Talanx realigns life insurance business in Germany

Organisational separation of the life insurance and property/casualty lines
Goodwill in the German life insurance business written off in full
Focus on capital-efficient products and promoting the sale of biometric and other risk insurance
Investments in automation and digitisation
Group net income of between EUR 600 million and EUR 650 million forecast
Proposed dividend not affected by goodwill impairment

Talanx AG is strengthening its German life insurance business with a strategic realignment and associated accounting measures. In the second quarter of 2015, Talanx wrote off the goodwill of EUR 155 million attributable to the life insurance business in full. This move followed a split in Board of Management responsibilities for the life insurance and property/casualty lines in the Retail Germany Division. Consequently, goodwill will be monitored at the level of the two lines individually, in contrast to the past. Traditional, classic life insurance products are to be replaced in 2016 by capital-efficient concepts offering customers attractive opportunities. Occupational pension insurance will also see a greater focus on modern, capital-efficient concepts for cover. At the same time, biometric and other risk products will be expanded. In addition, the division is increasingly automating internal processes and digitising customer contact points. Taking the impairment loss on goodwill into account, Talanx is expecting a Group net income of between EUR 600 million and EUR 650 million for the current financial year. The Board of Management’s proposed dividend for financial year 2015 will remain unaffected by the goodwill impairment. From today’s perspective, it will thus be based on an as-if IFRS net income of between EUR 755 million and EUR 805 million at a pay-out ratio of 35 to 45 percent. Equally, the capital ratios in accordance with Solvency I and II will not be affected by the goodwill impairment.

“These strategic measures aim to improve the competitiveness of the life insurers in our Retail Germany Division for the long term”, said Herbert K. Haas, Chief Executive Officer of Talanx AG. “They are designed to strengthen our German life insurers in a persistently challenging market environment”. Dr Jan Wicke, Chief Executive Officer of Talanx Deutschland AG and responsible for the Retail Germany Division within Talanx AG, added: “We are confident that these measures will make our German life insurers fitter for the future and allow us to continue to provide our customers with attractive offerings for occupational pension insurance and biometric risk cover”.

The transformation of the German life insurers’ product portfolios, which had already begun, is to be accelerated. The life insurers in the retail client business will cease to actively sell traditional life and annuity insurance by the end of 2016 at the latest. This will be replaced by modern, capital-efficient products. HDI Lebensversicherung has been offering an initial product from the new line – Two Trust Selekt – since the middle of 2014. The introduction of another capital-efficient annuity insurance product is planned for 1 January 2016. Under these insurance concepts, surpluses are credited to the contract on an annual basis. However, the premiums paid are, at a minimum, guaranteed at the end of the term. The fact that this guarantee kicks in at the end of the term reduces the risk capital that must be provided by the life insurers. Customers will have the opportunity to benefit from higher surplus participations and, as a result, the prospect of higher annuities in the future.

“Many of our customers consider the safety of their savings to be extremely important. Despite the current capital market situation, our new products still guarantee to pay back the premiums paid on expiry. We are also increasing the chances of attractive returns, as these new insurance concepts allow us to credit higher surpluses to customers than with older types of life insurance. In addition, with these new capital-efficient products, once a certain credit balance has been reached, it cannot be lost”, said Jan Wicke.

The key strengths of the German life insurers – disability insurance products and term life insurance – will be expanded further. Product development will also be more efficient in the future thanks to a common product platform. This reduces development costs and ongoing complexity costs. The modern insurance concept is the first example of division-wide product development. The transformation of the product range is expected to be completed by the end of 2017.

In order to further increase efficiency, the division plans to invest a good EUR 170 million in the German life insurance business over the next few years so as to improve its cost base for the long term by an amount of EUR 70 million annually. In addition to a uniform product and administrative platform for all life insurers in the division, there will be a focus on digitising business processes and customer contact points. These measures will be supported by optimising the portfolio of contracts and increasing investment diversification by allocating a greater proportion to alternative investments, in particular infrastructure.

Disclaimer

This news release contains forward-looking statements which are based on certain assumptions, expectations and opinions of the Talanx AG management. These statements are, therefore, subject to certain known or unknown risks and uncertainties. A variety of factors, many of which are beyond Talanx AG’s control, affect Talanx AG’s business activities, business strategy, results, performance and achievements. Should one or more of these factors or risks or uncertainties materialise, actual results, performance or achievements of Talanx AG may vary materially from those expressed or implied in the relevant forward-looking statement. Talanx AG does not guarantee that the assumptions underlying such forward-looking statements are free from errors nor does Talanx AG accept any responsibility for the actual occurrence of the forecasted developments. Talanx AG neither intends, nor assumes any obligation, to update or revise these forward-looking statements in light of developments which differ from those anticipated.