Investments
Investments
| Net investment income | ||||||||
| in EUR million | 2014 | 2013 | ||||||
|---|---|---|---|---|---|---|---|---|
| 1.1. – 30.6. | 1.7. – 30.9. | +/- previous year | 1.1. – 30.9. | +/- previous year | 1.7. – 30.9. | 1.1. – 30.9. | ||
| Ordinary investment income1 | 490.1 | 301.7 | +8.7 % | 791.8 | +1.4 % | 277.5 | 781.1 | |
| Result from participations in associated companies | 4.3 | 1.2 | -66.9 % | 5.5 | -44.0 % | 3.6 | 9.8 | |
| Realised gains/losses | 88.5 | 48.9 | +278.3 % | 137.4 | +41.0 % | 12.9 | 97.4 | |
| Appreciation | – | – | – | – | 0.3 | |||
| Depreciation, amortisation, impairments2 | 10.3 | 5.8 | +11.1 % | 16.1 | +18.3 % | 5.2 | 13.7 | |
| Change in fair value of financial instruments3 | 10.0 | (18.8) | -200.5 % | (8.8) | 18.7 | (18.8) | ||
| Investment expenses | 50.0 | 23.6 | +1.2 % | 73.7 | +4.4 % | 23.3 | 70.5 | |
| Net investment income from assets under own management | 532.6 | 303.5 | +6.8 % | 836.0 | +6.4 % | 284.1 | 785.6 | |
| Net investment income from funds withheld | 174.9 | 110.3 | +37.8 % | 285.3 | +6.6 % | 80.1 | 267.6 | |
| Total investment income | 707.5 | 413.8 | +13.6 % | 1,121.3 | +6.5 % | 364.2 | 1,053.2 | |
| 1 Excluding expenses on funds withheld and contract deposits 2 Including depreciation/impairments on real estate 3 Portfolio at fair value through profit or loss and trading | ||||||||
The investment environment was once again challenging in the period under review and continued to be shaped by the protracted low level of interest rates as well as relatively modest risk premiums on corporate bonds. UK and Eurozone government bonds saw further – in some cases marked – declines in yields across all durations. This was also true of the Southern European countries with higher risk premiums – which have been the focus of so much attention of late – and Ireland. Yields on US treasuries retreated only at the long end of the curve, with increases recorded across shorter and medium durations.
Credit spreads on US corporate bonds moved lower in most rating classes, whereas they remained largely stable in the case of European corporate bonds. In general, credit spreads on corporate bonds from emerging economies were virtually unchanged or recorded modest declines. In total, the unrealised gains on our fixed-income securities increased to EUR 1,461.8 million (EUR 767.9 million). This was a factor in the appreciable growth of our portfolio of assets under own management, which rose by EUR 3.2 billion to EUR 35.0 billion (EUR 31.9 billion). The primary drivers of this increase, however, were exchange rate effects associated with our USD and GBP holdings as well as the inflow of cash from the technical account.
We left the allocation of our assets to individual classes of securities broadly unchanged in the reporting period, making only minor adjustments as part of regular portfolio maintenance and modestly expanding our exposure to emerging markets. We also continued to slightly enlarge our real estate portfolio. The modified duration of our fixed-income portfolio was virtually unchanged from the previous year at 4.5 (4.4).
Despite the low interest rate environment, ordinary investment income excluding interest on deposits was slightly higher than in the corresponding period of the previous year at EUR 791.8 million (EUR 781.1 million). In this context we enjoyed stronger income from our exposure to private equity and real estate, which more than offset reduced income from fixed-income instruments. Interest on deposits was higher than in the comparable period at EUR 285.3 million (EUR 267.6 million).
Impairments of altogether EUR 16.1 million (EUR 13.7 million) were taken. This includes impairments of EUR 2.4 million (EUR 3.5 million) on alternative investments; as in the corresponding period of the previous year, no impairments had to be taken on fixed-income securities or equities. Scheduled depreciation on directly held real estate rose to EUR 13.7 million (EUR 10.1 million).
The net balance of gains realised on disposals stood at EUR 137.4 million (EUR 97.4 million). It can be attributed primarily to portfolio regrouping measures in connection with the changeover in reporting currency at our subsidiary in Bermuda, the repayment in the first quarter of this year of the bond that we had issued in 2004 and amounts realised as part of regular portfolio maintenance.
We recognise a derivative for the credit risk associated with special life reinsurance treaties (ModCo) under which securities deposits are held by cedants for our account; the performance of this derivative in the period under review gave rise to fair value changes of -EUR 1.6 million (EUR 5.2 million) recognised in investment income. The inflation swaps taken out to hedge part of the inflation risks associated with the loss reserves in our technical account have produced fair value changes in the year to date of -EUR 4.2 million (-EUR 27.4 million) recognised in investment income. These changes in fair value are recognised in income as a derivative pursuant to IAS 39. In economic terms we assume a neutral development for these two items over time, and hence the volatility that can occur in specific quarters has no bearing on the actual business performance. Altogether, the changes in the fair value of our assets recognised at fair value through profit or loss amounted to -EUR 8.8 million (-EUR 18.8 million).
Our investment income (including interest on deposits) of EUR 1,121.3 million was higher than in the corresponding period of the previous year (EUR 1,053.2 million). With interest rates remaining stubbornly low, we are thoroughly satisfied with this performance – in particular also because we were able keep our ordinary income somewhat above the previous year’s level. Altogether, net income from assets under own management totalled EUR 836.0 million (EUR 785.6 million) as at 30 September 2014, equivalent to an annualised average return of 3.3%. We are thus well on track to achieve our anticipated target of 3.2% for the full financial year.