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6.10 Provisions for pensions and other post-employment benefit obligations

6.10 Provisions for pensions and other post-employment benefit obligations

In the context of initial application of the revised IAS 19 “Employee Benefits” in the year under review, the disclosures regarding provisions for pensions and other post-employment benefit obligations were restructured overall and the figures for the previous year were restated pursuant to IAS 8. Please see also our remarks in Section 3.1 “Changes in accounting policies” and in Section 3.2 “Summary of major accounting policies”.

Pension commitments are given in accordance with the relevant version of the pension plan as amended. The 1968 pension plan provides for retirement, disability, widows’ and orphans’ benefits. The pension entitlement is dependent on length of service; entitlements under the statutory pension insurance scheme are taken into account. The pension plan was closed to new participants with effect from 31 January 1981.

On 1 April 1993 (1 June 1993 in the case of managerial staff) the 1993 pension plan came into effect. This pension plan provides for retirement, disability and surviving dependants’ benefits. The scheme is based upon annual determination of the pension contributions, which are calculated according to the pensionable employment income and the company’s performance. The pension plan was closed to new participants with effect from 31 March 1999.

From 1997 onwards it has been possible to obtain pension commitments through deferred compensation. The employee-funded commitments included in the provisions for accrued pension rights are protected by an insurance contract with HDI-Gerling Lebensversicherung AG, Cologne.

As at 1 July 2000 the 2000 pension plan came into force for the entire Group. Under this plan, new employees included in the group of beneficiaries are granted an indirect commitment from HDI Unterstützungskasse e.V.. The pension plan provides for retirement, disability and surviving dependants’ benefits.

Effective 1 December 2002 Group employees have an opportunity to accumulate additional old-age provision at unchanged conditions by way of deferred compensation through membership of HDI-Gerling Pensionskasse AG.

In addition to these pension plans, managerial staff and members of the Executive Board, in particular, enjoy individual commitments as well as commitments given under the benefits plan of the Bochumer Verband.

The commitments to employees in Germany predominantly comprise benefit obligations financed by the Group companies. The pension plans are unfunded. The provisions for pensions in Germany and abroad were calculated on the basis of uniform standards according to prevailing economic circumstances.

Provisions for pensions are established in accordance with actuarial principles and are based upon the commitments made by the Hannover Re Group for retirement, disability and widows’ benefits. The amount of the commitments is determined according to length of service and salary level.

The defined benefit plans expose Hannover Re to the following actuarial risks:

  • longevity
  • currency risk
  • interest rate risk
  • disablement
  • pension progression
  • rate of compensation increase

Longevity entails the risk that the mortality contained in the actuarial bases does not correspond to the actual mortality and that pension payments have to be rendered and funded for a longer duration than had been assumed.

Disablement entails the risk that the assumed number of retirements from the subportfolio of eligible beneficiaries on grounds of disability does not correspond to the actual experience and for this reason increased benefit obligations have to be met.

The pension progression entails the risk that the anticipated development of the consumer price index factored into the trend assumptions was too low and that increased benefit obligations arise on account of the pension indexation required by law.

The rate of compensation increase entails the risk that the increases in pensionable salaries factored into the trend assumptions on a parallel basis do not adequately reflect the actual developments. In addition, in the case of plans under which the determinative income components above and below the income threshold for contributions to the statutory pension insurance scheme are differently weighted for the purpose of calculating the benefit, there is a risk of a diverging trend in the future with respect to salary and income threshold.

The calculation of the provisions for pensions is based upon the following assumptions:

Measurement assumptions
in %20132012
GermanyAustraliaGermanyAustralia
Discount rate3.633.943.203.50
Rate of compensation increase2.753.502.753.50
Pension indexation2.063.002.063.00

The movements in the net pension liability for the Group’s various defined benefit plans were as follows:

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Movements in net liability from defined benefit pension plans
in EUR thousand201320122013201220132012
Defined benefit obligationFair value of plan assetsImpact of minimum funding requirement/asset ceiling
Position at 1 January of the financial year141,105106,61814,97911,52530135
Recognised in profit or loss 
Current service costs3,3372,875
Past service cost and plan curtailments(2,250)
Gain on settlements(11)
Net interest component4,4174,90854547525
7,7545,52254547525
Recognised in cumulative other comprehensive income      
Actuarial gain (–)/loss (+) from change in biometric assumptions(352)
Actuarial gain (–)/loss (+) from change in financial assumptions(11,705)31,683
Experience gains (–)/losses (+)(885)1,870
Return on plan assets, excluding amounts included in interest income207128
Change in asset ceiling43(110)
Exchange differences(2,701)41(2,652)(29)
(15,643)33,594(2,445)9943(110)
Other changes      
Employer contributions4392,899
Employee contributions and deferred compensation175
Benefit payments(3,608)(4,804)(3)(3)
Additions and disposals(6)(5)
Effects of plan settlements(16)
(3,614)(4,629)4312,880
Position at 31 December of the
financial year
129,602141,10513,51014,9797530
Movements in net liability from defined benefit pension plans
in EUR thousand201320122013201220132012
Defined benefit obligationFair value of plan assetsImpact of minimum funding requirement/asset ceiling
Position at 1 January of the financial year141,105106,61814,97911,52530135
Recognised in profit or loss 
Current service costs3,3372,875
Past service cost and plan curtailments(2,250)
Gain on settlements(11)
Net interest component4,4174,90854547525
7,7545,52254547525
Recognised in cumulative other comprehensive income      
Actuarial gain (–)/loss (+) from change in biometric assumptions(352)
Actuarial gain (–)/loss (+) from change in financial assumptions(11,705)31,683
Experience gains (–)/losses (+)(885)1,870
Return on plan assets, excluding amounts included in interest income207128
Change in asset ceiling43(110)
Exchange differences(2,701)41(2,652)(29)
(15,643)33,594(2,445)9943(110)
Other changes      
Employer contributions4392,899
Employee contributions and deferred compensation175
Benefit payments(3,608)(4,804)(3)(3)
Additions and disposals(6)(5)
Effects of plan settlements(16)
(3,614)(4,629)4312,880
Position at 31 December of the
financial year
129,602141,10513,51014,9797530

The expected long-term return on plan assets was derived from the anticipated long-term yields of the individual asset classes and weighted pro rata. The plan assets consist exclusively of qualifying insurance policies as defined by IAS 19.

The reconciliation of the projected benefit obligations with the recognised provisions for pensions is as follows:

Provisions for pensions
in EUR thousand20132012
Projected benefit obligations at 31 December of the financial year129,602141,105
Fair value of plan assets at 31 December of the financial year13,51014,979
Impact of minimum funding requirement/asset ceiling at 31 December of the financial year7530
Recognised pension obligations at 31 December of the financial year116,167126,156
thereof: Capitalised assets245
Provisions for pensions116,412126,156

In the current financial year Hannover Re anticipates contribution payments of EUR 1.9 million under the plans set out above. The weighted average duration of the defined benefit obligation is 15.9 years.

Sensitivity analysis

An increase or decrease in the key actuarial assumptions would have the following effect on the present value of the defined benefit obligation as at the balance sheet date:

Effect on the defined benefit obligation
in EUR thousandParameter
increase
Parameter
decrease
Discount rate(+/-0.5%)-9,00210,207
Rate of compensation increase(+/-0.25%)457-450
Pension indexation(+/-0.25%)3,442-3,292

Furthermore, a change is possible with respect to the assumed mortality rates and lifespans. The underlying mortality tables were adjusted by reducing the mortalities by 10% in order to determine the longevity risk. Extending the lifespans in this way would have produced a EUR 3.5 million higher pension commitment at the end of the financial year.

Defined contribution plans

In addition to the defined benefit plans, some Group companies have defined contribution plans that are based on length of service and the employee’s income or level of contributions. The expense recognised for these obligations in the 2013 financial year in accordance with IAS 19 “Employee Benefits” was EUR 13.5 million (EUR 12.8 million), of which EUR 1.1 million (EUR 1.1 million) was due to obligations to members of staff in key positions and EUR 6.0 million (EUR 5.8 million) to contributions to the statutory pension insurance scheme in Germany.

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