We distinguish between the two definitions of own funds :

TERM Talanx Economic Capital Excerpt 2014

Content 1 Introduction 1 Background 2 Covered business 3 2014 TERM Results 3 General 3 Economic Capital 5 Risk management objectives 7 Diversification effects 9 Regulatory view Accounting consolidation-based method 10 Appendix List of abbreviations

Talanx AG. TERM Economic Capital Excerpt 2014 1 INTRODUCTION BACKGROUND talanx ENTERPRISE RISK MODELS (TERM) Under Solvency II, (re)insurance companies may calculate the solvency capital requirement (SCR) using their own internal model as approved by the relevant supervisory authority. We distinguish between the two definitions of own funds : Economic Equity: Basic own funds according to Solvency II excluding non-controlling interests and without consideration of surplus funds and subordinated liabilities. This is equivalent to the former notion of SNA which takes the perspective of a shareholder and is scope wise comparable to the IFRS notion of equity excluding non-controlling interest Economic Capital: Basic own funds according to Solvency II, excluding non-controlling interests. This new terminology introduced in this report takes the corresponding perspective of a debtor. The board of directors of Talanx AG decided at a meeting on 15 and 16 August 2006 to introduce TERM, which stands for Talanx Enterprise Risk Models, to implement internal risk models throughout the Talanx Group at entity level and to consolidate the results into a group internal model. TERM was built to serve as a model for the group which fulfils all Solvency II requirements to determine capital. The philosophy of TERM is structurally akin to the Swiss Solvency Test (SST). Like SST, within TERM, the Talanx Group is not considered as a single entity and as such there are no single group risk or capital measures. TERM focuses on the results of the legal entities from the view of Talanx AG. Within this concept it accounts for the effects of intra-group transactions. This report is based on the reference date 31 December 2014. The main results regarding the solvency capital requirement, related key data and own funds for reference dates 31 December 2013 and 31 December 2014 are shown together with some analysis. The HDI/ Talanx Group is currently in the so-called pre-application phase. The application for the approval to use the internal model for the calculation of the regulatory capital will be filed during the course of June 2015. During the final phase of the pre-application model changes had to be performed to fulfil all expectations and to allow for all changes and clarifications given by the supervisory authority during the finalization of Solvency II. The concept of TERM also provides the regulatory view of the HDI Group being the relevant group perspective from regulatory point of view for the Talanx Group. The consolidated Group Solvency Capital Requirement covers all undertakings which are consolidated for the IFRS accounting. At this, the internal model of HDI/ Talanx Group covers all undertakings of the consolidation group, except for Institutions for Occupational Retirement Provision (IORP s) which are not in the scope of Solvency II. The significant change of the capital adequacy ratio from 2013 to 2014 is due to a set of model changes together with changes in the economic and legal environment as well as other factual developments such as asset allocation. GENERAL IDEA BEHIND TERM The idea behind TERM is to setup an economic balance sheet on market value basis for every entity at a key date and to build a forecast distribution of these numbers on a one year horizon. This approach provides a Solvency II balance sheet which is based on the definition of the so-called shareholders net assets (SNA). Talanx s SNA definition leads to own funds, which is in line with the definitions given in the context of solvency balance sheet and basic own funds according to Solvency II.

2 Talanx AG. TERM Economic Capital Excerpt 2014 The following figure shows the economic view as well as the regulatory view for the group: TERM Group reporting views Economic View Regulatory View Talanx Group Talanx AG Talanx Group (Risk Kernel) HDI Group 100% 100% 100% 50.2% HGI TX-D TINT HR... Internal model: full consolidation Op Risk: SF IORP s: S1 HDI V. a. G. included 100% 100% 100%... 100% 67.5% 100% Excluding non-controlling interests and transitionals Legal structure (Talanx scope of consolidation) Tax according to economic reality Consideration of internal reinsurance default Economic Equity: No consideration of subordinated liabilities and surplus funds Economic Capital: with consideration of subordinated liabilities and surplus funds Including non-controlling interests, full consolidated Tax according to legal basis Consideration of IORP s with Solvency I figures Recognition of subordinated liabilities, surplus funds and transitionals With availability constraints on own funds Operational risk based on standard formula Group economic view ( Talanx Group): This view resembles the structure of the Talanx Group. It is based on the legal entity approach which excludes non-controlling interests and own funds based on transitional measures. This view includes Institutions for Occupational Retirement Provision (IORP s) 1. Economic Equity does not consider subordinated liabilities and surplus funds while Economic Capital considers subordinated liabilities as well as surplus funds. Group regulatory view (HDI Group): The group regulatory view refers in compliance with regulations to the entire HDI Group including non-controlling interests. Therefore, the risk kernel, i.e. the consolidation circle of Talanx Group (without IORP s), is expanded by the HDI V. a. G. In this view, IORP s are taken into account with their Solvency I data. Over and above that, the operational risk is assessed according to the standard formula. Inline with its SST type structure, TERM is based on the so-called path-identical approach. Once the economic balance sheet is determined as at the valuation date, it is necessary to project the stochastic distribution of this balance sheet on a one year horizon. This means that the results of the economic balance sheets are aggregated path by path in a way which equals the at-equity-consolidation method used in accounting. By projecting all economic balance sheets into the future for a one year period and then consolidating them at equity, the shareholders net assets at t = 1 is received as the forecast distribution SNA 1. It is based on 10,000 simulation results. 1) The IORPs are included on the basis of consolidation and belong to the Group under economic aspects. In the regulatory view they are considered on the basis of Solvency I (S1) values From the forecast distribution of the SNA1, the Solvency Capital Requirement (SCR) can be calculated as SCR := E(SNA 1 ) VaR(SNA 1, 99.5%) with VaR(X; 99.5%) := q(x;0.5%) E denotes the expected value (or mean) and VaR denotes the value at risk (to the 0.5% quantile [q]). The 99.5%-security level is based on the Solvency II framework. The Capital Adequacy Ratio (CAR) is determined by dividing the own funds with the SCR. After determining the numbers according to 99.5%-security level, the capital requirements are transformed to a security level of 99.97% for internal steering purposes, these numbers are shown in section AA-confidence level at 99.97%, see page 5. COVERED BUSINESS The group internal model is applied at the level of the ultimate parent company, which in the economic view is represented by Talanx AG and by HDI V. a. G. in the regulatory view. The basis of consolidation therefore includes all entities of the group similar to the consolidated IFRS accounts of the Talanx Group, for details see Figure TERM Group reporting views. All entities are accounted for in the calculation of the own funds as well as in the calculation of the SCR.

Talanx AG. TERM Economic Capital Excerpt 2014 3 2014 TERM Results GENERAL The results from the Talanx Group internal model show that the capital resources of the group are sufficient to meet its SCR based on the economic and the regulatory targets. The SCR, own funds and CAR for divisions as on 31 December 2014 are shown in the table below: TERM 2014 Economic View In EUR million Solvency Capital Requirement (SCR) Economic Equity Capital Adequacy Ratio (CAR) Short Name Division 2014 2013 2014 2013 2014 2013 TX-D Retail Germany 883 401 2,208 2,446 250% 609% TINT Retail International 735 371 1,461 1,260 199% 339% TX-I Industrial Lines 976 535 1,843 2,002 189% 374% Re Reinsurance 1,716 1,433 4,616 4,058 269% 283% CO Corporate Operations 479 472 2,887 1,931 603% 409% Talanx Group Talanx Group 3,727 2,356 7,241 7,835 194% 333% SCR, Economic Equity and CAR for the various divisions The table above shows that Economic Equity has been reduced as compared to the last year due to decrease in interest rates and by various model changes. The changes in market risk modelling as mentioned above affect all entities in the group and impact the Economic Equity for the divisions. The capital adequacy ratio of Talanx Group based on Economic Capital amounts to 271%. Economic Capital talanx consolidation methodology Basic ideas underlying the talanx approach In order to determine the Economic Capital of the Talanx Group, the book values of the affiliated companies are replaced by the excess of assets over liabilities on the basis of an economic balance sheet of the corresponding subsidiary. The economic balance sheet is derived by restating (if required) each asset and liability position in the starting balance sheet to the corresponding economic or fair value.

4 Talanx AG. TERM Economic Capital Excerpt 2014 From Consolidated IFRS equity to Economic Capital The following table shows the reconciliation from the consolidated IFRS equity to Economic Capital for the Talanx Group as of 31 December 2014. reconciliation from the consolidated IFRS equity to Economic Capital In EUR million 2014 2013 IFRS equity of Talanx Group according to Group Financial Statement (including non-controlling interests) 12,900 11,211 IFRS equity of non-controlling interests 4,902 3,997 IFRS equity of Talanx Group according to Group Financial Statement (excluding non-controlling interests) 7,998 7,214 Elimination of goodwill and debt consolidation bookings at group level 831 990 Talanx AG equity from Talanx consolidation method 7,167 6,224 IFRS adjustments 5 9 Revaluation of participations in solo entities 121 93 Revaluation of assets 90 40 Effects on nonlife technical reserves 241 1,171 Pension effects 105 110 Revaluation of liabilities other than nonlife technical reserves 387 116 Difference between IFRS and MCEV if not included in other positions 165 1,194 Deferred taxes 451 483 Other effects 259 168 Economic Equity 7,241 7,835 Surplus funds (excluding non-controlling interests) 1,518 0 Assets over liabilities (excluding non-controlling interests) 8,758 7,835 Subordinated liabilities (excluding non-controlling interests) 1,888 1,882 Economic Capital 10,647 9,717 Significant positions that require modification are explained in the subsequent paragraphs. The application of the individual steps is associated with the character and the size of the considered affiliated companies. Major life insurers whose MCEV is defined as their CFO-Forum compliant economic value show the whole reconciliation amount between their Talanx AG equity from Talanx consolidation method and their MCEV under the items Difference between IFRS and MCEV if not included in other positions (excluding non-controlling interests). Smaller life insurers, non-life insurers and non-insurance entities classify each single component of the revaluation amount according to its nature by preparing an economic balance sheet. For subsidiaries of the entities with an internal model the result is shown under the Revaluation of participations in solo entities. Non-controlling interests In this position the non-controlling interests of the IFRS equity are shown. Elimination of goodwill and debt consolidation bookings at group level Goodwill is only recognised at the level of the ultimate holding company Talanx AG. Since goodwill has no fair value, it is eliminated in the context of an economic valuation. The economic valuation of assets and liabilities for each affiliate contains all consistently valued intra-group debts. This means that the adjustment applied for the intra-group debts in the IFRS consolidation procedure could be eliminated. A conservative approach has been applied to determine the own funds and any negative net adjustments for debt consolidation included in the IFRS consolidation have been retained. During the consolidation process of the IFRS balance sheets by Group Accounting, a debt consolidation of IFRS figures is conducted. For generation of own funds, this impact is eliminated in the corresponding position. IFRS adjustments In the case of internal model insurers, IFRS adjustments are required if the treatment of certain issues in the solo IFRS figures differs from the own funds. These adjustments are necessary in order to avoid effects on equity through intra-group transactions. Revaluation of participations in solo entities The revaluation of participations in solo entities includes the effect that results from the replacement of the book values of investments in affiliated companies with the quoted own funds of these companies. This effect may occur in the case of a parent company that applies an internal model. The affiliated companies are part of the internal model with their quoted own funds. In addition, participations that are not fully consolidated in Talanx Group accounts are revaluated at fair value if available. Any changes to the book values of the investments are recognised here. Revaluation of assets Under IFRS (IAS 39) each financial position has to be classified into one of the four categories: Loans and Receivables (LAR), Available for Sale (AFS), Held to Maturity (HTM) and Held at Fair Value (AFV).

Talanx AG. TERM Economic Capital Excerpt 2014 5 Different valuation rules apply to each category. In contrast to the asset categories AFS and AFV, the categories LAR and HTM are valued at amortised cost in the IFRS balance sheet. The difference between market value and book value for LAR and HTM assets is included in this step. Regarding the treatment of intangible and tangible assets, a distinction must be made between assets that are unlikely to be sold in the marketplace (e.g. software licences) and assets that have great significance for the business and whose fair value measurement is possible (e.g. property for own use). Only the latter have a fair value other than nil for purposes of Economic Capital. Both the revaluation effects are included in this position. Property for own use has been recognised and valued at its fair value for all companies. Furthermore, office equipment has been included at its IFRS value after depreciation. Some minor revaluation effects are summarised under Other effects. Effects on non-life technical reserves Liabilities are valued according to the valuation approach set out in article 75 of the Solvency II directive. Within the revaluation of the balance sheet carried out by the solo entities in connection with the delivery of the internal model results, the most significant deviations from the reserve shown in the IFRS accounts are due to discounting of reserves and the implementation of a market value margin. Unearned Premium Reserves (UPR) and Deferred Acquisition Costs (DAC) are replaced by the net present value of future claims and expenses related to unearned premiums. A detailed analysis of intra-group reinsurance has not been carried out as it is assumed that primary insurers and reinsurers have revaluated their assets and liabilities at fair values consistently. Any valuation differences between the primary insurers and the reinsurers would have an impact on the Economic Capital. Pension effects The effects of the revaluation of the pension liabilities are shown under this position. They include mainly the changes resulting from discounting with risk-free interest rates instead of the rates that are determined by reference to market yields on high quality corporate bonds in accordance with IAS 19 and a market consistent consideration of inflation. Pension liabilities of some smaller entities which for some reason are not revaluated by the Talanx pension model are included with their defined benefit liability according to IFRS. Revaluation of liabilities other than non-life technical reserves Liabilities other than non-life technical reserves are revaluated where necessary, following the approach to take a market price where available. Where the valuation found elsewhere, e.g. in the IFRS accounts, is in position with the valuation approach set out in Article 75 of the Solvency II directive this value is taken and an approximation is used, where no such market price is available. Difference between IFRS and MCEV if not included in other positions For the purpose of determining the Economic Capital the IFRS equity of the life insurance companies is substituted by the MCEV in accordance with the framework of TERM. For reconciliation purposes this is equivalent to including the difference between MCEV and IFRS equity. Deferred taxes Deferred taxes are calculated on the basis of the differences between the values ascribed to assets and liabilities for own funds purposes and the values ascribed to the same assets and liabilities in the consolidated IFRS balance sheet. Deferred taxes in relation with the carry forward of unused tax credits or tax losses are recognised if the (re)insurance undertaking is able to demonstrate that the future taxable profits are probable and the realisation of the corresponding deferred tax asset is possible within a reasonable timeframe. Other effects The other effects mainly consist of adjustments to equity value that are necessary as the Talanx equity consolidation is based upon the single entity whereas the Talanx Group model comprises group entities whose internal models already include their direct subsidiaries. The modification amounts are consistent with the difference between the book values of these direct subsidiaries and their values within the internal models. For technical reasons the elimination of goodwill within Hannover Re is included within this position. RISK MANAGEMENT objectives AA-confidence level at 99.97% According to the risk strategy of the Talanx Group and the options already discussed related to the use of either Economic Equity or Economic Capital based approaches, the own funds must correspond to at least one aggregated 3,000-year shock (probability of ruin). The figures below show that both options are valid for the Talanx Group. Comparing with our peers we observe a preference for choosing Economic Capital as a capital basis. The following table shows the solvency capital requirement SCR 99.97% at a 99.97%-security level. The SCR 99.97% is determined by SCR 99.97% = 1.79 * SCR 99.5%

6 Talanx AG. TERM Economic Capital Excerpt 2014 The numbers displayed in the view below show that the capital coverage decreased from 186% to 109% at the security level of 99.97% for the Economic Equity. SCR, Economic Equity and CAR for the 99.97%-security level Economic View In EUR million Solvency Capital Requirement (SCR) Economic Equity Capital Adequacy Ratio (CAR) 2014 2013 2014 2013 2014 2013 Talanx Group 6,671 4,218 7,241 7,835 109% 186% The capital coverage based on Economic Capital at a 99.97%- security level amounts to 152% which may be the more appropriate figure as the concept of Economic Capital is more in line with the debtor focussed perspective of rating agencies than the notion of shareholders oriented Economic Equity, see page 1. Risk Categories The investment risk in the Group should be limited to less than 50% of the total risk-based capital components. In the following figure the composition of the main risk factors is shown. The absolute value of the risk components and the percentage are shown in relation to the risk for the insurers before tax and before diversifications. The total market risk of EUR 3,010 m. for the Talanx Group amounts to 45% of total risk before tax and before diversification EUR 6,755 m. which is well below the 50% limit. Risk categorisation for the Talanx Group (excluding non-controlling interests) Talanx Group Economic View 21.9% 1,478 17.0% 1,150 16.1% 1,089 3.9% 100% 264 6,755 640 24.9% 1,680 29.7% 2,007 2,388 38.6% 2,610 13.6% 917 5.2% 12.9% 352 869 44.6% 3,010 5.7% 384 3,727 Market Risk Non-Life and reinsurance Market risk primary life Pension risk diversification within market risk total market risk Counterparty default risk Premium and reserve risk (non-life) Natcat (non-life) diversification withhin non-life risk Non-life risk underwriting Risk Life operational risk Total risk BEFORE tax and before diversification Tax effects without entities with an internal model life diversification Total Risk

Talanx AG. TERM Economic Capital Excerpt 2014 7 For the time being, it is possible to distinguish between the following risk factors: Market risk non-life and reinsurance: The market risk of the non-life primary insurers, reinsurers (including life), service entities and holdings is shown Market risk primary life: All effects due to market development on the primary life insurers are shown. This category also includes the effect of credit risk for the primary life insurers Pension risk: The impact on the own funds due to the change in pension reserve is shown. The pension risk is driven by the development of interest rates and inflation Counterparty default risk: The risk that one or more reinsurers default or their rating is downgraded is shown in this position for the non-life primary insurers and the reinsurers Premium and reserve risk (non-life): The premium and reserve risks are shown without the premium risk of natural catastrophes for the primary non-life insurers and the reinsurers Natural catastrophe risk (NatCat): This position shows the premium risk of natural catastrophes for the primary non-life insurers and the reinsurers Underwriting risk life: This position includes all risks that arise from the biometric (e.g. longevity, mortality, morbidity, pandemic) Operational risk: This position shows the operational risk Tax effect: This position includes the effects of the loss absorbing capacity of tax for all business except life entities that have an internal model DIVERSIFICATION EFFECTS The difference between the sum of the SCRs of the single divisions and the aggregated SCR of the Talanx Group shows the diversification effect. Figure below shows the correlation between the divisions. The figure Talanx SCR segment wise including the diversification between divisions (economic view) describe the diversification effect. CORRELATION BETWEEN DIVISIONS Correlation between the divisions Retail Germany Medium Retail IntERnational Low Medium Industrial Lines Very Low Low Medium REINSUR- ANCE Medium Medium High Low Corporate OPErations High High High Very High High Talanx Group

8 Talanx AG. TERM Economic Capital Excerpt 2014 DIVERSIFICATION effects BETWEEN DIVISIONS Comparing the sum of the SCRs of the divisions with the aggregated SCR describes the diversification effect. talanx own funds division wise (economic view) 4,616 2,887 Reinsurance Corporate Operations 7,241 Talanx Group 1,843 Industrial Lines 1,461 2,208 Retail International Retail Germany talanx SCR segment wise including the diversification between divisions (economic view) 36% 1,716 Reinsurance 10% 479 Corporate Operations 22% 1,062 Diversification 3,727 Talanx Group 20% 976 18% 735 Industrial Lines 18% 883 Retail International Retail Germany SCR 99.5% Furthermore, the diversification effect between the Primary Insurance, Reinsurance and Corporate Operations amounts to 14%.

Talanx AG. TERM Economic Capital Excerpt 2014 9 REGULATORY VIEW Accounting consolidation-based method The largest position being subject to possible availability restrictions comprises of non-controlling interest. This, in turn, predominantly regards the reinsurance division. In fact, non-controlling interests in own funds in excess of the SCR contributed to Talanx Group SCR may not be considered as available on Group level. The next table relates the eligible own funds of HDI Group to the SCR of HDI Group: Results for HDI Group In the regulatory view the HDI Group is considered. The solvency capital requirement is calculated and reported on the basis of fully consolidated data of the so-called risk kernel that is the Talanx Group including non-controlling interests. Additionally, availability restrictions on own funds have to be taken into account. These restrictions depend on the solo entities contributions to the Group SCR. As the HDI V. a. G. itself does not run substantial insurance business, all risks to be covered are already comprised in the Talanx Group. Therefore, the availability constraints are applied on the level of the risk kernel while the HDI V. a. G.. is included in a subsequent step. In a next step, IORP s are included, which have to be considered by adding the proportional share of their Solvency I figures, i.e. own funds and SCR, to the Group results. HDI Group solvency ratio In EUR million 2014 2013 Eligible Own Funds (HDI Group) 11,477 10,684 SCR (HDI Group) 6,594 3,997 Solvency II Ratio 174% 267% Solvency I Ratio (for comparison) 250% 223% The SCR of HDI Group is with the Internal Model except for operational risk, which is calculated based on the Standard Formula. The following table shows the evolvement of the total own funds to the eligible own funds of HDI Group. These figures do not include so-called transitionals. From total own funds to eligible own funds of HDI Group In EUR million 2014 2013 Total Own Funds (HDI Group) 17,957 16,126 Deduction of Non-available Items within Risk Kernel 6,576 5,537 Available Own Funds 11,381 10,589 IORPs 96 94 Tiering Deduction 0 0 Eligible Own Funds to meet the SCR (HDI Group) 11,477 10,684

10 Talanx AG. TERM Economic Capital Excerpt 2014 APPENDIX List of Abbreviations AFS Available For Sale AFV At Fair Value AG Aktiengesellschaft BaFin Federal Authority for Financial Services Supervision CAR Capital Adequacy Ratio CO Corporate Operations HDI Haftpflichtverband der Deutschen Industrie HR Hannover Re HTM Held to Maturity IAS International Accounting Standards IFRS International Financial Reporting Standards IORPs Institutions for Occupational Retirement Provision LAR Loans and Receivables MCEV Market Consistent Embedded Value m. million NatCat Natural Catastrophe SCR Solvency Capital Requirement SNA Shareholders Net Assets SST Swiss Solvency Test TINT Talanx International (Retail International) TX-D Talanx Deutschland TX-I Talanx Industrie (Industrial Lines) TERM Talanx Enterprise Risk Model UPR Unearned Premium Reserves V. a. G. Versicherungsverein auf Gegenseitigkeit VaR Value at Risk

Talanx AG. TERM Economic Capital Excerpt 2014 11

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