2. Accounting principles
Hannover Re is obliged to prepare a consolidated financial statement and group management report in accordance with § 290 German Commercial Code (HGB).
Pursuant to EU Regulation (EC) No. 1606/2002, the present consolidated financial statement and group management report of Hannover Re have been drawn up in accordance with the International Financial Reporting Standards (IFRS) that are to be applied within the European Union. We have also made allowance for the supplementary regulations applicable pursuant to § 315a Para. 1 German Commercial Code (HGB) and the supplementary provisions of the parent company’s Articles of Association as amended on 3 August 2007.
The consolidated financial statement reflects all IFRS in force as at 31 December 2009 as well as all interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC), application of which was mandatory for the 2009 financial year. The disclosures regarding the management of technical and financial risks arising out of IFRS 7 “Financial Instruments: Disclosures” and IFRS 4 “Insurance Contracts” are contained in the risk report. We have dispensed with an additional presentation of the same content in the notes.
Since 2002 the standards adopted by the International Accounting Standards Board (IASB) have been referred to as “International Financial Reporting Standards (IFRS)”; the standards dating from earlier years still bear the name “International Accounting Standards (IAS)”. Standards are cited in our notes accordingly; in cases where the notes do not make explicit reference to a particular standard, the term IFRS is used.
In addition, the German Accounting Standards (DRS) adopted by the German Accounting Standards Committee (DRSC) have been observed insofar as they do not conflict with currently applicable IFRS.
The declaration of conformity required pursuant to § 161 German Stock Corporation Act (AktG) regarding compliance with the German Corporate Governance Code has been submitted and, as described in the Declaration of the Executive Board regarding the Corporate Governance of the Company, made permanently available to the shareholders.
The annual financial statements included in the consolidated financial statement were for the most part drawn up as at 31 December. Pursuant to IAS 27.27 there is no requirement to compile interim accounts for Group companies with diverging reporting dates because their closing dates are no earlier than three months prior to the closing date for the consolidated financial statement.
The annual financial statements of all companies were initially drawn up in compliance with the provisions of the respective national laws and then transformed to IFRS in accordance with standard Group accounting and measurement rules.
The consolidated financial statement was drawn up in euros (EUR), the amounts shown have been rounded to EUR thousands and – provided this does not detract from transparency – to EUR millions. Figures indicated in brackets refer to the previous year.
The present consolidated financial statement was prepared by the Executive Board on 15 February 2010 and hence released for publication.
New accounting principles
The revised IAS 1 (rev. 2007) “Presentation of Financial Statements” is aimed at improving users’ ability to analyse and compare the information given in financial statements. Hannover Re applied the standard for the first time in the first quarter of 2009. A central element of IAS 1 (rev. 2007) is the modified presentation of the total comprehensive income of the reporting period, which is composed of the profit or loss for the said reporting period as well as other comprehensive income and expenses recognised directly in equity. The significant change in IAS 1 (rev. 2007) lies in the clear separation between changes in other comprehensive income resulting from transactions with owners in their capacity as such and non-owner changes in equity. Non-owner changes in equity must be disclosed in a separate new component of the financial statement, the consolidated statement of comprehensive income, with only the total shown in the consolidated statement of changes in shareholders’ equity. The tax effects must be disclosed separately in relation to each component of the other comprehensive income. The option – which has not been exercised by Hannover Re – continues to be available to rename individual components of the financial statements and to publish a single statement of comprehensive income combining the existing consolidated statement of income and the consolidated statement of comprehensive income.
IFRS 8 “Operating Segments” replaces the previous IAS 14 “Segment Reporting”. IFRS 8 requires adoption of the management approach to reporting on the economic position of segments. Under this approach, the segmentation and the disclosures for the segments are based on the information used internally by management for evaluating segment performance and deciding on the allocation of resources. IFRS 8 was applied for the first time in the first quarter of 2009. Hannover Re concluded that it should retain the previously used system of segmentation, since it is regularly used by management to assess the various areas of business and facilitates a transparent presentation of Group net income.
In March 2009 the IASB published “Improving Disclosures about Financial Instruments – Amendments to IFRS 7”. By way of the Regulation (EC) No. 1165/2009 the European Commission adopted the amendments in European law on 27 November 2009. The amendments principally involve new disclosures concerning fair value measurements. These new disclosures are clarified through the adoption of a breakdown for each class of financial instruments – based on a three-level fair value hierarchy – and an extended scope of disclosure requirements. These amendments to IFRS 7 shall be applied to financial years beginning on or after 1 January 2009. Hannover Re is availing itself of the option to dispense with the provision of comparative disclosures for the previous reporting period in the first year of application.
In February 2008 the amendments to IAS 32 and IAS 1 “Puttable Financial Instruments and Obligations arising on Liquidation” were published. Application of the amendments is mandatory from 1 January 2009 onwards. The amendment of IAS 1 refers to revised disclosure requirements applicable to puttable financial instruments and obligations arising on liquidation. The revised version of IAS 32 permits the balance sheet classification of puttable financial instruments as equity in the future under certain conditions. Particularly given the fact that minority interests in partnerships will continue to be recognised as a financial liability in the consolidated financial statement, the amendment is of no practical significance to the consolidated financial statement.
Standards or changes in standards that have not yet entered into force or are not yet applicable
The IASB has issued the following standards, interpretations and amendments to existing standards with possible implications for the consolidated financial statement of Hannover Re, application of which is not yet mandatory for the year under review and which are not being applied early by Hannover Re:
In November 2009 the IASB published the revised IAS 24 “Related Party Disclosures”. A major new feature of IAS 24 (rev.) is the requirement for disclosures of “commitments”, for example guarantees, undertakings and other commitments, which are dependent upon whether (or not) a particular event occurs in the future. The definition of a related entity or a related person is also clarified. The standard, the implications of which for Hannover Re are currently under review, has not yet been ratified by the European Union.
In November 2009 the IASB also issued IFRS 9 “Financial Instruments” on the classification and measurement of financial instruments. IFRS 9 is the first step in a three-phase project intended to replace IAS 39 “Financial Instruments: Recognition and Measurement” with a new standard. IFRS 9 introduces new requirements for classifying and measuring financial assets. The standard, the implications of which for Hannover Re are currently under review, has not yet been ratified by the European Union.
In June 2009 the IASB published amendments to IFRS 2 “Group Cash-settled Share-based Payment Transactions”, which have not yet been ratified by the European Union. The amendments relate to the scope of application of IFRS 2, and also clarify that the term “group” in IFRS 2 has the same meaning as in IAS 27; they will probably not have any implications for Hannover Re.
As at the balance sheet date Hannover Re did not avail itself of the facilities offered by the amendments to “IAS 39 & IFRS 7 – Reclassification of Financial Assets”, which entered into force in October 2008, regarding the reclassification and measurement of selected financial instruments.
In January 2008 the IASB published the revised versions of IFRS 3 “Business Combinations” and IAS 27 “Consolidated and Separate Financial Statements”. The new provisions primarily cover the balance sheet recognition of minority interests, measurement issues in connection with successive acquisition, changes in a participating interest with or without a loss of control as well as adjustments to acquisition costs depending upon future events and their effects on goodwill. Since the amendments are to be applied prospectively to financial years beginning on or after 1 July 2009, implications for Hannover Re can only arise in connection with future acquisitions.