Talanx, Germany's third largest insurance group, had to write down €74m ($82m) in the first quarter, compared with zero in the same period of 2014.
Of this, €47m was attributable to Heta bonds (before the policyholders' portion, taxes and non-controlling interests).
Losses on bonds issued by Heta Asset Resolution have been caused by the Austrian Financial Market Authority (FMA) imposing on 1 March a moratorium on payments by Heta, a banking group formerly named Hypo Alpe Adria.
"There are serious doubts as to the lawfulness of the FMA's approach," Talanx noted in its quarterly report, echoing the comments of Munich Re's chairman, Nikolaus von Bomhard, who in a letter to shareholders last week complained about the Austrian province of Carinthia not honouring the guarantees it gave for a large share of the debt of Heta (IAR, 7 May, Funding of long-term projects threatened, says Munich Re chairman).
The Talanx group, which includes Hannover Re and HDI, said German banks and insurance companies are affected by the Heta dispute "to the tune of approximately €7bn."
Investment income down
Talanx's net investment income was down 1.4% year-on-year, at €996m (€1,010m in 2014). Consolidated net return on investment amounted to 3.6% (4.3%) in the first quarter of 2015. But the insurer said "we have so far exceeded our target for 2015 of generating a return above 3.0%."
The total volume of assets managed by Ampega Investment, a subsidiary of Talanx Asset Management rose by 7.0% year-on-year to €17.9bn (€16.7bn) in the first quarter of 2015.
At €9.8bn (€9.4bn), over half of this total was managed on behalf of group companies using special funds and direct investment mandates.
Of the remainder, €3.5bn (€3.1bn) was attributable to institutional third-party clients and €4.6bn (€4.2bn) to retail business.
The total contribution to the segment's operating profit made by the two companies and Talanx Immobilien Management amounted to €15m (€12m) in the first quarter of 2015.
The total investment portfolio increased by 6.8% in the first quarter of the financial year to €120.5bn.
Fixed income
Fixed-income investments remain the most significant asset class, accounting for 77% of the total investment portfolio and contributing €0.8bn to earnings. This amount was reinvested as far as possible in the period under review.
Fixed-income investments mainly comprised the traditional asset classes of government bonds, corporate bonds and Pfandbriefe.
Talanx said that at the end of the first quarter of 2015, the group had only moderate exposure to government bonds "from the GIIPS countries (Greece, Ireland, Italy, Portugal and Spain). In light of risk considerations, we had sold the Greek government bonds in our portfolio back in 2011 with the exception of a small residual holding."
At the end of the quarter, the fair value of Talanx's investment exposure to GIIPS countries was €2.9bn, corresponding to 2.8% of total assets under own management.
Holdings of AAA-rated bonds on 31 March 2015 amounted to €31.7bn -- 34% of the total portfolio of fixed-income securities and loans.
Once again, equity exposures were not increased in 2015. The equity allocation ratio after derivatives (equity ratio) was 0.8% at the end of the quarter.
Real estate
Investment property totalled €1.9bn at the end of the first quarter. An additional €82m is held in real estate funds.
Talanx said that, because of the low interest-rate environment, "the German real estate market continues to be dominated by enormous pressure on private
and institutional investors to invest, coupled with increasing transaction volumes and a lack of suitable properties. High market liquidity is leading to corresponding price effects, in particular for core properties."
Talanx's allocation to real estate, including investments in real estate funds, remains unchanged at 2%.
Alternatives
Holdings of alternative investments are still low but serve to diversify the portfolio, Talanx said.
At the beginning of financial year 2015, Talanx acquired a 45% interest in Caplantic Alternative Assets, which is jointly managed with Nord/LB Norddeutsche Landesbank and Bankhaus Lampe.
The aim of the investment is to develop the company into a leading provider of alternative asset management and financial solutions, giving it access to infrastructure loans and other alternative asset categories offered by the Nord/LB Group.
In addition, increased direct investments were made in infrastructure, for example, with the acquisition of several wind farms in Germany.
Talanx overall had a strong first quarter of 2015. Gross written premiums increased by 12.2% to €9.4bn, earnings before interest and tax improved by 16.1% to € 643m (€554m) and group net income grew by 16.2% to €251m (€216m).
Channels:SAA/ALM
People:Nikolaus von Bomhard