Talanx remains well on track
- Slight growth in gross written premium in first half of year
- EBIT unchanged at EUR 1.0 (1.0) billion despite one-off effect in 2013
- Group net income declines slightly to EUR 381 (410) million
- Outlook for full-year 2014 confirmed
“The first half of 2014 went satisfactory for us and reinforced our growth target for 2014”, said Herbert K. Haas, Chief Executive Officer of Talanx AG.
At EUR 250 (419) million, the net burden of large losses was down overall on the prior-year period, which saw heavy losses. This was primarily attributable to the reinsurance business, which recorded catastrophe losses of EUR 105 (260) million – significantly below the prior-year level. In primary insurance business, at EUR 145 (159) million the net burden of large losses was only slightly below the previous year. Following aviation losses in the first quarter, the segments were impacted in particular by the recent storm “Ela” and several man-made losses, primarily fire losses.
The underwriting result declined to –EUR 775 (–716) million in the first half of the year, mainly due to the participation of German life insurance customers in investment income. The combined ratio was roughly on a level with the previous year at 96.4 (96.1) percent. Net investment income remained stable at EUR 1.9 (1.9) billion despite the ongoing low interest rate situation, mainly due to the gains realised in the primary insurance business to finance the additional interest reserve.
The Group again generated an operating profit (EBIT) of EUR 1.0 (1.0) billion, whereby the prior-year period was positively impacted by the sale of Swiss Life shares for approximately EUR 100 million. The Group’s profit after tax and interest was EUR 381 (410) million. Earnings per share amounted to EUR 1.51 (1.62).
The Talanx Group’s solvency ratio as at 30 June 2014 was 224.8 percent (31 December 2013: 210.2 percent).
After the reporting date of 30 June 2014, Talanx took advantage of the favourable interest rate and capital market environment in mid-July and placed a senior benchmark bond with a volume of EUR 500 million. It is envisaged that the cash inflow will be used to reduce credit lines and repay existing bonds.
In the second quarter of 2014, the Group generated a premium increase of 0.8 percent, which lifted the gross written premium to EUR 6.6 (6.5) billion. Net investment income declined by 6.4 percent to EUR 0.9 (1.0) billion, largely due to the absence of one-off effects from the sale of shares described above and lower gains realised by German life insurers. The underwriting result improved by 12.5 percent to –EUR 405 (–464) million. The increase was unable to offset the decline in net investment income, which meant that operating profit decreased by 10.6 percent to EUR 451 (505) million. As a result, Group net income declined to EUR 165 (204) million. Adjusted for the above one-off effect, this rose by approximately 28 percent.
Business development of the divisions
In the first half of 2014, the gross written premium in the Industrial Lines division increased by 4.1 percent to EUR 2.5 (2.4) billion. Growth was mainly driven by foreign activities. At constant exchange rates, growth was 5.2 percent. The retention ratio exceeded 50 percent for the first time, at 53.6 (47.8) percent.
The segment’s underwriting result improved to EUR 6 (–19) million. The prior-year figure was negatively impacted by the flooding in southern and eastern Germany. The combined ratio decreased to 99.4 (102.1) percent and thus came closer to the target for 2014 of 96–98 percent. As in the first quarter, realised gains on investments led to an extraordinary increase of 39.2 percent in investment income, which rose to EUR 151 (108) million. The operating profit improved to EUR 141 (70) million. The contribution made by the division to Group net income increased to EUR 89 (41) million.
Premium income in the Industrial Lines division was up by 10.6 percent at EUR 733 (664) million in the second quarter. The combined ratio rose to 108.6 (103.9) percent as a result of the above-average catastrophe losses and the payment of reinstatement premiums to reinsurers. The underwriting result declined to –EUR 45 (–18) million. As a result, operating profit decreased to EUR 35 (40) million. The segment contributed EUR 21 (24) million to Group net income in the second quarter.
The gross written premium in the Retail Germany division was roughly on a level with the previous year at EUR 3.6 (3.6) billion amid a still difficult capital market environment. The life insurers saw premium income decrease by 1.9 percent to EUR 2.5 (2.6) billion. As expected, new business – measured by the Annual Premium Equivalent (APE) – was down slightly on the prior-year figure at EUR 208 (214) million, a decrease of 2.8 percent. Premium income in the property/casualty lines was virtually unchanged, declining by 1.1 percent to EUR 1.0 (1.0) billion despite ongoing measures to improve profitability.
The segment’s underwriting result was again negatively impacted by the participation of life insurance customers in higher investment income and declined by 10.4 percent to –EUR 808 (–732). The combined ratio rose to 101.2 (99.9) percent as a result of the above-average catastrophe losses caused by the storm “Ela”. The realisation of hidden reserves, which was needed to finance the additional reserve for policies with guarantees (Zinszusatzreserve), lifted net investment income by 7.5 percent to EUR 937 (872) million in the first half of the year. The segment’s operating profit (EBIT) improved by about 8 percent to EUR 97 (90) million. Its contribution to Group net income rose by 11.4 percent to EUR 57 (52) million.
The division closed the second quarter with premium income of EUR 1.5 (1.5) billion. Income in life insurance remained virtually unchanged, while the property lines recorded a premium increase of 7.8 percent. The underwriting result was lifted in particular by a lower policyholder participation amount in net investment income compared with the prior-year quarter and amounted to –EUR 378 (–436). Lower net gains saw net investment income decline by 10.0 percent to EUR 436 (485) million. Operating profit amounted to EUR 43 (24) million. The contribution made by the division to Group net income rose to EUR 28 (9) million.
The Retail International division increased its gross written premium by 4.8 percent to EUR 2.3 (2.2) billion in the first half of 2014. Adjusted for currency translation effects, growth amounted to 10.7 percent.
Premium growth was generated in Italy in particular, where high single premiums in life insurance lifted income by 80.8 percent to EUR 587 (325) million. The South American and Turkish companies also recorded significant premium increases in the local currencies. HDI Brazil generated growth of 12.6 percent in the local currency thanks to positive new business and higher average premiums for car insurance. Translated into euros, premium income in Brazil amounted to EUR 404 (421) million. In Mexico, income rose by 2.4 percent excluding currency translation effects. In euros, the gross written premium declined by 5.1 percent to EUR 84 (88) billion. The Turkish company posted an increase of 26.2 percent in the local currency, mainly due to growth in property/casualty insurance outside of the car insurance business. In euros, it increased premium income by 2.0 percent to EUR 99 (97) million in the first half of the year. In Poland, the gross written premium was down by 14.4 percent at EUR 749 (875) million following decreases in the single-premium business in life insurance.
The underwriting result in the segment declined by 17.6 percent to EUR 14 (17) million. The combined ratio rose to 95.3 (94.9) percent. Net investment income improved by 6.5 percent to EUR 156 (146) million. Operating profit was higher than usual at EUR 124 (113) million. The contribution made by the division to Group net income increased to EUR 74 (66) million.
The segment’s gross written premium was on a level with the previous year in the second quarter of 2014, at EUR 1.1 (1.1) billion. The underwriting result amounted to EUR 6 (0) million. The combined ratio declined slightly to 95.6 (95.7) percent, while net investment income rose to EUR 82 (72) million. Together, these developments lifted operating profit by 29.9 percent to EUR 62 (47) million. The segment contributed EUR 35 (28) million to Group net income in the second quarter.
The Non-Life Reinsurance segment recorded stable premium income of EUR 4.1 (4.1) billion in the first half of 2014 despite noticeably tougher competition. Adjusted for currency translation effects, premium income rose by 2.0 percent. The combined ratio remained very encouraging at 95.1 (94.2) percent. The underwriting result was EUR 156 (191) million. Net investment income increased to EUR 412 (378) million. Operating profit contracted to EUR 533 (567) million, while the segment’s contribution to Group net income remained virtually unchanged at EUR 165 (166) million.
The gross written premium rose by 3.7 percent to EUR 2.0 (1.9) billion in the second quarter of 2014. Operating profit declined to EUR 247 (301) million. The segment contributed EUR 70 (88) million to Group net income.
Gross written premium in the Life/Health Reinsurance segment declined by 4.6 percent to EUR 3.0 (3.1) billion, or by 1.8 percent after adjustment for exchange rate effects. The underwriting result improved to –EUR 147 (–172) million. Net investment income again declined slightly to EUR 299 (315) million. Operating profit improved to EUR 152 (130) million. As a result, the contribution made by the segment to Group net income also increased to EUR 57 (47) million.
Compared with the figure for the first half of the year, the gross written premium decreased by a slightly stronger 6.3 percent to EUR 1.5 (1.6) billion in the second quarter. Operating profit (EBIT) rose to EUR 88 (29) million and the contribution to Group net income increased to EUR 36 (9) million.
Outlook 2014
Based on constant exchange rates, Talanx aims to generate gross premium growth of 2 to 3 percent in full-year 2014, the bulk of which is to be generated in international markets. Based on disposal gains realised in the first half of the year, the return on investment should be at least 3.4% in 2014, with by far the largest contribution coming from ordinary income. Talanx continues to aim for Group net income of at least EUR 700 million. The Group anticipates a return on equity of around 10 percent for 2014. Attainment of these targets is subject to the proviso that large losses remain within the bounds of our updated expectations and that there are no distortions on currency or capital markets. The goal of again distributing around 35 to 45 percent of Group net income as a dividend payment for the 2014 financial year also remains unchanged.
Key figures from the Talanx Group income statement for 6M 2014, consolidated (IFRS)
Figures in EUR million | 6M 2014 | 6M 2013 1 | change |
|---|---|---|---|
Gross written premium | 14,975 | 14,966 | 0% |
Net premium earned | 11,308 | 11,498 | -2% |
Combined ratio in property/casualty insurance and non-life reinsurance | 96.4% | 96.1% | 0.3% points |
Net investment income | 1,948 | 1,877 | 4% |
Operating profit (EBIT) | 1,005 | 1,032 | -3% |
Group net income (after non-controlling interests) | 381 | 410 | -7% |
Return on equity 2 | 10.3% | 11.8% | -1.5% points |
- 1) Adjusted on the basis of IAS 8
- 2) Annualised net income excluding non-controlling interests relative to average shareholders’ equity excluding non-controlling interests
Key figures from the Talanx Group income statement for Q2 2014, consolidated (IFRS)
Figures in EUR million | Q2 2014 | Q2 2013 | change |
|---|---|---|---|
Gross written premium | 6,561 | 6,508 | 1% |
Net premium earned | 5,709 | 5,783 | -1% |
Combined ratio in property/casualty insurance and non-life reinsurance | 98.4% | 97.1 % | 1,3% points |
Net investment income | 938 | 1,002 | -6% |
Operating profit (EBIT) | 451 | 505 | -11% |
Group net income (after non-controlling interests) | 165 | 204 | -19% |
Return on equity 1 | 8.7% | 11.6% | -2,9% points |
- 1) Annualised quarterly net income excluding non-controlling interests relative to average shareholders‘ equity excluding non-controlling interests as at the beginning and the end of the quarter
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.
