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Report of the Supervisory Board of Hannover Rück SE
In our function as the Supervisory Board we considered at length during the 2016 financial year the position and development of the company and its major subsidiaries. We advised the Executive Board on the direction of the company and monitored the management of business on the basis of written and verbal reports from the Executive Board. The Supervisory Board of Hannover Rück SE held four regular meetings in order to adopt the necessary resolutions after appropriate discussion. With the exception of two meetings that one member of the Supervisory Board did not attend, all nine Supervisory Board members took part in each of the Supervisory Board meetings held in 2016. Two representatives of the Federal Financial Supervisory Authority participated in one meeting on a routine basis. In addition, we were informed by the Executive Board in writing and orally about the course of business and the position of the company and the Group on the basis of the quarterly financial statements. The quarterly reports with the components of the financial statements and key figures for the Hannover Re Group constituted an important source of information for the Supervisory Board.
We received an analysis of the 2015 results in property & casualty and life & health reinsurance as well as a presentation from the Executive Board covering the profit expectations for the 2016 financial year and the operational planning for the 2017 financial year. In addition, the Chairman of the Supervisory Board was constantly advised by the Chairman of the Executive Board of major developments and impending decisions as well as of the risk situation within the company and the Group. All in all, we were involved in decisions taken by the Executive Board and assured ourselves of the lawfulness, regularity and efficiency of the company’s management as required by our statutory responsibilities and those placed upon us by the company’s Articles of Association.
No audit measures pursuant to § 111 Para. 2 Sentence 1 German Stock Corporation Act were required in the 2016 financial year.
Key points of deliberation
As in every year, we were regularly updated on the work of the Supervisory Board committees and given a description of the major pending legal proceedings. In addition, we received a report on the status of the Market Consistent Embedded Value in life and health reinsurance. A further key point of deliberation was the examination of the various reports in accordance with Solvency II (including ORSA, Day 1 Report). The Information Policy for the Supervisory Board was also revised against this backdrop. In addition, the Rules of Procedure for the Executive Board were updated. In the annual review of the investment guidelines the table of permitted share indices was revised. The updating of the minimum liquidity limit and the revision of the corresponding guideline also came under scrutiny. Furthermore, a report was received on the return on investment in comparison with competitors. Extensive consideration was also given to the EU Audit Reform and the corresponding resolution (including in relation to the updated Rules of Procedure for the Finance and Audit Committee). In addition, the strategic approach of acquiring capital participations in a Lloyd’s syndicate was discussed at length. As in every year, the full Supervisory Board considered the adequacy of the remuneration system for the members of the Executive Board. The variable remuneration of the members of the Executive Board was defined on the basis of the findings with respect to attainment of the respective targets for the 2015 financial year.
Committees of the Supervisory Board
Of the committees formed by the Supervisory Board within the meaning of § 107 Para. 3 German Stock Corporation Act, the Finance and Audit Committee met on four occasions and the Standing Committee met three times. The Chairman of the Supervisory Board updated the full Supervisory Board on the major deliberations of the committee meetings at its next meeting and provided an opportunity for further questions.
The Finance and Audit Committee considered inter alia the consolidated financial statement and the quarterly reports drawn up in accordance with IFRS and the individual financial statement of Hannover Rück SE drawn up in accordance with the German Commercial Code (HGB) and discussed with the independent auditors their reports on these financial statements. As in the previous year, an expert opinion on the adequacy of the loss reserves in property and casualty reinsurance was noted, the retrocession structure of the Hannover Re Group and the accumulated prefinancing volume in life reinsurance including a comparison of the expected return flows with the repayments actually made, the risk reports, the compliance report and the report on adherence to Corporate Governance principles were discussed and reports on the major subsidiaries were received and considered. In addition, the Committee examined the investment structure and investment income – including the stress tests with regard to the investments and their implications for net income and the equity base – and defined the audit concentrations for the 2016 financial year. The Committee was provided with detailed reports on the purchase of The Congregational & General Insurance Public Limited Company (CGI) as well as on the recognition and measurement of the risk-oriented book of US life reinsurance business acquired in 2009 from Scottish Re. The Committee also received an explanation of the capital market risks in life and health reinsurance and considered various M & A projects. Furthermore, the future form of the company’s regular financial reporting with an eye to transposition of the EU Transparency Directive into national law was explored. The Committee prepared various resolutions to be adopted by the Supervisory Board, including a resolution on the approach to be taken in connection with the EU audit reform. The reporting on the Auditor Supervision Act and the Audit Reform Act as well as the resulting considerations and measures were a major point of emphasis in the work of the Finance and Audit Committee. Once it had been agreed that the independent auditor of the company’s individual and consolidated financial statements should be changed early for the 2018 financial year, a project was set in motion to prepare and initiate the tender procedure. At an extraordinary meeting of the Committee on 30 November 2016 three auditing firms presented and enlarged upon the bids that they had submitted in writing. The validation of the report compiled by the company on the conclusions drawn by the Finance and Audit Committee in the selection process as well as the adoption of board resolutions in this connection will take place in the 2017 financial year.
The Standing Committee dealt among other things with the adequacy of the system of remuneration for the members of the Executive Board, the determination of the variable remuneration of the members of the Executive Board for the 2015 financial year on the basis of the findings with respect to attainment of their respective targets and the examination of the remuneration for the Board members who were due for review. In all these matters the Committee drew up corresponding recommendations for the full Supervisory Board. The Committee deliberated at length on the medium- and long-time succession arrangements for the Executive Board and recommended to the full Supervisory Board the reappointment of Mr. Ulrich Wallin, Mr. Sven Althoff, Mr. Jürgen Gräber and Mr. Roland Vogel.
Corporate Governance
The Government Commission on the German Corporate Governance Code (DCKG) did not make any changes to the German Corporate Governance Code in 2016. The Supervisory Board nevertheless devoted considerable attention to the topic of corporate governance. For example, the results of the efficiency evaluation of the Supervisory Board’s activities in accordance with Item 5.6 of the Code as well as the optimisation measures to be adopted on this basis were considered at length. It also determined the differentiations that are required for the vertical comparison of remuneration pursuant to Item 4.2.2 of the Code. In addition, the Supervisory Board received a report on the design of the remuneration schemes as well as the compliance, internal audit and risk reports.
In connection with the implementation of Solvency II the company offered the Supervisory Board an internal training event in 2016. This enabled the members of the Supervisory Board to improve their knowledge of the new regulatory developments resulting from the laws and policies adopted in the context of Solvency II. Topical concentrations included, among others, the special demands placed on the Supervisory Board, requirements with respect to the business organisation and key functions as well as the company’s internal model. Notwithstanding the high importance that the Supervisory Board attaches to the standards of good and responsible enterprise management defined in the German Corporate Governance Code, the Supervisory Board decided not to comply with the recommendations contained in Code Item 4.2.3 Para. 2 regarding caps on the amount of variable compensation elements in management board contracts, in Code Item 4.2.3 Para. 4 concerning a cap on severance payments in management board contracts, in Code Item 5.2 Para. 2 concerning the Chair of the Audit Committee and in Code Item 5.3.2 concerning the independence of the Chair of the Audit Committee. Justification for these divergences is provided in the Declaration of Conformity pursuant to § 161 German Stock Corporation Act regarding compliance with the German Corporate Governance Code, which is reproduced in this Annual Report as part of the Declaration on Corporate Governance. Further information on the topic of corporate governance is available on Hannover Re’s website.
Audit of the annual financial statements and consolidated financial statements
The accounting, annual financial statements, consolidated financial statements and the combined management report were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. The Supervisory Board chose the auditor and the Chairman of the Supervisory Board awarded the audit mandate. The auditor’s independence declaration was received. Along with the audit concentrations of the German Financial Reporting Enforcement Panel (DPR), the additional audit concentrations defined by the European Securities and Markets Authority (ESMA) also formed part of the scope of the audit. The mandate for the review report by the independent auditors on the Halfyearly Financial Report as at 30 June 2016 was also awarded again. The special challenges associated with the international aspects of the audits were met without reservation. Since the audits did not give rise to any objections KPMG AG Wirtschaftsprüfungsgesellschaft issued unqualified audit certificates. The Finance and Audit Committee discussed the annual financial statements and the combined management report with the participation of the auditors and in light of the audit reports, and it informed the Supervisory Board of the outcome of its examination. The audit reports were distributed to all members of the Supervisory Board and scrutinised in detail – with the participation of the auditors – at the Supervisory Board meeting held to consider the annual results. The auditors will also be present at the Annual General Meeting.
The report on the company’s relations with affiliated companies drawn up by the Executive Board has likewise been examined by KPMG AG Wirtschaftsprüfungsgesellschaft and given the following unqualified audit certificate:
“Having audited the report in accordance with our professional duties, we confirm that
- its factual details are correct;
- in the case of the transactions detailed in the report, the expenditure of the company was not unreasonably high.”
We have examined
- the annual financial statements of the company, the financial statements of the Hannover Re Group and the combined management report prepared by the Executive Board for the company and the Group, and
- the report of the Executive Board pursuant to § 312 German Stock Corporation Act (Report on relations with affiliated companies)
– in each case drawn up as at 31 December 2016 – and have no objections. Nor do we have any objections to the statement reproduced in the dependent company report.
The Supervisory Board thus concurred with the opinions of the auditors and approved the annual financial statements and the consolidated financial statements; the annual financial statements are thereby adopted. Our proposal regarding the appropriation of the disposable profit for 2016 is in accordance with that of the Executive Board.
Changes on the Supervisory Board and the Executive Board
The composition of the Supervisory Board and its committees as well as of the Executive Board did not change in the year under review. Mr. Sven Althoff, Mr. Jürgen Gräber, Mr. Roland Vogel and Mr. Ulrich Wallin were reappointed as members of the Executive Board, with the latter at the same time being appointed as Chairman of the Executive Board.
Word of thanks to the Executive Board and members of staff
The very good result once again generated by Hannover Rück SE for the 2016 financial year was made possible by the exceptional performance of the Executive Board and the members of staff working for the company and the Group. The Supervisory Board would like to express its recognition and special appreciation to the Executive Board and all the employees for their efforts.
Hannover, 8 March 2017
For the Supervisory Board
Herbert K. Haas
Chairman