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Talanx AG

Quarterly Report May 15, 2017

427_10-q_2017-05-15_9fedbffa-a293-4457-bada-12cdc84fa65b.pdf

Quarterly Report

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Quarterly Statement as at 31 March 2017

THE TALANX GROUP AT A GLANCE

GROUP KEY FIGURES

unit Q1 2017 Q1 2016 +/–%
Gross written premiums EUR million 9,752 8,995 +8.4
by region
Germany % 33 36 –3.0 pt.
United Kingdom % 7 8 –1.0 pt.
Central and Eastern Europe (CEE), including Turkey % 8 7 +1.0 pt.
Rest of Europe % 17 16 +1.0 pt.
USA % 15 13 +2.0 pt.
Rest of North America % 2 2 pt.
Latin America % 8 7 +1.0 pt.
Asia and Australia % 9 9 pt.
Africa % 1 2 –1.0 pt.
Net premiums earned EUR million 6,692 6,266 +6.8
Underwriting result EUR million –415 –422 –1.6
Net investment income EUR million 1,011 1,022 –1.1
Net return on investment1) % 3.5 3.7 –0.2 pt.
Operating profit (EBIT) EUR million 576 573 +0.5
Net income (after financing costs and taxes) EUR million 398 381 +4.4
of which attributable to shareholders of Talanx AG EUR million 238 222 +7.2
Return on equity2) % 10.3 10.6 –0.3 pt.
Earnings per share
Basic earnings per share eUR 0.94 0.88 +6.8
Diluted earnings per share eUR 0.94 0.88 +6.8
Combined ratio in property/casualty primary insurance and
Property/Casualty Reinsurance3)
% 96.3 96.3 — pt.
Combined ratio of property/casualty primary insurers4) % 97.6 98.4 –0.8 pt.
Combined ratio of Property/Casualty Reinsurance % 95.6 94.7 +0.9 pt.
EBIT margin primary insurance and Reinsurance
EBIT margin primary insurance4) % 6.0 6.6 –0.6 pt.
EBIT margin Property/Casualty Reinsurance % 14.6 15.8 –1.2 pt.
EBIT margin Life/Health Reinsurance % 5.5 6.5 –1.0 pt.
31.3.2017 31.12.2016 +/–%
Policyholders' surplus EUR million 17,115 16,671 +2.7
Equity attributable to shareholders of Talanx AG EUR million 9,368 9,078 +3.2
Non-controlling interests EUR million 5,764 5,610 +2.8
Hybrid capital EUR million 1,983 1,983
Assets under own management EUR million 107,810 107,174 +0.6
Total investments EUR million 119,696 118,855 +0.7
Total assets EUR million 160,061 156,571 +2.2
Carrying amount per share at end of period EUR 37.06 35.91 +3.2
Share price at end of period EUR 33.06 31.77 +4.1
Market capitalisation of Talanx AG at end of period EUR million 8,357 8,031 +4.1
Employees Full-time
equivalents
19,862 20,039 –0.9

1) Ratio of annualised net investment income excluding interest income on funds withheld and contract deposits and profit on investment contracts

to average assets under own management (31 March 2017 and 31 December 2016).

2) Ratio of annualised net income for the reporting period excluding non-controlling interests to average equity excluding non-controlling interests.

3) Combined ratio taking into account interest income on funds withheld and contract deposits, before elimination of intra-Group cross-segment transactions.

4) Excluding figures from the Corporate Operations segment.

Contents

  • 2 Quarterly statement
  • 2 Business development
  • 2 Performance of the Group
  • 3 Development of the divisions within the Group
  • 3 Industrial Lines
  • 4 Retail Germany
  • 6 Retail International
  • 8 Reinsurance
  • 11 Corporate Operations
  • 11 Investments and financial position
  • 15 Outlook
  • 18 Consolidated balance sheet
  • 20 Consolidated statement of income
  • 21 Consolidated statement of comprehensive income
  • 22 Consolidated cash flow statement
  • 24 Segment reporting
  • 31 Other disclosures

Guideline on Alternative Performance Measures – for further information on the calculation and definition of specific alternative performance measures please refer to http://www.talanx.com/investor-relations/ueberblick/midterm-targets/definitions_apm?sc_lang=en

QUARTERLY STATEMENT

BUSINESS DEVELOPMENT

PERFORMANCE OF THE GROUP

  • Gross premiums increased by around 8%
  • High major loss burden in the first quarter
  • Group net income increased by 7%

GROUP KEY FIGURES

EUR million
-- ------------- --
Q1
2017
Q1
2016
+/–%
Gross written premiums 9,752 8,995 +8.4
Net premiums earned 6,692 6,266 +6.8
Underwriting result –415 –422 +1.6
Net investment income 1,011 1,022 –1.1
Operating profit/loss (EBIT) 576 573 +0.5
Combined ratio (net, property/
casualty only) in %
96.3 96.3

MANAGEMENT METRICS

%
Q1
2017
Q1
2016
+/–%
Gross premium growth
(adjusted for currency effects)
7.4 –3.0 +10.4 pt.
Group net income in EUR million 238 222 +7.2
Return on equity 1) 10.3 10.6 –0.3 pt.
Net return on investment 2) 3.5 3.7 –0.2 pt.

1) Ratio of annualised net income for the reporting period excluding

non-controlling interests to average equity excluding non-controlling interests. 2) Annualised ratio of net investment income excluding interest income on funds withheld and contract deposits and profit on investment contracts to average assets under own management.

PREMIUM VOLUME

The gross premiums written for the Talanx Group increased by 8.4% (adjusted for currency effects: by 7.4%) in the first quarter, and amounted to EUR 9.8 (9.0) billion. The Retail International Division recorded strong premium growth of 29.2%, followed by the Property/ Casualty Reinsurance segment (+12.5%). Higher premium income from branches outside Germany contributed to moderate premium growth in the Industrial Lines Division (4.3%). Premium income in the other segments remained almost constant. The net premiums earned were EUR 6.7 (6.3) billion; they were therefore 6.8% higher year-on-year. The retention ratio increased to 85.6% (85.2%).

UNDERWRITING RESULT

The underwriting result increased by 1.6% to EUR –415 (–422) million. The major loss burden in the Group was EUR 153 (123) million which was higher than in the previous year; however, it stayed within the budget for the period of EUR 243 million. In the Property/ Casualty Reinsurance segment, major losses were particularly high at EUR 134 (56) million: Cyclone "Debbie" in Australia was one of the largest single losses and was reflected in the budget at around EUR 50 million. A single loss in Chile in the Retail International Division also impacted earnings. The net loss ratio, which increased by 0.3%, was offset by a slightly improved net expense ratio; the Group's combined ratio remained at the same level year-on-year, at 96.3% (96.3%).

NET INVESTMENT INCOME

Net investment income fell by 1.1% to EUR 1,011 (1,022) million. An increase in the ordinary net investment income was unable to offset declining extraordinary investment income as well as a lower interest income on funds withheld and contract deposits. The Group net return on investment was 3.5% (3.7%) in the first quarter of 2017, and was therefore only slightly lower than in the same period of the previous year.

OPERATING PROFIT AND GROUP NET INCOME

The operating profit (EBIT) increased slightly by 0.5% to EUR 576 (573) million; the slightly declining investment income was offset by the improved underwriting result amd improved other income/ expenses. The Group net income increased by 7.2% to EUR 238 (222) million; the most significant portion came from the Industrial Lines Division. Although the return on equity of 10.3% (10.6%) was slightly below the figure for the same quarter the previous year, it was above the 8% figure forecast for the entire 2017 year.

Development of the divisions within the Group

At a strategic level, Talanx divides its business into seven reportable segments: Industrial Lines, Retail Germany – Property/Casualty Insurance and Life Insurance – Retail International, Property/ Casualty Reinsurance, Life/Health Reinsurance and Corporate Operations. Please refer to the section entitled "Segment reporting" in the Notes of the 2016 Annual Report to the consolidated financial statements for details of these segments' structure and scope of business.

INDUSTRIAL LINES

KEY FIGURES FOR THE INDUSTRIAL LINES DIVISION

EUR million

Q1
2017
Q1
2016
+/–%
Gross written premiums 2,004 1,921 +4.3
Net premiums earned 552 537 +2.8
Underwriting result 19 13 +46.2
Net investment income 69 50 +38.0
Operating profit/loss (EBIT) 80 74 +8.1

MANAGEMENT METRICS FOR THE INDUSTRIAL LINES DIVISION

%

Q1
2017
Q1
2016
+/–%
Gross premium growth
(adjusted for currency effects)
3.1 2.5 +0.6 pt.
Retention 56.4 55.5 +0.9 pt.
Combined ratio (net) 1) 96.5 97.6 –1.1 pt.
EBIT margin2) 14.6 13.8 +0.8 pt.
Return on equity 3) 10.8 9.2 +1.6 pt.

1) Including net interest income on funds withheld and contract deposits.

2) Operating profit (EBIT)/net premiums earned.

3) Ratio of annualised net income for the reporting period excluding

non-controlling interests to average equity excluding non-controlling interests.

PREMIUM VOLUME

Gross written premiums for the division amounted to EUR 2.0 (1.9) billion as at 31 March 2017, an increase of around 4.3% (3.1% after adjustment for currency effects). The international branches of HDI Global SE in France and in Belgium in particular recorded increases in premiums. The US subsidiary HDI Global Insurance Company also made a significant contribution to the development of premiums.

The retention ratio in the division was above the level of the previous year, at 56.4% (55.5%). This development was largely due to lower payments to external reinsurers in the liability insurance line. Net premiums earned rose by 2.8% compared with the previous-year quarter to EUR 552 (537) million, corresponding to the gross growth.

UNDERWRITING RESULT

The division's net underwriting result increased to EUR 19 (13) million. At 20.6% (20.2%), the net expense ratio was slightly higher year-onyear, whereby this was due to higher project expenditure resulting from the growth recorded. The loss ratio (net) improved to 75.9% (77.3%). Losses declined noticeably, particularly in the marine line. The combined ratio for the Industrial Lines Division amounted to 96.5% (97.6%).

NET INVESTMENT INCOME

Net investment income rose by 38.0% to EUR 69 (50) million. It was possible to over-compensate for the lower interest rates for new and reinvestments through higher income from private equity vehicles. In comparison to the previous-year period, higher net gains from the disposal of investments were generated at HDI Global SE at the same time.

OPERATING PROFIT AND GROUP NET INCOME

As a result of the developments stated above, the division's operating profit was higher in the first three months of 2017 (EUR 80 million) than in the first quarter of the prior year (EUR 74 million). Group net income amounted to EUR 59 (48) million.

RETAIL GERMANY

Since the second quarter of 2016, the Talanx Group has managed the Retail Germany Division on the basis of the Property/Casualty and Life segments, and has reported accordingly about the performance of these two segments.

PROPERTY/CASUALTY INSURANCE

  • Premium growth due to unemployment insurance in the context of residual debt business
  • Combined ratio significantly improved
  • Operating profit above the level of the prior year due to positive claim trends

KEY FIGURES FOR THE RETAIL GERMANY DIVISION – PROPERTY/CASUALTY INSURANCE SEGMENT

EUR million

Q1
2017
Q1
2016
+/–%
Gross written premiums 759 749 +1.3
Net premiums earned 340 341 –0.3
Underwriting result –6 –13 +53.8
Net investment income 25 22 +13.6
Operating profit/loss (EBIT) 13 6 +116.7

MANAGEMENT METRICS FOR THE PROPERTY/CASUALTY INSURANCE SEGMENT

%
Q1
2017
Q1
2016
+/–%
Gross premium growth +1.3 –1.7 +3.0 pt.
Combined ratio (net) 1) 101.7 103.8 –2.1 pt.
EBIT margin2) 3.8 1.6 +2.2 pt.

1) Including net interest income on funds withheld and contract deposits. 2) Operating profit (EBIT)/net premiums earned.

MARKET DEVELOPMENT

Continued growth of up to 2.8% is to be assumed in property/ casualty insurance for the current year. Increases are expected in particular in motor insurance and comprehensive homeowners insurance.

PREMIUM VOLUME AND NEW BUSINESS

A 1.3% increase in premium income to EUR 759 (749) million was recorded in the Property/Casualty Insurance segment. The higher premium income was in particular due to the expansion of unemployment insurance in the context of residual debt business. Overall, the share of the total Retail Germany Division attributable to the property/casualty insurers therefore increased to 39.8% (39.3%).

UNDERWRITING RESULT

The underwriting result increased from EUR –13 million to EUR –6 million in the current financial year. This was due to positive loss trends. Burdens from natural catastrophes and major losses remained at the same level year-on-year.

The positive trend in the underwriting result resulted in a 2.1 percentage point decline in the combined ratio (net), from 103.8% to 101.7%

NET INVESTMENT INCOME

Net investment income increased to EUR 25 (22) million due to higher disposal gains.

OPERATING PROFIT/LOSS

At EUR 13 (6) million, the EBIT was higher year-on-year due to the improvement with respect to losses compared with the previous year. In line with this, the EBIT margin increased to 3.8% (1.6%).

LIFE INSURANCE

  • Premiums stable despite switching to capital-efficient and risk products
  • Growth in residual debt insurance
  • EBIT decline due to lower realisation of unrealised gains to finance the additional interest reserve

KEY FIGURES FOR THE RETAIL GERMANY DIVISION –

LIFE INSURANCE SEGMENT

EUR million
Q1
2017
Q1
2016
+/–%
Gross written premiums 1,147 1,155 –0.7
Net premiums earned 844 876 –3.7
Underwriting result –416 –465 +10.5
Net investment income 435 513 –15.2
Operating profit/loss (EBIT) 21 41 –48.8
New business measured in
annual premium equivalent
94 97 –3.1
Single premiums 345 312 +10.6
Regular premiums 59 66 –10.6
New business by product in
annual premium equivalent
94 97 –3.1
Capital-efficient products 1) 33 n.a.
Capital-inefficient products 1) 27 n.a.
Biometric products 1) 34 n.a.

1) Comparison with prior year not possible due to new product structure.

MANAGEMENT METRICS FOR THE LIFE INSURANCE SEGMENT

Q1 Q1 +/–%
–0.7 –15.8 +15.1 pt.
2.5 4.7 –2.2 pt.
2017 2016

1) Operating profit (EBIT)/net premiums earned.

MARKET DEVELOPMENT

The current financial year continues to be influenced by persistently low and even negative capital market interest rates and a low tendency for consumers to save. Due to these circumstances, a decline in premiums in life insurance of around –0.5% and an increase in premiums for new business measured in APE of approximately +0.2% is expected.

PREMIUM VOLUME AND NEW BUSINESS

The Life Insurance segment registered a slight decline in premiums of 0.7% down to EUR 1.1 (1.2) billion in the first three months of the year – including the savings elements of premiums from unit-linked life insurance. As was expected, there was a decline in regular premiums due to an increase in policies maturing in 2016, by EUR 42 million. In contrast, single premium business increased by EUR 33 million due to growth in residual debt insurance. The retention ratio in the Life Insurance business remained stable at 95.5% (95.6%). Allowing for the savings elements under our unitlinked products and the change in the unearned premium reserve, the net premiums earned in the Life segment decreased by 3.7% to EUR 844 (876) million. The Life Insurance segment share in the overall Retail Germany Division declined slightly to 60.2% (60.7%).

New business in life insurance products – measured in the internationally applied metric of the annual premium equivalent (APE) – reduced slightly from EUR 97 million to EUR 94 million due to the switch to capital-efficient and risk products. The APE for capitalinefficient products was EUR 27 million in the first quarter of 2017, and is influenced by the dynamic in the existing stock.

UNDERWRITING RESULT

In the current financial year, the underwriting result improved to EUR –416 (–465) million. This was partly due to the unwinding of discounts on technical provisions and policyholder participation in net investment income. These expenses are offset by investment income, which is not recognised in the underwriting result.

NET INVESTMENT INCOME

Net investment income fell by 15.2% to EUR 435 (513) million. The decline results in particular from the year-on-year lower realisation of unrealised gains to finance the additional interest reserve. The extraordinary net investment income decreased accordingly by –56.1% to EUR 71 (161) million.

OPERATING PROFIT/LOSS

The operating profit (EBIT) in the life insurance segment in the Retail Germany Division reduced to EUR 21 (41) million, particularly due to lower investment income.

RETAIL GERMANY DIVISION OVERALL

%
Q1
2017
Q1
2016
+/–%
Return on equity 1) 3.0 4.4 –1.4 pt.

non-controlling interests to average equity excluding non-controlling interests.

After adjustment for taxes on income, financing costs and non-controlling interests, Group net income decreased to EUR 19 (29) million, causing the return on equity to fall by 1.4 percentage points to 3.0%.

RETAIL INTERNATIONAL

  • 29.2% growth in gross written premiums
  • Positive effects on the expense ratio from cost optimisation methods
  • Increase in the combined ratio for property insurance companies, driven by a major loss event in Chile

KEY FIGURES FOR THE RETAIL INTERNATIONAL DIVISION

EUR million

Q1 Q1
2017 2016 +/–%
Gross written premiums 1,483 1,148 +29.2
Net premiums earned 1,217 986 +23.4
Underwriting result 7 8 –12.5
Net investment income 87 80 +8.8
Operating profit/loss (EBIT) 63 61 +3.3

MANAGEMENT METRICS FOR THE RETAIL INTERNATIONAL DIVISION

%
Q1
2016
Q1
2015
+/–%
Gross premium growth
(adjusted for currency effects)
25.8 3.5 +22.3 pt.
Combined ratio
(net, property/casualty only) 1)
96.6 96.2 +0.4 pt.
EBIT margin2) 5.1 6.2 –1.1 pt.
Return on equity 3) 7.5 7.3 +0.2 pt.

1) Including net interest income on funds withheld and contract deposits.

2) Operating profit/loss (EBIT)/net premiums earned.

3) Ratio of annualised net income for the reporting period excluding non-controlling interests to average equity excluding non-controlling interests.

This division bundles the activities of the international retail business in the Talanx Group and is active in both Europe and Latin America.

PREMIUM VOLUME

The division's gross written premiums (including premiums from unit-linked life and annuity insurance) increased by 29.2% compared to the first quarter of 2016 to EUR 1.5 (1.1) billion. Adjusted for currency effects, gross premiums increased by 25.8% on the comparison period.

The premium volume increased in both regions in the reporting period. In the Latin America region, the gross written premiums increased by 27.4% compared to the same period in the previous year to EUR 414 million. There was an increase of 12.9% when adjusted for currency effects, which was essentially due to the Mexican company, HDI Seguros S.A. The premium volume for the company increased, particularly in motor insurance and from bank sales, which resulted both from an increased number of insured vehicles and from higher average premiums. Chile, where the premium volume was similarly increased in motor insurance as well as through a new bank sales channel, also had positive effects on the gross written premiums for the Latin America region. In addition, there was also increased demand here for building insurance as a result of natural disasters. Of the premium volume generated in the region, 54% was attributable to the Brazilian company HDI Seguros S.A. The performance of the Brazilian motor insurance market was heavily defined in the first quarter of 2017 by the continued decline in the sales of new cars in the country. However, taking into account currency effects, gross premiums written for HDI Seguros S.A. increased by 29.5% to EUR 223 million, primarily in the course of ongoing price rises; after adjustment for currency effects, the increase was 1.4%. According to local accounting, the company increased its gross written premiums from motor insurance by 8.4% as at the end of February 2017, while the Brazilian motor insurance market gained 3.3%.

In the Europe region, there was growth in gross written premiums of 30.2%, to EUR 1.1 billion; this was driven primarily by taking into account the life insurance premiums for the Italian company CBA Vita S. p. A., acquired on June 30, 2016, at around EUR 148 million for the first quarter of 2017. The decline in the premium volume from life insurance in the Italian company HDI Assicurazioni was therefore more than compensated for as a result of the declining trend in single premium business from other bank sales channels. The Polish motor insurance market has been in a "hard" market cycle since the second half of 2016; this has resulted in an increase in average premiums in motor liability insurance. Together with the increase in the number of insured vehicles to more than 4 (around 3.6) million, this resulted in premium growth of 35.0% to EUR 296 million with the Polish property insurer TUiR Warta S.A. Turkey also reported positive effects on the gross written premiums for the region; as well as increasing the number of insured vehicles, it was possible here to increase the average premiums for motor insurance. Adjusted for currency effects, the growth in premium volume in Europe stood at 31.4%.

UNDERWRITING RESULT

The combined ratio from property insurance companies increased by 0.4 percentage points year-on-year to 96.6%, whereby a major loss in Chile at the beginning of 2017 had a 0.4 percentage point impact on the loss ratio. Overall, the loss ratio increased by 2.0 percentage points, essentially driven by higher costs for foreign replacement parts in the course of the devaluation of local currencies against the US dollar and the euro, and therefore increased claims inflation in Mexico and Turkey in particular. In contrast, the expense ratio for the division was 1.6 percentage points lower than the previous year (31.2%), at 29.6%. This resulted from a decline in both the acquisition expense ratio and the administrative expense ratio (by 1.0 percentage points to 5.6%, from 6.6% in the prior year) due to cost optimisations, primarily in the Polish company TUiR Warta S.A. as well as in Brazil.

Overall, the underwriting result recorded in this division was EUR 7 million, which was slightly below the level of the prior year (EUR 8 million).

NET INVESTMENT INCOME

The division's net investment income amounted to EUR 87 million in the first quarter of 2017, a year-on-year rise of 8.8%. The investment portfolios, which were higher overall year-on-year, were offset by the decline in average returns from assets under own management of 0.3 percentage points to 3.7%. The division's ordinary net investment income increased accordingly by 9.0%. Net investment income includes EUR –1 (+2) million in net income from investment contracts. These are policies that provide insufficient risk cover to be classified as insurance contracts in accordance with IFRS.

OPERATING PROFIT AND GROUP NET INCOME

In the first quarter of 2017, operating profit (EBIT) in the Retail International Division rose by 3.3% compared with the prior-year period to EUR 63 million. While the Europe region, with an EBIT that was stable year-on-year, contributed EUR 47 (47) million to the operating profit of the segment, EUR 15 (16) million of the EBIT was generated in the Latin America region. The decline in the EBIT in Latin America resulted primarily from the major loss in Chile, specified above. Group net income after minority interests rose by 11.1% to EUR 40 (36) million. The return on equity rose by 0.2 percentage points to 7.5% compared to the same period in the previous year.

ADDITIONAL KEY FIGURES

Retail International Division by line of business at a glance

EUR million

Q1
2017
Q1
2016
+/–%
Gross written premiums 1,483 1,148 +29.2
Property/casualty 934 758 +23.2
Life 549 390 +40.8
Net premiums earned 1,217 986 +23.4
Property/casualty 754 640 +17.8
Life 463 346 +33.8
Underwriting result 7 8 –12.5
Property/casualty 25 24 +4.2
Life –18 –16 +12.5
Others
Net investment income 87 80 +8.8
Property/casualty 54 45 +20.0
Life 34 35 –2.9
Others –1
New business by product in
annual premium equivalent (life)
61 54 +13.0
Single premiums 434 329 +31.9
Regular premiums 18 21 –14.3
New business by product in
annual premium equivalent (life)
61 54 +13.0
Capital-efficient products 1) 28 n.a.
Capital-inefficient products 1) 17 n.a.
Biometric products 1) 16 n.a.

1) Comparison with prior year not possible due to new product structure.

Retail International Division by region at a glance

Q1 Q1
2017 2016 +/–%
Gross written premiums 1,483 1,148 +29.2
of which Europe 1,064 817 +30.2
of which Latin America 414 325 +27.4
Net premiums earned 1,217 986 +23.4
of which Europe 856 685 +25.0
of which Latin America 361 301 +19.9
Underwriting result 7 8 –12.5
of which Europe –1 1 –200.0
of which Latin America 2 7 –71.43
Net investment income 87 80 +8.8
of which Europe 60 60
of which Latin America 28 21 +33.3
Operating profit/loss (EBIT) 63 61 +3.3
of which Europe 47 47
of which Latin America 15 16 –6.25

REINSURANCE

PROPERTY/CASUALTY REINSURANCE

  • Continued competition in the property/casualty reinsurance business
  • Solid results for treaty renewals as at 1 January 2017
  • Major loss burden significantly higher in the first quarter as compared to the same period in the prior year

KEY FIGURES FOR THE REINSURANCE DIVISION – PROPERTY/CASUALTY REINSURANCE SEGMENT

EUR million

Q1
2017
Q1
2016
+/–%
Gross written premiums 2,815 2,502 +12.5
Net premiums earned 2,166 1,961 +10.5
Underwriting result 91 100 –9.0
Net investment income 250 213 +17.4
Operating profit/loss (EBIT) 315 310 +1.6

MANAGEMENT METRICS FOR THE PROPERTY/CASUALTY REINSURANCE SEGMENT

%

Q1
2017
Q1
2016
+/–%
Gross premium growth (adjusted
for currency effects)
11.3 –3.7 +15.0 pt.
Combined ratio (net) 1) 95.6 94.7 +0.9 pt.
EBIT margin2) 14.6 15.8 –1.2 pt.

1) Including net interest income on funds withheld and contract deposits.

2) Operating profit/loss (EBIT)net premiums earned.

BUSINESS DEVELOPMENT

The situation in the global property/casualty reinsurance market changed little year-on-year. The higher number of losses recorded in 2016 only had a positive effect on ceded written premiums on the local level, which means the fierce competition on markets largely continued. The supply of reinsurance capacity continues to far exceed demand, although the drop in prices was less pronounced than in the prior year. This was also reflected in the treaty renewal round as at 1 January 2017 in which we renegotiated around 64% of our

Property/Casualty Reinsurance portfolio. Here we continued with our strict underwriting discipline and focused on our high-value existing business, which we supplemented with new opportunities from niche and specialised areas. We were also able to benefit once again from our excellent financial ratings and our long-standing customer relationships. Attractive opportunities for expanding our portfolio presented themselves in North America in particular – for example in the area of cyber-risk cover. In general, the pressure on rates in North America subsided and indications of a bottoming out could be observed across all lines. The development of treaty renewals was very positive in Canada, where significant rate increases were achieved in nearly all property business programmes. This development was mainly due to the large losses resulting from the devastating fires in the Canadian province of Alberta in the prior year.

We reduced our market share in the aviation business and in parts of Eastern Europe and China due to inadequate prices. Developments in the treaty renewal round for credit and surety reinsurance were positive on the other hand. In the area of credit reinsurance in particular, we were able to expand our large-scale existing customer relationships and acquire new major customers, which led to an increase in premium volumes in this line. Demand in the area of structured reinsurance for reinsurance solutions that improve solvency developed very positively. Here, we recorded significant premium growth in Europe, North America and Latin America.

PREMIUM DEVELOPMENT

Given these developments, gross premiums in the Property/Casualty Reinsurance segment rose by 12.5% to EUR 2.8 (2.5) billion. At constant exchange rates, growth would have amounted to 11.3%. Retention increased to 88.6% (87.9%). Net premiums earned increased by 10.5% to EUR 2.2 (2.0) billion; adjusted for currency effects, growth would have amounted to 8.8%.

UNDERWRITING RESULT

The first quarter of 2017 was much more loss-intensive than the same period in the prior year. The net major loss burden amounted to EUR 134 (56) million, which was below the allocated quarterly budget, however. The largest single loss (approx. EUR 50 million) was Cyclone "Debbie", which caused devastation and flooding in Australia.

The insurance industry was also negatively affected by the decision of the British government to reduce the discount rate for compensation payments for personal injury ("Ogden Rate") from 2.5% to –0.75% from March 2017. This will lead to a significant increase in compensation payments in cases where a one-time payment is made to the injured party to settle a compensation claim marked by a continual financial burden – e.g. to cover care measures. Cases of serious personal injury (e.g. following a car accident) might therefore become substantially more expensive, leading to higher payments from liability insurance coverage, which will have a particularly strong impact on non-proportional reinsurance. This aspect relates not only to future damage claims but also to past claims not yet processed, which means substantial additional reserves will have to be established at the primary insurers and reinsurers. In the first quarter we booked additional loss reserves of EUR 126 million for this purpose. In view of the very adequate IBNR reserves, however, this did not result in run-off losses. It can be assumed that additional reserves will be required later in the year in response to the change in the Ogden Rate, but these should also be absorbed by the IBNR reserves established.

Due to higher claims, the underwriting result for the Property/ Casualty Reinsurance segment was below the very good figure recorded in the first quarter of 2016 and stood at EUR 91 (100) million as at 31 March 2017. The combined ratio amounted to 95.6% (94.7%) and thus lies within our forecast of a figure below 96%.

NET INVESTMENT INCOME

Net investment income in the Property/Casualty Reinsurance segment rose by 17.4 % to EUR 250 (213) million.

OPERATING PROFIT/LOSS

EBIT in the Property/Casualty Reinsurance segment once again increased slightly from the very good figure recorded in the first quarter of 2016 and stood at EUR 315 (310) million as at 31 March 2017. The EBIT margin reached 14.6% (15.8%), thus exceeding the forecast of at least 10%.

LIFE/HEALTH REINSURANCE

  • Gross premium income developing as planned
  • Extensive interest in reinsurance solutions for optimising the higher capital requirements resulting from the solvency requirements stipulated by supervisory authorities

KEY FIGURES FOR THE REINSURANCE DIVISION – LIFE/HEALTH REINSURANCE SEGMENT

EUR million
Q1
2017
Q1
2016
+/–%
Gross written premiums 1,732 1,761 –1.6
Net premiums earned 1,567 1,581 –0.9
Underwriting result –114 –68 –67.6
Net investment income 148 157 –5.7
Operating profit/loss (EBIT) 86 103 –16.5

MANAGEMENT METRICS

Q1
2017
Q1
2016
+/–%
–1.7 0.3 –2.0 pt.
33.0 17.9 +15.1 pt.
2.0 3.2 –1.2 pt.
0.9 5.3 –4.4 pt.

1) Operating profit (EBIT)/net premiums earned.

BUSINESS DEVELOPMENT

The Life/Health Reinsurance segment developed as expected in the first quarter of 2017. The insurance market environment in Germany remained challenging in terms of both life and health and longevity coverage. The guaranteed interest rate, which had last been adjusted in 2015, was lowered from 1.25% to 0.9% on 1 January 2017, which led to a further decline in the attractiveness of traditional life insurance products. A new long-term care system with five care degrees was introduced in Germany at the beginning of 2017. During the 2016 reporting year, we worked extensively on the development of a new care chart, which we were able to present to our customers to coincide with the introduction of the new system. As a result of the stricter solvency regulations stipulated by Solvency II, several primary insurers continue to require financing for the additional interest reserves they need to accumulate. We have been conducting a dialogue with our primary insurance customers concerning the use of reinsurance solutions for the purpose of obtaining capital relief.

During the reporting period, policies from past underwriting years in our US mortality business once again had a negative effect on earnings due to higher than expected mortality rates. On the other hand, our financial solutions business developed very well, as was expected, and made a significant positive contribution to earnings. In the UK, price pressures continued to dominate the life insurance market, particularly in the mortality business. Nevertheless, our longevity business developed positively in the UK. We were able to close new contracts while at the same time securing further new business with our existing portfolio. Demand by British primary insurers and pension funds remains high as a result of the obligation to meet the high Solvency II capital requirements for the longevity business. At the same time, the market is also extremely competitive and price-sensitive. On the international level, we have been seeing numerous enquiries on the part of life and pension insurers in need of capital relief. The longevity market developed very dynamically in Canada and Japan in particular. We have also noticed increased interest in the Scandinavian countries, Germany, Israel, South Korea and South Africa. Our many years of experience and accumulated expertise – particularly in the longevity business – have enabled us to successfully transfer reinsurance solutions to international markets in the past, and we expect the global longevity business to develop positively in future.

We have observed extremely dynamic development in the various insurance markets in Asia. Demand and business opportunities in the morbidity segment look very promising in Malaysia and Shanghai, among other places. We were able to successfully underwrite life insurance business in South Korea. Our new branch in India has now launched its business operations.

From a holistic perspective, our Life/Health Reinsurance operations have developed in the expected manner in Australia, Africa, the Middle East and Scandinavia. We have also received very positive feedback from our customers on our hr|ReFlex and hr|Quirc underwriting tools.

PREMIUM DEVELOPMENT

Gross premium income in the Life/Health Reinsurance segment amounted to EUR 1.7 (1.8) billion as at 31 March 2017. This corresponds to a slight decrease of 1.6%; at constant exchange rates, the decrease would have amounted to 1.7%. Retention amounted to 91.3% (90.5%). Net premiums earned thus declined slightly, by 0.9% to EUR 1.6 (1.6) billion. At constant exchange rates, the decline would have amounted to 1.3%.

NET INVESTMENT INCOME

Net investment income fell by 5.7% to EUR 148 (157) million. At EUR 68 (79) million, income from capital investments held on our behalf by cedants was slightly lower than the figure recorded in the first quarter of the prior year.

OPERATING PROFIT/LOSS

Operating profit (EBIT) declined by 16.5% from the solid figure recorded in the prior year, amounting to EUR 86 (103) million as at 30 March 2017. This decline was mainly due to the comparatively poorer results of our mortality business in the USA. At 33.0%, the financial solutions business significantly exceeded the EBIT margin forecast of 2%. The longevity business achieved the 2% EBIT margin forecast figure by recording a 2.0% EBIT margin. The mortality and morbidity business recorded an EBIT margin of 0.9% and thus failed to achieve the forecast figure of 6%.

REINSURANCE DIVISION OVERALL

THE RETURN ON EQUITY MANAGEMENT METRIC FOR THE REINSURANCE DIVISION OVERALL

%
Q1
2017
Q1
2016
+/–%
Return on equity1) 12.0 14.8 –2.8 pt.

1) Ratio of annualised net income for the reporting period excluding non-controlling interests to average equity excluding non-controlling interests.

Group net income in the Reinsurance Division declined by 7.0% in the first quarter to EUR 132 (142) million. This also led to a decline in return on equity of 2.8 percentage points to 12.0% (14.8%).

Corporate Operations

Group assets under own management up 0.6%

Operating profit/loss

The operating profit in the Corporate Operations segment increased in the first three months of 2017 to EUR 5 (–2) million. On the one hand, the underwriting result for the section of the Talanx Reinsurance Plc., Dublin business shown here, increased due to lower losses. On the other, a write-down on equities was undertaken in the corresponding quarter of the prior year. Group net income attributable to shareholders of Talanx AG for this segment amounted to EUR –14 (–24) million in the first three months of 2017.

Investments and financial position

The total investment portfolio increased by 0.7% over the course of the first quarter of 2017 and amounted to EUR 119.7 (118.9) billion. The portfolio of assets under own management rose by 0.6% to EUR 107.8 (107.2) billion, while the funds withheld by ceding companies increased by 1.6% to EUR 10.8 (10.6) billion. Growth in the portfolio of assets under own management was largely due to cash inflows from underwriting business, which were reinvested in accordance with the respective corporate guidelines.

Fixed-income investments were again the most significant asset class in the first quarter of 2017. Most reinvestments were made in this class, reflecting the existing investment structure. This asset class contributed EUR 0.7 (0.7) billion to earnings, which was reinvested as far as possible in the year under review.

The equity allocation ratio after derivatives (equity ratio) was 1.7% (1.5%) at the end of the quarter.

Breakdown of assets under own management by asset class

31.3.2017 31.12.2016
Investment property 2,418 2% 2,480 2%
Shares in affiliated companies and participating interests 144 < 1% 139 <1%
Investments in associates and joint ventures 293 < 1% 290 <1%
Loans and receivables
Loans incl. mortgage loans 549 1% 567 1%
Loans and receivables due from government or quasi-governmental entities,
together with fixed-income securities
28,695 27% 28,858 27%
Financial instruments held to maturity 577 1% 744 1%
Available for sale
Fixed-income securities 65,852 61% 65,435 61%
Variable-yield securities 2,705 2% 2,615 2%
Financial assets at fair value through profit or loss
Financial liabilities classified at fair value through profit or loss
Fixed-income securities 1,181 1% 1,087 1%
Variable-yield securities 43 < 1% 19 <1%
Financial assets held for trading
Fixed-income securities 0 < 1% 3 <1%
Variable-yield securities 148 < 1% 174 <1%
Derivatives 1) 104 < 1% 69 <1%
Other investments 5,101 5% 4,694 4%
Assets under own management 107,810 100% 107,174 100%

1) Only derivatives with positive fair values.

Fixed-income securities

The portfolio of fixed-income investments (excluding mortgage and policy loans) remained at nearly the prior year's level in the first quarter of 2017 to total EUR 96.3 (96.1) billion at the quarter's end. At 80% (81%) of total investments, this asset class continues to represent the most significant share of our investments by 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 equity, increased further by EUR +0.5 billion to EUR 65.9 (65.4) billion, or 68% (68%) of total investments in the fixed income portfolio. German covered bonds (Pfandbriefe) and corporate bonds accounted for the majority of these investments. Valuation reserves – i.e. the balance of unrealised gains and losses – have declined from EUR 3.8 billion to EUR 3.4 billion since the end of 2016 due to the further increase in interest rates for long terms.

In the "Loans and receivables" category, investments were primarily held in government securities or securities with a similar level of security. Pfandbriefe still represent the largest item in the portfolio. Total holdings in fixed-income securities within the category "Loans and receivables" amounted to EUR 29.2 (29.4) billion at the end of the quarter and thus represent 30% of total holdings in the asset class of fixed-income investments. Off-balance-sheet valuation reserves of "Loans and receivables" (including mortgage and policy loans) decreased from EUR 4.9 billion to EUR 4.6 billion.

Investments in fixed-income securities continue to focus in 2017 on government bonds with good ratings or securities from issuers with a similar credit quality. At the reporting date, holdings of AAA-rated bonds amounted to EUR 39.5 (39.0) billion. This represents 41% (40%) of the total portfolio of fixed-income securities and loans.

The Group pursues a conservative investment policy. As a result, 75% (76%) of instruments in the fixed-income securities asset category have a minimum A rating.

The Group has only a small portfolio of investments in government bonds from countries with a rating lower than A–. These holdings have a fair value of EUR 4.5 (4.4) billion.

As far as matching currency cover is concerned, US dollar-denominated investments continue to account for the largest share (20%/20%) of the Talanx Group's foreign currency portfolio. Sizeable positions are also held in pound sterling and Australian dollars, totalling 5% (7%) of all investments. The total share of assets under own management in foreign currencies was 33% (33%) as at 31 March 2017.

EQUITIES AND EQUITY FUNDS

Net unrealised gains and losses on equity holdings within the Group (excluding "Other investments") increased by EUR 87 million to EUR 338 million.

REAL ESTATE INCLUDING SHARES IN REAL ESTATE FUNDS

Investment property totalled EUR 2.4 (2.5) billion at the reporting date. An additional EUR 827 (830) million is held in real estate funds, which are recognised as "Financial assets available for sale".

Depreciation of EUR 12 (11) million was recognised on investment property in the reporting period. There were no impairment losses. Depreciation on real estate funds stood at EUR 5 (1) million. These impairments were not offset by any reversals of impairment losses.

The real estate ratio including investments in real estate funds was unchanged at 3%.

INFRASTRUCTURE INVESTMENTS

In the reporting period, Talanx again expanded its direct investments in infrastructure. The portfolio comprises both equity and external funding investments in wind farms, electricity networks, water companies, solar parks and public-private partnership projects (PPP) in Germany and the rest of Europe. Currently, Talanx has approximately EUR 1.5 (1.5) billion invested in total. We are aiming for an investment volume in the amount of about EUR 2 billion by the end of 2017.

Net investment income

Changes in net investment income

EUR million
Q1 2017 Q1 2016
Ordinary investment income 867 783
of which current income
from interest
705 690
of which gain/loss on
investments in associates
5 2
Realised net gains on disposal
of investments
137 221
Write-downs/reversals of
write-downs of investments
–32 –40
Unrealised net gains from investments 25 31
Other investment expenses 54 54
Income from assets under
own management
943 941
Net interest income from funds
withheld and contract deposits
69 79
Net income from investment contracts –1 2
Total 1,011 1,022

Net investment income for the first quarter was EUR 1.0 billion, down slightly on the previous year. Current interest income, which amounted to EUR 0.7 billion, continues to account for the majority of investment income. Realised gains/losses on disposal of investments was EUR 137 million. In addition, impairment losses amounting to EUR 32 million were made.

Ordinary investment income totalled EUR 867 million at the end of the first quarter, an increase of EUR 84 million from the first quarter of 2016. This development is in part due to income from private equity and real estate funds, which was very high for a first quarter result. Falling interest rates on the capital markets led to an average coupon in the fixed-income securities portfolio of 3.1%, down on the previous year's value of 3.3%.

Total realised net gains on the disposal of investments in the first quarter of the financial year were down on the previous-year figure, amounting on balance to EUR 137 million. The positive net gains resulted from regular portfolio turnover in all segments, as well as from the requirement to realise unrealised gains in order to finance the additional interest reserve for life insurance and occupational pension plans required by the HGB.

In comparison to the previous year, lower depreciations on balance were required in the first quarter of this year. These amounted to EUR 32 million in total, net of reversals of write-downs.

Unrealised net gains/losses declined on balance from EUR 31 million to EUR 25 million.

Net interest income from funds withheld and contract deposits totalled EUR 69 (79) million.

1) After elimination of intra-Group transactions between the segments.

Changes in equity

Changes in equi
ty
EUR million
31.3.2017 31.12.2016 Change +/–%
Subscribed capital 316 316
Capital reserve 1,373 1,373
Retained earnings 6,906 6,668 238 +3.6
Accumulated other comprehensive income and other reserves 773 721 52 +7.2
Group equity 9,368 9,078 290 +3.2
Non-controlling interests 5,764 5,610 154 +2.7
Total 15,132 14,688 444 +3.0

The slight increase in Group equity of EUR 290 million (+3.2 %) particularly relates to the net profit for the period, EUR 238 (222) million of which is attributable to our shareholders and was allocated in full to retained earnings. The increase in accumulated other comprehensive income of EUR 52 million is due to a number of partially offsetting effects. On the one hand, in line with the slight increase in interest rates, the unrealised gains on investments declined by EUR 355 million and the reserve for cash flow hedges decreased by a further EUR 43 million. On the other hand, this effect was significantly overcompensated primarily by the positive development of policyholder participations/shadow accounting (+EUR 412 million), the improvement to cumulative currency translation gains (+EUR 21 million) and the decline in pension provisions (+EUR 15 million).

Equity by division1) including non-controlling interests

EUR million
31.3.2017 31.12.2016
Industrial Lines 2,215 2,189
of which non-controlling interests
Retail Germany 2,518 2,558
of which non-controlling interests 48 51
Retail International 2,374 2,263
of which non-controlling interests 224 206
Reinsurance 10,001 9,702
of which non-controlling interests 5,493 5,354
Corporate Operations –1,994 –2,041
of which non-controlling interests
Consolidation 18 17
of which non-controlling interests –1 –1
Total equity 15,132 14,688
Group equity 9,368 9,078
Non-controlling interests in equity 5,764 5,610

1) Equity per division is defined as the difference between the assets and liabilities of each division.

OUTLOOK

We are making the following assumptions:

  • moderate global economic growth
  • steady inflation rates
  • continuing very low interest rates
  • no sudden upheavals on the capital markets
  • no significant fiscal or regulatory changes
  • catastrophe losses in line with expectations

We provide forecast figures at year-end for the key figures at the Talanx Group and its divisions that the Group uses to control its business operations. With this outlook, we are basically confirming the forecasts for 2017 for the Talanx Group and its divisions that were published in the 2016 Group Annual Report.

TALANX GROUP

Management metrics

%
Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth
(adjusted for currency effects)
> 1 > 1
Group net income in EUR million approx. 800 approx. 800
Net return on investment ≥ 3 ≥ 3
Payout rate 35–45 35–45
Return on equity > 8 > 8

INDUSTRIAL LINES

Management metrics for the Industrial Lines Division

Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth
(adjusted for currency effects)
≥ 2 ≥ 2
Retention > 53 > 53
Combined ratio (net) ~ 96 ~ 96
EBIT margin ~ 10 ~ 10
Return on equity 7–8 7–8

RETAIL GERMANY

Property/Casualty Insurance

Management metrics for the Retail Germany Division – Property/Casualty Insurance segment

Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth –1 to –2 –1 to –2
Combined ratio (net) ~103 ~103
EBIT margin 1–2 1–2

Retail Germany overall

Return on equity management metric for the Retail Germany Division overall % Outlook for 2017 on the basis of Q1 2017 Return on equity 2–3 2–3

RETAIL INTERNATIONAL

Management metrics for the Retail International Division

Life

Management metrics for the Retail Germany Division – Life Insurance segment

%

Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth 0 0
EBIT margin 2–3 2–3
Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth
(adjusted for currency effects)
~10 ~10
Growth in value of new business
(life) 1)
5–10 5–10
Combined ratio
(net, property/casualty)
~96 ~96
EBIT margin 5–6 5–6
Return on equity 6–7 6–7

1) Excluding non-controlling interests

REINSURANCE

PROPERTY/CASUALTY REINSURANCE

Management metrics for the Property/Casualty

Reinsurance segment

%
Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth
(adjusted for currency effects)
slight growth slight growth
Combined ratio (net) < 96 < 96
EBIT margin ≥ 10 ≥ 10

LIFE/HEALTH REINSURANCE

Management metrics for the Life/Health Reinsurance segment

%

Outlook for
2017 on the
basis of
Q1 2017
Forecast for
2017 from the
2016 Annual
Report
Gross premium growth
(adjusted for currency effects)
moderate
growth
moderate
growth
Value of new business 1)
in EUR million
> 110 > 110
EBIT margin financial solutions ≥ 2 ≥ 2
EBIT margin longevity solutions ≥ 2 ≥ 2
EBIT margin mortality/morbidity ≥ 6 ≥ 6

1) Excluding non-controlling interests.

Reinsurance Division overall

Return on equity management metric for the Reinsurance Division overall

%
Outlook for
2017 on the
Forecast for
2017 from the
basis of
Q1 2017
2016 Annual
Report
Return on equity ~11 ~11

Consolidated balance sheet of Talanx AG as at 31 March 2017

Consolidated balance sheet – Assets

31.3.2017 31.12.2016
A. Intangible assets
a. Goodwill 1,060 1,039
b. Other intangible assets 890 903
1,950 1,942
B. Investments
a. Investment property 2,418 2,480
b. Shares in affiliated companies and participating interests 144 139
c. Investments in associates and joint ventures 293 290
d. Loans and receivables 29,244 29,425
e. Other financial instruments
i.
Held to maturity
577 744
ii.
Available for sale
68,557 68,050
iii.
At fair value through profit or loss
1,476 1,352
f. Other investments 5,101 4,694
Assets under own management 107,810 107,174
g. Investments under investment contracts 1,130 1,091
h. Funds withheld by ceding companies 10,756 10,590
Investments 119,696 118,855
C. Investments for the benefit of life insurance policyholders who bear the investment risk 11,010 10,583
D. Reinsurance recoverables on technical provisions 8,264 7,958
E. Accounts receivable on insurance business 7,356 6,192
F. Deferred acquisition costs 5,356 5,240
G. Cash at banks, cheques and cash-in-hand 3,200 2,589
H. Deferred tax assets 587 577
I. Other assets 2,627 2,620
J. Non-current assets and assets of disposal groups classified as held for sale 15 15
Total assets 160,061 156,571

Consolidated balance sheet – Liabilities

EUR million
A. Equity
a.
Subscribed capital
316
Nominal value:
316 (prior year: 316)
Contingent capital: 104 (prior year: 104)
b.
Reserves
9,052
Equity excluding non-controlling interests
9,368
c.
Non-controlling interests
5,764
Total equity
15,132
B.
Subordinated liabilities
1,983
C. Technical provisions
a.
Unearned premium reserve
9,564
b.
Benefit reserve
55,003
c.
Loss and loss adjustment expense reserve
42,095
d. Provision for premium refunds
5,533
e.
Other technical provisions
423
112,618
D. Technical provisions for life insurance policies
where the investment risk is borne by the policyholders
11,010
E.
Other provisions
a.
Provisions for pensions and other post-employment benefits
2,157
b.
Provisions for taxes
922
c.
Miscellaneous other provisions
889
3,968
F.
Liabilities
a.
Notes payable and loans
1,459
b.
Funds withheld under reinsurance treaties
5,035
c.
Other liabilities
6,669
13,163
G. Deferred tax liabilities
2,187
H. Liabilities included in disposal groups classified as held for sale

Total liabilities/provisions
144,929
31.3.2017 31.12.2016
316
8,762
9,078
5,610
14,688
1,983
7,624
54,758
41,873
5,765
409
110,429
10,583
2,183
833
940
3,956
1,505
5,129
6,150
12,784
2,148
141,883
Total equity and liabilities
160,061
156,571

Consolidated statement of income of Talanx AG for the period from 1 January to 31 March 2017

Consolidated statement of income

EUR million
Q1 2017 Q1 2016
1. Gross written premiums including premiums from unit-linked life and annuity insurance 9,752 8,995
2. Savings elements of premiums from unit-linked life and annuity insurance 281 261
3. Ceded written premiums 1,366 1,295
4. Change in gross unearned premiums –1,883 –1,618
5. Change in ceded unearned premiums –470 –445
Net premiums earned 6,692 6,266
6. Claims and claims expenses (gross) 5,966 5,715
Reinsurers' share
Claims and claims expenses (net)
486
5,480
481
5,234
7. Acquisition costs and administrative expenses (gross) 1,792 1,626
Reinsurers' share 173 162
Acquisition costs and administrative expenses (net) 1,619 1,464
8. Other technical income 25 16
Other technical expenses 33 6
Other technical result –8 10
Net technical result –415 –422
9. a. Investment income 1,111 1,120
b. Investment expenses 168 179
Net income from assets under own management 943 941
Net income from investment contracts –1 2
Net interest income from funds withheld and contract deposits 69 79
Net investment income 1,011 1,022
of which share of profit or loss of equity-accounted associates and joint ventures 5 2
10. a. Other income 396 462
b. Other expenses 416 489
Other income/expenses –20 –27
Profit before goodwill impairments 576 573
11. Goodwill impairments
Operating profit (EBIT) 576 573
12. Financing costs 36 37
13. Taxes on income 142 155
Net income 398 381
of which attributable to non-controlling interests 160 159
of which attributable to shareholders of Talanx AG 238 222
Earnings per share
Basic earnings per share (EUR) 0.94 0.88
Diluted earnings per share (EUR) 0.94 0.88

Consolidated statement of comprehensive income of Talanx AG for the period from 1 January to 31 March 2017

EUR million Q1 2017 Q1 2016 Net income 398 381 Items that will not be reclassified to profit or loss Actuarial gains (losses) on pension provisions Gains (losses) recognised in other comprehensive income for the period 21 –257 Tax income (expense) –7 79 14 –178 Changes in policyholder participation/shadow accounting Gains (losses) recognised in other comprehensive income for the period –1 11 Tax income (expense) — — –1 11 Total items that will not be reclassified to profit or loss, net of tax 13 –167 Items that may be reclassified subsequently to profit or loss Unrealised gains and losses on investments Gains (losses) recognised in other comprehensive income for the period –195 1,576 Reclassified to profit or loss –170 –124 Tax income (expense) 34 –197 –331 1,255 Exchange differences on translating foreign operations Gains (losses) recognised in other comprehensive income for the period 2 –266 Reclassified to profit or loss — — Tax income (expense) — 6 2 –260 Changes in policyholder participation/shadow accounting Gains (losses) recognised in other comprehensive income for the period 465 –891 Tax income (expense) –11 17 454 –874 Changes from cash flow hedges Gains (losses) recognised in other comprehensive income for the period –26 110 Reclassified to profit or loss –25 –3 Tax income (expense) 1 –4 –50 103 Changes from equity method measurement Gains (losses) recognised in other comprehensive income for the period 2 –1 Reclassified to profit or loss — — Tax income (expense) — — 2 –1 Miscellaneous other changes Gains (losses) recognised in other comprehensive income for the period — — Reclassified to profit or loss — — Tax income (expense) — — — — Total items that may be reclassified subsequently to profit or loss, net of tax 77 223 Other comprehensive income for the period, net of tax 90 56 Total comprehensive income for the period 488 437 of which attributable to non-controlling interests 198 187 of which attributable to shareholders of Talanx AG 290 250

Consolidated statement of comprehensive income

Consolidated cash flow statement of Talanx AG for the period from 1 January to 31 March 2017

Consolidated cash flow statement

EUR million

Q1 2017 Q1 2016
I.
1. Net income
398 381
I.
2. Changes in technical provisions
2,343 1,937
I.
3. Changes in deferred acquisition costs
–69 –71
I.
4. Changes in funds withheld and in accounts receivable and payable
–1,088 –387
I.
5. Changes in other receivables and liabilities
228 90
I.
6. Changes in investments and liabilities under investment contracts
12 4
I.
7. Changes in financial assets held for trading
–34 10
I.
8. Gains/losses on disposal of investments and property, plant and equipment
–145 –221
I.
9. Change in technical provisions for life insurance policies where the investment
risk Is borne by the policyholders 1)
403 –414
I. 10. Other non-cash expenses and income (including income tax expense/income) 154 139
I. Cash flows from operating activities 2) 2,202 1,468
II.
1. Cash inflow from the sale of consolidated companies
2
II.
2. Cash outflow from the purchase of consolidated companies
9
II.
3. Cash inflow from the sale of real estate
73 1
II.
4. Cash outflow from the purchase of real estate
–28 –12
II.
5. Cash inflow from the sale and maturity of financial instruments
5,699 6,077
II.
6. Cash outflow from the purchase of financial instruments
–6,362 –6,886
II.
7. Changes in investments for the benefit of life insurance policyholders who bear the investment risk
–403 414
II.
8. Changes in other investments
–444 260
II.
9. Cash outflows from the acquisition of tangible and intangible assets
–27 –22
II. 10. Cash inflows from the sale of tangible and intangible assets 12 3
II. Cash flows from investing activities –1,480 –154
III.
1. Cash inflow from capital increases
III.
2. Cash outflow from capital reductions
III.
3. Dividends paid
–44 –39
III.
4. Net changes attributable to other financing activities
–62 –12
III.
Cash flows from financing activities
–106 –51
Net change in cash and cash equivalents (I.+II.+III.) 616 1,263
Cash and cash equivalents at the beginning of the reporting period 2,589 2,243
Effect of exchange rate changes on cash and cash equivalents –5 –10
Effect of changes in the basis of consolidation on cash and cash equivalents 3) –2
Cash and cash equivalents at the end of the reporting period4) 3,200 3,494
Additional information
Taxes paid2) 80 114
Interest paid5) 96 79
Dividends received2) 79 29
Interest received2) 1,014 1,036

1) As opposed to the previous year, item I. 9 "Change in technical provisions for life insurance policies where the investment risk is borne by the policyholders" is reported separately; in the same period of the previous year, the effects were reported in item I. 10 "Other non-cash expenses and income (including income tax expense/income)".

2) Income taxes paid as well as dividends and interest received are allocated to cash flows from operating activities.

Dividends received also comprise dividend-equivalent distributions from investment funds and private equity companies.

3) This item relates primarily to changes in the basis of consolidation, excluding disposals and acquisitions.

4) "Cash and cash equivalents at the end of the reporting period" also include changes in the portfolio of disclosed disposal groups in the amount of EUR 0 (4) million.

5) EUR 20 (20) million of interest paid is attributable to cash flows from financing activities and EUR 76 (59) million to cash flows from operating activities.

Talanx Group. Quarterly statement as at 31 March 2017 23

Segment reporting

Consolidated balance sheet by division as at 31 March 2017

EUR million
Assets Industrial Lines Retail Germany
31.3.2017 31.12.2016 31.3.2017 31.12.2016
A. Intangible assets
a.
Goodwill
153 153 248 248
b.
Other intangible assets
8 8 511 520
161 161 759 768
B.
Investments
a.
Investment property
97 77 985 984
b.
Shares in affiliated companies and participating interests
14 12 7 13
c.
Investments in associates and joint ventures
154 150 52 53
d. Loans and receivables 1,033 1,054 24,995 25,092
e.
Other financial instruments
i. Held to maturity 73 77 166 170
ii. Available for sale 5,655 5,625 21,305 21,420
iii. At fair value through profit or loss 118 72 328 346
f.
Other investments
757 684 1,635 1,532
Assets under own management 7,901 7,751 49,473 49,610
g. Investments under investment contracts
h. Funds withheld by ceding companies 19 20 3 3
Investments 7,920 7,771 49,476 49,613
C. Investments for the benefit of life insurance policyholders
who bear the investment risk 10,112 9,727
D. Reinsurance recoverables on technical provisions 5,309 5,014 2,301 2,170
E.
Accounts receivable on insurance business
1,895 1,259 389 331
F.
Deferred acquisition costs
81 45 2,217 2,179
G. Cash at banks, cheques and cash-in-hand 613 478 797 633
H. Deferred tax assets 71 69 81 78
I.
Other assets
391 387 939 1,226
J.
Non-current assets and assets of disposal groups classified as held for sale
Total assets 16,441 15,184 67,071 66,725
31.12.2016
31.3.2017
31.12.2016
31.3.2017
31.12.2016
31.3.2017
31.12.2016
31.3.2017
31.12.2016
31.3.2017
248
639
618
20
20




1,060
520
156
156
125
128
90
91


890
768
795
774
145
148
90
91


1,950
984
17
17
1,319
1,402




2,418
13


106
97
17
17


144
53


114
114


–27
–27
293
25,092
713
700
2,487
2,564
16
15


29,244
170
261
305
363
485
2
2
–288
–295
577
21,420
7,663
7,373
33,766
33,478
168
154


68,557
346
707
636
323
298




1,476
1,532
293
327
3,235
3,235
472
261
–1,291
–1,345
5,101
49,610
9,654
9,358
41,713
41,673
675
449
–1,606
–1,667
107,810

1,130
1,091






1,130
3


12,106
11,844
1
1
–1,373
–1,278
10,756
49,613
10,784
10,449
53,819
53,517
676
450
–2,979
–2,945
119,696
9,727
898
856






11,010
2,170
880
832
2,741
2,843
5

–2,972
–2,901
8,264
331
1,285
1,142
3,980
3,678
14
2
–207
–220
7,356
2,179
609
589
2,219
2,198
1

229
229
5,356
633
579
455
1,015
814
196
209


3,200
78
64
59
132
127
239
244


587
1,226
460
471
1,442
1,286
490
738
–1,095
–1,488
2,627



15
15




15
66,725
16,354
15,627
65,508
64,626
1,711
1,734
–7,024
–7,325
160,061

Consolidated balance sheet by division as at 31 March 2017

EUR million

Liabilities Industrial Lines Retail Germany
31.3.2017 31.12.2016 31.3.2017 31.12.2016
B.
Subordinated liabilities
200 200 161 161
C. Technical provisions
a.
Unearned premium reserve
2,055 1,094 1,617 1,160
b.
Benefit reserve
39,637 39,515
c.
Loss and loss adjustment expense reserve
9,275 9,353 3,127 3,098
d. Provision for premium refunds 15 19 5,281 5,473
e.
Other technical provisions
42 42 3 2
11,387 10,508 49,665 49,248
D. Technical provisions for life insurance policies
where the investment risk is borne by the policyholders
10,112 9,727
E.
Other provisions
a. Provisions for pensions and other post-employment benefits 605 612 148 150
b.
Provisions for taxes
121 97 133 118
c.
Miscellaneous other provisions
88 84 331 372
814 793 612 640
F.
Liabilities
a.
Notes payable and loans
16 16 102 104
b.
Funds withheld under reinsurance treaties
59 49 1,879 1,748
c.
Other liabilities
1,582 1,257 1,750 2,251
1,657 1,322 3,731 4,103
G. Deferred tax liabilities 168 172 272 288
Total liabilities/provisions 14,226 12,995 64,553 64,167
Total Consolidation Corporate Operations Reinsurance Retail International
31.3.2017
31.12.2016
31.12.2016 31.3.2017 31.12.2016 31.3.2017 31.12.2016 31.3.2017 31.12.2016 31.3.2017
1,983
1,983
–633 –631 530 530 1,683 1,681 42 42
9,564
7,624
–171 –200 1 12 3,341 3,735 2,199 2,345
55,003
54,758
–171 –170 10,290 10,204 5,124 5,332
42,095
41,873
–1,341 –1,300 41 41 28,130 28,296 2,592 2,656
5,533
5,765
273 237
423
409
–7 –6 362 373 10 11
112,618
110,429
–1,690 –1,676 42 53 42,123 42,608 10,198 10,581
11,010
10,583
856 898
2,157
2,183
1,219 1,200 181 182 21 22
922
833
100 106 409 431 109 131
889
940
–1 185 174 199 201 100 96
3,968
3,956
–1 1,504 1,480 789 814 230 249
1,459
1,505
–981 –925 1,535 1,475 810 770 21 21
5,035
5,129
–2,363 –2,550 5,532 5,481 163 166
6,669
6,150
–1,696 –1,281 161 165 2,425 2,536 1,752 1,917
13,163
12,784
–5,040 –4,756 1,696 1,640 8,767 8,787 1,936 2,104
2,187
2,148
21 22 3 2 1,562 1,617 102 106
144,929
141,883
–7,342 –7,042 3,775 3,705 54,924 55,507 13,364 13,980
15,132
14,688
Equity 1)
156,571 Total equity and liabilities
160,061

1) Equity attributable to Group shareholders and non-controlling interests.

Consolidated statement of income by division/reportable segment for the period from 1 January to 31 March 2017 1)

EUR million

Industrial Lines Retail Germany
Q1 2017 Q1 2016 Q1 2017 Q1 2016
1. Gross written premiums including premiums from unit-linked
life and annuity insurance
2,004 1,921 1,906 1,904
of which
attributable to other divisions/segments
27 19 11 15
with third parties 1,977 1,902 1,895 1,889
2. Savings elements of premiums from unit-linked life and annuity insurance 203 219
3. Ceded written premiums 875 856 81 71
4. Change in gross unearned premiums –958 –914 –456 –408
5. Change in ceded unearned premiums –381 –386 –18 –11
Net premiums earned 552 537 1,184 1,217
6. Claims and claims expenses (gross) 703 693 1,322 1,433
Reinsurers' share 279 275 17 14
Claims and claims expenses (net) 424 418 1,305 1,419
7. Acquisition costs and administrative expenses (gross) 240 232 327 298
Reinsurers' share 126 124 26 26
Acquisition costs and administrative expenses (net) 114 108 301 272
8. Other technical income 11 3 8 6
Other technical expenses 6 1 8 10
Other technical result 5 2 –4
Net technical result 19 13 –422 –478
9. a.
Investment income
79 70 544 600
b.
Investment expenses
10 20 80 61
Net income from assets under own management 69 50 464 539
Net income from investment contracts
Net interest income from funds withheld and contract deposits –4 –4
Net investment income 69 50 460 535
of which share of profit or loss of equity-accounted associates
and joint ventures 2 1 4
10. a.
Other income
29 59 54 62
b.
Other expenses
37 48 58 72
Other income/expenses –8 11 –4 –10
Profit before goodwill impairments 80 74 34 47
11. Goodwill impairments
Operating profit (EBIT) 80 74 34 47
12. Financing costs 2 2 2 3
13. Taxes on income 19 24 13 13
Net income 59 48 19 31
of which attributable to non-controlling interests 2
of which attributable to shareholders of Talanx AG 59 48 19 29

1) With the exception of the Retail Germany Division and the Reinsurance Division,

the statements of income of the other divisions are the same as those of the reportable segments.

Retail Germany
Retail International
Reinsurance
Corporate Operations
Consolidation
Total
Q1 2016
Q1 2017
Q1 2016
Q1 2017
Q1 2016
Q1 2017
Q1 2016
Q1 2017
Q1 2016
Q1 2017
1,904
1,483
1,148
4,547
4,263
20
14
–208
–255
9,752
15


149
209
20
14
–208
–257
–1
1,889
1,483
1,148
4,398
4,054



2
9,753
219
78
42






281
71
141
127
471
471
6
7
–208
–237
1,366
–408
–88
–24
–400
–303
–12
–8
31
39
–1,883
–11
–41
–31
–57
–53
–5
–5
32
41
–470
1,217
1,217
986
3,733
3,542
7
4
–1
–20
6,692
1,433
1,011
776
3,012
2,917
2
1
–84
–105
5,966
14
78
37
193
261


–81
–106
486
1,419
933
739
2,819
2,656
2
1
–3
1
5,480
298
288
251
991
906
1
1
–55
–62
1,792
26
20
20
55
55


–54
–63
173
272
268
231
936
851
1
1
–1
1
1,619
6
5
6
1




1
25
10
14
14
2
3


3
–22
33
–4
–9
–8
–1
–3


–3
23
–8
–478
7
8
–23
32
4
2

1
–415
600
104
93
394
373
3
3
–13
–19
1,111
61
16
15
69
86
20
23
–27
–26
168
539
88
78
325
287
–17
–20
14
7
943

–1
2






–1
–4


73
83




69
535
87
80
398
370
–17
–20
14
7
1,011
4


4
1



–5
5
62
40
31
261
298
184
181
–172
–169
396
72
71
58
235
287
166
165
–151
–141
416
–10
–31
–27
26
11
18
16
–21
–28
–20
47
63
61
401
413
5
–2
–7
–20
576










47
63
61
401
413
5
–2
–7
–20
576
3
1
1
20
19
20
21
–9
–9
36
13
16
17
95
102
–1
1

–2
142
31
46
43
286
292
–14
–24
2
–9
398
2
6
7
154
150




160
29
40
36
132
142
–14
–24
2
–9
238

Condensed consolidated statement of income for the reportable segments Retail Germany – Property/Casualty and Life – as well as Property/Casualty and Life/Health Reinsurance for the period from 1 January to 31 March 2017

EUR million
Retail Germany –
Property/Casualty
Retail Germany –
Life
Property/Casualty
Reinsurance
Life/Health
Reinsurance
Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016 Q1 2017 Q1 2016
1. Gross written premiums
including premiums from unit
linked life and annuity insurance
759 749 1,147 1,155 2,815 2,502 1,732 1,761
of which
attributable to
other segments
11 15 113 174 36 35
with third parties 759 749 1,136 1,140 2,702 2,328 1,696 1,726
2. Savings elements of premiums
from unit-linked life and
annuity insurance
203 219
3. Ceded written premiums 38 30 43 41 320 303 151 168
4. Change in gross
unearned premiums
–400 –392 –56 –16 –386 –291 –14 –12
5. Change in ceded
unearned premiums
–19 –14 1 3 –57 –53
Net premiums earned 340 341 844 876 2,166 1,961 1,567 1,581
6. Claims and claims expenses
(gross)
223 232 1,099 1,201 1,524 1,418 1,488 1,499
Reinsurers' share 4 1 13 13 51 102 142 159
Claims and claims expenses (net) 219 231 1,086 1,188 1,473 1,316 1,346 1,340
7. Acquisition costs and
administrative expenses (gross)
129 125 198 173 646 588 345 318
Reinsurers' share 4 3 22 23 44 43 11 12
Acquisition costs and
administrative expenses (net) 125 122 176 150 602 545 334 306
8. Other technical income 1 1 7 5 1
Other technical expenses 3 2 5 8 1 1 3
Other technical result –2 –1 2 –3 –1 –3
Net technical result –6 –13 –416 –465 91 100 –114 –68
9. a.
Investment income
28 26 516 574 294 278 100 95
b. Investment expenses 3 4 77 57 49 69 20 17
Net income from assets under
own management
25 22 439 517 245 209 80 78
Net income from
investment contracts
Net interest income from funds
withheld and contract deposits
–4 –4 5 4 68 79
Net investment income 25 22 435 513 250 213 148 157
of which
share of profit
or loss of equity
accounted asso
ciates and joint
ventures
1 1 3 4 1
10. a.
Other income
15 19 39 43 41 202 220 96
b.
Other expenses
21 22 37 50 67 205 168 82
Other income/expenses –6 –3 2 –7 –26 –3 52 14
Profit before goodwill impairments 13 6 21 41 315 310 86 103
11. Goodwill impairments
Operating profit (EBIT) 13 6 21 41 315 310 86 103

Other disclosures

This document is a quarterly statement in accordance with section 51a of the Exchange Rules for the Frankfurter Wertpapierbörse.

The consolidated balance sheet, the consolidated statement of income, the consolidated statement of comprehensive income and the consolidated cash flow statement were prepared in accordance with the International Financial Reporting Standards (IFRSs), as adopted by the European Union. The statement was prepared in compliance with the requirements of IAS 34 "Interim Financial Reporting". The same accounting policies were applied as for the consolidated financial statements as at 31 December 2016.

The interim financial statements were prepared in euros (EUR). The amounts shown have been rounded to millions of euros (EUR million). This may give rise to rounding differences in the tables presented in this report. As a rule, amounts in brackets refer to the previous year.

Prepared by the Board of Management and hence authorised for publication in Hannover on 4 May 2017.

Exchange differences on translating foreign operations

Talanx AG's reporting currency is the euro (EUR).

Exchange rates for our key foreign currencies

EUR 1 corresponds to (reporting date) Balance sheet Statement of income
(average)
31.3.2017 31.12.2016 Q1 2017 Q1 2016
AUD Australia 1.3969 1.4591 1.4136 1.5103
BRL Brazil 3.3652 3.4292 3.3547 4.2830
CAD Canada 1.4259 1.4191 1.4116 1.5001
CNY China 7.3604 7.3206 7.3381 7.1914
GBP United King
dom
0.8559 0.8553 0.8562 0.7701
MXN Mexico 20.0246 21.7854 21.2927 19.5518
PLN Poland 4.2204 4.4097 4.3181 4.3222
TRY Turkey 3.8908 3.7194 3.8795 3.2150
USD USA 1.0685 1.0540 1.0640 1.1031
ZAR South Africa 14.2357 14.4632 14.2317 17.1500

Events after the end of the reporting period

On 5 April 2017, Talanx Infrastructure France 2 GmbH (Retail Germany Division) concluded a purchase agreement for 100% of the shares of the wind farm company Le Louveng S. a.r.l., Lille, France (acquisition price: approx. EUR 22 million). The transaction is expected to be completed in the second half of 2017.

CONTACT INFORMATION

FINANCIAL CALENDAR 2017

Talanx AG

Riethorst 2 30659 Hannover Germany Telephone +49 511 3747-0 Telefax +49 511 3747-2525 www.talanx.com

14 August Interim Report as at 30 June 2017

13 November Quarterly Statement as at 30 September 2017

23 November Capital Markets Day

Group Communications

Andreas Krosta Telephone +49 511 3747-2020 Telefax +49 511 3747-2025 [email protected]

Investor Relations

Carsten Werle Telephone +49 511 3747-2231 Telefax +49 511 3747-2286 [email protected]

This is a translation of the original German text; the German version shall be authoritative in case of any discrepancies in the translation.

Quarterly Statement online: www.talanx.com/investor-relations

Follow us on Twitter:

@talanx @talanx_en

Talanx AG Riethorst 2 30659 Hannover Germany Telephone +49 511 3747-0 Telefax +49 511 3747-2525 www.talanx.com

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