Talanx Group Views Its Result for First Half of 2016
“On balance, we are broadly satisfied with the way our business has performed during the first half of 2016, and we are optimistic about achieving our annual targets”, stated Herbert K Haas, the Chairman of the Board of Management of Talanx AG. “Natural disasters, large losses and sustained currency effects have also had a detrimental impact on Talanx. Our tasks in Industrial Lines and in Retail Germany are ones that we continue to perform diligently. We are on track, and we look forward to achieving solid performance in our international business which firmly confirms our strategy of internationalisation.”
In the first six months of 2016 the burden of large losses amounted to EUR 495 (363) million, but remained within the allocated large loss budget of EUR 506 million. Reinsurance accounted for EUR 353 (197) million of this total, while primary insurance was burdened with EUR 142 (165) million. The most expensive single loss were the fires in the Canadian federal state of Alberta, which cost EUR 132 million, followed by the severe earthquake in Ecuador, which accounted for EUR 57 million. In the second quarter, storms in Germany resulted in losses of EUR 55 million. In overall terms, the Group-wide combined ratio over the first six months remained at a good level, amounting to 96.8 (96.4) percent.?
Gross written premiums in the first half year fell 2.4 percent to EUR 16.4 (16.8) billion. Adjusted for currency effects, they were broadly consistent with those from the comparable period of the previous year. The underwriting result increased to EUR -784 (-851) million. With 3.5 (3.8) percent, the Group achieved robust net return on investment as a consequence of diversification. Despite the historically low level of interest rates, net investment income declined by EUR 75 million (3.7 percent) to EUR 2 (2) billion, but remained at virtually the same level as in the previous year. The Group’s operating profit rose to EUR 1.1 (1.0) billion. The Group net income stood at EUR 401 (311) million.
In the second quarter of 2016, gross premium income across the Group rose slightly by 0.6 percent to EUR 7.4 (7.4) billion. The combined ratio amounted to 97.3 (96.2) percent. The underwriting result increased to EUR -362 (-462) million. The net investment income amounted to EUR 0.9 (1.0) billion. A positive one-off effect amounting to around EUR 26 million (after tax) in the extraordinary net investment income was the sale of our full shareholding in the asset manager C-Quadrat. The operating profit (EBIT) rose in the second quarter by 31.9 percent to EUR 491 (372) million. Group net income tripled to EUR 179 (60) million.
Implementation of the strategic agenda strides forwards
In the first half of 2016, the Talanx Group has made consistent strides forwards with the implementation of its strategic agenda. This is especially true of the Retail Germany Division. The Group has worked with the Employee Council to agree on an action schedule for the planned job cuts. The Group Employee Council and employers based this plan, primarily, on a voluntary programme that sets out special provisions for the conclusion of termination agreements and arrangements for early retirement candidates. Employees faced with the possibility of different activity profiles will be offered entitlements to reskilling. Furthermore, the action plan reflected the shared commitment to avoiding redundancies, if possible. The provision relating to these measures have an EUR 36 million impact on other expenses. With these expenses, all downsizing costs have been covered.
Some important digitalisation projects have already been implemented and are showing initial signs of success. In April, the digital distribution channel was launched in direct sales. By 30 June, a total of 12,000 contracts had already been concluded online. A loss report app has also been introduced. To date, this digital interface has already been used to report and process 1,000 claims. Furthermore, the introduction of capital-efficient 'modern classic' life insurance policies, launched in January this year, is now almost finalised.
In Industrial Lines, the improvement in portfolio quality is progressing continuously. Optimisation of the motor fleet business has been concluded successfully, and now focused marketing efforts can be pursued. In selected markets, most recently in Genoa and Glasgow, regional offices were opened to tap into the growth potential of small to medium-sized enterprises (SMEs) and to improve service levels at a local level. At the same time, and parallel to this, Talanx is pursuing the enhanced internationalisation of the Group.
Industrial Lines: Stable international growth and improved combined ratio
Industrial Lines continued growing in the first half year. Gross written premiums rose by 3.1 percent to EUR 2.7 (2.6) billion. Adjusted for currency effects, this increase was higher at 4.1 percent. This increase in contributions was achieved especially by the subsidiaries in France and the UK, and by the new company in Brazil. The combined ratio for this division improved to 97.8 (98.7) percent compared to the same period in 2015 due to a decrease in large losses, which remained below expectations, and despite a below-average run-off result. The underwriting result rose to EUR 25 (13) million. Net investment income declined slightly in the first half of 2016, by 3.5 percent to EUR 109 (113) million. Other comprehensive income declined to EUR 9 (16) million, principally as a result of adverse exchange rate results. Operating profit remained stable at EUR 143 (142) million, broadly level with that of the previous year. Due to increased taxes on income, Group net income declined to EUR 91 (97) million.
In the second quarter of 2016, premium income for this division rose substantially above the level of the previous year, and amounted to EUR 785 (736) million. The underwriting result also performed favourably and rose to EUR 12 (7) million. Net investment income stayed stable at EUR 59 (60) million. The combined ratio improved by 0.5 percentage points to 98.1 (98.6) percent. The key driver here was the decline in the cost ratio as a result of increased premium income. The operating profit (EBIT) closed at almost the same level at EUR 69 (70) million. The contribution of the division to the Group net income amounted to EUR 43 (50) million.