Annual Report 2005 - Hannover Re

hannover.re.com

Annual Report 2005 - Hannover Re

Management report

risk report

– Currency risks are of considerable importance

to an internationally operating reinsurance

enterprise that writes a significant proportion

of its business in foreign currencies.

These risks are, however, largely neutralised

since we systematically adhere to the principle

of matching currency coverage.

• 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.

• 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.

The following tables illustrate the possible

effects of price, default and liquidity risks as well

as risks from fluctuations in payment flows to

which the company – subject to the assumptions

set out below – was exposed as at the balance

sheet date.

Scenarios for changes in the fair value of our securities a at the balance sheet date

Portfolio

Scenario

Portfolio change based on

fair value in EUR

Equities Stock prices - 10% (69.6)

Stock prices - 20% (139.3)

Stock prices +10% 69.6

Fair value as at 31.12.2005 696.5

Fixed-income securities Yield increase +50 basis points (133.5)

Yield increase +100 basis points (261.2)

Yield decrease - 50 basis points 138.5

Fair value as at 31.12.2005 6 091.8

Rating structure of our fixed-income securities*

Rating

Registered debt securities,

Bearer debt securities

Bond funds

Sundry loans

debentures and loans

in % in EUR million in % in EUR million in % in EUR million in % in EUR million

AAA 73.4 3 965.6 34.6 64.0 0.2 0.8 – –

AA 12.3 667.1 32.9 61.0 97.3 355.7 – –

A 12.6 681.5 14.2 26.2 – – 7.1 5.1

BBB 1.0 53.9 18.1 33.5 – – 69.4 50.0

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