German Insurance Giant Slumps In Face of Overhaul

March 25, 2015 by Oliver Suess

Talanx AG, Germany’s third-biggest insurer, slumped after saying it began an overhaul of its German consumer division.

Talanx lost as much as 10 percent, the biggest intraday decline since the shares began trading in October 2012. They fell 3.7 percent to 29.97 euros at 12:03 p.m. in Frankfurt, cutting this year’s gain to 19 percent and valuing the company at about 7.6 billion euros ($8.2 billion).

Talanx “implemented measures to strengthen the balance sheet” at its German division, the company said in a statement on Monday. The measures included writedowns on the value of German life insurance policies as well as a strengthening of reserves for property and casualty insurance. The restructuring cut full-year earnings before interest and taxes by 312 million euros, it said.

This year “will be one of the most challenging years in a long time, with falling capital market returns and soft markets in industrial insurance and reinsurance,” said Chief Executive Officer Herbert Haas, 60. “Another challenge will be the long- term restructuring of the retail Germany segment.”

Dividend Plan

The overhaul at the German consumer division, the company’s biggest in terms of premium income, comes at a time when many other insurers, awash with capital, are raising payouts to investors as ultra-low interest rates erode investment margins and price declines make growing the business less attractive.

Measures at the German unit “were largely financed” by gains of 214 million euros from the sale of Talanx’s remaining shares in Zurich-based Swiss Life Holding AG, the company said. Following the steps, the division, which sells coverage including life and motor insurance in Germany, reported a loss of 156 million euros in the quarter compared with a profit of 15 million euros a year ago.

More measures to strengthen the business may be necessary this year and next, Haas said at a press conference.

Net Income

Group net income increased to 239 million euros in the fourth quarter from 203 million euros a year earlier, Talanx said. That compared with a 222 million-euro estimate of six analysts surveyed by Bloomberg.

Talanx said it plans a dividend of 1.25 euros a share for 2014, compared with 1.20 euros a share paid out for 2013.

The company, based in Hanover, confirmed a full-year profit target of at least 700 million euros. Net income of 769 million euros last year beat a target of at least 700 million euros, it said.

Hannover Re, the world’s third-biggest reinsurer and 50.2 percent owned by Talanx, said on March 10 it plans to pay a special dividend after fourth-quarter profit rose more than analysts estimated, helped by low catastrophe claims.