021 100% of core IT suppliers have com-
mitted to comply with the Code of Conduct for Suppliers or
equivalent rules.
Target indicator by 2023
Living up to duties of care in matters of
human rights
Goal
Respect for human rights: Selected goals
As far as human rights due diligence is concerned, we see the
greatest risk in connection with the procurement of IT hard-
ware. For this reason, we have adopted an IT Procurement
Guideline that is valid Group-wide and contains consistent
rules governing the purchasing of IT products throughout the
organisation. It provides for all bottleneck, leverage and stra-
tegic suppliers to be subject to monitoring. Recognition of
the Code of Conduct for Suppliers or submission of the sup-
plier's own more extensive code of conduct is mandatory. As
Hannover Re does not have a traditional upstream or down-
stream supply chain of raw and auxiliary materials or pro-
duced goods as is the case with, for example, manufacturing
companies. Nevertheless, we too source a broad range of
goods and services. Hannover Re has adopted its own Code
of Conduct for Suppliers. This encompasses compliance with
legal and ethical provisions, respect for human rights includ-
ing observance of the core labour standards of the Interna-
tional Labour Organization (ILO) and adherence to all appli-
cable requirements in the areas of health, safety and
environmental protection.
Suppliers
ments.
plicable national, collective bargaining and company regula-
tions, we do not see any risk of serious violations of human
rights. That said, issues such as discrimination, equal oppor-
tunities and oppression require constant attention and moni-
toring. We manage these issues in the context of our human
resources management structure. For further information the
reader is referred to the remarks in connection with the as-
pect "Employee matters". We protect employee data through
rigorous compliance with statutory data protection require-
Combined management report
Compliance risks may become relevant in connection with
the non-financial aspect "Fighting corruption and bribery".
At the same time, integrity and lawful conduct are directly
correlated with a company's reputation and establish the ba-
sis for the trust placed in such company by business partners,
investors, shareholders and the broader public and hence
also the foundation for its success and competitiveness over
the long term. In view of the business operations and imple-
mented structures, no direct and/or severe risks were identi-
fied. For further information the reader is referred to the "Op-
portunity and risk report" in the combined Group management
report.
Hannover Re | Annual Report 2021
Impacts of our operations
Governance and compliance
Fighting corruption and bribery: Selected goals
Gender-neutral new appointments/replacements
(50/50) for all vacant leadership positions on all
managerial levels worldwide
Enhancing equal opportunities through measures to Worldwide programme of mobile working
support the compatibility of career and family
Status 31.12.2021
M 42
Roadmap for employer
positioning under develop-
ment, on target
Achieved
Implementation of a new
global learning management
system initiated, on target
Implementation of a global
leadership development
programme and roll-out under-
way, on target
Concept under development
Selection process for manag-
ers overhauled, on target
Achieved
Social matters
Access to insurance enables people to protect themselves
against fundamental personal risks and against adverse
changes in their environment. Such protection against threats
to their livelihood is especially important in countries where
social security systems are weak or not present at all. Yet it is
here, in particular, that the comparatively high vulnerability
of the population contrasts with what is still overall a minimal
supply of insurance solutions tailored to the relevant finan-
cial, social and cultural requirements.
In addition to protecting against personal life risks, insurance
solutions also offer protection for economic activities. Conse-
quently, they form a vital basis not only for the economic de-
velopment of national economies but also for a transition
from an informal economy – in which the vast majority of em-
ployees and their families enjoy scarcely any social protection
- to a formal economy.
Impacts on our operations
A latent reputational risk exists in connection with the mate-
rial topic of "Dialogue" as a result of potentially unclear ex-
ternal communication. The material topic of "Sustainable
78
Hannover Re | Annual Report 2021
Combined management report
protection" brings together various activities that support the
transformation to a sustainable world (e.g. expansion of sus-
tainable insurance services or the general provision of solu-
tions for previously inadequately insured risks). The associat-
ed underwriting risks are to be considered in the risk
assessment; reference is made to the "Opportunity and risk
report" in the combined Group management report. Risks
above and beyond this are not anticipated. We would similar-
ly refer to the "Opportunity and risk report” regarding im-
pacts connected with Covid-19.
Impacts of our operations
Dialogue
No particular opportunities are identified in connection with
this non-financial aspect.
Opportunities
Hannover Re has adopted a company-wide Code of Conduct
that is publicly accessible on its website. The Code of Con-
duct makes it clear that active and passive corruption will not
be tolerated. Additionally, it explicitly references the prohibi-
tion of money laundering and other criminal activities and
contains specific instructions on appropriate behaviour for
the avoidance and disclosure of conflicts of interest, for the
granting and acceptance of benefits, gifts and invitations, for
the arrangement of donations and sponsorships as well as
with respect to sideline activities and involvement in other
companies and business transactions. As a listed company,
we make our employees aware at the start of their employ-
ment of the need to observe rules on insider trading and, as
warranted, to respect blocking periods for share trading.
Code of Conduct
the "Opportunity and risk report" in the combined Group
management report.
Ensuring that the organisation is compliant
Goal
Any form of unlawful or corrupt behaviour inflicts considera-
ble harm on society and impedes free and fair competition.
Companies in the financial sector have an important role to
play when it comes to prevention and execution. Hannover
Re has an extensive Governance and Compliance Manage-
ment System and adopts the "three lines of defence" ap-
proach. For details of the implemented structures please see
wellness by at least 10%
80
Employees
Supporting our primary insurance partners with the
(further) development of sustainable insurance
solutions in life and health reinsurance
Expanding insurance protection for previously
inadequately insured population groups in life and
health reinsurance
Expanding sustainable insurance solutions to
mitigate the impacts of climate disasters and natural
catastrophes
Further expanding insurance protection for
emerging and developing countries in relation to
extreme weather events and natural disasters in
property and casualty reinsurance
Goal
M 43
Social matters: Selected goals
79
Hannover Re | Annual Report 2021
We see opportunities in particular in the context of the con-
tinued protection gap existing between economic and in-
sured values and on the basis of changing requirements in
the life sector. Examples in property and casualty reinsurance
include greater penetration of emerging markets, new/addi-
tional solutions to protect against or mitigate the impacts of
natural disasters or extreme weather events, crop insurance
products, parametric covers or protecting the transportation
of medicines/vaccines. In life and health reinsurance, exam-
ples similarly include the cultivation of new markets as well
as innovative insurance solutions connected with changing
demographics, special insurance solutions for new forms of
community, service offerings for seniors, digitalisation and
fitness trackers.
Opportunities
A budget for investments in dedicated impact funds was set
up back in 2019. The primary objective here is to achieve
appreciable improvements through the broadest possible
coverage of the United Nations Social Development Goals
(SDGs), inter alia in the fields of food security and nutrition,
education, health and well-being, ending poverty, climate ac-
tion etc. We held 15 of these specially focused funds with a
volume of EUR 33.5 million in our portfolio as at 31 Decem-
ber 2021. In addition, we invest in renewables both through
funds and direct infrastructure investments as well as in sus-
tainable forest and agriculture funds.
Investments
In life and health reinsurance we assist primary insurance
partners around the world with our expertise and power of
innovation in the development, launch and delivery of rein-
surance solutions. These include life and annuity insurance
products, solutions for critical illness, disability and long-
term care as well as in some instances insurance products
containing wellness and/or lifestyle components. Many of
these solutions address special needs of end consumers or
target groups that have hitherto not been adequately met by
existing standardised products on account of specific re-
quirements or challenges.
In our insurance business we encourage the expansion of
products in response to climate change, such as weather and
energy efficiency insurances, and we also contribute to soci-
etal development in structurally deprived regions by deliver-
ing insurance solutions in areas such as microinsurance and
agricultural risks. In this way, we enable people with scant
financial means to protect themselves against fundamental
risks such as natural disasters or crop failures. Furthermore,
we are taking an active part in the development of index-based
disaster finance concepts that guarantee rapid financial assis-
tance for countries in Africa, Asia and South America in the
event of natural disasters.
Combined management report
be appointed. At the same time, companies benefit directly
from motivated and high-performing employees.
A Talent Management initiative sponsored by the Chief Exec-
utive Officer was launched in 2020. The goal is to attract tal-
ented new people and retain them at the company, to opti-
mally deploy, foster and develop them at all locations and to
create a work environment that makes Hannover Re the em-
ployer of choice. In addition, the initiative envisages meas-
ures to promote global mobility, the optimisation of relevant
support processes and systems as well as a greater interlink-
ing of worldwide human resources activities.
For information on operational risks that can arise in connec-
tion with or independently of the activities of the workforce,
the reader is referred to the "Opportunity and risk report" in
the combined Group management report. This includes busi-
ness interruption risks and the risk of cyber attacks in con-
nection with Covid-19 as well as countermeasures.
For information about the requirements placed on the spe-
cialist qualifications and personal reliability (fit & proper crite-
ria) of persons in key positions, we would refer to the Solven-
cy and Financial Condition Report of Hannover Rück SE 2020
from page 33 onwards.
Hannover Re employed 3,346 members of staff (previous
year: 3,218) Group-wide at the reference date of 31 Decem-
ber 2021.
Development opportunities
Hannover Re operates in a knowledge-intensive industry with
a high level of specialisation. Continuous and appropriate
(further) training of employees serves to assure the high qual-
ity standard of services and a positive perception of the com-
pany. At the same time, the programme of further training
enables employees to continue their personal growth and it
promotes life-long learning. In support of our approach to
talent management, our goal is to align ongoing training
activities more closely with the values, competencies and
leadership fundamentals and to extend reporting to addition-
al locations. A global leadership development programme
"LEAD" was designed in the year under review and work on
its implementation began. Furthermore, a global assignment
policy was approved and we set about expanding the internal
job market to all locations around the world.
The Covid-19 pandemic did not significantly restrict the avail-
able training opportunities because they were converted to
virtual solutions at short notice.
Health and wellness
The performance capability and health of our employees are
essential prerequisites for sustainable development of our
business. Given that they work for a service provider, our staff
members do not engage in activities that expose them to par-
ticularly high risk. Nevertheless, the transformation in the
world of work, the need for efficiently structured work pro-
cesses and a constant pressure for change can lead to re-
duced productivity and physical and/or psychological disor-
ders and hence to direct economic impacts on the company
as well as social implications for the employees concerned,
their private sphere, their colleagues and the social welfare
systems.
With a view to protecting the health of the workforce, the ap-
plicable employment protection legislation as well as require-
ments relating to ergonomic workplace design are systemati-
cally observed and reviewed worldwide. Instruction in health
and safety at the workplace is provided regularly. In addition,
wellness among staff is actively encouraged through health
promotion measures; these are in place worldwide, but are
tailored to local needs in each case.
Target indicator by 2023
In view of the fact that our employees are highly skilled work-
ers and we attach the utmost priority to compliance with ap-
Expansion of NatCat aggregates in emerging and
developing countries to close the protection gap
Premium growth in developing and emerging
countries
As an internationally operating reinsurer, we consider im-
pacts in relation to potential human rights violations from the
perspective of the rightsholders.
Impacts of our operations
As a signatory to the United Nations Global Compact (UNGC),
we release an annual progress report on the Ten Principles. In
addition, we publish statements regarding the Modern Slav-
ery Act 2015 (United Kingdom) and the Modern Slavery Act
2018 (Australia) on our website.
review, under the leadership of the sustainability officers and
with the involvement of Risk Management and Compliance
(second line of defence) as well as participants from the first
line of defence, an analysis was conducted with an eye to the
risks for rightsholders; particularly exposed business areas
were identified and prioritised. Consideration also began to
be given in the year under review to requirements connected
with the Supply Chain Due Diligence Act (LkSG), which en-
ters into force in 2023.
The UN Guiding Principles on Business and Human Rights
and the National Action Plan of the German Federal Govern-
ment also have a bearing on Hannover Re. In the year under
Reputational and compliance risks could materialise in con-
nection with the non-financial aspect. In view of our business
operations, no direct and/or severe risks were identified.
Please see the "Opportunity and risk report” in the combined
Group management report for further information.
Impacts on our operations
As long as 20 years ago, human rights were one of the four
subject areas defined in the United Nations Global Compact
in which companies commit to behave in a responsible man-
ner. The requirements placed on companies in relation to hu-
man rights were fleshed out in greater detail in 2011 through
the endorsement of the UN Guiding Principles on Business
and Human Rights by the UN Human Rights Council. Compa-
nies are urged to implement adequate safeguards in order to
avoid human rights risks within their entrepreneurial scope of
influence. Hannover Re issued a corresponding policy state-
ment in the year under review.
Respect for human rights
Concept approved by the
Executive Board, on target
Achieved
Ongoing before inclusion in
the portfolio and half-yearly
Conceptual preparation
completed, on target
Revising and integrating
further exclusions, overa-
chieved
progress, on target
Increase of 20% in the existing budget by 2023
Signing
Measurable expansion by 2023
Screening of the defined portfolio, regularly
Signing the Principles for Responsible Investment
Expanding corporate citizenship
Asset management: expanding investments that
support the sustainable transformation
Asset management: excluding issuers that violate
ESG principles
Integrating ESG criteria into the underwriting policy Approval and adoption of an internal framework
for the facultative reinsurance department
Expanded reinsurance of longevity risks, especially Measurable expansion in
outside the United Kingdom
Measurable expansion in
progress, on target
Achieved
KPI under development, initial
application based on 2022
data
Status 31.12.2021
Discussion and review of at least five programmes
and initiatives
Hannover Re | Annual Report 2021
Increasing diversity on all managerial levels,
especially in relation to women
Optimisation of Group-wide talent reviews with a
focus on development planning
The trust of stakeholders is a vital prerequisite for entrepre-
neurial success. With this in mind, we cultivate an active on-
going dialogue and report regularly on ESG-related topics.
This is done, inter alia, through the present combined non-fi-
nancial information statement as well as an annual sustaina-
bility report, into which we have integrated the United Na-
tions Global Compact (UNGC) Progress Report since 2020.
Hannover Re | Annual Report 2021
The Taxonomy-non-eligible investments are
according to the following formula: (non-Taxonomy-eligible
investments/(investments under own management - govern-
ment bonds)) x 100
calculated
Taxonomy-non-eligible investments = 18.12%
The Taxonomy-eligible investments are calculated according
to the following formula: (Taxonomy-eligible investments/
(investments under own management - government bonds))
x 100
Taxonomy-eligible investments = 7.55%
-
The proportion of undertakings not subject to mandatory re-
porting under the NFRD is calculated according to the follow-
ing formula: (investments in undertakings not subject to man-
datory reporting under the NFRD/(investments under own
management government bonds)) x 100
Proportion of undertakings not subject to mandatory
reporting under the NFRD = 73.63%
-
The proportion of derivatives is calculated according to the
following formula: (total derivatives/(investments under own
management government bonds)) x 100
Proportion of derivatives = 0.70%
The proportion of government bonds is calculated according
to the following formula: (government bonds/investments
under own management) x 100
Proportion of government bonds = 35.09%
It is our assumption that with increasing data availability our
KPIs will change in the coming reporting periods and we
would again point to the considerable lack of reliable data.
This initially creates a picture of the actual Taxonomy-eligibil-
ity of our investments which is heavily restricted in its infor-
mation value.
Results for the 2021 financial year
As far as all other asset classes are concerned, we do not yet
see any possibility to disclose investments as Taxonomy-eligi-
ble within the scope of the regulatory framework for the first
reporting year. All investments in respect of which the issuing
country is outside the EU or for which we have received reli-
able information from our data provider to the effect that they
are not subject to mandatory reporting under the NFRD are
definitively not in the scope of the KPIs for Taxonomy-eligibil-
ity. In the absence of concrete data on conducted economic
activities and the obligation to report under the NFRD, we
disclose all other investments as Taxonomy-non-eligible in
the first reporting year if they are within the EU.
Hannover Re | Annual Report 2021
+
84
We consider all investments connected with the purchase and
ownership of real estate to be definitively Taxonomy-eligible.
We include here investment property, real estate funds and
mortgage loans for private households. In addition, sustaina-
ble bonds or debentures that finance a specific, Taxonomy-
eligible activity (e.g. the construction of infrastructure pro-
jects such as wind farms) are included in the numerator as
Taxonomy-eligible, even if the issuers are not subject to
mandatory reporting under the NFRD.
The European Commission has made it clear that only con-
crete information published by undertakings and investment
funds in the context of non-financial reporting may be used to
screen Taxonomy-eligibility. Given that this has to be dis-
closed for the first time in the current reporting period, data
availability is heavily restricted. In the absence of these data,
only a minimal part of our investment portfolio can therefore
be considered as Taxonomy-eligible for the 2021 financial
year.
These items are therefore out of scope for the calculation of
the numerators (as well as the denominators in the case of
government bonds) for the KPIs, but they are disclosed indi-
vidually for classification of the results.
• All derivatives are to be excluded from the numerator.
All exposures to undertakings not subject to mandatory
EU non-financial reporting under the NFRD are to be
excluded from the numerator.
All government bonds are to be excluded from the
calculation of the numerator and denominator.
•
Combined management report
•
98
Opportunity and risk report
Limits for catastrophe risks
Limit per risk category
Strategic risk limits
M 46
Investment and Underwriting Guidelines
Exposure Management Guideline
Management Guideline
Risk and Capital
Risk Strategy
Corporate
Strategy
Risk management through multiple levels of limits
We manage our total enterprise risk such that we can expect
to generate positive IFRS Group net income with a probability
of at least 90% p.a. Our solvency ratio must amount to at
least 180%, although 200% is already considered to be a
The risk strategy, risk register and central system of limits
and thresholds - as integral components of our Risk and
Capital Management Guideline - are reviewed at least once a
year. In this way we ensure that our risk management system
is kept up-to-date.
8. We ensure the independence of the risk management
function
7. We make balanced use of both quantitative and
qualitative methods.
5. We fulfil the requirements of rating agencies.
6. We act in light of materiality and proportionality
considerations.
4. We fulfil regulatory requirements.
3. We promote an open risk culture and the transparency
of our risk management system.
2. We integrate risk management into value-based
management.
1. We monitor adherence to the risk appetite set by the
Executive Board.
The risk strategy is the core element in our handling of oppor-
tunities and risks. It specifies more closely the goals of risk
management and documents our understanding of risk. We
have defined eight overriding principles within the risk
strategy:
In the year under review Hannover Re's Group strategy
"Striving for sustainable outperformance" was adopted for
the 2021-2023 strategy cycle. Our strategy is based on the
interplay between solid fundamentals, performance drivers
and performance enablers. Robust governance and strong
risk management, integrated compliance and corporate so-
cial responsibility establish the foundation for our business
operations.
Strategy implementation
Our risk management system constantly monitors newly added and changing risks and is able
to respond flexibly to changes in internal and external factors.
Hannover Re has capital resources in excess of the defined strategic threshold. The capital
position is reviewed on an ongoing basis against the backdrop of possible changes in the risk
profile and the impacts of the Covid-19 pandemic.
•
Risk report
86
Promoting the health and performance of employees Expansion of programmes to promote health and
around the world
Our investments under own management similarly serve as
the point of departure for determining Taxonomy-eligibility.
The Delegated Act ([EU] 2021/2139) defines under Art. 7 (1)
to (3) the following exclusions when calculating the KPIs.
Investments
Disclosures under Article 8 of the EU Taxonomy Regulation
Combined management report
Hannover Re | Annual Report 2021
82
Status 31.12.2021
Ongoing
Average compliance score corresponding at a
minimum to the targeted maturity level
Target indicator by 2023
M 45
The issue of Covid-19 is inextricably linked to the topic of
employee health. Hannover Re's interdisciplinary crisis man-
agement team swung into action once the first cases were
reported in Europe and has since initiated a range of meas-
ures in close consultation with the Executive Board. These
are communicated on a Group-wide basis. In order to avoid
infections and help slow the spread of the virus, the technical
capabilities and necessary capacities were put in place within
a very short space of time to enable the global workforce to
work from home. At the Hannover location, since the onset of
the pandemic Hannover Re has voluntarily topped up in full
missing hours for employees with children under 12 or spe-
cial needs children to the individual working time, even if
work was not possible or only partially possible as a conse-
quence of the crisis situation. As a further step, even greater
flexibility was introduced for daily working hours so as to op-
timally support the members of staff.
Diversity and equal opportunities
Supporting fair working conditions as well as a healthy and
non-discriminatory working environment is part of Hannover
Re's corporate culture. The Executive Board recognised the
Core Labour Standards of the Initial Labour Organization
(ILO) for 100% of the workforce in the year under review.
Hannover Re does not tolerate discrimination or bullying in
any form whatsoever and has enshrined this in a compa-
ny-wide Code of Conduct. Furthermore, the right to form em-
ployee representative bodies and to engage in collective bar-
Hannover Re | Annual Report 2021
77
gaining negotiations over working conditions is recognised;
employees are neither advantaged not disadvantaged on ac-
count of their membership of a trade union or employee rep-
resentative body.
Hannover Re and its Executive Board are committed to equal
opportunities in relation to diversity criteria and on all hierar-
chical levels. A current focus of the measures is on support-
ing women in leadership positions. Of the 157 senior execu-
tives around the world, 32 are women; this is equivalent to a
proportion of 20.4%. Our goal is to increase diversity on all
levels of management.
Compatibility of the professional and private sphere is closely
correlated with issues of diversity and equal opportunities. In
the year under review the Covid-19 pandemic accelerated
Employee matters: Selected goals
Goal
Recruiting, identifying, developing and retaining
performance-driven employees according to
requirements
Cultivating and developing global mobility
Supporting the lifelong learning of employees
around the world
Identifying and fostering high-potentials and
assuring successors for key positions
certain developments in the world of work that had already
begun in prior years. These include, for example, greater
combination of an office workspace with remote working as
well as working time models tailored to the employee's indi-
vidual situation. These changes are increasingly becoming an
integral component of a state-of-the-art, agile working envi-
ronment and enhance the company's attractiveness on the
labour market as well as the satisfaction, loyalty and perfor-
mance readiness of the workforce. We launched a project ex-
ploring the topic of new worlds of work in the year under re-
view to address this development.
Opportunities
We link all measures to the possibility of recruiting, retaining
and optimally fostering the best employees on the market.
Target indicator by 2023
Conceptual design and further refinement of
powerful branding and recruitment systems
Adoption of a Global Mobility Guideline
Alignment of our (ongoing) training activities with
the values and core competencies of Hannover Re
and expanded reporting on the worldwide pro-
gramme of continuing training
Article 8 of the EU Taxonomy Regulation ([EU] 2020/852)
requires reporting entities pursuant to §289 of the German
Commercial Code (HGB) to publish information on how and
to what extent their activities are consistent with economic
activities that qualify as environmentally sustainable under
the EU Taxonomy. The Taxonomy is a central element of the
EU Action Plan for Financing Sustainable Growth and is in-
tended - as a unified classification system - to foster trans-
parency on sustainability in the financial market.
We define as Taxonomy-eligible investments that are used to
finance economic activities described in the Taxonomy or
linked to them. We compare them with our investments under
own management for the purpose of our KPIs. The invest-
ments under own management are arrived at by deducting
from our total investments the cash and cash equivalents and
any funds withheld/contract deposits. The latter refers to
cash or securities deposits in connection with technical provi-
sions to which we do not have any direct access. The data
used to establish the KPIs are derived from our asset manag-
er's internal accounting systems. External data from a service
provider are only used to determine the proportion of under-
takings that are not subject to mandatory reporting under the
NFRD, although they account for only a small part of our liq-
uid investment portfolio.
The Delegated Act supplementing Art. 8 of the EU Taxonomy
Regulation ([EU] 2021/2139) currently focuses exclusively
on activities that contribute to mitigating or adapting to cli-
mate change. In this context, both the investments of the
Hannover Re Group and our reinsurance solutions in property
and casualty business fall within the scope of consideration.
In the context of our sustainability strategy we pursue various
goals with a view to fostering sustainability in both our under-
writing business and our investment portfolio. For more de-
tailed information on climate-related goals and measures we
would refer to the section "Environmental matters". We also
provide our stakeholders with information about the latest
developments through our website and our annually pub-
lished sustainability report.
The Taxonomy-non-eligible premiums are calculated accord-
ing to the following formula: (sum of not described and Tax-
onomy-non-eligible lines of business in GWP/Total GWP in
property and casualty reinsurance) x 100
Taxonomy-non-eligible premiums = 37.49%
The Taxonomy-eligible premiums are calculated according to
the following formula: (sum of Taxonomy-eligible lines of
business in GWP (gross written premiums)/Total GWP in
property and casualty reinsurance) x 100
Taxonomy-eligible premiums = 62.51%
Given that life and health reinsurance is explicitly excluded
from consideration, our disclosures encompass only activities
in the entire book of property and casualty reinsurance. In
this context our KPIs cover roughly 98% of our premiums
(excluding Inter Hannover [No. 1] Ltd. and Argenta Holdings
Ltd.).
Results for the 2021 financial year
Taxonomy-eligibility enables us to identify those lines of busi-
ness to which the technical screening criteria must be applied
from the 2023 financial year onwards in order to determine
sustainability within the meaning of the Taxonomy. Overall,
we expect the alignment percentage of our premiums to be
significantly lower than the eligibility percentage because the
latter only defines the closer scope of consideration.
As part of our natural catastrophe (NatCat) monitoring, all
treaties with relevant covers are flagged in our internal sys-
tems. With the exception of earthquake, we consider all natu-
ral perils covered by us to be climate-related (in particular
including weather-related and bush fire damage, for exam-
ple). A NatCat-relevant treaty that covers other natural perils
beyond earthquake thus signals the existence of a climate-rel-
evant premium in the respective line of business. In order to
verify this finding we have also qualitatively established a
specific treaty with climate-relevant covers for each identified
line of business. Subject to further specifications by the legis-
lator, we classify all other lines of business that do not include
direct climate-relevant covers or are not described in the Del-
egated Act ([EU] 2021/2139) as Taxonomy-non-eligible.
In reinsurance business we consider all premiums in one of
the lines of business under Solvency II described in the Dele-
gated Act ([EU] 2021/2139) to be Taxonomy-eligible if direct
covers of climate-related natural perils can be established.
Reinsurance business
83
Hannover Re | Annual Report 2021
Taxonomy eligibility defines the proportion of our economic
activities that is described in the Taxonomy and for which
technical screening criteria have been developed. These cri-
teria determine the substantial contribution to the set envi-
ronmental objectives, prevent harm to other environmental
objectives and are intended to ensure adherence to social
minimum standards. The proportions of the economic activi-
ties established using the screening criteria are aligned with
the Taxonomy and must be reported for the first time for the
2023 financial year. Currently, we take the view that the infor-
mation value of the KPIs is still too slight to incorporate them
as an effective steering tool into our business decisions and
product development processes.
Bearing in mind the FAQ published by the EU on 20 Decem-
ber 2021 and with an eye to consistent and comparable re-
porting, we are already using for this year the definition of the
denominator that is to apply to financial years from 2023 on-
wards. Therefore, we are comparing the stated figures with
the sum total of our investments under own management.
The proportion of derivatives in the total investments
The proportion of undertakings not subject to mandato-
ry reporting under the Directive 2014/95/EU (Non-Fi-
nancial Reporting Directive - NFRD) in the total
investments
The proportion of government bonds in the total
investments
The proportion of Taxonomy-eligible and Taxonomy-
non-eligible investments in the total investments
•
•
•
Investments
The proportion of Taxonomy-eligible and Taxonomy-
non-eligible premiums in the entire book of property
and casualty reinsurance
•
Reinsurance business
For the financial years 2021 and 2022 reinsurance undertak-
ings are required by the Delegated Act ([EU] 2021/2139) to
disclose the following KPIs.
Taxonomy key performance indicators
(KPIs)
Reinsurance solutions can serve the purpose of climate
change adaption if they protect against climate-related natu-
ral perils such as flood or storm damage. Such protections
have always been a central theme in our business activities.
The worldwide reinsurance industry increases the resilience
of its customers in the face of natural catastrophes by com-
pensating those affected. It facilitates recovery after the oc-
currence of damage and helps to safeguard the livelihood of
people and businesses. It also ensures the continuation of
major projects and the development of new technologies,
thereby sustainably fostering economic growth. In this sense
comprehensive reinsurance solutions support adaptation to
the risks associated with climate change. In addition, our
long-standing experience in risk assessment and risk man-
agement facilitates the early detection of new and emerging
risks and the development of appropriate risk transfer solu-
tions. Our investments can similarly fall under the Taxonomy
if they serve the financing of Taxonomy-aligned sustainable
economic activities and hence support them. As a prudent
investor with a long-term horizon, we are committed to the
responsible management of our investments inasmuch as we
have deliberately incorporated ESG criteria into our invest-
ment policy since 2012.
85