(17) Shareholders’ equity

Changes in shareholder’s equity and non-controlling interests

N105 COMPOSITION OF SHAREHOLDERS’ EQUITY
  FIGURES IN EUR MILLION
    31.12.2013 31.12.20121)
  Common shares 316 316
  Additional paid-in capital 1,373 1,369
  Retained earnings 4,575 4,204
  Other reserves 188 638
  Group net income 762 626
  Non-controlling interests in shareholders’ equity 3,997 4,156
  Total 11,211 11,309
  1) Adjusted on the basis of IAS 8. Cf. “Accounting policies” section of the Notes, subsection “Changes in accounting policies and accounting errors”
   

Additional paid-in capital amounts to EUR 1,373 (1,369) million. In the previous year, additional paid-in capital increased by EUR 761 million as a result the issue of new shares in connection with the IPO by Talanx AG. In the process, costs in connection with the new shares in the amount of EUR 31 million were netted directly against additional paid-in capital, taking into account associated tax effects of –EUR 9 million. The increase in additional paid-in capital in the year under review (EUR 4 million) is the result of the capital increase carried out for the purposes of the employee share programme.

Retained earnings include equalisation reserves of EUR 1,583 (1,609) million (after deferred taxes).

Other reserves include gains and losses from currency translation amounting to –EUR 209 (48) million.

N106 UNREALISED GAINS AND LOSSES INCLUDED IN OTHER RESERVES 1)
  FIGURES IN EUR MILLION
    31.12.2013 31.12.2012 2)
  Associated companies valued using the equity method 1,486 2,313
  From invested assets, available for sale 33 87
  From cash flow hedges –421 –574
  Other changes    
  less/plus –617 –1.056
  Policyholder participation/shadow accounting1) –84 –180
  Deferred taxes recognised directly in equity 169 540
  Non-controlling interests in shareholders’ equity 566 1,130
  1) Includes provisions recognised directly in equity for deferred premium refunds
2) Adjusted on the basis of IAS 8. Cf. “Accounting policies” section of the Notes, subsection “Changes in accounting policies and accounting errors”
   

“Non-controlling interests in shareholders’ equity” refers principally to shares held by shareholders outside the Group in the shareholders’ equity of the Hannover Re subgroup.

N107 RECONCILIATION ITEMS FOR NON-CONTROLLING INTERESTS IN SHAREHOLDERS’ EQUITY
  FIGURES IN EUR MILLION
    31.12.2013 31.12.2012 1)
  Unrealised gains and losses from investments 380 667
  Share of net income 520 518
  Other shareholders’ equity 3,097 2,971
  Total 3,997 4,156
  1) Adjusted on the basis of IAS 8. Cf. “Accounting policies” section of the Notes, subsection “Changes in accounting policies and accounting errors”
   

The changes in financial instruments that affected shareholders’ equity – with such instruments being allocated to the category of “Financial assets available for sale” within the Group – before allowance for policyholders, non-controlling interests and deferred taxes were as follows:

N108 EFFECT OF FAIR VALUE MEASUREMENT ON OTHER COMPREHENSIVE INCOME
  FIGURES IN EUR MILLION
    31.12.2013 31.12.2012
  Allocation of gains/losses from the fair value measurement of “Financial assets available for sale” (unrealised gains and losses) –696 2,417
  Transfers of gains/losses from the fair value measurement of “Financial assets available for sale” to net income –499 –78
   

Common shares

The share capital of Talanx AG amounts to EUR 315.997 (315.782) million and is divided into 252,797,634 (252,625,682) registered no-par value shares. The share capital is fully paid up.

Own shares

On 26 November 2013, in connection with the launch of the employee share programme for employees of domestic companies (other than Hannover Rück SE), 171,952 registered no-par value shares – with a pro rata contribution to share capital of EUR 1.25 each – were issued from authorised capital at an issue price of EUR 17.59 per share, which price included a discount of EUR 7 per share. This led to an increase in share capital of EUR 0.2 million and briefly to a corresponding portfolio of own shares. The transaction gave rise to personnel expenses of EUR 1.2 million as well proceeds from the sale of own shares totalling EUR 0.2 million, which were recognised in retained earnings. With the start of the year, the issued shares are entitled to share in profit and are subject to a holding period that ends on 30 November 2017.

As at the balance sheet date, the Company no longer owned any own shares.

With regard to the composition of shareholders’ equity, cf. “Consolidated statement of changes in shareholders’ equity”.

Conditional capital

On 15 May 2012, the General Meeting resolved to conditionally increase share capital by up to EUR 78 million through the issuance of up to 62,400,000 new no-par value shares (conditional capital II). The conditional capital increase is designed to grant no-par value shares to holders of bonds, which, on the basis of the authorisation conferred on the Board of Management by virtue of a resolution adopted by the General Meeting on the same date, Talanx AG or a subordinate Group company will issue by 14 May 2017 in exchange for cash in satisfaction of the conditional conversion obligation. The amendment to the Talanx AG Articles of Association took effect upon its entry in the commercial register on 4 June 2012.

On 28 August 2012, the Extraordinary General Meeting resolved to conditionally increase share capital by up to EUR 26 million through the issuance of up to 20,800,000 new no-par value shares with a pro rata amount of share capital of EUR 1.25 each (conditional capital III). The conditional capital increase is designed to grant no-par value shares to holders of convertible bonds, warrant bonds, participating bonds with conversion or warrant rights and profit-sharing rights with conversion or warrant rights as well as measures in connection with the employee share programme, which, on the basis of the aforementioned authorisation, Talanx AG or a subordinate Group company will issue by 27 August 2017 in exchange for cash in satisfaction of the conditional conversion obligation. The amendment to the Talanx AG Articles of Association took effect upon its entry in the commercial register on 5 September 2012.

Authorised capital

On 29 September 2012, the Extraordinary General Meeting resolved to rescind the authorised capital under § 7 Para. 1 of the Talanx AG Articles of Association, as authorised by the General Meeting on 21 November 2011, and to replace it with a new § 7 Para. 1, which authorises the Board of Management, subject to the approval of the Supervisory Board, to increase share capital by 28 September 2017 in one or more tranches, but up to a total amount of EUR 146 million, through the issuance of new registered no-par value shares in exchange for cash or contribution in kind. Subject to the approval of the Supervisory Board, shareholders may be precluded from exercising subscription rights for certain enumerated purposes connected with cash capital increases, provided the pro rata amount of share capital attributable to the new shares does not exceed 10% of share capital. Subject to the approval of the Supervisory Board, EUR 1 million of this may be used to issue employee shares. Subject to the approval of the Supervisory Board, the exercise of subscription rights may be precluded for contribution-in-kind capital increases if such exclusion is in the Company’s predominant interest. The amendment took effect upon its entry in the commercial register on 1 October 2012.

When the Greenshoe option was exercised on 8 October 2012, authorised capital was reduced to EUR 143 million in accordance with the Articles of Association. In the course of the employee share programme, authorised capital was reduced by EUR 0.2 million. After partial utilisation, authorised capital still amounts to EUR 142,307,260, of which EUR 785,060 continues to be used for employee shares.

Capital management

IAS 1 “Presentation of Financial Statements” requires detailed disclosures in the Notes that enable readers of financial statements to understand the objectives, methods, and processes of capital management and that provide supplementary information on changes in Group shareholders’ equity.

In this context, cf. the following remarks as well as the information contained in the Management Report regarding capital management, performance management and value-based management.

Preserving and continually strengthening its equity base is a key strategic objective for the Group. As part of its approach to capital management, the Group considers the policyholders’ surplus over and above the shareholders’ equity reported in the balance sheet.

The policyholders’ surplus is defined as the sum total of

  • shareholders’ equity excluding non-controlling interests, composed of common shares, additional paid-in capital, other reserves and retained earnings
  • non-controlling interests in shareholders’ equity
  • hybrid capital used as debt supplementing shareholders’ equity, which encompasses our subordinated liabilities

As at the balance sheet date, the policyholders’ surplus totalled EUR 14.3 (14.4) billion.

N109Change in policyholders’ surplus
P251_Chart: Change in policyholders’ surplus

The Group uses intrinsic value creation (IVC) as its central indicator of sustainable, strategic value creation for measuring the value created by our Group companies and divisions. This concept as well as the objectives and principles in accordance with which we conduct our enterprise governance and capital management is described in our remarks on capital management and performance management in the relevant subsections of the Management Report.

In terms of its capital resources, the Talanx Group satisfies the expectations of the agencies rating it. Some Group companies are also subject to additional capital and solvency requirements. All Group companies met the applicable local minimum capital requirements in the year under review.

In connection with Group-wide capital management, Talanx AG monitors the capital resources of its subsidiaries with the utmost diligence.

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