Risk strategy

Our risk strategy forms the basis for Group-wide implementation of risk management. It is, in conjunction with value-oriented management, an integral component of our entrepreneurial activities and is reflected in the detailed strategies of the various divisions. It is derived from our Group strategy and formulates the objectives of our risk management.

As an international insurance and financial services group, we consciously enter into a wide range of risks that are inextriably linked with our business activities.

Our understanding of risk is holistic. For us, “risk” means uncertainty about future deviations, either positive or negative, from planned or expected values. Failure to meet targets that have been explicitly stated or implied is of particular significance in risk management, as positive deviations from planned or expected values (opportunities) are naturally not the focus of risk management.

A crucial aim of our risk management is to protect the Talanx Group’s economic capital. This requires conscious handling of risks, taking into account their materiality and the legal framework. As part of our overriding Group strategy, our risk strategy sets out our basic stance on the recognition and handling of risks.

Our primary aim is to ensure compliance with our strategically defined risk appetite. This is determined by the following three statements.

  • There is a probability of 90% that we will achieve positive net income in accordance with IFRS
  • The economic capital base must correspond to at least an aggregated 3,000-year shock (probability of ruin)
  • The Group’s investment risks should be limited to less than 50% of the total risk capital requirement

As a secondary condition with regard to its capitalisation, Talanx is aiming for a target capital adequacy ratio that corresponds roughly to the “AA” category at Standard & Poor’s (S&P). It also needs to fulfil regulatory requirements.

The principles set out in the Group strategy are reflected in measures relating to the risk strategy and risk management activities derived from these. Our risk management department supports, monitors and reports on the achievement of these strategic objectives.

A key instrument in strategic risk management is the risk budget, which stipulates the material upper limit for the Talanx Group’s risk potential, based on risk-bearing capacity and the strategically defined risk appetite. It thus reflects the Talanx Board of Management’s risk appetite in this respect.

The risk budget is allocated to the Talanx Group’s individual divisions as part of strategic programme planning for the following year and represents the upper limit on the risk capital available to the divisions. Talanx’s system of limits and thresholds also specifies limits and thresholds for the capital adequacy ratio for the Group and divisions, which take into account the above secondary condition of a target capitalisation ratio in line with the “AA” category in S&P’s capital model, among other points.

The level of security chosen (99.97%) exceeds the regulatory level required under Solvency II (99.5%) and ensures that the Group will in all probability also be able to cope with any new risks that arise.

Both our Group strategy and our risk strategy are subject to an established annual review process. Through this scrutiny of our assumptions and, if necessary, adjustment of the underlying strategy, we seek to ensure that our strategic guidelines are appropriate at all times and that actions are based on adequate information.