Annual Report 2010 - Hannover Re

7. Other notes
7.1 Derivative financial instruments
Derivatives are financial instruments, the fair value of which
is derived from an underlying instrument such as equities,
bonds, indices or currencies. We use derivative financial instruments
to a limited extent in order to hedge parts of our
portfolio against interest rate and market price risks, optimise
returns or realise intentions to buy/sell. In this context we take
special care to limit the risks, select first-class counterparties
and adhere strictly to the standards defined by investment
guidelines.
The fair values of the derivative financial instruments were
determined on the basis of the market information available
at the balance sheet date. Please see Section 3.2 “Summary
of major accounting policies” with regard to the measurement
models used. If the underlying transaction and the derivative
are not carried as one unit, the derivative is recognised under
other financial assets at fair value through profit or loss or
under the other liabilities.
Hannover Re holds derivative financial instruments to hedge
interest rate risks from loans connected with the financing of
real estate; these gave rise to recognition of other liabilities in
an amount of EUR 2.3 million (previous year: none).
Hannover Re’s portfolio contained derivative financial instruments
as at the balance sheet date in the form of forward
exchange transactions predominantly taken out to hedge cash
flows from reinsurance contracts. These transactions gave rise
to recognition of other liabilities in an amount of EUR 34.9
million (other liabilities of EUR 17.8 million, other financial
assets at fair value through profit or loss of EUR 0.2 million).
In the year under review Hannover Re acquired derivative
financial instruments to hedge inflation risks associated with
the loss reserves in the technical account. These transactions
resulted in the recognition of other liabilities amounting to
EUR 31.4 million (previous year: none) and other financial
assets at fair value through profit or loss in an amount of
EUR 0.2 million (previous year: none).
The fair values and notional values of the hedging instruments
described above can be broken down as follows according to
the maturities of the underlying forward transactions.
Maturity structure of derivative financial instruments
in EUR thousand
Less than
three months
Three months
to one year
2010
One to five
years
Five to ten
years
Interest rate hedges
Fair values – – (2,325) – (2,325)
Notional values – – 61,011 – 61,011
Currency hedges
Fair values (1,349) (3,912) (18,129) (11,516) (34,906)
Notional values 12,844 9,339 47,853 37,264 107,300
Inflation hedges
Fair values – – (31,227) – (31,227)
Notional values – – 2,535,120 – 2,535,120
Total hedging instruments
Fair values (1,349) (3,912) (51,681) (11,516) (68,458)
Notional values 12,844 9,339 2,643,984 37,264 2,703,431
31.12.
174 Notes 7.1 Derivative financial instruments
Hannover Re Group annual report 2010