Annual Report 2010 - Hannover Re

The available economic capital grew by EUR 1,055.5 million
from EUR 7,326.2 million to EUR 8,381.7 million in the course
of the year under review. This was principally due to the rise in
the IFRS shareholders’ equity. Our hybrid bond issued in the
year under review also increased the available capital.
Of special significance to our company is the overarching diversification
between our business segments and lines. As a result,
we are able to significantly reduce the total capital actually required.
We define the cost of capital to be generated per business
unit according to the capital required by our business segments
and lines as well as their contribution to diversification.
The indicators described above are further tools used to monitor
and manage the risks associated with our business activities.
Qualitative risk management methods
Regular quarterly reporting to the Risk Committee and Executive
Board is supplemented as necessary by immediate internal
reporting on material risks that emerge at short notice.
Within our central system of limits and thresholds for the material
risks of the Hannover Re Group, key ratios have been
specified for steering and monitoring – within the meaning of
the materiality concept defined in the risk strategy. Risk steering
and monitoring is operationalised through the specification
of suitable limits and thresholds for quantitatively measurable
material risks. Material risks that cannot be quantified
or are difficult to quantify (such as operational risks or reputational
risks) are primarily steered and monitored using appropriate
processes and practices (e.g. contingency and crisis
communication plans).
Internal control system
Our qualitative methods and practices support our internal
risk management and control system. The system is subject to
a constant cycle of planning, action, control and improvement.
The basic elements of the system, such as risk identification
and risk reporting, are closely interlinked.
Our mandatory practices, such as the Risk Management
Framework Guideline, govern inter alia the handling of new
products, monitoring of the risk-bearing capacity, risk reporting
and risk responsibilities within Hannover Re’s overall system.
Our risk reporting is geared to providing systematic and
timely information about risks and their potential implications
as well as ensuring adequate communication within the company
about all material risks as a basis for decision-making.
Another key element of the overall system is the Framework
Guideline on the Internal Control System (ICS). The purpose
of this set of rules is to ensure systematic execution of our
corporate strategy with a special eye to capital protection. In
accordance with these principles, the Framework Guideline
puts in place a consistent understanding of controls as well as
a uniform procedure and standards for implementation of the
ICS across all organisational units of Hannover Re.
The Framework Guideline defines concepts, stipulates responsibilities
and provides a guide for the description of controls.
In addition, it forms the basis for the accomplishment of internal
objectives and the fulfilment of external requirements
imposed on Hannover Re. The ICS consists of systematically
structured organisational and technical measures and controls
Diversification effect within the non-life reinsurance business group
Risk capital per line of business for the 99.5% VaR in EUR million
288
3,515
361
66
305
272
55.8%
diversification
787
211
202
371
1,554
651
North
America
Germany Marine Aviation Credit, surety & political risks
Structured reinsurance products & ILS UK, London market
& direct
business
Global treaty Global cat. XL
Facultative
business
Total
58 Management report opportunity and risk report
Hannover Re Group annual report 2010