Content

Font size

8.3 Share-based remuneration

Stock Appreciation Rights Plan

With effect from 1 January 2000 the Executive Board of Hannover Re, with the consent of the Supervisory Board, introduced a virtual stock option plan that provides for the granting of stock appreciation rights to certain managerial staff. The content of the stock option plan is based solely on the Conditions for the Granting of Stock Appreciation Rights. All the members of the Group’s management are eligible for the award of stock appreciation rights. Exercise of the stock appreciation rights does not give rise to any entitlement to the delivery of Hannover Re stock, but merely to payment of a cash amount linked to the performance of the Hannover Re share. Recognition of transactions involving share-based remuneration with cash settlement is governed by the requirements of IFRS 2 “Share-based Payment”.

The Conditions for the Granting of Stock Appreciation Rights were cancelled for the 2011 financial year by a resolution of the Supervisory Board dated 8 November 2010, insofar as the members of the company’s Executive Board could be granted stock appreciation rights on the basis of these Conditions (partial cancellation). The Conditions for the Granting of Stock Appreciation Rights were also cancelled for the other eligible recipients for the year under review by a resolution of the Executive Board dated 14 March 2011. Awarded stock appreciation rights continue to be exercisable until the end of their period of validity.

Stock appreciation rights were first granted for the 2000 financial year and are awarded separately for each subsequent financial year (allocation year), provided the performance criteria defined in the Conditions for the Granting of Stock Appreciation Rights are satisfied.

The internal performance condition is achievement of the target performance defined by the Supervisory Board, which is expressed in terms of the diluted earnings per share calculated in accordance with IAS 33 “Earnings Per Share” (EPS). If the target EPS is surpassed or undershot, the provisional basic number of stock appreciation rights initially granted is increased or reduced accordingly to produce the EPS basic number. The external performance criterion is the relative development of the share price in the allocation year. The benchmark used in this regard is the (weighted) Global Reinsurance Index. This index encompasses the performance of listed reinsurers worldwide. Depending upon the outperformance or underperformance of this index, the EPS basic number is increased – albeit by at most 400% of the EPS basic number – or reduced – although by no more than 50% of the EPS basic number.

The maximum period of the stock appreciation rights is ten years, commencing at the end of the year in which they are awarded. Stock appreciation rights which are not exercised by the end of the 10-year period lapse. Stock appreciation rights may only be exercised after a waiting period and then only within four exercise periods each year. For 40% of the stock appreciation rights (first tranche of each allocation year) the waiting period is two years; for each additional 20% of the stock appreciation rights (tranches two to four of each allocation year) the waiting period is extended by one year. Each exercise period lasts for ten trading days, in each case commencing on the sixth trading day after the date of publication of the quarterly report of Hannover Rückversicherung AG.

On 4 November 2009 the Supervisory Board of Hannover Re decided to extend the waiting period applicable to members of the Executive Board from two to four years for stock appreciation rights granted from the 2010 allocation onwards; on 23 November 2009 the Executive Board decided to extend the waiting period accordingly for the other members of the Group’s management. Upon expiry of this waiting period a maximum 60% of the stock appreciation rights awarded for an allocation year may be exercised. The waiting period for each additional 20% of the stock appreciation rights awarded for this allocation year to a member of the managerial staff is one year.

Upon exercise of a stock appreciation right the amount paid out to the entitled party is the difference between the basic price and the current market price of the Hannover Re share at the time of exercise. In this context, the basic price corresponds to the arithmetic mean of the closing prices of the Hannover Re share on all trading days of the first full calendar month of the allocation year in question. The current market price of the Hannover Re share at the time when stock appreciation rights are exercised is determined by the arithmetic mean of the closing prices of the Hannover Re share on the last twenty trading days prior to the first day of the relevant exercise period.

The amount paid out is limited to a maximum calculated as a quotient of the total volume of compensation to be granted in the allocation year and the total number of stock appreciation rights awarded in the year in question.

In the event of cancellation of the employment relationship or termination of the employment relationship as a consequence of a termination agreement or a set time limit, a holder of stock appreciation rights is entitled to exercise all such rights in the first exercise period thereafter. Stock appreciation rights not exercised in this period and those in respect of which the waiting period has not yet expired shall lapse. Retirement, disability or death of the member of management shall not be deemed to be termination of the employment relationship for the purpose of exercising stock appreciation rights.

The allocations for the years 2003, 2004 as well as 2006, 2007 and 2009 to 2011 gave rise to commitments in the 2012 financial year shown in the following table. No allocations were made for 2005 or 2008.

enlarge zoom

Stock appreciation rights of Hannover Re
  Allocation year
  2011 2010 2009 2007 2006 2004 2003
Award date 15.3.2012 08.03.2011 15.03.2010 28.03.2008 13.03.2007 24.03.2005 25.03.2004
Period 10 years 10 years 10 years 10 years 10 years 10 years 10 years
Waiting period 4 years 4 years 2 years 2 years 2 years 2 years 2 years
Basic price (in EUR) 40.87 33.05 22.70 34.97 30.89 27.49 24.00
Participants in
year of issue
143 129 137 110 106 109 110
Number of rights granted 263,515 1,681,205 1,569,855 926,565 817,788 211,171 904,234
Fair value at 31.12.2012
(in EUR)
17.31 7.16 8.62 10.79 10.32 24.62 8.99
Maximum value (in EUR) 32.21 8.92 8.76 10.79 10.32 24.62 8.99
Weighted exercise price 8.76 9.84 10.32 21.49 8.99
Number of rights existing
at 31.12.2012
262,789 1,661,890 932,372 240,852 26,491 3,354 0
Provisions at 31.12.2012
(in EUR million)
0.94 5.08 6.21 2.6 0.27 0.08 0
Amounts paid out in the 2012 financial year (in EUR million) 4.94 5.94 2.33 2.49 0.02
Expense in the 2012 financial year
(in EUR million)
0.94 3.38 2.8 2.94 0.69 1.08 0
Stock appreciation rights of Hannover Re
  Allocation year
  2011 2010 2009 2007 2006 2004 2003
Award date 15.3.2012 08.03.2011 15.03.2010 28.03.2008 13.03.2007 24.03.2005 25.03.2004
Period 10 years 10 years 10 years 10 years 10 years 10 years 10 years
Waiting period 4 years 4 years 2 years 2 years 2 years 2 years 2 years
Basic price (in EUR) 40.87 33.05 22.70 34.97 30.89 27.49 24.00
Participants in
year of issue
143 129 137 110 106 109 110
Number of rights granted 263,515 1,681,205 1,569,855 926,565 817,788 211,171 904,234
Fair value at 31.12.2012
(in EUR)
17.31 7.16 8.62 10.79 10.32 24.62 8.99
Maximum value (in EUR) 32.21 8.92 8.76 10.79 10.32 24.62 8.99
Weighted exercise price 8.76 9.84 10.32 21.49 8.99
Number of rights existing
at 31.12.2012
262,789 1,661,890 932,372 240,852 26,491 3,354 0
Provisions at 31.12.2012
(in EUR million)
0.94 5.08 6.21 2.6 0.27 0.08 0
Amounts paid out in the 2012 financial year (in EUR million) 4.94 5.94 2.33 2.49 0.02
Expense in the 2012 financial year
(in EUR million)
0.94 3.38 2.8 2.94 0.69 1.08 0

The existing stock appreciation rights are valued on the basis of the Black-Scholes option pricing model.

The calculations were based on the price of the Hannover Re share of EUR 57.65 as at the reference date of 14 December 2012, expected volatility of 41.16% (historical volatility on a five-year basis), a dividend yield of 4.60% and risk-free interest rates of -0.07% for the 2004 allocation year, 0.19% for the 2006 allocation year, 0.39% for the 2007 allocation year, 0.84% for the 2009 allocation year, 1.06% for the 2010 allocation year and 1.26% for the 2011 allocation year.

In the 2012 financial year the waiting period expired for 100% of the stock appreciation rights awarded in 2003, 2004 and 2006, 80% of those awarded in 2007 and 40% of those awarded in 2009.

The stock appreciation rights of Hannover Re have developed as follows:

enlarge zoom

Development of the stock appreciation rights of Hannover Re
  Allocation year
Number of options 2011 2010 2009 2007 2006 2004 2003
Granted in 2004 904,234
Exercised in 2004
Lapsed in 2004 59,961
Number of options at 31.12.2004 844,273
Granted in 2005 211,171
Exercised in 2005
Lapsed in 2005 6,397 59,834
Number of options at 31.12.2005 204,774 784,439
Granted in 2006
Exercised in 2006 278,257
Lapsed in 2006 14,511 53,578
Number of options at 31.12.2006 190,263 452,604
Granted in 2007 817,788
Exercised in 2007 12,956 155,840
Lapsed in 2007 8,754 13,019 38,326
Number of options at 31.12.2007 809,034 164,288 258,438
Granted in 2008 926,565
Exercised in 2008 1,699 121,117
Lapsed in 2008 3,103 1,443 2,162
Number of options at 31.12.2008 926,565 805,931 161,146 135,159
Granted in 2009
Exercised in 2009 1,500 79,262
Lapsed in 2009 17,928 16,158 3,192
Number of options at 31.12.2009 908,637 789,773 156,454 55,897
Granted in 2010 1,569,855
Exercised in 2010 10,399 95,380 29,832 52,581
Lapsed in 2010 34,255 8,380 2,642
Number of options at 31.12.2010 1,535,600 889,858 691,751 126,622 3,316
Granted in 2011 1,681,205
Exercised in 2011 41,583 437,491 7,183 602
Lapsed in 2011 15,245 39,710 4,044 1,817
Number of options at 31.12.2011 1,665,960 1,495,890 844,231 252,443 119,439 2,714
Granted in 2012 263,515
Exercised in 2012 563,518 603,379 225,952 116,085 2,714
Lapsed in 2012 726 4,070
Number of options at 31.12.2012 262,789 1,661,890 932,372 240,852 26,491 3,354
Development of the stock appreciation rights of Hannover Re
  Allocation year
Number of options 2011 2010 2009 2007 2006 2004 2003
Granted in 2004 904,234
Exercised in 2004
Lapsed in 2004 59,961
Number of options at 31.12.2004 844,273
Granted in 2005 211,171
Exercised in 2005
Lapsed in 2005 6,397 59,834
Number of options at 31.12.2005 204,774 784,439
Granted in 2006
Exercised in 2006 278,257
Lapsed in 2006 14,511 53,578
Number of options at 31.12.2006 190,263 452,604
Granted in 2007 817,788
Exercised in 2007 12,956 155,840
Lapsed in 2007 8,754 13,019 38,326
Number of options at 31.12.2007 809,034 164,288 258,438
Granted in 2008 926,565
Exercised in 2008 1,699 121,117
Lapsed in 2008 3,103 1,443 2,162
Number of options at 31.12.2008 926,565 805,931 161,146 135,159
Granted in 2009
Exercised in 2009 1,500 79,262
Lapsed in 2009 17,928 16,158 3,192
Number of options at 31.12.2009 908,637 789,773 156,454 55,897
Granted in 2010 1,569,855
Exercised in 2010 10,399 95,380 29,832 52,581
Lapsed in 2010 34,255 8,380 2,642
Number of options at 31.12.2010 1,535,600 889,858 691,751 126,622 3,316
Granted in 2011 1,681,205
Exercised in 2011 41,583 437,491 7,183 602
Lapsed in 2011 15,245 39,710 4,044 1,817
Number of options at 31.12.2011 1,665,960 1,495,890 844,231 252,443 119,439 2,714
Granted in 2012 263,515
Exercised in 2012 563,518 603,379 225,952 116,085 2,714
Lapsed in 2012 726 4,070
Number of options at 31.12.2012 262,789 1,661,890 932,372 240,852 26,491 3,354

2,714 stock appreciation rights from the 2003 allocation year, 116,085 stock appreciation rights from the 2004 allocation year, 225,952 stock appreciation rights from the 2006 allocation year, 603,379 stock appreciation rights from the 2007 allocation year and 563,518 stock appreciation rights from the 2009 allocation year were exercised. The total amount paid out stood at EUR 15.7 million.

On this basis the aggregate provisions – included in the sundry non-technical provisions – amounted to EUR 15.2 million for the 2012 financial year (EUR 19.1 million). The expense totalled altogether EUR 11.8 million (EUR 5.2 million).

Share Award Plan

With effect from the 2011 financial year the Supervisory Board of Hannover Re implemented a “Share Award Plan” for the members of the Executive Board of Hannover Re; this provides for the granting of stock participation rights in the form of virtual shares (referred to as “share awards”). The Executive Board of Hannover Re decided to adopt a Share Award Plan for certain management levels at Hannover Re as well with effect from the 2012 financial year.

The Share Award Plan replaces the Stock Appreciation Rights Plan that was cancelled with effect from the year under review. Please see our remarks under “Stock Appreciation Rights Plan” in this section. The share awards do not establish any claim against Hannover Re to the delivery of stock, but merely to payment of a cash amount in accordance with the conditions set out below.

The members of the Executive Board and management of Hannover Re who are eligible recipients under the Share Award Plan are those who have been allowed a contractual claim to the granting of share awards and whose service/employment relationship exists at the time when the share awards are granted and does not end through cancellation or a termination agreement on an effective date prior to expiry of the vesting period.

After share awards were already granted to the members of the Executive Board in the year under review for the 2011 financial year, share awards will be granted separately to managers for the first time for the 2012 financial year and then for each financial year (allocation year) thereafter.

The total number of share awards granted is based on the value per share of Hannover Re. The value per share is established according to the unweighted arithmetic mean of the Xetra closing prices of the Hannover Re share. In the conditions applicable to members of the Executive Board a period of five trading days before to five trading days after the meeting of the Supervisory Board that approves the consolidated financial statement for the financial year just-ended is envisaged for the calculation. For managers a period of twenty trading days before to ten trading days after the meeting of the Supervisory Board that approves the consolidated financial statement for the financial year just-ended has been agreed. The total number of share awards granted is established by dividing the amount available for the granting of share awards to the respective eligible recipients by the value per share, rounded up to the next full share. For members of the Executive Board 20% and for managers 40% or 35% – according to management levels – of the defined variable remuneration shall be granted in the form of share awards.

The share awards are granted automatically without any requirement for a declaration by Hannover Re or the eligible recipient. Following expiry of a vesting period of four years the value of one Hannover Re share calculated at the disbursement date is paid out for each share award. This value is calculated according to the provisions of the preceding paragraph.

The eligible recipient shall be paid an amount that corresponds to the sum total of the values of the share awards calculated at the disbursement date for which the vesting period of four years has expired. The amount is to be paid in the month after expiry of the determinative period for calculating the value per share according to the preceding paragraphs. Any taxes and social security contributions payable shall be deducted.

In addition, upon payment of the value of the share awards, a sum shall be paid out in the amount of the dividend insofar as dividends were distributed to shareholders. The amount of the dividend is the sum total of all dividends per share paid out during the term of the share awards multiplied by the number of share awards due for disbursement to the eligible recipient at the disbursement date. In the event of early disbursement of the share awards, the value of the dividends shall only be paid out for the period until occurrence of the event that triggers early disbursement. No pro rata allowance shall be made for dividends that have not yet been distributed.

In the event that the Board mandate or service relationship with the member of the Executive Board or the employment relationship with the manager ends, the eligible recipient shall retain his claims to payment of the value of already granted share awards after expiry of the applicable vesting period, unless such termination is based on resignation of office/voluntary termination on the part of the member of the Executive Board or voluntary termination on the part of the manager or dismissal by Hannover Re for a compelling reason. In the event of death the claims arising out of the already granted and/or still to be granted share awards pass to the heirs. All share awards including the dividend shall be paid out to the eligible party irrespective of any remaining vesting period at a disbursement date to be determined once the status as heir has been documented to Hannover Re. The value of all share awards shall be determined by the value per share of Hannover Re calculated as at this disbursement date.

Any entitlement to the granting of share awards after leaving the company is excluded. This shall not apply with respect to claims to variable remuneration acquired (pro rata) in the last year of service of the eligible recipient in the event of exit from the company on account of non-reappointment, occurrence of the pensionable event or death.

The Share Award Plan is recognised as share-based payment with cash settlement.

The provisional fair value for the 2012 allocation year is measured according to the market price of the share on the valuation date of 28 December 2012 and amounts to EUR 58.96 (EUR 38.325) per share award. The probable allocation for the members of the Executive Board amounts to altogether 16,053 (24,390) share awards and for managers altogether 12,329 (0) share awards, in each case plus the total present value of the dividend entitlements acquired until the end of the period. No allowance is made for anticipated dividend payments.

For the 2011 allocation year the members of the Executive Board were ultimately awarded 22,232 share awards after adjustment of the fair value of EUR 38.325 recognised in the consolidated financial statement to the unweighted mean of EUR 42.09. Entitlements from dividends arose in the year under review as at the balance sheet date only for the share awards granted to the members of the Executive Board in an amount of EUR 45,5 thousand.

The personnel expense from share awards to members of the Executive Board is spread on an accrual basis across the period of the service contracts, while the personnel expense from share awards received by managers is spread across the four-year term of the share awards. Personnel expenses of EUR 0.8 million (EUR 0.2 million) in the case of the Executive Board and EUR 1.4 million (EUR 0) in the case of managers were allocated to the provision for share awards in the year under review in the context of the proportionate write-up of fair values.

The total amount of the provision of EUR 2.4 million (EUR 0.2 million) is shown under the sundry provisions.

History

Your last visited pages:

More Information

Topic related links within the report:

Download

Download this chapter as a PDF file:

Topic Navigation

Build your own individual report according to the topics you are interested in. Choose the topics which are essential for you.







 
show all

My Annual Report

Your page has been added successfully. Please click on "My Annual Report" in the service section to see your selection.

Link für Popup