talanx group annual report 2011 en

110
The Talanx Group Strategy Enterprise
management
Talanx Group. Annual Report 2011
Research and
development
Material operating risks
In our understanding, this category encompasses the risk of losses
occurring due to the inadequacy or failure of internal processes or
as a result of events triggered by employee-related, system-induced
or external factors. The operating risk also extends to legal risks.
Multifaceted, cause-targeted risk management and an efficient
internal control system minimise the risks associated with business
activities in general, members of staff or technical systems. In
addition to Internal Auditing, the Compliance function also bears
responsibility for overseeing compliance with applicable laws and
with external and in-house guidelines.
Legal risks may arise in connection with contractual agreements
and the broader legal environment, especially with respect to
business-specific imponderables of commercial and tax law as they
relate to an internationally operating life/health and property/casualty
insurer/reinsurer. Insurers and reinsurers are also dependent
on the general political and economic conditions prevailing on their
respective markets. These external risks are continuously monitored
by the Talanx Board of Management as part of an ongoing
exchange of information with local management.
Various countries are planning or have already introduced a tax on
the financial sector (transaction tax and/or financial activity tax) as
a means of recovering at least a part of the cost of the banking crisis.
There is a risk of such a tax also affecting our Group.
Likewise against the backdrop of the banking crisis, the G20 nations
are discussing the introduction of higher equity capital requirements
for insurers, similar to those for systemically-relevant banks.
It remains to be seen just what form such a capital add-on for the
insurers in question might take. If, however, the general thrust of
the plans for the banking sector is carried over to the insurance
industry, large insurance undertakings – and hence potentially also
the Talanx Group – could find themselves faced with exacting new
capital requirements.
High-level court rulings may also have far-reaching implications for
the core business of some Talanx subsidiaries. For instance, a landmark
ruling handed down by the European Court of Justice (ECJ) on
1 March 2011 will prohibit insurance companies with effect from
21 December 2012 from using gender as one of several risk factors
in calculating premiums and benefits. As far as in-force contracts
are concerned, the judgement could have an effect on the various
options still open to policyholders in future and on the contractually
agreed future conversion of in-force contracts. Moreover, it
Markets and
general conditions
Business
development
Assets and
financial position
may also have repercussions on the calculation of premiums and
engender risks due to changes of cover, increased cancellations or
a decline in new business. It remains to be seen whether this court
practice will in future carry over to other differentiating criteria
commonly used by the insurance industry for calculating premiums.
There are also proceedings pending before the courts, especially
with respect to life insurance, that could have implications for
the entire German insurance industry and hence also for the
Talanx Group once their outcome is legally final. This includes, for
example, proceedings claiming ineffectiveness of some clauses of
the General Conditions of Insurance on repurchase values, on the
allocation of acquisition expenses, and on the question of how to
deal with a monthly, quarterly or half-yearly method of payment
in insurance contracts. The higher court decisions handed down
with regard to the treatment of surcharges for instalment payments
vary widely. There is (as yet) no ruling from the Federal Court of
Justice. As far as new business is concerned, the aspects that have so
far been challenged in court were adjusted out of caution and for
reasons of consumer friendliness. This is not possible for in-force
business on practical grounds.
Legislation in other countries can also give rise to new risks. In
March 2010, the “Foreign Account Tax Compliance Act” (FATCA) was
passed in the USA and takes effect on 1 January 2013. The provisions
of the new FATCA tighten US tax reporting by non-US financial
institutions (including insurance companies) and are intended to
combat evasion of US taxes on investments abroad. It is not yet
fully clear which insurance products will be covered by the intended
reporting requirements. As things stand, life insurance, property
insurance and reinsurance benefits are to be exempt from the new
requirements, whereas all so-called “cash-value products” and insurance
agreements with investment components are to be included.
The issue remains under observation.
In common with the entire insurance industry, the Talanx Group
is also facing far-reaching changes against the backdrop of the
impending and in some cases already implemented reform of
regulatory standards, especially in the context of IFRS, Solvency II
and the German minimum requirements for risk management in
insurance undertakings (MaRisk VA). We are tracking the accounting
and regulatory changes closely; we have identified the associated
more exacting requirements and have initiated measures to refine
our risk management accordingly and hence to enable us to satisfy
the more complex and extensive standards going forward.
Legal risks can also arise in the context of acquisitions. In the case of
more recent foreign acquisitions with the involvement of our partner
Meiji Yasuda as minority shareholder, there is a regulatory risk
that under the internal model according to Solvency II risks from