Quarterly Report • Aug 7, 2008
Quarterly Report
Open in ViewerOpens in native device viewer
| Figures in EUR million | 2008 | 2007 | ||||||
|---|---|---|---|---|---|---|---|---|
| 1.1.–31.3. | 1.4.–30.6. | +/- previous year |
1.1.–30.6. | +/- previous year |
1.4.–30.6. | 1.1.–30.6. | 31.12. | |
| Results | ||||||||
| Gross written premium | 2,275.5 | 1,869.1 | -10.3% | 4,144.6 | -7.7% | 2,083.1 | 4,491.6 | |
| Net premium earned | 1,678.7 | 1,736.7 | -11.8% | 3,415.4 | -7.8% | 1,968.4 | 3,705.2 | |
| Net underwriting result | (28.6) | (7.7) | +16.2% | (36.3) | -63.1% | (6.6) | (98.4) | |
| Net investment income | 262.6 | 182.5 | -44.4% | 445.1 | -24.1% | 328.0 | 586.2 | |
| Operating profit (EBIT) | 245.6 | 154.6 | -50.7% | 400.2 | -14.4% | 313.5 | 467.7 | |
| Group net income | 151.5 | 100.8 | -40.5% | 252.2 | -13.9% | 169.4 | 293.0 | |
| Balance sheet (as at the end of the quarter) |
||||||||
| Policyholders' surplus | 5,046.4 | 4,698.4 | -11.3% | 5,295.1 | ||||
| Total shareholders' equity | 3,140.4 | 2,803.7 | -16.3% | 3,349.1 | ||||
| Minority interests | 532.8 | 521.0 | -9.0% | 572.7 | ||||
| Hybrid capital | 1,373.2 | 1,373.8 | +0.0% | 1,373.3 | ||||
| Investments (excl. funds held by ceding companies) |
19,008.5 | 18,744.4 | -5.4% | 19,815.3 | ||||
| Total assets | 37,371.3 | 37,247.0 | +0.5% | 37,068.4 | ||||
| Share | ||||||||
| Earnings per share (diluted) in EUR | 1.26 | 0.84 | -40.5% | 2.09 | -13.9% | 1.41 | 2.43 | |
| Book value per share in EUR | 26.04 | 23.25 | -16.3% | 24.68 | 27.77 | |||
| Share price in EUR at the end of the period |
33.02 | 31.35 | -12.8% | 31.35 | -0.6% | 35.95 | 35.95 | 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 | 3,780.7 | -0.6% | 4,335.5 | 3,804.8 | |||
| Ratios | ||||||||
| Combined ratio (non-life reinsurance) 2) | 99.5% | 97.4% | 98.4% | 99.1% | 102.1% | |||
| Large losses as percentage of net pre mium earned (non-life reinsurance) 3) |
6.8% | 4.4% | 6.2% | 3.3% | 9.2% | |||
| Retention | 88.7% | 90.5% | 89.5% | 86.8% | 85.8% | |||
| Return on investment (incl. funds held by ceding companies) |
4.4% | 3.1% | 3.7% | 5.4% | 4.9% | |||
| EBIT margin 4) | 14.6% | 8.9% | 11.7% | 15.9% | 12.6% | |||
| Return on equity (annualised) | 18.7% | 13.6% | 16.4% | 22.5% | 19.9% | |||
1) Bonus 3) Natural catastrophes and other major losses in excess of EUR 5 million gross 2) Including expenses on funds withheld and contract deposits 4 )Operating profit (EBIT)/net premium earned
Wilhelm Zeller Chairman of the Executive Board
Building on the good results in the first three months of the year under review, the technical component of our business – in both non-life and life/health reinsurance – again delivered a gratifying performance in the second quarter. Although the second quarter too was not spared natural catastrophe losses, the strains incurred by your company were moderate. The protracted difficult climate on international capital markets and movements in exchange rates did, however, leave an appreciable mark on our results. Nevertheless, it remains our expectation that we will be able to achieve a return on equity in excess of 15 percent after taxes for the full financial year.
I am thoroughly satisfied with the development of our non-life reinsurance business group in the second quarter. Even though conditions are becoming more challenging in the face of a softening market, we secured prices that were largely commensurate with the risks. Our domestic market as well as the worldwide credit/surety line and numerous niche areas continue to present a positive environment. We are well placed to make the most of the available market opportunities.
We are further extending our already broad diversification through targeted underwriting. Our tried and trusted, proactive approach to cycle management serves as a vital cornerstone for mastering the challenges posed by a softening market. We continue to transact our non-life reinsurance business on an opportunistic basis, guided solely by profitability considerations. The maxim of "profit before volume" remains our overriding principle.
As you, our valued shareholders, are aware, for a number of years now your company has made a name for itself in both non-life and life/health reinsurance with the innovative transfer of (re)insurance risks to the capital market. We have recently gone one step further and are also enabling our clients to access the capital market by pooling and structuring risks that are not suited to this treatment on a stand-alone basis in order to package them for such transactions. In the quarter just-ended we successfully completed the first transaction of this type with "Globe Re".
Even though premium growth fell short of expectations not least due to the restraining effect of exchange rate movements, we are satisfied with the development of our second business group – life and health reinsurance. In the medium term, however, we are standing by our ambitious forecasts, since the demographic trend in industrial nations and the growing urban middle class in emerging markets offer a good platform for dynamic growth. Especially in
Germany, insurers still underestimate the significance of the senior citizens' customer segment. We are therefore playing a particularly active part in product developments aimed at this target group. In the UK market – the second-largest in the world on the reinsurance side after the United States – we are optimally positioned with our long-established concentration on enhanced annuities.
The Asian growth markets are another focus of our activities: in China and South Korea we built up our own local infrastructure by opening new branches in the second quarter and began underriting life business. We also have our sights set on the vigorously expanding insurance potential offered by the Indian Subcontinent: in June we signed an exclusive cooperation agreement with the leading Indian reinsurer. This cooperation will enable us to maximise the available market opportunities more quickly and even more efficiently.
Bearing in mind the volatile and continued tense situation on international capital markets, our investments developed satisfactorily in the prevailing environment – even though the volume in our balance sheet currency contracted appreciably due to the weakness of the US dollar and pound sterling. Thanks to the high quality and short duration of our fixed-income securities, we were able to limit the repercussions of the current uncertain market climate. Ordinary income held stable, although we were compelled to take further write-downs in the second quarter – especially on our equity portfolio. Net investment income consequently fell sharply. The marked rise in interest rates also led to significant unrealised losses on a fair value basis, which were reflected in shareholders' equity.
Looking at the considerable turmoil on international capital and currency markets, the Hannover Re share held up superbly in the second quarter too. The share price as at the end of June was on a par with the 2007 year-end closing price – a performance that the Dax and MDax, not to mention our benchmark ABN Amro Global Reinsurance Index – failed to match. It is my hope that the market will continue to appropriately recognise the profit potential inherent in your company.
I would like to thank you, our valued shareholders – also on behalf of my colleagues on the Executive Board -, most sincerely for your trust in Hannover Re. Going forward, as in the past, our overriding goal will be to lead your company responsibly and securely into a profitable future.
Yours sincerely,
Wilhelm Zeller Chairman of the Executive Board
| Wolf-Dieter Baumgartl 1) 2) 3) Berg |
Chairman |
|---|---|
| Dr. Klaus Sturany 1) Dortmund |
Deputy Chairman |
| Herbert K. Haas 1) 2) 3) Burgwedel |
|
| Uwe Kramp 4) Hannover |
|
| Karl Heinz Midunsky 3) Gauting |
|
| Ass. jur. Otto Müller 4) Hannover |
|
| Dr. Immo Querner Ehlershausen |
|
| Dr. Erhard Schipporeit 2) Hannover |
|
| Gert Waechtler 4) Großburgwedel |
| Wilhelm Zeller Burgwedel |
Chairman |
|---|---|
| André Arrago | |
| Hannover | |
| Dr. Wolf Becke | |
| Hannover | |
| Jürgen Gräber | |
| Ronnenberg | |
| Dr. Elke König | |
| Hannover | |
| Dr. Michael Pickel | |
| Isernhagen | |
| Ulrich Wallin | |
| Hannover | |
| 1) Member of the Standing Committee |
2) Member of the Balance Sheet Committee
3) Member of the Nomination Committee
4) Staff representative
We are highly satisfied with the development of our underwriting business in the first half of 2008. Both premium income and results in our two business groups of non-life reinsurance and life/health reinsurance came in largely in line with our expectations. The burden of catastrophe losses was also within the envisaged budget. The continued nervousness on currency and capital markets, however, led to a sharp drop in the fair value of investments – not only in our portfolio but throughout the industry. We nevertheless still consider a return on equity in excess of 15% to be realistic.
Risk management remains an overriding priority for our company: along with traditional retrocessions we conserve our capital by transferring insurance risks to the capital market. In this context our programme of protection cover in non-life reinsurance was further enhanced in comparison with the previous year, while at the same time we succeeded in reducing our associated expenses by around EUR 80 million on an annualised basis.
Prompted by the withdrawal from specialty business and weak exchange rates, especially in the case of the US dollar and pound sterling, gross written premium in total business contracted by 7.7% as at 30 June 2008 to EUR 4.1 billion (EUR 4.5 billion). At constant exchange rates the premium volume would have declined by just 2.2%. The level of retained premium increased to 89.5% (85.8%) as a consequence of considerable savings on the costs of our own protection covers as well as reduced proportional cessions; net premium earned decreased by 7.8% to EUR 3.4 billion (EUR 3.7 billion).
The present turmoil on the currency and capital markets – especially the significant rise in interest rates, the increase
The development of our non-life reinsurance business continues to be satisfactory. Although we are already seeing softening tendencies on a number of major markets, conditions are still broadly acceptable and in most instances we obtained prices that were commensurate with the risks.
in risk premiums on corporate bonds and the slide in equity prices – also left their mark on our investment income in the first half of the year. As a result, and exacerbated by the further fall in the value of the US dollar, the volume of assets under own management contracted. Ordinary income excluding interest on deposits, on the other hand, came in – as expected – at a highly gratifying EUR 407.9 million (EUR 415.7 million), while interest on deposits actually climbed by 4.4% to EUR 102.3 million (EUR 98.0 million). Of the total write-downs of EUR 130.3 million taken on securities, equities accounted for EUR 98.6 million. This contrasted with realised gains of EUR 102.3 million on balance, which derived principally from the shortening of durations in our US portfolio in the first quarter. Net investment income declined by 24.1% relative to the same period of the previous year to stand at EUR 445.1 million (EUR 586.2 million).
The operating profit (EBIT) consequently retreated by 14.4% to EUR 400.2 million (EUR 467.7 million). If the write-downs associated with the turmoil on capital markets were factored out, the operating profit would have risen 13.4% from EUR 468.0 million to EUR 530.5 million. Group net income as at 30 June 2008 contracted by13.9% to EUR 252.2 million (EUR 293.0 million). Earnings per share consequently amounted to EUR 2.09 (EUR 2.43), equivalent to an annualised return on equity of 16.4% (19.9%).
Shareholders' equity decreased by EUR 545.4 million compared to the level of 31 December 2007 to stand at EUR 2.8 billion. The book value per share consequently also slipped by 16.3% to EUR 23.25. The policyholders' surplus, comprised of shareholders' equity, minority interests and hybrid capital, totalled EUR 4.7 billion (EUR 5.3 billion).
It remains the case that our underwriting is shaped by active cycle management and our profit-oriented underwriting policy, in accordance with which we focus on those segments that offer the highest profitability – rather than the largest volume. We scaled back business that no longer satisfied these profitability standards and reshuffled our
portfolio in favour of other segments – such as German business, the worldwide credit and surety line and niche areas.
Demand in our domestic market is rising, in part due to more exacting risk management requirements. E+S Rück, our subsidiary responsible for the German market, is superbly positioned to derive maximum benefit from these business opportunities. Its involvement with mutual insurers, for example, is proving to be a clear competitive advantage since they are growing more strongly than the rest of the market. Its business partners see E+S Rück in a very positive and competent light overall; this is reinforced not only by the latest customer surveys, but also by their lasting business relationships with E+S Rück and the sustained growth of our market share.
In contrast to our domestic market, we reduced our share of North American business because rates here are coming under appreciable pressure – particularly in the casualty lines. Prices for property catastrophe risks also retreated owing to the absence of natural disasters.
Our so-called retakaful business continues to fare well: having already got off to a good start in 2007, our subsidiary in Bahrain can look to even brighter business prospects in 2008. The vigorous economic growth in Southeast Asia and the Near East is prompting consistent growth in demand for Sharia-compliant products.
| Figures in EUR million | 2008 | 2007 | |||||
|---|---|---|---|---|---|---|---|
| 1.1.–31.3. | 1.4.–30.6. | +/- previous year |
1.1.–30.6. | +/- previous year |
1.4.–30.6. | 1.1.–30.6. | |
| Gross written premium | 1,506.9 | 1,149.3 | -11.6% | 2,656.2 | -10.4% | 1,300.1 | 2,964.4 |
| Net premium earned | 996.9 | 1,085.7 | -12.2% | 2,082.6 | -10.6% | 1,235.9 | 2,328.5 |
| Underwriting result | (3.3) | 26.9 | +166.8% | 23.6 | -142.0% | 10.1 | (56.1) |
| Net investment income | 176.7 | 93.7 | +60.0% | 270.4 | -34.3% | 233.9 | 411.8 |
| Operating result (EBIT) | 181.5 | 106.8 | -53.2% | 288.2 | -10.3% | 228.2 | 321.5 |
| Group net income | 113.5 | 82.2 | -41.1% | 195.7 | -18.9% | 139.4 | 241.4 |
| Earnings per share in EUR | 0.94 | 0.68 | -41.1% | 1.62 | -18.9% | 1.15 | 2.00 |
| Retention | 88.6% | 90.4% | 89.4% | 82.7% | 83.3% | ||
| Combined ratio 1) | 99.5% | 97.4% | 98.4% | 99.1% | 102.1% |
1) Including expenses on funds withheld and contract deposits
The Latin American insurance market is also developing steadily: following the abolition of the reinsurance monopoly in Brazil we established a representative office in Rio de Janeiro and in July received a licence as an "admitted" reinsurer. This local presence gives us more direct access to clients and thus puts in place an optimal platform for securing a satisfactory share of the emerging Brazilian market. Generating a premium volume of some USD 40 billion, Brazil is by far the largest insurance market in Latin America and Rio de Janeiro is an up-and coming centre for the insurance industry.
In the area of agricultural risks our strategy is geared to acquiring additional market shares. With prices for farming products on the rise, demand for agricultural insurance covers and hence the need for reinsurance capacity is growing.
Due to the restraining effect of exchange rate movements, the gross premium income booked by our non-life reinsurance business group contracted to EUR 2.7 billion (EUR 3.0 billion) as at 30 June 2008, a fall of 10.4% compared to the same period of the previous year. At constant exchange
rates, especially against the US dollar, the decline would have been just 5.2%. The withdrawal from specialty business further curtailed premium volume. The level of retained premium increased from 83.3% to 89.4% as a consequence of significant savings on our own protection covers as well as reduced proportional cessions. Net premium earned fell by 10.6% to EUR 2.1 billion (EUR 2.3 billion).
The second quarter was again notable for a number of natural disasters. Most importantly, the earthquake in the Chinese province of Sichuan left a human tragedy in its aftermath. The devastating economic losses bore no relation, however, to the insured values. Our strain from this event was therefore rather moderate at around EUR 20 million. In Germany hailstorms and heavy rainfall in late May/early June caused considerable damage; the resulting losses for our account were in the order of EUR 30 million. The total net burden of catastrophe losses and major claims for the first half-year amounted to EUR 130.0 million (EUR 214.5 million). This figure is equivalent to 6.2% of net premium in non-life reinsurance and hence below the expected level of 10%. The combined ratio stood at 98.4% (102.1%).
The net underwriting result in non-life reinsurance improved to EUR 23.6 million after -EUR 56.1 million in the corresponding period of the previous year. Owing to the decline in investment income, however, the operating profit (EBIT) fell by 10.3% to EUR 288.2 million (EUR 321.5 million). Group net income contracted by 18.9% to EUR 195.7 million (EUR 241.4 million), generating earnings of EUR 1.62 (EUR 2.00) per share.
Our product range in life and health reinsurance encompasses five business segments: financial solutions, bancassurance, new markets, multinational insurance clients and conventional risk-oriented reinsurance. These five pillars ensure that we enjoy a diversified portfolio – with respect to both regions and products – and vigorous organic growth over the medium term.
With an eye to the demographic trend in industrialised nations, the retirement of the US baby boomer generation and the rapid emergence of an urban middle class in many developing countries, we assess the business prospects in life and health reinsurance as exceptionally favourable. In the second quarter we took further steps to derive maximum benefit from this potential.
In the high-growth markets of China and South Korea, for example, we commenced business operations through the newly established branches in Shanghai and Seoul. This structure enables us to enjoy the advantages of a local reinsurer and provide our clients with targeted and efficient on-the-spot service. As part of the liberalisation of the Korean market, over-the-counter sales of life insurance products at banks will continue to grow in significance. With this in mind, bancassurance and the development of new products will form the focus of our business activities in Korea. In India, too, we have put in place a platform to act quickly: in June we signed am exclusive cooperation agreement with the leading Indian reinsurer. The purpose of the collaboration, which is initially envisaged for a five-year period, is to jointly build up a profitable portfolio with further growth potential in the promising Indian market. To this end we have established a service company in Mumbai.
The United Kingdom – the second-largest reinsurance market in the world – retains its exceptional importance for our company: it accounts for around a third of our total premium volume in life and health reinsurance. The UK market is currently notable for particularly fierce competition in the area of risk-oriented reinsurance covers, prompting us to scale back our acceptances of such products. We continue to regard ourselves as the market-leading reinsurer for new business in the area of enhanced annuities. In this subsegment, as with the reinsurance of already existing pension funds, we still see excellent opportunities for further profitable expansion.
In the US market we have observed sustained market normalisation in traditional risk-oriented life business, with adequate conditions. Against this backdrop we have successfully stepped up our underwriting in certain specialist segments of this market, including for example corporateowned life insurance (COLI). Along with health insurance products aimed at senior citizens, our company also continues to attach particular significance to financial solutions – an area in which we realised the largest transaction in the history of Hannover Life Re in the first half of 2008.
Structurally induced premium stagnation is the hallmark of the German market; the impetus injected in the current year by another, final step increase for Riester pensions will be of limited duration. As a reinsurer, our product development activities are already geared heavily towards the coverage
needs of senior citizens, even though this financially strong sector of the population is unfortunately still neglected by the insurance industry.
We also remain actively involved in the development of 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. | 1.4.–30.6. | +/- previous year |
1.1.–30.6. | +/- previous year |
1.4.–30.6. | 1.1.–30.6. | |||
| Gross written premium | 770.1 | 720.0 | -8.6% | 1,490.1 | -2.8% | 788.2 | 1,532.3 | ||
| Net premium earned | 681.8 | 651.0 | -11.1% | 1,332.8 | -3.2% | 732.5 | 1,376.7 | ||
| Net investment income | 76.2 | 78.6 | -7.0% | 154.8 | -0.5% | 84.5 | 155.5 | ||
| Operating profit (EBIT) | 47.9 | 39.3 | -49.2% | 87.2 | -32.5% | 77.4 | 129.2 | ||
| Group net income | 38.3 | 26.6 | -52.4% | 65.0 | -27.8% | 56.0 | 89.9 | ||
| Earnings per share in EUR | 0.32 | 0.22 | -52.4% | 0.54 | -27.8% | 0.47 | 0.75 | ||
| Retention | 88.6% | 90.7% | 89.6% | 92.9% | 90.2% | ||||
| EBIT margin 1) | 7.0% | 6.0% | 6.5% | 10.6% | 9.4% |
1) Operating profit (EBIT)/net premium earned
Owing to the restraining effect of movements in exchange rates, especially in the case of the pound sterling and US dollar – currencies of particular relevance to our company –, gross written premium contracted by 2.8% as at 30 June 2008 to EUR 1.5 billion (EUR 1.5 billion); at constant exchange rates we would have reported growth of 3.4%. The level of retained premium slipped marginally to 89.6% (90.2%), as a consequence of which net premium earned fell by a slightly disproportionate 3.2% to EUR 1.3 billion (EUR 1.4 billion).
The sharp decline of 32.5% in the operating profit (EBIT) as at 30 June 2008 to EUR 87.2 million (EUR 129.2 million) does not imply an unfavourable business performance. Rather, it is a reflection of the fact that the result for the corresponding period of the previous year was influenced by non-recurring positive special effects in the technical
account totalling EUR 25 million; these were attributable to the release of reserves that were no longer required.
The biometric claims experience for both mortality and morbidity risks was gratifying overall at the operational units in the life and health reinsurance business group, although in this regard a charge to income was taken in the middle single-digit million euros due to a number of belatedly reported sizeable claims from the Australian disability portfolio. We did not identify any special risks to our international portfolio associated with the persistency of the business in force.
7
The EBIT margin of 6.5% was within the target corridor of 6.5% to 7.5%. Group net income shrank to EUR 65.0 million (EUR 89.9 million) owing to the factors described
above; this was equivalent to earnings per share of EUR 0.54 (EUR 0.75).
further significant yield increases in our preferred duration ranges in the first half-year, the US market recorded yield declines that were driven primarily by switching from other higher-risk asset segments into government bonds. Renewed uncertainties in the credit market, especially affect-
In the second quarter the international equity markets again failed to pick up on the positive trend of previous years, and over the entire first six months indices – especially in Europe – shed up to a fifth of their 2007 year-end levels. These declines were prompted by further uncertainties in the global credit market, triggered by the current financial crisis as well as surging commodity prices.
Bond markets worldwide continue to see greater volatility in virtually all durations. While the European market witnessed
| Net investment income | |||||||
|---|---|---|---|---|---|---|---|
| Figures in EUR million | 2008 | 2007 | |||||
| 1.1.–31.3. | 1.4.–30.6. | +/- previous year |
1.1.–30.6. | +/- previous year |
1.4.–30.6. | 1.1.–30.6. | |
| Ordinary investment income 1) | 211.3 | 196.6 | -9.6% | 407.9 | -1.9% | 217.4 | 415.7 |
| Results from participation in associated companies |
0.7 | 3.5 | +38.3% | 4.1 | +19.5% | 2.5 | 3.5 |
| Realised gains/losses | 107.7 | (5.4) | -107.8% | 102.3 | +4.8% | 68.9 | 97.6 |
| Impairments on investments 2) | 85.7 | 44.8 | 130.6 | 0.2 | 0.6 | ||
| Unrealised gains/losses 3) | (11.9) | (3.3) | (15.1) | – | (0.1) | ||
| Investment expenses | 14.1 | 11.8 | -0.5% | 25.8 | -7.1% | 11.8 | 27.8 |
| Net investment income from assets under own management |
208.0 | 134.8 | -51.3% | 342.8 | -29.8% | 276.8 | 488.2 |
| Net investment income from funds | |||||||
| withheld | 54.6 | 47.7 | -6.9% | 102.3 | +4.4% | 51.2 | 98.0 |
| Total investment income | 262.6 | 182.5 | -44.4% | 445.1 | -24.1% | 328.0 | 586.2 |
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 protracted upheavals on capital markets did not leave our investment portfolio unscathed in the second quarter. Not only that, 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 18.7 billion (EUR 19.8 billion). The pleasing price trend on fixed-income securities in the first quarter was not sustained into the second quarter. Price declines on equities, particularly on European stock markets, were another factor. The rise in yields in the European market led to increased unrealised losses: as at the end of the reporting period they totalled EUR 315.4 million (EUR 103.4 million) for our available-forsale portfolio of fixed-income securities. The unrealised losses on equities amounted to EUR 101.6 million (as at 31 December 2007 unrealised gains of EUR 191.0 million).
Bearing in mind the tense state of international capital markets described here, the development of ordinary income excluding interest on deposits was satisfactory: it decreased – solely due to exchange rate effects – by 1.9% to EUR 407.9 million (EUR 415.7 million). In the context of our proactive approach to portfolio management – especially as part of the tactical shortening of durations in the US portfolios in the first quarter – gains of EUR 171.4 million (EUR 134.3 million) were realised on the disposal of investments, as against realised losses of EUR 69.1 million (EUR 36.7 million). Of the total write-downs on securities of EUR
130.3 million, an amount of EUR 98.6 million was taken on our existing equity holdings. Hedges had already been put in place for around 20% of the portfolio in the first quarter, thereby limiting the necessary volume of impairment losses. In addition, we took impairments – on a modest scale – on interest-bearing securities in the second quarter too. Net income from assets under own management contracted by a substantial 29.8 % overall to EUR 342.8 million (EUR 488.2 million). This effect was somewhat cushioned by income from interest on deposits – which rose by 4.4% to EUR 102.3 million (EUR 98.0 million) –, as a consequence of which net income from total investments retreated by 24.1% year-on-year to stand at EUR 445.1 million (EUR 586.2 million).
As an internationally operating reinsurer we are exposed to a diverse spectrum of potential risks. These risks can have a not inconsiderable impact on our assets, financial position and net income. Our effective controlling tools nevertheless ensure that we are able to identify our risks in a timely manner and maximise our opportunities. Based on our currently available insights arrived at from a holistic analysis of the risk situation, we cannot discern any risks that could jeopardise the continued existence of our company in the short or medium term or have a significant, lasting effect on our assets, financial assets or net income.
On the basis of our strategic orientation and the available market opportunities, we anticipate another good underwriting result in both non-life and life/health reinsurance for the full financial year. The net premium income booked by the Hannover Re Group should come in slightly higher.
Despite unmistakable softening tendencies in some non-life reinsurance lines and markets, conditions are still acceptable. In areas where the business failed to satisfy our profitability standards, we pulled back in accordance with our
Our remarks on risk management at Hannover Re contained in the Annual Report as at 31 December 2007 remain valid and provide detailed insights into organisational aspects and further risk management activities. Supplementary information on our risk management system, and in particular quantitative data on individual risks, is provided in Section 5 of the Notes to this report, "Management of technical and financial risks."
tried and trusted cycle management and reshuffled our portfolio in favour of other segments – such as German business and the worldwide credit and surety line. We are also able to tap into opportunities in niche areas, including for example the so-called retakaful market. In agricultural insurance lines, too, we are stepping up our involvement.
The treaty renewals that take place within the year in the United States as at 1 July – when around one-third of our portfolio is renegotiated – confirmed the trend towards a
softening market. Premiums in casualty business retreated by up to 10 %, although conditions largely held stable. In the non-proportional sector we were able to obtain rate increases under programmes that had incurred losses. In catastrophe business the pressure on rates was sustained. The margins that we achieved were nevertheless still comfortably adequate.
All in all, we were satisfied with the treaty renewals in Australia and New Zealand as at 1 July: prices in non-proportional property business remained stable, and it was even possible to push through increases under loss-affected programmes.
In Latin American catastrophe business rates moved higher in some markets, while in others they softened.
In general terms, however, 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 business at conditions that are commensurate with the risks.
With our new representative office in Rio de Janeiro we have an optimal platform for securing a satisfactory market share in Brazil, the largest insurance market in Latin America. The portfolio written in Brazil encompasses both obligatory and facultative business in the casualty, motor, aviation, marine, credit and surety lines as well as agricultural risks, structured products and life reinsurance.
All in all, we anticipate a slight reduction of our net premium in non-life reinsurance 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 expect a very healthy profit contribution.
Our business prospects in life and health reinsurance remain favourable. The increasing size of the upper levels of the age pyramid in industrial nations will continue to drive growth in annuity and health insurance for many years to come. Based on our superb worldwide positioning and
diversification, we expect continued favourable profitability and growth of around 10% in premium volume.
The UK market is set to face special challenges over the coming 12 to 18 months in traditional life reinsurance business; on the other hand, we see opportunities for innovative morbidity products such as critical illness covers with a graduated benefit. UK annuity policies remain a vital core business with considerable growth potential over the medium term.
In the United States we anticipate further attractive market opportunities going forward in the areas of block assumption transactions and health insurance for seniors. Our main focus in Germany is on products aimed at senior citizens and unit-linked policies, with above all long-term care annuities likely to enjoy growing popularity.
The so-called BRICK markets, i.e. Brazil, Russia, India, China and Korea, promise to deliver further positive growth stimuli going forward. By establishing new branches and offices in these countries we now enjoy even greater customer intimacy and are thus better able to act on market opportunities.
On the investments side it is to be expected that our volume of assets – despite the anticipated positive cash flow from the technical account – will fall short of the previous year's level owing to the protracted weakness of the US dollar. Ordinary income in the second half of the year should come in roughly on a par with the favourable level of the first six months. Movements on stock markets, however, are subject to considerable uncertainty.
Within the scope of our conservative and risk-conscious investment policy, however, we have invested just 9% of our asset holdings in equities. Nevertheless, if stock markets fail to normalise our company too will have to anticipate further write-downs in the third quarter. If prices were to recover significantly, as has been forecast by some market players, the outlook for our net investment income would also improve substantially. In the area of fixed-income securities our focus continues to be on high quality and good diversification of the portfolio. The company has therefore not been particularly affected by the difficulties on the US mortgage market.
With conditions on reinsurance markets that are still adequate and given our broad diversification – and subject to the premise that the burden of catastrophe losses and major claims does not significantly exceed the expected level of 10% of net premium in non-life reinsurance – we are looking to generate a good underwriting result for the full 2008 financial year.
Bearing in mind the prevailing uncertainties on international capital markets, it is not possible to make a reliable statement concerning our investment income. The longer the turmoil on equity markets continues, the more difficult it will be to achieve our targeted earnings per share of EUR 5 for the full financial year. We nevertheless still consider a return on equity in excess of 15% to be realistic.
as at 30 June 2008
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Assets | 30.6. | 31.12. |
| Fixed-income securities – held to maturity | 1,440,888 | 1,488,816 |
| Fixed-income securities – loans and receivables | 1,490,444 | 1,537,889 |
| Fixed-income securities – available for sale | 12,025,746 | 12,477,055 |
| Fixed-income securities – at fair value through profit or loss | 172,678 | 158,740 |
| Equity securities – available for sale | 1,663,954 | 2,000,390 |
| Other financial assets – at fair value through profit or loss | 55,352 | 20,385 |
| Real estate | 14,231 | 16,962 |
| Investments in associated companies | 162,615 | 170,839 |
| Other invested assets | 685,505 | 677,957 |
| Short-term investments | 714,909 | 930,821 |
| Cash | 318,096 | 335,422 |
| Total investments and cash under own management | 18,744,418 | 19,815,276 |
| Funds held | 9,894,369 | 8,610,554 |
| Contract deposits | 456,943 | 616,134 |
| Total investments | 29,095,730 | 29,041,964 |
| Reinsurance recoverables on unpaid claims | 2,132,096 | 2,471,585 |
| Reinsurance recoverables on benefit reserve | 160,396 | 255,076 |
| Prepaid reinsurance premium | 98,137 | 92,322 |
| Reinsurance recoverables on other technical reserves | 15,530 | 5,574 |
| Deferred acquisition costs | 1,893,931 | 1,807,143 |
| Accounts receivable | 2,834,796 | 2,525,871 |
| Goodwill | 43,244 | 45,438 |
| Deferred tax assets | 622,763 | 577,731 |
| Other assets | 347,228 | 244,278 |
| Accrued interest and rent | 3,145 | 1,425 |
| 37,246,996 | 37,068,407 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| Liabilities | 30.6. | 31.12. |
| Loss and loss adjustment expense reserve | 16,072,386 | 16,553,888 |
| Benefit reserve | 5,954,906 | 6,143,460 |
| Unearned premium reserve | 1,430,337 | 1,186,382 |
| Other technical provisions | 186,963 | 183,725 |
| Funds held | 670,555 | 956,912 |
| Contract deposits | 5,178,244 | 3,668,825 |
| Reinsurance payable | 1,147,888 | 1,141,067 |
| Provisions for pensions | 69,025 | 67,101 |
| Taxes | 162,564 | 202,621 |
| Provision for deferred taxes | 1,358,133 | 1,350,679 |
| Other liabilities | 279,065 | 277,037 |
| Long-term debt and subordinated capital | 1,412,263 | 1,414,877 |
| Total liabilities | 33,922,329 | 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 | (205,034) | 181,395 |
| Cumulative foreign currency translation adjustment | (334,978) | (213,117) |
| Other changes in cumulative other comprehensive income | 5,983 | 6,482 |
| Total other comprehensive income | (534,029) | (25,240) |
| Retained earnings | 2,492,531 | 2,529,170 |
| Shareholders' equity before minorities | 2,803,661 | 3,349,089 |
| Minority interests | 521,006 | 572,744 |
| Total shareholders' equity | 3,324,667 | 3,921,833 |
| 37,246,996 | 37,068,407 |
for the period 1 January to 30 June 2008
| Figures in EUR thousand | 2008 | 2007 | |||
|---|---|---|---|---|---|
| 1.4.–30.6. | 1.1.–30.6. | 1.4.–30.6. | 1.1.–30.6. | ||
| Gross written premium | 1,869,088 | 4,144,559 | 2,083,126 | 4,491,568 | |
| Ceded written premium | 177,157 | 434,517 | 276,066 | 639,021 | |
| Change in gross unearned premium | 53,605 | (304,151) | 222,006 | (43,892) | |
| Change in ceded unearned premium | (8,845) | 9,465 | (60,707) | (103,482) | |
| Net premium earned | 1,736,691 | 3,415,356 | 1,968,359 | 3,705,173 | |
| Ordinary investment income | 196,555 | 407,854 | 217,415 | 415,744 | |
| Profit/loss from investments in associated companies | 3,454 | 4,149 | 2,497 | 3,473 | |
| Income/expense on funds withheld and contract deposits | 47,698 | 102,300 | 51,220 | 97,951 | |
| Realised gains on investments | 37,577 | 171,353 | 94,165 | 134,320 | |
| Realised losses on investments | 42,980 | 69,054 | 25,238 | 36,737 | |
| Unrealised gains and losses on investments | (3,274) | (15,149) | (15) | (141) | |
| Total depreciation, impairments and appreciation of investments | 44,808 | 130,551 | 215 | 617 | |
| Other investment expenses | 11,754 | 25,824 | 11,815 | 27,798 | |
| Net investment income | 182,468 | 445,078 | 328,014 | 586,195 | |
| Other technical income | 1,639 | 1,776 | 999 | 1,275 | |
| Total revenues | 1,920,798 | 3,862,210 | 2,297,372 | 4,292,643 | |
| Claims and claims expenses | 1,140,838 | 2,304,568 | 1,325,051 | 2,545,042 | |
| Change in benefit reserves | 85,974 | 170,016 | 100,696 | 214,492 | |
| Commission and brokerage, change in deferred acquisition costs | 455,682 | 852,415 | 494,739 | 927,337 | |
| Other acquisition costs | 3,661 | 8,321 | 1,577 | 8,165 | |
| Other technical expenses | 2,500 | 5,363 | 2,000 | 9,178 | |
| Administrative expenses | 57,365 | 112,739 | 51,911 | 100,587 | |
| Total technical expenses | 1,746,020 | 3,453,422 | 1,975,974 | 3,804,801 | |
| Other income and expenses | (20,210) | (8,574) | (7,887) | (20,143) | |
| Operating profit/loss (EBIT) | 154,568 | 400,214 | 313,511 | 467,699 | |
| Interest on hybrid capital | 19,206 | 38,509 | 19,354 | 38,517 | |
| Net income before taxes | 135,362 | 361,705 | 294,157 | 429,182 | |
| Taxes | 30,948 | 98,896 | 118,886 | 139,864 | |
| Net income from continuing operations | 104,414 | 262,809 | 175,271 | 289,318 | |
| Net income from discontinued operations | – | – | 15,452 | 30,712 | |
| Net income | 104,414 | 262,809 | 190,723 | 320,030 | |
| thereof | |||||
| Minority interest in profit and loss | 3,651 | 10,585 | 21,293 | 27,059 | |
| Group net income | 100,763 | 252,224 | 169,430 | 292,971 | |
| Earnings per share | |||||
| Earnings per share in EUR | 0.84 | 2.09 | 1.41 | 2.43 | |
| from continuing operations in EUR | 0.84 | 2.09 | 1.28 | 2.18 | |
| from discontinued operations in EUR | – | – | 0.13 | 0.25 |
of changes in shareholders' equity 2008
| Figures in EUR thousand |
Common shares |
Additional paid-in capital |
Other reserves (cumulative other comprehensive income) |
Retained earnings |
Minority interests |
Shareholders' equity |
||
|---|---|---|---|---|---|---|---|---|
| Currency translation |
Unrealised gains/ losses |
Other | ||||||
| Balance as at 1.1.2007 | 120,597 | 724,562 | (71,518) | 144,199 | (1,526) | 1,981,521 | 608,551 | 3,506,386 |
| Income and expenses directly recognised in equity |
(23,056) | (47,526) | (521) | 8,212 | (129,676) | (192,567) | ||
| Tax effects on income and expenses directly recognised in equity |
(2,123) | 43,379 | 161 | 41,417 | ||||
| Dividend paid | (192,955) | (31,278) | (224,233) | |||||
| Net income | 292,971 | 27,059 | 320,030 | |||||
| Balance as at 30.6.2007 | 120,597 | 724,562 | (96,697) | 140,052 | (1,886) | 2,089,749 | 474,656 | 3,451,033 |
| Balance as at 1.1.2008 | 120,597 | 724,562 | (213,117) | 181,395 | 6,482 | 2,529,170 | 572,744 | 3,921,833 |
| Capital increases/additions | 39 | 39 | ||||||
| Capital repayments | (31) | (31) | ||||||
| Income and expenses directly recognised in equity |
(131,240) | (435,947) | (670) | (11,490) | (21,385) | (600,732) | ||
| Tax effects on income and expenses directly recognised in equity |
9,379 | 49,518 | 171 | 59,068 | ||||
| Dividends paid | (277,373) | (40,946) | (318,319) | |||||
| Net income | 252,224 | 10,585 | 262,809 | |||||
| Balance as at 30.6.2008 | 120,597 | 724,562 | (334,978) | (205,034) | 5,983 | 2,492,531 | 521,006 | 3,324,667 |
as at 30 June 2008
| Figures in EUR thousand | 2008 | 2007 | ||
|---|---|---|---|---|
| 1.1.–30.6. | 1.1.–30.6. | |||
| I. | Cash flow from operating activities | |||
| Net income | 262,809 | 320,030 | ||
| Appreciation/depreciation | 130,722 | 8,865 | ||
| Net realised gains and losses on investments | (102,299) | (97,583) | ||
| Net realised gains and losses on discontinued operations | ||||
| Net realised gains and losses on disposal of discontinued operations |
– | (87,723) | ||
| Amortisation of investments | (11,205) | (2,857) | ||
| Changes in funds held | (1,894,326) | (649,338) | ||
| Net changes in contract deposits | 1,787,572 | 302,727 | ||
| Changes in prepaid reinsurance premium (net) | 294,971 | 147,352 | ||
| Changes in tax assets/provisions for taxes | (52,006) | 203,452 | ||
| Changes in benefit reserves (net) | 167,988 | 323,582 | ||
| Changes in claims reserves (net) | 429,948 | 401,212 | ||
| Changes in deferred acquisition costs | (142,663) | (4,726) | ||
| Changes in other technical provisions | 4,616 | 22,303 | ||
| Changes in clearing balances | (372,990) | (641,653) | ||
| Changes in other assets and liabilities (net) | (14,395) | (82,950) | ||
| Cash flow from operating activities | 488,742 | 162,693 | ||
| II. | Cash flow from investing activities | |||
| Fixed-income securities – held to maturity | ||||
| Maturities | 9,684 | 62,033 | ||
| Purchases | – | (25,435) | ||
| Fixed-income securities – loans and receivables | ||||
| Maturities, sales | 55,725 | 9,966 | ||
| Purchases | (6,783) | (316,484) | ||
| Fixed-income securities – available for sale | ||||
| Maturities, sales | 5,334,168 | 2,885,365 | ||
| Purchases | (5,545,396) | (2,830,251) | ||
| Fixed-income securities – at fair value through profit or loss | ||||
| Maturities, sales | 10,052 | 12,058 | ||
| Purchases | (22,744) | (8,716) | ||
| Equity securities – available for sale | ||||
| Sales | 720,831 | 442,837 | ||
| Purchases | (774,980) | (402,891) |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.6. | 1.1.–30.6. | |
| Equity securities – at fair value through profit or loss | ||
| Sales | – | 20,340 |
| Purchases | – | (10,207) |
| Other securities, trading | ||
| Sales | 19,260 | 387 |
| Purchases | (37,615) | – |
| Other invested assets | ||
| Sales | 9,886 | 69,235 |
| Purchases | (64,622) | (67,287) |
| Affiliated companies and participating interests | ||
| Sales | – | 606,542 |
| Purchases | (3,227) | (499) |
| Short-term investments | ||
| Changes | 125,523 | (187,506) |
| Other changes (net) | (18,175) | (14,182) |
| Cash flow from investing activities | (188,413) | 245,305 |
| III. Cash flow from financing activities | ||
| Payment on capital measures | (274) | 736 |
| Structural change without loss of control | 14,293 | (135,200) |
| Dividends paid | (318,319) | (224,234) |
| Repayment of long-term debts | (277) | (9,981) |
| Other changes | – | 3,530 |
| Cash flow from financing activities | (304,577) | (365,149) |
| IV. Exchange rate differences on cash | (13,078) | (4,203) |
| Change in cash and cash equivalents (I.+II.+III.+IV.) | (17,326) | (38,646) |
| 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 | (17,326) | 38,646 |
| Cash and cash equivalents at the end of the period | 318,096 | 390,422 |
| Income taxes | (95,301) | (45,779) |
| Interest paid | (82,608) | (90,795) |
Hannover Re's segmental report is based on IAS 14 "Segment Reporting" and on the principles set out in German Accounting Standard No. 3 "Segment Reporting" (DRS 3) of the German Standards Council, supplemented by the requirements of DRS 3–20 "Segment Reporting of Insurance Enterprises".
The segments are shown after consolidation of internal transactions within the individual segment, but before consolidation across the segments. This is reported separately in the "Consolidation" column.
| Figures in EUR thousand | Non-life reinsurance | ||
|---|---|---|---|
| 2008 | 2007 | ||
| 30.6 | 31.12. | ||
| Assets | |||
| Held to maturity | 1,218,283 | 1,262,619 | |
| Loans and receivables | 1,225,890 | 1,263,764 | |
| Available for sale | 10,577,592 | 11,387,469 | |
| At fair value through profit or loss | 136,497 | 118,573 | |
| Other invested assets | 803,063 | 808,047 | |
| Short-term investments | 569,802 | 587,455 | |
| Cash | 216,606 | 241,812 | |
| Total investments and cash under own management | 14,747,733 | 15,669,739 | |
| Funds held by ceding companies | 838,643 | 870,892 | |
| Contract deposits | 137 | 137 | |
| Total investments | 15,586,513 | 16,540,768 | |
| Reinsurance recoverables on unpaid claims | 2,019,057 | 2,371,387 | |
| Reinsurance recoverables on benefit reserves | – | – | |
| Prepaid reinsurance premium | 93,192 | 86,217 | |
| Reinsurance recoverables on other reserves | 12,316 | 3,031 | |
| Deferred acquisition costs | 314,235 | 262,176 | |
| Accounts receivable | 2,078,024 | 1,373,824 | |
| Other assets in the segment | 1,445,184 | 1,287,379 | |
| Total | 21,548,521 | 21,924,782 |
| Life and health reinsurance | Consolidation Total |
||||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2007 | |
| 30.6 | 31.12. | 30.6 | 31.12. | 30.6 | 31.12. |
| 48,043 | 52,071 | 174,562 | 174,126 | 1,440,888 | 1,488,816 |
| 106,421 | 116,567 | 158,133 | 157,558 | 1,490,444 | 1,537,889 |
| 2,486,918 | 2,496,286 | 625,190 | 593,690 | 13,689,700 | 14,477,445 |
| 62,749 | 35,227 | 28,784 | 25,325 | 228,030 | 179,125 |
| 59,288 | 57,711 | – | – | 862,351 | 865,758 |
| 116,138 | 146,952 | 28,969 | 196,414 | 714,909 | 930,821 |
| 91,245 | 88,295 | 10,245 | 5,315 | 318,096 | 335,422 |
| 2,970,802 | 2,993,109 | 1,025,883 | 1,152,428 | 18,744,418 | 19,815,276 |
| 9,057,860 | 7,741,902 | (2,134) | (2,240) | 9,894,369 | 8,610,554 |
| 456,806 | 615,997 | – | – | 456,943 | 616,134 |
| 12,485,468 | 11,351,008 | 1,023,749 | 1,150,188 | 29,095,730 | 29,041,964 |
| 113,541 | 101,629 | (502) | (1,431) | 2,132,096 | 2,471,585 |
| 160,396 | 255,076 | – | – | 160,396 | 255,076 |
| 4,945 | 6,105 | – | – | 98,137 | 92,322 |
| 3,214 | 2,543 | – | – | 15,530 | 5,574 |
| 1,579,696 | 1,544,967 | – | – | 1,893,931 | 1,807,143 |
| 758,732 | 1,152,705 | (1,960) | (658) | 2,834,796 | 2,525,871 |
| 330,911 | 304,312 | (759,715) | (722,819) | 1,016,380 | 868,872 |
| 15,436,903 | 14,718,345 | 261,572 | 425,280 | 37,246,996 | 37,068,407 |
| Figures in EUR thousand | Non-life reinsurance | ||
|---|---|---|---|
| 2008 | 2007 | ||
| 30.6 | 31.12. | ||
| Liabilities | |||
| Loss and loss adjustment expense reserve | 14,524,987 | 15,114,553 | |
| Benefit reserves | – | – | |
| Unearned premium reserve | 1,393,500 | 1,148,723 | |
| Provisions for contingent commissions | 141,286 | 146,638 | |
| Funds held under reinsurance contracts | 179,226 | 186,802 | |
| Contract deposits | 137,448 | 156,829 | |
| Reinsurance payable | 895,679 | 427,552 | |
| Long-term liabilities | 38,482 | 41,583 | |
| Other liabilities in the segment | 1,225,325 | 1,239,046 | |
| Total | 18,535,933 | 18,461,726 |
| Life and health reinsurance | Consolidation | Total | |||||
|---|---|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | ||
| 30.6 | 31.12. | 30.6 | 31.12. | 30.6 | 31.12. | ||
| 1,547,914 | 1,440,774 | (515) | (1,439) | 16,072,386 | 16,553,888 | ||
| 5,954,906 | 6,143,460 | – | – | 5,954,906 | 6,143,460 | ||
| 36,837 | 37,659 | – | – | 1,430,337 | 1,186,382 | ||
| 45,677 | 37,087 | – | – | 186,963 | 183,725 | ||
| 493,431 | 772,352 | (2,102) | (2,242) | 670,555 | 956,912 | ||
| 5,040,796 | 3,511,996 | – | – | 5,178,244 | 3,668,825 | ||
| 254,349 | 714,857 | (2,140) | (1,342) | 1,147,888 | 1,141,067 | ||
| – | – | 1,373,781 | 1,373,294 | 1,412,263 | 1,414,877 | ||
| 1,409,521 | 1,283,393 | (766,059) | (625,001) | 1,868,787 | 1,897,438 | ||
| 14,783,431 | 13,941,578 | 602,965 | 743,270 | 33,922,329 | 33,146,574 |
| Figures in EUR thousand Non-life reinsurance |
||||
|---|---|---|---|---|
| 2008 | 2007 | |||
| 1.1.–30.6. | 1.1.–30.6. | |||
| Gross written premium | 2,656,218 | 2,964,416 | ||
| thereof | ||||
| From insurance business with other segments | – | – | ||
| From insurance business with external third parties and from discontinued operations |
2,656,218 | 2,964,416 | ||
| Net premium earned | 2,082,575 | 2,328,471 | ||
| Net investment income | 270,373 | 411,825 | ||
| Claims and claims expenses | 1,515,184 | 1,761,117 | ||
| Change in benefit reserves | – | – | ||
| Commission and brokerage, change in deferred acquisition costs and other technical income/expenses |
464,027 | 550,472 | ||
| Administrative expenses | 79,768 | 72,996 | ||
| Other income and expenses | (5,733) | (34,211) | ||
| Operating profit/loss (EBIT) | 288,236 | 321,500 | ||
| Interest on hybrid capital | – | – | ||
| Net income before taxes | 288,236 | 321,500 | ||
| Taxes | 86,447 | 73,066 | ||
| Net income from continuing operations | 201,789 | 248,434 | ||
| Net income from discontinued operations | – | 13,677 | ||
| Net income | 201,789 | 262,111 | ||
| thereof | ||||
| Minority interest in profit and loss | 6,095 | 20,685 | ||
| Group net income | 195,694 | 241,426 |
| Life and health reinsurance | Consolidation | Total | |||
|---|---|---|---|---|---|
| 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
| 1.1.–30.6. | 1.1.–30.6. | 1.1.–30.6. | 1.1.–30.6. | 1.1.–30.6. | 1.1.–30.6. |
| 1,490,117 | 1,532,264 | (1,776) | (5,112) | 4,144,559 | 4,491,568 |
| 1,776 | 5,112 | (1,776) | (5,112) | – | – |
| 1,488,341 | 1,527,152 | – | – | 4,144,559 | 4,491,568 |
| 1,332,781 | 1,376,702 | – | – | 3,415,356 | 3,705,173 |
| 154,794 | 155,518 | 19,911 | 18,852 | 445,078 | 586,195 |
| 789,877 | 784,204 | (493) | (279) | 2,304,568 | 2,545,042 |
| 170,016 | 214,492 | – | – | 170,016 | 214,492 |
| 403,440 | 396,221 | (3,144) | (3,288) | 864,323 | 943,405 |
| 33,674 | 29,900 | (703) | (2,309) | 112,739 | 100,587 |
| (3,356) | 21,801 | 515 | (7,733) | (8,574) | (20,143) |
| 87,212 | 129,204 | 24,766 | 16,995 | 400,214 | 467,699 |
| – | – | 38,509 | 38,517 | 38,509 | 38,517 |
| 87,212 | 129,204 | (13,743) | (21,522) | 361,705 | 429,182 |
| 17,761 | 32,899 | (5,312) | 33,899 | 98,896 | 139,864 |
| 69,451 | 96,305 | (8,431) | (55,421) | 262,809 | 289,318 |
| – | – | – | 17,035 | – | 30,712 |
| 69,451 | 96,305 | (8,431) | (38,386) | 262,809 | 320,030 |
| 4,490 | 6,374 | – | – | 10,585 | 27,059 |
| 64,961 | 89,931 | (8,431) | (38,386) | 252,224 | 292,971 |
Our secondary segmental reporting covers the continuing operations and is based on the regional origin of the investments and gross written premium.
| Investments 1) | |
|---|---|
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 30.6. | 31.12. | |
| Investments | ||
| Germany | 5,438,915 | 6,252,371 |
| United Kingdom | 1,162,422 | 1,187,499 |
| France | 1,228,455 | 1,117,610 |
| Other | 3,228,237 | 3,251,338 |
| Europe | 11,058,029 | 11,808,818 |
| USA | 5,512,862 | 5,909,163 |
| Other | 649,577 | 589,295 |
| North America | 6,162,439 | 6,498,458 |
| Asia | 401,498 | 384,628 |
| Australia | 689,854 | 659,006 |
| Australasia | 1,091,352 | 1,043,634 |
| Africa | 259,695 | 276,441 |
| Other | 172,903 | 187,925 |
| Total | 18,744,418 | 19,815,276 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.6. | 1.1.–30.6. | |
| Gross written premium | ||
| Germany | 736,481 | 839,150 |
| United Kingdom | 703,682 | 792,706 |
| France | 203,667 | 211,015 |
| Other | 624,038 | 616,596 |
| Europe | 2,267,868 | 2,459,467 |
| USA | 884,548 | 1,108,636 |
| Other | 182,851 | 202,473 |
| North America | 1,067,399 | 1,311,109 |
| Asia | 318,197 | 233,967 |
| Australia | 205,197 | 229,056 |
| Australasia | 523,394 | 463,023 |
| Africa | 119,039 | 128,449 |
| Other | 166,859 | 129,520 |
| Total | 4,144,559 | 4,491,568 |
1) After elimination of internal transactions within the Group across segments
The parent company Hannover Rückversicherung AG ("Hannover Re") and its subsidiaries (collectively referred to as the "Hannover Re Group") belong to Talanx AG, which in turn is wholly owned by HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI). Hannover Re is obliged to prepare a consolidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB). Furthermore, HDI is required by §§ 341 i et seq. German Commercial Code (HGB) to prepare consolidated annual accounts that include the annual financial statements of Hannover Re and its subsidiaries.
The consolidated financial statement of Hannover Re was drawn up in full compliance with the International Financial Reporting Standards (IFRS) that are to be used within the European Union. This also applies to all figures provided in this report for previous periods. Since 2002 the standards adopted by the International Accounting Standards Board (IASB) have been referred to as IFRS; the standards dating from earlier years still bear the name "International Accounting Standards (IAS)". Standards are cited in our Notes accordingly; unless the Notes make explicit reference to a particular standard, both terms are used synonymously.
In accordance with IAS 34.41 we draw on estimates and assumptions to a greater extent when preparing the consolidated quarterly financial report than is the case with the annual financial reporting. This can have implications for items in the balance sheet and the statement of income as well as for other financial obligations. Although the estimates are always based on realistic premises, they are of course subject to uncertainties that may be reflected accordingly in the result. Losses from natural disasters and other catastrophic losses impact the result of the reporting period in which they occur. Furthermore, belatedly reported claims for major loss events can also lead to substantial fluctuations in individual quarterly results. Gains and losses on the disposal of investments are accounted for in the quarter in which the investments are sold.
The quarterly accounts of the consolidated companies included in the consolidated financial statement were drawn up as at 30 June 2008.
All standards adopted by the IASB as at 30 June 2008 with binding effect for the reporting period have been observed in the consolidated financial statement.
In the present quarterly financial report as at 30 June 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.
We are making use of the option provided for in the currently applicable version of IFRS 3 to recognise disposals of interest directly in equity from the second quarter of 2008 onwards.
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 6.3 million was reallocated from the reinsurance underwriting result to ordinary investment income for the second quarter of 2007. This reclassification, which affected the nonlife 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.
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. We have decided to recognise share reductions that do not result in a change of control status directly in equity. 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.
On 9 April 2008 the Cologne-based Hannover Re Euro PE Holdings GmbH & Co. KG commenced business operations. Hannover Re and E+S Rück hold interests of 75% and 25% respectively in the company. Payment of the limited partner's share in an amount of altogether EUR 4.5 million was made in the second quarter. The company's business object is to build, hold and manage a portfolio of assets.
In the second quarter of 2008 Hannover Re for the first time included the Shanghai-based Hannover Rückversicherung AG Shanghai Branch – which is charged with writing life and health reinsurance business – in the consolidated financial statement. The branch commenced business operations on 19 May 2008.
In the second quarter of 2008 Hannover Re for the first time included the Seoul-based Hannover Rückversicherung AG Korea Branch – which is charged with writing life and health reinsurance business – in the consolidated financial statement. The branch commenced business operations on 23 May 2008.
Effective 28 May Hannover Re participated in an amount of initially USD 30 million as the first investor in Secquaero ILS Fund Ltd.; a further USD 20 million can be called at short notice. The fund in question is a so-called "Seed Money Fund". Hannover Re will consolidate this fund until such time as other investors hold the majority stake in the fund. The business object of this fund is to underwrite, hold and sell insurance-linked securitisations.
The capital consolidation complies with the standards of IAS 27 "Consolidated and Separate Financial Statements". Subsidiaries are consolidated as soon as Hannover Re acquires a majority voting interest or de facto controlling influence. The capital consolidation is based on the revaluation method. Under the "purchase accounting" method the purchase costs of the parent company are netted with the proportionate shareholders' equity of the subsidiary at the time when it is first included in the consolidated financial statement after the revaluation of all assets and liabilities. After recognition of all acquired intangible assets that in accordance with IFRS 3 "Business Combinations" are to be accounted for separately from goodwill, the difference between the revalued shareholders' equity of the subsidiary and the purchase price is recognised as goodwill. Under IFRS 3 scheduled amortisation is not taken on goodwill. Instead, unscheduled amortisation is taken where necessary on the basis of regular impairment tests. Immaterial and negative goodwill are recognised in the statement of income in the year of their occurrence.
Companies over which Hannover Re is able to exercise a controlling influence ("associated companies") are normally consolidated "at equity" with the proportion of the shareholders' equity attributable to the Group. A controlling influence is presumed to exist if a company belonging to the Hannover Re Group directly or indirectly holds at least 20% – but no more than 50% – of the voting rights. Income from investments in associated companies is recognised separately in the consolidated statement of income.
Where minority interests in shareholders' equity exist, such interests are reported separately within Group shareholders' equity in accordance with IAS 1 "Presentation of Financial Statements".
The minority interest in the result is a component of net income and is shown separately as a "thereof" note following net income. As at 30 June 2008 it amounted to EUR 10.6 million (EUR 27.1 million).
Receivables and liabilities between the companies included in the consolidated financial statement were offset against each other.
The effects of business transactions within the Group were eliminated.
Since November 2000 Hannover Re had held voting equity interests of 33.3% in the special purpose entity Mediterranean Re PLC for the securitisation of reinsurance risks in France and Monaco. The securitisation ended as per the contractual agreement on 18 November 2005. The bonds issued as security were repaid in full to investors. The additional paid-in capital was repaid to the partners. The special purpose entity was liquidated effective 5 February 2008.
As a means of transferring peak exposures deriving from natural disasters to the capital market, Hannover Re issued a catastrophe ("CAT") bond that can be traded on a secondary market. The CAT bond with a volume of USD 150 million was placed with institutional investors from Europe and North America by Eurus Ltd., a special purpose entity domiciled in the Cayman Islands. Hannover Re does not exercise a controlling influence over the special purpose entity. Under IFRS this transaction is to be recognised as a financial instrument. Pursuant to IAS 39.9 the contract gives rise to a derivative, the fair value of which as at 30 June 2008 was -EUR 1.0 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 30 June 2008 was EUR 15.2 million (EUR 5.8 million) and which we recognised under other financial assets at fair value through profit or loss.
In June 2008 Hannover Re completed the first transaction as part of its extended Insurance-Linked Securities (ILS) activities. Property catastrophe risks of a number of US cedants were pooled and transferred to the capital market in several tranches. A special purpose entity named Globe Re was established in Bermuda for this transaction; it is capitalised at USD 133 million. Globe Re is funded through the issue of an equity tranche of USD 33 million and a further USD 100 million in bonds split into various rating categories. The term of the transaction is one year. Hannover Re has a stake of USD 5 million – or 15.2% – in the equity tranche. Pursuant to IAS 28 "Investments in Associates" Globe Re is to be carried as an investment at cost or amortised cost and is therefore recognized under other invested assets.
Supplementary consolidation analysis of the relevant US GAAP sources further revealed that in accordance with FIN 46(R) Hannover Re is not the primary beneficiary of this transaction.
In the 2006 financial year Hannover Re reached agreement on the sale of its American subgroup Praetorian Financial Group, Inc., New York (PFG), to an Australian insurance group. Effective 31 May 2007 beneficial ownership of the assets and liabilities belonging to the subgroup classified in the previous periods as discontinued operations was transferred. They were therefore no longer recognised as at the balance sheet date. In compliance with IFRS 5 "Non-Current Assets Held for Sale and Discontinued Operations", we recognise the profit or loss of PFG in the consolidated statement of income for the previous period after tax in a separate line. For further explanatory remarks please see the corresponding information in the consolidated financial statement as at 31 December 2007.
The profit or loss and net cash flows of the discontinued operations for the comparative period of the previous year are presented in the following tables and broken down into their major components.
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.6. | 1.1.–30.6. | |
| Gross written premium | – | 280,948 |
| Ceded written premium | – | (42,885) |
| Net change in gross unearned premium | – | (14,725) |
| Net premium earned | – | 309,108 |
| Net investment income | – | 20,696 |
| Net underwriting result | – | 25,175 |
| Other income and expenses | – | (11,345) |
| Operating profit/loss (EBIT) | – | 34,526 |
| Interest on hybrid capital | – | 2,358 |
| Net income before taxes | – | 32,168 |
| Taxes | – | 5,868 |
| Acquirer's share of current income from discontinued operations | – | 13,251 |
| Group share of current income from discontinued operations | – | 13,049 |
| Income/loss from deconsolidation (after taxes) | – | 17,663 |
| Net income | – | 30,712 |
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 1.1.–30.6. | 1.1.–30.6. | |
| Cash flow from operating activities | – | 178,464 |
| Cash flow from investing activities | – | (18,716) |
| Change in cash and cash equivalents | – | 159,748 |
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 % | 1H 2008 | 2007 | 2006 | 2005 | 2004 | 20031) | 20021) | 20011) | 20001) | 19991) | 19981) |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Combined ratio | 98.4 | 99.7 | 100.8 | 112.8 | 97.2 | 96.0 | 96.3 | 116.5 | 107.8 | 111.1 | 108.1 |
| thereof catastrophe losses 2) |
6.2 | 6.3 | 2.3 | 26.3 | 8.3 | 1.5 | 5.2 | 23.0 | 3.7 | 11.4 | 3.5 |
1) On a US GAAP basis
2) Natural catastrophes and other man-made major losses > EUR 5 million gross for the share of the Hannover Re Group as a percentage of net premium earned
Bad debt risks are of relevance to our company because the business that we accept is not always fully retained, but instead portions are retroceded as necessary. Our retrocession partners are therefore carefully selected in light of credit considerations.
In terms of the Hannover Re Group's major companies, EUR 227.5 million (8.0%) of our accounts receivable from reinsurance business in an amount of EUR 2,834.8 million were older than 90 days as at the balance sheet date. The average default rate over the past three years was 0.5%.
Risks in the investment sector consist primarily of market, credit and liquidity risks. Market price risks include share price, interest rate and currency risks. The "value at risk" (VaR) is a vital tool used for managing market price risks. For further explanatory remarks please see our comments on investment risks in the 2007 Group annual financial report.
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.
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 |
|---|---|---|
| Fixed-income securities | Yield increase +50 basis points |
(286.6) |
| Yield increase +100 basis points |
(552.8) | |
| Yield decrease -50 basis points |
278.2 | |
| Yield decrease -100 basis points |
576.6 | |
| Fair value as at 30.6.2008 | 15,047.6 |
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% |
138.5 |
| Share prices +20% |
263.5 | |
| Share prices -10% |
(144.6) | |
| Share prices -20% |
(282.6) | |
| Fair value as at 30.6.2008 | 1,664.0 |
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 | 90.2 | 3,485.3 | 56.7 | 2,139.5 | 5.1 | 245.4 | 78.1 | 2,113.0 | |
| AA | 1.3 | 51.3 | 35.9 | 1,352.5 | 28.3 | 1,355.8 | 15.8 | 426.4 | |
| A | 4.4 | 169.8 | 6.5 | 244.4 | 47.2 | 2,259.4 | 2.7 | 73.3 | |
| BBB | 2.8 | 108.2 | 0.7 | 28.6 | 13.4 | 639.5 | 0.4 | 12.0 | |
| < BBB | 1.3 | 52.0 | 0.2 | 6.7 | 6.0 | 285.5 | 3.0 | 81.2 | |
| Total | 100.0 | 3,866.6 | 100.0 | 3,771.7 | 100.0 | 4,785.6 | 100.0 | 2,705.9 |
1) Securities held through investment funds are recognised pro rata with their corresponding individual ratings.
The liquidity risk refers to the risk that it may not be possible to sell holdings or close open positions due to the illiquidity of the markets – or to do so only with delays or price markdowns – as well as the risk that the traded volumes influence the markets in question. Regular liquidity planning and a liquid asset structure ensure that Hannover Re is able to make the necessary payments at all times. We manage the liquidity risk inter alia by allocating a liquidity code to every security. The spread of investments across the various liquidity classes is specified in the monthly investment reports and controlled by limits.
| Figures in % | Parameter as per investment guidelines |
30.6.2008 |
|---|---|---|
| Bonds (direct holdings and investment funds) | at least 50.0 | 80.7 |
| Listed equities (direct holdings and investment funds) | at most 17.5 | 8.9 |
| Real estate | at most 5.0 | 0.1 |
1) Calculated on a fair value basis
For further explanatory remarks please see the risk report, page 9 in the present interim report as well as our comments in the Group Annual Report 2007.
Investments are classified and measured in accordance with IAS 39 "Financial Instruments: Recognition and Measurement". Hannover Re Group classifies investments according to the following categories: held to maturity, loans and receivables, financial assets at fair value through profit or loss, held for trading and available for sale. The allocation and measurement of investments are determined by the investment intent.
Fixed-income securities classified as held to maturity as well as loans and receivables originated by the entity that are not listed on an active market or sold at short notice are measured at purchase cost – i. e. fair value as at purchase date including directly allocable transaction costs – plus amortised cost. The amortised cost derives from the difference between the nominal value and purchase cost and is spread over the time to maturity of the fixed-income securities.
Fixed-income securities classified as available for sale are measured at fair value. The difference between the fair value and amortised cost is recognised outside the statement of income until realisation.
Financial assets at fair value through profit or loss and securities held for trading are measured at fair value. The difference between the fair value and amortised cost is recognised in the statement of income.
Securities whose fair value falls significantly or permanently below purchase cost are written down to current value and recognised in the statement of income.
The investments also include investments in associated companies, real estate used by third parties, short-term investments, cash and funds held. The other investments primarily consist of shares in private equity limited partnerships.
For further details we would refer to the relevant information in the consolidated financial statement as at 31 December 2007.
| Figures in EUR thousand | 2008 | 2007 | |||
|---|---|---|---|---|---|
| Cost or amortised cost |
Fair value | Cost or amortised cost |
Fair value | ||
| 30.6. | 30.6. | 31.12. | 31.12. | ||
| Held to maturity | |||||
| due in one year | 30,424 | 29,302 | 34,241 | 32,885 | |
| due after one through two years | 20,966 | 20,630 | 1,705 | 1,662 | |
| due after two through three years | 129,201 | 130,332 | 34,779 | 34,363 | |
| due after three through four years | 241,771 | 237,185 | 194,052 | 195,724 | |
| due after four through five years | 161,317 | 161,757 | 251,385 | 254,908 | |
| due after five through ten years | 849,384 | 841,073 | 962,695 | 966,897 | |
| due after ten years | 7,825 | 8,203 | 9,959 | 10,396 | |
| Total | 1,440,888 | 1,428,482 | 1,488,816 | 1,496,835 | |
| Loans and receivables | |||||
| due in one year | 58,494 | 57,970 | 32,710 | 33,086 | |
| due after one through two years | 163,771 | 159,059 | 68,132 | 67,068 | |
| due after two through three years | 60,184 | 57,891 | 131,788 | 127,981 | |
| due after three through four years | 40,090 | 38,068 | 113,524 | 109,759 | |
| due after four through five years | 50,768 | 49,453 | 19,496 | 19,417 | |
| due after five through ten years | 982,462 | 925,534 | 1,037,707 | 1,002,324 | |
| due after ten years | 134,675 | 132,762 | 134,532 | 136,201 | |
| Total | 1,490,444 | 1,420,737 | 1,537,889 | 1,495,836 | |
| Available for sale | |||||
| due in one year 1) | 3,502,421 | 3,487,065 | 2,921,871 | 2,917,572 | |
| due after one through two years | 1,418,959 | 1,407,969 | 1,407,784 | 1,403,733 | |
| due after two through three years | 1,409,330 | 1,384,563 | 1,214,907 | 1,196,631 | |
| due after three through four years | 1,083,818 | 1,066,185 | 1,273,380 | 1,276,467 | |
| due after four through five years | 1,307,876 | 1,281,062 | 1,377,471 | 1,372,244 | |
| due after five through ten years | 2,850,422 | 2,710,497 | 3,854,813 | 3,813,167 | |
| due after ten years | 1,801,367 | 1,721,410 | 1,796,485 | 1,763,484 | |
| Total | 13,374,193 | 13,058,751 | 13,846,711 | 13,743,298 | |
| Financial assets at fair value through profit or loss |
|||||
| due in one year | 108,434 | 108,427 | 66,784 | 66,784 | |
| due after one through two years | 997 | 997 | 29,087 | 29,087 | |
| due after two through three years | 6,553 | 6,555 | – | – | |
| due after three through four years | 1,203 | 1,192 | – | – | |
| due after four through five years | 20,561 | 20,561 | – | – | |
| due after five through ten years | 11,789 | 12,218 | 34,133 | 35,089 | |
| due after ten years | 24,220 | 22,728 | 27,187 | 27,780 | |
| Total | 173,757 | 172,678 | 157,191 | 158,740 |
1) Including short-term investments and cash
The stated maturities may in individual cases diverge from the contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.
Floating-rate bonds (also known as "floaters") are shown under the maturities due in one year and constitute our interestrelated, within-the-year reinvestment risk.
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value
| 30.6.2008 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
47,006 | – | 2,207 | 959 | 45,758 |
| US treasury notes | 301,717 | 23,498 | – | 2,431 | 327,646 |
| Other foreign government debt securities |
15,382 | 262 | 391 | 23 | 15,276 |
| Debt securities issued by semi-governmental entities |
409,623 | 6,695 | 5,324 | 6,129 | 417,123 |
| Corporate securities | 406,938 | 409 | 20,315 | 13,313 | 400,345 |
| Asset-backed securities | 233,619 | – | 15,033 | 3,748 | 222,334 |
| Total | 1,414,285 | 30,864 | 43,270 | 26,603 | 1,428,482 |
| in TEUR | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
|---|---|---|---|---|---|
| Investments held to maturity | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
49,589 | – | 827 | 760 | 49,522 |
| US treasury notes | 322,776 | 20,604 | – | 2,628 | 346,008 |
| Other foreign government debt securities |
18,315 | 121 | 52 | 26 | 18,410 |
| Debt securities issued by semi-governmental entities |
426,857 | 9,617 | 2,887 | 8,694 | 442,281 |
| Corporate securities | 410,476 | 3,595 | 12,911 | 10,562 | 411,722 |
| Asset-backed securities | 232,997 | – | 9,241 | 5,136 | 228,892 |
| Total | 1,461,010 | 33,937 | 25,918 | 27,806 | 1,496,835 |
| Figures in EUR thousand | Cost or amortised cost |
gains | Unrealised losses |
Accrued interest |
Fair value |
|---|---|---|---|---|---|
| Loans and receivables | |||||
| Government debt securities of EU member states |
29,367 | – | 1,581 | 204 | 27,990 |
| Debt securities issued by semi-governmental entities |
247,395 | 64 | 15,803 | 4,488 | 236,144 |
| Corporate securities | 558,337 | 216 | 30,956 | 12,418 | 540,015 |
| Asset-backed securities | 377,838 | 536 | 22,183 | 8,543 | 364,734 |
| Other | 251,854 | – | – | 251,854 | |
| Total | 1,464,791 | 816 | 70,523 | 25,653 | 1,420,737 |
| Cost or | Unrealised | Accrued | |||
|---|---|---|---|---|---|
| Figures in EUR thousand | amortised cost | gains | losses | interest | Fair value |
| Loans and receivables | |||||
| Government debt securities of EU member states |
29,327 | 80 | 975 | 563 | 28,995 |
| Debt securities issued by semi-governmental entities |
248,616 | 22 | 11,583 | 3,403 | 240,458 |
| Corporate securities | 558,914 | 1,455 | 18,794 | 11,575 | 553,150 |
| Asset-backed securities | 427,704 | 2,904 | 15,162 | 7,952 | 423,398 |
| Other | 215,606 | – | – | 34,229 | 249,835 |
| Total | 1,480,167 | 4,461 | 46,514 | 57,722 | 1,495,836 |
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value
| 30.6.2008 | |||||
|---|---|---|---|---|---|
| Figures in EUR thousand | Cost or amortised cost |
Unrealised gains |
losses | Accrued interest |
Fair value |
| Available for sale | |||||
| Fixed-income securities | |||||
| Government debt securities of EU member states |
1,064,333 | 1,376 | 24,508 | 20,600 | 1,061,801 |
| US treasury notes | 1,565,884 | 18,614 | 1,877 | 12,656 | 1,595,277 |
| Other foreign government debt securities |
437,033 | 2,540 | 5,898 | 3,885 | 437,560 |
| Debt securities of semi governmental entities |
3,078,038 | 24,093 | 51,200 | 43,789 | 3,094,720 |
| Corporate securities | 3,125,814 | 23,462 | 173,584 | 55,444 | 3,031,136 |
| Asset-backed securities | 2,123,065 | 9,376 | 92,667 | 27,362 | 2,067,136 |
| From investment funds | 772,032 | 11,051 | 56,220 | 11,253 | 738,116 |
| 12,166,199 | 90,512 | 405,954 | 174,989 | 12,025,746 | |
| Equity securities | |||||
| Shares | 632,215 | 51,971 | 52,975 | – | 631,211 |
| From investment funds | 1,133,336 | 37,861 | 138,454 | – | 1,032,743 |
| 1,765,551 | 89,832 | 191,429 | – | 1,663,954 | |
| Short-term investments | 666,845 | – | – | 48,064 | 714,909 |
| Total | 14,598,595 | 180,344 | 597,383 | 223,053 | 14,404,609 |
| Cost or | Unrealised | Accrued | |||
|---|---|---|---|---|---|
| Figures in EUR thousand | amortised cost | gains | losses | 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 |
| 30.6.2008 | |||
|---|---|---|---|
| Figures in EUR thousand | Fair value before accrued interest |
Accrued interest |
Fair value |
| Financial assets at fair value through profit or loss | |||
| Debt securities of semi-governmental entities | 9,251 | 132 | 9,383 |
| Corporate securities | 156,617 | 547 | 157,164 |
| Asset-backed securities | 6,130 | 1 | 6,131 |
| 171,998 | 680 | 172,678 | |
| Other financial assets | |||
| Derivatives | 55,352 | – | 55,352 |
| Total | 227,350 | 680 | 228,030 |
| Figures in EUR thousand | Fair value before accrued interest |
Accrued interest |
Fair value |
|---|---|---|---|
| Financial assets at fair value through profit or loss | |||
| Debt securities of semi-governmental entities | 9,844 | 331 | 10,175 |
| Corporate securities | 146,280 | 1,631 | 147,911 |
| Asset-backed securities | 654 | – | 654 |
| 156,778 | 1,962 | 158,740 | |
| Other financial assets | |||
| Derivatives | 20,385 | – | 20,385 |
| Total | 177,163 | 1,962 | 179,125 |
As at 30 June 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 27.9 million (31 December 2007: EUR 1.9 million). Short sales of call options on the aforementioned indices with a fair value of EUR 0.8 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 27.5 million as at 30 June 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 18.2 million (31 December 2007: EUR 15.9 million) were recognised under other liabilities. Of this amount, fair values of EUR 17.2 million as at the balance sheet date (31 December 2007: EUR 13.0 million) were attributable to derivatives embedded in "modified coinsurance" and "coinsurance funds withheld" (Modco) reinsurance treaties. The charge to investment income from the Modco derivatives amounted to EUR 5.9 million before taxes as at 30 June 2008 (30 June 2007: EUR 0.1 million). Within the scope of the accounting of Modco reinsurance treaties, under which securities deposits are held by the ceding companies and payments rendered on the basis of the income from certain securities of the ceding company, the interest-rate risk elements are clearly and closely related to the underlying reinsurance arrangements. Embedded derivatives consequently result solely from the credit risk of the underlying securities portfolio. Hannover Re calculates the fair value of the embedded derivatives in Modco treaties using the market information available on the valuation date on the basis of a "credit spread" method. Under this method the derivative is valued at zero on the date when the contract commences and its value then fluctuates over time according to changes in the credit spreads of the securities.
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 30.6 | 30.6. | |
| Real estate | 701 | 932 |
| Dividends | 25,012 | 23,414 |
| Interest income on investments | 352,686 | 374,265 |
| Other income | 29,455 | 17,133 |
| Ordinary investment income | 407,854 | 415,744 |
| Profit or loss on shares in associated companies | 4,149 | 3,473 |
| Realised gains on investments | 171,353 | 134,320 |
| Realised losses on investments | 69,054 | 36,737 |
| Unrealised gains and losses on investments | (15,149) | (141) |
| Depreciation on real estate | 242 | 278 |
| Impairments/depreciation on equity securities | 98,644 | 339 |
| Impairments on fixed-income securities | 31,665 | – |
| Other investment expenses | 25,824 | 27,798 |
| Net income from assets under own management | 342,778 | 488,244 |
| Interest income on funds withheld and contract deposits | 123,635 | 118,966 |
| Interest expense on funds withheld and contract deposits | 21,335 | 21,015 |
| Total investment income | 445,078 | 586,195 |
The impairments of EUR 130.3 million were attributable entirely to assets classified as available for sale. Impairments of EUR 31.7 million taken on fixed-income securities related predominantly to structured products. Of this amount, altogether EUR 9.6 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 98.6 million was recognised on equities whose fair value had fallen significantly, i.e. by at least 20%, or for a prolonged period, i.e. at least nine months, below acquisition cost.
| Figures in EUR thousand | 2008 | 2007 |
|---|---|---|
| 30.6 | 30.6. | |
| Fixed-income securities – held to maturity | 28,539 | 33,630 |
| Fixed-income securities – loans and receivables | 25,143 | 34,493 |
| Fixed-income securities – available for sale | 262,682 | 278,221 |
| Financial assets – at fair value through profit or loss | 2,809 | 3,304 |
| Other | 33,513 | 24,617 |
| Total | 352,686 | 374,265 |
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 1,781 (1,825) staff were employed by the Hannover Re Group, with 936 (907) employed in Germany and 845 (918) working for the consolidated Group companies abroad.
Shareholders' equity is shown as a separate component of the financial statement in accordance with IAS 1 "Presentation of Financial Statements" and subject to IAS 32 "Financial Instruments: Disclosure and Presentation" in conjunction with IAS 39 "Financial Instruments: Recognition and Measurement". The change in shareholders' equity comprises not only the net income deriving from the statement of income but also the changes in the value of asset and liability items not recognised in the statement of income.
The common shares (share capital of the parent company) amount to EUR 120,597,134.00. They are divided into 120,597,134 voting and dividend-bearing registered no-par-value shares. The shares are paid in in full. Each share carries an equal voting right and an equal dividend entitlement.
Minority interests are established in accordance with the shares held by companies outside the Group in the shareholders' equity of the subsidiaries.
Authorised capital of up to EUR 60,299 thousand is available with a time limit of 31 May 2009.
New individual registered shares may be issued on one or more occasions for contributions in cash or kind. Of the total amount, up to EUR 1,000 thousand may be used to issue employee shares.
In addition, conditional capital of up to EUR 60,299 thousand is available. It can be used to grant shares to holders of convertible bonds and bonds with warrants as well as to holders of participating rights or participating bonds with conversion rights and warrants and has a time limit of 11 May 2011.
IAS 1 requires separate disclosure of treasury shares in shareholders' equity. By a resolution of the Annual General Meeting of Hannover Rückversicherung AG adopted on 6 May 2008, the company was authorised until 31 October 2009 to acquire treasury shares of up to 10% of the share capital existing on the date of the resolution. The company did not hold treasury shares at any time during the reporting period.
| 2008 | 2007 | |||||
|---|---|---|---|---|---|---|
| 1.1.–30.6. | 1.1.–30.6. | |||||
| 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 | 252,224 | – | – | 292,971 | – | – |
| Weighted average of issued shares | – | 120,957,134 | – | – | 120,957,134 | – |
| Earnings per share | 252,224 | 120,957,134 | 2.09 | 292,971 | 120,957,134 | 2.43 |
| from continuing operations | 252,224 | 120,957,134 | 2.09 | 262,259 | 120,957,134 | 2.18 |
| from discontinued operations | – | 120,957,134 | – | 30,712 | 120,957,134 | 0.25 |
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 |
| 30.6. | 30.6. | |
| Business assumed | ||
| ASPECTA Assurance International AG | 10,319 | 1,555 |
| ASPECTA Assurance International Luxembourg S.A. | 17,683 | 1,886 |
| ASPECTA Lebensversicherung AG | 59,716 | 5,996 |
| CiV Lebensversicherung AG | 21,560 | (2,075) |
| CiV Versicherung AG | 7,747 | 2,786 |
| HDI Asekuracja Towarzystwo Ubezpieczen S.A. | 16,986 | 12,566 |
| HDI Assicurazioni S.p.A. | 7,235 | 3,683 |
| HDI Direkt Versicherung AG | 275 | (4,223) |
| HDI-Gerling Firmen und Privat Versicherung AG | 9,066 | 2,332 |
| HDI-Gerling Industrie Versicherung AG | 64,329 | (18,762) |
| HDI-Gerling Lebensversicherung AG | 7,034 | (680) |
| HDI-Gerling Verzekeringen N.V. | 12,428 | (1,003) |
| HDI HANNOVER International España, Cia de Seguros y Reaseguros S.A. | 10,494 | (529) |
| HDI Hannover Versicherung AG | 7,142 | 2,020 |
| HDI Sigorta A.S. | 13,277 | (2,725) |
| Magyar Posta Biztositó Részvénytársaság | 3,674 | (1,702) |
| Postbank Lebensversicherung AG | 22,392 | (882) |
| Other companies | 6,495 | 2,987 |
| 297,852 | 3,230 | |
| Business ceded | ||
| HDI-Gerling Industrie Versicherung AG | (410) | (61) |
| Other companies | – | (7) |
| Total | 297,442 | 3,162 |
Business assumed and ceded in Germany and abroad
With effect from the 1997 financial year onwards all new business and renewals written on the German market have been the responsibility of E+S Rück, while Hannover Re has handled foreign markets. Internal retrocession arrangements ensure that the percentage breakdown of the business applicable to the previously existing underwriting partnership is largely preserved between these companies.
Within the contractually agreed framework AmpegaGerling Asset Management GmbH performs investment and asset management services for Hannover Re and some of its subsidiaries. Assets in special funds are managed by AmpegaGerling Investment GmbH. AmpegaGerling Immobilien Management GmbH performs services for Hannover Re within the framework of a management contract.
Companies belonging to the Talanx Group granted the Hannover Re Group insurance protection inter alia in the areas of public liability, fire, group accident and business travel collision insurance. In addition, Talanx AG billed Hannover Re and E+S Rück pro rata for the directors' and officers' (D&O) insurance of the Talanx Group. Divisions of Talanx AG also performed services for us in the areas of taxes and general administration. All transactions were effected at usual market conditions.
Hannover Re has secured by subordinated guarantee a subordinated debt in the amount of USD 400.0 million issued in the 1999 financial year by Hannover Finance, Inc., Wilmington/USA. In February 2004 and May 2005 Hannover Re bought back portions of the subordinated debt in amounts of USD 370.0 million and USD 10.0 million respectively, leaving an amount of USD 20.0 million still secured by the guarantee. In the 2007 financial year the issuer bought back the debt from Hannover Re in an amount of USD 380.0 million for the purpose of cancelling the debt, which was subsequently cancelled. For further details please see the information on debt and subordinated capital in the consolidated financial statement as at 31 December 2007.
Hannover Re has placed three subordinated debts on the European capital markets through its subsidiary Hannover Finance (Luxembourg) S.A. Hannover Re has secured by subordinated guarantee both the debt issued in 2001, the volume of which now stands at EUR 138.1 million, and the debts from financial years 2004 and 2005 in amounts of EUR 750.0 million and EUR 500.0 million respectively. For further details we would refer to the relevant information in the consolidated financial statement as at 31 December 2007.
The guarantees given by Hannover Re for the subordinated debts attach if the issuer in question fails to render payments due under the bonds. The guarantees cover the relevant bond volumes as well as interest due until the repayment dates. Given the fact that interest on the bonds is partly dependent on the capital market rates applicable at the interest payment dates (floating rates), the maximum undiscounted amounts that can be called cannot be estimated with sufficient accuracy. Hannover Re does not have any rights of recourse outside the Group with respect to the guarantee payments.
In July 2004 Hannover Re and the other shareholders sold the participation that they held through Willy Vogel Beteiligungsgesellschaft mbH in Willy Vogel AG. In order to secure the guarantees assumed under the purchase agreement, Hannover Re and the other shareholders jointly gave the purchaser a directly enforceable guarantee for a period until 2009 limited to a total amount of EUR 7.1 million. Furthermore, in the event of a call being made on the guarantee Hannover Re and the other shareholders agreed that settlement would be based upon the ratio of participatory interests.
As security for technical liabilities to our US clients, we have established a master trust in the USA. As at the balance sheet date this master trust amounted to EUR 1,976.6 million (31 December 2007: EUR 2,088.3 million). In addition, we extended further collateral to our cedants in an amount of EUR 225.8 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 1,184.5 million (31 December 2007: EUR 1,235.1 million) as at the balance sheet date.
The securities held in the blocked custody accounts and trust accounts are recognised predominantly as available-forsale investments.
As security for our technical liabilities, various financial institutions have furnished guarantees for our company in the form of letters of credit. The total amount as at the balance sheet date was EUR 1,943.0 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 252.4 million (31 December 2007: EUR 235.2 million). These primarily involve as yet unfulfilled payment obligations from participations entered into in private equity funds and venture capital firms.
Within the scope of a novation agreement regarding a life insurance contract we assumed contingent reinsurance commitments with respect to due date and amount. The financing phase was terminated effective 31 December 2004 as per the agreement. The level of Hannover Re's liability as at the date of novation (31 December 2011) in relation to future balance sheet dates may change due to fluctuations in the EURIBOR and discrepancies between the actual settlements and the projections. The estimated amount of the reinsurance commitments as at the balance sheet date was unchanged at EUR 10.3 million.
In late June as well as July 2008 severe thunderstorms and hail caused considerable property damage in Germany, especially the western part of the country. Hannover Re anticipates a net burden of losses from these events of EUR 40.0 million in the third quarter of 2008.
Key exchange rates
| 1 EUR corresponds to: | Mean rate of exchange on the balance sheet date |
Average rate of exchange | |||
|---|---|---|---|---|---|
| 2008 2007 |
2008 | 2007 | |||
| 30.6. | 31.12. | 1.1.–31.6. | 1.1.–30.6. | ||
| AUD | 1.6398 | 1.6775 | 1.6601 | 1.6466 | |
| BHD | 0.5965 | 0.5530 | 0.5780 | 0.5017 | |
| CAD | 1.5937 | 1.4440 | 1.5333 | 1.5015 | |
| CNY | 10.8460 | 10.7400 | 10.8217 | 10.2644 | |
| GBP | 0.7928 | 0.7346 | 0.7730 | 0.6748 | |
| HKD | 12.3085 | 11.4760 | 11.9611 | 10.3929 | |
| KRW | 1,655.0000 | 1,377.0000 | 1,511.8571 | 1,242.2857 | |
| MYR | 5.1675 | 4.8652 | 4.9524 | 4.6106 | |
| SEK | 9.4600 | 9.4350 | 9.4034 | 9.2026 | |
| USD | 1.5790 | 1.4716 | 1.5348 | 1.3309 | |
| ZAR | 12.3835 | 10.0300 | 11.6557 | 9.5537 |
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year.
Hannover, 28 July 2008
Executive Board
Zeller Arrago Dr. Becke
Gräber Dr. König Dr. Pickel Wallin
to Hannover Rückversicherung AG, Hannover
We have reviewed the condensed consolidated interim financial statements – comprising the balance sheet, income statement, cash flow statement, statement of changes in shareholders' equity and selected explanatory notes – together with the interim Group management report of Hannover Rückversicherung AG, Hannover, for the period from 1 January to 30 June 2008, which are components of the half-yearly financial report pursuant to § 37w of the German Securities Trading Act (WpHG). The preparation of the condensed consolidated interim financial statements in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and of the interim management report for the Group in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports is the responsibility of the parent company's Board of Management. Our responsibility is to issue a review report on the condensed consolidated interim financial statements and on the interim management report for the Group based on our review.
We conducted our review of the condensed consolidated interim financial statements and the interim management report for the Group in accordance with German generally accepted standards for the review of financial statements promulgated by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer – IDW). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with moderate assurance, that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU and that the interim management report for the Group has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports. A review is limited primarily to inquiries of company personnel and analytical procedures and thus provides less assurance than an audit. Since, in accordance with our mandate, we have not performed a financial statement audit, we cannot express an audit opinion.
Based on our review, no matters have come to our attention that cause us to presume that the condensed consolidated interim financial statements have not been prepared, in all material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU or that the interim management report for the Group has not been prepared, in all material respects, in accordance with the provisions of the German Securities Trading Act applicable to interim group management reports.
Hannover, 4 August 2008
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
Husch Dr. Dahl Wirtschaftsprüfer Wirtschaftsprüfer
Karl-Wiechert-Allee 50 30625 Hannover Germany Telephone +49/5 11/56 04-0 Fax +49/5 11/56 04-11 88 [email protected]
www.hannover-re.com
Stefan Schulz
Telephone +49/5 11/56 04-15 00 Fax +49/5 11/56 04-16 48 [email protected]
Telephone +49/5 11/56 04-17 36 Fax +49/5 11/56 04-16 48 [email protected]
Gabriele Handrick
Telephone +49/5 11/56 04-15 02 Fax +49/5 11/56 04-16 48 [email protected]
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.