The Board of Management and Supervisory Board submitted the following declaration of conformity with the German Corporate Governance Code for Talanx AG prior to approval of the annual financial statements:
The German Corporate Governance Code (“DCGK”) sets out major statutory requirements governing the management and supervision of German listed companies and contains both internationally and nationally recognised standards for good and responsible enterprise management. The purpose of the Code is to foster the trust of investors, customers, employees and the general public in German enterprise management. Under § 161 AktG it is incumbent on the boards of management and supervisory boards of German listed companies to provide an annual declaration of conformity with the recommendations of the “German Corporate Governance Code Government Commission” published by the Federal Ministry of Justice, or to explain which recommendations of the Code were/are not being applied and for which reasons (“comply or explain”).
I. German Corporate Governance Code 2013
The Board of Management and Supervisory Board declare pursuant to § 161 AktG that Talanx AG, in its implementation of the German Corporate Governance Code, has diverged in three respects from the recommendations contained in the version of the Code dated 13 May 2013:
Item 4.2.3 Para. 4 DCGK (caps on severance payments in Management Board contracts)
Premature termination of a Management Board contract without serious cause may only take the form of cancellation by mutual consent. Even if the Supervisory Board insists upon setting a severance cap when concluding or renewing a Board of Management contract, this does not preclude the possibility of negotiations also extending to the severance cap in the event of a member leaving the Board of Management. The scope for negotiation over a member leaving the Board of Management would also be restricted if a severance cap were agreed, which could be particularly disadvantageous in cases where there is ambiguity surrounding the existence of serious cause for termination. In the opinion of Talanx AG, it is therefore in the interest of the company to diverge from the recommendation contained in Item 4.2.3 Para. 4 DCGK.
Item 5.2 Para. 2 DCGK (Chairmanship of the Audit Committee)
The current Chairman of the Finance and Audit Committee is also the Chairman of the full Supervisory Board. Although other members of the Finance and Audit Committee also have special knowledge and experience of the application of accounting principles and internal control procedures, the current Chairman of the Committee is the only member to have spent his whole career in the insurance sector. He can look back on 29 years on the boards of management of insurance companies and insurance holding companies, of which 20 years were spent as Chairman of the Board of Management, sharing direct responsibility for the income situation of the company concerned and the presentation of this income on the balance sheet. In his double role as Chairman of the Finance and Audit Committee and of the full Supervisory Board, he coordinates the work of both committees single-handedly and can thus optimise the efficiency of their activities. His position does not lead to a concentration of power on either the Finance and Audit Committee or the full Supervisory Board, as he has only one vote on each committee, like the other members. The company therefore believes that the current Chairman of the Supervisory Board is the most suitable person to act as Chairman of the Finance and Audit Committee. It is thus in the company’s interest to deviate from the recommendation in Item 5.2 Para. 2 DCGK.
Item 4.2.3 Para. 2 DCGK (Maximum limits on variable components of remuneration in Management Board contracts)
Part of the variable remuneration for members of the Board of Management is granted in the form of Talanx share awards. The maximum number of share awards granted depends on the total amount of variable remuneration, the amount of which is limited (cap), i.e. the allocation of share awards is subject to the maximum limit. A vesting period of four years applies to share awards. This means that members of the Board of Management will share in both positive and negative developments at the company during this period, as reflected in the share price. The equivalent value of the share awards is paid out to members of the Board of Management after expiry of the vesting period. The amount paid out is determined based on the price of Talanx shares on the disbursement date, plus an amount equal to all dividends per share paid out during the vesting period. The share awards thus track the performance of Talanx shares.
The amount of variable remuneration resulting from the granting of share awards is therefore limited at the time of allocation of the share awards, but not again at the time of payment. The company does not believe that it makes sense to impose a further limit on the amount of variable remuneration resulting from the granting of share awards on the disbursement date, given that the share awards are intended to balance the interests of shareholders and members of the Board of Management of Talanx AG. From the company’s perspective, payment in Talanx share awards represents, in economic terms, a compulsory investment in Talanx shares with a four-year lock-up period.
Talanx AG therefore formally declares, purely as a precaution, that it has diverged from Item 4.2.3 Para. 2 DCGK.
II. German Corporate Governance Code 2012
The Board of Management and Supervisory Board furthermore declare, pursuant to § 161 AktG, that Talanx AG has diverged from the following recommendations of the DCGK as amended on 15 May 2012 since its last declaration of conformity on 20 March 2013:
Item 4.2.3 Para. 4 DCGK (Caps on severance payments in Management Board contracts)
For the reasons for the deviation from Item 4.2.3 Para. 4 DCGK, cf. I.1 above
Item 5.2 Para. 2 DCGK (Chairmanship of the Audit Committee)
For the reasons for the deviation from Item 5.2 Para. 2 DCGK, see I.2 above
Apart from the above exceptions, the company will continue to comply with the recommendations of the DCGK.
Hannover, 25 February 2014
On behalf of the Board of Management On behalf of the Supervisory Board
A. Introduction
In this Report on Corporate Governance regarding the application of Corporate Governance Rules specified in the “Code of Best Practice for Warsaw Stock Exchange Listed Companies” Talanx AG gives notice of the non-application of certain corporate governance rules set forth in this Code along with an explanation why these rules were not applied. The recommendations defined in section I of the “Code of Best Practice for WSE Listed Companies” are not subject of the declaration given by Talanx AG which is incorporated under the laws of Germany, and whose corporate standing, rules of operation as well as the rights of shareholders are governed by the provisions of German corporate law. In certain areas, these provisions differ from the relevant provisions of Polish law.
Additionally, the information provided should be assessed together with the annual reports of Talanx AG which contain general information about the structure of the Talanx group and its corporate governance system.
According to the German Stock Corporation Act, Talanx AG operates under a system based on three corporate bodies – the Annual General Meeting of shareholders, the Supervisory Board and the Board of Management.
The Board of Management and Supervisory Board submitted a declaration of conformity with the German Corporate Governance Code (“DCGK”) for Talanx AG prior to approval of the annual financial statements. This declaration of Conformity is part of the annual report of Talanx AG and published on the company´s website (http://www.talanx.com/investor-relations/finanzberichte/talanx-group.aspx?sc_lang=en). The DCGK sets out major statutory requirements governing the management and supervision of German listed companies and contains both internationally and nationally recognised standards for good and responsible enterprise management.
By good Corporate Governance, the Board of Management and Supervisory Board of Talanx AG understand a responsible enterprise management and supervision geared towards sustainable value creation. The company´s understanding of good corporate governance is being summarised in Talanx AG’s Corporate Governance Principles which were adopted by the Board of Management and Supervisory Board in August 2012 (http://www. talanx.com/investor-relations/corporate-governance).
B. Information as to which corporate governance rules defined in section II-IV were not applied by Talanx AG and an explanation under what circumstances and for what reasons these rules were not applied
Chapter II Best Practices for Management Boards of Listed Companies
Rule II. 1. A company should operate a corporate website and publish on it, in addition to information required by legal regulations:
2a) on an annual basis, in the fourth quarter – information about the participation of women and men respectively in the Management Board and in the Supervisory Board of the company in the last two years;
7) shareholders’ questions on issues on the agenda submitted before and during a General Meeting together with answers to those questions;
9a) a record of the General Meeting in audio or video format;
14) information about the content of the company’s internal rule of changing the company authorised to audit financial statements or information about the absence of such rule
Partial non-application of the rule.
Company´s explanations:
Talanx AG makes relevant information and documents available for review by shareholders on the corporate website (www.talanx.com).
2a) The actual participation of women and men in the Management Board and Supervisory Board is published annually on the corporate website. There is no obligation under German law to publish such information for the last two years.
7) Talanx AG reports the detailed results on all votes via a Company Release and via its website shortly after the General Meeting has ended.
9a) Talanx AG limits – consistent with German law - the broadcast of the General Meeting to such parts which do not show private investors or their representatives [in order to protect their personal rights].
14) The changing of the company authorised person to audit financial statements is not defined in internal corporate rules within Talanx AG. According to German law, the responsible auditor for a capital market oriented company has to rotate after seven years.
Rule II. 8. If a company’s Management Board is informed that a General Meeting has been summoned pursuant to Article 399 § 2–4 of the Code of Commercial Partnerships and Companies, the company’s Management Board shall immediately perform the actions it is required to take in connection with organising and conducting a General Meeting. This rule shall also apply if a General Meeting is summoned on the basis of authorisation given by the registration court pursuant to Article 400 § 3 of the Code of Commercial Partnerships and Companies.
Partial non-application of the rule.
Company´s explanations:
According to German and Polish rules governing the conflict of laws, solely German law is applicable in respect of corporate legal processes, particularly regarding the way of convening a General Meeting.
Chapter III Best Practices for Supervisory Board Members
Rule III.1. In addition to its responsibilities laid down in legal provisions the Supervisory Board should:
1) once a year prepare and present to the Ordinary General Meeting a brief assessment of the company’s standing including an evaluation of the internal control system and the significant risk management system;
Partial non-application of the rule.
Company´s explanations:
The Management Board of Talanx AG provides information about the internal control system and the risk management system in the context of the regular reporting to the Supervisory Board. A detailed report of the Supervisory Board is published in the annual report of Talanx AG in order to inform the Ordinary General Meeting and other stakeholders; however, this is not an explicit item on the agenda of the General Meeting.
Chapter IV Best Practices of Shareholders
Rule IV.10 A company should enable its shareholders to participate in a General Meeting using electronic communication means through:
1) real-life broadcast of General Meetings;
2) real-time bilateral communication where shareholders may take the floor during a General Meeting from a location other than the General Meeting.
Partial non-application of the rule.
Company´s explanations:
German law does not require companies to broadcast General Meetings online over the Internet or to publish audio or video format recordings on the company website. Companies are not required to enable shareholders’ participation in General Meetings by electronic means of communication through real life broadcast or real-time bilateral communication. However the General Meeting of Talanx AG allows for personal vote and representation in the General Meeting as well as for vote via the internet proxy voting system NetVote.
Apart from the above divergencies, Talanx AG complies and will continue to comply with the rules of the Code of Best Practice for Warsaw Stock Exchange Listed Companies.
Talanx AG
The Board of Management