|Net investment income|
|in EUR million||2015||2014|
|Ordinary investment income1||598.7||313.8||+4.0%||912.5||+15.2%||301.7||791.8|
|Result from participations in associated companies||4.6||4.2||8.8||+61.0%||1.2||5.5|
|Realised gains / losses||66.6||57.5||+17.8%||124.2||-9.6%||48.9||137.4|
|Change in fair value of financial instruments3||(1.6)||(7.6)||(9.2)||(18.8)||(8.8)|
|Net investment income from assets under own management||601.3||330.5||+8.9%||931.8||+11.5%||303.5||836.0|
|Net investment income from funds withheld||197.4||95.5||-13.5%||292.9||+2.7%||110.3||258.3|
|Total investment income||798.8||426.0||+2.9%||1,224.7||+9.2%||413.8||1,121,3|
|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.
The investment climate was once again challenging in the period under review and – against a backdrop of considerable volatility – was notable for a low level of interest rates overall but also in some cases increased risk premiums on corporate bonds. Modest declines in yields were again observed for German government bonds with shorter maturities. It therefore remains the case that German short- and medium-term debt is being sold at a negative return in net terms. Only in the medium-term maturity range were slight declines in yields observed for US Treasuries during the period under review. UK Gilts have remained practically unchanged over the year to date in the maturities relevant to our portfolio. Credit spreads on European and US corporate bonds showed relatively sharp increases in some instances, especially in the middle rating classes, although ultimately this also opened up buying opportunities in markets otherwise dominated by high prices. Capital markets were also driven by uncertainties surrounding a possible turnaround in US interest rates as well as diminishing confidence in the performance of the Chinese economy.
In total, the unrealised gains on our fixed-income securities decreased to EUR 1,258.5 million (EUR 1,743.6 million). Our portfolio of assets under own management reached a higher level than in the previous year at EUR 37.7 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 offset lower valuation reserves due to higher risk premiums as well as cash outflows resulting from the dividend payment and a bond redemption. We further diversified the allocation of our assets to the individual classes of securities in the third quarter by starting to build an equity portfolio. In addition, we continued to expand our exposure to real estate and increased the proportion of the total portfolio attributable to high-yield bonds. 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 912.5 million (EUR 791.8 million). This can be attributed in part to the special income recognised from 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. Interest on deposits also moved slightly higher to reach EUR 292.9 million (EUR 285.3 million).
Impairments of altogether just EUR 24.1 million (EUR 16.1 million) were taken. This includes impairments of EUR 2.4 million (EUR 0.0 million) on fixed-income securities and EUR 3.0 million (EUR 2.4 million) on alternative investments. An impairment loss of EUR 1.0 million (EUR 0.0 million) was taken on equities. The bulk of the write-downs were, however, due to scheduled depreciation taken on directly held real estate, which rose to EUR 16.8 million (EUR 13.7 million) – a reflection of our increasing involvement in this area. No write-ups (EUR 0.0 million) were made.
The net balance of gains realised on disposals stood at EUR 124.2 million (EUR 137.4 million) and was attributable in large measure to regrouping activities in connection with the provision of liquidity for dividend payments, the changeover in the functional currency of our Irish subsidiary to the US dollar as well as reallocations as part of the expansion of the asset classes fixed income enhancements and emerging markets.
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 18.9 million (-EUR 1.6 million) recognised in investment income. 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 (-EUR 4.2 million) recognised in investment income because these contracts matured or were terminated in the course of the second quarter. 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 9.2 million (-EUR 8.8 million).
Our investment income including interest on deposits came in considerably higher than in the comparable period at EUR 1,224.7 million (EUR 1,121.3 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, although we also benefited from exchange rate movements. Stronger income from real estate and the special effect in life and health reinsurance were, however, further significant factors here. Slightly higher impairment charges and the somewhat lower realised gains were thus comfortably offset. Income from assets under own management totalled EUR 931.8 million (EUR 836.0 million), equivalent to an annualised average return (excluding effects from ModCo derivatives and inflation swaps) of 3.5%. Although the aforementioned special effect in life and health reinsurance is also reflected here, we are nevertheless very well on track not only to achieve but also to surpass the envisaged target of 3.0% for the full year.