Investments are classified and measured in accordance with IAS 39 “Financial Instruments: Recognition and Measurement”.

Hannover Re classifies investments according to the following categories: held-to-maturity, loans and receivables, financial assets at Fair value through profit or loss and available-for-sale. The allocation and measurement of investments are determined by the investment intent.

The investments under own management also encompass investments in associated companies, real estate and real estate funds (also includes: investment property), other invested assets, short-term investments and cash.

The following table shows the regional origin of the investments under own management.

The stated maturities may in individual cases diverge from the contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

Variable-rate bonds (so-called “floaters”) are shown under the maturities due in one year and constitute our interest-related, within-the-year reinvestment risk.

The carrying amount of the Portfolio held to maturity is arrived at from the amortised cost plus accrued interest.

The carrying amount of the loans and receivables is arrived at from the amortised cost plus accrued interest.

The carrying amounts of the fixed-income securities and equity securities classified as available for sale as well as the shortterm investments allocated to this category correspond to their fair values, in the case of interest-bearing assets including accrued interest.

The carrying amounts of the financial assets at fair value through profit or loss correspond to their fair values including accrued interest.

Hannover Re recognised in this category as at the balance sheet date derivative financial instruments in an amount of EUR 39.6 million (EUR 66.4 million) that are originally allocable to this item as well as fixed-income securities amounting to EUR 109.0 million (EUR 64.5 million) designated in this category.

Analysis of the fair value changes in the portfolio of fixed-income securities at fair value through profit or loss indicated that no fair value changes (EUR 0.3 million) were due to changes in ratings.

We additionally use an internal rating method to back up this analysis. Our internal rating system is based on the corresponding credit ratings of securities assigned by the agencies Standard & Poor’s and Moody’s and in each case reflects the lowest of the available ratings.

For further information please see the explanatory remarks in Section 8.1 “Derivative financial instruments and financial guarantees”.

For further explanatory remarks on the impairment criteria please see Section 3.1 “Summary of major accounting policies”.

The maximum credit risk of the items shown here corresponds to their carrying amounts.

The maximum credit risk of the items shown here corresponds to their carrying amounts.

Associated companies

The associated companies included at equity in the consolidated financial statement that both on an individual basis and in their entirety are not material for the Hannover Re Group pursuant to IFRS 12 are comprised of

• Oval Office Grundstücks GmbH, Hannover, Germany,
• WeHaCo Unternehmensbeteiligungs-GmbH, Hannover, Germany,
• HANNOVER Finanz GmbH, Hannover, Germany,
• Glencar Underwriting Managers, Inc., Chicago, United States,
• ITAS Vita S.p.A., Trento, Italy,

as well as the following companies included at equity within the subgroup Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, South Africa:

• Clarendon Transport Underwriting Managers (Pty) Ltd., Johannesburg, South Africa,
• Clarenfin (Pty) Ltd., Johannesburg, South Africa,
• Camargue Underwriting Managers (Pty) Ltd., Johannesburg, South Africa,
• Synergy XOL (Pty) Ltd., Johannesburg, South Africa,
• Vela Taxi Finance (Pty) Ltd., Johannesburg, South Africa.

Information on the percentage share held by the Hannover Re Group in the capital of the associated companies as well as on the amount of capital and reserves and the result for the last financial year of these companies is provided in the list of shareholdings in Section 4.2 “Consolidated companies and complete list of shareholdings”.

The following table shows combined financial information on the Hannover Re Group’s individual non-material investments in associated companies.

The carrying amount of the investments in associated companies changed as follows in the year under review:

No discontinued operations existed in the year under review among the companies measured at equity. Insofar as there are commitments from contingent liabilities of associated companies, the Hannover Re Group shares in such commitments in proportion to its respective shareholding.

Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 21.9 million (EUR 23.1 million). For further details please see Section 4 “Consolidation”.

Real estate

Real estate is divided into real estate for own use and thirdparty use (investment property). Own-use real estate is recognised under other assets.

The investment property in the portfolio which is used to generate income is shown under the investments. Income and expenses from rental agreements are included in the investment income.

Real estate is valued at cost of acquisition less scheduled depreciation with useful lives of at most 50 years.

The fair value of investment property amounted to EUR  1,388.7  million (EUR 1,038.6 million) as at the balance sheet date.

The additions to this item are attributable to the increased investment activities of the real estate companies belonging to the Hannover Re Group, principally due to investments in Europe and the United States.

In terms of diversification across various real estate sectors the focus is on office properties (70%), followed by retail properties (17%). The allocation is complemented by investments in further sectors, including for example parking facilities (7%) and logistics (2%). In geographical terms, exposures are spread across the United States (43%), Europe (excluding Germany; 33%) as well as Germany (24%).

The real estate in the investment portfolio is normally subject to internal and external valuation by an appraiser as at the balance sheet date. The two analyses do not differ from one another in the methodology used, which means that the findings are comparable at all times and on a continuous basis. Generally speaking, the fair value of the real estate is determined using the discounted cash flow (DCF) method, with rental income capitalised in consideration of the associated management costs. The valuation result is also influenced by increases and reductions based on specific property circumstances (upkeep, vacancies, rent divergences from the market level, etc.). The evaluation of international real estate also draws primarily on the discounted cash flow method. The main feature of this method is the present value estimation of projected annual free cash flows.

Real estate which is held for sale as defined by IFRS 5 is recognised separately in the consolidated balance sheet. Intentions to sell are substantiated by individual real estate market conditions and specific property circumstances, taking into consideration current and future opportunity / risk profiles. In the year under review no properties were reclassified to assets held for sale.

In addition, we held indirect real estate investments measured at fair values in an amount of EUR 371.3 million (EUR 321.0 million) in the year under review, the amortised costs of which amounted to EUR 316.0 million (EUR 260.1 million). The differences between the carrying amounts and amortised costs were recognised as unrealised gains of EUR 56.4 million (EUR 62.1 million) and unrealised losses of EUR 1.2 million (EUR 1.2 million) under cumulative other comprehensive income.

Other invested assets

The other invested assets consisted largely of participating interests in partnerships measured at fair value in an amount of EUR 1,396.0 million (EUR 1,153.9 million), the amortised cost of which amounted to EUR 976.5 million (EUR 749.7 million). The differences between the carrying amounts and the amortised costs were recognised as unrealised gains of EUR 426.2 million (EUR 409.0 million) and unrealised losses of EUR 6.7 million (EUR 4.8 million) under cumulative other comprehensive income.

In addition, acquired life insurance policies measured at fair value through profit or loss were recognised under the other invested assets in an amount of EUR 79.4 million (EUR 105.0 million).

Short-term investments

This item comprises investments with a maturity of up to one year at the time of investment.

Fair value hierarchy

For the purposes of the disclosure requirements pursuant to IFRS 13 “Fair Value Measurement”, financial assets and liabilities are to be assigned to a three-level fair value hierarchy.

The fair value hierarchy, which reflects characteristics of the price data and inputs used for measurement purposes, is structured as follows:

• Level 1: Assets or liabilities measured at (unadjusted) prices quoted directly in active and liquid markets
• Level 2: Assets or liabilities which are measured using observable market data and are not allocable to level 1. Measurement is based, in particular, on prices for comparable assets and liabilities that are traded on active markets, prices on markets that are not considered active as well as inputs derived from such prices or market data
• Level 3: Assets or liabilities that cannot be measured or can only be partially measured using observable market inputs. The measurement of such instruments draws principally on valuation models and methods

If input factors from different levels are used to measure a financial instrument, the level of the lowest input factor material to measurement is determinative.

The operational units responsible for coordinating and documenting measurement are organisationally separate from the operational units that enter into investment risks. All relevant valuation processes and valuation methods are documented. Decisions on fundamental valuation issues are taken by a valuation committee that meets monthly.

In the previous year alternative investments with a fair value of EUR 36.3 million were no longer allocable to level 2 but rather to 3 as a consequence of model-based pricing.

The following table shows the breakdown of financial assets and liabilities recognised at fair value into the three-level fair value hierarchy.

The following table provides a reconciliation of the fair values of financial assets and liabilities included in level 3 at the beginning of the financial year with the fair values as at 31 December of the financial year.

The breakdown of income and expenses recognised in the statement of income in the financial year in connection with financial assets and liabilities assigned to level 3 is as follows.

If models are used to measure financial assets and liabilities included in level 3 under which the adoption of alternative inputs leads to a material change in fair value, IFRS 13 requires disclosure of the effects of these alternative assumptions. Of the financial assets included in level 3 with fair values of altogether EUR 1,846.7 million (EUR 1,580.4 million) as at the balance sheet date, Hannover Re measures financial assets with a volume of EUR 1,767.3 million (EUR 1,474.8 million) using the net asset value method, in respect of which alternative inputs within the meaning of the standard cannot reasonably be established. The remaining financial assets included in level 3 with a volume of EUR 79.4 million (EUR 105.6 million) relate to acquired life insurance policies, the valuation of which is based on technical parameters. Derivative financial instruments in connection with the reinsurance business were recognised under the other liabilities included in level 3 in the year under review. Their performance is dependent upon the risk experience of an underlying group of primary insurance contracts with statutory reserving requirements. The application of alternative inputs and assumptions has no material effect on the consolidated financial statement.