Talanx AG

Annual Report • Apr 7, 2014

Group Annual Report 2013

THE TALANX GROUP AT A GLANCE

6 GROUP KEY FIGURES

	UNIT	2013	2012	2011
Gross written premium	IN EUR MILLION	28,151	26,659	23,682
by regions
Germany	IN %	33	35	38
UK	IN %	10	11	11
Central and Eastern Europe including Turkey (CEE)	IN %	9	6	3
Rest of Europe	IN %	15	15	16
USA	IN %	13	13	12
Rest of North America	IN %	2	2	2
Latin America	IN %	7	7	7
Asia and Australia	IN %	9	9	9
Africa	IN %	2	2	2
Net premium earned	IN EUR MILLION	23,113	21,999	19,456
Underwriting result	IN EUR MILLION	–1,601	–1,447 4)	–1,690
Net investment income	IN EUR MILLION	3,792	3,795	3,262
Net return on investment 1)	IN %	4.0	4.3	4.0
Operating profi t (EBIT)	IN EUR MILLION	1,784	1,748 4)	1,238
Net income (after fi nancing costs and taxes)	IN EUR MILLION	1,282	1,144 4)	892
of which attributable to shareholders of Talanx AG	IN EUR MILLION	762	626 4)	515
Return on equity 2)	IN %	10.6	10.0	10.0
Earnings per share
Basic earnings per share	IN EUR	3.02	2.86 4)	2.48
Diluted earnings per share	IN EUR	3.02	2.86 4)	2.48
Combined ratio in property/casualty primary insurance and non-life reinsurance 3) IN %		96.9	96.4	101.0
Combined ratio of property/casualty primary insurers	IN %	99.3	97.1	96.6
Combined ratio for non-life Reinsurance	IN %	94.9	95.8	104.2
Policyholders' surplus	IN EUR MILLION	14,318	14,416 4)	11,306
Equity attributable to shareholders of Talanx AG	IN EUR MILLION	7,214	7,153 4)	5,407
Non-controlling interests	IN EUR MILLION	3,997	4,156 4)	3,284
Hybrid capital	IN EUR MILLION	3,107	3,107	2,615
Assets under own management	IN EUR MILLION	86,310	84,052	75,750
Total investments	IN EUR MILLION	100,962	98,948	87,467
Total assets		132,863	130,350 4)	115,277
Carrying amount per share	IN EUR MILLION IN EUR	28.54	28.31 4)	25.99
Share price at year end	IN EUR	24.65	21.48	—
Market capitalisation of Talanx AG at year end	IN EUR MILLION	6,231	5,426	—
	FULL-TIME
Staff	EQUIVALENTS	20,004	20,887	17,061

1) Net investment income excluding interest income on funds withheld and contract deposits and profi t on investment contracts relative to average assets under own management

2) Net income excluding non-controlling interests relative to average shareholders' equity excluding non-controlling interests

3) Combined ratio adjusted for interest income on funds withheld and contract deposits, before elimination of intra-Group cross-segment transactions

4) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

GROUP SEGMENTS AT A GLANCE

		OPERATING RESULT (EBIT)/GROUP NET INCOME FIGURES IN EUR MILLION EBIT GROUP NET INCOME
INDUSTRIAL LINES CF. MANAGEMENT REPORT PAGE 57	¡ Premium growth continues ¡ Result adversely aff ected by major losses, in particular from natural disasters ¡ Net investment income only slightly lower than in the previous year, despite continuing low interest rates	1,250 321 204 259 157 147 109 1,000 750 500 250 2011 2012 2013
RETAIL GERMANY CF. MANAGEMENT REPORT PAGE 59	¡ Premium income from life insu rance business up 2% ¡ Exceptionally high burdens from ma jor losses and natural disasters have negative impact on combined ratio ¡ Increase in net investment income despite low interest rates	110 69 100 120 161 78 1,250 1,000 750 500 250 2011 20121) 2013
RETAIL INTERNATIONAL CF. MANAGEMENT REPORT PAGE 61	¡ Expansion abroad improves results ¡ Poland is largest foreign market ¡ Stable net investment income despite persistent low interest rates and rising euro rates	55 39 107 42 185 101 1,250 1,000 750 500 250 2011 2012 2013
NON-LIFE REINSURANCE CF. MANAGEMENT REPORT PAGE 65	¡ Premium growth as adjusted for ex change rate eff ects on target at +3.5% ¡ Catastrophe losses slightly less than expected ¡ Combined ratio of 94.9 (95.8)%	637 222 1,134 325 1,097 377 1,250 1,000 750 500 250 2011 2012 2013
LIFE/HEALTH REINSURANCE CF. MANAGEMENT REPORT PAGE 66	¡ Challenging market conditions for life and health reinsurance ¡ Targeted gross premium growth as adjusted for exchange rate eff ects achieved at 5.1% ¡ Operating profi t less than expected	213 87 270 104 139 76 1,250 1,000 750 500 250 2011 20121) 2013

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

FINANCIAL HIGHLIGHTS OF 2013

The retail divisions in particular contributed to the slight increase in our operating profi t. The Reinsurance Division accounts for the

10.0 10.0 10.6

1) Net income for the year excluding non-controlling interests relative to average shareholders' equity excluding non-controlling interests

2) Before inter-company consolidation

3) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

EUR 1.20 PROPOSED DIVIDEND PER SHARE

EUR 1.8 BILLION

OPERATING PROFIT (EBIT)

GROSS WRITTEN PREMIUM

SEGMENTAL BREAKDOWN OF GROSS PREMIUM

3 RETURN ON EQUITY 1) IN %

15

EUR 28.1 BILLION +6%

GROWTH IN GROSS PREMIUM

Impetus for growth from abroad: through acquisitions and by focusing on selected target regions, we are continuously increasing the share of international business in our total premium income.

2

TALANX – OPPORTUNITIES SQUARED

A very special success story is behind the name Talanx. Our forward-looking business model and disciplined implementation of our strategy have allowed us to grow steadily in recent years, making us one of Europe's leading insurance groups today.

The interplay of primary insurance and reinsurance and a portfolio of strong brands give Talanx considerable fl exibility and an attractive opportunity/risk profi le. We now want to continue this success story with clearly defi ned goals. Talanx is a group full of opportunities, a group full of potential.

TO WATCH TALANX'S SUCCESS STORY AS A VIDEO USE QR CODE OR THE FOLLOWING LINK: http://annualreport2013.talanx.com

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CONTENT

• 2 Letter from the Chairman
• 4 Board of Management
• 7 Supervisory Board/ Supervisory Board committees
• 9 Report of the Supervisory Board
• 12 Stability
• 14 Growth
• 20 Integration
• 26 Effi ciency
• 32 Profi tability
• 38 Highlights of 2013
• 40 The Talanx share

COMBINED MANAGEMENT REPORT

43 Detailed index

CONSOLIDATED FINANCIAL STATEMENTS

• 141 Detailed index
• 142 Consolidated fi nancial statements
• 149 Notes
• 289 Auditor's report

FURTHER INFORMATION

• 291 Important addresses
• 296 Glossary and defi nition of key fi gures
• 301 List of diagrams and tables
• 304 Index of key terms
  • Worldwide network Contact information

... WHERE WE LOOK FOR IT ON PAGE 14

TALANX – OPPORTUNITIES SQUARED

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A very special success story is behind the name Talanx. Our forward-looking business model and disciplined implementation of our strategy have allowed us to grow steadily in recent

years, making us one of Europe's leading insurance groups today.

The interplay of primary insurance and reinsurance and a portfolio of strong brands give le. We now want to exibility and an attractive opportunity/risk profi Talanx considerable fl ned goals. Talanx is a group full of opportunities, continue this success story with clearly defi

a group full of potential.

TO WATCH TALANX'S SUCCESS STORY AS A VIDEO USE QR CODE OR THE FOLLOWING LINK: http://annualreport2013.talanx.com

Strong brands off er a wealth of opportunities. Talanx knows how to make use of its various brands on diff erent markets around the world and for diff erent customer groups.

The Talanx brand represents the Group as a whole. It is led by Talanx AG, which performs the functions of a management and fi nancial holding company within the Group but does not itself conduct any insurance business. Talanx Deutschland AG and Talanx International AG also include the Talanx brand in their name; they bring together companies operating under various brands in Germany and abroad. Talanx Reinsurance Broker is responsible for in-house reinsurance, and a range of in-house service companies also include "Talanx" in their name.

The TARGO insurers operate in the bancassurance distribution channel exclusively for their partner TARGOBANK, off ering its clients a service for quick and convenient handling of all banking, fi nancial and insurance transactions. www.targoversicherung.de

As one of the largest reinsurers in the world, the Hannover Re Group transacts all lines of non-life and life/health reinsurance and is represented on all continents, following a fl exible, undogmatic strategy. Its subsidiary E+S Rück is a specialist reinsurer serving the German market. www.hannover-re.com www.es-rueck.de

The HDI insurers operate under this brand in Germany, off ering property/casualty and life insurance products. Companies that conduct retail business outside Germany also trade under the HDI brand. HDI can thus off er tailor-made comprehensive insurance cover worldwide. www.hdi.de

HDI-Gerling stands for industrial insurance business in Germany and worldwide. Under this brand we off er a complete range of products to protect against entrepreneurial risks, including property, liability and accident insurance and motor insurance. www.hdi-gerling.de

The TU Europa Group is the market leader for bancassurance in Poland. Its product range includes credit insu rance, unit-linked life insurance and investment products. www.tueuropa.pl

As the country's second-largest insurance group, the WARTA Group off ers property, liability and life/health insurance in Poland. A combination of products and services from several companies allows WARTA to off er its customers a particularly broad, customised range of services. www.warta.pl

Posta Biztosító is the high-growth cooperation partner of the Hungarian postal service for bancassurance. Its readily comprehensible and transparent range of pro ducts off ering outstanding value for money spans the life and property/casualty lines. www.mpb.hu

The PB insurers operate in the bancassurance distribution

channel in exclusive cooperation with their partner Postbank. They are embedded in Postbank's market profi le and geared to the needs of its clients, off ering attractive insurance products, including private pension insurance and risk provisioning, at reasonable prices. www.pb-versicherung.de

neue leben insurers operate in the bancassurance distri bution channel as provision specialists for the Sparkasse savings institutions. They off er their clients and sales partners innovative insurance products at attractive terms. www.neueleben.de

The Russian company OOO Strakhovaya Kompaniya "C i V Life", which cooperates with Citibank in bancassurance, trades under the C i V brand. C i V Life is one of the most dynamically performing companies on the Russian life insurance market. www.civ-life.com

One of the major non-bank asset managers in Germany, Ampega covers the complete value-added chain in asset management, from funds business to asset management for private and institutional investors. www.ampega.de

www.talanx.com

HERBERT K. HAAS Chairman

Our fi rst full year as a listed company has gone very well for all of us. Talanx's performance was outstanding, and we are also pleased with the increase in our share price. We have achieved this result despite the sovereign debt crisis in parts of Europe and the devastating weather events in Central Europe. Group net income rose to EUR 762 million, while gross written premium also reached a record level of EUR 28.1 billion. Results like these do not get generated automatically, but are achieved through the hard work of every one of our employees; I would like to thank them sincerely for their performance and commitment.

2013 was dominated by an exceptional accumulation of natural disasters in Central Europe. Floods in Germany, Austria and Poland caused around EUR 16 billion in economic losses. This led to a net burden of EUR 176 million at Talanx, of which EUR 83 million was in the primary insurance segments. Hailstorm "Andreas", which swept over large parts of Germany in July, also caused a substantial net burden of around EUR 156 million. Other major losses also occurred, placing a total burden of EUR 838 million on our result.

Like all major investors, we naturally face a particularly large challenge from continuing low interest rates. The sovereign debt crisis in Europe is not yet completely over. However, we have seen progress in some southern European countries. Although yields on government bonds have risen slightly outside Europe, achieving adequate returns on investment remains very diffi cult. We are responding to the capital market environment by adding alternative long-term investments such as infrastructure projects, but without reaching our risk limit. We will nevertheless, like other major investors, have to deal with falling returns on investment in the near future. Once again, we face the challenge of compensating for a decline in investment income with an improvement in the underwriting result. We managed this very well in 2013, and our divisions have geared their plans towards this again for the next year.

The last year has also shown us that it was the right decision to pursue the internationalisation of Talanx Group. The Group's international focus helped us to handle the accumulation of weather events in Germany last year. Regions outside Central Europe were largely spared storms and other freak weather events, enabling us to increase our profi t with the contribution from these countries.

However, internationalisation has not just helped us with the di versifi cation of the technical account. Latin America and Central and Eastern Europe have made a signifi cant contribution to Talanx's growth in retail business, while the Industrial Lines Division has increasingly expanded abroad. Development in Germany was stable, enabling us to grow substantially and achieve our targets for 2013.

On the whole, the impetus for growth will continue to come from abroad in future. The growing economies of emerging countries are playing an increasingly important part in retail business. Growth in the Industrial Lines Division is coming from countries outside Europe, where our Reinsurance Division also forsees good opportunities.

The focus in Germany remains on growth in income. The Retail Germany Division has improved its profi tability and slightly increased its premium volume. As well as the expansion of business with third party liability, accident and other types of non-life insu rance, long-term growth opportunities here inevitably lie in pensions, owing to demographic changes. Whether it's private or company pensions, the age pyramid in Germany and the reduction in statutory pension benefi ts make additional private cover essential. This is why we believe there is a future in life insurance business, including fi nancial protection against occupational disability and other biometric risks.

2013 was a year of consolidation. Talanx successfully integrated its acquisitions in Mexico and Poland into the Group. The integration of the two Polish companies WARTA and TU Europa was completed exceptionally quickly. The branches that the Industrial Lines Division opened in Canada, Singapore and Bahrain in 2012 expanded their activities. In this respect, we met all of our integration targets.

In economic terms, we improved important key fi gures at Group level in the fi nancial year. Operating profi t (EBIT) grew by 2% yearon-year to EUR 1.8 billion, while Group net income aft er taxes and minority interests rose signifi cantly to EUR 762 million, partly owing to one-off eff ects. This represented an increase of 22%. Income from the sale of shares in Swiss Life contributed to this, as did one-off tax eff ects. The return on equity for 2013 was 10.6%, exceeding our minimum target of 9.8%.

Our majority shareholder, HDI V. a. G., increased Talanx's free fl oat by 3.3 percentage points to 14.5% (including the issuing of emplo yee shares) through an equity placement last year, thereby strengthening the position of Talanx shares on Germany's MDAX stock exchange index. HDI V. a. G. now holds 79.0% of shares in Talanx.

We want our shareholders to share in our good performance. The Board of Management and Supervisory Board will propose to the General Meeting that a dividend of EUR 1.20 per share be paid. This represents an increase of EUR 0.15 per share in the dividend and a dividend yield of 4.9% based on the year-end price. We want to continue paying an attractive dividend based on the company's performance in future.

Talanx AG is now in its third year on the stock market. We will have to prove ourselves on the capital market once again in 2014, but we are happy to rise to this challenge. I would like to extend heartfelt thanks to you for the confi dence you have shown in Talanx. My colleagues on the Board of Management and I, together with our employees, will do everything we can to continue the Talanx Group's success in the long term and to justify your confi dence in us. We look forward to meeting many of you in person at our Annual General Meeting on 8 May 2014. We also hope you will remain favourably disposed towards us.

Yours sincerely,

Herbert K. Haas

YOU CAN LISTEN TO THE SPOKEN FOREWORD in our online report: http://annualreport2013.talanx.com

BOARD OF MANAGEMENT

DR. HEINZ-PETER ROSS TORSTEN LEUE DR. CHRISTIAN HINSCH DEPUTY CHAIRMAN

HERBERT K. HAAS CHAIRMAN

DR. IMMO QUERNER ULRICH WALLIN

BOARD OF MANAGEMENT

Herbert K. Haas

Chairman Burgwedel Chairman of the Board of Management HDI Haft pfl ichtverband der Deutschen Industrie V. a. G., Hannover

Responsible on the Talanx Board of Management for:

• ¡ Corporate Development
• ¡ Data Protection
• ¡ Executive Staff Functions/Compliance
• ¡ Group Communications
• ¡ Information Services (since 1 January 2014)
• ¡ Internal Auditing
• ¡ Investor Relations
• ¡ Legal Aff airs
• ¡ Project Portfolio Management

Dr. Christian Hinsch

Deputy Chairman Burgwedel Deputy Chairman of the Board of Management HDI Haft pfl ichtverband der Deutschen Industrie V. a. G., Hannover Chairman of the Management Board HDI-Gerling Industrie Versicherung AG, Hannover

Responsible on the Talanx Board of Management for:

• ¡ Industrial Lines Division
• ¡ Human Resources
• ¡ Facility Management
• ¡ Procurement
• ¡ Reinsurance Purchasing

Torsten Leue

Hannover Chairman of the Management Board Talanx International AG, Hannover

Responsible on the Talanx Board of Management for:

¡ Retail International Division

Dr. Thomas Noth

Hannover Chairman of the Management Board Talanx Systeme AG, Hannover

Responsible on the Talanx

• Board of Management for: ¡ Information Services
• (until 31 December 2013)

Dr. Immo Querner Celle

Member of the Board of Management HDI Haft pfl ichtverband der Deutschen Industrie V. a. G., Hannover

Responsible on the Talanx Board of Management for:

• ¡ Finance/Participating Interests/ Real Estate
• ¡ Investments
• ¡ Controlling
• ¡ Collections
• ¡ Risk Management
• ¡ Accounting/Taxes
• ¡ Treasury

Dr. Heinz-Peter Roß

Gräfelfi ng Chairman of the Management Board Talanx Deutschland AG, Hannover

Responsible on the Talanx Board of Management for:

• ¡ Retail Germany Division
• ¡ Business Organisation

Ulrich Wallin

Chairman of the Executive Board Hannover Rück SE, Hannover

Responsible on the Talanx Board of Management for:

¡ Reinsurance Division

1 OPPORTUNITIES SQUARED

2 Letter from the Chairman

Board committees 9 Report of the Supervisory Board

12 Stability

4 Board of Management 7 Supervisory Board/Supervisory

26 Effi ciency

14 Growth 20 Integration

32 Profi tability

38 Highlights of 2013 40 The Talanx share

Hannover

SUPERVISORY BOARD

COMPOSITION AS AT 31 DECEMBER 2013

Wolf-Dieter Baumgartl Chairman Berg Former Chairman of the Board of Management of Talanx AG

Ralf Rieger *

Deputy Chairman Raesfeld Employee HDI Vertriebs AG

Prof. Dr. Eckhard Rohkamm

Deputy Chairman Hamburg Former Chairman of the Board of Management of ThyssenKrupp Technologies AG

Antonia Aschendorf

Hamburg Lawyer Member of the Board of Management of APRAXA eG

Karsten Faber *

Hannover Managing Director Hannover Rück SE, E+S Rückversicherung AG

Jutta Hammer *

Bergisch Gladbach Employee HDI Kundenservice AG Gerald Herrmann * Norderstedt Trade union secretary

Dr. Hermann Jung

Heidenheim Member of the Board of Management of Voith GmbH (since 6 May 2013)

Dr. Thomas Lindner Albstadt Chairman of the Board of Management of Groz-Beckert KG

Dirk Lohmann Forch, Switzerland President of the Administrative Boad and Chairman of the Board of Management of Secquaero Advisors AG (since 6 May 2013)

Jutta Mück *

Oberhausen Employee HDI-Gerling Industrie Versicherung AG

Otto Müller *

Hannover Employee Hannover Rück SE

Dr. Hans-Dieter Petram

Inning Former Member of the Board of Management of Deutsche Post AG (until 6 May 2013)

Dr. Michael Rogowski Heidenheim Chairman of the Foundation Council of Hanns-Voith-Stift ung (until 6 May 2013)

Katja Sachtleben-Reimann * Hannover Employee Talanx Service AG

Dr. Erhard Schipporeit

Hannover Former Member of the Board of Management of E.ON AG

Norbert Steiner

Baunatal Chairman of the Board of Management of K+S AG (since 6 May 2013)

Prof. Dr. Ulrike Wendeling-Schröder * Berlin Professor at Leibniz University Hannover

Werner Wenning

Leverkusen Chairman of the Supervisory Board of Bayer AG (until 6 May 2013)

* Staff representative

Details of memberships of legally required supervisory boards and comparable control boards at other domestic and foreign business enterprises are contained in the individual report of Talanx AG.

SUPERVISORY BOARD COMMITTEES

COMPOSITION AS AT 31 DECEMBER 2013

The Supervisory Board has formed four committees from among its ranks. They support the full Supervisory Board in the performance of its tasks.

Finance and Audit Committee

• ¡ Wolf-Dieter Baumgartl, Chairman
• ¡ Dr. Thomas Lindner
• ¡ Ralf Rieger
• ¡ Prof. Dr. Eckhard Rohkamm
• ¡ Dr. Erhard Schipporeit

Personnel Committee

• ¡ Wolf-Dieter Baumgartl, Chairman
• ¡ Prof. Dr. Eckhard Rohkamm
• ¡ Norbert Steiner
• ¡ Prof. Dr. Ulrike Wendeling-Schröder

Standing Committee

• ¡ Wolf-Dieter Baumgartl, Chairman
• ¡ Ralf Rieger
• ¡ Prof. Dr. Eckhard Rohkamm
• ¡ Katja Sachtleben-Reimann

Nomination Committee

• ¡ Wolf-Dieter Baumgartl, Chairman
• ¡ Dr. Thomas Lindner
• ¡ Dirk Lohmann

TASKS OF THE COMMITTEES

You can fi nd a detailed description of the committees' tasks in the "Supervisory Board" section of the Corporate Governance report.

Finance and Audit Committee

• ¡ Preparation of fi nancial decisions for the full Supervisory Board
• ¡ Decisions in lieu of the full Supervisory Board on certain fi nancial matters, including the establishment of companies, acquisition of participations and capital increases at subsidiaries within defi ned value limits

Personnel Committee

• ¡ Preparation of personnel matters for the full Supervisory Board
• ¡ Decisions in lieu of the full Supervisory Board on certain personnel matters for which the full Supervisory Board is not required to assume responsibility

Standing Committee

¡ Proposal for the appointment of a Board member if the necessary two-thirds majority is not achieved in the fi rst ballot ( § 31 Para. 3 Co-Determination Act)

Nomination Committee

¡ Proposal of suitable candidates for the Supervisory Board's nominations to the General Meeting

1 OPPORTUNITIES SQUARED

12 Stability

2 Letter from the Chairman 4 Board of Management

20 Integration 26 Effi ciency 32 Profi tability 38 Highlights of 2013 40 The Talanx share

14 Growth

42 COMBINED MANAGEMENT REPORT

REPORT OF THE SUPERVISORY BOARD

Ladies and Gentlemen,

The Supervisory Board fulfi lled its duties in accordance with statutory requirements, the Articles of Association and the Rules of Procedure without restriction in the 2013 fi nancial year. We considered at length the economic situation, risk position and strategic development of Talanx AG and its major subsidiaries. We advised the Board of Management on the company's direction, monitored the management of business and were directly involved in decisions of fundamental importance.

In the year under review we assembled for four ordinary meetings of the Supervisory Board, held on 20 March, 14 May, 13 August and 13 November 2013, and for one constitutive Supervisory Board meeting on 6 May 2013. As in the previous year, the Federal Financial Supervisory Authority (BaFin) exercised its legal powers to send two representatives to attend one of these meetings. The Finance and Audit Committee of the Supervisory Board held four ordinary meetings and one constitutive meeting, the Personnel Committee three meetings and the Nomination Committee one meeting. The Standing Committee formed in accordance with the requirements of the German Co-Determination Act (MitbestG) had no reason to meet in 2013. The full Supervisory Board was briefed on the work of the various committees. In addition, we received written and oral reports from the Board of Management, based on the quarterly fi nancial statements, on business operations and the position of the company and Group. At no point in the year under review did we consider it necessary to conduct audit measures pursuant to § 111 Para. 2 Sentence 1 of the German Stock Corporation Act (AktG). Where transactions requiring urgent approval arose between meetings, the Board of Management submitted these to us for a written resolution. The Chairmen of the Super visory Board and Board of Management regularly exchanged views on all material developments and transactions within the company and the Talanx Group. Overall, within the scope of our statutory responsibilities and those prescribed by the Articles of Association, we assured ourselves of the lawfulness, expediency, regularity and effi ciency of the actions of the Board of Management.

The Board of Management provided us with regular, timely and comprehensive information regarding the business and fi nancial situation, including the risk situation and risk management, major capital expenditure projects and fundamental issues of corporate policy, and transactions that – although not subject to the approval of the Supervisory Board – nevertheless need to be reported in accordance with the requirements of the Rules of Procedure, as well as the impact of natural disasters, the status of major lawsuits and other material developments at the company and the Group and in Europe (sovereign debt crisis, status of implementation of Solvency II). At our meetings we considered at length the reports provided by the Board of Management and put forward suggestions and proposed improvements. All Supervisory Board meetings were attended by every member, with the exception of the meetings in May, at which one member participated in the adoption of resolutions only through a written vote.

KEY AREAS OF DISCUSSION FOR THE FULL SUPERVISORY BOARD

The following issues formed the primary focus of reporting and were discussed in detail at our meetings: business development of the company and individual Group segments, the situation in German life insurance and specifi cally the future position of HDI Lebensversicherung AG, the pooling and optimisation of IT services within the in-house company Talanx Systeme AG, the Group's strategic position in Latin America, the future structure of business units in other European countries in the Industrial Lines Division and planning for 2014. We were informed of the reasons why business development for the preceding fi nancial year had diverged from relevant plans and targets, and were able to satisfy ourselves accordingly with the explanations provided.

Risk management within the Group was again a further focus of our deliberations. Risk reporting by the Board of Management was discussed at each meeting of the Supervisory Board. In addition, we considered a number of refi nancing measures and issues relating to the expansion and reduction of shareholdings, and gave our agreement prior to the issuing of employee shares to a capital increase utilising the authorised capital. The Supervisory Board also discussed the structure and composition of the company's Board of Management.

In view of § 87 Para. 1 of the German Stock Corporation Act, the full Supervisory Board dealt with the revision of the divisional bonus, the setting of divisional targets for 2014 and the fi xing of bonuses for members of the Board of Management, and consulted external sources in its assessment of the appropriateness and structure of remuneration for the Board of Management. In addition, at its meeting on 13 November 2013, the Supervisory Board was informed about the structure of remune ration systems within the Group as required by § 3 Para. 5 of the German Regulation on Remuneration in the Insurance Sector (Versicherungs-Vergütungsverordnung). The fi xed remuneration of fi ve members of the Board of Management was also reviewed as at 1 January 2014, whereby horizontal and vertical aspects of remuneration and remuneration concepts were used for comparison and guidance purposes. The issue of the appropriateness of the remuneration system for Group mana gers was discussed at Supervisory Board meetings on 20 March 2013 and 14 May 2013.

Transactions and measures requiring approval in accordance with legal requirements, the company's Articles of Association and its Rules of Procedure were agreed with the Board of Management following examination and discussion.

WORK OF THE COMMITTEES

The Supervisory Board has set up various committees to enable it to perform its duties effi ciently: the Finance and Audit Committee, which has fi ve members, the Personnel Committee and the Standing Committee, each of which has four members, and the Nomination Committee with three members. The possibility of adding an extra member to the Finance and Audit Committee and to the Personnel Committee was discussed but ultimately rejected. The committees prepare for discussions and the adoption of resolutions by the full Supervisory Board. They also have the authority to pass their own resolutions. Minutes of meetings of the Finance and Audit Committee and the Personnel Committee are also made available to members of the Supervisory Board who do not belong to these committees. The composition of these committees can be found on page 8 of the Annual Report.

Along with preparations for discussion and adoption of resolutions by the full Supervisory Board, the Finance and Audit Committee also carried out in-depth reviews of the quarterly fi nancial statements of the company and the Group. Furthermore, the Finance and Audit Committee received a report from the Board of Management on a possible second listing for the company on the Warsaw Stock Exchange, discussed the fi ndings of an actuarial audit of the net claims reserves for non-life insurance business within the Talanx Group, together with profi tability trends at individual Group companies as at 31 December 2012, and considered the internal control system, risk reports and annual reports by Internal Auditing and the Chief Compliance Offi cer. We also received reports from KPMG on the situation with regard to succession planning in audit management and on trends in the insurance sector as part of a client service review, and discussed KPMG's fi ndings from a status analysis commissioned by the committee regarding risk management and the internal control system in accordance with the Minimum Requirements for Risk Management in Insurance Undertakings (MaRisk VA) at the Talanx Group.

The Personnel Committee – along with preparations for discussion and adoption of resolutions by the full Supervisory Board – set targets for individual members of the Board of Management for the 2014 fi nancial year and gave its permission for a company in which a member of the Supervisory Board holds a stake of 27.9% to provide advisory services to companies in the Talanx Group. Recommendations were also made to the full Supervisory Board with regard to setting bonuses and reviewing fi xed remuneration for members of the Board of Management.

The Nomination Committee met on 15 January 2013 and made recommendations regarding nominations for re-election of the shareholder representatives on the Supervisory Board at the Annual General Meeting on 6 May 2013; the recommendations aim to ensure that the composition of the Supervisory Board is both balanced and diverse.

CORPORATE GOVERNANCE AND DECLARATION OF CONFORMITY

The Supervisory Board again devoted special attention to the issue of Corporate Governance. At its meeting on 13 November 2013, the Supervisory Board dealt with various amendments to the German Corporate Governance Code (DCGK) as refl ected in the version of 13 May 2013 and decided on the limits for the vertical adjustment of remuneration required in accordance with Item 4.2.2 of the Code. The Supervisory Board also received information from the Board of Management about the focal points of human resources work at the Group and the setting up and expansion of diversity management. Intensive discussions took place regarding the fi ndings of an audit investigating the effi ciency of the Supervisory Board's activities, which was conducted in April 2013.

Furthermore, almost all members of the Supervisory Board made use of an internal information session off ered by the company, which looked at the status and development of risk management within the Group. Although the Supervisory Board attaches great importance to high standards of responsible enterprise management as formulated in the German Corporate Governance Code, it has decided against complying with the recommendations of Item 4.2.3 Para. 4 of the Code relating to a severance payment cap in Board of Management employment contracts, Item 5.2 Para. 2 regarding the chairmanship of the Audit Committee and Item 4.2.3 Para. 2 regarding the potential need for maximum limits on the payment of Talanx share awards. The reasons for this are stated in the declaration of conformity in accordance with § 161 AktG on observance of the German Corporate Governance Code, which is published in the Group Annual Report as part of the Declaration on Corporate Governance. Further information on corporate governance can be accessed on Talanx AG's website.

AUDIT OF THE ANNUAL AND CONSOLIDATED FINANCIAL STATEMENTS

KPMG AG, Wirtschaft sprüfungsgesellschaft , Hannover, audited Talanx AG's annual fi nancial statements submitted by the Board of Management, the Talanx Group's fi nancial statements drawn up in accordance with International Financial Reporting Standards (IFRS), together with cor responding Management Reports and accounting records. The auditors were appointed by the General Meeting. The Finance and Audit Committee awarded the specifi c audit mandate and determined that in addition to the usual audit tasks special attention should be given to

1 OPPORTUNITIES SQUARED

• 2 Letter from the Chairman
• 4 Board of Management
• 7 Supervisory Board/Supervisory Board committees

9 Report of the Supervisory Board

12 Stability

14 Growth 20 Integration 26 Effi ciency 32 Profi tability 38 Highlights of 2013

40 The Talanx share

42 COMBINED MANAGEMENT REPORT

reviewing the risk report and the remuneration report, with an additional focus in the annual fi nancial statements on provisions for taxes and in the consolidated fi nancial statements on the calculation of minority interests and the determination of contingent liabilities in accordance with IAS 37. The audit focus points of the German Financial Reporting Enforcement Panel (DPR) also formed the basis for various year-end procedures carried out by the auditors. An audit by the DPR in autumn 2013 did not give rise to any complaints.

The audits conducted by the auditors provided no grounds for objection. The audit reports issued were unqualifi ed and state that the accounting records, annual fi nancial statements and consolidated fi nancial statements give a true and fair view of the assets, fi nancial position and net income, and that the Management Reports suitably refl ect the annual and consolidated fi nancial statements.

The fi nancial statements and the KPMG audit reports were distributed to all members of the Supervisory Board in good time. They were examined in detail at a Finance and Audit Committee meeting on 18 March 2014 and at a Supervisory Board meeting on 19 March 2014. The auditor took part in the Finance and Audit Committee's deliberations and those of the full Supervisory Board regarding the annual and consolidated fi nancial statements, reported on the conduct of the audits, and was available to provide the Supervisory Board with additional information. In accordance with the fi nal outcome of our own examination of the annual fi nancial statements, the consolidated fi nancial statements, corresponding Management Reports and the audit reports, we concurred with the opinion of the auditors and approved the annual and consolidated fi nancial statements drawn up by the Board of Management.

The annual fi nancial statements are thereby adopted. We approve the statements made in the Management Reports regarding further corporate development. Aft er examination of all relevant considerations we agree with the Board of Management's proposal for the appropriation of disposable profi t.

The report on the company's relations with affi liated companies drawn up by the Board of Management in accordance with § 312 of the German Stock Corporation Act has likewise been examined by KPMG Aktiengesellschaft , Wirtschaft sprüfungsgesellschaft , Hannover, and given the following unqualifi ed audit certifi cate:

"Having audited the report in accordance with our professional duties, we confi rm that

• 1. Its factual details are correct,
• 1. In the case of the transactions detailed in the report, the company's expenditure was not unreasonably high."

We have examined the report on relations with affi liated companies. We reached the same conclusion as the auditors and have no objections to the statement reproduced in this report.

COMPOSITION OF THE SUPERVISORY BOARD AND BOARD OF MANAGEMENT

The term in offi ce of the shareholder representatives on the Supervisory Board expired at the end of the Annual General Meeting on 6 May 2013. Shareholder representatives therefore needed to be re-elected to the Super visory Board at the General Meeting in 2013. The meeting confi rmed Ms. Aschendorf, Mr. Baumgartl, Dr. Lindner, Prof. Dr. Rohkamm and Dr. Schipporeit in their offi ce. The General Meeting elected Dr. Jung, Mr. Lohmann and Mr. Steiner as new members of the Supervisory Board, while the contracts of Dr. Petram, Dr. Rogowski and Mr. Wenning expired at the end of the Annual General Meeting on 6 May 2013. The Supervisory Board thanked Dr. Petram, Dr. Rogowski and Mr. Wenning and expressed appreciation for their many years of valued and faithful cooperation.

The newly elected Supervisory Board re-elected Mr. Baumgartl as Chairman of the Supervisory Board. Prof. Dr. Rohkamm was elected as an additional Deputy Chairman of the Supervisory Board, alongside Mr. Rieger as an employee representative.

Furthermore, the Supervisory Board resolved to renew Mr. Wallin's membership of the Board of Management, which expires in 2014. It also resolved to allow Dr. Noth's membership of the company's Board of Management to expire when his term in offi ce ends on 31 May 2014. The Supervisory Board thanked Dr. Noth.

AN EXPRESSION OF THANKS TO THE BOARD OF MANAGEMENT AND STAFF

The positive results of the company and the Group, together with the development of our strategic position, are due to the exceptional performance of the Board of Management and staff . The Supervisory Board would like to give special thanks to the Board of Management and employees for this.

Hannover, 19 March 2014

For the Supervisory Board

Wolf-Dieter Baumgartl (Chairman)

PROFITS EVEN IN YEARS BURDENED BY CATASTROPHES

GROUP NET INCOME IN EUR MILLION

STRONG SOLVENCY POSITION

SOLVENCY I CAPITAL BASE IN EUR BILLION

DIVERSIFIED BUSINESS PORTFOLIO

GROSS WRITTEN PREMIUM BY DIVISION IN %

ONE OF THE LARGEST INSURANCE GROUPS IN GERMANY AND EUROPE

BASED ON GROSS PREMIUM FOR 2012 IN EUR BILLION

TOP 10 EUROPEAN INSURERS

TOP 5 GERMAN INSURERS
-----------------------	--

RANK 1	99.2
RANK 2	84.6
RANK 3	69.6
RANK 4	52.0
RANK 5	39.9
RANK 6	36.9
RANK 7	28.0
RANK 8	26.7
RANK 9	26.4
RANK 10	24.7

RANK 1	99.2
RANK 2	52.0
RANK 3	26.7
RANK 4	11.9
RANK 5	9.3

We are proud to be regarded as a stable group, and consciously cultivate this image with an investment policy that seeks peace of mind rather than an adrenalin rush and with risk managers who take "conservative" as a compliment. If nothing else, a look at our Group net income will show you that if you're confusing stability with boredom, you haven't understood Talanx's success story.

A BALANCED AND LOW-RISK INVESTMENT PORTFOLIO

FIXED-INCOME SECURITIES BY RATING CLASS IN %

STABLE RATING

THE TALANX GROUP SIGNIFICANTLY EXPANDS ITS GLOBAL PRESENCE

DRIVERS OF GROWTH

LONG-TERM GROWTH IN GROSS PREMIUM

IN EUR BILLION

There are unlikely to be many capital market-oriented companies that do not want to grow. The really interesting question when it comes to growth is therefore not "if" but "how". Our response is: with ambition, but not without sense. Flexibly, but by no means at random. Even today, it goes without saying that successful, focused growth will in future be inextricably linked to the name Talanx.

HIGH-GROWTH LINES IN OUR DIVISIONS

INCREASING INTERNATIONALISATION OF THE PRIMARY INSURANCE BUSINESS

REGIONAL DISTRIBUTION OF GROSS PREMIUM IN %

MANAMA/BAHRAIN FLYING HIGH IN THE PERSIAN GULF

SKYSCRAPERS IN THE GULF REGION ARE CONTINUALLY BREAKING NEW RECORDS. SO IS ECONOMIC GROWTH. TALANX STRENGTHENED ITS POSITION ON THE LOCAL MARKET IN 2013 – BECAUSE THERE IS REAL DEMAND FOR EXPERIENCE, QUALITY AND PROXIMITY TO CUSTOMERS.

It's a quarter to fi ve in Manama, the capital of Bahrain – time for a short break. Chittadath Viswaprasad stands at the window of his offi ce on the 16th fl oor of Al Zamil Tower, sipping a cup of green tea and letting his gaze wander. The Persian Gulf sparkles in the background as the sun sets. Fishing boats are leaving the harbour, as they have done since time immemorial. In the foreground a new chapter in the small kingdom's history has long begun. The 240-metre towers of the Bahrain World Trade Center soar into the sky above the capital like two gigantic sails. An artifi cial peninsula stretches into the sea behind them, where work on the next generation of skyscrapers is busily underway. Bahrain's economy is growing, and with it the island itself.

Viswaprasad is Managing Director of HDI-Gerling Industrie Versicherung AG in Bahrain. The 53-year-old, whose colleagues simply call him "Prasad", loves Manama Bay for its mixture of tradition and progress. Yet when he allows his gaze to roam over the view from the window, his thoughts are oft en far beyond the horizon.

In Saudi Arabia, for example, where the company supports one of the largest dairy farms in the region with 15% of the sum insured and in Jeddah, where the fi rst spadeful of earth was recently turned for construction of the largest skyscraper in the world. The "Kingdom Tower" is expected to be completed in 2018 – height: 1,007 metres, cost: USD 1.2 billion. HDI-Gerling industrial insurance and Hannover Re together cover 12.6% of the sum insured. Or in Kuwait, where a petrochemical plant is under construction, cost: EUR 8 billion, 3% of which is reinsured by HDI-Gerling industrial insurance. These mega projects illustrate this Talanx Group company's successful start on the Arabian Peninsula. The Bahrain branch began operating in December 2012. A year later, its premium volume already stands at EUR 8.2 million.

Part of Talanx's strategy is to take its divisions, such as Industrial Lines in this case, into new regions and cooperate with Group companies that already have a local presence in order to benefi t from synergies. One of the reasons for HDI-Gerling industrial insurance's quick launch in the Gulf region can be found a few fl oors below the offi ces

Bahrain's capital Manama is full of contrasts.

shared by Prasad and his team of seven in the Al Zamil Tower. Hannover Retakaful, which has been active in the region since 2006, has its head offi ce there. "We didn't even have a bank account when we moved into our offi ces," Prasad says. "Our colleagues supported us with help and advice on many issues during the hectic initial phase." What began as neighbourly help has now blossomed into fruitful cooperation between two equal partners. There is very little competition between the two sister companies – at least in the Gulf region – as there is rarely any overlap between their areas of business. Hannover Re generates a large proportion of its business through classic reinsurance, known as treaty business – including in the area of life insurance. In contrast, HDI-Gerling focuses on industrial insurance on a larger scale and underwrites risks through facultative reinsurance.

in an Arabian market.

VEGETABLES AND GOLD JEWELLERY

• ¡ In the shadow of Manama's modern business district lies the souk, the market district
• ¡ In the sprawling labyrinth of streets and alleys, you can buy everything from dried fruit to television sets
• ¡ Chai and coca cola, kaft ans and jeans, shishas and sunglasses: at the souk, Oriental and Western culture can be found side by side

ON SITE Prasad and Ravi visit a chemical factory.

A recent example of cooperation: the "Kingdom Tower" project in Saudi Arabia where HDI-Gerling and Hannover Re are both involved. "We were able to make use of synergies," says Prasad. He says they want to make their cooperation even more eff ective in future, "so that one plus one makes three."

The decision to open an HDI-Gerling branch in Bahrain was signifi cant, as the country has been regarded for many years as the Gulf region's most important fi nancial centre. Job security and – unlike in Dubai – moderate living costs are attracting workers from all over the world. Furthermore, diff erent religions and cultures exist amicably side by side. The Al-Fatih mosque, one of the world's largest Muslim places of prayer, off ers space for 7,000 worshippers. However, secular life is just as present in the streets as religious life.

The proportion of residents not originally from the country is nearly 50%. "There's an atmosphere of tolerance," says Prasad, who was born in India and has lived in Bahrain since 2003. Liberal market laws, consistent regulatory law, a lack of complicated bureaucracy and an education system that produces large numbers of highly qualifi ed local workers: there are many reasons why Bahrain is a suitable location for companies wanting to become active in the region.

The markets are growing. It is estimated that the six states of the Gulf Cooperation Council (GCC), Bahrain, Saudi Arabia, Kuwait, Qatar, the United Arab Emirates and Oman, achieved gross domestic product of around USD 1.5 trillion in 2013. Assuming that current growth rates continue, this could rise to over USD 2 trillion in ten years. This is more or less the current gross domestic product of Brazil – with a population less than a quarter of the size. At the same time, the boom is an indicator of a fundamental change.

The oil that is the basis of the region's wealth will not keep fl owing forever. Considerable sums have therefore been poured for some time into a radical reorganisation of the economy, away from oil and gas towards manufacturing, fi nancial services and tourism. The transition has

FACULTATIVE REINSUR-ANCE – UNDERWRI T-ING INDIVIDUAL RISKS

Whether it's the 632-metre "Shanghai Tower", the 828-metre "Burj Khalifa" in Dubai or the "Kingdom Tower" currently under construction in Jeddah in Saudi Arabia and the fi rst to pass the kilometre mark, some construction projects are not only beyond the capacity of an insurance policy, but also exceed the volume of risk that an individual reinsurer is prepared to bear.

This is where facultative reinsu rance comes in. Unlike obligatory rein su rance, where a reinsurer takes on large portfolios from a primary insurer without being able to examine them in detail, facultative rein su rance allows individual risks to be negotiated. The reinsurer decides whether to cover a risk and under what conditions. Close and trusting collaboration between the policyholder, primary insurer and reinsurer is vital to prevent protracted negotiations from delaying an agreement.

been supported by massive investment in infrastructure. In the Emirate of Abu Dhabi, for example, an eco-city is being created that will be supplied entirely with renewable energy. A rail track of 2,200 kilometres will connect all six GCC countries from 2018. Roads, underground railways, universities, hospitals, electricity and water supplies – the journal "Middle East Economic Digest" anticipates construction projects worth a total of USD 2 trillion in the GCC states.

"Where growth is accelerating at this rate, it needs to be looked at by experienced insurers," says Prasad. "Whether it's fi re, marine, machinery damage or delays with construction projects, we'll calculate each risk down to the last detail." This strategy is particularly important in the GCC countries, where the majority of all construction insurance policies are reinsured. This is because very few local primary insurers have the expertise required for a reliable assessment of the complex risks involved in such mega projects. The local direct insurers approach insurers like HDI Gerling for proper evaluation of risk, setting up of terms and for providing continuous risk management services during the life cycle of the construction phase. This helps to reduce the possibility of fortuitous incidents and to mitigate the extent of loss if an unfortunate accident does take place and thus minimise the economic loss.

» Where growth is accelerating at this rate, it needs to be looked at by experienced insu rers.« SAYS PRASAD

HDI-Gerling industrial insurance is ideally placed to fulfi l the role of lead underwriter to ensure discipline in the GCC countries' insurance market, as the company has the power

AL ZAMIL TOWER The head offi ce of HDI-Gerling and Hannover Re.

of a global corporation that is not seeking business at any price. "We discuss risks with customers," Prasad explains. The aim is to detect and close any gaps in security that could be lurking to avoid untoward accidents. This is possible in Bahrain because HDI-Gerling industrial insu rance can offer local exper tise backed by experts. For example, there's Kuppuswamy Ravi, the 64-year-old risk engineer who has worked in insurance for 40 years in India and southwestern Asia and has a broad and diverse network in all six GCC states.

Ravi's observations on various risk exposures are translated into fi gures – which risk at what price? – by his colleague Shanmugasundaram Selvaraj in the Bahrain offi ce. Selvaraj, a 58-year-old underwriter, has three decades of expe rience in industrial insurance. "When the two of them are with me, we have over 100 years' professional experience in my offi ce," grins Prasad. He knows that even that is sometimes not enough. "In those cases, we seek advice from colleagues all over the world." Over 150 risk specialists work for HDI-Gerling industrial insurance worldwide.

» We discuss risks with customers.« SAYS PRASAD

It is now dark. Prasad shuts down his computer. The construction sites in Bahrain Bay are already still. Tomorrow morning they will resume their work, and Prasad and his team will be needed again. And beyond the horizon, the construction of the "Kingdom Tower" in Saudi Arabia is once again breaking all records. The foundations have been dug up to 110 metres deep. When it is completed, the tower will encompass 530,000 square metres of space on 167 fl oors. 59 lift s, including fi ve "double deckers" that serve two fl oors at a time, will accelerate to ten metres per second. The time taken to go from the fi rst fl oor to the top fl oor will be one minute and 40 seconds. This is new territory for both engineers and insurers. Prasad sees it with experienced eyes: "One lot build a tower a kilometre high. The others assess the risk of a tool falling from the 167th fl oor," he says. "Both are just a question of correct calculation."

SUCCESSFUL INTEGRATION

A PLATFORM FOR STRONG BRANDS

DISTRIBUTION CHANNELS WITH A WIDE COVERAGE

One for all and all for one – and everyone under one roof. Our business model lives off reciprocal growth impulses and the transfer of knowledge and synergies between divisions. Moreover, " every one" is a very dynamic quantity at Talanx, as a look at our successful M&A record for the last few years will show. And there's still plenty of space under our roof.

HIGH LEVEL OF INTEGRATION OF ALL TALANX DIVISIONS

A SUCCESSFUL MERGER Juan Suárez, CEO of HDI Seguros Mexico.

GUADALAJARA/MEXICO IN THE FAST LANE

Mexico, gets called out to assess damage to cars' bodywork.

THE MOTOR INSURANCE COMPANY METROPOLITANA HAS BEEN PART OF THE TALANX GROUP SINCE 2011. THIS FORMER COMPETITOR IS NOW WELL INTEGRATED INTO HDI SEGU ROS IN MEXICO. THE TWO ENTITIES HAVE TOGETHER BECOME A POWERFUL COMPANY.

It's Monday morning in Guadalajara. Rush hour has just begun in this metropolis with a population of 1.5 million inhabitants when Aldo Ramírez's smartphone shows a new message: "Collision on Avenida Vallarta. No one injured." The 40-year-old accident investigator at HDI Seguros Mexico abandons his coff ee and jumps into his car. 20 minutes later he reaches the scene of the accident, and fi rst of all makes sure that there are defi nitely no casualties. Then he begins documenting the collision in detail. What happened? What damage has been caused? And most importantly, who is to blame? Aldo Ramírez talks to those involved and inspects and photographs the damaged vehicles. He is unruffl ed by the commuter traffi c pushing past him on the six-lane Avenida Vallarta thoroughfare with horns blaring.

14 experts are on the road for HDI Seguros in Guadalajara alone, fi ve of them with motorbikes. Oft en this is the only way the experts can squeeze through the dense traffi c and reach the scene of a crash "within 30 minutes". A promise that HDI Seguros can keep, with over 300 surveyors in Mexico's 35 largest cities. In rural areas, the car insurer can make use of independent accident investigators, who can reach the scene of an accident within 90 minutes. It's an important network. Unlike what we are used to in Germany, the police in Mexico do not always attend the scene of a crash to establish who is to blame. If there is any damage to cars, this falls to the in surance companies' inspectors. Only if it cannot be established with certainty who is to blame will police offi cers come out. Furthermore, only 28% of the approximately 35 million cars in the country are insured, so many drivers prefer to overlook minor dents. Their tendency to also ignore more serious damage that they have caused makes the use of accident investigators vital. These are difficult conditions for motor insurers to operate in.

Pronto employee in León.

"Under these circumstances, it was impor tant for us to grow as a company," says Juan Carlos Suárez. The CEO of HDI Seguros, based in León, Mexico, two and a half hours east of Guadalajara, looks back proudly on a successful coup: in 2011, Talanx International AG acquired "Metropolitana" and merged it with its subsidiary HDI Seguros. The two companies together became the country's tenth-largest car insurance provider. Having previously insured 200,000 vehicles, HDI Seguros now insures 480,000, while the number of employees has doubled to arround 900 nationwide. "But growth isn't an end in itself," says Suárez. He explains that the acquisition was necessary to improve service and thus strengthen the company's position in the market.

AN IDEAL LOCATION HDI Seguros Mexico's head offi ce in León.

23

This morning in Guadalajara, it becomes clear what Juan Carlos Suárez means. The driver responsible for the accident on Avenida Vallarta is a customer of HDI Seguros. He stopped paying attention for a moment and, in the dense commuter traffi c, crashed into the back of the car in front. At fi rst glance only the cars' bumpers appear to be dented, but Aldo Ramírez, a trained car mechanic, soon notices that the crash has also damaged the air conditioning system. He has the car towed to the nearest "Auto Pronto", a car repair shop that works exclusively for HDI Seguros. The group already has ten of these authorised repair shops in Mexico, and a further ten are to be added by the end of 2014.

» We held long discussions about corporate culture and fi nancial targets before the takeover. It was important that we were compatible.« SAYS SUÁREZ

"Three-quarters of all repairs will then be carried out in an Auto Pronto", says CEO Suárez. He highlights that this service is important, as not every repair shop in Mexico does a good job. HDI Seguros also expects its partnership with the repair shops to cut repair costs by 20%. The service has become possible because HDI Seguros has been able to supply a growing number of "Auto Prontos" with repair orders since the merger. The

A TEST OF PATIENCE A traffi c jam in Guadalajara.

insurer is working on building up a network of independent repair shops in rural areas, so that it can also guarantee the quality and speed of repairs in these regions. "Service is our top priority," Suárez says.

Increasing market share to improve service: this sounds simple, but a lot of thought is going into the plan's implementation. "We didn't just purchase a company at random," Juan Carlos Suárez explains. "We held long discussions about corporate culture and fi nancial targets before the takeover. It was important that we were compatible." This is not something that can be taken for granted. Aft er all, a family business from Mexico City had to be merged with a Talanx subsidiary based in León. "With two companies as diff erent as these, you can't just buy new door plates," Juan Carlos Suárez says. His strategy is to talk to each other, listen to each other and respond quickly if any confusion arises. "Many employees were afraid that the merger would lead to redundancies," says Suárez. "But we were able to allay these fears." In addition, many former Metropolitana employees who had to relocate to León, 400 kilometres to the north-west, were not keen at fi rst. Very few people voluntarily leave the vibrant megacity. "But if you live in León, you'll quickly start to see the advantages," says Suárez. In contrast to Mexico City, León has only 1.6 million inhabi tants, which means shorter distances, more relaxed traffi c, a lot of green; in short, an environment worth living. Suárez admits that the capital has more to off er, but points out that it is diffi cult to enjoy much of it, as the distances are so great.

» Our people are proud to be part of the HDI family.« SAYS SUÁREZ

The most important thing, he explains, was that the companies were in agreement on the key points from the beginning. "We both want to be a fair employer." The company helped employees who had to relocate to León with their search for accommodation, schools, nursery schools and with moving house. All new employees received training to prepare them for changes in working procedures.

HDI SEGUROS MEXICO – MORE THAN MOTOR INSURANCE

Talanx has expanded its business in Latin America in recent years through a series of acquisitions. Besides Mexico, the Group now has subsid ia ries representing it in Brazil, Chile, Argentina and Uruguay, drawing on the experience of established local companies in each case. It entered the Mexican market in 2009 by acquiring "Genworth Seguros" (previously "Se guros del Centro"), – later HDI Se guros, an insurance company founded in 1943.

Following the latest merger it might seem that HDI Seguros Mexico is all about motor insurance, but the Leónbased company also off ers a range of other types of insurance, including accident insurance. The "Seguro Casa-Habitación" protects families against all main risks, whether fi re or fl ooding. The "Seguros Empresariales" offers companies individually tailored solutions cove ring all damage that can adversely aff ect business. " Seguro de Accidentes Escolares" covers all acci dents that can occur on the way to school, at school or at school events. This insurance includes protection for pupils, teachers and administrative staff .

A look at the company's head offi ce in León shows that HDI Seguros has succeeded in securing the loyalty of its employees. Newer and more junior employees sit alongside many experienced colleagues who have been with the company for more than ten years; one of whom will soon be celebrating his 35th anniversary. For HDI Seguros, success goes hand in hand with involvement in the community. For example, the company fi nances courses in "road safety" at schools and universities. And, on Epiphany, all employees collect toys for an orphanage. "Our people are proud to be part of the HDI family," according to Juan Carlos Suárez.

A RELIABLE PARTNER

Ten Auto Pronto authorised repair shops work exclusively for HDI Seguros Mexico, and a further ten will be added by the end of 2014. The cooperation off ers many advantages, such as quick delivery of spare parts, professional work and lower repair costs: The advantages of cooperation are manifold.

The car that was involved in the accident on Avenida Vallarta has now arrived at the Guadalajara branch of Auto Pronto. The mechanics estimate that it will take no more than fi ve days to repair the air conditioning system. In Mexico, where there is a chronic shortage of spare parts, this could be a new record. "Our repair shops get parts delivered relatively quickly," says accident investigator Aldo Ramírez. About half of around 120,000 insurance claims processed by HDI Seguros each year result in repairs at the repair shop. These fi gures help tighten relationships with suppliers, which has a positive eff ect on delivery speeds.

"But that's in no way the only advantage of the merger," says Juan Carlos Suárez. HDI Seguros expects a better and faster service. In particular, the company has been able to strengthen its position through synergies. The acquisition of Metropolitana has opened up new areas of business to HDI Seguros, such as a partnership with around 40 authorised dealers in Mexico City and the provision of insurance for VW's entire leasing fl eet. The move promises new opportunities on a market that is only beginning to recover from the crisis. The number of new cars sold each year has remained constant for years at one million.

It's evening when Aldo Ramírez returns to his offi ce. He has visited the scenes of fi ve accidents and processed five cases. The crash on Avenida Vallarta was followed by four more accidents, each of which involved up to three vehicles. Aldo Ramírez opens the door to his offi ce. His full coff ee cup from that morning is still where he left it. It's just a normal day in Guadalajara.

QUALITY WORK Repairs at an Auto Pronto workshop in Guadalajara.

ADMINISTRATIVE EXPENSES IN BANCASSURANCE LOWER THAN IN THE SECTOR IN %

2012, IN % HIGH DEGREE OF AUTOMATION IN BANCASSURANCE

42 DEGREE OF AUTOMATION IN

86 PROPORTION OF DIRECT INSURANCE POLICIES

COST LEADERSHIP IN

REINSURANCE

EXPENSES FOR INSURANCE BUSINESS IN %

The key to effi ciency is above all the ability to know when to let go. We live in a culture where trust has replaced control and responsibility has been decentralised as far as possible. We also supplement our own strengths in a targeted way with professional partners. Our administrative expense ratios clearly show that trust pays off in the long term.

A VARIETY OF DISTRIBUTION CHANNELS

MARKET LEADER IN EMPLOYEE AFFINITY BUSINESS

28 OUT OF 30 DAX-LISTED COMPANIES

TIED AGENTS

2012, IN %

7

7 COOPERATIONS 23 INTERMEDIARIES/ BROKERS

63 BANCASSURANCE

HILDEN/GERMANY BUILDING BRIDGES TO CUSTOMERS

THE TALANX GROUP HAS ESTABLISHED ONE OF THE LARGEST BANCASSURANCE NETWORKS IN GERMANY. THE STRANDS OF ITS HIGHLY EFFICIENT ALLIANCE WITH TWO BANKING PARTNERS CONVERGE IN HILDEN IN NORTH RHINE-WESTPHALIA.

DIALOGUE WITH CUSTOMERS Queries for the back offi ce are processed as quickly as possible.

4,000 letters are digitised every day TEAMWORK All cases are processed in the back offi ce.

Hilden has always been somewhat overshadowed by famous cities nearby such as Düsseldorf or Cologne, but that is of little consequence to its inhabitants, who have long been aware of the advantages the location off ers. It is precisely because other towns are standing in the spotlight that Hilden enjoys optimal road and local rail connections in all directions.

If networking is regarded as a major strength, then this town on the river Itter is just the right place for Talanx's bancassurance business, which is headquartered here. Together with its partners TARGOBANK, Postbank and Sparkasse savings institutions, it represents one of Germany's largest and most successful bank insurance networks. While 7,500 branches and numerous other agencies sell insurance from Talanx companies that blends perfectly with their brand family, in the background, the diff erent strands converge at the insurers, at both neue leben in Hamburg (see box on page 30), and in Hamelin and Hilden. The two bancassurance sections in Hilden, with around 490 employees, are joined together by a glass passageway. It is as if the structure em phasises what is most important, namely, building bridges between insurers, cooperation partners and their customers. In 2013, TARGO, PB insurers and neue leben generated around EUR 3.1 billion in premium income.

Björn Kniffi , Head of Marketing and Sales Support at TARGO Lebensversicherung AG, believes that bancassurance is the perfect mix of proximity to the customer and effi cient management. He has worked in insurance for 18 years, and says that of all the areas he has been involved in during this period, it is bancassurance that fascinates him most, "because of the ideal division of labour". On the one hand, the insurer can concentrate completely on its own competencies, while on the other hand, the bank off ers an optimal distribution structure. He explains that customers know that, at their local bank, their money is well looked aft er, and so it is entirely natural that security and pension issues should also be discussed there. A good bank advisor will be familiar with the fi nancial situation of the customer, and with their plans and wishes. "That makes the advisor the ideal point of contact for insurance matters." Although there are German bancassurance alliances where the insurers' employees work in the branches,, Talanx companies use their banking partners' own employees. "In return, we provide the training for the branch employees," explains Kniffk i.

» Bancassurance is the perfect mix of proximity to the customer and effi cient management.« SAYS BJÖRN KNIFFKI

The fact is that, with both insurance partners in Hilden located under one roof, they can capture synergies while retaining their independence as far as possible. A joint back offi ce takes care of administrative matters, whilst product development and sales and marketing are organised independently – tailored to the individual customer structure of each bank. "As we process the customer requests of both sales divisions in one back offi ce, we can be highly effi cient in developing processes and procedures, as each process only needs to be designed and created once," explains Achim Cramer, head of Hilden's back offi ce. Last

CLOSE COLLABORATION Björn Kniff ki talking to Achim Cramer (right).

year, for example, TARGO life insurance introduced the "lifestyle protector". This new product aims to secure the livelihood of the insured in the event of incapacity – not as com pre hensively as an occupational disability insurance, but with the advantage of lower premiums. "Many people are either unable or unwilling to take out occupational disability insurance," explains Kniffk i, "So we've developed a product that meets their requirements." No matter whether a product is designed to protect or provide, when it comes to deciding whether it is still appropriate or in need of updating, the insurance company and bank work together as equals. "In this way we benefi t mutually from our expertise and experience," explains Björn Kniffk i. He does not see fi rm ties with a bank's customer base as a restriction. "If you know your target group, then you can create tailor-made products, and being close to the customer becomes an advantage."

» By processing the customer requests of both sales divisions in one back offi ce, we can be highly effi cient.« SAYS ACHIM CRAMER

In Germany, the potential in bancassurance is far from being exhausted. In Italy, Spain and France, up to three quarters of all retirement provision policies are sold by banks, but in Germany, only one in three or four policies are bought over the bank counter. The proportion of life insurance treaties concluded in banks has levelled off at around 30%. Björn Kniffk i remains confi dent, explaining that Germany has a long tradition of selling products through brokers and that a new form of competition has emerged recently with the introduction of direct selling. Bancassurance has chosen a diff erent route by using existing sales networks and developing reasonably priced products tailored to the target group, while coordinating everything under one roof. The success of this strategy is evidenced by the fact that Talanx bancassurance new business and administration expenses are below the market average.

NEUE LEBEN: A STRONG PARTNER FOR SAVINGS BANKS

Talanx's bancassurance division not only has offi ces in Hilden and Hamlin, but also in Hamburg. The neue leben insurers have their head offi ce in the Hanseatic city. This provision specialist for Sparkasse savings banks was founded in 1965 as a subsidiary of today's Hamburger Sparkasse. Talanx AG acquired a ma jo rity stake in the company in 2004.

neue leben now cooperates with over 100 savings banks nationwide, including 12 out of Germany's 15 largest. "Savings banks are strongly rooted in their region and know exactly what their customers' needs are," explains Hans-Jürgen Löckener, Chairman of the Board of Management of neue leben Lebensver sicherung AG. "The individual institutions have diff erent needs, depending on their size and region." neue leben therefore carries out regular surveys among savings banks to ensure they are satisfied. "This enables us to maintain a close relationship with our partners, and the results show us that we're on the right track," says Hans-Jürgen Löckener.

Furthermore, independent rating agencies regularly confi rm that the products and companies are of high quality. With solid investments, low administrative expenses and a surplus participation that is above average for the sector, neue leben continues to be a reliable and effi cient partner for customers and savings banks.

A look at the highly automated back offi ce in Hilden, where TARGO and PB insurers' portfolios are managed, reveals just how effi ciently the system functions. Most

A LOOK AT THE HISTORY OF TALANX'S BANCASSURANCE BUSINESS

• ¡ 1995: Talanx acquires the precursor of TARGO Versicherung AG
• ¡ 1998: It founds PB insurers together with Postbank
• ¡ 2002: The Magyar Posta insurance company is founded with the Hunga rian post offi ce
• ¡ 2004: Talanx AG acquires a majority stake in neue leben Holding AG
• ¡ 2007: It acquires the former BHW Leben and BHW Pensionskasse

transactions from bank branches are sent to staff electronically – the direct policy issuance ratio is 86%. At the same time, the mailroom handles around 4,000 items of customer correspondence every day, they are scanned by three members of staff into the IT system. "It makes no diff erence whether a TARGO or PB insurer transaction is involved," Achim Cramer explains, "each sales partner and customer gets the same level of service."

Around 40% of transactions are processed automatically, including items as diverse as cancellations or changes of bank details. Then, when technology reaches its limit, staff take over. There are around 120 employees in the Hilden back office, and a further 65 in Hamelin. However, not every member of staff can deal with any issue. Staff are prepared for imminent surges in enquiries through targeted training courses. "Before introducing a new product such as the 'lifestyle protector', we aim to foresee issues that may crop up and the skills we will need to deal with them," explains Achim Cramer. When planning

SPANNING BRIDGES The head offi ce of Talanx's bancassurance activities in Hilden.

training it is important to be able to forecast upcoming work as accurately as possible; by using sophisticated statistical evaluation this can be done up to 16 months in advance. "When the work then materialises we can be sure, fi rstly, that enough staff have the necessary skills and, secondly, that staff are only given tasks for which they have been trained." The aim is to provide top quality service that is fast and trouble-free. Indeed, maintaining this ambitious level of service is a key aspect of back offi ce organisation.

» If you know your target group, you can create tailor made products.« EXPLAINS BJÖRN KNIFFKI

Achim Cramer explains that in the event of a claim, the customer generally receives the money within seven days, and that policies are issued against applications within 24 hours. To motivate staff to meet the set targets, variable remuneration has been introduced that takes into account both quantitative and qualitative elements. Staff receive a fi nancial bonus at the end of the year, provided that agreed service levels and quality targets have been met. This incentive is bearing fruit. The testing organisation TÜV Rheinland has accredited Talanx bancassurance's customer service, quality management and sales support under ISO 9001. Björn Kniffk i and Achim Cramer maintain that it is good cooperation between back offi ce and marketing that has led to this great success.

At joint meetings, delegates from TARGO and PB insurers and neue leben come together in a spirit of trust and partnership. "Blue, yellow and red parties set out their views", says Björn Kniffk i, referring to the colours of the company logos. The Talanx Group's bancassurance business makes it abundantly clear how interconnection leads to effi ciency. And so does Hilden on the Itter; no city like Cologne or Düsseldorf. More one like both.

HIGH PROFITABILITY COMPARED WITH OTHER COMPANIES IN THE SECTOR

AVERAGE RETURN ON EQUITY FROM 2008 TO 2012 IN %

IN % FOR 2012 ABOVE-AVERAGE DIVIDEND YIELD

	8.3		4.9
PEER GROUP	5.0	DAX	2.8
		MDAX	2.9

PEER GROUP: THE 20 LARGEST EUROPEAN INSURANCE GROUPS IN TERMS OF GROSS WRITTEN PREMIUM.

CLEAR TARGETS FOR COMBINED RATIOS

IN % ATTRACTIVE NET RETURN ON INVESTMENT

POSITIVE CONTRIBUTION TO EARNINGS

FROM ALL DIVISIONS

OPERATING PROFIT (EBIT) IN EUR MILLION

If business studies were reduced to a single maxim, it would probably be: you should get something back at the end. In the specifi c case of Talanx, ideally this is more than the average for the 20 largest European insurance companies. Our strategy is to invest cleverly and spend with discipline – ensuring we remain in the black even after years with a high volume of losses.

AMBITIOUS TARGETS FOR RETURNS

ORLANDO/USA TAKING THE LEAD WITH VISION

WITHIN THE SPACE OF JUST A FEW DECADES, HLR AMERICA HAS BECOME ONE OF THE USA'S MOST PROFITABLE LIFE AND HEALTH REINSURERS. AS WELL AS COVERING LIFE AND HEALTH INSURANCE, THE COMPANY FOCUSES ON FINANCIAL SOLUTIONS – WITH CONSIDERABLE SUCCESS.

A LOOK AT THE FIGURES Curt Hagelman, Senior Vice President and Chief Marketing Offi cer of HLR America.

Orlando in the US state of Florida is not exactly the kind of place where you would expect to fi nd one of the largest life and health reinsurers in the USA. The city is more closely associated with tourism than with big business. "Walt Disney World", "Sea World", "Universal Studios": around 20 theme parks draw many millions of tourists to Orlando every year. The permanent beach weather also plays a part, ensuring there is no month in which Florida's beaches are left deserted.

Even the centre of Orlando does not resemble a typical US business district. Universities and the burgeoning IT sector attract students and career starters. Bars and restaurants in the central "Church District" are full of young people in the evenings. Over their heads towers the "Suntrust Center", Orlando's highest building at 134 metres. Hannover Life Reassurance Company of America (HLR America), one of the USA's largest life and health reinsurers, has been based on the 18th and 19th fl oors of this building for about a year. 125 employees of the Hannover Re subsidiary work here, with over 140 more

SUCCESS IN A DIFFICULT MARKET Ruquayya Qawiyy, Executive Assistant, talking to her colleague Gerald Plummer.

based in Denver/Colorado, Charlotte/North Carolina – and also in New York, the dream location of every global corporation – or is it? Curt Hagelman chuckles. The Senior Vice President and Chief Marketing Offi cer, like all his colleagues at HLR Ame rica, regards Orlando as New York's equal when it comes to big business: "Reliability is a core value in our industry," Hagelman em phasises.

» Reliability is a core value in our industry.« SAYS CURT HAGELMAN

And the company already had its head offi ce in Orlando before it was acquired by Hannover Re in 1990. "The skyscrapers of Manhattan might off er a better panorama than the Suntrust Center. But it's not the view from the window that matters in our business – it's the insight we get from studies and statistics," says Curt Hagelman, who has worked in insu r ance since 1978. He gained experience as an underwriting and actuarial mana ger for many years before taking over

WORKING IN THE "SUNSHINE STATE" Downtown Orlando is about an hour's drive from the beach.

responsibility for HLR America's marketing de partment.

The reinsurance business functions according to the law of big numbers. Rein surers cover insurance portfolios for primary insurers, oft en with tens of thousands of policy holders. The reinsurer is confi dent that it will earn more in the coming decades from the portfolio it has taken over than it will have to pay out. If everything goes as predicted, the plans will work out. If an un-

» The successful company will be the one with a better forecast.« SAYS CURT HAGELMAN

expectedly high number of me dical claims, cancellations or deaths occur, it will have to pay up. "The successful company will be the one with a better forecast," says Hagelman. "Which means the one with better data available and better people to calculate risks".

It's a complex business, in which HLR America has worked its way up from being a challenger to joining the ranks of the major players. Aft er entering the US market in 1990, the Hannover Re subsidiary, which at that time still operated under the name Reassurance Company of Hannover (RCH), was mainly involved in reinsuring substandard risks and in-

Romero in her offi ce.

SOCIAL RESPONSIBILITY

• ¡ In 2013, HLR America supported the American Cancer Society (ACS), which is involved in cancer research and care for cancer patients, along with other social initiatives.
• ¡ USD 38,000 alone was collected from the "Jeans-to-Work" scheme, where employees are invited to wear their jeans to the offi ce each day in exchange for a donation of USD 20 from their monthly salary.

dividual risks in international life business. With a customer base of 20 companies and a licence only for the south-eastern US states, it was a relatively small company.

Only aft er the company began to underwrite life insurance in the senior market as a niche business in 1994 did the fi gures tentatively start to rise. Business really took off aft er the turn of the millennium, when HLR America began focusing on fi nancial solutions as well as life and health reinsu rance. Between 2005 and 2013, gross pre mium rose from USD 645 million to USD 2.5 billion. Client awareness in the market has also grown. In 2013, the market research institute "Flaspöhler" awarded the company the title #3 "best reinsurer in the US" (up from eigth place in 2009).

One of the company's most important steps in reaching its current size was the acquisition of the Scottish Re Group's individual life insurance business in early 2009, instantly more than doubling HLR America's premium volume and number of staff. "But size alone isn't a guarantee of success," Hagelman emphasises. To ensure that a portfolio does not become a drain

on the company's funds years later, it is important to assess accurately the risk of illness, cancellations and early deaths in the portfolio. "As part of a globally operating reinsurer, Hannover Re, we have access to excellent data, which helps us to make accurate forecasts", Hagelman says. Although records from one country cannot simply be used to calculate risks in another country, discussions among experts regarding the numerous data sources promote understanding of the complex material. "This allows us to minimise risk eff ectively and optimise earnings."

» As part of a globally operating reinsurer, Hannover Re, we have access to excellent data.« SAYS CURT HAGELMAN

The company now distinguishes between two major areas of business, "Risk Solutions", i. e. life and health risk reinsurance, and "Financial Solutions", involving reinsurance solutions that focus on the impact a reinsurance contract has on the balance sheet, as well as the issue of risk transfer. In this growing segment, HLR America is now seen as a market leader in providing customised solutions to its clients. "International reinsurers have been highly specialised fi nancial service providers for a long time," Hagelman says. "Compared with solutions from other fi nancial service providers, however, there is always a transfer of risk involved, which means there is a connection with the future performance of the covered portfolio. This is an advantage for the primary insurer, as benefi ts and repayment are in line with fi nancing requirements and future profi ts."

Risk business remains diffi cult in the USA. Individuals working for small and mediumsized enterprises in particular are chronically underinsured. Around 45% of people with an annual income of between USD 25,000 and USD 60,000 have no life insurance at all. "We're talking about many millions of people here," says Curt Hagelman. This trend has intensifi ed in recent years. One reason is declining policy yields as a result of generally low interest rates. Another is delays in family planning: US citizens too are marrying later and later and are rarely interested in life insurance while they are single. At the same time they are growing older, which actually makes insurance more important. The average age of US citizens was around 33 years in 1990; it has already risen to 37.3 years and, according to estimates, will increase to 40 years by 2030.

"The problem is that many people don't think about life insurance until it's quite expensive to get it," Hagelman says. As a life and health reinsurer, HLR America does not sell in surance to consumers. However, its business depends on how primary insurers perform in acquiring new customers. "People recognise the benefi ts of having insurance," Hagelman says. "But providing effi cient access with appropriate products becomes key."

» The problem is that many people don't think about life insurance until it's quite expensive to get it.« SAYS CURT HAGELMAN

Two tools that HLR America has developed to support primary insurers in gaining customers can provide help. "MERICA" is a system that allows policies to be approved realtime at the policyholder's premises, avoiding the need for tedious correspondence and additional costs. It is used when the applicant has no major medical conditions. Another system, "ASCENT", is used by primary insurers' risk assessors to carry out extensive medical assessments. In ad-

AT THE HEART OF ORLANDO HLR America's offi ces are located on the 18th and 19th fl oors of the Suntrust Center, seen here from bustling Church Street. dition to MERICA and ASCENT, HLR America wants to expand its marketing and use of additional analytical tools and develop services for primary insurers. Studies have shown that the insurance market will in future also be accessed online. "If we want to continue to be successful, insurers will need to approach young people in a more targe ted way," highlights Hagelman.

The centre of Orlando turns out to be the ideal company head offi ce location for this plan. If marketing strategist Curt Hagelman wants to study his young target group, he only has to go outside the "Suntrust Center", and he will fi nd it in the "Church District".

TERM LIFE INSURANCE IN GERMANY AND THE USA

Not all insurance is the same, something that international insurers know only too well. The diff erences between countries can be vast.

One example of this is term life insurance in Germany and the USA. While in Germany, a single set of rules applies to this form of insurance, the situation in the USA is unclear, with regulations varying from one state to the next and overseen by separate supervisory bodies in each case.

There are also diff erences with regard to risk assessment. Insurers in the USA have access to numerous databases to enable them to assess the risk associated with a customer. These access options are limited in Germany.

While premiums in the USA are comparatively low and profi t-sharing is not possible, the sums insured are generally high – USD 1 million is not unusual. The average sum insured in Germany is just EUR 90,000, while premiums and profit-sharing are comparatively high.

HIGHLIGHTS OF 2013

Talanx's focus in 2013 was on integrating and consolidating the companies it had acquired in the previous year. Its aim was to reinforce what it had achieved and create a sustainable basis that would equip it for future challenges.

FEBRUARY 2013 TALANX PLACES SENIOR BENCHMARK BOND

Talanx places a fi rst-rate unsecured bond with a volume of EUR 750 million. The bond is issued primarily for institutional investors in Germany and abroad. The cash infl ow will be used principally to replace existing fi nancing arrangements.

MARCH 2013 NEW LEGAL FORM FOR HANNOVER RE

Hannover Re completes its conversion into a European public limited-liability company or Societas Europaea (SE) and now operates under the name Hannover Rück SE. The new legal form is a visible expression of the company's conception of itself as a European group with global activities.

APRIL 2013

MEXICAN COMPANIES MERGE

Metropolitana Compañía de Seguros S. A. merged with Mexican company HDI Seguros S. A. de C. V. with retroactive eff ect from 1 January 2013. Talanx acquired 100% of shares in Metropolitana Compañía de Seguros in January 2012, while HDI Seguros Mexico had belonged to the Group since 2009.

JUNE/JULY 2013

FLOODS AND HAIL IN EUROPE

Floods and hailstorms cause record damage in the summer. The net burden on the Group from fl ood damage in Germany and neighbouring countries and hailstorm "Andreas" amounts to around EUR 330 million.

JULY 2013

TALANX'S INVESTMENT COMPANY CHANGES NAME

AmpegaGerling has become Ampega. The Talanx Group's investment company has now also changed its name, following the asset management and real estate management activities.

AUGUST 2013 A NEW LOOK FOR HDI OFFICES

The HDI insurers have turned their branches into an advertisement that is visible throughout Germany with a new branch concept. The aim is to establish a closer connection with customers and provide better allround advice in branches as well as at customers' premises.

OCTOBER 2013 HDI HEAD OFFICE RECEIVES AWARD FOR FIRE PROTECTION

The Sprinkler Protected Award from bvfa – Bundesverband Technischer Brandschutz e. V. (Federal Association for Fire Protection Technology) – has gone to HDI-Gerling industrial insurance for the building at HDI-Platz 1 for outstanding fi re protection. The sprinkler system installed at the company's head offi ce in Hannover goes beyond legal guidelines and fulfi ls the requirements of class 1 systems.

OCTOBER 2013 DIVERSITY AT THE GROUP

Talanx signs up to the Diversity Charter, an initiative to promote diversity in businesses. By doing this, the Group is publicly committing itself to the recognition, inclusion and appreciation of diversity in its corporate culture. Talanx does not merely want to create a working atmosphere that ensures openness and integration, but also to actively and consciously exploit diversity to improve the company's performance and competitiveness.

OCTOBER 2013

PB AND TARGO LIFE INSURERS OBTAIN RATINGS FROM ASSEKURATA

Contrary to the market trend, PB life insurance maintained its gross income at the previous year's level – an important factor in the decision to confi rm the previous year's good "A" rating. ASSEKURATA awarded TARGO Lebensversicherung AG the best rating for security; profi t-sharing has also been above the level of the market for years.

NOVEMBER 2013

HANNOVER RE HAS OWN POWER SUPPLY

Work is beginning on construction of a photovoltaic system on the roof of the offi ce building. All of the electricity produced will feed into the company's own power supply and will be used by Hannover Re itself. The company wants to set an example in the achievement of climate protection targets and reduction of CO2. It will also benefi t fi nancially, as it will not need to pay any charges, taxes or levies on the electricity generated.

on the Hannover Re building.

The life insurers WARTA and HDI-Gerling Życie merge at the end of the year, but will continue to sell life insurance under the HDI brand.

THE TALANX SHARE

CAPITAL MARKET ENVIRONMENT

Capital market trends in 2013 were generally positive, with the DAX gaining around 25% in the year under review. This development was supported by the expansionary monetary policy of leading central banks, by lower risk premiums on bonds issued by private companies and southern European countries, by the continued recovery of key early indicators, and by strong economic performance in Germany. On the stock markets this was of particular benefi t to many exportdriven industrials. For example, the MDAX gained around 39%. Share price growth in the insurance sector was also above-average in 2013, as in the previous year. The Stoxx Europe 600 Insurance Index, for instance, gained around 29%.

TALANX SHARE PRICE PERFORMANCE

Talanx's share price also continued to rise strongly in the year under review. The shares rose signifi cantly compared to the 2 October 2012 issue price of EUR 18.30 and the 2012 year-end price of EUR 21.48. In May 2013, based on daily closing prices, they reached their highest level for the year at EUR 25.88. For the fi rst half of 2013, Talanx shares performed considerably better at times than benchmark indices; however, they were unable to maintain this edge in the second half of the year, and at the end of 2013 closed at EUR 24.65. Not taking into account the dividend paid of EUR 1.05 per share, this means that the share price was around 15% higher than at the end of 2012. For shareholders who acquired their Talanx shares at the October 2012 issue price, this equates to a price increase of around 35%.

INDEX INCLUSION, NEW PLACEMENT OF SHARES AND EMPLOYEE SHARE SCHEME

Talanx shares are listed on the prime standard of the Frankfurt Stock Exchange and on the Hannover Stock Exchange. Since 12 December 2012 they have been included in the MDAX, Germany's secondmost relevant benchmark index. This makes them interesting to index-oriented investors, and leads to a signifi cantly greater presence in the media and thus in the public eye generally.

On 2 July 2013, Haft pfl ichtverband der Deutschen Industrie Versicherungsverein auf Gegenseitigkeit (HDI V. a. G.) placed 8.2 million Talanx shares on the market at a price of EUR 23.25 per share. As a result, the free fl oat increased by 3.2 percentage points or, in absolute terms, by around EUR 200 million. HDI V. a. G. stated that by selling the shares they wished to increase Talanx AG's free fl oat without diluting the holdings of other shareholders. The increased free fl oat is intended in particular to safeguard the position of Talanx shares in the MDAX. Background: Deutsche Börse (German Stock Exchange) uses a company's position as regards market capitalisation (in the free fl oat) and trading volume to determine which index a company should form part of. Calculations by Deutsche Börse showed that in December 2013 Talanx shares were clearly in the top 50 in the MDAX rankings. The shares ranked 46th for market capitalisation and 39th for trading volume.

In November 2013, Talanx AG increased its capital by using authorised capital to create 171,952 new shares for its fi rst employee share scheme. As a result, the total number of shares increased by just under 0.1% to 252,797,634.

Following the two transactions described above, HDI V. a. G., Talanx AG's majority shareholder, holds 79.0% of the shares, and Meiji Yasuda, the anchor shareholder, 6.5%. Including employee shares, the free fl oat totals 14.5%.

• 2 Letter from the Chairman
• 4 Board of Management
• 7 Supervisory Board/Supervisory Board committees
• 9 Report of the Supervisory Board
• 12 Stability

20 Integration 26 Effi ciency

32 Profi tability

14 Growth

38 Highlights of 2013 40 The Talanx share

42 COMBINED MANAGEMENT REPORT

CAPITAL MARKET COMMUNICATIONS

For the fi rst twelve months following the IPO, the aim of our investor relations (IR) work was to further increase awareness of Talanx AG and its "equity story" in the capital market. As part of this, we also sought to encourage ever greater numbers of investors to engage in our shares. Shareholders, potential investors and others with an interest in Talanx shares received regular reports on our corporate development.

In 2013, the Talanx AG Board of Management participated in more than ten investor conferences in international fi nancial centres such as New York, London, Frankfurt, Brussels and Munich. They also attended roadshows targeting investors in London, Paris, Frankfurt, Munich, Edinburgh, Dublin, Zurich and Copenhagen. In addition, Talanx AG's IR managers took part in numerous other investor conferences and roadshows in Germany and around the world. In total, we had meetings with over 250 institutional investors in 2013. In addition, we took part in specifi c events for private shareholders in Berlin and Hannover.

In April 2013, Talanx issued an invitation to its fi rst Capital Markets Day, held in Hannover. The Board of Management introduced Talanx's business model and its divisions. It was also as a result of this occasion that, for the fi rst time, Talanx published a matrix of medium-term objectives. The event was attended by 35 analysts and investors, was shown live and subsequently as a recording on our IR Internet site. In June, Talanx held a risk management workshop for analysts in London in which it presented material aspects of its risk reports and explained the methodological approach and status of its risk management.

Talanx has announced that a second Capital Markets Day will take place in Warsaw in June 2014 with the key theme "Retail International".

We are always available to answer enquiries from private investors, either by telephone, email or post. We have also set up an informative IR section on our website at www.talanx.com, which we are constantly extending and updating.

Research reports issued by banks and broker houses constitute a valuable source of information for investors and increase transparency. We therefore pay great attention to fi nancial analysts, and are delighted that the number recommending investment in Talanx has grown since the end of 2012 from 12 to 19. At the start of 2014 a further bank began regular reporting on Talanx.

DIVIDEND POLICY

As set out in the matrix of medium-term objectives fi rst published in April 2013, Talanx AG aims to achieve the payout rate announced in its IPO of 35% to 45% of Group net income, as defi ned by Inter national Financial Reporting Standards (IFRS), aft er taxes and minority interests. The dividend paid by Talanx for 2012 was EUR 1.05; this equates to a payout rate of 42.1%.

The Board of Management and Supervisory Board will propose a dividend of EUR 1.20 per share to Talanx AG's General Meeting. Based on the year-end price of EUR 24.65, this gives a return of 4.9%. The payout rate, based on IFRS earnings per share, is around 40%.

The Annual General Meeting is to be held on Thursday, 8 May 2014 in the Kuppelsaal of the Hannover Congress Centre (HCC).

14 GENERAL INFORMATION ON THE TALANX SHARE

German securities identifi cation number (WKN)	TLX100
ISIN	DE000TLX1005
Trading symbol	TLX
Class of shares	Ordinary registered shares with no par value (Stückaktien)
Number of shares	252,797,634
Year-end price	EUR 24.65
Annual high	EUR 25.88
Annual low	EUR 21.82
Stock exchanges	Xetra, Frankfurt, Hannover
Trading segment	Prime standard of the Frankfurt Stock Exchange
Index	MDAX

COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group
• 44 Business model
• 44 Legal and regulatory environment
• 45 Group structure
• 47 Strategy 47 Strategic objectives of Talanx
• 48 Enterprise management
• 48 Performance management
• 51 Research and development

REPORT ON ECONOMIC POSITION

52 Markets and business climate

• 52 Overall economic development
• 52 Capital markets
• 53 International insurance markets
• 54 German insurance industry

55 Business development

• 55 Performance of the Group
• 57 Development of the divisions within the Group

69 Assets and fi nancial position

• 69 Assets
• 75 Financial position
• 84 Rating of the Group and its major subsidiaries

85 Talanx AG (condensed version)

• 85 Net assets
• 86 Financial position
• 87 Results of operations
• 88 Remuneration report
• 88 Risk report
• 88 Forecast and opportunities report

88 Overall assessment of the economic situation

89 Other factors in success

• 89 Staff
• 91 Corporate social responsibility
• 92 Marketing and advertising, sales

OTHER REPORTS AND DECLARATIONS

93 Corporate Governance

• 93 Declaration on Corporate Governance and Corporate Governance report
• 98 Information and explanations regarding acquisitions
• 100 Remuneration report
• 111 Remuneration of the Supervisory Board
• 114 Loans to members of Boards and contingent liabilities
• 114 Remuneration of directors and managers below the Group Board of Management

115 Events of special signifi cance after the balance sheet date

116 Risk report

• 116 Risk strategy
• 116 Key elements of the risk management system
• 117 Risk management process
• 119 Internal control and risk management system in the context of fi nancial reporting
• 120 Risks of future development
• 131 Overall view of the risk situation

131 Forecast and opportunities report

• 131 Economic environment
• 132 Capital markets
• 132 Future state of the industry
• 133 Orientation of the Talanx Group for the 2014 fi nancial year
• 134 Anticipated fi nancial development of the Group
• 135 Overall assessment by the Board of Management
• 136 Opportunities management
• 137 Assessment of future opportunities and challenges
• 139 Overall picture of future opportunities

FOUNDATIONS OF THE GROUP

THE TALANX GROUP

BUSINESS MODEL

The Talanx Group operates as a multi-brand provider in the insurance and fi nancial services sector. We employed 21,529 staff worldwide at the end of 2013. The Group is headed by the Hannover-based fi nancial and management holding company Talanx AG, which has been listed since 2 October 2012. HDI V. a. G., a mutual insurance company that can look back on more than a 100 years of history, is still the majority shareholder in Talanx AG, with a stake of 79.0%. The largest minority shareholder is its strategic partner from Japan, Meiji Yasuda Life Insurance Company, with a holding of 6.5%. The free fl oat accounts for the remaining 14.5% of shares (including employee shares, which account for 0.1%).

The Group companies operate the insurance lines and classes specifi ed in the Ordinance Concerning the Reporting by Insurance Under takings (BerVersV) to the Federal Supervisory Offi ce (BaFin), in some cases in direct written insurance business and in some cases in reinsurance business, focusing on various areas: life insurance, accident insurance, liability insurance, motor insurance, aviation insurance (including space insurance), legal protection insurance, fi re insurance, burglary insurance, water damage insurance, plate glass insurance, windstorm insurance, comprehensive householders insurance, comprehensive homeowners insurance, hail insurance, livestock insurance, engineering insurance, omnium insurance, marine insurance, credit and surety business (reinsurance only), extended coverage for fi re and fi re loss of profi ts insurance, business interruption insurance, travel assistance insurance, aviation and space liability insurance, other property insurance, other non-life insurance.

Talanx is represented by its own companies or branches on all continents. Our retail business focuses on Germany, while our principal international markets are the growth regions of Central and Eastern Europe (including Turkey) and Latin America. The Group has business relations with primary insurance and reinsurance customers in around 150 countries in total.

The Talanx Group's divisions are each responsible for their own business processes. These tasks, which are shared by several organisational units, help to create value in the Group. The core processes in Industrial Lines, for example, are product development, sales and underwriting, including the relevant technical supervision. Core processes in the retail segments include product development, the setting of rates and sales, as well as product management and marketing. Sales, product development and underwriting are also of prime importance in the two reinsurance segments. From the Group's perspective, the Corporate Operations segment is responsible for asset management, corporate development, risk management, human resources and other services.

LEGAL AND REGULATORY ENVIRONMENT

The global insurance business is subject to regulatory rules and requirements that are both numerous and detailed. The supervisory authorities of the countries in which our Group operates enjoy far-reaching competencies and powers of intervention. Observing these regulations and requirements, and continually adjusting business and products to conform to new ones, entails a considerable fi nancial outlay on the part of the Group.

A global trend is still discernible towards tightening of the regulatory requirements of insurance companies, which in some cases are very unclear. There is a particular focus on insurance groups of systemic importance ("too big to fail"), which will in future face much more stringent regulatory requirements, especially with regard to their capitalisation. The Talanx Group has so far not been classed as relevant to the global system.

The introduction of Solvency II, which was provisionally scheduled for 1 January 2014, has been postponed by a further two years. Planned adjustments through the Omnibus II Directive were implemented only aft er delays in the year under review. Trilogue negotiations on this subject resumed in the second half of the year, and chief negotiators on behalf of the European Commission, the European Parliament and the Council of Ministers did not reach an agreement until 13 November 2013. The planned launch date for Solvency II is now 1 January 2016. Companies will be able to apply for approval for an in-house model from April 2015 onwards, so that this approval can be granted as at 1 January 2016. The Talanx Group is currently developing an internal Group model and is in the preliminary

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP 44 The Talanx Group

48 Enterprise management 51 Research and development

47 Strategy

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development

69 Assets and fi nancial position

85 Talanx AG (condensed version) 88 Overall assessment of the economic situation

89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report

115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

application phase for this. Talanx has developed this in-house risk model on a proprietary basis and intends to use it instead of the alternative "standard formula" in the Solvency II Directive in order to calculate solvency capital requirements for the Talanx Group with greater precision and to refl ect economic and legal realities as accurately as possible. We have outlined the eff ects and risks of Solvency II in the risk report and in the forecast and opportunities report on pages 116 et seqq. and 138 of this report, as well as in the Notes in section "Nature of risks associated with insurance contracts and fi nancial instruments", subsection "Concentration risk".

The Frankfurt/Main-based European Insurance and Occupational Pensions Authority (EIOPA) has published a large number of guidelines and explanatory texts addressed to the respective national insurance regulators in preparation for Solvency II. The Federal Financial Supervisory Authority (BaFin) wants to apply all guidelines issued by EIOPA for the preparatory phase and has provided EIOPA with the comments "Yes, do comply" or "Yes, intend to comply" for all guidelines. To structure the preparation process and support affected companies, it has also grouped the guidelines into 15 subject areas. Even in the current preparatory phase, EIOPA's activities have resulted in a barely manageable proliferation of supervisory rules and regulations across the whole sector. The implementation of Solvency II will also lead to the amendment of the German Insurance Supervision Act (VAG) in the medium term. At present, however, only a preliminary draft from the last federal government is available.

Aft er the initial failure of plans to introduce a fi nancial transaction tax throughout Europe or in the Eurozone countries only, the EU Economic and Financial Aff airs Council agreed on 22 January 2013 to the introduction of a fi nancial transaction tax in eleven countries (Belgium, Germany, Estonia, France, Greece, Italy, Austria, Portugal, Slovakia, Slovenia and Spain); talks about the implementation of the Directive have begun. In view of the stipulations in the CDU/ CSU-SPD coalition agreement, it is therefore highly likely that this will be introduced in Germany, either as part of a European solution or as a national solution.

GROUP STRUCTURE

Our Group structure with its six segments essentially remained unchanged in the year under review.

In primary insurance, we operate with three Group segments that each span the various lines of business: Industrial Lines, Retail Germany and Retail International. One member of the Talanx Board of Management takes responsibility for each of these divisions. Industrial Lines operates worldwide. It is largely independent of third parties and has the resources to lead international consortia. The Retail Germany segment interlinks German companies conducting retail business, across the traditional boundaries between lines of business and distribution channels in life and property insurance. The Retail International segment operates mainly in our strategic target markets of Latin America and Central and Eastern Europe, including Turkey and Russia. We further streamlined our structure in this segment. The merger of Metropolitana S. A. with HDI Seguros S. A. de C. V. in Mexico in the year under review means that our Group is now represented by only one private insurance company nationwide in Mexico. This step will further strengthen the HDI brand in Latin America. The remaining HDI-Gerling company in Poland was merged with WARTA, while retaining the HDI brand.

The two reinsurance segments, Non-Life Reinsurance and Life/ Health Reinsurance, are led by Hannover Rück SE. Germany and North America are the target markets for Non-Life Reinsurance, which also operates various lines of business in "Global Reinsurance" and "Specialty Lines". Life/Health Reinsurance is divided into the areas of fi nancial solutions and risk solutions, which includes longevity, mortality and morbidity.

The Corporate Operations segment includes Talanx AG, which performs primarily strategic duties and does not have any business activities of its own. The segment also includes the in-house service companies, as well as Talanx Reinsurance Broker, Talanx Reinsurance (Ireland) Limited and the Financial Services sector, which is primarily concerned with managing the Group's investments.

M1 GROUP STRUCTURE

		Talanx AG
Geschäftsbereich Industrieversicherung Industrial Lines Division	Geschäftsbereich Privat und Firmenversicherung Deutschland Retail Germany Division	Geschäftsbereich Privat und Firmenversicherung International Retail International Division	Geschäftsbereich Rückversicherung Reinsurance Division Schaden Personen Rück Rück versicherung versicherung Non-Life Life and Reinsurance Health Reinsurance	Konzernfunktionen Corporate Operations
HDI-Gerling Industrie Versicherung AG	Talanx Deutschland AG	Talanx International AG	Hannover Rück SE	Talanx Asset Management GmbH
HDI Versicherung AG (Austria)	HDI Versicherung AG	HDI Seguros S.A. (Argentina)	Hannover ReTakaful B.S.C. (c) (Bahrain)	Ampega Investment GmbH
HDI-Gerling Assurances (Belgique) S.A.	HDI Lebensversicherung AG	HDI Seguros S.A. (Brazil)	Hannover Re (Bermuda) Ltd.	Talanx Immobilien Management GmbH
HDI-Gerling Welt Service AG	Talanx Pensionsmanagement AG	HDI Zastrahovane AD (Bulgaria)	E+S Rück versicherung AG	Talanx Service AG
HDI-Gerling de México Seguros S.A.	HDI Pensionskasse AG	HDI Seguros S.A. (Chile)	Hannover Re (Ireland) Plc	Talanx Systeme AG
HDI-Gerling Verzekeringen N.V. (Netherlands)	neue leben Lebensversicherung AG	Magyar Posta Biztosító Zrt. (Hungary)	Hannover Reinsurance Africa Limited	Talanx Reinsurance Broker GmbH
HDI-Gerling Insurance of South Africa Ltd.	neue leben Unfallversicherung AG	Magyar Posta Életbiztosító Zrt. (Hungary)	International Insurance Company of Hannover Ltd. (UK)	Talanx Reinsurance (Ireland) Ltd.
HDI Seguros S.A. (Spain)	PB Lebensversicherung AG	HDI Assicurazioni S.p.A. (Italy)	Hannover Life Re of Australasia Ltd
HDI-Gerling America Insurance Company	PB Versicherung AG	HDI Seguros S.A. de C.V. (Mexico)	Hannover Life Reassurance Bermuda Ltd.
	PB Pensionsfonds AG	TU na Życie WARTA S.A. (Poland)	Hannover Life Reassurance Africa Limited
	TARGO Lebensversicherung AG	TUiR WARTA S.A. (Poland)	Hannover Life Reassurance Company of America
	TARGO Versicherung AG	TU na Życie Europa S.A. (Poland)
		TU Europa S.A. (Poland)
		OOO Strakhovaya Kompaniya "CiV Life" (Russia)
		OOO Strakhovaya Kompaniya "HDI Strakhovanie" (Russia)
		HDI Sigorta A.Ş. (Turkey)
		HDI STRAKHUVANNYA (Ukraine)
		HDI Seguros S.A. (Uruguay)		Nur die wesentlichen Beteiligungen Main participations only Stand / As at: 31.12.2013

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group 47 Strategy

48 Enterprise management 51 Research and development 52 Markets and business climate

REPORT ON ECONOMIC POSITION

55 Business development 68 Assets and fi nancial position

85 Talanx AG (condensed version)

88 Overall assessment of the economic situation 89 Other factors in success

• incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

STRATEGY

The Talanx Group is internationally active in primary insurance and reinsurance and in both property/casualty and life business. In the more than 100 years of our history we have evolved from a single-line liability insurer for industry into a global insurance group with a focus on industrial and retail lines and reinsurance business. We attach particular importance to successful cooperation with professional partners. In the Talanx Group, we optimise the interplay of insurance and reinsurance as an integral com ponent of our business model with the aim of consistently enhancing our opportunity/risk profi le and improving capital effi ciency. The composition of the Group's portfolio ensures that, even in diffi cult market phases, Talanx has suffi cient independent risk capacities at its disposal to support its clients reliably and over the long term and to tap into promising markets. Through this approach we safeguard our independence and can sustainably enhance the performance of the Group to the benefi t of our investors, clients, staff and other stakeholders.

The Group is headed by Talanx AG as a fi nancial and management holding company. Its remit is to make sure that we achieve our primary objective: sustainable, profi table growth. This is also the guiding principle for all divisional strategies deriving from the Group strategy. The Talanx Group's organisation is geared towards centralising Group management and service functions while delegating responsibility for profi t to the divisions. This organisational structure, which provides individual divisions a high level of entrepreneurial freedom and responsibility, is key to the Talanx Group's performance, as it enables the various divisions to take maximum advantage of their growth and profi t opportunities.

While the Talanx brand is oriented primarily towards the capital market, the sound international product expertise, forward-looking underwriting policy and strong distribution resources of our operational companies are refl ected in a multi-brand strategy. This enables us to align ourselves optimally to the needs of diff erent client groups, regions and cooperation partners. Moreover, it facilitates the effi cient integration of new companies and/or business sectors into the Group. This structure also promotes highly developed cooperation skills, which can be harmonised with a diverse range of partners and business models.

Lean, effi cient and standardised business processes combined with a state-of-the-art and uniform IT structure are further key success factors in the context of Group strategy.

STRATEGIC OBJECTIVES OF TALANX

The Group's policies and primary strategic objectives are focused on reliable continuity, fi nancial strength and sustainable profi table growth and are thus geared towards long-term value creation. This guiding principle is the basis for all other corporate goals. An essential prerequisite for achieving these aims is a soundly capitalised Talanx Group which provides its clients with eff ective cover for their risks. By giving that assurance we serve the interests of our shareholders, clients, staff and other stakeholders and create the greatest possible benefi t for all concerned.

Our strategy for human resources management is described at length in the "Other factors in success" subsection on pages 89 et seqq., while our risk management approach is described in the "Risk report" on pages 117 et seqq. These two aspects are therefore not discussed further at this point.

PROFIT TARGET

The Talanx Group strives for above-average profi tability in the long term, measured in terms of our return on equity under IFRS and in a comparison with Europe's 20 largest insurance groups. Our minimum target for Group net profi t aft er tax and minority interests is an IFRS return on equity 750 basis points in excess of the average risk-free interest rate. This is defi ned as the average market rate over the past fi ve years for ten-year German government bonds.

From this profi t target we derive the benchmarks we use to manage the operating divisions. We expect the sum of the profi t targets of the individual divisions to be at least equal to the Group's defi ned target return on equity.

We aim to pay an attractive and competitive dividend to our shareholders, with a payout rate of 35% to 45% of Group net income in accordance with IFRS.

CAPITAL MANAGEMENT

Capital management at the Talanx Group aims to ensure an optimised capital structure that is commensurate with the associated risk, in order to reinforce the Group's fi nancial strength.

This is achieved in two ways. Firstly, we optimise our capital structure by using appropriate equity substitutes and fi nancing instruments; secondly, we align our equity resources such that they meet or exceed the requirements of Standard & Poor's capital model for an "AA" rating. Equity resources in excess of this requirement are established only if they enable us to boost our earnings potential above and beyond the return we would gain from reinvested funds, e.g. by providing additional risk capacity and cover or because they allow us to achieve greater independence from the reinsurance and retrocession markets.

Capital resources are, as a general principle, allocated to those areas that promise the highest risk-adjusted profi t aft er tax over the medium term. In this context we pay attention to maintaining the desired portfolio diversifi cation and the required risk capital and take the general regulatory framework into account. Allocation is based on the expected intrinsic value creation (IVC), arrived at from coordinated business plans.

GROWTH TARGET

Within the Talanx Group, we strive for sustainable, profi table growth while keeping a close eye on our opportunity/risk profi le and maintaining a diversifi ed portfolio. We achieve this organically, by way of strategic and complementary acquisitions, and through cooperation arrangements.

We are aiming for above-average growth, especially in Industrial Lines and Retail International. In the longer term, our intention is for gross premium income from primary insurance (industrial and retail) generated outside Germany to account for half of the total gross premium volume in primary insurance.

We are already recognised as a leading industrial insurer in Europe, and are expanding our global presence. We have particularly focused our eff orts to build up activities in international retail insurance on markets in Central and Eastern Europe, including Turkey, and Latin America. In Retail Germany we aim to improve our profi tability and achieve focused growth. As a long-term majority shareholder in Hannover Rück SE, we are pursuing the goal of consolidating and selectively expanding the company's standing as a global player.

This strategic framework is fl eshed out in terms of products, client groups, distribution channels and countries by our individual divisions.

ENTERPRISE MANAGEMENT

Within the Talanx Group we have set ourselves a number of core tasks, which we want to achieve on a sustained basis: providing reliable support for our clients, maintaining suffi cient independent capacities in all market phases, cultivating new markets, and safeguarding and increasing the intrinsic value of the Group for shareholders in the long term. At the same time, ever more demanding requirements are being made of insurance groups by the regulatory environment and by capital markets and rating agencies. We have responded to the underlying situation determined by these internal and external infl uences by defi ning the following goals:

• ¡ increase profi tability and create value
• ¡ make optimal use of capital
• ¡ optimise the cost of capital
• ¡ invest in areas where we generate the highest risk-adjusted return over the long term
• ¡ seize strategic opportunities and at the same time remain aware of and manage the inherent risks

We pursue these goals with the aid of our holistic, integrated management system, in which we devote special attention to the four fundamental management processes that govern the interplay between the holding company Talanx AG and the various divisions: capital management, performance management, risk management and mergers & acquisitions.

PERFORMANCE MANAGEMENT

Performance management is the centrepiece of our array of management tools. In our systematic approach, a clear strategy geared to ensuring the Group's long-term viability and consistent rollout of that strategy are fundamental to effi cient enterprise and group management. Since instances of mismanagement are very oft en due to inadequate implementation of the defi ned strategy, we devote particularly close attention to the process steps that serve to ensure that our entrepreneurial actions are in line with our strategic objectives.

In the year under review, our performance management cycle, which is closely linked with our Group strategy, was as follows:

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP 44 The Talanx Group 47 Strategy

48 Enterprise management 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development

• 68 Assets and fi nancial position
• 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation
• 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date 116 Risk report
• 131 Forecast and opportunities report

M2 PERFORMANCE MANAGEMENT CYCLE

M3 RECONCILING NET INCOME FOR THE YEAR UNDER IFRS WITH IVC

1) Economic adjustments, e.g. discounting of loss reserves

2) NOPAT: Net Operating Profi t after Adjustment and Tax

The Board of Management of Talanx AG (the holding company) defi nes strategic objectives as a framework for planning and aligning business activities. The focus is on the Group's strategic core management metrics and on Group-wide strategic initiatives. The following strategic core management metrics are used at the Talanx Group:

• ¡ return on equity (RoE) and sustainable economic value creation (IVC)
• ¡ risk budget and capital adequacy ratio
• ¡ dividend

These objectives formulated by the holding company thus defi ne the Group's aspirations in terms of profi tability, level of security, growth initiatives and ability to pay dividends.

We measure sustainable and strategic economic value creation in the Group using IVC (= intrinsic value creation), which we look at over a period of several years to ensure that strategic management decisions are not based on results for just one year, which could be too volatile. IVC measures the economic net income less the cost of capital (cf. fi gure M3 for calculation). In addition to net income for the year under IFRS, economic net income takes into account

140 CONSOLIDATED FINANCIAL STATEMENTS 290 FURTHER INFORMATION

M4 OVERVIEW OF MANAGEMENT METRICS IN THE GROUP SEGMENTS AND THE GROUP

Group segment Industrial Lines	Group segment Retail Germany	Group segment Retail International	Group segment Non-Life Reinsurance	Group segment Life/Health Reinsurance	Group
Gross premium growth (with adjust ments for exchange rate eff ects)	Gross premium growth (with adjust ments for exchange rate eff ects)	Gross premium growth (with adjust ments for exchange rate eff ects)	Gross premium growth (with adjust ments for exchange rate eff ects)	Gross premium growth (with adjust ments for exchange rate eff ects)	Gross premium growth (with adjust ments for exchange rate eff ects)
Retention	New business margin (life)	Growth in value of new business (life)	—	Value of new business/ growth in value of new business	Group net income
Combined ratio (net)	Combined ratio (net, property/ casualty only)	Combined ratio (net, property/ casualty only)	Combined ratio (net)	—	Return on equity
EBIT margin	EBIT margin	EBIT margin	EBIT margin	¡ EBIT margin for fi nancial solutions/ longevity ¡ EBIT margin for mortality/morbidity	Payout rate
Return on equity	Return on equity	Return on equity	Return on equity in Non-Life and Life/Health Reinsurance		Net return on investment

Gross premium growth (with adjustments for exchange rate eff ects)

Change in gross written premium compared with the previous

year in % (with adjustments for exchange rate eff ects)

Retention

Net written premium/gross written premium

New business margin (life)

Value of new business/present value of new business premiums

Growth in value of new business (life)

Change in value of new business (life) excluding non-controlling interests compared with the previous year in %

Combined ratio (net, property/casualty)

Sum of the loss ratio and expense ratio (net) aft er allowance for interest income on funds withheld and contract deposits/ net premium earned (property/casualty primary insurance and non-life reinsurance)

EBIT margin

Operating profi t (EBIT)/net premium earned

Return on equity

Net income (aft er fi nancing costs and taxes) excluding noncontrolling interests/average shareholders' equity excluding non-controlling interests

Group net income

Consolidated net income (after financing costs and taxes) excluding non-controlling interests

Payout rate

Payout in the following year/Group net income for the year

Net return on investment

Net investment income excluding interest income on funds withheld and contract deposits and profi t on investment contracts/ average assets under own management

			1 OPPORTUNITIES SQUARED
--	--	--	-------------------------	--

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group 47 Strategy 51 Research and development

48 Enterprise management

52 Markets and business climate 55 Business development

68 Assets and fi nancial position

• 85 Talanx AG (condensed version)
  • 88 Overall assessment of the economic situation 89 Other factors in success

REPORT ON ECONOMIC POSITION

• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

other market value adjustments both in investments and in technical provisions (e.g. loss reserve discount in non-life insurance and change in non-capitalised value of in-force business in life insurance). Cost of capital in non-life insurance includes costs associated with the allocated risk-based capital and the cost of excess capital. It consists of the risk-free interest rate as the fi ve-year average for ten-year German government bonds, a friction cost rate of 2% and, in relation to risk-based capital, an additional margin of risk of 4%. The cost rates apply on the basis of a value at risk of 99.5%, which corresponds to the regulatory confi dence level. In life insurance business, we regard the roll forward as cost of capital when calculating MCEV; it refl ects expected changes in the value of in-force business.

A key stage in implementing the strategy within the Talanx Group is drawing up a strategic programme planning, i. e. breaking down the stra tegic objectives into specifi c subgoals that are underpinned by concrete measures. The holding company and the Group's divisions use a consistent performance metric to manage their businesses. This performance metric encompasses not only strategic core management metrics but also the relevant operational management metrics from four diff erent perspectives: the fi nancial perspective, the market/client perspective, the process perspective and the staff perspective. The performance metric enables us to link up our strategic and operational planning by setting out our strategy in measurable terms within structured overviews and monitoring its execution.

As part of our overriding task of managing and developing the Group in a sustainable and goal-oriented way based on its strategic objectives, one major challenge involves translating strategic objectives and performance indicators into operationalised value drivers that are consistent with the strategy. This takes place within the divisions based on the operational target values shown in table M4.

The operational management metrics undergo regular performance reviews in both internal and external reporting. The resulting fi ndings in terms of strategy implementation and achievement of targets are, together with additional value-based adjustments to IFRS accounting, used in turn as forward-looking information in the process of reviewing the strategy every few years.

RESEARCH AND DEVELOPMENT

As a holding company, Talanx AG does not conduct any productrelated research and development of its own. However, we continuously work to refi ne the methods and processes that are necessary in order to fulfi l our business purpose, especially in the area of risk management. We continue to develop an internal risk model in accordance with Solvency II and with due regard to regulatory debate, please also see pages 117 et seqq. of the risk report. Our divisions analyse developments in such areas as demographic trends, climate change and technical innovation, e.g. nanotechnology, and develop products tailored to relevant markets and clients.

REPORT ON ECONOMIC POSITION

MARKETS AND BUSINESS CLIMATE

OVERALL ECONOMIC DEVELOPMENT

The fi rst half of 2013 in Europe was marked by political setbacks and the ongoing euro debt crisis. The threat of political stalemate in Italy, together with the prospect of national bankruptcy in Cyprus – that was only averted at the last minute aft er much argument – triggered enormous uncertainty among market participants, particularly at the beginning of the year. As a result, gross domestic product (GDP) in the Eurozone fell in the fi rst quarter of 2013 by 0.2%. In the second quarter, the Eurozone's economy grew again for the fi rst time since the end of 2011, increasing by 0.3% over the previous quarter. This was due in part to strong growth in Germany (+0.7%) and France (+0.6%). In the third quarter, the Eurozone only achieved moderate economic growth of 0.1%. The recession seemed to be over, yet for 2013 as a whole Eurozone GDP contracted by 0.4%.

Germany's GDP stagnated in the fi rst quarter of 2013, aft er decreasing by 0.5% in the fourth quarter of 2012. The Ifo business climate index, one of the Eurozone's most respected economic indicators, rose to 109.5 points in December 2013, its highest level since April 2012.

M5 CHANGE IN REAL GROSS DOMESTIC PRODUCT

% CHANGE RELATIVE TO PREVIOUS YEAR
	2013 1)	2012
USA	+1.9	+2.8
Eurozone	–0.4	–0.7
Germany	+0.4	+0.7
United Kingdom	+1.4	+0.1
Japan	+1.7	+1.5

1) Bloomberg consensus forecasts

as at 16 January 2014; 2013: provisional fi gures

Growth in GDP in the UK in the fi rst quarter of 2013 was an unexpected 0.5%. In the second and third quarters the economy recovered further, with each quarter growing by 0.8% over the previous quarter.

The US economy was generally robust in 2013. Economic performance was relatively strong, particularly in the second half of the year. In the third quarter it recorded growth of 4.1%, the biggest increase since the fi rst quarter of 2012. At the same time, unemployment fell over the year from 7.9% to a fi ve-year low of 6.7%.

The major central banks continued to pursue expansionary monetary policies. In Europe, the European Central Bank (ECB) lowered its prime rate in the second quarter of 2013 by 25 basis points to 0.5%. In a move that few expected, it once again cut prime rates in November – to a record low of 0.25%. At the same time, the ECB extended its policy of providing unlimited liquidity to the banking sector, and plans to continue making this available until mid-2015. The Bank of England linked its prime rate to the unemployment rate, and the US Federal Reserve (Fed) announced in December that from January 2014 onwards it would reduce monthly bond purchases by USD 10 billion. It reaffi rmed at the same time that it would continue to leave prime rates at nil, even if the US unemployment rate were to fall below 6.5%.

Expansionary monetary policy is supported by moderate infl ation rates. In the Eurozone, the infl ation rate fl uctuated in the fi rst quarter of 2013 between 1.7% and 2.0%, and in December fell to a low of 0.8%. In the UK, infl ation hovered around 2.7% throughout the year, but dropped back to 2.0% at the end of the year. Infl ation rates also fell in the US during the year – from 2.0% in February to 1.2% in November.

CAPITAL MARKETS

Developments on the bond markets were infl uenced by the weak economy, political uncertainty and ongoing expansionary monetary policy. In the fi rst quarter of 2013, restructuring of the Dutch banking group SNS – and the accompanying expropriation of subordinated creditors – led to prolonged uncertainty among investors. The reorganisation of the Cypriot banking system also unsettled market players. Changes in interest rates in the second quarter were again dominated by initiatives and statements from the central

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

banks. Against this backdrop there were strong currency fl uctuations in the US dollar and Japanese yen, and signifi cant movements in interest rates gave rise to a considerable increase in yields. In the third quarter, attention of capital market participants was focused on US budget planning, the government crisis in Italy, and the parliamentary election in Germany. As a result, interest rates were volatile.

Economic and political turmoil marked the start of the fourth quarter. The apparent rapprochement of political parties in the US budget dispute over raising the debt ceiling led to a temporary stabilisation in interest rates. Rates began to move again at the beginning of December as a result of increasingly positive news. Stable macro data from the US and very positive US labour market statistics were responsible for a signifi cant interest rate hike. Parties in the US budget dispute also arrived at a sustainable compromise that is expected to take care of the budget defi cit for the next two years.

Yields in Germany increased signifi cantly when compared to the previous year. Two-year German government bonds increased by around 17 basis points to 0.189%, fi ve-year government bonds by over 67 basis points to 0.959%, and ten-year bonds likewise by over 67 basis points to 1.959%.

There was a great deal of activity at the beginning of the year in new issues on the primary market – where securities are fi rst issued – particularly for corporate bonds, senior fi nancials with short terms, and high-yield securities. Unlike the previous year, issuers of German covered bonds (Pfandbriefe) were very restrained throughout the fi rst quarter. Bond activity was particularly lively from March to May, with a similar level of activity on the primary market not recurring until September via the corporate bond market.

The trend of the fi rst nine months then continued, with demand for investments in high-risk bonds still strong at the end of the fourth quarter. High-yield investments, subordinated bank bonds and covered bonds (particularly from the peripheral countries of Spain, Ireland, Portugal and, to a lesser extent, Italy) performed best over the year, despite some intermittent uncertainty. For further comment on developments in the equity markets please refer to the "Assets and Financial Position" section on page 73, and the " Talanx Share" section on page 41 et seq.

INTERNATIONAL INSURANCE MARKETS

These remarks are based on information that is publicly available from the German Insurance Association (GDV) and on other sources.

Despite some major natural disasters, we expect an average burden for the international insurance markets in 2013. The ongoing Eurozone debt crisis and subdued development of the global economy continue to represent a challenging environment for insurance companies. Meanwhile, economic momentum has also slowed in emerging countries, although the pace of growth there is still signifi cantly faster than in the developed countries.

The Talanx Group has defi ned the growth regions of Central and Eastern Europe and Latin America as target regions for expanding its international retail business. In this subsection we will therefore focus primarily on developments in these regions, and will discuss the German insurance sector in the following subsection.

PROPERTY AND CASUALTY INSURANCE

Premium growth in international property and casualty insurance in 2013 was steady. In the developed insurance markets real growth remained at its previous year's level. In contrast, although growth in emerging countries remained signifi cantly stronger, it declined in comparison to the previous year.

Despite a succession of natural disasters, loss expenditure remained minimal for insurers due to the low level of market penetration in emerging countries. Ongoing low interest rates had a far stronger eff ect on insurers' net income. With regard to the result, profi tability in international property and casualty insurance was slightly improved when compared to the previous year, but nevertheless remained low.

Central and Eastern Europe: In the year under review, premium income remained fl at in property and casualty insurance in Poland, the region's largest market. This was due to a slowdown in growth and extremely intense competition in the motor insurance segment.

Latin America continued to register strong premium growth, despite declining economic momentum in emerging countries. A signifi cant contribution to this growth was made by Brazil, where the country's largest energy company, Petrobras, renewed its insurance cover, and where rates in the motor insurance segment also increased. In Argentina, performance in motor insurance and workers' compensation insurance was to a large part responsible for premium growth. However, despite Latin America's general trend towards growth, Chile is expected to experience slower premium growth due to its overall weaker economic pace.

In reinsurance, continuing low interest rates likewise necessitated strict discipline to be exercised in technical pricing to compensate for falling investment income. Typhoon "Haiyan" in the Philippines not only brought a comparatively calm hurricane season in the North Atlantic to an end, but also triggered a humanitarian disaster. Nonetheless, as a result of low insurance density, the overall claims burden for the insurance sector is minimal.

LIFE INSURANCE

There was a small increase in premiums in international life insurance markets over the previous year. While real premium growth in developed insurance markets was at the previous year's level, we expect emerging countries to record considerably stronger growth in real terms than in 2012.

Life insurance profi tability tended to continue to fall in 2013 in all regions. This was due to ongoing very low interest rates. The gap between earned interest and guaranteed returns narrowed still further.

In Central and Eastern Europe premiums were down in comparison to the previous year. The main reason for this was a drop in sales of single-premium savings products in Poland, the largest market in this region.

Latin America remained top for premium growth amongst emerging countries, standing way ahead of the Asian markets and Central and Eastern Europe. Nevertheless, the absolute rate of growth was lower in 2013 than in 2012, mainly due to declining sales of pension plans in Brazil, that in 2013 were again at a sustainable level. Whereas double-digit growth rates were recorded in Mexico and Colombia, premium growth in Argentina and Chile stagnated.

Premiums in traditional life and health reinsurance remained at their previous year's level in 2013. They increased slightly for block transactions, reinsurance of longevity risks, for enhanced annuities with immediate payment, and for accident and health insurance business. In developed markets premium growth slowed, but emerging countries continued to show strong growth at levels that remained more or less unchanged.

GERMAN INSURANCE INDUSTRY

PROPERTY AND CASUALTY INSURANCE

Aft er its strong premium growth in 2012, the German insurance industry grew again in 2013, albeit at a somewhat lower level. Growth in motor insurance contributed particularly strongly to the increase in premiums.

In the year under review a series of natural disasters led to losses of around EUR 7 billion. Roughly EUR 5.5 billion of this was attributable to property/casualty insurance and EUR 1.5 billion to motor insurance. The last time there were comparable levels of losses from natural disasters was in 1990 and 2002, when the "Wiebke" and "Vivian" storms, together with fl ooding of the river Elbe and winter storms, gave rise to a high level of claims. The classes of insurance that are most aff ected by natural perils – property/casualty insurance and motor insurance – have a higher net combined ratio for 2013 than 2012.

LIFE INSURANCE

Real premium growth in life insurance started to recover in 2013, following a two-year period in which rates of real premium growth had fallen. In comparison to other developed markets, Germany recorded above-average growth, even though the fourth quarter was weak across all markets. Despite interest rates being low for some time, the German insurance industry succeeded again in 2013 in achieving an overall return that exceeded guaranteed returns.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group

• 47 Strategy 48 Enterprise management
• 51 Research and development

68 Assets and fi nancial position 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation

89 Other factors in success

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date

131 Forecast and opportunities report

116 Risk report

BUSINESS DEVELOPMENT

In the year under review The Talanx Group improved further on the previous year's good results. Gross premium, Group net income and EBIT all grew again, with Group net income reaching its highest ever level at the Talanx Group thanks to extraordinary income from the sale of shares and positive tax eff ects.

M8 OPERATING PROFIT (EBIT)

TALANX AG CONSOLIDATES ITS POSITION IN THE MDAX

HDI V. a. G. placed a further block of shares in Talanx AG on the stock market. This raised the free fl oat by 3.3 percentage points to 14.5% (including employee shares), without diluting the stakes of other shareholders. HDI V. a. G. remains the main shareholder with a stake of 79.0%, while Meiji Yasuda is still an important anchor shareholder with 6.5%.

BUSINESS IN GERMANY BECOMES MORE PROFITABLE

We made good progress with restructuring in the Retail Germany Division. Our earnings power has already increased on the road to improved competitiveness. We specifi cally targeted measures relating to new business at improving profi tability, and are pleased with the growth already achieved in single-premium business.

SIGNIFICANT EXPANSION OF INTERNATIONAL BUSINESS

Gross premium in our international retail business rose considerably in the year under review. The Polish companies TU Europa and WARTA that we acquired with Meiji Yasuda pushed up gross premium volume in Eastern Europe signifi cantly. Poland is now Talanx's largest foreign market following the takeovers.

PERFORMANCE OF THE GROUP

• ¡ Highest ever Group net income achieved
• ¡ Net investment income at the same level as in the previous year, despite ongoing diffi culties on the market
• ¡ Only slight rise in combined ratio despite high catastrophe losses

M9 GROUP KEY FIGURES

FIGURES IN EUR MILLION

2013	2012 1)	2011 1)
28,151	26,659	23,682
23,113	21,999	19,456
–1,601	–1,447	–1,690
3,792	3,795	3,262
1,784	1,748	1,238
96.9	96.4	101.0

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

M10 MANAGEMENT METRICS

IN %
	2013	2012 1)	2011
Gross premium growth (with adjustments for exchange rate eff ects)	7.8	10.4	4.4
Group net income in EUR million	762	626	515
Return on equity	10.6	10.0	10.0
Payout rate	39.8 2)	42.4	—
Net return on investment	4.0	4.3	4.0

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

2) In relation to the proposal for the appropriation of disposable profi t, cf. page 88

PREMIUM VOLUME

The Group's gross written premium grew to EUR 28.1 billion, compared with EUR 26.7 billion in the previous year. Although growth was lower than the previous year's level (12.6%), it was still signifi cant at 5.6% (7.8% with adjustments for exchange rate eff ects). Premium growth in the Retail International Division was particularly strong at over 29%, largely owing to the previous year's acquisitions. The retention ratio fell slightly to 86.9 (87.2)%, while net premium earned rose by 5% to EUR 23.1 (22.0) billion.

UNDERWRITING RESULT

The underwriting result declined, partly owing to a very high level of major losses (EUR 838 million). It fell by 11% to −EUR 1.6 (−1.4) billion, with the increase in the underwriting result for Non-Life Reinsurance unable to compensate for the results of other divisions. The Group's combined ratio rose only slightly to 96.9 (96.4)% in the year under review, despite exceptionally high expenses for major losses.

NET INVESTMENT INCOME

Net investment income amounted to EUR 3,792 million in the year under review, the same level as in the previous year (EUR 3,795 million). An improvement in extraordinary investment income particularly contributed to this. We were satisfi ed with the net return on investment of 4.0% in the year under review, although it was lower than the previous year's fi gure of 4.3%.

OPERATING PROFIT AND GROUP NET INCOME

Operating profi t (EBIT) rose slightly year-on-year to EUR 1,784 (1,748) million owing to an increase in other income from foreign exchange gains in the Non-Life Reinsurance and Corporate Operations segments. Group net income was up 21.7% on the previous year's fi gure at EUR 762 (626) million. This was partly due to a positive effect from the accounting treatment of deferred taxes. The return on equity was 10.6%, exceeding the previous year's level of 10.0%; shareholders' equity fell slightly by 1%. The payout rate in the year under review for the previous year was 42.4% of Group net income.

COMPARISON OF ACTUAL BUSINESS DEVELOPMENT WITH FORECAST FOR 2013

M11 MANAGEMENT METRICS IN THE GROUP

IN %
	Actual fi gures for 2013	Forecast for 2013
Gross premium growth (with adjustments for exchange rate eff ects)	7.8	min. 4	ü
Group net income in EUR million	762	> 650	ü
Return on equity	10.6	> 9	ü
Payout rate 1)	39.8	35 – 45	ü
Net return on investment	4.0	approx. 3.5	ü

1) In relation to the proposal for the appropriation of disposable profi t, cf. page 88

The Group achieved gross premium growth of 5.6% (7.8% with adjustments for exchange rate eff ects) in the year under review, surpassing the minimum target of 4% set for 2013. This is primarily attributable to the contribution to results made by the companies acquired in Poland. The Group signifi cantly exceeded its target of Group net income of over EUR 650 million; the results of the Non-Life Reinsurance segment accounted for a large proportion of this. We fulfi lled our forecast of a return on equity of more than 9%, achieving an actual return on equity of 10.6%. This is in line with our strategy of ensuring that the sum of the profi t targets of the individual divisions is at least equal to the Group's defi ned target for return on equity. Payment of a dividend of EUR 1.20 per share will be proposed at the General Meeting. The dividend payout rate will therefore once again be within the target range in the second full year aft er the IPO, at 39.8%. Our net return on investment was expected to be around 3.5% in accordance with the forecast; we also met this target, posting a return of 4.0%.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group

47 Strategy

48 Enterprise management 51 Research and development

55 Business development 69 Assets and fi nancial position

52 Markets and business climate 85 Talanx AG (condensed version)

REPORT ON ECONOMIC POSITION

88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

DEVELOPMENT OF THE DIVISIONS WITHIN THE GROUP

Talanx divides its business strategically into six reportable segments: Industrial Lines, Retail Germany, Retail International, Non-Life Reinsurance, Life/Health Reinsurance and Corporate Operations. Please refer to the "Segment reporting" section in the Notes of this report for details of these segments' nature and scope of business.

M12 SEGMENTAL BREAKDOWN OF GROSS PREMIUM

INDUSTRIAL LINES

• ¡ Premium growth continues
• ¡ Result adversely aff ected by major losses, in particular from natural disasters
• ¡ Net investment income only slightly lower than in the previous year, despite continuing low interest rates

M13 ESSENTIAL KEY FIGURES IN THE INDUSTRIAL LINES SEGMENT

FIGURES IN EUR MILLION

	2013	2012	2011
Gross written premium	3,835	3,572	3,138
Net premium earned	1,744	1,608	1,375
Underwriting result	–24	79	155
Net investment income	240	247	204
Operating profi t (EBIT)	147	259	321

M14 MANAGEMENT METRICS

IN %
	2013	2012	2011
Gross premium growth (with adjustments for exchange rate eff ects)	8.6	12.7	1.6
Retention	44.5	45.6	44.1
Combined ratio (net) 1)	101.3	95.1	88.6
EBIT margin 2)	8.4	16.0	23.4
Return on equity	5.7	8.8	12.4

1) Including net interest income on funds withheld and contract deposits 2) Operating profi t (EBIT)/net premium earned

MARKET DEVELOPMENT

Insurance markets again recorded premium growth in 2013 in our core market of Germany, albeit not as strongly as in 2012. Growth in motor insurance contributed particularly strongly to the increase in premiums. HDI-Gerling industrial insurance was also able to benefi t from this, achieving signifi cant premium growth in this line of over 10%. In addition, property insurance lines in Germany were able to generate growth by increasing prices.

In the year under review a series of natural disasters led to market losses of around EUR 7 billion. Roughly EUR 5.5 billion of these were attributable to property insurance and EUR 1.5 billion to motor insurance. HDI-Gerling industrial insurance was hit badly, both by fl oods in southern and eastern Germany in June 2013, and by several hailstorms. This led to its motor insurance and property insurance lines recording high claims levels as a result of natural hazards. The last time there were comparable levels of losses from natural disasters in Germany was in 1990 and 2002, when the "Wiebke" and "Vivian" storms, together with fl ooding of the river Elbe and winter storms, gave rise to enormous losses. The classes of insurance that are most aff ected by natural hazards – property and motor insurance – had a higher combined ratio for 2013 than for 2012.

As market penetration in Germany is already high, growth was primarily generated in our overseas branches and subsidiaries. HDI-Gerling Industrie Versicherung AG achieved strong premium growth, particularly in its branches in France, Italy and the UK, and in its Dutch company. Nevertheless, the continuing Eurozone debt crisis and subdued development of the global economy continue to present a challenging environment for insurance companies. Meanwhile, economic momentum is also slowing in emerging countries, although the pace of growth there is still signifi cantly faster than in developed countries.

PREMIUM VOLUME

The segment's gross written premium amounted to EUR 3.8 (3.6) billion as at 31 December 2013, an increase of around 7.4%. (8.6% when adjusted for exchange rate eff ects). HDI-Gerling Industrie Versicherung AG made a particularly large contribution to this increase, growing by 7% to EUR 3.3 (3.1) billion through its branches in Germany and overseas. Growth slowed down slightly in comparison to the previous year, but nevertheless remained very positive.

HDI-Gerling industrial insurance's continuing upward trend in premium was driven by the fi re, liability and motor insurance lines. The increase in premium was largely due to growth at foreign branches and premium hikes in Germany. Premium growth in fi re was mainly due to price increases and expansion of international programmes, while in motor insurance the market continued to harden throughout 2013.

Overall, premium development at foreign companies in the segment was positive. Gross written premium at the Dutch company HDI-Gerling Verzekeringen N. V. increased to EUR 391 (363) million. Marine insurance business in particular was expanded signifi cantly. In the previous year premium growth here was aff ected by the acquisition of Nassau Verzekering Maatschappij N. V. Gross premium at the Spanish company totalled EUR 130 (126) million as a result of new business in Latin America and local participation business, notwithstanding the diffi cult overall economic situation.

The segment's retention ratio fell slightly year-on-year from 45.6% to 44.5%, despite increases in premium retained at HDI-Gerling industrial insurance. The main reason for this is a change in accounting for reinsurance settlement at HDI-Gerling industrial insurance that impacts negatively on net written premium. Net premium earned in the segment rose by 9% to EUR 1.7 (1.6) billion, driven by growth in gross premium. Based on earned premium, the retention ratio rose to 46.8 (46.1)%.

UNDERWRITING RESULT

The segment's net underwriting result was –EUR 24 (79) million. This was considerably lower than in the previous year due to signifi cant catastrophe losses suff ered by HDI-Gerling industrial insurance. The net expense ratio was slightly higher year-on-year at 20.6 (19.9)%, while the net loss ratio rose to 80.8 (75.2)%. The combined ratio of the Industrial Lines segment was 101.3 (95.1)%.

HDI-Gerling industrial insurance's net underwriting result was –EUR 31 (37) million, with the decrease being mainly attributable to major losses incurred as a result of natural hazards. Floods in southern and eastern Germany in June 2013, several hailstorms in Germany and overseas in the second and third quarters, and storms in the autumn and winter seasons all led to a signifi cant decline in the result. The burden from other major losses also rose year-on-year.

Our Dutch subsidiary recorded a signifi cant decline to –EUR 8 (15) million, largely due to additional provisions and higher major loss expenditure in the fi rst quarter of 2013 of EUR 12 million.

NET INVESTMENT INCOME

Despite continuing low interest rates, net investment income only fell slightly by –3% to EUR 240 (247) million. The capital marketinduced decline in fi xed-interest securities at HDI-Gerling industrial insurance was off set to a certain extent by higher income from real estate. In the fi rst quarter of 2013, the Dutch subsidiary also completely wrote off a bond in the amount of EUR 3 million from the nationalised bank SNS Reaal Bank.

OPERATING PROFIT AND GROUP NET INCOME

The segment's operating profi t fell to EUR 147 (259) million, due to the above developments and in particular to the lower underwriting result. The decline was chiefl y the result of the impact of major losses in the net underwriting result of HDI-Gerling industrial insurance and developments at the Dutch company as described. Group net income – i.e. income attributable to shareholders of Talanx AG – fell to EUR 109 (157) million. The segment's EBIT margin and return on equity also declined to 8.4 (16.0)% and 5.7 (8.8)% respectively, as a result of the fall in operating profi t.

COMPARISON OF ACTUAL BUSINESS DEVELOPMENT WITH FORECAST FOR 2013

M15 MANAGEMENT METRICS IN THE INDUSTRIAL LINES SEGMENT

IN %
	Actual fi gures for 2013	Forecast for 2013
Gross premium growth (with adjustments for exchange rate eff ects)	8.6	4 – 6	ü
Retention	44.5	~ 47	û3)
Combined ratio (net) 1)	101.3	≤ 96	û
EBIT margin 2)	8.4	≥ 10	û
Return on equity	5.7	~ 10	û

1) Including interest income on funds withheld and contract deposits

2) Operating profi t (EBIT)/net premium earned

3) On the basis of earned premium the retention ratio increases to 46.8%

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

55 Business development 69 Assets and fi nancial position 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

Mainly as a result of HDI-Gerling industrial insurance's positive business development, gross premium growth slightly exceeded expectations for 2013 at 7.4% (8.6% when adjusted for exchange rate eff ects). The retention remained lower than forecast at 44.5%; this was essentially due to the change in accounting for reinsurance settlement at HDI-Gerling industrial insurance as described in the previous subsection.

The combined ratio was considerably higher than forecast for 2013 as a result of unexpectedly high catastrophe losses, notably from natural hazards. High loss expenditure is likewise the reason for the lower EBIT margin and return on equity in the year under review: both these failed to meet expectations.

RETAIL GERMANY

• ¡ Premium income from life insurance business up 2%
• ¡ Exceptionally high burdens from major losses and natural disasters have negative impact on combined ratio
• ¡ Increase in net investment income despite low interest rates

M16 ESSENTIAL KEY FIGURES IN THE RETAIL GERMANY SEGMENT

FIGURES IN EUR MILLION

	2013	2012 1)	2011
Gross written premium	6,954	6,829	6,710
Net premium earned	5,605	5,501	5,461
Underwriting result	−1,515	−1,425	−1,258
Net investment income	1,786	1,621	1,530
Operating profi t (EBIT)	161	100	110

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section of the Notes

M17 MANAGEMENT METRICS

IN %

	2013	2012 1)	2011
Gross premium growth	1.8	1.8	−1.6
New business margin (life)	2.6 2)	1.8	1.7
Combined ratio (net, property/ casualty only) 3)	102.4	100.6	101.6
EBIT margin 4)	2.9	1.8	2.0
Return on equity	3.0	4.8	2.7

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes 2) 2013: estimated fi gure, the fi nal fi gure will be published in the

2014 annual fi nancial statements

3) Including net interest income on funds withheld and contract deposits

4) Operating profi t (EBIT)/net premium earned

MARKET DEVELOPMENT

Low interest rates shaped the market environment in life insurance, causing customers to be cautious with regard to long-term saving processes. In property/casualty insurance, premium income rose in the motor insurance and private property insurance lines.

RESTRUCTURING OF THE DIVISION

Restructuring of the division continued during the reporting period. The aim of this restructuring is to modernise the organisation of structures and processes and improve competitiveness signifi cantly by cutting costs and increasing effi ciency.

While extensive changes and reorganisation measures were implemented in operations in property insurance business, partly as a result of the centralisation of sites, the focus at HDI Lebensversicherung AG was on improving services and processes. Products have been made less complex and a modular product structure has been introduced, which will allow customers to put together their own individual insurance cover. A key change in sales was the introduction of a sales management system spanning all three distribution channels of tied agents, sales through brokers and cooperation agreements. The roll-out of the reorganised branch concept also began in 2013 and will gradually be expanded further.

PREMIUM VOLUME AND NEW BUSINESS

Gross written premium of the Retail Germany segment – including savings elements under unit-linked life insurance – rose to EUR 7.0 (6.8) billion in the year under review.

Premium income of property/casualty insurers remained unchanged at EUR 1.5 billion. In direct written insurance business, premium income remained at almost the same level as in the previous year despite ongoing measures to improve profi tability, as the decline in the number of contracts was off set by an increase in the average premium per contract. The overall share of property/ casualty insurers in the entire segment remained stable at 22%.

Gross written premium for our life insurers – including savings elements under unit-linked life insurance – rose by 2% to EUR 5.4 (5.3) billion, owing to higher single premiums. The new business margin increased to 2.6 (1.8)% owing to a change in the product mix and an improvement in the capital market environment, with a reduction in credit risk in particular.

The division's retention ratio fell slightly to 94.2 (94.5)% owing to an increase in reinsurance cessions in life insurance business. Allowing for higher savings elements under our unit-linked products and the change in unearned premiums, the segment's net premium earned thus rose by 2% to EUR 5.6 (5.5) billion.

New business in life insurance products – measured by the international standard of the Annual Premium Equivalent (APE) – was down year-on-year at EUR 464 (500) million, as expected.

UNDERWRITING RESULT

The underwriting result amounted to –EUR 1.5 (–1.4) billion. This is usually dominated by life insurance companies, partly owing to the compounding of technical provisions and participation of our policyholders in net investment income. These expenses are off set by net investment income, which is recognised in the nonunderwriting result.

The underwriting result of our property insurance segment was signifi cantly reduced by an increase in major loss events and natural disasters aff ecting HDI Versicherung AG, particularly in the third quarter, which led to a net increase of 1.8 percentage points in the combined ratio to 102.4%. With adjustments for these eff ects, continuation of our measures to improve profi tability led to a signifi cant increase in the underwriting result.

NET INVESTMENT INCOME

The division's net investment income rose by 10% to EUR 1.8 (1.6) billion. The life insurance companies account for 94% of this fi gure. Ordinary investment income was up slightly year-on-year, as lower reinvestment returns were off set by an increase in the investment portfolio. Unrealised gains on investments were realised in order to fi nance the additional interest reserve and policyholder participation in the valuation reserves. This explains the increase in extraordinary investment income.

OPERATING PROFIT AND GROUP NET INCOME

The fi nancial year was infl uenced by extraordinary burdens from major losses and natural disasters and persistently low interest rates on the capital market. EBIT increased to EUR 161 (100) million despite the burden from higher losses, thanks to improvements in operating business. The previous year's results included one-off eff ects with a negative impact on EBIT, such as the sale of a company within the segment. The EBIT margin improved by 1.1 percentage points as a result. Aft er taking into account taxes on income and fi nancing costs, Group net income attributable to shareholders of Talanx AG decreased to EUR 78 (120) million, reducing the return on equity by 1.8% to 3.0%. The previous year's result included an additional one-off eff ect in the form of deferred taxes in the amount of EUR 84 million.

COMPARISON OF ACTUAL BUSINESS DEVELOPMENT WITH FORECAST FOR 2013

M18 MANAGEMENT METRICS IN THE RETAIL GERMANY SEGMENT

IN %

	Actual fi gures for 2013	Forecast for 2013
Gross premium growth	1.8	+/–0	ü
New business margin (life)	2.6 1)	min. 1.8	ü
Combined ratio (net, property/ casualty only) 2)	102.4	~ 101.0	û
EBIT margin 3)	2.9	2.8	ü
Return on equity	3.0	≥ 3.0	ü

1) 2013: estimated fi gure, the fi nal fi gure will be published in the 2014 annual report

2) Including net interest income on funds withheld and contract deposits

2) Operating profi t (EBIT)/net premium earned

Gross premium income in the Retail Germany segment grew by 1.8% in 2013, contrary to our forecast. The new business margin in our life insurance business also exceeded our expectations at an estimated 2.6%. With adjustments for extraordinary burdens from natural disasters and major losses, the combined ratio was even lower than the target, thanks to improvements in underlying business. The EBIT margin and return on equity were in line with forecasts.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group 47 Strategy

• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

69 Assets and fi nancial position

85 Talanx AG (condensed version)

88 Overall assessment of the economic situation

• 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date

131 Forecast and opportunities report

116 Risk report

FURTHER KEY FIGURES

M19 THE RETAIL GERMANY SEGMENT AT A GLANCE

FIGURES IN EUR MILLION

	2013	2012 1)	2011
Gross written premium	6,954	6,829	6,710
Property/casualty	1,529	1,530	1,515
Life	5,425	5,299	5,195
Net premium earned	5,605	5,501	5,461
Property/casualty	1,431	1,437	1,409
Life	4,174	4,064	4,052
Underwriting result	–1,515	–1,425	–1,258
Property/casualty	–34	–6	–22
Life	–1,481	–1,419	–1,239
Other	—	—	3
Net investment income	1,786	1,621	1,530
Property/casualty	112	102	108
Life	1,675	1,525	1,422
Other	–1	–6	—
New business measured in annual premium equivalent (life)	464	500	528
Single premiums	1,491	1,391	1,278
Regular premiums	315	361	400
New business by product in annual premium equivalent (life)	464	500	528
Unit-linked life and annuity insurance	149	173	178
Traditional life and annuity insurance	231	242	270
Term life products	81	80	72
Other life products	4	5	8

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

RETAIL INTERNATIONAL

• ¡ Expansion abroad improves results
• ¡ Poland is largest foreign market
• ¡ Stable net investment income despite persistent low interest rates and rising euro rates

M20 ESSENTIAL KEY FIGURES IN THE RETAIL INTERNATIONAL SEGMENT

FIGURES IN EUR MILLION
	2013	2012	2011
Gross written premium	4,220	3,261	2,482
Net premium earned	3,513	2,621	1,862
Underwriting result	32	3	−42
Net investment income	284	281	159
Operating profi t (EBIT)	185	107	55

M21 MANAGEMENT METRICS

IN %
	2013	2012	2011
Gross premium growth (with adjustments for exchange rate eff ects)	35.4	35.0	12.2
Growth in value of new business (life) 1)	approx. 7	n. a.	n. a.
Combined ratio (net, property/casualty only) 2)	95.8	96.2	99.3
EBIT margin 3)	5.3	4.1	2.9
Return on equity	5.9	3.5	6.5

1) Excluding non-controlling interests; 2013: estimated fi gure,

the fi nal fi gure will be published in the 2014 annual report

2) Including net interest income on funds withheld and contract deposits

3) Operating profi t (EBIT)/net premium earned

The division focuses on two strategic target regions in its activities and on two high-growth core markets within each of these. In Latin America, it is present in Brazil and Mexico, the two largest countries in terms of premium income. In Central and Eastern Europe, the division operates in Poland and Turkey, two of the three markets with the highest premium income.

The main development in the year under review was the integration of companies we acquired in the 2012 fi nancial year in our target regions in Central and Eastern Europe and Latin America. The Mexican insurer Metropolitana Compañía de Seguros S. A. merged with HDI Seguros S. A. de C. V. with eff ect from 1 January 2013. The absorbing company is continuing to be run under the name HDI Seguros S. A. de C. V. The Talanx Group became the second-largest operator on the Polish insurance market in terms of premium income in the 2012 fi nancial year, following the takeover of the WARTA Group and the TU Europa Group. Both acquisitions were carried out with our strategic partner Meiji Yasuda, which owned just under 25% of shares in WARTA and a signifi cant minority holding of 33.46% in the TU Europa Group at the end of the fourth quarter of 2013. Following the merger of the property insurance companies HDI Asekuracja S. A. und T UiR WARTA S. A., which took place at the end of the previous fi nancial year, the Polish life insurer T UnŻ WARTA S. A. merged with HDI-Gerling Życie with eff ect from 30 December 2013. The absorbing company is trading under the name T UnŻ WARTA S. A. Integration was thus completed much more quickly than originally anticipated.

Comparability of the reporting periods is very limited. The WARTA and TU Europa companies are included in the fi gures for the full 2013 fi nancial year, while the WARTA companies were included for six months and the TU Europa companies for seven months in the 2012 fi nancial year.

MARKET DEVELOPMENT

Both the property insurance and the life insurance market performed diff erently in the division's two target regions in 2013. Premium growth on the property insurance market in 2013 is expected to have amounted to 7.3% in Latin America and 1% in Central and Eastern Europe. In contrast, the life insurance market is expected to have recorded premium growth of 11% in Latin America in 2013, while a decline of 1% is anticipated for Central and Eastern Europe. Development of premium income in both target regions was infl uenced by the widespread economic slowdown compared with the previous year. Growth in gross domestic product is expected to have dropped year-on-year to around 2% in real terms in both regions in 2013.

Growth in premium income from property insurance in Latin America was driven mainly by positive developments in Brazil, where an increase in public spending in connection with the presidential elections and the 2014 Soccer World Cup coincided with an industrywide rise in rates for motor insurance. Motor insurance business in Mexico also performed well in the period up to 30 September 2013, despite a year-on-year decline in economic growth, owing to an increase in the number of active insurance policies.

In Central and Eastern Europe, however, the development of premium income was infl uenced by a decline in domestic demand and in investment as a result of the global fi nancial crisis. The robust economic growth of previous years did not continue in Poland, where competition over price also intensifi ed in motor insurance and sales of single-premium savings products declined, partly as a result of falling interest rates and planned changes to tax legislation. Property insurance premiums on the Polish market were up 2% yearon-year as at 30 September 2013, while life insurance premiums had fallen by 15%. This contrasts with growth on the Turkish insurance market, where property insurance premiums were up 23% as at 30 November 2013, with life insurance premiums even increasing by 26%. In particular, year-on-year growth of 41% was achieved on the diffi cult motor third party liability market, mainly through higher average premiums.

PREMIUM VOLUME

The division's gross written premium (including premiums from unit-linked life and annuity insurance) rose by around 29.4% yearon-year (35.4% with adjustments for exchange rate eff ects) to EUR 4.2 (3.3) billion. Most of this premium growth was attributable to acquisitions in Poland. With adjustments for this eff ect, the segment grew by 14.2%.

Gross written premium growth was infl uenced by positive developments in property business, where premium rose by 22% to EUR 2.8 billion, including a signifi cant contribution from the new Polish companies. Life insurance business also grew by 49% to EUR 1.4 billion, primarily owing to the inclusion of the new Polish life insurers for the full twelve months. Growth in the value of new business (life) is a provisional fi gure and has come from life insurance business at the Italian company HDI Assicurazioni.

Around three quarters of our total premium income in Latin America comes from the Brazilian company HDI Seguros S. A., which operates mainly in motor insurance. The company's written premium increased by 5% year-on-year to EUR 865 million, taking into account exchange rate eff ects. With adjustments for exchange rate eff ects, premium income rose by 19%, partly owing to higher premiums in motor insurance business. At the same time, the company's motor policy portfolio grew year-on-year by 13% to a total of 1.4 million policies, largely owing to the conclusion of a large number of new contracts. The Mexican company HDI Seguros increased its gross written premium to EUR 178 million, mainly owing to growth in new business, which was partly due to a new cooperation agreement in motor insurance business. The combined gross written premium of HDI Seguros and Metropolitana in the previous year was EUR 140 million.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

52 Markets and business climate

REPORT ON ECONOMIC POSITION 55 Business development

• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation
• 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

The Polish companies accounted for 39% of the division's total written premium, compared with 29% in the previous year. Following the merger with HDI Asekuracja S. A., T UiR WARTA S. A. recorded premium volume in property insurance of EUR 800 million. The gross written premium of the life insurer T UnŻ WARTA S. A. amounted to EUR 332 million following the merger with HDI-Gerling Życie. Premium income for the TU Europa Group from life and property insurance combined amounted to EUR 525 million. The Talanx Group's position on the Polish insurance market has improved signifi cantly as a result of the takeover of the T UiR WARTA Group and the TU Europa Group.

The Turkish property insurer HDI Sigorta began to benefi t from the eff ects of restructuring. This was initiated in response to ongoing diffi culties on the market and to stabilise the company in the long term. The aim is to bring the product portfolio into line with the market and to achieve a profi table sales structure, effi cient cost and claims management, appropriate pricing and improved risk selection. The company increased its gross written premium by 9% year-on-year to EUR 187 million; with adjustments for exchange rate eff ects, premiums rose by 20%. Written premium in other property insurance increased by 44% in EUR, in line with the company's targets. Premium income in motor insurance fell by 7%; average premiums were up 39%, while the number of contracts declined by 33%. Motor insurance accounted for 59% of the company's overall portfolio, compared with 69% at the same point in the previous year. In particular, the share of motor third party liability insurance fell by 9 percentage points to 25%. HDI Sigorta is thus well on the way to achieving a more diversifi ed and more profi table product portfolio.

The Italian company HDI Assicurazioni held its ground well in a property insurance market that faced the prospect of an overall decline. Gross written premium remained stable in property/casualty insurance. In contrast, life insurance premiums rose by 70% year-on-year, largely owing to higher premium income from sales through banks.

UNDERWRITING RESULT

The combined ratio in international property insurance improved by 0.4 percentage points year-on-year to 95.8 (96.2)%. The newly acquired Polish companies with their comparatively low combined ratios contributed to this, as did the decline in the eff ects of major loss events, particularly in Poland, and the improvement in loss ratios in motor insurance as a result of increases in premiums and improved portfolios, particularly in the core markets of Brazil and Turkey. T UiR WARTA S. A. was aff ected by a major loss event in the agricultural sector (frost damage) in the corresponding period of the previous year. The underwriting result of Italian company HDI Assicurazioni fell slightly, owing to an increase in expenses. The exceptionally low level of losses in motor insurance throughout the sector in the previous year in Mexico did not continue in the current fi nancial year, although losses have remained at a low level.

The division's underwriting result amounted to EUR 32 (3) million. This increase was largely due to the Polish companies. In life insurance business, amortisation of intangible assets (EUR 12 million) at the new Polish life insurers had a negative impact on the underwriting result.

NET INVESTMENT INCOME

Net investment income in the division amounted to EUR 284 million as at the end of the 2013 fi nancial year, a year-on-year rise of 1%. The average return on assets under own management declined by 1.4 percentage points compared with the 2012 fi nancial year to 4.7%, as a result of the prevailing low interest rate policy combined with the conservative investment strategy pursued consistently by subsidiaries. The division's ordinary investment income rose by 11% compared with the previous year, with the inclusion of new companies and larger investment portfolios more than off setting the negative eff ects of lower average interest rates for the year in almost all countries. However, extraordinary investment income fell by 48% despite the higher gains realised at Italian company HDI Assicurazioni, mainly owing to increased volatility on international capital markets. The Polish companies contributed EUR 87 million or 31% to total net investment income, compared with EUR 75 million or 27% in the same period of the previous year. Net investment income includes profi t on investment contracts in the amount of EUR 13 (8) million. Investment contracts are policies from the Polish companies that, in accordance with IFRS, provide too little risk cover to be classifi ed as insurance contracts.

OPERATING PROFIT AND GROUP NET INCOME

The Retail International Division reported an increase in its underwriting result with stable net investment income, mainly as a result of the inclusion of the acquisitions in Poland. This led to a year-onyear increase of 73% in the operating profi t (EBIT) to EUR 185 million. As a result, the EBIT margin rose by 1.2 percentage points to 5.3%. Divisional net income aft er minority interests more than doubled to EUR 101 (42) million. With the division's equity remaining almost stable, the return on equity rose from 3.5% to 5.9%.

COMPARISON OF ACTUAL BUSINESS DEVELOPMENT WITH FORECAST FOR 2013

M22 MANAGEMENT METRICS IN THE RETAIL INTERNATIONAL SEGMENT

	Actual fi gures for 2013	Forecast for 2013
Gross premium growth (with adjustments for exchange rate eff ects)	35.4	17 – 20	ü
Growth in value of new business (life) 1)	approx. 7	n. a.	—
Combined ratio (net, property/casualty only) 2)	95.8	≤ 96	ü
EBIT margin 3)	5.3	≥ 5	ü
Return on equity	5.9	5 – 6	ü

1) Excluding non-controlling interests; 2013: estimated fi gure,

the fi nal fi gure will be published in the 2014 annual report 1) Including net interest income on funds withheld and contract deposits

1) Operating profi t (EBIT)/net premium earned

The Retail International Division achieved gross premium growth of 29.4% (35.4% with adjustments for exchange rate eff ects) in the 2013 fi nancial year, signifi cantly exceeding the range of 17% to 20% published in the previous year's forecast. This was largely due to the fact that gross premium in life insurance in Poland and Italy was higher than expected, following the expansion of sales through banks. The combined ratio of international property insurance companies developed in line with the forecast, despite higher than expected claims expenses in Poland owing to the weather. The EBIT margin was 0.2 percentage points above the medium-term forecast at 5.3% as a result of positive performance. As Group net income was also higher than forecast, the return on equity was at the upper end of the predicted range.

FURTHER KEY FIGURES

M23 THE RETAIL INTERNATIONAL SEGMENT AT A GLANCE

FIGURES IN EUR MILLION

Gross written premium	2013 4,220	2012 3,261	2011 2,482
Property/casualty	2,804	2,308	1,775
Life	1,416	953	707
Net premium earned	3,513	2,621	1,862
Property/casualty	2,332	1,967	1,476
Life	1,181	654	386
Underwriting result	32	3	–42
Property/casualty	97	76	25
Life	–65	–73	–67
Other	—	—	—
Net investment income	284	281	159
Property/casualty	161	151	101
Life	122	130	57
Other	1	—	1
New business measured in annual premium equivalent (life)	192	115	82
Single premiums	1,152	624	406
Regular premiums	77	53	41
New business by product in annual premium equivalent (life)	192	115	82
Unit-linked life and annuity insurance	26	23	27
Traditional life and annuity insurance	52	30	18
Term life products	77	40	16
Other life products	37	22	21

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management

51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

69 Assets and fi nancial position

85 Talanx AG (condensed version)

88 Overall assessment of the economic situation

• 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after

the balance sheet date

116 Risk report 131 Forecast and opportunities report

NON-LIFE REINSURANCE

• ¡ Premium growth as adjusted for exchange rate eff ects on target at +3.5%
• ¡ Catastrophe losses slightly less than expected
• ¡ Combined ratio of 94.9 (95.8)%

M24 ESSENTIAL KEY FIGURES IN THE NON-LIFE REINSURANCE SEGMENT

FIGURES IN EUR MILLION
	2013	2012	2011
Gross written premium	7,818	7,717	6,826
Net premium earned	6,866	6,854	5,961
Underwriting result	332	273	–264
Net investment income	811	982	880
Operating profi t (EBIT)	1,097	1,134	637

M25 MANAGEMENT METRICS

	IN %

	2013	2012	2011
Gross premium growth (adjusted for exchange rate eff ects)	3.5	9.3	9.4
Combined ratio (net) 1)	94.9	95.8	104.2
EBIT margin 2)	16.0	16.5	10.7
Return on equity for Non-Life and Life/Health Reinsurance 3)	15.9	16.5	14.1

1) Including interest income on funds withheld and contract deposits

2) Operating profi t (EBIT)/net premium earned

3) Reported for the Reinsurance Division overall

BUSINESS DEVELOPMENT

Market performance in the year under review in Non-Life Reinsurance was largely satisfactory, although competition was considerably more intense than in 2012. The primary reason here was the availability of suffi cient capacity in the market overall, meaning that supply in reinsurance cover was higher than demand. A further contributory factor was that cedants retained more business for themselves.

Treaty renewals in Non-Life Reinsurance business on 1 January 2013 – when almost two thirds of our treaties in traditional reinsurance were renegotiated – were very promising to start with. The high claims burden experienced by the (re)insurance industry as a result of hurricane "Sandy" had stabilised rates. Over the year, however, rates soft ened more than had been initially expected. This was particularly true in the case of natural catastrophe business in the USA, where additional capacity from alternative markets (CAT bonds, collateralised reinsurance) also contributed to signifi cant price erosion. We were only aff ected by this to a limited extent however, as we are under-represented in US natural catastrophe business in comparison to our market share there.

In regions and business lines with signifi cant losses in 2012, such as marine reinsurance, some major price increases have nevertheless been achieved. As a result of historically high catastrophe losses from the wreck and salvage of the "Costa Concordia" cruise ship and from hurricane "Sandy", rates here have risen signifi cantly, – for programmes aff ected by claims the increase was around 25% to 40%. We again achieved appreciable increases in motor premiums for non-proportional third-party liability cover in the UK. Although rates decreased in markets or lines that had recorded good underwriting results in the comparable period due to low loss levels – such as aviation business – business was still adequately priced. We were also satisfi ed with the development of the rest of our property and liability portfolio in North America. As expected, we recorded substantial growth in the Asian and Middle Eastern markets.

Thanks to our selective underwriting approach, the Non-Life Reinsurance segment was able to achieve prices that were at least equivalent to the very pleasing levels achieved in 2012. In light of this, we have slightly extended our portfolio.

PREMIUM DEVELOPMENT

Gross premium volume for our Non-Life Reinsurance segment rose by 1.3% in the year under review to EUR 7.8 (7.7) billion. At constant exchange rates, especially against the US dollar, growth would have been 3.5%. Gross premium growth, when adjusted for exchange rate eff ects, therefore falls within the expected range of 3% to 5%. As a result of increased charges for fronting business, the retention decreased slightly to 89.9% (90.2%). Net premium earned was EUR 6.9 billion and thus remained more or less unchanged from the previous year (EUR 6.9 billion).

DEVELOPMENT OF RESULTS

Aft er a very uneventful fi rst quarter, we were faced with numerous major losses throughout the rest of 2013. Germany and Canada suff ered particularly badly from claims arising from natural catastrophes. In contrast, the hurricane season in North America and the Caribbean was again unremarkable. It was the fi rst time since 1968 that all storms were classifi ed as being no more severe than category one – the weakest of the fi ve categories.

The largest single losses in the year under review in the Non-Life Reinsurance segment were the hailstorm "Andreas" in Germany with a net burden of EUR 99 million, and the fl oods in Germany and other European countries with a net burden of EUR 93 million. Together with other major losses, these led overall to a net burden for 2013 of EUR 578 (478) million. Even though this exceeded the fi gure for the comparable period, catastrophe losses were still lower than the expected fi gure of EUR 625 million. Our combined ratio of 94.9 (95.8)% resulted once again in an improvement over the previous year and remained below the targeted maximum of 96%. Underutilisation of our major loss budget contributed 92.4% towards this pleasing development, and run-off profi ts contributed 6.2 (4.7) percentage points. The underwriting result increased signifi cantly again to EUR 332 (273) million.

OPERATING PROFIT AND NET INVESTMENT INCOME

Net investment income in the Non-Life Reinsurance Division fell by 17% in the year under review to EUR 811 (982) million. Key drivers here were lower realised gains and the absence of positive impact from infl ation swaps entered into by Hannover Re to hedge some of the risks associated with its loss reserve. These eff ects were off set to a large extent by the very good underwriting result. However, operating profi t (EBIT) of EUR 1,097 million remained below the previous year's fi gure of EUR 1,134 million. Group net income for the Non-Life Reinsurance Division rose signifi cantly by 16% to EUR 377 (325) million. Return on equity in both reinsurance segments was 15.9% (previous year 16.5%).

COMPARISON OF ACTUAL BUSINESS DEVELOPMENT WITH FORECAST FOR 2013

M26 MANAGEMENT METRICS IN THE NON-LIFE REINSURANCE SEGMENT

IN %

	Actual fi gures for 2013	Forecast for 2013
Gross premium growth (adjusted for exchange rate eff ects)	3.5	3 – 5	ü
Combined ratio (net) 1)	94.9	≤ 96	ü
EBIT margin 2)	16.0	≥ 10	ü
Return on equity for Non-Life and Life/ Health Reinsurance 3)	15.9	~ 15	ü

1) Including interest income on funds withheld and contract deposits

2) Operating profi t (EBIT)/net premium earned

3) Reported for the Reinsurance Division overall

LIFE AND HEALTH REINSURANCE

• ¡ Challenging market conditions for life and health reinsurance
• ¡ Targeted gross premium growth as adjusted for exchange rate eff ects achieved at 5.1%
• ¡ Operating profi t less than expected

M27 ESSENTIAL KEY FIGURES IN THE LIFE AND HEALTH REINSURANCE SEGMENT

FIGURES IN EUR MILLION

	2013	2012 1)	2011
Gross written premium	6,145	6,058	5,270
Net premium earned	5,359	5,426	4,789
Underwriting result	–422	–377	–281
Net investment income	611	684	512
Operating profi t (EBIT)	139	270	213

1) Adjusted on the basis of IAS 8, cf. the "Accounting policies"

M28 MANAGEMENT METRICS

section in the Notes

IN %
	2013	2012 1)	2011
Gross premium growth (adjusted for exchange rate eff ects)	5.1	9.8	5.2
Growth in value of new business 2)	–1.6	32.4	64.4
EBIT margin 3), 5) fi nancial solutions/ longevity	5.2	5.0	5.5
EBIT margin 3), 5) mortality/morbidity	1.2	5.2	3.9
Return on equity for Non-Life and Life/Health Reinsurance 4)	15.9	16.5	14.1

1) Adjusted on the basis of IAS 8, cf. the "Accounting policies" section in the Notes 2) Excluding non-controlling interests; 2013: estimated value, the

• defi nitive value will be published in the 2014 annual report
• 3) Operating profi t (EBIT)/net premium earned
• 4) Reported for the Reinsurance Division overall
• 5) Reclassifi cation of treaties

BUSINESS DEVELOPMENT

Business in life and health reinsurance developed moderately in the year under review, despite diffi cult conditions prevailing in life (re)insurance markets in general. Gross premium rose by 1% to EUR 6.1 (6.1) billion. Growth was 5.1% aft er adjusting for exchange rate eff ects, thereby achieving the 2013 forecast target of 5% to 7%.

Net investment income in Life and Health Reinsurance in the reporting period was EUR 611 (684) million. EUR 268 (342) million of this related to assets under own management and EUR 343 (342) million to funds withheld by ceding companies. The decrease of 11% in net investment income refl ects ongoing low interest rates and diffi cult

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group
• 47 Strategy
• 48 Enterprise management
• 51 Research and development

52 Markets and business climate 55 Business development

69 Assets and fi nancial position

REPORT ON ECONOMIC POSITION

• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

investment conditions on the capital markets. In addition, the very positive result achieved by modifi ed coinsurance (ModCo) derivatives in the previous year has returned to normal.

Our fi nancial solutions and longevity business developed exceptionally well; we achieved an EBIT margin of 5.2% and thus clearly exceeded our target of 2%. In mortality and morbidity business the EBIT margin of 1.2% remained signifi cantly under our target of 6%. This was infl uenced by unfavourable development in morbidity business. If mortality business were to be assessed separately, the target would have been exceeded. The unsatisfactory development of the EBIT margin was due to a higher claims experience marketwide in Australian disability business and the worsening claims settlement situation that resulted. The Australian market has since initiated intensive eff orts to positively counteract this development.

PREMIUM DEVELOPMENT

In the year under review market conditions were challenging for life and health reinsurance around the world, and as a result our premium volume in 2013 grew less vigorously than in the previous year. Gross premium rose by 1.4% to EUR 6.1 (6.1) million. Adjusted for exchange rate fl uctuations, the increase would have been 5.1%. Our target for gross premium growth of 5% to 7% in the year under review was thus achieved. Retention decreased to 87.7 (89.3)%. Net premium earned fell slightly by 1% to EUR 5.4 (5.4) million. With adjustments for exchange rates, net premium increased by 2%.

DEVELOPMENT OF RESULTS

Owing to a number of diff erent infl uencing factors, operating profi t (EBIT) of EUR 139 (270) million fell signifi cantly below last year's fi gure, but nevertheless remained solid. Determining factors for the decline were the absence of one-off eff ects that had positively infl uenced 2012 and the burdens from Australian disability business. Group net income totalled EUR 76 (104) million; return on equity is reported jointly for Non-Life Reinsurance and Life/Health Reinsurance together.

COMPARISON OF ACTUAL BUSINESS DEVELOPMENT WITH FORECAST FOR 2013

M29 MANAGEMENT METRICS IN THE LIFE AND HEALTH REINSURANCE SEGMENT

IN %
	Actual fi gures for 2013	Forecast for 2013
Gross premium growth (adjusted for exchange rate eff ects)	5.1	5 – 7	ü
Growth in value of new business 1)	–1.6	≥ 10	û
EBIT margin 2) fi nancial solutions/ longevity	5.2	≥ 2	ü
EBIT margin 2) mortality/morbidity	1.2	≥ 6	û
Return on equity for Non-Life and Life/ Health Reinsurance 3)	15.9	~ 15	ü

1) Excluding non-controlling interests; 2013: estimated value,

the defi nitive value will be published in the 2014 fi nancial statements

2) Operating profi t (EBIT)/net premium earned

3) Reported for the Reinsurance Division overall

CORPORATE OPERATIONS

• ¡ Underwriting business reported in the segment for the fi rst time in 2013
• ¡ Operating profi t of EUR 83 million owing to one-off eff ects

Talanx AG sold shares in Swiss Life Holding AG via the market in small tranches in 2013. This reduced its stake in the company from 9.26% at the beginning of the year to just over 5%. This sale was a result of our conservative investment strategy, derived from our holistic risk management system, which aims to limit accumulation risks. We still regard our remaining investment in Swiss Life as a long-term investment for Talanx AG.

REINSURANCE SPECIALISTS AT THE GROUP

Underwriting business written through our subsidiary Talanx Reinsurance (Ireland) Ltd. has been reported in the Corporate Operations segment for the fi rst time in 2013. The aim of this inhouse reinsurance is to increase retention and optimise capital utilisation. In-house business written by Talanx Re (Ireland) will be partly reallocated to the ceding segments, to enable the respective segments to exploit the benefi ts of diversifi cation. Furthermore, any business that includes additional cross-segment diversifi cation benefi ts will be reported in the Corporate Operations segment. Gross written premium in this business amounted to EUR 40 million in the year under review. It resulted from reinsurance cessions in the Industrial Lines, Retail Germany and Retail International segments. Talanx Re (Ireland) posted an operating result of –EUR 1 (2) million for this business in the Corporate Operations segment in 2013, owing to start-up losses.

Talanx Reinsurance Broker GmbH is wholly owned by Talanx AG and handles the complete spectrum of the reinsurance business process for Group cedants. In 2013, it once again managed to obtain the reinsurance capacity required for all of the Group cedants that it manages on the global market. The company's operating profi t for the 2013 fi nancial year was EUR 16 (16) million, of which a signifi cant portion will be reallocated to the business ceding segments. EUR 2 (2) million of this company's earnings remained in the Corporate Operations segment.

INVESTMENT SPECIALISTS AT THE GROUP

Talanx Asset Management GmbH – in cooperation with its subsidiary Ampega Investment GmbH (until 1 July 2013 AmpegaGerling Investment GmbH) – is chiefl y responsible for handling the management and administration of the Group companies' investments and provides related services such as investment accounting and reporting. The total contribution of the two companies and of Talanx Immobilien Management GmbH to the segment's operating profi t amounted to EUR 36 (39) million in the 2013 fi nancial year.

As an investment company, Ampega Investment GmbH administers public and special funds and performs fi nancial portfolio management tasks for institutional clients. It focuses on portfolio management and the administration of investments for clients outside the Group. The fund sector recorded a gradual increase in the interest shown by private investors in public funds in 2013. Continuing low interest rates and subsiding fears about the eff ects of the fi nancial market crisis and Europe's future led to a cautious change of direction among investors, who in previous years had shown a marked preference for savings and time deposit investments over investment funds. However, a tendency towards a decline in the popularity of savings in Germany had a braking eff ect on the public's willingness to invest money in products such as investment funds in the longer term. The total volume of assets managed by Ampega rose by 10% to EUR 15.5 (14.0) billion year-on-year. Over half of this sum, EUR 8.3 (7.9) billion, was administered on behalf of Group companies through special funds and direct investment mandates. Of the remaining portion, EUR 3.5 (2.8) billion was attributable to institutional third-party clients and EUR 3.8 (3.3) billion to retail business. The latter is off ered both through the Group's own distribution channels and products such as unit-linked life insurance as well as through external asset managers and banks.

OPERATING PROFIT

The operating result of the Corporate Operations segment improved to EUR 83 (–36) million in the 2013 fi nancial year, largely owing to the sale of shares in Swiss Life Holding AG by Talanx AG. This transaction resulted in a pre-tax profi t of EUR 110 million.

Group net income for this segment attributable to shareholders of Talanx AG amounted to EUR 12 (−103) million in the 2013 fi nancial year.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management

51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development 69 Assets and fi nancial position

85 Talanx AG (condensed version)

88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report

115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

ASSETS AND FINANCIAL POSITION

ASSETS

The balance sheet structure of the Talanx Group is shaped by its character as a diversifi ed fi nancial services group and its activities as a large globally operating insurance group. The predominant asset item is investments, accounting for 76% of total assets. Without taking into account funds withheld by ceding companies and investments under investment contracts, investments amounted to EUR 86.3 billion or 65% of total assets. These investments serve fi rst and foremost as cover for insurance business provisions (69% of balance sheet total), which – excluding respective life insurance provisions insofar as the investment risk is borne by policyholders – totalled EUR 91.7 billion. The most important sources of funding are shareholders' equity (8% of balance sheet total) and issued subordinated debt (2% of balance sheet total).

AMOUNT AND COMPOSITION OF ASSETS

The increase of EUR 2.5 billion in our total assets to EUR 132.9 billion is principally attributable to growth of +EUR 2.9 billion in our investment portfolio, including investments for the account and risk of holders of life insurance policies. The growth in investments was largely the result of an increase in the portfolio of "Financial assets available for sale" (+EUR 3.6 billion). In contrast, decreases were recorded for holdings in the "Financial assets held to maturity" category (−EUR 0.9 billion), and in "Financial assets classifi ed at fair

M30 ASSET STRUCTURE OVER A MULTI-YEAR PERIOD

FIGURES IN EUR MILLION
	2013		2012 1)		2011
Intangible Assets	2,551	2%	2,793	2%	2,210	2%
Investments	100,962	76%	98,948	76%	87,467	76%
Investments for the account and risk of holders of life insurance policies	8,325	6%	7,451	6%	6,067	5%
Reinsurance recoverables on technical provisions	6,596	5%	6,989	5%	6,467	6%
Accounts receivable on insurance business	5,071	4%	5,081	4%	4,729	4%
Deferred acquisition costs	4,513	3%	4,378	3%	4,012	3%
Cash	1,864	1%	2,119	2%	1,570	1%
Deferred tax assets	532	< 1%	529	< 1%	325	< 1%
Other assets	2,201	2%	2,006	2%	1,865	2%
Non-current assets and assets of disposal groups classifi ed as held for sale	248	< 1%	56	< 1%	565	1%
Total assets	132,863	100%	130,350	100%	115,277	100%

1) Adjusted on the basis of IAS 8, see the "Accounting policies" section in the Notes

value through profi t or loss" (−EUR 0.6 billion). Further information can be found in the next section "Movements in investments". The increase of EUR 0.9 billion in investments for the account and risk of holders of life insurance policies came mainly from the Retail Germany segment (+EUR 1.3 billion). In contrast, investments in the Retail International segment declined (−EUR 0.4 billion).

Intangible assets reported on the balance sheet of EUR 2.6 (2.8) billion include EUR 1.2 (1.3) billion of insurance-related intangible assets (PVFP) arising out of the acquisition of past insurance portfolios. They also include capitalised goodwill of EUR 1.1 (1.2) billion. Further information on intangible assets can be found in the Notes under "Notes on the consolidated balance sheet". Amortisation to be taken on acquired insurance portfolios results in a charge to net income before tax, to the extent that it is attributable to the shareholders' portion, of EUR 106 (144) million. Recognised insurance-related assets – relating to the policyholders' share – are matched with corresponding provisions for premium refunds.

The balance sheet item "Technical provisions for life insurance insofar as the investment risk is borne by policyholders" increased by EUR 0.9 billion in line with the increase in "Investments for the account and risk of holders of life insurance policies", which is comprised of investments relating to unit-linked insurance products. In the case of these life insurance products, where policyholders themselves bear the investment risk, technical liabilities refl ect the market values of the corresponding assets.

The item "Non-current assets and assets of disposal groups classifi ed as held for sale" comprises individual properties and planned sales of life insurance portfolios in Retail International. Further details of individual transactions can be found in the Notes under "Noncurrent assets held for sale and disposal groups".

ASSET MANAGEMENT AND OBJECTIVES

The fi nancial year just ended continued to be shaped by low interest rates. The intermittent short periods when rates rose (May 2013) were used to invest liquid assets in long-term securities. Portfolio management for the life insurance companies in the last fi nancial year focused principally on generating income to strengthen the additional interest reserve required by German commercial law, and on optimising returns in new investment with due regard to duration matching. The investment policy pursued continued to be conservative in nature. Risk measurement and risk controlling of investments are both extremely important. A solid and highly effi cient interface between these core functions and portfolio management allows regular monitoring of portfolios to be an integral part of our asset management activities and thereby leads to effi cient risk management. Various risk measurement instruments already in place were adapted to suit current market conditions.

Agencies adopted a very cautious approach when awarding ratings, and the negative ratings trend aff ecting the markets therefore continued, particularly in the fi rst half of the year. Despite this, 80% of instruments in the fi xed-income securities asset category are rated "A" or better. A broad-based system designed to limit accumulation risks resulted in a balanced mix of assets, whose risk-reducing qualities have also proven their worth in the Eurozone crisis.

The scope of our investment activities is defi ned by the Group's internal risk model and the risk budgets of individual companies. We continued to optimise portfolios whilst paying due attention to asset/liability management guidelines and the risk-bearing capacity of each company.

A further element that we take into consideration is the investment guidelines at Group, segment and company level, which are subject to annual review and, if necessary, amendment with regard to their appropriateness in relation to regulatory and market-induced restrictions.

Our investment portfolio does not include any vulnerable counterparties due to high-quality investment procedures. Fixed-income investments continued to be the most important asset class.

MOVEMENTS IN INVESTMENTS

FIGURES IN EUR MILLION

The total investment portfolio increased by 2.0% over the fi nancial year to EUR 101.0 billion. The slight fall in funds withheld by ceding companies of EUR 0.3 billion was more than off set by a rise in assets under own management of EUR 2.3 billion. The expansion of the portfolio of assets under own management was largely due to cash infl ows from underwriting business which were reinvested in accordance with respective corporate guidelines. Investments under investment contracts at the year end totalled EUR 1.8 billion.

Interest rates on the markets were volatile in 2013. Aft er falling in the fi rst quarter, rates were relatively high at the end of the second quarter. They then moved sideways in the third quarter and at the beginning of the fourth, before increasing slightly towards the end of the year. Interest rates rose in 2013 across all maturities and this was refl ected in a corresponding decrease in the fair values of fi xedincome investments. Year on year yields in Germany increased signifi cantly: two-year government bonds rose by around 17 basis points to 0.19%, fi ve-year bonds by over 67 basis points to 0.96%, and ten-year bonds likewise climbed over 67 basis points to reach 1.96%.

In addition to interest rate factors, movements in the US dollar exchange rate had a direct eff ect on our US dollar-denominated investments. At 31 December 2012 the USD stood at 1.32 to the euro. Aft er falling to 1.28 in the fi rst quarter, rates rose again until the end of the year and the US dollar depreciated against the euro. At

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

the end of the year the USD stood at 1.38 to the euro. Exchange rate fl uctuations alone resulted in a fall in value of almost 5% in our USD holdings aft er translation into the Group reporting currency (euros). At the end of the year, the USD investment portfolio amounted to EUR 12.9 billion and accounted for 15% of total assets under own management.

Fixed-income investments were again the most signifi cant asset class in 2013. Most reinvestments occurred in this class, with due consideration being given to existing investment structure. Fixedincome securities accounted for 78% of the total investment portfolio, and the contribution to earnings of this asset class amounted to EUR 3.1 billion. As far as possible this was reinvested in the year under review.

Equity exposure remained fairly low over the 2013 fi nancial year. The equity allocation aft er taking account of derivatives (equity ratio) was 1.1% at the end of the year.

M33 BREAKDOWN OF ASSETS UNDER OWN MANAGEMENT BY ASSET CLASS

FIGURES IN EUR MILLION
	2013			2012		2011
Investment property	1,623	2%	1,297	2%	1,100	2%
Investments in affi liated companies and participations	92	< 1%	80	< 1%	78	< 1%
Investments in associated companies and joint ventures	247	< 1%	237	< 1%	209	< 1%
Loans and receivables
Loans incl. mortgage loans	1,041	1%	1,182	1%	1,291	2%
Loans and receivables due from governmental or quasi governmental entities, together with fi xed-income securities	31,190	36%	30,919	37%	31,670	42%
Financial assets held to maturity	2,984	3%	3,857	5%	4,294	6%
Financial assets available for sale
Fixed-income securities	43,531	50%	40,080	48%	31,009	41%
Variable-yield securities	1,391	2%	1,257	1%	1,132	2%
Financial assets at fair value through profi t or loss
Financial assets classifi ed at fair value through profi t or loss
Fixed-income securities	797	1%	1,346	1%	856	1%
Variable-yield securities	87	< 1%	83	< 1%	16	< 1%
Financial assets held for trading
Fixed-income securities	4	< 1%	16	< 1%	5	< 1%
Variable-yield securities	120	< 1%	123	< 1%	70	< 1%
Derivatives 1)	82	< 1%	74	< 1%	53	< 1%
Other invested assets	3,121	4%	3,501	4%	3,967	4%
Total investments under own management	86,310	100%	84,052	100%	75,750	100%

1) Derivatives only with positive fair values

Although alternative investments and real estate asset classes still only constituted a small proportion of the total investment portfolio, they nevertheless diversifi ed and thus added stability to the various portfolios.

M32 BREAKDOWN OF THE INVESTMENT PORTFOLIO

FIXED-INCOME SECURITIES

Interest rates remained low in 2013. At the start of the year, bond markets were focused on the weak economy and political uncertainty. Central banks provided signifi cant funds and thus alleviated lack of confi dence with regard to refi nancing and liquidity; this led in turn to lower spreads for fi nancials and corporate bonds. Fixed-income investments chiefl y comprised the traditional asset classes of government bonds, corporate securities and German covered bonds (Pfandbriefe). The Retail Germany segment sold bonds with a short residual term to realise gains, which were then used to strengthen the additional interest reserve. The funds that were released were used to increase investment in long-term bonds (single callables). When implementing this strategy, we made a point of selecting secured bonds with a good rating that allowed the average yield and duration of the portfolio to be increased. In the third quarter, to reduce future reinvestment risk, we made long-term forward purchases of Belgian government bonds that met our target yield. To increase yields further, the Retail Germany and Industrial Lines segments invested selectively in subordinated bonds from fi nancial institutions and insurers with good credit ratings.

The portfolio of fi xed-income investments (excluding mortgage and policy loans) rose by EUR 2.3 billion in 2013, totalling EUR 78.5 billion at the end of the year. At 78% of total investments, this asset class continues to represent the most signifi cant share of our investments in terms of volume. Fixed-income investments were primarily divided into the investment categories of "Loans and receivables" and "Financial assets available for sale".

"Fixed-income securities available for sale", whose volatility impacts on shareholders' equity, increased signifi cantly (+EUR 3.5 billion) to reach EUR 43.5 billion, or 55% of total investments in the fi xed income portfolio. German covered bonds (Pfandbriefe) and corporate securities accounted for the majority of these investments. Valuation reserves – i. e. the balance of unrealised gains and losses – have fallen from EUR 2.6 billion to EUR 1.3 billion since the end of 2012, owing to the slight rise in interest rates.

Alongside the "Financial assets available for sale" category, the Group is adhering strictly to its strategy of making new investments in the "Loans and receivables" category in order to reduce balance sheet volatility. Holdings remained relatively steady during the year, standing at EUR 32.2 (32.1) billion at the end of the year (41% of total holdings in this asset class). Investment in government bonds was fairly limited due to further rating downgrades or extremely low yields. Our portfolio of government securities or securities with a similar level of security in this holdings category amounted to EUR 9.7 billion. German covered bonds (Pfandbriefe) still represent the major item in the portfolio. Off -balance sheet valuation reserves declined signifi cantly from EUR 4.5 billion to EUR 2.7 billion.

By the end of the year, notably through our Italian subsidiary, the Group had only moderate exposure to government bonds from the so-called GIIPS countries. In the light of risk considerations, we sold Greek government bonds in our portfolio as early as 2011, with the exception of a small residual holding. As a result, accumulated write-downs in the current year under review only amounted to EUR 14 thousand for the whole Group.

At the end of the year, the market value of investment exposure to these countries was EUR 1.5 billion, corresponding to 1.8% of total assets under own management. Our exposure to Italian government bonds (market value EUR 1,144 million) is due to the Group's presence in this country. Our Group company HDI Assicurazioni S. p. A. accounts for EUR 549 million of this.

In the last quarter of the year under review it was decided that exposure to government bonds in Italy and Spain should be cautiously increased. In this context please see our remarks in the risk report and in the Notes under "Nature of risks associated with insurance contracts and fi nancial instruments".

Group holdings in the "Financial assets held to maturity" category in 2013 totalled EUR 3.0 billion. Having increased our holdings in this category in 2011 through restructuring, particularly in the reinsurance segment, we undertook no further expansion in the fi nancial year just ended. The option and intention of holding these investments to maturity enables the companies to reduce the volatility in their balance sheets that is caused by movements in interest rates.

We continue to focus on government bonds with good ratings or securities from similarly sound issuers when investing in fi xedincome securities, although there has been minimal reinvestment in 2013 in this area. In the previous year, rating downgrades led to a reduction in AAA-rated holdings, and this trend has continued in the current fi nancial year. As at the balance sheet date holdings of AAA-rated bonds stood at EUR 23.1 billion. This represents 29% of the total portfolio of fi xed-income securities and loans.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

The Group continues to pursue a conservative investment policy. For further information on the credit quality of our investments please refer to the Notes under "Nature of risks associated with insurance contracts and fi nancial instruments".

Funds withheld by ceding companies in respect of collateral provided for cedants' technical provisions in the Reinsurance Division decreased over the course of the year under review from EUR 13.2 billion to EUR 12.9 billion. Allowing for increased investment portfolios, this corresponds to a slightly lower ratio of around 13%.

EQUITIES AND EQUITY FUNDS

European stock markets performed well in 2013. The EURO STOXX 50 closed the reporting period at 3,109 points, up 18% compared with the beginning of the year. The DAX rose by as much as 25.5%, closing at 9,552 points. During the period under review, the Group sold a portion of its shares in Swiss Life Holding AG via the stock market. The eff ects of this are described in the "Net investment income" section below.

The net balance of unrealised gains and losses on holdings within the Group (excluding "Other Investments") rose by EUR 83 million and now totals EUR 320 (237) million.

REAL ESTATE INCLUDING SHARES IN REAL ESTATE FUNDS

Investment property totalled EUR 1.6 billion as at the balance sheet date. An additional EUR 503 million is held in real estate funds, which are recognised under "Financial assets available for sale". The real estate portfolio grew by EUR 448 million compared to the previous year, principally as a result of increased investing activities in the Non-Life Reinsurance segment. Depreciation of EUR 27 million was taken on investment property in the reporting period, along with impairments of EUR 12 million. These write-downs are off set in the period by write-ups of almost EUR 6 million.

The real estate allocation (investment portfolios under own management), including investments in real estate funds, rose to 3 (2)%.

ALTERNATIVE INVESTMENTS

(INVESTMENT PORTFOLIOS UNDER OWN MANAGEMENT)

Holdings of alternative investments are still at a low level and serve to diversify the portfolio. The Talanx Group invested a total of EUR 55 million in a gas cavern fund through its subsidiaries in the fi rst quarter. The Group's investment represented around 20% of the total investment volume of EUR 278 million.

NET INVESTMENT INCOME

M35 DEVELOPMENT OF NET INVESTMENT INCOME

FIGURES IN EUR MILLION

	2013	2012	2011
Ordinary investment income	3,147	3,165	2,938
thereof current income from interest	2,875	2,927	2,734
thereof profi t/loss from shares in associated companies	13	7	—
Realised net gains on investments	605	372	309
Write-ups/write-downs on investments	–91	–75	–112
Unrealised net gains/losses on investments	–22	182	–30
Other investment expenses	194	180	149
Income from investments under own management	3,445	3,464	2,956
Interest income on funds withheld and contract deposits	334	323	306
Income from investment contracts	13	8	—
Total	3,792	3,795	3,262

Net investment income for the year under review was around EUR 3.8 billion, the same level as in the previous year. Current interest income fell slightly, but at EUR 2.9 billion still formed the major part of investment income received. Gains realised on investments were off set by slightly higher write-downs and signifi cantly lower unrealised gains of –EUR 22 (182) million.

Ordinary investment income at year end totalled EUR 3,147 (3,165) million. Falling interest rates on the capital markets led to an average coupon in the fi xed-income securities portfolio of 3.8%, which is slightly less than the previous year's average of 3.9%. However, it was possible to cushion the impact of downward trends in interest rates by increased reinvestment in products selected in accordance with our high-quality investment procedures that have a correspondingly higher yield. Derivative fi nancial instruments (including forward purchases) were used to hedge risks associated with future reinvestments, notably in the case of life insurers operating in our Retail Germany segment. Further information on the associated fi nancial implications can be found in the Notes under "Notes on the consolidated balance sheet", item 13, "Derivative fi nancial instruments and hedge accounting".

Overall, total realised net gains on investments in the fi nancial year were well above the previous year's level, amounting to EUR 605 (372) million. These chiefl y comprise net gains realised by the Retail Germany segment. There was increased investment in callable bonds (single callables) with a good rating and a minimum term of ten years in order to optimise returns and extend durations. To implement this strategy, securities in the portfolio, mostly with a short residual term, were sold. The realised net gains were used to augment the additional interest reserve required by the German Commercial Code (HGB). The gains also include EUR 81 million from the partial sale of shareholdings in Swiss Life Holding AG. As a result of the sale, additional foreign exchange gains on the CHF-denominated equities arose which are reported under "Other income/expenses".

On a net basis, write-downs required in the past year were higher than in 2012, standing at EUR 91 million overall aft er taking account of write-ups. Across the Group as a whole, write-downs on other investments increased (EUR 44 million), including in particular writedowns on real estate funds managed by third parties (EUR 27 million). In contrast, impairments of only EUR 7 (25) million were required in respect of fi xed-income securities, including EUR 3 million for Germany's "Landesbanken" (regional banks) and EUR 3 million for the Dutch SNS Reaal Bank.

Across all asset categories as a whole, write-downs of EUR 102 (94) million were off set by write-ups of EUR 11 (19) million.

The net unrealised result deteriorated signifi cantly from EUR 182 million to −EUR 22 million. As part of this, the unrealised result in the Retail Germany segment fell from EUR 64 million to EUR 2 million, due to both changes in interest rates and performance of derivatives (swaptions used to hedge interest rates). The net unrealised result in the two reinsurance segments fell from EUR 89 million to −EUR 27 million. This was largely due to the market value of the ModCo derivative falling to EUR 7 (52) million, and infl ation swaps taken out by Hannover Rück SE declining to −EUR 41 (+28) million.

The net result from interest income and expenses on funds withheld and contract deposits totalled EUR 334 (323) million.

The breakdown of net investment income in 2013 by Group segment is shown below. The increase in contributions to earnings from the Retail Germany and Corporate Operations segments was off set by falling contributions, notably from the reinsurance segments. Further information can be found in the Notes under "Notes on the consolidated balance sheet", item 30 "Net investment income".

1) After elimination of intra-Group cross-segment transactions

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group
• 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

Investment income reported by the Corporate Operations segment consists principally of costs for managing all assets, and gains/losses realised on selling strategic shareholdings.

OFF-BALANCE SHEET FINANCING INSTRUMENTS

The Talanx Group has entered into various commitments. Of material signifi cance to the assessment of its assets are letters of credit and trust accounts put up as security for technical liabilities (EUR 6,281 million), blocked custody accounts and other trust accounts (EUR 2,538 million), guarantee payments under issued subordinated bonds (EUR 2,862 million), outstanding commitments under existing capital participations (EUR 1,558 million), commitments arising out of rental/lease agreements (EUR 464 million), and obligations under §§ 124 et seqq. of the Insurance Supervision Act (VAG) as a member of the Security Fund for Life Insurers (EUR 447 million). In addition, there were other liabilities of EUR 770 million as at 31 December 2013.

ANALYSIS OF CAPITAL STRUCTURE

M37 CAPITAL STRUCTURE OVER A MULTI-YEAR PERIOD

Furthermore, the Talanx Group is subject to contingent liabilities due to involvement in court proceedings and arbitration procedures. Further information can be found in the Notes under "Other information – Contingent liabilities and other fi nancial commitments" and "Other information – Rents and leasing".

FINANCIAL POSITION

The Group's capital structure and the composition of its liabilities are shaped by its primary insurance and reinsurance business. Technical provisions, which, in accordance with the requirements of regulators, must be covered by assets, account for the largest share. In addition, the Group fi nances itself above all through shareholders' equity and through subordinated debt and liabilities, which also represent our most important sources of funds.

FIGURES IN EUR MILLION
	2013			2012 1)		2011
Shareholders' equity	11,211	8%	11,309	9%	8,691	8%
Subordinated liabilities	3,107	2%	3,107	2%	2,615	2%
Technical provisions	91,697	69%	89,484	69%	83,118	72%
Technical provisions for life insurance insofar as the investment risk is borne by policyholders	8,325	6%	7,451	6%	6,067	5%
Other provisions	3,095	2%	3,264	2%	2,589	2%
Liabilities	13,446	11%	13,731	10%	10,212	9%
Provisions for deferred taxes	1,749	1%	1,984	2%	1,494	1%
Liabilities of disposal groups classifi ed as held for sale	233	< 1%	20	< 1%	491	1%
Total liabilities	132,863	100%	130,350	100%	115,277	100%

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

CURRENCY EFFECTS

In view of the international nature of the various insurers involved in the Group and as a result of our business model, currency-related interdependencies between assets and fi nancial position are inevitable. In principle, however, insurers who operate internationally receive payments and pay claims in their respective national currencies. This means that assets held to cover liabilities are also held in foreign currencies (matching currency coverage). In this context please see our remarks in the risk report. For the purposes of the consolidated fi nancial statements, respective national currencies are presented as explained in the Notes under "Summary of major accounting policies – Currency translation".

DEVELOPMENT OF MAJOR ITEMS

The proportion of net provisions relating to insurance business relative to total assets as at the balance sheet date – including funds withheld by ceding companies but excluding investments under investment contracts – stood at 86 (85)%. Provisions thus include surplus coverage in the amount of EUR 13.9 (14.6) billion.

	COMPOSITION OF INSURANCE BUSINESS GROSS PROVISIONS
M38	(AFTER CONSOLIDATION)

FIGURES IN EUR BILLION

	2013	2012 1)	2011
Unearned premium reserve	5.7	5.5	4.7
Benefi t reserve	49.8	48.2	45.7
Loss and loss adjustment expense reserve	33.7	33.2	31.4
Provision for premium refunds	2.2	2.3	1.0
Other technical provisions	0.3	0.3	0.3
Total	91.7	89.5	83.1

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

Aft er allowance for reinsurers' shares, the breakdown is as follows:

M39 COMPOSITION OF INSURANCE BUSINESS NET PROVISIONS (AFTER CONSOLIDATION)

FIGURES IN EUR BILLION

	2013	2012 1)	2011
Unearned premium reserve	5.0	4.9	4.3
Benefi t reserve	48.9	47.2	44.7
Loss and loss adjustment expense reserve	28.9	28.0	26.5
Provision for premium refunds	2.2	2.3	1.0
Other technical provisions	0.3	0.3	0.3
Total	85.3	82.7	76.8

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

Provisions remain at the Group's disposal for the respective remaining periods to maturity. Further information can be found in the Notes under "Notes on the consolidated balance sheet", item 20, "Benefi t reserve" and item 21 "Loss and loss adjustment expense reserve".

Gross technical liabilities aft er consolidation are dominated largely by the benefi t reserve and the loss and loss adjustment expense reserve. As at the balance sheet date, 54 (54)% of total technical provisions were attributable to the benefi t reserves.

PROVISIONS

M40 GROSS PROVISIONS BY SEGMENT (AFTER CONSOLIDATION)

FIGURES IN EUR MILLION

		Benefi t reserve			Loss and loss adjustment expense reserve
	2013	2012	2011	2013	2012	2011
Industrial Lines	1	1	1	8,392	8,149	7,883
Retail Germany	36,765	35,548	34,099	2,701	2,573	2,579
Retail International	2,554	2,073	1,811	2,142	2,040	1,303
Non-Life Reinsurance	—	—	—	17,748	17,511	16,979
Life/Health Reinsurance	10,447	10,626	9,828	2,772	2,970	2,694
Corporate Operations	—	—	—	—	—	—
Total	49,767	48,248	45,739	33,755	33,243	31,438

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

69 Assets and fi nancial position

• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report 131 Forecast and opportunities report

The benefi t reserve is a mathematically calculated value for future liabilities (present value of future liabilities less present value of future incoming premium), and is particularly relevant for life insurance.

Overall, gross technical provisions rose by 2% or EUR 2.2 billion relative to the previous year. EUR 0.2 billion of this increase related to the unearned premium reserve, under which portions of premiums for subsequent insurance periods that are not yet due are reported. There was also an increase in benefi t reserves (+3% or EUR 1.5 billion) and in the loss and loss adjustment expense reserve (+2% or EUR 0.5 billion).

The increase in gross benefi t reserves (EUR 1.5 billion) was driven principally by life insurance business in the Retail Germany (+EUR 1,217 million) and Retail International (+EUR 481 million) segments. In contrast, gross benefi t reserves in the Life/Health Reinsurance segment declined (−EUR 179 million). The performance of the Retail Germany segment was largely due to neue leben Lebensversicherung AG (+EUR 490 million), PB Lebensversicherung AG (+EUR 407 million) and TARGO Lebensversicherung AG (+EUR 233 million).

The increase of EUR 0.5 billion (gross) in the loss and loss adjustment expense reserve related mainly to the Non-Life Reinsurance segment (EUR 237 million) and to the Industrial Lines segment (EUR 243 million). The increase in the Industrial Lines segment was chiefl y attributable to HDI-Gerling Industrie Versicherung AG (+EUR 222 million), and is due in particular to the high level of catastrophe losses in the year under review.

Of the decrease in the reserve for premium refunds, that basically represents policyholders' participation in net investment income, EUR 0.1 billion was attributable to the Retail Germany segment.

OTHER PROVISIONS

Other provisions fell in the fi nancial year from EUR 3,264 million to EUR 3,095 million. The previous year's increase was due above all to adjustments to provisions for pensions resulting from the revised version of IAS 19. Provisions for pensions decreased in 2013 due to higher interest (−EUR 177 million); further information can be found in the Notes under item 23 "Provisions for pensions and other post-employment benefi ts". In contrast, provisions for taxes rose by EUR 79 million.

LIABILITIES

Talanx AG issued a fi rst-rate unsecured bond with a volume of EUR 750 million on 13 February 2013, of which EUR 185 million is held by Group companies. The issue price amounted to 99.958%. The features are described under item 26 of the Notes, "Notes payable and loans".

The Group has two syndicated variable-interest credit lines with a nominal value of EUR 1.2 billion and a term of fi ve years, which are intended to provide short- to medium-term fi nancing. As at 31 December 2013, draw-downs amounted to EUR 150 million. Both credit lines can be terminated by the lenders if there is a change of control, i. e. if a person or persons acting jointly, other than HDI Haft pfl ichtverband der Deutschen Industrie V. a. G., gains direct or indirect control over more than 50% of the voting rights or share capital of Talanx AG.

With respect to further loan agreements and letters of credit, please refer to information given on off -balance sheet fi nancial instruments and explanatory remarks in the Notes under "Nature of risks associated with insurance contracts and fi nancial instruments" and "Other Information".

Liabilities include funds withheld under reinsurance treaties of EUR 5.5 (6.0) billion. These mainly comprise balances on the liabilities side arising from non-traditional life reinsurance contracts. The decrease of EUR 0.5 billion was mainly due to exchange rate eff ects.

OFF-BALANCE-SHEET TRANSACTIONS

Information on existing contingent liabilities can be found in the Notes under "Other information – Contingent liabilities and other fi nancial commitments".

ASSET/LIABILITY MANAGEMENT

The structure of our technical provisions and other liabilities essentially determines the basis for the Talanx Group's investment strategy. Our focus is on asset/liability management: investment performance should as far as possible cover changes in technical liabilities and meet requirements on the liabilities side. This stabilises our positions in fl uctuating capital markets.

To this end we mirror the major characteristics of our liabilities such as maturity and currency structure – and also susceptibility to infl ation – by aiming to purchase investments that respond in a similar manner. In this context please see our remarks in the risk report from page 116 onwards.

The so-called Macaulay duration of the total fi xed-income securities investment portfolio of the Group stood at 7.2 (6.8) across all segments in the year under review, and has therefore increased compared to the previous year. Duration management within individual segments is guided by the requirements of the respective underwriting business, as described above. For example, the modifi ed asset duration of 9.6 years in the Retail Germany Division is relatively long compared to that of the Industrial Lines Division (3.7 years), refl ecting the length of the capital commitment period, especially as regards life insurance products. Assets-side duration and liabilities-side requirements are reconciled between insurance providers and Talanx Asset Management GmbH at regular intervals.

As far as matching currency cover is concerned, US dollar-denominated investments continue to account for the largest share (15%) of the foreign currency portfolio within the Talanx Group. Sizeable positions are also held in British pounds and Australian dollars, although in total they do not account for more than 5% of all assets.

We also use derivative fi nancial instruments to make our asset management as eff ective as possible. Further information can be found in the Notes under "Notes on the consolidated balance sheet", item 13, "Derivative fi nancial instruments and hedge accounting".

CAPITAL MANAGEMENT

Capital management is based on a process geared to optimising the steering and use of capital within the Group that is structured according to clear guidelines and workfl ows.

Eff ective and effi cient capital management is a vital component of the Group's integrated set of management tools. We diff erentiate between three fundamental capital concepts: "company's capital", "risk-based capital" and "excess capital".

We defi ne the company's capital as the economic capital available in a business unit that is attributable to the shareholder. It is composed of the IFRS shareholders' equity and what is known as "soft capital." We include unrealised gains and losses on assets or liabilities aft er taxes in soft capital, and also, for example, the loss reserve discount, an amount of loss reserve in property/casualty insurance that goes beyond best-estimate reserves, the non-capitalised value of in-force business in life and health insurance, and unrealised gains and losses in the loans and receivables asset category.

Risk-based capital is the amount of capital required to operate the insurance business that ensures that the probability of capital erosion is less than 0.03% (see also the risk report). This confi dence level corresponds to a 99.97% value at risk. The capital required for this purpose is calculated for the primary insurance companies on the basis of the Talanx risk capital model.

Excess capital is the remainder of the company's capital minus the risk-based capital; it thus consists of capital that is not at risk. Since it is not required for covering business risks and insofar as it also cannot be used to take on additional risk, it can be withdrawn without overstretching risk-bearing capacity. The ratio of company's capital to risk-based capital also indicates capital adequacy. Given that excess capital is a component of company's capital, it does not contain any borrowed funds whatsoever but is instead directly attributable to the shareholder. However, there are restrictions on the repatriation of excess capital associated with both regulatory/ legal considerations and rating requirements.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development 69 Assets and fi nancial position 85 Talanx AG (condensed version)

89 Other factors in success

88 Overall assessment of the economic situation

• 93 Corporate Governance incl. remuneration report
  • 115 Events of special signifi cance after the balance sheet date

OTHER REPORTS AND DECLARATIONS

• 116 Risk report
• 131 Forecast and opportunities report

The general goal of capital management within the Talanx Group – an optimised risk-appropriate capital structure for the Group – is explicitly anchored in our strategy (pages 47 et seqq.). In addition to satisfying legal requirements and rating agencies' capital requirements, therefore, a collateral condition for capital allocation within the Group is a systematic orientation towards risk/return aspects and achieving Talanx's desired target portfolio. To this end, and in the interests of diversifi cation, investments are channelled into preferred growth markets and business segments.

A central task of capital management therefore lies in identifying capital that exceeds or, alternatively, falls short of required risk-based capital at the defi ned confi dence level. The SCR, being the diff erence between value at risk – defi ned as the estimated maximum loss that with a specifi ed probability will not be exceeded within a specifi ed holding period – and the expected value of the forecasting distribution, is used in this context as a risk measurement parameter. In the event of over- or undercapitalisation, the next step is to take appropriate corrective action to rectify or at least alleviate it. In the case of signifi cant overcapitalisation at company level, for example, capital management measures may be geared to systematically reducing free excess capital in order to reinvest it more effi ciently elsewhere within the Group. Our stated aim is to use our capital as effi ciently as possible while at the same time ensuring appropriate capital adequacy and considering the eff ects of diversifi cation. We are putting this aim into practice, for example, by developing our own Group reinsurance unit in Ireland. By ceding insurance risks internally, the Group is able to optimise its capital requirement while, at the same time, the Group's own reinsurance arm can optimise its capital utilisation through diversifi cation.

A further major objective is to substitute equity surrogates such as hybrid capital for shareholders' equity, which impacts positively on the Group's capital structure and Talanx AG's ability to make own funds available to operational units.

By optimising the Group's capital structure, our capital management safeguards the adequacy of our capital resources, both from a rating standpoint and with regard to solvency and economic considerations. At the same time, it ensures that returns on invested capital are generated for shareholders on a sustainable basis in accordance with the Talanx strategy. Our capital structure must continue to make it possible to respond to organic and inorganic growth opportunities at both Group and company level, and it must provide certainty that volatility on capital markets and in insurance business can be absorbed without falling below the desired confi dence level. The fact that Talanx handles its capital resources eff ectively is a crucial indicator for existing and potential investors that it utilises available capital responsibly and effi ciently.

The Group capital management steering function thus enables us to:

• ¡ create transparency as to the capital actually available
• ¡ specify the amount of risk-based capital required and coordinate its calculation
• ¡ optimise capital structure, implement fi nancing measures, and support all structural changes that have implications for capital required

The Group currently allocates capital across the segments on the basis of its in-house risk model.

EQUITY

SHAREHOLDERS' EQUITY RATIO AND RETURN ON EQUITY

The equity ratio, defi ned as the total of all equity components relative to total assets, has performed as follows:

M42 EQUITY RATIO

FIGURES IN EUR MILLION
	2013	2012 1)	2011
Total equity	11,211	11,309	8,691
thereof non-controlling interests in shareholders' equity	3,997	4,156	3,284
Total assets	132,863	130,350	115,277
Equity ratio	8.4%	8.7%	7.5%

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

Allowing for other equity components recognised by regulators such as subordinated liabilities, the modifi ed equity ratio was as follows:

M43 OTHER EQUITY COMPONENTS AND MODIFIED EQUITY RATIO

FIGURES IN EUR MILLION
	2013	2012 1)	2011
Other equity components	1,332	1,289	1,508
Modifi ed equity ratio	9.4%	9.7%	8.8%

1) Adjusted on the basis of IAS 8. cf. "Accounting policies" section in the Notes

M44 RETURN ON EQUITY

FIGURES IN EUR MILLION

	2013	2012 2)	2011
Group net income 1)	762	626	515
Return on equity	10.6%	10.0%	10.0%

1) Net income after non-controlling interests

2) Adjusted on the basis of IAS 8, cf. the "Accounting policies" section in the Notes

Information on developments in the current fi nancial year can be found in the section of the Management Report entitled "Economic report".

CHANGES IN SHAREHOLDERS' EQUITY

Shareholders' equity was just slightly less than at 31 December 2012, down by EUR 98 million to EUR 11,211 (11,309) million.

The major changes in shareholders' equity were driven by the following factors:

Group net income attributable to our shareholders increased by 2.2% to EUR 762 (626) million and was allocated in full to retained earnings.

"Cumulative other comprehensive income and other reserves" contracted by −EUR 450 million year-on-year to EUR 188 million. This change was mainly due to a decline in unrealised gains/losses on investments. These declined by EUR 680 million in the fi nancial year, from EUR 1,949 million to EUR 1,269 million, as a result of higher interest rates, mainly on government bonds with good ratings, and the euro strengthening. Gains/losses from currency translation also declined by EUR 257 million. This was mainly due to depreciation of the Australian dollar, the South African rand, the US dollar and the Polish zloty against the euro. The decline was off set by other changes to shareholders' equity, which rose from –EUR 1,446 million to –EUR 906 million. The overall increase of EUR 540 million included EUR 438 million attributable to policyholder participations/shadow accounting. The cash fl ow hedge reserve contracted to EUR 34 (87) million.

Accounting standard IAS 19, "Employee Benefi ts", which has to be applied from 1 January 2013, also had a signifi cant impact on changes in Group shareholders' equity. It led to a retroactive reduction of EUR 46 million in shareholders' equity as at 1 January 2012 and to a reduction of EUR 334 million as at 31 December 2012. Higher interest rates in the year under review was the main reason for the rise of EUR 106 million in actuarial gains and losses; this is recognised under other comprehensive income in other reserves and has the eff ect of increasing shareholders' equity. For further details, please see the "Accounting policies" section, subsection "Changes in accounting policies and errors" in the Notes. Payment of a dividend to Talanx AG shareholders in May of the period under review led to a decrease of EUR 265 million in shareholders' equity.

Non-controlling interests in shareholders' equity fell by EUR 159 million – or 4% – to EUR 4.0 billion. The non-controlling interest share in net income for the fi nancial year was EUR 520 (518) million. The dividend payment to non-Group shareholders totalling EUR 258 (202) million stemmed mainly from the Hannover Re Group.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management

51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development

• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

M45 CHANGES IN SHAREHOLDERS' EQUITY

FIGURES IN EUR MILLION

D) Cumulative other comprehensive income and other reserves

E) Non-controlling interests in shareholders' equity

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

M46 SHAREHOLDERS' EQUITY BY SEGMENT 1) INCLUDING NON-CONTROLLING INTERESTS

2013	2012 2)	2011
1,898	1,906	1,680
—	—	—
2,596	2,675	2,417
61	63	23
1,948	1,998	698
237	285	7
6,519	6,707	5,591
3,717	3,849	3,294
–1,739	–1,950	–1,699
—	—	—
–11	–27	4
–18	–41	–40
11,211	11,309	8,691
7,214	7,153	5,407
3,997	4,156	3,284

1) Shareholders' equity per segment is defi ned as the diff erence between the assets and liabilities of each segment.

2) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

Note: In the interests of simplicity the non-controlling interests in equity for the reinsurance business sector are derived from Group non-controlling interests in Hannover Re; for this purpose, the two reinsurance segments are combined.

The Corporate Operations segment posted a negative value that refl ects Talanx AG's debt leverage. As the Group's holding company, Talanx AG performs a fi nancing function for the Group in the primary insurance sector and for the companies in Corporate Operations. The liabilities concerned are mainly retirement pension provisions amounting to EUR 939 (1,046) million, liabilities from the utilisation of credit lines of EUR 150 (500) million, notes payable of EUR 565 (9) million, and provisions for taxes totalling EUR 145 (129) million. These liabilities are off set on Talanx AG's balance sheet by liquid assets and, above all, by the value of its participations in subsidiaries, which are consolidated against the pro rata equity of the subsidiaries in the consolidated fi nancial statements.

VALUATION RESERVES NOT RECOGNISED IN THE BALANCE SHEET

The unrecognised valuation reserves shown in the following table do not take technical liabilities into account. Valuation reserves are attributable principally – in an amount of EUR 2,779 (4,481) million – to loans and receivables. Further information can be found in the Notes in the section "Notes on the consolidated balance sheet" under "Investment property", "Loans and receivables", "Financial assets held to maturity", "Other Investments", "Other assets", "Subordinated liabilities", "Notes payable and loans" and "Investments and liabilities under investment contracts".

M47 SHAREHOLDERS' EQUITY AND VALUATION RESERVES NOT RECOGNISED IN THE BALANCE SHEET

FIGURES IN EUR BILLION

	2013	2012 1)	2011
Group shareholders' equity	11.2	11.3	8.7
Valuation reserves before taxes not recognised in the balance sheet, including shares of policyholders and non-controlling interests	2.9	4.5	2.7

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

LIQUIDITY AND FINANCING

We generate liquidity primarily from our operational primary insurance and reinsurance business, from current income on our investments and from fi nancing measures. Regular liquidity planning and an investment strategy aligned with liquidity requirements ensure that the Group is able to meet its payment obligations at all times. Accordingly, no liquidity shortages have occurred.

ANALYSIS OF THE CONSOLIDATED CASH FLOW STATEMENT

The consolidated cash fl ow statement has minimal informational value for the Group. Its cash fl ow is primarily governed by the business model typical of primary insurance and reinsurance, i. e. we normally receive premiums up front for risks we have taken on, but only make payments at a later date in the event of a claim. Funds are invested until required in interest-bearing investments so as to earn regular income. We therefore neither regard the cash fl ow statement as a substitute for liquidity planning or fi nancial planning, nor use it as a management tool.

M48 SUMMARY OF CASH FLOWS

FIGURES IN EUR MILLION
	2013	2012 1)	2011
Cash fl ow from ongoing operating activities	5,897	5,669	3,835
Cash fl ow from investment activities	–5,633	–5,980	–2,976
Cash fl ows from fi nancing activities	–433	808	–510
Change in cash and cash equivalents	–169	497	349

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes

Cash infl ows from operating activities, which also include infl ows from investment income, rose slightly year-on-year from EUR 5,669 million to EUR 5,897 million. The calculation adjusts net income of EUR 1,282 (1,144) million to take account of the increase in "Changes in technical provisions" of EUR 0.9 billion and the decrease in "Changes in funds withheld and in accounts receivable and payable" of EUR 0.8 billion.

Cash outfl ows from investing activities were determined by payments made for investment purchases. As in the previous year, outfl ows associated with the purchase of investments exceeded infl ows from sales and maturities by EUR 4,302 (4,489) million. In real estate, cash infl ows from sales are more than off set by cash outfl ows for new investments. Net cash outfl ow from property sales and new investments (including property companies) was –EUR 393 (−72) million. Cash outfl ows from investing activities totalled –EUR 5,633 (−5,980) million in the reporting period, lower than the previous year which included cash outfl ows from company acquisitions (−EUR 801 million).

Cash fl ow from fi nancing activities in the period under review was determined by dividend payments. These rose by EUR 321 million to −EUR 523 (−202) million; EUR 265 million related to Talanx AG, EUR 180 million to Hannover Rück SE and EUR 47 million to E+S Rückversicherung AG. The previous year included a cash infl ow from the increase in capital associated with Talanx AG's IPO; aft er taking issue costs into account, this amounted to EUR 498 million. "Change in other fi nancing activities" of EUR 86 (518) million was chiefl y the result of Talanx AG issuing subordinated loans and partially repurchasing individual subordinated bonds on the capital market in the previous year. Cash infl ow in the year under review was aff ected to a large extent by Talanx AG issuing a fi rst-rate unsecured bond in the amount of EUR 565 million (aft er taking intra-Group purchases into account), and HR GLL Central Holding Inc., Orlando, USA issuing mortgage loans totalling EUR 77 million. This was off set by cash outfl ows due to the Talanx AG's credit line being reduced by EUR 350 million. Further information can be found in the Notes under "Notes on the consolidated balance sheet", item 26 "Notes payable and loans". This item also includes interest payments in the amount of EUR 188 (185) million. The net cash fl ow from fi nancing activities declined by EUR 1,241 million year-on-year to −EUR 433 (808) million.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development

• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
  • 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

Talanx Group. Annual Report 2013 83

Compared with the previous year, cash and cash equivalents decreased by EUR 255 million in total to EUR 1.9 billion. EUR 2 (−52) million was deducted from (added to) cash through reclassifi cation in the reporting period for disposal groups pursuant to IFRS 5.

Further information on our liquidity management can be found in the risk report under "Liquidity risk".

FINANCING

In addition to the funds from changes in shareholders' equity as described above and assets covering provisions and liabilities, the Group also has lines of credit at its disposal that can be drawn upon as required. Please see the subsection entitled "Financial position – Development of major items" in this section.

Various fi nancial institutions have given us guarantees in the form of letters of credit as surety for our technical liabilities. Further information can be found in the Notes under "Other information – Contingent liabilities and other fi nancial commitments".

ANALYSIS OF DEBT

Our subordinated bonds and debentures (abbreviated here to "subordinated bonds") complement shareholders' equity. Their purpose is to optimise the cost of capital and help ensure liquidity at all times. We refer to these subordinated bonds and other bank borrowings that serve to fi nance corporate acquisitions as "strategic debt."

In the year under review bank loans decreased to EUR 150 (500) million. The Group also has long-term loans, principally mortgage loans, amounting to EUR 227 (168) million.

Talanx AG issued a fi rst-rate unsecured bond with a volume of EUR 750 million on 13 February 2013, of which EUR 185 million is held by Group companies. The issue price was 99.958%. A description of the bond is given under item 26 of the Notes, "Notes payable and loans".

M49 CHANGES IN STRATEGIC DEBT

FIGURES IN EUR MILLION
	2013	2012	2011
Subordinated bonds of Hannover Finance (Luxembourg) S. A.	2,237	2,233	1,732
Subordinated bonds of HDI-Gerling Industrie Versicherung AG	144	149	261
Subordinated bonds of HDI Lebens versicherung AG	112	113	113
Subordinated bonds of Talanx Finanz (Luxemburg) S. A.	612	612	209
Subordinated bonds of Talanx AG	—	—	300
Bank borrowings of Talanx AG	150	500	550
Mortgage loans of Hannover Re Real Estate Holdings, Inc., Orlando	150	168	203
Mortgage loans of HR GLL Central Europe GmbH & Co. KG, Munich	77	—	—
Notes payable of Talanx AG	565	9	9
Other	2	—	—
Total	4,049	3,784	3,377

Further information can be found in the Notes under "Notes on the consolidated balance sheet", item 17, "Shareholders' equity", item 18, "Subordinated liabilities", item 26, "Notes payable and loans", item 27, "Other liabilities", and under "Other information – Contingent liabilities and other fi nancial commitments".

GROUP SOLVENCY

As an insurance holding company, Talanx AG is subject to regulatory provisions pursuant to §1b Insurance Supervision Act (VAG). Supervision relating to the Talanx Group is carried out at Group level by the Federal Financial Supervisory Authority (BaFin). The parent company HDI V. a. G. supplies supplementary information to BaFin for this purpose, in accordance with the "adjusted solvency" rules.

Solvency refers to the ability of an insurer to meet obligations assumed under its contracts on an ongoing basis. In particular, this entails fulfi lling defi ned minimum capital requirements. The aim of the adjusted solvency rules is to prevent multiple use of equity to cover risks from underwriting business at diff erent levels in the Group hierarchy. Adjusted solvency is calculated on the basis of the IFRS consolidated fi nancial statements by comparing minimum equity required for volume of business transacted (required solvency margin) with eligible equity actually available (actual solvency margin). In order to determine eligible capital, adjustments are made to IFRS equity; in particular, eligible elements of subordinated liabilities and the valuation reserves not included in equity are added in, and intangible assets are deducted. The Talanx Group's eligible capital is more than double the legal requirement.

M50 ADJUSTED SOLVENCY 1)

2013	2012	2011
8,167	8,358	6,843
210.2%	225.1%	201.8%

1) Calculated pro rata for Talanx from HDI Group's adjusted solvency

The contraction in the adjusted solvency ratio from 225.1% to 210.2% in 2013 is partly due to the decrease of EUR 191 million in eligible capital, and partly to an increase in the solvency margin of EUR 173 million. The decrease in Group capital is partly attributable to a reduction in on- and off -balance sheet unrealised gains on investments as a result of market conditions, and partly the result of a reduction of EUR 334 million on 1 January 2013 following application of IAS 19 (new). The corrected solvency ratio consequently fell on 1 January 2013 to 216%.

RATING OF THE GROUP AND ITS MAJOR SUBSIDIARIES

In the year under review the Talanx Group and its companies again received very good ratings from the international rating agencies Standard & Poor's (S&P) and A.M. Best. Two diff erent ratings are given, namely, the insurer fi nancial strength rating, which primarily assesses ability to meet obligations to policyholders, and the issuer credit rating or counterparty credit rating, which provides investors with an assessment of a company's credit quality in general.

M51 FINANCIAL STRENGTH RATINGS OF THE TALANX GROUP AND ITS SUBGROUPS

	Standard & Poor's			A. M. Best
	Rating	Outlook	Rating	Outlook
Talanx Group 1)			A	Stable
Talanx primary group 2)	A+	Stable
Hannover Re subgroup 3)	AA–	Stable	A+	Stable

1) Designation per A.M. Best: "HDI V. a. G., the ultimate mutual parent company of Talanx AG, and various subsidiaries."

2) The subgroup of primary insurers (Industrial Lines, Retail Germany and Retail International Divisions) and its major core companies

3) Hannover Rück SE and its major core companies; corresponds to the Talanx Group Reinsurance Division

S&P maintained its rating for the Hannover Re subgroup and the Talanx primary insurance group, and continued to assess outlook as stable. The fi nancial strength rating of A+ for the primary insurance group was also confi rmed under S&P's new rating methodology, thereby attesting to the group's particularly good fi nancial risk profi le. S&P also confi rmed Hannover Re's rating of AA–, which is an extremely strong assessment when compared to competitors. In the breakdown of results, business risk profi le was noted as particularly outstanding. It is extremely pleasing that risk management was assessed as "strong" for primary insurance and "very strong" for Hannover Re.

A.M. Best awards the primary insurance companies in the Talanx Group a fi nancial strength rating of A (excellent) with a stable outlook and assesses Hannover Re's fi nancial stability as A+ (superior), likewise with a stable outlook. It justifi es the continuing high ratings for the subgroups on the grounds of their healthy earnings situations and excellent capitalisation.

FINANCIAL STRENGTH RATINGS IN PRIMARY INSURANCE

M52 TALANX PRIMARY GROUP COMPANIES

	Standard & Poor's		A. M. Best
	Rating	Outlook	Rating	Outlook
HDI Versicherung AG, Germany	A+	Stable	—	—
HDI-Gerling America Insurance Company, USA	A+	Stable	A	Stable
HDI-Gerling Industrie Versicherung AG, Germany	A+	Stable	A	Stable
HDI-Gerling Welt Service AG, Germany	A+	Stable	A	Stable
HDI Lebensversicherung AG, Germany	A+	Stable	A	Stable
neue leben Lebens versicherung AG, Germany	A+	Stable	—	—
TARGO Lebens versicherung AG, Germany	A+	Stable	—	—
HDI-Gerling Verzekeringen N. V. (Nederland), Netherlands	A	Stable	—	—
HDI Versicherung AG, Austria	A	Stable	—	—
PB Lebensversicherung AG, Germany	A	Stable	—	—
TUiR WARTA S. A., Poland	A	Stable	—	—
Talanx Reinsurance (Ireland) Ltd., Irland	—	—	A	Stable

The fi nancial strength ratings of all fi ve companies assessed by A.M. Best were confi rmed in the year under review. S&P defi nes the fi rst seven companies in the table as "core companies" of the Talanx primary group, and thus awards them the same rating of A+ as the Talanx primary insurance group. The remaining four companies are classifi ed by S&P as strategically signifi cant participations and they are therefore rated one notch (an increment within a single rating

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management

51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

89 Other factors in success

55 Business development 68 Assets and fi nancial position 85 Talanx AG (condensed version)

88 Overall assessment of the economic situation

• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

category) lower. The Belgian company HDI-Gerling Assurances S. A. previously held an S&P rating of A with stable outlook; this was withdrawn at the start of 2014 as the company converted to a branch and, for technical reasons, only independent companies are permitted to hold fi nancial strength ratings.

Ratings of individual Hannover Re subsidiaries are available on its website (www.hannover-re.com). There were no signifi cant changes in the year under review.

ISSUER CREDIT RATINGS

M53 ISSUER CREDIT RATINGS

		Standard & Poor's		A. M. Best
	Rating	Outlook	Rating	Outlook
Talanx AG	A–	Stable	bbb+	Positive
Hannover Rück SE	AA–	Stable	aa–	Stable

S&P rates Talanx AG's ability to pay as A– (strong with stable outlook), corresponding to the third-best rating category on the issuer credit rating scale. A.M. Best assesses Talanx AG's ability to pay as bbb+ (good), and has changed the outlook from stable to positive. It has also raised the issuer credit rating outlook to positive for HDI V. a. G. and several operating companies, thereby acknowledging the Group's improved fi nancial fl exibility resulting from Talanx AG's successful IPO.

In comparison to the fi nancial strength ratings awarded to the subsidiaries, Talanx AG's performance is somewhat inferior; this is due to the customary rating markdown that is applied to holding companies. As a result, in accordance with the general analytical criteria used by rating agencies, companies that exercise a purely holding function with no operational activities of their own receive a lower fi nancial strength rating than a comparable insurance undertaking would receive.

Various ratings also exist for the subordinated liabilities issued by Group companies (issue ratings). These are set out in the explanatory notes to the consolidated balance sheet under item 18 "Subordinated liabilities".

TALANX AG (CONDENSED VERSION)

This subsection gives some information on Talanx AG to supplement our report on the Talanx Group. Talanx AG is the parent company of the Talanx Group. The company serves as fi nancial and management holding company of the Group, which is active worldwide with its own companies, branches and cooperative ventures. The companies belonging to the Talanx Group operate chiefl y in the areas of primary insurance and reinsurance, but are also engaged – principally in Germany – in the fi nancial services sector.

Unlike the consolidated fi nancial statements, which are prepared in accordance with International Financial Reporting Standards (IFRS) in the form adopted for use in the European Union as at 31 December 2013, Talanx AG's annual fi nancial statements are prepared on the basis of the German Commercial Code (HGB).

Talanx AG is a listed company and pays dividends to its shareholders out of its result as calculated under German commercial law. The signifi cant operating control parameter for Talanx AG is therefore net income for the year as calculated in accordance with the HGB.

NET ASSETS

M55 BALANCE SHEET – LIABILITIES

As in past years, Talanx AG's balance sheet continues to be shaped by its function as a holding company, and aff ected signifi cantly on the assets side by the euro-dominated interests held in its subsidiaries. Total assets fell slightly by 1% to EUR 7.9 (8.0) billion. Whilst the carrying amount of shares in affi liated companies increased by 2% to EUR 7.2 (7.1) billion, loans to affi liated companies declined by 44% to EUR 141 (253) million and bank balances decreased by 22% to EUR 162 (207) million. In addition, long-term securities with a book value of EUR 62 million were sold. The proportion of total assets attributable to shares in affi liated companies remained consistently high at 91 (89)%.

Receivables from subsidiaries under profi t transfer agreements were higher than in the previous year at EUR 223 (170) million. However, other receivables in the form of income from long-term equity investments fell to EUR 13 (62) million.

As at the balance sheet date, Talanx AG had concluded fi rm agreements with two banking groups, each providing for a fl oating-rate euro-denominated syndicated line of credit available to be drawn as necessary. As at 31 December 2013 a tranche of EUR 150 million was in use. The nominal amounts of the credit lines available at that date were EUR 500 million and EUR 700 million, meaning that a total of EUR 1,050 million was unused. The agreed terms are for fi ve years, with both lines of credit maturing in 2016. The fl oating rate is linked to the Euribor plus a premium.

The capital structure and composition of the liabilities of Talanx AG are shaped by the fact that it is a holding company. Equity has increased by EUR 107 million over the previous year, and now totals EUR 5.2 billion (66% of total equity and liabilities). Of this increase, EUR 104 million is due to higher disposable profi ts, and EUR 3 million to the issue of employee shares. An additional 171,952 shares have been issued by Talanx AG through its employee share scheme.

Liabilities totalled EUR 1.9 billion (24% of total equity and liabilities), and are made up of liabilities to affi liated companies (61%), and bonds and liabilities to banks (39%). Other liabilities amounted to EUR 821 million (10% of total equity and liabilities).

Liabilities to affiliated companies fell by 28% to EUR 1,133 (1,563) million. The main reason for this was that on 13 February 2013 Talanx AG placed senior on unsecured bond with a volume of EUR 750 million. The cash infl ow was used principally to replace existing fi nancing arrangements within the Group. Liabilities from loans increased as a result to EUR 565 (9) million.

The increase in other liabilities to EUR 821 (790) million was mainly due to provisions for corporation and trade tax being raised to EUR 145 (128) million, and to interest on provisions for taxes increasing to EUR 37 (27) million.

The shareholders' equity ratio increased slightly to 66 (64)%.

FINANCIAL POSITION

Liquidity needed to meet current payment obligations is assured by means of ongoing liquidity planning. This is carried out by Accounting at least once a month. By means of regular liquidity planning and an investment strategy geared inter alia to liquidity requirements, we ensure that Talanx AG is able to meet its payment obligations at all times.

Infl ows of funds to Talanx AG derive principally from profi t transfer agreements with affi liated companies, income from long-term equity investments and interest income on loans. As part of liquidity planning, anticipated cash fl ows from profi t transfers are regularly reconciled with Group Controlling within the scope of constantly updated budget accounting. The company primarily has to fund interest and repayments of principal on its liabilities, and dividend payments. On account of its status as a holding company, activities connected with the acquisition or disposal of undertakings may give rise to short-term cash fl ows in the form of outfl ows or infl ows.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

89 Other factors in success

55 Business development 69 Assets and fi nancial position 85 Talanx AG (condensed version)

88 Overall assessment of the economic situation

• 93 Corporate Governance incl. remuneration report
  • 115 Events of special signifi cance after the balance sheet date

OTHER REPORTS AND DECLARATIONS

• 116 Risk report
• 131 Forecast and opportunities report

With regard to selecting creditors, the company pays close attention, as it always has done, to long-term reliability and capital strength. Some banks are also fi nding themselves under pressure as a result of the current debt crisis facing several member states of the Eurozone. Constant monitoring of creditors' capital strength – a task performed centrally by Talanx Asset Management GmbH – is therefore increasingly relevant.

RESULTS OF OPERATIONS

M56 STATEMENT OF INCOME (HGB)

2013 594 21 615 3 75	2012 365 21 386 3 98
78	101
537	285
–131	–146
406	139
–14	–14
23	–6
369	131

Talanx AG's profi tability improved signifi cantly over the previous year with net income for the year of EUR 369 (131) million. Business result performance is illustrated in a summary presentation that refl ects our company's role as a holding company. The company's annual fi nancial statements are drawn up in euro. As the results reported by subsidiaries also include income from long-term equity investments in foreign currencies, the company's result is indirectly aff ected by exchange rate fl uctuations. A weaker euro tends to lead to higher net income from participations. A change in interest rates can also aff ect Talanx AG's result. Because lines of credit usually have fl oating interest rates, rising interest rates tend to result in higher interest expenses.

Net income from participations, which consists of income from long-term equity investments as well as income and expenditure from profi t and loss transfers from the subsidiaries, totalled EUR 594 (365) million in the fi nancial year. One of the main reasons for the increase was the inclusion of the gain on disposal from selling part of the shareholding in Swiss Life Holding AG. In addition, there was increased dividend income from Hannover Rück SE, and an improved result from Talanx International AG, due in particular to dividend income from the Polish companies acquired in 2012.

Net interest income was up on the previous year at –EUR 131 (–146) million. Income from other long-term securities and loans fell slightly to EUR 12 (13) million. This was due to lower dividend income as a result of the sale of Swiss Life shares. Other interest and similar income fell by EUR 5 million to EUR 4 million. The principal reason for this was falling interest rates in the year under review for fi xed deposits and overnight money, and the absence of variable interest income from a swap transaction that ceased in 2012.

Interest and similar expenses declined to EUR 146 (168) million. This was due principally to converting the hybrid loan from Meiji Yasuda into shares as part of the IPO of 2 October 2012. Interest expenses also fell due to a swap transaction coming to an end in 2012. In contrast, interest expenses rose as a result of a loan, drawn as a subordinated bond issued by Talanx Finanz (Luxemburg) S. A. on 4 April 2012, being recognised for an entire fi nancial year for the fi rst time. In addition, interest expenses rose due to Talanx AG issuing a senior bond with an issue volume of EUR 750 million on 13 February 2013; this was used, however, to repay a bond placed within the Group and to partially repay drawn credit lines. Interest expenses on tax liabilities also increased in comparison to the previous year.

Other operating income remained unchanged year-on-year at EUR 21 (21) million. This amount includes income from settlement of intra-Group services. In addition, income from the sale of HDI-Gerling Industrie Versicherung AG's subordinated bond created a one-off eff ect in the year under review, as did income from the sale of Talanx Finanz (Luxemburg) S. A.'s subordinated debt in the previous year.

The total amount of all other expenditure in the fi nancial year (personnel expense, other operating expenses, depreciation, amortisation and write-downs) was EUR 78 (101) million; expenditure in the previous year included costs of the initial public off ering.

Profi t from ordinary activities therefore increased signifi cantly to EUR 406 (139) million.

The extraordinary result includes an extraordinary expense of EUR 14 million relating to an addition to the provision for pensions pursuant to the German Accounting Law Modernisation Act ( BilMoG).

In the year under review taxes on income amounted to EUR 23 (–6) million. These relate partly to the result of the current fi nancial year, and partly to additions to the provision for tax risks. Tax income in the previous year resulted principally from the fi nal tax assessment for 2009.

Net income for the fi nancial year increased by 182% over the previous year to EUR 369 (131) million. Aft er addition of retained profi ts brought forward from the previous year of EUR 242 million, disposable profi t totalled EUR 611 (508) million.

APPROPRIATION OF THE DISPOSABLE PROFIT

The Board of Management and Supervisory Board intend to propose to the General Meeting that Talanx AG's disposable profi t of EUR 611,472,147.15, as reported at 31 December 2013, should be appropriated as follows:

• ¡ Distribution of a dividend of EUR 1.20 on each eligible share: EUR 303,357,160.80
• ¡ Retained profi ts brought forward: EUR 308,114,986.35

REMUNERATION REPORT

Talanx AG's remuneration system is consistent with the remuneration system for the Talanx Group, as described in detail in the Talanx Group report. The sums shown in that remuneration report refl ect remuneration awarded to the Board of Management in respect of activities undertaken on behalf of the Talanx Group in the fi nancial year. As well as remuneration elements arising from activities on behalf of Talanx AG, the sums described include remuneration components awarded in respect of activities on behalf of its consolidated companies.

RISK REPORT

As holding company of an insurance and fi nancial services group, whose companies are predominantly active in the insurance sector, Talanx AG's business development is essentially subject to the same risks as that of the Talanx Group. Talanx AG's result is to a large part determined by long-term equity investments and profi t transfers of the individual companies. In principle, Talanx AG shares the risks of participating interests and subsidiaries in proportion to the stake held in the respective participating interest. Risks of subsidiaries and Talanx AG itself are described in the Group risk report.

FORECAST AND OPPORTUNITIES REPORT

As Talanx AG is closely linked with Group companies and occupies an important position in the Group due to its role as holding company, statements made in the Group's forecast and opportunities report also refl ect expectations for the parent company, Talanx AG. We expect that net income for Talanx AG in the 2014 fi nancial year will be signifi cantly less than the result for 2013. This is mainly due to the sizeable gain on disposal in the year under review resulting from the partial sale of shares in Swiss Life Holding AG.

OVERALL ASSESSMENT OF THE ECONOMIC SITUATION

Bearing in mind the overall economic environment and specifi c conditions prevailing in the industry, the Management of Talanx AG assesses business performance in the year under review as satisfactory. There was a particularly strong increase in Group net income while gross premium and EBIT also grew again. Our divisions contributed to the result in diff erent ways.

Industrial Lines and Retail International contributed signifi cantly to gross premium growth, while Retail Germany and Retail International recorded exceptionally sharp increases in operating profi t. The expense ratio remained within the expected range despite substantial major losses. Group return on equity was higher than targeted, with individual divisions varying in how well the target was met.

Structurally, the result remained well balanced. The Group is fi nancially robust, and its solvency ratio continues to be signifi cantly higher than is legally required. As at the date of drawing up the Management Report, the Board of Management rates the Group's economic situation as sound.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 68 Assets and fi nancial position
• 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date
• 116 Risk report 131 Forecast and opportunities report

OTHER FACTORS IN SUCCESS

STAFF

The Talanx Group employed 21,529 (22,180) staff at year-end, equivalent to 20,004 (20,887) full-time positions. The number of employees outside Germany fell as expected to 10,227 (10,989) as a result of restructuring measures in the Retail International Division in connection with the integration of the Polish company WARTA. The headcount within Germany rose slightly to 11,302 (11,191). While there was a further decline in the Retail Germany Division owing to restructuring measures, the number of employees in the other segments increased in Germany. Our Group has employees in 40 countries on fi ve continents around the world. Roughly threequarters of staff in Germany are employed in the federal states of North Rhine-Westphalia and Lower Saxony.

M57 HEADCOUNT BY REGION

In Germany, the proportion of female staff was 48%, while 17% of employees were part-time. Both these fi gures were thus on a par with previous years. Of employees in Germany not subject to collective bargaining agreements, 31 (28)% were women. At senior executive level, women accounted for 19% of positions.

It is a fundamental principle at Talanx that employee development takes place without regard to ethnic origin, gender or religion. The participation of women in most of our development programmes for management trainees and newly appointed managers has averaged almost 30% in recent years. This means that we are able to increase further the proportion of women in management positions. Working-time models geared to the various phases of life and support for families searching for suitable day-care facilities also help to advance and retain women with management potential.

Our human resources management aims to ensure Talanx's success in times of constant social, economic and cultural change. We can achieve this by having the right staff in the right place and by assigning them the right tasks. Our employees are distinguished by their high levels of professionalism, loyalty, entrepreneurial mindset and action, fl exibility, motivation and mobility. Targeted employee support and development is of crucial importance to the Group's successful development and the achievement of our strategic objectives. We provide continuous and personal support for employees through training and a transparent management style. Human resources marketing, professional training and staff development are fundamental components of our Group-wide human resources work.

Basic professional training is particularly important for securing new talent. As at 31 December 2013, there were 410 (404) trainees at the Talanx Group in Germany. Courses that lead to commercial qualifi cations in insurance and fi nance are particularly respected at the Talanx Group. Practical orientation and self-reliant working as part of a team are a very important part of this training, which spans all companies. Trainees thus have a wide range of career options aft er completing their courses. As well as the number of trainees, the number of employees taken on permanently aft er completing their courses has remained consistently high for years. Talanx's training courses have won German insurance industry training awards

140 CONSOLIDATED FINANCIAL STATEMENTS 290 FURTHER INFORMATION

four times since 2005. Talanx is also the only company to have submitted at least one entry every year since this training award was introduced; these have oft en concerned projects that involved supporting social welfare organisations. Our training focuses not only on professional and methodological expertise, but also to a large extent on social skills.

We also value highly the dual-track Bachelor of Arts (business studies, insurance, sales) and Bachelor of Science (business computing) programmes. To this end, we extended our cooperation agreements with the colleges that run these courses. To support the Group's internationalisation, study courses in 2013 increasingly incorporated periods of practical work experience for students at foreign subsidiaries or branches. As experience has been positive so far, we plan to continue with this concept.

In addition to human resources marketing, where we once again stepped up our activities at careers fairs and university events, strategic staff development continued successfully at the Group. Employees and managers are systematically prepared for current and future challenging tasks through various training courses and staff development programmes. As part of our fostering of young staff , we off er a programme that allows top performers and employees with high potential to develop their potential, and in 2013 we introduced a development programme for specifi c divisions. Established managers with the potential to take on additional duties can participate in the management development programme. This programme was launched for the fi rst time at the end of 2013 in English, with participants from foreign subsidiaries and branches. Managers are also off ered training on an individual basis and coaching if required. We give preference to our own employees when fi lling management positions, assuming that candidates are equally well qualifi ed. F urther training for employees for current or future tasks is essential to ensure that staff remain employable in times of change. We are constantly adapting our entire range of training courses to current and future requirements, and also organise a variety of insurance and specialist seminars, training sessions in practices and conduct, management training and IT and language courses.

The Talanx Corporate Academy has been successfully established as a key instrument in strategy implementation and the development of corporate culture within the Group. It provides information on strategically relevant topics in the form of a programme for the most senior level of management in all divisions throughout the Group, which off ers high-quality content with a practical focus. As a catalyst for change and a platform for exchanging knowledge and experience, the Talanx Corporate Academy, with the involvement of a large number of participants, played an important part in the reporting period in promoting cooperation between the divisions and Corporate Operations. The Talanx Corporate Academy has developed the Talanx values in discussions with senior management around the world. These form the basis for cooperation within the Group and are a crucial factor in success.

As a public declaration of its commitment to the recognition, inclusion and appreciation of diversity in its corporate culture, Talanx signed up to the Diversity Charter in October 2013. We do not merely want to create a working atmosphere that ensures openness and integration, but also to actively and consciously exploit diversity to improve the company's performance and competitiveness. The Group considers the issue of diversity to be very important in view of demographic change, the decline in the working population and the growing proportion of female staff and of people from immigrant backgrounds.

Faced with an impending shortage of skilled workers, the Group plans to promote the transfer of practical knowledge from older staff to the next generation from the beginning of 2014. Among other measures, teams and project groups including a mix of ages will be strengthened, a cross-generational reverse mentoring programme will be set up and a series of talks will begin, enabling career starters and experienced employees to learn from each other.

To increase the number of women in management positions, at least 25% of vacant management positions in Germany will in future be fi lled with female employees. 26% of Talanx's managers worldwide and 19% in Germany were female at the end of 2013. The network Frauen@Talanx will be a tool that will actively work this year to create a corporate culture that supports and challenges women in management positions in their professional and personal development. A Group-wide mentoring programme supports female Talanx employees with potential in progressing to more senior management positions.

Talanx off ers training courses to raise awareness and intercultural workshops to ensure an open corporate culture in which there is mutual understanding of diff erent cultural backgrounds. We are also planning a programme that will allow employees from foreign Group companies to sit in on lectures, as well as an international management development programme, to strengthen the integration of the Talanx Group.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

89 Other factors in success

55 Business development

• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 131 Forecast and opportunities report
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report

The pilot project on "occupational health management" aims to maintain and promote the health and employability of employees in a time of rapid change in the working environment. We are developing measures for preventive and sustainable health promotion together with our social partner. These include preventive measures, early detection measures, health information and services relating to stress management and exercise.

Our Industrial Lines Division continued the trainee programmes set up for account managers and underwriters in the various industrial lines as part of systematic fostering of young talent. These courses, which usually last one year, convey a solid grasp of the various fi elds of work involved in industrial insurance. We hope that this will ensure that our Industrial Lines Division continues its success in future, despite the departure of experienced specialists due to age.

We continued our "management workshop" as a support tool for all managers as part of the realignment of the Retail Germany Division. This series of events discusses strategic issues in a yearly cycle and draws up concrete measures for implementation based on these discussions. With the "management workshop", The Retail Germany Division set itself the goal of fi rmly establishing continuous and systematic support within the process of change and a collective understanding of managerial conduct in such a process of change. This scheme for managers focused once again in 2013 on continuation of understanding between companies and on refl ection on managers' own roles. The management workshop II was used extensively and met with widespread approval. Based on the positive feedback we have received, we will continue this support tool this year.

Human resources activities in the Reinsurance Division focused closely on the most recent employee survey in 2013. The human resources department supported the Board of Management in its analysis of the main results by providing a detailed evaluation. At the same time, concrete measures were implemented based on areas where potential for improvement had been identifi ed, such as complexity training specifi cally designed for experienced senior managers and a seminar providing information on relevant health-related issues. We also continued successfully establishing the numerous initiatives launched in recent years in this line, such as training based on the "blended learning" format, revision of our management principles and adjusted management feedback.

ACKNOWLEDGEMENTS TO STAFF AND REPRESENTATIVE BODIES

The Board of Management would like to express its appreciation to all of the Group's staff for their continued high level of personal dedication and their valuable contribution to the Group's good business results. It thanks the Group Employee Council and all the other employee council bodies for their continued faithful and constructive cooperation.

CORPORATE SOCIAL RESPONSIBILITY

Within the terms of our responsible enterprise management geared towards sustainable value creation, we attach particular importance to the prudent use of all resources and to our commitment to s ocietal and social projects.

Talanx will draw up a Group-wide CSR strategy this year to provide a better structure for the diverse activities of the Group companies and to make them measurable.

SUSTAINABILITY

In pursuing our aim of keeping our environmental footprint as small as possible, at the Talanx Group we essentially concentrate on three courses of action: sustainable business operations, developing products that preserve the environment, save energy and encourage social responsibility, and an investment policy that takes sustainability into account in making investment decisions.

We aim to minimise consumption of energy and resources in our own construction projects. Between 2012 and 2013, for example, we extensively refurbished our original head offi ce in Hannover, which was built in the 1970s, and also modernised the energy supply. The renovation work, which covers a surface area of 20,000 m2 over nine fl oors, includes a new air conditioning and ventilation concept that will lead to operational energy savings of around 35%.

In all its current fund policies, the Retail Germany Division off ers an actively managed portfolio dedicated to the theme of sustainability. The investment strategy of the "ISP product family" contains sustainable and ecological investments that do not simply focus on generating the highest possible yield, but also take into account ethical, social and ecological factors when selecting securities. The basic principle is that sustainable development can be achieved only if environmental, economic and social objectives are accorded equal importance and implemented simultaneously. The classifi cation is specifi ed by the independent research agencies Feri EuroRating Service AG, Morningstar Deutschland GmbH and oekom research AG.

Ampega Investment, our investment company for third-party clients, off ers public funds for which sustainability is also an important investment criterion. It off ers several sustainable investments, including not only the Ampega Responsibility Fund but also the terrAssisi Renten I AMI and terrAssisi Aktien I AMI special investment funds. These funds invest in entities and issuers that incorporate not only economic but also environmental and social criteria into their long-term company strategy and that are considered trailblazers in assuming responsibility for a sustainable future.

SOCIAL RESPONSIBILITY

Our commitment to society, also known as "good corporate citizenship," is multi-faceted. Some divisions sponsor their own projects, while individual employees are also involved in numerous voluntary activities. We have mainly devoted our eff orts at Group level to the area of "education and training." As a central step, the Talanx Foundation, set up in 2009, awards up to 15 scholarships per semester to talented students in insurance-related disciplines. In addition, our Germany scholarships are once again providing support for students at the Leibniz University of Hannover. As well as fi nancial support, we organise regular events and workshops at our company for scholarship students. Topics covered range from technical lectures to training courses in key skills.

Talanx has also been supporting the international student network Enactus (formerly SIFE Germany e. V.) in various ways since 2011. Enactus is a non-profi t organisation that has activities at over 1,800 universities in more than 40 countries worldwide. In practical projects of their own choosing, students help disadvantaged people and organisations to improve their situation and to stabilise themselves sustainably by their own eff orts. The students prepare their social, ecological, charitable and cultural projects themselves and carry them out entirely on their own. Target orientation, budget planning and measuring success are integral components of all Enactus projects. Enactus named Talanx AG as its "Partner of the Year" in the year under review. As well as fi nancial assistance, Talanx off ers students professional support with their work. Employees get involved in projects as "business advisors" and enhance the quality of the work through their expert knowledge, experience and networks.

MARKETING AND ADVERTISING, SALES

The multi-brand principle pursued within the Talanx Group is refl ected in the diverse forms of communication with which the subsidiaries with their diff erent brand names seek to address their specifi c customer segments through tailored marketing and advertising. The Group's primary insurers, such as the HDI insurers, engage directly with the general public by means of e.g. TV commercials, publicity campaigns and sponsorship activities. Our Reinsurance Division (Hannover Re brand) and asset management operations (Ampega brand) focus on their particular target groups. Talanx AG's communication activities, in turn, are addressed fi rst and foremost to the broader fi nancial community and the fi nancial press.

The distribution channels employed by the Group's companies are extremely diverse, ranging from our own tied agents' organisations and local representation by branch offi ces and sales outlets through the use of brokers and independent agents to highly specialised bancassurance cooperations, cf. the sections on the various Group segments for further information. HDI companies signed up to the code of conduct of the German Insurance Association (GDV) for sales again in February this year; the re-draft ed code creates transparent and binding rules for dealing with customers.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development
  -

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 68 Assets and fi nancial position 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

• incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date 116 Risk report
• 131 Forecast and opportunities report

OTHER REPORTS AND DECLARATIONS

CORPORATE GOVERNANCE

DECLARATION ON CORPORATE GOVERNANCE AND CORPORATE GOVERNANCE REPORT

DECLARATION ON CORPORATE GOVERNANCE PURSUANT TO § 289A OF THE GERMAN COMMERCIAL CODE (HGB)

DECLARATION OF CONFORMITY PURSUANT TO § 161 OF THE GERMAN STOCK CORPORATION ACT (AKTG)

The Board of Management and Supervisory Board submitted the following declaration of conformity with the German Corporate Governance Code for Talanx AG prior to approval of the annual fi nancial statements:

The German Corporate Governance Code ("DCGK") sets out major statutory requirements governing the management and supervision of German listed companies and contains both internationally and nationally recognised standards for good and responsible enterprise management. The purpose of the Code is to foster the trust of investors, customers, employees and the general public in German enterprise management. Under § 161 AktG it is incumbent on the boards of management and supervisory boards of German listed companies to provide an annual declaration of conformity with the recommendations of the "German Corporate Governance Code Government Commission" published by the Federal Ministry of Justice, or to explain which recommendations of the Code were/ are not being applied and for which reasons ("comply or explain").

I. German Corporate Governance Code 2013

The Board of Management and Supervisory Board declare pursuant to § 161 AktG that Talanx AG, in its implementation of the German Corporate Governance Code (DCGK), has diverged in three respects from the recommendations contained in the version of the Code dated 13 May 2013:

1. Item 4.2.3 Para. 4 DCGK (caps on severance payments in Management Board contracts)

Premature termination of a Management Board contract without serious cause may only take the form of cancellation by mutual consent. Even if the Supervisory Board insists upon setting a severance cap when concluding or renewing a Board of Management contract, this does not preclude the possibility of negotiations also extending to the severance cap in the event of a member leaving the Board of Management. The scope for negotiation over a member leaving the Board of Management would also be restricted if a severance cap were agreed, which could be particularly disadvantageous in cases where there is ambiguity surrounding the existence of serious cause for termination. In the opinion of Talanx AG, it is therefore in the interest of the company to diverge from the recommendation contained in Item 4.2.3 Para. 4 DCGK.

1. Item 5.2 Para. 2 DCGK (Chairmanship of the Audit Committee) The current Chairman of the Finance and Audit Committee is also the Chairman of the full Supervisory Board. Although other members of the Finance and Audit Committee also have special knowledge and experience of the application of accounting principles and internal control procedures, the current Chairman of the Committee is the only member to have spent his whole career in the insurance sector. He can look back on 29 years on the boards of management of insurance companies and insurance holding companies, of which 20 years were spent as Chairman of the Board of Management, sharing direct responsibility for the income situation of the company concerned and the presentation of this income on the balance sheet. In his double role as Chairman of the Finance and Audit Committee and of the full Supervisory Board, he coordinates the work of both committees single-handedly and can thus optimise the effi ciency of their activities. His position does not lead to a concentration of power on either the Finance and Audit Committee or the full Supervisory Board, as he has only one vote on each committee, like the other members. The company therefore believes that the current Chairman of the Supervisory Board is the most suitable person to act as Chairman of the Finance and Audit Committee. It is thus in the company's interest to deviate from the recommendation in Item 5.2 Para. 2 DCGK.

3. Item 4.2.3 Para. 2 DCGK (Maximum limits on variable components of remuneration in Management Board contracts)

Part of the variable remuneration for members of the Board of Management is granted in the form of Talanx share awards. The maximum number of share awards granted depends on the total amount of variable remuneration, the amount of which is limited (cap), i. e. the allocation of share awards is subject to the maximum limit. A vesting period of four years applies to share awards. This means that members of the Board of Management will share in both positive and negative developments at the company during this period, as refl ected in the share price. The equivalent value of the share awards is paid out to members of the Board of Management aft er expiry of the vesting period. The amount paid out is determined based on the price of Talanx shares on the disbursement date, plus an amount equal to all dividends per share paid out during the vesting period. The share awards thus track the performance of Talanx shares.

The amount of variable remuneration resulting from the granting of share awards is therefore limited at the time of allocation of the share awards, but not again at the time of payment. The company does not believe that it makes sense to impose a further limit on the amount of variable remuneration resulting from the granting of share awards on the disbursement date, given that the share awards are intended to balance the interests of shareholders and members of the Board of Management of Talanx AG. From the company's perspective, payment in Talanx share awards represents, in economic terms, a compulsory investment in Talanx shares with a four-year lock-up period.

Talanx AG therefore formally declares, purely as a precaution, that it has diverged from Item 4.2.3 Para. 2 DCGK.

II. German Corporate Governance Code 2012

The Board of Management and Supervisory Board furthermore declare, pursuant to § 161 AktG, that Talanx AG has diverged from the following recommendations of the DCGK as amended on 15 May 2012 since its last declaration of conformity on 20 March 2013:

1. Item 4.2.3 Para. 4 DCGK

(Caps on severance payments in Management Board contracts) For the reasons for the deviation from Item 4.2.3 Para. 4 DCGK, cf. I.1 above.

1. Item 5.2 Para. 2 DCGK (Chairmanship of the Audit Committee) For the reasons for the deviation from Item 5.2 Para. 2 DCGK, see I.2 above.

Apart from the above exceptions, the company will continue to comply with the recommendations of the DCGK.

Hannover, 25 February 2014

On behalf of the On behalf of the Board of Management Supervisory Board

The declaration of conformity and other information on corporate governance at Talanx is also available on the website at http: //www. talanx.com/investor-relations/corporate-governance.

CORPORATE GOVERNANCE REPORT PURSUANT TO ITEM 3.10 OF THE GERMAN CORPORATE GOVERNANCE CODE (DCGK)

OUR UNDERSTANDING OF CORPORATE GOVERNANCE

The Board of Management and Supervisory Board take good corporate governance to mean responsible enterprise management and supervision geared to sustainable value creation. In particular, we strive to further foster the trust placed in us by investors, our business partners and employees, and the public at large. We also attach great importance to the effi cient conduct of their work by the Board of Management and Supervisory Board, good cooperation between these bodies and with the company's staff , and to open and transparent corporate communications. Our understanding of good corporate governance is summarised in Talanx AG's Corporate Governance Principles, which were agreed by the Board of Management and Supervisory Board in August 2012 (http://www. talanx. com/investor-relations/corporate-governance).

CORPORATE CONSTITUTION

Good corporate governance is indispensable if Talanx AG is to achieve its goal of sustainably enhancing the value of the company. The Board of Management, Supervisory Board and employees identify with the resolved Corporate Governance Principles, which are based on the German Corporate Governance Code. This is not contradicted by the fact that the company once again chose not to comply with certain recommendations of the DCGK in the year under review; a well-founded deviation from the recommendations of the Code can, as in this case, be in the interests of good enterprise management (cf. Preamble to the DCGK). Talanx AG continues to fulfi l a large proportion of the recommendations and suggestions of the DCGK and still occupies a very good position among companies represented in the DAX and MDAX.

Talanx AG is a stock corporation under German stock corporation law. It has three corporate bodies, the Board of Management, the Supervisory Board and the General Meeting. The tasks and powers of these bodies are defi ned by law, the company's Articles of Association, and the Rules of Procedure for the Board of Management and the Supervisory Board.

BOARD OF MANAGEMENT

The Board of Management leads the company on its own responsibility and defi nes goals and corporate strategy. In accordance with § 8 Para. 1 of the Articles of Association, the Board of Management is comprised of at least two persons. Beyond that, the Supervisory Board determines the number of members. The Supervisory Board's Rules of Procedure state that it should appoint only persons who are not yet 65 years old to the Board of Management. The term of their appointment should be chosen to end not later than in the month in which the Board member turns 65.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development

89 Other factors in success

• 69 Assets and fi nancial position 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

<-- PDF CHUNK SEPARATOR -->

The current composition of the Board of Management and the areas of responsibility of individual members are set out on page 6 of this Annual Report.

The working practice of the Board of Management is governed by Rules of Procedure for the Board of Management of Talanx AG adopted by the Supervisory Board. These define the areas of responsibility of the individual members of the Board of Management. Notwithstanding their overall responsibilities, all members of the Board head up the area(s) assigned to them on their own responsibility within the scope of the resolutions of the full Board of Management. However, all members of the Board of Management have a duty in accordance with the Rules of Procedure to inform the other members of the Board of Management of important plans, transactions and developments in their division.

In addition, the Rules of Procedure set out the matters reserved for the full Board of Management and the required voting majorities. The full Board of Management decides in all cases where adoption of a resolution by the full Board of Management is stipulated by law, the Articles of Association or the Rules of Procedure.

The Board of Management meets at least once a month. It reports regularly, promptly and comprehensively to the Supervisory Board on the development of business, the company's fi nancial position and results of operations, planning and goal accomplishment and current opportunities and risks. The Supervisory Board has stipulated the Board of Management's information and reporting obligations in more detail. Documents on which a decision must be made, particularly the individual fi nancial statements, consolidated fi nancial statements and auditors' reports, are forwarded to members of the Supervisory Board immediately. The Board of Management may carry out certain transactions that are of special importance or strategic signifi cance only with the approval of the Supervisory Board. Some of these reservations of approval are prescribed by law, while others are governed by the Rules of Procedure of the Board of Management. For instance, the following actions and transactions require the Supervisory Board's prior approval:

• ¡ adoption of strategic principles and targets for the company and the Group
• ¡ adoption of the annual plan for the company and the Group
• ¡ the termination of industrial insurance business
• ¡ conclusion, amendment and termination of affi liation agreements
• ¡ acquisition and disposal of parts of undertakings in excess of a certain size

By signing up to the "Charter of Diversity" in October 2013, the Board of Management has set a clear example for the promotion of diversity in the company and the Group.

Members of the Board of Management may take on other activities, in particular posts on supervisory boards outside the Group, only with the consent of the Chairman of the Supervisory Board.

SUPERVISORY BOARD

The Supervisory Board advises and monitors the Board of Management in its activities. It is also responsible, in particular, for the appointment and the contracts of members of the Board of Management and for examining and approving the individual company and consolidated fi nancial statements. The Chairman of the Super visory Board is in constant contact with the Chairman of the Board of Management to discuss the company's strategy, business development and important transactions. The Supervisory Board has introduced Rules of Procedure for its work, which govern membership of the Supervisory Board and its internal organisation and contain general and specifi c rules for the committees to be formed by the Supervisory Board in accordance with the Rules of Procedure.

The Supervisory Board consists of 16 members. Half of these are chosen by the shareholders and the other half are elected by the company's staff . The composition of the Supervisory Board and its committees is set out on page 7 et seq. of this Annual Report.

The Supervisory Board holds ordinary meetings regularly, at least twice per calendar year. Extraordinary meetings are convened as required. The Finance and Audit Committee and the Personnel Committee also hold regular meetings.

A quorum exists when all members of the Supervisory Board have been invited or asked to vote and at least half of the full number of members on the Supervisory Board are involved in adopting the resolution. All decisions shall be passed with a simple majority, unless another majority is prescribed by law. If voting results in a tie, a further vote shall be held on the same subject; if this also results in a tie, the Chairman shall have two votes.

The Supervisory Board carried out a review of the eff ectiveness of its work in 2013. A comprehensive questionnaire dealt with subjects such as the organisation of the Supervisory Board and procedures during meetings, interaction between the Board of Management and Supervisory Board and the supply of information to the Supervisory Board. The results were presented to the Supervisory Board and discussed. An ad hoc working group was then set up and met in August 2013, presenting its results to the full Supervisory Board in November 2013. In future, it will be possible to retrieve documents relating to meetings in digital form and print them out, among other options.

The Supervisory Board has formed the following committees to ensure that it performs its tasks eff ectively:

• ¡ Personnel Committee
• ¡ Finance and Audit Committee
• ¡ Nomination Committee
• ¡ Standing Committee

The committees of the Supervisory Board prepare the decisions of the Supervisory Board that lie within their remit and decide in lieu of the Supervisory Board on the matters assigned to the remit of the committee by the Rules of Procedure. The chairman of each committee reports to the Supervisory Board regularly on the work of the respective committee.

The Finance and Audit Committee (FAC) monitors the fi nancial reporting process, including the eff ectiveness of the internal control system and of the risk management and internal audit systems. It discusses quarterly reports and deals with issues relating to compliance and reporting to the Supervisory Board. Moreover, it prepares for the Supervisory Board's review of the annual fi nancial statements, the Management Report, the Board of Management's proposal for the appropriation of disposable profi t, and the consolidated fi nancial statements and Group Management Report. In this context, the FAC informs itself in detail of the auditor's opinion as to the assets, fi nancial position and net income and has the effects of any changes in accounting and recognition methods on the assets, fi nancial position and net income, and possible alternatives, explained to it. It deals with issues concerning the requisite independence of the auditor, the awarding of the audit mandate, focal points to be addressed in the audit and the auditor's fees. Not only the Board of Management, but also the Head of Internal Auditing, the Chief Risk Offi cer and the Chief Compliance Offi cer report directly to the FAC.

The Personnel Committee prepares decisions of the Supervisory Board relating to members of the Board of Management and decides in lieu of the Supervisory Board on the content and conclusion of, amendments to and termination of service contracts with members of the Board of Management, with the exception of remuneration issues and their implementation. It is responsible for granting loans to the persons referred to in §§ 89 Para. 1, 115 AktG and persons assigned similar status in § 89 Para. 3 AktG, and for approving contracts with Supervisory Board members pursuant to § 114 AktG. It exercises the powers deriving from § 112 AktG on behalf of the Supervisory Board and attends to long-term Board membership planning together with the Board of Management.

The Nomination Committee advises the Supervisory Board on suitable candidates to be proposed to the General Meeting for election to the Supervisory Board.

To ensure that candidates fulfi l the relevant selection criteria, the Nomination Committee has drawn up a statement of requirements for Supervisory Board members, one of the aims of which is to make sure that the Supervisory Board has the necessary expertise to cover all areas of business at the Group. The Supervisory Board's Rules of Procedure state that it may not include more than two former members of the company's Board of Management, to guarantee the independence of Supervisory Board members. Furthermore, members of the Supervisory Board may not hold positions on bodies of, or provide individual advisory services to, any signifi cant competitors of the company, of a Group company or of the Talanx Group.

Further details on the activities of the Supervisory Board committees are given in the Supervisory Board's report beginning from page 9 of this Annual Report.

It is ensured that candidates who are chosen to be proposed to the General Meeting for election to the Supervisory Board have the necessary knowledge, skills and professional experience. The principle of diversity is also taken into account in the selection. The Supervisory Board currently includes fi ve women, which means that the company is meeting its target of at least four women in accordance with the Supervisory Board's Rules of Procedure. Supervisory Board members ensure that they have suffi cient time available for their activities and avoid potential confl icts of interest. The Supervisory Board's Rules of Procedure state that Supervisory Board members should be under 72 years of age at the time they are elected. With regard to the number of independent Supervisory Board members that the Supervisory Board considers appropriate, the Board has decided that it should include two independent members as defi ned by Item 5.4.1 DCGK. The Supervisory Board currently meets this target. This does not take into account employee representatives on the Supervisory Board. One company in which a shareholder representative on the Supervisory Board holds a stake of 27.9% has business relations with Talanx AG and Hannover Rück SE (cf. page 114 of the Annual Report).

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation
• 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

• incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date
• 116 Risk report 131 Forecast and opportunities report

REMUNERATION OF THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD

The remuneration report beginning on page 100 contains a detailed description of the structure of remuneration for the Board of Management and Supervisory Board, as well as for directors and managers, and of the payment of part of the variable remuneration as Talanx share awards.

DIRECTORS' DEALINGS

Members of the Board of Management and Supervisory Board, authorised representatives of Talanx AG and related parties are legally obliged to disclose the acquisition or disposal of shares in Talanx AG or fi nancial instruments relating to these if the value of transactions in one calendar year reaches or exceeds EUR 5,000.00. Talanx AG not only ensures that it complies with the publications and announcements required pursuant to § 15a Para. 4 of the Securities Trading Act (WpHG) in connection with this, but also publishes directors' dealings on its website.

SHAREHOLDINGS OF THE BOARD OF MANAGEMENT AND SUPERVISORY BOARD

The total holdings of shares in Talanx AG or related fi nancial instruments of all members of the Board of Management and Supervisory Board came to under 1% of all shares issued by the company as at 31 December 2013.

COMPLIANCE

Compliance with the law and internal company guidelines and ensuring that Group companies observe these is an essential part of management and monitoring at Talanx. We have had a separate compliance department since the beginning of 2011, which is structuring and expanding the existing Group-wide compliance organisation as part of a compliance project due to run until mid-2014. In terms of staff , Talanx's compliance organisation consists of the Chief Compliance Offi cer and other compliance offi cers who are responsible for individual divisions (with the exception of the Hannover Re subgroup, which has its own compliance organisation that communicates closely with Talanx's compliance department). The number of staff involved in compliance is to be increased in connection with the above-mentioned compliance project, to ensure that future compliance requirements in accordance with Solvency II are fulfi lled.

The code of conduct governs internal Group compliance regulations. This contains the main principles and rules for ensuring that the conduct of all employees at the Talanx Group is legal and responsible. It also sets out the high ethical and legal standards on which the Group's worldwide operations are based. The code of conduct is available on the website. Each employee at the Group must ensure that he acts in accordance with this code and the laws, guidelines and instructions governing his area of work. A compliance guideline provides more specifi c details in connection with the code and gives employees in Germany and abroad guidance on correct and appropriate conduct in business dealings.

Another element in ensuring Group-wide compliance is a whistleblower system that can be contacted from anywhere in the world via the internet, which employees and third parties can use to report signifi cant breaches of the law and the rules of conduct. This can be done anonymously if they wish. This enables Compliance to take action, limit the damage and avoid further harm.

The Board of Management submitted the compliance report for the 2013 calendar year, which sets out Talanx's structure and its various activities in connection with this, to the Finance and Audit Committee before the annual fi nancial statements were approved.

RISK MONITORING AND MANAGEMENT

The Group-wide risk management system of Talanx AG is based on our risk strategy, which in turn is derived from our corporate strategy. A core component is systematic and comprehensive tracking of all risks that from today's perspective could conceivably jeopardise the company's profi tability and continued existence. Further details of this are given in the risk report on page 116 of this Annual Report.

INFORMATION AND EXPLANATIONS REGARDING ACQUISITIONS

BREAKDOWN OF COMMON SHARES

The breakdown of common shares is explained in the Notes under "Notes to the consolidated balance sheet", Item 17 "Shareholders' equity".

RESTRICTIONS ON VOTING RIGHTS AND TRANSFER

HDI V. a. G. has promised the consortium banks in the takeover agreement that it will not, without the prior approval of the joint global coordinators, within 24 months of the date on which shares in the company are admitted to trading on the stock exchange:

• (a) either directly or indirectly off er, pledge, assign, issue, sell or commit itself to selling any shares in its capital stock or securities that can be converted into or exchanged for shares in its capital stock or that entitle the holder to purchase the latter, or sell a corresponding call option or purchase agreement, purchase a corresponding call option or contract aimed at sale, or grant or otherwise transfer or sell any call option, right of purchase or promise to buy,
• (b) conclude any swap or other agreement that transfers the economic risk associated with ownership of a share in the capital stock in whole or in part to another party, irrespective of whether a transaction referred to in (a) or (b) is to be fulfi lled through the provision of shares in the company or other such securities, in cash or otherwise,
• (c) demand the registration of shares in the company or securities that can be converted into or exchanged for shares in the company or that entitle the holder to purchase the latter, in accordance with the securities legislation of the USA, or exercise any right relating to this.

The above restrictions on sale (lock-up) do not apply to transfers of shares between HDI V. a. G. and one of its subsidiaries, provided that the subsidiary concerned assumes the obligations towards the joint global coordinators for the remaining portion of the lock-up period, or to transactions and participations of HDI V. a. G. in relation to or in connection with the issuing of convertible bonds, warrant bonds, participating bonds and profi t-sharing rights in accordance with the authorisation granted by the company's General Meeting and their conversion into newly issued shares in the company in accordance with the corresponding contingent capital II or III, provided that this transaction or participation takes place aft er a period of six months from the date on which the new shares are admitted to trading on the stock exchange.

In an agreement with the joint global coordinators, Meiji Yasuda Life has promised the joint global coordinators that it will not, without the prior written approval of the joint global coordinators (which is not to be unreasonably refused or delayed), within 24 months of the date on which shares in the company are admitted to trading on the stock exchange:

• (a) either directly or indirectly off er, pledge, assign, issue, sell or commit itself to selling any shares in its capital stock or securities that can be converted into or exchanged for shares in its capital stock or that entitle the holder to purchase the latter, or sell a corresponding call option or purchase agreement, purchase a corresponding call option or contract aimed at sale, or grant or otherwise transfer or sell any call option, right of purchase or promise to buy,
• (b) conclude any swap or other agreement that transfers the economic risk associated with ownership of a share in the capital stock in whole or in part to another party, irrespective of whether a transaction referred to in (a) or (b) is to be fulfi lled through the provision of shares in the company or other such securities, in cash or otherwise,
• (c) demand the registration of shares in the company or securities that can be converted into or exchanged for shares in the company or that entitle the holder to purchase the latter, in accordance with the securities legislation of the USA, or exercise any right relating to this.

The above restrictions on sale (lock-up) do not apply to transfers of shares between Meiji Yasuda Life and an affi liate of Meiji Yasuda Life, provided that the purchaser concerned assumes the obligations towards the joint global coordinators for the remaining portion of the lock-up period, or to the sale of shares in connection with a public takeover bid or if and to the extent that the existing shareholder is released from its lock-up obligations by the joint global coordinators.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

85 Talanx AG (condensed version) 88 Overall assessment of the economic situation

89 Other factors in success

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development 69 Assets and fi nancial position

• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance
• incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date 116 Risk report
• 131 Forecast and opportunities report

DIRECT AND INDIRECT PARTICIPATING INTERESTS IN CAPITAL THAT EXCEED 10% OF THE VOTING RIGHTS

HDI V. a. G., Riethorst 2, 30659 Hannover, holds 79.0% of voting rights in the company.

SHARES WITH SPECIAL RIGHTS THAT GRANT AUTHORITY TO CONTROL

There are no shares with special rights that grant authority to control.

TYPE OF VOTING CONTROL IN THE EVENT OF EMPLOYEE PARTICIPATION IN CAPITAL

No employees hold participations in capital as defined by § 315 Para. 4 No. 5 of the German Commercial Code (HGB).

LEGAL REGULATIONS AND STATUTORY PROVISIONS REGARDING THE APPOINTMENT AND REMOVAL OF MEMBERS OF THE BOARD OF MANAGEMENT AND AMENDMENTS TO THE ARTICLES OF ASSOCIATION

The appointment and removal of members of the Board of Management of Talanx AG are regulated in §§ 84 and 85 AktG, § 31 German Co-Determination Act (MitbestG) and § 5 of the Supervisory Board's Rules of Procedure. Pursuant to § 8 of the Articles of Association of Talanx AG, the Board of Management must consist of at least two persons; the Supervisory Board shall otherwise determine the number of members on the Board of Management.

The Supervisory Board appoints members of the Board of Management for a period of up to fi ve years. Reappointments for a maximum period of fi ve years in each case are permitted. As Talanx AG falls within the scope of the German Co-Determination Act, members of the Board of Management must be appointed with a majority of two thirds of members' votes in an initial vote. If such a majority cannot be obtained, appointments can be made in a second vote with a simple majority of members' votes, in accordance with § 31 Para. 3 MitbestG. If the necessary majority is still not obtained, a third vote will be held, in which a simple majority of votes is once again required, but in which the Chairman of the Supervisory Board will have two votes, pursuant to § 31 Para. 4 MitbestG.

In accordance with German regulatory law, members of the Board of Management must be trustworthy and professionally qualifi ed to run an insurance holding company (§ 13e Insurance Super vision Act [VAG]). Anyone who is already a director at two insurance companies, pension funds, insurance holding companies or special purpose entities for insurance cannot be appointed as a member of the Board of Management. However, the supervisory authorities can permit more posts to be held if companies belonging to the same insurance group or group of companies are involved (§ 7a VAG). The Federal Financial Supervisory Authority must be notifi ed of plans to appoint a member of the Board of Management (§ 13e VAG).

The General Meeting resolves on amendments to the Articles of Association (§ 179 AktG). Unless otherwise stipulated by binding legal regulations, resolutions of the General Meeting shall be passed with a simple majority of votes cast and, if a majority of the capital is required, the majority of the capital stock represented at the meeting at which the resolution is passed (§ 16 Para. 2 of the Articles of Association). A larger majority is required by law, for example, in the case of a change to the corporate purpose (§ 202 Para. 2 AktG). Pursuant to § 179 Para. 1 Sentence 2 AktG in conjunction with § 11 of the Articles of Association of Talanx AG, the Supervisory Board can amend the wording of the Articles of Association.

AUTHORITY OF THE BOARD OF MANAGEMENT TO ISSUE OR BUY BACK SHARES

The authority of the Board of Management to issue and buy back shares is regulated by the company's Articles of Association and in §§ 71 et seq. AktG. On 29 September 2012 the General Meeting of the company authorised the Board of Management in connection with this, pursuant to § 71 Para. 1 No. 8 AktG, to acquire treasury shares under certain conditions for a period of fi ve years, i.e. up to 28 September 2017.

MATERIAL AGREEMENTS OF TALANX AG WITH CHANGE-OF-CONTROL CLAUSES

In accordance with Talanx AG's contracts relating to syndicated credit facilities, lenders may terminate the credit line if there is a change of control, i.e. if a person or group of persons acting in concert other than HDI Haft pfl ichtverband der Deutschen Industrie V. a. G. acquires direct or indirect control over more than 50% of the voting rights or share capital of Talanx AG.

The cooperation agreements with Deutsche Postbank AG dated 18 July 2007 each contain a clause that, in the event of the direct or indirect acquisition of control of one of the parties to the contract by a third company not affi liated with the parties, grants the other contractual party an extraordinary right of termination.

The cooperation agreement for Russia concluded on the basis of the general agreement with Citibank dated December 2006 contains a clause that, in the event that the controlling majority of shares or the business operations of one of the parties to the contract are acquired by a company not affi liated with the parties, grants the other contractual party an extraordinary right of termination.

COMPENSATION ARRANGEMENTS IN THE EVENT OF A TAKEOVER BID

No compensation arrangements are in place at the company for members of the Board of Management or employees in the event of a takeover bid.

REMUNERATION REPORT

The remuneration report describes and explains the basic features of the remuneration structure for the Board of Management of Talanx AG, the amount of the remuneration of the Board of Management and the criteria for its calculation. The description covers payments made to the Board of Management in the 2013 fi nancial year in respect of activities of members of the Board of Management on behalf of Talanx AG and its consolidated companies. It also explains the structure and amount of remuneration paid to the Supervisory Board of Talanx AG and the basic principles for remuneration of directors and managers below the level of the Group Board of Management.

The remuneration report follows the recommendations of the German Corporate Governance Code and contains information that is required pursuant to IAS 24 "Related Party Disclosures" as part of the Notes on the 2013 consolidated fi nancial statements. Pursuant to German commercial law, the information also contains mandatory items of the Notes (§ 314 HGB) and the Management Report (§ 315 HGB), all of which are discussed in this remuneration report and are also summarised in the Notes in accordance with the applicable statutory provisions.

The remuneration scheme complies with the provisions of the German Act on the Appropriateness of Executive Remuneration (VorstAG) and of the Insurance Supervision Act (VAG) in conjunction with the regulation on the supervisory law requirements for remuneration schemes in the insurance sector (VersVergV). We have also taken the more specifi c rules of German Accounting Standard DRS 17 (as amended in 2010) "Reporting on the Remuneration of Members of Governing Bodies" into account in this report.

REMUNERATION OF THE BOARD OF MANAGEMENT

The Supervisory Board decides on the structure and amount of remuneration for the Board of Management and reviews and discusses the remuneration structure and the appropriateness of remune ration at regular intervals.

The Supervisory Board has fundamentally realigned the remune ration system for the Board of Management on the basis of current statutory and regulatory provisions for executive remuneration with eff ect from the 2011 fi nancial year.

STRUCTURE OF REMUNERATION FOR THE BOARD OF MANAGEMENT

The aim of the remuneration system for the Board of Management is to pay Board members a reasonable fee. The remuneration of the Board of Management takes into account the size and activity of the company, its economic and fi nancial situation, its performance and future outlook, and the comparability of remuneration in the light of the peer environment (horizontal) and remuneration levels for the rest of the company's staff (vertical). It also takes into consideration the tasks and duties of individual members of the Board of Management, their personal performance and the performance of the Board of Management as a whole.

Overall, remuneration is such that it makes allowance for both positive and negative developments, is in line with the market and competitive, and promotes sustainable, long-term corporate development.

The remuneration of the Board of Management comprises an annual fi xed component and a variable component based on a multi-year assessment. The proportion of variable remuneration within the overall remuneration package diff ers in each individual case and ranges from 40% to 70% for 100% achievement of the Board of Management's targets.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

• incl. remuneration report 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

M60 BOARD REMUNERATION MODEL FROM 1 JANUARY 2011

2) Split dictated by statutory minimum requirement

Fixed remuneration

Fixed remuneration is paid out in cash in twelve equal monthly instalments. It is especially tailored to the range of duties and functions and the professional experience of the individual Board member. The Supervisory Board reviews the amount of fi xed remuneration regularly, generally at intervals of two years.

Non-cash/fringe benefi ts

Members of the Board of Management also receive certain nonperformance-related fringe benefi ts in line with common market practice, which are reviewed at regular intervals. They are provided with a car for business and private use for the duration of their membership of the Board. The individual Board member is responsible for paying tax on the monetary value of the private use of the company car. Non-cash and fringe benefi ts are reported at cost value in the fi nancial statements. The company also grants its Board members insurance cover on a reasonable scale (liability, accident and luggage insurance) within group contracts.

Variable remuneration

The amount of variable remuneration depends on certain defi ned results and on the achievement of certain targets, which vary according to the function of the Board member concerned. Variable remuneration consists of a Group bonus, a personal bonus and – in the case of Board members responsible for a particular division – a divisional bonus. The weighting of the various components within the variable remuneration is determined individually for each member of the Board of Management in the light of the function that he or she performs.

Group bonus

The Group bonus is paid as an individually determined amount that is stipulated in the employment contract for each 0.1 percentage point by which the average return on equity (RoE) for the last three fi nancial years exceeds the risk-free interest rate. If the average return on equity is below the risk-free interest rate or turns negative, this results in a corresponding penalty amount for each 0.1 percentage point of undershoot. The basis of calculation for a Group bonus of 100% is an average return on equity of 12.8%. The maximum amount of the Group bonus is twice the amount granted if the basis of calculation is achieved, and the maximum penalty is –100%. The arrangements governing the Group bonus may be adjusted if the risk-free interest rate changes to such an extent that an (absolute) deviation of at least 1 percentage point arises. The risk-free interest rate is the average market rate for ten-year German government bonds over the last fi ve years, the average being calculated annually at year-end on the basis of the interest rate prevailing in that year.

Divisional bonus

From the 2013 fi nancial year onwards, the divisional bonus for the Industrial Lines, Retail Germany and Retail International Divisions will be calculated on the basis of the following criteria in relation to target values for the respective divisions: gross written premium, change in net combined ratio in property/casualty insurance and change in the value of new business in life insurance, EBIT margin, return on equity and profi t transfer/dividend to Talanx AG. The Supervisory Board will determine the divisional bonus at its prudent discretion based on the extent to which these criteria have been fulfi lled. Only the 2013 fi nancial year will be used as the assessment period for the achievement of targets for 2013. For 2014, the average achievement of targets in 2013 and 2014 will be used, and from 2015 onwards the bonus will be based on average achievement of targets for the last three fi nancial years. The individually defi ned amount for 100% achievement of targets is payable if the targets are met in full. Additions or deductions will be made if the defi ned targets are exceeded or not met. The maximum divisional bonus is twice the bonus payable if the targets are met in full, while the minimum bonus is a penalty corresponding to –100% achievement of targets.

Individual bonus

In addition, individual qualitative and, as appropriate, quantitative personal targets are defi ned annually for each Board member to meet in the next year. The criteria applied may be the individual Board member's personal contribution to achieving the overall business result, their leadership skills, power of innovation and entrepreneurial abilities, and other quantitative or qualitative personal targets, making special allowance for the particular features associated with their area of responsibility within the Board. The degree to which targets have been attained is determined by the Supervisory Board at its prudent discretion. The amount payable for 100% target attainment is established on a personal basis. Additions or deductions will be made if targets are exceeded or not met. The minimum individual bonus amounts to EUR 0, while the maximum is double the bonus payable on complete attainment of the defi ned targets.

Total amount of variable remuneration

The total amount of variable remuneration is arrived at by adding the amounts for the individual remuneration components. If this sum is negative, variable remuneration amounts to zero (in other words, there can be no negative variable remuneration). However, negative amounts are taken into account in the calculation of the bonus bank (cf. next subsection on "Payment of variable remuneration").

The amount of variable remuneration is set at the Supervisory Board meeting at which the consolidated fi nancial statements for the relevant fi nancial year are approved. The Supervisory Board decides regularly, and in exceptional circumstances at its prudent discretion, whether variable remuneration needs to be adapted or pay-outs restricted.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation
• 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

• incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date 116 Risk report
• 131 Forecast and opportunities report

M61 ASSESSMENT BASIS/PRECONDITIONS FOR PAYMENT OF VARIABLE REMUNERATION

Remuneration component	Assessment basis/parameters
Group bonus
Percentage of variable remuneration Chairman of the Board of Management and Chief Financial Offi cer: 70% Deputy Chairman: 50% Chief Information Offi cer: 40% Division Managers: 40 – 70%	¡ Group return on equity (RoE); individual basic amount (staggered according to area of responsibility and professional experience) per 0.1 percentage point by which the average return on equity (RoE) of the last three fi nancial years (FY) exceeds the risk-free interest rate ¡ Basis of calculation: RoE of 12.8% (=100%) ¡ Cap max.: 200% ¡ Cap min.: –100% (penalty) ¡ Calculation of the bonus will be amended if the risk-free interest rate changes by one percentage point or more ¡ Calculation of RoE: Group net income for the year calculated according to IFRS (excluding non-controlling interests) ./. arith metic mean of the Group equity according to IFRS (excluding non-controlling interests) at the start and end of the fi nancial year	¡ Average RoE over three years > risk-free interest rate
Divisional bonus
Percentage of variable remuneration Chairman of the Board of Management, Chief Financial Offi cer and Chief Information Offi cer: 0% Deputy Chairman: 30% Division Managers: 0 – 40%	¡ Gross written premium, net combined ratio in property/ casualty insurance and value of new business in life insurance, EBIT margin, return on equity, profi t transfer/dividend as criteria; each compared against target (for 2013, only FY 2013 as assessment period; for 2014, average for FY 2013 and 2014; from 2015, three-year average) ¡ 100% = targets achieved in full ¡ Cap max.: 200% ¡ Cap min.: –100% (penalty)	¡ Achievement of three-year targets (gradual build-up from 2013 onwards) ¡ Supervisory Board determines the degree of target achievement at its prudent discretion
Individual bonus
Percentage of variable remuneration Chairman of the Board of Management and Chief Financial Offi cer: 30% Chief Information Offi cer: 60% Deputy Chairman and Division Managers: 20 – 30%	¡ Individual qualitative and quantitative targets; personal contribution to overall result, leadership skills, innovation, entrepreneurial skills, specifi c remit factors ¡ 100% = targets achieved in full ¡ Cap max.: 200% ¡ Cap min.: EUR 0	¡ Achievement of targets for the year ¡ Supervisory Board determines the degree of target achievement at its prudent discretion

M62 BREAKDOWN OF PAY-OUT OF VARIABLE REMUNERATION

Short-term	Medium-term	Long-term
¡ 60% of variable remuneration with the next monthly salary payment following the resolution by the Supervisory Board	¡ 20% of variable remuneration allocated to the bonus bank ¡ Pay-out of the positive amount allocated three years prior to the pay-out, provided that this does not exceed the balance in the bonus bank after all credits/debits up to and including those for the most recent fi nancial year ¡ Any amounts due for disbursement that are not covered by the balance in the bonus bank are forfeited ¡ Claims on the bonus bank forfeited in special cases: termination of offi ce without material grounds; extension of contract at same terms rejected ¡ No interest payable on positive balance	¡ Automatic allocation of virtual Talanx share awards to a value equivalent to 20% of variable remuneration ¡ On expiry of the four-year retention period, pay-out of the current value at the time of pay-out ¡ Valuation of shares for allocation/pay-out: unweighted arithmetic mean of Xetra closing prices over a period of fi ve trading days before to fi ve trading days after the meeting of the Supervisory Board that approves the consolidated fi nancial statements ¡ Pay-out of the total amount of all dividends accumulated during the retention period ¡ Changes in the value of share awards by an aggre gate 10% or more due to structural measures trigger adjustment

Negative total of variable bonuses = pay-out of EUR 0 of variable remuneration.

A negative value for the total variable bonuses in any fi nancial year is transferred in full to the bonus bank (cf. "medium-term" column).

Payment of variable remuneration

An amount equal to 60% of the total variable remuneration is paid out in cash in the month following the Supervisory Board meeting that approves the consolidated fi nancial statements. The remaining 40% of the total variable remuneration is initially withheld and is paid out only aft er a reasonable retention period. Of the withheld portion, half (i. e. 20% of the total variable remuneration) is allocated to a bonus bank, while the other half is granted in the form of share awards to take account of the longer-term development of the value of the company in accordance with the procedure described below.

Bonus bank

Each year, 20% of the defi ned variable remuneration is allocated to the bonus bank, where it is held interest-free for a period of three years. If the calculated amount of variable remuneration in any year is negative, 100% of this negative amount is allocated to the bonus bank, reducing the balance in the bonus bank accordingly. A positive balance in the bonus bank aft er deduction of any amounts paid out is carried forward to the next year, but a negative balance is not carried forward. The amount allocated to the bonus bank in each year is paid out aft er three years, provided and to the extent that it is covered by the balance present at that time aft er all credits/ debits up to and including those for the most recent fi nancial year. Any portion of variable remuneration due for disbursement that is not covered by the balance in the bonus bank is forfeited.

Share awards

The other 20% of the total defi ned variable remuneration is granted as a share-based entitlement in the form of virtual share awards. The total number of share awards allocated depends upon the value per share of Talanx AG at the time of allocation. The value per Talanx AG share is established as the unweighted arithmetic mean of the Xetra closing prices of Talanx shares over a period of fi ve trading days before to fi ve trading days aft er the meeting of the Super visory Board of Talanx AG that approves the consolidated fi nancial statements. Share awards are allocated automatically, without the need for a declaration by Talanx AG or the Board member. The total number of share awards to be allocated is arrived at by dividing the amount to be credited by the value per share, rounded up to the nearest whole share (cap). For each share award, the value of one Talanx share calculated on the disbursement date (using the same procedure as for allocation), plus an amount equal to the dividend if dividends are paid out to shareholders, is paid out aft er expiry of a vesting period of four years. The Board member is not entitled to receive actual shares.

One member of the Board of Management is also allocated virtual share awards of which the total number depends on the value per share of Hannover Re at the time of allocation. The value per share of Hannover Re is established as the unweighted arithmetic mean of the Xetra closing prices of Hannover Re shares over a period of fi ve trading days before to fi ve trading days aft er the meeting of the Supervisory Board that approves the consolidated fi nancial statements of Hannover Rück SE for the fi nancial year just ended (cap). In this case, the value of one Hannover Re share calculated (using the same procedure as for allocation) on the disbursement date, plus an amount equal to the dividend if dividends are paid out to shareholders, is paid out for each share award aft er expiry of a vesting period of four years. The Board member is not entitled to receive actual shares.

Under the remuneration model applicable until 31 December 2010, the Board member in question was allocated stock appreciation rights of Hannover Rück SE. Stock appreciation rights were awarded for the last time in 2011 for the 2010 fi nancial year. The virtual stock option plan with stock appreciation rights will remain in force until all awarded stock appreciation rights have been exercised or have lapsed. The detailed conditions are explained in the section of the Notes to this Group Annual Report entitled "Share-based remuneration".

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

incl. remuneration report

• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report 131 Forecast and opportunities report

Protection against dilution

In the event of a change in the share capital of Talanx AG or of restructuring measures during the term of the share award programme that have a direct impact on the company's share capital or the total number of shares issued by Talanx AG, resulting in a cumulative change of 10% or more in the value of the share awards, the Supervisory Board will adjust the number of share awards or the method used to calculate the value of individual share awards, to off set the change in value of the share awards caused by structural measures.

Payment in the event of incapacitation

If any member of the Board of Management is temporarily unable to attend to his or her duties, the fi xed portion of the annual salary will continue to be paid unchanged for the duration of the incapacitation, but not beyond termination of their contract.

If the Board member becomes permanently incapacitated during the term of their contract, the contract will be terminated at the end of the sixth month aft er permanent incapacitation was ascertained, but no later than upon expiry of the contract term. A Board member shall be deemed to be permanently incapacitated if he or she is expected to be unable to attend to his or her duties without restriction within the foreseeable future.

Early termination of membership of the Board of Management

If a member of the Board of Management terminates their membership of their own accord, if their contract is terminated/revoked by the company on material grounds or if the member of the Board of Management rejects an off er to extend their contract on the same or better terms (except if the member of the Board of Management is at least 60 years old and has served two terms of offi ce on the Board of Management), all rights to payment from holdings in the bonus bank and share awards are forfeited. If the member's contract ends normally before expiry of the vesting period for the bonus bank or share awards without the member being off ered a contract extension, the member of the Board of Management retains his or her entitlement to payment from the bonus bank and to any share awards already allocated.

In principle, a member of the Board of Management has no entitlement to payment of amounts into the bonus bank or to allocation of share awards aft er he or she has left the company, except if the member of the Board of Management's departure from the company is a result of his/her not being reappointed, retirement or death, and then only in respect of entitlements to variable remuneration earned by the member of the Board of Management in the last year – or part thereof – of their activity on behalf of the company.

The contracts of members of the Board of Management contain no provisions in respect of benefi ts in the event of early termination of their membership of the Board of Management as a result of change of control of the company. The provisions contained in their contracts regarding early termination or non-renewal of the contracts allow for entitlement to payment of a "transitional allowance" under certain circumstances, which is calculated based on the percentage of fi xed remuneration achieved for the pension. There is generally a waiting period of eight years. Any other income from employment or self-employment shall count towards the transitional allowance in the amount of 50% up to the age of 65.

The contracts of members of the company's Board of Management do not include caps on severance payments as recommended by Item 4.2.3 Para. 4 of the German Corporate Governance Code. Please see our remarks in the declaration of conformity in the section "Corporate Governance" on page 93 et seq. of this Group Annual Report regarding this and the maximum limits on remuneration and variable components of remuneration as recommended by Item 4.2.3 Para. 2 of the German Corporate Governance Code.

Other activities of members of the Board of Management

Members of the Board of Management require the approval of the Supervisory Board if they wish to commence any additional work. This ensures that neither the payment provided for this nor the time required leads to confl ict with their duties as a member of the Board of Management. If additional work involves posts on supervisory boards or on similar bodies, these are listed in Talanx AG's Annual Report. Remuneration for posts at Group companies and other offi ces linked to the company is counted towards variable remuneration.

Amount of remuneration for the Board of Management

The total remuneration of all active members of the Board of Management in respect of their activities on behalf of Talanx AG and its affi liated companies was EUR 10,439 (12,425) thousand. The following table shows a breakdown into the components according to DRS 17.

M63 TOTAL REMUNERATION RECEIVED BY ACTIVE MEMBERS OF THE BOARD OF MANAGEMENT PURSUANT TO DRS 17 (AMENDED IN 2010)

FIGURES IN EUR THOUSAND

		Non-performance-based remuneration		Performance-based remuneration 1)
			Short-term			Medium-term
		I	II	III	IV	V
Name		Fixed remuneration	Non-cash compensation/ fringe benefi ts	Variable remuneration payable 2)	Thereof remuneration from seats on Group bodies 3)	Allocation to bonus bank 4)
Herbert K. Haas	2013	714	21	765	280	255
	2012	714	21	811	273	231
Dr. Christian Hinsch	2013	504	15	494	8	165
	2012	504	15	575	4	168
Torsten Leue 10)	2013	560	113	511	—	170
	2012	560	113	533	—	158
	2013	560	17	198	—	66
Dr. Thomas Noth	2012	535	17	302	—	81
	2013	544	17	452	131	151
Dr. Immo Querner	2012	544	18	522	119	143
Dr. Heinz-Peter Roß 10)	2013	560	165	461	34	154
	2012	560	165	533	29	158
Ulrich Wallin	2013	520	13	729	—	243
	2012	520	15	835	—	259
Total	2013 11)	3,962	361	3,668	453	1,224
	2012	3,937	364	4,231	425	1,239

1) As at the 2013 balance sheet date, no Board resolution was available regarding the amount of performance-based remuneration for 2013. The amounts are recognised on the basis of estimates and the provisions constituted accordingly

2) Figures for 2012 include special payment in connection with the IPO

3) Remuneration from supervisory board seats at affi liated companies netted with the variable remuneration payable for 2013

4) The nominal amount is stated; full or partial payment will be made from 2016, depending on the development until such time of the balance in the bonus bank

5) The nominal amount of the share awards to be granted for work in the year under review is stated; the equivalent amount of the share awards will be paid out from 2017 at the relevant value prevailing at that time

6) Total of I, II, III, V, VI, VII

7) The maximum total remuneration if share awards are granted is stated (excluding non-cash compensation/fringe benefi ts). Figures for 2012 include special payment in connection with the IPO. The minimum remuneration corresponds to annual fi xed remuneration

8) Estimate of number of Talanx share awards to be granted; the Xetra closing price of Talanx shares as at the balance sheet date (EUR 24.65 per share) was used as the basis. The actual number of Talanx share awards will be calculated on the basis of the arithmetic mean of Xetra closing prices for Talanx shares over a period of fi ve trading days before to fi ve trading days after the Supervisory Board meeting that approves the consolidated fi nancial statements of Talanx AG in March 2014

9) Estimate of the number of Hannover Re share awards to be granted; the Xetra closing price for Hannover Re shares as at the balance sheet date (EUR 62.38 per share) was used as the basis. The actual number of Hannover Re share awards will be calculated from the arithmetic mean of Xetra closing prices for Hannover Re shares over a period of fi ve trading days before to fi ve trading days after the Supervisory Board meeting that approves the consolidated fi nancial statements of Hannover Rück SE in March 2014

10) The non-cash compensation and fringe benefi ts of Mr. Leue and Dr. Roß include the non-performance-based additional payments granted with the fi xed remuneration for the month of December

11) A total of EUR 98 (202) thousand more was paid out than reserved for performance-based remuneration in 2012. The total amount recognised for performance-based remuneration in 2013 was increased accordingly (variable remuneration payable: +EUR 58 (120) thousand, allocation to bonus bank and allocation of Talanx share awards: +EUR 20 (41) thousand each). The amount shown for the total remuneration paid to the Board of Management as a whole therefore deviates from the total of the amounts shown for individual members of the Board of Management by this amount

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group
• 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

• incl. remuneration report
• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

Performance-based remuneration 1)
	Long-term
VI	VII

Talanx share awards granted 2), 5)	Hannover Re share awards granted 5)	Total remuneration 6)	Maximum remuneration 7)	Number of Talanx share awards 2), 8)	Number of Hannover Re share awards 9)
255	—	2,010	3,369	10,345	—
552	—	2,329	3,807	25,728	—
165	—	1,343	2,368	6,686	—
361	—	1,623	2,631	16,817	—
170	—	1,524	2,252	6,913	—
319	—	1,683	2,472	14,827	—
66	—	907	1,335	2,678	—
242	—	1,177	1,555	11,247	—
151	—	1,315	2,179	6,111	—
400	—	1,627	2,530	18,601	—
154	—	1,494	2,252	6,232	—
319	—	1,735	2,472	14,827	—
55	188	1,748	2,680	2,232	3,012
215	205	2,049	2,900	9,986	3,474
1,036	188	10,439	16,435	41,197	3,012
2,449	205	12,425	18,367	112,033	3,474

M64 CASH REMUNERATION ACTUALLY ACCRUING TO ACTIVE MEMBERS OF THE BOARD OF MANAGEMENT IN THE YEAR UNDER REVIEW

FIGURES IN EUR THOUSAND
Name		Non-performance based remuneration	Non-perfor mance-based remuneration 1)	Exercised stock appreciation rights	Total
Herbert K. Haas	2013	714	767	–	1,481
	2012	714	720	–	1,434
Dr. Christian Hinsch	2013	504	518	–	1,022
	2012	504	520	–	1,024
Torsten Leue	2013	660	477	–	1,137
	2012	660	472	–	1,132
Dr. Thomas Noth	2013	560	221	–	781
	2012	535	266	–	801
	2013	544	468	–	1,012
Dr. Immo Querner	2012	544	474	–	1,018
	2013	725	462	–	1,187
Dr. Heinz-Peter Roß	2012	725	434	–	1,159
	2013	520	763	114	1,397
Ulrich Wallin	2012	520	899	411	1,830
	2013	4,227	3,676	114	8,016
Total	2012	4,202	3,785	411	8,398

1) Performance-based remuneration paid out in the year under review for the previous year. Figures for 2012 include special cash payment in connection with the IPO

The following table shows expenses for share-based remuneration for members of the Board of Management. This table should be viewed separately from the presentation of total remuneration received by active members of the Board of Management pursuant to DRS 17.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group 47 Strategy

48 Enterprise management

51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

55 Business development

69 Assets and fi nancial position

85 Talanx AG (condensed version)

88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS

93 Corporate Governance incl. remuneration report

115 Events of special signifi cance after the balance sheet date

116 Risk report

131 Forecast and opportunities report

M65 TOTAL EXPENSES FOR SHARE-BASED REMUNERATION FOR MEMBERS OF THE BOARD OF MANAGEMENT

FIGURES IN EUR THOUSAND
Name		Expenses for new Talanx share awards granted 1)	Expenses for new Hannover Re share awards granted 1)	Allocations to provisions for Talanx share awards 2) from previous years	Allocations to provisions for Hannover Re share awards 3) from previous years	Allocations to provisions for existing stock appreciation rights	Exercised stock appreciation rights	Total
Herbert K. Haas	2013	62	—	260		—	—	322
	2012	110	—	74		—	—	184
Dr. Christian Hinsch	2013	46	—	165		—	—	211
	2012	79	—	51		—	—	130
Torsten Leue	2013	64	—	157		—	—	221
	2012	87	—	46		—	—	133
Dr. Thomas Noth	2013	47	—	152		—	—	199
	2012	100	—	31		—	—	131
Dr. Immo Querner	2013	45	—	175		—	—	220
	2012	92	—	43		—	—	135
Dr. Heinz-Peter Roß	2013	102	—	224		—	—	326
	2012	127	—	62		—	—	189
Ulrich Wallin	2013	33	40	113	62	59	114	421
	2012	80	77	20	135	–108	411	615
	2013	399	40	1,246	62	59	114	1,920
Total	2012	675	77	327	135	–108	411	1,517

1) The expense for share awards is recognised pro rata in the year under review depending upon the remaining term of the respective contract of employment. Figures for 2012 include expenses for Talanx share awards for special payment in connection with the IPO

2) The allocation to provisions for Talanx share awards from previous years is calculated based on the increased price of Talanx shares, the dividend agreed on for Talanx AG for 2012 and the distribution of expenses for share awards to the remaining terms of individual contracts

3) The allocation to provisions for Hannover Re share awards from previous years is calculated based on the increased price of Hannover Re shares, the dividend agreed on for Hannover Re for 2012 and the distribution of expenses for share awards to the remaining terms of individual contracts

OCCUPATIONAL RETIREMENT PROVISION

Contracts between members of the Board of Management and Talanx AG – with one exception granting an annual pension fund contribution based on the member's fi xed remuneration – provide for an annual retirement pension calculated as a percentage of fi xed annual remuneration ("defi ned benefi t"). The amount of the agreed maximum pension varies according to the particular contract and is between 35% and 65% of the Board member's monthly fi xed salary at the time of scheduled retirement at or aft er the age of 65. A non-pensionable component of fi xed remuneration was introduced in connection with the new remuneration structure as of the 2011 fi nancial year.

In one instance, a contract provides for a pension on a defi nedcontribution basis. In this case, the company pays an annual contribution amounting to 20% of the Board member's pensionable income (fi xed annual remuneration as at 1 July of each year) into a pension fund.

In both types of contract ("defi ned benefi t" and "defi ned contribution"), income from other sources during the pension payment period may under certain circumstances (e.g. in the event of incapacity or termination of the contract before the age of 65) be counted towards the pension in full or in part.

SURVIVORS' PENSIONS

If a member of the Board of Management dies during the term of his or her contract, the surviving spouse, and in the absence thereof any eligible children, is entitled to continued payment of the monthly fi xed salary for the month in which the Board member died and the following six months, but not beyond the expiry date of the contract. If a Board member dies aft er pension payments commence, the pension for the month in which the Board member dies and the following six months will be paid to the surviving spouse and in the absence thereof to dependent children.

The widow's pension is 60% of the retirement pension the deceased member of the Board of Management was drawing or would have drawn if he or she had become incapacitated before the time of death. If the widow re-marries, the widow's pension is forfeited. If that marriage is dissolved by death or divorce, the pension entitlement is revived, but all pensions, annuities and other insurance benefi ts accruing by virtue of the new marriage will be counted against the widow's pension.

An orphan's pension will be granted in the amount of 15%, or 25% if the widow's pension is forfeited, of the retirement pension the deceased member of the Board of Management was drawing at the time of death or would have drawn if he or she had retired early due to permanent incapacity. The maximum period for which the orphan's pension will be paid is until the child turns 27 years of age. Any income earned from employment or an apprenticeship will be counted in part against the orphan's pension.

ADJUSTMENTS

Retirement, widow's and orphan's pensions are linked to the consumer price index for Germany (overall index).

AMOUNT OF PENSIONS PAID

Pension commitments for active members of the Board of Management totalled EUR 1,479 (1,450) thousand. Expenditure in respect of pensions (service cost) for active members of the Board of Management amounted to EUR 1,291 (952) thousand.

Total payments made to former members of the Board of Management and their surviving dependants, for which there were 6 (6) commitments in force in the year under review, amounted to EUR 741 (839) thousand. Provisions set up in respect of pension obligations towards this group of persons totalled EUR 14,101 (14,197) thousand.

M66 PENSION ENTITLEMENTS OF ACTIVE MEMBERS OF THE BOARD OF MANAGEMENT

FIGURES IN EUR THOUSAND
Name		Pension commitment 1)	Present value of DBO 2)	Expenses for retirement provision 3)
	2013	390	6,992	248
Herbert K. Haas	2012	390	7,500	187
	2013	303	4,966	183
Dr. Christian Hinsch	2012	275	5,197	135
	2013	225	792	300
Torsten Leue	2012	225	701	198
	2013	—	—	112
Dr. Thomas Noth 4)	2012	—	—	112
	2013	192	2,051	147
Dr. Immo Querner	2012	191	2,344	116
	2013	149	662	180
Dr. Heinz-Peter Roß	2012	149	609	115
	2013	220	3,284	121
Ulrich Wallin	2012	220	3,620	89
	2013	1,479	18,747	1,291
Total	2012	1,450	19,971	952

1) Value of the agreed annual maximum pension on leaving the company as contractually agreed after reaching the age of 65

2) DBO = defi ned benefi t obligation

3) The service cost recognised in the year under review for pensions and other post-retirement benefi ts is stated

4) In the case of Dr. Noth, a defi ned contribution commitment exists with an annual funding contribution of 20% of the annual fi xed remuneration.

The funding contribution of EUR 112 (112) thousand is stated here

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

incl. remuneration report

• 115 Events of special signifi cance after the balance sheet date
• 116 Risk report
• 131 Forecast and opportunities report

REMUNERATION OF THE SUPERVISORY BOARD

The remuneration of the Supervisory Board is governed by § 13 of the Articles of Association of Talanx AG. It is set by the General Meeting of Talanx AG. By resolution of the General Meeting of Talanx AG on 4 June 2010, members of the Supervisory Board receive, in addition to reimbursement of their expenses, an annual fi xed remuneration (basic remuneration) and a performance-based variable remuneration, which is also linked to the company's long-term success. To make allowance for their considerable extra workload, the Chairman receives 2.5 times and his deputies 1.5 times these emoluments.

In the year under review, the annual basic remuneration is EUR 50,000 per Supervisory Board member. The basic remuner ation of the Chairman is EUR 125,000, that of the deputy chairpersons EUR 75,000 each. In addition, each member of the Supervisory Board receives annual variable remuneration of EUR 55 for each full EUR million by which the average Group net income of the last three fi nancial years, aft er non-controlling interests, exceeds the minimum return pursuant to § 113 Para. 3 Stock Corporation Act (AktG) (4% of contributions paid on the lowest issue price of the shares) (benchmark). The factor for the Chairman amounts to EUR 138, and for each of his deputies EUR 83. The variable remune ration of members of the Supervisory Board is capped at a maximum of EUR 50,000, for the Chairman at EUR 125,000 and for his deputies at EUR 75,000. If average Group net income of the last three fi nancial years, aft er non-controlling interests, falls short of the minimum return pursuant to § 113 Para. 3 Stock Corporation Act (AktG), variable remuneration is forfeited. By calculating this performance-related payment component based on average Group net income for the last three fi nancial years, we ensure that variable remuneration is geared towards the sustainable development of the company.

Further fi xed remuneration of EUR 25,000 per member has been set for members of the Finance and Audit Committee and the Personnel Committee within the Supervisory Board. The chairman of each of these committees receives twice this amount.

The total annual remuneration payable to any Supervisory Board member (including remuneration for membership of Supervisory Board committees) is limited to a maximum of three times the basic remuneration for each member.

In addition to reimbursement of their expenses, members of the Supervisory Board receive an attendance allowance of EUR 1,000 for each meeting of the Supervisory Board or of Supervisory Board committees in which they take part. If two or more meetings of the Supervisory Board or its committees are held on the same day, only one attendance allowance is payable for that day.

The value added tax payable on remuneration for the Supervisory Board is reimbursed by the company.

The total remuneration for all active members of the Supervisory Board amounted to EUR 2,235 (2,105) thousand. The details are given in the following table.

M67 INDIVIDUAL REMUNERATION OF MEMBERS OF THE SUPERVISORY BOARD 1)

FIGURES IN EUR THOUSAND
Name	Function	Type of remuneration	2013 2)	2012 2)
Wolf-Dieter Baumgartl 3)	¡ Chairman of the	Basic remuneration	183	183
	¡ Supervisory Board ¡ Personnel Committee	Variable remuneration	122	101
	¡ Finance and Audit Committee	Remuneration for committee activities	123	123
	¡ Nomination Committee ¡ Standing Committee	Attendance allowances	24	24
			452	431
Prof. Dr. Eckhard Rohkamm	¡ Deputy Chairman of the Supervisory Board ¡ Member of the ¡ Personnel Committee ¡ Finance and Audit Committee ¡ Standing Committee	Basic remuneration	75	75
		Variable remuneration	50	36
		Remuneration for committee activities	50	50
		Attendance allowances	11	12
			186	173
Ralf Rieger 3)	¡ Deputy Chairman of the	Basic remuneration	84	81
	Supervisory Board ¡ Member of the	Variable remuneration	50	36
	¡ Finance and Audit Committee ¡ Standing Committee	Remuneration for committee activities	25	25
		Attendance allowances	9	12
			168	154
Antonia Aschendorf	¡ Member of the Supervisory Board	Basic remuneration	50	50
		Variable remuneration	33	24
		Attendance allowances	5	4
			88	78
Karsten Faber	¡ Member of the Supervisory Board	Basic remuneration	50	50
		Variable remuneration	33	24
		Attendance allowances	5	4
			88	78
Jutta Hammer 3)	¡ Member of the Supervisory Board	Basic remuneration	59	56
		Variable remuneration	33	24
		Attendance allowances	5	4
			97	84
Gerald Herrmann	¡ Member of the Supervisory Board	Basic remuneration	50	50
		Variable remuneration	33	24
		Attendance allowances	5	4
			88	78
Dr. Herrmann Jung	¡ Member of the Supervisory Board (since 6 May 2013)	Basic remuneration	33	—
		Variable remuneration	22	—
		Attendance allowances	4	—
			59	—
Dr. Thomas Lindner	¡ Member of the ¡ Supervisory Board ¡ Finance and Audit Committee ¡ Nomination Committee	Basic remuneration	50	50
		Variable remuneration	33	24
		Remuneration for committee activities	25	25
		Attendance allowances	9	12
			117	111
Dirk Lohmann	¡ Member of the ¡ Supervisory Board ¡ Nomination Committee (both since 6 May 2013)	Basic remuneration	33	—
		Variable remuneration	22	—
		Attendance allowances	4	—
			59	—

1) Amounts excluding VAT that is reimbursed

2) Remuneration for the fi nancial year is payable at the end of the Annual General Meeting that ratifi es the acts of management of the Supervisory Board for the fi nancial year in question. The provisions constituted on the basis of estimates are stated for variable remuneration

3) Including supervisory board and advisory board remuneration received from consolidated companies

4) The total values refl ect remuneration for all active members of the Supervisory Board during the period under review. In total, EUR 1 (48) thousand more was paid out than reserved for 2012 remuneration. The total amount for 2013 remuneration was increased accordingly

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance

• incl. remuneration report 115 Events of special signifi cance after
• the balance sheet date 116 Risk report
• 131 Forecast and opportunities report

M67 INDIVIDUAL REMUNERATION OF MEMBERS OF THE SUPERVISORY BOARD 1)

FIGURES IN EUR THOUSAND
Name	Function	Type of remuneration	2013 2)	2012 2)
Jutta Mück 3)	¡ Member of the Supervisory Board	Basic remuneration	66	66
		Variable remuneration	33	24
		Attendance allowances	7	6
			106	96
Otto Müller 3)	¡ Member of the Supervisory Board	Basic remuneration	80	80
		Variable remuneration	55	44
		Attendance allowances	9	8
			144	132
Dr. Hans-Dieter Petram	¡ Member of the Supervisory Board (until 6 May 2013)	Basic remuneration	17	50
		Variable remuneration	12	24
		Attendance allowances	1	4
			30	78
Dr. Michael Rogowski	¡ Member of the	Basic remuneration	17	50
	¡ Supervisory Board ¡ Personnel Committee	Variable remuneration	12	24
	¡ Nomination Committee (all until 6 May 2013)	Remuneration for committee activities	9	25
		Attendance allowances	3	6
			41	105
Katja Sachtleben-Reimann 3)	¡ Member of the ¡ Supervisory Board ¡ Standing Committee	Basic remuneration	62	62
		Variable remuneration	33	24
		Attendance allowances	7	6
			102	92
Dr. Erhard Schipporeit 3)	¡ Member of the ¡ Supervisory Board ¡ Finance and Audit Committee	Basic remuneration	80	80
		Variable remuneration	55	45
		Remuneration for committee activities	40	40
		Attendance allowances	17	19
			192	184
Norbert Steiner	¡ Member of the ¡ Supervisory Board ¡ Personnel Committee (both since 6 May 2013)	Basic remuneration	33	—
		Variable remuneration	22	—
		Remuneration for committee activities	16	—
		Attendance allowances	2	—
			73	—
Prof. Dr. Ulrike Wendeling-Schröder	¡ Member of the ¡ Supervisory Board ¡ Personnel Committee	Basic remuneration	50	50
		Variable remuneration	33	24
		Remuneration for committee activities	25	25
		Attendance allowances	7	6
			115	105
Werner Wenning	¡ Member of the Supervisory Board (until 6 May 2013)	Basic remuneration	17	50
		Variable remuneration	12	24
		Attendance allowances	1	4
			30	78
Total 4)			2,235	2,105

1) Amounts excluding VAT that is reimbursed

2) Remuneration for the fi nancial year is payable at the end of the Annual General Meeting that ratifi es the acts of management of the Supervisory Board for the fi nancial year in question. The provisions constituted on the basis of estimates are stated for variable remuneration

3) Including supervisory board and advisory board remuneration received from consolidated companies

4) The total values refl ect remuneration for all active members of the Supervisory Board during the period under review. In total, EUR 1 (48) thousand more was paid out than reserved for 2012 remuneration. The total amount for 2013 remuneration was increased accordingly

LOANS TO MEMBERS OF BOARDS AND CONTINGENT LIABILITIES

In order to avoid potential confl icts of interest, Talanx AG or its affi liated companies may only grant loans to members of the Board of Management or Supervisory Board or their dependants with the approval of the Supervisory Board.

As at the balance sheet date, a mortgage loan for a member of the Supervisory Board existed with HDI Lebensversicherung AG (formerly HDI-Gerling Lebensversicherung AG) in an amount of EUR 34 (49) thousand. EUR 15 (15) thousand was repaid in the year under review; the remaining term of the loan is two years and three months, the agreed interest rate is nominally 4.2% (eff ective rate of 4.3%). No other loans or advances were granted to members of the Board of Management or Supervisory Board or their dependants in the year under review. No contingent liabilities existed in favour of this group of persons.

One member of the Supervisory Board is Managing Director and Chairman of the Administrative Board of Sequaero Advisors AG, Zurich, and holds a stake of 27.9% in this company. Sequaero Advisors AG held two contracts to advise Talanx AG in the year under review, as part of which total fees of EUR 121 thousand were paid for 2013. This company also provided advisory services in various areas to Hannover Rück SE in 2013 and received EUR 374 thousand in fees for 2013 in connection with this.

There were no other reportable transactions with related parties pursuant to IAS 24 in the year under review.

IAS 24 provides for separate presentation of remuneration components of key management personnel. Specifi cally, this group of persons encompasses the members of the Board of Management and Supervisory Board of Talanx AG. The remuneration of the aforementioned group of persons breaks down as follows:

M68 MANAGEMENT REMUNERATION PURSUANT TO IAS 24

FIGURES IN EUR THOUSAND

	2013	2012
Salaries and other short-term remuneration payable	10,226	10,596
Other long-term benefi ts payable 1)	1,224	1,239
Granting of shares and other equity-based remuneration 2)	1,224	2,654
Expenses for retirement provision 3)	1,291	952
Total	13,965	15,441

1) The value of the portion of performance-based remuneration for members of the Board of Management to be allocated to the bonus bank for the year under review is stated

• 2) The value of share awards to be granted to members of the Board of Management for the year under review is stated (for 2012 including special payment of share awards for IPO)
• 3) The service cost recognised in the year under review for pensions and other post-retirement benefi ts is stated

REMUNERATION OF DIRECTORS AND MANAGERS BELOW THE GROUP BOARD OF MANAGEMENT

The Talanx Group's remuneration strategy is geared towards the goal of sustainably enhancing the value of the Group. The remuneration structure described above for members of the Group Board of Management therefore also applies in principle to directors and managers below the Group Board of Management who are able to exert a material infl uence on the overall risk profi le (risk carriers).

Remuneration for those directors and managers below the Group Board of Management who are not among the risk carriers consists of a fi xed and a variable component in all divisions. Variable remuneration in 2013 accounted on average for 30% of total remuneration.

A consistent remuneration system is in place for risk carriers and managers at the fi rst reporting level in primary insurance with eff ect from 1 January 2013. Remuneration for this group of persons comprises a fi xed component and a performance-related compo-

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

• 68 Assets and fi nancial position 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation
• 89 Other factors in success 131 Forecast and opportunities report

93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report

OTHER REPORTS AND DECLARATIONS

nent. It is in line with the market and competitive, and promotes sustainable corporate development. The remuneration system was also introduced for senior executives at the second reporting level with eff ect from 1 January 2014.

Target salary forms the basis of the performance-related remuneration system. This means the total gross salary for the year that can be achieved with good performance. The target salary is composed of a fi xed component and a variable remuneration component that depends on responsibility and the function level of the individual position. Variable remuneration accounts on average for a share of 20% to 35% of the target salary.

Variable remuneration is calculated based on the extent to which certain targets in the categories of Group net income, divisional result and personal accomplishment have been achieved. These three target categories for variable remuneration are given weightings of 10%, 30% and 60% for managers in the primary insurance divisions. In Corporate Operations, personal targets are given a weighting of 70% and Group net income a weighting of 30%. Managers at the fi rst reporting level in sales have an average variable remuneration component of 30% of target salary, of which Group net income and the divisional result each account for 10% and personal targets for 80%.

In reinsurance, a harmonised remuneration system has been in place for all Group managers worldwide since 1 January 2012. Remuneration for managers below the level of the Board of Management consists of a fi xed annual salary and a variable component, which in turn comprises a short-term variable component, the annual cash bonus, and a long-term share-based payment, the share award programme. In the market sectors, the assessment of variable remuneration is based on the elements of Group net income, divisional targets and personal targets, with weightings of 20%, 40% and 40% respectively. For managers with responsibilities in the service sector, 40% of variable remuneration is based on Group net income and 60% on the achievement of personal targets. Divisional targets and personal targets, and the extent to which they have been accomplished, are agreed upon as part of the management-by-objectives process.

EVENTS OF SPECIAL SIGNIFICANCE AFTER THE BALANCE SHEET DATE

Events that could have an infl uence on our assets, fi nancial position and net income are described in the forecast and opportunities report and in the subsection of the Notes entitled "Events aft er the balance sheet date", on page 278.

RISK REPORT

RISK STRATEGY

Our risk strategy forms the basis for Group-wide implementation of risk management. It is, in conjunction with value-oriented management, an integral component of our entrepreneurial activities and is refl ected in the detailed strategies of the various divisions. It is derived from our Group strategy and formulates the objectives of our risk management.

As an international insurance and fi nancial services group, we consciously enter into a wide range of risks that are inextricably linked with our business activities.

Our understanding of risk is holistic. For us, "risk" means uncertainty about future deviations, either positive or negative, from planned or expected values. Failure to meet targets that have been explicitly stated or implied is of particular signifi cance in risk management, as positive deviations from planned or expected values (opportunities) are naturally not the focus of risk management.

A crucial aim of our risk management is to protect the Talanx Group's economic capital. This requires conscious handling of risks, taking into account their materiality and the legal framework. As part of our overriding Group strategy, our risk strategy sets out our basic stance on the recognition and handling of risks.

Our primary aim is to ensure compliance with our strategically defi ned risk appetite. This is determined by the following three statements.

• ¡ There is a probability of 90% that we will achieve positive net income in accordance with IFRS
• ¡ The economic capital base must correspond to at least an aggregated 3,000-year shock (probability of ruin)
• ¡ The Group's investment risks should be limited to less than 50% of the total risk capital requirement

As a secondary condition with regard to its capitalisation, Talanx is aiming for a target capital adequacy ratio that corresponds roughly to the "AA" category at Standard & Poor's (S&P). It also needs to fulfi l regulatory requirements.

The principles set out in the Group strategy are refl ected in measures relating to the risk strategy and risk management activities derived from these. Our risk management department supports, monitors and reports on the achievement of these strategic objectives.

A key instrument in strategic risk management is the risk budget, which stipulates the material upper limit for the Talanx Group's risk potential, based on risk-bearing capacity and the strategically defi ned risk appetite. It thus refl ects the Talanx Board of Management's risk appetite in this respect.

The risk budget is allocated to the Talanx Group's individual divisions as part of strategic programme planning for the following year and represents the upper limit on the risk capital available to the divisions. Talanx's system of limits and thresholds also specifi es limits and thresholds for the capital adequacy ratio for the Group and divisions, which take into account the above secondary condition of a target capitalisation ratio in line with the "AA" category in S&P's capital model, among other points.

The level of security chosen (99.97%) exceeds the regulatory level required under Solvency II (99.5%) and ensures that the Group will in all probability also be able to cope with any new risks that arise.

Both our Group strategy and our risk strategy are subject to an established annual review process. Through this scrutiny of our assumptions and, if necessary, adjustment of the under lying strategy, we seek to ensure that our strategic guidelines are appropriate at all times and that actions are based on adequate information.

KEY ELEMENTS OF THE RISK MANAGEMENT SYSTEM

The interplay of the individual functions and bodies within the overall system is vital to an effi cient risk management system. Talanx has defi ned the roles and responsibilities as follows:

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development
• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date

131 Forecast and opportunities report

116 Risk report

M69 GROUP RISK MANAGEMENT SYSTEM

Management element	Key risk management tasks
Supervisory Board	¡ Advising and monitoring the Board of Management in its management of the company, inter alia with respect to risk strategy and risk management
Board of Management	¡ Overall responsibility for risk management ¡ Defi ning the risk strategy ¡ Responsibility for proper functioning of risk management
Risk Committee	¡ Risk-monitoring and coordinating body, charged especially with the following tasks: ¡ Critical observation and analysis of the risk position of the Group as a whole, with particular attention paid to the risk budget approved by the Board of Management and the risk strategy ¡ Monitoring of management measures within the Group with a focus on risks that could threaten the Group's continued existence
Chief Risk Offi cer	¡ Responsible for holistic monitoring across divisions (systematic identifi cation and assessment, control/monitoring and reporting) of all risks that are material from a Group perspective ¡ Chairman of the Risk Committee ¡ Option to participate in meetings of the Board of Management when there are items on the agenda relating to risk
Central Risk Management	¡ Group-wide, independent risk monitoring function ¡ Methodological competence, inter alia for ¡ Development of processes/methods for risk assessment, management and analysis ¡ Risk limitation and reporting ¡ Risk monitoring and quantifying the risk capital needed across the Group
Local Risk Management	¡ Risk monitoring function in the divisions ¡ Observance of the centrally defi ned guidelines, methods and processes and systems of limits and thresholds that serve as a framework for local implementation, monitoring and reporting
Compliance	¡ Analysis of compliance risk, based on early identifi cation, assessment and communication of relevant changes in the legal framework ¡ Establishment and refi nement of suitable structures for ensuring compliance with applicable legal standards and the rules applied by the Group
Group Auditing	¡ Process-independent review of the functional areas of the Group

In addition to these (risk) functions and bodies, organisational structures have been set up to deal with special issues, e.g. task forces for managing contingencies and crises.

RISK MANAGEMENT PROCESS

The Talanx Group and its divisions cover an extensive range of products, from insurance to fi nancial and other services. Accordingly, Talanx AG and its subsidiaries use a diverse range of methods and tools to monitor and manage their risks. The Talanx Group follows a central/local approach. Within the framework of the internal model (for Solvency II), the Group is responsible for risk categories that are of Group-wide relevance and to a large extent for the operation of models for these risk categories. By contrast, the divisions operate those models that map risks relating to specifi c risk carriers. These models are developed jointly by both levels, ownership of the models being vested with the Group holding company. The Group Auditing department and Group Risk Management carry out audits and validation procedures to ensure the adequacy of the models used and their compliance with Group guidelines.

The overall risk management process encompasses the identifi cation, evaluation, analysis, management and monitoring of risks and also risk reporting.

We identify risks throughout the Group using key indicators and various risk surveys. Qualitative risks are systematically recorded using soft ware tools. Risks spanning several divisions, such as compliance risks, are addressed by involving the segments or experts concerned. A comprehensive risk categorisation system specifi c to Talanx is in place to ensure that all risks are identifi ed. This forms the basis for risk identifi cation. Applicable methods and procedures are documented and are subject to in-house adequacy checks and reviews by Group Auditing.

In addition to this soft ware-based risk identifi cation procedure, Group Risk Management holds quarterly meetings with local risk management experts in the divisions and the Group's internal service companies. These risk meetings support the analysis and evaluation of risks at the level of Talanx AG and the divisions. An upward referral procedure has been established for bringing signifi cant changes in the risk position to the attention of Group Risk Management, ensuring immediate risk management at the level of Talanx AG.

In order to evaluate and analyse risks, Group Risk Management uses an internal risk capital model (TERM – Talanx Enterprise Risk Model) to derive the risk situation of the Talanx Group from central and local risks that have been identifi ed. We use this internal risk capital model to measure the risks. Since 2012, our main risk measurement has been based on the internal TERM model.

The Talanx Group has been in the preliminary application phase for approval of its internal model in accordance with Solvency II since 2008. The Federal Financial Supervisory Authority (BaFin) has been conducting extensive audits at Talanx AG and in various divisions as part of this preliminary application phase, a process that is still ongoing. Risks that are not considered material from the Group's perspective are in some cases modelled in TERM on a simplifi ed basis, using standard methods in accordance with Solvency II. The internal risk model covers a time horizon of one calendar year and makes allowance for the eff ects of correlations between Group companies and between risk categories. The scope of consolidation used for the internal model essentially corresponds to that used in the Annual Report. In preparation for the application of Solvency II, however, solvency capital requirements for occupational pension scheme providers are calculated in accordance with the relevant sector requirements.

With respect to risk limitation within our central system of limits and thresholds, maximum values have been specifi ed for limiting, managing and monitoring risks that could threaten the survival of the Group. In this context, limits and thresholds for material risk categories that can be quantifi ed are designed to operationalise risk management and monitoring. Material risks that are impossible or diffi cult to quantify (such as strategic risks) are primarily managed and monitored using appropriate processes and practices.

The switch to a TERM-based limit and threshold system will be completed gradually in 2014.

In the area of risk monitoring, we make a distinction between process-integrated independent monitoring and process-independent monitoring. Process-integrated independent monitoring is primarily the responsibility of the Risk Committee, the Chief Risk Offi cer (CRO) and the organisational units supporting the CRO. Processindependent monitoring is carried out mainly by the Supervisory Board, the Compliance function and Group Auditing, which also regularly reviews the risk management system.

The purpose of our risk reporting is to provide systematic and timely information about risks and their potential implications and to ensure adequate in-house communication about all material risks as a basis for decision-making. Regular reporting on risk management issues is intended to ensure that the Board of Management of Talanx AG is kept continuously informed of risks and can intervene as necessary to take action to manage risk; the Supervisory Board is also regularly advised of the risk situation. Material changes in the risk position must be reported to the Board of Management of Talanx AG immediately.

The potential implications of risks are not only to be documented but must also be incorporated into the annual planning of Group companies, thereby making it possible to allow for the risks of future development and to take appropriate countermeasures in a timely manner. Plans drawn up by all Group segments and the Group as a whole are discussed and approved by the Board of Management and Supervisory Board of Talanx AG, which draws up its own results planning on this basis. The purpose of this planning process is to make allowance not only for future developments but also for the interdependencies between the planning of each subsidiary and that of Talanx AG. Both operational and strategic considerations are factored into planning in the context of the performance management cycle.

Our decision-making and monitoring processes serve not only to satisfy the extensive regulatory requirements placed on the reporting and information systems but also extend to the preparation and examination of annual and consolidated fi nancial statements, the internal control system and the use of planning and controlling tools, and make use of the possibilities off ered by modelling with internal models.

Standard & Poor's upgraded our risk management activities in the area of primary insurance from "adequate with positive trend" to "strong" in 2012, and confi rmed this assessment in 2013. S&P assessed Hannover Re's risk management as "very strong".

Talanx Asset Management GmbH and Ampega Investment GmbH, which are in charge of managing investments, are regularly certifi ed in accordance with international audit standard ISAE 3402. This certifi cation attests to an adequately confi gured control system and its eff ective implementation. This audit was carried out again in 2013.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report

131 Forecast and opportunities report

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM IN THE CONTEXT OF FINANCIAL REPORTING

Risk management within the Talanx Group has a central/local organisational structure. Responsibilities are split between local risk management at the level of the divisions and central risk management at Group level.

The key requirements of the internal control system (ICS) and risk management system implemented at Talanx AG with regard to the Group fi nancial reporting process can be described as follows:

• ¡ There is a clear management and corporate structure. Key functions that span multiple areas are managed centrally
• ¡ The functions of the main areas involved in the fi nancial reporting process, Finance and Accounting and Controlling, are clearly separated. Areas of responsibility are unambiguously assigned (separation of functions)
• ¡ The departments and units involved in the fi nancial reporting process have appropriate resources at their disposal from both a quantitative and a qualitative point of view
• ¡ The fi nancial systems used are protected against unauthorised access by appropriate IT measures. Where possible, the systems concerned run on standard soft ware
• ¡ An adequate system of guidelines (e.g. on recognition and measurement of assets and liabilities, work procedures) has been set up and is constantly updated
• ¡ Controls have been implemented in the fi nancial reporting processes and workfl ows. Bookkeeping data that are received or forwarded are checked for completeness and correctness by the members of staff responsible. The peer-review principle is consistently applied. In addition, programmed plausibility checks are run using database-supported soft ware
• ¡ Controls and work procedures in the accounting-related internal control and risk management system are reviewed as and when required and at least once a year, whereby they are checked to ensure that they are adequate and to determine whether any adjustments are necessary

Processes relating to the organisation and execution of consolidation tasks and the preparation of the consolidated fi nancial statements of Talanx AG, together with associated checks, are presented in comprehensive ICS documentation, which is regularly reviewed and optimised in the light of compliance considerations.

Potential risks arising from the Group fi nancial reporting process are identifi ed and assessed by Group Accounting. Any action required is decided based on this. The risks are included in the Group's risk survey and are monitored by Group Risk Management.

The Group's in-house IFRS recognition and measurement rules are compiled in an accounting manual, which is available to all Group companies in computerised form and provided to all employees directly or indirectly involved in the preparation of the consolidated fi nancial statements. The aim of this manual is to ensure consistent and correct application of International Accounting Standards on a Group-wide basis. It is regularly updated and modifi ed as standards evolve. Supervision of local accounting units at subsidiaries by staff in Group Accounting ensures compliance with the rules contained in the manual.

Talanx AG's consolidated fi nancial statements are drawn up at the parent company's headquarters in Hannover on the basis of IFRS packages requested and received from the contributing subsidiaries. The subsidiaries themselves are responsible for compliance with Group-wide fi nancial accounting regulations and for the proper and timely running of their fi nancial reporting processes and systems; investments of German and the majority of non-German subsidiaries are for the most part managed centrally by Talanx Asset Management GmbH.

The companies included in the consolidated fi nancial statements use an Internet-based IT application for reporting. The items of the balance sheet, statement of income, statement of comprehensive income, cash fl ow statement, statement of changes in shareholders' equity and Notes as well as other data with a bearing on consolidation that are stored in a database are uploaded to the consolidation system via interfaces and processed in this system. Internal transactions within the Group are verifi ed through prior reconciliation processes and consolidated where necessary. Written instructions exist in this regard to ensure that an appropriate procedure is followed. Furthermore, the consolidation system incorporates an approval process for manual postings that ensures compliance with the peer-review principle while taking certain value limits into account.

The independent auditor examines Talanx AG's consolidated fi nancial statements as at the balance sheet date, and also reviews the Group's quarterly interim fi nancial statements and the IFRS packages from consolidated companies.

RISKS OF FUTURE DEVELOPMENT

The Talanx Group's risk situation can be broken down into the risk categories described below; they are based on German Accounting Standard DRS 20:

• ¡ underwriting risks
• ¡ default risks in insurance business
• ¡ investment risks
• ¡ operating risks
• ¡ other risks

The results of Market Consistent Embedded Value (MCEV) calculations and the assessment of risks based on our internal risk capital model TERM as at the end of 2013 will become available in the fi rst half of 2014 and will be published on the Talanx Group's website.

EFFECTS OF THE ECONOMIC AND PARTIAL SOVEREIGN DEBT CRISIS

The sovereign debt crisis in parts of the Eurozone, a weak global economy, the need to ensure stability in the banking sector and the low interest rate policy resulting from all these concerns are continuing to shape the market environment.

The German economy is still quite stable despite high levels of sovereign debt and diffi culties encountered in eff orts to reschedule and write off debts in the Eurozone.

Problems arising from the sovereign debt crisis in the Eurozone remain largely unresolved. However, progress has been achieved in some cases with cost-cutting programmes and thus with the restructuring of public fi nances.

As at 31 December 2013, the Talanx Group held government bonds with a market value of EUR 1.5 billion from the GIIPS countries (including Greece at EUR 6 million, Italy at EUR 1,144 million, Spain at EUR 107 million, Ireland at EUR 258 million and Portugal at EUR 20 million, excluding unit-linked investments for the account and risk of holders of life insurance policies), which may lead to spread-related or rating-related burdens. Thanks to support measures at European level (the European Financial Stability Facility), however, there is no elevated risk of default in the near future on bonds from the GIIPS countries, with the exception of Greece.

With its system of limits and thresholds, together with investment guidelines, the Group is subject to precisely defi ned limits that aim to avoid risks relating to individual debtors that could jeopardise the Group's survival.

The crisis and the prospect of regulatory innovations are increasingly driving a tendency towards more exacting capital requirements on the part of supervisory authorities. This trend could also aff ect some Group companies and require capital measures to be taken.

The Financial Stability Board (FSB) has published a list of insurance companies classifi ed as relevant to the global system. These insurance companies will be subject to "tighter regulation" and will need to draw up restructuring and liquidation plans by the end of 2014. Additional capital reserves for risks that are systemically relevant are also planned. The FSB has not classifi ed the Talanx Group as systemically relevant worldwide. Unforeseen costs could arise for the Talanx Group if this were to change. (There are no reinsurance companies on the FSB's list as yet. A decision on their importance to the system will be made in 2014.)

Should the current low interest rate level be sustained or indeed should further interest rate cuts ensue, this would give rise to a considerable reinvestment risk (mapped in MCEV calculations due to their design) for life insurance companies off ering traditional guarantee products, since it would become increasingly diffi cult to generate the guaranteed return – even if the Group reduces this interest guarantee risk primarily by means of interest rate hedges and by extending durations on the assets side, with the addition of a moderate volume of higher-yield securities including selected GIIPS issues (cf. section "Material underwriting risks"). Moreover, there may be a decrease in the MCEV of primary life insurers, especially in the context of further declines in interest rates and higher volatilities.

The fi nancial crisis has led to a contraction in bank lending and possible associated problems with raising cash. Further concerns have arisen in the banking sector, not only with regard to potential losses on bonds and loans to European peripheral countries (GIIPS), but also owing to much stricter regulatory requirements for risk capital, which are forcing banks to seek substantial amounts of fresh capital and/or to contract their balance sheets. A cut-back in lending by banks could also aff ect Talanx AG and constitute a liquidity risk.

However, for reasons associated with the business model, the liquidity risk is of less signifi cance to the Talanx Group (compared with the banking industry), because regular premium payments and interest income from investments, together with its liquidity-conscious investment policy, provide Talanx with an adequate supply

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation
• 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report

131 Forecast and opportunities report

of liquid funds. Extensive unused lines of credit are also available. Liquidity risks may arise, however, particularly as a consequence of illiquid capital markets and – in the life insurance sector – due to an increase in the lapse rate among policyholders, if this makes it necessary to liquidate a large volume of additional investments at short notice. The holding company Talanx AG may face liquidity risks due to a potential discrepancy between incoming and outgoing payments. Talanx AG holds adequate levels of liquidity reserves and credit lines promised by banks to deal with unexpected liquidity requirements. In addition, Talanx AG holds liquid assets that can be sold if necessary.

MATERIAL UNDERWRITING RISKS

Underwriting risks in property/casualty insurance are considered separately from those in life insurance, because of the considerable diff erences between the risks in the two sectors. In addition to the information provided below, the Notes contain a detailed and quantifi ed description of underwriting risks in the section "Nature of risks associated with insurance contracts and fi nancial instruments" in the subsections "Management of underwriting risks in property/casualty insurance" (cf. 191 et seq.) and "Management of underwriting risks in life/health insurance" (cf. page 194 et seq).

Underwriting risks in property/casualty business (primary insurance and reinsurance) derive principally from the premium/loss risk and reserving risk. Premium/loss risk arises because insurance premiums fi xed in advance are used to pay indemnifi cations at some stage in the future, the amount of which, however, is initially unknown. Actual claims experience may therefore diverge from the expected claims experience. This may be attributed to two factors, the risk of random fl uctuation and the risk of error.

The risk of random fl uctuation refers to the fact that both the number and the size of claims are subject to random factors, and expected claims payments may therefore be exceeded. This risk cannot be ruled out even if the claims spread is known. The risk of error describes the risk of the actual claims spread diverging from the assumed claims spread. A distinction is made here between diagnostic risk and forecasting risk. The diagnostic risk refers to the possibility that the actual situation may be misinterpreted on the basis of the available data. This is particularly likely to occur if only incomplete data are available regarding claims from previous insurance periods. The forecasting risk refers to the risk that the probability distribution of total claims may change aft er the estimate is made, for example due to a higher infl ation rate.

The Talanx Group manages and reduces all components of the premium/loss risk fi rst and foremost through claims analyses, actuarial modelling, selective underwriting, specialist audits and regular review of the claims experience and by taking recourse to appropriate reinsurance cover. For details of the loss triangles, cf. item 21 "Loss and loss adjustment expense reserve" in the Notes. The subsection "Management of credit risk associated with insurance contracts" in the section "Nature of risks associated with insurance contracts and fi nancial instruments", page 198 et seqq., provides details of the credit status of reinsurers.

External actuaries regularly analyse the eff ects of possible stress scenarios on the Talanx Primary Group, so that the impact of an unexpected change in infl ation on the Group's loss provisions can be assessed in more detail. Hannover Re has taken out infl ation swaps (zero coupon swaps in USD and EUR) to hedge some infl ation risks. These derivative fi nancial instruments hedge some of the loss reserves against infl ation risks.

The second underwriting risk in property/casualty business, namely reserving risk, refers to the possibility that technical provisions may not suffi ce to pay in full claims that have not yet been settled or reported. This may then give rise to a need to establish additional provisions. In order to manage this risk, companies belonging to the Talanx Group measure their provisions prudently. They take into account not only the claims information provided by their clients but also insights from their own claims investigations and experience. Furthermore, an IBNR (incurred but not reported) reserve is constituted for claims that have probably already occurred but have not yet been reported (in their full amount).

The level of reserves is regularly reviewed – not only internally but also by external actuaries – and external expert assessments of the reserves are commissioned, to minimise the reserving risk. With regard to the run-off results of loss provisions, please refer to our comments in the Notes under "Notes to the consolidated balance sheet", item 21.

In the case of the reserve for pension benefi ts, which forms part of the loss and loss adjustment expense reserve, we also monitor interest rate trends, which can result in interest rate risk. A fall in actuarial interest rates could have a negative eff ect on earnings, at least in local fi nancial reporting systems, owing to the need to establish a reserve.

The following paragraphs describe risks associated with individual classes of property/casualty insurance and then discuss risks in life primary insurance and life/health reinsurance.

Under liability insurance policies, we grant the policyholder and any other persons included in the coverage protection against claims for damages asserted by third parties. Indemnifi cation is normally provided for bodily injuries and property damage, although purely fi nancial losses are also insurable. This line also includes motor third-party liability insurance. The agreed sums insured constitute the policy limits. The frequency and amount of claims can be infl uenced by a number of factors. For instance, new precedents set by court rulings may increase the number of cases in which claims are brought before the courts, with corresponding implications for indemnity payments. Risks may also arise from infl ation and changes in interest rates, since some claims are settled over a very long period of time. Provisions that have been constituted may therefore not suffi ce to meet future claims payments as a result of infl ation. Under liability insurance policies, the (re)insurer is liable for all insured events that occur during the policy period, even if the harm caused is not discovered until aft er the policy period has ended. We therefore establish loss provisions for liability policies not only for claims of which we have already been notifi ed, but also for those that have been incurred but not yet reported (IBNR). The actuarial methods used to calculate these provisions may involve a risk of error in the underlying assumptions.

Accident insurance policies provide cover against the economic repercussions of accidents. Depending on the consequences of the accident and the policy concerned, Group companies typically pay a daily allowance, a lump-sum disability benefi t or a disability pension, or a death benefi t. Provisions for pension benefi ts are calculated on the basis of life actuarial models.

Group (re)insurance companies calculate their premiums for liability and accident policies using empirical values and actuarial calculations. They also manage these risks through their underwriting policy. Underwriting guidelines, which set out inter alia underwriting exclusions and limits, defi ne criteria for risk selection. These underwriting guidelines are binding for underwriters; they are reviewed annually and modifi ed as necessary. The risk of peak exposures is also reduced by taking out appropriate reinsurance cover. Furthermore, the adequacy of provisions is regularly reviewed.

Property insurance policies provide indemnity for damaged or destroyed property in the event of a claim. The amount and extent of losses covered by such policies are determined in particular by the cost of rebuilding and restoration or the compensation payable for building contents; in industrial and commercial insurance, losses resulting from business interruption are also covered. Benefi ts are, however, limited by the sum insured. Benefi ts under motor insurance policies may be paid for replacement or repair of a destroyed or damaged vehicle.

Underwriting risks may arise due to the fact that incorrect assumptions used in calculations, inadequate accumulation control or errors of judgement in estimating future claims may result in key cash fl ow movements diverging from the expectations on which the calculation of the premium was based. Risks arising from natural hazards are of particular signifi cance at the Talanx Group in this context. Climate change in particular can lead to frequent and severe weather events (e.g. fl oods or storms) and corresponding losses. Under industrial property insurance policies, major one-off loss events can trigger large claims. To limit these risks, we continually monitor the claims experience to identify any departures from expectations and, if necessary, we revise our calculations. For example, Group companies have an opportunity to adjust prices to the actual risk situation each time policies are renewed. They also manage these risks through their underwriting policy. Here, too, there are underwriting exclusions and limits that serve as criteria for risk selection. Retentions also apply in some lines. Carefully selected reinsurance cover minimises peak exposures caused by substantial individual and accumulation risks.

Comprehensive scenario calculations are performed for the Hannover Re Group in particular, to identify natural hazards accumulation risks – particularly for net account – at an early stage. These analyses determine the maximum exposure that Hannover Re should accept for such risks and the retrocession cover needed. Retrocession – i. e. passing on risks to other carefully selected reinsurers of long-standing fi nancial quality – is another vital tool for limiting underwriting risks.

In life primary insurance, the insurance policy commits the insurer to pay either a lump sum or a regularly recurring benefi t. The premium is calculated on the basis of an actuarial interest rate and a number of biometric factors such as the age of the insured at policy inception, the policy period and the amount of the sum insured. The main insured events are the death of the insured person or maturity of the policy (survival).

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
  • 85 Talanx AG (condensed version)
  • 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report

131 Forecast and opportunities report

Typical risks in life insurance are associated with the fact that policies grant guaranteed long-term benefi ts. While the premium for a given benefi t is fi xed at the inception of the policy for the entire policy period, the underlying parameters (interest rate level, biometric assumptions) may change. This is even more applicable to the general legal framework underlying the contractual relationship. Changes that can aggravate the risk in this regard are discussed under "Material operating risks."

Biometric actuarial criteria such as mortality, longevity and morbidity are established at the inception of a contract for calculating premiums and reserves. Over time, however, these assumptions may prove to be no longer accurate, and additional expenditures may be needed to boost the benefi t reserve. The adequacy of the underlying biometric actuarial data is therefore regularly reviewed. Epidemics, a pandemic or a worldwide shift in lifestyle habits may pose special risks to contracts under which death is the insured risk. Under annuity insurance, the risk derives fi rst and foremost from steadily improving medical care and social conditions, which increase longevity – with the result that insureds draw benefi ts for a longer time than calculated.

Reserves calculated on the basis of assumptions regarding the future development of biometric data such as mortality or occupational disability are set up to ensure that commitments under these policies can always be met. Specially trained life actuaries use safety margins to make sure that the actuarial bases also make suffi cient allowance for risks of change.

In addition, life insurance policies entail lapse risks. In the event of an unusual accumulation of cancellations, for example, the available liquid assets may not be suffi cient to cover the benefi ts payable. This may lead to losses being realised on the unplanned disposal of assets. For this reason, the Group's life insurers invest a suffi ciently large asset portfolio in short-term holdings and regularly analyse the situation with regard to cancellations. They also regularly match and control the duration of their assets and liabilities. Furthermore, accounts receivable from insurance intermediaries may prove to be irrecoverable and be lost in the event of cancellation. Insurance intermediaries are therefore carefully selected. Cancellation may also create a cost risk if new business drops off signifi cantly and fi xed costs – unlike variable costs – cannot be reduced in the short term. We monitor trends resulting from the fi nancial market crisis and the situation in the insurance sector in connection with this. The general market environment is diffi cult, particularly in the area of retirement products, and is marked by a tendency towards a decline in new business. Cost controlling and a focus on variable sales costs through distribution channels such as brokers limit this risk.

In the case of life insurance policies with guaranteed interest payments, an interest guarantee risk arises if a guaranteed return on the savings element of the premium is agreed when the policy is taken out. To generate this guaranteed return, insurance premiums must be invested under appropriate terms on the capital market. However, the capital market fl uctuates over time, which means that future investments are subject to the risk of poorer terms. The recent reform of the Insurance Contract Act (VVG) in Germany exacerbated the interest guarantee risk by entitling policyholders to a share in the valuation reserves upon termination of the policy. Moreover, the duration of the investments is generally shorter than the term of the insurance contracts, giving rise to a reinvestment risk.

The fact that interest rates have remained low for several years, partly owing to the economic crisis and sovereign debt crisis in parts of the Eurozone and the associated low interest rate policy, has increased interest guarantee risk and reinvestment risk.

In particular, this poses a risk to the Group's life insurers and occupational pension scheme providers that draw up fi nancial statements according to the German Commercial Code (HGB), in that they may need to boost provisions for interest payments. The amendment of the Mathematical Provisions Ordinance (Deckungsrückstellungsverordnung) by the Federal Ministry of Finance (BMF), which came into eff ect in March 2011, has resulted in the need to allocate additional provisions since the 2011 fi nancial year.

It will be possible to partly off set expenses for the allocation of additional provisions by releasing valuation reserves that have accrued in parallel. There is, however, a risk of a discrepancy between the increase in the amount needed for the additional interest reserve and the change in valuation reserves, in terms of either the amount or the timing of the change. This would be the case in particular if there were a signifi cant short-term increase in interest rates.

The continuation of current average interest rates into the longer term, the associated fi nancing of the additional interest reserve, the simultaneous payout of valuation reserves and the maintenance of an adequate solvency ratio will together put a considerable strain on German life insurance companies and occupational pension scheme providers and thus also represent a signifi cant risk for the Talanx Group.

The Group reduces the interest guarantee risk primarily through regular analyses of its assets and liabilities, by constantly monitoring the investment portfolios and capital markets and by taking appropriate countermeasures. Interest rate hedging instruments such as book yield notes and forward purchases are also partly used. For a large part of our life insurance portfolio, the interest guarantee risk is reduced through contractual provisions. The surplus participations paid in addition to the guaranteed interest rate can be adjusted to the situation on the capital market. Under unit-linked life insurance policies, investment risks are borne by policyholders, who also profi t from the associated opportunities. However, investment risks could be shift ed back onto life insurers as a consequence of adverse legal developments.

There is also an interest rate risk in connection with guaranteed surrender values. A rapidly rising interest rate level, for example, may lead to unrealised losses. If contracts were terminated prematurely, policyholders would be entitled to the guaranteed surrender values but would not share in any unrealised losses incurred. Upon disposal of the corresponding investments, the unrealised losses would have to be borne by the life insurers, and in theory it is possible that the fair value of the investments may not suffi ce to cover the guaranteed surrender values. In addition, the change in the distribution of acquisition costs in compliance with the amended Insurance Contract Act leads to higher surrender values in the initial phase.

The biometric risks described above are especially important in life and health reinsurance, particularly catastrophe risks, such as in the event of pandemics. Reserves in life and health reinsurance are based mainly on the information provided by our ceding companies. Reliable biometric actuarial bases are used to check the plausibility of these fi gures. Quality assurance measures ensure that reserves calculated by ceding companies in accordance with local fi nancial reporting principles satisfy all requirements with respect to the calculation methods used and assumptions made (e.g. use of mortality and morbidity tables, assumptions regarding the lapse rate). The Group writes new business in all regions in compliance with globally applicable underwriting guidelines, which set out detailed rules governing the type, quality, level and origin of risks and which are revised annually. Specifi c underwriting guidelines give due consideration to the particular features of individual markets. By monitoring compliance with these underwriting guidelines, the Group minimises the potential credit risk associated with the insolvency or deterioration in the fi nancial status of cedants. Regular reviews and holistic analyses are performed whenever new business activities are launched or international portfolios taken over (e.g. with a focus on lapse risks). The interest guarantee risk that is so important in life primary insurance is of little relevance in life and health reinsurance, owing to the structure of the contracts.

A key risk management tool in the areas of life insurance and life/ health reinsurance is systematic monitoring of the Market Consistent Embedded Value (MCEV). Sensitivity analyses highlight areas where the Group is exposed and provide pointers as to which areas to focus on from a risk management perspective.

DEFAULT RISKS IN INSURANCE RECEIVABLES

Accounts receivable on insurance business always entail a risk of default. This applies in particular to receivables due from reinsurers, retrocessionaires, policyholders and insurance intermediaries. Value adjustments or write-downs on receivables would be the result.

The Group counteracts the risk of default by reinsurers and retrocessionaires by carefully selecting them with the aid of Credit Committees made up of experts, by constantly monitoring their credit status, monitoring the amount ceded to each reinsurance partner and – where necessary – taking appropriate measures to secure receivables. Depending upon the nature and expected run-off period of the reinsured business and subject to a minimum capital adequacy requirement, reinsurers and retrocessionaires are selected on the basis of our own credit assessments and the minimum ratings assigned by the rating agencies Standard & Poor's and A.M. Best.

A rating information system that can be accessed throughout the Group ensures consistent and uniform use of rating information relating to the balance sheet date.

The default risk for accounts receivable from policyholders is countered fi rst and foremost by means of an eff ective dunning process and the reduction of outstandings. Intermediaries are subject to credit checks. General bad debt provisions are also established to allow for the default risk.

In addition to the above remarks, cf. the subsection "Management of credit risk associated with insurance contracts" in the section "Nature of risks associated with insurance contracts and fi nancial instruments" in the Notes, page 198 et seqq.

MATERIAL INVESTMENT RISKS

Risks associated with investments consist most notably of market price, creditworthiness and liquidity risks and constitute an important risk category for the Talanx Group.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version) 88 Overall assessment of the economic situation
• 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report 131 Forecast and opportunities report

They must be seen in the context of investment policy. This is governed within the Talanx Group by investment guidelines and the regulatory framework that applies to each individual company.

In the interests of policyholders and with a view to accommodating future capital market requirements, our investment policy is essentially guided by the following goals:

• ¡ optimising the return on investments while at the same time preserving a high level of security
• ¡ ensuring liquidity requirements are satisfi ed at all times (solvency)
• ¡ risk diversifi cation (mix and spread)

An essential component of risk management is the principle of separation of functions – i. e. maintaining a distinction between Portfolio Management, Settlement and Risk Controlling. Risk Controlling is organisationally and functionally separate from Portfolio Management and is responsible primarily for monitoring all risk limits and evaluating fi nancial products. Management and control mechanisms are geared closely to the standards adopted by the Federal Financial Supervisory Authority (BaFin) and the respective local regulators.

Detailed investment guidelines are in force for individual companies, compliance with which is constantly monitored. These investment guidelines defi ne the framework for the investment strategy and are guided by the principles set out in § 54 of the Insurance Supervision Act (VAG), with the aim of achieving the greatest possible level of security and profi tability while ensuring liquidity at all times and preserving an appropriate mix and spread within the portfolio. The risk controlling department of Talanx Asset Management GmbH and the Chief Financial Offi cer of each company monitor the ratios and limits set out in these guidelines. Any signifi cant modifi cation of the investment guidelines and/or investment policy requires the approval of the board of management of the company concerned and must be brought to the attention of its supervisory board.

With regard to the scope and extent of these risks, cf. our comments in the Notes in the section "Nature of risks associated with insurance contracts and fi nancial instruments" under "Risks associated with investments", page 201, in addition to the subsections below.

MARKET PRICE RISKS

Market price risks derive from potential losses due to adverse changes in market prices and may be attributable to changes in interest rates, equity prices and currency exchange rates. These can lead to impairments or result in losses being realised upon disposal of fi nancial instruments.

Our portfolio of fi xed-income securities is exposed to the interest rate risk. Declining market yields lead to increases and rising market yields to decreases in the market value of the fi xed-income securities portfolio. The credit spread risk should also be mentioned. The credit spread refers to the interest rate diff erential between a bond entailing a risk and a risk-free bond of the same quality. As with changes in pure market yields, changes in these risk premiums, which are observable on the market, result in changes in the market values of the corresponding securities. A drop in interest rates can also lead to lower investment income. For information on the resulting interest guarantee risk in life insurance, cf. section "Material underwriting risks".

(Unsecured) equity price risks derive from unfavourable changes in the value of equities, equity derivatives or equity index derivatives held in the portfolio.

Currency risks result from exchange rate fl uctuations – especially if there is a currency imbalance between the technical liabilities and the assets. To manage currency risk, we check that matching currency cover is maintained at all times. Risk is limited by investing capital wherever possible in those currencies in which obligations under our insurance contracts are to be fulfi lled.

Investments in alternative asset classes such as private equity and hedge funds are limited and regularly monitored using a conservative control mechanism. The hedge funds are entirely transparent for individual companies and are reviewed daily with regard to liquidity, leverage and exposure.

Real estate risks may result from unfavourable changes in the value of real estate held either directly or through fund units. They may be caused by a deterioration in the qualities of a particular property or by a general downslide in market values (such as a real estate crash). In the case of direct investments in real estate, the yield and other key performance indicators (e.g. vacancies and arrears) are measured regularly at the level of individual properties and the portfolio as a whole. Risk control for indirect real estate investments, as with private equity funds, is based on regular monitoring of the development and performance of funds.

We reduce potential market price risks through a variety of riskcontrol mechanisms. One important measure for monitoring and managing market price risks is constant analysis of the value at risk (VaR), including the liabilities side. The VaR is determined on the basis of historical data, e.g. the volatility of market values and the correlation between risks. As part of these calculations, the potential decline in the market value of our portfolio is simulated with a given probability and within a certain period. Stress tests are another vital risk-control tool. Experts at Talanx Asset Management GmbH simulate possible market changes that could result in signifi cant price and interest rate losses for the bulk of our securities. In addition, market price risks are identifi ed using enterprise-specifi c stress tests and those required by regulators with the corresponding prescribed stress test parameters.

For further information on market price risks, cf. the subsection "Management of risks associated with investments" in the section "Nature of risks associated with insurance contracts and fi nancial instruments" in the Notes, page 201.

RISKS ASSOCIATED WITH DERIVATIVE FINANCIAL INSTRUMENTS

The Talanx Group enters into derivative transactions, in particular to hedge against price risks or interest rate risks aff ecting existing assets, to prepare for the subsequent purchase of securities or to generate additional earnings on existing securities. The Group also uses OTC derivatives on a minor scale, which may involve a counterparty risk. In addition, Hannover Re has used infl ation swaps to hedge some infl ation risks arising from technical loss reserves.

The Group companies' full Boards of Management decide on the nature and scope of investments in derivative fi nancial instruments.

Selection of counterparties with a good credit rating prevents a signifi cant credit risk. Internal guidelines also regulate the use of derivative products to ensure the most effi cient and risk-free use of forward purchases, derivative fi nancial instruments and structured products and to satisfy regulatory requirements. The use of such instruments is thus subject to very strict limits. We constantly monitor the parameters of investment guidelines and statutory provisions governing the use of derivative fi nancial instruments and structured products. Derivative positions and transactions are specifi ed in detail in reporting. The risk of fi nancial default by the counterparties concerned arising from the use of OTC derivatives is reduced by netting and by means of collateral security agreements.

Further information on the use of derivative fi nancial instruments can be found in item 13 "Derivative fi nancial instruments and hedge accounting" in the section "Notes to the consolidated balance sheet" in the Notes.

CREDIT RISKS

Counterparty default or credit risks refer to a potential deterioration in the fi nancial situation of debtors, resulting in the risk of their becoming unable to make contractually agreed payments in part or in full as they fall due, or to declines in the value of fi nancial instruments due to the impaired creditworthiness of the issuer. Credit ratings assigned by agencies such as S&P and Moody's are a key pointer for investment decisions taken by Portfolio Management. If a rating cannot be obtained in this way, an in-house rating is determined. This is done by applying premiums and discounts to the issuer's rating or to the ratings for other securities from the same issuer. In addition to the default probabilities associated with the respective rating class, further criteria for risk measurement and management are the type of product, the expected recovery ratio and the remaining term to maturity. The "credit value at risk" is determined as a further risk indicator, defi ned as the unanticipated loss given a holding period of one year and a target confi dence level of 99.5%.

Counterparty default risks are controlled by applying various limits at the portfolio, rating class, issuer and issue levels. The exceeding of limits (violation of limits) triggers defi ned referral measures.

For further remarks, cf. the subsection "Management of risks associated with investments" in the section "Nature of risks associated with insurance contracts and fi nancial instruments" in the Notes, page 201.

LIQUIDITY RISKS

We understand liquidity risks as the risk of being unable to convert investments and other assets into cash when they are needed to meet our fi nancial obligations as they fall due. For example, it may not be possible to sell holdings (at least not without delay) or to close open positions (without accepting price mark-downs) due to the illiquidity of the markets.

As a rule, the Group continuously generates signifi cant liquidity positions because premium income normally accrues well before claims payments and other benefi ts need to be rendered.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group
• 47 Strategy 48 Enterprise management
• 51 Research and development
• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report
• 131 Forecast and opportunities report

We counteract liquidity risks through regular liquidity planning and by continuously matching the maturities of our investments to our fi nancial obligations. A liquid asset structure ensures that the Group is able to make the necessary payments at all times. Planning for technical payment obligations is based, for example, on the expected due dates, making allowance for the run-off pattern of reserves.

As an aid to monitoring liquidity risks, each type of security is assigned a liquidity code that indicates how easily the security can be converted into cash at market prices. Risk Controlling at Talanx Asset Management GmbH reviews these codes regularly. Plausibility checks are carried out, taking into account market data and an assessment by Portfolio Management, and the codes are modifi ed where necessary. The data are then included in the standardised portfolio reporting provided to Chief Financial Offi cers.

The operational insurance companies are responsible for managing liquidity risk. To do this, they use appropriate systems that refl ect the specifi c features of the Group's diff erent business models. This gives us maximum fl exibility in overall liquidity management.

Specifi c minimum limits are in place at individual Group companies for holdings of highly liquid securities, as well as maximum limits for holdings of securities that are not very liquid. Minimum limits in particular are based on the timeframe of technical payment obligations. Owing to the shorter terms of their technical payment obligations, the Group's property/casualty insurers generally have higher minimum limits for holdings of highly liquid securities than life insurers, for which the terms of technical payment obligations are usually longer. If risk limits are exceeded, this is immediately reported to the Chief Financial Offi cers and Portfolio Management.

Liquidity risks can arise at the level of Talanx AG for two reasons, the refi nancing of liabilities to third parties as they fall due and the need for capital at subsidiaries, and generally come about due to discrepancies between incoming and outgoing payments. With regard to refi nancing, there is a risk in particular that it will be possible to obtain liquid funds only at high interest rates or to sell assets only at a substantial discount.

To manage its liquidity, Talanx AG must ensure its solvency at all times during normal operations and in potential crisis situations. It monitors its liquidity position on a daily basis and draws up liquidity plans over a period of twelve months and three-year liquidity forecasts, which are presented to the Group Board of Management at regular intervals. Talanx AG holds adequate levels of liquidity reserves and credit lines promised by banks to deal with unexpected liquidity requirements.

As part of loan agreements with banks, Talanx AG has entered into commitments in line with common market practice (covenants). To prevent the outstanding loan amounts from being called in owing to failure to comply with obligations, the company has set up a system for continuous monitoring.

In addition, Talanx AG holds liquid assets that can be sold if necessary.

The Group also optimises the availability of liquid funds using cash pools within the respective subsidiaries and Talanx AG, thus facilitating management of cash infl ows and outfl ows at the various Group companies.

Further information on liquidity risks can be found in the subsection "Management of liquidity risks" in the section "Nature of risks associated with insurance contracts and fi nancial instruments" in the Notes, page 207 et seq.

MATERIAL OPERATING RISKS

For us, this category encompasses the risk of losses occurring due to the inadequacy or failure of internal processes or as a result of events triggered by employee-related, system-induced or external factors. Operating risk also includes risks relating to data protection and antitrust law and other legal risks.

Multifaceted, cause-targeted risk management and an effi cient internal control system minimise risks associated with business activities in general, members of staff or technical systems. In addition to Group Auditing, the Compliance function also bears responsibility for overseeing compliance with applicable laws and with external and in-house guidelines.

Legal risks may arise in connection with contractual agreements and the broader legal environment, especially with respect to businessspecifi c imponderables of commercial and tax law as they relate to a life/health and property/casualty (re)insurer that operates internationally. Primary insurers and reinsurers are also dependent on general political and economic conditions prevailing on their respective markets. Legal risks play an important part in the area of life insurance in particular. Talanx's Board of Management monitors them continuously as part of an ongoing exchange of information with local management.

Various countries are planning or have already introduced a fi nancial transaction tax as a means of recovering at least part of the cost of the banking crisis. The European Commission presented a proposal for a directive on a fi nancial transaction tax in February 2013. This is to be introduced by some member states (including Germany). Although the draft directive states that the transaction tax will be introduced in 2014, this is thought to be unlikely. However, it is thought to be very likely that the tax will be introduced in 2015. The precise form that the fi nancial transaction tax will take, particularly with regard to the inclusion of pension insurance products and the associated investments, is still unclear. There is a risk of such a tax also aff ecting our Group. Calculations by the German Insurance Association (GDV) assume an annual charge of around ten basis points on the relevant investments, based on minimum tax rates.

Furthermore, the revision of the general process for measuring loss provisions may result in tax risks for the Group. The Federal Ministry of Finance has for the time being extended the previous regulation, which was limited to fi nancial years ending before 1 January 2014, by two years. The expiry of the general regulation involves a risk that companies in the Talanx Group may achieve higher profi ts solely due to tax reasons.

There are also proceedings pending before the courts that could have implications for the entire German insurance industry and hence also for the Talanx Group once their outcome is legally fi nal. This applies in particular to the area of life insurance.

Such issues that are to be decided before the courts include, for example, the question of how to deal with a monthly, quarterly or half-yearly method of payment in insurance contracts. Court decisions vary with regard to treatment of surcharges for instalment payments, although higher regional courts appear to have ruled unanimously in favour of insurers. In a judgment relating to an individual action, issued on 6 February 2013, the Federal Court of Justice decided in favour of the insurer. Moreover, appeals have been withdrawn by the consumer association Verbraucherzentrale Hamburg in two lawsuits involving class actions. Another lawsuit is continuing, however. Elements that have so far been strongly challenged in court have been adjusted in new business as a precaution and for reasons of consumer-friendliness. This is not possible for in-force business.

With regard to the question of whether § 5a Para. 2 Sentence 4 of the Insurance Contract Act (VVG) regarding the policy model conforms to European law, the European Court of Justice complied with the fi nal motion of the Advocate-General on 19 December 2013 and ruled that the limitation period established in the above regulation was not in keeping with European directives law. The European Court of Justice has not commented explicitly on whether the policy model conforms to European law. The Federal Court of Justice must now decide what conclusions to draw regarding the underlying case. The Federal Court of Justice is expected to grant policyholders a right of objection irrespective of the expiry of the deadline in § 5a Para. 2 Sentence 4 VVG. However, it is unclear what legal consequences this will have with regard to the possibility of complete rescission of the insurance contract.

The Federal Court of Justice also issued various judgments in 2012 and 2013 on the off setting of acquisition costs when calculating surrender values. There is a risk in connection with this that the reserves already created may not be adequate to pay the minimum surrender values set by the courts.

In accordance with § 153 III 3 VVG, policyholders are entitled to a share in valuation reserves as well as the surplus paid on an ongoing/ annual basis and the surplus paid upon termination of the policy, provided that no exclusion applies. The majority of life insurers grant a "minimum share in valuation reserves", which becomes due upon termination of the policy irrespective of the actual amount of the valuation reserves. If the valuation reserves are relatively high, the customer will receive a share in valuation reserves in addition to the minimum share upon termination of the policy. If the valuation reserves are low, it is possible that only the minimum share will be paid. This practice is coming under increasing criticism from consumer protection groups and customers. Proceedings are also already underway against an insurance company, and the outcome could have far-reaching consequences. If the outcome of the lawsuit is negative, (subsequent) settlement in favour of the policyholder may lead to "losses". Valuation reserves would have to be paid if this occurs, despite the existence of a notional minimum share (possibly applying an amount for valuation reserves for the following month).

Legislation in other countries can also give rise to new risks. The "Foreign Account Tax Compliance Act" (FATCA) was passed in the USA in March 2010. The aim of this law is to combat tax evasion by persons and companies liable for tax in the US. A ll non-US fi nancial service providers will have an obligation to identify and report on any customers and business partners liable for tax in the USA to the US tax authorities (Internal Revenue Service, IRS) from 1 July 2014. Any non-US fi nancial institutions that do not comply with this will face a 30% penalty tax on all income from US sources (from

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group
• 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date

116 Risk report 131 Forecast and opportunities report 2014) and all proceeds from the sale of US investments (from 2017). Products that allow investors to invest capital and obtain income are relevant to FATCA. These include insurance products with investment components. The USA is aiming to conclude agreements with the countries concerned (intergovernmental agreements, IGA) to legitimise the forwarding of data to the US authorities. The requirements of FATCA are currently coming into confl ict with data protection regulations in a large number of countries. In countries with no intergovernmental agreement, fi nancial institutions are to conclude an agreement on the provision of data directly with the IRS. However, fi nancial institutions in countries with an intergovernmental agreement are exempt from this penalty tax. An intergovernmental agreement has already been concluded in Germany. FATCA is being implemented in German companies belonging to the Talanx Group in accordance with the schedule. As there are many countries in which Group companies are aff ected and no IGA has been concluded or the legal requirements for FATCA compliance have not yet been fulfi lled, we are continuing to keep a close eye on developments relating to FATCA in order to reduce risks.

We are closely monitoring further potential developments in rulings of the Federal Court of Justice and changes in the law that could aff ect Group companies. Irrespective of the question of whether they are legally binding, individual court rulings can lead to reputational risks.

Like the entire insurance industry, the Talanx Group is also facing far-reaching changes against the backdrop of reforms of regulatory standards, especially in the context of IFRS and Solvency II. We are tracking the accounting and regulatory changes closely, and have identifi ed the more exacting associated requirements and refi ned our risk management accordingly, in order to satisfy more complex and extensive guidelines in future. The Group legal department is supervising this closely with the aim of ensuring that legal guidelines for risk management are interpreted consistently throughout the Group.

The "full fair value" principle required by Solvency II leads to severe fl uctuations in the capital requirements of German life insurers for long-term guarantees. Long-term guarantees must be taken into account when calculating the market value of underwriting commitments and must be backed up by equity. Persistently low interest rates are further exacerbating the situation, as life insurers face the challenge of generating the contractually agreed return for commitments with high interest guarantees. In view of the uncertainties involved in ensuring that reporting is consistent with the market in accordance with Solvency II, life insurers may therefore require additional equity or may need to reduce their net risks.

Solvency II may also lead to regulatory risks, particularly in connection with subsidiaries in which Talanx or, crucial to the supervision of the Group, HDI V. a. G., own a stake of less than 100%. In line with the draft requirements, risks arising from such participating interests are in future to be allowed for in full when calculating the required Group solvency capital, while own funds are subject to restrictions on transferability and are eligible at Group level only to a limited extent ("haircuts"). This risk may increase as a result of further foreign acquisitions with the involvement of our partner Meiji Yasuda as the minority shareholder.

Diff erences of opinion may naturally arise in our joint activities with Meiji Yasuda. These may lead to deadlock situations, which are typical of joint ventures, owing to the minority shareholder's legal and contractual rights of protection. Share transfers to the Talanx Group carried out to overcome this problem in extreme cases would then of course put a strain on liquidity.

Along with legal risks, other signifi cant operating risks for the Talanx Group include failure of data processing systems and data security. Ensuring the availability of computer-based applications and protecting the confi dentiality and integrity of data are of vital importance to the Talanx Group. Since information is increasingly shared worldwide via electronic data transfer, data exchange is also vulnerable to computer viruses. Dedicated investment in the security and availability of information technology preserves and enhances the existing high level of security.

Operating risks may also arise in the area of human resources, for example due to a shortage of the qualifi ed, skilled experts and managers needed to run an increasingly complex business with a strong client focus and to implement important projects. The Group therefore attaches great importance to further and advanced training activities. Personalised development plans and targeted skills enhancement opportunities enable staff to keep abreast of the latest market requirements. In addition, state-of-the-art management tools and – where permissible under collective wage agreements – appropriate incentive schemes (both monetary and non-monetary) foster strong employee motivation. At Talanx, in-house guidelines governing areas of competence and workfl ows and regular checks and audits by experts counter the risk of staff committing fraudulent acts to the detriment of the company.

We reduce risks arising from problems with building infrastructure that may cause business interruptions by complying with (fi re) safety/maintenance standards. In addition, emergency plans enable us to return to normal operations as quickly as possible in the event of a disruption. We have set up task forces both at the level of Talanx and at individual Group companies, to manage and coordinate measures to restore normal operations.

Risks arising from outsourced functions or services are in principle incorporated into the risk management process. These are identifi ed, assessed, managed and monitored and included in risk reporting. We also conduct initial risk analyses before outsourcing activities/areas.

Sales-related risks can arise from the general market environment (economy, infl ation, biometry, etc.) and the situation in the insurance sector (competition, needs of customers, intermediaries and employees, etc.). On the marketing side, the Talanx Group generally works together not only with its own fi eld service but also with external intermediaries, brokers and a number of partners. In this respect there is, of course, always a risk that marketing agreements may be impacted by external infl uences, with corresponding potential for the loss of new business and erosion of in-force portfolios.

OTHER MATERIAL RISKS

Other risks of material importance to our company primarily include emerging risks, strategic risks and reputational risks, as well as risks associated with Talanx AG's participations in other enterprises.

The defi ning trait of emerging risks (such as those in the fi eld of nanotechnology or in connection with climate change) is that their risk content cannot yet be reliably assessed – especially as regards their impact on our in-force portfolio. Such risks evolve gradually from weak signals to unmistakable trends. It is therefore vital to recognise these risks at an early stage and then assess their relevance. For the purpose of early detection, we have developed an effi cient process that spans our divisions and ensures link-up to risk management, thereby making it possible to pinpoint any measures required (e.g. ongoing observation and evaluation, exclusions in insurance contracts, or designing new [re]insurance products).

Strategic risks derive from the risk of an imbalance between corporate strategy and the constantly changing general business environment. Such an imbalance might be caused, for example, by inappropriate strategic policy decisions, failure to consistently implement strategies once defi ned or inadequate implementation of strategic projects. We therefore review our corporate strategy and risk strategy annually and adjust our processes and structures as required.

Reputational risks are risks associated with possible damage to the company's reputation as a consequence of an unfavourable public perception (e.g. among clients, business partners, government agencies). These may result, for example, from the inadequate implementation of legal guidelines or from delays or errors in the publication of company fi gures. Our well-established communication channels, a professional approach to corporate communications, tried and tested processes for defi ned crisis scenarios and our fi rm Code of Conduct help us to manage this risk.

The Talanx Group's other risks also implicitly include Talanx AG's participation risks, especially those associated with the performance of subsidiaries, the stability of results in our portfolio of participating interests and a potentially inadequate balance in the business. Talanx AG participates directly in the business development and risks of its subsidiaries through profi t/loss transfer agreements and dividend payments.

The Group uses appropriate tools in the areas of Controlling, Group Auditing and Risk Management to counter risks arising from the development of results at subsidiaries. A standardised reporting system regularly provides decision-makers with up-to-date information about the Group and business trends at all major subsidiaries, enabling them to intervene at any time to control risks. The Group reduces risks associated with a lack of stability in the results of the portfolio of participating interests or with an inadequate business balance for the various risk sources primarily by means of segmental and regional diversifi cation, appropriate strategies for risk minimisation and risk shift ing, and by investing systematically in high-growth markets and in product and portfolio segments that stabilise results. Risks at subsidiaries that may lead to the realisation of participation risks at Talanx AG are identifi ed, monitored and managed in the subsidiaries' risk management systems.

The risk of asset erosion or inadequate profi tability of acquisitions is kept as low as reasonably possible through intensive due diligence audits, conducted in cooperation with Risk Management and in-

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

• 68 Assets and fi nancial position 85 Talanx AG (condensed version)
  • 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report 131 Forecast and opportunities report

dependent professional consultants and auditors, and by closely monitoring their business development. An M&A guideline sets out the process for mergers and acquisitions, along with interfaces and responsibilities. Furthermore, Talanx pays close attention to risks deriving from the fi nancing of acquisitions and those associated with the capital requirements of subsidiaries, and keeps track of their anticipated profi tability and ability to pay dividends. It monitors the fi nancing risk by regularly updating liquidity calculations and forecasts and by defi ning priorities for the allocation of funds.

The pension obligations taken over by Talanx AG may result in the need to establish additional reserves if interest rates fall or if ongoing lawsuits relating to the fact that pensions have not been adjusted make further allocations necessary. A rising infl ation rate may also lead to additional expenses if it means that larger adjustments to pensions are necessary than those for which allowances have been made. Talanx commissions regular reviews of the adequacy of its actuarial bases to counteract the risk of possible inadequate allocations to pension provisions (e.g. due to changes in mortality, infl ation and interest rate changes).

OVERALL VIEW OF THE RISK SITUATION

No defi nite risks are as yet discernible that could have a signifi cant negative impact on the Talanx Group's assets, fi nancial position or net income. Nevertheless, persistently low interest rates could lead to net losses for the year from parts of the life insurance business.

There is also considerable uncertainty as to whether risks associated with the economic and partial sovereign debt crisis could take an even more concrete form in future and have a lasting impact on the assets, fi nancial position or net income of the Talanx Group. In particular, the further development of the crisis may also have lasting implications for the behaviour of policyholders. Ongoing developments in the legal framework governing our entrepreneurial activities are also – as explained – highly uncertain.

The Talanx Group satisfi es all currently applicable regulatory solvency requirements; cf. the economic report, section "Assets and net income", subsection "Group solvency".

FORECAST AND OPPORTUNITIES REPORT

ECONOMIC ENVIRONMENT

The Eurozone appears to have emerged from recession and the economic situation has noticeably eased – proof that action taken by southern crisis-hit countries to consolidate public fi nances and introduce labour market reform is taking eff ect. Confi dence in the eurozone economy is returning and growth in the real economy can be expected to follow. This improved sentiment is based on growing macroeconomic stability; there are encouraging signs of structural improvement in the Eurozone's trade balance, with peripheral countries in particular becoming net exporters. The deep recession experienced by these countries as a result of structural adjustments should gradually ease, and the backlog in household consumer demand arising from severe fi nancial cutbacks should slowly disappear. It is probable that this will also be accompanied by increased borrowing. Overall, we expect that in 2014 the Eurozone will experience moderate economic growth.

The Eurozone economy has been boosted by trends in the US, where the economy is performing strongly and gross domestic product (GDP) is growing at a pleasing rate. Private household debt has also decreased signifi cantly in recent years. The real estate market and higher employment rate will both support increased consumer spending by US households. Alongside an increase in assets, there is also a signifi cant rise in US household disposable income. The US Federal Reserve (Fed) will also continue its expansionary course, despite tighter monetary policy, with prime rates remaining close to zero for the foreseeable future.

The pace has slowed recently in emerging countries. We believe that these countries are facing both structural and cyclical challenges. Nevertheless, growth rates are likely to remain relatively high in the future – due in part to high currency reserves held by some of these countries and low overall levels of sovereign debt. In addition, stronger US demand is of more importance for most emerging countries' economic performance than the Fed's decreased liquidity. Economic development in China in 2014 is expected to remain stable.

The monetary policy of central banks, which still remains expansionary, will not in our view lead to infl ationary pressure in the current year. On the contrary, we expect that infl ation will continue to be lower than western central banks' targets.

CAPITAL MARKETS

More stability in framework data – in conjunction with the political and economic risks still remaining – means that we expect interest rates in the medium term to remain low. It is unlikely that central banks and core currencies – euro, US dollar and sterling – will depart from their expansionary monetary policy for now. Market players continue to display little appetite for risk and considerable interest in investing in securities with a high interest premium (spread products). That is also obvious from the strong interest in such bonds at the beginning of 2014.

Although the market currently appears to be very stable, with various political problems solved or put on hold, the general risk situation has not yet been permanently stabilised. Demand for refi nancing will remain high in many countries, and it is therefore probable that these countries will continue to issue government bonds on a large scale. In the medium term, we expect moderate increases in yields, primarily for securities with longer maturities, and a stable trend for risk premiums.

European and US shares are already highly valued and there is therefore little potential for further price increases. Nevertheless, the Fed's promise to leave prime rates at their low level will continue to support the stock markets in 2014 and drive the shift from bonds to shares. The 2014 scenario is likely to benefi t European shares, as the recent strong performance of US stock markets makes European equities relatively cheaper. In addition, company profi ts are growing again in the Eurozone for the fi rst time since spring 2012. The expected economic recovery in the Eurozone also supports expectations of a turnaround in company profi ts. In contrast, aft er its recent high growth rates, the US economy is now only registering consistent profi ts. We predict that European and US company profi ts will slowly converge – a positive signal for stock indices in the Eurozone.

FUTURE STATE OF THE INDUSTRY

Our forecasts for the insurance industry are based for the most part on studies by the reinsurance company Swiss Re and the rating agency Fitch Ratings.

INTERNATIONAL INSURANCE MARKETS

In international property and casualty insurance, we expect that real growth in premium income in 2014 will be negligible. While a slight decline in real premium growth is likely in emerging countries, we expect that in the developed markets there will be a small increase. In many non-life segments, the currently protracted soft market is showing the fi rst signs of a recovery. However, recovery on a wider scale is still not in sight, with the result that for 2014 we again expect low profi tability in international property and casualty insurance.

We expect that the modest growth achieved in Central and Eastern Europe in 2013 will be followed in 2014 by signifi cantly higher real premium growth, even though prices remain under pressure as a result of a fi ercely competitive environment. In Latin America, premiums rose strongly in real terms in 2013. However, we expect lower premium growth for 2014. There are two reasons for this. Firstly, one-off eff ects such as occurred in 2013 in Brazil and Mexico – i.e. where two oil companies renewed their policies – will not recur and, secondly, real premium growth in Argentina will be on a more modest scale.

In international life insurance markets we expect a further increase in real premium growth for 2014, not only in developed markets but also in emerging countries. However, it is unlikely that life insurance profi tability, which has fallen in recent years, will rise again in 2014. The challenging interest rate environment and regulatory changes involving stricter capital requirements continue to impact negatively on life insurers' results.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development

• 69 Assets and fi nancial position
• 85 Talanx AG (condensed version)
• 88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report 131 Forecast and opportunities report

In Central and Eastern Europe it is likely that, aft er decreasing sharply in 2013, real premium growth in 2014 will more or less revert to its 2012 level. The length of time required for individual countries to return to growth will depend on each country's own economic performance. The Polish life insurance market, for example, aft er contracting in 2013, is expected to start growing again in the current fi nancial year. Latin America, aft er returning to sustainable premium growth in real terms in 2013, is likely to show a slight increase in real premium growth in 2014.

GERMAN INSURANCE INDUSTRY

Property and casualty insurance in Germany is expected to retain the same level of premium growth in 2014 as in the year under review. Losses from 2013 arising out of a series of natural disasters could encourage further increases in premiums.

Following the improvement in real premium growth in life assurance in Germany for 2013, we expect that there will only be minimum premium growth in 2014. Persistently low interest rates that impact negatively on total returns are likely to continue to have an adverse eff ect on German life assurers' profi tability in 2014.

ORIENTATION OF THE TALANX GROUP FOR THE 2014 FINANCIAL YEAR

Our expectations for the Group and its divisions for the current year are set out below. It is still extremely challenging to forecast earnings with any certainty, not least because of the diffi culty in assessing further developments in important parameters such as the sovereign debt and fi nancial markets crises and, above all, the ongoing low interest rate situation.

In the Industrial Lines Division we aim to further extend our global presence by achieving above-average growth outside Germany. Restructuring of the Retail Germany division should be complete by 2015, and potential savings be fully realised from 2016 onwards. One of our priorities here is to adjust to the changed life insurance environment. In Retail International we are looking to successfully complete the integration of the companies we acquired. In the Non-Life Reinsurance Division our aim is to continue generating profi table selective growth, and in the Life and Health Reinsurance Division we wish to further extend our global market position.

M70 ORIENTATION OF THE TALANX GROUP IN THE PRINCIPAL DIVISIONS TAKING ECONOMIC CONDITIONS INTO ACCOUNT

Group segment	Our mission and strategic tasks
Industrial Lines	¡ Growth in international markets ¡ Become a global player ¡ Structural increase of retention
Retail Germany	¡ Enhance customer benefi t through innovative needs-based products and services ¡ Increase profi tability ¡ Increase effi ciency and improve cost structure
Retail International	¡ Profi table growth in strategic target markets ¡ Optimise business in existing markets
Non-Life Reinsurance	¡ Profi table selective growth ¡ Flexible and rapid response to client needs
Life and Health Reinsurance	¡ Improve global market position ¡ Sophisticated solutions based on long-term partnership

ANTICIPATED FINANCIAL DEVELOPMENT OF THE GROUP

We are making the following assumptions:

• ¡ moderate global economic growth
• ¡ steady infl ation rates
• ¡ continuing low interest rates
• ¡ no sudden upheavals on the capital markets
• ¡ no signifi cant fi scal or regulatory changes
• ¡ catastrophe losses in line with expectations

TALANX GROUP

Based on steady exchange rates, the Talanx Group is aiming for gross premium growth in 2014 of 2% to 3%; with most of this generated outside Germany. The IFRS net return on investment should be around 3.4% in 2014, with by far the largest contribution coming from ordinary income. We are aiming for Group net income of at least EUR 700 million for 2014, although the benefi cial eff ect of selling Swiss Life shares will no longer be felt, and we are also substantially increasing our calculated budget for major losses over 2013. This profi t target is therefore indicative of a signifi cant improvement in operating performance. It follows that we expect return on equity in 2014 to be around 10%, thereby meeting our strategic target of 750 basis points in excess of the average risk-free interest rate. This profi t target assumes that any major losses will be within the expected range and that there will be no disruptions to currency and capital markets. Our express aim is to pay out 35% to 45% of Group net income as dividends.

INDUSTRIAL LINES

As our domestic market penetration is already high, the best opportunities for growth are still to be found outside Germany. For this reason, we intend to continue our eff orts in 2014 to make HDI-Gerling Industrie Versicherung AG into a global player. Europewide, we aim to expand our industrial insurance business in the fi elds of local business, small and medium enterprises and international insurance programmes. Our target regions outside Europe continue to be Latin America, (South-)East Asia and the Arabian peninsula. Particularly as a result of the continuing increase in international business, we expect gross premium growth overall of 3% to 5%. To enable us to refl ect a disproportionate benefi t from achieved premium growth in the result, we will continue in 2014 to follow our strategic aim of gradually raising the retention. The strong capital position of the segment should probably make it possible to increase the retention ratio to around 50%. Compared to the previous year, we expect that in 2014 major losses will return to normal and, as a result, the combined ratio will be lower at 96% to 98%. The EBIT margin should therefore increase to over 10% in 2014, and the return on equity should be in the region of 9%.

RETAIL GERMANY

We anticipate gross written premium in the Retail Germany Group segment to fall slightly in 2014 by 1% to 2%, due in particular to life business treaties maturing and further improvements to motor insurance profi tability. With regard to new life insurance business we aim to improve the proportion of term life products and the fl exibility of guarantee products. We are targeting a new business margin of at least 2%. The combined ratio is expected to be under 100%, due to a further increase in motor insurance prices. We expect an EBIT margin for 2014 of at least 3% that is likely to refl ect the positive impact of the division's realignment when compared to the previous year. The return on equity for 2014 is therefore expected to be around 4%.

RETAIL INTERNATIONAL

In the Retail International Group segment we are aiming for growth in gross written premium in 2014 of 4% to 8%, as long as there are no material exchange rate fl uctuations. It is probable that growth will slow down somewhat in comparison to 2013. Gross premium grew strongly in the year under review, refl ecting the fact that the Polish companies acquired in 2012 were recognised for the entire

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group
• 47 Strategy
• 48 Enterprise management 51 Research and development
  -

52 Markets and business climate 55 Business development 69 Assets and fi nancial position 85 Talanx AG (condensed version)

REPORT ON ECONOMIC POSITION

88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report 131 Forecast and opportunities report

fi nancial year for the fi rst time. We expect that growth in the value of new business in 2014 is likely to be between 5% and 10%, in line with our strategic target. The combined ratio for 2014 should be no higher than 96%; the expected EBIT margin of at least 5% is likely to be positively infl uenced by the synergy created from merging with the Polish WARTA companies. Integration is expected to be completed in 2014 and should lead to further synergistic eff ects in subsequent years. In addition, we expect return on equity for 2014 to be in excess of 6%.

NON-LIFE REINSURANCE

Even compared to 2013, competition is intensifying appreciably in the non-life reinsurance market in the current year. This is being driven by a number of factors: along with the absence of marketchanging major losses, cedants are also keeping more risks in their retention due to good capitalisation. Furthermore, infl ow of capital from the catastrophe bond market (ILS) – particularly in US catastrophe business – is leading to signifi cant price erosion. Nevertheless, this factor has not given rise to any material reductions in market share for the Non-Life Reinsurance segment. Overall, it can be said that there is currently oversupply in reinsurance capacities. This was already becoming apparent in the year under review, and aff ected treaty renewals as at 1 January 2014. Around 65% of our Non-Life Reinsurance treaties (excluding facultative business and structured reinsurance) are renegotiated on this date.

In view of the relatively soft market conditions in non-life reinsurance and the selective underwriting approach that we take in consequence, we assume that premium volume in the current year will generally remain stable. Going forward, too, we shall not make any concessions as far as our systematic underwriting discipline is concerned, and that we will reduce our business share where risks are not adequately priced.

We expect our targeted combined ratio to be under 96%, and are aiming for an EBIT margin of at least 10%. Return on equity for the Reinsurance Division in 2014 should be around 15%.

LIFE AND HEALTH REINSURANCE

Not only must the insurance industry manage the impact of global economic trends, it also faces the enormous challenge of dealing with a constantly changing age structure. As people's average life expectancy grows, there is a consistently high demand for suitable insurance solutions. We anticipate global demand for competitive and innovative insurance concepts providing cover for longevity to increase in 2014. Customers will rely on us to use our many years of experience to provide fresh ideas and appropriote reinsurance solutions.

For 2014 we expect that organic growth in the Life and Health Reinsurance segment, as adjusted for exchange rate eff ects, will be in the low to middle single-digit percentage range. The value of new business (excluding non-controlling interests) should exceed EUR 90 million. We continue to anticipate an EBIT margin of 2% for fi nancial solutions and longevity business, and 6% for mortality and morbidity business. The return on equity for the Reinsurance Division in 2014 should be around 15%.

OVERALL ASSESSMENT BY THE BOARD OF MANAGEMENT

Talanx AG's Board of Management aims for reliable continuity, a stable and high return on equity, fi nancial strength and sustainable profi table growth, thereby orienting the Talanx Group towards long-term value creation. An essential prerequisite for achieving these aims is a soundly capitalised Talanx Group which provides its clients with eff ective cover for their risks. By giving that assurance we serve the interests of our shareholders, clients, staff and other stakeholders, and create the greatest possible benefi t for all concerned. We have therefore deliberately geared our organisational structure to meet the needs of customers; these needs are the compass needle we follow to achieve a lean and effi cient structure. The main thrust of our restructuring is to generate profi table growth, with the aim of further developing our own strengths and pooling those which exist within the Group.

The Talanx Group actively responds to the challenges of a globalised world. It has set itself the goal of achieving above-average success in generating business, particularly abroad. Strategic cooperation agreements and acquisitions of companies that are well-positioned in terms of sales in the defi ned regions of Latin America and Central and Eastern Europe are expected to help expand the Group's capacity to act internationally. Industrial Lines off ers industrial groups and small and medium enterprises a worldwide service, while simultaneously gaining new customers on local foreign markets. Foreign companies consolidated under Talanx International conduct business with local retail and commercial customers. Reinsurance per se is an international business. Worldwide diversifi cation of large-scale and complex risks in order to make them acceptable is one of the basic instruments used in reinsurance.

OPPORTUNITIES MANAGEMENT

Identifying, steering and taking advantage of opportunities is an integral part of our performance management process and has been fi rmly anchored in the Talanx Group's corporate culture and holistic management philosophy for years. We see consistent exploitation of available opportunities as a basic entrepreneurial challenge that is crucial to achieving our corporate objectives. The core element of our opportunities management process is an integrated performance metric constructed along the lines of a balanced scorecard. This is applied across all levels of hierarchy – from senior Group management down to individual functions at Group companies. It also forms the link between our strategic and operative opportunities management.

In strategic opportunities management, the annual performance management cycle begins by Group management evaluating strategic targets and specifi c strategic core issues identifi ed on the basis of our umbrella strategy and breaking them down into targets for the divisions. The divisions then use this as a basis to develop specifi c targets and strategic action programmes as part of their strategic programme planning. Following a strategy dialogue between Group management and the respective divisional Boards of Management, individual strategic programmes are put together to form a strategic programme for the entire Group that forms the starting point and framework for the operative part of opportunities management.

In operative opportunities management, strategic inputs are translated into operative targets and a detailed activities schedule, and put into place as mandatory agreed targets, at all levels up to and including division level. The integrated performance metric again comes into play here. Whether and to what extent opportunities and possibilities actually result in operative success is checked and followed up in mid-year and end-of-year performance reviews. In turn, these reviews generate feed-forward inputs to the next opportunities management cycle.

Two key aspects of opportunities management at the Talanx Group, therefore, are shift ing focus from short-term performance and purely fi nancial results onto the success factors and actions required for long-term excellence, and monitoring the successful implementation of these value-drivers in a regular, integrated control and verifi cation process.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

44 The Talanx Group

• 47 Strategy
• 48 Enterprise management

51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate 55 Business development 69 Assets and fi nancial position

85 Talanx AG (condensed version)

88 Overall assessment of the economic situation 89 Other factors in success

OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report 131 Forecast and opportunities report

ASSESSMENT OF FUTURE OPPORTUNITIES AND CHALLENGES

OPPORTUNITIES ASSOCIATED WITH DEVELOPMENTS IN THE BUSINESS ENVIRONMENT

Demographic change in Germany: Triggered by demographic change, the emergence of two markets offering considerable growth potential can currently be observed: fi rstly, a market for senior-citizen products and, secondly, a market for young customers needing to make additional personal provision in response to the diminishing benefi ts aff orded by social welfare systems. It is evident that today's senior citizens can no longer be equated with the "traditional pensioners" of the past. Not only are these customers increasingly making use of services, for which they are very willing and able to pay, but, even more signifi cantly, this customer group is increasingly active and therefore devoting more attention than previous generations to fi nding the necessary fi nancial cover for various risks. This means that it is not enough for providers simply to add assistance benefi ts onto existing products; instead, they have to off er innovatively designed products to cater for these newly emerging needs. Examples might include products for second homes and extensive foreign travel, for sporting pursuits conducted well into advancing years, and passing on assets to heirs. At the same time, younger customers are also becoming increasingly aware of the issue of fi nancial security in old age. It is possible to tap into this potential via a range of (state-subsidised) private retirement products and attractive occupational retirement provision schemes. We currently expect to see a trend in this client group towards increased demand for retirement provision products with fl exible saving and dissaving phases. Thanks to their comprehensive range of products with innovative solutions and sales positioning, the Group's life insurance companies may be able to profi t disproportionately strongly from the senior citizen and young customer markets.

If we were able to benefi t from sales opportunities arising from demographic change more than currently expected, this would impact positively on premium growth and profi tability and lead to us exceeding our forecasts.

Turnaround in energy policy: Germany has decided in principle that in future it will meet its energy demand primarily from renewable sources. The turnaround in energy policy and climate protection feature strongly in the new German government's coalition agreement. The policy of converting the energy system to supplying renewable energy is to be continued, whilst attention is also to be focused on slowing down price increases for the end consumer. Together with the fact that renewable energies are to be extended further within a stable regulatory framework, energy effi ciency becomes increasingly important. We see the change to the energy system as a chance to stimulate innovation and technological progress, thus creating an important opportunity to strengthen Germany as a business location. As an insurance group, we actively support this change. We off er our industrial clients tailor-made solutions for developing, marketing and using new energy technologies. Not only renewable energies, but also storage technologies, expansion of the power grid and intelligent control of individual components (smart grids) will make a decisive contribution to the success of the energy policy turnaround. We are supporting the turnaround with our investments in the energy sector. Building on existing participating interests in energy networks (including an interest in the largest German transmission network operator Amprion), we are planning to increase our investments in power distribution and renewable energies.

If we were able to benefi t from sales opportunities arising from the turnaround in energy policy more than currently expected, this would impact positively on premium growth and net income and lead to us exceeding our forecasts.

Financial market stability: Turbulence on the fi nancial markets has severely shaken clients' trust in banks. Policyholders are also experiencing great uncertainty as a result of today's low interest levels and volatility on the stock markets. However, this macro-economic environment also off ers opportunities for insurance companies to develop innovative products designed specifi cally to address these new concerns. In Europe, the USA and Asia, life insurers have been increasingly concentrating on selling modern, versatile and stockmarket-indexed products. Traditional German life insurance, which gives guarantees for the entire term of the policy, has been put to the test. Given the high equity requirements for this business, it is imaginable in principle that guarantees could be limited in future to a certain period of time.

If fi nancial markets were to stabilise more defi nitively and innovative products be accepted more quickly than currently expected, this would impact positively on premium growth, return on investment and net income, and lead to us exceeding our forecasts.

Regulatory and fi nancial reporting changes: Against a backdrop of impending and in some cases already eff ective regulatory amendments, the entire insurance industry is faced with extensive changes, especially in the context of IFRS, Solvency II and a deluge of associated European and German implementation provisions. We are following the fi nancial reporting and regulatory changes closely, have identifi ed the associated stricter requirements and have taken action accordingly. At the same time, this situation off ers us an opportunity to develop our risk management appropriately to meet the more complex and extensive future requirements. We are currently implementing and refi ning an in-house, Solvency II-compliant stochastic risk capital model. Already at the pre-application stage with BaFin, its purpose is to evaluate risk categories and the Group's overall risk position, and thus enable the use of in-house models across the Talanx Group, cf. page 45 in the section entitled "The Talanx Group".

In Europe, reinsurance companies may benefi t from increased demand by cedants for reinsurance solutions as a result of higher capital requirements under Solvency II; this is because the transfer of risk to reinsurers with good ratings off ers an economically attractive alternative.

If the Group were to succeed in fully meeting the new regulatory requirements faster than currently expected, this would impact positively on premium growth and net income and lead to us exceeding our forecasts.

OPPORTUNITIES CREATED BY THE COMPANY

We are currently in the process of realigning the Retail Germany segment in order to improve the Group's future viability and competitiveness, and to eliminate cost disadvantages in the German private retail business. Our ultimate aim is to reduce complexity and make our procedures more effi cient. Action is based on four areas: benefi t for the client, profi table growth, effi ciency and performance culture. We will only be successful if our clients are fully satisfi ed, and we are therefore working on making it as simple as possible for end clients and sales partners alike to make their decisions – our aims are clear language, speedy solutions and convincing products. If we wish to achieve positive development in premiums and results, we need to align our business with clear-cut risk and profi t targets, and fully exploit opportunities in the market. For that reason it is important for us to review each individual product for sustainable profi tability. We are working on ways to make more systematic cross-divisional use of existing client contacts. This realignment requires the fi rm belief that the way we think and act must be consistently geared towards a performance benchmark. We actively wish to encourage this kind of culture.

We have therefore developed a group-wide variable remuneration system for fi rst-level managers which is due to be extended in 2014 to those at second-level. In addition, annual appraisal reviews with all employees should contribute to achieving a structured discussion of mutual expectations.

Should we succeed in restructuring our internal procedures faster than currently expected, this would impact positively on premium growth and net income and lead to us exceeding our forecasts.

SALES OPPORTUNITIES

Bancassurance: Selling insurance products over the bank counter, under the name of bancassurance, has become an established practice in recent years. Bancassurance has been a great success in the Talanx Group, and shows encouraging prospects for the future. The basis of this success is a special business model, whereby the insurance business is fully integrated into the banking partner's business structures. The insurance companies design and develop the insurance products – in return, banks, savings banks and post offi ces provide a variety of sales outlets. The Talanx Group bancassurance sales channel is not only established in Germany, but is also

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

• FOUNDATIONS OF THE GROUP
• 44 The Talanx Group 47 Strategy
• 48 Enterprise management
• 51 Research and development

REPORT ON ECONOMIC POSITION 52 Markets and business climate

• 55 Business development
• 69 Assets and fi nancial position
  • 85 Talanx AG (condensed version)
  • 88 Overall assessment of the economic situation 89 Other factors in success
• OTHER REPORTS AND DECLARATIONS 93 Corporate Governance incl. remuneration report 115 Events of special signifi cance after the balance sheet date 116 Risk report 131 Forecast and opportunities report

especially strong in Poland, Hungary and Russia. We see the use of this model outside Germany basically as a means of promoting profi table growth, oriented towards the European markets. The success of Talanx's bancassurance model with regard to the current Group companies stems essentially from three core factors. Firstly, drawing up exclusive long-term partnership cooperation agreements with terms of up to 30 years, enabling insurance products to be sold via the co-operating partner's sales outlets. Secondly, the highest possible degree of integration is required, together with excellent products and services: cooperation is part and parcel of the partner's strategic focus. The insurance companies design exclusive tailormade products for the bank's client segments, and thus form an integral part of the respective market presence. Integration into the partner's IT systems also makes it easier to provide all-round advice when selling banking and insurance products. Thirdly, success depends on providing customised sales support to the partner. The bank's sales staff are given personal training and exclusive guidance by sales coaches from the insurance companies. In this way they obtain product expertise and advice on sales approaches. The insurance companies also supply readily understandable and supporting sales materials.

Our companies in Poland also market their established products via sales cooperation agreements, but via diff erent banks and without full integration into their partner's market presence.

If we were able to expand our bancassurance activities faster than currently expected, this would impact positively on premium growth and net income and lead to us exceeding our forecasts.

Internet: Growing digitalisation means that companies are increasingly suff ering huge damages as a result of internet cyber attacks. Most notably, espionage activities by intelligence services have shown very recently that manufacturing industries in particular are not immune to risks from cyber crime, despite excellent defence mechanisms. Attention is also focusing increasingly on senior management responsibility. For this reason, HDI-Gerling has developed the Cyber+. This product provides an insurance solution that comprehensively covers the various risks. HDI-Gerling's all-round insurance spans all lines of business and covers both fi rst-party losses arising as a result of cyber crime, and also third-party losses for which companies are liable to customers, service providers or other third parties. In addition, it also allows management's civil and criminal responsibilities to be taken into account.

If we were to exploit sales opportunities arising from the need for additional internet risk cover more successfully than currently expected, this would impact positively on premium growth and net income and lead to us exceeding our forecasts.

Brokers: Despite the increasing importance of internet sales, personal contact with the client will also continue to remain a major factor for success. Sales via brokers have a particularly high potential for future growth. Talanx AG has developed a close partnership with Swiss Life, in which it holds a long-term share package of around 5%. As part of this cooperation, Talanx is a key partner in supplying products to the fi nancial service provider Swiss Life Select. The Talanx Group also holds around 9% of the fi nancial services provider MLP. Both MLP and Swiss Life Select are important partners in brokered marketing. These participating interests give us the opportunity to strengthen and further expand existing business links with the brokers concerned.

If we were able to develop closer links with brokers faster than currently expected, this would impact positively on premium growth and net income and lead to us exceeding our forecasts.

OVERALL PICTURE OF FUTURE OPPORTUNITIES

Talanx AG's Board of Management considers that identifying, steering and taking advantage of opportunities is an integral part of the Talanx Group's range of management tools. In our systematic approach, a clear strategy geared to ensuring the Group's long-term viability and consistent enforcement of that strategy are fundamental to effi cient company and group management. We therefore constantly monitor changing external market conditions to enable us to identify opportunities arising at an early stage, and to respond to them through our fl exible internal structure. In this way we are able fully to exploit future opportunities that are crucial to achieving our company's goals.

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Consolidated balance sheet of Talanx AG
• 144 Consolidated statement of income of Talanx AG
• 145 Consolidated statement of comprehensive income of Talanx AG
• 146 Consolidated statement of changes in shareholders' equity
• 148 Consolidated cash fl ow statement of Talanx AG

NOTES

• 149 General information
• 149 General accounting principles and application of International Financial Reporting Standards (IFRS)
• 153 Accounting policies
• 172 Segment reporting
• 183 Consolidation
• 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

• 209 (1) Goodwill
• 213 (2) Other intangible assets
• 215 (3) Investment property
• 215 (4) Investments in affi liated companies and participating interests
• 216 (5) Investments in associated companies and joint ventures
• 216 (6) Loans and receivables
• 218 (7) Financial assets held to maturity
• 219 (8) Financial assets available for sale
• 221 (9) Financial assets at fair value through profi t or loss
• 222 (10) Other invested assets
• 224 (11) Investments under investment contracts
• 226 (12) Fair value hierarchy
• 233 (13) Derivative fi nancial instruments and hedge accounting
• 237 (14) Accounts receivable on insurance business
• 238 (15) Deferred acquisition costs
• 238 (16) Other assets

239 Notes on the consolidated balance sheet – liabilities

• 239 (17) Shareholders' equity
• 242 (18) Subordinated liabilities
• 243 (19) Unearned premium reserve
• 244 (20) Benefi t reserve
• 245 (21) Loss and loss adjustment expense reserve
• 248 (22) Provision for premium refunds
• 248 (23) Provisions for pensions and other post-employment benefi ts
• 252 (24) Provisions for taxes
• 253 (25) Sundry provisions
• 255 (26) Notes payable and loans
• 256 (27) Other liabilities
• 257 (28) Deferred taxes

258 Notes on the consolidated statement of income

• 258 (29) Net premium earned
• 259 (30) Net investment income
• 264 (31) Claims and claims expenses
• 266 (32) Acquisition costs and administrative expenses
• 267 (33) Other income/expenses
• 267 (34) Financing costs
• 267 (35) Taxes on income

270 Other information

• 270 Staff and expenditures on personnel
• 270 Related-party disclosures
• 271 Share-based remuneration
• 275 Lawsuits
• 275 Earnings per share
• 276 Contingent liabilities and other fi nancial commitments
• 277 Rents and leasing
• 277 Remuneration of the management boards of the parent company
• 278 Fee paid to the auditor
• 278 Declaration of conformity pursuant to
  • § 161 German Stock Corporation Act (AktG)
• 278 Events after the balance sheet date
• 279 List of shareholdings for the consolidated fi nancial statements of Talanx AG
• 288 Responsibility statement
• 289 Auditors' report

CONSOLIDATED BALANCE SHEET OF TALANX AG AS AT 31 DECEMBER 2013

N1 CONSOLIDATED BALANCE SHEET – ASSETS

FIGURES IN EUR MILLION

	Notes			31.12.2013	31.12.2012 1)	1.1.2012
A. Intangible assets
a. Goodwill	1		1,105		1,152	690
b. Other intangible assets	2		1,446		1,641	1,520
				2,551	2,793	2,210
B. Investments
a. Investment property	3		1,623		1,297	1,100
b. Investments in affi liated companies and participating interests	4		92		80	78
c. Investments in associated companies and joint ventures	5		247		237	209
d. Loans and receivables	6/12		32,231		32,101	32,961
e. Other fi nancial instruments
i. Held to maturity	7/12	2,984			3,857	4,294
ii. Available for sale	8/12	44,922			41,337	32,141
iii. At fair value through profi t or loss	9/12/13	1,090			1,642	1,000
f. Other invested assets	10/12	3,121			3,501	3,967
Investments under own management			86,310		84,052	75,750
g. Investments under investment contracts	11/12/13		1,758		1,698	—
h. Funds withheld by ceding companies			12,894		13,198	11,717
Investments				100,962	98,948	87,467
C. Investments for the account and risk of holders of life insurance policies				8,325	7,451	6,067
D. Reinsurance recoverables on technical provisions				6,596	6,989	6,467
E. Accounts receivable on insurance business	14			5,071	5,081	4,729
F. Deferred acquisition costs	15			4,513	4,378	4,012
G. Cash				1,864	2,119	1,570
H. Deferred tax assets	28			532	529	325
I. Other assets	16			2,201	2,006	1,865
J. Non-current assets and assets of disposal groups classifi ed as held for sale 2)				248	56	565
Total assets				132,863	130,350	115,277

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

2) For further remarks, cf. section "Assets held for sale and disposal groups" in the Notes

	1 OPPORTUNITIES SQUARED
--	-------------------------	--

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES

149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

N2 CONSOLIDATED BALANCE SHEET – LIABILITIES

FIGURES IN EUR MILLION Notes 31.12.2013 31.12.2012 1) 1.1.2012 1) A. Shareholders' equity 17 a. Common shares 316 316 260 Nominal value: 316 (previous year: 316) Conditional capital: 78 (previous year: 78) b. Reserves 6,898 6,837 5,103 Shareholders' equity excluding non-controlling interests 7,214 7,153 5,363 d. Non-controlling interests in shareholders' equity 3,997 4,156 3,282 Total shareholders' equity 11,211 11,309 8,645 B. Subordinated liabilities 12/18 3,107 3,107 2,615 C. Technical provisions a. Unearned premium reserve 19 5,678 5,440 4,677 b. Benefi t reserve 20 49,767 48,248 45,739 c. Loss and loss adjustment expense reserve 21 33,755 33,243 31,438 d. Provision for premium refunds 22 2,178 2,279 1,006 e. Other technical provisions 319 274 256 91,697 89,484 83,116 D. Technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders 8,325 7,451 6,067 E. Other provisions a. Provisions for pensions and similar obligations 23 1,696 1,869 1,430 b. Provisions for taxes 24 711 632 557 c. Sundry provisions 25 688 763 672 3,095 3,264 2,659 F. Liabilities a. Notes payable and loans 12/26 942 677 762 b. Funds withheld under reinsurance treaties 5,535 5,975 5,039 c. Other liabilities 12/13/27 6,969 7,079 4,411 13,446 13,731 10,212 G. Deferred tax liabilities 28 1,749 1,984 1,472 H. Liabilities of disposal groups classifi ed as held for sale 2) 233 20 491 Total liabilities/provisions 121,652 119,041 106,632 Total liabilities 132,863 130,350 115,277

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

2) For further remarks, cf. section "Assets held for sale and disposal groups" in the Notes

The following Notes form an integral part of the consolidated fi nancial statements.

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

CONSOLIDATED STATEMENT OF INCOME OF TALANX AG FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2013

N3 CONSOLIDATED STATEMENT OF INCOME

FIGURES IN EUR MILLION
	Notes			2013	2012 1)
1. Gross written premium including premium from unit-linked life
and annuity insurance			28,151		26,659
2. Savings elements of premiums from unit-linked life and annuity insurance			1,131		1,200
3. Ceded written premium			3,539		3,253
4. Change in gross unearned premium			–506		–331
5. Change in ceded unearned premium			–138		–124
Net premium earned	29			23,113	21,999
6. Claims and claims expenses (gross)	31		21,620		20,553
Reinsurers' share			2,405		2,197
Claims and claims expenses (net)				19,215	18,356
7. Acquisition costs and administrative expenses (gross)	32		5,903		5,314
Reinsurers' share			552		476
Acquisition costs and administrative expenses (net)				5,351	4,838
8. Other technical income			52		49
Other technical expenses			200		301
Other technical result				–148	–252
Net technical result				–1,601	–1,447
9. a. Income from investments	30	3,963			3,882
b. Expenses for investments	30	518			418
Net income from investments under own management			3,445		3,464
Income/expense from investment contracts	30		13		8
Net interest income from funds withheld and contract deposits	30		334		323
Net investment income				3,792	3,795
Income/expense from associated companies and joint ventures recognised using the equity method				13	7
10. a. Other income	33		808		595
b. Other expenses	33		1,215		1,195
Other income/expenses				–407	–600
Profi t before goodwill impairments				1,784	1,748
11. Goodwill impairments				—	—
Operating profi t/loss (EBIT)				1,784	1,748
12. Financing costs	34			206	185
13. Taxes on income	35			296	419
Net income				1,282	1,144
thereof attributable to non-controlling interests				520	518
thereof attributable to Talanx AG shareholders				762	626
Earnings per share
Basic earnings per share (fi gures in EUR)				3.02	2.86
Diluted earnings per share (fi gures in EUR)				3.02	2.86

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

The following Notes form an integral part of the consolidated fi nancial statements.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

142 Balance sheet 144 Statement of income

CONSOLIDATED FINANCIAL STATEMENTS

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity 148 Cash fl ow statement 145 Statement of comprehensive income

153 Accounting policies 172 Segment reporting

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF TALANX AG FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2013

N4 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FIGURES IN EUR MILLION
	2013	2012 1)
Net income	1,282	1,144
Not reclassifi able in the consolidated statement of income
Actuarial gains (losses) on pension provisions
Gains (losses) recognised in other comprehensive income during the period	160	–441
Tax income (expense)	–48	133
	112	–308
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income during the period	–5	17
Tax income (expense)	—	—
	–5	17
Total non-reclassifi able income (expenses) after taxes recognised in other comprehensive income during the period	107	–291
Reclassifi able in the consolidated statement of income
Unrealised gains and losses from investments
Gains (losses) recognised in other comprehensive income during the period	–900	2,561
Shifted to the consolidated statement of income	–314	–228
Tax income (expense)	246	–397
	–968	1,936
Currency translation
Gains (losses) recognised in other comprehensive income during the period	–410	–1
Shifted to the consolidated statement of income	–17	—
Tax income (expense)	43	3
	–384	2
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income during the period	487	–1,154
Tax income (expense)	–8	38
	479	–1,116
Changes from cash fl ow hedges
Gains (losses) recognised in other comprehensive income during the period	–59	160
Shifted to the consolidated statement of income	—	–9
Tax income (expense)	1	–1
	–58	150
Changes from equity measurement
Gains (losses) recognised in other comprehensive income during the period	1	4
Shifted to the consolidated statement of income	—	—
Tax income (expense)	—	—
	1	4
Other changes
Gains (losses) recognised in other comprehensive income during the period	1	–1
Shifted to the consolidated statement of income	—	—
Tax income (expense)	—	—
	1	–1
Total reclassifi able income (expenses) after taxes recognised in other comprehensive income during the period	–929	975
Income (expenses) after taxes recognised in other comprehensive income during the period	–822	684
Total comprehensive income during the period	460	1,828
thereof attributable to non-controlling interests	154	822
thereof attributable to Talanx AG shareholders	306	1,006

1) Adjusted on the basis of IAS 8. Cf. "General accounting principles and application of International Financial Reporting Standards (IFRS)" section in the Notes, Subsection "Newly applicable standards/interpretations and changes in standards"; IAS 1 "Presentation of Financial Statements", section "Presentation of items of other comprehensive income" (OCI) and adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

The following Notes form an integral part of the consolidated fi nancial statements.

140 CONSOLIDATED FINANCIAL STATEMENTS NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated

balance sheet – liabilities

258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

N5 CHANGES IN SHAREHOLDERS' EQUITY

FIGURES IN EUR MILLION

	Common shares	Additional paid-in capital	Retained earnings
2012
As at 31.12.2011	260	630	4,170
Adjusted on the basis of IAS 8 1)	—	—	5
As at 1.1.2012 adjusted	260	630	4,175
Changes in ownership interest without change of control status	—	—	9
Other changes in scope of consolidation	—	—	–6
Net income 1)	—	—	626
Income and expenses recognised in other comprehensive income 1)	—	—	—
thereof not reclassifi able	—	—	—
thereof actuarial gains or losses on pension provisions	—	—	—
thereof changes in policyholder participation/shadow accounting	—	—	—
thereof reclassifi able	—	—	—
thereof unrealised gains and losses from investments	—	—	—
thereof currency translation	—	—	—
thereof change from cash fl ow hedges	—	—	—
thereof change from equity measurement	—	—	—
thereof sundry changes 2)	—	—	—
Total comprehensive income	—	—	626
Capital increase from IPO	56	761	—
Cost of IPO for new issue after taxes	—	–22	—
Other capital increase	—	—	—
Capital reduction	—	—	—
Dividends to shareholders	—	—	—
Other changes not impacting on income	—	—	26
As at 31.12.2012	316	1,369	4,830

2013
As at 1.1.2013	316	1,369	4,830
Changes in ownership interest without change of control status	—	—	6
Other changes in scope of consolidation	—	—	—
Net income	—	—	762
Income and expenses recognised in other comprehensive income
thereof not reclassifi able	—	—	—
thereof actuarial gains or losses on pension provisions	—	—	—
thereof changes in policyholder participation/shadow accounting	—	—	—
thereof reclassifi able	—	—	—
thereof unrealised gains and losses from investments	—	—	—
thereof currency translation	—	—	—
thereof change from cash fl ow hedges	—	—	—
thereof change from equity measurement	—	—	—
thereof sundry changes 2)	—	—	—
Total comprehensive income	—	—	762
Capital increase	—	4	—
Capital reduction	—	—	—
Dividends to shareholders	—	—	–265
Other changes not impacting on income	—	—	4
As at 31.12.2013	316	1,373	5,337

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors in the Notes

2) Sundry changes consist of the policyholder participation/shadow accounting as well as other changes

The following Notes form an integral part of the consolidated fi nancial statements.

1 OPPORTUNITIES SQUARED

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income 142 Balance sheet

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement 146 Statement of changes in shareholders' equity NOTES

149 General information 149 General accounting principles and application

of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

	Other reserves
Unrealised gains/losses on investments	Gains/losses from currency translation	Other changes in shareholders' equity	Measurement gains and losses from cash fl ow hedges	Equity attributable to shareholders of Talanx AG	Non-controlling interests	Total shareholders' equity
416	49	–58	–60	5,407	3,284	8,691
—	—	–49	—	–44	–2	–46
416	49	–107	–60	5,363	3,282	8,645
—	1	—	—	10	–8	2
—	—	—	—	–6	242	236
—	—	—	—	626	518	1,144
1,536	—	–1,303	147	380	304	684
—	—	–278	—	–278	–13	–291
—	—	–293	—	–293	–15	–308
—	—	15	—	15	2	17
1,536	—	–1,025	147	658	317	975
1,536	—	—	—	1,536	400	1,936
—	—	—	—	—	2	2
—	—	—	147	147	3	150
—	—	2	—	2	2	4
—	—	–1,027	—	–1,027	–90	–1,117
1,536	—	–1,303	147	1,006	822	1,828
—	—	—	—	817	—	817
—	—	—	—	–22	—	–22
—	—	—	—	—	12	12
—	—	—	—	—	–6	–6
—	—	—	—	—	–202	–202
–3	–2	–36	—	–15	14	–1
1,949	48	–1,446	87	7,153	4,156	11,309

1,949	48	–1,446	87	7,153	4,156	11,309
—	1	—	—	7	–7	—
—	—	—	—	—	–14	–14
—	—	—	—	762	520	1,282
–680	–263	540	–53	–456	–366	–822
—	—	102	—	102	5	107
—	—	106	—	106	6	112
—	—	–4	—	–4	–1	–5
–680	–263	438	–53	–558	–371	–929
–680	—	—	—	–680	–288	–968
—	–263	—	—	–263	–121	–384
—	—	—	–53	–53	–5	–58
—	—	—	—	—	1	1
—	—	438	—	438	42	480
–680	–263	540	–53	306	154	460
—	—	—	—	4	2	6
—	—	—	—	—	–2	–2
—	—	—	—	–265	–258	–523
—	5	—	—	9	–34	–25
1,269	–209	–906	34	7,214	3,997	11,211

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation
• 188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated

• balance sheet assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

CONSOLIDATED CASH FLOW STATEMENT OF TALANX AG FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2013

N6 CONSOLIDATED CASH FLOW STATEMENT

FIGURES IN EUR MILLION
	2013	2012 1)
I. 1. Net income	1,282	1,144
I. 2. Changes in technical provisions	4,617	3,676
I. 3. Changes in deferred acquisition costs	–211	–427
I. 4. Changes in funds withheld and in accounts receivable and payable	–912	–159
I. 5. Changes in other receivables and liabilities as well as investments and liabilities from investment contracts	318	373
I. 6. Changes in fi nancial assets held for trading	22	–58
I. 7. Net gains and losses on investments	–572	–369
I. 8. Other non-cash expenses and income	1,353	1,489
I. Cash fl ows from operating activities 2)	5,897	5,669
II. 1. Cash infl ow from the sale of consolidated companies	–6	–46
II. 2. Cash outfl ow from the purchase of consolidated companies 3)	—	–801
II. 3. Cash infl ow from the sale of real estate	81	204
II. 4. Cash outfl ow from the purchase of real estate	–474	–276
II. 5. Cash infl ow from the sale and maturity of fi nancial instruments	21,146	18,466
II. 6. Cash outfl ow from the purchase of fi nancial instruments	–25,448	–22,955
II. 7. Changes in investments for the account and risk of holders of life insurance policies	–1,188	–1,117
II. 8. Changes in other invested assets	354	655
II. 9. Cash outfl ows from the acquisition of tangible and intangible assets	–119	–184
II. 10. Cash infl ows from the sale of tangible and intangible assets	21	74
II. Cash fl ows from investing activities	–5,633	–5,980
III. 1. Cash infl ow from capital increases	6	498
III. 2. Cash outfl ow from capital reductions	–2	–6
III. 3. Dividends paid	–523	–202
III. 4. Net changes from other fi nancing activities	86	518
III. Cash fl ows from fi nancing activities	–433	808
Change in cash and cash equivalents (I. + II. + III.)	–169	497
Cash and cash equivalents at the beginning of the reporting period, without disposal groups	2,119	1,570
Cash and cash equivalents – exchange-rate diff erences on cash	–87	–5
Changes in cash and cash equivalents attributable to scope of consolidation 4)	3	5
Changes in cash and cash equivalents of disposal groups in the reporting period	–2	52
Cash and cash equivalents at the end of the reporting period, without disposal groups	1,864	2,119
Additional information
Taxes paid	373	290
Interest paid 5)	280	249
Dividends received	98	134
Interest received	3,422	3,246

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

2) Taxes paid on income as well as dividends and interest received are allocated to cash fl ows from operating activities. Dividends received also comprise dividend-like distributions from investment funds and private equity companies, which results in deviations from our fi gures in Note 12 "Net investment income"

3) Cash outfl ow from the purchases of property companies described in section "Consolidation" is shown under position "Cash outfl ow from the purchase of real estate" 4) This item essentially includes changes in the scope of consolidation excluding disposals and acquisitions

5) EUR 188 (191) million of interest paid pertains to cash fl ows from fi nancing activities, EUR 59 (58) million to cash fl ows from operating activities and EUR 33 ( —) million to cash fl ows from investing activities

The following Notes form an integral part of the consolidated fi nancial statements.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income 142 Balance sheet

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement 148 Cash fl ow statement

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies 172 Segment reporting 149 General accounting principles and application of International Financial Reporting Standards

NOTES

NOTES

149 General information

149 General information

NOTES

GENERAL INFORMATION

Based in Hannover/Germany, Talanx AG heads Germany's thirdlargest and Europe's 11th largest insurance group (based on gross premium income 2012) as a financial and management holding company. It does not, however, itself transact insurance business. The Group, which is active in roughly 150 countries worldwide through cooperation arrangements, off ers high-quality insurance services in non-life and life insurance as well as reinsurance and also conducts business in the asset management sector (cf. also section "Segment reporting".

Talanx AG, whose majority shareholder is HDI Haft pfl ichtverband der Deutschen Industrie V. a. G., Hannover/Germany (HDI V. a. G.), is the parent company for all Group companies belonging to HDI V. a. G. With eff ect from 2 July 2013, it placed 8.2 million of its shares on the market, meaning that 79.0% of Talanx AG is held by HDI V. a. G. as at the balance sheet date. 14.4% of the shares are in free fl oat with private and institutional investors, 6.5% are held by the Japanese partner of Talanx AG (the insurance company Meiji Yasuda), and 0.1% of the shares are held by employees. As part of an employee stock programme, almost 0.2 million shares were created in the fourth quarter of 2013 during a capital increase and sold to subscribing employees with a vesting period of four years.

Talanx AG is entered in the commercial register of the Hannover County Court under the number HR Hannover B 52546 with an address of "Riethorst 2, 30659 Hannover". In accordance with §§ 341i et seq. of the German Commercial Code (HGB), HDI V. a. G. is obliged to prepare consolidated annual accounts that include the annual fi nancial statements of Talanx AG and its subsidiaries. The consolidated fi nancial statements are published in the Federal Gazette.

GENERAL ACCOUNTING PRINCIPLES AND APPLICATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

As the parent company of the Talanx Group, Talanx AG has drawn up consolidated fi nancial statements pursuant to § 290 of the German Commercial Code (HGB). The consolidated fi nancial statements were prepared on the basis of § 315a Para. 1 of the German Commercial Code (HGB) pursuant to Article 4 of Regulation (EC) No. 1606/2002 in accordance with International Financial Reporting Standards (IFRS) in the form adopted for use in the European Union. The standards and rules specifi ed in § 315a Para. 1 of the German Commercial Code (HGB) were observed in full. The consolidated fi nancial statements are published in the Federal Gazette.

Since 2002 the standards adopted by the International Accounting Standards Board (IASB) have been referred to as IFRS. The standards approved in earlier years still bear the name IAS (International Account ing Standards). Standards are cited in our Notes accordingly; in cases where the Notes do not make explicit reference to a particular standard, the term IFRS is used. Insurance-specifi c transactions for which IFRSs do not contain any separate standards are recognised in compliance with IFRS 4 "Insurance Contracts" according to the pertinent provisions of United States Generally Accepted Accounting Principles (US GAAP) as at the initial application of IFRS 4 on 1 January 2005.

The consolidated fi nancial statements refl ect all IFRSs in force as at 31 December 2013 as well as the interpretations then issued by the IFRS Interpretations Committee (IFRS IC, formerly known as the International Financial Reporting Interpretations Committee [IFRIC]) and the previous Standing Interpretations Committee (SIC), application of which was mandatory for the 2013 fi nancial year and which were adopted by the EU. In addition, the German Accounting Standards (DRS) adopted by the German Accounting Standards Committee (DRSC) have been observed insofar as they do not confl ict with currently applicable IFRS standards.

The consolidated fi nancial statements were drawn up in euros (EUR). The amounts shown have been rounded to EUR millions (EUR million), unless fi gures are required in EUR thousands (EUR thousand) for reasons of transparency. This may give rise to rounding diff erences in the tables presented in this report. Figures in brackets refer to the previous year.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance
• contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

NEWLY APPLICABLE STANDARDS/INTERPRETATIONS AND CHANGES IN STANDARDS

As at 1 January 2013, the Group for the fi rst time applied the following changed or new IFRSs:

IFRS 13 "Fair Value Measurement" was published in May 2011, and its application is mandatory for fi nancial years beginning on or aft er 1 January 2013. It standardises the defi nition of fair value and sets down a framework of applicable methods for measuring fair value. Fair value is defi ned as the price that would be received to sell an asset, the measurement of this price being based as far as possible on observable market parameters. In addition, an entity is required to provide comprehensive explanatory and qualitative disclosures, which are to describe, in particular, the quality of the fair-value measurement. The scope of IFRS 13 is more extensive and comprises non-fi nancial items alongside fi nancial items. The amendments will essentially be applied if another standard calls for fair-value measurement or if disclosures concerning fair value are prescribed. Initial application, implemented prospectively by the Group (without comparative information for previous years) in agreement with the transition guidelines, resulted in no signifi cant change in the valuation of the Group's assets and liabilities. For information regarding the new disclosures or adjustments in the classifi cation for quoted fi xed-income securities, please refer to the section "Non-current assets held for sale and disposal groups", item 3 "Investment Property", item 12 "Fair-value hierarchy" and item 16 "Other assets" in the Notes.

In June 2011 the IASB published an amendment to IAS 1 "Presentation of Financial Statements" designed to improve how items of other comprehensive income (OCI) should be presented. It is applicable retrospectively to fi nancial years beginning on or aft er 1 July 2012. IAS 1 stipulates that items under "Other comprehensive income" must be disclosed separately according to whether they can be carried in the consolidated statement of income through profi t and loss (reclassifi able) or must remain under "Other comprehensive income" (not reclassifi able in the consolidated statement of income). Sub-totals must be calculated as required in both cases. According to this logic, taxes on income attributable to items under "Other comprehensive income" are also to be allocated. Thus these amendments relate exclusively to the presentation of "Other comprehensive income". The Group changed the presentation of items under "Other comprehensive income" in its consolidated statement of comprehensive income based on the amendments to IAS 1. Comparative information was adjusted accordingly.

Amended IAS 19 "Employee Benefi ts" (revised in 2011), which was ratifi ed by the EU in 2012, is mandatory for fi nancial years beginning on or aft er 1 January 2013. Pursuant to the transition rules, the standard is to be applied retroactively, apart from several exceptions. The Group thoroughly explains the impact of initial application in the section "Accounting policies", subsection "Changes in accounting policies and accounting errors" (letter b), which mainly relates to a higher provision and a charge under "Other comprehensive income". The new disclosures in the Notes, such as explanations of defi ned benefi t plan characteristics, including the related risks and sensitivity analyses for actuarial assumptions, have been included in item 23 "Provisions for pensions and other post-employment benefi ts".

In December 2011, the IASB published amendments to IFRS 7 "Financial Instruments: Disclosures" dealing with the presentation of fi nancial assets and liabilities. They mandate comprehensive disclosures regarding certain netting arrangements. The amended standard is applicable retrospectively to fi nancial years beginning on or aft er 1 January 2013. The changes require disclosure of all recognised fi nancial instruments that are subject to enforceable master netting arrangements or similar agreements, irrespective of whether they are set off in accordance with IAS 32. As at the balance sheet date, these consisted of derivatives transactions that are concluded on the basis of standardised master agreements and contain master netting arrangements. For the corresponding disclosures, cf. our remarks in item 13 "Derivative fi nancial instruments and hedge accounting".

The "Annual Improvements 2009 – 2011 Cycle", a collection of amendments to IFRSs issued by the IASB on 17 May 2012, forms part of the annual improvement process of the standards issued by the IASB. It contains a multitude of minor amendments to IFRS. The amendments, which were approved by the EU in March 2013, are applicable to fi nancial years beginning on or aft er 1 January 2013. The application of these amendments had no signifi cant impact for the Group.

In May 2013 the IASB published "Recoverable Amount Disclosures for Non-Financial Assets" (Amendments to IAS 36 "Impairment of Assets") and adjusted consequential amendments resulting from IFRS 13 that were broader than originally intended. This clarifi ed that the disclosure of the recoverable amount is only required for assets and cash-generating units if impairment was recovered or reversed in the current period. Disclosure requirements were also introduced for valuation methods applied and the fair value hierarchy used to determine fair values for certain impaired assets. The amendments were ratifi ed by the EU in December 2013 and application

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies 172 Segment reporting

is mandatory for fi nancial years beginning on or aft er 1 January 2014; earlier application is permitted. The Group implemented these amendments in the 2013 fi nancial year in accordance with the transition guidelines.

IFRIC 20 "Stripping Costs in the Production Phase of a Surface Mine" must be applied for fi nancial years beginning on or aft er 1 January 2013, but had no practical relevance for the Group.

STANDARDS, INTERPRETATION AND CHANGES TO PUBLISHED STANDARDS, APPLICATION OF WHICH WAS NOT YET MANDATORY IN 2013 AND WHICH WERE NOT APPLIED EARLY BY THE GROUP

On 12 May 2011 the IASB published three new and two revised standards governing consolidation, the accounting of interests in associated companies and joint ventures, and the related disclosures in the Notes:

IFRS 10 "Consolidated Financial Statements" replaces the regulations previously contained in IAS 27 "Consolidated and Separate Financial Statements" and SIC 12 "Consolidation – Special purpose Entities". It defi nes the principle of control as the universal basis for establishing the existence of a parent-subsidiary relationship. The standard also contains additional guidelines demonstrating when control exists. In future the revised IAS 27 will contain only provisions on accounting requirements for interests in subsidiaries, associated companies and joint ventures disclosed in the parent company's individual fi nancial statements. Aside from several minor changes, the wording of the previous standard was retained. We are currently examining the implications of the new IFRS 10 for the Group. Based on current information, however, we do not expect any signifi cant change in consolidation decisions regarding our participating interests and special purpose entities, nor any signifi cant change in the current recognition of these participating interests and special purpose entities.

IFRS 11 "Joint Arrangements" addresses the accounting requirements in cases where an entity shares management control over a joint venture or joint operation. The new standard replaces the pertinent regulations in IAS 31 "Interests in Joint Ventures" and SIC 13 "Jointly Controlled Entities – Non-Monetary Contributions by Venturers". According to IFRS 11 it is no longer permitted to consolidate joint ventures, e.g. arrangements where the parties have rights to the net assets, on a proportional basis. The equity method must be applied in future where an entity is classifi ed as a joint venture. The Group does not expect any signifi cant impact from this new rule as the joint ventures in the fi nancial statements are already included at equity. According to the current status of the analysis there are also no joint operations on the basis of which the Group has rights to assets under an arrangement and liabilities for related debts.

The revised IAS 28 "Investments in Associates and Joint Ventures" is being expanded to include rules governing accounting for interests in joint ventures. The equity method must be applied as standard in future. Another amendment aff ects accounting procedures in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" if only part of an interest in an associated company/joint venture is held for sale. IFRS 5 must only be applied for the portion held for sale.

Disclosure requirements relating to the consolidation and accounting treatment of interests in associated companies and joint ventures are brought together in IFRS 12 "Disclosure of Interests in Other Entities". To some extent, duties of disclosure under the new standard for subsidiaries, associated companies, joint arrangements, unconsolidated structured companies and all other participating interests extend far beyond what was previously the case, the aim being to provide users of fi nancial statements with a clearer picture of the nature of the company's interests in other entities and the eff ects on assets, fi nancial position and net income, including risks. We are currently reviewing the implications of these expanded disclosure requirements for the Group.

Application of the provisions of IFRS 10, 11 and 12 and the amended IAS 27 and 28 – ratifi ed by the EU on 11 December 2012 – is mandatory for fi nancial years beginning on or aft er 1 January 2014.

In June 2012 the IASB published transitional provisions (amendments to IFRS 10, IFRS 11 and IFRS 12). The amendments clarify the transition guidance and also provide additional relief, limiting the requirement to provide comparative information. The eff ective date of the amendments is aligned with the eff ective date of IFRS 10, 11 and 12. In October 2012 the IASB announced further amendments to IFRS 10 and 12 and IAS 27, which contain an exception to the full consolidation of controlled subsidiaries. These amendments provide that parent companies meeting the defi nition of an investment entity must measure their investments in subsidiaries at fair value through profi t or loss. As a non-investment entity, Talanx AG will not be aff ected by this exception, meaning that this amendment has no practical relevance for the consolidated fi nancial statements. The June 2012 amendment was ratifi ed by the EU on 4 April 2013, and the amendment announced in October 2012 was ratifi ed on 20 November 2013.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance
• contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

The IASB adapted the provisions governing the set-off of fi nancial assets and liabilities and published changes on 16 December 2011 in the form of amendments to IAS 32 "Financial Instruments: Presentation" – Off setting Financial Assets and Financial Liabilities. The off setting requirements set down in IAS 32 were retained more or less in their entirety and were merely clarifi ed by additional guidelines on application. The amendment is applicable retrospectively to fi nancial years beginning on or aft er 1 January 2014. We are currently reviewing the implications of these two amendments, ratifi ed by the EU on 13 December 2012, for the consolidated fi nancial statements.

In June 2013 the IASB adopted "Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39 "Financial Instruments: Recognition and Measurement"). According to this amendment, despite novation the derivative remains designated as a hedging instrument in an existing hedging relationship. Application of the amendments ratifi ed by the EU in December 2013 is mandatory for fi nancial years beginning on or aft er 1 January 2014. The Group does not expect these amendments to have any material impact.

On 20 May 2013 the IASB published IFRIC 21 "Levies". This clarifi es how liabilities should be recognised for levies and in particular when these liabilities which are imposed by a government body and do not fall under the scope of a diff erent standard, should be carried. Application of this interpretation, which has not yet been ratifi ed by the EU, is mandatory for fi nancial years beginning on or aft er 1 January 2014. We are currently examining the impacts of this amendment.

On 21 November 2013 the IASB published "Defi ned Benefi t Plans: Employee Contributions" (amendments to IAS 19 [revised in 2011]). This amendment clarifi ed how companies should recognise contributions to defi ned benefi t plans from employees or third parties. This amendment – whose application is mandatory for fi nancial years beginning on or aft er 1 July 2014 – has not yet been ratifi ed by the EU. This amendment has no practical relevance for the Group.

On 12 December 2013 and as part of the IFRS annual improvement process the IASB published the outstanding document from the 2010–2012 Cycle and the collection of amendments for the 2011–2013 Cycle. Application of these amendments, which have not yet been ratifi ed by the EU, is mandatory for fi nancial years beginning on or aft er 1 July 2014. The Group is currently examining the impacts of these amendments.

In November 2009 the IASB published a new standard on the classifi cation and measurement of fi nancial instruments. IFRS 9 "Financial Instruments" is the fi rst step in a three-phase project intended to replace IAS 39. Amongst other things, IFRS 9 introduces new provisions for classifying and measuring fi nancial assets. In this context, fi nancial assets must be classifi ed into two measurement categories (at fair value or amortised cost). Crucial for this categorisation are the contractually agreed upon cash fl ows associated with the fi nancial instrument as well as the type of fi nancial-instrument management employed by the Group (business model). This standard was expanded in October 2010 to include rules governing the accounting treatment of fi nancial liabilities and derecognition of fi nancial instruments, the latter having been imported unchanged from IAS 39. Furthermore, the IASB published a draft amendment on IFRS 9 in November 2012, which provides for a third measurement model for fi nancial assets. Under certain conditions, debt instruments can therefore be measured at fair value, recognising any changes in value under "Other comprehensive income". On 19 November 2013 the IASB fi nalised phase 3 as part of the revision of IFRS 9 and published the new section on the accounting treatment of hedging relationships (hedge accounting). IFRS 9 no longer includes an initial application date either. Consequently, the mandatory initial application date from 1 January 2015 contained in IFRS 9 will be removed; the initial application date is not expected before 1 January 2017. Neither IFRS 9 nor the consequential amendments mentioned have been ratifi ed yet by the EU. The Group has still to analyse the full implications of IFRS 9, including the two additional phases (rules on recording impairments and on recognising hedging relationships). It is already becoming clear, however, that the revised rules will have an infl uence, inter alia, on the accounting treatment of fi nancial assets within the Group.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies 172 Segment reporting

ACCOUNTING POLICIES

The annual fi nancial statements of subsidiaries and special purpose entities included in the Group are governed by uniform accounting policies, the application of which is based on the principle of consistency. In the following we will describe the accounting policies applied, any amendments made to accounting policies in 2013 and major discretionary decisions and estimates. Newly applic able accounting standards in the 2013 fi nancial year are described in the sec tion "General accounting principles and application of International Financial Reporting Standards (IFRS)", while consolidation principles are discussed in the section "Consolidation" (pages 149 et seqq. and 183 et seqq.).

CHANGES IN ACCOUNTING POLICIES AND ACCOUNTING ERRORS

a) Pursuant to the transition guidelines, revised IAS 19 "Employee Benefi ts" was applied retrospectively in conformity with IAS 8. The key amendment to IAS 19 is the abolishment of the option available to companies to recognise future actuarial gains and losses either under "Other comprehensive income" or on a deferred basis using the "corridor method". Previous application of the corridor method in connection with the recognition of defi ned benefi t pension plans led to the situation where actuarial gains and losses were recognised only when they exceeded certain threshold values. In addition, the portion to be recognised was spread across several years. Off -balance-sheet recognition of partial amounts of the defi ned benefi t obligation also resulted from previously applicable rules on retroactive plan changes, which led to an increase in the existing obligation and thus to a past service cost. This past service cost had to be recognised immediately only if the additional entitlements had already vested. Amounts exceeding this were recognised on a pro rata basis until the resulting entitlements had vested.

In accordance with revised IAS 19, all actuarial gains and losses are to be recognised immediately and in full under "Other comprehensive income", and past service cost is to be recognised immediately and in full in profi t or loss. The eff ects on the balance sheet item "Provisions for pensions and other post-employment benefi ts" and on shareholders' equity, as reduced by deferred taxes and deferred premium refunds, are depicted in the following tables. In addition, the yield on plan assets is in future to be derived from the discount rate underlying the measurement of the defi ned benefi t obligation. Since pension commitments in the Group are fi nanced to only a limited extent using plan assets, there were no material eff ects on Group net income. Furthermore, because of the change in recognition of supplemental benefi ts, application of the revised standard led to a modifi cation of the German obligations regarding partial retirement. In particular, when applying the so-called block model, supplemental amounts are no longer accumulated in full when the contract on partial retirement is concluded, but instead pro rata over the period from contract signature to the end of the phase when the benefi ciary is working. In this regard, all annual payments as a whole are accumulated, not each individual benefi t (so-called FIFO method). The eff ects on the balance sheet item "Other provisions", where partial retirement benefi ts are recognised, and on shareholders' equity, as reduced by deferred taxes and deferred premium refunds, are likewise depicted in the following tables.

• b) In recognising the interest-rate-driven portion of the change in the loss and loss adjustment expense reserve (loss provision), various Group companies exercised an option in diff erent ways for certain contracts in the area of Life/Health Reinsurance. For instance, this item was sometimes recognised in the statement of income and sometimes directly in shareholders' equity. Following the requirements of IAS 8 we have made in these fi nancial statements a uniform Group recognition in the statement of income and in accordance with IAS 8.41, we have made a corresponding adjustment to the comparable fi gures.
• c) With eff ect from 30 September 2013, in the Retail Germany segment, the Group retroactively corrected fair-value information in the Notes with respect to several fi nancial instruments in the category "Loans and receivables" that are a component of internal Group transactions involving interest-rate peaks and for which the original interest rate is thus to be taken as a basis in ascertaining them (Retail Germany segment). As a consequence, recognised fair values under "Loans and receivables" increased by EUR 206 million compared with their original recognition as at 31 December 2012. The adjustment of the information in the Notes did not have any eff ect on the recognised carrying amounts or shareholders' equity in the previous year.
• d) In the fourth quarter of 2013, the indicated maturities for "Loans and receivables", "Financial assets available for sale" and "Financial assets at fair value through profi t or loss" were retroactively corrected (31 December 2012). These adjustments of the information in the Notes did not have any eff ect on either shareholders' equity or the carrying amount of the fi nancial instruments.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

Retroactive application of the aforementioned changes (letters a) and b)) to the previous year's opening balance sheet as at 1 January 2012, consolidated balance sheet as at 31 December 2012, consolidated statement of income and consolidated statement of comprehensive income had the following eff ects:

N7 EFFECTS ON THE CONSOLIDATED BALANCE SHEET AS AT 1 JANUARY 2012

FIGURES IN EUR MILLION

			As reported at 1.1.2012	Changes due to adjustments in accordance with IAS 8		1.1.2012
				Adjustment re a)	Adjustment re b)
	Liabilities
		A. b. Reserves	5,147	–44	—	5,103
		thereof retained earnings	4,170	14	–9	4,175
		thereof other reserves	347	–58	9	298
		A. d. Non-controlling interests in shareholders' equity	3,284	–2	—	3,282
		C. d. Provision for premium refunds	1,008	–2	—	1,006
		E. a. Provisions for pensions and other post-employment benefi ts	1,343	87	—	1,430
		E. c. Other provisions	689	–17	—	672
G.		Deferred tax liabilities	1,494	–22	—	1,472

N8 EFFECTS ON THE CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2012

FIGURES IN EUR MILLION

		As reported at 31.12.2012	Changes due to adjustments in accordance with IAS 8 (including adjustments as at 1.1.2012)		31.12.2012
			Adjustment re a)	Adjustment re b)
Assets
H.	Deferred tax assets	433	96	—	529
	Liabilities
	A. b. Reserves	7,156	–319	—	6,837
	thereof retained earnings	4,829	15	–14	4,830
	thereof other reserves	958	–334	14	638
	A. d. Non-controlling interests in shareholders' equity	4,171	–15	—	4,156
	C. d. Provision for premium refunds	2,297	–18	—	2,279
	E. a. Provisions for pensions and other post-employment benefi ts	1,347	522	—	1,869
	E. c. Other provisions	776	–13	—	763
	F. c. Other liabilities	7,080	–1	—	7,079
G.	Deferred tax liabilities	2,044	–60	—	1,984

N9 EFFECTS ON THE CONSOLIDATED STATEMENT OF INCOME 2012

	FIGURES IN EUR MILLION
		As reported 1.1. – 31.12.2012	Changes due to adjustments in accordance with IAS 8		1.1. – 31.12.2012
			Adjustment re a)	Adjustment re b)
6.	Claims and claims expenses (gross)	20,537	1	15	20,553
	Reinsurers' share	2,195	—	2	2,197
	10. b. Other expenses	1,197	–2	—	1,195
13.	Taxes on income	423	—	–4	419
Net income		1,152	1	–9	1,144
	thereof attributable to shareholders of Talanx AG	630	—	–4	626

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income 145 Statement of comprehensive income

149 General information

NOTES

149 General accounting principles and application of International Financial Reporting Standards

The eff ect of these changes on earnings per share in the comparable period:

N10 EFFECTS ON EARNINGS PER SHARE IN 2012

FIGURES IN EUR

	As reported at 31.12.2012	Changes due to adjustments in accordance with IAS 8		31.12.2012
		Adjustment re a)	Adjustment re b)
Basic earnings per share	2.87	0.01	–0.02	2.86
Diluted earnings per share	2.87	0.01	–0.02	2.86

N11 EFFECTS ON THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 2012

FIGURES IN EUR MILLION
	As reported 1.1. – 31.12.2012	Adjustment re a)	Adjustment re b)	1.1. – 31.12.2012
Net income	1,152	1	–9	1,144
Not reclassifi able in the consolidated statement of income
Actuarial gains (losses) on pension provisions
Gains (losses) recognised in other comprehensive income during the period	—	–441	—	–441
Tax income (expense)	—	133	—	133
	—	–308	—	–308
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income during the period	—	17	—	17
Tax income (expense)	—	—	—	—
	—	17	—	17
Total non-reclassifi able income (expenses) after taxes recognised in other comprehensive income during the period	—	–291	—	–291
Reclassifi able in the consolidated statement of income
Currency translation
Gains (losses) recognised in other comprehensive income during the period	–1	—	—	–1
Shifted to the consolidated statement of income	—	—	—	—
Tax income (expense)	4	–1	—	3
	3	–1	—	2
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income during the period	–1,157	3	—	–1,154
Tax income (expense)	37	1	—	38
	–1,120	4	—	–1,116
Other changes
Gains (losses) recognised in other comprehensive income during the period	–13	–1	13	–1
Shifted to the consolidated statement of income	—	—	—	—
Tax income (expense)	4	—	–4	—
	–9	–1	9	–1
Total non-reclassifi able income (expenses) after taxes recognised in other comprehensive income during the period	964	2	9	975
Income (expenses) after taxes recognised in other comprehensive income during the period	964	–289	9	684
Total comprehensive income during the period	2,116	–288	—	1,828
thereof attributable to non-controlling interests	835	–13	—	822
thereof attributable to shareholders of Talanx AG	1,281	–275	—	1,006

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements

288 Responsibility statement

FIGURES IN EUR MILLION

The eff ects from corrections made to information in the previous year's Notes (letters c) and d)) are shown in the following tables:

N12 EFFECTS ON THE CONTRACTUAL MATURITY OF AMORTISED COSTS AND FAIR VALUES OF LOANS AND RECEIVABLES AS AT 31 DECEMBER 2012 (NOTE (6))

	Amortised cost			Fair value
	As reported at 31.12.2012	Adjustment re d)	31.12.2012	As reported at 31.12.2012	Adjustment re c)	Adjustment re d)	31.12.2012
Due one year or sooner	2,801	–606	2,195	3,151	–412	–399	2,340
Later than one year, up to two years	2,806	—	2,806	2,918	4	—	2,922
Later than two years, up to three years	2,826	—	2,826	3,025	3	—	3,028
Later than three years, up to four years	2,374	—	2,374	2,580	3	—	2,583
Later than four years, up to fi ve years	2,140	—	2,140	2,353	33	—	2,386
Later than fi ve years, up to ten years	6,659	114	6,773	7,544	163	106	7,813
Later than ten years	12,495	492	12,987	14,805	412	293	15,510
Total maturities	32,101	—	32,101	36,376	206	—	36,582

N13 EFFECTS ON THE CONTRACTUAL MATURITY OF AMORTISED COSTS AND FAIR VALUES OF FIXED-INCOME FINANCIAL ASSETS AVAILABLE FOR SALE AS AT 31 DECEMBER 2012 (NOTE (8))

FIGURES IN EUR MILLION

	Fair value			Amortised cost
	As reported at 31.12.2012	Adjustment re d)	31.12.2012	As reported at 31.12.2012	Adjustment re d)	31.12.2012
Due one year or sooner	2,519	–71	2,448	2,497	–69	2,428
Later than one year, up to two years	4,007	2	4,009	3,931	1	3,932
Later than two years, up to three years	4,177	–4	4,173	4,022	–4	4,018
Later than three years, up to four years	3,491	—	3,491	3,308	—	3,308
Later than four years, up to fi ve years	4,100	5	4,105	3,891	5	3,896
Later than fi ve years, up to ten years	13,685	63	13,748	12,610	61	12,671
Later than ten years	8,101	5	8,106	7,202	6	7,208
Total maturities	40,080	—	40,080	37,461	—	37,461

N14 EFFECTS ON THE CONTRACTUAL MATURITY OF FINANCIAL ASSETS CLASSIFIED AT FAIR VALUE THROUGH PROFIT OR LOSS AS AT 31 DECEMBER 2012 (NOTE (9))

FIGURES IN EUR MILLION

	Fair value
	As reported at 31.12.2012	Adjustment re d)	31.12.2012
Due one year or sooner	456	–119	337
Later than one year, up to two years	151	—	151
Later than two years, up to three years	100	—	100
Later than three years, up to four years	71	—	71
Later than four years, up to fi ve years	54	—	54
Later than fi ve years, up to ten years	343	—	343
Later than ten years	187	119	306
Total maturities	1,362	—	1,362

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES

149 General information 149 General accounting principles and application

of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

Adjustment amounts for the current reporting period from the new rules in IAS 19 (letter a)) – diff erence between IAS 19 as actually applied starting in 2013 and the old rule:

N15 EFFECTS OF THE ADJUSTMENT UNDER IAS 19 ON THE CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2013

FIGURES IN EUR MILLION

		Changes due to adjustments in accordance with IAS 8
		re a)
	A. b. Reserves	234
	C. d. Provision for premium refunds	12
	E. a. Provisions for pensions and other post-employment benefi ts	–326
	E. c. Other provisions	12
G.	Deferred tax liabilities	96

EFFECTS OF THE ADJUSTMENT UNDER IAS 19

FIGURES IN EUR MILLION

	Changes due to adjustments in accordance with IAS 8
	re a)
6. Claims and claims expenses (gross)	1
10. b. Other expenses	–42
13. Taxes on income	13

N17 EFFECTS OF THE ADJUSTMENT UNDER IAS 19 ON EARNINGS PER SHARE FOR THE YEAR 2013

FIGURES IN EUR

	2013 prior to adjustment	Change from adjustment	2013
		re b)
Basic earnings per share	2.91	0.11	3.02
Diluted earnings per share	2.91	0.11	3.02

CHANGES IN ESTIMATES DURING THE REPORTING PERIOD

With eff ect from the third quarter of 2013, the calculation logic for amortising infl ation-indexed government bonds was modifi ed in order to level out seasonal deviations in the underlying infl ation indexes. This involves changing an accounting-related estimate that, pursuant to IAS 8, is to be made prospectively in the reporting period without adjusting the comparable fi gures for previous years. In future, amortisation amounts will not be diff erent as at the balance sheet date and at the end of each year, since adjustment of the parameters merely constitutes a levelling during the year that has an eff ect only at the end of the respective quarter.

With Hannover Rück SE, a change was made to the estimate of the portion of the equalisation reserve that is expected to be allotted to foreign commercial units to which the so-called exemption method in the sense of relevant double taxation conventions is to be applied. Since pursuant to § 341h of the German Commercial Code (HGB) and § 29 of the Regulation on Insurance Accounting (RechVersV) an exemption reserve is not to be recognised for tax purposes in accordance with local rules in these countries, this leads to a reduction of deferred tax liabilities in the consolidated fi nancial statements. This adjustment has to do with a change in an accounting-related estimate, which, pursuant to IAS 8.32 et seqq., is to be recognised in income prospectively and in the current period. In all, deferred tax liabilities in the amount of EUR 89 million were eliminated from income. The allocation of the exemption reserve to the foreign commercial units for future fi nancial years, and thus the eff ect of this adjustment on subsequent accounting periods, is made according to a parameter key per fi nancial statement branch and cannot be feasibly estimated.

As at the fourth quarter of 2013, the renegotiation process was concluded concerning several contractual components in a reinsurance agreement that was concluded in previous years and is updated on an ongoing basis (Industrial Lines segment). Based on new information, the Group has revised its original estimate concerning the accounting depiction of this reinsurance relationship in the current period. The aff ected book values and items in the technical result – essentially corrected premium accounting and loss provisions – were determined in connection with the revision of an accounting-related estimate that is required by IAS 8 to be made prospectively in the reporting period and without adjustment of prior-year fi gures. During the year under review, the change in estimate resulted in an improved technical result in the aft er-tax amount of EUR 68 million. A depiction of this eff ect on future periods was not undertaken due to the unreasonable eff ort that would have been required to ascertain it.

MAJOR DISCRETIONARY DECISIONS AND ESTIMATES

Preparation of the consolidated fi nancial statement to a certain extent entails taking discretionary decisions and making estimates and assumptions that have implications for the assets and liabilities recognised, the consolidated statement of income and contingent claims and liabilities. Actual results may deviate from these estimates.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

N16 ON THE CONSOLIDATED STATEMENT OF INCOME 2013

As a rule, these decisions and assumptions are subject to ongoing review and are based in part on historical experiences as well as on other factors, including expectations in respect of future events that currently appear reasonable. The processes in place both at the Group level and at subsidiary level are geared towards calculating the values in question as reliably as possible, taking all relevant information into account. It is further ensured – inter alia, through uniform Group accounting guidelines – that the standards laid down by the Group are applied in a consistent and appropriate manner.

Estimates and assumptions that entail a signifi cant risk in the form of a material adjustment within the next fi nancial year to the carrying amounts of recognised assets and liabilities are discussed below. In addition, further details can be found in the subsection "Summary of major accounting policies", the section "Nature of risks associated with insurance contracts and fi nancial instruments", and directly in the remarks on individual items.

Technical provisions: As at 31 December 2013, the Group recognised loss and loss adjustment expense reserves in the amount of EUR 33,755 million and benefit reserves in the amount of EUR 49,767 million.

Loss and loss adjustment expense reserves are created for claims that are uncertain in terms of their amount or when they will become due. In general, these reserves are recognised in the amount that is likely to be claimed, using best-estimate principles that are based on actuarial methods, such as the chain ladder method. The development of a claim until expected completion of the run-off is projected on the basis of statistical triangles. The actual amounts payable may prove to be higher or lower. Any resulting run-off profi ts or losses are recognised as income or expenses. The level of reserves is regularly reviewed – not only internally but also by external actuaries – and an external expert assessment of the reserves is commissioned in order to minimise the reserving risk.

In the area of life primary insurance and Life/Health Reinsurance, the determination of provisions and assets is crucially dependent on actuarial projections of the business. Key diff erentiating criteria include age, smoking status of the insured individual, metrics of the insurance plan, policy duration, policy amount and duration of premium payment. In this context key input parameters are either predetermined by the metrics of the insurance plan (e.g. costs included in the calculation, amount of premium, actuarial interest rate) or estimated (e.g. mortality, morbidity and lapse rates). These assumptions are heavily dependent, for instance, on countryspecifi c parameters, sales channel, quality of underwriting and type of reinsurance. For the purposes of US GAAP accounting, these assumptions are reviewed as at each balance sheet date by specialised life insurance actuaries and subsequently adjusted in line with the actual projection. The resulting eff ects are refl ected, for instance, in true-up adjustments in "Other intangible assets", "Insurance-related intangible assets" (PVFP), "Deferred acquisition costs", "Provision for premium refunds" (provision for deferred premium refunds) and, where applicable, "Benefi t reserve" (funding of terminal bonuses).

Fair value and impairments of fi nancial instruments: Financial instruments with a fair value of EUR 50,997 million were recognised as at the balance sheet date, including fi nancial assets of EUR 49,970 million and fi nancial liabilities of EUR 1,027 million. Fair value and impairments of fi nancial instruments, especially for those not traded on an active market, are determined using appropriate measurement methods. In this regard, cf. our remarks on the determination of fair values as well as the applicability criteria for assessment of the need to take impairments on certain fi nancial instruments set forth in the subsection "Investments including income and expenses" (section "Summary of major accounting policies"). The allocation of fi nancial instruments to various levels of the fair-value hierarchy is described under item 12 "Fair value hierarchy" in the Notes. To the extent that signifi cant measurement parameters are not based on observable market data (level 3), estimates and assumptions play a major role in determining the fair value of these instruments.

Impairment testing of goodwill (carrying amount as at 31 December 2013: EUR 1,105 million): The Group tests for impairment of goodwill. Insofar as the recoverable amount is based on calculations of the value in use, appropriate assumptions – such as sustainably achievable results and growth rates – are used as a basis (cf. item 1 in the Notes, "Goodwill", pages 209 et seqq.). In addition, the Group performs sensitivity analyses for the most important parameters, such as anticipated combined ratio and discount rates.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

Deferred acquisition costs: As at the balance sheet date, the Group recognised acquisition costs in the amount of EUR 4,513 million. The actuarial bases for amortisation of deferred acquisition costs are continuously reviewed and adjusted where necessary. Impairment tests are carried out by means of regular checks on, for example, profi t developments, lapse assumptions, and default probabilities.

Present value of future profi ts (PVFP) on acquired insurance portfolios: The PVFP (EUR 1,182 million as at 31 December 2013) is the present value of anticipated future net cash fl ows from existing life insurance contracts, life reinsurance contracts and investment contracts at the time of acquisition and is determined respectively amortised using actuarial methods. Uncertainties may arise with regard to the expected amount of these net cash fl ows.

Realisability of deferred tax assets: Estimates are made in particular with respect to the utilisation of tax loss carry-forwards, fi rst and foremost in connection with deferred tax liabilities recognised in the balance sheet and anticipated future earnings. The Group's tax department tests for impairment of key deferred tax assets. The Group's deferred tax assets amounted to EUR 548 million as at the balance sheet date.

Provisions for pensions and other post-employment benefi ts: As at the balance sheet date, pension liabilities under defi ned benefi t plans – net of plan assets – amounted to EUR 1,695 million. The present value of pension liabilities is infl uenced by numerous factors based on actuarial assumptions. The assumptions used to calculate net expenses (and income) for pensions include discount rates, the estimated rate at which salaries will increase and pension increases. These parameters take into account the individual circumstances of the units concerned and are determined with the aid of actuaries. For detailed remarks on how pension liabilities are determined, including a depiction of sensitivity analyses in the event of deviations from certain key assumptions, cf. item 23 in the Notes, "Provisions for pensions and other post-employment benefi ts".

Provisions for restructuring (31 December 2013: EUR 73 million): Provisions for restructuring recognised by the Group are based on offi cial restructuring measures of which the aff ected employees have been informed, and they include inter alia, assumptions in respect of the number of employees aff ected by the redundancies, the amount of the severance payments due and costs in connection with terminating contracts The Group's accounting guidelines establish the requirements for creating a restructuring provision as well as for the cost components for which provisions may be created.

SUMMARY OF MAJOR ACCOUNTING POLICIES

RECOGNITION OF INSURANCE CONTRACTS

In March 2004 the IASB published IFRS 4 "Insurance Contracts", the fi rst standard governing the accounting of insurance contracts, dividing the "Insurance Contracts" project into two phases. IFRS 4 represents the outcome of Phase 1 and serves as a transitional arrangement until the IASB redefi nes the measurement of insurance contracts aft er completion of Phase 2. Following publication of the exposure draft "Insurance Contracts" (ED/2010/8) in 2010, the IASB published a revised exposure draft (ED/2013/7) on 20 June 2013 in response to extensive feedback that it received to the earlier draft . The revised exposure draft provides for a transition period of three years for application of the new accounting rules. The draft is based on a measurement model consisting of four components: expected present value of future cash fl ows, discounted time value of money, risk adjustment for cash fl ow uncertainties and a contractual service margin (profi tability that the entity expects the contract to generate).

IFRS 4 (Phase 1) – which also applies to reinsurance contracts – requires that all contracts written by insurance companies be classifi ed either as insurance contracts or investment contracts. An insurance contract exists if one party (the insurer) assumes a signifi cant insurance risk from the other party (the policyholder) by agreeing to pay compensation to the policyholder if a defi ned uncertain future event detrimentally impacts the policyholder. For the purposes of recognising insurance contracts within the meaning of IFRS 4, insurance companies are permitted to retain their previously used accounting practice for insurance contracts for the duration of the currently applicable project stage (Phase 1). In line with this, technical items are shown in the consolidated fi nancial statements in accordance with US GAAP as at time of initial application of IFRS on 1 January 2005 – provided IFRS 4 contains no special provisions to the contrary. Therefore, we cite certain rules of US GAAP using the designation valid at that time (Statement of Financial Accounting Standard [SFAS]). Investment contracts, e.g. contracts that have no signifi cant insurance risk and do not provide for a discretionary surplus participation, are treated as fi nancial instruments pursuant to IAS 39. Investment contracts that provide for a discretionary surplus participation are recognised in accordance with US GAAP.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

ASSETS

Intangible assets

The item "Intangible assets" is broken down into "Goodwill" and "Other intangible assets". The latter consist of, in particular, acquired and self-developed soft ware, insurance-related intangible assets, acquired brand names and acquired sales networks and customer relationships.

Goodwill is the positive diff erence between the cost of acquiring a company and the fair value of the Group's interests in that company's net assets. In accordance with IFRS 3 "Business Combinations", negative diff erences from initial consolidation are to be recognised immediately as expenses aft er renewed testing. Recognised goodwill is tested for impairment at least once a year, and it is measured at initial cost less cumulative impairments. Neither scheduled amortisation nor reversals of impairment are permitted. Minor amounts of goodwill are recognised as profi t or loss in the year they arise.

For the purposes of impairment testing in accordance with IAS 36.80 et seqq. "Impairment of Assets", goodwill must be allocated to cash-generating units (CGUs) (cf. item 1 in the Notes, "Goodwill", pages 209 et seqq.). Goodwill is allocated to the CGU that is expected to derive benefi t from the acquisition that gave rise to such goodwill. A CGU cannot be larger than a business segment. In order to determine possible impairment, the recoverable amount of a CGU – defi ned as the higher of the value in use or the fair value less costs to sell – is established and compared with the carrying amounts of such a CGU in the Group, including goodwill. If the carrying amounts exceed the recoverable amount, a goodwill impairment is recognised in the statement of income (under "Goodwill impairments").

Insurance-related intangible assets: The present value of future profi ts (PVFP) on acquired insurance portfolios refers to the present value of the anticipated future net cash fl ows from insurance contracts, reinsurance contracts and investment contracts existing at the time of acquisition. It consists of a shareholders' and tax portion, for which deferred taxes are established, and a policyholders' portion (only for life insurance contracts). Insurance portfolios are amortised in line with the realisation of the surpluses on which the calculation is based and in observance of the remaining duration of the acquired contracts. Item 2 in the Notes, "Other intangible assets", pages 213 et seqq., shows a breakdown by remaining duration of the underlying insurance contracts acquired. Impairment and the measurement parameters used are tested at least once a year. Where necessary, amortisation patterns are adjusted, otherwise an impairment loss is recognised. Only amortisation of the shareholders' portion results in a charge to future earnings. The PVFP in favour of policyholders is recognised by life insurance companies that are obliged to enable their policyholders to participate in all results through establishment of a provision for deferred premium refunds. We recognise amortisation of PVFP from investment contracts in "Net investment income" (under "Income/expense from investment contracts").

Intangible assets acquired in exchange for consideration that have a limited useful life as well as self-developed soft ware are recognised at acquisition or production cost less accumulated amortisation and accumulated amortisation expenses. We recognise intangible assets acquired in connection with business combinations in the amount of their fair value at the time of acquisition, provided such assets are separated or arise from contractual or other legal rights and can be measured reliably. These assets are amortised over a period of their estimated useful life. With soft ware (straight-line amortisation), this generally amounts to three to 10 years. For the most part, we amortise acquired sales networks and customer relationships by applying an estimated useful life of four to 16 years. Intangible assets with an unlimited useful life (e.g. acquired brand names) are tested for impairment annually, as well as where there is evidence of impairment. Amortisation methods, useful lives and residual asset values are reviewed as at the balance sheet date and adjusted where necessary. Amortisation and impairment expenses as well as write-ups are recognised in profi t or loss and are allocated to functional units. Insofar as an allocation to functional units is not possible, they are recognised in "Other income/expenses" under "Other expenses". Write-ups are recognised under "Other income".

Investments including income and expenses

With respect to real estate, a distinction is made between investment property and own-use real estate based on the following criteria: investment property and own-use real estate involving mixed-use buildings are classifi ed separately if the portions used by third parties and for own use could be sold separately. If this is not the case, properties are classifi ed as investment property only if less than 10% is used by Group companies.

Investment property is recognised at acquisition or production cost less cumulative depreciation and cumulative impairment. Scheduled depreciation is taken on a straight-line basis over the expected useful life, at most 50 years. An impairment expense is

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

¹⁴⁵ Statement of comprehensive income

taken if the market value (recoverable amount) determined using recognised valuation methods is less than the carrying amount by more than scheduled depreciation during a calendar year. If the portfolio is directly held, a qualifi ed external opinion is drawn up for each property every fi ve years as at the balance sheet date based on the discounted cash fl ow method (calculation of discounted cash fl ows from rents, etc. that can be generated by each property). Internal assessments, which are also based on the discounted cash fl ow method, are drawn up for each property on the intervening balance sheet dates in order to review their value. Opinions are obtained at shorter intervals if special facts or circumstances arise that may aff ect value. An external opinion on market value is obtained for real estate in special funds every 12 months starting from the date of fi rst appraisal. For properties that are not rented out, market value is established using the discounted cash fl ow method, taking into account projected vacancy rates. Profi t or loss from the sale of real estate as well as amortisation and any impairments is recognised in profi t or loss.

Maintenance costs and repairs are recognised under "Net investment income". Value-enhancing expenditures that constitute subsequent acquisition or production costs are capitalised and can extend the useful life in certain cases.

The item "Investments in associated companies and joint ventures" encompasses solely those associated companies and joint ventures valued using the equity method on the basis of the proportionate shareholders' equity attributable to the Group. The share of these companies' net income attributable to the Group is included in "Net investment income". Shareholders' equity and net income are taken from the latest available annual fi nancial statements of the associated companies. In this context, allowance is made for special extraordinary circumstances in the relevant reporting period if they are material to the company's assets, fi nancial position or net income. As at each balance sheet date, the Group tests for impairment. In such a case, the diff erence between the carrying amount and the recoverable amount is recognised as an impairment in profi t or loss (under "Income/expense from associated companies and joint ventures").

In accordance with IAS 39 "Financial Instruments: Recognition and Measurement", fi nancial assets and liabilities, including derivative fi nancial instruments, are recognised/derecognised upon acquisition or sale as at the settlement date. When added to the portfolio, fi nancial assets are recognised as one of four items, depending on the respective purpose: "Loans and receivables", "Financial assets held to maturity", "Financial assets available for sale" or "Financial assets at fair value through profi t or loss". Financial liabilities are classifi ed either as fi nancial assets at fair value through profi t or loss or at amortised cost. Depending on categorisation, transaction costs directly connected with acquisition may be recognised.

Subsequent measurement of fi nancial instruments is determined by the above categorisation and is carried out either at amortised cost or at fair value. Amortised cost is calculated at historical cost aft er allowance for amounts repayable, premiums or discounts amortised using the eff ective interest rate method and recognised in income and any impairments or write-ups.

The item "Investments in affi liated companies and participating interests" includes investments in subsidiaries that are not consolidated because of their subordinate importance to the presentation of the Group's assets, fi nancial position and net income as well as other participating interests. Associated companies and joint ventures not measured at equity on account of their subordinate importance are also recognised here. Investments in listed companies are recognised at the fair value prevailing on the balance sheet date. Other investments are measured at cost, less impairments where applicable.

The item "Loans and receivables" consists of non-derivative fi nancial instruments with fi xed or determinable cash fl ows that are not listed on an active market and are not intended to be sold at short notice. They consist primarily of fi xed-income securities in the form of Schuldschein (e.g. debt-certifi cate) loans, registered bonds and mortgage loans. They are measured at amortised cost using the eff ective interest rate method. Individual receivables are tested for impairment as at the balance sheet date. An impairment is recognised if the loan or receivable is no longer expected to be repaid in full or at all (cf. also our remarks in the subsection "Impairment" in this section). Reversals are recognised in profi t or loss. The upper limit of the write-up is the amortised cost that would have resulted on measurement date absent impairments.

The item "Financial assets held to maturity" comprises fi nancial instruments with fi xed or determinable cash fl ows that have a defi ned due date but are not loans or receivables. The Group has the intention and the ability to hold the securities recognised here until maturity. The procedures for measuring and for testing for impairment are the same as for loans and receivables.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

The item "Financial assets available for sale" includes fi xed-income and variable-yield fi nancial instruments that the Group does not immediately intend to sell and that cannot be allocated to any other item. These securities are recognised at fair value. Premiums and discounts are spread over the maturity period using the eff ective interest rate method. Unrealised gains and losses arising out of changes in fair value are recognised under "Other comprehensive income" and shown in shareholders' equity ("Other reserves") aft er allowance for accrued interest, deferred taxes and amounts that life insurers owe policyholders upon realisation (provision for deferred premium refunds).

The item "Financial assets at fair value through profi t or loss" consists of the trading portfolio and those fi nancial instruments that, upon acquisition, are categorised as being recognised at fair value through profi t or loss.

The trading portfolios ("Financial assets held for trading") contain all fi xed-income and variable-yield securities that the Group has acquired for trading purposes with the aim of generating short-term gains. Also recognised under this item are all derivative fi nancial instruments with positive market values, including derivatives embedded in hybrid fi nancial instruments that have to be separated out and derivatives related to insurance contracts, unless they qualify as hedges (hedge accounting under IAS 39). Derivatives with negative market values are recognised under "Other liabilities" (trading liabilities). We use derivative fi nancial instruments prudently in order to hedge parts of our portfolio against interest-rate and market-price risks, to optimise returns and to realise our intentions to buy or sell.

The item "Financial assets classifi ed at fair value through profi t or loss" consists of structured products that are recognised by applying the fair value option of IAS 39. This involves structured fi nancial instruments – whose fair value can be reliably established – that would need to be broken down into their constituent parts (under lying plus one or more embedded derivatives) when being recognised under the items "Loans and receivables", "Financial assets held to maturity" or "Financial assets available for sale". The Group utilises the fair value option only for select parts of the investment portfolio. All securities recognised at fair value through profi t or loss are carried at the fair value as at the balance sheet date. If stock exchange prices are unavailable for determining market value, it is established using recognised measurement methods. Like realised gains and losses, all unrealised gains and losses from this valuation are recognised in profi t or loss (under "Net investment income").

Derivative fi nancial instruments that are designated as hedging instruments in the form of valuation units pursuant to IAS 39 (hedge accounting) are recognised at fair value in connection with initial or subsequent measurement. The method used to recognise gains and losses upon subsequent measurement depends on the type of hedged risk. The Group designates some derivatives as hedges on the fair value of particular assets (fair value hedges) and others as hedges against specifi c risks of fl uctuating cash fl ows associated with a recognised liability or asset or with an anticipated transaction that is highly likely to materialise in the future (cash fl ow hedges). Further information is provided in item 13 in the Notes, "Derivative fi nancial instruments and hedge accounting". These hedging instruments are recognised under "Other assets" or "Other liabilities".

Determination of fair value: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date – e.g. the disposal price. Accordingly, the fair value of a liability depicts the risk of default (e.g. the entity's own credit risk). The fair value of fi nancial instruments is generally determined on the basis of current, publicly available, unadjusted market prices. Where prices are quoted on markets for fi nancial instruments, the bid price is used. Financial liabilities are measured at the asking price as at the balance sheet date. In the case of securities for which no current market price is available, a valuation price is determined on the basis of current and observable market data using established mathematical fi nancial models. Such models are used principally for the measurement of unlisted securities. The following table shows the measurement techniques that were used to determine fair values. Financial assets for which publicly available prices or observable market data are not available (fi nancial instruments in level 3 of the fair value hierarchy) are primarily measured on the basis of proven measurements prepared by independent professional experts, e.g. audited net asset value, that have been previously subjected to systematic plausibility checks.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

N18 MEASUREMENT MODELS FOR DETERMINATION OF FAIR VALUE

Financial instrument	Pricing method	Parameter	Pricing model
Fixed-income securities
Unlisted plain vanilla bonds	Theoretical price	Interest rate curve	Present value method
Unlisted structured bonds	Theoretical price	Interest rate curve, volatility surfaces, correlations	Hull-White, Black-Karasinski, Libor market model, etc.
ABS/MBS for which no market prices are available	Theoretical price	Prepayment speed, incurred losses, default probabilities, recovery rates	Present value method
CDOs/CLOs	Theoretical price	Prepayment speed, risk premiums, default rates, recovery rates, redemptions	Present value method
Equities and funds
Unlisted equities	Theoretical price	Acquisition cost, cash fl ows, EBIT multiples, expert opinions, carrying amount where applicable	NAV method 1)
Unlisted equity, real estate, and annuity funds	Theoretical price	Audited net asset value	NAV method 1)
Other invested assets
Private equity funds/private equity real estate funds	Theoretical price	Audited net asset value	NAV method 1)
Derivative fi nancial instruments
Listed stock options	Listed price	—	—
Equity and index futures	Listed price	—	—
Interest rate and annuities futures	Listed price	—	—
Plain vanilla interest rate swaps	Theoretical price	Interest rate curve	Present value method
Currency forwards	Theoretical price	Interest rate curve, spot and forward rates	Interest parity model
OTC stock options, OTC stock index options	Theoretical price	Listing of the underlying share, implicit volatilities, money-market interest rate, dividend yield	Black-Scholes
FX options	Theoretical price	Spot rates, exchange rates, implicit volatilities	Garman/Kohlhagen
Interest rate futures (forward purchases)	Theoretical price	Interest rate curve	Present value method
Infl ation swaps	Theoretical price	Infl ation swap rates (Consumer Price Index), historical index fi xings, interest rate curve	Present value method with seasonality adjustment
Swaptions	Theoretical price	Interest rate curve, implicit volatilities	Black76
Credit default swaps	Theoretical price	Interest rate curve, recovery rates	ISDA model
Insurance derivatives	Theoretical price	Market values of CAT bonds, interest rate curve	Present value method
Other
Real estate	Theoretical value	Location, year of construction, rental space, type of use, term of leases, amount of rent	Expanded discounted cash fl ow method
1) NAV: net asset value

The Group allocates all fi nancial instruments measured at fair value as well as assets/fi nancial liabilities not measured at fair value (e.g. loans and receivables, fi nancial instruments held to maturity, subordinated liabilities, notes payable and loans) – whose fair values are required to be published in the Notes – to a fair value hierarchy level of IFRS 13. For further explanation, cf. our remarks in item 12 in the Notes, "Fair value hierarchy".

Impairment: As at each balance sheet date, we test our fi nancial instruments – with the exception of fi nancial assets recognised at fair value through profi t or loss (since impairments are implicitly included in fair value) – for the presence of objective, substantial evidence of impairment. IAS 39.59 contains a list of objective evidence indicating that a fi nancial asset is impaired. In addition, IAS 39.61 provides that a signifi cant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

For the Group, a decline in the fair value of an equity instrument is signifi cant if such value falls by more than 20% below the instrument's cost. A decline is prolonged if the fair value is below cost for a period of at least nine months. In the case of securities denominated in foreign currencies, the assessment is made in the functional currency of the company that holds the equity instrument. We apply these rules in a similar manner for participating interests in funds that invest in private equity. In order to account for the specifi c character of these funds (in this case, initially negative trends in yield and liquidity as a result of the so-called "J curve" eff ect during the investment period of the funds), we take an impairment to net asset value as an approximation of market value only aft er a twoyear waiting period where there has been a signifi cant or prolonged decline in value.

Indicators for determining whether fi xed-income securities are impaired include fi nancial diffi culties being experienced by the issuer/debtor, failure to receive or pay interest income or capital gains and the likelihood that the issuer/debtor will initiate bankruptcy proceedings. In so doing, a case-by-case analysis is carried out. In making the determination, we factor in fi rst and foremost the rating of the security, the rating of the issuer or borrower and a specifi c market assessment. Moreover, with securities measured at amortised cost, we test whether material items – looked at on their own – are impaired.

In the event of a prolonged decline in value, impairments are taken on the fair value as at the balance sheet date – if available, on the published exchange price – and expensed in profi t or loss. In this context, we generally deduct impairments on investments from the relevant items on the assets side without using an impairment account. Reversals on debt instruments are recognised in profi t or loss up to the amount of amortised cost. In the case of fi nancial assets available for sale, any excess amount is recognised under "Other comprehensive income" and shown in "Other reserves". Reversals on equity instruments, on the other hand, are recognised without impacting income in shareholders' equity through "Other comprehensive income".

Financial assets and liabilities are netted out and recognised in the net amount only if a corresponding legal claim exists (reciprocity, similarity and maturity of the liability) or has contractually been expressly agreed upon, i.e. if we intend to off set such items on a net basis or simultaneously bring about such an off set.

Securities loaned as part of securities lending continue to be carried in the balance sheet, since the material opportunities and risks resulting from such securities still remain within the Group.

In connection with genuine securities repurchase transactions (repo transactions), the Group sells securities with a simultaneous obligation to redeem them at a later date and at a fi xed price. Since the material risks and opportunities associated with the fi nancial assets remain within the Group, we continue to recognise these investments. We recognise the redemption obligation under "Other liabilities" in the amount of the payment received. The diff erence between the amount received for the transfer and that agreed to for retransfer is allocated in accordance with the eff ective interest rate method for the term of the repurchase transaction and recognised in profi t or loss (under "Net investment income").

Other fi nancial instruments are recognised primarily at fair value. The remarks on "Financial assets available for sale" apply correspondingly. Where these are not listed on public markets (e.g. participating interests in private equity fi rms), they are recognised at the latest available net asset value as an approximation of market value. Loans included in this item are recognised at amortised cost.

Investments under investment contracts

Investment contracts that do not provide for discretionary surplus participation are recognised as fi nancial instruments pursuant to IAS 39. In this connection, deposit liabilities in the amount of the relevant fi nancial instruments are reported instead of premiums. Financial assets arising from investment contracts are reported in "Investments" under a separate item, "Investments under investment contracts", while fi nancial liabilities (e.g. investment contracts with policyholders) are recognised under the liability item "Other liabilities". Our remarks on the recognition of fi nancial assets and liabilities (cf. above) apply correspondingly. The impact on earnings resulting from these contracts (e.g. fl uctuations in the value of fi nancial assets or liabilities) and the fees collected from asset management activities less the relevant administrative expenses are presented as a separate item in "Net investment income" under "Income/expense from investment contracts". The resulting cash fl ows are reported in the cash fl ow statement under "Cash fl ows from operating activities".

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

Funds withheld by ceding companies, funds withheld under reinsurance treaties and contracts without suffi cient technical risk

The item "Funds withheld by ceding companies" consists of receivables due under reinsurance provided to our clients in the amount of the cash deposits contractually withheld by such clients. The item "Funds withheld under reinsurance treaties" (shown under liabilities) represents cash deposits furnished to us by our retrocessionaires. Neither of these types of deposit triggers any cash fl ows, and the funds cannot be used without the consent of the other party. The durations of these deposits are matched to the corresponding provisions. Funds withheld by ceding companies and funds withheld under reinsurance treaties are recognised at cost (nominal amount). Appropriate allowance is made for credit risks.

Insurance contracts that satisfy the test of a signifi cant risk transfer to the reinsurer as required by IFRS 4 but fail to meet the test of risk transfer required by US GAAP are recognised using the deposit accounting method and eliminated from the technical account. The compensation paid for risk assumption under these contracts is recognised in profi t or loss (under "Other income/expenses").

Investments for the account and risk of holders of life insurance policies

This item consists of policyholders' investments under unit-linked life insurance contracts. The insurance benefi ts under these policies are linked to the unit prices of investment funds or to a portfolio of separate fi nancial instruments. The assets are kept and invested separately from other invested assets. They are recognised at market value. Unrealised gains or losses are off set by changes in technical provisions. Policyholders are entitled to generated profi ts and are likewise liable for incurred losses.

Reinsurance recoverables on technical provisions

Under this item, reinsurance recoverables on technical provisions are generally calculated according to the contractual conditions from the gross technical provisions. Appropriate allowance is made for credit risks.

Receivables

Receivables are recognised under "Accounts receivable on insurance business" and "Other receivables" at nominal value. Where necessary, impairments are taken on an individual basis. We use impairment accounts for impairments on accounts receivable from the insurance business. In all other cases, the underlying assets are written down directly.

Deferred acquisition costs

Commissions and other costs that are closely connected with the renewal or conclusion of contracts and thus are variable in relation to the acquired new business are recognised under "Deferred acquisition costs". Deferred acquisition costs are regularly tested for impairment using an adequacy test. The actuarial bases are also subject to ongoing review and, where necessary, adjustment.

In the case of primary property/casualty insurance companies and Non-Life Reinsurance, acquisition costs are normally deferred pro rata for the unearned portion of the premium. They are amortised at a constant rate over the average contract period. With short-duration contracts, premiums are amortised as they are collected, in accordance with time-based amortisation of unearned premium. In the area of primary life insurance, including Life/Health Reinsurance, deferred acquisition costs are determined in light of the contract duration anticipated surrenders, lapse expectations and anticipated interest income. The amount of amortisation generally depends on the gross margins for the respective contracts that were calculated for the corresponding year of the contract duration. Depending on the type of contract, amortisation is taken in proportion either to premium income or to anticipated profi t margins.

In the case of life/health reinsurance contracts classifi ed as "universal life-type contracts", deferred acquisition costs are amortised on the basis of the anticipated profi t margins for the reinsurance contracts, making allowance for the duration of the insurance contracts. A discount rate based on the interest rate for mediumterm government bonds is applied to such contracts. In the case of annuity contracts with a single premium payment, these values refer to the anticipated contract period or period of annuity payment.

Deferred tax assets

IAS 12 "Income Taxes" requires that deferred tax assets be recognised if, in the consolidated balance sheet, asset items are to be recognised at a lower amount or liability items at a higher amount than in the tax balance sheet of the relevant Group company and where these temporary diff erences lead to reduced tax burdens in future. Such valuation diff erences may in principle arise between tax balance sheets drawn up in accordance with national standards and the IFRS balance sheets of the companies included in the consolidated fi nancial statements drawn up in accordance with uniform Group

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

standards as well as a result of consolidation processes. Also recognised under this item are deferred tax assets for tax credits and on tax loss carry-forwards. The assessment as to whether deferred tax claims from tax loss carry-forwards can be used, e.g. are not impaired, is guided by the company's earnings forecast and specifi c tax strategies that can realistically be achieved. Impairments are taken for impaired deferred tax assets.

Insofar as they relate to items recognised in shareholders' equity through "Other comprehensive income", the resulting deferred taxes are also recognised under "Other comprehensive income". Deferred taxes are based on current country-specifi c tax rates. In the event of a change in the tax rates on which the calculation of deferred taxes is based, appropriate allowance is made in the year in which such change comes into law. Deferred taxes at the Group level are generally booked using the Group tax rate of 31.6%, unless they can be allocated to specifi c companies.

Deferred tax assets are set off against deferred tax liabilities if there is a legally enforceable right to off set actual tax refund claims against actual tax liabilities. The prerequisite for this is that deferred tax claims and deferred tax liabilities relate to income taxes assessed by the same tax offi ce for either (i) the same tax subject or (ii) different tax subjects. In so doing, the aim must be either to net out the actual tax liabilities and refund claims or to recover the claims and settle the liabilities simultaneously in every future period in which it is expected that considerable amounts will be available to settle tax liabilities and recover tax claims. When recognising deferred tax assets and deferred tax liabilities in the consolidated balance sheet, no distinction is made between whether they are short term or long term.

Taxes on income: Tax expenditures consist of the actual taxes imposed on the results of Group companies to which local tax rates are applied as well as changes in deferred tax assets and deferred tax liabilities. Expenses for and income from interest and penalties payable to the tax authorities are shown under "Other income/ expenses".

Other assets

Receivables included under "Other assets" are generally recognised at nominal value, less impairments where required. Derivatives used as hedging instruments in connection with valuation units (hedge accounting) are recognised at fair value, provided they have a positive market value. Property, plant and equipment are recognised at acquisition or production cost less straight-line depreciation. The useful life for own-use real estate is at most 50 years. The useful life for operating and offi ce equipment is normally between two and 10 years. The same statements made about the presentation of investment property generally apply to the measurement and testing of impairment for own-use real estate. Impairments are spread across the technical functional areas or recognised under "Other income/expenses".

Cash

Cash is recognised at its nominal value.

Disposal groups pursuant to IFRS 5

Non-current assets held for sale (or groups of assets and liabilities held for sale) are classifi ed as held for sale pursuant to IFRS 5 if their carrying amount is realised largely through sale rather than through continued operational use. Sale must be highly probable. These assets are measured at the lower of carrying amount and fair value less cost to sell and are recognised separately in the balance sheet as assets or liabilities. Scheduled depreciation is recognised until the date of classifi cation as held for sale. Impairments on fair value less cost to sell are to be recognised in profi t or loss. Any subsequent increase in fair value less cost to sell leads to the realisation of gains up to the amount of the cumulative impairment expense. If the impairment for a disposal group exceeds the carrying amount of the corresponding non-current assets, the need to establish a provision within the meaning of IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" is examined. For more detailed information, cf. section "Non-current assets held for sale and disposal groups".

CASH FLOW STATEMENT

The cash fl ow statement is presented using the indirect method for cash fl ows from operating activities. Liquid funds are limited to cash and cash equivalents and correspond to the balance sheet item "Cash". The eff ects of exchange rate diff erences on cash and cash equivalents and the infl uence of changes in the scope of consolidation are reported separately in the cash fl ow statement. The acquisition of new subsidiaries is shown in the line "Cash outfl ow from the purchase of consolidated companies". The sum of purchase prices paid less acquired cash and cash equivalents is recognised here.

LIABILITIES

Shareholders' equity

Shareholders' equity consists of common shares, additional paid-in capital, retained earnings and other reserves. Common shares and additional paid-in capital comprise the amounts paid in for shares by shareholders of Talanx AG. Costs directly associated with the issuance of new shares are recognised in additional paid-in capital, net of taxes, as a deduction from issue proceeds.

In addition to allocations from net income, retained earnings consist of reinvested profi ts that Group companies, consolidated special purpose entities and consolidated special funds have generated while belonging to the Group. In addition, in the event of a retrospective

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

NOTES 149 General information

153 Accounting policies

149 General accounting principles and application of International Financial Reporting Standards

172 Segment reporting

change in accounting policies, an adjustment for previous periods is made to the opening balance sheet value for retained earnings and comparable items of the earliest reported period.

Other reserves: Unrealised gains and losses from changes in the fair value of fi nancial assets available for sale are recognised under "Unrealised gains/losses on investments". Diff erences resulting from the currency translation of foreign subsidiaries as well as unrealised gains and losses from the valuation of associated companies at equity are also recognised under "Other reserves". In addition, write-ups on variable-yield securities available for sale are recognised under this item in shareholders' equity. In the year under review, various derivatives were used as hedging instruments in connection with cash fl ow hedges. The eff ective portion of fl uctuations in the value of these derivatives is recognised in a separate reserve item in shareholders' equity.

The share of net income attributable to non-controlling interests is shown in the consolidated statement of income. Based on this, the shares of non-controlling interests in shareholders' equity are recognised as a separate component of shareholders' equity. This refers to interests in the shareholders' equity of subsidiaries that are held by parties outside the Group.

Subordinated liabilities

The item "Subordinated liabilities" consists of fi nancial obligations that, in the event of liquidation or bankruptcy, are satisfi ed only aft er the claims of other creditors. These fi nancial obligations are recognised at amortised cost using the eff ective interest rate method.

Technical provisions (gross)

Technical provisions are shown in the balance sheet in their gross amount, e.g. before deduction of the portion attributable to reinsurers. The reinsurers' portion of technical provisions is calculated and recognised on the basis of the individual reinsurance contracts. Measurement of technical provisions is based on US GAAP (SFAS 60, SFAS 97 and SFAS 120).

In the case of short-duration insurance contracts, those portions of premiums already collected that are apportionable to future risk periods are deferred on an accrual basis and recognised under "Unearned premium reserves". These premiums are recognised as earned – and thus as income – over the duration of the insurance contracts in proportion to the amount of insurance cover provided or as they fall due. With insurance contracts, this premium income is generally deferred to a specifi c date (predominantly in primary insurance). In the reinsurance business, assumptions are made if the data required for an accrual calculation is unavailable. Unearned premiums also include amounts charged when certain long-duration contracts are concluded (e.g. payment protection insurance). Unearned premiums correspond to the insurance cover to be granted in future periods. Short-duration insurance business consists primarily of Non-Life Reinsurance and primary property/ casualty insurance.

The benefi t reserve, which covers commitments arising out of guaranteed claims of policyholders under life primary insurance policies and of cedants in Life/Health Reinsurance, is calculated and recognised in life insurance business using actuarial methods. It is calculated as the diff erence between the present value of future expected payments to policyholders and cedants and the present value of future expected net premiums still to be collected from policyholders and cedants. The calculation includes assumptions relating to mortality and morbidity as well as to lapse rates and interest rate trends. The actuarial bases used in this context allow for an adequate safety margin for the risks of change, error and random fl uctuation.

In the case of life insurance contracts that do not provide for surplus participation, the method draws on assumptions as to the best estimate of investment income, life expectancy and morbidity risk, allowing for a risk margin. These assumptions are based on customer and industry data. In the case of life insurance contracts that provide for surplus participation, assumptions are used that are contractually guaranteed or based on the determination of the surplus participation.

The measurement of the benefi t reserve depends on the respective product category. Accordingly, life insurance products must be divided into the following categories:

In the case of life insurance contracts with "natural" surplus participation (SFAS 120 in conjunction with SOP 95-1 [Statement of Principles]), the benefi t reserve is composed of the net level premium reserve and a reserve for terminal bonuses. The net level premium reserve is calculated based on the present value of future insurance benefi ts (including earned bonuses, but excluding loss adjustment expenses) less the present value of the future premium reserve. The premium reserve is calculated as net premium less the portion of premium earmarked to cover loss adjustment expenses. The reserve for terminal bonuses is generally created from a fi xed portion of the gross profi t generated in the fi nancial year from the insurance portfolio.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

In the case of life insurance contracts that do not provide for surplus participation (SFAS 60), the benefi t reserve is calculated as the diff erence between the present value of future benefi ts and the present value of future net level premium. Net level premium corresponds to the portion of gross premium used to fund future insurance benefi ts.

In the case of primary life insurance contracts classifi ed according to the "universal life" model, unit-linked life insurance contracts, or similar life reinsurance contracts (SFAS 97), a separate account is kept to which premium payments are credited less costs and plus interest. In the life insurance fi eld, we recognise benefi t reserves separately in item D of "Liabilities", insofar as the investment risk is borne by policyholders.

The loss and loss adjustment expense reserve is created for payment obligations relating to primary insurance and reinsurance claims that have occurred but have not yet been settled. They are subdivided into reserves for claims that have been reported as at the balance sheet date and reserves for claims that have been incurred but not yet reported as at the balance sheet date (IBNR reserve).

The loss and loss adjustment expense reserve is generally calculated on the basis of recognised actuarial methods. These are used to estimate future claims expenditures, including expenses associated with loss adjustment, provided no estimates for individual cases need to be taken into account (as regards estimates for individual cases, cf. our remarks in the subsection "Catastrophe losses and major claims"). The reserve is recognised according to best-estimate principles in the amount likely to be utilised. Receivables arising from recourse actions, claims to insured objects or loss allocation agreements are taken into account when making the best estimate. In order to assess ultimate liability, anticipated ultimate loss ratios are calculated for all lines of non-life reinsurance as well as primary casualty insurance with the aid of actuarial methods such as the chain ladder method. In making the calculation, the development of a claim until completion of the run-off is projected on the basis of statistical triangles. It is generally assumed that the future rate of infl ation of the loss run-off will be analogous to the average rate of past infl ation contained in the data. More recent underwriting years and occurrence years are subject to greater uncertainty in actuarial projections, although this is reduced with the aid of a variety of additional information. Particularly in reinsurance business, but also in liability lines, a considerable period of time may elapse between the occurrence of an insured loss, notifi cation by the primary insurer and pro rata payment of the loss by the reinsurer. Therefore, the realistically estimated future settlement amount (best estimate) is recognised, which is generally calculated on the basis of information provided by cedants. This estimate draws on past experience and assumptions as to future developments, taking account of market information. The amount of provisions and their allocation to occurrence years are determined using recognised forecasting methods of non-life actuarial principles. In this regard, provisions for the assumed insurance business are generally created in accordance with the data provided by prior insurers (in the case of Group business) or on the basis of actuarial analyses (in the case of non-Group business).

Because settlement of major losses depends on the given case, there is oft en insuffi cient statistical data available here. In these instances, appropriate reserves are created aft er analysing the portfolio exposed to such risks and, where appropriate, aft er individual scrutiny. These reserves represent the Group's best estimates. In addition, an individually determined reserve is created for a portion of known insurance claims. These estimates, which are based on facts that were known at the time the reserve was created, are made on a case-by-case basis by employees entrusted with loss adjustment and take into account general principles of insurance practice, the loss situation and the agreed upon scope of coverage. Reserves are regularly remeasured when warranted by new fi ndings.

With the exception of a few partial reserves, such as pension benefi t reserves, the loss and loss adjustment expense reserve is generally not discounted.

With regard to life insurance, the provision for premium refunds is created for obligations that relate to surplus participation by policyholders that have not yet been defi nitively allocated to individual insurance contracts as at the balance sheet date. It consists of amounts allocated to policyholders in accordance with national regulations or contractual provisions and amounts resulting from temporary diff erences between the consolidated fi nancial statement under IFRS and local annual fi nancial statements (provision for deferred premium refunds, shadow provision for premium refunds) that will have a bearing on future calculations of surplus participation. For German life insurers in particular, the applicable regulatory requirements of the German Insurance Supervision Act (VAG) and the German Regulation on the Minimum Refund in Life Insurance (Minimum Allocation Regulation) need to be observed.

At least once a year, we subject all technical provisions to an adequacy test in accordance with IFRS 4. If current experience indicates that future income will not cover anticipated expenses, technical provisions are adjusted as an expense or an additional provision is established for anticipated losses aft er writing off deferred acquisition costs. We perform the adequacy test for the unearned premium reserve and the loss and loss adjustment expense reserve on the basis of the realistically estimated future settlement amount. In so doing, the calculation is generally based on each line's business model and takes into account future modifi cations of terms and conditions, reinsurance cover and, where appropriate, the control

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS 142 Balance sheet

144 Statement of income

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

over the profi tability of individual contractual relationships. Capital gains are not included in this calculation. We test the adequacy of the benefi t reserve on the basis of current assumptions as to the actuarial bases, including pro rata net investment income and (where relevant) future surplus participations.

Shadow accounting

IFRS 4.30 allows recognised but unrealised gains and losses (deriving predominantly from changes in the fair value of assets in the category "available for sale") that are recognised under "Other comprehensive income" (in "Other reserves") to be included in the measurement of technical items. This approach is applied so that unrealised gains and losses are treated the same way as realised gains and losses. This may aff ect deferred acquisition costs, PVFP, provisions for terminal bonuses for policyholders, provisions for deferred costs and the provision for premium refunds. The aforementioned asset and liability items and their corresponding amortisation patterns are determined on the basis of estimated gross margins (EGMs), which are modifi ed accordingly following subsequent recognition of unrealised gains and losses. The resulting adjustments are recognised as so-called shadow adjustments of the aff ected items. The counterpart is shown under "Other comprehensive income" analogously to the under lying changes in value.

Technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders

In the case of life insurance products under which policyholders bear the investment risk themselves (e.g. in unit-linked life insurance contracts), the benefi t reserve and other technical provisions refl ect the market value of the corresponding investments. These provisions are shown separately. Cf. our remarks on the asset item "Investments for the account and risk of holders of life insurance policies", page 165.

Other provisions

This item includes provisions for pensions and other post-employment benefi ts. In general, Group companies make pension commitments to their employees based on defi ned contributions or defi ned benefi ts. The type and amount of pension commitments depend on the pension plan in eff ect at the time the commitment was made. They are based principally on length of service and salary level. In addition to these pension plans, executive staff and members of the Board of Management, in particular, enjoy individual commitments as well as commitments provided for under the benefi t plan of the Bochumer Verband.

In addition, various German companies have long off ered the opportunity to obtain pension commitments through deferred compensation. The employee-funded commitments included in the provisions for accrued pension rights are reinsured under insurance contracts with various insurance companies, mainly within the Group. Furthermore, Group employees have the opportunity to make additional provision for retirement through direct life insurance policies, variously structured pension funds or payment of deferred compensation to reinsured provident funds.

In the case of pension commitments based on defi ned contributions, companies pay a fi xed amount to an external pension fund. The company's liability is fully discharged upon payment of the contribution. In the case of pension commitments based on defi ned benefi ts, the employee receives a specifi c pension commitment from the company or a pension fund. The contributions payable by the company to fund the commitment are not fi xed in advance. In addition to the company under an obligation to make the contribution, the PENSIONS-SICHERUNGS-VEREIN Versicherungsverein auf Gegenseitigkeit a. G. is liable for fulfi lling pension commitments in accordance with its articles of association.

If pension liabilities are balanced against assets of a legally independent entity (e.g. a fund or benefi t commitments covered by external assets) that may be used solely to cover the pension assurances given and cannot be seized by any creditors, such pension liabilities are to be recognised less such assets. If the fair value of such assets exceeds the associated pension liabilities, the net amount is recognised under "Other accounts receivable", as adjusted for eff ects from the asset ceiling.

Liabilities under defi ned benefi t pension plans are calculated separately for each plan according to actuarial principles. In so doing, pension liabilities are measured in accordance with IAS 19 "Employee Benefi ts" using the projected unit credit method. Benefi t entitlements and current pension payments existing as at the balance sheet date are measured with allowance being made for their future development. They are calculated in accordance with actuarial principles and take into consideration length of service and the estimated rate at which employee salaries will increase. The interest rate used for discounting pension liabilities is based on the rates applicable to senior corporate bonds in accordance with the currency and duration of the pension liabilities. Recognition of liability for post-employment benefi ts is based on opinions obtained from qualifi ed actuaries prior to the balance sheet date. The results of these measurements are updated as at the balance sheet date in order to account for material transactions and changes in parameters. Changes in the present value of liabilities through interest rate changes are calculated on the basis of sensitivity analyses by means of rescaling, including where such changes are immaterial.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

The amounts payable under defi ned contribution plans are expensed when they become due.

The cost components resulting from changes to defi ned benefi t plans are recognised in profi t or loss for the period, insofar as they relate to service costs and net interest on the net liability. Past service costs resulting from plan amendments or curtailments as well as gains and losses from plan settlements are recognised in profi t or loss at time they occur. All remeasurement eff ects are recognised in "Other comprehensive income" and shown in shareholders' equity. Remeasurement of pension liabilities covers actuarial gains or losses from gross pension liabilities and the diff erence between the yield on plan assets actually realised and the actuarial interest income from plan assets. Moreover, where plans have a surplus, the remeasurement components include the diff erence between the interest rate on the eff ect of the asset ceiling and the total changes in net assets from the eff ect of the asset ceiling. Actuarial gains and losses derive from deviations between estimated claims experience and actual claims experience (irregularities in claims experience as well as eff ects of changes in the calculation parameters, including the eff ect of changes on the discount rate).

Liabilities from partial retirement are recognised at their present value in accordance with actuarial principles. Under the so-called block model, a reserve for settlement arrearages is created during the working phase in the amount of the uncompensated portion of the work rendered. Supplemental benefi ts are accumulated pro rata until the end of the employee's working phase. During periods in which the employee is paid in accordance with the partial retirement rules without having to work, the liability item is disposed. In calculating the net liability, the fair value of the plan assets is deducted from the liability from partial retirement.

Sundry provisions, including tax provisions, are established in the amount that is likely to be used, based on best estimates. This presupposes that the Group currently has a de jure or de facto obligation arising out of a past event, that a claim is likely with respect to such obligation, and that the amount of such obligation can be reliably determined.

Restructuring provisions are recognised where a detailed, formal restructuring plan is in place and has begun to be implemented or where key restructuring details have been published. These provisions mainly comprise payments for the premature termination of leases, severance payments for employees and consulting services related directly to the dismantling of obsolete structures. Expenses related to future business activities (e.g. relocation costs) are not taken into account in the creation of restructuring reserves.

Sundry provisions are discounted if the interest rate eff ect is of material signifi cance. The carrying amount of the provisions is reviewed as at each balance sheet date.

Liabilities

Financial liabilities, including "Notes payable and loans", are recognised at amortised cost, provided they do not involve liabilities from derivatives or liabilities under investment contracts at fair value through profi t or loss.

Liabilities from derivatives are measured at fair value (for information about the valuation techniques used within the Group, cf. the subsection "Investments including income and expenses"). In addition, derivatives used as hedging instruments in connection with hedge accounting are recognised under "Other liabilities". For further information in this regard, cf. our remarks in item 13 in the Notes, "Derivative fi nancial instruments and hedge accounting". With regard to written put options for non-controlling interests, the Group recognises a liability at the present value of the repurchase amount for the interests. It is booked against the interest of non-controlling shareholders in shareholders' equity. Eff ects from subsequent measurement are recognised as income or expenses under "Other income/expenses". The compounding of these fi nancial liabilities is recognised under "Financing costs".

The fair value of investment contracts is generally calculated using repurchase values for policyholders and their account balances. In addition, the Group uses the fair value option for a select portion of the portfolio in order to eliminate or signifi cantly reduce accounting mismatches relating to assets from investment contracts that cover liabilities. The impact on earnings resulting from the measurement of these liabilities is recognised under "Income/expense from investment contracts".

Share-based remuneration

Share-based remuneration is settled in the Group exclusively in cash. Liabilities for compensation plans to be settled in cash are determined at fair value as at every balance sheet date and as at the settlement date. The fair value of each of these plans is recognised as an expense and distributed over the vesting period. Thereaft er, any change in the fair value of plans that have not yet been exercised is recognised in the statement of income.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

Deferred tax liabilities: IAS 12 "Income Taxes" requires that deferred tax liabilities be recognised if, in the consolidated balance sheet, asset items are to be recognised at a higher amount or liability items at a lower amount than in the tax balance sheet of the relevant Group company, where these temporary diff erences lead to increased tax burdens in future. Cf. our remarks on "Deferred tax assets". Deferred tax liabilities may not be recognised when goodwill is fi rst recognised.

TECHNICAL PERFORMANCE DATA

The Group considers premiums, claims and claims expenses and acquisition costs and administrative expenses to be relevant both gross and net, e.g. aft er taking into account reinsurance items. Premiums can be subdivided into written premium and premium earned.

Premiums: The amount that the insurer declared due during the fi nancial year is recognised under written premium, either once or on a continual basis, in exchange for providing insurance coverage. Premium also includes instalment payment surcharges, ancillary payments and cash payments for assumed portions of technical provisions (portfolio accessions). With regard to life insurance contracts that are recognised in accordance with the principles of SFAS 97, only premiums paid by customers for risk assumption and ongoing costs are recognised. Also recognised under this item are payments received for premium receivables that lapsed or were written down in prior years as well as income resulting from the release or reduction of one-time or general impairments on accounts receivables from policyholders. Increases in one-time or general impairments are deducted from written premium.

Deduction of ceded written premium results in net written premium.

Premiums for insurance contracts are recognised as earned – and thus as income – over the duration of the contracts in proportion to the amount of insurance cover provided or as they fall due. Premium earned consists of the portion of written premium that is to be deferred in accordance with the terms of the insurance contracts. Savings elements under life insurance contracts are deducted from premium earned. In this respect, cf. our remarks under "Unearned premium reserve".

The item "Claims and claims expenses" includes claims paid during the fi nancial year as well as claims paid during prior years (including terminal bonuses in life insurance). It also includes changes in the loss and loss adjustment expense reserve and changes in the benefi t reserve. Also recognised under this item are expenses for premium refunds. These consist of direct credits from the allocation to the provision for premium refunds in accordance with the German Commercial Code (HGB) as well as changes to the provision for deferred premium refunds that are recognised as an expense, including amortisation of PVFP in favour of policyholders. Cf. our remarks on the corresponding technical liability items.

The item "Acquisition costs" essentially consists of commissions to individuals and organisations entrusted with the sale of insurance products, reinsurance commissions and changes in deferred acquisition costs and in reserves for commissions. Also recognised here are other cost elements that are closely related to the acquisition of new insurance contracts and to the extension of existing insurance contracts, such as costs for health examinations. The item "Administrative expenses" primarily consists of expenses for contract management, such as collection of premiums when due. Recognised here are all costs directly attributable to this functional area, including personnel costs, write-off s and rents.

CURRENCY TRANSLATION

Items in the fi nancial statements of Group companies are measured on the basis of the currency corresponding to that of the primary economic environment in which the company operates (functional currency). The consolidated fi nancial statements are prepared in euros, which is the parent company's functional currency.

Transactions in foreign currencies are generally converted into the functional currency using exchange rates prevailing on the transaction date. In accordance with IAS 21 "The Eff ects of Changes in Foreign Exchange Rates", the recognition of exchange rate gains and losses on translation depends on the nature of the underlying balance sheet item.

Gains and losses from the translation of monetary assets and liabilities existing in foreign currencies are recognised in the statement of income under "Other income or expenses" in "Other income/ expenses".

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance

contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

Currency translation diff erences relating to non-monetary assets, changes of the fair values of which are carried in income, are recognised with the latter as profi t or loss from fair value measurement changes. Exchange rate gains or losses from non-monetary items, such as equities classifi ed as available for sale, are initially recognised under "Other comprehensive income" and subsequently reallocated to profi t or loss when such an instrument is sold or in the event of impairment.

The Group companies' statements of income prepared in national currencies are converted into euro at the average rates of exchange and transferred to the consolidated fi nancial statement. The conversion of foreign currency items in the balance sheets of the individual companies and the transfer of these items to the consolidated fi nancial statement are eff ected at the mean rates of exchange as at the balance sheet date. All resulting currency translation diff erences – including those arising out of capital consolidation – are recognised under "Other comprehensive income" and shown in the reserve for currency translation in shareholders' equity. Currency translation diff erences resulting from long-term loans or open-ended loans to a foreign business operation whose repayment is neither planned nor likely are also recognised under "Other comprehensive income" and shown in the reserve for currency translation in shareholders' equi ty. Goodwill arising from the acquisition of a foreign company is treated as an asset of the foreign entity and translated as at the balance sheet date.

1 EUR corresponds to		Balance sheet (balance sheet date)		Statement of income (average)
		2013	2012	2013	2012
AUD	Australia	1.5513	1.2690	1.3842	1.2465
BRL	Brazil	3.2095	2.6942	2.8727	2.5243
CHF	Switzerland	1.2264	1.2081	1.2273	1.2054
CNY	China	8.3445	8.2148	8.1738	8.1475
GBP	United Kingdom	0.8357	0.8180	0.8480	0.8136
	MXN Mexico	17.9831	17.1341	17.1102	17.0258
PLN	Poland	4.1502	4.0776	4.2026	4.1922
USD	USA	1.3766	1.3182	1.3293	1.2932
ZAR	South Africa	14.4390	11.2069	12.8556	10.5674

N19 EXCHANGE RATES FOR OUR KEY FOREIGN CURRENCIES

SEGMENT REPORTING

IDENTIFICATION OF REPORTABLE SEGMENTS

In conformity with IFRS 8 "Operating Segments", the reportable segments were determined in accordance with the internal reporting and management structure of the Group, on the basis of which the Group Board of Management regularly assesses the performance of the segments and decides on the allocation of resources to the segments. The Group splits its business activities into the areas of insurance and Corporate Operations. Insurance activities are further subdivided into fi ve reportable segments. In view of the diff erent product types, risks and capital allocations, a diff erentiation is initially made between primary insurance and reinsurance.

Since they are managed according to customer groups and geographical regions (domestic versus international) – and therefore span various lines of business – insurance activities in the primary sector are organised into three reportable segments: "Industrial Lines", "Retail Germany" and "Retail International". This segmentation also corresponds to the responsibilities of the members of the Board of Management.

Reinsurance business is handled solely by the Hannover Re Group and is divided into the two segments Non-Life Reinsurance and Life/Health Reinsurance in accordance with that group's internal reporting system. In a departure from the segmentation used in the consolidated fi nancial statements of Hannover Rück SE, however, we allocate that group's holding functions to its Non-Life Reinsurance segment. By contrast, cross-segment loans within the Hannover Re Group are allocated to the two reinsurance segments in the consolidated fi nancial statements of the Talanx Group (in the consolidated fi nancial statements of Hannover Rück SE, these loans are shown in the consolidation column). Deviations between the segment results for reinsurance business as presented in the consolidated fi nancial statements of Talanx AG and reported in the fi nancial statements of Hannover Rück SE are thus unavoidable.

The major products and services from which these reportable segments generate income are set out below.

Industrial Lines: In the Industrial Lines segment we report worldwide industrial business as an independent segment. The scope of business operations encompasses a wide selection of insurance products such as liability, motor, accident, fi re, property, legal protection, marine, special lines and engineering insurance for large and mid-sized enterprises in Germany and abroad. In addition, reinsurance is provided in various classes of insurance.

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies 172 Segment reporting

Retail Germany: Insurance activities serving German retail and commercial customers that span the various lines of business, including bancassurance business transacted Germany-wide – e.g. insurance products sold over the counter at banks – are managed in this reportable segment. In the area of life insurance, this segment provides insurance services across the border in Austria too. The products range from property/casualty insurance through all segments of life insurance and occupational pension insurance to all-round solutions for small and medium-sized companies and freelancers. The Group employs a wide range of sales channels, including its own exclusivity organisation as well as sales through independent brokers and multiple agents, direct sales and bank cooperations.

Retail International: The scope of operations in this segment encompasses insurance business transacted across the various lines of insurance with retail and commercial customers, including banc assurance activities in foreign markets. The range of insurance products includes motor insurance, property and casualty insurance, and marine and fi re insurance as well as many products in the fi eld of life insurance. A large part of international business is transacted by brokers and agents. Additionally, many companies in this segment use post offi ces and banks as sales channels.

Non-life reinsurance*: The most important activities are property and liability business with retail, commercial and industrial customers (fi rst and foremost in the US and German markets), marine and aviation business, credit/surety business, structured reinsurance, and facultative and NatCat business.

Life/health reinsurance*: The segment comprises the international activities of the Hannover Re Group in all lines of life/health insurance. The Group also has speciality line products such as Shariacompliant reinsurance.

Corporate Operations: In contrast to the fi ve operating segments, the Corporate Operations segment encompasses management and other functional activities that support the business conducted by the Group, primarily relating to asset management and, in the primary insurance sector, the run-off and placement of portions of reinsurance cessions, including intra-group reinsurance as well as Group fi nancing. Asset management for private and institutional investors outside the Group by Ampega Investment GmbH, Cologne, is also shown in this segment. This segment includes centralised service companies that provide specifi c billable services – such as IT, collection, personnel and accounting services – mainly to the Group's primary insurers based in Germany.

MEASUREMENT BASES FOR THE PERFORMANCE OF THE REPORTABLE SEGMENTS

All transactions between reportable segments are measured on the basis of standard market transfer prices that would also be applicable to transactions at arm's length. Cross-segment transactions within the Group are consolidated in the consolidation column, whereas income from dividend payments and profi t/loss transfer agreements accruing to the Group holding company are eliminated in the respective segment. For reasons of consistency and comparability, we have adjusted the segment statement of income in line with the consolidated statement of income. The same applies to the segment balance sheet and the consolidated balance sheet.

Depending upon the nature and time frame of the commercial activities, various management metrics and performance indicators are used to assess the fi nancial success of the reportable segments within the Group. However, the operating profi t (EBIT) – determined from IFRS profi t contributions – is used as a consistent measurement basis. Net profi t or loss for the period before income taxes is highlighted as a means of capturing true operating profi tability and for the sake of better comparability. In addition, the result is adjusted for interest charges incurred for borrowing (fi nancing costs).

CHANGES IN PRESENTATION OF SEGMENT REPORTING

As part of the modifi cations made to internal reporting in 2013, the tax expenditure from provisions for tax risk within the consolidation group was fi rst allocated to primary insurance segments and Corporate Operations (previously Corporate Operations). The fi gures for 2012 were not adjusted. This change had no impact for the whole Group on either the recognition and measurement of provisions for taxes nor on equity or net income. The adjustment would have had the following impact on the annual results of the segments in 2012: Corporate Operations EUR 15 million, Industrial Lines –EUR 20 million, Retail Germany EUR 6 million and Retail International –EUR 1 million.

* Please refer to our notes at the start of the section regarding the diff erences in segment results between the Talanx Group and the Hannover Re Group

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

N20 SEGMENT REPORTING. BALANCE SHEET AS AT 31 DECEMBER 2013

FIGURES IN EUR MILLION

Assets	Industrial Lines		Retail Germany		Retail International
	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)
A. Intangible assets
a. Goodwill	153	153	403	403	533	580
b. Other intangible assets	16	20	1,000	1,104	235	313
	169	173	1,403	1,507	768	893
B. Investments
a. Investment property	21	35	734	689	21	82
b. Investments in affi liated companies and participating interests	19	19	17	19	—	5
c. Investments in associated companies and joint ventures	124	126	35	38	—	—
d. Loans and receivables	2,029	2,383	26,466	26,210	672	247
e. Other fi nancial instruments
i. Held to maturity	32	113	116	294	353	389
ii. Available for sale	3,821	3,427	14,194	12,338	3,883	3,221
iii. At fair value through profi t or loss	98	89	319	329	565	1,016
f. Other invested assets	524	567	549	849	528	565
Investments under own management	6,668	6,759	42,430	40,766	6,022	5,525
g. Investments under investment contracts	—	—	—	—	1,758	1,698
h. Funds withheld by ceding companies	23	24	25	23	—	1
Investments	6,691	6,783	42,455	40,789	7,780	7,224
C. Investments for the account and risk of holders of life insurance policies	—	—	7,616	6,354	709	1,097
D. Reinsurance recoverables on technical provisions	4,632	4,687	2,446	2,495	668	703
E. Accounts receivable on insurance business	1,200	1,177	364	340	820	756
F. Deferred acquisition costs	16	24	2,161	1,977	403	315
G. Cash	322	317	398	869	427	305
H. Deferred tax assets	61	8	95	115	99	80
I. Other assets	423	381	794	1,074	409	319
J. Non-current assets and assets of disposal groups classifi ed as held for sale 2)	—	9	4	23	233	18
Total assets	13,514	13,559	57,736	55,543	12,316	11,710

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

2) For further remarks, cf. section "Non-current assets held for sale and disposal groups" in the Notes

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

• 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES

172 Segment reporting

149 General information 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

Non-Life Reinsurance		Life/Health Reinsurance		Corporate Operations		Consolidation		Total
31.12.2013	31.12.2012	31.12.2013	31.12.2012	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012	31.12.2013	31.12.2012 1)
16	16	—	—	—	—	—	—	1,105	1,152
22	23	94	101	79	80	—	—	1,446	1,641
38	39	94	101	79	80	—	—	2,551	2,793
845	489	2	2	—	—	—	—	1,623	1,297
32	12	—	—	24	25	—	—	92	80
126	118	19	15	13	13	–70	–73	247	237
3,137	3,340	72	75	11	1	–156	–155	32,231	32,101
2,469	3,407	198	200	6	10	–190	–556	2,984	3,857
16,918	16,162	5,768	5,806	338	383	—	—	44,922	41,337
38	132	69	76	1	—	—	—	1,090	1,642
1,536	1,598	281	247	245	303	–542	–628	3,121	3,501
25,101	25,258	6,409	6,421	638	735	–958	–1,412	86,310	84,052
—	—	—	—	—	—	—	—	1,758	1,698
890	951	13,453	13,800	—	—	–1,497	–1,601	12,894	13,198
25,991	26,209	19,862	20,221	638	735	–2,455	–3,013	100,962	98,948
—	—	—	—	—	—	—	—	8,325	7,451
1,307	1,426	589	763	1	—	–3,047	–3,085	6,596	6,989
1,702	1,691	1,243	1,376	4	—	–262	–259	5,071	5,081
491	476	1,181	1,365	2	—	259	221	4,513	4,378
434	411	209	161	74	56	—	—	1,864	2,119
16	16	56	32	205	278	—	—	532	529
1,273	935	151	94	483	573	–1,332	–1,370	2,201	2,006
11	6	—	—	—	—	—	—	248	56
31,263	31,209	23,385	24,113	1,486	1,722	–6,837	–7,506	132,863	130,350

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• 288 Responsibility statement

fi nancial statements

N21 SEGMENT REPORTING. BALANCE SHEET AS AT 31 DECEMBER 2013

FIGURES IN EUR MILLION

Liabilities		Industrial Lines		Retail Germany		Retail International
	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)
B. Subordinated liabilities	144	149	213	214	2	—
C. Technical provisions
a. Unearned premium reserve	936	856	888	815	1,591	1,525
b. Benefi t reserve	1	1	36,795	35,579	2,554	2,073
c. Loss and loss adjustment expense reserve	8,442	8,196	2,701	2,574	2,142	2,040
d. Provision for premium refunds	8	11	2,071	2,167	99	101
e. Other technical provisions	34	34	8	8	8	18
	9,421	9,098	42,463	41,143	6,394	5,757
D. Technical provisions in the area of life insurance insofar as the investment risk is borne by policyholders	—	—	7,616	6,354	709	1,097
E. Other provisions
a. Provisions for pensions and other post-employment benefi ts	502	547	92	103	14	13
b. Provisions for taxes	130	101	116	90	92	69
c. Sundry provisions	70	96	266	299	74	83
	702	744	474	492	180	165
F. Liabilities
a. Notes payable and loans	—	—	—	—	—	—
b. Funds withheld under reinsurance treaties	27	13	1,951	2,074	184	179
c. Other liabilities	1,283	1,553	2,138	2,254	2,543	2,355
	1,310	1,566	4,089	4,328	2,727	2,534
G. Deferred tax liabilities	39	96	285	337	121	139
H. Liabilities of disposal groups classifi ed as held for sale 2)	—	—	—	—	235	20
Total liabilities/provisions	11,616	11,653	55,140	52,868	10,368	9,712

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

	Non-Life Reinsurance		Life/Health Reinsurance		Corporate Operations		Consolidation		Total
	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)
	2,238	2,233	60	97	612	612	–162	–198	3,107	3,107
	2,297	2,254	108	86	8	—	–150	–96	5,678	5,440
	—	—	10,632	10,975	—	—	–215	–380	49,767	48,248
	18,848	18,595	2,821	3,017	9	—	–1,208	–1,179	33,755	33,243
	—	—	—	—	—	—	—	—	2,178	2,279
	129	141	140	73	—	—	—	—	319	274
	21,274	20,990	13,701	14,151	17	—	–1,573	–1,655	91,697	89,484
	—	—	—	—	—	—	—	—	8,325	7,451
	90	97	27	30	971	1,079	—	—	1,696	1,869
	218	207	4	31	151	134	—	—	711	632
	90	91	45	32	145	163	–2	–1	688	763
	398	395	76	93	1,267	1,376	–2	–1	3,095	3,264
	227	168	213	275	1,217	1,352	–715	–1,118	942	677
	440	517	5,778	6,101	—	—	–2,845	–2,909	5,535	5,975
	953	893	1,495	1,315	112	329	–1,555	–1,620	6,969	7,079
	1,620	1,578	7,486	7,691	1,329	1,681	–5,115	–5,647	13,446	13,731
	1,005	1,015	271	372	—	3	28	22	1,749	1,984
	—	—	—	—	—	—	–2	—	233	20
	26,535	26,211	21,594	22,404	3,225	3,672	–6,826	–7,479	121,652	119,041
Shareholders' equity 3)							11,211	11,309

1) Adjusted on the basis of IAS 8, see section "Accounting policies",

subsection "Changes in accounting policies and accounting errors" in the Notes

2) For further remarks, cf. section "Non-current assets held for sale and disposal groups" in the Notes

Total liabilities 132,863 130,350

3) Group shareholders' equity incl. non-controlling interests

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

N22 SEGMENT REPORTING. STATEMENT OF INCOME FOR THE PERIOD FROM 1 JANUARY TO 31 DECEMBER 2013

FIGURES IN EUR MILLION

	Industrial Lines		Retail Germany		Retail International
	2013	2012	2013	2012 1)	2013	2012
1. Gross written premium, including premiums
from unit-linked life and annuity insurance	3,835	3,572	6,954	6,829	4,220	3,261
thereof attributable to other segments	65	60	63	63	—	—
with third parties	3,770	3,512	6,891	6,766	4,220	3,261
2. Savings elements of premiums from unit-linked life and annuity insurance	—	—	946	976	185	224
3. Ceded written premium	2,127	1,942	351	324	374	342
4. Change in gross unearned premium	–109	–86	–70	–40	–174	–83
5. Change in ceded unearned premium	–145	–64	–18	–12	–26	–9
Net premium earned	1,744	1,608	5,605	5,501	3,513	2,621
6. Claims and claims expenses (gross)	2,839	2,610	6,219	5,950	2,630	2,002
Reinsurers' share	1,424	1,401	204	135	163	140
Claims and claims expenses (net)	1,415	1,209	6,015	5,815	2,467	1,862
7. Acquisition costs and administrative expenses (gross)	721	660	1,154	1,075	1,037	786
Reinsurers' share	361	339	115	129	82	98
Acquisition costs and administrative expenses (net)	360	321	1,039	946	955	688
8. Other technical income	20	9	9	29	20	18
Other technical expenses	13	8	75	194	79	86
thereof attributable to amortisation PVFP	1	5	57	87	32	41
Other technical result	7	1	–66	–165	–59	–68
Net technical result	–24	79	–1,515	–1,425	32	3
9. a. Income from investments	291	275	2,026	1,852	339	317
b. Expenses for investments	52	28	216	199	67	43
Net income from investments under own management	239	247	1,810	1,653	272	274
Income/expense from investment contracts	—	—	—	—	13	8
Net interest income from funds withheld and contract deposits	1	—	–24	–32	–1	–1
Net investment income	240	247	1,786	1,621	284	281
thereof attributable to interest and similar income	202	214	1,550	1,552	314	263
attributable to interest and similar expenses	—	—	24	29	47	26
impairments/depreciation on investments	8	4	65	63	8	5
write-ups on investments	—	2	10	5	1	9
income/expense from associated companies and joint ventures
recognised using the equity method	3	6	2	–3	—	–1
10. a. Other income b. Other expenses	105 174	80 147	211 321	211 307	64 195	29 206
Other income/expenses	–69	–67	–110	–96	–131	–177
thereof attributable to interest and similar income	1	2	6	11	15	10
write-ups on accounts receivable and other assets	2	1	9	6	3	2
attributable to interest and similar expenses	29	23	14	22	3	3
write-downs on accounts receivable
and other assets	30	13	2	2	53	58
Profi t before goodwill impairments	147	259	161	100	185	107
11. Goodwill impairments	—	—	—	—	—	—
Operating profi t/loss (EBIT)	147	259	161	100	185	107
12. Financing costs	9	14	13	13	1	2
13. Taxes on income	29	88	64	–40	57	51
Net income	109	157	84	127	127	54
thereof attributable to non-controlling interests	—	—	6	7	26	12
thereof attributable to shareholders of Talanx AG	109	157	78	120	101	42

1) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

Non-Life Reinsurance		Life/Health Reinsurance		Corporate Operations		Consolidation		Total
2013	2012	2013	2012 1)	2013	2012	2013	2012 1)	2013	2012 1)
7,818	7,717	6,145	6,058	40	—	–861	–778	28,151	26,659
509	444	184	211	40	—	–861	–778	—	—
7,309	7,273	5,961	5,847	—	—	—	—	28,151	26,659
—	—	—	—	—	—	—	—	1,131	1,200
787	758	756	650	10	—	–866	–763	3,539	3,253
–175	–164	–29	18	–8		59	24	–506	–331
–10	–59	1	—	—	—	60	20	–138	–124
6,866	6,854	5,359	5,426	22	—	4	–11	23,113	21,999
5,242	5,230	5,110	5,088	20	—	–440	–327	21,620	20,553
420	387	658	535	1	—	–465	–401	2,405	2,197
4,822	4,843	4,452	4,553	19	—	25	74	19,215	18,356
1,826	1,827	1,418	1,305	6	—	–259	–339	5,903	5,314
120	91	93	63	—	—	–219	–244	552	476
1,706	1,736	1,325	1,242	6	—	–40	–95	5,351	4,838
2	1	—	—	—	—	1	–8	52	49
8	3	4	8	1	—	20	2	200	301
—	—	7	3	—	—	—	—	97	136
–6	–2	–4	–8	–1	—	–19	–10	–148	–252
332	273	–422	–377	–4	—	—	—	–1,601	–1,447
969	1,116	296	366	102	28	–60	–72	3,963	3,882
173	148	28	24	74	65	–92	–89	518	418
796	968	268	342	28	–37	32	17	3,445	3,464
—	—	—	—	—	—	—	—	13	8
15	14	343	342	—	—	—	—	334	323
811	982	611	684	28	–37	32	17	3,792	3,795
707	778	687	681	9	10	–59	–76	3,410	3,422
5	9	117	106	—	—	–8	–11	185	159
20 —	19 3	— —	3 —	1 —	— —	— —	— —	102 11	94 19
11	5	2	5	1	—	–6	–5	13	7
232	130	120	90	827	779	–751	–724	808	595
278	251	170	127	768	778	–691	–621	1,215	1,195
–46	–121	–50	–37	59	1	–60	–103	–407	–600
13	4	10	3	2	9	–1	–6	46	33
8	9	—	—	—	—	—	—	22	18
28	25	57	59	35	69	–9	–13	157	188
26	37	8	18	3	2	—	—	122	130
1,097	1,134	139	270	83	–36	–28	–86	1,784	1,748
—	—	—	—	—	—	—	—	—	—
1,097	1,134	139	270	83	–36	–28	–86	1,784	1,748
127	105	3	5	96	105	–43	–59	206	185
180	313	–15	52	–25	–38	6	–7	296	419
790	716	151	213	12	–103	9	–20	1,282	1,144
413	391	75	109	—	—	—	–1	520	518
377	325	76	104	12	–103	9	–19	762	626

GEOGRAPHICAL BREAKDOWN OF INVESTMENTS, NON-CURRENT ASSETS AND WRITTEN PREMIUM

The tables have been simplifi ed to show only Primary Insurance, Reinsurance and Corporate Operations.

INVESTMENTS (EXCLUDING FUNDS WITHHELD BY CEDING COMPANIES AND EXCLUDING INVESTMENTS UNDER INVESTMENT CONTRACTS) BY GEOGRAPHICAL ORIGIN 1)

N23 INVESTMENTS UNDER OWN MANAGEMENT BY GEOGRAPHICAL ORIGIN

FIGURES IN EUR MILLION

	Primary Insurance	Reinsurance	Corporate Operations	Total
31.12.2013
Germany	23,484	5,910	173	29,567
United Kingdom	3,062	2,348	53	5,463
Central and Eastern Europe (CEE), including Turkey	2,992	507	2	3,501
Rest of Europe	21,159	8,457	347	29,963
USA	1,315	8,353	4	9,672
Rest of North America	92	1,257	1	1,350
Latin America	931	884	2	1,817
Asia and Australia	1,524	3,135	4	4,663
Africa	14	300	—	314
Total	54,573	31,151	586	86,310
31.12.2012
Germany	25,587	6,479	123	32,189
United Kingdom	3,286	2,889	209	6,384
Central and Eastern Europe (CEE), including Turkey	2,658	235	—	2,893
Rest of Europe	17,706	7,869	348	25,923
USA	998	7,947	1	8,946
Rest of North America	86	1,139	1	1,226
Latin America	876	775	—	1,651
Asia and Australia	1,038	3,389	2	4,429
Africa	17	394	—	411
Total	52,252	31,116	684	84,052

1) After elimination of internal transactions within the Group across segments. This can lead to deviations from the fi gures quoted in the Management Report

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

172 Segment reporting

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

NON-CURRENT ASSETS BY GEOGRAPHICAL ORIGIN

Non-current assets largely consist of intangible assets (including goodwill) and own-use real estate/investment property.

N24 NON-CURRENT ASSETS BY GEOGRAPHICAL ORIGIN

FIGURES IN EUR MILLION

	Primary Insurance	Reinsurance	Corporate Operations	Total
31.12.2013
Germany	3,279	616	79	3,974
United Kingdom	—	3	—	3
Central and Eastern Europe (CEE), including Turkey	—	—	—	—
Rest of Europe	408	87	—	495
USA	—	335	—	335
Rest of North America	—	—	—	—
Latin America	33	—	—	33
Asia and Australia	—	2	—	2
Africa	—	7	—	7
Total	3,720	1,050	79	4,849
31.12.2012
Germany	3,358	286	80	3,724
United Kingdom	—	3	—	3
Central and Eastern Europe (CEE), including Turkey	—	—	—	—
Rest of Europe	527	94	—	621
USA	—	307	—	307
Rest of North America	—	—	—	—
Latin America	40	—	—	40
Asia and Australia	—	2	—	2
Africa	—	7	—	7
Total	3,925	699	80	4,704

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

GROSS WRITTEN PREMIUM BY GEOGRAPHICAL ORIGIN (BY DOMICILE OF CUSTOMER) 1)

During the reporting period, there were no transactions with any one external client that amounted to 10% or more of total gross premium.

N25 GROSS WRITTEN PREMIUM BY GEOGRAPHICAL ORIGIN

FIGURES IN EUR MILLION

	Primary Insurance	Reinsurance	Corporate Operations	Total
2013
Germany	8,505	836	—	9,341
United Kingdom	140	2,617	—	2,757
Central and Eastern Europe (CEE), including Turkey	2,207	201	—	2,408
Rest of Europe	2,205	1,953	—	4,158
USA	334	3,293	—	3,627
Rest of North America	25	639	—	664
Latin America	1,246	841	—	2,087
Asia and Australia	178	2,414	—	2,592
Africa	41	476	—	517
Total	14,881	13,270	—	28,151

2012
Germany	8,455	730	—	9,185
United Kingdom	131	2,765	—	2,896
Central and Eastern Europe (CEE), including Turkey	1,411	177	—	1,588
Rest of Europe	2,048	2,013	—	4,061
USA	226	3,158	—	3,384
Rest of North America	11	642	—	653
Latin America	1,111	799	—	1,910
Asia and Australia	122	2,337	—	2,459
Africa	24	499	—	523
Total	13,539	13,120	—	26,659

1) After elimination of internal transactions within the Group across segments. This can lead to deviations from the fi gures quoted in the Management Report

GROSS WRITTEN PREMIUM BY TYPE AND CLASS OF INSURANCE AT GROUP LEVEL 1)

N26 GROSS WRITTEN PREMIUM BY TYPE AND CLASS OF INSURANCE

	31.12.2013	31.12.2012
Property/casualty primary insurance	8,103	7,349
Life primary insurance	6,778	6,190
Non-Life Reinsurance	7,309	7,273
Life/Health Reinsurance	5,961	5,847
Total	28,151	26,659

1) After elimination of internal transactions within the Group across segments. This can lead to deviations from the fi gures quoted in the Management Report

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES

149 General information 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies 172 Segment reporting

CONSOLIDATION

CONSOLIDATION PRINCIPLES

The consolidated fi nancial statements were drawn up according to uniform Group accounting policies in accordance with IFRS. The annual fi nancial statements included in the consolidated fi nancial statements were for the most part prepared as at 31 December. Compilation of interim fi nancial statements for the Group companies with diverging fi nancial years was not required pursuant to IAS 27 "Consolidated and Separate Financial Statements" because their closing dates are no more than three months prior to the Group closing date. The eff ects of signifi cant transactions between diverging fi nancial years and the Group closing date were taken into account.

The capital consolidation is compiled in accordance with the requirements of IAS 27. Subsidiaries are all companies (including special purpose entities) with respect of which the Group exercises control over fi nancial and business policy or, in the case of special purpose entities, where the majority of economic risks and benefi ts remain within the Group. The Group also considers potential exercisable voting rights when assessing control. Subsidiaries are included in the consolidated fi nancial statements (full consolidation) from the point when control passed to the Group. They are deconsolidated at the point when this control ends.

Acquired subsidiaries are accounted using the purchase method. The acquisition costs associated with purchases correspond to the fair value of the assets off ered and liabilities arising/assumed at the time of the transaction. Acquisition-related costs are recognised as an expense when they are incurred. Assets, liabilities and contingent liabilities that can be identifi ed in the context of a corporate acquisition are measured upon initial consolidation at their fair values at the time of acquisition. A diff erence arising out of the netting of the acquisition costs with the fair value of the assets and liabilities is recognised as goodwill under intangible assets. If the diff erence is negative, the Group recognises a gain from the acquisition at a price below market value, directly through profi t or loss.

Non-controlling interests in acquired companies are generally recognised based on the proportionate interest in the net assets of the acquired companies. Changes in the interest of the Group in a subsidiary that do not result in a loss of control are recognised as an equity transaction. Non-controlling interests in shareholders' equity or in the net income of majority-owned subsidiaries are shown separately in equity in the item "Non-controlling interests in equity" and in the statement of income in the item "Non-controlling interests".

All intra-group receivables and liabilities as well as income, expenses and interim results derived from intra-group transactions were eliminated as part of the consolidation of debt, earnings and interim results. Transactions between disposal groups and the Group's continuing operations are also eliminated.

Companies over which the Group is able to exercise a signifi cant infl uence are normally consolidated using the equity method in accordance with IAS 28 "Investments in Associates" as associated companies and initially carried at the cost of acquisition, including transaction costs. A signifi cant infl uence is presumed to exist if a company belonging to the Group directly or indirectly holds at least 20% – but no more than 50% – of the voting rights. The Group's interest in associated companies includes the goodwill arising upon acquisition. The accounting policies used by associated companies were modifi ed – if necessary – in order to ensure consistent Group-wide accounting.

Joint ventures, i.e. companies whose commercial activities are jointly managed by the Group with one or more partners, are essentially included in the consolidated fi nancial statements using the equity method, a choice provided by IAS 31 "Interests in Joint Ventures".

Interests in associated companies and joint ventures consolidated using the equity method are recognised in the balance sheet item "Interests in associated companies and joint ventures" in the area of "Assets under own management". The share of the Group in the profi ts and losses of these companies is recognised separately in the Group's statement of income under net investment income in accordance with IAS 1 "Presentation of Financial Statements". For further details please refer to the "Accounting policies" section and the information in note 5 "Investments in associated companies and joint ventures" as contained in the section "Notes on individual items of the consolidated balance sheet".

140 CONSOLIDATED FINANCIAL STATEMENTS

• NOTES
• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

SCOPE OF CONSOLIDATION

In accordance with IAS 27 and SIC 12 "Consolidation – Specialpurpose Entities" the consolidated fi nancial statements include Talanx AG (as the parent company) and all major domestic and foreign Group companies/special purpose entities in which Talanx AG indirectly or directly holds the majority of the voting rights or where it exercises a de facto power of control or can exercise a controlling infl uence on operations in some other way.

Only subsidiaries that are of minor importance – both individually and in their entirety – for the assets, fi nancial position and net income of the Group and that do not transact insurance business are exempted from consolidation. The Group assesses whether a subsidiary is of minor importance on the basis of the company's total assets and net income relative to the corresponding average values for the Group as a whole over the last three years. For this reason 36 (40) subsidiaries, whose business purpose is primarily the rendering of services for insurance companies within the Group, were not consolidated in the reporting year. Altogether, the balance sheet total of these subsidiaries amounts to less than 0.1% of the average balance sheet total of the Group over the last three years; the result of these companies amounts to altogether less than 1% of the average result of the Group over the last three years. In subsequent periods the subsidiaries not included in the scope of consolidation on grounds of materiality are examined on each closing date to verify whether consolidation is required in light of a reassessment of materiality.

N27 SCOPE OF CONSOLIDATION

	Domestic	Foreign	Total
Number of fully consolidated subsidiaries
31.12.2012	691)	962)	165
Additions	2	9	11
Disposals	1	7	8
31.12.2013	701)	982)	168
Number of fully consolidated special purpose entities
31.12.2012	19	12	31
thereof investment funds	19	10	29
Additions	14	3	17
thereof investment funds	14	3	17
Disposals	8	2	10
thereof investment funds	8	2	10
31.12.2013	25	13	38
Total of fully consolidated subsidiaries/special purpose entities	95	111	206
Number of associated companies and joint ventures consolidated using equity method
31.12.2012	4	93)	134)

4	93)	134)
—	1	1
—	—	—
4	103)	14 4)

1) Consists of: 68 (69) individual companies and two (—) companies fully consolidated into one (—) subgroup

2) Consists of: 55 (58) individual companies and 43 (38) companies fully consolidated into four (three) subgroups

3) Consists of fi ve (fi ve) individual companies and fi ve (four) companies consolidated in a subgroup using the equity method

4) Includes a foreign joint venture

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

• 148 Cash fl ow statement
• NOTES
• 149 General information 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

All affi liates, joint ventures, associated companies and special purpose entities are specifi ed in the list of shareholdings, including information on the size of shareholders' equity and profi t (see separate section of these Notes, pages 279 et seqq.).

SIGNIFICANT ADDITIONS AND DISPOSALS OF FULLY CONSOLIDATED SUBSIDIARIES AS WELL AS OTHER CORPORATE CHANGES

ACQUISITIONS AND ESTABLISHMENTS

At Hannover Rück SE in the reporting year, the structures of Hannover Re Euro RE Holdings GmbH, Hannover and Hannover Re Real Estate Holdings, Inc. Orlando, USA were expanded for the purposes of holding individual real estate ("property companies") and satisfying company legal statutory requirements ("holding companies"). The sum of EUR 124 million was invested in this context to acquire the appropriate companies. No contingent liabilities, contingent considerations or separate transactions within the meaning of IFRS 3 were identifi ed. In the third quarter of 2013 this included the acquisition by HR GLL Central Europe GmbH & KG of all the shares in HR GLL Europe Holding S. à. r. l. (company renamed following the acquisition). With eff ect from 30 September 2013, the company was consolidated for the fi rst time in the subgroup fi nancial statements of HR GLL Central Europe GmbH & Co. KG. HR GLL Central Europe Holding GmbH was founded in the fi rst quarter of 2013 and was consolidated for the fi rst time in the subgroup fi nancial statements of GLL Central Europe GmbH & Co. KG with eff ect as at 30 September 2013. All of the shares in the company are held by HR GLL Central Europe GmbH & KG. Both holding companies have started investing in property companies. This led to the establishment of property companies HR GLL Roosevelt Kft ., HR GLL CDG Plaza S. r. l., HR GLL Liberty Corner Sp. z. o. o. and HR GLL Griffi n House Sp. z. o. o. in the reporting year. Property company Akvamarine Beta s.r.o. was also eventually acquired. Via the subsidiary GLL HRE Core Properties, LP, 100% of the shares in the property companies Broadway 101 LLC, and River Terrace Parking LLC were acquired in the US subgroup Hannover Re Real Estate Holdings, Inc., in which a holding of 95.1% is maintained by Hannover Re Group.

In August 2013, Hannover Rück SE and another investor agreed to acquire a fi nancial participation in a company designed for the indirect acquisition of Heidelberger Lebensversicherung AG, Heidelberg. The supervisory authority's approval regarding the acquisition of Heidelberger Leben from a seller belonging to Lloyds Banking Group, London, has been granted for Hannover Rück SE as the indirect acquirer but not yet for the other investor.

SALES AND DISPOSALS

The merger of Metropolitana Compañia de Seguros S. A., Mexico City, Mexico, into HDI Seguros S. A. de C. V., León, Mexico, became legally eff ective retroactive to 1 January 2013 upon recording in the Public Registry of Commerce of León on 20 March 2013.

With eff ect from 1 January 2013, Hannover Rück SE perfected the contractually agreed retransfer of its voting share (management share) in Secquaero ILS Fund Ltd., Georgetown, Grand Cayman, to the non-Group investment manager, thereby ceding control over the company and its participating interests. For this reason, the company is no longer included in the consolidated fi nancial statements as at that date and is instead carried as a participating interest that is recognised at net asset value under "Other invested assets". As a result of the derecognition of assets and liabilities and the recognition of the participating interest at net asset value, income of EUR 1.2 million was recognised under "Other income/expenses". In addition, currency translation gave rise to cumulative other comprehensive income in the amount of EUR 3.9 million, which was likewise recognised under "Other income/expenses".

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

With eff ect from 31 July 2013, Talanx International Holding AG (TINT) contributed its shares (100%) in the life insurance company HDI-Gerling Zycie Towarzystwo Ubezpieczeń S. A. (HG-PLZ) to TUiR WARTA S. A., Warsaw, Poland (Retail International segment) by means of a capital increase through a contribution in kind. All new shares in TUiR WARTA S. A. were subscribed to by TINT, meaning that the Group's holding in TUiR WARTA S. A. increased slightly to 75.74 (75.00)%. The Group recognised this change in the shareholding as an equity transaction. In so doing, the carrying amounts of the controlling and non-controlling interests were modifi ed in such a way as to refl ect the changes in the shareholding. As a result, the controlling interests' share of equity increased by EUR 7 million at the expense of the non-controlling interests' share of equity (cf. "Consolidated statement of changes in shareholders' equity"). On 30 December 2013, TUnŻ WARTA S. A. (WARTA Life), wholly owned by TUiR WARTA S. A., was merged into HG-PLZ as planned; since the merger, the company has traded as Towarzystwo Ubezpieczeń na Życie "WARTA" S. A.

OTHER CORPORATE CHANGES

The conversion of Hannover Rück AG into the legal form of a European public limited-liability company (Societas Europaea, or SE) became eff ective upon its recording on 19 March 2013 in the commercial register maintained by the Hannover District Court. Accordingly, the company is now called Hannover Rück SE, with its re gistered offi ce at Karl-Wiechert-Allee 50, 30625 Hannover, Germany.

CONSOLIDATION OF SPECIAL PURPOSE ENTITIES

Below we make a distinction between investment funds, investments, securitisation of reinsurance risks and the assumed life and health reinsurance business as well as between retrocessions and insurance-linked securities (ILS). Relations with such special purpose entities are to be examined, inter alia, in accordance with SIC 12 with a view to their consolidation requirement. In cases where IFRSs do not currently contain any specifi c standards, our analysis also falls back – in application of IAS 8 – on the relevant standards of US GAAP.

INVESTMENT FUNDS

The scope of SIC 12 includes, inter alia, special investment funds that are chiefl y created to serve a narrowly defi ned purpose. As such the Group must assess whether economic control according to IAS 27.13 in conjunction with SIC 12 exists for its investment funds. Economic control exists, for example, when the majority of the economic benefi ts or risks arising out of the activities of a special fund is attributable to a Group company. As at the balance sheet date, 36 special funds were included in the consolidated fi nancial statements due to the existence of a controlling relationship or economic control with respect to the special investment fund. Of these, 25 were domestic funds.

In the year under review, 17 investment funds were launched and consolidated for the fi rst time. Public fund terrAssisi Aktien I AMI (Retail Germany segment) was deconsolidated in the third quarter of 2013 due to a reduction of the holding in the special investment fund to 31.09% and carried as a fi nancial instrument. The Group liquidated or deconsolidated a further nine funds, mainly for reasons of materiality regarding assets, fi nancial position and net income.

INVESTMENTS

As part of its asset management activities, the Group participates in numerous special purpose entities – predominantly funds – which for their part transact certain types of equity and debt-capital investments. On the basis of our analysis of the relations with these entities, we concluded that the Group does not exercise a controlling infl uence in any of these transactions and that a consolidation requirement therefore does not exist.

Hannover Re participates in a number of special purpose entities through Leine Investment SICAF-SIF which was founded in September 2012 and is based in Luxembourg for the securitisation of catastrophe risks by investing in catastrophe (CAT) bonds. Leine Investment General Partner S. à. r. l. is the managing partner of the asset management company Leine Investment SICAV-SIF, whose purpose consists of the development, holding and management of a portfolio of insurance-linked securities (CAT bonds), including for investors outside the Group. Since Hannover Rück SE does not exercise a controlling infl uence in any of these transactions either, there is no consoli dation requirement for the special purpose vehicles in question. The portfolio of CAT bonds held by Hannover Insurance-Linked Securities GmbH & Co. KG (HILS), which was used for these trans actions until the previous year, was completely wound down in the year under review through sales and repayments.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income

• 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity

NOTES

• 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

CONSOLIDATED FINANCIAL STATEMENTS

¹⁴⁹ General information

SECURITISATION OF REINSURANCE RISKS

The securitisation of reinsurance risks is largely structured through the use of special purpose entities.

In the previous year, Hannover Rück SE issued a CAT bond with the aim of transferring to the capital market peak natural catastrophe exposures deriving from European storm events. The term of the CAT bond, which has a nominal volume of EUR 100 million, runs until 31 March 2016 and was placed with institutional investors from Europe, North America and Asia by Eurus III Ltd., a special purpose entity domiciled in Hamilton, Bermuda that was registered in August 2012 as a special purpose insurer under the Bermuda Insurance Act of 1978. The retrocessions concluded in connection with the transaction with Eurus III Ltd. aff ord Hannover Rück SE, E+S Rückversicherung AG and Hannover Re (Bermuda) Ltd. protection against the aforementioned catastrophe risks. Since Hannover Rück SE does not exercise any controlling infl uence over Eurus III Ltd., there is no consolidation requirement for the special purpose entity.

Within the scope of its "K" transactions, Hannover Rück SE raised underwriting capacity for catastrophe risks on the capital market. "K-cession", which was placed with institutional investors from Europe, North America and Asia involves a quota share cession on worldwide natural catastrophe business as well as aviation and marine risks. The volume of "K-cession" was equivalent to EUR 239 (268) million as at the balance sheet date. The transaction has an indefi nite term and can be cancelled annually by the investors. Kaith Re Ltd., a special purpose entity domiciled in Bermuda, is being used for transformer purposes in relation to part of this transaction.

Hannover Rück SE also uses Kaith Re Ltd. for various retrocessions of its traditional covers to institutional investors. In accordance with SIC 12, it is included in the consolidated fi nancial statements.

ASSUMED LIFE/HEALTH REINSURANCE BUSINESS

Some transactions in the Life/Health Reinsurance segment require the involvement of cedant special purpose entities as contractual partners established by parties outside the Group and from whom companies of the Hannover Re Group assume certain technical and/ or fi nancial risks. For example, the transactions serve to transfer extreme mortality risks above a contractually defi ned retention ratio or to transfer longevity risks. Since Hannover Rück SE does not bear the majority of the economic risks or benefi ts arising out of its business relations with these special purpose entities and is not capable of exercising a controlling infl uence over them, there is no consolidation requirement for Hannover Rück SE. Depending on the classifi cation of the contracts in accordance with IFRS 4 or IAS 39, the transactions are recognised either under reinsurance or as derivative fi nancial instruments or fi nancial guarantees.

With reinsurance contracts that serve to fi nance statutory reserves (so-called Triple-X or AXXX reserves), under which special purpose entities carry extreme mortality risks securitised by cedants above a contractually defi ned retention ratio, these risks are transferred by way of a fi xed/fl oating swap to a Group company of Hannover Re Group. The total of the contractually agreed upon capacities of the transactions is equivalent to EUR 1,372 (1,138) million, of which the equivalent of EUR 892 (848) million has been underwritten as at the balance sheet date. The variable payments to the special purpose entities guaranteed by companies of the Hannover Re Group cover their payment obligations. For some of the transactions, payments resulting from swaps in the event of a claim are reimbursed by the cedants' parent companies by way of compensation agreements. In this case reimbursement claims under the compensation agreements are to be capitalised separately from and up to the amount of the provision. Under IAS 39 these transactions are to be recognised at fair value as a fi nancial guarantee. To this end Hannover Rück SE uses the net method, according to which the present value of the agreed upon fi xed swap premiums is netted with the present value of the guarantee commitment. The fair value on initial recognition therefore amounted to zero. The higher of the fair value and the amount carried as a provision on the liabilities side pursuant to IAS 37 is recognised at the point in time at which utilisation is considered probable. This was not the case as at the balance sheet date.

RETROCESSIONS AND INSURANCE-LINKED SECURITIES (ILS)

As part of its extended insurance-linked securities (ILS) activities, Hannover Rück SE has underwritten so-called collateralised fronting arrangements, under which risks assumed from ceding companies are passed on to institutional investors outside the Group using special purpose entities. The purpose of such transactions is to directly transfer clients'' business. Due to the lack of a controlling infl uence over the special purpose entities involved, there is no consolidation requirement for Hannover Rück SE with respect to these structures.

140 CONSOLIDATED FINANCIAL STATEMENTS

• NOTES 183 Consolidation
• 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

In the course of selling the operational companies of the subgroup Clarendon Insurance Group, Inc. (CIGI), Wilmington, to Enstar Group Ltd., Hamilton, Bermuda, a partial portfolio of CIGI was retroceded to a special purpose entity with eff ect from 12 July 2011. The term of the retrocession runs until fi nal settlement of the underlying obligations. Since Hannover Rück SE is not the major benefi ciary of the special purpose entity and exercises neither indirect nor direct control over it, there is no consolidation requirement for this special purpose entity.

ASSOCIATED COMPANIES VALUED AT EQUITY

Associated companies are those over whom the Group exercises signifi cant infl uence but no control. As at the balance sheet date, 13 (12) companies were measured using the equity method in accordance with IAS 28 "Investments in Associates". Another seven (nine) associated companies were not valued at equity due to their lack of material signifi cance for the presentation of assets, fi nancial position and net income (cf. our remarks in the section "Accounting policies" on page 153 et seqq.).

JOINT VENTURES VALUED AT EQUITY

As was the case in the 2012 annual fi nancial statements, Magma HDI General Insurance Company Limited, Kolkata, continues to be included at equity as a joint venture.

NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS

HDI SEGUROS S. A. DE C. V. (RETAIL INTERNATIONAL SEGMENT)

As part of the merger of HDI Seguros S. A. de C. V. and Metropolitana Compañía de Seguros, Mexico City, Mexico, the Group continues to report the sale of a life insurance portfolio, including investments for covering liabilities, a situation unchanged since the previous year. The purchase price amounts to EUR 2 million. In addition, in the fi rst quarter of 2013, the company decided to sell a non-life insurance portfolio. We anticipate that both transactions will take place in the second quarter of 2014.

The key carrying amounts of both disposal groups relate to investments including accounts receivable on the insurance business totalling EUR 17 (18) million as well as technical provisions and other liabilities amounting to EUR 19 (20) million. Cumulative income/ expenses recognised under "Other comprehensive income" amounted to EUR 0 (2) million. No impairments were recognised from measurement at fair value less costs to sell.

The transactions are part of the corporate focusing strategy and will lead to cost optimisation in the area of IT and personnel expenses.

ASPECTA ASSURANCE INTERNATIONAL LUXEMBURG S. A. (RETAIL INTERNATIONAL SEGMENT)

In the third quarter of 2013, ASPECTA Assurance International Luxemburg S. A., Luxembourg, decided to sell a partial portfolio of its unit-linked life insurance business in connection with portfolio optimisation eff orts. The transaction has a purchase price at the lower end of seven fi gures. We expect the transfer to take place during 2014. The disposal group contains assets of EUR 216 million (including investments for the account and risk of holders of life insurance policies amounting to EUR 212 million and cash of EUR 4 million) and liabilities of EUR 214 million (including technical provisions in the area of life insurance – insofar as the investment risk is borne by policyholders – amounting to EUR 212 million). As at the balance sheet date, no cumulative income/expenses were contained in "Other comprehensive income". No impairments were recognised from measurement at fair value less costs to sell.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies
  • 172 Segment reporting

REAL ESTATE

As at 31 December 2013, we classifi ed real estate portfolios in the amount of EUR 15 (45) million as held for sale. Of this amount, EUR 11 (11) million was attributable to the Non-Life Reinsurance segment, EUR 4 (22) million to the Retail Germany segment and EUR 0 (12) million to the Industrial Lines segment.

The total portfolio is off set by market values (corresponding to expected purchase prices) totalling EUR 16 (58) million. Measurement of these properties at fair value less costs to sell did not result in any material impairments. As at the balance sheet date, the book value (fair value less costs to sell) of impaired real estate amounted to EUR 1 million and was allocated to level 3 of the fair value hierarchy. Fair values were largely determined internally within the Group using discounted cash fl ow methods and, in individual cases, on the basis of external expert opinions. Sales intentions depend on specifi c factors associated with the real estate market and the properties themselves, taking into account current and future opportunity and risk profi les. We expect these transactions to close within one year.

NATURE OF RISKS ASSOCIATED WITH INSURANCE CONTRACTS AND FINANCIAL INSTRUMENTS

The disclosures provided below complement the risk reporting in the Management Report pursuant to § 315 in conjunction with § 315a, Para. 1 of the German Commercial Code (HGB) and refl ect the requirements of § 315, Para. 2, no. 2 HGB as well as those of IFRS 4 (with respect to disclosure of the nature and extent of risks arising from insurance contracts) and IFRS 7 (nature and extent of risks arising from fi nancial instruments). The disclosures mandated by § 315, Para. 2, no. 2 HGB regarding the Group's risk management objectives and methods, including its hedging transactions with respect to the use of fi nancial instruments are contained in the risk report and are supplemented in the following subsection essentially in qualitative terms.

This section describes the disclosures required by IFRS 4 and IFRS 7, namely those dealing with the description of risk management; information about concentrations of risk; information about credit risk, liquidity risk and market risk associated with insurance contracts and fi nancial instruments; and information about sensitivity analyses for our investments and in parts about our underwriting risks. Additional remarks about our fi nancial instruments and insurance liabilities, such as maturities, ratings, the use of derivative fi nancial instruments and hedge accounting, and the development of claims can be found in the descriptions of the individual items in the sections "Notes on the Consolidated Balance Sheet" and "Notes on the Consolidated Statement of Income".

For fundamental qualitative statements, e.g. regarding the organisation of our risk management or the assessment of the risk situation, cf. the risk report contained in the Management Report.

Therefore, to obtain a complete overview of the risks to which the Group is exposed, both the risk report and the corresponding disclosures in the Notes need to be taken into account.

CLASSES OF FINANCIAL INSTRUMENTS

IFRS 7 stipulates certain disclosures for classes of fi nancial instruments. These classes are based on the risk characteristics of the fi nancial instruments, whereby a distinction is made at least between those fi nancial instruments measured at amortised cost and those measured at fair value. This classifi cation is not necessarily identical to the categorisation of fi nancial instruments pursuant to IAS 39. The classes established for our fi nancial instruments were guided by the needs of our portfolio and our balance sheet structure. The degree of detail of the stated classes may vary as permitted depending on the required disclosure.

The following table connects the classes of fi nancial instruments established by the Group with the associated items in the balance sheet and provides information about the corresponding measurement basis.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

N28 CLASSES OF FINANCIAL INSTRUMENTS, BALANCE SHEET ITEMS AND MEASUREMENT BASES

	Classes of fi nancial instruments	Measurement basis
Financial instruments associated with investments
	Investments in affi liated companies and participating interests	Amortised cost
	Loans and receivables	Amortised cost
	Financial instruments held to maturity	Amortised cost
	Financial assets available for sale: ¡ Fixed-income securities ¡ Variable-yield securities	Fair value
	Financial instruments at fair value through profi t or loss: ¡ Financial assets classifi ed at fair value through profi t or loss ¡ Financial assets held for trading	Fair value
	Other investments	Fair value, in some cases amortised cost 1)
	Investment contracts – loans and receivables	Amortised cost
	Investment contracts: ¡ Financial instruments available for sale ¡ Financial assets classifi ed at fair value through profi t or loss ¡ Financial assets held for trading (derivatives)	Fair value
Other fi nancial assets
	Other assets, derivative fi nancial instruments (hedging instruments with positive market value)	Fair value
	Subordinated liabilities	Amortised cost
	Notes payable and loans	Amortised cost
	Other liabilities – derivative fi nancial instruments (trading portfolios with negative market value)	Fair value
	Other liabilities – derivatives (hedging instruments with negative market value)	Fair value
	Other liabilities investment contracts (other commitments)	Amortised cost
	Other liabilities – investment contracts: ¡ Financial assets classifi ed at fair value through profi t or loss ¡ Financial assets available for sale ¡ Derivatives	Fair value

1) For an itemised breakdown of fi nancial assets measured at amortised cost or fair value, see Note 10 "Other investments" on page 222

RISKS ASSOCIATED WITH INSURANCE CONTRACTS

The Group's business activities focus on the sale and administration of insurance products in all standard lines of property/casualty and life insurance in both the primary and reinsurance business.

Risk associated with insurance contracts consists principally of underwriting risk, default risk, liquidity risk, and market risk. Insurance risks in non-life insurance are considered separately from those in life/health insurance because of the signifi cant diff erences between the two.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

MANAGEMENT OF TECHNICAL RISK IN PROPERTY/ CASUALTY INSURANCE

With regard to non-life insurance (primary insurance and reinsurance), the principal risks are those involving premium/loss, reserving, and concentration.

The insurance business is based on assuming individual risks from policyholders (in primary insurance) and cedants (in reinsurance) and spreading these risks over the community of (re)insureds and over time. For the insurer, the fundamental risk (premium/loss risk) lies in providing insurance benefi ts, the amount and timing of which are unknown, from premiums that are calculated in advance and cannot be changed. Reserving risk means that loss reserves created on the balance sheet may prove to be insuffi cient, which can have a negative impact on the technical result. Concentration risk results from signifi cant geographical concentration of the insured risks as well as from concentration on certain business areas or insurance lines.

PREMIUM/LOSS RISK

We counter the assumed premium/loss risk, inter alia, by obtaining appropriate reinsurance. The volume of reinsurance cover relative to gross written premium is determined by the retention ratio, which shows the proportion of underwritten risks retained for our risk.

N29 RETENTION RATIO BY SEGMENT IN PROPERTY/CASUALTY INSURANCE

IN %

IN %

	2013	2012	2011	2010	2009	2008	2007 2)	2006	2005 2)	2004 2)
Industrial Lines	44.5	45.6	44.1	46.1	43.7	n. a.	n. a.	n. a.	n. a.	n. a.
Retail Germany	94.9	94.6	92.9	91.6	85.6	n. a.	n. a.	n. a.	n. a.	n. a.
Retail International	88.5	88.5	88.7	92.4	86.9	n. a.	n. a.	n. a.	n. a.	n. a.
Non-life primary insurance 1)	n. a.	n. a.	n. a.	n. a.	n. a.	66.7	61.2	61.6	62.0	42.3
Non-Life Reinsurance	89.9	90.2	91.3	88.9	94.1	89.0	82.2	82.0	76.1	83.9
Total property/casualty insurance	79.3	79.8	79.8	78.9	78.7	76.9	71.4	73.0	71.5	64.3

1) In 2010 the Group brought its segment reporting into line with IFRS 8 "Operating Segments" after having implemented a corporate reorganisation by

customer group in its primary insurance business. Because of cost/benefi t considerations, however, reporting for periods prior to 2009 was not retroactively adjusted

2) Due to changes in segment allocation, the years 2007, 2005 and 2004 are comparable to only a limited extent

N30 LOSS RATIO BY SEGMENT FOR OWN ACCOUNT

	2013	2012	2011	2010	2009	2008	2007 2)	2006	20052)	2004 2)
Industrial Lines	80.8	75.2	66.8	82.0	68.6	n. a.	n. a.	n. a.	n. a.	n. a.
Retail Germany	67.0	65.2	67.5	69.4	62.5	n. a.	n. a.	n. a.	n. a.	n. a.
Retail International	66.3	68.9	70.4	75.6	71.6	n. a.	n. a.	n. a.	n. a.	n. a.
Non-life primary insurance 1)	n. a.	n. a.	n. a.	n. a.	n. a.	69.1	73.5	73.7	69.4	77.2
Non-Life Reinsurance	70.3	70.7	78.8	72.0	72.8	70.5	73.6	71.3	82.4	76.3
Total property/casualty insurance	70.7	70.3	74.4	73.6	70.5	69.9	73.6	72.2	78.8	76.6

1) In 2010 the Group brought its segment reporting into line with IFRS 8 "Operating Segments" after having implemented a corporate reorganisation by customer group in its primary insurance business. Because of cost/benefi t considerations, however, reporting for periods prior to 2009 was not retroactively adjusted

2) Due to changes in segment allocation, the years 2007, 2005 and 2004 are comparable to only a limited extent

	140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

²⁰⁹ Notes on the consolidated balance sheet – assets

The increase in the loss ratio in the Industrial Lines segment is attributable to large claims. Following the natural disasters that occurred in the reporting year, especially the fl ooding in southern and eastern Germany, hailstorm "Andreas" and storm "Xaver", as well as the burdens caused by other major claims (particularly damage to property), the loss ratio increased by 5.6 percentage points. In the Retail Germany segment this ratio increased by 1.8 percentage points. Alongside the higher large claims and natural disaster claims that arose in the third quarter, this was also infl uenced signifi cantly by the participation of policyholders in our life insurers' investment income. Higher premiums and lower claim settlement costs in individual markets resulted in a decline in the loss ratio for the Retail International segment by 2.6 percentage points. The loss ratios in the Non-Life Reinsurance segment fell by 0.4 percentage points, despite the increased net burden in major losses of EUR 578 (478) million.

Overall, the loss ratio at Group level rose slightly by 0.4 percentage points. The moderate loss ratios in recent years refl ect our cautious underwriting policy and our success in active claims management.

Major losses are losses that exceed a stipulated amount or which fulfi l other criteria, and as such they have particular signifi cance for property/casualty insurance. The following table shows the major losses (net) during the fi nancial year in millions of euro, divided into natural catastrophes and other major losses, as well as their share of the Group's combined ratio:

N31 MAJOR LOSSES (NET) DURING THE FINANCIAL YEAR

	2013 1)	2012 1)	2011 2)
FIGURES IN EUR MILLION
Major losses (net)	838	600	1,173
thereof natural catastrophes	563	454	900
thereof other	275	146	273
IN %
Combined ratio for non-life primary insurance and reinsurance	96.9	96.4	101.0
thereof major losses (net)	6.8	5.1	11.5

1) Natural catastrophes and other major losses over EUR 10 million gross for the share of the Group

2) Natural catastrophes and other major losses over EUR 5 million gross (reinsurance, industrial liability insurance, industrial fi re insurance), over EUR 2.5 million gross (industrial marine insurance, industrial engineering insurance), and over EUR 1 million, gross (all other lines), for the share of the Group

RESERVING RISK

To ensure that we will be able to meet our benefi t commitments at all times, we establish provisions and continuously analyse their adequacy using actuarial methods. These also provide insights into the quality of the underwritten risks, their distribution across individual lines with diff ering risk exposures and anticipated claims and claims expenses. In addition, our portfolios are subject to active claims management. Analyses of the distribution of claim amounts and claim frequency facilitate targeted management of risks.

Loss reserves, which are calculated using actuarial methods, are supplemented where necessary by additional reserves based on our own actuarial claims estimates and by IBNR (losses incurred but not reported) reserves. In view of the long run-off of such claims, especially liability claims, IBNR reserves are calculated diff erently depending on risk class and region.

Adequately calculating reserves for asbestos-related claims and pollution damage is a highly complex matter, since in many cases several years or even decades may lapse between the harm being caused and a claim being reported. The Group's exposure to asbestosrelated claims and pollution damage is, however, relatively limited. The adequacy of these reserves is normally estimated on the basis of the survival ratio. This ratio expresses how long the reserves would last if the average amount of claims and claims expenses paid over the past three years were to continue. At the end of the year under review, our survival ratio in the Non-Life Reinsurance segment stood at 32.1 (29.1) years, and reserves for asbestos-related claims and pollution damage amounted to EUR 200 (210) million.

Licensed scientifi c simulation models, supplemented by the expertise of the relevant specialist departments, are used to estimate the major catastrophe risks associated with natural hazards (earthquakes, storms, fl ooding) for the Group on a consistent basis. Furthermore, we quantify the risk to our portfolio under various scenarios in the form of probability distributions. Monitoring of the portfolio's exposure to natural hazards (accumulation control) is rounded out by realistic extreme loss scenarios. The adequacy of the estimates and the simulation models employed as a whole are subject to a comprehensive and independent validation process. This means the independent risk control function performs a validation regardless of the units assuming risks.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

146 Statement of changes in shareholders' equity

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income 145 Statement of comprehensive income

149 General information

NOTES

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

In the following section "concentration risks" on the basis of selected relevant accumulation scenarios for natural hazards we report estimates for net loss burdens from these scenarios.

Run-off triangles are another tool used to test our assumptions within the Group. These triangles show how reserves change over time as claims are paid and as reserves to be established as at each balance sheet date are recalculated. Adequacy is monitored using actuarial methods (cf. item 21 in the Notes, "Loss and loss adjustment expense reserve"). In addition, the quality of our own actuarial calculations of the adequacy of reserves is verifi ed annually by external actuaries and auditors.

To hedge against inflation risk at least in part, our subsidiary Hannover Rück SE has obtained infl ation swaps (USD and EUR zerocoupon swaps). These derivatives serve to hedge parts of the claims reserves against infl ation risks. Infl ation risk means the possibility of infl ation causing our obligations (e.g. claims reserves) to develop diff erently than was assumed at the time when the reserves were established. We purchased infl ation cover for the fi rst time in the second quarter of 2010, with terms of four and fi ve years. This cover was increased in the fi rst quarter of 2011 (eight-year term). Moreover, to be able to more precisely the impact of an un expected change in infl ation on the Group's loss reserves, stress scenarios on the Talanx primary insurance group, and the resulting eff ects are regularly analysed by external actuaries.

Risk modelling shows that a 5% increase in the net loss ratio for the property/casualty primary and reinsurance segment would reduce aft er-tax net income by EUR 424 (406) million.

CONCENTRATION RISKS

In non-life insurance, concentration risk results, in particular, from geographical concentration and from insured natural-catastrophe risks.

We analyse extreme scenarios and accumulations that could lead to large losses. A uniform Global Event Set has been developed as part of Solvency II to analyse natural hazard accumulation risks.

Based on the most recently calculated fi gures, the estimates for the Group's net loss burdens under the following accumulation scenarios for natural hazards are as follows:

N32 ACCUMULATION SCENARIOS, INCLUDING NON-CONTROLLING INTERESTS, BEFORE TAX 1), 2)

FIGURES IN EUR MILLION

	2013	2012
250-year loss event Atlantic hurricane 3)	1,429	1,209
250-year loss event US earthquake 4)	1,032	978
250-year loss event Europe storm (winter storm)	954	670
250-year loss event Japan earthquake 5)	615	694
250-year loss event Pacifi c typhoon 6)	532	593
250-year loss event Australia earthquake 7)	545	575

1) Actual trends in natural hazards may diverge from the model assumptions

2) The geographical nature of the scenarios presented and the basis for the calculations were adjusted compared to the previous year. This resulted in changes to the fi gures compared with the 2012 annual fi nancial statements. Alongside general improvements to the model, the change was prompted by an eff ort to increase the consistency in terms of the limit system and the Group risk model further

• 3) Previous year's scenario limited to the USA
• 4) Previous year's scenario limited to California
• 5) Previous year's scenario limited to Tokyo
• 6) Previous year's scenario limited to Japan
• 7) Previous year's scenario limited to Sydney

In addition, other accumulation scenarios are regularly tested. We protect ourselves against peak exposures from accumulation risks by using carefully and individually selected reinsurance coverage. This enables us to eff ectively limit large individual losses and the impact of accumulation events and thereby to make them plannable.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

• 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

The following table depicts the distribution of loss provisions by region on both a gross and a net basis (aft er allowing for the reinsurers' share of these provisions):

N33 LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE 1)

FIGURES IN EUR MILLION

	Gross	Re	Net 2)
31.12.2013
Germany	8,366	1,368	6,998
United Kingdom	3,790	553	3,237
Central and Eastern Europe including Turkey (CEE)	1,381	68	1,313
Rest of Europe	7,160	1,254	5,906
USA	5,368	569	4,799
Rest of North America	964	627	337
Latin America	1,025	55	970
Asia and Australia	1,915	120	1,795
Africa	189	5	184
Total	30,158	4,619	25,539

7,675	1,336	6,339
3,590	527	3,063
1,298	67	1,231
7,169	1,362	5,807
5,485	726	4,759
882	493	389
890	269	621
2,265	178	2,087
225	10	215
29,479	4,968	24,511

1) After elimination of internal transactions within the Group across segments 2) After allowing for the reinsurers' share of these provisions

The following table shows the focus of the insurance business that we conduct in property/casualty primary insurance, broken down by key insurance types and segments:

N34 PREMIUM BY INSURANCE TYPE AND SEGMENT

FIGURES IN EUR MILLION
	Gross written premium	Net written premium
31.12.2013
Property/casualty primary insurance
Motor insurance	3,088	2,921
Property insurance	2,359	992
Liability insurance	1,579	882
Accident insurance	280	230
Other property/casualty insurance	902	645
Non-Life Reinsurance	7,818	7,031
Total	16,026	12,701
31.12.2012
Property/casualty primary insurance

Motor insurance	2,815	2,680
Property insurance	2,111	870
Liability insurance	1,501	828
Accident insurance	309	255
Other property/casualty insurance	674	485
Non-Life Reinsurance	7,717	6,959
Total	15,127	12,077

INTEREST RATE RISK

In the case of the reserve for pension benefi ts, which forms part of the loss and loss adjustment expense reserve, we also monitor interest rate trends, which can embody interest rate risk. A fall in actuarial interest rates, at least in local accounting, would result in a charge to income owing to the need to establish a reserve.

MANAGEMENT OF UNDERWRITING RISK IN LIFE/HEALTH INSURANCE

Typical risks in life/health primary and reinsurance stem from policies containing long-term benefi t guarantees. Along with interest rate risk, biometric and lapse risks are particularly relevant here.

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

<-- PDF CHUNK SEPARATOR -->

BIOMETRIC RISK

Biometric actuarial bases such as mortality, longevity and morbidity are established when the policy is taken out and used to calculate premiums and reserves as well as to assess deferred acquisition costs. Over time, however, these assumptions may no longer prove to be accurate, in which case additional expenditures may be required. The adequacy of biometric actuarial bases is therefore regularly reviewed.

Due to this risk, the calculation bases and our expectations may prove inadequate. Our life insurers use a variety of tools to counter this possibility.

• ¡ In calculating premiums and technical provisions, Group companies use prudently quantifi ed biometric actuarial parameters, the adequacy of which is regularly assured by continuously comparing claims expected according to mortality and morbidity tables against claims actually incurred. In addition, the actuarial bases make appropriate allowance for risks of error, random fl uctuation and change by applying commensurate safety margins
• ¡ Life insurance policies are typically long-term contracts with a discretionary surplus participation. Minor changes in assumptions with respect to biometric factors, interest rates and costs used as a basis for calculations are absorbed by the safety margins built into the actuarial bases. If such safety margins are not needed, they generate surpluses that

are largely passed on to policyholders in accordance with statutory requirements. The impact on profi tability in the event of a change in risk, cost or interest rate expectation can thus be limited by adjusting the policyholders' future surplus participation

• ¡ We regularly review the lapse patterns of our policyholders and the lapse trends of our insurance portfolio
• ¡ Additional protection is obtained through reinsurance against certain – primarily biometric – risks

The described biometric risk is also of special importance in life/ health reinsurance. Reserves are mainly calculated using information provided by our cedants. The plausibility of this information is checked against reliable biometric actuarial bases. Furthermore, local regulatory authorities ensure that cedant-calculated reserves satisfy all requirements in terms of the adopted actuarial methods and assumptions (e.g. use of mortality and morbidity tables, assumptions regarding lapse rates). Lapse risk and credit risk are also of importance when prefi nancing our cedants' acquisition costs. Interest guarantee risk, on the other hand, has only minimal relevance in most instances due to the structures of the contracts.

The volume of reinsurance cover relative to gross written premium is determined by the retention ratio, which shows the proportion of the underwritten risks that we bear.

N35 RETENTION RATIO BY SEGMENT IN LIFE/HEALTH INSURANCE

IN %
	2013	2012	2011	2010	2009	2008	2007	2006	2005	2004
Retail Germany	93.9	94.4	93.6	92.9	90.4	n. a.	n. a.	n. a.	n. a.	n. a.
Retail International	95.8	89.7	82.8	84.1	83.3	n. a.	n. a.	n. a.	n. a.	n. a.
Life/Health Primary Insurance 1)	n. a.	n. a.	n. a.	n. a.	n. a	87.9	86.9	86.0	85.2	78.7
Life/Health Reinsurance	87.7	89.3	91.0	91.7	90.7	89.3	90.8	85.4	92.8	91.2
Total life/health insurance	90.9	91.3	91.8	91.8	90.1	88.4	88.5	85.8	88.2	86.5

1) In 2010 the Group brought its segment reporting into line with IFRS 8 "Operating Segments" after having implemented a corporate reorganisation by customer group in its primary insurance business. Because of cost/benefi t considerations, however, reporting for periods prior to 2009 was not retroactively adjusted

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

SENSITIVITY ANALYSIS

We measure sensitivity to these risks using an embedded value analysis. The Market Consistent Embedded Value (MCEV) is a key risk management tool. It describes the present value of future shareholders' earnings plus shareholders' equity less the cost of capital for life/ health primary and reinsurance business aft er appropriate allowance for all risks underlying this business. The embedded value is market consistent inasmuch as it is arrived at using a capital market valuation that meets certain requirements: free of arbitrage and risk neutral, with the modelling of fi nancial instruments providing current market prices.

The New Business Value (NBV) is also taken into consideration. The MCEV and the NBV describe the present value of future shareholders' earnings from the life primary insurance and Life/Health Reinsurance businesses aft er appropriate allowance for all risks underlying the business in question.

The MCEV is calculated for our major life insurers and for the Life/ Health Reinsurance business written by Hannover Rück SE. Sensitivity analyses highlight the areas of life/health insurance in which the Group's life insurers and hence the Group as a whole are exposed, and they off er indications of the areas that should be emphasised from a risk management standpoint. The analyses take into account sensitivity to mortalities, lapse rates, administrative expenses, interest rates and equity prices.

In reinsurance business, MCEV sensitivity is determined by the technical risk. Whereas changes in assumptions regarding mortality/morbidity, lapse, and costs have a signifi cant infl uence on the MCEV, the impact from changes in basic economic conditions is minor. By contrast, the MCEV in primary insurance business is chiefl y infl uenced by basic economic conditions. The main driving force is change in interest rates, whereas technical risk has less of an infl uence on the MCEV. In conformity with IFRS 4, we describe below the relevant sensitivities and their eff ects on the MCEV in exclusively qualitative terms.

Sensitivity to mortalities

The exposure of the Group's life insurers varies according to the type of insurance products they off er. Thus, lower-than-expected mortality has a positive eff ect on products primarily involving a death or morbidity risk and a negative impact on products with a longevity risk – with corresponding implications for the MCEV.

Sensitivity to lapse rates

Under contracts with a surrender option, the recognised benefi t reserve is at least as high as the corresponding surrender value, and hence the economic impact of the lapse pattern tends to be infl uenced more by the amount of cancellation charges and other product characteristics. A higher-then-expected lapse rate would to some extent negatively aff ect the MCEV.

Sensitivity to administrative expenses

Higher-than-expected administrative expenses would result in a reduction of the MCEV.

Sensitivity to interest rates and equity prices

In life primary insurance, the obligation to generate minimum returns to cover contractually guaranteed benefi ts gives rise to considerable interest guarantee risk. Fixed-income investments normally have a duration shorter than that for obligations under insurance contracts (duration mismatch).

Technical provisions are arranged according to the expected maturity, and investments, according to the remaining contract duration. Contained in this is a duration (Macaulay Duration) of 9.9 (9.6) for recognised obligations and of 7.2 (6.8) for fi xed-income securities (including interest rate derivatives).

This leads to a risk in terms of re-investing accumulated credit balances as well as to a fi rst-time investment risk for premiums received in the future. If the investment income generated over the remaining duration of the obligations falls short of the interest payable under the guarantees, this leads to a reduction in income and a decrease in the MCEV.

Because of the way life insurance contracts are structured, German life insurers in particular are aff ected by interest guarantee risk. For German life insurance companies and pension funds in the Talanx Group, the average guaranteed interest rate – weighted according to the companies' gross provisions – is 2.97 (3.13)% in 2013.

A decline in equity prices would also negatively impact the MCEV, although this impact would be very minor due to the currently low share of equities.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
  -

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

DERIVATIVES EMBEDDED IN LIFE INSURANCE CONTRACTS AND NOT RECOGNISED SEPARATELY

Insurance products of primary life insurers may include the following major options on the part of policyholders if agreed upon when the contract was taken out:

• ¡ Minimum returns/guaranteed interest rate: This entails a risk that current interest rates might be signifi cantly lower than the discount rate used to calculate the insurance benefi ts. In this case, generated interest earnings may not suffi ce to cover compounding amounts. This option is taken into account with respect to adequacy testing pursuant to IFRS 4.
• ¡ Surrender of policy and premium waiver: There is a risk that, on the one hand, surrender may result in the obligation to pay the corresponding insurance benefi t in cash to policyholders and, on the other, a premium waiver may result in cessation of further liquidity fl ows on account of the lack of premium payments by policyholders. Allowance is made for this risk through suitable liquidity planning.
• ¡ Increase in insured benefi t without subsequent medical examination – usually with the actuarial bases with respect to the biometric factors and the guaranteed return applicable at that time (index-linked adjustment, supplementary insurance guarantees in the event of certain changes in living conditions): Here there is a risk that policyholders may be able to obtain insurance at a premium lower than that corresponding to their health risk, since possible surcharges may not have been imposed.
• ¡ Possibility under deferred annuity policies to take a one-time payment of the insured benefi t (lump-sum option) instead of drawing a pension. This entails a risk that an unexpectedly large number of policyholders might exercise their lump-sum option at an interest rate signifi cantly higher than the discount rate used to calculate the annuities. However, there is no direct interest rate or market sensitivity to exercise the lump-sum option, since personal factors of policyholders have a material infl uence on existing insurance components. This option is taken into account with respect to adequacy testing pursuant to IFRS 4.

With unit-linked products, policyholders may opt to take ownership of the accumulated units upon maturity of the contract (benefi t in kind) instead of accepting payment of their equivalent value at that time. In this regard, there is no direct market risk.

Other embedded derivatives are economically insignifi cant.

With life/health insurance, a number of contracts have features that require embedded derivatives to be split from the underlying insurance contract and, pursuant to IAS 39, recognised separately at market value. In this regard, cf. our remarks in item 13 in the Notes, "Derivative fi nancial instruments and hedge accounting".

CONCENTRATION RISKS

With life insurance, concentration risk is not as signifi cant as interest guarantee risk. In this regard, cf. the subsection "Sensitivity analysis" and the remarks on "Sensitivity to interest rates and equity prices".

With respect to geographical concentration, cf. the following table, which depicts the distribution of the benefi t reserve by region on both a gross and a net basis (aft er allowing for the reinsurers' share of these provisions) for life/health insurance.

N36 BENEFIT RESERVE BY REGION 1)

FIGURES IN EUR MILLION

	Gross	Re	Net
31.12.2013
Germany	37,789	477	37,312
United Kingdom	4,922	18	4,904
Central and Eastern Europe including Turkey (CEE)	962	—	962
Rest of Europe	2,445	47	2,398
USA	2,164	110	2,054
Rest of North America	490	—	490
Latin America	15	—	15
Asia and Australia	850	179	671
Africa	39	—	39
Total	49,676	831	48,845
31.12.2012
Germany	36,721	489	36,232
United Kingdom	4,769	17	4,752
Central and Eastern Europe including Turkey (CEE)	705	—	705
Rest of Europe	2,289	75	2,214
USA	2,891	125	2,766
Rest of North America	88	219	–131
Latin America	20	—	20
Asia and Australia	632	92	540
Africa	46	—	46
Total	48,161	1,017	47,144

1) After elimination of internal transactions within the Group across segments

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

MANAGEMENT OF CREDIT RISKS ASSOCIATED WITH INSURANCE CONTRACTS

Accounts receivable on insurance business are subject to credit risk. In order to limit this risk, we always take care to ensure that debtors are creditworthy, measuring this, for instance, in terms of standard market rating categories. We choose our reinsurers carefully from the standpoint of creditworthiness and constantly monitor these selections.

Accounts receivable from policyholders and insurance intermediaries are generally unsecured. The default risk on these receivables is subject to constant monitoring in connection with our risk management. This has to do with a large number of receivables in relatively modest amounts due from a diverse array of debtors. Most of these receivables are due from policyholders who do not have a rating. Only commercial clients in excess of a certain magnitude can provide independent assessments of their creditworthiness. Insurance intermediaries are either individual brokers or broker organisations, which likewise do not normally have a rating. Each Group company operates its own eff ective dunning process designed to reduce outstanding receivables that result from delays in or defaults on premium payments from policyholders direct or through intermediaries. Intermediaries are also subject to creditworthiness reviews.

Credit risk also arises in primary insurance business in connection with accounts receivable from reinsurers and in reinsurance business in connection with receivables from retrocessionaires, since gross written business is not always fully retained but instead (retro)-ceded as necessary. In passive reinsurance we pay close attention to ensuring that our reinsurers are fi nancially very sound, especially in the case of long-tail accounts.

The Group counters the default risk associated with accounts receivable from reinsurers and retrocessionaires by having security committees carefully select reinsurance partners. These committees constantly monitor creditworthiness and, where necessary, take appropriate measures to secure receivables. Security standards are generally applied uniformly when selecting reinsurance partners. In the area of primary insurance, our wholly owned reinsurance broker Talanx Reinsurance Broker AG manages reinsurance cessions in accordance with security and placement guidelines by setting cession amounts and by regularly calculating absolute and relative cession limits while taking into account various default probabilities such as by duration of the reinsurance contract, rating and the reinsurer's capital. To limit concentrations, an upper limit is set for each reinsurance group's share of total loss provisions.

Default risk associated with reinsurance business is essentially managed on the basis of system-supported cession control: cession limits are set for individual reinsurance partners, and free capacities are ascertained for short-, medium-, and long-term business. Depending on the type of reinsured business and the anticipated run-off duration, the selection of reinsurers takes into consideration not just minimum ratings issued by the rating agencies Standard and Poor's and A. M. Best, but also internal and external expert assessments (e.g. market information from brokers). In addition to standard retrocessions in Non-Life Reinsurance, Hannover Rück SE also transfers risks to the capital market.

In the three primary insurance segments, claims arising out of passive reinsurance, e.g. the cession of risks that we have assumed – the reinsurer's share – amounted to EUR 4.7 (4.8) billion. The resulting reinsurer's share of the loss and loss adjustment expense reserve amounted to EUR 3.5 (3.7) billion.

The ratings of counterparties to the reinsurer's share of the loss and loss adjustment expense reserves at the Group level were as follows, cf. table N37.

Accordingly, 89 (83)% of our reinsurers are rated A or better. In determining the ratings, allowance has already been made for any collateral received – such as deposits or letters of credit.

Serving as the equivalent of the maximum exposure to default risk as at the balance sheet date, the book value of fi nancial assets related to insurance business – irrespective of collateral or other agreements that serve to minimise default risk – was as follows (excluding funds withheld by ceding companies), cf. table N38.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

¹⁴⁵ Statement of comprehensive income

N37 REINSURANCE RECOVERABLES ON TECHNICAL PROVISIONS BY RATING

	IN

IN %
	AAA	AA	A	BBB	<BBB	Without
2013
Reinsurance recoverables on technical provisions	— (1)	45 (43)	44 (39)	2 (2)	— (1)	9 (14)

N38 BOOK VALUES OF FINANCIAL INSTRUMENTS ASSOCIATED WITH INSURANCE CONTRACTS

FIGURES IN EUR MILLION

	Industrial Lines	Retail Germany	Retail International	Non-Life Reinsurance	Life/Health Reinsurance
31.12.2013 1)
Receivables
Policy loans	—	190	2	—	—
Accounts receivable from policyholders	315	207	659	—	—
Accounts receivable from insurance intermediaries	307	110	64	428	—
Accounts receivable from reinsurance business	493	25	86	1,156	1,221
Other assets
Reinsurance recoverables on technical provisions	3,571	773	386	1,277	589
Total	4,686	1,305	1,197	2,861	1,810
31.12.2012 1)
Receivables
Policy loans	—	190	2	—	—
Accounts receivable from policyholders	310	155	644	—	—
Accounts receivable from insurance intermediaries	345	148	57	397	—
Accounts receivable from reinsurance business	465	11	50	1,151	1,348
Other assets
Reinsurance recoverables on technical
provisions	3,706	703	429	1,388	763

1) Presentation after elimination of intra-Group relations between segments

Funds withheld by ceding companies represent the cash and securities deposits furnished by Group companies to cedants. These funds do not trigger any cash fl ow movements and cannot be disposed of by cedants without the consent of our companies. The durations of these deposits match the corresponding provisions. In the event that a ceding company were to default on funds it has withheld, technical provisions would be reduced by the same amount. Credit risk is therefore limited and as a result not shown in the above table.

Accounts receivable from the passive reinsurance business in the three primary insurance segments (aft er deduction of impairments) amounted to EUR 494 (464) million. As at the balance sheet date, more than 52 (57)% of these accounts receivable were rated A or better.

In the two reinsurance segments, claims due from retrocessionaires amounted to EUR 1.9 (2.2) billion as at the balance sheet date. Altogether, 89 (90)% of retrocessionaires have an investment-grade

140 CONSOLIDATED FINANCIAL STATEMENTS

• NOTES 183 Consolidation
• 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

rating. Of these, almost 89 (87)% are rated A or better. The large proportion of reinsurers with top ratings refl ects our policy of avoiding default risk in this area wherever possible.

The accounting balance (income for primary insurer), defi ned as the reinsurers' share of earned premiums less the reinsurers' share of gross expenses for insurance benefi ts and insurance operations, was –EUR 444 (–458) million for the year under review.

	ACCOUNTS RECEIVABLE ON INSURANCE BUSINESS THAT WERE OVERDUE
N39	BUT NOT IMPAIRED AS AT THE BALANCE SHEET DATE

FIGURES IN EUR MILLION

	> 1 day < 3 months	> 3 months < 1 year	> 1 year
31.12.2013
Accounts receivable from policyholders	350	121	37
Accounts receivable from insurance intermediaries	148	31	6
Accounts receivable from reinsurance business	365	309	219
Total	863	461	262
31.12.2012
Accounts receivable from policyholders	322	90	22
Accounts receivable from insurance intermediaries	198	42	8
Accounts receivable from reinsurance business	706	195	213
Total	1,226	327	243

Overdue accounts receivable on insurance business are composed of receivables that had not been paid by the due date and were still outstanding as at the balance sheet date. .

As at the balance sheet date, accounts receivable from insurance business by primary insurers with policyholders and insurance intermediaries that were in arrears by more than 90 days amounted to EUR 158 (112), of which EUR 37 (50) million remains in arrears by more than one year. This is equivalent to a rate of 13 (10)% and 4 (5)%, respectively. The combined average default rate over the past three years was 1.2 (1.5)%. The default rate in 2013 is 1.4 (1.2)%. Accounts receivable from the passive reinsurance business that were in arrears by more than 90 days amounted to EUR 203 (207) million, corresponding to a rate of 38 (42)%.

As regards the major companies in the Non-Life Reinsurance and Life/Health Reinsurance segments (the Hannover Re Group), reinsurance business totalled EUR 2.9 (3.1) billion. As at the balance sheet date, accounts receivable that were in arrears by more than 90 days, and in some cases impaired, amounted to EUR 301 (175) million. This represents a rate of 10.2 (5.7)%. The average default rate over the past three years is 0.1 (0.1)%.

Some 47 (42)% of receivables from ceded reinsurance business (Non-Life Reinsurance segment) were secured by deposits or letters of credit. We also act as reinsurer for most of our retrocessionaires, so we would normally be able to off set any defaults against our own liabilities.

No impairments were taken for accounts receivable from insurance business where the default risk associated with the assets is reduced by collateral (such as letters of credit, cash deposits, securities deposits).

Impaired receivables can be broken down as follows:

N40 ANALYSIS OF INDIVIDUALLY IMPAIRED ASSETS ASSOCIATED WITH INSURANCE CONTRACTS

FIGURES IN EUR MILLION

	Risk provision	thereof attribut able to 2013/2012	Book value after risk provision
31.12.2013
Accounts receivable from policyholders	77	13	1,181
Accounts receivable from insurance intermediaries	23	2	909
Accounts receivable from reinsurance business	54	–7	2,981
Total	154	8	5,071
31.12.2012
Accounts receivable from policyholders	64	38	1,109
Accounts receivable from insurance intermediaries	21	2	947
Accounts receivable from reinsurance business	61	13	3,025
Total	146	53	5,081

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

Impairments on accounts receivable from insurance business, which we recognise in separate impairment accounts, developed as follows in the year under review:

N41 IMPAIRMENTS ON ACCOUNTS RECEIVABLE FROM INSURANCE BUSINESS

FIGURES IN EUR MILLION

	2013	2012
Cumulative impairments as at 31.12 of the previous year	146	93
Change in scope of consolidation	—	—
Impairments during the fi nancial year	28	35
Write-ups	13	—
Exchange rate fl uctuations	–2	1
Other changes	–5	17
Cumulative impairments as at 31.12 of the fi nancial year	154	146

Default risk associated with accounts receivable from insurance business was generally determined on the basis of individual analyses. Any existing collateral was taken into account. The proportion of impaired receivables stood at 3 (3)%.

N42 IMPAIRMENT RATES

IN %
	31.12.2013	31.12.2012
Accounts receivable from policyholders	6.1	5.5
Accounts receivable from insurance intermediaries	2.5	2.2
Accounts receivable from reinsurance business	1.8	2.0

N43 ANNUAL DEFAULT RATES

IN %
	31.12.2013	31.12.2012
Accounts receivable from policyholders	1.4	1.2
Accounts receivable from insurance intermediaries	0.7	1.2
Accounts receivable from reinsurance business	0.1	0.2

RISKS ASSOCIATED WITH INVESTMENTS

Risks associated with investments principally consist of market risk, counterparty default risk and liquidity risk, whereby market risk includes risk associated with changes in interest rates, changes in yield mark-ups for bonds of issuers prone to credit risk, foreign currency risk and risk associated with price changes.

MANAGEMENT OF RISKS ASSOCIATED WITH INVESTMENTS

The structure of assets under own management (excluding funds withheld by ceding companies) is regularly examined in order to monitor strategic asset allocation.

N44 WEIGHTING OF MAJOR ASSET CLASSES

IN %
	Parameter as per investment guidelines	Position as at 31.12.2013	Position as at 31.12.2012
Bonds (direct holdings and investment funds)	At least 50	91	91
Listed equities (direct holdings and investment funds)	At most 25	1	1
Real estate (direct holdings and investment funds)	At most 5	3	2

Our comprehensive asset/liability management systems endeavour to balance the investment goals of security, profi tability, liquidity, mix and spread and are subject to compliance with the company's risk-carrying capacity and regulatory requirements. The main challenges to achieving these investment goals are market risk, counterparty default risk and liquidity risk. Limits are set using the Talanx limit and threshold system for the weighting of investment classes. These did not change over the previous year, whereby there are still small diff erences between property/casualty insurers, life primary insurance and the reinsurance segments. The ratios presented for bonds, equities and real estate as of 31 December 2013 are within the defi ned Group limits.

MARKET RISK

Market risk consists primarily of the risk that the market prices of fi xed-income assets and equities may change and of the risk that exchange rates may fl uctuate where there is no matching cover. This may lead to a need to take impairments or to losses being realised when fi nancial assets are sold. A decline in interest rates related to the reinvestment may also reduce investment income.

One important means of monitoring and controlling market price risk is continuous analysis of value at risk (VaR), where alongside investments, consideration is also given to projected cashfl ows from underwriting commitments and their sensitivity to market risk factors (ALM-VaR). The ALM-VaR is based on historical market data and represents a model-based forecast for the maximum loss potential within a given holding period (e.g. ten days), which cannot

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

be exceeded with the given probability. The ALM-VaR is calculated based on a confi dence level of 99.5% and a holding period of ten days. This means that there is a 0.5% probability of this estimated loss potential being exceeded within ten days. The input data for the calculation are portfolio investment values, which are updated daily. Alongside the portfolio data for investments, replicating portfolios for the projected cashfl ows from underwriting commitments are also taken into account in the form of payment obligations (so-called short positions) to refl ect and monitor dependencies between investments and underwriting benefi ts as well as any existing duration gap in the investment. A duration gap is the mismatch in fi xed interest rate durations between investments and commitments.

The market data used for this risk model cover the past 521 weeks. On this basis, 520 weekly changes are calculated for each relevant market parameter, such as equity prices, exchange rates, commodities prices and interest rates, and then used to ascertain the ALM-VaR. The time series used as the basis for calculating the risk parameters are updated monthly, with the market parameters of the oldest four weeks being removed and replaced by those of the last four weeks. The risk model is thus recalibrated monthly on the basis of the updated market data.

The risk model used is a multi-factor model based on a multitude of representative time series, e.g. interest rates, exchange rates and stock indexes, from which all risk-relevant factors can be ascertained by using on principal component analysis. Correlations between the time series are taken into account in the weighting of risk factors. In this way the risk assessment makes allowance for cumulative and diversifi cation eff ects. The individual elements of the portfolio are analysed through regression towards these factors. The factor weightings ascertained in this process establish a correlation between movements in the factors, which in turn were extrapolated from movements in the representative time series, and movements in the securities. Risks associated with securities are extrapolated by simulating trends in the factors. The risk associated with derivatives, such as options, is extrapolated through comprehensive remeasurement during risk simulation, which also takes into account non-linear correlations between option prices and price movements in the underlying instruments.

The ALM-VaR is ascertained using normal market scenarios extrapolated from the past.

As at 31 December 2013 the ALM-VaR (confi dence level 99.5%, holding period of ten days) totalled EUR 1.3 billion, corresponding to 1.5% of the investments observed.

Besides the rather long-term monitoring of risk-carrying capacity of the market risks associated with the investments, a model version is used to identify risks early where only the last 180 weekly yields are considered and where market observations from the most recent past have a stronger infl uence on risk fi gures through the use of exponential weighting. This version exhibits a much higher sensitivity of the ALM-VaR model to current volatility changes on the capital markets and can also provide early indications of higher risk.

These stress tests and scenario analyses complement the range of our management tools. In the case of interest-rate-sensitive products and equities, we calculate a possible change in fair value on a daily basis using a historical worst-case scenario, estimating the potential loss under extreme market conditions. In connection with the scenarios, we simulate changes in equity prices, exchange rates, general interest rates and yields for bonds of issuers prone to credit risk (spreads). Interest rate risk means that the value of fi nancial assets held in the portfolio may change unfavourably due to changes in market interest rates. The fair value of the fi xedincome securities portfolio increases with declining market yields and decreases with rising market yields. (Unsecured) equity price risk means that the value of equities and equity- or index-linked derivatives may change unfavourably due to e.g. downward movements on particular stock indexes. Currency risk is of considerable importance to an internationally operating insurance group that writes a signifi cant amount of its business in foreign currencies.

The following table shows scenarios depicting trends in investments held by the Group as at the balance sheet date. The amounts shown are gross amounts. In particular, the depicted eff ects make no allowance for taxes or the provision for premium refunds. Eff ects in connection with surplus participations to policyholders in life/ health primary insurance are thus not part of the analysis. If allowance were made for these eff ects, the depicted impact on earnings and shareholders' equity would be much milder.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

N45 SCENARIOS DEPICTING CHANGES IN THE FAIR VALUE OF ASSETS HELD BY THE GROUP AS AT THE BALANCE SHEET DATE

FIGURES IN EUR MILLION

Portfolio	Scenario		Recognised in the statement of income 1)	Recognised in other comprehen sive income 1)	31.12.2013 Portfolio change based on market value 2)	31.12.2012 Portfolio change based on market value 2)
Equities 3)
	Share prices	+20%	31	154	185	+175
	Share prices	+10%	16	77	93	+88
	Share prices	–10%	–20	–93	–113	–109
	Share prices	–20%	–41	–186	–227	–219
Fixed-income securities
	Yield increase	+200 bps	–325	–4,618	–9,764	–9,283
	Yield increase	+100 bps	–182	–2,465	–5,262	–4,972
	Yield decrease	–100 bps	215	2,675	5,534	+5,372
	Yield decrease	–200 bps	452	5,628	11,596	+11,489
Exchange-rate-sensitive investments
	Change in exchange rate 4)	+10%	–1,847	–137	–1,984	–2,374
	thereof USD		–1,185	–108	–1,293	–1,263
	thereof GBP		–277	–2	–279	–277
	thereof AUD		–151	—	–151	–183
	thereof other		–234	–27	–261	–651
	Change in exchange rate 4)	–10%	1,847	137	1,984	+2,374
	thereof USD		1,185	108	1,293	+1,263
	thereof GBP		277	2	279	+277
	thereof AUD		151	—	151	+183
	thereof other		234	27	261	+651

1) Gross (before taxes and surplus participation)

2) Including fi nancial assets in the categories "Loans and receivables" and "Financial assets held to maturity"

3) Including derivatives

4) Exchange rate fl uctuations of +/–10% versus the euro, on the basis of the balance sheet values

The breakdown by currency of our investments under own management, including investment contracts, was as follows:

N46 INVESTMENTS

IN %
	31.12.2013	31.12.2012
EUR	76	70
USD	15	15
GBP	3	3
AUD	2	2
Other	4	10
Total	100	100

We use derivative fi nancial instruments to partially hedge portfolios, especially against price, currency and interest rate risks and to optimise our portfolio in light of risk/return considerations. Contracts are concluded solely with fi rst-class counterparties and in compliance with the standards defi ned in the investment guidelines in order to avoid risks – especially credit risks – associated with the use of such transactions (for counterparty default risk cf. also the following section). By systematically adhering to the principle of matching currency coverage, we are also able to signifi cantly reduce foreign currency risk within the Group. More information on the use of derivative fi nancial instruments can be found in item 13 "Derivative fi nancial instruments and hedge accounting" in the Notes – assets.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

COUNTERPARTY DEFAULT RISK

Counterparty default risk describes the risk that a borrower is not willing or, in the case of insolvency, is not capable of meeting its obligations with respect to its creditors.

At the Talanx Group, counterparty default risk for investments comprises the following risks:

• ¡ Issuer risk (default risk, migration risk)
• ¡ Counterparty risk (replacement risk and settlement risk)
• ¡ Concentration risk

Counterparty default risk is primarily limited by the Talanx limit and threshold system and by our investment guidelines and is constantly monitored. To this end, limits are determined at portfolio, issuer/counterparty and sometimes asset class level, ensuring a broad mix and spread in the portfolio. The credit rating of the issuer is the main requirement for the investment decision. Credit rating assessments are based on the Group's own credit risk analyses, which are supplemented by ratings from external agencies such as Standard & Poor's or Moody's. New investments are largely restricted to investment-grade securities. An early-warning system has been implemented on the basis of market information (especially credit spreads and equity prices) to recognise initial signs of a critical situation at companies and to identify potential migration risks. To reduce counterparty risk, OTC transactions are only carried out with a select group of counterparties, and crossproduct framework agreements are agreed on that comprise both netting and collateral services (cf. item 13 in the Notes on "Derivative fi nancial instruments and hedge accounting). We also use credit default swaps to hedge credit risks.

In the Group, counterparty default risk is characterised at the level of the individual counterparty using the following principal risk components:

• ¡ Probability of default (PD) is based on an internal rating and describes the probability that a debtor will default within a defi ned period
• ¡ Loss given default (LGD) shows the anticipated loss in the event of default on the investment. It relates to the specifi c issue and is infl uenced by the nature and degree of the security and the seniority of receivables
• ¡ Exposure at default (EAD) shows the anticipated amount of the receivable at the time of default
• ¡ Change in credit spreads with constant, objective credit condition

An expected loss is calculated for the investment that takes into account the rating, the probability of default assigned to that investment and the expected loss rate. In addition, at the portfolio level, an unexpected loss (i.e. possible deviation from expected loss) and a credit VaR are calculated. The credit VaR takes into account specifi c features for individual credit risk assessment as well as portfolio concentrations (sectors, countries, debtor groups) and correlations between individual levels. The credit VaR shows the impairment to the observed portfolio of investments occasioned by credit risk, and this may not be exceeded at a stipulated probability for a period of one year.

The procedure for risk calculation defi ned in this way ensures that, taking into account clustering eff ects, higher-risk investments are assigned signifi cantly higher risk than lower-risk investments. The risk parameters ascertained in this way are grouped together at various control levels and aid in the monitoring and control of credit risk.

As at 31 December 2013, the credit VaR for the entire Group amounted to EUR 2,982 (2,918) million, or 3.5 (3.4)% of assets under own management. In comparison with the previous year, the credit VaR ratio of 3.4% thus rose by 0.1 percentage point. In internal risk quantifi cation, all investments exposed to credit risk, with the exception of country exposure, have a rating better than AA– and are therefore modelled signifi cantly more conservatively than in the current version of the Solvency II standard model.

N47 CREDIT VAR

FIGURES IN EUR MILLION
	31.12.2013	2012
Rating downgraded by one level	3,535	3,509
Rating downgraded by two levels	4,300	4,317
Increase in LGD by 10 percentage points	3,725	3,597

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

The table shows the sensitivity of the credit portfolio to certain credit scenarios, measured as credit VaR. It depicts both the impact of a downgrade in issuer ratings by one or two levels and the reduction of the expected recovery rates in the event of payment default. Sensitivities are ascertained by keeping all other parameters constant.

The maximum default risk exposure (of our investments, excluding funds withheld by ceding companies) as at the balance sheet date, irrespective of collateral or other agreements that serve to minimise default risk, corresponds to the balance sheet item.

Investments are serviced regularly by the debtors. Collateral is in place particularly for covered bonds/asset-backed securities and for mortgage loans secured by a charge on property.

In the Group, a total of EUR 527 (372) million in fi nancial assets serves to secure liabilities and contingent liabilities. Of this amount, carrying amounts of EUR 92 (84) million secure existing derivative transactions for which separate assets are maintained in blocked custody accounts. We have received collateral with a fair value of EUR 60 (9) million for existing derivative transactions. In addition, Hannover Re Real Estate Holdings granted customary collateral to various credit institutions for liabilities in connection with real estate investments and transactions. As at the balance sheet date, this collateral amounted to EUR 460 (288) million.

For further information about collateral granted by the Group or received in connection with business, cf. "Contingent liabilities and other fi nancial commitments" in the section "Other information".

With the exception of mortgage loans, the portfolio did not contain any overdue, unadjusted assets as at the balance sheet date, because overdue securities are written down immediately. Mortgage loans show arrearages totalling EUR 19 (17) million. This fi gure includes accounts receivable of EUR 7 (4) million in arrears by more than 12 months. Since these receivables are adequately secured by charges on property, no impairment was taken. Pursuant to contractual provisions, realisation is possible only in the event of failure to perform. With regard to impairments taken on investments during the year under review, cf. item 30 in the Notes, page 259.

Credit rating structure of investment portfolio: As at the end of the reporting period, 95 (95)% of our investments in fi xed-income securities were issued by debtors with an investment-grade rating (AAA to BBB), with 81 (83)% rated A or better. Upon acquisition debenture bonds and registered debt securities are assigned an internal rating that is derived, where possible, from the issuer's rating. Approximately 61 (61)% of short-term investments, mainly in overnight money, time deposits and money-market securities with a maturity of up to one year (balance sheet item: "Other investments") are rated A or better.

The rating structures of our fi xed-income securities, diff erentiated by balance sheet item, as well as investment contracts and shortterm investments are presented in the relevant items in the "Notes on the consolidated balance sheet – assets".

MANAGEMENT OF CONCENTRATION RISK

A broad mix and spread of asset classes is maintained in order to minimise portfolio risk. Concentration risk is limited by the Talanx limit and threshold system and by our investment guidelines and is constantly monitored. It is comparatively slight overall, even where in the past bank mergers may have signifi cantly increased concentrations. Investments may be made in higher-risk assets only to a limited extent.

Overall, the measurement and monitoring mechanisms described here result in a prudent, broadly diversifi ed investment strategy. This is refl ected in the fact that, within its portfolio of assets under own management, the Group's exposure to government bonds issued by so-called GIIPS countries totals no more than EUR 1.5 (1.0) billion on a market-value basis, which corresponds to a proportion of 1.8 (1.2)%. Italy accounts for EUR 1,144 (647) million of this sum, Spain EUR 107 (88) million, Ireland EUR 258 (235) million, Portugal EUR 20 (26) million and Greece EUR 6 (4) million.

The following table shows the exposure to GIIPS countries, including corporate bonds we hold on a market-value basis.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

N48 GIIPS EXPOSURE IN FIXED-INCOME INVESTMENTS

FIGURES IN EUR MILLION

			Corporate securities
31.12.2013 1)	Government bonds	Semi-government bonds	Financial bonds	Industrial bonds	Covered bonds/ asset-backed securities	Other	Total
Greece	6	—	—	—	—	—	6
Ireland	258	—	10	49	137	234	688
Italy	1,144	—	335	386	854	19	2,738
Portugal	20	—	2	3	8	—	33
Spain	107	282	123	203	402	—	1,117
Total	1,535	282	470	641	1,401	253	4,582
31.12.2012 1)
Greece	4	—	—	—	—	—	4
Ireland	235	—	14	29	162	188	628
Italy	647	—	420	279	961	—	2,307
Portugal	26	—	—	1	8	—	35
Spain	88	254	90	231	522	—	1,185
Total	1,000	254	524	540	1,653	188	4,159

1) With regard to the allocation of countries, the country of the banking group's parent company, rather than that of the issuer, is decisive

As a result of precautions taken at the European level (the European Financial Stability Facility), there is currently no risk of default on the government bonds of GIIPS countries.

With respect to its assets under own management, the Talanx Group also holds government bonds of the following countries:

N49 EXPOSURE TO OTHER GOVERNMENT BONDS

FIGURES IN EUR MILLION

			thereof issuer country = investor country
	Amortised costs	Market values	Amortised costs	Market values
31.12.2013
Belgium	757	763	12	12
Hungary	183	193	179	189
Slovenia	—	—	—	—
Slovakia	119	123	—	—
Total	1,059	1,079	191	201
31.12.2012
Belgium	188	210	—	—
Hungary	156	163	156	163
Slovenia	42	41	—	—

Slovakia 107 111 — — Total 493 525 156 163

1) With regard to the allocation of countries, the country of the banking group's parent company, rather than that of the issuer, is decisive

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

• NOTES
• 149 General information 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

The breakdown of exposures in which a Spanish bank was the risk carrier was as follows for all asset classes as at the balance sheet date:

	N50	EXPOSURE TO SPANISH BANKS 1)
--	-----	------------------------------	--

FIGURES IN EUR MILLION
	31.12.2013	31.12.2012
Covered bonds and asset-backed securities/cédulas	402	522
Financial bonds	123	90
Banks with a public guarantee	—	21
Time deposits	1	2
Equities	5	2
Derivatives	4	6
Total	535	643

1) With regard to the allocation of countries, the country of the banking group rather than that of the issuer is decisive

At EUR 402 (522) million, the biggest asset class involving Spanish banks is covered bonds/asset-backed securities and multi-cédulas, which have a similar structure to German covered bonds (Pfandbriefe). The portfolio decline is essentially attributable to repayments and sales. The covered bonds also include EUR 112 million with non-Spanish subsidiaries of Spanish parent companies. These bonds were issued under British law and generally contain exclusively British mortgage cover. The remainder of the investment volume consists exclusively of unsecured senior bonds and subordinated loans of the largest globally operating Spanish commercial banks.

MANAGEMENT OF LIQUIDITY RISK

Liquidity risk means that it may not be possible to convert investments and other assets into cash in a timely manner in order to meet our fi nancial obligations when they fall due. For example, due to illiquidity on the markets, it may not be possible to sell holdings (or least without some delay) or to close open positions (or at least without price markdowns). Generally speaking, the Group continually generates signifi cant liquidity positions due to the fact that premium revenues are normally taken in well in advance of claims, claims expenses and other benefi ts being paid out. We counter liquidity risk through regular planning of incoming and outgoing payments and by continuously matching the maturities of investments to our fi nancial obligations. A liquid asset structure ensures that the Group is in a position to make necessary payments. With regard to payment obligations in connection with underwriting business, our planning is based on expected maturities, which refl ect the run-off patterns of the reserves.

In order to monitor liquidity risks, each security type is assigned a liquidity code that indicates its degree of liquidity at fair market prices. These codes are regularly reviewed by Risk Controlling at Talanx Asset Management GmbH, checked for plausibility by taking into account market data and the assessment of portfolio management, and then modifi ed as appropriate. The data are then included in standardised portfolio reporting given to the Chief Financial Offi cers of the decentralised units.

Each Group company has individual minimum limits for holding securities with high liquidity and maximum limits for holding securities with low liquidity. In particular minimum limits are derived from the timing component of technical payment obligations. For instance, because the Group's property/casualty insurers have shorter durations for technical payment obligations, they are generally subject to higher minimum limits for holding securities with high liquidity than are life insurers, which normally have longer durations for technical payment obligations. If, risk limits are exceeded, this is brought to the attention of the Chief Financial Offi cers and portfolio management without delay.

The Group also optimises the availability of liquid funds by using cash pools maintained by various subsidiary companies and Talanx AG to facilitate management of Group companies' cash infl ows and outfl ows.

For a depiction of investments, key gross provisions (benefi t reserve, loss and loss adjustment expense reserve) and reinsurers' shares (broken down by their expected or contractual maturities), cf. the remarks on the corresponding balance sheet items in the Notes.

Property/casualty insurance: The following table shows cash infl ows from premium payments, cash outfl ows from claims and claims expenses paid, acquisition costs and reinsurance commissions, including incurred administrative costs, as at the respective balance sheet date.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

Liquidity infl ows, which we depict below for non-life insurance, are positive in all respects.

			N51 CASH FLOWS AND LIQUID FUNDS FROM INSURANCE BUSINESS 1)
--	--	--	------------------------------------------------------------	--	--

FIGURES IN EUR MILLION
	31.12.2013	31.12.2012
Gross written premium, including premiums from unit-linked life and annuity insurance	15,412	14,623
Claims and claims expenses paid (gross)	–8,773	–8,857
Acquisition costs, reinsurance commissions and administrative expenses	–3,847	–3,580
Liquid funds	2,792	2,186

1) Presentation after elimination of intra-Group relations between segments

Life/health insurance: In order to monitor liquidity risk, the Group's life insurers regularly compare net claims and claims expenses paid during the fi nancial year against existing assets (during the year, plan fi gures are used for net claims and claims expenses paid during the fi nancial year).

In so doing, possible unforeseen increases in net claims and claims expenses through suitable supplements are considered and the liquidity of assets is monitored.

Other basic fi nancial conditions: In addition to assets available to cover provisions and liabilities, the Group continues to maintain the following credit lines, which can be drawn down as needed:

In 2011, and by way of an addendum in 2012, Talanx AG concluded agreements on two syndicated fl oating-rate lines of credit with a total nominal amount of EUR 1.2 billion, with a term of fi ve years. As at the balance sheet date, draw-downs amounted to EUR 150 million. Existing syndicated credit lines can be terminated by the lenders if there is a change of control, i.e. if a person or persons acting jointly, other than HDI Haft pfl ichtverband der Deutschen Industrie V. a. G., gain direct or indirect control over more than 50% of the voting rights or share capital of Talanx AG.

Facilities for letters of credit (LoC) are in place with various credit institutions. For the syndicated facility in the converted amount of EUR 726 (759) million concluded in 2011, the second extension option was used to extend the term from early 2018 to early 2019. In addition, several other bilateral credit agreements have been concluded, and existing ones have been augmented.

Letter of credit facilities on a bilateral basis are also in place with a number of credit institutions. These have various terms, running to 2022 at the latest and a total volume equivalent to EUR 2.6 (2.6) billion. For further information on letters of credit, cf. our remarks in the section "Other information," subsection "Contingent liabilities and other fi nancial commitments," page 276. A long-term unsecured line of credit with a total volume equivalent to at most EUR 363 (379) million was concluded in December 2009. This is intended specifi cally for the US life reinsurance business.

A number of the LoC facilities include standard market clauses that give credit institutions the right to terminate in the event of material changes in the shareholding structure of our Group company Hannover Rück SE or that trigger a requirement to furnish collateral upon the occurrence of material events, e.g. a signifi cant rating downgrade.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application

of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

NOTES ON THE CONSOLIDATED BALANCE SHEET – ASSETS

(1) GOODWILL

N52 SEGMENT BREAKDOWN OF GOODWILL

FIGURES IN EUR MILLION

		Industrial Lines Retail Germany	Retail International	Non-Life Reinsurance	Corporate Operations	2013	2012
Gross book value as at 31.12. of the previous year	159	527	612	16	3	1,317	855
Currency translation as at 1.1. of the fi nancial year	—	—	–21	—	—	–21	–6
Gross book value after currency translation as at 1.1. of the fi nancial year	159	527	591	16	3	1,296	849
Change in scope of consolidation (additions)
Business combinations	—	—	—	—	—	—	449
Other changes	—	—	–26	—	—	–26	19
Gross book value as at 31.12. of the fi nancial year	159	527	565	16	3	1,270	1,317
Accumulated depreciation and accumulated impairment losses as at 31.12. of the previous year	5	124	33	—	3	165	165
Currency translation as at 1.1. of the fi nancial year	—	—	—	—	—	—	—
Accumulated depreciation and accumulated impairment losses after currency translation as at 1.1. of the fi nancial year	5	124	33	—	3	165	165
Impairments	—	—	—	—	—	—	—
Accumulated depreciation and accumulated impairment losses as at 31.12. of the fi nancial year	5	124	33	—	3	165	165
Book value as at 31.12 of the previous year	154	403	579	16	—	1,152	690
Book value as at 31.12 of the fi nancial year	154	403	532	16	—	1,105	1,152

IMPAIRMENT TEST

Goodwill is allocated to cash-generating units (CGUs) pursuant to IFRS 3 in conjunction with IAS 36. It is allocated to those CGUs which are expected to generate a value in use (in the form of cash fl ows) as a result of the business combination that gave rise to the goodwill. Each CGU to which goodwill is allocated represents the lowest entity level on which goodwill is monitored for internal management purposes.

The Group has therefore allocated all goodwill to CGUs. With regard to the Industrial Lines and Retail Germany segments, the CGUs in primary insurance satisfy the defi nition of an operating segment pursuant to IFRS 8. In the Retail International segment, each foreign market generally constitutes a separate CGU. Cross-company synergistic potentials (in relation to cash fl ows) can in general be realised only in those countries in which the Group is represented by several companies. In this case, we have allocated goodwill to individual companies or groups of companies. In terms of their products and sales structures, the individual foreign units otherwise operate largely self-suffi ciently. By contrast, the insurance companies in Argentina and Uruguay constitute one CGU due to, inter alia, existing management structures.

There are two separate CGUs in the Polish market. With regard to the WARTA Group, the TU Europa Group is considered to be a separate CGU.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation 188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

N53 CGUS CARRYING GOODWILL

FIGURES IN EUR MILLION (MEASURED AT THE RATE PREVAILING AS AT THE BALANCE SHEET DATE)

	31.12.2013	31.12.2012
Industrial Lines operating segment	154	154
Retail Germany operating segment	403	403
Retail International operating segment
Argentina/Uruguay	5	5
Brazil	63	74
Chile	6	6
Mexico	44	46
Poland – TU Europa Group	113	141
Poland – Warta Group	301	307
Non-Life Reinsurance segment	16	16

The Group tests goodwill for impairment in the fourth quarter of each year based on data as at 30 September of that year.

In order to establish whether an impairment needs to be taken, the carrying value of the CGU, including its allocated goodwill, is compared with its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and the value in use. For all CGUs, with the exception of the two reinsurance segments, the recoverable amount is established on the basis of the value in use, which is calculated by the Group using a recognised measurement method, namely the discounted cash fl ow method or, for life insurance companies, MCEV. Insofar as CGUs are composed of more than one Group company, a sum-of-the-parts approach is used. The recoverable amount for the reinsurance segment is established on the basis of the fair value less costs to sell.

When it comes to measuring the value of the property/casualty insurers in the Industrial Lines, Retail Germany and Retail International CGUs, the present value of future cash fl ows is calculated based on plan income statements approved by the management of the companies concerned. The planning calculations are drawn up on a stand-alone basis under the assumption that the entity will continue with a generally unchanged concept. They forecast post-tax net income for the subsequent fi ve years and, starting in the sixth year, make an extrapolation into perpetuity.

Five-year planning – which generates detailed data for the statement of income in local currency for each company, taking into account a variety of factors – looks at, inter alia, the following aspects: estimation of the company in light of current market trends; planning of liquidity volume for the purposes of approximating investment portfolios; uniform Group indication of interest income from investments, by investment class; planning of solvency requirements for each company; and validation of plan underwriting data, including on the basis of indicators (e.g. loss ratio, cost ratio, combined ratio).

Entity-specifi c approximations are made in the detailed planning (at the time of the planning). In particular, estimates are made of the possibilities for growth in the market environment as well as profi tability according to trends in claims and costs in the context of planned measures at the company level. Investment income is projected in relation to each asset portfolio. In addition, planning calculations are tested for plausibility by the respective controlling department or, at Group level, by the Group controlling department.

The discount factor (capitalisation rate) for the Group companies consists of a risk-free, country-specifi c base interest rate, a market risk premium and a company-specifi c beta factor (calculated on the basis of the capital asset pricing model). In addition, we also use constant growth rates – based on conservative assumptions – in order to extrapolate cash fl ows beyond the period of the detailed planning.

The combined ratio is an indicator for business development in the area of property/casualty insurance, and it results from planning concerning premium development and expenses. During the detailed planning period, premiums and costs are budgeted, resulting in the combined ratio as technical fi gure. The values for the property/ casualty insurers of the CGUs range from 90% to nearly 100%. The net return on investment is likewise an indicator for development during the detailed planning phase. This varies widely by CGU, depending on the interest rate level of the respective currency area.

Where possible, corresponding long-term data on yield curves in the respective countries is used to determine risk-free base interest rates. If the rates cannot be determined, or can be determined only with an unreasonable amount of eff ort, the yields used are those for the respective government bonds with a maturity of 30 years or the longest available maturity. With respect to the market risk premium, the current recommendations of the Institute of Public Auditors in Germany (IDW) are taken into account. The beta factor is ascertained on the basis of publicly available capital market data.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

146 Statement of changes in shareholders' equity

142 Balance sheet 144 Statement of income 145 Statement of comprehensive income

149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

NOTES

148 Cash fl ow statement

CONSOLIDATED FINANCIAL STATEMENTS

N54 KEY PARAMETERS FOR THE PROPERTY/CASUALTY INSURANCE SEGMENT

	IN %

	Capitalisation rate	Long-term growth rate
Industrial Lines
German-speaking countries	8.00 – 8.25	0.00 – 0.50
Other countries (Eurozone only)	8.25	1.00
Other countries (non-Eurozone)	9.00 – 14.00	1.00 – 2.00
Retail Germany	7.45 – 11.00 1)	0.00 – 0.50
Retail International
Argentina/Uruguay	26.00 (ARG); 10.00 (UYU)	2.00 (ARG); 1.00 (UYU)
Brazil 2)	16.00	1.00
Chile	11.25	0.50
Mexico	12.00	1.00
Poland	10.00	1.00

1) Capitalisation rate 11% (increase of 3%) for the period after the end of the current bancassurance cooperation

2) Parameters as at 31 December 2013: Due to signifi cant changes between the date of the impairment test (30 September 2013) and the annual fi nancial statements, the impairment test was repeated with the adjusted parameters

The fi gures are arrived at from past experience and future expectations, and they do not exceed long-term average growth rates for the respective markets in which the companies operate. Fair values that may have been calculated in local currency are translated at the exchange rate as at the balance sheet date.

The latest forecast for the Market Consistent Embedded Values (MCEVS) for 2013 plus the present value of anticipated new business (new business value, NBV) form the basis for the valuation of life insurers. The MCEV is a sector-specifi c valuation method used to determine the present value of portfolios of in-force insurance business. The value of the portfolio thus results from the diff erence from the present value of future profi ts as well as the sum total of capital costs, options and guarantees as well as remaining risks that are not able to be hedged. Estimation of the present value of profi ts from the portfolio and valuation of options and guarantees are undertaken in a market-consistent manner, i.e. analogous to the way in which the value of fi nancial derivatives is calculated. To this end, underwriting liabilities are measured with the aid of replication portfolios (i.e. replicating a portfolio's disbursement structure based on another portfolio).

Like the NBV, the MCEV is calculated from the perspective of the shareholder, i.e. it generally includes a limited liability put option (LLPO).

The NBV is extrapolated for future years from estimated MCEV earnings for the current year, relative to APE (annual premium equivalent) trends. In simple terms, the valuation method assumes a constant relationship between the APE and the NBV. APE values for the period 2014–2018 are based on the forecast and on medium-term planning. Extrapolation beyond 2018 (in perpetuity aft er the fi fth year) assumes growth of between 0% and 2% p.a., depending on the local market. The interest rate swap curves used as a basis in calculating the MCEV values assume interest rates of between 1% and 2% in the short to medium term.

A modifi ed variant of this method, which is generally applicable to all life insurers, is used for companies with long-term, exclusive cooperation agreements and the associated stability in their new business. Because these cooperation agreements have a limited term, a risk premium of currently three percentage points on the discount rate is assessed to cover the period beyond the end of the current agreement. For German companies, we also calculated a growth value in short-term planning that exceeds the decline in gross written premium generally assumed for life insurance contracts and takes into account existing bancassurance cooperations. This approach (premium on discount rate) is also used with the discounted cash fl ow method for property companies with bancassurance cooperation.

Small insurers and non-insurance companies are measured either at the present value of future cash fl ows or at their shareholders' equity.

N55 KEY PARAMETERS FOR THE LIFE INSURANCE SEGMENT

IN %
	Capitalisation rate	Long-term growth rate
Retail Germany	8.00	0.00
Retail International
	26.00 (ARG);
Argentina/Uruguay	10.00 (UYU)	2.00
Mexico	12.00	1.00
Poland	10.00	1.00

In connection with the forecasting of future company-specifi c cash fl ows for individual CGUs, macroeconomic assumptions were made with respect to economic growth, infl ation, interest rate trends and market environment that correspond to the economic forecasts for the respective countries of the units to be measured and conform to market expectations and sector forecasts.

The fi gures are arrived at from past experience and future expectations, and they do not exceed long-term average growth rates for the respective markets in which the companies operate. Fair values that may have been calculated in local currency are translated at the exchange rate as at the balance sheet date.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

For the Non-Life Reinsurance and Life/Health Reinsurance CGUs, which together correspond to the Hannover Re Group, reference is fi rst made to the Hannover Re share price as at the balance sheet date for the purposes of impairment testing. The stock market value of Hannover Rück SE is divided between the two CGUs on the basis of the average operating margin over the past three years. The recoverable amount determined in this way is compared with the carrying value, including the goodwill allocated to the CGU in question. Alternatively, should the Hannover Re share price be adversely aff ected to a signifi cant extent on a balance sheet date by factors that do not refl ect the sustainable profi t potential of the Hannover Re Group, a discounted cash fl ow method may be used instead.

No impairments to goodwill needed to be taken as at the balance sheet date.

Talanx AG performed sensitivity analyses with respect to the most important parameters when calculating the values in use for all CGUs carrying goodwill.

In each case, a parameter described below was changed (ceteris paribus) when calculating the value in use. The other assumptions (in medium-term planning and in the exploration) were left unchanged, and the resulting change in fair value was calculated. The calculations are based on the value in use updated as at 31 December 2013.

In order to cover key risks when calculating the value in use, such as underwriting risk (loss/expense ratio), interest rate parameters (interest rate risk), currency parameters (foreign exchange risk) and equity parameters (equity risk), a variety of conceivable scenarios were defi ned with the respective parameter changes and studied in detail. Unless indicated otherwise in the following, the calculations concerning the conceivable changes of parameters did not lead to any potential impairments.

Under the scenarios described in the following, one possible need to take an impairment emerged as a result:

• 1. Increase of the combined ratio by 3.0 percentage points for the entire future (detailed planning phase for the next fi ve years and in perpetuity) for property/casualty insurers.
• 1. Reduction of assumed capital gains as a result of an interest rate decline of 100 basis points (bps) for the entire future (detailed planning phase and in perpetuity), without simultaneously adjusting the discount rate (parallel consideration of the lower interest rate with risk-free interest as a component of the discount rate) by 100 bps, for life insurance companies measured on the basis of extrapolated MCEVS and with property/casualty insurers.
• 1. Immediate appreciation of the euro/depreciation of foreign currency of important foreign-currency pairs for Retail International CGUs: EUR/PLN (Polish zloty) and EUR/BRL (Brazilian real) by 10%.

The following table summarises the results concerning the potential need to take an impairment in the event of a change in accordance with the respective scenario as well as about the value of the scenario under which the carrying amount and the recoverable amount are the same (threshold).

N56 INFORMATION ABOUT SCENARIOS THAT LEAD TO A POSSIBLE IMPAIRMENT OF GOODWILL OF INDIVIDUAL CGUS

FIGURES IN EUR MILLION
	Argentina			Brazil		Chile	Poland – TU Europa Group
	Possible impairment 1)	Threshold	Possible impairment 1)	Threshold	Possible impairment 1)	Threshold	Possible impairment 1)	Threshold
		+ 0.10 percentage		+ 1.01 percentage		+ 2.88 percentage
1 Combined ratio +3 percentage points3) 2 Reduction of capital gains by 100 bps3)	8 2	points –15 bps	107 —	points —	1 —	points —	— 9	— –71 bps
3 Appreciation of the EUR by 10% versus BRL or PLN	—	—	—	—	—	—	10	5.84% 2)

1) Amount by which the carrying amount would exceed the recoverable amount, as adjusted by minority shares of goodwill

2) Corresponds to a rate of 4.39 EUR/PLN

3) The consequences for the Group from these potential changes can normally be counteracted in the medium to long term through suitable measures. As a result, the impairment risk is reduced accordingly. We did not take into consideration possible individual counter-measures under these scenarios

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS 142 Balance sheet

• 144 Statement of income
• 145 Statement of comprehensive income 146 Statement of changes in shareholders' equity
• 148 Cash fl ow statement
• NOTES 149 General information
• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

(2) OTHER INTANGIBLE ASSETS

N57 CHANGES IN OTHER INTANGIBLE ASSETS

FIGURES IN EUR MILLION

	Limited useful life					Unlimited useful life
	Software Acquired
	Insurance related intangible assets	Acquired	Created	distribution networks and customer relationships	Other	Acquired brand names	2013	2012
Gross book value as at 31.12. of the previous year	2,561	406	120	134	50	34	3,305	2,905
Change in scope of consolidation (additions)
Business combinations	—	—	—	—	—	—	—	358
Other	15	45	3	—	14	—	77	91
Disposals	8	84	3	—	4	—	99	67
Reclassifi cations	—	4	—	—	–4	—	—	—
Other changes	—	—	—	—	—	—	—	—
Exchange rate fl uctuations	–4	–3	—	–2	–2	–1	–12	18
Gross book value as at 31.12. of the fi nancial year	2,564	368	120	132	54	33	3,271	3,305
Accumulated depreciation and accumulated impairment losses as at 31.12. of the previous year	1,233	286	87	43	15	—	1,664	1,385
Change in scope of consolidation (additions)
Business combinations	—	—	—	—	—	—	—	—
Other	—	—	—	—	—	—	—	—
Disposals	8	82	—	—	1	—	91	5
Depreciation/amortisation
scheduled	158	45	11	37	3	—	254	277
unscheduled	—	1	—	1	—	—	2	3
Reclassifi cations	—	2	—	—	–2	—	—	—
Other changes	—	—	—	—	—	—	—	1
Exchange rate fl uctuations	–1	–2	—	—	–1	—	–4	3
Accumulated depreciation and accumulated impairment losses as at 31.12. of the fi nancial year	1,382	250	98	81	14	—	1,825	1,664
Book value as at 31.12 of the previous year	1,328	120	33	91	35	34	1,641	1,520
Book value as at 31.12 of the fi nancial year	1,182	118	22	51	40	33	1,446	1,641

"Insurance-related intangible assets" (=PVFP) with respect to life primary insurance companies derived principally from the insurance portfolios of the former Gerling Group acquired in 2006 (EUR 693 million), the portfolios of the former BHW Lebensversicherung AG (formerly PB Lebensversicherung, now PB Lebensversicherung AG) acquired in 2007 (EUR 239 million), and neue leben Lebensversicherung AG (EUR 49 million). In addition, EUR 85 million is attributable to Hannover Life Reassurance (Ireland) Ltd. (Life/Health Reinsurance segment). Business combinations in 2012 resulted in a PVFP of EUR 102 million for the Polish TU Europa Group and in a PVFP of EUR 12 million for the Polish life insurance company WARTA Life.

The PVFP is composed of a shareholders' portion – on which deferred taxes are established – and a policyholders' portion. It is capitalised in order to spread the charge to Group shareholders' equity required by IFRS upon acquisition of an insurance portfolio in equal portions across future periods in step with amortisation. Only amortisation of the shareholders' portion results in a charge to future earnings. The PVFP in favour of policyholders is recognised by life insurance companies that are required to enable their policyholders to participate in all results through establishment of a provision for deferred premium refunds.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

N58 PVFP FOR LIFE PRIMARY INSURANCE COMPANIES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
Shareholders' portion	564	674
Policyholders' portion	513	499
Book value	1,077	1,173

Of depreciation/amortisation on insurance-related intangible assets totalling EUR 158 (189) million, an amount of EUR 106 (144) million was attributable to the shareholders' portion – thereof to investment contracts totalling EUR 9 (8) million – and EUR 52 (45) million to the policyholders' portion. This relates primarily to the Retail Germany and Retail International segments. We recognise amortisation of the PVFP associated with investment contracts in "Net investment income" under "Income/expense from investment contracts". Amortisation of the shareholders' portion (less investment contracts) is recognised in the statement of income under "Other technical expenses".

The acquired brand names WARTA (EUR 32 million) and Europa (EUR 1 million) are intangible assets with unlimited useful life, since, based on an analysis of all relevant factors (including anticipated use, control, dependence on other assets), there is no foreseeable limitation on the period during which the asset will presumably generate net cash fl ow. Both were tested for impairment in the CGU (for the brand name Warta: Poland CGU – Warta Group; for the brand name Europa: Poland CGU – TU Europa Group) (cf. the remarks in the subsection "Goodwill"). In addition, the brand name Warta was subjected to further detailed testing for a possible need to take an impairment. The result showed no need to take an impairment.

Apart from certain amounts of goodwill, intangible assets are recognised in their entirety in the Group. Excluding non-controlling interests and the policyholders' portion, intangible assets attributable to the Group are as follows:

N60 NON-CONTROLLING INTERESTS AND POLICYHOLDERS' PORTION

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
Intangible assets before deduction of non-controlling interests and the policyholders' portion and including deferred taxes
a. Goodwill	1,105	1,152
b. Other intangible assets	1,446	1,641
Total	2,551	2,793
thereof attributable to: non-controlling interests
a. Goodwill	7	35
b. Other intangible assets	159	204
Total	166	239
thereof attributable to: policyholders' portion
a. Goodwill	—	—
b. Other intangible assets	513	499
Total	513	499
thereof attributable to: deferred taxes
a. Goodwill	—	—
b. Other intangible assets	148	176
Total	148	176
Intangible assets after deduction of non-controlling interests and the policyholders' portion and excluding deferred taxes
a. Goodwill	1,098	1,117
b. Other intangible assets	626	762
Total	1,724	1,879

N59 PVFP BY POLICY TERM

FIGURES IN EUR MILLION

	Policy term
	Up to 10 years	Up to 20 years	Up to 30 years	Longer than 30 years	Total
Shareholders' portion	355	169	104	41	669
thereof investment contracts	65	3	—	—	68
Policyholders' portion	251	140	78	44	513
Book value as at 31.12.2013	606	309	182	85	1,182

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES

• 149 General information 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

(3) INVESTMENT PROPERTY

N61 INVESTMENT PROPERTY

FIGURES IN EUR MILLION
------------------------

	2013	2012
Gross book value as at 31.12. of the previous year	1,488	1,293
Change in scope of consolidation (additions)
Business combinations	—	7
Additions	455	249
Disposals	9	144
Disposal groups pursuant to IFRS 5	–33	–56
Reclassifi cation	–58	145
Exchange rate fl uctuations	–16	–6
Gross book value as at 31.12. of the fi nancial year	1,827	1,488
Accumulated depreciation and accumulated impairment losses as at 31.12. of the previous year	191	193
Disposals	2	16
Reversal after impairment	6	6
Depreciation
scheduled	27	23
unscheduled	12	9
Disposal groups pursuant to IFRS 5	–15	–32
Reclassifi cation	–2	20
Exchange rate fl uctuations	–1	—
Accumulated depreciation and accumulated impairment losses as at 31.12. of the fi nancial year	204	191
Book value as at 31.12 of the previous year	1,297	1,100
Book value as at 31.12 of the fi nancial year	1,623	1,297

The additions primarily relate to the Non-Life Reinsurance segment (EUR 394 million). Of these additions, EUR 267 million is attributable to HR GLL Central Europe GmbH & Co. KG, Munich. The remaining additions are attributable to GLL HRE Core Properties, LP, Wilmington (EUR 49 million), a group company of Hannover Re Real Estate Holdings, Inc., and to Hannover Re Euro RE Holdings GmbH, Hannover (EUR 78 million).

The reclassifi cation relates to real estate in the Retail International segment in accordance with use (EUR 58 million).

The fair value of investment property amounted to EUR 1,774 (1,417) million as at the balance sheet date. Of this amount, EUR 32 million is attributable to Fair Value Level 2 and EUR 1,742 million to Level 3. Fair values are determined largely internally within the Group using discounted cash fl ow methods and, in individual cases, on the basis of external expert opinions. The directly allocable operating expenses (including repairs and maintenance) totalled EUR 42 (33) million with respect to properties rented out. Operating expenses of EUR 6 (6) million were incurred on properties with which no rental income was generated.

With regard to investment property, there were limitations on disposal and guarantee assets in the amount of EUR 524 (541) million as at 31 December 2013. Contractual obligations to buy, create or develop investment property as well as those for repairs, maintenance and improvements amounted to EUR 49 (90) million as at the balance sheet date.

(4) INVESTMENTS IN AFFILIATED COMPANIES AND PARTICIPATING INTERESTS

N62	INVESTMENTS IN AFFILIATED COMPANIES AND PARTICIPATING INTERESTS

FIGURES IN EUR MILLION
	2013	2012
Affi liated companies	27	33
Participating interests	65	47
Book value as at 31.12. of the fi nancial year	92	80

Associated companies that are not valued at equity due to their lack of material signifi cance for the presentation of assets, fi nancial position and net income are recognised under participating interests (cf. our remarks in the section "Accounting policies", subsection "Summary of major accounting policies", from page 159). For these associated companies not valued using the equity method, we recognised assets of EUR 45 (45) million, debts of EUR 7 (7) million, net income of EUR 2 (–3) million and revenues of EUR 7 (10) million.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

(5) INVESTMENTS IN ASSOCIATED COMPANIES AND JOINT VENTURES

N63 INVESTMENTS IN ASSOCIATED COMPANIES AND JOINT VENTURES

	2013	2012
Book value as at 31.12 of the previous year	237	209
Change in scope of consolidation	—	25
Additions	2	31
Disposals	—	22
Depreciation	1	1
Adjustment recognised in income	8	–9
Adjustment recognised directly in equity	2	4
Exchange rate fl uctuations	–1	—
Book value as at 31.12 of the fi nancial year	247	237

This balance sheet item covers the investments in associated companies and joint ventures that are valued using the equity method on the basis of the share of equity attributable to the Group. In the fi nancial year, shares of losses totalling 0.5 (—) were not recognised.

The goodwill of all companies valued using the equity method amounted to EUR 77 (83) million as at year-end. Of the associated companies, Petro Vietnam Insurance Holdings, Hanoi, Vietnam (PVI), and C-QUADRAT Investment AG, Vienna, Austria (C-QUADRAT), are publicly traded. The market value of our interests was EUR 77 (67) million as at the balance sheet date. Of this, EUR 47 (41) million was attributable to PVI and EUR 30 (26) million to C-QUADRAT.

For all associated companies, we recognised assets of EUR 2.6 (2.3) billion, debts of EUR 2.1 (1.8) billion, net income of EUR 39 (21) million and revenues of EUR 506 (521) million.

Joint ventures: Current and non-current assets amounted to EUR 3 (1) million and to EUR 47 (34) million as at the balance sheet date. Current and non-current debts amounted to EUR 12 (3) million and to EUR 17 (3) as at the balance sheet date. Income and expenses attributable to the Group amounted to –EUR 3 (–0.2) million. There are no contingent liabilities or other capital obligations.

For further information on our associated companies, cf. the list of shareholdings on pages 279 et seqq.

(6) LOANS AND RECEIVABLES

N64 LOANS AND RECEIVABLES

FIGURES IN EUR MILLION

	Amortised cost		Unrealised gains/losses		Fair value
	31.12.2013	31.12.2012	31.12.2013	31.12.2012 2)	31.12.2013	31.12.2012 2)
Mortgage loans	849	990	88	140	937	1,130
Loans and prepayments on insurance policies	192	192	—	—	192	192
Loans and receivables due from governmental or quasi-governmental entities1)	9,691	9,687	860	1,407	10,551	11,094
Corporate securities	6,731	6,516	218	564	6,949	7,080
Covered bonds/asset-backed securities	14,737	14,700	1,608	2,367	16,345	17,067
Participation rights	31	16	5	3	36	19
Total	32,231	32,101	2,779	4,481	35,010	36,582

1) Loans and receivables due from governmental or quasi-governmental entities include securities of EUR 3,060 (2,585) million that are guaranteed by the Federal Republic of Germany, other EU states or German federal states

2) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

The book value of loans and receivables is based on amortised cost.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

149 General information

NOTES

• 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

The item "Covered bonds, asset-backed securities" includes German covered bonds (Pfandbriefe) with a carrying amount of EUR 12,434 (14,676) million, which corresponds to 84 (99)%.

N65 CONTRACTUAL MATURITIES

FIGURES IN EUR MILLION

	Amortised cost		Fair value
	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)
Due one year or sooner	3,118	2,195	3,238	2,340
Later than one year, up to two years	2,344	2,806	2,439	2,922
Later than two years, up to three years	2,072	2,826	2,190	3,028
Later than three years, up to four years	1,912	2,374	2,061	2,583
Later than four years, up to fi ve years	1,238	2,140	1,360	2,386
Later than fi ve years, up to ten years	6,463	6,773	7,161	7,813
Later than ten years	15,084	12,987	16,561	15,510
Total	32,231	32,101	35,010	36,582

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

N66 RATING STRUCTURE OF LOANS AND RECEIVABLES

FIGURES IN EUR MILLION

	Amortised cost
	31.12.2013	31.12.2012
AAA	11,430	11,204
AA	10,964	11,848
A	4,971	4,647
BBB or lower	3,532	2,983
No rating	1,334	1,419
Total	32,231	32,101

The rating categories are based on the classifi cations of leading international rating agencies. Unrated loans and receivables consist principally of mortgage loans and policy loans.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

(7) FINANCIAL ASSETS HELD TO MATURITY

N67 FINANCIAL ASSETS HELD TO MATURITY

FIGURES IN EUR MILLION

	Amortised cost		Unrealised gains/losses		Fair value
	31.12.2013	31.12.2012	31.12.2013	31.12.2012	31.12.2013	31.12.2012
Government debt securities of EU member states	556	578	26	46	582	624
US treasury notes	501	825	13	28	514	853
Other foreign government debt securities	69	57	—	1	69	58
Debt securities issued by quasi-governmental entities1)	544	678	25	42	569	720
Corporate securities	343	502	10	16	353	518
Covered bonds/asset-backed securities	971	1,217	65	91	1,036	1,308
Total	2,984	3,857	139	224	3,123	4,081

1) Debt securities issued by quasi-governmental entities include securities of EUR 130 (167) million that are guaranteed by the Federal Republic of Germany, other EU states or German federal states

The book value of fi nancial assets held to maturity is based on amortised cost.

The item "Covered bonds, asset-backed securities" includes German covered bonds (Pfandbriefe) with a carrying amount of EUR 969 (1,213) million, which corresponds to 99 (99)%.

N68 CONTRACTUAL MATURITIES

Amortised cost		Fair value
31.12.2013	31.12.2012	31.12.2013	31.12.2012
647	869	654	874
1,160	660	1,213	683
549	1,136	582	1,219
158	545	167	592
152	167	158	179
301	450	331	498
17	30	18	36
2,984	3,857	3,123	4,081

N69 RATING STRUCTURE OF FINANCIAL ASSETS HELD TO MATURITY

FIGURES IN EUR MILLION

		Amortised cost
	31.12.2013	31.12.2012
AAA	897	1,178
AA	1,258	1,648
A	540	709
BBB or lower	272	320
No rating	17	2
Total	2,984	3,857

The rating categories are based on the classifi cations of leading international rating agencies.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

148 Cash fl ow statement

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies

172 Segment reporting

(8) FINANCIAL ASSETS AVAILABLE FOR SALE

N70 FINANCIAL ASSETS AVAILABLE FOR SALE

FIGURES IN EUR MILLION

	Amortised cost		Unrealised gains/losses		Fair value
	31.12.2013	31.12.2012	31.12.2013	31.12.2012	31.12.2013	31.12.2012
Fixed-income securities
Government debt securities of EU member states	6,554	5,256	217	363	6,771	5,619
US treasury notes	1,750	1,294	–5	40	1,745	1,334
Other foreign government debt securities	1,682	1,758	–30	26	1,652	1,784
Debt securities issued by quasi-governmental entities1)	7,056	7,121	219	523	7,275	7,644
Corporate securities	16,923	13,675	361	912	17,284	14,587
Investment funds	699	808	38	71	737	879
Covered bonds/asset-backed securities	7,152	7,104	489	680	7,641	7,784
Participation rights	416	445	10	4	426	449
Total fi xed-income securities	42,232	37,461	1,299	2,619	43,531	40,080
Variable-yield securities
Equities	391	423	221	164	612	587
Investment funds	639	558	99	73	738	631
Participation rights	41	39	—	—	41	39
Total variable-yield securities	1,071	1,020	320	237	1,391	1,257
Total securities	43,303	38,481	1,619	2,856	44,922	41,337

1) Debt securities issued by quasi-governmental entities include securities of EUR 2,681 (3,147) million that are guaranteed by the Federal Republic of Germany, other EU states or German federal states

The book value of fi nancial assets available for sale is based on fair value. Unrealised gains/losses are recognised under "Other comprehensive income" and under "Other reserves" in shareholders' equity.

The item "Covered bonds, asset-backed securities" includes German covered bonds (Pfandbriefe) with a carrying amount of EUR 6,442 (6,827) million, which corresponds to 84 (88)%.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information 279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

N71 CONTRACTUAL MATURITIES OF FIXED-INCOME SECURITIES

FIGURES IN EUR MILLION

	Fair value		Amortised cost
	31.12.2013	31.12.2012 1)	31.12.2013	31.12.2012 1)
Due one year or sooner	2,800	2,448	2,784	2,428
Later than one year, up to two years	3,983	4,009	3,901	3,932
Later than two years, up to three years	3,074	4,173	2,967	4,018
Later than three years, up to four years	3,589	3,491	3,469	3,308
Later than four years, up to fi ve years	4,141	4,105	4,027	3,896
Later than fi ve years, up to ten years	16,037	13,748	15,499	12,671
Later than ten years	9,907	8,106	9,585	7,208
Total	43,531	40,080	42,232	37,461

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

N72 RATING STRUCTURE OF FIXED-INCOME SECURITIES

FIGURES IN EUR MILLION

	Fair value
	31.12.2013	31.12.2012
AAA	10,803	12,301
AA	12,047	9,621
A	10,644	9,331
BBB or lower	9,484	8,303
No rating	553	524
Total	43,531	40,080

The rating categories are based on the classifi cations of leading international rating agencies.

As at the balance sheet date, the Group recognised securities – which were sold with a redemption obligation to third parties at a fi xed price (genuine repurchase transactions) – since the material risks and opportunities associated with the fi nancial assets remain within the Group. Of these transactions, investments in the category "Financial assets available for sale" in the amount of EUR 64 million (carrying amount prior to the transfer: EUR 63 million, fair value as at the balance sheet date corresponds to the carrying amount) were aff ected. There are no restrictions on the use of the transferred assets. The Group recognised the redemption obligation under "Other liabilities" in the amount of the payment received (EUR 63 million). The diff erence between the amount received for the transfer and that agreed to for retransfer is allocated in accordance with the eff ective interest rate method for the term of the repurchase transaction and recognised under "Net investment income".

				1 OPPORTUNITIES SQUARED
--	--	--	--	-------------------------

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

(9) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

N73 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

FIGURES IN EUR MILLION

	Fair value
	31.12.2013	31.12.2012
Fixed-income securities
Government debt securities of EU member states	31	347
Other foreign government debt securities	39	195
Debt securities issued by quasi-governmental entities1)	34	38
Corporate securities	453	480
Investment funds	114	104
Covered bonds/asset-backed securities	24	91
Participation rights	82	91
Other	20	—
Total fi xed-income securities	797	1,346
Investment funds (variable-yield securities)	52	55
Other variable-yield securities	35	28
Total fi nancial assets classifi ed at fair value through profi t or loss	884	1,429
Fixed-income securities
Government debt securities of EU member states	—	15
Other foreign government debt securities	1	—
Corporate securities	3	—
Other securities	—	1
Total fi xed-income securities	4	16
Investment funds (variable-yield securities)	120	123
Derivatives	82	74
Total fi nancial assets held for trading	206	213
Total	1,090	1,642

1) Debt securities issued by quasi-governmental entities include securities of EUR 7 (8) million that are guaranteed by the Federal Republic of Germany, other EU states or German federal states

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

The book value of fi nancial assets at fair value through profi t or loss is based on fair values.

The item "Covered bonds, asset-backed securities" includes German covered bonds (Pfandbriefe) with a carrying amount of EUR 12 (11) million, which corresponds to 50 (12)%.

N74 CONTRACTUAL MATURITIES OF FIXED-INCOME SECURITIES

FIGURES IN EUR MILLION

	Fair value
	31.12.2013	31.12.2012 1)
Due one year or sooner	146	337
Later than one year, up to two years	144	151
Later than two years, up to three years	103	100
Later than three years, up to four years	61	71
Later than four years, up to fi ve years	32	54
Later than fi ve years, up to ten years	48	343
Later than ten years	267	306
Total	801	1,362

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

N75 RATING STRUCTURE OF FIXED-INCOME SECURITIES

FIGURES IN EUR MILLION

	Fair value
	31.12.2013	31.12.2012
AAA	10	11
AA	25	26
A	193	526
BBB or lower	314	584
No rating	259	215
Total	801	1,362

The rating categories are based on the classifi cations of leading international rating agencies.

Financial assets classifi ed at fair value through profi t or loss (with no trading intention) include, inter alia, structured products in respect of which the fair value option aff orded by IAS 39 was exercised. The carrying amount of these fi nancial assets constitutes – contrary to a purely economic perspective – the maximum credit exposure. The amount with respect to the change in fair value that is attributable to changes in the credit risk of fi nancial assets was EUR 4 (2) million in the reporting period and –EUR 4 (–3) million on an accumulated basis. There are no credit derivatives or similar hedging instruments for these securities.

(10) OTHER INVESTED ASSETS

N76 CLASSIFICATION OF OTHER INVESTED ASSETS

FIGURES IN EUR MILLION

	Carrying amounts
	31.12.2013	31.12.2012
Loans and receivables	2	117
Financial assets available for sale	3,029	3,384
Financial assets at fair value through profi t or loss	90	—
Total	3,121	3,501

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

N77 LOANS AND RECEIVABLES

FIGURES IN EUR MILLION

	Amortised cost		Unrealised gains/losses		Fair value
	31.12.2013	31.12.2012	31.12.2013	31.12.2012	31.12.2013	31.12.2012
Loans to affi liated companies	—	113	—	3	—	116
Other loans	2	4	—	—	2	4
Total	2	117	—	3	2	120

The book value of loans and receivables is based on amortised costs.

N78 FINANCIAL ASSETS AVAILABLE FOR SALE

FIGURES IN EUR MILLION

	Amortised cost		Unrealised gains/losses		Fair value
	31.12.2013	31.12.2012	31.12.2013	31.12.2012	31.12.2013	31.12.2012
Participations in partnerships	824	775	317	307	1,141	1,082
Other participating interests	71	142	4	7	75	149
Other short-term investments	1,813	2,152	—	1	1,813	2,153
Total	2,708	3,069	321	315	3,029	3,384

The book value of fi nancial assets available for sale is based on fair values. Unrealised gains/losses are recognised under "Other comprehensive income" and shown under "Other reserves" in shareholders' equity. Short-term investments consist predominantly of overnight money and time deposits with a maturity of up to one year.

N79 RATING STRUCTURE OF OTHER SHORT-TERM INVESTMENTS

FIGURES IN EUR MILLION

	Fair value
	31.12.2013	31.12.2012
AAA	—	15
AA	222	329
A	885	965
BBB or lower	539	635
No rating	167	209
Total	1,813	2,153

Financial assets at fair value through profi t or loss relate to purchased life insurance policies.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

(11) INVESTMENTS UNDER INVESTMENT CONTRACTS

N80 CLASSIFICATION OF INVESTMENTS UNDER INVESTMENT CONTRACTS

FIGURES IN EUR MILLION

Carrying amounts
31.12.2013	31.12.2012
1,005	1,183
32	—
652	462
69	53
1,758	1,698

"Loans and receivables" mainly consist of overnight money and time deposits. The book value of loans and receivables is based on amortised cost. There are no material diff erences between carrying amounts and fair value.

LOANS AND RECEIVABLES

N81 CONTRACTUAL MATURITIES

FIGURES IN EUR MILLION

	Amortised cost		Fair value
	31.12.2013	31.12.2012	31.12.2013	31.12.2012
Due one year or sooner	194	504	194	504
Later than one year, up to two years	136	95	138	95
Later than two years, up to three years	66	119	66	119
Later than three years, up to four years	206	15	206	15
Later than four years, up to fi ve years	—	7	—	7
Later than fi ve years, up to ten years	403	443	404	444
Total	1,005	1,183	1,008	1,184

N82 RATING STRUCTURE

FIGURES IN EUR MILLION

	Amortised cost
31.12.2013	31.12.2012
—	—
4	—
25	43
844	902
132	238
1,005	1,183

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity
• 148 Cash fl ow statement
• NOTES 149 General information
• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

FINANCIAL ASSETS AVAILABLE FOR SALE

N83 CONTRACTUAL MATURITIES

FIGURES IN EUR MILLION

	Fair value		Amortised cost
	31.12.2013	31.12.2012	31.12.2013	31.12.2012
Due later than one year, up to two years	2	—	2	—
Later than three years, up to four years	10	—	10	—
Later than four years, up to fi ve years	6	—	6	—
Later than fi ve years, up to ten years	14	—	14	—
Total	32	—	32	—

Financial assets available for sale have a rating of category A.

N85 RATING STRUCTURE

FIGURES IN EUR MILLION

FINANCIAL ASSETS CLASSIFIED AT FAIR VALUE THROUGH PROFIT OR LOSS AND DERIVATIVES

N84 CONTRACTUAL MATURITIES

FIGURES IN EUR MILLION

	Fair value
	31.12.2013	31.12.2012
Due one year or sooner	86	215
Later than one year, up to two years	11	31
Later than two years, up to three years	20	45
Later than three years, up to four years	21	1
Later than four years, up to fi ve years	3	4
Later than fi ve years, up to ten years	54	75
Later than ten years	526	144
Total	721	515

	Fair value
31.12.2013	31.12.2012
2	—
13	—
138	181
124	226
444	108
721	515

The carrying amount of fi nancial assets classifi ed at fair value through profi t or loss constitutes – contrary to a purely economic perspective – the maximum credit exposure. The amount with respect to the change in fair value occasioned by the change in the credit risk was not signifi cant. There are no credit derivatives or similar hedging instruments for these securities.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

(12) FAIR VALUE HIERARCHY

FAIR VALUE HIERARCHY

For the purposes of the disclosure requirements pursuant to IFRS 13, fi nancial instruments that are to be recognised at fair value must be assigned to a three-level fair value hierarchy as must those assets and liabilities recognised at amortised cost for which a disclosure of fair value is required in connection with annual reporting (fi nancial instruments not measured at fair value).

Due to the prospective application of IFRS 13, information in addition to that required by IFRS 7 is provided without corresponding previous-year values.

The fair value hierarchy refl ects characteristics of the pricing information and inputs used for measurement, and it is structured as follows:

• ¡ Level 1: Assets and liabilities that are measured using (unadjusted) prices quoted directly on active, liquid markets. This includes, fi rst and foremost, listed equities, futures and options, investment funds and highly liquid bonds traded on regulated markets.
• ¡ Level 2: Assets and liabilities that are measured using observable market data and are not allocated to Level 1. Measurement is based in particular on prices for comparable assets and liabilities that are traded on active markets, prices on markets that are not deemed active and inputs derived from such prices and market data. This level includes, for example, assets measured on the basis of yield curves such as debenture bonds and registered debt securities. Also allocated to Level 2 are market prices for bonds with limited liquidity such as corporate securities.

¡ Level 3: Assets and liabilities that cannot be measured or can be measured only in part using inputs observable on the market. These instruments are mainly measured using measurement models and methods. This level primarily includes unlisted equity instruments.

Allocation to the fair value hierarchy levels is reviewed at a minimum as at the end of a period. Transfers are shown as if they had taken place at the beginning of the fi nancial year.

BREAKDOWN OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

As at the balance sheet date, the share of Level 1 fi nancial instruments in the total portfolio of fi nancial assets measured at fair value was 7 (38)%.

Altogether, 89 (58)% of fi nancial instruments measured at fair value were allocated to Level 2 as at the balance sheet date.

As at the balance sheet date, the Group allocated 4 (4)% of fi nancial instruments measured at fair value to Level 3.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

N86 FAIR VALUE HIERARCHY

FIGURES IN EUR MILLION
Book value of fi nancial instruments recognised at fair value by class	Level 1	Level 2	Level 3 1)	Book value
31.12.2013
Financial assets measured at fair value
Available for sale
Fixed-income securities	49	43,482	—	43,531
Variable-yield securities	801	67	523	1,391
Financial assets at fair value through profi t or loss
Financial assets classifi ed at fair value through profi t or loss	53	807	24	884
Financial assets held for trading	127	77	2	206
Other invested assets	1,782	72	1,265	3,119
Other assets, derivative fi nancial instruments (hedging instruments)	—	86	—	86
Investment contracts
Financial assets classifi ed at fair value through profi t or loss	295	268	89	652
Available for sale	—	32	—	32
Derivatives	—	59	10	69
Total fi nancial assets measured at fair value	3,107	44,950	1,913	49,970
Financial liabilities measured at fair value
Other liabilities (negative market values under derivative fi nancial instruments)
Negative market values under derivatives	—	67	117	184
Negative market values under hedging instruments	—	7	—	7
Other liabilities (investment contracts)
Financial liabilities classifi ed at fair value through profi t or loss	414	263	89	766
Derivatives	—	60	10	70
Total fi nancial liabilities measured at fair value	414	397	216	1,027
31.12.2012 Financial assets measured at fair value
Available for sale
Fixed-income securities	13,791	26,289	—	40,080
Variable-yield securities	776	112	369	1,257
Financial assets at fair value through profi t or loss
Financial assets classifi ed at fair value through profi t or loss	611	787	31	1,429
Financial assets held for trading	173	37	3	213
Other invested assets	2,086	119	1,179	3,384
Other assets, derivative fi nancial instruments	—	149	—	149
Investment contracts
Financial assets classifi ed at fair value through profi t or loss	207	141	114	462
Derivatives	—	35	18	53
Total fi nancial assets measured at fair value	17,644	27,669	1,714	47,027
Financial liabilities measured at fair value
Other liabilities (negative market values under derivative fi nancial instruments)
Negative market values under derivatives	—	39	103	142
Negative market values under hedging instruments	—	—	—	—
Other liabilities (investment contracts)
Financial liabilities classifi ed at fair value through profi t or loss 2)	397	169	115	681
Derivatives	—	35	18	53
Total fi nancial liabilities measured at fair value	397	243	236	876

1) Categorisation in Level 3 does not amount to a statement as to quality. No conclusions may be drawn as to the creditworthiness of the issuers

2) Level 2 includes reinsurance contracts measured like fi nancial instruments (EUR 28 million) that do not meet the risk-transfer test required under US GAAP.

We recognise these fi nancial instruments under "Funds withheld under reinsurance treaties"

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance

contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information 279 List of shareholdings for the consolidated

fi nancial statements

288 Responsibility statement

In the fi nancial year just ended, fi xed-income securities, primarily bonds traded on the OTC market, with a fair value of EUR 13,830 million that had been allocated to Level 1 were instead allocated to Level 2. Average prices supplied by price service agencies were used to measure these fi nancial assets.

The reallocation was solely the result of the accounting statement "IDW RS HFA 47: Specifi c issues regarding calculation of fair value under IFRS 13" adopted by the Main Committee of the Institute of Public Auditors in Germany (IDW) on 6 December 2013. As a consequence, the aforementioned average prices now constitute Level 2 inputs if the basic data underlying these average prices constitute binding off ers or observable, transaction-based prices. Accordingly, all fi xed-income securities that were measured using such average prices and previously allocated to Level 1 were reclassifi ed in wholesale fashion with eff ect as at 1 January 2013. The reclassifi cation is not based on either changed liquidity characteristics of these securities or on a changed investment strategy.

This change of depiction had no implications for the fi gures in the present consolidated fi nancial statements. Since the criteria for level allocation was fi rst specifi ed and adjusted to refl ect IFRS 13 and because that standard is to be applied prospectively starting with 1 January 2013, we have not made any corresponding adjustments to the previous-year fi gures shown for the purposes of comparison. Because of the short period between the adoption of IDW RS HFA 47 and the preparation of the consolidated fi nancial statements, a detailed portfolio analysis will fi rst be undertaken in the coming months. The results of this analysis may lead to corrections in the amounts shown in the fair value hierarchy as at 31 December 2013.

In addition, securities with a fair value of EUR 75 million that had been classifi ed as Level 1 fi nancial assets in the previous year were instead allocated to Level 2 in the fi nancial year. The reclassifi cation had to be carried out primarily as a consequence of the reduced liquidity of the instruments. No securities that had been classifi ed as Level 2 fi nancial assets in the previous year were reclassifi ed to Level 1 in 2013. The reclassifi cations relate to EUR 28 million of fi xedincome securities in the class "Financial assets available for sale", EUR 10 million of fi nancial instruments in the class "Financial assets at fair value through profi t or loss" and EUR 37 million of derivatives in the class "Financial assets held for trading".

ANALYSIS OF FINANCIAL INSTRUMENTS FOR WHICH SIGNIFICANT INPUTS ARE NOT BASED ON OBSERVABLE MARKET DATA (LEVEL 3)

The following table shows a reconciliation of the fi nancial instruments (hereinaft er, "FI") included in Level 3 at the beginning of the reporting period with the values as at 31 December of the fi nancial year.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

RECONCILIATION OF FINANCIAL INSTRUMENTS1) (FINANCIAL ASSETS) INCLUDED IN LEVEL 3 AT THE BEGINNING

N87 OF THE REPORTING PERIOD WITH THE VALUES AS AT 31 DECEMBER 2013

FIGURES IN EUR MILLION

	FI available for sale/ fi xed-income securities	FI available for sale/ variable-yield securities	FI classifi ed at fair value through profi t or loss	FI held for trading	Other invested assets	Investment contracts/FI classifi ed at fair value through profi t or loss	Investment contracts/ derivatives	Total amount of fi nancial assets measured at fair value
2012
Book value as at 1.1.2012	11	292	27	3	1,005	—	—	1,338
Income and expenses
recognised in the statement of income	—	–16	4	—	–3	12	1	–2
recognised in other comprehensive income	1	15	—	—	94	—	—	110
Transfers to Level 3	—	—	—	—	—	—	—	—
Transfers from Level 3	—	—	—	—	—	—	—	—
Additions	—	137	4	—	259	334	23	757
Disposals	12	57	4	—	164	235	7	479
Exchange rate fl uctuations	—	–2	—	—	–12	3	1	–10
2013
Book value as at 1.1.2013	—	369	31	3	1,179	114	18	1,714
Change in scope of consolidation	—	—	–7	—	–9	—	—	–16
Income and expenses
recognised in the statement of income	—	–26	1	–1	–14	–29	–2	–71
recognised in other comprehensive income	—	28	—	—	26	—	—	54

Transfers to Level 3 — 30 2) 4 2) — — — — 34 Transfers from Level 3 —— 1 3) 3 3) — —— 4

Purchases — 177 15 3 256 35 2 488

Sales — 50 2 — 141 29 8 230 Repayments — — 16 — — — — 16 Exchange rate fl uctuations — –5 –1 — –32 –2 — –40 Book value as at 31.12.2013 — 523 24 2 1,265 89 10 1,913

1) In the following, fi nancial instruments are abbreviated as "FI"

2) Measurement at net asset value and thus transfer to Level 3

3) Transfer due to changed information

Additions

Disposals

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

RECONCILIATION OF FINANCIAL INSTRUMENTS1) (FINANCIAL LIABILITIES) INCLUDED IN LEVEL 3 AT THE BEGINNING

N88 OF THE REPORTING PERIOD WITH THE VALUES AS AT 31 DECEMBER 2013

FIGURES IN EUR MILLION
------------------------

2012 Book value as at 1.1.2012 — — —	Total amount of fi nancial liabilities measured at fair value
	—
Income and expenses
recognised in the statement of income — — —	—
recognised in other comprehensive income — — —	—
Transfers to Level 3 — — —	—
Transfers from Level 3 — — —	—
Additions 103 112 17	232
Disposals — — —	—
Exchange rate fl uctuations — 3 1	4

2013
Book value as at 1.1.2013	103	115	18	236
Income and expenses
recognised in the statement of income	—	29	2	31
recognised in other comprehensive income	—	—	—	—
Transfers to Level 3	—	—	—	—
Transfers from Level 3	—	—	—	—
Additions
Purchases	19	35	2	56
Disposals
Sales	2	30	8	40
Repayment	—	—	—	—
Exchange rate fl uctuations	–3	–2	—	–5
Book value as at 31.12.2013	117	89	10	216

1) In the following, fi nancial instruments are abbreviated as "FI"

Income and expenses for the period that were recognised in the consolidated statement of income, including gains and losses on Level 3 assets and liabilities held in the portfolio at the end of the reporting period, are shown in the following table.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

146 Statement of changes in shareholders' equity

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

¹⁴² Balance sheet 144 Statement of income 145 Statement of comprehensive income

N89 EFFECT ON RESULTS OF LEVEL 3 FINANCIAL INSTRUMENTS1) (FINANCIAL ASSETS) MEASURED AT FAIR VALUE

FIGURES IN EUR MILLION

	FI available for sale/variable yield securities	FI classifi ed at fair value through profi t or loss	FI held for trading	Other invested assets	Investment contracts/FI classifi ed at fair value through profi t or loss	Investment contracts/ derivatives	Total amount of fi nancial assets measured at fair value
2012
Gains and losses in the 2012 fi nancial year
Income from investments	—	4	—	4	132	5	145
Investment expenses	–16	—	—	–7	–120	–4	–147
thereof attributable to fi nancial instruments included in the portfolio at 31.12.2012
Income from investments	—	4	—	4	132	5	145
Investment expenses	–16	—	—	–7	–120	–4	–147
2013
Gains and losses in the 2013 fi nancial year
Income from investments	—	7	2	1	147	11	168
Investment expenses	–26	–6	–3	–15	–176	–13	–239
thereof attributable to fi nancial instruments included in the portfolio at 31.12.2013
Income from investments2)	—	7	1	1	146	11	166
Investment expenses3)	–26	–6	–2	–15	–176	–13	–238

1) In the following, fi nancial instruments are abbreviated as "FI"

2) Thereof EUR 166 million attributable to unrealised gains

3) Thereof –EUR 200 million attributable to unrealised loses

N90 EFFECT ON RESULTS OF LEVEL 3 FINANCIAL INSTRUMENTS1) (FINANCIAL LIABILITIES) MEASURED AT FAIR VALUE

FIGURES IN EUR MILLION

	Other liabilities/ negative market values under derivatives	Investment contracts/ FI classifi ed at fair value through profi t or loss	Investment contracts/ derivatives	Total amount of fi nancial liabilities measured at fair value
2013
Gains and losses in the 2013 fi nancial year
Income from investments	1	176	13	190
Investment expenses	—	–147	–11	–158
Financing costs	–1	—	—	–1
thereof attributable to fi nancial instruments included in the portfolio at 31.12.2013
Income from investments2)	1	176	13	190
Investment expenses3)	—	–147	–11	–158
Financing costs4)	–1	—	—	–1

1) In the following, fi nancial instruments are abbreviated as "FI"

2) Thereof EUR 190 million attributable to unrealised gains

3) Thereof –EUR 158 million attributable to unrealised loses

4) Thereof –EUR 1 million attributable to unrealised loses

	140 CONSOLIDATED FINANCIAL STATEMENTS
NOTES
	183 Consolidation	209 Notes on the consolidated	270 Other information
	188 Non-current assets held for sale and	balance sheet – assets	279 List of shareholdings for the consolidated
	disposal groups	239 Notes on the consolidated	fi nancial statements
	189 Nature of risks associated with insurance	balance sheet – liabilities	288 Responsibility statement
	contracts and fi nancial instruments	258 Notes on the consolidated

statement of income

N91 OTHER INFORMATION ABOUT THE MEASUREMENT OF LEVEL 3 FINANCIAL INSTRUMENTS

FIGURES IN EUR MILLION

	Fair value 31.12.2013	Measurement method	Unobservable inputs	Fluctuation (weighted average)
CDOs/CLOs2)	14	Present value method	Prepayment speed, risk pre miums, default rates, recovery rates, redemptions	n. a. 4)
Unlisted equity, real estate and bond funds1)	660	NAV method3)	n.a.	n. a.
Private equity funds/private equity real estate funds1)	1,074	NAV method3)	n.a.	n. a.
Written put options for minority interests1)	48	Discounted NAV3)	Risk-free interest	5.6%
Unlisted bond funds1)	5	NAV method3)	n.a.	n. a.
Insurance derivatives2)	130	Present value method	Market values of CAT bonds, interest rate curve	n. a. 4)
Investment contracts	198	—	—	—

1) These fi nancial instruments are classifi ed in Level 3, since they are neither based on market prices nor measured by the Group on the basis of observable inputs.

They are measured using the NAV method

2) These fi nancial instruments are classifi ed in Level 3, since unobservable inputs were used to measure them

3) NAV: net asset value – alternative inputs within the meaning of IFRS 13 cannot be reasonably established 4) Due to the distinct character of the individual measurement inputs, fl uctuations cannot be reasonably established without disproportionate eff ort

If Level 3 fi nancial instruments are measured using models where the adoption of reasonable alternative inputs leads to a material change in fair value, IFRS 7 requires disclosure of the eff ects of these alternative assumptions. Of the Level 3 fi nancial instruments with fair values of altogether EUR 2.1 (1.9) billion as at the balance sheet date, the Group generally measured fi nancial instruments with a volume of EUR 1.8 (1.5) billion using the net asset value method, whereby alternative inputs within the meaning of the standard cannot reasonably be established. In addition, assets from investment contracts in the amount of EUR 99 (132) million are off set by liabilities from investment contracts in the same amount. Since assets and debts completely off set each other and trend similarly in value, we have elected to dispense with a scenario analysis. Insurance derivatives in the amount of EUR 130 (108) million are recognised in Level 3. The trend in the value of these derivatives depends on the risk trends in a subordinate group of primary insurance contracts with statutory reserve requirements. The use of alternative inputs and assumptions had no material eff ect on the consolidated fi nancial statements. For the remaining Level 3 fi nancial instruments with a volume of EUR 14 (36) million, the eff ects of alternative inputs and assumptions are immaterial.

MEASUREMENT PROCESS

The measurement process consists of using either publicly available prices on active markets or measurements with economically established models that are based on observable inputs in order to ascertain the fair value of fi nancial investments (Level 1 and Level 2 assets). For assets for which publicly available prices or observable market data are not available (Level 3 assets), measurements are primarily made on the basis of proven measurements prepared by independent professional experts (e.g. audited net asset value) that have been previously subjected to systematic plausibility checks. The organisational unit entrusted with measuring investments is independent from the organisational units that enter into investment risks, thus ensuring separation of functions and responsibilities. The measurement processes and methods are documented in full. Decisions on measurement questions are taken by the Talanx measurement committee, which meets monthly.

We do not make use of the option of portfolio measurement within the meaning of IFRS 13.48.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

BREAKDOWN OF FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE IN THE NOTES

N92 FAIR VALUE HIERARCHY – FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE

FIGURES IN EUR MILLION

Fair values of fi nancial instruments not recognised at fair value, by balance sheet item	Level 1	Level 2	Level 3 1)	Fair value
31.12.2013
Financial assets not measured at fair value
Loans and receivables	61	34,783	166	35,010
Financial assets held to maturity	12	3,111	—	3,123
Other invested assets	—	1	1	2
Investment contracts – loans and receivables	695	313	—	1,008
Total fi nancial assets not measured at fair value	768	38,208	167	39,143
Financial liabilities not measured at fair value
Subordinated liabilities	1,003	2,353	—	3,356
Notes payable	150	808	—	958
Other commitments under investment contracts	628	288	—	916
Total fi nancial liabilities measured at fair value	1,781	3,449	—	5,230

1) Categorisation in Level 3 does not amount to a statement as to quality. No conclusions may be drawn as to the creditworthiness of the issuers

(13) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

DERIVATES

We use derivative fi nancial instruments to hedge against interest rate, currency and other market price risks and to a limited extent also to optimise income and realise intentions to buy and sell. In this context, the applicable regulatory requirements and the standards set out in the Group's internal investment guidelines are strictly observed, and fi rst-class counterparties are always selected.

In addition, embedded derivatives in structured products and insurance contracts are – where required under the rules in IAS 39 "Financial Instruments: Recognition and Measurement" and IFRS 4 "Insurance Contracts" – separated from the underlying contracts and recognised separately at fair value.

Derivative fi nancial instruments are initially measured at the fair value attributable to them on the date of contract conclusion. Thereaft er, they are measured at the fair value applicable as at each balance sheet date. Regarding the measurement techniques used, cf. subsection "Determination of fair value" in section "Accounting policies", pages 153 et seqq.

The method for recognising gains and losses depends on whether the derivative fi nancial instrument is used as a hedging instrument within the meaning of hedge accounting pursuant to IAS 39 and, if it is, on the type of hedged position/risk. In the case of derivatives that are not hedging instruments, fl uctuations in value are recognised as income or expenses under "Net investment income". This approach also applies to separated embedded derivatives associated with structured fi nancial instruments and insurance contracts. With respect to hedging instruments, the Group distinguishes between derivatives according to their intended use as fair value hedges or cash fl ow hedges (see separate subsection of this item in the Notes).

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

N93 DERIVATIVE FINANCIAL INSTRUMENTS, BY BALANCE SHEET ITEM

FIGURES IN EUR MILLION

	Hedging instrument under IAS 39	31.12.2013	31.12.2012
Balance sheet item (positive market values)
Financial assets at fair value through profi t or loss, fi nancial assets held for trading (derivatives)	No	82	74
Investment contracts, fi nancial assets held for trading (derivatives)	No	69	53
Other assets, derivative fi nancial instruments (hedging instruments)	Yes	86	149
Balance sheet item (nega tive market values)
Other liabilities
Liabilities from derivatives	No	–184	–142
Liabilities from derivatives (hedging instruments)	Yes	–7	—
Investment contracts, derivatives	No	–70	–53
Total (net)		–24	81

Derivative fi nancial instruments – excluding hedging instruments – produced an unrealised loss of EUR 13 (–107) million in the fi nancial year. The result realised on positions closed in 2013 amounted to –EUR 8 (–9) million.

The fair values of our open derivative positions, including their associated nominal values, as at the balance sheet date are shown below, diff erentiated according to risk type and maturity. Positive and negative market values are netted in the table. Accordingly, open positions from derivatives amounted to –EUR 24 (81) million as at the balance sheet date, corresponding to 0.02 (0.06)% of the balance sheet total, see Table A94.

In the year under review, the Group held derivative fi nancial instruments in connection with reinsurance business for the purposes of hedging infl ation risks within loss reserves. These transactions resulted in recognition of EUR 1 (13) million under "Financial assets at fair value through profi t or loss" and of EUR 34 (5) million under "Other liabilities".

DISCLOSURES CONCERNING THE NETTING OF FINANCIAL ASSETS AND LIABILITIES

The Group concludes derivatives transactions on the basis of standardised framework agreements that contain master netting arrangements. The netting arrangements set forth below do not generally meet the criteria for netting in the balance sheet because the Group has no legal claim whatsoever to the netting of the recognised amounts as at the present time. The right to net is generally enforceable only when certain defi ned future events occur. Depending on the counterparty, the collateral provided or received is taken into account up to the amount of the respective net liability or the respective net asset, see table N95.

HEDGE ACCOUNTING

In connection with hedge accounting, the Group seeks to compensate for changes in an underlying transaction's value or in cash fl ow that are caused by changes in market prices by obtaining a hedging instrument (derivative), whose changes in value or cash fl ow trend in approximately the opposite direction. Hedging is carried out for individual transactions (micro hedge). When a hedge is obtained, we document the hedge relationship between the underlying transaction and the hedging instrument, the risk management aim and the underlying hedging strategy. In addition, we document at the outset of the hedge relationship, our assessment of the extent to which the hedging instruments are eff ective in off setting the corresponding changes in the underlying transaction. Proof was furnished that the hedge relationships are eff ective.

Fair value hedges

In order to hedge changes in the fair value of equities (underlying transactions), the Group designated equity swaps as hedging derivatives. With this hedging of general price risk, which qualifi es as a fair value hedge, changes in the fair value of the derivatives are recognised under "Net investment income" along with the changes in the fair value of the underlying transaction allocable to the hedged risk. Existing fair value hedges were ended in the second quarter of the year under review. At the time the fair value hedges were ended, losses of –EUR 13 (–23) million from hedging instruments and gains of EUR 13 (23) million from underlying transactions were recognised in income. There was no ineff ectiveness in the case of these hedges.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES
149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies
• 172 Segment reporting

N94 MATURITIES OF DERIVATIVE FINANCIAL INSTRUMENTS

FIGURES IN EUR MILLION

	One year or sooner	Later than one year, up to fi ve years	Later than fi ve years, up to ten years	Later than ten years	Other
						31.12.2013	31.12.2012
Interest rate hedges
Fair value	44	36	–2	—	—	78	144
Nominal value	564	1,020	279	—	—	1,863	2,233
Currency hedges
Fair value	12	–5	—	—	—	7	–15
Nominal value	296	18	1	—	—	315	332
Equity and index hedges
Fair value	4	3	–48	—	—	–41	–46
Nominal value	68	61	–74	—	—	55	164
Infl ation hedges
Fair value	–1	–19	–13	—	—	–33	8
Nominal value	1,280	1,810	370	—	—	3,460	2,849
Derivatives associated with insurance contracts1)
Fair value	–15	–79	6	—	—	–88	–13
Other risks
Fair value	1	6	2	—	44	53	3
Nominal value	20	31	39	—	—	90	63
Total hedges
Fair value	45	–58	–55	—	44	–24	81
Nominal value	2,228	2,940	615	—	—	5,783	5,641

1) Financial instruments relate exclusively to embedded derivatives in connection with reinsurance business, which are required by IFRS 4 to be separated from the underlying insurance contract and recognised separately. Due to the characteristics of these derivatives, it is not reasonably possible to indicate maturities or depict nominal values, and this information has therefore been omitted. These derivatives were recognised at fair value

N95 NETTING ARRANGEMENTS

FIGURES IN EUR MILLION
	Fair value	Netting arrangement	Cash collateral received/provided	Other collateral received/provided	Net amount
31.12.2012
Derivatives (positive market values)	178	12	13	29	124
Derivatives (negative market values)	47	6	—	3	38
31.12.2013
Derivatives (positive market values)	118	17	36	15	50
Derivatives (negative market values)	54	8	8	28	10

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance

contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

Cash fl ow hedges

The Group hedged against interest rate risk for future transactions with a high likelihood of occurring. In this connection, valuation units are established, which consist of forward securities trans actions (forward purchases) and planned securities purchases. Forward purchases are used to hedge the risk that future returns on fi rmly committed reinvestments may be low due to falling interest rates. The underlying transaction for the hedging instruments is the future investment at the returns/rates applicable at the time. In accordance with IAS 39, the hedging of forecast transactions is depicted as a cash fl ow hedge.

The eff ective portion of hedging instruments measured at fair value is recognised in equity in the reserve for cash fl ow hedges aft er allowance for deferred taxes and any policyholder participation. The ineff ective portion of such changes in value, on the other hand, is recognised directly in the statement of income under "Net investment income". If hedged transactions result in the recognition of fi nancial assets, the amounts recognised in equity are amortised over the duration of the acquired asset.

The following table shows the reconciliation of the reserve for cash fl ow hedges (before taxes and policyholder participation):

N96 CHANGES IN THE RESERVE FOR CASH FLOW HEDGES

FIGURES IN EUR MILLION

	2013	2012
Balance as at 31.12. of the previous year (before taxes)	87	–63
Disposals in the statement of income (hedging of cash fl ows from fl oating interest rates)	—	9
Allocations (hedging of forecast transactions)	–71	155
Withdrawal (hedging of forecast transactions)	12	—
Reductions (hedging of currency risks associated with long-term investments)	—	–14
Balance as at 31.12. of the year under review (before taxes)	28	87

In the year under review, the reserve for cash fl ow hedges changed by –EUR 59 (160) million before taxes and by –EUR 58 (150) million aft er taxes.

In connection with due and owing forward purchases, an amount of EUR 12 (—) million was withdrawn from equity and amortised in the statement of income in the amount of EUR 0.3 (—) million (under "Net investment income").

The amount of EUR 1 (0) million was recognised in income in the year under review owing to the ineff ectiveness of cash fl ow hedges.

The expected cash fl ows from cash fl ow hedges were as follows, see Table A98.

In 2013 there were no forecast transactions previously recognised as a hedging relationship that would no longer be likely to occur in the future.

Fair values of hedging instruments

As at the balance sheet date, the fair values of derivative fi nancial instruments designated in connection with hedge accounting were as follows:

N97 HEDGING INSTRUMENTS

FIGURES IN EUR MILLION
	31.12.2013	31.12.2012
Fair value hedges
Equity swaps	—	2
Cash fl ow hedges
Forward securities transactions (net)	79	147
Total	79	149

In the year under review, the net profi t or loss on hedging derivatives recognised in the statement of income amounted to EUR 12 (–36) million and relates chiefl y to –EUR 13 (–23) million from hedging derivatives in connection with fair value hedges, changes in value recognised in income as a result of ineff ectiveness (EUR 1 [0] million), current interest payments (EUR 0 [–12] million) and EUR 0 (–1) million from other payments.

DERIVATIVES ASSOCIATED WITH INSURANCE CONTRACTS

A number of contracts in the Life/Health Reinsurance segment have characteristics requiring application of IFRS 4 rules on embedded derivatives. According to the rules, certain derivatives embedded in reinsurance contracts are to be separated from the underlying insurance contract, or "host contract", and recognised separately pursuant to IAS 39 under "Net investment income".

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income 145 Statement of comprehensive income

149 General information

149 General accounting principles and application of International Financial Reporting Standards

146 Statement of changes in shareholders' equity 153 Accounting policies

NOTES

172 Segment reporting

N98 CASH FLOWS OF FORECAST HEDGED TRANSACTIONS

FIGURES IN EUR MILLION
	One year or sooner	Later than one year, up to fi ve years	Later than fi ve years, up to ten years
				31.12.2013	31.12.2012
Cash fl ow from underlying transactions	–696	–800	–261	–1,757	–1,645

In connection with the recognition of reinsurance contracts involving modifi ed coinsurance and coinsurance funds withheld ("ModCo"), where securities deposits are held by cedants and payments are made on the basis of the income from certain securities, elements of interest rate risk are clearly and closely linked with the underlying reinsurance contracts. Consequently, embedded derivatives result exclusively from the credit risk of the underlying securities portfolio. Hannover Rück SE uses information available as at the valuation date to ascertain the market values of derivatives embedded in ModCo contracts based on a credit spread method by which the derivative has a value of zero on the date of contract conclusion and then fl uctuates over time depending on how the credit spread changes for the securities. As at the balance sheet date, the derivative had a positive value of EUR 45 (40) million. Over the course of the year, the derivative's market value changed by EUR 7 (52) million before taxes, resulting in a positive contribution to income.

A number of transactions underwritten in 2012 for the Life/Health Reinsurance segment involved Hannover Rück SE companies off ering their contract partners coverage for risks associated with possible future payment obligations under hedging instruments. These transactions are likewise to be classifi ed as derivative fi nancial instruments. The payment obligations result from contractually defi ned events and relate to changes in an underlying group of primary insurance contracts with statutory reserving requirements. Pursuant to IAS 39, the contracts are to be classifi ed and recognised as free-standing credit derivatives. The initial recognition of these derivative fi nancial instruments had no impact on income since receivables were recognised in the same amount. As at the balance sheet date, the fair value of these instruments amounted to EUR 69 (55) million and is recognised under "Other liabilities". The change in value in subsequent periods depends on risk trends and led to an improvement in results of EUR 1 million in the fi nancial year.

For another group of contracts in the Life/Health Reinsurance segment, derivative components are measured on the basis of stochastic considerations. As at the balance sheet date, measurement led to a positive derivative value of EUR 7 (8) million. As at 31 December 2012, measurement resulted in a charge to income of EUR 1 (1) million.

Overall, as at the balance sheet date, application of the rules on recognition of insurance derivatives led to recognition of assets in the amount of EUR 52 (48) million and to recognition of liabilities associated with derivatives resulting from technical items in the amount of EUR 78 (61) million. In the year under review, income improvements of EUR 9 (52) million and income charges of EUR 4 (7) million were recorded from all insurance derivatives required to be measured separately.

(14) ACCOUNTS RECEIVABLE ON INSURANCE BUSINESS

N99 ACCOUNTS RECEIVABLE ON INSURANCE BUSINESS

FIGURES IN EUR MILLION

	2013	2012
Accounts receivable on direct written insurance business	2,090	2,056
thereof
from policyholders	1,181	1,109
from insurance intermediaries	909	947
Accounts receivable on reinsurance business	2,981	3,025
Book value as at 31.12 of the fi nancial year	5,071	5,081

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

• 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

(15) DEFERRED ACQUISITION COSTS

N100 DEFERRED ACQUISITION COSTS

FIGURES IN EUR MILLION

	Gross business	Reinsurers' share	Net business	Gross business	Reinsurers' share	Net business
		2013			2012
Book value as at 31.12 of the previous year	4,636	258	4,378	4,275	263	4,012
Change in scope of consolidation	—	—	—	—	—	—
Portfolio entries/withdrawals	2	—	2	—	2	–2
Additions	999	15	984	993	60	933
Amortised acquisition costs	738	7	731	618	63	555
Currency adjustments	–125	–4	–121	–14	–4	–10
Other changes	–8	–9	1	—	—	—
Book value as at 31.12 of the fi nancial year	4,766	253	4,513	4,636	258	4,378

(16) OTHER ASSETS

N101 OTHER ASSETS

FIGURES IN EUR MILLION
	2013	2012
Own-use real estate	675	614
Tax refund claims	392	213
Plant and equipment	167	167
Interest and rent due	7	8
Derivative fi nancial instruments – hedging instruments, hedge accounting	86	149
Sundry assets	874	855
Book value as at 31.12 of the fi nancial year	2,201	2,006

The fair value of own-use real estate amounted to EUR 724 (685) million as at the balance sheet date These fair values were mainly calculated using the discounted cash fl ow method. Of this amount, EUR 113 million is attributable to Fair Value Level 2, and EUR 611 million to Level 3. These fair values were mainly calculated using the discounted cash fl ow method.

With regard to own-use real estate, there were limitations on disposal and guarantee assets in the amount of EUR 449 (435) million as at 31 December 2013. The expenditures capitalised for property, plant and equipment under construction amounted to EUR 8 (1) million as at the balance sheet date. Contractual commitments for the acquisition of property, plant and equipment totalled EUR 4 (3) million as at the balance sheet date, see Table A102.

N102 CHANGES IN OWN-USE REAL ESTATE

FIGURES IN EUR MILLION

	2013	2012
Gross book value as at 31.12. of the previous year	783	887
Change in scope of consolidation (additions)
Business combinations	—	30
Additions	18	27
Disposals	9	11
Reclassifi cations	65	–152
Exchange rate fl uctuations	–3	2
Gross book value as at 31.12. of the fi nancial year	854	783
Accumulated depreciation and accumulated impairment losses as at 31.12. of the previous year	169	189
Disposals	6	—
Depreciation
scheduled	16	14
unscheduled	2	—
Reversal after impairment	8	7
Reclassifi cations	7	–27
Exchange rate fl uctuations	–1	—
Accumulated depreciation and accumulated impairment losses as at 31.12. of the fi nancial year	179	169
Book value as at 31.12 of the previous year	614	698
Book value as at 31.12 of the fi nancial year	675	614

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

N103 CHANGES IN PLANT AND EQUIPMENT

FIGURES IN EUR MILLION

	2013	2012
Gross book value as at 31.12.
of the previous year	511	447
Change in scope of consolidation (additions)
Business combinations	—	8
Additions	51	91
Disposals	126	35
Reclassifi cations	–1	—
Exchange rate fl uctuations	–8	—
Gross book value as at 31.12.
of the fi nancial year	427	511
Accumulated depreciation and accumulated impairment losses as at 31.12. of the previous year	344	301
Disposals	122	9
Depreciation
scheduled	43	52
Exchange rate fl uctuations	–5	—
Accumulated depreciation and
accumulated impairment losses as at 31.12. of the fi nancial year	260	344
Book value as at 31.12 of the previous year	167	146

NOTES ON THE CONSOLIDATED BALANCE SHEET – LIABILITIES

(17) SHAREHOLDERS' EQUITY

CHANGES IN SHAREHOLDER'S EQUITY AND NON-CONTROLLING INTERESTS

N105 COMPOSITION OF SHAREHOLDERS' EQUITY

FIGURES IN EUR MILLION

	31.12.2013	31.12.20121)
Common shares	316	316
Additional paid-in capital	1,373	1,369
Retained earnings	4,575	4,204
Other reserves	188	638
Group net income	762	626
Non-controlling interests in shareholders' equity	3,997	4,156
Total	11,211	11,309

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

N104 SUNDRY ASSETS

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
Trade accounts receivable	44	63
Receivables relating to investments	64	50
Receivables from non-Group-led business	137	130
Other tangible assets	13	10
Claims under insurance for pension commitments/surrender values	91	82
Prepaid insurance benefi ts	122	140
Deferred income	112	77
Other sundry assets	291	303
Total	874	855

Additional paid-in capital amounts to EUR 1,373 (1,369) million. In the previous year, additional paid-in capital increased by EUR 761 million as a result the issue of new shares in connection with the IPO by Talanx AG. In the process, costs in connection with the new shares in the amount of EUR 31 million were netted directly against additional paid-in capital, taking into account associated tax eff ects of –EUR 9 million. The increase in additional paid-in capital in the year under review (EUR 4 million) is the result of the capital increase carried out for the purposes of the employee share programme.

Retained earnings include equalisation reserves of EUR 1,583 (1,609) million (aft er deferred taxes).

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

258 Notes on the consolidated statement of income

Other reserves include gains and losses from currency translation amounting to –EUR 209 (48) million.

			FIGURES IN EUR MILLION
--	--	--	------------------------

	31.12.2013	31.12.2012 2)
Associated companies valued using the equity method	1,486	2,313
From invested assets, available for sale	33	87
From cash fl ow hedges	–421	–574
Other changes
less/plus	–617	–1.056
Policyholder participation/shadow accounting1)	–84	–180
Deferred taxes recognised directly in equity	169	540
Non-controlling interests in shareholders' equity	566	1,130

1) Includes provisions recognised directly in equity for deferred premium refunds 2) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

"Non-controlling interests in shareholders' equity" refers principally to shares held by shareholders outside the Group in the shareholders' equity of the Hannover Re subgroup.

RECONCILIATION ITEMS FOR NON-CONTROLLING INTERESTS IN SHAREHOLDERS' EQUITY

FIGURES IN EUR MILLION

N107

	31.12.2013	31.12.2012 1)
Unrealised gains and losses from investments	380	667
Share of net income	520	518
Other shareholders' equity	3,097	2,971
Total	3,997	4,156

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

The changes in fi nancial instruments that aff ected shareholders' equity – with such instruments being allocated to the category of "Financial assets available for sale" within the Group – before allowance for policyholders, non-controlling interests and deferred taxes were as follows:

N108 EFFECT OF FAIR VALUE MEASUREMENT ON OTHER COMPREHENSIVE INCOME

FIGURES IN EUR MILLION
	31.12.2013	31.12.2012
Allocation of gains/losses from the fair value measurement of "Financial assets available for sale" (unrealised gains and losses)	–696	2,417
Transfers of gains/losses from the fair value measurement of "Financial assets available for sale" to net income	–499	–78

COMMON SHARES

The share capital of Talanx AG amounts to EUR 315.997 (315.782) million and is divided into 252,797,634 (252,625,682) registered no-par value shares. The share capital is fully paid up.

OWN SHARES

On 26 November 2013, in connection with the launch of the employee share programme for employees of domestic companies (other than Hannover Rück SE), 171,952 registered no-par value shares – with a pro rata contribution to share capital of EUR 1.25 each – were issued from authorised capital at an issue price of EUR 17.59 per share, which price included a discount of EUR 7 per share. This led to an increase in share capital of EUR 0.2 million and briefl y to a corresponding portfolio of own shares. The transaction gave rise to personnel expenses of EUR 1.2 million as well proceeds from the sale of own shares totalling EUR 0.2 million, which were recognised in retained earnings. With the start of the year, the issued shares are entitled to share in profi t and are subject to a holding period that ends on 30 November 2017.

As at the balance sheet date, the Company no longer owned any own shares.

With regard to the composition of shareholders' equity, cf. "Consolidated statement of changes in shareholders' equity".

CONDITIONAL CAPITAL

On 15 May 2012, the General Meeting resolved to conditionally increase share capital by up to EUR 78 million through the issuance of up to 62,400,000 new no-par value shares (conditional capital II). The conditional capital increase is designed to grant no-par value shares to holders of bonds, which, on the basis of the authorisation conferred on the Board of Management by virtue of a resolution adopted by the General Meeting on the same date, Talanx AG or a subordinate Group company will issue by 14 May 2017 in exchange for cash in satisfaction of the conditional conversion obligation. The amendment to the Talanx AG Articles of Association took eff ect upon its entry in the commercial register on 4 June 2012.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

CONSOLIDATED FINANCIAL STATEMENTS

¹⁴² Balance sheet

¹⁷² Segment reporting

On 28 August 2012, the Extraordinary General Meeting resolved to conditionally increase share capital by up to EUR 26 million through the issuance of up to 20,800,000 new no-par value shares with a pro rata amount of share capital of EUR 1.25 each (conditional capital III). The conditional capital increase is designed to grant no-par value shares to holders of convertible bonds, warrant bonds, participating bonds with conversion or warrant rights and profi t-sharing rights with conversion or warrant rights as well as measures in connection with the employee share programme, which, on the basis of the aforementioned authorisation, Talanx AG or a subordinate Group company will issue by 27 August 2017 in exchange for cash in satisfaction of the conditional conversion obligation. The amendment to the Talanx AG Articles of Association took eff ect upon its entry in the commercial register on 5 September 2012.

AUTHORISED CAPITAL

On 29 September 2012, the Extraordinary General Meeting resolved to rescind the authorised capital under § 7 Para. 1 of the Talanx AG Articles of Association, as authorised by the General Meeting on 21 November 2011, and to replace it with a new § 7 Para. 1, which authorises the Board of Management, subject to the approval of the Supervisory Board, to increase share capital by 28 September 2017 in one or more tranches, but up to a total amount of EUR 146 million, through the issuance of new registered no-par value shares in exchange for cash or contribution in kind. Subject to the approval of the Supervisory Board, shareholders may be precluded from exercising subscription rights for certain enumerated purposes connected with cash capital increases, provided the pro rata amount of share capital attributable to the new shares does not exceed 10% of share capital. Subject to the approval of the Supervisory Board, EUR 1 million of this may be used to issue employee shares. Subject to the approval of the Supervisory Board, the exercise of subscription rights may be precluded for contribution-in-kind capital increases if such exclusion is in the Company's predominant interest. The amendment took eff ect upon its entry in the commercial register on 1 October 2012.

When the Greenshoe option was exercised on 8 October 2012, authorised capital was reduced to EUR 143 million in accordance with the Articles of Association. In the course of the employee share programme, authorised capital was reduced by EUR 0.2 million. After partial utilisation, authorised capital still amounts to EUR 142,307,260, of which EUR 785,060 continues to be used for employee shares.

CAPITAL MANAGEMENT

IAS 1 "Presentation of Financial Statements" requires detailed disclosures in the Notes that enable readers of fi nancial statements to understand the objectives, methods, and processes of capital management and that provide supplementary information on changes in Group shareholders' equity.

In this context, cf. the following remarks as well as the information contained in the Management Report regarding capital management, performance management and value-based management.

Preserving and continually strengthening its equity base is a key strategic objective for the Group. As part of its approach to capital management, the Group considers the policyholders' surplus over and above the shareholders' equity reported in the balance sheet.

The policyholders' surplus is defi ned as the sum total of

• ¡ shareholders' equity excluding non-controlling interests, composed of common shares, additional paid-in capital, other reserves and retained earnings
• ¡ non-controlling interests in shareholders' equity
• ¡ hybrid capital used as debt supplementing shareholders' equity, which encompasses our subordinated liabilities

As at the balance sheet date, the policyholders' surplus totalled EUR 14.3 (14.4) billion.

N109 CHANGE IN POLICYHOLDERS' SURPLUS

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance
• contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

The Group uses intrinsic value creation (IVC) as its central indicator of sustainable, strategic value creation for measuring the value created by our Group companies and divisions. This concept as well as the objectives and principles in accordance with which we conduct our enterprise governance and capital management is described in our remarks on capital management and performance management in the relevant subsections of the Management Report.

In terms of its capital resources, the Talanx Group satisfi es the expectations of the agencies rating it. Some Group companies are also subject to additional capital and solvency requirements. All Group companies met the applicable local minimum capital requirements in the year under review.

In connection with Group-wide capital management, Talanx AG monitors the capital resources of its subsidiaries with the utmost diligence.

(18) SUBORDINATED LIABILITIES

In order to optimise the Group's capital structure and to ensure the liquidity (solvency) required by regulators, various Group companies have in the past issued long-term subordinated debt instruments that in some cases are listed on exchanges.

N110 COMPOSITION OF LONG-TERM SUBORDINATED DEBT

FIGURES IN EUR MILLION

	Nominal	amount Coupon	Maturity	Rating 4)	Issue	31.12.2013	31.12.2012
Hannover Finance (Luxembourg) S. A.	500	Fixed (5%), then fl oating rate	2005/ no fi nal maturity	(a+; A)	These guaranteed subordinated bonds were off ered to the holders of debt issued in 2001 in partial ex change thereof. They may be called fi rst on 1.6.2015 and at each coupon payment date thereafter.	493	489
Hannover Finance (Luxembourg) S. A.	500	Fixed (5.75%), then fl oating rate	2010/ 2040	(a+; A)	These guaranteed subordinated bonds were issued in 2010 on the European capital market. They can not be called for ten years.	498	498
Hannover Finance (Luxembourg) S. A.	750	Fixed (5.75%), then fl oating rate	2004/ 2024	(a+; A)	These guaranteed subordinated bonds were issued on the European capital market. They were called in entire nominal amount on 17 January 2014 and repaid on 26 February 2014.	749	749
Hannover Finance (Luxembourg) S. A.	500	Fixed (5.0%), then fl oating rate	2012/ 2043	(a+; A)	These guaranteed subordinated bonds in the amount of EUR 500 million were issued in 2012 on the European capital market. They cannot be called for ten years.	497	497
HDI-Gerling Industrie Versicherung AG	142	Fixed (7%), then fl oating rate	2004/ 2024	(bbb+; A–)	These subordinated bonds are listed on the Euro MTF Market of the Luxembourg Stock Exchange and cannot be called until 2014.	144	149
HDI Lebensversicherung AG (vormals HDI-Gerling Lebensversicherung AG) 1)		110 Fixed (6.75%)	2005/ no fi nal maturity	(—; A–)	These subordinated bonds are listed on the Euro MTF Market of the Luxembourg Stock Exchange and cannot be called until 2015.	112	113
Talanx Finanz 2)		113 Fixed (4.5%)	2005/ 2025	(bbb; BBB)	These guaranteed subordinated bonds were origi nally issued in an amount of EUR 350 million. They are listed on the Luxembourg Stock Exchange.	112	112
Talanx Finanz	500	Fixed (8.37%), then fl oating rate	2012/ 2042	(bbb; BBB)	These guaranteed subordinated bonds in the amount of EUR 500 million were issued in 2012 on the European capital market. They cannot be called for ten years.	500	500
Open Life Towarzystwo Ubezpieczeń Życie S. A. 3)	2	Fixed (2.5%), plus WIBOR 3M	2013/ 2018	(—; —)	This subordinated loan of EUR 2 million was con cluded in 2013 and has a term that expires in 2018.	2	—
Total						3,107	3,107

1) As at the balance sheet date, Group companies in addition held bonds with a nominal value of EUR 50 million

(of these EUR 10 million are consolidated in the consolidated fi nancial statements, with the remaining EUR 40 million being blocked)

2) As at the balance sheet date, Group companies in addition held bonds with a nominal value of EUR 96 million (consolidated in the consolidated fi nancial statement) 3) Not included in the calculation of Group solvency

4) (Debt rating A.M. Best; debt rating S&P)

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

N111 FAIR VALUES OF SUBORDINATED LIABILITIES MEASURED AT AMORTISED COST FIGURES IN EUR MILLION

31.12.2013 31.12.2012 Amortised cost 3,107 3,107 Unrealised gains/losses 249 351 Fair value 3,356 3,458 The net result of EUR 188 (177) million from subordinated liabilities in the year under review consisted of interest expenses in the amount of EUR 187 (177) million and income from amortisation (EUR 1 [0] million).

N112 SUBORDINATED LIABILITIES: MATURITIES

FIGURES IN EUR MILLION

— 2 —	— — —
1,005	1,010
1,495	1,495
605	602
3,107	3,107

The fair value of the debt is generally based on quoted, active market prices. If such price information is not available, fair value is determined on the basis of the recognised eff ective interest rate method or estimated, e.g. using other fi nancial assets with similar rating, duration and yield characteristics. The eff ective interest rate method is always based on current market interest rates in the relevant fi xed interest-rate duration periods.

(19) UNEARNED PREMIUM RESERVE

N113 UNEARNED PREMIUM RESERVE

FIGURES IN EUR MILLION
	Gross	Re	Net	Gross	Re	Net
		2013			2012
Balance as at 31.12 of the previous year	5,440	521	4,919	4,677	389	4,288
Change in scope of consolidation	—	—	—	482	35	447
Portfolio entries/withdrawals	2	—	2	—	–1	1
Allocations	1,923	154	1,769	1,406	190	1,216
Releases	1,416	16	1,400	1,090	82	1,008
Reclassifi cation pursuant to IFRS 5	—	—	—	–1	—	–1
Other changes	—	—	—	–3	1	–4
Exchange rate fl uctuations	–271	–24	–247	–31	–11	–20
Balance as at 31.12 of the fi nancial year	5,678	635	5,043	5,440	521	4,919

The unearned premium reserve covers that portion of gross written premium that is to be attributed as income to the following fi nancial year(s) for a certain period aft er the balance sheet date. Since the unearned premium reserve essentially does not involve future cash fl ows with eff ect on liquidity, we have elected to dispense with information about maturities.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

(20) BENEFIT RESERVE

N114 BENEFIT RESERVE

FIGURES IN EUR MILLION

Gross	Re	Net	Gross	Re	Net
	2013			2012
48,248	1,017	47,231	45,739	988	44,751
—	—	—	144	1	143
–191	–177	–14	138	66	72
5,507	120	5,387	5,020	102	4,918
3,534	119	3,415	2,853	138	2,715
—	—	—	–16	—	–16
23	—	23	—	—	—
–286	–9	–277	76	–2	78
49,767	832	48,935	48,248		47,231
					1,017

IFRS 4 requires disclosure that helps explain the amount and timing of future cash fl ows from insurance contracts. The following table shows the benefi t reserve according to expected maturities. In connection with the analysis of maturities, we directly deducted deposits provided for the purpose of hedging this reserve, since cash infl ows and outfl ows from these deposits are to be attributed directly to cedants.

N115 BENEFIT RESERVE

FIGURES IN EUR MILLION

	Gross	Re	Net	Gross	Re	Net
		2013			2012
Due one year or shorter	2,828	47	2,781	3,124	130	2,994
Longer than one year, up to fi ve years	8,869	208	8,661	8,457	147	8,310
Longer than fi ve years, up to ten years	9,709	281	9,428	8,953	155	8,798
Longer than ten years, up to 20 years	11,590	164	11,426	11,350	182	11,168
Longer than 20 years	9,498	126	9,372	8,973	133	8,840
Deposits	7,273	6	7,267	7,391	270	7,121
Total	49,767	832	48,935	48,248	1,017	47,231

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

(21) LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE

N116 LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE

FIGURES IN EUR MILLION

	Gross	Re	Net	Gross	Re	Net
	2013		2012
Balance as at 31.12 of the previous year	33,243	5,248	27,995	31,438	4,920	26,518
Change in scope of consolidation	—	—	—	564	65	499
Portfolio entries/withdrawals	59	—	59	–3	5	–8
Plus claims and claims expenses incurred (net)
Financial year	13,681	2,021	11,660	12,654	1,951	10,703
Previous years	2,135	280	1,855	2,170	143	2,027
Total	15,816	2,301	13,515	14,824	2,094	12,730
Less claims and claims expenses paid (net)
Financial year	5,475	721	4,754	5,145	622	4,523
Previous years	8,655	1,777	6,878	8,300	1,177	7,123
Total	14,130	2,498	11,632	13,445	1,799	11,646
Other changes	–1	1	–2	1	4	–3
Exchange rate movements	–1,232	–166	–1,066	–136	–41	–95
Balance as at 31.12 of the fi nancial year	33,755	4,886	28,869	33,243	5,248	27,995

RUN-OFF OF THE NET LOSS RESERVE

As loss reserves are inevitably based to some degree on estimates, they will always feature some residual uncertainty. The diff erence between last year's estimate and the current appraisal of the reserve is expressed in terms of a net run-off result. In addition, in the case of reinsurance contracts whose terms do not correspond to a calendar year or that were concluded on an underwriting-year basis, it is oft en impossible to allocate claims expenses precisely to the fi nancial year or the previous year.

In the current fi nancial year, the loss run-off triangles returned by the reporting units were for the fi rst time also presented as adjusted for currency eff ects resulting from translation of the respective transaction currency into the local currency. The foreign currency run-off triangles returned by the reporting units are translated into euros at the exchange rates prevailing as at the balance sheet date so as to allow run-off results to be presented on a currency-adjusted basis. In cases where the original loss estimate corresponds to the actual fi nal loss in the local currency, eff orts are taken to avoid a purely indexed run-off result being returned even aft er the fi gure has been translated into the Group reporting currency (euros).

The following tables depict the net loss reserves for the years 2003 to 2013 for our main property/casualty insurance companies in the primary insurance segments, including Corporate Operations, and in the Group's Non-Life Reinsurance segment (so-called run-off triangle). The charts show the run-off of the net loss reserves established as at each balance sheet date for the current and preceding occurrence years. Depicted in this regard is not the run-off of the reserve for individual occurrence years but rather the run-off of the reserve recognised annually as at the balance sheet date.

The net loss reserve and its run-off are depicted for primary insurance segments, including Corporate Operations, and the Non-Life Reinsurance segment aft er allowance for consolidation eff ects for each area depicted but before elimination of intra-Group relations between primary insurance segments, including Corporate Operations, and reinsurance. The values reported for the 2003 fi nancial year also include previous-year values no longer shown separately in the run-off triangle. The published runoff results refl ect the changes in the fi nal losses for the individual run-off years that materialised in the 2013 fi nancial year.

Net loss reserves in the Group amount to a total of EUR 28.9 billion. Of these, EUR 7.8 billion is attributable to our property/casualty insurance companies in the primary insurance area, including Corporate Operations, and EUR 17.7 billion to the Non-Life Reinsurance segment. The remaining EUR 3.4 billion is attributable to the Life/Health Reinsurance segment (EUR 2.6 billion) and life primary insurance business (EUR 0.8 billion).

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

NET LOSS RESERVE AND ITS RUN-OFF IN THE PRIMARY INSURANCE SEGMENTS, INCLUDING CORPORATE OPERATIONS

N117 NET LOSS RESERVE AND ITS RUN-OFF IN THE PRIMARY INSURANCE SEGMENTS, INCLUDING CORPORATE OPERATIONS

FIGURES IN EUR MILLION
	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
Loss and loss adjustment expense reserve	4,294	4,984	5,944	6,011	6,365	6,268	6,354	6,884	6,956	7,104	7,846
Cumulative payments for the year in question and previous years
One year later	626	769	1,148	978	1,371	964	1,178	1,344	1,541	1,166
Two years later	1,025	1,283	1,695	1,667	1,702	1,554	1,786	2,150	1,876
Three years later	1,399	1,682	2,153	1,817	2,110	1,997	2,403	2,264
Four years later	1,721	2,043	2,225	2,120	2,483	2,922	2,848
Five years later	2,018	2,094	2,484	2,439	2,922	2,467
Six years later	2,013	2,310	2,729	2,834	2,848
Seven years later	2,197	2,532	3,039	2,740
Eight years later	2,387	2,802	3,066
Nine years later	2,641	2,827
Ten years later	2,652
Loss and loss adjustment expense reserve (net) for the year in question and previous years, plus payments made to date toward the original reserve
At the end of the year	4,294	4,984	5,944	6,011	6,365	6,268	6,354	6,884	6,956	7,104	7,846
One year later	4,029	4,668	5,265	5,546	6,034	5,772	6,226	6,532	6,578	6,770
Two years later	3,901	4,505	5,308	5,293	5,281	5,197	5,998	6,283	6,408
Three years later	3,959	4,627	5,191	4,927	5,370	5,473	5,791	6,219
Four years later	4,125	4,590	4,902	4,939	5,479	5,347	5,821
Five years later	4,109	4,434	4,886	5,038	5,373	5,488
Six years later	4,015	4,423	5,010	4,975	5,495
Seven years later	4,037	4,570	4,991	5,012
Eight years later	4,148	4,557	5,092
Nine years later	4,140	4,641
Ten years later	4,244
Change over the previous year
of the fi nal loss reserve 1) = run-off result	–104	20	–17	64	–85	–19	111	94	106	164
In %	–2	—	—	1	–1	—	2	1	2	2

1) Example: The diff erence in 2003 is to be calculated (EUR 4,140 million minus EUR 4,244 million = –EUR 104 million). This fi gure is recorded and then updated in each subsequent period, e.g. in 2004, with the change from, e.g. 2003 to 2004, being carried forward. Thus, in 2004, the fi rst step involves calculating the diff erence between the two amounts for 2004 and then subtracting the result from the value for 2003 (calculation for 2004: EUR 4,557 million less EUR 4,641 million = –EUR 84 million, from which the amount of –EUR 104 million is subtracted, resulting in an amount of EUR 20 million for 2004). The process is then repeated for each subsequent year

In the year under review, the Group posted a positive run-off result in its primary insurance segments, including Corporate Operations, of EUR 334 million, of which EUR 232 million is attributable to the Industrial Lines business, particularly in the property, liability and motor areas.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application

of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

NET LOSS RESERVE AND ITS RUN-OFF IN THE NON-LIFE REINSURANCE SEGMENT

N118 NET LOSS RESERVE AND RUN-OFF IN THE NON-LIFE REINSURANCE SEGMENT

FIGURES IN EUR MILLION
	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013
Loss and loss adjustment expense reserve	13,082	12,542	13,192	16,276	12,657	13,510	13,841	15,078	16,464	17,073	17,681
Cumulative payments for the year in question and previous years
One year later	3,360	4,150	1,595	2,536	2,481	2,943	2,765	2,444	3,105	2,910
Two years later	6,863	5,314	3,591	4,266	4,268	4,576	3,995	4,074	4,828
Three years later	7,599	6,280	4,729	5,583	5,383	5,337	4,816	5,067
Four years later	8,328	7,052	5,838	6,382	5,935	5,925	5,464
Five years later	8,915	7,837	6,463	6,781	6,371	6,408
Six years later	9,551	8,294	6,781	7,121	6,736
Seven years later	9,897	8,565	7,050	7,395
Eight years later	10,117	8,772	7,279
Nine years later	10,293	8,955
Ten years later	10,442
Loss and loss adjustment expense reserve (net) for the year in question and previous years, plus payments made to date toward the original reserve
At the end of the year	13,082	12,542	13,192	16,276	12,657	13,510	13,841	15,078	16,464	17,073	17,681
One year later	13,504	14,895	14,828	12,512	12,949	14,619	13,352	14,527	16,149	16,649
Two years later	14,748	15,788	11,259	12,077	12,874	13,348	12,684	13,939	15,801
Three years later	15,483	12,985	10,716	11,988	12,384	12,570	12,110	13,505
Four years later	13,279	12,524	10,707	11,558	11,613	12,074	11,683
Five years later	13,009	12,550	10,338	10,859	11,262	11,735
Six years later	13,104	12,246	9,700	10,586	10,959
Seven years later	12,835	11,717	9,501	10,311
Eight years later	12,371	11,588	9,290
Nine years later	12,283	11,435
Ten years later	12,146
Change over the previous year
of the fi nal loss reserve 1) = run-off result	137	16	58	64	28	36	88	7	–86	76
In %	1	—	—	—	—	—	1	—	–1	—

1) Example: The diff erence in 2003 is to be calculated (EUR 12,283 million minus EUR 12,146 million = EUR 137 million). This fi gure is recorded and then updated in each subsequent period, e.g. in 2004, with the change from, e.g. 2003 to 2004, being carried forward. Thus, in 2004, the fi rst step involves calculating the diff erence between the two amounts for 2004 and then subtracting the result from the value for 2003 (calculation for 2004: EUR 11,588 million less EUR 11,435 million = EUR 153 million, from which the amount of EUR 137 million is subtracted, resulting in an amount of EUR 16 million for 2004). The process is then repeated for each subsequent year

As was the case in the previous year, the positive run-off result of EUR 424 million in the 2013 fi nancial year was largely attributable to the positive run-off of reserves in the marine/aviation segments as well as in short-tail property business.

The carrying amount of the reinsurers' share of loss reserves amounts to EUR 4.9 (5.2) billion and includes cumulative individual impairments of EUR 1 (1) million. The total amount of the net reserves was EUR 28.9 (28.0) billion.

IFRS requires disclosure that helps explain the amount and timing of future cash fl ows from insurance contracts. The following table shows the loss reserve according to expected maturities. In connection with the analysis of maturities, we directly deducted deposits provided for the purpose of hedging this reserve, since cash infl ows and outfl ows from these deposits are to be attributed directly to cedants.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

N119 RESERVE DURATIONS

FIGURES IN EUR MILLION

Gross	Re	Net	Gross	Re	Net
	31.12.2013			31.12.2012
10,192	1,569	8,623	9,829	1,632	8,197
12,556	1,785	10,771	12,602	2,000	10,602
4,968	671	4,297	4,992	806	4,186
3,288	444	2,844	3,354	523	2,831
1,971	282	1,689	1,700	140	1,560
780	135	645	766	147	619
33,755	4,886	28,869	33,243	5,248	27,995

(22) PROVISION FOR PREMIUM REFUNDS

N120 PROVISION FOR PREMIUM REFUNDS

FIGURES IN EUR MILLION

	Gross	Re	Net	Gross	Re	Net
		2013			2012 1)
Balance as at 31.12 of the previous year	2,279	2	2,277	1,008	1	1,007
Change in scope of consolidation	—	—	—	13	—	13
Portfolio entries/withdrawals	1	—	1	—	—	—
Allocations/releases (—)	609	—	609	1,956	1	1,955
Disposals
Life insurance policies	696	—	696	701	—	701
Liability/accident policies with a premium refund	10	—	10	9	—	9
Other changes	–4	—	–4	11	—	11
Exchange rate fl uctuations	–1	—	–1	1	—	1
Balance as at 31.12 of the fi nancial year	2,178	2	2,176	2,279	2	2,277

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

The provision for premium refunds covers the statutory and contractual claims of policyholders to surplus participation that has not yet been defi nitively allocated to individual insurance contracts and paid out as at the balance sheet date as well as the provision for deferred premium refunds. The latter provision – the "shadow provision for premium refunds" – relates to portions attributable to policyholders from valuation diff erences between national rules and IFRS that are allocated aft er allowing for deferred taxes, either to the statement of income as income or expenses or to shareholders' equity (under "Other comprehensive income") with no eff ect on income (e.g. unrealised investment income under "Financial instruments available for sale").

Therefore, it is generally not possible to make a clear allocation to the individual insurance contracts and to the remaining maturities.

Of the gross provision for premium refunds, EUR 1,175 (1,024) million is attributable to obligations for participation of surplus and EUR 1,003 (1,255) million to deferred premium refunds, including the shadow provision for premium refunds.

(23) PROVISIONS FOR PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS

In general, Group companies make pension commitments to their employees based on defi ned contributions or defi ned benefi ts. The type of pension commitment depends on the relevant pension plan. In terms of amounts paid, the majority of commitments are based on defi ned-benefi t pension plans. Final salary plans that depend on length of service involve fully employer-fi nanced commitments for

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income 145 Statement of comprehensive income

• 149 General accounting principles and application of International Financial Reporting Standards
• 146 Statement of changes in shareholders' equity 153 Accounting policies

CONSOLIDATED FINANCIAL STATEMENTS

¹⁷² Segment reporting

retirement, disability and survivor benefi ts in the form of a monthly pension essentially without a lump-sum option. Events that cause benefi ts to become due (e.g. retirement age, disability, death) closely follow the eligibility requirements for statutory pension insurance. The benefi t amount is based on a percentage of the fi nal salary. The calculation includes the number of service years completed at the time benefi ts become due as well as the amount of salary at that time (where necessary, as an average over several years). In some cases, the relevant parts of income below the contribution assessment ceiling for statutory pension insurance (BBG-RV) are weighted diff erently than those above the ceiling.

Unless they relate to commitments for members of the Board of Management, these pension plans are closed to new employees. Some existing commitments are grandfathered with salary trends without increasing the benefi t obligation beyond the current level of work performance, whereas others are maintained unchanged with continued growth depending on current work performance. To the greatest extent possible, the plans are not fi nanced with plan assets.

The pension plans classifi ed here are exposed to the following risks:

Mortality constitutes the risk that expected mortality contained in the calculation bases does not correspond to actual mortality, such that, e.g. annuity payments have to be made and fi nanced for a longer period.

Pension progression under § 16 Para. 1 Act on the Improvement of Occupational Pensions (BetrAVG) constitutes the risk that assumptions about the trend in the consumer price index taken into account in progression assumptions were too low and that benefi t obligations will increase due to the statutory requirement to adjust pensions.

Morbidity constitutes the risk that the assumed number of early retirements due to disability from the sub-portfolio of benefi ciaries does not correspond to the actual trend and that benefi t obligations will increase for this reason.

Trends in salary and BBG-RV constitutes the risk that increases in pensionable salaries taken concurrently into account in progression assumptions and, in some cases, increases in the BBG-RV do not adequately depict actual trends. In addition, with plans under which the relevant parts of income below the BBG-RV are, for the purposes of benefi t calculation, weighted diff erently than those above the ceiling there is a risk that salary and BBG-RV will trend diff erently in the future.

Premature drawing of pensions (transitional allowances) constitutes the risk that benefi ts become due prematurely in accordance with contractual arrangements. In this case, benefi ts that have not yet been fully "fi nanced" through provisions may have to be paid prior to the expected pension age.

Plans based on annual pension modules involve fully employerfi nanced commitments for retirement, disability and survivor benefi ts in the form of a monthly pension without a lump-sum option. Events that cause benefi ts to become due (e.g. retirement age, disability, death) closely follow the eligibility requirements for s tatutory pension insurance. The benefi t amount is based on the sum of annual pension modules, which are derived from a transformation table. The level of employment, the amount of the relevant salary and, in some cases, the business result of the employer company making the commitment are taken into account. The relevant parts of income below the BBG-RV are weighted diff erently than those above the ceiling.

The pension plan is closed to new employees and is not fi nanced with plan assets. However, reinsurance was obtained for a large sub-portfolio.

This plan is exposed to risks similar to those for fi nal salary plans that depend on length of service. However, risks do not include "trends in benefi ts under statutory pension insurance" and "trends in net remuneration".

Defined-contribution plans with guarantees involve fully employer- fi nanced commitments for retirement, disability and survivor benefi ts in the form of a monthly pension through the "HDI Unterstützungskasse". Instead of a retirement pension, lumpsum distribution of pension capital can be requested. This has to do with defi ned-contribution benefi t commitments within the meaning of German labour law, which are classifi ed economically as a defi ned-benefi t plan. The pension amount given by the employer to the Unterstützungskasse is used by the latter as a contribution toward the obtaining of reinsurance that refl ects the committed benefi ts spectrum (congruent reinsurance). The committed benefi ts result from the rate under the reinsurance policy.

The associated assets of the HDI Unterstützungskasse are recognised as plan assets.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated fi nancial statements
• 288 Responsibility statement

In addition, there are pension commitments for a lump-sum benefi t from lump-sum deferral of compensation by employees in the event of death or survival upon reaching the retirement age. Here, the waived amount is used as a lump-sum contribution toward the obtaining of reinsurance. There is no right to choose the type of annuity. These commitments are not allocated to any plan assets.

Commitments to the HDI Unterstützungskasse are exposed to the risk that for commitments made prior to 1999, the surplus participation under due and owing reinsurance policies is insuffi cient for meeting the adjustment requirements under § 16 Para. 1 BetrAVG. There is likewise the risk that for commitments made prior 2001, the claims to be ascertained upon retirement in accordance with the provisions of the BetrAVG are not covered by the achieved entitlement to benefi ts from the elements of compensation that have been deferred to that point.

Employees of the former Gerling Group also have the option of obtaining pension commitments through deferred compensation with Gerling Versorgungskasse VVaG. In economic terms, these are defi ned contribution plans for which provisions for pensions are not recognised.

N121 FINANCING STATUS OF PENSION PLANS

FIGURES IN EUR MILLION
Type of plan	2013	2012 1)
Final salary plans that depend on length of service ¡ Plan assets	–128	–134
¡ Present value of the defi ned-benefi t	1,720	1,825
obligation	—	—
¡ Eff ect of upper asset limit surplus (net asset value) shortfall (net debt)	–1 1,593	— 1,691
Plan on the basis of pension modules
¡ Plan assets	—	—
¡ Present value of the defi ned-benefi t obligation	60	128
¡ Eff ect of upper asset limit shortfall (net debt)	— 60	— 128
Defi ned-contribution plans with guarantees ¡ Plan assets ¡ Present value of the defi ned-benefi t	–41	–36
obligation	78	82
¡ Eff ect of upper asset limit shortfall	6	4
(net debt)	43	50
Balance as at 31.12 of the fi nancial year (net asset value)	–1	—
Balance as at 31.12 of the fi nancial year (net debt)	1,696	1,869

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

The risks aff ecting the largest sub-portfolios of the defi ned-benefi t obligation are summarised in the following table

N122 DEFINED BENEFIT OBLIGATION OF THE SUB-PORTFOLIO EXPOSED TO RISK

FIGURES IN EUR MILLION
Type of risk	Defi ned-benefi t obligation of the partial portfolio exposed to risk
Mortality	1,296
Pension progression under § 16 Para. 1 BetrAVG	1,274
Morbidity	487
Trends in salary and BBG-RV	323
Diff ering trends in salary and BBG-RV	92

The risk associated with the premature drawing of pensions aff ects the entire portfolio of benefi ciaries from commitments to the Board of Management in the amount of EUR 51 million.

The change in net debt and net asset value for the Group's various defi ned benefi t pension plans is shown in the following table. In addition to the main components – projected benefi t obligation and plan assets – the change in the asset value adjustment from the calculation of the upper limit of the asset value resulting from a plan surplus is also listed. Realisability of the economic benefi t associated with a plan surplus is verifi ed on the level of the individual pension plan, and this necessitated a curtailment of the carrying amount for the net asset value both as at 31 December 2013 and as at 31 December 2012.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

149 General accounting principles and application of International Financial Reporting Standards

NOTES

153 Accounting policies 172 Segment reporting

149 General information

N123 CHANGE IN NET DEBT AND NET ASSET VALUE FOR THE VARIOUS DEFINED BENEFIT PENSION PLANS

FIGURES IN EUR MILLION

	Defi ned benefi t obligation		Fair value of plan assets		Asset value adjustment
	2013	2012 1)	2013	2012 1)	2013	2012 1)
Balance as at 1.1 of the fi nancial year	2,036	1,542	–171	–120	4	4
Changes recognised in net income
Current service cost	20	19	—	—	—	—
Past service cost and plan curtailments	–11	–8	—	—	—	—
Net interest components	61	73	–6	–7	—	3
Result from settlements	1	—	—	—	—	—
	71	84	–6	–7	—	3
Income and expenses recognised in other comprehensive income
Remeasurements
Actuarial gains (–)/losses (+) from change in biometric assumptions	–14	2	—	—	—	—
Underwriting gains (–)/losses (+) from change in fi nancial assumptions	–143	464	—	—	—	—
Experience adjustments	–15	1	—	—	—	—
Income from plan assets (less interest income)	—	—	10	–21	—	—
Change from asset value adjustment	—	—	—	—	2	–3
Changes in foreign exchange rates	–4	–1	3	—	—	—
	–176	466	13	–21	2	–3
Other changes
Employer contributions	—	—	–9	–12	—	—
Contributions and deferred employee compensation	—	1	—	—	—	—
Pension benefi ts paid during the year	–74	–69	4	3	—	—
Business combinations and disposals	1	13	—	–8	—	—
Eff ect of plan settlements	—	–1	—	–6	—	—
	–73	–56	–5	–23	—	—
Balance as at 31.12 of the fi nancial year	1,858	2,036	–169	–171	6	4

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

The structure of the investment portfolio underlying the plan assets was as follows:

N124 PORTFOLIO STRUCTURE OF PLAN ASSETS

IN %
	2013	2012
Cash and cash equivalents	2	1
Equity instruments	—	2
Fixed-income securities	11	11
Securities funds	17	23
Qualifying insurance contracts	70	63
Total	100	100

Since all equity instruments, fi xed-income securities and securities funds are listed on an active market, market prices are available for them. Almost all of the assets in these investment categories are managed in a British pension scheme trust.

The fair value of plan assets does not include any amounts for own fi nancial instruments.

Actual income from plan assets amounted to EUR 28 million in the previous year. In the year under review, losses of EUR 4 million were recognised.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation

188 Non-current assets held for sale and disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

Defi ned benefi t obligations were measured on the basis of the following assumptions:

N125 ASSUMPTIONS FOR DEFINED-BENEFIT OBLIGATIONS

MEASUREMENT PARAMETERS/ASSUMPTIONS WEIGHTED IN %

2013	2012
3.46	2.98
2.75	2.73
2.12	2.09

The mortality tables "2005G" of Dr. Klaus Heubeck formed the basis for the biometric calculation of domestic pension commitments.

The weighted average duration of the defi ned-benefi t obligation is 15 years.

SENSITIVITY ANALYSIS

An increase or decrease in key actuarial assumptions would have the following eff ect on the present value of the defi ned-benefi t obligation as at 31 December 2013:

N126 EFFECT OF THE CHANGE IN ACTUARIAL ASSUMPTIONS

FIGURES IN EUR MILLION
	Eff ect on the defi ned-benefi t obligation
	Parameter increase	Parameter decrease
Discount rate (+/– 0.5%)	–123	144
Salary increase rate (+/– 0.25%)	9	–9
Pension adjustment rate (+/– 0.25%)	47	–45

Also conceivable is a change in the underlying mortality rates and life spans. For the purposes of calculating the longevity risk, the underlying mortality tables were adjusted by lowering mortalities by 10%. This extension of longevities would have led to the pension obligation being higher by EUR 56 million as at the end of the fi nancial year.

Sensitivities are calculated by means of the diff erence between pension obligations under changed actuarial assumptions and those under unchanged actuarial assumptions. The calculation was carried out separately for key parameters.

The German Federal Labour Court judgment of 23 April 2013 on the split pension formula was taken into account in the recognition of pension obligations. With this ruling, the Court departed from its earlier case law on the treatment of split pension formulas that are oriented towards the contribution assessment ceiling for statutory pension insurance (BBG). If pension commitments contain formulas that rely on the BBG, the extraordinary increase of the BBG from 2003 is now once again taken into account. The increase tends to lead to a reduction in pension benefi ts.

For the 2014 fi nancial year the Group anticipates employer contributions of EUR 11 (4) million, which are to be paid into the defi ned benefi t plans shown here.

The defi ned contribution plans are funded through external pension funds or similar institutions. In this case, fi xed contributions (e.g. based on the relevant income) are paid to these institutions, such that the benefi ciary's claim is against such institutions. In eff ect, the employer has no further obligation beyond payment of the contributions. The expense recognised in the fi nancial year for these commitments amounted to EUR 14 (14) million, of which EUR 1 million was attributable to commitments to employees in key positions. In addition, contributions in the amount of EUR 56 (74) million were paid to state pension plans.

(24) PROVISIONS FOR TAXES

N127 BREAKDOWN OF PROVISIONS FOR TAXES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
Provisions for income tax	534	495
Other tax provisions	177	137
Total	711	632

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

(25) SUNDRY PROVISIONS

N128 SUNDRY PROVISIONS IN THE AMOUNT OF ANTICIPATED USE

FIGURES IN EUR MILLION

	Restruc turing	Assumption of third-party pension commit ments in return for payment	Bonuses and incentives	Anniversary bonuses	Early retirement/ partial retirement 1)	Other personnel expenses	Out standing invoices	Other	Total
2012
Book value as at 1.1.2012	87	75	67	26	32	67	114	204	672
Change in scope of consolidation	—	—	3	1	—	10	—	10	24
Allocations	14	—	68	8	20	59	237	161	567
Compounding	4	—	—	3	8	—	—	1	16
Utilisations	4	7	47	4	21	57	178	143	461
Releases	10	—	4	—	—	1	23	20	58
Change in fair value of plan assets	—	—	—	—	–1	—	—	—	–1
Other changes	–20	—	1	—	22	—	1	–3	1
Exchange rate fl uctuations	—	—	—	—	—	—	2	1	3
Book value as at 31.12.2012	71	68	88	34	60	78	153	211	763
2013
Change in scope of consolidation	—	—	—	—	—	—	—	—	—
Allocations	13	—	70	1	13	69	182	120	468
Compounding	2	—	—	1	1	—	—	1	5
Utilisations	23	20	57	9	13	63	219	77	481
Releases	—	—	4	1	—	2	15	33	55
Change in fair value of plan assets	—	—	—	—	–5	—	—	—	–5
Other changes	10	—	–2	—	–10	3	—	—	1
Exchange rate fl uctuations	—	—	–2	—	—	–2	–2	–2	–8
Book value as at 31.12.2013	73	48	93	26	46	83	99	220	688

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

Provisions for restructuring mainly relate to four items:

• ¡ Restructuring measures to implement the redirection of the Retail Germany division: The objective of the redirection is modernisation of the organisational and operational structure and a clear improvement in competitiveness through cost savings and increased effi ciency. Implementation of the measures is expected to be fi nalised in 2016. The provision mainly contains personnel expenses for severance pay. In the year under review, no amounts were allocated to this provision. Compounding amounted to EUR 2 million and EUR 17 million was utilised. As at the balance sheet date, the provision amounted to EUR 55 (60) million.
• ¡ Restructuring measures in the Corporate Operations segment: The restructuring launched in the year under review aims at a change in the operating organisation that is intended to serve permanent quality improvement and cost-optimised, effi cient provision of services. The project is scheduled to be completed by 2016. A restructuring provision was created for this purpose in the amount of EUR 8 million.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance

contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements

288 Responsibility statement

• ¡ Restructuring measures in connection with the integration of the Polish insurer Towarzystwo Ubezpieczeń na Życie WARTA S.A., Warsaw, in the Retail International segment: In connection with the merging of the WARTA companies with our existing Polish insurers, processes and IT are to be centralised and made uniform. Restructuring measures were started in 2012 and are expected to be largely completed in 2014. In the reporting period, no amounts were allocated to this provision and EUR 5 million was utilised. As at the balance sheet date, it amounted to EUR 5 (10) million.
• ¡ In the Non-Life Reinsurance segment, a restructuring provision in the amount of EUR 4 million was created during the year under review for measures concerning a reorganisation of the management of an affi liate in Great Britain.

Sundry provisions cover a variety of items that cannot be assigned to the aforementioned categories. They relate to, inter alia, outstanding contributions to the employers' liability insurance association, surcharges for non-employment of disabled persons, impending losses and interest components.

N129 DURATIONS OF SUNDRY PROVISIONS

FIGURES IN EUR MILLION

31.12.2012 Restructuring 67 3 1 — Assumption of third-party pension obligations in return for payment 1) — — 68 — Bonuses and incentives 83 5 — — Anniversary bonuses 1) — — 34 — Early retirement/partial retirement 1), 2) — 60 — — Other personnel expenses 53 20 1 4 Outstanding invoices 153 — — — Other 111 82 18 — Total 467 170 122 4 31.12.2013 Restructuring 14 59 — — Assumption of third-party pension obligations in return for payment 1) — — 48 — Bonuses and incentives 83 10 — — Anniversary bonuses 1) — — 26 — Early retirement/partial retirement 1) — 46 — — Other personnel expenses 53 29 1 — Outstanding invoices 99 — — — Other 102 112 6 —		One year or sooner	Longer than one year, up to fi ve years	Longer than fi ve years	No duration	Total
						71
						68
						88
						34
						60
						78
						153
						211
						763
						73
						48
						93
						26
						46
						83
						99
						220
	Total	351	256	81	—	688

1) Weighted average

2) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

(26) NOTES PAYABLE AND LOANS

As at the balance sheet date, the following were reported under this item:

N130 NOTES PAYABLE AND LOANS

31.12.2013	31.12.2012
150	500
565	9
150	168
77	—
942	677

The bank liability is the result of utilising EUR 150 million under two syndicated, fl oating-rate credit lines (nominal value: EUR 500 million and EUR 700 million, respectively). In addition, on 13 February 2013, Talanx AG placed senior unsecured bonds with a volume of EUR 750 million, of which EUR 185 million is held by Group companies. The issue price amounted to 99.958%. In connection with the placement of these bonds, bearer bonds in the amount of EUR 9 million and scheduled to mature in July 2013 were redeemed by the issuer in advance. Interest expenses of EUR 18 (6) million resulting from these liabilities are recognised under the item "Financing costs".

Net expenses from notes payable and loans total EUR 27 (16) million and consist of interest expenses and amortisation in the amount of –EUR 1 (3) million.

N131 NOTES PAYABLE

	Nominal amount Coupon		Maturity	Rating 1)	Issue	31.12.2013	31.12.2012
Talanx AG		750 Fixed (3.125%)	2013/2023	(—; A–)	These senior unsecured bonds have a fi xed term and may be called only for extraordinary reasons	565	—
Talanx AG		9 Fixed (5.43%)	2003/2013	(—; —)	These bearer bonds have a fi xed term and may be called only for extraordinary reasons	—	9
Total						565	9

The book value of this item corresponds to amortised cost.

N132 FAIR VALUE OF NOTES PAYABLE AND LOANS

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
Amortised cost	942	677
Unrealised gains/losses	16	—
Fair value	958	677

N133 NOTES PAYABLE AND LOANS: MATURITIES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
One year or sooner	150	9
Later than one year, up to fi ve years	195	635
Later than fi ve years, up to ten years	597	33
Later than ten years, up to 20 years	—	—
Later than 20 years	—	—
Total	942	677

140 CONSOLIDATED FINANCIAL STATEMENTS

1) (Debt rating A. M. Best; debt rating S&P)

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated balance sheet – liabilities

258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

(27) OTHER LIABILITIES

N134 OTHER LIABILITIES

FIGURES IN EUR MILLION 2013 2012 1) Liabilities under direct written insurance business 2,309 2,336 thereof to policyholders 1,533 1,535 thereof to insurance intermediaries 776 801 Reinsurance payable 1,631 1,960 Trade accounts payable 56 101 Liabilities relating to investments 300 181 Liabilities relating to non-Group lead business 142 121 Liabilities from derivatives 191 142 thereof negative market values under derivative hedging instruments 7 — Deferred income 38 35 Interest 122 96 Liabilities to social insurance institutions 24 21 Sundry liabilities 404 373 Total other liabilities (not including liabilities relating to investment contracts) 5,217 5,366 Other liabilities relating to investment contracts Other obligations measured at amortised cost 916 1,007 Financial assets classifi ed at fair value through profi t or loss 766 653 Derivatives 70 53 Total other liabilities relating to investment contracts 1,752 1,713 Book value as at 31.12 of the fi nancial year 6,969 7,079

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

OTHER LIABILITIES (NOT INCLUDING LIABILITIES RELATING TO INVESTMENT CONTRACTS)

Liabilities relating to investments include interim distributions of EUR 94 (63) million relating to units in private equity funds that could not be recognised in income as at the balance sheet date.

Liabilities from derivatives in the amount of EUR 191 (142) million mainly consist of instruments to hedge interest rate, currency, equity and infl ation risks as well as embedded derivatives separated from the underlying insurance contract and recognised at market value. Cf. our remarks in item 13 in the Notes, "Derivative fi nancial instruments and hedge accounting".

In the following table, we depict the maturities of other liabilities, not including liabilities under the direct written insurance business and reinsurance payables, since the latter two liabilities are directly related to insurance contracts and thus cannot to be considered separately.

N135 OTHER LIABILITIES (NOT INCLUDING LIABILITIES RELATING TO INVESTMENT CONTRACTS)1): MATURITIES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
One year or sooner	1,034	822
Later than one year, up to fi ve years	156	108
Later than fi ve years, up to ten years	87	84
Later than ten years, up to 20 years	—	1
Later than 20 years	—	—
Without fi xed maturity	—	55
Total	1,277	1,070

1) For reasons of materiality, undiscounted cash fl ow was not depicted for corresponding derivatives. Instead, fair values (negative market values) of derivative fi nancial instruments were taken into account (maturity one year or sooner, EUR 20 (14) million; 1–5 years, EUR 107 (75) million; 5–10 years, EUR 64 (52) million; 10–20 years, EUR — (1) million

OTHER LIABILITIES RELATING TO INVESTMENT CONTRACTS

Other liabilities relating to investment contracts are recognised upon addition at amortised cost or at the policyholder's account balance, less acquisition costs that can be directly attributed to the conclusion of the contract. In subsequent periods, these contracts are measured at amortised cost.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies 172 Segment reporting

N136 OTHER OBLIGATIONS MEASURED AT AMORTISED COST: MATURITIES

FIGURES IN EUR MILLION

	Amortised Cost		Fair value
	31.12. 2013	31.12. 2012	31.12. 2013	31.12. 2012
One year or sooner	126	351	126	351
Later than one year, up to fi ve years	388	206	388	206
Later than fi ve years, up to ten years	402	450	402	451
Total	916	1,007	916	1,008

The fair value of investment contracts is generally calculated using repurchase values for policyholders and their account balances. Cf. our remarks in the section "Accounting policies".

N137 FINANCIAL ASSETS CLASSIFIED AT FAIR VALUE THROUGH PROFIT OR LOSS AND DERIVATIVES 1): MATURITIES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012
One year or sooner	156	347
Later than one year, up to fi ve years	87	130
Later than fi ve years, up to ten years	37	48
Later than ten years, up to 20 years	142	144
Later than 20 years	41	—
Without fi xed maturity	373	37
Total	836	706

1) For reasons of materiality, undiscounted cash fl ow was not depicted for corresponding derivatives. Instead, fair values (negative market values) of derivative fi nancial instruments were taken into account (maturity one year or sooner, EUR 6 (3) million; 1–5 years, EUR 26 (15) million; 5–10 years, EUR 11 (35) million, later than ten years, EUR 27 (—) million

The change in fair value created by the changes in the credit risk of fi nancial assets classifi ed at fair value through profi t or loss was insignifi cant.

(28) DEFERRED TAXES

N138 BALANCE SHEET ITEMS DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012 1)
Deferred tax assets
Loss and loss adjustment expense reserve	472	432
Other technical provisions	210	233
Loss carry-forwards	320	347
Benefi t reserve	87	65
Other provisions	232	269
Accounts receivable on insurance business	39	20
Investments	73	158
Funds withheld by ceding companies	382	168
Premium refunds	1	1
Impairments	–130	–110
Present value of future profi ts (PVFP) on acquired insurance portfolios	7	7
Deferred acquisition costs	135	141
Other	381	501
Total	2,209	2,232
Deferred tax liabilities
Equalisation reserve	1,315	1,321
Deferred acquisition costs 2)	515	586
Funds withheld by ceding companies	184	28
Accounts receivable on insurance business	81	188
Present value of future profi ts (PVFP) on acquired insurance portfolios	172	224
Benefi t reserve	188	168
Technical provisions:	81	55
Investments	389	585
Loss and loss adjustment expense reserve	102	84
Debt consolidation	27	22
Other provisions	8	3
Premium refunds	1	40
Other	363	383
Total	3,426	3,687
Deferred tax liabilities (net)	1,217	1,455

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

2) Deferred taxes on deferred acquisition costs relate to the net amount,

i.e. the amount after allowance for reinsurers' shares

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

N139 RECOGNITION OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

FIGURES IN EUR MILLION

	31.12.2013	31.12.2012 1)
Deferred tax assets	532	529
Deferred tax liabilities	1,749	1,984
Deferred tax liabilities (net)	1,217	1,455

1) Adjusted on the basis of IAS 8, cf. "Accounting policies" section in the Notes, subsection "Changes in accounting policies and accounting errors"

Of the net change in deferred tax assets and liabilities, EUR 12 million was recognised in profi t and loss, relating mainly to the balance sheet items "Funds withheld by ceding companies" and "Accounts receivable on insurance business", and EUR 226 million in "Other comprehensive income".

NOTES ON THE CONSOLIDATED STATEMENT OF INCOME

(29) NET PREMIUM EARNED

N140 NET PREMIUM EARNED

FIGURES IN EUR MILLION

	Industrial Lines	Retail Germany	Retail International	Non-Life Reinsurance	Life/Health Reinsurance	Corporate Operations	Total
2013 1)
Gross written premium, including premiums from unit-linked life and annuity insurance	3,770	6,891	4,220	7,309	5,961	—	28,151
Savings elements of premiums from unit-linked life and annuity insurance	—	946	185	—	—	—	1,131
Ceded written premium	1,650	166	241	771	702	9	3,539
Change in gross unearned premium	–111	–70	–174	–123	–28	—	–506
Change in ceded unearned premium	–85	–18	–27	–9	1	—	–138
Net premium earned	2,094	5,727	3,647	6,424	5,230	–9	23,113
2012 1)
Gross written premium, including premiums from unit-linked life and annuity insurance	3,512	6,766	3,261	7,273	5,847	—	26,659
Savings elements of premiums from unit-linked life and annuity insurance	—	976	224	—	—	—	1,200
Ceded written premium	1,566	132	215	742	598	—	3,253
Change in gross unearned premium	–78	–40	–83	–148	18	—	–331
Change in ceded unearned premium	–47	–13	–8	–55	–1	—	–124
	1,915	5,631	2,747	6,438	5,268	—	21,999

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

(30) NET INVESTMENT INCOME

N141 NET INVESTMENT INCOME FOR REPORTING PERIOD

FIGURES IN EUR MILLION

	Industrial Lines	Retail Germany	Retail International	Non-Life Reinsurance	Life/Health Reinsurance	Corporate Operations	Total
2013 1)
Income from real estate	6	68	1	72	—	—	147
Dividends 2)	9	9	4	12	2	8	44
Current interest income	190	1,532	252	672	226	3	2,875
Other income	5	10	1	56	9	—	81
Ordinary investment income	210	1,619	258	812	237	11	3,147
Appreciation	—	10	1	—	—	—	11
Realised gains on investments	59	365	63	134	40	81	742
Unrealised gains on investments	10	12	17	6	18	—	63
Investment income	279	2,006	339	952	295	92	3,963
Realised losses on investments	28	51	24	27	7	—	137
Unrealised losses on investments	2	10	21	44	7	1	85
Total	30	61	45	71	14	1	222
Impairments/depreciation on investment property
scheduled	1	12	—	14	—	—	27
unscheduled	1	10	—	1	—	—	12
Impairments on equity securities	—	5	6	—	—	1	12
Impairments on fi xed-income securities	3	3	—	1	—	—	7
Impairments on investments	—	—	—	—	—	—	—
Impairments on other investments	2	36	2	4	—	—	44
Expenses for the administration of investments	5	16	4	15	3	71	114
Other expenses	2	27	6	39	6	—	80
Other investment expenses/impairments	14	109	18	74	9	72	296
Investment expenses	44	170	63	145	23	73	518
Net income from investments under own management	235	1,836	276	807	272	19	3,445
Income/expense from investment contracts	—	—	13	—	—	—	13
Interest income from funds withheld and contract deposits	1	—	—	21	451	—	473
Interest expense from funds withheld and contract deposits	—	16	—	6	117	—	139
Net interest income from funds withheld and contract deposits	1	–16	—	15	334	—	334
Net investment income	236	1,820	289	822	606	19	3,792

1) After elimination of internal transactions within the Group across segments

2) Income from investments in associated companies and joint ventures amounts to EUR 13 million and is recognised under dividends

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance

contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated

statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

N141 NET INVESTMENT INCOME FOR PREVIOUS PERIOD

FIGURES IN EUR MILLION

	Industrial Lines	Retail Germany	Retail International	Non-Life Reinsurance	Life/Health Reinsurance	Corporate Operations	Total
2012 1)
Income from real estate	4	56	1	47	—	—	108
Dividends 2)	11	6	4	7	5	14	47
Current interest income	201	1,530	226	733	233	4	2,927
Other income	8	15	—	56	4	—	83
Ordinary investment income	224	1,607	231	843	242	18	3,165
Appreciation	2	6	8	3	—	—	19
Realised gains on investments	28	144	45	200	70	3	490
Unrealised gains on investments	6	68	33	46	55	—	208
Investment income	260	1,825	317	1,092	367	21	3,882
Realised losses on investments	9	45	22	36	6	—	118
Unrealised losses on investments	2	4	7	10	2	1	26
Total	11	49	29	46	8	1	144
Impairments/depreciation on investment property
scheduled	1	12	—	10	—	—	23
unscheduled	—	8	—	1	—	—	9
Impairments on equity securities	—	4	4	—	2	—	10
Impairments on fi xed-income securities	2	21	—	1	1	—	25
Impairments on investments	—	2	—	—	—	—	2
Impairments on other investments	1	17	—	7	—	—	25
Expenses for the administration of investments	4	15	3	20	2	60	104
Other expenses	2	28	4	34	4	4	76
Other investment expenses/impairments	10	107	11	73	9	64	274
Investment expenses	21	156	40	119	17	65	418
Net income from investments under own management	239	1,669	277	973	350	–44	3,464
Income/expense from investment contracts	—	—	8	—	—	—	8
Interest income from funds withheld and contract deposits	—	—	—	22	439	—	461
Interest expense from funds withheld and contract deposits	—	23	—	9	106	—	138
Net interest income from funds withheld and contract deposits	—	–23	—	13	333	—	323
Net investment income	239	1,646	285	986	683	–44	3,795

1) After elimination of internal transactions within the Group across segments

2) Income from investments in associated companies and joint ventures amounts to EUR 7 million and is recognised under dividends

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

146 Statement of changes in shareholders' equity

CONSOLIDATED FINANCIAL STATEMENTS

148 Cash fl ow statement

142 Balance sheet 144 Statement of income

149 General accounting principles and application of International Financial Reporting Standards

NOTES

172 Segment reporting

149 General information

Of the impairments totalling EUR 75 (71) million, an amount of EUR 12 (10) million was attributable to equities, EUR 27 (16) million to real estate funds and EUR 14 (7) to private equity capital. The impairment on investment property amounted to EUR 12 (9) million. On the other hand, there was appreciation of EUR 11 (19) million on investments that had been written down in previous periods. Appreciation on fi xed-income securities amounted to EUR 5 (11) million. Appreciation of EUR 6 (6) million was recorded on investment property.

Net income from the disposal of securities amounted to EUR 605 (372) million. This is principally attributable to the disposal of portfolio securities, mostly of short duration, during the optimisation of yields and durations (more details on this are contained in the Management Report). In addition, Talanx AG sold part of its stake in Swiss Life Holding AG on the market.

In addition, as at the balance sheet date, the portfolio did not contain any other overdue, unadjusted securities, because overdue securities are written down immediately.

N142 INTEREST INCOME FROM INVESTMENTS

FIGURES IN EUR MILLION

	2013	2012
Loans and receivables	1,323	1,355
Financial instruments held to maturity	126	149
Financial instruments available for sale	1,309	1,291
Financial instruments at fair value through profi t or loss
Financial instruments classifi ed at fair value through profi t or loss	57	57
Financial instruments held for trading	1	1
Other	74	58
Loans and receivables – Investment contracts	27	17
Financial instruments classifi ed at fair value through profi t or loss – Investment contracts	32	17
Financial instruments available for sale – Investment contracts	1	—
Total	2,950	2,945

NET GAINS AND LOSSES FROM INVESTMENTS

The net gains and losses on investments shown in the following table are based largely on the classes established by the Group (see here "Classes of fi nancial instruments" in section "Nature of risks associated with insurance contracts and fi nancial instruments", pages 189 et seqq.).

Making allowance for "Expenses for assets under own management" (EUR 114 [104] million) as well as for "Other expenses on assets under own management (EUR 80 [76] million), "Net investment income" as at the balance sheet date amounted to EUR 3,792 (3,795) million.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated balance sheet – liabilities

statement of income

258 Notes on the consolidated

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

N143 NET GAINS AND LOSSES FROM INVESTMENTS – REPORTING PERIOD

FIGURES IN EUR MILLION

	Ordinary invest ment income	Amorti sation	Gains on disposal	Losses on disposal	Impair ments	Appre ciation	Unrealised gains	Unrealised losses	Total 3)
2013 1)
Investments in affi liated companies and participating interests	5	—	1	1	2	—	—	—	3
Loans and receivables	1,241	82	177	1	4	—	—	—	1,495
Held to maturity	132	–6	1	—	—	—	—	—	127
Available for sale
Fixed-income securities	1,362	–53	333	56	3	4	—	—	1,587
Variable-yield securities	39	—	141	5	40	—	1	1	135
At fair value through profi t or loss
Financial assets classifi ed as fair value through profi t or loss
Fixed-income securities	57	—	8	12	—	—	18	19	52
Variable-yield securities	1	—	—	1	—	—	7	2	5
Financial assets held for trading
Fixed-income securities	1	—	—	—	—	—	—	—	1
Variable-yield securities	1	—	10	6	—	—	4	1	8
Derivatives	5	—	46	53	—	—	14	20	–8
Other invested assets, insofar as they are fi nancial assets	116	3	8	—	14	—	3	2	114
Other 2)	161	—	17	2	39	7	16	40	120
Investments under own management	3,121	26	742	137	102	11	63	85	3,639
Loans and receivables (assets)	25	2	—	—	—	—	—	—	27
Financial assets classifi ed as fair value through profi t or loss (assets)	32	—	23	60	—	—	157	175	–23
Financial assets available for sale (assets)	1	—	—	—	—	—	—	—	1
Financial assets held for trading (assets) – (derivatives)	—	—	1	3	—	—	14	32	–20
Other obligations measured at amortised cost (liabilities)	–33	–2	—	—	—	—	—	—	–35
Financial assets classifi ed as fair value through profi t or loss (liabilities)	–8	—	—	—	—	—	174	163	3
Liabilities held for trading – (derivatives)	—	—	—	—	—	—	32	15	17
Other 4)	52	–9	—	—	—	—	—	—	43
Income/expense from investment contracts	69	–9	24	63	—	—	377	385	13
Funds withheld by ceding companies/ funds withheld under reinsurance treaties	334	—	—	—	—	—	—	—	334
Total	3,524	17	766	200	102	11	440	470	3,986

1) After elimination of internal transactions within the Group across segments

2) For the purposes of reconciliation with the consolidated statement of income, the item "Other" combines the gains on investment property, associated companies and derivative fi nancial instruments – insofar as the fair values are negative. Derivatives held for hedging purposes within the scope of hedge accounting (cf. Note 12) are not included in the list if they do not relate to hedges in the area of investments

3) Without expenses for the administration of investments and other expenses

4) "Other" includes income (EUR 83 million) and expenses (EUR 31 million) from the management of investment contracts. The amortisation of the PVFP amounted to EUR 9 million

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet
• 144 Statement of income 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity
• 148 Cash fl ow statement
• NOTES 149 General information
• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies
• 172 Segment reporting

N143 NET GAINS AND LOSSES FROM INVESTMENTS – PREVIOUS YEAR

FIGURES IN EUR MILLION

	Ordinary invest ment income	Amorti sation	Gains on disposal	Losses on disposal	Impair ments	Appre ciation	Unrealised gains	Unrealised losses	Total 3)
2012 1)
Investments in affi liated companies and participating interests	5	—	4	—	—	—	—	—	9
Loans and receivables	1,279	76	32	1	3	—	—	—	1,383
Held to maturity	155	–6	—	3	—	—	—	—	146
Available for sale
Fixed-income securities	1,306	–15	285	60	21	11	—	—	1,506
Variable-yield securities	41	—	63	3	26	—	23	—	98
At fair value through profi t or loss
Financial assets classifi ed as fair value through profi t or loss
Fixed-income securities	57	—	16	10	—	—	56	6	113
Variable-yield securities	1	—	—	—	—	—	5	1	5
Financial assets held for trading
Fixed-income securities	1	—	—	—	—	—	—	—	1
Variable-yield securities	—	—	3	1	—	—	2	1	3
Derivatives	4	—	19	21	—	—	83	5	80
Other invested assets, insofar as they are fi nancial assets	83	–2	6	3	25	6	3	—	68
Other 2)	176	4	62	16	19	2	36	13	232
Investments under own management	3,108	57	490	118	94	19	208	26	3,644
Loans and receivables (assets)	17	—	—	—	—	—	—	—	17
Financial assets classifi ed as fair value through profi t or loss (assets)	17	—	3	8	—	—	142	120	34
Financial assets held for trading (assets) – (derivatives)	1	—	2	2	—	—	7	10	–2
Other obligations measured at amortised cost (liabilities)	–19	—	—	—	—	—	—	—	–19
Financial assets classifi ed as fair value through profi t or loss (liabilities)	–4	—	—	—	—	—	8	41	–37
Liabilities held for trading – (derivatives)	1	—	—	—	—	—	—	7	–6
Other 4)	29	–8	—	—	—	—	—	—	21
Income/expense from investment contracts	42	–8	5	10	—	—	157	178	8
Funds withheld by ceding companies/funds withheld under reinsurance treaties	323	—	—	—	—	—	—	—	323
Total	3,473	49	495	128	94	19	365	204	3,975

1) After elimination of internal transactions within the Group across segments

2) For the purposes of reconciliation with the consolidated statement of income, the item "Other" combines the gains on investment property, associated companies and derivative fi nancial instruments – insofar as the fair values are negative. Derivatives held for hedging purposes within the scope of hedge accounting (cf. Note 12) are not included in the list if they do not relate to hedges in the area of investments

3) Without expenses for the administration of investments and other expenses

contracts and fi nancial instruments

4) "Other" contains income (EUR 41 million) and expenses (EUR 12 million) from the management of investment contracts. Amortisation on PVFP totalled EUR 8 million

140 CONSOLIDATED FINANCIAL STATEMENTS	290 FURTHER INFORMATION
NOTES
183 Consolidation	209 Notes on the consolidated	270 Other information
188 Non-current assets held for sale and	balance sheet – assets	279 List of shareholdings for the consolidated
disposal groups	239 Notes on the consolidated	fi nancial statements
189 Nature of risks associated with insurance	balance sheet – liabilities	288 Responsibility statement

258 Notes on the consolidated statement of income

(31) CLAIMS AND CLAIMS EXPENSES

N144 CLAIMS AND CLAIMS EXPENSES
FIGURES IN EUR MILLION
		Industrial Lines Retail Germany	Retail International	Non-Life Reinsurance	Life/Health Reinsurance	Corporate Operations	Total
2013 1)
Gross
Claims and claims expenses paid	2,454	3,843	1,947	3,951	4,855	—	17,050
Change in loss and loss adjustment expense reserve	351	131	212	975	17	—	1,686
Change in benefi t reserve	—	1,298	466	—	203	—	1,967
Expenses for premium refunds	8	903	6	—	—	—	917
Total	2,813	6,175	2,631	4,926	5,075	—	21,620
Reinsurers' share
Claims and claims expenses paid	1,326	139	92	472	567	—	2,596
Change in loss and loss adjustment expense reserve	–205	30	13	–55	20	1	–196
Change in benefi t reserve	—	–23	–8	—	32	—	1
Expenses for premium refunds	1	—	3	—	—	—	4
Total	1,122	146	100	417	619	1	2,405
Net
Claims and claims expenses paid	1,128	3,704	1,855	3,479	4,288	—	14,454
Change in loss and loss adjustment expense reserve	556	101	199	1,030	–3	–1	1,882
Change in benefi t reserve	—	1,321	474	—	171	—	1,966
Expenses for premium refunds	7	903	3	—	—	—	913
Total	1,691	6,029	2,531	4,509	4,456	–1	19,215

1) Presentation after elimination of cross-segment transactions

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

N144 CLAIMS AND CLAIMS EXPENSES

FIGURES IN EUR MILLION

Industrial Lines 2)	Retail Germany 2)	Retail International	Non-Life Reinsurance	Life/Health Reinsurance 2)	Corporate Operations	Total
2,306	3,779	1,741	4,265	4,197	—	16,288
282	–10	155	681	273	—	1,381
–1	1,315	94	—	637	—	2,045
6	821	12	—	—	—	839
2,593	5,905	2,002	4,946	5,107	—	20,553
903	116	84	390	434	—	1,927
267	–4	–3	–12	48	—	296
—	–48	–4	—	16	—	–36
1	—	9	—	—	—	10
1,171	64	86	378	498	—	2,197
1,403	3,663	1,657	3,875	3,763	—	14,361
15	–6	158	693	225	—	1,085
–1	1,363	98	—	621	—	2,081
5	821	3	—	—	—	829
1,422	5,841	1,916	4,568	4,609	—	18,356

1) Presentation after elimination of cross-segment transactions

2) Adjusted on the basis of IAS 8, see section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES 183 Consolidation

• 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets 239 Notes on the consolidated

statement of income

balance sheet – liabilities 258 Notes on the consolidated 270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

(32) ACQUISITION COSTS AND ADMINISTRATIVE EXPENSES

N145 ACQUISITION COSTS AND ADMINISTRATIVE EXPENSES

FIGURES IN EUR MILLION

	Industrial Lines	Retail Germany	Retail International	Non-Life Reinsurance	Life/Health Reinsurance	Total
2013 1)
Gross Acquisition costs and reinsurance commissions	475	966	936	1,571	1,083	5,031
Changes in deferred acquisition costs and change in
reserves for commissions	–12	–135	–87	–39	56	–217
Total acquisition costs	463	831	849	1,532	1,139	4,814
Administrative expenses	250	314	188	180	157	1,089
Total acquisition costs and administrative expenses	713	1,145	1,037	1,712	1,296	5,903
Reinsurers' share
Acquisition costs and reinsurance commissions	273	18	46	121	103	561
Changes in deferred acquisition costs and change in reserves for commissions	–5	12	9	–8	–17	–9
Total acquisition costs	268	30	55	113	86	552
Net
Acquisition costs and reinsurance commissions	202	948	890	1,450	980	4,470
Changes in deferred acquisition costs and change in reserves for commissions	–7	–147	–96	–31	73	–208
Total acquisition costs	195	801	794	1,419	1,053	4,262
Administrative expenses	250	314	188	180	157	1,089
Total acquisition costs and administrative expenses	445	1,115	982	1,599	1,210	5,351
2012 1)
Gross
Acquisition costs and reinsurance commissions	434	1,012	664	1,582	1,018	4,710
Changes in deferred acquisition costs and change in reserves for commissions	–3	–254	–67	–30	–72	–426
Total acquisition costs	431	758	597	1,552	946	4,284
Administrative expenses	220	309	190	166	145	1,030
Total acquisition costs and administrative expenses	651	1,067	787	1,718	1,091	5,314
Reinsurers' share Acquisition costs and reinsurance commissions	260	16	36	101	61	474
Changes in deferred acquisition costs and change in
reserves for commissions	–4	14	10	–14	–4	2
Total acquisition costs	256	30	46	87	57	476
Net
Acquisition costs and reinsurance commissions	174	996	628	1,481	957	4,236
Changes in deferred acquisition costs and change in reserves for commissions	1	–268	–77	–16	–68	–428
Total acquisition costs	175	728	551	1,465	889	3,808
Administrative expenses	220	309	190	166	145	1,030
Total acquisition costs and administrative expenses	395	1,037	741	1,631	1,034	4,838

1) Presentation after elimination of cross-segment transactions

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies
• 172 Segment reporting

(33) OTHER INCOME/EXPENSES

N146 COMPOSITION OF OTHER INCOME/EXPENSES

FIGURES IN EUR MILLION

	2013	2012 1)
Other income
Foreign exchange gains	252	105
Income from services, rents and commissions	224	194
Reversals of impairments on receivables	22	18
Income from contracts recognised in accordance with the deposit accounting method	68	59
Income from the sale of property, plant and equipment	6	1
Income from the release of other non-technical provisions	28	41
Interest income	46	33
Income from the repurchase of own securities	6	9
Miscellaneous income	156	135
Total	808	595
Other expenses
Foreign exchange losses	244	148
Other interest expenses	157	188
Depreciation and impairments	122	130
Expenses for the company as a whole	286	234
Expenses for personnel	30	45
Expenses for services and commissions	106	123
Other taxes	54	45
Expenses from the measurement of disposal groups	—	2
Allocation for restructuring provisions	13	14
Miscellaneous expenses	203	266
Total	1,215	1,195
Other income/expenses	–407	–600

1) Adjusted on the basis of IAS 8, cf. section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

"Other income/expenses" does not in general include personnel expenses of our insurance companies, insofar as these expenses are attributed according to functional units by means of cost object accounting and allocated to investment expenses, claims and claims expenses as well as acquisition costs and administrative expenses. In the same way, this also applies to depreciation/amortisation and impairments of intangible and other assets of our insurance companies.

"Other income/expenses" for the reporting period just ended does not contain any material income from the release of restructuring provisions. Cf. our explanatory remarks in the Notes, item 25 "Sundry provisions" regarding the allocation for restructuring provisions.

(34) FINANCING COSTS

The fi nancing costs of EUR 206 (185) million consist exclusively of interest expenses from raising borrowed capital not directly connected with the operational insurance business. These interest expenses are attributable in an amount of EUR 188 (177) million to our issued subordinated liabilities, in an amount of EUR 16 (2) million to other interest expenses and in an amount of EUR 2 (6) million to bank liabilities of Talanx AG (cf. Notes, item 26 "Notes payable and loans").

(35) TAXES ON INCOME

This item includes both domestic income tax and comparable taxes on income incurred by foreign subsidiaries. Determination of the income tax includes the calculation of deferred taxes. The principles used to recognise deferred taxes are set out in section "Summary of major accounting policies". Deferred taxes are established on retained earnings of major affi liated companies in cases where a distribution is specifi cally planned.

N147 TAXES ON INCOME – ACTUAL AND DEFERRED

FIGURES IN EUR MILLION

	2013	2012 1)
Actual tax for the reporting year	332	399
Actual tax for other periods	–24	–17
Deferred taxes due to temporary diff erences	–49	124
Deferred taxes from loss carry forwards	44	–84
Change in deferred taxes due to changes in tax rates	–7	–3
Recognised tax expenditure	296	419

1) Adjusted on the basis of IAS 8, cf. section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

• 279 List of shareholdings for the consolidated
• fi nancial statements 288 Responsibility statement

DOMESTIC/FOREIGN BREAKDOWN OF RECOGNISED TAX

N148 EXPENDITURE/INCOME

FIGURES IN EUR MILLION

	2013	2012 1)
Current taxes	308	382
Domestic	142	236
Foreign	166	146
Deferred taxes	–12	37
Domestic	8	–19
Foreign	–20	56
Total	296	419

1) Adjusted on the basis of IAS 8, cf. section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

Actual and deferred taxes recognised in the fi nancial year under other comprehensive income and directly in equity – resulting from items charged or credited to other comprehensive income or directly to equity – amounted to EUR 234 (–224) million and EUR 0 (–9) million, respectively.

The following table presents a reconciliation of the expected expense for income taxes that would be incurred upon applying the German income tax rate to the pre-tax profi t with the actual expense for taxes:

N149 RECONCILIATION OF EXPECTED AND RECOGNISED INCOME TAX EXPENSES

FIGURES IN EUR MILLION
	2013	2012 1)
Profi t before income taxes	1,578	1,563
Expected tax rate	31.6%	31.6%
Expected expense for income taxes	499	494
Change in deferred rates of taxation	–7	–3
Diff erence due to foreign tax rates	–99	–89
Non-deductible expenses	63	81
Tax-exempt income	–206	20
Value adjustment on deferred tax assets	27	–85
Tax expense not attributable to the reporting period	18	2
Other	1	–1
Recognised tax expenditure	296	419

1) Adjusted on the basis of IAS 8, cf. section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

The calculation of the expected expense for income taxes is based on the German income tax rate of 31.6 (31.6)%. This tax rate is made up of corporate income tax including the German reunifi cation charge and a mixed trade tax rate.

The tax ratio, i.e. the ratio of recognised tax expense to pre-tax profi t, stood at 18.8 (26.9)% in the reporting year. The tax rate corresponds to the average income tax load borne by all Group companies.

No deferred taxes were established on taxable temporary diff erences under assets amounting to EUR 108 (112) million and under liabilities amounting to EUR 84 (130) million in connection with shares in Group companies as the Group is able to direct their reversal, and they will not reverse in the foreseeable future.

The unadjusted deferred tax assets on loss carry forwards totalling EUR 223 (250) million are likely to be realised in the amount of EUR 29 (17) million within a year and in the amount of EUR 194 (233) million aft er one year.

AVAILABILITY OF UNCAPITALISED LOSS CARRY FORWARDS

An impairment of deferred taxes was recorded on loss carry forwards of EUR 381 (376) million and deductible temporary diff erences of EUR 121 (54) million gross in the People's Republic of China, Turkey and Germany because their realisation is not suffi ciently certain. In addition, in the reporting year there were impaired tax credits in the USA of EUR 13 (0) million gross. The impaired deferred tax assets for these items total EUR 130 (110) million, cf. table N150.

In the reporting year, actual corporate income tax fell by EUR 5 (—) million since loss carry forwards were used but no associated deferred tax claims were made.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

The devaluation of deferred tax claims recognised in previous years led to a deferred tax expense of EUR 3 (4) million in the 2013 fi nancial year. On the other hand, the correction of previous devaluations produced deferred taxes of EUR 9 (92) million.

In terms of losses in the reporting or the previous year, excess deferred tax claims are only recognised to the extent it is probable that the given company will generate suffi cient taxable profi ts in the future. Such proof was provided for deferred tax claims amounting to EUR 212 (90) million.

	N150 IMPAIRED LOSS CARRY FORWARDS, TEMPORARY DIFFERENCES AND TAX CREDITS
--	--------------------------------------------------------------------------	--	--	--	--	--	--

FIGURES IN EUR MILLION 1 year to 5 years 6 years to 10 years >10 years Unlimited Total 1 year to 5 years 6 years to 10 years >10 years Unlimited Total 2013 2012 Loss carry forwards thereof domestic loss carry forwards Corporate tax — — — 55 55 — — — 26 26 Trade tax — — — 27 27 — — — 20 20 thereof foreign loss carry forwards Luxembourg — — — 155 155 — — — 151 151 Turkey 28 — — — 28 63 — — — 63 Austria — — — 51 51 — — — 51 51 Other — 1 14 50 65 10 1 15 39 65 Total 28 1 14 338 381 73 1 15 287 376 Temporary diff erences — — — 121 121 — — — 54 54 Tax credits — — — 13 13 ————— Total 28 1 14 472 515 73 1 15 341 430

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated balance sheet – liabilities 258 Notes on the consolidated

statement of income

270 Other information

279 List of shareholdings for the consolidated

fi nancial statements 288 Responsibility statement

OTHER INFORMATION

STAFF AND EXPENDITURES ON PERSONNEL

STAFF

N151 AVERAGE ANNUAL NUMBER OF STAFF EMPLOYED

	2013	2012
Industrial Lines	2,878	2,770
Retail Germany	5,092	5,335
Retail International	8,072	8,598
Reinsurance companies	2,376	2,263
Corporate Operations	2,792	2,588
Total excluding apprentices and student trainees	21,210	21,554
Apprentices and student trainees	509	493
Total	21,719	22,047

As at the balance sheet date, a total workforce of 21,529 (22,180) was employed by the Group.

The decline in the Retail International segment was expected as a result of restructuring measures associated with the integration of our Polish insurance company TUiR WARTA S.A.

EXPENSES FOR PERSONNEL

Expenses for personnel mainly comprise expenditures on insurance operations, claims management (loss adjustment) and the management of investments.

N152 BREAKDOWN OF EXPENSES FOR PERSONNEL

FIGURES IN EUR MILLION
	2013	2012
Wages and salaries	1,087	1,005
Social security contributions and expenditure on provisions and assistance
Social security contributions	137	127
Expenditures for pension scheme	73	73
Expenditures for assistance	19	18
	229	218
Total	1,316	1,223

RELATED-PARTY DISCLOSURES

IAS 24 "Related Party Disclosures" defi nes related parties as e.g. parent companies and subsidiaries, subsidiaries of a common parent company, associated companies, legal entities under the infl uence of management and the management of the company itself.

Related entities within the Talanx Group consist of HDI Haft pfl icht verband der Deutschen Industrie Versicherungsverein auf Gegenseitigkeit (HDI V. a. G.), which directly holds the majority of the shares of Talanx AG; all subsidiaries that are not consolidated on the grounds of materiality, as well as associated companies and joint ventures. In addition, there are the provident funds that pay benefi ts in favour of employees of Talanx AG or one of its related entities aft er termination of their employment.

A person or a close relative of said person is related to the reporting company if this person controls the reporting company or participates in its joint control, exerts signifi cant infl uence on the reporting company or occupies a key position in the management of the reporting company or a parent company of the reporting company. Management in key positions comprises the members of the Board of Management and the Supervisory Board of Talanx AG and of HDI V. a. G.

Transactions between Talanx and its subsidiaries are eliminated on consolidation and hence not discussed in the Notes. On 10 May 2013, loans to HDI V. a. G. in the nominal amount of EUR 110 million were repaid early. In addition, HDI V. a. G. conducts primary insurance business in the form of co-insurance, with the lead insurance companies being HDI-Gerling Industrie Versicherung AG (HG-I) Hannover and HDI Versicherung AG (HV), Hannover. Pursuant to the Articles of Association of HDI V. a. G., insurance business is split in the ratio 0.1% (HDI V. a. G.) to 99.9% (HG-I/HV).

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income
• NOTES 149 General information
  • 149 General accounting principles and application of International Financial Reporting Standards 153 Accounting policies
  • 172 Segment reporting
• 146 Statement of changes in shareholders' equity
• 148 Cash fl ow statement

In connection with operating activity, there is a contractual relationship between Ampega Investment GmbH, Cologne, and C-QUADRAT Investment AG, Vienna (an associated company measured at equity in the consolidated fi nancial statements), for outsourcing of the portfolio management of special investment funds. As at the balance sheet date, the transactions gave rise to expenses for portfolio management services provided in the amount EUR 10 million.

Furthermore, transactions for Group companies by subsidiaries HDI-Gerling Sicherheitstechnik GmbH and HDI Direkt Service GmbH (both Hannover), not consolidated on grounds of materiality, generated income of EUR 11 million and expenses of EUR 9 million; the latter primarily concerns HV in connection with the portfolio management of insurance contracts.

Business relations with unconsolidated companies and with associated companies and joint ventures are of minor importance overall.

In addition, there are service contracts with a company in which a member of the Supervisory Board participates. During the reporting period, the company generated revenues under these contracts in the amount of EUR 0.5 million with Group companies.

For details on the remuneration received by members of the Board of Management and Supervisory Board of Talanx AG, please see the remarks in the remuneration report on page 100 et seqq. and sub section "Remuneration of the parent company's manage ment bodies".

SHARE-BASED REMUNERATION

The following share-based remuneration schemes were operating within the Group in the 2013 fi nancial year:

• ¡ Stock appreciation rights scheme (SAR) of Hannover Rück SE (operating since 2000, being phased out in stages since 2011 and close to being wound up)
• ¡ share award scheme (share-based remuneration in the form of virtual shares, operating since 2011)

These schemes and their impact on the profi t for the year and the Group's assets, fi nancial position and net income are described below.

STOCK APPRECIATION RIGHTS SCHEME OF HANNOVER RÜCK SE

With the approval of the Supervisory Board, the Board of Management of Hannover Rück SE introduced a virtual stock option scheme with eff ect from 1 January 2000 that grants stock appreciation rights (SAR) to certain managerial staff . The content of the stock option scheme is solely based on the Conditions for the Granting of Stock Appreciation Rights. All members of the Group's senior management are eligible for the award of stock appreciation rights. Exercising the stock appreciation rights does not entitle the holder to demand delivery of Hannover Rück SE shares, but only to be paid a cash amount linked to the performance of Hannover Rück SE's shares.

A resolution passed by the Supervisory Board on 8 November 2010 revoked the Conditions for the Granting of Stock Appreciation Rights for 2011 in respect of any stock appreciation rights that could have been granted to the Board of Management members on the basis of those Conditions (partial termination). For the reporting year, the resolution passed by the Board of Management on 14 March 2011 also revoked the Conditions for the Granting of Stock Appreciation Rights for other eligible managerial staff . Stock appreciation rights that have already been assigned may be exercised up to the time of their expiry.

Stock appreciation rights were fi rst granted for the 2000 fi nancial year and until the termination of the scheme are awarded separately for each subsequent fi nancial year (allocation year), provided that the performance criteria defi ned in the Conditions for the Granting of Stock Appreciation Rights are satisfi ed.

The term of the stock appreciation rights is ten years, commencing at the end of the year in which they are awarded. Stock appreciation rights which are not exercised by the end of the 10-year period lapse. Stock appreciation rights may only be exercised aft er a waiting period and then only within four exercise periods each year. Upon expiry of a four-year waiting period a maximum of 60% of the stock appreciation rights awarded for any allocation year may be exercised. The waiting period for each further 20% of the stock appreciation rights awarded to a member of managerial staff for that allocation year is one year. Each exercise period lasts for ten trading days, commencing on the sixth trading day aft er the date of publication of each quarterly report of Hannover Rück SE.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

The amount paid out to the party exercising a stock appreciation right is the diff erence between the baseline price and the current market price of the Hannover Rück SE share at the time when exercised. In this context, the baseline price corresponds to the arithmetic mean of the closing prices of Hannover Rück SE shares on all trading days of the fi rst full calendar month of the allocation year in question. The current market price of the Hannover Rück SE share at the time when stock appreciation rights are exercised is the arithmetic mean of the closing prices of the Hannover Rück SE share on the last 20 trading days prior to the fi rst day of the exercise period.

The amount paid out is limited to a maximum calculated as the quotient of the total volume of remuneration to be granted in the allocation year and the total number of stock appreciation rights awarded in that year.

If the holder's contract with the company is terminated by either party or by mutual agreement or ends upon expiry of a fi xed term, a holder of stock appreciation rights is entitled to exercise all such rights in the fi rst exercise period thereaft er. Any stock appreciation rights not exercised within this period and any whose waiting period has not yet expired will lapse. Retirement, incapacity or death of the member of management does not constitute termination for the purpose of exercising stock appreciation rights.

The allocations for the years 2006, 2007 and 2009 to 2011 gave rise to the commitments in the 2013 fi nancial year outlined in the following table. No allocations were made for the years 2005 and 2008.

N153 HANNOVER RÜCK SE STOCK APPRECIATION RIGHTS

Allocation year 2011 2010 2009 2007 2006 2004 Award date 15.3.2012 8.3.2011 15.3.2010 28.3.2008 13.3.2007 24.3.2005 Term 10 years 10 years 10 years 10 years 10 years 10 years Waiting period 4 years 4 years 2 years 2 years 2 years 2 years Baseline price (fi gures in EUR) 40.87 33.05 22.70 34.97 30.89 27.49 Participants in year of issue 143 129 137 110 106 109 Number of rights granted 263,515 1,681,205 1,569,855 926,565 817,788 211,171 Fair value as at 31.12.2012 (fi gures in EUR) 19.62 8.38 8.76 10.79 10.32 24.62 Maximum value (fi gures in EUR) 32.21 8.92 8.76 10.79 10.32 24.62 Weighted exercise price (fi gures in EUR) — — 8.76 10.79 10.32 24.62 Number of rights as at 31.12.2012 259,005 1,640,070 639,295 48,340 8,269 — Provisions as at 31.12.2012 (fi gures in EUR million) 2.12 7.81 5.02 0.52 0.85 — Amounts paid out in the 2012 fi nancial year (fi gures in EUR million) — — 2.50 2.08 0.19 0.08 Expense in the 2012 fi nancial year (fi gures in EUR million) 1.18 2.73 1.32 — — —

The accumulated stock appreciation rights are valued on the basis of the Black/Scholes option pricing model.

The calculations were based on the year-end closing price of Hannover Re shares of EUR 58.97 as at 13 December 2013, an expected volatility of 31.33% (historical volatility on a fi ve-year basis), an expected dividend yield of 4.49% and a risk-free interest rate of 0.39% for the 2006 allocation year, 0.60% for the 2007 allocation year, 1.08% for the 2009 allocation year, 1.32% for the 2010 allocation year and 1.55% for the 2011 allocation year.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income 145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

In the 2013 fi nancial year, the waiting period expired for 100% of the stock appreciation rights granted for the years 2003, 2004, 2006 and 2007 as well as 60% of those for 2009.

3,354 stock appreciation rights from the 2004 allocation year, 18,222 stock appreciation rights from the 2006 allocation year, 192,512 stock appreciation rights from the 2007 allocation year and 284,959 stock appreciation rights from the 2009 allocation year were exercised. The total amount paid out was EUR 4.85 million.

On this basis the aggregate provisions, which are recognised in the sundry non-technical provisions, amounted to EUR 16 (15) million for the 2013 fi nancial year. Total expenditure amounted to EUR 5 (12) million.

SHARE AWARD SCHEME

For Talanx AG and the major Group companies including Hannover Rück SE, it was resolved to introduce a share award scheme initially for the members of the Boards of Management and then for certain managerial staff , with eff ect from the 2011 fi nancial year, that grants stock appreciation rights in the form of virtual shares, known as "share awards". This share award scheme comes in two versions:

• ¡ Talanx share awards (for members of the Talanx Board of Manage ment and the major Group companies and certain managerial staff , other than Hannover Rück SE)
• ¡ Hannover Re share awards (for members of the Board of Manage ment of Hannover Rück SE and from the 2012 fi nancial year also for certain managerial staff of Hannover Rück SE. This share award scheme replaces the terminated stock appreciation rights scheme of Hannover Re. Please refer to our remarks in section "Stock appreciation rights scheme of Hannover Rück SE"

The share awards do not entitle participants to demand actual shares, only the payment of a cash amount subject to the following conditions.

The share award scheme is open to all persons contractually entitled to share awards and whose service or employment relationship is still in force at the time of allocation of the share awards and will not end due to termination by either party or by mutual agreement before expiry of the waiting period.

Share awards will fi rst be issued for the 2011 fi nancial year and thereaft er separately for each subsequent fi nancial year (allocation year). The total number of share awards granted depends on the value per share. The value per share is calculated as the unweighted arithmetic mean of the Xetra closing prices. The conditions for participants prescribe for the calculation a period of fi ve trading days before to fi ve trading days aft er the meeting of the Supervisory Board that approves the consolidated fi nancial statements for the previous fi nancial year. The Talanx share awards are based on the value per share of Talanx AG, while the Hannover Re share awards are based on the value per share of Hannover Rück SE. For the managerial staff of Hannover Rück SE the period is 20 trading days before to ten trading days aft er the meeting of the Supervisory Board that approves the consolidated fi nancial statements for the previous fi nancial year. The total number of share awards to be allocated is arrived at by dividing the amount available for allocation of share awards to each entitled participant by the value per share, rounded up to the next full share. For Board of Management members of Talanx and major Group companies as well as Hannover Rück SE 20% of the individual's defi ned variable remuneration is allocated in share awards, while for the managerial staff of Hannover Rück SE the fi gure is 40% or 35% according to the management levels.

The share awards are allocated automatically, without the need for a declaration by either party. For each share award, the value of one share determined according to the above defi nition on the disbursement date is paid out aft er a waiting period of four years. The value per share is calculated using the procedure described in the previous paragraph.

The amount payable to each entitled participant is the total value – calculated at the time of disbursement – of the share awards for which the four-year waiting period has expired. This amount is paid by bank transfer in the month following the end of the period designated for calculating the value per share as described in the previous paragraphs.

Together with payment of the value of the share awards, an amount equal to the dividend – if dividends were distributed to shareholders – is paid. The amount of the dividend is the sum of all dividends paid per share during the term of the share awards multiplied by the number of share awards paid out to each entitled participant at the time of disbursement. If the share awards are paid out ahead of time, only the value of the dividends for the period up to the occurrence of the event triggering the early pay-out will be paid. Proportionate shares in dividends not yet distributed are not taken into account.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

If the entitled participant's period of offi ce as a member of the Board or the service contract with the member of the Board or the employment contract with the participant ends, the participant remains entitled to payment of the value of any share awards already granted at the time of expiry of the respective waiting period, unless said termination is based on resignation of the participant, or resignation/dismissal for good cause. In the event of death of the participant, entitlement to share awards already allocated or still to be allocated passes to the heirs. All share awards are calculated based on the value per share determined on the disbursement date. No share awards may essentially be allocated aft er the participant has left the company, except if the participant has left the company due to non-reappointment, retirement or death, and then only in respect of entitlements to variable remuneration earned by the participant in the last year – or part thereof – of activity on behalf of the company.

The share award scheme is accounted for within the Group as sharebased remuneration with a cash settlement governed by the requirements of IFRS 2. Due to the diff erent calculation bases used for the Talanx share awards and the Hannover Re share awards, the further characteristics of the two versions are described separately below:

TALANX SHARE AWARDS

N154 DETAILS ON THE TALANX SHARE AWARDS

		2013 2012
	Anticipated allocation in 2014 for 2013	Final allocation in 2013 for 2012	Anticipated allocation
Measurement date	30.12.2013	20.3.2013	30.12.2012
Value per share award (fi gures in EUR)	24.65	23.59	21.48
Total number of share awards	379,076	271,884	279,475
Number allocated in given year	107,192	162,406	169,997
Board of Management Talanx AG 1)	41,197	108,716	112,033
Other Boards of Management	61,329	50,086	54,360
Other eligible participants 2)	4,666	3,604	3,604
Personnel expenses 2) (fi gures in EUR million)	2.5	2.1	1.5
Dividend payments considered 3) (fi gures in EUR million)	0.3	0.3	—
Total amount of provisions (fi gures in EUR million)	4.5	2.6	2

1) For the Management Board members of Talanx AG the number of existing Talanx share awards was adjusted in 2012 due to the capital increase associated with the initial public off ering of the company (dilution protection) based on a fair value of EUR 18.30 per share award (issue price of Talanx shares)

2) The personnel expenditure in respect of the share award scheme for the Board of Management is distributed over the term of the share awards or the shorter term of the service contracts. Allocations for other eligible participants are based on a slightly diff erent scheme (primarily diff erent rules upon termination of employment). These were not presented separately on grounds of materiality

3) Distributed dividends and anticipated dividend payments were not considered for the allocation year; the dividend claims are discounted before recognition

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

HANNOVER RE SHARE AWARDS

N155 DETAILS ON THE HANNOVER RE SHARE AWARDS

	2013 2012
	Anticipated allocation in 2014 for 2013	Final allocation in 2013 for 2012	Anticipated allocation
Measurement date	30.12.2013	21.3.2013	28.12.2012
Value per share award (fi gures in EUR)	62.38	59.86	58.96
Total number of share awards	246,662	140,584	138,816
Number allocated in given year	106,078	118,352	116,584
Board of Management	14,418	15,554	16,053
Other Boards of Management	91,660	103,798	100,531
Other adjustments	—	–1,000	—
Personnel expenses 1) (fi gures in EUR million)	3.2	4.1	2.2
Dividend payments considered 2) (fi gures in EUR million)	0.1	0.2	—
Total amount of provisions (fi gures in EUR million)	5.7	4.3	2.5

1) The personnel expenditure in respect of the share award scheme for the Board of Management is distributed over the term of the share awards or

the shorter term of the service contracts, and for managerial staff over the four-year term of the share awards

2) Distributed dividends and anticipated dividend payments were not considered for the allocation year; the dividend claims are discounted before recognition

LAWSUITS

With the exception of proceedings in connection with the standard insurance and reinsurance business there were no signifi cant court cases during the reporting year or as at the balance sheet date.

EARNINGS PER SHARE

Earnings per share are calculated by dividing the Group profi t attributable to the shareholders of Talanx AG by the average number of outstanding shares. Dilutive eff ects, which have to be recognised separately when calculating earnings per share, were not present either as at the balance sheet date or in the previous year. In the future, earnings per share may be diluted as a result of the issuance of shares or subscription rights from conditional or authorised capital.

N156 EARNINGS PER SHARE

	2013	2012 1)
Net income attributable to sharehold ers of Talanx AG for calculating earn ings per share (fi gures in EUR million)	762	626
Weighted average number of ordinary shares outstanding (in units)	252,638,402	219,156,421
Basic earnings per share (fi gures in EUR)	3.02	2.86
Diluted earnings per share (fi gures in EUR)	3.02	2.86

1) Adjusted on the basis of IAS 8, cf. section "Accounting policies", subsection "Changes in accounting policies and accounting errors" in the Notes

During the capital increase carried out for the employee share scheme the number of ordinary shares issued rose from 252,625,682 to a total of 252,797,634 registered no-par value shares. The new number of shares is included in the calculation for the weighted average on a pro rata temporis basis. The weighted average of shares does not include 171,952 treasury shares for the period of 26 November 2013 to 5 December 2013. Cf. our remarks under Note 17 "Shareholders' equity" for further details.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and disposal groups
• 189 Nature of risks associated with insurance contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

DIVIDEND PER SHARE

In the year under review a dividend for the 2012 fi nancial year in the amount of EUR 1.05 per share was paid, resulting in a total distribution of EUR 265 million. On 8 May 2014, it will be proposed to the General Meeting to distribute a dividend for the 2013 fi nancial year in the amount of EUR 1.20 per share, resulting in a total distribution of EUR 303 million. The distribution recommendation is not part of the consolidated fi nancial statements.

CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS

As at the balance sheet date, there were the following contingent liabilities and other fi nancial commitments derived from contracts and memberships that had been entered into as well as from taxes:

N157 CONTINGENT LIABILITIES AND OTHER FINANCIAL COMMITMENTS FROM CONTRACTS, MEMBERSHIPS AND TAXES

FIGURES IN EUR MILLION
	2013	2012
Trust accounts in the United States (Master Trust Funds, Supplement Trust Funds and Single Trust Funds) as security for technical liabilities to US cedants 1)	3,335	3,417
Sureties in the form of letters of credit furnished by various fi nancial institutions as security for technical liabilities	2,946	3,407
Guarantees for subordinated bonds issued: the guarantees cover the relevant bond volumes as well as interest due	2,862	2,862
Blocked custody accounts and other trust accounts as collateral in favour of reinsurers and cedants; generally outside the USA 1)	2,538	2,392
Outstanding capital commitments with respect to existing investment exposures: the commitments primarily involve private equity funds and venture capital fi rms in the form of partnerships	1,558	1,010
Commitments arising out of rental/lease agreements 2)	464	488
Funding commitments and contribution payments pursuant to §§124 et seq. Insurance Supervision Act (VAG) as a member of the Security Fund for Life Insurers	447	409
Collateral for liabilities to various fi nancial institutions in connection with participating interests in real estate companies and real estate transactions	460	288
Commitments based on service agreements – primarily in connection with IT outsourcing contracts	165	270
Assets in blocked custody accounts as collateral for existing derivative transactions: We have received collateral with a fair value of EUR 60 (9) million for existing derivative transactions 3)	92	84
Other commitments	53	60
Total	14,920	14,687

1) Securities held in the trust accounts are predominantly recognised as "Financial assets available for sale" in the portfolio of investments.

The amount stated refers primarily to fair value/carrying amount

2) Fresh data is collected only at year-end

3) The amount stated refers primarily to fair value/carrying amount

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

149 General information 149 General accounting principles and application

NOTES

of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

The amounts stated in the table are nominal amounts.

As guarantor institutions for Gerling Versorgungskasse VVaG, various Group companies are liable pro rata for any defi cits that may be incurred by Gerling Versorgungskasse.

Several Group companies are members of the association for the reinsurance of pharmaceutical risks, the association for the insurance of German nuclear reactors and the traffi c accident pool Verkehrsopferhilfe e. V. In the event of one of the other pool members failing to meet its liabilities, an obligation exists to take over such other member's share within the framework of the quota participation.

Within the scope of its regular activities, our subsidiary Hannover Rück SE enters into contingent commitments. A number of reinsurance contracts between Group companies and external third parties contain letters of comfort, guarantees or novation agreements under which, if certain sets of circumstances occur, Hannover Rück SE will guarantee the liabilities of the relevant subsidiary or assume its rights and obligations under the contracts.

The application of tax regulations may be unresolved when the tax items are brought to account. In calculating tax refund claims and tax liabilities, we have adopted the application that we believe to be most probable. However, the revenue authorities may come to diff erent views, which could give rise to additional tax liabilities in the future.

RENTS AND LEASING

LEASES UNDER WHICH GROUP COMPANIES ARE THE LESSEE Outstanding commitments from non-cancellable contractual relationships amounted to EUR 464 (488) million as at the balance sheet date.

N158 FUTURE LEASING COMMITMENTS

FIGURES IN EUR MILLION
	2014	2015	2016	2017	2018	Subse quent years
Payments	56	52	47	43	40	226

Operating leasing contracts produced expenditures of EUR 51 (46) million in the reporting year.

Expenditures from fi nancing leases as at the balance sheet date were minimal at EUR 0.3 (0.2) million.

LEASES UNDER WHICH GROUP COMPANIES ARE THE LESSOR The total amount of rental income due under non-cancellable contracts in subsequent years is EUR 560 (492) million.

N159 FUTURE RENTAL INCOME

FIGURES IN EUR MILLION
	2014	2015	2016	2017	2018	Subse quent years
Payments to be received	93	92	90	82	76	127

Rental income in the reporting year totalled EUR 115 (88) million. This resulted principally from the renting out of properties in the Non-Life Reinsurance segment as well as from the renting out of properties in Germany by primary insurance companies (mainly in the Retail Germany segment).

REMUNERATION OF THE MANAGEMENT BOARDS OF THE PARENT COMPANY

The Board of Management comprised 7 (7) active members as at the balance sheet date.

The total remuneration of the Board of Management amounted to EUR 10,439 (12,425) thousand. In the context of the share-based remuneration system newly implemented in 2011 the Board of Management has entitlements to virtual shares with a fair value of EUR 1,036 (2,449) thousand for the year under review, which corresponds to 41,197 (112,033) shares under the Talanx Share Award Plan, and a fair value of EUR 188 (205) thousand, which corresponds to 3,012 (3,474) shares under the Hannover Re Share Award Plan.

Former members of the Board of Management and their surviving dependants received total remuneration of EUR 741 (839) thousand. An amount of EUR 14,101 (14,197) thousand was set aside to cover projected benefi t obligations due to former members of the Board of Management and their surviving dependants.

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance
• contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

The total remuneration paid to the Supervisory Board amounted to EUR 2,235 (2,105) thousand. There are no pension commitments to former members of the Supervisory Board or their surviving dependants.

No advances were extended to members of the management boards in the reporting year. As at the balance sheet date, there was one mortgage loan to a member of the Supervisory Board amounting to EUR 34 (49) thousand with a remaining term of two years and three months. An amount of EUR 15 (15) thousand was repaid in the reporting year, and the agreed interest rate is nominally 4.2% (eff ective rate of 4.3%).

All other information on the remuneration of the Board of Management and Supervisory Board as well as the structure of the remuneration system is contained in the remuneration report from page 100 onwards. The information provided there also includes the individualised disclosure of the remuneration of the Board of Management and Supervisory Board and forms an integral part of the consolidated fi nancial statements.

FEE PAID TO THE AUDITOR

The appointed auditor of the Talanx Group's consolidated fi nancial statements is KPMG AG Wirtschaft sprüfungsgesellschaft (KPMG AG). The audit fee only comprises the legal independent entity of the appointed auditor.

The fees expensed by KPMG AG in the fi nancial year within the meaning of § 318 German Commercial Code (HGB) amounted to EUR 10.0 (11.7) million. The amount includes a fee of EUR 5.5 (6.0) million for auditing the fi nancial statements, EUR 0.6 (0.5) million for other appraisals and valuations, EUR 0.3 (0.2) million for tax consultancy services and EUR 3.6 (5.0) million for other services.

DECLARATION OF CONFORMITY PURSUANT TO § 161 GERMAN STOCK CORPORATION ACT (AKTG)

The declaration of conformity with the German Corporate Governance Code pursuant to § 161 of the German Stock Corporation Act (AktG) has been submitted and is permanently available to investors on the website of Talanx AG as described in the Board of Management's declaration on enterprise management in the Group Management Report (section: "Corporate Governance").

On 4 November 2013 the Board of Management and Supervisory Board of our listed subsidiary Hannover Rück SE submitted the declaration of conformity regarding the recommendations made by the Government Commission on the German Corporate Governance Code that is required pursuant to § 161 AktG and made this declaration available to the shareholders by publishing it in its annual report. The present and all previous Declarations of Conformity of the company are published on Hannover Rück SE's website (http:// www.hannover-re.com/about/corporate/declaration/index.html).

EVENTS AFTER THE BALANCE SHEET DATE

On 23 January 2014 Talanx AG concluded a new syndicated credit line. This credit line has a volume of EUR 550 million, a term of fi ve years and is the early replacement of the EUR 500 million credit line taken out in 2011.

The subordinate bond issued on 26 February 2004 through Hannover Finance (Luxembourg) S. A. amounting to EUR 750 million was called by the issuer on 17 January 2014 as at the fi rst regular redemption date in the amount of the entire nominal sum. The redemption date is 26 February 2014.

Talanx AG intends to admit all its shares to the regulated market of the Warsaw Stock Exchange in the second quarter of 2014. No new shares shall be issued in connection with this admission for trading.

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

LIST OF SHAREHOLDINGS FOR THE CONSOLIDATED FINANCIAL STATEMENTS OF TALANX AG PURSUANT TO § 313 PARA. 2 GERMAN COMMERCIAL CODE (HGB)

N160 SHAREHOLDINGS

1. Subsidiaries Companies included in the consolidated fi nancial statements	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
Industrial Lines
HDI Gerling Insurance of South Africa Ltd., Johannesburg, South Africa 18)	100.00	ZAR	43,108	ZAR	2,272
HDI HANNOVER International España, Cía de Seguros y Reaseguros S. A., Madrid, Spain 18)	100.00		52,829		8,635
HDI Versicherung AG, Vienna, Austria 18)	100.00		40,937		6,295
HDI-Gerling America Insurance Company, Chicago, USA 18)	100.00	USD	132,209	USD	12,017
HDI-Gerling Assurances S. A., Brussels, Belgium 18)	100.00		36,630		5,325
HDI-Gerling Assurances S. A., Luxembourg, Luxembourg, Luxembourg 18)	100.00		7,414		1,531
HDI-Gerling de Mexico Seguros S. A., Mexico City, Mexico 18)	100.00	MXN	89,632	MXN	–6,531
HDI-Gerling Industrie Versicherung AG, Hannover, Germany 18), 28)	100.00		406,536		81,637
HDI-Gerling Verzekeringen N. V., Rotterdam, Netherlands 18)	100.00		127,422		–1,584
HDI-Gerling Welt Service AG, Hannover, Germany 18), 28)	100.00		91,378		–74
HG-I AI USD Beteiligungs-GmbH & Co. KG, Cologne, Germany 15)	100.00		—		—
HG-I Alternative Investments Beteiligungs-GmbH & Co. KG, Cologne, Germany 18)	100.00		104,786		7,756
IVEC Institutional Venture and Equity Capital AG, Cologne, Germany 18)	100.00		131,633		5,766
Riethorst Grundstückgesellschaft AG & Co. KG, Hannover, Germany 4), 6), 18)	100.00		173,325		4,886
Retail Germany
Alstertor Zweite Beteiligungs- und Investitionssteuerungs-GmbH & Co. KG, Hamburg 18)	100.00		28,202		—
CiV Grundstücksgesellschaft mbH & Co. KG, Hilden 4), 18)	100.00		24,878		–229
Credit Life International Lebensversicherung AG, Hilden 24), 28)	100.00		7,496		–185
Credit Life International Versicherung AG, Hilden 24), 28)	100.00		4,944		–227
GERLING Pensionsenthaftungs- und Rentenmanagement GmbH, Cologne 18)	100.00		3,803		–827
HDI Kundenservice AG, Cologne 3), 18), 28)	100.00		149		5
HDI Lebensversicherung AG, Cologne 24)	100.00		401,547		6,000
HDI Pensionsfonds AG, Cologne 24)	100.00		5,601		74
HDI Pensionskasse AG, Cologne 18)	100.00		29,448		1,200
HDI Versicherung AG, Hannover 18), 28)	100.00		321,907		–17,293
HDI Vertriebs AG, Hannover 3), 18), 28)	100.00		4,083		138
HDI-Gerling Friedrich Wilhelm Rückversicherung AG, Cologne 24)	100.00		858,709		71,722
HNG Hannover National Grundstücksverwaltung GmbH & Co KG, Hannover 4), 18)	100.00		46,296		–554
neue leben Holding AG, Hamburg 18)	67.50		76,022		20,401
neue leben Lebensversicherung AG, Hamburg 24), 28)	100.00		51,527		18,210
neue leben Unfallversicherung AG, Hamburg 24), 28)	100.00		3,596		3,867
PB Lebensversicherung AG, Hilden 24), 28)	100.00		57,715		24,800
PB Pensionsfonds AG, Hilden 24), 28)	100.00		5,038		582
PB Pensionskasse AG, Hilden 24)	100.00		6,457		74
PB Versicherung AG, Hilden 24)	100.00		10,977		4,507
Talanx Deutschland AG, Hannover 3), 18), 28)	100.00		2,386,981		15,690
Talanx Deutschland Bancassurance Communication Center GmbH, Hilden 3), 18), 28)	100.00		630		750
Talanx Deutschland Bancassurance GmbH, Hilden 3), 18), 28)	100.00		1,089,419		84,239
Talanx Deutschland Bancassurance Kundenservice GmbH, Hilden 3), 18), 28)	100.00		75		–286
Talanx Pensionsmanagement AG, Cologne 3), 18), 28)	100.00		6,414		–340
TARGO Lebensversicherung AG, Hilden 24), 28)	100.00		76,249		42,594
TARGO Versicherung AG, Hilden 24), 28)	100.00		9,492		14,505
TD Real Assets GmbH & Co. KG, Cologne 18)	100.00		90		–9
TD-BA Private Equity GmbH & Co. KG, Cologne 18)	100.00		11,607		–24
TD-BA Private Equity Sub GmbH, Cologne 18)	100.00		9,107		–48
TD-Sach Private Equity GmbH & Co. KG, Cologne 18)	100.00		9,109		7,792

• NOTES 183 Consolidation
• 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance

contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

1. Subsidiaries Companies included in the consolidated fi nancial statements	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
Retail International
ASPECTA Assurance International Luxembourg S. A., Luxembourg, Luxembourg 18)	100.00		8,772		247
CiV Hayat Sigorta A. Ş., Istanbul, Turkey 18)	100.00	TRY	14,495	TRY	1,215
Gente Compañia de Soluciones Profesionales de México, S. A. de C. V., León, Mexico 18)	100.00	MXN	22,101	MXN	4,492
HDI Assicurazioni S. p. A., Rome, Italy 18)	100.00		168,199		28,758
HDI Immobiliare S. r. L., Rome, Italy 18)	100.00		66,106		285
HDI Seguros S. A. de C. V., León, Mexico 18)	99.76	MXN	556,683	MXN	113,757
HDI Seguros S. A., Montevideo, Uruguay 18)	100.00	UYU	111,920	UYU	10,317
HDI Seguros S. A., Santiago, Chile 18)	100.00	CLP	7,652,730	CLP	717,903
HDI Seguros S. A., Buenos Aires, Argentina 18)	100.00	ARS	117,619	ARS	20,508
HDI Seguros S. A., São Paulo, Brazil 18)	100.00	BRL	743,842	BRL	68,996
HDI Sigorta A. Ş., Istanbul, Turkey 18)	100.00	TRY	50,830	TRY	–45,914
HDI STRAKHUVANNYA (Ukraine), Kiev, Ukraine 18)	99.29	UAH	95,302	UAH	–196
HDI Zastrahovane AD, Sofi a, Bulgaria 18)	94.00	BGL	7,303	BGL	327
InChiaro Assicurazioni S. p. A., Rome, Italy 18)	51.00		6,110		391
InLinea S. p. A., Rome, Italy 18)	70.00		889		106
Inversiones HDI Limitada, Santiago, Chile 18)	100.00	CLP	13,100,687	CLP	406,200
Joint-stock Company Towarzystwo Ubezpieczeń EUROPA.UA, Lviv, Ukraine 18)	100.00	UAH	9,658	UAH	–1,224
Joint-stock Company Towarzystwo Ubezpieczeń EUROPA.UA Życie, Lviv, Ukraine 18)	100.00	UAH	17,615	UAH	1,292
Magyar Posta Biztosító Részvénytársaság, Budapest, Hungary 18)	66.93	HUF	1,847,518	HUF	85,413
Magyar Posta Életbiztosító Részvénytársaság, Budapest, Hungary 18)	66.93	HUF	3,998,108	HUF	710,658
OOO Strakhovaya Kompaniya "HDI Strakhovanie", Moscow, Russia 18)	100.00	RUB	177,622	RUB	10,038
OOO Strakhovaya Kompaniya CiV Life, Moscow, Russia 18)	100.00	RUB	601,017	RUB	309,495
Open Life Towarzystwo Ubezpieczeń Życie S. A., Warsaw, Poland 18)	51.00	PLN	97,580	PLN	22,894
Protecciones Esenciales S. A., Buenos Aires, Argentina 17)	100.00	ARS	107,870	ARS	13,735
Saint Honoré Iberia S. L., Madrid, Spain 18)	100.00		142		–43
Talanx International AG, Hannover, Germany 3), 24), 28)	100.00		1,668,846		50,907
Towarzystwo Ubezpieczeń i Reasekuracji WARTA S. A., Warsaw, Poland 18)	75.74	PLN	1,933,761	PLN	262,735
Towarzystwo Ubezpieczeń na Życie "WARTA" S. A., Warsaw, Poland 18)	100.00	PLN	41,051	PLN	–3,940
Towarzystwo Ubezpieczeń Europa S. A., Wroclaw, Poland 18)	50.00	PLN	664,711	PLN	66,923
Towarzystwo Ubezpieczeń na Życie Europa S. A., Wroclaw, Poland 18)	100.00	PLN	625,216	PLN	59,988
Non-Life Reinsurance
11 Stanwix, LLC, Wilmington, USA 12), 23), 25)	100.00	USD	35,616	USD	2,976
1225 West Washington, LLC, Washington, USA 12), 23), 25)	100.00	USD	23,430	USD	1,628
300 South Orange Avenue, LLC, Wilmington, USA 12), 23), 25)	100.00	USD	55,550	USD	646
402 Santa Monica Blvd, LLC, Wilmington, USA 12), 23), 25)	100.00	USD	29,353	USD	–5
5115 Sedge Corporation, Chicago, USA 9), 12), 23), 25)	100.00	USD	723	USD	1,108
975 Carroll Square, LLC, Washington, USA 12), 23), 25)	100.00	USD	58,424	USD	1,904
Akvamarin Beta, s. r. o., Prague, Czech Republic 14), 24)	100.00	CZK	80,092	CZK	–28,786
Atlantic Capital Corporation, Wilmington, USA 9), 11), 23), 25), 27)	100.00	USD	–111,867	USD	—
Broadway 101, LLC, Orlando, USA 12), 23), 25)	100.00	USD	28,777	USD	506
Cargo Transit Insurance (Pty) Ltd., Helderkruin, South Africa 13), 23)	80.00	ZAR	–4,499	ZAR	—
Compass Insurance Company Ltd., Johannesburg, South Africa 13), 23)	100.00	ZAR	125,761	ZAR	–33,816
Construction Guarantee (Pty.) Ltd., Parktown, South Africa 9), 13), 23)	60.00	ZAR	—	ZAR	—
E+S Rückversicherung AG, Hannover, Germany 24)	63.69		645,413		72,000
Envirosure Underwriting Managers (Pty.) Ltd., Durban, South Africa 13), 23)	60.00	ZAR	40	ZAR	455
Film & Entertainment Underwriters S. A. (Pty). Ltd., Northcliff , South Africa 13), 23)	51.00	ZAR	–1,992	ZAR	–548

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS 142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

1. Subsidiaries Companies included in the consolidated fi nancial statements	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
FUNIS GmbH & Co. KG, Hannover, Germany 21)	100.00		25,955		1,603
Garagesure Consultants and Acceptances (Pty) Ltd., Johannesburg, South Africa 13), 23)	70.00	ZAR	1,468	ZAR	1,689
Gem & Jewel Acceptances (Pty) Ltd., Johannesburg, South Africa 13), 23)	60.00	ZAR	914	ZAR	–60
Glencar Underwriting Managers, Inc., Chicago, USA 18)	49.00	USD	3,013	USD	1,224
GLL HRE Core Properties LP, Wilmington, USA 12), 23), 25)	99.90	USD	221,729	USD	22,920
GLL Terry Francois Blvd, LLC, Wilmington, USA 9), 12), 23), 25)	50.95	USD	—	USD	—
Hannover America Private Equity Partners II GmbH & Co. KG, Hannover, Germany 24)	100.00		193,624		23,068
Hannover Euro Private Equity Partners II GmbH & Co. KG, Cologne, Germany 6), 24)	100.00		7,809		4,510
Hannover Euro Private Equity Partners III GmbH & Co. KG, Cologne, Germany 5), 6), 24)	100.00		37,688		2,790
Hannover Euro Private Equity Partners IV GmbH & Co. KG, Cologne, Germany 5), 6), 24)	100.00		58,021		2,945
Hannover Finance (Luxembourg) S. A., Luxembourg, Luxembourg 24)	100.00		25,524		–4,891
Hannover Finance (UK) Limited, Virginia Water, Great Britain 24)	100.00	GBP	110,825	GBP	–15
Hannover Finance, Inc., Wilmington, USA 10), 23), 25)	100.00	USD	506,686	USD	9,104
Hannover Insurance-Linked Securities GmbH & Co. KG, Hannover, Germany 21)	100.00		5,935		2,924
Hannover Life Reassurance Africa Ltd., Johannesburg, South Africa 13), 23)	100.00	ZAR	530,616	ZAR	203,310
Hannover Re (Bermuda) Ltd., Hamilton, Bermuda 24)	100.00		1,029,006		170,196
Hannover Re Euro PE Holdings GmbH & Co. KG, Hannover, Germany 24)	100.00		134,474		2,909
Hannover Re Euro RE Holdings GmbH, Hannover, Germany 24)	100.00		633,815		6,170
Hannover Re Real Estate Holdings, Inc., Orlando, USA 10), 24), 25)	100.00	USD	426,139	USD	18,920
Hannover Reinsurance Africa Ltd., Johannesburg, South Africa 13), 23)	100.00	ZAR	752,920	ZAR	96,423
Hannover Reinsurance Group Africa (Pty) Ltd., Johannesburg, South Africa 10), 23)	100.00	ZAR	209,906	ZAR	129,888
Hannover Reinsurance Mauritius Ltd., Port Louis, Mauritius 13), 23)	100.00	MUR	48,048	MUR	–2,130
Hannover ReTakaful B. S. C. (c), Manama, Bahrain 24)	100.00	BHD	45,880	BHD	4,810
Hannover Rück Beteiligung Verwaltungs-GmbH, Hannover, Germany 24), 28)	100.00		2,071,855		210,032
Hannover Rück SE (formerly: Hannover Rückversicherung AG), Hannover, Germany 24)	50.22		1,837,716		367,162
Hannover Services (UK) Ltd., Virginia Water, Great Britain 24)	100.00	GBP	603	GBP	–63
HAPEP II Holding GmbH, Hannover, Germany 24)	100.00		13,834		4,373
HAPEP II Komplementär GmbH, Hannover, Germany 24)	100.00		28		3
HEPEP II Holding GmbH, Cologne, Germany 24)	100.00		3,605		526
HEPEP III Holding GmbH, Cologne, Germany 24)	100.00		7,672		579
HILSP Komplementär GmbH, Hannover, Germany 21)	100.00		25		–1
Hospitality Industrial and Commercial Underwriting Managers (Pty) Ltd., Johannesburg, South Africa 13), 23)	90.00	ZAR	1,534	ZAR	1,860
HR GLL Central Europe GmbH & Co. KG, Munich, Germany 10), 24)	99.99		175,644		538
HR GLL Central Europe Holding GmbH, Munich, Germany 14), 24)	100.00		61,950		–75
HR GLL CDG Plaza S. r. L., Bucharest, Romania 14), 24)	100.00	RON	171,895	RON	–3,605
HR GLL Europe Holding S. à r. l., Luxembourg, Luxembourg 14), 24)	100.00		38,877		–3
HR GLL Griffi n House Sp. z. o. o., Warsaw, Poland 14), 24)	100.00	PLN	43,289	PLN	–293
HR GLL Liberty Corner Sp. z. o. o., Warsaw, Poland 14), 24)	100.00	PLN	51,946	PLN	214
HR GLL Roosevelt Kft, Budapest, Hungary 14), 24)	100.00	HUF	547,772	HUF	547,722
Integra Insurance Solutions Limited, Bradford, Great Britain 18)	74.99	GBP	1,984	GBP	975
Inter Hannover (No. 1) Ltd., London, Great Britain 18)	100.00	GBP	–29	GBP	–26
International Insurance Company of Hannover Plc (formerly: International Insurance Company of Hannover Ltd.), London, Great Britain 24)	100.00	GBP	143,427	GBP	–6,005
Landmark Underwriting Agency (Pty) Ltd., Bloemfontein, South Africa 13), 23)	75.50	ZAR	1,096	ZAR	–1,450
Leine Investment General Partner S. à r. l., Luxembourg, Luxembourg 24), 25)	100.00		38		17
Leine Investment SICAV-SIF, Luxembourg, Luxembourg 24), 25)	100.00	USD	15,547	USD	847
Lireas Holdings (Pty) Ltd., Johannesburg, South Africa 13), 23)	51.00	ZAR	176,476	ZAR	18,990

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information 279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

1. Subsidiaries Companies included in the consolidated fi nancial statements	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
Micawber 185 (Pty) Ltd., Johannesburg, South Africa 13), 23)	100.00	ZAR	20,955	ZAR	2,979
MUA Insurance Acceptances (Pty) Ltd., Cape Town, South Africa 13), 23)	80.00	ZAR	10,142	ZAR	11,934
MUA Insurance Company Ltd., Cape Town, South Africa 13), 23)	100.00	ZAR	7,043	ZAR	–3,289
Nashville (Tennessee) West, LLC, Wilmington, USA 12), 23), 25)	100.00	USD	32,558	USD	3,446
One Winthrop Square, LLC, Wilmington, USA 9), 12), 23), 25)	100.00	USD	–1,280	USD	11,979
Oval Offi ce Grundstücks GmbH, Hannover, Germany 6), 24)	100.00		59,411		1,554
Peachtree (Pty) Ltd., Parktown, South Africa 9), 13), 23)	100.00	ZAR	—	ZAR	—
River Terrace Parking, LLC, New York, USA 12), 23), 25)	100.00	USD	23,118	USD	94
SUM Holdings (Pty) Ltd., Johannesburg, South Africa 13), 23)	72.20	ZAR	16,377	ZAR	3,484
Svedea AB, Stockholm, Sweden 18)	53.00	SEK	4,639	SEK	–44,881
Thatch Risk Acceptances (Pty) Ltd., Cape Town, South Africa 13), 23)	90.00	ZAR	1,082	ZAR	815
Transit Underwriting Managers (Pty) Ltd., Cape Town, South Africa 13), 23)	90.00	ZAR	880	ZAR	–111
Woodworking Risk Acceptances (Pty) Ltd., Pietermaritzburg, South Africa 13), 23)	60.00	ZAR	1,790	ZAR	2,249
Life/Health Reinsurance
Hannover Life Re AG, Hannover, Germany 24), 28)	100.00		1,705,385		90,038
Hannover Life Re of Australasia Ltd., Sydney, Australia 24)	100.00	AUD	451,097	AUD	37,827
Hannover Life Reassurance Bermuda Ltd., Hamilton, Bermuda 24)	100.00		283,004		35,439
Hannover Life Reassurance Company of America, Orlando, USA 24)	100.00	USD	196,874	USD	23,228
Hannover Re (Ireland) Ltd. (formerly: Hannover Re [Ireland] Public Limited Company),
Dublin, Ireland 24)	100.00		1,361,245		67,638
Corporate Operations
Alstertor Erste Beteiligungs- und Investitionssteuerungs-GmbH & Co. KG, Hamburg, Germany 18)	100.00		4,178		578
Ampega Investment GmbH (formerly: AmpegaGerling Investment GmbH),
Cologne, Germany 18), 28)	100.00		7,936		10,112
Hannover Beteiligungsgesellschaft mbH, Hannover, Germany 18)	100.00		3,557		–2,145
HEPEP II Komplementär GmbH, Cologne, Germany 24)	100.00		37		1
HEPEP IV Komplementär GmbH, Cologne, Germany 24)	100.00		20		1
Talanx Asset Management GmbH, Cologne, Germany 3), 18), 28)	100.00		83,600		40,495
Talanx Beteiligungs-GmbH & Co. KG, Hannover, Germany 4), 18)	100.00		90,885		10,897
Talanx Finanz (Luxemburg) S. A., Luxembourg, Luxembourg 18)	100.00		9,223		2,392
Talanx Immobilien Management GmbH, Cologne, Germany 3), 18), 28)	100.00		2,837		650
Talanx Reinsurance (Ireland) Ltd., Dublin, Ireland 5), 6), 7), 18)	100.00		117		2
Talanx Reinsurance Broker GmbH (formerly: Talanx Reinsurance Broker AG), Hannover, Germany 3), 5), 6), 7), 18), 28)	100.00		402		15,628
Talanx Service AG, Hannover, Germany 3), 18), 28)	100.00		1,746		–690
Talanx Systeme AG, Hannover, Germany 3), 18), 28)	100.00		140		–50
TAM AI Komplementär GmbH, Cologne, Germany 18)	100.00		24		–1

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application
• of International Financial Reporting Standards 153 Accounting policies

172 Segment reporting

2. Special purpose entities and special funds a) Special funds included in the consolidated fi nancial statements pursuant to IAS 27/SIC-12	Share of fund assets 1) in %		Fund assets 2) in TEUR		Change in fund assets, incl. cash infl ows and outfl ows 2) in TEUR
Industrial Lines
Ampega-Vienna-Bonds-Fonds, Vienna, Austria 17)	100.00		293,631		23,055
EURO RENT 3 Master (formerly: GERLING EURO-RENT 3), Cologne, Germany 17)	100.00		876,268		201,258
HG-I Aktien VC Dynamic, Cologne, Germany 15)	100.00		—		—
HG-I Aktien VC Strategie, Cologne, Germany 17)	100.00		42,512		42,512
HG-I Commodity Strategie, Cologne, Germany 17)	100.00		38,569		38,569
HG-I Real Estate EURO, Cologne, Germany 17)	100.00		4		4
Retail Germany
Ampega-nl-Euro-DIM-Fonds, Cologne 17)	100.00		486,898		47,870
Ampega-nl-Global-Fonds, Cologne 17)	100.00		41,256		315
Ampega-nl-Rent-Fonds, Cologne 17)	100.00		555,352		38,836
Gerling Immo Spezial 1, Cologne 17)	100.00		267,536		4,645
GKL SPEZIAL RENTEN, Cologne 17)	100.00		704,055		103,124
HDI-Gerling Sach Industrials, Cologne 17)	100.00		251,060		15,652
HGLV-Financial, Cologne 17)	100.00		1,244,050		177,961
HLV 1, Cologne 15)	100.00		—		—
HLV 2 Master, Cologne 15)	100.00		—		—
HPK 1, Cologne 15)	100.00		—		—
HV 1, Cologne 15)	100.00		—		—
NL Master, Cologne 15)	100.00		—		—
PBL 1, Cologne 15)	100.00		—		—
PBL 2 Master, Cologne 15)	100.00		—		—
PBVL-Corporate, Cologne 17)	100.00		122,625		9,869
Tal 1, Cologne 15)	100.00		—		—
Tal 2 Master, Cologne 15)	100.00		—		—
Talanx Deutschland Real Estate Value, Cologne 17)	100.00		4		4
TAL-Corp (formerly: TAL-Corp Rentenspezial), Cologne 17)	100.00		34,443		2,800
Retail International
BNP-HDI Credit FI Renda Fixa Crédito Privado, São Paulo, Brazil 17)	100.00	BRL	105,390	BRL	22,434
Credit Suisse HDI RF Crédito, São Paulo, Brazil 17)	100.00	BRL	114,682	BRL	56,723
Fundo Invest Cotas Fundos Invest Multimercado Cred Priv HDI Estrategia, São Paulo, Brazil 17)	100.00	BRL	28,572	BRL	28,572
Fundo Invest Renda Fixa Crédito Privado JPM HDI BRASIL, São Paulo, Brazil 17)	100.00	BRL	30,089	BRL	30,089
HSBC FI Renda Fixa Hannover, São Paulo, Brazil 17)	100.00	BRL	165,526	BRL	35,805
HSBC Performance HDI RF Crédito, São Paulo, Brazil 17)	100.00	BRL	85,515	BRL	6,837
KBC ALFA Specjalistyczny Fundusz Inwestycyjny Otwarty, Warsaw, Poland 17)	100.00	PLN	1,437,230	PLN	12,417
TORONY Ingatlan Befektetési Alap, Budapest, Hungary 15)	70.00	HUF	—	HUF	—
UBS Pactual HDI RF Crédito, São Paulo, Brazil 17)	100.00	BRL	89,309	BRL	7,337
Non-Life Reinsurance
FRACOM FCP, Paris, France 22)	100.00		1,039,751		26,314
Corporate Operations
Ampega Real Estate Value 3, Cologne, Germany 17)	100.00		4		4

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated balance sheet – liabilities
• 258 Notes on the consolidated statement of income

270 Other information 279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

2. Special purpose entities and special funds b) Special purpose entities included in the consolidated fi nancial statements pursuant to IAS 27/SIC-12	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfe 2) in TEUR
Non-Life Reinsurance
Hannover Re (Guernsey) PCC Ltd., St. Peter Port, Guernsey 24)	100.00		181		–37
Kaith Re Ltd., Hamilton, Bermuda 24)	88.00	USD	739	USD	–356

N160 SHAREHOLDINGS

3. Associated companies recognised using equity method in the consolidated fi nancial statements	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
ASPECTA Assurance International AG, Vaduz, Liechtenstein 18)	30.00	CHF	17,594	CHF	7,177
Camargue Underwriting Managers (Pty) Ltd., Parktown, South Africa 13), 24)	26.00	ZAR	11,026	ZAR	7,615
Clarendon Transport Underwriting Managers (Pty) Ltd., Johannesburg, South Africa 13), 24)	32.66	ZAR	16,593	ZAR	27,567
Commercial & Industrial Acceptances (Pty) Ltd., Johannesburg, South Africa 13), 24)	40.00	ZAR	3,894	ZAR	14,934
C-QUADRAT Investment AG, Vienna, Austria 18)	25.10		28,549		239
Firedart & Construction Guarantee Underwriting Managers (Pty) Ltd., Johannesburg, South Africa 13), 24)	49.90	ZAR	9,403	ZAR	3,082
HANNOVER Finanz GmbH, Hannover, Germany 18)	27.78		69,697		6,281
ITAS Vita S. p. A., Trient, Italy 18)	34.88		80,468		4,114
neue leben Pensionsverwaltung AG, Hamburg, Germany 18)	49.00		15,913		–73
Petro Vietnam Insurance Holdings, Hanoi, Vietnam 18)	31.82		VND 5,999,892,009	VND	396,980,645
Synergy Targeted Risk Solutions (Pty) Ltd., Johannesburg, South Africa 13), 24)	20.00	ZAR	941	ZAR	–165
transparo AG, Augsburg, Germany 20)	22.50		25,790		–6,450
WeHaCo Unternehmensbeteiligungs-GmbH, Hannover, Germany 18)	40.00		76,483		10,358

N160 SHAREHOLDINGS

Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
USD 6,773	USD	–205
26		—
28,329		1,070
GBP –1	GBP	–2
1,547		218
—		–45
2.398		657

CONSOLIDATED FINANCIAL STATEMENTS

• 142 Balance sheet 144 Statement of income
• 145 Statement of comprehensive income
• 146 Statement of changes in shareholders' equity 148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

5. Joint ventures included in the consolidated fi nancial statements using equity method	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
Magma HDI General Insurance Company Limited, Calcutta, India 18)	25.50	INR	2,065	INR	–16

N160 SHAREHOLDINGS

6. Joint ventures not included in the consolidated fi nancial statements owing to subordinate importance	Share of capital 1) in %	Equity capital 2) in TEUR	Earnings before profi t transfer 2) in TEUR
Ampega C-QUADRAT Fondsmarketing GmbH, Frankfurt, Germany 18)	50.00	303	13
C-QUADRAT Ampega Asset Management Armenia LLC, Yerevan, Armenia 15)	25.10	—	—
Credit Life International Services GmbH, Neuss, Germany 18)	50.00	61	1
nl-PS Betriebliche Vorsorge GmbH, Erlangen, Germany 18)	50.00	–1,018	–987

N160 SHAREHOLDINGS

7. Affi liated companies not included in the consolidated fi nancial statements pursuant to IFRS owing to subordinate importance	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
Bureau für Versicherungswesen Robert Gerling & Co. GmbH, Cologne, Germany 18), 28)	100.00		26		–18
CiV Immobilien GmbH, Hilden, Germany 18)	100.00		30		—
Desarollo de Consultores Profesionales en Seguros S. A. de CV, León, Mexico 18)	100.00	MXN	146	MXN	47
Gerling Insurance Agency, Inc., Chicago, USA 8)	100.00	USD	—	USD	—
Gerling Norge A/S, Oslo, Norway 18)	100.00	NOK	258	NOK	10
GERLING Sustainable Development Project-GmbH i. L., Cologne, Germany 9), 18)	100.00		52		–5
H. J. Roelofs Assuradeuren B. V., Rotterdam, Netherlands 18)	100.00		917		44
Hannover Life Re Consultants, Inc., Orlando, USA 24)	100.00	USD	205	USD	—
Hannover Re Consulting Services India Private Limited, Mumbai, India 19)	100.00	INR	68,929	INR	10,309
Hannover Re Risk Management Services India Private Limited, New Delhi, India 15)	100.00	INR	—	INR	—
Hannover Re Services Italy S. r. L., Milan, Italy 23)	100.00	EUR	651	EUR	133
Hannover Re Services Japan, Tokyo, Japan 24)	100.00	JPY	96,577	JPY	2,231
Hannover Re Services USA, Inc., Itasca, USA 23)	100.00	USD	898	USD	24
Hannover Risk Consultants B. V., Rotterdam, Netherlands 18)	100.00		–686		55
Hannover Rück SE Escritório de Representação no Brasil Ltda., Rio de Janeiro, Brazil 18)	100.00	BRL	1,234	BRL	260
Hannover Services (Mexico) S. A. de C. V., Mexico City, Mexico 18)	100.00	MXN	9,321	MXN	–1,456
HDI Direkt Service GmbH, Hannover, Germany 18), 28)	100.00		51		–307
HDI-Gerling Participações Ltda., São Paulo, Brazil 15)	100.00	BRL	—	BRL	—
HDI-Gerling Schadenregulierung GmbH, Hannover, Germany 18), 28)	100.00		25		–4
HDI-Gerling Services S. A., Brussels, Belgium 16)	100.00		170		57
HDI-Gerling Sicherheitstechnik GmbH, Hannover, Germany 18), 28)	100.00		2,892		—
HDI-Gerling Welt Service AG Escritório de Representação no Brasil Ltda., São Paulo, Brazil 18)	100.00	BRL	324	BRL	–180
HEPEP III Komplementär GmbH, Cologne, Germany 24)	100.00		18		1
HR Hannover Re Correduria de Reaseguros S. A., Madrid, Spain 24)	100.00		301		35
International Hannover Holding AG, Hannover, Germany 24)	100.00		42		–3
International Mining Industry Underwriters Ltd., London, Great Britain 24)	100.00	GBP	552	GBP	63
L&E Holdings Limited, London, Great Britain 18)	100.00	GBP	5	GBP	82

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups

189 Nature of risks associated with insurance contracts and fi nancial instruments

• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information 279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

7. Affi liated companies not included in the consolidated fi nancial statements pursuant to IFRS owing to subordinate importance	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
London & European Title Insurance Services Limited, London, Great Britain 18)	100.00	GBP	79	GBP	–248
LRA Superannuation Plan Pty Ltd., Sydney, Australia 8)	100.00	AUD	—	AUD	—
Mediterranean Reinsurance Services Ltd., Hong Kong, China 9), 23), 26)	100.00	USD	125	USD	—
Nassau Assekuranzkontor GmbH, Cologne, Germany 18), 28)	100.00		–7		–32
Scandinavian Marine Agency A/S, Oslo, Norway 18)	52.00	NOK	7,190	NOK	2,011
Shamrock Marine-Insurance Agency GmbH, Hamburg, Germany 18), 28)	100.00		25		–67
SSV Schadenschutzverband GmbH, Hannover, Germany 18), 28)	100.00		200		508
Talanx Direct Infrastructure 1 GmbH, Cologne, Germany 15)	100.00		—		—
VES Gesellschaft f. Mathematik, Verwaltung und EDV mbH, Gevelsberg, Germany 18), 28)	100.00		195		–1,332

N160 SHAREHOLDINGS

8. Participating interests	Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
DFA Capital Management, Inc., Wilmington, USA 16)	25.37	USD	494	USD	–1,060
IGEPA Gewerbepark GmbH & Co. Vermietungs KG, Munich, Germany 18)	37.50		20,550		8,156
Secquaero ILS Fund Ltd., Georgetown, Cayman Islands 18), 25)	21.04	USD	73,651	USD	2,884
Secquaero Re Vinyard IC Ltd., St. Peter Port, Guernsey 24)	100.00	USD	35,116	USD	3,612

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet

144 Statement of income

145 Statement of comprehensive income 146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

149 General accounting principles and application of International Financial Reporting Standards

153 Accounting policies

172 Segment reporting

Share of capital 1) in %		Equity capital 2) in TEUR		Earnings before profi t transfer 2) in TEUR
9.38		8,482		168
13.00		67,240		6,000
9.48		400,015		48,691
5.03	CHF	4,712,000	CHF	106,000

1) The share of capital is determined by adding up all directly and indirectly held interests pursuant to § 16 Para. 2 and 4 Stock Corporation Act (AktG)

2) The fi gures correspond to the annual fi nancial statements of the companies according to applicable local law or international accounting; diverging currencies are indicated

3) The relief aff orded by § 264 Para. 3 German Commercial Code (HGB) was utilised 4) The exemption aff orded by § 264b German Commercial Code (HGB) was utilised

5) Also allocated to the Industrial Lines segment

6) Also allocated to the Retail Germany segment

7) Also allocated to the Retail International segment

8) Company is inactive and does not compile an annual report

9) Company is in liquidation

10) Company prepares its own subgroup accounts

11) Included in the subgroup accounts of Hannover Finance, Inc.

12) Included in the subgroup accounts of Hannover Re Real Estate Holdings Inc.

13) Included in the subgroup accounts of Hannover Reinsurance Group Africa (Pty.) Ltd.

14) Included in the subgroup accounts of HR GLL Central Europe GmbH & Co. KG

15) Company was founded in reporting year – no annual report/accounts yet available

16) Figures as at 2011 fi nancial year-end

17) Figures as at 2012 fi nancial year-end

18) Figures as at 31 December 2012

19) Figures as at 31 March 2013

20) Figures as at 30 June 2013

21) Figures as at 30 September 2013

22) Figures as at 31 October 2013

23) Figures as at 2013 fi nancial year-end

24) Figures as at 2013 fi nancial year-end, provisional/unaudited 25) Figures pursuant to IFRS

26) Last annual fi nancial statements produced as at 31 December 1997

27) Certain elements of shareholders' equity are not included under IFRS, which means the size of equity capital could be negative here.

The company has suffi cient capital pursuant to local accounting standards relevant for supervisory authority

28) A profi t/loss transfer agreement is in force

Drawn up and released for publication in Hannover, 25 February 2014.

Hannover, 25 February 2014

Board of Management

Herbert K. Haas, Chairman

Dr. Immo Querner Dr. Heinz-Peter Roß Heinz-Pete Ulrich Wallin

Deputy Chairman

Torsten Leue Dr. Thomas Noth

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

183 Consolidation 188 Non-current assets held for sale and

disposal groups 189 Nature of risks associated with insurance contracts and fi nancial instruments

209 Notes on the consolidated balance sheet – assets

239 Notes on the consolidated

balance sheet – liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

RESPONSIBILITY STATEMENT

To the best of our knowledge, and in accordance with the applicable accounting principles, the consolidated fi nancial statements present a true and accurate view of the assets, fi nancial position and net income of the Group, and the Group Management Report presents a true and accurate view of the Group's performance, results and position, together with a description of the material opportunities and risks associated with the expected development of the Group.

Hannover, 25 February 2014

Board of Management

Herbert K. Haas, Chairman

Dr. Immo Querner Dr. Heinz-Peter Roß Heinz-Pete Ulrich Wallin

Dr. Christian Hinsch,

Deputy Chairman

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT 140 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

142 Balance sheet 144 Statement of income

145 Statement of comprehensive income

146 Statement of changes in shareholders' equity

148 Cash fl ow statement

NOTES 149 General information

• 149 General accounting principles and application of International Financial Reporting Standards
• 153 Accounting policies 172 Segment reporting

AUDITORS' REPORT

We have audited the consolidated fi nancial statements prepared by Talanx Aktiengesellschaft , Hannover, comprising the consolidated balance sheet, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in shareholders' equity, the cash fl ow statement and the notes to the consolidated fi nancial statements, together with the management report on the company and the Group for the fi nancial year 1 January to 31 December 2013. The preparation of the consolidated fi nancial statements and the Group management report in accordance with IFRS, as adopted by the EU, as well as the additional requirements of German commercial law pursuant to § 315a, para. 1 of the German Commercial Code (HGB) and the additional provisions of the articles of association are the responsibility of the company's Board of Management. Our responsibility is to express an opinion on the consolidated fi nancial statements and on the Group management report based on our audit.

We conducted our audit of the consolidated fi nancial statements in accordance with § 317 HGB and generally accepted German standards for the audit of fi nancial statements promulgated by the Institute of Public Auditors in Germany (IDW). Those standards require that we plan and perform the audit such that any misstatements materially aff ecting the presentation of the assets, fi nancial position and net income in the consolidated fi nancial statements in accordance with the applicable accounting rules and in the Group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The eff ectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated fi nancial statements and the Group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual fi nancial statements of those entities included in consolidation, the delineation of the scope of consolidation, the accounting and consolidation principles used, and the material estimates made by the Board of Management as well as evaluating the overall presentation of the consolidated fi nancial statements and Group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the fi ndings of our audit, the consolidated fi nancial statements comply with IFRS, as adopted by the EU, as well as the additional requirements of German commercial law pursuant to § 315a, Para. 1 HGB and the additional provisions of the articles of association and present a true and accurate view of the assets, fi nancial position and net income of the Group in accordance with those requirements. The Group management report is consistent with the consolidated fi nancial statements and as a whole presents a true and accurate view of the Group's position and the opportunities and risks of future development.

Hannover, 14 March 2014

KPMG AG Wirtschaft sprüfungsgesellschaft

Dr. Ellenbürger Husch Wirtschaft sprüfer Wirtschaft sprüfer

(German Public Auditor) (German Public Auditor)

140 CONSOLIDATED FINANCIAL STATEMENTS

NOTES

• 183 Consolidation 188 Non-current assets held for sale and
• disposal groups 189 Nature of risks associated with insurance
• contracts and fi nancial instruments
• 209 Notes on the consolidated balance sheet – assets
• 239 Notes on the consolidated
• balance sheet liabilities 258 Notes on the consolidated statement of income

270 Other information

279 List of shareholdings for the consolidated fi nancial statements 288 Responsibility statement

FURTHER INFORMATION

1 OPPORTUNITIES SQUARED 42 COMBINED MANAGEMENT REPORT

IMPORTANT ADDRESSES

ARGENTINA

HDI Seguros S. A. Tte. Gral. D. Perón 650 5P (1038) Buenos Aires Telephone +54 11 5300 3300 Fax +54 11 5811 0677

AUSTRALIA

Hannover Life Re of Australasia Ltd Level 7 70 Phillip Street Sydney NSW 2000 Telephone +61 2 9251-6911 Fax +61 2 9251-6862

Hannover Rueck SE Australian Branch – Agency The Re Centre, Level 21 Australia Square 264 George Street Sydney NSW 2000 Telephone +61 2 9274-3000 Fax +61 2 9274-3033

Hannover Rueck SE Australian Branch – Non-Life Offi ce Level 12 20 Bond Street Sydney NSW 2000 Telephone +61 2 8373-7580 Fax +61 2 9274-3033

HDI-Gerling Industrie Versicherung AG Australian Branch Exchange House, Level 12, 10 Bridge Street Sydney NSW 2000 Telephone +61 2 8274-4200 Fax +61 2 8274-4299

AUSTRIA

HDI Lebensversicherung AG Galaxy 21 Praterstraße 31 1020 Vienna Telephone +43 120 709-220 Fax +43 120 709-900 HDI Versicherung AG Edelsinnstraße 7 – 11 1120 Vienna Telephone +43 50 905-0 Fax +43 50 902-602

BAHRAIN

¡ Hannover ReTakaful B.S.C. (c) ¡ Hannover Rueck SE Bahrain Branch Al Zamil Tower 17th Floor Government Avenue Manama Center 305 Manama Telephone +973 1721 4766 Fax +973 1721 4667

HDI-Gerling Industrie Versicherung AG Bahrain Branch Building 31, 161, Al Zamil Tower Government Avenue P.O. Box No. 65331 Manama Telephone +973 1720 2900 Fax +973 1720 2929

BELGIUM

HDI-Gerling Assurances S. A. Avenue de Tervuren 273 B1 1150 Brussels Telephone +32 2 7730-811 Fax +32 2 7730-950

BERMUDA

Hannover Life Reassurance Bermuda Ltd. Victoria Place, 2nd Floor 31 Victoria Street Hamilton, HM 10 P.O. Box 2373 Hamilton, HM JX Telephone +1 441 2952827 Fax +1 441 2952844

Hannover Re (Bermuda) Ltd. Victoria Place, 2nd Floor 31 Victoria Street Hamilton, HM 10 Telephone +1 441 2943110 Fax +1 441 2967568

BRAZIL

Hannover Rück SE Escritório de Representação no Brasil Ltda. Praça Floriano, 19/1701 CEP 20 031 050 Rio de Janeiro Telephone +55 21 2217 9500 Fax +55 21 2217 9515

HDI Seguros S. A. Avenida Eng. Luís Carlos Berrini 901–8° andar 04571-010 São Paulo-SP Telephone +55 11 5508-1302 Fax +55 11 5505-1511

BULGARIA

HDI Zastrahovane AD G.S. Rakovski No 99 1000 Sofi a Telephone +359 2 930-9050 Fax +359 2 987-9167

CANADA

Hannover Rück SE Canadian Branch – Chief Agency 3650 Victoria Park Avenue, Suite 201 Toronto, Ontario M2H 3P7 Telephone +1 416 496-1148 Fax +1 416 496-1089

Hannover Rück SE Canadian Branch – Non-Life Offi ce 130 King Street West, Suite 2125 Toronto, Ontario M5X 1A4 Telephone +1 416 867-9712 Fax +1 416 867-9728

291 Important addresses 296 Glossary and defi nition of key fi gures 301 List of diagrams and tables 304 Index of key terms

140 CONSOLIDATED FINANCIAL STATEMENTS 290 FURTHER INFORMATION

HDI-Gerling Industrie Versicherung AG Canada Branch 181 University Avenue, Suite 1900 Toronto, Ontario M5H 3M7 Telephone +1 416 368-5833 Fax +1 416 368-7836

CHILE

HDI Seguros S. A. Encomenderos 113 Piso 10 – Las Condes/Santiago Telephone +56 2 422 9001 Fax +56 2 232 8209

CHINA

Hannover Rück SE Hong Kong Branch 2008 Sun Hung Kai Centre 20th Floor 30 Harbour Road Wan Chai, Hong Kong Telephone +852 2519 3208 Fax +852 2588 1136

Hannover Rück SE Shanghai Branch Suite 3307, China Fortune Tower 1568 Century Boulevard Pudong 200122 Shanghai Telephone +86 21 2035-8999 Fax +86 21 5820-9396

HDI-Gerling Industrie Versicherung AG Hong Kong Branch Room 5202, Central Plaza 18, Harbour Road, Wan Chai, Hong Kong Telephone +852 25 98-8338 Fax +852 25 98-8838

COLOMBIA

Hannover Rück SE Bogotá Representative Offi ce Carrera 9 No. 77 – 67 Floor 5 Bogotá Telephone +57 1 6420066 Fax +57 1 6420273

CZECH REPUBLIC

HDI Versicherung AG Czech Republic Branch Jugoslávská 29 120 00 Prague 2 Telephone +420 2 2019 0210 Fax +420 2 2019 0299

DENMARK

HDI-Gerling Verzekeringen N. V. Denmark Branch Indiakaj 6, 1. Sal 2100 Copenhagen Telephone +45 3336-9595 Fax +45 3336-9596

FRANCE

Hannover Rück SE Succursale Française 109 rue de la Boetie (Entrance: 52 avenue de Champs Elysées) 75008 Paris Telephone +33 1 4561 73-00 (life) Telephone +33 1 4561 73-40 (non-life) Fax +33 1 4561 73-50

HDI-Gerling Industrie Versicherung AG France Branch Tour Opus 12 – La Défense 9 77 Esplanade du Général de Gaulle 92914 Paris La Défense Cedex Telephone +33 1 44 0556-00 Fax +33 1 44 0556-66

GERMANY

¡ Ampega Investment GmbH ¡ Talanx Asset Management GmbH ¡ Talanx Immobilien Management GmbH

Charles-de-Gaulle-Platz 1 50679 Cologne Telephone +49 221 790799-0 Fax +49 221 790799-999 ¡ E+S Rückversicherung AG ¡ Hannover Rück SE Karl-Wiechert-Allee 50 30625 Hannover Telephone +49 511 5604-0 Fax +49 511 5604-1188

¡ HDI Versicherung AG

¡ HDI Vertriebs AG ¡ HDI-Gerling Industrie Versicherung AG HDI-Platz 1 30659 Hannover Telephone +49 511 645-0 Fax +49 511 645-4545

¡ HDI Lebensversicherung AG ¡ HDI Pensionsfonds AG ¡ HDI Pensionskasse AG Charles-de-Gaulle-Platz 1 50679 Cologne Telephone +49 221 144-0 Fax +49 221 144-3833

HDI-Gerling Sicherheitstechnik GmbH HDI-Platz 1 30659 Hannover Telephone +49 511 645-4126 Fax +49 511 645-4545

neue leben Versicherungen Sachsenstraße 8 20097 Hamburg Telephone +49 40 23891-0 Fax +49 40 23891-333

PB Versicherungen Proactiv-Platz 1 40721 Hilden Telephone +49 2103 34-5100 Fax +49 2103 34-5109

Talanx AG Riethorst 2 30659 Hannover Telephone +49 511 3747-0 Fax +49 511 3747-2525 ¡ Talanx Deutschland AG ¡ Talanx International AG ¡ Talanx Service AG ¡ Talanx Systeme AG HDI-Platz 1 30659 Hannover Telephone +49 511 645-0 Fax +49 511 645-4545

Talanx Pensionsmanagement AG Christophstraße 2 – 12 50670 Cologne Telephone +49 221 144-1 Fax +49 221 144-6069351

Talanx Reinsurance Broker GmbH HDI-Platz 1 30659 Hannover Telephone +49 511 54223-0 Fax +49 511 54223-200

TARGO Versicherungen Proactiv-Platz 1 40721 Hilden Telephone +49 2103 34-7100 Fax +49 2103 34-7109

GREECE

HDI-Gerling Industrie Versicherung AG Greece Branch 11 Omirou & 1 Vissarionos Street 10672 Athens Telephone +30 210 7259-181 Fax +30 210 7259-177

HUNGARY

HDI Versicherung AG Hungary Branch Dohány u. 12 – 14 1074 Budapest Telephone +36 1 2482-820 Fax +36 1 2482-829

¡ Magyar Posta Életbiztosító Zrt. ¡ Magyar Posta Biztosító Zrt. Bégutca 3 – 5 1022 Budapest Telephone +36 1 4234-200 Fax +36 1 4234-210

INDIA

Hannover Re Consulting Services India Private Limited C & B Square, Sangam Complex Unit 502, 5th Floor Andheri-Kurla Rd. Andheri (East) Mumbai 400 059 Telephone +91 22 613808-08 Fax +91 22 613808-10

Magma HDI General Insurance Company Limited 24, Park Street Park Centre Building, 4th Floor Kolkata – 700 016 Telephone +91 33 4401 7409 Fax +91 33 4401 7471

IRELAND

Hannover Re (Ireland) Limited No. 4 Custom House Plaza, IFSC Dublin 1 Telephone +353 1 633-8800 Fax +353 1 633-8806

HDI-Gerling Industrie Versicherung AG Ireland Branch Merrion Hall Strand Road Sandymount Dublin 4 Telephone +353 1 299-4622

Talanx Reinsurance (Ireland) Limited 28/32 Pembroke Street Upper Dublin 2 Telephone +353 1 234-2681 Fax +353 1 234-2400

ITALY

Hannover Re Services Italy Srl Via Dogana, 1 20123 Milan Telephone +39 02 8068 1311 Fax +39 02 8068 1349

HDI Assicurazioni S. p. A. Via Abruzzi 10 00187 Rome Telephone +39 06 42103-1 Fax +39 06 42103-500

HDI-Gerling Industrie Versicherung AG Italy Branch Via Franco Russoli, 5 20143 Milan Telephone +39 02 83113-400 Fax +39 02 83113-202

JAPAN

Hannover Re Services Japan 7th Floor, Hakuyo Building 3 – 10 Nibancho Chiyoda-ku Tokyo 102-0084 Telephone +81 3 5214-1101 Fax +81 3 5214-1105

HDI-Gerling Industrie Versicherung AG Japan Branch Sanbancho KS Building 7F 2 Banchi, Sanbancho, Chiyoda-ku Tokyo 102-0075 Telephone +81 3 5214-1361 Fax +81 3 5214-1365

KOREA

Hannover Rück SE Korea Branch Room 414, 4th Floor Gwanghwamoon Offi cia Building 92 Seamunan-ro, Seoul 110-999 Telephone +82 2 3700 0600 Fax +82 2 3700 0699

140 CONSOLIDATED FINANCIAL STATEMENTS 290 FURTHER INFORMATION

296 Glossary and defi nition of key fi gures 301 List of diagrams and tables 304 Index of key terms

291 Important addresses

LUXEMBOURG

HDI-Gerling Assurances S. A. Luxembourg Rue du Château d'Eau, 2–4 3364 Leudelange Telephone +352 46 36 40 Fax +352 46 36 44

Talanx Finanz (Luxembourg) S. A. 5, Rue Eugène Ruppert 2453 Luxembourg Telephone +35 224-1842 Fax +35 224-1853

MALAYSIA

Hannover Rueck SE Malaysian Branch Suite 31-1, 31st Floor Wisma UOA II No. 21 Jalan Pinang 50450 Kuala Lumpur Telephone +60 3 2687 3600 Fax +60 3 2687 3760

MEXICO

Hannover Services (México) S. A. de C. V. German Centre, Ofi cina 4-4-28 Av. Santa Fé No. 170 Col. Lomas de Santa Fé C.P. 01210 México, D.F. Telephone +52 55 9140 0800 Fax +52 55 9140 0815

HDI-Gerling de México Seguros S. A. Av. Paseo de las Palmas N. 239 – 104 Col. Lomas de Chapultepec 11000 México, D.F. Telephone +52 55 5202-7534 Fax +52 55 5202-9679

HDI Seguros S. A. de C. V. Paseo de los Insurgentes 1701 Infonavit CP 37306 Col. Granada León, Guanajuato Telephone +52 477 7104782 Fax +52 477 7104786

NETHERLANDS

HDI-Gerling Industrie Versicherung AG Directie voor Nederland Westblaak 14 3012 KL Rotterdam Telephone +31 10 4036-100 Fax +31 10 4036-275

NORWAY

HDI-Gerling Industrie Versicherung AG Norway Branch C. J. Hambros plass 2D 0164 Oslo Telephone +47 232 136-50 Fax +47 232 136-51

POLAND

Towarzystwo Ubezpieczeń na Życie "WARTA" S. A. ul. Chmielna 85/87 00-805 Warsaw Telephone +48 22 534 1100 Fax +48 22 534 1300

Towarzystwo Ubezpieczeń i Reasekuracji "WARTA" S. A. ul. Chmielna 85/87 00-805 Warsaw Telephone +48 22 534 1100 Fax +48 22 534 1300

TU Europa S. A. ul. Gwiaździsta 62 53-413 Wrocław Telephone +48 71 3692 777 Fax +48 71 3692 797

RUSSIA

OOO Strakhovaya Kompaniya "C i V Life" Obrucheva street 30/1, bld. 1 Moscow, 117485 Telephone +7 495 967 9 267 Fax +7 495 967 9 260

OOO Strakhovaya Kompaniya "HDI Strakhovanie" Obrucheva street 30/1, bld. 2 Moscow, 117485 Telephone +7 495 967 9 257 Fax +7 495 967 9 260

SINGAPORE

HDI-Gerling Industrie Versicherung AG Singapore Branch 30 Cecil Street # 11-01/02 Prudential Tower Singapore 049712 Telephone +65 6922 9522 Fax +65 6536 8085

SLOVAK REPUBLIC

HDI Versicherung AG Slovak Republic Branch Obchodná 2 811 06 Bratislava Telephone +421 2 5 710 8611 Fax +421 2 5 710 8618

SOUTH AFRICA

Compass Insurance Company Limited P. O. Box 37226 Birnam Park 2015 Johannesburg Telephone +27 11 7458-333 Fax +27 11 7458-444

• ¡ Hannover Life Reassurance Africa Limited
• ¡ Hannover Reinsurance Africa Limited
• ¡ Hannover Reinsurance Group Africa (Pty) Ltd. P. O. Box 85321 Emmarentia 2029 Johannesburg Telephone +27 11 481-6500 Fax +27 11 484-3330/32

HDI-Gerling Insurance of South Africa Ltd. P. O. Box 66 Saxonwold 2132 South Africa Telephone +27 11 340-0100 Fax +27 11 447-4981

<-- PDF CHUNK SEPARATOR -->

SPAIN

HDI HANNOVER INTERNATIONAL (España) Cía de Seguros y Reaseguros S. A. c/Luchana, 23–5° 28010 Madrid Telephone +34 91 444-2000 Fax +34 91 444-2019

HDI HANNOVER International (España) Cía de Seguros y Reaseguros S. A. Avda. Diagonal n° 640 2a 08017 Barcelona Telephone +34 93 272 10-00 Fax +34 93 238 76-70

HR Hannover Re, Correduría de Reaseguros, S. A. Paseo del General Martínez Campos 46 28010 Madrid Telephone +34 91 319-0049 Fax +34 91 319-9378

SWEDEN

Hannover Rück SE, Tyskland Filial Hantverkargatan 25 P. O. Box 22085 10422 Stockholm Telephone +46 8 617 5400 Fax +46 8 617 5597 (life) Fax +46 8 617 5593 (non-life)

SWITZERLAND

HDI-Gerling Industrie Versicherung AG Switzerland Branch Dufourstrasse 46 8008 Zurich Telephone +41 44 265-4747 Fax +41 44 265-4748

TAIWAN

Hannover Rück SE Taipei Representative Offi ce Rm. 902, 9F, No. 129, Sec. 3 Misheng E. Road Taipei Telephone +886 2 8770-7792 Fax +886 2 8770-7735

TURKEY

HDI Sigorta A. Ş. Büyükdere Caddesi Tatlısu Mahallesi Arif Ay Sokak HDI Sigorta Binası No: 6 34774 Ümraniye/Istanbul Telephone +90 212 368-6000 Fax +90 212 368-6010

UKRAINE

HDI Strakhuvannya 102, Chervonoarmiyska Str. 03150 Kiev Telephone +38 44 247 4477 Fax +38 44 529 0894

UNITED KINGDOM

Hannover Re UK Life Branch 10 Fenchurch Street London EC3M 3BE Telephone +44 20 3206-1700 Fax +44 20 3206-1701

HDI-Gerling Industrie Versicherung AG United Kingdom Branch 10 Fenchurch Street London EC3M 3BE Telephone +44 20 7696-8099 Fax +44 20 7696-8444

International Insurance Company of Hannover Plc 10 Fenchurch Street London EC3M 3BE Telephone +44 20 7015-4000 Fax +44 20 7015-4001

Hannover Services (UK) Limited 10 Fenchurch Street London EC3M 3BE Telephone +44 20 7015-4290 Fax +44 20 7015-4001

URUGUAY

HDI Seguros S. A. Misiones 1549 CP 11000 Montevideo Telephone +598 2916 0850 Fax +598 2916 0847

USA

Hannover Life Reassurance Company of America 200 South Orange Avenue Suite 1900 Orlando, FL 32801 Telephone +1 407 649-8411 Fax +1 407 649-8322

Charlotte Offi ce 13840 Ballantyne Corporate Place, Suite 400 Charlotte, North Carolina 28277 Telephone +1 704 731-6300 Fax +1 704 542-2757

Denver Offi ce 1290 Broadway, Suite 1600 Denver, Colorado 80203 Telephone +1 303 860-6011 Fax +1 303 860-6032

New York Offi ce 112 Main Street East Rockaway, New York 11518 Telephone +1 516 593-9733 Fax +1 516 596-0303

Hannover Re Services USA, Inc. 500 Park Blvd., Suite 805 Itasca, IL 60143 Telephone +1 630 250-5517 Fax +1 630 250-5527

HDI-Gerling America Insurance Company 161 North Clark Street, 48th Floor Chicago, IL 60601 Telephone +1 312 580-1900 Fax +1 312 580-0700

VIETNAM

PVI Insurance Corporation Lot VP2, Yen Hoa Cau Giay District Hanoi Telephone +84 43 733 5588 Fax +84 43 733 6284

140 CONSOLIDATED FINANCIAL STATEMENTS 290 FURTHER INFORMATION

291 Important addresses 296 Glossary and defi nition of key fi gures 301 List of diagrams and tables 304 Index of key terms

GLOSSARY AND DEFINITION OF KEY FIGURES

ACCUMULATION RISK

Underwriting risk that a single trigger event (e.g. an earthquake or hurricane) can lead to an accumulation of claims within a > portfolio.

ACQUISITION COSTS (LIFE) AS A PERCENTAGE OF PREMIUM INCOME FROM NEW BUSINESS

(Net) cost of acquiring new business in proportion to the premium income obtained from that business.

ACQUISITION COSTS, DEFERRED (ALSO: ACQUISITION EXPENSES)

Costs/expenses incurred by an insurance company when insurance policies are taken out or renewed (e.g. new business commission, costs of proposal assessment or underwriting). The capitalisation of acquisition costs causes costs to be distributed over the policy period.

ACQUISITION COST RATIO

• a) gross: cost (gross) of acquiring new business in proportion to the gross premium earned, including savings elements under unit-linked life/annuity insurance.
• b) net: cost (net) of acquiring new business in proportion to the net premium earned, not including savings elements under unit-inked life/annuity insurance.

ACQUISITION EXPENSES

Acquisition costs, deferred

ADMINISTRATIVE EXPENSES

Costs of current administration connected with the production of insurance coverage.

ADMINISTRATIVE EXPENSE RATIO

• a) gross: cost (gross) of running in-force business in proportion to the premium earned, including savings elements under unit-linked life/annuity insurance.
• b) net: cost (net) of running in-force business in proportion to the premium earned, not including savings elements under unit-linked life/annuity insurance.

ANNUAL PREMIUM EQUIVALENT – APE

Industry standard for measuring new business income in life insurance.

ASSET CLASS

The capital market is divided into diff erent classes of fi nancial instruments, which are subject to similar risk factors. These include, for example, shares, bonds, real estate, energy and commodities.

ASSET MANAGEMENT

Supervision and management of investments according to risk and return considerations.

ASSETS UNDER OWN MANAGEMENT

Investments that do not come from either investment contracts or funds withheld by ceding companies in insurance business. They are generally acquired or sold independently by Group companies at their own risk and are managed either by the company or by an investment company on the company's behalf.

ASSOCIATED COMPANY

Company included in the consolidated fi nancial statements not through full or proportionate consolidation but normally using the > equity method and over whose business or company policy a company included in the consolidated fi nancial statements exerts a signifi cant infl uence.

B2B

Exchange of goods, services and information between companies.

BANCASSURANCE

Partnership between a bank/postal service partner and an insurance company for the purpose of selling insurance products through the banking/postal service partner's branches. The linkage between insurer and bank often takes the form of a capital participation or a long-term strategic cooperation between the two partners.

BENEFIT RESERVE

Value arrived at using mathematical methods for future liabilities (present value of future liabilities minus present value of future incoming premiums), especially in life and health insurance.

CARRYING AMOUNT PER SHARE

This key fi gure states the amount of equity per share attributable to shareholders.

CASH FLOW

Surplus of cash and cash equivalents generated by a company in a certain period, contrasting income and expenses and used to assess the company's fi nancial structure.

CASH FLOW STATEMENT

Statement on the origin and utilisation of cash and cash equivalents during the accounting period. It shows the changes in assets and capital. > Cash fl ow

CATASTROPHE BOND

(ALSO: CAT BOND)

Instrument used to transfer catastrophe risks of a (re)insurer to the capital market.

CEDANT (ALSO: CEDING COMPANY)

Primary insurer or reinsurer that passes on (cedes) shares of its insured risks to a reinsurer in exchange for a premium.

CESSIONARY

Reinsurer of the primary insurer.

COINSURANCE FUNDS WITHHELD TREATY

Type of coinsurance contract where the ceding company retains a portion of the original premium at least equal to the ceded reserves. As with a > modifi ed coinsurance (ModCo) treaty, interest payments to the reinsurer represent the amount invested in the underlying securities portfolio.

COMBINED RATIO

Sum of the > loss ratio and > expense ratio (net) after allowance for interest income on funds withheld and contract deposits, as a proportion of net premium earned. In the calculation of the adjusted combined ratio, the interest income on funds withheld and contract deposits is off set against the losses and loss adjustment expenses. This ratio is used by both property/casualty insurers and non-life reinsurers.

COMMISSION

Remuneration paid by a primary insurer to agents, brokers and other professional intermediaries.

COMPLIANCE

Statutory regulations and undertaking-specifi c rules governing the responsible and lawful actions of an undertaking and its employees.

CONSOLIDATION

In accounting practice: combining of the individual fi nancial statements of several companies belonging to one group into consolidated fi nancial statements. In so doing, internal transactions within the group are eliminated.

CORPORATE GOVERNANCE

System that serves to ensure responsible management and supervision of enterprises and is intended to foster the trust of investors, clients, employees and the general public in companies.

CREDIT STATUS

Creditworthiness. Ability of a debtor to meet its payment commitments.

DEFERRED TAXES

Term denoting the diff erence between the taxes calculated on the profi t reported according to the commercial balance sheet/IFRS reporting standards and those carried in the tax balance sheet, which then evens out subsequently. Deferred taxes are recognised in order to off set this diff erence in those cases where it is evident that it will be eliminated over time.

DEPOSIT ACCOUNTING

An accounting method for the recognition of shortterm and multi-year insurance and reinsurance contracts with no signifi cant underwriting risk transfer.

DERIVATIVE

Financial products derived from underlying primary instruments such as equities, fi xed-income securities and foreign exchange instruments, the fair value of which is determined inter alia on the basis of the underlying security or reference asset. Derivatives include > swaps, options and futures.

DIRECT INSURER

Primary insurer

DISPOSABLE PROFIT

Net income for the fi nancial year less contribution to other revenue reserves plus retained profi ts brought forward.

DIVIDEND YIELD

Percentage of interest payable on the capital bound up in a share. This yield indicator is calculated by dividing the dividend by the current share price and multiplying the result by 100.

DUE DILIGENCE AUDIT

Auditing of a participating interest in the run-up to an acquisition or merger. It encompasses, in particular, a systematic analysis of the strengths and weaknesses of the proposition, analysis of the risks associated with the acquisition and a well-founded valuation of the item in question.

DURATION

Ratio in investment mathematics that shows the average capital commitment period of an investment in bonds respectively its interest rate sensitivity. The "Macaulay duration" is the capital-weighted average number of years in which a bond will provide payments. The "modifi ed duration", on the other hand, shows the change in present value of a bond in the event of a change in interest rates and is thus a measure of the interest rate risk associated with a fi nancial instrument.

EARNED PREMIUM

Proportion of written premium attributable to the insurance protection in the fi nancial year.

EARNINGS PER SHARE, DILUTED

Ratio calculated by dividing the Group net income attributable to shareholders of Talanx AG by the average weighted number of shares in circulation. Diluted earnings per share take into account subscription rights that have been exercised or that have not yet been exercised when calculating the number of shares.

EBIT

Earnings before interest and tax; at the Talanx Group identical to > operating profi t/loss.

EMBEDDED VALUE

Refers to the value of an insurance portfolio. The term comprises the present value of future net income for shareholders from the insurance portfolio including capital gains and the value of shareholders' equity after deduction of cost of capital.

EQUALISATION RESERVE

Provision constituted to off set signifi cant fl uctuations in the loss experience of individual lines over a number of years. Under IFRS, this is recognised within shareholders' equity.

EQUITY

Shareholders' equity

EQUITY METHOD

Method of accounting used to measure a participating interest (> associated company) in the consolidated fi nancial statements, in which the carrying amount of the participating interest is carried on the consolidated balance sheet in line with the development of the pro rata amount of equity in the participation.

EXPENDITURES ON INSURANCE BUSINESS (ACQUISITION COSTS AND ADMINISTRATIVE EXPENSES)

Sum total of commissions, sales, personnel and material costs as well as regular administrative expenses.

EXPENSE RATIO

Ratio of acquisition costs and administrative expenses (net) to net premium earned.

EXPOSURE

Level of danger inherent in a risk or portfolio of risks.

EXTRAORDINARY INVESTMENT INCOME

Income from realised and unrealised gains and losses including write-ups and impairments/writedowns.

EXTRAORDINARY RESULT

Balance of expenses and income that are not allocable to ordinary activities, including for example adjustments to the provisions for pensions in accordance with the German Accounting Law Modernisation Act (BilMoG).

FACULTATIVE REINSURANCE

Participation on the part of the reinsurer in a particular individual risk assumed by the primary insurer. Opposite: > obligatory reinsurance

FAIR VALUE

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

FOR OWN ACCOUNT (ALSO: NET)

In insurance: after deduction of > passive reinsurance.

FREE FLOAT

Shareholdings distributed among several, usually smaller, investors.

291 Important addresses 296 Glossary and defi nition of key fi gures 301 List of diagrams and tables 304 Index of key terms

FUNDS HELD BY CEDING COMPANIES/ FUNDS HELD UNDER REINSURANCE TREATIES

Collateral provided to cover insurance liabilities which an insurer retains from the liquid funds which it is to pay to a reinsurer under a reinsurance treaty. In this case, the insurer shows funds held under a reinsurance treaty, while the reinsurer shows funds held by a ceding company. Interest is payable on such funds held.

GIIPS COUNTRIES

Acronym that refers to the five Euro countries Greece, Italy, Ireland, Portugal and Spain.

GOODWILL

The amount that a purchaser is prepared to pay – in light of future profi t expectations – above and beyond the value of all tangible and intangible assets after deduction of liabilities.

GROSS

In insurance: before deduction of > passive reinsurance.

HARD MARKET

Market phase during which premium levels are typically high. Opposite: > soft market

HYBRID CAPITAL

Capital in the form of subordinated debt and surplus debenture that exhibits a hybrid character of equity and debt.

IMPAIRMENT

Unscheduled write-down taken if the present value of the estimated future cash fl ows of an asset falls below the carrying amount.

INCURRED BUT NOT REPORTED (IBNR)

Provisions for losses that have already occurred but have not yet been reported.

INSURANCE-LINKED SECURITIES – ILS

Financial instruments used to securitise risks under which the payment of interest and/or nominal value is dependent upon the occurrence and magnitude of an insured event.

INTERNATIONAL FINANCIAL REPORTING STANDARDS – IFRS

International accounting standards formerly known as IAS (International Accounting Standards), applied at Talanx since 2004.

INVESTMENT GRADE

Rating of BBB or better awarded to an entity on account of its low risk of default. > Credit status

INVESTMENTS UNDER INVESTMENT CONTRACTS

Investment contracts with no discretionary surplus participation that do not involve any signifi cant underwriting risk and are recognised in accordance with the provisions of IAS 39 "Financial Instruments: Recognition and Measurement".

ISSUER

Public entity or private enterprise that issues securities, e.g. a joint-stock corporation in the case of shares or the federal government in the case of German government bonds.

LAPSE RATE FOR LIFE INSURANCE PRODUCTS

Sum of cancelled policies and other premature withdrawals in relation to the average business in force (GDV index).

LETTER OF CREDIT – LOC

Bank guarantee. In the USA, for example, a common way of furnishing collateral in reinsurance business.

LIFE INSURANCE

Collective term covering those types of insurance which are concerned in a broader sense with risks associated with the uncertainties of life expectancy and life planning. These include death and disability, retirement provision as well as marriage and education.

LIFE/HEALTH INSURANCE (ALSO: PERSONAL LINES)

Lines of business concerned with the insurance of persons, i.e. life, annuity, health and personal accident.

LONG-TERM FINANCIAL ASSETS

Shares in affi liated companies, loans to affi liated companies, other long-term equity investments and long-term securities.

LOSS RATIO

Net loss ratio shown in the balance sheet: percentage ratio of claims expenditure (net) including other technical income (net) – including amortisation of the shareholders' portion of the PVFP – to net premium earned. > PVFP

LOSS RATIO FOR PROPERTY/ CASUALTY INSURANCE PRODUCTS

• a) Gross: sum of the (gross) losses and loss adjustment expenses and the (gross) other technical
• result as a proportion of gross premium earned. b) Net: sum of the (net) losses and loss adjustment
• expenses and the (net) other technical result as a proportion of net premium earned.

MAJOR CLAIM (ALSO: MAJOR LOSS)

Claim that reaches an exceptional amount compared with the average claim for the risk group in question and exceeds a defi ned claims amount. Until 2011, this was defi ned as natural catastrophes and other major losses over EUR 5 million gross (reinsurance, industrial liability insurance, industrial fi re insurance), over EUR 2.5 million gross (industrial marine insurance, industrial engineering insurance) and over EUR 1 million gross (all other lines) for the portion of the Talanx Group. Since 2012, a major claim has been defi ned as natural catastrophes and other major losses over EUR 10 million gross for the portion of the Talanx Group.

MARKET CONSISTENT EMBEDDED VALUE – MCEV

A special method of valuing life insurance companies or life/health insurance portfolios, which can be used to show the long-term nature of life insurance business and the associated risks. In particular, the use of calculation methods that are consistent with the market aims to ensure better comparability. A valuation that is consistent with the market is obtained by using risk-neutral assumptions with regard to expected capital gains and the discounting method. The swap curve is also introduced as a risk-neutral interest structure

MATCHING CURRENCY COVER

Coverage of technical liabilities in foreign currencies by means of corresponding investments in the same currency in order to avoid exchange-rate risks.

MODIFIED COINSURANCE (MODCO) TREATY

Type of reinsurance treaty where the ceding company retains the assets supporting the reinsured reserves by withholding a fund, thereby creating an obligation to render payments to the reinsurer at a later date. The payments include a proportionate share of the gross premium and income from securities.

MORBIDITY

Incidence rate of disease relative to a given population group.

MORTALITY

Proportion of the total population dying within a given time interval.

NET

In insurance: after deduction of > passive reinsurance.

NET EXPENDITURE ON INSURANCE CLAIMS

Total of claims paid and provisions for loss events that have occurred during the fi nancial year, plus the result from processing provisions for loss events from previous years, in each case after deduction of own reinsurance fi gures.

NET INCOME FOR THE FINANCIAL YEAR

Result from ordinary activities plus the extraordinary result less taxes.

NET INCOME FROM PARTICIPATIONS

Income from long-term equity investments and profi t transfers less expenses from losses absorbed from subsidiaries.

NET INTEREST INCOME

Balance of interest income and interest expenses.

NET RETURN ON INVESTMENTS

Net investment income, not including interest income on funds withheld and contract deposits and not including income from > investments under investment contracts, in relation to the average investments under own management.

NET TECHNICAL EXPENSES

Claims and claims expenses, acquisition costs and administrative expenses and other technical expenses, each after taking into account reinsurance recoverables.

NON-PROPORTIONAL REINSURANCE

Reinsurance treaty under which the reinsurer assumes the loss expenditure or sum insured in excess of a defi ned amount. Opposite: > proportional reinsurance

OBLIGATORY REINSURANCE

Reinsurance treaty under which the reinsurer participates in a total, precisely defi ned insurance portfolio of a > cedant. Opposite: > facultative reinsurance.

OPERATING PROFIT/LOSS (EBIT)

Sum of the net investment income, underwriting result and other income and expenses before interest for other debt capital borrowed for fi nancing purposes (fi nancing costs) and before tax (taxes on income).

OTC

Over the counter. In the case of securities: not traded on a stock exchange.

OTHER OPERATING EXPENSES AND WRITE-DOWNS

Expenses for ordinary activities, e.g. personnel and material expenses, amortisation, depreciation and write-downs, realised losses on investments, foreign exchange losses, expenses for services.

PASSIVE REINSURANCE

Existing reinsurance programmes of > primary insurers for their own protection against underwriting risks.

PAYOUT RATE

The percentage of net income for the year paid out by stock corporations to their shareholders in the form of dividends.

PERSONAL LINES

Life/health insurance

POLICYHOLDERS' SURPLUS

Total amount of

• a) shareholders' equity excluding non-controlling interests, which is comprised of the common shares, additional paid-in capital, retained earnings and cumulative other comprehensive income,
• b) the non-controlling interests in shareholders' equity and
• c) so-called hybrid capital, as equity-replacing debt capital that encompasses the subordinated liabilities.

PORTFOLIO

• a) All risks assumed by a > primary insurer or > reinsurer as a totality or in a defi ned segment.
• b) Group of investments categorised according to specifi c criteria.

PREMIUM

Agreed compensation for the risks accepted by the insurer.

PRESENT VALUE OF FUTURE PROFITS – PVFP

Intangible asset primarily arising from the purchase of life and health insurance companies or individual portfolios. The present value of expected future profi ts from the portfolio assumed is capitalised and amortised according to schedule. Impairments are taken on the basis of annual impairment tests.

PRIMARY (ALSO: DIRECT) INSURER

Company which accepts risks in exchange for an insurance premium and which has a direct contractual relationship with the policyholder (private individual, company, organisation).

PRIVATE EQUITY

Investment capital raised by private investors.

PROJECTED BENEFIT OBLIGATION

The present value of the earned portion of commitments from a defi ned benefi t obligation.

PROPERTY/CASUALTY INSURANCE

All insurance classes with the exception of life insurance and health insurance: all lines in which the insured event does not trigger payment of an agreed fi xed amount, but rather the incurred loss is reimbursed.

PROPORTIONAL REINSURANCE

Reinsurance treaties on the basis of which shares in a risk or portfolio are reinsured under the prevailing original conditions. Premiums and losses are shared proportionately on a pro-rata basis. Opposite: > nonproportional reinsurance.

PROVISION

Liability item as at the balance sheet date to discharge obligations which exist but whose extent and/or due date is/are not known. Technical provisions, for example, are for claims which have already occurred but which have not yet been settled, or have only been partially settled (= provision for outstanding claims, abbreviated to: loss reserve).

PURCHASE COST, AMORTISED

Cost of acquiring an asset item including all ancillary and incidental purchasing costs; in the case of wasting assets less scheduled and/or unscheduled amortisation.

QUOTA SHARE REINSURANCE

Form of reinsurance under which the percentage share of the written risk and the premium are contractually agreed.

RATE

Percentage (normally applied to the subject premium) of a reinsured portfolio which under a > non-proportional reinsurance treaty produces the reinsurance premium payable to the reinsurer.

RATING

Systematic evaluation of securities issuers by an independent specialist agency with respect to their > credit status.

REINSURER

Company that accepts risks or portfolio segments from a > primary insurer or another reinsurer in exchange for an agreed premium.

RENEWAL

Contractual relationships with insurers are maintained over long periods of time. The treaty terms and conditions are normally modifi ed annually in so-called renewal negotiations, and the treaties are renewed accordingly.

RESULT FROM ORDINARY ACTIVITIES

Profi t or loss for the period before the extraordinary result and before taxes.

RETAIL BUSINESS

a) In general: business with private customers.

b) Ampega: business involving investment funds that are designed essentially for private, noninstitutional investors, although such funds are also open for investments of Group companies.

RETENTION

The part of the accepted risks which an insurer/a reinsurer does not reinsure, i.e. carries > net. Net written premium in relation to gross written premium (excluding savings elements of premiums under unit-linked life and annuity insurance policies).

RETROCESSION

Ceding by a reinsurer of its risks or shares in its risks to other reinsurers.

RISK MANAGEMENT SYSTEM

The complete set of rules and measures used to monitor and protect against risks.

SHAREHOLDERS' EQUITY (ALSO: EQUITY)

Funds provided by the owners of an enterprise for its internal fi nancing or left within the company as earned profi t (realised/unrealised). The capital providers are entitled to a share of the profi t, e.g. in the form of a dividend, in return for making the shareholders' equity available. Shareholders' equity is liable for debts at a corporation.

SOFT MARKET

Market phase with oversupply of insurance, resulting in premiums that are not commensurate with the risk. Opposite: > hard market

SOLVENCY

Level of available unencumbered capital and reserves required to ensure that contracts can be fulfi lled at all times.

SOLVENCY II

Project of the European Commission to reform and harmonise European insurance regulations, particularly solvency regulations for equity resources of insurance companies.

SPECIALTY LINES

Specialty insurance for niche business such as nonstandard motor covers, fi ne arts insurance etc.

STRESS TEST

Form of scenario analysis used to be able to make quantitative statements about the loss potential of > portfolios in the event of extreme market fl uctuations.

SURPLUS PARTICIPATION

Legally required, annually determined participation of policyholders in the surpluses generated by life insurers.

SURVIVAL RATIO

Refl ects the ratio of loss reserves to claims paid under a policy or several policies in a fi nancial year.

SWAP

Agreement between two counterparties to swap payments at contractually defi ned conditions and times. Virtually any type of cash fl ow can be exchanged. This makes it possible to systematically hedge fi nancial risks associated with a portfolio or to add new risks to a portfolio in order to optimise returns.

TECHNICAL RESULT

underwriting result

UNDERLYING TRANSACTION

Underlying instrument of a forward transaction, futures contract or option contract that serves as the basis for settlement and measurement of the contract.

UNDERWRITING

Process of examining and assessing (re)insurance risks in order to determine a commensurate premium for the risk in question. The purpose of underwriting is to diversify the underwriting risk in such a way that it is fair and equitable for the (re)insured and at the same time profi table for the (re)insurer.

UNDERWRITING (ALSO: TECHNICAL) RESULT

Balance of income and expenditure allocated to the insurance business: balance of > net premium earned and claims and claims expenses (net), acquisition costs and administrative expenses (net) and other technical result (net), including amortisation of the shareholders' portion of the > PVFP but excluding consolidation diff erences from debt consolidation (technical). > PVFP

UNEARNED PREMIUM RESERVE

Premium written in a fi nancial year which is to be allocated to the following period on an accrual basis.

UNIT-LINKED LIFE INSURANCE

Life insurance under which the level of benefi ts depends on the performance of an investment fund allocated to the policy in question.

VALUE AT RISK

Risk measure to determine potential losses that with a certain probability will not be exceeded in a given period.

VOLATILITY

Measure of variability with respect to stock/bond prices, exchange rates and interest rates, and also insurance lines that can have a sharply fl uctuating claims experience.

LIST OF DIAGRAMS AND TABLES

COVER PAGES

1	Gross written premium	inside front cover
2	Segmental breakdown of gross premium	inside front cover
3	Return on equity	inside front cover
4	Operating profi t (EBIT)	inside front cover
5	EBIT by segment	inside front cover
6	Group key fi gures	inside cover
7	Segment Industrial Lines	inside cover
8	Segment Retail Germany	inside cover
9	Segment Retail International	inside cover
10	Segment Non-Life Reinsurance	inside cover
11	Segment Life/Health Reinsurance	inside cover
THE TALANX SHARE

12	Talanx share performance in index comparisons	40
13	Shareholding structure as at 31.12.2013	40
14	General information on Talanx shares	41

COMBINED MANAGEMENT REPORT

FOUNDATIONS OF THE GROUP

M1	Group structure	46
M2	Performance management cycle	49
M3	Reconciling net income for the year under IFRS with IVC	49
M4	Overview of management metrics in the
	Group segments and the Group	50

REPORT ON ECONOMIC POSITION

M5	Change in real gross domestic product	52
M6	Yields on 10-year government bonds 2013	53
M7	Gross written premium	55
M8	Operating profi t (EBIT)	55
M9	Group key fi gures	55
	M10 Management metrics	56
	M11 Management metrics in the Group	56
	M12 Segmental breakdown of gross premium	57
	M13 Essential key fi gures in the Industrial Lines segment	57
	M14 Management metrics	57
	M15 Management metrics in the Industrial Lines segment	58
	M16 Essential key fi gures in the Retail Germany segment	59
	M17 Management metrics	59
	M18 Management metrics in the Retail Germany segment	60
	M19 The Retail Germany segment at a glance	61
	M20 Essential key fi gures in the Retail International segment	61
	M21 Management metrics	61
	M22 Management metric in the Retail International segment	64
	M23 The Retail International segment at a glance	64
	M24 Essential key fi gures in the Non-Life Reinsurance segment	65
	M25 Management metrics	65
	M26 Management metrics in the Non-Life Reinsurance segment	66
	M27 Essential key fi gures in the Life and Health Reinsurance segment	66
	M28 Management metrics	66
	M29 Management metrics in the Life and
	Health Reinsurance segment	67
	M30 Asset structure over a multi-year period	69
	M31 Breakdown of the investment portfolio	70

	M32 Breakdown of the investment portfolio	71
	M33 Breakdown of assets under own management by asset class	71
	M34 Rating of fi xed-income securities	73
	M35 Development of net investment income	73
	M36 Breakdown of net investment income by Group segment	74
	M37 Capital structure over a multi-year period	75
	M38 Composition of insurance business gross provisions
	(after consolidation)	76
	M39 Composition of insurance business net provisions
	(after consolidation)	76
	M40 Gross provisions by segment (after consolidation)	76
	M41 Capital management process	78
	M42 Equity ratio	79
	M43 Other equity components and modifi ed equity ratio	80
	M44 Return on equity	80
	M45 Changes in shareholders' equity	81
	M46 Shareholders' equity by segment including
	non-controlling interests	81
	M47 Shareholders' equity and valuation reserves not
	recognised in the balance sheet	82
	M48 Summary of cash fl ows	82
	M49 Changes in strategic debt	83
	M50 Adjusted solvency	84
	M51 Financial strength ratings of the Talanx Group and its subgroups	84
	M52 Talanx primary Group companies	84
	M53 Issuer credit ratings	85
	M54 Balance sheet – assets	85
	M55 Balance sheet – liabilities	86
	M56 Statement of income (HGB)	87
	M57 Headcount by region	89
	M58 Headcount by part-time/full-time status in Germany	89
	M59 Headcount by gender in Germany	89
	OTHER REPORTS AND DECLARATIONS
	M60 Board remuneration model from 1 January 2011	101
	M61 Assessment basis/preconditions for payment of
	variable remuneration	103
	M62 Breakdown of pay-out variable remuneration	103
	M63 Total remuneration received by active members of the

Board of Management pursuant to DRS 17 (Amended in 2010) 106 M64 Cash remuneration actually accruing to active members of the Board of Management in the year under review 108 M65 Total expenses for share-based remuneration for members of the Board of Management 109 M66 Pension entitlements of active members of the Board of Management 110 M67 Individual remuneration of members of the Supervisory Board 112 M68 Management remuneration pursuant to IAS 24 114 M69 Group risk management system 117 M70 Orientation of the Talanx Group in the principal divisions

taking economic conditions into account 133

140 CONSOLIDATED FINANCIAL STATEMENTS AND NOTES 290 FURTHER INFORMATION

291 Important addresses 296 Glossary and defi nition of key fi gures 301 List of diagrams and tables

304 Index of key terms

CONSOLIDATED FINANCIAL STATEMENTS

	CONSOLIDATED FINANCIAL STATEMENTS OF TALANX AG
N1	Consolidated balance sheet – assets	142
N2	Consolidated balance sheet – liabilities	143
N3	Consolidated statement of income	144
N4	Consolidated statement of comprehensive income	145
N5	Changes in shareholders' equity	146
N6	Consolidated cash fl ow statement	148

NOTES

	ACCOUNTING POLICIES
N7	Eff ects on the consolidated balance sheet as at 1 January 2012	154
N8	Eff ects on the consolidated balance sheet
	as at 31 December 2012	154
N9	Eff ects on the consolidated statement of income 2012	154
	N10 Eff ects on earnings per share in 2012	155
	N11 Eff ects on the consolidated statement of the
	comprehensive income 2012	155
	N12 Eff ects on the contractual maturity of amortised costs and
	fair values of loans and receivables as at 31 December 2012	156
	N13 Eff ects on the contractual maturity of amortised costs and
	fair values of fi xed-income fi nancial assets available for sale
	as at 31 December 2012	156
	N14 Eff ects on the contractual maturity of amortised costs and
	fair value through profi t or loss as at 31 December 2012	156
	N15 Eff ects of the adjustment under IAS 19 on the consolidated
	balance sheet as at 31 December 2013	157
	N16 Eff ects of the adjustment under IAS 19 on the consolidated
	statement of income 2013	157
	N17 Eff ects of the adjustment under IAS 19 on earnings
	per share for the year 2013	157
	N18 Measurement models for determination of fair value	163
	N19 Exchange rates for our key foreign currencies	172
	SEGMENT REPORTING
	N20 Segment reporting. Balance sheet as at 31 December 2013	174
	N21 Segment reporting. Balance sheet as at 31 December 2013	176
	N22 Segment reporting. Statement of income for the period
	from 1 January to 31 December 2013	178
	N23 Investments under own management by geographical origin	180
	N24 Non-current assets by geographical origin	181
	N25 Gross written premium by geographical origin	182
	N26 Gross written premium by type and class of insurance	182
	CONSOLIDATION
	N27 Scope of consolidation	184
	NATURE OF RISKS ASSOCIATED WITH INSURANCE CONTRACTS AND
	FINANCIAL INSTRUMENTS
	N28 Classes of fi nancial instruments, balance sheet items and
	measurement bases	190
	N29 Retention ratio by segment in property/casualty insurance	191
	N30 Loss ratio by segment for own account	191

N31 Major losses (net) during the fi nancial year 192

	N32 Accumulation scenarios, including non-controlling
	interests, before tax	193
	N33 Loss and loss adjustment expense reserve	194
	N34 Premium by insurance type and segment	194
	N35 Retention ratio by segment in Life/Health Insurance	195
	N36 Benefi t reserve by region	197
	N37 Reinsurance recoverables on technical provisions by rating	199
	N38 Book values of fi nancial instruments associated with
	insurance contracts	199
	N39 Accounts receivable on insurance business that were overdue
	but not impaired as at balance sheet date	200
	N40 Analysis of individually impaired assets associated with
	insurance contracts	200
	N41 Impairment on accounts receivable from insurance business	201
	N42 Impairment rates	201
	N43 Annual default rates	201
	N44 Weighting of major asset classes	201
	N45 Scenarios depicting changes in the fair value of assets held
	by the Group as at balance sheet date	203
	N46 Investments	203
	N47 Credit VaR	204
	N48 GIIPS exposure in fi xed-income investments	206
	N49 Exposure to other government bonds	206
	N50 Exposure to Spanish banks	207
	N51 Cash fl ows and liquid funds from the insurance business	208
	NOTES ON THE CONSOLIDATED BALANCE SHEET – ASSETS
	N52 Segment breakdown of goodwill	209
N53	CGUS carrying goodwill	210
	N54 Key parameters for the property/casualty insurance segment	211
	N55 Key parameters for the Life Insurance segment	211
	N56 Information about scenarios that lead to a possible
	impairment of goodwill of individual CGUs	212
	N57 Changes in other intangible assets	213
	N58 PVPF for life primary insurance companies	214
	N59 PVFP by policy term	214
	N60 Non-controlling interests and policyholders' position	214
	N61 Investment property	215
	N62 Investments in affi liated companies and participating interests N63 Investments in associated companies and joint ventures	215 216
	N64 Loans and receivables	216
	N65 Contractual maturities	217
	N66 Rating structure of loans and receivables	217
	N67 Financial assets held to maturity	218
	N68 Contractual maturities	218
	N69 Rating structure of fi nancial assets held by maturity	218
	N70 Financial assets available for sale	219
	N71 Contractual maturities of fi xed-income securities	220
	N72 Rating structure of fi xed-income securities	220
	N73 Financial assets at fair value through profi t or loss	221
	N74 Contractual maturities of fi xed-income securities	222
	N75 Rating structure of fi xed-income securities	222
	N76 Classifi cation of other invested assets	222
	N77 Loans and receivables	223

	N78 Financial assets available for sale	223
	N79 Rating structure of other short-term investments	223
	N80 Classifi cation of investments under investment contracts	224
	N81 Contractual maturities	224
	N82 Rating structure	224
	N83 Contractual maturities	225
	N84 Contractual maturities	225
	N85 Rating structure	225
	N86 Fair value hierarchy	227
	N87 Reconciliation of fi nancial instruments (fi nancial assets)
	included in Level 3 at the beginning of reporting period
	with the values as at 31 December 2013	229
	N88 Reconciliation of fi nancial instruments (fi nancial liabilities)
	included in Level 3 at the beginning of reporting period
	with the values as at 31 December 2013	230
	N89 Eff ect on results of level 3 fi nancial instruments
	(fi nancial assets) measured at fair value	231
	N90 Eff ect on results of level 3 fi nancial instruments
	(fi nancial liabilities) measured at fair value	231
	N91 Other information about the measurement of level 3
	fi nancial instruments	232
	N92 Fair value hierarchy – fi nancial instruments not measured
	at fair value	233
N93	Derivative fi nancial instruments, by balance sheet item	234
	N94 Maturities of derivative fi nancial instruments	235
	N95 Netting arrangements	235
	N96 Changes in the reserve for cash fl ow hedges	236
	N97 Hedging instruments	236
	N98 Cash fl ows of forecast hedged transactions	237
	N99 Accounts receivable on insurance business	237
	N100 Deferred acquisition costs	238
	N101 Other assets	238
	N102 Changes in own-use real estate	238
	N103 Changes in plant and equipment	238
	N104 Sundry assets	239
	NOTES ON THE CONSOLIDATED BALANCE SHEET – LIABILITIES
	N105 Composition of shareholders' equity	239
	N106 Unrealised gains and losses included other reserves	240
	N107 Reconciliation items for non-controlling interests
	in shareholders' equity	240
	N108 Eff ects of fair value measurement on other
	comprehensive income	240
	N109 Change in policyholders' surplus	241
	N110 Composition of long-term subordinated debt	242
	N111 Fair values of subordinated liabilities measured at
	a mortised costs	243
	N112 Subordinated liabilities: Maturities	243
	N113 Unearned premium reserve	243
	N114 Benefi t reserve	244
	N115 Benefi t reserve	244
	N116 Loss and loss adjustment expense reserve	245
	N117 Net loss reserve and its run-off in the primary
	insurance segments, including Corporate operations	246
	N118 Net loss reserve and run-off in the Non-Life
	Reinsurance segment	247

N119 Reserve durations	248
N120 Provision for premium refunds	248
N121 Financing status of pension plans	250
N122 Defend benefi t obligation of the sub-portfolio exposed to risk	250
N123 Change in net debt and net asset value for the various
defi ned benefi t pension plans	251
N124 Portfolio structure of plan assets	251
N125 Assumptions for defi ned-benefi t obligations	252
N126 Eff ect of the change in actuarial assumptions	252
N127 Breakdown of provisions for taxes	252
N128 Sundry provisions in the amount of anticipated use	253
N129 Durations of sundry provisions	254
N130 Notes payable and loans	255
N131 Notes payable	255
N132 Fair value of notes payable and loans	255
N133 Notes payable and loans: Maturities	255
N134 Other liabilities	256
N135 Other liabilities (not including liabilities relating to
investment contracts): Maturities	256
N136 Other obligations measured at amortised cost: Maturities	257
N137 Financial assets classifi ed at fair value through profi t or
loss and derivatives: Maturities	257
N138 Balance sheet items deferred tax assets and deferred
tax liabilities	257
N139 Recognition of deferred tax assets and deferred tax liabilities	258
NOTES ON THE CONSOLIDATED STATEMENT OF INCOME
N140 Net premium earned	258
N141 Net investment income for reporting period	259
N142 Interest income from investments	261
N143 Net gains and losses from investments – reporting period	262
N143 Net gains and losses from investments – previous year	263
N144 Claims and claims expenses	264
N145 Acquisition costs and administrative expenses	266
N146 Composition of other income/expenses	267
N147 Taxes on income – actual and deferred	267
N148 Domestic/foreign breakdown of recognised tax
expenditure/income	268
N149 Reconciliation of expected and recognised income tax expenses 268
N150 Impaired loss carry forwards, temporary diff erences
and tax credits	269
OTHER INFORMATION
N151 Average annual number of staff employed	270
N152 Components of expenses for personnel	270
N153 Hannover Rück SE stock appreciation rights	272
N154 Details on the Talanx share awards	274
N155 Details on the Hannover Re share awards	275
N156 Earnings per share	275
N157 Contingent liabilities and other fi nancial commitments
from contracts, memberships and taxes	276
N158 Future leasing commitments	277
N159 Future rental income	277
N160 Shareholdings	279

291 Important addresses 296 Glossary and defi nition of key fi gures 301 List of diagrams and tables 304 Index of key terms

INDEX OF KEY TERMS

Acquisitions	48, 129, 131, 136	Major claims	2, 55, 57–60, 63, 65–66, 88, 134–135, 168, 192
Agents, independent	92, 130, 173		Market Consistent Embedded Value (MCEV) 51, 120, 124, 196, 210, 211–212
Ampega	38, 46 68, 92, 118, 173, 270
Appropriation of disposable profi ts	11, 88, 96	Natural catastrophes	53, 57, 59–60, 65, 187, 192–193
Asset management	78, 92, 149, 173	Net income (Group)	47, 50, 55–56, 58, 60, 63–64, 66–68,
Asset/liability management (ALM)	70, 77		80, 88, 101, 111, 115
		New business	50, 55, 59–62, 102, 123–124, 128, 130, 134–135
Bancassurance	29–31, 138–139, 173, 211	Non-Life Reinsurance	45–46, 56–57, 65–66, 73, 77, 133, 135
Bonds	47, 51–53, 72, 75, 80–83, 86, 98, 190, 205–207, 242, 255
Brokers	45, 59, 92, 123, 130, 139, 173, 198	Operating profi t/loss	> EBIT (Group)
Combined ratio	50, 55–66, 134–135, 158, 210	Provision for pensions	77, 81, 87, 131, 250
Cooperations	48, 59, 85, 90, 92, 136, 139, 149, 173, 211	Provisions for premium refunds	76–77, 248
Corporate Operations	44–46, 57, 67–68, 74–75, 81, 173
		Rating
Derivatives	67, 74, 126, 162, 170, 190, 202–205	of Group companies	48, 70, 72, 78–79
Directors' dealings	97	of investments	84–85
Dividend yield	3, 41, 272	Reinsurance	> Non-Life-, Life/Health Reinsurance
Dividend proposal	> Appropriation of disposable profi ts	Retail Germany	55, 57, 59–61, 68–69, 72, 74, 77, 88–91, 133–134, 138
		Retail International	45, 48, 56–57, 61–64, 68–69, 77, 88,
E+S Rück	7, 46, 82, 187, 280		133–134, 172–173, 186, 188, 192
EBIT (Group)	3, 55–56, 88, 144	Retention	50, 56, 58–60, 65, 67, 122, 134–135, 191, 195
		Retirement provision, occupational	3, 109–110, 118, 123, 137
Free fl oat	44, 55, 149	Return on equity	23, 47, 49–50, 56–60, 63–67, 79–80, 88, 134–135
		Risk capital	48, 78–79, 116, 118, 120, 138
GIIPS-Exposure	72, 120
Group structure (chart)	46	Sales channels	48, 59, 68, 92, 123, 138
		Shareholders' equity	50, 56, 79–83, 86, 146–147, 153,
Hannover Re Group	172–173, 185, 197, 212		166–167, 172–173, 239–241
Germany	> E+S Rück	Share price performance	271
HDI V. a. G.	3, 40, 55, 83, 85, 98–99, 129, 149, 270	Shareholding structure	208
		Solvency II	44–46, 51, 97, 116–118, 129, 138, 193, 204
IFRS	47, 49, 51, 63, 78, 83, 85, 116, 140–144
Industrial Lines	45, 50, 57–58, 76–78, 88, 91,	Taxes on income	60, 88, 150, 165–166, 171, 173, 267
	133–134, 172–178, 191–192, 209–211	Technical provisions	69, 73, 76, 121–122, 128, 193–194, 245–247
Insurance-Linked Securities (ILS)	186–187	Training	89, 91 92, 110
Investment income (Group)	55–56, 73, 161–164, 259–261
Investor Relations	94	Underwriting	44, 121
Investments	45, 51, 60, 68–84, 118–129	Underwriting result	56, 58, 60, 63
		Unit-linked products	60, 62, 68–69, 120, 124, 165, 168–169, 197
Life insurance	44, 46–47, 51, 54, 59–64, 68–70, 77–78,
	120–125, 131–134, 137–138
Life/Health Reinsurance	45–46, 54, 57, 66–67, 77, 122, 124, 133, 135, 158
List of shareholdings	97, 185, 279–287
Loss ratio	58, 63, 168, 192–193

CONTACT INFORMATION

Talanx AG

Riethorst 2 30659 Hannover Germany Telephone +49 511 3747-0 Telefax +49 511 3747-2525 www.talanx.com

Group Communications

Andreas Krosta Telephone +49 511 3747-2020 Telefax +49 511 3747-2025 andreas.krosta@talanx.com

Investor Relations

Carsten Werle Telephone +49 511 3747-2231 Telefax +49 511 3747-2286 carsten.werle@talanx.com

Published on 24 March 2014

This is a translation of the original German text; the German version shall be authoritative in case of any discrepancies in the translation.

Annual Report online: http://annualreport2013.talanx.com

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FINANCIAL CALENDAR 2014

8 May Annual General Meeting

15 May Interim Report as at 31 March 2014

26/27 June Capital Markets Day

14 August Interim Report as at 30 June 2014

13 November Interim Report as at 30 September 2014

OUR WORLDWIDE NETWORK

AFRICA

SOUTH AFRICA

Compass Insurance Company, Johannesburg Hannover Life Re Africa, Johannesburg Hannover Re Africa, Johannesburg HDI-Gerling Insurance South Africa, Johannesburg

AMERICA

ARGENTINA HDI Seguros, Buenos Aires

BERMUDA

Hannover Life Re Bermuda, Hamilton Hannover Re Bermuda, Hamilton

BRAZIL

Hannover Re (Representative Offi ce), Rio de Janeiro HDI Seguros, São Paulo

CANADA

Hannover Re (Branch), Toronto HDI-Gerling industrial insurance (Branch), Toronto

CHILE HDI Seguros, Santiago

COLOMBIA Hannover Re (Representative Offi ce), Bogotá

MEXICO

Hannover Services (México), Mexico-City HDI-Gerling de México Seguros, Mexico-City HDI Seguros, León

URUGUAY HDI Seguros, Montevideo

USA

Hannover Life Re America, Orlando Hannover Re Services USA, Itasca/Chicago HDI-Gerling America Insurance Company, Chicago

ASIA/PACIFIK

BAHRAIN

Hannover ReTakaful, Manama Hannover Re (Branch), Manama HDI-Gerling industrial insurance (Branch), Manama

CHINA

Hannover Re (Branch), Hong Kong Hannover Re (Branch), Shanghai HDI-Gerling industrial insurance (Branch), Hong Kong

INDIA

Hannover Re Consulting Services, Mumbai Magma HDI General Insurance, Kolkata

JAPAN

Hannover Re Services Japan, Tokyo HDI-Gerling industrial insurance (Branch), Tokyo

KOREA Hannover Re (Branch), Seoul MALAYSIA

Hannover Re (Branch), Kuala Lumpur

RUSSIA

C i V Life, Moscow HDI Strakhovanie, Moscow

SINGAPORE

HDI-Gerling industrial insurance (Branch), Singapore

TAIWAN

Hannover Re (Representative Offi ce), Taipei

AUSTRALIA

AUSTRALIA

Hannover Life Re Australasia, Sydney Hannover Re (Branch), Sydney HDI-Gerling industrial insurance (Branch), Sydney

EUROPE

AUSTRIA

HDI life insurance, Vienna HDI insurance, Vienna

BELGIUM HDI-Gerling Assurances/Verzekeringen, Brussels

BULGARIA HDI Zastrahovane, Sofi a

CZECH REPUBLIC HDI insurance (Branch), Prague

DENMARK HDI-Gerling Verzekeringen, Copenhagen

FRANCE Hannover Re (Branch), Paris HDI-Gerling industrial insurance (Branch), Paris

GREECE HDI-Gerling industrial insurance (Branch), Athens

GERMANY

Ampega, Cologne E+S Rück, Hannover Hannover Re, Hannover HDI insurers, Hannover HDI-Gerling, Hannover/Cologne neue leben, Hamburg PB insurers, Hilden Talanx, Hannover/Cologne TARGO insurers, Hilden

HUNGARY

HDI insurance (Branch), Budapest Magyar Posta Biztosító, Budapest Magyar Posta Életbiztosító, Budapest

IRELAND

Hannover Re (Ireland), Dublin HDI-Gerling industrial insurance (Branch), Dublin Talanx Reinsurance, Dublin

ITALY

Hannover Re Services Italy, Milan HDI Assicurazioni, Rome HDI-Gerling industrial insurance (Branch), Milan

LUXEMBOURG

HDI-Gerling Assurance, Luxembourg Talanx Finanz, Luxembourg

NETHERLANDS

HDI-Gerling industrial insurance, Rotterdam/ Amsterdam

NORWAY

HDI-Gerling industrial insurance (Branch), Oslo

POLAND

TU Europa Group, Wrocław WARTA, Warsaw

SCHWITZERLAND

HDI-Gerling industrial insurance (Branch), Zürich

SLOVAK REPUBLIC HDI insurance (Branch), Bratislava

SPAIN

HDI Hannover International, Madrid/Barcelona HR Hannover Re, Madrid

SWEDEN

Hannover Re (Branch), Stockholm

TURKEY HDI Sigorta, Istanbul

UKRAINE HDI Strakhuvannya, Kiev

UNITED KINGDOM

Hannover Re UK (Life Branch), Virginia Water Hannover Services UK, London HDI-Gerling industrial insurance (Branch), London International Insurance Company of Hannover, London

400-GB096

Talanx AG Riethorst 2 30659 Hannover Germany Telephone +49 511 3747-0 Telefax +49 511 3747-2525 www.talanx.com