Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München (MUV2) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. A warm welcome to everyone to our Virtual Investor Day on Munich Re Group's Ambition 2025. Thanks for joining us today. We are very -- we very much hope you are all well and healthy. Before we start, please allow us a few housekeeping remarks. This webcast will, of course, be broadcasted live in the Internet and will be recorded. A replay will be available soon after the event on our website. At the beginning of the Q&A, I will explain the procedure for asking questions in detail. A short description can also be found in the Downloads tab below. Let me briefly introduce today's speakers to you now. Starting with the gentleman right next to me. Joachim Wenning, Group CEO. On his left, Christoph Jurecka, our CFO. Next to him, Markus Riess, CEO of ERGO; then Torsten Jeworrek, CEO, Reinsurance. And last but not least, Nick Gartside, Chief Investment Officer. And a special welcome to you Nick, it is the first time you join us for an investor and analyst meeting. So here's the agenda for the next few hours. Joachim will start with his presentation, followed by Christoph and Nick. Afterwards, we will move on to the first Q&A session on group topics. Please save your questions on ERGO and reinsurance for the second round of Q&A. Then we take a short break of about 10 minutes. Markus and Torsten will then give their presentations, followed by the second Q&A session. We will conclude the day at around 5 p.m. CET, at the latest. So that's it for me. And Joachim, the floor is yours for your presentation of the Ambition 2025.

Excellent. Thank you very much, Christian. Ladies and gentlemen, dear colleagues from the analysts and investor community, also in the name of my Federal Board members here on this stage, I wish you a very warm welcome to our conference this afternoon. By the end of this year, in about 3 weeks, our 3-year Munich Re Ambition 2020 will come to an end. And the same holds true for the 3-year reinsurance strategy and also the 5-year ERGO strategy program. And we are happy to disclose to you today the ambition and the strategy going forward. When we kicked off this strategy project internally about a year ago, to us, it was very clear that it wasn't about doing everything different and changing everything. It would have been foolish because the business is running pretty well. So we ask ourselves rather the question, what can we do to further strengthen the business strategies and, particularly so, strengthen the growth parts of these strategies? How can we add an investment and asset management strategy to it? And how would we prioritize possible investments at ERGO or in the reinsurance space? And how would we align both the reinsurance and the ERGO part in terms of KPIs that we commit to the capital market? Ladies and gentlemen, I understand that the microphone isn't working well. So I take this hand microphone. So forgive me for this. So I will start with a look back on how we have done with regard to the Ambition 2020. To me, this picture here is very telling. Being on the finance trade of the Ambition 2020, we are looking back on a remarkable trajectory of increased earnings. Although COVID-19 will have interrupted the rise in 2020, the view and the outlook going forward is one of a materially higher peak. Or in other words, we could also say with -- or through to COVID-19, we will have lost 1 year, but not more. Please do recall that we had focused on 3 things in the group: increased earnings, digital transformation and a reduction of complexity. And this has made the reinsurance business grow. It has made the reinsurance business take leading positions in many markets and in many client relationships. It has made ERGO turnaround completely. It's no longer a problem, now it's a pleasure having ERGO in the group. And with regard to digital transformation, we have automated processes. We have improved the skills in our core competencies due to data and technology that we are using. Also, we are using the digital transformation to get access to markets that before we didn't have access into and that generates new revenue streams. And last but not least, complexity reduction to us, in other words, meant having a business focus, making sure that structural changes, organizational changes, they all will have a positive business impact. Overall, this has reignited profitable growth. Let's look into the numbers. In 2018, we expected to deliver EUR 2.3 billion, we have. Last year, 2019, we were expected to deliver EUR 2.5 billion, we delivered EUR 200 million more. And this year, 2020, if we normalize for COVID-19 losses, we would have delivered EUR 2.8 billion as of today. Now an interesting question is, how do we assess this? Were we just lucky, there were benefit from tailwind, et cetera. And there was a little bit of tailwind maybe when talking about the P&C reinsurance rates, which started going up in 2018, but very partially only, only in the loss-making regions, only in the loss-making lines of business or reinsurance programs. Not across, not broadly. The broader improvement of rates and conditions is only happening this year, so not a lot of tailwind. And also the nat cat activity in 2019 was above its long-term average. And also, if you look into the interest rate decreases, 100 basis points in that time period in the Eurozone, 180 basis points reduction in the U.S. dollar zone. So all in all, it was hard work, and we have materially increased the earnings level of the group. With regard to the total shareholder return, since the first of January 2018, you see it on the slide, this has increased by more than 50%. This is a snapshot from last Friday. I think we ranked 1 in the pack of 8 peers overall. Now it's a snapshot only, you may argue. But what it clearly underlines is that we have caught up very fast. And this also translated into breaking the trend of an ROE that was going down in the last decade. We've stopped that trend, and we have turned it around. Our beliefs into the future, which had an influence, of course, on our ambition and on our strategies and plans, is that we believe in rate hardening in the reinsurance P&C space mainly and believe this to persist and sustain for some years. But of course, it's cyclical. And we believe so despite the alternative capital being there. This is not going to go away. We believe that the customer needs will require more and more digital elements. And so the digital -- the insurance businesses will digitize more and more. But it will be more an evolution, which will take time, and be expensive than a revolution that instantaneously would sort of change the whole thing dramatically. And we think, as a major player, we will see more chances than we would see threats. On the reinvestment yield side, there is a lowering of reinvestment yields, no doubt. And they will shave off more than 10 basis points of return on investments in our portfolio every year. But partially, we will compensate this through the investment strategy that Nick Gartside is going to explain to you in a bit. With regard to how is globally the markets and the market sizes, the businesses and the underlying profit shifting, they carry on shifting eastwards, towards China and the markets with a lower penetration rate today. But for the next 5 years, the traditional markets in North America, in Europe and in some select markets in the Asia Pacific region, those will be decisive for our earnings. The strategies in the whole group going forward will be based on 3 pillars: scale, shape and succeed. Now by scale, we mean leveraging our capabilities in underwriting and claims management, but also in distribution, of course, to grow our organic -- to organically grow our core business. You will see later that the growth, depending on which business we are talking about, will increase by between 4% to 10% per year, which is high. By shape, we mean shaping the insurance value chain. This has an internal aspect that we are shaping our own operations and processes but also shaping then the value chain into the market, into the distributions, into the end customers. And the succeed bucket means that we will benefit all stakeholder groups, shareholders, clients, employees and communities. Let's look at the shareholders first. On the left-hand side, you would see that on a normalized basis in 2020, we start at an ROE level of 11.9%. And over the next 5 years, into 2025, we want to increase this to 12% to 14%. And what will impact that? It's margin improvement and dominantly here, the P&C reinsurance cycle. Then in addition, it will be across the segments and subsegments profitable growth that is happening. On the con, it is yield erosion that I just mentioned, but then partially compensated through a better performance of our investments. And then depending on how much growth opportunities will be there for which we need to deploy capital to earn more earnings, or whether we buy them back because there is no attractive growth opportunities out there, we will then end up at the lower or the upper range of the ROE between 12% and 14%. On the client side, there is no doubt that already in the past 5 years, but also going forward, more so, clients from ERGO will benefit from excellent services. And they will benefit from ERGO focusing very much on unifying, uniforming and simplifying their products but also using technology and newly designed end-to-end processes to improve the customer experience. On the reinsurance side, it's reliability, it's predictability, it is high capacity, it's thought leadership, it's rating, it's strength, it is the ability to write new risks and also to launch new products. On the employee side, it's worthwhile highlighting that, of course, employees benefit from working for a group in which technical excellence is at home. The skills in this room are technical excellence. Whoever joins us learns technical excellence in this group, learns applying this and learns making a business impact on this. Then digital culture. We have been driving this for years now, and it is not just a thing that we do aside somewhere. It is fully integrated into the group. It happens everywhere in the businesses. This is attractive to people. And there is the spirit of risk entrepreneurship, of assessing risk, understanding risk and building a business around this. And with regard to social engagement, I think we have the reputation and we deserve the reputation, both at the company but also staff. There is high and broad social engagement, which we are proud of. And all of this is based on diversity, internationality, breadth. 50 sites globally, more than 60 nationalities, more than 80 skill groups and an increasing ambition with regard to female representation in leadership positions. The commitment of our staff, just recently reconfirmed, is extraordinarily high also for this reason, and it makes for being the employer of choice in our industry. The communities will also benefit. The communities will benefit from our newly defined climate and decarbonization strategy. Before I get into the technical details on this slide, I'd like to highlight that Munich Re, since 50 years, has been at the forefront of calling for the fight against global warming and climate change. We are supporting the Paris Agreement 2050. We know that science confirms that Paris 2050 is still achievable. We also advocate very, very strongly a carbon price high enough to set the right incentives and to get the ball rolling to transform from fossil energy into more and more renewable energy production and consumption. And we want this, of course, to be globally aligned. But in the absence of such a global CO2 price policy, we bring in our standing and our role modelship to now set an example. And this we do with regards to our carbon footprint on the asset side, on the liability side and with regard to our own emissions. On the asset side, as it is science-based, by 2050, we are net zero. But because exit of thermal coal is systemically important to achieve Paris 2050, we also will exit thermal coal investments by 2040. And already in the next 5 years, we're going to reduce this by 35%. So that overall, our carbon footprint on the asset side will reduce by a minimum of 25% on the asset side, maybe 29%. And that same logic, which I'm just describing on the asset side, we will apply on the liability side. So being net zero by 2050, exit and insure it, be it in force or be it new business with regard to thermal coal, and reduce that footprint already by 35% in the next 5 years. For those who are insured, we give time, we will not immediately apply that. We will start applying this in 2022, so that there is enough airtime of 1 year to adapt to it. And on the oil and gas side, we will also engage. Although science suggests that for some time, this might be growing. So to compensate the reduction in coal, we will start reviewing this also by 5% between now and 2025. And last but not least, on the own emission side. It's not the most material one, but emotionally, maybe important. We have reduced our emissions per employee by 44% in the last decade. We're going to reduce it further by 12% in the next 5 years, and we seek being net zero by 2030. This brings me to my conclusion of the financial commitment. We're going to deliver an ROE of 12% to 14%, where it was below 10% in the last decade. Earnings per share, we believe to grow by at least 5% CAGR, and the dividend per share also will grow by CAGR 5%. And I have to underline, while at least being on the level of the previous year, and the Solvency II ratio will stay unchanged in the range of 175% to 220% of the regulatory requirements. With that, I would hand over to Christoph for the CFO part.

Thank you, Joachim. A very warm welcome then also from my side. It is a real pleasure to guide you through some financial aspects of Munich Re's Ambition 2025 today. I would like to start on Page 17 with some more general remarks on steering and on KPIs. When we set our group targets for the Ambition 2025, we were striving to align our value-driven internal steering methodology with total shareholder return optimization. So we asked us, what are the main drivers of the TSR? And then looking at standard valuation models, the levers are, of course, return on equity, earnings per share and the dividend. So in other words, increased earnings and manage capital efficiently. Now internally, our value-driven steering approach fully supports these targets. Relevant steering dimensions internally are IFRS, the economic view and capital management, which already indicates the complexity we have to deal with also from regulatory constraints some time. Now our group targets in the middle column of that slide, they fully support both perspectives, the internal one as well as the external ones. We achieved a nice level of consistency here. And the group targets, as Joachim just mentioned, are a return on equity of 12% to 14%, earnings per share and dividend per share growth of at least 5% and Solvency II capital in the optimal range throughout until 2025. These targets are then translated into very operational targets in the various management levels of our group. And then just to remind you, the operational steering in our group is very much following, of course, economic principles. So that did not change. On the next slide, I'll cover some key aspects of our strategy across the various steering dimensions I just mentioned. Let's start with IFRS. IFRS-based KPIs like the return on equity or net income are key measures for the short-term and long medium-term profitability. Our Ambition 2025 is based on earnings growth and on capital efficiency. The economic view remains our DNA. And also it helps us to strike the balance between earnings on the one hand side and risk on the other side, something which IFRS is not able to deliver. In our Ambition 2025, we are not considerably expanding risk appetite, but we are rather striving for additional diversification benefits and then good overall balance of the risks we are taking. And on top of that, of course, capital efficiency, as mentioned already. As a result, we are aiming to increase economic profitability and also capital generation. The third dimension is the capital dimension. And then the capital dimension, it is the capital generation, which supports a strong Solvency II rating ratio also going forward, and also a good rating and strong rating capital also going forward. And on top of that, of course, attractive dividend growth. Share buybacks continue to be the instrument to manage excess capital. Now the remainder of my presentation is structured along these steering dimensions. Let me start with some additional insights into IFRS. So how are we going to increase IFRS earnings? This slide has been shown before by Joachim, so I will add some additional flavor around the various levers you're seeing here. And to start with, again, we start with a normalized ROE of 11.9, 2020. Normalized here means normalized for COVID-19. And we then end up 2025 with an ROE of 12% to 14%. In between, you see the various levers contributing to achieving this target in 2025. The first one is margin improvement. And margin improvement will kick in comparatively early, driven mostly by the hardening rates in P&C reinsurance, but also very much due to the increased share we see in our Risk Solutions business. But ERGO will benefit from efficiency gains, which Markus will outline later then in more detail. The second column is growth. And growth is actually really a key topic for us across all business lines. In reinsurance, our strong franchise and market position allow us to outpace the average growth expectation, whereas in Risk Solutions, we even expect to grow at twice the pace we are seeing in traditional reinsurance. ERGO International is also going to grow above market as the focused approach we have been implementing over the last couple of years is now bearing fruit. Growth is supposed to contribute slightly stronger to the expected ROE increase, but at a later point in time than the margin improvement, if you look at the trajectory towards 2025. On the investment side, we continue to see headwinds from the low yield environment. I think that's not a surprise. You can see the red bar here, that's the yield erosion we are expecting until 2025. And obviously, we cannot detach ourselves from that. What we can do is implement measures along the investment value chain to try to compensate as much as we can of the yield erosion, and Nick is going to present to you later what these measures are in detail. They go along really the whole investment value chain for strategic asset allocation until really the asset manager mandate. Overall, I think the key message here is that our core insurance business will be able to compensate for the lower yield we are seeing in the capital markets. Capital deployment, the last column here, I think first key message is that we continue to see attractive cash returns as being the core part of our capital management strategy. But I think it's important to notice on top of that, that all our growth which we are planning, which is substantial, will be self-funded over the full horizon of the strategy. On my next slide, I'd like to just make some remarks on our reserving approach also going forward. Key message, our reserving is unchanged. So we continue -- and you know that, of course, we continue to set reserves at the upper end of the range of possible best estimates. And therefore, we expect ongoing reserve releases resulting from these conservative initial loss picks we take for new business. So this is unchanged. What might change going forward, at least according to our blending assumption, is the business mix, to some extent. So we will have a higher share of personal lines, business and short-term business. So higher share of businesses with -- well, generally, lower uncertainties connected to it. And given an unchanged reserve prudence, this still might then require to have lower margins on attritional losses than in the past. So what we will do is, of course, we will reflect all business mix changes very diligently in our reserving and without changing our discipline approach at all. The locked in reserve caution from the past is there anyway. It will continue to be released so this will, of course, not change. But then, please be aware of the fact that in a growing portfolio, if you measure the release as a proportion of the net earned premium you could potentially result in lower percentage numbers, just mathematically. However, the 4 percentage points, we had as a guidance in the past, they continue to be also a good and suitable guidance for the future. So this will not be changed. My next slide is about the economic view, and we see a strong economic value-added over the strategy period. So you see here economic earnings of around EUR 20 billion. And I mean, this is a big number. And what you can see is that it fully covers the delta SCR, so the risk capital growth, which is, of course, related to growth. And it also covers capital repatriation. On top of that, there's still the material capital generation, which we see. And this capital generation is good news because it helps us self-fund our strategy. But on top of that, it provides us with ample financial flexibility also going forward. So I think therefore, the 2 key messages here in the economic view are, first, we are able to self-fund our growth; and second, financial flexibility will only increase over time. In the following slides, I'll go into some more details on the economic view. I start on this slide on some aspects with respect to risk management. Over the past years, we were able to strike a good balance between investment and insurance risks. And so we refrained from taking additional investment risks to compensate for lower yields even in the low-yield environment. And we are still convinced that that's the right way forward. At the same time, what we did, we started to gradually deploy capital into growth from the insurance business, in line with our strong risk-bearing capacity. And despite the selective growth we already saw in nat cat, I think we saw a good balancing effect from diversification benefits from other lines, especially proportional business, personal lines business, which nicely balance than the additional nat cat exposure we are holding. Going forward, we think this balancing effect will continue. And so insurance risks will maybe gradually increase, but our investment risk appetite is unchanged despite the still high pressure from low yields. As a result, if you put that all together, we do not expect the balance between insurance and investment risk to materially change. The next slide then more or less shows the outcome if you take this disciplined approach towards risk. You can see that the Solvency II ratio is expected to gradually increase over time in line with the positive capital generation. At this point in time, I'd like to remind you that the way we calculate our Solvency II ratio is still a very conservative one, so it does not include the already approved transitional measures. We do not use the dynamic volatility adjustment. And also the static volatility adjustment is also used for a small number of subsidiaries. We continue now, if you look at the numbers, to be in our optimal range, of 175% to 220%, which we now also defined as our target range. We might even end up slightly above the optimal range, depending, of course, on how -- a multitude of parameters that's going to develop in the future. The next slide covers our funding structure. And well, what I can show you here is that even after having issued the green bond of EUR 1.25 billion, our leverage ratio remains to be one of the lowest in the industry. By the way, the green bond was a clear signal that we are really serious about ESG. And I think it was a very good momentum. We were able also to generate with that. Now coming back to the financial aspect of the green bond from a Solvency II standpoint, obviously, it would not have been necessary to issue the bond. So why did we do it? Well, we started to replace upcoming maturities early on. As in the next 2 years, anyway, there are a couple of bonds callable. And we now just are in a position that we have a lot of flexibility what to do going forward. We could call the bonds and replace them or call them and not replace them. So I mean, there are many options available to us. And on top of that, in case we would want to even grow more than what is included in this strategy, of course, there would be additional flexibility given this low leverage ratio. The next slide is just to very quickly mention also that our strong capital base is also recognized by external parties. What you can see here is that all the major rating agencies recently confirmed our outstanding capital strength and also the outlook was maintained as being stable by all of them. I will not cover any -- say anything more on that slide. Next slide is maybe more important. That's about dividend strategy. And I think this is the right point in time to highlight that dividends continue to be the core of our capital management strategy. And as you know, dividends have been used by Munich Re to allow for profit participation for shareholders already for many decades. And just to make sure that we are on the same page with the conceptual difference, the share buybacks always have been the tool to reduce excess capital. So I think that's not really changed. But just for the sake of clarification, I've noted that on the slide here again. We continue to be very strongly committed dividends. And as you can see in the middle side, that's only in the last couple of years shown here, but dividends have been growing quite attractively in the past. And our shareholders have been benefiting from the dividend growth, substantially, over the last years and decades even. So this is also unchanged. And also, more importantly, maybe even the last 50 years, we did not cut our dividends. So as you can imagine, we clearly have the ambition after 50 years not to change that. So I think it's an important part of the outlook here on the right-hand side of the slide, saying that we are -- our intention is to grow dividends above 5% CAGR going forward. But the dividend floor of at least previous year's dividends per share is something which is also really important to us. Coming back to the dividend growth. I mean the earnings growth is something we are targeting here in the strategy. And I -- we've been developing this strategy, we thought it would be quite natural to make sure also shareholders would benefit early on from that higher earnings level. Therefore, we said higher dividend per share growth than what we showed in the past would be an adequate tool to make sure shareholders would benefit in a reliable and predictable way early on when our earnings growth comes in. By the way, that's a remark, a little bit outside of the core scope of this slide. By the way, ERGO will continue or will take up dividend payments again for full year -- or for fiscal year, full year 2020. On my next slide, some remarks on share buybacks. This is an explanatory slide, so no numbers really on the slide. But what I would like to show you here is that we're looking at share buybacks from a shareholder value creation perspective. So on the one hand, if we find business opportunities, growth opportunities above our cost of equity, so with margins above our cost of equity, then clearly, value is created. And in this case, we are very happy to expand our balance sheet and to deploy the capital exactly where -- there where we really find these attractive growth opportunities. On the other hand, if we do not see these opportunities, then it's obvious, then it's advantageous to pay back the capital and then we will go for share buybacks going forward. Hence, the size and the frequency of share buybacks in the future will always have to be seen in the context of the market cycle and more generally, in the context of growth opportunities, which we have. As I highlighted before, I think, that we're currently quite positive when it comes to growth opportunities. I think that's to be noted in the context here. With that, I'm at the end of my tour along the steering dimensions, IFRS, economic view and capital management. And then my last slide is about the outlook 2021. And as these figures have been released already a week ago, you're all very familiar with them anyway, so I don't have to comment a lot on them. But let me make a number of very brief remarks maybe here. First of all, I think it's important to notice that also due to our strong balance sheet, but also due to the business opportunities we are seeing, we are targeting EUR 55 billion of gross written premiums next year, which is a record level for us as a group. And then I would like to point your attention at the net result target, EUR 2.8 billion. There, we are back at pre-corona, the pre-COVID-19 level, despite significant corona claims we are still expecting for next year, which is a clear signal that the core profitability is improving. And already this year, we are perfectly in line with our expectation when it comes to the core profitability of our business. In the reinsurance segment I was highlighting already to you last week that our profit target includes covenant impact of EUR 550 million before tax. And on the ERGO side, we have EUR 100 million after-tax of COVID 19 impact, including claims but not only claims, but also premium and some other effects. So overall, I think it's fair to say that we are talking here about a very attractive, ambitious outlook. And this outlook, I also mentioned that last week already includes a fair amount of stretch. Thank you again for your attention. And with that, I hand it over to Nick.

Great. And thank you, Christoph, and a very warm welcome from all on the investment group at Munich Re. What I thought I'd do today is really, I'll split my presentation into 3 parts. We'll talk firstly about the investment outlook. Secondly, I'll talk to you about my goals, the CIO goals at Munich Re. And then thirdly, I'll talk about our expectation for the return on investment as we go into 2025. So on the first of those, in terms of the investment outlook, I think 3 key challenges for investors as we look forward. Hidden within some of these challenges are, I think, actually some opportunities that we'll also discuss. The first of those is ESG, as Joachim already referred to. By 2050, our investment portfolio will be net zero greenhouse gas emissions, absolutely in line with the Paris Agreement. Second key investment challenge is, and obviously, low interest rates. We'll talk a little bit about how we will mitigate the yield attrition that we're going to face without increasing risk. And then I think the third challenge as you look out, is capital market volatility. I'll talk about the resilience that we've built within our portfolio and some of the opportunities that we foresee into the medium term. So let's turn to the first of those challenges, which is ESG. Within ESG, there's also, I think, an opportunity that we'll get to. But I think the first thing with ESG is that this is an enduring investment theme. ESG is not a fad. And integrating ESG into our investment processes and strategy is something that we take very seriously. I think with ESG, it's not just very obviously the right thing to do. Joachim talked about some of the science behind that. But actually, I think it will also provide some very interesting investment opportunities as we start to look forward, whether that's new hydrogen technologies, carbon capture, more renewables, I think there'll be a broader opportunity set from that. In terms of what our commitments are, it is to build on existing commitment for quite a number of years. We've had responsible investment guidelines. We joined the UN PRI back in 2006. And recently, we strengthened those commitments. We joined the UN Net-Zero Asset Owners Alliance. We joined Climate Action 100+. And the way that we will embed ESG and implement it is very much through engagement with our portfolio companies. And what we have built up is asset class focused at 5-year implementation plans. So we regard ESG as critical. It's something that's very much within the Munich Re DNA. And again, as Joachim talked about, that we've had quite a history in terms of building up that philosophy. I think the second investment challenge is low interest rates, low interest rates as Christoph talked about will clearly affect our running yield. I think when you look at the low interest rate environment, it's important to recognize that it's very much a secular trend. Certainly, I'm a big believer in Japan actually, as providing a road map. Japan is 10, 15, 20 years ahead, but Japan does provide that road map for other developed economies. And you can see those similarities when you look at some of the market drivers, whether that's demographics, lower economic growth rates that we've seen in recent years. And certainly, phenomenon like digitization and globalization do imply lower inflation. The pandemic accelerates or embed some of those secular trends. Just think of the level of interest rates this year. The low level of bond deals, the amount of debt created. It certainly embeds low interest rates in some of those market drivers. But I think it's important to highlight that just because interest rates are low, it doesn't necessarily mean that market returns will be low. And again, just think of some of the market returns this year whether it's some of the fixed income market, or indeed, some of the equity markets. And I think some of the other opportunities as we look forward will be in alternative assets, and we set a medium-term plan depending upon market environment and valuations to add to our holdings of alternative assets. I think the second area is corporate credit. And certainly, well-researched corporate bond, we may well increase our exposure there. And the other way that we can mitigate some of the low interest rate environment is through hedging strategies, which can add to our yield a little bit. So I think the important message there that within that secular trend, there will be cyclical opportunities to improve our reinvestment yield. I think the third challenge we, as investors, will face that I'd like to highlight is capital market volatility. You look at market volatility today, it's at very low levels. Clearly, earlier this year, it was at very high levels. I think though, when you look a little more structurally, a lot of those volatility spikes are getting a lot more regular. And when I look at the shape of our portfolio, I'm very comfortable that the portfolio is able to deal with those future spikes. Indeed, this year, I think, was a very good test of that. It showed -- the portfolio showed that we could cushion volatility when uncertainty was at very high levels. What helped us do that was some of those hedging strategies, both in equity markets and in interest rates, in fixed income markets. I think the second reason, if you like, that we've been able to smooth some of that volatility in is in the portfolio construction. And it's a portfolio, as you can see from the chart, that is very well diversified across asset sectors, geographies. And we're also able to take a group approach when looking at investments. And then I think the final part of portfolio construction is when we're adding to positions or indeed taking positions off, we're very aware of the risk that adds within the portfolio context. So those are changes made in a very thoughtful, considered and controlled manner. So I think what we've demonstrated this year is an asset allocation, a solvency ratio that has proven to be robust. And that gives us a very good foundation to take advantage of investment opportunities looking forward, whilst at the same time, maintaining the quality and defensive nature of the portfolio, which will help in terms of safeguarding reliable earnings. So the second part of what I wanted to talk about was the CIO goal, my goal as CIO. And in terms of what that goal or aim is, it's to increase our investment return without increasing the relative risk position. So to that end, what we've done is create a new investment structure. And on the left-hand side, we created a focused asset owner group. That's a group internally we call group investment management, GIM is the shorthand, you'll hear for that. And that is a group that focuses on those asset owner activities, So strategic asset allocation, tactical asset allocation. And then, of course, that group decides on the asset manager that we will use to actually manage the assets on the right-hand side. And we've also made some changes, which I'll talk about in a moment to our core asset manager, MEAG. The underlying theme here or philosophy, if you like, is one of simplicity. It's one of centers of excellence, where we've bundled expertise. So if we take a look at investment management and focus on the specific return levers to increase returns, on the left-hand side, with the strategic asset allocation, there we take a group approach. What that does is ensure we get the full benefits from diversification. It also allows us to embed ESG criteria right at the start of our investment value chain. The second part of the asset owner function is what we call tactical asset allocation. Now this clearly isn't day trading, but if you think of a strategic asset allocation, it's very long run, it's produced on an annual basis, it's very strategic. The tactical asset allocation group are developing common investment views, and where we've seen movements in markets that we need to take advantage of, this year would be a good example of that, we can put some of those ideas into our portfolios. It also ensures that the portfolio construction is done at the asset owner level. Then the final part of our investment management group, our GIM group, is asset manager selection. And with asset manager selection, the philosophy is to assign investment mandate to the best asset manager. So what that means for core assets, MEAG remains our core asset manager, where with noncore assets, we will look to use specialist asset managers where we feel we can get an improved return. And that process of outsourcing some of our assets started over the summer period. So if we focus on MEAG and the levers to increase investment returns within MEAG. Firstly, and most importantly, the key priority is to strengthen the investment performance at MEAG, and from that, the investment performance to the Munich Re Group. And to that end, we appointed 2 new CIOs over the summer, one for public markets, one for alternative assets. And they'll focus on implementing best investment practices within their respective units. Core asset classes for MEAG, our liability-driven investments, fixed income and also alternative assets. So that's a very good foundation for MEAG to continue to grow the third-party business that they developed to service institutional investors. We have a proven track record within those core asset classes. And both of those initiatives are supported by making the MEAG operating model more sustainable in the future. And the MEAG strategy program will start at the start of next year. The final goal I will highlight, and I make no apology for reinforcing our commitment to ESG, is again, ESG. ESG is a central goal of the group and certainly a central goal of minus CIO. And where I think it becomes very interesting is as well as clearly being something that is just right. It is also interesting, I think, from that pure investment angle. And certainly, it's a short data history. But when you look at ESG investments this year, they've had quite an interesting performance profile. They've generally had a better performance with less risk associated than some of the conventional strategies. So our ESG investment strategy is one that's closely aligned with the Asset Owner Alliance commitment. Internally, what we will do is set asset targets for all the different asset classes and sectors. We've started with corporate bonds with equities and with real estate. And as Joachim said, by 2025, the CO2 emissions from our portfolio will be between 25% and 29% lower. And in order to help us do that, we will focus in terms of approach on adopting more ESG indices. We will engage with companies, and we'll also double our renewable portfolio to around EUR 3 billion. And perhaps while we're talking about some of the tangible activities. As Christoph mentioned, the green bond. I was delighted with the green bond issuance. I think it serves to very much emphasize the commitment that we are showing, a very active commitment to sustainable finance. I think it also, though, highlights the range of eligible investments. And I think as we look forward, that selection of eligible projects will grow. And I think ESG investment will be quite an interesting opportunity set, not just into 2025, but also as we go beyond. So my final slide and the final part of my presentation is to talk about how all this comes together in terms of the return on investment. As both Joachim and Christoph talked about low interest rates will clearly persist in the future that will affect our return on investment, we can offset some of that decline in return on investment with the new management measures we've made. So how do we think of that in terms of numbers? Well, as you know, the starting guidance for our return on investment for 2020 is around 3%. I think as we've noted, there's a risk that, that's lower, in terms of whether it's lower or higher. And without doing anything in terms of the yield erosion, we're looking at over the next 5 years and attrition of the ordinary running yield of over 10 basis points per annum. So how do we offset that? What makes up that green part, if you like, of the ROI expectations? It's the management measures I talked about earlier, group SAA, the TAA, the asset manager selection and then the improvements at MEAG. What I can say that we won't change going forward is our strategy regarding disposal gains. So we'll just continue our cautious harvesting valuation reserves. There'll just be the normal realization of gains to normal portfolio turnover, ZZR financing. We will maintain the prudent ALM policy that we've had in place for a number of years. So when you add all that together, instead of a much lower ROI, it gives us an expected ROI of around 2.5% by 2025. Added together, all that makes me confident that we can achieve additional return without increasing the risk profile. And with that, I will hand back to Christian.

Thank you, Nick. Thank you, gentlemen. [Operator Instructions] And once again, as Markus and Torsten did not have the chance to present yet, please save your questions on the business yields ERGO and reinsurance for the second round of Q&A. And now we are looking forward to the first question. And also in order to save some time, I will kick it off with a chat question that came in quite early on, which is from Hadley Cohen from Deutsche Bank, and I will just read it out. Slide 23 implies EUR 12 billion of capital repatriation over the period. Can you tell us how you are thinking about the split of that between dividends and buybacks? My inference would be approximately EUR 8 billion dividends and approximately EUR 4 billion buybacks. Is this fair? If this is fair, then I would imply -- it would imply your target absolute net income for 2025 is only at least EUR 3.2 billion to EUR 3.3 billion. So broadly flat compared with your implied underlying guidance, ex COVID for 2021, i.e., no absolute earnings growth over the period 2021 to '25. Is this correct? Yes, Christoph, maybe for you.

Yes. Thank you. Yes, I'm very happy to take this question. Actually, I mean, the way I interpret the question, I think it's 2 questions in one. And so elaborate a little bit on the 2 I'm understanding. And then of course, in case something remains open, I can follow up. The first question I understand is the question, capital versus earnings and how do we see it. Now first of all, the slide you're referring to is an illustration. And we included it to explain how we think about it, about the balance between capital on the one hand side and earnings on the other hand. So therefore, obviously, I cannot confirm any dividend or any share buyback number. I'll only repeat what I said before is that we are -- that our target is to increase dividends with at least 5% CAGR over the 5 years. And the share buybacks will be perceived as an opportunistic -- with an opportunistic view, depending on the business opportunities we are seeing, which means the more share buybacks we do, the less business opportunities we see. And therefore, also the absolute earnings level should be expected lower. Or in other words, the less share buybacks we are making, the higher earnings should be going forward. So there's a balance to be seen in that, and this has to be kept in mind. Therefore, I think the only -- really reasonable number is the 12% to 14% ROE. Why is that? Because, obviously, 5 years from now, it's a very long time, especially in reinsurance market, where we all know that market cycles sometimes can turn pretty quickly. And therefore, the situation in 3, 4, 5 years from now might be completely different. What will remain is that 12% to 14% ROE target independently of the development. And therefore, take the graph is illustration, it's one possible path. And then again, it's an illustration, so it doesn't make sense really to measure in detail how high the different bars are. But it's one possible way forward and not the only possibility. The second question I'm reading into your question is the -- you asked basically the next year's target we've been talking about last year, how does it relate to what's going on in the later planning years of our 5 years period. And I think I mentioned last week, but also today that there's quite a bit of stretch in our next year's target incorporated. Why is that? Well, we all think it's of a high value to bring -- to get COVID-19 behind us. And so the signal to be back at the pre-COVID earnings level is something which seem to be important to us. And therefore, we applied maybe a little bit more stretched than into later planning years. What do I mean with stretch? Well, if you look at the planning exercise, in any case, we have a large number of initiatives in there. And as always, when running a company, you do not expect everything to work out brilliantly well. You also do not expect everything to go south. You expect to be somewhere in the middle. And a little bit more stretch means that we may be a little bit more optimistic with respect to how much of our initiatives needs to go well to achieve the target than maybe in later years. But on top of that, that's also a reasonable assumption, isn't it? Speaking -- I mean, we are insurers. So the further in the future, we are looking, the higher the uncertainties are, and therefore, we might have a tendency to maybe also discount later results a little bit more than earlier results. So maybe that also plays a role here. The final remark here would be that, in any case, a target of more than 5% implies more than 5%. So at least mathematically, there is no upper bond that -- for any result going forward or putting it maybe in a less provocative way, there's also upside in the numbers as we have been showing here. So -- and then finally, again, you have to look at the earnings level always in the combination with the capital and the capital management measures we're going to implement. So the absolute earnings level in itself is also not indicating anything in my view. So I think that's on the first question.

Thank you. I think we will now take the first question from the phone. And the first question is supposed to come from Andrew Ritchie from Autonomous.

Can you hear me okay?

Yes, we can hear you okay.

Great. First question is for Joachim. I guess it's -- I'll try and get 2 questions into one. When I look at your sort of slide, there's a bit more emphasis on growth versus margin. And I think both yourself and Christoph talked about there's more margin in the early phases and then more growth. Is there a lot of flexibility in that balance? I guess what I'm driving at is if the margin is more challenging -- or sorry, if the growth is more challenging, is there more scope to extract more margin? And that relates me also to another related question. Joachim, you seem to sort of say you finished on reducing complexity. I'm struggling a bit with that. Munich still looks to be a very complex organization and some parts of this plan seems to make it even more complex. So is there not more scope? When I look at those bars between growth and margin, for more margin and a bit less growth, or can they compensate each other? And related to that, is this ROE ambition a floor or just an ambition in balancing those 2 drivers? Sorry if that's not very clear. The second question just for Nick. Nick, I'm struggling to understand what is new in the capabilities of Munich Re's investment function. In other words, before -- or as you arrived, I mean, are there -- did they not have capabilities to go to more alternatives? What have you identified as gaps? I'm somewhat clear on that. And are there opportunities, both in terms of not just adding new asset classes, but I don't know, maybe taking a different position on duration, on credit. I'm still -- I'm just trying to understand a bit more what's really new versus what was there before. And I guess this is going back a little bit to what you saw in the period of time you've been here.

So let me start, Andrew. So to your first questions, so growth and margin. The picture that you are referring to is an illustration. We take it serious, but there is flexibility in there. What is a good message is there is growth potential. And the margin part of it is very much cyclical. It's dependent on a cycle. If you ask me, I would prefer only having that growth part because that would mean wherever the cycle is, we don't care there is a profitable growth origin. But to be honest, and to be transparent, there is that cyclical part to it, and that is mainly the P&C reinsurance cycle where we are in. But it is by far not the largest and the only one. That is the message of the picture. So is there flexibility in there, which path concretely we're going to take? Absolutely, we will flexibly adjust to -- according to the attractivity of the P&C reinsurance rates out there. You referred to reduction of complexity. Is it finished? Andrew, it's never finished. But what we have achieved in the last 3 years is that complexity that was, if you will, staying a little bit in the way of doing business, of growing business, which was looking attractive to us. Those obstacles, if you like, they are eliminated. If you take that apart and say, "Is there other types of complexity still in the organization?" I would say, there always is, but on an evolutionary part, I think we will deal with it but it's not very fundamental. The ROE, is it an ambition? Or is it just a floor? Looking back, it is a very high ambition because in the last decade, the ROE was well below 10%. And so now where we are with our underlying earnings in 2020, normalized for COVID, is already 11.9%. So it's a step change. And we believe that we're going to move it further up into the range of 12% to 14%. And whether it's 14% or 12%, then really depends on what Christoph highlighted at the beginning. It depends on how much of the capital we're going to deploy into future ongoing growth opportunities or not? Nick?

Sure. Thank you, Andrew. I think just to reference one point you made in terms of ALM policy, the ALM policy is unchanged. We have a long-standing policy there. So it's not about changing the ALM policy. I think in terms of what's new, it quite naturally follows actually from your question to Joachim in terms of complexity. And certainly, the investment structure which have been developed over a number of years had complexity within it. And the changes we've made, and really, I talked about this, the underlying message was simplicity. So instead of having a number of groups that really fulfill that asset on a role, we've now just one group that fulfills that asset on a role. So from that, you get efficiencies, you get, if you like, the idea of centers of excellence, whether it's for SAA, 1 group doing SAA, 1 group focusing on -- at TAA. The other important role we added to our asset owner is that the asset owner selects the asset manager. So that's a big change because that means that we're just more open to using a number of asset managers, particularly for noncore asset classes. So that, I think, is a change. The other change that we've made and that I think is new is within MEAG. And what we've done at MEAG in terms of -- with the new appointments with our new CIOs is strengthen the investment process and the investment capabilities there.

The next question is from James Shuck from Citi.

So 2 questions from me. I just want to return to the profit outlook and the EPS guidance, sort of 5% of target or at least 5%. If I approach that from a slightly different way and just think about the potential to grow the absolute level of net income. From a starting point, I think your values for the 2020 starting point of 2.8. The rising health to reach the profit is increasing by EUR 300 million over that period. Although going from 9% to 12% to 14% ROE, which implies about EUR 1 billion of net income, I think, in 2025. So that's plus EUR 500 million. So you've got plus EUR 800 million from those 2. And again, for that, you're going to have 50 bps of year pressure. So I think that's a headwind of about EUR 1 billion less of tax. So how do I get to what looks to be a plus EUR 800 million number on the 2.8 by 2025? I hear what you say about the balance between capital deployment and buybacks, et cetera, but it does look like the shift in net income of around about 3.6 in 2025, give or take. But just given those moving pieces, I can't see that, particularly with the P&C Re combined ratio, which I think you're saying is going to be broadly flat to about 95. So that's my first question. Second question is on Slide 23. I don't draw too much on the capital deployment side of things, which does seem implies some buybacks in there. But I intrigued by the SCR development. So the SCR development is actually very low. It looks like about EUR 1 billion or EUR 2 billion increase SCR. You were talking about the growth opportunities that you have, but that increase in SCR is actually a very low number. And I guess, that's associated with that. I begin to get your views on what your hurdles are when it comes to deploying capital. So are you looking at a trade-off of kind of return on investment versus the share buybacks, for example? And have you changed your view in terms of strategic gap somewhere in the group? Because it seems to me as if your messaging is trying to deemphasize buybacks a little bit and a bit more into some of the growth opportunities and potential for M&A.

Yes, James, it's Christoph. I'm going to take both questions, I think. First of all, again, I think I referred to what I've just before. Depending on what your assumption is on capital and depending also what you think how the margin and growth development goes until 2025. You, obviously, could end up with very different scenarios, what net income figures could be. What are the drivers? The drivers obviously are the margin improvement at the beginning with the combined ratio you were referring to also and then growth. And then ERGO, of course, comes on top of that. And then it adds up basically. So I think that's not really a miracle happening or anything in between. It's really just following the slide I was showing you before where the ROE improvement is really showing in terms of the drivers, margin improvement growth and then, of course, the investment side. And then, yes, it all comes down to capital management, to some extent also. And I appreciate your comment that the SCR increase looks quite low. Again, this slide is an illustration, but what I can confirm is that we see a potential in growing the business in an efficient way in a sense that we will benefit from diversification between different lines of business, such that the -- that on an overall group level, the marginal additional risk is pretty low, even if growth is substantial just due to the fact that we are business model wise, in a very good position to benefit from this diversification across different markets, different lines, different businesses, life, non-life and so on and so forth. So really, that's part of the idea of the growth ambition. We need to make better use of the capital we are holding by having these efficiency gains. So that's something, at least from a strategic perspective, I'm very, very happy to confirm. But other than that, again, it's really the drivers, growth, margin improvement, making the best -- what we possibly can out of low interest rate environment and capital management. And then we end up in the range of 12% to 14%.

And the strategic gaps and potential hurdles for deploying capital into M&A?

Yes. Well, I mean, M&A, I mean, the debt is low. And the debt, obviously, comes with opportunities when with respect to financing. I think we have been always open in the past that we would never rule out M&A, but is it part of that strategy? No, it's not.

The next question is from Kamran Hossain from RBC.

Two questions for me. The first one is just on the plan overall. I guess looking at the track record you've got on delivering targets, yes, ERGO, the 2016 plan and also the kind of group 2018 onwards plan, you've got a good record of delivery. What's your confidence in this new ambition 2025 plan versus those plans? Is this more of a stretch or is this -- do you have the same degree of confidence? And the second question is, I think it's around pricing a little bit. I guess you're giving out messages of growth and balance sheet deployment here. Is this the right time to be making those messages ahead of what should be a very good [ one more ], hopefully? I'm not sure that's maybe a question for the second part, but I thought I'll ask anyway now.

Kamran, this is Joachim. I would say your question with regard to the confidence in the future growth, you referred to ERGO starting for -- in 2016, but certainly also reinsurance. I would just suggest, wait to the -- for the second half of this session, listen to the business strategies of ERGO and how the future growth is substantiated by ERGO strategies and the same for the reinsurance strategy. So I back you just a couple of minutes of patience for this. The second question, Kamran, if you can just repeat that because I hardly could hear or understand, and I'm sorry for that.

Sure. No problem. So my first question was actually in the -- your confidence in the overall plan. I said you've got a good track record on delivering everything since 2016, is actually the confidence in the group plan rather than ERGO. The second question is just around messaging of deploying more balance sheet, looking to grow over the next few years. Is this the right time to be making that message, given what should be in theory, a very good kind of January renewals?

So Kamran, got it. So with regard to the confidence level, I am -- I think if we look into the 5-year period and the 5-year plan, then it is realistic to say that next year, 2021, is a difficult one, is a stretch here. What is uncertain always, and it was in the past, it will be in the future is, you never know where the capital market is going to go, when that fundamentally goes down. It's going to impact you, and the same holds true for very large losses. But this next year, 2021, will certainly still be impact to an extent, difficult to assess by COVID-19. So in this sense, 2021 will be a difficult year. And I think Christoph rightly called it, a stretch here in this sense. But then if you take that out, I would say the confidence level in terms of we're going to capture opportunities to benefit from the cycle and reinsurance P&C is high. The confidence in -- besides that cyclical element in capturing growth opportunities on the reinsurance side, another target segment is as high as it proved to be also in the last 3 years. And with regard to ERGO, the confidence level that ERGO is going to capture growth opportunities in its capture -- in its target market is also high, although achieving growth is, of course, a different thing than cutting costs. That's hard, but it's under your control. So confidence is high. And I would say, where the cycle then is going to be in 2024 or '25, nobody knows. We don't know, but no bold assumptions with regard to that are part of this plan. So confidence is high. Do we disrupt the market? Do we disrupt the rate and condition environment with our growth ambition? No, we don't think so.

Next question is from Vikram Gandhi from Societe Generale.

I hope you can hear me all right. I've got 2 questions. The first one is, I'll say, going back to Slide 23, which shows the expected economic earnings with a figure of around EUR 20 billion over the next 5 years, and that's implying about EUR 4 billion per annum. I'm aware of that is illustrative. But just since the figure is mentioned, the EUR 4 billion figure is quite an increase versus the about EUR 2.8 billion normalized economic earnings that was flat for 2020. So any thoughts on that, on what really driving the significant uplift would be really helpful. Secondly, I appreciate the focus on ROE and the same applies also to the 2 business engines. Being mindful that we have for the presentation's planned, my question is, since the group has not disclosed the IFRS equity across reinsurance and ERGO, are there any plans to publish those going forward, and it starts to allow us to track the individual ROEs?

Yes, Vikram. Thank you for your questions. First, the economic earnings. It's maybe a good opportunity to talk a little bit more around the EUR 4 billion per annum or the EUR 20 billion. Yes, you said it's illustrative. But on top of that, I think what I have to mention here also, it's not IFRS, it's economic earnings. So it includes, especially for long-term business, future earnings in a present value logic. And therefore, it necessarily needs to be higher than IFRS anyway. And also growth effects in the economic earnings view are in some lines of business, especially life reinsurance as well as ERGO are much earlier visible in the economic earnings view than in the IFRS view. So there's a fair shift between -- a lot of shifted components of the earnings between IFRS and economic earnings. So that's a major difference. Compared to the past, obviously, I mean, your rule of thumb calculation was to divide 20 by 5 to come up with 4 per year. You could also imagine other trajectories. So that will depend on growth and margin improvement and so on and so forth. And really, the path will look in detail. But I think the major difference to IFRS is really the way we do the accounting here. Your question on ROE. Indeed, we did not disclose equity for reinsurance and for ERGO in the past. Today, we included the backup slide in the pack in my presentation where you can see the split for the first time. And for sure, we are going to update you regularly on that and also update you regularly on where we stand with our ROE also on a business field level compared to our plans.

Next question is from Vinit Malhotra from Mediobanca.

Yes. One question for Nick, please, and one for Joachim and/or Christoph. So Nick, the question relates to the 2.5%, so I'm just reading on the Slide 42. Nick, if I remember right, last week, the 2021 outlook was also 2.5%. So when we compare sort of 0 compression in the ROI over '21 to '25, I can say you've said a performance uplift from alternative assets. You used a word strong balance sheet, which I presume means also realization of gains. But I mean, I would be just very interested to hear how you think about that kind of 0 effect of -- between '21 and '25. So that's the first question. Second question, just for Joachim and/or Christoph, I think. The -- I mean, Joachim, the last time you issued targets 2017, were a bit more simple to follow. There was a net income number, there was a combined ratio normalized, which later on was changed, but was delivered at the end. But this time, I mean, it's a lot more variables and also a longer term. Could you just talk us through? I mean why should a 5-year target when there's so much of uncertainty around so many variables in the world at the moment? A 3-year plan would have probably being easier to fathom in the market. But I'd just be curious to hear your thoughts on how you chose to do it 5-year versus a 3-year plan. And also, obviously, the change in ROE has been commented by Christoph. But I mean, the change in focus to ROE has been commented. But I'm curious to hear how you structure this plan. And yes, that's it.

Great. Thanks, Vinit. It's Nick speaking. I'll take the first question on the ROI. Certainly, the meaningful decline in the ROI is this year. You could think of that as the corona effect. Central Bank policy rates are a lot lower, 1/3 of global bonds with a negative yield has had an impact on our running yield versus the start of the year also, we've less in things like equities. If you think of the trajectory of the ROI from 2021 to 2025, that's largely unchanged. And then the sort of composition of that is likely to shift a little bit. Towards the end of that period, we get more of an impact from the management changes and the portfolio reallocations. And of course, the yield erosion in the ordinary running yield is that sort of 10 basis -- over 10 basis points per annum. But over the time period we're talking, it's a largely flat ROI of around 2.5% 2021 to 2025.

Okay. Vinit, I think I'll take your second question, and that was the question on what are the KPIs we are applying, and the planning horizon, I think, 3 years versus 5 years. I'll start with the KPIs. I mean, as soon as you give out an absolute earnings target, you have the clear disadvantage that this is in no relation at all to any capital measure you're applying. And therefore, the longer you're planning horizon is, so you're more -- you want to have some flexibility because depending on how the market continues to evolve if the market cycle continues to be positive or not. This will all impact your capital management strategy. And absolute earnings target in the context of very different environment not necessarily would make a lot of sense. And therefore, we thought, let's look for a combination of capital with earnings, which gives us some flexibility to be an adequate measure in various circumstances. And then we thought that would be particularly important given the 5 years horizon. Now the second part of the question is, why did we choose the first -- a 5-year horizon in the first place? Well, we -- the question is little -- comes a little bit along also when you have investments in your strategy. Sometimes you need a couple of years in order to really realize the full benefit from these investments. And in that regard, 5 years seem to be more -- the more adequate timing to fully then see also the benefits of the investments we are having incorporated into that strategy, be it in the reinsurance side as well as on the ERGO side. So therefore, all in all, we came to the conclusion that a 5-year horizon would be the best fit to really adequately reflect what our intentions are going forward. And then with the 5 years in mind, a relative measure. So a capital productivity measure is much better than just having a planned earning figure.

Thank you. We will take the next question from the chat now, and I will read it out. It's from Darius Satkauskas from KBW. Could you please explain why the Solvency II ratio is flattish during the beginning of the plan and then rising more steeply on Slide 25? Secondly, could you please explain why you expect economic earnings to be much higher than the IFRS earnings during the planned period?

Yes. Darius, thank you for the question. I'm going to take that. I start with the second one because I think that's something I just covered. So I only quickly repeat that in IFRS, especially long-term business is not adequately reflected versus in the economic earnings, you have a present value kind of view on future earnings. So you have the present value of all earnings related to a long-term contract already in the initial year when you write the business in your economic earnings. So that makes the difference. If you want the difference between IFRS and economic earnings in a very simplified way, you could look at it as the part of the earning, which will evolve over time only at a later point in time into IFRS earnings. But that's very simplified. So you have to be careful with that. Your first question is that the trajectory of Solvency II, we've been showing in the slide. Well, the slide is explanatory, so don't overinterpret it. But your question gives me the opportunity to highlight one technical effect we're having in our economic earnings. And this technical effect is that when we grow our business substantially, in our economic earnings, we -- in the first year, we include the fully loaded reserves. So the reserves, including the, let's call it, 4% reserve prudency, we are putting it. And then only over time, the 4% releases over the duration of the contract until the liability has run off. And therefore, there's a prefinancing effect of growth also in the Solvency II figures in the economic earnings figures. And this prefinancing might play a role in the phenomenon you are seeing there.

Thank you, Christoph. I think it's time to wrap up the first Q&A session. And thanks for your questions. May I please ask those of you who I just saw on my screen interested in asking questions to dial in again for the second round of Q&A, which is supposed to begin after the next 2 presentations. [Break]

Ladies and gentlemen, welcome back from the break. Let's move on with the second round of presentations. And Markus, you are the first. The floor is yours, please.

Thank you very much. Good afternoon, everybody. I'm very happy to report on ERGO's contribution to the Munich Re Ambition 2025. Please follow me on Slide 44, and I think the headlines says it all, ERGO continues to deliver. And let me maybe show you this route very briefly. You all have been part of it. You have been covering it. And obviously, I'm happy to read that you look at the track record as being some favorable, and we consider this track record to be a responsibility for the future as well. If you will take a snapshot of 2021, I think we can present comparatively outstanding CRs, especially in the corona crisis situation. I'm happy to report that the hybrid customer business model in Germany is successfully established. I'll give you some numbers. We have now 1.2 million customers in our customer portal. There are more than 250,000 leads that we generate online and we'll give to our agents to cross and upsell. And the online available products out of the new products are already close to 70%, 7-0 percent, up from less than 50% in 2017. And that shows how the seamless integration of on and off-line channels is proceeding in Germany. And lastly, I'm also very happy that the international portfolio is optimized. As we all know, it's not totally finalized yet. But managerially, the most important part is done, and I think we can now look at a very stable and low-volatile international portfolio. I'll come to that in a minute. So that's, I think, all extremely positive. And I also believe that in 2020, in this year of this outstanding and, I think, really tragic pandemic situation for so many of us, this is a very good basis of resilience that we have achieved. And we consider this the basis but also just the basis for our part into the Munich Re Ambition 2025. Page 45 shows the KPI as we set them in 2016, and I'm proud to show that all of the KPIs are more or less achieved. What I find interesting is on the combined ratios, we have now, with 92% in Germany, we did realize the 4 percentage points decrease in expense ratio that I promised when I started. And we, in addition, have also achieved another 1 percentage point reduction in the loss ratio, even though traditionally, the loss ratio of the ERGO German [ curriculums AG ] has always been very competitive. On the ERGO International side, you see an improvement of 4 basis points in the combined ratio, which is pretty equally positively influenced by the reduction in loss ratio and the reduction in expense ratios. Without stressing the past too much, I'd like to basically, for the last time, report on the 13 work streams, as you know, and just allow me to show you some highlights. Work stream number one, we have 41% productivity increase of our tied agents, which I think is extremely positive. Work stream number 4, we have 39% production increase of life new book. We actually believe that by 2025, the production in life new book will outweigh the loss of the classic book in Germany. We have, in work stream number five, 12% of our legacy systems are already being replaced. Another 18% will be replaced during the course of the new program. And the automation rate in work stream number seven are now partially up to 70% to 90% already. Basically, all automation KPIs have increased by 20 percentage points and more over the last 5 years. Work stream number nine, we have worked on the ERGO brand, which is now, at record numbers, being recognized in Germany in terms of NPS development. And our digital player, nexible, has ensured more than 100,000 risks and will grow another roughly 10% this year by the end of the year. And lastly, on mobility, work stream number 12. I'm happy to report that we now have established contracts and cooperation models with BMW; Great Wall Motors; Volvo; Emil Frey, who is one of the largest automobile dealers in Germany; and Hyundai. So that is all looking very positive. And with that, I close the book on ESP 1 on the ERGO Strategy Programme, and I'm happy and thankful for your critical support of this program. And from now on, we talk about the ERGO contributions to the Munich Re Ambition 2025. And with that, I turn to Page 47. And you see here the same logic that Joachim has introduced in his introductory remarks. Munich Re Ambition 2025 is about scale, shape and succeed. And that holds true for ERGO, and you will see it in Torsten's presentation for reinsurance as well. Now what does it mean? It means on scaling that we try to secure our profitability, and we basically do that through first-rate customer experiences. We want to increase the net profit contribution of the international portfolio and build digital projects and technology. And the main thing here is that we really look at profitability and the ROE as our most important target. And I'm saying that because we will have discussions over the next couple of years of market share and growth initiatives. Rest assured that profitability is the key KPI. And that means that we obviously look in growth and profitability, but the emphasis is on profitability. The shaping part is really about -- some people like to call it disruption. Other like to call it evolution. But it is about changing things we do business in insurance. Some things will be smaller. Some things will be larger. The only common denominator they have is they need to make a positive contribution to profitability by 2025, and that builds on the time horizon question that you asked before. In Germany, everything is about the hybrid customer model. And let me repeat this. This is a very cooperative approach where we believe digital disruption and technology is not a competitive element to our existing traditional distribution channels, but it's rather an enabling factor for them in the future. That is very important for us philosophy-wise, but that requires a totally seamless integration of on and off-line customer journeys. For those of you who deal with retail distribution, you all know that this is a huge herculean task to complete that. And we will take until 2025 to fully be able to accomplish that. On the international side, this is all about cross-border synergies and cross-border processes. In a lot of discussions with you over the last years, I always had the question, why are you the best owner for the ERGO companies and some other provinces or regions. And the answer is that we really run this as an integrated portfolio. And that means that not only do we have technical standards and underwriting competencies and control mechanism that we roll out throughout the ERGO world, so to speak. But we also want to look into cross-border synergies, and I'll come to that in a second what this really means. And lastly, on the technical and digital side, this is about 2 things. I think, first of all, there is -- in the shaping scenario, there is an opportunity in establishing a footprint in those ecosystems, especially mobility and travel, which goes beyond just selling primary insurance products. And I think if you're honest, most people who talk about ecosystem just look at them as an opportunity to sell more primary insurance products. And I think that we need to explore over the next 5 years if an insurance company can go further than that. And I guess you get some impulses of that on the reinsurance side, too, and we'll try to strive for that at ERGO as well. The second element is that we really commit to digital first. To me, digital first means that each and every product that is newly launched in the ERGO world needs to have a digital appearance, and that includes explicitly the opportunity and possibility to buy a product online. Currently, the number of new products that meet this criteria are a little less than 70%, up from 40% when we began, and I think we need to come close to 100%. This all only works if the succeed dimension, i.e., the discussion with the stakeholders is something which is to the mutual benefits. And I don't want to read out all of this. We can discuss it in the Q&A session, but I would like to use this opportunity to stress again what Christoph has said, ERGO will become a significant dividend contributor for the next 5 years to the Munich Re Group and rightly so. We have talked about track record, and I believe there are 2 KPIs why the ERGO Strategy Programme number 1 until 2020 has been so successful. First, there is the passion and the know-how of the people, obviously. But then there's also the question how we systematically see and monitor it. And you might remember, you saw it in the picture with the 13 work streams, we had a very structured approach. And we try to do the structured approach now again. So all of our managers have come up with 150 detailed measures and business cases. Out of which, we have selected 90 and then categorized those 90 measures into scale, shape and into growth and margin. And it came out and we chose the best ones that we have 51% of the measures being on scale, 49% on shape. More importantly, each and every measure has a business case, has a clear responsibility and is monitored in a 4-eye principle, both by especially created office and by the finance function. That gives the management a very good sense on view on where we currently are with the measurement and the execution of our program. And that gives me a lot of confidence that at least we know deviation so early on that we can take measures against that. And that is so important in a project that has a 5-year horizon, and it has a very significant growth impetus. Joachim said it as opposed to overwhelmingly cost-cutting impetus. What does this mean in terms of growth and margin? You see here, and there is no coincidence that the ERGO version of this chart, you saw it before, and you'll see it again with reinsurance, clearly, it makes it visible that the underlying growth assumption is more important. I used to say for ESP 1, this was about 2/3, cost-cutting; 1/3, growth. This program is about 1/, 3 cost-cutting or cost discipline; and 2/3, growth. That is important to understand going forward, and I'll come to that in a second. The drivers, I think they are pretty straightforward for professional community such as yourself. So I don't want to get into that. Maybe just an example on margin when it comes to customer-oriented processes and efficiencies. We have now started to E-to-E optimize -- to end-to-end optimize the most important, the most relevant process, which is the motor claims process in Germany. And I can report, this is now fully digitally enabled. You can submit your claim digitally. It's evaluated digitally. And you can obviously also get your reimbursement digitally. Not that everybody is taking that, but we already have participation and acceptance rate of 70% and higher when it comes to claim submission. And that, I think, is a very good start for automizing and making this process more customer-friendly and at the same time, more efficient for us. That is a general idea that is also available for a lot of other processes in other countries and other sectors. With that, I jump to Page 50 and show you the overview for Germany. Overall for Germany, we should tell you that Germany is still very much in the focus of our home markets, that we believe a combined ratio of 90% is achievable. Again, the improvement is planned to be 50% loss ratio, 50% expense ratio. And we believe that this is doable, and that would put us sustainably on an even better level than where we are now. You see what we have tried to do. This is about digitalization. It's about new products. It's about more underwriting discipline. It's about fraud prevention, and we can discuss that in the Q&A in any more detail where you like to be informed. More details, you find on Page #51. And here, we have examples from P&C, health and life. And let me just give you a little background to this on the growth side. For example, on the P&C premium sites, we really try to come up with one singular closing process and a single policy for private property lines with the price advantage over buying the products separately, together with the one straight-through processing element in that. We want to overhaul on the commercial side all of our products. We have pretty comprehensively and successfully improved our private retail line products. We will now do the same for commercial. And the digital processes, I already discussed with the motor insurance. There's an automated case control and payment processing times to increase customer satisfaction. We measure all of that and try to be better in each and every area. On the health side, we will come up with more dental products. We try to establish [ Decafrau ] as one of the leading [indiscernible] in Germany. And on the life side, this isn't all about the new capital-light book, which has been growing double digits. I believe that even in this year, 2020, we'll be able to achieve an increase in the gross written premiums, even do we know life is pretty much hit in the COVID crisis in terms of new businesses. And on the margin side, I think the most important here is the life classic IT migration, which is progressing well. And the clear commitment, especially in health, because they, I think, are the most profitable application cases to implement AI, robotics and end-to-end processing. And I'll come to AI in a minute when I have the second slide. But first, let me have a look at the international portfolio. Again, I repeat because it's so important for us that the international portfolio is now comparatively stable. The volatility is dramatically decreased, and I believe that the international portfolio will make a significant contribution. I would actually hope that by the end of '25, we would be in an area where 50% of the net income comes from the international portfolio. I'm not sure whether we will able to achieve that, but that's the general direction. And here, we have a situation where India and China -- I'll talk about them in a minute -- will really be one of the -- or 2 of the most single contributors in this context. The story, what we do is always the same. This is about de-risking and growing products. It's about, on the customer side, sales channel digitally on and off-line and is always about process and cost efficiency. And it just has different application on a country-by-country level. Also on the shaping side, in the cross-border synergies, like I told you, they are very important. There are classical things like procurement, for example. But there's also reinsurance, technology transfer and underwriting standards that we'll export even more externally and internationally in the future. And on the IT side, if you look, for example, at Poland and the Baltics, the Polish back office system will find its way into the Baltic back office system over the next couple of years. There are even customer front ends, which are now being jointly developed between Poland and the Baltics. And we have now 280 digital IT specialists based in Warsaw and Berlin, which help us to build customer interfaces. And once we have one, we always can try to look at them internationally and see where we can apply them. This digital asset deployment, there is a systematic focus and a very important element of our future in the next 5 years. On the combined ratio side, we see that we commit to 91%, which would also be a very, very positive result. Like in the first part of the program, this is even more about underwriting standards and underwriting discipline than it is about cost savings or cost cuttings. So we believe that the 91% can be achieved by further reduction into the loss ratio and not necessarily in the expense ratio. However, we are obviously very careful that the expense ratio remains on the competitive level that it already is. Again, 2 example slides. They are pretty much self-explanatory, 53 and 54. So I'll just touch on some highlights. In the Poland and the Baltics, which, as you know, is our most contributing region in Europe, we have a further de-risking. You see the further shift from traditional annuity business into unit-linked business. I'm happy to report that we have been able to accomplish a shift of more than 30% towards the unit-linked business, which now make up half of the APEs, the annual premium equivalent in sales. And I think it's a huge success in this regard. We can also talk about Austria, even Greece, where we have bancassurance as the basis and then build or have our own distribution around that. The bancassurance distribution in Greece has just been prolonged for another 10 years with the market leader in Greece, Bank Piraeus. We are the #1 player in P&C insurance in Greece. And I'm happy to report that in that cooperation with Bank Piraeus, they even achieved growth in the COVID pandemic in the bancassurance channel, which I think speaks for the quality of our partner, Bank Piraeus, and also for the way we have been interfacing with them. So bancassurance remains one of our core pillars in some of our countries. Also, we actively work on getting more broker connections and trying to diversify our sales channel atmosphere and sales channel infrastructure. So wherever we have, let's say, a special emphasis on one channel only -- we try to build the other channels, we have enough expertise in the group to be able to accomplish that. On the margin side, this is about artificial intelligence and automization. It's about digital capabilities. There's no specific cost-cutting program being envisaged. So it's really bits and pieces on a country-by-country level. I'd like to spend 2 minutes on India and China because they are so important. You know that roughly half the population of this world lives in India and China. So in and by itself, these are already very important markets. Given the facts, what the underlying growth assumptions are, they become even more important. We have adjusted those growth assumptions after COVID. And we now believe that in terms of a CAGR, '21 and '25, we are talking about roughly 17%, 1-7 percentage -- percent in India and 33% in China. So you see there's lots of dynamics in there. These are joint ventures, as you know. We -- that's why we ended u seeing the premiums in our GWP, but they are contributing on an equity level very much on a net income basis. We have now consolidated the health part of our business in India with the P&C part. Now we have the same partner, HDFC. There are lots of synergies. There are hundred thousands sales affiliates that we have that we can use for cross-selling health and P&C, respectively. So there are lots of those growth opportunities, which why we believe that both in India and in China, we'll be able to grow higher than the market. And also in China, we have a situation in which we very much focus on the digital opportunities, especially in the life insurance. Also, we want to enlarge our footprint in China. It's already large in India. But in China, we have 2 strategic initiatives. One is the cooperation with Great Wall Motors, which is one of -- who is one of the leading automotive production companies in China. They primarily do SUVs. And we have set up a service company, and we'll set up a broker company already in the -- for the first 6 months, there are roughly 40,000 contracts already being channeled through this service company. So this is not only theory but business that is produced on a daily basis. And we look forward to our deal with Taishan Insurance, which is a medium-sized P&C insurer in China in a couple of provinces, and we strive for 24.9% ownership, which would be our first foothold in the Chinese market. And obviously, this larger footprint gives us an opportunity to profit from the growth in the Chinese market even more. On the cost savings side, this is about synergy and digitalization like everywhere else. Lastly, I would like to focus on the digital side of our business. Page #55 shows you what we do in the various areas. I have discussed lots of this already on the previous slides. Just to give you some numbers on robotics because I believe it's important. We have now 56 robotic solutions already applied, being developed over the last 3 years. And our commitment for the future is to come up with at least 150 robotic solutions in 9 countries. Here, you can see both the scale as well as the shaping aspect because this clearly changes the way we work in some of our countries. In order to show you a complete example, I ask you to follow me on Page 56 where we talk about artificial intelligence. We have 27 full-time employees working centrally on artificial intelligence solutions. We have an open-source infrastructure that we can apply to our other countries and to our own lines of businesses. We have already 10 use cases in production. This is primarily about pattern recognition in health and health claims in order to recognize irregular patterns, i.e., fraud or different things where we have to adjust our tariffs. This is immediately accretive to our bottom line, and that's something that we can export. And we are committing ourselves to have at least 20 more projects in at least 8 more countries of the ERGO Group over the next 5 years. This sums up to Page 57. We will have a sustainable RoE of 12% to 14%. In order to achieve that, we believe that we need to continue the homework that we have started in ESP 1, i.e., finalize the legacy system replacement, especially in Germany, continue the route to digitalization. We need to further apply a strict cost discipline, a lean organization and very efficient E-to-E optimized processes. And lastly, we really want to execute hard on growth and shape the business model because, as I said, 2/3 of what we believe is going to be our future value creation will be based on growth and 1/3 will be on cost discipline and cost management. Our KPI, RoE, 12% to 14%, up from 9%, as I told you on my first slide, and 2 explanatory KPIs because we committed them also in the past. We believe that the combined ratio of P&C Germany could be 90%, and the CR of International could be 91%. And both of which could be, I think, very competitive combined ratio, underlying the sustainable strength of the ERGO Group also in the future. With that, I hand over to the reinsurance part of the business segments. Thank you.

Thank you very much, Markus. Hello, ladies and gentlemen. Welcome. I would like to lead you through the business plan and the expectation in the reinsurance segment of the group. And before I go into the details, let me start to give you a short summary and feedback how we see the last 3 years when we started with our first program. Those of you who have covered and monitored the market over a longer time know since last -- middle of the decade, in 2015 or so, reinsurance has been in difficult shape worldwide. We were in a softening and softening market environment. And at the same time, we had a decline in the interest rates. And both of these factors were eating into our IFRS earnings slowly but steadily every year. We committed to a very disciplined underwriting policy and, intentionally, did not grow in all these years at any time. Some of our peers basically communicated a much more optimistic and aggressive growth synergies, grew into the U.S. casualty business, grew into the soft -- large industrial business or so. We tried to avoid that. We tried to keep our market below average at that time. Nevertheless, looking at our IFRS earnings, we all felt at the same time where we stay disciplined in the underpriced business, we had to find ways also to generate growth to generate some new business ideas to improve this picture. So we wanted to find growth opportunity without giving up underwriting discipline because those who know the market know it's so easy in reinsurance to grow top line, but it's even easier to mess it up, to be honest. So many new business ideas and projects were initiated. Finally, a new strategy was born for reinsurance: grow, excel, invent. I presented that in the past. And this led to a clearer and clearer mid- and long-term picture how we want to develop our segment, our business in the future. The good thing is all colleagues who have taken along and participated in that development, and I really have to thank our colleagues for their contribution and that -- and the passion on that path. What did we achieve now? And that is here the next slide, what you see now. Over the last 3 years, we improved in the reinsurance segment our IFRS net earnings from EUR 1.86 billion to approximately EUR 2.3 billion on a normalized basis. That is a plus of about EUR 450 million over the last 3 years. COVID, of course, and therefore, the normalization had a negative -- a very negative impact in 2020. This volatility is part of our business. But nevertheless, and that is a good message, the bases we start from in terms of profitability is now in the region of EUR 2.3 billion, and that's on a sustainable basis. And we achieved this improvement without really making use of our reserves. We did not change our prudent underwriting and reserving policy. So that is all -- still all in place. On the next slide, and that is the past slide of the past 3 years, that is a picture of the 3 segments: reinsurance, traditional; risk solutions, our specialty business; and life and health. And the good thing is what you see here, growth was achieved in all 3 segments. P&C reinsurance grew by 6% compounded growth per annum, life and health by even 8%. Life and health, on a very sustainable income basis, technically result in fee income in the order of EUR 500 million. And the most impressive growth came from risk solutions, 18% per annum. I will go deeper into that when I speak about the future in the -- on the coming slides. At the same time, we were able to reduce the combined ratio from 99% normalized where we started to 97% where we are now, normalized basis. That is partly achieved by price increases. Joachim Wenning earlier mentioned that started to some extent in '18 and '19, but the bigger development was only achieved in 2020 now. What was the part, which has not changed? We did not go aggressively in the last 3 years in the U.S. casualty market. We did not go aggressively into the industrial business. And in life, we didn't aggressively go into the heavy-tail risk. So that was the past. The question is now, and that is a similar picture, which was already shown by Markus for ERGO and for the group as a whole by Joachim Wenning. Here, it's a picture of our cost strategy. And under scale, we, as in the arrow, we summarized the growth and business development initiatives in all 3 segments: core P&C reinsurance, risk solution in the middle and life and health. And then we have a number of initiatives underway to find new business opportunity, both on the product side, but also on the business model side. I will present some of them in my later part of the presentation, and innovation very much supports it. I would not like to go into the shareholders, clients, employees part because that was already covered by Joachim Wenning on his former slide. What will that ambition mean now for the next 5 years? The reinsurance group will improve RoE from 12 -- around 12% where we start today already to a range of 12% to 14%. So we will stay and be in the range of 12% to 14% in line with the group ambition. On the other hand, and you will see that from the technical figures later on, we have quite a number of business initiatives underway, which lead to, of course, an improvement of the absolute figures of the earnings or the technical results. Main drivers of this improvement, what we will achieve, is threefold. First, we will generate margin improvement and will benefit from the harder market environment in non-life reinsurance. Second, on top, we will grow in all 3 segments. And third, and I think Nick mentioned it before, reinsurance like ERGO will benefit from the higher performance, which will be achievable in [ yield ], and this will help to at least partly compensate for the lower yields in the coming years. So having said that, let me go now into the segments, and I would like to start with P&C reinsurance, and this slide includes risk solutions. So that is non-life in total here. On that slide, what you see here on the left slide part is a very good growth from EUR 24 billion to EUR 31.5 billion top line, where traditional reinsurance expects to grow 4% per annum, but primary solutions and the risk solutions here by 10% per annum. And what I mentioned before, we not only increase the top line. At the same time, we have the tailwind from the market and will improve the combined ratio from normalized 97% today to a level of around 95% in 2025. Both parts together, top line growth here and improvement of the relative performance expressed by the combined ratio, help, of course, to achieve a very impressive growth of the technical result, so the product of the combined ratio and the premium development of 17% per annum. It will grow from EUR 720 million to EUR 1.6 billion in 2025. What are the assumptions now, which are part of this underlying business plan here? First assumption is in traditional reinsurance, we have tailwind from a further hardening market environment. And we made this positive assumption for the next year and the year after. So for the next 2 years, where we think the market is a bit more foreseeable, we assume tailwind from a harder market environment where we grow into higher profitability. Then from 2023 onwards for the remaining 2 to 3 years, our assumption for traditional reinsurance is a flattening or even softening in traditional reinsurance. I come to risk solutions where, because of our niche business approach, the picture is a bit different. And there was one of the questions before in the first Q&A session. Do we disturb the market? Or are we too aggressive with this announcement or with this business plan, which is the basis for this picture? I don't think so. We are known as Munich Re that we take -- we participate in the growth if the conditions are healthy. We did not participate in each and every market environment. Sometimes, by the way, we were criticized for that in the past. So the market knows if we are a market player and sign a certain share and underwrite a certain share, then it's on the basis of good conditions. Second, the market shows a certain flight to quality anyway this year. That means we are a preferred partner and get higher shares offered in the current market environment. Here on the next slide, I would like to drill down a bit deeper. That is traditional P&C only. So that is without our risk solutions business. And in this sector, in this slide, you see the growth -- premium growth over the next 5 years in traditional reinsurance. That is a 4% growth what you see here. And when you look at the portfolio structure, the growth will not be realized by going aggressively into the U.S. casualty or other problematic market segments. We will participate in hardening market in short tail -- more short-tail lines of business like cat excess. We will also participate from larger industrial single-risk business in that part. Because of this portfolio change more towards short tail, of course, that is one driver for improvement on combined ratio. But on the other hand, it also means that we have a certain appetite to increase our risk appetite into the cat excess business as long as the market is improving. If that picture should turn or the market should turn downwards, we, at the same time, are prepared to cut back our business and to reduce our market capacity. So both is on our agenda here. Here on that slide, I wanted to summarize the driver for our business plan, the underlying assumptions, if you want, for traditional reinsurance. First and more important, the market thus hardened because of the large loss experienced over the last 2 to 3 years, particularly in the cat excess segment, but also on the single-risk side and, unexpected, let's say, cat events like the wildfires. Second, the retro market is more difficult than in the past. It's hardening, and the capacity is tighter than before. So that has an indirect impact on the available capacity and potential of some of our peers to grow in their business now. So that helps to keep some discipline in the current market environment. Third driver, not immediately, but over the time, all of us, including us, but also our peers, have seen the negative impact on the low-interest rates, how that has eaten into their profitability. Fourth driver, social inflation in the U.S. casualty portfolio, which is a big market for insurance and reinsurance. And only the fifth driver is COVID, which gives some further tailwind, so to speak, to a hardening market in total, but it's not the size of COVID. In that regard, COVID is what's only the top, so to speak, the top part. It was -- would have hardened anyway. On the next slide, what you see here, what we show here is to give you some qualitative picture how we see the market hardening and what the drivers are. And what you can see in a nutshell is here, the higher the capacity demand for large cat and single-risk businesses. And the more the market has suffered in the past 2 to 3 years, the more the impact from the hardening market can be seen in the various regions. And that is particularly true for Asia and for North America, the United States, less so, to a lesser extent, however, in Europe. This slide is -- can easily be explained. What it would tell you is the following. We compared our growth ambition in traditional reinsurance with the forecast from the economists of the growth in the various regions in the world. And what we show here is, so to speak, the growth expectation in the market by continent. And what you can see on the right side of the slide is that our growth ambition, as long as the market hardens, is mature markets in the region of 3% to 4%; in the emerging markets, in particular, it's India and Latin America, in the region of 7% to 9%, which is not out -- not completely outside the market growth but more on the upper end. So it's an ambitious growth, ambition what we have here, but not completely outside market expectation. Now I switch the topics and come to risk solutions. Risk solutions is our primary insurance business, which we entertain under the wings of reinsurance. And this is our fastest-growing segment in the reinsurance group. Our strategy and our focus is on commercial specialty business. That is unchanged. That means it's not retail business what we try to capture here. It's not a core focus on the large industrial segment, which is a very cyclical segment nor with commercial specialty insurance. Our main carriers and business units are American Modern in Cincinnati; Hartford Steam Boiler; Munich Re Specialty Insurance, which we founded 2 to 3 years ago under the leadership of Mike Kerner; our Lloyd's Syndicate; our aerospace business; and facultative and corporate business. That is the part, which is more cyclical, but is of less dominance in our portfolio. Why can we grow this business in the future? And you see here a growth of EUR 6 billion today to EUR 9.5 billion in the next 5 years. Why can we grow that? And this business is, of course, supported by the tailwind in the market by improving rates. But we built some important foundations 2 to 3 years ago in various parts of this segment here. First, we bundled our corporate and industrial business under the leadership of [ Alex Wederman ]. That is -- leads to a harmonized and aligned business strategy, segment strategy in that business, but it remains cyclical. But the market has never been better before than today to grow into that business because capacity is really short here. And second, I mentioned that before, we built MRSI, Munich Re Specialty Insurance, which was a fragmented picture in the past, consisting of other units in the Munich Re Group. We built in the meantime a completely new IT infrastructure. We developed a new strategy and built the foundations now in order to grow into the U.S. so called excess and surplus lines market. So all business units in that segment are ready now to expand their business and to take advantage of this end market environment. And this segment, as I mentioned before, is not so cyclical. There are cyclical subsegments. But in total, that is a pretty stable segment. And that differentiates us from the strategy of some of our peers because, usually, when reinsurers go into the primary business, what they do is they grow into the industrial segment because that is what is available in the broker market. In terms of profitability, the combined ratio in this segment will in the future be in the order of 92% or so. And that explains why we are sort of confident in non-life in total to achieve a sustainable combined ratio in the order of 95% where traditional reinsurance might deteriorate towards the end of this 5-year period, depending on loss activity, where at the same time, the share of risk solutions becomes bigger and the combined ratio in risk solutions in the range of 92%, of course, helps to stabilize the non-life combined ratio in total. Risk solutions' share of non-life part of this development will grow from 25% to 30%. So here's one other example. I mentioned that already indirectly, that is Munich Re Specialty Insurance. And Munich Re Specialty Insurance in risk solutions shows the most significant growth from EUR 1.2 billion to EUR 2.6 billion. Casualty and property is almost equally split here, 50-50. And we have developed quite a number of good technologies here to participate in that growth. I mentioned only one example. In the meantime, we have a so-called what we call underwriting engine in the market, which is an -- a database and artificially -- artificial intelligent-based underwriting tool where the algorithms permanently learns from the market behavior and becomes better and better in the risk selection and portfolio composition. So this is a driver, so to speak, which also helps the MGAs and the brokers to make use of the Munich Re capacity in the future. I would now like to switch the topic, and the last and third segment is life and health. And what you can see in life and health is also a decent growth of the top line, I would say, 4% per annum, but even more important, a reliable and sustainable development of the technical result, and that includes our fee income from EUR 550 million today normalized to EUR 850 million. The dent in between in 2021 has no structural issues. That is the kind of anticipation or provision, what Christoph Jurecka mentioned before, of further COVID losses, particularly mortality losses in our U.S. book because the mortality will not be over in January now. So that is anticipated and put into the figures already. When you ask where do we grow the business, of course, the majority of the growth comes from our core markets. That is more and more the Asian markets in the future, although China contributes to that. And then, of course, also in North America, particularly in the United States and Europe. So more and more of our traditional business can be generated by providing services. Digital services, MIRA is one of these services, more and more also predictive underwriting services based on big data. And then we also have a number of new business initiatives underway. On the traditional sides, 2 are -- I mentioned here on the slide. We carefully expand from the U.K. into other markets with our longevity approach. And we also have so-called financial market business under development, such as savings and benefits products. So that's it. And my last part is now innovation. Innovation is more and more important for us and is, so to speak, an option for future business generation. In this slide, what you see here looks a bit busy. I admit that. What I should tell you is the following. On the left part of the slide -- in the left part, you -- we summarize all those innovations, which are developed and executed in our traditional business, in reinsurance and primary insurance. In the middle part, what we describe here is still insurance or reinsurance, but these are so-called adjacent business models, so stand-alone business models. But on the left part, the innovation close to the business, we will not generate specific fee income or so. But we will be reimbursed by reinsurance or primary business participations. And on the very right part of the slide, we show here completely new business models, stand-alone business models, which are far away from the traditional core like IoT, what I will show you in the later what we mean here. In terms of market positioning, Munich Re has become the clear #1 in the market, according to broker and client feedback. So we are appreciated. Our service is used by the market, and I think we can build on that. And before I go into some examples and details, maybe one comment. We have invested quite some money in the past 3 to 4 years into innovation. And the good thing is now there are more and more initiatives, which are mature now and where we begin to monetize, where we can generate either top line or bottom line from such initiatives. And the first one, which is part of that, and that is part of the left side of the former -- of the previous slide is close to core innovation. And that is our packages, which we sell together with our cyber products. Munich Re is the market leader in cyber -- in the cyber insurance market. We have a market share worldwide in the order of 10%, which is significant. And we expect to grow this portfolio from today's EUR 700 million premium income to about EUR 1.4 billion. And this is not an aggressive growth assumption that is more or less in line with market expectation. And the combined ratio development is expected to be stable in the region or in the order of 85% to 90% where it stays today already. And more and more, we don't -- not only sell insurance or reinsurance product to the market. More and more, we build a package and build analytical or digital service around the product, particularly for the SME market. A few examples are mentioned here on that slide. One of these services is Allysca, for instance. Another one is Zeguro. Allysca is a recovery service, which helps SMEs to recover after an attack. Zeguro is a kind of digital CIO model, which helps to improve the cybersecurity of SME clients. And we have, in the meantime, quite a number of experts built for this business, and we are very proud of it. Last comment here, before you ask the question anyway. Of course, we are aware of the accumulation potential, and we are aware of the uncertainty and the early development of this market. And risk management and prudent underwriting is one of our core topics. And we exclude quite some risk, which are of systemic nature, like infrastructure. Interruption of the Internet, for instance, is one of our key concerns here. And we try to avoid silent cyber in our conventional business. Second example I would like to mention that is one of the so-called adjacent business models. That is a business model which we have developed for the Canadian market. It's called New Venture. And what we do here is we want to go into the so-called Canadian group insurance market that is health benefits, disability and other parts. And we have developed an infrastructure, an IT platform, which makes it easy for customers but also for insurance companies to onboard and buy our policies and our products because it's a very user-friendly and very efficient platform for our business model. What we do here, and you see that on the slide, we either approach the market, the insurance market directly or we built cooperations and offer this kind of platform model together with insurance companies to the market. The business potential, it becomes to generate business, now the business potential, I would say, 3 to 5 years, is in the order of up to EUR 50 million. Mid to long term, that is beyond the 5-year horizon here, business potential in terms of annual income might be in the order of EUR 100 million, what we think. What we also have planned is we have a pilot underway for the U.S. market. So that is one of the examples where we expect to generate income and top line. My last example before I finish is then the IoT business model. That is standalone and far away from traditional insurance and reinsurance. And it has to do, has a lot to do with our risk assessment and data capabilities. And what I would like to describe here and mention here is this so-called Equipment as a Service business model. Why do I mention that? Because you might have read the various press publications in the last weeks when we and our customers published at least 2 big business cases where we have signed and concluded firm partnerships with Trumpf and with Porsche. What is this business model about? It's very new. And it basically means and says, in the past, a manufacturer of machines, for instance, which is shown here on the upper-left side, in the past, he sold the machines to his customers on the lower-left side. In the future, the change is the following. Instead of selling the machines from the manufacturer to the user, these machines will be financed, prefinanced by external investors, shown here on the upper-right side. That can be the capital market. That can be MEAG or our Munich Re. These machines are then prefinanced, put into a so-called special purpose company. And the user still uses the machines as before, but he has not financed it, prefinanced it, and he pays for the machines on a so-called pay-per-use basis. That means it's a very flexible payment model. What is the role of Munich Re in this business model? And why is that the future business model for a broader market? Role of Munich Re, first of all, we have access to capital market. We have own investment capabilities, Nick. And our ambition is to orchestrate and bring capital markets to the OEM and to the user, so we orchestrate the financing. Second role is, this business model needs digital equipment. We have relayr in place. relayr is equipped and able to install and to implement hardware and data software for permanent monitoring of the usage of the machines, but also monitoring the availability of the machine and take care of maintenance and all these things. So that is a service for the manufacturer but also for the investor at the end of the day. And third, the Munich Re, we can provide insurance products. These are kind of guarantees here, be it for the user of the machines, be it for the investor, where we basically reduce risk. We reduce the risk for the user. We basically guarantee the availability of the machine when the machine is needed. And we take certain risk out for the investor, which basically helps also to find those investors which have a lower appetite for certain risk. Trumpf is one example. That is the machine, laser cutting machine manufacturer, family-owned, in Germany with 35% market share in this business. And Porsche is a car manufacturer is another case, which we have concluded a firm cooperation. And they want to use this business model, not only for themselves but also, let's say, to sell it to the suppliers and to other manufacturers in the market. So here in this business model, we mainly generate fee income. And for the guarantees, some premium volume. And maybe if MEAG participates, some investment income. That's it with my examples summarizing and finishing here. Let me repeat what the core messages are. Munich Re Reinsurance has successfully managed a kind of turnaround in a difficult market environment. In the past years, we have built a solid fundament for future growth, and we are now in a position to participate from a good and more favorable market environment and able to expand our business in all 3 segments: traditional Reinsurance, Risk Solutions and Life and Health. And our return, RoE contribution, will be in a range of the group of 12% to 14%. So here, I would like to finish and thank you very much.

Thank you, Torsten. We will now start with the second Q&A session, and I will briefly explain the procedure for Q&As once more. [Operator Instructions] And as mentioned before, please note that there might be time delays in picture and sound transmission. What you hear on the phone is real-time. So again, don't feel irritated by this. When your question is answered, your line will be disconnected. Return to the webcast and unmute the sound on your computer. In case of difficulties, there's always the callback function you can use in the chat window in the tab, Messages. [Operator Instructions]

And the first question comes from Will Hardcastle from UBS.

It's a couple of questions. I'm afraid they're linked to the first section. Both should be quite concise. Christoph, you flagged down the different metrics to move around really clearly. I appreciate this isn't an exact science. But within that RoE target, can you give us an idea of what the group is assuming on interest rate trajectory? One company recently presented a plan assuming pickup in rates in the base case. So I'm assuming there's a material pull-to-par effect on the equity base within the time period or perhaps give us a rough idea of what you're assuming that pull-to-par effect is on the dampening of the shareholders' equity base. That would be helpful. And the second one, just on investment yield, the 2.5%. Just want to make sure I didn't mishear that. I presume it's declining towards 2.5% throughout the period, and the offsetting benefits are more back-end loaded. Is that correct?

Yes, Christoph?

Yes. Will, thank you for your question. Interest trajectory, so we have a long-standing tradition that we don't take any interest rate views when we decide about planning assumptions. So generally, we use what we call the naive prognosis, which just means we take the interest rates as they are and then plug it into our planning. What happened this time is that when we started the planning exercise, interest rates and the whole capital market seemed to be so much distorted due to corona that this time, for the first time, we took a view, but only until the end of '21. And thereafter, it's again stable. And end of '21, our assumption currently is that interest rates are a tiny bit higher than where they currently are, but only a very tiny bit. So in more general terms and if you allow me for a certain simplification, I think it's fair to say that the assumptions overall are pretty much stable from where we are today.

Will, Nick speaking. In relation to your second question on the ROI, again, I think I can confirm what you said. In terms of the big impact on the ROI, that's a 2020 event. Think of that as the corona impact in terms of central bank activity, the fairly dramatic reduction in yields we've seen. And then with less equities than the start of the year, so there's a lower income coming from that. If you look at the ROI 2021 to 2025, it's around that 2.5% level. As I said earlier, the composition of that shifts a little. Towards the end of that period, we see the full impact of the management changes and the portfolio reallocations, if you like, coming through. But over that time period, it's in and around the 2.5%.

Thank you. Thanks, Will, for your question. The second question is from Michael Haid from Commerzbank.

Two questions. Coming back to the first session, can you give us an idea about the targeted payout ratio that you want to achieve over the period 2021 to 2025? You gave us the EPS and DPS growth targets. But can you give us a target for the payout ratio? Second question, 2025, we will have IFRS 17. Some metrics will no longer be defined under IFRS 17 or they will be differently, think about net income or return on equity. Just to shortcut the question, how will we know that in 2025 you achieved your targets or are you going to define them differently?

Yes. Thank you, Michael. I think, again, to see 4 questions, I'm happy to take them. Payout ratio, yes, you know traditionally the payout ratio has been very high for Munich Re. I mean we didn't define it as a target on purpose because we thought the payout ratio would not be the right way to look at our strategy going forward. Therefore, I would rather not comment on the payout ratio going forward. IFRS 17, indeed, the way we come up with IFRS figures will change significantly in the course of this program, at least following the current implementation date, which I very much do hope that it will remain unchanged as the preparations are pretty well advanced. What we will do then is we will show you at the right point in time a mechanical translation of what we have been planning for now into the new KPI world, which we will have later then. I think that's your only way to do it properly. Today, it will be too early to present targets in IFRS 7 metrics already. We are not used to looking at our business from that angle. So we can only do it once the standard is finally implemented and probably a little before that are going to in detail explain you how we are implementing the standard, how our figures, how our presentation, our annual report, how everything will look and feel then from then onward and then also how our targets should be translated into that new world. But this will be a mechanical exercise.

Thank you, Christoph. Thank you, Michael, for your question. The next one is from Paris Hadjiantonis from Exane.

Two questions as well. On the P&C side, if I look at Ambition 2025, the 95% combined ratio. And I put into the equation what Torsten was giving us with regards to Risk Solutions' combined ratio, which is around 92%, I come out with a core P&C or traditional P&C ratio around, at slightly above 96%. So I guess my question is, can you give us an idea where we stand right now in 2020 in these 2 different divisions? And what is the walk to 2025 for each one? The second question, coming back to the first session, and it's a pretty straightforward one. Basically, how is management incentivized to achieve these targets that you give today? In the past, your incentivization was also based on TSR, which was a key driver. Will that be changing to take into consideration the new plan?

Your assumption regarding the combined ratio is right. I mean it's a bit -- honestly, we don't know how the market will develop. I only wanted to highlight that our combined ratio development is not a stupid and innocent speculation of a 5-year half market. That is not the case. We achieve sustainability of 95% because of the sustainability of Risk Solutions. You mentioned that. And again, you also mentioned our reinsurance, the P&C combined ratio would then, if you deduct, so to speak, the 92% combined ratio of Risk Solutions from the 2025 picture, would then be beyond 95%. That is true. And that reflects, let's say, a prudent assumption that the market in reinsurance might turn and become more difficult beyond 2000 -- or after 2022. And internally, that is in line with your figure. We could imagine the traditional reinsurance could then gradually deteriorate up to a combined ratio of 97%. That is our internal assumption at the end of the day. But both together are still under 95%. For that reason, the 95% are sustainable. So that's it, I think.

And with regard to your second question, Paris, good afternoon, it's about incentivization. Just for your recollection, 50% of the remuneration of the Board members is a fixed remuneration. And the second half is variable, of which 15 percentage points is short-term incentives based on an IFRS earnings target. So concretely in 2021, this would probably be the EUR 2.8 billion. This is a decision that formally needs to be taken by the Supervisory Board. And the other 35 percentage points are long-term incentive based on the 4 years TSR performance of Munich Re in comparison with the 8 peers in the defined group, as you know it.

Thank you, Joachim. The next question is from Michael Van Wegen from Bank of America Merrill Lynch.

You hear me?

Yes. Now we can hear you.

Okay. Sorry. The first question is about the first session and particularly focusing back on the ROI, 2.5%. And to follow up from what Will also asked, do I understand correctly that between 2021 and 2025, you basically expect it to be flat over the entire period at 2.5% or is it just starting and endpoint happen to be the same? That's the first question. And the second question around ERGO and the combined ratio targets that you have for 2025 of 90% and 91%. Those imply quite good RoEs for those businesses. What gives you confidence that this is sustainable and doesn't get competed away?

Michael, Nick speaking. Coming to your first question, yes, there are rounding errors in it. But you're correct, between 2021 and 2025, for all years in and around the 2.5% level.

Markus?

Yes. I'm just waiting for the camera. Thank you. Yes. Hello. My confidence on that regard is comparatively high. And the reason for that is that we have again, in Germany, where it is the most concentrated risk, we have a cost ratio improvement included in there. So the loss ratio is only improving of about 1%. And in the way that we envisage the product mix going forward, we believe that due to product improvements, especially on the legal protection and accident side, which has already been started and will accelerate in 2021, we'll be able to protect our relatively high share of comparatively attractive products. So in Germany, I'm pretty confident because this is not too much dependent on the underlying growth assumptions. It's different for life and health. But here, I think, we can be pretty confident, obviously, without being 100% sure. And on the international side, it really is the diversified results of improvements, very, very small improvements of our international portfolio. I think that is one of the advantages of our approach that we don't have this one single measure that really changes the entire reality, but it is really a mixtum compositum out of lots of small measures that gives me a relatively high confidence. Now obviously, if the market behaves totally differently from what we anticipated, then things might change. But we have made this forecast consciously under the assumption that the competitive intensity is by no means diminishing but rather slightly increasing. I hope that gives you some orientation. Thank you.

Thank you, Markus. Thank you, Michael, for your question. The next one is from Ivan Bokhmat from Barclays.

I have 2 questions, please. The first one, I suppose, is for Markus on ERGO. Just thinking about the equity of the business of EUR 5.8 billion and the 2.5% premium growth ambition. I'm just trying to think of how much ERGO will be able to contribute back to the group and whether this EUR 5.8 billion would materially change by 2025. Should we just think of rather unchanged equity base and higher RoE? Obviously, trying to solve out for the contribution to the group. And the second, I suppose, a bit broader. It's on the Digital Partners, the business that we have been talking about 3 years ago. I don't know if you can give us an update of how much those kind of venture investments that you've been making, how would you value them now, whether they're included in the group book value because one of your large competitors has recently tried to put an implied value on their start-up business. Maybe you could try to attempt the same.

Okay. I understand, Ivan, that the question on the venture was primarily directed towards the reinsurance. Is that correct?

Well, it maybe just to Joachim more broadly, indeed.

Okay. Well, let me take the premium and the dividend question, the capital question. First of all, I think it is very important to understand is the 2.5% premium growth is managerially significantly understated. And the reason for that is I have told you that we have, I think, one detracting factor, which is the classical life book, which has an order of magnitude of roughly EUR 300 million loss in premiums every year because we don't want to build on this business anymore. And like I said in my introductory comments, it will take until 2025 when the new business from the life new book series will ultimately compensate the loss of the classical book. So there's like a permanent detractor in this. Secondly, more importantly, the joint ventures in India and China, while they are totally included on an at equity basis on the net income side, are not included in the gross written premium side. So the 2.5%, I believe, are significantly understated. Were you to correct for this, you basically come up with figures which are twice as high and even more than the 2.5%. So I think that's the first thing to understand. The second thing is, obviously, I cannot disclose the level of dividend that we're going to pay. But it's very clear and it's showed on the picture that we have, that active capital management, and that obviously includes capital upstreaming to the group, is an integral part of our strategies. And what kind of order of magnitude this is, we will discuss on an ongoing basis, but there's no indication that I can give you at this time. Thank you.

So I take the question on Digital Partners. Digital Partners, as you all know, is our special unit in the reinsurance group, which is only there to develop relationships with insurtech sector worldwide, mainly United States and Europe. And what they usually do is they provide product, the insurance carrier, and take care of all the regulation. But usually the insurtech start is a company which provides access to market, but they are not a fully fledged insurer at this stage. So that is taken care of by Digital Partners, and they have a very good market reputation for that. But our business, at the end, will be generated on 2 pillars. One is via the traditional channel, providing carrier and the product. Here, basically, we participate in the technical result of this insurtech. And then the second pillar, usually, we take a minority investment in the various insurtechs, not in all, but in many, and increase this investment according to the success or performance over time and participate in via the valuation on the asset side. That's the business model. On the insurance side, on the technical side, I look into the figures, Digital Partners expects to generate a premium volume next year in the order of close to EUR 300 million. Combined ratio is still slight -- including own expenses, of course, is slightly above 100%. So it has to scale more basically to justify the costs which they generate internally. That is underway. And then the second part, the value generation via investment, that is something we have not disclosed and cannot disclose yet because these are parts, honestly, which I don't have available. But companies like Next, which were then identified via Digital Partners and then given and brought to the attention of ERGO as a potential cooperation and core investor, so to speak, these are indirect positive outcomes of the investment side or even the broader cooperation, if you want.

Thank you, Torsten. Ivan, thanks for your question. The next question comes from Thomas Fossard from HSBC.

The first question will be regarding the group dividend. So the DPS growth of slightly above 5% over the duration of the plan. I would like to put that in context of ERGO paying dividend back to the group, which is a change compared to the past. So I think that in the past, at the group level, you input your local GAAP earnings to look at the distributable cash to, one, to look at dividends and share buybacks. But now that ERGO is going to dividend, upstream dividend again, I mean, how ERGO is coming into the overall picture? And the second question will be regarding to your 5% EPS growth over the duration of the plan. Here also, could you maybe shed some light on the phasing of this 5% average growth over the duration of the plan? I mean should we expect a double-digit EPS growth up to 2023, which would be a kind of peak earnings and then expect something which will be more flattish or slightly down? Yes, any trajectory would be interesting.

Yes, Thomas. Thank you. Christoph here. Again, I'm very happy to take your questions. First one, the dividend per share growth above 5%. Clearly, our plans include upstreaming from all our subsidiaries, which are just generally are contributing to local GAAP earnings on the MEAG or our mother company level. So that's the usual course of business. Obviously, receiving dividends from ERGO will additionally support funding, but this is incorporated in the dividend target anyway. And so nothing to add from that side. But mechanically, you're right. In local GAAP, this is additional support for MEAG local GAAP earnings. The second question, I'm not sure if I understood it correctly. But I gather you asked for the trajectory. So how the growth over the 5-year is distributed, the 5% distributed over the 5 years? Is that my correct understanding? Could you confirm?

Yes, that one, too.

And there, again, I would -- I'm sorry, I'll refrain from giving an answer because that's pretty much also path dependent. And we have been talking a lot today about potential different ways also the business could develop. Market cycles could deviate from our assumptions. So therefore, I think it's a clear signal with an average number that we want to maintain flexibility in order to react on market developments. So it's just, it's an average number. I can give you nothing else. I'm sorry for that.

Thank you. Thank you, Thomas, for your question. The next one is from Andrew Ritchie again from Autonomous.

A simple one, I think, for Markus. You've always suggested in the past that we haven't fully appreciated the potential of your joint ventures in India and China. Looking through websites and disclosures, I still can't find what the contribution to net income at ERGO is from those 2 joint ventures. I think it's expected to be depressed in 2020. But can you give us any clue? And I think you did mention a growth rate. I'm not sure if that was for India or China or both. But just a bit of a sense of the actual bottom line contribution? And related to that, I'm assuming you are restricted by the joint venture partners in having the ability to increase ownership there. That's kind of out of your control. If you just confirm that. The second question is for Torsten. It's not really about the plan, but you did have a slide on cyber. Could you just give us your opinion, Torsten, on the commentary we've seen this year about a significant increase in frequency of, let's call it, attritional-type ransomware losses in cyber. Some suggestion that terms and conditions in that whole market need to be radically revised, in particular in respect to ransomware, and that there's quite a lot of reunderwriting to occur in that whole class. It doesn't appear to be impacting Munich Re, at least that was the suggestion at Q3, but maybe just give us an update on that as well.

Okay. Then Andrew then, let me start with the cyber topic. Indeed, I mean, it started in the press. And it's also part of the discussion in the insurance industry that the cyber industry, particularly after the lockdown and let's say, weaker network security situation when more and more people work from home saw more cyber attacks. And particularly ransomware was one of the topics, which also affected, by the way, to some extent, our industry. Some of our clients were affected. That led to -- in the insurance in there, they come to us in a second sentence that led in the industry to a lot of concern now because particularly in the Lloyd's market, there were quite a number of losses, which they had to digest. And that led then, reactivated this question, do we understand the risk? And what happens in the traditional book? Is really that book clear and do we only take the cyber risk via the dedicated cyber policies or how big is the uncertainty? These are the various questions. For our book, we monitor the single losses precisely. And what we do, you might remember that we, close to 50%, generate our cyber premium via Risk Solutions and particularly Hartford Steam Boiler, which is our single biggest generator or carrier of cyber business in the group, have approximately 30% of everything. And then we also monitor the cyber losses via traditional reinsurance because almost everything what we do is proportional reinsurance. We hardly participate in any excess of loss reinsurance structures for different reasons because we think the risk is difficult enough that it would even be more difficult if we go to excess and nonproportionate structures and don't have the underwriting under control anymore. That is the reason for that. So in our portfolio, when we -- and again, we closely monitor that. We see a very small deterioration of the loss ratio. That is about 2 percentage points, 2.5 percentage points, but that's it. The combined ratio in total is still approximately 85%, 86% or so. So that has not changed, unless there are further losses in the remaining 2 or 3 weeks or so. But as per today, and we are aware of these losses, the portfolio still looks good. Nevertheless, we are aware of that. And what the market is doing today is threefold. The market tries to improve terms and conditions, particularly also in the non-cyber book, to get silent cyber out, to make the policy wording and the language clear. Second is we see a significant reduction in market capacity. We, at Munich Re, have not reduced our capacity. We don't see a reason because we have not been surprised by losses. And the third driver is, there are significant price increases these days. So we think as long as we have good control over the cyber business and our monitoring works and our accumulation control is in place, we don't see an obvious reason basically to change our strategy and our underwriting policy. It looks good.

Markus?

Thank you very much. Hello, Andrew. Yes, I would like to answer your question as follows. First of all, yes, I'm always fighting for the recognition of the joint venture contributions. And thank you for giving me the opportunity by asking that. To start, both India and China have this year a better performance than the market in terms of growth, which in India means that we have a small growth as well as opposed to a market that has a negative growth. And in China, we have a double-digit growth, which is significantly higher than the growth in China in the marketplace. That shows that we are well positioned in those 2 markets. Secondly, both companies are at a different stage of their evolution. The HDFC companies on health and P&C, they are already in the contributing money-making stage, whereas the life insurance, and you obviously know very well that life insurance have a lot of lead time until they break even, they are still on a small loss-making side but will break even over the next 5 years. What I can disclose to you is that the net income uplift of India and China is around EUR 100 million. So EUR 100 million net income uplift of the entire group comes just from India and China. And I think this tells you how important these joint ventures are for us. When it comes to ownership structure, you are right to point out that in India, we are legally bound to limit our ownership below 50%. In China, however, there is an ongoing legislation, which has now allowed us to contemplate the thought of acquiring a majority ownership for our life insurance companies. I can disclose that, that is something that we're actively looking into. That will clearly not happen in 2020. But there, we have a regulatory opportunity that we at least contemplate to follow up. So maybe this then turns out to be a majority-owned company at some point during our '21 through '25 planning horizon.

Ladies and gentlemen, as we are running out of time, we have time for one last question. This comes from Vinit Malhotra from Mediobanca. And Vinit, if you could make it a quick one, would be even better.

Okay. I'll make it very quick one question then.

Thank you.

So it's for Torsten Jeworrek. The confidence, Torsten or let's say, the description you provided of the Risk Solutions, it's a bit contrasting from what I remember from the last few years. I mean it ranged from 84% combined to even 105% combined. And you've reiterated that it's not very cyclical. So how should, I mean, the past used to be a 95%, sort of mid-90s sort of combined ratio. And now you're looking at 92%. If it's not cyclical, then why should it happen now when prices are going up in the commercial market? And also, are you confident about the reserving position, et cetera, because in the past, this has been very volatile line of business for Munich Re Group?

Yes. Good point. I mean, I didn't say, by the way, it's not cyclical. I compared with traditional reinsurance, which is a capacity play in the market. And here, because we position Risk Solutions mainly in the middle SME market and in the specialized market, this business is cyclical or is volatile in a way that it can suffer larger losses and can also, let's say, participate in regional accumulation losses, like the wildfires, for instance. So we had quite some contribution from wildfire losses in the past 2 to 3 years in the United States. That can happen. We reduced exposure, but this volatility, to some extent, is still there. However, because it's a business where either the MGAs or our risk carriers, own is a wrong word, but you know what I mean, own the customer, so to speak. And these customers don't go shopping around the world, so to speak. It's much less cyclical than the large industrial insurance segment or the traditional capacity-driven reinsurance segment. That is my message here. And then, let's say, we, of course, positioned Risk Solutions more into those segments where the cyclicality or the, let's say, to some extent, volatility can be reduced in the future. And I mentioned cyber before, what Andrew Ritchie asked, that is one of the examples. When you see 1/3 or 30% of the cyber premium comes from Hartford Steam Boiler. So that is Risk Solution business. This 30% that Hartford Steam Boiler plays in, a very small segment, so to speak, in terms of the limits they provide. And that improves, not completely takes away, but improves the distance to the cyclical, the more cyclical markets. So from that perspective, we are very confident. And to be honest, 92% in the United States, in the SME market, in the specialty markets, United States, is a good combined ratio, but it's not an exceptional combined ratio from a market perspective. The better players in the market achieve that. So it's not something which we only claim to achieve, and we are completely special animal in that game. So that is not the case. There are many which are worse, I admit it, but the better 1/4 of the market can achieve that. Thank you.

Thank you, Vinit, for your question. Yes, that's it. I think we are done with all questions. Ladies and gentlemen, friends and family, thank you very much for joining us for our Investor Day. It was our pleasure to host you, as always. The Investor Relations team is, of course, very happy to follow up with you should you have further questions. Hope to hear and even more so hope to see you all soon in person. Stay healthy, all the best to you and your families, goodbye for now.