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Group Annual Report 2004 Leading Edge. ■ talanx. Property/Casualty Primary Insurance Our offer for private customers ■ Net premiums earned climb by 9.0 % and industry alike: client-oriented ■ Acquisition of Polish insurer Tryg Polska, thereby moving up to solutions from a strong insurance number 5 in the Polish composite insurance market and number 3 group in Polish private customer business (property/casualty) ■ Decline in EBIT, influenced principally by an extraordinary factor affecting investments in 2003 and by hurricane losses in Florida Life Primary Insurance The entire spectrum of life insurance ■ Gross written premiums rise by 74.7 %; market share of new – with a focus on private customers business (number of policies) in Germany enlarged to 4.9 %. and occupational retirement ■ Number of new policies grows by 68.4 % to more than 580,000 provision (excluding credit life insurance) ■ Sought-after partner in the area of occupational retirement provision Property/Casualty Reinsurance Reinsurance on a worldwide ■ Intentional reduction of gross written premiums following shift away scale from proportional business in favor of non-proportional arrangements as well as restructuring of business with HDI companies within the Group ■ Record burden of catastrophe losses leaves its mark on the combined ratio ■ Sustained high quality of our property/casualty reinsurance portfolio cushions the enormous loss burden Live/Health Reinsurance Developing, structuring ■ Survey confirms Hannover Life Re as a leading provider in Europe and implementing creative ■ Contraction in gross premium income, primarily due to exchange-rate reinsurance solutions effects ■ Increase in level of retained premiums to 92.0 % underscores our confidence in the quality of the portfolio Financial Services The complete value-added chain ■ Ampega acquires several asset management mandates with a total of asset management volume of roughly EUR 1.2 billion ■ Assets under management by Ampega increase by altogether 20.5 % to EUR 25.3 billion ■ Protection Re boosts result from EUR 2.5 million to EUR 8.2 million Segments at a glance. ■ Gross written premiums Operating profit (EBIT excluding profit transfer) 5.5 5.6 5.4 409.4 3.9 240.2 209.0 65.2 2001 2002* 2003 2004 in EUR bn 2001 2002* 2003 2004 in EUR m Gross written premiums Operating profit (EBIT excluding profit transfer) 1.8 50.4 45.1 37.5 33.0 1.0 0.9 0.8 2001 2002* 2003 2004 in EUR bn 2001 2002* 2003 2004 in EUR m Gross written premiums Operating profit (EBIT excluding profit transfer) 8.0 635.0 7.5 7.5 567.2 6.0 398.9 215.1 2001 2002* 2003 2004 in EUR bn 2001 2002* 2003 2004 in EUR m Gross written premiums Operating profit (EBIT excluding profit transfer) 2.6 70.7 2.4 69.1 2.3 2.2 47.6 42.9 2001 2002* 2003 2004 in EUR bn 2001 2002* 2003 2004 in EUR m Assets under mangement Operating profit (EBIT excluding profit transfer) 25.3 23.6 21.0 18.8 18.5 9.5 5.4 3.6 2001 2002* 2003 2004 in EUR bn 2001 2002* 2003 2004 in EUR m *As-if pooling method; figures differ from those published in 2002 ■ talanx. Key figures. With premium income of roughly EUR 14 billion for 2004 the Talanx Group is Germany’s third-largest insurance group. Talanx operates as a multi-brand provider. Its brands include HDI, providing insurance for private and industrial customers, Hannover Re, the world’s fourth-largest reinsurer, Aspecta, which markets its insurance products through brokers and multiple agents, the bancassurance specialists CiV, PB and Neue Leben as well as the fund provider and asset manager Ampega. The Group transacts business in the segments of Property/Casualty Primary Insurance, Life Primary Insurance, Property/Casualty Reinsurance, Life/Health Reinsurance and Financial Services. The Hannover- based Group is active in 150 countries worldwide. The rating agencies Standard & Poor’s and A.M. Best have given Talanx financial strength ratings of AA-/stable (excellent) and A/stable respectively. Key figures for the Group 2004 2003 Change in % Gross premiums written EUR m 14,161.0 14,824.2 -4.5 Net premiums earned EUR m 10,951.9 10,416.4 5.1 Net underwriting result EUR m -624.8 -303.8 -105.7 Combined ratio in property/casualty insurance and reinsurance1) % 97.3 94.7 2.6 points Net investment income EUR m 1,868.7 1,388.2 34.6 Operating profit (EBIT) EUR m 960.1 825.0 16.4 Pre-tax profit EUR m 893.9 770.2 16.1 Net income EUR m 444.0 337.7 31.5 Policyholders’ surplus EUR m 5,818.2 4,441.7 31.0 Total stockholders’ equity EUR m 2,969.5 2,537.8 17.0 Minority interests EUR m 1,727.4 1,120.0 54.2 Hybrid capital EUR m 1,121.3 783.9 43.0 Return on equity after tax 2) % 16.1 14.7 1.4 points Investments (excluding funds held by ceding companies) EUR m 30,697.6 21,787.1 40.9 Total assets EUR m 54,818.5 43,283.6 26.6 Staff 9,257 8,433 9.8 1) Combined ratio adjusted for desposit interest received 2) Consolidated net income relative to average stockholders’ equity position as at 1.1. + position as at 31.12. ( ) 2 Breakdown of gross premium income by Group segments Breakdown of gross premium income by regions total EUR 14,161 million consolidated, total EUR 14,161 million Life/health Africa 1.7 % reinsurance 14.3 % Property/casualty Asia 2.7 % primary insurance Australia 2.5 % Germany 34.9 % 32.2 % Property/ casualty reinsurance Life primary America 35.9 % 39.2 % insurance 11.6 % Rest of Europe 25.0 % Key figures. ■ ■ Record result: EBIT climbs 16.4 % to EUR 960 million despite high windstorm losses ■ Return on equity after tax increases to 16.1 % ■ Number of policies breaks through the 10 million mark ■ Talanx strengthens bancassurance activities through participation in the Neue Leben Group ■ Free float of subsidiary Hannover Re increases to almost 50 % ■ Investments grow to more than EUR 30 billion LEADING 1 ■ talanx. In rapidly changing markets Talanx will further extend its market position as a high-growth, strongly capitalized ﬁnancial services group. Always on the lookout for fresh opportunities that we can successfully exploit, we pick up on new market trends offering promising prospects by adopting individually tailored strategies within our various segments and taking ﬂexible action – all the time remaining aware of the risks. We never lose sight of our goals of consistently enhancing the ﬁnancial strength and value of the Group in the interests of our clients and shareholders alike. We aspire to rank among the best and set standards. Six key phrases elaborated on elsewhere in this annual report characterize our successful activities in 2004. This is how we have extended our leading edge. ■ Accuracy ■ Eye-catching ■ Power of attraction ■ Specialized ■ Good results ■ Stamina edge 2 Contents. ■ Contents Key figures Segments at a glance Corporate profile 06 The 2004 financial year 08 Board of Management 10 Letter from the Chairman of the Board of Management 12 Strategy 15 Rating Governance 18 Report of the Supervisory Board 20 Supervisory Board Team 24 Staff Segments 28 Property/casualty primary insurance 30 Life primary insurance 32 Property/casualty reinsurance 34 Life/health reinsurance 36 Financial services Annual financial statements 40 Group management report 41 Markets and business climate 44 Business performance of the Group 48 Business performance of the Group segments 66 Regional development 71 Transactions of special significance subsequent to conclusion of the financial year 72 Risk report 81 Outlook 84 Consolidated financial statement 92 Notes on the consolidated financial statement 144 Independent auditor’s report Other 148 Addresses information 152 Glossary 158 List of key terms 160 Contact Group structure Talanx worldwide 3 ■ talanx. Konzern-Geschäftsbericht 2004. The archer fish “shoots” an insect off a leaf. When spraying a jet of water the fish is able to intuitively compensate for the differ- ent refraction of light in water and air. Mature fish exhibit considerable accuracy over distances as great as 150 cm. accu 4 Kapitel. Die Rubrik. ■ ra c y Aspecta demonstrates similar accuracy in targeting its products. It hits the mark with product awards from the trade press: – For the second time in succession an independent jury assembled by the magazine “Finanzwelt” and consisting of consumer protection advocates and financial journalists praised the consumer-friendly conditions and strong quality consciousness of the companies singled out for distinction. Aspecta ranked second. The Personal Accident Award is given to tariffs whose insurance conditions – from the consumer’s standpoint – are on the highest level currently available in this line of business in Germany. – The business magazine “Capital” and management consultants Mercer Oliver Wymann crowned six product innovations as the trend products of 2004. The organizers praised the attractive additional benefits offered by the unit-linked children’s policy ASPECTA Einstein, which focuses on more than just monetary payments. 5 ■ talanx. Corporate profile. Talanx places Hannover Re shares Talanx AG placed Ampega rated 24.8 million shares of “very good” Hannover Rückver- The rating agency sicherung AG with in- RCP & Partners GmbH, stitutional investors. Wiesbaden, evaluated The offering repre- the professionalism of sented 20.6 % of Ampega’s services in Talanx AG enlarges its Hannover Re’s capital the “Master KAG” Board of Management stock; Talanx AG sector. Ampega The Supervisory Board thereby retained the Investment AG and appointed Werner stake of slightly more Ampega Asset Dettmer as a member than 50 % in Hannover Management GmbH of the Board of Re that it intends to received a mark of Management of hold permanently as “very good”. Quality Talanx AG. He bears part of its strategy management and responsibility for and at the same time the area of IT & Information Services generated total Operations were and Human Resources proceeds of roughly singled out for within the Talanx EUR 708 million. special praise. Group. January February March April May June Ampega generates Hannover Re issues Aspecta best provider 200 above-average growth hybrid capital of unit-linked The fund assets of Through its subsidiary products Ampega Investment Hannover Finance The Austrian AG recorded above- (Luxembourg) S.A. trade journal average growth in Hannover Re placed “Fonds professionell” 2003: assets in retail subordinated debt of gave its Service Award business increased by EUR 750 million on Aspecta “Oval Office” to Aspecta Lebens- Launch of HDI EUR 300 million. In the European capital in Hamburg versicherung Pensionsmanagement terms of sales reve- market. The topping-out cere- Österreich. The finan- HDI Pensionsmanage- nues the young invest- mony was held at the cial advisors surveyed ment AG was officially ment fund company “Oval Office” building praised not only launched in Berlin. thus ranked fifteenth in the business center Aspecta’s service The company designs among its German of Hamburg “City quality but also its forward-looking pen- peers. Nord”. The investor is innovative unit-linked sion solutions geared the Talanx Group; the products. to the special needs of construction process occupational retire- was supported by ment provision; Ampega Immobilien variable compensation Management GmbH. components, flexible A year later Aspecta working time models staff moved into and improved the oval-shaped competitiveness office complex. of enterprises. 6 The 2004 financial year. ■ Talanx acquires Polish insurer Occupational The Talanx subsidiary Retirement Provision HDI International Product Award for HDI Holding AG acquired Talanx majority share- HDI Pensionskasse the property/casualty holder in Neue Leben received the insurer Tryg Polska Talanx assumed a “Occupational from the Danish com- stake of 60 % less one Retirement Provision pany Tryg Forsikring share in Neue Leben Product Award 2004” HDI Brazil Insurer A/S effective 1.1.2005. Holding from HASPA at the Insurance of the Year Finanzholding and Coverage Concept The Association of HDI Assicurazioni Sparkasse Bremen. Trade Fair (DKM) for Motor Insurance wholly owned The Neue Leben Group the best product offer- Brokers in the by the Group includes inter alia ing in the area of occu- Brazilian state of Santa Talanx acquires 28 % Neue Leben Lebens- pational retirement Catarina awarded HDI of the shares of HDI versicherung AG, provision. HDI Seguros Brazil the title Assicurazioni S.p.A. Neue Leben Unfall- Unterstützungskasse of “Best Motor Insurer through HDI versicherung AG and took second place in of the Year”. Roughly International Holding Neue Leben Pensions- the voting on best 1,100 brokers took part and thus holds all the verwaltung AG. provident funds. in the voting. company’s shares. July August September October November December Tsunami in South-East 004 Asia The most momentous tsunami event in hu- man history ended a year that for insurers produced the heaviest- Reinsurance Company Hurricane season ever burden of natural of the Year brings heavy losses catastrophe losses: The international Hurricanes Charley, natural disasters such trade magazine Frances, Ivan and as earthquakes and “The ReView” Jeanne inflicted record windstorms cost crowned Hannover Re losses on the USA and the global insurance “Reinsurance the Caribbean Islands. industry around Company of the Year”. Japan suffered the USD 46 billion in The company had also devastating typhoon 2004. been awarded this title “Tokage” as well as in the previous year by nine other typhoons. the UK trade journal “Reactions”. 7 ■ talanx. Corporate profile. Board of Management 8 Board of Management. ■ ■■■ ■■■ ■■■ Harry Ploemacher Dr. Hans Löffler Norbert Kox Burgdorf Hamburg Bergisch Gladbach *1959 *1949 *1946 Financial Services segment Domestic and Foreign Life Insurance Domestic and Foreign Post Office/Bank segment Distribution segment ■■■ ■■■ ■■■ Werner Dettmer Wolf-Dieter Baumgartl Herbert K. Haas from 11 May 2004 Chairman Hannover Hannover Burgwedel *1955 *1943 *1954 Group Information Services, Group Corporate Communications, Group Finance/Participating Interests, Group Human Resources, Group Legal Affairs/Executive Staff Group Accounting/Taxes, Labor Director as per § 33 Co-Determination Functions, Group Planning and Controlling, Act (MitbestG) Group Internal Auditing Group Investor Relations ■■■ ■■■ Dr. Christian Hinsch Wilhelm Zeller Burgwedel Burgwedel *1955 *1944 Domestic and Foreign Reinsurance segment Property/Casualty Primary Insurance segment 9 ■ talanx. Corporate profile. Ladies and Gentlemen, You are now looking at the annual report for the first full fi- The development of our premium income also reveals special nancial year in which we have been operationally active as the features of our Group, including for example our regional po- Talanx Group. It is thus a particularly appropriate year to re- sitioning and our working practice: view how Talanx works, the risks that form part of its day-to- ■ The contraction in gross premium income, for example, day business, the possibilities and opportunities that it enjoys was primarily due to the movement of the US dollar – an and the ways in which we have been able to further extend indication of the strong international dimension that our our Group’s leading edge. Group has now assumed. ■ In defined areas, such as property/casualty reinsurance, A number of activities from 2004 serve to illustrate how we the reduction was also intentional. This is because our ac- are following through on our strategy: tions are guided by considerations of profitability, not pre- ■ The purchase of a majority interest in the Neue Leben mium volume: we have profit targets in every segment, Group, which operates in the bancassurance sector, and but not necessarily growth targets. the acquisition of the Polish property and casualty insurer ■ On the other hand, we generated vigorous growth in those Tryg Polska reflect our strategic approach geared to invest- areas where we anticipate stable market conditions and re- ing in business segments or regions that we consider to be sults. In private customer business, for example, the particularly promising. In this context we seek to comple- number of policies surpassed the 10 million mark for the ment existing activities with the aim of accomplishing our first time in 2004 to reach more than 11 million and we objectives in such segments and/or regions more quickly substantially expanded our market share of new business. and to a superior standard. ■ The increase in the free float of our subsidiary Hannover Turning to the risks that form the core of our day-to-day busi- Re to almost 50 percent and the issue of a bond guaranteed ness, above all else our result in 2004 demonstrates our by Talanx AG in the year under review demonstrate that Group’s extraordinary financial strength. we are rigorously pursuing our course towards the capital ■ Up until the autumn the claims situation for the Group market. had been exceptionally positive overall. It was only with ■ The clear alignment of the international subsidiaries of the hurricanes in the USA and the typhoons in Asia that HDI International Holding AG with the HDI brand testifies the situation changed fundamentally. A seemingly never- to the strength of our confidence in our brands and under- ending succession of natural disasters around the globe lines our intention to maintain the systematic customer transformed 2004 into what was probably the most ex- orientation of our multi-brand policy. pensive year ever of catastrophe losses for national econo- 10 Letter from the Chairman of the Board of Management. ■ mies. The Talanx Group too suffered a record level of catas- the goal of substantially reinforcing the weight of this seg- trophe losses. ment within the Group as a whole. This will, however, be con- ■ Yet despite the enormous burden of losses the Group sur- ditional upon finding a company that fits our strategic ap- passed its hitherto best result recorded in the previous proach and helps us to achieve the Group’s objectives more year and achieved a new record operating profit (EBIT) of efficiently on a lasting basis. The size of the acquisition and EUR 960 million (+16.4 %). The return on equity improved anticipated time needed to integrate the acquired company to 16.1 %. Stockholders’ equity including minority interests will determine the date of a possible going public of Talanx climbed by 28.4 % from EUR 3.7 billion to EUR 4.7 billion. AG. We are not under time pressure, nor do we feel in any way compelled to make a move: the Talanx Group is well on The 2004 financial year demonstrated that our broadly diver- course, and we are in the advantageous position of being able sified positioning – both in regional terms and as far as the to choose the object and timing of an acquisition in such a specifics of our business and the way in which we conduct it way as to derive the greatest possible strategic benefit. are concerned – constitutes a strategy that enables us to gen- erate the necessary return on equity even in a difficult market Keeping the Group on this successful course is a task which environment. This is our competitive edge that we shall seek my colleagues on the Board of Management, the almost to extend. 9,800 staff now employed by the Talanx Group and I myself will continue to tackle with steady determination and consid- It is for this reason that we are planning further improvements erable enthusiasm. in all our segments for the current year too. The business devel- opment in the first few months has reaffirmed this expecta- Yours sincerely, tion. In all business segments we stand by our guiding coordi- nates of net income, strengthening of stockholders’ equity and return on equity. Premium growth is clearly subordinate to these objectives. For the current year we are looking to generate an operating profit (EBIT) in excess of one billion euro. Wolf-Dieter Baumgartl Strategically, too, we continue to work for the advancement of the Group. It remains the case that we are planning a strategic acquisition focused on property and casualty insurance with 11 ■ talanx. Corporate profile. Strategy The coordinates of our strategy go by the names of indepen- In order to ensure that we enjoy a satisfactory business posi- dence, exclusively profit-oriented growth, preserving our ca- tion in the European insurance industry on a lasting basis, we pacity to act, diversification, cooperative adaptability, an anti- have set ourselves the long-term strategic objective – while cyclical approach and value enhancement. maintaining our organic growth – of making an acquisition in the Property/Casualty Primary Insurance segment. The pri- Independence ority here will be private customer business. An expansion of As a long-standing independent financial services provider, industrial insurance is nevertheless also conceivable insofar we can pursue an autonomous policy geared to long-term as benefits can be realized in term of market position or value enhancement and are better able to hold our ground in synergies. the face of market-influencing factors of a short-term nature. This enables us to position ourselves in such a way that we We also do not rule out complementary acquisitions in other can always offer the optimal solution in the interests of our areas for the purpose of rounding off the market positioning clients, shareholders and staff. of our business segments. Profit-oriented growth What is more, the highly promising positioning of the Talanx A consistent aspect of our strategic orientation is growth in segments and companies serves to ensure that we can also segments and regions where the appropriate quantitative and continue to generate rapid growth by organic means. qualitative requirements are satisfied. In other words, growth that is absolutely conditional upon profitability. Volume In addition to property/casualty primary insurance in growth that disregards this criterion is not an option for Europe, we have also pinpointed life insurance as another Talanx. This means that during cyclical downturns on specific priority growth segment – most notably the areas of occupa- markets we are also prepared to accept temporary reductions tional retirement provision and cooperation with banking in volume and losses of market share. We nevertheless stand partners. by our principle of not allowing ourselves to be led by short- sighted considerations. 12 Strategy. ■ Talanx is a differentiated financial services group that operates with multiple brands in the segments of Property/Casualty Primary Insurance, Life Primary Insurance, Property/Casualty Reinsurance, Life/Health Reinsurance and Financial Services. Our localized management approach gives us greater market intimacy and hence competitive advantages. Preserving our capacity to act We systematically pursue the principle of diversification in In order to ensure that our Group retains its ability to act several respects. over the long term, we have brought Talanx AG closer to the capital market in recent years. The ultimate goal of this pro- ■ In our marketing organization: in contrast to the usual cess is to go public with the company. The initial public offer- strategic approach of working with a single brand, we are ing is not, however, an end in itself. An IPO of Talanx AG can convinced that with several different brands and a range of only be considered if the Group has the opportunity to make distribution channels it is easier to translate opportunities decisive progress in its development that cannot be financed in various markets and segments into success. with the existing resources. This will be the factor that deter- ■ In our risk spreading: while maintaining a controlled inter- mines how many shares of the company – although no more est in cyclical business with a greater risk exposure such as than 49.9 percent – are floated on the stock market. It is en- industrial insurance and property/casualty reinsurance, we visaged that the initial public offering will then take place continue to invest systematically in areas offering a more solely by way of a capital increase. stable profit contribution, for example life insurance and life/health reinsurance. Diversification ■ In our regional posture: in recent years, as part of a strate- The declared intent underlying the principle of diversification gy of internationalization, we have become involved – and is to have a variety of business segments that ensure consis- we continue to participate – in markets that offer promis- tent value enhancement of the company in the interests of ing growth potential over the long term. We are thus able shareholders under changing economic circumstances and to exploit different cyclical movements in a variety of eco- framework conditions. In this context we attach considerable nomic regions – an approach that we shall further cultivate importance to the fact that the individual segments and areas in the years ahead with an eye to strategic considerations. should each have their own basic structures in place for achieving a stable profit trend. 13 ■ talanx. Corporate profile. Cooperative adaptability Value enhancement With our flexible multi-brand strategy we are an ideal partner All components of the Talanx strategy are designed to en- for cooperative ventures in many areas of the financial ser- hance the value of the invested capital. In its activities Talanx vices sector. Our ability to adapt to a variety of partners has is therefore guided strictly by value-oriented corporate made us a sought-after player when it comes to charting new management. courses and translating promising concepts into business practice. This approach, which enables us to tap into opportu- With this in mind we identify and leverage synergistic effects nities while at the same time saving costs, contributes to the between the companies belonging to the Talanx Group. sustained, long-term value enhancement of the Group. Value enhancement also means the ongoing reinforcement of Anticyclical approach our capital strength, the most important indicator used in An explicit element of our strategy is an anticyclical approach the rating of financial services providers. We consistently in those areas that are subject to sharp cyclical movements. strive to improve this key ratio in the interests of our clients, In industrial insurance and some areas of reinsurance, for ex- shareholders and staff. ample, cyclical dependence can jeopardize the goal of a con- sistent increase in profitability. In order to avoid this, we have The success achieved to date by Talanx is founded on this developed mechanisms that enable us to exploit cycles in strategy – and it is our conviction that the systematic refine- such a way as to alleviate depressed market phases or – in the ment and execution of this strategy will be the guarantor of best-case scenario – derive advantages from them. Prompt further success in the future. countermeasures in weak market phases and forward-looking actions in strong market cycles can play a major part in safe- guarding stable results. 14 Strategy. Rating. ■ In 2004 the Talanx Group and its companies again received excellent ratings from the rating agencies Standard & Poor’s (S&P) and A.M. Best. It is important to distinguish between the “Financial Strength Rating”, which primarily assesses the ability to meet obligations to customers – i.e. our policyholders –, and the “Issuer Credit Rating”, which provides investors with independent information about the Rating financial strength of the company and the Group. Financial Strength Ratings Issuer Credit Ratings A.M. Best Standard & Poor’s A.M. Best Standard & Poor’s Grade Outlook Grade Outlook Grade Outlook Grade Outlook Talanx Group1) A stable Talanx AG bbb+ stable A stable Talanx Primary Group2) AA- stable Hannover Rückversicherung AG a stable AA- stable Hannover Rückversicherung AG A stable AA- stable Both rating agencies assess the financial strength of Talanx 1) A.M. Best uses the term “HDI V.a.G. Group” 2) AG as “very good”, an evaluation equivalent to the third-best This term is used to denote the major domestic primary insurers of the Talanx Group category. The somewhat poorer grade compared to the Financial Strength Ratings is attributable to the rating mark- Both rating agencies categorize the financial stability of the down applied to holding companies. The rating agencies major insurance companies of the Talanx Group (“core com- automatically downgrade companies that exercise a holding panies”) as “excellent” – the second-best possible rating. function with no operational activities of their own relative to Particular strengths of the Talanx Group highlighted by the their Financial Strength Rating. As justification for this mark- agencies are its very good capital resources and outstanding down, the rating agencies cite the fact that a holding compa- competitive position. ny does not have its own income from operating business and is reliant upon the profit contributions of its subsidiaries. From the standpoint of potential capital providers, this gives rise to the possibility that a regular cash flow may not be available to service debt. Hannover Re is assessed as “excellent”, corresponding to the second-best rating category. 15 ■ talanx. Konzern-Geschäftsbericht 2004. The tiny metallic-blue scales on the wings of the Blue Morpho butterfly reflect light more strongly than any known natural pigment. Even by dusk the flight trails of this butterfly native to Central American rainforests catch the eye. eye - 16 Kapitel. Die Rubrik. ■ catching Hannover Re was also eye-catching in 2004: – In a study conducted by the American Flaspöhler Research Group Hannover Re emerged as the best rein- surer overall on the North American market. 295 brokers rated 29 reinsurers operating on the US market. Hannover Re was expressly recommended as a reinsurer by 93.5 % of the brokers. – The international trade journal “The ReView” crowned Hannover Re “Reinsurance Company of the Year”. The company had already received this title in the previous year from the UK trade publication “Reactions”. 17 ■ talanx. Governance. Report of the Supervisory Board In our function as the Supervisory Board we again considered The Board of Management provided us with regular, timely the position and development of Talanx AG at length in the and comprehensive information on the economic and finan- 2004 financial year. We advised the Board of Management on cial development of the Talanx Group – including the risk the direction of the company, monitored the management of situation –, significant events and decisions as well as the business and were directly involved in decisions of fundamen- strategic orientation of the company. tal importance. The business development of the individual Group segments, In the year under review we came together for three ordinary the planning for 2005 and the medium-term planning of the meetings and one extraordinary meeting of the Supervisory company and the Group formed the primary focus of the Board. In addition, a constitutive meeting of the Supervisory reporting and were discussed at length during our meetings. Board was held in March 2004 on which we have already re- ported in the annual report for the previous year. The com- A special area of our deliberations was the acquisition of a mittees formed by the Supervisory Board in accordance with majority interest in the Neue Leben companies, which enlarge § 107 Para. 3 German Stock Corporation Act, namely the Audit our distribution segment of banks and post office partners to Committee and the Personnel Committee, met on three and include Sparkasse savings institutions, and the acquisition of two occasions respectively. The Mediation Committee pre- Tryg Polska, which reinforces the expansion of the Group’s ac- scribed under the Co-Determination Act did not meet in 2004 tivities in Eastern Europe. In addition, we considered the state since it had no reason to do so. The Chairman of the of the capital market, especially following the Secondary Supervisory Board informed the full Supervisory Board of the Public Offering of Hannover Re shares in February 2004. We work of the Audit and Personnel Committees. In addition, we received information about the resulting investment strate- received quarterly written reports from the Board of gies and the development of the investment portfolio and in- Management on the course of business and the position of vestment income. Rating issues and matters relating to the the company in accordance with § 90 German Stock Group’s solvency were also discussed. Corporation Act. Insofar as transactions requiring approval arose between meetings, the Board of Management submitted The transactions and measures subject to approval in accor- these to us for a written resolution. The Chairman of the dance with legal requirements, the company’s Articles of Supervisory Board also remained in constant contact with the Association or Rules of Procedure were agreed with the Board Chairman of the Board of Management and was regularly of Management following examination and discussion. advised of all important business transactions within the company and the Talanx Group. 18 Report of the Supervisory Board. ■ The annual financial statements of Talanx AG and the Talanx the statements made therein regarding the further develop- Group as at 31 December 2004 submitted by the Board of ment of the company. We agree with the Board of Manage- Management as well as the corresponding management reports ment’s proposal for the distribution of the disposable profit. and the bookkeeping system were audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft, Wirtschaftsprüfungs- The report compiled by the Board of Management in accor- gesellschaft, Hannover. The consolidated financial statements dance with § 312 German Stock Corporation Act (AktG) on the were drawn up in accordance with United States Generally company’s relations with affiliated companies has likewise been Accepted Accounting Principles (US GAAP). These audits gave examined by KPMG Deutsche Treuhand-Gesellschaft no grounds for objection. The unqualified audit certificates that Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Hannover, were issued state that the accounting and the annual financial and given the following unqualified audit certificate: statements/consolidated financial statements give a true and fair view of the net assets, financial position and results and “Having audited the report in accordance with our professional that the management reports suitably reflect the annual/con- duties, we confirm that solidated financial statements. The auditor further confirmed that the present US GAAP consolidated financial statements 1. its factual details are correct, satisfy the necessary conditions for exemption from an obliga- 2. in the case of the transactions detailed in the report, the tion to draw up annual financial statements under German law. expenditure of the company was not unreasonably high.” The auditor attended the meetings held to discuss the annual The Supervisory Board examined the report on relations with financial statements and the consolidated financial statements, affiliated companies; it reached the same conclusion as the reported on the conduct of the audits and was available to pro- auditors and had no objections to the statement reproduced vide the Supervisory Board with additional information. In ac- in this report. cordance with the final outcome of the examination of the an- nual financial statements, the consolidated financial statements and the corresponding management reports conducted by the Hannover, 22 June 2005 Supervisory Board, we concurred with the opinion of the audi- tor and approved the annual financial statements and the con- For the Supervisory Board solidated financial statements drawn up by the Board of Man- agement. The annual financial statements are thus adopted. Dr. Hans-Joachim Fonk We approve of the management reports and in particular (Chairman) 19 ■ talanx. Governance. Supervisory Board Dr. Hans Joachim Fonk Götz Hartmann Dr. rer. pol. Michael Rogowski Attorney, Tutzing (from 27.2.2004) Chairman of the Supervisory Board Chairman Senior executive, Talanx AG, of Voith AG, ■ Gehrden Heidenheim ■ ■ Johannes Funck (from 27.2.2004) Gerald Herrmann Dr. Erhard Schipporeit Employee, HDI Privat (from 27.2.2004) Member of the Executive Board Versicherung AG, Trade union secretary, of E.ON AG, Mülheim Norderstedt Düsseldorf Deputy Chairman ■ ■ ■ Dr. Thomas Lindner Barbara Schulze Prof. Dr. Eckhard Rohkamm Chairman of the Board of (from 27.2.2004) Former Chairman of the Board Management of Groz-Beckert KG, Employee, HDI Industrie of Management of ThyssenKrupp Albstadt Versicherung AG, Technologies AG, ■ Bochum Bad Harzburg ■ Deputy Chairman Otto Müller ■ (from 27.2.2004) Eggert Voscherau Employee, Hannover Deputy Chairman of the Executive Sonja Brüggemeier Rückversicherung AG, Board of BASF Aktiengesellschaft, (from 27.2.2004) Hannover Ludwigshafen Trade union secretary, ■ ■ Hannover ■ 20 Supervisory Board. ■ The Supervisory Board has formed three committees from among its ranks. They support the full Supervisory Board in the performance of its tasks. Supervisory Board Committees Audit Committee Personnel Committee Mediation Committee Dr. Hans-Joachim Fonk Dr. Hans-Joachim Fonk Dr. Hans-Joachim Fonk Chairman Chairman Chairman ■ ■ ■ Johannes Funck Götz Hartmann Johannes Funck ■ ■ ■ Dr. Thomas Lindner Prof. Dr. Eckhard Rohkamm Prof. Dr. Eckhard Rohkamm ■ ■ ■ Prof. Dr. Eckhard Rohkamm Barbara Schulze ■ ■ Tasks of the committees Audit Committee Personnel Committee Mediation Committee ■ Preparation of financial decisions ■ Preparation of personnel matters ■ Proposal for the appointment of a for the full Supervisory Board for the full Supervisory Board Board member if the necessary ■ Decisions in lieu of the full ■ Decisions in lieu of the full two-thirds majority is not achieved Supervisory Board on certain finan- Supervisory Board on certain per- in the first ballot (§ 31 Para. 3 cial matters, including the estab- sonnel matters such as the content Co-Determination Act) lishment of companies, acquisition of service contracts with Board of participations and capital members increases at subsidiaries within defined value limits 21 ■ talanx. Konzern-Geschäftsbericht 2004. This wood lily is pollinated by noctur- nally active moths. The flower there- fore only opens late in the afternoon, emitting a bewitching fragrance that attracts moths over considerable distances. power of 22 Kapitel. Die Rubrik. ■ attraction The power of attraction is also something that the HDI companies enjoy, as illustrated by the Occupational Retirement Provision Product Award: at the Insurance Coverage Concept Trade Fair (DKM) in Dortmund HDI Pensionskasse received the Occupational Retirement Provision Product Award 2004 for the best product offering in this segment. HDI Unterstützungs- kasse was ranked second among the best provident funds: the assessment criteria were administrative expenditure, cost transparency and additional benefits offered. 23 ■ talanx. Team. In 2004, for the tenth year in succession, we were able to create new jobs thanks to the grati- fying growth of the Talanx Group. The average number of staff employed throughout the year rose by 824 to 9,257 (8,433), equivalent to an in- crease of 9.8 %. Excluding the Neue Leben Group the growth would have been 3.0 %. The majority of jobs were created in Germany and other Staff European countries. Consistency in diversity In accordance with our principle of decentralization human training in combination with a course of study at a “Berufs- resources responsibility and management is another area akademie” (University of Cooperative Education). that rests in the hands of the individual Group companies. For our organization, this gives us a leading edge through a The Internet is another medium that we use in our personnel company-specific personnel policy that takes equal account marketing activities: the websites of all our companies list the of staff needs and business requirements as well as through currently available job opportunities, describe career pros- the consistently high quality and motivation of our labor pects and provide information on the various areas of work. force. Interested candidates are increasingly tending to apply for advertised positions or submit speculative applications Expert, dedicated and self-reliant staff are for us a crucial suc- online. cess factor. The core task of our human resources activities is therefore to recruit such individuals to our company, to facili- Targeted – our personnel development activities tate further ongoing skills acquisition and to secure their last- We attach the same high importance to personnel develop- ing loyalty to the Group. ment as we do to recruitment. In addition to offering a broad range of job-specific internal and external opportunities to Multi-faceted – our approach to employee recruitment improve our staff’s qualifications, we organize numerous semi- We draw upon intensive university marketing activities and nars focusing on methodological and social skills. A further an attractive trainee program for the recruitment of new concentration of our personnel development is on identifying staff. Hannover Re, for example, offers an 18-month trainee and fostering junior management. Programs aimed at develop- program for junior executives that includes the possibility of ing such potential have been implemented at virtually all deployment abroad; a six-month immersion program at HDI Group companies. Thanks to a variety of sophisticated and Industrie Versicherung AG provides systematic preparation comprehensive measures, they ensure that managerial posi- for work in the industrial insurance sector. Our Group compa- tions within the Group can frequently be filled from among nies additionally offer a large number of first-time training our own ranks. places. Yet this does not mean compromising on quality: on the contrary, our professional insurance clerks generally As in all enterprises with flat hierarchies, there are only a lim- qualify with better-than-average marks. What is more, young ited number of managerial posts at the Talanx companies. members of staff at some locations are able to complete their Internal filling of these positions offers unusually high- 24 Staff. ■ Geographical breakdown of the labor force Total 9,257 USA 6 % Other countries 3 % Germany 61 % Rest of Europe 30 % performance and career-minded members of staff particularly Agreements on targets contribute to corporate success and at attractive opportunities. At the same time, we are able in this the same time ensure that performance-based compensation way to reduce our investment in external recruiting activities. remains transparent. Flat hierarchies offer other advantages too: they lend them- selves particularly well to promoting and necessitating self- The diverse range of personnel management activities and reliance among staff. What is more, communication channels tools are always tailored to the needs of staff and the individual are made significantly shorter – thus giving rise to a generally Group company. At the same time, however, we coordinate much more open corporate culture; at the same time, costs are measures across various companies on the Group level, there- cut and bureaucracy is eliminated. by preserving consistency within diversity. This is to the bene- fit not least of our employees, who are able to move from one Flexible – our working time arrangements company to another within the Group. We accommodate our employees’ need for greater flexibility with extremely variable working time arrangements. In this Sincere – our thanks to all our staff way we are responding not only to the growing demand in All the measures implemented as part of our human resources the labor force for a balance between career and personal life, strategy play an important part in the success of our compa- but also to the companies’ fluctuating capacity requirements. ny. This was again clear to see in 2004: it was first and fore- The compatibility of work and family life is also significantly most thanks to the efforts and commitment of our staff that improved by way of flexible working time models, part-time Talanx once more demonstrated its leading edge in an ex- options and the possibility of telecommuting. Some units tremely successful financial year. Management would like and companies have dispensed with electronic time record- to extend a special word of thanks for the efforts of all our ing, preferring instead to adopt working time arrangements employees and staff representative bodies. based on trust. Performance-oriented – our compensation We reward the part played by our employees in their compa- ny’s success with variable, performance-oriented compensa- tion models. Many of our companies have linked variable compensation elements to Management-by-Objectives models. 25 ■ talanx. Konzern-Geschäftsbericht 2004. One of the 72 species of bat on Barro Colorado Island (Panama) has developed a rather special hunting ability: Noctilio leporinus, the fisherman bat, uses its feet to gather up insects from the surface of the water or catch small fish. The fisherman bat has thus specialized in a particularly promising technique. s p e c i 26 Kapitel. Die Rubrik. ■ a l i ze d Aspecta has similarly developed a promising specialization, namely in the area of independent insurance agents: – The Austrian trade journal “Fonds professionell” gave its Service Award to Aspecta Österreich. The financial advisors surveyed praised not only the quality of the company’s service but also its innovative unit-linked products. 600 companies submitted their evaluations. Aspecta took first place among the 28 rated European providers of unit-linked products. – Brokers are impressed by Aspecta’s innovative products, financial strength and high-quality service. According to this year’s broker survey conducted by the consulting firm Tillinghast-Towers Perrin, Aspecta again ranked among the top providers of unit-linked prod- ucts in Germany in 2004. Crucial to the good rating are intelligent product design, the company’s financial strength and solidity as well as its sales service: Aspecta took the number two spot this year. 27 ■ talanx. Segments. Our product range for private customers and industry alike: client-oriented solutions from a strong insurance group Aspecta Concentration on personal accident insurance, distribution through independent agents CiV Versicherung Concentration on personal accident insurance and unemployment insurance, cooperation with Citibank Clarendon Program business through agents HDI Industrial insurance, legal protection insurance, property/casualty insurance for private customers; distribution through branches, direct sales and independent agents; three domestic and ten foreign companies and branches Magyar Posta Concentration on motor insurance, cooperation with the Hungarian postal service Neue Leben Concentration on personal accident insurance, cooperation with Sparkasse savings institutions PB Versicherung Concentration on personal accident insurance, cooperation with Postbank/Deutsche Post Property/Casualty Primary Insurance Our leading edge: Strict cost management, one of the most vital levers for successful manage- ment of insurance enterprises. In the property/casualty sector the Talanx Group traditionally ranks among the insurance groups that operate with low costs. We succeeded in maintaining the net cost ratio on a par with the previous year at 20.7 % – thereby safeguarding our good competitive position. Our marked cost consciousness supports value-oriented corporate management – with the goal of increasing the value of the Group. It is in the Property/Casualty Primary Insurance segment that specialized in private customers. Each of these companies has the Group’s long-established business has historically been the ability to tap into above-average growth potential for many grouped together. The product range extends from property years to come. In the case of CiV, PB and Magyar Posta, integra- and casualty policies for private customers to worldwide profes- tion into our partners’ distribution and IT systems has impacted sional industrial insurance. the expense ratio especially favorably. With over 100 years of experience HDI is the Group’s strongest The largest foreign company in this segment is New York-based and oldest brand. It stands for tradition in industrial, private cus- Clarendon, which is active in the United States. It concentrates tomer and legal protection insurance. HDI Industrie Versicherung on so-called program business, a niche market for special AG ranks among the leading group of German industrial insurers. groups of risks that cannot be insured or are not adequately In the international arena HDI is present for its clients in more covered by traditional insurers. than 130 countries through the HDI companies and branches abroad as well as through the network maintained in cooperation Industrial insurance: Good market position thanks to highly with the UK-based Royal & Sun Alliance. HDI Privatversicherung developed professionalism and excellent financial strength AG operates highly profitably in the budget segment. Growing profitably in a normal market environment, accept- ing losses of market share rather than risking profitability Aspecta, which markets its products through independent when conditions are inadequate – this is our guiding principle agents, and the insurers CiV, PBV, Neue Leben and Magyar Posta, in industrial insurance; it too is derived from the Group’s which have concentrated on distribution through postal service concept of value enhancement. and banking partners, are all young companies that have 28 Property/Casualty Primary Insurance. ■ Key figures in Property/Casualty Primary Insurance Figures in EUR m 2004 2003 20021) 2001 Gross premiums written 5,392.3 5,611.3 5,537.1 3,949.5 Net premiums earned 2,367.2 2,171.4 2,081.1 1,269.6 Underwriting result -22.4 128.4 117.7 202.8 Combined ratio (net) 98.1 90.7 90.4 79.1 Investment income 213.4 338.3 2) 136.4 123.7 EBIT 65.2 409.4 2) 209.0 240.2 1) As-if pooling method; figures differ from those published in 2002 2) Incl. extraordinary income of EUR 156 million from disposal of a subsidiary For three years industrial insurers have enjoyed risk-adequate under review: the enormously high losses that followed the market conditions; in other words, the risks have been com- four devastating hurricanes in Florida decisively impacted mensurate with the attainable premiums. HDI Industrie the result of the segment. The decline in profitability in the again made the most of this favorable climate in 2004 and segment was thus entirely due to Clarendon. made healthy strategic progress in the segment. It generated further profitable growth in the wake of vigorous growth in Similarly, the distribution channels of independent agents, 2003. For the current year it has set itself the goal of main- postal service partners and banks generated above-average taining premiums on a level that reflects the marked volatil- growth rates in the segment’s German business and lived up ity and exposure of this business. to our expectations. Our exporting of the concept of market- ing through postal service partners has now become a model For industrial clients, the decisive criterion when selecting an for success: since January 2003 customers of the Hungarian insurer is its professionalism and financial strength, in other postal service have been able to purchase products of our words the ability to meet its obligations to clients on a lasting subsidiary Magyar Posta Versicherungen in more then 2,600 basis. There is no disputing the financial strength of HDI post office branches. Our motor liability policy, which was Industrie Versicherung: last year it received a rating of AA- launched on the Hungarian market in January of last year, has (excellent) from the independent rating agency Standard & climbed into the top ten of its segment within a very short Poor’s. space of time. Private customer insurance: International orientation, In 2005 we are trusting to our strengths in private customer cooperation arrangements expanded insurance: in the international arena we shall continue to ex- Our decision to invest in promising private customer markets pand our position in promising markets; a key focus will be outside Germany once again proved to be the right one in on securing new cooperation partners. In Germany, where 2004: we clearly fulfilled our goals in private customer busi- consumer interest was directed almost entirely towards life ness. The foreign companies played a particularly prominent insurance last year, 2005 is likely to see a renewed emphasis role here, almost all of them generating growth rates better on innovative and value-priced products in property and than the market average and increasingly positive results. The casualty insurance. US company Clarendon was, however, hard hit in the year 29 ■ talanx. Segments. The entire spectrum of life insurance – with a focus on private customers and occupational retirement provision Aspecta Distribution through independent and multiple agents CiV Lebensversicherung Cooperation with Citibank HDI Lebensversicherung Direct sales with service provided by customer service staff, distribution through independent agents HDI Pensionskasse Direct sales through branches and independent agents HDI Pensionsmanagement Competence center for occupational pension solutions Magyar Posta Cooperation with the Hungarian postal service Neue Leben Cooperation with Sparkasse savings institutions PB Lebensversicherung Cooperation with Postbank/Deutsche Post Life Primary Insurance Our leading edge: In this business segment the companies of the Talanx Group adapt systemati- cally to the needs and requirements of their distribution partners. They do this by integrating themselves to a very large extent into their partners’ business models – akin to a system supplier in manufacturing industry. This integration applies just as much to the development of products tailored to specific target groups as it does to the provision of individual sales support and adjust- ment to each partner’s Corporate Design and the IT environment of the partner’s systems. Yet it is Talanx that stands behind the brands. Scarcely any other segment within the Talanx Group is re- Innovative products marketed Europe-wide through inde- cording such dynamic growth as the life segment. At the pendent partners have enabled the Aspecta brand to assume heart of our offering are products for private customers and a key role in the market for unit-linked insurance products. occupational retirement provision: traditional endowment Thanks to this orientation, the companies belonging to policies and life insurance products aimed at specific age Aspecta Global Group were able to boost new business taken groups, term life policies, credit life and annuity insurances up in 2004 by 78.9 % to EUR 5.8 billion, a rate of increase in as well as unit-linked and other innovative products. excess of the market average. Dedicated unreservedly to the value-oriented expansion of our portfolio, we serve a broad variety of distribution HDI Lebensversicherung AG and HDI Pensionskasse AG are channels: brokers and multiple agents, direct sales as well active primarily in the high-growth sector of occupational as cooperations with banks and postal service partners. pension schemes. Taken together, they generated new busi- ness taken up of more than EUR 1 billion in the financial year Thanks to our targeted positioning in high-growth marketing just-ended – a figure that clearly testifies to the successful channels and the purposeful expansion of business in the expansion of this market with sales support from the newly area of occupational retirement provision, 2004 was the most established HDI Pensionsmanagement AG. With this latter successful year to date for the segment. Having transacted company the Talanx Group has created a competence center life insurance for just twelve years Talanx already ranks for all available methods of implementing occupational among the ten largest life insurance groups in Germany. retirement provision. 30 Life Primary Insurance. ■ Key figures in Life Primary Insurance 2004 2003 2002 2001 Figures in EUR m 2004 2003 2002* 2001 Gross premiums written 1,785.9 1,022.4 907.1 835.8 Net premiums earned 1,471.2 756.9 633.9 622.8 Investment income 417.9 147.0 109.7 89.7 EBIT 50.4 45.1 37.5 33.0 *As-if pooling method; figures differ from those published in 2002 With a concept that is unique in Europe the Talanx companies Life Primary Insurance segment. As full-service direct insurers, have specialized in cooperation arrangements with banks and the HDI insurers maintain around 100 regional offices, cus- postal service partners: the insurance business of CiV Lebens- tomer service centers and branches. They rely on marketing versicherung, Neue Leben Lebensversicherung, PB Lebens- support from HDI Pensionsmanagement in order to expand versicherung and Magyar Posta Életbiztosító is fully integrated their business in the area of occupational retirement provision. into the infrastructure of their respective business partners. Cooperation with banks and postal service partners Outside Germany the Group is also represented by life insur- The marketing of insurance products over the counter at Spar- ance companies and branches in Luxembourg, Liechtenstein, kasse savings institutions, banks and post offices is a model Italy, Spain, Poland, Hungary and Brazil – i.e. in a variety of of cooperation that has proven to be a great success for both regions offering good growth prospects. sides – not only in Germany but also beyond its borders, as illustrated by Magyar Posta in the new EU member state of Independent agents Hungary. Insurance products bearing the Aspecta brand are sold exclu- sively through independent distribution partners. These agents Talanx has expanded its position in the bancassurance sector receive support tailored to their needs, for example in the form with the addition of Neue Leben: 160 Sparkasse savings insti- of a special liability policy for pure financial losses and extensive tutions distribute Neue Leben products – a tight-knit sales counseling software able to handle even the complexities of the network with potential for further growth. German Retirement Income Act (Alterseinkünftegesetz). The brands of the Talanx Group are very well positioned with HDI Leben and HDI Pensionskasse similarly rely upon inde- an eye to the growing demand for private old-age provision. pendent brokers. In order to intensify cooperation with these CiV Lebensversicherung got off to a successful start in 2005 sales partners both companies have set up their own structures with its so-called “Rürup product” Citi Basis Rente (following to serve them. the recommendations of the Rürup Commission). Postbank has declared 2005 the “Year of Retirement Provision”, with Direct sales and branch network specially tailored insurance products provided by PB Lebens- Direct business marketed through the sales channels of the versicherung. HDI companies remains a major distribution channel for the 31 ■ talanx. Segments. Reinsurance on a worldwide scale Hannover Re Global, diversified reinsurer E+S Rück Specialist reinsurer for the German market Hannover Re Africa Specialist reinsurer for the African market Hannover Re Bermuda Competence center for worldwide catastrophe business Property/Casualty Reinsurance Our leading edge: With Hannover Re one of the world’s most successful reinsurers is integrated into the Talanx Group. The focus is on above-average profitability: Hannover Re is one of the world’s three most profitable reinsurers when it comes to return on equity and annual growth in earnings per share. For some years now the return on equity after tax has surpassed the company’s own minimum target of 750 basis points above the risk-free interest rate. The industry too has recognized Hannover Re’s performance: in September 2004 it was the first reinsurer to be crowned “Reinsurance Company of the Year” for the third time. Our Property/Casualty Reinsurance segment encompasses Profit-oriented growth private, commercial and industrial property and liability lines In heavily cyclical reinsurance markets and lines we do not as well as marine, aviation and credit/surety business. We define our goals in terms of volume, growth or market shares, assume risks or entire portfolios from primary insurers. but rather we act with a strict profit orientation on an oppor- tunistic basis. In this context, we are prepared to accept At the heart of the segment is Hannover Rückversicherung reduced premium income as a consequence of a restrictive AG (Hannover Re), a company listed in the German mid-cap underwriting policy – as was the case in 2004. index MDAX; just over 50 % of its shares are held by Talanx AG. Hannover Re ranks among the world’s largest reinsurers In market phases where rates and conditions are not com- and maintains reinsurance relations with around 3,000 mensurate with the risk (soft market), we scale back not only insurers in more than 150 countries. German business is our volume but also our market share; we act conversely as transacted through its subsidiary E+S Rückversicherung AG, the cycle moves upwards again. In 2005 we expect the ade- the specialist reinsurer for the German market. quate terms and conditions in property/casualty reinsurance to be sustained; even after the renewals at the end of 2004 rates and conditions remained stable by and large. 32 Property/Casualty Reinsurance. ■ Key figures in Property/Casualty Reinsurance 2004 2003 2002 2001 Figures in EUR m 2004 2003 20021) 2001 Gross premiums written 6,045.5 7,464.2 8,007.9 7,513.1 Net premiums earned 5,023.4 5,701.9 5.004.1 4,743.9 Underwriting result -120.1 -203.4 -126.7 -770.4 Combined ratio (net)2) 97.0 96,2 94.2 105.6 Investment income 836.9 902.3 741.4 804.1 EBIT 635.0 567.2 398.9 215.1 1) As-if pooling method; figures differ from those published in 2002 2) Including deposit interest received Talanx is continually optimizing its portfolio in prop- estimates suggest that insurers will be paying out erty/casualty reinsurance. In the future it intends to around USD 46 billion to settle natural catastrophe weight the portfolio even more heavily in favor of losses. For Talanx too the hurricanes in the USA and more profitable, albeit more volatile non-proportional typhoons in Asia resulted in a very high burden of business. losses in the year under review. The proportion of major losses relative to net premiums at Hannover Re Diversification with clear preferences thus at 8.3 % surpassed the multi-year average. Yet the The classic hallmarks of property/casualty reinsurance combined ratio for the Property/Casualty Reinsurance are, on the one hand, its global nature, while at the segment scarcely deteriorated. This was due to the same time its diversification into numerous lines of further improvement in the quality of the basic business and regional markets. We too offer products business; in all areas apart from natural catastrophe and solutions in every line of business and for all insur- reinsurance the portfolio performed superbly and ance carriers worldwide. Based on their profit potential, offset the strain on results inflicted by the windstorm the US and German markets as well as worldwide catas- losses. What is more, even in our worldwide natural trophe business and certain specialty/niche segments catastrophe business we achieved a breakeven result enjoy preferential treatment. overall in 2004. North America – the world’s most important rein- Innovation in cooperation surance market – generates around 40 % of the gross In all market phases we systematically seek to identify premium volume. The USA is thus by far the largest market and product niches. In 2004, for example, we market in the segment. Our presence here is princi- worked together with primary insurers to design new pally through large brokerage firms and insurance personal accident products with assistance benefits groups, with whom we normally maintain long- and successfully launched them on the German market. standing business relationships. Germany produces This was made possible by the conclusion of a cooper- roughly 13 % of our gross premium income. ation agreement with a provider of accident assistance services, which immediately stands ready to support 2004 was the most expensive year for natural disasters our clients’ policyholders with a range of assistance in the history of the insurance industry. Market following an accident. 33 ■ talanx. Segments. Developing, structuring and implementing creative reinsurance solutions Hannover Life Re Prototype of a new generation of successful life/health reinsurers Life/Health Reinsurance Our leading edge: The leading edge of our clients. In life/heath reinsurance we pursue a holistic approach; we offer customer-specific solutions ranging from new business financing through financial optimization to strategic market positioning. Our team consists of seasoned physicians from various specialist disciplines working alongside underwriters and claim assessors with many years of experience. We profit from this know-how, and so do our clients. For we share this expertise on a partnership basis; we develop numerous products for the primary market jointly with our clients and serve as their advisor. In the Life/Health Reinsurance segment our reinsurance busi- Hannover Life Re today ranks among the leading life/health ness is concentrated on life, annuity, personal accident and reinsurers worldwide. health insurances. In addition, we offer reinsurance solutions for disability, long-term care, unemployment and critical Our philosophy in the Life/Health Reinsurance segment is illness as well as other riders. Our approach is innovative: we founded on three basic principles: focus, partnership and consider ourselves a modern reinsurer, a financial optimizer solutions. All three principles are firmly enshrined in our for our clients and a pioneer for new markets, which we day-to-day activities in the segment. In the ten years of its cultivate together with interested partners. existence Hannover Life Re has thus been able to develop into a sought-after partner in the field of international life and All these activities are conducted for the Group under the health reinsurance. Hannover Life Re brand. With a network of subsidiaries and branch offices, Hannover Life Re is present on all five conti- Focus on value-added for our clients nents. This decentralized structure enables us to live up to For us, focus means that we concentrate on those areas where our clients’ expectations regarding local service and short de- we can offer our clients above-average value-added. We are in- cision channels. What is more, the product ranges of the com- terested in niche rather than mass business: we avoid routine panies abroad are perfectly attuned to each country’s specific business wherever possible, not least because placement of requirements. The markets have rewarded our approach: such business is primarily determined by price. 34 Life/Health Reinsurance. ■ Key figures in Life/Health Reinsurance 2004 2003 2002 2001 Figures in EUR m 2004 2003 2002* 2001 Gross premiums written 2,206.0 2,341.7 2,574.6 2,386.9 Net premiums earned 2,020.9 2,003.4 2,142.4 1,664.1 Investment income 256.0 178.2 263.7 303.3 EBIT 69.1 70.7 47.6 42.9 *As-if pooling method; figures differ from those published in 2002 95 % of the total portfolio derives from ten core markets, Complex, innovative solutions including the United States, United Kingdom and Germany. Insurance companies want a reinsurer that understands In these and other priority markets Hannover Life Re is con- their problems and is able to tailor bespoke solutions. In this tinually stepping up its activities: currently, it is investing respect Hannover Life Re has been setting standards. most notably in the expansion of its marketing infrastructure in Asian growth markets. Our actions are solution-oriented, not transaction-driven: the overriding goal in this segment is to develop, structure and Partnership-based action implement what are usually complex reinsurance solutions. Hannover Life Re cultivates customer relationships of a long- These solutions must be transparent, they must conform to term nature and cooperates with its clients on an equal, part- local regulatory and auditing standards and they must satisfy nership-based footing. Its goal is to maintain a business the requirements of the rating agencies. relationship from which both sides profit. Loyal customers of many years’ standing receive priority support and are given Working together with primary insurers, Hannover Life Re preferential access to resources. has for some years now been developing products – most notably in the United Kingdom – tailored to the special needs A further advantage for clients is our low administrative ex- of senior citizens. In the years ahead this will be one of the pense ratio in this segment: at just 2.7 % of net premiums it is most important markets for insurers in the industrialized well below that of our competitors. Hannover Life Re passes nations. Hannover Life Re is striving to use its experience to this cost benefit on to its clients. become the leading reinsurer of senior citizens’ products worldwide. The clients in this segment are primarily small to mid-sized in- surance companies with clear strategic objectives and forward- looking management. They include domestic and foreign in- surers as well as other reinsurers, and especially life insurers specializing in unit-linked products. The portfolio of clients is rounded off by innovatively operating marketing organiza- tions and joint ventures that concentrate on insurance products for niche markets. 35 ■ talanx. Segments. The complete value-added chain of asset management Ampega Investment for the Group, for institutional clients and for private investors Ampega Immobilien Management Management and controlling of the Group’s real estate portfolio Protection Re Professional reinsurance broker for the Talanx Group Financial Services Our leading edge: The asset management companies belonging to the Talanx Group rank among Germany’s technology leaders. The entire asset management process – from order execution to back office – is controlled using a single IT platform. The extensive degree of automation in the processing of transactions guarantees high data security and efficiency and ensures that data are consistent along all links in the value-added chain. A data warehouse additionally provides flexible reports and analyses, thereby supporting investment decisions made by outside clients and the companies within the Group. The management of all assets within the Talanx Group is a portfolio. Indeed, it has made a name for itself as an absolute concentrated in the Financial Services segment. Asset manage- return specialist with its expertise in the field of asset ment for the Group and investment activities for our clients allocation. have been grouped together under the “Ampega” brand. The Ampega companies cover the entire value-added chain in the Ampega Investment AG is the Talanx Group’s investment field of asset management, from dynamic financial analysis company. 30 % of its shares are held by Putnam Investments, through asset allocation to operational management of the LLC, Boston, one of the leading US fund managers. Ampega individual portfolios. Investment AG operates as an investment company for insti- tutional clients and private investors. Its product portfolio Ampega Asset Management GmbH manages the investments encompasses special funds, retail funds and institutional asset of the domestic and foreign companies belonging to the management, including specialized administration services. Talanx Group. It also assumes asset and financial portfolio The Group’s exclusive cooperation with Putnam Investments management tasks for external clients. Its core competencies enables Ampega clients to profit from the international exper- lie in strategic and tactical asset allocation, with special know- tise of one of the world’s largest investment firms combined how in the areas of fixed-income securities and their manage- with the long-standing asset management experience of our ment as well as in controlling of the equity allocation within Group. 36 Financial Services. ■ Key figures in Financial Services 2004 2003 2002 2001 Figures in EUR m 2004 2003 2002* 2001 Assets under management 25,324.7 20,933.0 18,525.0 18,798.4 EBIT before profit transfer 23.6 9.5 5.4 3.6 *As-if pooling method; figures differ from those published in 2002 Management and controlling of the Group’s real estate port- Impressive outsourcing services for institutional clients folio is concentrated in the hands of Ampega Immobilien In institutional business Ampega has established its Management GmbH. It manages predominantly commercial “Outsourcing” business model and already taken over asset properties throughout Germany. Protection Reinsurance management functions for several insurers. Through the Intermediaries AG (Protection Re) is the largest reinsurance acquisition of further mandates Ampega is seeking to broker in Germany to be integrated into a group. It ensures become market leader in this field within the next three that reliable reinsurance capacities are available long-term for to five years. all the Group’s non-life reinsurance cessions. Ampega Investment AG has enjoyed a favorable response to Professional products and services for the Group its marketing of muster trust structures, its own absolute The task of Ampega Asset Management is to generate returns return and fixed-income products as well as selected relative on equities and bond investments even when stock markets return products offered by its partner Putnam Investments. are moving sideways, while at the same time limiting the in- vestment risk. For insurers, the importance of better control- New sales channels to reach private clients ling risks on the assets side of the balance sheet is growing In retail business Ampega Investment AG is seeking to make ever greater. For this reason, Ampega continually optimizes greater use of internal distribution channels within the Group quality standards in all its production and service areas. and the existing sales cooperation arrangements. Further- Further enhancements are currently pending in the areas of more, there are plans to enter into new cooperations with risk management and controlling. banks, asset managers and marketing organizations outside the Group. Last year Ampega optimized asset/liability management (ALM) for the Group’s primary insurers. In the course of 2005 As far as the companies within the Talanx Group are con- Ampega will set up and manage hedge funds for the Group’s cerned, Ampega sees further potential for marketing retail investments. products, especially unit-linked life insurance products. Ampega has been operating successfully for the Group since 1999. Building upon this experience, it has commenced activ- ities for third-party clients with a competitive product port- folio – and already achieved some clear successes in penetrat- ing the market. 37 ■ talanx. Konzern-Geschäftsbericht 2004. The black heron puts up all its feathers like a waterlily. It is better able to hunt under the canopy of its opened wings, which screen the surface of the water from reflections. With this “canopy feeding” technique, which concentrates on the essentials, the black heron guarantees itself lasting good results. goo d 38 Kapitel. Die Rubrik. ■ re s u l t s Ampega too achieves good results with techniques that focus on the essentials: – The rating agency RCP & Partners GmbH, Wiesbaden, evaluated the professionalism of Ampega’s services in the “Master KAG” sector. Ampega Investment AG and Ampega Asset Management GmbH received a “very good” mark. Quality management and the area of IT & Operations were singled out for special praise. – The rating agency Standard & Poor’s awarded its highest five-star rating to Ampega Investment AG’s European equity fund MPC Competence Europa Methodik AMI. Standard & Poor’s evaluates the level and consistency of a fund’s performance relative to its benchmark sector over three years. 39 ■ talanx. Annual financial statements. Annual financial statements. Group management report The Talanx Group can look back on a successful year overall: Germany’s third-largest insurance group generated EBIT of EUR 960 million in 2004. The return on equity after tax increased to 16.1 %. Through organic growth the Group strengthened its position in the areas of occupational retirement provision and bancassurance as well as in promising regions such as the new EU member states in Eastern Europe. Successful transactions also enabled Talanx to make considerable progress towards achieving its goal of becoming a permanent factor on the capital market: particularly notable here were the Secondary Public Offering of Hannover Re shares and – at the beginning of 2005 – the issue of subordinated debt. 40 Group management report. Markets and business climate. ■ Growth in real gross domestic product Figures in % 2004* 2003 USA +4.4 +3.0 Eurozone +1.8 +0.5 Germany +1.0 -0.1 United Kingdom +3.1 +2.2 Japan +2.6 +1.4 * some figures provisional Markets and business climate Overall economic development Economic activity in the Eurozone clearly began to regain its In 2004 the world economy grew at a dynamic pace not seen footing. This trend was fostered by stable global economic in years. Global manufacturing and the volume of world trade demand, although domestic demand was also a significant expanded markedly despite the rise in the price of oil. The factor. Since the recovery was slow to take hold, labor markets global economic trend was driven, in particular, by the sus- saw hardly any appreciable improvement. tained low level of interest rates and the generous supply of liquidity. Yet 2004 was also overshadowed by global uncer- Germany experienced the onset of a cyclical upturn, thus tainties, including the continuing tensions in the Near East. ending a three-year period of stagnation. Vigorous export growth contrasted, however, with insipid domestic demand. The individual regions and countries made varying contribu- Consumer spending and capital investment were disappoint- tions to this positive economic development (see table ing, unemployed remained high. above). The revival that had begun in Japan was sustained, driven The USA once again proved to be the engine of growth. Total primarily by private consumer spending and capital expendi- economic output there was sharply higher than in the previ- ture. The Japanese economy thus enjoyed an upturn of its ous year. The labor market recovered appreciably and con- own making, without further fresh fiscal stimulation. There sumer spending remained robust. Imports continued to rise was, however, no shaking off the deflationary tendencies. due to the favorable state of the domestic economy, further pushing up the current account deficit. 41 ■ talanx. Annual financial statements. Movements on equity markets in 2004 Yields on 10-year government bonds in 2004 31.12.2003 = 100 in % 115 6 5 110 S&P 500 Nikkei 4 United Kingdom 105 FTSE 100 3 USA DAX 100 Germany Dow Jones 2 EURO STOXX 50 Switzerland 95 1 SMI Japan 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Capital markets duration segments reflected this policy, long bond yields Disappointed interest rate expectations and equity markets began to soften again, causing a marked flattening in the that for a long time tended to move sideways were the domi- yield curve in the second half of the year. nant features of 2004. In the Eurozone the ECB retained a prime rate of 2 %. Yields Assisted by a price rally in the wake of the re-election of US declined in all long-duration segments over the course of the President George W. Bush, the most important stock indices year. In mid-December yields on 10-year Eurozone bonds fell closed the year under review in positive territory. The S&P to their lowest point of the year at 3.5 %. Despite the evident 500 put on 9.0 % over the entire year. Parallel to the move- lead in growth enjoyed by the USA over Europe, the low yield ment of the US indices, European equity markets also turned levels did not adequately reflect the fundamental situation in a positive performance: the Dow Jones EURO STOXX 50 in the Eurozone. In 2004 they again increasingly attracted gained 4.3 %, while Germany’s leading index – the DAX – investments to the area of corporate bonds. closed the year up by 7.3 %. Foreign exchange markets experienced erratic swings in ex- The reduction in volatility on equity markets in the USA and change rates in the second half of the year. These were trig- Europe that had begun in 2003 was sustained in the financial gered by the continued weakness of the US dollar associated year just-ended. with the growing budget and current account deficits. The euro sustained its upward trend, closing the year at USD 1.36. From the beginning of 2004 onwards the issue that was fore- The common currency of the Eurozone bore the main brunt most in the expectations of market players was the cycle of of the US dollar’s downward slide. interest rate rises. By the middle of June yields on 10-year US treasury bonds had initially climbed to a level of almost 4.9 %. What is more, the US Federal Reserve Board set in motion a change of course in monetary policy in June, during which it increased the key lending rate by altogether 125 basis points to 2.25 % by year-end. While the movement in shorter 42 Group management report. Markets and business climate. ■ Movement of the euro relative to other currencies Growth in premium volume in Germanyin %2004* 2003 31.12.2003 = 100 Figures in % 2004* 2003 Property/casualty insurance +1.6 +3.3 110 Life insurance/occupational +2.6 +5.1 105 retirement provision US dollar Private health insurance +6.8 +7.2 100 Yen Total +2.9 +5.5 British pound 95 * some figures provisional Swiss franc Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The international insurance markets The German insurance industry The positive development of the national economies created The German industry remained on an expansionary course in a comparatively favorable climate for the international insur- 2004. Provisional figures indicate that premium income was ance industry. boosted by 2.9 %. The insurance industry was thus one of the highest-growth business sectors in Germany. Current assessments suggest that life insurers further consol- idated their growth in 2004. The problems facing state-run The growth rates recorded in the individual insurance seg- systems of old-age provision gave fresh impetus to demand ments varied: for private retirement provision, especially in the industrial- ized nations. ■ Property/casualty insurance continued to chart its growth course in the year under review and reported a modest In non-life insurance lines too insurers were able to sustain gain in premiums. Claims expenditure was slightly lower. their premium growth. The favorable economic trend had a Overall, insurers therefore anticipate a gratifying business particularly beneficial effect here. As a further factor, many performance. insurers restructured their business more profitably and ■ Personal lines were again the strongest growth driver in generated higher earnings. the insurance industry. Life insurers and providers of occupational retirement provision (“Pensionskassen” and The international insurance markets were again impacted by “Pensionsfonds”) generated premium growth of 2.6 %, with natural catastrophe losses in the year under review. premiums from new business rising vigorously. The adop- Catastrophic events – of both natural and man-made origins tion of the Retirement Income Act gave rise to a marked – cost the insurance industry approximately USD 49 billion – surge in demand. Private health insurers also achieved fur- a hitherto unheard-of scale of losses. Since the risk factors are ther substantial growth in their premium income, record- increasing with growing population densities and higher con- ing a gain of 6.8 %. Private health insurance thus remained centrations of values, further substantial catastrophe losses the second-largest line of business after life insurance. must be anticipated in the future. 43 ■ talanx. Annual financial statements. EBIT generated by the Talanx Group in EUR m 2004 960.1 2003 825.0 Development of the Group The Talanx Group closed 2004 with a record result: EBIT im- ■ In February 2004 Talanx AG reduced its stake in Hannover proved on the previous year by 16.4 % to reach EUR 960.1 Rückversicherung AG (Hannover Re) by 20.6 percentage (previous year: 825.0) million.* Stockholders’ equity increased points to 51.2 %. The highly successful Secondary Public by 17.0 % to EUR 2,969.5 (2,537.8) million. The return on equity Offering (SPO) – the entire volume was placed within just a after tax climbed to 16.1 (14.7) %. few hours – generated extraordinary income of EUR 185.2 million. The free float of Hannover Re and hence the The result and business experience were shaped by the satis- liquidity of the share increased substantially. factory overall development of normal business as well as ex- ■ June marked the launch of HDI Pensionsmanagement AG. traordinary performance factors, all geared to the shared goal The company enjoys a key position in the Group’s strategic of safeguarding and – wherever possible – further extending growth segment of “occupational retirement provision” the Group’s leading edge over its competitors. and has already been able to tap into considerable growth potential in the market. ■ In August Talanx acquired 60 % of the shares of Neue Leben Holding, less one share, as part of a long-term mar- keting cooperation with the Hamburger Sparkasse and Sparkasse Bremen savings banks. The Neue Leben Group includes, inter alia, Neue Leben Lebensversicherung AG and Neue Leben Unfallversicherung AG. This acquisition enabled the Group to expand its position in the promising bancassurance sector. ■ Our marketing efforts in the private customer segments were rewarded: through internal efforts alone the number of policies within the Group – at 11.5 million – broke through the 10 million mark for the first time. Even with- out the addition of Neue Leben the Group would have comfortably surpassed this threshold by more than * All figures indicated in this management report referring to the Group or a 700,000 policies. The total number of policies surged Group segment are based on US GAAP; figures referring to individual companies by 20.7 % to 11.5 million, compared to 9.5 million in the are based on local accounting standards. previous year. 44 Group management report. Development of the Group. ■ Capital, reserves and underwriting provisions in EUR m Underwriting provisions Stockholders’ equity (incl. minority interests) % of net premiums earned 2004 31,928 4,697 36,625 334.4 % 2003 25,499 3,658 29,157 279.9 % 2002 24,803 2,829 27,632 280.3 % In addition to the measures that we initiated with favorable Positive business experience effects on the result and business experience, various events This brings us to the Group’s day-to-day business. Gross occurred with a detrimental impact. In common with other premiums written in the Group contracted by 4.5 % to market players, our result suffered a heavy strain due to the EUR 14,161.0 (14,824.2) million. There were two main reasons extraordinarily high number of natural disasters. Experts be- for this development: firstly, strategic decisions taken in rein- lieve that 2004 was the year with the most expensive natural surance business, including for example the policy of “more catastrophe losses in the history of the insurance industry. from less” – a selective underwriting approach geared to Assessments indicate that the more than 100 natural catas- increasing profitability – and secondly, the continued down- trophes in 2004 alone cost insurers worldwide a total of ward slide of the US dollar. At constant dollar exchange rates USD 46 billion. The four hurricanes Charley, Frances, Ivan and year-on-year consolidated gross premiums would have de- Jeanne, which devastated parts of the Caribbean and United clined by a mere 1.2 % in 2004. The contraction in premium States towards the end of 2004, caused – considered in isola- income was offset to some extent by the initial consolidation tion – net losses before tax of more than EUR 280 million for of the Neue Leben Group acquired in 2004. the Group. Net premiums earned were up 5.1 % on 2003 at EUR 10,951.9 Our capacity to meet our financial obligations from these (10,416.4) million. This was due to an increase in the level of losses illustrates the exceptional financial strength and retained premiums, especially at HDI Industrie Versicherung strong profitability that our Group has now attained: even AG, HDI Privat Versicherung AG and Hannover Rückversiche- without the extraordinary income from the SPO of Hannover rung AG. This raising of the retention in phases when we are Re our EBIT – despite the heavy burden of losses – would have enjoying a favorable market climate is one component of our almost matched the level of the previous year, itself a record cyclically-oriented underwriting policy. result. 45 ■ talanx. Annual financial statements. Development of the adjusted combined ratio in property/casualty insurance and reinsurance* in % Loss ratio Expense ratio 2004 76.1 21.2 97.3 2003 79.4 15.3 94.7 * including deposit interest received Light and shade on the claims front The underwriting result deteriorated to –EUR 624.8 (–303.8) Claims and claims expenses (net) within the Group decreased million, principally due to the hurricanes in the USA which by 4.3 % to EUR 7,972.2 (8,329.7) million. This reduction was hit the Clarendon Insurance Group particularly hard. principally due to the property/casualty reinsurance seg- ment, where net premiums earned were lower and the claims Investments show strong rates of increase experience – leaving aside major losses – was so good that it Capital markets, especially in Europe and North America, offset the strain on the result from natural catastrophes: were notable for an extremely low interest rate level and only overall, the net loss ratio improved by 7.2 percentage points a modest recovery on equity markets. Despite this difficult to 72.8 (80.0) %. market climate we again boosted our investment income in 2004, which rose by 34.6 % to EUR 1,868.7 (1,388.2) million. An amount of EUR 752.1 (202.9) was allocated to the policy This figure includes the results of the Neue Leben companies benefits for life and health contracts. The increase was attrib- in an amount of EUR 242.7 million. Even without this effect utable primarily to the initial consolidation of the Neue the rate of increase was around 17.1 % – a similarly high level Leben Group. Administrative expenses rose by 16.9 % to to the previous year despite the inhibiting influence of the EUR 457.9 (391.8) million. The increase derived from the Life US dollar’s depreciation against the euro in the year under Primary Insurance and Property/Casualty Primary Insurance review. Notwithstanding the reduced average yields of recent segments: in the Life Primary Insurance segment both the ini- years, with the resulting strain on our portfolio of fixed- tial consolidation of the Neue Leben Group and the vigorous income securities, ordinary investment income climbed expansion of business left their mark, while in the Property/ by 9 %. Casualty Primary Insurance segment the most notable factor was the transfer in 2004 of branches in the Czech Republic, Profits on the disposal of investments were again higher at France and Switzerland from HDI V.a.G. to HDI Industrie EUR 488.4 (404.2) million; this amount includes the income Versicherung AG. Net technical expenses increased to from the SPO of Hannover Re in an amount of EUR 185.2 mil- EUR 11,587.3 (10,739.6) million, especially as a consequence lion. Profits on equity disposals were slightly higher than of the initial consolidation of Neue Leben. The adjusted com- in the previous year. In this area we generated a profit of bined ratio in property/casualty primary insurance and rein- EUR 132.7 (124.1) million by making use of the modest price surance – including deposit interest received – deteriorated rises on stock markets. On the other hand, profits realized by 2.6 percentage points to 97.3 %. from the sale of fixed-income securities declined to EUR 133.8 (236.1) million. Losses on the disposal of investments were 46 Group management report. Development of the Group. ■ Investment portfolio breakdown by Group segments 31.12.2004 Other 2.4 % Property/Casualty Primary Insurance 19.3 % Reinsurance 46.0 % Life Primary Insurance 32.3 % almost half those of the previous year, and the positive bal- Record operating profit ance from profits and losses on disposals therefore surged by The operating profit (EBIT) increased to EUR 960.1 (825.0) 104.7 % in the year under review to EUR 366.5 (179.0) million. million, while the pre-tax profit grew to EUR 893.9 (770.2) Write-downs for equities, fixed-income securities and real es- million. After tax expenditure of EUR 253.8 (297.8) million tate were substantially lower at altogether EUR 45.6 (154.9) and deduction of minority interests in the amount of million. EUR 196.1 (134.7) million, the Group closed with consolidated net income of EUR 444.0 (337.7) million. The total investment portfolio grew by 40.9 % to EUR 30.7 (21.8) billion, of which roughly EUR 6.0 billion was attribut- The Group’s total return on premium (i.e. EBIT relative to net able to Neue Leben. Factoring out this effect, we boosted our premiums earned) increased to 8.8 (7.9) %. portfolio of invested assets by 13.3 % despite adverse ex- change-rate movements. Major cash inflows again stemmed from the good perfor- mance of the reinsurance portfolio as well as from the business transacted by the property/casualty primary insurers. In view of the very low interest rate level, we invested cash inflows from underwriting business and available liquidity from ma- turing securities predominantly in short-duration fixed-in- come securities. The latter accounted for 80.1 % of the total asset portfolio as at year-end. Since we continue to take a cau- tious approach in assessing stock market trends, we again re- duced the weighting of our equity holdings as at year-end. The bulk of our investments in this area are concentrated on blue chips listed on the major stock indices. As at year-end the proportion of our portfolio attributable to equities, equi- ty funds and private equity participations was 5.4 %. 47 ■ talanx. Annual financial statements. Net premiums earned in Property/Casualty Primary Insurance in EUR m 2004 2,367.2 2003 2,171.4 Development of the Group segments Property/Casualty Primary Insurance The transfer of branches in Switzerland, the Czech Republic The Property/Casualty Primary Insurance segment comprises and France from HDI V.a.G. to HDI Industrie Versicherung AG HDI Industrie Versicherung AG, HDI Privat Versicherung AG, effective 1 January 2004 had an extraordinary effect on Clarendon Insurance Group, HDI Rechtsschutz AG, Aspecta premium income. Versicherung AG, CiV Versicherung AG, Neue Leben Unfall- versicherung AG, Magyar Posta Biztosító, the associated com- Industrial business with foreign clients also recorded vigor- pany PB Versicherung AG as well as several other companies ous growth in 2004. This business is written partly by the for- in the European Union, the United States and Brazil. The New eign branches of HDI Industrie Versicherung AG and partly by York-based Clarendon is the largest company in the segment other international companies representing the HDI brand. in terms of gross premium income. The areas covered by the companies encompass industrial and private customer insur- The gross loss ratio at HDI Industrie Versicherung AG de- ance. creased sharply due to a favorable major loss experience, while the net loss ratio climbed to 78.6 (74.9) % as a conse- Industrial business quence of the increased level of retained premiums. The com- As in the previous two years, industrial business again en- pany’s combined ratio was reduced to 87.9 (90.3) %. joyed risk-appropriate market conditions in 2004. Strongly capitalized companies such as HDI Industrie Versicherung AG Private customer business were able to use this situation to their advantage. Following The development of private customer business was influ- the withdrawal of some competitors from the market the enced by varying conditions in the different subsectors. With company therefore continued to grow in the year under re- the exception of Clarendon, which transacts program busi- view. Given a market climate in which we currently see good ness highly selectively in its markets, the common goal pur- opportunities for profit-oriented growth, the company is sued by the companies conducting private customer business seeking to gain market shares. In other phases of the cycle, in this segment was to generate strong profitable growth however, HDI Industrie is also prepared to accept losses of from their own resources. The foreign companies grouped to- market share. HDI Industrie subjects its portfolio to strict gether under HDI International Holding AG, which completed controlling in order to successfully pursue this policy. their rebranding as HDI in 2004, achieved this objective with the most striking success. Most companies generated growth in excess of the market average: the business development in Eastern Europe was especially favorable. The gratifying 48 Group management report. Property/Casualty Primary Insurance. ■ growth in premium income recorded by the foreign HDI Clarendon, which transacts building insurance solely in companies is increasingly going hand-in-hand with positive Florida. One positive consequence of these events for results. Clarendon, however, was that premiums remained stable. The company was able to renew profitable programs and Although competition in the German market, particularly in enter into new programs in several lines of business. The motor insurance, has intensified sharply, HDI Privat Versiche- other companies in the segment recorded modest claims rung AG also boosted its gross premiums. This was accom- experiences. plished primarily through the expansion of marketing activi- ties, for example by way of tailored insurance solutions for Business experience in the segment shows opposing employees at large companies. The cooperation entered into developments with DaimlerChrysler aimed at marketing insurance products Total gross premiums written in the Property/Casualty to buyers of Mercedes and Chrysler vehicles also got off to a Primary Insurance segment contracted by 3.9 % year-on-year promising start. to EUR 5,392.3 (5,611.3) million. This was due to sometimes op- posing developments affecting individual markets and com- The Group’s property/casualty insurers in the bancassurance panies. The primary reason for the decline was the reduction sector similarly generated growth better than the market of 22.8 % in Clarendon’s gross premium income, attributable average. Neue Leben Unfallversicherung AG, which Talanx AG to restructuring measures and the fall of the US dollar against acquired in 2004 as part of a cooperation with Hamburger the euro. At constant exchange rates the decrease in premium Sparkasse, was consolidated in this segment for the first time. volume at Clarendon would have been 15.1 %. Distribution through postal service partners and banks abroad has likewise proven successful. In Hungary, for exam- Premium generated by the foreign companies operating un- ple, we gained a market share of 2 % in motor insurance at der the HDI brand moved in a quite different direction, rising a stroke by working in cooperation with the national post by a very positive 11.5 %. The strongest growth was generated office. by the company in Poland. The figures presented here do not yet reflect the acquisition of the Polish company Tryg Polska, The segment was hard hit by claims expenditure for wind- which was acquired in December 2004; this will not be con- storm events in the southern United States late in the year: solidated until 2005. Florida was devastated by four hurricanes within the space of just a few weeks. This was the worst possible scenario for 49 ■ talanx. Annual financial statements. Investment income in Property/Casualty Primary Insurance in EUR m 2004 213.4 2003 182.6 155.7 338.3 Ordinary Profit investment income on disposal Following scintillating growth of almost 30 % in the previous Investment contracted by 36.9 % to EUR 213.4 (338.3) million year HDI Industrie Versicherung AG continued its expansion- – although this is merely an apparent decrease. The seeming ary course in 2004. After factoring out the effect of the deterioration must be viewed in the context of extraordinary branches transferred from HDI V.a.G., gross premiums grew income booked in the previous year in connection with the by 8.5 %. With a growth rate of 2.2 % HDI Privat Versicherung sale of HDI Re Ireland by HDI Privat Versicherung AG. After AG similarly surpassed the market average. Aspecta Versiche- elimination of this non-recurring effect, investment income rung achieved vigorous gains in the market served by inde- grew by a gratifying 16.8 %. pendent agents. The increase of 37.6 % in gross premiums written was comfortably in excess of growth rates recorded Net claims expenditure climbed by a significant 20.0 % to by comparable companies. EUR 1,830.5 (1,525.6) million. The primary factor here was the four hurricanes in Florida, which caused total net claims ex- Net premiums earned in the segment climbed by 9.0 % to penditure at Clarendon to rise to EUR 482.8 (373.4) million; EUR 2,367.2 (2,171.4) million; the level of retained premiums the gross burden of losses from the four hurricanes was in ex- increased from 41.9 % to 42.3 %. Both at Clarendon and in in- cess of EUR 320 million. The underwriting result deteriorated dustrial business, the hard market was used as an opportuni- sharply to –EUR 22.4 (+128.4) million, again due in large meas- ty to raise the retention. HDI Privat Versicherung AG likewise ure to the windstorm losses in the southern United States. increased its retention appreciably, here too because of the After factoring out the extraordinary disposal profit of favorable market conditions. Better results for net account EUR 155.7 million in the previous year, EBIT consequently fell can be generated with a higher level of retained premiums. by 74.3 % to EUR 65.2 million. The combined ratio for the Overall, the increase in net premiums earned was accompa- segment therefore also deteriorated from 90.7 to 98.1 %. nied by higher administrative expenses. The significant growth in the investment portfolio of 21.8 % to EUR 6,230.2 (5,117.2) million derived principally from HDI Industrie Versicherung AG. To some extent, this effect can be attributed to the assumption from HDI V.a.G. of the assets held for the industrial business of the foreign branches in the Czech Republic, France and Switzerland. It also reflects the good business experience, which produced a higher cash inflow from the technical account. 50 Group management report. Property/Casualty Primary Insurance. Life Primary Insurance. ■ EBIT in Life Primary Insurance in EUR m 2004 50.4 2003 45.1 Outlook Life Primary Insurance In industrial business our focus in 2005 will continue to be The Talanx Group now ranks among the ten largest German on generating a premium level commensurate with the risk. insurance Groups on the life insurance market. The promi- In the current year HDI Industrie is again working intensively nence that we have attained in this market only twelve years to further optimize its business processes. We anticipate after first entering it is only apparent on a second look, since growing competition for business with small and mid-sized the Group operates with different brands and various compa- enterprises, since many competitors are scaling back their nies: Aspecta Lebensversicherung AG, CiV Lebensversicherung activities with large industry and major corporate groups and AG, HDI Lebensversicherung AG, HDI Pensionsmanagement shifting their focus towards to this sector. AG, HDI Pensionskasse AG, Magyar Posta Életbiztosító, Neue Leben Lebensversicherung AG, the associated companies During the current financial year the companies transacting PB Lebensversicherung AG and PB Pensionsfonds AG as well private customer business in this segment will stay on the as several other international companies. The vast bulk of our course that they have already set. Good positioning in distri- life insurance business is written in the German market. bution channels with particularly strong growth prospects again promises further vigorous organic growth on interna- Market development in 2004 tional markets in 2005. For the German market too, we ex- The picture of the retirement provision market in 2004 was pect policyholders to show renewed interest in non-life prod- anything but consistent. On the one hand, general consumer ucts following the life insurance offensive towards the close caution also left its mark on the insurance industry. On the of 2004. Even though we are relying first and foremost on or- other hand, the adoption of the Retirement Income Act ganic growth, we retain the option to complement segmental sparked an enormous surge in demand for endowment poli- activities in particularly promising markets with modest cies towards the end of the year. This legislation is part of a acquisitions. series of major interventions in the system of state old-age provision. In view of sinking pension levels it is intended to We also intend to pursue unchanged our plans for a strategic create incentives for private provision while at the same time acquisition in the property/casualty insurance sector. Our bringing about a systemic change in the taxation of expendi- goal here is to substantially strengthen the weighting of this tures incurred for retirement provision and the benefits paid segment within the Group. However, we shall only consider out. a company that fits the strategic line adopted by the Group and contributes to the more efficient accomplishment of Group objectives on a lasting basis. 51 ■ talanx. Annual financial statements. Gross premiums written in Life Primary Insurance in EUR m 2004 1,785.9 2003 1,022.4 Another piece of proposed legislation, the EU Insurance Risk protection for private customers Mediation Directive, will profoundly change the German in- The marketing success of our companies in the area of risk surance market in terms of the structure of mediation and protection for private customers can be attributed to one rea- the quality of advice: in future, insurance intermediaries will son: our strict orientation to each sales partner’s individual have to satisfy extensive duties to the customer with respect structures. Our companies invest considerable energy in con- to the provision of information, documentation and advice. tinuously enhancing their effectiveness, service and products Expertise and liability issues will assume more central impor- in collaboration with their cooperation partners. The quality tance. In this context we anticipate a shift in the weighting of of our companies and their products is reflected in a multi- sales channels in the market. One consequence of the debate tude of good company ratings (CiV Lebensversicherung) and surrounding these new requirements is that agents will in- product ratings (Aspecta, HDI Leben). The figures clearly show creasingly turn to financially strong insurers. What is more, the strong approval this generates among our cooperation the service that companies offer their agents will also take on partners and customers: in 2004 we doubled our business in greater importance. The Talanx Group can exploit both these the area of independent agents, while the number of new pol- development to its own competitive advantage: on the one icies sold over the counter at banks also increased sharply. hand, it has excellent capital resources, while on the other hand the distinctions awarded to our companies specializing Occupational retirement provision in this marketing channel bear out the high standard that we With the development of HDI Pensionsmanagement AG into have already attained in our sales service. a fully functioning provider of occupational retirement pro- vision we have put in place solid structures for the Talanx The Talanx Group companies active in the Life Primary Group in this market – and already generated above-average Insurance segment pursue one strategic objective that has sales success. Through its close cooperation with the Group’s long been in place and will not be changed in the future: own companies as well as partner organizations HDI value-oriented growth in profitable life insurance markets. Pensionsmanagement AG uses the broad diversity of sales Such markets may be regionally defined or they may entail channels available throughout Germany to address custom- a focus on particularly promising sectors within a market, ers. The range of marketing tools is extremely varied, encom- as is the case with unit-linked life insurance, occupational passing commercial and industrial contacts, distribution retirement provision or credit life insurance. through brokers and over-the-counter sales through banks. Working together with HDI Pensionskasse – as well as with the other companies in the segment – the company ensures 52 Group management report. Life Primary Insurance. ■ Number of in-force policies in Life Primary Insurance, domestic market in million 2004 3.7 2003 3.3 that the complex issue of occupational retirement provision whole anticipates growth of 34.7 % in the number of new poli- is rendered readily comprehensible for those on the sales cies for 2004, the corresponding figure for the Talanx Group side. The business figures reported by HDI Leben and HDI surged 68.4 % to 585,632 (347,851) (excluding credit life insur- Pensionskasse bear witness to our further expansion in the ance). field of occupational retirement provision: the new business generated by the two companies in this area showed an in- The total number of in-force policies in the segment in- crease of 289.5 % in total premiums paid to reach EUR 946.9 creased by 10.9 % in domestic business to 3.7 million; the (243.1) million. sum insured rose by 15.4 % to EUR 68.4 (59.3) billion. The Talanx life insurers in the competitive arena Virtually all our German life insurers outperformed the The life insurers belonging to the Talanx Group maximized market in the financial year just-ended. The main driver of their market opportunities and closed 2004 with growth growth in gross premiums written was the bancassurance rates well in excess of the market average. We attribute this sector: compared with the German market as a whole, where good performance in spite of the difficult business environ- premium income was up 2.6 %, Neue Leben Lebensversiche- ment to the excellent positioning of our companies in high- rung AG increased its premium income by 6.9 %, CiV Lebens- growth marketing channels. Based on initial market figures, versicherung AG by 18.0 % and PB Lebensversicherung AG by the Group – which only began transacting life insurance as much as 57.0 %. HDI Pensionskasse AG grew its premium twelve years ago – significantly enlarged its market share of income by 273.1 % from EUR 5.0 million to EUR 18.8 million, new business in individual life insurance – measured by the while Aspecta Lebensversicherung AG showed a gain of 8.1 %. number of policies – to 4.9 (4.0) %. The strongest increase in policy numbers was booked by Aspecta, with growth of 70 %. Yet Neue Leben (+61 %) and CiV (+51 % excluding credit life in- surance) also achieved impressive successes. (Figures relating to new and in-force business include Neue Leben Lebensver- sicherung AG for 2003 as well as 2004.) Measured in terms of total premiums paid, our domestic life insurers generated new business worth altogether EUR 14.2 (7.3) billion, an increase of 93.6 %. Whereas the market as a 53 ■ talanx. Annual financial statements. The companies abroad also recorded strong growth. Aspecta The portfolio of assets in the segment (including those held Liechtenstein, which distributes its products in Switzerland, for the account and risk of life insurance policyholders) grew grew by 7.8 % while Aspecta Luxembourg, with marketing ac- by 144.7 % to EUR 11.0 billion. This was due first and foremost tivities in Italy, Belgium and Spain, boosted its premium vol- to the initial consolidation of Neue Leben Lebensversicherung ume by as much as 283.2 %. The Italian company also enjoyed AG. Net investment income, also heavily influenced by Neue success with a rate of increase of 45.7 %, as did the – still small Leben, tripled to almost EUR 417.9 (147.0) million. Expenditure – Hungarian company Magyar Posta, which almost doubled on insurance claims rose by 48.7 % to EUR 679.8 (457.2) mil- its premium income. lion. Here too the initial consolidation of Neue Leben was the main factor in the increase. EBIT in the segment improved by The gross premiums written in our Life Primary Insurance 11.8 % to EUR 50.4 (45.1) million. segment increased by altogether 74.7 % year-on-year to EUR 1,785.9 (1,022.4) million. Growth derived primarily from Outlook the initial consolidation of the Neue Leben Group. Had it not All in all, the prospects for the Life Primary Insurance seg- been for this acquisition, which took effect retroactively as at ment are bright. The weakness of state-run pension systems 1 January 2004, premium income in the segment would have in many countries of the European Union is compelling citi- amounted to EUR 1.1 billion for 2004. The organic growth of zens to take retirement provision into their own hands. In 8.7 % was thus still well in excess of the growth posted by the Germany, reporting on the Retirement Income Act brought life insurance industry as a whole in Germany, which is put at home to broad sectors of the population the urgency of the 2.6 % for 2004. The boom towards year-end triggered by the issue of old-age provision. Based on their promising market- Retirement Income Act scarcely had any impact on gross pre- ing positioning, the companies belonging to the Talanx Group mium income; it will not be until 2005 that this is reflected will profit disproportionately strongly from this develop- in the premium volume. ment. As a consequence of the increased allocation to the net policy reserves for life and health contracts in the amount of EUR 567.5 (77.6) million, the underwriting result deteriorated to –EUR 327.1 (–117.9) million, an effect almost entirely attributable to the initial consolidation of Neue Leben. 54 Group management report. Life Primary Insurance. Property/Casualty Reinsurance. ■ Retention in Property/Casualty Reinsurance in % 2004 84.1 2003 76.8 The companies operating in this segment will stand by their Property/Casualty Reinsurance successful strategic orientation. In conjunction with the ex- The Group segment of Property/Casualty Reinsurance is pansion and intensive cultivation of sales activities, all the dominated by the listed joint-stock corporation Hannover companies are planning further appreciable growth for the Rückversicherung AG (Hannover Re) and its subsidiaries, in- current financial year, although in the German market new cluding E+S Rückversicherung AG (which operates exclusively business is expected to decline as an after-effect of the life in- on the German market) and further subsidiaries in Bermuda, surance boom at the end of last year. Our companies have re- Ireland, Luxembourg and South Africa. sponded to the changes in the German retirement provision market by developing new products. Contrary to market ex- The figures indicated below are not identical to those report- pectations, early sales figures suggest that these innovative ed by the Hannover Re Group for its property and casualty products – such as the new state-assisted basic or “Rürup” reinsurance business group in its annual financial statement. pension – have generated interest among consumers. This is because an additional reinsurance company is consoli- dated within the Talanx Group and a further Hannover Re It is first and foremost in the area of occupational pension business group is allocated here to the Property/Casualty schemes that we expect the sharpest growth in 2005. In addi- Reinsurance segment. Figures relating to individual companies tion to a number of cooperation agreements, including with are based on the local financial statements of the company associations such as the Federation of German Wholesale and concerned. Foreign Trade (Bundesverband des Deutschen Groß- und Außenhandels (BGA) e.V.) and the German Fast Food Employers’ Market development Federation (Bundesverband der Systemgastronomie (BdS) In 2004 virtually all lines of property/casualty reinsurance e.V.), we are working together with Deutsche Post World Net, offered a favorable market environment and good opportu- one of Germany’s largest employers. nities to write profitable business. Rates and conditions remained on a level commensurate with the risk. This was es- pecially true of the longer-tail liability lines. In marine insur- ance, too, gratifying rate increases were observed in several segments. Only in some property lines and in aviation busi- ness could a certain softening in rates be detected. The anti- 55 ■ talanx. Annual financial statements. cipated price erosion in natural catastrophe reinsurance also caused premium income in property/casualty reinsur- failed to materialize owing to the hurricanes in the Caribbean ance to contract sharply in the year under review. Gross pre- and the typhoons that affected Japan. Alongside these advan- miums written in property/casualty reinsurance contracted tageous market conditions, various strategic moves within by 19.0 % to EUR 6,045.5 million (EUR 7,464.2 million). At con- the Group ensured that the extraordinarily large burden of stant euro exchange rates – especially against the US dollar – major losses could be cushioned. the decrease would have been considerably smaller. In view of the good quality of the business written and improved capital Development of gross premium income position we substantially increased the level of retained pre- We continued to optimize our portfolio as part of the “more miums to 84.1 % (76.8 %). Net premiums written consequent- from less” initiative, which entails replacing low-margin, high- ly contracted far less sharply than gross premiums, falling by volume proportional business with more profitable non-pro- 11.2 % to EUR 5.1 billion. portional arrangements. The latter also enable us to keep a considerably tighter grip on the pricing of the treaties. We en- Major losses forced this underwriting policy with particular vigor last year After the relatively light burden of major losses recorded in in the United Kingdom and Ireland, the Benelux countries, 2003, the year under review will probably go down as the Italy, Australia/New Zealand, Latin America, Africa, Taiwan most expensive year for natural disasters in the history of the and Hong Kong as well as in industrial property insurance insurance industry. Provisional market estimates suggest that lines in North America. The share of the total property and the insurance sector will be paying out around USD 46 billion casualty reinsurance portfolio attributable to non-propor- to settle catastrophe claims. tional business consequently increased to 83 % (81 %). In Eastern Europe too we focus on writing non-proportional The numerous hurricanes and typhoons as well as the severe business. In the year under review we analyzed our portfolio seaquake in the Indian ocean were the dominant natural ca- in this region in light of strict profitability criteria and relin- tastrophe events of 2004. The burden of losses incurred by quished business that offered insufficient returns. Talanx in the year under review was also correspondingly high: compared with just EUR 51.5 million in the previous However, this regrouping of our portfolio in favor of non- year, the net strain before tax from major losses in property proportional acceptances at the expense of proportional busi- and casualty reinsurance totaled EUR 287.2 million in the year ness, combined with the restructuring of the business accepted under review. The proportion of major losses relative to net from the HDI affiliates and the weakness of the US dollar, premiums from property/casualty reinsurance within the 56 Group management report. Property/Casualty Reinsurance. ■ Hannover Re Group thus stood at 8.3 %, a figure many times South Africa was particularly gratifying. The profitability of higher than in the previous year (1.5 %). The four severe hurri- Hannover Re Africa improved as a consequence of the revised canes in Florida alone cost Hannover Re EUR 194.3 million for underwriting policy and the company’s repositioning. The net account. The third of the four hurricanes caused by far combined ratio for 2004 stood at just 95.3 %, compared to the heaviest loss for marine business. The damage to the oil 107.1 % in the previous year. platforms in the Gulf of Mexico produced the largest insured loss ever recorded in offshore business. The disastrous flood- Results ing suffered in South Asia on 26 December 2004 produced a Despite the heavy burden of major losses incurred in the year strain of EUR 29.1 million for Talanx. This relatively slight loss under review, we are very satisfied overall with the develop- burden was attributable to the very low insurance density in ment of property/casualty reinsurance. The portfolio per- the affected regions. formed superbly in all areas other than natural catastrophe business and made up for the latter’s reduced profits. The un- Several typhoons affected predominantly less industrialized derwriting result improved significantly on the previous year. regions of Japan, and the strains incurred by reinsurers were In certain countries and segments we even succeeded in gen- modest. Only Typhoon “Songda” caused a significant loss of erating an underwriting profit. EUR 11.6 million for our account. In Germany we were able to write profitable business in two The major loss experience in Germany was very positive in key lines and closed with a positive underwriting result: the year under review, with just two large claims reported. namely in industrial fire business and in our largest line, mo- These two claims produced a total net loss of EUR 10.4 million tor third party liability insurance. Rates and conditions were for our company. more than adequate in both lines and the situation as regards major claims was favorable. Although the combined ratio – after allowance is made for deposit interest received – was somewhat higher than in the Due to the selective underwriting policy, our portfolio in the previous year (96.2 %) at 97.0 %, this is nevertheless a satisfac- important London marine market closed the year with an un- tory figure in view of the unusually heavy loss expenditure. It derwriting profit. Non-proportional marine business contin- clearly demonstrates that we were able to further enhance ued to develop profitably despite the loss expenditure associ- the quality of our property/casualty reinsurance business in ated with Hurricane “Ivan”. What is more, reinsurance condi- the year under review. The development of the subsidiary in tions further improved as a consequence of this loss. 57 ■ talanx. Annual financial statements. Operating profit (EBIT) in Property/Casualty Reinsurance in EUR m 2004 635.0 2003 567.2 In Italy we concentrate on companies that do not belong to Outlook groups and are therefore able to take their own decisions on In the treaty renewals as at 1 January 2005 – almost two- reinsurance coverage. This gives us greater room for maneuver thirds of the portfolio is renegotiated at the turn of the year – on the pricing side. Motor third party liability business, in it became clear that the market environment remains highly which rehabilitation efforts have now been completed, favorable. Rates and conditions commensurate with the risk returned to underwriting profitability. were preserved in almost all segments. In some lines, espe- cially in long-tail liability business, it was even possible to ob- Leaving aside two fire losses in Russia, the year under review tain further modest improvements. We anticipate a virtually was largely spared sizeable loss events in Eastern Europe. We unchanged attractive market climate for the current year. were therefore able to generate an underwriting profit and in Price erosion was observed in those areas that had recorded Eastern European markets too we can feel highly satisfied the sharpest rate increases in recent years, e.g. aviation busi- overall with the business development. ness. In these circumstances we write our business highly selectively and scale back our market share accordingly. The reinsurance market in Australia and New Zealand offers us a very favorable market climate; our required margins Despite a certain tendency towards softer markets, property/ were satisfied in most lines of business. casualty reinsurance should continue to fare well in the cur- rent year. Provided the burden of major losses does not ex- With four severe hurricanes, natural catastrophe reinsurance ceed the multi-year average of around 5 % of net premiums, suffered such a heavy burden of losses that this sector closed we are looking forward to a very healthy profit contribution with a deficit in the United States. However, these events also in excess of the previous year. served to halt the price erosion that had begun to creep into this segment. Despite these strains, US property lines still showed a profit overall. Credit and surety reinsurance offered attractive opportunities in the USA, and we enlarged our mar- ket share. No significant loss events were recorded, and the result in this line continued to improve. Below the line the Group segment of Property/Casualty Reinsurance boosted its operating profit (EBIT) by 11.9 % to EUR 635.0 (567.2) million. 58 Group management report. Property/Casualty Reinsurance. Life/Health Reinsurance. ■ Retention in Life/Health Reinsurance in % 2004 92.0 2003 85.6 Life/Health Reinsurance Market development The reinsurance of life, health, annuity and personal accident In the year under review we paved the way for profitable insurances (the latter to the extent that they are offered by growth in this segment. In core markets such as Germany and life insurers) is brought together in this Group segment. the United Kingdom we succeeded in developing innovative Reinsurance business is transacted worldwide by the subsidi- products and were able to build and expand attractive cus- aries of Hannover Re under the proprietary brand name of tomer relationships. Hannover Life Re. Due to the Group consolidation the figures indicated below are not identical to those reported by the Special offerings aimed at senior citizens, to date a particular- Hannover Re Group in the annual financial statement for its ly neglected customer group in Germany compared to other life and health reinsurance business group. countries, constitute a promising market for the future. We have already devoted close attention to this new market and Our underwriting policy in life/health reinsurance is conser- are taking a proactive role in marketing and sales solutions. In vative and geared to generating stable, long-term earnings. Germany changes in tax law towards downstream taxation of Above all, it avoids derivative risks on the liabilities side of the retirement income have fuelled a veritable surge in demand balance sheet. The portfolio mix shifted further in the year for retirement provision products. In the coming decades too, under review towards the preferred lines of life, annuity and this will give rise to a favorable environment for life insurers personal accident, which in sum now account for 85 % (80 %) that will generate increased demand for individual products: of the total premium income. they will have to broaden their product range to include of- ferings designed to preserve living standards in the third phase of people’s lives. We have prepared the ground for a number of insurance part- ners from Anglo-American markets as they seek to enter the German market. These companies bring special product and marketing expertise that has hitherto been lacking in Germany. 59 ■ talanx. Annual financial statements. Development of gross premium income The life branch in Stockholm concentrates on risk-oriented Gross premium income contracted by 5.8 % in the year under business, bancassurance and European financing transactions review to EUR 2,206.0 (EUR 2,341.7) million, again principally with Swedish life insurers. As at 1 January 2004 we assumed a due to exchange-rate effects. A further reason for the de- modest reinsurance portfolio of terminated international crease was the temporary loss of a major account in the contracts from a major Finnish life insurer. Gross premiums United Kingdom. This market is served primarily by the local from this region climbed to EUR 40.5 million, with 67.6 % of subsidiary Hannover Life Re UK based in Virginia Water near this amount deriving from Scandinavian cedants focusing London. The company concentrates on risk-oriented products predominantly on Swedish business. such as term life policies and critical illness covers. Gross pre- miums declined to EUR 367.8 million in the year under review In the North American market we are positioned as a reinsur- following the discontinuation of new business under a key er of small and mid-sized US life insurers through our subsid- customer account as at the end of 2003. In the autumn of iary Hannover Life Re America based in Orlando/Florida. We 2004, however, a successor company was established for stood by our cautious underwriting policy of the previous which we function as lead reinsurer. years and, in particular, declined to accept unit-linked annu- ities with derivative components. The total portfolio of as- Our activities on the German life insurance market, which is sumed life insurance risks grew by 7.9 % to EUR 44.9 billion as served by the Hannover Re subsidiary E+S Rückversicherung at the balance sheet date. Gross premiums contracted – in AG, were largely dominated by the acquisition of new client part due to exchange-rate effects – to EUR 513.3 million and relationships with German mutual insurers. By extending our net premiums earned fell to EUR 228.0 million. As in previous reach in this way gross premiums in Germany were boosted years, intensive use was made of intergroup retrocessions. by 11.1 % to EUR 404.7 million. On the African continent we write risk-oriented life, critical Hannover Life Re Ireland also developed very favorably in the illness and disability business from the markets of southern year under review. Gross premium income grew by 5.9 % to Africa through our Johannesburg-based subsidiary Hannover EUR 346.9 million. The company writes treaty business on a Life Re Africa. The focus is on South Africa, which contributes worldwide basis, predominantly in the USA, Canada, South more than 71 % of this region’s premium volume. The compa- Africa and the UK. It offers clients bespoke and financially ny cemented its position as Africa’s second-largest life re- optimized solutions. insurer in the year under review. Gross premiums recorded gratifyingly vigorous growth of 49.2 % to reach EUR 100.7 million. 60 Group management report. Life/Health Reinsurance. ■ The Asian markets, served by our branches in Kuala Lumpur Key performance factors and Hong Kong, similarly exhibited a highly dynamic growth Hannover Life Re’s performance is primarily determined by momentum in the year under review. Gross premium income the development of the biometric risks, the investment in- surged to EUR 51.2 million – a rise of 8.9 % deriving largely come and its own administrative expenses. from the markets of Hong Kong, Japan and Malaysia. The biometric risks of mortality and morbidity developed With a market share of 25 % to 30 % our Sydney-based subsid- favorably overall from our perspective, albeit subject to con- iary Hannover Life Re Australasia has long enjoyed the role of siderable regional variation in mortality. With respect to mor- market leader in Australia, a position which it successfully bidity, a positive experience was observed in all markets. The defended in the year under review. Gross premiums grew by longevity factor is monitored particularly closely. Furthermore, 19.7 % to EUR 240.7 million. we review the risk situation for all treaties on a regular basis by performing detailed actuarial analyses. We further scaled back our retrocessions in the year under re- view. The level of premiums retained by Hannover Life Re The guiding principle of our investment policy is prudence; consequently climbed to 90.2 % (85.1 %) in 2004, and the net investments are focused on first-rate bonds of short- to medi- premiums earned of EUR 2.0 billion were slightly higher than um-term duration. We were thus willing to accept a slightly in the previous year. lower return in the year under review so as to be better equipped for a possible upturn in interest rates. Extraordinary investment income was scarcely realized in the year under review. The cost situation in life/health reinsurance reflects our lean infrastructure. The administrative expense ratio amounted to 2.7 % of net premiums earned – a figure substantially below that of comparable competitors. 61 ■ talanx. Annual financial statements. EBIT in Life/Health Reinsurance in % 2004 69.1 2003 70.7 Underwriting result Performance The regions of Germany and Australia/New Zealand left a Overall, the segment generated an operating profit (EBIT) of particularly favorable mark on the technical account: in EUR 69.1 (70.7) million in the year under review. The net re- Germany the underwriting result was strongly positive thanks turn on premium, calculated as a quotient of the operating to a favorable claims experience and good persistency of the profit (EBIT) and net premiums earned, thus stood at 3.4 in-force reinsured portfolios. Based on a highly gratifying (3.5) %. claims experience in the life and critical illness lines as well as a markedly improved experience in the traditionally difficult dis- We reported a particularly good net return on premium of ability pension line, Hannover Life Re Australia reported an im- 12.9 % in the United Kingdom due to the favorable risk expe- pressive underwriting profit. However, a non-recurring charge rience for mortality and morbidity. The run-off of the former of around EUR 4 million was taken as a consequence of the re- market leader’s terminated portfolio of enhanced annuities is organization and simplification of a quota share retrocession progressing profitably and according to plan. The operating treaty. The company thus showed an operating profit (EBIT) profit (EBIT) of Hannover Life Re UK amounted to EUR 10.2 amounting to EUR 13.8 million (EUR 12.2 million). The under- million and net income totaled EUR 7.0 million (+ 59.0 %). writing result for the entire segment declined, however, from –EUR 58.3 million to –EUR 132.8 million, principally due to the After opposing special effects in 2003 the results in Ireland increase in commissions and brokerage. and North America normalized again. At Hannover Life Re Ireland the operating profit (EBIT), which in the previous year had been burdened by a special effect in the investment sec- tor, amounted to EUR 15.0 million in 2004; net income to- taled EUR 13.5 million. Following the previous year’s record level of EUR 18.0 million, Hannover Life Re America’s per- formance in the year under review – with an operating profit (EBIT) of EUR 17.8 million – was entirely in line with our ex- pectations. Net income amounted to EUR 10.2 million. The impetus from premium growth at the Johannesburg- based subsidiary Hannover Life Re Africa carried over to the operating profit. The company’s EBIT moved back into posi- tive territory at EUR 1.5 million, following an operating loss of more than EUR 6 million in the previous year. 62 Group management report. Life/Health Reinsurance. Financial Services. ■ Jointly managed assets in EUR bn Talanx Other 2004 23.4 1.9 25.3 2003 20.2 0.8 21.0 Outlook Financial Services In our assessment, life/health reinsurance will develop fa- The Financial Services segment of the Talanx Group com- vorably in the current year. All in all, double-digit increases bines the activities of Ampega Asset Management GmbH, in premium volume and net income are forecast in this seg- Ampega Investment AG and Ampega Immobilien ment for 2005. Management GmbH as well as Protection Reinsurance Intermediaries AG. Demand for solutions in the areas of both risk protection and retirement provision will grow steadily due to the demo- Not only the management of all Talanx Group assets is con- graphic trends in almost all markets. Especially in European centrated in this, our newest segment; under the Ampega markets, Hannover Re expects to generate vigorous new busi- brand we also offer institutional and private clients outside ness. The most notable growth is anticipated with unit-linked the Group our expertise in the field of asset management. annuity insurance in Germany and the traditional products Institutional clients include inter alia insurers, “Pensions- of term life and critical illness in the United Kingdom. kassen” (pension insurance companies set up by one or more companies to serve exclusively their own employees), indus- The presence of our offices in Malaysia and Hong Kong will trial enterprises and provident funds. The product portfolio likely further cement our position in the ASEAN markets. We encompasses investment funds and institutional asset man- are systematically moving forward with the licensing proce- agement, including specialized administration services for dure for a branch office in China. Based on close, trusting con- other insurers. The focus is on absolute return products, tacts with the Chinese regulatory authority, we expect to European fixed-income strategies and alternative invest- commence business operations in the first half of 2006 at the ments. latest. Having put in place a comprehensive range of products and services for external clients and begun to systematically culti- vate the markets in 2003, the Ampega companies were al- ready able to achieve clear successes in gaining market access in 2004. 63 ■ talanx. Annual financial statements. Asset management for the Talanx Group In 2004 Ampega Investment AG acquired outsourcing man- As a “financial services institution licensed to perform indi- dates from two health insurers, an insurance group and a le- vidual financial portfolio management functions pursuant to gal protection insurer with a total volume of approximately § 32 KWG (Banking Act)”, Ampega Asset Management GmbH EUR 1.2 billion. has assumed asset management activities, including supple- mentary services, for the Talanx Group. In the year under Investment funds for institutional clients and private investors review the strategy adopted to generate earnings against a In the area of investment funds the Ampega product portfo- backdrop of equity markets that were moving sideways lio encompasses special funds, retail funds as well as institu- proved successful. The performance of the equity portfolio tional asset management including specialized administration surpassed the defined benchmark. services such as master trusts. Outsourcing services Absolute return funds found a ready market among profes- The outsourcing of asset management functions, including sional investors such as asset managers and banks. Ampega expert reporting, accounting and the preparation of the ex- Investment AG profited from this mood. Demand for master ternal reporting system, is of particular interest to small and trust solutions also continued to grow. Since July 2004 mid-sized insurers – especially as increasingly demanding Ampega – as the chosen product supplier – has offered enter- regulatory and accounting standards drive costs ever higher. prises in the metal industry insolvency protection for part- time working arrangements for older employees on the basis Ampega offers precisely these specific capital-market-related of investment funds. and administrative services, just as it covers the areas of per- formance measurement, risk management and compliance. Throughout the entire retail sector, sales revenue from equi- As an asset management company that is part of an insur- ty, bond and real estate funds was flat or even declined last ance group, it has a considerable competitive edge in terms year. Especially in the second half of the year, many custom- of both content and technology (absolute return approach, ers and brokers concentrated on life insurance purchases. In inclusion of direct investments etc.) over the bank investment 2004 Ampega Investment AG successfully expanded its exist- companies leading in the field of pure asset management. ing distribution channels and entered into new sales coopera- tion arrangements with banks, asset managers and marketing organizations. With a net inflow of funds totaling EUR 250 million Ampega ranked twelfth in 2004 among retail funds in Germany. 64 Group management report. Financial Services. ■ EBIT in Financial Services in EUR m 2004 23.6 2003 9.5 Hedge funds The pre-tax result (EBIT) of Ampega Investment AG im- Since the beginning of 2004 the Investment Modernization proved in the year under review by EUR 0.5 million to Act has permitted investment companies to set up hedge –EUR 2.3 million. Ampega Asset Management GmbH closed funds. This gives them an opportunity to further diversify the financial year with a pre-tax profit of EUR 18.5 (11.6) mil- their assets, move forward into new segments and markets lion – an increase of 59.0 % on the previous year. Protection and hence ultimately stabilize their performance. In 2004 Reinsurance Intermediaries AG, with a brokered volume of Ampega Asset Management GmbH prepared the establish- around EUR 1 billion and sales revenue of EUR 11.6 million, ment of hedge funds for the Talanx Group. The launch of boosted its profit – which derives principally from business these hedge funds in the Global Macro and Managed Futures with reinsurers outside the Group – from EUR 2.5 million to categories is planned during 2005. EUR 8.2 million. The operating profit (EBIT) of the Financial Services segment more than doubled from EUR 9.5 million Business development in 2004 to EUR 23.6 million. The highly gratifying development of the segment is founded primarily on the growth of EUR 2.7 billion in the assets under Outlook management by Ampega Asset Management GmbH to EUR The continued growth of the Talanx Group – whether organic 23.6 billion. Yet Ampega Investment AG too further strength- or through acquisitions – will crucially shape the business de- ened its market position in the financial year just-ended. As velopment in this segment. Customer demand for master at the balance sheet date it held 94 portfolios with a total vol- trust solutions and the outsourcing of asset management ume of EUR 2.4 billion. Altogether, the jointly managed assets functions is likely to keep growing. In the area of Outsourcing/ of the Ampega companies increased by 20.5 % to EUR 25.3 Services Ampega is seeking to enlarge our market share and (21.0) billion. Assets under management in business with in- acquire new institutional third-party business in an amount stitutional third-party clients grew to EUR 1.2 billion – com- of EUR 1.8 billion. pared to EUR 0.3 billion in the previous year – and to EUR 750 (500) million in retail business. Other income in the segment Following the year-end rally in the life insurance sector in improved from EUR 31.5 million to altogether EUR 49.0 million. 2004 retail funds have moved back towards center-stage for investors and brokers alike. The various Group companies will jointly tap into this potential for the sale of retail products. In this context they will be supported by external partners such as banks, asset managers and marketing organizations; we are seeking to further expand these distribution channels in the 65 ■ talanx. Annual financial statements. Regional breakdown of gross premium incomeGe consolidated Other countries 10.4 % Germany 32.2 % USA 32.4 % United Kingdom Rest of Europe 8.0 % 17.0 % Regional development current year. The goal for 2005 is to achieve net funds sales of Germany EUR 300 million in retail business and hence secure a place The gross premium income generated by the Talanx Group in the top ten measured by net funds generated in retail in its domestic market again reached an excellent level of funds. EUR 4.6 billion. Germany contributed 32.2 % of the total premium volume, an increase of 2.2 percentage points on We shall be able to redirect part of the existing life insurance the previous year. It thus drew level with the United States, business, namely the unit-linked policies, into our unit- the existing largest-volume single country. linked savings plans. At the same time the growing demand for occupational retirement provision will lead indirectly to a All Group segments are active in Germany: Talanx AG and the further increase in the invested capital concentrated in in- largest Group companies are also based here. Most of the vestment products. In view of these two developments we business written in Germany is with national clients. Several look to the remaining months of the 2005 financial year with brands operate in foreign primary insurance business; for- optimism and expect a significant rise in the operating profit eign reinsurance business is handled by the subsidiaries of (EBIT) generated by the Financial Services segment. For Hannover Re. Ampega Asset Management GmbH we anticipate an increase of almost 20 %, while for Ampega Investment AG an operat- In Germany 2004 was a highly successful year overall for ing profit is planned for the first time in 2005. both the insurance and reinsurance industries. Hardly any significant major claims were recorded in the financial year just-ended. Similarly, the Group reported a very positive claims experience, with just two major loss events in Germany – the “Pride of America” claim in Bremerhaven and a motor third party liability claim on the A4 expressway near Gummersbach. Industrial fire business including fire loss of profits was also in a very relaxed state – as far as sizeable claims were concerned –, leading to considerably fiercer com- petition. In motor insurance competition in the private cus- tomer segment was exacerbated by tariff reductions. Yet here too we boosted gross premiums through offerings tailored to specific target groups and by expanding our marketing activities. In the Life Primary Insurance segment we achieved 66 Group management report. Financial Services. Regional Development. ■ double-digit growth rates in both the number of in-force poli- Although rates in property business were flat, they remained cies and the sum insured. Here, as in Life/Health Reinsurance, on a high level. In the liability lines it was even possible to se- the elimination of tax privileges for premiums paid with ef- cure further improvements in rates and conditions. Against fect from 1 January 2005 was a particularly significant factor this attractive backdrop we expanded our position in the rein- in promoting a surge in demand. Thanks to our strong posi- surance market in the year under review, especially in long-tail tion in the bancassurance sector, virtually all our German life liability lines. In view of the contraction in available market insurers outperformed the market. capacity and our very good ratings, we were a sought-after partner in this area. In reinsurance business too profitable rates and conditions were generally obtained in the year under review. Indeed, we Our property business written on the London Market was im- even enlarged our market share in this segment. In this con- pacted by several major loss events in the year under review. text we profited especially from commercial difficulties af- Most notable here were the four hurricanes in the USA as well fecting a number of competitors and the withdrawal of one as a gas explosion at a petrochemical liquefied gas (LPG) plant reinsurer from the market. in Algeria. United Kingdom The London Market is also a prominent center for the under- Producing gross premium income of EUR 1.1 billion (8.0 % of writing of marine and aviation risks. This business was affected the Group’s total premium volume), the United Kingdom is by declining insurance and reinsurance rates in 2004 as well as our most important foreign European market. Several subsidi- surplus capacities in the reinsurance market. In light of this aries of Hannover Re are active in the Property/Casualty and market softening we wrote risks very selectively and scaled Life/Health Reinsurance segments. They write business not back our volume. By far the largest loss event for marine busi- only in the United Kingdom but worldwide. ness was Hurricane “Ivan”, the third of the four hurricanes to make landfall in Florida in the year under review. The damage Premiums in the primary insurance sector came under pres- to the oil platforms in the Gulf of Mexico produced the largest sure towards the end of the year under review, and it can there- insured loss ever recorded in offshore business. Thanks to our fore be assumed that the market cycle in the United Kingdom selective underwriting policy, this portfolio nevertheless closed has already passed its peak. with an underwriting profit. Particularly as a consequence of the hurricane losses, the downward trend in primary insurance The development of the reinsurance market, on the other rates was halted and reinsurance conditions continued to hand, again gave grounds for considerable satisfaction. improve. 67 ■ talanx. Annual financial statements. Rest of Europe Despite two fire losses in Russia we generated an underwrit- Gross premium income from other European countries ing profit in this market. The reinsurance market in France amounted to EUR 2.4 billion, or 16.9 % of our total premium found itself facing more intense competition in the year un- volume. Particularly prominent here are France, Italy, the der review, especially from new Bermuda-based providers. Netherlands and Austria. We nevertheless asserted our position in the market and were able to preserve the rate level. We are active in these and other European countries through subsidiaries of HDI International Holding AG, various Aspecta America companies, a cooperation with a postal service partner in The Talanx Group generated gross premium income of the life primary insurance and property/casualty lines and EUR 5.1 billion on the American continent in the year under through Hannover Re in the property/casualty and life/health review. This was equivalent to more than one-third, namely reinsurance lines. 35.9 %, of the Group’s total premium volume. The USA alone produced 32.4 % of gross premiums in the year under review, In the Life Primary Insurance segment our foreign compa- contrasting with as much as 38.0 % in 2003. The decrease was nies, most notably the company in Italy, booked impressive due principally to the continued weakness of the US dollar. increases in premium income. In Property/Casualty Primary Insurance most of our companies – such as in Austria, and In North America we are represented by subsidiaries of here especially in motor and legal protection business – Hannover Re conducting insurance and reinsurance business. grew more vigorously than the market as a whole; in the The largest of these companies, the New York-based Clarendon, Netherlands we are particularly strong in industrial business. operates in the Property/Casualty Primary Insurance segment. Developments in Eastern Europe were most gratifying, on The Canadian office in Toronto mainly transacts property/ both the insurance and reinsurance sides. The accession of casualty reinsurance on the national market. Our reinsurance several Central and Eastern European countries to the company in Bermuda has specialized in natural catastrophe European Union added a further boost to the economic risks. In Latin America our presence in property/casualty mood. Reinsurance rates moved in differing directions in the primary insurance is provided by the Brazilian company HDI individual countries; the pricing climate in Poland, Russia, Seguros S.A., a subsidiary of HDI International. For Hannover Ukraine and Romania was competitive. Risk-adequate rates in Re the major markets continue to be Mexico, Argentina, the Eastern European reinsurance markets were sustained, Colombia and Venezuela. although the first signs of softening could be observed. 68 Group management report. Regional Development. ■ Investment portfolio breakdown by currencies 31.12.2004 Other currencies 2.7 % AUS dollar 2.0 % Pound sterling 4.5 % US dollar 20.2 % Euro 70.6 % The development of the primary insurance market in North In reinsurance lines that no longer offered such good pros- America was again largely positive in 2004, although overall pects, for example in industrial property business, we scaled initial market softening could be observed. It was therefore back our exposure and regrouped our portfolio in favor of no longer possible to obtain premium increases across the more profitable non-proportional treaties at the expense of board. In several lines Clarendon was nevertheless able to proportional covers. Overall, our position in the North renew profitable programs or enter into promising new pro- American reinsurance market is excellent. grams. This was especially true of building insurance, where the company could cite the severe hurricane losses in sup- On the claims side the year under review was overshadowed port of its position. by the damaging hurricanes in Florida. US catastrophe rein- surance business consequently closed with a loss. Despite As in the previous year, property business in Latin America these strains, US property lines still showed a profit overall. was fiercely competitive in the primary sector. Since we pur- The hurricanes did, however, also serve to halt the price sue a prudent underwriting policy in this region and given erosion that was creeping into this segment. the absence of major claims in the year under review, the development of our portfolio was highly gratifying. Africa In Africa the Talanx Group generated gross premium income The state of the reinsurance market was thoroughly positive of EUR 244.2 million – or 1.7 % of its total volume – in the year in the year under review with no significant deterioration in under review. In South Africa, our most important market on rates. Particularly in liability business, rates and conditions the African continent, we are represented by several subsidiaries offered further good profitability; reinsurers even achieved of Hannover Re. some additional improvements on the previous year. Credit and surety reinsurance also presented attractive business opportunities following the withdrawal from the market of numerous US reinsurers. We enlarged our market share here despite increasing competition from Bermuda-based compa- nies and generated – thanks mainly to a reduced loss ratio – a further improvement in our result. 69 ■ talanx. Annual financial statements. Net reserves by region Total 9,944.4 EUR m Africa 1.2 % Asia 1.6 % Australia 2.2 % Germany 38.6 % America 29.6 % United Kingdom Rest of Europe 17.6 % 9.2 % The South African primary insurance market posted good re- Owing to the minimal insurance density in the affected sults in the year under review, despite marked softening ten- regions of Southeast Asia, the tsunami at the end of 2004 dencies in property business. Reinsurers, on the other hand, caused relatively slight loss expenditure of EUR 29.1 million are adopting a relatively disciplined approach. for the Talanx Group. We generally write our reinsurance business in South Africa Business in Taiwan and Hong Kong developed satisfactorily. as excess of loss covers, accepting only specialty business on a Following the failure of a number of market players, our cli- proportional basis. Hannover Re Africa’s results improved ents attach even greater importance to the financial strength substantially as a consequence of this revised underwriting of insurance providers – with the result that in this region too policy and the company’s repositioning. Hannover Re is a sought-after reinsurance partner. Asia China remains a target market for the international insurance The Talanx Group is represented in key Asian countries by and reinsurance industry, and the competition is correspond- subsidiaries and branches of Hannover Re as well as by a ingly intense. Our premium volume here is still relatively representative office of HDI SicherheitsTechnik GmbH in modest at present, and we intend to wait for more attractive Singapore. Of the Group’s total gross premium income an regulatory conditions. amount of EUR 386.4 million (or 2.7 %) derived from Asia, a good quarter of this from Japan. Australia The Australia/New Zealand region is served by Hannover Re Natural catastrophe reinsurance, which is written primarily on subsidiaries in the Property/Casualty and Life/Health a non-proportional basis, is our most important single line in Reinsurance segments. It produced EUR 353.2 million – or Japan and was further expanded in the year under review. The 2.5 % – of the Group’s gross premium volume. bulk of commercial business in the Japanese market is re- insured by the private sector, whereas private natural perils The reinsurance market in Australia and New Zealand again business is reinsured by a government-run consortium. Since developed to our satisfaction in 2004. Although early signs of the typhoons predominantly affected less industrialized re- a softening in the risk-adequate market could be detected, gions, the strains incurred by reinsurers were correspondingly rates remained on a very high level. Reinsurers with very modest. Only Typhoon “Songda” caused a significant loss for good ratings are particularly sought-after in Australia, and our account. Hannover Re was able to profit accordingly. The loss events recorded in the Australian market had no significant implica- tions for our Group. 70 Group management report. Regional development. Events after conclusion of the financial year. ■ Transactions of special significance subsequent to conclusion of the financial year At the beginning of February 2005 the Talanx Group placed Haspa Finanzholding and Sparkasse Bremen AG together subordinated debt in an amount of EUR 350 million with acquired 26 % of the shares of Neue Leben Pensionsverwal- great success via the Luxembourg-based Talanx subsidiary tung AG from the Talanx subsidiary Neue Leben Holding AG at Talanx Finanz (Luxemburg) S.A. The structuring of the subor- the beginning of 2005. In view of the fact that a participating dinated debt satisfies both supervisory regulations and the interest of 25 % already existed, with effect from the date of the requirements of the rating agencies for recognition as an above transaction the majority interest in Neue Leben Pensions- equity substitute. verwaltung AG and consequently indirectly also in its wholly owned subsidiary Neue Leben Pensionskasse AG has not been At the beginning of 2005 profit-sharing accounts receivable held by Talanx AG. Instead, both these companies are now from HDI V.a.G. in an amount of EUR 102.3 million were sold majority-owned by companies belonging to the S-Finanz- to Group companies. gruppe. Also at the beginning of 2005, Talanx AG relinquished the shares held until this date in HDI Service AG to HDI Privat Versicherung AG (74 % of the shares) and HDI Industrie Versicherung AG (26 % of the shares). 71 ■ talanx. Annual financial statements. Risk report With its various Group segments the Talanx Group offers an The potential implications of risks are not only documented extensive range of products encompassing not only insur- but also incorporated into the annual planning of the Group ance but also financial and other services. The acceptance of companies, thereby making it possible to consider additionally risks constitutes the core of our business, and a highly devel- the risks of future development. The plans drawn up by all oped level of risk awareness is vital to our success. Talanx and Group companies and for the Group as a whole are discussed its subsidiaries consequently employ a diverse range of meth- and approved by the Board of Management and Supervisory ods and instruments for risk monitoring and controlling Board of Talanx AG. which are geared to the minimization of risks and optimal exploitation of opportunities. Risks of future development The overall risk situation of the Talanx Group can be broken Over and above the comprehensive requirements placed on down into the following risk categories across the various reporting and information systems by the Insurance business segments: Supervisory Act, the decision-making processes and monitor- ing mechanisms extend in particular to the compilation and ■ underwriting risks auditing of the annual and consolidated financial statements, ■ default risks in insurance business the internal controlling system and the use of high-quality ■ investment risks planning and controlling instruments. ■ operational risks ■ other risks In accordance with our approach of ensuring the greatest possible decentralization, our subsidiaries each maintain Specific risks also exist in each of the Group segments. Both their own risk management systems; for they are best able to groups of risks are discussed in detail in the following sections. assess their risks and take timely risk management measures. Group controlling determines the risk situation of the Talanx No risks have as yet emerged that could jeopardize the contin- Group as a whole on the basis of the local risks. Reporting on ued existence of the Talanx Group or significantly impair its both the current business development and the risk manage- assets, financial position or net income. Substantial guarantee ment system ensures that the Board of Management of funds have been constituted in order to cover for the financial Talanx AG is kept constantly informed and can, if necessary, consequences of conceivable risks. effectively initiate countermeasures. 72 Group management report. Risk report. ■ Net loss ratios in the Property/Casualty Primary Insurance and Reinsurance segments in % 2004 2003 2002 2001 2000* 1999* 1998* 1997* 1996* 79.8 84.6 84.2 94.8 71.8 76.7 71.8 68.4 66.3 *based on the German Commercial Code (HGB), property and casualty insurance business The financial stability of the Talanx Group has been reviewed particularly likely to occur if only incomplete data is available over a number of years by highly reputed rating agencies regarding claims from previous insurance periods. The fore- such as Standard & Poor’s and A.M. Best. Standard & Poor’s casting risk refers to the fact that stochastic claim regularities has given both the Hannover Re Group and the collective of determined on the basis of past data may no longer be valid. primary insurers within the Talanx Group separate financial strength ratings of “AA-” (very strong). A.M. Best rates the The Talanx Group reduces the premium/loss risk first and financial strength of the entire Talanx Group “A” (excellent). foremost through claims analyses, modeling, selective under- writing and regular review of the claims experience as well as Major underwriting risks through the use of appropriate reinsurance protection. The Underwriting risks derive primarily from the premium/loss table shows the net loss ratios for the Property/Casualty risk and the reserving risk. Primary Insurance and Reinsurance segments. In this context, the premium/loss risk is the risk that previ- The second underwriting risk, namely the reserving risk, re- ously defined insurance premiums are used to pay subse- fers to the fact that the underwriting reserves may not suffice quent indemnification, although the amount of such pay- to pay in full the claims that have not yet been settled. The ments is initially unknown. The actual claims experience may level of the reserves is therefore regularly reviewed, not only therefore diverge from the expected claims experience. This internally but also by external actuaries. In addition to the is attributable to two reasons: the risk of random fluctuation losses reported to us by our clients, the Talanx Group estab- and the risk of error. lishes extra reserves where necessary on the basis of our own claims investigations. Furthermore, we constitute a so-called The risk of random fluctuation refers to the fact that both the IBNR (incurred but not reported) reserve for claims that have occurrence and amount of a claim are caused by random fac- probably already occurred but have not yet been reported tors. This element of chance cannot be excluded even with to us. complete data on claims. The risk of error describes the risk of reaching erroneous conclusions about a claim due to the use of incorrect stochastic methods. A distinction is made here between the diagnostic risk and the forecasting risk. The diag- nostic risk refers to the fact that the current situation may be misinterpreted on the basis of the available data. This is 73 ■ talanx. Annual financial statements. Run-off result of the initial loss reserve in % 2003 2002 2001 2000* 1999* 1998* 1997* 1996* incl. currency effect: 5.1 4.8 15.5 0.2 14.5 14.7 18.8 14.7 excl. currency effect: -0.6 -8.7 8.1 -6.3 8.3 12.4 14.2 14.5 *based on the German Commercial Code (HGB) The above table illustrates the run-off of the reserve estab- The Group counteracts the default risk at reinsurers by care- lished as at each balance sheet date for property/casualty in- fully selecting its reinsurers and paying close attention to surance, this reserve comprising the provisions constituted in their credit status. Assessments of retrocessionaires are guid- each case for the current and preceding occurrence years. The ed primarily by the opinions of internationally recognized run-off of the reserve for individual occurrence years is not rating agencies. The receivables of EUR 4.8 billion due from shown in this regard, but rather the run-off of the reserve con- reinsurers (reinsurance recoverables on incurred claims) can stituted annually in the balance sheet as at the balance sheet be split into rating classes as shown in the chart below. The date across all occurrence years. A run-off result arises when breakdown makes allowance for the fact that some of the the actual indemnification payments made for claims reported receivables existing as at 31 December 2004 were secured by in previous years diverge from the original loss reserve consti- deposits or letters of credit. tuted for this purpose, or if the level of the reserve is adjusted on the basis of fresh insights. The supplementary premiums Security-based split of receivables due from reinsurers that are customary in some lines of business are included in Rating the run-off result. Unrated 7.2 % AAA 8.8 % < BBB 2.3 % Default risks under insurance business BBB 7.0 % Receivables from insurance business are subject to a bad debt risk. Such receivables include, in particular, those due from reinsurers, policyholders and insurance agents. A 34.5 % AA 40.2 % As at the balance sheet date outstanding receivables more than 90 days beyond their due date existed in the amount of EUR 328.6 million in insurance business. Provisions of EUR 216.2 million were constituted for bad debts from insurance business. This corresponds to 5.5 % of the gross receivables. 74 Group management report. Risk report. ■ Weighting of major asset classes Asset classes Parameter as per investment guidelines Position as at 31.12.2004 At least 50 % Bonds (direct holdings and investment funds) 80.1 % At most 100 % Listed equities (direct holdings and investment funds) At most 25 % 4.7 % Real estate At most 5 % 1.3 % Major investment risks and exchange rates. The credit risk refers to the possible fail- Investment risks should be considered in the context of the ure of a debtor. The liquidity risk is the risk of being unable to orientation of investment policy. Within the Talanx Group meet payment obligations – especially those arising out of the investment policy at the individual companies is regulat- insurance contracts – at all times. ed by the supervisory framework applicable to each particu- lar company and by internal investment guidelines. The con- An essential component of risk management is the principle sistent principle underlying our investment activities is the of separation of functions – i.e. keeping a distinction between goal of generating a risk-appropriate contribution to the busi- portfolio management, settlement and risk controlling. Risk ness result. controlling – which is organizationally and functionally sepa- rate from portfolio management – bears responsibility for In our own interests and those of policyholders our invest- monitoring all risk limits, evaluating financial products and ment policy – building upon the legal foundations – is guided verifying that all transactions are effected in line with market by the following maxims: conditions. In this respect our management and control mechanisms are geared particularly closely to the rules ■ optimization of the return on investments while at the adopted by the Federal Financial Supervisory Authority same time preserving a high level of security (BaFin). ■ ensuring liquidity requirements are satisfied at all times (solvency) Detailed investment guidelines are in force for the individual ■ risk diversification (mix and spread) companies, compliance with which – in addition to compli- ance with statutory requirements such as the Ordinance on In order to attain these goals it is necessary to generate an the Investment of Restricted Assets of Insurance Under- appropriate investment income and ensure that it will be takings (Anlageverordnung) and the Circulars of the BaFin – preserved in the future. The dominant investment objectives is constantly monitored. These investment guidelines are are thus security and return, while at the same time taking used to define the framework of the investment strategy. account of the portfolio mix and spread and maintaining Monitoring of the quotas and limits set out in these guide- adequate liquidity. lines is the responsibility of Risk Controlling and the Chief Financial Officer of each company. Any significant modifica- Risks in the investment sector consist most notably of mar- tion of the investment guidelines and/or investment policy ket, credit and liquidity risks. The market risk arises from the must be approved by the Board of Management of each potential loss due to adverse changes in market prices and company and brought to the attention of the Supervisory may be attributable to changes in interest rates, equity prices Board. 75 ■ talanx. Annual financial statements. Risk Controlling monitors the risk in the bond portfolio by to Circular R 30/2002 BaFin are performed at least once a determining the interest rate risk with the aid of scenario month. analyses. It also controls adherence to the specified limits in relation to the duration of the bond portfolio. The change in For the bulk of the securities portfolio the experts at Ampega the fair value of interest-rate-sensitive products is monitored Asset Management GmbH simulate possible market changes daily on the basis of the convexity limits of the bond prod- that can cause significant price and interest losses as at the ucts. In the area of listed equities Risk Controlling calculates balance sheet date. The scenarios considered are shown in the the equity risk with the aid of scenario analyses. The stress following table. test calculations of relevance to the capital market pursuant Scenarios for changes in the fair value of securities held by the Group as at the balance sheet date Portfolio Scenario Portfolio change based on fair value Equities Stock prices +20 % + EUR 290.6 million Stock prices +10 % + EUR 145.3 million Stock prices -10 % - EUR 145.3 million Stock prices -20 % - EUR 290.6 million Fixed-income securities Yield increase +100 basis points - EUR 964.0 million Yield increase +200 basis points - EUR 1,822.5 million Yield decrease -100 basis points + EUR 954.3 million Yield decrease -200 basis points + EUR 1,985.6 million Exchange-rate-sensitive investments Exchange rate change* +10 % - EUR 939.2 million Exchange rate change* -10 % + EUR 939.2 million *Exchange-rate fluctuations of +/– 10 % against the euro 76 Group management report. Risk report. ■ Breakdown of fixed-income securities Securities issued Asset- Government by quasi- Corporate backed bonds governmental entities bonds securities Other Rating % EUR m % EUR m % EUR m % EUR m % EUR m AAA 76.9 4,095.7 41.3 2,260.3 6.4 433.7 68.7 2,886.0 1.0 29.5 AA 19.8 1,052.7 49.9 2,738.9 31.7 2,146.9 29.5 1,237.7 24.2 681.0 A 2.2 116.1 7.5 408.3 51.5 3,489.9 0.2 7.9 19.5 551.9 BBB 1.1 58.4 1.2 63.0 8.4 571.8 0.2 6.7 6.4 181.1 <BBB - 1.0 - - 1.7 114.1 0.8 33.2 4.1 115.0 Unrated - 0.3 0.1 8.1 0.3 20.7 0.6 24.9 44.8 1,267.3 Total 100.0 5,324.2 100.0 5,478.7 100.0 6,777.1 100.0 4,196.4 100.0 2,825.8 In the context of the currency risk we monitor adherence to Derivative transactions are entered into if they serve to hedge the principle of matching currency cover. The risk is limited against price risks or interest rate risks affecting existing by investing capital wherever possible in those currencies assets (hedging transactions) or prepare the subsequent pur- where obligations are to be fulfilled under insurance con- chase of securities (options), or if additional earnings are to tracts. In addition, the observance of specific limits for cur- be generated on existing securities (income enhancing trans- rency exposures is controlled. actions). The use of derivative products is regulated by inter- nal guidelines in order to ensure the most efficient and risk- The credit risks to be monitored consist of counterparty risks free possible use of forward purchases, derivative financial in- and issuer’s risks. Risks of counterparty default are controlled struments and structured products and to satisfy the require- using specified counterparty lists and by monitoring the lim- ments of the BaFin. Very strict limits have thus been imposed its defined for each rating class. Adherence to defined issuer on the use of such financial instruments. limits (group limits and/or company limits) is monitored by Portfolio Management. The parameters of the investment guidelines and the legal parameters for derivative financial instruments and struc- In order to monitor liquidity risks each type of security is as- tured products are updated and constantly monitored in the signed a liquidity code that indicates how quickly a security system of limits. Derivative positions and transactions are can be sold. These codes are regularly reviewed by Portfolio specified in detail in the reporting. Management. The plausibility of changes is checked in the Risk Controlling sector and, where appropriate, the codes are Operational risks modified. The data is subsequently included in the standard- Operational risks exist in connection with operating systems ized portfolio reporting provided to the Chief Financial or processes. They encompass both operating and legal risks. Officers. In the context of the liquidity that is held available, compliance with the defined minimum and maximum limits Operating risks can be caused by human error or technical is verified. Overstepping of any risk limits is immediately failure as well as by external influencing factors. The failure reported to the Chief Financial Officers and Portfolio of data-processing systems poses a particularly high risk. The Management. Talanx Group therefore invests systematically in the security and reliability of its information technology (IT). 77 ■ talanx. Annual financial statements. Operating risks may also arise in the area of human resources, means of regional diversification as well as by investing in for example due to a lack of the skilled experts and managers highly profitable markets and in product segments that necessitated by an increasingly complex business with a strong stabilize results. client orientation. The Group therefore attaches great impor- tance to further and advanced training activities. Furthermore, the Talanx Group pays close attention to risks deriving from the financing of acquisitions and their antici- Legal risks can result from contractual agreements and the gen- pated profitability. It counters the financing risk by drawing eral legal environment, especially in the area of commercial and up a regularly updated cash flow statement and defining pri- tax law. This legal framework is subject to intense monitoring orities for the application of funds. The risk of asset erosion by the Talanx Board of Management on behalf of the entire on acquisitions and their inadequate profitability is kept as Group and as part of an ongoing exchange of information with low as possible through intense due diligence tests conducted the management of the individual companies. in cooperation with independent professional consultants and auditors. Other risks Other risks consist primarily of participation risks of Talanx Property/Casualty Primary Insurance AG, especially those associated with the performance of Underwriting risks are the most significant in this segment. subsidiaries, the stability of results in the portfolio of parti- Losses that are greater in number or higher than those cipating interests and an inadequate balance in the envisaged in the premium calculation may occur randomly. business. Changes may also occur in the general legal or social frame- work or economic conditions, without it being possible to The Group uses controlling, auditing and risk management adjust the premiums to the resulting increased claims ex- tools to counter risks arising out of the development of re- penditure in adequate time. In order to manage this risk the sults at subsidiaries. A standard reporting system provides Talanx Group therefore tracks the development of loss ratios decision-makers with the latest information about the and modifies its pricing calculations accordingly. These risks Group and the business development at all major subsidiar- are also limited by establishing appropriate underwriting ies. They are thus able to intervene at any time in order to reserves. control risks. The Group reduces risks associated with a lack of stability in the results of the portfolio of participating in- Large individual and accumulation risks are minimized by terests or with an inadequate business balance primarily by means of carefully selected reinsurance cover that protects 78 Group management report. Risk report. ■ against peak losses. We are thus able to equalize even sizeable Benefit commitments include a guaranteed interest payment. fluctuations in results. The investment income may, however, be too low to meet this guarantee. The Group reduces this risk first and foremost Risks also arise as a consequence of the competition over by constantly monitoring the performance of investments. prices and conditions. These risks are limited principally by The risk associated with a guaranteed interest rate is alleviat- the strict profit orientation of the underwriting policy. ed by the high proportion of new business attributable to unit-linked life insurance policies. Under this type of life in- Life Primary Insurance surance, the investment risks and opportunities are assumed Typical risks in life insurance derive from the fact that con- by clients. tracts provide long-term guaranteed benefits: whereas premi- ums are fixed on inception of the contract for the entire poli- In Germany the Group is monitoring especially closely the cy period, the underlying parameters may change. Reserves reduced tax exemption of payouts under cash value life poli- calculated on the basis of assumptions regarding the trend in cies brought about by the Retirement Income Act, since the biometric data, such as mortality or disability rates, are estab- diminished tax appeal of such products could severely impair lished in order to ensure that benefit commitments under new business. The Group is countering this development with contracts can be met on a sustained basis. Responsible actuar- product innovations and modifications. ies ensure that the actuarial bases make adequate allowance for the risks of change. Property/Casualty Reinsurance The risk situation in this segment is determined largely by Policy benefits for life and health contracts are calculated in the Hannover Re Group. Underwriting risks are especially im- accordance with statutory requirements and, specifically, portant here. Incorrect pricing assumptions, inadequate accu- they are at least equal to the surrender value. The calculation mulation control or erroneous estimations of the loss experi- of the policy benefits in life insurance does not therefore take ence, for example, can cause key payment flows to diverge into account lapse probabilities. The lapse risk with respect to from their expected value. The development of loss ratios is receivables due from policyholders and insurance agents is monitored so as to improve the accuracy of pricing calcula- reflected in appropriate product and contract design and in tions and limit this risk. adequate provisions. 79 ■ talanx. Annual financial statements. A particularly important tool for identifying accumulation The reserves are always based upon the information provided risks in property/casualty insurance is the extrapolation of by clients. Actuarial analyses ensure that the actuarial bases scenarios for the Hannover Re Group. Simulation models are (interest rate, biometrics, costs) used to determine the policy used to analyze the increase in the frequency of natural catas- benefits for life and health contracts are appropriate and that trophes caused by global climate changes and the extent of the safety margins contained therein are adequately calculat- the losses that they cause. On the basis of these analyses ed. Furthermore, local supervisory authorities monitor the Hannover Re determines the maximum exposure that it reserves calculated by ceding companies to ensure that they is prepared to accept for such risks and calculates its corres- satisfy all local requirements with respect to actuarial methods ponding retrocession requirement. and assumptions. A further key instrument for limiting underwriting risks is Risks may also arise out of a change in demand for reinsur- retrocession, in other words the transfer of risks to other care- ance capacity in the developed markets of the USA, Japan, the fully selected reinsurers which have proven their credit status United Kingdom and Germany. This could be caused, for ex- over the long term. ample, by the elimination of tax subsidies for retirement pro- vision. Particular care is therefore taken to track tendencies in Risks may also arise as a consequence of a change in demand legislation and the new business statistics on the markets. for insurance protection. Market-related key figures are ana- lyzed and the market trend assessed in order to anticipate Financial Services changes in the market. This segment is subject not only to the indirect yield risk as- sociated with funds but also to the risks of losses stemming Life/Health Reinsurance directly from payment processes. In this segment, which is similarly dominated by the Hannover Re Group, underwriting risks are of special signifi- Constant performance monitoring of the individual assets cance. Secure biometric actuarial bases are used to counter limits the yield risk. Operating risks are minimized first and such risks. The mortality, morbidity and longevity risks, for foremost through the use of powerful IT systems with inte- example, are assessed and monitored using actuarial analyses grated check routines as well as through adherence to the of the relevant experience. principle of dual control. 80 Group management report. Risk report. Outlook. ■ Outlook for 2005 Economic development Although comparisons between the jobless figures for Assisted by a largely stable US economy and lively growth in Germany published in 2005 and the previous year’s figures Asia, the global economy continues to chart a relatively vigor- are obscured by the effects of the so-called “Hartz IV” reform, ous expansionary course with a forecast growth rate for 2005 there is no sign of easing on the employment front. On the of more than 4 %. For the Eurozone, however, and especially contrary, the existing large-scale unemployment appears to with regard to the cyclical trend in Germany, a significantly be worsening. The lack of flexibility in the German labor mar- weaker picture is emerging. Especially against the backdrop of ket by international standards, especially in the context of in- markedly depressed domestic demand, the growth forecasts dustrial relations and tax law, the relatively high wage costs for Germany were again revised sharply downwards and cut and the depressed level of domestic demand will probably to less than 1 %. The cyclical prospects for the German econ- serve to further devalue Germany as a manufacturing base omy in 2005 thus again rank at the bottom of the growth and cause an increasing number of jobs to be lost to more list within both the EU and the Eurozone, for which economic attractive locations such as Eastern Europe. Owing to the re- growth in a range of 1–2 % is forecast. The German and location of manufacturing abroad the vertical range of pro- European economy as a whole are being dragged down not duction in Germany is falling, and the dampening effect on only by the generally inhibiting high price of oil but also by the cyclical trend could at most be offset by more vigorous the protracted strength of the euro against the US dollar, an export growth or an increase in domestic demand. A rapid and exchange-rate effect which is causing products from this eco- far-reaching recovery on the labor market is unlikely in the nomic area to become more expensive overseas. There are, foreseeable future due to the low willingness to invest in however, justified grounds to expect oil prices to retreat in Germany. the foreseeable future, with positive repercussions for global economic activity. On the exchange rate front, the fundamen- International insurance markets tal weakness of the US dollar, which is likely to continue with While 2005 had initially been expected to see a gradual soft- no prospect of short-term easing in the considerable US ening in the hard market climate prevailing on the world’s budget and current account deficits, need not necessarily be major property/casualty insurance and reinsurance markets, accompanied by further upward revaluation of the euro, since current observations reveal hardly any signs of a significant non-European – most notably Asian – countries will probably downturn. On the contrary, there is good reason to believe come under increasing pressure to uncouple their currencies that the attractive market environment will be sustained in from the US dollar to a greater extent. 2005. A particularly significant factor that would support fur- ther strong price and underwriting discipline is the low level 81 ■ talanx. Annual financial statements. of global interest rates, which heavily limits the opportunities unemployment and sluggish incomes, which affect life insur- to make up for a lack of underwriting income with invest- ance particularly heavily. In addition, the market situation in ment returns. life insurance was crucially impacted by the entry into force of the Retirement Income Act at the beginning of 2005. This While property and casualty primary markets are likely to has given rise to a need for a new product generation that soften somewhat overall, the state of the market in property responds to the amended tax treatment and the fact that life and casualty reinsurance – in both the property lines and in insurers are finding themselves confronted by growing guar- liability business – can be assessed as stable in 2005. Indeed, antee risks and capital adequacy requirements – and, what is in some segments, such as certain areas of natural catastrophe more, takes account of the implications of a higher life ex- business, further modest improvements in rates are to be pectancy as reflected in the revised mortality tables pub- anticipated. lished by the German Association of Actuaries (Deutsche Aktuarsvereinigung e. V.). In life insurance and reinsurance growth impetus on the European markets is deriving from the area of unit-linked an- The change in framework conditions will prompt the product nuity insurance as well as from, inter alia, term life and criti- range in life insurance to shift in favor of annuity products, cal illness products in the United Kingdom. The expansion of which are likely to experience a sharp rise in new business. European bancassurance activities and selective entry into Overall, the growth impetus will be limited, not least due to Eastern European markets are also likely to open up consider- the significant effects of policies taken out in the last quarter able potential. Market opportunities for life and health rein- of 2004 to beat the 2005 deadline. In the future, life insurers surance in the North American and Asia-Pacific markets, on will find themselves in fiercer competition with other provid- the other hand, will probably best be exploited by a niche ers of old-age provision products such as banks, with their of- strategy focused on profitable subsegments. fering of retirement savings accounts and investment funds. Both “Pensionskassen” (special insurance companies set up Insurance market in Germany by one or more companies to serve exclusively their own em- Growth on the German insurance market is expected to ex- ployees) and “Pensionsfonds” (pension funds established as perience a further slowdown in 2005, with premium income separate legal entities) are expected to enjoy a sustained likely to show a relatively low market-wide increase in a range favorable development. of 1–2%. The muted overall expectation can be attributed in part to the depressed economic environment with high 82 Group management report. Outlook. ■ In property and casualty insurance premium growth is again Assuming an average US dollar exchange rate of EUR 1.30, the expected to be slower than in the previous year. This can be Group anticipates a restrained rise of around 2.5 % in gross attributed to the macroeconomic climate and increasingly premium volume to roughly EUR 14.5 billion. Net premiums intense price competition in some lines of this business seg- are expected to climb more strongly than gross premiums ment – special mention should be made of motor insurance due to higher retentions. Provided there are no exceptional in this context. Premium income in property and casualty in- loss events or capital market movements, the operating profit surance is forecast to grow altogether by around 1 % in 2005 – (EBIT) of the Talanx Group will again rise sharply in 2005 – although developments in the individual lines of business despite the extraordinary income included in the 2004 finan- will vary. cial year. In this case Group EBIT could break through the EUR 1 billion threshold for the first time. Expected business development in 2005 In 2005 the Talanx Group and its successful brands will again The broad variety of changes in the business environment press ahead with their profit-oriented underwriting policy that are impacting the insurance industry – developments on across all segments. Detailed remarks on the individual global financial markets, increasing accumulation exposures, Group segments are provided at the end of the section on new supervisory regulations and the changeover to IFRS, to each particular segment. Especially if we are spared sizeable mention only a few of the key issues – will constitute a major natural catastrophes, the underwriting result is expected to challenge in 2005 for the Talanx Group, just as they will for show improvements in profitability. On the investment front, other market players. A particular focus of our activities will against the backdrop of what is likely to be a modest rise in therefore be on the establishment and further expansion interest rates on fixed-income securities, a further widening of a holistic capital and risk management approach which of the credit spread is also to be anticipated. We must there- – especially in the context of the anticipated requirements of fore expect to see a tendency towards modest price losses, for “Solvency II” – is set to assume growing importance. example in the case of corporate bonds. Our stance on new equity exposures remains cautious. 83 ■ talanx. Annual financial statement. Consolidated balance sheet as at 31 December 2004 Assets Figures in EUR thousand Note 31.12.2004 31.12.2003 Fixed-income securities – held to maturity 1 422,704 491,222 Fixed-income securities – available for sale 2 24,178,394 16,422,002 Fixed-income securities – trading 3 1,064 1,850 Equity securities – available for sale 2 1,433,712 1,237,110 Equity securities – trading 3 19,183 2,321 Real estate 4 408,958 411,837 Shares in affiliated companies and participating interests 5 247,116 265,859 Loans 6 276,685 191,649 Other invested assets 7 2,707,274 2,003,633 Total investments without cash 29,695,090 21,027,483 Cash 1,002,493 759,654 Total investments and cash 30,697,583 21,787,137 Investments for the account and risk of holders of life insurance policies 1,120,233 584,692 Prepaid reinsurance premiums 14 587,028 651,111 Reinsurance recoverables on benefit reserve 13 186,886 308,453 Reinsurance recoverables on unpaid claims 12 4,810,759 4,908,326 Reinsurance recoverables on the provision for contingent commission 10,168 30,070 Reinsurance recoverables on other technical provisions 15 11,034 4,356 Reinsurers’ share of technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders 100,902 43,163 Reinsurers’ share of the provision for premium refunds 15 1,442 - Reinsurers’ share of technical provisions 5,708,219 5,945,479 Deferred acquisition costs 8 2,601,842 1,987,902 Accounts receivable 2,543,759 2,641,129 Funds held by ceding companies 8,563,695 7,722,420 Accounts receivable on direct written insurance business 1,150,692 1,090,947 thereof: from policyholders 447,578 382,737 thereof: from intermediaries 703,114 708,210 Intangible assets 399,286 262,921 thereof: goodwill 9 312,080 190,368 thereof: other intangible assets 10 87,206 72,553 Other assets 11 790,800 760,558 Accrued interest and rent 388,960 296,225 Deferred taxes 19 853,400 204,142 Total other assets 17,292,434 14,966,244 Total assets 54,818,469 43,283,552 84 Consolidated financial statement. Consolidated balance sheet. ■ Liabilities Figures in EUR thousand Note 31.12.2004 31.12.2003 Loss and loss adjustment expense reserve 12 21,426,353 21,508,794 Policy benefits for life and health contracts 13 11,917,968 6,045,053 Unearned premium reserve 14 3,302,581 3,385,281 Provision for contingent commission 174,002 134,474 Other technical provisions 15 14,316 20,063 Reinsurance payable 1,743,615 1,326,768 Funds held under reinsurance treaties 968,037 1,046,919 Contract deposits 1,441,592 687,382 Provision for premium refunds 15 700,699 351,457 Technical liabilities 41,689,163 34,506,191 Technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders 1,762,366 1,130,222 Minorities 16 1,727,437 1,119,991 Provision for pensions 17 289,967 257,303 Liabilities from direct written insurance business 1,749,489 498,028 thereof: to policyholders 1,434,542 266,800 thereof: to intermediaries 314,947 231,228 Other liabilities 18 1,208,501 891,803 Taxes 312,241 277,337 Provision for deferred taxes 19 1,813,446 1,105,943 Notes payable and loans 20 1,296,335 841,328 Surplus debenture 20 - 117,597 Total other liabilities 8,397,416 5,109,330 Stockholder’s equity 21 Common stock 260,000 260,000 Additional paid-in capital 629,529 629,529 Cumulative comprehensive income Unrealized appreciation/depreciation of investments, net of deferred taxes 154,294 148,546 Cumulative foreign currency conversion adjustment, net of deferred taxes -278,756 -260,529 Other changes in cumulative comprehensive income -3,505 -32,004 Total comprehensive income -127,967 -143,987 Retained earnings Beginning of period 1,792,267 1,452,435 Net income 444,003 337,667 Other changes -28,308 2,165 Total retained earnings 2,207,962 1,792,267 Total stockholders’ equity 2,969,524 2,537,809 Total liabilities 54,818,469 43,283,552 85 ■ talanx. Annual financial statement. Consolidated statement of income for the 2004 financial year Figures in EUR thousand Note 2004 2003 Gross premiums written 14,160,951 14,824,150 Ceded premiums written 3,211,941 3,944,823 Net premiums written 10,949,010 10,879,327 Change in gross unearned premiums -20,294 -312,204 Change in ceded gross unearned premiums 23,180 -150,687 Net premiums earned 10,951,896 10,416,436 Ordinary investment income 22 1,582,602 1,451,485 Realized gains on investments 22 488,438 404,239 Realized losses on investments 22 121,971 225,207 Unrealized gains and losses on investments 22 36,975 18,660 Other investment expenses/depreciations 22 117,350 260,934 Net investment income 22 1,868,694 1,388,243 Other technical income 10,675 19,342 Total revenues 12,831,265 11,824,021 Claims and claims expenses (net) 23 7,972,209 8,329,714 Change in policy benefits for life and health contracts (net) 24 -752,136 -202,940 Commission and brokerage 25 1,786,654 1,308,370 Other acquisition costs (net) 205,082 172,106 Other technical expenses (net) 413,330 334,655 Administrative expenses 457,927 391,794 Total technical expenses (net) 11,587,338 10,739,579 Other income and expenses 26 -283,801 -259,416 Operating profit/loss (EBIT) 960,126 825,026 Interest on hybrid capital 66,271 54,793 Net income before taxes 893,855 770,233 Taxes 19 253,760 297,830 Minority interest 196,092 134,736 Net income 444,003 337,667 86 Consolidated financial statement. Consolidated statement of income. Cash flow statement. ■ Cash flow statement for the 2004 financial year Figures in EUR thousand 1.1.–31.12.2004 1.1,–31.12.2003 I. Cash flows from operating activities 2,157,665 1,809,840 Consolidated net income (after tax) 444,003 337,667 Appreciation/depreciation 68,661 205,072 Net realized gans and losses on investments -181,290 -179,033 Amortization of investments 9,665 -10,220 Minority interest 196,092 134,736 Changes in funds held -1,031,200 212,019 Changes in prepaid reinsurance premiums (net) -14,530 -148,463 Changes in tax assets/provisions for tax incl. deferred taxes -7,428 183,623 Changes in benefit reserves (net) 1,933,212 1,728 Changes in claims reserves (net) 104,937 655,206 Changes in deferred acquisitions consts -555,697 -441,148 Changes in pension provisions 15,482 11,926 Changes in other technical provisions 722,826 657,439 Changes in clearing balances 401,445 -44,218 Changes in other assets and liabilities (net) 51,487 233,506 II. Cash flows from investing acitivities -3,540,275 -2,218,795 Purchases -36,081 -477,061 Fixed-income securities – held to maturity Sales 107,300 30,982 Purchases -15,229,905 -12,364,397 Fixed-income securities – available for sale Sales 11,693,386 9,307,041 Purchases -1,681,261 -852,578 Equity securities – available for sale Sales 1,788,392 1,015,994 Acquisition fof companies consolidated for the first time Purchase prices less acquired cash -48,641 - Purchases -15,538 -25,649 Real estate Sales 12,443 8,238 Other changes (net) -130,370 1,138,635 III. Cash flows from financing activities 1,619,239 250,620 Net changes in contract deposits 875,059 91,458 Dividend paid -45,000 - Repayment of notes payable -329,819 30,087 Proceeds from notes payable 750,000 - Surplus debenture -117,597 12,340 Minority interest -69,239 162,851 Sale of Hannover Re shares 707,641 - Profit on disposal of Hannover Re shares -185,177 - Other changes 33,371 -46,116 IV. Exchange rate differences on cash 6,210 -66,654 Change in cash and cash equivalents ( I + II + III + IV) 242,839 -224,989 Cash and cash equivalents at the beginning of the period 759,654 984,643 Change in cash and cash equivalents according to cash flow statement 242,839 -224,989 Cash and cash equivalents at the end of the period 1,002,493 759,654 Income taxes (payments) 146,807 184,629 Interest paid 59,674 111,136 87 ■ talanx. Annual financial statement. Segment report. Balance sheet Primary Insurance Property/Casualty Life Figures in EUR thousand 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Assets Fixed-income secutities – held to maturity 175,750 190,724 95,000 101,136 Fixed-income securities – available for sale 4,636,165 3,579,739 8,241,441 2,913,714 Fixed-income secutities – trading - - 1,064 1,850 Equity securities – available for sale 119,783 271,008 170,173 24,695 Equity securities – trading 2 -81 13,969 - Real estate 103,151 139,067 89,745 32,763 Shares in affiliated companies and participating interests 75,666 54,780 125,205 383,390 Loans 5,578 7,503 190,052 102,972 Other invested assets 1,114,118 874,409 937,032 344,242 Total investments 6,230,213 5,117,149 9,863,681 3,904,762 Investments for the account and risk of holders of life insurance policies - - 1,120,233 584,692 Prepaid reinsurance premiums 801,079 767,108 - - Reinsurance recoverables on benefit reserve - - 258,065 246,587 Reinsurance recoverables on unpaid claims 4,782,870 4,780,069 13,074 7,627 Reinsurance recoverables on other technical provisions 11,019 25,363 972,363 756,718 Reinsurers’ share of technical provisions 5,594,968 5,572,540 1,243,502 1,010,932 Deferred acquisition costs 139,802 151,344 541,555 341,841 Accounts receivable 829,532 1,016,854 67,915 19,914 Funds held by ceding companies 19,564 17,525 - 33,447 Other assets in the segment 1,672,783 1,817,290 1,137,719 355,180 Total assets 14,486,862 13,692,702 13,974,605 6,250,768 Liabilities Loss and loss adjustment expense reserve 7,835,067 7,292,585 159,183 132,920 Policy benefits for life and health contracts 3,587 35 7,097,982 2,391,728 Unearned premium reserve 1,764,808 1,803,699 624,328 591,501 Other technical provisions 30,911 24,914 696,392 349,851 Total technical provisions 9,634,373 9,121,233 8,577,885 3,466,000 Technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders - - 1,762,366 1,130,222 Accounts receivable 879,192 340,016 10,274 15,997 Funds held under reinsurance treaties 536,766 681,523 994,031 742,723 Other liabilities in the segment 1,198,015 1,168,805 2,249,773 363,567 Total liabilities 12,248,346 11,311,577 13,594,329 5,718,509 88 Consolidated financial statement. Segment report. ■ Reinsurance Financial Services Consolidation Total Property/Casualty Life/Health 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 456,269 427,655 8,427 65,884 - - -312,742 -294,177 422,704 491,222 8,941,486 7,460,210 1,246,615 2,114,339 1,647 1,415 1,111,040 352,585 24,178,394 16,422,002 - - - - - - - - 1,064 1,850 1,097,314 800,096 10,936 141,311 2 - 35,504 - 1,433,712 1,237,110 2,482 2,031 - 370 - - 2,730 1 19,183 2,321 212,996 213,441 - 23,422 - - 3,066 3,144 408,958 411,837 3,924,580 3,001,446 253,014 471,386 2,931 93 -4,134,280 -3,645,236 247,116 265,859 60,534 66,143 20,521 15,031 - - - - 276,685 191,649 2,875,793 1,160,884 208,712 266,362 85,078 22,334 -1,510,966 95,056 3,709,767 2,763,287 17,571,454 13,131,906 1,748,225 3,098,105 89,658 23,842 -4,805,648 -3,488,627 30,697,583 21,787,137 - - - - - - - - 1,120,233 584,692 82,415 114,208 519 2,555 - - -296,985 -232,760 587,028 651,111 - - 95,004 204,132 - - -166,183 -142,266 186,886 308,453 2,038,367 2,330,341 89,923 87,334 - - -2,113,475 -2,297,045 4,810,759 4,908,326 10,306 15,433 -322 401 - - -869,820 -720,326 123,546 77,589 2,131,088 2,459,982 185,124 294,422 - - -3,446,463 -3,392,397 5,708,219 5,945,479 251,246 255,861 1,719,298 1,344,787 - - -50,059 -105,931 2,601,842 1,987,902 1,511,197 1,498,389 634,283 891,391 - - -499,168 -785,419 2,543,759 2,641,129 3,574,178 4,847,114 5,939,803 3,616,632 - - -969,850 -792,298 8,563,695 7,722,420 1,272,552 221,257 574,608 202,800 38,872 15,142 -1,113,396 3,124 3,583,138 2,614,793 26,311,715 22,414,509 10,801,341 9,448,137 128,530 38,984 -10,884,584 -8,561,548 54,818,469 43,283,552 14,582,737 15,467,781 1,067,527 950,591 - - -2,218,161 -2,335,083 21,426,353 21,508,794 - - 5,253,534 4,026,486 - - -437,135 -373,196 11,917,968 6,045,053 1,151,385 1,215,264 25,179 22,455 - - -263,119 -247,638 3,302,581 3,385,281 133,003 114,623 34,028 24,002 - - -5,317 -7,396 889,017 505,994 15,867,125 16,797,668 6,380,268 5,023,534 - - -2,923,732 -2,963,313 37,535,919 31,445,122 - - - - - - - - 1,762,366 1,130,222 1,160,931 1,154,514 268,764 364,883 - - -575,546 -548,642 1,743,615 1,326,768 671,143 633,448 1,755,530 1,001,860 - - -1,547,841 -1,325,253 2,409,629 1,734,301 1,883,910 1,231,642 2,427,196 375,031 103,895 9,288 -1,192,810 841,006 6,669,979 3,989,339 19,583,109 19,817,272 10,831,758 6,765,308 103,895 9,288 -6,239,929 -3,996,202 50,121,508 39,625,752 Stockholders’ equity* 4,696,961 3,657,800 Total liabilities 54,818,469 43,283,552 * Group stockholder’s equity incl. minority interests 89 ■ talanx. Annual financial statement. Segment report. Statement of income Primary Insurance Property/Casualty Life Figures in EUR thousand 2004 2003 2004 2003 Gross premiums written 5,392,274 5,611,300 1,785,915 1,022,362 thereof: with other segments - - - - thereof: with outside third parties 5,392,274 5,611,300 1,785,915 1,022,362 Ceded premiums written 3,110,678 3,258,176 286,988 259,044 Net premiums written 2,281,596 2,353,124 1,498,927 763,318 Change in gross unearned premiums 12,511 -156,367 -63,574 -90,426 Change in ceded unearned premiums 73,081 -25,383 35,892 83,972 Net premiums earned 2,367,188 2,171,374 1,471,245 756,864 Investment income (without profit/loss transfer) 213,432 338,344 417,885 147,027 Other technical income (net) 15,457 21,092 1,756 704 Total revenues 2,596,077 2,530,810 1,890,886 904,595 Claims and claims expenses (net) 1,830,524 1,525,566 679,813 457,171 Change in policy benefits for life and health contracts (net) -2,539 - -567,511 -77,573 Commissions and brokerage 171,828 167,776 92,587 59,566 Other technical expenses (net) 166,412 170,813 387,281 236,084 Administrative expenses 233,724 199,921 72,888 45,097 Total technical expenses 2,405,027 2,064,076 1,800,080 875,491 Other income and expenses (without profit/loss transfer) -125,892 -57,295 -40,424 15,980 Operating profit/loss (EBIT without profit/loss transfer) 65,158 409,439 50,382 45,084 Interest on hybrid capital 167 175 - - Net income before taxes 64,991 409,264 50,382 45,084 90 Consolidated financial statement. Segment report. ■ Reinsurance Financial Services Consolidation Total Property/Casualty Life/Health 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 6,045,542 7,464,157 2,205,993 2,341,724 - - -1,268,773 -1,615,393 14,160,951 14,824,150 994,329 1,349,255 274,444 266,138 - - -1,268,773 -1,615,393 - - 5,051,213 6,114,902 1,931,549 2,075,586 - - - - 14,160,951 14,824,150 959,396 1,734,739 177,073 337,018 - - -1,322,194 -1,644,154 3,211,941 3,944,823 5,086,146 5,729,418 2,028,920 2,004,706 - - 53,421 28,761 10,949,010 10,879,327 -42,195 -55,299 -3,730 -2,008 - - 76,694 -8,104 -20,294 -312,204 -20,512 27,819 -4,242 675 - - -61,039 -237,770 23,180 -150,687 5,023,439 5,701,938 2,020,948 2,003,373 - - 69,076 -217,113 10,951,896 10,416,436 836,857 902,281 255,985 178,205 -25,393 -22,030 169,928 -155,584 1,868,694 1,388,243 2,029 3,980 181 4,224 - - -8,748 -10,658 10,675 19,342 5,862,325 6,608,199 2,277,114 2,185,802 -25,393 -22,030 230,256 -383,355 12,831,265 11,824,021 4,064,288 5,135,976 1,247,861 1,310,662 - - 149,723 -99,661 7,972,209 8,329,714 - - -215,922 -283,750 - - 33,836 158,383 -752,136 -202,940 967,069 650,314 573,664 426,396 - - -18,494 4,318 1,786,654 1,308,370 16,451 17,999 61,152 -3,150 - - -12,884 85,015 618,412 506,761 97,808 105,066 55,363 48,286 - - -1,856 -6,576 457,927 391,794 5,145,616 5,909,355 2,153,962 2,065,944 - - 82,653 -175,287 11,587,338 10,739,579 -81,711 -131,623 -54,056 -49,125 48,989 31,515 -30,707 -68,868 -283,801 -259,416 634,998 567,221 69,096 70,733 23,596 9,485 116,896 -276,936 960,126 825,026 7,003 8,960 1,733 1,511 - - 57,368 44,147 66,271 54,793 627,995 558,261 67,363 69,222 23,596 9,485 59,528 -321,083 893,855 770,233 Taxes 253,760 297,830 Minority interest 196,092 134,736 Net income 444,003 337,667 91 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Consolidated financial statement. Notes General accounting principles Talanx AG is a wholly-owned subsidiary of HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI). HDI is obliged to prepare consolidated annual accounts in accordance with §§ 341 i ff. of the German Commercial Code (HGB). The annual financial statements of Talanx AG and its subsidiaries are included in these consolidated annual accounts. Pursuant to § 291 of the German Commercial Code (HGB) Talanx AG is therefore released from its obligation to compile a consolidated financial statement. The present financial statement has been drawn up on a voluntary basis. The consolidated financial statement of Talanx AG has been drawn up in accordance with US GAAP (United States Generally Accepted Accounting Principles). In addition, the preparation of the consolidated financial statement made allowance for the standards of the Deutsches Rechnungslegungs Standards Committee e.V. (DSRC) applicable to insur- ance companies, insofar as their application gives rise to reporting obligations above and beyond the requirements of US GAAP. All Statements of Financial Accounting Standards (SFAS) issued by the US Financial Accounting Standards Board (FASB) on or before 31 December 2004 with binding effect for the 2004 financial year have been observed in the financial statement. In November 2003 and March 2004 the Emerging Issues Task Force reached a consensus on some parts of EITF Issue 03-1 “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”. EITF Issue 03-1 discusses the meaning of other-than-temporary impairment and provides guidance for its application to certain investments that fall within the categories of “available-for-sale” and “held-to-maturity” pursuant to SFAS 115 “Accounting for Certain Investments in Debt and Equity Securities” as well as to equity investments carried at cost in accordance with the “cost method” of accounting. The standard requires certain quantitative and qualitative informa- tion (inter alia regarding unrealized losses) for investments allocated to these categories. The recognition and measure- ment guidance in EITF Issue 03-1 has been delayed until publication of further implementing guidance. Talanx is currently exploring the implications of EITF Issue 03-1 for the consolidated financial statement. In December 2004 the FASB published SFAS 123 (revised 2004) “Share-Based Payment” (SFAS 123R). SFAS 123R provides rules for the accounting of transactions in which a company issues its own equity instruments as compensation for goods or services. In addition, SFAS 123R provides rules for the accounting of transactions in which a company incurs liabilities from the procurement of goods or services, the amount of which depends on the fair value of its own equity instruments or which can be paid for through the issuance of its own equity instruments. This standard does not give rise to any significant implications for the consolidated financial statement. The reader is referred to our remarks on page 137 “Stock appreciation rights”. In December 2003 the FASB issued FASB Interpretation No. 46 (FIN 46) (revised December 2003) “Consolidation of Variable Interest Entities” (FIN 46R). Talanx has applied the standards of FIN 46R to special purpose entities since 31 December 2003 and to all other companies with effect from 31 March 2004. The application of FIN 46R did not result in the additional consolidation of entities above and beyond the group of consolidated companies described herein. More detailed explanations are provided in the section on the securitization of reinsurance risks on pages 112/113. The application of these standards did not have any significant impact on the consolidated financial statement. 92 General accounting principles. Consolidation. ■ Kapitel. Die Rubrik. In the consolidated financial statement drawn up in accordance with US GAAP it is to some extent necessary to make estimates and assumptions which affect the assets and liabilities shown in the balance sheet and the disclosure of income and expenses during the reporting period. The estimates and assumptions used reflect the best information available at the time of drawing up the consolidated financial statement; however, they may diverge from the actual amounts subsequently determined Consolidation Consolidated companies Talanx AG is the parent company of the Group. In accordance with SFAS No. 94 “Consolidation of All Major Owned Subsidiaries” the consolidated financial statement of Talanx AG includes all major domestic and foreign subsidiaries in which Group companies indirectly or directly hold a share of more than 50 % of the voting rights. The consolidated financial statement does not include 14 subsidiaries, the overall influence of which on the Group’s net assets, financial position and results is considered minimal. Consolidated subsidiaries Germany Abroad 31.12.2003 48 39 Additions 3 2 Departures 1 1 31.12.2004 50 40 In the 2004 financial year the newly acquired companies of the Neue Leben Group were consolidated for the first time. There were no other significant changes in the group of consolidated companies. In conformity with Item 7.1.4 of the recommendations of the German Corporate Governance Code the following table also lists major participations in unconsolidated third companies. The figures for the capital and reserves as well as the result for the last financial year are taken from the local annual financial statements. 93 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The following companies are included in the consolidated financial statement: Name and registered office of the company Participation Capital and Result for the Figures in currency units of 1,000 reserves last financial year in % in EUR in EUR Affiliated companies resident in Germany Ampega Asset Management GmbH, Hannover/Germany 100.00 5,400 18,518 Ampega Financial Services GmbH, Hannover/Germany 70.00 26 -685 Ampega Immobilien Management GmbH, Hannover/Germany 100.00 3,392 414 Ampega Investment AG, Hannover/Germany 70.00 11,295 -2,336 ASPECTA Global Group AG, Hamburg/Germany 100.00 112,193 118 ASPECTA Lebensversicherung AG, Hamburg/Germany 100.00 42,243 11,425 ASPECTA Versicherung AG, Hamburg/Germany 100.00 5,936 -405 CiV Grundstücksgesellschaft mbH & Co. KG, Hilden/Germany 100.00 25,039 -5,196 CiV Immobilien GmbH, Hilden/Germany 100.00 25 - CiV Lebensversicherung AG, Hilden/Germany 100.00 31,835 18,862 CiV Versicherung AG, Hilden/Germany 100.00 6,342 14,210 E+S Rückversicherung AG, Hannover/Germany 38.57 464,281 44,000 GbR Hannover Rückversicherung AG / E+S Rückversicherung AG 40.40 60,013 1,214 Grundstücksgesellschaft, Hannover/Germany Hannover America Private Equity Partners II GmbH & Co. KG, 49.57 37,211 -84 Hannover/Germany Hannover Beteiligungsgesellschaft mbH, Hannover/Germany 100.00 27 -1 Hannover Euro Private Equity Partners II GmbH & Co. KG, 61.19 30,064 33 Hannover/Germany Hannover Euro Private Equity Partners III GmbH & Co. KG, 54.83 7,924 -25 Hannover/Germany Hannover Rück Beteiligung Verwaltungs-GmbH, 51.21 589,539 24,539 Hannover/Germany Hannover Rückversicherung AG, Hannover/Germany 51.21 1,336,816 120,567 HAPEP II Holding GmbH, Hannover/Germany 49.57 30,332 38 HAPEP II Komplementär GmbH, Hannover/Germany 100.00 24 - HBG Hannover Beteiligungsgesellschaft mbH & Co. KG, 100.00 1,268 -668 Hannover/Germany HDI Autohaus Service GmbH, Hannover/Germany 100.00 24 8 HDI Direkt Service GmbH, Hannover/Germany 100.00 51 82 HDI Industrie Versicherung AG, Hannover/Germany 100.00 169,990 17,227 HDI Informationssysteme Gesellschaft für Anwendungsentwicklung mbH, 100.00 288 74 Hannover/Germany HDI International Holding AG, Hannover/Germany 100.00 326,865 3,828 HDI Lebensversicherung AG, Hamburg/Germany 100.00 17,256 -1,915 HDI Pension Strategy & Management GmbH, Hamburg/Germany 100.00 1,531 -3 HDI Pensionsmanagement AG, Hamburg/Germany 100.00 5,848 -9,852 94 Kapitel. Die Rubrik. ■ Consolidation. Name and registered office of the company Participation Capital and Result for the Figures in currency units of 1,000 reserves last financial year in % in EUR* in EUR* Affiliated companies resident in Germany HDI Pensionskasse AG, Hamburg/Germany 100.00 9,821 60 HDI Privat Versicherung AG, Hannover/Germany 100.00 161,000 53,343 HDI Rechtsschutz Versicherung AG, Hannover/Germany 100.00 5,624 2,466 HDI Service AG, Hannover/Germany 100.00 501 1,293 HDI SicherheitsTechnik GmbH, HST, Hannover/Germany 100.00 511 1,536 HDI Verwaltungs-Service AG, Hannover/Germany 100.00 658,855 23,051 HEPEP II Holding GmbH, Hannover/Germany 61.19 22,233 -11 HEPEP II Komplementär GmbH, Hannover/Germany 100.00 24 1 HEPEP III Holding GmbH, Hannover/Germany 54.83 2,303 -6 HEPEP III Komplementär GmbH, Hannover/Germany 100.00 24 - HNG Hannover National Grundstücksverwaltung GmbH & Co. KG, 100.00 53,591 2,112 Hannover/Germany Neue Leben Holding AG, Hamburg/Germany 60.00 48,095 7,486 Neue Leben Lebensversicherung AG, Hamburg/Germany 60.00 44,831 5,300 Neue Leben Unfallversicherung AG, Hamburg/Germany 60.00 2,581 3,657 Oval Office Grundstücks GmbH, Hannover/Germany 75.61 61,664 -115 ProACTIV Communication Center GmbH, Hilden/Germany 100.00 630 172 Protection Reinsurance Intermediaries AG, Hannover/Germany 100.00 387 8,180 SSV Schadenschutzverband GmbH, Hannover/Germany 100.00 26 9 VES Gesellschaft für Mathematik, Verwaltung und EDV mbH, 100.00 -371 308 Gevelsberg/Germany Zweite HDI Beteiligungsgesellschaft mbH, Hannover/Germany 100.00 658,836 23,030 Affiliated companies resident abroad ASPECTA Assurance International AG, Vaduz/Liechtenstein 100.00 CHF 5,071 CHF -1,898 ASPECTA Assurance International Luxembourg S.A., 100.00 10,015 12 Luxembourg/Luxembourg Aspecta Zycie Towarzystwo Ubezpieczen Spolka Akcyjna (formerly: 100.00 PLN 10,149 PLN -9,683 Towarzystwo Ubezpieczeniowe Samopomoc Zycie S.A.), Warsaw/Poland Compagnie de Réassurance RT, S.A., Luxembourg/Luxembourg 100.00 5,065 - E+S Reinsurance (Ireland) Ltd., Dublin/Ireland 38.57 158,192 11,550 Euro International Reinsurance S.A., Luxembourg/Luxembourg 100.00 10,226 - H.J.Roelofs Assuradeuren B.V., Rotterdam/Netherlands 100.00 585 11 Hannover Finance (Luxembourg) S.A., Luxembourg/Luxembourg 51.21 7,931 -1,767 Hannover Finance (UK) Limited, Virginia Water/United Kingdom 51.21 GBP 111,093 GBP -9 Hannover Finance, Inc., Wilmington/USA 51.21 USD 400,773 USD 8,238 * Differing currencies are specified 95 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The following companies are included in the consolidated financial statement (contd.): Name and registered office of the company Participation Capital and Result for the Figures in currency units of 1,000 reserves last financial year in % in EUR* in EUR* Hannover Finance, Inc. compiles its own sub-group financial statement, including the following major companies in which it holds the following shares: Clarendon America Insurance Company, Trenton/USA 100.00 USD 186,909 USD 8,452 Clarendon National Insurance Company, Trenton/USA 100.00 USD 421,403 USD -109,212 Clarendon Select Insurance Company, Tallahassee/USA 100.00 USD 30,300 USD 3,296 Harbor Specialty Insurance Company, Trenton/USA 100.00 USD 40,177 USD -20,543 Insurance Corporation of Hannover, Itasca/USA 100.00 USD 198,700 USD 5,186 Redland Insurance Company, Council Bluffs/USA 100.00 USD 26,915 USD 828 HANNOVER International (Belgique) S.A., Brussels/Belgium 100.00 2,245 105 Hannover Life Re of Australasia Ltd, Sydney/Australia 44.89 AUD 189,760 AUD 22,600 Hannover Life Reassurance (Ireland) Ltd., Dublin/Ireland 51.21 110,872 10,731 Hannover Life Reassurance (UK) Ltd., Virginia Water/United Kingdom 51.21 GBP 36,930 GBP -886 Hannover Life Reassurance Company of America, Orlando/USA 51.21 USD 85,884 USD -5,242 Hannover Re (Bermuda) Ltd., Hamilton/Bermuda 51.21 932,766 73,520 Hannover Re Advanced Solutions Ltd., Dublin/Irland 47.00 31 -765 Hannover Re Real Estate Holdings, Inc., Orlando/USA 49.51 USD 128,487 USD 3,700 Hannover Re Real Estate Holdings, Inc. holds a sub-group including the following major companies in which it holds the following shares: Hannover USA Real Estate Corporation, Orlando/USA 100.00 USD 52,819 USD 1,777 Summit at Southpoint Corporation, Jacksonville/USA 100.00 USD 7,637 USD 215 5115 Sedge Corporation, Chicago/USA 100.00 USD 2,109 USD 159 Hannover Re Sweden Insurance Company Ltd., Stockholm/Sweden 51.21 SEK - SEK -2,804 Hannover Reinsurance (Dublin) Ltd., Dublin/Ireland 51.21 277,212 35,369 Hannover Reinsurance (Ireland) Ltd., Dublin/Ireland 51.21 550,099 58,647 Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg/South Africa 51.21 ZAR 404,405 ZAR 101,812 Hannover Reinsurance Group Africa (Pty) Ltd. compiles its own sub-group financial statement, including the following major companies in which it holds the following shares: Compass Insurance Company Ltd., Johannesburg/South Africa 100.00 ZAR 45,792 ZAR 11,328 Hannover Life Reassurance Africa Ltd., Johannesburg/South Africa 100.00 ZAR 43,411 ZAR 10,428 Hannover Reinsurance Africa Ltd., Johannesburg/South Africa 100.00 ZAR 375,986 ZAR 87,543 Lireas Holdings (Pty) Ltd., Johannesburg/South Africa 100.00 ZAR 25,708 ZAR 17,225 Hannover Risk Consultants B.V., Rotterdam/Netherlands 100.00 -142 3 Hannover Services (UK) Ltd., Virginia Water/United Kingdom 51.21 GBP 686 GBP 50 HDI Assicurazioni S.p.A., Rome/Italy 100.00 153,187 6,345 HDI HANNOVER International España, Cía de Seguros y Reaseguros S.A., 100.00 35,432 4,124 Madrid/Spain HDI Hannover Versicherung AG, Vienna/Austria 99.97 14,567 647 96 * Differing currencies are specified Kapitel. Die Rubrik. ■ Consolidation. Name and registered office of the company Participation Capital and Result for the Figures in currency units of 1,000 reserves last financial year in % in EUR* in EUR* HDI Immobiliare S.r.L., Rome/Italy 100.00 95 -5 HDI Samopomoc TU S.A., Warsaw/Poland 100.00 PLN 74,746 PLN 4,389 HDI Seguros S.A., São Paulo/Brazil 99.99 BRL 75,025 BRL 6,821 HDI Verzekeringen N.V., Rotterdam/Netherlands 100.00 36,918 9,563 HDI ZAD, Sofia/Bulgaria 90.00 2,193 -1,316 InLinea S.p.A., Rome/Italy 93.00 1,090 2 International Insurance Company of Hannover Ltd., 51.21 GBP 73,475 GBP 2,293 Virginia Water/United Kingdom Magyar Posta Biztosító Részvénytársaság, Budapest/Hungary 66.93 HUF 1,397,187 HUF -611,880 Magyar Posta Életbiztosító Részvénytársaság, Budapest/Hungary 66.93 HUF 1,255,837 HUF -395,286 Penates A, Ltd., Tortola/British Virgin Islands 47.23 USD 79,437 USD 7,361 Société Civile Immobilière HANNOVER International France, 100.00 3,457 -36 Paris/France Talanx Finanz (Luxemburg) S.A., Luxembourg/Luxembourg 99.95 5,298 131 WRH Offshore High Yield Partners, L.P., Wilmington/USA 47.42 USD 49,056 USD 3,703 Associated companies resident in Germany Hannover Finanz GmbH Beteiligungen und Kapitalanlagen, 12.80 76,004 6,575 Hannover/Germany IGEPA Gewerbepark GmbH & Co. Vermietungs KG, Munich/Germany 37.50 660 6,738 Neue Leben Pensionsverwaltung AG, Hamburg/Germany 29.40 8,364 -1,050 PB Lebensversicherung AG, Hilden/Germany 50.00 15,896 -2,507 PB Versicherung AG, Hilden/Germany 50.00 14,490 -3,177 SITON Beteiligungs GmbH & Co. Vermietungs KG, 50.00 -619 -270 Munich/Germany TAMARISKE Verwaltungsgesellschaft mbH & Co. Vermietungs KG, 55.45 2.285 -58 Munich/Germany WeHaCo Unternehmensbeteiligungs-AG, Hannover/Germany 22.45 73,689 34,933 Associated companies resident abroad ITAS Assicurazioni S.p.A., Trento/Italy 22.40 54,702 2,730 ITAS Vita S.p.A., Trento/Italy 17.86 58,690 6,228 WPG Corporate Development Associates IV (Overseas) L.L.C., 14.32 USD 1,974 USD -20 Grand Cayman/Cayman Islands * Differing currencies are specified 97 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The following companies are included in the consolidated financial statement (contd.): Name and registered office of the company Participation in % Companies not included in the consolidated financial statement JM Management Consulting GmbH, Hannover/Germany 33.80 PB Pensionsfonds AG, Hilden/Germany 50.00 Hannover International S.A.R.L., Paris/France 99.99 Hannover Life Re Consultants, Inc., Orlando/USA 51.21 Hannover Re (Guernsey) PCC Ltd., St. Peter Port/Guernsey 51.21 Hannover Re Gestion de Réassurance France S.A., Paris/France 51.21 Hannover Re Services Italy S.r.L., Milano/Italy 51.09 Hannover Re Services Japan KK, Tokyo/Japan 51.21 Hannover Services (Mexico) S.A. de C.V., Mexico City/Mexico 51.21 HR Hannover Re Correduría de Reaseguros S.A. Madrid/Spain 51.21 International Mining Industry Underwriters Ltd., London/United Kingdom 51.21 LRA Superannuation Plan Pty Ltd., Sydney/Australia 44.89 Mediterranean Reinsurance Services Ltd., Hong Kong/China 51.21 Protection Reinsurance Intermediaries Ltd., London/United Kingdom 100.00 Consolidation principles The subsidiaries included in the consolidated financial statement draw up an annual financial statement as at 31 December. Certain special funds and private equity companies have diverging financial years. For the purposes of inclusion in the consolidated financial statement, the individual financial statements drawn up in compliance with the provisions of the respective national laws – with respect to methods, valuations and disclosure – were transformed in accordance with US GAAP, on which the consolidated financial statement is based. 98 Kapitel. Die Rubrik. ■ Consolidation. The capital consolidation is based upon the “purchase accounting” method (comparable to the German book value method). The purchase costs of the participation are netted with the proportionate stockholders’ equity of the subsid- iary at the time when it is first included in the consolidated financial statement after the revaluation of all assets and liabilities. A difference that cannot be allocated to assets or liabilities is recognized as goodwill. Goodwill is valued in accordance with SFAS 142 “Goodwill and other Intangible Assets”, i.e. it is not amortized but is instead regularly tested (i.e. at least annually) for impairment. If such a test reveals that the assessable value as at the balance sheet date is less than the reported value, impairment is to be taken on goodwill. Immaterial and negative goodwill were booked to earnings in the year of their occurrence. Where minority interests in the stockholders’ equity exist, such interests are reported separately. The minority inter- est in the result is deducted from the net income in the statement of income and totaled EUR 196.1 million in the 2004 financial year Receivables and liabilities between the companies included in the consolidated financial statement were offset against each other within the scope of the debt consolidation. The effects of business transactions within the Group were eliminated via the consolidation of expenses and profit. Allowance was made for corresponding tax deferments (deferred taxes) in connection with eliminating entries recognized within the statement of income. Major acquisitions/changes in the group of consolidated companies Within the scope of a Secondary Public Offering in February 2004 Talanx AG reduced its interest in Hannover Rückversicherung AG to just over 50 % through placement of 20.6 % of the shares. In the year under review the remaining roughly 28 % of the shares of HDI Assicurazioni S.p.A., Rome, were acquired. Through the intermediate holding company HDI International the Group now holds all shares of the Italian insurance company. With retroactive effect as at 1 January 2004 Talanx AG acquired 60 % less one share of Neue Leben Holding AG, Hamburg. The remaining interests continue to be held by companies belonging to the organization of savings institutions (“Spar- kassen”). Neue Leben Holding is the parent company of Neue Leben Lebensversicherung AG and Neue Leben Unfall- versicherung AG, in which it holds all the shares. As at the balance sheet date it retained a 75 % interest in Neue Leben Pensionsverwaltung AG, although the planned reduction in the participation to less than 50 % has since been effected. 99 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The major implications of the changes in the group of consolidated companies have been discussed above. Most notable was the acquisition of the shares in the Neue Leben Group with effect from 1 January 2004. The impact of this group on key items in the annual financial statement is shown in the following table: Consolidated financial statement 2004 thereof Neue Leben Group EUR m EUR m % Assets Total investments and cash 31,818 6,024 18.9 Intangible assets 312 64 20.6 Accrued interest 389 93 24.0 Liabilities Policy benefits for life and health contracts 7,102 4,559 64.2 Unearned premium reserve 701 290 41.4 Liabilities to policyholders 1,435 1,090 76.0 Statement of income Technical statement of income Premiums in direct insurance business 5,066 675 13.3 Change in policy benefits for life and health contracts in direct insurance business -597 -448 75.0 Change in unearned premium reserve -204 -129 63.0 Change in deferred acquisition costs for direct insurance business 356 98 27.4 Non-technical statement of income Net investment income 1,869 243 13.0 Other income and expenses -370 -29 7.8 Associated companies In accordance with APB Opinion No. 18, all companies that are not subsidiaries and in which group companies hold between 20 % and 50 % of the voting rights – irrespective of whether a controlling influence is actually exercised over business or financial policy – are considered associated companies. Companies valued at equity Germany Abroad 31.12.2003 7 3 Additions 1 0 Departures 0 0 31.12.2004 8 3 100 Reporting and valuation methods, differences compared to German law. ■ Kapitel. Die Rubrik. Notes. Reporting and valuation methods, differences compared to German law Assets side Investments including income and expenses Investments were valued in accordance with SFAS 115 “Accounting for Certain Investments in Debt and Equity Securities”. Under these provisions, the valuation of investments is dependent upon the intended investment period. Securities classified as held to maturity are valued at purchase costs plus/minus amortized costs. Securities classified as available for sale are valued at fair value. The difference between the fair value and amortized cost is booked to other comprehensive income. Fair value adjustments are also made to recognize changes in the fair value of securities. Unlike the amortization of the purchase costs, these are not recognized in the statement of income. Taking account of apportionable deferred taxes, they are booked to a special item directly allocated to stockholders’ equity. Trading securities are valued at fair value. The difference between the fair value and amortized cost is recognized within the statement of income. In compliance with the accounting standards of the US Securities and Exchange Commission (SEC) for companies that draw up their financial statements in accordance with US GAAP, we tested for impairment the holdings of all papers that permanently listed at more than 20 % under their book value in the six months prior to the key date of 15 December 2004. Only in justified exceptional cases (management judgements) was a write-down to fair value omitted. In all other cases a write-down to fair value as at the key date of 15 December 2004 was taken. The aforementioned principles break with the historical cost principle and realization principle typically applied in German commercial law. The valuation of financial assets at near market value provides readers of the balance sheet with better information about the profitability of investments. Major participating interests are valued at equity if the Group holds between 20 % and 50 % of the voting rights, irrespective of whether a controlling influence is exercised over the commercial or financial policy of the participa- tion (“associated company”). Shares in affiliated companies not included in the consolidated financial statement and other participations are valued at cost of acquisition, where applicable less special write-downs. 101 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Real estate Real estate is divided into real estate for own use and third-party use. Only the real estate in the portfolio which is used to generate income is shown under the investments. Real estate is valued at cost of acquisition less scheduled and special depreciation. Income and expenses from rental agreements are included in the investment income. Investments for the account and risk of holders of life insurance policies This item refers principally to policyholders’ investments under unit-linked life insurance policies. They are accounted at fair value; the unrealized gains or losses are opposed by changes in the corresponding technical provisions in the same amount. The assets are kept and invested separately from other invested assets. Policyholders are entitled to the profits and income generated; they are likewise liable for the incurred losses. Reinsurance recoverables on technical provisions The reinsurers’ portions of the technical provisions are determined according to the contractual terms of the underlying reinsurance treaties; the reader is referred to the notes on the corresponding liabilities-side items. Deferred acquisition costs SFAS 60 “Accounting and Reporting by Insurance Enterprises” requires that acquisition costs for insurance contracts be capitalized as assets and amortized via the statement of income. German commercial law prohibits the capitaliza- tion of such expenses (§ 248 Para. 3 German Commercial Code [HGB]). In the case of property and casualty (re-)insurance, acquisition costs directly connected with the acquisition or renewal of contracts are deferred for the unearned portion of the premiums. In life and health (re-)insurance, the capitalized acquisition costs (directly allocable costs and appropriate portions of the acquisition overhead) under life and annuity policies with regular premium payments are determined in light of the period of the contracts, the expected surren- ders, the lapse expectancies and the anticipated interest income. In the case of life reinsurance treaties classified as “universal life-type contracts” pursuant to SFAS 97, the capitalized acquisition costs are amortized on the basis of the estimated gross profit margins from the reinsurance treaties, making allowance for the period of the insurance con- tracts. A discount rate based on the interest for medium-term government bonds was applied to such contracts. In the case of annuity policies with a single premium payment, these values refer to the expected policy period or period of annuity payment. In other reinsurance lines and in property/casualty insurance the capitalized acquisition costs are amortized on a straight-line basis across the average contractual period of up to five years. 102 Reporting and valuation methods, differences compared to German law. ■ Kapitel. Die Rubrik. Accounts receivable Accounts receivable from direct written insurance business, accounts receivable on reinsurance business and other receivables are accounted at nominal value. Value adjustments are made where necessary. Deferred tax assets In accordance with SFAS 109 “Accounting for Income Taxes” deferred tax assets and liabilities are established for differ- ences in time between the net income shown in the commercial and tax balance sheets. In principle, such valuation differences may arise between the national tax balance sheet and the national commercial balance sheet as well as the uniform consolidated balance sheet and the national commercial balance sheet or from tax loss carry-forwards. Deferred taxes are based on the current tax rates. In the event of a change in the tax rates on which the calculation of the deferred taxes is based, appropriate allowance is made in the year in which the change in the tax rate is stipulated in law. Deferred taxes at the Group level are booked using the Group tax rate of 40 %, unless they can be allocated to specific companies. Deferred tax assets are established to the extent that they will probably be realized in subsequent periods. Other assets Other assets are valued at cost of acquisition less required depreciation/amortization. Liabilities side Technical provisions (gross) The technical provisions are shown for gross account in the balance sheet, i.e. before deduction of the portion attrib- utable to reinsurers; the reader is referred here to the notes on the corresponding asset items. The claims equalization reserves and provisions for major losses permitted under German law cannot be brought to account under US GAAP. SFAS 60 and SFAS 5 “Accounting for Contingencies” state that provisions may only be established for impending losses from loss events that occurred before the balance sheet date. Given the fact that a considerable time lag may occur between the loss event and reporting of the receivable to the insurer, IBNR reserves are constituted for losses that have been “incurred but not reported”. Unearned premiums correspond to already collected premiums that are apportionable to future risk periods. These premiums are deferred by specific dates for insurance contracts (primarily in primary insurance); in reinsurance busi- ness global methods are sometimes used if the data required for a calculation pro rata temporis is unavailable. Policy benefits for life and health contracts are established on the basis of assumptions regarding interest rates, life expectancy and the disability risk. The actuarial methods used take account of the present value of future payments to policyholders less premium income due. 103 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The loss and loss adjustment expense reserves relate to payment obligations under insurance and reinsurance contracts in respect of which the amount of the insurance benefit or the due date of payment is still uncertain. Such reserves are established for known losses, claims that have been incurred but not yet reported and for internal and external expenses in connection with loss adjustment. The reserves are based on estimates, and the actual payments may therefore be higher or lower. This is especially true of reinsurance, where a considerable period of time may elapse between occurrence of the insured loss, notification by the insurer and pro-rata payment of the loss by the reinsurer. The realistically estimated future settlement amount, calculated in principle on the basis of the information provided by ceding companies, is brought to account. This estimate draws on past experience and assessments of the future development, taking account of market information. The amount of the reserves and their allocation to occurrence years are determined using established forecasting methods of non-life actuarial science. A case-by-case approach is also used for special events in connection with major claims, primarily in public liability and industrial fire business. As a general rule, future payment obligations are not discounted; in one subsegment of financial reinsurance, how- ever, technical provisions were discounted. The interest rates are determined by the contractual agreements. The period from inception to expiry of such contracts is at least four years. Financial reinsurance is accounted in accordance with the requirements of SFAS 113 “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts”. In this context, a distinction is made between insurance contracts according to the extent to which a risk transfer occurs between the ceding company and the reinsurer. The development of the loss and loss adjustment expense reserve is shown in the table on page 116. The provision for premium refunds refers to obligations to make premium refunds to insureds in life insurance that are not yet due as at the balance sheet date; they are valued on the basis of supervisory regulations or the individual contractual provisions. In addition, the portions of the cumulative valuation differences between US GAAP and the German Commercial Code (HGB) attributable to policyholders are shown here (provision for deferred premium refunds). Contracts with no technical risk Insurance contracts have been identified that do not satisfy the requirements of SFAS 113 “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts”. These involve reinsurance treaties under which the risk transfer between the ceding company and the reinsurer is of merely subordinate importance. With the exception of the contractually agreed fee payable by the ceding company, these contracts were eliminated in full from the tech- nical account. The profit components were netted under other income/expenses. The payment flows resulting from these contracts were reported in the cash flow statement under financing activities. Technical amounts were shown as net changes in contract deposits, the fair values of which corresponded approximately to their book values. 104 Reporting and valuation methods, differences compared to German law. ■ Kapitel. Die Rubrik. Technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders Regarding this item the reader is referred to the notes on the assets-side item and on the policy benefits for life and health contracts. Minorities Minority interests are established in accordance with the shares held in the stockholders’ equity of the subsidiaries by companies that do not wholly belong directly or indirectly to Talanx AG. Provisions for pensions Provisions for pensions and similar commitments are reported here. SFAS 87 “Employers’ Accounting for Pensions” provides for valuation of the provision for pensions using the Projected Unit Credit Method. The provision must be established for the benefit entitlement acquired as at the balance sheet date in light of future increases in the rate of compensation. The provision is to be assessed at present value, and the interest rate used for discounting is to be based upon the capital market rate obtainable for highest-rated securities. Under the German Commercial Code (HGB), however, pension provisions are normally valued in accordance with German tax regulations. In this case, the point of departure is the situation existing on the balance sheet date, with no consideration given to future increases in the rate of compensation. The information shown on pages 121-123 meets the requirements of SFAS 132 “Employers’ Disclosures about Pension and other Postretirement Benefits”. Liabilities Items such as surplus debenture, notes payable, reinsurance accounts payable, funds held under reinsurance treaties and other liabilities are shown with the amount repayable. Provision for deferred taxes Deferred tax liabilities must be shown in accordance with SFAS 109 if asset items in the consolidated balance sheet are to be reported as higher or liabilities items as lower than in the tax balance sheet of the Group company concerned and if these divergences are limited in duration; cf. the notes on the corresponding asset item. Stockholders’ equity The retained earnings include the capital surplus of the parent company plus the net income generated and not dis- tributed by the Group companies since they have belonged to the Talanx Group as well as income and expenses from consolidation measures. Unrealized gains and losses from the valuation of investments at fair value are shown as a separate component of the stockholders’ equity (cumulative comprehensive income). 105 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Currency translation Foreign currency items in the individual companies’ statements of income are converted into the respective national currency at the average rates of exchange. The individual companies’ statements of income prepared in the national currencies are converted into euros at the average rates of exchange and transferred to the consolidated financial statement. The conversion of foreign currency items in the balance sheets of the individual companies and the transfer of these items to the consolidated financial statement are effected at the mean rates of exchange on the balance sheet date. In the case of functional currencies, differences arising between the average exchange rate and the exchange rate on the balance sheet date lead to the establishment of a separate item in the stockholders’ equity, which is excluded from the statement of income. Functional currencies are defined as those currencies in which investments are effected. In con- trast to this procedure, German Commercial Law provides no explicit arrangements for currency translation in the consolidated financial statement. Exchange rates for the Group’s key foreign currencies were as follows: Balance sheet Statement of income 1 euro corresponds to: 31.12.2004 31.12.2003 2004 2003 AUD Australia 1,7489 1,6788 1,6916 1,7473 CAD Canada 1,6430 1,6290 1,6165 1,5905 GBP United Kingdom 0,7071 0,7070 0,6819 0,6899 PLN Poland 4,0877 4,7255 4,5437 4,4222 HUF Hungary 245,7750 262,1150 251,4427 253,3473 USD USA 1,3640 1,2610 1,2474 1,1342 ZAR South Africa 7,6793 8,3282 7,9666 8,5031 106 Notes on the consolidated balance sheet – Rubrik. ■ Kapitel. Die assets. Notes. Notes on the consolidated balance sheet – assets (1) Fixed-income securities – held to maturity Balance sheet value Fair value 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Issuers Figures in EUR thousand Government debt securities of EU member states - - - - US Treasury Notes - - - - Other foreign government debt securities 20,255 - 20,255 - Debt securities issued by semi-governmental entities 115,226 145,896 127,443 154,613 Corporate securities 213,993 241,425 221,827 363,837 Asset-backed securities 73,219 103,873 76,543 109,716 Other securities 11 28 11 57 Total 422,704 491,222 446,079 628,223 Balance sheet value Fair value 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Rating structure of fixed-income securities Figures in EUR thousand Due in one year 36,622 67,169 37,406 68,408 Due after one through five years 212,211 217,239 217,121 225,643 Due after five through ten years 152,150 185,156 167,559 311,341 Due after ten years 21,721 21,658 23,993 22,831 Total 422,704 491,222 446,079 628,223 Balance sheet value 31.12.2004 31.12.2003 Rating structure Figures in EUR thousand AAA 32,207 71,758 AA 181,282 165,926 A 152,484 238,374 BBB or lower 56,539 13,563 Unrated 192 1,601 Total 422,704 491,222 The rating structure is based on the classification made by the Standard & Poor’s rating agency. 107 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (2) Securities – available for sale Balance sheet Unrealized Cost or value gains/losses amortized cost 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Figures in EUR thousand Fixed-income securities Government debt securities of EU member states 3,205,022 2,271,822 35,257 29,850 3,169,765 2,241,972 US Treasury Notes 1,852,996 1,535,280 -16,043 3,954 1,869,039 1,531,326 Other foreign government debt securities 245,930 363,957 3,841 5,316 242,089 358,641 Debt securities issued by semi-governmental entities 5,363,440 3,701,123 72,279 32,113 5,291,161 3,669,010 Corporate securities 6,560,405 4,287,715 171,355 113,200 6,389,050 4,174,516 Asset-backed securities 4,123,220 3,144,848 157,099 86,190 3,966,121 3,058,658 Investment funds 1,829,819 599,546 55,331 -1,703 1,774,488 601,249 Other securities 997,562 517,711 53,484 17,230 944,078 500,481 Total fixed-income 24,178,394 16,422,002 532,603 286,150 23,645,791 16,135,853 Variable-yield securities Equities 368,432 250,232 19,914 5,550 348,518 244,682 From investment funds 1,064,979 984,448 81,591 39,752 983,388 944,696 Other securities 301 2,430 - 1,154 301 1,276 Total variable-yield securities 1,433,712 1,237,110 101,505 46,456 1,332,207 1,190,654 Total securities 25,612,106 17,659,112 634,108 332,606 24,977,998 17,326,507 2004 2003 Realized gains and losses Figures in EUR thousand Gains on disposal 266,472 360,136 Losses on disposal 98,577 147,671 Total 167,895 212,465 108 Notes on the consolidated balance sheet – Rubrik. ■ Kapitel. Die assets. Balance sheet Cost or value amortized cost 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Contractual maturity of fixed-income securities Figures in EUR thousand Due in one year 4,738,105 2,206,100 4,732,675 2,165,677 Due after one through five years 10,234,462 8,130,408 10,150,562 8,042,309 due after five through ten years 4,941,152 4,554,945 4,702,519 4,429,960 Due after ten years 4,264,675 1,530,549 4,060,035 1,497,907 Total 24,178,394 16,422,002 23,645,791 16,135,853 Balance sheet value 31.12.2004 31.12.2003 Rating structure of fixed-income securities Figures in EUR thousand AAA 9,672,914 8,220,485 AA 7,675,503 4,524,680 A 4,421,122 2,458,339 BBB or lower 1,087,740 953,468 Unrated 1,321,115 265,030 Total 24,178,394 16,422,002 109 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (3) Securities – trading Balance sheet Unrealized Cost or value gains/losses amortized cost 31.12.2004 31.12.2003 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Figures in EUR thousand Fixed-income securities 1,064 1,850 - -204 1,064 2,054 Equities - - - - - - Derivatives 19,183 2,321 -151 2,402 19,334 -81 Total 20,247 4,171 -151 2,198 20,398 1,973 Cost or Balance sheet value amortized cost 31.12.2004 31.12.2003 31.12.2004 31.12.2003 Contractual maturity of fixed-income securities Figures in EUR thousand Due in one year – - - - Due after one through five years 1,064 501 1,064 619 Due after five through ten years - - - - Due after ten years - 1,349 - 1,435 Total 1,064 1,850 1,064 2,054 Balance sheet value 31.12.2004 31.12.2003 Rating structure of fixed-income securities Figures in EUR thousand AAA - - AA 512 1.731 A 552 119 BBB or lower - - Unrated - - Total 1,064 1,850 110 Notes on the consolidated balance sheet – Rubrik. ■ Kapitel. Die assets. (4) Real estate 2004 2003 Figures in EUR thousand Balance sheet value as at 1.1. 411,837 469,481 Additions 38,748 8,834 Disposals 8,143 7,984 Write-downs 28,191 37,099 Other movements - -4,337 Currency exchange rate differences -5,293 -17,058 Balance sheet value as at 31.12. 408,958 411,837 Own-use real estate was taken out of the investments and allocated to other assets. (5) Shares in affiliated companies and participating interests 31.12.2004 31.12.2003 Figures in EUR thousand Affiliated companies 2,380 4,658 Associated companies 203,917 202,791 Participating interests 40,819 58,410 Total 247,116 265,859 The shares in associated companies accounted using the equity method are held within the Group primarily by Hannover Re (EUR 96.2 million), Talanx (EUR 65.5 million) and E+S Rück (EUR 19.8 million). (6) Loans 31.12.2004 31.12.2003 Figures in EUR thousand Mortgage loans 163,982 80,593 Loans and prepayments on insurance policies 112,703 111,056 Total 276,685 191,649 111 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (7) Other invested assets The other invested assets comprise short-term deposits at banks in the amount of EUR 2,021.9 (1,454.4) million. Securitization of reinsurance risks In the previous year the FASB published the revised version of FIN 46 “Consolidation of Variable Interest Entities” (FIN 46R) addressing the consolidation of so-called variable interest entities. In cases where consolidation is not required on the basis of a majority voting interest, a variable interest entity is to be consolidated by the primary beneficiary. The primary beneficiary is the party that absorbs a majority of the entity’s expected losses and receives a majority of its expected residual returns as a result of holding variable interests. The term “variable interest” is defined in FIN 46R as a “contractual, ownership, or other pecuniary interest in an entity that changes with changes in the entity’s net asset value”. FIN 46R was applied to all relevant entities with effect from 31 March 2004. Prior to this date we applied FIN 46R to all variable interests in special purpose entities. In addition, FIN 46R contains disclosure requirements with respect to existing relationships with variable interest entities that are to be satisfied even if such entities are not consolidated. Within the scope of the portfolio-linked securitization of certain reinsurance risks under transactions concluded in the years from 1993 to 1999, Hannover Re retroceded business on a proportional basis to an insurance enterprise in the form of a special purpose entity that financed the business via the international capital markets. The company has been in the process of winding up since February 2003. This transaction falls within the scope of applicability of FIN 46R. Since Hannover Re’s relations with the company do not constitute variable interests as defined by FIN 46R, the transaction does not give rise to a consolidation requirement for the Group. The residual assets of the special purpose entity as at 31 December 2004 remained unchanged from the previous year at EUR 1.3 million and thus do not constitute a significant risk of loss for Hannover Re. In the period from March 2002 to December 2004 Hannover Re retroceded natural catastrophe risks (including hurri- canes and earthquakes in the USA, windstorms in Europe and earthquakes in Japan) as well as worldwide aviation on a proportional basis to a special purpose entity that financed the business via the international capital markets. The transaction was terminated as per the contractual agreement effective 31 December 2004. Hannover Re’s relations with this entity do not constitute variable interests, and there is therefore no consolidation requirement for the Group. This entity reported liable equity capital of EUR 168.6 (182.4) million as at 31 December 2004. It is fully secured and thus does not constitute any risk of loss for Hannover Re. 112 Notes on the consolidated balance sheet – Rubrik. ■ Kapitel. Die assets. Since November 2000 Hannover Re has held voting equity interests in as well as a share of the capital market bonds issued by a special purpose entity for the securitization of reinsurance risks in France and Monaco. The total volume of the bonds issued stands at EUR 94.6 million (EUR 102.3 million). Based on its variable interests, the maximum risk of loss for Hannover Re from this transaction is EUR 14.5 million (EUR 15.7 million). Hannover Re is not the primary beneficiary in this relationship. Since 2 November 2001 Hannover Re has held the equity of a special purpose entity for the purchase and handling of so-called “life settlements”. The company’s total financing volume remained unchanged from the previous year at EUR 269.6 million. The entire underwriting risk of the special purpose entity is borne by an insurance company. This cedant retrocedes part of the risk to Hannover Re. The contract has been terminated with effect from 31 December 2003. The special purpose entity is closed for the acceptance of new business and is currently in the process of winding up. The maximum risk of loss for Hannover Re from this transaction is EUR 19.3 million (EUR 20.6 million). Hannover Re is not the primary beneficiary in this relationship. Investments Within the scope of asset management activities Hannover Re has participated in numerous special purpose entities since 1988, which for their part transact certain types of equity and debt capital investments. The same is true of the primary insurance sector, the oldest investment of which to be subsumed under special purpose entities derives from the year 1984. The set of variable interests associated with such structures consists largely of participations sold on the capital market to numerous investors. On the basis of our analysis we came to the conclusion that although – from the perspective of the Talanx Group – relations exist in the form of variable interests, there are no grounds to consider the Group the primary beneficiary in any of these transactions. A consolidation requirement therefore does not exist. Since May 1994, Hannover Re has participated in a number of special purpose entities for the securitization of catas- trophe risks by taking up certain capital market securities known as “disaster bonds” (or “CAT bonds”). Hannover Re’s relations with these entities constitute variable interests. Hannover Re is not the primary beneficiary in any of these transactions, and there is therefore no consolidation requirement. The maximum risk of loss for Hannover Re result- ing from these participations is EUR 33.0 (48.5) million. 113 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (8) Deferred acquisition costs Reinsurers’ Gross business share Net business Total Direct Indirect Direct Indirect Direct Indirect Figures in EUR thousand Balance as at 1.1.2004 1,442,283 896,330 267,813 82,898 1,174,470 813,432 1,987,902 Newly capitalized acquisition costs 577,030 474,469 82,806 36,987 494,224 437,482 931,706 Withdrawal - - 19 - -19 - -19 Amortized acquisition costs 62,169 327,085 4,195 58,201 57,974 268,884 326,858 Currency exchange rate differences -123 36,325 417 6,760 -540 29,565 29,025 Other changes -11,399 -16,665 -7,774 -338 -3,625 -16,327 -19,952 Balance as at 31.12.2004 1,945,622 1,063,374 339,048 68,106 1,606,574 995,268 2,601,842 (9) Goodwill 2004 2003 Figures in EUR thousand Goodwill net as at 1 January 190,368 205,938 Additions 173,318 1,347 Impairments 13,452 5,547 Disposals 38,154 8,377 Currency exchange rate differences - -2,993 Goodwill net as at 31 December 312,080 190,368 The additions were very largely attributable to the acquisition of Neue Leben Holding. In accordance with SFAS 142 “Goodwill and Other Intangible Assets” scheduled amortization is no longer taken on goodwill. Goodwill was tested for impairment in a two-step fair value process. Goodwill of minor importance with a total value of EUR 1.7 million was written off. Beyond the figures reported above no allowance was necessary for special amortization. The disposals derive principally from the reduction of 20.6 % in the Group’s interest in Hannover Rückversicherung AG and the associated decrease in the indirectly held interests in its subsidiaries. The above table includes the present value of future profits (PVFP) on acquired life reinsurance portfolios with a balance sheet value of EUR 76.2 million as at 31 December 2004. The amortization brought to account totaled EUR 11.8 million; due to the reduced interest described above, a disposal of EUR 2.1 million was recognized. The period of amortization continues to range from 5 to 29 years. 114 Notes on the consolidated balance sheet – Rubrik. ■ Kapitel. Die assets. (10) Other intangible assets Start-up and expansion Software cost Other 2004 2003 Figures in EUR thousand Balance as at 1 January 63,895 224 8,434 72,553 71,733 Changes in the consolidated companies 3,345 22 73 3,440 5,812 Additions 25,486 104 233 25,823 43,741 Withdrawals 1,599 - 813 2,412 17,782 Write-ups - - 277 277 223 Amortization 24,905 275 2,593 27,773 29,372 Transfers 4,745 - 11,602 16,347 -593 Currency exchange rate differences 169 2 -1,220 -1,049 -1,209 Balance as at 31 December 71,136 77 15,993 87,206 72,553 (11) Other assets 31.12.2004 31.12.2003 Figures in EUR thousand Buildings and plant under construction 46,438 29,160 Own-use real estate 284,664 269,297 Dividends receivable 865 7 Tax refund claims 79,460 57,957 Property, plant and equipment, inventories 90,527 82,559 Accounts receivable for services rendered 12,753 57,011 Trade accounts receivable 49,420 104,217 Accrued interest 30,570 - Other assets 196,103 160,350 Total 790,800 760,558 115 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Notes. Notes on the consolidated balance sheet – liabilities (12) Loss and loss adjustment expense reserve 31.12.2004 31.12.2003 Figures in EUR thousand Gross 21,426,353 21,508,794 Reinsurance recoverables 4,810,759 4,908,326 Net 16,615,594 16,600,468 The breakdown of the net loss and loss adjustment expense reserve into the Group segments is shown in the following table: 31.12.2004 31.12.2003 Figures in EUR thousand Primary insurance 3,198,306 2,637,809 thereof: Property/Casualty 3,052,197 2,512,516 Life 146,109 125,293 Reinsurance 13,521,975 14,000,697 thereof: Property/Casualty 12,544,370 13,137,440 Life/Health 977,605 863,257 Consolidation -104,687 -38,038 Total 16,615,594 16,600,468 116 Notes on the consolidated balance sheet – liabilities. ■ Kapitel. Die Rubrik. The loss and loss adjustment expense reserve (loss reserve) developed as follows: 2004 2003 Figures in EUR thousand 1. Loss reserve as at 1 January a. Gross 21,508,794 22,227,899 b. Reinsurance recoverables 4,908,326 6,316,773 c. Net 16,600,468 15,911,126 2. Plus incurred claims and claims expenses (net) a. Year under review 6,959,392 5,651,694 b. Previous years 862,086 2,540,857 c. Total 7,821,478 8,192,551 3. Less claims and claims expenses paid (net) a. Year under review 4,420,928 3,085,482 b. Previous years 2,888,692 2,500,828 c. Total 7,309,620 5,586,310 4. Effects of currency conversion -476,906 -1,873,896 5. Change in additions to/departures from the consolidated group 311 7,283 6. Reclassification 216 458 7. Other changes -20,353 -50,744 8. Loss reserve as at 31 December a. Gross 16,615,594 16,600,468 b. Reinsurance recoverables 4,810,759 4,908,326 c. Net 21,426,353 21,508,794 117 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (13) Policy benefits for life and health contracts 31.12.2004 31.12.2003 Figures in EUR thousand Gross 11,917,968 6,045,053 Reinsurance recoverables 186,886 308,453 Net 11,731,082 5,736,600 The breakdown of the net policy benefits for life and health contracts into the Group segments is shown in the following table: 31.12.2004 31.12.2003 Figures in EUR thousand Primary insurance 6,843,504 2,145,176 thereof: Property/Casualty 3,587 35 Life 6,839,917 2,145,141 Reinsurance 5,158,530 3,822,354 thereof: Property/Casualty - - Life/Health 5,158,530 3,822,354 Consolidation -270,952 -230,930 Total 11,731,082 5,736,600 118 Notes on the consolidated balance sheet – liabilities. ■ Kapitel. Die Rubrik. (14) Unearned premium reserve 31.12.2004 31.12.2003 Figures in EUR thousand Gross 3,302,581 3,385,281 Prepaid reinsurance premiums 587,028 651,111 Net 2,715,553 2,734,170 The breakdown of the net unearned premium reserve into the Group segments is shown in the following table: 31.12.2004 31.12.2003 Figures in EUR thousand Primary insurance 1,588,057 1,628,092 thereof: Property/Casualty 963,729 1,036,591 Life 624,328 591,501 Reinsurance 1,020,758 1,120,956 thereof: Property/Casualty 997,008 1,101,056 Life/Health 23,750 19,900 Consolidation 106,738 -14,878 Total 2,715,553 2,734,170 (15) Other technical provisions and provision for premium refunds Gross Re Net Gross Re Net 31.12.2004 31.12.2004 31.12.2004 31.12.2003 31.12.2003 31.12.2003 Figures in EUR thousand Provision for premium refunds 700,699 1,442 669,257 351,457 - 351,457 Other 14,316 11,034 3,282 20,063 4,356 15,707 Total 715,015 12,476 702,539 371,520 4,356 367,164 This table shows the total of the other technical provisions and provisions for premium refunds. 119 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The breakdown of the net provisions into the Group segments is shown in the following table: 31.12.2004 31.12.2003 TEUR TEUR Primary insurance 701,586 360,295 thereof: Property/Casualty 9,031 10,547 Life 692,555 349,748 Reinsurance 2,576 7,769 thereof: Property/Casualty 1,842 7,731 Life/Health 734 38 Consolidation -1,623 -900 Total 702,539 367,164 The breakdown of the net provisions for premium refunds into the Group segments is shown in the following table: 31.12.2004 31.12.2003 TEUR TEUR Primary insurance 699,465 350,905 thereof: Property/Casualty 3,112 1,165 Life 696,353 349,740 Reinsurance 2,576 1,722 thereof: Property/Casualty 1,842 1,722 Life/Health 734 - Consolidation -2,784 -1,170 Total 699,257 351,457 120 Notes on the consolidated balance sheet – liabilities. ■ Kapitel. Die Rubrik. (16) Minorities 31.12.2004 31.12.2003 Figures in EUR thousand Minority interest in unrealized gains and losses 31,098 16,036 Minority interest in consolidated net income 196,092 134,736 Minority interest in other stockholders’ equity 1,500,247 969,219 Total 1,727,437 1,119,991 (17) Provision for pensions The provisions for pensions and similar liabilities refer to: 31.12.2004 31.12.2003 Figures in EUR thousand Pension plans 281,430 249,087 Other pension commitments 8,537 8,216 Total 289,967 257,303 Pension commitments are given in accordance with the relevant version of the pension plan as amended. For German companies various pension plans provide for retirement, disability, widows’ and orphans’ benefits. The pension entitlement is dependent on length of service and in some cases also on salary. The 2000 pension plan came into force in 2000. Under this plan, new employees included in the group of beneficia- ries are granted an indirect commitment from HDI Unterstützungskasse. This pension plan provides for retirement, disability and surviving dependants’ benefits. In addition, since the mid-1990s various German companies have offered the opportunity to obtain pension commit- ments through deferred compensation. The employee-funded commitments included in the provisions for accrued pension rights are protected by insurance contracts with HDI Lebensversicherung AG, Hamburg, and Neue Leben Lebensversicherung AG, Hamburg. Since 2002 Group employees have had the opportunity to accumulate additional old-age provision by way of de- ferred compensation through contributions to special insurance companies known as “Pensionskassen”. The benefits provided by HDI Pensionskasse AG are guaranteed for its members and their surviving dependants and comprise traditional pension plans with bonus increases as well as unit-linked hybrid annuities. In addition to these pension plans, executive staff and Board members, in particular, enjoy individual commitments as well as commitments given under the benefits plan of the Bochumer Verband. Additional similar obligations based upon length of service exist at some Group companies. 121 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Provisions for pensions are established in accordance with SFAS 87 (Employers’ Accounting for Pensions) using the Projected Unit Credit Method. The basis of the valuation is the estimated future increase in the rate of compensation of the pension beneficiaries. The benefit entitlements are discounted by applying the capital market rate for highest- rated securities. The provisions for pensions are established in accordance with actuarial principles and are based upon the commit- ments made for retirement, disability and widows’ benefits. The amount of the commitments is determined accord- ing to length of service and salary level. The calculation of the provisions for pensions is based upon the following assumptions: ■ Discount rate: 5.00 % to 6.25 % ■ Rate of compensation increase: 2.25 % to 5.5 % ■ Projected long-term yield on plan assets: 4.25 % to 7.50 % ■ Indexation: 1.5 % The commitments to employees in Germany predominantly comprise commitments financed by the Group compa- nies. The pension plans in Germany are unfunded. The provision for pensions increased from EUR 257,303 thousand in 2003 to EUR 289,967 thousand in 2004. Of this increase, an amount of EUR 16,657 thousand was attributable to the Neue Leben companies included in the consoli- dated financial statement for the first time in 2004. German Foreign German Foreign pension pension pension pension plans plans plans plans 31.12.2004 31.12.2004 31.12.2003 31.12.2003 Provisions for pensions Figures in EUR thousand Change in projected benefit obligation: Projected benefit obligation at the beginning of the reporting year 248,493 35,890 241,236 33,199 Business combinations, divestitures and other activities 14,008 781 -5,561 -805 Currency exchange rate differences - -352 - -1,128 Service cost 8,238 2,532 8,057 2,557 Interest cost 14,912 2,338 13,629 1,990 Actuarial gain/loss in the reporting year -949 -2,251 496 -711 Deferred compensation 394 - 418 - Benefits paid during the year 9,791 1,787 8,790 634 Projected benefit obligation at the end of the reporting year 277,203 41,653 248,493 35,890 122 Notes on the consolidated balance sheet – liabilities. ■ Kapitel. Die Rubrik. German Foreign German Foreign pension pension pension pension plans plans plans plans 31.12.2004 31.12.2004 31.12.2003 31.12.2003 Provisions for pensions Figures in EUR thousand Changes in plan assets: At the beginning of the year - 21,596 - 16,599 Business combinations, divestitures and other activities - 3,348 - 3,156 Currency exchange rate differences - -389 - -668 Employer’s contributions - 2,171 - 2,776 Benefits paid - 1,414 - 267 At the end of the year - 25,312 - 21,596 Funded status of plan: 277,203 16,341 248,493 14,294 Unrecognized net obligation - 6,300 - 7,000 Unrecognized actuarial gain/loss -9,536 2,187 -9,090 2,856 Unamortized prior service cost - - - 1,001 Difference on pension valuation 1,535 - 535 - Accrued pension liability 269,202 12,228 239,938 9,149 Net periodic pension cost of the year: Service cost Year under review 8,238 2,532 8,057 2,557 Amortization for previous years - - - 17 Interest cost 14,912 2,338 13,629 1,990 Expected return on plan assets - 1,280 - 938 Recognized net actuarial loss -1 404 63 251 Amortization of net obligation -54 700 -620 700 Total 23,095 4,694 21,129 4,577 123 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (18) Other liabilities 31.12.2004 31.12.2003 Figures in EUR thousand Liabilities from derivatives 53,252 56,934 Liabilities due to banks - 87,034 Liabilities due to social insurance institutions 10,801 9,500 Loans 287,112 95,416 Interest 72,301 6,531 Other non-technical provisions 43,665 46,222 Trade accounts payable 93,300 101,873 Outstanding capital contributions 15,000 - Advance payments received 14,500 - Other liabilities 618,570 488,293 Total other liabilities 1,208,501 891,803 (19) Deferred taxes and taxes The deferred tax assets and deferred tax liabilities are based on the balance sheet items shown below: 31.12.2004 31.12.2003 Figures in EUR thousand Tax loss carry-forwards -102,065 -60,417 Funds held by ceding companies -1,145,367 -848,347 Investments 119,371 2,286 Unearned premiums -280,538 -295,990 Claims equalization reserve 794,578 841,338 Deferred acquisition costs 653,769 576,104 Funds held under reinsurance treaties 764,979 837,128 Other liabilities -20,660 -496,318 Other 126,199 295,914 Value adjustment 49,780 50,103 Net deferred taxes 960,046 901,801 The breakdown of deferred tax assets and deferred tax liabilities is as follows: 31.12.2004 31.12.2003 Figures in EUR thousand Deferred tax assets 853,400 204,142 Deferred tax liabilities 1,813,446 1,105,943 Net deferred taxes 960,046 901,801 124 Notes on the consolidated balance sheet – liabilities. ■ Kapitel. Die Rubrik. Taxes This item includes domestic income tax as well as comparable income tax incurred by foreign Group companies and the “Other taxes”. The determination of the income tax includes the calculation of deferred taxes. The principles used to take account of deferred taxes are set out in the notes on the accounting and valuation methods on page 105. The “Other taxes” amounted to EUR 6,944 (3,721) thousand. The taxes on income can be broken down as follows: 2004 2003 Figures in EUR thousand Current taxes 240,011 211,785 Germany 174,391 169,659 Outside Germany 65,620 42,126 Deferred taxes 6,805 82,324 Germany 62,340 -83,003 Outside Germany -55,535 165,327 Total 246,816 294,109 The following table provides a reconciliation of the expected expense for income taxes with the actual tax expenditure shown in the statement of income. The pre-tax result is multiplied by the Group tax rate in order to calculate the Group’s expected expense for income taxes. In this context, the Group tax rate used is composed of the corporate income tax rate of 25 %, the German reunification charge of 5.5 % levied on corporate income tax and trade earnings tax of 13.625 % calculated on the basis of this effec- tive corporate income tax rate. 2004 2003 Figures in EUR thousand Profit before income taxes 886,911 766,512 Expected expense for income taxes 356,006 307,678 Taxation differences affecting foreign subsidiaries -83,218 -101,463 Change in rates of taxation -331 3,543 Other -25,641 84,351 Income taxes 246,816 294,109 125 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (20) Notes payable and loans/Surplus debenture/Other financial facilities Notes payable and loans On 31 March 1999 Hannover Finance Inc., Wilmington/USA, issued a surplus note in the amount of USD 400.0 million with a term of 30 years. The due date of the loan is 31 March 2029. It may be redeemed by the issuer no earlier than 31 March 2009. In order to hedge against the risk of interest rate changes associated with this loan, the issuing company purchased interest rate swaps in 1999 in the same amount which expire on 31 March 2009. In this way, the interest rate is con- verted from a floating rate to a fixed rate for a period ending commensurate with the first opportunity to redeem the loan. The interest rate arising after allowance is made for the interest rate swap amounts to an annual average rate of 6.69 % until 31 March 2009. In February 2004 Hannover Re bought back 92.5 % (USD 370.0 million) of the debt. In order to further safeguard the sustained financial strength of the Hannover Re Group, Hannover Re issued addi- tional subordinated debt. A subordinated loan was placed via Hannover Finance (Luxembourg) S.A. – a wholly owned subsidiary of Hannover Re – on the European capital market. The debt, which is secured by Hannover Re, was issued in the amount of EUR 350.0 million with a term of 30 years. It may be redeemed by the issuer after 10 years at the earliest. In the 2004 financial year further subordinated debt in the amount of EUR 750.0 million was again placed through Hannover Finance (Luxembourg) on the European capital markets. The issue was placed predominantly with institu- tional investors in Europe. The bond was priced at a spread of 163 basis points over the 10-year mid-swap rate and has a final maturity of 20 years. It may be redeemed by Hannover Re after 10 years at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of quar- terly Euribor + 263 basis points. In the 2000 financial year Talanx AG issued a convertible bond with a total nominal value of EUR 175 million, which is divided into bearer bonds with equal rights in a nominal value of EUR 50 thousand each. The rate of interest is 3.375 %. The convertible bond entitles each bond creditor in the period from 30 January 2001 to 10 December 2005 to convert their bond at a conversion price of EUR 39.305 per share to registered, no-par-value common stock of Hannover Rück- versicherung AG. Throughout the entire period Talanx AG may decide at its discretion – upon exercise of the option – to grant the acquirers a cash settlement, stock or a mixture of the two. If the option is not exercised, Talanx AG shall buy back the bond on 20 December 2005 at the nominal value. For further information the reader is referred to the description of events subsequent to conclusion of the financial year on page 71. 126 Notes on the consolidated balance sheet – liabilities. ■ Kapitel. Die Rubrik. Surplus debenture (Genussrechtskapital) On 2 November 1993 Hannover Re and E+S Rück issued surplus debentures in the amounts of EUR 76.7 million at an interest rate of 7.55 % and EUR 40.9 million at an interest rate of 7.75 % respectively. Surplus debenture was shown as a liability with the amount repayable. The amounts were repaid in full on 2 November 2004. Other financial facilities In order to protect against possible future major losses, Hannover Re took out a new credit line of EUR 500.0 million in 2004 in the form of a syndicated loan. The facility, which replaces the existing credit line of EUR 250.0 million, has a term of five years and is due in August 2009. E+S Rück has a credit line of EUR 40.0 million, which is extended on a half-yearly basis and can be drawn on as re- quired. Additional bilateral, secured credit lines in the amount of EUR 200 million – available variably for both cash and guarantee credit financing – as well as similar unsecured credit lines with a volume of EUR 70.0 million were arranged with Landesbank Hessen-Thüringen Girozentrale for the purpose of short-term borrowing. 127 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (21) Stockholders’ equity and minority interests The stockholders’ equity is shown as a separate component of the annual financial statement in accordance with SFAS 130 “Reporting of Comprehensive Income”. The change in the stockholders’ equity comprises not only the net income deriving from the statement of income but also the changes in the value of asset and liability items not recognized in the statement of income. The minority interests refer principally to shares held by companies outside the Group in the stockholders’ equity of Hannover Re and E+S Rück. Change Group in the stock- current holders’ period Change Group equity Balance less in stock- incl. as at Capital deferred retained holders’ Minority minority 1 January increase taxes earnings equity interests interests Figures in EUR thousand Common stock 260,000 - - - 260,000 Additional paid-in capital 629,529 - - - 629,529 Cummulative comprehensive income -143,987 - 16,020 - -127,967 Retained earnings 1,792,267 - - - 1,792,267 Net income - - - 444,003 444,003 Other changes - - - -28,308 -28,308 Total as at 31.12.2004 2,537,809 - 16,020 415,695 2,969,524 1,727,437 4,696,961 Common stock 253,222 6,778 - - 260,000 Additional paid-in capital 615,356 14,173 - - 629,529 Cummulative comprehensive income -256,328 - 112,341 - -143,987 Retained earnings 1,452,435 - - - 1,452,435 Net income - - - 337,667 337,667 Other changes - - - 2,165 2,165 Total as at 31.12.2003 2,064,685 20,951 112,341 339,832 2,537,809 1,119,991 3,657,800 128 Notes on the consolidated statement Dieincome. ■ Kapitel. of Rubrik. Notes. Notes on the consolidated statement of income (22) Investment income 2004 2003 Figures in EUR thousand Ordinary investment income Real estate 35,598 34,249 Dividends 53,720 43,396 Ordinary investment income on fixed-income securities 1,460,851 1,324,877 Other income 32,433 48,963 Total 1,582,602 1,451,485 Realized gains on investments 488,438 404,239 Realized losses from investments 121,971 225,207 Unrealized gains and losses 36,975 18,660 Other investment expenses/write-off Real estate depreciation 27,782 37,159 Write-off on dividend-bearing securities 13,735 84,970 Write-off on fixed-income securities 4,062 32,796 Write-downs on participations 8,165 5,216 Other investment expenses 63,606 100,793 Total 117,350 260,934 Net investment income 1,868,694 1,388,243 129 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Primary Insurance Property/Casualty Life 2004 2003 2004 2003 Figures in EUR thousand Ordinary investment income Real estate 4,816 6,256 5,731 1,396 Dividends 8,509 11,474 15,550 7,001 Ordinary investment income on fixed-income securities 191,670 176,104 369,501 150,532 Other income 2,253 9,540 13,230 7,389 Total 207,248 203,374 404,012 166,318 Realized gains on investments 57,038 236,073 37,131 49,799 Realized losses from investments 32,505 41,831 32,405 68,957 Unrealized gains and losses 319 -556 27,987 10,635 Other investment expenses/write-offs Real estate depreciation 1,837 15,286 5,748 453 Write-off on dividend-bearing securities 141 17,722 220 47 Write-off on fixed-income securities - 6,160 - 3,050 Write-downs on participations 827 606 - 312 Other investment expenses 15,863 18,942 12,872 6,905 Total 18,668 58,716 18,840 10,767 Net investment income 213,432 338,344 417,885 147,028 130 Notes on the consolidated statement Dieincome. ■ Kapitel. of Rubrik. Reinsurance Financial Services Consolidation Total Property/Casualty Life/Health 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 Figures in EUR thousand 24,808 26,599 162 - - - 81 -2 35,598 34,249 33,011 62,621 108 333 - - -3,458 -38,033 53,720 43,396 656,764 801,940 245,053 204,627 583 -317 -2,720 -8,009 1,460,851 1,324,877 67,467 62,625 1,946 -23,423 27 - -52,490 -7,168 32,433 48,963 782,050 953,785 247,269 181,537 610 -317 -58,587 -53,212 1,582,602 1,451,485 191,608 217,817 4,907 10,153 20 - 197,734 -109,603 488,438 404,239 50,000 102,392 2,376 6,120 - - 4,685 5,907 121,971 225,207 1,026 3,283 7,643 5,299 - - - -1 36,975 18,660 20,094 21,315 - - - - 103 105 27,782 37,159 13,375 66,171 - 1,092 - - -1 -62 13,735 84,970 4,062 15,093 - 593 - - - 7,900 4,062 32,796 7,338 4,299 - - - - - -1 8,165 5,216 42,650 41,631 1,459 10,979 26,024 22,585 -35,262 -249 63,606 100,793 87,519 148,509 1,459 12,664 26,024 22,585 -35,160 7,693 117,350 260,934 837,165 923,984 255,984 178,205 -25,394 -22,902 169,622 -176,416 1,868,694 1,388,243 131 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (23) Claims and claims expenses Primary Insurance Property/Casualty Life 2004 2003 2004 2003 Figures in EUR thousand Gross Claims and claims expenses paid 3,247,990 3,228,702 728,831 431,496 Change in loss and loss adjustment expense reserve 732,369 595,354 21,075 84,719 Total 3,980,359 3,824,056 749,906 516,215 Reinsurers’ share Claims and claims expenses paid 1,816,225 1,853,708 65,553 61,468 Change in loss and loss adjustment expense reserve 333,610 444,782 4,540 -2,424 Total 2,149,835 2,298,490 70,093 59,044 Net Claims and claims expenses paid 1,431,765 1,374,994 663,278 370,028 Change in loss and loss adjustment expense reserve 398,759 150,572 16,535 87,143 Summe 1,830,524 1,525,566 679,813 457,171 (24) Change in policy benefits for life and health contracts Primary Insurance Property/Casualty Life 2004 2003 2004 2003 Figures in EUR thousand Gross -2,539 - -583,638 -106,884 Reinsurers’ share - - -16,127 -29,311 Net -2,539 - -567,511 -77,573 132 Notes on the consolidated statement Dieincome. ■ Kapitel. of Rubrik. Reinsurance Consolidation Total Property/Casualty Life/Health 2004 2003 2004 2003 2004 2003 2004 2003 Figures in EUR thousand 4,675,993 4,085,139 1,269,358 1,383,622 -694,886 -858,899 9,227,286 8,270,060 81,182 1,555,786 144,463 58,277 -20,003 -107,233 959,086 2,186,903 4,757,175 5,640,925 1,413,821 1,441,899 -714,889 -966,132 10,186,372 10,456,963 845,530 1,383,400 134,491 146,758 -836,374 -909,230 2,025,425 2,536,104 -152,643 -878,451 31,469 -15,521 -28,238 42,759 188,738 -408,855 692,887 504,949 165,960 131,237 -864,612 -866,471 2,214,163 2,127,249 3,830,463 2,701,739 1,134,867 1,236,864 141,488 50,331 7,201,861 5,733,956 233,825 2,434,237 112,994 73,798 8,235 -149,992 770,348 2,595,758 4,064,288 5,135,976 1,247,861 1,310,662 149,723 -99,661 7,972,209 8,329,714 Reinsurance Consolidation Total Property/Casualty Life/Health 2004 2003 2004 2003 2004 2003 2004 2003 Figures in EUR thousand - - -227,229 -283,842 73,809 26,754 -739,597 -363,972 - - -11,307 -92 39,973 -131,629 12,539 -161,032 - - -215,922 -283,750 33,836 158,383 -752,136 -202,940 133 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. (25) Commission and brokerage Primary Insurance Property Insurance Life 2004 2003 2004 2003 Figures in EUR thousand Gross Commissions and brokerage paid 862,421 848,590 171,862 124,349 Change in contingency reserve 1,094 321 -21 - Total 863,515 848,911 171,841 124,349 Reinsurers’ share Commissions and brokerage paid 691,687 681,135 79,254 64,708 Change in contingency reserve - - - 75 Total 691,687 681,135 79,254 64,783 Net Commissions and brokerage paid 170,734 167,455 92,608 59,641 Change in contingency reserve 1,094 321 -21 -75 Total 171,828 167,776 92,587 59,566 (26) Other income / expenses 2004 2003 Figures in EUR thousand Other income Exchange gains 371,389 427,810 Income from services 21,857 24,713 Sundry income 150,425 202,642 Total 543,671 655,165 Other expenses Exchange losses 337,267 428,751 Other interest expenses 110,835 79,675 Depreciation 44,961 45,254 Expenses for services 28,281 43,553 Sundry expenses 306,128 317,348 Total 827,472 914,581 Total other income/expense -283,801 -259,416 134 Notes on the consolidated statement Dieincome. ■ Kapitel. of Rubrik. Reinsurance Consolidation Total Property/Casualty Life/Health 2004 2003 2004 2003 2004 2003 2004 2003 Figures in EUR thousand 1,169,803 1,342,511 602,820 598,473 -347,066 -347,050 2,459,840 2,566,873 24,247 1,255 10,317 5,309 1,665 17 37,302 6,902 1,194,050 1,343,766 613,137 603,782 -345,401 -347,033 2,497,142 2,573,775 232,263 686,162 40,100 177,883 -326,826 -351,435 716,478 1,258,453 -5,282 7,290 -627 -497 -81 84 -5,990 6,952 226,981 693,452 39,473 177,386 -326,907 -351,351 710,488 1,265,405 937,540 656,349 562,720 420,590 -20,240 4,385 1,743,362 1,308,420 29,529 -6,035 10,944 5,806 1,746 -67 43,292 -50 967,069 650,314 573,664 426,396 -18,494 4,318 1,786,654 1,308,370 135 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Notes. Other information Staff Breakdown of the average number of staff employed throughout the year: 2004 2003 Primary insurance companies 7,134 6,552 Reinsurance companies 1,939 1,726 Financial services companies 138 134 Other 46 21 Total 9,257 8,433 Expenditures on personnel 2004 2003 Figures in EUR thousand Wages and salaries Expenditures on insurance business 364,874 325,042 Expenditures on the administration of investments 25,636 25,963 390,510 351,005 Social security contributions and expenditure on provisions and assistance Social security contributions 68,495 52,258 Expenditures for pension provision 28,756 30,168 Expenditures for assistance 3,516 291 100,767 82,717 Total 491,277 433,722 Related party disclosures Transactions with related parties SFAS 57 defines related parties inter alia as parent companies and subsidiaries, subsidiaries of a common parent com- pany, associated companies, legal entities under the influence of management and the management of the company itself. HDI Haftpflichtverband der Deutschen Industrie V.a.G. (HDI) directly holds all the shares of Talanx AG. All companies combined within the HDI Group are therefore considered affiliated companies. HDI Industrie Versicherung AG took over the foreign branches of HDI V.a.G. in Switzerland, France and the Czech Republic with effect from 1.1.2004. In addition, HDI V.a.G. sold its participating interests in Extremus Versicherung AG, Bildungszentrum der hannover- schen Versicherungsunternehmen GbR, VST Gesellschaft für Versicherungsstatistik mbh (VST), Treuhandgesellschaft des deutschen Wertpapierbesitzes GmbH and Teko Technisches Kontor für Versicherungen GmbH to various Group companies of the Talanx Group. Disposal was effected at book value; a minimal disposal loss (EUR 2 thousand) was incurred on the transfer of VST. 136 Other information. ■ Kapitel. Die Rubrik. Talanx AG holds profit participation certificates of HDI V.a.G. with a nominal value of EUR 102.3 million. They carry a 7.25 % dividend on the nominal amount. The cancellation notified in the previous year was withdrawn in the year under review. At the beginning of 2005 Talanx AG resold the profit participation certificates to other Group companies. All transactions were effected at normal market conditions. Talanx AG gave an account of these transactions in its dependent company report. Stock appreciation rights (SARs) With effect from 1 January 2000 the Executive Board of Hannover Re, with the consent of the Supervisory Board, intro- duced a virtual stock option plan that provides for the granting of stock appreciation rights (SARs) to certain manageri- al staff. The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. Stock appreciation rights were first granted for the 2000 financial year and are awarded separately for each subsequent financial year (allocation year), provided the performance criteria defined in the Conditions for the Granting of Stock Appreciation Rights are satisfied. The internal performance criterion is accomplishment of the target performance defined by the Supervisory Board, expressed in terms of the “diluted earnings per share” under US GAAP (EPS). If the target performance is surpassed or undershot, the provisional basic number of stock appreciation rights initially granted is increased or reduced accord- ingly to produce the EPS basic number. The external performance criterion is the development of the share price in the allocation year. The benchmark used in this regard is the unweighted “Reactions” World Reinsurance Index. This index encompasses the performance of all listed reinsurers worldwide. Depending upon the outperformance or underper- formance of this index, the EPS basic number is increased – albeit by at most 400 % of the basic number – or reduced – although by no more than 50 % of the EPS basic number. The maximum period of the stock appreciation rights is 10 years, commencing at the end of the year in which the SAR is awarded. Stock appreciation rights expire if they are not exercised by the end of the 10-year period. Stock apprecia- tion rights may only be exercised after a vesting period and then only within four exercise periods each year. For 40 % of the stock appreciation rights (first tranche) the vesting period is two years, for each additional 20 % (tranches two to four) of the stock appreciation rights the vesting period is extended by one year. Each exercise period lasts for ten trading days, in each case commencing on the sixth trading day after the date of publication of the quarterly report of Hannover Rückversicherung AG. Upon exercise of a stock appreciation right the amount paid out to the entitled party is the difference between the basic price and the current market price of the Hannover Re share at the time when the option is exercised. In this con- text, the basic price corresponds to the arithmetical mean of the closing prices of the Hannover Re share on all trading days of the first full calendar month of the allocation year in question. The current market price of the Hannover Re share on the date when a SAR is exercised is determined by the arithmetical mean of the closing prices of the Hannover Re share on the last twenty trading days prior to the first day of the relevant exercise period. 137 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. The amount paid out is limited to a maximum calculated as a quotient of the total volume of compensation to be granted in the allocation year and the total number of stock appreciation rights awarded in the year in question. In the event of cancellation of the employment relationship or termination of the employment relationship as a conse- quence of a termination agreement or a set time limit, a holder of stock appreciation rights is entitled to exercise all such options in the first exercise period thereafter. Stock appreciation rights expire if they are not exercised within this period or if the vesting period has not yet elapsed. In the year under review the vesting period expired for 60 % of the stock appreciation rights awarded in 2000. In the first exercise period (6 to 21 April 2004) 58,276 stock appreciation rights were exercised at an amount payable of EUR 2.29 per SAR and in the second exercise period (25 May to 7 June 2004) 21,861 stock appreciation rights were exercised at an amount payable of EUR 2.23 per SAR. No stock appreciation rights were exercised in the third exercise period (20 August to 2 September 2004) or in the fourth exercise period (19 November to 2 December 2004). The amounts payable per SAR for these two exercise periods stood at EUR 0.35 and EUR 0.57 respectively. The existing stock appreciation rights are valued on the basis of the Black/Scholes option pricing model. As at 1 January 2004 the existing number of stock appreciation rights stood at 1,673,499 with an average exercise price of EUR 24.78 each. In accordance with the resolution of the Supervisory Board dated 25 March 2004 a further 904,234 stock appreciation rights were granted at an average exercise price of EUR 24.00 each. 177,313 stock appreciation rights expired in the year under review at an average exercise price of EUR 24.40. The total number of stock appreciation rights existing as at year-end stood at 2,320,283. The average exercise price amounted to EUR 24.48. Of the total number of stock appreciation rights, 477,453 were exercisable at an average exercise price of EUR 25.50. Development of the stock appreciation rights (SARs) plan 2004 2003 2002 Average Average Average Number exercise Number exercise Number exercise of SARs price* of SARs price* of SARs price* Units EUR/SAR Units EUR/SAR Units EUR/SAR Total options existing at 1 January 1,673,499 24.78 1,097,235 25.50 1,138,005 25.50 Granted 904,234 24.00 710,429 23.74 - - Exercised 80,137 25.50 - - - - Expired 177,313 24.40 134,165 25.19 40,770 25.50 Total options remaining at 31 December 2,320,283 24.48 1,673,499 24.78 1,097,235 25.50 Exercisable at year-end 477,453 25.50 394,734 25.50 - 25.50 * The exercise price is the basic price at the time when the stock appreciation rights are granted pursuant to § 9 of the Conditions for the Granting of Stock Appreciation Rights 138 Other information. ■ Kapitel. Die Rubrik. The calculations are based on the year-end closing price of the Hannover Re share as at 30 December 2004 of EUR 28.75, volatility of 22.43 %, a dividend yield of 3.52 % and risk-free interest rates of 3.30 % for the 2000 allocation year, 3.57 % for the 2002 allocation year and 3.69 % for the 2003 allocation year. On this basis provisions were established for the stock appreciation rights existing as at 31 December 2004 in the amounts of EUR 1,653 thousand for the 2003 allocation year, EUR 2,669 thousand for the 2002 allocation year and EUR 3,484 thousand for the 2000 allocation year. Contingent liabilities Hannover Re has secured by guarantee a surplus note in the amount of USD 400.0 million issued in the 1999 financial year by Hannover Finance Inc., Wilmington/USA. In February 2004 Hannover Re bought back USD 370.0 million of the surplus note, leaving an amount of USD 30.0 million still secured by the guarantee. The subordinated debt issued in February 2004 by Hannover Finance (Luxembourg) S.A. in the amount of EUR 750.0 million has also been secured by Hannover Re through a subordinated guarantee. Hannover Re has additionally secured by subordinated guarantee further subordinated debt in the amount of EUR 350.0 million issued by Hannover Finance (Luxembourg) S.A. The guarantees given by Hannover Re for the subordinated debts attach if the issuer in question fails to render payments due under the bonds. The guarantees cover the relevant bond volumes as well as interest due until the repayment dates. Given the fact that interest on the bonds is partly dependent on the capital market rates applicable at the interest pay- ment dates (floating rates), the maximum undiscounted amounts that can be called cannot be estimated with sufficient accuracy. Hannover Re does not have any rights of recourse outside the Group with respect to the guarantee payments. In July 2004 Hannover Re and the other shareholders sold the participation that they held through Willy Vogel Beteiligungsgesellschaft mbH in Willy Vogel AG. In order to secure the guarantees assumed under the purchase agreement, Hannover Re and the other shareholders jointly gave the purchaser a directly enforceable guarantee limited to a total amount of EUR 7.1 million. Furthermore, in the event of a call being made on the guarantee Hannover Re and the other shareholders agreed that settlement would be based upon the ratio of participatory interests. As security for technical liabilities to its US clients, Hannover Re has established a master trust in the USA. As at the bal- ance sheet date this master trust amounted to EUR 1,748.7 million (EUR 1,664.2 million). HDI Industrie Versicherung AG has blocked holdings of EUR 74.5 million. The securities held in the master trust are shown as available-for-sale investments. As security for technical liabilities, various financial institutions have furnished sureties for us in the form of letters of credit. The total amount as at the balance sheet date was EUR 2,713.9 million. Outstanding capital commitments with respect to special investments exist in the amount of EUR 337.7 (179.2) million. These commitments amount to EUR 88.8 (62.8) million for E+S Rückversicherungs-AG, EUR 232.4 (115.4) million for Hannover Re, EUR 9.7 (1.0) million for HDI Industrie Versicherung AG and EUR 6.8 (0.0) million for HDI Privat 139 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Versicherung AG. These primarily involve private equity funds and venture capital firms in the form of private limited companies. Within the scope of a novation agreement regarding a life insurance contract Hannover Re assumed contingent rein- surance commitments with respect to due date and amount estimated at EUR 29.2 million as at the balance sheet date. Several Group companies are members of the German aviation pool, the association for the reinsurance of pharma- ceutical risks, the association for the insurance of German nuclear reactors and the traffic accident pool Verkehrsopfer- hilfe e.V. In the event of one of the other pool members failing to meets its liabilities, an obligation exists to take over such other member’s share within the framework of the quota participation. Call commitments on equities existed with respect to PB Lebensversicherung AG in the amount of EUR 6.1 million and PB Versicherung AG in the amount of EUR 1.5 million. Other financial call commitments of altogether EUR 64.1 million existed with respect to the life insurance companies CiV Leben, PB Leben, ASPECTA Leben and HDI Leben in connection with the participation entered into in Protektor Lebensversicherungs-AG. Derivative financial instruments The accounting of the “Modified coinsurance” and “Coinsurance funds withheld” reinsurance contracts, under which security deposits are held by the ceding companies and payments rendered on the basis of the income from certain securities of the ceding company, must comply with the standards of SFAS 133 DIG B36. The derivatives embedded in such host contracts are to be reported separately from the underlying reinsurance arrangements at fair value (“General accounting principles”). A small number of treaties in life and health reinsurance meet criteria which require the application of SFAS 133 DIG B36. Under these treaties the interest-rate risk elements are clearly and closely linked with the underlying reinsurance arrangements. Embedded derivatives consequently result solely from the credit risk of the underlying securities portfolio. Hannover Re calculates the fair value of the embedded derivatives using the market information available on the valuation date on the basis of a “credit spread” method. Under this method the derivative is valued at zero on the date when the contract is concluded and its value then fluctuates over time according to changes in the credit spread of the securities. The application of DIG B36 had no significant impact on the consolidated financial statement in the financial year. The fair values of the embedded derivatives were recognized in the investments as at the balance sheet date and to this extent increased the investment income. The pre-tax effect on the investment income amounted to altogether EUR 10.3 million (EUR 3.3 million) as at the balance sheet date. In the course of the full 2004 financial year the fair value of the embedded derivatives increased by EUR 7.0 million (EUR 7.4 million adjusted for exchange-rate effects) before tax compared to the previous year. Since Hannover Re concludes reinsurance transactions worldwide in numerous international currencies, the Group is exposed to currency fluctuations. 140 Other information. ■ Kapitel. Die Rubrik. The Group uses derivative financial instruments as a tool to control such currency exposures as well as interest rate risks and market price risks arising out of the use of financial instruments (e.g. investments in variable-yield and fixed-income securities). Derivative financial instruments are used within the Group solely for hedging purposes. The fair values of the derivative financial instruments were determined on the basis of the market information avail- able as at the balance sheet date and by using the valuation methods set out below. If the underlying transaction and the derivative cannot be reported as a single unit, the derivative is recognized under the “trading portfolio” or “other liabilities” item in the balance sheet. Cash flow hedges In the case of a cash flow hedge, the hedge-effective part of the changes in fair value is initially recognized under the stockholders’ equity (cumulative comprehensive income). It is only reported in the statement of income when the un- derlying hedged transaction has been recognized in the statement of income. The hedge-ineffective part of the changes in fair value is recognized in the statement of income immediately. Furthermore, derivatives embedded in host con- tracts are to be reported separately. Fair value hedges In the case of a fair value hedge, the results of the fair valuation of the derivatives and the corresponding underlying transactions are recognized (subject to effectiveness) in the statement of income. Breakdown of nominal amounts of underlying hedged transactions by product type and period to maturity 1 to 5 6 to 10 years years Total Figures in EUR thousand Interest rate swaps 2,000 737,497 739,497 Currency swaps 16,386 15,000 31,386 Options 110,348 - 110,348 The fair value of derivatives used in cash flow hedges totaled –EUR 26.6 million. Derivatives recognized under other lia- bilities had a fair value of EUR 28.0 million. The fair value of derivatives used in fair value hedges amounted to EUR 2.5 million and was recognized in the trading portfolio. Twenty-one derivative contracts matured in the year under review; this gave rise to profits on disposals of EUR 5.3 mil- lion and losses on disposals of EUR 3.8 million. Neue Leben Lebensversicherung AG concluded forward currency sales in a net amount of EUR 31.7 million for currency hedging of investments held in USD. The current value as at the balance sheet date was EUR 23.3 million. As at the balance sheet date Neue Leben Lebensversicherung AG had purchase commitments with a volume of EUR 170.0 million from 8 forward purchase options. 141 ■ talanx. Konzern-Geschäftsbericht 2004. Notes. Consolidated financial statement. Development of the value of in-force life insurance business For the year under review, using a method unchanged from the previous year, we again calculated the value of in-force business as at the balance sheet date for our major primary insurance (life insurers of the Aspecta Group, CiV Leben, Neue Leben) and reinsurance (Hannover Re, E+S Rück) companies. The value of in-force business refers to the present value of future technical profit flows for net account. As in the previous year, the calculation takes account of the following considerations: ■ Portfolio components attributable to retrocessionaires are deducted, ■ adjustments are made for consolidation effects, ■ allowance is made for the participatory interests held by Talanx in the subsidiaries, as a result of which minority interests are deducted accordingly, ■ costs for solvency are taken into account at least on the basis of local capital adequacy requirements, ■ the figures used are before taxes The calculations are based on different risk discount rates for primary and reinsurance business. As in the previous year, a discount rate of 7 % was used for primary insurance business. In the case of reinsurance business, various dis- count rates were determined according to the region where the business originated – with a rate of 7.25 % (7.75 %) used for the Eurozone. The methodology used in the calculations has been approved by independent external actuaries. These actuaries have verified the assumptions and the results on the basis of the documentation furnished by Talanx AG. Development of the consolidated value of in-force business Figures in EUR million 2004 2003 Change Primary insurance 410.6 338.1 +72.5 Reinsurance 658.9 907.2 -248.3 Total 1,069.5 1,245.3 -175.8 The value of in-force business decreased by EUR 175.8 million compared to the previous year to EUR 1,069.5 million. This decline derived from the value of the in-force reinsurance business, and was in large measure due to the strategi- cally motivated reduction of the participatory interest held by Talanx in Hannover Rückversicherung AG to 51.2 % (previous year: 71.8 %). It was, on the other hand, possible to increase the unconsolidated value of the in-force rein- surance business before deduction of minority interests. The value of in-force business in primary insurance was boosted by EUR 72.5 million year-on-year to EUR 410.6 mil- lion. This increase resulted in part from the first-time consolidation of Neue Leben Lebensversicherung AG, in which Talanx acquired a participatory interest of 60 % less one share in the year under review through Neue Leben Holding AG. As a further factor, almost all our primary insurers increased the value of their in-force business, with our domes- tic life insurers profiting from the extraordinarily high number of new policies taken out on the German market in 2004. 142 Other information. ■ Kapitel. Die Rubrik. Rents and leasing Summary of rental and leasing commitments in future years: Subsequent 2005 2006 2007 2008 2009 years Figures in EUR thousand 17,802 15,473 11,694 10,188 10,777 69,664 Rental and leasing contracts produced expenditures of EUR 19,455 thousand in the 2004 financial year. Subsidiaries of Hannover Re in the USA and Africa have concluded multi-year lease contracts. Further commitments refer to lease contracts entered into by primary insurance companies in Germany. Compensation of the management boards of the parent company Total compensation of EUR 6,459 thousand was paid to the Board of Management, including an amount of EUR 1,397 thousand relating to the previous year. The total compensation of the Supervisory Board amounted to EUR 682 thousand. Former members of the Board of Management and their surviving dependants received total compensation of EUR 37 thousand. An amount of EUR 542 thousand was set aside to cover projected benefit obligations due to former members of the Board of Management and their surviving dependants. Mortgages and loans Employees who are not members of the Board of Management or Supervisory Board were granted mortgages and mortgage loans to finance residential property. These loans are all secured by a first charge on property. Bad debt losses did not exist and are not anticipated. Declaration of conformity pursuant to § 161 German Stock Corporation Act (AktG) On 11 November 2004 the Executive Board and Supervisory Board of our listed subsidiary Hannover Rückversicherung Aktiengesellschaft (Hannover Re) submitted the declaration of conformity regarding the recommendations made by the Government Commission on the German Corporate Governance Code that is required pursuant to § 161 German Stock Corporation Act (AktG) and made this declaration available to the stockholders by publishing it in its annual report. Hannover, 30 May 2005 Board of Management Baumgartl Dettmer Haas Dr. Hinsch Kox Dr. Löffler Ploemacher Zeller 143 ■ talanx. Consolidated financial statement. Independent Auditor’s Report The Board of Directors Talanx Aktiengesellschaft: We have audited the consolidated financial statements, comprising the consolidated balance sheet, the consolidated income statement, notes, the statements of changes in shareholders equity and cash flows prepared by Talanx Aktiengesellschaft for the business year from 1. January to 31. December 2004. The preparation and the content of the consolidated financial statements in accordance with the Accounting Principles Generally Accepted in the United States of America (US-GAAP) are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit of the consolidated annual financial statements in accordance with § 317 HGB (“Handelsgesetz- buch: German Commercial Code”) and the German generally accepted standards to the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the consolidated financial statements are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effective- ness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of the companies included in consolidation, the determination of the com- panies to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the management, as well as evaluating the overall presentation of the consolidation financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion the consolidated financial statements present fairly, in all material respects, the financial position of Talanx Aktiengesellschaft as of December 31, 2004 and the results of their operations and their cash flows for the year ended in accordance with the Accounting Principles Generally Accepted in the United States of America (US-GAAP). 144 Auditor’s report. ■ Our audit, which also extents to the group management report prepared by the Company’s management for the business year from 1. January to 31. December 2004, has not led to any reservations. On the whole the group management report provides a suitable understanding of the Group’s position and suitably presents the risks of future development. Hannover, 7th of June 2005 KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft Prof. Dr. Geib Dr. Dahl Wirtschaftsprüfer Wirtschaftsprüfer 145 ■ talanx. Konzern-Geschäftsbericht 2004. The desert spadefoot toad found in South Australia can survive even months of drought conditions in the Australian desert by burrowing into the mud of dried-out puddles. It thus exhibits a degree of stamina found in very few animals. s t a m 146 Kapitel. Die Rubrik. ■ in a Rating agencies have certified several Group companies as having financial stamina: – The rating agency Assekurata evaluated CiV Lebensversicherung AG for the first time and gave it a quality seal of A+ (very good). Assekurata handed down a rating of “excellent” in the “company security” and “growth” categories. In the categories of “profitability” and “surplus distribution” CiV Lebensversicherung AG achieved a mark of “very good”. – PB Lebensversicherung AG gained the top mark for capital resources in a study compiled by Fitch Ratings. Only two of the 60 life insurers surveyed obtained this rating. 147 ■ talanx. Other Information. Addresses Talanx AG CiV Lebensversicherung AG HDI Lebensversicherung AG, Riethorst 2 ProACTIV-Platz 1 HDI Pensionskasse AG 30659 Hannover 40721 Hilden Überseering 10 Telephone +49 - 5 11 / 37 47-0 Telephone +49 - 21 03 / 34 88 00 22297 Hamburg Fax +49 - 5 11 / 37 47-25 25 Fax +49 - 21 03 / 34 71 09 Telephone +49 - 40 / 6 32 07-02 www.talanx.com Fax +49 - 40 / 6 32 07-440 E-mail: email@example.com CiV Versicherung AG ProACTIV-Platz 1 HDI Pensionsmanagement AG 40721 Hilden ProACTIV-Platz 1 Subsidiaries Telephone +49 - 21 03 / 34 71 00 40721 Hilden Fax +49 - 21 03 / 34 71 09 Telephone +49 - 21 03 / 34 92 00 Germany Fax +49 - 21 03 / 34 92 09 Ampega Asset Management GmbH E+S Rückversicherung AG, Karl-Wiechert-Allee 57 Hannover Rückversicherung AG HDI Rechtsschutz Versicherung AG 30625 Hannover Karl-Wiechert-Allee 50 Günther-Wagner-Allee 14 Telephone +49 - 5 11 / 4 73 21-0 30625 Hannover 30177 Hannover Fax +49 - 5 11 / 4 73 21-90 Telephone +49 - 5 11 / 56 04-0 Telephone +49 - 5 11 / 39 02-0 Fax +49 - 5 11 / 56 04-11 88 Fax +49 - 5 11 / 39 02-37 99 Ampega Immobilien Management GmbH HDI Direkt Service GmbH Neue Leben Holding AG, Karl-Wiechert-Allee 57 Bödekerstraße 80 Neue Leben Lebensversicherung AG, 30625 Hannover 30161 Hannover Neue Leben Unfallversicherung AG Telephone +49 - 5 11 / 54 44 63-00 Telephone +49 - 5 11 / 39 93-3 99 Sachsenkamp 5 Fax +49 - 5 11 / 54 44 63-40 Fax +49 - 5 11 / 39 93-3 11 20097 Hamburg Telephone +49 - 40 / 2 38 91-0 Ampega Investment AG HDI Industrie Versicherung AG, Fax +49 - 40 / 2 38 91-3 33 Karl-Wiechert-Allee 57 HDI International Holding AG, 30625 Hannover HDI Privat Versicherung AG, PB Lebensversicherung AG, Telephone +49 - 5 11 / 90 57 94-0 HDI SicherheitsTechnik GmbH, HST PB Versicherung AG Fax +49 - 5 11 / 90 57 94-99 Riethorst 2 ProACTIV-Platz 1 30659 Hannover 40721 Hilden Aspecta Lebensversicherung AG Telephone 05 11 / 6 45-0 Telephone +49 - 21 03 / 34 51 00 Überseering 10 Fax 05 11 / 6 45-45 45 Fax +49 - 21 03 / 34 51 09 22297 Hamburg Telephone +49 - 40 / 6 32 07 01 HDI Informationssysteme Gesellschaft Protection Reinsurance Intermediaries AG Fax +49 - 40 / 6 30 84 77 für Anwendungsentwicklung mbH Roderbruchstraße 26 Walderseestraße 11 30655 Hannover Aspecta Versicherung AG 30177 Hannover Telephone +49 - 5 11 / 5 42 23-0 Überseering 10 Telephone +49 - 5 11 / 39 75-0 Fax +49 - 5 11 / 5 42 23-2 00 22297 Hamburg Fax +49 - 5 11 / 39 75-2 50 Telephone +49 - 40 / 6 33 19 03 Fax +49 - 40 / 63 31 97 40 148 Addresses. ■ Australia Bulgaria France Hannover Rückversicherung AG HDI ZAD Hannover Re Australian Branch – Chief Agency G.S. Rakovski No 99 Gestion de Réassurance France S.A. The Re Centre, Level 21 1000 Sofia 7 rue Montalivet, 4th Floor Australia Square Telephone +359 - 2 - 9 88 44 73 75008 Paris 264 George Street Fax +359 - 2 - 9 87 91 67 Telephone +33 - 1 - 42 66 87 87 G.P.O. Box 3973 Fax +33 - 1 - 42 66 87 88 Sydney NSW 2001 Canada Hannover Rückversicherung AG Telephone +61 - 2 - 92 74 30 00 Hannover Rückversicherung AG Succursale française pour la Fax +61 - 2 - 92 74 30 33 Canadian Branch – Chief Agency Réassurance Vie 3650 Victoria Park Avenue, Suite 201 Hannover Life Re of Australasia Ltd 7 rue Montalivet, 4th Floor Toronto, Ontario M2H 3P7 Level 7 75008 Paris Telephone +1 - 416 - 4 96 11 48 70 Phillip Street Telephone +33 - 1 - 42 66 87 78 Fax +1 - 416 - 4 96 10 89 Sydney NSW 2000 Fax +33 - 1 - 42 66 87 98 Telephone +61 - 2 - 92 51 69 11 Hannover Rückversicherung AG HDI Industrie Versicherung AG Fax +61 - 2 - 92 51 68 62 Canadian Branch – Facultative Office Direction pour la France 150 York Street, Suite 1008 9/11 rue Montalivet Austria Toronto, Ontario M5H 3S5 75008 Paris HDI Hannover Versicherung AG Telephone +1 - 416 - 8 67 97 12 Telephone +33 - 1 - 42 65 12 06 Edelsinnstraße 7–11 Fax +1 - 416 - 8 67 97 28 Fax +33 - 1 - 42 65 12 07 1120 Vienna Telephone +43 - 5 09 05 - 50 10 China Hungary Fax +43 - 5 09 05 - 50 20 Hannover Rückversicherung AG Magyar Posta Biztosító Shanghai Representative Office Bégutca 3-5 Belgium Suite 2711, Bank of China Tower 1022 Budapest Hannover International (Belgique) S.A. 200 Yin Cheng Zhong Road Telephone +36 - 1 - 4 23 42 00 Avenue Louise 65/11 Pudong New Area Fax +36 - 1 - 4 23 42 10 1050 Brussels 200120 Shanghai Telephone +32 - 2 - 7 76 67 11 Telephone +86 - 21 - 50 37 25 25 Ireland Fax +32 - 2 - 7 62 - 54 - 63 Fax +86 - 21 - 50 37 27 27 E+S Reinsurance (Ireland) Ltd. Hannover Rückversicherung AG No. 2 Custom House Plaza, IFSC Bermuda Hong Kong Branch Dublin 1 Hannover Re (Bermuda) Ltd. 2008 Sun Hung Kai Centre Telephone +353 - 1 - 6 12 57 16 50 Parliament Street, 2nd Floor 30 Harbour Road Fax +353 - 1 - 8 29 14 00 Hamilton, HM 12 Wanchai, Hong Kong Telephone +1 - 4 41 - 2 94 31 10/11 Hannover Life Reassurance Telephone +8 52 - 25 19 32 08 Fax +1 - 4 41 - 2 96 75 68 (Ireland) Ltd. Fax +8 52 - 25 88 11 36 No. 4 Custom House Plaza, IFSC Brazil Dublin 1 Czech Republic HDI Seguros S.A. Telephone +353 - 1 - 6 12 57 18 HDI Industrie Versicherung AG Avenida Eng. Luís Carlos Berrini, Fax +353 - 1 - 6 73 69 17 Niederlassung Tschechien 901-5° andar V Jáme 12 04571-010 São Paulo-SP 11000 Praha 1 Telephone +55 - 11 - 55 05 19 95 149 Telephone +420 - 2 - 22 23 05 32 Fax +55 - 11 - 55 05 15 11 Fax +420 - 2 - 22 23 29 67 ■ talanx. Other Information. Ireland Liechtenstein Netherlands Hannover Reinsurance (Ireland) Ltd., Aspecta Assurance International AG HDI Verzekeringen N.V. Hannover Reinsurance (Dublin) Ltd. Landstrasse 124/PF 101 Westblaak 14 No. 2 Custom House Plaza, IFSC 9490 Vaduz 3012 KL Rotterdam Dublin 1 Telephone +42 - 3 - 2 39 30 30 Telephone +31 - 10 - 4 03 61 00 Telephone +353 - 1 - 6 12 57 15 Fax +42 - 3 - 2 39 30 33 Fax +31 - 10 - 4 03 62 75 Fax +353 - 1 - 8 29 14 00 Luxembourg Poland Italy Aspecta Assurance International Aspecta Zycie TU S.A. HDI Assicurazioni S.p.A. Luxembourg S.A. ul. Plocka 5a Via Abruzzi 10 b Goldbell 1 01-231 Warsaw 00187 Roma 5, Rue Eugène Ruppert Telephone +48 - 2 25 35 - 89 - 00 Telephone +39 - 06 - 42 10 36 01 2453 Luxembourg Fax +48 - 2 25 35 - 89 - 09 Fax +39 - 06 - 42 10 36 00 Telephone +352 - 2 64 98 - 1 Fax +352 - 2 64 98 - 200 HDI Samopomoc TU S.A. Hannover Re Services Italy S.r.l. ul. Plocka 11/13 Via Mazzini, 12 Euro International Reinsurance S.A. 01-231 Warsaw 20123 Milano 25 A, Boulevard Royal Telephone +48 - 22 - 53 - 44 - 000 Telephone +39 - 02 - 80 68 13 11 2449 Luxembourg Fax +48 - 22 - 53 - 44 - 001 Fax +39 - 02 - 80 68 13 49 Telephone +352 - 24 18 42 Fax +352 - 24 18 53 Singapore Japan HDI SicherheitsTechnik GmbH, HST Hannover Re Services Japan KK Malaysia Representative Office Singapore 7th Floor, Hakuyo Building Hannover Rückversicherung AG 9 Penang Road 3-10 Nibancho Malaysian Branch 8-23 Park Mall Chiyoda-ku, Tokyo 102-0084 Suite 31-1, 31st Floor Singapore 238459 Telephone +81 - 3 - 52 14 11 01 Wisma UOA II Telephone +65 - 63 33 42 01 Fax +81 - 3 -52 14 11 05 No. 21 Jalan Pinang Fax +65 - 63 33 42 61 50450 Kuala Lumpur Korea Telephone +60 - 3 - 21 64 51 22 South Africa Hannover Rückversicherung AG Fax +60 - 3 - 21 64 51 29 Compass Insurance Company Ltd. Seoul Representative Office 54 Peter Place German Office Mexico Peter Place Office Park, Building E Shintown Plaza Building Hannover Services (México) S.A. de C.V. Bryanston 28-2 Hannam-dong Av. Santa Fé No. 170 Johannesburg 2021 Yongsan-ku Col. Lomas de Santa Fé P.O. Box 37226 Seoul 140-210 German Centre, Oficina 7-4-10 Birnam Park, 2015 Telephone +82 - 2 - 37 80 46 16 C.P. 01210 México, D.F. Telephone +27 - 11 - 7 45 83 33 Fax +82 - 2 - 37 80 46 08 Telephone +52 - 55 - 91 40 08 00 Fax +27 - 11 - 7 45 84 44 Fax +52 - 55 - 85 03 97 59 150 Addresses. ■ Hannover Life Reassurance Switzerland USA Africa Limited HDI Industrie Versicherung AG Clarendon Insurance Group, Inc. Hannover Reinsurance Africa Ltd. Niederlassung Schweiz Seven Times Square P.O. Box 10842 Farlifangstrasse 1 36th and 37th Floor Johannesburg 2000 8126 Zumikon New York, NY10036 Telephone +27 - 11 - 4 81 65 00 Telephone +41 - 44 - 4 21 20 50 Telephone +1 - 212 - 8 05 - 97 00 Fax +27 - 11 - 4 84 33 30 / 32 Fax +41 - 44 - 4 21 20 51 Fax +1 - 212 - 8 05 - 98 00 Spain Taiwan Hannover Life Reassurance HDI Hannover International Hannover Rückversicherung AG Company of America Cía de Seguros y Reaseguros S.A. Taipei Representative Office 800 N. Magnolia Avenue, Suite 1400 c/Luchana, 23-6° 17 F No. 167 Orlando, FL 32803-3251 28010 Madrid Tun Hwa North Road Telephone +1 - 407 - 6 49 - 84 11 Telephone +34 - 91 - 4 44 20 00 Taipei 105 Fax +1 - 407 - 6 49 - 83 22 Fax +34 - 91 - 4 44 20 19 Telephone +886 - 2 - 27 17 19 99 - 21 62 Fax +886 - 2 - 25 47 70 67 Hannover Re Advanced Solutions HDI Hannover International U.S. Representative Office Cía de Seguros y Reaseguros S.A. United Kingdom 500 Park Blvd., Suite 1350 c/Rosellón, 216 Hannover Services (UK) Ltd. – Itasca, IL 60143 08008 Barcelona London Office, Telephone +1 - 630 - 2 50 - 55 11 Telephone +34 - 93 - 2 72 05 75 International Insurance Company of Fax +1 - 630 - 7 73 - 99 37 Fax +34 - 93 - 4 87 43 71 Hannover Ltd. 69–70 Mark Lane Insurance Corporation of Hannover HR Hannover Re London EC3R 7HJ 500 Park Blvd., Suite 1350 Correduría de Reaseguros, S.A. Telephone +44 - 2 07 - 4 80 73 00 Itasca, IL 60143 Paseo del General Martínez Campos 46 Fax +44 - 2 07 - 4 81 38 45 Telephone +1 - 630 - 2 50 - 55 01 28010 Madrid Fax +1 - 630 - 7 73 - 99 37 Telephone +34 - 91 - 3 19 00 49 International Insurance Company of Fax +34 - 91 - 3 19 93 78 Hannover Ltd. Insurance Corporation of Hannover L’Avenir, Opladen Way Chicago Branch Sweden Bracknell 150 North Wacker Drive, 29th Floor Hannover Rückversicherung AG – Berkshire RG12 0PE Chicago, IL 60606 Tyskland filial, Telephone +44 - 13 44 - 39 76 00 Telephone +1 - 312 - 5 80 - 19 00 International Insurance Company of Fax +44 - 13 44 - 39 76 01 Fax +1 - 312 - 5 80 - 07 00 Hannover Ltd. – England filial Hantverkargatan 25 Hannover Life Reassurance (UK) Limited, P.O. Box 22085 Hannover Services (UK) Ltd. – 10422 Stockholm Virginia Water Office Telephone +46 - 8 - 6 17 54 00 Hannover House, Station Parade Fax +46 - 8 - 6 17 55 99 Virginia Water Surrey GU25 4AA Telephone +44 - 13 44 - 84 52 82 Fax +44 - 13 44 - 84 53 83 151 ■ talanx. Other Information. Glossary. A–D absolute return asset management The goal of an asset manager to generate a positive return or Management of investments according to risk and return achieve a minimum target every year (capital preservation, considerations. minimum return, maximum loss). bancassurance accumulation control Partnership between a bank and an insurance company for Regional controlling of written > accumulation risks. the purpose of selling insurance products through the banking partner’s branches. The link between the insurer and accumulation risk the bank is often characterized by an equity participation or a Underwriting risk that a single trigger event (e.g. an long-term strategic cooperation between the two parties. earthquake or hurricane) can lead to an accumulation of claims within a portfolio. Black/Scholes option pricing model Analytical model used to calculate theoretical option prices. It acquisition costs makes allowance for the current price of the underlying stock, Costs incurred by an insurance company when insurance the risk-free interest rate, the remaining time until option policies are taken out or renewed. expiration, the > volatility and possible dividend payments within the remaining period. administrative expenses Sum total of personnel expenditures, commissions, material capital, reserves and underwriting provisions costs and expenses for current administration (i.e. those An insurer’s capital and reserves, also including the provisions connected with the production of insurance coverage). committed to underwriting business and the (claims) equalization reserve. Total maximum funds available to affiliated companies offset liabilities. Parent or subsidiary companies which are to be included in the consolidated financial statements of a parent company in cash flow hedge accordance with the rules of full consolidation. Use of > derivatives to hedge against fluctuations in future cash flows; e.g. to hedge the interest-rate risk in the case of alternative investments commitments with floating interest rates via an > interest Non-traditional investments in terms of asset classes and rate swap. the trading techniques used. They exhibit a minimum correlation to traditional types of assets such as equities or cash flow statement fixed-income securities and can profit from both rising and Statement on the origin and utilization of cash and cash falling markets. equivalents during the accounting period. It shows the changes in liquid funds separated into cash flows from asset allocation operating, investing and financing activities. Allocation of investments to different asset classes such as participations, equities and fixed-income securities. cedant (also: ceding company) Primary insurer or reinsurer that passes on (cedes) shares of Asset/Liability Management (ALM) its insured or reinsured risks to a reinsurer in exchange for a Harmonized management of liabilities and assets. This premium. approach draws on techniques from the actuarial sciences and investment mathematics. 152 Glossary. ■ claims and claims expenses (net) deferred taxes Sum total of paid claims and provisions for loss events that Term denoting the difference between the taxes calculated on occurred in the financial year; this item also includes the the profit reported in the commercial balance sheet and in result of the run-off of the provisions for loss events from the tax balance sheet. Deferred taxes are recognized in order previous years, in each case after deduction of own reinsurance to offset this difference in those cases where it is evident cessions. that it will be eliminated over time. Deferred taxes must be carried as a liability if the tax expenditure relative to the combined ratio result shown in the commercial balance sheet is too low. Sum of the > loss ratio and > expense ratio; can be calculated Under US GAAP there is an obligation to carry them on the on a gross or net basis. If the combined ratio is adjusted (e.g. assets side if the tax expenditure relative to the result shown to allow for deposit interest) so as to be more informative, in the commercial balance sheet is too high. Deferred taxes this is indicated in the text of this report. on the assets side are only adjusted if they appear unlikely to be realized. commission Remuneration paid by a primary insurer to agents, brokers derivative, derivative financial instrument and other professional intermediaries. These are financial products derived from underlying primary instruments such as equities, fixed-income composite insurer securities and foreign exchange instruments, the price of Company that covers several lines of insurance. which is determined on the basis of an underlying security or other reference asset. Notable types of derivatives include convexity swaps (> interest rate swap), options and futures. The correlation between changes in interest rates and bond prices is not linear, but convex. Convexity is a measure of diversification the curvature of this interest-rate/bond-price curve and Orientation of business policy towards various lines of facilitates accurate determination of the price change in the products and services in order to minimize the effects of event of appreciable interest rate changes. economic fluctuations and stabilize the result. credit status duration Also creditworthiness. Ability of a debtor to meet its payment Ratio in investment mathematics that represents the average commitments. commitment period of the cash value of a financial instrument. The duration can thus also be considered a critical illness cover yardstick for the interest rate risk associated with a financial Personal riders on the basis of which parts of the sum insured instrument which would otherwise only become payable on occurrence of death are paid out in the event of previously defined dynamic financial analysis (DFA) severe illnesses. Simulation technique based on integrated modeling used to analyze the entire financial and risk situation of an insurance enterprise over a defined period. DFA was developed in property/casualty insurance and is now also assuming growing importance for life insurers. It supports integrated corporate management by considering all risk factors (investments, underwriting side). 153 ■ talanx. Other Information. E–O equalization reserve (also: claims equalization reserve) goodwill Provision constituted to offset significant fluctuations in the The excess of the cost of an acquired entity over the net of loss experience of individual lines over a number of years. the amounts assigned to assets acquired and liabilities assumed. equity method Valuation of associated enterprises in the amount of their gross proportionate stockholders’ equity. Here: before deduction of reinsurance. expense ratio guarantee credit financing Administrative expenses in relation to the (gross or net) Financing with a loan extended by a bank by standing surety premiums earned. (as per §§ 765 ff. German Civil Code [BGB]) or putting up a guarantee. The bank does not make a monetary amount exposure available, but rather its own credit standing. Level of danger inherent in a risk or portfolio of risks; this constitutes the basis for premium calculations in hard market reinsurance. Market phase during which it is difficult for some insureds to obtain coverage and where premium levels are typically high. fair value hedge Hard markets arise as a consequence of heavy underwriting Use of > derivatives to hedge the “fair value” of financial losses or extreme price competition. Opposite: > soft market assets; e.g. the value of a bond if interest rates rise or fall. hybrid capital funds held by ceding companies / funds held under Debt structure which because of its subordination bears the reinsurance treaties character of both debt and equity. Collateral provided to cover insurance liabilities which an insurer retains from the liquid funds which it is to pay to a IFRS reinsurer under a reinsurance treaty. In this case, the International Financial Reporting Standards. retaining company shows funds held under a reinsurance treaty, while the company furnishing the collateral shows interest rate swap funds held by a ceding company. Swapping of fixed interest rate commitments against floating ones or vice versa on normally identical capital sums with Global Macro matching currencies. One of the oldest hedge fund strategies characterized by a broad range of strategic options. It is based upon a issuer macroeconomic analysis of major developments in the Private enterprise or public entity that issues securities, e.g. political and economic spheres. The fund manager seeks to the federal government in the case of German Treasury identify at an early stage breaks in trends affecting equity, Bonds or a joint-stock corporation in the case of shares. interest rate or currency movements or shifts in the global economy and to profit from them. A hallmark of Global Macro is the use of derivatives based on crude oil and gold. However, a much more significant use of commodity-based derivatives is the > Managed Futures approach. 154 Glossary. ■ letter of credit (LOC) Master KAG Bank guarantee. At the request of the guaranteed party, the Company that concentrates on administrative services such bank undertakes to render payment to the said party up to as fund accounting and reporting. Other investment the amount specified in the LOC. This method of providing companies or enterprises transfer their fund administration collateral in reinsurance business is typically found in the to them in order to save costs. USA. master trust life/health insurance (also: personal lines) Combination of several sub- or segment funds into a single Collective term for the lines of business concerned with the overall “master” fund (or trust). insurance of persons, i.e. life, health and personal accident insurance. morbidity Measure of the frequency of an illness in relation to a specific life insurance population group. Collective term covering those types of insurance which are concerned in a broader sense with the risks associated with mortality life expectancy and planning. These include death and Rate of death in the population as a whole or in specific age disability, retirement provision as well as marriage and groups; it is specified by mortality tables. education. net loss ratio Here: after deduction of reinsurance. Percentage ratio of claims expenditure to earned premiums, calculated gross or net. non-proportional reinsurance Reinsurance treaty under which the reinsurer assumes the major claim (also: major loss) loss expenditure in excess of a particular amount. This is in Claims that reach a defined loss amount or meet certain contrast to > proportional reinsurance. other criteria and are thus of special relevance to an insurer or reinsurer. operating profit (EBIT) Sum of the underwriting result before the change (allocation Managed Futures or withdrawal) in the (claims) equalization reserve and the Hedge fund strategy. As in the case of > Global Macro funds, result of non-underwriting business. Managed Futures funds operate in a broad variety of markets. Managed Futures funds typically make use of commodity-based derivatives, such as cotton or coffee, that have a minimal correlation with traditional types of assets and can thus serve to promote risk minimization as part of an overall investment strategy. 155 ■ talanx. Other Information. P–Z policy benefits for life and health contracts proportional reinsurance Value arrived at using mathematical methods for future Reinsurance treaties on the basis of which shares in a risk or liabilities (present value of future liabilities minus present > portfolio are reinsured under the existing original conditions. value of future incoming premiums), primarily in life, health > Premiums and losses are shared proportionately on a and personal accident insurance. pro-rata basis. This is in contrast to > non-proportional reinsurance. portfolio The risks assumed by a primary insurer or reinsurer as a provision totality or in a defined segment (e.g. line of business, Liability item as at the balance sheet date to discharge country). obligations which exist but whose extent and/or due date is/ are not known. Technical provisions, for example, are for premiums claims which have already occurred but which have not yet Agreed compensation for the risks accepted by the insurer. been settled, or have only been partially settled (= provision Unlike earned premiums, the written premiums are not for outstanding claims, abbreviated to: loss reserve) deferred. provision for unearned premiums primary (also: direct) insurer Premiums written in a financial year which are to be allocated Company which accepts risks in exchange for an insurance to the following period on an accrual basis. This item is used premium and which has a direct contractual relationship to defer written premiums. with the policyholder (private individual, company, organization). Purchase cost, amortized Cost of acquiring an asset item including all ancillary and professional reinsurer incidental purchasing costs; in the case of wasting assets less Insurance enterprise that engages exclusively in reinsurance. scheduled and/or special amortization. program business rating Originally a specialty of the US insurance market, program Systematic evaluation of companies with respect to their business is written by insurers working in very close > credit status or the credit status of > issuers. Ratings are cooperation with reinsurers and highly specialized managing awarded by a rating agency or bank. general agents (MGAs). The segment is typically focused on niche and non-standard coverages and hard-to-place risks. reinsurer Program business is now written on other markets too. Company that accepts risks or portfolio segments from a > primary insurer or another reinsurer in exchange for an property/casualty insurance agreed premium. All insurance lines with the exception of life insurance and health insurance. 156 Glossary. ■ renewal solvency Contractual relationships between insurers and reinsurers Level of available unencumbered capital and reserves re- are maintained over long periods of time. The treaty terms quired to ensure that contracts can be fulfilled at all times. and conditions are normally modified annually in so-called renewal negotiations, and the treaties are renewed stockholders’ equity accordingly. Funds provided by the owners of an enterprise for its financing or left within the company as earned profit. The retention capital providers are entitled to a share of the profit, e.g. in The part of the accepted risks which an insurer/reinsurer the form of a dividend, in return for making the stockholders’ does not reinsure, i.e. shows as > net. The larger the insured equity available. portfolio, the higher the retention can be. surplus debenture retrocede / retrocession Subordinated debt issued against granting of profit Ceding to other reinsurers of risks or shares in risks that have participation rights. been reinsured. syndicated loan risk management system Furnishing of a large credit line through the bundling of The complete set of rules and measures used to monitor and loans extended by several different lenders. protect against risks. The corresponding activity is referred to as risk management. technical result Balance of income and expenditure allocated to the insurance run-off business and shown in the technical statement of income. Fulfillment of liabilities for which reserves have been constituted. underwriting Process of examining, accepting or rejecting insurance risks. segmental reporting Presentation of asset and income data broken down into unearned premium reserve business segments and regions. > provision for unearned premiums SFAS unit-linked products Statement of Financial Accounting Standards; standards They combine the traditional concept of provision with the published by the US Financial Accounting Standards Board on earnings opportunities of a flexible investment and offer all accounting and reporting. the benefits of life insurance. soft market US GAAP Market phase with high capacity for the acceptance of risks United States Generally Accepted Accounting Principles. characterized by low premiums; this is in contrast to > hard Internationally recognized US accounting principles. market. volatility Degree of fluctuation in the variability of security prices, interest rates and foreign currencies. 157 ■ talanx. Other Information. Index of key terms acquisitions 10, 12, 19, 44, 51, 65, 78, 99 financial strength 15, 29, 52, 73 Africa 56, 57, 60, 61, 62, 69f. foreign companies 28, 29, 48, 49, 54, 68 Ampega 6, 36f., 39, 63-66 Asia 33, 35, 57, 61, 70, 81, 82 going public > IPO Aspecta insurers 5, 6, 27, 28, 30, 31, 50, 53, 54, 68 gross premium income, consolidated 10, 33, 45, 54, 66 Asset/liability management 37 Asset management 36f., 63-65 Hannover Life Re 34f., 59-63 Australia 58, 61, 62, 70 Hannover Re Group 6, 15, 17, 24, 32ff., 55-58, 67-70, 73, 79f., aviation business 32, 55, 58, 67, 112 112f., 126, 127, 137, 139f. HDI Industrie Versicherung AG 24, 28f., 46, 48, 50, 51, 71, 136, 140 bancassurance 31, 44, 60, 82 HDI International Holding AG 7, 10, 48, 68, 69, 99 branches 28, 31, 48, 50, 70, 136 HDI Lebensversicherung AG 30, 31, 53, 121 Brazil 7, 31, 69 HDI Pensionskasse AG 7, 23, 30, 31, 52, 53, 121 brokers 30, 33, 52 HDI Pensionsmanagement AG 30, 31, 44, 52 HDI Privat Versicherung AG 28, 45, 49, 50, 71, 140 capital, reserves and underwriting provisions 45 HDI Service AG 71 capital increase 13 HDI V.a.G. 15, 46, 48, 50, 71, 92, 136, 137 catastrophes 68, 69, 113 hedge funds 37, 65 also > natural catastrophes Hungary 29, 31, 49 catastrophe losses 11, 43, 56 hurricanes 7, 29, 33, 45, 49, 50, 56f., 58, 67, 68, 69 also > hurricanes hybrid capital 6 China 63, 70 CiV insurers 28, 30, 31, 52, 53, 140, 147 IFRS 83 Clarendon Insurance Group 28, 29, 48, 49, 50, 68, 69 industrial insurance 12, 28f., 48, 51 combined ratio 29, 33, 46, 48, 50, 57 investment income 46, 50, 54, 75, 102 cooperation with banks and postal partners 18, 28, 29, 30, 31, 49 investments 1, 36f., 46f., 50, 54, 63-65, 75f., 79, 101, 102, 111, 112f., 139 cooperations 12, 14, 33, 36, 37, 55, 64 IPO 13 credit life insurance 52, 53 Italy 7, 31, 54, 58, 68, 99 credit and surety reinsurance 32, 58, 69 Ivan (hurricane) 7, 45, 57, 67 cycles 12, 13, 14, 32, 45, 67 Japan 7, 41, 57, 61, 70, 80 direct sales 28, 30, 31 diversification 13, 33, 78 legal protection insurance 28, 64, 68 life insurance 12, 29, 30f., 51ff., 60, 66, 79 E+S Rück 32, 55, 60, 127 Eastern Europe 18, 48, 49, 56, 58, 68, 81, 82 EBIT, consolidated 1, 11, 44f., 47, 83 endowment insurance 30, 51, 79 equity markets 42, 46 expense ratio 28, 35, 45, 61 158 Index. ■ Magyar Posta 28, 29, 30, 31, 54 sales channels 13, 29, 30, 31, 37, 51, 52, 53, 64, 65 major claims 33, 46, 48, 56f., 66, 67, 69, 104, 127 securitization of risks 112f. marine insurance 32, 55, 57, 67 senior citizens 35, 59 morbidity 61, 62, 80 South Africa > Africa mortality 61, 62, 80 SPO 40, 44, 45, 46, 99 motor insurance 7, 28, 29, 49, 57, 58, 66, 68, 83 stockholders’ equity 1, 11, 44, 71, 99, 105, 128 multi-brand strategy 13, 14 subordinated debt 6, 40, 71, 126, 139 surplus debenture 105, 126f. natural catastrophes 7, 33, 45, 46, 56, 58, 70, 79, 83 also > hurricanes Talanx Finanz (Luxemburg) S.A. 71 net income, consolidated 47, 128 term life insurance 30, 60, 63, 82 Neue Leben Group 24, 28, 31, 44, 46, 47, 49, 53, 54, 71, 93, 100 Tryg Polska 7, 49 niche policy 28, 33, 35, 82 tsunami 7, 56f., 70 occupational retirement provision 7, 12, 23, 30, 31, 44, 52f., 55, 66 underwriting policy 45, 56, 57, 59, 67, 69, 70, 79, 83 operating profit > EBIT unit-linked products 5, 27, 30, 37, 60, 63, 79, 82, 102 outsourcing services 37, 64, 65 United Kingdom 35, 59, 60, 62, 63, 67f., 80, 82 USA 7, 25, 28, 29, 33, 41, 45, 49, 58, 60, 67, 68f., 81 PB insurers 28, 30, 31, 51, 53, 147 US dollar 42, 45, 46, 49, 56, 68, 81, 83 Poland 31, 49, 68 policy benefits for life and health contracts 46, 79, 103, 118 value-oriented corporate management 14, 28 Postbank 28, 30, 31 value enhancement 12, 13, 14, 28 private clients 10, 12, 28, 29, 30, 37, 44, 48, 51, 52, 66 private retirement provision 31, 43, 51, 54, 55 profitability 12, 32, 56 program business 28, 48 Protection Re 36, 37, 63, 65 provisions 70, 73f., 78, 79, 80, 103-105, 116ff. public liability 104 Putnam Investments 36, 37 rating 15, 27, 29, 39, 52, 67, 70, 73, 74, 147 retail business (Ampega) 6, 37, 64, 65, 66 retention 45, 48, 50, 52, 56, 59, 61, 83 Retirement Income Act 43, 51, 54, 79, 82 retirement provision, occupational > occupational retirement provision retirement provision, private > private retirement provision return on equity 1, 11, 32, 40, 44 risk spreading 13, 75 Royal & Sun Alliance 28 159 ■ talanx. Other information. Contact Talanx AG Corporate Communications Riethorst 2 Thomas von Mallinckrodt 30659 Hannover Telephone +49 5 11 -37 47-20 20 Germany Fax +49 5 11 - 37 47-20 25 Telephone + 49 5 11 -37 47-0 E-mail: firstname.lastname@example.org Fax + 49 5 11-37 47-25 25 www.talanx.com Financial Statements E-mail: email@example.com Hartmut Fischer Telephone +49 5 11 - 37 47-21 70 Fax +49 5 11 - 37 47-25 12 E-mail: firstname.lastname@example.org Capital Markets Alik Hertel Telephone +49 5 11 - 37 47-25 79 Fax +49 5 11 - 37 47-21 12 E-mail: email@example.com This publication went to press on 6 June 2005. The present annual report of the Talanx Group is also available in German. The German version is legally binding. Upon request we will also be pleased to provide you with an electronic copy of the annual report of Talanx AG (PDF only). 160 Group structure. ■ Group structure Talanx AG HDI ASPECTA HDI Ampega Hannover neue leben International Global Group Industrie Versi- Asset Manage- Rückversiche- Holding AG Holding AG AG cherung AG ment GmbH rung AG Hannover International neue leben ASPECTA HDI E+S HDI Privat Versi- Ampega Insurance Com- Lebens- Lebensversiche- Assicurazioni Rückversiche- cherung AG Investment AG pany of Hanno- versicherung AG rung AG S.p.A. (Italy) rung AG ver Ltd. ASPECTA HDI Ampega Hannover Life neue leben Clarendon Assurance Hannover HDI Immobilien Reassurance Unfall- Insurance International Versicherung AG Service AG Management Company versicherung AG Group, Inc. Luxembourg S.A. (Austria) GmbH of America ASPECTA HDI Protection Hannover Rein- CiV HDI Insurance Assurance Verzekeringen Reinsurance surance Group Lebensversiche- Rechtsschutz Corporation International AG N.V. Intermediaries Africa rung AG Versicherung AG of Hannover Liechtenstein (Netherlands) AG Hannover (Pty.) Ltd. ASPECTA HDI Euro Internatio- Hannover Life Hannover CiV Zycie TU S.A. Seguros S.A. nal Reinsurance Re of Australasia Reinsurance Versicherung AG (Poland) (Brazil) S.A. Luxemburg Ltd (Ireland) Ltd. PB HDI E+S Hannover ASPECTA Lebensversiche- Seguros S.A. Reinsurance Reinsurance Versicherung AG rung AG (Spain) (Ireland) Ltd. (Dublin) Ltd. HDI HDI Hannover Life Hannover Life PB Lebensversiche- Samopomoc TU Reassurance Reassurance Versicherung AG rung AG S.A. (Poland) (Ireland) Ltd. (UK) Ltd. PB HDI HDI Hannover Re Pensionsfonds Pensionskasse Asekuracja TU (Bermuda) Ltd. AG AG S.A. (Poland) Bermuda Magyar HDI Property/Casualty Primary Insurance Posta Élet- Pensions- HDI ZAD biztosító Rt. management (Bulgaria) Life Primary Insurance (Hungary) AG Property/Casualty Reinsurance Life/Health Reinsurance Financial Services Magyar Posta Biztosító Other Services Rt. (Hungary) Major participations only Valid: June 2005 ■ talanx. Konzern-Geschäftsbericht 2004. Our worldwide network* Netherlands. HDI Verzekeringen N.V., Rotterdam Belgium. Hannover International (Belgique) S.A., Brussels Luxembourg. Aspecta Assurance International Luxembourg S.A., Luxembourg Euro International Reinsurance S.A., Luxembourg United Kingdom. Hannover Services (UK) Ltd., London Hannover Life Reassurance (UK) Ltd., Virginia Water Hannover Services (UK) Ltd., Virginia Water International Insurance Company of Hannover Ltd., London Ireland. E+S Reinsurance (Ireland) Ltd., Dublin Hannover Reinsurance (Ireland) Ltd., Dublin Canada. Hannover Re Advanced Solutions Ltd., Dublin Hannover Rückversicherung AG, Toronto Hannover Life Reassurance (Ireland) Ltd., Dublin Hannover Rückversicherung AG (Facultative Office), Toronto Hannover Reinsurance (Dublin) Ltd., Dublin USA. France. Clarendon Insurance Group, Inc., New York HDI Industrie, Paris Hannover Life Reassurance Company of America, Orlando Hannover Re Gestion de Réassurance France S.A., Paris Hannover Re Advanced Solutions, Itasca Hannover Rückversicherung AG, Succursale française Insurance Corporation of Hannover, Chicago pour la Réassurance Vie, Paris Insurance Corporation of Hannover, Itasca Mexico. Hannover Services (México) S.A. de C.V., Mexico City Bermuda. Hannover Re (Bermuda) Ltd., Hamilton Brazil. HDI Seguros S.A., São Paulo Spain. HDI Hannover International, Barcelona HDI Hannover International, Madrid HR Hannover Re Correduría de Reaseguros S.A., Madrid Switzerland. HDI Schweiz, Zumikon Liechtenstein. Aspecta Assurance International AG, Vaduz Austria. HDI Hannover Versicherung AG, Vienna Czech Republic. HDI Industrie, Prague Hungary. Magyar Posta Biztosító, Budapest 162 * Addresses are listed on pages 148–151 . Magyar Posta Életbiztosító, Budapest Kapitel. Die Rubrik. ■ Germany. Talanx AG, Hannover Ampega, Hannover Aspecta insurers, Hamburg CiV insurers, Hilden E+S Rückversicherung AG, Hannover Hannover Rückversicherung AG, Hannover HDI International Holding AG, Hannover HDI Pensionsmanagement AG, Hannover HDI SicherheitsTechnik GmbH, HST, Hannover HDI Versicherungen, Hannover Malaysia. Neue Leben Group, Hamburg Hannover Rückversicherung AG, Kuala Lumpur PB insurers, Hilden Protection Reinsurance Intermediaries AG, Hannover Singapore. HDI SicherheitsTechnik GmbH, HST, Sweden. Singapore Hannover Rückversicherung AG, Stockholm International Insurance Company of Hannover Ltd., Stockholm China. Hannover Rückversicherung AG, Shanghai Poland. Hannover Rückversicherung AG, Hong Kong HDI Samopomoc TU S.A., Warsaw Aspecta Zycie TU S.A., Warsaw Taiwan. Hannover Rückversicherung AG, Taipei Bulgaria. HDI ZAD, Sofia Korea. Hannover Rückversicherung AG, Seoul Italy. HDI Assicurazioni S.p.A., Rome Hannover Re Services Italy S.r.l., Milan Japan. Hannover Re Services Japan KK, Tokyo Australia. Hannover Rückversicherung AG, Sydney Hannover Life Re of Australasia Ltd, Sydney South Africa. Compass Insurance Company Ltd., Johannesburg Hannover Life Reassurance Africa Ltd., Johannesburg Hannover Reinsurance Africa Ltd., Johannesburg Valid: June 2005 163 Talanx AG Riethorst 2 30659 Hannover Germany Telephone +49 511-3747-0 Fax +49 511-3747-2525 www.talanx.com E-mail: firstname.lastname@example.org
"Talanx Group Annual Report 2004 - Leading Edge"