talanx group annual report 2011 en

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146 Financial statements Notes General information Talanx Group. Annual Report 2011 Accounting principles and policies Segment reporting Consolidation, business combinations Non-current assets held for sale and disposal groups Establishment of fair values: The fair value of a financial instrument corresponds to the amount that the Group would receive or pay if it were to sell or settle said financial instrument on the balance sheet date. The fair value of securities is thus determined on the basis of current, publicly available, unadjusted market prices. Insofar as market prices are listed on markets for financial instruments, their bid price is used; financial liabilities are measured at the asked price. In the case of securities for which no current market price is available, a valuation price is normally determined using models of financial mathematics on the basis of current and observable market data. Such models are used principally for the measurement of unlisted securities. The Group uses various valuation models for this purpose: Financial instrument Pricing method Parameter Pricing model Fixed-income securities Unlisted plain vanilla bonds Theoretical price Interest rate curve Present value method Unlisted structured bonds Theoretical price Interest rate curve, volatility surfaces, correlations Hull-White, Black-Karasinski, Libor market model, etc. Unlisted bond funds Theoretical price Audited NAV1) NAV method1) ABS/MBS for which no market prices Theoretical price Prepayment speed, incurred losses, default probabilities, Future cash flow method, are available recovery rates liquidation method CDOs/CLOs, profit-participation certificates Theoretical price Risk premiums, default rates, recovery rates, redemptions Equities Unlisted equities Theoretical price Acquisition cost, cash flows, EBIT multiples, carrying amount where applicable Other invested assets Private equity Theoretical price Acquisition cost, cash flows, EBIT multiples, market prices Present-value method NAV method 1) NAV method 1) Derivative financial instruments Plain vanilla interest rate swaps Theoretical price Interest rate curve Present-value method Currency forwards Theoretical price Interest rate curves, spot and forward rates Interest parity model OTC stock options, OTC stock index options Theoretical price Listing of the underlying share, implicit volatilities, money-market interest rate, dividend yield Black-Scholes FX options Theoretical price Spot rates, exchange rates, implicit volatilities Garman/Kohlhagen Interest rate futures (forward purchases) Theoretical price Interest rate curve Present-value method Inflation swaps Theoretical price Inflation swap rates (Consumer Price Index), Present value method with historical index fixings, interest rate curve seasonality adjustment Insurance derivatives Theoretical price Market values of cat. bonds, interest rate curve Present-value method 1) NAV: Net Asset Value The above measurement models are also used to determine the time values – essentially the unrealised gains/losses – for the financial assets recognised at amortised costs in the categories “Loans and receivables” and “Financial assets held to maturity.”
Nature of risks Notes on the balance sheet – assets Notes on the balance sheet – liabilities Notes on the statement of income Other information List of shareholdings We have allocated all financial instruments measured at fair value to a level of the fair value hierarchy in accordance with IFRS 7. For further explanation please see our remarks in item 11 of the Notes “Fair value hierarchy.” The value determined on the basis of valuation models at time of acquisition can, however, diverge from the actual cost of acquisition. The resulting measurement difference constitutes a theoretical “day-one profit/loss.” This produced only a negligible loss at the balance sheet date. Impairment: At each balance sheet date we review our financial assets – with the exception of financial assets at fair value through profit or loss (since impairments are implicitly included in the fair value) – with an eye to objective, substantial indications of impairment. IAS 39.59 contains a list of objective indications for impairment of a financial asset. IAS 39.61 sets out additional requirements with regard to indications of objective evidence for the impairment of equity instruments, according to which impairment exists if there is a significant or prolonged decrease in the fair value below acquisition cost. For the Group, this means that a decrease in the fair value of equity instruments is deemed to be significant if that value falls by more than 20% below acquisition cost; a prolonged decrease exists if the fair value falls consistently below cost for a period of at least nine months. In the case of securities denominated in foreign currencies, assessment is made in the functional currency of the entity holding the equity instrument. We apply these rules in a similar manner for participating interests in funds that invest in private equity. In order to reflect the specific character of these funds (in this case initially negative yield and liquidity flows from the so-called “J curve” effect during the investment period of the funds), we take an impairment to net asset value as an approximation of the fair value for the first time after a two-year waiting period if there is a significant or prolonged decrease in value. We take the same indicators as a basis for fixed-income securities as we do for equity instruments. Qualitative case-by-case analysis is also carried out. When forming an opinion, we refer first and foremost to the rating of the instrument, the rating of the issuer/borrower as well as the individual market assessment. What is more, when instruments measured at amortised cost are tested for impairment, we examine whether material items – considered in isolation – are impaired. Impairments are taken on the fair value as at the balance sheet date in the event of a prolonged decrease in value – if available, on the publicly listed market price – and are recognised in the income statement. In this context, impairments on investments are recognised directly on the assets side – without using an adjustment account – separately from the relevant items. Reversals on debt instruments are recognised in income up to the level of the amortised costs. In the case of financial assets available for sale, any further amount is recognised directly in equity with no effect on income. Reversals on equity instruments are recognised in equity via other income/expenses outside the statement of income. Talanx Group. Annual Report 2011 147
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Group Annual Report 2011 Straightfo
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.� ,� �.� �,� Non-Life
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OuR VISION Talanx is the leading gl
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Our brands HDI-Gerling focuses part
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By contrast with the technical acco
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Dr. Heinz-Peter Roß Torsten Leue D
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Supervisory Board Committees Compos
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A further focus of our deliberation
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The annual financial statements are
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You can stand and work better on a
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Re-launch with a modern and efficie
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Forward together with a goal-orient
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under its own power and through acq
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Our targets: ambitious, but achieva
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Our premium volume has risen steadi
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Our target: to be fit for the futur
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Group management report. Detailed i
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Overall assessment of the economic
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Our Locations Argentina L’UNION d
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Italy Hannover Re Services Italy S.
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Glossary. A-C Accumulation risk Und
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L-P Lapse rate for life insurance p
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Index of key terms Acquisitions Cen
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ie Ireland. Hannover Life Re (Irela
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talanx group annual report 2011 en

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