Sustainability Report 2015
Value-based management
Our holistic management system performance Excellence 2.0 ensures implementation of the corporate strategy across the various areas of business. Based on the Excellence Model of the EFQM (European Foundation for Quality Management), it has a clear strategic focus: each organisational unit of the Hannover Re Group defines and examines its own contribution to the Group strategy with the aid of the internal Strategy Guide and our Strategy Cockpit tool. In this way, we ensure that all initiatives and activities within Hannover Re are rigorously linked to the corporate strategy.
Target Matrix
Our integrated system of enterprise management constitutes the basis for accomplishment of our strategic objectives. Located at its core are, first and foremost, our profit and growth targets, which are summarised for the Group and its business groups in the so-called target matrix. In addition to traditional performance indicators geared to the IFRS balance sheet, our system of strategic targets also includes economic targets derived from our certified internal capital model. The targets are analysed annually and adjusted in the context of the regular strategy review (every three years). Our focus here is on long-term target attainment.
| Target attainment | ||||||
|---|---|---|---|---|---|---|
| Business group | Key data | Targets for 2015 | Target attainment | |||
| 2015 | 2014 | 2013 | Ø 2013-20151 | |||
| Group | Investment return2 | ≥ 3.0% | 3.5% | 3.3% | 3.4% | 3.4% |
| Return on equity3 | ≥ 10.2% | 14.7% | 14.7% | 15.0% | 14.8% | |
| Growth in earnings per share (year-on-year comparison) | ≥ 6.5% | 16.7% | 10.1% | 5.4% | 10.6% | |
| Value creation per share4 | ≥ 7.5% | 13.6% | 34.4% | 3.6% | 15.5% | |
| Property & Casualty reinsurance | Gross premium growth | 3–5%5 | 8.1% | 1.2% | 3.5% | 4.2% |
| Combined ratio | ≤ 96%6 | 94.4% | 94.7% | 94.9% | 94.7% | |
| EBIT margin7 | ≥ 10% | 16.6% | 17.0% | 15.5% | 16.3% | |
| xRoCA8 | ≥ 2% | 7.4% | 10.7% | 4.7% | 7.6% | |
| Life & Health reinsurance | Gross premium growth | 5–7%9 | 9.5% | 4.9% | 5.1% | 6.5% |
| Value of New Business (VNB)10 | ≥ EUR 180 million | EUR 543 million | EUR 448 million | EUR 309 million | EUR 433 million | |
| EBIT margin7 Financial Solutions/Longevity |
≥ 2% | 11.0% | 5.0% | 5.2% | 7.2% | |
| EBIT margin7 Mortality/ Morbidity |
≥ 6% | 3.6% | 4.8% | 1.2% | 3.3% | |
| xRoCA8 | ≥ 3% | 8.9% | 7.5% | 8.4% | 8.3% | |
| 1 Average annual growth, otherwise weighted averages 2 Excluding effects from ModCo derivatives and inflation swaps 3 After tax; target value: 900 basis points above the 5-year average return on 10-year German government bonds 4 Growth in book value per share including dividend paid 5 Average over the reinsurance cycle; at constant exchange rates 6 Including major loss budget of EUR 690 million 7 EBIT/net premium earned 8 Excess return on allocated economic capital 9 Organic growth only; annual average growth (5 years); at constant exchange rates 10 Based on a cost of capital of 6% (until 2014: 4.5%) |
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Especially in terms of its return on equity, Hannover Re has performed very favourably in recent years despite the intensely competitive environment. Our return on equity target of 900 basis points above risk-free – which is enshrined in the corporate strategy – thus already represents a substantial target value creation. Through our business operations on all continents and the diversification between our Property & Casualty and Life & Health reinsurance business groups we are able to effectively allocate our capital in light of opportunity and risk considerations and generate a higher-than-average return on equity. The following chart shows that the annual return on equity generated by Hannover Re in recent years comfortably surpassed the set minimum targets.
Return on Equity: yearly
Return on Equity: average
* After tax; target: 900 bps above 5-year rolling average of 10-year German government-bond rate (“risk free”)