Investments
| Net investment income | |||||||
|---|---|---|---|---|---|---|---|
| in EUR million | 2017 | 2016 | |||||
| 1.1.–30.6. | 1.7.–30.9. | +/– previous year |
1.1.–30.9. | +/– previous year |
1.7.–30.9. | 1.1.–30.9. | |
| Ordinary investment income1 | 635.1 | 307.5 | +8.3% | 942.6 | +10.6% | 284.0 | 852.0 |
| Result from participations in associated companies | 5.7 | 4.7 | 10.4 | 0.9 | 2.6 | ||
| Realised gains / losses | 83.4 | 259.9 | +250.9% | 343.3 | +123.5% | 74.1 | 153.6 |
| Appreciation2 | 23.1 | 10.9 | -15.4% | 34.0 | -44.3% | 12.9 | 61.0 |
| Change in fair value of financial instruments3 | 10.6 | 11.5 | +32.5% | 22.1 | -24.4% | 8.7 | 29.2 |
| Investment expenses | 55.6 | 26.3 | -3.9% | 82.0 | +2.6% | 27.4 | 79.9 |
| Net investment income from assets under own management | 656.0 | 546.4 | +66.9% | 1,202.4 | +34.1% | 327.3 | 896.5 |
| Net investment income from funds withheld |
123.4 | 56.8 | -23.6% | 180.1 | -27.9% | 74.3 | 249.9 |
| Total investment income | 779.4 | 603.1 | +50.2% | 1,382.5 | +20.6% | 401.6 | 1,146.4 |
| 1 Excluding income 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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The investment climate was relatively stable in the period under review despite the disquiet on numerous geopolitical fronts, although it was shaped by the continued low level of interest rates and further declines in risk premiums for corporate bonds. While increases in yields for German government bonds were observed across all maturities, the general level of interest rates remained very low overall. German government bonds are still being sold at negative returns well into the medium maturities. In the case of US Treasuries, a modest inversion of the yield curve could be observed overall against a backdrop of yield declines in the medium and longer-maturity segments.
Credit spreads on European and US corporate bonds declined still further across most rating classes despite the already very low level at the beginning of the period under review. Overall, then, they remained at a stubbornly low level. All in all, the unrealised gains on our fixed-income securities decreased as at 30 September 2017 to EUR 1,023.5 million (EUR 1,098.1 million). Our portfolio of assets under own management contracted to EUR 40.2 billion (31 December 2016: EUR 41.8 billion), driven primarily by exchange rate effects – with the strengthening of the euro against the US dollar particularly evident here – and the dividend distribution. Generally speaking, during the reporting period we only adjusted the allocation of our assets to the individual classes of securities in the context of regular portfolio maintenance. At the end of the third quarter, however, we responded to the windstorm events in the United States and the Caribbean as well as the earthquakes in Mexico by liquidating our holdings of listed equities and equity funds in order to take advantage of the favourable state of the market, reduce our general risk position and free up capital for possible risk reallocations. In addition, we made the most of opportunities available to our US real estate portfolio by both selling and acquiring one office building. We also expanded our real estate holdings in Asia. In Germany, on the other hand, we modestly scaled back our exposure. The modified duration of our portfolio of fixed-income securities changed only negligibly relative to the previous year to stand at 4.9 (5.0).
Ordinary investment income excluding interest on funds withheld and contract deposits totalled EUR 942.6 million as at 30 September 2017, a figure significantly higher than in the previous year’s period (EUR 852.0 million). Particularly bearing in mind the continued low interest rate level, it is very pleasing that we have been able to more than offset the diminished return on our fixed-income securities with very strong income from private equity and real estate. Interest on funds withheld and contract deposits contracted to EUR 180.1 million (EUR 249.9 million).
Impairments totalling just EUR 34.0 million (EUR 61.0 million) were taken. Of this, EUR 5.5 million (EUR 9.7 million) was attributable to alternative investments; an impairment loss of EUR 3.7 million had to be recognised on equities (EUR 27.6 million). Impairments of EUR 0.1 million (EUR 0.7 million) were taken on fixed-income securities. Scheduled depreciation on directly held real estate increased slightly to EUR 22.6 million (EUR 21.2 million), a reflection of our sustained growing involvement in this area. The writedowns were not opposed by any write-ups.
The net balance of gains realised on disposals stood at EUR 343.3 million (EUR 153.6 million) and can be attributed in part to regrouping activities in the context of regular portfolio maintenance, but first and foremost to the liquidation of our portfolio of listed equities at the end of the third quarter.
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 3.2 million (losses of EUR 0.3 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 has no implications for the actual business development. Altogether, the unrealised gains in our assets recognised at fair value through profit or loss amounted to EUR 22.1 million (EUR 29.2 million).
Despite the diminished return on our fixed-income securities, stronger ordinary income from real estate and private equity as well as higher realised gains enabled us to generate investment income of EUR 1,382.5 million that clearly surpassed the level of the previous year’s period (EUR 1,146.4 million). Income from assets under own management accounted for EUR 1,202.4 million (EUR 896.5 million), producing an annualised average return (excluding effects from derivatives) of 3.9%.
| 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 million | in % | in EUR million | in % | in EUR million | in % | in EUR million | |
| AAA | 78.0 | 9,691.5 | 66.7 | 4,474.9 | 1.1 | 139.7 | 65.9 | 2,094.0 |
| AA | 11.5 | 1,427.7 | 22.8 | 1,529.9 | 12.4 | 1,509.5 | 12.4 | 394.4 |
| A | 5.4 | 674.2 | 5.3 | 357.4 | 33.1 | 4,041.5 | 7.1 | 225.9 |
| BBB | 3.6 | 448.2 | 1.3 | 85.9 | 44.1 | 5,375.7 | 10.8 | 344.0 |
| < BBB | 1.5 | 189.0 | 3.9 | 263.6 | 9.3 | 1,129.1 | 3.8 | 121.9 |
| Total | 100.0 | 12,430.7 | 100.0 | 6,711.7 | 100.0 | 12,195.4 | 100.0 | 3,180.2 |
| 1 Securities held through investment funds are recognised pro rata with their corresponding individual ratings. 2 Including government-guaranteed corporate bonds. | ||||||||