Explanatory Remarks
Balance sheet
Income statement
Share information
Explanatory remarks on key figures and key ratios
Notes on the balance sheet
1. Investments
Premiums are not normally used immediately to pay insurance benefits since losses usually do not occur directly upon conclusion of a contract and they are settled over a long period of time. A substantial portion of the premium is therefore initially allocated to the reserves. Funds allocated to the reserves are invested until payment of a loss in such a way as to ensure the greatest possible security and return, safeguard liquidity at all times and preserve an appropriate mix and spread of the portfolio in terms of asset types.
2. Funds held by ceding companies / funds held under reinsurance treaties
Funds held by ceding companies are assets that insurers withhold from reinsurers (generally in the form of fixed-income securities) as collateral for possible reinsurance payments. The insurer shows this item on the balance sheet as funds held under reinsurance treaties. The same applies to the contractual relationship between reinsurer and retrocessionaire. The reinsurer receives the income to which it is entitled on these invested assets in the form of so-called deposit interest.
3. Policyholders' surplus
The portion of the capital allocable to capital providers after deduction of all liabilities.
Stockholders' equity: Consists of the common stock, additional paid-in capital and retained earnings.
Minority interests: Interests of minority shareholders in the stockholders' equity and the income for the period under review. They arise when a consolidated subsidiary is not wholly owned by the group.
Hybrid capital: Subordinated capital that consists principally of participation certificates and other subordinated liabilities.
Notes on the statement of income
4. Gross/net
Gross items constitute the relevant sum total deriving from the acceptance of direct insurance policies or reinsurance treaties; retro items constitute the sum total of own reinsurance cessions. The difference is the corresponding net item.
(gross - retro = net, also: for own account)
5. Operating profit (EBIT)
EBIT (earnings before interest and taxes) is an internationally used earnings ratio that measures a company's operating profitability. It is calculated on the basis of the net income before interest, taxes on income and minority interests. It shows how much profit the company generates in order to be able to pay interest, taxes and dividends.
Key performance ratios
6. Loss ratio
Loss expenditures divided by net premiums earned (in %).
This ratio indicates how high the losses are relative to premium collected. If the aggregate loss/expense ratio (= combined ratio) is less than 100 % the reinsurer has generated a profit on the insurance business (before investments).
7. Expense ratio
Operating expenses divided by net premium earned (in %).
This ratio indicates how high the expenses are relative to premium collected.
8. Return on equity
Group net income (loss) after tax divided by weighted stockholders' equity. Including one-off effect from the acquisition of the ING Life Re portfolio (in 2009).
This figure is especially interesting for investors because it indicates the return generated on their invested capital.
9. Return on risk-adjusted capital (RoRAC)
Group net income (loss) divided by risk capital.
Risk based capital is the amount of capital that a company must keep available relative to the written premium volume in light of risk considerations in order to be able to pay all losses and obligations which may arise. For Hannover Re the level of risk based capital is as follows: non-life reinsurance 68%, life and health reinsurance 32% of net premiums earned.
Notes on the profit forecast
10. Hannover Re guidance
Including one-off effect from the aquisition of the ING Life Re portfolio (in 2009).
Key figures relating to the share
11. Earnings per share
Group net income (loss) divided by weighted number of shares.
Measures profitability in relation to the number of shares. Especially in American reporting the closest attention is paid to this ratio. Frequently, planned figures for a quarter or financial year are defined in terms of earnings per share.
12. Dividend
The dividend is the pro-rata profit paid out by the company for one share. The dividend does not correspond to the total profit of a joint-stock corporation since the amount distributed is reduced prior to payment by reserve allocations etc. The company's Annual General Meeting decides on the amount and payment of the dividend. Unlike in the United Kingdom and United States, where dividends can also be paid quarterly, they are distributed annually in Germany.
13. Book value per share
Stockholders' equity divided by number of shares.
A good indicator of a company's net asset value.
14. Price to book value ratio
Current share price divided by book value per share.
Gives an initial impression of whether a share is cheaply priced (<1) or expensive (>2).
15. Price/earnings ratio
Current share price divided by earnings per share as per analysts' estimate.
Also referred to as the profit multiple, this provides a more accurate indication of whether a share is cheaply priced (<10) or expensive (>20).
16. Share performance (price development incl. dividend)
Share price performance relative to our internal benchmark, the RBS Global R/I Index.
The performance is the price development of the shares - including the dividend - in a defined period, with all earnings being reinvested. Reinvestment produces a compounding effect that favourably influences the aggregate performance of the investment.
17. Market capitalisation
Current share price multiplied by number of shares.
The growth in market capitalisation reflects the value-added created by a company.
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