Talanx announces strong nine-month results Operating profit (EBIT) up around 83 percent to EUR 1.3 billion Almost all segments deliver double-digit growth in gross premium Investment income significantly improved by around 20 percent Group net income slightly in excess of EUR 600 million anticipated for 2012 Dividend payment for 2012 towards the upper end of stated range Hannover, 14 November 2012 The Talanx Group has closed the first nine months of 2012 with a strong set of results. Gross written premium increased by around 11 percent to EUR 19.9 (17.8) billion. The operating profit (EBIT), driven above all by an improved underwriting result and significantly better investment income, grew by 83 percent to EUR 1.3 (0.7) billion. Group net income also improved by approximately 68 percent to reach EUR 549 (327) million. Talanx AG Press and Public Relations Tel. +49 511 3747-2022 Fax +49 511 3747-2025 Investor Relations Tel. +49 511 3747-2227 Fax +49 511 3747-2286 Riethorst 2 30659 Hannover Germany www.talanx.com Herbert K. Haas, Chief Executive Officer of Talanx AG, commented: "We are very pleased with the interim results. They underscore the profitability of the entire Talanx Group and its potential for value creation." Strategically, Talanx also made decisive progress in the third quarter. Mr Haas stated: "With its successful initial public offering, Talanx has taken an important step towards putting in place the foundation for the Group's secure development going forward. In addition to this, with the closing of our most recent acquisitions we have moved significantly closer to our goal of generating half the premium income in primary insurance from foreign markets. This continues to show we are effectively working towards executing the strategy we have outlined. The Group now aims to consolidate its existing position. However, Mr Haas noted that year-to-date results should not be extrapolated to four quarters. In particular, high extraordinary income in the investment performance over the first three quarters is unlikely to be repeated in the fourth quarter. Furthermore, the extraordinary expenses associated with restructuring measures at home and abroad that have been planned for some time will result in a charge to the current quarter. Mr Haas is nevertheless optimistic about 2012. "Assuming no adverse movements on the capital market, and provided the burden of major losses remains within our expectations, the Talanx Group is targeting for 2012 a gross premium volume in the order of EUR 26 billion and Group net income after tax slightly in ex- 1
cess of EUR 600 million. We have already made known our intention to distribute around 35 to 45 percent of Group net income after non-controlling interests as a dividend. For 2012 we are aiming to make a dividend payment towards the upper end of this range." The third quarter was shaped by final preparations for the initial public offering on 2 October. The issue price was EUR 18.30, while the first trading share price was EUR 19.05. Since the initial listing took place after the end of the third quarter, it is not reflected with the exception of the capital contributions paid in the present financial statement as at 30 September 2012. The goals of the initial public offering are to finance organic growth as well as smaller acquisitions, repay loans and strengthen the capital base. Currently, 11.2 percent of the shares are held in the free float by private and institutional investors. Meiji Yasuda, the strategic partner of Talanx, holds 6.5 percent; HDI V.a.G., which is to retain the majority interest over the long term, holds the remaining 82.3 percent. All new shares issued carry a full dividend entitlement for the entire 2012 financial year. In the German retail business, the merger between the risk carriers HDI Direkt Versicherung AG and HDI-Gerling Firmen und Privat Versicherung AG as well as the subsequent rebranding as HDI Versicherung AG took place at the end of September as planned. The new company will continue to offer property and casualty insurance products in Germany. At the same time, further companies were rebranded with the HDI name. Efficiency within the division is thereby boosted and the product range which was previously duplicated in many areas is made more straightforward and transparent for customers. Additional measures designed to reorient the segment, such as the concentration of operating functions e.g. contract processing, policy issue, complaints management and telephony, along with the corresponding personnel measures and resulting cost savings, were set in motion. Industrial Lines will continue to operate under the HDI-Gerling brand, which is now exclusive to this division. Business development of the Talanx Group The gross written premium booked by the Group in the first nine months grew by roughly 11 percent relative to the corresponding period of the previous year, reaching EUR 19.9 (17.8) billion; adjusted for exchange rate effects, growth would have come in at just under 9 percent. With the exception of the Retail Germany segment, all segments of the Group posted double-digit increases. Net premium earned improved by around 12 percent to EUR 15.9 (14.2) billion; the Retail International division played a particularly strong part here, boosting its net premium by almost a third. The two reinsurance seg- 2
ments also delivered strong organic growth and made significant contributions to the overall increase. Following on from the good half-year performance, the Group's underwriting result after nine months again showed appreciable improvement on the back of moderate major loss expenditure, especially in the Non-Life Reinsurance segment; it stood at EUR 1.1 ( 1.4) billion. The burden of major losses in the first three quarters of 2012 totalled EUR 243 (860) million, almost three-quarters lower than the corresponding figure for the previous year. On the Group level the underwriting result is normally negative because the participation of policyholders in the investment income generated by the life insurers is recognised here. The combined ratio until the end of September 2012 improved on the corresponding relatively costly period of the previous year by 4.9 percentage points to 97.1 (102.0) percent. This can be attributed in particular to the reduction of altogether 4.5 percentage points in the loss ratio above all in the Non-Life Reinsurance segment. Investment income rose appreciably by around 20 percent to EUR 2.8 (2.4) billion. This improvement was driven by both ordinary and extraordinary investment income. The former reflects the increase in investments due to the acquisitions in Poland in the Retail International segment as well as organic growth, most notably in the Non-Life Reinsurance division. Extraordinary income was boosted by realised gains on disposals, significantly higher unrealised gains principally from ModCo derivatives in the Life/Health Reinsurance division as well as lower write-downs on financials in comparison with the previous year. The Group further reduced its already low holding of government bonds from the so-called GIIPS countries. The operating profit (EBIT) generated by the Group after nine months surged 83 percent to EUR 1.3 (0.7) billion. This was assisted by the high investment income as well as the moderate major loss incidence and associated improvement in the underwriting result. Group net income for the first three quarters of 2012 improved by around 68 percent to EUR 549 (327) million. Earnings per share stood at EUR 2.64 (1.57), calculated on the basis of the number of shares as at 30 September. The (annualised) return on equity amounted to 12.2 (8.6) percent. Assuming that all capital measures were already implemented in the period under review, the undiluted earnings per share would have totalled EUR 2.17. Business development of the segments Gross written premium in Industrial Lines climbed by around 11 percent to EUR 2.8 (2.6) billion as at the end of the third quarter. The sustained upward trend in premium income was driven by the fire and liability lines as well as by the ongoing market hardening in the Ger- 3
man motor business. The premium development at the companies abroad was stable overall. The underwriting result for the segment stood at EUR 69 (74) million. Due to a slightly higher net loss ratio, the combined ratio also increased slightly to 94.3 (93.1) percent. Investment income rose some 20 percent to EUR 181 (151) million. The decisive factor here was the improved extraordinary income booked by HDI-Gerling Industrie: while the previous year had been overshadowed by write-downs on securities, extraordinary income was realised in the current year through the sale of securities. The operating profit (EBIT) for the segment climbed to EUR 215 (168) million, driven in particular by the significant improvement in the investment and other income, which increased by 40 percent to EUR 35 ( 57) million. This comfortably offset the slight decline in the underwriting result. In the Retail Germany division gross written premium including savings elements of premium from unit-linked life insurance policies of EUR 5.1 (5.0) billion was booked in the period under review. It should be reflected that the previous year's figure still included the legal protection business written with retail customers which was sold in 2011 in a volume of EUR 48 million. Against a backdrop of varying developments at the individual companies, gross written premium in life insurance including savings elements of premium from unit-linked life insurance policies was stable overall at EUR 3.7 (3.7) billion. Similarly, there were no significant changes in the breakdown into single premiums and business with a regular premium payment. Principally due to motor insurance, the premium volume in property/casualty insurance was stable year-on-year at EUR 1.3 (1.3) billion despite a contraction in new business. Against a backdrop of mixed developments at the individual companies, new business measured by the Annual Premium Equivalent (APE), an internationally used standard amounted to EUR 480 (503) million across all lines. In life insurance a new business APE of EUR 323 (327) million was generated. The underwriting result deteriorated by 15 percent to EUR 1.1 billion ( EUR 972 million). Life insurance continued to drive this development, primarily owing to the strengthening of reserves in the local financial statements of the risk carriers as well as the participation of policyholders in investment income. The earnings opposing these expenditures, on the other hand, are recognised in investment income and hence in the non-technical account. As a further factor, increased interest-related amortisation taken on acquired insurance portfolios played a crucial part in the profit trend. The investment income generated by the segment climbed almost 8 percent to EUR 1.2 (1.1) billion, due principally to life insurance busi- 4
ness. By far the bulk of this increase was credited to the life insurance holders. This was due to the sharply improved extraordinary income booked by the life insurers from the realisation of hidden reserves. The operating profit (EBIT) booked by the Retail Germany segment contracted by 42 percent to EUR 64 (111) million; it came under particularly heavy strain from the low level of interest rates on the capital market. The gross written premium including premiums from unit-linked life and annuity insurance generated in the Retail International division increased by around 26 percent relative to the comparable period to reach EUR 2.2 (1.8) billion. The premium growth derived first and foremost from the acquisitions in Poland and Mexico as well as the reallocation of Austrian retail business. Organic growth came in at 3 percent translated into euro, or 9 percent in the original currency. The growth in gross written premium was driven primarily by the favourable development of property/casualty business, where premiums increased by 29 percent to EUR 1.6 billion with the new companies playing a particularly prominent role here. Life insurance grew by 19 percent to EUR 623 million, especially on account of the first-time inclusion of the new Polish life insurers. As a consequence of its acquisition of the Polish companies Warta and TU Europa, Talanx has moved up to become the second-largest provider in that country's insurance market according to statistics published by the Polish regulator. The share of total gross written premium in the segment attributable to the Polish companies stood at 25 (18) percent. The premium income of the Warta Group was included in the premium volume for the first time pro rata for the period after the acquisition took legal effect (1 July 2012). The combined ratio for the segment improved by 2.1 percentage points to 97.8 (99.9) percent. The new companies Warta and the Mexican-based Metropolitana were particularly significant factors here. The underwriting result improved by around 51 percent to EUR 25 ( 51) million. In the first nine months the segment generated investment income of EUR 201 (112) million, a figure almost double that of the comparable period in the previous year. This increase derived in part from the improved ordinary income on the back of larger asset portfolios across the board and partly from the inclusion of the new Polish companies. The extraordinary investment income benefited inter alia from gains realised on the sale of Italian government bonds by the Italian company HDI Assicurazioni. The operating profit (EBIT) beat the comparable figure for the previous year by roughly EUR 59 million on the basis of the improved underwriting result combined with higher investment income. 5
Gross premium in Non-Life Reinsurance increased by 13 percent relative to the comparable period, amounting to EUR 5.9 (5.2) billion as of 30 September 2012. At unchanged exchange rates growth would have come in at around 9 percent. Net premium earned climbed 14 percent to EUR 5.0 (4.4) billion. The investment income generated by the segment, which grew by around 20 percent to EUR 730 (608) million, was particularly notable for disposal gains, inter alia from real estate sales. The number of major losses was again relatively low in the third quarter. The net burden of EUR 61 million was significantly below the loss expectancy of EUR 178 million. The combined ratio as at 30 September 2012 decreased to 96.5 (104.9) percent. The underwriting result closed in positive territory at EUR 170 ( 224) million. The operating profit (EBIT) moved sharply higher to EUR 806 (353) million as at 30 September 2012. The Group segment of Life/Health Reinsurance continued to develop in line with the positive expectations in the first nine months of 2012. Gross premium income increased by 15 percent to EUR 4.4 (3.8) billion. At constant exchange rates growth would have come in around 9 percent. Net premium earned rose 13 percent to EUR 3.9 (3.5) billion. Investment income increased by roughly 39 percent to EUR 486 (350) million, primarily due to improved unrealised gains from ModCo derivatives. The operating profit (EBIT) in the first nine months totalled EUR 215 (147) million, a figure some 47 percent higher than in the comparable period of the previous year. Outlook Based on unchanged exchange rates the Talanx Group is targeting gross premium volume in the order of EUR 26 billion for 2012. The return on investment for 2012 is likely to be around 4 percent, with ordinary investment income expected to deliver by far the largest contribution. Group net income after tax for 2012 is forecast to come in slightly higher than EUR 600 million. Despite the inflow of equity capital from its initial public offering Talanx therefore anticipates a return on equity of around 10 percent, provided there are no upheavals on capital markets or extraordinary loss events. According to the information available to date, Superstorm Sandy will remain within the bounds of the envisaged major loss budget. The stated aim is to distribute 35 to 45 percent of the IFRS Group net income after non-controlling interests as a dividend payment. For 2012 Talanx is targeting a dividend payout towards the upper end of this range. For the financial year 2013, Talanx is looking from today s point of view to generate Group net income of at least EUR 650 million, as- 6
suming constant currency exchange rates, no adverse movements on capital markets, and major losses not exceeding expected levels. Key figures from the Talanx Group statement of income 1.1. 30.9.2012, consolidated (IFRS) Figures in million 1.1. 30.9. 2012 1.1. 30.9. 2011 1 +/- Gross written premium 19,847 17,843 11% Net premium earned 15,851 14,216 12% Net underwriting result -1,146-1,366 16% Combined ratio in property/casualty insurance and non-life reinsurance 97.1% 102.0% -4.9% points Net investment income 2,817 2,352 20% Operating profit (EBIT) 1,312 718 83% Group net income (after non-controlling interests) 549 327 68% Return on equity 2 12.2% 8.6% 3.6% points 1) Adjusted on the basis of IAS 8 2) Annualised net profit for the period excluding non-controlling interests relative to average shareholders' equity excluding non-controlling interests before capital increase from the initial public offering All documents on the Interim Report as at 30 September 2012: http://www.talanx.com/investor-relations/presentations-and-events About Talanx Talanx was the third-largest German insurance Group and the eleventh-largest European insurance group in 2011 1 (based on gross written premium). In 2011, Talanx generated premium income of approximately EUR 23.7 billion. Talanx operates as a multi-brand provider. Its brands include HDI, HDI-Gerling, Hannover Re, one of the world s leading reinsurers by premium volume 1, Targo Versicherungen, PB Versicherungen, Neue Leben and the financial services provider AmpegaGerling. With the recent acquisitions of TU Europa Group and TUiR Warta S.A., Poland has become Talanx's second home market. The Hannover-based Group is active in about 150 countries. The rating agency Standard & Poor s has given the Talanx Primary Group a financial strength rating of A+/stable (strong) and the Hannover Re Group one of AA- /stable (very strong). Since October 2012 Talanx AG has been listed at Frankfurt Stock Exchange (WKN: TLX 100, ISIN: De000TLX1005). 1 Source: KPMG 2012 on the basis of the Annual Reports of the relevant insurance companies 7
For media enquiries, please contact: Thomas v. Mallinckrodt Tel.: +49 (0) 511-3747-2020 E-Mail: thomas.mallinckrodt@talanx.com Julia Thiem Tel.: +49 (0) 511-3747-2298 E-Mail: julia.thiem@talanx.com For Investor Relations, please contact: Dr. Wolfram Schmitt Tel.: +49 (0) 511-3747-2185 E-Mail: wolfram.schmitt@talanx.com Carsten Werle Tel.: +49 (0) 511-3747-2231 E-Mail: carsten.werle@talanx.com Disclaimer This news release contains projections or other forward-looking statements which are based upon the current knowledge and assumptions of the management of Talanx AG about future events. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. The economic environment and other conditions are constantly changing. As a result, the actual development and performance of the company may differ materially from those currently anticipated in such statements. The company assumes no duty to revise or update any of the forwardlooking statements or other information contained herein. 8