Return on Equity
Our goal for the Hannover Re Group is to generate a return on equity, which on a moving 5-year average, corresponds to at least the 10-year government-bond yield plus a risk premium of 750 basis points.
In this context, net income and the stockholders' equity are calculated after taxes.
Return on Equity
| in % |
20072) |
20062) |
20052) |
20042) |
20031) |
|
1) Based on US GAAP figures
2) Based on IFRS figures
|
| Target |
11.4 |
11.5 |
11.7 |
12.1 |
12.2 |
| Actual |
23.5 |
18.7 |
1.9 |
11.5 |
17.1 |
In order to ensure that we meet our company-wide return-on-equity target, we have applied this same target individually to specially defined units within our total business portfolio. Our first step here was to subdivide our total business according to risk type into 33 separate cells.
In this regard, the level of risk - primarily determined by the volatility of the technical result - is the yardstick for the capital requirement for each particular business segment. The principle applied here is the greater the volatility of results, the higher the capital requirement. The capital requirement of each individual risk segment can subsequently be specified accordingly.
By combining these insights with our return-on-equity target, it is possible to calculate a minimum profit margin, which every concluded reinsurance contract must generate in order to produce a satisfactory return on equity. This enables our underwriters to examine the contribution made by every single proposed contract to the achievement of our return-on-equity target. The accomplishment of this goal forms an important integral part of the target agreements drawn up with our managerial staff and hence also of our remuneration system. In this way, we ensure directly at the underwriting level that our return-on-equity target will be fulfilled for the company as a whole.
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