Report of the Supervisory Board

The Supervisory Board performed its functions and duties in the 2012 financial year at all times in accordance with statutory requirements, the Articles of Association and the Rules of Procedure. 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. A particular focus of the Supervisory Board’s work in the year under review was to support the company in its stock market flotation. This required us to discuss various issues as reported to us by the Board of Management and to pass requisite resolutions at Supervisory Board level prior to the IPO.

In the year under review we assembled for four ordinary meetings of the Supervisory Board, held on 20 March, 15 May, 13 August and 13 November 2012. 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 – in view of the IPO – five extraordinary meetings. The Personnel Committee held three meetings. Neither the Standing Committee, formed in accordance with the requirements of the German Co-Determination Act (MitbestG), nor the Nomination Committee had any reason to meet in 2012. 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 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 important developments and business transactions within the company and the Talanx Group. All in all, 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. 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 March meeting from which one shareholder representative was excused as they were unable to attend. There were no conflicts of interest requiring disclosure to the Supervisory Board and reporting at the Annual General Meeting in the year under review.

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: consideration of the company’s IPO insofar as this had not been devolved by full Supervisory Board resolution to the Finance and Audit Committee, business development of the company and individual Group segments, implementation of the Retail Germany division’s restructuring, pooling of IT services in an in-house service company, integration and consolidation of newly acquired foreign companies, and planning for 2013. 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 gave our agreement prior to the IPO to the basis for future capital measures (conditional and authorised capital). The Supervisory Board also discussed the strategic realignment of the Turkish property/casualty insurance company in the Group.

In view of § 87 Para. 1 of the German Stock Corporation Act as amended by the German Act on the Appropriateness of Management Board Remuneration (VorstAG), the full Supervisory Board considered bonus setting for members of the Board of Management, including consulting external sources as part of its remuneration assessment process. In addition, at its meeting on 13 November 2012, 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). There was also a scheduled review of the fixed remuneration of five Members of the Board of Management as at 1 January 2013. The issue of the appropriateness of the remuneration system for Group managers was discussed at Supervisory Board meetings on 20 March 2012 and 15 May 2012.

Transactions and measures subject to 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. The Board of Management’s information and reporting obligations towards the Supervisory Board were summarised in an information policy and adopted on 15 May 2012.

Work of the committees

Following appropriate delegation by the full Supervisory Board and within the framework specified by the full Board, the Finance and Audit Committee of the Supervisory Board considered issues requiring discussion and decisions prior to the IPO and passed necessary resolutions. Along with preparations for discussion and adoption of resolutions by the full Supervisory Board, it also carried out in-depth reviews of the company’s quarterly financial statements. Furthermore, the Finance and Audit Committee 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 2011, and considered the internal control system, risk reports, risk management and internal audit activities, and the annual report submitted by the Chief Compliance Officer.

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 2013 financial year. 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 General Meeting on 6 May 2013; the recommendations aim to ensure that composition of the Supervisory Board is both balanced and diverse.

Corporate Governance

The Supervisory Board again devoted special attention to the issue of Corporate Governance. Talanx’s main Corporate Governance principles were summarised in a paper adopted by the Supervisory Board on 13 August 2012. In its meeting on 20 March 2013 the Supervisory Board considered various amendments to the German Corporate Governance Code (DCGK) as reflected in the version of 15 May 2012, and determined the appropriate number of independent members of the Supervisory Board pursuant to Item 5.4.2 of the Code. This also resulted in an amendment to the Supervisory Board’s Rules of Procedure. Despite the great importance which the Supervisory Board attaches 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 Management Board employment contracts and Item 5.2 Para. 2 regarding the Audit Committee chairman. The reason for this relates to the declaration of conformity pursuant to § 161 of the German Stock Corporation Act concerning compliance with the German Corporate Governance Code that appears in the Group Annual Report as part of the declaration on Corporate Governance. Further information on Corporate Governance is available on the Talanx AG 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 IFRS (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 in the 2012 financial statements to reviewing the forecast report and implementation of new requirements resulting from the IPO. The focus points in the consolidated financial statements were examining the application of IFRS 3 due to the first-time consolidation of three foreign companies, reviewing IAS 33 (earnings per share), the forecast report, and implementation of new IFRS improvements. 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.

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 net 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 the members of the Supervisory Board in good time. They were examined in detail at a Finance and Audit Committee meeting on 19 March 2013 and at a Supervisory Board meeting on 20 March 2013. 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 development of the company. 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

1. its factual details are correct,

2. 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.

An expression of thanks to the Board of Management and staff

The Board of Management and staff worked and acted with considerable personal dedication in the past financial year, particularly with regard to the Company’s IPO. The Supervisory Board would like to express its special appreciation of their efforts.

Hannover, 20 March 2013

For the Supervisory Board

Wolf-Dieter Baumgartl
(Chairman)