3.1 Changes in accounting policies
3. Accounting policies
3.1 Changes in accounting policies
The estimation of the share of the equalisation reserve probably attributable to permanent establishments abroad, in respect of which the so-called exemption method is to be applied for the purposes of the pertinent double taxation agreement, was modified at Hannover Rück SE. Given that an equalisation reserve pursuant to § 341h Commercial Code (HGB) and § 29 Regulation on the Presentation of Insurance Company Accounts (RechVersV) is not carried for tax purposes under local provisions in these countries, this results in a decrease in the deferred tax liabilities recognised in the consolidated financial statement of Hannover Re. This adjustment represents a change in an accounting estimate, which pursuant to IAS 8.32 et seq. is to be recognised in profit or loss prospectively and in the current period. Altogether, deferred tax liabilities of EUR 89 million were reversed in profit or loss. The allocation of the equalisation reserve to the permanent establishments abroad for future financial years and hence the effect of this adjustment on subsequent accounting periods is carried out according to a premium code for each line of business reported in the financial statement and cannot reasonably be estimated.
With effect from the third quarter of 2013 Hannover Re adjusted the calculation logic for the amortisation of inflation-linked government bonds with the aim of smoothing seasonal fluctuations in the underlying inflation indices. This represents a change in an accounting estimate, which pursuant to IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” is to be performed prospectively in the period under review without restatement of the comparative figures for previous years. As at the balance sheet date and as at the respective year-ends in future there will be no differences in the amortisation amounts, because the adjustment of the parameters merely has a smoothing effect within the year that is reflected only at the end of the various quarters.
In June 2011 the IASB published amendments to IAS 1 “Presentation of Financial Statements”. The revised IAS 1 requires entities to group items presented in OCI based on whether they are potentially reclassifiable to profit or loss subsequently, i. e. those that might be reclassified and those that will not be reclassified. Subtotals are to be shown accordingly for the two groups. Tax associated with items presented before tax is to be shown separately for each of the groups of OCI items. The amendments were adopted by the EU in June 2012 and are applicable retrospectively to annual periods beginning on or after 1 July 2012. Hannover Re applied the amended IAS 1 for the first time with effect from 1 January 2013, restructured the consolidated statement of comprehensive income and restated accordingly the disclosure for the comparable period in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. The changes did not have any implications for the carrying values in the consolidated financial statement or for Group net income.
As of 1 January 2013 Hannover Re applied for the first time the revised IAS 19 “Employee Benefits” (IAS 19R), which was issued by the IASB in June 2011. The standard has a mandatory effective date for annual periods beginning on or after 1 January 2013. The change was endorsed in European law by the EU in June 2012. In accordance with the transitional requirements the standard was applied retrospectively in conformity with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. The previous application of the corridor approach in the accounting of defined benefit pension plans resulted in actuarial gains and losses only being recognised to the extent that they exceeded certain size criteria. In addition, the portion to be recognised was spread over several years. An off-balance-sheet recognition of partial amounts of the pension commitment also arose out of the previously applicable rules governing retrospective plan changes, which resulted in an increase in the existing commitment and hence in a past service cost. This past service cost was to be recognised immediately only to the extent that the additional benefits had already vested. Amounts above and beyond this were recognised pro rata until the resulting benefits vested. In accordance with the revised IAS 19R all actuarial gains and losses (“remeasurements“) are to be recognised immediately and entirely in OCI and past service costs in profit or loss for the period. In addition, the expected return on plan assets must in future be determined by applying the discount rate used to measure the defined benefit obligation. Given that pension commitments in the Hannover Re Group are funded only to a small extent through plan assets, there are no significant implications for Group net income. Furthermore, application of the revised IAS 19 resulted in a minimal adjustment of the accounting in connection with German partial retirement pension commitments.
With regard to the new disclosures in the notes resulting from the revised standard, please see Section 6.10 “Provisions for pension and other post-employment benefit obligations”.
For certain contracts in the area of life and health reinsurance an option was exercised differently at various Group companies with respect to the accounting of the interest rate-induced portion of the change in the loss and loss adjustment expense reserve (loss reserve). In some cases this item was recognised in the statement of income, while in other cases it was recognised directly in equity. In accordance with the provisions of IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, we have recognised this item on a consistent Group-wide basis in the statement of income in the present financial statement and we have restated the comparable figures accordingly pursuant to IAS 8.41.
The effects of the retrospective application of the aforementioned changes to the opening balance sheet as at 1 January 2012 and to the consolidated balance sheet as at 31 December 2012 as well as to the comparable period of the previous 2012 financial year are as follows:
Consolidated balance sheet as at 1 January 2012 | ||||||
in EUR thousand | 1.1.2012 as stated |
Application of IAS 19R |
Recognition of change in loss reserve |
1.1.2012 | ||
---|---|---|---|---|---|---|
Assets | ||||||
Deferred tax assets | 682,888 | 306 | – | 683,194 | ||
Liabilities | ||||||
Provisions for pensions | 88,299 | 6,951 | – | 95,250 | ||
Deferred tax liabilities | 1,723,265 | (1,304) | – | 1,721,961 | ||
Other liabilities | 443,671 | (1,846) | – | 441,825 | ||
Total liabilities | 44,260,297 | 3,801 | – | 44,264,098 | ||
Cumulative other comprehensive income | (18,553) | (4,159) | 18,553 | (4,159) | ||
Total OCI | 446,121 | (4,159) | 18,553 | 460,515 | ||
Retained earnings | 3,679,351 | 1,046 | (18,553) | 3,661,844 | ||
Equity attributable to shareholders of Hannover Rück SE | 4,970,631 | (3,113) | – | 4,967,518 | ||
Non-controlling interests | 636,024 | (382) | – | 635,642 | ||
Total shareholders’ equity | 5,606,655 | (3,495) | – | 5,603,160 |
Consolidated balance sheet as at 31 December 2012 | ||||||
in EUR thousand | 31.12.2012 as stated |
Application of IAS 19R |
Recognition of change in loss reserve |
31.12.2012 | ||
---|---|---|---|---|---|---|
Assets | ||||||
Deferred tax assets | 620,493 | (37) | – | 620,456 | ||
Liabilities | ||||||
Provisions for pensions | 86,464 | 39,692 | – | 126,156 | ||
Deferred tax liabilities | 1,972,373 | (12,300) | – | 1,960,073 | ||
Other liabilities | 494,604 | (1,293) | – | 493,311 | ||
Total liabilities | 48,071,433 | 26,099 | – | 48,097,532 | ||
Cumulative foreign currency translation adjustment | (16,216) | (9) | 106 | (16,119) | ||
Cumulative other comprehensive income | (27,211) | (24,417) | 27,211 | (24,417) | ||
Total OCI | 935,036 | (24,426) | 27,317 | 937,927 | ||
Retained earnings | 4,275,613 | 1,090 | (27,317) | 4,249,386 | ||
Equity attributable to shareholders of Hannover Rück SE | 6,055,808 | (23,336) | – | 6,032,472 | ||
Non-controlling interests | 684,472 | (2,800) | – | 681,672 | ||
Total shareholders’ equity | 6,740,280 | (26,136) | – | 6,714,144 |
The following restatements were to be made in the consolidated statement of income for the comparable period of the previous year due to retrospective application of the aforementioned changes:
Consolidated statement of income 2012 | ||||||
in EUR thousand | 1.1. – 31.12.2012 as stated | Application of IAS 19R | Recognition of change in loss reserve | 1.1. – 31.12.2012 | ||
---|---|---|---|---|---|---|
Claims and claims expenses | 8,853,346 | – | 12,582 | 8,865,928 | ||
Other income and expenses | (164,844) | 24 | – | (164,820) | ||
Operating profit/loss (EBIT) | 1,406,463 | 24 | (12,582) | 1,393,905 | ||
Net income before taxes | 1,301,952 | 24 | (12,582) | 1,289,394 | ||
Taxes | 368,229 | (6) | (3,818) | 364,405 | ||
Net income | 933,723 | 30 | (8,764) | 924,989 | ||
thereof | ||||||
Non-controlling interest in profit and loss | 75,411 | (14) | – | 75,397 | ||
Group net income | 858,312 | 44 | (8,764) | 849,592 | ||
Earnings per share (in EUR) | ||||||
Basic earnings per share | 7.12 | – | (0.08) | 7.04 | ||
Diluted earnings per share | 7.12 | – | (0.08) | 7.04 |
Consolidated statement of comprehensive income 2012 | ||||
in EUR thousand | 1.1. - 31.12.2012 as stated | Application of IAS 19R | Recognition of change in loss reserve | 31.12.2012 |
---|---|---|---|---|
Net income | 933,723 | 30 | (8,764) | 924,989 |
Not reclassifiable to the consolidated statement of income | ||||
Actuarial gains and losses | ||||
Gains (losses) recognised directly in equity | – | (33,315) | – | (33,315) |
Tax income (expense) | – | 10,660 | – | 10,660 |
– | (22,655) | – | (22,655) | |
Income and expense recognised directly in equity that cannot be classified | ||||
Gains (losses) recognised directly in equity | – | (33,315) | – | (33,315) |
Tax income (expense) | – | 10,660 | – | 10,660 |
– | (22,655) | – | (22,655) | |
Reclassifiable to the consolidated statement of income | ||||
Curreny translations | ||||
Gains (losses) recognised directly in equity | (32,428) | (16) | 106 | (32,338) |
Transferred to the consolidated statement of income | – | – | – | – |
Tax income (expense) | 2,807 | – | – | 2,807 |
(29,621) | (16) | 106 | (29,531) | |
Other changes (net) | ||||
Gains (losses) recognised directly in equity | (12,429) | – | 12,429 | – |
Tax income (expense) | 3,771 | – | (3,771) | – |
(8,658) | – | 8,658 | – | |
Reclassifiable income and expense recognised directly in equity | ||||
Gains (losses) recognised directly in equity | 890,923 | (16) | 12,535 | 903,442 |
Transferred to the consolidated statement of income | (156,920) | – | – | (156,920) |
Tax income (expense) | (207,317) | – | (3,771) | (211,088) |
526,686 | (16) | 8,764 | 535,434 | |
Total income and expense recognised directly in equity | ||||
Gains (losses) recognised directly in equity | 890,923 | (33,331) | 12,535 | 870,127 |
Transferred to the consolidated statement of income | (156,920) | – | – | (156,920) |
Tax income (expense) | (207,317) | 10,660 | (3,771) | (200,428) |
526,686 | (22,671) | 8,764 | 512,779 | |
Total recognised income and expense | 1,460,409 | (22,641) | – | 1,437,768 |
thereof: | ||||
Attributable to non-controlling interests | 107,280 | (2,418) | – | 104,862 |
Attributable to shareholders of Hannover Rück SE | 1,353,129 | (20,223) | – | 1,332,906 |