Annual Report 2010 - Hannover Re

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
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