talanx group annual report 2011 en

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The Talanx Group Strategy Enterprise
management
Talanx Group. Annual Report 2011
Research and
development
The continuing low interest-rate environment is becoming an
increasingly serious challenge for Germany’s life insurers. Whereas
in 2011, it was still possible for the industry to generate adequate net
returns on its capital investments, cross-sector announcements on
reducing shared profits suggest that the trend, should it continue, is
likely to affect life insurance benefits in the future.
Legal and regulatory environment
The business of the Talanx Group is subject to regulatory rules and
requirements that are both numerous and detailed. The supervisory
authorities of the countries in which Talanx operates enjoy
far-reaching authorities and powers of intervention. Observing
these regulations and requirements, and continually adjusting its
business and products to new laws, entails a considerable financial
outlay on the part of Talanx. Talanx currently sees itself confronted
by far-reaching changes in the regulatory environment in which it
operates, particularly in the wake of recent national and international
efforts aimed at avoiding another financial crisis.
A global trend is now discernible towards tightening the regulatory
and supervisory framework governing banks and insurance companies
– including even stress tests, along with increased requirements
in terms of capital adequacy. A particular focal point is a
financial institution’s “system relevance”. Companies whose collapse
would have unforeseeable consequences for the entire financial
and insurance industry will face much more stringent regulatory
requirements in the future, especially with regard to their capital
base. This is in line with a resolution drawn up on 4 November 2011
in Cannes, by the G-20 group of key industrialised and emerging nations,
which named 29 banks deemed “too big to fail”. The International
Association of Insurance Supervisors (IAIS) has been given the
task of verifying, by the G-20 summit in June 2012, whether certain
conventional insurance companies – contrary to industry assessments
– should also be given the “globally system-relevant” stamp.
It has also been asked to develop appropriate test criteria, and,
where necessary, identify these top global insurance players. The
Talanx Group, too, is involved in this assessment process. The latest
opinion of the administrative court in Frankfurt suggests, however,
that the Group is not deemed system-relevant within the above
meaning of the term. Other proposed reforms currently under
debate relate e.g. to the introduction of a financial transaction tax
in the European Union.
Markets and
general conditions
Business development
Assets and
financial position
Recent times have also seen fundamental changes made to
the structure of supervisory bodies, particularly at EU level. On
1 January 2011, the new Frankfurt-based European Insurance and
Occupational Pensions Authority (EIOPA) replaced the former
Committee of European Insurance and Occupational Pensions
Supervisors (CEIOPS). The EIOPA’s main task is to draw up technical
standards, recommendations and guidelines for coordinating
the national supervisory authorities. Although the EIOPA has no
authority per se over German insurance companies, it can request
that a national supervisory authority justify any divergence in its
own supervisory practices from those set down by the EIOPA (what
is known as the comply-or-explain principle). In exceptional cases,
the EIOPA can also issue instructions to national authorities and, in
the case of non-compliance, take action directly in the form of binding
decisions applicable to the insurance companies in question.
Furthermore, in accordance with the Treaty on the Functioning of
the European Union, the EIOPA – in some cases with only limited
control by the European Parliament – is set to play a key role in the
rulemaking process for substantiating the Solvency II Directive that
has yet to come into force. There is no doubt that the EIOPA’s work
will have significant practical implications for Germany’s insurers;
even in the current preparatory stage, it has resulted in a barely
manageable proliferation of supervisory rules and regulations
across the whole sector.
What is more, the so-called Omnibus Directive is currently implementing
changes to certain details of the Solvency II Directive.
Although precise details of the Directive’s content and how it is
to be implemented and transposed into the national laws of EU
member states are not yet known, it is certain to result in the
wholesale harmonisation of supervisory legislation across the EU.
The quantitative and qualitative tightening of supervision already
incorporated in the Directive, together with requirements for
greater transparency – in particular through more stringent capital
adequacy requirements and demands for in-house risk control
systems, as well as reporting and documentation processes – is being
addressed by German legislators in the form of a current draft
bill to amend the country’s Insurance Supervisory Act (VAG). Against
this backdrop, Talanx intends to submit an application for the approval
of its own in-house risk model. Developed on a proprietary
basis by Talanx, the risk model will be used instead of the alternative
standard formula in the Solvency II Directive in order to enable
solvency capital requirements for the Talanx Group to be calculated
with greater precision. Developed in constant dialog with the supervisory
body, the in-house model aims to take maximum possible
account of the Group’s individual business model, its legal structure
and, above all, its risk structure. European and national supervisory
bodies alike have expressed the wish that the major insurance
groups develop in-house models as early as possible.