Report of the Supervisory Board
Ladies and Gentlemen,
The Supervisory Board fulfilled its duties in accordance with statutory requirements, the Articles of Association and the Rules of Procedure without restriction in the 2013 financial year. We considered at length the economic situation, risk position and strategic development of Talanx AG and its major subsidiaries. We advised the Board of Management on the company’s direction, monitored the management of business and were directly involved in decisions of fundamental importance.
In the year under review we assembled for four ordinary meetings of the Supervisory Board, held on 20 March, 14 May, 13 August and 13 November 2013, and for one constitutive Supervisory Board meeting on 6 May 2013. As in the previous year, the Federal Financial Supervisory Authority (BaFin) exercised its legal powers to send two representatives to attend one of these meetings. The Finance and Audit Committee of the Supervisory Board held four ordinary meetings and one constitutive meeting, the Personnel Committee three meetings and the Nomination Committee one meeting. The Standing Committee formed in accordance with the requirements of the German Co-Determination Act (MitbestG) had no reason to meet in 2013. The full Supervisory Board was briefed on the work of the various committees. In addition, we received written and oral reports from the Board of Management, based on the quarterly financial statements, on business operations and the position of the company and Group. At no point in the year under review did we consider it necessary to conduct audit measures pursuant to § 111 Para. 2 Sentence 1 of the German Stock Corporation Act (AktG). Where transactions requiring urgent approval arose between meetings, the Board of Management submitted these to us for a written resolution. The Chairmen of the Supervisory Board and Board of Management regularly exchanged views on all material developments and transactions within the company and the Talanx Group. Overall, within the scope of our statutory responsibilities and those prescribed by the Articles of Association, we assured ourselves of the lawfulness, expediency, regularity and efficiency of the actions of the Board of Management.
The Board of Management provided us with regular, timely and comprehensive information regarding the business and financial situation, including the risk situation and risk management, major capital expenditure projects and fundamental issues of corporate policy, and transactions that – although not subject to the approval of the Supervisory Board – nevertheless need to be reported in accordance with the requirements of the Rules of Procedure, as well as the impact of natural disasters, the status of major lawsuits and other material developments at the company and the Group and in Europe (sovereign debt crisis, status of implementation of Solvency II). At our meetings we considered at length the reports provided by the Board of Management and put forward suggestions and proposed improvements. All Supervisory Board meetings were attended by every member, with the exception of the meetings in May, at which one member participated in the adoption of resolutions only through a written vote.
Key areas of discussion for the full Supervisory Board
The following issues formed the primary focus of reporting and were discussed in detail at our meetings: business development of the company and individual Group segments, the situation in German life insurance and specifically the future position of HDI Lebensversicherung AG, the pooling and optimisation of IT services within the in-house company Talanx Systeme AG, the Group’s strategic position in Latin America, the future structure of business units in other European countries in the Industrial Lines Division and planning for 2014. We were informed of the reasons why business development for the preceding financial year had diverged from relevant plans and targets, and were able to satisfy ourselves accordingly with the explanations provided.
Risk management within the Group was again a further focus of our deliberations. Risk reporting by the Board of Management was discussed at each meeting of the Supervisory Board. In addition, we considered a number of refinancing measures and issues relating to the expansion and reduction of shareholdings, and gave our agreement prior to the issuing of employee shares to a capital increase utilising the authorised capital. The Supervisory Board also discussed the structure and composition of the company’s Board of Management.
In view of § 87 Para. 1 of the German Stock Corporation Act, the full Supervisory Board dealt with the revision of the divisional bonus, the setting of divisional targets for 2014 and the fixing of bonuses for members of the Board of Management, and consulted external sources in its assessment of the appropriateness and structure of remuneration for the Board of Management. In addition, at its meeting on 13 November 2013, the Supervisory Board was informed about the structure of remuneration systems within the Group as required by § 3 Para. 5 of the German Regulation on Remuneration in the Insurance Sector (Versicherungs-Vergütungsverordnung). The fixed remuneration of five members of the Board of Management was also reviewed as at 1 January 2014, whereby horizontal and vertical aspects of remuneration and remuneration concepts were used for comparison and guidance purposes. The issue of the appropriateness of the remuneration system for Group managers was discussed at Supervisory Board meetings on 20 March 2013 and 14 May 2013.
Transactions and measures requiring approval in accordance with legal requirements, the company’s Articles of Association and its Rules of Procedure were agreed with the Board of Management following examination and discussion.
Work of the committees
The Supervisory Board has set up various committees to enable it to perform its duties efficiently: the Finance and Audit Committee, which has five members, the Personnel Committee and the Standing Committee, each of which has four members, and the Nomination Committee with three members. The possibility of adding an extra member to the Finance and Audit Committee and to the Personnel Committee was discussed but ultimately rejected. The committees prepare for discussions and the adoption of resolutions by the full Supervisory Board. They also have the authority to pass their own resolutions. Minutes of meetings of the Finance and Audit Committee and the Personnel Committee are also made available to members of the Supervisory Board who do not belong to these committees. The composition of these committees can be found in the Annual Report.
Along with preparations for discussion and adoption of resolutions by the full Supervisory Board, the Finance and Audit Committee also carried out in-depth reviews of the quarterly financial statements of the company and the Group. Furthermore, the Finance and Audit Committee received a report from the Board of Management on a possible second listing for the company on the Warsaw Stock Exchange, discussed the findings of an actuarial audit of the net claims reserves for non-life insurance business within the Talanx Group, together with profitability trends at individual Group companies as at 31 December 2012, and considered the internal control system, risk reports and annual reports by Internal Auditing and the Chief Compliance Officer. We also received reports from KPMG on the situation with regard to succession planning in audit management and on trends in the insurance sector as part of a client service review, and discussed KPMG’s findings from a status analysis commissioned by the committee regarding risk management and the internal control system in accordance with the Minimum Requirements for Risk Management in Insurance Undertakings (MaRisk VA) at the Talanx Group.
The Personnel Committee – along with preparations for discussion and adoption of resolutions by the full Supervisory Board – set targets for individual members of the Board of Management for the 2014 financial year and gave its permission for a company in which a member of the Supervisory Board holds a stake of 27.9% to provide advisory services to companies in the Talanx Group. Recommendations were also made to the full Supervisory Board with regard to setting bonuses and reviewing fixed remuneration for members of the Board of Management.
The Nomination Committee met on 15 January 2013 and made recommendations regarding nominations for re-election of the shareholder representatives on the Supervisory Board at the Annual General Meeting on 6 May 2013; the recommendations aim to ensure that the composition of the Supervisory Board is both balanced and diverse.
Corporate Governance and declaration of conformity
The Supervisory Board again devoted special attention to the issue of Corporate Governance. At its meeting on 13 November 2013, the Supervisory Board dealt with various amendments to the German Corporate Governance Code (DCGK) as reflected in the version of 13 May 2013 and decided on the limits for the vertical adjustment of remuneration required in accordance with Item 4.2.2 of the Code. The Supervisory Board also received information from the Board of Management about the focal points of human resources work at the Group and the setting up and expansion of diversity management. Intensive discussions took place regarding the findings of an audit investigating the efficiency of the Supervisory Board’s activities, which was conducted in April 2013.
Furthermore, almost all members of the Supervisory Board made use of an internal information session offered by the company, which looked at the status and development of risk management within the Group. Although the Supervisory Board attaches great importance to high standards of responsible enterprise management as formulated in the German Corporate Governance Code, it has decided against complying with the recommendations of Item 4.2.3 Para. 4 of the Code relating to a severance payment cap in Board of Management employment contracts, Item 5.2 Para. 2 regarding the chairmanship of the Audit Committee and Item 4.2.3 Para. 2 regarding the potential need for maximum limits on the payment of Talanx share awards. The reasons for this are stated in the declaration of conformity in accordance with § 161 AktG on observance of the German Corporate Governance Code, which is published in the Group Annual Report as part of the Declaration on Corporate Governance. Further information on corporate governance can be accessed on Talanx AG’s website.
Audit of the annual and consolidated financial statements
KPMG AG, Wirtschaftsprüfungsgesellschaft, Hannover, audited Talanx AG’s annual financial statements submitted by the Board of Management, the Talanx Group’s financial statements drawn up in accordance with International Financial Reporting Standards (International Financial Reporting Standards – IFRS ), together with corresponding Management Reports and accounting records. The auditors were appointed by the General Meeting. The Finance and Audit Committee awarded the specific audit mandate and determined that in addition to the usual audit tasks special attention should be given to reviewing the risk report and the remuneration report, with an additional focus in the annual financial statements on provisions for taxes and in the consolidated financial statements on the calculation of minority interests and the determination of contingent liabilities in accordance with IAS 37. The audit focus points of the German Financial Reporting Enforcement Panel (DPR) also formed the basis for various year-end procedures carried out by the auditors. An audit by the DPR in autumn 2013 did not give rise to any complaints.
The audits conducted by the auditors provided no grounds for objection. The audit reports issued were unqualified and state that the accounting records, annual financial statements and consolidated financial statements give a true and fair view of the assets, financial position and net income, and that the Management Reports suitably reflect the annual and consolidated financial statements.
The financial statements and the KPMG audit reports were distributed to all members of the Supervisory Board in good time. They were examined in detail at a Finance and Audit Committee meeting on 18 March 2014 and at a Supervisory Board meeting on 19 March 2014. The auditor took part in the Finance and Audit Committee’s deliberations and those of the full Supervisory Board regarding the annual and consolidated financial statements, reported on the conduct of the audits, and was available to provide the Supervisory Board with additional information. In accordance with the final outcome of our own examination of the annual financial statements, the consolidated financial statements, corresponding Management Reports and the audit reports, we concurred with the opinion of the auditors and approved the annual and consolidated financial statements drawn up by the Board of Management.
The annual financial statements are thereby adopted. We approve the statements made in the Management Reports regarding further corporate development. After examination of all relevant considerations we agree with the Board of Management’s proposal for the appropriation of disposable profit.
The report on the company’s relations with affiliated companies drawn up by the Board of Management in accordance with § 312 of the German Stock Corporation Act has likewise been examined by KPMG Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft, Hannover, and given the following unqualified audit certificate:
“Having audited the report in accordance with our professional duties, we confirm that
- Its factual details are correct,
- In the case of the transactions detailed in the report, the company’s expenditure was not unreasonably high.”
We have examined the report on relations with affiliated companies. We reached the same conclusion as the auditors and have no objections to the statement reproduced in this report.
Composition of the Supervisory Board and Board of Management
The term in office of the shareholder representatives on the Supervisory Board expired at the end of the Annual General Meeting on 6 May 2013. Shareholder representatives therefore needed to be re-elected to the Supervisory Board at the General Meeting in 2013. The meeting confirmed Ms. Aschendorf, Mr. Baumgartl, Dr. Lindner, Prof. Dr. Rohkamm and Dr. Schipporeit in their office. The General Meeting elected Dr. Jung, Mr. Lohmann and Mr. Steiner as new members of the Supervisory Board, while the contracts of Dr. Petram, Dr. Rogowski and Mr. Wenning expired at the end of the Annual General Meeting on 6 May 2013. The Supervisory Board thanked Dr. Petram, Dr. Rogowski and Mr. Wenning and expressed appreciation for their many years of valued and faithful cooperation.
The newly elected Supervisory Board re-elected Mr. Baumgartl as Chairman of the Supervisory Board. Prof. Dr. Rohkamm was elected as an additional Deputy Chairman of the Supervisory Board, alongside Mr. Rieger as an employee representative.
Furthermore, the Supervisory Board resolved to renew Mr. Wallin’s membership of the Board of Management, which expires in 2014. It also resolved to allow Dr. Noth’s membership of the company’s Board of Management to expire when his term in office ends on 31 May 2014. The Supervisory Board thanked Dr. Noth.
An expression of thanks to the Board of Management and staff
The positive results of the company and the Group, together with the development of our strategic position, are due to the exceptional performance of the Board of Management and staff. The Supervisory Board would like to give special thanks to the Board of Management and employees for this.
Hannover, 19 March 2014
For the Supervisory Board