Investment performance
We are thoroughly satisfied with the development of our investments in the year under review. Thanks chiefly to a positive operating cash flow, our portfolio of assets under own management grew to EUR 31.9 billion; this is equivalent to an increase of 12.5% relative to the end of the previous year (EUR 28.3 billion).
Ordinary investment income excluding income from funds withheld and contract deposits comfortably surpassed the previous year at EUR 1,088.4 million (EUR 966.2 million) even though interest rates remained low. This was due principally to the growth in assets under own management, although the substantial expansion of the asset classes of corporate bonds and asset-backed securities over the past two years also played a part here. We have now almost reached the envisaged target allocation in these areas. Income from funds withheld and contract deposits improved on the previous year, rising to EUR 355.5 million (EUR 338.5 million).
Impairments totalling just 21.7 million (EUR 31.0 million) were taken. EUR 5.8 million thereof was attributable to alternative investments, while EUR 2.2 million was taken on equities. Scheduled depreciation taken on directly held real estate amounted to EUR 10.4 million (EUR 9.0 million). These write-downs contrasted with write-ups of EUR 2.7 million (EUR 36.8 million).
We recognise a derivative for the credit risk associated with special life reinsurance treaties ( ModCo) under which securities deposits are held by cedants for our account; the performance of this derivative in the period under review gave rise to unrealised gains of EUR 51.8 million recognised in investment income. These unrealised gains contrasted with unrealised losses of EUR 55.4 million in the previous year. The inflation swaps taken out in 2010 and 2011 to hedge part of the inflation risks associated with the loss reserves in our technical account produced unrealised gains of EUR 28.0 million (EUR 11.6 million) recognised in investment income. The changes in the fair values of the inflation swaps are recognised in income as a derivative pursuant to IAS 39. Altogether, the unrealised gains on our assets recognised at fair value through profit or loss amounted to EUR 89.3 million, contrasting with unrealised losses of EUR 38.8 million in the previous year.
With a view to protecting our future investment income against the effects of inflation, we took out inflation-linked USD and EUR government bonds – in addition to the inflation swaps – in the fourth quarter in a nominal amount of EUR 605 million.
The net realised gain on disposals amounted to EUR 227.5 million (EUR 179.6 million); it derived primarily from regrouping moves out of government bonds and into corporate bonds and asset-backed securities. Additional amounts realised in the area of corporate bonds were due to application of the parameters set out in our Corporate Social Responsibility strategy.
We realised a portion of the considerable increases in value within our US real estate portfolio in the third quarter.
Principally thanks to the further rise in ordinary income, but also due to the increased unrealised gains recognised in investment income, our net investment income clearly surpassed the previous year’s level. It stood at EUR 1,300.2 million (EUR 1,045.5 million) in the year under review. This produced an average return for our assets under own management (including effects from derivatives) of 4.3%.
The portfolio of fixed-income securities excluding short-term assets climbed again to EUR 29.0 billion (EUR 25.2 billion). Hidden reserves for available-for-sale fixed-income securities recognised in shareholders’ equity totalled EUR 1,144.6 million (EUR 416.1 million). The spread of asset classes shifted as planned towards corporate bonds and asset-backed securities, while the share of short-term investments was reduced. As to the quality of the bonds – measured in terms of rating categories –, the increase in the proportion of corporate debt and asset-backed securities was barely perceptible in a decrease under the “AAA” category. Nevertheless, the proportion of securities rated “A” or better remained stable on a high level as at year-end at 84.2% (86.7%).
Holdings of alternative investment funds increased slightly. As at 31 December 2012 an amount of EUR 566.6 million (EUR 510.1 million) was invested in private equity funds, a further EUR 427.1 million (EUR 430.7 million) predominantly in high-return bond funds and loans and altogether EUR 178.8 million (EUR 162.4 million) in structured real estate investments. The uncalled capital with respect to the aforementioned alternative investments totalled EUR 575.9 million (EUR 451.9 million).
Despite the aforementioned disposals in our portfolio of US real estate, we were again able to slightly increase our real estate allocation in the course of the year. Various properties in Germany and the United States were acquired for this purpose; further projects are under review, and the real estate allocation will therefore keep rising steadily as planned. It currently stands at 2.2% (2.1%).
We held a total amount of EUR 1.1 billion (EUR 1.5 billion) in short-term investments and cash at the end of the year under review. Funds withheld amounted to EUR 14.8 billion (EUR 13.3 billion).