talanx group annual report 2011 en
talanx group annual report 2011 en
talanx group annual report 2011 en
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110<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 />
Material operating risks<br />
In our understanding, this category <strong>en</strong>compasses the risk of losses<br />
occurring due to the inadequacy or failure of internal processes or<br />
as a result of ev<strong>en</strong>ts triggered by employee-related, system-induced<br />
or external factors. The operating risk also ext<strong>en</strong>ds to legal risks.<br />
Multifaceted, cause-targeted risk managem<strong>en</strong>t and an effici<strong>en</strong>t<br />
internal control system minimise the risks associated with business<br />
activities in g<strong>en</strong>eral, members of staff or technical systems. In<br />
addition to Internal Auditing, the Compliance function also bears<br />
responsibility for overseeing compliance with applicable laws and<br />
with external and in-house guidelines.<br />
Legal risks may arise in connection with contractual agreem<strong>en</strong>ts<br />
and the broader legal <strong>en</strong>vironm<strong>en</strong>t, especially with respect to<br />
business-specific imponderables of commercial and tax law as they<br />
relate to an internationally operating life/health and property/casualty<br />
insurer/reinsurer. Insurers and reinsurers are also dep<strong>en</strong>d<strong>en</strong>t<br />
on the g<strong>en</strong>eral political and economic conditions prevailing on their<br />
respective markets. These external risks are continuously monitored<br />
by the Talanx Board of Managem<strong>en</strong>t as part of an ongoing<br />
exchange of information with local managem<strong>en</strong>t.<br />
Various countries are planning or have already introduced a tax on<br />
the financial sector (transaction tax and/or financial activity tax) as<br />
a means of recovering at least a part of the cost of the banking crisis.<br />
There is a risk of such a tax also affecting our Group.<br />
Likewise against the backdrop of the banking crisis, the G20 nations<br />
are discussing the introduction of higher equity capital requirem<strong>en</strong>ts<br />
for insurers, similar to those for systemically-relevant banks.<br />
It remains to be se<strong>en</strong> just what form such a capital add-on for the<br />
insurers in question might take. If, however, the g<strong>en</strong>eral thrust of<br />
the plans for the banking sector is carried over to the insurance<br />
industry, large insurance undertakings – and h<strong>en</strong>ce pot<strong>en</strong>tially also<br />
the Talanx Group – could find themselves faced with exacting new<br />
capital requirem<strong>en</strong>ts.<br />
High-level court rulings may also have far-reaching implications for<br />
the core business of some Talanx subsidiaries. For instance, a landmark<br />
ruling handed down by the European Court of Justice (ECJ) on<br />
1 March <strong>2011</strong> will prohibit insurance companies with effect from<br />
21 December 2012 from using g<strong>en</strong>der as one of several risk factors<br />
in calculating premiums and b<strong>en</strong>efits. As far as in-force contracts<br />
are concerned, the judgem<strong>en</strong>t could have an effect on the various<br />
options still op<strong>en</strong> to policyholders in future and on the contractually<br />
agreed future conversion of in-force contracts. Moreover, it<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 />
may also have repercussions on the calculation of premiums and<br />
<strong>en</strong>g<strong>en</strong>der risks due to changes of cover, increased cancellations or<br />
a decline in new business. It remains to be se<strong>en</strong> whether this court<br />
practice will in future carry over to other differ<strong>en</strong>tiating criteria<br />
commonly used by the insurance industry for calculating premiums.<br />
There are also proceedings p<strong>en</strong>ding before the courts, especially<br />
with respect to life insurance, that could have implications for<br />
the <strong>en</strong>tire German insurance industry and h<strong>en</strong>ce also for the<br />
Talanx Group once their outcome is legally final. This includes, for<br />
example, proceedings claiming ineffectiv<strong>en</strong>ess of some clauses of<br />
the G<strong>en</strong>eral Conditions of Insurance on repurchase values, on the<br />
allocation of acquisition exp<strong>en</strong>ses, and on the question of how to<br />
deal with a monthly, quarterly or half-yearly method of paym<strong>en</strong>t<br />
in insurance contracts. The higher court decisions handed down<br />
with regard to the treatm<strong>en</strong>t of surcharges for instalm<strong>en</strong>t paym<strong>en</strong>ts<br />
vary widely. There is (as yet) no ruling from the Federal Court of<br />
Justice. As far as new business is concerned, the aspects that have so<br />
far be<strong>en</strong> chall<strong>en</strong>ged in court were adjusted out of caution and for<br />
reasons of consumer fri<strong>en</strong>dliness. This is not possible for in-force<br />
business on practical grounds.<br />
Legislation in other countries can also give rise to new risks. In<br />
March 2010, the “Foreign Account Tax Compliance Act” (FATCA) was<br />
passed in the USA and takes effect on 1 January 2013. The provisions<br />
of the new FATCA tight<strong>en</strong> US tax <strong>report</strong>ing by non-US financial<br />
institutions (including insurance companies) and are int<strong>en</strong>ded to<br />
combat evasion of US taxes on investm<strong>en</strong>ts abroad. It is not yet<br />
fully clear which insurance products will be covered by the int<strong>en</strong>ded<br />
<strong>report</strong>ing requirem<strong>en</strong>ts. As things stand, life insurance, property<br />
insurance and reinsurance b<strong>en</strong>efits are to be exempt from the new<br />
requirem<strong>en</strong>ts, whereas all so-called “cash-value products” and insurance<br />
agreem<strong>en</strong>ts with investm<strong>en</strong>t compon<strong>en</strong>ts are to be included.<br />
The issue remains under observation.<br />
In common with the <strong>en</strong>tire insurance industry, the Talanx Group<br />
is also facing far-reaching changes against the backdrop of the<br />
imp<strong>en</strong>ding and in some cases already implem<strong>en</strong>ted reform of<br />
regulatory standards, especially in the context of IFRS, Solv<strong>en</strong>cy II<br />
and the German minimum requirem<strong>en</strong>ts for risk managem<strong>en</strong>t in<br />
insurance undertakings (MaRisk VA). We are tracking the accounting<br />
and regulatory changes closely; we have id<strong>en</strong>tified the associated<br />
more exacting requirem<strong>en</strong>ts and have initiated measures to refine<br />
our risk managem<strong>en</strong>t accordingly and h<strong>en</strong>ce to <strong>en</strong>able us to satisfy<br />
the more complex and ext<strong>en</strong>sive standards going forward.<br />
Legal risks can also arise in the context of acquisitions. In the case of<br />
more rec<strong>en</strong>t foreign acquisitions with the involvem<strong>en</strong>t of our partner<br />
Meiji Yasuda as minority shareholder, there is a regulatory risk<br />
that under the internal model according to Solv<strong>en</strong>cy II risks from