Annual Report 2010 - Hannover Re

of the fair value less historical cost and less prior value adjustments,
meaning that depreciation is taken on the fair value as
at the closing date – if available, on the publicly quoted stock
exchange price.
Netting of financial instruments: financial assets and liabilities
are only netted and recognised in the appropriate net
amount if a corresponding legal claim exists or is expressly
agreed by contract (reciprocity; similarity and maturity), in
other words if the intention exists to offset such items on a net
basis or to effect this offsetting simultaneously.
Other invested assets are for the most part recognised at
nominal value. Insofar as such financial assets are not listed
on public markets (e.g. participating interests in private equity
firms), they are carried at the latest available “net asset value”
as an approximation of the fair value. Loans included in this
item are recognised at amortised cost.
Investments in associated companies are valued at equity on
the basis of the proportionate shareholders‘ equity attributable
to the Group. Under IAS 28 “Investments in Associates”,
which requires the application of the equity method based on
the investor‘s share of the results of operations of the investee,
the goodwill apportionable to the associated companies must
be recognised together with the investments in associated
companies. The year-end result of an associated company relating
to the Group‘s share is included in the net investment
income and shown separately. The shareholders‘ equity and
net income are taken from the associated company‘s latest
available financial statement.
Contract deposits: under this item we report contract deposits
under insurance contracts that satisfy the test of a significant
risk transfer to the reinsurer as required by IFRS 4
“Insurance Contracts” but fail to meet the risk transfer required
by US GAAP. IFRS 4 in conjunction with FASB ASC
944-20-15 requires insurance contracts that transfer a significant
insurance risk from the ceding company to the reinsurer
to be differentiated from those under which the risk transfer
is of merely subordinate importance. Since the risk transfer
under the affected transactions is of subordinate importance,
these contracts are recognised using the “deposit accounting”
method and hence eliminated from the technical account. The
compensation for risk assumption booked to income under
these contracts is netted under other income/expenses. The
payment flows resulting from these contracts are shown in the
cash flow statement under operating activities.
Accounts receivable: the accounts receivable under reinsurance
business and the other receivables are carried at nominal
value; value adjustments are made where necessary on the
basis of a case-by-case analysis. We use adjustment accounts
for value adjustments taken on reinsurance accounts receivable,
while all other write-downs are booked directly against
the underlying position.
Deferred acquisition costs principally consist of commissions
and other variable costs directly connected with the acquisition
or renewal of existing reinsurance contracts. These acquisition
costs are capitalised and amortised over the expected
period of the underlying reinsurance contracts. Deferred acquisition
costs are regularly tested for impairment.
Real estate used by third parties (investment property) is
valued at cost less scheduled depreciation and impairment.
Straight-line depreciation is taken over the expected useful
life – at most 50 years. Under the impairment test the market
value of real estate for third-party use (recoverable amount)
is determined using acknowledged valuation methods and
compared with the carrying value; arising impairments are
recognised. Maintenance costs and repairs are expensed.
Value-enhancing expenditures are capitalised if they extend
the useful life.
Cash is carried at face value.
Funds withheld are receivables due to reinsurers from their
clients in the amount of the cash deposits contractually withheld
by such clients; they are recognised at acquisition cost
(nominal amount). Appropriate allowance is made for credit
risks.
Reinsurance recoverables on technical reserves: shares of our
retrocessionaires in the technical reserves are calculated according
to the contractual conditions on the basis of the gross
technical reserves. Appropriate allowance is made for credit
risks.
Intangible assets: in accordance with IFRS 3 “Business Combinations”
scheduled depreciation is not taken on goodwill;
instead, impairment is taken where necessary after an annual
impairment test. For the purposes of the impairment test,
goodwill is to be allocated pursuant to IAS 36 “Impairment
of Assets” to so-called “cash generating units” (CGUs). Each
CGU to which goodwill is allocated should represent the lowest
level on which goodwill is monitored for internal management
purposes and may not be larger than a segment. Following
allocation of the goodwill it is necessary to determine for
each CGU the recoverable amount, defined as the higher of
the value in use and the fair value less costs to sell. The fair
value is calculated using a discounted cash flow method on the
118 NOTES 3.2 Summary of major accounting policies
Hannover Re Group annual report 2010