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Torsten Leue: "The risk of the vaccines is incalculable”

CEO interview conducted by WirtschaftsWoche: Torsten Leue, the CEO of the third-largest German insurance group Talanx, talks about unpredictable viruses, fairness toward restaurant owners, his respect for China, and why insurance premiums will no longer be secure in the future.


Torsten Leue (54) took the reins as the CEO of Talanx AG in Hanover in May 2018. The group includes HDI and Hannover Re, among other companies. Following the sharp drop in earnings due to Covid-19 in 2020, Talanx is aiming for a profit in the 800 to 900 million euro range in 2021.

WirtschaftsWoche: Mr. Leue, what are your hopes for 2021?

Torsten Leue: After 2020, which has been so challenging – in our personal lives, for society, and for the economy – I am placing my greatest hopes in the coronavirus vaccines. It is essential for us to achieve herd immunity by the end of 2021, if not sooner. After all the suffering and the necessary restrictions, the end of this pandemic would be a huge relief for individuals and the economy.

Through the industrial insurer HDI Global, you insured the test subjects for the clinical trials of the vaccines. However, the manufacturers will not obtain the usual product liability insurance for future adverse side effects. Is the speed of development and approval too risky for you?

The world has never seen a situation like the one we’re now going through. The coronavirus vaccines have been developed and approved in record time and will now be provided to billions of people worldwide. The vaccine-related risks will be assumed by sovereign states in order to get the crisis under control as quickly as possible. Personally, I trust the companies and the approval authorities. And of course I’m going to get the vaccination. The vaccine manufacturers have pushed for governments to share in possible liability claims because insurers are unwilling or unable to take on the risk for side effects that may only appear years from now. Consequently, in view of the lack of historical data due to the brief time period involved, governments are assuming this risk, which would be incalculable for the private sector. Nevertheless, we are playing our part in the common task by offering the more readily calculable insurance coverage, for example for manufacturing errors with the vaccines.

One of most fiercely debated issues in connection with Covid-19 has been – and still is – business interruption insurance. HDI is one of the few insurers in 2020 to step in with no complaints, for example when restaurants were shut down under general orders. Has this had a positive impact for the insurance company?

If there is a public perception that we were guided by the motto, “In case of doubt, the customer wins out,” then we’re delighted. We were of the opinion that our terms and conditions were unclear. That’s why we chose to act as we did. In general, however, company closures due to general decrees cannot be insured because actuaries cannot account for them. The situation was difficult for both parties. At some point a decision has to be made.

Has it had a positive impact on your business? That’s exactly what the CEO of HDI Vertriebs AG expected.

With 8 percent growth at present, we’re currently expanding twice as fast as the overall commercial market. This growth is continuing, and many market participants are coming to us, at least partly for business interruption insurance. And of course that is having a positive effect.

How much did you pay out?

All in all, we definitely paid out more than 80 million euros to our customers in Germany. However, we had reinsured a large percentage of the damage. That total was therefore reduced to around 20 million euros in our net earnings.

Should consumers expect premiums for various types of insurance to go up in the wake of the pandemic?

No. You can’t say that in general. For the year to September 30, we’re seeing total losses of around 1 billion euros as a result of the coronavirus. A large share of the damages was incurred by our reinsurer Hannover Re and our industrial insurer HDI Global. We expect this to result in a hardening of the market, in other words significant price increases. However, this trend had already begun before the coronavirus. In the retail business, by contrast, the pandemic has meant fewer claims, for example because people are driving less than before. But we will not see massive decreases in premiums across the market.

Why not? Wouldn’t that be a logical consequence?

The low-interest phase will be with us for a long time. Extremely low interest rates mean that our net investment income is decreasing from year to year. This leads to an increasing need to offset this effect with profits from the pure insurance business – in other words, actuarial pressures. And what’s more, people are again using their cars more than public transport. They will also presumably be taking more holidays by car than by plane – when they can take holiday trips again.

Due to the low interest rates, Allianz has stopped offering premium guarantees for new life insurance policies. The insurance industry association GdV is making similar demands for company pension plans and for the publicly subsidised “Riester-Rente” pension products. Should policy holders now expect to have less money paid out to them than they paid in?

We were quicker than others in adding a number of products with reduced guarantees to our portfolio. We cannot rule out the possibility – like Allianz – of having to move away entirely from premium guarantees in new policies in the future. Of course that is interesting from a solvency standpoint. But it is also interesting for customers because reduced guarantees also mean more opportunities for higher returns. The amounts that we are currently required by regulators to back our premium guarantees with are not available for us to invest in lucrative but high-risk assets such as equities.

So let’s talk about how returns can be achieved in low-interest phases. What is the share of alternative assets in your group?

Of the around 127 billion euros of invested capital, alternative assets make up approximately 3.2 billion euros.

That's not much.

It depends on your perspective. First, we are among the largest wind farm investors in Germany. Second, we have a capital investment strategy based on long-term security, and not on risk or speculation. This strategy is reflected in our investment portfolio, with a very high 90 percent quota of fixed interest assets, in other words sovereign and corporate bonds. Of those investments, 95 percent are investment grade papers and approximately 80 percent, as A-grade papers, are very long-term investments with few risks. Our equity quota is currently at 1 percent. And this strategy has proven its worth especially in recent months with highly volatile capital markets.

But less risk also means smaller returns, which leads to the problems you described earlier.

After nine months we have a robust rate of return of around 3 percent. We invest not only in Germany and Europe. Around 70 percent of our investments are outside the eurozone, where interest rates are still slightly higher. But of course alternative assets are the ideal long-term investment form for insurers. In this year alone we have invested nearly 1 billion euros in such alternative assets and are in search of many more. The problem is that there are not so many of them around. We have a classical seller’s market.

Because everyone wants them?

Of course all investors are looking for additional higher returns and want to utilise the illiquidity premiums of that kind of asset…

… a risk premium that investors demand for illiquid assets such as real estate, infrastructure, wind farms, that cannot be readily sold without a substantial discount.

Exactly. Through the highly predictable long-term revenue streams of insurance companies, it is easy to service them. Of course we are also hoping that, with the Green Deal in the EU, for example, larger numbers of such assets will reach the market and that we, as an insurer, can benefit.

In contrast to sovereign or corporate bonds, investors in this case can also become active entrepreneurs to some extent. Does that limit the choice of industries because you need to have the right experts on hand?

That is the big question. For example, we operate wind farms and are thus acting as business owners. For that purpose, we started building expertise some years ago. It’s a process that takes a while. But it pays off: Depending on how you finance alternative investments – with your own funds or through debt financing – returns can range from 3 to 9 percent.

You recently announced an investment in the Israeli start-up Resec Technologies for cyber insurance and also acquired the cyber specialist Perseus. What are your objectives there?

Perseus offers cyber prevention and service in case of a cyber attack. We believe that cyber insurance must include these services so that we can calculate the cost of coverage and are in a position to offer customers full protection. The market for cyber insurance is growing rapidly. Since 2017, it has doubled in size from 4 billion to 8 billion dollars worldwide. Three quarters of the business is still centred on the USA. Some years
ago, this risk was still treated as a low priority because such attacks were not yet seen as close enough to require action. That is now changing, partly as a result of the cyber attacks in recent months.

There is a high level of recognition, but this is still rarely followed up by actions in the form of an insurance policy.

The risk awareness is there. But so far this is not matched by a willingness to do something about it – but that applies to both parties. Insurers are increasingly cautious in calculating premiums because the cumulative risks are so extreme in case of a claim. A cyber attack can be like a global hurricane.

Or like a pandemic…

Or like a pandemic. You can only price cyber insurance and offer high coverage volumes if you have clear risk clustering prior to underwriting risks. For a fire insurance policy, you have to install a sprinkler system. If a fire breaks out – i.e. a cyber attack – it’s much more important for the machinery to get started within an hour, and not a day. Perseus offers a before-and-after service. If a computer goes down these days, you’ll find that the top experts who can help are completely booked out. We already have these experts under contract.

Another topic: The Dax30 is being turned into a Dax40. Are you expecting your reinsurer, Hannover Re, to move up?

The market capitalisation of companies has become a key criterion for inclusion in the index. As a result, it is not unrealistic at this point to expect Hannover Re to join the Dax. Nor is it unrealistic for the Talanx share to return to the MDax.

How important is that?

For me it’s important for us to achieve our strategic goals and financial targets. Inclusion in an index means higher visibility for the company with investors as well as investments by funds that track the index. That can certainly be beneficial. But our group’s success does not depend on whether we are included in which index, but rather on our successful execution of our strategy.

The Talanx Group earns 20 percent of its revenues in the USA. Under your predecessor, business was moved to the Bermudas to profit from President Trump’s tax reform. Joe Biden will likely want to talk with insurers about fair pricing for natural disaster coverage. What else do you expect from him?

I expect the trans-Atlantic dialog to be intensified. In some regards it will certainly be friendlier. On many issues, however, it will still be tough. Ultimately it is understandable if the USA is primarily concerned with its own interests. But we should give some thought to another player, too.


China. In the 16th century, China accounted for 25 percent of global GDP. This was followed by a “crash” because, in a sense, China missed out on industrialisation. As a result, the country still represented just 6 to 7 percent of global output in the 1990s. And now it is back on track to reach 20 percent and higher. Despite the pandemic, we are talking about 2 percent growth in China in 2020 and 8 percent in 2021. This represents enormous shifts in capital from west to east. The USA is certainly a very important trading partner. But if China emerges from the crisis with this kind of booming economy, it will be advisable for Europe and for us to look both to the left and the right in geographical terms.

What does it mean when you look left and right?

In global terms, alongside Germany, our business with retail customers is mainly focused on certain markets in central and eastern Europe as well as Latin America. In the reinsurance segment and in industrial insurance, however, Asia already accounts for one in five euros of our premium income.

But the general public in China is not yet in a position to spend a lot of money on insurance – in contrast to the US population.

We are not aiming to build retail business in Asia. However, we are achieving growth there in certain business segments and especially in China of course. Hannover Re has established a clear growth initiative for Asia.

Nevertheless, China puts foreign companies in a very tight spot: On the one hand, the country is an important trading partner. On the other, there is deep mistrust.

I'll say it again: One needs to look to the west and the east. Over the past year, we looked at the dynamic in China with the Board of Management. It was very impressive.

Would you entrust your company’s data to a Chinese cloud service?

Against the backdrop of the data protection regulations in this country, that is not a consideration for us.

Are you considering acquisitions?

That depends on the business segment. We would be open to that especially in our international retail business in our core regions of central and eastern Europe, along with Turkey, and in Latin America. And to some extent in the specialty business. But only at the right price. We are not under pressure in that regard because we are currently achieving strong organic growth. Consequently, we do not currently have any potential acquisitions in our sights in our core regions.

Nor are there any women in sight in the Talanx Management Board – despite the announcement back in 2017 that the company wanted to increase the number of women on the board. Are you not trying hard enough? Or where is the problem?

Diversity is not an end in itself. Even if we believe that decisions made in a diverse team are better. Unfortunately, these things don’t move that fast.

That’s been the reason given by the company for many years when it didn’t happen on a voluntary basis. Now the government has set a quota and is forcing you to act.

We have 30 percent women on the second management level, 20 percent on the first level and 10 percent women on our boards. Our subsidiary Hannover Re has a woman on the Board of Management and we have several highly successful female CEOs in subsidiaries. Of course we need to keep working on this. That is exactly the pyramid that we’re building. Our goal is to create female management talent internally. It is difficult to do it through the market. All market participants know the few women in outstanding positions in the German market. Consequently, we have a very consistent succession planning process: One in three candidates for each position must be female. As a result, we will automatically have more women in top positions in the foreseeable future.

Do you have a general sense that companies are being forced to assume too much responsibility for non-business issues? For example in the fight against climate change?

We’re part of society and the social discourse. November 2020 was one of the hottest months on record. Of course climate change is a real threat. On the other hand, we as a company must balance the interests of all of our stakeholders.

You have announced that you will not write any new coal insurance policies as of 2038 and will no longer have power stations and mines in your portfolio. But Talanx wants to make exceptions for countries where coal represents an especially large share of the energy mix and do not have adequate access to alternative energy sources.

That means that we support the UN climate goals with our sustainability strategy while keeping the interests of all of our stakeholders in mind: customers, employees, shareholders, policy makers and society. If we see that companies are making efforts and putting measures in place to stop climate change, then it makes sense to support this transformation. And I believe that the pressure to push ahead with the transformation will increasingly gain the upper hand. When we do not see the willingness to support change, then we will have to decide otherwise.

The Polish subsidiary of Talanx, TUIR Warta, is the largest insurer in the Polish coal market. Turkey is among the company’s most important foreign markets. Turkey has plans to build numerous new coal-fired power stations. Will you insure them?

We will complete our exit from coal-based risks by 2038. In principle, this means that we will no longer insure new coal-fired power stations that are planned. In our defined exceptional regions, projects will be subject to a highly detailed internal review. In Poland, for example, we have not underwritten a single new coal-fired power station in 2020. The same applies to Turkey.

The interview was conducted by Karin Finkenzeller.


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.