Glossary

Sum of several individual losses incurred by various policyholders as a result of the same loss event (e. g. windstorm, earthquake). This may lead to a higher loss for the direct insurer or reinsurer if several affected policyholders are insured by the said company.

cf. > Accumulation loss

Cost of an insurance company that arises from the acquisition or the renewal of an insurance contract (e.g. commission for the closing, costs of proposal assessment and underwriting etc.). Capitalisation results in a distribution of the cost over the duration of the contract.

The reinsurance treaty attaches when if a ceding insurer incurs losses on a particular line of business during a specific period (usually twelve months) in excess of a stated amount.

Agricultural insurance covers provide protection for farmers, forestry operators and the fishing industry - especially in developing countries - against the consequences of natural disasters such as crop failures due to hail, windstorm, frost, flood damage or disease.

cf. > capital allocation

Use of the capacity available on the capital markets to cover insurance risks, e.g. through the securitisation of natural catastrophe risks.

Share certificates written by US Banks on foreign shares deposited there. Instead of trading the foreign shares directly, US stock exchanges trade the American Depositary Receipts (ADR).

Matching of the invested assets with the liabilities arising out of the reinsurance business.

Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht).

Value arrived at using mathematical methods for future liabilities (usually prospectively as present value of future liabilities minus present value of future incoming premiums), primarily in life and health insurance (that is transacted in a similar way to life insurance).

Investment in companies that deliver the best sustainability performance in their sector.

Shareholders' equity divided by the number of shares outstanding.

Integrated set of processes to maintain business operations.

The Contractual Service Margin (net) is a balance sheet item, that represents the net unearned profit embedded in reinsurance contracts and therefore indicates the future profits of the business underwritten in the past. The CSM (net) represents the (risk-adjusted) difference between the present value of the expected future cash inflows from these contracts (e.g. premiums) and the present value of the expected cash outflows (e.g. claims and expenses). The "net" aspect accounts for any expected future recoveries or expenses that may offset or contribute to the profit. The Contractual Service Margin (net) is recognized as revenue over time as the reinsurer provides services and assumes risks over the contract's duration.

Model used to explain the materialisation of prices/returns on the capital market based on investor expectations regarding the future probability distribution of returns. Under this method, the opportunity cost rate for the shareholders' equity consists of three components – a risk-averse interest rate, a market-specific risk loading and an enterprise-specific risk assessment, the beta coefficient. The cost of shareholders' equity is therefore defined as follows: risk-averse interest rate + beta * enterprise-specific risk assessment.

The adequacy ratio is derived from the ratio of the available capital (or own funds) to the required capital – the solvency capital requirement (SCR).

Risk-appropriate allocation of the economic capital to the business segments of property & casualty reinsurance and life & health reinsurance as well as the investments on the basis of the respective economic risk content. Our internal capital model supplies key parameters such as the volatility of the covered business / investments and the contribution to diversification.

An insurer's capital and reserves, also including the provisions committed to technical business and the equalisation reserve. Total maximum funds available to offset liabilities.

The Carbon Disclosure Project (CDP) is a London-based non-profit organisation, which once a year collects data on behalf of investors regarding companies' CO2 emissions and climate risks as well as their risk reduction targets and strategies with a view to creating greater transparency as to harmful greenhouse gas emissions.

Statement on the origin and utilisation of cash and cash equivalents during the accounting period. It shows the changes in liquid funds separated into cash flows from operating, investing and financing activities.

Securitised (re)insurance risks in respect of which the payment of interest and / or repayment of capital is dependent on the occurrence and severity of a predefined insured event. Purchasers of a catastrophe bond assume the risk carried by the (re)insurer upon occurrence of the catastrophic event. Catastrophe bonds are part of the insurance-linked securities market. Cf. > securitisation Instruments.

Direct insurer or reinsurer, which passes on (also: cedes) shares of its insured or reinsured risks to a reinsurer in exchange for premium.

Transfer of a risk from the direct insurer to the reinsurer.

Sum total of paid claims and provisions for loss events that occurred in the business year; this item also includes the result of the run-off of the provisions for loss events from previous years, in each case, after the deduction of own reinsurance cessions.

Reinsurance treaty under which the ceding company retains a portion of the original premium at least equal to the ceded reserves.

Sum of loss ratio and expense ratio.

Compliance by an enterprise with legal requirements.

The confidence level defines the probability with which the defined amount of risk will not be exceeded.

Serves to ensure responsible management and supervision of enterprises and is intended to foster the trust of investors, clients, employees and the general public in companies.

The voluntary contribution made by a company to sustainable development.

Mark-up between a risky and a risk-free interest-bearing security with the same maturity, as a risk premium for the credit risk entered into by the investor.

Ability of a debtor to meet its payment commitments.

Personal rider on the basis of which typically a lump-sum cash payment is made in the event of previously defined severe illnesses.

An accounting method originating in US GAAP (Generally Accepted Accounting Principles) for the recognition of short-term and multi-year insurance and reinsurance contracts with no significant underwriting risk transfer. The standard includes inter alia provisions relating to the classification of corresponding contract types as well as the recognition and measurement of a deposit asset or liability upon inception of such contracts.

(also: Funds held by ceding companies / funds held under reinsurance treaties)

Collateral provided to cover insurance liabilities that a (re-)insurer retains from the liquid funds which it is to pay to a reinsurer under a reinsurance treaty. In this case, the retaining company shows a deposit received, while the company furnishing the collateral shows a deposit with a ceding company.

Financial products derived from underlying primary instruments such as equities, fixed-income securities and foreign exchange instruments, the price of which is determined on the basis of an underlying security or other reference asset. Notable types of derivatives include swaps, options and futures.

Company which accepts risks in exchange for payment of an insurance premium and pays indemnification for the insured loss in the event of a claim. A direct insurer has a direct contractual relationship with the policyholder (private individual, company, organisation).

Disaster risk financing programmes guarantee rapid financial assistance for countries impacted by natural catastrophes.

The discounting effect represents the adjustment made to the estimated future cash flows from reinsurance contracts to reflect their present value. It considers the time value of money and helps ensure that the liability amounts accurately represent their current value over time.

Determination of the present value of future profits through multiplication by the corresponding discount factor. In the case of the loss reserves this is necessary because of the new profit calculation methods for tax purposes applicable to German joint-stock corporations.

Orientation of business policy towards various revenue streams in order to mitigate the effects of e. g. economic fluctuations or natural catastrophes and thereby minimise the volatility of results. Diversification is an instrument of growth policy and risk policy for a company.

Long-term insurance guarantees can be dynamically adjusted due to potentially increased volatility in valuations on capital markets.

Abbreviation for "Eco-Management and Audit Scheme", a voluntary instrument developed by the European Commission to assist companies and other organisations of all sizes and across all sectors with continuous improvement of their environmental performance.

Ratio calculated by dividing the consolidated net income (loss) by the weighted average number of shares outstanding. The calculation of the diluted earnings per share is based on the number of shares including subscription rights already exercised or those that can still be exercised.

Non-distribution of a company's profits leading to different treatment for tax purposes than if profits were distributed.

cf. > Internal model

Future risks, the content and implications of which are still unknown.

An acronym consisting of the keywords Environmental, Social and Governance. ESG stands for responsible enterprise management. The term has become particularly popular among investors and financial analysts and it reflects the recognition of non-financial considerations in the evaluation of an enterprise.

Indicator which describes the IVC in relation to the allocated capital and shows the relative excess return generated above and beyond the weighted cost of capital.

The amount of available capital in excess of the required capital.

cf. > non-proportional reinsurance

Administrative expenses (gross or net) in relation to the (gross or net) premium earned.

Level of danger inherent in a risk or portfolio of risks; this constitutes the basis for premium calculations in reinsurance.

Global index family measuring performance in relation to sustainability and corporate governance.

Participation on the part of the reinsurer in a particular individual risk assumed by the direct insurer. This is in contrast to > obligatory reinsurance (also: treaty reinsurance).

Price at which a financial instrument is freely traded between two parties.

Reinsurance transactions which – in addition to the transfer of biometric risks – also include financing components such as financing arrangements for new and existing business, reserve relief, smoothing of volatility in results, optimisation of the solvency position.

Losses that occur frequently in a foreseeable amount, i. e. where the underlying risks are associated with relatively high probabilities of occurrence and usually low loss amounts.

cf. > Deposits with ceding companies / deposits received from retrocessionaires

Sustainability index initiated by BÖAG Börsen AG, the parent company of the Hannover stock exchange.

The world's largest and most important initiative for responsible corporate governance.

Working together with numerous stakeholder groups, the Global Reporting Initiative develops global guidelines for the preparation of sustainability reports by companies, governments and NGOs. Its aim is to create the greatest possible level of transparency and standardisation so as to facilitate comprehensive comparability.

The excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed.

Gross items constitute the relevant sum total deriving from the acceptance of direct insurance policies or reinsurance treaties; retro items constitute the relevant sum total deriving from own reinsurance cessions. The difference is the corresponding net item (gross - retro = net, also: for own account).

Group net income under IFRS corresponds to the profit for the year available to the shareholders of Hannover Re.

Debt structure which because of its subordination bears the character of both debt and equity.

Provision for claims which have already occurred but which have not yet been reported.

The ILO Core Labour Standards are set out in a declaration of the International Labour Organisation. It encompasses eight fundamental conventions which define minimum standards for working conditions that respect human dignity.

Extraordinary amortisation taken when the present value of the estimated future cash flow of an asset is less than its book value.

Securitised insurance risks such as catastrophe bonds, derivatives or collateralised reinsurance.

A risk-sharing partnership under civil law formed by legally and economically independent insurers and reinsurers in order to create a broader underwriting base for particularly large or unbalanced risks. The members undertake to write certain risks only within the scope of the insurance pool. They include such risks – while maintaining their commercial independence – in the insurance pool against a commission fee. Each insurer participates in the profit or loss of the insurance pool according to its proportionate interest. Reinsurance is often ceded or accepted in order to further diversify the risk. Pools can be divided into two types: coinsurance pools, in which all members take the role of primary insurers according to their interests, and reinsurance pools, in which a primary insurer writes the risks and then spreads them among the participating insurers by way of reinsurance.

Term referring to new business models/companies in the insurance industry that focus primarily on the use of new technologies.

Interest accretion is the process of gradually recognizing and adding interest income over time on the carrying amount of insurance contract liabilities. It reflects the time value of money and ensures that the liability amount reflects its present value as the contract progresses. It can be regarded as reversal of discounting over time and is included in the P&L position Reinsurance finance result (net).

economic capital model verified and approved by the Federal Financial Supervisory Authority that better reflects the company's risk profile than the standard formula under Solvency II.

Ten-character universal code used to identify securities internationally. It is prefixed by a country code that specifies the country where the issuer entity is legally registered or in which it has legal domicile, e. g. DE = Germany.

The IVC is calculated according to the following formula: real operating value creation = adjusted operating profit (EBIT) − (capital allocated × weighted cost of capital). IVC is a tool of value-based enterprise management used to measure the accomplishment of long-term targets on the level of the Group, the individual business groups and the operating units (profit centres).

Investment grade ratings are awarded to companies and assigned to securities that have a low risk profile. They contrast with non-investment-grade ratings, which by definition include speculative elements and therefore entail a significantly higher risk.

Private enterprise or public entity that issues securities, e. g. the federal government in the case of German Treasury Bonds and a joint-stock corporation in the case of shares.

There is currently no entry for this letter.

There is currently no entry for this letter.

If several (re-)insurers participate in a contract, one company assumes the role of leader. The policyholder deals exclusively with this lead company. The lead (re-)insurer normally carries a higher percentage of the risk for own account.

Bank guarantee under which at the request of the guaranteed party, the bank undertakes to render payment to the said party up to the amount specified in the LOC. This method of providing collateral in reinsurance business is typically found in the USA.

Collective term for the lines of business concerned with the insurance of persons, i.e. life, pension, health and personal accident insurance.

In general terms, the actuarial risk that a person receiving regular living benefits – such as annuities or pensions – lives longer than expected.

Proportion of loss expenditure in the > retention relative to the (gross or net) premium earned.

Total loss incurred by the affected economy as a whole following the occurrence of a loss. The economic loss must be distinguished from the > insured loss.

The insured loss reflects the total amount of losses covered by the insurance industry (insurers and reinsurers).

Loss which has a special significance for the direct insurer or reinsurer due to the amount involved; it is defined as a major loss in accordance with a fixed loss amount or other criteria (in the case of Hannover Re more than EUR 10 million gross).

Annual budget for major losses determined from the modelled loss expectancy for the business with natural perils exposure as well as for man-made net losses larger than EUR 10 million.

The evaluation of financial instruments to reflect current market value or > fair value.

Coverage of technical liabilities in foreign currencies by means of corresponding investments in the same currency in order to avoid exchange-rate risks.

Microinsurances offer low-income population groups - especially in developing countries - protection against fundamental risks associated with, inter alia, health, disability, the consequences of natural disasters or unexpected crop failures.

Type of reinsurance treaty where the ceding company retains the assets with respect to all the policies reinsured and also establishes and retains the total reserves on the policies, thereby creating an obligation to render payments to the reinsurer at a later date. Such payments include a proportional share of the gross premium plus a return on the assets.

In general terms, the actuarial risk that a person upon whose death a benefit is payable lives shorter than expected. From a (re)insurer’s perspective, this is the risk that the observed mortality experience in an underlying portfolio deviates from what had previously been calculated on the basis of actuarial assumptions.

In general terms, the actuarial risk that a person upon whose death a benefit is payable lives shorter than expected. From a (re)insurer’s perspective, this is the risk that the observed mortality experience in an underlying portfolio deviates from what had previously been calculated on the basis of actuarial assumptions.

Investment approach that excludes problematic sectors or companies from the outset.

cf. > Gross/Retro/Net

The New Business Contractual Service Margin (net) is the expected net unearned profit related to newly underwritten reinsurance contracts. The new business CSM is distinct from the CSM associated with existing contracts and is recognized as revenue over time, mirroring the provision of services and assumption of risks over the life of the new reinsurance contracts. It does not include extensions on existing contracts (prolongation).

The New business Loss Component (net) is recognized from newly underwritten contracts when a group of insurance contracts is onerous, meaning that the expected outflows plus risk adjustment are greater than the expected inflows, including expected future recoveries from retrocession. The amount is recognized immediately as expenses in the reinsurance service result.

Reinsurance treaty under which the reinsurer assumes the loss expenditure in excess of a particular amount (> priority) (e.g. under an excess of loss treaty). This is in contrast to > proportional reinsurance.

Reinsurance treaty under which the reinsurer participates in a > cedant's total, precisely defined insurance portfolio. This is in contrast to > facultative reinsurance.

Securities that are not classified as "trading" or "held-to-maturity"; these securities can be disposed of at any time and are reported at their market value at the balance sheet date. Changes in market value do not affect the statement of income.

Investments in debt securities intended to be held to maturity. They are measured at amortised cost.

Securities that are held principally for short-term trading purposes. They are measured at their market value at the balance sheet date.

Index-based type of insurance, e.g. to protect against weather risks.

System used directly at the place where a transaction is completed.

a) All risks assumed by an insurer or reinsurer in a defined sub-segment (e.g. line of business, country) or in their entirety;
b) Group of investments defined according to specific criteria.

Remuneration for the risks accepted from an insurance company. Unlike the earned premium, the written premium is not deferred.

Intangible asset primarily arising from the purchase of life and health insurance companies or portfolios. The present value of expected future profits from the portfolio assumed is capitalised and amortised according to schedule.

A valuation ratio of a company's share price compared to its per-share earnings.

cf. > direct insurer

Direct insurer's loss amount stipulated under > non-proportional reinsurance treaties; if this amount is exceeded, the reinsurer becomes liable to pay. The priority may refer to an individual loss, an > accumulation loss or the total of all annual losses.

cf. > confidence level

By way of distinction from operations in our Life & Health reinsurance business group, we use this umbrella term to cover our business group comprised essentially of property and casualty reinsurance, specialty lines and structured reinsurance products.

Reinsurance treaties on the basis of which shares in a risk or > portfolio are reinsured under the relevant direct insurer's conditions. > Premium and losses are shared proportionately on a pro-rata basis. This is in contrast to > non-proportional reinsurance.

Protection of segments of an insurer's portfolio against major losses (per risk/per event), primarily on a non-proportional basis.

Liability item as at the balance sheet date to discharge obligations which exist but whose extent and/or due date is/are not known. Technical provisions, for example, are for claims which have already occurred but which have not yet been settled, or have only been partially settled (= provision for outstanding claims, abbreviated to: claims provision).

Premium written in a financial year which is to be allocated to the following period on an accrual basis. This item is used to defer the written premium.

The cost of acquiring an asset item including all ancillary and incidental purchasing costs; in the case of wasting assets less scheduled and/or special amortisation.

Form of proportional reinsurance under which the reinsurer assumes a contractually set percentage share of the written risk. Since the insurer is responsible for acquisition, pricing, policy administration and claims handling, the administrative expenditure for the reinsurer is very low. The latter therefore participates in the aforementioned expenses mostly through payment of a reinsurance commission.

Percentage rate (usually of the premium income) of the reinsured portfolio which is to be paid to the reinsurer as reinsurance premium under a > non-proportional reinsurance treaty.

Passing on of a primary insurer's or reinsurer's risks to a reinsurer.

Reinsurance revenue is the income generated from providing reinsurance services to ceding insurers. It encompasses the insurance service expenses like claims and expenses as expected at the beginning of the period, as well as the release of contractual service margin and the risk adjustment for the period, representing the revenue component of the reinsurer's financial performance.

The Reinsurance Service Result is the financial outcome of providing reinsurance services to ceding insurers. It includes the net result from premiums, claims, and expenses, reflecting the performance and profitability of the reinsurance operations.

Company which accepts risks or portfolio segments from a > direct insurer or another reinsurer in exchange for an agreed premium.

Ratio of (gross or net) technical provisions to the (gross or net) premiums.

Reinsurance in accordance with Islamic law (Sharia-compliant). The business model is similar in form to that of mutual insurance and addresses, among other things, the prohibition of interest in Islam.

The part of the accepted risks which an insurer/reinsurer does not reinsure, i.e. shows as > net (retention ratio: percentage share of the retention relative to the gross written premium).

Ceding of risks or shares in risks which have been reinsured. Retrocessions are ceded to other risk carriers (retrocessionaires) in exchange for a pro-rata or separately calculated premium (cf. > Gross/Retro/Net.)

The Risk Adjustment is an amount added to estimated cash flows from reinsurance contracts to account for inherent uncertainty and risk. It represents the potential financial impact of adverse events and ensures accurate portrayal of the risk in the reinsurer's portfolio, aiding in pricing, reserving, and financial transparency.

The capital at risk notionally allocated to a risk category.

Risk that can lead to the occurrence of a loss. The insured risk is the subject of the insurance contract.

Innovative instruments for transferring reinsurance business to the capital markets with the goal of refinancing or placing insurance risks.

Presentation of items from the annual financial statements separated according to functional criteria such as segments and regions.

Unintended coverage of cyber-related losses in traditional reinsurance treaties.

Socially Responsible Investing is a term describing an investment strategy which seeks to maximise both financial return and social good.

European directive for the insurance industry. The new European regulatory regime for (re)insurers that entered into force on 1 January 2016 on the basis of the Solvency II Directive (Directive 2009/138/EC) is comprised of risk-based capital requirements and imposes quantitative, qualitative and reporting-related requirements in three main areas known as pillars.

Percentage coverage of the supervisory capital requirement (target solvency capital) under Solvency II by eligible own funds.

Legal structure with specific characteristics not bound to a certain form of organisation used to conduct defined activities or to hold assets.

Treaty between an insurer and a reinsurer that covers risks of a defined portfolio over a multi-year period.

A volatility adjustment – in this case in its static form – is intended to prevent increased volatility on capital markets being reflected in the valuation of long-term insurance guarantees.

Reinsurance with limited potential for profits and losses. In most cases customers strive for risk equalisation over time or solvency relief, both of which have a stabilising effect on the ceding company's balance sheet.

Form of proportional reinsurance under which the risk is not spread between the insurer and reinsurer on the basis of a previously agreed, set quota share. Instead, the insurer determines a maximum sum insured per risk up to which it is prepared to be liable. Risks that exceed the ceding company's retention (surpluses) are borne by the reinsurer. The reinsurer's lines thus vary according to the level of the retention and the sum insured of the reinsured contract. The reinsurer's liability is generally limited to a multiple of the ceding company's retention.

Reinsurance contract under which an admitted reinsurer assumes (part of) a ceding company’s portfolio to relieve stress on the cedant’s policyholders’ surplus.

Ratio of loss reserves to paid losses under a specific contract or several contracts in a balance sheet year.

Regulatory solvency capital requirement in accordance with Solvency II standards. At Hannover Re this is calculated using an internal model.

The balance of income and expenditure allocated to the insurance business and shown in the technical statement of income (after additional allowance is made for the allocation to / withdrawal from the equalisation reserve: net technical result).

cf. > obligatory reinsurance

Process of examining, accepting or rejecting (re-)insurance risks and classifying those selected in order to charge the proper premium for each. The purpose of underwriting is to spread the risk among a pool of (re-)insureds in a manner that is equitable for the (re-)insureds and profitable for the (re-)insurer.

cf. > provision for unearned premiums

The measure of risk for a company's risk position.

Addition to the risk-free curve used under Solvency II to calculate technical provisions. Its use must be approved by the responsible supervisory authority and is intended to smooth volatility in the measurement of bonds due to changes in credit spreads.

There is currently no entry for this letter.

cf. > Excess return on capital allocated

There is currently no entry for this letter.

There is currently no entry for this letter.