Talanx Capital Markets Day 2018 Frankfurt, 23 October 2018

Transcription

1 Talanx Capital Markets Day 2018 Frankfurt, 23 October 2018

2 Group Strategy II III IV V VI Agenda I Group Strategy Torsten Leue II Group Financials Dr Immo Querner III Industrial Lines Dr Christian Hinsch / Dr Edgar Puls / Dr Thomas Kuhnt V Retail International Sven Fokkema IV Retail Germany VI Final Remarks Dr Jan Wicke Torsten Leue 2

3 Group Strategy II III IV V VI A well-developed and customer-centric culture Traditionally different 3

4 Group Strategy II III IV V VI A team of entrepreneurs who see performance as a question of honour Christian Hinsch, 63 Industrial Lines built up a leading global industrial lines franchise by successfully integrating Gerling Sven Fokkema, 49 Retail International turned Talanx s Polish acquisitions into successful ventures with his international experience Immo Querner, 55 CFO well-recognised Gerling crisis-proven expert in finance and risk management Ulrich Wallin, 63 Reinsurance turned Hannover Re into the most profitable leading global reinsurer Jan Wicke, 50 Retail Germany, IT proven cost manager driving transformation programme KuRS Torsten Leue, 52 CEO developed Retail International into the profitable growth engine of the Group 170 years of common experience in financial sectors Note: Jean-Jacques Henchoz to succeed Ulrich Wallin as of 05/2019 4

5 Group Strategy II III IV V VI Key messages We strengthen: entrepreneurial culture, B2B focus and portfolio diversification We develop: enhanced capital management, focused divisional strategies and digital transformation We commit to an increased RoE of 800bps above risk-free annual EPS growth 5% on average 35% to 45% payout of IFRS earnings with DPS at least stable y/y Note: Targets are relevant as of FY2019. EPS growth CAGR until 2022 (base level: original Group net income Outlook of ~EUR 850m for 2018). The risk-free rate is defined as the 5-year rolling average of the 10-year German Bund yield. Targets are subject to large losses staying within their respective annual large-loss budgets as well as no major turmoil on currency and/or capital markets 5

6 Group Strategy II III IV V VI Strengthen and develop Turning our roots into a foundation for future success Strengthen Develop 1 Entrepreneurial culture 1 Enhanced capital management 2 B2B focus 2 Focused divisional strategies 3 Diversified portfolio 3 Digital transformation Traditionally different 6

7 Group Strategy II III IV V VI Strengthen We approach the VUCA world from a position of strength Volatility Uncertainty Complexity Ambiguity Our answer: reinforcing our strengths War for talent Low-interest rate environment Digital platforms Wave of consolidation 1 Entrepreneurial culture Autonomous driving VUCA Hybrid customers 2 B2B focus Alternative capital Long soft cycles Consumer protection Regulation Consumer behaviour Disruption by start-ups 3 Diversified portfolio 7

8 Group Strategy II III IV V VI 1 Strengthen Entrepreneurial culture Our entrepreneurial culture as basis for continued growth and cost leadership Clear responsibilities with transparency and consequence Decentralised business structure Innovation power International best-practice sharing and digital mindset Entrepreneurial culture In 3½ out of 4 divisions (compared to peers) Cost leadership Strong profitable growth > 6x higher business growth than peers Note: Business growth defined as GWP CAGR for Talanx Peer group consists of Allianz, AXA, Generali, Mapfre, Munich Re, Swiss Re, VIG and Zurich (throughout this document if not stated differently) 8

9 HDI Life HDI P/C Peer Ø Bancassurance I Group Strategy II III IV V VI 1 Strengthen Entrepreneurial culture Entrepreneurial culture Basis for cost leadership and profitable growth Cost leadership in 3½ out of 4 divisions Cost ratio advantage (net) of divisions compared to peer Ø ( ) (in %-pt) Industrial Lines Reinsurance Retail International Retail Germany x > 6x higher business growth than peers GWP CAGR (in %) Talanx Best Peer Ø Peers Note: Retail International vs. largest peers in core markets (GWP-weighted on average). Bancassurance: cost advantage vs. median of European insurances in McKinsey cost benchmarking with >60% banking distribution channel Source: S&P Global Ratings, Global Reinsurance Highlights, MPSS database, McKinsey; own analysis -8.6 Note: Peer average GWP-weighted. Own calculations based on Annual Reports 9

10 Group Strategy II III IV V VI 1 Strengthen Entrepreneurial culture leading to #7 market position in Europe 115 years of successful HDI/Talanx history Talanx ranked at #7 in Top 10 European insurers GWP 2017, in EURbn 2017 EUR 33bn GWP # Establishment HDI as Haftpflichtverband der deutschen Eisenund Stahlindustrie 1997 EUR 6bn GWP #2 #3 # # # Establishment Hannover Re 2012 Talanx IPO #7 # # # Note: Prudential data based on earned GWP 10

11 Group Strategy II III IV V VI 2 Strengthen B2B focus Our unique B2B customer focus positions us well Industrial clients Mid-market Leading partner of 90% of DAX members Leading provider in Germany B2B Focus >80% of GWP in B2B business Leading position in Germany and selected CEE (Poland, Hungary) Bancassurance Reinsurance ~5.000 insurance clients Leading reinsurer #4 player by size - #1 by RoE among main competitors 11

12 Group Strategy II III IV V VI 3 Strengthen Diversified portfolio Our diversified portfolio as basis for proven earnings resilience Germany 26% Strong international footprint High share of growth markets 33% Emerging markets 74% 67% International Primary Insurance Retail Germany 18% Balanced business mix Diversified portfolio Favourable product mix Mature international markets Non-Life Life Primary Insurance capital-efficient 11% 8% Non-capitalefficient 16% 53% 60% 21% Retail International 13% Industrial Lines Reinsurance Life Reinsurance Note: All figures refer to GWP 2017 of Talanx Group; growth market split refers to international portfolio only 12

13 Group Strategy II III IV V VI Strengthen Outcome Proven earnings resilience backing our sustainable payout policy Sustainable earnings and payout policy Dividend yield in line with peers Talanx IFRS net income and dividend (per share) ~700 min % 4.6% 4.6% Outlook Talanx Ø Peers Talanx Group net income (in EURm) Dividend per share (EUR) Note: Net income of Talanx after minorities, after tax based on restated figures as shown in annual reports ; numbers for 2018 according to Talanx Group Outlook; all numbers according to IFRS Note: For time period Source: FactSet 13

14 Average RoE in % I Group Strategy II III IV V VI Strengthen Outcome In the past, Talanx with strong track record and favourable risk-return profile RoE above peer average Ø RoE Adj. Ø RoE Ø return on tangible assets Favourable risk-return profile Average Return on Equity compared to peers ( ) +0.7%pt 9.6% 8.9% +0.6%pt 10.9% 10.3% +0.5%pt 13.8% 13.3% Ø Peers Talanx High RoE Low Volatility Ø Peers 8 7 Talanx Ø Peers Talanx Ø Peers Talanx Ø Peers Low RoE High Volatility Average standard deviation RoE in % Note: All figures Adj. average RoE: own calculation based on the ratio of net income (excl. minorities) and average shareholders equity excluding average unrealised gains & losses based on available peer data. Average return on tangible asset: own calculation based on the ratio of net income (excl. minorities) and average shareholder s equity excluding average goodwill and average other intangible assets Peer group: Allianz, Munich Re, AXA, Zürich, Generali, Mapfre, VIG, Swiss Re Source: Financial reports of peers, FactSet and own calculations Note: Own calculations. RoE based on the ratio of net income (excl. minorities) and average shareholders equity Source: RoE KPMG; annual reports 14

15 Group Strategy II III IV V VI Develop however, cautious valuation of Talanx ex Hannover Re Market cap development EURbn 9 8 Talanx Hannover Re (Talanx stake) P/E ratio P/B ratio /10/ /10/ /10/ /10/ /10/ /10/ /10/2018 Implicit market cap Talanx ex Hannover Re stake Valuation multiples Ø Peers Talanx EURbn 4 Talanx ex Hannover Re (implicit value) Talanx ex Hannover Re /10/ /10/ /10/ /10/ /10/ /10/ /10/2018 Note: Multiples as of 30 September 2018 and based on sell-side estimates as collected by Talanx. The P/E ratio refers to the 2019E median for EPS, the P/B ratio refers to the 2018E shareholders equity 15

16 Group Strategy II III IV V VI Develop Talanx s ambition Three areas to develop Strengthen Develop 1 Entrepreneurial culture 1 Enhanced capital management 2 B2B focus 2 Focused divisional strategies 3 Diversified portfolio 3 Digital transformation Traditionally different 16

17 Group Strategy II III IV V VI Develop Talanx s ambition 2022 Group 1 Enhanced capital management 2 Focused divisional strategies Industrial Lines Retail International Retail Germany Reinsurance Clean-up Fire and growth in Specialty Top 5 in core markets Delivery on KuRS targets and growth in SME Reinsurance focus 3 Digital transformation 17

18 Group Strategy II III IV V VI 1 Develop Enhanced capital management Our Capital Management Strategy Enhanced Capital Management Mid-term ambition How to spend it Sustainable dividend growth Stringent capital allocation to support profitable organic growth 1 Attractive dividend payout ratio with DPS y/y at least stable 35-45% Disciplined M&A approach 2 Stringent capital manager RoE CoE How to get it Reduce local excess capital Increase cash upstream Bundling reinsurance at Group level 3 Upstream of excess capital ~350m 4 Increase remittance ratio 50-60% Note: Target dividend coverage ratio (available cash fund divided by target dividend level) is ~1.5-2 times actual dividend 18

19 GWP CAGR , EURbn I Group Strategy II III IV V VI 1 Develop Enhanced capital management How to spend it Allocate capital to support profitable organic growth Return on Equity / GWP 14 Retail International % Industrial Lines +21% Reinsurance +43% Consequent and efficient capital allocation in high RoE business % Retail Germany Average Return on Equity ( , %) supports strong and profitable growth Note: Bubble size: attributed equity capital 2017 in m EUR; figures in bubbles refer to change in attributed equity excl. minorities (2017 vs. 2012) 19

20 Group Strategy II III IV V VI 1 Develop Enhanced capital management How to spend it Disciplined M&A approach Our M&A criteria Disciplined M&A activity (since 2011) Focus on non-life Targets screened Group RoE-enhancing EPS-accretive Non-binding bids submitted Binding bids submitted Transactions concluded Note: EPS-accretive refers to an increase of Talanx s earnings per share 20

21 Group Strategy II III IV V VI 1 Develop Enhanced capital management How to get it Reduce local excess capital and increase cash upstream Reduce local excess capital Solvency ratio (%) Illustrative Increase cash upstream to Talanx Group Ø 5-yr remittance ratio ( ) IFRS Group net income Remittance from affiliated companies Local Target Level ~EUR 350m upstream potential identified 100% 43% 100% New target level over the cycle ~50-60% Sub 1 Sub 2 Sub 3 Sub 4 Sub Ø 5-yr Target level 21

22 Group Strategy II III IV V VI 1 Develop Enhanced capital management How to get it Bundling reinsurance at Group level to leverage diversification Bundling reinsurance at Group level Illustrative Reinsurance market Retrocession Holding (Reinsurance licence) Impact +EUR 50m net income steady state p.a Industrial Lines Retail Germany Retail International 22

23 Group Strategy II III IV V VI 2 Develop Focused divisional strategies Industrial Lines Stock take Focus and mid-term ambition Leading Customer focus and claims management International Programmes Cost leadership Focus Bring CoR in Fire to well below 100% until 2020 ( 20/20/20 ) Continue profitable foreign growth Growth initiative in Specialty Drive digital transformation Lagging Profitability in Fire business Balanced Book not sufficient Untapped growth potential in foreign markets and in Specialty RoE Ambition 8-10% 23

24 Group Strategy II III IV V VI 2 Develop Focused divisional strategies Retail International Stock take Focus and mid-term ambition Leading Entrepreneurial culture and digital leadership Strong track record in M&A Cost leadership Focus Focus on top 5 positions in 5 core markets Disciplined organic and inorganic growth with focus on profitability Leveraging digital leadership Lagging Top 5 position not yet achieved in all core markets Dependency on Poland, Brazil and Italy results RoE ambition 10-11% 24

25 Group Strategy II III IV V VI 2 Develop Focused divisional strategies Retail Germany Stock take Focus and mid-term ambition Leading Leading player in Bancassurance Experienced employee benefits player Strong B2B position for P/C SME Focus Delivery on KuRS targets until 2021 Growth initiative in SME Drive digital transformation Lagging Cost level (HDI P/C and Life) Legacy IT systems RoE ambition 7-8% 25

26 Group Strategy II III IV V VI 2 Develop Focused divisional strategies Reinsurance Stock take Focus and mid-term ambition Leading Cost leadership Top profitability Consistent underwriting approach Efficient tailor-made solutions Focus Focus on reinsurance Maintain competitive (cost) advantage Solution-oriented innovative reinsurer Drive digital transformation Lagging Profitability of US mortality business RoE ambition 10% Note: RoE target of 900bps + risk-free 26

27 Group Strategy II III IV V VI 3 Develop Digital transformation Digitalisation@Talanx Clear focus to extend our digital value proposition Our footprint Key success factors Our focussed approach B2B (80%) Prevention & services beyond protection Talanx focus Commercial services (e.g. Cyber) Mobility Get bundled Ecosystems Data analytics Data as "new currency" Artificial Intelligence Behavioural Economics Get skills People & Mindset B2C (20%) Data skills & IT-system readiness One-click journey Note: Commercial services and mobility represent ~50% of insurer-relevant ecosystems (McKinsey) IT systems Get ready Legacy management Digital and efficient processes 27

28 3 Develop Digital transformation Divisions drive digitalisation as top management priority I Group Strategy II III IV V VI Selected examples for digitalisation in divisions Get bundled Artificial Intelligence Get skills Ecosystems Data analytics People & Mindset Behavioral Economics IT systems HDI Robotics Get ready Further details in divisional presentations 28

29 3 Develop Digital transformation I Group Strategy II III IV V VI Digitalisation@Talanx Group fosters digital mindset leveraging our entrepreneurial culture International best-practice sharing (Best Practice Lab) Digital mindset Selective partnerships and investments, e.g. Established entrepreneurial culture Simple divisional structure with clear responsibility and accountability Relative performance counts Pull culture with high degree of peer collaboration 29

30 Group Strategy II III IV V VI Outlook 2018 for Talanx Group Gross written premium > 5% Return on investment 3.0% Group net income Return on equity Dividend payout ~EUR 700m ~8.0% EUR 1.40 min. DPS for FY target: ~EUR 900m Note: The 2018 Outlook is based on a large loss budget of EUR 300m (2017: EUR 290m) in Primary Insurance, of which EUR 260m in Industrial Lines. The large loss budget in Reinsurance stands at EUR 825m. All targets are subject to no large losses exceeding the large loss budget, no turbulences on capital markets and no material currency fluctuations 30

31 Constraints Targets I Group Strategy II III IV V VI Mid-term ambition Raising the target level for Group profitability Return on equity EPS growth Dividend payout ratio High level of profitability 800bp above risk-free rate Profitable growth 5% on average p.a. Sustainable & attractive payout 35% - 45% of IFRS earnings DPS at least stable y/y Strong capitalisation Market risk limitation (low beta) High level of diversification Solvency II target ratio % Market risk 50% of Solvency Capital Requirement targeted 2/3 of Primary Insurance premiums from outside Germany Note: Targets are relevant as of FY2019. EPS CAGR until 2022 (base level: original Group net income Outlook of ~EUR 850m for 2018). The risk-free rate is defined as the 5-year rolling average of the 10-year German Bund yield. Targets are subject to large losses staying within their respective annual large-loss budgets as well as no major turmoil on currency and/or capital markets 31

32 II Group Financials III IV V VI Agenda I Group Strategy Torsten Leue II Group Financials Enhanced capital management Asset Management Excursion: IFRS & Solvency Update Dr Immo Querner III Industrial Lines Dr Christian Hinsch / Dr Edgar Puls / Dr Thomas Kuhnt IV Retail International Sven Fokkema V Retail Germany Dr Jan Wicke VI Final Remarks Torsten Leue 32

33 II Group Financials III IV V VI 1 Enhanced capital management Our Capital Management Strategy Enhanced Capital Management Mid-term ambition How to spend it Stringent capital allocation to support profitable organic growth Sustainable dividend growth 1 Attractive dividend payout ratio with DPS y/y at least stable 35-45% Disciplined M&A approach 2 Stringent capital manager RoE CoE How to get it Reduce local excess capital Increase cash upstream Bundling reinsurance at Group level 3 Upstream of excess capital ~350m 4 Increase remittance ratio 50-60% Note: Target dividend coverage ratio (available cash fund divided by target dividend level) is ~1.5-2 times actual dividend 33

34 II Group Financials III IV V VI 1 Enhanced capital management How to spend it Stringent capital allocation to support profitable organic growth Capital steering matrix & KPIs Beta drivers RoE = IFRS net income IFRS Ø equity RoE hurdle rate Cost of Equity RoE(6M 2018) Minimum hurdle rate CoE Group 800bps above riskfree according to Group strategy According to marketrisk exposure, reflected in Group beta CoE = rf + β x ERP + frictional cost 10.0% β rf G bps 8.8% 7.2% Illustrative Σ Divisions Group Σ Divisions Group 1.2 Divisions Divisional target RoE Depending on divisional risk exposure, reflected via adjusted Group Beta CoE = rf + β adj. x ERP + frictional cost % 90% 80% 70% 60% 50% 40% 10% 30% 20% 30% 40% 20% 50% 60% 70% 10% 80% 90% 100% Note: RoE based on IFRS 4. Cost of Equity benchmark 7.2% - 7.6% confirmed e.g by PWC (Cost of Equity Insurance Companies, Germany 2018), AonBenfield ("The Aon Benfield Aggregate", 12/2016) and most recent Swiss Re Sigma (4/2018) Note: Calculation for FY

35 II Group Financials III IV V VI 1 Enhanced capital management Beta-blockers to prevent abnormal ( risk off ) heart rhythms/attacks Prudent market risk Moderate leverage Market risk share 53% Avg. Peers 45% Talanx Market risk share 50% Significantly below core peers Resulting in a considerably low beta Leverage position Senior & subord. debt leverage: Mean peers = 24% σ -3% σ +3% headroom 6% 10% 12% 11% 12% 13% 70% 66% Continuously moderate leverage Roughly in line with peers, leverage corridor gives additional headroom of EUR 1bn Significant leverage leeway of EUR 4bn (50/50 hybrid and senior debt capacity) Share market risk (FY 2016) Avg. Peers Equity Senior debt Talanx Subord.debt Pensions Potential to support capital optimisation at divisional and/or subsidiary level Source: Bloomberg, own calculation Source: Company reports, own calculation, figures as of 30 June

36 II Group Financials III IV V VI 1 Enhanced capital management Ongoing trend of narrowing spreads supported by Talanx s conservative low-beta profile Credit spread development Trading spread in bps between Talanx EUR 500m (2042) 30NC % and peers Low market risk reflected in constantly declining spreads (relative position) Issuance of EUR 750m (2047) 30NC10 at 2.25% (~+25bp spread vs. Allianz) 2 Efficient timing of capital management actions Narrowing spreads result in reduced future funding and/or refinancing cost -20 Note: Credit spreads are calculated as spreads over the 6M swap curve. Seniority: Lower Tier 2. Equally weighted peer group consists of Allianz (2022, 5.625%), AXA (2023, 5.125%), Generali (2022, %), Munich Re (2022, 6.25%) and Zurich (2023, 4.25%) 36

37 II Group Financials III IV V VI 1 Enhanced capital management How to spend it Aspirational steering with RoE ambition CoE Cost of Equity calculation Consistent and more ambitious target setting Risk-free (FX exposure weighted) Group beta Adjustment Market-risk Frictional CMD Ambition 5yrsØ x factor x premium + cost = CoE ambition Comments Group 1.9% % 750bp + risk free G 800bp + risk free G Talanx sum-of-the-parts creating value! Industrial Lines 0.9% 1.07 ~6.5% 8% 8-10% 20/20/20, Speciality etc. Retail Germany 0.8% % 2.0% ~11% 6-7% 7-8% Tapering guarantee burden; shifting Life to P/C; more capitalefficient and biometric business Retail Intern. 3.8% 1.26 ~10% 9% 10-11% FX mix & goodwill allocation; growth & capital management Reinsurance 1.2% 0.66 ~5.5% n/a 10% In line with Hannover Re s minimum RoE target Note: The adjustment factor is determined by two factors: the capital adequacy ratio of the division relative to the Group and the divisional share of market risk relative to the Group. An equal position as the overall Group would result in a figure of A higher share of capital market risks than the overall Group and lower divisional capital adequacy ratios than the overall Group would result in adjustment factors above 1. All numbers relate to a Shareholder Net Asset (SNA) view. All calculations for FY

38 II Group Financials III IV V VI 1 Enhanced capital management How to get it Increase cash upstream and reduce local excess capital Ø Remittance ratio Mid-term capital upstream potential New target ambition over the cycle 50-60% Excess capital after local constraints (in EURm): ~250 ~350 43% Volatility of cash contribution +1/4 ~100 ~1x dividend p.a. Strengthen cash pool to support payout ratio Ø New Total mid-term ambition Total Note: Local constraints reflect e.g. local supervisor, withholding tax 38

39 II Group Financials III IV V VI 1 Enhanced capital management How to get it Bundling reinsurance at Group level New reinsurance structure Stringent implementation Net Gross Pass-through retro (mainly Industrial Lines) Reinsurance market Talanx AG EUR 300m - 400m Group self-retention covers ~EUR 750m Talanx AG will become exclusive reinsurer for all treaty cessions in P/C segments. Talanx AG to act as the risk carrier and pooling vehicle Increased cash generation and liquidity flow at Group level Optionality for capital relief transactions 15 September 2018 BaFin application for reinsurance licence Lender notification By-laws 1 July 2019 Initial underwriting LatAm business Enlargement of retro coverage Industrial Lines Cession steady state : EUR ~475m Retail Germany Cession steady state : EUR ~20m Retail International Cession steady state : EUR ~255m 1 January 2019 Initial renewal of Talanx- Re-cell corporate portfolio (incl. retro structure) 1 January % of target operating model implemented Full cession of 100% business to Talanx AG (incl. Industrial Lines) 39

40 II Group Financials III IV V VI 1 Enhanced capital management How to get it Bundling reinsurance at Group level Key value driver/benefits Mid-term ambition Technical profits Increased retention by gearing Talanx AG s idle solo funds and use of Group diversification Asset income Reduced future funding costs Target solo SII-CAR of >300% acc. to standard model and only marginal SCR Group impact ~ 1/5 ~ 1/5 Asset income Enlarged assets under management (AuM) and related income due to increased Group retention +Δ AuM steady state EUR ~0.65bn +EUR 50m net income steady state p.a. Rating increase Credit rating improvement for Talanx AG expected (currently A- vs. A+ of operating carriers) resulting in reduced future funding costs Technical profits ~ 3/5 Note: Initially very low marginal tax burden due to (potentially written-off) tax losses carried forward, subject to normal loss frequency, unchanged reinsurance structures and no disruptions on currency, capital or reinsurance markets 40

41 II Group Financials III IV V VI 2 Asset Management Strong AM lines of defence and stringent sustainability strategy Ensuring low beta & protection of shareholders equity Daily measuring & monitoring Reflecting credit quality, duration and diversification Limits & thresholds for divisions and single issuers Talanx Asset Management (TAM) Central risk management of ~99% of Group s assets Group-wide limit and threshold system, derived from TERM (Talanx Enterprise Risk Model) I Credit Risk Metric Intro of Murex MX.3: integrated front-toback solution Pre-deal check: limit compliance for all trades II Market Risk Metric Weekly measuring and monitoring Limits and thresholds for divisions and single issuers Post-deal monitor: ongoing limit compliance SCR approximation within TERM Basis for value-at-risk computation and limit controlling ESG strategy and approach Human rights & labour standards Responsible Investment committee ESG Sustainability Strategy Environmental protection Phasing-out of thermal coal ESG screening conducted by Application filed for UN Principles for Responsible Investment Anticorruption Talanx s investment guidelines 41

42 II Group Financials III IV V VI 2 Asset Management Investment strategy unchanged Striving for close asset-liability matching Investment portfolio Fixed income portfolio Credit VaR & Macaulay duration 6M 2018: EUR 110.8bn 6M 2018: EUR 98.6bn Currency split 1% Asset allocation 10% Breakdown by type 24% 2% Breakdown by rating 21% 22% 1% 7% 3% 6% 4% AAA AA+ AA % 89% 28% 15% 22% 9% 6% 10% 6% 8% 7% AA- A+ A % 46% 43% 44% 21% 9% 11% A- BBB+ or lower Euro Non-Euro Fixed income securities Equites Other Government Bonds Corporate Bonds Covered Bonds Other AAA AA A BBB & below 19% 7% Market Value Credit VaR Not rated Note: Positions without external ratings (esp. funds and equity investments) shown as not rated. Credit VaR metric particularly depends on maturity and specific loss default assumptions 2.9 Average Macaulay duration (in years) 42

43 II Group Financials III IV V VI 2 Asset Management At the end of QE (Corporate and sovereign) spread risks may be the top challenge 5% 4% 4.32% Exposure (in %) 100% Risk provision (in EURm) 80 CVaR by share of issuers Corporate default rate & distribution 3% 2% 1% 0% 0% 20% 40% 60% 80% 100% 6% 5% 4% 3% 2% 1% 0% % Other 10% 14% 27% Business Services Retail Oil & Gas IFRS 9 Expected credit loss model simulation 80% 60% 40% 20% 0% Exposure ECL loss allowance ECL quota Stage 1 Stage 2 Stage 3 Expected 1-year loss 97% 45m 5bp Expect. loss until maturity 3% 67m 2.27% Markedto-model 0% 9m 65.42% m Ø 0.12% No material defaults in assets managed by Talanx Asset Management e.g. Steinhoff, Carillion & Toys R Us 43

44 ~3 EUR bn I II Group Financials III IV V VI 2 Asset Management Infrastructure pays off Expansion of infrastructure investments in EUR bn Commitments 3 rd -party commitments 2.0 New commitments Exits / refinancings bn of direct infrastructure investment commitments, with 10-yr weighted average BBB+ Ø rating EUR 0.9bn of 3 rd -party participation generating subsequent fee income Yield 5% 4% 3% 2% 1% 2.95% BBB- BBB- BBB- BBB- A- BBB 0% Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 10y Midswap Ø TX infrastructure debt portfolio Bloomberg EUR non-fin BBB+ (10y) bps premium over tenor/ratings equivalent liquid corporate bonds indices / AA AA BBB- BBB- BBB- BBB A+ Talanx debt investments (green-/brownfield) 3 Long-term limit: 5% of invested assets Latest innovative transaction in niche sector Ulm regional rail passenger franchise 1 st structured solution of a German passenger rail concession (total EUR 90m) by institutional investors Funding rolling stock for operator via long-dated lease structure Significant growth expected given further liberalisation due to the 4 th EU rail package 44

45 II Group Financials III IV V VI 2 Asset Management Talanx Asset Management Drive digitalisation as top management priority Selected examples for digitalisation in TAM Get bundled Portfolio Management Digitalisation Get skills enables wealth and asset managers to grow customer base and AuM to increase efficiency, e.g.: Ecosystems People & Mindset Data analytics Strategic allocation tool Interactive client reporting Digital workflows & data transformation IT systems BI Real Estate System State of the art integrated technical platform Get ready 45

46 II Group Financials III IV V VI 3 Excursion Solvency II Update Development of Group capitalisation Solid capitalisation (Regulatory view) Limited stress impact in EURm Target range 206% Solvency Capital Required 8,259 8,259 8,611 8,226 8,221 8,221 8,225 8,528 SII Ratio Interest rate +50bps 4% Interest rate -50bps Corporate & Sovereign 7% 200% Target range 150% 171% 186% 206% 207% 204% Credit spread +100bps NatCat event 36% 6% Solvency Capital Ratio Economic View (BOF CAR) Q M % 264% 271% 275% 269% Equity markets +30% 1% Equity markets -30% 3% 100% 125% 150% 175% 200% 225% Note: Regulatory view without transitional 46

47 II Group Financials III IV V VI 3 Excursion Solvency II Update Retail Germany Life: Robust capitalisation despite strong credit spread increase Solvency ratios: Retail Germany Life 169% 155% 180% FY M % 351% incl. transitional 170% 160% 150% 169% 150% 1 Average increase in credit spreads by ~40% in 6M 2018 hampers Retail Germany Life s CARs 170% HDI 146% 140% 130% 2 Robust capitalisation despite recent credit spread widening and lower riskfree rates 120% 110% Bancassurance 100% Retail Germany Life Note: Numbers show weighted average of single CARs; if not otherwise stated all figures are based on regulatory view without transitional 47

48 II Group Financials III IV V VI 3 Excursion Solvency II Update Future model change may well result in 10%-point SII ratio improvement Internal Model changes & outlook SCR 2017 Own Funds SCR 2018E Own Funds SCR 2019E Own Funds 1 Strong increase in SII ratio (+10%pts) due to successful model updates in 2017 with subsequent phasing of positive impact OpRisk (Hannover Re) OpRisk (Primary Group) -2.7% +1% 2 Further reduction in market risk share by approx. 1%pt due to relative increase in SCR OpRisk Asset correlation coverage et al. Pensions -1.2% 0% Dynamic & static volatility adj. (P/C) Counterparty default RITA Nucleus Expected impact from OpRisk improvements on SII +9%-pts ~+1%-pts +8%pts Aggregate -3.9% 1% Combined CAR impact +10.5%pts Baseline: SCR = EUR 8.3bn; EOF = EUR 17.0bn Note: Risk modelling planned to be changed to tail VAR approach 48

49 II Group Financials III IV V VI 3 Excursion Solvency II Update Preliminary results in line with 2017 home-specified stress test 1 2 Yield curve down Yield curve up EIOPA stress scenarios Market shocks Insurance shocks Market shocks Insurance shocks Swap rates 10y EUR -80bp Government bonds: bp Corporate bonds & MBS -20 to -70bp Equities -16% UFR 2.04% 15% Longevity shock Swap rates 10y EUR +80bp Government bonds: bp Corporate bonds & MBS bp Equities -40% 20% Lapse shock 2% claims inflation 0.24% general inflation SII ratio (HDI Group) w/o transitional Basis: 206% ~130 % ~120 % incl. transitional Basis: 253% Preliminary! Subject to final regulatory validation 1 ~170% ~170% 2 Groupwide calculation of three combined stress scenarios on a best effort basis Stress results in line with 2017 home-specified stress test - European credit crisis (Italian euro exit): ~120% - Global Pandemic: >150% - Earthquake New Madrid (USA): ~140% 3 NatCat In one of 17 years Simultaneous occurrence of: Four European windstorms Two CEE floods Two earthquake scenarios (in Italy & Monaco) ~190% ~240% 3 Above regulatory required limit in yield curve stress scenarios even without transitional Note: SII solvency ratios for all three stress scenarios without transitional 49

50 II Group Financials III IV V VI 3 Excursion Solvency II Update Preparing for IFRS 9 & 17 Two steps forward, one step back: project on track Top issues IFRS 9 &17 IFRS 9 IFRS 17 Data management / IT capabilities Murex MX.3 roll-out Implementation in various IT (source) systems PAA default choice for primary non-life Dynamic specification and IT implementation German back-office implementing well established accounting engine SAP IA Higher P&L volatility The new normal Interaction between FVPL and Premium Allocation Approach (PAA) critical ECL driven acceleration KPI overhaul Determination of Risk Adjustment (RA) Approach Solo entity RA target Inter-company-neutral consolidation of RAs Disclosure of implicit Group confidence level New processes & interfaces New controls to be implemented Intensive exchange between IFRS 17 and IFRS 9 (joint impact assessments) Reinsurance assets & related mismatches Particular the net position of cedents Improvement by standard setter needed Stochastic calculations for life (incl. CSM) Comprehensive fast-close SII features can (partially) be re-used Volatility adjuster/illiquid spread consistent bottom-up interest rate curve Handling reserving buffer (non-life) Reduced discretionary top-side adjustments Reserving in interim reporting considering risk budgets remains unaffected 50

51 II Group Financials III IV V VI 3 Excursion Solvency II Update Advanced implementation Clear IFRS 9 &17 programme roadmap New KPI framework considering IFRS 9 & 17 go live Q Programme Start IFRS 9 Q IFRS 9/17: Group standards defined Q Hand-over to line organisation Group 1 Return on Equity Q Programme Start IFRS 17 1 Q Final Draft of IFRS 17 guidelines Q st combined IFRS9 / IFRS17 Impact Assessment Q nd combined IFRS9 / IFRS17 Impact Assessment & 1 st live/dry run Project fully on track and already passing from design to implementation Hurdle of 96% likely to be revised Payout 2 ratio 3 Divisions 1 EBIT-margin 2 Earnings per share Combined ratio Retention 3 (Non-Life) 4 rate 5 Comprehensive RoE Combined ratio (Life) 2 Not in favour of any delay in the IFRS 17 application (e.g. due to late endorsement),but quick-fix of top flaws, such as outward reinsurance Growth of insurance revenues Change 6 7 (replacing GWP growth) of CSM 8 CSM of new business (replacing new business margin) Note: Comprehensive RoE = (Net income + ΔOCI + ΔCSM) / (Ø Equity + CSM) 51

52 II Group Financials III IV V VI Summary Key messages Stringent and capitalistic performance management to support profitable organic growth Initiatives to stream up EUR 350m of local excess capital and to increase the remittance ratio Bundling reinsurance at Group level providing an upside of roughly EUR 50m in net income in the steady state Clear commitment to maintain the defensive low-beta investment profile Considerate use of model changes suggests mid-term SII-upside 52

53 II III Industrial Lines IV V VI Agenda I Group Strategy Torsten Leue II Group Financials Dr Immo Querner III Industrial Lines Dr Christian Hinsch / Dr Edgar Puls / Dr Thomas Kuhnt IV Retail International Sven Fokkema V Retail Germany Dr Jan Wicke VI Final Remarks Torsten Leue 53

54 II III Industrial Lines IV V VI Focused divisional strategy Industrial Lines Fix Fire and grow abroad and in Specialty Stock take Focus and mid-term ambition Leading Customer focus and claims management International Programmes Cost leadership Focus Bring CoR in Fire to well below 100% until 2020 ( 20/20/20 ) Continue profitable foreign growth Growth initiative in Specialty Drive digital transformation Lagging Profitability in Fire business Balanced Book not sufficient Untapped growth potential in foreign markets and in Specialty RoE Ambition 8-10% 54

55 II III Industrial Lines IV V VI Leading Customer focus and claims management Traditionally strong customer access and excellence in claims management 37 regional offices in Germany & Europe, providing full-range service - 55 offices worldwide Claims management constantly ranked among top 3 players by all relevant global brokers Local footprint Outstanding claims management Customer focus and claims management Close relationships Unique client access Building on our roots as a mutual: particularly close relationships with ~100 Mittelstand owners via HDI Advisory Board and to C suites of corporates Unique direct access (without brokers) to German Mittelstand. ~18% of total premium share results from direct access in Germany 55

56 II III Industrial Lines IV V VI Leading International Programmes One of the very few insurers capable of offering a comprehensive international network Strong international footprint Regional split 1% 11% 31% Africa Asia / Pacific America Germany 38% International 62% 57 % Europe (ex Germany) Growing # of International Programmes 3, % 3,800 Talanx Primary Insurance (41 countries) Individual solution possible Network partner Network hubs Note: Regional split reflecting GWP 2017 (according to servicing office, i.e. location of risk) 56

57 II III Industrial Lines IV V VI Leading Cost leadership Industrial Lines with significant cost advantage vs. peers Expense ratio Ø in % Combined ratio Ø in % %pts cost advantage 100 Ø Ø Peer 1 HDI Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 0 Peer A Peer B Peer C Peer D Peer E HDI Peer F Peer G Peer H Note: Peers include AIG Commercial, AGCS, AXA Corporate Solutions, Chubb Group, FM Global, Swiss Re Corporate Solutions, XL Insurance, Zurich Commercial Expense ratio Loss Ratio 57

58 II III Industrial Lines IV V VI Lagging Profitability in Fire business balanced book not sufficient Reason for high loss ratio lies in Fire business, especially in Germany Portfolio profitable except Fire German Property rates have declined for 14 years GWP growth (CAGR ) 6.5% % % 6.0% All other LoBs 0.3 down ~60% % % % Fire % E 0% 0 4.5% 120% 115% = Size equals GWP % 105% 100% 95% Aggregated combined ratio % Left-hand scale Premium rate for Property Insurance in Germany in of sum insured Source: German Insurance Association (GDV) Right-hand scale Trend line Globally insured losses from NatCat (Source: Aon Benfield) Trend line Claims expenditure in Property Business Interruption Insurance in Germany CoR (%) for German Industrial Property 58

59 II III Industrial Lines IV V VI Focused divisional strategy Industrial Lines Fix Fire and grow abroad and in Specialty Stock take Focus and mid-term ambition Leading Customer focus and claims management International Programmes Cost leadership Focus Bring CoR in Fire to well below 100% until 2020 ( 20/20/20 ) Continue profitable foreign growth Growth initiative in Specialty Drive digital transformation Lagging Profitability in Fire business Balanced Book not sufficient Untapped growth potential in foreign markets and in Specialty RoE Ambition 8-10% 59

60 II III Industrial Lines IV V VI Focus Bring combined ratio in Fire to well below 100% until 2020 ( 20/20/20 ) 6M 2018 results confirm need for enforced action in Fire Our 20/20/20 initiative Analysis: 6M /20/20 initiative Total Division of which Fire line 1 of which all other lines 20 20% of net premium earned to be tackled Net premium earned 6M 2018 EUR 1,235m ~20% ~80% 20 20% price increase Combined ratio 6M % ~119% 2 ~97% (FY) effective 1 Fire defined as the Property line Property Damage/Business Interruption. This excludes the Engineering and Multi-Risk lines 2 Slightly behind market average: German Fire market loss-making (GDV 2018E: 115%; GDV estimate for market combined ratio in German Industrial Property ( industrielle Sachversicherung )) Note: Targets are subject to no large losses exceeding budget (cat), no turbulences on capital markets (capital), and no material currency fluctuations (currency) 60

61 II III Industrial Lines IV V VI Focus Bring combined ratio in Fire to well below 100% until 2020 ( 20/20/20 ) Shifting from selective re-underwriting to comprehensive price increases The way from Balanced Book to 20/20/20 Premium Selective increases Price increases for entire portfolio Risk reduction Reduce high absolute limits Reduce shares at exposed industries Solution via new business Yes n/a KPI Premium to capacity Combined ratio 61

62 II III Industrial Lines IV V VI Focus Bring combined ratio in Fire to well below 100% until 2020 ( 20/20/20 ) Rigorous execution Our internal focus basis for rigorous execution new team & set-up 1 Clear targets by each client by all broker portfolios sharpened underwriting processes new pricing labs permanent monitoring & steering Transparency & Consequence by each underwriter Unambiguous external communication Sharpened internal mindset Consequent execution of exposure reduction plan Consequent part with insufficiently priced business 62

63 II III Industrial Lines IV V VI Focus Bring combined ratio in Fire to well below 100% until 2020 ( 20/20/20 ) Implementation of 20/20/20 initiative ahead of plan More than 60% of target locked in 20/20/20 initiative Price increase: contracted vs target as of 17 October % price increase by of planned price increase to be contracted by January %pts better than initially planned ahead of plan 12.4% 9.9% 7.4% 2 Main P/L effects as of More than 60% of target locked in; ahead of plan P/L effects mainly in FY2019/2020 Jan 18 Apr 18 Jul 18 Okt 18 Jan 19 Apr 19 Jul 19 Okt 19 Jan 20 Target 20/20/20 Price increase as of 1 Oct 2018 Price increase as of 1 Jan 2019 Note: 20% price increase in 2020 derives from 15% premium increase + 5% premium-equivalent measures. Refers to renewed business only 63

64 II III Industrial Lines IV V VI Focus Continuation of profitable foreign growth Untapped growth potential in foreign markets and in Specialty Industrial Lines commercial market share Based on GWP 2017 ~10% Specialty: attractive growth market Size Growth Share GWP 2016 in EUR bn GWP CAGR GWP 2017, estimated 115 6% 2%-pts 4% ~1.0% ~2% 0.8% Inter Hannover Germany Europe (ex Germany) ~0.5% ~0.5% USA Rest of World Global Specialty market Specialty Commercial 0.2% HDI HDI Global Source: McKinsey Global Insurance Pools; Specialty market share refers to pro forma HDI Global Specialty (0.2% market share: HDI Global; 0.8% market share: Inter Hannover) 64

65 II III Industrial Lines IV V VI Focus Continuation of profitable foreign growth Broad positioning constitutes strong basis to leverage significant growth We see growth potential abroad GWP (in EURm) 1 USA & Canada 2 Europe (ex Germany) 3,110 Foreign growth of ~37% expected by USA & Canada Specialty Superior position as focused global Specialty player % 2, % 3 RoW +54% Europe Leverage footprint Leveraging our strong regional footprint in Europe (26 offices) E E E 3 Rest of world (RoW) Selective Focus on 3 mature and 3 large emerging markets Leveraging our global network Note: 2017 figures include Specialty business from Inter Hannover ( as-if ); GWP according to servicing office, i.e. location of risk 65

66 II III Industrial Lines IV V VI Focus Growth initiative in Specialty Forming a focused global Specialty player Players in Specialty market 1 Global Specialty players Global Specialty Combining our strength in Specialty creates a global Specialty player 2 Specialty part of Commercial as an "add-on" for multi-line players (<20%) Global via 3 Highly specialised niche players with a focus on specific regions/lines 66

67 II III Industrial Lines IV V VI Focus Growth initiative in Specialty Creation of HDI Global Specialty a platform for significant growth Joining forces Global Specialty Lines GWP: EUR 250m Joint venture between HDI Global (50.2%) and Hannover Re (49.8%) to be fully consolidated at HDI Global HDI Global pays NAV of ~EUR 100m and brings in the renewal rights of its Specialty business GWP: EUR 940m Global Specialty GWP ~EUR 1.2bn Profit sharing of combined entity via subsequent reinsurance structure and phasing, reflecting respective portfolios Combination of two strong partners Hannover Re: proven underwriting expertise HDI Global: international network and best-in-class claims management Start: 1 January 2019 Note: Figures for FY2018E 67

68 Focus Growth initiative in Specialty Significant growth potential for premiums and profitability from HDI Global Specialty I II III Industrial Lines IV V VI Impact for Industrial Lines Division in EURm ~500 ~400 ~2,100 1 HDI Global Specialty with GWP ambition of ~EUR 2.1bn in FY2022 ~1,200 2 Growth synergies of ~EUR 400m expected in full by FY2022 GWP 3 HDI Global network key driver for significant growth EBIT E (as if) Planned growth Growth synergies 2022E 2022E ~10m ~+35m ~45m 4 ~EUR 35m EBIT increase for Industrial Lines expected until 2022 Note: GWP in a consolidated as-if-view. EBIT only reflects the expected Specialty contribution for the Industrial Lines Division 68

69 II III Industrial Lines IV V VI Focus Drive digital transformation We drive focused digital transformation Selected examples for digitalisation in Division Get bundled Artificial Intelligence Get skills Partner Interfaces IP 1 Web HDI Portal Ecosystems People & Mindset Data analytics Digital Underwriting Workbench Pricing Lab Analytics work place System Modernisation IT systems Automation Digital Platforms Cyber+ Smart Digital cyber offering Get ready Robotics process automation 1 IP : International Programs Further details on following slides 69

70 II III Industrial Lines IV V VI Focus Drive digital transformation Increase in underwriting quality and speed through modular set of digital tools Digital tools support the end-to-end underwriting process Risk assessment Determine coverage Pricing Example: Property Example: Liability (Smart Protect) Individual NatCat exposure analysis & pricing Adaptive transactional pricing 70

71 II III Industrial Lines IV V VI Focus Drive digital transformation Robotics: reduce manual data re-keying through Robotics process automation Use case: entering data from turnover forms (Multi-Risk policies) What does Robotics mean? Technology to bridge the gap between legacy systems and target IT landscape Excel input Partner system Where do we use it? Use of Robotics to enter data from one system to the other E-Archive Workflow system 71

72 II III Industrial Lines IV V VI Digital Products Agile Project Approach: four weeks from idea to go-live Cyber+ Smart online calculator in Japan week 1 Identified Japanese market demand, based on discussions with brokers and customers week 2 International project team set up and start of project realisation week 3 On-site user testing of the first MVP and (re)prioritisation based on user feedback Online tool to receive an offer for cyber insurance, which is custom-tailored to the needs of the specific user/business The tool simplifies access to cyber insurance and enables to calculate a premium within a few minutes week 4 Solution online after four weeks 72

73 II III Industrial Lines IV V VI Summary Key messages Bring combined ratio in Fire to well below 100% until 2020 ("20/20/20") Continue profitable foreign growth Additional upside from growth initiative in Specialty Drive focused digital transformation 73

74 Summary Our Ambition I II III IV V VI Industrial Lines 74

75 II III IV Retail International V VI Agenda I Group Strategy Torsten Leue II Group Financials Dr Immo Querner III Industrial Lines Dr Christian Hinsch / Dr Edgar Puls / Dr Thomas Kuhnt IV Retail International Sven Fokkema V Retail Germany Dr Jan Wicke VI Final Remarks Torsten Leue 75

76 II III IV Retail International V VI Focused divisional strategy - Retail International Overall strategic direction confirmed Focus on three key initiatives Stock take Focus and mid-term ambition Leading Entrepreneurial culture and digital leadership Strong track record in M&A Cost leadership Focus Focus on top 5 positions in 5 core markets Disciplined organic and inorganic growth with focus on profitability Leveraging digital leadership Lagging Top 5 position not yet achieved in all core markets Dependency on Poland, Brazil and Italy results RoE ambition 10-11% 76

77 II III IV Retail International V VI Leading Entrepreneurial culture and digital leadership Entrepreneurial culture as the basis for relative outperformance Local responsibilities within clear guidelines Motivated team driving innovation power Flexible business structure Clear goals, fast decision making Full focus on local competition Relative outperformance versus peers Creation of local initiatives, e.g. Bate Pronto Warta Digital Behavioural pricing Business structure optimised to local needs Initiatives drive cost leadership, e.g. Go Digital Clear focus on profitable growth Successful cycle management Entrepreneurial culture and decentralised initiatives drive outperformance vs. peers 77

78 II III IV Retail International V VI Leading Entrepreneurial culture and digital leadership Systematic leveraging of local digital competence using best-practice approach First Wave Second Wave Early development of digital solutions in reaction to local market situation Accelerated transfer of initiatives within Retail International using best-practice approach ( Pull over Push ) Examples: HDI Digital Brazil (real-time pricing) Auto Pronto, Mexico (real-time pricing and digital auction for spare parts) Management-driven enhancement of digital initiatives and co-operations Supporting transfer of initiatives across the Talanx Group Examples: Big Data at Warta Auto Santander, Brazil Building up digital competence Reinforcing digital leadership 78

79 II III IV Retail International V VI Leading Strong track record in M&A Disciplined M&A approach 50% of all binding bids have been successful Completed transactions since 2011 Acquisitions Divestments Argentina/Uruguay: L Union de Paris Potential targets screened Mexico: Metropolitana Poland: Warta/ Europa Liechtenstein: Aspecta Mexico: Life portfolio HDI 54 Non-binding bids submitted Conclusion Rate 2014 Luxembourg: Life portfolio Mexico: Metropolitana Life 18 Binding bids submitted 56% ~ 5% Chile: Magallanes Italy: CBA Vita Bulgaria: HDI Bulgaria Ukraine: HDI Ukraine Poland: Open Life 10 Transactions concluded Colombia: Generali 2017 Russia: HDI Russia Turkey: Liberty Sigorta Brazil: JV Santander 2018 Luxembourg: Aspecta 79

80 in EURm in EURm I II III IV Retail International V VI Leading Strong track record in M&A Proven post-merger integration skills have created additional value Fast integration process Warta (Poland) 18 months (legal/operational) 45 months (IT) 2,233 1,316 GWP CAGR +14% 1,912 5,461 Liberty Sigorta (Turkey) 5 months (legal/operational) 11 months (IT) 2010 Organic growth Inorganic growth 2017 CBA Vita (Italy) 12 months (legal/operational) 12 months (IT) Metropolitana (Mexico) 14 months (legal/operational) 18 months (IT) Magallanes (Chile) 14 months (legal/operational) 28 months (IT) Combined ratio -0.5%pt 95.8% 95.3% % RoE +0.8%pts 6.7% Note: Time periods mentioned define the time from deal closing until operative merger (IT integration), respectively the legal approval of the merger. Inorganic growth includes divestments of EUR -250m; Generali Colombia not included in 2017 EBIT +30% 80

81 II III IV Retail International V VI Leading Cost leadership Retail International is outperforming its peers through cost leadership Advantage in administration cost ratios versus peers (average ) LatAm CEE 8% 8% 6% 6% 4% 7.5%pts 4% 2% 4.1%pts 3.9%pts 2% 2.9%pts 2.6%pts 0% Brazil Mexico Chile 0% Poland Turkey Absolute difference in administration cost ratio Talanx vs. local competitors Note: Peers include for Brazil: Bradesco Auto/Re, Tokio Marine, SURA, Allianz, Liberty; for Mexico: ABA/Chubb, Atlas, AXA, Mapfre, Zurich; for Chile: Mapfre, BCI, Liberty, SURA, Penta; for Poland: PZU, ERGO Hestia, Allianz, Compensa (Vienna Insurance Group), Generali; for Turkey: ERGO, Groupama, Ray, Günes, Mapfre Retail International s figures for Poland are for Warta P/C business only; all figures according to local GAAP 81

82 CEE LatAm I II III IV Retail International V VI Lagging Top 5 position not yet achieved in all core markets Poland and Chile among top 5 Other entities catching up Country P/C market Rank 2010 Rank 2017 Status Market shares Motor 2017 Additional comments Brazil #8 #8 8.5% #6 Close to top 5 position in Motor, catching up in Non-Motor Mexico #20 #13 5.8% #5 Strong growth, Motor already among top 5 Chile #13 #4 18.1% #3 Target achieved Poland #6 #2 16.9% #2 Target achieved Turkey #15 #13 MTPL 2.2% #13 MOD 5.1% #6 Selective Motor growth in MTPL due to regulatory environment 82

83 II III IV Retail International V VI Lagging Dependency on Poland, Brazil and Italy results Excellence in Warta, HDI Brazil and HDI Italy Main drivers for segment result Retail International Brazil, Poland, Italy EBIT in EURm CAGR : Others 18% HDI Brazil +6.7% (curr. adj.: 9.6%) EUR 143m % HDI Italy 35% Warta/ Poland 15% HDI Brazil Others 2017 EUR 181m 1 14% HDI Italy 41% Warta/ Poland Aggregated EBIT from HDI Brazil, Warta/Poland and HDI Italy Note: EBIT shares calculated as Warta s, HDI Brazil s and HDI Italy s EBIT divided by the sum of EBIT contributed by all operating entities 83

84 II III IV Retail International V VI Focused divisional strategy - Retail International Overall strategic direction confirmed Focus on three key initiatives Stock take Focus and mid-term ambition Leading Entrepreneurial culture and digital leadership Strong track record in M&A Cost leadership Focus Focus on top 5 positions in 5 core markets Disciplined organic and inorganic growth with focus on profitability Leveraging digital leadership Lagging Top 5 position not yet achieved in all core markets Dependency on Poland, Brazil and Italy results RoE ambition 10-11% 84

85 LatAm CEE I II III IV Retail International V VI Focus Focus on top 5 positions in 5 core markets We are outgrowing peers in all core markets at combined ratios below peer level Market share Relative performance vs. peers Poland 13.5% 12.8% 40% TX Bubble size: ø GWP (2017, in EUR) Turkey Chile Brazil 2.8% 2.6% 1.7% 4.6% 4.4% 10.2% GWP growth (CAGR , in % p.a.) 30% 20% 10% Peers Chile TX TX Mexico Turkey Peers Poland Peers Peers Brazil TX Mexico 2.4% 1.7% % 110% Peers TX 100% ø Combined ratio ( , net in %) Note: Poland includes only Warta P/C business; peers according to page 8; HDI Chile s GWP CAGR ( ) stands at 91.7% (including the acquisition of Magallanes) 90% 85

86 Strategic Outlook Opportunities Facts I II III IV Retail International V VI Focus Disciplined organic and inorganic growth, with focus on profitability Strong improvement in CEE markets driven by Warta Poland: Positive performance continues Turkey: Focus on selective and profitable growth path GWP (in EUR m) ,104 1,378 YoY [curr. adjusted] 24.8% [21.7%] YoY [curr. adjusted] 1.9% [25.8%] EBIT (in EUR m) % 6 5 (16.7%) CoR (in %) (0.9%)pt %pt Big Data implementation of a dedicated analytical environment New tariff and price approach for large corporate business Underlying double-digit market growth Relaxation of price cap High investment yields supporting EBIT Stay within top 3 position in total market (Life and P/C) Keep combined ratio at ~96% and cost advantage vs. peers Reach top 10 position in P/C market Keep Non-MTPL business at combined ratio of below 95% Note: Figures for Poland include only Warta (P/C, Life) 86

87 Strategic Outlook Opportunities Facts I II III IV Retail International V VI Focus Disciplined organic and inorganic growth, with focus on profitability LatAm core markets with strong growth despite macro-economic headwind Brazil: Becoming a fully digitalised company Mexico: Positioned as digital P/C company Chile: Further top-line growth after merger YoY [curr. adjusted] YoY [curr. adjusted] YoY [curr. adjusted] GWP (in EUR m) % [3.4%] % [32.2%] % [5.6%] EBIT (in EUR m) (9.3%) % (16.7%) CoR (in %) (3.1%)pt (0.1%)pt %pt JV with Santander: one-click products Go Digital project optimising distribution and claims operations Decrease in Motor & P/C theft Digital initiatives driving new products & service experience Increase in private consumption Digitalisation driving customer service and process innovation Reach top 5 position in P/C Stay in top 5 position in Motor Reach top 3 position in P/C Keep combined ratio at ~96% 87

88 RoE GWP in EURbn I II III IV Retail International V VI Focus Disciplined organic and inorganic growth, with focus on profitability Market positions set to improve, while profitability remains priority P/C market position (2017) P/C market ranking ambitions (2022E) ~8.5 Continued total outperformance Brazil #8 5.5 ~7.3 Continued organic outperformance #5 Mexico #13 # E Chile #4 #3 Poland # % #2 6.7% Turkey #13 #8 Note: GWP and RoE are segment numbers (Life and Non-Life) E 88

89 II III IV Retail International V VI Focus Leveraging digital leadership Decentralised responsibilities enable transfer of successful digital initiatives A Claims Service: BR MX TR Mobile claims surveyor, supported by app solution for route planning and claims assessment Country-wide network of express claims assessment stations Spare parts ordering via auctions and subsequent supply to repair shops B Online Motor Pricing: BR PL Price adjustment in real time Quotation system based on AI Fully automated processing A B C A C Claims App: PL A Entire claims handling process via app Video chat function Document exchange function 89

90 II III IV Retail International V VI Focus Leveraging digital leadership Driving digitalisation as top management priority Selected examples for digitalisation in divisions Get bundled Artificial Intelligence Get skills Ecosystems People & Mindset Data analytics RPA BOT Behavioural Economics IT systems Get ready Further details on following slides 90

91 II III IV Retail International V VI Focus Leveraging digital leadership Warta s pioneering role is strengthened by additional digital initiatives Get bundled Strategic Use of Data Get skills FRAUD Online Agent Distribution and service support Ecosystems People & Mindset Data analytics Image recognition in claims handling Dedicated environment for Big Data analyses in pricing ML and AI algorithms in fraud detection ML and AI algorithms for behavioural pricing Digital Platforms IT Systems systems New online sales platform Voice & image recognition and chatbots for claims reporting Get ready 91

92 II III IV Retail International V VI Focus Leveraging digital leadership HDI Brazil Innovation leader in Brazil Get bundled Strategic Use of Data Get skills First fully digital insurer Credit score approval sufficient for vehicle finance and insurance coverage All in one click Ecosystems People & Mindset Data analytics Implementation of new scored filter CLAIMS ROUTING Revision of supply rules for HDI Parts Virtual Assistant SOFIA Registration of new suppliers increasing Auto Parts Discount Artificial Intelligence INSPECTION FILTER Digital Roadmap IT Systems systems Regional systemic single queue Initial, claims and inspections New app and web features Get ready 92

93 II III IV Retail International V VI Summary Key messages Overall strategic direction confirmed ( tigrow strategy) Focus on top 5 positions in 5 core markets, other markets managed for value Relative performance counts: outperforming peers in core markets Disciplined organic and inorganic growth, with focus on profitability/roe enhancement A variety of digital initiatives in place to leverage digital leadership 93

94 II III IV Retail International V VI Summary Our ambition 94

95 II III IV V VI Retail Germany Agenda I Group Strategy Torsten Leue II Group Financials Dr Immo Querner III Industrial Lines Dr Christian Hinsch / Dr Edgar Puls / Dr Thomas Kuhnt IV Retail International Sven Fokkema V Retail Germany Dr Jan Wicke VI Final Remarks Torsten Leue 95

96 II III IV V VI Retail Germany Focused divisional strategy Retail Germany Continue to deliver on KuRS and to grow in SME Stock take Focus and mid-term ambition Leading Leading player in Bancassurance Experienced employee benefits player Strong B2B position for P/C SME Focus Delivery on KuRS targets until 2021 Growth initiative in SME Drive digital transformation Lagging Cost level (HDI P/C and Life) Legacy IT systems RoE ambition 7-8% 96

97 Stock take Retail Germany The different division within the Talanx Group I II III IV V VI Retail Germany Retail Germany within the Talanx Group faces different challenges Gross written premiums 2017 Talanx Group HDI Life P/C Industrial Lines Retail Germany (Life, P/C) Retail International Reinsurance EUR 33.1bn 18% Retail Germany 33% EUR 6.1bn 25% 42% HDI Bancassurance BA Life P/C Life Main challenges Life De-risking Life to increase capital efficiency P/C Enhancing profitability to improve RoE 97

98 II III IV V VI Retail Germany Leading Leading player in Bancassurance Broad and deep integration leads to above-average profitability in Bancassurance Special relationships with strong retail network No. of customers (in m) ~33 ~13 ~4 ~4 ~33 Above-average profitability 3.2% 4.7% Top 5 Market share Profit pool share Efficiently integrated processes Sales process automation Strong results EBIT (in EURm) CAGR 61% 99 Up to 90% Up to 50% 24 Overall fully automated processing Note: Number of customers of German savings banks includes total number of customers, not only from our cooperation partners. Market share and profit pool share compared to total life insurance market. Source: GDV - German Insurance Association, Financial reports (according to local GAAP); without consolidation, Ø , top 5 ranking based on GWP estimate by GDV (local GAAP, financial reports); sum of Bancassurance entity EBIT figures without consolidation 98

99 Leading Experienced employee benefits player Established expertise and collaboration in new markets enable growth I II III IV V VI Retail Germany Partnership for company pension scheme law Market Growth GWP in EURbn 14 CAGR +2% p.a. 15 Top Well-established expertise and innovative solutions Awarded expertise Strong distribution channel presence Pioneer in digitalisation Strong market position Market share Employee benefit premiums (2016) 27% 11% Top 5 60 % 9% 8% 7% Allianz Generali R+V Talanx ERGO Note: Awarded expertise by Institute for Private Pensions and Financial Planning; overall grade for company pension scheme expertise:1.2 (excellent) - for consulting, coverage, service and administration Source: for market shares: BCG analysis based on BCG employee benefits study 2017 and MAP-Report

100 Leading Strong position for P/C SME Thanks to our excellent B2B access, we are building on a position of strength in SME P/C I II III IV V VI Retail Germany Solid market share 6-7% Automotive, company-tied agents, employee benefits Brokers Tied agents Direct business Market-leading position with self-employed professionals Strong player in SME Profitable growth in line with market SME and self-employed avg. CoR SME ~95% CAGR B2B2C B2C / B2B B2C GWP (in EURm) CAGR ~4% ~70 % ~20 % ~10 % Note: Market share including SME and self-employed professionals. Self-employed professional market leader with medical doctors and tax consultants Source: Statista (Federal Statistical Office), IfB (Institute of self-employed professionals) 100

101 Lagging Cost level (HDI P/C and HDI Life) & Legacy IT systems Retail Germany pro-actively addresses internal and external challenges I II III IV V VI Retail Germany Main external and internal challenges identified, with solutions well on track Low interest rate environment 3.0% 2.0% 1.0% 0.0% -1.0% German government bonds 1.0% % 2.0% 2.8% 0.3% 1.0% Cost ratio vs. peer average ( ) De-risking of Life Cost level (HDI P/C and HDI Life) -1.4%pts HDI Life -8.6%pts HDI P/C Peers Increasing earnings in P/C by cost reductions and growth in profitable business Inherited complexity of IT landscape Legacy IT systems Takeover Gerling Integration BA Modernising the IT landscape 101

102 Risks Project update KuRS further drives the optimisation of Retail Germany s risk-return profile I II III IV V VI Retail Germany KuRS further represents the key success factor to achieve an attractive risk-return profile BA: Market leader in bancassurance HDI: Leading SME player in Germany; strong competitive position in private business Life P/C Life insurance portfolios by adequate de-risking in a low-interest environment; relevant for >EUR 50bn assets under management Increasing the earnings in P/C by cost reductions and growth in profitable business Retail Germany current De-risking Life Retail Germany target Overall Building a digital platform to support growth e.g. in P/C SME business and occupational pensions P/C restructuring Expected return 102

103 II III IV V VI Retail Germany Focused divisional strategy Retail Germany Continue to deliver on KuRS and to grow in SME Stock take Focus and mid-term ambition Leading Leading player in Bancassurance Experienced employee benefits player Strong B2B position for P/C SME Focus Delivery on KuRS targets until 2021 Growth initiative in SME Drive digital transformation Lagging Cost level (HDI P/C and Life) Legacy IT systems RoE ambition 7-8% 103

104 Focus KuRS is our strategic foundation on which we base focused growth initiatives I II III IV V VI Retail Germany Stability and profitability 2021 De-risking of Life 2018 Focused growth initiatives 2022 Increasing earnings in P/C by cost reductions and growth in profitable business 2 Growth initiative in SME Modernising IT landscape 3 Drive digital transformation Solid base for future growth + Attacking attractive markets 104

105 II III IV V VI Retail Germany 1 Focus Delivery on KuRS targets until 2021 Retail Germany strongly outperformed the initial KuRS plan Strong EBIT and cost reduction results EBIT in EURm Retail Germany Initially planned (2015) Cumulated outperformance 240 ~63m ~75m ~52m ~24m underline an outperformance of initial plan in EURm Cumulated EBIT outperformance compared to intial KuRS plan ~75m E 2019E 2020E 2021E Cost reduction in EURm ~44m ~98m ~150m >175m 152 > >175m 74 ~ ~ E 2019E 2020E ~ E Cumulated cost reduction outperformance compared to initial KuRS plan 105

106 II III IV V VI Retail Germany 1 Focus Delivery on KuRS targets until 2021 Overall positive development confirms strategic outlook of last year s CMD Our promised KuRS targets continuously well on track Gross premium growth (p.a.) 0% based on 2017 on track Total GWP growth (p.a.) in the works -3% Trend 2018 Life ~ 0% Life -4% P/C 3% P/C 2% Cost-cutting initiatives to be implemented by end of 2020 ~ EUR 240m Cost reduction p.a. EUR 152m Combined ratio until Combined ratio (adj. for KuRS costs) ~102% (~99%) Life new business: share of traditional Life products by 2021 (new business premium) 25% New business share of traditional life ~28% P/C: Growth in Property & Liability to SMEs and self-employed professionals by % Growth rate SME/self-employed professionals >7% EBIT contribution (targeted sustainably from 2021) EUR 240m EBIT contribution EUR 137m EUR 160m Note: GWP target defined as CAGR: E. GWP result is a comparison of :Combined ratio incl. net interest income on funds withheld and contract deposits, growth in SME/self-employed professionals compared to base year Targets are subject to no large losses exceeding budget (cat), no turbulences on capital markets (capital) and no material currency fluctuations (currency) 106

107 1 Focus Delivery on KuRS targets until 2021 Risks from regulation and capital market development are being actively managed I II III IV V VI Retail Germany We constantly monitor our major performance risks and define effective mitigation measures A Capital market risks Especially interest rate and credit risk A Continuous de-risking of Life portfolio and disciplined asset management Major risks B Regulatory risks Especially distribution limitations with regard to credit life insurance B Further improvement of credit life products and distribution processes as well as introduction of substitution products C IT risks Hidden risks in IT infrastructure in terms of operations stability C Dedicated IT restructuring programmes (Voyager 4life, Quadriga) 107

108 Bancassurance HDI Life 1 Focus Delivery on KuRS targets until 2021 Continuous de-risking of Life portfolio I II III IV V VI Retail Germany Focus on continuous de-risking remains the main target for Life avg. running yields avg. guarantee rates (incl. ZZR) reinvestment yield (fixed income) 4.0% 3.0% 2.0% 1.0% 0.0% 4.0% 3.0% 2.0% 1.0% 0.0% Intersection Intersection The expected reinvestment yields for are 20-30bp lower than last year. This reflects a change in the implicit market expectation for 20-year AAA euro government bonds The actuarial rate, including ZZR reduction, is slightly higher than last year (expected change of ZZR in German law) Due to both effects, it takes somewhat longer until the graphs for reinvestment yields, resp. actuarial rates, are expected to intersect Unchanged: based on our assumptions, the average running yields will be sufficient to finance the guarantees for policyholders Note: All numbers refer to German GAAP (HGB). Update based on August 2018 calculations/data 108

109 II III IV V VI Retail Germany 2 Focus Growth initiative in SME P/C represents the major EBIT growth driver Our EBIT ambition Life P/C HDI P/C Other P/C CR P/C (incl. KuRS) 108.6% 99.3% 103.3% 101.6% 95% in EURm We already achieved the P/C profit turnaround in 2017 and target increasing EBIT in CAGR 70% P/C total 140 HDI P/C represents the EBIT growth engine to achieve 2021 KuRS targets E 2021E 109

110 II III IV V VI Retail Germany 2 Focus Growth initiative in SME P/C strategy adjusted to enable us to become the leading SME player in Germany our competitive edges drive growth in P/C P/C Vision: Leading SME insurer in Germany with a market share of ~10% Our customers and partners 1 HDI as a credible brand in SME Offering leading expertise to clients and partners B2C Private B2B2C Private B2B2C SME B2C SME 2 Top 3 in claims management Well-balanced integration of digital and personal service solutions Claims/Operations Our B2B basis Financials 3 Superior processes combining digital and personal services Organisation Technology Top-line growth Note: SME includes self-employed professionals 110

111 II III IV V VI Retail Germany 2 Focus Growth initiative in SME Our strategic ambition: Entering Top 5 with a GWP of more than EUR 500m Our top-line ambition for P/C is GWP in EURm SME Self-employed professionals CAGR >+7% Ambition Top 5 How we achieve it New business in EURm 12 CAGR +39% p.a SME 360 CAGR >+15% ~380 >500 > E Strong B2B footprint in broker channel 124 ~ ~240 >250 Fully digital SME platform 2017A 2018E 2022E Above average growth with a market share ambition of ~10% Digitalising the whole SME customer journey Automatisation rate of >85% Competitive advantage 111

112 3 Focus Drive digital transformation Digitalisation is a central building block for the further transformation of Retail Germany I II III IV V VI Retail Germany Selected examples for digitalisation in divisions Get bundled Artificial Intelligence Get skills Customized pricing SME Digital Ecosystems People & Mindset Data analytics Robotic Process Automation IT systems Get ready Further details on following slides 112

113 Straight-Through- Processing Identity & Access Management I II III IV V VI Retail Germany 3 Focus Drive digital transformation Get ready Reducing complexity to become more efficient and flexible We have built a single IT platform for Life We establish a flexible IT architecture in P/C Where do we come from? Today Daisy (TAV) VWS nl ~2.6m contracts Daisy BA-VWS (PBV) 6 backend systems Kolumbus VWS-KP VWS-WI DBest ~2.3m contracts Where do we come from? Exemplary IT landscape Today Backend Online Channel 16 Online Channel 32 Claims backend Workflow Task List Future Infobasis Provisions Servicepartner Systematical shutdown of outdated IT systems Harmonised, leading IT platform with a maximum of automation Where are we going? Future One single system Where are we going? Market- Facing Decoupling Insurance Core Channel Front-ends Cross-Channel Capability 360 Customer view Data, Integration, Decoupling Operations Overarching & Governance to exploit the size of our Life business and benefit from economies of scale to become integration leader with B2B2C partners 113

114 Summary Key Messages I II III IV V VI Retail Germany Retail Germany ahead of plan EBIT target of EUR 240m (2021) confirmed EBIT contribution during project phase ~EUR 75m above initial plan; cost reductions > EUR 175m above plan EBIT development in EURm 240 Risks from regulation and capital market development managed actively, especially continuous de-risking in Life >160 Strategic ambition: leading SME player in Germany with a strong competitive position in retail business E 2019E 2020E 2021E Digitalisation is a central building block for the transformation of Retail Germany 114

115 II III IV Retail Germany V VI Summary Our ambition 115