The Talanx Group uses various financial and alternative performance measures (APM) as part of its financial reporting. The present document defines the APMs used by Talanx and ensures that the requirements of the “Guidelines on Alternative Performance Measurements”, published by the European Securities and Markets Authority (ESMA), are implemented in an appropriate way.
The guidelines are aimed at promoting the usefulness and transparency of APMs included in prospectuses or regulated information. Adherence to the guidelines will improve the comparability, reliability and/or comprehensibility of APMs. The APMs used by the Talanx Group supplement those measures that are documented and published in accordance with International Financial Reporting Standards (IFRS). An APM is defined as a financial measure of historical or future financial performance, financial position or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. The Talanx Group uses the following APMs:
Some of the APMs listed here are already explained in the Talanx Group annual report and online glossary, which can be consulted as additional sources of information when classifying specific items. The APMs are predominantly Group operational management metrics and undergo regular performance reviews in both internal and external reporting. The resulting findings are taken into account as part of a strategy review process. We must point out that the comparability of APMs within the industry can be limited due to different calculation methods. The APMs used by Talanx are defined as follows in line with the requirements of the ESMA guidelines.
Payout in the following year divided by the Group's net income for the reporting period. A dividend payout ratio is the percentage of earnings paid to shareholders in dividends. It provides an indication of the portion of the earnings a company is paying to shareholders and therefore not keeping on hand to reinvest in growth, pay off debt or add to cash reserves. The Talanx Group strives for a payout ratio of 35% – 45% of the IFRS net income. We regard the dividend payout ratio as a key measure that shows shareholders the level of their participation in the company’s success.
Sum of net investment income, underwriting result and other income and expenses including goodwill impairments before interest for other debt borrowed for financing purposes (financing costs) and before taxes (taxes on income). EBIT (earnings before interest and taxes) is a measure of an entity's profitability that excludes interest and income tax expenses. Interest and taxes are excluded because they are exogenous factors that do not reflect the underlying profitability of operations. EBIT (also called operating profit) thus shows an entity's earning power from ongoing operations.
The EBIT margin is the EBIT (operating profit) divided by net premiums earned. It is one of the key operational management metrics as it provides an indication of the profitability of the business underwritten.
Change in EBIT (operating result) in relation to the previous year in percent. The EBIT growth measures the growth of profitability and is more meaningful than the EBIT margin for contracts that are eliminated from the technical account using the “deposit accounting” method and thus are not part of the net earned premiums (reference value of the EBIT margin), but included in EBIT. This relates to insurance contracts whose risk transfer under US GAAP is of subordinate importance and whose compensation for risk assumption booked to income is netted under other income and expenses.
Net income (after financing costs and taxes) excluding non-controlling interests in proportion to average equity excluding non-controlling interests. The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm to generate profits from its shareholders investments. It is thus one of the Group’s key operational management metrics.
Ratio of net investment income excluding interest income on funds withheld and contract deposits and profit on investment contracts to average assets under own management. It is used to evaluate the efficiency of a company’s investments. In addition to the underwriting result, the result of investment is decisive for the operating profit and so is one of the Group’s key operational management metrics.
The combined ratio is the sum of the loss ratio and expense ratio determined by dividing total acquisition costs and administrative expenses (net), including net interest income on funds withheld and contract deposits and the claims and claims expenses (net), by the earned premiums (net). The combined ratio is typically expressed as a percentage.
A ratio of below 100% indicates a positive underwriting result. In the Industrial Lines, Retail Germany – Property/Casualty Insurance, Retail International and Property/Casualty Reinsurance segments the combined ratio is a key operational management metric for the property/casualty business. It provides an indication of the profitability of the aforementioned segments.
Consolidated net income for the year/reporting period (after financing costs and taxes) excluding non-controlling interests. Net income represents the amount remaining after all operating expenses, interest, taxes and dividends on preferred shares have been deducted from a company's total revenue. It is a key measure as to how successfully the company has been operating over a period of time. The Group net income is thus one of the Group’s key operational management metrics. It determines the ability to pay out dividends to shareholders or to increase equity through retained earnings.
The ratio of acquisition costs and administrative expenses (net) to net premiums earned. The expense ratio is an essential component of the combined ratio. It provides an indication of the efficiency of the services provided in the property/casualty areas.
The value of new business corresponds to the present value of future net income (excluding non-controlling interests), generated from the new business portfolios for the current year. It is calculated on the basis of the same operational assumptions as are used to determine the Solvency II own funds as at the end of the financial year. As an operational management metric, it is used in the Life/Health Reinsurance segment to record the success of the new business policy appropriately.
There are no IFRS indicators that are comparable to the value of new business so reconciliation is not possible. This does not prevent this measure being compatible with the accounting policies we use when preparing our IFRS consolidated financial statements. In addition, in the case of the value of new business a ratio is based on best possible estimates in relation to interest-rate assumptions and client behaviour, among other things.
The net loss ratio based on amounts reported in the financial statements: the ratio of claims and claims expenses (net), one element of which is the net other technical result, including amortisation of the shareholders’ portion of the PVFP, to net premiums earned. The loss ratio is an essential component of the combined ratio. It provides an indication of how successfully technical risks are being underwritten.
The ratio of net written premiums to gross written premiums (excluding savings elements of premiums under unit-linked life and annuity insurance policies). The retention rate expresses the portion of the accepted risks that an insurer does not reinsure, i.e. that it carries net. Retention rate is an operational management metric in the Industrial Lines division. The division has set itself the target of increasing retention over the medium term in order to boost its profit potential.
The growth in gross written premiums is the nominal growth, corrected for currency effects. FX rate adjusted gross written premium growth: [Gross written premiums of the current year at FX rate of prior year (py) – gross written premiums (py)]/gross written premiums (py). This adjustment makes data comparable and shows the underlying operating development. FX rate adjusted gross written premium growth is one of the Group’s key operational management metrics for recording the development of business volume appropriately.
Change in value of new business (life) excluding non-controlling interests compared with the previous year in %. The growth in value of new business (life) is a ratio to measure the development in new business growth. The growth in value of new business is used in the Retail International division as an operational management metric. This alternative performance measure is only calculated at the end of the year and consequently not during the year.