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Major external factors influencing risk management in the financial year just ended
Regulatory developments: Effective 1 January 2016 the new insurance supervisory regime Solvency II entered into force. Hannover Re implemented the extensive standards relating to capital requirements, governance and reporting in a timely manner.
Hannover Re received approval from the regulatory authorities to calculate its solvency requirements using a partial internal capital model when Solvency II entered into effect. The model approved by regulators covers the underwriting, market and counterparty default risks that are most relevant to enterprise management. Our internal capital model enables us to optimally map the risk structure of our reinsurance business and our investments, which would not be possible using a standard model. Regulatory approval also means that the risks can be better reflected when determining the regulatory capital requirements. Our internal target capitalisation with a confidence level of 99.97% comfortably exceeds the target level of 99.5% set by Solvency II, thereby ensuring a comfortable level of capital adequacy under Solvency II if the internal target is achieved. Our next step will be a full internal capital model that also includes the operational risks.
We comprehensively fulfilled the supervisory reporting requirements, inter alia by compiling a Day 1 report and a report on the Own Risk and Solvency Assessment (ORSA) for Hannover Rück SE and other European insurance companies within the Group.
Parallel to the regulatory developments in Europe, we are seeing adjustments worldwide to the regulation of (re)insurance undertakings. It is often the case that various local supervisory authorities take their lead from the principles of Solvency II or the requirements set out by the International Association of Insurance Supervisors (IAIS).
Capital market environment: Another major external influencing factor is the protracted low level of interest rates, especially with an eye to the return that can be generated on our investments. The move by the European Central Bank to extend its purchases of corporate bonds and the United Kingdom’s decision to leave the European Union led to a further drop in interest rates (in the United Kingdom). For further information please see the Investments section of the management report.