Talanx generates robust Group net income

Owing to the exceptional accumulation of natural peril events in Central Europe, Group-wide net large losses totalled EUR 838 (600) million in the financial year just ended and thus clearly exceeded the large loss budget of EUR 705 million. The Industrial Lines Division was particularly heavily impacted to the tune of around EUR 211 million. The burden of large losses in primary insurance business amounted to EUR 260 million, while on the reinsurance side it amounted to EUR 578 million.

Investment income was stable at EUR 3.8 (3.8) billion despite the continuing low interest rate environment. The realisation of hidden reserves to fund the additional interest reserve and the participation of policyholders in the valuation reserves in German life insurance business were also contributory factors here. The Group’s return on investment stood at 4.0 (4.3) percent. The portfolio of assets under own management grew to EUR 86.3 (84.1) billion despite the moderating effect of exchange rates.

The operating profit (EBIT) rose by 2.1 percent, thereby benefiting especially from the gain on disposal of Swiss Life shares amounting to roughly EUR 100 million. The low taxed gains realised on the sale of the shares – in conjunction with the adjustment of deferred taxes – led to a considerably reduced tax ratio of 18.8 (26.8) percent. The particularly mark surge in Group net income to EUR 762 (626) million can be attributed to these special effects.

The return on equity of 10.6 (10.0) percent surpassed the previous year’s figure and indeed the most recent guidance for 2013 of around 10 percent. The Solvency I ratio remained well in excess of statutory requirements at 210.2 (225.1) percent. Talanx thus continues to enjoy the benefits of good capitalisation.

The Board of Management and the Supervisory Board will propose to the Annual General Meeting that the dividend should be increased by 14.3 percent from EUR 1.05 to EUR 1.20 per share.

The sale of 8,200,000 shares in Talanx AG by Haftpflichtverband der Deutschen Industrie V.a.G. caused the Talanx free float to rise by 3.2 percentage points in July 2013 to 14.4 percent. This move served to consolidate the share’s position in the MDAX stock index. An employee share programme was set up for the first time in 2013, as a consequence of which the number of shares increased by just under 0.1 percent.

Business development of the divisions
The Industrial Lines Division continued to grow in the 2013 financial year. The gross premium volume expanded by around 7 percent to EUR 3.8 (3.6) billion. The increase was driven in part by foreign markets, especially by business written in France, Italy, the United Kingdom and the Netherlands. The newly opened branches in Toronto, Singapore and Bahrain also got off to a successful start. The fire, liability and motor lines again delivered particularly strong growth on the back of premium adjustments. In view of the exceptionally heavy major loss expenditure of EUR 211 (109) million, of which EUR 135 (53) million was attributable to natural catastrophe events, the underwriting result in the segment came in at -EUR 24 (79) million. The combined ratio consequently climbed to 101.3 (95.1) percent. The level of retained premium retreated slightly to 44.5 (45.6) percent owing to a change in the recognition of reinsurance premiums. If they had been treated consistently the retention would have increased to 46.8 (46.1) percent.

Although interest rates remained low, investment income contracted by a mere 2.7 percent to EUR 240 (247) million. The operating profit (EBIT) consequently fell to EUR 147 (259) million. Industrial Lines contributed EUR 109 (157) million to Group net income.

The premium booked by the Retail Germany Division grew by 1.8 percent to EUR 7.0 (6.8) billion. The gross premium written by the life insurance companies rose by 2.4 percent to EUR 5.4 (5.3) billion thanks to higher single premiums. New business with life insurance products – measured by the Annual Premium Equivalent (APE) – fell short of the previous year’s level at EUR 464 (500) million; this was in line with expectations and reflected the industry trend as a whole. Premium income in the property/casualty lines was stable at EUR 1.5 (1.5) billion against a backdrop of ongoing programmes to boost profitability. The underwriting result in the division totalled -EUR 1.5 (-1.4) billion. The decline stemmed principally from the participation of life insurance customers in higher investment income. The combined ratio climbed to 102.4 (100.6) percent as a consequence of the heavy losses from weather events in Germany. The improvement of 10.2 percent in investment income to EUR 1.8 (1.6) billion resulted above all from further realisation of hidden reserves to fund the additional reserve for policies with guarantees (Zinszusatzreserve). The operating profit (EBIT) improved by 61.0 percent to EUR 161 (100) million. The contribution to Group net income nevertheless shrank to EUR 78 (120) million due to an increase of around EUR 100 million in taxes on income. This was caused in particular by the elimination of non-recurring tax income that had been recognised in 2012.

Developments in the Retail International Division were shaped by the integration of the companies acquired in Poland and Mexico. At the beginning of the year the Mexican insurer Metropolitana merged with HDI Seguros. The Polish groups Warta and TU Europa were fully included in the reporting period for the first time in 2013 – in the comparable 2012 financial year Warta had been included for just six and TU Europa for seven months. Also as a consequence of full-year consolidation the gross written premium in the Retail International Division increased by 29.4 percent to EUR 4.2 (3.3) billion; growth in the local currencies totalled 35.4 percent. The division grew by 14.2 percent after factoring out acquisitions.

HDI Brazil booked gross written premium of EUR 865 (827) million – a gain of 4.6 percent. Adjusted for currency translation effects, business in Brazil grew by 19.0 percent. Gross written premium in Mexico was up by 26.8 percent to EUR 178 (140) million, with growth in the local currency reaching 27.5 percent. In Italy gross written premium increased to EUR 717 (557) million, a gain of 28.6 percent driven primarily by single premiums. At altogether EUR 1.7 billion, the Polish companies accounted for 39.2 (29.3) percent of the premiums written in the division. The underwriting result improved to EUR 32 (3) million thanks to their strong profitability. The combined ratio for the division decreased to 95.8 (96.2) percent on account of lower combined ratios at the newly acquired Polish companies, a drop in major losses and premium increases in motor insurance, most notably in the core markets of Brazil and Turkey.

Investment income rose to EUR 284 (281) million. Its stable development combined with the sharp increase in the underwriting result caused the operating profit (EBIT) to surge by 72.9 percent to EUR 185 (107) million. The contribution to Group net income came in at EUR 101 (42) million.

Non-Life Reinsurance boosted its gross written premium by 1.3 percent to EUR 7.8 (7.7) billion. The premium volume improved by 3.5 percent after adjustment for currency translation effects, hence putting growth within the expected range of three to five percent. The underwriting result climbed by 21.6 percent to EUR 332 (273) million. The combined ratio improved to 94.9 (95.8) percent. Investment income contracted by 17.4 percent to EUR 811 (982) million due to lower realised gains as well as a fall in the fair values of technical derivatives. This effect was only partially offset by the healthy underwriting profit. The operating profit (EBIT) consequently declined by 3.2 percent to EUR 1.1 (1.1) billion. The contribution to Group net income increased by 16.0 percent to EUR 377 (325) million as a result of the positive special effect in the calculation of deferred taxes in the final quarter.

Gross written premium in the Life/Health Reinsurance segment increased by 1.4 percent in 2013 to EUR 6.1 (6.1) billion; adjusted for currency translation effects, growth reached 5.1 percent. The underwriting result declined by 12.1 percent to -EUR 422 (-377) million. The operating profit (EBIT) contracted by 48.5 percent to EUR 139 (270) million, while Group net income retreated to EUR 76 (104) million. Key factors here were the elimination of positive non-recurring effects recorded in 2012 as well as the strengthening of reserves incurred in Australian disability business.

Outlook
Talanx is looking to move forward on its expansionary course in 2014. In the Industrial Lines Division the global presence of Talanx AG is to be further extended through above-average growth in foreign markets. In German retail business the ongoing process of consolidation will be systematically continued. Growth is expected in the Retail International Division as the integration of the acquired companies is brought to a successful completion. On the reinsurance side further profitable selective growth is to be generated, while at least maintaining the global market position.

Based on constant exchange rates Talanx is aiming for gross premium growth of two to three percent in the 2014 financial year, the bulk of which will be generated in foreign markets. The return on investment should be around 3.4 percent, deriving primarily from ordinary investment income. The targeted Group net income of at least EUR 700 million remains unchanged. This is despite the fact that the effect of the Swiss Life share sale no longer applies and the Group has substantially boosted year-on-year the major loss budget factored into this profit guidance. For 2014 the major loss budget after protection covers stands at EUR 185 (80) million in primary insurance and EUR 670 (625) million in reinsurance. The target thus includes a significant operational improvement. The Group anticipates a return on equity of around ten percent for 2014. Attainment of these targets is conditional upon major losses remaining within the expected bounds and assumes that there are no distortions on currency or capital markets. The goal of distributing 35 to 45 percent of Group net income as a dividend payment also remains unchanged for the 2014 financial year.

Key figures from the Talanx Group income statement 2013, consolidated (IFRS)