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6.12 Debt and subordinated capital

In order to safeguard the sustained financial strength of the Hannover Re Group, a Group company has issued subordinated debt by way of a number of callable bonds which are guaranteed by Hannover Re.

On 20 November 2012 Hannover Re placed a EUR 500.0 million subordinated bond in the European capital market via its subsidiary Hannover Finance (Luxembourg) S.A. The bond has a maturity of approximately 30 years, with a first scheduled call option on 30 June 2023. It carries a fixed coupon of 5.00% p.a. until this date, after which the interest basis changes to a floating rate of 3-month EURIBOR +430 basis points.

On 14 September 2010 Hannover Re placed a subordinated bond on the European capital market through its subsidiary Hannover Finance (Luxembourg) S.A. This subordinated debt of nominally EUR 500.0 million has a maturity of 30 years with a first scheduled call option after ten years. The bond carries a fixed coupon of 5.75% in the first ten years, after which the interest basis changes to a floating rate of 3-month EURIBOR +423.5 basis points.

On 1 June 2005 Hannover Re issued further subordinated debt in the amount of EUR 500.0 million through its subsidiary Hannover Finance (Luxembourg) S.A. The bond is perpetual and carries a fixed coupon of 5.00% in the first ten years. It may be redeemed by Hannover Re on 1 June 2015 at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of 3-month EURIBOR +268 basis points. The interest will be serviced according to the same principles as those practised in the past.

On 26 February 2004 subordinated debt in the amount of EUR 750.0 million was placed through Hannover Finance (Luxembourg) S.A. on the European capital markets. The bond has a final maturity of 20 years and for the first ten years carries a fixed coupon of 5.75%. It may be redeemed by Hannover Re on 26 February 2014 at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of 3-month EURIBOR +263 basis points.

Altogether four (previous year: three) subordinated bonds were recognised as at the balance sheet date with an amortised cost of EUR 2,233.0 million (EUR 1,731.6 million).

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Debt and subordinated capital
in EUR thousand       2012
Subordinated loans Coupon Maturity Currency Amortised
cost
Fair value
measurement
Accrued
interest
Fair value
Hannover Finance
(Luxembourg) S.A., 2012
5.00 2043 EUR 496,643 49,572 2,808 549,023
Hannover Finance
(Luxembourg) S.A., 2010
5.75 2040 EUR 498,033 77,287 8,507 583,827
Hannover Finance
(Luxembourg) S.A., 2005
5.00 n.a. EUR 489,550 22,016 14,589 526,155
Hannover Finance
(Luxembourg) S.A., 2004
5.75 2024 EUR 748,791 32,146 36,409 817,346
        2,233,017 181,021 62,313 2,476,351
               
Debt       167,758 690 168,448
Other long-term liabilities       16 16
Total       2,400,791 181,021 63,003 2,644,815
Debt and subordinated capital
in EUR thousand       2012
Subordinated loans Coupon Maturity Currency Amortised
cost
Fair value
measurement
Accrued
interest
Fair value
Hannover Finance
(Luxembourg) S.A., 2012
5.00 2043 EUR 496,643 49,572 2,808 549,023
Hannover Finance
(Luxembourg) S.A., 2010
5.75 2040 EUR 498,033 77,287 8,507 583,827
Hannover Finance
(Luxembourg) S.A., 2005
5.00 n.a. EUR 489,550 22,016 14,589 526,155
Hannover Finance
(Luxembourg) S.A., 2004
5.75 2024 EUR 748,791 32,146 36,409 817,346
        2,233,017 181,021 62,313 2,476,351
               
Debt       167,758 690 168,448
Other long-term liabilities       16 16
Total       2,400,791 181,021 63,003 2,644,815

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Debt and subordinated capital
in EUR thousand       2011
Subordinated loans Coupon Maturity Currency Amortised
cost
Fair value
measurement
Accrued
interest
Fair value
Hannover Finance
(Luxembourg) S. A., 2010
5.75 2040 EUR 497,877 (38,937) 8,484 467,424
Hannover Finance
(Luxembourg) S. A., 2005
5.00 n.a. EUR 485,736 (98,276) 14,589 402,049
Hannover Finance
(Luxembourg) S. A., 2004
5.75 2024 EUR 747,974 (12,974) 36,390 771,390
        1,731,587 (150,187) 59,463 1,640,863
               
Debt       202,790 828 203,618
Other long-term liabilities       33 33
Total       1,934,410 (150,187) 60,291 1,844,514
Debt and subordinated capital
in EUR thousand       2011
Subordinated loans Coupon Maturity Currency Amortised
cost
Fair value
measurement
Accrued
interest
Fair value
Hannover Finance
(Luxembourg) S. A., 2010
5.75 2040 EUR 497,877 (38,937) 8,484 467,424
Hannover Finance
(Luxembourg) S. A., 2005
5.00 n.a. EUR 485,736 (98,276) 14,589 402,049
Hannover Finance
(Luxembourg) S. A., 2004
5.75 2024 EUR 747,974 (12,974) 36,390 771,390
        1,731,587 (150,187) 59,463 1,640,863
               
Debt       202,790 828 203,618
Other long-term liabilities       33 33
Total       1,934,410 (150,187) 60,291 1,844,514

The aggregated fair value of the extended subordinated loans is based on quoted, active market prices. If such price information was not available, fair value was determined on the basis of the recognised effective interest rate method or estimated using other financial assets with similar rating, duration and return characteristics. Under the effective interest rate method the current market interest rate levels in the relevant fixed-interest-rate periods are always taken as a basis.

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Maturities of financial liabilities
in EUR thousand 2012
1 Excluding minority interests in partnerships; the maturities of derivative financial instruments and sundry non-technical provisions are broken down separately.
  Less than
three months
Three months
to one year
One to
five years
Five to
ten years
Ten to
twenty years
More than
twenty years
No maturity
Other financial liabilities1 155,168 92,247 2 4
Debt 134,886 32,872
Subordinated loans 748,791 994,677 489,549
Other long-term
liabilities
16
Total 155,168 92,247 134,904 32,876 748,791 994,677 489,549
Maturities of financial liabilities
in EUR thousand 2012
1 Excluding minority interests in partnerships; the maturities of derivative financial instruments and sundry non-technical provisions are broken down separately.
  Less than
three months
Three months
to one year
One to
five years
Five to
ten years
Ten to
twenty years
More than
twenty years
No maturity
Other financial liabilities1 155,168 92,247 2 4
Debt 134,886 32,872
Subordinated loans 748,791 994,677 489,549
Other long-term
liabilities
16
Total 155,168 92,247 134,904 32,876 748,791 994,677 489,549

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Maturities of financial liabilities
in EUR thousand 2011
1 Excluding minority interests in partnerships; the maturities of derivative financial instruments and sundry non-technical provisions are broken down separately .
  Less than
three months
Three months
to one year
One to
five years
Five to
ten years
Ten to
twenty years
More than
twenty years
No maturity
Other financial liabilities1 130,110 90,815 1,168 4 6,790
Debt 60 92,093 110,637
Subordinated loans 747,974 497,877 485,736
Other long-term liabilities 33
Total 130,170 182,908 111,838 4 747,974 497,877 492,526
Maturities of financial liabilities
in EUR thousand 2011
1 Excluding minority interests in partnerships; the maturities of derivative financial instruments and sundry non-technical provisions are broken down separately .
  Less than
three months
Three months
to one year
One to
five years
Five to
ten years
Ten to
twenty years
More than
twenty years
No maturity
Other financial liabilities1 130,110 90,815 1,168 4 6,790
Debt 60 92,093 110,637
Subordinated loans 747,974 497,877 485,736
Other long-term liabilities 33
Total 130,170 182,908 111,838 4 747,974 497,877 492,526

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Net gains and losses from debt and subordinated capital
in EUR thousand 2012 2011 2012 2011 2012 2011
  Ordinary income/expenses Amortisation Net result
Debt (10,564) (10,548) (847) (1,520) (11,411) (12,068)
Subordinated loans (99,765) (98,539) (4,746) (630) (104,511) (99,169)
Total (110,329) (109,087) (5,593) (2,150) (115,922) (111,237)
Net gains and losses from debt and subordinated capital
in EUR thousand 2012 2011 2012 2011 2012 2011
  Ordinary income/expenses Amortisation Net result
Debt (10,564) (10,548) (847) (1,520) (11,411) (12,068)
Subordinated loans (99,765) (98,539) (4,746) (630) (104,511) (99,169)
Total (110,329) (109,087) (5,593) (2,150) (115,922) (111,237)

The ordinary expenses principally include interest expenses of nominally EUR 99.8 million (EUR 98.5 million) resulting from the subordinated debt placed through Hannover Finance (Luxembourg) S.A.

Other financial facilities

Letter of credit (LoC) facilities exist with a number of financial institutions. With respect to the syndicated facility taken out in 2011 with a volume equivalent to EUR 758.6 million (EUR 772.5 million), the first renewal option was utilised and the maturity extended from the beginning of 2017 to the beginning of 2018. In addition, several bilateral loan agreements were taken out and existing such agreements were expanded.

Unsecured letter of credit facilities with various terms (maturing at the latest in 2022) and a total volume equivalent to EUR 2,621.2 million (EUR 2,403.1 million) exist on a bilateral basis with financial institutions; in addition, a long-term unsecured line of credit intended specifically for US life business was concluded in December 2009 with a total volume equivalent to EUR 379.3 million (EUR 386.2 million).

For further information on the letters of credit provided please see our explanatory remarks in Section 8.7 “Contingent liabilities and commitments”. A number of LOC facilities include standard market clauses that allow the banks rights of cancellation in the event of material changes in our shareholding structure or trigger a requirement on the part of Hannover Re to furnish collateral upon materialisation of major events, for example if our rating is significantly downgraded. Please see our explanatory remarks in the “Financial position” section of the management report.

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