Wednesday, 25 January 2012
HDI continues expansion as parent swoops on Poland’s Warta
Talanx, the parent of the HDI industrial insurance group, has announced further expansion in Europe with the intention to acquire 100% of the shares in TUiR WARTA (Towarzystwo Ubezpieczen i Reasekuracji Warta) for €770m from the Belgian KBC group.
Torsten Leue, Board Member of Talanx and CEO of the Management Board of Talanx International
The transaction is subject to the usual regulatory approvals and is expected to be completed in the second half of 2012.
Talanx revealed that, after closing the deal, Talanx's Japanese partner Meiji Yasuda will take ownership of 30% of Warta shares. In 2010, Warta Group reported gross premium income, according to local GAAP, of approximately €1bn of which life business accounted for €560m and non-life €443m. Hannover-based Talanx stated that Warta serves some 1.5 million customers. About two thirds of the non-life customers are private clients and one third are corporate clients.
Talanx said that Warta is also one of the leading Polish industrial insurers and boasts a ‘particularly strong’ market position in marine and aviation insurance. Poland is not virgin territory for Talanx.
The group has operated in the fast-growing market through two companies—HDI Asekuracja TU and HDI-Gerling Zycie TU—that sell motor, general liability, property and life insurance products. Also, in December last year Talanx and Meiji Yasuda Life announced the decision to take over the majority of Europa Group, based in Wroclaw.
Talanx said that after the closure of the Warta deal it will be the second largest insurance group in Poland. The German insurance group, which is a mutual and the majority shareholder of partially-listed Hannover Re, has followed a policy of expansion in Europe and worldwide in recent years as it aims for a stock market listing for the group.
Central and Eastern Europe (CEE) and Latin America are target markets, said the group in a statement about the Warta deal. “Talanx aims, in the long run, to grow the foreign share of gross premiums from primary insurance (industrial lines and retail) to half of the total gross premiums from primary insurance,” it explained. “Through the acquisition of Warta we are participating to a much greater extent in the further development of this highly dynamic insurance market. Furthermore, we are making a decisive step to reach our strategic growth target,” said Torsten Leue, Board Member of Talanx and CEO of the Management Board of Talanx International.
Mr Leue also stressed the significance of the partnership with Meiji Yasuda which was entered into partly to help the international expansion plan. “Our cooperation is a pure success story. The plan to enhance our weight by joining forces in entering new markets is fully working out,” he said. Herbert Haas, CEO of Talanx Group, seemed to offer some words of comfort to Warta staff who may be worried about job losses that inevitably follow such acquisitions in the insurance market and was a big topic of discussion in the German market after Talanx took over Gerling in 2006.
He said: “We intend to ensure that Warta clients continue to receive dedicated service from a highly-motivated staff working in a new and promising environment. We look forward to working with the existing management team of Warta who we believe is doing an excellent job. We plan to invest further in the business, maintaining each of the subsidiaries and further improving the service and product offer to the clients.”
Earlier this week credit rating agency Standard & Poor's affirmed the 'A+' financial strength and counterparty credit ratings on the core operating entities of Talanx Primary Insurance Group (TPG) as well as the 'A-' counterparty credit rating on parent holding company Talanx AG. The outlook is stable.
“In our view, the main impact of this transaction for TPG will be on its capitalisation and to a lesser extent on the group's financial leverage. We believe that TPG's capital adequacy would deteriorate into the 'A' range in 2012 according to Standard & Poor's capital model as a result of the transaction, reflecting goodwill and capital requirements on Warta's assets and liabilities,” stated the rating agency.
“Nevertheless, we believe that this deterioration would only be temporary and we would expect TPG would be capable of and committed to recapitalising into its target 'AA' range in 2013 at the latest,” it added.
S&P said that it bases its assessment mainly on the expectation that TPG's retained earnings will be sufficient to rebuild capital adequacy to a pre-transaction level over the next 12 to 18 months, adding that the impact of the transaction on TPG's financial leverage would be ‘moderate’.
S&P said that the ratings on TPG continue to reflect its ‘strong competitive position’ as well as its ‘very strong and conservative’ investment strategy. Partly offsetting these strengths are the recently high volatility of earnings and relatively lower competitive strength of TPG's largest life carrier HDI-Gerling Lebensversicherung, said the rating agency.
S&P expects TPG's earnings to increase in 2012, with profit (EBIT) of €650m to €700m and returns on equity of 8%–10%. “We anticipate that, in its non-life business, underwriting performance will improve in 2012, leading to net combined ratios of 98%,” added the agency.
Brokers, analysts and the insurers and reinsurers themselves keep telling everyone that will listen that the international insurance and reinsurance industry is currently over-capitalised. But at the same time corporate risk and insurance managers complain that the industry is barely scratching the surface of its risk transfer needs and that its cost-laden, traditional line of business approach prevents it from meeting their real demands. John Charman, Chairman and CEO of Bermuda-based Endurance Specialty, believes that consolidation is the answer. He is literally prepared to put his money where his mouth is and bought a $30m stake in Endurance when he took the helm last May. He has reorganised and refocused Endurance for further growth and has now made an audacious and contested bid for rival Bermuda insurer Aspen to fast track the process. Commercial Risk Europe Editor Adrian Ladbury investigates what lies behind the proposed deal and what potential implications it has for the wider market.