Risk landscape of Hannover Re

As part of its business operations the Hannover Re Group enters into a broad variety of risks. These risks are deliberately accepted and controlled in order to be able to act on the associated opportunities. For the purpose of systematising and managing these risks we split them into:

• technical risks in non-life and life and health reinsurance which originate from our business activities and manifest themselves inter alia in fluctuations in loss estimates as well as in unexpected catastrophes and changes in biometric factors such as mortality,
• market risks which arise in connection with our investments and also as a consequence of the valuation of sometimes long-term payment obligations associated with the technical account,
• default and credit risks resulting from our diverse business relationships and payment obligations inter alia with clients and retrocessionaires,
• operational risks which may derive, for example, from deficient processes or systems and
• other risks, such as reputational and liquidity risks.

At the present time our most significant risks are the reserving and catastrophe risks within the technical risks of non-life reinsurance, the credit and spread risks within the market risks and the risk of changes in mortality within the technical risks of life and health reinsurance.

• Reserving risks can manifest themselves when the current estimates of future payment obligations from existing insurance contracts diverge from the payments that are actually to be made in the future.
• Catastrophe risks can give rise to loss payments for natural disasters, such as storms or earthquakes, and man-made disasters, such as terrorist attacks or accidents in the air or at sea, the amount of which exceeds the losses anticipated over the multi-year average.
• Credit and spread risks result from fair value changes or defaults in connection with our investments in fixed-income securities issued by companies or sovereigns or in asset-backed securities.
• Risks of changes in mortality derive from the difference between the mortality of insureds factored into the pricing and reserving and the actual mortality.

Our risk profile remained stable over the financial year just ended. The risks essentially increased in step with the growth of our business. Particularly notable aspects are described in the following sections.

The parameters and decisions of the Executive Board with respect to the risk appetite of the Hannover Re Group, which are based on the calculations of risk-bearing capacity, are fundamental to the acceptance of risks. Through our business operations on all continents and the diversification between our non-life and life and health reinsurance business groups we are able to effectively allocate our capital in light of opportunity and risk considerations and generate a higher-than-average return on equity. In non-life reinsurance we practise active cycle management and adopt a selective and disciplined underwriting approach.

By expanding our portfolio of life and health reinsurance we reduce the volatility of results within the Group and maintain stable dividend payments. Along with our principal business operations as a reinsurer of non-life and life and health business, we also transact primary insurance business in selected niche markets as a complement to our core reinsurance business. With this approach we are well positioned for further profitable growth. Crucial importance attaches to our risk management in order to ensure, among other things, that risks to the reinsurance portfolio remain calculable and also that exceptional major losses do not have an unduly adverse impact on the result.