Hannover Re will change its legal status from a German joint stock company Aktiengesellschaft (AG) to a Societas Europaea (SE), a European joint stock company.
The reason is a problem in the implementation of Solvency II that could prevent the reinsurer from setting up its own Solvency II internal group risk model.
With the announcement, Hannover Re is putting pressure on the European legislator and the German government to ensure the new rules fit the company’s situation.
Solvency II requires insurers to set aside capital according to the risks they take, both on the insurance and on the investment side. Supervisors have developed a “standard model“ designed to fit most insurers. But specialised insurers and groups, as well as reinsurers, have problems with that model as it would require far too much capital from them. They are developing internal tailor-made models that need to be certified by regulators.
Hannover Re fears, as things stand at the moment, it might not be able to get its internal group model certified.
“With the move, we gain options we don’t have as an AG,“ chief executive, Ulrich Wallin, said. “We can freely choose our seat within the EU.“ He said there were no plans to move Hannover Re, “but depending on the way the regulatory development emerges, this freedom could be valuable.“
He pointed to the Omnibus II directive under discussion in the European parliament, which changes the existing Solvency II directive .
“In the Omnibus II directive, it is stated we must not create our own group model if we are controlled by another group in the same country,“ Wallin explained. As Hannover Re is controlled 50.2% by Talanx, which in turn is owned by the mutual HDI VvaG, it might have to use the group risk model of HDI VvaG, rather than developing its own group model.
“If a sub group is based in another country, however, there is no question of its right to develop its own group model,“ said chief financial officer, Roland Vogel. Thus, if Hannover Re moved to another country, it would have no problems with its own internal model.
Vogel said no figure could be put to the possible financial disadvantage the lack of its own group model would bring to Hannover Re. “It is not even certain that there is a disadvantage, because as Hannover Re we could in any case use an internal company model,“ he said.
But it was very difficult to foresee how investors, analysts and rating agencies would react to the fact Hannover Re has no group risk model of its own. “Thus we want to have the option,“ Vogel said.
There was no tax angle involved, and Hannover Re had not talked to other supervisors, Wallin said: “We are talking to Germany’s BaFin about our internal model.“