talanx group annual report 2011 en
talanx group annual report 2011 en
talanx group annual report 2011 en
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Nature of risks Notes on the balance<br />
sheet – assets<br />
Notes on the balance<br />
sheet – liabilities<br />
Notes on the<br />
statem<strong>en</strong>t of income<br />
Other information List of shareholdings<br />
Hedge accounting<br />
In the context of hedge accounting, the Group seeks to comp<strong>en</strong>sate for the changes in value/<br />
changes in cash flows of an underlying transaction caused by changes in market price by taking out<br />
a hedging instrum<strong>en</strong>t (derivative), the changes in value or changes in cash flows of which develop<br />
along approximately opposite lines. Hedging is carried out on the level of individual transactions<br />
(micro hedge). On closing of the transaction, we docum<strong>en</strong>t the hedge relationship betwe<strong>en</strong> the<br />
underlying and the hedging instrum<strong>en</strong>t, the purpose of risk managem<strong>en</strong>t and the underlying hedging<br />
strategy. In addition, at the outset of the hedge relationship we docum<strong>en</strong>t our assessm<strong>en</strong>t of the<br />
ext<strong>en</strong>t to which the hedging instrum<strong>en</strong>ts are effective in offsetting the corresponding changes of<br />
the underlying. Proof of the effectiv<strong>en</strong>ess of the hedge relationships has be<strong>en</strong> furnished.<br />
Fair value hedges<br />
In order to hedge changes in the fair value of equities (underlyings), the Group designated equity<br />
swaps as hedging derivatives. Under these fair value hedges, the changes in the fair value of the<br />
derivative are recognised with the changes in the fair value of the underlying allocable to the<br />
hedged risk in the investm<strong>en</strong>t income. In the year under review, losses of –EUR 6 million from the<br />
under lying transactions and gains of EUR 5 million from the hedging derivatives were recognised in<br />
income for the fair value hedges. There was no ineffectiv<strong>en</strong>ess in the case of these hedges.<br />
Cash flow hedges<br />
The Group uses interest rate swaps in the context of cash flow hedges relating to certain floatingrate<br />
commitm<strong>en</strong>ts (underlyings) against the associated interest rate risk. The plain vanilla interest<br />
rate swaps serve to protect against adverse effects in the net profit or loss for the period in the ev<strong>en</strong>t<br />
of rising interest rates. The interest paym<strong>en</strong>ts received from the swaps (floating rates) are opposed<br />
by interest paym<strong>en</strong>ts in the same amount in connection with the liabilities; in addition, the Group<br />
undertakes to make fixed interest paym<strong>en</strong>ts to the swap partners. The selection of highly rated<br />
counterparties <strong>en</strong>sures that we avoid <strong>en</strong>tering into a significant credit risk. The floating rate varies<br />
according to the 3-month EURIBOR. In addition, the Group hedged future transactions that are very<br />
likely to occur against the interest rate risk. In this connection, valuation units are established consisting<br />
of forward transactions in securities (forward purchases) and planned securities purchases.<br />
The forward purchases are used to hedge the risk associated with already firm future reinvestm<strong>en</strong>ts,<br />
namely that it may be possible in future to g<strong>en</strong>erate only low returns on reinvestm<strong>en</strong>ts due to falling<br />
interest rates. The underlying in relation to the hedging instrum<strong>en</strong>ts is the future investm<strong>en</strong>t<br />
at the th<strong>en</strong> applicable returns/rates. IAS 39 provides for the hedging of planned transactions to be<br />
captured as cash flow hedges.<br />
The effective part of the hedging instrum<strong>en</strong>ts measured at fair value is recognised directly in<br />
equity in the cash flow hedge reserve after allowance for deferred taxes. The ineffective part of such<br />
changes in value, on the other hand, is booked directly in the statem<strong>en</strong>t of income in the investm<strong>en</strong>t<br />
income – in the case of effective hedging of floating-rate liabilities in other income/exp<strong>en</strong>ses.<br />
The underlying continues to be measured at amortised cost in accordance with allocation to the<br />
category pursuant to IAS 39.9. If the hedged transactions result in the recognition of financial assets,<br />
the amounts carried in shareholders’ equity are amortised over the maturity period of the acquired<br />
asset.<br />
Talanx Group. Annual Report <strong>2011</strong><br />
233