Nature of risks associated with insurance contracts and financial instruments

The disclosures provided below complement the risk reporting in the management report and reflect the requirements of German Accounting Standard DRS 5-20, IFRS 4 and IFRS 7. For fundamental qualitative statements, e.g. regarding the organization of our risk management or the assessment of the risk situation, please see the risk report in the management report.

Risks from insurance contracts

The focus of the Talanx Group’s business activities is on the sale and administration of insurance products in all standard lines of property/casualty and life insurance as well as non-life and life/health reinsurance.

Risks from these insurance contracts consist principally of the insurance risk, default risks, liquidity risks and market risks.

Insurance risk

The insurance risks in property/casualty insurance are considered separately from those in life insurance because of the significant differences between them.

In property/casualty insurance and non-life reinsurance the insurance risks derive primarily from the premium/loss risk and the reserving risk.

Insurance business is based upon the assumption of individual risks from policyholders (in primary insurance) or cedants (in reinsurance) and the equalization of these risks in the community of (re)insureds and over time. For the insurer, the fundamental risk lies in providing insurance benefits, the amount and due date of which are unknown, from premiums calculated in advance that cannot be changed.

We counter the assumed premium/loss risk by means of numerous mechanisms and functions. In addition to claims analyses and modeling, we reduce this risk through selective underwriting and regular monitoring of the loss experience as well as through adequate reinsurance protection. The volume of reinsurance protection relative to the gross written premium can be measured according to the level of retained premium; shown below broken down by segments, this indicates the proportion of written risks retained for our risk.