Talanx significantly increases premiums and earnings in 2012

Organic growth was the main contributor to the significant increase in gross written premium, but the first-time consolidation of the newly acquired companies also contributed. The Retail International Division successfully completed the acquisitions of the Mexican companies Metropolitana Compañía de Seguros and the Polish insurers TU Europa and TUiR Warta. Integration of the companies within the Talanx Group is making good progress.

The Industrial Lines Division continued to pursue its international trajectory as planned. The international business posted above-average growth of 22 percent. New locations abroad were opened during the financial year under review so that the Group will be in a position to pursue this course successfully. The focus of this activity was in Asia and the Gulf region. In May 2012, HDI-Gerling Industrie opened up a branch in Singapore with the aim of continuing the expansion of business in South-East Asia. The joint-venture company established by HDI-Gerling and its Indian partner Magma Fincorp in India started up business operations in the fourth quarter of 2012. In July, HDI-Gerling also established a hub for industrial insurance in the Gulf region with a new branch in Bahrain.

Talanx moved forward with the realignment of the Retail Germany Division. The merger of the risk carriers HDI Direkt Versicherung AG and HDI-Gerling Firmen und Privat Versicherung AG to form the new insurer HDI Versicherung AG was an important step in unifying the product ranges and creating more efficient workflows. The measures taken to enhance profitability were reflected in a number of indicators including an improved combined ratio.

The successful initial public offering, the Group profit for 2012 and positive valuation effects enabled Talanx to significantly strengthen its capital base. The Group shareholders’ equity rose to EUR 7.5 billion from the previous value of EUR 5.4 billion. The solvency ratio of the Group at 225 percent was significantly above the statutory requirements. The rating agency Standard & Poor’s confirmed the financial strength ratings of the Talanx primary insurance group at A+ and that of Hannover Re at AA-, in each case with stable outlook.
The Board of Management and the Supervisory Board will propose a dividend of EUR 1.05 per share to the Annual General Meeting. This corresponds to a dividend yield on the year-end price of 4.9 percent and for first subscribers, based on the issue price, of 5.7 percent.

Business development of the Group
Talanx increased the gross written premium in the 2012 financial year to EUR 26.7 billion from EUR 23.7 billion in the previous year. This is equivalent to growth of 13 percent (10 percent adjusted for currency translation effects). All the divisions in the Group contributed to this positive development. The strongest increase in premium volume was posted by Retail International with an increase of 31 percent. A significant proportion of this growth was derived from first-time consolidation of the companies in Poland acquired during the year under review. Industrial Lines and the two reinsurance segments also achieved growth in the double-digit percentage range.

Net premium earned went up by 13 percent to EUR 22.0 (19.5) billion. The retention rate at 87.2 (87.9) percent remained virtually at the level of the previous year.

Talanx improved the underwriting result by 15 percent to EUR -1.4 (-1.7) billion. By comparison with the previous year, the main impact here was achieved primarily by the significant recovery in Non-Life Reinsurance, which was impacted much less by major claims from natural disasters in 2012 than in the previous year. In conjunction with a slightly improved expense ratio the lower claims burden resulted in a significant reduction in the combined ratio to 96.4 (101.0) percent.

The investment income of the Group rose to approximately EUR 3.8 billion from the previous value of EUR 3.3 billion despite difficult framework conditions in the capital markets. The total portfolio of assets under own management increased by 11 percent to EUR 84.1 (75.8) billion during the year under review. Talanx continued its conservative investment policy: On the balance sheet date, 91 % of the assets under own management were invested in fixed-income securities. By contrast, the other income/expenses fell to EUR -602 (-334) million. The fall was essentially due to exchange-rate effects and the effects of first-time consolidation arising from integration of the new companies as well as other income in the previous year which was not repeated as one-off effects in the year under review. In 2011, other income/expenses was for example supported by a positive effect from a judgment rendered by the Federal Tax Court.

The overall good business development enabled Talanx to increase EBIT by 42 percent to EUR 1.8 (1.2) billion during the 2012 financial year. Hence, the Group exceeded the previous record high from the year 2009. The improved underwriting result and the higher investment income both contributed to this outcome.

The Group net income went up by 22 percent to EUR 630 (515) million. The return on equity at 9.8 percent remained virtually at the same level as the previous year, although Group shareholders’ equity increased by EUR 2.1 billion during the year under review.

During the fourth quarter of 2012, Talanx continued the dynamic growth achieved in the first nine months. The Group increased gross written premium by 17 percent to EUR 6.8 (5.8) billion compared with the equivalent year-earlier quarter. Despite the large-scale claims caused by Hurricane Sandy, Talanx improved the underwriting result to EUR 286 (-324) million. Investment income rose by 7 percent to EUR 978 (910) million. However, these positive developments were unable to mitigate the other income/expenses so that EBIT in the fourth quarter came down by 16 percent to EUR 443 (527) million. The Group net income after minority interests amounted to EUR 78 (193) million in the fourth quarter.

Business development of the divisions
The Industrial Lines Division grew dynamically during the 2012 financial year. Gross written premium for the segment increased by 14 percent to EUR 3.6 (3.1) billion. The lines fire, liability and motor developed particularly positively. The upward trend in German motor business continued. The Industrial Lines Division experienced especially strong international growth in France, Belgium and the Netherlands. Premium growth at Dutch insurer HDI-Gerling Verzekeringen was largely determined by the acquisition of Nassau Verzekering Maatschappij N. V.

The loss expenditure in Industrial Lines remained moderate overall in the 2012 financial year. The division achieved a combined ratio of 95.1 (88.6) percent despite Hurricane Sandy and a number of major claims in the property lines. The year-earlier value was influenced by high run-off gains from the loss reserves. This one-off effect was a contributory factor to the underwriting result of EUR 79 (155) million falling short of the value for the previous year. Although investment income increased by 21 percent, it was unable to offset this effect. However, Industrial Lines continued to remain very profitable with an EBIT of EUR 259 (321) million.

The Retail Germany Division posted marginally higher gross premium at EUR 6.8 (6.7) billion than in the previous year. The premium volume for the property/casualty companies increased slightly. The life companies posted a gratifying increase mainly through single-premium business written by the life companies as well as from term life products.

The underwriting result for the segment amounted to EUR -1.4 (-1.3) billion. The main influencing factor here was the underwriting result from the life insurance companies, which was below the equivalent year-earlier figure. These companies made substantial increases to provisions in their local financial statements to offset the effects of the ongoing low-interest environment. Property/casualty insurance increased its profitability. The combined ratio of the segment improved to 100.6 (101.6) percent. Investment income for the segment increased to EUR 1.6 (1.5) billion. Despite expenses in the middle double-digit million range for the ongoing realignment of the division, Retail Germany achieved an EBIT of EUR 98 (110) million. Progress made in implementing the efficiency enhancement programmes provided a tangible contribution here.

New business for the German companies – measured by the Annual Premium Equivalent (APE) – declined to EUR 692 (734) million. Single-payment premium life business was the main positive growth driver here, particularly in the successful bancassurance companies.

The Retail International Division remained the most powerful engine for growth in primary insurance during the year under review. It increased gross written premium by 31 percent (35 percent adjusted for currency translation effects) to EUR 3.3 (2.5) billion. This growth was mainly due to consolidation of the newly acquired companies in Poland and Mexico. Following the takeovers of TU Europa and TUiR Warta, Talanx is the second biggest insurance group in Poland.

The Group achieved a positive underwriting result of EUR 3 (-42) million in the Retail International Division. The combined ratio for the segment improved by 3 percentage points to 96.2 (99.3) percent. Investment income increased by 77 percent to EUR 281 (159) million. These overall positive developments enabled the segment to almost double EBIT at EUR 107 (55) million.

The growth of gross written premium in the segment Non-Life Reinsurance was above expectations at 13 percent (9 percent adjusted for currency translation effects). The segment increased gross premium volume to EUR 7.7 (6.8) billion in the year under review.

The combined ratio fell back to 95.8 (104.2) percent as a result of the moderate level of large-scale claims compared with the previous year. The largest single claim in 2012 was Hurricane Sandy. The underwriting result improved appreciably to EUR 273 million after EUR -264 million in the previous year. The segment also increased investment income to EUR 982 (880) million. The moderate claims development ensured that Non-Life Reinsurance achieved a significantly higher EBIT of EUR 1.1 billion after EUR 637 million in the 2011 financial year.

Premium growth in the Life/Health Reinsurance segment also developed satisfactorily. This was again above expectations with an increase of 15 percent (10 percent adjusted for currency translation) to EUR 6.1 (5.3) billion. The segment achieved above-average growth in the USA, Australia and in the emerging markets, most particularly in China and Latin America.

While the underwriting result at EUR -364 (-281) million fell back, the segment significantly improved investment income to EUR 684 (512) million. Life/Health Reinsurance accordingly increased its EBIT by 32 percent to EUR 282 (213) million.

Outlook
Talanx will strive to further improve the Group results in a market environment that remains challenging in the year 2013. The Retail International Division is expected to make a significant contribution and it will continue to drive forward integration of the acquired companies. The elimination of cost disadvantages remains an important focus, particularly in the Retail Germany Division.

Talanx is aiming to achieve growth in gross premium for the 2013 financial year of at least 4 percent – on the basis of constant exchange rates. Inclusion of the acquisitions in Poland in the 2013 consolidated statements for the whole year will take the Group a major step closer to its strategic goal of generating half of gross written premium in primary insurance outside Germany. The return on investment should be structurally around 3.5 percent in 2013 and will essentially result from ordinary investment income. Talanx will work towards achieving a Group net income of more than EUR 650 million. In 2013, the Group therefore expects a return on equity of more than 9 percent – despite the inflow of shareholders’ equity from the initial public offering and the sustained low-interest environment. These targets are subject to the condition that major claims remain in line with expectations and that no turbulence occurs in the currency and capital markets. The goal of paying out 35 to 45 percent of the Group net income in accordance with IFRS as a dividend remains unchanged.

Key figures for the Talanx Group statement of income 2012, consolidated (IFRS)