Quarterly Report • Aug 10, 2010
Quarterly Report
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| Figures in EUR million | 2010 | 20091 | ||||||
|---|---|---|---|---|---|---|---|---|
| 1.1.– 31.3.1 |
1.4.– 30.6. |
+/– previous Year |
1.1.– 30.6. |
+/– previous Year |
1.4.– 30.6. |
1.1.– 30.6. |
31.12. | |
| Results | ||||||||
| Gross written premium | 2,850.1 | 2,832.2 | +9.4% | 5.682.3 | +8.2% | 2,588.7 | 5,250.5 | |
| Net premium earned | 2,289.6 | 2,530.1 | +6.5% | 4.819.7 | +7.9% | 2,374.6 | 4,465.9 | |
| Net underwriting result | (49.1) | (71.0) | –3.2% | (120.1) | +60.0% | (73.3) | (75.1) | |
| Net investment income | 279.5 | 271.9 | –26.7% | 551.4 | –3.1% | 371.0 | 569.2 | |
| Operating result (EBIT) | 238.8 | 251.9 | –16.1% | 490.7 | –18.7% | 300.1 | 603.3 | |
| Group net income | 151.0 | 159.6 | –23.5% | 310.6 | –28.3% | 208.7 | 433.5 | |
| Balance sheet (as at the end of the period) |
||||||||
| Policyholders' surplus | 5,988.0 | 6,167.8 | +9.7% | 5,621.6 | ||||
| Total shareholders' equity | 4,081.2 | 4,239.4 | +14.1% | 3,714.4 | ||||
| Minority interests | 540.7 | 561.4 | +3.6% | 542.1 | ||||
| Hybrid capital | 1,366.2 | 1,367.0 | +0.1% | 1,365.1 | ||||
| Investments (excl. funds withheld by ceding companies) |
23,746.5 | 25,360.1 | +12.7% | 22,507.0 | ||||
| Total assets | 44,690.6 | 48,205.2 | +14.0% | 42,266.7 | ||||
| Share | ||||||||
| Earnings per share (diluted) in EUR | 1.25 | 1.32 | –23.5% | 2.58 | –28.3% | 1.73 | 3.59 | |
| Book value per share in EUR | 33.84 | 35.15 | +14.1% | 26.42 | 30.80 | |||
| Share price at the end of the period in EUR | 36.56 | 35.30 | +33.9% | 35.30 | +7.9% | 26.36 | 26.36 | 32.71 |
| Market capitalisation at the end of the period |
4,409.0 | 4,257.1 | +7.9% | 3,178.9 | 3,944.7 | |||
| Ratios | ||||||||
| Combined ratio (non-life reinsurance)2 | 99.3% | 99.5% | 99.5% | 98.9% | 97.1% | |||
| Major losses as percentage of net premium earned (non-life reinsurance)3 |
21.0% | 10.4% | 15.4% | 5.0% | 6.6% | |||
| Retention | 90.8% | 89.8% | 90.3% | 94.4% | 93.0% | |||
| Return on investment (excl. funds withheld by ceding companies) |
3.6% | 3.2% | 3.3% | 5.4% | 4.1% | |||
| EBIT margin4 | 10.4% | 10.0% | 10.2% | 12.6% | 13.5% | |||
| Return on equity | 15.5% | 15.3% | 15.6% | 27.2% | 28.8% |
1 Figures adjusted
2 Including funds withheld
3 Natural catastrophes and other major losses in excess of EUR 5 million gross for the Hannover Re Group's share
4 Operating profit (EBIT)/net premium earned
Ulrich Wallin Chairman of the Executive Board
Your company's business developed in line with our expectations in the second quarter. We were thus able to generate net income after taxes of more than EUR 300 million in the first half of 2010. This continues to offer a good platform for achieving our goals for the full financial year.
We accomplished this performance despite the fact that the major loss incidence in non-life reinsurance was again considerably higher than expected in the second quarter. The additional strain was offset by a thoroughly favourable underlying loss experience, further good results in our life and health reinsurance business group and satisfactory investment income. Unlike in the first quarter, the run-off of the loss reserves was broadly neutral.
The situation in non-life and life/health reinsurance is satisfactory for your company: we continue to experience a level of demand among primary insurers – our clients – that enables us to grow our business at conditions commensurate with the risks. The preparations being made by the European insurance industry for the future supervisory framework under Solvency II are another factor here. This involves a risk-based solvency system that renders the function of reinsurance in managing the required capital and cost of capital even more transparent than has hitherto been the case. Smaller and mid-sized insurance undertakings, in particular, are consequently facing a sometimes considerable challenge in relation to both the quantitative and qualitative components that determine their risk-based capital. As a service provider for the primary insurance industry, we are engaged in a lively exchange of information with our
clients in this regard, inter alia concerning the current requirements of the socalled Quantitative Impact Study (QIS5) as well as questions relating to the implementation of risk management systems.
In non-life reinsurance we are observing a trend towards gradual softening on the markets, as a consequence of which the improvements in conditions obtained for reinsurers in the past year have in some instances already been relinquished again. It should, however, be noted that this market softening is not equally evident in all areas of non-life reinsurance. In sectors that have been impacted by losses the markets continue to be able to push through the necessary improvements in conditions. Active cycle management geared specifically to the various subsegments of non-life reinsurance is therefore of crucial importance. In areas where we observe that conditions remain attractive, we are in a position to enlarge our business volume. We scale back our involvement, on the other hand, if it is our assessment that conditions no longer suffice to cover the cost of the invested capital.
I would now like to return to the burden of major losses: although this decreased sharply compared to the first quarter, it nevertheless again exceeded our expected level in the second quarter. The largest individual loss was the "Deepwater Horizon" drilling rig in April, which – in addition to the direct loss of the oil platform itself – has caused and continues to cause quite considerable environmental damage. Particularly with regard to possible liability claims, there are still many unanswered questions; at this point in time, therefore, it is still difficult to estimate the loss for the insurance industry and hence for reinsurers. The loss reserves that we have established – giving rise to a net strain of EUR 89 million – reflect all concrete and potential exposures of our portfolio from this loss complex that are currently known to us.
We are highly satisfied with the development of life and health reinsurance. In view of the lower volatility of results in this business group, we also set ourselves targets for premium growth in life and health reinsurance. We achieved these goals in the first half-year 2010 with double-digit growth. Yet in life/ health reinsurance – as in non-life reinsurance – we attach even greater importance to profitability than to premium growth. With net income after taxes of more than EUR 110 million in the first half-year, it is gratifying to report that we exceeded our profit targets. That this result fell short of the comparable period
can be attributed entirely to non-recurring effects observed in the previous year, chiefly in connection with the acquisition of the ING portfolio. In addition to maintaining our growth in developed markets – most notably the United Kingdom and United States – we were also able to generate disproportionately strong percentage increases in the growth markets of East Asia – and here above all in China.
Taking into consideration the prevailing low interest rate level as well as our risk-averse asset allocation, we are satisfied with the investment income for the first half-year 2010. Particularly noteworthy in this connection is the increase in ordinary income of more than 10%, which was due principally to the further growth in holdings of fixed-income securities. The development of the fair values in our portfolios is gratifying. We are profiting here in particular from the further fall in the interest rate level for high-quality government bonds, especially those denominated in euro and US dollar. With an eye to broadening the diversification of our portfolio we made the most of opportunities in the first half of 2010 to invest in the German and US real estate markets.
As part of our risk management activities we took out inflation swaps in the second quarter in view of the danger of a significant medium-term rise in inflation rates. In this way we are hedging against the risk of an inflation-induced increase in the payments made for reserved claims, which could lead to losses on the run-off of loss reserves. Since inflation expectations have decreased overall, the fair values of these swaps have declined – as reflected in the investment income from unrealised gains and losses. Should the diminished inflation expectations actually materialise, we can assume that these strains will be more than offset by positive loss reserve run-offs.
The development of our shareholders' equity was again pleasing. Despite the dividend paid out for the previous year to you, our valued shareholders, in the second quarter of 2010, the shareholders' equity of your company grew in this quarter by 4% to more than EUR 4.2 billion. This was assisted firstly by the increased fair values of our investments and, secondly, by positive movements in exchange rates, especially that of the US dollar.
I am pleased to report that the favourable development of your company has also been reflected in a rise in the share price, which improved by 5.6% on the corresponding period of the previous year.
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. Haas 1, 2, 3 Chairman Burgwedel
Dr. Klaus Sturany1 Deputy Chairman Dortmund
Wolf-Dieter Baumgartl 1, 2, 3 Berg
Uwe Kramp 4 Hannover
Karl Heinz Midunsky3 Gauting
Ass. jur. Otto Müller4 Hannover
Dr. Immo Querner Ehlershausen
Dr. Erhard Schipporeit2 Hannover
Gert Waechtler4 Burgwedel
Ulrich Wallin Chairman Hannover
André Arrago Hannover
Dr. Wolf Becke Hannover
Jürgen Gräber Völksen
Dr. Michael Pickel Isernhagen
Roland Vogel Deputy Member Wennigsen
We are satisfied with the development of our two business groups – non-life reinsurance and life/health reinsurance – in the second quarter. Although the burden of major losses was considerably lower than in the first quarter, the level for the second quarter again exceeded our expectations.
Demand for reinsurance solutions remains very strong, a situation from which we profited thanks to our solid financial strength and good competitive position. Prices in nonlife reinsurance are broadly commensurate with the risks, and we therefore slightly expanded our portfolio in this business group. In life and health reinsurance, where we intend to continue to grow going forward, demand remains undiminished.
Gross written premium in total business increased by a further 8.2% to EUR 5.7 billion (EUR 5.3 billion) as at 30 June 2010. At constant exchange rates, especially relative to the US dollar, growth would have come in at 5.7%. The level of retained premium retreated to 90.3% (93.0%). Net premium earned climbed by 7.9% to EUR 4.8 billion (EUR 4.5 billion).
Bearing in mind our risk-averse asset allocation and the prevailing low interest rate level, we are satisfied with the development of our investments in the first half-year. Due in part to the inflow of cash from the technical account, but thanks principally to the favourable development of their fair values owing to interest rate and currency effects, the volume of assets under own management grew to EUR 25.4 billion (EUR 22.5 billion). Despite a significantly lower interest rate level, ordinary income excluding interest on deposits thus also surpassed the corresponding period of the previous year to reach EUR 441.2 million (EUR 398.8 million). Interest on deposits climbed to EUR 151.2 million (EUR 144.9 million).
Impairment losses of EUR 13.4 million (EUR 93.1 million) were recognised on investments. Of this amount, EUR 7.1 million was attributable to fixed-income securities and EUR 5.3 million to alternative investments. The writedowns contrasted with write-ups of EUR 11.8 million, thereof EUR 8.8 million on fixed-income securities and EUR 3.0 million on alternative investments.
The unrealised losses on our asset holdings recognised at fair value through profit or loss totalled EUR 86.2 million. This contrasted with unrealised gains of EUR 87.2 million in the corresponding period of the previous year. The bulk of the unrealised losses – specifically EUR 53.2 million – derived from the fair value development of inflation swaps taken out to hedge inflation risks associated with the loss reserves in the technical account, while an amount of EUR 15.4 million stemmed from the performance of securities deposits held by ceding companies for our account.
Thanks to the further rise in ordinary income and the reduced impairment losses, our net investment income remained virtually on the level of the previous year despite the unrealised losses; it totalled EUR 551.4 million (EUR 569.2 million) as at 30 June 2010.
The operating profit (EBIT) stood at EUR 490.7 million (EUR 603.3 million) as at 30 June 2010. The comparable period had, however, been influenced by positive special effects in life and health reinsurance of around EUR 161 million due to the acquisition of the ING life reinsurance portfolio as well as the reversal of unrealised losses on deposits held by US clients on behalf of Hannover Re (ModCo derivatives). Adjusted for these special effects, EBIT would have grown by 11%. Group net income came in at EUR 310.6 million (EUR 433.5 million). Here, special effects had influenced the previous year's result by an amount of roughly EUR 144 million; if these effects are factored out, Group net income would have grown by 7% as at 30 June 2010. Earnings per share of EUR 2.58 (EUR 3.59) were generated, while the annualised return on equity stood at 15.6% (28.8%).
Driven by Group net income, positive movements in exchange rates and unrealised gains on investments, shareholders' equity improved on the level of 31 December 2009 by EUR 524.9 million to reach EUR 4.2 billion despite the dividend payment made in the second quarter. The book value per share consequently also increased to EUR 35.15 (EUR 30.80). The policyholders' surplus, comprised of shareholders' equity, minority interests and hybrid capital, amounted to EUR 6.2 billion (EUR 5.6 billion).
Prices on non-life reinsurance markets were for the most part adequate. In keeping with our policy of active cycle management, we enlarge our portfolio only in markets and segments that promise a return in line with our margin requirements. In areas where premiums do not reflect the assumed risks, on the other hand, we reduce our involvement.
Treaties in Japan and South Korea as well as for aviation and marine business came up for renewal on 1 April 2010. In Japan prices in the property lines softened slightly, but remained stable in casualty business. We were, however, thoroughly satisfied with the treaty renewals in worldwide aviation reinsurance: we were generally able to obtain modestly higher prices here. In marine business the prices for non-proportional covers declined.
Growth opportunities are available to us in facultative reinsurance, i.e. the underwriting of individual risks, and – as in the past – credit and surety reinsurance. We were also able to further enlarge our portfolio of agricultural covers.
All in all, the volume growth in our non-life reinsurance business group was highly gratifying. Gross premium as at 30 June 2010 increased by 6.2% relative to the corresponding period of the previous year to reach EUR 3.3 billion (EUR 3.1 billion). At constant exchange rates, especially against the US dollar, growth would have come in at 4.6%. The level of retained premium fell to 90.1% (94.1%). Net premium earned climbed by 6.3% to EUR 2.6 billion (EUR 2.5 billion).
While the burden of major losses was significantly lower than in the first quarter, it again exceeded our expectations for the second quarter. This can be attributed principally to a more prudent estimation of the "Deepwater Horizon" loss. Given the considerable uncertainties surrounding possible liability claims, we raised our IBNR reserve to EUR 89 million. Altogether, the net burden of major losses for Hannover Re in the first half-year totalled EUR 407.6 million (EUR 163.3 million). The combined ratio stood at 99.5% (97.1%).
The net underwriting result declined from EUR 57.3 million in the corresponding period of the previous year to EUR 7.2 million. The operating profit (EBIT) in non-life reinsurance increased by 5.3% as at 30 June 2010 to EUR 333.8 million (EUR 317.1 million). Group net income contracted by 3.6% to EUR 215.1 million (EUR 223.2 million), producing earnings per share of EUR 1.78 (EUR 1.85).
| Key figures for non-life reinsurance figures in EUR million |
||||||||
|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
| 1.1.–31.3. | 1.4.–30.6. | +/– pre vious year |
1.1.–30.6. | +/– pre vious year |
1.4.–30.6. | 1.1.–30.6. | ||
| Gross written premium | 1,721.9 | 1,549.8 | +8.7% | 3,271.7 | +6.2% | 1,425.5 | 3,081.5 | |
| Net premium earned | 1,258.0 | 1,380.2 | +6.1% | 2,638.2 | +6.3% | 1,301.0 | 2,481.9 | |
| Underwriting result | 5.5 | 1.7 | –54.5% | 7.2 | –87.5% | 3.7 | 57.3 | |
| Net investment income | 166.4 | 142.3 | +18.5% | 308.7 | +29.7% | 120.1 | 237.9 | |
| Operating result (EBIT) | 165.6 | 168.2 | +29.9% | 333.8 | +5.3% | 129.5 | 317.1 | |
| Group net income | 109.4 | 105.7 | +8.9% | 215.1 | –3.6% | 97.1 | 223.2 | |
| Earnings per share in EUR | 0.91 | 0.88 | +8.9% | 1.78 | –3.6% | 0.81 | 1.85 | |
| Combined ratio1 | 99.3% | 99.5% | 99.5% | 98.9% | 97.1% | |||
| Retention | 90.1% | 90.1% | 90.1% | 96.0% | 94.1% |
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 developed insurance markets such as the United States, Japan, 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. Increasing urbanisation in leading emerging markets such as China, India or Brazil is fostering a rapidly growing middle class, which to a greater extent than before is clamouring for insurance solutions designed to protect surviving dependants and afford individual retirement provision.
In the first half-year we recorded organic growth across a broad front. Breaking the premium development down across the various subsegments, growth was especially striking in longevity business. As to regional markets, particularly strong impetus derived from East Asia, Australia and South Africa. China delivered the most vigorous growth in percentage terms. The very low insurance density here contrasts with a sharply expanding middle class. Hannover Re has substantially enlarged its business over the past three years and anticipates growth in excess of 20% for 2010.
In the United States we strengthened our position in traditional risk-oriented reinsurance substantially last year with the acquisition of the US ING life reinsurance portfolio. Our subsidiary Hannover Life Re America boosted its premium volume in the original currency by roughly 4%. In the United Kingdom – our second-largest market – annuity and pension business continues to offer considerable growth potential. Working together here with specialist providers, we cover the biometric risk of longevity but do not assume any interest rate guarantees. The development of our business in Germany also gave us very good grounds for satisfaction in light of the difficult market climate.
Gross written premium in life and health reinsurance showed further double-digit growth of 11.2% as at 30 June 2010 to reach EUR 2.4 billion (EUR 2.2 billion). At constant exchange rates growth would have come in at 7.2%. The level of retained premium dipped slightly to 90.6% (91.6%). Net premium earned increased by 10.0% to EUR 2.2 billion (EUR 2.0 billion).
Profitability was similarly gratifying as at 30 June 2010: the operating profit (EBIT) amounted to EUR 145.5 million (EUR 269.3 million). The result for the comparable period had been influenced by positive special effects from the acquisition of the US ING life reinsurance portfolio as well as from the reversal of unrealised losses on deposits held by US clients on behalf of Hannover Re in an amount of some EUR 161 million. If these effects are factored out, we would have booked EBIT growth of 34%. The EBIT margin stood at 6.7%, a figure comfortably within our target corridor of 6% to 7%. Group net income came in at EUR 113.8 million (EUR 227.0 million). Excluding the special effects of around EUR 144 million in the corresponding period of the previous year, Group net income would have risen by 37%. Earnings per share stood at EUR 0.94 (EUR 1.88).
| Key figures for life and health reinsurance | figures in EUR million | |||||||
|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
| 1.1.–31.3. | 1.4.–30.6. | +/– pre vious year |
1.1.–30.6. | +/– pre vious year |
1.4.–30.6. | 1.1.–30.6. | ||
| Gross written premium | 1,128.1 | 1,283.0 | +10.3% | 2,411.1 | +11.2% | 1,163.2 | 2,169.1 | |
| Net premium earned | 1,031.6 | 1,149.9 | +7.1% | 2,638.2 | +10.0% | 1,073.6 | 1,984.0 | |
| Net investment income | 100.7 | 127.6 | –46.4% | 7.2 | –27.3% | 238.2 | 314.0 | |
| Operating result (EBIT) | 62.6 | 82.9 | –46.4% | 308.7 | –46.0% | 154.5 | 269.3 | |
| Group net income | 45.8 | 68.0 | –43.5% | 333.8 | –49.9% | 120.3 | 227.0 | |
| Earnings per share in EUR | 0.38 | 0.56 | –43.5% | 215.10 | –49.9% | 1.00 | 1.88 | |
| Retention | 91.8% | 89.5% | 178.0% | 92.4% | 91.6% | |||
| EBIT margin1 | 6.1% | 7.2% | 99.5% | 14.4% | 13.6% |
1 Operating result (EBIT)/net premium earned
Credit spreads in the area of European corporate bonds widened particularly markedly in the first half of 2010. US treasury securities and European government bonds, on the other hand, experienced yield declines across virtually all duration ranges. The unrealised gains on our fixedincome securities consequently climbed to EUR 832.8 million (EUR 431.3 million). Largely owing to these effects, but also due to movements in exchange rates and the positive operating cash flow, our portfolio of assets under own management grew to EUR 25.4 billion (EUR 22.5 billion).
The ordinary income from assets under own management of EUR 441.2 million improved on the corresponding period of the previous year (EUR 398.8 million), despite the low level of interest rates. Interest on deposits increased from EUR 144.9 million to EUR 151.2 million.
Impairments of altogether EUR 16.7 million (EUR 93.4 million) were taken. Of this amount, EUR 7.1 million was attributable to fixed-income securities and EUR 5.3 million to alternative investments. Scheduled depreciation on directly held real estate rose to EUR 3.3 million (EUR 0.3 million), a reflection of our increased involvement in this area. The total volume of write-downs contrasted with write-ups of EUR 11.8 million, of which EUR 8.8 million was attributable to fixed-income securities and EUR 3.0 million to alternative investments.
We recognise a derivative (ModCo) for the credit risk associated with special life reinsurance treaties under which securities deposits are held by cedants for our account; the performance of this derivative during the reporting period gave rise to unrealised losses of EUR 15.4 million (gains of EUR 122.4 million) which were recognised in income. Further unrealised losses of EUR 53.2 million derived from the performance of inflation swaps that we took out in response to the fundamental risk of a significant medium-term rise in interest rates in Hannover Re's core markets. These swaps hedge part of the inflation risks to which our loss reserves are exposed. Potential inflation-induced increases in loss reserves are thus opposed by positive effects from the swaps. The nominal volumes of the inflation swaps amounted to EUR 830 million and USD 2,260 million.
Pursuant to IAS 39 inflation swaps are derivatives, the changes in the fair values of which are to be recognised in income. We show them under the net income on investments. Since inflationary expectations have lessened somewhat since the inflation swaps were purchased, they show a change in fair value of –EUR 53.2 million as at the quarterly closing date. Given that they serve to hedge inflation exposures in the technical account, this position is opposed by anticipated positive effects in connection with the development of the loss reserves.
| Net investment income | figures in EUR million | |||||||
|---|---|---|---|---|---|---|---|---|
| 2010 | 2009 | |||||||
| 1.1.–31.3. | 1.4.–30.6. | +/– pre vious year |
1.1.–30.6. | +/– pre vious year |
1.4.–30.6. | 1.1.–30.6. | ||
| Ordinary investment income1 | 214.2 | 227.0 | +13.8% | 441.2 | +10.6% | 199.5 | 398.8 | |
| Results from participation in associated companies |
1.7 | 0.7 | –141.6% | 2.4 | – 254.4% | (1.6) | (1.5) | |
| Appreciation | 6.5 | 5.3 | – | 11.8 | – | – | – | |
| Realised gains/losses | 21.3 | 56.0 | +216.9% | 77.3 | +39.4% | 17.7 | 55.5 | |
| Impairments2 | 11.4 | 5.3 | – 87.7% | 16.7 | – 82.1% | 43.1 | 93.4 | |
| Unrealised gains/losses2 | (12.9) | (73.3) | – 160.6% | (86.2) | –198.8% | 120.9 | 87.2 | |
| Investment expenses | (13.9) | (15.7) | +67.5% | (29.7) | +32.7% | (9.4) | (22.4) | |
| Net investment income from assets under own management |
205.5 | 194.6 | – 31.5% | 400.2 | – 5.7% | 284.0 | 424.2 | |
| Net investment income from funds withheld |
74.0 | 77.3 | –11.3% | 151.2 | +4.3% | 87.0 | 144.9 | |
| Net investment income | 279.5 | 271.9 | –26.7% | 551.4 | –3.1% | 371.0 | 569.2 |
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
Thanks to the further rise in ordinary income and the reduced volume of write-downs, our net investment income came in virtually on a par with the previous year despite the unrealised losses; it amounted to EUR 551.4 million (EUR 569.2 million) as at 30 June 2010.
As an internationally operating reinsurer we are confronted with a broad diversity of risks that are indivisibly bound up with our entrepreneurial activities and which manifest themselves differently in the individual business groups and geographical regions.
The overriding goal of our risk management is to adhere to our strategically defined risk positions and to ensure that our capital resources are adequate at all times. We attach central importance to the following elements of our risk management system:
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 company strategy with a special eye to capital protection. The Framework Guideline puts in place a consistent appreciation of controls as well as a uniform procedure and standards for implementation of the ICS across all organisational units of Hannover Re. The ICS consists of systematically structured organisational and technical measures/controls within the enterprise. 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.
The risk situation of Hannover Re is essentially defined by comprehensive analysis of the following risk categories:
Particularly in the area of non-life reinsurance, the reserving risk – which results from the under-reserving of losses – constitutes a material technical risk. The loss reserves are calculated using actuarial methods, primarily on the basis of information provided by our ceding companies, and supplemented where necessary by additional reserves based on our own loss estimations. We also establish the so-called IBNR (incurred but not reported) reserve for losses that have already occurred but have not yet been reported to us. Annual audits conducted by external actuaries and auditors play an important part in the quality assurance of our own calculations regarding the adequacy of the reserves.
The risk of losses exceeding premiums derives from the fact that the initially calculated premiums may not suffice to pay compensation and long-term benefit commitments in the required amount. The combined ratio in non-life reinsurance is tracked over time and shown in the table with an eye to the risk of losses exceeding premiums.
Catastrophe risks from natural hazards (earthquakes, windstorms) are also material for our company. Licensed scientific simulation models, supplemented by the expertise of our own specialist departments, are used to assess these risks. Furthermore, we establish the risk to our portfolio from various scenarios (e.g. hurricanes in the US, windstorms in Europe, earthquakes in the US) in the form of probability distributions. 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 monitored within the scope of risk management activities.
All risks directly connected with the life of an insured person are referred to as biometric risks (miscalculation of mortality, life expectancy, morbidity and occupational disability); they constitute material risks for our company in the area of life and health reinsurance.
The Market Consistent Embedded Value (MCEV) is a ratio used to evaluate life insurance and reinsurance business; it is calculated as the present value of the future shareholders' earnings from the worldwide life and health reinsurance portfolio plus the allocated capital. The calculation makes appropriate allowance for all risks underlying the covered business. For further explanation we would refer to the MCEV for the 2009 financial year.
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. The overriding principle guiding our investment strategy is capital preservation while giving adequate consideration to the security, liquidity, mix and spread of the assets. Potential market price risks are reduced with the aid of a broad range of risk-steering measures.
The "value at risk" (VaR) is a 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 information on the risk concentrations of our investments can be obtained from the tables on the rating structure of fixed-income securities.
The credit risk consists primarily of the complete or partial failure of the counterparty and the associated default on payment. 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 – especially in non-life reinsurance. Our retrocession partners are carefully selected in light of credit considerations in order to keep this risk as small as possible. In terms of the Hannover Re Group's major companies, EUR 274.9 million (8.0%) of our accounts receivable from reinsurance business totalling EUR 3,421.0 million were older than 90 days as at the balance sheet date. The average default rate over the past three years was 0.14%.
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-related, system-induced or external factors. The operational risk also extends to legal risks. 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.
| Combined and catastrophe ratio | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Figures in % | 1H 2010 |
2009 | 2008 | 2007 | 2006 | 20051 | 20041 | 20031, 2 20021, 2 | 20011, 2 20001, 2 | ||
| Combined ratio (non-life reinsurance) |
99.5 | 96.6 | 95.4 | 99.7 | 100.8 | 112.8 | 97.2 | 96.0 | 96.3 | 116.5 | 107.8 |
| thereof major losses3 | 15.4 | 4.6 | 10.7 | 6.3 | 2.3 | 26.3 | 8.3 | 1.5 | 5.2 | 23.0 | 3.7 |
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 as percent of net premium earned
| Scenarios for changes in the fair value of our securities | in EUR million | ||||
|---|---|---|---|---|---|
| Scenario | Portfolio change based on fair value |
Change in shareholder equity before tax |
|||
| Equity securities | Share prices –10% | (1.9) | (1.9) | ||
| Share prices –20% | (3.8) | (3.8) | |||
| Share prices +10% | +1.9 | +1.9 | |||
| Share prices +20% | +3.8 | +3.8 | |||
| Fixed-income securities | Yield increase +50 basis points | (410.4) | (294.6) | ||
| Yield increase +100 basis points | (808.4) | (580.2) | |||
| Yield decrease –50 basis points | +420.1 | +301.5 | |||
| Yield decrease –100 basis points | +852.4 | +612.0 |
| 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 | 85.6 | 5,244.8 | 61.0 | 3,964.9 | 5.0 | 249.7 | 77.8 | 3,153.1 | |||||||||
| AA | 4.5 | 278.3 | 34.9 | 2,273.9 | 18.9 | 941.8 | 13.6 | 551.1 | |||||||||
| A | 5.6 | 345.0 | 3.6 | 232.8 | 58.2 | 2,901.9 | 1.3 | 54.1 | |||||||||
| BBB | 3.5 | 213.4 | 0.3 | 20.7 | 13.4 | 670.4 | 2.1 | 85.4 | |||||||||
| <bbb< td=""> | 0.8 | 49.6 | 0.2 | 10.2 | 4.5 | 224.9 | 5.2 | 209.6 | </bbb<>0.8 | 49.6 | 0.2 | 10.2 | 4.5 | 224.9 | 5.2 | 209.6 | |
| Total | 100.0 | 6,131.1 | 100.0 | 6,502.4 | 100.0 | 4,988.7 | 100.0 | 4,053.3 |
1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings
The above remarks describe the material risks to which we, as an internationally operating reinsurance group, 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.
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.
Additional information on the risk situation is provided in the Group Annual Report 2009.
In view of the broadly satisfactory conditions prevailing on the international reinsurance markets, we have good prospects of achieving our growth and profit targets in 2010. We are well positioned and thanks to our excellent rating will benefit accordingly from the available market opportunities. As they prepare for the more exacting capital requirements of Solvency II, reinsurance is continuing to gain in importance as a risk optimisation tool for our clients; against this backdrop, then, we see growth stimuli in both traditional and structured reinsurance. At constant exchange rates the net premium volume for 2010 is expected to grow by around 5%.
By and large, markets in non-life reinsurance are still seeing adequate prices. There is, however, no mistaking the fact that the substantial capacity offered by reinsurers relative to the demand for their products is leading to more intense competitive pressure. Consequently, rate increases can now only be obtained in loss-impacted sectors of the business. In view of the oil platform disaster in the Gulf of Mexico we expect to see market hardening – i.e. rising prices – in the offshore insurance market. This should affect property insurance and to an even greater degree the casualty sector. On the reinsurance side, too, we expect substantial rate increases. Any move to step up our involvement will depend upon whether the price increases prove to be sufficient. In this respect it remains to be seen what the treaty renewals on 1 January 2011 will bring.
The treaty renewal phases for part of our North American business as well as for the portfolio in Australia and New Zealand were completed on 1 July 2010. Given that the capacity available in the American market is entirely sufficient, rate increases were for the most part recorded only under loss-impacted programmes. Treaties in property catastrophe business were generally renewed after rate reductions. Against this backdrop, we did not increase our participations. In casualty business, including for example workers' compensation covers, prices remained stable. In the absence of significant loss events we do not expect to see any hardening of the market in the near future. A modest premium decline relative to 2009 is anticipated in special liability lines. Our focus here is on maintaining the business written with our target clients.
The influx of new reinsurance capacities in Australia put pressure on prices for non-proportional catastrophe covers of small and mid-sized insurance companies. Despite two hail events in Melbourne and Perth in the first quarter – each causing estimated insured losses of AUD 1 billion –, rates under the affected programmes fell short of expectations. We therefore scaled back our participations. In casualty business Hannover Re continues to profit from its very good rating. Moderate erosion of reinsurance premiums was, however, observed here. We slightly reduced our portfolio in accordance with our underwriting policy, which remains geared to profitability.
For non-life reinsurance overall we continue to anticipate net premium growth of around 4% in the original currencies as well as a healthy profit contribution in the current financial year. This is dependent upon the burden of major losses remaining within the bounds of our expectations in the second half-year.
The general climate in international life and health reinsurance continues to be very positive. A particularly significant factor here is the demographic trend in established insurance markets such as the United States, Japan, United Kingdom and Germany. Annuity and health insurance are consequently benefiting from the increasing ageing of the population.
Financially oriented reinsurance solutions, i.e. models designed to strengthen the solvency base of primary insurers, are enjoying sustained demand. In the United Kingdom it is our assumption that business involving the biometric risk of longevity – both in the form of enhanced annuities with a reduced payment period and through the assumption of risks associated with existing pension funds – will prove to be a significant growth sector. In life and health reinsurance we still plan to grow net premium by roughly 10% in the current year. The EBIT margin is expected to come in within the target range of 6% to 7%.
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 2010.
We are standing by the profit forecast for the 2010 financial year that we made at the beginning of the year. We are on track to build on the good performance of 2009 – after special effects are factored out. As things currently stand, we are looking to generate Group net income of around EUR 600 million. This is subject to the premise that the major loss burden in the second half of the year does not exceed the expected level of roughly EUR 280 million and also assumes that there are no drastically adverse movements on capital markets. As for the dividend, we continue to aim for a payout ratio in the range of 35% to 40% of Group net income.
| Assets in EUR thousand | 30.6.2010 | 31.12.20091 |
|---|---|---|
| Fixed-income securities – held to maturity | 3,102,633 | 2,953,489 |
| Fixed-income securities – loans and receivables | 3,030,529 | 2,701,831 |
| Fixed-income securities – available for sale | 15,315,068 | 13,805,048 |
| Fixed-income securities – at fair value through profit or loss | 227,271 | 235,149 |
| Equity securities – available for sale | 18,806 | 19,357 |
| Other financial assets – at fair value through profit or loss | 30,891 | 58,273 |
| Real estate and real estate funds | 338,043 | 216,801 |
| Investments in associated companies | 129,038 | 128,316 |
| Other invested assets | 821,566 | 578,861 |
| Short-term investments | 1,819,912 | 1,352,475 |
| Cash | 526,339 | 457,412 |
| Total investments and cash under own management | 25,360,096 | 22,507,012 |
| Funds withheld | 13,335,514 | 11,589,558 |
| Contract deposits | 725,299 | 625,481 |
| Total investments | 39,420,909 | 34,722,051 |
| Reinsurance recoverables on unpaid claims | 1,893,186 | 1,747,991 |
| Reinsurance recoverables on benefit reserve | 370,257 | 104,868 |
| Prepaid reinsurance premium | 125,555 | 47,651 |
| Reinsurance recoverables on other technical reserves | 1,225 | 400 |
| Deferred acquisition costs | 1,989,839 | 1,838,450 |
| Accounts receivable | 3,421,026 | 2,869,874 |
| Goodwill | 45,185 | 44,393 |
| Deferred tax assets | 499,383 | 515,867 |
| Other assets | 427,881 | 372,012 |
| Accrued interest and rent | 10,705 | 3,189 |
| Total assets | 48,205,151 | 42,266,746 |
1 Adjusted on the basis of IAS 8 and IFRS 3. For details please see Section 2, subsection "Changes in accounting policies".
| Liabilities in EUR thousand | 30.6.2010 | 31.12.20091 |
|---|---|---|
| Loss and loss adjustment expense reserve | 19,738,483 | 17,425,293 |
| Benefit reserves | 8,933,115 | 7,952,640 |
| Unearned premium reserve | 2,080,914 | 1,512,840 |
| Other technical provisions | 198,977 | 148,827 |
| Funds withheld | 1,288,562 | 857,440 |
| Contract deposits | 6,402,899 | 5,467,598 |
| Reinsurance payable | 848,296 | 1,021,364 |
| Provisions for pensions | 79,970 | 77,497 |
| Taxes | 318,303 | 266,747 |
| Provision for deferred taxes | 1,550,424 | 1,485,157 |
| Other liabilities | 411,328 | 313,450 |
| Long-term debt and subordinated capital | 1,553,157 | 1,481,336 |
| Total liabilities | 43,404,428 | 38,010,189 |
| 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 | 471,848 | 241,569 |
| Cumulative foreign currency translation adjustment | 25,567 | (224,084) |
| Other changes in cumulative other comprehensive income | (16,460) | (4,728) |
| Total other comprehensive income | 480,955 | 12,757 |
| Retained earnings | 2,913,237 | 2,856,529 |
| Shareholders' equity before minorities | 4,239,351 | 3,714,445 |
| Minority interests | 561,372 | 542,112 |
| Total shareholders' equity | 4,800,723 | 4,256,557 |
| Total liabilities | 48,205,151 | 42,266,746 |
| Figures in EUR thousand | 1.4.–30.6.2010 | 1.1.–30.6.2010 | 1.4.–30.6.20091 | 1.1.–30.6.20091 |
|---|---|---|---|---|
| Gross written premium | 2,832,246 | 5,682,326 | 2,588,664 | 5,250,529 |
| Ceded written premium | 288,122 | 550,350 | 145,608 | 366,549 |
| Change in gross unearned premium | (16,549) | (378,146) | (40,190) | (440,151) |
| Change in ceded unearned premium | 2,503 | 65,839 | (28,263) | 22,111 |
| Net premium earned | 2,530,078 | 4,819,669 | 2,374,603 | 4,465,940 |
| Ordinary investment income | 227,033 | 441,201 | 199,512 | 398,822 |
| Profit/loss from investments in associated companies | 674 | 2,370 | (1,622) | (1,535) |
| Realised gains and losses on investments | 55,969 | 77,319 | 17,663 | 55,462 |
| Unrealised gains and losses on investments | (73,298) | (86,185) | 120,930 | 87,238 |
| Total depreciation, impairments and appreciation of investments |
5 | 4,873 | 43,126 | 93,384 |
| Other investment expenses | 15,734 | 29,665 | 9,394 | 22,359 |
| Net income from investments under own management |
194,639 | 400,167 | 283,963 | 424,244 |
| Income/expense on funds withheld and contract deposits |
77,254 | 151,211 | 87,048 | 144,931 |
| Net investment income | 271,893 | 551,378 | 371,011 | 569,175 |
| Other technical income | 2,549 | 7,976 | 1,245 | 1,763 |
| Total revenues | 2,804,520 | 5,379,023 | 2,746,859 | 5,036,878 |
| Claims and claims expenses | 1,774,864 | 3,447,876 | 1,676,331 | 3,154,215 |
| Change in benefit reserves | 186,615 | 287,074 | 164,040 | 329,402 |
| Commission and brokerage, change in deferred acquisition costs |
555,207 | 1,044,634 | 532,334 | 913,981 |
| Other acquisition costs | 2,531 | 6,702 | 3,697 | 6,983 |
| Other technical expenses | 10,562 | 22,105 | 10,323 | 17,837 |
| Administrative expenses | 73,818 | 139,339 | 62,464 | 120,356 |
| Total technical expenses | 2,603,597 | 4,947,730 | 2,449,189 | 4,542,774 |
| Other income and expenses | 50,933 | 59,368 | 2,415 | 109,185 |
| Operating profit (EBIT) | 251,856 | 490,661 | 300,085 | 603,289 |
| Interest on hybrid capital | 19,137 | 38,064 | 19,135 | 38,170 |
| Net income before taxes | 232,719 | 452,497 | 280,950 | 565,119 |
| Taxes | 57,177 | 116,329 | 56,501 | 113,052 |
| Net income | 175,542 | 336,268 | 224,449 | 452,067 |
| thereof | ||||
| Minority interest in profit and loss | 15,911 | 25,635 | 15,727 | 18,563 |
| Group net income | 159,631 | 310,633 | 208,722 | 433,504 |
| Earnings per share | ||||
| Earnings per share in EUR | 1.32 | 2.58 | 1.73 | 3.59 |
| Figures in EUR thousand | 1.4.–30.6.2010 | 1.1.–30.6.2010 | 1.4.–30.6.20091 | 1.1.–30.6.20091 |
|---|---|---|---|---|
| Net income | 175,542 | 336,268 | 224,449 | 452,067 |
| Unrealised gains and losses on investments | ||||
| Gains (losses) recognised directly in equity | 205,014 | 380,884 | 19,271 | (220,070) |
| Transferred to the consolidated statement of income | (54,648) | (72,367) | 57,816 | 40,975 |
| Tax income (expense) | (39,700) | (71,107) | (11,849) | 45,836 |
| 110,666 | 237,410 | 65,238 | (133,259) | |
| Currency translation | ||||
| Gains (losses) recognised directly in equity | 162,874 | 274,636 | (45,180) | 37,504 |
| Transferred to the consolidated statement of income | 7,105 | 7,380 | 466 | 168 |
| Tax income (expense) | (14,484) | (22,415) | 12,663 | 3,162 |
| 155,495 | 259,601 | (32,051) | 40,834 | |
| Changes from the measurement of associated companies |
||||
| Gains (losses) recognised directly in equity | – | – | 2,900 | 2,382 |
| – | – | 2,900 | 2,382 | |
| Other changes | ||||
| Gains (losses) recognised directly in equity | (15,963) | (18,488) | (1,914) | 9,832 |
| Tax income (expense) | 6,796 | 6,756 | (946) | (3,576) |
| (9,167) | (11,732) | (2,860) | 6,256 | |
| Total income and expense recognised directly in equity | ||||
| Gains (losses) recognised directly in equity | 351,925 | 637,032 | (24,923) | (170,352) |
| Transferred to the consolidated statement of income | (47,543) | (64,987) | 58,282 | 41,143 |
| Tax income (expense) | (47,388) | (86,766) | (132) | 45,422 |
| 256,994 | 485,279 | 33,227 | (83,787) | |
| Changes in the consolidated group | – | – | 5 | 5 |
| Total recognised income and expense | 432,536 | 821,547 | 257,681 | 368,285 |
| thereof: | ||||
| Attributable to minority interests | 20,775 | 42,478 | 17,688 | 12,624 |
| Attributable to the Group | 411,761 | 779,069 | 239,993 | 355,661 |
| Figures in EUR thousand |
Common shares |
Additional paid-in capital |
Other reserves (cumulative other comprehensive income) |
Retained earnings |
Minority interests |
Share holders' equity |
||
|---|---|---|---|---|---|---|---|---|
| Currency translation |
Unrealised gains/ losses |
Other | ||||||
| Balance as at 1.1.2009 | 120,597 | 724,562 | (247,565) | 113,864 | (4,577) | 2,123,178 | 501,434 | 3,331,493 |
| Capital increases/ additions |
– | – | – | – | – | – | 160 | 160 |
| Capital repayments | – | – | – | – | – | – | (34) | (34) |
| Total income and expense recognised after tax1 |
– | – | 40,537 | (124,646) | 6,266 | 433,504 | 12,624 | 368,285 |
| Dividends paid | – | – | – | – | – | – | (12,838) | (12,838) |
| Balance as at 30.6.20091 | 120,597 | 724,562 | (207,028) | (10,782) | 1,689 | 2,556,682 | 501,346 | 3,687,066 |
| Balance as at 1.1.20101 | 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 |
– | – | (2) | (236) | – | (378) | 7,351 | 6,735 |
| Capital increases/ additions |
– | – | – | – | – | – | 53 | 53 |
| Capital repayments | – | – | – | – | – | – | (1,481) | (1,481) |
| Acquisition/disposal of treasury shares |
– | – | – | – | – | (293) | – | (293) |
| Total income and expense recognised after tax |
– | – | 249,653 | 230,515 | (11,732) | 310,633 | 42,478 | 821,547 |
| Dividends paid | – | – | – | – | – | (253,254) | (29,141) | (282,395) |
| Balance as at 30.6.2010 | 120,597 | 724,562 | 25,567 | 471,848 | (16,460) | 2,913,237 | 561,372 | 4,800,723 |
| Figures in EUR thousand | 1.1.–30.6.2010 | 1.1.–30.6.20091 |
|---|---|---|
| I. C ash flow from operating activities |
||
| Net income | 336,268 | 452,067 |
| Appreciation/depreciation | (31,705) | 84,975 |
| Net realised gains and losses on investments | (77,319) | (55,462) |
| Net realised gains and losses from disposal of discontinued operation | – | 5 |
| Income from the recognition of negative goodwill | – | (92,653) |
| Amortisation of investments | (1,674) | 7,781 |
| Changes in funds withheld | (426,922) | (1,057,073) |
| Net changes in contract deposits | 438,180 | 593,408 |
| Changes in prepaid reinsurance premium (net) | 311,003 | 418,070 |
| Changes in tax assets/provisions for taxes | 39,118 | 65,053 |
| Changes in benefit reserve (net) | 15,237 | 406,160 |
| Changes in claims reserves (net) | 647,012 | 733,329 |
| Changes in deferred acquisition costs | 21,219 | (74,478) |
| Changes in other technical provisions | 27,389 | 2,560 |
| Changes in clearing balances | (449,270) | (651,061) |
| Changes in other assets and liabilities (net) | (62,712) | (141,081) |
| Cash flow from operating activities | 785,824 | 691,600 |
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|---|---|---|
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| Figures in EUR thousand | 1.1.–30.6.2010 | 1.1.–30.6.20091 |
|---|---|---|
| III. Cash flow from financing activities | ||
| Contribution from capital measures | (1,271) | (4,520) |
| Structural change without loss of control | 7,018 | – |
| Dividends paid | (282,395) | (12,838) |
| Proceeds from long-term debts | 49,306 | 28 |
| Repayment of long-term debts | (2,817) | (15,383) |
| Acquisition/disposal of treasury shares | (293) | – |
| Cash flow from financing activities | (230,452) | (32,713) |
| IV. Exchange rate differences on cash | 65,381 | 4,639 |
| Cash and cash equivalents at the beginning of the period | 457,412 | 430,225 |
| Change in cash and cash equivalents (I.+II.+III.+IV.) | 68,927 | (16,449) |
| Cash and cash equivalents at the end of the period | 526,339 | 413,776 |
| Income taxes | (86,354) | (57,144) |
| Interest paid | (93,185) | (91,905) |
| Segmentation of assets in EUR thousand | Non-life reinsurance | |
|---|---|---|
| 30.6.2010 | 31.12.2009 | |
| Assets | ||
| Held to maturity | 2,799,168 | 2,651,188 |
| Loans and receivables | 2,968,550 | 2,624,702 |
| Available for sale | 10,975,886 | 9,820,513 |
| At fair value through profit or loss | 144,870 | 154,707 |
| Other invested assets | 1,256,595 | 894,289 |
| Short-term investments | 1,275,658 | 1,031,880 |
| Cash | 360,000 | 253,797 |
| Total investments and cash under own management | 19,780,727 | 17,431,076 |
| Funds withheld by ceding companies | 794,095 | 625,753 |
| Contract deposits | – | – |
| Total investments | 20,574,822 | 18,056,829 |
| Reinsurance recoverables on unpaid claims | 1,729,358 | 1,589,438 |
| Reinsurance recoverables on benefit reserve | – | – |
| Prepaid reinsurance premium | 123,196 | 44,607 |
| Reinsurance recoverables on other reserves | 846 | 305 |
| Deferred acquisition costs | 412,421 | 331,091 |
| Accounts receivable | 2,177,520 | 1,896,362 |
| Other assets in the segment | 1,446,672 | 1,429,320 |
| Total assets | 26,464,835 | 23,347,952 |
| Segmentation of technical and other liabilities in EUR thousand | ||
| Liabilities | ||
| Loss and loss adjustment expense reserve | 17,300,121 | 15,393,548 |
| Benefit reserve | – | – |
| Unearned premium reserve | 1,991,421 | 1,437,490 |
| Provisions for contingent commissions | 128,856 | 106,313 |
| Funds withheld | 276,967 | 209,925 |
| Contract deposits | 131,796 | 123,927 |
| Reinsurance payable | 612,545 | 701,103 |
| Long-term liabilities | 186,126 | 116,286 |
| Other liabilities in the segment | 1,644,657 | 1,461,588 |
| Total liabilities | 22,272,489 | 19,550,180 |
| Life/health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 30.6.2010 | 31.12.20091 | 30.6.2010 | 31.12.2009 | 30.6.2010 | 31.12.20091 |
| 4,692 | 4,039 | 298,773 | 298,262 | 3,102,633 | 2,953,489 |
| 51,621 | 45,064 | 10,358 | 32,065 | 3,030,529 | 2,701,831 |
| 4,049,272 | 3,653,073 | 308,716 | 350,819 | 15,333,874 | 13,824,405 |
| 87,046 | 94,244 | 26,246 | 44,471 | 258,162 | 293,422 |
| 32,052 | 29,689 | – | – | 1,288,647 | 923,978 |
| 519,878 | 266,657 | 24,376 | 53,938 | 1,819,912 | 1,352,475 |
| 164,212 | 201,211 | 2,127 | 2,404 | 526,339 | 457,412 |
| 4,908,773 | 4,293,977 | 670,596 | 781,959 | 25,360,096 | 22,507,012 |
| 12,541,473 | 10,966,112 | (54) | (2,307) | 13,335,514 | 11,589,558 |
| 725,299 | 625,481 | – | – | 725,299 | 625,481 |
| 18,175,545 | 15,885,570 | 670,542 | 779,652 | 39,420,909 | 34,722,051 |
| 164,455 | 158,576 | (627) | (23) | 1,893,186 | 1,747,991 |
| 370,257 | 104,868 | – | – | 370,257 | 104,868 |
| 3,448 | 4,089 | (1,089) | (1,045) | 125,555 | 47,651 |
| 379 | 95 | – | – | 1,225 | 400 |
| 1,577,418 | 1,507,359 | – | – | 1,989,839 | 1,838,450 |
| 1,245,044 | 974,751 | (1,538) | (1,239) | 3,421,026 | 2,869,874 |
| 384,911 | 378,059 | (848,429) | (871,918) | 983,154 | 935,461 |
| 21,921,457 | 19,013,367 | (180,141) | (94,573) | 48,205,151 | 42,266,746 |
| 2,438,965 | 2,031,768 | (603) | (23) | 19,738,483 | 17,425,293 |
| 8,934,165 | 7,953,685 | (1,050) | (1,045) | 8,933,115 | 7,952,640 |
| 89,493 | 75,350 | – | – | 2,080,914 | 1,512,840 |
| 70,121 | 42,514 | – | – | 198,977 | 148,827 |
| 1,011,677 | 649,841 | (82) | (2,326) | 1,288,562 | 857,440 |
| 6,271,103 | 5,343,671 | – | – | 6,402,899 | 5,467,598 |
| 237,307 | 321,869 | (1,556) | (1,608) | 848,296 | 1,021,364 |
| – | – | 1,367,031 | 1,365,050 | 1,553,157 | 1,481,336 |
| 1,556,659 | 1,507,029 | (841,291) | (825,766) | 2,360,025 | 2,142,851 |
| 20,609,490 | 17,925,727 | 522,449 | 534,282 | 43,404,428 | 38,010,189 |
| Segmental statement of income in EUR thousand | Non-life reinsurance | |
|---|---|---|
| 1.1.–30.6.2010 | 1.1.–30.6.2009 | |
| Gross written premium | 3,271,740 | 3,081,463 |
| thereof | ||
| From insurance business with other segments | – | – |
| From insurance business with external third parties | 3,271,740 | 3,081,463 |
| Net premium earned | 2,638,216 | 2,481,898 |
| Net investment income | 308,689 | 237,917 |
| thereof | ||
| Deposit interest and expenses | 7,336 | 15,623 |
| Claims and claims expenses | 1,958,893 | 1,832,771 |
| Change in benefit reserve | – | – |
| Commission and brokerage, change in deferred acquisition costs and other technical income/expenses |
590,631 | 513,526 |
| Administrative expenses | 81,522 | 78,261 |
| Other income and expenses | 17,972 | 21,830 |
| Operating profit (EBIT) | 333,831 | 317,087 |
| Interest on hybrid capital | – | – |
| Net income before taxes | 333,831 | 317,087 |
| Taxes | 96,163 | 77,665 |
| Net income | 237,668 | 239,422 |
| thereof | ||
| Minority interest in profit or loss | 22,546 | 16,215 |
| Group net income | 215,122 | 223,207 |
| Life/health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 1.1.–30.6.2010 | 1.1.–30.6.20091 | 1.1.–30.6.2010 | 1.1.–30.6.2009 | 1.1.–30.6.2010 | 1.1.–30.6.20091 |
| 2,411,103 | 2,169,067 | (517) | (1) | 5,682,326 | 5,250,529 |
| 517 | 1 | (517) | (1) | – | – |
| 2,410,586 | 2,169,066 | – | – | 5,682,326 | 5,250,529 |
| 2,181,457 | 1,984,042 | (4) | – | 4,819,669 | 4,465,940 |
| 228,367 | 314,047 | 14,322 | 17,211 | 551,378 | 569,175 |
| 143,875 | 129,310 | – | (2) | 151,211 | 144,931 |
| 1,489,324 | 1,321,755 | (341) | (311) | 3,447,876 | 3,154,215 |
| 287,079 | 329,402 | (5) | – | 287,074 | 329,402 |
| 477,783 | 426,284 | (2,949) | (2,772) | 1,065,465 | 937,038 |
| 59,233 | 43,244 | (1,416) | (1,149) | 139,339 | 120,356 |
| 49,051 | 91,931 | (7,655) | (4,576) | 59,368 | 109,185 |
| 145,456 | 269,335 | 11,374 | 16,867 | 490,661 | 603,289 |
| – | – | 38,064 | 38,170 | 38,064 | 38,170 |
| 145,456 | 269,335 | (26,690) | (21,303) | 452,597 | 565,119 |
| 28,589 | 40,016 | (8,423) | (4,629) | 116,329 | 113,052 |
| 116,867 | 229,319 | (18,267) | (16,674) | 336,268 | 452,067 |
| 3,089 | 2,348 | – | – | 25,635 | 18,563 |
| 113,778 | 226,971 | (18,267) | (16,674) | 310,633 | 433,504 |
The parent company Hannover Rückversicherung AG ("Hannover Re") and its subsidiaries (collectively referred to as the "Hannover Re Group") belong to Talanx AG, which in turn 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 34.41, 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 23 July 2010 and released for publication.
The quarterly accounts of the consolidated companies included in the consolidated financial statement were drawn up as at 30 June 2010.
All standards adopted by the IASB as at 30 June 2010 with binding effect for the reporting period have been observed in the consolidated financial statement.
In June 2009 the IASB published amendments to IFRS 2 "Group Cash-settled Share-based Payment Transactions". The amendments do not have any significant implications for Hannover Re.
In November 2009 the IASB published the revised IAS 24 "Related Party Disclosures". A major new feature of IAS 24 (rev.) 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. The standard, the implications of which for Hannover Re are currently under review, was ratified by the European Union effective 20 July 2010 and must be applied from 1 January 2011 onwards.
In November 2009 the IASB also 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. This standard has not yet been ratified by the European Union.
In the 2009 financial year Hannover Re corrected the balance sheet recognition of a life reinsurance contract with a US cedant. In accordance with IAS 8 we have therefore adjusted the comparative figures as at 30 June 2009 in the present consolidated financial statement. Contrary to the figures originally shown, the balance sheet items "funds withheld" (assets side) and "contract deposits" (liabilities side) are each reduced by EUR 506.1 million; Group net income remained unchanged. For further details please see the relevant information in the consolidated financial statement as at 31 December 2009.
On 20 February 2009 Hannover Re completed the acquisition of the US ING life reinsurance portfolio and initially included the acquired business in the consolidated quarterly financial statement on a provisional basis. In the context of this provisional recognition pursuant to IFRS 3 the provisional carrying amounts were adjusted in the quarterly financial statement as at 30 June 2009. At the same time, the translation of intangible assets held in foreign currencies that were recognised as part of the acquisition of the ING life reinsurance portfolio had to be adjusted pursuant to IAS 8 in the quarterly financial statement as at 30 June 2009 and in the financial statement as at 31 December 2009. The effects of the adjustments connected with the ING life reinsurance portfolio on items of the consolidated balance sheet and consolidated statement of income as at 30 June 2009 and 31 December 2009 were as follows:
| Adjustments pursuant to IFRS 3 and IAS 8 in connection with the ING life reinsurance portfolio | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | 30.6.2009 | 31.12.2009 | |||
| Reinsurance recoverables on benefit reserve | (26,855) | ||||
| Deferred tax assets | (8,600) | ||||
| Other assets | +16,268 | +2,527 | |||
| Total change in assets | (19,187) | +2,527 | |||
| Benefit reserves | (30,197) | ||||
| Reinsurance payable | +3,342 | ||||
| Provision for deferred taxes | +1,775 | ||||
| Other liabilities | (8,599) | ||||
| Retained earnings | +14,492 | +2,527 | |||
| Total change in liabilities | (19,187) | +2,527 | |||
| 1.1.–30.6.2009 | 1.1.–31.12.2009 | ||||
| Other income and expenses | +3,236 | +2,527 | |||
| Taxes | +11,256 | ||||
| Total change in items of the statement of income | +14,492 | +2,527 | |||
| Change in earnings per share (in EUR) | +0.12 | +0.02 |
Hannover Re has refined the calculation logic used to determine the fair value of derivatives in connection with modified coinsurance and coinsurance funds withheld reinsurance treaties. This represents a change in an accounting estimate, which pursuant to IAS 8.36 was made in the year under review without adjustment of the comparative figures for previous years. For further details please see the remarks on derivative financial instruments in Section 6.1 "Derivative financial instruments".
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" (GAS 3) of the German Accounting Standards Board as well as the requirements of GAS 3–20 "Segment Reporting of Insurance Enterprises".
We would also refer to the relevant information in the consolidated financial statement as at 31 December 2009.
Effective 8 March 2010 Hannover Rück Beteiligung Verwaltungs-GmbH (HRBV), which is wholly owned by Hannover Re, reached agreement with a third party outside the Group on the sale of 0.5% of its stake in E+S Rück – by way of a share reduction without a change of control status. Upon closing of the transaction HRBV held an interest of 63.69% in E+S Rück.
Effective 26 April 2010 the share capital of E+S Rück was increased out of retained earnings without the issue of new shares by an amount of EUR 2.8 million from EUR 42.6 million to EUR 45.5 million. The nominal value per share now stands at EUR 600. This did not give rise to a change of control status.
With effect from the second quarter Inter Hannover (No. 1) Limited, London, was included in the consolidated financial statement for the first time. All shares in the company are held by International Insurance Company of Hannover Ltd., Bracknell. The object of the company, which is a corporate member of Lloyd's of London with limited liability, is to participate in the business of one or more Lloyd's syndicates.
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 capital consolidation is based on the revaluation method. In the context of the "acquisition method" the acquisition costs of the parent company are netted with the proportionate shareholders' equity of the subsidiary at the time when it is first included in the consolidated financial statement after the revaluation of all assets and liabilities. After recognition of all acquired intangible assets that in accordance with IFRS 3 "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. As at the balance sheet date Hannover Re had not exercised the option available under IFRS 3 to recognise on a transaction-by-transaction basis the entire goodwill instead of merely the portion of total goodwill corresponding to the proportionate interest acquired. Under IFRS 3 scheduled amortisation is not taken on goodwill. Instead, unscheduled amortisation 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.
Companies over which Hannover Re is able to exercise a significant influence ("associated companies") are normally consolidated "at equity" 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.
Minority interests in shareholders' equity are reported separately within Group shareholders' equity in accordance with IAS 1 "Presentation of Financial Statements". The minority 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 25.6 million (EUR 18.6 million) as at 30 June 2010.
Receivables and liabilities between the companies included in the consolidated financial statement were offset against each other.
The effects of business transactions within the Group were eliminated.
The securitisation of reinsurance risks is largely structured through the use of special purpose entities. The existence of a consolidation requirement in respect of such entities is to be examined in accordance with SIC-12 "Consolidation – Special Purpose Entities". In cases where IFRS do not currently contain any specific standards, Hannover Re's analysis – in application of IAS 8.12 – also falls back on the relevant standards of US GAAP.
With the aim of transferring to the capital market peak natural catastrophe exposures deriving from European windstorm events, Hannover Re issued a catastrophe ("CAT") bond that can be traded on a secondary market for the second time in July 2009. The CAT bond, which has a volume of EUR 150.0 million, 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.
In September 2009, in a transaction referred to as "FacPool Re", Hannover Re for the first time transferred a portfolio of facultative reinsurance risks to the capital market as part of its extended Insurance-Linked Securities (ILS) activities. The contracts, which cover worldwide individual risks, are 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 consists of a quota share reinsurance arrangement and two non-proportional cessions. The total amount of capital provided stands at USD 60 million (equivalent to EUR 48.8 million), with Hannover Re keeping a share of approximately USD 5 million (equivalent to EUR 4.1 million) and additionally assuming losses that exceed the capacity of "FacPool Re". A number of special purpose entities participate in the reinsurance cessions within "FacPool Re"; Hannover Re does not hold any shares in these special purpose entities and does not bear the majority of the economic benefits or risks arising out of their activities through any of its business relations.
With effect from 1 January 2009 Hannover Re again used the capital market to obtain underwriting capacity for catastrophe risks. The "K5" transaction, which ended on 31 December 2008, was replaced by the successor transaction "K6". The volume of "K6", which was equivalent to EUR 120.3 million as at 31 December 2009, was increased to USD 329.4 million on 1 January 2010 and is now equivalent to EUR 268.1 million. This securitisation, which was again 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. As with the "K3" and "K5" transactions, Kaith Re Ltd., a special purpose entity domiciled in Bermuda, is being used for the securitisation. The planned term of the transaction runs until 31 December 2011, or 31 December 2012 in the case of the additional interests placed on 1 January 2010. In addition, Hannover Re 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.
In 2007 the Hannover Re Group transferred risks from reinsurance recoverables to the capital market. The securitisation had a term of five years; the securities serving as collateral were issued through the special purpose entity Merlin CDO I B.V. In March 2010 Hannover Re made use of its right of early cancellation and terminated the credit default swap underlying the "Merlin" transaction effective 26 April 2010. The derivative established by the "Merlin" transaction was therefore derecognised in the second quarter, causing a decrease in net income.
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., Hannover Insurance-Linked Securities GmbH & Co. KG and Hannover Re (Bermuda) Ltd. – in a number of special purpose entities for the securitisation of catastrophe risks by taking up certain capital market securities known as "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, available for sale, financial assets at fair value through profit or loss and held for trading. The allocation and measurement of investments are determined by the investment intent.
Fixed-income securities classified as held to maturity as well as loans and receivables originated by the entity that are not listed on an active market or sold at short notice are measured at purchase cost – i.e. fair value as at purchase date including directly allocable transaction costs – plus amortised cost. The amortised cost derives from the difference between the nominal value and purchase cost and is spread over the time to maturity of the fixed-income securities.
Fixed-income securities classified as available for sale are measured at fair value. The difference between the fair value and amortised cost is recognised outside the statement of income until realisation. Financial assets at fair value through profit or loss and securities held for trading are measured at fair value. The difference between the fair value and amortised cost is recognised in the statement of income.
The investments under own management also encompass investments in associated companies, real estate and real estate funds (also includes: investment property), other invested assets, shortterm investments and cash. The other investments primarily consist of shares in private equity limited partnerships. For further details we would refer to the relevant information in the consolidated financial statement as at 31 December 2009.
The following table shows the regional origin of the investments under own management.
| Investments in EUR thousand | 30.6.2010 | 31.12.2009 |
|---|---|---|
| Germany | 7,232,791 | 6,560,026 |
| United Kingdom | 1,527,220 | 1,363,938 |
| France | 1,742,094 | 1,865,540 |
| Other | 4,294,136 | 3,928,606 |
| Europe | 14,796,241 | 13,718,110 |
| USA | 7,048,230 | 6,007,409 |
| Other | 1,130,300 | 840,207 |
| North America | 8,178,530 | 6,847,616 |
| Asia | 614,909 | 530,497 |
| Australia | 1,232,003 | 941,664 |
| Australasia | 1,846,912 | 1,472,161 |
| Africa | 492,865 | 416,139 |
| Other | 45,548 | 52,986 |
| Total | 25,360,096 | 22,507,012 |
| Maturities of the fixed-income and variable-yield securities | |||||||
|---|---|---|---|---|---|---|---|
| in EUR thousand | 30.6. 2010 | 31.12.2009 | |||||
| Cost or amortised cost1 |
Fair value | Cost or amortised cost1 |
Fair value | ||||
| Held to maturity | |||||||
| due in one year | 270,895 | 288,732 | 106,788 | 117,125 | |||
| due after one through two years | 407,850 | 424,144 | 280,725 | 290,471 | |||
| due after two through three years | 529,721 | 561,193 | 469,248 | 490,878 | |||
| due after three through four years | 413,198 | 436,874 | 521,196 | 542,714 | |||
| due after four through five years | 535,492 | 583,164 | 298,115 | 315,856 | |||
| due after five through ten years | 924,952 | 1,004,658 | 1,259,917 | 1,319,098 | |||
| due after ten years | 20,525 | 17,401 | 17,500 | 15,852 | |||
| Total | 3,102,633 | 3,316,166 | 2,953,489 | 3,091,994 | |||
| Loans and receivables | |||||||
| due in one year | 138,557 | 139,708 | 220,814 | 221,111 | |||
| due after one through two years | 130,603 | 131,108 | 80,127 | 82,095 | |||
| due after two through three years | 117,398 | 119,435 | 41,048 | 41,219 | |||
| due after three through four years | 435,316 | 448,631 | 332,716 | 339,025 | |||
| due after four through five years | 594,388 | 621,754 | 485,554 | 490,978 | |||
| due after five through ten years | 1,391,469 | 1,470,306 | 1,294,842 | 1,323,459 | |||
| due after ten years | 222,798 | 219,464 | 246,730 | 244,384 | |||
| Total | 3,030,529 | 3,150,406 | 2,701,831 | 2,742,271 | |||
| Available for sale | |||||||
| due in one year2 | 4,507,513 | 4,560,098 | 3,890,651 | 3,926,328 | |||
| due after one through two years | 2,226,630 | 2,266,370 | 1,686,180 | 1,725,646 | |||
| due after two through three years | 2,325,503 | 2,399,160 | 1,656,235 | 1,698,765 | |||
| due after three through four years | 2,189,024 | 2,268,230 | 1,718,907 | 1,782,188 | |||
| due after four through five years | 1,519,963 | 1,574,238 | 1,875,448 | 1,907,847 | |||
| due after five through ten years | 2,761,659 | 2,884,322 | 3,151,562 | 3,196,970 | |||
| due after ten years | 1,630,375 | 1,708,901 | 1,383,350 | 1,377,191 | |||
| Total | 17,160,667 | 17,661,319 | 15,362,333 | 15,614,935 | |||
| Financial assets at fair value through profit or loss |
|||||||
| due in one year | 59,484 | 59,484 | 22,145 | 22,145 | |||
| due after one through two years | 33,598 | 33,598 | 70,245 | 70,245 | |||
| due after two through three years | 59,497 | 59,497 | 18,358 | 18,358 | |||
| due after three through four years | 12,862 | 12,862 | 39,155 | 39,155 | |||
| due after four through five years | 1,642 | 1,642 | 4,541 | 4,541 | |||
| due after five through ten years | 1,624 | 1,624 | 11,239 | 11,239 | |||
| due after ten years | 58,564 | 58,564 | 69,466 | 69,466 | |||
| Total | 227,271 | 227,271 | 235,149 | 235,149 |
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.
| Figures in EUR thousand | 30.6.2010 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost |
Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
327,188 | 17,894 | 621 | 6,508 | 350,969 |
| US treasury notes | 411,769 | 53,154 | – | 3,240 | 468,163 |
| Other foreign government debt securities | 15,369 | 882 | – | 28 | 16,279 |
| Debt securities issued by semi governmental entities |
742,023 | 46,199 | 3,124 | 10,409 | 795,507 |
| Corporate securities | 566,073 | 35,862 | 861 | 15,055 | 616,129 |
| Covered bonds/asset-backed securities | 988,037 | 64,478 | 330 | 16,934 | 1,069,119 |
| Total | 3,050,459 | 218,469 | 4,936 | 52,174 | 3,316,166 |
| Figures in EUR thousand | 31.12.2009 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost |
Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
323,510 | 3,065 | 946 | 6,854 | 332,483 |
| US treasury notes | 351,776 | 36,182 | 825 | 2,808 | 389,941 |
| Other foreign government debt securities | 13,445 | 664 | – | 25 | 14,134 |
| Debt securities issued by semi governmental entities |
685,126 | 30,212 | 2,052 | 12,932 | 726,218 |
| Corporate securities | 559,900 | 27,107 | 1,121 | 12,334 | 598,220 |
| Covered bonds/asset-backed securities | 964,236 | 46,223 | 4 | 20,543 | 1,030,998 |
| Total | 2,897,993 | 143,453 | 4,948 | 55,496 | 3,091,994 |
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value
| Figures in EUR thousand | 30.6.2010 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost |
Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Loans and receivables | |||||
| Government debt securities of EU member states |
79,542 | 4,060 | – | 1,175 | 84,777 |
| Debt securities issued by semi governmental entities |
1,289,529 | 52,985 | 53 | 19,191 | 1,361,652 |
| Corporate securities | 480,190 | 25,940 | 409 | 9,908 | 515,629 |
| Covered bonds/asset-backed securities | 868,767 | 40,871 | 3,517 | 16,283 | 922,404 |
| Other | 199,889 | – | – | 66,055 | 265,944 |
| Total | 2,917,917 | 123,856 | 3,979 | 112,612 | 3,150,406 |
| Figures in EUR thousand | 31.12.2009 | |||||
|---|---|---|---|---|---|---|
| Cost or amortised cost |
Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | ||
| Loans and receivables | ||||||
| Government debt securities of EU member states |
79,498 | 1,713 | 415 | 739 | 81,535 | |
| Debt securities issued by semi governmental entities |
1,148,549 | 8,579 | 2,597 | 11,531 | 1,166,062 | |
| Corporate securities | 543,718 | 16,508 | 1,163 | 9,470 | 568,533 | |
| Covered bonds/asset-backed securities | 639,446 | 20,322 | 2,507 | 9,279 | 666,540 | |
| Other | 200,036 | – | – | 59,565 | 259,601 | |
| Total | 2,611,247 | 47,122 | 6,682 | 90,584 | 2,742,271 |
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value
| Figures in EUR thousand | 30.6.2010 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost |
Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
2,139,898 | 57,443 | 13,076 | 31,511 | 2,215,776 |
| US treasury notes | 2,262,664 | 103,444 | – | 16,131 | 2,382,239 |
| Other foreign government debt securities | 654,668 | 10,852 | 797 | 3,405 | 668,128 |
| Debt securities issued by semi governmental entities |
4,238,455 | 145,054 | 4,134 | 55,167 | 4,434,542 |
| Corporate securities | 3,285,959 | 147,030 | 14,487 | 49,486 | 3,467,988 |
| Covered bonds/asset-backed securities | 1,971,855 | 98,292 | 38,644 | 23,803 | 2,055,306 |
| Investment funds | 82,634 | 9,454 | 1,019 | 20 | 91,089 |
| 14,636,133 | 571,569 | 72,157 | 179,523 | 15,315,068 | |
| Equity securities | |||||
| Shares | 13,613 | 2,368 | 1 | – | 15,980 |
| Investment funds | 2,117 | 769 | 60 | – | 2,826 |
| 15,730 | 3,137 | 61 | – | 18,806 | |
| Short-term investments | 1,818,043 | 1,514 | 274 | 629 | 1,819,912 |
| Total | 16,469,906 | 576,220 | 72,492 | 180,152 | 17,153,786 |
| Figures in EUR thousand | 31.12.2009 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost |
Unrealised gains |
Unrealised losses |
Accrued interest |
Fair value | |
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
2,179,903 | 39,399 | 4,675 | 28,867 | 2,243,494 |
| US treasury notes | 1,986,505 | 27,876 | 13,049 | 14,483 | 2,015,815 |
| Other foreign government debt securities | 568,788 | 5,798 | 3,135 | 3,044 | 574,495 |
| Debt securities issued by semi governmental entities |
3,755,392 | 94,194 | 6,731 | 53,603 | 3,896,458 |
| Corporate securities | 3,151,323 | 96,853 | 27,921 | 54,645 | 3,274,900 |
| Covered bonds/asset-backed securities | 1,573,093 | 85,303 | 50,824 | 20,937 | 1,628,509 |
| Investment funds | 162,156 | 27,466 | 18,245 | – | 171,377 |
| 13,377,160 | 376,889 | 124,580 | 175,579 | 13,805,048 | |
| Equity securities | |||||
| Shares | 14,086 | 3,100 | 189 | – | 16,997 |
| Investment funds | 1,959 | 479 | 78 | – | 2,360 |
| 16,045 | 3,579 | 267 | – | 19,357 | |
| Short-term investments | 1,351,309 | 354 | 61 | 873 | 1,352,475 |
| Total | 14,744,514 | 380,822 | 124,908 | 176,452 | 15,176,880 |
| 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 | 30.6.2010 | 31.12.2009 | 30.6.2010 | 31.12.2009 | 30.6.2010 | 31.12.2009 |
| 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 | 6,695 | 7,066 | 32 | 162 | 6,727 | 7,228 |
| Corporate securities | 106,375 | 121,589 | 6,197 | 5,208 | 112,572 | 126,797 |
| Covered bonds/ asset-backed securities |
107,568 | 100,775 | 404 | 349 | 107,972 | 101,124 |
| 220,638 | 229,430 | 6,633 | 5,719 | 227,271 | 235,149 | |
| Other financial assets | ||||||
| Derivatives | 30,891 | 58,273 | – | – | 30,891 | 58,273 |
| 30,891 | 58,273 | – | – | 30,891 | 58,273 | |
| Total | 251,529 | 287,703 | 6,633 | 5,719 | 258,162 | 293,422 |
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 paid in in full. Each share carries an equal voting right and an equal dividend entitlement.
Minority 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, no-par-value registered shares may be issued on one or more occasions for contributions in cash or kind. Of the total amount, up to EUR 1,000 thousand may be used to issue employee shares.
In addition, conditional capital of up to EUR 60,299 thousand is available. It can be used to grant shares to holders of 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.
IAS 1 requires separate disclosure of treasury shares in shareholders' equity. As part of this year's employee share purchase scheme Hannover Re acquired altogether 23,163 treasury shares during the second quarter of 2010 and delivered them to eligible employees at preferential conditions. These shares are blocked until 31 May 2014. This transaction reduced retained earnings by an amount of EUR 0.3 million. The company was no longer in possession of treasury shares as at the balance sheet date.
| Gross written premium in EUR thousand | 1.1.–30.6.2010 | 1.1.–30.6.2009 |
|---|---|---|
| Regional origin | ||
| Germany | 697,337 | 742,646 |
| United Kingdom | 1,132,213 | 907,373 |
| France | 264,977 | 252,031 |
| Other | 719,168 | 674,077 |
| Europe | 2,813,695 | 2,576,127 |
| USA | 1,477,696 | 1,457,074 |
| Other | 193,094 | 197,953 |
| North America | 1,670,790 | 1,655,027 |
| Asia | 457,042 | 409,574 |
| Australia | 229,270 | 166,362 |
| Australasia | 686,312 | 575,936 |
| Africa | 197,042 | 156,093 |
| Other | 314,487 | 287,346 |
| Total | 5,682,326 | 5,250,529 |
| Investment income in EUR thousand | 30.6.2010 | 30.6.2009 |
|---|---|---|
| Income from real estate | 13,919 | 745 |
| Dividends | 1,691 | 2,156 |
| Interest income | 409,790 | 393,594 |
| Other income | 15,801 | 2,327 |
| Ordinary investment income | 441,201 | 398,822 |
| Profit or loss on shares in associated companies | 2,370 | (1,535) |
| Appreciation | 11,835 | – |
| Realised gains on investments | 118,962 | 81,086 |
| Realised losses on investments | 41,643 | 25,624 |
| Unrealised gains and losses on investments | (86,185) | 87,238 |
| Impairments/depreciation on real estate | 3,752 | 487 |
| Impairments on equity securities | 556 | 2,615 |
| Impairments on fixed-income securities | 7,067 | 26,171 |
| Impairments on participating interests and other financial assets | 5,333 | 64,111 |
| Other investment expenses | 29,665 | 22,359 |
| Net income from assets under own management | 400,167 | 424,244 |
| Interest income on funds withheld and contract deposits | 219,209 | 212,542 |
| Interest expense on funds withheld and contract deposits | 67,998 | 67,611 |
| Total investment income | 551,378 | 569,175 |
Of the impairments totalling EUR 13.4 million, an amount of EUR 5.3 million was attributable to alternative investments. The impairments on fixed-income securities of EUR 7.1 million were taken predominantly on structured assets. An impairment loss of EUR 0.6 million was recognised on 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 | 30.6.2010 | 30.6.2009 |
|---|---|---|
| Fixed-income securities – held to maturity | 64,057 | 67,501 |
| Fixed-income securities – loans and receivables | 43,501 | 31,517 |
| Fixed-income securities – available for sale | 280,322 | 268,148 |
| Financial assets – at fair value through profit or loss | 5,844 | 7,429 |
| Other | 16,066 | 18,999 |
| Total | 409,790 | 393,594 |
Hannover Re's portfolio contained derivative financial instruments as at the balance sheet date in the form of forward exchange contracts that were taken out chiefly to hedge cash flows from reinsurance contracts. These transactions gave rise to recognition of other financial assets at fair value through profit or loss in an amount of EUR 0.2 million (31 December 2009: EUR 0.3 million) and other liabilities in an amount of EUR 28.0 million (31 December 2009: EUR 17.8 million). The net changes in the fair value of these instruments produced a charge to investment income of EUR 10.2 million in the period under review (30 June 2009: EUR 15.0 million).
In the second quarter of 2010 Hannover Re acquired derivative financial instruments to hedge inflation risks within the loss reserves. These transactions gave rise to recognition of other liabilities in an amount of EUR 53.2 million (31 December 2009: –). The changes in the fair values of these instruments produced a charge to investment income of EUR 53.2 million in the period under review (30 June 2009: –).
Certain reinsurance treaties meet criteria which require application of the prescriptions in IFRS 4.7 to 4.9 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 30.7 million as at 30 June 2010 (31 December 2009: EUR 58.0 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 8.2 million (31 December 2009: EUR 3.3 million) were recognised under other liabilities.
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.
Of the derivatives carried on the assets side fair values of EUR 20.9 million (31 December 2009: EUR 31.9 million) and of the derivatives carried on the liabilities side fair values of –EUR 0.5 million (31 December 2009: –) were attributable as at the balance sheet date to derivatives embedded in modified coinsurance and coinsurance funds withheld (ModCo) reinsurance treaties.
Hannover Re has refined the calculation logic for derivatives resulting from ModCo contracts. The risks from the aforementioned contracts are thereby established on a more market-oriented basis. Retention of the parameters used until the first quarter of 2010 to calculate the derivative would have produced a value of EUR 0.0 million. The effect of this refinement of the calculation logic on the value of the derivative in future reporting periods could only have been determined with a disproportionately high effort.
Principally due to a widening of credit spreads in the securities portfolios, investment income from the ModCo derivatives took a charge of EUR 15.4 million before taxes as at 30 June 2010 (30 June 2009: improvement of EUR 122.4 million in investment income).
IAS 24 defines related parties inter alia as parent companies and subsidiaries, subsidiaries of a common parent company, associated companies, legal entities under the influence of management and the management of the company itself. In the reporting period the following significant business relations existed with related parties.
HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI) holds an unchanged majority interest of 50.22% in Hannover Re through Talanx AG.
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.
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 | ||||||
|---|---|---|---|---|---|---|
| Figures in EUR thousand | 30.6.2010 | 30.6.2009 | ||||
| Premium | Underwriting result |
Premium | Underwriting result |
|||
| Business assumed | ||||||
| Non-life reinsurance | 201,954 | 56,087 | 151,240 | 3,342 | ||
| Life and health reinsurance | 140,813 | 6,098 | 169,034 | 52,508 | ||
| 342,767 | 62,185 | 320,274 | 55,850 | |||
| Business ceded | ||||||
| Non-life reinsurance | (1,634) | (678) | (227) | (79) | ||
| Life and health reinsurance | (4,911) | (2,369) | – | – | ||
| (6,545) | (3,047) | (227) | (79) | |||
| Total | 336,222 | 59,138 | 320,047 | 55,771 |
The average number of staff employed at the companies included in the consolidated financial statement of the Hannover Re Group was 2,100 during the reporting period (2009 financial year: 1,984).
As at the balance sheet date altogether 2,133 (2,069) staff were employed by the Hannover Re Group, with 1,064 (1,032) employed in Germany and 1,069 (1,037) working for the consolidated Group companies abroad.
| Calculation of the earnings per share | 1.1.–30.6.2010 | 1.1.–30.6.2009 |
|---|---|---|
| Group net income in EUR thousand | 310,633 | 433,504 |
| Weighted average of issued shares | 120,596,619 | 120,597,134 |
| Earnings per share in EUR | 2.58 | 3.59 |
Neither in the period under review nor in the previous reporting period were there any dilutive effects.
On the basis of this year's employee share purchase scheme Hannover Re acquired treasury shares in the course of the second quarter of 2010 and sold them to the eligible employees. The weighted average number of shares does not include 23,163 treasury shares pro rata temporis for the period from 7 to 10 May 2010. For further details please see our comments in Section 4.2 "Shareholders' equity, minority interests and treasury shares".
There were no other extraordinary components of income which should have been recognised or disclosed separately in the calculation of the earnings per share.
The earnings per share could potentially be diluted in future through the issue of shares or subscription rights from the conditional capital.
Hannover Re has placed three subordinated debts on the European capital markets through its subsidiary Hannover Finance (Luxembourg) S.A. Hannover Re has secured by subordinated guarantee both the debt issued in 2001, the volume of which now stands at EUR 138.1 million, and the debts from financial years 2004 and 2005 in amounts of EUR 750.0 million and EUR 500.0 million respectively. For further details we would refer to the relevant information in the consolidated financial statement as at 31 December 2009.
The guarantees given by Hannover Re for the subordinated debts attach 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. As at the balance sheet date they amounted to EUR 2,801.0 million (31 December 2009: EUR 2,341.3 million) and EUR 8.7 million (31 December 2009: –) respectively. In addition, we extended further collateral to our cedants in an amount of EUR 383.2 million (31 December 2009: EUR 309.6 million) through so-called "single trust funds".
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 1,878.7 million (31 December 2009: EUR 1,587.8 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 2,900.5 million (31 December 2009: EUR 2,552.2 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 289.7 million as at the balance sheet date (31 December 2009: EUR 174.4 million).
Outstanding capital commitments with respect to alternative investments exist on the part of the Group in the amount of EUR 292.9 million (31 December 2009: EUR 328.8 million). These primarily involve as yet unfulfilled payment obligations from participations entered into in private equity funds and venture capital firms.
| Key exchange rates | Mean rate of exchange on the balance sheet date |
Average rate of exchange | ||
|---|---|---|---|---|
| 1 EUR corresponds to: | 30.6.2010 | 31.12.2009 | 1.1.–30.6.2010 | 1.1.–30.6.2009 |
| AUD | 1.4407 | 1.6048 | 1.4988 | 1.8921 |
| BHD | 0.4631 | 0.5404 | 0.5023 | 0.5080 |
| CAD | 1.2889 | 1.5048 | 1.3880 | 1.6182 |
| CNY | 8.3309 | 9.7847 | 9.0881 | 9.2039 |
| GBP | 0.8180 | 0.9042 | 0.8695 | 0.8996 |
| HKD | 9.5648 | 11.1172 | 10.3530 | 10.4401 |
| KRW | 1,501.8909 | 1,669.5842 | 1,550.0537 | 1,801.8571 |
| MYR | 3.9774 | 4.9113 | 4.4182 | 4.8046 |
| SEK | 9.5265 | 10.2986 | 9.8208 | 10.8817 |
| USD | 1.2284 | 1.4336 | 1.3325 | 1.3468 |
| ZAR | 9.3588 | 10.6121 | 10.0175 | 12.1207 |
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.
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year.
Hannover, 4 August 2010
Executive Board
Wallin Arrago Dr. Becke
Gräber Dr. Pickel Vogel
To Hannover Rückversicherung AG, Hannover
We have reviewed the condensed consolidated interim financial statements – comprising the consolidated balance sheet, consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in shareholders' equity 2010, consolidated cash flow statement, segmental report and selected explanatory notes – together with the interim Group management report of Hannover Rückversicherung AG, Hannover, for the period from 1 January to 30 June 2010, which are components of the half-yearly financial report pursuant to § 37w of the German Securities Trading Act (WpHG). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim management report for the Group in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent company's Board of Management. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim management report for the Group based on our review.
We conducted our review of the condensed consolidated interim financial statements and the interim management report for the Group in accordance with German generally accepted standards for the review of financial statements promulgated by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer – IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim management report for the Group has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and thus provides less assurance than an audit. Since, in accordance with our mandate, we have not performed a financial statement audit, we cannot express an audit opinion.
Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU or that the interim management report for the Group has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
Hannover, 4 August 2010
KPMG AG Wirtschaftsprüfungsgesellschaft
Busch Stöckl Wirtschaftsprüfer Wirtschaftsprüfer
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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