Talanx outlines ambitious plans, will consolidate reinsurance programme

The Talanx Group, which owns Hannover Re, has outlined ambitious targets for 2019 and beyond – one way it plans to achieve these is by consolidating its reinsurance buying programme.

Germany’s third-largest insurer has said it will aim for a return on equity (RoE) of at least 800 basis points above the risk-free interest rate and earnings per share (EPS) will increase by an average of at least 5 percent per year until 2022.

It said it will achieve this in three ways: through focussed growth strategies for each unit; by bundling intragroup reinsurance at the holding company; and through more stringent capital management.

Of interest to the reinsurance sector will be the company’s plan to bundle its primary insurers’ non-life treaty reinsurance requirements at the holding company.

It said this will allow it to take advantage of diversification effects throughout the group. In conjunction with a higher retention, Talanx consequently also anticipates an increase in investment income.

It also noted that the bundling of intragroup reinsurance has already resulted in S&P setting the issuer rating of Talanx to “A-/CreditWatch Positive”. Fully implemented, Talanx expects this to have a combined positive effect on annual profit of around €50 million.

In addition, excess capital of the group subsidiaries will also be transferred to the holding company. It said this will pave the way for increasing investments in profitable and high-growth areas and further secure Talanx’s dividend continuity in the future.

It also said it would accelerate a digital transformation programme that has already been initiated. It wants to further develop the Talanx system environment and advanced data analysis, including artificial intelligence and the development of digital ecosystems.

Speaking at a Capital Markets Day in Frankfurt, where the Board of Management presented the Talanx Group’s strategy, Torsten Leue, chairman of the Board of Management of Talanx, said: “Over the past five years, the Talanx Group has posted considerably stronger growth than its competitors and has almost always generated attractive returns with comparatively low volatility.

“We are building on this success. We are continuing to boost profitability in the divisions and are launching growth initiatives in the commercial sector and in specialty business, as well as continuing our successful international growth. All in all, we will thereby significantly increase our earning capacity.”

It also said that acquisitions will remain an important element of its growth strategy. It said the prerequisite for a transaction is that potential acquisitions must improve the group’s return on equity and result in an increase in earnings per share in the near future. Its focus is primarily on potential target companies in non-life business in the defined markets.

Commenting on its reinsurance operations, the company said its focus was on its strategy of building further on its existing strengths, particularly with regard to competitiveness and profitability.

“Diversification benefits will also continue to play a key role here in the future. This will be supplemented by the continued systematic digitalisation of the Group and the expansion of integrated, innovative reinsurance offers in order to position the division even more strongly as a provider of customised solutions. In addition, portfolio management measures in business with US mortality risks are expected to increase profitability further,” it said.

In terms of its Industrial Lines Division, it said it is focussing on making its fire insurance business profitable in the short term, on international growth and the intragroup joint venture with Hannover Rück.

It also noted that a new company, HDI Global Specialty, was established just a few months ago and will start operations as at 1 January 2019. Talanx expects the combination of Inter Hannover’s proven underwriting expertise and HDI Global’s worldwide sales and loss adjustment network to result in significant growth synergies. By 2022, gross written premiums are expected to increase to €2.1 billion; the EBIT contribution for the division should rise by around €35 million within this period.

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