Annual Report 2017

Hannover Re classifies investments according to the following categories: held-to-maturity, loans and receivables, financial assets at fair value through profit or loss and available-for-sale. The allocation and measurement of investments is determined by the investment intent and complies with the requirements of IAS 39 “Financial Instruments: Recognition and Measurement”.

The investments under own management also encompass investments in associated companies, real estate and real estate funds (also includes: investment property), other invested assets, short-term investments and cash. The recognition and measurement of these items is based on the respective applicable IFRS for this type of assets.

The following table shows the regional origin of the investments under own management.

in EUR thousand	2017	2016
Investments
Regional origin
Germany	6,999,285	7,512,169
United Kingdom	3,286,400	2,705,587
France	1,419,423	1,834,876
Other	6,108,855	6,850,690
Europe	17,813,963	18,903,322

USA	13,380,576	14,141,199
Other	1,876,686	1,783,517
North America	15,257,262	15,924,716

Asia	2,353,786	2,210,353
Australia	2,496,589	2,435,296
Australasia	4,850,375	4,645,649

Africa	442,684	403,407
Other	1,693,194	1,916,401

Total	40,057,478	41,793,495

	2017		2016
Maturities of the fixed-income and variable-yield securities
in EUR thousand	Amortised cost ¹	Fair value	Amortised cost ¹	Fair value
Held to maturity
due in one year	85,411	86,359	144,327	145,003
due after one through two years	28,055	29,586	87,517	90,601
due after two through three years	35,145	39,097	28,500	30,907
due after three through four years	138,465	156,064	35,083	40,284
due after four through five years	–	–	140,256	162,586
due after five through ten years	48,278	54,789	48,276	54,398
due after more than ten years	828	263	996	311
Total	336,182	366,158	484,955	524,090

Loans and receivables
due in one year	129,159	130,841	209,243	210,524
due after one through two years	179,739	188,653	140,840	144,552
due after two through three years	218,893	233,670	185,067	198,725
due after three through four years	302,243	320,436	228,296	247,919
due after four through five years	214,455	235,151	329,506	354,351
due after five through ten years	942,722	1,126,196	987,545	1,194,792
due after more than ten years	467,953	505,538	483,097	543,506
Total	2,455,164	2,740,485	2,563,594	2,894,369

Available for sale
due in one year ²	5,345,018	5,346,842	4,470,510	4,479,500
due after one through two years	2,711,972	2,721,829	3,382,457	3,404,847
due after two through three years	3,310,919	3,364,264	2,820,187	2,866,629
due after three through four years	3,659,321	3,675,048	3,748,106	3,841,259
due after four through five years	2,748,835	2,814,657	3,134,627	3,190,102
due after five through ten years	9,992,925	10,218,549	11,351,605	11,588,659
due after more than ten years	4,601,225	4,935,094	4,234,143	4,498,831
Total	32,370,215	33,076,283	33,141,635	33,869,827

Financial assets at fair value through profit or loss
due in one year	177,634	177,634	11,698	11,698
due after one through two years	8,620	8,620	210,510	210,510
due after two through three years	–	–	7,881	7,881
due after three through four years	–	–	9,828	9,828
due after four through five years	7,075	7,075	–	–
due after more than ten years	18,713	18,713	–	–
Total	212,042	212,042	239,917	239,917
¹ Including accrued interest ² Including short-term investments, cash and cash equivalents

The stated maturities may in individual cases diverge from the contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

Variable-rate bonds (so-called “floaters”) are shown under the maturities due in one year and constitute our interest-related, within-the-year reinvestment risk.

	2017
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value
in EUR thousand	Amortised cost including accrued interest	thereof accrued interest	Unrealised gains	Unrealised losses	Fair value
Investments held to maturity
Fixed-income securities
Government debt securities of EU member states	28,624	217	471	–	29,095
Debt securities issued by semi-governmental entities	29,493	437	2,433	–	31,926
Corporate securities	91,286	1,522	8,037	–	99,323
Covered bonds/asset-backed securities	186,779	3,872	19,600	565	205,814
Total	336,182	6,048	30,541	565	366,158

	2016
Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as held to maturity as well as their fair value
in EUR thousand	Amortised cost including accrued interest	thereof accrued interest	Unrealised gains	Unrealised losses	Fair value
Investments held to maturity
Fixed-income securities
Government debt securities of EU member states	60,967	1,147	1,195	4	62,158
US Treasury notes	9,694	165	2	–	9,696
Debt securities issued by semi-governmental entities	85,877	1,247	3,915	–	89,792
Corporate securities	91,683	1,522	8,732	–	100,415
Covered bonds/asset-backed securities	236,734	5,441	25,980	685	262,029
Total	484,955	9,522	39,824	689	524,090

The carrying amount of the portfolio held to maturity is arrived at from the amortised cost plus accrued interest.

	2017
Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value
in EUR thousand	Amortised cost including accrued interest	thereof accrued interest	Unrealised gains	Unrealised losses	Fair value
Loans and receivables
Debt securities issued by semi-governmental entities	1,544,933	22,830	187,976	5,221	1,727,688
Corporate securities	396,794	2,326	25,988	1,454	421,328
Covered bonds/asset-backed securities	513,437	9,331	78,032	–	591,469
Total	2,455,164	34,487	291,996	6,675	2,740,485

Amortised cost, unrealised gains and losses and accrued interest on loans and receivables as well as their fair value
	2016
in EUR thousand	Amortised cost including accrued interest	thereof accrued interest	Unrealised gains	Unrealised losses	Fair value
Loans and receivables
Debt securities issued by semi-governmental entities	1,609,907	25,638	225,273	3,701	1,831,479
Corporate securities	367,942	3,422	17,310	1,644	383,608
Covered bonds/asset-backed securities	585,745	10,334	93,537	–	679,282
Total	2,563,594	39,394	336,120	5,345	2,894,369

The carrying amount of the loans and receivables is arrived at from the amortised cost plus accrued interest.

Table as Excel file:

Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value
	2017
in EUR thousand	Amortised cost including accrued interest	thereof accrued interest	Unrealised gains	Unrealised losses	Fair value
Available for sale
Fixed-income securities
Government debt securities of EU member states	3,101,426	19,901	132,208	10,214	3,223,420
US Treasury notes	6,945,508	28,144	19,192	97,721	6,866,979
Other foreign government debt securities	1,893,711	16,513	26,766	16,290	1,904,187
Debt securities issued by semi-governmental entities	5,137,974	37,859	183,998	45,058	5,276,914
Corporate securities	10,945,807	119,725	401,952	29,217	11,318,542
Covered bonds/asset-backed securities	2,427,624	23,942	116,370	6,497	2,537,497
Investment funds	123,608	–	31,690	929	154,369
	30,575,658	246,084	912,176	205,926	31,281,908

Equity securities
Shares	12,794	–	6,388	17	19,165
Investment funds	12,865	–	5,692	202	18,355
	25,659	–	12,080	219	37,520
Short-term investments	958,851	5,582	58	240	958,669

Total	31,560,168	251,666	924,314	206,385	32,278,097

Table as Excel file:

Amortised cost, unrealised gains and losses and accrued interest on the portfolio of investments classified as available for sale as well as their fair value
	2016
in EUR thousand	Amortised cost including accrued interest	thereof accrued interest	Unrealised gains	Unrealised losses	Fair value
Available for sale
Fixed-income securities
Government debt securities of EU member states	2,402,598	16,815	167,294	11,931	2,557,961
US Treasury notes	6,791,606	23,616	19,277	148,893	6,661,990
Other foreign government debt securities	2,310,277	19,932	21,163	30,583	2,300,857
Debt securities issued by semi-governmental entities	5,259,815	41,765	254,479	37,088	5,477,206
Corporate securities	11,872,850	130,611	389,364	77,183	12,185,031
Covered bonds/asset-backed securities	2,703,570	26,666	156,406	16,659	2,843,317
Investment funds	113,265	–	42,546	–	155,811
	31,453,981	259,405	1,050,529	322,337	32,182,173

Equity securities
Shares	554,419	–	100,114	5,079	649,454
Investment funds	212,293	–	43,560	–	255,853
	766,712	–	143,674	5,079	905,307
Short-term investments	838,987	2,367	–	–	838,987

Total	33,059,680	261,772	1,194,203	327,416	33,926,467

The carrying amounts of the fixed-income securities and equity securities classified as available for sale as well as the short-term investments allocated to this category correspond to their fair values, in the case of interest-bearing assets including accrued interest.

	2017	2016	2017	2016	2017	2016
Fair value of financial assets at fair value through profit or loss before and after accrued interest as well as accrued interest on such financial assets
in EUR thousand	Fair value before accrued interest		Accrued interest		Fair value
Financial assets at fair value through profit or loss
Fixed-income securities
Corporate securities	211,856	239,917	186	–	212,042	239,917
	211,856	239,917	186	–	212,042	239,917

Other financial assets
Derivatives	88,832	57,665	–	–	88,832	57,665
	88,832	57,665	–	–	88,832	57,665

Total	300,688	297,582	186	–	300,874	297,582

The carrying amounts of the financial assets at fair value through profit or loss correspond to their fair values including accrued interest.

Hannover Re recognised in this category as at the balance sheet date derivative financial instruments in an amount of EUR 88.8 million (EUR 57.7 million) that are originally allocable to this item as well as fixed-income securities amounting to EUR 212.0 million (EUR 239.9 million) designated in this category. The fixed-income securities included in this category decreased largely due to currency effects. The increase in the derivative financial instruments derives from a reinsurance treaty with a financing component written in the area of life and health reinsurance.

Analysis of the fair value changes in the portfolio of fixed-income securities at fair value through profit or loss indicated that, contrary to the previous year, no fair value changes were attributable to a changed credit risk. In the previous year fair value reductions of EUR 2.2 million were due to changes in credit risks.

We additionally use an internal rating method to back up this analysis. Our internal rating system is based on the corresponding credit ratings of securities assigned by the agencies Standard & Poor’s and Moody’s and in each case reflects the lowest of the available ratings.

For further information please see the explanatory remarks in section 8.1 “Derivative financial instruments and financial guarantees”.

	2017		2016
Carrying amounts before impairment
in EUR thousand	Carrying amount before impairment	Impairment	Carrying amount before impairment	Impairment
Fixed-income securities – held to maturity	336,182	–	484,955	–
Fixed-income securities – loans and receivables	2,455,164	–	2,563,594	–
Fixed-income securities – available for sale	31,282,217	309	32,182,862	689
Short-term investments	958,669	–	838,987	–
Equity securities – available for sale	41,201	3,681	935,448	30,141
Participating interests and other invested assets, real estate funds	2,167,994	21,342	2,170,696	15,342
Total	37,241,427	25,332	39,176,542	46,172

For further explanatory remarks on the impairment criteria please see section 3.2 “Summary of major accounting policies”.

	2017
Rating structure of fixed-income securities
in EUR thousand	AAA	AA	A	BBB	BB	B	C	Other	Total
Fixed-income securities – held-to-maturity	196,454	77,734	51,993	10,001	–	–	–	–	336,182
Fixed-income securities – loans and receivables	1,745,927	272,116	136,439	221,632	19,030	–	–	60,020	2,455,164
Fixed-income securities – available-for-sale	13,754,622	4,892,769	5,138,558	5,890,327	1,105,067	170,001	1,847	328,717	31,281,908
Fixed-income securities – at fair value through profit or loss	–	–	–	–	31,543	–	–	180,499	212,042
Total fixed-income securities	15,697,003	5,242,619	5,326,990	6,121,960	1,155,640	170,001	1,847	569,236	34,285,296

	2016
Rating structure of fixed-income securities
in EUR thousand	AAA	AA	A	BBB	BB	B	C	Other	Total
Fixed-income securities – held-to-maturity	303,675	118,989	52,291	10,000	–	–	–	–	484,955
Fixed-income securities – loans and receivables	1,729,470	454,311	175,440	176,365	25,213	–	–	2,795	2,563,594
Fixed-income securities – available-for-sale	14,222,049	5,011,396	5,466,586	6,114,696	921,352	151,673	3,251	291,170	32,182,173
Fixed-income securities – at fair value through profit or loss	–	–	–	–	44,042	–	–	195,875	239,917
Total fixed-income	16,255,194	5,584,696	5,694,317	6,301,061	990,607	151,673	3,251	489,840	35,470,639

The maximum credit risk of the items shown here corresponds to their carrying amounts.

Table as Excel file:

	2017
Breakdown of investments by currencies
in EUR thousand	AUD	CAD	CNY	EUR	GBP	USD	ZAR	Ohter	Total
Fixed-income securities – held to maturity	–	3,715	–	278,120	42,918	11,429	–	–	336,182
Fixed-income securities – loans and receivables	22,805	–	33,813	1,983,946	39,755	374,777	–	68	2,455,164
Fixed-income securities – available-for-sale	2,198,566	1,153,025	453,079	7,672,596	3,003,948	15,314,560	212,714	1,273,420	31,281,908
Fixed-income securities – at fair value through profit or loss	–	–	–	–	–	212,042	–	–	212,042
Equity securities – available-for-sale	–	–	–	19,838	102	17,580	–	–	37,520
Other financial assets – at fair value through profit or loss	–	–	–	835	58,964	29,033	–	–	88,832
Other invested assets	–	–	–	1,947,949	6,177	1,767,771	7,087	122,471	3,851,455
Short-term investments, cash	130,430	32,278	65,322	155,369	149,182	518,588	184,820	558,386	1,794,375
Total	2,351,801	1,189,018	552,214	12,058,653	3,301,046	18,245,780	404,621	1,954,345	40,057,478

Table as Excel file:

Breakdown of investments by currencies
	2016
in EUR thousand	AUD	CAD	CNY	EUR	GBP	USD	ZAR	Other	Total
Fixed-income securities – held to maturity	–	19,192	–	359,148	44,926	61,689	–	–	484,955
Fixed-income securities – loans and receivables	–	–	15,191	2,006,831	41,254	500,318	–	–	2,563,594
Fixed-income securities – available-for-sale	2,049,431	1,163,323	364,631	7,853,948	2,660,674	16,556,245	202,476	1,331,445	32,182,173
Fixed-income securities – at fair value through profit or loss	–	–	–	26,485	–	213,432	–	–	239,917
Equity securities – available-for-sale	–	–	–	474,201	58,519	372,587	–	–	905,307
Other financial assets – at fair value through profit or loss	–	–	–	6,198	5,520	45,804	143	–	57,665
Other invested assets	–	–	–	1,695,019	1,910	1,964,905	7,955	2,441	3,672,230
Short-term investments, cash	94,924	25,678	100,026	219,013	90,994	475,326	152,809	528,884	1,687,654
Total	2,144,355	1,208,193	479,848	12,640,843	2,903,797	20,190,306	363,383	1,862,770	41,793,495

The maximum credit risk of the items shown here corresponds to their carrying amounts.

Associated companies

The associated companies included at equity in the consolidated financial statement that both on an individual basis and in their entirety are not material for the Hannover Re Group pursuant to IFRS 12 are comprised of

WeHaCo Unternehmensbeteiligungs-GmbH, Hannover, Germany,
HANNOVER Finanz GmbH, Hannover, Germany,
ITAS Vita S.p.A., Trento, Italy,

as well as the following companies included at equity within the subgroup Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, South Africa:

Clarendon Transport Underwriting Managers (Pty) Ltd., Johannesburg, South Africa,
Clarenfin (Pty) Ltd., Johannesburg, South Africa,
Vela Taxi Finance (Pty) Ltd., Johannesburg, South Africa,
Marmic Taxi Parts (Pty) Ltd., Durban, South Africa.

Information on the percentage share held by the Hannover Re Group in the capital of the associated companies as well as on the amount of capital and reserves and the result for the last financial year of these companies is provided in the list of shareholdings in section 4.2 “Consolidated companies and complete list of shareholdings”.

The following table shows combined financial information on the Hannover Re Group’s individually non-material investments in associated companies.

in EUR thousand	2017	2016
Financial information on investments in associated companies
Group share of net income from continuing operations	16,006	9,101
Group share of income and expense recognised directly in equity	(936)	(9,087)
Group share of total recognised income and expense	15,070	14

The carrying amount of the investments in associated companies changed as follows in the year under review:

in EUR thousand	2017	2016
Investments in associated companies
Net book value at 31 December of the previous year	114,633	128,008
Currency translation at 1 January	(22)	263
Net book value after currency translation	114,611	128,271
Additions	389	–
Disposals	–	6,395
Profit or loss on investments in associated companies	16,006	9,101
Dividend payments	9,000	7,158
Change recognised outside income	(936)	(9,087)
Currency translation at 31 December	5	(99)
Net book value at 31 December of the year under review	121,075	114,633

No discontinued operations existed in the year under review among the companies measured at equity. Insofar as there are commitments from contingent liabilities of associated companies, the Hannover Re Group shares in such commitments in proportion to its respective shareholding.

Public price listings are not available for companies valued at equity. The net book value of associated companies includes goodwill in the amount of EUR 18.8 million (EUR 18.5 million). For further details please see section 4 “Consolidation”.

Real estate

Real estate is divided into real estate for own use and third-party use (investment property). Own-use real estate is recognised under other assets.

The investment property in the portfolio which is used to generate income is shown under the investments. Income and expenses from rental agreements are included in the investment income.

Real estate is valued at cost of acquisition less scheduled depreciation with useful lives of at most 50 years.

in EUR thousand	2017	2016
Development of investment property
Gross book value at 31 December of the previous year	1,502,800	1,374,305
Currency translation at 1 January	(89,740)	22,117
Gross book value after currency translation	1,413,060	1,396,422
Additions	388,308	119,252
Disposals	82,453	17,969
Currency translation at 31 December	(6,248)	5,095
Gross book value at 31 December of the year under review	1,712,667	1,502,800

Cumulative depreciation at 31 December of the previous year	100,557	71,602
Currency translation at 1 January	(6,172)	1,260
Cumulative depreciation after currency translation	94,385	72,862
Disposals	9,895	1,592
Depreciation	31,013	28,885
Impairments	15,642	–
Appreciation	912	273
Currency translation at 31 December	(1,294)	675
Cumulative depreciation at 31 December of the year under review	128,939	100,557

Net book value at 31 December of the previous year	1,402,243	1,302,703
Net book value at 1 January of the year under review	1,318,675	1,323,560
Net book value at 31 December of the year under review	1,583,728	1,402,243

The fair value of investment property amounted to EUR 1,743.6 million (EUR 1,541.1 million) as at the balance sheet date.

The additions to this item are attributable to investment activities at the relevant real estate companies belonging to the Hannover Re Group, not only in Europe but also in Asia and the United States.

In terms of diversification across various real estate sectors the focus is on office properties (73%), followed by retail properties (15%). The allocation is complemented by investments in further sectors, including for example logistics and parking facilities. In geographical terms, exposures are spread across the United States (40%), Europe (excluding Germany; 33%) as well as Germany (20%) and Asia (7%).

The real estate in the investment portfolio is normally subject to internal and external valuation by an appraiser as at the balance sheet date. The two analyses do not differ from one another in the methodology used, which means that the findings are comparable at all times and on a continuous basis. Generally speaking, the fair value of the real estate is determined using the discounted cash flow (DCF) method, with rental income capitalised in consideration of the associated management costs. The valuation result is also influenced by increases and reductions based on specific property circumstances (upkeep, vacancies, rent divergences from the market level, etc.). The evaluation of international real estate also draws primarily on the discounted cash flow method. The main feature of this method is the present value estimation of projected annual free cash flows.

Real estate which is held for sale as defined by IFRS 5 is recognised separately in the consolidated balance sheet. Intentions to sell are substantiated by individual real estate market conditions and specific property circumstances, taking into consideration current and future opportunity / risk profiles. In the year under review no property had to be reclassified to assets held for sale.

In addition, we held indirect real estate investments measured at fair values in an amount of EUR 385.0 million (EUR 390.7 million) in the year under review, the amortised costs of which amounted to EUR 327.2 million (EUR 323.5 million). The differences between the carrying amounts and amortised costs were recognised as unrealised gains of EUR 59.5 million (EUR 70.8 million) and unrealised losses of EUR 1.7 million (EUR 3.7 million) under cumulative other comprehensive income.

Other invested assets

The other invested assets consisted largely of participating interests in partnerships measured at fair value in an amount of EUR 1,507.6 million (EUR 1,463.1 million), the amortised cost of which amounted to EUR 1,124.5 million (EUR 1,042.2 million). The differences between the carrying amounts and the amortised costs were recognised as unrealised gains of EUR 398.0 million (EUR 427.8 million) and unrealised losses of EUR 14.8 million (EUR 6.9 million) under cumulative other comprehensive income.

In addition, acquired life insurance policies measured at fair value through profit or loss were recognised under the other invested assets in an amount of EUR 38.2 million (EUR 55.1 million).

Short-term investments

This item comprises investments with a maturity of up to one year at the time of investment.

Fair value hierarchy

For the purposes of the disclosure requirements pursuant to IFRS 13 “Fair Value Measurement”, financial assets and liabilities are to be assigned to a three-level fair value hierarchy.

The fair value hierarchy, which reflects characteristics of the price data and inputs used for measurement purposes, is structured as follows:

Level 1: Assets or liabilities measured at (unadjusted) prices quoted directly in active and liquid markets
Level 2: Assets or liabilities which are measured using observable market data and are not allocable to level 1. Measurement is based, in particular, on prices for comparable assets and liabilities that are traded on active markets, prices on markets that are not considered active as well as inputs derived from such prices or market data.
Level 3: Assets or liabilities that cannot be measured or can only be partially measured using observable market inputs. The measurement of such instruments draws principally on valuation models and methods.

If input factors from different levels are used to measure a financial instrument, the level of the lowest input factor material to measurement is determinative.

The operational units responsible for coordinating and documenting measurement are organisationally separate from the operational units that enter into investment risks. All relevant valuation processes and valuation methods are documented. Decisions on fundamental valuation issues are taken by a valuation committee that meets monthly.

In the financial year just ended, as in the previous year, no investments were allocable to another level of the fair value hierarchy.

The following table shows the breakdown of financial assets and liabilities recognised at fair value into the three-level fair value hierarchy.

	2017
Fair value hierarchy of financial assets and liabilities recognised at fair value
in EUR thousand	Level 1	Level 2	Level 3	Total
Fixed-income securities	34,043	31,459,907	–	31,493,950
Equity securities	35,521	1,897	102	37,520
Other financial assets	–	39,793	49,039	88,832
Real estate and real estate funds	–	–	384,973	384,973
Other invested assets	–	–	1,639,065	1,639,065
Short-term investments	958,669	–	–	958,669
Total financial assets	1,028,233	31,501,597	2,073,179	34,603,009
Other liabilities	–	78,838	185,498	264,336
Total financial liabilities	–	78,838	185,498	264,336

	2016
Fair value hierarchy of financial assets and liabilities recognised at fair value
in EUR thousand	Level 1	Level 2	Level 3	Total
Fixed-income securities	38,603	32,383,487	–	32,422,090
Equity securities	905,297	–	10	905,307
Other financial assets	–	57,665	–	57,665
Real estate and real estate funds	–	–	390,676	390,676
Other invested assets	–	–	1,653,902	1,653,902
Short-term investments	838,987	–	–	838,987
Other assets	–	794	–	794
Total financial assets	1,782,887	32,441,946	2,044,588	36,269,421
Other liabilities	–	17,820	168,943	186,763
Total financial liabilities	–	17,820	168,943	186,763

The following table provides a reconciliation of the fair values of financial assets and liabilities included in level 3 at the beginning of the financial year with the fair values as at 31 December of the financial year.

	2017
Movements in level 3 financial assets and liabilities
in EUR thousand	Fixed-income securities	Equities, equity funds and other variable-yield securities	Real estate and real estate funds	Other invested assets	Other liabilities
Net book value at 31 December of the previous year	10	–	390,676	1,653,902	168,943
Currency translation at 1 January	(1)	–	(18,082)	(130,950)	(20,481)
Net book value after currency translation	9	–	372,594	1,522,952	148,462
Changes in the consolidated group	103	–	–	–	–
Income and expenses
recognised in the statement of income	(88)	2,024	(2,341)	9,093	(29,818)
recognised directly in shareholders’ equity	–	–	(5,842)	35,188	–
Purchases	78	66,331	92,817	320,334	69,113
Sales	–	18,232	72,043	245,092	–
Transfers to level 3	1	–	–	–	–
Transfers from level 3	–	–	–	–	–
Currency translation at 31 December	(1)	(1,084)	(212)	(3,410)	(2,259)
Net book value at 31 December of the year under review	102	49,039	384,973	1,639,065	185,498

	2016
Movements in level 3 financial assets and liabilities
in EUR thousand	Equities, equity funds and other variable-yield securities	Other financial assets	Real estate and real estate funds	Other invested assets	Other liabilities
Net book value at 31 December of the previous year	10	–	371,254	1,475,415	156,144
Currency translation at 1 January	–	–	5,686	32,916	5,733
Net book value after currency translation	10	–	376,940	1,508,331	161,877
Income and expenses
recognised in the statement of income	–	–	(3,081)	14,666	(22,575)
recognised directly in shareholders’ equity	–	–	10,646	(9,386)	–
Purchases	–	–	84,792	383,328	25,771
Sales	–	–	78,120	250,428	(3,559)
Transfers to level 3	–	–	–	–	–
Transfers from level 3	–	–	–	–	–
Currency translation at 31 December	–	–	(501)	7,391	311
Net book value at 31 December of the year under review	10	–	390,676	1,653,902	168,943

The breakdown of income and expenses recognised in the statement of income in the financial year in connection with financial assets and liabilities assigned to level 3 is as follows:

	2017
Income and expenses from level 3 financial assets and liabilities
in EUR thousand	Real estate and real estate funds	Other financial assets	Real estate and real estate funds	Other invested assets	Other liabilities
Total in the financial year
Ordinary investment income	–	–	–	108	–
Realised gains and losses on investments	(79)	–	–	15,538	–
Change in fair value of financial instruments	–	2,024	–	1,887	29,818
Total depreciation, impairments and appreciation of investments	(9)	–	(2,341)	(8,440)	–
Thereof attributable to financial instruments included in the portfolio at 31 December of the year under review
Ordinary investment income	–	–	–	108	–
Change in fair value of financial instruments	–	2,024	–	1,392	29,818
Total depreciation, impairments and appreciation of investments	(9)	–	(2,341)	(8,440)	–

	2016
Income and expenses from level 3 financial assets and liabilities
in EUR thousand	Equities, equity funds and other variable-yield securities	Other financial assets	Real estate and real estate funds	Other invested assets	Other liabilities
Total in the financial year
Ordinary investment income	–	–	–	214	–
Realised gains and losses on investments	–	–	–	23,192	–
Change in fair value of financial instruments	–	–	–	2,924	22,575
Total depreciation, impairments and appreciation of investments	–	–	(3,081)	(11,664)	–
Thereof attributable to financial instruments included in the portfolio at 31 December of the year under review
Ordinary investment income	–	–	–	214	–
Change in fair value of financial instruments	–	–	–	2,924	22,575
Total depreciation, impairments and appreciation of investments	–	–	(1,264)	(11,665)	–

If models are used to measure financial assets and liabilities included in level 3 under which the adoption of alternative inputs leads to a material change in fair value, IFRS 13 requires disclosure of the effects of these alternative assumptions. Of the financial assets included in level 3 with fair values of altogether EUR 2,073.2 million (EUR 2,044.6 million) as at the balance sheet date, Hannover Re measures financial assets with a volume of EUR 1,892.6 million (EUR 1,853.8 million) using the net asset value method, in respect of which alternative inputs within the meaning of the standard cannot reasonably be established. The remaining financial assets included in level 3 with a volume of EUR 180.6 million (EUR 190.8 million) relate to investments, the valuation of which is based inter alia on technical parameters. Derivative financial instruments in connection with the reinsurance business were recognised under the other liabilities included in level 3 in the year under review. Their performance is dependent upon the risk experience of an underlying group of primary insurance contracts with statutory reserving requirements. The application of alternative inputs and assumptions has no material effect on the consolidated financial statement.

	2017
Fair value hierarchy of financial assets and liabilities measured at amortised cost
in EUR thousand	Level 1	Level 2	Level 3	Total
Fixed-income securities	–	2,985,404	121,239	3,106,643
Real estate and real estate funds	–	–	1,743,632	1,743,632
Other invested assets	–	7,917	121,376	129,293
Total financial assets	–	2,993,321	1,986,247	4,979,568
Long-term debt and subordinated capital	–	1,977,559	39	1,977,598
Total financial liabilities	–	1,977,559	39	1,977,598

	2016
Fair value hierarchy of financial assets and liabilities measured at amortised cost
in EUR thousand	Level 1	Level 2	Level 3	Total
Fixed-income securities	–	3,364,927	53,532	3,418,459
Real estate and real estate funds	–	–	1,541,101	1,541,101
Other invested assets	–	13,955	96,821	110,776
Total financial assets	–	3,378,882	1,691,454	5,070,336
Long-term debt and subordinated capital	–	1,977,801	–	1,977,801
Total financial liabilities	–	1,977,801	–	1,977,801

Annual Report 2017

6.1 Investments under own management

Associated companies

Real estate

Other invested assets

Short-term investments

Fair value hierarchy

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