|Net investment income|
|in EUR million||2015||2014|
|Ordinary investment income1||312.2||286.5||+15.2%||598.7||+22.1%||248.7||490.1|
|Result from participations in associated companies||2.5||2.1||+52.9%||4.6||+7.2%||1.4||4.3|
|Realised gains / losses||45.0||21.6||-37.1%||66.6||-24.7%||34.4||88.5|
|Change in fair value of financial instruments3||(10.6)||9.0||(1.6)||-116.3%||2.6||10.0|
|Net investment income from assets under own management||316.6||284.7||+9.5%||601.3||+12.9%||260.0||532.6|
|Net investment income from funds withheld||99.0||98.4||+14.0%||197.4||+12.9%||86.3||174.9|
|Total investment income||415.7||383.1||+10.6%||798.8||+12.9%||346.4||707.5|
|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
Hannover Re’s investment policy continues to be guided by the following core principles:
- generation of stable and risk-commensurate returns while at the same time maintaining the high quality standard of the portfolio;
- ensuring the liquidity and solvency of Hannover Re at all times; high diversification of risks;
- limitation of currency exposures and maturity risks through matching currencies and maturities.
Capital markets were once again challenging in the period under review and – against a backdrop of considerable volatility – were notable for a low level of interest 80 overall but also in some cases rising rates at the long end of the maturity curve as well as increased risk premiums on corporate bonds. Higher yields were similarly observed for German and UK government bonds with longer maturities. German short- and medium-term debt is nevertheless still being sold at a negative return in net terms. Yields on US Treasuries remained relatively stable in the period under review. Credit spreads on European and US corporate bonds increased, especially in the middle rating classes.
In total, the unrealised gains on our fixed-income securities decreased to EUR 1,351.0 million (EUR 1,743.6 million). Our portfolio of assets under own management reached a higher level than in the previous year at EUR 37.4 billion (31 December 2014: EUR 36.2 billion). This can be attributed primarily to effects associated with the appreciation of currencies – and especially the US dollar – against the euro, which more than offset lower valuation reserves due to a continued rise in interest rates as well as cash outflows resulting from dividend and interest payments. We left the allocation of our assets to the individual classes of securities broadly unchanged in the first six months, as a consequence of which only minimal adjustments were made in the context of regular portfolio maintenance. The modified duration of our fixed-income portfolio changed only marginally relative to the previous year at 4.5 (4.6).
Despite the prevailing low level of interest rates, ordinary investment income excluding interest on deposits was considerably higher than in the corresponding period of the previous year at EUR 598.7 million (EUR 490.1 million). This was attributable in part to the special effect in life and health reinsurance business but also to substantially higher earnings from fixed-income investments and real estate – with income booked in currencies that had appreciated against the euro an increasingly significant factor here. In addition, our exposure to high-yield investment funds played a very pleasing part here. Interest on deposits also climbed to EUR 197.4 million (EUR 174.9 million).
Impairments of altogether just EUR 14.7 million (EUR 10.3 million) were taken. This includes impairments of EUR 2.4 million (EUR 0.0 million) on fixed-income securities and EUR 1.3 million (EUR 1.3 million) on alternative investments. Scheduled depreciation on directly held real estate rose to EUR 10.8 million (EUR 9.0 million), a reflection of our increasing involvement in this area. No write-ups were made.
The net balance of gains realised on disposals stood at EUR 66.6 million (EUR 88.5 million) and was attributable in large measure to regrouping activities as part of regular portfolio maintenance and the provision of liquidity for dividend payments.
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 unrealised losses of EUR 6.4 million recognised in investment income. In the comparable period the amount had been positive at EUR 4.6 million. The inflation swaps taken out in 2010 to hedge part of the inflation risks associated with the loss reserves in our technical account no longer produced any unrealised gains or losses recognised in investment income because these contracts matured or were terminated in the course of the second quarter (+EUR 4.5 million). In future, we shall maintain this protection solely by way of the bonds already included in the portfolio whose coupon payments are inflation-linked. Altogether, the unrealised losses on our assets recognised at fair value through profit or loss amounted to EUR 1.6 million. These contrasted with unrealised gains of EUR 10.0 million in the corresponding period of the previous year.
Our investment income including interest on deposits therefore came in considerably higher than in the comparable period at EUR 798.8 million (EUR 707.5 million). In view of the low level of interest rates, we are highly satisfied to have been able to boost our ordinary investment income in part through increased earnings from fixed-income securities. The special effect in life and health reinsurance and stronger income from real estate were, however, also significant factors here. The reduced result from our assets measured at fair value through profit or loss and the lower realised gains were thus comfortably offset. Income from assets under own management totalled EUR 601.3 million (EUR 532.6 million), equivalent to an annualised average return (excluding effects from ModCo derivatives and inflation swaps) of 3.4%. Although the aforementioned special effect in life and health reinsurance is also reflected here, we are nevertheless very well on track to achieve the envisaged target of 3.0% for the full year.