151 Hannover Re Group annual report 2010
Notes
technical provisions in EuR thousand
2010 2009
gross retro net gross retro net
Loss and loss adjustment
expense reserve 18,065,395 1,025,332 17,040,063 17,425,293 1,747,991 15,677,302
Benefit reserve 8,939,190 347,069 8,592,121 7,952,640 104,868 7,847,772
unearned premium reserve 1,910,422 83,224 1,827,198 1,512,840 47,651 1,465,189
Other technical provisions 184,528 1,831 182,697 148,827 400 148,427
total 29,099,535 1,457,456 27,642,079 27,039,600 1,900,910 25,138,690
The loss and loss adjustment expense reserves are in principle calculated on the basis of the information supplied by ced- ing companies. Additional IBNR reserves are established for losses that have been incurred but not as yet reported.
The development of the loss and loss adjustment expense re- serve is shown in the following table. Commencing with the gross reserve, the change in the reserve after deduction of the reinsurers’ portions is shown in the year under review and the previous year.
Loss and loss adjustment expense reserve in EuR thousand
2010 2009
gross retro net gross retro net
net book value at 31 December of the
previous year 17,425,293 1,747,991 15,677,302 16,932,069 2,079,168 14,852,901 Currency translation at 1 January 1,084,548 121,769 962,779 25,107 (19,838) 44,945
Reserve at 1 January of the year
under review 18,509,841 1,869,760 16,640,081 16,957,176 2,059,330 14,897,846
Reclassification pursuant to IFRS 5 (1,306,483) (827,314) (479,169) – – –
Incurred claims and claims expenses (net)1
year under review 6,971,047 512,650 6,458,397 4,786,057 213,776 4,572,281
Previous years 765,975 218,902 547,073 1,942,699 (22,302) 1,965,001
7,737,022 731,552 7,005,470 6,728,756 191,474 6,537,282
Less:
Claims and claims expenses paid (net)
year under review (2,491,229) (230,553) (2,260,676) (2,314,135) (130,610) (2,183,525) Previous years (4,481,203) (520,687) (3,960,516) (3,921,412) (392,354) (3,529,058) (6,972,432) (751,240) (6,221,192) (6,235,547) (522,964) (5,712,583) Specific value adjustment for retrocessions – 2,100 (2,100) – 10,423 (10,423) Reversal of impairments – 23,107 (23,107) – 32,604 (32,604) Portfolio entries/exits 133,254 (5,673) 138,927 9,801 (19) 9,820
Currency translation at 31 December (35,807) (12,760) (23,047) (34,893) (2,011) (32,882)
Net book value at 31 December
of the year under review 18,065,395 1,025,332 17,040,063 17,425,293 1,747,991 15,677,302
1 Including expenses recognised directly in shareholders‘ equity
In the year under review specific value adjustments on retro- cessions, i.e. on the reinsurance recoverables on unpaid claims, were reversed in an amount of EUR 21.0 million (pre- vious year: reversed in an amount of EUR 22.2 million). Con-
sequently, cumulative specific value adjustments of EUR 3.5 million (EUR 24.5 million) were recognised in these reinsur- ance recoverables as at the balance sheet date.
152 Hannover Re Group annual report 2010
To some extent the loss and loss adjustment expense reserves are inevitably based upon estimations that entail an element of uncertainty. The difference between the previous year’s and current estimates is reflected in the net run-off result. In ad- dition, owing to the fact that the period of some reinsurance treaties is not the calendar year or because they are concluded on an underwriting-year basis, it is frequently impossible in reinsurance business to make an exact allocation of claims ex- penditures to the current financial year and the previous year. The run-off triangles are therefore shown after adjustment for effects associated with the additional premium.
The development of the euro relative to the most relevant for- eign currencies is also a significant influencing factor in the analysis of run-off triangles. In particular, the depreciation of 7.5% in the euro against the US dollar compared to the pre- vious year led to an increase in the loss and loss adjustment expense reserve on a euro basis.
The run-off triangles show the run-off of the reserve estab- lished as at each balance sheet date, this reserve comprising the provisions constituted in each case for the current and preceding occurrence years.
The following table shows the net loss reserve (loss and loss adjustment expense reserve) for non-life reinsurance in the years 2000 to 2010 as well as the run-off of the reserve (so-called run-off triangle). The figures reported for the 2000 balance sheet year also include the amounts for previous years that are no longer shown separately in the run-off triangle. The run-off results shown reflect the changes in the ultim- ate loss arising in the 2010 financial year for the individual run-off years.
Runoff of the net loss reserve in the nonlife reinsurance segment The total amount of the net reserve before specific value ad- justments, to which the following remarks apply, was EUR
17,036.6 million (EUR 15,652.8 million) as at the balance sheet date.
153 Hannover Re Group annual report 2010
Notes
The result for the run-off years in the 2010 financial year was EUR 214.8 million. This is equivalent to 1.4% of the original reserve.
The improved run-off result relative to the previous year can be attributed to positive run-offs of reserves for major losses (especially Hurricanes “Gustav” and “Ike” and the attack on the World Trade Center in New York) as well as proportional reinsurance business from the German market.
Net loss reserve and its runoff in the nonlife reinsurance segment Figures in EuR million 31.12.
2000 31.12. 2001 31.12. 2002 31.12. 2003 31.12. 2004 31.12. 2005 31.12. 2006 31.12. 2007 31.12. 2008 31.12. 2009
31.12. 2010
Loss and loss adjustment expense reserve (from balance sheet)
8,482.0 12,182.7 12,863.4 13,462.2 13,120.7 14,295.9 13,279.8 12,718.2 13,354.1 13,779.6 15,255.31 Cumulative payments for the year in question and previous years
One year later 2,108.2 2,242.2 2,118.1 3,622.7 4,495.8 3,051.1 2,664.8 2,476.2 2,927.9 2,803.6 Two years later 3,111.9 3,775.1 5,024.4 7,322.2 6,611.0 5,072.2 4,389.8 4,249.6 4,573.2
Three years later 4,174.2 6,032.1 7,764.8 8,780.2 7,590.1 6,204.5 5,696.0 5,370.9 Four years later 5,745.1 8,588.5 8,909.0 9,518.8 8,356.3 7,306.3 6,500.7
Five years later 7,581.3 9,399.8 9,467.1 10,101.6 9,136.7 7,934.9 Six years later 8,114.1 9,786.1 9,896.7 10,733.6 9,596.4
Seven years later 8,405.2 10,122.4 10,456.6 11,081.6 Eight years later 8,610.9 10,533.4 10,724.3
nine years later 8,891.4 10,734.5 Ten years later 9,023.6
Loss and loss adjustment expense reserve (net) for the year in question and previous years plus payments made to date on the original reserve
end of year 8,482.0 12,182.7 12,863.4 13,462.2 13,120.7 14,295.9 13,279.8 12,718.2 13,354.1 13,779.6 15,255.3
One year later 9,421.6 11,604.4 11,742.7 13,635.5 14,433.1 13,074.2 12,365.8 12,171.4 13,264.9 14,303.4 Two years later 8,878.0 10,477.4 11,844.8 14,236.6 13,532.6 12,366.0 11,868.0 11,925.7 13,263.4
Three years later 8,186.1 10,743.8 12,373.3 13,596.5 13,061.2 11,977.1 11,645.0 12,040.5 Four years later 8,354.1 11,543.6 11,730.7 13,307.4 12,770.8 11,772.7 11,670.3
Five years later 9,102.6 11,051.2 11,666.2 13,122.5 12,618.0 11,768.5 Six years later 8,755.6 11,164.1 11,686.0 13,053.9 12,578.0
Seven years later 8,864.2 11,219.1 11,707.0 12,987.5 Eight years later 8,935.7 11,261.7 11,669.9
nine years later 8,933.0 11,166.3 Ten years later 8,865.6
Net runoff result of the loss reserve
67 28 (58) 29 (26) (36) (29) (90) 116 (525)
Of which currency exchange rate
differences 94 27 28 42 47 69 66 89 139 138
net run-off result excluding currency exchange rate differences
161 55 (30) 72 21 33 36 – 255 (388)
as percentage of
original loss reserve 1.8 0.5 (0.3) 0.5 0.2 0.3 0.3 – 1.9 (2.8)
1 The net loss reserve of EuR 15,255.3 million shown in the run-off triangle for the 2010 balance sheet year includes the assets held for sale and liabilities related to assets held for sale of Clarendon Insurance Group, Inc. in an amount of EuR 479.2 million.
154 Hannover Re Group annual report 2010
IFRS 4 “Insurance Contracts” requires information which helps to clarify the amount and timing of cash flows expected from reinsurance contracts. In the following tables we have shown the technical provisions broken down by the expected remaining times to maturity. In our maturity analysis we have directly deducted the deposits put up as security for these
reserves, since the cash inflows and outflows from these de- posits are to be allocated directly to the ceding companies. For further explanation of the recognition and measurement of the reserves please see Section 3.2 “Summary of major ac- counting policies”.
Notes 5.7 Technical provisions