Company Reports

Talanx has reported group net income of EUR 572 million for the first three months of 2024. The good results have mainly been driven by a strong performance in personal lines. Management maintains their EUR 1.7 billion guidance for full-year net income with confidence the business will exceed this, providing some leeway for larger second-quarter and third-quarter claims. Large losses, so far, have been light with only EUR 76 million occurring in the first quarter, EUR 28 million from human-made disasters and EUR 48 million from natural disasters, well below the full-year EUR 2.435 billion budget for large losses. We maintain our EUR 55 fair value estimate and no moat rating.

Talanx reported preliminary net income of EUR 1.581 billion for 2023. This is above our estimate of EUR 1.308 billion. This year's preliminary net income at Talanx is a 30% rise on the prior year. That builds on a 15% and 50% rise in the two years prior to this. We think Talanx has excellent cost controls, based in a low-cost area of Hannover, Germany. However, we still don’t have a strong sense of the long-term earnings power or quality of the business. Therefore, we are maintaining our EUR 55 fair value estimate until we review full financial statements in March. We also keep our no moat rating.

At its core, Talanx is a business with a lower-cost position. That stems from its location in Hannover, Germany, which is a much cheaper place to live in comparison with the locations of other major insurers in major cities. That lower expense base has come at a price, and this has historically been visible in pricing and claims. Talanx seems almost the worst versus peers in both commercial insurance and reinsurance based on these indicators. The company has taken actions] that may lead to improvements, but we do not hold much confidence in the maintainability of these. Those actions include but are not limited to investment in a new piece of proprietary pricing technology that the firm has termed the Underwriting Workbench, which helps underwriters run their insurance portfolios profitably. Here, individual underwriters are enabled to meet their key performance indicators, meaning the same for the industrial insurance division. However, we think Talanx seems to be lagging peers.

Talanx has reported decent results for the first 9 months of 2023, delivering net income of EUR 1.28 billion for shareholders, ahead of our EUR 1.3 billion full-year forecast. Talanx has grown its insurance revenue by 8% year on year to EUR 32.3 billion for the group. Large loss payments so far this year have amounted to EUR 1.6 billion, which is a little lighter than the EUR 1.9 billion Talanx incurred in the prior year. The large loss budget for the first 9 months on a pro rata basis was EUR 1.7 billion, so Talanx’s full-year large loss budget of EUR 2.25 billion does not look like it will be utilized in full, so far. Within the large losses, EUR 398 million are attributable to human-made losses and EUR 1.2 billion are attributable to natural disasters. The largest loss incurred so far of EUR 329 million, relates to the February earthquake in Syria and Turkey.

At its core, Talanx is a business with a lower-cost position. That stems from its location in Hannover, Germany, which is a much cheaper place to live in comparison with the locations of other major insurers in major cities. That lower expense base has come at a price, and this has historically been visible in pricing and claims. Talanx seems almost the worst versus peers in both commercial insurance and reinsurance based on these indicators. The company has taken a number of actions that may lead to improvements, but we do not hold much confidence in the maintainability of these. Those actions include but are not limited to investment in a new piece of proprietary pricing technology that the firm has termed the Underwriting Workbench that helps underwriters run their insurance portfolios profitably. Here, individual underwriters are enabled to meet their key performance indicators, meaning the same for the industrial insurance division. However, we think Talanx seems to be lagging peers.

We are launching coverage of Talanx with a EUR 55 per share fair value estimate and a rating of no economic moat.