Talanx reports good result after third quarter
- Gross written premium after nine months +3.4 %
- Underwriting result improved in virtually all segments
- Group net income +186 % to EUR 329 million
- Return on equity +5.4 percentage points year-on-year
- S&P confirms financial strength rating of A+ (stable)
Hannover, 22 November 2011
The Talanx Group has successfully continued its growth track: increased premium income – especially in its strategic growth areas –, a significantly improved underwriting result despite heavy claims, gratifying investment income in light of the current financial crisis and sharply reduced tax expenditures have enabled Talanx to more than double its Group net income in the first nine months of 2011.
"We are satisfied with our performance after the third quarter – especially given the heavy claims in the first quarter", Herbert K. Haas, Chief Executive Officer of Talanx AG, stated. "Once again this is a testimonial of the well diversified, weather-proof positioning of the Talanx Group, which enables us to offset volatility in the results of individual segments."
Against the backdrop of the financial crisis, Mr. Haas was also satisfied with the Group's investment income: "Thanks to our prudent investment strategy, the implications of the crisis on global financial markets were moderate for the Group." The merely modest decline in investment income of around 2 percent can be attributed above all to the low equity allocation of about 1 percent and the forward-looking investment decisions taken with respect to government bonds issued by the so-called GIIPS countries. Altogether, the holding of such government bonds accounts for just 1.5 percent of the Group's total investments. The Group recorded impairments of EUR 8 million on Greek government bonds. As of 30 September 2011, the remaining exposure stands at EUR 6 million.
The Group also made progress on the strategic front: in August Talanx entered into a strategic partnership with the Vietnam-based PVI Holdings. The two companies will pool their resources in the Vietnamese growth market.
The Dutch company Nassau Verzekering, Rotterdam, was consolidated for the first time in the second quarter. It is an established niche provider that has concentrated on specialty lines such as professional indemnity and D&O as well as crisis management services in the Netherlands and beyond.
With acquisitions in Argentina and Uruguay, Talanx also moved forward with its strategic growth in international retail business in the target market of Latin America, while at the same time expanding its network in industrial lines.
Standard & Poor's, the rating agency, confirmed the Talanx Primary Group's important financial strength rating of A+ (stable) at the end of October. Special mention was made of the Group's capital strength as well as its leading competitive position in Industrial Lines and in the German bancassurance business.
Business development of the Talanx Group
The gross written premium booked by the Group grew by 3.4 percent (4 percent adjusted for exchange rate effects) in the first nine months of this year relative to the corresponding period of the previous year to reach EUR 17.8 billion. The strongest gain was recorded by Non-Life Reinsurance with 8 percent before exchange rate effects, followed by the Retail International division with 7 percent.
The underwriting result generated by the Group is also pleasing: thanks to improvements in all segments with the exception of Non-Life Reinsurance which was faced with exceptionally heavy major losses in the first quarter, the Group's underwriting result improved by EUR 232 million (+15 percent).
Investment income contracted by a modest 2.2 percent to EUR 2.4 billion. Operating profit (EBIT) consequently fell slightly by 5 percent to EUR 720 million. This was driven principally by movements in exchange rates as well as positive non-recurring effects in the previous year. Group net income climbed to EUR 329 million, an improvement of 186 percent on the result of the corresponding period of the previous year, also boosted by an exceptionally low tax burden. The return on equity came in higher relative to the previous year's period at 8.6 percent (annualized).
Interim report of the Divisions
Gross premium income in the Industrial Lines division grew by a modest 1 percent to EUR 2.6 (2.5) billion. Developments were particularly favorable in the motor and fire lines. Premium declines were recorded in the industrial liability line owing to increased risk assumption by policyholders.
Industrial business in international markets was stable with a positive tendency. Nassau Verzekering has already been a contributory factor in this regard.
Despite the heavier burden of major losses, especially in connection with the earthquake damage in Japan, an increased underwriting profit (+EUR 74 million) was generated on the back of a positive run-off of our loss reserves. The combined ratio improved appreciably and currently stands at 93.1 (101.2) percent. The contraction in the operating profit (EBIT) to EUR 168 (182) million derives from the decline in other income – driven by exchange rate movements – as well as a drop of 12 percent in investment income.
Gross written premium in the Retail Germany division retreated slightly by 1 percent in the period under review to stand at EUR 5.0 (5.1) billion. In this context, a pleasing trend on the property/casualty insurance side, which recorded a 6 percent gain year-on-year to reach EUR 1,337 (1,263) million, was offset by lower premium income in life insurance due to a decrease in single premium business. Gross written premium including saving elements of premium under unit-linked life insurance policies amounted to EUR 3,670 (3,804) million.
The new business growth generated by the life insurance companies – measured by the Annual Premium Equivalent (APE) – fell 4 percent short of the previous year's period at EUR 329 (343) million.
The underwriting result for the segment improved by a substantial 25 percent to –EUR 972 (-1,305) million. The combined ratio in property/casualty insurance remained stable at 101.8 (101.7) percent.
The favorable development of the underwriting result also resulted in a significant improvement of the operating profit (EBIT) to EUR 111 (-2) million, whereby the corresponding period of the previous year had been significantly influenced by adjustments connected with the refocusing of the division. Investment income fell by 7 percent in the period under review; the previous year had, however, notably benefited from a one-off effect, namely disposal gains from special funds.
The Retail International division again showed substantial growth, boosting its gross written premium by 7 percent to EUR 1.8 (1.7) billion. Along with vigorous organic growth – especially at our companies in Brazil, Mexico and Turkey – our newly acquired companies in Argentina and Uruguay also played their part, contributing EUR 29 million to premium growth.
The underwriting result was better than in the corresponding period of the previous year at –EUR 49 (-106) million. The combined ratio improved by almost 5 percentage points. Investment income fell by 4 percent.
Operating profit (EBIT) for the segment improved thanks to the good underwriting result and stood at EUR 18 (-29) million after the first nine months of 2011.
Gross written premium in Non-Life Reinsurance increased by 8 percent to EUR 5.2 (4.8) billion. At constant exchange rates, especially against the US dollar, growth would have been as strong as 11 percent.
Although the burden of major claims in the third quarter was lower than expected, the underwriting result for the overall year to date – which came in at –EUR 224 (30) million – is still overshadowed by the natural catastrophes earlier this year. Other income also declined, primarily owing to an adverse effect of EUR 91 million due to unfavorable movements in exchange rates. Operating profit (EBIT) consequently contracted to EUR 352 (669) million.
Gross written premium in Life/Health Reinsurance climbed by 3 percent to EUR 3.8 (3.7) billion. Despite negative effects associated with the widening of credit spreads on bond markets, which resulted in a strain of some EUR 70 million on deposits held by ceding companies, as well as adverse exchange rate effects of EUR 44 million, an operating profit (EBIT) of EUR 147 (213) million was still generated. This clearly underscores the good quality and excellent diversification of the portfolio.
We expect to grow the gross premium income for our Group on a consolidated basis to more than EUR 23 billion in the 2011 financial year, despite the weaker US dollar against the euro. It is our assumption that above-average premium growth can be generated in the Industrial Lines division and especially in the composite business written by Retail International. The planned acceleration of growth globally is in accordance with our strategic objective of generating half the Group's entire primary insurance premiums in international markets over the medium term. The Non-Life Reinsurance and Life/Health Reinsurance divisions will also contribute to the Group's premium growth.
This news release contains projections or other forward-looking statements which are based upon the current knowledge and assumptions of the management of Talanx AG about future events. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. The economic environment and other conditions are constantly changing. As a result, the actual development and performance of the company may differ materially from those currently anticipated in such statements. The company assumes no duty to revise or update any of the forward-looking statements or other information contained herein.
Table of Group key figures
Full Interim Report as at 30 September 2011
Financial Calendar for 2012