talanx group annual report 2011 en
talanx group annual report 2011 en
talanx group annual report 2011 en
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104<br />
The Talanx Group Strategy Enterprise<br />
managem<strong>en</strong>t<br />
Talanx Group. Annual Report <strong>2011</strong><br />
Research and<br />
developm<strong>en</strong>t<br />
in exp<strong>en</strong>diture. The market value of the Talanx Group’s holding of<br />
Greek governm<strong>en</strong>t bonds on the balance sheet date of 31 December<br />
<strong>2011</strong> was EUR 3.3 million. The debt write-down legislation approved<br />
by the Greek Parliam<strong>en</strong>t in February 2012 gave rise to the risk of<br />
further write-downs on this issuer exposure for the Talanx Group.<br />
Giv<strong>en</strong> our very modest holding at the <strong>en</strong>d of the year under review,<br />
the write-downs required in 2012 will have only a minimal influ<strong>en</strong>ce<br />
on the Group’s investm<strong>en</strong>t income. Standard & Poor’s downgraded<br />
Italy’s rating in the year under review and assessed the outlook as<br />
negative. At 31 December <strong>2011</strong> the Talanx Group held investm<strong>en</strong>ts<br />
(governm<strong>en</strong>t and ag<strong>en</strong>cy bonds) with a market value of EUR 1,297.2<br />
million from the GIIPS countries (including Italy at EUR 634.3 million,<br />
Spain at EUR 405.8 million, Ireland at EUR 220.4 million and<br />
Portugal at EUR 33.5 million, excluding unit-linked investm<strong>en</strong>ts for<br />
the account and risk of holders of life insurance policies), which<br />
may give rise to rating-related impairm<strong>en</strong>ts. Thanks to support<br />
measures at the European level (the European “rescue package”),<br />
however, there is curr<strong>en</strong>tly no elevated risk of default on the bonds<br />
– especially in the case of the GIIPS countries other than Greece.<br />
On the international markets, the banking and economic crisis and<br />
the prospect of regulatory innovations are increasingly driving a<br />
t<strong>en</strong>d<strong>en</strong>cy towards more exacting capital requirem<strong>en</strong>ts on the part<br />
of supervisory authorities. This tr<strong>en</strong>d could also affect some individual<br />
Group subsidiaries and make it necessary to boost their capital.<br />
Against the backdrop of the financial crisis, the G-20 nations are<br />
discussing prescribing similar equity increases for “too big to fail”<br />
insurers as for banks. It is still unclear whether such capital add-ons<br />
will be implem<strong>en</strong>ted or what form they might take for insurers.<br />
T<strong>en</strong>sions in the Arabian and north African region have caused commodity<br />
prices to rise. The earthquake and nuclear disaster in Japan<br />
has directly triggered bottl<strong>en</strong>ecks in the global supply of electrical<br />
and electronic compon<strong>en</strong>ts. Any ratcheting up of the smouldering<br />
nuclear t<strong>en</strong>sions with Iran could accelerate the surge in commodity<br />
prices (and lead to considerable distortions in investor behaviour<br />
worldwide, h<strong>en</strong>ce prompting a (fresh) crisis on capital markets).<br />
In its Investm<strong>en</strong>t Guidelines Talanx establishes a precisely defined<br />
network of limits to rule out dep<strong>en</strong>d<strong>en</strong>cies on individual debtors<br />
that could jeopardise the Group’s survival. In the light of the<br />
continuing impact of the banking and economic crisis on capital<br />
markets, the previously applicable risk limits within the Talanx<br />
Group were tight<strong>en</strong>ed up in key respects.<br />
Should the curr<strong>en</strong>t low interest rate level be sustained or indeed<br />
should further interest rate cuts <strong>en</strong>sue, this would give rise to a<br />
considerable reinvestm<strong>en</strong>t risk for the life insurance companies<br />
Markets and<br />
g<strong>en</strong>eral conditions<br />
Business<br />
developm<strong>en</strong>t<br />
Assets and<br />
financial position<br />
offering traditional guarantee products, since it would become increasingly<br />
difficult to g<strong>en</strong>erate the guaranteed return – despite the<br />
fact that the Group reduces this interest guarantee risk primarily<br />
by means of interest rate hedges (see under “Material underwriting<br />
risks”). What is more, especially in the context of further declines in<br />
interest rates and higher volatilities, decreases may be se<strong>en</strong> in the<br />
Market Consist<strong>en</strong>t Embedded Value (MCEV) of the life insurers. The<br />
MCEV for <strong>2011</strong> will be calculated in the first half of 2012.<br />
A contraction in bank l<strong>en</strong>ding has be<strong>en</strong> observed in the market as<br />
a symptom of the banking crisis and is associated with pot<strong>en</strong>tial<br />
difficulties in raising cash. The sovereign debt crisis in the euro zone<br />
and fears of a global slowdown in economic growth have continued<br />
to make their mark on the market <strong>en</strong>vironm<strong>en</strong>t. Further concerns<br />
arose in the banking sector not only with regard to pot<strong>en</strong>tial losses<br />
on bonds and credits to the European peripheral countries (GIIPS)<br />
but also to much stricter regulatory requirem<strong>en</strong>ts made of risk<br />
capital that are forcing the banks to look for considerable amounts<br />
of fresh capital and/or to contract their balance sheets. A cut-back<br />
in l<strong>en</strong>ding by the banks could also affect Talanx AG and constitute<br />
a liquidity risk. However, for reasons associated with the business<br />
model, the liquidity risk is of only minor significance to the Talanx<br />
Group (compared to the banking industry), because regular premium<br />
paym<strong>en</strong>ts and interest income from invested assets, together<br />
with its liquidity-conscious investm<strong>en</strong>t policy, provide Talanx with<br />
an adequate supply of liquid funds. Ext<strong>en</strong>sive unused lines of credit<br />
are also available, most of which were ext<strong>en</strong>ded in the course of the<br />
financial year. Liquidity risks may, however, arise in particular as a<br />
consequ<strong>en</strong>ce of illiquid capital markets and – in the life insurance<br />
sector – due to a run of cancellations by policyholders, if this makes<br />
it necessary to liquidate a large volume of additional investm<strong>en</strong>ts at<br />
short notice.<br />
Material underwriting risks<br />
In addition to the information provided below, the Notes contain<br />
a detailed and quantified description of the risks associated with<br />
insurance contracts and financial instrum<strong>en</strong>ts.<br />
The underwriting risks in property and casualty insurance are<br />
considered separately from those in life insurance, because of the<br />
considerable differ<strong>en</strong>ces betwe<strong>en</strong> the two sectors.<br />
Underwriting risks in property/casualty business (primary insurance<br />
and reinsurance) derive principally from the premium/loss<br />
risk and the reserving risk. The premium/loss risk arises because<br />
insurance premiums defined up front are used to pay indemnifications<br />
at some stage in the future, although the amount of such<br />
paym<strong>en</strong>ts is initially unknown. The actual claims experi<strong>en</strong>ce may<br />
therefore diverge from the expected claims experi<strong>en</strong>ce. This may<br />
be attributable to two reasons: the risk of random fluctuation and<br />
the risk of error.