talanx group annual report 2011 en

Overall assessment of
the economic situation
Non-financial
performance indicators
Corporate Governance Remuneration report Events of special
significance
The risk of random fluctuation refers to the fact that both the
number and size of claims are subject to random factors, and the
expected claims payments may therefore be exceeded. This risk
cannot be ruled out even if the claims spread is known. The risk of
error describes the risk of the actual claims spread diverging from
the assumed claims spread. A distinction is made here between
the diagnostic risk and the forecasting risk. The diagnostic risk refers
to the possibility that the current situation may be misinterpreted
on the basis of the available data. This is particularly likely
to occur if only incomplete data is available regarding claims from
previous insurance periods. The forecasting risk refers to the risk
that the probability distribution of the total claims may change
after the estimate is made, for example due to higher inflation.
The Talanx Group manages and reduces all components of the
premium/loss risk first and foremost through claims analyses,
actuarial modelling, selective underwriting, specialist audits and
regular review of the claims experience and by taking recourse to
appropriate reinsurance protection.
The second underwriting risk in property/casualty business,
namely the reserving risk, refers to the possibility that the underwriting
reserves may not suffice to pay in full claims that have
not yet been settled or reported. This may then give rise to a need
to establish additional reserves. In order to manage this risk, the
companies belonging to the Talanx Group measure their reserves
prudently. They take into account not only the claims information
provided by their clients but also insights from their own claims
investigations and experience. Furthermore, an IBN(E)R (incurred
but not (enough) reported) reserve is constituted for claims that
have probably already occurred but have not yet been reported (in
their full amount). The level of reserves is regularly reviewed – not
only internally but also by external actuaries – and an external
expert assessment of the reserves is commissioned in order to
minimise the reserving risk. With regard to the run-off results
of the loss reserves, we would refer the reader to our comments
in the Notes under “Loss and loss adjustment expense reserve,”
pages 244 et seqq.
The following paragraphs describe the risks associated with individual
lines of property and casualty insurance and subsequently
discuss the risks in life primary insurance and life/health reinsurance.
Under liability insurance policies we grant the policyholder and
any other persons included in the coverage protection against
claims for damages asserted by third parties. Indemnification
is normally provided for bodily injuries and property damage,
although pure financial losses are also insurable. This line also
Risk report Forecast and
opportunities report
includes motor third party liability insurance. The agreed sums
insured constitute the policy limits. The frequency and amount of
claims can be influenced by a number of factors. For instance, new
precedents set by court rulings may increase the number of cases
in which claims are brought before the courts, with corresponding
implications for indemnity payments. Risks may also ensue from
inflation, since some claims are settled over a very long period of
time. Owing to inflation, for example, the reserves once constituted
may not suffice to meet future claims payments. Under liability
insurance policies, the (re)insurer is liable for all insured events
that occur during the policy period, even if the harm caused is not
discovered until after the policy period has ended. We therefore
establish loss reserves not only for claims that have already been
notified, but also for those that have been incurred but not yet
reported (IBNR). The actuarial methods used to calculate these
reserves may involve a risk of error in the underlying assumptions.
Accident insurance policies provide cover against the economic
repercussions of accidents. Depending on the consequences of the
accident and the policy concerned, the Group companies typically
pay a daily allowance, a lump-sum disability benefit or a disability
pension, or a death benefit. The reserves are calculated on the
basis of life actuarial models.
The Group (re)insurance companies calculate their premiums for
liability and personal accident policies using empirical values and
actuarial calculations. They also manage these risks through their
underwriting policy. Underwriting guidelines, which set out inter
alia underwriting exclusions and limits, define criteria for risk
selection. These underwriting guidelines are binding on the underwriters;
they are reviewed annually and modified as necessary. The
risk of peak exposures is also reduced by taking out reinsurance
coverage. Furthermore, the adequacy of the reserves is regularly
reviewed.
Property insurance policies provide indemnity for damaged or
destroyed property in the event of a claim. The amount and extent
of the losses covered by such policies are determined in particular
by the cost of rebuilding and restoration or the compensation payable
for building contents; in industrial and commercial insurance
the losses resulting from business interruption are also covered.
The benefits are, however, limited by the sum insured. Benefits
under motor own damage insurance policies may be paid for
replacement or repair of a destroyed or damaged vehicle.
Talanx Group. Annual Report 2011
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