Consolidation. Talanx Group. Annual Report Consolidation, business combinations. Assets and disposal groups.

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1 176 Consolidated financial statements Notes General information Accounting principles and policies Segment reporting Consolidation, business combinations Assets and disposal groups Consolidation Consolidation principles The consolidated financial statements were drawn up based on uniform Group accounting policies in accordance with IFRS. The annual financial statements included in the consolidated financial statements were for the most part prepared as at 31 December. Group companies with diverging financial years do not have to compile interim financial statements pursuant to IAS 27 Consolidated and Separate Financial Statements because their closing dates are no more than three months prior to the Group closing date. The effects of significant transactions between diverging financial years and the Group closing date were taken into account. The capital consolidation is compiled in accordance with the requirements of IAS 27. Subsidiaries are all companies (including special purpose entities) in respect of which the Group exercises control over financial and business policy or, in the case of special purpose entities, where the majority of economic risks and benefits remain within the Group. Subsidiaries are included in the consolidated financial statements (full consolidation) from the point when control passed to the Group. They are deconsolidated at the point when this control ends. Investments in subsidiaries not included in the consolidated financial statements because of their minor importance relative to the assets, financial position and net income of the Group are recognised at fair value or, if this cannot be reliably determined, at amortised cost in the balance sheet item Investments in affiliated companies and participating interest. Acquired subsidiaries are accounted using the purchase method. The acquisition costs associated with purchases correspond to the fair value of the assets offered and liabilities arising/assumed at the time of the transaction. Acquisition-related costs are recognised as expense when they are incurred. Assets, liabilities and contingent liabilities that can be identified in the context of a corporate acquisition are measured upon initial consolidation at their fair values at the time of acquisition. Non-controlling interests in acquired companies are generally recorded at the given proportion of the net assets in the acquired company. A difference arising out of the netting of the acquisition costs with the fair value of the assets and liabilities is recognised as goodwill under intangible assets. In accordance with IFRS 3 Business combinations, goodwill is not subject to scheduled amortisation; instead, it is written down as necessary on the basis of annual impairment tests. Immaterial and negative goodwill is recognised in the statement of income in the year it occurs. Non-controlling interests in shareholders equity or in the net income of majority-owned subsidiaries are shown separately in equity in the item Non-controlling interests in equity and in the statement of income in the item Non-controlling interests. All intra-group receivables and liabilities as well as income, expenses and interim results resulting from intra-group transactions were eliminated as part of the consolidation of debt, earnings and interim results.

2 Nature of risks balance sheet assets balance sheet liabilities statement of income Other information List of shareholdings 177 Companies over which the Group is able to exercise a significant influence are normally consolidated using the equity method in accordance with IAS 28 Investments in Associates as associated companies and initially carried at the cost of acquisition. A significant influence is presumed to exist if a company belonging to the Group directly or indirectly holds at least 20% but no more than 50% of the voting rights. The Group s investment in associated companies includes the goodwill arising upon acquisition. The accounting policies used by associated companies were modified if necessary in order to ensure consistent Group-wide accounting. Joint ventures, i.e. if two or more partner companies conduct a commercial activity under joint management, are included in the consolidated financial statements based on a proportionate consolidation procedure or using the equity method, a choice provided by IAS 31 Interests in Joint Ventures. Until 31 March 2012, Talanx AG used proportionate consolidation for a joint venture (Credit Life International Services GmbH, Neuss). Since this company was removed from the scope of consolidation (see details in section entitled Joint ventures measured using the equity method on page 185), Talanx AG revised its decision and since 30 June 2012 has consolidated its joint ventures using the equity method. Interests in associated companies and joint ventures consolidated using the equity method are recognised in the balance sheet item Interests in associated companies and joint ventures in the area of Assets under own management. The share of the Group in the profits and losses of these companies is recognised separately in the Group s statement of income under net investment income in accordance with IAS 1 Presentation of Financial Statements. For further details please refer to the Accounting policies section and the information in note 5 Investments in associated companies and joint ventures as contained in the section Notes on individual items of the consolidated balance sheet. Scope of consolidation Talanx AG is the ultimate parent company of the Group. In accordance with IAS 27 the consolidated financial statements include Talanx AG (as the parent company) and all major domestic and foreign Group companies/special purpose entities in which Talanx AG indirectly or directly holds the majority of the voting rights or where it exercises a de facto power of control. Only subsidiaries that are of minor importance both individually and in their entirety for the assets, financial position and net income of the Group and that do not transact insurance business are exempted from consolidation. The Group assesses whether a subsidiary is of minor importance on the basis of the company s total assets and net income relative to the corresponding average values for the Group as a whole over the last three years. For this reason 40 (39) subsidiaries, whose business purpose is primarily the rendering of services for insurance companies within the Group, were not consolidated in the reporting year. Altogether, the balance sheet total of these subsidiaries amounts to less than 0.1% of the average balance sheet total of the Group over the last three years; the result of these companies amounts to altogether less than 1% of the average result of the Group over the last three years. In subsequent periods the subsidiaries not included in the scope of consolidation on grounds of materiality are examined on each closing date to verify whether consolidation is required in light of a reassessment of materiality.

3 178 Consolidated financial statements Notes General information Accounting principles and policies Segment reporting Consolidation, business combinations Assets and disposal groups The scope of consolidation as at the balance sheet date encompasses the following companies: Scope of consolidation Domestic Foreign Total Number of fully consolidated subsidiaries ) 152 Additions Disposals ) 165 Number of fully consolidated special purpose entities thereof special funds/public funds Additions thereof special funds/public funds Disposals thereof special funds/public funds Total of fully consolidated subsidiaries/special purpose entities Number of associated companies and joint ventures consolidated using equity method ) 13 Additions 3 3 Disposals ) 13 3) 1) Consists of: 58 (50) individual companies and 38 (36) companies fully consolidated into three (three) subgroups 2) Consists of: five (four) individual companies, and four (five) companies which are included using the equity method in one subgroup 3) Includes a foreign joint venture With regard to the major acquisitions and disposals in the reporting year please see our explanatory remarks in the following subsections of this section. All affiliates, joint ventures, associated companies as well as special purpose entities including special funds are specified individually in the list of shareholdings (see separate section of these Notes, pages 309 et seqq.). Additions and disposals of fully consolidated subsidiaries as well as other corporate changes In the 2012 reporting year, 22 subsidiaries were added to the Group. The nine disposals of fully consolidated subsidiaries derive from the sale of individual companies, intra-group mergers and deconsolidation due to the insignificance of these entities in relation to the assets, financial position and net income of the Group. Specifically, the scope of consolidation of the Group changed as follows compared to the end of 2011: Acquisitions and establishments By way of an agreement dated 24 June 2011, Talanx International AG, Hannover, and HDI Seguros S. A. de C. V., León, Mexico (both Retail International segment), acquired all of the shares of the Mexican insurance company Metropolitana Compañía de Seguros, Mexico City, Mexico, for the purchase price of USD 100 million. Closing took place on 1 January Further information on the initial consolidation of this acquisition can be found in the Notes in the section Business combinations.

4 Nature of risks balance sheet assets balance sheet liabilities statement of income Other information List of shareholdings 179 Svedea AB, Stockholm, was consolidated for the first time as of the second quarter of In March 2010, Funis GmbH & Co. KG, a wholly-owned subsidiary of Hannover Re, made an investment (EUR 8 thousand) in Svedea AB, which corresponded to a shareholding of 75.2%. The company s business purpose essentially consists of brokering liability insurance policies for vehicles and yachts. For reasons of materiality, Svedea had been booked as a participating interest until the first quarter of Due to its increasing business volume, the company was consolidated for the first time with effect from 30 June As at the date of initial consolidation, Funis had a shareholding of 69.2%, and as at the balance sheet date, the ownership interest was 53.0%. The asset-side difference of EUR 13 million arising in the context of initial consolidation was netted with cumulative retained earnings; of this, EUR 6 million was attributable to non-controlling interests in share holders equity. Accordingly, no goodwill was recognised. On 1 June 2012, Talanx International AG closed on the purchase of 50% plus one share of the insurance company Towarzystwo Ubezpieczeń Europa S. A., Wrocław, Poland, from the Getin Holding Group. The purchase included the subsidiaries Towarzystwo Ubezpieczeń na Życie Europa S. A., Wrocław, and Open Life Towarzystwo Ubezpieczeń Życie S. A., Warsaw (both in Poland), as well as the joint stock companies Towarzystwo Ubezpieczeń Europa.UA and Towarzystwo Ubezpieczeń Europa.UA Życie (both in Lviv, Ukraine). All of the acquired insurance companies have been allocated to the Retail International segment. Please see our remarks in the Business combinations section in the Notes. Effective 1 July 2012, Talanx International AG acquired the property insurance company Towarzystwo Ubezpieczeń i Reasekuracji WARTA S. A. (WARTA), Warsaw, Poland, from the Belgian KBC Group. As at the closing date (1 July 2012), and on the basis of the agreements made, the Group has acquired 70% of the shares in WARTA. Towarzystwo Ubezpieczeń na Życie WARTA S. A. (WARTA life), which is wholly owned by WARTA, and the special fund KBC ALFA Specjalistyczny Fundusz Inwestycyjny Otwarty (ALFA Fonds) were likewise included in the scope of consolidation starting in the third quarter of 2012 (all companies have been allocated to the Retail International segment). For more extensive information about this transaction, please see the Business combinations section in the Notes. In July 2012, HR GLL Central Europe GmbH & Co. KG was established, with its registered office located in Munich. The purpose of the company is the acquisition, management, leasing and sale of commercial real estate and land rights in Europe, with the focus on EU member states in Central Europe. The company was included in the consolidated financial statements for the first time with effect from the third quarter of As at the date of initial consolidation and as at the balance sheet date, Hannover Re held 74.4% of the interests in the company. TAM AI Komplementär GmbH, Cologne, was established in August 2012 (Corporate Operations segment). The sole member of the company is Talanx Asset Management GmbH (TAM), Cologne. This company acts as the general partner for TD-Sach Private Equity GmbH & Co. KG (TDSPE), Cologne, which was likewise newly established in August 2012 (Retail Germany segment). TAM is the managing limited partner, with HDI Versicherung AG participating as the investor limited partner. The purpose of TDSPE consists of the development, holding and management of a portfolio of equity, equity-like, and debt-capital participations, predominantly in Europe and the United States. Both companies were consolidated for the first time in the third quarter of 2012.

5 180 Consolidated financial statements Notes General information Accounting principles and policies Segment reporting Consolidation, business combinations Assets and disposal groups In September 2012, Leine Investment General Partner S. à r. l. and Leine Investment SICAV-SIF were established, both with their registered office located in Luxembourg. The companies, all of whose interests are held by Hannover Re, were consolidated for the first time with effect from the third quarter of Leine Investment General Partner S. à r. l. is the managing partner of the asset management company Leine Investment SICAV-SIF, whose purpose is the development, holding and management of a portfolio of insurance-linked securities (CAT bonds), also for investors outside the Group. As at the balance sheet date, the company has yet to make any investments. Gente Compañía de Soluciones Profesionales de México, S. A. de C. V., León, Mexico (previously of minor importance to the assets, financial position and net income of the Group), exceeds the thresholds set for individual companies based on total assets and net income, and was consolidated for the first time from the fourth quarter of This company is a service enterprise for our Mexican insurers in the Retail International segment. The difference on the liabilities side (EUR 0.5 million) derived from netting the acquisition costs and the equity of the company, was recognised against retained earnings in equity. TD-BA Private Equity GmbH & Co. KG (TDBAPE), Cologne (Retail Germany segment), was established in October TAM AI Komplementär GmbH (TAMAIK), Cologne, is the general partner; TAM is the managing limited partner. The purpose of TDBAPE consists of the development, holding and management of a portfolio of equity, equity-like, and debt-capital participations, predominantly in Europe and the United States. The company was first consolidated in the fourth quarter of TD Real Assets GmbH & Co. KG, Cologne (Retail Germany segment), was established in November TAMAIK is the general partner; TAM is the managing limited partner. The purpose of the company is the development, holding and management of a portfolio of investments, predominantly in real estate and infrastructure assets in Europe and the United States. The company was included in the consolidated financial statements for the first time with effect from the fourth quarter of TD-BA Private Equity Sub GmbH (TDBAES), Cologne (Retail Germany segment), was established in December 2012 as a wholly-owned subsidiary of TDBAPE. The purpose of this company consolidated for the first time in the fourth quarter of 2012 is the acquisition, holding, management and utilisation of all kinds of participations and assets as well as the provision of related services. As of 30 November 2012 our Group companies of HDI-Gerling Assurances S. A., Brussels, Belgium, and HDI-Gerling Verzekeringen N. V., Rotterdam, Netherlands, together acquired a 100% stake in Les Assurances Mutuelles d Europe Lux S. A. (now renamed as HDI-Gerling Assurances SA Luxembourg), Luxembourg. All companies have been allocated to the Industrial Lines segment and the acquired entity was first consolidated in the fourth quarter of Detailed remarks on this acquisition can be found in the Business combinations section. In US subgroup Hannover Re Real Estate Holdings, Inc., where 95.1% of the shares are held, all of the shares in Nashville (Tennessee) West, LLC, Wilmington, 975 Carroll Square LLC, Washington D. C., und 1225 West Washington, LLC, Tempe, were acquired via subsidiary company GLL HRE Core Properties, LP, Wilmington. The business purpose of each of the companies included in the consolidated financial statements is holding and managing a property. More information on this can be found in the Business combinations section.

6 Nature of risks balance sheet assets balance sheet liabilities statement of income Other information List of shareholdings 181 Disposals By way of an agreement dated 29 December 2011, HDI-Gerling Vertrieb Firmen und Privat AG, Hannover, sold all its shares in its subsidiary PARTNER OFFICE AG (PO), Cologne (both Retail Germany segment), to Kapitalwerk Beteiligungsgesellschaft mbh, Bonn, for the purchase price of EUR 1. The transaction closed in the first quarter of The deconsolidation gave rise to income of EUR 2 million, which was recognised in Other Income and Expenses (see our remarks in the section Noncurrent assets held for sale and disposal groups ). With effect from 31 October 2012, 70% of the shares previously held by Talanx Inter national AG (100%) in ASPECTA Assurance International AG, Vaduz, Liechtenstein (Retail International segment), were sold to a company outside the group; the remaining 30% were acquired at the same time by Funis GmbH & Co. KG, Hannover, a wholly-owned subsidiary of Hannover Rückversicherung AG, Hannover. The deconsolidation, during which the shares remaining in the Group were used to determine the deconsolidation gain, generated a loss of EUR 11 million (after taxes), recognised under Other Income and Expenses. As regards the recognition of shares remaining in the Group, please refer to our remarks in the section Associated companies valued using equity method and to the section Non-current assets held for sale and disposal groups. Mergers and deletions In the third quarter of 2012, Hannover Reinsurance (Ireland) Public Limited Company (formerly Hannover Reinsurance (Ireland) Limited), a wholly-owned subsidiary of Hannover Rück Beteiligung Verwaltungs GmbH (HRBV), was merged by absorption into Hannover Life Reassurance (Ireland) Public Limited Company (formerly Hannover Life Reassurance (Ireland) Limited), a wholly owned subsidiary of Hannover Life Re AG. In implementing the merger, HRBV brought Hannover Reinsurance (Ireland) into Hannover Life Reassurance (Ireland) through various intermediate steps by means of a capital increase in exchange for contributions in kind. On 19 July 2012, the Irish High Court (Commercial Division) definitively sanctioned the merger. The merger became legally effective on 3 September The new name of the absorbing company is Hannover Re (Ireland) Plc. Since this internal Group restructuring involves a transaction between companies under common control, the transaction neither generated goodwill nor had an impact on Group net income. Upon entry in the commercial register on 28 September 2012, the merger of HDI-Gerling Firmen und Privat Versicherung AG, Hannover, into HDI Versicherung AG (formerly HDI Direkt Versicherung AG), Hannover, became legally effective (retroactive to 1 January 2012). With effect from 28 December 2012 our Polish property insurer HDI Asekuracja Towarzystwo Ubezpieczeń S. A. was merged into Warta non-life (Towarzystwo Ubezpieczeń i Reasekuracji WARTA S. A.), both located in Warsaw, Poland (Retail International segment). The merger maintained all the book values. The change in the ownership interest of Talanx International AG in Warta non-life from 70% to 75% after the merger was recognised by the Group as an equity capital transaction, i.e. as a transaction with owners in their capacity as owners. Here, the book values of the controlling and non-controlling interests were adjusted to reflect the changes in the shareholding ratios. Differences to the amount used to adjust the non-controlling interests ( EUR 11 million) are recorded directly in equity and allocated to the shareholders of the parent company (+EUR 11 million) (please see the Statement of changes in shareholders equity on page 136).

7 182 Consolidated financial statements Notes General information Accounting principles and policies Segment reporting Consolidation, business combinations Assets and disposal groups Hannover Re Advanced Solutions Ltd., Dublin, a subsidiary inactive since 2004 of Hannover Reinsurance (Ireland) Public Limited Company merged in the third quarter of 2012, was liquidated in the reporting year. In the South African subgroup Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, which is part of Hannover Rückversicherung AG, Indoc Holdings S. A., Luxembourg was liquidated. Both processes were of subordinate importance overall to the consolidated financial statements. Other changes to the scope of consolidation and key name changes HDI-GERLING Financial Service GmbH, Vienna, Austria (Retail Germany segment), which until now had been fully consolidated, is no longer included in the consolidated financial statements with effect from the first quarter of 2012, since based on its total assets and net income it is immaterial to the assessment of the Group s assets, financial position and net income. The deconsolidation gave rise to a loss of EUR 0.2 million, which was recognised in Other Income and Expenses. HEPEP III Komplementär GmbH, Cologne (Corporate Operations segment), which until now had been fully consolidated, is no longer included in the consolidated financial statements with effect from the second quarter of 2012, since it is immaterial to the assets, financial position and net income of the Group. The deconsolidation gave rise to a gain of EUR 7 thousand, which was recognised under Other income/expenses. Upon entry on 28 September 2012 in the respective commercial registers, the renaming of the follo wing companies became legally effective: HDI Direkt Versicherung AG became HDI Versicherung AG, HDI-Gerling Lebensversicherung AG became HDI Lebensversicherung AG, HDI-Gerling Pensions kasse AG became HDI Pensionskasse AG, HDI-Gerling Pensionsfonds AG became HDI Pensionsfonds AG, HDI-Gerling Vertrieb Firmen und Privat AG became HDI Vertriebs AG and HDI- Gerling Pensionsmanagement AG became Talanx Pensionsmanagement AG. Following several capital increases during 2012 in Secquaero ILS Fund Ltd., with the involvement of external investors, in which Hannover Rück AG did not participate, the investment of Hannover Rückversicherung AG in the company fell gradually to 74.09% as at the balance sheet date, without any change in the control status. Consolidation of special purpose entities With regard to the consolidation of special purpose entities, in the following the Group makes a distinction between special funds, investments, securitisation of reinsurance risks, assumed life and health reinsurance business as well as retrocessions and insurance-linked securities (ILS). Relations with such special purpose entities are to be examined, inter alia, in accordance with SIC 12 Consolidation Special Purpose Entities with a view to their consolidation requirement. In cases where IFRSs do not currently contain any specific standards, our analysis also falls back applying IAS 8 on the relevant standards of US GAAP. Special funds The scope of SIC 12 includes, among other things, special investment funds that are chiefly created to serve a narrowly defined purpose. As such the Group must assess whether economic control according to IAS in conjunction with SIC 12 exists for its special investment funds. Economic control exists, for example, when the majority of the economic benefits or risks arising out of the activities of the special fund is attributable to a Group company. In this context, 28 special funds and one public fund were included as at the balance sheet date in the consolidated financial statements due to the existence of a controlling relationship or economic control with respect to the special fund. Of these, 19 were domestic funds. Two special funds (HG-I Aktien VC Strategie and TAL-Corp Rentenspezial) were set up in the first quarter of 2012 and recognised in the Industrial Lines and Retail Germany segments, respectively. One special fund (Ampega-TAL-A-Fonds) in the Retail Germany segment was liquidated in the second quarter of 2012.

8 Nature of risks balance sheet assets balance sheet liabilities statement of income Other information List of shareholdings 183 In the third quarter of 2012, the Group consolidated, for the first time, the special fund KBC ALFA Specjalistyczny Fundusz Inwestycyjny Otwarty (ALFA Fonds) in the Retail International segment (see also our remarks in the subsection Scope of consolidation in this section). The special fund HG-I Commodity Strategie was set up and consolidated in the Industrial Lines segment. Two special funds (Ampega-nl-Balanced-Fonds and CSHG Hannover FI Multimercado Credito Privado) were liquidated during the reporting period (Retail Germany and Retail International segments, respectively). In the fourth quarter of 2012 the special fund Talanx Deutschland Real Estate Value (Retail Germany segment), Ampega Real Estate Value 1, Ampega Real Estate Value 2 and Ampega Real Estate Value 3 (all three in the Corporate Operations segment), HG-I Real Estate EURO und HG-I Real Estate USD (both in the Industrial Lines segment) and Fundo Invest Cotas Fundos Invest Multimercado Cred Priv HDI Estrategia and Fundo Invest Renda Fixa Credito Privado JPM HDI BRASIL (both in the Retail International segment) were set up. Investments Within the scope of its asset management activities, the Group participates in numerous special purpose entities predominantly funds which for their part transact certain types of equity and debt capital investments. On the basis of our analysis of the relations with these entities, we concluded that the Group does not exercise a controlling influence in any of these transactions and that a consolidation requirement therefore does not exist. Hannover Re participates primarily through the companies Secquaero ILS Fund Ltd. (Secquaero) and Hannover Insurance-Linked Securities GmbH & Co. KG (HILS) by investing in catastrophe bonds (or CAT bonds) in a number of special purpose entities for the securitisation of catastrophe risks. While HILS continues to manage its portfolio, future new business in this field will be subscribed by the Leine Investment companies. In this context, please note our remarks on Leine Investment General Partner S. à r. l. and Leine Investment SICAV-SIF under Acquisitions and establishments. Since Hannover Re does not exercise a controlling influence in any of these transactions either, there is no consolidation requirement for the special purpose vehicles in question. Secquaero established a special purpose entity supporting the transformation of technical risks on the capital market; it holds all of the voting rights. Since the business relations with the special purpose entity are of subordinate importance to the consolidated financial statements, the company was not consolidated. Securitisation of reinsurance risks The securitisation of reinsurance risks is largely structured through the use of special purpose entities. In September 2012, Hannover Re once again issued a CAT bond with the aim of transferring to the capital market peak natural disaster exposures deriving from European storm events. The term of the CAT bond, which has a volume of nominally EUR 100 million, runs until 31 March 2016 and was placed with institutional investors from Europe, North America and Asia by Eurus III Ltd., a special purpose entity domiciled in Hamilton, Bermuda, that was registered in August 2012 as a Special Purpose Insurer under the Bermuda Insurance Act The retrocessions concluded in connection with the transaction with the special purpose entity provide Hannover Re, E+S Rück versicherung AG and Hannover Re (Bermuda) Ltd. with protection against the aforementioned catastrophe risks. Since Hannover Re does not exercise any controlling influence over Eurus III Ltd., there is no consolidation requirement for the special purpose entity.

9 184 Consolidated financial statements Notes General information Accounting principles and policies Segment reporting Consolidation, business combinations Assets and disposal groups Within the scope of its K transactions, Hannover Re raised further underwriting capacity for catastrophe risks on the capital market. K-cession (formerly K6 ), which was placed with institutional investors in North America, Europe and Asia, involves a quota share cession on worldwide natural catastrophe business as well as aviation and marine risks. The volume of K-cession was increased several times and was equivalent to EUR 268 (259) million as at the balance sheet date. The transaction has an indefinite term and can be cancelled annually by the investors. Kaith Re Ltd., a special purpose entity domiciled in Bermuda, is being used for the transaction. Hannover Re also uses the special purpose entity for various retrocessions of its traditional covers to institutional investors. In accordance with SIC 12, Kaith Re Ltd. is included in the consolidated financial statements. In July 2009 Hannover Re issued a catastrophe (CAT) bond with the aim of transferring to the capital market peak natural catastrophe exposures derived from European winter storm events. The term of the now matured CAT bond, which had a volume of nominally EUR 150 million, ran until 31 March 2012, and it had been placed with institutional investors from Europe and North America by Eurus II Ltd., a special purpose entity domiciled in the Cayman Islands. Hannover Re did not exercise a controlling influence over this special purpose entity. Under IFRS this transaction is to be recognised as a financial instrument. Assumed life/health reinsurance business Some transactions in the Life/Health Reinsurance segment require the involvement of cedant special purpose entities as contractual partners established by parties outside the Group and from whom companies of the Hannover Re Group assume certain technical and/or financial risks; the probability of any loss arising from these risks for Hannover Rückversicherung AG is low. The transactions primarily serve the purpose of financing statutory reserves (so-called Triple-X or AXXX reserves) and transferring extreme mortality risks above a contractually defined retention ratio. Since Hannover Re does not bear the majority of the economic risks or benefits arising out of its business relations with these special purpose entities, nor can it exercise a controlling influence, there is no consolidation requirement for Hannover Re. Depending on the classification of the contracts in accordance with IFRS 4 or IAS 39 the transactions are either recognised under reinsurance, or as a derivative financial instrument or as a financial guarantee. Please also note our comments in Note 13 Derivative financial instruments and hedge accounting in the section Notes on individual items of the consolidated balance sheet. Retrocessions and insurance-linked securities (ILS) Since 2010 and as part of its extended insurance-linked securities (ILS) activities, Hannover Re has written so-called collateralised fronting arrangements, under which risks assumed from ceding companies are passed on to institutional investors outside the Group using special purpose entities. The purpose of such transactions is the direct transfer of client business. Due to the lack of a controlling influence over the special purpose entities involved, there is no consolidation requirement for Hannover Re with respect to these structures. In the course of selling the operational companies of the subgroup Clarendon Insurance Group, Inc. (CIGI), Wilmington, to Enstar Group Ltd., Hamilton, Bermuda, a partial portfolio of CIGI was retroceded to a special purpose entity. The term of the retrocession runs until the final settlement of the underlying obligations. Since Hannover Re is not the major beneficiary of the special purpose entity and exercises neither indirect nor direct control over it, there is no consolidation requirement for this special purpose entity.

10 Nature of risks balance sheet assets balance sheet liabilities statement of income Other information List of shareholdings 185 Associated companies valued using the equity method Associated companies are those over which the Group exercises a significant but not controlling influence. As of the balance sheet date, 12 (13) were valued using the equity method in accordance with IAS 28 Investments in Associates. A further nine (nine) associated companies are not recognised using the equity method owing to their minor importance for the presentation of the assets, financial position and net income (please refer here to our remarks in the section Accounting policies from page 144 onwards). In the South African subgroup Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, which is part of Hannover Rückversicherung AG, two companies consolidated using the equity method were sold. These processes were of subordinate importance overall to the consolidated financial statements. Additionally, business and assets of subsidiary company Construction Guarantee (Pty) Ltd, Parktown (Construction Guarantee), were transferred in the second quarter of 2012 to Firedart & Construction Guarantee Underwriting Managers (Pty) Ltd., Johannesburg (Firedart). Firedart, in which Lireas Holding (Pty) Ltd., Johannesburg, acquired 49.9% of the shares in January of the reporting year, has been consolidated in the subgroup accounts since its acquisition using the equity method. Construction Guarantee was in liquidation as at the balance sheet date. In July 2012, HDI-Gerling Industrie Versicherung AG increased its holding in Petro Vietnam Insurance Holdings, Hanoi, Vietnam, from 25% to 31.82% in connection with a capital increase. On 31 October 2012, Funis GmbH & Co. KG (Funis), wholly-owned by Hannover Rückversicherung AG, acquired 30% of the shares in life insurer ASPECTA Assurance International AG based in Liechtenstein for a purchase price of EUR 1 from Talanx International AG (Non-Life Reinsurance segment). Due to the voting ratios, Funis is able to exercise a significant influence on the company. Accordingly, the shareholdings were included using the equity method at the equity ratio pertaining to the Group. The negative goodwill amounting to EUR 0.7 million derived from netting the purchase price with the prorated shareholders equity was carried through profit or loss. It was recognised in Net investment income (under Investments in associated companies ). In December 2012, HDI Assicurazioni S. p. A., Rome, Italy, sold all its shares (13.08%) in Apulia Prontoprestito S. p. A., San Severo, Italy, a company outside the Group. The deconsolidation gave rise to a profit/loss of EUR 2 million, which was recognised in Net investment income (Retail International segment). Joint ventures valued using the equity method Credit Life International Services GmbH, Neuss, which formerly had been consolidated proportionately, began being recognised as a participating interest starting in the second quarter of 2012, since based on its total assets and net income it is immaterial to the assessment of the Group s assets, fi nancial position and net income. The deconsolidation gave rise to a gain of EUR 28 thousand, which was recognised in Other Income and Expenses. On 15 May 2012, HDI-Gerling Industrie Versicherung AG (HG-I) closed on the formation of a joint venture with NBFC Magma Fincorp. In connection with this transaction, HG-I directly acquired 25.5% of the shares of the Indian insurance company Magma HDI General Insurance Company Limited, Calcutta, for a purchase price equivalent to EUR 24 million. Together with NBFC Magma Fincorp, this company handled property and liability insurance business during the third quarter of Based on contractual agreements between the partner companies with respect to the exercise of joint control, Magma HDI General Insurance Company Limited constitutes a joint venture, which is to be recognised in accordance with the provisions of IAS 31 Interests in Joint Ventures. Exercising its right of choice under this accounting standard, the Group consolidated the company using the equity method.