Talanx shares dip as investors warned of big third-quarter industrial property losses

Shares in German insurance and reinsurance group Talanx fell shortly after the company warned investors that extraordinary “large and frequency losses” in its industrial property business, mainly underwritten by HDI Global, would lead to a loss for the third quarter. HDI Global has embarked on a serious re-underwriting of the troublesome industrial property book to bring its combined ratio back down to at least 100% for 2019, and back into profit by 2020. Dr Christian Hirsch, chairman of the board of management at HDI Global, recently told Commercial Risk Europe that the company’s 20/20/20 strategy – which aims to reduce the combined ratio in the burdened 20% of its industrial lines portfolio to “significantly less” than 100% by 2020 – is well on track. The company is targeting an average rate increase of 20% within its German and global industrial property book under the plan, though Dr Hinsch stressed that this would not be applied to all customers across the book in blanket form. Talanx confirmed this week that by the middle of October more than 60% of the rate increases were “already under contract”. But before Dr Hinsch and his recently restructured management team can reap the benefits of their new strategy, investors will have to stomach some further painful losses, Talanx confirmed. “Based on the current state, the Talanx Group is assuming a large-loss burden for industrial lines after nine months of more than €260m. This therefore is likely to have exceeded the large-loss budget for the entire year in industrial lines already on 30 September 2018,” stated the Hanover-based group. “This has been caused in particular by several large losses and an unusually large accumulation of frequency losses in industrial property insurance. In the third quarter, this is likely to have led to a quarterly loss before taxes in the industrial lines division amounting to more than €100m,” it continued in a statement. Despite the latest bad news, Talanx said it is “very optimistic” about the future profitability of its fire business within the industrial lines division. “The changes already completed in management and the 20/20/20 programme are expected to lead to a balanced underwriting result in 2019, and to a positive underwriting result in the division from 2020,” it said. The group added that it is now assuming a group net income of about €700m for this year overall. The return on equity is therefore likely to be about 8%, Talanx’s minimum equity target. This forecast is based on the assumption of a large-loss burden for the fourth quarter that lies “within the scope” of a quarterly budget. Talanx added that it expects group net income of about €900m for financial year 2019, and this entails a “higher profit than originally planned for 2018”. Apart from continued successful implementation of the 20/20/20 strategy, Talanx hopes that the creation of its new specialty insurer HDI Specialty, created through the merger of HDI Global’s specialty operations and sister company Hannover Re on 1 January 2019, will help maintain growth.

Talanx shares dip as investors warned of big third-quarter industrial property losses

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