Hannover Rueck SE · XETR:HNR1
Hannover Rueck — Hannover Rück — Investor Presentation (July 2005)
26 slides from Hannover Rueck's investor presentation, Jul 1, 2005
Slide 1: The Long and Winding Road from VIF to EEV
The Long and Winding Road from VIF to EEV - Measuring Value Creation in Life Reassurance Wolf S. Becke Executive Board Member & CEO Hannover Life Re Hannover, 1 July 2005
Slide 2: Overview
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix OVERVIEW Æ Traditional Embedded Value (TEV) – a short recap Æ Hannover Life Re’s VIF 2003 revisited Æ European Embedded Values (EEV) Æ EEV parameters for Hannover Life Re Æ "Show me the numbers!" – EEV 2004 result
Slide 3: The Traditional Embedded Value (TEV) Approach
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Short recap THE TRADITIONAL EMBEDDED VALUE (TEV) APPROACH Key characteristics Æ Independence of the currently applicable accounting system • Statutory • US GAAP • IAS/IFRS Æ Determination of time horizon in line w
Slide 4: The Traditional Embedded Value (TEV) Approach (cont'd)
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Short recap THE TRADITIONAL EMBEDDED VALUE (TEV) APPROACH (CONT'D) Formula Æ The basis for TEV is the formula TEV = NAV + VIF • NAV = Net Asset Value (adjusted) • VIF = Value of In-Force Business Æ This formula is
Slide 5: Some Related Questions
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix SOME RELATED QUESTIONS Æ Who is ultimately responsible for providing the solvency capital. . . • . . . the shareholders. . . • . . . or the policyholders? ¬ Solvency capital as part of NAV or as part of VIF? Æ Wha
Slide 6: Hannover Life Re's VIF 2003 Revisited
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix HANNOVER LIFE RE'S VIF 2003 REVISITED Æ Hannover Life Re has adopted traditional VIF considerations since 1992 for its seven business centers. . . • German operations: Hannover Rück AG – Life Division E+S Rück AG
Slide 7: Hannover Life Re's VIF 2003 Revisited (cont'd)
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix HANNOVER LIFE RE'S VIF 2003 REVISITED (CONT'D) VIF VIF in m. € in % German operations 764 56.1% Foreign operations 597 43.9% Total Hannover Life Re 1,361 100.0% Traditional VIF for Hannover Life Re at the end of 2
Slide 8: Starting Point
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix STARTING POINT Widespread criticism regarding TEV Æ Though TEV methodology has been in use for decades, over the last few years, growing criticism has been voiced by financial analysts and rating agencies Æ The mo
Slide 9: The EEV Approach - A Significant Attempt
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix THE EEV APPROACH - A SIGNIFICANT ATTEMPT Consistent platform for determining the real value creation in life (re)insurance Æ A key role was played since 2003 by the members of the CFO Forum which represents 19 maj
Slide 10: The EEV Approach
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix THE EEV APPROACH Formula Æ The basis for EEV is the formula EEV = SNW + PVFP • SNW* = Free Surplus + Required Capital – Cost of Required Capital • PVFP = Present Value of Future Profits on Business in Force * Shar
Slide 11: EEV Principles
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix EEV PRINCIPLES Key definitions Æ Free Surplus • Market value of any capital and surplus allocated to, but not required to support, the covered in-force business Æ Required Capital • Solvency capital including thos
Slide 12: First Observations and First Steps Taken
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix FIRST OBSERVATIONS AND FIRST STEPS TAKEN 2004 VIF partly based on EEV principles Æ A key observation • EEV and all of its components work on a post-tax basis only Æ In 2004, at Hannover Life Re we have adopted sev
Slide 13: Selection of Key 2004 EEV Parameters
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix SELECTION OF KEY 2004 EEV PARAMETERS Underlying assumptions when modelling the Hannover Life Re 2004 EEV Æ General assumptions • All assumptions are based on a going concern (!) • Non-technical assumptions are on
Slide 14: Required Capital
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Assumptions REQUIRED CAPITAL Æ For Hannover Re, as a composite company, the required capital was allocated to the covered life reinsurance business Æ For the business written at Home Office (HLR Germany & HLR Int'
Slide 15: Risk Discount Rates (RDR)
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Assumptions RISK DISCOUNT RATES (RDR) Æ The RDR under EEV principles is defined as risk free rate plus a risk margin, which needs to be sufficient to cover any risk associated with the emergence of distributable e
Slide 16: Future Investment Income
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Assumptions FUTURE INVESTMENT INCOME Æ Hannover Life Re as at 31 December 2004 controls EUR 7.3 bn. in interest-carrying assets of which EUR 1.7 bn. are investments & cash and EUR 5.6 bn. are net reserves deposite
Slide 17: "Show Me the Numbers!" - Hannover Life Re 2004 EEV
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix "SHOW ME THE NUMBERS!" - HANNOVER LIFE RE 2004 EEV Cost of Free Required required PVFP EEV surplus capital On post-tax basis capital German operations - 208 15 526 719 Foreign operations 117 181 54 310 554 Total 1
Slide 18: New Business 2004
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix NEW BUSINESS 2004 Note: No costs for financial options and guarantees included Total in m. € New business premiums in 2004 1,090.9 - thereof single premiums 2004 678.4 - thereof annual premiums 2004 412.5 Present
Slide 19: Sensitivities
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix SENSITIVITIES Lapses of EV 2004 RDR Mortality/Morbidity Currency in-force business Prev. Prev. EUR -1% +10% -10% year +10% -10% Year rises 5% in m. € exch. rate Total 1,272.8 59.6 (24.3) (163.5) 154.3 (49.6) 26.4
Slide 20: Analysis of Change 2004 vs. 2003
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix ANALYSIS OF CHANGE 2004 vs. 2003 in m. € EEV 2003 1,206.3 Initial adjustment (40.2) Adj. EV 2003 1,166.2 Operating EV earnings 95.2 Investment variances 3.9 Economic assumption changes (2.6) EV earnings 96.5 Chang
Slide 21: Operating EV Earnings 2004
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix OPERATING EV EARNINGS 2004 in m. € Expected return on shareholders' net worth 12.4 Release of prior year's PVFP 63.8 New business value 54.7 Experience variances (10.9) Operating assumption changes (24.7) Operatin
Slide 22: Where Do We Go From Here?
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Next steps WHERE DO WE GO FROM HERE? EEV at Hannover Life Re remains a work in progress Æ Hannover Life Re is committed to apply the full EEV approach from 2005 onwards, with the following key specifications • Ref
Slide 23: Appendix 1
alpen Appendix 1 hannover life re’
Slide 24: From Traditional VIF to New PVFP
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix FROM TRADITIONAL VIF TO NEW PVFP* in m. € VIF traditional - pre-tax 1,495 - First step: Extract surplus capital from VIF (153) - HLR Australasia, HLR Ireland - Second step: Add-back CoC to VIF 35 - HLR Internation
Slide 25: Appendix 2
alpen Appendix 2 hannover life re’
Slide 26: EEV Analysis of Change 2004: 2004 vs. 2003
Traditional EV HLR VIF 2003 European EV EEVparameters Results 2004 Next steps Appendix Details EEV ANALYSIS OF CHANGE 2004 2004 vs. 2003 German Foreign HLR in m. € operations operations Total EV 2003 662.2 544.1 1,206.3 Change currency exch. rate EUR deviation 0.0 (15.7) (15.7) Change of basis (12.8