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Talanx AG

Quarterly Report May 15, 2019

427_10-q_2019-05-15_610efda6-577d-47f3-af1c-71a6eed35033.pdf

Quarterly Report

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Performance and Results

Quarterly Statement as at 31 March 2019

THE TALANX GROUP AT A GLANCE

Group key figures

+/–%
Unit Q1 2019 Q1 2018 Q1 2019 vs
Q1 2018
Gross written premiums EUR million 11,716 10,560 +10.9
by region
Germany % 28 30 –2.0 pt.
United Kingdom % 6 7 –1.0 pt.
Central and Eastern Europe (CEE), including Turkey % 7 8 –1.0 pt.
Rest of Europe % 16 16 — pt.
USA % 21 17 +4.0 pt.
Rest of North America % 2 2 — pt.
Latin America % 7 7 — pt.
Asia and Australia % 12 11 +1.0 pt.
Africa % 1 2 –1.0 pt.
Gross written premiums by type and class of insurance
Property/casualty primary insurance EUR million 4,065 3,768 +7.9
Primary life insurance EUR million 1,690 1,611 +4.9
Property/Casualty Reinsurance EUR million 4,017 3,452 +16.4
Life/Health Reinsurance EUR million 1,944 1,729 +12.4
Net premiums earned EUR million 7,842 6,989 +12.2
Underwriting result EUR million –357 –430 +17.0
Net investment income EUR million 988 1,063 –7.1
Net return on investment 1) % 3.2 3.7 –0.5 pt.
Operating profit/loss (EBIT) EUR million 616 592 +4.1
Net income (after financing costs and taxes) EUR million 411 388 +5.9
of which attributable to shareholders of Talanx AG EUR million 235 218 +7.8
Return on equity 2), 3) % 10.3 10.06) +0.3 pt.
Earnings per share
Basic earnings per share EUR 0.93 0.86 +8.1
Diluted earnings per share EUR 0.93 0.86 +8.1
Combined ratio of property/casualty primary insurance and Reinsurance4) % 96.8 97.0 –0.2 pt.
Combined ratio of property/casualty primary insurers 5) % 98.4 98.36) +0.1 pt.
Combined ratio of Property/Casualty Reinsurance % 95.7 95.9 –0.2 pt.
EBIT margin primary insurance and Reinsurance
EBIT margin primary insurance5) % 5.2 5.3 –0.1 pt.
EBIT margin Property/Casualty Reinsurance % 11.6 14.2 –2.6 pt.
EBIT margin Life/Health Reinsurance % 6.7 5.9 +0.8 pt.
31.3.2019 31.12.2018 +/–%
Policyholders' surplus EUR million 18,360 16,999 +8.0
Equity attributable to shareholders of Talanx AG EUR million 9,562 8,713 +9.7
Equity attributable to shareholders of Talanx AG EUR million 9,562 8,713 +9.7
Attributable to non-controlling interests EUR million 6,060 5,548 +9.2
Hybrid capital EUR million 2,738 2,738
Assets under own management EUR million 116,574 111,868 +4.2
Total investments EUR million 127,979 122,831 +4.2
Total assets EUR million 172,001 162,879 +5.6
Carrying amount per share at end of period EUR 37.82 34.47 +9.7
Share price at end of period EUR 34.36 29.80 +15.3
Market capitalisation of Talanx AG at end of period EUR million 8,686 7,533 +15.3
Full-time
Employees equivalents 20,813 20,780 +0.2

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 (31.3.2019 and 31.12.2018).

2) Ratio of annualised net income for the 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 intragroup cross-segment transactions.

5) Excluding figures from the Corporate Operations segment.

6) Adjusted in accordance with IAS 8, see 2018 Annual Report, "Accounting policies" section of the Notes.

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
  • Segment reporting
  • Consolidated cash flow statement
  • 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 performance

Performance of the Group

  • Gross premiums up nearly 11%
  • Large losses significantly lower than the budget for the first quarter
  • Combined ratio falls to 96.8%

Group Key figures

EUR million

Q1
2019
Q1
2018
+/–%
Gross written premiums 11,716 10,560 +10.9
Net premiums earned 7,842 6,989 +12.2
Underwriting result –357 –430 +17.0
Net investment income 988 1,063 –7.1
Operating profit/loss (EBIT) 616 592 +4.1
Combined ratio (net, property/casualty
insurance only) in %
96.8 97.0 –0.2 pt.

Management metrics

%
Q1
2019
Q1
2018 1)
+/–%
Gross premium growth
(adjusted for currency effects)
9.7 14,1 –4,4 pt.
Group net income in EUR million 235 218 +7.8
Net return on investment 2) 3.2 3.7 –0.5 pt.
Return on equity 3) 10.3 10.0 +0.3 pt.

1) Adjusted in accordance with IAS 8, see 2018 Annual Report, "Accounting policies" section of the Notes.

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.

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

Premium volume

Gross written premiums for the Talanx Group saw double-digit growth of 10.9% (adjusted for currency effects: 9.7%) in the first quarter, rising to EUR 11.7 (10.6) billion. All divisions – especially Property/Casualty Reinsurance segment, where the general environment improved overall – contributed to the growth in premiums, with net premiums earned up by 12.2% year-on-year at EUR 7.8 (7.0) billion. The retention ratio increased by 0.6% to 88.0% (87.4%). Higher retention, for example in the Retail Germany Division – both in Property/Casualty and Life Insurance – and in the Property/Casualty Reinsurance segment, offset declining retention in the other segments.

Underwriting result

The underwriting result improved by 17.0% to EUR –357 (–430) million. Large losses were moderate at EUR 137 (138) million, roughly on par with the previous year and so well below the budget for the period of EUR 253 (242) million. Large losses were reported primarily in Industrial Lines (EUR 68 million) and Reinsurance (EUR 59 million) Divisions. The net loss ratio improved by 1.6 percentage points whereas the net cost ratio deteriorated by 1.4 percentage points. At 96.8% (97.0%), the combined ratio therefore improved by 0.2 percentage points.

Net investment income

Net investment income lagged behind the previous year's figure, falling by 7.1% to EUR 988 (1,063) million. Extraordinary net investment income in the Life segment in the Retail Germany Division was particularly low due to lower gains realised to finance additional interest reserve as a result of these being reorganised. The Group's net return on investment was 3.2% (3.7%) in the first three months of 2019, down 0.5 percentage points year-on-year.

Operating profit/loss and Group net income

Operating profit (EBIT) improved by 4.1% to EUR 616 (592) million despite lower net investment income. Group net income amounted to EUR 235 (218) million. The return on equity increased to 10.3% (10.0%), above the target of around 9.5% set for 2019 as a whole.

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 2018 Group Annual Report for details of these segments' structure and scope of business.

Industrial Lines

  • Premium development shaped primarily by acquiring shares in HDI Global Specialty SE
  • Claims development for the financial year in line with expectations
  • Positive run-off result but influenced in particular by reserve strengthening of a large loss
  • Constant net investment income despite low interest rates

Key figures for the Industrial Lines Division

EUR million
Q1
2019
Q1
2018
+/–%
Gross written premiums 2,296 2,049 +12.1
Net premiums earned 634 583 +8.7
Underwriting result –18 –13 –38.5
Net investment income 71 68 +4.4
Operating profit/loss (EBIT) 35 51 –31.4

MANAGEMENT METRICS FOR THE INDUSTRIAL LINES DIVISION

%
Q1
2019
Q1
2018
+/–%
Gross premium growth
(adjusted for currency effects)
10.6 5.6 +5.0 pt.
Combined ratio (net) 1) 102.9 102.3 +0.6 pt.
EBIT margin2) 5.6 8.8 –3.2 pt.
Return on equity 3) 3.7 5.5 –1.8 pt.

1) Taking into account interest income on funds withheld and contract deposits.

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

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

Premium volume

Gross written premiums for the division amounted to EUR 2.3 (2.0) billion as at 31 March 2019, an increase of around 12.1% (10.6% after adjustment for currency effects). Premiums picked up due to acquiring shares in HDI Global Specialty SE from Hannover Rück SE. Without this effect, premiums in the segment would have declined slightly (–1%). Restructuring measures in fire insurance launched in 2018 are showing clear success. The expected premium loss associated with this on account of separating inadequately priced risks was partially offset by risk-free additional premiums. Net premiums earned saw a smaller upturn than gross written premiums due to lower retention in the specialty business in comparison to traditional industrial insurance business.

Underwriting result

At EUR –18 (–13) million, the net underwriting result in the division was down on the previous year. The loss ratio (net) deteriorated slightly to 83.0% (82.1%). While loss expenditure in the financial year, including the large loss burden, was in line with expectations, the run-off result is adversely affected by the strengthening of reserves for a large loss in the previous year and has a negative impact on the reinstatement premiums incurred as a result. Nonetheless, the overall run-off result is positive, unlike in the previous year. The net expense ratio improved year on year to 19.8% (20.2%), thanks in particular to acquiring shares in HDI Global Specialty. The combined ratio for the Industrial Lines Division was 102.9% (102.3%).

Net investment income

Net investment income improved by 4.4%, up slightly on the previous year. Current income, which declined as expected, was more than offset by factors including lower write-downs on shares.

Operating profit/loss and Group net income

As a result of the developments stated above, the division's operating profit was lower in the first three months of 2019 (EUR 35 million) than in the first quarter of the prior year (EUR 51 million). This includes foreign exchange losses of EUR 6 million (previous year: foreign exchange gain of EUR 1 million), which are also included in operating profit/loss. Group net income amounted to EUR 23 (31) million.

Retail Germany

Property/Casualty Insurance

  • Premiums and combined ratio stable year on year
  • Improved EBIT, primarily thanks to upturn in net investment income

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

EUR million

Q1
2019
Q1
2018
+/–%
Gross written premiums 782 780 +0.2
Net premiums earned 355 345 +2.9
Underwriting result 4 3 +33.3
Net investment income 28 21 +33.3
Operating profit/loss (EBIT) 30 18 +66.7
MANA
GEMENT
METRICS
FOR
THE PROPERTY
/CASUALTY
INSURANCE
SEGMENT
%
Q1
2019
Q1
2018
+/–%
Gross premium growth 0.2 2.8 –2.6 pt.
Combined ratio (net) 1) 99.3 99.0 +0.3 pt.
EBIT margin2) 8.3 5.2 +3.1 pt.

1) Taking into account interest income on funds withheld.

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

Market Development

Continued growth of up to 2.7% is expected in property/casualty insurance for the current year.

PREMIUM VOLUME AND NEW BUSINESS

Written premium income in the Property/Casualty Insurance segment remained steady year on year at EUR 782 (780) million. Growth in corporate customers/freelance professionals and unemployment insurance in connection with residual debt business helped offset the decline in motor insurance.

Underwriting result

The underwriting result was EUR 4 (3) million in the current financial year, slightly higher than in the same quarter in the previous year. While the situation regarding financial-year losses and large losses only showed a slight relief, the run-off result normalised, falling against the previous year. Investment expenditure continued to increase in the last quarter, in particular in IT. All in all, these effects resulted in a slight 0.3 percentage point rise in the combined ratio (net), from 99.0% to 99.3%.

Net investment income

Net investment income improved to EUR 28 (21) million thanks to higher ordinary investment income of EUR 3 million and an upturn in extraordinary disposal gains to EUR 5 million.

OPERATING PROFIT/LOSS

EBIT rose to EUR 30 (18) million, due essentially to higher net investment income. This pushed the EBIT margin up to 8.3% (5.2%).

Life insurance

  • Growth in single premium business
  • Lower gains realised to finance additional interest reserve
  • Positive impact thanks to introduction of the corridor method to calculate the additional interest reserve

KEY FIGURES FOR THE RETAIL GERMANY DIVISION – LIFE INSURANCE SEGMENT

EUR million
-- -- -------------
Q1
2019
Q1
2018
+/–%
Gross written premiums 1,104 1,088 +1.5
Net premiums earned 812 807 +0.6
Underwriting result –363 –467 +22.3
Net investment income 401 489 –18.0
Operating profit/loss (EBIT) 30 20 +50.0
New business measured in annual
premium equivalent
95 92 +3.3
Single premiums 337 302 +11.6
Regular premiums 61 62 –1.6
New business by product in annual
premium equivalent
95 92 +3.3
of which capital-efficient products 38 33 +15.2
of which biometric products 34 33 +3.0

MANAGEMENT METRICS FOR THE LIFE INSURANCE SEGMENT

%
Q1
2019
Q1
2018
+/–%
Gross premium growth 1.5 –5.1 +6.6 pt.
EBIT margin1) 3.8 2.4 +1.4 pt.

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

Market Development

In the current financial year, we expect to see premium growth of around 0.8% in life insurance, with regular premiums falling slightly by 0.1% and single premiums picking up by 2.9%.

PREMIUM VOLUME AND NEW BUSINESS

Over the first three months of the year, the Life Insurance segment saw premiums rise by 1.5% to EUR 1,104 (1,088) million, which includes the savings elements of premiums from unit-linked life insurance policies. Single premiums (excluding residual debt insurance) climbed by EUR 17 million year on year, driven in particular by the sale of capital-efficient products and biometric products. This was countered by a drop-off in regular premiums (excluding residual debt insurance), primarily the result of a high number of contracts expiring. Residual debt business performed well, with growth of EUR 14 million. The retention ratio in life insurance business rose slightly to 93.5% (93.2%). Allowing for the savings elements of premiums from our unit-linked products and the change in the unearned premium reserve, net premiums earned in the Life Insurance segment increased by 0.6% to EUR 812 (807) million.

Measured in APE, new business in life insurance products rose from EUR 92 million to EUR 95 million.

Underwriting result

The underwriting result improved to EUR –363 (–467) million 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 18.0% to EUR 401 (489) million. In particular, the reduction resulted from lower realisation of unrealised gains to finance the additional interest reserve. Net investment income remained steady year-on-year at EUR 372 (370) million, influenced by persistently low interest rates.

Operating profit/loss

Operating profit (EBIT) in the Life Insurance segment in the Retail Germany Division rose year-on-year to EUR 30 (20) million, due chiefly to a lower addition to the additional interest reserve in comparison to the previous year.

RETAIL GERMANY DIVISION OVERALL

RETURN ON EQUITY FOR THE RETAIL GERMANY DIVISION OVERALL

Q1 Q1
2019 2018 +/–%
Return on equity 1) 5.9 3.7 +2.2 pt.

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

After adjusting for taxes on income, financing costs and noncontrolling interests, Group net income rose to EUR 36 (22) million, thanks especially to improved earnings in Property/Casualty and Life Insurance. This pushed the return on equity up by 2.2 percentage points to 5.9%.

Retail International

  • Gross written premiums rise by 11.8% adjusted for currency effects
  • Combined ratio up 0.3 percentage points at 94.7%

KEY FIGURES FOR THE RETAIL INTERNATIONAL DIVISION

EUR million

Q1
2019
Q1
2018
+/–%
Gross written premiums 1,617 1,496 +8.1
Net premiums earned 1,413 1,251 +12.9
Underwriting result 15 15 ––
Net investment income 91 92 –1.1
Operating profit/loss (EBIT) 73 70 +4.3

MANAGEMENT METRICS FOR THE RETAIL INTERNATIONAL DIVISION

%
Q1
2019
Q1
2018 1)
+/–%
Gross premium growth
(adjusted for currency effects)
11.8 4.8 +7.0 pt.
Combined ratio
(net, property/casualty insurance only)2)
94.7 95.0 –0.3 pt.
EBIT margin3) 5.2 5.6 –0.4 pt.
Return on equity 4) 8.7 8.2 +0.5 pt.

1) Adjusted in accordance with IAS 8, see 2018 Annual Report, "Accounting policies" section of the Notes.

2) Taking into account interest income on funds withheld.

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

4) Ratio of annualised net income for the 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. The division is streamlining its portfolio in Latin America, entering into an agreement to sell its 100% interest in HDI Seguros S.A., San Isidro, Peru, on 22 October 2018 which was then completed at the end of the first quarter of 2019.

Premium volume

The division's gross written premiums (including premiums from unit-linked life and annuity insurance) increased by 8.1% compared to the first quarter of 2018 to EUR 1.6 (1.5) billion. Adjusted for currency effects, gross premiums increased by 11.8% on the comparison period. Premium volume performed well in the two regions during the reporting period. In the Latin America region, gross written premiums increased by 10.4% compared to the same period of the previous year to EUR 446 million. This represents growth of 16.7% adjusted for currency effects, reflecting EUR 22 million in additional premiums from new Colombian companies acquired in the second quarter of 2018 and good performance in Brazil and Mexico. At the Mexican HDI Seguros S.A., premium volumes enjoyed a particular upturn in motor insurance thanks to new intermediaries and agents. 45% 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 1.7% to EUR 200 million. However, adjusted for currency effects, they rose by 6.6%, primarily on account of improved risk selection in motor insurance.

The Europe region reported growth in gross written premiums of 7.7% to EUR 1.2 billion; this growth was driven primarily by a 18.9% increase in premiums to EUR 477 million at the Italian HDI Assicurazioni S.p.A. This good performance was the result both of an upswing in single premium business from bank sales channels in life insurance and of premium growth in the property/casualty insurance line. Turkey also had a positive impact on gross written premiums in the region. Premium volume, adjusted for currency effects, climbed by 42.8%, driven by motor insurance and additional premium volume resulting from the merger with Liberty Sigorta A.S. in the fourth quarter of 2018. Adjusted for currency effects, the growth in premium volume in Europe stood at 10.5%.

Underwriting result

The combined ratio from property insurance companies improved by 0.3 percentage points year-on-year to 94.7%. The loss ratio shrank by 0.7 percentage points, thanks primarily to improvements at HDI Seguros S.A. in Brazil, the Italian HDI Assicurazioni S.p.A. and the Polish TUiR WARTA S.A.

In contrast, the expense ratio for the division was 0.3 percentage points higher than the previous year (28.0%), at 28.3%.

Overall, the underwriting result in this division was EUR 15 million, on par with the previous year's level (EUR 15 million).

Net investment income

At EUR 91 million, net investment income remained on par with the previous year in the first quarter of 2019. The division's ordinary net investment climbed by 10.1% against the first quarter of 2018, essentially driven by higher interest rates and investment volumes in Turkey as well as positive effects from government bonds in Italy. Nonetheless, the reporting period was also marked by a fall in extraordinary net investment income. Owing to the higher volume of investments and overall persistently low interest rates, the average return on assets under own management fell by 0.2 percentage points to 3.4%.

Operating profit/loss and Group net income

In the first quarter of 2019, operating profit (EBIT) in the Retail International Division rose by 4.3% compared with the prior-year period to EUR 73 million. The Europe region contributed to the operating profit of the segment with EBIT of EUR 67 (63) million, a year-onyear increase of 6.3%, whereby this growth was primarily due to developments at TUiR WARTA S.A. in Poland. By contrast, EBIT of EUR 15 (14) million was generated in the Latin America region. Group net income after minority interests increased accordingly by 2.4% to EUR 42 (41) million. The return on equity rose by 0.5 percentage points to 8.7% 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
2019
Q1
2018
+/–%
Gross written premiums 1,617 1,496 +8.1
Property/Casualty 1,011 960 +5.3
Life 606 536 +13.1
Net premiums earned 1,413 1,251 +12.9
Property/Casualty 836 794 +5.3
Life 577 457 +26.3
Underwriting result 15 15
Property/Casualty 45 40 +12.5
Life –30 –25 –20.0
Other
Net investment income 91 92 –1.1
Property/Casualty 47 48 –2.1
Life 45 45
Other –1 –1
New business by product in annual
premium equivalent (life)
72 63 +14.3
Single premiums 538 456 +18.0
Regular premiums 18 17 +5.9
New business by product in annual
premium equivalent (life)
72 63 +14.3
of which capital-efficient products 39 24 +62.5
of which biometric products 17 16 +6.3

Retail International Division by region at a glance

Q1
2019
Q1
2018
+/–%
Gross written premiums 1,617 1,496 +8.1
of which Europe 1,171 1,087 +7.7
of which Latin America 446 404 +10.4
Net premiums earned 1,413 1,251 +12.9
of which Europe 1,042 915 +13.9
of which Latin America 371 336 +10.4
Underwriting result 15 15
of which Europe 7 2 +250.0
of which Latin America 11 13 –15.4
Net investment income 91 92 –1.1
of which Europe 76 77 –1.3
of which Latin America 17 16 +6.3
Operating profit/loss (EBIT) 73 70 +4.3
of which Europe 67 63 +6.3
of which Latin America 15 14 +7.1

Reinsurance

Property/Casualty Reinsurance

  • Market environment remains highly competitive
  • Underwriting result up 23.1%
  • Combined ratio improves to 95.7%

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

EUR million

Q1
2019
Q1
2018
+/–%
Gross written premiums 4,394 3,579 +22.8
Net premiums earned 2,930 2,425 +20.8
Underwriting result 112 91 +23.1
Net investment income 243 274 –11.3
Operating profit/loss (EBIT) 340 344 –1.2

MANAGEMENT METRICS FOR THE PROPERTY/CASUALTY REINSURANCE SEGMENT %

Q1
2019
Q1
2018
+/–%
Gross premium growth
(adjusted for currency effects)
19.4 38.8 –19.4 pt.
Combined ratio (net) 1) 95.7 95.9 –0.2 pt.
EBIT margin2) 11.6 14.2 –2.6 pt.

1) Taking into account interest income on funds withheld.

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 and fire damage in the previous year did little to change this. At the same time, the capacity from the market for insurance-linked securities (ILS) put sustained pressure on prices and conditions in the first few months of the financial year. The market environment in which we operate therefore remains challenging.

This is countered by elevated demand in certain regions of Asia and North America, and in cyber risk reinsurance, parts of specialty lines and in cover in structured reinsurance.

The round of renewals on 1 January 2019 makes us optimistic about the year as a whole in the Property/Casualty Reinsurance segment. In this segment, we boosted our premium volume in traditional property/casualty reinsurance by 15.4%, adjusted for currency effects, to EUR 6,406 (5,551) million. Around two thirds of traditional property/casualty reinsurance (excluding facultative reinsurance, business with insurance-linked securities and structured reinsurance) came up for renewal.

Contrary to the situation one year ago, alternative capital providers were somewhat more cautious when it came to transferring insurance risks to the capital market in the renewal season as at 1 January 2019. Overall, reinsurance prices were in line with risk in the renewals at the start of the year, and we obtained slightly better conditions. As one of the world's leading reinsurers, we continue to benefit from our excellent financial standing, as well as from higher overall demand. In particular, attractive opportunities opened up to expand our portfolio in Asia, North America and Germany.

Premium Development

Gross written premiums in the Property/Casualty Reinsurance segment expanded significantly by 22.8% to EUR 4.4 (3.6) billion, matching our expectations. At constant exchange rates, the growth would have amounted to 19.4%. Retention increased to 91.9% (91.6%). Net premiums earned increased by 20.8% to EUR 2.9 (2.4) billion; adjusted for currency effects, growth would have amounted to 18.0%.

UNDERWRITING RESULT

Large losses developed moderately in the first quarter of 2018. The largest single losses for us were the flooding in Australia and the "Eberhard" winter storm in Germany. The net large loss burden totalled EUR 59 (73) million in the first quarter, well below our anticipated large losses for the first quarter of EUR 175 million. We received late claims notifications from our clients throughout the first quarter for last year's typhoon "Jebi" in Japan, hence these effects slightly diluted the positive run-off of the previous year's loss reserves, which was once again very positive overall. The combined ratio improved slightly, reaching 95.7% (95.9%), and was thus within our anticipated target range of 97% or better. The underwriting result for the Property/Casualty Reinsurance segment climbed by 23.1% to EUR 112 (91) million.

NET INVESTMENT INCOME

Income from assets under own management in the Property/ Casualty Reinsurance segment reached EUR 231 (266) million, with total net investment income amounting to EUR 243 (274) million.

Operating profit/loss

Operating profit (EBIT) in the Property/Casualty Reinsurance segment was virtually level with the previous year at EUR 340 (344) million. The EBIT margin thus reached 11.6% (14.2%), exceeding the target level of at least 10%.

Life/Health Reinsurance

  • Gross premiums up 12.1%, in line with our expectations
  • Strong growth in reinsurance solutions in Asia
  • Generally positive claims development in the US mortality business

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

EUR million

Q1
2019
Q1
2018
+/–%
Gross written premiums 1,979 1,766 +12.1
Net premiums earned 1,681 1,574 +6.8
Underwriting result –108 –55 +96.4
Net investment income 162 123 +31.7
Operating profit/loss (EBIT) 113 92 +22.8
Management metrics for the Life/Health Reinsurance segment
%
Q1
2019
Q1
20181)
+/–%
Gross premium growth
(adjusted for currency effects) 1)
9.6 9.2 +0.4 pt.
EBIT growth2) 22.4 7.0 +15.4 pt.

1) Compared with the previous year.

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

Business Development

Thanks to lower claims, the result in the Life/Health Reinsurance segment improved considerably after loss-ridden contracts came to an end in the previous year, which had entailed an extraordinary burden.

Our mortality solutions business in the US was a key driver of the good performance, reporting better operating profit than anticipated. Nonetheless, treaty recaptures in the US mortality portfolio business were higher than expected and so premium income fell slightly short of our expectations. US financial solutions business also contributed to profitability, as expected.

In Latin America, we got the current year off to a good start by renewing all contracts.

The first quarter in Asia was characterised by higher than anticipated growth in markets such as China and Hong Kong. In China and Korea, we believe that demand will remain strong in the future market of critical illness reinsurance, while in China in particular there was additional demand for solvency relief solutions in structured reinsurance. In addition, signs of promising demand for cover in financial solutions began to emerge in India.

Business in longevity risk hedging was marked by solid demand in markets such as the UK, Germany, Canada and Ireland at the start of the year. This is likely to be evidenced by specific contracts being concluded during the financial year.

We also see increased global interest in hedging the longevity aspects of products in the "immediate needs" and "equity release" categories. This encompasses the reinsurance of biometric risks from products that – to put it simply – cover a direct insurance need, as well as the possibility of receiving the equivalent value of a property as a single or regular premium. Furthermore, new solvency regulations are soon to be introduced in some Asian markets and we also expect this to stimulate demand for coverage concepts designed to protect against longevity risks.

Premium Development

Gross premium income in the Life/Health Reinsurance segment increased by 12.1% to EUR 2.0 billion as at 31 March 2019 (EUR 1.8 billion). Growth would have amounted to 9.6% adjusted for currency effects. Net premiums earned rose by 6.8% to EUR 1.7 (1.6) billion. At constant exchange rates, the increase would have amounted to 4.6%. Retention was slightly lower than in the previous year at 87.0% (90.7%).

NET INVESTMENT INCOME

Income from assets under own management improved by 43.1% to EUR 103 (72) million. Net investment income amounted to EUR 162 (123) million in total.

OPERATING PROFIT/LOSS

Operating profit (EBIT) rose by 22.8% to EUR 113 (92) million.

REINSURANCE DIVISION OVERALL

RETURN
ON EQUITY
FOR
THE REINSURANCE
DIVISION
%
OVERALL
Q1
2019
Q1
20181)
+/–%
Return on equity 1) 13.1 13.5 –0.4 pt.

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

Group net income in the Reinsurance Division increased from EUR 139 million to EUR 148 million in the first quarter of 2019. However, return on equity fell slightly by 0.4 percentage points year on year, to 13.1% (13.5%).

Corporate Operations

Group assets under own management climb by 4.2%

Talanx AG received permission from the Federal Financial Supervisory Authority (BaFin) on 1 January 2019 to conduct non-life reinsurance business and has since operated as an intragroup reinsurer. The first quota share reinsurance agreement was signed with HDI Re, Dublin, on 24 January 2019.

The operating profit in the Corporate Operations segment fell in the first quarter of 2019 to EUR 2 (4) million. Talanx generated income in the first quarter of 2018 from its coordination as a lead investor in 2017 of a group of institutional investors in a bond issue to finance an offshore wind farm. Group net income attributable to shareholders of Talanx AG for this segment amounted to EUR –18 (–17) million in the first quarter of 2019.

Investments and financial position

The total investment portfolio increased by 4.2% over the course of the first quarter of 2019 and amounted to EUR 128.0 (122.8) billion. The portfolio of assets under own management also rose by 4.2% to EUR 116.6 billion. Growth in the portfolio of assets under own management was due to cash inflows from underwriting business, which were reinvested in accordance with the respective corporate guidelines. Portfolio expansion is also a result of market development in the first quarter. Significant developments include decreases in risk premiums, in particular for corporate bonds, and interest rate declines for long terms in euro, US dollar and pound sterling.

The portfolio of investment contracts and funds withheld by ceding companies showed no material changes compared with the start of the year.

Fixed-income investments were again the most significant asset class as at the end of the first quarter of 2019. They contributed EUR 0.7 (0.7) billion to earnings, which was reinvested as far as possible in the year under review.

Breakdown of assets under own management by asset class

31.12.2018
3,039 3% 2,985 3%
311 < 1% 206 < 1%
279 < 1% 265 < 1%
428 < 1% 460 < 1%
28,806 25% 28,684 26%
379 < 1% 409 < 1%
74,149 64% 70,165 63%
1,836 2% 1,799 2%
1,227 1% 1,344 1%
137 < 1% 126 < 1%
105 < 1% 131 < 1%
270 < 1% 239 < 1%
5,608 5% 5,055 5%
116,574 100% 111,868 100%
31.3.2019

1) Only derivatives with positive fair values.

2) Breakdown in %: Fixed-income securities 82 (82); equities and other variable-yield securities 1 (1); funds withheld by ceding companies 8 (8); real estate (including real estate funds) 3 (3); investments under investment contracts 1 (1); other 5 (5)

Fixed-income securities

The portfolio of fixed-income investments was up EUR 4 billion at EUR 105.0 (101.1) billion as at the end of the reporting period. At 82% (82%) of total investments, this asset class continues to represent the most significant share of our investments by volume. Fixedincome investments were primarily divided into the investment categories "financial assets available for sale" (71% [69%] of total investments in the fixed income portfolio) and "Loans and receivables" (28% [29%] of total holdings of fixed-income securities).

"Fixed-income securities available for sale" rose by EUR 4 billion to EUR 74.1 (70.2) billion, which essentially explains the overall upturn in the portfolio of fixed-income investments. Reinvestments were made taking into account the existing investment structure in this asset class. Valuation reserves, i.e. the balance of unrealised gains and losses, have risen from EUR 1.7 billion to EUR 3.6 billion since the end of 2018 on the back of market conditions. The volatility of "fixed-income securities available for sale" is reflected in equity.

In the "Loans and receivables" category, investments are 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 29.2 (29.1) billion at the end of the quarter. Off-balance-sheet valuation reserves of "Loans and receivables" increased to EUR 4.7 (3.8) billion.

The Group pursues a conservative investment policy. Investments in fixed-income securities continue to focus on government bonds with good ratings or securities from issuers with a similar credit quality in 2019. Holdings of AAA-rated bonds amounted to EUR 44.8 (43.1) billion as at the reporting date. The rating structure of fixed-income securities is virtually unchanged in comparison to the end of the previous financial year. 78% (78%) of fixed-income securities have a minimum A rating.

Currency effects

As far as matching currency cover is concerned, US dollar-denominated investments continue to account for the largest share at 20% (19%) of the Talanx Group's foreign currency portfolio. Sizeable positions are also held in pound sterling, Polish zloty and Australian dollars, totalling 8% (7%) of all investments. The total share of assets under own management in foreign currencies was 33% (32%) as at the reporting date.

Net investment income

Change in net investment income

EUR million

Q1 2019 Q1 2018
870 851
691 675
12 3
84 264
–38 –42
64 –6
60 59
920 1,008
68 55
988 1,063

At EUR 988 (1,063) million, net investment income was down on the previous year's level on account of lower gains in the reporting period. This resulted in a drop in the annualised net return on investment to 3.2% (3.7%).

Despite consistently low interest rates, ordinary investment income totalled EUR 870 million at the end of the quarter, a year-on-year increase of EUR 19 million (EUR 851 million). In addition to portfolio growth, this is due to factors including high income from private equity, which more than offset the lower return on our fixed-income securities. The average coupon in the fixed-income securities portfolio remains steady at 2.9% (2.9%).

Total realised net gains on the disposal of investments in the first quarter of the financial year were significantly lower than the previous year's figure at EUR 84 (264) million. The sharp drop of EUR 180 million essentially reflects increased requirements to service the additional interest reserve.

Lower depreciation and amortisation was required overall in the reporting period compared to the prior year. Taking into account reversals of impairment losses, this totalled EUR 38 (42) million, of which EUR 15 (14) million related to depreciation on directly held real estate and EUR 11 (14) million to other investments.

Unrealised net gains/losses rose from EUR –6 million to EUR 64 million thanks to market conditions. This rise was driven by changes in the fair value of our assets held at fair value through profit or loss and is attributable in particular to fair value changes to credit default swaps, interest rate and currency swaps, futures and structured products.

Net investment income by Group segment 1)

EUR million
Q1 2019 Q1 2018
Industrial Lines 73 70
Retail Germany – Property/Casualty 29 20
Retail Germany – Life 411 500
Retail International 92 94
Property/Casualty Reinsurance 242 276
Life/Health Reinsurance 163 123
Corporate Operations –22 –20
Total 988 1,063

1) After elimination of intragroup cross-segment transactions.

Change in equity

Change in equity

EUR million

31.3.2019 31.12.2018 Change +/–%
Subscribed capital 316 316
Capital reserves 1,373 1,373
Retained earnings 7,538 7,281 257 +3.5
Accumulated other
comprehensive income
and other reserves
335 –257 592 –230.4
Group equity 9,562 8,713 849 +9.7
Non-controlling interests
in equity
6.060 5,548 512 +9.2
Total 15,622 14,261 1,361 +9.5

Equity by division1)

including non-controlling interests

EUR million

31.3.2019 31.12.2018
Industrial Lines 2,559 2,364
of which non-controlling interests 51
Retail Germany 2,531 2,443
of which non-controlling interests 67 61
Retail International 2,256 2,149
of which non-controlling interests 242 231
Reinsurance 10,445 9,491
of which non-controlling interests 6,259 5,773
Corporate Operations –2,219 –2,228
of which non-controlling interests
Consolidation 50 42
of which non-controlling interests –559 –517
Total equity 15,622 14,261
Group equity 9,562 8,713
Non-controlling interests in equity 6,060 5,548

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

Outlook

of THE GROUP

constant inflation rate

no exchange rate shocks

We are making the following assumptions:

no sudden upheavals on the capital markets

no significant fiscal or regulatory changes a large loss burden in line with our expectations

moderate global economic growth

continuing very low interest rates

INDUSTRIAL LINES

Management metrics for the Industrial Lines Division

%

Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Gross premium growth
(adjusted for currency effects)
≥ 20 ≥ 20
Combined ratio (net) ~ 100 ~ 100
EBIT margin ~ 5 ~ 5
Return on equity ~ 4 ~ 4

RETAIL GERMANY

Property/Casualty Insurance

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

%
Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Gross premium growth ≥ 3 ≥ 3
Combined ratio (net) ~99 ~99
EBIT margin ≥ 5 ≥ 5

TALANX GROUP

Group and its divisions.

Management metrics

%

Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
~ 4
~ 2.7
around 900 around 900
~ 9.5
35–45 35–45
~ 4
~ 2.7
~ 9.5

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 confirm the 2019 forecast published in the 2018 Group Annual Report in relation to the Talanx

Anticipated financial development

Life insurance

Management metrics for the Retail Germany Division – life insurance segment

%

Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Gross premium growth stable stable
EBIT margin 2–3 2–3

Retail Germany overall

Return on equity management metric for the Retail Germany Division overall

%
Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Return on equity ~ 5 ~ 5

RETAIL INTERNATIONAL

Management metrics for the Retail International Division

%

Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Gross premium growth
(adjusted for currency effects)
5–10 5–10
Value of new business (life) 1)
in EUR million
30–40 30–40
Combined ratio
(net, property/casualty insurance)
~95 ~95
EBIT margin 5–6 5–6
Return on equity 8–9 8–9

1) Excluding non-controlling interests.

REINSURANCE

PROPERTY/CASUALTY REINSURANCE

Management metrics for the Property/Casualty Reinsurance segment %

Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Gross premium growth
(adjusted for currency effects)
significant
growth
significant
growth
Combined ratio (net) < 97 < 97
EBIT margin ≥ 10 ≥ 10

LIFE/HEALTH REINSURANCE

Management metrics for the Life/Health Reinsurance segment

%
Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Gross premium growth
(adjusted for currency effects)
moderate
growth
moderate
growth
Value of new business 1)
in EUR million
≥ 110 ≥ 110
EBIT growth2) > 5 > 5

1) Excluding non-controlling interests.

2) Average over a three-year period.

Reinsurance overall

Return on equity management metric for the Reinsurance Division overall

%
Outlook for
2019 on
the basis of
Q1 2019
Forecast for
2019 from
the 2018
Annual Report
Return on equity ~14 ~14

Hannover Rück SE is expecting positive earnings of almost EUR 100 million in the second quarter as a result of releasing hidden reserves in the area of participating interests. The reason behind this is a restructuring of shares at the Viridium Group, with Hannover Rück SE's interest remaining largely unchanged, which became necessary as part of the acquisition of Generali Lebensversicherung AG by Viridium.

Consolidated balance sheet of Talanx AG as at 31 March 2019

Consolidated balance sheet – Assets

31.3.2019 31.12.2018
A. Intangible assets
a.
Goodwill
1,066 1,058
b. Other intangible assets 901 895
1,967 1,953
B.
Investments
a. Investment property 3,039 2,985
b. Shares in affiliated companies and participating interests 311 206
c. Shares in associates and joint ventures 279 265
d. Loans and receivables 29,234 29,144
e. Other financial instruments
i. Financial assets held to maturity
379
409
ii. Financial assets available for sale
75,985
71,964
iii. Financial assets classified at fair value through profit or loss
1,739
1,840
f. Other investments 5,608 5,055
Assets under own management 116,574 111,868
g. Investments under investment contracts 1,084 1,042
h. Funds withheld by ceding companies 10,321 9,921
Investments 127,979 122,831
C. Investments for the benefit of life insurance policyholders who bear the investment risk 10,929 9,990
D. Reinsurance recoverables on technical provisions 8,972 8,506
E. Accounts receivable on insurance business 8,649 7,251
F. Deferred acquisition costs 5,734 5,358
G. Cash at banks, cheques and cash-in-hand 3,471 3,362
H. Deferred tax assets 1,200 1,156
I.
Other assets
3,079 2,457
J. Non-current assets and assets of disposal groups classified as held for sale 21 15
Total assets 172,001 162,879

Consolidated balance sheet – Equity and liabilities

EUR million
31.3.2019 31.12.2018
A. Equity
a.
Subscribed capital
316 316
Nominal value:
316 (previous year: 316)
Contingent capital: 158 (previous year: 158)
b.
Reserves
9,246 8,397
Equity excluding non-controlling interests 9,562 8,713
c. Non-controlling interests in equity 6,060 5,548
Total equity 15,622 14,261
B.
Subordinated liabilities
2,738 2,738
C. Technical provisions
a.
Unearned premium reserve
11,360 8,590
b.
Benefit reserve
56,392 56,234
c.
Loss and loss adjustment expense reserve
47,130 45,887
d. Provision for premium refunds 6,756 5,703
e.
Other technical provisions
659 628
122,297 117,042
D. Technical provisions for life insurance policies where the investment risk
is borne by the policyholders
10,929 9,990
E.
Other provisions
a.
Provisions for pensions and other post-employment benefits
2,236 2,144
b.
Provisions for taxes
703 650
c.
Miscellaneous other provisions
836 887
3,775 3,681
F.
Liabilities
a.
Notes payable and loans
2,252 2,245
b.
Funds withheld under reinsurance treaties
4,316 4,441
c.
Other liabilities
7,366 6,095
13,934 12,781
G. Deferred tax liabilities 2,699 2,380
H. Liabilities included in disposal groups classified as held for sale 7 6
Total liabilities/provisions 156,379 148,618
Total equity and liabilities 172,001 162,879

Consolidated statement of income of Talanx AG for the period from 1 January to 31 March 2019

Consolidated statement of income

Q1 2019 Q1 2018
1. Gross written premiums including premiums from unit-linked life and annuity insurance 11,716 10,560
2. Savings elements of premiums from unit-linked life and annuity insurance 225 269
3. Written reinsurance premiums 1,382 1,300
4. Change in gross unearned premiums –2,622 –2,407
5. Change in ceded unearned premiums –355 –405
Net premiums earned 7,842 6,989
6. Gross claims and claims expenses 7,084 6,288
Reinsurers' share 860 626
Net claims and claims expenses 6,224 5,662
7. Gross acquisition and administrative expenses 2,116 1,915
Reinsurers' share 171 180
Net acquisition and administrative expenses 1,945 1,735
8. Other underwriting income 17 14
Other underwriting expenses 47 36
Other underwriting result –30 –22
Net technical result –357 –430
9. a. Investment income 1,117 1,201
b. Investment expenses 197 193
Net investment income from assets under own management 920 1,008
Net income from investment contracts
Funds withheld 68 55
Net investment income 988 1,063
of which share of profit or loss of equity-accounted associates and joint ventures 12 3
10. a. Other income 483 340
b. Other expenses 498 381
Other income/expenses –15 –41
Profit before goodwill impairments 616 592
11. Goodwill impairments
Operating profit/loss (EBIT) 616 592
12. Financing costs 45 41
13. Income taxes 160 163
Net income 411 388
of which attributable to non-controlling interests 176 170
of which attributable to shareholders of Talanx AG 235 218
Earnings per share
Basic earnings per share (in EUR) 0.93 0.86
Diluted earnings per share (in EUR) 0.93 0.86

Consolidated statement of comprehensive income of Talanx AG for the period from 1 January to 31 March 2019

Consolidated statement of comprehensive income

Q1 2019 Q1 2018
Net income 411 388
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 –102 1
Tax income (expense) 30
–72 1
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income for the period 5
Tax income (expense)
5
Total items that will not be reclassified to profit or loss, net of tax –67 1
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 2,091 –604
Reclassified to profit or loss –43 –153
Tax income (expense) –310 127
1,738 –630
Exchange differences on translating foreign operations
Gains (losses) recognised in other comprehensive income for the period 234 –193
Reclassified to profit or loss
Tax income (expense) –18 15
216 –178
Changes in policyholder participation/shadow accounting
Gains (losses) recognised in other comprehensive income for the period –934 295
Tax income (expense) 39
–895 295
Changes from cash flow hedges
Gains (losses) recognised in other comprehensive income for the period 15 –66
Reclassified to profit or loss –7 –26
Tax income (expense) –1 2
7 –90
Changes from equity method measurement
Gains (losses) recognised in other comprehensive income for the period 3 –6
Reclassified to profit or loss
Tax income (expense)
3 –6
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 1,069 –609
Other comprehensive income for the period, net of tax 1,002 –608
Total comprehensive income for the period 1,413 –220
of which
attributable to non-controlling interests
586 –73
of which
attributable to shareholders of Talanx AG
827 –147

Segment reporting

Consolidated balance sheet by division as at 31 March 2019

EUR million
Assets Industrial Lines Retail Germany
31.3.2019 31.12.2018 2) 31.3.2019 31.12.2018
A. Intangible assets 162 162 704 706
B.
Investments
8,869 8,315 52,868 51,620
C. Investments for the benefit of life insurance policyholders who bear the investment risk 10,449 9,506
D. Reinsurance recoverables on technical provisions 7,719 5,202 1,845 1,861
E.
Accounts receivable on insurance business
2,561 1,413 380 312
F.
Deferred acquisition costs
76 63 2,171 2,158
G. Cash at banks, cheques and cash-in-hand 917 676 640 686
H. Deferred tax assets 83 71 95 111
I.
Other assets
893 695 744 822
J.
Non-current assets and assets of disposal groups classified as held for sale2)
Total assets 21,280 16,597 69,896 67,782

Consolidated balance sheet by division as at 31 March 2019

Equity and liabilities Industrial Lines Retail Germany
31.3.2019 31.12.2018 2) 31.3.2019 31.12.2018
B.
Subordinated liabilities
282 200 162 162
C. Technical provisions 15,039 11,560 52,771 51,474
D. Technical provisions for life insurance policies where the investment risk
is borne by the policyholders
10,449 9,506
E.
Other provisions
846 784 585 603
F.
Liabilities
2,322 1,475 3,169 3,397
G. Deferred tax liabilities 232 214 229 197
H. Liabilities included in disposal groups classified as held for sale
Total liabilities/provisions 18,721 14,233 67,365 65,339
Retail International Reinsurance Corporate Operations Consolidation Total
31.3.2019 31.12.2018 31.3.2019 31.12.2018 3) 31.3.2019 31.12.2018 31.3.2019 31.12.2018 31.3.2019 31.12.2018
781 773 209 208 111 109 –5 1,967 1,953
12,505 11,613 55,565 53,115 1,032 941 –2,860 –2,773 127,979 122,831
480 484 10,929 9,990
770 705 3,110 3,209 21 6 –4,493 –2,477 8,972 8,506
1,276 1,220 4,851 4,420 26 5 –445 –119 8,649 7,251
643 614 2,603 2,283 1 1 240 239 5,734 5,358
409 592 1,252 1,152 253 256 3,471 3,362
124 101 608 599 290 273 1 1,200 1,156
512 432 1,609 1,695 762 653 –1,441 –1,840 3,079 2,457
21 16 –1 21 15
17,521 16,550 69,807 66,681 2,496 2,244 –8,999 –6,975 172,001 162,879
31.3.2019
31.12.2018
31.3.2019
31.12.2018 3)
31.3.2019
31.12.2018
31.3.2019
31.12.2018
31.3.2019
31.12.2018
42
42
1,886
1,878
1,280
1,280
–914
–824
2,738
2,738
12,253
11,620
45,764
43,894
94
70
–3,624
–1,576
122,297
117,042
480
484






10,929
9,990
278
274
635
613
1,431
1,407


3,775
3,681
2,073
1,873
8,997
8,960
1,908
1,715
–4,535
–4,639
13,934
12,781
132
102
2,080
1,845
2

24
22
2,699
2,380
7
6






7
6
15,265
14,401
59,362
57,190
4,715
4,472
–9,049
–7,017
156,379
148,618
Retail International Reinsurance Corporate Operations Consolidation Total
Equity 1) 15,622 14,261
Total equity and liabilities 172,001 162,879

1) Group equity and non-controlling interests.

2) HDI Global Specialty SE would have been included in the segment with total equities and liabilities of EUR 2,820 million (before effects of consolidation).

3) HDI Global Specialty SE was included in the segment with total equities and liabilities of EUR 2,820 million (before effects of consolidation).

Consolidated statement of income by division/reportable segment for the period from 1 JAnuary to 31 march 20191)

EUR million

Industrial Lines Retail Germany
Q1 2019 Q1 2018 2) Q1 2019 Q1 2018
1. Gross written premiums including premiums from
unit-linked life and annuity insurance
2,296 2,049 1,886 1,868
of which attributable to other divisions/segments 24 21 20 13
with third parties 2,272 2,028 1,866 1,855
2. Savings elements of premiums from unit-linked life and annuity insurance 206 200
3. Ceded written premiums 1,008 813 94 103
4. Change in gross unearned premiums –996 –1,005 –432 –431
5. Change in ceded unearned premiums –342 –352 –13 –18
Net premiums earned 634 583 1,167 1,152
6. Claims and claims expenses (gross) 1,122 761 1,274 1,335
Reinsurers' share 605 295 26 38
Claims and claims expenses (net) 517 466 1,248 1,297
7. Acquisition costs and administrative expenses (gross) 292 238 316 363
Reinsurers' share 166 120 37 41
Net acquisition and administrative expenses 126 118 279 322
8. Other technical income 1 7 11
Other technical expenses 9 13 6 8
Other technical result –9 –12 1 3
Net technical result –18 –13 –359 –464
9. a.
Investment income
102 103 493 599
b.
Investment expenses
31 35 62 85
Net income from assets under own management 71 68 431 514
Net income from investment contracts
Net interest income from funds withheld and contract deposits –2 –4
Net investment income 71 68 429 510
of which share of profit or loss of equity-accounted
associates and joint ventures 10 2
10. a.
Other income
88 44 56 64
b.
Other expenses
106 48 66 72
Other income/expenses –18 –4 –10 –8
Profit before goodwill impairments 35 51 60 38
11. Goodwill impairments
Operating profit/loss (EBIT) 35 51 60 38
12. Financing costs 3 2 2 2
13. Taxes on income 9 18 20 13
Net income 23 31 38 23
of which attributable to non-controlling interests 2 1
attributable to shareholders of Talanx AG 23 31 36 22

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.

2) HDI Global Specialty SE would have been included in the division's gross premium with EUR 947 million (before effects of consolidation) and would have contributed EUR –1.5 million to EBIT (before effects of consolidation).

3) HDI Global Specialty SE was included in the division's gross premium with EUR 947 million (before effects of consolidation) and contributed EUR –1.5 million to EBIT (before effects of consolidation).

Retail International Reinsurance Corporate Operations Consolidation Total
Q1 2019 Q1 2018 Q1 2019 Q1 20183) Q1 2019 Q1 2018 Q1 2019 Q1 2018 Q1 2019 Q1 2018
1,617 1,496 6,373 5,345 35 30 –491 –228 11,716 10,560
412 164 35 30 –491 –228
1,617 1,496 5,961 5,181
11,716 10,560
19 69
225 269
143 124 612 466 18 18 –493 –224 1,382 1,300
–76 –74 –1,218 –941 –16 –17 116 61 –2,622 –2,407
–34 –22 –68 –61 –14 –14 116 62 –355 –405
1,413 1,251 4,611 3,999 15 9 2
–5
7,842 6,989
1,197 1,030 3,730 3,244 13 12 –252 –94 7,084 6,288
82 66 390 314 2 1
–245
–88 860 626
1,115 964 3,340 2,930 11 11 –7 –6 6,224 5,662
300 282 1,322 1,082 3 2
–117
–52 2,116 1,915
25 22 55 51
–112
–54 171 180
275 260 1,267 1,031 3 2
–5
2 1,945 1,735
10 6
–4 17
18 18 2
14
–5 47
–8 –12 –2
–14
1 –30 –22
15 15 4 36 1 –4 –357 –430
102 105 433 404 4 3
–17
–13 1,117
10
92
13
92
99
334
66
338
23
–19
20
–17
–28
11
–26
13
197
920

1,008
–1 71 59
68
91 92 405 397 –19 –17 11 13 988 1,063
2 1
12
31 2 298 210 178 204 –168 –184 483
64 39 254 207 158 179 –150 –164 498
–33 –37 44 3 20 25 –18 –20 –15
73 70 453 436 2 4
–7
–7 616

73 70 453 436 2 4
–7
–7 616
2 2 25 20 26 25 –13 –10 45
19 19 116 116 –6 –4 2
1
160 163
388
52 49 312 300 –18 –17 4
2
411
10
42
8
41
164
148
161
139

–18
–17

4
2
176
235
170
218

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 31 March 2019

EUR million

Retail Germany –
Property/Casualty
Retail Germany – Life Reinsurance Property/Casualty Life/Health Reinsurance
Q1 2019 Q1 2018 Q1 2019 Q1 2018 Q1 2019 Q1 2018 1) Q1 2019 Q1 2018
1. Gross written premiums including
premiums from unit-linked life and
annuity insurance
782 780 1,104 1,088 4,394 3,579 1,979 1,766
of which attributable to
other segments
20 13 377 127 35 37
with third parties 782 780 1,084 1,075 4,017 3,452 1,944 1,729
2. Savings elements of premiums
from unit-linked life and annuity
insurance policies
206 200
3. Ceded written premiums 36 43 58 60 355 301 257 165
4. Change in gross
unearned premiums
–404 –409 –28 –22 –1,177 –914 –41 –27
5. Change in ceded
unearned premiums
–13 –17 –1 –68 –61
Net premiums earned 355 345 812 807 2,930 2,425 1,681 1,574
6. Claims and claims
expenses (gross)
222 240 1,052 1,095 2,140 1,796 1,590 1,448
Reinsurers' share 6 23 20 15 199 140 191 174
Claims and claims expenses (net) 216 217 1,032 1,080 1,941 1,656 1,399 1,274
7. Acquisition costs and administrative
expenses (gross)
139 129 177 234 920 715 402 367
Reinsurers' share 6 6 31 35 43 38 12 13
Net acquisition and
administrative costs
133 123 146 199 877 677 390 354
8. Other technical income 1 1 6 10
Other technical expenses 3 3 3 5 1 1
Other technical result –2 –2 3 5 –1 –1
Net technical result 4 3 –363 –467 112 91 –108 –55
9. a.
Investment income
32 26 461 573 310 315 123 89
b. Investment expenses 4 5 58 80 79 49 20 17
Net income from assets
under own management
28 21 403 493 231 266 103 72
Net income from
investment contracts
Net interest income from funds
withheld and contract deposits
–2 –4 12 8 59 51
Net investment income 28 21 401 489 243 274 162 123
of which share of profit or loss of
equity-accounted associates
and joint ventures
2 1
10. a.
Other income
16 15 40 49 93 90 205 120
b.
Other expenses
18 21 48 51 108 111 146 96
Other income/expenses –2 –6 –8 –2 –15 –21 59 24
Profit before goodwill impairments 30 18 30 20 340 344 113 92
11. Goodwill impairments
Operating profit (EBIT)

30

18

30

20

340

344

113

92

1) HDI Global Specialty SE was included in the division's gross premium with EUR 947 million (before effects of consolidation) and contributed EUR –1.5 million to EBIT (before effects of consolidation).

Consolidated cash flow statement of Talanx AG for the period from 1 January to 31 March 2019

Consolidated cash flow statement

EUR million

Q1 2019 Q1 2018
I.
1. Net income
411 388
I.
2. Change in technical provisions
2,897 3,154
I.
3. Change in capitalised acquisition costs
–357 –251
I.
4. Changes in funds withheld and in accounts receivable and payable
–1,196 –1,226
I.
5. Changes in other receivables and liabilities
284 1,199
I.
6. Changes in investments and liabilities under investment contracts
3 2
I.
7. Changes in financial assets held for trading
26 132
I.
8. Gains/losses on disposal of investments and property, plant and equipment
–89 –262
I.
9. Change in technical provisions for life insurance policies where the investment risk is borne by the policyholders
939 –431
I. 10. Other non-cash expenses and income (including income tax expense/income) –50 –129
I. Cash flows from operating activities 1), 2) 2,868 2,576
II.
1. Cash inflow from the sale of consolidated companies
4 3
II.
2. Cash outflow from the purchase of consolidated companies
–6
II.
3. Cash inflow from the sale of real estate
82 3
II.
4. Cash outflow from the purchase of real estate
–82 –40
II.
5. Cash inflow from the sale and maturity of financial instruments
8,774 9,160
II.
6. Cash outflow from the purchase of financial instruments
–10,056 –10,577
II.
7. Changes in investments for the benefit of life insurance policyholders who bear the investment risk
–939 431
II.
8. Changes in other investments
–458 –1,026
II.
9. Cash outflows from the acquisition of tangible and intangible assets
–35 –32
II. 10. Cash inflows from the sale of tangible and intangible assets 4 5
II. Cash flows from investing activities –2,706 –2,079
III.
1. Cash inflow from capital increases
III.
2. Cash outflow from reductions
III.
3. Dividends paid
–54 –53
III.
4. Net changes attributable to other financing activities
–37 24
III. Cash flows from financing activities 2) –91 –29
Net change in cash and cash equivalents (I.+II.+III.) 71 468
Cash and cash equivalents at the beginning of the reporting period 3,363 3,159
Effect of exchange rate changes on cash and cash equivalents 38 –17
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) 3,472 3,610

1) EUR 89 (140) million of "Income taxes paid", EUR 77 (87) million of "Dividends received" and EUR 956 (962) million of "Interest received" are allocated to "Cash flows from operating activities". Dividends received also include profit-sharing payments from investment funds and private equity firms similar to dividends.

2) EUR 126 (121) million of "Interest paid" is attributable to EUR 24 (19) million to "Cash flows from financing activities" and EUR 102 (102) million to "Cash flows from operating activities".

3) This item relates primarily to changes to the basis of consolidation excluding company disposals or 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 1 (21) million.

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 were 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 2018. To the extent that there are new standards effective from 1 January 2019, these have been applied accordingly. This relates in particular to the first-time adoption of IFRS 16 "Leases", which includes new regulations for accounting by lessees. A lease liability is to be recognised for every lease. At the same time, the lessee capitalises a right-of-use asset for the underlying asset. The lessor's accounting remains virtually unchanged in comparison to the previous approach, under which leases are classified either as finance or operating leases. The Group applies the standard retrospectively in a modified form and recognises the cumulative effects from the introduction of the standard in retained earnings as at 1 January 2019. The previous year figures are therefore not restated. Right-of-use assets of EUR 466 million were capitalised and lease liabilities of EUR 466 million were recognised as at 1 January 2019. Including the reversal of deferrals and accruals and taking into account deferred income taxes, applying the standard increased retained earnings by EUR 2 million.

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.

With economic effect from 1 January 2019, Hannover Rück SE (Property/Casualty Reinsurance segment) sold 50.22% of shares in HDI Global Specialty SE (HGS) to HDI Global SE (Industrial Lines segment) in an intragroup transaction. Indirect non-controlling interests in HGS fell from 49.78% to 24.78% as a result of the transaction, causing equity attributable to non-controlling interests to decline by EUR 21 million.

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 Balance sheet
(reporting date)
Income statement
(average)
31.3.2019 31.12.2018 Q1 2019 Q1 2018
AUD Australia 1.5826 1.6208 1.5954 1.5593
BRL Brazil 4.3600 4.4552 4.3229 3.9866
CAD Canada 1.4997 1.5591 1.5180 1.5462
CNY China 7.5385 7.8768 7.6870 7.7791
GBP United Kingdom 0.8578 0.9028 0.8736 0.8816
HUF Hungary 321.0800 321.7400 318.6500 311.8050
MXN Mexico 21.6687 22.5895 22.0124 23.0752
PLN Poland 4.3000 4.3031 4.2962 4.1786
USD USA 1.1233 1.1451 1.1396 1.2247
ZAR South Africa 16.2669 16.4522 15.9744 14.6402

Events after the end of the reporting period

By way of purchase agreement dated 2 May 2019, the Group acquired 100% of the shares in the property insurer ERGO Sigorta A.S., Istanbul, Turkey. The purchase will be made via HDI Sigorta, Istanbul, Turkey, a subsidiary of HDI International AG, Hannover (Retail International segment) and still requires approval from the relevant supervisory authorities. This approval is expected in the third quarter of 2019.

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

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:

http://talanx.com/investor-relations

Follow us on Twitter:

@talanx_en

12 August Interim Report as at 30 June 2019

11 November Quarterly Statement as at 30 September 2019

20 November Capital Markets Day

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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