Talanx Group Annual Report 2020 Financial year at a glance PROFILE The Talanx Group is a multi-brand provider in the insurance and financial services sector. The Group companies operate under a number of different brands. These include HDI, delivering insurance solutions to retail customers and industrial clients, Hannover Re, one of the world’s leading reinsurers, the bancassurance specialists neue leben insurers, PB insurers and TARGO insurers as well as Ampega, a funds provider and asset manager. The Hannover-based Group is active in more than 150 countries. GROSS WRITTEN PREMIUMS OPERATING PROFIT (EBIT) EUR billion EUR billion 41.1 1.7 GROUP NET INCOME PROPOSED DIVIDEND PER SHARE EUR million EUR 673 1.50 NET RETURN ON INVESTMENT RETURN ON EQUITY % % 3.2 6.6 GROUP KEY FIGURES Unit 2020 2019 2018 2017 2016 Gross written premiums EUR million 41,105 39,494 34,885 33,060 31,106 by region Germany % 21 22 25 26 28 United Kingdom % 9 8 8 8 9 Central and Eastern Europe (CEE), including Turkey % 7 8 8 9 8 Rest of Europe % 16 16 16 15 15 USA % 20 20 18 18 15 Rest of North America % 3 3 2 2 3 Latin America % 7 8 8 8 8 Asia and Australia % 16 14 13 12 12 Africa % 1 2 2 2 2 Gross written premiums by type and class of insurance Property/casualty primary insurance EUR million 12,108 11,837 10,006 9,625 8,949 Life primary insurance EUR million 6,039 6,573 6,206 6,275 6,431 Property/casualty reinsurance EUR million 15,071 13,411 11,622 10,229 8,726 Life/health reinsurance EUR million 7,887 7,673 7,051 6,931 7,000 Net premiums earned EUR million 34,185 33,054 29,574 27,418 25,736 Underwriting result EUR million –2,798 –1,833 –1,647 –2,546 –1,519 Net investment income EUR million 4,243 4,323 3,767 4,478 4,023 Net return on investment 1 % 3.2 3.5 3.3 4.0 3.6 Operating profit/loss (EBIT) EUR million 1,671 2,430 2,032 1,805 2,307 Net income (after financing costs and taxes) EUR million 1,196 1,671 1,359 1,269 1,564 of which attributable to shareholders of Talanx AG EUR million 673 923 703 671 903 Return on equity 2, 4 % 6.6 9.8 8.0 7.5 10.4 Earnings per share Basic earnings per share EUR 2.66 3.65 2.78 2.65 3.57 Diluted earnings per share EUR 2.66 3.65 2.78 2.65 3.57 Combined ratio in property/casualty primary insurance and property/ casualty reinsurance 3 % 100.9 98.3 98.2 100.4 95.7 Combined ratio of property/casualty primary insurers 4 % 98.9 98.3 100.6 101.2 98.1 Combined ratio of property/casualty reinsurance % 101.6 98.2 96.6 99.8 93.7 EBIT margin primary insurance and reinsurance EBIT margin primary insurance 4 % 4.1 5.1 3.7 4.1 5.4 EBIT margin property/casualty reinsurance % 6.0 9.8 12.6 12.5 17.2 EBIT margin life/health reinsurance % 5.3 8.1 4.0 3.5 5.2 Policyholders’ surplus EUR million 20,598 20,089 16,999 16,961 16,631 Equity attributable to shareholders of Talanx AG EUR million 10,392 10,149 8,713 8,813 9,038 Non-controlling interests EUR million 6,732 6,461 5,548 5,411 5,610 Hybrid capital EUR million 3,473 3,479 2,738 2,737 1,983 Assets under own management EUR million 128,521 122,638 111,868 107,881 107,174 Total investments EUR million 138,925 134,104 122,831 118,673 118,855 Total assets EUR million 181,037 177,594 162,188 158,397 156,626 Carrying amount per share at end of period EUR 41.11 40.15 34.47 34.86 35.75 Share price at end of period EUR 31.76 44.18 29.80 34.07 31.77 Current dividend proposal and prior years’ dividends (per share) EUR 1.50 1.50 1.45 1.40 1.35 Market capitalisation of Talanx AG at end of period EUR million 8,029 11,169 7,533 8,613 8,031 as at the reporting Employees date 23,527 23,324 22,642 22,059 21,649 1 Ratio of net investment income excluding interest income on funds withheld and contract deposits and profit on investment contracts to average assets under own management. 2 Ratio of net income excluding non-controlling interests to average equity excluding non-controlling interests. 3 Combined ratio taking into account interest income on funds withheld and contract deposits, before elimination of intragroup cross-segment transactions. 4 Excluding figures from the Corporate Operations segment. »The dedication shown by our employees allowed us to be there for our clients when it counted. The Talanx Group has paid out EUR 1.5 billion as a result of the coronavirus crisis – mainly in relation to event can- cellations, business shutdowns, credit defaults and deaths. By doing so, we are helping to ease people’s suffering during the crisis and acting in line with our Talanx Purpose: Together we take care of the unexpected and foster entrepreneurship.« Torsten Leue (Chairman of the Board of Management) Contents PAGE 1 Letter to our shareholders 2 Board of Management 4 Supervisory Board 7 Supervisory Board Committees 8 Report of the Supervisory Board 9 Talanx shares 14 PAGE 2 Combined management report Fundamental information about the Group 18 Report on economic position 28 Other reports and declarations 62 PAGE 3 Consolidated financial statements Consolidated balance sheet 134 Consolidated statement of income 136 Consolidated statement of comprehensive income 137 Consolidated statement of changes in equity 138 Consolidated cash flow statement 140 Notes 141 PAGE Independent Auditor’s report 245 Independent Auditor’s limited assurance engagement on non-financial reporting 250 Responsibility statement 252 PAGE 4 Further information Glossary and definition of key figures 256 Contact 261 Financial calendar 261 The XHTML file of this annual report to be submitted to the Federal Gazette has been optimised for screen display. Guideline on Alternative Performance Measures – for further information on the calculation and definition of specific alternative performance measures please refer to https://www.talanx.com/investor-relations/ueberblick/midterm-targets/definitions_apm 2 Talanx Group Annual Report 2020 Letter to the shareholders Letter to our share- holders Talanx proved extremely robust and resilient in 2020, despite the The Industrial Lines Division continued its measures to increase its deep historical crisis caused by the global coronavirus pandemic. In profitability in the area of fire insurance in particular, and its com- this challenging and volatile market environment, we achieved high- bined ratio of 98.7% after adjustment for coronavirus effects puts it ly satisfying premium growth in excess of 4% to EUR 41 billion and well on the way to achieving its long-term target of 95%. At EUR 48 Group net income of EUR 673 million. In view of this, the Board of million, its operating profit is encouraging despite the high level of Management and Supervisory Board are proposing a dividend of coronavirus claims expenses, which totalled EUR 174 million. HDI EUR 1.50, the same as last year, to the General Meeting. Global Specialty SE made the most of its opportunities worldwide as part of our growth initiative, profitably lifting its premium income by This success is due to our more than 23,000 dedicated employees. 41% to approximately EUR 2 billion. This puts its strategic goal of dou- Seamlessly ensuring operational stability and efficiency for our bling premium income to EUR 2.1 billion by 2022 within reach con- clients in these challenging times did not come automatically. Many siderably earlier than expected. staff are engaged in a highly demanding balancing act between their private responsibilities and working from home. »We are continuing to The dedication shown by our employees allowed us to be there for our clients when it counted. The Talanx Group has paid out EUR 1.5 systemically leverage the billion as a result of the coronavirus crisis – mainly in relation to event cancellations, business shutdowns, credit defaults and deaths. opportunities offered by By doing so, we are helping to ease people‘s suffering during the crisis and acting in line with our Talanx Purpose: “Together we take care of digital transformation.« the unexpected and foster entrepreneurship”. I would like to extend my heartfelt thanks and those of the entire Board of Management to The Retail Germany Division remains well on track to achieve its our staff for their outstanding achievements. We look forward with target of generating at least EUR 240 million under the “KuRS” stra- pleasure to continuing our successful work together. tegic optimisation programme in 2021. Its combined ratio improved substantially to 95.4% (previous year: 99%), resulting in operating The coronavirus is impacting the business world in many different profit of EUR 203 million. This is all the more encouraging given the ways. The crisis is accelerating the adoption of digital business substantial one-off effects we were faced with, particularly in the models as client behaviour changes and a hybrid working world area of commercial shutdown insurance. One of our key growth in- emerges. Our ambitious strategy during this general transformation itiatives is our business with small and medium-sized enterprises. towards a “new normal” is bearing fruit. All divisions contributed to We outperformed the market again here last year, with growth of this in the past year.