Annual Report 2010 - Hannover Re

Liabilities in liability and motor reinsurance traditionally have
long settlement periods, sometimes in excess of 20 years,
while liabilities in property business are settled within the
first ten years.
The benefit reserve is established for life, annuity, personal
accident and health reinsurance contracts. Based on the term
of these contracts, long-term reserves are constituted for life
and annuity policies and predominantly short-term reserves
are set aside for health and personal accident business.
The parameters used to calculate the benefit reserve are interest
income and lapse rates as well as mortality and morbidity
rates.
The values for the first two components (interest income and
lapse rates) differ according to the country concerned, product
type, investment year etc.
The mortality and morbidity rates used are chosen on the
basis of national tables and the insurance industry standard.
Empirical values for the reinsured portfolio, where available,
are also taken into consideration. In this context insights into
the gender, age and smoker structure are incorporated into
the calculations, and allowance is also made for factors such
as product type, sales channel and the frequency of premium
payment by policyholders.
At the inception of every reinsurance contract, assumptions
about the three parameters are made and locked in for the
purpose of calculating the benefit reserve. At the same time,
safety/fluctuation loadings are built into each of these components.
In order to ensure at all times that the originally chosen
assumptions continue to be adequate throughout the contract,
checks are made on a regular – normally annual – basis in
order to determine whether these assumptions need to be adjusted
(“unlocked’).
The benefit reserve is established in accordance with the principles
set out in FASB ASC 944-40-30 and -35. The provisions
are based on the Group companies’ information regarding
mortality, interest and lapse rates.
Development of the benefit reserve
in EUR thousand
2010 2009
gross retro net gross retro net
Net book value at 31 December of the
previous year 7,952,640 104,868 7,847,772 5,913,075 159,151 5,753,924
Currency translation at 1 January 361,507 (27,793) 389,300 76,616 (2,225) 78,841
Reserve at 1 January of the year
under review 8,314,147 77,075 8,237,072 5,989,691 156,926 5,832,765
Changes in the consolidated group – – – 981,850 – 981,850
Changes 694,150 41,439 652,711 580,268 17,600 562,668
Portfolio entries/exits (71,410) 228,346 (299,756) 422,752 (69,815) 492,567
Currency translation at 31 December 2,303 209 2,094 (21,921) 157 (22,078)
Net book value at 31 December of
the year under review 8,939,190 347,069 8,592,121 7,952,640 104,868 7,847,772
The unearned premium reserve derives from the deferral of
ceded reinsurance premium. The unearned premium is determined
by the period during which the risk is carried and
established in accordance with the information supplied by
ceding companies. In cases where no information was received,
the unearned premium was estimated using suitable
methods. Premium paid for periods subsequent to the date of
the balance sheet was deferred from recognition within the
statement of income.
Notes
Hannover Re Group annual report 2010
5.7 Technical provisions Notes
155