Perspective Talanx our strategy

Perspective Talanx our strategy

Foreword Dear Reader, Herbert K. Haas Chairman of the Board of Management of Talanx AG In a large international group such as Talanx we need an overall strategy that enables us to optimally adjust to market conditions and hence improve our competitiveness over the long term. In the pages that follow we have set out our strategic objectives and we would thereby like to address everyone who has an interest in getting to know and understand our company s strategic orientation. Each guided by their own individual strategies, our four operational divisions about which you can read more on pages 4 and 5 are firmly enshrined within our umbrella strategy. It is the sum total of the divisional strategies that maintains the competitiveness and future readiness of our Group as a whole on a lasting basis and promotes sustainable value creation going forward. The cornerstone for successful cooperation within our globally operating Group is thus formed by our umbrella strategy with the goals of reliable continuity, a high return on equity and profitable growth while always remaining focused on the requirements of the capital market. In this way we build on our own strengths and at the same time combine the forces inherent within the Group. The Talanx Model and the associated Values, which are described on pages 2 and 3, constitute an important platform for successful cooperation spanning all divisions, countries and cultures. Our Group has enjoyed an extremely successful development to date. In recent years Talanx has recorded the most vigorous growth of all major European insurance groups. We intend to continue along this path; our strategy and our values are the guarantors of our success. I hope you will enjoy reading the present brochure. Kind regards, Herbert K. Haas Chairman of the Board of Management of Talanx AG August 2015 1

Talanx Model The Talanx Model sets the framework for all divisions and their individual strategies. Vision Mission Values Behaviour Group Strategy Strategy Strategy Strategy Strategy Strategy Reinsurance Industrial Lines Retail Germany Retail International Corporate Operations Culture Culture Culture Culture Culture Vision: Where do we want to go? Talanx is the leading global B2B insur ance group. Mission: What do we stand for? Optimised cooperation between our divisions enables us to take advantage of promising opportunities wherever they arise on the global insurance markets to the benefit of all our stakeholders. 2

Values: Principles on Leadership and Cooperation Entrepreneurial mindset and action within the Group context We think and act responsibly and in an anticipatory, goal-oriented and mindful way. We conduct our business as if it were our own. Consequently, we always work in a solution-oriented manner with short paths of decision making. We take innovative steps to arrive at new solutions. In case of divergent business units concerns, the inter ests of the Talanx Group take priority. Results and performance orientation We are accountable by our results and achievements. We generate customer value. The quality of our processes is de cisive for making successes repeatable. Team work and appreciation constitute the basis for mutual trust. In case of disagreements, we use the different perspectives to develop ourselves continuously. Comprehensive customer orientation We focus our energies on customers and markets. We treat every customer with respect and appreciation we behold him with his comprehensive needs. This applies to our external customers our sales partners and end customers as well as to our internal customers our colleagues and employees. It is our aspiration to achieve our shared possibilities by balancing be tween the various individual interests. Mutual trust and open communication We are reliable, fair and open-minded. These fundamental principles are applied towards all business units of the Talanx Group, our business partners, and our internal and external stakeholders. Working together in a constructive manner based on partnership, we exchange feedback in order to achieve better solutions together. We focus on our shared mission, and are respectful, helpful and empathetic towards each other. Our values connect: they form the basis of our corporate culture 3

Divisions and product ranges of Talanx Industrial Lines division The Industrial Lines division is led by HDI Global SE. The company is globally active through branches and subsidiaries as well as network partners. Providing insurance for industrial customers is a business between professionals. The industrial customers in Germany and abroad benefit from experience in risk assessment and management spanning decades. They also have access to a proven track record of expertise in professional claims management. The pro duct spectrum ranges from liability insurance, motor insurance, personal accident, and fire and prop erty/casualty insurance to marine, special lines and engineering insurance. Retail Germany division The Retail Germany division concentrates the activities of companies serving retail and commercial customers in the areas of P&C insurance, life insurance and bancassurance in Germany. The divisional company bears the name Talanx Deutschland AG. The division offers German retail and commercial customers insurance protection that fits their needs. The range of products extends from property / casualty covers through all lines of retirement provision to complete solutions for small and mid-sized enterprises as well as freelance professionals. In this context, all sales channels are at its disposal not only its own tied agents or gani zation but also sales through independent intermediaries and multiple agents, direct sales and cooperative ventures with banc assurance partners. The division applies a philosophy tailored to the business partners. The aspiration is to offer optimum conditions to professional partners like banks, major brokers, other companies (composite insurance) and automobile manufacturers (cooperative ventures for selling motor insurance). 4

Retail International division This division concentrates the activities of companies serving retail and commercial customers with a focus on Central and Eastern Europe and Latin America. It is managed by Talanx International AG. Cooperation with professionals dominates this business. The majority of policies are sold through brokers and independent agents. The product range includes packages for motor insurance, property and casualty insurance, marine and fire insurance, and life insurance plans. The Retail International division exploits local, sector-specific know-how and projects its profile through an integrated sales network. This enables it to identify the specific requirements of its customers abroad and offer tailor-made solutions. Reinsurance division The Reinsurance Division within the Talanx Group is handled almost exclusively by the Hannover Re Group, one of the leading reinsurance groups in the world by premium volume. Hannover Re transacts all lines of property/casualty and life /health reinsurance and is present on all continents. Business in Germany is transacted by the subsidiary E+S Rück. Hannover Re s successful business model has been recognised several times with the Reinsurance Company of the Year award from Insurance Day, the presti gious UK daily for the global insurance industry. Financial Services Above and beyond insurance business, the Group offers financial services which consist most notably of asset management activities as well as the Group s internal reinsurance broker Talanx Reinsurance Broker (Talanx Re Broker) and the Group s in-house reinsurer Talanx Reinsurance (Ireland) Ltd. (Talanx Re). Asset management functions are performed by the companies Talanx Asset Management, Talanx Immobilien Management and Ampega Investment. The focus here is on the operational subsidiaries of the Talanx Group as well as services rendered by Ampega Investment for third parties outside the Group. Talanx Re Broker is the professional reinsurance advisor and intermediary for non-life reinsurance cessions of the Talanx Group. Talanx Re is a reinsurance company that writes exclusively Group business. It thereby helps to optimise the business retained on the level of the Group as a whole. 5

The corporate background We act group-wide based on the principle: central strategic control and local divisional responsibility 6

The Talanx Group is a leading German and European insurance group with a global footprint. The Group provides property / casualty and life insurance through both its primary insurance and reinsurance business activities. Our heritage spans more than a century and during this period we have transformed ourselves from a pure industrial liability insurer into a global insurance group with a focus on industrial, retail and reinsurance business. We are particularly committed to successful cooperation with institutional partners. In the Talanx Group, an integral component of our business model is to optimize the interplay between primary insurance and reinsurance with the objective of continually improving the opportunity / risk profile and increasing capital efficiency. The composition of the Group portfolio also ensures that Talanx has adequate risk taking capacities throughout all market phases to support customers reliably over the long term and to cultivate promising markets. Thereby, we safeguard our independence and enhance the success of the Group in the interest of our investors, customers, staff and other stakeholders, in a sustainable way. Talanx AG is a finance and management holding company placed at the top of the Group structure. It ensures that the primary goal is achieved: sustainable profitable growth. Accordingly, this is the basis for all divisional strategies that are formulated based on the Group 7

We consciously pursue cost-efficient and customer tailored business processes as part of our Group strategy strategy. Talanx AG controls activities through capital procurement and allocation, defining targets, performance measurement and suitable incentive schemes. It is also responsible for optimizing the Group and capital structure. In order to implement the measures derived from its strategic goals and its operating activity Talanx AG operates with its own central departments for Group functions. These departments are aiming at continuously developing the Group through consistent control and monitoring. The organizational principle of the Talanx Group centralizes the Group control functions and Group service functions while allocating the earnings responsibility locally with the individual divisions. The success of the Group is founded above all on this organizational structure, which gives the individual divisions a high degree of entrepreneurial freedom. This ensures that the individual divisions make optimal use of their opportunities for growth and income. While the Talanx brand is primarily directed towards the capital market, the sophisticated international product expertise, a forwardlooking underwriting policy and the sales force presence in our operating companies are manifested in a multi-brand strategy. This allows us to fully meet the requirements of different customer groups, regions and cooperation partners. It also facilitates the integration of 8

new companies and / or divisions into the Group. Moreover, this structure creates a highly developed capability for cooperation, which can be specifically directed towards a wide range of different institutional partners and business models. Lean, efficient and consistent business processes together with a state-of-the-art and uniform IT infrastructure are key success factors in supporting the Group strategy. 9

Strategic goals of Talanx The Group policy and its primary strategic objectives are based on continuity, solid financial strength, and sustainable profitable growth and, thus, focus on a long-term increase in value. This overriding principle forms the basis for all other Group targets. The precondition for this is a strong Talanx Group with a solid capital base which is able to provide adequate risk protection for its policyholders. This strategy enables us to meet the interests of our shareholders, our policyholders, our employees and other stakeholders to the maximum possible benefit of all. We aim for sustainable profitable growth in order to meet the interests of our stakeholders in the best way possible Our business model focuses specifically on a joint marketing approach with our institutional partners. Performance Management forms the core element of our controlling tools. Quantifiable targets for the individual divisions are defined by Talanx AG in order to steer the Group towards economic value added, profitability, effective capital management, conservative risk management and profitable growth initiatives. 10

We also comply with statutory regulations in order to guarantee the proper conduct of the Group, its directors, officers and employees. Internal principles and guidelines enable us to structure our business activities in a way to avoid any risks to our business, liability and reputation. 11

Profit target The Talanx Group targets a long-term above-average profitability level. The measure for this is the Group s return on equity in accordance with IFRS. 12

We compare ourselves with the 20 largest insurance companies in Europe. The minimum target of our Group, in relation to consolidated net profit after taxes and minority interests is the return on equity in accordance with IFRS, 750 basis points above the average risk-free interest rate. The average risk-free interest rate is defined as the average yield over the last five years for a 10-year German government bond. Based on this profit target we set targets in order to steer the operating divisions. We use value-based controlling as an instrument for achieving our objectives. An intrinsic value added is measured by the core controlling parameter IVC (Intrinsic Value Creation) which compares the economic result for the accounting period with the cost of capital. The minimum requirement for each division is to achieve its cost of capital which is derived from value-based controlling. Talanx AG ensures that all the divisions individual income targets meet the Group s defined minimum return on equity target. With a payout ratio of 35 % to 45 % of IFRS Group net income, we strive to distribute an attractive and competitive dividend to our shareholders. We pursue long-term, above-average profitability 13

Capital management Capital management at the Talanx Group is directed towards an optimized, risk-adequate capital structure and towards the preservation of our financial strength. A strong capital base strengthens the resilience against short-term developments of insurance and capital markets. The assignment of the capital management is to optimize capital efficiency at the Group companies and to fulfil the liquidity and capital requirements of the Group and Talanx AG. To meet this goal, we use equity capital, equity capital substitutes and finance instruments to optimize the capital structure. We structure the capital in such a way that it meets the minimum requirements of Standard & Poor s capital model for an AA rating. Additional capital is retained only if the earnings potential is increased by more than the yield on the additionally retained capital, e.g. by improving risk taking capacity and risk cover or by a higher level of independence from the reinsurance / retrocession markets. 14

Divisions with the highest expected risk-adjusted income after tax are prioritized in the capital allocation process. The intended portfolio diversification and the required risk capital are taken into account. The allocation is carried out based on the expected Intrinsic Value Creation (IVC). We continuously optimize our capital structure We deploy our resources in order to best target our objectives 15

Risk management Talanx AG monitors and closely manages the risk position within the Group and the individual companies. It pursues the goal of avoiding developments that pose a threat to the Group as a going concern while taking advantage of potential opportunities. The primary goal is to ensure compliance with the risk position using risk budgets. The criteria for this are as follows: We generate positive annual earnings in accordance with IFRS with a probability of 90%. The economic capital base must correspond to at least an aggregated 3,000-year shock (1 year probability of ruin). The investment risks in the Group should be limited to less than 50% of the aggregated requirement for risk-based capital. The information derived from our risk management system provides an overview of the current and projected future aggregated risk situation of our Group at any time. Therefore, the risk management system forms an integral element in the decision-making process at all management levels by permitting a comprehensive and systematic assessment of the opportunities presented and the associated risks. Risk Management at Talanx uses appropriate simulation models and processes based on acknowledged and advanced methods for risk identification, risk quantification, and risk controlling, and for determining the required risk-based capital. 16

We always adopt a forward-looking and comprehensive approach to controlling risks The risk strategy, centrally defined guidelines, methods and procedures, as well as limits and threshold values provide us with a framework for local monitoring and ad-hoc reporting. Moreover, central risk management quantifies and aggregates all risk positions at Group level. It generates central reporting and monitors the measures across the Group for controlling risks which threaten the going concern of the Group and compliance with limits and risk budgets. Our investment policy focuses on stable and sustainable results, liquidity requirements and the underwriting commitments to our customers so that we achieve a well diversified portfolio and an optimum risk and return ratio. 17

Growth target At the Talanx Group, we aim to generate sustainable, profitable growth while considering the opportunity / risk profile and maintaining a diversified portfolio. This allows us to grow organically, with strategic and complementary acquisitions and through co-operations. 18

We want to achieve above-average growth specifically in Industrial Lines and Retail International divisions. In the long run, we aim for the foreign share of gross premiums from primary insurance (Industrial Lines and Retail) to amount to half of the total gross premiums from primary insurance. In industrial insurance, which has been a core competency of the Group for decades, we are acknowledged as a leading insurer in Europe and are continuing to expand our global presence. We aim for growth organically and through acquisitions. Target growth regions for our international retail activities are primarily Central and Eastern Europe, and Latin America. In these target regions we want to grow organically and through acquisitions. In the German retail business we are focusing on an increase in profitability and focused growth. We aim for profitable and diversifying growth As a long-time majority shareholder in Hannover Re, we are striving to secure the position of the company as a global player and pursue a policy of selective expansion. Due to the different risk profiles of our divisions, we define solely profitability targets in our more volatile segments. In segments with a lower risk exposure, we define profitability as well as volume targets. The further elaboration of this strategic framework in terms of products, customer groups, sales channels and regions is determined by our individual divisions. 19

Human resources We are only as good as our employees. For the successful development of the Talanx Group and for achieving our strategic targets, constant promotion and development of personnel is of central importance. We expect a high level of professionalism, loyalty, entrepreneurial spirit, flexibility, motivation and mobility from our employees regionally and across segments. In return, we promote our employees continuously and individually through training and career development and a transparent management philosophy which is directed towards developing a risk-aware performance culture. Both tools are critical cornerstones for our strategic human resources policy. Our management tools are based on a high level of individual responsibility. Continuous training and qualification measures allow our employees to perform well in new and / or changing positions in line with their job requirement profile. This human resources policy enables the Group to fill leadership / management positions, same qualification level provided, primarily from our own employee pool. 20

Our development and promotion of employees is a key factor for success 21

7020100018 (January 2016, PDF) Talanx AG Group Communications HDI-Platz 1 30659 Hannover Germany Phone +49 511 3747-2022 Fax +49 511 3747-2025 www.talanx.com