Investments
| Net investment income | |||||||
|---|---|---|---|---|---|---|---|
| in EUR million | 2017 | 2016 | |||||
| 1.1. – 31.3. | +/– previous year | 1.1. – 31.3. | |||||
| Ordinary investment income1 | 319.1 | +18.9% | 268.5 | ||||
| Result from participations in associated companies | 4.4 | 0.7 | |||||
| Realised gains / losses | 24.1 | -44.7% | 43.6 | ||||
| Appreciation | – | 0.1 | |||||
| Depreciation, amortisation, impairments2 | 10.9 | -21.6% | 13.9 | ||||
| Change in fair value of financial instruments3 | 10.9 | +4.6% | 10.5 | ||||
| Investment expenses | 27.6 | +3.5% | 26.7 | ||||
| Net investment income from assets under own management | 320.0 | +13.2% | 282.7 | ||||
| Net investment income from funds withheld and contract deposits | 72.9 | -12.8% | 83.5 | ||||
| Total investment income | 392.9 | +7.3% | 366.2 | ||||
| 1 Excluding income and expenses on funds withheld and contract deposits 2 Including depreciation / impairments on real estate 3 Portfolio at fair value through profit or loss and trading |
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Despite widespread disquiet on both the geopolitical level and in domestic political spheres, the investment environment was nevertheless relatively stable in the period under review; it was, however, notable for a continued low interest rate level and relatively low risk premiums on corporate bonds. While modest yield increases were widely observed on German government bonds, the general level of rates was still very low overall. German government bonds continue to be sold at negative returns well into the medium maturity segment. In the case of US Treasuries, a slight rotation of the yield curve was observed overall against a backdrop of modest yield declines in the medium to long maturity ranges.
Credit spreads on European and US corporate bonds were very largely stable in most rating classes, with the result that they too remained on a stubbornly low level overall. In total, the unrealised gains on our fixed-income securities as at 31 March 2017 increased slightly to EUR 1,119.9 million (EUR 1,098.1 million). After the already significant growth recorded in 2016, our portfolio of assets under own management increased to EUR 42.0 billion (31 December 2016: EUR 41.8 billion). We scarcely changed the allocation of our assets to the individual classes of securities in the first quarter. The reorganisation of the rating structure of our USD fixed-income portfolio was partially suspended because we considered the risk / return ratio of some classes of securities in the lower rating segment to be no longer adequate. We shall observe the development of the market here before potentially continuing with this move. In the other classes of securities and on the euro side, where the situation is more attractive in this regard, we pressed ahead with the restructuring accordingly. In this way we shall be able to increase the liquidity of our portfolio while maintaining the overall risk level of our fixed-income holdings virtually unchanged and continuing to generate stable returns. In addition, we modestly reduced our real estate portfolio by selling an office property in the United States. Compared to the previous year, we adjusted the modified duration of our portfolio of fixed-income securities merely insignificantly to 4.9 (5.0).
Ordinary investment income excluding interest on funds withheld and contract deposits came in higher as at 31 March 2017 than in the comparable period at EUR 319.1 million (EUR 268.5 million). Particularly bearing in mind the continued low level of interest rates, it is highly gratifying that we were able to more than offset the diminished return on our fixed-income securities with what was – by first quarter standards – very strong income from private equity and real estate. Interest on funds withheld and contract deposits retreated to EUR 72.9 million (EUR 83.5 million).
Impairments of altogether just EUR 10.9 million (EUR 13.9 million) were taken. Of this amount, EUR 1.0 million (EUR 4.2 million) was attributable to alternative investments; impairments of EUR 0.4 million (EUR 2.0 million) were recognised on equities. No impairments (EUR 0.7 million) were taken on fixed-income securities. Scheduled depreciation on directly held real estate increased slightly to EUR 7.4 million (EUR 6.9 million), a reflection of our ongoing growing involvement in this area. The impairments were not opposed by any write-ups (EUR 0.1 million).
The net balance of gains realised on disposals stood at EUR 24.1 million (EUR 43.6 million) and was in large measure attributable to regrouping activities as part of regular portfolio maintenance.
We recognise a derivative for the credit risk associated with special life reinsurance treaties (ModCo) under which securities deposits are held by cedants for our account; the performance of this derivative in the period under review gave rise to unrealised gains of EUR 1.3 million (loss of -EUR 1.4 million) recognised in investment income. In economic terms we assume a neutral development for this item over time, and hence the volatility that can occur in specific quarters provides no insight into the actual business development. Altogether, the unrealised gains in our assets recognised at fair value through profit or loss amounted to EUR 10.9 million. This contrasted with unrealised gains of EUR 10.5 million in the corresponding period of the previous year.
Despite a diminished return on our fixed-income securities and lower realised gains, we generated investment income of EUR 392.9 million – a pleasing improvement on the comparable period (EUR 366.2 million) made possible by stronger ordinary income from real estate and private equity. Income from assets under own management accounted for an amount of EUR 320.0 million (EUR 282.7 million), producing an annualised average return (excluding effects from derivatives) of 3.0%. This puts us well on track to achieve our expected target of 2.7% for the full year.
| Rating structure of our fixed-income securities1 | ||||||||
| Rating classes | Government bonds | Securities issued by semi-governmental entities2 | Corporate bonds | Covered bonds / asset-backed securities | ||||
|---|---|---|---|---|---|---|---|---|
| in% | in EUR | in% | in EUR | in% | in EUR | in% | in EUR | |
| AAA | 77.3 | 9,150.8 | 65.8 | 4,755.8 | 1.0 | 128.9 | 66.4 | 2,303.1 |
| AA | 11.7 | 1,385.8 | 27.7 | 1,998.1 | 13.4 | 1,742.2 | 14.5 | 501.6 |
| A | 5.1 | 605.9 | 2.3 | 165.3 | 33.5 | 4,346.8 | 5.7 | 198.2 |
| BBB | 4.2 | 494.5 | 1.1 | 81.0 | 43.0 | 5,567.2 | 9.0 | 312.1 |
| < BBB | 1.7 | 200.3 | 3.1 | 222.7 | 9.1 | 1,183.1 | 4.4 | 152.9 |
| Total | 100.0 | 11,837.3 | 100.0 | 7,222.9 | 100.0 | 12,968.2 | 100.0 | 3,468.0 |
| 1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings. 2 Including government-guaranteed corporate bonds | ||||||||