Group News

Torsten Leue: "An extraordinary year in the history of the industry"

CEO interview conducted by Börsenzeitung: The Talanx boss comments on the losses from the coronavirus pandemic and natural catastrophes, medium-term financial goals and an embodied "purpose"


Mr Leue, how would you currently assess 2020 as a year of large losses for the insurance industry?

For the insurance industry this will be a year with large losses above the long-term average, one that will be shaped by the coronavirus and natural catastrophes. Market estimates for 2020 anticipate loss expenditure from the coronavirus pandemic alone in a wide range of EUR 50 billion to 100 billion.

Given the uncertainties will you still not be announcing any new financial targets for the current year even after the third quarter?

That remains to be seen. As the year draws to a close the uncertainties affecting the financial result can of course be better estimated, although it continues to be challenging this year on account of the expected severe hurricane season and the ongoing coronavirus pandemic.

Will 2020 be an exceptional year for your industry?

Yes. With coronavirus and a forecast above-average hurricane season, 2020 will go down as an extraordinary year in the history of the industry – one that will usher us all into a "new normal".

The Talanx Group withdrew its profit guidance for 2020 in April; large loss expenditure was already over EUR 1 billion by the middle of the year and clearly exceeded the pro rata budget of EUR 594 million. How do you see 2020 in the history of Talanx?

2020 will be a significant and defining year for us, as it will be for other market players. The coronavirus is a profound crisis that will accelerate already long-existing trends such as progressive digitalisation and hence the hybridisation of customer behaviour and the world of work. We are embarking on this accelerated transformation process that lies ahead of us in very robust shape with a record profit from the past year, a solid six-month result this year and a solvency ratio of 191%. The strategy that we defined in 2018 is thus paying off.

In 2018 you had promised investors an increase in earnings per share averaging 5% a year until 2022. Can this target still be met?

Our strategy has proven its worth. In 2019 we had a record year with a 9% rise in earnings per share. We continue to aim for our medium-term goals because the result for the first half of 2020 – after factoring out coronavirus-related effects – shows that on the whole we are on the right track.

After a good two years as CEO what's your interim assessment as regards the growth initiatives defined in 2018?

Through the growth initiatives we have also set ourselves the goal of generating an operating profit of EUR 100 million in the medium term. Last year we already achieved almost half of this. To this extent, my interim assessment is looking very favourable.

What about the specifics? For example, how are your efforts to push growth in business with German commercial customers coming along?

We determined that our Retail Germany division, in other words HDI Deutschland, will focus on growing business with commercial customers. Over the past two years our growth averaged 8% and was thus well above the market average 3.5%. For strategic reasons, we want to further increase our market share from currently 7.3% to 10% and hence rank as one of Germany's leading commercial insurers.

What's happening with the specialty business transacted with the subsidiary Hannover Re, which in 2022 is supposed to deliver an additional contribution to the operating profit (EBIT) running into the mid-double-digit millions of euros?

In specialty business we have already succeeded in together leveraging appreciable growth synergies between the primary insurance and reinsurance sides within the Group. In 2019, the first year of joint operations, we grew by 31%, and the figure is as high as 53% for the first six months of this year. By the end of June 2020 we had reached a premium volume of EUR 900 million, putting us absolutely on track to achieve our medium-term premium target of EUR 2.1 billion and thereby generate an attractive, additional profit contribution for the Group.

Turning to another initiative, what's going on with the concentration of reinsurance requirements on the primary side, which is intended to deliver a further contribution to net income of EUR 50 million?

We have got off to a successful start here and received the licence from the BaFin at the end of 2019. In addition to realising capital synergies on the Group level, we were able to secure an improved rating of "A+" that gives us extra room for manoeuvre with an eye to possible debt financing.

A major factor is the growth in primary insurance business in foreign markets. The goal is that by 2022 two-thirds of business should derive from international markets. Does that still apply?

In 2018 53% of business in primary insurance came from abroad, while in 2019 the figure was 58%. We are on the right path here, but the path does not always follow a straight line because fluctuations – caused for example by exchange rate effects – always influence the environment.

Why do you want to expand the share of this business?

It’s about diversifying revenue streams globally and across segments, especially in the non-life business transacted by primary insurers.

In Latin America as well as in Central and Eastern Europe you are aiming for top 5 positions in the market. How is the business developing?

As a basic principle, our focus on the existing international markets and on the goal of top 5 positions remains unchanged. Our retail business in the growth markets continues to perform highly satisfactorily and – in common with the entire market – is now facing coronavirus-related challenges such as changed market cycles, exchange rate fluctuations and a more stringent regulatory environment.

The economic outlook in certain international markets isn't rosy on account of the coronavirus.

The situation is challenging in some areas. In the past, however, we saw that after earlier crises growth markets also bounced back more quickly than so-called more mature markets. In growth markets the direct repercussions of the crisis are not cushioned as much by government support measures. That's why now, as in the past, it is very possible that an abrupt downturn will be followed by a similarly sharp upswing.

Are you looking at expanding into new international markets?

For the time being there won't be any changes as far as our five strategic core markets of Poland, Turkey, Brazil, Chile and Mexico are concerned. In other markets where we are also active, such as Italy, we can of course envisage complementary portfolio moves.

What does that mean?

Inorganic growth that further promotes the diversification of our portfolio.

In what area? Our focus is on non-life business.

What would be the order of magnitude for the purchase price of such a transaction?

If we are talking about a complementary acquisition, the amount would be in the mid-triple-digit million euro range.

What financial resources would currently be available for acquisitions?

We have the financial scope for multiple transactions that complement the portfolio.

Are the chances of an acquisition higher in the context of the coronavirus crisis?

The insurance industry thrives on volatility. To this extent, the present phase has to be seen as an opportunity.

Including for acquisitions?

The coronavirus is a profound crisis that will add to the pressure for consolidation over the medium term, and we want to make the most of the opportunities here. What matters for us is that we stay disciplined in everything that we do. To this end, clearly defined criteria are in place. Our return on equity must not be adversely impacted by an acquisition, and our cost of capital has to be earned.

The coronavirus crisis is accelerating trends in your business, you say. Is that also true of the ongoing cultural development towards agility and a digital mindset that you announced two years ago as a goal for Talanx after taking the reins as CEO?

Yes it is. The coronavirus is also revealing who can best adapt to the circumstances with their business model. We are positioned with an entrepreneurial, decentralised setup without any complex matrix organisation. If this transparent performance culture is further based on trust, it establishes a very good platform for speeding up the cultural evolution.

So what progress have you made so far? Are there more grounds for optimism or for self-criticism?

Cultural evolution is a marathon rather than a sprint. As I see it, the progress made since 2018 is promising. The results for 2019 were very favourable, we are on track with the growth initiatives, and throughout the entire Group there are countless other positive examples of changes.


We worked with some 4,500 members of staff on elaborating our purpose "Together we take care of the unexpected and foster entrepreneurship". The Board of Management had next to no involvement. You find this purpose in every nook and cranny of our organisation: it doesn’t just exist on paper, but is enthusiastically embraced – especially in these times of coronavirus.

In what way?

We have been able to do a superb job of maintaining operational stability during the coronavirus lockdown. More than 95% of our 22,000 employees around the world were working out of their home office on the first day of lockdown, without this adversely affecting our performance capability in areas such as claims handling. Employees voluntarily donated overtime for each other so as to get through tight situations in their personal lives, e.g. with childcare. Many local initiatives were launched worldwide with the goal of providing material and indeed personal support for families and hospitals. Within the Talanx Group we are experiencing a great feeling of togetherness during the crisis. This is fostered by, among other things, the teamwork between colleagues, and especially by the very close interaction between management and social partners over the necessary decisions. A culture based on trust makes possible all sorts of positive developments. Not least, work becomes a lot more fun!

So does the "Purpose" have an effect on the result?

I am convinced that all successful companies have a purpose that they embody. This is borne out by countless positive examples, including increasing numbers of job applicants, greater levels of satisfaction among the workforce and overarching, effective collaboration between IT and the business units.

You mention IT: How is the modernisation at Talanx coming along?

What is important here is to take a global perspective on our IT landscape. A large share of our business, roughly 80%, is generated abroad. In many markets we are already operating with successful business models that are supported by state-of-the-art IT systems. Nevertheless, it is also true that in Germany we still need to reduce complexities.

In what way?

System integration and retirement are the top priority here for streamlining a complex IT landscape. Since 2019 we have taken 20% of our IT systems, in other words more than 300 applications, off the network. A real highlight was the shutdown of the BS2000 mainframe system developed some 50 years ago. It's all about reducing complexity so as to be able to grow successfully in the market.

How long will it take?

There is no single point in time by which we will have completed this reduction of complexity. We have to work systematically on intuitive and customer-friendly IT-supported processes.

How competitive is German retail business after the past five years of the "Kurs" programme?

The division has been stabilised in recent years, with more and more complexity eliminated. The order of the day now is to successfully implement growth initiatives. We want to be one of the leading commercial insurers in the German market. But the "Kurs" programme is currently still ongoing. We had set ourselves the goal of increasing the operating result (EBIT), which was close to zero back in 2015, to EUR 240 million by 2021 in the context of the remediation and stabilisation project known as "Kurs". Last year the operating profit was already up to around EUR 230 million.

Will there be any new measures to boost efficiency?

Christopher Lohmann has just taken over as the new CEO at HDI Deutschland. He will doubtless be unveiling new strategic targets in the first half of 2021.

Can you already give us a rough idea?

We want to become a leading commercial insurer in Germany. In view of the capital market requirements, it is only logical that the pressure on the underwriting side is growing. What matters, then, is defining to what extent additional improvements in the result can be generated with profitable growth or through efficiency improvements.

If you are looking to become more efficient: How much lower can the management expense ratio go?

It's all about defending our cost leadership in three and a half out of four segments and catching up at HDI Deutschland. That's why we have to work steadily and continuously on our costs.

How competitive are industrial lines after the remediation of fire insurance?

With an increase of 34% we have already comfortably overachieved our goal of 20% premium growth by 2020. We were a trailblazer in the German market when it came to the remediation of fire business and this enabled us to reduce our combined ratio from 109% to 101% just in 2019 alone. That was a giant step forward. Now it's important to book profitable growth in a market environment that is hardening for the first time in 14 years.

What plans do you have in store for your industrial insurer?

In Germany it's all about defending our leading position in the market. We see sizeable growth prospects in Europe as well as selectively in markets outside the European continent. In geographical terms, we take a global approach in our specialty business.

Bearing in mind the zero interest rate landscape, does Talanx need to take new steps to boost efficiency?

For us, a drop of 20 basis points in interest rates means a charge to the Group result of EUR 25 million on the investment side. That has to be offset first on the underwriting side.

What's crucial is how you can grow profitably.

Yes, and in this respect we want to build on our 6 percent premium growth in recent years, which is better than average by market standards. Risk capital needs to be allocated to those areas where the highest margins can be generated.

Investment income fell by 10% in the first half of the year. The decline was driven inter alia by coronavirus-related write-downs on equities and alternative investments as well as reduced earnings from fixed-income securities. How do you assess the current challenges facing the investment side?

Low interest rates are likely here to stay for quite some time. That's why we are expanding our investments in alternative assets. Going forward, we are aiming for a volume of EUR 5 billion here – we currently stand at more than EUR 3 billion – so as to generate a risk-adjusted additional return. But that does not mean that we shall increasingly direct our risk appetite within the Group towards the investment side. We intend to allocate risk capital that is left over to the underwriting business, in other words for profitable growth. As we see it, the risk/return profile here is more attractive than with equities. Given the market cycles, this posture makes particularly good sense right now because we see good opportunities to profitably grow our gross premium income.

Your equity allocation remains below 1%?

Yes. In times such as these we shall not be making increasingly speculative use of our risk capital on the stock market.

Since the going public in 2012 Talanx has proven to be a reliable dividend payer with at least stable and for the most part rising distributions. Is there a question mark over this against the backdrop of the coronavirus and recession?

We remain committed to our existing dividend continuity. However, we do not yet know what regulatory restrictions will be set for dividend payments next year by the respective national supervisory authorities. In my view, this could pose the greatest risk for the insurance sector when it comes to dividend payments.

How do you evaluate the progress made towards closing the valuation gap between the insurance and reinsurance sector?

When the Talanx share gained 50% last year we were well on the way to significantly improving the valuation. The development that can be observed this year is understandable: when there's a lot of volatility in the markets, shares such as ours – which have a relatively small free float and the associated low trading volume – are especially hard hit by the volatility. Many investors make the rapid fungibility of a share a selection criteria for their investment decisions in times of volatility. That's why our share is not delivering the performance this year that we envisage over the long term. It is therefore essential for us to achieve our strategic objectives.

Would you be in favour of your majority owner, HDI V.a.G., reducing its 79% holding?

There is currently no reason to make any changes to the ownership structure. If, for example, there were to be a substantial transaction at some point in time, HDI V.a.G. would probably be prepared to reduce its stake to at most 50.1%.

Hannover Re is about to embark on a new strategy cycle. What are you expecting from the subsidiary over the next three years?

Keep it coming! When a company posts vigorous growth, outperforms the market with a double-digit return on equity over the long term while at the same time being a cost leader and promising an attractive dividend, there is every reason to be satisfied. The interview was conducted by Carsten Steevens.


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.