Notes on the consolidated balance sheet – liabilities

(17) Subordinated liabilities

In order to optimize the Group’s capital structure and to safeguard the liquidity (solvency) required (by regulators), various Group companies have in the past taken out long-term liabilities that predominantly take the form of subordinated debt and are in some cases exchange-listed.

Specifically, the long-term subordinated debt is comprised of the following financial instruments:

 

Nominal value, coupon,
issue/maturity, debt rating (A. M. Best; S&P)

2010

2009

Figures in EUR million

     

Talanx AG

EUR 300 million, fixed then floating rate, 2010/no final maturity, (—; BBB)

300

Talanx AG issued a subordinated registered bond in 2010 with a contractual conversion obligation to Talanx shares in the event of an initial public offering; it may be called by the issuer after ten years at the earliest.

   

Hannover Finance (Luxembourg) S. A.

EUR 500 million, fixed (5.75%) then floating rate, 2010/2040,
(a; A)

500

The guaranteed subordinated bond was issued in 2010 on the European capital market. It may be called in 2014 at the earliest and at each coupon date thereafter.

   

Hannover Finance (Luxembourg) S. A.

EUR 750 million, fixed (5.75%) then floating rate, 2004/2024,
(a; A)

747

746

The guaranteed subordinated debt was placed on the European capital market.
It may be redeemed in 2014 at the earliest and at each coupon date thereafter.

   

Hannover Finance (Luxembourg) S. A.

EUR 500 million, fixed (5%) then floating rate, 2005/no final maturity, (a; A)

484

481

Part of the volume of the guaranteed subordinated debt was offered to the holders of the debt issued in 2001 by way of exchange. The debt may be called by the issuer on 01.06.2015 at the earliest and at each coupon date thereafter.

   

Hannover Finance (Luxembourg) S. A. 1)

EUR 138 million, fixed (6.25%) then floating rate, 2001/2031,
(a; A)

138

138

The guaranteed subordinated debt was originally issued in an amount of EUR 350 million. The holders of this debt were offered the opportunity to exchange into the new debt issued in 2005. Nominal participation in the exchange was EUR 212 million. The debt may be called by the issuer in March 2011 at the earliest.

   

HDI-Gerling Industrie Versicherung AG

EUR 250 million, fixed (7%) then floating rate, 2004/2024,
(bbb+; A–)

265

269

The subordinated bond is listed on the Euro MTF Market of the Luxembourg Stock Exchange and may be called by the issuer in 2014 at the earliest.

   

HDI-Gerling Lebensversicherung AG 2)

EUR 110 million, 6.75%, 2005/no final maturity (—; A–)

115

105

The subordinated debt is listed on the Euro MTF Market of the Luxembourg Stock Exchange. It may be called by the issuer in 2015 at the earliest.

   

Talanx Finanz 3)

EUR 243 million, 4.5%, 2005/2025, (bbb; BBB)

242

264

The bond was originally issued in an amount of EUR 350 million. The guaranteed subordinated debt is listed on the Luxembourg Stock Exchange.

   

Balance at 31.12. of the financial year

2.791

2.003


1) The remaining volume of this debt in an amount of EUR 138 million was repaid on 14 March 2011

2) In the first quarter of 2010 external companies acquired portions of the debt in a nominal amount of EUR 10 million; the remaining volume was increased accordingly

3) In the first quarter of 2010 the issuer bought back, amortized and cancelled portions of the debt in a nominal amount of EUR 10 million from a Group company. In the third quarter of 2010 Group companies purchased portions of the debt in a nominal amount of EUR 22 million; the remaining volume was reduced accordingly

The increase in subordinated debt resulted principally from the two debts issued in the year under review.

On 14 September 2010 our subsidiary Hannover Finance (Luxembourg) S. A. placed subordinated debt on the European capital market with a nominal value of EUR 500 million. It 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.

In November of the year under review Talanx AG signed a contract with the Japanese insurer Meiji Yasuda Life Insurance Company, Tokyo, regarding a long-term strategic cooperation backed by a capital participation. In this context Talanx AG issued a subordinated debt on 18 November 2010 with a nominal volume of EUR 300 million. The creditor is Meiji Yasuda Life Insurance Company. The bond has no final maturity and entails a contractual obligation for conversion into shares of Talanx AG in the event of an initial public offering. In the first ten years this debt carries a fixed coupon; it has a first scheduled call option by the issuer after 10 years.

2010

Amortized cost

Unrealized
gains or losses

Accrued interest

Fair value

Figures in EUR million

       

Debts measured at amortized cost

2,791

–86

66

2,771




2009

Amortized cost

Unrealized
gains or losses

Accrued interest

Fair value

Figures in EUR million

       

Debts measured at amortized cost

2,003

–132

58

1,929

The fair value of the extended subordinated loans is normally based on quoted, active market prices. If such price information was not available, fair value was determined on the basis of the recognized effective interest rate method or estimated using other financial assets with similar rating, duration and return characteristics. Under the effective interest rate method the current market interest rate levels in the relevant interest rate fixing periods are always taken as a basis.

The net result of EUR 126 (104) million from subordinated liabilities in the year under review consisted of interest expenses in an amount of EUR 126 (102) million and expenses from amortization (EUR — (2) million).

Of the total subordinated liabilities, an amount of EUR 646 (524) million has a maturity of up to 5 years, EUR 746 (746) million has a maturity of 10–20 years, EUR 500 (138) million has a maturity of more than 20 years and EUR 899 (595) million has no fixed maturity. A detailed presentation of the maturities is provided in the section entitled “Nature of risks associated with insurance contracts and financial instruments” (subsection “Management of liquidity risks”).