While Talanx Offers Cost Leadership, It Has Lacked Competitiveness in Pricing and Claims

We are launching coverage of Talanx TLX with a EUR 55 per share fair value estimate and a rating of no economic moat.

Talanx is a multiline insurer based in Hannover, Germany, and this location is the basis of the company’s low costs. Talanx’s expense ratio is lower than almost all insurance peers that are generally based in major cities that are higher cost. However, we think this cost leadership has come at a price because Talanx has underperformed its peers in terms of its claims and prices. This seems to be the result of a less picky approach to business that is available to write. This has meant that what Talanx has gained in costs it has more than given up in claims and prices, and its combined ratio is worse than peers by high-single-digit percentage points. While Talanx is investing in systems and technology to improve its claims, this has also come around the same time as hardening markets. We are skeptical that the business can generate maintainable leadership in pricing and claims and think any combined ratio improvements are more likely to come from costs.