Declaration of conformity 2019

A. Introduction

Talanx AG is incorporated under the laws of Germany. Its 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

In this report Talanx AG gives notice of the non-application of certain corporate governance rules specified in the “Best Practice for GPW Listed Companies 2016” along with an explanation why these rules were not applied. The recommendations defined in the “Best Practice for GPW Listed Companies 2016” are not subject of the declaration.

The information provided should be assessed together with the Annual Report of Talanx AG which contains 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. 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

B. Information as to which corporate governance rules defined in section I-VI were not applied by Talanx AG and an explanation under what circumstances and for what reasons these rules were not applied

Chapter I. Disclosure Policy, Investor Communications

I.Z.1. A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation:

I.Z.1.11. 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;

I.Z.1.19. shareholders’ questions asked to the management board pursuant to Article 428 § 1 or § 6 of the Commercial Companies Code together with answers of the management board to those questions, or a detailed explanation of the reasons why no answer is provided, pursuant to principle IV.Z.13;

I.Z.1.20. an audio or video recording of a General Meeting.

Partial non-application of the rule.

Company´s explanation:

Talanx AG makes relevant information and documents available for review by shareholders on the corporate website.

I.Z.1.11. According to EU law, the responsible auditor of a Public Interest Entity, as Talanx AG, has to rotate after 10 years. There does not exist any specific internal rules of Talanx AG concerning the changing of the company’s auditor. Change of auditors company for Talanx AG is approved as of 2018. PricewaterhouseCoopers were appointed as statutory auditors of the Company until the next AGM. This was a new appointment following a tender process carried out by Talanx AG.

I.Z.1.19. Talanx AG reports the detailed results on all votes via a company release and via its website shortly after the Annual General Meeting has ended.

I.Z.1.20.Talanx AG limits – consistent with German law – the broadcast of the Annual General Meeting to such parts which do not show private investors or their representatives. AGM is recorded, broadcasted and available on the company website until (and including) the speech of the CEO (no broadcast, recording and website availability e.g. of Q&A session).

Chapter IV. General Meeting, Shareholder Relations

IV.Z.4. If the Management Board becomes aware a General Meeting being convened pursuant to Article 399 § 2–4 of the Commercial Companies Code, the Management Board should immediately take steps which it is required to take in order to organise and conduct the General Meeting. The foregoing applies also where a General Meeting is convened under authority granted by the registration court according to Article 400 § 3 of the Commercial Companies Code.

Partial non-application of the rule.

Company´s explanation:

IV.Z.4. 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 VI. Remuneration

VI.Z.3. The remuneration of members of the Supervisory Board should not be linked to options or other derivatives or any other variable components, and neither should it be linked to the company´s results.

Partial non-application of the rule.

Company´s explanation:

VI.Z.3. The remuneration of the Supervisory Board members of Talanx AG has a variable component which is linked to the company´s averaged results of the last three business years.

Talanx AG
The Board of Management

June 2019

A statement on the company's compliance with the corporate governance recommendations and principles contained in Best Practice for GPW Listed Companies

For detailed information please refer to this document: pdf

The German Corporate Governance Code sets out key statutory requirements for the management and governance of German listed companies and contains internationally and nationally recognised standards for good, responsible governance. The Code aims to promote confidence in German corporate governance by investors, customers, employees and the general public. Section 161 of the German Stock Corporation Act (AktG) requires the boards of management and supervisory boards of German listed companies to issue an annual declaration of conformity with the recommendations of the Government Commission on the German Corporate Governance Code published by the Federal Ministry of Justice, or alternatively to explain which recommendations were or are not being followed and why (“comply or explain”).

The Board of Management and Supervisory Board hereby declare in accordance with section 161 of the AktG that, when implementing the German Corporate Governance Code in the current version dated 7 February 2017, Talanx AG departed from the following recommendations of the Code in the period since the last declaration of conformity was issued on 9 November 2018, and that it continues to do so. In all other cases, the recommendations of the Code in the current version dated 7 February 2017 were and continue to be complied with.

1. Section 4.2.3 (2) of the Code (cap on variable remuneration components in Board of Management contracts)

Part of the variable remuneration paid to members of the Board of Management takes the form of Talanx share awards. The maximum number of share awards at the grant date depends on the total amount of variable remuneration, which is capped. This means that the granting of share awards is subject to this cap. Share awards are subject to a four-year vesting period. As a result, members of the Board of Management are exposed to both positive and negative developments at the Company during this period, as reflected in the share price. After the vesting period expires, the value of the share awards is paid out to the members of the Board of Management. The amount paid out is determined on the basis of Talanx’s share price as of the payout date, plus an amount equal to the total dividends per share distributed during the vesting period. This means that the share awards are aligned with how Talanx’s shares perform financially.

Consequently, the amount of variable remuneration resulting from share award grants is capped on the grant date, but is not capped again on the payout date. The Company believes that it does not make sense to impose a further cap as of the payout date on the amount of variable remuneration resulting from the share awards, given that the latter are designed to align the interests of shareholders and members of Talanx AG’s Board of Management. In the Company’s view, making payments in the form of Talanx share awards corresponds in economic terms to a compulsory investment in Talanx shares with a four-year holding period.

Therefore, as a highly precautionary measure, Talanx AG hereby formally declares a departure from section 4.2.3 (2) of the Code.

2. Section 4.2.3 (4) of the Code (severance payment caps in Board of Management contracts)

Terminating a contract of service early without good cause is only possible by mutual agreement. Even if the Supervisory Board were to insist on severance caps being agreed when entering into or renewing Board of Management contracts, this would not rule out the possibility of negotiations relating to a Board of Management member’s departure also extending to such a severance cap. In addition, the Company’s freedom to negotiate an exit would be restricted if a severance cap were agreed; this could be particularly disadvantageous if it is unclear whether good cause for termination exists. Therefore, Talanx AG believes it is in the Company’s interests to depart from the recommendation set out in section 4.2.3 (4) of the Code.

3. Section 5.3.2 (3) sentences 2 and 3 of the Code (chairmanship of the Audit Committee)

The current Chairman of the Finance and Audit Committee is also the Chairman of the Supervisory Board. Prior to his appointment as a member of the Supervisory Board, he was a member and Chairman of the Company's Board of Management. Our goal is for his exceptional knowledge of the primary insurance and reinsurance business, and his many years of experience in managing the Company and the Group to remain at Talanx AG’s service, and for the work of the Supervisory Board to benefit from it in this key role. Additionally, since he also held the position of Chief Financial Officer at an earlier point in time he has extensive knowledge and experience of applying accounting principles and internal control procedures in the primary insurance and reinsurance sectors. He is therefore particularly well suited to his role as Chairman of the Finance and Audit Committee. By combining this position with his position as Chairman of the full Supervisory Board, he coordinates the work of the two bodies and can therefore optimise their efficiency. For this reason, the Company believes that the current Chairman of the Supervisory Board is optimally suited to chairing the Finance and Audit Committee. It is therefore in the Company’s interests to depart from the recommendations contained in section 5.3.2 (3) sentences 2 and 3 of the Code.

Apart from the above-mentioned departures, the Company will continue to comply with all recommendations of the German Corporate Governance Code in the version dated 7 February 2017 in the future, too.

Hannover, 8 November 2019

On behalf of the On behalf of the
Board of Management Supervisory Board