Talanx satisfied with the first quarter

"We are satisfied with the development of the first quarter. At EUR 192 million our Group net income was within reach of the previous year's strong quarter, which had profited from capital gains and exchange gains on the disposal of Swiss Life shares. This is a good start to 2014", Herbert K. Haas, Chief Executive Officer of Talanx AG, affirmed. "It reinforces our outlook that we can achieve Group net income of at least EUR 700 million for the full financial year."

For 2014 the Group has raised the net large loss budget from EUR 705 million to EUR 855 million. Large losses in the first quarter were low at altogether EUR 41 (13) million. The principal strain amounting to EUR 33 million Group-wide was attributable to the presumed crash of Malaysia Airlines Flight MH370.

Reflecting standard practice in reinsurance business, the remaining large loss budget that was not utilised in the first quarter was carried forward as a risk buffer for expected large losses. Principally owing to the participation of German life insurance customers in investment income, particularly that generated from realised gains on investments, the underwriting result declined Group-wide to –EUR 415 (–249) million. The combined ratio increased slightly to 95.8 (95.0) percent.

Investment income climbed, driven in part by higher realised gains in the primary insurance segments, by 15.5 percent to EUR 1.0 (0.9) billion. The operating profit (EBIT) contracted to EUR 509 (530) million. With the special effects of the comparable quarter no longer applicable, Group net income came in at EUR 192 (208) million. Earnings per share amounted to EUR 0.76 (0.82).

With effect from 23 April 2014 Talanx AG has been listed not only in Frankfurt and Hannover but also on the Warsaw Stock Exchange. The listing did not entail a capital increase or any changes in the placement of shares.

The Solvency I ratio as at 31 March 2014 stood at 219.8 percent (31 December 2013: 210.2 percent) and thus remained on a good level. The risk management reports published at the same time show an economic capital adequacy ratio of 333 (351) percent as at 31 December 2013 for the Group internal model developed according to the future Solvency II regime.

Business development of the divisions
In the first quarter of 2014 gross written premium in Industrial Lines increased by 1.6 percent to EUR 1.8 (1.7) billion, or by 2.2 percent adjusted for currency translation effects. Growth derived primarily from foreign activities. The underwriting result climbed to EUR 6 (2) million, driven in particular by a positive claims experience in the property lines. The combined ratio decreased to 98.6 (99.4) percent. Realised gains on investments led to an extraordinary increase of 30.4 percent in investment income, which rose to EUR 72 (55) million. The operating profit (EBIT) of EUR 60 (33) million was therefore comfortably in excess of the previous year's quarter. The contribution made by the division to Group net income consequently also improved appreciably to EUR 35 (19) million.

Gross written premium in the Retail Germany division retreated to EUR 2.0 (2.1) billion. The premium income booked by the life insurers fell by 4.6 percent to EUR 1.2 (1.3) billion due to lower single premiums. New business in life insurance – measured by the Annual Premium Equivalent (APE) – edged slightly lower to EUR 100 (106) million. Premium income in the property/casualty lines held steady at EUR 0.8 (0.8) billion against a backdrop of sustained efforts to boost profitability.

The underwriting result declined by 45.5 percent to –EUR 430 (–296) million. The participation of life insurance customers in significantly higher investment income was the crucial factor here. The combined ratio climbed to 100.2 (95.0) percent. The corresponding quarter of the previous year had benefited from unusually high run-off profits in property/casualty insurance. Investment income improved by 29.3 percent to EUR 501 (387) million due to the realisation of hidden reserves used to finance the additional reserve for policies with guarantees (Zinszusatzreserve).

The operating profit (EBIT) contracted by 17.9 percent to EUR 54 (66) million. The effect on EBIT of the higher investment income was largely neutral owing to the establishment of technical provisions. All in all, German retail business contributed EUR 29 (43) million to Group net income.

The Retail International division boosted its premium income by 10.2 percent to EUR 1.2 (1.1) billion in the first quarter of 2014 despite substantial exchange rate effects in several core markets. Adjusted for currency translation effects, gross written premium in the division grew by 18.4 percent.

In Brazil gross premium booked in euro contracted by 10.7 percent to EUR 189 (212) million, contrasting with currency-adjusted growth of around nine percent. HDI Mexico generated a premium increase of 1.7 percent thanks to improved new business, while growth would have come in at 10.2 at constant exchange rates. In Turkey premiums fell by 1.8 percent to EUR 50 (51) million, although growth of 25.5 was recorded in the local currency. Italy, on the other hand, again benefited from high single premiums in life insurance and showed a markedly increased premium volume of EUR 330 (152) million. The Polish companies maintained their written premium on a virtually unchanged level, with a planned reduction in single premiums on the life side offset by stronger income in property/casualty business.

The underwriting result in the segment declined to around EUR 8 (17) million. The combined ratio nudged one percentage point higher to 95.1 (94.1) percent. Investment income was unchanged from the equally strong corresponding quarter of the previous year at EUR 74 (74) million. The operating profit (EBIT) consequently slipped 5.9 percent to EUR 62 (66) million. The contribution made by the division to Group net income improved slightly to EUR 39 (38) million.

Against the backdrop of more intense competition the non-life reinsurance segment saw gross written premium contract as expected by 4.1 percent to EUR 2.1 (2.2) billion. Adjusted for currency translation effects, premium income fell by a modest 1.7 percent.

Despite the increased competition the combined ratio rose only slightly by 0.5 percentage points to 94.5 (94.0) percent. Reflecting the modest drop in net premium earned and the higher combined ratio, the underwriting result decreased by 12.2 percent to EUR 86 (98) million. The only large loss event in the first quarter was the disappearance of the Malaysian passenger airliner, resulting in net loss expenditure of EUR 31 million. Investment income improved by 8.6 percent to EUR 211 (195) million, while the operating profit (EBIT) climbed by 7.6 percent to EUR 286 (266) million. Non-life reinsurance contributed EUR 95 (79) million to Group net income.

Premium income in life and health reinsurance fell by a modest 2.8 percent to EUR 1.5 (1.6) billion; adjusted for currency translation effects, it increased by 0.7 percent.

The underwriting result contracted by 26.8 percent to –EUR 87 (–68) million. Investment income declined by 6.4 percent to EUR 152 (162) million. The operating profit (EBIT) fell by 36.9 percent to EUR 64 (101) million. The contribution made by the segment to Group net income decreased to EUR 21 (37) million.

Outlook 2014
Talanx intends to continue with its expansionary course in 2014. Based on constant exchange rates Talanx is aiming for gross premium growth in the range of 2 – 3 percent, the bulk of which is to be generated in international markets. The return on investment should be at least 3.4 percent. Talanx continues to target Group net income of at least EUR 700 million for the full financial year. This remains the case despite the fact that the effect of the partial sale of the interest in Swiss Life no longer applies and even though the Group has also substantially increased year-on-year the large loss budget factored into this profit outlook. For 2014 the large loss budget in primary insurance stands at EUR 185 (80) million, while for reinsurance it amounts to EUR 670 (625) million. The target thus constitutes a significant operational improvement. 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 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, Q1 2014, consolidated (IFRS)