Annual Report 2010 - Hannover Re

13 October 2010 that taxation of foreign sourced investment
income recorded by Irish subsidiaries was not permissible, we
were able to release provisions that had been constituted in
this regard. The core of the legal dispute revolved around the
question of whether investment income generated by a reinsurance
subsidiary based in Ireland was subject to taxation at
the parent company in Germany. The ruling of the BFH confirmed
the decision in the first instance of the Lower Saxony
Fiscal Court in Hannover. Against this backdrop, all tax risks
were reassessed. This resulted in an increase of altogether
EUR 112.2 million in Group net income.
In December 2010 we reached agreement on the sale of all
operational companies of our US subsidiary Clarendon Insurance
Group, Inc., New York, to the Bermuda-based Enstar
Group Ltd., Hamilton. The transaction, which is still subject to
the customary foreign regulatory approvals, is expected to
close in the second quarter of 2011. The purchase price of
Clarendon, which has been in run-off since 2005, is equivalent
to EUR 162.5 million before final price determination. The sale
enables us to reduce material risks for our company, including
for example those connected with reinsurance recoverables
on unpaid claims. We are also able to eliminate operational
risks associated with the run-off of a US primary insurer as
well as considerable administrative expenses that would have
been incurred in subsequent years. In accordance with IFRS
accounting practice, the sale of Clarendon produces a charge
of EUR 69.2 million to our Group net income in the year under
review, which is recognised in the non-life reinsurance business
group.
The operating profit (EBIT) booked by Hannover Re increased
to EUR 1.2 billion (EUR 1.1 billion) in 2010. The previous year
had been influenced by positive special effects in life and
health reinsurance amounting to EUR 144.7 million. These
derived from the acquisition of the ING life reinsurance portfolio
as well as the reversal of unrealised losses on deposits
held by US cedants on behalf of Hannover Re (ModCo). The
Group net income of EUR 748.9 million once again surpassed
the outstanding level of the previous year (EUR 733.7 million).
A very healthy underlying operating profit and favourable nonrecurring
effects associated with the decision of the Federal
Fiscal Court were both factors in this positive performance.
Earnings per share amounted to EUR 6.21 (EUR 6.08).
Our shareholders’ equity excluding minority interests also developed
particularly favourably, rising in the year under review
from EUR 3.7 billion to EUR 4.5 billion. The policyholders’
surplus increased from EUR 5.6 billion to EUR 7.0 billion. The
return on equity for 2010 came in at 18.2%.
In September 2010 we used the relatively low interest rate
level to place subordinated hybrid debt of EUR 500 million on
the European capital market. The bond, which has a term of
30 years, serves to further optimise our capital structure as
well as to back future growth with the necessary capital resources.
We use retrocession, i.e. the passing on of portions of our
covered risks to other reinsurers, as a means of risk reduction.
In the course of the year the reinsurance recoverables on unpaid
claims – i.e. receivables due to us from our retrocessionaires
– decreased to EUR 1.0 billion (EUR 1.7 billion). Of this
total reduction, an amount of EUR 0.8 billion results from the
sale of Clarendon. We continue to attach considerable importance
to the quality of our retrocessionaires: 92.4% of the companies
with which we maintain such business relations have
an investment grade rating of “BBB” or better from Standard
& Poor’s.
Our business groups
In the following sections we discuss the development of the
financial year on the basis of our two strategic business
groups, namely non-life reinsurance and life/health reinsurance.
Supplementary to the information provided here, the
segmental report contained in the annual financial statement
shows the key balance sheet items and profit components broken
down into the individual business groups.
20 Management report OUR Business Groups
Hannover Re Group annual report 2010