Talanx elevates aspirations for accomplishments by 2027
Hey there! Let's dive into Talanx's latest financial strategy shakeup.
It's clear as day that Talanx has been on a roll recently, outperforming expectations during the 2023-2025 strategic period. And get this—they're ready to kick things up a notch, setting new medium-term goals up until 2027!
So, why the sudden move?
Well, they've been slaying their self-imposed goals faster than you can say "three-year strategic period." That's right—Talanx is ending their current strategic period ahead of schedule, and they want to stretch those winning vibes for another few years.
The secret sauce behind their success? A cultural transformation that's allowed them to carry out a focused strategy—and boy, has it paid off! Since 2018, their net profit has nearly tripled, from around 700 million to an expected whopping 1.9 billion euros this year. What's more, they've been churning out an average annual double-digit growth rate of 18%, outpacing their competitors.
But how did they manage to outshine the competition?
Besides Hannover Re's strong performance, they've significantly boosted their primary insurance business. Since 2022, their primary insurance revenue has increased by about 35%, and profits have nearly doubled, raising its contribution to group profits to nearly 50%.
One crucial factor that played a role? The largest acquisition since Talanx's IPO in 2012, which took place in 2023. This acquisition helped them climb to the number two position in the property insurance market in Latin America. This massive move is set to contribute more than 80 million euros to their group result in 2024, after financing costs.
Now, let's talk about the quality of their earnings. Talanx has beefed up their resilience by improving its reserves—external assessors certify that they have resilience reserves totaling 3.7 billion euros, an increase of 1 billion euros during the strategic cycle since 2022.
And it's not just their reserves that are resilient—Talanx has also fortified their resilience in the capital investments area. Over the past two years, they've made strategic moves to realize around 500 million euros in hidden losses on investments to reinvest at higher interest rates and enhance future profits. Moreover, they keep a conservative low-beta approach, with nearly 82% of their investments in fixed-income securities, 93% of which are investment grade.
You might be wondering—will their low equities allocation change given market developments? The answer is a firm no. Talanx believes it makes more sense to allocate significantly more risk capital to insurance technology than to capital investments.
Talanx has long aimed for a balanced profit contribution between primary and reinsurance, with a goal of their primary insurance segment accounting for about 50–50%. But thanks to stronger profit growth in primary insurance, it has reached almost 47%, bringing them close to their strategic goal.
It's not just about balance for Talanx—they're also seeking diversification within primary insurance. About 50% of their revenue comes from corporate and specialty business, while the other half is divided between international business (36%) and German retail and commercial business (18%).
When it comes to geographical diversification, roughly half of their revenue comes from mature Western European markets, with the other half primarily coming from growth markets, such as Central and Eastern Europe, Latin America, and the Asia-Pacific region.
Now, let's talk about costs—offering efficient insurance is a key competitive factor for Talanx. They're the cost leader in 93% of their portfolio segments, including reinsurance, corporate and specialty, and international retail. However, they still have progress to make in German retail, which currently contributes 7% to the group result.
German retail and commercial insurance segment is currently their only segment facing challenges. The combined ratio in motor insurance was 114% in the first nine months. But don't worry—they're not quitting any time soon. With measures they're implementing, they're confident of returning to profitability in the next year.
In a challenging market like German retail, they need to focus on their strengths. This includes business with companies and professionals in property insurance, as well as opportunities in biometric products and partnerships with banks in life insurance.
So, what's their return expectation for the next three-year period across all segments, including German retail? Across all segments, including German retail, their goal is to achieve a strategic return on equity of at least 12%.
Talanx aims to significantly improve their cost position in the German retail sector, where they aren't a cost leader. And as for the German retail's importance within the group, it's not going anywhere—while markets outside Germany are growing faster, it's not a strategic goal to reduce its proportional contribution.
And finally, what are their combined ratio targets for primary insurance by 2027? With a combined ratio of 92.4% in primary insurance after nine months this year, they're feeling confident they're well-positioned to meet their group targets by 2027.
So there you have it! From strategic focus to disciplined underwriting, digital innovation, diversification, and beyond—Talanx's growth isn't just a fluke. They've laid the groundwork for sustainable success, and they show no signs of slowing down anytime soon.
In light of Talanx's impressive financial performance, they have set new medium-term goals lasting until 2027, aiming to extend their winning streak beyond their initially planned strategic period. This move is a result of Talanx surpassing their self-imposed goals faster than a three-year strategic period, signifying a strategic shift towards long-term growth.
Talanx's success in 2023, particularly their significant acquisition that year, contributed to their climb to the number two position in the property insurance market in Latin America, promising a more than 80 million euros group result in 2024, after financing costs.
In terms of financial investment, Talanx has strategically reinvested at higher interest rates, realizing around 500 million euros in hidden losses on investments to enhance future profits. They maintain a conservative approach, with nearly 82% of their investments in fixed-income securities, 93% of which are investment grade.
Looking ahead, Talanx expects a combined ratio of 92.4% in primary insurance by 2027, targeting a strategic return on equity of at least 12% across all segments, including German retail, despite facing challenges in this sector. Talanx's long-term strategy is focused on improving cost efficiency, digital innovation, and geographical diversification, setting the stage for sustained success in the future.
