Talanx Ag · XETR:TLX
Talanx — Investor Day (November 2019)
121 slides from Talanx's investor day presentation, Nov 20, 2019
Slide 1: Talanx Capital Markets Day 2019
Talanx Capital Markets Day 2019 Frankfurt, 20 November 2019
Slide 2: Agenda
I Group Strategy II III IV V VI VII VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Kuhnt VI
Slide 3: Generational change completed – Two new leaders in the Talanx board
I Group Strategy II III IV V VI VII VIII IX Generational change completed – Two new leaders in the Talanx board Sven Fokkema Retail International Jean-Jacques Henchoz, 55 Edgar Puls, 46 Reinsurance Industrial Lines 21 years of experience in 18 years of experience at HDI and P&C/Life reinsurance with
Slide 4: New top management capacity in our divisional boards – Exceptional leader kept
I Group Strategy II III IV V VI VII VIII IX New top management capacity in our divisional boards – Exceptional leader kept Industrial Lines Clemens Jungsthöfel, 49 David Hullin, 51 Thomas Kuhnt, 44 Yves Betz, 48 CFO Member of the board Member of the board Member of the board, as of 1 Dec 2019 Former
Slide 5: Key messages
I Group Strategy II III IV V VI VII VIII IX Key messages We are well on track to deliver on higher targets from last CMD Strategy 2022 – we focus on three strategic areas Capital management enhanced, supporting growing cash pool Focused divisional strategies fully on track or even ahead of plan Good
Slide 6: Strategy 2022 – Focus and execute
I Group Strategy II III IV V VI VII VIII IX Strategy 2022 – Focus and execute Strategy 2022 CMD 2018 – FOCUS CMD 2019 – EXECUTE Raising targets Tracking targets Three strategic areas Tracking strategy Cultural transformation Outlook 6 Capital Markets Day – Frankfurt, 20 November 2019
Slide 7: Our mid-term ambition - Higher targets with sustained high resilience
I Group Strategy II III IV V VI VII VIII IX Tracking targets Our mid-term ambition - Higher targets @CMD 2018 with sustained high resilience Return on equity EPS growth Dividend payout ratio Targets ≥ 800bp ≥ 5% 35% - 45% above risk-free rate of IFRS earnings on average p.a. High level of Profitable
Slide 8: Delivering on our mid-term targets
I Group Strategy II III IV V VI VII VIII IX Tracking targets Delivering on our mid-term targets Return on equity Dividend payout ratio >10.5% 52% >9.5% 35-45% ≥8.3% RoE Adjusted RoE2 mid-term 2019E mid-term 2018 target1 target EPS growth ≥6.0% ≥5.0% mid-term 2019E target 1 Target is ≥ 800bp above ri
Slide 9: EPS growth – above minimum target
I Group Strategy II III IV V VI VII VIII IX Tracking targets EPS growth – above minimum target Steady improvement in earnings in EURm EPS growth ≥5% on average p.a. >900 - 950 >900 Baseline 850 ~703 2018 2019E 2020E 2021 2022 Corresponding net income target (Baseline EUR 850m in 2018) Actual/estimat
Slide 10: Sustained high resilience
I Group Strategy II III IV V VI VII VIII IX Tracking targets Sustained high resilience Strong capitalisation Market risk limitation High level of diversification Market risk ≤ 50% Targeting 2/3 of Primary Solvency II target ratio of Solvency Capital Insurance premiums to come 150 - 200% Requirement
Slide 11: Strategy 2022 – Three strategic areas
I Group Strategy II III IV V VI VII VIII IX Tracking strategy Strategy 2022 – Three strategic areas 1 Enhanced capital management 2 Focused divisional strategies Capital Management Industrial Lines Retail International Retail Germany Reinsurance Programme 20/20/20 Top 5 in core markets Program
Slide 12: Our Capital Management Strategy
I Group Strategy II III IV V VI VII VIII IX 1 Tracking strategy – Enhanced capital management Our Capital Management Strategy Focus Growing cash pool Cash pool ('retained profits brought forward' under German GAAP) times annual dividend ~1.5x-2x Upstream of excess capital ~0.8x How to get it ~0.3x 2
Slide 13: Clear M&A criteria and strategy proven by disciplined M&A approach
I Group Strategy II III IV V VI VII VIII IX 1 Tracking strategy – Enhanced capital management Clear M&A criteria and strategy proven by disciplined M&A approach Our M&A criteria Disciplined M&A activity 2018/19 M&A building Targets Due blocks screened diligence Closed 1 Consolidator Focus on leading
Slide 14: Industrial Lines
I Group Strategy II III IV V VI VII VIII IX 2 Tracking strategy – Focused divisional strategies Industrial Lines Focus and mid-term ambition Execution New management Transformation team in place Focus 8%pts divisional combined ratio Programme 20/20/20 improvement expected in 2019 Joint-venture with
Slide 15: Retail Germany
I Group Strategy II III IV V VI VII VIII IX 2 Tracking strategy – Focused divisional strategies Retail Germany Focus and mid-term ambition Execution Programme KuRS ≥ 80% of EBIT target (≥ EUR 200m) (2021 EBIT target of ≥ EUR 240m) to be achieved in 2019 Focus SME Strong profitable SME growth (8% p.a
Slide 16: KuRS programme well on track - SME initiative doubles market growth
I Group Strategy II III IV V VI VII VIII IX 2 Tracking strategy – Focused divisional strategies KuRS programme well on track - SME initiative doubles market growth Well on track to deliver on our KuRS target Growth initiative SME EBIT, in EURm GWP SME and self-employed professionals2, in EURm Market
Slide 17: Retail International
I Group Strategy II III IV V VI VII VIII IX 2 Tracking strategy – Focused divisional strategies Retail International Focus and mid-term ambition Execution Top 5 position achieved in 4 (motor) / 2 (non-life) out of 5 core markets Top 5 in core markets Focus Combined ratio ~95% (2019E) through profita
Slide 18: Retail International – Positions improved in all core markets
I Group Strategy II III IV V VI VII VIII IX 2 Tracking strategy – Focused divisional strategies Retail International – Positions improved in all core markets 2018 2010 2018 2010 2018 2010 2018 2010 2018 2010 top 5 position achieved Note: Ranking by Gross written premiums. For 2018, Turkey with Liber
Slide 19: Reinsurance
I Group Strategy II III IV V VI VII VIII IX 2 Tracking strategy – Focused divisional strategies Reinsurance Focus and mid-term ambition Execution Generational change successfully managed Focus Reinsurance Underwriting discipline and cost leadership in P/C Strong contribution from Financial Solutions
Slide 20: Digital transformation – Progress in focus topics
I Group Strategy II III IV V VI VII VIII IX 3 Tracking strategy – Digital transformation Progress in focus topics “Get skills” “Get bundled“ 250 new Bundling with data scientist industrial clients via (+100%) IoT solutions “Get ready” 3 Digital transformation of identified legacy systems to be 70% 5
Slide 21: Traditionally different – Sustainability supporting our strategy
I Group Strategy II III IV V VI VII VIII IX Cultural transformation Traditionally different – Sustainability supporting our strategy Focused engagement: Education & diversity Climate protection 100% CO2 neutral in Sustainable management Germany in 2019 Company 100% ESG compliant A leadin
Slide 22: Traditionally different – “Culture eats strategy for breakfast!”
I Group Strategy II III IV V VI VII VIII IX Cultural transformation Traditionally different – “Culture eats strategy for breakfast!” Capital Management Human Capital Management Purpose Perfor- Strategy mance 2022 Incentives: Management: focus RoE Employee: share programme launched Leadership
Slide 23: Our strategy – Answer to rising uncertainties
I Group Strategy II III IV V VI VII VIII IX Outlook Our strategy – Answer to rising uncertainties Rising uncertainties Focused (Digital) Disruption Upside Digital (Digital) Disruption potential divisional + transformation strategies Low interest Enhanced Low interest Attractive Attractive rate ratee
Slide 24: Well on track to achieve near-term targets
I Group Strategy II III IV V VI VII VIII IX Outlook Well on track to achieve near-term targets 9M 2019 2019E 2020E Z Return on equity 10.4% >9.5%1 >9.0 - 9.5% Group net income 742 >900 >900 - 950 EURm EURm EURm Return on investment 3.4% >2.7% ~2.7% Gross written premiums growth 11.9% >4% ~4% Note: T
Slide 25: Agenda
I II Group Financials III IV V VI VII VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Kuhnt
Slide 26: Our strategy – the CFO perspective
I II Group Financials III IV V VI VII VIII IX Our strategy – the CFO perspective Today’s agenda Focused Upside Digital potential divisional strategies + transformation 1 Enhanced Attractive Attractive returns capital management + dividends A A Cash upstream B B Group reinsurance C Stringent capital
Slide 27: Remittance ratio increased and capital upstream more than 2/3 achieved
I II Group Financials III IV V VI VII VIII IX 1 Enhanced capital management Remittance ratio increased and capital upstream more than 2/3 achieved Remittance Capital upstream Remittance from affiliated companies, in % in EURm P&L impact (German GAAP) Cash-only impact >2/3 On track achieved 67 ~70 ~3
Slide 28: Bundling reinsurance at Group level fully on track
I II Group Financials III IV V VI VII VIII IX 1 Enhanced capital management Bundling reinsurance at Group level fully on track Value drivers/benefits Progress Operating model 50 PROFIT contribution largely implemented Profit upstream from operating entities BaFin licence Rating upgrade (A+ a
Slide 29: Benefits “naturally” building up in accordance with risk appetite
I II Group Financials III IV V VI VII VIII IX 1 Enhanced capital management Benefits “naturally” building up in accordance with risk appetite Risk appetite Net income contribution after ramp-up period in EURm Roll over multi-year reinsurance treaties Compliance with IFRS 17 ~50 restrictions (GMM
Slide 30: Maximum tolerable combined ratio (MTCR)
I II Group Financials III IV V VI VII VIII IX 1 Enhanced capital management In 2019, Group RoE above CoE - target combined ratios within reach Cost of Equity calculation MTCR matrix (based on CoE) Return on Equity Group Adjustm. Market- Frictional Mid-term ambition (assuming constant redundancy leve
Slide 31: Talanx with continuous strong performance and favourable risk-return profile
I II Group Financials III IV V VI VII VIII IX 1 Enhanced capital management Talanx with continuous strong performance and favourable risk-return profile RoE above peer average Favourable risk-return profile Ø return on Average Return on Equity compared to peers (2001-2018) Ø RoE Adj. Ø RoE tangible
Slide 32: Bond market perspectives to double-check our CoE assumptions
I II Group Financials III IV V VI VII VIII IX 1 Enhanced capital management Bond market perspectives to double-check our CoE assumptions CoE proxy by cat bond yields CoE by spread-driven reverse Gordon approach in % in % Nat cat expected excess return (after tax) Price/Book Cost of equity 8 2.0 12 Δ
Slide 33: Solid Group capitalisation reflects strong resilience
I II Group Financials III IV V VI VII VIII IX 2 Strong solvency Solid Group capitalisation reflects strong resilience Solid capitalisation (regulatory view) Limited stress impact (as per year-end 2018) in EURm 526 305 614 729 Target range 209% 884 29 9,872 10,093 SII Ratio 31.12.2018 Solvency 9,229
Slide 34: Robust capital position also in German life business
I II Group Financials III IV V VI VII VIII IX 2 Strong solvency Robust capital position also in German life business Solvency ratios: Retail Germany Life Retail Germany Life CARs in 9M 2019 impacted by decrease in interest rates including 452% 359% transitional Example: HDI Life Current yield 202% 3
Slide 35: Model changes 2018 with positive SII ratio impact
I II Group Financials III IV V VI VII VIII IX 2 Strong solvency Model changes 2018 with positive SII ratio impact - further improvement potential Internal model parameter changes & outlook 2018 2019E2 2020E2 Own Own Own SCR Funds SCR Funds SCR Funds Model updates in 2018 have resulted in an increase
Slide 36: Strong resilience also reflected by new draft ICS field study
I II Group Financials III IV V VI VII VIII IX 2 Strong solvency Strong resilience also reflected by new draft Insurance Capital Standards (ICS) field study Insurance Capital Standards Solvency II 2018 in EURbn 2018 in EURbn ICS ratio at solid 187% 187% 209% 23.0 17.4 Under ICS, no haircut effects ar
Slide 37: Prudent market risk and moderate leverage compared to peers
I II Group Financials III IV V VI VII VIII IX 3 Low market risk Prudent market risk and moderate leverage compared to peers Prudent market risk Moderate leverage Senior & subord. debt leverage: Continuously Mean peers = 23% moderate leverage σ σ headroom Leverage corridor ~50-55% keeps additiona
Slide 38: Strong resilience also reflected in solid asset portfolio
I II Group Financials III IV V VI VII VIII IX 4 Highly diversified - Asset portfolio Strong resilience also reflected in solid asset portfolio Investment portfolio Fixed income portfolio split Credit VaR & Macaulay duration 30 September 2019: EUR 123.1bn 30 September 2019: EUR 110.5bn 23% AAA 10.0 C
Slide 39: Credit spread risks may develop into a long-term top challenge
I II Group Financials III IV V VI VII VIII IX 4 Highly diversified - Asset portfolio Credit spread risks may develop into a long-term top challenge 5% Exposure Risk provision 4.37% (in %) (in EURm) 4% 100% 100 4.32% 3% last CMD 80% 80 CVaR by share of 2% issuers 60% 60 1% 40% 40 No material defaults
Slide 40: Infrastructure investments still delivering sustainable returns
I II Group Financials III IV V VI VII VIII IX 4 Highly diversified - Asset portfolio Infrastructure investments still delivering sustainable returns Expansion of infrastructure investments in EURbn Commitments Third-part commitments EUR 2.2bn direct infrastructure investment 2.0 New commitments Exit
Slide 41: Not only German tabloid readers suffer from QE
I II Group Financials III IV V VI VII VIII IX 4 Highly diversified - Asset portfolio Not only German tabloid readers suffer from QE “We have reached a point at which the industry should be outspoken how detrimental the low- interest rate environment is to its business model Challenges and its abilit
Slide 42: Digital transformation in asset management is speeding up
I II Group Financials III IV V VI VII VIII IX 4 Highly diversified - Asset portfolio Digital transformation in asset management is speeding up Business integration Technology High Low Rewarded state-of-the-art technical end-to-end platform Innovative forward looking credit risk 1 assessment based on
Slide 43: ESG to further back Talanx’s low-beta profile
I II Group Financials III IV V VI VII VIII IX 4 Highly diversified - Asset portfolio ESG to further back Talanx’s low-beta profile Correlation of low beta & ESG ESG & low beta 3.0 ESG and low beta positively 2.5 correlated 2.0 Prudent investment strategy typically comes up with best of breed ESG sco
Slide 44: Talanx has undertaken impact assessment on solo entity level
I II Group Financials III IV V VI VII VIII IX 5 Excursion – IFRS 9 & 17 Talanx has undertaken impact assessment on solo entity level Talanx preferences Impact (as per 31 Dec 2018) Areas of concern & dissatisfaction FVOCI (“Hold and Sell“) IFRS 17: un-discounting technical reserves1 Getting it
Slide 45: Lower P&L volatility due to moderate SPPI fail quota compared to peers
I II Group Financials III IV V VI VII VIII IX 5 Excursion – IFRS 9 & 17 Lower P&L volatility due to moderate SPPI fail quota compared to peers SPPI fail quota Investments requiring a parsimonious allocation in non-life in percent of total assets under own management Alternative investments 39% -2.7%
Slide 46: Core KPIs fully verified, some divisional KPIs to be reviewed
I II Group Financials III IV V VI VII VIII IX 5 Excursion – IFRS 9 & 17 Core KPIs fully verified, some divisional KPIs to be reviewed Verification of KPI framework Details on selected KPIs verified to be reviewed Combined ratio Life x rejected Group Review after second impact assessment Return 1 o
Slide 47: Key messages
I II Group Financials III IV V VI VII VIII IX Key messages Stringent performance steering lifts RoE well above minimum targets Capital management well on track – increased remittance & capital upstream of already EUR ~240m High resilience reflected in strong solvency position, prudent market risk an
Slide 48: Agenda
I II III Strategy IV V VI VII VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Kuhnt VIII Ess
Slide 49: Key messages
I II III Strategy IV V VI VII VIII IX Key messages HDI Global has turned challenging and unprofitable commercial lines market Global network coverage, cost leadership and unique customer access are key strengths to build on Key areas to change are profitability and volatility Our Strategy HDI 4.0 fo
Slide 50: Industrial Lines at a glance – nucleus of Talanx and truly global
I II III Strategy IV V VI VII VIII IX Industrial Lines at a glance – nucleus of Talanx and truly global HDI Global – a truly global firm 35 bn GWP EUR YEARS 116 of underwriting experience Talanx IPO 2012 COUNTRIES 5 bn 39 with local footprint GWP EUR Acquisition of Establishment Gerling Hannover Re
Slide 51: Commercial lines market faces challenges - unsatisfactory industry profitability
I II III Strategy IV V VI VII VIII IX Stock take Commercial lines market faces challenges - unsatisfactory industry profitability Severe challenges Unprofitable market CR Ø 2016 - 2018 Industrial Lines vs. peers in % 125 10 years – economic upswing 117 114 105 107 Ø 107 103 103 100 100 >10 years – s
Slide 52: New management team in place committed to profitability
I II III Strategy IV V VI VII VIII IX Stock take New management team in place committed to profitability Thomas Kuhnt, 44 Clemens Jungsthöfel, 49 COO CFO Former McKinsey P&C Insurance & Former KPMG partner with over 20 David Hullin, 51 Advanced pricing analytics lead years of experience in insurance
Slide 53: HDI Global turned the market: our success factors
I II III Strategy IV V VI VII VIII IX Stock take HDI Global turned the market: our success factors Price cycle – Commercial lines in progress Profitability strengths / on track “At 2019 renewals insurances increased rates – in part significantly. Vanguard Underwriting International discipline networ
Slide 54: Global network, cost leadership and unique customer access are key strengths
I II III Strategy IV V VI VII VIII IX Stock take Global network, cost leadership and unique customer access are key strengths to build on International network with diversified portfolio Cost leadership Unique customer access Capable of offering a Maintain significant Direct access comprehensive cos
Slide 55: Key areas to address and improve for future success
I II III Strategy IV V VI VII VIII IX Stock take Key areas to address and improve for future success Dissatisfying and highly volatile underwriting results Gap to future requirements Underwriting result Root cause analysis Under- Steering writing Highly Change needed volatile! UW Volatility Structur
Slide 56: Our strategy HDI 4.0 follows a two-step strategy to deliver profitability
I II III Strategy IV V VI VII VIII IX Our strategy HDI 4.0 follows a two-step strategy to deliver profitability TRANSFORM Edgar Puls PERFORM 1 Technical excellence & low volatility 2 World class specialty player Ulrich Wallin 1 New team, underwriting discipline 3 Digital leader with new services 2 M
Slide 57: PERFORM New team enforces discipline
I II III Strategy IV V VI VII VIII IX PERFORM 1 New team enforces discipline Performance and Focus on profitability ownership culture Arouse the underwriting knowledge International and diverse set-up Best-in-class underwriting tools Proximity to Sharpened KPI metric critical business with focus on
Slide 58: Making Fire profitable: Programme 20/20/20 is delivering on the promises
I II III Strategy IV V VI VII VIII IX PERFORM 2 Making Fire profitable: Programme 20/20/20 is delivering on the promises Status CMD 2018 Programme 20/20/20 – Where we are today Price increase 27% 12.4% ≥20% 20% 12.4% CMD 2018 Nov 2019 Target Portfolio Industrial Lines 58 Capital Markets Day – Frankf
Slide 59: Started overall profitability initiatives to achieve excellence in profitability
I II III Strategy IV V VI VII VIII IX PERFORM 3 Started overall profitability initiatives to achieve excellence in profitability Portfolio - Growth & Profitability Key measures by decomposing sub-portfolio Fire All other lines Illustrative Problematic single risks: Profitability of all other LoBs Pr
Slide 60: Selective growth in Industrial Lines follows clear strategy
I II III Strategy IV V VI VII VIII IX TRANSFORM 1 Selective growth in Industrial Lines follows clear strategy Rules for organic growth Selective expansion Market-influencing positioning Germany Europe Stabilisation as backbone Rest of Europe World Germany (ex Germany) • Opportunistic market • Expans
Slide 61: Focus to become world class specialty player
I II III Strategy IV V VI VII VIII IX TRANSFORM 2 Focus to become world class specialty player Joining forces: HDI Global Specialty Results contribution in EURm Acquisition ~2,100 GWP Launch 1 Jan 2019 ~1,360 Chairman Supervisory Board Group synergies Combining our strengths and realising synergies
Slide 62: Digital transformation – Leader with new services and IoT solutions
I II III Strategy IV V VI VII VIII IX TRANSFORM 3 Digital transformation – Leader with new services and Internet of Things (IoT) solutions Future Digital Transformation Predict & Prevent Today Repair & Reimburse “Get skills” “Get bundled“ Services and Underwriting Workbench IoT Solutions Analytics H
Slide 63: Outlook: our direction to profitability
I II III Strategy IV V VI VII VIII IX Outlook: our direction to profitability Industrial Lines 2020E mid-term long-term Gross written premiums growth1 ~2.5% Combined ratio <100% ~97% ~95% Return on equity 4-5% ~8% ~10% Note: All targets are subject to large losses not exceeding the large loss budget
Slide 64: Agenda
I II III IV Making Fire profitable V VI VII VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas
Slide 65: 20/20/20 project initiated to return to profitability in Fire
I II III IV Making Fire profitable V VI VII VIII IX Proven capacity to turn around lines 20/20/20 project initiated to return to profitability in Fire Combined ratio Fire 2014-20181 Project 20/20/20 170% 20% of net 20 premiums earned2 150% 130% Standard deviation at least 20% > 20%pts Ø14-18 ~ 120%
Slide 66: Price increases ahead of plan …
I II III IV Making Fire profitable V VI VII VIII IX Proven capacity to turn around lines Price increases ahead of plan … “20/20/20” initiative update “20/20/20” details Cumulative monthly price increase on renewed business: contracted vs. target from 1 Jan 2018 to 1 Nov 2019 ~27% Price increases Con
Slide 67: … with positive impact on Fire results …
I II III IV Making Fire profitable V VI VII VIII IX Proven capacity to turn around lines … with positive impact on Fire results … Key ratios in Fire What made the numbers improve Combined ratio Attritional loss ratio Large loss ratio1 Consistent improvement of underwriting discipline (36%)pts 144% C
Slide 68: … and we will continue rigorous re-underwriting to achieve around 95%
I II III IV Making Fire profitable V VI VII VIII IX Proven capacity to turn around lines … and we will continue rigorous re-underwriting to achieve around 95% Targeted development of combined ratio in Fire ~140% ~(20%) Ad hoc portfolio measures ~120% Perform Programme 20/20/20 ~(27%) ~7% ~100% ~95%
Slide 69: Significant tailwinds from hardening Property markets
I II III IV Making Fire profitable V VI VII VIII IX Proven capacity to turn around lines Significant tailwinds from hardening Property markets Distribution of Fire business compared to expected market hardening in Property Europe ex Germany 32% > 90% Germany of our Fire 46% premium is earned in hard
Slide 70: Key messages Fire insurance
I II III IV Making Fire profitable V VI VII VIII IX Proven capacity to turn around lines Key messages Fire insurance Price increases ahead of plan … … with positive impact on Fire results … … and with the aim to achieve ~95% by continuing rigorous underwriting in the long run 70 Capital Markets Day
Slide 71: Agenda
I II III IV V CFO cockpit VI VII VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Kuhnt VIII
Slide 72: We have successfully started HDI 4.0 to lift return on equity to ambition level
I II III IV V CFO cockpit VI VII VIII IX We have successfully started HDI 4.0 to lift return on equity to ambition level RoE ambition 8 – 10% 1 2 Steering Investments excellence RETURN on EQUITY 3 Capital management 72 Capital Markets Day – Frankfurt, 20 November 2019
Slide 73: New steering model to provide one central portfolio view
I II III IV V CFO cockpit VI VII VIII IX 1 Steering excellence New steering model to provide one central portfolio view From accounting-based to value-driven steering Targets Sharpened KPI metric with focus on RoE Continuous performance monitoring Transparency coupled with immediate feedback process
Slide 74: Drill-down of RoE ambition – top to bottom
I II III IV V CFO cockpit VI VII VIII IX 1 Steering excellence Drill-down of RoE ambition – top to bottom Sharpened steering KPIs on all levels Talanx RoE ambition RoE: 8-10% Industrial Lines CR: ~95% Combined ratio Line of business Ultimate loss ratio Attritional loss ratio Region Com
Slide 75: Example: steering attritional loss ratio
I II III IV V CFO cockpit VI VII VIII IX 1 Steering excellence Example: steering attritional loss ratio From ambition to execution illustrative for each line, region/branch, portfolio/policy Long-term Expenses Brokerage fees NatCat Large losses Maximum CR ambition loading attritional loss ratio ~95%
Slide 76: Our path to profitability
I II III IV V CFO cockpit VI VII VIII IX 1 Steering excellence Our path to profitability Targeted development of combined ratio 109.1% Perform Programme 20/20/20 and ~(4.5%) Ad hoc portfolio measures (net) selective portfolio measures ~104.5% Sustain (≥4%) <100% Excel Pricing excellence (2%) Gro
Slide 77: Selective growth – additional lever to raise overall portfolio profitability
I II III IV V CFO cockpit VI VII VIII IX 1 Steering excellence Selective growth – additional lever to raise overall portfolio profitability Grow Net premiums earned, in EURm Illustrative projection Benefiting from strong profitability in Specialty +EUR 1.1 bn, or ~4,000 @ ~95% ~+7% CAGR ~20% @ ~93%
Slide 78: Resilient asset portfolio – prudent and low market risk investment approach
I II III IV V CFO cockpit VI VII VIII IX 2 Investments Resilient asset portfolio – prudent and low market risk investment approach Asset portfolio Breakdown fixed income FY 2018 Conservative and risk-averse Cash & Type Rating investment policy Short-term (Market risk ~45%) Investments 8% 24% Fixed 2
Slide 79: Increasing re-investment challenge due to low interest rate environment
I II III IV V CFO cockpit VI VII VIII IX 2 Investments Increasing re-investment challenge due to low interest rate environment Yields What if: Reinvesting our bond portfolio at today’s new investment yield Illustrative Re-invested portfolio share 100% -1.6%pts 2.6% 80% 1.0% 60% 40% Average New runni
Slide 80: Stabilising investment returns by a diversified alternative investment portfolio
I II III IV V CFO cockpit VI VII VIII IX 2 Investments Stabilising investment returns by a diversified alternative investment portfolio Alternative investments Portfolio split Yield enhancement 100% 100% return on Infrastructure ~5% Private Equity investment Ø 2012 - 2018 27% 35% EUR 1.2bn ~14% of t
Slide 81: Despite strong investment track-record, the “new normal” will take its toll
I II III IV V CFO cockpit VI VII VIII IX 2 Investments Despite strong investment track-record, the “new normal” will take its toll Investment income & return on investment in % 3.8 Divisional net income benefited 3.7 ∆ from strong investment results… 3.6 3.6 (~15)bps 3.2 3.0 p.a. 2.8 ~2.8 …also supp
Slide 82: Consolidation of HDI Global Specialty and project costs will raise other expenses
I II III IV V CFO cockpit VI VII VIII IX Excursion – Other result Consolidation of HDI Global Specialty and project costs will raise other expenses Other income / expenses in EURm Disposal gain of Currency gains EUR 37m for sale of EUR 34m of office buildings Other result affected by positive 39 9 c
Slide 83: Resilient solvency position due to prudent risk profile
I II III IV V CFO cockpit VI VII VIII IX 3 Capital management Resilient solvency position due to prudent risk profile Diversified risks Resilient Solvency II ratio Solvency II ratio 167% S II ratio, 31 Dec 2018 167% Liability Run-Off Loss 22% Operational Underwriting risk risk Property ManMade Loss
Slide 84: Efficient use of capital – Lever to increase RoE
I II III IV V CFO cockpit VI VII VIII IX 3 Capital management Efficient use of capital – Lever to increase RoE and support capital upstream to Group Robust capital shield Active capital management Solvency II ratio A+ A 180% Talanx EUR ~140m one-off cash 167% AG upstream in 2019 170% Target range
Slide 85: Supporting RoE ambition by optimising our capital structure
I II III IV V CFO cockpit VI VII VIII IX 3 Capital management Supporting RoE ambition by optimising our capital structure Capital structure Key measures Own funds, in EURm High quality capital structure provides flexibility and capacity 92% 88% 80% Efficient use of debt with maximum financial levera
Slide 86: Strong German GAAP balance sheet supports earnings and cash upstream to Group
I II III IV V CFO cockpit VI VII VIII IX 3 Capital management Strong German GAAP balance sheet supports earnings and cash upstream to Group Provision flexibility Reserve robustness Asset protection Equalisation provision, ∆ German GAAP vs IFRS reserves, ∆ German GAAP vs IFRS OCI, in EURm in EURm in
Slide 87: Steering excellence, strong investments and efficient capital management
I II III IV V CFO cockpit VI VII VIII IX In a nutshell Steering excellence, strong investments and efficient capital management Steering excellence Investments ~95% combined ratio (long-term) 2.3% return on investment (mid-term) RETURN 8-10% RoE on EQUITY up to 140 - 170% Solvency II ratio 20% lever
Slide 88: On track to lift RoE to ambition level
I II III IV V CFO cockpit VI VII VIII IX In a nutshell On track to lift RoE to ambition level Our path to profitability Illustrative CR RoE 109% ~Δ 8%pts ~10% 10% CR improvement RoE target range ~8% 8% EBIT ~4.5% ≥ EUR 300m 100% ~101% <100% technically positive ~97% -1% ~95% 2018 2019E 2020E … mid-t
Slide 89: Key messages
I II III IV V CFO cockpit VI VII VIII IX Key messages Achieving underwriting excellence is top priority – backed by the new steering model Despite on-going pressure on investment yields and the other result,… …EBIT expected to rise on the back of improved combined ratios RoE ambition backed by initi
Slide 90: Agenda
I II III IV V VI HDI Global Specialty VII VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Ku
Slide 91: Specialty units within Talanx Group
I II III IV V VI HDI Global Specialty VII VIII IX Specialty units within Talanx Group Combining group-wide forces into powerful unit History of HDI Global Specialty 1979 1997 2001 2009 / 2011 1 Jan 2019 Inter Hannover Establishment Acquisition of Start of delegated Market entry in Establishment of I
Slide 92: HDI Global Specialty combines complementary strengths into a highly competitive player
I II III IV V VI HDI Global Specialty VII VIII IX Structure & benefits HDI Global Specialty combines complementary strengths into a highly competitive player Joining Forces: Combining strengths & realising synergies Win-win-win: Benefits for… Bundling group-wide specialty- Global SE activities and
Slide 93: Proven management team bringing together Hannover Re’s and HDI Global’s skills
I II III IV V VI HDI Global Specialty VII VIII IX Top management team Proven management team bringing together Hannover Re’s and HDI Global’s skills Leadership team Executive Board Supervisory Board Thomas Stöckl Roland Vogel CFO Hannover Re Andreas Bierschenk Jens Wohlthat CRO HDI Global Ralph Beut
Slide 94: In an excellent position to benefit from a fast-growing market niche
I II III IV V VI HDI Global Specialty VII VIII IX Joining Forces In an excellent position to benefit from a fast-growing market niche GWP global specialty insurance market1 In USDbn CAGR ~5% ~310 Attractive segment ~220 HDI Global Specialty with substantial growth prospects small market strong ima
Slide 95: HDI Global Specialty covers a broad range of attractive lines of business
I II III IV V VI HDI Global Specialty VII VIII IX Lines of business HDI Global Specialty covers a broad range of attractive lines of business Single risk business Delegated authority business Aviation & Extended Specie Space Warranty Global Specialty Full Political Pet & Financial & Pro- Energy mand
Slide 96: HDI Global Specialty is present in all relevant specialty markets worldwide
I II III IV V VI HDI Global Specialty VII VIII IX Geographic scope HDI Global Specialty is present in all relevant specialty markets worldwide Global strength, local expertise Key traits of HDI Global Specialty Own offices HDI Global network Largest specialty markets Speed & flexibility: Fast Dynami
Slide 97: Managed result is central KPI and reflects the overall contribution to Talanx Group
I II III IV V VI HDI Global Specialty VII VIII IX Transition from legal entity result to managed technical result Managed result is central KPI and reflects the overall contribution to Talanx Group Legal entity result (≙ net income) + Taxes + Financing costs (mainly for subordinated loans) EBIT − In
Slide 98: Top quartile position key to exceed cost of equity
I II III IV V VI HDI Global Specialty VII VIII IX Combined ratios Top quartile position key to exceed cost of equity Indicative ~130% CR quartiles 4 3 2 Not earning 96.7% MTCR cost of capital 1 95.9% CR Limiting growth ~90% potential FY 2019E on managed business Best peer Worst peer Global Specialty
Slide 99: Allowing for substantially higher profit contributions to both Hannover Re and Talanx
I II III IV V VI HDI Global Specialty VII VIII IX Ambitioned profit targets Allowing for substantially higher profit contributions to both Hannover Re and Talanx Target to double managed result within three years Reinsurance structure Target Technical contribution to Talanx structure ~100 in EURm Ha
Slide 100: Strong profitable growth from the start
I II III IV V VI HDI Global Specialty VII VIII IX Operating performance Strong profitable growth from the start Structure of managed GWP GWP business structure In EURm 808 20% growth at 17% new business 137 ultimate CR of ~40% below 96% Single Risk 126 HDI Global contribution 9M 2019 GWP EUR 808m 83
Slide 101: HDI Global Specialty drives further international expansion in the short-term
I II III IV V VI HDI Global Specialty VII VIII IX Achievements and next steps HDI Global Specialty drives further international expansion in the short-term From 1 Jan 2019 1 Jul 2019 23 Jul 2019 20 Nov 2019 1 Jan 2020 1 Jan 2021 Closing Integration of Acquisition of Transfer of most Opening branches
Slide 102: HDI Global Specialty’s top ambition is to grow profitably while selecting risks carefully
I II III IV V VI HDI Global Specialty VII VIII IX Key elements of our strategy HDI Global Specialty’s top ambition is to grow profitably while selecting risks carefully Global Specialty One profitable growth engine of Talanx Mid-term profitability: 93 – 94% targeted CR on managed business Growin
Slide 103: Targeting to become a meaningful profit contributor to the Talanx Group
I II III IV V VI HDI Global Specialty VII VIII IX Key essentials Targeting to become a meaningful profit contributor to the Talanx Group Bringing together best-in-class skills in underwriting and distribution in the Group Creating a highly competitive player in an attractive market niche Targeting a
Slide 104: Agenda
I II III IV V VI VII Digitalisation VIII IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Kuhnt VI
Slide 105: We are executing our digital transformation roadmap
I II III IV V VI VII Digitalisation VIII IX Develop – Digitalisation We are executing our digital transformation roadmap “Get skills” “Get bundled” Underwriting IoT Solutions and Services Workbench Enhance risk insights HDI TH!NX Analytics Workplace Global Generate new revenues System Modernisation
Slide 106: Industrial insurance will shift from risk transfer to ‘predict and prevent’
I II III IV V VI VII Digitalisation VIII IX I Get bundled – IoT Solutions and Services Industrial insurance will shift from risk transfer to ‘predict and prevent’ Future – Services to predict & prevent From insurance premiums to service revenues Risk Crisis IoT consulting response services New IoT-b
Slide 107: Corporates are increasingly embracing the ‘Internet of Things’ (IoT)
I II III IV V VI VII Digitalisation VIII IX I Get bundled – IoT Solutions and Services Corporates are increasingly embracing the ‘Internet of Things’ (IoT) Enablers Performance Cloud(s) Costs Shift from Network 4G to 5G Routers / Gateways Servers Sensors Technology Costs Things End Nodes / Assets /
Slide 108: We have partnered with Berlin-based venture builder NBT to foster IoT innovations
I II III IV V VI VII Digitalisation VIII IX I Get bundled – IoT Solutions and Services We have partnered with Berlin-based venture builder NBT to foster IoT innovations Three phases of Industrial IoT Traditional Risk Transfer Products Services Ecosystem Apr 2019: Cooperation with IoT venture builder
Slide 109: We have founded HDI TH!NX and work on the first use cases
I II III IV V VI VII Digitalisation VIII IX I Get bundled – IoT Solutions and Services We have founded HDI TH!NX and work on the first use cases Three phases of Industrial IoT Traditional Risk Transfer Products Services Ecosystem Sep 2019: Foundation of IoT solution builder HDI TH!NX in Berlin Valid
Slide 110: The first use case is already being implemented in cooperation with Schneider Electric
I II III IV V VI VII Digitalisation VIII IX I Get bundled – IoT Solutions and Services The first use case is already being implemented in cooperation with Schneider Electric Three phases of Industrial IoT Traditional Risk Transfer Products Services Ecosystem Oct 2019: Driving co-innovation with Schn
Slide 111: Our heritage equips HDI TH!NX to win in this changing world
I II III IV V VI VII Digitalisation VIII IX I Get bundled – IoT Solutions and Services Our heritage equips HDI TH!NX to win in this changing world Unique long-term relationship One of the leading industrial risk to the German „Mittelstand“ as well as a engineering organisations track record of co-in
Slide 112: Modernising our platform – reducing legacy while building up cloud infrastructure
I II III IV V VI VII Digitalisation VIII IX II Get ready – Cloud platform Modernising our platform – reducing legacy while building up cloud infrastructure Legacy systems Cloud platform Decommission old Set up cloud infrastructure mainframe (BS2000) ‘Cloud first’ for new applications Shut down
Slide 113: Our cloud-based modern data platform will enable best-in-class data analytics
I II III IV V VI VII Digitalisation VIII IX II Get ready – Cloud platform Our cloud-based modern data platform will enable best-in-class data analytics capabilities Example: AI-enabled analysis of risk concentration based on satellite image recognition Basis for risk-consulting services and pricing
Slide 114: The cloud-based data platform heavily accelerates data analytics in a variety of use cases
I II III IV V VI VII Digitalisation VIII IX II Get ready – Cloud platform The cloud-based data platform heavily accelerates data analytics in a variety of use cases Risk recognition via satellite image Additional cloud-enabled use cases Duration ~16 days AI-based analytics (~384 hours) ~150 times fa
Slide 115: The “Underwriting Workbench” is the new standard platform for all our pricing activities
I II III IV V VI VII Digitalisation VIII IX III Get skills – Global Underwriting Workbench The “Underwriting Workbench” is the new standard platform for all our pricing activities Standard platform Underwriting with access to all ABC Company Offered Premium pricing tools for all Workbench Price offe
Slide 116: Key messages
I II III IV V VI VII Digitalisation VIII IX Key messages Industrial Lines uniquely positioned to capture new revenue opportunities from IoT Better risk insights enabled by new workbench and data analytics Shut down of legacy systems and infrastructure modernisation well underway Digitalisation agend
Slide 117: Agenda
I II III IV V VI VII VIII Essentials Industrial Lines IX Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Th
Slide 118: Essentials Industrial Lines
I II III IV V VI VII VIII Essentials Industrial Lines IX Essentials Industrial Lines We are fully committed to raise profitability while lowering earnings volatility We have turned commercial lines markets and we expect to benefit from the market hardening going forward We expect on-going pressure o
Slide 119: Agenda
I II III IV V VI VII VIII IX Final Remarks Agenda I Group Strategy Torsten Leue II Group Financials Immo Querner Industrial Lines III Strategy Edgar Puls IV Making Fire profitable David Hullin V CFO cockpit Clemens Jungsthöfel VI HDI Global Specialty Ulrich Wallin VII Digitalisation Thomas Kuhnt VII
Slide 120: Final Remarks
I II III IV V VI VII VIII IX Final Remarks Final Remarks We are well on track to deliver on our Strategy 2022 We successfully manage the generational change in our Group Industrial Lines have taken decisive steps to turn into a reliable and meaningful profit and cash contributor We focus on maintain
Slide 121: Disclaimer
Disclaimer This presentation contains forward-looking statements which are based on certain assumptions, expectations and opinions of the management of Talanx AG (the "Company") or cited from third-party sources. These statements are, therefore, subject to certain known or unknown risks and uncertai