Talanx AG (TLX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the Talanddx analyst conference call on the 6 months 2020 results. [Operator Instructions] I would now like to turn the conference over to Carsten Werle, Head of IR. Please go ahead.

Yes. Thank you, Haley. Good morning from Hannover. This is Talanx 6M 2020 Results call. I'm here together with Dr. Immo Querner, our CFO, who will lead you through our half year results. And as you know it, he will also be prepared to answer your questions after his presentation. And we're also happy that Jan Wicke is with us today, and he will actually take a look at the call and the process before he starts his new job. And of course, at the end of the call, he will also address a few words to you. A replay of today's call or webcast will be available a few hours after the event, and you'll find all the relevant documents on our web page. And with these remarks, I would like to hand over to Immo Querner.

Well, thank you, Carsten. A warm welcome -- a very warm or an actually, a warm welcome from Hannover. It's pretty hot. Sorry for running a bit late. We had a few technical difficulties, but I hope everything is up and fine. First of all, given that we are still in the middle of the pandemic, I hope you're all fine and healthy. Talanx is, as you'll see in a second. Let me start with Exhibit #2 and look at the main takeaways that we could report. While the net income is down, the return on equity is down to 6.4%, which is sort of definitely less than what we had wanted to see in the first half year with -- as you know, we've got a minimum return on equity hurdle that is risk-free for the 800 basis points. So we have fallen short of this one because of corona. At the same time, I think it's fair to say that demonstrates that corona is an earnings event for us, not a capital event. What is of particular relevance today? I think the top line. Now we see in several items, first sign have -- the top line being affected, be it by a lower new premiums, particularly in the retail market, or be it by premium refunds that we set aside in Q2 to account for very likely premium rebates that we will pay as a result of lower turnover, for instance, whenever we have a turnover-related insurance policy, and this is of particular relevance for the industry lines business. In general, I think it's fair to say that despite of this effect, top line has become an issue for the retail business outside Germany. And also, in German, I'll come to this in a second, whereas top line is doing fine in the wholesale businesses of Talanx, both the Industrial Lines and Reinsurance business. On the opposite, bottom line-wise, particularly the retail operations, operations have been very robust. If you take all corona-related effects together, and I'll come back to this in a second, we're talking about a EUR 658 million EBIT burden because of the variety of corona effects, out of which EUR 430 million of corona-related claims as one effect had been adjusted in Q2. Now if you look at the structure of the claims, we're talking about, I've been asked mainly, that's like 70%. Yes, we have benefited from some offsetting effects in the retail businesses but I'll come back to this, I think, in one of the next slides. If you would allow for a world without corona, without the burdens and without the offsetting effects and assuming a normal life loss pattern, we would have seen a combined ratio in the first 6 months amounting to 97.4%, which I think is not -- if you can see in the accounts because corona has happened, but I think it is a good indication of the underlying strength and the technical profitability of our business. The group net income, again, I'll come back to this in a second, would have been in excess of EUR 500 million, without corona, again, demonstrating the underlying resilience of our business. In fact, you can say that because of the stronger-than-expected underlying profitability, we've been better able to cope with the challenges of corona. In April, we withdrew our guidance for the full year 2020, and that will not change today. At the very end of my presentation, I'll talk about the reasons why we have decided to continue this agnostic communication policy. What else is important? I think the development of our solvency ratio. It now stands at 191% without any consideration of transitionals. The main drivers of the slightly softer figure in comparison to Q1 is the development of the interest rate curve, particularly at the longer end and, of course, some bottom fishing that we did in April that was actually tactically quite successful. But of course, I went along with somewhat higher SCR requirements for some of the fission that we bought on the asset side in this -- the bottom fission exercise. Let me move on to Exhibit 4. So premium is up by 6%. This is driven by the wholesale factors, P&C reinsurance and Industrial Lines. In the aggregate, the currency impact have been not very material. This looks completely different when we talk about the Retail International business of Talanx, but I'll come back to this in a second. The technical result, and that is just claims and premiums, stuff like that, has been burdened by EUR 824 million in the first 6 months, out of which EUR 63 million would relate to life reinsurance claims that we have accounted for. Again, the pro forma combined ratio would have been 97.4%. Investments are down -- or not the investments, the assets are up, but the investment result is down to 2 reasons. A, the positive one-offs that we benefited from in the first half did not reoccur. There was no second revision disposal. And on the other hand, there was some corona-related headwind in 2 dimensions. A, the interest rate -- the general interest rate is down. And whenever we reinvest maturing investments, we find it very difficult to invest them at the same yields. Second, there was some corona-related depreciations, for instance, in a certain part of our private equity portfolio, that is the kind of time deferred realization of what we see in listed equities in Q1. What else is interesting or important is the relatively low tax ratio. This is mainly driven by some special one-offs in our reinsurance segment. The proportion of profits that we've made in lower-tax countries is up. So this has helped. We're benefiting from specific piece of corona-related tax legislation in the United States, whereas you can use your tax credits at a tax rate that prevailed at the time when you made losses and not the current tax rate. That has helped. And there is a special item in [indiscernible], that would be something for the tax connoisseurs among you. Page 5, a deep dive into the second quarter in isolation. Yes, again, premiums are up. Again, it's driven by the wholesale divisions. Here, we see some bit more significant FX effect that is mainly driven by Retail International, I'll come to this later. The technical result, yes, has been burdened by corona, and the claims that we've addressed, including Life Re part is EUR 511 million of the EUR 824 million that means that roughly 40% is what we have divested in the first 6 months had already been divested in Q1, and 60% in Q2. If you compare this to our peers, I think it's fair to say that relatively speaking, we have done more already in Q1 than the peer average but more has occurred. Well, I think what is interesting, if you look at Q2, in isolation, is the composition of the profit contributors. Both reinsurance and the primary business -- or segments, have contributed profits. But what is interesting to see is that the 50% of the profits have now come from primary business and 50% from the reinsurance business. So it is because of the particular resilience of the primary businesses of Talanx that the proportion of the primary business is actually significantly up, which is quite interesting. Now Page 6 is a bit complicated, but yet, I will say, very revealing and tells you quite a bit about the corona effects as they have hit us. On the left-hand side, you see an EBIT figure, EUR 1.2 billion EBIT that would have been on the cards had corona not happened and at the end, you see what has actually occurred. Now the interesting part is the corona effect, which, in the aggregate, EBIT-wise, EUR 658 million and group net income was EUR 278 million. What are the drivers? First, we had to pick up negative premium effects. Negative premium effects either because we sell less because of corona, that is particularly something that is of relevance for retail businesses, particularly not just Germany also, Retail International. On the other hand, we have, accounting-wise, prepared for the fact that we already know that by year-end, we're going to refund some of our industrial policyholders in terms of the premium contributions because we're sitting on turnover-related policies and if there is less economic activities, then the premium base will shrink, and this has been reflected in the Q2 results as far as we can assess this effect today. And the EBIT impact has been EUR 104 million across all segments. Now then, we talk about EUR 824 million of claims, including the Life Re claims of EUR 63 million. Then, and here, going to come back to how we do quarterly accounts in general, we always account for the higher of the incurred large losses or the expected large losses until we arrive at year-end. Now in the first 6 months 2020, we've seen very few large losses outside corona. So that means, if you ask a question, what have been the effect if corona had not happened? If corona had not happened, we would have topped up, the incurred large losses by the difference between the incurred large losses and the expected large losses. Now because of corona, there was no need to do so. But if you just want to ask the question, what the P&L would have looked like without corona, we've got offsetting effect of EUR 352 million of large loss budget that we did not have to account for because of corona that we would have accounted for in a world without corona. Then there is EUR 93 million of offsetting effects, particularly in the retail divisions. And then there are corona-related hits on the asset side that amounted to EUR 174 million. The net EBIT effect would have been the EUR 850 million that I've already mentioned in the introduction. The rest is some other special effects that are unrelated to corona. But what does it mean? It means that without corona, we would have seen the EUR 505 million P&L. And to put this into perspective, you may recall that the original guidance for 2020 was above EUR 900 million up to EUR 950 million net income after taxes. Now this pro forma calculation, it is obvious that we would have done better than this subset objective because EUR 505 million is more than 50% of the original guidance. And that again, tells you something about the underlying strength of the business, which is good, and it has really helped us to digest some of the corona challenges. On Page 7, we see a breakdown of these effects into the various segments. They add up to the figures that I've just mentioned. What is interesting? It is interesting to see that offsetting effects is something for the retail lines. It is relatively sort of negligible for the wholesale lines. The reason is that, a, it is less significant; b, it is much more difficult to detect. And I think by year-end, we'll see what the net effect will be. And I think already our colleagues from Hannover Re commented on the question of offsetting effects. Have they made it into the quarterly results? Not really. And I think this is true for all wholesale lines, and that would include the Industrial Lines business in our primary divisions. On the other hand, the corona claims, themselves, this is then something that is particularly of particular relevance for the wholesale businesses as you see on Page 7. Now I do same breakdown just for Q2, in isolation. The pattern is very much the same. I'd like to draw your attention to 2 special items that I think are interesting. If you look at the second line, corona-related net claims, let me start with the second column. Retail Germany is a positive 7%. Is this a typo? Have we reclaimed money from our policyholders? Or have we seen run-off gains? Neither of these theoretic answers is correct. The true story is completely different. In Q1, we have been very conservative in terms of accounting for the risk-sharing with the reinsurers. By now, it is clear that a significant part of the non-life claims that we have seen in our retail -- the domestic retail P&C operation will be shared with the reinsurers. And from a net perspective, that has translated into an alleviation of the corona-related losses. Industrial Lines, on the opposite, has seen a market increase. How is that? What is the story behind this development? Well, it is, particularly not so much business interruptions in a narrow sense. It's more business closer, particularly in the food processing industry. And this, of course, is something that can happen. And it is not something that you can predict, let alone, account for at the end of Q1, sort of effects that have not occurred. Would never ever be part of incurred but not reported because it is incurred that has to be met first. And that is, I think, a particular development in Q2. On Page 9, is the table, a summary, that you're accustomed to reflecting our large loss claims. Well, you see that net cat losses have been very benign in the first 6 months. So have other man-made losses. The big elephant in the room is corona. Corona, alone, has amounted to EUR 760.7 million non-life. So you would have to add the life reinsurance business to arrive at EUR 824 million, but the non-life part alone is EUR 761 million, and that translates to 7.1% combined ratio. Now because there was no need to top this up by unincurred large losses, all, positively speaking, some of the -- of this white elephant could have been -- was picked up by an otherwise unutilized large loss budget. The pro forma corona impact is not as high. The excess large loss development beyond the expected value, including corona then, is 4%. I see this on the right-hand side. Page 10. I think it's quite interesting. We could -- it breaks down the reported figures and the pro forma figures without all technical corona effects, a world without corona by -- apply the logic that have thought you through on Page 6. So in Talanx Group, we are seeing a 6-month combined ratio of 101 101.3%, without corona would have been 97.4%. In Q2 alone, it would been 98%. Industrial Lines business, and I think this is quite interesting, has reported, including corona, 104.7%. Without all corona effects, it would have been 96 -- 98.6% in the first 6 months and 96.7% in Q2, in isolation. This is interesting. It is interesting, and I would say, it's also good news, because it demonstrates that the pruning measures that have been initiated some while ago as a front-runner in the industry have really paid off. And this is really good news because it means that we've turned around the technical quality of the business. Now Retail Germany, same figures, have reported 96.9% in the first 6 months. Without corona, first half year, would have seen a 95.1%, and 95.3% for Q2, stand-alone. Now you may recall that we've always reported figures without cost related specialty -- special cost items that will now fade out. We've seen a little bit in the first 6 months. Now would we report the used ex post figure, we would have seen in the first 6 months a 94.8%. And that means that in the first 6 months, we have already arrived technical profitability level that we were supposed to achieve in 2021. And I think this is both important that both turnaround -- technical turnaround programs have at least delivered what they have meant to deliver. Page 11, look at the EBIT composition over time, you'll see that the primary businesses have been particularly resilient. Retail International even has contributed a higher EBIT contribution than a year ago. The big swing has come from the industrial -- from the Reinsurance business, and this is again reflected by the fact that I mentioned in the introduction that as per of Q2, 50% of Talanx profits come from the Reinsurance business, net of minorities and taxes and 50% from our primary operations. Now deep-diving into the segments. We've seen a positive top line momentum at the Industrial Lines business and that is again, driven by the specialty business. I think, I already explained the reason behind the higher corona claims. Run-off wise, specialty is kind of no show, and this should not come as a surprise because all the run-off profits that we would see at global specialty or into Hannover as a company used to be called previously, would have been ceded to Hannover REIT, given that they are sitting on the -- have always been sitting on 90% group internal reinsurance arrangement, as you know. Return on investments is somewhat softer, and this is, again, the result of lower investment yields and some corona-related hits on the asset side. I think what is important going forward, our medium and long-term targets, a combined ratio of 97% or 95%, respectively, remain intact. And we actually do take comfort from the fact that the market -- the industrial lines market has turned around. And that we now benefit from the fact that we've been among the first ones turning this market. So I think this is good news looking forward. Let me turn to Retail Germany in the aggregate. You see a decline of the top line. This is due to a softer Bancassurance business. This should not come as a surprise because selling via branches that are closed is not as easy as selling via branches that are open for business. It is as easy as this. This is something that is not only relevant for the Life business as equally relevant for the non-life business because we have successfully developed our non-life business in our Bancassurance channel. That has, of course, suffered because of corona. Plus, we've seen somewhat softer top line in the motor business. Again, as I mentioned already on the occasion of the discussion of the Q1 results because profit is -- profitability is simply more important than the vanity of showing high top line figures. Yes, we have benefited from some offsetting life claims in motor and other lines. But net-net, of course, corona has impacted the segment as well. Now Retail Germany, in isolation, the first 6 months, yes, softer top line because of the reasons that I've already mentioned, and lighter claims out of motor and other lines amounting to EUR 22 million, which is what it is. Life is down as far as top line is concerned because of corona and the Bancassurance channel. The stock increase, particularly for longer duration, has also made it into an accelerated buildup of these asset SCR stock. We're now talking about EUR 4.1 billion, which is quite a bit. It's much more than we would have expected at the beginning of the year because of the development of the interest rates. Now the operating EBIT is down from EUR 71 million to EUR 40 million in the first 6 months. Why is that? I think there's a multitude of reasons. If you look at 6 month 2020, there is roughly zero effect of positive and negative one-offs. We had a positive effect in Q1 that was deconsolidation of 1 of our investment vehicles that contributed a little bit more than EUR 5 million now in Q2. There was the standard review of our [indiscernible] assumptions that contributed roughly to EUR 5 million EBIT burden. So that kind of poked. Whereas in Q -- in the first half month 2016 and also in the second half -- 2019, sorry, we benefited from positive one-offs in the Life business that would have been like, I think, EUR 50 million or so. So there's now a decline from EUR 55 million on a pro forma basis to EUR 40 million. And this is certainly also partially true to the lower margins in absolute terms out of the credit life business that is sold via the Bancassurance channel because, again, policies that we do not sell would not contribute to the profit margin of our life operations. Retail International. I think this is an interesting one. Interesting in 2 dimensions because bottom line, this is as nothing has happened, even slightly more than last year, extremely resilient. Despite an adverse development of the interest rates, now the low interest rates begin to kick in. Also, in the emerging markets where we see a major challenge is the top line growth. And this comes out of 3 drivers. Driver one is corona in a narrow sense. In the new car market, complete breaks down in places such as Brazil, that should not come as a surprise that we sell not as many insurance -- car insurance policies as we would have sold without corona. This is effect number one. Effect number two is, a partially corona-related effect because many of the emerging market currencies have particularly suffered because of corona, not only due to corona, but also because of corona. That is particularly true for the Turkish lira and the Brazilian real and that contributes to roughly 50% the top line decline, as you can see in the first gray box on the left-hand side. And the third effect is the -- our somewhat restraint appetite to sell Italian single premium business. That has also contributed to the top line decline. Now if you just look at the core P&C business, without currency effects, we would have seen a slight increase of 0.2%, which is, of course, not as much as the figures that we've reported in the previous years, but this is not due to corona. Now the other sort of important thing is that low interest environments has begun to also bite into the business models of our emerging market, non-life portfolios. Despite of all that, we are confident that we'll make the 10.11% return on equity in the midterm ROE projection. So we reconfirm this point. Now reinsurance, I want to keep it brief because [ Mr. Shaw ] and [ Mr. Fuga ], I think, have talked to you through the figures already. Top line, it's up. It's up in all the wholesale lines and bottom line is down as all the wholesale lines. So it's -- the return on equity is nearly halved. But again, it's an earnings event and not a capital event, and this is of particular importance for the reinsurance business because what we'll see in 2021, in my eyes, is not only higher rates, which is good for the industry. We also see a flight to quality. And therefore, it means this is the year when you distinguish men from boys. There is a flight to quality that Hannover Re will benefit from because it's just an earnings event for them, and they're sitting on a very resilient capitalization. Life is doing fine in spite of the excess mortality that we see -- that we have seen in some of our U.S. businesses. Net income -- net investment income, Page 20, yes, the ordinary investment is down, and that is mainly to be attributed to the low interest rate environment. The extraordinary investment income is also down. That's got 2 effect. One is the nonrecurrence of special positive effects in the first half year 2019, like Viridium. At the same time, we have -- we've digested a few corona-related write-downs in a minor part of our portfolio. So in hindsight, I would say, at Q1, we were much more concerned about what could happen as what really has happened on the asset side. The assets under management still grow, and that means that the inflow of premium is still intact, which is good. Page 21. Looking at the accounted -- accounting equity, it's more kind of flat. That means that the dividends that we've paid in May have already been reearned, so to speak, in the first half year. If you would add the hidden book value then we're talking about for EUR 40 million per share. Excluding goodwill, it would be at least in excess of EUR 35 per share. Page 22. It is the chart that you should be accustomed to. There are 2 kinds of off-balance sheet reserves. The one that have not yet made it into the P&L. And then the true off-balance sheet, hidden reserves on the asset side, that are mainly, of course, attributable to the policyholders and minorities and the risks. But if you just look at the part that would make it into the chest of the shareholder, we're still talking about EUR 2.19 per share of hidden value that we can't see in the balance sheet. Is this as good as it's bad? Well, having more is always good. At the same time, it is a reflection of low interest rate environment and this, of course, is bad. Solvency II capitalization, it's 191%. So as you can see in the chart, it is fairly robust. It is very comfortably within the upper part of our target range, which is good. So the group, in its entirety, should benefit from a flight to quality. It is even higher than sort of -- it appears than would have reported higher solvency figures a year ago. So in that sense, and I think it's interesting, from a Solvency II point of view, without any transitionals, of course, as usual, we would have -- we've seen a more robust development of our solvency figures, which is good. And the slight softening of the figures in comparison to Q1 is due to -- yes, the interest rate curve is due to the regular update of our operational risk assessment, it is due to the bottom fishing that we did in particularly in April, that has proven to be a technically smart move. Yet, it sort of -- it's a slight negative for the solvency ratio. But I think that's fine. It's not -- development is not really influenced by any model changes because the model changes would only -- the major model changes would only kick in at year-end. We've seen sort of insignificant minor model changes that really are immaterial. Now outlook. The short-term outlook is opaque and therefore, we again would abstain from a precise guidance for the year 2020. Yes, we've seen a better-than-expected first half year 2020, net of corona. Yes, we're sitting on a very robust business model. Yes, we believe we have played well conservatively when it comes to the Q2 accounts. But what we know is that corona is not over. So corona will hit us. Anyone saying that we could put a lid on corona, well, I would very much doubt that. Second, we do not exactly know what is going to happen. I just -- let me share with you some of the thoughts that has led us to this conclusion. We don't know what the premium development because of corona is going to be, neither do we know what the new premium will look like in Q3 and Q4, nor do we know. In as much, we've -- could have allowed for premium rebates that would make it into the P&L, it is already done in Q2. Claims-wise, we cannot account for nonrecurred -- nonincurred claims. We can account for incurred but not reported claims, but not for nonincurred claims. These could be people that haven't died yet. This could be people -- companies that haven't gone bust yet. That could be companies or operations that haven't been shut down yet because of business closures. Would I dare to say that this is completely over? No. That would be too risky call for me. Large loss budget. As we have been lucky in a way that part of the corona-related claims have been compensated indirectly by lower noncorona-related large losses. Is this something that we can bank on for the second half of 2020? I wish I knew. The only thing I know is that people are actually quite pessimistic as far as the hurricane season is concerned. And yes, we are sitting still on a sort of an unutilized large loss budget, that would more or less be the provider share that is built in, in our assumptions what a second year could look like. But I think it will be very risky to assume that we would be as lucky in Q3 and Q4 as we have been, apart from corona, in Q1 and Q2. Offsetting effects. Will we continue to benefit from offsetting effects? Will we eventually see offsetting the effects in the wholesale businesses? Again, highly speculative. I don't know. What I know is that in the summer period, certain important markets of ours, we've seen a normalization of the driving patterns and of the exiting patterns. And no one, I think, would be in a position to answer what will look like in the autumn, for instance. And investments. So far, it's fair to say that markets have been much more benign than originally feared. Will the fear come back? Maybe. Maybe not. Therefore, all these reasons, we know that something is going to come, but we don't know where and we don't know how much. And this is why we are, in a way, optimistic because I think the operation is running well, and we often think about the underlying market trends, and this will be a particular relevance for 2021, but it puts us into an impossible position when it comes to sharing a precise guidance for 2020. Well, as you can see, we've done reasonable, although it's been a difficult quarter and a difficult half year. Now something else. But for me personally, this is the last quarterly call with you. I think it's been like 30, if not more, quarterly calls since we got listed back in 2012. Well, I think it's time to say thank you to you because I must say that I've greatly benefited from your professional vigilance and your insightful understanding of the insurance industry. And also the questions have been difficult. I've always taken away something from them and I've enjoyed that. And on top, of course, I would like to thank you, a lot because I understand that quite a few of you have voted from me in investors and analyst surveys. And these -- the results of these service has been flattering, I would say, and many things for that as well. In case you'd like to stay in touch with me to discuss industry matters or other matters, I think the easiest way would be to get in touch via the investment relation department by Carsten Werle and that we could establish or reestablish or continue our dialogue. I will be looking forward to this one. You can be looking forward to new moderator and communicator when it comes to our account. Dr. Wicke, he's done exactly this for one of his previous employees [indiscernible], position on Stuttgart. He has been a very successful and long-standing CEO of our German operations, the mastermind behind KuRS. And the reason why I have been in a position to always report on KuRS' successes. Perhaps you want to say a few words to the participants that will be your audience going forward?

Thank you. Thank you very much, Immo. First of all, I really have to say, great respect for the outstanding job you have done, and thank you so much from a perspective as a colleague of you. And I just can tell you, I'm very thankful that Immo will act as an adviser, also for me, for the coming time so that I can continue to participate and to listen to his very intellectual, precise analytics which is, from my point of view, outstanding. And I could understand that some of the participants, Immo will miss you, because of that. Well, from my point of view, I'm excited to take over the CFO function at Talanx from September. Today, I've listening into the call to get to know the process a little bit better. And I will be very well prepared for November, and then I will be here to present the 9 months figures to you. I will be also meeting some of you on road shows and conferences in the near future. So from my point of view, I would just say, all the best to everyone. Stay healthy. And I will speak to you at latest in November. But before it comes to that, I could assume that some of you have some questions to Immo and are eager to listen to his explanations. So go ask.

Yes. So Haley, I think it's your turn for now.

[Operator Instructions] And the first question is from the line of Michael Haid of Commerzbank.

Three questions, if I may. First, on the investment income, you said the COVID-19 related impact on the investment income is minus EUR 174 million. Can you tell us what is included there? Where it comes from? Second, the premium rebate, [ EUR 89 million ] in the second quarter. I would be just in, how much of this is discretionary? And how much is defined contractually? So automatic rebates from the lower mileage driven. And the last question on the Specialty business, which is now part of primary insurance and accounted in Industrial Lines. Can you talk a little bit how Specialty, stand-alone, has performed in H1 '20? Any special development, both in top line market opportunities and also bottom line?

Yes. Well, let me start with the first question, the investment income is down, yes, for EUR 170 million something. It's a combination of foregone ordinary income because the interest rates are not as high as they would have been in a non-corona environment because everyone central banks have pushed interest rates down. And just trying to figure out what this has meant for us. When it comes to the write-downs, I think the single most important figure is the write-down that we've seen on the private equity part that is roughly EUR 60 million being the lion's share of the -- extraordinary part of the opportunity costs or opportunity income that we have not seen because of corona and we've seen some depreciations on individual activity positions. Fixed income has been relatively benign. There, we've seen deviation of about EUR 50 million, which is, I would say, next to nothing because EUR 50 million is a lot of money. But in relation to the overall asset under management, the fixed income part, this will be a very manageable figure. So it's been equities and private equity behind this. Now the premium rebates, it is an assessment of our contractual obligation to allow for the premium rebate at year-end. So it's not yet a final calculation because the final calculation will be in year-end. But what we've got under IFRS is, of course, to digest the balance sheet and reflect on the balance sheet the effect that have already incurred also on the top line based on the current CapEx arrangement, and that's it. It's not so much discretionary free willies for everyone. So this is not the driver. The other part that is hard, but it also hard to assess is what is the forgone part of the top line P&L item because there has been reduction of new car registrations in people -- in countries such as Brazil. Car registrations were down by 10%. Then it's probably a fair assumption that new premium would be down by 10% as well. But this is again, an estimation. And it also means that not all the foregone premiums have made it into lower EBIT. We've also, of course, allowed for the foregone cost and variable cost and claims. So this is the logic behind that. I think the third question was around Specialty. Just a second. Give me a second. The Specialty business in the first half year have seen a combined ratio that is slightly above 100%, again, corona. And in Australia.

And do you see any market opportunities due to corona in Specialty, anything?

Yes, yes. So yes. I think what I've said about the market opportunities that we're going to grasp in all wholesale lines is equally, too, for the specialty business. Not just for reinsurance, not just for the standard Industrial Lines business. Now I think there is hardly a market that allowed us to agree on much firmer terms and to seize market opportunities that we couldn't have seized in a different environment. So I think this is perhaps an interesting general comment. While it is difficult for us to assess what's going to happen in the next 6 months, structurally, the market environment that would take -- the technical market environment as opposed to perhaps to the interest environment, but the technical market environment is much more supportive, and that is something that to support our business across all wholesale lines in 2021. And this includes -- positively includes size-wise as market-wise the Specialty business.

The next question is from Andreas Schäfer of Bankhaus Lampe.

Just 2 questions. One is on industrial insurance as well. Could you give us some sort of insight on how the rate increases have developed in Q2 and also the claims inflation has developed? And the second question is regarding the Solvency II ratio. I think as far as I understand, Hannover Re has reported an unchanged solvency ratio of 225%, roughly. So could you give us some sort of insight what has really driven down the combined ratio at Talanx level. Is it the German Life business? Or...

Yes. Let me start with the second question. The 191% is down roughly by 5 percentage points. And I think the top reasons are: A, the bottom fishing that we've also done, for instance, in Retail Germany, we've been quite -- by our standards, we've been quite an aggressive buyer of wide spreads -- spread opportunities that were available in April. In hindsight, we should have done more. But of course, you know no better approach, and that's been confined by our strategic discipline. But within this general conservative policy, we've seen some market opportunities. And that has contributed. Of course, that's made it into a higher SCR. An indirect effect has supported this development because the mark-to-market value of the assets that we had acquired before, plus the assets that we newly acquired back in April, have improved. Now the higher the notion of the assets, the higher the SCR. And if you're talking about solvency ratios that are around 200%, then it doesn't square up sort of then it suffered more from the higher mark-to-market value than you benefit from the higher own fund because of the pickup. So this is one effect. The second effect is, yes, indeed, the low interest rate -- interest rates, it's not been as pronounced as perhaps in Q1 in itself. But still, we've seen again, a slight decline in the rates, particularly at the longer end and this is not helpful. Third, and I think I mentioned this already in passing that summertime is the time when we review our -- when we sort of conduct our operational self-risk assessment, which is driven by 100,000 things and that has contributed to a slightly higher operational risk. Then there was one particular item in solvency balance sheet where we had to correct an interest rate curve that we used for one of our smaller non-EU companies. And I think all these together have then contributed to a really mild decline of 191%. But putting things into perspective, and I think if you compare our development from year-end 2019 of the 212%, down to 191%, we have lost 20 percentage points. If you compare this to the development of our wholesale peers -- or not just wholesale peers, I think this is a very favorable and benign development that underlines the resilience, both of the business and the model. Now the rate increase, what has happened in Q2? In Germany -- in Europe, and this is then sort of the main battleground for the Industrial Lines business, not very much because the renewal round is yet to come. In the markets that have seen renewals, it's up. And that is very helpful. And I think you all aware of the market statistics that have been provided by the big brokers. And the -- what they say is for the global insurance composite pricing index continues to rise and rise and rise, and we can confirm that. And this is the reason why I believe that going forward, assuming that this trend would not discontinue until the end of this year's renewal round, should be a very welcome tailwind for 2021. Claims inflation, difficult to say. Well, the general level of inflation is down. This is why all the federal banks have accelerated money printing. But I think we continue to not really see any major concerns or problems out of unexpected claims inflation. And I would assume that your question is particularly related to the United States. And this is, of course, an area where we benefit from a relatively small exposure because the best part of the business that we do in the United States is either short tail, domestic or European-linked or related business and align it is -- workers' comp are more or less nonissues for us. So this is here. I cannot report any red flags.

Questions answered, Andreas?

Yes.

[Operator Instructions] The next question is from Paris Hadjiantonis of Exane BNP Paribas.

Firstly, since it's your last call, Immo, I just wanted to thank you for your sharp guidance over the past few years and obviously, wish you all the best for the future. And obviously, also wanted to say best of luck to Dr. Wicke and congratulate him on his appointment. Now going to questions that I do have a few. On the Industrial Lines, the combined ratio, without the corona impact, looks actually quite good. And I would guess that there are favorable impacts when it comes to frequency of claims, which are probably quite difficult to quantify. So can you maybe give us an idea of what the net-net combined ratio looks versus your about 100% initial target that you've set for 2020? Then secondly, you hope, obviously, given us an idea of what the impact on the investment income was year-to-date. But can you also give us maybe an idea of where your reinvestment rate currently stands and what the impact on ordinary investment income will be in the coming quarters, if it was to remain at that level? So very low interest rates going forward. And I guess the last thing would be in terms of the overall impact that we've seen from COVID, particularly on Industrial Lines. Are there any lines of business where you are a bit nervous about, where you don't even have enough information to set aside IBNR? Or do you think that most of the impact has already been accounted for and you should be more or less insulated from further impacts going forward?

Well, thank you for all these difficult questions. Let's start with the last one. I think we've got to distinguish our inability or difficulty in assessing the claims we should have accounted for because they have incurred, but we just don't know from our inability to look into the future when it comes to claims that may occur in the future. From an accounting point of view, the second category is relevant because we shouldn't have reserved for them in the first place. Here, I think, like mortality or business closures are among the ones that I would name first. But coming back to the other sort of the more interesting part in a way where we have received what probably would have -- we have suffered in the biggest uncertainty when it comes to incurred claims or claims that could have incurred, putting it that way, is certainly the credit bond business. This is very difficult to say. As you know, the sort of a significant part of the credit bond portfolio is protected default. The part is declared solvency. Now this is very difficult to say whether an event has occurred, that should have made it into the reserve for credit and bonds. This is mainly, of course, Hannover Re. But as a group, I think this is certainly an area that is among the most opaque line of business. Business closure. Yes, this is also not an easy one because at least in certain parts of our portfolios, we would still be influenced by court rulings. I think it's not so much sort of something that is of particular relevance for the German retail business because here, we've taken a stance that we would not offload the ambiguity of the wording to the policyholder and in agreement with our reinsurers, have taken the decision that at least it is ambiguous, we would pay. After having had a thorough look at the quality and legal quality of the wording, so it's not really discretionary. It is realistic and not overly optimistic in a way. But that means that the discussion that many other peers may have because they've taken a slightly more aggressive or optimistic view is probably not too much of an issue for us. That may be different than other parts of the world. So this, I think, is probably the second area I would say, where this is uncertain, even when it comes to reserve setting, and all this has contributed to my outspoken unwillingness to say, we have put a lid on this because I think this would not be -- that would not really be serious and I think it would be a very difficult statement. Now interest rates I think the group aggregate, we've seen a reinvestment rate that is around 1.75%. But this, of course, is a wide land of maturities and currencies and businesses. But I think there's probably a good proxy for what it would look like, if the world wouldn't change. Would the world change? Or would it not change? I don't know. [indiscernible] you see in the pickup of risk-free rates overnight. So, in a way, that would be good news. But is this kind of sustainable development? I don't know. I think it is fair to assume that for the foreseeable future, the new investment rates will be markedly lower than the rate of our expiring financial instruments period. Now the Industrial Lines, yes, you're right. Perhaps there has been a small benefit from -- because of lighter ordinary claims because of corona. But we've been very -- it's been very difficult for us to put a figure on this, and this is different from the retail segment. I think this is something we will find out by year-end. And if you accept this as a kind of interim statement, I think the pro forma combined ratios, ex-corona, that I've shared with you on April 10 are probably the best proxy that would answer the question. What is the underlying technical quality of our business? What would the profitability would have looked like? And without corona, it would have been 97.4%. And this is better than the -- than the black zero, i.e., slightly better than 100%, reflect -- would have initially reflect to 2020, except for corona, of course. So here, I think this is really strong evidence that the market pruning and the profitability turnaround of the Industrial Lines segment is bearing fruit.

Questions are answered, Paris?

Yes. Very helpful.

[Operator Instructions] There are no more questions at this time. I hand back to the presenters for closing comments.

Well, then, that only means to me to leave you in the capable hands of my successor, while he is called, Dr. Wicke, he is not a wicked person, is something I can say already.

Thank you. Thank you, Immo.

Okay. Good bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephones. Thank you for joining, and have a pleasant day. Goodbye.