Talanx plans to escalate its objectives for the year 2027
Rewritten Article:
Hey there! So, you're curious about why Mr. Leue is setting new financial goals a year early? Well, buckle up, pal.
See, back in the 2023-2025 strategic period, our company surpassed previous self-imposed goals before the end date. And, guess what? We're not ones to rest on our laurels. Now, we're establishing new medium-term goals for the year 2027.
The secret sauce to our success? Cultural transformation, son. This transformation has allowed us to implement a focused strategy that's been, well, prolific. Since 2018, our net profit skyrocketed from around 700 million to an expected 1.9 billion euros this year, no joke. We've got an average annual double-digit growth rate of 18%—woah! That's got us outpacing the competition.
But why have we been killing it, you ask? Besides Hannover Re's strong performance, we've supercharged our primary insurance business. Since 2022, our primary insurance revenue has ballooned by about 35%, and profits have nearly doubled. In fact, it now contributes about 47% to our group profits.
Now, let's talk about the giant acquisition since Talanx's IPO in 2012, agreed upon in 2023. It's just one factor, but through acquiring Liberty's entities in Latin America, we've climbed to the number two position in the property insurance market down there. And, this badboy will contribute more than 80 million euros to our group result in 2024, after financing costs.
Earnings quality has also been enhanced by improving our resilience. External assessors have certified our resilience reserves totaling 3.7 billion euros, an increase of 1 billion euros during the strategic cycle since 2022.
So, how does this apply to capital investments? We've been beefing up our resilience in this area, too. Over the past two years, we've intentionally realized around 500 million euros in hidden losses on investments, so we could reinvest at higher interest rates and enhance future profits. And, did you hear that? We've maintained a conservative, low-beta approach, with nearly 82% of our investments in fixed-income securities. 93% of which are investment grade.
But, are we planning on changing our low equities allocation given market developments? No way, Jose. Our equities allocation remains at 1%. For our risk-return profile, it makes more sense to allocate significantly more risk capital to insurance technology than to capital investments.
Diversification can help mitigate risks in the insurance business. Where do we stand on this? We've long aimed for a balanced profit contribution between primary and reinsurance. In 2018, primary insurance accounted for about 30%. Now, thanks to stronger profit growth in primary insurance, it's reached 47%, bringing us close to our strategic goal.
What about diversification within primary insurance? Our primary insurance is a streamlined, focused property insurer. About 50% of its revenue comes from corporate and specialty business, while the other half is divided between international business (36%) and German retail and commercial business (18%).
And geographically? Roughly half of our revenue comes from mature Western European markets. The other half primarily comes from growth markets, such as Central and Eastern Europe, Latin America, and the Asia-Pacific region.
We're growing faster than our competitors during this strategic period. What role do costs play? Offering efficient insurance is a crucial competitive factor, and our growth is partly due to being the cost leader in 93% of our portfolio segments, including reinsurance, corporate and specialty, and international retail. However, we still have progress to make in German retail, which currently contributes 7% to the group result.
The German retail and commercial insurance segment is currently our only segment facing challenges. The combined ratio in motor insurance was 114% in the first nine months. When do we expect a turnaround? The entire German motor insurance market is facing challenges due to high claims inflation, which we can't escape. But don't worry, with the measures we're implementing, we're optimistic about returning to profitability next year.
Reshaping the German market, that's what we need to do now. In a challenging market, we must focus on our strengths. In property insurance, this includes business with companies and professionals. In life insurance, we see opportunities in biometric products and partnerships with banks.
What are our return expectations for the next three-year period? Across all segments, including German retail, our goal is to achieve a strategic return on equity of at least 12%.
German retail is the only segment where we aren't a cost leader. Is that a goal we're pursuing? We aim to significantly improve our cost position there as well.
The share of German retail in Talanx's net result has fallen to 7%. Will its importance within the group continue to decline? Reducing the share of the German retail and commercial business is not a strategic goal. However, since markets outside Germany are growing faster, its proportional contribution will likely decrease over time.
What are our combined ratio targets for primary insurance by 2027? With a combined ratio of 92.4% in primary insurance after nine months this year, I believe we're well-positioned to meet our group targets by 2027.
Will there be any changes to our approach in primary insurance segments? No. In corporate and specialty, which has doubled its revenue since 2022 to around 10 billion euros, we are a global player. With about 5,100 international programs, we can serve large customers worldwide. Here, we'll continue to grow profitably. In German retail, we aim for stability given the challenging market environment, as it provides significant and consistent dividend contributions.
Our strategic position in Retail International enables us to continue capturing market share profitably. Over the past two years, the segment has grown by 4 billion euros to 9.3 billion euros, with half of that being organic.
What are our growth and return expectations for corporate and specialty? This segment has grown profitably, with a combined ratio of 91% and premiums rising from 4.5 billion euros in 2018 to 10 billion euros today—a very positive development.
Are we ready for a slowdown in growth? Not a chance. We're confident in continuing to capture market share profitably due to our strategic positioning and cost leadership.
What growth do we envision for Retail International? Latin America and Central and Eastern Europe offer significant growth potential. With higher insurance penetration in these regions, we see a market potential of around 100 billion euros by 2040.
How is this divided among regions? The Liberty acquisition has bolstered our position in Latin America and improved regional diversification. Latin America and Europe now each contribute around 50% of insurance revenue.
How profitable is the business in Latin America? Currently, Latin American private and commercial insurance contributes about 45% to the segment result, making it significant.
Does Latin America drag down profitability? No. We aim to capture profitable market share. Latin America will strengthen, not dilute, Talanx's return on equity in primary insurance over the medium term.
Is the Liberty integration complete? It's well underway but will continue until about 2027 due to IT migration. We've already realized over 50 million euros in synergies this year, around 40% of the total, within the first year post-merger.
When will all cost synergies be realized? We've communicated to the market that we'll achieve all cost synergies related to the Liberty acquisition in Latin America by 2027, within three years of closing.
What role will future acquisitions play in the coming years? We aim to grow profitably, both organically and inorganically. In our core markets, particularly in Mexico, where we're not yet among the top five property insurers, acquisitions are possible. We're also open to acquisitions in corporate and specialty, such as profitable niches in the U.S., the world's largest insurance market.
Can you imagine a larger acquisition than the Liberty deal in Latin America? For inorganic growth, we have a mid-single-digit billion-euro budget. I'd prefer five 1 billion euro acquisitions over one 5 billion euro deal. Ultimately, the focus is on whether an acquisition creates value and aligns with our strategy.
Do the new medium-term financial goals depend on further acquisitions? We can achieve our new goals without acquisitions. From 2024 to 2027, we aim to increase our net profit by 30% to over 2.5 billion euros. Cost leadership, focus, diversification, and a culture that supports entrepreneurship give me confidence that we'll meet these goals.
What exactly do you mean by these goals? Our goal is to pay shareholders a dividend of 4 euros per share for 2027, a 50% increase compared to this year. By increasing our dividend reserve factor—the ratio of retained earnings under HGB to the dividend—we ensure that dividends can continue to rise annually, even in challenging economic years.
Will the dividend path outpace profit growth for the first time? In the past, this has varied and been influenced by one-time effects. Now, until 2027, we aim for a dividend increase significantly exceeding profit growth: 30% profit growth versus a 50% dividend increase.
- The focus on business growth and profitability in the primary insurance segment has led to a significant increase in revenue and profits, with the sector now contributing approximately 47% to Talanx's group profits.
- In the realm of finance and investing, Talanx has intentionally incurred around 500 million euros in hidden losses on investments over the past two years, allowing for the reinvestment at higher interest rates and subsequent enhancement of future profits.
