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Talanx AG

Quarterly Report Nov 28, 2018

427_10-q_2018-11-28_673a4a65-decd-4014-865e-cf37b84862ad.pdf

Quarterly Report

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2018 performance and results

Quarterly Statement as at 30 September 2018

The Talanx Group at a glance

Group key figures

unit 6M 2018 Q3 2018 9M 2018 6M 2017 Q3 2017 9M 2017 9M 2018 v. +/– %
9M 2017
Gross written premiums EUR million 18,760 8,331 27,091 17,553 7,686 25,239 +7.3
by region
Germany % 27 21 25 29 22 27 –2.0 pt.
United Kingdom % 8 8 8 7 8 8 pt.
Central and Eastern Europe (CEE),
including Turkey
% 8 8 8 9 10 9 –1.0 pt.
Rest of Europe % 16 15 16 16 15 15 +1.0 pt.
USA % 18 21 19 16 19 17 +2.0 pt.
Rest of North America % 2 2 2 2 2 2 pt.
Latin America % 7 8 7 8 9 8 –1.0 pt.
Asia and Australia % 12 15 13 11 13 12 +1.0 pt.
Africa % 2 2 2 2 2 2 pt.
Gross written premiums by type and class
of insurance
Property/casualty primary insurance EUR million 5,811 2,007 7,818 5,590 1,917 7,507 +4.1
Primary life insurance EUR million 3,252 1,423 4,675 3,271 1,413 4,684 –0.2
Property/Casualty Reinsurance EUR million 6,252 3,121 9,373 5,193 2,679 7,872 +19.1
Life/Health Reinsurance EUR million 3,445 1,780 5,225 3,499 1,677 5,176 +0.9
Net premiums earned EUR million 14,435 7,406 21,841 13,450 6,8356) 20,2856) +7.7
Underwriting result EUR million –748 –675 –1,423 –940 –1,180 –2,120 +32.9
Net investment income EUR million 2,007 893 2,900 2,085 1,226 3,311 –12.4
Net return on investment 1) % 3.5 3.3 3.7 3.9 –0.6 pt.
Operating profit/loss (EBIT) EUR million 1,212 259 1,471 1,125 –21 1,104 +33.2
Net income (after financing costs and taxes) EUR million 771 171 942 784 18 802 +17.5
of which attributable to shareholders
of Talanx AG
EUR million 437 51 488 463 –19 444 +9.9
Return on equity 2), 3) % 10.0 2.4 7.5 10.3 –0.9 6.76) +0.8 pt.
Earnings per share
Basic earnings per share EUR 1.73 0.20 1.93 1.83 –0.08 1.75 +10.3
Diluted earnings per share eUR 1.73 0.20 1.93 1.83 –0.08 1.75 +10.3
Combined ratio in Property/Casualty primary
insurance and Property/Casualty Reinsurance 4) %
96.7 102.1 98.6 97.0 114.4 103.1 –4.5 pt.
Combined ratio of property/casualty
primary insurers 5)
% 98.1 107.3 101.3 97.6 109.16) 101.6 –0.3 pt.
Combined ratio of Property/Casualty
Reinsurance
% 95.7 98.8 96.8 96.5 118.2 104.3 –7.5 pt.
EBIT margin primary insurance and reinsurance
EBIT margin primary insurance 5) % 5.0 0.7 3.6 5.8 –0.7 3.7 –0.1 pt.
EBIT margin Property/Casualty Reinsurance % 13.6 11.3 12.8 14.9 –1.3 9.1 +3.7 pt.
EBIT margin Life/Health Reinsurance % 6.7 –4.3 3.0 4.9 2.3 4.0 –1.0 pt.
30.9.2018 31.12.2017 +/– %
Policyholders' surplus EUR million 16,578 16,983 –2.4
Equity attributable to shareholders
of Talanx AG
8,540 8,835 –3.3
Non-controlling interests EUR million
EUR million
5,300 5,411 –2.1
Hybrid capital EUR million 2,738 2,737 +0.0
Assets under own management EUR million 111,528 107,881 +3.4
Total investments EUR million 122,759 118,673 +3.4
Total assets EUR million 164,212 158,386 +3.7
Carrying amount per share at end of period EUR 33.78 34.95 –3.3
Share price at end of period EUR 32.74 34.07 –3.9
Market capitalisation of Talanx AG at end of period EUR million Full-time 8,277 8,613 –3.9
Employees equivalents 20,860 20,419 +2.2

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 (30 September 2018 and 31 December 2017).

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

3) Ratio of annualised net income for the quarter excluding non-controlling interests to average equity excluding non-controlling interests at the beginning and the end of the quarter. 4) Combined ratio taking into account interest income on funds withheld and contract deposits, before elimination of intra-Group cross-segment transactions.

5) Excluding figures from the Corporate Operations segment.

Contents

  • Quarterly statement
  • Business development
  • Performance of the Group
  • Development of the divisions within the Group
  • Industrial Lines
  • Retail Germany
  • Retail International
  • Reinsurance
  • Corporate Operations
  • Investments and financial position
  • Outlook
  • Consolidated balance sheet
  • Consolidated statement of income
  • Consolidated statement of comprehensive income
  • Consolidated cash flow statement
  • Segment reporting
  • 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 up 7.3%
  • Large losses comfortably within budget for the financial year
  • Improvement in underwriting result

Group key figures EUR million

9M
2018
9M
2017 1)
+/–%
Gross written premiums 27,091 25,239 +7.3
Net premiums earned 21,841 20,285 +7.7
Underwriting result –1,423 –2,120 +32.9
Net investment income 2,900 3,311 –12.4
Operating profit/loss (EBIT) 1,471 1,104 +33.2
Combined ratio
(net, property/casualty only) in %
98.6 103.1 –4.5 pt.

1) Adjusted in accordance with IAS 8.

Management metrics

%

9M
2018
9M
2017 1)
+/–%
Gross premium growth
(adjusted for currency effects)
11.4 6.7 +4.7 pt.
Group net income in EUR million 488 444 +9.9
Return on equity 2) 7.5 6.7 +0.8 pt.
Net return on investment3) 3.3 3.9 –0.6 pt.

1) Adjusted in accordance with IAS 8.

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

non-controlling interests to average equity excluding non-controlling interests. 3) 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 Talanx Group' gross written premiums amounted to EUR 27.1 (25.2) billion in the first nine months of the year, an increase of 7.3% (11.4% adjusted for currency effects). Thanks to good results in structured reinsurance, the Property/Casualty Reinsurance segment made a double-digit contribution to growth in gross premiums. The 6.2% rise in gross premiums in Industrial Lines relates in part to the redevelopment of property insurance. The Talanx Group's net premiums earned were 7.7% higher year-on-year at EUR 21.8 (20.3) billion. The retention ratio increased slightly to 88.4% (88.0%).

Underwriting result

The Group's underwriting result improved to EUR –1,423 (–2,120) million. Despite the high overall level of large losses incurred in the third quarter, the large loss burden virtually halved to EUR 648 (1,222) million over the first nine months, which, despite unexpectedly high burdens in the Industrial Lines segment, was comfortably within the large loss budget for the Group of EUR 855 million. The Group's combined ratio therefore improved year-on-year to 98.6% (103.1%). The net loss ratio improved in the Property/Casualty Reinsurance segment in particular, more than compensating for the higher net expense ratio.

Net investment income

Net investment income declined by 12.4% to EUR 2,900 (3,311) million. Among other things, this was due to the sharp decline in extraordinary net investment income in the Life Insurance segment of the Retail Germany Division. The sale of securities in the Property/ Casualty Reinsurance segment in the prior year was also a factor. The Group's net return on investment was 3.3% (3.9%) in the first nine months of 2018, 0.6 percentage points softer than in the same period of the prior year.

Operating profit and Group net income

Operating profit (EBIT) improved by 33.2% to EUR 1,471 (1,104) million, with the Property/Casualty Reinsurance segment accounting for the largest share of this, followed by the Property/Casualty segment of the Retail Germany Division. Group net income was 9.9% higher than in the same period of the previous year at EUR 488 (444) million. The return on equity improved to 7.5% (6.7%), and was therefore below the target for 2018 as a whole of around 9%.

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 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 to the Talanx 2017 Group Annual Report for details of these segments' structure and scope of business.

Industrial Lines

  • Growth in premiums abroad
  • High losses incurred in financial year

Key figures for the Industrial Lines DIVISION

Net investment income squeezed by low interest rates

EUR million
9M
2018
9M
2017
+/–%
Gross written premiums 3,756 3,536 +6.2
Net premiums earned 1,910 1,764 +8.3
Underwriting result –224 –179 –25.1
Net investment income 183 203 –9.9
Operating profit/loss (EBIT) –32 25 –228.0

MANAGEMENT METRICS FOR THE INDUSTRIAL LINES DIVISION

%

9M
2018
9M
2017 1)
+/–%
Gross premium growth
(adjusted for currency effects)
+8.9 4.4 +4.5 pt.
Retention 57.8 54.4 +3.4 pt.
Combined ratio (net) 2) 111.7 110.1 +1.6 pt.
EBIT margin3) –1.6 1.4 –3.0 pt.
Return on equity 4) –2.1 0.9 –3.0 pt.

1) Adjusted in accordance with IAS 8.

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

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

4) 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 3.8 (3.5) billion as at 30 September 2018, an increase of around 6.2% (8.9% adjusted for currency effects). Increases in premiums were essentially generated in property lines, third-party liability and marine insurance.

The retention ratio in the division was well above the level of the previous year at 57.8% (54.4%), largely due to lower payments to external reinsurers in fire insurance and lower expenses for reinstatement premiums. The growth in net premiums earned therefore outpaced the gross figures, rising by 8.3% to EUR 1,910 (1,764) million.

Underwriting result

The division's net underwriting result deteriorated to EUR –224 (–179) million. At 21.1% (22.1%), the net expense ratio was lower year-on-year on account of a higher premium base. The loss ratio (net) deteriorated owing to several large losses and an unusually high accumulation of frequency losses in industrial property insurance. The combined ratio for the Industrial Lines Division was 111.7% (110.1%).

Net investment income

Net investment income was down 9.9% on the level of the previous year. Higher income from private equity vehicles compensated for the lower interest rates for new and reinvestments. Higher net gains on equities and lower write-downs contributed to the positive development in the same period of the previous year.

Operating profit and Group net income

As a result of the developments stated above, the division's operating profit was lower as at September 30, 2018 (EUR –32 million) than in the same period of the previous year (EUR 25 million). Group net income amounted to EUR –36 (14) million.

Retail Germany

PROPERTY/CASUALTY INSURANCE

  • Premium growth in third-party liability, accident and property lines and in motor insurance
  • Combined ratio significantly improved
  • Operating profit up year-on-year thanks to positive claim trends

Key figures for the Retail Germany Division – Property/Casualty Insurance segment

EUR million

9M
2018
9M
2017
+/–%
Gross written premiums 1,312 1,284 +2.2
Net premiums earned 1,075 1,049 +2.5
Underwriting result 21 2 +950.0
Net investment income 65 71 –8.5
Operating profit/loss (EBIT) 66 49 +34.7

Management metrics for the Property/Casualty Insurance segment

%

9M
2018
9M
2017
+/–%
Gross premium growth 2.2 1.9 +0.3 pt.
Combined ratio (net) 1) 98.2 100.3 –2.1 pt.
EBIT margin2) 6.1 4.6 +1.5 pt.

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

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

PREMIUM VOLUME AND NEW BUSINESS

There was a 2.2% increase in written premium income to EUR 1.3 (1.3) billion in the Property/Casualty Insurance segment. The higher premium income was thanks in particular to the growth in third-party liability, accident and property business and in motor insurance. Overall, the share of the total Retail Germany Division attributable to the property/casualty insurers therefore increased to 28.4% (27.4%).

Underwriting result

The underwriting result improved from EUR 2 million to EUR 21 million in the current financial year on account of positive claim trends, in turn due to a higher run-off result and profitable growth, more than compensating for the higher burdens due to natural disasters and large losses.

The positive trend in the underwriting result led to a 2.1 percentage point decline in the combined ratio (net), from 100.3% to 98.2%.

Net investment income

Net investment income decreased to EUR 65 (71) million. This is essentially attributable to lower extraordinary net investment income and, moving in the other direction, higher ordinary net investment income.

Operating profit

EBIT was up significantly year-on-year at EUR 66 (49) million thanks to positive claim trends. This pushed the EBIT margin up to 6.1% (4.6%).

LIFE INSURANCE

  • Lower premiums and the erosion of traditional life and annuity insurance portfolios
  • Lower realisation of unrealised gains in investments due to easing of additional interest reserve
  • Rise in EBIT thanks to absence of transfers to provision for premium refunds on account of tax income

Key figures for the Retail Germany Division – Life Insurance segment

EUR million

9M 9M
2018 2017 +/–%
Gross written premiums 3,310 3,397 –2.6
Net premiums earned 2,443 2,493 –2.0
Underwriting result –1,151 –1,310 +12.1
Net investment income 1,257 1,398 –10.1
Operating profit/loss (EBIT) 90 67 +34.3
New business measured in annual
premium equivalent
280 280
Single premiums 969 1,005 –3.6
Regular premiums 183 179 2.2
New business by product in annual
premium equivalent
280 280
of which capital-efficient products 104 102 +2.0
of which biometric products 98 100 –2.0

Management metrics for the life insurance segment

%
9M 9M
2018 2017 +/–%
Gross premium growth –2.6 –3.4 +0.8 pt.
EBIT margin1) 3.7 2.7 +1.0 pt.

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

PREMIUM VOLUME AND NEW BUSINESS

The Life Insurance segment reported a decline in premiums of 2.6%, down to EUR 3.3 (3.4) billion at the end of September – including the savings elements of premiums from unit-linked life insurance. In line with expectations, regular premiums fell by EUR 39 million due to an increase in policies maturing, while single premiums declined by EUR 4 million. The effect of the introduction of sales standards that are even more demand-orientated in residual debt insurance was clearly perceived, with premiums falling by EUR 44 million. The retention ratio in life insurance business dipped to 93.3% (95.3%) as a result of a change in reinsurance. Allowing for the savings elements under our unit-linked products and the change in the unearned premium reserve, the net premiums earned in the Life Insurance segment decreased by 2.0% to EUR 2.4 (2.5) billion. The Life Insurance segment share in the overall Retail Germany Division declined to 71.6% (72.6%).

New business in life insurance products – measured in the internationally applied metric of the annual premium equivalent (APE) – was stable year-on-year at EUR 280 (280) million.

UNDERWRITING RESULT

The underwriting result improved to EUR –1.2 (–1.3) billion in the current financial year. This was partly due to the compounding of 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 declined by 10.1% to EUR 1.3 (1.4) billion. In particular, the reduction resulted from the amendment to the Deckungsrückstellungsverordnung (German Benefit Reserve Ordinance), which now requires the lower realisation of unrealised gains to finance the additional interest reserve. The drop in ordinary net investment income of 1.3% to EUR 1.1 (1.1) billion was influenced by persistently low interest rates.

OPERATING PROFIT

The previous year's operating profit (EBIT) was negatively impacted by the provision for premium refunds resulting from tax income at a number of our companies. As a result, the operating profit increased to EUR 90 (67) million.

RETAIL GERMANY DIVISION OVERALL

%
9M 9M
2018 2017 +/–%
Return on equity 1) 4.8 4.8

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

Taking income taxes, financing costs and non-controlling interests into account, Group net income was stable at EUR 89 (90) million and the return on equity was unchanged at 4.8 percentage points.

Retail International

  • Gross written premiums rise by 9.1% adjusted for currency effects
  • Combined ratio improves to 94.4%
KEY FIGURES FOR
THE
RETAIL INTERNATIONAL DIVISION
EUR million
9M
2018
9M
2017
+/–%
Gross written premiums 4,200 4,065 +3.3
Net premiums earned 3,650 3,422 +6.7
Underwriting result 58 31 +87.1
Net investment income 243 255 –4.7
Operating profit/loss (EBIT) 202 179 +12.8
MANA
GEMENT
METRI
CS FOR
THE
RETAIL
INTERNATIONAL
DIVISION
-- ---------------- ----------------- --------------- --------------------------- --
%
9M
2018
9M
2017
+/–%
Gross premium growth
(adjusted for currency effects)
9.1 9.3 –0.2 pt.
Combined ratio
(net, property/casualty only) 1)
94.4 95.9 –1.5 pt.
EBIT margin2) 5.5 5.2 +0.3 pt.
Return on equity 3) 8.2 7.1 +1.1 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.

This division bundles the activities of the international retail business in the Talanx Group and is active in both Europe and Latin America. In the first nine months of 2018, Talanx International AG gained strength in both regions. The acquisitions of Generali Colombia Seguros Generales S. A. and its subsidiary Generali Colombia Vida Compañia de Seguros S.A., both based in Bogotá, by the Spanish subsidiary Saint Honore Iberia SLU were completed as at 3 April 2018. Talanx International AG also assumed a majority interest in Liberty Sigorta A. S., Istanbul, on 3 May 2018. The merger between the property insurance companies Liberty Sigorta A. S. and HDI Sigorta A. S. is planned for the fourth quarter of 2018. On 9 October 2018, the Santander Auto S.A. joint venture was established in Brazil. The joint subsidiary of HDI Seguros S.A., Brazil, and

a subsidiary der Banco Santander S.A., Brazil, will also start operations in the first half of 2019 after regulatory approval. In addition, an agreement for the sale of HDI Seguros S.A., Peru, was signed on 22 October 2018 but still requires the approval of the Peruvian supervisory authorities.

Premium volume

The division's gross written premiums (including premiums from unit-linked life and annuity insurance) increased by 3.3% compared to the same period of the previous year to EUR 4.2 (4.1) billion. Adjusted for currency effects, gross premiums increased by 9.1% on the comparison period.

In the Latin America region, the gross written premiums in euro decreased by 1.1% compared to the same period of the previous year to EUR 1,215 million. Adjusted for currency effects, however, the growth amounted to 13.1%, which was essentially due to Mexico and Brazil. The premium volume for the Mexican HDI Seguros S.A. increased, in particular in motor insurance, from bank sales and three new broker programmes, which resulted both from an increased number of insured vehicles and from higher average premiums. 49% of the premium volume generated in the region was accounted for by the Brazilian HDI Seguros S.A. Unadjusted, the company's gross written premiums declined by 10.1% to EUR 590 million. However, adjusted for currency effects, they rose by 8.5%, primarily on account of ongoing price increases in motor insurance. The newly acquired Colombian companies were included for half a year at EUR 40 million.

In the Europe region, gross written premiums rose by 5.4% to EUR 3.0 billion (7.5% adjusted for currency effects), driven primarily by an 11.9% increase in premiums to EUR 975 million at the Polish property insurer TUiR WARTA S.A. In addition to the growth in new business in property insurance as a result of a new bank sales channel, the positive performance was driven in particular by the increase in insured vehicles to 4.9 (4.8) million with stable average premiums in motor insurance. The rise in gross written premiums at the Italian HDI Assicurazioni S.p.A. amounted to 9.3%, resulting largely from the positive development in life single premium business from the bank sales channel. HDI Sigorta A. S. in Turkey also reported positive effects on gross written premiums for the region, with the premium volume up 28.1% adjusted for currency effects, thanks mainly to motor insurance. The newly acquired Liberty Sigorta A. S. was included for five months at EUR 7 million.

The combined ratio for property insurance companies improved by 1.5 percentage points as against the same period of the previous year to 94.4%. The expense ratio for the division was 0.9 percentage points lower than in the previous year at 28.1% (29.0%). This essentially resulted from a decline in the acquisition expense ratio (by 0.8 percentage points to 22.6%) on account of cost optimisation measures, primarily at Poland's TUiR WARTA S.A. and the Brazilian HDI Seguros S.A. The loss ratio was reduced by 0.6 percentage points as against the same period of the previous year to 66.3%, in particular on account of ongoing price increases in Brazil and the streamlining of the motor insurance portfolio in Italy.

Overall, the underwriting result in this division was EUR 58 million, well above the previous year's level (EUR 31 million).

Net investment income

The division's net investment income in the first nine months of 2018 amounted to EUR 243 million, a year-on-year reduction of 4.7%. Despite higher investments, the division's ordinary net investment income declined by 2.1%, due largely to the significantly lower interest rate overall compared to the prior-year period, especially in Brazil. Accordingly, the average return on assets under own management declined by 0.4 percentage points to 3.2%.

Operating profit and Group net income

Compared to the same period of the previous year, operating profit (EBIT) in the Retail International Division increased by 12.8% to EUR 202 million in the first nine months of 2018. The EBIT contributed by the Europe region was 29.2% higher as against the same period of the previous year at EUR 177 (137) million, essentially as a result of Poland's TUiR WARTA S.A. and Italy's HDI Assicurazioni S.p.A. By contrast, EBIT of EUR 44 (49) million was generated in the Latin America region, where the decline was mainly due to currency effects in Brazil. Taking non-controlling interests into account, Group net income rose by 12.7% to EUR 124 (110) million. The return on equity rose by 1.1 percentage points to 8.2% compared to the same period in the previous year.

Additional key figures

Retail International Division by line of business at a glance

EUR million

9M 9M
2018 2017 +/–%
Gross written premiums 4,200 4,065 +3.3
Property/Casualty 2,790 2,733 +2.1
Life 1,410 1,332 +5.9
Net premiums earned 3,650 3,422 +6.7
Property/Casualty 2,410 2,322 +3.8
Life 1,240 1,100 +12.7
Underwriting result 58 31 +87.1
Property/Casualty 136 94 +44.7
Life –78 –63 –23.8
Others
Net investment income 243 255 –4.7
Property/Casualty 126 152 –17.1
Life 118 106 +11.3
Others –1 –3 +66.7
New business by product in annual
premium equivalent (life)
170 162 +4.9
Single premiums 1,213 1,137 +6.7
Regular premiums 49 48 +2.1
New business by product in annual
premium equivalent (life)
170 162 +4.9
of which capital-efficient products 95 66 +43.9
of which biometric products 47 45 4.4

Retail International Division by region at a glance

EUR million

9M
2018
9M
2017
+/–%
Gross written premiums 4,200 4,065 +3.3
of which Europe 2,971 2,819 +5.4
of which Latin America 1,215 1,229 –1.1
Net premiums earned 3,650 3,422 +6.7
of which Europe 2,638 2,370 +11.3
of which Latin America 1,012 1,051 –3.7
Underwriting result 58 31 +87.1
of which Europe 26 –3 +966.7
of which Latin America 37 28 +32.1
Net investment income 243 255 –4.7
of which Europe 198 189 +4.8
of which Latin America 48 69 –30.4
Operating profit/loss (EBIT) 202 179 +12.8
of which Europe 177 137 +29.2
of which Latin America 44 49 –10.2

Reinsurance

Property/Casualty Reinsurance

  • Market for property/casualty reinsurance remains challenging with rising losses
  • Large loss budget almost completely exhausted in third quarter

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

EUR million
9M
2018
9M
2017
+/–%
Gross written premiums 9,657 8,200 +17.8
Net premiums earned 8,016 6,754 +18.7
Underwriting result 230 –306 +175.2
Net investment income 807 965 –16.4
Operating profit/loss (EBIT) 1,026 612 +67.6

MANAGEMENT METRICS FOR THE PROPERTY/CASUALTY REINSURANCE SEGMENT

%
9M
2018
9M
2017
+/–%
Gross premium growth
(adjusted for currency effects)
24.0 16.1 +7.9 pt.
Combined ratio (net) 1) 96.8 104.3 –7.5 pt.
EBIT margin2) 12.8 9.1 +3.7 pt.

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

Business development

As before, there is still a surplus supply of capital to cover risks on the global property/casualty reinsurance markets. Even the severe storm damage in the previous year did little to change this. At the same time, the additional capacity from the market for insurance-linked securities (ILS) is putting sustained pressure on prices and conditions. The environment in which Hannover Re operates therefore remains challenging.

However, there is persistent elevated demand in certain regions of Asia and North America, and in areas such as cyber risk reinsurance, parts of specialty lines and in cover designed to support capital management in structured reinsurance.

The treaty renewal rounds in the Property/Casualty Reinsurance segment as at 1 June and 1 July 2018 were again marked by intensive competition. During this time, parts of the North America business, the area of natural disaster risks and the credit and surety business were renewed. There was also the main renewal season for business in Australia and New Zealand, which saw us able to prevent further price erosion on renewals as at 1 July and, in some cases, successful in implementing significant rate increases for programmes that have been affected by losses. This should increase the profitability of business. We are generally satisfied with the treaty renewal for the North American market: we again increased our premium volume by approximately 15% as in the prior year. In the process, we were also able to expand our business with selected customers. We continued our profit-oriented underwriting policy for natural disaster risks, keeping our exposure comfortably within our risk appetite, which is unchanged from the previous year. We were able to significantly improve our position in some major customer relationships, particularly in North America and Europe. The premium volume of the portfolio due for renewal on 1 June and 1 July increased by 16% in total.

Premium development

Gross written premiums for the entire portfolio increased by 17.8% to EUR 9.7 (8.2) billion as at 30 September 2018. At constant exchange rates, the growth would have amounted to 24.0%. Retention increased to 90.9% (89.2%) year-on-year. Net premiums earned improved by 18.7% to EUR 8.0 (6.8) billion; growth would have amounted to as much as 24.9% when adjusted for currency effects.

UNDERWRITING RESULT

While the first half of the year was characterised by very moderate large losses, the loss volume in the third quarter was essentially consistent with expectations for the quarter. The biggest losses in the third quarter included Typhoon "Jebi" in Japan, Typhoons "Prapiroon" and "Trami", and Hurricane "Florence". Overall, our net burden amounted to EUR 365 (894) million over the first nine months of the year. The net loss burden from large losses for the first nine months of the year thus remained comfortably within our planned large loss budget of EUR 630 million.

The underwriting result for the Property/Casualty Reinsurance segment improved to EUR 230 (–306) million as a result of the reduced impact of large losses. The combined ratio improved to 96.8% (104.3%) but remained just outside our target of 96% or better for the year as a whole. In addition to strong growth in structured reinsurance, which operates with lower margins, this was also due to a rising frequency of minor and mid-sized losses.

NET INVESTMENT INCOME

Net investment income from assets under own management in the Property/Casualty Reinsurance segment declined to EUR 780 (952) million. The decline is mainly due to the absence of the positive effect of the sale of shares in the prior year. Net investment income amounted to EUR 807 (965) million in total.

Operating profit

The operating profit (EBIT) for the Property/Casualty Reinsurance segment totalled EUR 1,026 (612) million as at 30 September 2018, an increase of 67.6%. The EBIT margin exceeded our target level of at least 10% at 12.8% (9.1%).

Life/Health Reinsurance

  • After nine months, EBIT was EUR 144 million despite a one-time burden of EUR 218 million due to treaty recaptures in US mortality business
  • Very good progress of global business and better-than-expected claim trends in US mortality business
  • Increasing international interest in innovative, holistic life and longevity insurance concepts

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

EUR million

9M
2018
9M
2017
+/–%
Gross written premiums 5,335 5,284 +1.0
Net premiums earned 4,758 4,788 –0.6
Underwriting result –356 –363 +1.9
Net investment income 367 433 –15.2
Operating profit/loss (EBIT) 144 194 –25.8
9M
2018
9M
2017
+/–%
4.8 0.7 +4.1 pt.
–25.8 –31.2 +5.4 pt.

1) Change in operating profit (EBIT) compared to the prior year in %.

Business development

Business performance in the Life/Health Reinsurance segment was in line with our expectations in the third quarter. Treaty recaptures due to the rate increases we envisaged in US mortality business led to significant one-time burdens in the reporting period. In contrast, positive effects were felt from mortality rates for this business being better than expected in 2018. In the rest of the international Life/ Health Reinsurance business, continued significant interest in hedging longevity risks and other reasons ensured good business performance.

In Germany as well, we are witnessing ongoing interest in reinsurance solutions for additional interest reserves and easing solvency requirements. However, the number of contracts actually entered into is still low.

Longevity risk business performed as expected on most European markets. We are seeing rising price pressure on reinsurers for closed business blocks in annuity business in the United Kingdom. For enhanced annuity programmes, interest in bespoke longevity products is growing in the rest of Europe, as well as in countries such as China, Japan, South Africa and Australia. In Australia in particular, the changes in the regulatory framework are currently giving rise to keen interest in longevity solutions at the time of retirement. Here we are working on cooperations with a number of primary insurers and pension funds.

There is growing interest in health insurance products with time guaranteed benefits in Asia. In Korea, for example, an innovative concept to cover critical illness was launched and is being met with strong demand among customers. Our branch in Korea has secured reinsurance for this new business with several major insurers.

The measures introduced to optimise mortality business in the United States are having an effect, but they are also continuing to squeeze earnings in the Life/Health Reinsurance segment as expected. The reason for this is the poor overall performance of a large block of business that we acquired at the start of 2009 and had already reported on regularly in the past. After they were informed of rate increases in the second quarter, more of our customers than expected exercised their resulting right to treaty recapture. This led to pre-tax burdens of EUR 218 million respectively USD 260 million in the third quarter. However, it must be assumed that this amount will rise further over the fourth quarter. At the present time, we are anticipating a burden of USD 350 million to USD 400 million for the year as a whole.

While treaty recapture is currently reducing earnings from US mortality business, such effects will largely cease to occur for the corresponding treaties in subsequent years, hence we forecast a substantial increase in earnings. Better than expected mortality rates in our US mortality solutions business in the last three quarters are continuing to offset burdens.

Our financial solutions business in the US is also developing positively in line with our expectations. Health and special risks business likewise remained in line with expectations.

Premium development

As at 30 September 2018, the gross premium income generated in Life/Health Reinsurance was unchanged at EUR 5.3 (5.3) billion. Growth would have amounted to 4.8% adjusted for currency effects. Net premiums earned were also unchanged at EUR 4.8 billion. At constant exchange rates, the increase would have amounted to 3.2%. Retention was slightly lower than in the previous year at 90.6% (91.5%).

NET INVESTMENT INCOME

Net investment income amounted to EUR 367 (433) million. The main factors driving the decline in net investment income in the Life/Health Reinsurance segment were the gains realised in the prior year, which essentially resulted from fixed-income securities.

OPERATING PROFIT

The operating profit (EBIT) for the Life/Health Reinsurance segment declined to EUR 144 (194) million.

REINSURANCE DIVISION OVERALL

Group net income in the Reinsurance Division improved to EUR 365 (271) million in the reporting period. The return on equity also climbed by 3.3 percentage points year-on-year to 12.0% (8.7%).

Corporate Operations

Group assets under own management climb by 3.4%

Operating profit

The operating profit in the Corporate Operations segment declined to EUR 7 (8) million in the first nine months of 2018. On the one hand, the underwriting result on the business of Talanx Reinsurance (Ireland) SE, Dublin, reported here was reduced by the large loss due to Cyclone "Friederike" (also called Storm "David"). On the other, in 2018 Talanx generated income resulting from the bonus fee for the placement of a bond of EUR 832 million to finance the "Borkum Riffgrund 2" offshore wind farm in December 2017. Group net income attributable to shareholders of Talanx AG for this segment amounted to EUR –56 (–41) million in the first nine months of 2018.

Investments and financial position

They contributed EUR 2.0 (2.0) billion to earnings, which was reinvested as far as possible in the year under review.

The equity allocation ratio after derivatives (equity ratio) was 1.0% (1.0%) as at the end of the quarter.

The total investment portfolio rose by 3.4% over the course of the first three quarters of 2018 and amounted to EUR 122.8 (118.7) billion. The portfolio of assets under own management also climbed by 3.4% to EUR 107.9 (111.5) billion, primarily as a result of the investment of cash inflows from underwriting business in accordance with the respective corporate guidelines. The effects of the stronger US dollar were also felt. Funds withheld by ceding companies climbed by 4.9% to EUR 10.1 (9.7) billion, primarily on account of the increase in the Property/Casualty Reinsurance segment.

Fixed-income investments were again the most significant asset class as at the end of the third quarter of 2018. Most reinvestments were made in this class, reflecting the existing investment structure.

Breakdown of the investment portfolio

Breakdown of assets under own management by asset class

EUR million
30.9.2018 31.12.2017
Investment property 2,845 3% 2,799 3%
Shares in affiliated companies and participating interests 199 <1% 178 < 1%
Investments in associates and joint ventures 262 <1% 242 < 1%
Loans and receivables
Loans incl. mortgage loans 465 <1% 481 < 1%
Loans and receivables due from government or quasi-governmental entities,
together with fixed-income securities
28,844 26% 28,412 26%
Financial assets held to maturity 462 <1% 554 < 1%
Financial assets available for sale
Fixed-income securities 69,226 62% 66,682 62%
Variable-yield securities 1,842 2% 1,773 2%
Financial assets at fair value through profit or loss
Financial assets classified at fair value through profit or loss
Fixed-income securities 1,183 1% 1,072 1%
Variable-yield securities 113 <1% 65 < 1%
Financial assets held for trading
Fixed-income securities <1% < 1%
Variable-yield securities 134 <1% 148 < 1%
Derivatives 1) 187 <1% 149 < 1%
Other investments 5,766 5% 5,326 5%
Assets under own management 111,528 100% 107,881 100%

1) Only derivatives with positive fair values.

Fixed-income securities

The portfolio of fixed-income investments (excluding mortgage and policy loans) was up EUR 3.0 billion year-on-year at EUR 99.7 (96.7) billion as at the end of the reporting period. At 81% (82%) 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" account for 69% (69%) of the total portfolio of fixed-income securities, and rose by EUR 2.5 billion to EUR 69.2 (66.7) billion. 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 also declined from EUR 3.3 billion to EUR 1.6 billion since the end of 2017 as a result of higher interest rates for investments predominantly in US dollar and pound sterling and higher spreads. On the other hand, we are benefiting from the rise in interest rates and risk premiums for new investment and reinvestment activities. The volatility of "fixed-income securities available for sale" is reflected in equity.

In the "Loans and receivables" category, investments were primarily held in government securities or securities with a similar level of security. German covered bonds (Pfandbriefe) are still the largest item in the portfolio. Total holdings in fixed-income securities within the "Loans and receivables" category amounted to EUR 29.3 (28.9) billion at the end of the quarter and thus represent 29% (30%) of total holdings of fixed-income securities. Off-balance-sheet valuation reserves of "Loans and receivables" (including mortgage and policy loans) decreased from EUR 4.3 billion to EUR 3.6 billion.

Investments in fixed-income securities continue to focus on government bonds with good ratings or securities from issuers with a similar credit quality in 2018. Holdings of AAA-rated bonds amounted to EUR 42.5 (39.0) billion as at the reporting date. This represents 42% (40%) of the total portfolio of fixed-income securities and loans (including mortgage and policy loans).

The Group pursues a conservative investment policy. As a result, 78% (76%) of fixed-income securities 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 3.7 (4.7) billion. The contraction in the portfolio relates to the improvement in Spain's rating, which means that Spanish government bonds currently do not have a rating worse than A–.

As far as matching currency cover is concerned, US dollar-denominated investments continue to account for the largest share at 19% (18%) of the Talanx Group's foreign currency portfolio. Sizeable positions are also held in pound sterling, Polish zloty and Australian dollars, totalling 7% (8%) of all investments. The total share of assets under own management in foreign currencies was 33% (32%) as at the reporting date.

EQUITIES AND EQUITY FUNDS

Net unrealised gains and losses on equity holdings within the Group (excluding "Other investments") decreased by EUR 7 million to EUR 148 (155) million.

REAL ESTATE INCLUDING SHARES IN REAL ESTATE FUNDS

Investment property totalled EUR 2.8 (2.8) billion at the reporting date. An additional EUR 915 (841) million is held in real estate funds, which are recognised as "Financial assets available for sale".

Depreciation of EUR 43 (38) million was recognised on investment property in the reporting period. There were no significant impairment losses in either the current period or the comparable period. Write-downs on real estate funds amounted to EUR 10 (19) million, and were not offset by reversals of impairment losses in the current period or the prior year.

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

INFRASTRUCTURE INVESTMENTS

Talanx again stepped up its direct investment in infrastructure in the reporting period. The portfolio comprises both equity and debt investments in wind farms, electricity grids, hospitals, solar parks, motorways and public-private partnership projects (PPP) in Germany and the rest of Europe. Talanx currently has around EUR 2.0 (1.9) billion invested in infrastructure projects in total. A further expansion of these activities is planned in 2018, including in the form of sector diversification.

Net investment income

Changes in net investment income

9M 2018 9M 2017
Ordinary investment income 2,566 2,518
of which current income
from interest
2,026 2,025
of which attributable to profit/loss
from investments in associates
11 13
Realised net gains on disposal
of investments
485 890
Write-downs/reversals of
write-downs of investments
–124 –137
Unrealised net gains/losses
on investments
5 45
Other investment expenses –184 –171
Income from assets under
own management
2,748 3,145
Net interest income from funds
withheld and contract deposits
153 168
Net income from investment contracts –1 –2
Total 2,900 3,311

At EUR 2,900 (3,311) million, net investment income was down on the previous year's level on account of lower gains in the reporting period. In particular, the previous year was largely influenced by extraordinary income from the sale of shares in the Hannover Re Group. This resulted in a drop in the annualised net return on investment to 3.3% (3.9%).

Despite consistently low interest rates, ordinary investment income totalled EUR 2,566 million at the end of the quarter, a year-on-year increase of EUR 48 million (EUR 2,518 million). This development is due in part to high income from private equity, which more than offset the lower return on our fixed-income securities. Falling interest rates on the capital markets led to an average coupon in the fixed-income securities portfolio of 2.9%, down on the previous year's value of 3.0%.

Total realised net gains on the disposal of investments in the first three quarters of the financial year were significantly lower than the previous year's figure at EUR 485 (890) million. This drop of EUR 405 million is essentially due to the extraordinarily high gains on the liquidation of the portfolio of listed shares in the Hannover Re Group in the previous year. 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. The latter were down as against the previous year as a result of the amendment to the Deckungsrückstellungsverordnung (German Benefit Reserve Ordinance).

Lower depreciation, amortisation and impairment losses were required overall in the reporting period compared to the prior year; these amounted to EUR 124 (137) million in total net of reversals. EUR 43 (38) million of this related to depreciation on directly held real estate, EUR 12 (8) million to write-downs on equities, EUR 10 (33) million to fixed-income securities and EUR 59 (58) million to other investments.

Unrealised net gains declined from EUR 45 million to EUR 5 million, which related to changes in assets held at fair value through profit or loss.

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

Changes in equity

Changes in equity
EUR million
30.9.2018 31.12.2017 Change +/–%
Subscribed capital 316 316
Capital reserve 1,373 1,373
Retained earnings 7,094 6,960 134 +1.9
Accumulated other comprehensive income and other reserves –243 186 –429 –230.6
Group equity 8,540 8,835 –295 –3.3
Non-controlling interests in equity 5,300 5,411 –111 –2.1
Total equity 13,840 14,246 –406 –2.8

The clear reduction in accumulated other comprehensive income and other reserves by EUR 429 million as against 31 December 2017 to EUR –243 million and the dividend payment of EUR 354 (341) million to shareholders of Talanx AG in May of the period under review were not fully absorbed by the net income for the reporting period, EUR 488 (444) million of which is attributable to our shareholders and was allocated in full to retained earnings, leading to a slight reduction of EUR 295 million (3.3%) in the Group's equity.

The decline in other reserves of EUR 429 million is due in particular to the negative development of unrealised gains on investments – primarily caused by slightly higher interest rates and credit spreads since the end of 2017 (EUR –337 million after policyholder participations/shadow accounting) and in the measurement of cash flow hedges (EUR –128 million).

Equity by division1) including non-controlling interests

EUR million
30.9.2018 31.12.2017
Industrial Lines 2,254 2,306
of which non-controlling interests
Retail Germany 2,538 2,508
of which non-controlling interests 59 59
Retail International 2,206 2,276
of which non-controlling interests 220 230
Reinsurance 9,040 9,229
of which non-controlling interests 5,531 5,123
Corporate Operations –2,246 –2,119
of which non-controlling interests
Consolidation 48 46
of which non-controlling interests –510 –1
Total equity 13,840 14,246
Group equity 8,540 8,835
Non-controlling interests in equity 5,300 5,411

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

Outlook

ANTICIPATED FINANCIAL DEVELOPMENT OF THE GROUP

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
  • a large-loss burden 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. After the first nine months of financial year 2018, we continue to expect a rise in gross premiums in excess of 5% for the year as a whole, which can essentially be attributed to the positive development in the Property/Casualty Reinsurance segment. In light of the high large-loss burden in Industrial Lines in the first nine months of more than EUR 260 million – which surpassed the total budget for the year – and an unusually high accumulation of frequency losses, we are now expecting Group net income for 2018 as a whole of around EUR 700 million, falling short of the projection of around EUR 850 million after the first half of the year. A dividend payout for 2018 of at least the previous year's amount is still guaranteed at this time, which would correspond to a ratio of at least 50%. In line with this, the return on equity is expected to be around 8%. This forecast for the fourth quarter is based on the assumption that large losses in primary insurance will remain within the quarterly budget.

Together with the 9M results, Talanx is also publishing its outlook for financial year 2019. We are assuming continued premium growth of around 4%. The IFRS net return on investment is expected to be around 2.7%. We are aiming for Group net income in the amount of about EUR 900 million. This should correspond to a return on equity of about 9.5%.

TALANX GROUP

Management metrics

Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth (adjusted for
currency effects)
> 5 > 5 > 5 > 2
Group net income in
EUR million
approx.
700
approx.
850
approx.
850
approx.
850
Net return on
investment
≥ 3 ≥ 3 ≥ 3 ≥ 3
Payout ratio ≥ 50 35–45 35–45 35–45
Return on equity ~ 8 ~ 9 ~ 9 ~ 9

INDUSTRIAL LINES

In the forecast for 2018 in the 2017 Annual Report, we forecast a combined ratio of around 99% in the Industrial Lines Division. Owing to several large losses and an unusual accumulation of frequency losses in industrial property insurance, we are now assuming a combined ratio of around 109% in Industrial Lines business, ahead of the projection after the first half of the year of around 100%. We continue to expect the EBIT margin and the return on equity to both be 0%.

Management metrics for the Industrial Lines Division

Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth (adjusted for
currency effects)
≥ 2 ≥ 2 ≥ 2 ≥ 2
Retention > 55 > 55 > 55 > 55
Combined ratio (net) ~109 ~100 ~99 ~99
EBIT margin 0 ~8 ~8 ~8
Return on equity 0 ~5 ~5 ~5

RETAIL GERMANY

Property/Casualty Insurance

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

%
Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth
≥ 2 ≥ 2 ≥ 2 ≥ 2
Combined ratio (net) ~100 ~100 ~100 ~100
EBIT margin ≥ 3 ≥ 3 ≥ 3 ≥ 3

Life insurance

Management metrics for the Retail Germany Division – Life Insurance segment

%
Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth
slight
decline
slight
decline
slight
decline
slight
decline
EBIT margin 2–3 2–3 2–3 2–3

Retail Germany overall

Return on equity management metric for the Retail Germany Division overall % Outlook for 2018 on the basis of 9M 2018 Return on equity 3–4 3–4 3–4 3–4

RETAIL INTERNATIONAL

Management metrics for the Retail International Division

%
Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth (adjusted for
currency effects)
5–10 5–10 5–10 5–10
Growth in value of
new business (life) 1)
5–10 5–10 5–10 5–10
Combined ratio
(net, property/
casualty insurance)
~95 ~95 ~95 ~95
EBIT margin ~ 5 ~ 5 ~ 5 ~ 5
Return on equity ~ 7 ~ 7 ~ 7 ~ 7

1) Excluding non-controlling interests.

REINSURANCE

PROPERTY/CASUALTY REINSURANCE

The situation on the global reinsurance markets is still dominated by intensive competition. To date, price negotiations conducted over the course of the year have resulted in only moderate rate increases overall. By contrast, significantly higher premiums were reported for treaties affected by losses in natural disaster business, which was hit hard in the prior year. All in all, the quality of rates on the reinsurance market has improved marginally compared to the previous year, but remains at a low, barely sufficient level. The ongoing development of the loss amounts from the previous year's hurricanes and the overall large losses for the current year will play a crucial role in price development.

Taking the expected loss figures into account, particularly for large losses, we are assuming a combined ratio of 96% or better. Furthermore, we expect that we will outperform our EBIT margin target of at least 10% in the Property/Casualty Reinsurance segment.

Management metrics for the Property/Casualty Reinsurance segment

%
Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth (adjusted for
currency effects)
low
double
digit
growth
low
double
digit
growth
> 5 good
growth
Combined ratio (net) < 96 < 96 < 96 < 96
EBIT margin ≥ 10 ≥ 10 ≥ 10 ≥ 10

Management metrics for the Life/Health Reinsurance segment

%
Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Gross premium
growth (adjusted for
currency effects) 1)
slight
growth
slight
growth
3–5 3–5
Value of new business2)
in EUR million
> 110 > 110 ≥ 110 ≥ 110
EBIT growth3) > 5 > 5

1) Average over a three-year period.

2) Excluding non-controlling interests.

3) No outlook for EBIT growth here on account of the expected burden on earnings from treaty recapture in US mortality business.

LIFE/HEALTH REINSURANCE

In Life/Health Reinsurance, we anticipate an additional decline in our earnings in the fourth quarter as a result of further treaty recaptures in US mortality business. As previously stated, the current reductions in earnings will have a positive effect on future figures, as the corresponding burdens will largely cease to occur in subsequent years. Thus, we are forecasting a substantial increase in earnings for our mortality solutions business from 2019.

In Life/Health Reinsurance business not including US mortality business, we anticipate that the positive development in the first nine months of the year will continue in the fourth quarter, particularly with regard to the earnings figures.

Reinsurance Division overall

Return on equity management metric for the Reinsurance Division overall

Outlook
for 2018
on the
basis of
9M 2018
Outlook
for 2018
on the
basis of
6M 2018
Outlook
for 2018
on the
basis of
Q1 2018
Forecast
for 2018
from the
2017
Annual
Report
Return on equity ~11 ~11 ~11 ~11

condensed consolidated financial statements

Talanx Group. Quarterly statement as at 30 September 2018 19

CONSOLIDATED BALANCE SHEET OF TALANX AG AS AT 30 SEPTEMBER 2018

Consolidated balance sheet – assets

EUR million
30.9.2018 31.12.2017
A. Intangible assets
a.
Goodwill
1,064 1,058
b.
Other intangible assets
941 937
2,005 1,995
B.
Investments
a.
Investment property
2,845 2,799
b.
Shares in affiliated companies and participating interests
199 178
c. Shares in associates and joint ventures 262 242
d. Loans and receivables 29,309 28,893
e.
Other financial instruments
i.
Financial assets held to maturity
462 554
ii.
Financial assets available for sale
71,068 68,455
iii.
Financial assets at fair value through profit or loss
1,617 1,434
f.
Other investments
5,766 5,326
Assets under own management 111,528 107,881
g. Investments under investment contracts 1,082 1,113
h. Funds withheld by ceding companies 10,149 9,679
Investments 122,759 118,673
C. Investments for the benefit of life insurance policyholders who bear the investment risk 11,191 11,133
D. Reinsurance recoverables on technical provisions 8,285 7,697
E.
Accounts receivable on insurance business
7,630 6,626
F.
Deferred acquisition costs
5,670 5,332
G. Cash at banks, cheques and cash-in-hand 3,020 3,138
H. Deferred tax assets 707 592
I.
Other assets
2,608 2,782
J.
Non-current assets and assets of disposal groups classified as held for sale
337 418
Total assets 164,212 158,386

Consolidated balance sheet – equity and liabilities

EUR million
30.9.2018 31.12.2017
A. Equity
a.
Subscribed capital
316 316
Nominal value:
316 (previous year: 316)
Contingent capital: 158 (previous year: 158)
b.
Reserves
8,224 8,519
Equity excluding non-controlling interests 8,540 8,835
c. Non-controlling interests in equity 5,300 5,411
Total equity 13,840 14,246
B.
Subordinated liabilities
2,738 2,737
C. Technical provisions
a.
Unearned premium reserve
9,752 8,116
b.
Benefit reserve
56,203 54,596
c.
Loss and loss adjustment expense reserve
45,171 42,537
d. Provision for premium refunds 5,733 6,199
e.
Other technical provisions
548 449
117,407 111,897
D. Technical provisions for life insurance policies where the investment risk
is borne by the policyholders
11,191 11,133
E.
Other provisions
a.
Provisions for pensions and other post-employment benefits
2,107 2,115
b.
Provisions for taxes
595 762
c.
Miscellaneous other provisions
743 907
3,445 3,784
F.
Liabilities
a.
Notes payable and loans
2,247 1,431
b.
Funds withheld under reinsurance treaties
4,382 4,546
c.
Other liabilities
6,599 6,152
13,228 12,129
G. Deferred tax liabilities 2,043 2,117
H. Liabilities included in disposal groups classified as held for sale 320 343
Total liabilities/provisions 150,372 144,140
Total equity and liabilities 164,212 158,386

CONSOLIDATED STATEMENT OF INCOME OF TALANX AG FOR THE PERIOD FROM 1 JANUARY TO 30 SEPTEMBER 2018

Consolidated statement of income

EUR million
9M 2018 9M 20171) Q3 2018 Q3 20171)
1. Gross written premiums including premiums from unit-linked life and annuity insurance 27,091 25,239 8,331 7,686
2. Savings elements of premiums from unit-linked life and annuity insurance 773 857 225 264
3. Ceded written premiums 3,052 2,927 925 789
4. Change in gross unearned premiums –1,667 –1,396 314 342
5. Change in ceded unearned premiums –242 –226 89 140
Net premiums earned 21,841 20,285 7,406 6,835
6. Claims and claims expenses (gross) 19,872 19,609 7,102 7,486
Reinsurers' share 2,105 2,229 915 1,173
Claims and claims expenses (net) 17,767 17,380 6,187 6,313
7. Acquisition costs and administrative expenses (gross) 5,904 5,406 2,029 1,808
Reinsurers' share 459 423 158 133
Net acquisition and administrative expenses 5,445 4,983 1,871 1,675
8. Other technical income 40 43 10 10
Other technical expenses 92 85 33 37
Other technical result –52 –42 –23 –27
Net technical result –1,423 –2,120 –675 –1,180
9. a. Investment income 3,379 3,639 1,032 1,316
b. Investment expenses 631 494 185 142
Net income from assets under own management 2,748 3,145 847 1,174
Net income from investment contracts –1 –2 –1
Net interest income from funds withheld and contract deposits 153 168 47 52
Net investment income 2,900 3,311 893 1,226
of which share of profit or loss of equity-accounted associates and joint ventures 4 13 6
10. a. Other income 1,126 1,069 388 245
b. Other expenses 1,132 1,156 347 312
Other income/expenses –6 –87 41 –67
Profit before goodwill impairments 1,471 1,104 259 –21
11. Goodwill impairments
Operating profit/loss (EBIT) 1,471 1,104 259 –21
12. Financing costs 128 111 44 37
13. Taxes on income 401 191 44 –76
Net income 942 802 171 18
of which attributable to non-controlling interests 454 358 120 37
of which attributable to shareholders of Talanx AG 488 444 51 –19
Earnings per share
Basic earnings per share (EUR) 1.93 1.75 0.20 –0.08
Diluted earnings per share (EUR) 1.93 1.75 0.20 –0.08

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF TALANX AG FOR THE PERIOD FROM 1 JANUARY TO 30 SEPTEMBER 2018

Consolidated statement of comprehensive income

EUR million

9M 2018 9M 2017 Q3 2018 Q3 2017
Net income 942 802 171 18
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 1 72 9 –14
Tax income (expense) –22 –2 4
1 50 7 –10
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income for the period –3 1
Tax income (expense)
–3 1
Total items that will not be reclassified to profit or loss, net of tax 1 47 7 –9
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 –1,466 –56 –532 154
Reclassified to profit or loss –202 –627 –13 –345
Tax income (expense) 322 37 105 1
–1,346 –646 –440 –190
Exchange differences on translating foreign operations
Gains (losses) recognised in other comprehensive income for the period 137 –788 33 –228
Reclassified to profit or loss
Tax income (expense) –1 46 12
136 –742 33 –216
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income for the period 788 582 254 –35
Tax income (expense) –52 1 –12 12
736 583 242 –23
Changes from cash flow hedges
Gains (losses) recognised in other comprehensive income for the period 2 –19 –3 –5
Reclassified to profit or loss –146 –70 –16 –3
Tax income (expense) 5 3 1
–139 –86 –18 –8
Changes from equity method measurement
Gains (losses) recognised in other comprehensive income for the period –2 –7 –3 4
Reclassified to profit or loss
Tax income (expense)
–2 –7 –3 4
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 –615 –898 –186 –433
Other comprehensive income for the period, net of tax –614 –851 –179 –442
Total comprehensive income for the period 328 –49 –8 –424
of which attributable to non-controlling interests 269 –29 44 –173
of which attributable to shareholders of Talanx AG 59 –20 –52 –251

CONSOLIDATED CASH FLOW STATEMENT OF TALANX AG FOR THE PERIOD FROM 1 JANUARY TO 30 SEPTEMBER 2018

Consolidated cash flow statement

EUR million

9M 2018 9M 2017
I.
1. Net income
942 802
I.
2. Changes in technical provisions
5,462 4,694
I.
3. Changes in deferred acquisition costs
–332 –66
I.
4. Changes in funds withheld and in accounts receivable and payable
–1,308 –619
I.
5. Changes in other receivables and liabilities
356 263
I.
6. Changes in investments and liabilities under investment contracts
8 13
I.
7. Changes in financial assets held for trading
142 –26
I.
8. Gains/losses on disposal of investments and property, plant and equipment
–521 –898
I.
9. Change in technical provisions for life insurance policies where the investment risk is borne by the policyholders
55 469
I. 10. Other non-cash expenses and income (including income tax expense/income) –191 23
I. Cash flows from operating activities 1), 2) 4,613 4,655
II.
1. Cash inflow from the sale of consolidated companies
3 2
II.
2. Cash outflow from the purchase of consolidated companies
–32 –91
II.
3. Cash inflow from the sale of real estate
55 108
II.
4. Cash outflow from the purchase of real estate
II.
5. Cash inflow from the sale and maturity of financial instruments
–75
23,538
–268
18,774
II.
6. Cash outflow from the purchase of financial instruments
–27,667 –20,457
II.
7. Changes in investments for the benefit of life insurance policyholders who bear the investment risk
–55 –469
II.
8. Changes in other investments
–402 –816
II.
9. Cash outflows from the acquisition of tangible and intangible assets
–147 –82
II. 10. Cash inflows from the sale of tangible and intangible assets 108 16
II. Cash flows from investing activities –4,674 –3,283
III.
1. Cash inflow from capital increases
III.
2. Cash outflow from capital reductions
III.
3. Dividends paid
–734 –705
III.
4. Net changes attributable to other financing activities
664 –192
III.
Cash flows from financing activities 2)
–70 –897
Net change in cash and cash equivalents (I.+II.+III.) –131 475
Cash and cash equivalents at the beginning of the reporting period 3,159 2,589
Effect of exchange rate changes on cash and cash equivalents 13 –64
Effect of changes in the basis of consolidation on cash and cash equivalents 3)
Cash and cash equivalents at the end of the reporting period4) 3,041 3,000

1) EUR 450 (169) million of "Income taxes paid", EUR 300 (255) million of "Dividends received" and EUR 2,647 (2,744) million of "Interest received" are allocated to "Cash flows from operating activities". Dividends received also comprise dividend-equivalent distributions from investment funds and private equity companies.

2) EUR 404 (352) million of "Interest paid" is attributable to EUR 146 (150) million to "Cash flows from financing activities" and EUR 258 (202) million to "Cash flows from

operating activities".

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 21 (0) million.

Reconciliation of debts from financing activities at the beginning of the reporting period to carrying amounts as at 30 September 2018

EUR million

Non-cash items
1.1.2018 Cash flows
from financing
activities
Acquisition/
disposal of
subsidiaries
Exchange rate
changes
Other changes
(mainly
amortisation)
30.9.2018
Subordinated liabilities 2,737 1 2,738
Notes payable and loans 1,431 810 5 1 2,247
Total debts from financing activities 4,168 810 5 2 4,985
Interest paid from financing activities –146
Total cash flows from other financing activities 664

Segment reporting

Consolidated balance sheet by division as at 30 September 2018

EUR million
Assets Industrial Lines Retail Germany
30.9.2018 31.12.2017 30.9.2018 31.12.2017
A. Intangible assets
a.
Goodwill
154 154 248 248
b.
Other intangible assets
8 8 499 481
162 162 747 729
B.
Investments
a.
Investment property
150 125 1,071 1,075
b. Shares in affiliated companies and participating interests 12 12 39 41
c. Shares in associates and joint ventures 149 120
d. Loans and receivables 1,066 973 25,225 24,844
e.
Other financial instruments
i. Financial assets held to maturity 72 73 168 170
ii. Financial assets available for sale 5,865 5,524 22,937 22,794
iii. Financial assets at fair value through profit or loss 169 136 353 358
f.
Other investments
1,182 779 1,772 1,495
Assets under own management 8,665 7,742 51,565 50,777
g. Investments under investment contracts
h. Funds withheld by ceding companies 15 18 4 4
Investments 8,680 7,760 51,569 50,781
C. Investments for the benefit of life insurance policyholders
who bear the investment risk
10,638 10,485
D. Reinsurance recoverables on technical provisions 5,395 4,844 2,122 2,131
E.
Accounts receivable on insurance business
1,252 1,484 368 304
F.
Deferred acquisition costs
73 51 2,261 2,232
G. Cash at banks, cheques and cash-in-hand 666 630 579 638
H. Deferred tax assets 48 46 82 72
I.
Other assets
514 795 799 959
J.
Non-current assets and assets of disposal groups classified as held for sale
18 43
Total assets 16,790 15,790 69,165 68,374
Retail International Reinsurance Corporate Operations Consolidation Total
30.9.2018 31.12.2017 30.9.2018 31.12.2017 30.9.2018 31.12.2017 30.9.2018 31.12.2017 30.9.2018 31.12.2017
627
623
35 33 1,064 1,058
151
150
178 197 105 101 941 937
778
773
213 230 105 101 2,005 1,995
10 15
1,614
1,584 2,845 2,799

132
108 16 17 199 178

113
122 262 242
527
604
2,476 2,455 15 17 29,309 28,893
222
268
291 336 1 –291 –294 462 554
8,708
8,245
33,370 31,705 188 187 71,068 68,455
423
639
672 301 1,617 1,434
432
392
3,108 3,266 776 679 –1,504 –1,285 5,766 5,326
10,322
10,163
41,776 39,877 995 901 –1,795 –1,579 111,528 107,881
1,082
1,113
1,082 1,113

11,368
10,903 –1,238 –1,246 10,149 9,679
11,404
11,276
53,144 50,780 995 901 –3,033 –2,825 122,759 118,673
553
648
11,191 11,133
681
668
2,804 2,714 10 –2,727 –2,660 8,285 7,697
1,195
1,156
4,911 3,822 14 2 –110 –142 7,630 6,626
597
588
2,485 2,229 1 253 232 5,670 5,332
661
598
885 820 229 452 3,020 3,138
106 61
143
118 328 295 707
431
412
2,762 1,429 425 731 –2,323 –1,544 2,608
402
427
–65 –70 337
16,808
16,607
67,347 62,142 2,107 2,482 –8,005 –7,009 164,212 158,386

Consolidated balance sheet by division as at 30 September 2018

EUR million

Equity and liabilities Industrial Lines Retail Germany
30.9.2018 31.12.2017 30.9.2018 31.12.2017
B.
Subordinated liabilities
200 200 162 162
C. Technical provisions
a.
Unearned premium reserve
1,477 1,082 1,534 1,307
b.
Benefit reserve
41,160 40,205
c. Loss and loss adjustment expense reserve 10,351 9,376 3,323 3,258
d. Provision for premium refunds 25 16 5,542 5,848
e.
Other technical provisions
49 48 2 2
11,902 10,522 51,561 50,620
D. Technical provisions for life insurance policies where the investment risk
is borne by the policyholders
10,638 10,485
E.
Other provisions
a. Provisions for pensions and other post-employment benefits 580 593 143 143
b.
Provisions for taxes
70 118 101 108
c.
Miscellaneous other provisions
66 81 298 362
716 792 542 613
F.
Liabilities
a.
Notes payable and loans
14 15 91 96
b.
Funds withheld under reinsurance treaties
54 55 1,744 1,754
c.
Other liabilities
1,406 1,627 1,666 1,887
1,474 1,697 3,501 3,737
G. Deferred tax liabilities 244 272 223 247
H. Liabilities included in disposal groups classified as held for sale 1 2
Total liabilities/provisions 14,536 13,484 66,627 65,866
Retail Germany Retail International Reinsurance Corporate Operations Consolidation Total
30.9.2018
31.12.2017
30.9.2018 31.12.2017 30.9.2018 31.12.2017 30.9.2018 31.12.2017 30.9.2018 31.12.2017 30.9.2018 31.12.2017
162 2,737
42 42 1,873 1,661 1,280 1,280 –819 –608 2,738
2,364 2,332 4,513 3,541 11 1 –147 –147 9,752 8,116
5,965 5,577 9,237 8,978 –159 –164 56,203 54,596
2,879 2,724 29,858 28,379 58 45 –1,298 –1,245 45,171 42,537
166 335 5,733 6,199
10 13 499 394 –12 –8 548 449
11,384 10,981 44,107 41,292 69 46 –1,616 –1,564 117,407 111,897
553 648 11,191 11,133
143 43 22 179 178 1,162 1,179 2,107 2,115
145 130 215 320 64 86 595
108 94 143 182 129 189 –1 –1 743
296 246 537 680 1,355 1,454 –1 –1 3,445
79 70 1,533 712 1,484 1,482 –954 –944 2,247
43 39 4,753 4,924 –2,212 –2,226 4,382
1,887 1,701 1,794 4,071 2,172 163 336 –2,408 –1,664 6,599 6,152
1,823 1,903 10,357 7,808 1,647 1,818 –5,574 –4,834 13,228 12,129
119 101 1,433 1,472 2 3 22 22 2,043 2,117
385 410 –65 –70 320
14,331 58,307 52,913 4,353 4,601 –8,053 –7,055 150,372 144,140
14,602
65,866
Equity 1) 13,840 14,246

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 30 September 20181)

EUR million

Industrial Lines Retail Germany
9M 2018 9M 2017 9M 2018 9M 2017
1. Gross written premiums including premiums from unit-linked life
and annuity insurance
3,756 3,536 4,622 4,681
of which attributable to other divisions/segments 40 46 45 45
with third parties 3,716 3,490 4,577 4,636
2. Savings elements of premiums from unit-linked life and annuity insurance 630 649
3. Ceded written premiums 1,584 1,611 253 195
4. Change in gross unearned premiums –394 –308 –227 –306
5. Change in ceded unearned premiums –132 –147 –6 –11
Net premiums earned 1,910 1,764 3,518 3,542
6. Claims and claims expenses (gross) 2,913 2,481 3,925 3,943
Reinsurers' share 1,192 931 102 60
Claims and claims expenses (net) 1,721 1,550 3,823 3,883
7. Acquisition costs and administrative expenses (gross) 671 656 929 1,026
Reinsurers' share 268 267 91 69
Net acquisition and administrative expenses 403 389 838 957
8. Other technical income 3 6 19 16
Other technical expenses 13 10 6 26
Other technical result –10 –4 13 –10
Net technical result –224 –179 –1,130 –1,308
9. a.
Investment income
286 245 1,543 1,713
b.
Investment expenses
103 42 212 233
Net income from assets under own management 183 203 1,331 1,480
Net income from investment contracts
Net interest income from funds withheld and contract deposits –9 –11
Net investment income 183 203 1,322 1,469
of which share of profit or loss of equity-accounted
associates and joint ventures 2 1 2
10. a.
Other income
114 106 171 144
b.
Other expenses
105 105 207 189
Other income/expenses 9 1 –36 –45
Profit before goodwill impairments –32 25 156 116
11. Goodwill impairments
Operating profit/loss (EBIT) –32 25 156 116
12. Financing costs 6 6 7 7
13. Taxes on income –2 5 56 14
Net income –36 14 93 95
of which attributable to non-controlling interests 4 5
attributable to shareholders of Talanx AG –36 14 89 90

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 International Reinsurance Corporate Operations Consolidation Total
9M 2017 9M 2018 9M 20172) 9M 2018 9M 2017 9M 2018 9M 2017 9M 2018 9M 2017 2)
4,065 14,992 13,484 47 27 –526 –554 27,091 25,239
394 436 47 27 –526 –554
4,065 14,598 13,048 27,091 25,239
208 773
331 1,379 1,335 17 7 –495 –552 3,052 2,927
–127 –928 –665 –12 –5 15 –1,667 –1,396
–23 –89 –58 –7 –2 5 15 –242 –226
3,422 12,774 11,542 25 17 –36 –2 21,841 20,285
2,742 10,425 10,741 25 9 –393 –307 19,872 19,609
191 983 1,365 4 –390 –318 2,105 2,229
2,551 9,442 9,376 21 9 –3 11 17,767 17,380
873 3,585 3,004 6 3 –149 –156 5,904
61 152 173 1 –117 –147 459
812 3,433 2,831 5 3 –32 –9 5,445
20 1 –4 40
48 25 5 –5 –4 92
–28 –25 –4 1 4 –52
31 –126 –669 –1 5 –1,423
304
46
1,299
288
1,408
190
8
67
10
64
–45
–82
–41
–81
3,379
631
258 1,011 1,218 –59 –54 37 40 2,748
–2 –1
–1 163 180 153
255 1,174 1,398 –59 –54 37 40 2,900
2 10 4
78 715 716 578 544 –533 –519 1,126
185 593 639 511 487 –464 –449 1,132
–107 122 77 67 57 –69 –70 –6
179 1,170 806 7 8 –32 –30 1,471
179 1,170 806 7 8 –32 –30 1,471
4 69 60 76 64 –35 –30 128
46 311 141 –13 –15 1 401
790 605 –56 –41 2 942
129
19
110
425
365
334
271

–56

–41

2

454
488

Consolidated statement of income by division/reportable segment for the period from 1 July to 30 September 20181)

EUR million

Industrial Lines Retail Germany
Q3 2018 Q3 2017 Q3 2018 Q3 2017
1. Gross written premiums including premiums from unit-linked life
and annuity insurance
858 741 1,360 1,371
of which attributable to other divisions/segments 8 9 17 11
with third parties 850 732 1,343 1,360
2. Savings elements of premiums from unit-linked life and annuity insurance 199 204
3. Ceded written premiums 393 335 75 58
4. Change in gross unearned premiums 332 355 83 48
5. Change in ceded unearned premiums 122 157 5 4
Net premiums earned 675 604 1,164 1,153
6. Claims and claims expenses (gross) 1,246 974 1,147 1,241
Reinsurers' share 521 304 16 17
Claims and claims expenses (net) 725 670 1,131 1,224
7. Acquisition costs and administrative expenses (gross) 230 219 360 340
Reinsurers' share 86 76 48 30
Net acquisition and administrative expenses 144 143 312 310
8. Other technical income 1 2 2 3
Other technical expenses 3 4 3 20
Other technical result –2 –2 –1 –17
Net technical result –196 –211 –280 –398
9. a.
Investment income
93 84 412 544
b.
Investment expenses
34 18 54 66
Net income from assets under own management 59 66 358 478
Net income from investment contracts
Net interest income from funds withheld and contract deposits –2 –4
Net investment income 59 66 356 474
of which share of profit or loss of equity-accounted
associates and joint ventures 1
10. a.
Other income
61 28 42 45
b.
Other expenses
34 20 50 68
Other income/expenses 27 8 –8 –23
Profit before goodwill impairments –110 –137 68 53
11. Goodwill impairments
Operating profit/loss (EBIT) –110 –137 68 53
12. Financing costs 2 2 3 2
13. Taxes on income –23 –41 24 10
Net income –89 –98 41 41
of which attributable to non-controlling interests 2 1
attributable to shareholders of Talanx AG –89 –98 39 40

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 International Reinsurance Corporate Operations Consolidation Total
Q3 2018 Q3 2017
Q3 2018
Q3 20172) Q3 2018 Q3 2017 Q3 2018 Q3 2017 Q3 2018 Q3 20172)
1,237 1,237
5,007
4,486 8 4 –139 –153 8,331 7,686

106
129 8 4 –139 –153
1,237 1,237
4,901
4,357 8,331 7,686
26 60
225 264
78 87
515
460 1 1 –137 –152 925 789
17 –10
–90
–30 3 3 –31 –24 314 342
13 16
–26
–13 4 1 –29 –25 89 140
1,137 1,064
4,428
4,009 6 5 –4 7,406 6,835
931 820
3,919
4,547 7 4 –148 –100 7,102 7,486
87 52
438
902 2 –149 –102 915 1,173
6,313
844 768
3,481
3,645 5 4 1 2 6,187
279 289
1,206
1,012 2 1 –48 –53 2,029
20 21 56
61
1 –53 –55 158
259 268
1,150
951 1 1 5 2 1,871
7 5
10
16 16 21
2
–10 –5 33
–9 –11
–21
–2 10 5 –23 –1,180
25 17
–224
–589 1 –675
88 94
453
603 2 4 –16 –13 1,032
18 11 84
52
23 22 –28 –27 185
70 83
369
551 –21 –18 12 14 847
–1
–1
–1 49
57
47
69 82
418
608 –21 –18 12 14 893

5
1 13
265
158 190 176 –171 –175 388
31 49
206
171 166 150 –140 –146 347
–30 –36 59
–13
24 26 –31 –29 41
64 63
253
6 3 8 –19 –14 259

64 63
253
6 3 8 –19 –14 259
2 1 25
20
25 22 –13 –10 44
11 19 36
–48
–3 –15 –1 –1 44
51 43
192
34 –19 1 –5 –3 171
10 7
108
29 120
41 36 84
5
–19 1 –5 –3 51

EUR million

Retail Germany – Property/Casualty Retail Germany – Life
9M 2018 9M 2017 Q3 2018 Q3 2017 9M 2018 9M 2017 Q3 2018 Q3 2017
1. Gross written premiums includ
ing premiums from unit-linked
life and annuity insurance
1,312 1,284 290 282 3,310 3,397 1,070 1,089
of which attributable to
other segments
45 45 17 11
with third parties 1,312 1,284 290 282 3,265 3,352 1,053 1,078
2. Savings elements of premiums
from unit-linked life and annuity
insurance
630 649 199 204
3. Ceded written premiums 73 66 15 14 180 129 60 44
4. Change in gross unearned
premiums
–171 –181 104 97 –56 –125 –21 –49
5. Change in ceded unearned
premiums
–7 –12 5 4 1 1
Net premiums earned 1,075 1,049 374 361 2,443 2,493 790 792
6. Claims and claims expenses
(gross)
694 683 229 231 3,231 3,260 918 1,010
Reinsurers' share 24 13 –1 4 78 47 17 13
Claims and claims expenses (net) 670 670 230 227 3,153 3,213 901 997
7. Acquisition costs and adminis
trative expenses (gross)
399 388 137 128 530 638 223 212
Reinsurers' share 18 14 6 5 73 55 42 25
Net acquisition and administrative
expenses 381 374 131 123 457 583 181 187
8. Other technical income 2 2 1 1 17 14 1 2
Other technical expenses 5 5 1 1 1 21 2 19
Other technical result –3 –3 16 –7 –1 –17
Net technical result 21 2 13 11 –1,151 –1,310 –293 –409
9. a.
Investment income
80 84 25 30 1,463 1,629 387 514
b. Investment expenses 15 13 4 3 197 220 50 63
Net income from assets under
own management
65 71 21 27 1,266 1,409 337 451
Net income from investment
contracts
Net interest income from funds
withheld and contract deposits
–9 –11 –2 –4
Net investment income 65 71 21 27 1,257 1,398 335 447
of which share of profit or loss of
equity-accounted associates and
joint ventures
2 1
10. a.
Other income
41 37 11 12 130 107 31 33
b.
Other expenses
61 61 19 23 146 128 31 45
Other income/expenses –20 –24 –8 –11 –16 –21 –12
Profit before goodwill impairments 66 49 26 27 90 67 42 26
11. Goodwill impairments
Operating profit/loss (EBIT) 66 49 26 27 90 67 42 26

Condensed consolidated statement of income for the Retail Germany Division – reportable segments Property/Casualty and Life – as well as the Property/Casualty Reinsurance and Life/Health Reinsurance segments, for the period from 1 January to 30 September 2018 and 1 July to 30 September 2018

Life/Health Reinsurance Property/Casualty Reinsurance
Q3 2018
Q3 2017 1)
9M 2017 1) 9M 2018 Q3 2017 Q3 2018 9M 2017 9M 2018
1,817 5,284 5,335 2,772 3,190 8,200 9,657
37 109 110 92 69 327 284
1,780 5,175 5,225 2,680 3,121 7,873 9,373
193 452 503 309 322 883 876
–38 –43 –75 –35 –52 –622 –853
–1 1 –1 –13 –25 –59 –88
1,587 4,788 4,758 2,441 2,841 6,754 8,016
1,674 4,611 4,605 3,018 2,245 6,130 5,820
180 400 497 780 258 965 486
1,494 4,211 4,108 2,238 1,987 5,165 5,334
336 973 1,017 705 870 2,031 2,568
12 37 32 47 44 136 120
324 936 985 658 826 1,895 2,448
1
17
–17
4
–4
21
–21

4
–4
1
4
–4
–248 –363 –356 –455 24 –306 230
117 310 305 516 336 1,098 994
27 44 74 52 57 146 214
90 266 231 464 279 952 780
38 167 136 11 11 13 27
128 433 367 475 290 965 807
5 10 2
166 536 459 8 99 180 256
412 326 60 91 227 267
115 124 133 –52 8 –47 –11
51
–69 194 144 –32 322 612 1,026

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". Prior-year figures adjusted in accordance with IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors".

The same accounting policies were applied as for the consolidated financial statements as at 31 December 2017. To the extent that there are new standards effective from 1 January 2018, these have been applied accordingly. In particular, this concerns the first-time application of IFRS 15 "Revenue from Contracts with Customers" and the 2016 amendment of IFRS 4 "Insurance Contracts", which allows the Group to postpone the effective date of IFRS 9 "Financial Instruments" until 2021.

The interim financial statements were prepared in euro (EUR). The amounts shown have been rounded to millions of euro (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 prior year.

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)
30.9.2018 31.12.2017 9M 2018 9M 2017
AUD Australia 1.6060 1.5347 1.5758 1.4588
BRL
Brazil
4.6442 3.9734 4.2839 3.5493
CAD Canada 1.5073 1.5047 1.5343 1.4557
CNY China 7.9749 7.8051 7.7937 7.5837
GBP
United Kingdom
0.8881 0.8875 0.8847 0.8719
JPY
Japan
131.3100 135.0100 131.2180 125.0810
MXN Mexico 21.8176 23.6511 22.6881 21.0945
PLN
Poland
4.2773 4.1772 4.2460 4.2708
USD USA 1.1583 1.1994 1.1939 1.1150
ZAR
South Africa
16.4715 14.8140 15.3345 14.7791

Events after the end of the reporting period

On 26 January 2018, the Group signed an agreement to sell its 100% interest in ASPECTA Assurance International Luxembourg S.A., Luxembourg, Luxembourg, through Talanx International AG, Hannover, for a price in the low eight-figure range. The transaction closed on 2 October 2018 with a low gain on disposal.

CONTACT INFORMATION

FINANCIAL CALENDAR 2019

Talanx AG

HDI-Platz 1 30659 Hannover Germany Telephone +49 511 3747-0 Telefax +49 511 3747-2525 www.talanx.com

18 March Results Press Conference 2018

9 May Annual General Meeting

9 May Quarterly Statement as at 31 March

12 September Interim Report as at 30 June

11 November Quarterly Statement as at 30 September

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 HDI-Platz 1 30659 Hannover Germany Telephone+49 511 3747-0 Telefax +49 511 3747-2525 www.talanx.com

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