Hannover Re’s investment policy continues to be guided by the following core principles:

• generation of stable and risk-commensurate returns while at the same time maintaining the high quality standard of the portfolio;
• ensuring the liquidity and solvency of Hannover Re at all times;
• high diversification of risks;
• limitation of currency exposures and maturity risks through matching currencies and maturities.

With these goals in mind we engage in active risk management based on balanced risk / return analyses. To this end we make allowance for insights gained from dynamic financial analysis and have implemented detailed investment guidelines on a centralised basis. We are thus able to take into account the prevailing state of the market and the basis is established for the current structuring of the liabilities side, which must be factored into operational management of the portfolio. These measures are intended to safeguard the generation of an appropriate level of return. In so doing, we pay strict attention to compliance with our clearly defined risk appetite, which is reflected in the risk capital allocated to the investments and constitutes the foundation for the asset allocation of the entire Hannover Re Group. In addition, our ability to meet our payment obligations at all times is thereby ensured. Within the scope of our asset / liability management (ALM) the allocation of investments by currencies and maturities is determined by the technical liabilities. With this in mind the modified duration of our bond portfolio is geared largely to the technical liabilities.

By adjusting the maturity pattern of our fixed-income securities to the expected payment patterns of our liabilities we reduce the economic exposure to the interest rate risk. In the current reporting period we kept the modified duration of our fixed-income portfolio broadly neutral, as a result of which it stood at 4.4 (previous year: 4.6) as at 31 December 2015.

Furthermore, through active and regular management of the currency spread in our fixed-income portfolio we bring about extensive matching of currencies on the assets and liabilities sides of the balance sheet, as a consequence of which fluctuations in exchange rates have only a limited effect on our result. At year-end 2015 we held 30.8% (36.9%) of our investments in euro, 46.7% (41.4%) in US dollars, 8.3% (8.5%) in pound sterling and 5.1% (5.2%) in Australian dollars.