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Talanx CFO says industrial unit will hit combined ratio target despite H1 result

Talanx AG CFO Immo Querner remains confident that the German insurance group's industrial division can hit its combined ratio target for 2019 even though it fell short in the first half of the year.

He also said the group would continue efforts to boost profitability in its industrial fire business despite expecting to achieve targeted improvements ahead of the 2020 deadline.

Talanx's industrial insurance book, a part of subsidiary Haftpflichtverband der Deutschen Industrie V.a.G, or HDI, reported a combined ratio of 102.3% in the first half of 2019. This was in part because large claims of €143.2 million exceeded the division's first-half budget of €138.8 million.

The company is targeting an industrial combined ratio of about 100% for full year 2019, absent major catastrophes or large loss events. Querner acknowledged to analysts on a call covering Talanx's first-half 2019 earnings that "we are not quite there yet."

Hitting the target would mean recording an industrial combined ratio of about 98% in the second half of the year. Querner said Talanx could achieve that due to several factors. One is that the company suffered one-off hits to profitability in the first quarter, including a reserve strengthening for a loss incurred the previous year and an associated negative impact on reinstatement premiums, which will not recur in the second half of the year. Another is that the specialty business that HDI acquired from sister company Hannover Re's Inter Hannover division typically performs better in the second half than the first.

Querner also expects some positive impacts on the profit and loss account in the third and fourth quarters from improvements to the industrial fire portfolio.

Corrective action

Like several of its peers, such as Allianz and Swiss Re, Talanx has been trying to improve profitability in its industrial insurance business. Talanx is focusing on its industrial fire portfolio, which reported a combined ratio of 120% in the first half of 2018. The ratio had improved to 109% in the first half of 2019.

The company has a target of shaving at least 20 points from its fire combined ratio by 2020; it has achieved a reduction of 18.9 points, and price increases that have been written but not yet taken effect as of August stand to reduce it further. And while the insurer expects to exceed its fire target ahead of schedule, Querner stressed that "there was clearly an ambition to go beyond the 20%."

"I can clearly dispel any concern that we would sit idle and stop with the initiatives now that we have achieved more than the 20%," he said. "The contrary is true."

He also said the company would continue to be vigilant about pricing and terms and conditions discipline in other industrial lines. While noting that other lines did not require something as thorough as the improvement program for industrial fire, he said the company "would not hesitate" to make corrections when there is an indication that improvement is necessary.

Talanx reported net income after minority interests of €477 million in the first half of 2019, up 9.4% on the €437 million it reported in the same period of 2018. The company now expects to make a net profit of more than €900 million for the full year, having previously guided to a profit of about €900 million.

While the group's industrial lines and German retail insurance business both exceeded their large loss budgets, the reinsurance segment, which includes Hannover Re, was under its large loss budget by €228.9 million. The group as a whole was under budget by €219 million.