Quarterly Report • May 4, 2011
Quarterly Report
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| Figures in EUR million | 2011 | 20101 | ||
|---|---|---|---|---|
| 1.1.–31.3. | +/– previous year |
1.1.–31.3. | 31.12. | |
| Results | ||||
| Gross written premium | 3,143.1 | +10.3% | 2,850.1 | |
| Net premium earned | 2,490.7 | +8.8% | 2,289.6 | |
| Net underwriting result | (382.7) | (49.1) | ||
| Net investment income | 392.0 | +40.3% | 279.5 | |
| Operating profit (EBIT) | 46.1 | –80.7% | 238.8 | |
| Group net income (loss) | 52.3 | –65.4% | 151.0 | |
| Balance sheet (as at the end of the quarter) | ||||
| Policyholders' surplus | 6,670.6 | –4.5% | 6,987.0 | |
| Equity attributable to shareholders of Hannover Re |
4,348.0 | –3.6% | 4,509.0 | |
| Non-controlling interests | 590.4 | –3.0% | 608.9 | |
| Hybrid capital | 1,732.2 | –7.3% | 1,869.1 | |
| Investments (excl. funds withheld by ceding companies) |
24,823.5 | –2.3% | 25,411.1 | |
| Total assets | 46,221.8 | –1.1% | 46,725.3 | |
| Share | ||||
| Earnings per share (basic and diluted) in EUR | 0.43 | –65.4% | 1.25 | |
| Book value per share in EUR | 36.05 | –3.6% | 33.84 | 37.39 |
| Share price at the end of the period in EUR | 38.53 | –4.0% | 36.56 | 40.14 |
| Market capitalisation at the end of the period | 4,646.0 | –4.0% | 4,409.0 | 4,840.8 |
| Ratios | ||||
| Combined ratio (non-life reinsurance)2 | 123.8% | 99.3% | ||
| Major losses as percentage of net premium earned (non-life reinsurance)3 |
41.6% | 21.0% | ||
| Retention | 89.3% | 90.8% | ||
| Return on investment (excl. funds withheld by ceding companies) |
4.1% | 3.6% | ||
| EBIT margin4 | 1.9% | 10.4% | ||
| Return on equity | 4.7% | 15.5% |
1 Adjusted pursuant to IAS 8
2 Incl. funds withheld
3 Natural catastrophes and other major losses in excess of EUR 5 million gross for the Hannover Re Group's share as percent of net premium earned
4 Operating result (EBIT)/net premium earned
Ulrich Wallin Chairman of the Executive Board
Since I first began to have this opportunity to address you once every quarter, I have consistently been able to report on results generated by your company that met or even exceeded our targets. For the first quarter of the current year, however, this is not the case. Whilst it is true that with Group net income of EUR 52 million we achieved another positive result, this falls well short of what we expect in a "normal" quarter.
From the standpoint of the global reinsurance industry, the first quarter of 2011 was anything but "normal"; it was impacted by severe natural disasters on a scale unseen in any previous quarter. Along with the flooding around the Australian city of Brisbane, the Christchurch area in New Zealand was rocked by another powerful earthquake in February – having already suffered a major quake as recently as September of the previous year. Yet the consequences of this second quake were incomparably worse than those of the first. One event is likely to remain a particularly indelible memory:the devastating earthquake of 11 March off the coast of Japan, which caused a massive tsunami and ultimately set in motion a nuclear disaster in Fukushima.
Faced with such destruction and the immensity of the resulting human tragedy, it is difficult to turn a sober eye to business results. I would like, therefore, to first extend my deepest sympathies to all those who have been affected by these natural disasters in Australia, New Zealand and Japan. I would also like to thank the staff of our Tokyo
office for continuing to work with such calm and composure. As a reliable reinsurance partner, we shall stand by those of our clients who have been impacted by natural catastrophes and play our part in shouldering the associated burden.
Natural catastrophes caused economic losses running into several hundred billion US dollars, and the insured losses may also exceed an amount of some fifty billion US dollars. Consequently, the first quarter of 2011 will probably go down as the quarter with the heaviest burden of losses ever incurred by the reinsurance industry.
Even though the effect of the first quarter's major losses on your company was, if anything, disproportionately low – measured by its market shares –, it must still be noted that the major loss expenditure of EUR 572 million exceeds the loss expectancy for the first quarter by more than EUR 450 million; indeed, it is even higher than the burden of major losses anticipated for the entire financial year (EUR 530 million). That we were still able to close the quarter in positive territory can be attributed to run-off profits on loss reserves constituted for prior years, very healthy investment income, a tax refund from the years 1993 to 2001 and the satisfactory performance of our life and health reinsurance portfolio. The latter once again underscores the diversification between our non-life and life/health reinsurance, which significantly reduces the volatility of our results.
In non-life reinsurance the major losses of the first quarter of 2011 ushered in a trend reversal on the markets – at least as far as reinsurance covers exposed to natural catastrophe risks were concerned. Even under loss-free reinsurance programmes from regions that had not been impacted by the major losses, we were thus able to obtain substantial rate increases. Looking beyond business with natural catastrophe exposure, here, too, we expect to see satisfactory or good conditions in non-life reinsurance over the further course of the year. In the renewals as at 1 January 2011 we secured broadly stable conditions, while in European motor liability XL business and the offshore energy sector we were already able to push through rate increases. It is our expectation that the more exacting requirements imposed by Solvency II on the risk capital resources of insurance undertakings – for whom the transfer of risk to reinsurers with good ratings constitutes an economically attractive alternative – will create further scope for growth stimuli.
The satisfactory development of our non-life reinsurance business is also reflected in the rise in premium income, which grew by almost 12 percent in the first quarter of 2011. The fact that we generated a profit despite the major losses is due to circumstances already explained above: in the first place, non-life reinsurance benefited from a positive special effect deriving from the reimbursement of excess taxes and the interest paid thereon. This was based on a decision of the Federal Fiscal Court (BFH)
in October 2010 with regard to the taxation of foreign-sourced income under the Foreign Transactions Tax Act. Whereas in the previous year we had been able to release provisions that we had set aside in this respect, the effect in the current year was due to the fact that taxes already paid for earlier years were in large measure refunded. This gave rise to a positive non-recurring amount of EUR 114 million in the first quarter. Further positive factors were run-off profits booked on loss reserves constituted for prior years and very good investment income. The latter was assisted not least by the reversal of impairments on inflation swaps that we had taken out.
We are thoroughly satisfied with our life and health reinsurance business group. The vigorous growth and rising demand for protection products have their origins, most notably, in the demographic changes on mature markets as well as the formation of a stable middle class in emerging markets. Our growth rates in Asian markets again reflected this trend. Our business in the United Kingdom, specifically in the area of longevity risks, also continued to develop successfully. The reinsurance of immediate enhanced annuities for a single premium payment continues to account for a large share of UK pension business; we have been a key player in shaping this segment. In addition, we expanded our activities in the area of block assumption transactions for existing pension commitments – not only from pension funds but also from primary insurers.
It is our expectation that the growth of our life and health reinsurance portfolio will accelerate still further in the current year. This can be attributed inter alia to the closing of a sizeable transaction with Scottish Re (as already reported on 18 April 2011), which is likely to bring in premium income of some USD 80 million for 2011 against a backdrop of healthy profit expectations. Owing to adverse exchange rate effects we were not quite able to generate our targeted EBIT margin of 6 percent in the first quarter. Nevertheless, we remain confident of achieving this goal for the full 2011 financial year.
The development of our investments in the first three months was highly satisfactory. Investment income rose sharply on the back of higher unrealised gains – driven in large measure by the positive fair value development of inflation swaps taken out in the previous year. Despite the sustained low interest rate level, ordinary investment income moved slightly higher relative to the corresponding period of the previous year. In March we parted company with our entire portfolio of listed equities; the disposal reduced investment income modestly. We decided to take this step because we considered the market climate to be highly volatile – in part as a consequence of events in Japan, the repercussions of which on the global economy were difficult to foresee. Net investment income climbed roughly 40 percent year-on-year to reach EUR 392.0 million.
Looking ahead to the full 2011 financial year, in light of the events of the first quarter we expect to be able to generate Group net income in the order of EUR 500 million. This expectation makes allowance for catastrophe losses on the anticipated level of EUR 410 million for the second to fourth quarters of 2011 and reflects investment income that is not influenced by special effects. In these circumstances, however, our original profit target of EUR 650 million is not attainable on account of the burden of major losses incurred in the first quarter.
I would like to thank you – also on behalf of my colleagues on the Executive Board – most sincerely for your trust in Hannover Re. Going forward, as in the past, our paramount concern will be to lead your company responsibly and securely into a profitable future.
Yours sincerely,
Ulrich Wallin Chairman of the Executive Board
Herbert K. Ha as1,2, 3 Burgwedel Chairman
Dr. Klaus Sturany1 Dortmund Deputy Chairman
Wolf-Dieter Baumgartl 1,2, 3 Berg
Uwe Kramp4 Hannover
K arl Heinz Midunsky3 Gauting
Ass. jur. Otto Müller4 Hannover
Dr. Immo Querner Hannover
Dr. Erhard Schipporeit2 Hannover
Gert Wächtler4 Burgwedel
Ulrich Wallin Hannover Chairman
André Arrago Hannover
Dr. Wolf Becke Hannover
Jürgen Gräber Völksen
Dr. Klaus Miller Munich
Dr. Michael Pickel Isernhagen
Roland Vogel Wennigsen
1 Member of the Standing Committee 2 Member of the Finance and Audit Committee 3 Member of the Nomination Committee
The business development in non-life reinsurance as at 31 March 2011 was overshadowed by the severe natural disasters in Japan, Australia and New Zealand as well as further less substantial major losses. At this point in time the resulting burden of losses for the first quarter is already higher than the expected level for the entire 2011 financial year. Whilst this reduces our profit, it does not diminish our business prospects. Quite the contrary, demand for reinsurance covers is rising. After the recent natural catastrophe events we can now expect to see price increases for catastrophe covers not only in the impacted regions but also worldwide.
We are thoroughly satisfied with the profitability of life and health reinsurance. Our goal here continues to be to expand this business group relative to non-life reinsurance – which is typically subject to greater volatility – and hence to further improve the diversification of our income streams.
Gross written premium in total business increased sharply by 10.3% to EUR 3.1 billion (EUR 2.9 billion) as at 31 March 2011. At constant exchange rates, growth would have come in at 8.7%. The level of retained premium retreated slightly to 89.3% (90.8%).
We are highly satisfied with the development of our investments in the first quarter. Although the portfolio of assets under own management contracted slightly to EUR 24.8 billion (EUR 25.4 billion) owing to fair value and exchange rate effects, ordinary income excluding interest on deposits came in marginally higher than in the corresponding period of the previous year at EUR 222.7 million (EUR 214.2 million) – despite the continued low level of interest rates. Interest on deposits climbed to EUR 75.9 million (EUR 74.0 million). The disposal of our listed equities reduced our investment income by a moderate EUR 7.2 million. The unrealised gains on our asset holdings recognised at fair value through profit or loss totalled EUR 69.0 million. This contrasted with losses of EUR 12.9 million in the corresponding quarter of the previous year. The primary factor here was the favourable fair value development of our inflation swaps. Our net investment income consequently improved appreciably on the comparable reporting period to reach EUR 392.0 million as at 31 March 2011 (EUR 279.5 million).
In view of the enormous catastrophe loss expenditure, the operating profit (EBIT) of EUR 46.1 million fell well short of the result in the comparable period (EUR 238.8 million). Group net income amounted to EUR 52.3 million (EUR 151.0 million) as at 31 March 2011. This includes a positive special effect amounting to EUR 113.5 million associated with the refund of excess taxes and interest already paid. The tax refund was based on a decision handed down by the Federal Fiscal Court (BFH) in October 2010 on the taxation of foreign-sourced income under the Foreign Transactions Tax Act. The result was further boosted by run-off profits from prior accident years. Earnings per share of EUR 0.43 (EUR 1.25) were generated.
The situation on the international reinsurance markets is for the most part favourable. The renewals as at 1 January 2011 – the date on which 67% of our treaties in traditional reinsurance were renegotiated – passed off better for our company than the market players had initially expected. Despite softer market conditions, we had sufficient opportunities to write profitable business. All in all, we were able to enlarge the premium volume by roughly 2% in this round of renewals.
The treaty renewals again demonstrated the considerable importance that ceding companies continue to attach to a reinsurer's financial strength. A very good rating is a prerequisite for a reinsurer if it is to be offered and awarded the entire spectrum of business. With its excellent ratings ("AA–" from Standard & Poor's and "A" from A.M. Best), Hannover Re is one of the reinsurers that meets this requirement without reservation.
Even though rates declined in some areas on account of the healthy capital resources enjoyed by primary insurers and the absence of market-changing major losses in developed markets, we were nevertheless able to maintain prices on a stable level in many instances – including for example in US casualty business involving small and mid-sized risks. Rate increases were attainable both in European motor business and in the offshore energy sector as a consequence of the sinking of the "Deepwater Horizon" drilling rig.
We are similarly satisfied with developments in aviation business. The written premium volume grew by 14%. Despite softening tendencies caused by surplus capacities in the market, prices for the most part held stable.
The treaty renewals for US catastrophe business were, however, disappointing. Prices continued to retreat on the back of an untroubled claims experience in 2010. It is our expectation, however, that the recent earthquake events will influence rates – not only in the impacted regions but also worldwide.
Gross premium in our non-life reinsurance business group increased by a substantial 11.8% relative to the corresponding period of the previous year to reach EUR 1.9 billion (EUR 1.7 billion). At constant exchange rates, especially against the US dollar, growth would have come in at 10.7%. The level of retained premium fell to 87.8% (90.1%). Net premium earned climbed by 9.4% to EUR 1.4 billion (EUR 1.3 billion).
The major loss incidence was exceptionally high in the first quarter. This was driven principally by three natural catastrophes: firstly, the flooding in Australia, with a net strain for our account of EUR 51.5 million; secondly, the earthquake in New Zealand, which cost us EUR 152.3 million; thirdly, we have booked an amount of EUR 231.9 million for the Japan earthquake and the resulting tsunami. Altogether, the net burden of major losses for Hannover Re as at 31 March 2011 totalled EUR 572.1 million. Not only did this figure far exceed our expectations for the first quarter, it has also already exhausted our major loss budget of EUR 530 million for the entire 2011 financial year. The net underwriting result stood at –EUR 330.9 million (EUR 5.5 million) owing to the major loss situation described above.
The operating result (EBIT) for non-life reinsurance decreased to –EUR 24.5 million (EUR 165.6 million) as at 31 March 2011 owing to the heavy major loss expenditure. Group net income closed in positive territory at EUR 17.3 million (EUR 109.4 million) due to the tax refund based on the Federal Fiscal Court (BFH) decision. The earnings per share amounted to EUR 0.14 (EUR 0.91).
| Key figures for non-life reinsurance in EUR million | 2011 | 2010 | |
|---|---|---|---|
| 1.1.–31.3. | +/– previous year |
1.1.–31.3. | |
| Gross written premium | 1,924.3 | +11.8% | 1,721.9 |
| Net premium earned | 1,376.3 | +9.4% | 1,258.0 |
| Underwriting result | (330.9) | 5.5 | |
| Net investment income (loss) | 250.3 | +50.4% | 166.4 |
| Operating profit/loss (EBIT) | (24.5) | –114.8% | 165.6 |
| Group net income (loss) | 17.3 | –84.2% | 109.4 |
| Earnings per share in EUR | 0.14 | –84.2% | 0.91 |
| Combined ratio1 | 123.8% | 99.3% | |
| Retention | 87.8% | 90.1% |
1 Including expenses on funds withheld and contract deposits
The general business environment in international life and health reinsurance remains favourable: the ageing of the population in mature insurance markets such as the United States, Japan, the United Kingdom and Germany is generating heightened awareness of the need for provision. This is of particular benefit to providers of annuity and health insurance products. Yet in leading emerging markets such as China, India and Brazil demand for individual retirement provision is also rising.
We offer our clients tailored reinsurance solutions that assist primary insurers with their management of capital, liquidity and risk. In the first quarter of 2011 we grew our position in the US mortality market by a double-digit margin as planned. Not only that, we continued to move forward with our activities in South Africa and Australia. In China we wrote two mid-sized financing transactions.
Gross written premium in life and health reinsurance rose by 8.1% to EUR 1.2 billion (EUR 1.1 billion) as at 31 March 2011. At constant exchange rates growth would have come in at 5.7%. Net premium earned increased by 8.0% to EUR 1.1 billion (EUR 1.0 billion).
In the earthquake-affected markets of Japan and New Zealand Hannover Re has only minimal exposure in life and health reinsurance. For reasons of prudence we nevertheless set aside
reserves for potential claims. The development of results in the first quarter was otherwise in line with expectations. Particularly in the United States, the claims experience normalised in the first quarter of 2011 after slightly elevated mortalities in the fourth quarter of 2010.
The operating profit (EBIT) as at 31 March 2011 amounted to EUR 58.4 million (EUR 62.6 million). The modest decline can be attributed to exchange rate volatilities. The EBIT margin for the first quarter stood at 5.2%. The Group net income of EUR 41.5 million fell slightly short of the result posted for the comparable quarter of the previous year (EUR 45.8 million). Earnings per share amounted to EUR 0.34 (EUR 0.38).
As in previous years, we are also reporting on the Market Consistent Embedded Value (MCEV) in the context of our interim report on the first quarter. This consists of a valuation of the life and health reinsurance business across the entire duration of the portfolio as well as of the allocated capital. The MCEV thus provides a basis for assessing the long-term profitability of a life (re)insurance undertaking.
The MCEV reached a record level as at 31 December 2010. It stood at EUR 2.6 billion (EUR 2.1 billion) excluding noncontrolling interests. This corresponds to growth of 24.3%. Including non-controlling interests, the MCEV amounted to EUR 2.7 billion (EUR 2.2 billion). The value of new business was also sharply higher and totalled EUR 149.3 million (EUR 78.9 million) excluding non-controlling interests.
| Key figures for life and health reinsurance in EUR million | 2011 | 20101 | |
|---|---|---|---|
| 1.1.–31.3. | +/– previous year |
1.1.–31.3. | |
| Gross written premium | 1,219.4 | +8.1% | 1,128.1 |
| Net premium earned | 1,114.5 | +8.0% | 1,031.6 |
| Net investment income | 127.8 | +26.8% | 100.7 |
| Operating profit/loss (EBIT) | 58.4 | –6.6% | 62.6 |
| Group net income (loss) | 41.5 | –9.4% | 45.8 |
| Earnings per share in EUR | 0.34 | –9.4% | 0.38 |
| Retention | 91.5% | – | 91.8% |
| EBIT margin2 | 5.2% | – | 6.1% |
1 Adjusted pursuant to IAS 8
2 Operating profit/loss (EBIT)/net premium earned
Credit spreads in the area of corporate bonds for the most part narrowed in the first quarter of 2011, although to a very large extent these were more than offset by yield increases on US treasury securities and European government bonds across all duration ranges. In total, the unrealised gains on our fixedincome securities retreated to EUR 285.9 million (EUR 497.1 million). Due also to exchange rate movements, our portfolio of assets under own management consequently contracted slightly overall to EUR 24.8 billion (EUR 25.4 billion).
Despite the low level of interest rates, ordinary income from assets under own management improved marginally on the corresponding period of the previous year to reach EUR 222.7 million (EUR 214.2 million). Interest on deposits increased from EUR 74.0 million to EUR 75.9 million.
Impairments of altogether EUR 13.7 million (EUR 11.4 million) were taken. This includes impairments of EUR 11.4 million on alternative investments. Of this amount, EUR 6.8 million was attributable to private equity and EUR 4.6 million to structured fixed-income products. No impairments had to be recognised on other fixed-income securities. Scheduled depreciation on directly held real estate rose to EUR 2.2 million (EUR 1.5 million), a reflection of our increased involvement in this area. The total volume of write-downs contrasted with write-ups of EUR 14.1 million, which were attributable exclusively to structured fixed-income securities.
In March we sold our entire portfolio of listed equities. We decided to take this step because the market climate appeared highly volatile in light of the events in Japan. The equity disposal reduced our investment income slightly by EUR 7.2 million. On account of the favourable market environment the sale of part of our holdings of government bonds and structured credit products (CDOs) had positive implications for the balance of realised gains and losses: it improved overall from EUR 21.3 million to EUR 39.2 million.
The unrealised gains on our assets recognised at fair value through profit or loss amounted to EUR 69.0 million – as against unrealised losses of EUR 12.9 million in the comparable quarter of the previous year. The primary factor here was the inflation swaps taken out in 2010 to hedge part of the inflation risks associated with the loss reserves in our technical account. Their hedging effect naturally diminishes slightly over time owing to their fixed maturity. In the first quarter, therefore, we took out further inflation swaps to the extent necessary in order to restore the original protective effect. The changes in the fair values of the inflation swaps are recognised in income as a derivative pursuant to IAS 39. Since inflationary expectations continued to rise in the quarter under review, the inflation swaps show a positive change in fair value with an effect of EUR 60.2 million recognised in income as at the end of the quarter.
Thanks to the higher net realised gains, but above all due to the development of the unrealised gains, our net investment income comfortably surpassed the previous year's level. It amounted to EUR 392.0 million (EUR 279.5 million) in the period under review.
| Net investment income in EUR million | 2011 | 2010 | |
|---|---|---|---|
| 1.1.–31.3. | +/– previous year |
1.1.–31.3. | |
| Ordinary investment income1 | 222.7 | +4.0% | 214.2 |
| Results from participation in associated companies | 2.4 | +40.1% | 1.7 |
| Appreciation | 14.1 | +115.7% | 6.5 |
| Realised gains/losses | 39.2 | +83.5% | 21.3 |
| Impairments2 | 13.7 | +19.9% | 11.4 |
| Unrealised gains/losses3 | 69.0 | (12.9) | |
| Investment expenses | 17.6 | +26.3% | 13.9 |
| Net investment income from assets under own management | 316.1 | +53.8% | 205.5 |
| Net investment income from funds withheld | 75.9 | +2.6% | 74.0 |
| Net investment income | 392.0 | +40.3% | 279.5 |
1 Excluding expenses on funds withheld and contract deposits
2 Including depreciation/impairments on real estate
3 Portfolio at fair value through profit or loss
The risk strategy derived from the corporate strategy constitutes the basis for our handling of risks and opportunities. It is an integral component of the guidelines for risk monitoring and risk steering and is reflected on the various levels of risk management and in the operational guidelines. The corporate strategy and risk strategy as well as the guidelines derived from them are subject to regular review. Through this scrutiny of our assumptions and any resulting adjustments, we ensure that our guidelines and hence the principles on which our actions are based are always kept up-to-date. The overriding goal of our risk management is to adhere to the strategically defined risk positions of the Hannover Re Group which are enshrined in our risk strategy. In order to ensure that our shareholders' equity is protected, we seek to manage and control individual risks such that the total risk remains within the permissible defined tolerances. We attach central importance to the following aspects:
Hannover Re has developed an internal capital model for risk quantification as a central risk management tool. The purpose of risk quantification inter alia is to assess the capital resources of the Hannover Re Group and its individual companies. In addition, the model is used to establish the risk contribution made by individual business groups and business segments to the total company risk as well as the risk-appropriate allocation of the cost of capital. Our qualitative methods and practices, such as the Risk Management Framework Guideline, support our internal risk management and control system. The system is subject to a constant cycle of planning, action, control and improvement.
Another key element of the overall system is the Framework Guideline on the Internal Control System (ICS). The purpose of this set of rules is to ensure systematic execution of our corporate strategy. In accordance with these principles, the Framework Guideline puts in place a consistent understanding of controls as well as a uniform procedure and standards for implementation of the ICS across all organisational units of Hannover Re. They include, among other things:
In the area of Group accounting, processes with integrated controls ensure the completeness and accuracy of the consolidated financial statement. These processes for the organisation and implementation of consolidation tasks and for the preparation of the consolidated financial statement as well as the accompanying controls are documented and subject to regular review.
The risk landscape of Hannover Re encompasses technical risks (non-life reinsurance and life/health reinsurance), market risks, credit risks, operational risks and other risks.
A significant technical risk in the area of non-life reinsurance is the reserving risk, i.e. the risk of under-reserving losses and the associated strain on the underwriting result. In order to counter this risk we calculate our loss reserves based on our own actuarial loss estimations; where necessary we also establish additional reserves supplementary to those posted by our cedants as well as an IBNR (incurred but not reported) reserve for losses that have already occurred but have not yet been reported to us. Our own actuarial calculations regarding the adequacy of the reserves are also subject to annual quality assurance reviews conducted by external actuaries and auditors.
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
Interim management report
establish the risk to our portfolio from various scenarios in the form of probability distributions. The monitoring of the natural hazards exposure of the Hannover Re portfolio (accumulation control) is rounded out by the calculation of realistic extreme loss scenarios. For the purposes of risk limitation, maximum underwriting limits (capacities) are stipulated for various extreme loss scenarios and return periods in light of profitability criteria. Adherence to these limits is continuously verified by Group Risk Management.
The price/premium risk lies primarily 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. The combined ratio is one of the most important indicators when considering the profitability of reinsurance business. The development of this ratio is shown in the table below.
In life and health reinsurance, risks directly connected with the life of an insured person are referred to as biometric risks (especially the miscalculation of mortality, life expectancy, morbidity and occupational disability); they constitute material risks for our company. Counterparty, lapse and catastrophe risks are also material since we additionally prefinance our cedants' new business acquisition costs. As in non-life reinsurance, the reserves are calculated according to information provided by our clients and are also determined on the basis of secure biometric actuarial bases. 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). 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 owing to the structure of the contracts.
The Market Consistent Embedded Value (MCEV) is a key indicator for the valuation of life insurance and life reinsurance business. The calculation makes appropriate allowance for all risks underlying the covered business. The MCEV sensitivities reflect our main risk drivers. For further explanation please see the MCEV for the 2010 financial year, which is published on our Internet website at the same time as the report on the first quarter of 2011.
Risks in the investment sector consist primarily of market, credit default and liquidity risks. The most significant market price risks are share price, interest rate and currency risks. We pursue an investment policy in which the primary emphasis is on the stability of the generated return. With this in mind, our portfolio is guided by the principles of broad diversification and a balanced risk/return ratio.
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. The short-term "Value at Risk" (VaR) is another vital tool used for monitoring and managing market price risks. 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 potentials for fair values and shareholders' equity (before tax) are simulated on the basis of already occurred or notional extreme events.
Further significant risk management tools – along with 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 credit risk consists primarily of the risk of complete or partial failure of the counterparty and the associated default on payment. Also significant here is the so-called migration risk, which results from a deterioration in the counterparty
| Development of combined and catastrophe ratio in % |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Q1 2011 |
2010 | 2009 | 2008 | 2007 | 2006 | 20051 | 20041,2 | 20031,2 | 20021,2 | 20011,2 | |
| Combined ratio (non-life reinsurance) |
123.8 | 98.2 | 96.6 | 95.4 | 99.7 | 100.8 | 112.8 | 97.2 | 96.0 | 96.3 | 116.5 |
| thereof major losses3 | 41.6 | 12.3 | 4.6 | 10.7 | 6.3 | 2.3 | 26.3 | 8.3 | 1.5 | 5.2 | 23.0 |
1 Including financial reinsurance and specialty insurance
2 Based on figures reported in accordance with US GAAP
3 Natural catastrophes and other major losses in excess of EUR 5 million gross for the Hannover Re Group's share
| in EUR million Scenarios for changes in the fair value of material investment positions |
||||||
|---|---|---|---|---|---|---|
| Scenario | Portfolio change on a fair value basis |
Change in equity before tax |
||||
| Equity securities | Share prices –10% | –3.7 | –3.7 | |||
| Share prices –20% | –7.3 | –7.3 | ||||
| Share prices +10% | +3.7 | +3.7 | ||||
| Share prices +20% | +7.3 | +7.3 | ||||
| Fixed-income securities | Yield increase +50 basis points | –406.3 | –319.7 | |||
| Yield increase +100 basis points | –796.6 | –625.7 | ||||
| Yield decrease –50 basis points | +419.5 | +331.0 | ||||
| Yield decrease –100 basis points | +854.8 | +675.7 |
credit quality and is reflected in a change in fair value. Since the business that we accept is not always fully retained, but instead portions are retroceded as necessary, the credit risk is also material for our company in non-life reinsurance. Our retrocession partners are carefully selected in order to keep the risk as small as possible: a Security Committee continuously monitors their credit status and approves measures where necessary to secure receivables that appear to be at risk of default.
Alongside traditional retrocessions in non-life reinsurance we also transfer risks to the capital market. Yet credit risks are relevant to our investments and in life and health reinsurance, too, 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.
In terms of the Hannover Re Group's major companies, EUR 271.3 million (8.6%) of our accounts receivable from reinsurance business totalling EUR 3,144.2 million were older than 90 days as at the balance sheet date, The average default rate over the past three years was 0.01%.
Credit risks from investments may 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 diversification as we do to credit assessment conducted on the basis of the quality criteria set out in the investment guidelines. The measurement and monitoring mechanisms that have been put in place result in a prudent, broadly diversified investment strategy.
In our understanding, operational risks encompass the risk of losses occurring because of the inadequacy or failure of internal processes or as a result of events triggered by employee-
| Rating structure of our fixed-income securities1 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Rating classes | Government bonds | Securities issued by semi-governmental entities |
Corporate bonds | Covered bonds/asset backed securities |
|||||
| in % | in EUR million |
in % | in EUR million |
in % | in EUR million |
in % | in EUR million |
||
| AAA | 84.0 | 4,567.7 | 61.2 | 3,325.2 | 3.0 | 180.4 | 73.6 | 2,937.7 | |
| AA | 4.4 | 240.5 | 34.8 | 1,891.6 | 17.9 | 1,091.4 | 15.7 | 628.1 | |
| A | 5.6 | 305.2 | 3.3 | 179.2 | 55.8 | 3,410.6 | 0.6 | 23.4 | |
| BBB | 5.5 | 301.2 | 0.6 | 30.5 | 19.8 | 1,211.1 | 2.5 | 100.8 | |
| < BBB | 0.5 | 24.4 | 0.1 | 4.6 | 3.5 | 213.7 | 7.6 | 302.1 | |
| Total | 100.0 | 5,439.0 | 100.0 | 5,431.1 | 100.0 | 6,107.2 | 100.0 | 3,992.1 |
1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings
related, system-induced or external factors. The operational risk also extends to legal risks. Operational risks exist, inter alia, in relation to the risk of business interruptions or failures of technical systems or they may derive from unlawful or unauthorised acts.
Of material importance to our company in the category of other risks are primarily emerging risks, strategic risks, reputational risks and liquidity risks. Given the broad spectrum of operational and other risks, there is a wide range of different management and monitoring measures tailored to individual types of risk – including contingency plans, set communication channels and regular liquidity planning. The range of tools is rounded off with line-independent monitoring of risk management by Internal Auditing and the internal control system.
The above remarks describe the diverse spectrum of risks to which we, as an internationally operating reinsurance company, are exposed as well as the steps taken to manage and monitor them. The specified risks can potentially have a significant impact on our assets, financial position and net income. Yet consideration solely of the risk aspect does not fit our holistic conception of risk, since risks always go hand–in-hand with opportunities. Our effective management and monitoring tools as well as our organisational and operational structures ensure that we are able to identify our risks in a timely manner and maximise our opportunities. For additional information on the opportunities and risks associated with our business please see the Group Annual Report 2010.
A further positive special effect derived from a refund of taxes and interest. This was due to a decision by the Federal Fiscal Court (BFH) on 13 October 2010 regarding the taxation of foreign-sourced income under the Foreign Transactions Tax Act. Whereas in the previous year we were able to release provisions that we had set aside, the effect this year is related to the fact that large portions of the taxes already paid for prior years had to be refunded. This gave rise to a positive nonrecurring amount of EUR 113.5 million for the first quarter.
Based on our currently available insights arrived at from a holistic analysis of the risk situation, the Executive Board of Hannover Re cannot at present discern any risks that could jeopardise the continued existence of our company in the short or medium term or have a material and lasting effect on our assets, financial position or net income.
While the 2011 financial year is already notable for a high incidence of major losses, the general business prospects for our company – as a financially strong reinsurer – nevertheless remain good. This is true of both non-life and life/health reinsurance. Market opportunities are opening up to us, inter alia with an eye to the preparations for Solvency II. The importance of reinsurance as a risk optimisation tool is growing in light of more exacting capital requirements. This applies to both traditional reinsurance covers and structured reinsurance products.
At constant exchange rates, our total net premium volume is expected to grow by 7–8%.
After prices in non-life reinsurance had been flat of late or even declined in some lines, substantial rate increases could be anticipated in the wake of the recent major loss events. We were therefore satisfied with the outcome of our treaty renewals as at 1 April 2011 for Japan, Australia and New Zealand as well as in marine and aviation business.
In the Japanese market long-term business relations traditionally play a vital role, as a consequence of which we set particularly great store by serving as a reliable reinsurance partner for our clients – especially in this difficult time – and reinforcing the enduring nature of our relationship. We have provided our clients with the necessary capacity and modestly increased our premium volume for the Japanese market. As expected, price increases were obtained for non-proportional earthquake covers along with improved conditions under proportional treaties. Prices also moved higher in personal accident reinsurance and under industrial fire programmes.
The treaty renewals in other Asian countries were similarly satisfactory; we modestly enlarged our premium volume in these markets.
In view of the events in Japan we are now looking to price increases for property catastrophe covers in North America as well; the next treaty renewals for this market will take place on 1 June and 1 July 2011.
The outcome of the treaty negotiations for Australia and New Zealand as at 1 April 2011 was also gratifying. Appreciable price rises were pushed through under both loss-impacted programmes and those that had remained unaffected; this was especially true of New Zealand, which has experienced heavy losses from earthquakes in both 2010 and 2011.
Treaty renewals also took place in the marine and aviation lines as at 1 April 2011. The positive trend here was sustained: indeed, in marine business it was even possible to generate double-digit price increases for exposures relating to offshore oil exploration. Prices in worldwide aviation reinsurance remained stable.
In total non-life reinsurance we anticipate net premium growth of around 5% in the original currencies in the current financial year.
The prospects in international life and health reinsurance are very positive. A particularly significant factor here is the demographic trend in established insurance markets such as the United States, Japan, the United Kingdom and Germany. The increasing ageing of the population is thus beneficial to annuity and health insurance. Financially oriented reinsurance solutions, i.e. models designed to strengthen the equity base of primary insurers, are enjoying sustained demand. Business involving longevity risks is also likely to offer healthy growth opportunities, particularly in the United Kingdom; this applies both to enhanced annuities and the assumption of risks associated with existing pension funds. For the current financial year we are looking to grow net premium in life and health reinsurance by 10% to 12%, with an anticipated EBIT margin in excess of 6%.
The expected positive cash flow that we generate from the technical account and our investments should – subject to stable exchange rates – lead to further growth in our asset portfolio. In the area of fixed-income securities we continue to stress the high quality and diversification of our portfolio.
We are targeting a return on investment of 3.5% for 2011.
In view of the business opportunities that are opening up and the advantageous situation on reinsurance markets, we currently expect to generate – despite the major loss expenditure incurred to date – Group net income in the order of EUR 500 million. This is subject to the premise that further major losses do not significantly exceed a level of around EUR 410 million and also assumes that there are no drastic downturns on capital markets.
| Assets in EUR thousand | 31.3.2011 | 31.12.2010 |
|---|---|---|
| Fixed-income securities – held to maturity | 2,849,224 | 3,028,018 |
| Fixed-income securities – loans and receivables | 2,374,048 | 2,314,429 |
| Fixed-income securities – available for sale | 15,574,690 | 15,877,634 |
| Fixed-income securities – at fair value through profit or loss | 171,430 | 217,597 |
| Equity securities – available for sale | 36,661 | 536,755 |
| Other financial assets – at fair value through profit or loss | 80,728 | 54,756 |
| Real estate and real estate funds | 392,916 | 394,087 |
| Investments in associated companies | 130,298 | 127,644 |
| Other invested assets | 838,503 | 841,896 |
| Short-term investments | 1,770,022 | 1,570,502 |
| Cash | 604,934 | 447,753 |
| Total investments and cash under own management | 24,823,454 | 25,411,071 |
| Funds withheld | 11,861,206 | 11,920,725 |
| Contract deposits | 116,622 | 715,353 |
| Total investments | 36,801,282 | 38,047,149 |
| Reinsurance recoverables on unpaid claims | 1,375,369 | 1,025,332 |
| Reinsurance recoverables on benefit reserve | 341,853 | 347,069 |
| Prepaid reinsurance premium | 127,133 | 83,224 |
| Reinsurance recoverables on other technical reserves | 3,353 | 1,831 |
| Deferred acquisition costs | 1,837,844 | 1,834,496 |
| Accounts receivable | 3,144,233 | 2,841,303 |
| Goodwill | 44,902 | 45,773 |
| Deferred tax assets | 662,031 | 622,136 |
| Other assets | 452,958 | 336,443 |
| Accrued interest and rent | 9,636 | 11,182 |
| Assets held for sale | 1,421,179 | 1,529,355 |
| Total assets | 46,221,773 | 46,725,293 |
| Liabilities in EUR thousand | 31.3.2011 | 31.12.2010 |
|---|---|---|
| Loss and loss adjustment expense reserve | 18,574,841 | 18,065,395 |
| Benefit reserves | 8,837,299 | 8,939,190 |
| Unearned premium reserve | 2,181,356 | 1,910,422 |
| Other technical provisions | 176,349 | 184,528 |
| Funds withheld | 594,259 | 1,187,723 |
| Contract deposits | 4,582,198 | 4,704,267 |
| Reinsurance payable | 713,723 | 733,473 |
| Provisions for pensions | 83,026 | 81,657 |
| Taxes | 272,036 | 286,394 |
| Provision for deferred taxes | 1,659,602 | 1,632,527 |
| Other liabilities | 415,639 | 443,932 |
| Long-term debt and subordinated capital | 1,907,359 | 2,056,797 |
| Liabilities related to assets held for sale | 1,285,637 | 1,381,120 |
| Total liabilities | 41,283,324 | 41,607,425 |
| Shareholders' equity | ||
| Common shares | 120,597 | 120,597 |
| Nominal value: 120,597 Conditional capital: 60,299 |
||
| Additional paid-in capital | 724,562 | 724,562 |
| Common shares and additional paid-in capital | 845,159 | 845,159 |
| Cumulative other comprehensive income | ||
| Unrealised gains and losses on investments | 279,019 | 372,094 |
| Cumulative foreign currency translation adjustment | (170,274) | (52,954) |
| Other changes in cumulative other comprehensive income | (9,263) | (6,450) |
| Total other comprehensive income | 99,482 | 312,690 |
| Retained earnings | 3,403,403 | 3,351,116 |
| Equity attributable to shareholders of Hannover Re | 4,348,044 | 4,508,965 |
| Non-controlling interests | 590,405 | 608,903 |
| Total shareholders' equity | 4,938,449 | 5,117,868 |
| Total liabilities | 46,221,773 | 46,725,293 |
| Figures in EUR thousand | 1.1.–31.3.2011 | 1.1.–31.3.20101 |
|---|---|---|
| Gross written premium | 3,143,146 | 2,850,080 |
| Ceded written premium | 337,832 | 262,228 |
| Change in gross unearned premium | (363,801) | (361,597) |
| Change in ceded unearned premium | 49,206 | 63,336 |
| Net premium earned | 2,490,719 | 2,289,591 |
| Ordinary investment income | 222,744 | 214,168 |
| Profit/loss from investments in associated companies | 2,377 | 1,696 |
| Realised gains and losses on investments | 39,178 | 21,350 |
| Unrealised gains and losses on investments | 69,017 | (12,887) |
| Total depreciation, impairments and appreciation of investments | (413) | 4,868 |
| Other investment expenses | 17,588 | 13,931 |
| Net income from investments under own management | 316,141 | 205,528 |
| Income/expense on funds withheld and contract deposits | 75,860 | 73,957 |
| Net investment income | 392,001 | 279,485 |
| Other technical income | 3,043 | 5,427 |
| Total revenues | 2,885,763 | 2,574,503 |
| Claims and claims expenses | 2,148,562 | 1,673,012 |
| Change in benefit reserves | 114,412 | 100,459 |
| Commission and brokerage, change in deferred acquisition costs | 527,123 | 489,427 |
| Other acquisition costs | 1,914 | 4,171 |
| Other technical expenses | 3,153 | 11,543 |
| Administrative expenses | 81,261 | 65,521 |
| Total technical expenses | 2,876,425 | 2,344,133 |
| Other income and expenses | 36,805 | 8,435 |
| Operating profit/loss (EBIT) | 46,143 | 238,805 |
| Interest on hybrid capital | 25,614 | 18,927 |
| Net income before taxes | 20,529 | 219,878 |
| Taxes | (58,567) | 59,152 |
| Net income | 79,096 | 160,726 |
| thereof | ||
| Non-controlling interest in profit and loss | 26,809 | 9,724 |
| Group net income | 52,287 | 151,002 |
| Earnings per share | ||
| Basic earnings per share in EUR | 0.43 | 1.25 |
| Diluted earnings per share in EUR | 0.43 | 1.25 |
| Figures in EUR thousand | 1.1.–31.3.2011 | 1.1.–31.3.2010 |
|---|---|---|
| Net income | 79,096 | 160,726 |
| Unrealised gains and losses on investments | ||
| Gains (losses) recognised directly in equity | (77,153) | 175,870 |
| Transferred to the consolidated statement of income | (36,872) | (17,719) |
| Tax income (expense) | 16,886 | (31,407) |
| (97,139) | 126,744 | |
| Currency translation | ||
| Gains (losses) recognised directly in equity | (134,287) | 111,762 |
| Transferred to the consolidated statement of income | – | 275 |
| Tax income (expense) | 12,054 | (7,931) |
| (122,233) | 104,106 | |
| Other changes | ||
| Gains (losses) recognised directly in equity | (3,841) | (2,525) |
| Tax income (expense) | 1,028 | (40) |
| (2,813) | (2,565) | |
| Total income and expense recognised directly in equity | ||
| Gains (losses) recognised directly in equity | (215,281) | 285,107 |
| Transferred to the consolidated statement of income | (36,872) | (17,444) |
| Tax income (expense) | 29,968 | (39,378) |
| (222,185) | 228,285 | |
| Changes in the consolidated group | 32 | – |
| Total recognised income and expense | (143,057) | 389,011 |
| thereof: | ||
| Attributable to non-controlling interests | 17,864 | 21,703 |
| Attributable to shareholders of Hannover Re | (160,921) | 367,308 |
| Figures in EUR thousand | Common shares |
Additional paid-in capital |
(cumulative other comprehensive | Other reserves income) |
Retained earnings1 |
Non controlling interests |
Share holders' equity1 |
|
|---|---|---|---|---|---|---|---|---|
| Currency translation |
Unrealised gains/ losses |
Other | ||||||
| Balance as at 1.1.2010 | 120,597 | 724,562 | (224,084) | 241,569 | (4,728) | 2,856,529 | 542,112 | 4,256,557 |
| Changes in ownership interest with no change of control status |
– | – | 32 | (236) | – | (378) | 7,344 | 6,762 |
| Capital increases/ additions |
– | – | – | – | – | – | 56 | 56 |
| Capital repayments | – | – | – | – | – | – | (1,396) | (1,396) |
| Total income and expense recognised after tax |
– | – | 100,027 | 118,844 | –2,565 | 151,002 | 21,703 | 389,011 |
| Dividends paid | – | – | – | – | – | – | (29,138) | (29,138) |
| Balance as at 31.3.2010 | 120,597 | 724,562 | (124,025) | 360,177 | (7,293) | 3,007,153 | 540,681 | 4,621,852 |
| Balance as at 1.1.2011 | 120,597 | 724,562 | (52,954) | 372,094 | (6,450) | 3,351,116 | 608,903 | 5,117,868 |
| Capital increases/ additions |
– | – | – | – | – | – | 30 | 30 |
| Capital repayments | – | – | – | – | – | – | (8) | (8) |
| Total income and expense recognised after tax |
– | – | (117,320) | (93,075) | (2,813) | 52,287 | 17,864 | (143,057) |
| Dividends paid | – | – | – | – | – | – | (36,384) | (36,384) |
| Balance as at 31.3.2011 | 120,597 | 724,562 | (170,274) | 279,019 | (9,263) | 3,403,403 | 590,405 | 4,938,449 |
| Figures in EUR thousand | 1.1.–31.3.2011 | 1.1.–31.3.20101 |
|---|---|---|
| I. Cash flow from operating activities |
||
| Net income | 79,096 | 160,726 |
| Appreciation/depreciation | 6,676 | 7,839 |
| Net realised gains and losses on investments | (39,178) | (21,350) |
| Amortisation of investments | 12,554 | 4,425 |
| Changes in funds withheld | (898,574) | (317,190) |
| Net changes in contract deposits | 666,850 | 198,381 |
| Changes in prepaid reinsurance premium (net) | 314,442 | 297,584 |
| Changes in tax assets/provisions for taxes | (93,616) | 18,768 |
| Changes in benefit reserve (net) | 181,986 | 82,790 |
| Changes in claims reserves (net) | 793,095 | 338,483 |
| Changes in deferred acquisition costs | (76,422) | (11,896) |
| Changes in other technical provisions | (1,746) | 7,506 |
| Changes in clearing balances | (414,389) | (435,797) |
| Changes in other assets and liabilities (net) | (58,253) | 5,496 |
| Cash flow from operating activities | 472,521 | 335,765 |
| Figures in EUR thousand | 1.1.–31.3.2011 | 1.1.–31.3.20101 |
|---|---|---|
| II. Cash flow from investing activities |
||
| Fixed-income securities – held to maturity | ||
| Maturities | 109,075 | 10,347 |
| Fixed-income securities – loans and receivables | ||
| Maturities, sales | 56,332 | 95,338 |
| Purchases | (173,399) | (382,867) |
| Fixed-income securities – available for sale | ||
| Maturities, sales | 2,078,654 | 1,868,954 |
| Purchases | (2,474,253) | (1,909,839) |
| Fixed-income securities – at fair value through profit or loss | ||
| Maturities, sales | 42,998 | 11,810 |
| Purchases | (3,148) | (2,700) |
| Equity securities – available for sale | ||
| Sales | 725,910 | 145 |
| Purchases | (268,295) | (23) |
| Equity securities – at fair value through profit or loss | ||
| Sales | – | 327 |
| Other invested assets | ||
| Sales | 19,314 | 36,306 |
| Purchases | (27,869) | (25,407) |
| Affiliated companies and participating interests | ||
| Sales | 32 | – |
| Purchases | (8,483) | (2,545) |
| Real estate and real estate funds | ||
| Sales | 132 | 2,870 |
| Purchases | (11,030) | (51,165) |
| Short-term investments | ||
| Changes | (186,173) | 147,776 |
| Other changes (net) | (2,968) | (4,770) |
| Cash flow from investing activities | (123,171) | (205,443) |
| Figures in EUR thousand | 1.1.-31.3.2011 | 1.1.-31.3.20101 |
|---|---|---|
| III. Cash flow from financing activities | ||
| Payment on capital measures | (2,635) | (1,505) |
| Structural change without loss of control | 7,046 | |
| Dividends paid | (36,384) | (29,138) |
| Repayment of long-term debts | (138,338) | (2,549) |
| Cash flow from financing activities | (177,357) | (26,146) |
| IV. Exchange rate differences on cash | (23,247) | 23,809 |
| Cash and cash equivalents at the beginning of the period | 475,227 | 457,412 |
| thereof cash and cash equivalents of disposal groups: 27.474 | ||
| Change in cash and cash equivalents (I.+II.+III .+IV.) | 148,746 | 127,985 |
| Cash and cash equivalents at the end of the period | 623,973 | 585,397 |
| thereof cash and cash equivalents of disposal groups | 19,039 | – |
| Cash and cash equivalents at the end of the period excluding disposal groups | 604,934 | 585,397 |
| Income tax paid | 10,591 | (43,827) |
| Interest paid | (57,397) | (56,338) |
| Segmentation of assets in EUR thousand | Non-life reinsurance | ||
|---|---|---|---|
| 31.3.2011 | 31.12.2010 | ||
| Assets | |||
| Held to maturity | 2,545,454 | 2,724,546 | |
| Loans and receivables | 2,335,434 | 2,259,375 | |
| Available for sale | 11,197,260 | 11,725,861 | |
| At fair value through profit or loss | 138,430 | 152,028 | |
| Other invested assets | 1,324,816 | 1,330,693 | |
| Short-term investments | 1,507,303 | 1,259,804 | |
| Cash | 460,089 | 325,518 | |
| Total investments and cash under own management | 19,508,786 | 19,777,825 | |
| Funds withheld | 708,080 | 695,709 | |
| Contract deposits | – | – | |
| Total investments | 20,216,866 | 20,473,534 | |
| Reinsurance recoverables on unpaid claims | 1,225,089 | 859,533 | |
| Reinsurance recoverables on benefit reserve | – | – | |
| Prepaid reinsurance premium | 124,936 | 81,256 | |
| Reinsurance recoverables on other reserves | 420 | 422 | |
| Deferred acquisition costs | 399,667 | 362,080 | |
| Accounts receivable | 2,174,506 | 1,805,883 | |
| Other assets in the segment | 1,351,055 | 1,262,674 | |
| Assets held for sale | 1,421,179 | 1,529,355 | |
| Total assets | 26,913,718 | 26,374,737 | |
| Segmentation of technical and other liabilities in EUR thousand | |||
| Liabilities | |||
| Loss and loss adjustment expense reserve | 16,111,323 | 15,634,491 | |
| Benefit reserve | – | – | |
| Unearned premium reserve | 2,088,090 | 1,812,861 | |
| Provisions for contingent commissions | 119,138 | 130,726 | |
| Funds withheld | 239,068 | 218,084 | |
| Contract deposits | 94,703 | 102,109 | |
| Reinsurance payable | 517,694 | 456,496 | |
| Long-term liabilities | 175,193 | 187,690 | |
| Other liabilities in the segment | 1,597,665 | 1,564,020 | |
| Liabilities related to assets held for sale | 1,285,637 | 1,381,120 | |
| Total | 22,228,511 | 21,487,597 |
| Life/health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 31.3.2011 | 31.12.2010 | 31.3.2011 | 31.12.2010 | 31.3.2011 | 31.12.2010 |
| 3,258 | 3,528 | 300,512 | 299,944 | 2,849,224 | 3,028,018 |
| 28,173 | 44,735 | 10,441 | 10,319 | 2,374,048 | 2,314,429 |
| 4,235,154 | 4,409,009 | 178,937 | 279,519 | 15,611,351 | 16,414,389 |
| 84,556 | 91,888 | 29,172 | 28,437 | 252,158 | 272,353 |
| 34,651 | 32,813 | 2,250 | 121 | 1,361,717 | 1,363,627 |
| 214,117 | 273,051 | 48,602 | 37,647 | 1,770,022 | 1,570,502 |
| 143,939 | 120,176 | 906 | 2,059 | 604,934 | 447,753 |
| 4,743,848 | 4,975,200 | 570,820 | 658,046 | 24,823,454 | 25,411,071 |
| 11,153,173 | 11,225,065 | (47) | (49) | 11,861,206 | 11,920,725 |
| 116,622 | 715,353 | – | – | 116,622 | 715,353 |
| 16,013,643 | 16,915,618 | 570,773 | 657,997 | 36,801,282 | 38,047,149 |
| 150,502 | 165,938 | (222) | (139) | 1,375,369 | 1,025,332 |
| 341,853 | 347,069 | – | – | 341,853 | 347,069 |
| 4,100 | 3,755 | (1,903) | (1,787) | 127,133 | 83,224 |
| 2,933 | 1,409 | – | – | 3,353 | 1,831 |
| 1,438,177 | 1,472,416 | – | – | 1,837,844 | 1,834,496 |
| 970,419 | 1,035,542 | (692) | (122) | 3,144,233 | 2,841,303 |
| 508,059 | 507,199 | (689,587) | (754,339) | 1,169,527 | 1,015,534 |
| – | – | – | – | 1,421,179 | 1,529,355 |
| 19,429,686 | 20,448,946 | (121,631) | (98,390) | 46,221,773 | 46,725,293 |
| 2,463,739 | 2,431,045 | (221) | (141) | 18,574,841 | 18,065,395 |
| 8,839,202 | 8,941,021 | (1,903) | (1,831) | 8,837,299 | 8,939,190 |
| 93,266 | 97,561 | – | – | 2,181,356 | 1,910,422 |
| 57,211 | 53,802 | – | – | 176,349 | 184,528 |
| 355,191 | 969,639 | – | – | 594,259 | 1,187,723 |
| 4,487,495 | 4,602,158 | – | – | 4,582,198 | 4,704,267 |
| 197,193 | 277,817 | (1,164) | (840) | 713,723 | 733,473 |
| – | – | 1,732,166 | 1,869,107 | 1,907,359 | 2,056,797 |
| 1,484,263 | 1,579,525 | (651,625) | (699,035) | 2,430,303 | 2,444,510 |
| – | – | – | – | 1,285,637 | 1,381,120 |
| 17,977,560 | 18,952,568 | 1,077,253 | 1,167,260 | 41,283,324 | 41,607,425 |
| Segmental statement of income in EUR thousand | Non-life reinsurance | ||
|---|---|---|---|
| 1.1.–31.3.2011 | 1.1.–31.3.2010 | ||
| Gross written premium | 1,924,278 | 1,721,940 | |
| thereof | |||
| From insurance business with other segments | – | – | |
| From insurance business with external third parties | 1,924,278 | 1,721,940 | |
| Net premium earned | 1,376,341 | 1,258,013 | |
| Net investment income | 250,263 | 166,401 | |
| thereof | |||
| Deposit interest and expenses | 3,118 | 2,795 | |
| Claims and claims expenses | 1,354,070 | 931,104 | |
| Change in benefit reserve | – | – | |
| Commission and brokerage, change in deferred acquisition costs and other technical income/expenses |
306,605 | 282,352 | |
| Administrative expenses | 46,551 | 39,076 | |
| Other income and expenses | 56,086 | (6,233) | |
| Operating profit/loss (EBIT) | (24,536) | 165,649 | |
| Interest on hybrid capital | – | – | |
| Net income before taxes | (24,536) | 165,649 | |
| Taxes | (67,513) | 47,415 | |
| Net income | 42,977 | 118,234 | |
| thereof | |||
| Non-controlling interest in profit or loss | 25,710 | 8,848 | |
| Group net income | 17,267 | 109,386 |
| Life/health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 1.1.–31.3.2011 | 1.1.–31.3.2010 | 1.1.–31.3.2011 | 1.1.–31.3.20101 | 1.1.–31.3.2011 | 1.1.–31.3.20101 |
| 1,219,359 | 1,128,140 | (491) | – | 3,143,146 | 2,850,080 |
| 491 | – | (491) | – | – | – |
| 1,218,868 | 1,128,140 | – | – | 3,143,146 | 2,850,080 |
| 1,114,453 | 1,031,578 | (75) | – | 2,490,719 | 2,289,591 |
| 127,799 | 100,749 | 13,939 | 12,335 | 392,001 | 279,485 |
| 72,742 | 71,162 | – | – | 75,860 | 73,957 |
| 794,717 | 742,059 | (225) | (151) | 2,148,562 | 1,673,012 |
| 114,486 | 100,459 | (74) | – | 114,412 | 100,459 |
| 223,462 | 218,781 | (920) | (1,419) | 529,147 | 499,714 |
| 35,424 | 27,317 | (714) | (872) | 81,261 | 65,521 |
| (15,731) | 18,869 | (3,550) | (4,201) | 36,805 | 8,435 |
| 58,432 | 62,580 | 12,247 | 10,576 | 46,143 | 238,805 |
| – | – | 25,614 | 18,927 | 25,614 | 18,927 |
| 58,432 | 62,580 | (13,367) | (8,351) | 20,529 | 219,878 |
| 15,830 | 15,878 | (6,884) | (4,141) | (58,567) | 59,152 |
| 42,602 | 46,702 | (6,483) | (4,210) | 79,096 | 160,726 |
| 1,099 | 876 | – | – | 26,809 | 9,724 |
| 41,503 | 45,826 | (6,483) | (4,210) | 52,287 | 151,002 |
The parent company Hannover Rückversicherung AG ("Hannover Re") and its subsidiaries (collectively referred to as the "Hannover Re Group") are 50.22% owned by Talanx AG and included in its consolidated financial statement. Talanx AG is wholly owned by HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI). Hannover Re is obliged to prepare a consolidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB). Furthermore, HDI is required by §§ 341 i et seq. German Commercial Code (HGB) to prepare consolidated annual accounts that include the annual financial statements of Hannover Re and its subsidiaries.
The consolidated financial statement of Hannover Re was drawn up in compliance with the International Financial Reporting Standards (IFRS) that are to be used within the European Union. This also applies to all figures provided in this report for previous periods. Since 2002 the standards adopted by the International Accounting Standards Board (IASB) have been referred to as IFRS; the standards dating from earlier years still bear the name "International Accounting Standards (IAS)". Standards are cited in our Notes accordingly; unless the Notes make explicit reference to a particular standard, both terms are used synonymously.
The consolidated quarterly financial report has been compiled in accordance with IAS 34 "Interim Financial Reporting". As provided for by IAS 34, in our preparation of the consolidated quarterly financial statement, consisting of the consolidated balance sheet, consolidated statement of income, consolidated statement of comprehensive income, consolidated cash flow statement, consolidated statement of changes in shareholders' equity and selected explanatory notes, we draw on estimates and assumptions to a greater extent than is the case with the annual financial reporting. This can have implications for items in the balance sheet and the statement of income as well as for other financial obligations. Although the estimates are always based on realistic premises, they are of course subject to uncertainties that may be reflected accordingly in the result. Losses from natural disasters and other catastrophic losses impact the result of the reporting period in which they occur. Furthermore, belatedly reported claims for major loss events can also lead to substantial fluctuations in individual quarterly results. Gains and losses on the disposal of investments are accounted for in the quarter in which the investments are sold.
The present consolidated quarterly financial statement was prepared by the Executive Board on 18 April 2011 and released for publication.
The quarterly accounts of the consolidated companies included in the consolidated financial statement were drawn up as at 31 March 2011.
All standards adopted by the IASB as at 31 March 2011 with binding effect for the period under review have been observed in the consolidated financial statement.
A major new feature of the revised IAS 24 "Related Party Disclosures" is the requirement for disclosures of "commitments", for example guarantees, undertakings and other commitments, which are dependent upon whether (or not) a particular event occurs in the future. The definition of a related entity or a related person is also clarified. Hannover Re applied the revised IAS 24 for the first time in the present quarterly financial statement. There were no significant implications for Hannover Re.
By way of the collection of amendments "Improvements to IFRSs (Issued May 2010)" the IASB published various minor modifications to IFRS, the majority of which are to be applied from the 2011 financial year onwards. Insofar as these amendments were of practical relevance to the Group, they had no material influence of the assets, financial position or net income of Hannover Re.
In November 2009 the IASB issued IFRS 9 "Financial Instruments" on the classification and measurement of financial instruments. IFRS 9 is the first step in a three-phase project intended to replace IAS 39 "Financial Instruments: Recognition and Measurement" with a new standard. IFRS 9 introduces new requirements for classifying and measuring financial assets. The provisions of IFRS 9 were expanded in October 2010 with an eye to financial liabilities for which the fair value option is chosen. The standard, the implications of which for Hannover Re are currently under review, has not yet been ratified by the European Union.
The following table provides an overview of all other standards and interpretations that have not yet entered into force or are not yet applicable. Hannover Re is currently reviewing the potential implications of their application in future reporting periods.
| Standard/ Interpretation | Applicable to financial years beginning on or after |
Adoption by European Commission |
|---|---|---|
| Amendments to IFRS 7 Financial Instruments: Disclosures | 1 July 2011 | Pending |
| Deferred tax: Recovery of Underlying Assets (Amendments to IAS 12) |
1 January 2012 | Pending |
The individual companies' statements of income prepared in the national currencies are converted into euro at the average rates of exchange and transferred to the consolidated financial 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.
| Key exchange rates 1 EUR corresponds to: |
||||
|---|---|---|---|---|
| 31.3.2011 | 31.12.2010 | 1.1.–31.3.2011 | 1.1.–31.3.2010 | |
| Mean rate of exchange on the balance sheet date |
Average rate of exchange | |||
| AUD | 1.3741 | 1.3068 | 1.3545 | 1.5411 |
| BHD | 0.5359 | 0.4997 | 0.5182 | 0.5219 |
| CAD | 1.3776 | 1.3259 | 1.3558 | 1.4496 |
| CNY | 9.3042 | 8.7511 | 9.0448 | 9.4493 |
| GBP | 0.8842 | 0.8585 | 0.8639 | 0.8878 |
| HKD | 11.0621 | 10.3146 | 10.7043 | 10.7452 |
| KRW | 1,555.2905 | 1,501.6346 | 1,537.7077 | 1,598.4235 |
| MYR | 4.3021 | 4.0869 | 4.1990 | 4.6742 |
| SEK | 8.9298 | 9.0119 | 8.8938 | 9.9953 |
| USD | 1.4215 | 1.3254 | 1.3745 | 1.3843 |
| ZAR | 9.6586 | 8.7907 | 9.4824 | 10.3877 |
Hannover Re corrected the balance sheet recognition of certain life reinsurance contracts. In accordance with applicable US GAAP (FASB ASC 340-30), technical assets and liabilities relating to these contracts are to be offset in the balance sheet. These offsetting rules were not applied consistently within the Group in previous reporting periods.
In accordance with the requirements of IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors", we therefore adjusted the comparative figures in the present financial statement. The adjustments had no implications for Group net income or shareholders' equity in any of the previous reporting periods. Relative to the figures originally shown, the balance sheet items "funds withheld" (assets side) and "contract deposits" (liabilities side) are each reduced by EUR 1,450.2 million as at 31 March 2010. The decrease in these balance sheet items in the opening balance sheet as at 1 January 2010 amounted to EUR 1,429.2 million in each case.
In addition, pursuant to the requirements of IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors" it was necessary to correct the translation of intangible assets held in foreign currencies in the consolidated quarterly financial statement as at 31 March 2010.
The effects of the aforementioned adjustments on the items of the consolidated balance sheet and consolidated statement of income are as follows:
| Adjustments pursuant to IAS 8 in EUR thousand | 1.1.2010 | 31.3.2010 |
|---|---|---|
| Funds withheld | –1,429,178 | –1,450,158) |
| Other assets | +2,527 | –3,684 |
| Total change in assets | –1,426,651 | –1,453,842 |
| Contract deposits | –1,429,178 | –1,450,158 |
| Retained earnings | +2,527 | –3,684 |
| Total change in liabilities | –1,426,651 | –1,453,842 |
| 1.1.–31.12.2010 | ||
| Other income and expenses | –6,211 | |
| Total change in items of the statement of income | –6,211 | |
| Change in basic and diluted earnings per share (in EUR) | –0.05 |
With respect to collateralised debt obligations, collateralised loan obligations and high-yield funds Hannover Re has adjusted the calculation logic used for model-based fair value measurement and for establishing the share of fair value changes attributable to impairments with the aim of measuring such items on a more market-oriented basis. This represents a change in an accounting estimate, which pursuant to IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors" is to be performed prospectively in the period under review without adjustment of the comparative figures for previous years.
Retention of the parameters and methods used until 31 December 2010 would have reduced the impairments in the period under review by EUR 4.0 million and increased the write-ups by EUR 5.8 million. The amount recognised for the fair values of the specified instruments would have been EUR 7.8 million higher. The effect of this adjustment of the calculation logic in future reporting periods could only have been determined with a disproportionately high effort.
Hannover Re's segmental report is based on IFRS 8 "Operating Segments" and on the principles set out in German Accounting Standard No. 3 "Segment Reporting" (DRS 3) of the German Accounting Standards Board as well as the requirements of DRS 3–20 "Segment Reporting of Insurance Enterprises".
We would also refer to the relevant information in the consolidated financial statement as at 31 December 2010.
On 21 December 2010 Hannover Re reached agreement on the sale of its US subgroup Clarendon Insurance Group, Inc. (CIGI), Wilmington, to Enstar Group Ltd., Hamilton/Bermuda, a company specialising in the run-off of insurance business. Hannover Re holds all shares of CIGI indirectly through the intermediate holding company Hannover Finance, Inc. (HFI), Wilmington, which is also included in full in the consolidated financial statement. The buyer is to acquire all shares of CIGI at a purchase price equivalent to EUR 162.5 million before final price determination, which will take place upon adoption of the local annual financial statement as at 31 December 2010. As at the balance sheet date the transaction was still subject to the customary regulatory approvals. Closing of the transaction and the associated deconsolidation from Hannover Re are anticipated in the second quarter of 2011.
Pursuant to IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" CIGI constitutes a disposal group, which is to be measured at the lower of the carrying amount and fair value less costs to sell. The measurement of the disposal group gave rise to income of EUR 10.5 million in the current financial year, which reduced the provision established as at 31 December 2010 accordingly. The income was recognised in other income and expenses.
The cumulative other comprehensive income of –EUR 25.8 million (31 December 2010: –EUR 28.8 million) arising out of the currency translation of the assets and liabilities belonging to the disposal group will only be realised in the context of deconsolidation. Profits and losses from the measurement of available-for-sale financial assets in an amount of EUR 2.1 million (31 December 2010: EUR 2.5 million) as at the balance sheet date will also only be realised at the time of deconsolidation.
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 that are distinct from continuing operations. Transactions between the disposal group and the Group's continuing operations continue to be entirely eliminated in conformity with IAS 27 "Consolidated and Separate Financial Statements".
The assets and liabilities of the disposal group are presented in the following table and broken down into their major components.
| Assets and liabilities of the disposal group in EUR thousand | 31.3.2011 | 31.12.2010 |
|---|---|---|
| Assets | ||
| Total investments | 575,323 | 643,060 |
| Cash | 19,039 | 27,474 |
| Reinsurance recoverables on unpaid claims | 806,068 | 831,093 |
| Accounts receivable | 5,146 | 16,916 |
| Other assets | 15,603 | 10,812 |
| Assets held for sale | 1,421,179 | 1,529,355 |
| Liabilities | ||
| Technical provisions | 1,234,760 | 1,309,860 |
| Funds withheld | 17,932 | 26,713 |
| Reinsurance payable | 11,017 | 17,612 |
| Other liabilities | 21,928 | 26,935 |
| Liabilities related to assets held for sale | 1,285,637 | 1,381,120 |
The capital consolidation complies with the requirements of IAS 27 "Consolidated and Separate Financial Statements". Subsidiaries are consolidated as soon as Hannover Re acquires a majority voting interest or de facto controlling influence. The same is true of special purpose entities, the consolidation of which is discussed separately below.
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 transferred at the acqisition date are netted with the proportionate shareholders' equity of the subsidiary at the time when it is first included in the consolidated financial statement after the revaluation at fair value of all assets and liabilities. After recognition 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. Immaterial and negative goodwill are recognised in the statement of income in the year of their occurrence. Costs attributable to the acquisition are expensed.
Companies over which Hannover Re is able to exercise a significant influence are normally consolidated "at equity" as associated companies with the proportion of the shareholders' equity attributable to the Group. 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. Income from investments in associated companies is recognised separately in the consolidated statement of income.
Non-controlling interests in shareholders' equity are reported separately within Group shareholders' equity in accordance with IAS 1 "Presentation of Financial Statements". The noncontrolling 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 26.8 million (EUR 9.7 million) as at 31 March 2011.
For further details we would refer to the relevant information in the consolidated financial statement as at 31 December 2010.
Receivables and liabilities between the companies included in the consolidated financial statement are offset against each other. Profits and expenses from business transactions within the Group are also eliminated. Transactions between a disposal group and the continuing operations of the Group are similarly eliminated in accordance with IAS 27 "Consolidated and Separate Financial Statements".
Business relations with special purpose entities are to be examined in accordance with SIC–12 "Consolidation – Special Purpose Entities" with an eye to their implications for consolidation. In cases where IFRS do not currently contain any
specific standards, Hannover Re's analysis – in application of IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors" – also falls back on the relevant standards of US GAAP.
In the course of 2010, as part of its extended Insurance-Linked Securities (ILS) activities, Hannover Re wrote a number of socalled collateralised fronting arrangements under which risks assumed from ceding companies were passed on to institutional investors outside the Group using special purpose entities. The purpose of such transactions is to directly transfer clients' business. Due to the lack of a controlling influence over the special purpose entities involved, there is no consolidation requirement for Hannover Re with respect to these structures.
A major transaction is "FacPool Re", under which Hannover Re transferred a portfolio of facultative reinsurance risks to the capital market from September 2009 to January 2011. The contracts, which are now in run-off, were mediated by an external reinsurance intermediary, written by Hannover Re and placed on the capital market in conjunction with a service provider. The "FacPool Re" transaction consisted of a quota share reinsurance arrangement and two non-proportional cessions. A number of special purpose entities participated in the reinsurance cessions within "FacPool Re"; Hannover Re did not hold any shares in these special purpose entities and did not bear the majority of the economic benefits or risks arising out of their activities through any of its business relations.
The securitisation of reinsurance risks is largely structured through the use of special purpose entities.
Effective 30 March 2011 a structured transaction was entered into in order to finance the statutory reserves (so-called XXX reserves) of a US cedant. The structure necessitates the involvement of a special purpose entity, namely the Delawarebased Maricopa LLC. The special purpose entity carries extreme mortality risks securitised by the cedant above a contractually defined retention and transfers these risks by way of a fixed/floating swap with a ten-year term to a Group company of the Hannover Re Group. The maximum capacity of the transaction is USD 500.0 million; an amount of USD 250.0 million was initially taken up upon contract closing. The variable payments to the special purpose entity guaranteed by Hannover Re cover its payment obligations. By way of a compensation agreement Hannover Re is reimbursed by the cedant's parent company for all payments resulting from the swap in the event of a claim. Since Hannover Re does not bear the majority of the economic risks or benefits arising out of its business relations with the special purpose entity and does not exercise a controlling influence over it, there is no consolidation requirement for Hannover Re. Under IAS 39 this transaction is to be recognised at fair value as a financial guarantee. 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 recognition 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. In this case the reimbursement claims from the compensation agreement are to be capitalised separately from and up to the amount of the provision.
In July 2009 Hannover Re issued a catastrophe ("CAT") bond with the aim of transferring to the capital market peak natural catastrophe exposures deriving from European windstorm events. The term of the CAT bond, which has a volume of nominally EUR 150.0 million, runs until 31 March 2012; it was placed with institutional investors from Europe and North America by Eurus II Ltd., a special purpose entity domiciled in the Cayman Islands. Hannover Re does not exercise a controlling influence over the special purpose entity. Under IFRS this transaction is to be recognised as a financial instrument.
Effective 1 January 2009 Hannover Re raised further underwriting capacity for catastrophe risks on the capital market by way of the "K6" transaction. This securitisation, which was placed with institutional investors in North America, Europe and Asia, involves a quota share cession on worldwide natural catastrophe business as well as aviation and marine risks. The volume of "K6", which was increased on multiple occasions, was equivalent to EUR 235.7 million (EUR 248.5 million) as at the balance sheet date. The planned term of the transaction runs until 31 December 2011 or in the case of the new shares placed in 2010/2011 until 31 December 2012/2013. Kaith Re Ltd., a special purpose entity domiciled in Bermuda, is being used for the securitisation.
Hannover Re also uses the special purpose entity Kaith Re Ltd. for various retrocessions of its traditional covers to institutional investors. In accordance with SIC–12 Kaith Re Ltd. is included in the consolidated financial statement.
Within the scope of its asset management activities Hannover Re has participated since 1988 in numerous special purpose entities – predominantly funds –, which for their part transact certain types of equity and debt capital investments. On the basis of our analysis of our relations with these entities we concluded that the Group does not exercise a controlling influence in any of these transactions and a consolidation requirement therefore does not exist.
Hannover Re participates – primarily through the companies Secquaero ILS Fund Ltd. and Hannover Insurance-Linked Securities GmbH & Co. KG – in a number of special purpose entities for the securitisation of catastrophe risks by investing in "disaster bonds" (or "CAT bonds"). Since Hannover Re does not exercise a controlling influence in any of these transactions either there is no consolidation requirement.
Investments are classified and measured in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". 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.
For further details we would refer to the relevant information in the consolidated financial statement as at 31 December 2010.
The following table shows the regional origin of the investments under own management.
The investments under own management also encompass investments in associated companies, real estate and real estate funds (also includes: investment property), other invested assets, short-term investments and cash.
| Investments1 in EUR thousand | 31.3.2011 | 31.12.2010 |
|---|---|---|
| Regional origin | ||
| Germany | 5,797,586 | 6,402,667 |
| United Kingdom | 1,801,672 | 1,731,362 |
| France | 2,455,861 | 2,188,048 |
| Other | 4,835,482 | 4,856,718 |
| Europe | 14,890,601 | 15,178,795 |
| USA | 5,748,776 | 6,145,130 |
| Other | 1,125,193 | 1,057,850 |
| North America | 6,873,969 | 7,202,980 |
| Asia | 755,952 | 673,879 |
| Australia | 1,527,351 | 1,577,157 |
| Australasia | 2,283,303 | 2,251,036 |
| Africa | 422,543 | 409,767 |
| Other | 353,038 | 368,493 |
| Total | 24,823,454 | 25,411,071 |
1 After elimination of internal transactions within the Group across segments
| Maturities of the fixed-income and variable-yield securities in EUR thousand |
|||||
|---|---|---|---|---|---|
| 31.3.2011 | 31.12.2010 | ||||
| Amortised cost1 | Fair value | Amortised cost1 | Fair value | ||
| Held to maturity | |||||
| due in one year | 322,349 | 326,701 | 293,247 | 296,019 | |
| due after one through two years | 475,629 | 491,215 | 481,951 | 497,863 | |
| due after two through three years | 582,527 | 608,929 | 530,917 | 556,296 | |
| due after three through four years | 309,893 | 324,735 | 402,290 | 435,132 | |
| due after four through five years | 915,298 | 958,185 | 842,291 | 896,024 | |
| due after five through ten years | 225,437 | 243,823 | 458,201 | 489,910 | |
| due after ten years | 18,091 | 17,651 | 19,121 | 18,143 | |
| Total | 2,849,224 | 2,971,239 | 3,028,018 | 3,189,387 | |
| Loans and receivables | |||||
| due in one year | 118,179 | 118,248 | 61,280 | 61,845 | |
| due after one through two years | 115,980 | 116,726 | 129,327 | 129,184 | |
| due after two through three years | 366,192 | 367,264 | 348,915 | 356,739 | |
| due after three through four years | 533,222 | 539,984 | 576,421 | 592,242 | |
| due after four through five years | 294,305 | 298,589 | 330,110 | 342,088 | |
| due after five through ten years | 890,629 | 903,251 | 806,953 | 840,900 | |
| due after ten years | 55,541 | 52,217 | 61,423 | 58,741 | |
| Total | 2,374,048 | 2,396,279 | 2,314,429 | 2,381,739 | |
| Available for sale | |||||
| due in one year2 | 4,458,739 | 4,471,906 | 4,127,663 | 4,146,256 | |
| due after one through two years | 1,998,759 | 2,022,907 | 1,856,401 | 1,892,437 | |
| due after two through three years | 2,027,522 | 2,062,780 | 1,841,265 | 1,892,893 | |
| due after three through four years | 1,695,814 | 1,717,196 | 2,184,191 | 2,238,279 | |
| due after four through five years | 2,106,765 | 2,097,881 | 2,277,464 | 2,294,991 | |
| due after five through ten years | 3,872,159 | 3,872,489 | 3,710,502 | 3,727,430 | |
| due after ten years | 1,648,000 | 1,704,487 | 1,629,312 | 1,703,603 | |
| Total | 17,807,758 | 17,949,646 | 17,626,798 | 17,895,889 | |
| Financial assets at fair value through profit or loss |
|||||
| due in one year | 31,095 | 31,095 | 76,542 | 76,542 | |
| due after one through two years | 16,525 | 16,525 | 28,498 | 28,498 | |
| due after two through three years | 70,358 | 70,358 | 60,257 | 60,257 | |
| due after three through four years | 4,742 | 4,742 | 4,876 | 4,876 | |
| due after four through five years | – | – | – | – | |
| due after five through ten years | – | – | – | – | |
| due after ten years | 48,710 | 48,710 | 47,424 | 47,424 | |
| Total | 171,430 | 171,430 | 217,597 | 217,597 |
1 Including accrued interest
2 Including short-term investments and cash
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 its fair value |
Figures in EUR thousand | ||||
|---|---|---|---|---|---|
| 31.3.2011 | |||||
| Amortised cost | Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
323,072 | 5,216 | 845 | 4,742 | 332,185 |
| US treasury notes | 357,543 | 36,760 | – | 4,514 | 398,817 |
| Other foreign government debt securities | 10,839 | 508 | – | 108 | 11,455 |
| Debt securities issued by semi-governmental entities |
592,709 | 26,588 | 470 | 8,709 | 627,536 |
| Corporate securities | 546,055 | 21,691 | 878 | 12,263 | 579,131 |
| Covered bonds/asset-backed securities | 971,505 | 35,952 | 2,507 | 17,165 | 1,022,115 |
| Total | 2,801,723 | 126,715 | 4,700 | 47,501 | 2,971,239 |
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as its fair value Figures in EUR thousand
| 31.12.2010 | |||||
|---|---|---|---|---|---|
| Amortised cost | Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
324,564 | 13,960 | 1,252 | 6,884 | 344,156 |
| US treasury notes | 382,844 | 44,791 | – | 3,038 | 430,673 |
| Other foreign government debt securities | 11,618 | 743 | – | 28 | 12,389 |
| Debt securities issued by semi-governmental entities |
709,181 | 35,252 | 978 | 13,305 | 756,760 |
| Corporate securities | 563,779 | 26,219 | 1,132 | 12,453 | 601,319 |
| Covered bonds/asset-backed securities | 979,452 | 48,562 | 4,796 | 20,872 | 1,044,090 |
| Total | 2,971,438 | 169,527 | 8,158 | 56,580 | 3,189,387 |
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value Figures in EUR thousand
| 31.3.2011 | |||||
|---|---|---|---|---|---|
| Amortised cost | Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Loans and receivables | |||||
| Government debt securities of EU member states |
10,450 | – | 69 | 314 | 10,695 |
| Debt securities issued by semi-governmental entities |
1,054,378 | 14,329 | 3,877 | 9,459 | 1,074,289 |
| Corporate securities | 446,522 | 7,557 | 2,586 | 8,025 | 459,518 |
| Covered bonds/asset-backed securities | 834,456 | 15,317 | 8,440 | 10,444 | 851,777 |
| Total | 2,345,806 | 37,203 | 14,972 | 28,242 | 2,396,279 |
| Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value Figures in EUR thousand |
|||||
|---|---|---|---|---|---|
| 31.12.2010 | |||||
| Amortised cost | Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Loans and receivables | |||||
| Government debt securities of EU member states |
– | – | – | 305 | 305 |
| Debt securities issued by semi-governmental entities |
996,339 | 29,986 | 88 | 14,622 | 1,040,859 |
| Corporate securities | 467,355 | 15,317 | 829 | 6,335 | 488,178 |
| Covered bonds/asset-backed securities | 818,053 | 27,541 | 4,617 | 11,420 | 852,397 |
| Total | 2,281,747 | 72,844 | 5,534 | 32,682 | 2,381,739 |
| Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as its fair value |
Figures in EUR thousand | ||||
|---|---|---|---|---|---|
| 31.3.2011 | |||||
| Amortised cost | Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
2,038,918 | 13,478 | 40,805 | 26,835 | 2,038,426 |
| US treasury notes | 1,747,067 | 43,512 | 4,653 | 7,755 | 1,793,681 |
| Other foreign government debt securities | 859,572 | 9,203 | 1,519 | 7,112 | 874,368 |
| Debt securities issued by semi-govern mental entities |
3,655,610 | 62,425 | 14,840 | 52,652 | 3,755,847 |
| Corporate securities | 4,832,128 | 81,179 | 76,586 | 83,478 | 4,920,199 |
| Covered bonds/asset-backed securities | 2,001,345 | 99,409 | 33,438 | 24,958 | 2,092,274 |
| Investment funds | 95,579 | 7,682 | 3,366 | – | 99,895 |
| 15,230,219 | 316,888 | 175,207 | 202,790 | 15,574,690 | |
| Equity securities | |||||
| Shares | 13,510 | 5,621 | 2 | – | 19,129 |
| Investment funds | 16,548 | 1,035 | 51 | – | 17,532 |
| 30,058 | 6,656 | 53 | – | 36,661 | |
| Short-term investments | 1,768,301 | 657 | 450 | 1,514 | 1,770,022 |
| Total | 17,028,578 | 324,201 | 175,710 | 204,304 | 17,381,373 |
| Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as its fair value |
Figures in EUR thousand | ||||
|---|---|---|---|---|---|
| 31.12.2010 | |||||
| Amortised cost | Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
2,091,535 | 29,356 | 28,204 | 27,268 | 2,119,955 |
| US treasury notes | 2,011,438 | 68,669 | 3,530 | 13,532 | 2,090,109 |
| Other foreign government debt securities | 777,750 | 13,659 | 1,466 | 3,922 | 793,865 |
| Debt securities issued by semi-govern mental entities |
3,453,861 | 90,835 | 10,100 | 50,883 | 3,585,479 |
| Corporate securities | 4,951,023 | 105,530 | 61,778 | 89,912 | 5,084,687 |
| Covered bonds/asset-backed securities | 2,015,755 | 100,579 | 42,381 | 31,513 | 2,105,466 |
| Investment funds | 90,815 | 8,773 | 1,515 | – | 98,073 |
| 15,392,177 | 417,401 | 148,974 | 217,030 | 15,877,634 | |
Investment funds 90,815 8,773 1,515 – 98,073 15,392,177 417,401 148,974 217,030 15,877,634 Equity securities Shares 374,338 29,020 5,038 – 398,320 Investment funds 128,132 10,373 70 – 138,435 502,470 39,393 5,108 – 536,755 Short-term investments 1,568,528 939 275 1,310 1,570,502 Total 17,463,175 457,733 154,357 218,340 17,984,891
| 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 Figures in EUR thousand |
||||||
|---|---|---|---|---|---|---|
| 31.3.2011 | 31.12.2010 | 31.3.2011 | 31.12.2010 | 31.3.2011 | 31.12.2010 | |
| Fair value before accrued interest | Accrued interest | Fair value | ||||
| Financial assets at fair value through profit or loss |
||||||
| Fixed-income securities | ||||||
| Debt securities of semi-governmental entities |
9,919 | 9,995 | 11 | 80 | 9,930 | 10,075 |
| Corporate securities | 96,313 | 97,770 | 198 | 542 | 96,511 | 98,312 |
| Covered bonds/ asset-backed securities |
64,586 | 108,598 | 403 | 612 | 64,989 | 109,210 |
| 170,818 | 216,363 | 612 | 1,234 | 171,430 | 217,597 | |
| Other financial assets | ||||||
| Derivatives | 80,728 | 54,756 | – | – | 80,728 | 54,756 |
| 80,728 | 54,756 | – | – | 80,728 | 54,756 | |
| Total | 251,546 | 271,119 | 612 | 1,234 | 252,158 | 272,353 |
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 Instruments: Disclosure and Presentation" in conjunction with IAS 39 "Financial Instruments: Recognition and Measurement".The change in shareholders' equity comprises not only the net income deriving from the statement of income but also the changes in the value of asset and liability items not recognised in the statement of income.
The common shares (share capital of the parent company) amount to EUR 120,597,134.00. They are divided into 120,597,134 voting and dividend-bearing registered no-par value shares. The shares are fully paid up. Each share carries an equal voting right and an equal dividend entitlement.
Non-controlling interests are established in accordance with the shares held by companies outside the Group in the shareholders' equity of the subsidiaries.
Authorised capital of up to EUR 60,299 thousand is available with a time limit of 3 May 2015. New, registered no-par-value shares may be issued on one or more occasions for contributions in cash or kind. Of the total amount, up to EUR 1,000 thousand may be used to issue employee shares.
In addition, conditional capital of up to EUR 60,299 thousand is available. It can be used to grant shares to holders of convertible bonds and bonds with warrants as well as to holders of participating bonds with conversion rights and warrants and has a time limit of 11 May 2011.
Furthermore, the Executive Board is authorised – with the consent of the Supervisory Board – to acquire treasury shares of up to 10% of the existing share capital. The authorisation is limited until 3 May 2015.
IAS 1 requires separate disclosure of treasury shares in shareholders' equity. The company was not in possession of treasury shares at any time during the period under review.
| Gross written premium1 in EUR thousand | 1.1.–31.3.2011 | 1.1.–31.3.2010 |
|---|---|---|
| Regional origin | ||
| Germany | 403,349 | 391,591 |
| United Kingdom | 659,070 | 469,510 |
| France | 158,659 | 163,298 |
| Other | 402,715 | 430,567 |
| Europe | 1,623,793 | 1,454,966 |
| USA | 693,001 | 745,452 |
| Other | 108,110 | 84,673 |
| North America | 801,111 | 830,125 |
| Asia | 245,843 | 183,557 |
| Australia | 162,714 | 114,786 |
| Australasia | 408,557 | 298,343 |
| Africa | 114,868 | 93,608 |
| Other | 194,817 | 173,038 |
| Total | 3,143,146 | 2,850,080 |
1 After elimination of internal transactions within the Group across segments
| Investment income in EUR thousand | 31.3.2011 | 31.3.2010 |
|---|---|---|
| Income from real estate | 8,992 | 6,106 |
| Dividends | 2,104 | 719 |
| Interest income | 215,694 | 205,049 |
| Other investment income | (4,046) | 2,294 |
| Ordinary investment income | 222,744 | 214,168 |
| Profit or loss on shares in associated companies | 2,377 | 1,696 |
| Appreciation | 14,067 | 6,520 |
| Realised gains on investments | 83,841 | 37,854 |
| Realised losses on investments | 44,663 | 16,504 |
| Unrealised gains and losses on investments | 69,017 | (12,887) |
| Impairments on real estate | 2,265 | 1,693 |
| Impairments on equity securities | – | 516 |
| Impairments on fixed-income securities | 4,636 | 4,775 |
| Impairments on participating interests and other financial assets | 6,753 | 4,404 |
| Other investment expenses | 17,588 | 13,931 |
| Net income from assets under own management | 316,141 | 205,528 |
| Interest income on funds withheld and contract deposits | 120,120 | 102,248 |
| Interest expense on funds withheld and contract deposits | 44,260 | 28,291 |
| Total investment income | 392,001 | 279,485 |
Of the impairments totalling EUR 11.5 million, an amount of EUR 11.4 million was attributable to alternative investments. This includes impairments on private equity of EUR 6.8 million and impairments on structured fixed-income products of EUR 4.6 million. No impairments had to be recognised on other fixed-income securities. The write-downs contrasted with write-ups of EUR 14.1 million attributable exclusively to structured fixed-income securities. No impairments were recognised on equities in the period under review because our portfolio did not contain any equities whose fair value had fallen significantly – i.e. by at least 20% – or for a prolonged period – i.e. for at least nine months – below acquisition cost. The portfolio did not contain any overdue, unadjusted assets as at the balance sheet date since overdue securities are written down immediately.
| Interest income on investments in EUR thousand | 31.3.2011 | 31.3.2010 |
|---|---|---|
| Fixed-income securities – held to maturity | 31,288 | 31,236 |
| Fixed-income securities – loans and receivables | 18,366 | 22,342 |
| Fixed-income securities – available for sale | 158,552 | 140,307 |
| Financial assets – at fair value through profit or loss | 1,202 | 3,012 |
| Other | 6,286 | 8,152 |
| Total | 215,694 | 205,049 |
Hannover Re's portfolio contained derivative financial instruments as at the balance sheet date in the form of forward exchange contracts predominantly taken out to hedge cash flows from reinsurance contracts. The resulting liabilities of EUR 27.4 million (31 December 2010: EUR 34.9 million) were recognised under other liabilities.
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 (31 December 2010: EUR 2.3 million).
Hannover Re holds derivative financial instruments to hedge inflation risks associated with the loss reserves in the technical account. These transactions resulted in the recognition of other financial assets at fair value through profit or loss in an amount of EUR 31.0 million (31 December 2010: other liabilities amounting to EUR 31.4 million as well as other financial assets at fair value through profit or loss in an amount of EUR 0.2 million).
The net changes in the fair value of these instruments improved the result of the period under review by EUR 68.1 million (31 March 2010: charge of EUR 6.3 million to the result of the period under review).
Certain reinsurance treaties meet criteria which require application of the prescriptions in IFRS 4 governing embedded derivatives. These accounting regulations require that derivatives embedded in reinsurance contracts be separated from the underlying insurance contract ("host contract") according to the conditions specified in IFRS 4 and IAS 39 and recognised separately at fair value in accordance with IAS 39. Fluctuations in the fair value of the derivative components are to be recognised in income in subsequent periods.
On this basis Hannover Re reported as financial assets at fair value through profit or loss technical derivatives in an amount of EUR 49.6 million as at 31 March 2011 (31 December 2010: EUR 54.5 million) that were separated from the underlying transaction and measured at fair value.
In addition, liabilities from derivatives in connection with the technical account totalling EUR 8.1 million (31 December 2010: EUR 8.5 million) were recognised under other liabilities as at the balance sheet date.
Of the derivatives carried on the assets side fair values of EUR 40.3 million (31 December 2010: EUR 45.2 million) were attributable as at the balance sheet date to derivatives embedded in "modified coinsurance" and "coinsurance funds withheld" (ModCo) reinsurance treaties.
Within the scope of the accounting of ModCo reinsurance treaties, 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 underlying reinsurance arrangements. Embedded derivatives consequently result solely from the credit risk of the underlying securities portfolio. Hannover Re calculates the fair value of the embedded derivatives 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.
Owing to a slight widening of credit spreads in the course of the year, the ModCo derivatives gave rise to a charge against investment income of EUR 1.9 million before tax as at 31 March 2011 (31 March 2010: charge against investment income of EUR 12.5 million).
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 Re 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 period under review the following significant business relations existed with related parties.
With effect from the 1997 financial year onwards all new business and renewals written on the German market have been the responsibility of E+S Rück, while Hannover Re has handled foreign markets. Internal retrocession arrangements ensure that the percentage breakdown of the business applicable to the previously existing underwriting partnership is largely preserved between these companies.
Within the contractually agreed framework AmpegaGerling Asset Management GmbH performs investment and asset management services for Hannover Re and some of its subsidiaries. Assets in special funds are managed by AmpegaGerling Investment GmbH. AmpegaGerling Immobilien Management GmbH performs services for Hannover Re under a management contract.
Companies belonging to the Talanx Group granted the Hannover Re Group insurance protection inter alia in the areas of public liability, fire, group accident and business travel collision insurance. In addition, Talanx AG billed Hannover Re and E+S Rück pro rata for the directors' and officers' (D&O) insurance of the Talanx Group. Divisions of Talanx AG also performed services for us in the areas of taxes and general administration. All transactions were effected at usual market conditions.
HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI) holds an unchanged majority interest of 50.22% in Hannover Re through Talanx AG. The Hannover Re Group provides reinsurance protection for the HDI Group. To this extent, numerous underwriting business 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. Protection Reinsurance Intermediaries AG grants Hannover Re and E+S Rück a preferential position as reinsurers of cedants within the Talanx Group. In addition, Hannover Re and E+S Rück are able to participate in the protection covers on the retention of Group cedants and share in the protection afforded by them.
The major reinsurance relationships with related parties in the period under review are listed in the following table.
| Business assumed and ceded in Germany and abroad in EUR thousand | 31.3.2011 | |
|---|---|---|
| Premium | Underwriting result |
|
| Business assumed | ||
| Non-life reinsurance | 115,126 | 23,260 |
| Life and health reinsurance | 55,274 | 4,684 |
| 170,400 | 27,944 | |
| Business ceded | ||
| Non-life reinsurance | (2,413) | 4,379 |
| Life and health reinsurance | (2,284) | (1,452) |
| (4,697) | 2,927 | |
| Total | 165,703 | 30,871 |
The average number of staff employed at the companies included in the consolidated financial statement of the Hannover Re Group was 2,202 during the period under review (2010 financial year: 2,130).
As at the balance sheet date altogether 2,211 (2,192) staff were employed by the Hannover Re Group, with 1,100 (1,089) employed in Germany and 1,111 (1,103) working for the consolidated Group companies abroad.
On the basis of a decision of the Federal Fiscal Court (BFH) in October 2010 regarding the taxation of investment income generated by the Group's reinsurance subsidiaries domiciled in Ireland as foreign-sourced income pursuant to the Foreign Transactions Tax Act, taxes already paid for earlier years were in large measure refunded in the first quarter. Assessments regarding the taxation of foreign-sourced income for the companies Hannover Reinsurance (Ireland) Ltd. and Hannover Life Reassurance (Ireland) Ltd. were rendered immaterial
by cancellation notices dated 8 February 2011 and 31 March 2011 respectively. Subsequent assessment notices regarding corporation tax were issued for Hannover Re and E+S Rück on 7 March 2011. In total, the refund of taxes and interest as well as the capitalisation of tax and interest receivables for amounts still to be reimbursed resulted in an improvement of EUR 113.5 million in Group net income in the period under review.
| Calculation of the earnings per share | 1.1.–31.3.2011 | 1.1.–31.3.20101 |
|---|---|---|
| Group net income in EUR thousand | 52,287 | 151,002 |
| Weighted average of issued shares | 120,597,134 | 120,597,134 |
| Basic earnings per share in EUR | 0.43 | 1.25 |
| Diluted earnings per share in EUR | 0.43 | 1.25 |
Neither in the period under review nor in the previous reporting period were there any dilutive effects.
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 has placed three subordinated debts on the European capital market through its subsidiary Hannover Finance (Luxembourg) S.A. Hannover Re has secured by subordinated guarantee both the debt issued in 2004, the volume of which amounts to EUR 750.0 million, and the debts from the 2005 and 2010 financial years in amounts of EUR 500.0 million respectively.
The subordinated debt issued in 2001 by Hannover Finance (Luxembourg) S.A. in an amount of EUR 350.0 million had a first scheduled call option as at 14 March 2011 and a remaining volume of EUR 138.1 million after the offer made in 2005 to exchange the existing issue for holdings in a new bond. This remaining debt volume was called and repaid in full by the issuer on the aforementioned date.
The guarantees given by Hannover Re for the subordinated debts take effect if the issuer in question fails to render payments due under the bonds. The guarantees cover the relevant bond volumes 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. Hannover Re 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 2,385.6 million (31 December 2010: EUR 2,576.3 million) and EUR 8.8 million (EUR 9.5 million) respectively as at the balance sheet date. In addition, we extended further collateral to our cedants in an amount of EUR 273.4 million (31 December 2010: EUR 298.6 million) through so-called "single trust funds".
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 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 1,796.9 million (31 December 2010: EUR 1,851.4 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.
As security for our technical liabilities, various financial institutions have furnished guarantees for our company in the form of letters of credit. The total amount as at the balance sheet date was EUR 2,353.8 million (31 December 2010: EUR 2,766.6 million).
For liabilities in connection with participating interests in real estate companies and real estate transactions Hannover Re Real Estate Holdings has furnished the usual collateral under such transactions to various banks, the amount of which totalled EUR 274.2 million as at the balance sheet date (31 December 2010: EUR 257.5 million).
Outstanding capital commitments with respect to alternative investments exist on the part of the Group in the amount of EUR 312.6 million (31 December 2010: EUR 272.6 million). These primarily involve as yet unfulfilled payment obligations from participations entered into in private equity funds and venture capital firms.
As announced in a press release dated 18 April 2011, Hannover Re has reached agreement with Scottish Re (U.S.), Inc., Charlotte/United States, on the acquisition of a reinsurance portfolio. The acquired portfolio covers the mortality risk under term life and endowment policies that were reinsured by Scottish Re in the underwriting years 2000 to 2003. The business, which is 100% assumed by Hannover Re with effect from 1 January 2011, will likely generate an annual premium volume of around USD 80 million. The transaction is expected to close in May 2011 and still requires regulatory approval.
Karl Steinle Tel. +49 511 5604-1500 Fax +49 511 5604-1648 [email protected]
Gabriele Handrick Tel. +49 511 5604-1502 Fax +49 511 5604-1648 [email protected]
Klaus Paesler Tel. +49 511 5604-1736 Fax +49 511 5604-1648 [email protected]
Hannover Rückversicherung AG Karl-Wiechert-Allee 50 30625 Hannover Germany Tel. +49 511 5604-0 Fax +49 511 5604-1188 [email protected] www.hannover-re.com
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