Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 17.9 million (EUR 18.3 million). For further details of our major participating interests please see Section 4 “Consolidation”.

Real estate is divided into real estate for own use and third-party use (investment property). The investment property in the portfolio which is used to generate income is shown under the investments. Income and expenses from rental agreements are included in the investment income.

Own-use real estate is recognised under other assets.

Real estate is valued at cost of acquisition less scheduled depreciation with useful lives of at most 50 years.

The fair value of investment property amounted to EUR 875.3 million (EUR 511.3 million) as at the balance sheet date.

The market value of the real estate was determined using the discounted cash flow method.

The additions to this item are due to the sharply increased investment activities of the real estate companies belonging to the Hannover Re Group. For the most part, they are attributable in an amount of EUR 344.9 million (EUR 62.3 million) to investments in Europe and in an amount of EUR 49.2 million (EUR 182.6 million) to investments in the United States.

In addition, we held indirect real estate investments measured at fair values in an amount of EUR 247.4 million (EUR 156.3 million) in the year under review, the amortised costs of which amounted to EUR 204.9 million (EUR 126.2 million). The differences between the carrying amounts and amortised costs were recognised as unrealised gains of EUR 43.7 million (EUR 31.7 million) and unrealised losses of EUR 1.2 million (EUR 1.6 million) under cumulative other comprehensive income.

Real estate which is held for sale as defined by IFRS 5 is recognised separately in the consolidated balance sheet. Intentions to sell are substantiated by individual real estate market conditions and specific property circumstances, taking into consideration current and future opportunity/risk profiles. In the year under review one property was reclassified to assets held for sale, while the two properties classified as held for sale in the previous year were sold. At the time of reclassification and at the end of the reporting period the net book value of the assets shown under this balance sheet item amounted to EUR 11.2 million (EUR 6.3 million). The measurement of real estate as long-term assets held for sale in the context of reclassification did not give rise to any impairment.

The other invested assets consisted largely of participating interests in partnerships measured at fair value in an amount of EUR 898.6 million (EUR 881.4 million), the amortised cost of which amounted to EUR 622.7 million (EUR 619.5 million). The differences between the carrying amounts and the amortised costs were recognised as unrealised gains of EUR 282.1 million (EUR 267.8 million) and unrealised losses of EUR 6.2 million (EUR 5.9 million) under cumulative other comprehensive income.

In addition, acquired life insurance policies measured at fair value through profit or loss were recognised under the other invested assets in an amount of EUR 90.2 million (EUR 62.5 million).

This item comprises investments with a maturity of up to one year at the time of investment.

For the purposes of the disclosure requirements pursuant to IFRS 13 “Fair Value Measurement”, it is necessary to assign to a three-level fair value hierarchy not only the financial assets and liabilities recognised at fair value but also those assets and liabilities that are recognised at amortised cost but for which disclosure of fair value is envisaged in the context of the annual reporting. As a consequence of the prospective application of IFRS 13 the additional information required in comparison with IFRS 7 “Financial Instruments: Disclosures” is provided without corresponding figures for the previous year.

The fair value hierarchy, which reflects characteristics of the price data and inputs used for measurement purposes, is structured as follows:

• Level 1: Assets or liabilities measured at (unadjusted) prices quoted directly in active and liquid markets.
• Level 2: Assets or liabilities which are measured using observable market data and are not allocable to level 1. Measurement is based, in particular, on prices for comparable assets and liabilities that are traded on active markets, prices on markets that are not considered active as well as inputs derived from such prices or market data.
• Level 3: Assets or liabilities that cannot be measured or can only be partially measured using observable market inputs. The measurement of such instruments draws principally on valuation models and methods.

If input factors from different levels are used to measure a financial instrument, the level of the lowest input factor material to measurement is determinative.

The operational units responsible for coordinating and documenting measurement are organisationally separate from the operational units that enter into investment risks. All relevant valuation processes and valuation methods are documented. Decisions on fundamental valuation issues are taken by a valuation committee that meets monthly.

In the year under review fixed-income securities, for the most part OTC bonds, with a fair value of EUR 7,603.4 million were no longer allocable to level 1 but rather to level 2. These financial assets are measured using average prices from price service agencies. Reallocation resulted exclusively from the position on accounting practice “IDW RS HFA 47 Einzelfragen zur Ermittlung des Fair Value nach IFRS 13” adopted by the Main Technical Committee of the Institute of Public Auditors in Germany (IDW) on 6 December 2013, according to which the aforementioned average prices constitute level 2 inputs if the underlying data on which these average prices are based are firm bid prices or observable transaction-based prices. We therefore reclassified across the board to level 2 with effect from 1 January 2013 all fixed-income securities measured using such average prices that had previously been allocated to level 1. Reclassification is based neither on changed liquidity characteristics of these instruments nor on a modified investment strategy. This change in presentation had no implications for the carrying amounts in the present consolidated financial statement. Given that the criteria for level allocation were only specified and standardised with IFRS 13 and bearing in mind that the standard is to be applied prospectively to financial years beginning on or after 1 January 2013, the previous year’s figures shown for comparative purposes have not been restated accordingly. In view of the short period between adoption of IDW RS HFA 47 and preparation of the consolidated financial statement a detailed portfolio analysis will only be carried out in the following months. The results of this analysis may give rise to corrections of the amounts recognised in the fair value hierarchy as at 31 December 2013.

Other than the above, no further reclassifications between level 1 and level 2 were to be made in the year under review as a consequence of changes in the liquidity of the instruments. In the previous year financial assets with a fair value of EUR 84.4 million were no longer allocable to level 1, but rather to level 2 on account of their reduced liquidity. Furthermore, in the previous year financial assets with a fair value of EUR 473.6 million were reclassified from level 2 to level 1 due to their improved liquidity. The reclassifications of the previous year affected mainly fixed-income securities held as available for sale. The specified amounts reclassified refer in each case to the book value of the investments recognised at the beginning of the period.

The following table shows the breakdown of financial assets and liabilities recognised at fair value into the three-level fair value hierarchy.

The following table provides a reconciliation of the fair values of financial assets and liabilities included in level 3 at the beginning of the financial year with the fair values as at 31 December of the financial year.

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The breakdown of income and expenses recognised in the statement of income in the financial year in connection with financial assets and liabilities assigned to level 3 is as follows.

If models are used to measure financial assets and liabilities included in level 3 under which the adoption of alternative inputs leads to a material change in fair value, IFRS 13 requires disclosure of the effects of these alternative assumptions. Of the financial assets included in level 3 with fair values of altogether EUR 1,205.0 million (EUR 1,089.3 million) as at the balance sheet date, Hannover Re measures financial assets with a volume of EUR 1,109.7 million (EUR 990.4 million) using the net asset value method, in respect of which alternative inputs within the meaning of the standard cannot reasonably be established. The remaining financial assets included in level 3 with a volume of EUR 95.3 million (EUR 98.9 million) relate in very large part to acquired life insurance policies, the valuation of which is based on technical parameters. Derivative financial instruments in connection with the reinsurance business were recognised under the other liabilities included in level 3 in the year under review. Their performance is dependent upon the risk experience of an underlying group of primary insurance contracts with statutory reserving requirements. The application of alternative inputs and assumptions has no material effect on the consolidated financial statement.