Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Talanx AG (TNXXF, Financial) reported a 13% increase in revenues and a 32% increase in net income for the first half of 2024, showcasing strong financial performance.
- The company achieved a return on equity of 20.3%, reflecting the strength and profitability of its diversified business model.
- The primary insurance segment saw a significant net income increase of 39%, contributing to the overall group performance.
- The industrial lines segment reported a 48% increase in net income, driven by improved technical performance and a reduced combined ratio.
- Retail international remains a growth engine with a 19% currency-adjusted growth rate, and the integration of Liberty Business in Latin America is progressing well, enhancing growth prospects.
Negative Points
- The company faced large losses in the second quarter due to flood events in Germany and Brazil, as well as riots in New Caledonia, impacting financial results.
- The retail Germany segment experienced headwinds with a combined ratio increase to 99.7%, driven by floods and challenges in the motor business.
- Despite strong performance, Talanx AG (TNXXF) did not raise its net income guidance for the full year, citing potential volatility from the upcoming hurricane season.
- The company is exposed to natural catastrophe risks, particularly in industrial lines and regions like Mexico and Brazil, which could affect future results.
- There are concerns about the valuation of the primary insurance group, with a PE ratio below 4, which is considered low compared to peers.
Q & A Highlights
Q: Can you elaborate on the trends in industrial lines and any resiliency built into reserves for the first half? Also, what does S&P's positive credit rating for Hannover Re mean for Talanx's future capital return?
A: We are growing rates and acquiring new business, with rate increases covering inflation. We maintain a high resiliency level and added to it during the first half to keep the buffer stable despite 14% business growth. Regarding S&P's rating, we will discuss our dividend policy at the Capital Markets Day in December.
Q: Why didn't you raise your net income guidance despite strong trends and buffers? Also, can you provide figures on the expense ratio advantage in industrial lines and the focus on margin over volume in retail Germany?
A: We are cautious due to potential volatility from the hurricane season, which has historically impacted Q3 results. Our cost ratio in industrial lines is below 17%, compared to peers at around 24%. In retail Germany, we prioritize profitability over growth, adapting prices to claims inflation, particularly in motor insurance.
Q: Can you discuss the natcat exposure in industrial lines and international segments, particularly in Q3?
A: We have exposure in Mexico and Brazil to tropical cyclones, and in industrial lines, we insure plants in the US and Puerto Rico. We've adjusted our natcat exposure by including it in pricing and reducing exposure in specialty business. Compared to 2017, we are less exposed on a relative basis.
Q: What is the resilience situation in retail international following the Liberty integration, and should we expect more equity top-up for this segment?
A: Integration is on track, and we are pleased with the technical performance and management quality. We've already seen significant integration costs in H1, and while the ROE guidance is conservative, we expect strong performance. No additional equity top-up is planned for now.
Q: How confident are you in the reserve prudence in Latin America compared to the German business, and what about inflation assumptions?
A: We will include the Liberty business in the next Towers Watson review. Our own actuaries have assessed reserves, and we are comfortable with them. Inflation assumptions are built into our loss triangles and additional buffers are added as needed, with over 430 inflation indices used for valuation and pricing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
