7.8 Debt and subordinated capital
On 31 March 1999 Hannover Finance, Inc., Wilmington/USA, issued subordinated debt in the form of a floating-rate loan in the amount of USD 400.0 million with a term of 30 years. The due date of the loan is 31 March 2029. It may be redeemed by the issuer no earlier than 31 March 2009. In order to hedge against the risk of interest rate changes associated with this loan, the company purchased interest rate swaps in 1999 in the same amount which expire on 31March 2009. In this way, the interest rate is converted from a floating rate to a fixed rate for a period ending commensurate with the first opportunity to redeem the loan. In February 2004 and May 2005 Hannover Re bought back portions of the debt amounting to USD 380.0 million, equivalent to altogether 95% of the total volume. The interest rate swaps were closed out in the second quarter of 2006. Under a contract dated 1 June 2007 Hannover Finance, Inc. repurchased the subordinated debt in an amount of USD 380.0 million from Hannover Re. Effective 17 July 2007 the interests in the loan amounting to USD 380.0 million were cancelled and have not been traded on the capital market since that date. The remaining portions of the debt totalling USD 20.0 million are held by investors outside the Group and carry a coupon of LIBOR +80 basis points until 31 March 2009. Hannover Re intends to exercise the call option granted in the loan terms which provides for early repurchase of the debt at nominal value effective 31 March 2009.
In order to safeguard the sustained financial strength of the Hannover Re Group, Hannover Re issued additional subordinated debt. In February 2004 subordinated debt in the amount of EUR 750.0 million was placed through Hannover Finance (Luxembourg) S.A., a wholly owned subsidiary of Hannover Re, on the European capital markets. The bond was placed predominantly with institutional investors. The bond was priced at a spread of 163 basis points over the 10-year mid-swap rate and has a final maturity of 20 years. It may be redeemed by Hannover Re after 10 years at the earliest and at each coupon date thereafter. If the bond is not called at the end of the tenth year, the coupon will step up to a floating-rate yield of quarterly EURIBOR +263 basis points.
In May 2005 Hannover Re issued further subordinated debt in the amount of EUR 500.0 million through its subsidiary Hannover Finance (Luxembourg) S.A. As part of the transaction, holders of Hannover Re's EUR 350.0 million subordinated debt placed in 2001 were offered an opportunity to exchange their existing issue for holdings in the new bond, which has a term of 30 years and may be called in prior to maturity by the issuer after 10 years. Participation in the exchange was nominally EUR 211.9 million, corresponding to EUR 240.5 million of the new bond issue. The cash component of the new bond in the amount of nominally EUR 259.5 million was placed predominantly with institutional investors in Europe. The remaining volume of the bond issued in 2001 after the exchange was unchanged at EUR 138.1 million.
Excel download (20 KB)Debt and subordinated capital
| Figures in EUR thousand | 2008 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost | Fair value measurement | Accrued interest | and rent | Fair value | |
| Debt and subordinated capital | |||||
| Debt | 43,087 | – | 43 | 43,130 | |
| Subordinated loans | 1,376,883 | (369,578) | 57,914 | 1,065,219 | |
| Other long-term liabilities | 57 | – | – | 57 | |
| Total | 1,420,027 | (369,578) | 57,957 | 1,108,406 | |
| Figures in EUR thousand | 2007 | ||||
|---|---|---|---|---|---|
| Cost or amortised cost | Fair value measurement | Accrued interest | and rent | Fair value | |
| Debt and subordinated capital | |||||
| Debt | 41,555 | – | 183 | 41,738 | |
| Subordinated loans | 1,373,294 | (59,803) | 58,098 | 1,371,589 | |
| Other long-term liabilities | 28 | – | – | 28 | |
| Total | 1,414,877 | (59,803) | 58,281 | 1,413,355 | |
The carrying amount of this item corresponds to cost or amortised cost.
The aggregated fair value of the extended subordinated loans is based on quoted, active market prices. If such price information was not available, fair value was determined on the basis of the recognised effective interest rate method or estimated using other financial assets with similar rating, duration and return characteristics. Under the effective interest rate method the current market interest rate levels in the relevant fixed-interest-rate periods are always taken as a basis.
Excel download (19 KB)Net gains and losses from debt and subordinated capital
| Figures in EUR thousand | 2008 | ||
|---|---|---|---|
| Ordinary income/expenses |
Amortisation | Net result | |
| Debt | (2,706) | – | (2,706) |
| Subordinated loans | (77,442) | (2,870) | (80,312) |
| Total | (80,148) | (2,870) | (83,018) |
| Figures in EUR thousand | 2007 | ||
|---|---|---|---|
| Ordinary income/expenses |
Amortisation | Net result | |
| Debt | (3,312) | – | (3,312) |
| Subordinated loans | (77,600) | (2,841) | (80,441) |
| Total | (80,912) | (2,841) | (83,753) |
The ordinary expenses include interest expenses of EUR 77.4 million (EUR 77.6 million) resulting predominantly from the subordinated debt with coupons of between 5.0% and 6.25% placed through Hannover Finance (Luxembourg) S.A. in the years from 2001 to 2005. In addition, interest expenditures from the remaining portions of the floating-rate loan issued by Hannover Finance, Inc., Wilmington/USA are recognised here.
Other financial facilitiesIn order to protect against possible future major losses Hannover Re took out a new credit line of EUR 500.0 million in 2004 in the form of a syndicated loan. The facility has a term of five years and ends in August 2009. It has not been used to date.
In addition, facilities exist with various financial institutions for letters of credit, including two syndicated guarantee facilities each in the amount of USD 2.0 billion from 2005 and 2006. 50% of the first of these lines matures in January 2010 and the other 50% in January 2012, while the second line matures in January 2013. For further information on the letters of credit provided please see our explanatory remarks in Section 9.2 "Contingent liabilities and commitments".
Excel download (20 KB)Maturities of financial liabilities
| Figures in EUR thousand | 2008 | ||||||
|---|---|---|---|---|---|---|---|
| Less than three months | Three months to one year | One to five years | Five to ten years | Ten to twenty years | More than twenty years | No maturity | |
| Other liabilities1) | 60,094 | 58,166 | 426 | – | – | – | 5,061 |
| Debt | 106 | 15,058 | 19,838 | 8,085 | – | – | – |
| Subordinated loans | – | – | – | – | 746,043 | 152,072 | 478,768 |
| Other long-term liabilities | 2 | 5 | 50 | – | – | – | – |
| Total | 60,202 | 73,229 | 20,314 | 8,085 | 746,043 | 152,072 | 483,829 |
| 1) excluding derivatives | |||||||
| Figures in EUR thousand | 2007 | ||||||
|---|---|---|---|---|---|---|---|
| Less than three months | Three months to one year | One to five years | Five to ten years | Ten to twenty years | More than twenty years | No maturity | |
| Other liabilities1) | 74,766 | 84,644 | 14 | – | – | – | 6,345 |
| Debt | – | 11,427 | 22,215 | 7,913 | – | – | – |
| Subordinated loans | – | – | – | – | 745,907 | 151,229 | 476,158 |
| Other long-term liabilities | – | 28 | – | – | – | – | – |
| Total | 74,766 | 96,099 | 22,229 | 7,913 | 745,907 | 151,229 | 482,503 |
| 1) excluding derivatives | |||||||