Our management indicators
As part of our performance management we measure economic value creation from the strategic planning to operational management using our central management indicator, namely Intrinsic Value Creation (IVC).
IVC enables us to compare the value contributions made by the Group, the five business segments as well as individual operating units, making allowance for their specific characteristics. This puts us in a position to reliably identify value-creating areas. In this way, we can optimize the allocation of capital and resources, pinpoint risks and opportunities and initiate the appropriate measures.
- Management indicators
In non-life business (Property/Casualty Primary Insurance and Non-Life Reinsurance) the IVC measures the difference between the NOPAT (net operating profit after adjustments and tax) and the cost of capital. The IVC thus determines the true economic value creation.
The NOPAT is comprised of the Group net operating profit after tax recognized under IFRS and the change in the differences between present values and carrying amounts in the balance sheet (in each case adjustment for non-life and life insurance). In addition, interest on hybrid capital, minority interests, extraordinary profits and losses as well as effects of over- or undercapitalization are eliminated. The NOPAT thus gives us an economically informative performance and management ratio for the reporting period in question.
The cost of capital is calculated from the allocated risk-based capital, weighted with the average cost unit rate for the total capital. The capital is divided between the profit centers in a manner that is appropriate to the risk; the uniform Group-wide Talanx risk model on the basis of a 99.5 percent Value at Risk is used for this purpose. The time horizon considered under the model is one calendar year.