Notes on the consolidated balance sheet – liabilities

(22) Provision for pensions and other post-employment benefit obligations

The Group companies normally award their employees pension commitments based on defined contribution or defined benefit plans. The type of pension commitment is given in accordance with the relevant pension plan and encompasses retirement, disability, widows’ and orphans’ benefits. The pension entitlement is dependent on length of service and salary. The vast majority of pension commitments are based on defined benefit pension plans.

Under defined benefit plans the pension beneficiary is promised a specific benefit; in contrast to defined contribution plans, the expenditures to be incurred by the company on the basis of the benefit commitments are not fixed from the outset. The commitments to employees in Germany predominantly comprise commitments funded by the company; no pension funds exist.

In addition, employees have an opportunity to accumulate further old-age provision by way of deferred compensation through membership of HDI-Gerling Pensionskasse AG. The benefits provided by HDI-Gerling Pensionskasse AG are guaranteed for its members and their surviving dependants and comprise traditional pension plans with bonus increases as well as unit-linked hybrid annuities. Employees of the former Gerling Group also have the option of obtaining pension commitments through deferred compensation with Gerling Versorgungskasse VVaG. In this case the employer companies meet the administrative expenses and assume responsibility for ensuring that the life insurance contracts can be fulfilled through their liability to make additional contributions.

Provisions for pensions are established in accordance with IAS 19 “Employee Benefits” using the Projected Unit Credit Method. They are established in accordance with actuarial principles and make allowance for the length of service and estimated rate of compensation increase of pension beneficiaries. The benefit entitlements are discounted using a single Group-wide blended rate of interest.

The pension commitments are measured on the basis of the following assumptions:

 

2010

2009

Measurement parameters/assumptions weighted in %

   

Discount rate

4.52

5.31

Projected long-term yield on plan assets

5.78

6.08

 

2010

2009

Measurement para-
meters/assumptions

Germany

USA

UK

Other

Germany

USA

UK

Other

Figures in %

               

Rate of compensation increase

2.75

2.5–5.0

3

4.75

2.5–5.2

Indexation

2

2

3.4

2.0–3.0

2.25

2

3.25

2.0–3.0

The change in the projected benefit obligation of the pension commitments for the various defined benefit plans of the Group was as follows:

Change in the projected benefit obligation

2010

2009

Figures in EUR million

   

Projected benefit obligation at 01.01. of the year under review

1,424

1,246

Current service cost

12

14

Interest cost

74

76

Deferred compensation

1

2

Actuarial gain/loss

131

113

Currency translation

5

42

Benefits paid during the year

–68

–66

Past service cost

1

Business combinations, divestitures and other activities

–1

–1

Plan curtailments

–2

Projected benefit obligation at 31.12. of the year under review

1,579

1,424

The funded status of the defined benefit obligation is shown in the following table:

Change in the projected benefit obligation

2010

2009

Figures in EUR million

   

Projected benefit obligation from unfunded plans

1,506

1,366

Projected benefit obligation from wholly or partially funded plans

73

58

Projected benefit obligation at 31.12. of the year under review

1,579

1,424

Fair value of plan assets

–82

–70

Funded status

1,497

1,354

The fair value of the plan assets developed as follows:

Change in plan assets

2010

2009

Figures in EUR million

   

Fair value at 01.01. of the year under review

70

57

Expected return on plan assets

3

2

Actuarial gain/loss

7

6

Currency translation

4

3

Employer contributions

4

4

Benefits paid during the year

–3

–2

Effect of plan settlements

–3

Business combinations, divestitures and other activities

Fair value at 31.12. of the year under review

82

70

The structure of the asset portfolio underlying the plan assets was as follows:

Portfolio structure of plan assets

2010

2009

as % of plan assets

   

Fixed-income securities

54

54

Equities

18

19

Other

28

27

Total

100

100

The expected long-term return on plan assets per asset class is based on studies of historical and estimated future rates of return.

The fair value of plan assets as at the balance sheet date included amounts totaling EUR 33 (30) million for own financial instruments.

The actual return on the plan assets amounted to EUR 3 (5) million in the year under review.

The following table presents a reconciliation of the defined benefit obligations with the provisions for pensions recognized as at the balance sheet date:

Funded status of the defined benefit obligation

2010

2009

Figures in EUR million

   

Defined benefit obligations at 31.12. of the year under review

1,579

1,424

Fair value of plan assets at 31.12. of the year under review

–82

–70

Funded status at 31.12. of the year under review

1,497

1,354

     

Unrealized actuarial gain/loss

–180

–56

Unrecognized past service cost

–1

Net provisions for pensions at 31.12. of the year under review

1,316

1,298

The recognized provision for pensions developed as follows in the year under review:

Change in the provisions for pensions

2010

2009

Figures in EUR million

   

Net provisions for pensions at 01.01. of the year under review

1,298

1,272

Currency translation

1

Change in consolidated group

–6

Net periodic pension cost

92

92

Deferred compensation

Amounts paid during the year

–2

–3

Benefits paid during the year

–68

–66

Reclassification and other movements

1

3

Disposal groups pursuant to IFRS 5

Net provisions for pensions at 31.12. of the year under review

1,316

1,298

The components of the net periodic pension cost for defined benefit plans recognized in the statement of income were as follows:

Net periodic pension cost

2010

2009

Figures in EUR million

   

Current service cost for the year under review

12

13

Interest cost

74

76

Expected return on plan assets

–3

–2

Recognized actuarial gain/loss

9

7

Past service cost

Effect of plan curtailments

–2

Net periodic pension cost for the year under review

92

92

For the 2011 financial year the Group anticipates employer contributions of EUR 2 (3) million, which will be paid into the defined benefit plans shown here.

The net periodic pension cost was recognized in the consolidated statement of income in amounts of EUR 12 (14) million under acquisition costs and administrative expenses, EUR 79 (77) million under other expenses and EUR 1 (1) million under other investment expenses.

Defined contribution plans are funded via external pension funds or similar institutions. In this case fixed contributions (e.g. based on the relevant income) are paid to these institutions and the pension beneficiary’s claim is against the said institution; in effect, the employer has no further obligation beyond payment of the contributions. The expense recognized for these obligations in the year under review amounted to EUR 4 (4) million, of which only a minimal amount was attributable to commitments to employees in key positions.