Hannover Re: the somewhat different reinsurer

Transcription

1 Hannover Re: the somewhat different reinsurer January 2013

2 Content Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment management Risk management Capital management Q1-3/ Outlook

3 Key facts about Hannover Re Established in 1966 Majority shareholder: 50.2% of Hannover Re's shares held by Talanx* Non-life reinsurance since 1966 Life and health reinsurance as strategic growth segment since 1990 Initial Public Offering on 30 Nov 1994, Second Public Offering on 12 Jun 2003 More than 100 subsidiaries, branches and representative offices on all 5 continents Total staff of roughly 2,200 employees More than 5,000 insurance clients in about 150 countries * Majority shareholder is HDI V.a.G. 1

4 Unique group structure supports our business model Majority owner, but operational and financial independence Talanx AG* Free float 50.2% 49.8% 63.7% 8 German mutuals >100 subsidiaries, branch/rep. offices in ~20 countries German business International business * Majority shareholder is HDI V.a.G. 2

5 We are among the top reinsurers in the world Premium ranking 2011 in m. USD Rank Group Country GWP NPW 1 Munich Re D 33,719 32,274 2 Swiss Re CH 28,664 22,868 3 Hannover Re D 15,664 13,921 4 Berkshire Hathaway Inc. USA 15,000 15,000 5 Lloyd's 2) GB 13,621 10,015 6 SCOR F 9,845 8,891 7 RGA Re USA 7,704 7,736 8 China Re RC 6,179 5,904 9 PartnerRe BDA 4,621 4, Korean Re ROK 4,551 3, Everest Re BDA 4,286 4, Transatlantic Re USA 4,035 3, MAPFRE RE E 3,407 2, London Re CDN 3,117 3, Assicurazioni Generali I 2,674 2,674 1) Source: A.M. Best (September 2012) 1) Net premium earned 2) Reinsurance only 3

6 Reduction of group volatility due to broad diversification 5-year CAGR +10% Gross written premium in m. EUR 11,429 12,096 10,275 8,259 8,121 44% 45% 44% 37% 39% 63% 61% 56% 55% 56% Non-life reinsurance Life and health reinsurance 4

7 We seek to be one of the most profitable reinsurer Our minimum target is 750 bps above risk free Company RoE Rank RoE Rank RoE Rank RoE Rank RoE Rank avg. RoE Rank Hannover Re 23.1% 1 (4.1%) % % % % 1 Peer 6, Bermuda, non-life Peer 8, US, life and health Peer 3, France, composite Peer 4, Bermuda, composite Peer 1, Germany, composite Peer 7, Bermuda, non-life Peer 5, US, non-life Peer 2, Switzerland, composite Peer 9, US, non-life 22.0% 2 7.3% 2 9.3% % 2 0.2% % % 9 6.5% % % % % % 6 8.9% % % 6 7.5% % % 3 1.1% % % 4 (7.6%) % % 5 6.5% % % 5 3.1% 6 9.4% % 4 (0.4%) % 3 9.9% 7 (1.3%) 8 7.7% % 8 4.8% 5 9.9% 7 7.1% 8 4.9% 5 7.5% % 7 (3.3%) 8 2.3% % % 3 5.1% 9 3.6% 10 (31.8%) % 9 5.8% 9 (4.4%) 9 (4.8%) 10 List shows the Top 10 of the Global Reinsurance Index (GloRe) with more than 50% reinsurance business Data based on company data, own calculation 5

8 Hannover Re remains the absolute cost leader Our overhead ratio is less than half of the industry average Administrative expense ratio 1) 7.4% 3.1% 3.2% 3.1% 3.2% 2.8% Peer average 2) 2011 Own calculation 1) Administrative expenses + other technical expenses (in % of net premium earned) 2) Munich Re, SCOR, Swiss Re, Transatlantic Re, PartnerRe, Everest Re 6

9 Accelerated growth of book value per share since 2009 Book value per share, paid dividends in EUR Book value per share Paid dividends (cumulative since 1994) US GAAP, as from 2004 IFRS As at 31 December 7

10 Risk bearing ability further increased EUR 2.1 bn. (+76%) equity increase in three years Policyholders' surplus in m. EUR Financial leverage development* 6,987 7,338 5,295 1, ,708 1, ,622 1, , , % 41.3% 32.1% 36.5% 30.8% 3,349 2,830 3,714 4,509 4, Hybrid Non-controlling interests Shareholders' equity * Hybrid vs. shareholders' equity (incl. non-controlling interests) 8

11 Hannover Re: a superior and highly profitable reinsurer......with a somewhat different approach Strong market positioning one of the leading reinsurers worldwide Top rating (S&P: AA-) ensures attractive new business Approved strategy: volume is vanity, profit is sanity Generates noticeably a higher profitability on 5-year average in comparison with our peer competitors Active cycle management in non-life reinsurance: resource allocation congruent to market situation (hard or soft market) De-risking and diversification measures taken to lower the earnings volatility aiming to produce stable dividends Well positioned for further profitable growth! 9

12 Present in all continents Europe Spain Madrid Ireland Dublin Great Britain London France Paris Germany Hannover Italy Milan Sweden Stockholm Asia America Bahrain Manama Canada Toronto South Korea Seoul USA Charlotte Chicago Denver New York Orlando Bermuda Hamilton Japan Tokyo Taiwan Taipei China Hong Kong Shanghai Mexico Mexico City India Mumbai Colombia Bogotá Africa Australia Malaysia Kuala Lumpur Brazil Rio de Janeiro South Africa Johannesburg Australia Sydney 10

13 We are somewhat different We are swift, flexible, undogmatic and cut our own path We are frugal and have lean structures Focus on profitable growth Retain and further develop our position as one of the leading reinsurers Efficient capital management is one of our keys to success Diversification ensures optimal use of capital A sufficient equity buffer enables us to act on available & profitable business at all times Lean equity base with efficient use of hybrid capital, securitisations and retrocessions We earn high RoEs Volume is vanity, profit is sanity 11

14 Our overriding target: profit and value creation All other strategic targets are derived from there Profit and value creation are the cornerstones of sustainable development in the best interest of our clients, shareholders, employees and business partners Our profitability targets IVC: based on our Economic Capital Model (ECM), we aim to achieve a profit in excess of the cost of capital Minimum Return on Equity (RoE) of 750 basis points (bps) above "risk free"* One of the most profitable reinsurers worldwide Increase the IFRS pre- and post-tax profit as well as the value of the company including dividends by double-digit margins every year Share price to outperform weighted Global Reinsurance Index over a 3-year rolling period * Five-year average on ten-year euro bonds issued by the Federal Republic of Germany 12

15 Well balanced international portfolio Strongest growth in UK and emerging markets Gross written premium (Group) in m. EUR Africa Australia 12,463 3% 20% 11,343 9,567 9,317 9,289 8,259 8,121 10,275 11,429 12,096 4% 5% 7% 11% Latin America Asia 22% 17% 10% Other European countries 20% Germany 50% Great Britain 26% North America US GAAP (Great Britain listed in other European countries), as from 2004 IFRS 13

16 Further premium growth in 2011 Premium development in m. EUR 12,463 11, % 7, % 8, % 89.1% 92.6% 90.1% 91.2% 77.9% 79.2% 12, % 11,429 10,275 10,047 10,752 9,567 7,575 9,317 7,495 9,289 8,259 8,121 7,092 7,293 7,062 9, Gross written premium Net premium earned Retention US GAAP, as from 2004 IFRS 14

17 Reduced EBIT due to high large losses......but still on a satisfying level Operating profit (EBIT) in m. EUR 1,142 1, US GAAP, as from 2004 IFRS 15

18 EPS 2011 far above 10-year-average of EUR despite second-highest net large losses in history Earnings per share (EPS)* in EUR (1.05) US GAAP, as from 2004 IFRS * Adjusted figures to the 3-for-1 share split in July

19 Dividend more than doubled within ten years Pay-out-ratio target of 35% 40% Dividend per share Pay-out ratio: [31%] [29%] [43%] in EUR [ - ] [37%] [38%] [ - ] [35%] [37%] [42%] Dividend per share Bonus US GAAP, as from 2004 IFRS 17

20 Yearly total shareholder return (TSR) of 9.2% Value creation since IPO in m. EUR % Market capitalisation as of date 4,840 4,622 - Market capitalisation at IPO (Nov 1994) 1,084 1,084 + Dividend payments 1,672 1,926 - Capital increases (1996, 1997, 2001, 2003) Value creation since IPO 4,618 4,

21 Attractive RoE despite strong equity growth Strategic target exceeded one more time Return on Equity: yearly Return on Equity: average 23.1% 22.4% 18.2% 12.8% 11.4% 11.2% 11.1% 11.0% 10.6% 14.5% 13.7% 14.1% 11.1% 11.5% 12.1% (4.1%) year Ø year Ø year Ø Actual Minimum target* * 750 bps above 5-year rolling average of 10-year government-bond rate (risk free), after tax 19

22 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook We are somewhat different Non-life reinsurance Central underwriting combined with local talent is the key to our success Secures U/W discipline and opportunistic cycle management Lean, efficient infrastructure with lowest administrative expense ratio in the industry Cycle management We only grow our market share in "hard" markets Temporary market share losses consistent with strategic goal of growing premium volume overproportionally in the long term Reserve adequacy No. 1 priority in our risk management Traditionally high comfort level (>50%) Distribution through brokers No appetite for acquisitions Our cycle management gets us all the business we want A no frills, opportunistic player 20

23 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Our strategy Non-life reinsurance Selfimage Profit contribution We are in a position to successfully meet all individual client and market needs Through rigid cycle management we achieve higher RoE margins than our peers: IVC: 2% EBIT margin: 10% C/R: <100% Our strategy Risk management Clients and products Sophisticated control of aggregates Adequate reserving level is of utmost importance Retrocession is an important part of our risk management We combine high level of technical expertise with sound CRM & offer standard products and tailor-made solutions for clients & develop new products Sales channels Markets Consistent approach to different markets for decades makes us a reliable partner to our clients We co-operate predominantly with R/I brokers (especially in the non-proportional sector) 21

24 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Three large divisions Target markets North America 1) "Voted as best overall reinsurer for 4 times in a row" 2) Germany 1) "No. 2 R/I in second-largest P/C market" Specialty lines Global R/I Marine (incl. energy) Aviation Credit, surety & political risks Structured R/I & ILS UK, London market & direct Global treaty 1) Global cat XL Global facultative "The leading XL reinsurer" "One of the market leaders" "No. 2 worldwide" (Neg. correlation to rest of P/C) "Innovative, tailormade R/I solutions" "A unique business model" "Diversification through global presence" "Dedicated cat writer" "Your specialised partner" 1) All lines of business except those stated separately 2) As voted in Flaspoehler survey brokers (in 2004, 2006, 2008 and 2010) 22

25 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Non-life reinsurance: very well diversified portfolio Divisions Regional split Global facultative 10% Global cat XL 5% North America 13% Latin America 10% Africa 4% Australia 3% North America 22% Global treaty 20% Marine 3% Aviation 6% Global R/I Specialty lines UK, London market & direct 9% Target markets Credit, surety & pol. Risk 9% Germany 14% Structured R/I & ILS 11% Asia 12% Other European countries 23% 2011 gross written premium: EUR 6,826 m. (2010: EUR 6,339 m.) Germany 12% Great Britain 14% 23

26 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Profitable growth continues Premium development in m. EUR 5, % 4,498 4, % 4,277 5, % 5,230 6, % 5,394 6, % 5, Gross written premium Net premium earned Retention 24

27 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook US casualty is hardening again Example of cycle management US casualty total inforce premium development in m. USD 1,029 1, Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Hardening market: +140% Transition years: -30% Softening market: -18% Inforce premium as at 1 January U/Y perspective! 25

28 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook How do we calculate our return targets? Our pricing is based on ~900 bps above risk free on IFRS equity Risk capital X Factor = Net income / (1 - tax) = EBIT bps risk free Equity 5,000 X ( ) = 510 / (1-0.3) = 729 Minorities 600 X ( ) = 61 / (1-0.3) = 87 Hybrid 1,700 X 550 = 94 / (1-0.0) = 94 Valuation adj. 1,400 X 600 = 84 / (1-0.3) = 120 Total 8, ,030 MRC (EBIT / risk capital) 11.8% Risk free - 2.7% Minimum Return on Capital (MRC) spread 9.1% 26

29 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook How do we calculate the capital margin......for our underwriters and our investment decisions Risk capital X MRC / NPE Capital margin = above risk-free + Admin. expenses (pre-tax) = Total margin above risk-free (pre-tax) Non-life 55.0% reinsurance 4,785 X 9.1 / 6,800 = 6.40% + 2.9% = 9.30% Life and health reinsurance Asset management 27.5% 2,393 X 9.1 / 5,000 = 4.35% + 2.9% = 7.25% AUM 17.5% 1,523 X 9.1 / 30,000 = 0.46% 27

30 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook MtCR translates our economic targets into IFRS NPE + Economic revaluation - MRC = MtCR Net premium earned Discount effect on non-life net loss reserves (% of NPE) Minimum Return on Capital spread (% of NPE) Maximum tolerable Combined Ratio 100% + 4.4% - 6.4% = 98.0% At an MtCR of ~98% we earn 900 bps above risk free 28

31 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook MtCR varies substantially by line of business Net premium earned (100%) + Economic revaluation - MRC = MtCR North America* Germany* Marine (incl. energy) Aviation Credit, surety & political risks 7.1% 5.2% 3.7% 4.6% 3.0% 9.6% 5.3% 8.9% 5.4% 5.3% 97.5% 99.9% 94.8% 99.2% 97.7% Structured R/I & ILS 1.6% 1.5% 100.1% UK, London market & direct 3.6% 5.3% 98.3% Global treaty* 5.2% 6.0% 99.2% Global cat. XL 1.4% 21.9% 79.5% Global facultative 4.1% 6.4% 97.7% Total non-life 4.4% 6.4% 98.0% As at March 2012 * All lines of non-life reinsurance except those stated separately 29

32 We are somewhat different Life and health reinsurance We focus on five areas of business (our "five pillars") 10 key markets = 87% of our business; 50 main clients = 80% of our portfolio Sophisticated state-of-the-art Client Relationship Management (CRM) Ability to differentiate between value-creating and value-destroying clients We create long-term win-win situations (don't play zero-sum games) We do consider acquisitions But only if strategic fit/complement No strategic prices Focused, long-term, growth-oriented, win-win approach 30

33 Our strategy Life and health reinsurance Selfimage Profit contribution We are a solution-driven reinsurer for the mutual benefit of our customers & ourselves Achieve an annual double-digit growth of VNB and MCEV and an EBIT margin of 6% Our strategy Risk management Clients and products We strive to balance the biometric risks Target clients are defined by a long-term philosophy of partnership Sales channels Markets Growth drivers are our expansion in emerging markets, senior citizen products in developed markets and the US protection market as well as to local presence in Asian growth markets Direct to our clients through our worldwide network of branch offices and subsidiaries 31

34 The five-pillar business model Our long-term unique business approach Financial Solutions New Markets Banc- Multinationals Conventional assurance R/I Worldwide: new business financing, block assumption transactions in life, personal accident and annuities Worldwide: inventing and pioneering new markets, e.g. enhanced annuities, products for senior citizens and takaful Current emphasis on Southern Europe, Germany, Scandinavia, selected Asian markets Preferred partner of various major international groups of life companies Selected lines of business: life, critical illness and health (niches!) Selected markets: USA, UK, Australia, Asia, South Africa and Latin America 32

35 Life and health reinsurance: well diversified portfolio 5 strategic pillars Regional split Conventional R/I 44% Financial Solutions 7% New Markets 29% Asia 9% Other European countries 11% Australia 8% Africa 4% Latin America 3% North America 32% Multinationals 10% Bancassurance 10% Germany 6% United Kingdom 28% 2011 gross written premium: EUR 5,270 m. (2010: EUR 5,090 m.) 33

36 Continued growth of gross written premium in 2011 Mainly driven by UK, US, Australia and emerging markets Premium development in m. EUR 90.8% 89.3% 90.7% 91.7% 91.0% 4,529 4,079 5,090 4,654 5,270 4,789 3,083 3,134 2,795 2, Gross written premium Net premium earned Retention 34

37 Strong growth of MCEV MCEV (after non-controlling interests) in m. EUR VIF 2011 vs. VIF 2007: +104% 1, , MCEV +95% 2, ,228 2, ,633 3,066 1,125 1,941 Low Financial Options and Guarantees (FOG) of only EUR 14 m. in 2011 (already excluded from the VIF) Buffer of EUR 415 m. CoRNHR (Cost of Residual Non- Hedgeable Risks) in 2011 (already excluded from the VIF) Value in Force (VIF) Shareholders' net worth after consolidation 35

38 MCEV 2011: highlights Substantial increase of MCEV, excellent value of new business in m. EUR Opening MCEV 2, ,568.3 Opening adjustments Adjusted opening MCEV 2, ,587.0 Operating MCEV earnings Economic variances Other economic variances Total MCEV earnings MCEV before closing adjustments 2, ,006.4 Closing adjustments (151.2) 59.4 Closing MCEV 2, ,065.8 Return on MCEV 1) 19.8% 16.2% due to - Operating MCEV earnings 12.8% 12.5% - Economic variances 7.0% 3.5% in m. EUR New business value Expected existing business contribution (reference rate) 2) Expected existing business contribution (in excess of reference rate) 3) Experience variances 1.4 (38.3) Assumption changes (34.5) (97.8) Other operating variances thereof - change of basis/ change of model other (15.7) (5.3) Operating MCEV earnings ) (MCEV before closing adjustments adjusted opening MCEV )/adjusted opening MCEV 2) Swap yield rates 3) Additional return consistent with the expectation of the management 36

39 Positive operating cash flow continues to support asset growth Assets under own management increased by 55% in 5 years Operating cash flow in m. EUR Assets under own management in m. EUR 25,411 28,431 31,188 2, ,144 20,137 22,507 1,752 1, , Q1-3/ Q1-3/2012 Q1 Q2 Q3 Q4 37

40 Increased investment volume......supports investment income Total investments in m. EUR Investment income in m. EUR 29,042 29,691 9,227 9,553 33,293 10,786 38,047 12,636 41,683 13,342 1, , , , ,815 20,137 22,507 25,411 28, , Funds withheld and contract deposits Assets under own management Income and expenses on funds withheld and contract deposits Net income from assets under own management 38

41 Ongoing reallocation into credits but slower at pace Volume increase due to strong cash flow and increased market values Tactical asset allocation 1) Investment category Sep 12 Fixed-income securities 79% 89% 87% 84% 89% 90% - Governments 19% 28% 25% 23% 19% 19% - Semi-governments 20% 23% 26% 21% 23% 23% - Corporates 26% 23% 22% 25% 30% 32% Investment grade 24% 22% 20% 24% 29% 30% Non-investment grade 2% 1% 2% 1% 1% 2% - Pfandbriefe, Covered Bonds, ABS 15% 15% 15% 16% 16% 16% Equities 12% 3% 2% 4% 2% 2% - Listed 10% <1% <1% 2% <1% <1% - Private Equity 2% 3% 2% 2% 2% 2% Real Estate/Real Estate Funds <1% <1% 1% 2% 2% 2% Others 2% 2% 2% 2% 2% 2% Short-term investments (STI) & cash 6% 6% 8% 8% 5% 4% Total balance sheet values in bn. EUR ) 1) Economic view based on market values without outstanding commitments for Private Equity and Alternative Real Estate as well as fixed-income investments of EUR m. (EUR m.) as per 30 September ) Of which Pfandbriefe and Covered bonds = 84% 39

42 Despite downgrades, we have a well rated fixed-income book Fixed-income portfolio in m. EUR % 29.9% 21.6% 10.3% 5.0% 30 Sep % 30.4% 21.4% 12.7% 3.2% AAA AA A BBB <BBB S&P financial strength rating Economic view based on market value as at 30 September 2012 Modified duration as at 30 September 2012: 4.4 (2011: 4.2) 40

43 Fixed-income book well balanced Governments Semigovernments Corporates Pfandbriefe, Covered Bonds, ABS Short-term investments, cash AAA 26.5% 61.1% 1.5% 61.0% % AA 59.3% 35.6% 14.8% 18.4% % A 6.5% 2.5% 48.6% 11.4% % BBB 5.8% 0.6% 29.4% 4.9% % <BBB 1.8% 0.1% 5.7% 4.2% - 3.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% Total Germany 9.0% 43.7% 6.8% 26.2% 29.9% 20.4% UK 8.0% 6.9% 11.1% 10.5% 5.4% 9.1% France 10.5% 2.9% 6.8% 10.5% 0.9% 7.0% GIIPS 2.4% 0.1% 4.0% 12.3% - 3.9% Rest of Europe 6.3% 19.6% 16.5% 23.9% 5.3% 15.9% USA 40.6% 8.9% 35.2% 7.1% 15.0% 24.4% Australia 6.2% 8.9% 8.6% 5.3% 9.0% 7.6% Asia 9.6% 1.2% 3.5% 0.1% 22.1% 4.5% Rest of World 7.4% 8.0% 7.5% 4.0% 12.5% 7.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% As at 30 September

44 Continuously reduced share of bank exposure Unchanged focus on conservative title selection Corporate allocation in m. EUR by currencies by rating by country 8,600 10,071 28% 16% 7% Others GBP 4% 20% <BBB BBB 7% 23% Rest of World Asia& Australia 5,011 39% 6,288 44% 32% 68% 72% 35% 41% USD EUR 48% 28% A AA 15% 22% 5% 8% 11% 9% US Rest of Europe GIIPS FR GB DE 61% 56% Total bank exposure*: EUR 2,860 m Sep 12 Non Banks Banks * Economic view based on market value as at 30 September

45 No material exposure in Southern Europe and Ireland* Merely 0.3% of total AuM; further reduction of exposure in Spain Asset allocation in m. EUR Spain 36 Portugal % Greece 0 Italy 18 Ireland 24 Total assets under own management EUR 98 m. Economic view based on market value as at 30 September 2012 * Investments in governments and semi-governments 43

46 Stress tests on assets under own management Portfolio Scenario Change in market value in m. EUR Changes in OCI before tax in m. EUR Equities Prices -10% -5-5 Equities Prices -20% -9-9 Equities Prices -30% Fixed-income securities Yield increase +50 bps Fixed-income securities Yield decline -50 bps Fixed-income securities Yield increase +100 bps -1, Fixed-income securities Yield decline -100 bps +1,347 +1,016 * As at 30 September

47 Inflation swaps: Positive contribution of realised EUR inflation USD market values effected by lower inflation expectations Partial hedge of non-life loss inflation provided by USD and EUR Zero Coupon Swaps Initially established in Q2/2010 (4 and 5 years) Protection reloaded in Q1/2011 (8 years) Aggregated volume USD USD 2,530 m. Aggregated volume EUR EUR 930 m. Covered level of inflation 2.17% Positive contribution of so far realised inflations Traded inflation expectations below covered level of inflation hedge Market values as at 30 September 2012 USD m. EUR m. Market position as at 30 Sep 2012 in m. USD and in m. EUR Y Y Y Y Y Y Contribution of realised inflation to market value Contribution of expected inflation to market value 45

48 Impact of the inflation swaps Overview of sensitivities Current (30 September 2012) holding of inflation swaps at EUR 2.8 bn. (equivalent swap volume) reacts as follows to underlying risk factors: Change in market value in m. EUR Inflation expectation*: +100 bps +78 Inflation expectation*: -100 bps -76 Inflation expectation*: +400 bps +324 Interest curves Credit spreads Equity markets marginal reagibility no reagibility no reagibility * CPI Consumer Price Index (US inflation index) HICP Harmonised Indices of Consumer Prices (EU inflation index; actually traded is the sub-index HICP ex tobacco) 46

49 ~ EUR 2.2 bn. Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Several levels of protection safeguard capital base Improved protection at lower cost Agg. XL EUR 104 m. Div. cat. swaps max. EUR ~190 m. Eurus III + Select Cat. EUR ~170 m. Whole account EUR ~166 m. K-Cession securitisation EUR ~272 m. + expected premium (EUR ~265 m.) Group EBIT ~ EUR 1.3 bn. As at August 2012 Policyholders' surplus (shareholders' equity, minorities, hybrid capital) 2011: EUR 7.3 bn. 47

50 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Ensuring the quality of our portfolio Our quotation process in non-life reinsurance Step 3 Step 1 Determining the expected loss Historical loss and exposure analysis Future inflation Changes in the quality of the underlying risk Changes in the quantity of the underlying risk Discounting of future cash-flows Step 2 Estimating expenses Commission Brokerage Internal administration Pricing for the cost of capital Quantity of capital allocated dependent on volatility of underlying business and its contribution to diversification Return on equity expected by shareholders Mix of capital Regular review of: loss cost trends inflation Most important non-life distribution channel: brokers variable cost 48

51 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Equity Substitutes We pioneered securitisations (transfer of risks into capital markets) In 1994 Hannover Re pioneered the first securitisation of natural catastrophe risks (Kover) followed by further transactions (K2 to K6) In 1998 Hannover Re started with the first-ever transfer of acquisition costs from life reinsurance business to the capital market, referred to as "L" deals (L1 to L7) On-going transactions in m. K-Cession (Q1/12) USD 350 3) Eurus III (Q3/12) EUR 100 1) As at October ) Transfer of natural perils (P/C) 2) Portfolio-linked swap (P/C) 3) Portfolio-linked securitisation (P/C) 4) Aggregate XL cover (P/C) 5) Credit-linked floating rate note Expired transactions in m. Kover (Q1/94) USD 85 1) K2 (Q4/96) USD 150 2) L1 (Q1/98) DEM 100 L2 (Q2/99) DEM 250 L3 (Q4/99) EUR 50 L4 (Q4/00) EUR 200 K3 (Q2/02) USD 230 3) L5 (Q4/02) EUR 300 C1 (Q1/05) USD 225 3) L6 (Q1/06) EUR 100 K5 (Q1/06) USD 540 3) Eurus I (Q3/06) USD 150 3) Kepler (Q1/07) USD 200 4) Merlin (Q1/07) EUR 95 5) L7 (Q1/09) EUR 100 K6 (Q1/09) USD 335 3) Eurus II (Q3/09) EUR 150 1) 49

52 Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook The risk is manageable Stress tests, after retrocessions for natural catastrophes Effect on forecast net income after tax in m. EUR year loss European windstorm (146.5) (63.2) 100-year loss US windstorm (259.8) (296.8) 100-year loss Japanese windstorm (189.4) (255.5) 100-year loss Tokyo earthquake (195.1) (237.4) 100-year loss California earthquake (233.1) (224.8) 100-year loss Sydney earthquake (72.5) (89.6) 50

53 Our capital structure consists not only of equity Use of hybrids, securitisations etc. lowers cost of capital, increases RoE Equity capital is by far the most expensive Therefore, we make optimal use of equity substitutes, e.g. hybrid capital: 2004: EUR 750 m. (20 nc 10) [ISIN: XS ]: 5.75% 2005: EUR 500 m. (perp. nc 10) [ISIN: XS ]: 5.00% 2010: EUR 500 m. (30 nc 10) [ISIN: XS ]: 5.75% 2012: EUR 500 m. (30.6 nc 10.6) [ISIN: XS ]: 5.00% Conventional reinsurance/retrocession on an opportunistic basis (i.e. use of other reinsurers' capital) Securitisations, capital market transactions We have the lowest cost of capital (WACC) in the industry 51

54 Financial strength ratings Group S&P A.M. Best General Reinsurance Corp. AA+ 1) A++ Hannover Re AA- A+ Munich Re AA- A+ Swiss Re AA- A+ Everest Re A+ A+ PartnerRe A+ A+ 1) Lloyd's A+ 2) A SCOR A+ A Transatlantic Re A+ A XL Re A 2) A As at 2 January ) Negative outlook 2) Positive outlook 52

55 Numerous benefits of an above-average rating We have a better showing of business than the average player Not excluded from virtually any business/access to all lines of business We enjoy a highly diversified, high quality book of business We are on virtually all broker lists, with cedents often demanding specific R/Is We get very high allocations when we quote for business >90% vs. some 50% for a Bermuda start-up We create lower capital charges for our cedents "AA" range S&P capital charge on reinsurance recoverables = 0.8% ("A" = 1.4%, BBB = 3.1%) As an above-average rated R/I, we "minimise" our cedents' cost of capital Our cost of financing in the capital markets is lower Hybrid bonds trade at tighter spreads Better conditions for LoCs and credit lines We might not (yet) get paid extra for our better rating on a contract level, but other advantages are significant 53

56 Effective capital requirement 32% diversification Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Diversification reduces capital requirements by a third Capitalisation ratio 160% Risk capital for the 99.97% VaR (according to economic capital model) in m. EUR 8,759 1, ,048 2,563 2,029 3,048 5,485 Non-life reinsurance Life and health reinsurance Assets Credit Operational HR Group required capital HR Group available economic capital As at December 2011 The risk categories have been adapted to the Solvency II requirements Calculation according to economic valuation principles 54

57 Effective capital requirement 50% diversification Overview Hannover Re Group Non-life reinsurance Life and health reinsurance Investment mgmt. Risk mgmt. Capital mgmt. Q1-3/2012 Outlook Diversification reduces capital requirements by 50% Non-life business group Risk capital for the 99.5% VaR (according to economic capital model) in m. EUR , , , North America Germany Marine Aviation Credit, surety & pol. risks Structured R/I & ILS UK, London market & direct Global treaty Gobal cat. XL Global facultative Total non-life R/I As at December 2011 Calculation according to economic valuation principles 55

58 Solvency II: Hannover Re is prepared to comply Solvency II Pillar I Quantitative requirements Solvency/minimum capital requirement (SCR/MCR) Available fin. resources Standard & internal model Pillar II Qualitative requirements Internal controls and risk mgmt. Internal risk assessment Supervisory activity Pillar III Reporting requirements Supervisory reporting Public disclosure Market discipline Hannover Re We applied for internal model approval to adjust regulatory capital requirements to our business model Strong internal controls and risk management processes are in place; we closely monitor pillar II developments We support our clients in their preparations via flexible product design and by sharing our experience 56

59 Solvency II: who will be affected and what it will generate Insurers with a volatile past performance with a large reserve volume who rely on lower rated reinsurer(s) counterparty default risk with limited access to capital markets (e.g. mutuals, start-ups, niche carriers) who by design operate with a minimal capital base (e.g. captives) with high quality internal models and efficient capital management but low RoE Small & medium-sized insurers who have to rely on the standard model when calculating the SCR who may be overwhelmed by implementing Pillar II (qualitative) requirements Specialty insurers with little LoB* diversification Demand Additional capital Good rating Highly-rated counterparties Reinsurance capacity Know-how and support (about Solvency II & LoB*) Short term: during the introduction of standard model Long term: for standard model/ development of internal models Free up of capital through BATs and LPTs * Lines of Business 57

60 Solvency II: opportunities for Hannover Re Prepared to serve the markets with tailor-made products We are a stable and low-risk counterparty with a top rating We double-use the know-how won through the self-developed internal capital model We expect capital relief through convergence of regulatory, rating agency and internal capital requirements. This provides more reinsurance capacity. With Advanced Solutions we provide efficient capital substitution through structured R/I products Cede the premium but keep the profit Reduce volatility over multi-year periods Limit reserve-driven SCR through LPTs 58

61 Solvency II: opportunities for Hannover Re (cont'd) Prepared to serve the markets with tailor-made products With customised reinsurance solutions particularly geared for Solvency II we assist in reducing the solvency capital requirements By individual financing, e.g. by subordinated notes, we can provide additional capital to cover solvency requirements Our long-standing experience in transferring risks to the capital market facilitates to free up capital Our market leading expertise about biometric assumptions is backing the risk modelling of our customers Our profound expertise in risk management and our group diversification benefits support attractive solutions for improving our clients solvency margin 59

62 Strong results further increase Hannover Re's financial strength Aided by a benign major loss situation and favourable investment results Favourable R/Iconditions Benign major losses Challenging capital markets Non-life reinsurance premium up by 13.0% Growth in life and health reinsurance above expectation (+14.5%) Net major losses of EUR m. below budget Net investment income up by 27.1%; RoI at 4.3% Unrealised gains from inflation swaps and ModCo amount to EUR 57.2 m. Strong operating cash flow of EUR 2,144 m. supports the increase of AuM to over EUR 31.2 bn. Q1-3/2012 results GWP +13.6% NPE +13.7% Net income EUR 671 m. EPS EUR 5.56 RoE 16.4% Shareholders' equity +19.2% BVPS EUR

63 Continuous growth and excellent profitability Main drivers are underwriting result and investment income Group figures in m. EUR Q3/2011 Q3/2012 Q1-3/2011 Q1-3/2012 Gross written premium 3,020 3,408 9,065 10,296 Net premium earned 2,732 3,134 7,880 8,959 Net underwriting result 33 (40) (413) (53) - Incl. funds withheld (166) 195 Net investment income ,209 - From assets under own mgmt From funds withheld Other income and expenses (69) (40) (47) (139) Operating profit/loss (EBIT) ,017 YTD 2012 GWP growth at +13.6% (f/x-adjusted +8.6%) which equals EUR 1.2 bn. gross NPE growth +13.7%, f/x-adjusted +8.7% EBIT more than doubled Normalisation of tax ratio after last years' effects from Federal court ruling Net income well above our expectation Interest on hybrid capital (25) (26) (77) (76) Net income before taxes Taxes (42) (90) 12 (215) Net income Non-controlling interests Group net income Retention 90.3% 89.4% 90.7% 89.7% EBIT margin (EBIT/Net premium earned) 8.9% 13.4% 6.2% 11.3% Tax ratio 19.4% 22.9% (3.0%) 22.9% Earnings per share

64 Strong bottom line outperforms topline growth Combined ratio of 96.5% in line with our target Non-life reinsurance in m. EUR Q3/2011 Q3/2012 Q1-3/2011 Q1-3/2012 Gross written premium 1,676 1,817 5,220 5,897 Net premium earned 1,543 1,714 4,391 5,018 YTD % GWP growth (f/x-adj. +8.6%); from specialty lines, US and Asian property, European markets Net premium earned +14.3% Net underwriting result incl. funds withheld Combined ratio incl. interest on funds withheld (219) % 95.8% 105.0% 96.5% Major losses amount to EUR m. (3.8% of NPE), EUR 550 m. below last years and EUR 215 m. below budget Underwriting result in line with expectation Net investment income from assets under own management Other income and expenses (67) (27) (19) (105) Operating profit/loss (EBIT) Group net income Impressively increased NII despite low interest rate environment Other income & exp. down mainly due to last year's tax ruling (EUR 68 m.) EBIT margin climbs to 15.3% (2011: 7.6%) Tax ratio normalised at 24.8% in Q1-3/2012 Earnings per share

65 Major losses are well below the long-term average Natural and man-made catastrophe losses 1) 2,373 1,730 in m. EUR 775 1, Q1-3/2012 Natural and man-made catastrophe losses in % of non-life premium 2) 4 % 1 % 10 % 34 % 2 % 8 % 13 % 5 % 14 % 25 % 5 % 4 % 1 % 7 % 20 % 2 % 6 % 11 % 5 % 12 % 16 % 4 % Gross Net Expected net catastrophe losses 1) Up to 2011 claims over EUR 5 m. gross, as of 2012 claims over EUR 10 m. gross 2) adjusted to new segmentation 63

66 Major losses are well below budget Catastrophe losses* in m. EUR Date Gross Net Storm USA 2-3 Mar Earthquake Italy 20 May Earthquake Italy 29 May Draught USA Typhoon "Haikui", Taiwan 2 Aug Hurricane "Isaac", USA Aug Natural catastrophes Costa Concordia 13 Jan Marine claim Major losses * Claims over EUR 10 m. gross 64

67 Accelerated growth in life and health reinsurance Profit in line with expectation Life and health R/I in m. EUR Q3/2011 Q3/2012 Q1-3/2011 Q1-3/2012 Gross written premium 1,344 1,590 3,844 4,399 Net premium earned 1,189 1,420 3,487 3,941 YTD % GWP growth (f/x-adjusted +8.6%) mainly from US, Australia, China and UK- longevity BATs Net underwriting result incl. funds withheld 42 (27) 46 6 Technical result impacted by less favourable mortality results in US Net investment income from assets under own management Other income and expenses 1 (7) (21) (21) NII affected by increase in AuM; unrealised gains from ModCo derivatives contributed EUR +46 m. Operating profit/loss (EBIT) EBIT margin 5.1% 5.5% 4.0% 5.9% Group net income EBIT margin in financing and longevity at 3.2% well above the 2% hurdle rate; as well as mortality and health at 7.7% Tax ratio at 17.8% due to good profitability of our Irish and Bermuda subsidiaries Earnings per share

68 With RoI at 4.3% investment income outperforms target Strong increase in ordinary income; positive effect from (un)realised gains in m. EUR Q3/2011 Q3/2012 Q1-3/2011 Q1-3/2012 RoI Ordinary investment income 1) % Realised gains/losses % Impairments/ appreciations & depreciations (2) (3) (4) (15) (0.1%) Unrealised gains/losses (124) 58 (70) % Investment expenses (17) (21) (53) (62) (0.3%) NII from assets under own mgmt % NII from funds withheld Total net investment income ,209 Unrealised gains/losses 31 Dec Sep 12 Fixed income (AFS) 416 1,133 Fixed income (HTM, L&R) YTD 2012 Increase of 15.4% in ordinary investment income mainly driven by larger investment volume with a higher share of interests coming from corporate bonds Realised gains (P&L) increased due to further asset re-allocation into credit exposure and US real estate sales Unrealised gains driven by ModCo (YTD EUR m.) and Inflation swaps (YTD EUR m.) Stable investment income from funds withheld Valuation reserves increased despite realisations due to credit spread tightening and further yield decline Equities and shares in limited partnerships Total 1,007 1,964 * Incl. results from associated companies 66

69 Target matrix: all targets achieved Business group Key figures Strategic targets Q1-3/2012 Group Return on investment 1) 3.5% 4.1% Minimum return on equity 10.2% 2) 16.4% Earnings per share growth (y-o-y) 10% 75.7% Value creation per share 3) 10% n.a. Non-life reinsurance Gross premium growth 4) 3% - 5% 13.0% Combined ratio 5) 98% 96.5% EBIT margin 6) 10% 15.3% xroca 7) 2% n.a. Life and health reinsurance Gross premium growth 8) 5% - 7% 14.5% Value of New Business (VNB) growth 10% n.a. EBIT margin 6) financing and longevity business 2% 3.2% EBIT margin 6) morbidity and health business 6% 7.7% xroca 7) 5% n.a. 1) Excl. inflation swap and ModCo 2) 750 bps above 5-year rolling average of 10-year German government-bond rate ("risk free"), after tax 3) Growth of book value + paid dividends 4) In average throughout the cycle 5) Incl. expected net major losses of EUR 560 m. 6) EBIT / net premium earned 7) Excess return on the allocated economic capital 8) Organic growth only 67

70 Our strategic business groups at a glance Q1-3/2012 vs. Q1-3/2011 Non-life reinsurance Life and health reinsurance in m. EUR Q1-3/2011 Q1-3/2012 Q1-3/2011 Q1-3/2012 Q1-3/2011 Q1-3/2012 Gross written premium 5,220 5,897 3,844 4,399 9,065 10,296 Change in GWP % % % Net premium earned 4,391 5,018 3,487 3,941 7,880 8,959 Net underwriting result (229) 170 (190) (233) (413) (53) Net underwritung result incl. funds withheld (219) (166) 195 Net investment income ,209 From assets under own management From funds withheld Other income and expenses (19) (105) (21) (21) (47) (139) Operating profit/loss (EBIT) ,017 Interest on hybrid capital (77) (76) Net income before taxes Taxes 2 (190) (21) (41) 12 (215) Net income Non-controlling interest Group net income Retention 90.3% 89.9% 91.1% 89.3% 90.7% 89.7% Combined ratio (incl. interest on funds withheld) 105.0% 96.5% 98.7% 99.8% 102.1% 97.8% EBIT margin (EBIT / Net premium earned) 7.6% 15.3% 4.0% 5.9% 6.2% 11.3% Tax ratio -0.6% 24.8% 15.2% 17.8% -3.0% 22.9% Earnings per share Total 68

71 Our strategic business groups at a glance Q3/2012 stand-alone Non-life reinsurance Life and health reinsurance in m. EUR Q3/2011 Q3/2012 Q3/2011 Q3/2012 Q3/2011 Q3/2012 Gross written premium 1,676 1,817 1,344 1,590 3,020 3,408 Change in GWP % % % Net premium earned 1,543 1,714 1,189 1,420 2,732 3,134 Net underwriting result (40) (116) 33 (40) Net underwritung result incl. funds withheld (27) Net investment income From assets under own management From funds withheld Other income and expenses (67) (27) 1 (7) (69) (40) Operating profit/loss (EBIT) Interest on hybrid capital (0) 0 0 (0) (25) (26) Net income before taxes Taxes (42) (79) (18) (16) (42) (90) Net income Non-controlling interest Group net income Retention 91.1% 89.4% 89.4% 89.4% 90.3% 89.4% Combined ratio (incl. interest on funds withheld) 95.2% 95.8% 96.5% 101.9% 95.6% 98.4% EBIT margin (EBIT / Net premium earned) 11.8% 19.6% 5.1% 5.5% 8.9% 13.4% Tax ratio 23.1% 23.6% 30.5% 20.9% 19.4% 22.9% Earnings per share Total 69

72 Outlook

73 New Guidance for 2012 Hannover Re Group Gross written premium (GWP) 1) +8% - +9% Non-life reinsurance 1) ~ +8% - +9% Life and health reinsurance 1)2) ~ +8% - +9% Return on investment 3)4) > 3.5% Group net income 3) > EUR 800 m. Dividend pay-out ratio 5) 35% - 40% 1) At unchanged f/x rates 2) Organic growth 3) Subject to no major distortions in capital markets and/or major losses in 2012 not exceeding EUR 560 m. 4) Excluding effects from inflation swaps 5) Related to group net income according to IFRS 70

74 Guidance for 2013 Hannover Re Group Gross written premium (GWP) 1) ~ +5% Non-life reinsurance 1) ~ +3% - +5% Life and health reinsurance 1)2) ~ +5% - +7% Return on investment 3)4) ~ 3.4% Group net income 3) ~ EUR 800 m. Dividend pay-out ratio 5) 35% - 40% 1) At unchanged f/x rates 2) Organic growth 3) Subject to no major distortions in capital markets and/or major losses in 2013 not exceeding approx. EUR 625 m. 4) Excluding effects from inflation swaps 5) Related to group net income according to IFRS 71

75 Financial calender 4 February January Non-life Treaty Renewals 7 May 2013 Annual General Meeting Interim Report 1/ August 2013 Interim Report 2/ March March October November 2013 Annual Results Press Conference Analysts conferences in Frankfurt, London Investors Day 2013 Interim Report 3/2013 Subject to changes

76 Basic information on the Hannover Re share Basic information International Securities Identification Number (ISIN) DE Ticker symbols - Bloomberg HNR 1 - Thomson Reuters HNRGn - ADR HVRRY Exchange listings - Germany Xetra, Frankfurt, Munich, Stuttgart, Hamburg, Berlin, Düsseldorf, Hannover (official trading: Xetra, Frankfurt and Hannover) - USA Market segment Index inclusion American Depositary Receipts (Level 1 ADR programme; 2 ADR = 1 share) Prime Standard MDAX First listed 30 November 1994 Number of issued shares* 120,597,134 Common shares* EUR 120,597,134 Share class * As at 31 December 2011 No-par-value registered shares

77 List of abbreviations A AG Aktiengesellschaft (public company) AuM Assets under Management B BAT Block Assumption Transactions bn. billion bps basis points BVPS Book value per share C cat. catastrophe CoC Cost of Capital CoRNHR Cost of Residual Non-Hedgeable Risks C/R Combined Ratio CPI Consumer Price Index (US inflation index) CRM Client Relationship Management D E EBIT Earnings Before Interest and Taxes ECM Economic Capital Model F FOG Financial Options and Guarantees G GAAP Generally Accepted Accounting Principles GWP Gross Written Premium H HICP Harmonised Indices of Consumer Prices (EU inflation index) HR Hannover Re I IFRS International Financial Reporting Standards ILS Insurance Linked Securities IVC Intrinsic Value Creation J K L LoC Letter of Credit LoB Lines of Business LPT Loss Portfolio Transfer M m. million MCEV Market Consistent Embedded Value MCR mgmt. MtCR N n.a. nc NII NPE O P p.a. P/C perp. Q R RBS R/I RoE RoI S S&P SCR T U U/Y U/W V V.a.G. VaR VIF VNB W WACC X XL Y Z Minimum Capital Requirements management Maximum tolerable Combined Ratio not available non-callable Net Investment Income Net Premium Earned per annum Property/Casualty perpetual Royal Bank of Scotland Reinsurance Return on Equity Return on Investment Standard & Poor's Solvency Capital Requirements underwriting year Underwriting Versicherungsverein auf Gegenseitigkeit (mutual) Value at Risk Value In Force Value of New Business Weighted Average Cost of Capital excess of Loss

78 Our Investor Relations team Karl Steinle General Manager Corporate Communications Tel: Julia Hartmann IR Manager Corporate Communications Tel: Axel Bock Deputy IR Manager Corporate Communications Tel: Hannover Rückversicherung AG Karl-Wiechert-Allee Hannover

79 Disclaimer This presentation does not address the investment objectives or financial situation of any particular person or legal entity. Investors should seek independent professional advice and perform their own analysis regarding the appropriateness of investing in any of our securities. While Hannover Re has endeavoured to include in this presentation information it believes to be reliable, complete and up-to-date, the company does not make any representation or warranty, express or implied, as to the accuracy, completeness or updated status of such information. Some of the statements in this presentation may be forward-looking statements or statements of future expectations based on currently available information. Such statements naturally are subject to risks and uncertainties. Factors such as the development of general economic conditions, future market conditions, unusual catastrophic loss events, changes in the capital markets and other circumstances may cause the actual events or results to be materially different from those anticipated by such statements. This presentation serves information purposes only and does not constitute or form part of an offer or solicitation to acquire, subscribe to or dispose of, any of the securities of Hannover Re. Hannover Rückversicherung AG. All rights reserved. Hannover Re is the registered service mark of Hannover Rückversicherung AG.