Ordinary investment income surpassed the previous year at EUR 966.2 million (EUR 880.5 million) even though interest rates were lower overall. This was due principally to the sharp growth in assets under own management to EUR 28.3 billion (EUR 25.4 billion), which was attributable to both positive cash flows from the technical account and the development of fair values in the fixed-income portfolio.

In the context of portfolio reallocations from government to corporate bonds Hannover Re generated profits that accounted for a significant portion of the total net realised gains. The inflows from the operating cash flow were invested primarily in corporate bonds, asset-backed securities and real estate. The balance of net realised gains improved by 10.8% to EUR 179.6 million (EUR 162.0 million).

The impairments taken on investments were slightly higher than in the previous year at EUR 22.0 million (EUR 16.6 million). A volume of EUR 14.0 million (EUR 7.7 million) was attributable to alternative investments – principally private equity funds. They decreased to EUR 5.4 million (EUR 7.9 million) on fixed-income assets. Impairments of EUR 1.6 million (EUR 0.2 million) were taken on real estate funds. Thanks to increased fair values, these write-downs contrasted with write-ups of EUR 16.9 million (EUR 24.1 million) on fixedincome securities that had been written down in prior periods, EUR 17.3 million (EUR 3.0 million) on alternative investments and EUR 2.5 million (EUR 0.1 million) on real estate funds. Write-downs of a mere EUR 0.9 million (EUR 0.6 million) were taken on equities, only a minimal portfolio of which is still held in the context of strategic participations.

Unrealised losses on our asset holdings measured at fair value through profit or loss amounted to EUR 38.8 million, after EUR 39.9 million in the previous year. The bulk of this amount (EUR 55.4 million) stemmed from derivatives that we recognise for the credit risk of special life reinsurance treaties (ModCo) under which securities deposits are held by ceding companies on our behalf. The inflation swaps taken out in 2010 to hedge a portion of the inflation risks associated with the loss reserves in our technical account gave rise to unrealised gains of EUR 11.6 million, as against unrealised losses of EUR 31.2 million in the previous year. The hedging effect of the inflation swaps diminishes slightly over time owing to their fixed maturity. In order to restore the original protective effect we therefore took out further inflation swaps in the first quarter of the year under review. The changes in the fair values of the inflation swaps are recognised in income as a derivative pursuant to IAS 39.

The balance of our deposit interest and expenses was again higher at EUR 338.5 million (EUR 316.4 million).

We were thus able to boost our net investment income by 9.9% to EUR 1,384.0 million (EUR 1,258.9 million) – first and foremost thanks to the increased current investment income but also due to higher income from funds withheld and realised gains.

The portfolio of fixed-income securities excluding short-term investments climbed again to EUR 25.2 billion (EUR 21.4 billion). New investments were made predominantly in corporate bonds and public-sector covered bonds (Pfandbriefe) as well as asset-backed securities. Hidden reserves for available-forsale fixed-income securities recognised in shareholders’ equity totalled EUR 416.1 million (EUR 268.4 million). The spread of asset classes shifted as planned towards corporate bonds, while the share of government and semi-government bonds was reduced. As to the quality of the bonds – measured in terms of rating categories –, the downgrade of the United States’ credit status was reflected in a shift between the rating categories of “AAA” and “AA”. Nevertheless, the proportion of securities rated “A” or better remained stable on a high level as at year-end at 86.7% (91.0%).

In March we sold our portfolio of listed equities with virtually no gain or loss on disposal. We decided to take this step because of the uncertain extended implications for capital and reinsurance markets of the still ongoing Fukushima nuclear disaster. The decision had become necessary in the context of our systematic approach to risk management. Since that time we have only retained a minimal portfolio of listed equities in the context of strategic participations.

Holdings of alternative investments remained on a broadly stable level. As at 31 December 2011 an amount of EUR 485.7 million (EUR 469.3 million) was invested in private equity funds, a further EUR 348.2 million (EUR 316.4 million) in high-return bond funds and loans and altogether EUR 162.4 million (EUR 149.7 million) in structured real estate investments. The uncalled capital with respect to the aforementioned alternative investments totalled EUR 451.9 million (EUR 272.6 million).

In the year under review we consistently pursued our strategy of investing more heavily in real estate. To this end, various properties were acquired in Germany and the United States, and further projects are under review; the real estate allocation will therefore keep rising steadily as planned, and currently stands at 2.1% (1.9%).

We held a total amount of EUR 1.5 billion (EUR 2.0 billion) in short-term investments and cash at the end of the year under review. Funds withheld amounted to EUR 13.3 billion (EUR 12.6 billion).

Hannover Re reclassified fixed-income securities at fair values of altogether EUR 1.3 billion from the available-for-sale to the held-to-maturity portfolio. The securities gave rise to cumulative hidden reserves of EUR 46.5 million, which as a consequence of reclassification are to be amortised in the statement of income across the maturities of the instruments. These securities are permanently available to the relevant companies of the Hannover Re Group in light of cash flow projections. The intention and the ability to hold them until maturity enable the companies to reduce balance sheet volatility.