Management of policyholders' surplus
The preservation and consistent enhancement of its capital is a key strategic objective for Hannover Re. In recent years hybrid capital has been issued as an equity substitute in order to keep the cost of capital as low as possible. With the aim of achieving this goal, Hannover Re's capital management extends to the policyholders' surplus. The policyholders' surplus is defined as the sum total of
- shareholders' equity excluding minority interests, composed of the common shares, additional paid-in capital, other comprehensive income and retained earnings,
- minority interests and
- hybrid capital used as an equity substitute, which encompasses our subordinated debt.
The policyholders’ surplus totalled EUR 5,619.1 million (EUR 4,708.4 million) as at the balance sheet date.
Hannover Re uses “Intrinsic Value Creation” (IVC) as its central value-based management tool. For more information on this concept as well as the objectives and principles in accordance with which we conduct our enterprise management and capital management the reader is referred to our remarks on value-based management of this report.
Hannover Re satisfies the capital expectations of the rating agencies that assess the Group's financial strength with an eye to our targeted rating. Some Group companies are subject to additional national capital and solvency requirements. All Group companies met the applicable local minimum capital requirements in the year under review. The parent company ensures that the local minimum capital requirements applicable to subsidiaries are always satisfied in accordance with the official requirements defined by insurance regulators.
In view of the thoroughly favourable result, the development of the shareholders' equity of the Hannover Re Group was highly gratifying. Compared to the position as at 31 December 2008, it increased by EUR 922.5 million in the year under review to EUR 4.3 billion. After adjustment for minorities, it increased by EUR 881.9 million to EUR 3.7 billion. The book value per share increased accordingly by 31.2% to EUR 30.78. The changes in shareholders' equity were shaped chiefly by the following movements.
The Group net income for 2009 attributable to the shareholders of the Hannover Re Group climbed to EUR 731.2 million (–EUR 127.0 million).
Net unrealised gains on investments reached EUR 241.6 million, a figure EUR 127.7 million higher than at the beginning of the year under review. This rise derived in particular from the fall in the risk-free interest rate and the credit risk charges for corporate risks, as a consequence of which the net unrealised gains on our fixed-income securities classified as available for sale were further boosted.
The reserve for currency translation adjustment improved slightly by EUR 23.5 million to –EUR 224.1 million as a consequence of exchange rate fluctuations of foreign currencies against the euro in the year under review. The rise in the reserve for currency translation adjustment resulted above all from the appreciation of the Australian dollar (AUD) and the South African rand (ZAR).
Minority interests in Group shareholders' equity grew by EUR 40.7 million to EUR 542.1 million as at 31 December 2009. This increase derived primarily from the minority interest in profit of EUR 40.3 million generated in the year under review.