Annual Report 2010 - Hannover Re

Rating structure of our fixed-income securities 1
Rating classes Government bonds Securities issued by
semi-governmental
entities
in %
in EUR
million
in %
in EUR
million
in %
Corporate bonds
in EUR
million
Covered bonds/assetbacked
securities
in %
in EUR
million
AAA 83.9 4.830.5 61.2 3.261.6 3.3 207.2 72.9 2.951.8
AA 4.4 249.6 34.8 1.852.1 21.0 1.326.1 15.5 626.9
A 5.9 340.6 3.4 183.6 57.5 3.625.6 1.3 51.6
BBB 5.2 298.9 0.5 25.7 14.8 934.9 2.9 116.1
< BBB 0.6 35.3 0.1 6.0 3.4 214.0 7.4 299.5
Total 100.0 5,754.9 100.0 5,329.0 100.0 6,307.9 100.0 4,045.9
1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings
on these holdings. There is no risk of default here on account
of bailout mechanisms existing on the European level (Eurozone
safety net).
On a fair value basis EUR 3,097.5 million of the corporate
bonds held by our company were issued by entities in the financial
sector. Of this amount, EUR 2,648.0 million was attributable
to banks. The vast majority of these bank bonds
(almost 91.3%) are rated “A” or better. Our investment portfolio
under own management does not contain any directly
written credit derivatives.
Operational risks
In our understanding, this category encompasses the risk of
losses occurring because of the inadequacy or failure of internal
processes or as a result of events triggered by employeerelated,
system-induced or external factors. The operational
risk also extends to legal risks. Operational risks exist, inter
alia, in relation to the risk of business interruptions or failures
of technical systems or they may derive from unlawful or unauthorised
acts. Given the broad spectrum of operational
risks, there is a wide range of different management and monitoring
measures tailored to individual types of risk.
Core elements of risk management – for example with an eye
to business interruptions and the failure of technical systems
– are our contingency plans. These are designed to ensure the
continuity of mission-critical enterprise processes and systems
(recovery plans, back-up computer centre). The flexible
working model of alternating telecommuting adopted by Hannover
Re is, among other things, also a risk-minimising measure
inasmuch as alternative workplaces and the requisite infrastructure
are kept available on a decentralised basis. At the
same time, we are thus able to offer the possibility of a healthy
work/family balance. An important element of our human resources
management policy, teleworking also reduces the risk
of potentially losing key personnel by facilitating an attractive
working environment.
As far as possibly unlawful or unauthorised acts are concerned,
we enable our staff and partners to report serious
breaches of the law pertaining to Hannover Re anonymously
through our electronic whistleblower system. The information
provided is brought to the attention of Hannover Re’s Compliance
Office so that it can investigate potentially suspicious
circumstances. All tips are handled in the strictest confidence.
The range of tools is rounded off with external and internal
surveys of clients and staff, the line-independent monitoring
of risk management by Internal Auditing and the internal control
system.
Other risks
Of material importance to our company in the category of
other risks are primarily emerging risks, strategic risks, reputational
risks and liquidity risks.
The hallmark of emerging risks (such as in the field of nanotechnology
or in connection with climate change) is that the
content of such risks cannot as yet be reliably assessed – especially
with respect to our treaty portfolio. Such risks evolve
gradually from weak signals to unmistakable tendencies. It is
therefore vital to detect these risks at an early stage and then
determine their relevance. For the purpose of early detection
we have developed an efficient process that spans divisions
and lines of business and ensured its linkage to risk management,
thereby making it possible to pinpoint any necessary
measures (e.g. ongoing observation and evaluation, the implementation
of contractual exclusions or the development of
new reinsurance products). This interdivisional and cross-line
process is handled by an expert working group assembled
specially for this task.
68 Management report opportunity and risk report
Hannover Re Group annual report 2010