Annual Report 2010 - Hannover Re

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Limits and thresholds for the 100- and 200-year aggregate annual loss as well as utilisation thereof Natural catastrophes and aggregate annual losses in EUR million All natural catastrophe risks, net exposure Limit 2010 Threshold 2010 Actual utilisation (July 2010) 100-year aggregate annual loss 1,010 909 883 200-year aggregate annual loss 1,209 1,088 1,072 The development of the combined ratio in non-life reinsurance is shown in the table below. Technical risks in life and health reinsurance All risks directly connected with the life of an insured person are referred to as biometric risks (especially the miscalculation of mortality, life expectancy, morbidity and occupational disability); they constitute material risks for our company in the area of life and health reinsurance. Counterparty, lapse and catastrophe risks are also material since we additionally prefinance our cedants’ new business acquisition costs. As in non-life reinsurance, the reserves are essentially calculated according to information provided by our clients and are also determined on the basis of secure biometric actuarial bases. Through our quality assurance measures we ensure that the reserves established by ceding companies in accordance with local accounting principles satisfy all requirements with respect to the calculation methods used and assumptions made (e.g. use of mortality and morbidity tables, assumptions regarding the lapse rate). New business is written in all regions in compliance with underwriting guidelines applicable worldwide, which set out detailed rules governing the type, quality, level and origin of risks. These global guidelines are revised annually and approved by the Executive Board. Special underwriting guidelines give due consideration to the particular features of individual markets. By monitoring compliance with these underwriting guidelines we minimise the potential credit risk stemming from an inability to pay or deterioration in the financial status of cedants. Regular reviews and holistic analyses (e.g. with an eye to lapse risks) are carried out with respect to new business activities and the assumption of international portfolios. The interest rate risk, which in the primary sector is important in life business owing to the guarantees that are given, is of only minimal relevance to our company owing to the structure of the contracts. The actuarial reports and documentation required by local regulators ensure that regular scrutiny also takes place on the level of the subsidiaries. The Market Consistent Embedded Value (MCEV) is a ratio used for the valuation of life insurance and reinsurance business; it is calculated as the present value of the future shareholders’ earnings from the worldwide life and health reinsurance portfolio plus the allocated capital. The calculation makes allowance as far as possible for all risks underlying the covered business. The Market Consistent Embedded Value is established on the basis of the principles of the CFO Forum published in October 2009. Based on the latest available data Stress tests for natural catastrophes after retrocessions in EUR million 2010 2009 Effect on forecast net income 100-year loss European windstorm (146,5) (114,7) 100-year loss US windstorm (259,8) (281,8) 100-year loss Japanese windstorm (189,4) (204,3) 100-year loss Tokyo earthquake (195,1) (201,4) 100-year loss California earthquake (233,1) (244,9) 100-year loss Sydney earthquake (72,5) (150,6) Combined and catastrophe loss ratio over the past ten years in % 2010 2009 2008 2007 2006 2005 1 2004 1,2 2003 1,2 2002 1,2 2001 1,2 Combined ratio (non-life reinsurance) 98.2 96.6 95.4 99.7 100.8 112.8 97.2 96.0 96.3 116.5 Thereof catastrophe losses 3 12.3 4.6 10.7 6.3 2.3 26.3 8.3 1.5 5.2 23.0 1 Incl. financial reinsurance and specialty insurance 2 Based on US GAAP figures 3 Natural catastrophes and other man-made major losses > EUR 5 million gross for the share of the Hannover Re Group as a percentage of net premium earned 62 Management report opportunity and risk report Hannover Re Group annual report 2010
Sensitivity analysis of the Market Consistent Embedded Value (MCEV) 1,2 Base values in EUR million 2009 2008 Base value 3,390.3 2,421.6 Interest rate curve +100 basis points 2.2% 0.5% Interest rate curve –100 basis points –2.2% –0.3% Costs –10% 1.3% 1.1% Lapse +10% –5.5% +0.6% Lapse –10% 10.2% –1.4% Mortality +5% –15.5% –9.6% Mortality –5% 21.6% 13.2% 1 More extensive information is provided in the MCEV reports published on our website. The presentation is based on the principles for publication of the MCEV defined by the CFO Forum. The CFO Forum is an international organisation of Chief Financial Officers from major insurance and reinsurance enterprises. 2 Before consolidation, excluding minority interests published on 4 May 2010 (valid as of 31 December 2009), the lated fluctuations in fair value and realised gains/losses on table shows the MCEV 2009 and its sensitivity to selected scenarios in comparison with the corresponding sensitivities of maximum loss amount, with an eye to clearly graduated trig- investments since the beginning of the year in relation to a the MCEV 2008. ger values. These are unambiguously defined in conformity with our risk appetite and trigger specified actions if a corresponding fair value development is overstepped. Owing to the The change in the MCEV under the scenarios shown captures the low volatility in this area and reflects our portfolio’s high favourable capital market environment in the year under review, the trigger utilisation in the 2010 financial year was con- degree of diversification. The consolidated MCEV before minority interests amounted to EUR 2,210.8 million (2008: EUR sistently above the escalation levels – as shown by the graph 1,652.0 million) as at 31 December 2009. This represents an on the following page. increase of 33.8% (4.3%). The operating MCEV earnings totalled EUR 178.5 million (EUR 172.4 million), while the The short-term “Value at Risk” (VaR) is another vital tool used value of new business stood at EUR 83.9 million (EUR 150.5 for monitoring and managing market price risks. The VaR is million). The increase in the mortality sensitivities can be attributed to the business with a high mortality exposure written the securities positions under own management and the cor- determined on the basis of historical data, e.g. the volatility of in 2009. This new business also reacts sensitively to changes relation between these risks. As part of these calculations the in the lapse rate, hence additionally causing lapse sensitivities decline in the fair value of our portfolio is simulated with a to rise. For more detailed information please see the Market given probability and within a certain period. The VaR of the Consistent Embedded Value Report 2009. We shall publish the Hannover Re Group determined in accordance with these MCEV for the 2010 financial year on our Internet website at principles specifies the decrease in the fair value of our securities portfolio under own management that with a probability the same time as the quarterly report for the first quarter of 2011. of 95% will not be exceeded within ten trading days. A multifactor model is used to calculate the VaR indicators for the Market risks Hannover Re Group. It is based on time series of selected We pursue an investment policy in which the primary emphasis is on the stability of the generated return. With this in spread curves, exchange rates, commodity prices and macro- representative market parameters (equity prices, yield curves, mind, our portfolio is guided by the principles of broad diversification and a balanced risk/return ratio. Risks in the investries are reduced by analysis to a sensible number of main economic variables). All correlations between these time sement sector consist primarily of market, credit default and liquidity risks. The most significant market price risks are share individual positions through the APT model, i.e. the market components. All asset positions are mapped on the level of price, interest rate and currency risks. price risks of all individual positions are reduced through mathematical operations to the market price risk factors of the With a view to preserving the value of our assets under own model. Residual risks (e.g. market price risks that are not directly explained by the multi-factor model) can be determined management, we constantly monitor adherence to a trigger mechanism based on a clearly defined traffic light system that through back-calculation and are accommodated in the overall is applied across all portfolios. This system puts the accumu- calculation on the supposition of non-correlation. Management report Hannover Re Group annual report 2010 opportunity and risk report Management report 63
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Annual Report 2010
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The Hannover Re Group America Europ
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Contents For our investors 2 - 15 L
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Our operational business was impact
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Our life and health reinsurance bus
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years will generate increasing inco
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For our investors Seated from left
Page 15 and 16: The market capitalisation of the Ha
Page 17 and 18: Basic information Securities identi
Page 19 and 20: Strategic objectives 1. Profitable
Page 21 and 22: Macroeconomic climate The global ec
Page 23 and 24: Business development We are thoroug
Page 25 and 26: Non-life reinsurance Accounting for
Page 27 and 28: Along with the aforementioned natur
Page 29 and 30: The establishment of the Federal In
Page 31 and 32: The Die beste volatility Volatilit
Page 33 and 34: Credit and surety Breakdown of gros
Page 35 and 36: Thanks not least to a new branch of
Page 37 and 38: The insurance sector continues to b
Page 39 and 40: have enlarged our portfolio. In the
Page 41 and 42: anch in Shanghai concentrates on bu
Page 43 and 44: Ageing macht creates Märkte market
Page 45 and 46: Key figures for life and health rei
Page 47 and 48: new business. Against this backdrop
Page 49 and 50: The rating agency Standard & Poor
Page 51 and 52: Rating of fixed-income securities
Page 53 and 54: In 2009 Hannover Re launched anothe
Page 55 and 56: Solvency For our company II heißt
Page 57 and 58: Social commitment Hannover Re’s c
Page 59 and 60: Opportunity and risk report Overrid
Page 61 and 62: Available capital and required risk
Page 63 and 64: Internal risk management and contro
Page 65: The table below lists the catastrop
Page 69 and 70: events. Further significant risk ma
Page 71 and 72: Gross written premium retained in %
Page 73 and 74: Strategic risks derive from the ris
Page 75 and 76: Performance Excellence Check The PE
Page 77 and 78: Financial position Asset / liabilit
Page 79 and 80: Financing and Group debt In additio
Page 81 and 82: Financial strength ratings of subsi
Page 83 and 84: Naturkatastrophen Natural catastrop
Page 85 and 86: Corporate Governance The principles
Page 87 and 88: for orderly performance of their ta
Page 89 and 90: in question. With the aim of making
Page 91 and 92: The Annual General Meeting of Hanno
Page 93 and 94: Measurement bases/conditions of pay
Page 95 and 96: Individual remuneration received by
Page 97 and 98: motivation, customer satisfaction,
Page 99 and 100: eversal. Nevertheless, we anticipat
Page 101 and 102: of demand and the diversification o
Page 103 and 104: Profit and growth targets for 2011
Page 105 and 106: as at 31 December 2010 Liabilities
Page 107 and 108: Consolidated statement of comprehen
Page 109 and 110: Consolidated cash flow statement 20
Page 111 and 112: Figures in EUR thousand 1.1.- 31. 1
Page 113 and 114: as at 31 December 2010 Life/health
Page 115 and 116: as at 31 December 2010 Life/health
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1. Company information The parent c
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Standards Applicable to financial y
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Impairments: as at each balance she
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asis of a five-year detailed plan a
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come. Currency translation differen
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The projections, which cover variou
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The following list of shareholdings
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Name and registered office of the c
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Name and registered office of the c
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Investments Within the scope of its
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5. Notes on the individual items of
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The stated maturities may in indivi
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Amortised cost, unrealised gains an
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Carrying amounts before impairment
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Breakdown of investments by currenc
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In addition, we held indirect real
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Development of level 3 financial in
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Development of deferred acquisition
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This item principally consists of t
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Technical provisions in EUR thousan
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Net loss reserve and its run-off in
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Liabilities in liability and motor
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From 1997 onwards it has been possi
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The recognised provision for pensio
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in EUR thousand Other reclassificat
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Debt and subordinated capital in EU
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Furthermore, a long-term unsecured
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6.2 Investment income Investment in
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6.3 Reinsurance result Reinsurance
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Tax-relevant bookings on the Group
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The following table presents a reco
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Maturity structure of derivative fi
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Business assumed and ceded in Germa
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last twenty trading days prior to t
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On this basis the aggregate provisi
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7.7 Contingent liabilities and comm
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7.11 Events after the balance sheet
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Responsibility statement To the bes
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ated by a reinsurance subsidiary do
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- in each case drawn up as at 31 De
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Branch offices and subsidiaries of
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Spain United Kingdom USA HR Hannove
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Corporate Governance: serves to ens
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Life and health (re-)insurance: col
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Segmental reporting: presentation o
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Financial calendar 2011/2012 9 Marc
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Contact information Corporate Commu
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Annual Report 2010 - Hannover Re

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