Quarterly Report • May 6, 2008
Quarterly Report
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| Figures in EUR million | 2008 | 2007 | ||
|---|---|---|---|---|
| 1.1.–31.3. | +/- previous year |
1.1.–31.3. | 31.12. | |
| Results | ||||
| Gross written premium | 2,275.5 | -5.5% | 2,408.4 | |
| Net premium earned | 1,678.7 | -3.3% | 1,736.8 | |
| Net underwriting result | (28.6) | -68.8% | (91.7) | |
| Net investment income | 262.6 | +1.7% | 258.2 | |
| Operating profit (EBIT) | 245.6 | +59.3% | 154.2 | |
| Group net income | 151.5 | +22.6% | 123.5 | |
| Balance sheet | ||||
| Policyholders' surplus | 5,046.4 | -4.7% | 5,295.1 | |
| Total shareholders' equity | 3,140.4 | -6.2% | 3,349.1 | |
| Minority interests | 532.8 | -7.0% | 572.7 | |
| Hybrid capital | 1,373.2 | 1,373.3 | ||
| Investments (incl. funds held by ceding companies) |
29,244.3 | +0.7% | 29,042.0 | |
| Total assets | 37,371.3 | +0.8% | 37,068.4 | |
| Share | ||||
| Earnings per share (diluted) in EUR | 1.26 | +22.6% | 1.02 | |
| Book value per share in EUR | 26.04 | -6.2% | 27.77 | |
| Share price at year-end in EUR | 33.02 | +4.7% | 33.35 | 31.55 |
| Dividend | – | – | 277.4 | |
| Dividend per share in EUR | – | – | 1.80+0.50 1) | |
| Market capitalisation at the end of the period | 3,982.1 | +4.7% | 4,021.9 | 3,804.8 |
| Ratios | ||||
| Combined ratio (non-life reinsurance) 2) | 99.5% | 105.5% | ||
| Catastrophe/major losses as percentage of net premium earned (non-life reinsurance) 3) |
6.8% | 15.9% | ||
| Retention | 88.7% | 84.9% | ||
| Return on investment | 4.4% | 4.3% | ||
| EBIT margin 4) | 14.6% | 8.9% | ||
| Return on equity (after tax) | 18.7% | 16.6% |
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
4 )Operating profit (EBIT)/net premium earned
Wilhelm Zeller Chairman of the Executive Board
Your company got off to a very good start in 2008. Despite some headwind due to the difficult state of global capital markets, we are thoroughly satisfied with our result for the first quarter. It has put in place a good foundation for achieving our ambitious profit target for the full financial year – namely a return on equity in excess of 15 percent after taxes.
In both non-life and life/health reinsurance your company is well positioned to profit from the available market opportunities. The treaty renewals as at 1 January 2008 in non-life reinsurance – our largest and hence most important business group – passed off better than initially expected: rate reductions proved to be more modest than anticipated despite appreciable softening tendencies, as a consequence of which we obtained prices and conditions that were largely commensurate with the risks. The worldwide credit and surety line as well as business in our home market delivered an especially gratifying performance. In these areas we were able to enlarge our market share thanks to new customer relationships and increased treaty participations with existing accounts, thereby further extending our position as one of the leading reinsurers.
I would like to assure you, our valued shareholders, that your company is also well equipped to face the challenges of a softening market. Key factors here are our broad diversification as a multi specialist and our active cycle management. In concrete terms, this means that we are currently reducing our market share in cyclical markets – as is the case, for example, in North America, where we have scaled back our involvement in the face of declining rates. At the same time we act on attractive business opportunities, such as those in worldwide credit and surety reinsurance, in Germany or indeed in reinsurance transacted according to Islamic principles. Our maxim of "profitability before volume" is becoming more important than ever in the softening reinsurance environment.
When it comes to risk management through the transfer of catastrophe exposures to the capital market, we were once again active as the year got underway. We further increased the volume of our "K5" transaction, as a result of which our equity base is now even better protected overall against the strains associated with exceptionally large losses.
Our second business group – life and health reinsurance – recorded only moderate growth in the first quarter. We are nevertheless highly satisfied with the profit trend and continue to believe that our targeted objectives can be accomplished. Right at the outset of the year we realised our largest block assumption transaction to date involving life insurance business in the United States. In the United Kingdom, too, the world's secondlargest life reinsurance market, we are superbly positioned with our emphasis on enhanced annuities. The Asian growth markets are another focus of our activities: as soon as we have negotiated the last formal hurdle our newly established branch office in Shanghai is set to commence business operations within the coming weeks. We shall then be able to offer our clients tailored products and hence profit from the extraordinary growth potential inherent in the Chinese market.
All in all, we are satisfied with the performance of our investments, although conditions on the international capital markets are currently anything but favourable. We used the market upheavals in January/February as an opportunity to shorten the duration of our USD portfolio. This move contrasts, however, with write-downs taken at the end of the quarter – especially on our equity portfolio. Net investment income rose only marginally overall.
I am particularly gratified to report to you, our valued shareholders, that the movement of our share price during February – after the low of January 2008 – has finally begun to reflect the value of your company. The Hannover Re share put on substantial gains, at times even bucking the market trend. It is my hope that the market will continue to recognise the profit potential of your company going forward and that the rise in the share price will be sustained.
I would like to thank you most sincerely – also on behalf of my colleagues on the Executive Board – for your trust in Hannover Re. We are and will continue to be guided by our overriding goal of leading 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 | |
| Gehrden | |
| 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
Significantly more marked volatility on equity markets dampened the mood among investors in the first quarter of 2008. Recurring economic concerns and fears of recession in the United States dominated the media headlines. The stock market year thus got off to another stormy start. The first three weeks were notable for a steady decline in prices. Even as the first quarter progressed equity markets showed no sign of recovery. There seemed to be no end to the bad news surrounding the credit crunch. Since the crisis began in 2007 financial stocks have figured among the losers on exchanges around the world. The uncertainties on global capital markets were further exacerbated by the weakness of the US dollar and high commodity prices. It is only since the middle of March that the general price trend on equity markets has begun to move slightly upwards.
The Dax had fallen 20.2% by 23 January 2008 to stand at 6,439 points. A very turbulent market phase ensued, during which the Dax repeatedly enjoyed short-lived rallies. At the beginning of February and again towards the middle of the
month it even flirted with the 7,000 mark. Yet these recoveries were not sustained. On 17 March 2008 the Dax closed at 6,182 points, its lowest level of the year to date. Compared to the level at the start of the year – 8,067 points –, this was equivalent to a decline of 23.4%.
The MDax developed similarly poorly. It fell to its lowest level of the year so far on 21 January 2008 at 7,941 points, a decline of 19.5% relative to the start of the year (9,865 points). In comparison with the Dax the MDax enjoyed a somewhat better recovery in the following weeks and even broke through the 9,000 mark for a few days. This revival was sustained until the end of February, after which the MDax, too, retreated again. Many indicators would suggest that by the middle of March the market had put all the bad news behind it, as a result of which stock markets generally moved modestly upwards again. The Dax and MDax have nevertheless recorded negative performances of 19.0% and 10.9% respectively since the turn of the year.
Performance of the Hannover Re share compared with standard benchmark indices and the ABN Amro Global Reinsurance Index
The Hannover Re share was unable to divorce itself from the general market sentiment at the start of the year. In the first three weeks of the year the share price fell by 20.8%, touching its lowest point of the year to date on 21 January 2008 at EUR 25.00. It subsequently improved – at times even bucking the general market trend – to close at EUR 33.02 on 31 March 2008. This constitutes a rise of 32.1% since the year's low on 21 January 2008 and a positive performance of 4.7% since the turn of the year.
Our strategic objective is to outperform our internal benchmark, the weighted ABN Amro Global Reinsurance Index, on a three-year moving average. As at 31 March 2008 we fell just short of this goal by two percentage points. On a year-to-year basis, however – i.e. over the course of the first three months of the year under review – the Hannover Re share performed very well (+4.7%) relative to the benchmark index, which slipped 4.1% in the first quarter.
The analysts' conferences held annually by Hannover Re in Frankfurt and London are undoubtedly a highlight of our Investor Relations activities. The consolidated financial statement is presented to analysts at these conferences. A live webcast is also publicly available through Hannover Re's homepage. Despite the turmoil on capital markets, many analysts were again in attendance this year to hear the unveiling of the year-end result first hand. At the start of the first quarter we again held our conference call on the renewals, an event that also enjoyed lively interest among the financial community.
| Figures in EUR | 31.3.2008 | 2007 | 2006 | 2005 | 2004 | 2003 1) |
|---|---|---|---|---|---|---|
| Earnings per share (diluted) | 1.26 | 6.08 | 4.27 | 0.41 | 2.32 | 3.24 |
| Dividend per share | – | 1.80+0.50 2) | 1.60 | – | 1.00 | 0.95 |
1) On a US GAAP basis
2) Bonus
| International Securities Identification Number (ISIN): |
DE 000 840 221 5 |
|---|---|
| Shareholding structure: | Talanx AG: 50.2% Free float: 49.8% |
| Common shares as at 31 March 2008: |
EUR 120,597,134.00 |
| Number of shares as at 31 March 2008: |
120,597,134 no-par-value registered shares |
| Market capitalisation as at 31 March 2008: |
EUR 3,982.1 million |
We are thoroughly satisfied with the development of our two business groups – non-life reinsurance and life/health reinsurance – in the first quarter of 2008. Although the turmoil on capital markets has left a mark on our investment income, we are on course to achieve our profit target for the full financial year – namely a return on equity in excess of 15%.
In both non-life and life/health reinsurance we are very well placed to profit from the available business opportunities on worldwide reinsurance markets.
Risk management continues to be a top priority for our company: as part of our quantitative approach to risk management the most significant risks in non-life reinsurance – such as the reserving and exposure risks – are actuarially assessed using mathematical methods. Constant monitoring and controlling of all risks forms the cornerstone of our qualitative risk management; in this context special attention is paid to operational risks, which we track, assess and reduce using appropriate measures.
In the life/health reinsurance segment the reserving risk is not of paramount concern. Short run-offs of death claims and the mandatory application of globally recognised actuarial standards in conjunction with expert appraisal by local regulators and external firms of actuaries substantially limit the reserving risk. We actively manage the exposure risk: core fields of action in this regard are our geographical diversification as well as extensive risk immunisation (mortality risks vs. longevity risks vs. morbidity risks) in accordance with our orientation based on five strategic pillars. Even in adverse risk scenarios this alignment results in stable value creation.
Along with traditional retrocessions we continue to conserve our capital by transferring insurance risks to the capital market. As at 1 January 2008 we boosted the volume of such transactions in non-life reinsurance by USD 100 million to USD 1.1 billion.
Gross written premium in total business declined as expected by 5.5% to EUR 2.3 billion (EUR 2.4 billion) as at 31 March 2008. The decrease can be attributed in particular to the weakness of the US dollar. At constant exchange rates the premium volume would have remained virtually stable. The level of retained premium climbed to 88.7% (84.9%) due to appreciable savings on the costs of our own protection covers, as a consequence of which net premium fell by a less marked 3.3% to EUR 1.7 billion (EUR 1.7 billion).
The burden of catastrophe losses and major claims in the first quarter was below average.
The current turmoil on capital markets – especially the continued widening of credit spreads and the slide in equity prices – was similarly reflected in the investment income that we generated in the early months of the year. As a result, and given the further drop in the value of the US dollar, our portfolio of assets under own management contracted; ordinary income excluding interest on deposits grew by a modest 6.5% to EUR 211.3 million (EUR 198.3 million). Interest on deposits increased by 16.8% to EUR 54.6 million (EUR 46.7 million). Of the total write-downs of EUR 85.6 million taken on securities, equities accounted for EUR 65.1 million. This contrasted, however, with realised gains of EUR 107.7 million on balance, attributable principally to the shortening of the duration of our US portfolio; net investment income consequently improved on the comparative period of the previous year by 1.7% to EUR 262.6 million (EUR 258.2 million).
The operating profit (EBIT) surged by 59.3% to EUR 245.6 million (EUR 154.2 million). Group net income as at 31 March 2008 increased by 22.6% to EUR 151.5 million (EUR 123.5 million). Earnings per share came in at EUR 1.26 (EUR 1.02), corresponding to an annualised return on equity of 18.7%. (16.6%)
Shareholders' equity fell by EUR 208.7 million compared to the level of 31 December 2007 to stand at EUR 3.1 billion. The book value per share consequently also dropped by 6.2% to EUR 26.04. The policyholders' surplus, comprised of shareholders' equity, minority interests and hybrid capital, totalled EUR 5.0 billion (EUR 5.3 billion).
Although the situation on the non-life reinsurance market is overshadowed by softening tendencies, we were satisfied overall with the treaty renewals as at 1 January 2008 – when around two-thirds of our total portfolio were renewed. For the most part, the rate reductions proved to be more modest than anticipated. By and large, we were again able to obtain prices and conditions commensurate with the assumed risks.
More appreciable premium decreases in certain areas were offset by increases in the German market and in worldwide credit and surety reinsurance.
Key fine-tuning tools used in our underwriting practice continue to be our active cycle management and profitoriented underwriting policy, according to which we concentrate on those segments that offer the greatest profitability.
The development of business in our domestic market was most gratifying: thanks to new client relationships and
increased treaty participations with existing accounts we were able to further enlarge our considerable market share and hence extend our position as one of the leading reinsurers in Germany.
In US property business the rate level – outside of catastrophe covers – was broadly stable with only modest price declines. Property catastrophe business, on the other hand, witnessed appreciable rate erosion due to the absence of catastrophe losses. In casualty business prices are now softening on the reinsurance side, too, although conditions were still acceptable. All in all, our premium volume in North America contracted as anticipated.
With worldwide credit and surety reinsurance posting good results in 2007 – as in previous years too –, rates and conditions in this line came under moderate pressure. We selectively expanded our portfolio in areas that promise healthy profitability.
| Figures in EUR million | 2008 | 2007 | |
|---|---|---|---|
| 1.1.–31.3. | +/- previous year |
1.1.–31.3. | |
| Gross written premium | 1,506.9 | -9.5% | 1,664.4 |
| Net premium earned | 996.9 | -8.8% | 1,092.6 |
| Underwriting result | (3.3) | -95.0% | (66.2) |
| Net investment income | 176.7 | -0.7% | 177.9 |
| Operating profit (EBIT) | 181.5 | +94.5% | 93.3 |
| Group net income | 113.5 | +11.3% | 102.0 |
| Earnings per share in EUR | 0.94 | +11.3% | 0.85 |
| Retention | 88.6% | 83.8% | |
| Combined ratio 1) | 99.5% | 105.5% |
1) Including expenses on funds withheld and contract deposits
In marine business we responded to declining rates by somewhat scaling back our exposure in catastropheexposed regions such as the Gulf of Mexico. Terms and conditions in aviation reinsurance are not particularly attractive due to further price erosion. We only write business that in our assessment offers adequate profitability.
In facultative reinsurance we extended our participation in casualty business.
In Russia – an especially competitive market – we were crowned as the best foreign reinsurer in the first quarter. This seal of approval is all the more pleasing inasmuch as we do not maintain a local representative office but write our business from Hannover Home Office. More importantly, our clients value our quick and undogmatic decisionmaking as well as our tailored products. We received a further distinction – as reinsurance company of the year in Russia – from the UK trade journal "Reactions".
In addition to traditional reinsurance we continue to be active in the field of structured products: here, too, we were highly satisfied with the development of business, as demand picked up again in the first quarter of 2008. In Asia and Europe we were able to modestly enlarge our portfolio. Particularly in Germany and Spain, for example, we successfully closed new transactions. Yet in the United States and United Kingdom, too, interest in structured covers has continued to rally. Our Dublin-based subsidiary Hannover Re Ireland concentrates on the needs of these latter two markets.
Overall, then, we are satisfied with the development of our non-life reinsurance business group. The gross premium volume as at 31 March 2008 contracted by 9.5% relative to the same period of the previous year to stand at EUR 1.5
As in past years, our product range in life and health reinsurance encompasses five business segments: financial solutions, bancassurance, new markets, conventional riskoriented reinsurance and multinational insurance clients. This positioning enables us to enjoy a promising portfolio and vigorous organic growth.
Our life and health reinsurance business group started the current year brightly: in the first quarter we successfully realised our largest block assumption transaction to date involving individual life business in the United States. The transaction, which was closed on 1 January 2008 by our US subsidiary Hannover Life Re America, is comprised of universal life policies of several US life insurers with first-class
billion (EUR 1.7 billion). At constant exchange rates, especially against the US dollar, the decrease would have been just 4.2%. The level of retained premium climbed from 83.8% to 88.6%. Net premium earned fell by 8.8% to EUR 1.0 billion (EUR 1.1 billion).
The major loss incidence in the first quarter was below average: the largest single loss event was winter storm "Emma" with a net strain of EUR 26.3 million, followed by snowstorms in China that are currently expected to cost us EUR 12.0 million for net account. Floods in Australia left us with a relatively modest burden of EUR 4.1 million. In addition, we incurred a number of fire losses as well as a marine claim, although the resulting claims expenditure for Hannover Re was relatively slight. The total net burden of catastrophe losses and major claims amounted to EUR 68.1 million; this figure is equivalent to 6.8% of net premium in non-life reinsurance and hence well within the expected level of 10%. The combined ratio stood at 99.5% (105.5%).
The net underwriting result of -EUR 3.3 million improved on the comparative quarter's figure of –EUR 66.2 million. It was primarily for this reason that the operating profit (EBIT) in non-life reinsurance surged by 94.5% to EUR 181.5 million (EUR 93.3 million). Group net income climbed by 11.3% to EUR 113.5 million (EUR 102.0 million), generating earnings of EUR 0.94 (EUR 0.85) per share.
ratings. Another focus of our activities in the US is on special health insurance products aimed at senior citizens.
The United Kingdom – the second-largest life reinsurance market in the world – is of exceptional importance to our company. We generate 30% of our premium volume in this market, where we have positioned ourselves as a specialty provider for enhanced annuities. In this subsegment, as with the reinsurance of already existing pension funds, we continue to see promising business opportunities.
Bancassurance business in French-speaking European markets also remains attractive for our company.
A special focus of our strategy is on Asian markets: in China we expect to commence business operations in May through our newly established branch office in Shanghai. This will enable us to tap into the advantages enjoyed by a local reinsurer in the vigorously expanding Chinese reinsurance market and step up the level of support and service provided for our clients.
In December 2007 we received a provisional licence from the South Korean insurance regulator to establish a branch office in Seoul. It is our expectation that we will be able to
start doing business in Korea, the largest life reinsurance market in Asia, by the middle of the year.
Furthermore, we are actively engaged in cultivating 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.
| Figures in EUR million | 2008 | 2007 | |
|---|---|---|---|
| 1.1.–31.3. | +/- previous year | 1.1.–31.3. | |
| Gross written premium | 770.1 | +3.5% | 744.1 |
| Net premium earned | 681.8 | +5.8% | 644.2 |
| Net investment income | 76.2 | +7.3% | 71.0 |
| Operating profit (EBIT) | 47.9 | -7.6% | 51.8 |
| Group net income | 38.3 | +13.0% | 33.9 |
| Earnings per share in EUR | 0.32 | +13.0% | 0.28 |
| Retention | 88.6% | 87.4% | |
| EBIT margin 1) | 7.0% | 8.1% |
1) Operating profit (EBIT)/net premium earned
Although the gross written premium increased by just 3.5% to EUR 770.1 million (EUR 744.1 million) as at 31 March 2008, growth would have reached 10.0% at constant exchange rates. The level of retained premium rose from 87.4% to 88.6%. Net premium earned climbed 5.8% to EUR 681.8 million (EUR 644.2 million).
The operating profit (EBIT) amounted to EUR 47.9 million. Whilst this fell short of the comparative reporting period (EUR 51.8 million), it should be borne in mind that the first quarter of 2007 reflected a positive special effect of more than EUR 14 million from the release of a special reserve constituted in connection with lapse risks on the UK market. The claims experience for both mortality and morbidity risks was highly gratifying at all operating units within the life and health reinsurance business group.
The EBIT margin of 7.0% was within the target corridor of 6.5% to 7.5%. Group net income was boosted by 13.0% to EUR 38.3 million (EUR 33.9 million); this was equivalent to earnings per share of EUR 0.32 (EUR 0.28) and therefore constitutes a good basis for achieving our targets for the full financial year.
As in the previous year, we are also reporting on the European Embedded Value (EEV) in the context of our interim report on the first quarter. The EEV consists of a valuation of the life and health reinsurance portfolio as well as the allocated capital and hence provides a basis for assessing its long-term profitability. As far as its economic assumptions are concerned, the EEV is for the first time being calculated on an entirely market-consistent basis for the 2007 financial year, following the use of near-market-consistent assumptions in the calculation as at 31 December 2006.
As at 31 December 2007 the Market Consistent Embedded Value for the life and health reinsurance business group again developed very favourably. It totalled EUR 1.7 billion (EUR 1.5 billion), corresponding to growth of 12.3%. The
The international equity markets failed to build on the positive trend of the previous year in the first quarter, shedding – especially in Europe – up to one-fifth of the index levels as at year-end 2007. These downturns were
value of new business amounted to EUR 106.4 million (EUR 64.2 million). The operating embedded value earnings from both new and in-force business increased by 50.9% to EUR 280.0 million (EUR 185.6 million).
prompted by fresh uncertainties on the global credit market, triggered by the meltdown in the US mortgage sector that had begun in 2007.
| Figures in EUR million | 2008 | 2007 | |
|---|---|---|---|
| 31.3. | +/- previous year | 31.3. | |
| Ordinary investment income 1) | 211.3 | +6.5% | 198.3 |
| Results from participation in associated companies | 0.7 | -28.8% | 1.0 |
| Realised gains/losses | 107.7 | +275.8% | 28.7 |
| Impairments on investments 2) | 85.7 | 0.4 | |
| Unrealised gains/losses 3) | (11.9) | (0.1) | |
| Investment expenses | 14.1 | -12.0% | 16.0 |
| Net investment income from assets under own management | 208.0 | -1.6% | 211.5 |
| Net investment income from funds withheld | 54.6 | +16.8% | 46.7 |
| Total investment income | 262.6 | +1.7% | 258.2 |
1) Excluding expenses on funds withheld and contract deposits 2) Including depreciation/impairments on real estate
3) Portfolio at fair value through profit or loss and trading
The American and European bond markets are currently seeing increased volatility in virtually all durations. Significant yield decreases were observed in most currency areas in the first three months of 2008; these were driven principally by switching from other higher-risk asset segments into government bonds. The renewed uncertainties in the credit market, especially with respect to financials, led to a further significant rise in risk premiums for corporate bonds of all qualities. Our principal focus in the area of fixedincome securities therefore continues to be on high quality and liquidity while maintaining a neutral/defensive duration.
These upheavals on capital markets in the first three months of the current year also left a mark on our investment portfolio. The continuing slide of the US dollar caused the volume of assets under own management to decline from the level as at 31 December 2007 to EUR 19.0 billion (EUR 19.8 billion). The pleasing movement in prices due to the lower yield curves did not entirely offset the further rise in risk premiums on corporate bonds as well as the slump on equity markets, leading to erosion of the unrealised gains and losses in the Group's portfolio.
Ordinary income excluding interest on deposits climbed by 6.5% to EUR 211.3 million, as against EUR 198.3 million in the corresponding quarter of the previous year. This can be attributed to a slightly higher average yield in the portfolios and to a marginally larger average portfolio relative to the comparative quarter. In the context of our proactive approach to portfolio management – especially as part of tactical shortening of durations in the US portfolios – profits of EUR 133.8 million (EUR 40.2 million) were realised on the disposal of investments, as against realised losses of EUR 26.1 million (EUR 11.5 million). Of the total writedowns of EUR 85.6 million on securities, an amount of EUR
Our risk management is guided by the principle of optimally exploiting opportunities while at the same time adequately controlling and managing the risks associated with our
65.1 million was taken on our existing equity investments in light of the market development described above. The remaining impairment losses charged to income were largely attributable to the further price decline in the ABS/MBS market. Net income from assets under own management consequently contracted slightly by 1.6% to EUR 208.0 million (EUR 211.5 million). This effect was, however, offset by income from interest on deposits – which rose by 16.8% to EUR 54.6 million (EUR 46.7 million) –, as a consequence of which net income from total investments improved by 1.7% over the comparative period of the previous year to EUR 262.6 million (EUR 258.2 million).
business activities. The following strategic elements are the hallmarks of our Group-wide risk management:
| Controlling elements | Key risk management tasks |
|---|---|
| Supervisory Board | • Advising and monitoring the Executive Board in its management of the company, inter alia with respect to risk management |
| Executive Board | • Overall responsibility for risk management • Definition of the risk strategy • Responsible for the proper functioning of risk management |
| Risk Committee 1) | • Monitoring and coordinating body with respect to operational risk management • Decision-making power is within the bounds of the risk strategy defined by the Executive Board. |
| Group Risk Management 2) | • Risk monitoring function • Methodological competence, inter alia for – development of processes/methods for risk assessment, management and analysis – risk limitation and reporting – risk monitoring and determination of the required risk capital across the Group |
| Business units 3) | • Primary risk responsibility, inter alia responsible for risk identification and assessment on the departmental level. The task is performed on the basis of the guidelines for the independent risk monitoring function. |
| Line-independent monitoring | • Group-wide review of all functional areas of Hannover Re by Internal Auditing |
1) Members: Chairman of the Executive Board, Chief Financial Officer, member of the Board responsible for life/health reinsurance, member of the Board responsible for coordinating non-life reinsurance, Head of Controlling and Chief Risk Officer. 2) Group Risk Management is led by the Chief Risk Officer and encompasses the functions of aggregate control, natural catastrophe modelling, actuarial claims analysis, dynamic
financial analysis (DFA), handling of operational risks and risk reporting. 3) Treaty departments and service units within the non-life and life/health reinsurance business groups and in the investments sector
The following factors are hallmarks of our risk management system:
The risk situation of Hannover Re is essentially defined by comprehensive analysis of the following risk categories.
| Risk category | Major risks | Key risk management activities |
|---|---|---|
| Global risks | External risks that are beyond our direct sphere of influence, e.g. from legislation and court practice |
Monitoring of relevant legal areas and analysis of claims trends Proactive adjustment of underwriting policy |
| Strategic risks | Imbalance between the defined corporate strategy and changing framework conditions, e.g. as a result of inconsistent strategy implementation |
Regular review and, as necessary, adjustment of our strategy, structures and processes, e.g. by means of systematic quality and process management |
| Operating risks | ||
| Technical risks | Divergence of cash flows in (re-)insurance busi ness from their expected values (risks of random fluctuation, error and change), e.g. due to natural catastrophes ("Kyrill") and/or other major losses, miscalculation of mortality, life expectancy and disability probabilities |
Across all lines of business |
| Risk spreading through diversification of the portfolio |
||
| Running of relevant (extreme or stress) scenarios and determination of their effect on key balance sheet variables and performance indicators as well as comparison with the planned figures |
||
| Non-life reinsurance | ||
| Calculation of the loss reserves on an actuarial basis and additional review of the adequacy of reserves by external actuaries and auditors |
||
| Risk reduction through retrocessions to the insurance and capital markets |
||
| Monitoring of the natural hazards exposure (modelling, aggregate control) |
||
| Life and health reinsurance | ||
| Review of the risk feasibility of new business activities and of the assumed international port folio |
||
| Use of secure biometric actuarial bases |
| Risk category | Major risks | Key risk management activities |
|---|---|---|
| Investment risks | Decrease in the fair value of investments due to market, credit, liquidity and currency risks |
Orientation of investments to the requirements of the reinsurance business through Group-wide investment guidelines |
| Systematic adherence to the principle of matching currency cover |
||
| Systematic asset/liability management | ||
| Clear distinction between trading, settlement and risk control based on the principle of separation of functions applied through to the level of management |
||
| Partial hedging of portfolios, especially with an eye to price, currency and interest rate risks, through short-call and long-put options as well as swaps |
||
| Operational risks | Risk of losses occurring because of the inadequacy or failure of internal procedures, human error/ system failure or external events, e.g. IT failure, pandemic |
Internal control system, contingency plans (e.g. crisis communication), backup computer centre and alternative workplaces for emergencies |
Further information on our risk management system, and in particular quantitative data on individual risks, is provided
In the context of our worldwide operations we are exposed to a diverse spectrum of potential risks. These risks, however, always go hand-in-hand with corresponding opportunities. On the basis of our holistic approach to risk management, arrived at from an overall analysis of our business environment, we cannot discern any risks that could jeopardise the continued existence of our company in the short
in the section of the Notes entitled "Management of technical and financial risks".
or medium term or have a significant, lasting effect on our net income, financial position or assets.
Detailed information on the organisation of our risk management and on further risk management measures is provided in the Annual Report for the financial year ending 31 December 2007.
On the basis of our strategic orientation and the available market opportunities in non-life and life/health reinsurance, we anticipate another good result in 2008. Both the gross and net premium should come in on a par with the previous year for the Hannover Re Group.
Despite perceptible softening tendencies in the non-life reinsurance market, conditions still remain acceptable. In the treaty renewals as at 1 January 2008 we were for the most part able to obtain prices and conditions commensurate with the risks. In areas where the business failed to satisfy our profitability standards, we pulled back and reshuffled our portfolio in favour of other segments – such as German business and the worldwide credit and surety line.
The increased market shares in these areas will have correspondingly positive effects on our result. In accordance with our active cycle management, on the other hand, we scaled back the proportion of North American business in response to signs of emerging pressure – sometimes markedly so – on rates. In view of the absence of catastrophe losses, prices for property catastrophe business declined – although in the casualty sector, too, market conditions are now softening on the reinsurance side. Reinsurance conditions here were nevertheless still acceptable.
In non-life reinsurance we also keep a close eye on profitable niche business. The situation in the so-called retakaful market was highly favourable. Given the vigorous economic growth and construction boom in Southeast Asia and the Near East, demand for Sharia-compliant products is constantly on the rise.
The treaty renewals as at 1 April in Japan and South Korea were also notable for softening on the reinsurance markets. In Japan the picture was a mixed one in the various segments. We were able to secure stable prices in general property business and modestly expanded our portfolio. It was possible to push through improvements in conditions under proportional property programmes that had suffered losses. In accident business we scaled back our participation in response to sharp rate cuts. Windstorm and earthquake covers saw the anticipated substantial rate reductions due to the absence of catastrophe losses. Our premium volume in this segment contracted by 9%. In Japanese casualty business, on the other hand, prices for the most part held stable – enabling us to maintain our portfolio. All in all, we view the outcome of the treaty renewals as acceptable, although we shall reduce our involvement in Japan if rates continue to decline.
A feature of the Korean market was more intense competition from new providers, which significantly aggravated the situation. Even in areas that had incurred losses – such as non-proportional property business –, prices came under palpable pressure. Programmes that had been spared losses saw rate reductions, in some cases of more than 10%. Overall, we have consolidated our portfolio in Korea and are concentrating on our core clients.
In general terms, the effects of a softening market are only reflected in our results after a certain time lag for systemic reasons, as a consequence of which these tendencies should not significantly impact the result of the current year. On account of our profit-oriented underwriting policy and very
good diversification and thanks to our excellent rating, we can continue to generate attractive business.
Following the abolition of the reinsurance monopoly in Brazil, we have decided to establish a representative office in Rio de Janeiro. Approval to commence business operations should be given by the Brazilian insurance regulator in the coming weeks. The representative office will ensure that we enjoy unlimited access to clients, hence giving us an optimal platform for securing a satisfactory share in the emerging Brazilian market.
All in all we expect a reduction of our net premium for nonlife reinsurance by 5% due to the weaker US dollar. Provided the burden of catastrophe losses and major claims remains within the expected bounds of around 10% of net premium, we anticipate a very healthy profit contribution.
Our business prospects in life and health reinsurance are exceptionally bright. The increasing size of the upper levels of the age pyramid in industrial nations continues to drive growth in annuity and health insurance. Based on our superb worldwide positioning and diversification, we expect continued favourable profitability and double-digit premium growth.
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. Asia is expected to deliver particularly significant stimuli for additional growth: in China we shall launch business operations in the coming weeks through our branch office in Shanghai; in South Korea we plan to establish a branch office in Seoul by the middle of the year. On the Indian Subcontinent, too, we intend to step up our business activities.
On the investments side we are concerned that due to the continuing weakness of the US dollar our investment portfolio will grow only moderately despite the anticipated positive cash flow that we generate from the technical account and our asset holdings. Assuming that capital markets normalise over the course of the year, we are looking to a stable income from investments under own management. In the
area of fixed-income securities our focus continues to be on the high quality and diversification of the portfolio. In combination with our equity holdings, this should enable us to achieve a stable profit contribution from our investments.
In view of the conditions on reinsurance markets described above, we anticipate another good result for the full 2008 financial year. Provided the burden of catastrophe losses and major claims does not significantly exceed the revised expected level of 10% of net premium in non-life reinsurance and assuming a normalisation on capital markets, we expect to generate a return on equity of more than 15% and earnings per share of around EUR 5 for the 2008 financial year.
of the Hannover Re Group
as at 31 March 2008
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Assets | 31.3. | 31.12. |
| Fixed-income securities – held to maturity | 1,436,661 | 1,488,816 |
| Fixed-income securities – loans and receivables | 1,489,649 | 1,537,889 |
| Fixed-income securities – available for sale | 11,024,630 | 12,477,055 |
| Fixed-income securities – at fair value through profit or loss | 144,097 | 158,740 |
| Equity securities – available for sale | 1,731,814 | 2,000,390 |
| Other financial assets – at fair value through profit or loss | 58,828 | 20,385 |
| Real estate | 14,343 | 16,962 |
| Investments in associated companies | 170,301 | 170,839 |
| Other invested assets | 663,175 | 677,957 |
| Short-term investments | 1,992,363 | 930,821 |
| Cash | 282,608 | 335,422 |
| Total investments and cash under own management | 19,008,469 | 19,815,276 |
| Funds held | 9,824,039 | 8,610,554 |
| Contract deposits | 411,755 | 616,134 |
| Total investments | 29,244,263 | 29,041,964 |
| Reinsurance recoverables on unpaid claims | 2,276,465 | 2,471,585 |
| Reinsurance recoverables on benefit reserve | 159,129 | 255,076 |
| Prepaid reinsurance premium | 111,690 | 92,322 |
| Reinsurance recoverables on other technical reserves | 14,657 | 5,574 |
| Deferred acquisition costs | 1,847,971 | 1,807,143 |
| Accounts receivable | 2,764,396 | 2,525,871 |
| Goodwill | 43,023 | 45,438 |
| Deferred tax assets | 591,699 | 577,731 |
| Other assets | 314,108 | 244,278 |
| Accrued interest and rent | 3,872 | 1,425 |
| 37,371,273 | 37,068,407 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Liabilities | 31.3. | 31.12. |
| Loss and loss adjustment expense reserve | 15,988,671 | 16,553,888 |
| Benefit reserve | 5,876,472 | 6,143,460 |
| Unearned premium reserve | 1,484,168 | 1,186,382 |
| Provisions for contingent commissions | 179,730 | 183,725 |
| Funds held | 657,693 | 956,912 |
| Contract deposits | 5,034,257 | 3,668,825 |
| Reinsurance payable | 1,166,612 | 1,141,067 |
| Provisions for pensions | 68,065 | 67,101 |
| Taxes | 215,368 | 202,621 |
| Provision for deferred taxes | 1,368,706 | 1,350,679 |
| Other liabilities | 246,488 | 277,037 |
| Long-term debt and subordinated capital | 1,411,791 | 1,414,877 |
| Total liabilities | 33,698,021 | 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 | (27,674) | 181,395 |
| Cumulative foreign currency translation adjustment | (350,210) | (213,117) |
| Other changes in cumulative other comprehensive income | 6,225 | 6,482 |
| Total other comprehensive income | (371,659) | (25,240) |
| Retained earnings | 2,666,910 | 2,529,170 |
| Shareholders' equity before minorities | 3,140,410 | 3,349,089 |
| Minority interests | 532,842 | 572,744 |
| Total shareholders' equity | 3,673,252 | 3,921,833 |
| 37,371,273 | 37,068,407 |
for the period 1 January to 31 March 2008
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |
| Gross written premium | 2,275,471 | 2,408,442 |
| Ceded written premium | 257,360 | 362,955 |
| Change in gross unearned premium | (357,756) | (265,898) |
| Change in ceded unearned premium | 18,310 | (42,775) |
| Net premium earned | 1,678,665 | 1,736,814 |
| Ordinary investment income | 211,299 | 198,329 |
| Profit/loss from investments in associated companies | 695 | 976 |
| Income/expense on funds withheld and contract deposits | 54,602 | 46,731 |
| Realised gains on investments | 133,776 | 40,155 |
| Realised losses on investments | 26,074 | 11,499 |
| Unrealised gains and losses on investments | (11,875) | (126) |
| Total depreciation, impairments and appreciation of investments | 85,743 | 402 |
| Other investment expenses | 14,070 | 15,983 |
| Net investment income | 262,610 | 258,181 |
| Other technical income | 137 | 276 |
| Total revenues | 1,941,412 | 1,995,271 |
| Claims and claims expenses | 1,163,730 | 1,219,991 |
| Change in benefit reserves | 84,042 | 113,796 |
| Commission and brokerage, change in deferred acquisition costs | 396,733 | 432,598 |
| Other acquisition costs | 4,660 | 6,588 |
| Other technical expenses | 2,863 | 7,178 |
| Administrative expenses | 55,374 | 48,676 |
| Total technical expenses | 1,707,402 | 1,828,827 |
| Other income and expenses | 11,636 | (12,256) |
| Operating profit/loss (EBIT) | 245,646 | 154,188 |
| Interest on hybrid capital | 19,303 | 19,163 |
| Net income before taxes | 226,343 | 135,025 |
| Taxes | 67,948 | 20,978 |
| Net income from continuing operations | 158,395 | 114,047 |
| Net income from discontinued operations | – | 15,260 |
| Net income | 158,395 | 129,307 |
| thereof | ||
| Minority interest in profit and loss | 6,934 | 5,766 |
| Group net income | 151,461 | 123,541 |
| Earnings per share | ||
| Earnings per share in EUR | 1.26 | 1.02 |
| from continuing operations in EUR | 1.26 | 0.90 |
| from discontinued operations in EUR | – | 0.12 |
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 | (18) | (18) | ||||||
| Income and expenses directly recognised in equity |
(6,390) | 46,499 | 257 | 12,733 | 53,099 | |||
| Tax effects on income and expenses directly recognised in equity |
(3,064) | (6,161) | (77) | (9,302) | ||||
| Dividend paid | (31,243) | (31,243) | ||||||
| Net income | 123,541 | 5,766 | 129,307 | |||||
| Balance as at 31.3.2007 |
120,597 | 724,562 | (80,972) | 184,537 | (1,346) | 2,105,062 | 595,789 | 3,648,229 |
| 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 repayments | (16) | (16) | ||||||
| Income and expenses directly recognised in equity |
(145,940) | (204,702) | (325) | (13,721) | (5,874) | (370,562) | ||
| Tax effects on income and expenses directly recognised in equity |
8,847 | (4,367) | 68 | 4,548 | ||||
| Dividends paid | (40,946) | (40,946) | ||||||
| Net income | 151,461 | 6,934 | 158,395 | |||||
| Balance as at 31.3.2008 |
120,597 | 724,562 | (350,210) | (27,674) | 6,225 | 2,666,910 | 532,842 | 3,673,252 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |
| I. Cash flow from operating activities | ||
| Net income | 158,395 | 129,307 |
| Appreciation/depreciation | 82,594 | 5,592 |
| Net realised gains and losses on investments | (107,702) | (28,656) |
| Amortisation of investments | (3,599) | (535) |
| Changes in funds held | (1,848,155) | (224,700) |
| Net changes in contract deposits | 1,688,517 | 162,866 |
| Changes in prepaid reinsurance premium (net) | 339,416 | 308,621 |
| Changes in tax assets/provisions for taxes | 8,299 | 15,037 |
| Changes in benefit reserves (net) | 93,904 | 122,677 |
| Changes in claims reserves (net) | 236,413 | 120,333 |
| Changes in deferred acquisition costs | (106,795) | (37,138) |
| Changes in other technical provisions | (1,872) | 12,732 |
| Changes in clearing balances | (244,820) | (518,336) |
| Changes in other assets and liabilities (net) | (64,822) | 971 |
| Cash flow from operating activities | 229,773 | 68,771 |
| II. Cash flow from investing activities | ||
| Fixed-income securities – held to maturity | ||
| Maturities | 1,727 | 51,147 |
| Purchases | – | (20,000) |
| Fixed-income securities – loans and receivables | ||
| Maturities, sales | 46,286 | – |
| Purchases | (169) | (100,418) |
| Fixed-income securities – available for sale | ||
| Maturities, sales | 3,488,444 | 1,267,992 |
| Purchases | (2,465,666) | (1,211,219) |
| Fixed-income securities – at fair value through profit or loss | ||
| Maturities, sales | 4,465 | 7,267 |
| Purchases | (4,554) | (4,237) |
| Equity securities – available for sale | ||
| Sales | 361,599 | 201,611 |
| Purchases | (432,816) | (178,293) |
| Equity securities – at fair value through profit or loss | ||
| Sales | – | 20,340 |
| Purchases | – | (10,207) |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |
| Other financial instruments – at fair value through profit or loss | ||
| Sales | 14,806 | – |
| Purchases | (37,615) | – |
| Other invested assets | ||
| Sales | 5,279 | 21,015 |
| Purchases | (44,899) | (44,287) |
| Affiliated companies and participating interests | ||
| Sales | 14,399 | 199 |
| Purchases | – | (1,983) |
| Short-term investments | ||
| Changes | (1,174,208) | (40,602) |
| Other changes (net) | (8,214) | (10,287) |
| Cash flow from investing activities | (231,136) | (51,962) |
| III. Cash flow from financing activities | ||
| Payment on capital measures | (72) | (18) |
| Dividends paid | (40,946) | (31,243) |
| Repayment of long-term debts | (130) | (158) |
| Other changes | – | 3,193 |
| Cash flow from financing activities | (41,148) | (28,226) |
| IV. Exchange rate differences on cash | (10,303) | (1,345) |
| Change in cash and cash equivalents (I.+II.+III.+IV.) | (52,814) | (12,762) |
| 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 | (52,814) | (12,762) |
| Cash and cash equivalents at the end of the period | 282,608 | 339,014 |
| Income taxes | (33,642) | (19,903) |
| Interest paid | (54,178) | (59,648) |
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.
| Segmentation of assets | |
|---|---|
| Figures in EUR thousand | Non-life reinsurance | ||
|---|---|---|---|
| 2008 | 2007 | ||
| 31.3. | 31.12. | ||
| Assets | |||
| Held to maturity | 1,205,255 | 1,262,619 | |
| Loans and receivables | 1,204,468 | 1,263,764 | |
| Available for sale | 9,760,077 | 11,387,469 | |
| At fair value through profit or loss | 144,493 | 118,573 | |
| Other invested assets | 789,487 | 808,047 | |
| Short-term investments | 1,694,889 | 587,455 | |
| Cash | 223,479 | 241,812 | |
| Total investments and cash under own management | 15,022,148 | 15,669,739 | |
| Funds held by ceding companies | 851,341 | 870,892 | |
| Contract deposits | 137 | 137 | |
| Total investments | 15,873,626 | 16,540,768 | |
| Reinsurance recoverables on unpaid claims | 2,178,675 | 2,371,387 | |
| Reinsurance recoverables on benefit reserves | – | – | |
| Prepaid reinsurance premium | 106,430 | 86,217 | |
| Reinsurance recoverables on other reserves | 9,985 | 3,031 | |
| Deferred acquisition costs | 302,911 | 262,176 | |
| Accounts receivable | 1,958,577 | 1,373,824 | |
| Other assets in the segment | 1,275,153 | 1,287,379 | |
| Total | 21,705,357 | 21,924,782 |
| Life and health reinsurance | Consolidation | Total | ||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| 31.3. | 31.12. | 31.3. | 31.12. | 31.3. | 31.12. | |
| 56,972 | 52,071 | 174,434 | 174,126 | 1,436,661 | 1,488,816 | |
| 127,577 | 116,567 | 157,604 | 157,558 | 1,489,649 | 1,537,889 | |
| 2,455,928 | 2,496,286 | 540,439 | 593,690 | 12,756,444 | 14,477,445 | |
| 33,476 | 35,227 | 24,956 | 25,325 | 202,925 | 179,125 | |
| 58,332 | 57,711 | – | – | 847,819 | 865,758 | |
| 148,365 | 146,952 | 149,109 | 196,414 | 1,992,363 | 930,821 | |
| 51,145 | 88,295 | 7,984 | 5,315 | 282,608 | 335,422 | |
| 2,931,795 | 2,993,109 | 1,054,526 | 1,152,428 | 19,008,469 | 19,815,276 | |
| 8,974,744 | 7,741,902 | (2,046) | (2,240) | 9,824,039 | 8,610,554 | |
| 411,618 | 615,997 | – | – | 411,755 | 616,134 | |
| 12,318,157 | 11,351,008 | 1,052,480 | 1,150,188 | 29,244,263 | 29,041,964 | |
| 99,384 | 101,629 | (1,594) | (1,431) | 2,276,465 | 2,471,585 | |
| 159,129 | 255,076 | – | – | 159,129 | 255,076 | |
| 5,260 | 6,105 | – | – | 111,690 | 92,322 | |
| 4,672 | 2,543 | – | – | 14,657 | 5,574 | |
| 1,545,060 | 1,544,967 | – | – | 1,847,971 | 1,807,143 | |
| 807,777 | 1,152,705 | (1,958) | (658) | 2,764,396 | 2,525,871 | |
| 317,735 | 304,312 | (640,186) | (722,819) | 952,702 | 868,872 | |
| 15,257,174 | 14,718,345 | 408,742 | 425,280 | 37,371,273 | 37,068,407 |
Segmentation of technical and other liabilities
| Figures in EUR thousand | Non-life reinsurance | |
|---|---|---|
| 2008 | 2007 | |
| 31.3. | 31.12. | |
| Liabilities | ||
| Loss and loss adjustment expense reserve | 14,521,528 | 15,114,553 |
| Benefit reserves | – | – |
| Unearned premium reserve | 1,449,262 | 1,148,723 |
| Provisions for contingent commissions | 143,120 | 146,638 |
| Funds held under reinsurance contracts | 208,221 | 186,802 |
| Contract deposits | 139,723 | 156,829 |
| Reinsurance payable | 795,379 | 427,552 |
| Long-term liabilities | 38,576 | 41,583 |
| Other liabilities in the segment | 1,211,805 | 1,239,046 |
| Total | 18,507,614 | 18,461,726 |
| Life and health reinsurance | Consolidation | Total | ||||
|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |
| 31.3. | 31.12. | 31.3. | 31.12. | 31.3. | 31.12. | |
| 1,468,716 | 1,440,774 | (1,573) | (1,439) | 15,988,671 | 16,553,888 | |
| 5,876,472 | 6,143,460 | – | – | 5,876,472 | 6,143,460 | |
| 34,906 | 37,659 | – | – | 1,484,168 | 1,186,382 | |
| 36,610 | 37,087 | – | – | 179,730 | 183,725 | |
| 451,569 | 772,352 | (2,097) | (2,242) | 657,693 | 956,912 | |
| 4,894,534 | 3,511,996 | – | – | 5,034,257 | 3,668,825 | |
| 374,029 | 714,857 | (2,796) | (1,342) | 1,166,612 | 1,141,067 | |
| – | – | 1,373,215 | 1,373,294 | 1,411,791 | 1,414,877 | |
| 1,322,606 | 1,283,393 | (635,784) | (625,001) | 1,898,627 | 1,897,438 | |
| 14,459,442 | 13,941,578 | 730,965 | 743,270 | 33,698,021 | 33,146,574 |
Segmental statement of income
| Figures in EUR thousand | Non-life reinsurance | |
|---|---|---|
| 2008 | 2007 | |
| 1.1.–31.3. | 1.1.–31.3. | |
| Gross written premium | 1,506,912 | 1,664,362 |
| thereof | ||
| From insurance business with other segments | – | – |
| From insurance business with external third parties and from discontinued operations |
1,506,912 | 1,664,362 |
| Net premium earned | 996,909 | 1,092,609 |
| Net investment income | 176,698 | 177,911 |
| Claims and claims expenses | 748,939 | 863,902 |
| Change in benefit reserves | – | – |
| Commission and brokerage, change in deferred acquisition costs and other technical income/expenses |
211,533 | 257,967 |
| Administrative expenses | 39,716 | 36,924 |
| Other income and expenses | 8,045 | (18,425) |
| Operating profit/loss (EBIT) | 181,464 | 93,302 |
| Interest on hybrid capital | – | – |
| Net income before taxes | 181,464 | 93,302 |
| Taxes | 61,855 | 3,031 |
| Net income from continuing operations | 119,609 | 90,271 |
| Net income from discontinued operations | – | 16,245 |
| Net income | 119,609 | 106,516 |
| thereof | ||
| Minority interest in profit and loss | 6,068 | 4,499 |
| Group net income | 113,541 | 102,017 |
| Life and health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| 1.1.–31.3. | 1.1.–31.3. | 1.1.–31.3. | 1.1.–31.3. | 1.1.–31.3. | 1.1.–31.3. |
| 770,082 | 744,080 | (1,523) | – | 2,275,471 | 2,408,442 |
| 1,523 | – | (1,523) | – | – | – |
| 768,559 | 744,080 | – | – | 2,275,471 | 2,408,442 |
| 681,756 | 644,205 | – | – | 1,678,665 | 1,736,814 |
| 76,215 | 71,001 | 9,697 | 9,269 | 262,610 | 258,181 |
| 415,194 | 356,227 | (403) | (138) | 1,163,730 | 1,219,991 |
| 84,042 | 113,796 | – | – | 84,042 | 113,796 |
| 194,281 | 189,768 | (1,695) | (1,647) | 404,119 | 446,088 |
| 15,949 | 12,893 | (291) | (1,141) | 55,374 | 48,676 |
| (614) | 9,318 | 4,205 | (3,149) | 11,636 | (12,256) |
| 47,891 | 51,840 | 16,291 | 9,046 | 245,646 | 154,188 |
| – | – | 19,303 | 19,163 | 19,303 | 19,163 |
| 47,891 | 51,840 | (3,012) | (10,117) | 226,343 | 135,025 |
| 8,709 | 16,660 | (2,616) | 1,287 | 67,948 | 20,978 |
| 39,182 | 35,180 | (396) | (11,404) | 158,395 | 114,047 |
| – | – | – | (985) | – | 15,260 |
| 39,182 | 35,180 | (396) | (12,389) | 158,395 | 129,307 |
| 866 | 1,267 | – | – | 6,934 | 5,766 |
| 38,316 | 33,913 | (396) | (12,389) | 151,461 | 123,541 |
Our secondary segmental reporting covers the continuing operations and is based on the regional origin of the investments and gross written premium.
| Investments 1) | |
|---|---|
| 2008 | 2007 |
|---|---|
| 31.3. | 31.12. |
| 6,064,395 | 6,252,371 |
| 1,151,966 | 1,187,499 |
| 1,230,041 | 1,117,610 |
| 2,774,418 | 3,251,338 |
| 11,220,820 | 11,808,818 |
| 5,814,677 | 5,909,163 |
| 530,267 | 589,295 |
| 6,344,944 | 6,498,458 |
| 347,857 | 384,628 |
| 666,509 | 659,006 |
| 1,014,366 | 1,043,634 |
| 235,507 | 276,441 |
| 192,832 | 187,925 |
| 19,008,469 | 19,815,276 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |
| Gross written premium | ||
| Germany | 480,234 | 505,289 |
| United Kingdom | 386,223 | 397,194 |
| France | 122,249 | 120,051 |
| Other | 340,362 | 350,624 |
| Europe | 1,329,068 | 1,373,158 |
| USA | 475,729 | 622,062 |
| Other | 100,427 | 86,015 |
| North America | 576,156 | 708,077 |
| Asia | 124,862 | 71,883 |
| Australia | 111,524 | 129,834 |
| Australasia | 236,386 | 201,717 |
| Africa | 57,451 | 68,732 |
| Other | 76,410 | 56,758 |
| Total | 2,275,471 | 2,408,442 |
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 31 March 2008.
All standards adopted by the IASB as at 31 March 2008 with binding effect for the reporting period have been observed in the consolidated financial statement.
In the present quarterly financial report as at 31 March 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.
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 in accordance with IAS 39 (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 3.1 million was reallocated from the reinsurance underwriting result to ordinary investment income for the first 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.
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 31 March 2008.
In a press release dated 7 January 2008 we announced our intention to establish a branch office for life and health reinsurance in South Korea in June 2008. The Korean insurance regulator has already issued a provisional licence for the Seoul-based branch.
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.
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 Zweite Hannover Rück Beteiligung Verwaltungs-GmbH, all shares of which are held by Hannover Re.
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 31 March 2008 it amounted to EUR 6.9 million (EUR 5.8 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 31 March 2008 was EUR 2.8 million (EUR 2.9 million) and which we continued to recognise under other liabilities 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 since 1 January 2006.
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 31 March 2008 was EUR 15.9 million (EUR 5.8 million) and which we recognised under other financial assets at fair value through profit or loss.
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.
Major items in the statement of income of the discontinued operations
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |
| Gross written premium | – | 341,548 |
| Ceded written premium | – | 140,436 |
| Net change in gross unearned premium | – | (7,779) |
| Net premium earned | – | 193,333 |
| Net investment income | – | 10,531 |
| Net underwriting result | – | 16,739 |
| Other income and expenses | – | (3,030) |
| Operating profit/loss (EBIT) | – | 24,240 |
| Interest on hybrid capital | – | 1,991 |
| Net income before taxes | – | 22,249 |
| Taxes | – | 6,989 |
| Net income | – | 15,260 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |
| Cash flow from operating activities | – | 180,587 |
| Cash flow from investing activities | – | (18,938) |
| Change in cash and cash equivalents | – | 161,649 |
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 % | Q1 2008 | 2007 | 2006 | 2005 | 2004 | 2003 1) | 2002 1) | 2001 1) | 2000 1) | 1999 1) | 1998 1) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Combined ratio | 99.5 | 99.7 | 100.8 | 112.8 | 97.2 | 96.0 | 96.3 | 116.5 | 107.8 | 111.1 | 108.1 |
| thereof catas trophe losses 2) |
6.8 | 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
3) Natural catastrophes and other man-made major losses > EUR 5 million gross 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 193.9 million (7.0%) of our accounts receivable from reinsurance business in an amount of EUR 2,764.4 million were older than 90 days as at the balance sheet date. The average default rate over the past three years was 0.7%.
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.
In order to monitor interest rate risks and share price risks we also use stress tests that estimate the loss potential under extreme market conditions as well as sensitivity and duration analyses that complement our range of risk management tools. 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 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 | (283.3) |
| Yield increase +100 basis points | (546.1) | |
| Yield decrease (50 basis points) | 274.2 | |
| Yield decrease (100 basis points) | 568.7 | |
| Fair value as at 31.3.2008 | 14,118.0 |
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% | 139.7 |
| Share prices +20% | 272.7 | |
| Share prices (10%) | (147.1) | |
| Share prices (20%) | (242.6) | |
| Fair value as at 31.3.2008 | 1,731.8 |
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 | 90.5% | 2,811.6 | 55.7% | 1,930.5 | 5.2% | 250.5 | 75.8% | 2,029.6 | ||||||||
| AA | 1.5% | 45.3 | 36.1% | 1,253.2 | 28.7% | 1,389.6 | 19.9% | 531.8 | ||||||||
| A | 5.3% | 164.6 | 7.4% | 257.8 | 49.0% | 2,372.1 | 0.8% | 21.4 | ||||||||
| BBB | 2.7% | 84.3 | 0.5% | 18.3 | 11.7% | 567.3 | 0.6% | 16.5 | ||||||||
| <bbb< th=""> | – | – | 0.3% | 8.9 | 5.4% | 264.3 | 2.9% | 77.4 | </bbb<>– | – | 0.3% | 8.9 | 5.4% | 264.3 | 2.9% | 77.4 |
| Total | 100.0% | 3,105.8 | 100.0% | 3,468.7 | 100.0% | 4,843.8 | 100.0% | 2,676.7 |
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.
| Asset classes | Parameter as per investment guidelines |
31.3.2008 |
|---|---|---|
| Bonds (direct holdings and investment funds) | at least 50.0% | 74.2% |
| Listed equities (direct holdings and investment funds) | at most 17.5% | 9.1% |
| Real estate | at most 5.0% | 0.1% |
1) Calculated on a fair value basis
For further explanatory remarks please see the risk report, pages 11 et seq. in 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 | ||
| Held to maturity | |||||
| due in one year | 30,152 | 28,832 | 34,241 | 32,885 | |
| due after one through two years | 30,348 | 30,115 | 1,705 | 1,662 | |
| due after two through three years | 91,591 | 96,384 | 34,779 | 34,363 | |
| due after three through four years | 202,687 | 205,356 | 194,052 | 195,724 | |
| due after four through five years | 192,563 | 196,585 | 251,385 | 254,908 | |
| due after five through ten years | 881,447 | 912,244 | 962,695 | 966,897 | |
| due after ten years | 7,873 | 8,563 | 9,959 | 10,396 | |
| Total | 1,436,661 | 1,478,079 | 1,488,816 | 1,496,835 | |
| Loans and receivables | |||||
| due in one year | 33,625 | 33,639 | 32,710 | 33,086 | |
| due after one through two years | 166,471 | 163,980 | 68,132 | 67,068 | |
| due after two through three years | 45,936 | 45,391 | 131,788 | 127,981 | |
| due after three through four years | 77,141 | 75,023 | 113,524 | 109,759 | |
| due after four through five years | 37,812 | 37,619 | 19,496 | 19,417 | |
| due after five through ten years | 995,034 | 981,742 | 1,037,707 | 1,002,324 | |
| due after ten years | 133,630 | 133,777 | 134,532 | 136,201 | |
| Total | 1,489,649 | 1,471,171 | 1,537,889 | 1,495,836 | |
| Available for sale | |||||
| due in one year 1) | 4,141,670 | 4,143,123 | 2,921,871 | 2,917,572 | |
| due after one through two years | 1,139,481 | 1,141,825 | 1,407,784 | 1,403,733 | |
| due after two through three years | 1,174,878 | 1,168,811 | 1,214,907 | 1,196,631 | |
| due after three through four years | 1,073,634 | 1,085,770 | 1,273,380 | 1,276,467 | |
| due after four through five years | 1,249,388 | 1,268,995 | 1,377,471 | 1,372,244 | |
| due after five through ten years | 2,768,880 | 2,721,028 | 3,854,813 | 3,813,167 | |
| due after ten years | 1,819,556 | 1,770,049 | 1,796,485 | 1,763,484 | |
| Total | 13,367,487 | 13,299,601 | 13,846,711 | 13,743,298 | |
| Financial assets at fair value through profit or loss |
|||||
| due in one year | 86,566 | 86,566 | 66,784 | 66,784 | |
| due after one through two years | – | – | 29,087 | 29,087 | |
| due after two through three years | – | – | – | – | |
| due after three through four years | 1,218 | 1,234 | – | – | |
| due after four through five years | – | – | – | – | |
| due after five through ten years | 31,960 | 32,528 | 34,133 | 35,089 | |
| due after ten years | 23,925 | 23,769 | 27,187 | 27,780 | |
| Total | 143,669 | 144,097 | 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
| Cost or Unrealised Accrued Figures in EUR thousand amortised cost gains losses interest |
Fair value |
|---|---|
| Investments held to maturity | |
| Fixed-income securities | |
| Government debt securities of EU member states 46,919 571 66 465 |
47,889 |
| US treasury notes 300,884 38,590 – 4,075 |
343,549 |
| Other foreign government debt securities 14,809 418 71 93 |
15,249 |
| Debt securities issued by | |
| semi-governmental entities 409,921 17,251 1,209 6,116 |
432,079 |
| Corporate securities 406,335 5,384 14,188 10,891 |
408,422 |
| Asset-backed securities 233,246 – 5,262 2,907 |
230,891 |
| Total 1,412,114 62,214 20,796 24,547 |
1,478,079 |
| 31.12.2007 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
Unrealised gains |
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 |
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value
| 31.3.2008 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
Unrealised gains |
losses | Accrued interest |
Fair value |
| Loans and receivables | |||||
| Government debt securities of EU member states |
29,348 | 292 | 506 | 684 | 29,818 |
| Debt securities issued by semi-governmental entities |
247,453 | 760 | 7,851 | 4,595 | 244,957 |
| Corporate securities | 558,405 | 4,355 | 11,003 | 11,617 | 563,374 |
| Asset-backed securities | 378,166 | 3,689 | 8,214 | 8,511 | 382,152 |
| Other | 250,870 | – | – | – | 250,870 |
| Total | 1,464,242 | 9,096 | 27,574 | 25,407 | 1,471,171 |
| 31.12.2007 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
Unrealised gains |
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
| 31.3.2008 | |||||
|---|---|---|---|---|---|
| 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 |
930,247 | 6,064 | 2,427 | 17,774 | 951,658 |
| US treasury notes | 911,367 | 37,228 | 68 | 6,006 | 954,533 |
| Other foreign government debt securities | 376,556 | 5,638 | 1,620 | 2,674 | 383,248 |
| Debt securities of semi governmental entities |
2,665,807 | 61,136 | 13,926 | 44,272 | 2,757,289 |
| Corporate securities | 3,186,546 | 32,170 | 137,251 | 52,395 | 3,133,860 |
| Asset-backed securities | 1,969,205 | 29,725 | 44,505 | 31,441 | 1,985,866 |
| From investment funds | 888,299 | 9,234 | 49,739 | 10,382 | 858,176 |
| 10,928,027 | 181,195 | 249,536 | 164,944 | 11,024,630 | |
| Equity securities | |||||
| Shares | 644,592 | 46,638 | 51,723 | – | 639,507 |
| From investment funds | 1,177,433 | 38,142 | 123,268 | – | 1,092,307 |
| 1,822,025 | 84,780 | 174,991 | – | 1,731,814 | |
| Short-term investments | 1,988,009 | 513 | 58 | 3,899 | 1,992,363 |
| Total | 14,738,061 | 266,488 | 424,585 | 168,843 | 14,748,807 |
| 31.12.2007 | |||||
|---|---|---|---|---|---|
| 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 |
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 |
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
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
| Fair value before Accrued Fair Figures in EUR thousand accrued interest interest value Financial assets at fair value through profit or loss Fixed-income securities Debt securities of semi-governmental entities 9,353 33 9,386 Corporate securities 131,879 1,932 133,811 Asset-backed securities 900 – 900 142,132 1,965 144,097 Other financial assets Derivatives 58,828 – 58,828 58,828 – 58,828 |
31.3.2008 | |||
|---|---|---|---|---|
| Total | 200,960 | 1,965 | 202,925 |
| 31.12.2007 | |||
|---|---|---|---|
| Figures in EUR thousand | Fair value before accrued interest |
Accrued interest |
Fair value |
| Financial assets at fair value through profit or loss | |||
| Fixed-income securities | |||
| Debt securities of semi-governmental entities | 9,844 | 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 |
| 20,385 | – | 20,385 | |
| Total | 177,163 | 1,962 | 179,125 |
As at 31 March 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 30.6 million (31 December 2007: EUR 1.9 million). Short sales of call options on the aforementioned indices with a fair value of EUR 10.1 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 28.2 million as at 31 March 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 22.3 million (31 December 2007: EUR 15.9 million) were recognised under other liabilities. Of this amount, fair values of EUR 19.5 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 7.7 million before taxes as at 31 March 2008 (31 March 2007: pre-tax improvement in investment income of EUR 0.2 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 |
|---|---|---|
| 31.3. | 31.3. | |
| Real estate | 386 | 615 |
| Dividends | 5,803 | 1,660 |
| Interest income on investments | 187,874 | 188,646 |
| Other income | 17,236 | 7,408 |
| Ordinary investment income | 211,299 | 198,329 |
| Profit or loss on shares in associated companies | 695 | 976 |
| Realised gains on investments | 133,776 | 40,155 |
| Realised losses on investments | 26,074 | 11,499 |
| Unrealised gains and losses | (11,875) | (126) |
| Depreciation on real estate | 122 | 141 |
| Impairments/depreciation on equity securities | 65,137 | 261 |
| Impairments on fixed-income securities | 20,484 | – |
| Other investment expenses | 14,070 | 15,983 |
| Net income from assets under own management | 208,008 | 211,450 |
| Interest income on funds withheld and contract deposits | 88,592 | 63,640 |
| Interest expense on funds withheld and contract deposits | 33,990 | 16,909 |
| Total investment income | 262,610 | 258,181 |
The impairments of EUR 85.6 million were attributable entirely to assets classified as available for sale. Impairments of EUR 20.5 million taken on fixed-income securities related to structured products. Of this amount, altogether EUR 6.1 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 65.1 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 |
|---|---|---|
| 31.3. | 31.3. | |
| Fixed-income securities – held to maturity | 14,495 | 16,417 |
| Fixed-income securities – loans and receivables | 13,293 | 14,843 |
| Fixed-income securities – available for sale | 134,017 | 142,922 |
| Financial assets – at fair value through profit or loss | 1,380 | 1,692 |
| Other | 24,689 | 12,772 |
| Total | 187,874 | 188,646 |
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 1,745 (1,825) staff were employed by the Hannover Re Group, with 928 (907) employed in Germany and 817 (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 3 May 2007, the company was authorised until 31 October 2008 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.
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| 1.1.–31.3. | 1.1.–31.3. | |||||
| 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 | 151,461 | – | – | 123,541 | – | – |
| Weighted average of issued shares |
– | 120,597,134 | – | – | 120,597,134 | – |
| Earnings per share | 151,461 | 120,597,134 | 1.26 | 123,541 | 120,597,134 | 1.02 |
| from continuing operations | 151,461 | 120,597,134 | 1.26 | 108,281 | 120,597,134 | 0.90 |
| from discontinued operations |
– | 120,597,134 | – | 15,260 | 120,597,134 | 0.12 |
Basic and fully diluted earnings per share
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 |
| Business assumed | ||
| ASPECTA Assurance International AG | 5,314 | 848 |
| ASPECTA Assurance International Luxembourg S.A. | 8,674 | 1,032 |
| ASPECTA Lebensversicherung AG | 30,043 | 3,147 |
| CiV Lebensversicherung AG | 10,942 | (1,818) |
| CiV Versicherung AG | 3,964 | 2,109 |
| HDI Asekuracja Towarzystwo Ubezpieczen S.A. | 4,310 | 1,118 |
| HDI Assicurazioni S.p.A. | 14,465 | 12,416 |
| HDI Direkt Versicherung AG | 4,514 | 2,660 |
| HDI-Gerling Firmen und Privat Versicherung AG | 3,359 | (337) |
| HDI-Gerling Industrie Versicherung AG | 5,154 | (2,440) |
| HDI-Gerling Lebensversicherung AG | 5,083 | 2,147 |
| HDI-Gerling Verzekeringen N.V. | 42,947 | (4,148) |
| HDI HANNOVER International España, Cia. de Seguros y Reaseguros S.A. | 567 | 581 |
| HDI Hannover Versicherung AG | 6,895 | (1,338) |
| HDI Sigorta A.S. | 7,631 | 1,664 |
| Magyar Posta Biztositó Részvénytársaság | 1,895 | (425) |
| Postbank Lebensversicherung AG | 11,931 | (385) |
| Other companies | 3,552 | 1,032 |
| Total | 171,240 | 17,863 |
| Business ceded | ||
| HDI-Gerling Industrie Versicherung AG | – | (38) |
| Other companies | – | 7 |
| Total | 171,240 | 17,832 |
Business assumed and ceded inGermany 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 1,988.5 million (31 December 2007: EUR 2,088.3 million). In addition, we extended further collateral to our cedants in an amount of EUR 227.7 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 1,213.1 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-for-sale investments.
As security for our technical liabilities, various financial institutions have furnished guarantees for our company in the form of letters of credit. The total amount as at the balance sheet date was EUR 2,017.3 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 198.6 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.
Effective 1 April 2008 we acquired a shelf service company, in future to be named Hannover Re Escritório de Representação no Brasil Limitada, for the purpose of opening a representative office in Rio de Janeiro, Brazil. The object of the company, in which interests of 99% and 1% will be held by Hannover Re and Hannover Rück Beteiligung Verwaltungs-GmbH respectively, shall consist solely of representing Hannover Re in Brazil – with no local underwriting of insurance risks.
Hannover Re established a branch in Shanghai, People's Republic of China, and received a licence from the China Insurance Regulatory Commission (CIRC) to transact life and health reinsurance business. The permanent establishment is expected to commence business activities in the second quarter of 2008.
| 1 EUR corresponds to: | Mean rate of exchange on the balance sheet date |
Average rate of exchange | ||
|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | |
| 31.3. | 31.12. | 1.1.–31.3. | 1.1.–31.3. | |
| AUD | 1.7294 | 1.6775 | 1.6741 | 1.6670 |
| BHD | 0.5955 | 0.5530 | 0.5700 | 0.4963 |
| CAD | 1.6173 | 1.4440 | 1.5094 | 1.5330 |
| GBP | 0.7950 | 0.7346 | 0.7603 | 0.6719 |
| MYR | 5.0464 | 4.8652 | 4.8940 | 4.6003 |
| SEK | 9.3850 | 9.4350 | 9.4168 | 9.1816 |
| USD | 1.5810 | 1.4716 | 1.5148 | 1.3153 |
| ZAR | 12.7942 | 10.0300 | 11.4037 | 9.4781 |
Karl-Wiechert-Allee 50 30625 Hannover Germany Telephone +49/5 11/56 04-0 Fax +49/5 11/56 04-11 88 [email protected]
Investor Relations/Public Relations Stefan Schulz
Telephone +49/5 11/56 04-15 00 Fax +49/5 11/56 04-16 48 [email protected]
Public Relations
Gabriele Handrick
Telephone +49/5 11/56 04-15 02 Fax +49/5 11/56 04-16 48 [email protected]
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