Quarterly Report • Nov 5, 2008
Quarterly Report
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| Figures in EUR million | 2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|---|
| 1.4.–30.6. | 1.7.–30.9. | +/- previous year |
1.1.–30.9. | +/- previous year |
1.7.–30.9. | 1.1.–30.9 | 31.12. | |
| Results | ||||||||
| Gross written premium | 4,144.6 | 1.961.5 | +1.4% | 6.106.0 | -5.0% | 1,934.8 | 6,426.3 | |
| Net premium earned | 3,415.4 | 1.746.4 | -2.2% | 5.161.8 | -6.0% | 1,785.9 | 5,491.1 | |
| Net underwriting result | (36.3) | (195.9) | (232.2) | +81.6% | (29.5) | (127.9) | ||
| Net investment income | 445.1 | (74.7) | 370.4 | -56.7% | 269.3 | 855.5 | ||
| Operating result (EBIT) | 400.2 | (367.7) | 32.5 | -95.2% | 210.6 | 678.3 | ||
| Group net income | 252.2 | (395.0) | (142.8) | 284.3 | 577.3 | |||
| Balance sheet (as at the end of the quarter) |
||||||||
| Policyholders' surplus | 4,698.4 | 4,502.6 | -15.0% | 5,295.1 | ||||
| Total shareholders' equity | 2,803.7 | 2,613.3 | -22.0% | 3,349.1 | ||||
| Minority interests | 521.0 | 513.7 | -10.3% | 572.7 | ||||
| Hybrid capital | 1,373.8 | 1,375.6 | +0.2% | 1,373.3 | ||||
| Investments (excl. funds held by ceding companies) |
18,744.4 | 19,927.2 | +0.6% | 19,815.3 | ||||
| Total assets | 37,247.0 | 38,683.5 | +4.4% | 37,068.4 | ||||
| Share | ||||||||
| Earnings per share (diluted) in EUR | 2.09 | (3.27) | (1.18) | 2.36 | 4.79 | |||
| Book value per share in EUR | 23.25 | 21.67 | -22.0% | 26.64 | 27.77 | |||
| Dividend | – | – | – | – | – | 277.4 | ||
| Dividend per share in EUR | – | – | – | – | – | 1.80+0.501) | ||
| Share price at the end of the period in EUR |
31.35 | 25.71 | (27.7%) | 25.71 | -27.7% | 35.58 | 35.58 | 31.55 |
| Market capitalisation at the end of the period |
3,780.7 | 3,100.6 | -27.7% | 4,290.8 | 3,804.8 | |||
| Ratios | ||||||||
| Combined ratio (non-life reinsurance) 2) | 98.4% | 114.2% | 103.6% | 98.1% | 100.9% | |||
| Large losses as percentage of net premium earned (non-life reinsurance) 3) |
6.2% | 23.8% | 14.3% | 3.4% | 7.6% | |||
| Retention | 89.5% | 87.2% | 88.8% | 87.9% | 86.4% | |||
| Return on investment (incl. funds held by ceding companies) |
3.7% | -1.3% | 2.0% | 4.4% | 4.7% | |||
| EBIT margin 4) | 11.7% | -21.1% | 0.6% | 11.8% | 12.4% | |||
| Return on equity (annualised) | 16.4% | -58.3% | -6.4% | 36.8% | 25.2% | |||
1) Bonus
2) Including expenses on funds withheld and contract deposits
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
Wilhelm Zeller Chairman of the Executive Board
The crisis on international capital markets intensified in the third quarter on a previously undreamt-of scale. Difficulties at high-profile banks caused confidence in the financial markets to plummet; the markets were also rocked by the steps that had to be taken to rescue the largest insurance group in the United States. The relief packages assembled by governments in the major industrialised nations to restore lost confidence have hitherto enjoyed only limited success.
What are the implications of this global crisis for your company? Unlike the banks, Hannover Re is not faced with any liquidity or refinancing problems. However, as a major investor with an asset volume of some EUR 20 billion – around 8 percent of which was held in stocks up until 30 September – we too are of course impacted by the current turmoil on equity markets. Despite our conservative investment strategy – all companies belonging to the Hannover Re Group are governed by investment guidelines that limit exposure to individual issuers – we were compelled to take further significant writedowns in the third quarter, specifically on equity holdings. As a result, our investment income was more than halved. Since losses incurred on equities are not tax-deductible, the result for the first nine months is negative. We have provided you with advance information in this regard.
What does this mean for the full 2008 financial year? As you are aware, the conditions set for attainment of our profit target were twofold: firstly, that capital markets rally and, secondly, that the burden of catastrophe losses and major claims does not significantly exceed the expected level of 10 percent of net premium in non-life reinsurance. Neither of these conditions has been met: not only did capital markets fail to recover during the third quarter, they experienced another sharp deterioration; what is more, our burden of catastrophe losses is higher than expected. Consequently, we have indicated in an ad hoc announcement that on account of the current environment we shall not be able to achieve our originally envisaged profit target. For the fourth quarter – given a normal catastrophe loss experience – we consider a break-even result to be attainable.
That the long-term financial strength of your company remains robust despite the decline in earnings is also confirmed by the rating agency Standard & Poor's, which reaffirmed our very good rating of "AA-" with stable outlook after we had issued the profits warning.
With this in mind, we are well poised to profit from positive developments on the reinsurance markets. For it is the case that the crisis on capital markets also opens up opportunities for our company, as a reinsurer: the capital depletion suffered by primary insurers will lead to rising demand for reinsurance. Consequently, the market should bottom out more quickly than previously anticipated. Overall, we are looking to stable or slightly higher rates for our company. In certain subsegments we even anticipate price increases.
We are, incidentally, not the only ones to believe that your company is well positioned: in September Hannover Re was crowned "Reinsurance Company of the Year" by the highly respected UK trade magazine "The Review". Following on from 1998, 2001 und 2004, we are thus the only reinsurer to have received this distinction on four occasions.
I digress, however, and would like to turn my attention back to operational business in the third quarter: we are satisfied with the development of our non-life reinsurance business group – even though the burden of catastrophe losses, especially due to the severe hurricane "Ike", came in sharply higher than expected. Through targeted underwriting we are continuously extending the already broad diversification of our portfolio. We continue to transact non-life reinsurance business on an opportunistic basis guided solely by profitability considerations. The maxim of "Profit before volume" remains the overriding principle governing our actions.
The development of our second business group – life and health reinsurance – was also satisfactory from an underwriting standpoint, although premium growth fell short of expectations – not least due to the restraining effects of currency movements in the first half-year. In the medium term, however, we are standing by our ambitious goal of generating double-digit growth in the original currencies: the demographic trend in industrial nations as well as the growing urban middle class in threshold markets offer a good foundation for dynamic growth. We are maintaining our active involvement in product development for seniors, a customer group whose importance is still underestimated in Germany. In addition, we are superbly positioned in our largest market – the United Kingdom – with our long-term orientation towards enhanced annuities as well as the reinsurance of pension funds. In the United States, too, business with health covers for seniors is faring very well. The growth markets of Asia also continue to be attractive for our company.
As I reported at the outset, our investment income of course reflects the upheavals on international capital markets. Substantial falls in share prices necessitated significant write-downs in the third quarter, while losses on fixed-income securities remained within manageable bounds. This was due not least to the broad diversification and high quality of the portfolio. In view of the prevailing market conditions, net investment income nevertheless contracted sharply.
The enormous turmoil on the international capital markets did not leave the Hannover Re share unscathed in the third quarter. Having stood its ground very well in the second quarter, it lost value particularly heavily in September. In October too, after massive liquidity problems came to light at a German bank, all financial stocks – hence including the Hannover Re share – were extremely hard hit. Following a period of recovery the share lost further ground due to our profits warning. In spite of everything, it is my expectation that when equity markets regain their composure the profit potential inherent in your company will again be appropriately recognised.
I would like to thank you, our valued shareholders, – 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 overriding goal will be to lead your company responsibly and securely into a profitable future.
Yours sincerely,
Wilhelm Zeller Chairman of the Executive Board
| Wolf-Dieter Baumgartl 1) 2) 3) Berg |
Chairman |
|---|---|
| Dr. Klaus Sturany 1) Dortmund |
Deputy Chairman |
| Herbert K. Haas 1) 2) 3) Burgwedel |
|
| Uwe Kramp 4) Hannover |
|
| Karl Heinz Midunsky 3) Gauting |
|
| Ass. jur. Otto Müller 4) Hannover |
|
| Dr. Immo Querner Ehlershausen |
|
| Dr. Erhard Schipporeit 2) Hannover |
|
| Gert Waechtler 4) Großburgwedel |
| Wilhelm Zeller Burgwedel |
Chairman |
|---|---|
| André Arrago | |
| Hannover | |
| Dr. Wolf Becke | |
| Hannover | |
| Jürgen Gräber | |
| Ronnenberg | |
| Dr. Elke König | |
| Hannover | |
| Dr. Michael Pickel | |
| Isernhagen | |
| Ulrich Wallin | |
| Hannover | |
1) Member of the Standing Committee 2) Member of the Balance Sheet Committee
3) Member of the Nomination Committee
4) Staff representative
The underwriting experience in non-life reinsurance business as at 30 September 2008 was adversely affected by an above-average burden of catastrophe losses. In addition, the crisis on financial markets led to a sharp drop in the market value of investments – including those held in our portfolio.
Prompted by the withdrawal from specialty business effective 31 May 2007 and weak exchange rates, especially affecting the US dollar and pound sterling in the first halfyear, gross written premium in total business contracted by 5.0% as at 30 September 2008 to EUR 6.1 billion (EUR 6.4 billion). At constant exchange rates the premium volume would have declined by 1.3%. The level of retained premium increased to 88.8% (86.4%) as a consequence of considerable savings on the costs of our own protection covers as well as reduced proportional cessions; net premium earned decreased by 6.0% to EUR 5.2 billion (EUR 5.5 billion).
The present turmoil on the international capital markets – especially the significant falls in share prices – has taken an appreciable toll on our investment income. The inflow of cash from the technical account, however, more than made up for the price declines, and the volume of assets under own management therefore showed modest growth. Ordinary income remained almost unchanged at EUR 627.5 million (EUR 635.3 million). Interest on deposits was also roughly on a par with the comparable period of the previous
The development of our non-life reinsurance business was satisfactory overall. Although softening tendencies were still apparent on some major markets, conditions are largely acceptable and in most instances we obtained prices that were commensurate with the risks.
Active cycle management and a profit-oriented underwriting policy continue to be the hallmarks of our underwriting, and accordingly we focus on those segments that offer the highest profitability – rather than the largest volume. We scaled back business that no longer satisfied these profityear at EUR 161.8 million (EUR 166.6 million). Investment income nevertheless suffered a clearly adverse impact, especially due to write-downs on equities totalling EUR 355.3 million. Further write-downs of EUR 77.3 million were taken on fixed-income securities. Realised gains of EUR 77.0 million on balance have so far failed to match up to the previous year (EUR 104.2 million). Overall, net investment income therefore fell sharply to EUR 370.4 million (EUR 855.5 million).
The operating profit (EBIT) consequently contracted by 95.2% as at 30 September 2008 to EUR 32.5 million (EUR 678.3 million). Group net income fell by 124.7% to EUR -142.8 million (EUR 577.3 million); it should, however, be borne in mind that the comparable period of the previous year was assisted by a positive special effect from corporate tax reform amounting to EUR 179.0 million. The performance as at 30 September 2008 was also adversely impacted by the fact that losses on equities are not tax-deductible and a tax load in excess of EUR 100 million was incurred – even though the pre-tax result was negative. Earnings per share came in at EUR -1.18 (EUR 4.79).
Shareholders' equity decreased by EUR 735.8 million compared to the level of 31 December 2007 to stand at EUR 2.6 billion. The book value per share consequently also slipped by 22.0% to EUR 21.67. The policyholders' surplus, comprised of shareholders' equity, minority interests and hybrid capital, totalled EUR 4.5 billion (EUR 5.3 billion).
ability standards and reshuffled our portfolio in favour of other segments – such as German business, the worldwide credit and surety line and niche areas such as agricultural covers.
Having reduced our North American casualty business in recent years due to the marked pressure on rates, we have now been able to obtain rate increases running into the double digits in some subsegments – hence prompting us to step up our involvement again. Prices for catastrophe risks remain adequate.
Our so-called retakaful business continues to fare well: having already got off to a good start in 2007, our Bahrainbased subsidiary can look forward to even brighter business prospects in 2008. The vigorous economic growth in Southeast Asia and the Near East is fostering consistent growth in demand for Sharia-compliant products.
We are similarly satisfied with developments on the Latin American insurance market. In the area of agricultural risks our strategy is geared to acquiring additional market shares.
Curtailed by exchange rate movements, particularly in the first half-year, the gross premium income booked by our
non-life reinsurance business group contracted to EUR 3.8 billion (EUR 4.1 billion) as at 30 September 2008, a fall of 7.6% compared to the same period of the previous year. At constant exchange rates, especially against the US dollar, the decline would have been 1.7%. The withdrawal from specialty business was another factor in the lower premium volume. The level of retained premium increased from 83.9% to 88.4% as a consequence of significant savings on our own protection covers as well as reduced proportional cessions. Net premium earned fell by 8.5% to EUR 3.1 billion (EUR 3.4 billion).
| Figures in EUR million | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
| 1.1.–30.6. | 1.7.–30.9. | +/- previous year |
1.1.–30.9. | +/- previous year |
1.7.–30.9. | 1.1.–30.9. | |
| Gross written premium | 2,656.2 | 1,135.7 | -0.2% | 3,791.9 | -7.6% | 1,137.8 | 4,102.3 |
| Net premium earned | 2,082.6 | 1,020.6 | -4.0% | 3,103.2 | -8.5% | 1,062.9 | 3,391.3 |
| Underwriting result | 23.6 | (154.8) | (131.2) | 5.8 | (50.3) | ||
| Net investment income | 270.4 | (127.3) | 143.1 | -75.6% | 174.1 | 586.0 | |
| Operating result (EBIT) | 288.2 | (374.2) | (86.0) | 120.7 | 442.2 | ||
| Group net income | 195.7 | (373.7) | (178.0) | 141.5 | 382.9 | ||
| Earnings per share in EUR | 1.62 | (3.10) | (1.48) | 1.17 | 3.17 | ||
| Retention | 89.4% | 86.1% | 88.4% | 85.4% | 83.9% | ||
| Combined ratio 1) | 98.4% | 114.2% | 103.6% | 98.1% | 100.9% |
1) Including expenses on funds withheld and contract deposits
On the claims side the third quarter was especially notable for the repercussions of hurricane "Ike", which produced a net strain for our company of EUR 220.9 million; hurricane "Gustav", on the other hand, took a net toll of just EUR 31.6 million on our account. Further losses of altogether EUR 64.3 million were incurred from two hailstorm events in Germany in the second quarter. Amounting to EUR 444.9 million, the total net burden of catastrophe losses and major claims therefore clearly surpassed the comparable period of the previous year (EUR 259.2 million). This is equivalent to 14.3 % of net premium in non-life reinsurance, hence exceeding the expected level of 10%. As a result, the combined ratio reached 103.6% (100.9%).
The net underwriting result in non-life reinsurance deteriorated to EUR -131.2 million after EUR -50.3 million in the corresponding period of the previous year. Owing to the decline in investment income, the operating result (EBIT) fell by a substantial 119.4% to EUR -86.0 million (EUR 442.2 million). Group net income contracted sharply to EUR -178.0 million (EUR 382.9 million). Earnings per share stood at EUR -1.48 (EUR 3.17).
Our product range in life and health reinsurance encompasses five business segments: financial solutions, bancassurance, new markets, multinational insurance clients and conventional risk-oriented reinsurance. These five pillars ensure that we enjoy a diversified portfolio – with respect to both regions and products – and vigorous organic growth over the medium term.
With an eye to the demographic trend in industrialised nations, the retirement of the US baby boomer generation and the rapid emergence of an urban middle class in many developing and threshold countries, we continue to take a favourable view of the business prospects in life and health reinsurance.
The United Kingdom – the second-largest reinsurance market in the world – retains its exceptional importance for our company: it accounts for around a third of our total premium volume in life and health reinsurance. Riskoriented reinsurance covers in this market remain fiercely competitive, and we have therefore scaled back our acceptances of such products. We continue to regard ourselves as the market-leading reinsurer for new business in the area of enhanced annuities. In this subsegment, as with the reinsurance of pension funds, we still see very good opportunities for further profitable expansion.
We also have a close eye on the high-growth markets of China and South Korea, where we opened local branches this year in Shanghai and Seoul respectively. In the promising Indian market, too, we are well positioned through our cooperation with the leading domestic reinsurer.
| Figures in EUR million | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
| 1.1.–30.6. | 1.7.–30.9. | +/- previous year |
1.1.–30.9. | +/- previous year |
1.7.–30.9. | 1.1.–30.9. | |
| Gross written premium | 1,490.1 | 825.3 | +3.0% | 2,315.4 | -0.8% | 801.4 | 2,333.7 |
| Net premium earned | 1,332.8 | 725.8 | +0.4% | 2,058.6 | -2.0% | 723.0 | 2,099.7 |
| Net investment income | 154.8 | 51.5 | -38.5% | 206.3 | -13.8% | 83.7 | 239.2 |
| Operating profit (EBIT) | 87.2 | 5.9 | -92.5% | 93.2 | -55.4% | 79.6 | 208.9 |
| Group net income | 65.0 | (3.5) | 61.4 | -69.7% | 112.7 | 202.6 | |
| Earnings per share in EUR | 0.54 | (0.03) | 0.51 | -69.7% | 0.93 | 1.68 | |
| Retention | 89.6% | 88.8% | 89.3% | 90.9% | 90.5% | ||
| EBIT margin 1) | 6.5% | 0.8% | 4.5% | 11.0% | 9.9% |
1) Operating result (EBIT)/net premium earned
Structurally induced premium stagnation is the hallmark of the German market; the impetus injected in the current year by the final step increase for Riester pensions will be of limited duration. Our product development activities are geared heavily towards the coverage needs of senior citizens, a financially strong sector of the population still neglected by the insurance industry.
We also remain actively involved in the development of the Islamic insurance markets: not only do we support our clients with the design of insurance products according to Islamic principles, we also advise them on marketing and sales methods. Through our subsidiary Hannover ReTakaful in Bahrain we are able to cover the entire range of "family takaful" products.
Owing to the restraining effects of exchange rate movements, gross written premium contracted by 0.8% as at 30 September 2008 to EUR 2.3 billion (EUR 2.3 billion); at constant exchange rates we would have reported growth of 6.1%. The level of retained premium slipped marginally to 89.3% (90.5%); net premium earned decreased by 2.0% to EUR 2.1 billion (EUR 2.1 billion).
The sharp decline of 55.4% in the operating result (EBIT) as at 30 September 2008 to EUR 93.2 million (EUR 208.9 million) resulted largely from non-recurring positive special
effects in the corresponding period of the previous year – attributable to the release of reserves that were no longer required – as well as from the required fair value measurement of investments deposited with clients.
The EBIT margin of 4.5% is therefore currently below the target corridor of 6.5% to 7.5%. In view of the aforementioned factors Group net income shrank by 69.7% to EUR 61.4 million (EUR 202.6 million), equivalent to earnings per share of EUR 0.51 (EUR 1.68).
Net investment income
After the sharp falls in value already seen on international stock markets in the first half of the year, the downward slide continued – most strikingly in September – and indeed gathered pace. The deteriorating situation was attributable
to the liquidity and capital crunch triggered in the banking sector by developments on the US real estate market as well as the associated crisis in confidence on financial markets.
| Figures in EUR million | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
| 1.1.–30.6. | 1.7.–30.9. | +/- previous year |
1.1.–30.9. | +/- previous year |
1.7.–30.9. | 1.1.–30.9. | |
| Ordinary investment income 1) | 407.9 | 219.7 | +0.1% | 627.5 | -1.2% | 219.5 | 635.3 |
| Results from participation in associated companies |
4.1 | 0.3 | -91.5% | 4.4 | -33.0% | 3.1 | 6.6 |
| Realised gains/losses | 102.3 | (25.3) | 77.0 | -26.1% | 6.6 | 104.2 | |
| Impairments on investments 2) | 130.6 | (302.4) | 433.0 | 12.8 | 13.4 | ||
| Unrealised gains/losses 3) | (15.1) | (18.3) | (33.4) | (3.0) | (3.1) | ||
| Investment expenses | 25.8 | 8.1 | 37.2% | 33.9 | -16.6% | 12.8 | 40.6 |
| Net investment income from assets under own management |
342.8 | (134.1) | -166.8% | 208.6 | -69.7% | 200.7 | 688.9 |
| Net investment income | |||||||
| from funds withheld | 102.3 | 59.5 | -13.3% | 161.8 | -2.9% | 68.6 | 166.6 |
| Net investment income | 445.1 | (74.7) | -127.7% | 370.4 | -56.7% | 269.3 | 855.5 |
1) Excluding expenses on funds withheld and contract deposits 2) Including regular depreciation/impairments on real estate
3) Portfolio at fair value through profit or loss and trading
Both European government bonds and US Treasury securities saw appreciable yield decreases over a one-year timeframe. The change witnessed in the third quarter on the
European market was significant in our preferred duration ranges. On the US market, by contrast, the decline in yields slowed.
8
Unfortunately, the increasingly dramatic upheavals on capital markets in the third quarter also left a clear mark on our investment income. Thanks to a positive cash flow from the technical account, it is nevertheless gratifying to report that the portfolio of assets under own management grew to EUR 19.9 billion, a figure slightly higher than the level as at 31 December 2007 (EUR 19.8 billion). Ordinary income excluding interest on deposits remained almost unchanged at EUR 627.5 million (EUR 635.3 million), a testament to the fact that we are correct in pursuing an investment policy geared to generating stable ordinary income.
Although movements on bond markets led to a decrease in unrealised losses in our available-for-sale portfolio of fixedincome securities in the third quarter relative to the first half-year, total unrealised losses of EUR 283.9 million (EUR 103.4 million) remained. Unrealised gains on equities stood at EUR 7.3 million (EUR 191.0 million) due to the large volume of write-downs that had to be taken. A large portion of the realised gains of EUR 204.3 million (EUR 164.3 million) can be attributed to the tactical shortening of durations in the US Dollar portfolios in the first quarter. This contrasted with realised losses of EUR 127.2 million (EUR 60.1 million). The considerable write-downs of altogether EUR 432.6 million (EUR 13.0 million) were due in very large measure to movements on the stock markets. Of the total write-downs that had to be taken, the equity portfolio alone accounted for an amount of EUR 355.3 million. The hedges on around one-fifth of our portfolio – which had similarly been put in place in the first quarter – nevertheless prevented even more extensive write-downs.
Primarily as a consequence of the aforementioned writedowns, net income from total investments decreased by 56.7% to EUR 370.4 million (EUR 855.5 million). This figure includes income from interest on deposits, which at EUR 161.8 million was somewhat lower than in the comparable period of the previous year (EUR 166.6 million) owing to exchange rate effects.
As an internationally operating reinsurer we are exposed to a diverse spectrum of potential risks. These risks can have a considerable impact on our assets, financial position and net income. Our effective controlling tools nevertheless ensure that we are able to identify our risks in a timely manner and maximise our opportunities.
Despite these tools the global crisis on the international capital markets has adversely impacted Hannover Re's investment income. Overall, though, the write-downs taken on fixed-income securities – which make up by far the bulk of the asset portfolio – have remained relatively modest. Hannover Re has, however, been affected by the dramatic slump in share prices, and the extent to which it can decouple itself from these global developments – e.g. through the already implemented reduction in the equity allocation – is limited. Principally due to hurricanes "Gustav" and "Ike", the burden of catastrophe losses and major claims is also significantly higher than our expected level of 10% of net
premium in non-life reinsurance. In view of the depletion of capital resources – which has also made itself felt throughout the insurance industry – Hannover Re nevertheless expects to see rising demand for insurance protection and hence hardening of the markets.
Based on our currently available insights arrived at from a holistic analysis of the risk situation, we cannot discern any risks that could jeopardise the continued existence of our company in the short or medium term or have a significant, lasting effect on our assets, financial position or net income. Our fundamental remarks on risk management at Hannover Re contained in the Annual Report as at 31 December 2007 remain valid and provide detailed insights into organisational aspects and further risk management activities. Supplementary information on our risk management system, and in particular quantitative data on individual risks, is provided in Section 5 of the Notes to this report, "Management of technical and financial risks".
In non-life reinsurance prices and conditions are largely acceptable and commensurate with the risks. While the treaty renewals that took place as recently as July in the United States pointed to a softening market, the present crisis on financial markets should usher in a trend reversal in view of the worsening state of insurers' capital resources: rates back then were still falling by up to 10% in casualty business, whereas now double-digit percentage increases will probably be seen in the directors' and officers' (D&O) and product liability lines. In industrial property business, too, prices are likely to move higher.
In Germany major loss events – specifically winter storm "Emma" and hailstorms such as "Hilal" – will prompt increased demand for catastrophe covers. Rates in other catastrophe business remain adequate.
All in all, the situation on reinsurance markets is likely to improve appreciably, and it may therefore be assumed that the soft market has bottomed out. We do not expect to see any further softening of insurance terms and conditions. On account of our profit-oriented underwriting policy and very good diversification and thanks to our excellent rating, we are poised to profit disproportionately strongly from these upturns.
Our net premium in non-life reinsurance is expected to contract slightly due to the restraining effects of exchange rate movements.
Our business prospects in life and health reinsurance remain favourable. The increasing size of the upper levels of the age pyramid in industrial nations will continue to drive growth in annuity and health insurance for many years to come. Based on our superb worldwide positioning and diversification, we expect sustained favourable profitability; growth in premium volume will, however, be heavily dependent on exchange rate movements affecting the currencies of greatest relevance to our business, such as the pound sterling, US dollar and Australian dollar. With this in mind, we anticipate double-digit growth in the original currencies for 2008.
Traditional life reinsurance in the United Kingdom will face special challenges over the coming 12 to 18 months owing to the faltering real estate market; we do, however, see opportunities for innovative morbidity products such as critical illness covers with a graduated benefit. UK enhanced annuity policies remain a vital core business with considerable growth potential over the medium term.
In the United States we anticipate further attractive market opportunities going forward in the areas of block assumption transactions and health insurance for seniors. Our main focus in Germany is on products aimed at senior citizens and unit-linked policies, with above all long-term care annuities likely to enjoy growing popularity.
The so-called BRICK markets, i.e. Brazil, Russia, India, China and Korea, promise to deliver further positive growth stimuli going forward. By establishing new branches and offices in these countries we now enjoy even greater customer intimacy and are thus better able to act on market opportunities.
We expect the net premium volume booked by the Group in the current financial year to come in roughly on the level of the previous year.
In spite of our conservatively oriented asset portfolio, investment income will fall significantly short of the previous year in view of the crisis affecting markets all around the world. In light of the turmoil on equity markets we realised losses of around EUR 200 million in October so as to minimise our equity exposure. This leaves only a modest share portfolio, the bulk of which is hedged; as things currently stand, then, we can no longer be affected by the historically unprecedented volatility. The volume of investments should remain on a par with the previous year due to the sustained positive cash flow from the technical account and the strengthening US dollar.
For the fourth quarter, given a normal catastrophe loss experience, we consider a break-even result after tax to be attainable. This assessment makes no allowance for the use of accounting policy options or flexibility with respect to valuation measurements.
of the Hannover Re Group
as at 30 September 2008
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Assets | 30.9. | 31.12. |
| Fixed-income securities – held to maturity | 1,488,220 | 1,488,816 |
| Fixed-income securities – loans and receivables | 1,642,819 | 1,537,889 |
| Fixed-income securities – available for sale | 12,760,406 | 12,477,055 |
| Fixed-income securities – at fair value through profit or loss | 202,887 | 158,740 |
| Equity securities – available for sale | 1,504,580 | 2,000,390 |
| Other financial assets – at fair value through profit or loss | 74,729 | 20,385 |
| Real estate | 14,699 | 16,962 |
| Investments in associated companies | 161,542 | 170,839 |
| Other invested assets | 778,761 | 677,957 |
| Short-term investments | 986,501 | 930,821 |
| Cash | 312,017 | 335,422 |
| Total investments and cash under own management | 19,927,161 | 19,815,276 |
| Funds held | 9,855,951 | 8,610,554 |
| Contract deposits | 359,291 | 616,134 |
| Total investments | 30,142,403 | 29,041,964 |
| Reinsurance recoverables on unpaid claims | 2,292,268 | 2,471,585 |
| Reinsurance recoverables on benefit reserve | 166,606 | 255,076 |
| Prepaid reinsurance premium | 98,655 | 92,322 |
| Reinsurance recoverables on other technical reserves | 12,563 | 5,574 |
| Deferred acquisition costs | 1,875,774 | 1,807,143 |
| Accounts receivable | 3,053,401 | 2,525,871 |
| Goodwill | 43,510 | 45,438 |
| Deferred tax assets | 664,170 | 577,731 |
| Other assets | 328,611 | 244,278 |
| Accrued interest and rent | 5,587 | 1,425 |
| 38,683,548 | 37,068,407 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Liabilities | 30.9. | 31.12. |
| Loss and loss adjustment expense reserve | 17,168,634 | 16,553,888 |
| Benefit reserve | 6,205,107 | 6,143,460 |
| Unearned premium reserve | 1,458,828 | 1,186,382 |
| Provisions for contingent commissions | 194,404 | 183,725 |
| Funds held | 661,732 | 956,912 |
| Contract deposits | 5,147,811 | 3,668,825 |
| Reinsurance payable | 1,316,960 | 1,141,067 |
| Provisions for pensions | 69,995 | 67,101 |
| Taxes | 152,381 | 202,621 |
| Provision for deferred taxes | 1,408,999 | 1,350,679 |
| Other liabilities | 353,856 | 277,037 |
| Long-term debt and subordinated capital | 1,417,891 | 1,414,877 |
| Total liabilities | 35,556,598 | 33,146,574 |
| Shareholders' equity | ||
| Common shares | 120,597 | 120,597 |
| Nominal value 120,597 Authorised 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 | (131,196) | 181,395 |
| Cumulative foreign currency translation adjustment | (205,635) | (213,117) |
| Other changes in cumulative other comprehensive income | 6,768 | 6,482 |
| Total other comprehensive income | (330,062) | (25,240) |
| Retained earnings | 2,098,164 | 2,529,170 |
| Shareholders' equity before minorities | 2,613,260 | 3,349,089 |
| Minority interests | 513,690 | 572,744 |
| Total shareholders' equity | 3,126,950 | 3,921,833 |
| 38,683,548 | 37,068,407 |
for the period 1 January to 30 September 2008
| Figures in EUR thousand | 2008 | 2007 | |||
|---|---|---|---|---|---|
| 1.7.–30.9. | 1.1.–30.9. | 1.7.–30.9. | 1.1.–30.9. | ||
| Gross written premium | 1,961,460 | 6,106,019 | 1,934,780 | 6,426,348 | |
| Ceded written premium | 250,806 | 685,323 | 235,054 | 874,075 | |
| Change in gross unearned premium | 38,866 | (265,285) | 135,519 | 91,627 | |
| Change in ceded unearned premium | (3,117) | 6,348 | (49,336) | (152,818) | |
| Net premium earned | 1,746,403 | 5,161,759 | 1,785,909 | 5,491,082 | |
| Ordinary investment income | 219,656 | 627,510 | 219,528 | 635,272 | |
| Profit/loss from investments in associated companies | 264 | 4,413 | 3,111 | 6,584 | |
| Income/expense on funds withheld and contract deposits | 59,469 | 161,769 | 68,619 | 166,570 | |
| Realised gains on investments | 32,906 | 204,259 | 29,984 | 164,304 | |
| Realised losses on investments | 58,176 | 127,230 | 23,368 | 60,105 | |
| Unrealised gains and losses on investments | (18,279) | (33,428) | (2,965) | (3,106) | |
| Total depreciation, impairments and appreciation of investments | 302,447 | 432,998 | 12,795 | 13,412 | |
| Other investment expenses | 8,054 | 33,878 | 12,817 | 40,615 | |
| Net investment income | (74,661) | 370,417 | 269,297 | 855,492 | |
| Other technical income | 256 | 2,032 | 234 | 1,509 | |
| Total revenues | 1,671,998 | 5,534,208 | 2,055,440 | 6,348,083 | |
| Claims and claims expenses | 1,348,035 | 3,652,603 | 1,324,185 | 3,869,227 | |
| Change in benefit reserve | 102,936 | 272,952 | 86,225 | 300,717 | |
| Commission and brokerage, change in deferred acquisition costs | 434,433 | 1,286,848 | 354,099 | 1,281,436 | |
| Other acquisition costs | 1,639 | 9,960 | 1,864 | 10,029 | |
| Other technical expenses | 2,472 | 7,835 | 1,652 | 10,830 | |
| Administrative expenses | 53,017 | 165,756 | 47,628 | 148,215 | |
| Total technical expenses | 1,942,532 | 5,395,954 | 1,815,653 | 5,620,454 | |
| Other income and expenses | (97,156) | (105,730) | (29,225) | (49,368) | |
| Operating profit/loss (EBIT) | (367,690) | 32,524 | 210,562 | 678,261 | |
| Interest on hybrid capital | 19,435 | 57,944 | 19,552 | 58,069 | |
| Net income before taxes | (387,125) | (25,420) | 191,010 | 620,192 | |
| Taxes | 15,541 | 114,437 | (142,835) | (2,971) | |
| Net income from continuing operations | (402,666) | (139,857) | 333,845 | 623,163 | |
| Net income from discontinued operations | – | – | (356) | 30,356 | |
| Net income | (402,666) | (139,857) | 333,489 | 653,519 | |
| thereof | |||||
| Minority interest in profit and loss | (7,649) | 2,936 | 49,168 | 76,227 | |
| Group net income | (395,017) | (142,793) | 284,321 | 577,292 | |
| Earnings per share | |||||
| Earnings per share in EUR | -3.27 | -1.18 | 2.36 | 4.79 | |
| from continuing operations in EUR | -3.27 | -1.18 | 2.36 | 4.54 | |
| from discontinued operations in EUR | – | – | – | 0.25 |
of changes in shareholders' equity 2008
| Figures in EUR thousand |
Common shares |
Additional paid-in capital |
Other reserves (cumulative other comprehensive income) |
Retained earnings |
Minority interests |
Shareholders' equity |
||
|---|---|---|---|---|---|---|---|---|
| Currency translation |
Unrealised gains/ losses |
Other | ||||||
| Balance as at 1.1.2007 | 120,597 | 724,562 | (71,518) | 144,199 | (1,526) | 1,981,521 | 608,551 | 3,506,386 |
| Capital repayments | (52) | (52) | ||||||
| Income and expenses directly recognised in equity |
(97,514) | 31,115 | (277) | (4,552) | (101,009) | (172,237) | ||
| Tax effects on income and expen ses directly recognised in equity |
(902) | 2,510 | 102 | 1,710 | ||||
| Dividend paid | (192,955) | (32,505) | (225,460) | |||||
| Net income | 577,292 | 76,227 | 653,519 | |||||
| Balance as at 30.9.2007 | 120,597 | 724,562 | (169,934) | 177,824 | (1,701) | 2,361,306 | 551,212 | 3,763,866 |
| Balance as at 1.1.2008 | 120,597 | 724,562 | (213,117) | 181,395 | 6,482 | 2,529,170 | 572,744 | 3,921,833 |
| Capital increases/additions | 39 | 39 | ||||||
| Capital repayments | (168) | (168) | ||||||
| Income and expenses directly recognised in equity |
12,692 | (355,858) | 466 | (10,840) | (20,684) | (374,224) | ||
| Tax effects on income and expenses directly recognised in equity |
(5,210) | 43,267 | (180) | 37,877 | ||||
| Dividends paid | (277,373) | (41,177) | (318,550) | |||||
| Net income | (142,793) | 2,936 | (139,857) | |||||
| Balance as at 30.9.2008 | 120,597 | 724,562 | (205,635) | (131,196) | 6,768 | 2,098,164 | 513,690 | 3,126,950 |
as at 30 September 2008
| Figures in EUR thousand | 2008 | 2007 | |
|---|---|---|---|
| 1.1.–30.9. | 1.1.–30.9. | ||
| I. | Cash flow from operating activities | ||
| Net income | (139,857) | 653,519 | |
| Appreciation/depreciation | 450,291 | 61,049 | |
| Net realised gains and losses on investments | (77,029) | (104,199) | |
| Net realised gains and losses on disposal of discontinued operations |
– | (84,919) | |
| Amortisation of investments | (14,420) | (6,038) | |
| Changes in funds held | (1,475,810) | (778,359) | |
| Net changes in contract deposits | 1,552,625 | 105,586 | |
| Changes in prepaid reinsurance premium (net) | 259,253 | 61,258 | |
| Changes in tax assets/provisions for taxes | (79,961) | (47,887) | |
| Changes in benefit reserve (net) | 312,326 | 496,069 | |
| Changes in claims reserves (net) | 769,453 | 515,040 | |
| Changes in deferred acquisition costs | (88,801) | 62,106 | |
| Changes in other technical provisions | 3,954 | 14,993 | |
| Changes in clearing balances | (374,501) | (380,565) | |
| Changes in other assets and liabilities (net) | 97,642 | (121,594) | |
| Cash flow from operating activities | 1,195,165 | 446,059 | |
| II. | Cash flow from investing activities | ||
| Fixed-income securities – held to maturity | |||
| Maturities | 11,305 | 79,510 | |
| Purchases | – | (36,848) | |
| Fixed-income securities – loans and receivables | |||
| Maturities, sales | 57,907 | 95,934 | |
| Purchases | (149,774) | (413,691) | |
| Fixed-income securities – available for sale | |||
| Maturities, sales | 7,351,007 | 4,397,729 | |
| Purchases | (7,870,794) | (4,250,407) | |
| Fixed-income securities – at fair value through profit or loss | |||
| Maturities, sales | 28,671 | 15,932 | |
| Purchases | (40,242) | (14,222) | |
| Equity securities – available for sale | |||
| Sales | 894,951 | 932,842 | |
| Purchases | (956,538) | (1,055,117) |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.9. | 1.1.–30.9. | |
| Equity securities – at fair value through profit or loss | ||
| Sales | – | 20,340 |
| Purchases | – | (10,207) |
| Other financial instruments – at fair value through profit or loss | ||
| Sales | 63,244 | (2,295) |
| Purchases | (69,012) | (3,623) |
| Other invested assets | ||
| Sales | 16,008 | 84,198 |
| Purchases | (122,990) | (86,607) |
| Affiliated companies and participating interests | ||
| Sales | 586 | 599,432 |
| Purchases | (3,600) | (989) |
| Real estate | ||
| Sales | (119) | (10) |
| Short-term investments | ||
| Changes | (99,944) | (510,562) |
| Other changes (net) | (28,002) | (20,352) |
| Cash flow from investing activities | (917,336) | (179,013) |
| III. Cash flow from financing activities | ||
| Contribution from capital measures | 2,599 | – |
| Payment on capital measures | – | (52) |
| Structural change without loss of control | 14,134 | (108,156) |
| Dividends paid | (318,550) | (225,461) |
| Proceeds from long-term debts | 35 | – |
| Repayment of long-term debts | (432) | (10,021) |
| Other changes | – | 6,234 |
| Cash flow from financing activities | (302,214) | (337,456) |
| IV. Exchange rate differences on cash | 980 | (10,405) |
| Change in cash and cash equivalents (I.+II.+III.+IV.) | (23,405) | (80,815) |
| Cash and cash equivalents at the beginning of the period | 335,422 | 351,776 |
| Change in cash and cash equivalents according to cash flow statement | (23,405) | (80,815) |
| Cash and cash equivalents at the end of the period | 312,017 | 270,961 |
| Income taxes | (109,298) | (57,601) |
| Interest paid | (81,540) | (132,297) |
Hannover Re's segmental report is based on IAS 14 "Segment Reporting" and on the principles set out in German Accounting Standard No. 3 "Segment Reporting" (DRS 3) of the German Standards Council, supplemented by the requirements of DRS 3–20 "Segment Reporting of Insurance Enterprises".
The segments are shown after consolidation of internal transactions within the individual segment, but before consolidation across the segments. This is reported separately in the "Consolidation" column.
| Figures in EUR thousand | Non-life reinsurance | |
|---|---|---|
| 2008 | 2007 | |
| 30.9. | 31.12. | |
| Assets | ||
| Held to maturity | 1,272,038 | 1,262,619 |
| Loans and receivables | 1,377,041 | 1,263,764 |
| Available for sale | 11,048,366 | 11,387,469 |
| At fair value through profit or loss | 166,478 | 118,573 |
| Other invested assets | 890,269 | 808,047 |
| Short-term investments | 757,326 | 587,455 |
| Cash | 241,136 | 241,812 |
| Total investments and cash under own management | 15,752,654 | 15,669,739 |
| Funds held by ceding companies | 788,936 | 870,892 |
| Contract deposits | – | 137 |
| Total investments | 16,541,590 | 16,540,768 |
| Reinsurance recoverables on unpaid claims | 2,178,729 | 2,371,387 |
| Reinsurance recoverables on benefit reserve | – | – |
| Prepaid reinsurance premium | 91,768 | 86,217 |
| Reinsurance recoverables on other reserves | 12,408 | 3,031 |
| Deferred acquisition costs | 312,409 | 262,176 |
| Accounts receivable | 2,085,581 | 1,373,824 |
| Other assets in the segment | 1,331,700 | 1,287,379 |
| Total | 22,554,185 | 21,924,782 |
| Life and health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| 30.9. | 31.12. | 30.9. | 31.12. | 30.9. | 31.12. |
| 44,287 | 52,071 | 171,895 | 174,126 | 1,488,220 | 1,488,816 |
| 107,072 | 116,567 | 158,706 | 157,558 | 1,642,819 | 1,537,889 |
| 2,615,103 | 2,496,286 | 601,517 | 593,690 | 14,264,986 | 14,477,445 |
| 60,688 | 35,227 | 50,450 | 25,325 | 277,616 | 179,125 |
| 64,733 | 57,711 | – | – | 955,002 | 865,758 |
| 212,133 | 146,952 | 17,042 | 196,414 | 986,501 | 930,821 |
| 54,436 | 88,295 | 16,445 | 5,315 | 312,017 | 335,422 |
| 3,158,452 | 2,993,109 | 1,016,055 | 1,152,428 | 19,927,161 | 19,815,276 |
| 9,069,263 | 7,741,902 | (2,248) | (2,240) | 9,855,951 | 8,610,554 |
| 359,291 | 615,997 | – | – | 359,291 | 616,134 |
| 12,587,006 | 11,351,008 | 1,013,807 | 1,150,188 | 30,142,403 | 29,041,964 |
| 113,857 | 101,629 | (318) | (1,431) | 2,292,268 | 2,471,585 |
| 166,606 | 255,076 | – | – | 166,606 | 255,076 |
| 6,887 | 6,105 | – | – | 98,655 | 92,322 |
| 155 | 2,543 | – | – | 12,563 | 5,574 |
| 1,563,365 | 1,544,967 | – | – | 1,875,774 | 1,807,143 |
| 967,943 | 1,152,705 | (123) | (658) | 3,053,401 | 2,525,871 |
| 417,072 | 304,312 | (706,894) | (722,819) | 1,041,878 | 868,872 |
| 15,822,891 | 14,718,345 | 306,472 | 425,280 | 38,683,548 | 37,068,407 |
as at 30 September 2008
| Figures in EUR thousand | Non-life reinsurance | ||
|---|---|---|---|
| 2008 | 2007 | ||
| 30.9. | 31.12. | ||
| Liabilities | |||
| Loss and loss adjustment expense reserve | 15,568,854 | 15,114,553 | |
| Benefit reserve | – | – | |
| Unearned premium reserve | 1,410,724 | 1,148,723 | |
| Provisions for contingent commissions | 159,213 | 146,638 | |
| Funds held under reinsurance contracts | 184,409 | 186,802 | |
| Contract deposits | 148,381 | 156,829 | |
| Reinsurance payable | 956,317 | 427,552 | |
| Long-term liabilities | 42,243 | 41,583 | |
| Other liabilities in the segment | 1,247,135 | 1,239,046 | |
| Total | 19,717,276 | 18,461,726 |
| Life and health reinsurance | Consolidation | Total | ||||||
|---|---|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||
| 30.9. | 31.12. | 30.9. | 31.12. | 30.9. | 31.12. | |||
| 1,600,139 | 1,440,774 | (359) | (1,439) | 17,168,634 | 16,553,888 | |||
| 6,205,107 | 6,143,460 | – | – | 6,205,107 | 6,143,460 | |||
| 48,104 | 37,659 | – | – | 1,458,828 | 1,186,382 | |||
| 35,191 | 37,087 | – | – | 194,404 | 183,725 | |||
| 479,639 | 772,352 | (2,316) | (2,242) | 661,732 | 956,912 | |||
| 4,999,430 | 3,511,996 | – | – | 5,147,811 | 3,668,825 | |||
| 361,391 | 714,857 | (748) | (1,342) | 1,316,960 | 1,141,067 | |||
| – | – | 1,375,648 | 1,373,294 | 1,417,891 | 1,414,877 | |||
| 1,437,737 | 1,283,393 | (699,641) | (625,001) | 1,985,231 | 1,897,438 | |||
| 15,166,738 | 13,941,578 | 672,584 | 743,270 | 35,556,598 | 33,146,574 |
as at 30 September 2008
| Figures in EUR thousand Non-life reinsurance |
||
|---|---|---|
| 2008 | 2007 | |
| 1.1.–30.9. | 1.1.–30.9. | |
| Gross written premium | 3,791,939 | 4,102,262 |
| thereof | ||
| From insurance business with other segments | – | – |
| From insurance business with external third parties | 3,791,939 | 4,102,262 |
| Net premium earned | 3,103,205 | 3,391,347 |
| Net investment income | 143,088 | 585,959 |
| Claims and claims expenses | 2,419,459 | 2,620,762 |
| Change in benefit reserve | – | – |
| Commission and brokerage, change in deferred acquisition costs and other technical income/expenses |
699,067 | 713,027 |
| Administrative expenses | 115,857 | 107,829 |
| Other income and expenses | (97,907) | (93,476) |
| Operating profit/loss (EBIT) | (85,997) | 442,212 |
| Interest on hybrid capital | – | – |
| Net income before taxes | (85,997) | 442,212 |
| Taxes | 94,362 | 16,712 |
| Net income from continuing operations | (180,359) | 425,500 |
| Net income from discontinued operations | – | 13,526 |
| Net income | (180,359) | 439,026 |
| thereof | ||
| Minority interest in profit or loss | (2,355) | 56,145 |
| Group net income | (178,004) | 382,881 |
| Life and health reinsurance | Consolidation | Total | ||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| 1.1.–30.9. | 1.1.–30.9. | 1.1.–30.9. | 1.1.–30.9. | 1.1.–30.9. | 1.1.–30.9. | |
| 2,315,438 | 2,333,701 | (1,358) | (9,615) | 6,106,019 | 6,426,348 | |
| 1,358 | 9,615 | (1,358) | (9,615) | – | – | |
| 2,314,080 | 2,324,086 | – | – | 6,106,019 | 6,426,348 | |
| 2,058,554 | 2,099,735 | – | – | 5,161,759 | 5,491,082 | |
| 206,262 | 239,216 | 21,067 | 30,317 | 370,417 | 855,492 | |
| 1,233,759 | 1,248,863 | (615) | (398) | 3,652,603 | 3,869,227 | |
| 272,952 | 300,717 | – | – | 272,952 | 300,717 | |
| 608,175 | 592,746 | (4,631) | (4,987) | 1,302,611 | 1,300,786 | |
| 51,780 | 43,887 | (1,881) | (3,501) | 165,756 | 148,215 | |
| (4,998) | 56,116 | (2,825) | (12,008) | (105,730) | (49,368) | |
| 93,152 | 208,854 | 25,369 | 27,195 | 32,524 | 678,261 | |
| – | – | 57,944 | 58,069 | 57,944 | 58,069 | |
| 93,152 | 208,854 | (32,575) | (30,874) | (25,420) | 620,192 | |
| 26,422 | (13,828) | (6,347) | (5,855) | 114,437 | (2,971) | |
| 66,730 | 222,682 | (26,228) | (25,019) | (139,857) | 623,163 | |
| – | – | – | 16,830 | – | 30,356 | |
| 66,730 | 222,682 | (26,228) | (8,189) | (139,857) | 653,519 | |
| 5,291 | 20,082 | – | – | 2,936 | 76,227 | |
| 61,439 | 202,600 | (26,228) | (8,189) | (142,793) | 577,292 |
Our secondary segmental reporting covers the continuing operations and is based on the regional origin of the investments and gross written premium.
Investments 1)
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 30.9. | 31.12. | |
| Investments | ||
| Germany | 5,811,650 | 6,252,371 |
| United Kingdom | 1,223,702 | 1,187,499 |
| France | 1,254,563 | 1,117,610 |
| Other | 3,379,627 | 3,251,338 |
| Europe | 11,669,542 | 11,808,818 |
| USA | 5,923,855 | 5,909,163 |
| Other | 719,524 | 589,295 |
| North America | 6,643,379 | 6,498,458 |
| Asia | 428,363 | 384,628 |
| Australia | 673,425 | 659,006 |
| Australasia | 1,101,788 | 1,043,634 |
| Africa | 280,766 | 276,441 |
| Other | 231,686 | 187,925 |
| Total | 19,927,161 | 19,815,276 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.9. | 1.1.–30.9. | |
| Gross written premium | ||
| Germany | 995,187 | 1,096,406 |
| United Kingdom | 1,075,557 | 1,176,377 |
| France | 298,873 | 310,876 |
| Other | 968,125 | 899,714 |
| Europe | 3,337,742 | 3,483,373 |
| USA | 1,282,129 | 1,511,554 |
| Other | 269,336 | 301,553 |
| North America | 1,551,465 | 1,813,107 |
| Asia | 464,197 | 356,204 |
| Australia | 331,109 | 362,253 |
| Australasia | 795,306 | 718,457 |
| Africa | 184,252 | 204,152 |
| Other | 237,254 | 207,259 |
| Total | 6,106,019 | 6,426,348 |
1) After elimination of internal transactions within the Group across segments
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 full 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.
In accordance with IAS 34.41 we draw on estimates and assumptions to a greater extent when preparing the consolidated quarterly financial report 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 quarterly accounts of the consolidated companies included in the consolidated financial statement were drawn up as at 30 September 2008.
All standards adopted by the IASB as at 30 September 2008 with binding effect for the reporting period have been observed in the consolidated financial statement.
In the present quarterly financial report as at 30 September 2008 we have included a self-contained, condensed risk report in the interim management report as well as further explanatory remarks in Section 5 "Management of technical and financial risks". In combination with the outlook for the full 2008 financial year, the intention is to thereby further improve the reporting on major opportunities and risks in the financial year.
In January 2008 the IASB issued revised versions of IFRS 3 "Business Combinations" and IAS 27 "Consolidated and Separate Financial Statements". The revisions primarily encompass the accounting treatment of minority interests, measurement issues relating to step acquisition, changes in the level of investment with and without loss of control as well as adjustments to acquisition costs depending on future events and their implications for goodwill. It remains the case that IFRS 3 does not cover business combinations involving entities under common control. The revisions are to be applied to financial years beginning on or after 1 July 2009. Both revised versions had still to be ratified by the European Union as at the balance sheet date.
With effect from the second quarter of 2008 we made use of the option provided for in the currently applicable version of IFRS 3 to recognise directly in equity changes of interest in fully consolidated Group companies without a change of control status.
As at 30 September of the previous year this change resulted in a profit reduction of EUR 12.0 million attributable to changes of interest in E+S Rück. A reclassification in the same amount was to be made within retained earnings in the Group shareholders' equity of the previous year. The amount was reclassified from the net income recognised in shareholders' equity to the item "Income and expenses recognised directly in equity". The figures for the corresponding quarter of the previous year have been adjusted retrospectively for comparative purposes as required by IAS 8.
In accordance with IAS 39 "Financial Instruments: Recognition and Measurement", effective 28 December 2007 a group of reinsurance contracts involving guarantees given by Talanx AG was to be classified as financial instruments with the character of loans and receivables and measured at amortised cost (so-called "investment contracts"). We have retrospectively adjusted the figures for the comparative period of the previous year as required by IAS 8. Consequently, income of EUR 7.9 million was reallocated from the reinsurance underwriting result to ordinary investment income for the third quarter of 2007. This reclassification, which affected the non-life reinsurance and life and health reinsurance business groups, did not have any implications for the premium, operating profit (EBIT) or net income or the shareholders' equity.
On 13 October 2008, in response to the turmoil on international capital markets, the IASB approved and published the "IAS 39 & IFRS 7 Amendments Reclassification of Financial Assets". The European Commission adopted the amendments in European law on 15 October 2008 under Commission Regulation (EC) No. 1004/2008. The amendments contained in IAS 39 open up the possibility of reclassifying and remeasuring selected financial instruments. Hannover Re has examined the implications of the changes and, since there is scarcely any scope to apply them, it did not make use of the facilities associated with the amendments as at the balance sheet date.
We would also refer to the relevant information in the consolidated financial statement as at 31 December 2007.
Effective 1 January 2008 Hannover Rückversicherung AG, Bahrain Branch, which had received a corresponding licence in June 2007 from the Central Bank of Bahrain (CBB), commenced business operations alongside the already existing subsidiary Hannover ReTakaful B.S.C. (c), which had been established in 2006.
Effective 1 January 2008 the company name of Hannover Rückversicherung AG Succursale Française pour la Réassurance Vie, a branch of Hannover Re, was changed to Hannover Rückversicherung AG Succursale Française and the object of its business was expanded to include non-life reinsurance activities for the markets of France, Belgium and Luxembourg.
Effective 1 January 2008 Hannover Re and E+S Rück, which were equal partners in GbR Hannover Rückversicherung AG/ E+S Rückversicherung AG-Grundstücksgesellschaft (GbR), liquidated the company. The partnership assets of GbR were divided between the former partners by way of de facto splitting. The transaction had no implications for the consolidated quarterly financial statement as at 30 September 2008.
Effective 3 March 2008 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 a further 1% of its stake in E+S Rück – by way of a share reduction without a change of control status – in order to intensify the business relations. Upon closing of the transaction HRBV held an interest of 62.78% in E+S Rück. This transaction was recognised directly in equity in the capital consolidation as at the balance sheet date. Please see our explanatory remarks in Section 2 "Accounting principles including major accounting policies".
In the 2007 financial year Hannover Re acquired the 50% stake held by E+S Rück in Hannover Life Re of Australasia Ltd., Sydney, Australia, and thus holds all shares in the company; full allowance was made for transaction costs. All intercompany profits arising out of this transaction were eliminated. Effective 31 March 2008 Hannover Re transferred its shares in the company at book value by way of a capital increase for a non-cash contribution to the former Zweite Hannover Rück Beteiligung Verwaltungs-GmbH, all shares of which are held by Hannover Re. Effective 1 July 2008 Zweite Hannover Rück Beteiligung Verwaltungs-GmbH was converted to Hannover Life Re AG, the registered office of which is in Hannover. The change in corporate form came into effect upon entry in the commercial register on 7 August 2008.
On 9 April 2008 the Cologne-based Hannover Re Euro PE Holdings GmbH & Co. KG commenced business operations. Hannover Re and E+S Rück hold interests of 75% and 25% respectively in the company. Payment of the limited partner's share in an amount of altogether EUR 4.5 million was made in the second quarter. The company's business object is to build, hold and manage a portfolio of assets.
In the second quarter of 2008 Hannover Re for the first time included the Shanghai-based Hannover Rückversicherung AG Shanghai Branch – which is charged with writing life and health reinsurance business – in the consolidated financial statement. The branch commenced business operations on 19 May 2008.
In the second quarter of 2008 Hannover Re for the first time included the Seoul-based Hannover Rückversicherung AG Korea Branch – which is charged with writing life and health reinsurance business – in the consolidated financial statement. The branch commenced business operations on 23 May 2008.
In the course of the second and third quarters Hannover Re participated as the first investor in Secquaero ILS Fund Ltd. The fund in question is a so-called "Seed Money Fund", the business object of which is to underwrite, hold and sell insurance-linked securitisations. As at the balance sheet date Hannover Re had invested USD 40 million in this fund. The remaining USD 10 million was paid in under another capital call on 1 October 2008, as a consequence of which no further contribution requirement remains. Hannover Re will consolidate this fund until such time as other investors hold the majority stake in the fund.
The capital consolidation complies with the standards 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. Under the "purchase accounting" method the purchase 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. Under IFRS 3 scheduled amortisation is not taken on goodwill. Instead, unscheduled amortisation is taken where necessary on the basis of regular 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 controlling influence ("associated companies") are normally consolidated "at equity" with the proportion of the shareholders' equity attributable to the Group. A controlling 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.
Where minority interests in shareholders' equity exist, such interests are reported separately within Group shareholders' equity in accordance with IAS 1 "Presentation of Financial Statements".
The minority interest in the result is a component of net income and is shown separately as a "thereof" note following net income. As at 30 September 2008 it amounted to EUR 2.9 million (EUR 76.2 million).
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.
Since November 2000 Hannover Re had held voting equity interests of 33.3% in the special purpose entity Mediterranean Re PLC for the securitisation of reinsurance risks in France and Monaco. The securitisation ended as per the contractual agreement on 18 November 2005. The bonds issued as security were repaid in full to investors. The additional paid-in capital was repaid to the partners. The special purpose entity was liquidated effective 5 February 2008.
As a means of transferring peak exposures deriving from natural disasters to the capital market, Hannover Re issued a catastrophe ("CAT") bond that can be traded on a secondary market. The CAT bond with a volume of USD 150 million was placed with institutional investors from Europe and North America by Eurus 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. Pursuant to IAS 39.9 the contract gives rise to a derivative, the fair value of which as at 30 September 2008 was EUR 0.5 million (-EUR 2.9 million) and which we recognised under other invested assets as at the balance sheet date.
Effective 1 January 2008 Hannover Re again drew on the capital market to obtain underwriting capacity for catastrophe risks by increasing the volume of its "K5" risk transaction, which had been boosted to USD 530.0 million in the previous year, by a further USD 10.0 million. The securitisation was placed with investors in North America, Europe and Asia. The additional capital was provided by both new and existing investors. Kaith Re Ltd., a special purpose entity domiciled in Bermuda, was used for the transaction. The planned term of the transaction runs until 31 December 2008. Pursuant to SIC–12 Kaith Re Ltd. has been included in the consolidated financial statement.
In the previous year Hannover Re placed on the capital market a protection cover on its worldwide natural catastrophe business in an amount of USD 200.0 million with a term of two years. It provides Hannover Re with aggregate excess of loss coverage. The special purpose entity Kepler Re, a separate cell within Kaith Re Ltd., was used for the transaction. The underlying portfolio consists of the natural catastrophe business retained under the existing "K5" securitisation. The cover attaches upon occurrence of an aggregated 83-year-event for "K5" and is fully utilised upon occurrence of a 250-year accumulation. Within this spread the outside investors in this and the "K5" transaction combined assume 90% of the "K5" losses, while the remaining 10% remain with Hannover Re. Hannover Re does not bear the majority of the economic benefits or risks arising out of this company's activities through any of its business relations with the special purpose entity.
Also in the previous year, the Hannover Re Group transferred risks from reinsurance recoverables to the capital market. By means of this securitisation, which has a term of five years, the default risk associated with reinsurance recoverables is reduced. The portfolio of recoverables underlying the transaction has a nominal value of EUR 1.0 billion and is comprised of exposures to retrocessionaires. The securities serving as collateral are issued through the special purpose entity Merlin CDO I B.V. A payment to Hannover Re is triggered by the insolvency of one or more retrocessionaires as soon as Hannover Re's contractually defined cumulative deductible of EUR 60.0 million over the term of the contract is exceeded. Hannover Re does not derive the majority of the economic benefits or risks arising out of the special purpose entity's activities through any of its business relations. Pursuant to IAS 39.9 the transaction gives rise to a derivative,
the fair value of which as at 30 September 2008 was EUR 14.1 million (EUR 5.8 million) and which we recognised under other financial assets at fair value through profit or loss.
In June 2008 Hannover Re completed the first transaction as part of its extended Insurance-Linked Securities (ILS) activities. Property catastrophe risks of a number of US cedants were pooled and transferred to the capital market in several tranches. A special purpose entity named Globe Re was established in Bermuda for this transaction; it is capitalised at USD 133 million. Globe Re is funded through the issue of an equity tranche of USD 33 million and a further USD 100 million in bonds split into various rating categories. The term of the transaction is one year. Hannover Re has a stake of USD 5 million – or 15.2% – in the equity tranche. Hannover Re does not exercise a controlling influence over the special purpose entity through any of its business relations. Pursuant to IAS 28 "Investments in Associates" Globe Re is to be carried as an investment at cost or amortised cost and is therefore recognized under other invested assets.
In the 2006 financial year Hannover Re reached agreement on the sale of its American subgroup Praetorian Financial Group, Inc., New York (PFG), to an Australian insurance group. Effective 31 May 2007 beneficial ownership of the assets and liabilities belonging to the subgroup classified in the previous periods as discontinued operations was transferred. They were therefore no longer recognised as at the balance sheet date. In compliance with IFRS 5 "Non-Current Assets Held for Sale and Discontinued Operations", we recognise the profit or loss of PFG in the consolidated statement of income for the previous period after tax in a separate line. For further explanatory remarks please see the corresponding information in the consolidated financial statement as at 31 December 2007.
The profit or loss and net cash flows of the discontinued operations for the comparative period of the previous year are presented in the following tables and broken down into their major components.
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.9. | 1.1.–30.9. | |
| Gross written premium | – | 275,409 |
| Ceded written premium | – | (42,368) |
| Net change in gross unearned premium | – | (12,372) |
| Net premium earned | – | 305,405 |
| Net investment income | – | 20,447 |
| Net underwriting result | – | 24,880 |
| Other income and expenses | – | (11,209) |
| Operating profit/loss (EBIT) | – | 34,118 |
| Interest on hybrid capital | – | 2,329 |
| Net income before taxes | – | 31,789 |
| Taxes | – | 5,799 |
| Acquirer's share of current income from discontinued operations | – | 13,091 |
| Group share of current income from discontinued operations | – | 12,899 |
| Income/loss from deconsolidation (after taxes) | – | 17,457 |
| Net income | – | 30,356 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.9. | 1.1.–30.9. | |
| Cash flow from operating activities | – | 176,313 |
| Cash flow from investing activities | – | (18,490) |
| Change in cash and cash equivalents | – | 157,823 |
Risks on the underwriting side can be subdivided into risks of random fluctuation, risks of error and risks of change.
In life and health reinsurance we calculate the reserves in accordance with actuarial principles using secure biometric actuarial bases and with the aid of portfolio information provided by our clients. In this area biometric risks are of primary importance for our company. This term refers to all risks directly connected with the life of an insured person, such as miscalculation of mortality, life expectancy and the probability of disability. We reduce these potential risks with a broad range of risk management measures.
A significant technical risk is the risk of underreserving. In non-life reinsurance we similarly calculate our loss reserves on an actuarial basis. The point of departure here is always the information provided by our cedants, where necessary supplemented by additional reserves that may seem appropriate on the basis of our own loss estimations. Furthermore, we constitute an IBNR (incurred but not reported) reserve for losses that have already occurred but have not yet been reported to us.
The combined ratio is tracked over time in non-life reinsurance in order to monitor the risk of losses exceeding premiums:
| Figures in % | Q3 2008 | 2007 | 2006 | 2005 | 2004 | 20031) | 20021) | 20011) | 20001) | 19991) | 19981) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Combined ratio | 103.6 | 99.7 | 100.8 | 112.8 | 97.2 | 96.0 | 96.3 | 116.5 | 107.8 | 111.1 | 108.1 |
| thereof catastrophe losses 2) |
14.3 | 6.3 | 2.3 | 26.3 | 8.3 | 1.5 | 5.2 | 23.0 | 3.7 | 11.4 | 3.5 |
Combined and catastrophe loss ratio (non-life reinsurance) over the past ten years
1) On a US GAAP basis
2) Natural catastrophes and other man-made major losses > EUR 5 million gross for the share of the Hannover Re Group as a percentage of net premium earned
Bad debt risks are of relevance to our company because the business that we accept is not always fully retained, but instead portions are retroceded as necessary. Our retrocession partners are therefore carefully selected in light of credit considerations.
In terms of the Hannover Re Group's major companies, EUR 227.5 million (8.0%) of our accounts receivable from reinsurance business in an amount of EUR 2,834.8 million were older than 90 days as at the balance sheet date. The average default rate over the past three years was 0.5%.
Risks in the investment sector consist primarily of market, credit and liquidity risks. Market price risks include share price, interest rate and currency risks. The "value at risk" (VaR) is a vital tool used for managing market price risks. For further explanatory remarks please see our comments on investment risks in the 2007 Group annual financial report.
Currency risks are of considerable importance to an internationally operating reinsurance enterprise that writes a significant proportion of its business in foreign currencies. These risks are, however, largely neutralised since we systematically adhere to the principle of matching currency coverage. Interest rate risks refer to an unfavourable change in the value of financial assets held in the portfolio due to changes in the market interest rate level. Declining market yields lead to increases and rising market yields to decreases in the fair value of fixed-income securities portfolios. One of the central objectives of our strategy in this regard is to match cash flows on the assets and liabilities sides as closely as possible. Quantitative support for this strategy is provided by our dynamic financial analysis model as well as a broad diversity of value at risk calculations. In addition, tightly defined tactical duration ranges are in place, within which asset managers can position themselves opportunistically according to their market expectations. The parameters for these ranges are directly linked to the risk-carrying capacity of the Hannover Re Group. Share price risks derive from unfavourable changes in the value of equities and equity or index derivatives held in the portfolio due, for example, to downward movements on particular stock indices. We spread these risks through systematic diversification across various sectors and regions.
| Portfolio | Scenario | Portfolio change based on fair value in EUR million |
|---|---|---|
| Fixed-income securities | Yield increase +50 basis points |
(302.7) |
| Yield increase +100 basis points |
(584.1) | |
| Yield decrease -50 basis points |
294.7 | |
| Yield decrease -100 basis points |
610.7 | |
| Fair value as at 30.9.2008 | 16,060.7 |
Scenarios for changes in the fair value of our securities as at the balance sheet date
| Portfolio | Scenario | Portfolio change based on fair value in EUR million |
|---|---|---|
| Equity securities | Share prices -10% |
(124.4) |
| Share prices -20% |
(244.4) | |
| Share prices +10% |
126.0 | |
| Share prices +20% |
244.6 | |
| Fair value as at 30.9.2008 | 1,504.6 |
Credit risks may arise out of a failure to pay (interest and/or capital repayment) or change in the credit status (rating downgrade) of issuers of securities. We attach vital importance to credit assessment conducted on the basis of the quality criteria set out in the investment guidelines.
| Government bonds | Securities issued by semi governmental entities |
Corporate bonds | Asset-backed securities | |||||
|---|---|---|---|---|---|---|---|---|
| in % | in EUR million | in % | in EUR million | in % | in EUR million | in % | in EUR million | |
| AAA | 88.5 | 3,601.5 | 58.9 | 2,482.4 | 4.9 | 238.3 | 79.4 | 2,372.5 |
| AA | 2.5 | 102.6 | 34.4 | 1,451.9 | 25.6 | 1,231.5 | 14.4 | 431.1 |
| A | 6.2 | 250.5 | 6.1 | 258.8 | 50.9 | 2,455.1 | 0.9 | 28.6 |
| BBB | 2.8 | 112.2 | 0.4 | 16.6 | 12.6 | 606.5 | 2.4 | 71.4 |
| < BBB | – | – | 0.2 | 7.4 | 6.0 | 289.7 | 2.9 | 85.7 |
| Total | 100.0 | 4,066.8 | 100.0 | 4,217.1 | 100.0 | 4,821.1 | 100.0 | 2,989.3 |
1) Securities held through investment funds are recognised pro rata with their corresponding individual ratings.
The liquidity risk refers to the risk that it may not be possible to sell holdings or close open positions due to the illiquidity of the markets – or to do so only with delays or price markdowns – as well as the risk that the traded volumes influence the markets in question. Regular liquidity planning and a liquid asset structure ensure that Hannover Re is able to make the necessary payments at all times. We manage the liquidity risk inter alia by allocating a liquidity code to every security. The spread of investments across the various liquidity classes is specified in the monthly investment reports and controlled by limits.
| Figures in % | Parameter as per investment guidelines |
30.9.2008 |
|---|---|---|
| Bonds (direct holdings and investment funds) | at least 50.0 | 81.1 |
| Listed equities (direct holdings and investment funds) | at most 17.5 | 7.6 |
| Real estate | at most 5.0 | 0.1 |
1) Calculated on a fair value basis
Hannover Re was impacted by the turmoil on global stock markets in the first nine months of the year under review. As at 30 September 2008 write-downs of EUR 355.3 million (EUR 8.4 million) were therefore taken on equities. Further write-downs of EUR 77.3 million were recognised on fixed-income securities owing to the upheavals on interest and credit markets. These losses contrasted with a net profit of EUR 77.0 million (EUR 104.2 million) from realised gains and losses on investments. Principally due to these write-downs, investment income shrank by 56.7 % as at the balance sheet date to EUR 370.4 million (EUR 855.5 million). Hannover Re significantly reduced its equity allocation – which stood at 7.6 % as at the balance sheet date – in October on account of capital considerations associated with its risk management. The reader is referred to our remarks in Section 8.2 "Events after the end of the quarter". The assets under own management increased to EUR 19,927.2 million (EUR 19,815.3 million) as at 30 September 2008 thanks to a positive cash flow from the technical account.
For further explanatory remarks please see the risk report, page 9f of the present quarterly financial report as well as our comments in the Group Annual Report 2007.
Investments are classified and measured in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". Hannover Re Group classifies investments according to the following categories: held to maturity, loans and receivables, financial assets at fair value through profit or loss, held for trading and available for sale. 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.
Securities whose fair value falls significantly or permanently below purchase cost are written down to current value and recognised in the statement of income.
The investments also include investments in associated companies, real estate used by third parties, short-term investments, cash and funds held. 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 2007.
| Figures in EUR thousand | 2008 | 2007 | |||
|---|---|---|---|---|---|
| Cost or amortised cost |
Fair value | Cost or amortised cost |
Fair value | ||
| 30.9. | 30.9. | 31.12. | 31.12. | ||
| Held to maturity | |||||
| due in one year | 12,239 | 11,282 | 34,241 | 32,885 | |
| due after one through two years | 50,146 | 49,874 | 1,705 | 1,662 | |
| due after two through three years | 99,579 | 98,086 | 34,779 | 34,363 | |
| due after three through four years | 229,451 | 228,882 | 194,052 | 195,724 | |
| due after four through five years | 283,248 | 280,255 | 251,385 | 254,908 | |
| due after five through ten years | 803,164 | 820,678 | 962,695 | 966,897 | |
| due after ten years | 10,393 | 11,067 | 9,959 | 10,396 | |
| Total | 1,488,220 | 1,500,124 | 1,488,816 | 1,496,835 | |
| Loans and receivables | |||||
| due in one year | 59,373 | 58,727 | 32,710 | 33,086 | |
| due after one through two years | 161,311 | 158,452 | 68,132 | 67,068 | |
| due after two through three years | 70,450 | 68,086 | 131,788 | 127,981 | |
| due after three through four years | 24,286 | 24,356 | 113,524 | 109,759 | |
| due after four through five years | 67,890 | 65,032 | 19,496 | 19,417 | |
| due after five through ten years | 1,094,533 | 1,056,963 | 1,037,707 | 1,002,324 | |
| due after ten years | 164,976 | 165,618 | 134,532 | 136,201 | |
| Total | 1,642,819 | 1,597,234 | 1,537,889 | 1,495,836 | |
| Available for sale | |||||
| due in one year 1) | 3,420,568 | 3,406,561 | 2,921,871 | 2,917,572 | |
| due after one through two years | 1,788,303 | 1,778,303 | 1,407,784 | 1,403,733 | |
| due after two through three years | 1,426,895 | 1,415,615 | 1,214,907 | 1,196,631 | |
| due after three through four years | 1,124,270 | 1,104,294 | 1,273,380 | 1,276,467 | |
| due after four through five years | 1,495,084 | 1,478,852 | 1,377,471 | 1,372,244 | |
| due after five through ten years | 3,160,698 | 3,034,294 | 3,854,813 | 3,813,167 | |
| due after ten years | 1,927,033 | 1,841,005 | 1,796,485 | 1,763,484 | |
| Total | 14,342,851 | 14,058,924 | 13,846,711 | 13,743,298 | |
| Financial assets at fair value through profit or loss |
|||||
| due in one year | 55,995 | 55,976 | 66,784 | 66,784 | |
| due after one through two years | 21,456 | 21,467 | 29,087 | 29,087 | |
| due after two through three years | 16,592 | 16,472 | – | – | |
| due after three through four years | 2,407 | 2,115 | – | – | |
| due after four through five years | 48,951 | 48,951 | – | – | |
| due after five through ten years | 37,512 | 37,145 | 34,133 | 35,089 | |
| due after ten years | 22,466 | 20,761 | 27,187 | 27,780 | |
| Total | 205,379 | 202,887 | 157,191 | 158,740 |
1) 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.
Floating-rate bonds (also known as "floaters") are shown under the maturities due in one year and constitute our interestrelated, within-the-year reinvestment risk.
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value
| 30.9.2008 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
46,865 | 164 | 143 | 219 | 47,105 |
| US treasury notes | 332,736 | 33,309 | – | 4,482 | 370,527 |
| Other foreign government debt securities |
15,786 | 345 | 74 | 100 | 16,157 |
| Debt securities issued by semi-governmental entities |
430,364 | 10,241 | 2,734 | 7,121 | 444,992 |
| Corporate securities | 406,003 | 911 | 17,541 | 7,156 | 396,529 |
| Asset-backed securities | 234,164 | – | 12,574 | 3,224 | 224,814 |
| Total | 1,465,918 | 44,970 | 33,066 | 22,302 | 1,500,124 |
| Figures in EUR thousand | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
|---|---|---|---|---|---|
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
49,589 | – | 827 | 760 | 49,522 |
| US treasury notes | 322,776 | 20,604 | – | 2,628 | 346,008 |
| Other foreign government debt securities |
18,315 | 121 | 52 | 26 | 18,410 |
| Debt securities issued by semi-governmental entities |
426,857 | 9,617 | 2,887 | 8,694 | 442,281 |
| Corporate securities | 410,476 | 3,595 | 12,911 | 10,562 | 411,722 |
| Asset-backed securities | 232,997 | – | 9,241 | 5,136 | 228,892 |
| Total | 1,461,010 | 33,937 | 25,918 | 27,806 | 1,496,835 |
| Figures in EUR thousand | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
|---|---|---|---|---|---|
| Loans and receivables | |||||
| Government debt securities of EU member states |
29,327 | 80 | 975 | 563 | 28,995 |
| Debt securities issued by semi-governmental entities |
248,616 | 22 | 11,583 | 3,403 | 240,458 |
| Corporate securities | 558,914 | 1,455 | 18,794 | 11,575 | 553,150 |
| Asset-backed securities | 427,704 | 2,904 | 15,162 | 7,952 | 423,398 |
| Other | 215,606 | – | – | 34,229 | 249,835 |
| Total | 1,480,167 | 4,461 | 46,514 | 57,722 | 1,495,836 |
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
| 30.9.2008 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
Unrealised gains |
losses | Accrued interest |
Fair value |
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
1,056,045 | 5,807 | 3,994 | 15,199 | 1,073,057 |
| US treasury notes | 1,658,861 | 29,413 | 241 | 10,315 | 1,698,348 |
| Other foreign government debt securities |
465,582 | 7,672 | 1,549 | 3,804 | 475,509 |
| Debt securities of semi governmental entities |
3,401,711 | 37,793 | 21,842 | 56,338 | 3,474,000 |
| Corporate securities | 3,214,008 | 24,924 | 244,452 | 61,653 | 3,056,133 |
| Asset-backed securities | 2,280,287 | 10,223 | 96,550 | 37,588 | 2,231,548 |
| From investment funds | 770,349 | 15,349 | 46,480 | 12,593 | 751,811 |
| 12,846,843 | 131,181 | 415,108 | 197,490 | 12,760,406 | |
| Equity securities | |||||
| Shares | 567,415 | 42,581 | 22,502 | – | 587,494 |
| From investment funds | 929,861 | 24,777 | 37,552 | – | 917,086 |
| 1,497,276 | 67,358 | 60,054 | – | 1,504,580 | |
| Short-term investments | 985,679 | – | – | 822 | 986,501 |
| Total | 15,329,798 | 198,539 | 475,162 | 198,312 | 15,251,487 |
| Figures in EUR thousand | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
|---|---|---|---|---|---|
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
901,704 | 4,112 | 5,851 | 16,732 | 916,697 |
| US treasury notes | 1,526,131 | 46,316 | 175 | 17,660 | 1,589,932 |
| Other foreign government debt securities |
376,357 | 2,266 | 2,471 | 3,265 | 379,417 |
| Debt securities of semi governmental entities |
3,148,956 | 37,330 | 31,213 | 50,896 | 3,205,969 |
| Corporate securities | 3,384,791 | 26,302 | 117,316 | 64,942 | 3,358,719 |
| Asset-backed securities | 2,201,889 | 18,982 | 49,708 | 36,101 | 2,207,264 |
| From investment funds | 842,933 | 13,547 | 45,534 | 8,111 | 819,057 |
| 12,382,761 | 148,855 | 252,268 | 197,707 | 12,477,055 | |
| Equity securities | |||||
| Shares | 701,961 | 84,757 | 23,583 | – | 763,135 |
| From investment funds | 1,107,388 | 129,867 | – | – | 1,237,255 |
| 1,809,349 | 214,624 | 23,583 | – | 2,000,390 | |
| Short-term investments | 929,976 | – | – | 845 | 930,821 |
| Total | 15,122,086 | 363,479 | 275,851 | 198,552 | 15,408,266 |
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
| 30.9.2008 | |||
|---|---|---|---|
| Figures in EUR thousand | Fair value before accrued interest |
Accrued interest |
Fair value |
| Financial assets at fair value through profit or loss | |||
| Debt securities of semi-governmental entities | 8,403 | 232 | 8,635 |
| Corporate securities | 172,691 | 1,777 | 174,468 |
| Asset-backed securities | 19,678 | 106 | 19,784 |
| 200,772 | 2,115 | 202,887 | |
| Other financial assets | |||
| Derivatives | 74,729 | – | 74,729 |
| Total | 275,501 | 2,115 | 277,616 |
| Figures in EUR thousand | Fair value before accrued interest |
Accrued interest |
Fair value |
|---|---|---|---|
| Financial assets at fair value through profit or loss | |||
| Debt securities of semi-governmental entities | 9,844 | 331 | 10,175 |
| Corporate securities | 146,280 | 1,631 | 147,911 |
| Asset-backed securities | 654 | – | 654 |
| 156,778 | 1,962 | 158,740 | |
| Other financial assets | |||
| Derivatives | 20,385 | – | 20,385 |
| Total | 177,163 | 1,962 | 179,125 |
As at 30 September 2008 Hannover Re recognised under this item put options acquired in the reporting period on the Dax and EuroStoxx 50 indices with a fair value of EUR 48.1 million (31 December 2007: EUR 1.9 million). Short sales of call options on the aforementioned indices with a fair value of EUR 0.4 million (31 December 2007: none) were recognised under other liabilities as at the balance sheet date.
In addition, Hannover Re reported as financial assets at fair value through profit or loss technical derivatives in an amount of EUR 26.6 million as at 30 September 2008 (31 December 2007: EUR 18.5 million) that were separated from the underlying transaction and measured at fair value.
In addition, liabilities from derivatives in connection with the technical account totalling EUR 47.3 million (31 December 2007: EUR 15.9 million) were recognised under other liabilities as at the balance sheet date. Of this amount, fair values of EUR 45.2 million as at the balance sheet date (31 December 2007: EUR 13.0 million) were attributable to derivatives embedded in "modified coinsurance" and "coinsurance funds withheld" (Modco) reinsurance treaties. The charge to investment income from the Modco derivatives amounted to EUR 30.0 million before taxes as at 30 September 2008 (30 September 2007: EUR 4.6 million). 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.
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 30.9. | 30.9. | |
| Real estate | 1,051 | 1,255 |
| Dividends | 41,505 | 32,844 |
| Interest income on investments | 536,655 | 565,042 |
| Other income | 48,299 | 36,131 |
| Ordinary investment income | 627,510 | 635,272 |
| Profit or loss on shares in associated companies | 4,413 | 6,584 |
| Realised gains on investments | 204,259 | 164,304 |
| Realised losses on investments | 127,230 | 60,105 |
| Unrealised gains and losses on investments | (33,428) | (3,106) |
| Depreciation on real estate | 365 | 413 |
| Impairments/depreciation on equity securities | 355,329 | 8,363 |
| Impairments on fixed-income securities | 77,304 | 4,636 |
| Other investment expenses | 33,878 | 40,615 |
| Net income from assets under own management | 208,648 | 688,922 |
| Interest income on funds withheld and contract deposits | 197,785 | 194,584 |
| Interest expense on funds withheld and contract deposits | 36,016 | 28,014 |
| Total investment income | 370,417 | 855,492 |
Unscheduled impairments of EUR 432.6 million were attributable entirely to assets classified as available for sale. Impairments of EUR 77.3 million taken on fixed-income securities related predominantly to structured products. Of this amount, altogether EUR 12.0 million was attributable to further write-downs directly associated with the crisis on the US housing market in respect of which Hannover Re identified a risk of default. In addition, an impairment of EUR 355.3 million was recognised on equities whose fair value had fallen significantly, i.e. by at least 20%, or for a prolonged period, i.e. at least nine months, below acquisition cost.
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 30.9. | 30.9. | |
| Fixed-income securities – held to maturity | 43,137 | 50,260 |
| Fixed-income securities – loans and receivables | 38,291 | 39,952 |
| Fixed-income securities – available for sale | 400,898 | 429,464 |
| Financial assets – at fair value through profit or loss | 5,753 | 4,949 |
| Other | 48,576 | 40,417 |
| Total | 536,655 | 565,042 |
The average number of staff at the companies included in the consolidated financial statement of the Hannover Re Group was 1,785 (31 December 2007: 1,922).
As at the balance sheet date altogether 1,790 (1,825) staff were employed by the Hannover Re Group, with 952 (907) employed in Germany and 838 (918) working for the consolidated Group companies abroad.
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 31 May 2009.
New individual 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 rights or 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. By a resolution of the Annual General Meeting of Hannover Rückversicherung AG adopted on 6 May 2008, the company was authorised until 31 October 2009 to acquire treasury shares of up to 10% of the share capital existing on the date of the resolution. The company did not hold treasury shares at any time during the reporting period.
| Basic and fully diluted earnings per share | ||
|---|---|---|
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| 1.1.–30.9. | 1.1.–30.9. | |||||
| Result (in EUR thousand) |
No. of shares |
Per share (in EUR) |
Result (in EUR thousand) |
No. of shares |
Per share (in EUR) |
|
| Group net income | (142,793) | – | – | 577,292 | – | – |
| Weighted average of issued shares | – | 120,597,134 | – | – | 120,597,134 | – |
| Earnings per share | (142,793) | 120,597,134 | (1.18) | 577,292 | 120,597,134 | 4.79 |
| from continuing operations | (142,793) | 120,597,134 | (1.18) | 546,936 | 120,597,134 | 4.54 |
| from discontinued operations | – | 120,597,134 | – | 30,356 | 120,597,134 | 0.25 |
Due to the reduction of the interest in E+S Rück retrospectively recognised directly in equity in the third quarter of the 2007 financial year, the Group net income for the comparable period of the previous year was reduced by an amount of altogether EUR 12.0 million. Both the earnings per share and the earnings per share from continuing operations for the previous period therefore had to be reduced retrospectively by EUR 0.10 per share. For further explanatory notes please see our remarks in Section 2 "Accounting principles including major accounting policies".
Neither in the reporting period nor in the previous period were there any dilutive effects or other extraordinary components of income which should have been recognised or disclosed separately in the calculation of the earnings per share.
The earnings per share could potentially be diluted in future through the issue of shares or subscription rights from the authorised or conditional capital.
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 period under review the following significant business relations existed with related parties.
With effect from 10 January 2008 HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI) has held the majority interest in Hannover Re in an unchanged amount (50.22%) exclusively through Talanx AG, into which both HDI Verwaltungs-Service GmbH and Zweite HDI Beteiligungsgesellschaft mbH were merged with legal force on the same date. 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 that 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 ceding companies 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.
| Figures in EUR thousand | 2008 | ||
|---|---|---|---|
| Related parties | Premium | Underwriting result |
|
| 30.9. | 30.9. | ||
| Business assumed | |||
| ASPECTA Assurance International AG | 15,280 | 2,297 | |
| ASPECTA Assurance International Luxembourg S.A. | 25,944 | 2,934 | |
| ASPECTA Lebensversicherung AG | 88,404 | 8,475 | |
| CiV Lebensversicherung AG | 31,180 | (3,602) | |
| CiV Versicherung AG | 11,365 | 4,449 | |
| HDI Asekuracja Towarzystwo Ubezpieczen S.A. | 19,633 | 12,201 | |
| HDI Assicurazioni S.p.A. | 11,739 | 4,965 | |
| HDI Direkt Versicherung AG | 241 | (4,910) | |
| HDI-Gerling Firmen und Privat Versicherung AG | 8,602 | (2,455) | |
| HDI-Gerling Industrie Versicherung AG | 138,076 | (15,254) | |
| HDI-Gerling Lebensversicherung AG | 11,350 | (2,901) | |
| HDI-Gerling Verzekeringen N.V. | 24,921 | (560) | |
| HDI HANNOVER International España, Cia. de Seguros y Reaseguros S.A. | 14,902 | 3,466 | |
| HDI Versicherung AG | 8,854 | (2,792) | |
| HDI Sigorta A.S. | 19,563 | (4,382) | |
| Magyar Posta Biztositó Részvénytársaság | 5,805 | (2,889) | |
| Postbank Lebensversicherung AG | 37,370 | (1,099) | |
| Other companies | 10,368 | 4,316 | |
| 483,597 | 2,259 | ||
| Business ceded | |||
| HDI-Gerling Industrie Versicherung AG | (579) | (7,096) | |
| Other companies | – | 7 | |
| Total | 483,018 | (4,830) |
Business assumed and ceded in Germany and abroad
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 within the framework of 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.
Hannover Re has secured by subordinated guarantee a subordinated debt in the amount of USD 400.0 million issued in the 1999 financial year by Hannover Finance, Inc., Wilmington/USA. In February 2004 and May 2005 Hannover Re bought back portions of the subordinated debt in amounts of USD 370.0 million and USD 10.0 million respectively, leaving an amount of USD 20.0 million still secured by the guarantee. In the 2007 financial year the issuer bought back the debt from Hannover Re in an amount of USD 380.0 million for the purpose of cancelling the debt, which was subsequently cancelled. For further details please see the information on debt and subordinated capital in the consolidated financial statement as at 31 December 2007.
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 2007.
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.
In July 2004 Hannover Re and the other shareholders sold the participation that they held through Willy Vogel Beteiligungsgesellschaft mbH in Willy Vogel AG. In order to secure the guarantees assumed under the purchase agreement, Hannover Re and the other shareholders jointly gave the purchaser a directly enforceable guarantee for a period until 2009 limited to a total amount of EUR 7.1 million. Furthermore, in the event of a call being made on the guarantee Hannover Re and the other shareholders agreed that settlement would be based upon the ratio of participatory interests.
As security for technical liabilities to our US clients, we have established a master trust in the USA. As at the balance sheet date this master trust amounted to EUR 2,170.7 million (31 December 2007: EUR 2,088.3 million). In addition, we extended further collateral to our cedants in an amount of EUR 247.9 million (31 December 2007: EUR 328.7 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 1,516.2 million (31 December 2007: EUR 1,235.1 million) as at the balance sheet date.
The securities held in the blocked custody accounts and trust accounts are recognised predominantly as available-forsale 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 2,116.3 million (31 December 2007: EUR 2,150.0 million).
Outstanding capital commitments with respect to special investments exist on the part of the Group in the amount of EUR 244.0 million (31 December 2007: EUR 235.2 million). These primarily involve as yet unfulfilled payment obligations from participations entered into in private equity funds and venture capital firms.
Within the scope of a novation agreement regarding a life insurance contract we assumed contingent reinsurance commitments with respect to due date and amount. The financing phase was terminated effective 31 December 2004 as per the agreement. The level of Hannover Re's liability as at the date of novation (31 December 2011) in relation to future balance sheet dates may change due to fluctuations in the EURIBOR and discrepancies between the actual settlements and the projections. The estimated amount of the reinsurance commitments as at the balance sheet date was unchanged at EUR 10.3 million.
In response to the turmoil on international capital markets we decided to dispose of the available-for-sale portfolio of equities and equity funds – with the exception of a volume of some EUR 300 million – in the period from 1 to 13 October 2008. The loss on disposal of these securities classified as available for sale amounted to altogether EUR 206 million. The remaining volume of equities and equity funds is to a large extent hedged by exchange-traded put options.
E+S Rück expects to participate in a counter-guarantee given by the insurance industry for the guarantee put up by the Federal Republic of Germany as part of a rescue package for Hypo Real Estate Holding AG, Munich, and its subsidiaries ("HRE Group"). In this connection the Federal Republic of Germany shall guarantee repayment of capital and interest to the German Bundesbank, which is to extend a loan to the HRE Group, as well as to the holders of newly issued debentures, through which further funds are to be made available to the HRE Group. The insurance industry will assume a portion of this guarantee amount put up by the federal government through the aforementioned counter-guarantee. E+S Rück's interest in this counter-guarantee will be limited to a nominal amount of EUR 11.1 million (rounded). The counterguarantee agreement is due to be signed in the first half of November.
| 1 EUR corresponds to: | Mean rate of exchange on the balance sheet date |
Average rate of exchange | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| 30.9. | 31.12. | 1.1.–30.9. | 1.1.–30.9. | |
| AUD | 1.7814 | 1.6775 | 1.6761 | 1.6389 |
| BHD | 0.5420 | 0.5530 | 0.5732 | 0.5078 |
| CAD | 1.5010 | 1.4440 | 1.5371 | 1.4819 |
| CNY | 9.8350 | 10.7400 | 10.6338 | 10.3184 |
| GBP | 0.7961 | 0.7346 | 0.7800 | 0.6773 |
| HKD | 11.1426 | 11.4760 | 11.8544 | 10.5147 |
| KRW | 1,735.0000 | 1,377.0000 | 1,550.3000 | 1,253.4000 |
| MYR | 4.9411 | 4.8652 | 4.9692 | 4.6629 |
| SEK | 9.7930 | 9.4350 | 9.4508 | 9.2189 |
| USD | 1.4340 | 1.4716 | 1.5211 | 1.3472 |
| ZAR | 11.9221 | 10.0300 | 11.6326 | 9.5963 |
Karl-Wiechert-Allee 50 30625 Hannover Germany Telephone +49/5 11/56 04-0 Fax +49/5 11/56 04-11 88 [email protected] www.hannover-re.com
Stefan Schulz
Telephone +49/5 11/56 04-15 00 Fax +49/5 11/56 04-16 48 [email protected]
Klaus Paesler
Telephone +49/5 11/56 04-17 36 Fax +49/5 11/56 04-16 48 [email protected]
Gabriele Handrick
Telephone +49/5 11/56 04-15 02 Fax +49/5 11/56 04-16 48 [email protected]
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