Shareholders’ equity

Strategic equity targets

Within the scope of the communicated profit targets the Talanx Group sets itself the goal of generating a continuous, above-average increase in the value of the invested capital that takes account of the risk position.

  • We strive to rank among the five most profitable of the 20 largest European insurance groups, measured by the IFRS return on equity.
  • Our Group’s minimum target in relation to consolidated net income after taxes and before minority interests is an IFRS return on equity of 750 basis points above the average risk-free interest rate. This is defined as the average market interest rate over the past five years for 10-year German government bonds.

The equity ratio, defined as the sum total of the equity components relative to total assets, has changed as follows:



2009 1)

2008 1)

2007 1)

Total equity as shown in the balance sheet

EUR million





thereof minorities

EUR million





Total assets

EUR million





Equity ratio






Adjusted on the basis of IAS 8

Allowing for equity components recognized by regulators such as subordinated liabilities, the modified equity ratio was as follows:



2009 1)

Regulatory capital

EUR million



Modified equity ratio




Adjusted on the basis of IAS 8

The return on equity, defined as the result for the period excluding minority interests in relation to the average equity excluding minority interests, has changed as follows:



2009 1)

2008 1)


Net income 2)

EUR million





Return on equity






Risk-free interest rate






Target value












Adjusted on the basis of IAS 8

2) Net income excluding minorities

In this context, the performance represents the over- or underfulfillment of the target value. In the years 2009 and 2007 we accomplished the goals that we had set ourselves. The profitability of the Talanx Group was crucially impacted in the 2008 financial year by the worldwide financial market crisis and the associated slump on equity markets. The consequences of this crisis on international capital markets were a considerable drag on net income.

With regard to developments in the current financial year, please see our remarks in the section entitled “Business development”.

Movements in shareholders’ equity

The major movements in shareholders’ equity were driven by the following factors:

The Group net income apportionable to our shareholders contracted sharply by 55% to EUR 220 (485) million and was allocated in full to retained earnings.

“Cumulative other comprehensive income and other reserves” increased by a substantial 85% year-on-year to EUR 388 million. Crucial to this growth was, first and foremost, the rise in gains/losses from currency translation (+EUR 144 million) as well as in the other changes in shareholders’ equity (+EUR 279 million; principally changes in policyholder participation/shadow accounting). The increase of the gains/losses from currency translation was driven in particular by the appreciation of the US dollar against the euro. The “gains/losses on investments” moved in opposite directions. The unrealized gains/losses on investments declined on balance by EUR 174 million to EUR 522 (696) million. The cash flow hedge reserve decreased appreciably to –EUR 123 (–23) million.

The minority interests in shareholders’ equity increased by EUR 456 million – or 18% – to EUR 3.0 billion. The minority interest in net income amounted to EUR 615 (491) million. The dividends paid to non-Group shareholders, principally from the Hannover Re Group, produced an opposing effect in an amount of EUR 162 million.

Changes in shareholders’ equity
Columnschart: Changes in shareholders’ equity

Valuation reserves not recognized in the balance sheet

The unrecognized valuation reserves shown in the following table make no allowance for technical liabilities. The valuation reserves are attributable principally – in an amount of EUR 842 (667) million – to loans and receivables. Please see our remarks in the Notes on the items “Investment property”, “Loans and receivables”, “Financial assets held to maturity”, “Other assets” and “Subordinated liabilities”.



2009 1)

2008 1)

2007 1)

Figures in EUR billion


Group shareholders' equity





Valuation reserves not recognized in the balance sheet before taxes, including the shares of policyholders and minority interests





1) Adjusted on the basis of IAS 8

Liquidity and financing

We generate liquidity primarily from our operational insurance and reinsurance business, the current income on our investments and from financing measures. Through regular liquidity planning and an investment strategy geared inter alia to liquidity requirements, we ensure that the Talanx Group is able to make the necessary payments at all times. Liquidity shortages consequently did not arise.

Analysis of the consolidated cash flow statement

In the case of the Talanx Group the consolidated cash flow statement can be regarded as having minimal informational value. The Group’s cash flow is shaped first and foremost by the business model of an insurer and reinsurer. Normally, we first receive premiums for the agreed risk acceptance in order to be able to make payments at a later date in the event of a claim. Until such time we invest the funds in interest-bearing instruments and thus earn current income from our investments. For us, therefore, the cash flow statement is not a substitute for either liquidity planning or financial planning, nor is it used as a management tool.

The cash flows are shown in full in the cash flow statement; they are presented in summary form in the table below:



2009 1)

Figures in EUR million


Cash flow from operating activities



Cash flow from investing activities



Cash flow from financing activities



Change in cash and cash equivalents



Adjusted on the basis of IAS 8

The cash flow from operating activities, which also includes inflows from the generated investment income, fell sharply year-on-year to EUR 4,584 (5,472) million. The calculation adjusts the net income of EUR 670 (893) million in the consolidated cash flow statement to allow for the increase in the technical provisions (net perspective) (EUR 3.9 billion). The most notable factor in this development was the significant rise in the benefit reserves, especially in the Retail Germany and Life/Health Reinsurance segments (see here also our explanatory remarks in the section describing the financial position). The appreciable decrease with respect to the “Changes in funds held and in accounts receivable and payable” in an amount of –EUR 1.2 billion is offset by the “Changes in other non-cash expenses and income as well as adjustments to net income”. The changes in funds held result from the furnishing of collateral by reinsurers. Please see the comments on the development of investments.

The cash outflow from investing activities is determined by payments made to purchase investments. As in the previous year, the outflows associated with the purchase of investments amounting to EUR 4.2 (2.7) billion exceeded the inflows from sales and maturities. In addition, there were “Changes in investments for the account and risk of holders of life insurance policies” totaling EUR 1.4 (1.6) billion. Of these cash outflows, an amount of EUR 1.2 billion derived from increased investments in these assets in the Retail Germany segment.

The cash inflow from financing activities was shaped in the year under review by the “Net changes from other financing activities” amounting to EUR 719 (–123) million. The increase was attributable above all to the issue of subordinated bonds as well as to the bank borrowings and notes payable. The dividends paid in the year under review climbed by EUR 144 million year-on-year to EUR 162 million. Cash inflows from financing activities increased by EUR 682 million on balance.

Cash and cash equivalents were reduced by altogether EUR 420 million in the year under review to EUR 1.3 billion. An amount of EUR 27 million was deducted from the cash and cash equivalents for disposal groups pursuant to IFRS 5.

For further information on our liquidity management please see the section of the risk report on the liquidity risk.


Along with the assets available to cover provisions and liabilities, the Group has at its disposal the following additional lines of credit that can be drawn upon as required:

Unsecured letter of credit facilities with various terms (maturing at the latest in 2017) and a total volume equivalent to EUR 1,207 million (EUR 802 million) exist on a bilateral basis with financial institutions.

In the Life/Health Reinsurance and Non-Life Reinsurance segments facilities exist with various financial institutions for letters of credit, including two syndicated guarantee facilities from 2005 and 2006. Following the contractual maturity of the first half of the line from 2005 in January 2010, it amounted to an equivalent of EUR 755 (1,395) million as at the balance sheet date. The other half of this line matures in January 2012. The line from 2006, the amount of which as at the balance sheet date was equivalent to EUR 1,509 (1,395) million, matures in January 2013.

Furthermore, a long-term unsecured line of credit with a total volume equivalent to at most EUR 566 (523) million was concluded in December 2009. It is intended specifically for US life reinsurance business. For further information on the letters of credit provided please see our explanatory remarks in the item of the Notes entitled “Other information – Contingent liabilities and other financial commitments”.

A number of LoC facilities include standard market clauses that grant rights of cancellation to the banks in the event of material changes in our shareholding structure or trigger a requirement on the part of Hannover Re to furnish collateral upon materialization of major events, for example if our rating is significantly downgraded.

Further information on our liquidity management is provided in the subsection of the risk report concerning liquidity risks.

Analysis of debt

With the aim of optimizing the capital structure, our subordinated bonds and debentures (abbreviated to: subordinated debt) complement our shareholders’ equity and help to ensure liquidity at all times. We refer to this subordinated debt and other bank borrowings that serve to finance corporate acquisitions as “strategic debt”.

Talanx AG has concluded a firm agreement with a broad consortium of banks regarding an available floating-rate line of credit that may be drawn upon as necessary. At the end of 2009 we had used one tranche amounting to altogether EUR 550 million. The nominal amount of the line of credit was EUR 1.5 billion as at the balance sheet. The line of credit matures at the latest in 31 July 2012 and can be called at three months’ notice. Furthermore, several Group companies have taken up long-term debt – principally in the form of mortgage loans – amounting to EUR 188 (116) million.

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 with a nominal value of EUR 500 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% p.a. in the first ten years, after which the interest basis changes to a floating rate of three-month EURIBOR +423.5 basis points.

On 18. November 2010 Talanx AG issued a subordinated, in principle perpetual, bond with a nominal volume of EUR 300 million and an initially fixed coupon, with a first scheduled call option after ten years for the entire bond. At the end of this period the interest basis changes to a floating rate and the bond may then be called in its entirety on a quarterly basis by Talanx AG. There is a contractual obligation to convert the bond to shares of Talanx AG at the issue price in the event of an initial public offering.

Effective 14 March 2011 the subordinated debt of nominally EUR 350 million issued in September 2001 through Hannover Finance (Luxembourg) S. A. was called as scheduled. The calling of the bond results in a reduction of our debt leverage. This notification was published on 1 February 2011 in the newspaper “Luxemburger Wort”.

Issued debt was repurchased only to a minimal extent in 2010.

The changes in the strategic debt were as follows:




Figures in EUR million


Subordinated bonds of Hannover Finance (Luxembourg) S. A.



Subordinated bonds of HDI-Gerling Industrie Versicherung AG



Subordinated bonds of HDI-Gerling Lebensversicherung AG



Subordinated bonds of Talanx Finanz



Subordinated bonds of Talanx AG


Bank borrowings of Talanx AG



Mortgage loans of Hannover Re Real Estate Holdings, Inc., Orlando



Other bank borrowings of Talanx AG





For further explanation please see our remarks in the Notes on items 16 “Shareholders’ equity”, 17 “Subordinated liabilities”, 25 “Notes payable and loans”, 26 “Other liabilities” as well as under “Other information – Contingent liabilities and other financial commitments”.

Group solvency

As an insurance holding company Talanx AG is subject to regulatory provisions pursuant to §1 b) Insurance Supervision Act (VAG). For the Talanx Group, supervision is carried out on the Group level by the Federal Financial Supervisory Authority (BaFin). For this purpose the parent company HDI V. a. G. reports supplementary information to the BaFin in accordance with the “adjusted solvency” rules.

Solvency refers to the ability of an insurer to meet the obligations assumed under its contracts on a lasting basis. Above all, this means fulfilling defined minimum capital requirements. The aim of the “adjusted solvency” rules is to prevent the multiple use of equity to cover risks from underwriting business at different levels of the Group hierarchy. To calculate the adjusted solvency, the minimum equity required for the volume of business (required solvency margin) is compared with the eligible equity actually available (actual solvency margin) on the basis of the IFRS consolidated financial statements. To determine the eligible capital elements, the IFRS equity is adjusted; in particular, it is increased by portions of the subordinated liabilities as well as valuation reserves not included in equity and reduced by intangible assets. The Talanx Group’s eligible capital is roughly twice as high as legally required.

Adjusted solvency 1)



Eligible capital of the Group

EUR million



Adjusted solvency ratio




Calculated analogously for Talanx from the adjusted solvency of the HDI Group

The increase in the adjusted solvency ratio from 184.2% to 196.6% can be attributed in part to the rise in the IFRS Group shareholders’ equity as a consequence of the Group net income allocated to retained earnings. Furthermore, the taking up of subordinated bonds and debentures to an extent that more than offset partial repurchases of such instruments had a favorable influence on the Group’s eligible capital. The development of items to be deducted or added was virtually unchanged from the previous year.