Other risks
Of material importance to our company in the category of other risks are primarily emerging risks, strategic risks, reputational risks and liquidity risks.
The hallmark of emerging risks (such as nanotechnology, climate change) is that the content of such risks cannot as yet be reliably assessed – especially with respect to our treaty portfolio. Such risks evolve gradually from barely perceptible signals to unmistakable tendencies. It is therefore vital to detect such risks at an early stage and then determine their relevance. For the purpose of early detection we have developed an efficient process that spans divisions and lines of business and ensures its linkage to risk management, thereby making it possible to pinpoint any necessary measures (e.g. ongoing observation, the implementation of contractual exclusions or the development of new reinsurance products).
Strategic risks derive from the risk of an imbalance between the corporate strategy and changing general conditions in the business environment. Such an imbalance might be caused, for example, by incorrect strategic policy decisions or a failure to consistently implement the defined strategies. We therefore review our company strategy and risk strategy annually and adjust our processes as and when required.
A good corporate reputation is an indispensable prerequisite for our core business as a reinsurer. It often takes decades to build up a positive reputation, yet this reputation can be damaged or even destroyed within a very brief space of time. Management of this risk is made possible by our fixed communication channels, a professional approach to corporate communications, tried and tested processes for defined crisis scenarios as well as our established Code of Conduct.
The liquidity risk refers to the risk of being unable to convert investments and other assets into cash in order to meet our financial obligations when they become due. The liquidity risk consists of the refinancing risk, i.e. the necessary cash cannot be obtained or can only be raised at increased costs, and the market liquidity risk, meaning that financial market transactions can only be completed at a poorer price than expected due to a lack of market liquidity. Our regular liquidity planning and liquid asset structure are core elements of our ability to manage this risk. These measures ensure that Hannover Re is able to meet its payment obligations at all times without reservation. We manage the liquidity risk inter alia by allocating a liquidity code to every security. Adherence to the limits defined in our investment guidelines for each liquidity class is subject to daily control. The spread of investments across the various liquidity classes is recorded in the monthly investment reports and managed/monitored by way of appropriate limits.
The proportion of investment holdings that can be liquidated on any trading day without a mark-down was around 50% as at the balance sheet date, a reflection of the high liquidity of our portfolio.