Letter from the Chairman of the Board of Management

Letter from the Chairman of the Board of Management

Photo: Herbert K. Maas

Ladies and Gentlemen,

When it comes to delivering a verdict on the Talanx Group’s 2010 financial year, it is important not to base it simply on first appearances, but rather to look behind the façade: 2010 was not a bad year for Talanx, even though at first glance our result may suggest otherwise. Yet this appearance is deceiving – in operational and structural terms our Group took another major step forward!

That this is not evident at first glance can be attributed to two developments. In the first place, our insurance business was overshadowed by a considerably higher burden of losses than in the previous year: 2010 saw an accumulation of natural catastrophes and man-made major claims. The Talanx Group, too, was impacted by these losses – and the fact that the effect on our combined ratio was not more pronounced was thanks purely to our very prudent reserving policy and the resulting run-off profits.

What is more, in 2010 the Board of Management took extensive steps to establish risk provision for future years – which were adversely reflected in the result in a number of non-recurring charges. The most appreciable effect derived from the merger of Aspecta Lebensversicherung AG into HDI-Gerling Lebensversicherung AG. In this connection we commuted reinsurance treaties early and calculated future income flows from the former Aspecta portfolio considerably more prudently than in the past. In foreign retail business the confidence level of the loss reserves was adjusted at some companies in line with the reserving standard of the Talanx Group and units that were unable to fulfill our performance expectations were wound up. These two measures also led to one-off expenditures. The final item on this list is the expense associated with the restructuring of central functions and the accompanying IT costs. If these non-recurring charges – together with one-off tax income – are eliminated, the 2010 result posted by Talanx was on the level of the record figure generated in the previous year.

This second perspective reveals the economic reality of the Group: the true operational development of the Talanx Group shows that the 2010 result was not the consequence of structural deficiencies, but rather a reflection of targeted measures designed to position Talanx even better for the future and to further improve its capital market fitness. This is also evident from the premium income, investments and financing costs: the pleasing increase in premium income stems from areas in which we are seeking to grow strategically – international retail business and life/health reinsurance. Investment income was also boosted appreciably thanks to both larger asset holdings and improved extraordinary income. We were able to reduce our financing costs by buying back bonds that we had issued on favorable terms.

Talanx continues to rank among the financially strong insurers! The capital strength of the Group is demonstrated by the increase in Group shareholders’ equity – which rose 12% to EUR 8 billion – and the further improvement in our solvency ratio, which was almost twice as high as the legally required level.

In structural terms, the Group again boosted its efficiency and performance capability in 2010. After just one and a half years of preparation and implementation, the primary insurance sector has been operating with joint central functions since January 2011. Not only does this bring efficiency enhancements, it also delivers appreciable cost savings.

We are continuing to follow this path systematically and have now begun to reorganize the Retail Germany division. The bywords here are benefits to the customer, efficiency and performance culture. In this division, too, our goal is to chart a course for long-term, profitable growth and to make the undertaking equally attractive to staff, customers and shareholders alike. With this in mind, we shall succeed in laying the foundation for successful development, since this division offers considerable potential for the future.

The first fruits of the restructuring will be evident in 2011, but overall they will not yet make themselves felt in the result. Heavy major losses will again make their mark on our performance in 2011. This is especially true of the devastating earthquake and tsunami in Japan, the human consequences of which are almost impossible to grasp. It is for this reason that in 2011 we again do not expect to match up to the excellent result of 2009. Yet we are by no means dissatisfied with the outlook. There are signs that conditions for insurers are improving across a broad front; both on the reinsurance side and in the motor and industrial insurance lines the markets would appear to be picking up. Similarly, early successes of our structural measures – such as the gratifying increase in new life insurance business – encourage us to look to 2011 with confidence.

Image: Writing desk

I would like to take this opportunity to express my appreciation to all the members of staff who again worked with considerable dedication in the financial year just-ended. Not only that, my thanks are also due to our customers and cooperation partners for the trust that they again placed in us in 2010. Along with our commitment to continuing the successful development of Talanx, living up to this trust remains our paramount mission for 2011.

Yours sincerely,

Herbert K. Haas