Hedge accounting

In the year under review we took out interest rate swaps as part of a cash flow hedge to hedge floating-rate commitments against rising interest rates. We took out a floating-rate bank liability in an amount of EUR 550 million with a value date of 28 September 2007 so as to finance the purchase price for the interests in BHW Lebensversicherung AG and BHW Pensionskasse AG as well as the remaining 50% stakes in Postbank Lebensversicherung AG and Postbank Versicherung AG. The floating rate tracks the three-month EURIBOR. Four interest rate swaps were taken out with the same value date, also in a nominal amount of altogether
EUR 550 million. We receive floating interest from this interest rate swap in the same amount as we are required to pay on the basis of the liability, and in exchange we pay fixed interest. The selection of highly rated counterparties ensures that we avoid entering into any significant additional credit risk

We adopted cash flow hedge accounting pursuant to IAS 39.86 (b) in the year under review. The interest rate swaps serve to hedge future cash flows. They are recognized at fair value under cash flow hedge accounting. The hedging relationship is fully effective. The measurement gains or losses on the interest rate swaps are therefore recognized directly in equity in a separate item (cash flow hedge reserve) after allowance for deferred taxes. The current interest payments are recognized in other income/expenses after allowance for correct allocation to applicable accounting periods, since the hedged item constitutes an instrument used for corporate financing.

Since the liability carries floating-rate interest, changes in the interest rate level do not in principle affect the fair value of the liability. The situation is different as regards the interest rate swaps: the larger the spread between the fixed interest rate payable and the floating interest rate received, the higher the fair value amount of the interest rate swaps. The liability is repayable on 31 December 2012, and the interest rate swaps mature on the same date. Upon maturity the interest rate swaps have a fair value of EUR 0. All fluctuations in fair value are thus neutralized over the term of the swaps.

The fair value (dirty value) of the four interest rate swaps amounted to altogether
–EUR 6.4 million as at the balance sheet date; it was influenced primarily by accrued interest of –EUR 6.5 million. The fair values of the individual interest rate swaps were as follows:

The fair value was calculated in the SimCorp Dimension investment management system used by AmpegaGerling Asset Management GmbH on the basis of the discounted cash flow method.

In 2007 the change in the fair value of the interest rate swaps since inception amounting to EUR 85,000 was booked directly in equity with no effect on income. In the first year this involves the fair value as at the balance sheet date exclusive of accrued interest.

The first date after the balance sheet date on which payments were received from the hedge transaction was 28 March 2008; both the floating and the fixed interest payments were due on that date.