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

On 14 September 2010 Hannover Re placed a new 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 quarterly EURIBOR +268 basis points. The interest will be serviced according to the same principles as those practised in the past. As part of the transaction, holders of the subordinated debt of EUR 350.0 million placed by Hannover Re in 2001 – which had a term of 30 years and could be called in prior to maturity by the issuer on 14 March 2011 – were offered an opportunity to exchange their existing issue for holdings in the new bond. Participation in the exchange was nominally EUR 211.9 million, corresponding to EUR 240.5 million of the new bond issue. The cash component of the new bond in the amount of nominally EUR 259.5 million was placed predominantly with institutional investors in Europe. The remaining volume of the bond issued in 2001 after the exchange was EUR 138.1 million and carried a fixed coupon of 6.25% until March 2011. The remaining bond volume was called by the issuer on the specified date and repaid in full.

On 26 February 2004 subordinated debt in the amount of EUR 750.0 million was placed through Hannover Finance (Luxembourg) S.A., a wholly owned subsidiary of Hannover Re, 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 quarterly EURIBOR +263 basis points.

Altogether three (previous year: four) subordinated bonds were recognised as at the balance sheet date with amortised cost of EUR 1,731.6 million (EUR 1,869.1 million).

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The aggregated fair value of the issued 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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The ordinary expenses principally include interest expenses of nominally EUR 98.5 million (EUR 85.3 million) resulting from the subordinated debt placed through Hannover Finance (Luxembourg) S.A.

Other financial facilities

In order to replace the syndicated facilities for letters of credit (LoC) taken out in 2005 and 2006 Hannover Re obtained a credit line of EUR 772.5 million in 2011 in the form of an unsecured syndicated guarantee facility. The LoC facility matures in principle at the beginning of 2017 and has various renewal options. In addition, several bilateral loan agreements were also taken out.

The syndicated guarantee facility from 2005 had a remaining volume of EUR 27.0 million as at the balance sheet date after partial cancellations and ends in its entirety at the beginning of January 2012. The syndicated LoC line from 2006 was repaid in full in the context of the refinancing.

Unsecured letter of credit facilities with various terms (maturing at the latest in 2021) and a total volume equivalent to EUR 2,403.1 million (EUR 1,207.2 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 386.2 million (EUR 565.9 million).

For further information on the letters of credit provided please see our explanatory remarks in Section 7.7 “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 on the information pursuant to § 315 Para. 4 German Commercial Code (HGB).

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