Major operational risks

Operational risks encompass the risk of losses occurring because of

  • inadequacy or failure of internal procedures
  • human error or system failure
  • external events

Multifaceted and cause-oriented risk management and an efficient internal control system minimize such risks, which may be associated with business activities of all types, human resources or technical systems. In addition to the Internal Auditing unit, the newly created function of Chief Compliance Officer bears responsibility for overseeing compliance with applicable laws as well as with external and internal guidelines.

Legal risks may arise in connection with contractual agreements and the general legal environment, especially with respect to business-specific imponderables of commercial and tax law as they relate to an internationally operating life and property/casualty insurer as well as a life/health and non-life reinsurer. Insurers and reinsurers are also dependent on the political and economic framework conditions prevailing on their respective markets. These external risks are subject to intense monitoring by the Talanx Board of Management on behalf of the entire Group and as part of an ongoing exchange of information with local management.

The Talanx Group – in common with the entire insurance industry – is facing far-reaching changes against the backdrop of the impending reform of regulatory requirements, especially in the context of IFRS, Solvency II, the Minimum Risk Requirements for Insurance Undertakings (MaRisk) and government measures taken in response to the crisis on financial markets (such as the Financial Market Stabilization Fund). We have identified – as far as possible – the more exacting standards associated with the regulatory changes and initiated measures to refine our risk management accordingly and hence enable us to satisfy the more complex and extensive requirements going forward. We view with some concern the planned extensions of government powers to intervene in the area of shareholders’ and subordinated capital of financial sector undertakings.

Other operational risks include the failure of data processing systems and data security. Ensuring the availability of applications and protecting the confidentiality and integrity of data are of vital importance to the Talanx Group. Since the global sharing of information increasingly takes place via e-mail, this also creates a vulnerability to computer viruses. Systematic investment in the security and availability of information technology preserves and enhances the existing high level of security.

Operating risks may also arise in the area of human resources, for example due to a lack of the skilled experts and managers necessitated by an increasingly complex business with a strong customer orientation. The Group therefore attaches great importance to further and advanced training activities. With the aid of individual development plans and appropriate skills enhancement opportunities members of staff are thus able to respond to the latest market requirements. What is more, state-of-the-art management tools and appropriate incentive schemes – both monetary and non-monetary – foster strong employee motivation. Talanx counters the risk of personnel committing fraudulent acts to the detriment of the company with internal guidelines governing areas of competence and processing workflows as well as with regular specialist checks and audits.

On the marketing side the Talanx Group works together with external agents, brokers and cooperation partners. In this respect there is, of course, an immanent risk that marketing agreements can be impacted by external influences – with a corresponding potential for the loss of new business and erosion of the in-force portfolios.

As far as the integration of the former Gerling Group companies into the Talanx Group is concerned – an activity which we considered a risk factor in recent years –, organizational aspects of the integration had been successfully completed by year-end 2008.