Talanx builds on good performance prior to financial crisis
- Gross written premium boosted: €20.9 billion (+10%)
- Core underwriting business pleasing: Combined ratio 96.6%
- Operating profit (EBIT) improved: €1.5 billion (+151%)
- Return on equity increased: 12.8% (+7.8% points)
- Profitability target accomplished: Number four in Europe
- Solid equity base
Hannover, 8 June 2010
The Talanx Group closed the 2009 financial year with a very good result, thereby building on the outstanding performance prior to the financial crisis.
As the Group's Chief Executive Officer Herbert K. Haas explained, comparisons with the previous year are not particularly helpful in order to evaluate the quality of the 2009 result; rather, a comparison with 2007 is more informative. Mr. Haas noted: "It cannot come as a surprise that profitability improved as we put the financial crisis behind us. To this extent, the rates of increase relative to the previous year cannot be considered an achievement. The correct perspective is, in fact, a comparison with the year prior to the crisis." And this is a level that the Talanx Group actually surpassed: Group net income came in more than 10% higher than the 2007 figure – which was in itself a good result. "Our goal", Mr. Haas continued, "of ranking among the five most profitable insurance groups in Europe was accomplished for 2009. What is more, at 12.8% we comfortably exceeded our minimum target of a return on equity 750 basis points above the risk-free interest rate. The very good result recorded for 2009 was, however, influenced by a number of positive non-recurring effects."
A focus of the Group's efforts in the current year will continue to be on restructuring its primary insurance business, a logical consequence of the Gerling integration. Now that the latter task has been successfully completed with an emphasis on speed, the Group is devoting itself to improving efficiency. In organizational terms, primary insurance business – which is to be split into three divisions going forward – will be geared to customer segments: Industrial Business, Retail Business Germany and Retail Business Foreign. The Reinsurance Division will remain unchanged. Furthermore, the Group is seeking to reduce complexity through a flexible, transparent corporate structure and to further reinforce the identification of its various divisions with the Group objectives. Ultimate management responsibility will be concentrated more heavily in the hands of Talanx AG, thereby better aligning the Group with the requirements of stakeholders, most notably customers and the capital market. The objective is to generate value on a sustainable basis through competitive structures, processes and products.
Talanx Group in 2009
Gross written premium including savings elements of premium under unit-linked life and annuity policies grew by 10% to €20.9 (19.0) billion. The increase was driven crucially by non-life and life/health reinsureance. The strongest growth – altogether 44% – was recorded by the Life/Health Reinsurance segment. The reasons here are twofold: the acquisition of a US life reinsurance portfolio coupled with vigorous organic growth.
Net premium earned climbed by 16% to €17.3 (14.9) billion on account of higher retentions in the Life Primary Insurance as well as Life/Health and Non-Life Reinsurance segments.
The burden of catastrophe losses in the year under review was lower than average, in part thanks to an unremarkable hurricane season. The fact that the combined ratio nevertheless exceeded the previous year at 96.6 (95.2)% is a reflection of a more prudent reserving policy.
Net investment income surged by a substantial 78% to €2.9 (1.6) billion. Talanx had largely withdrawn from equity markets in September 2008, in so doing accepting considerable losses on disposals. In the year under review, by contrast, extraordinary investment income improved appreciably. The operating profit (EBIT) increased by 151% to €1.5 (0.6) billion. Group net income after taxes and minority interests soared to €526 (183) million.
The return on equity after tax increased by 7.8 percentage points to 12.8%. The company's goal is to rank among the five most profitable – measured by the IFRS return on equity – of Europe's 20 largest insurance groups. Group CEO Herbert K. Haas confirmed: "With this result we have achieved our profitability target. We are the number four in Europe."
Group segments in 2009
Property/Casualty Primary Insurance
Gross written premiums in the Group's largest segment by premium income contracted by 0.8% to €5.8 (5.9) billion. This can be attributed inter alia to exchange rate effects, the sale of an insurance portfolio in Spain and the fierce price competition in motor insurance in Germany. On the other hand, despite intense competition in industrial insurance, HDI-Gerling Industrie AG boosted its gross written premium by 1.5%. Net premium earned fell by 1% to €3.8 (3.9) billion. The level of retained premium dropped slightly to 65.1 (66.7)%.
Net investment income increased by 33% to €454 (342) million. The combined ratio climbed to 96.5 (95.3)%. The operating profit (EBIT) improved to €364 (259) million.
The positive development of international business, which accounted for 44% of the premium volume in the segment, continued in 2009. The gross written premium here grew by 3% to €2.7 (2.6) billion. The number of contracts increased to 7.8 (7.1) million (+10.3%).
The Mexican company HDI Seguros has been part of the Group since 1 October 2009. In addition, the HDI-Gerling Property & Casualty Group entered into a joint venture with the financial services company Magma Fincorp Limited for the sale of insurance products in the Indian market. Organic growth in foreign business was generated above all in Brazil in the year under review. The local company HDI Seguros now ranks as the fifth-largest motor insurer in the country with a portfolio of more than one million insured vehicles.
Life Primary Insurance
Gross written premiums including savings elements of premium under unit-linked life and annuity policies decreased slightly by 0.7% to €5.65 (5.69) billion, particularly due to the sharp decline in new business in the Life Insurance Division. The development of new business on the market was especially notable in 2009 for a very vigorous rise in single premium products. While the Talanx Group offers single premium policies, it does not sell any bank-like products. On the other hand, customers displayed a market aversion to unit-linked life insurance, which had enjoyed lively demand before the financial crisis. At the same time, demand for guarantee products rose sharply.
These factors directly affected the development of new business within the Group: the Annual Premium Equivalent (APE = total of regular premiums plus 10% of single premiums) fell by 21% to EUR 566 (713) million. The decrease in new business with a regular premium payment was not offset by the increase in single premiums. The development of new business with regular premiums should be viewed against the backdrop of the special effect in 2008 associated with implementation of the last Riester step increase. Excluding this effect, the APE decline would have been considerably smaller at just 11%. Net premium earned climbed by 4% to €4.1 (4.0) billion.
The net investment income of €1,157 (985) million was 17% higher than in the previous year. Driven especially by higher net premiums, improved investment income and a positive non-recurring effect, the operating profit (EBIT) of the Group's Life Primary Insurance segment significantly exceeded the previous year's result at EUR 183 (156) million. Of this amount, €75 (62) million derived from the Life Insurance Division and €108 (94) million from the Bancassurance Division.
In the Life Insurance Division, i.e. the HDI-Gerling Life Group, gross written premium including premiums from unit-linked life and annuity policies fell by 4% in 2009 to €2.9 (3.0) billion. The in-force portfolio excluding riders contracted marginally by 1.6% to 3.26 (3.31) million.
New business measured by the APE retreated by 18% to €226 (277) million. There were a number of reasons for this reduction. Given their specialization in investment-oriented products, the Aspecta companies have been especially hard hit by consumer caution because the implications for such products were unusually marked. At HDI-Gerling Lebensversicherung AG new business with regular premiums contracted, especially on account of the Riester effect in the previous year. Once this special effect has been factored out of the benchmark figure for the previous year, the drop in the APE is reduced from 12% to 1.5%. Excluding the Riester effect the decline stood at 12% for the division as whole.
In the Bancassurance Division Group companies work together with banks and postal service partners as well as Sparkasse savings institutions. The cooperation agreements with TARGOBANK as well as Postbank have continued unchanged despite changes in the respective ownership and shareholder structures.
Gross written premiums climbed by 4% to €2.8 (2.7) billion. PBV Lebensversicherung AG and Neue Leben Lebensversicherung AG, which boosted their gross premiums by 9% and 6% respectively relative to the previous year, enjoyed particular success. Measured by the APE, premiums in new business fell 22% short of the previous year's level, dropping to €340 (435) million. The APE decrease would be 10% after factoring out the Riester step increase of 2008.
Non-Life Reinsurance
The Non-Life Reinsurance segment is transacted predominantly by the Group company Hannover Re. However, the segment differs from Hannover Re's business group of the same name in two respects: firstly, due to reinsurance activities not attributable to Hannover Re, and secondly, owing to different recognition and measurement options exercised at the Group level.
Demand among insurers for reinsurance protection grew worldwide as a consequence of the financial crisis. Gross written premium therefore surged 15% in the year under review to €5.8 (5.0) billion. The level of retained premium increased to 94.1 (89.0)%. Net premium earned climbed 22% to €5.2 (4.3) billion.
The combined ratio (including deposit interest received) stood at 96.7 (95.0)%. Net investment income soared to €620 (47) million. The operating profit (EBIT) generated in Non-Life Reinsurance increased to €757 (122) million.
Life/Health Reinsurance
Gross written premium grew by 44% to €4.5 (3.1) billion. The sharp increase can be attributed to the acquisition of a US life reinsurance portfolio (€0.8 billion) as well as double-digit organic growth. At constant exchange rates growth would have been as high as 46%. Net premium earned rose to €4.1 (2.8) billion. The operating profit (EBIT) for the segment totaled €369 (114) million.
Corporate Operations
The Corporate Operations segment concentrates services rendered across the Group's various divisions. It was reconfigured in the 2009 financial year: the segment now encompasses the AmpegaGerling companies and the reinsurance broker Protection Reinsurance Intermediaries, the Group holding company Talanx AG – which does not itself conduct any operating business – and specific companies with Group functions that are not allocated to any of the other segments and were previously recognized within the scope of consolidation. The figures for the previous year have been adjusted accordingly.
The decisive indicator in the Corporate Operations segment is the volume of assets under management by AmpegaGerling, which grew by 9.1% in 2009 to €75.5 (69.2) billion. The net investment income in the segment improved to –€22 (–96) million. The operating profit (EBIT) was in positive territory at €11 (–16) million owing to special effects.
Group restructuring is progressing according to plan: service and holding companies to trade under the Talanx name
The restructuring of primary insurance business is progressing according to plan. With effect from 1 January 2011 onwards the Group will be operating in its new configuration. This necessitated numerous measures under company law, the majority of which have already been completed. In the months of July/August Talanx expects to have the restructuring in Germany wrapped up from the standpoint of company law. Delays may still arise, however, when it comes to obtaining approval from foreign regulators.
Following the appointment of Torsten Leue as the member of the Talanx Board of Management responsible for foreign retail business (press release dated 28.5.), all areas of Board responsibility are now filled. Mr. Leue will take up his position on 1 September 2010.
The Group is directing special attention to the reorganization of German retail business. The highly saturated German market demands efficient process flows, highly performant service units, customer-oriented brand and product strategies as well as optimal operating and sales processes. In order to accomplish these goals more quickly, Talanx has recently recruited several proven specialists: as part of the team led by Dr. Heinz-Peter Ross, the responsible member of the Talanx Board of Management, Jörn Stapelfeld – as Chief Operating Officer – will assume special responsibility for Operations within the division. Gerhard Frieg will handle the areas of Marketing and Product Management. Responsibility for Sales has been entrusted to Markus Drews (cf. press releases dated 22. and 25.3.).
When it comes to increasing efficiency, the service companies – along with the management functions concentrated in the hands of Talanx AG – are the focus of attention. Talanx is to form part of their names: the service company, in which general cross-sectional functions for the Group will be bundled, is expected to commence operations effective 1.1.2011. It will trade under the name Talanx Service AG. The IT service provider, which is to be launched in the second half of 2011, will be named Talanx Systeme AG. The company at the head of German retail business, hitherto HDI-Gerling Leben Serviceholding, will be renamed Talanx Deutschland AG with effect from 1.1.2011, while HDI-Gerling International Holding AG will be renamed Talanx International AG; the latter is expected to start trading on 1.9.2010, subject to the approval of regulators. The Industrial Division will be led by HDI-Gerling Industrie AG.
Outlook for 2010
From 2010 onwards the reporting of the Talanx Group will reflect the new Group structure. For the current year the Group expects an increase of around 5% in gross written premium. As Mr. Haas explained: "We anticipate growth in non-life reinsurance, life/health reinsurance and international retail business. The Brazilian company, in particular, is looking to substantially boost its premium income." Provided the burden of major claims and catastrophe losses remains in line with assumptions, the Group expects the combined ratio to deteriorate – although it will still come in below 100%.
Talanx expects to see modest increases in net investment income in the current year. They will be driven by higher investment income from the growing asset portfolio as well as lower write-downs. Mr. Haas is unconcerned by the Talanx Group's exposure to government bonds issued by the "olive countries" (Greece, Italy, Spain, Portugal) and Ireland. "Altogether, we held government bonds with a market value of EUR 1.3 billion in these countries as at 10.05.2010, corresponding to roughly 2% of the Group's total investment portfolio", Mr. Haas explained.
Given the higher claims expenditure anticipated for 2010 and the positive non-recurring effects recorded in 2009, Group net income in 2010 will not match up to the level of the financial year just-ended.
Table of Group key figures
Table of key figures by segments
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