Talanx AG (TLX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome and thank you for joining the Talanx analyst conference call on the 9 months 2020 results. [Operator Instructions] I would now like to turn the conference over to Carsten Werle, Head of IR. Please go ahead.

Yes. Good morning from Hannover. This is the 9 months 2020 Talanx Results Call. I'm here together with our CFO, Jan Wicke, who will lead you through the numbers. And of course, Jan will also be very happy to answer your questions after that. You can find, as you know it, all the documents on our web page. And a replay of today's webcast will be available from a few hours after the event. And with these introductory remarks, I'd like to pass or hand over to Jan. The floor is yours.

Well, thank you, Carsten. And good morning, everyone, and thanks for dialing in. Before I talk about the results, a few remarks. First of all, given that we are in the middle of the second coronavirus wave, I hope you are also fine and healthy and -- or have recovered fully if you were sick. Second, I'm very pleased to have the opportunity to represent the figures today to you, as they are quite good at least from my point of view. And I'm looking forward to continuing the dialogue with you. And third, please note that, in response to some feedback we've received, we have prepared and published a new, little one-page document for you, which I hope will make your lives easier, where you can find all the numbers you needs to fill your Excel sheets. You can find it on the investor relation page; and we have sent it to you this morning, I think, in addition too. Now before I start to -- with the results, the final remark: I will not present all the slides we have in the presentation. I will focus on a few one, but if you have questions to the other slides, do not hesitate to ask me the question. So if we turn to Page 2. There we have our key messages. So we expect that our annual result will be clearly above EUR 600 million, and we intend to pay a dividend of EUR 1.50. Why is that? Operationally we believe, after 9 months, we have relatively good figures. We are growing 5.2% compared to previous year, and currency adjusted, it's even 7.2%. The growth is driven by our Reinsurance and Industrial Lines business, whereas we have a decline in the retail segments. Corona has hit our results. EUR 356 million is the net income impact which we estimate for the first 9 months, but if you were to exclude this corona impact from our figures, we would have to report a combined ratio of 97.6%, which is pretty good and which underlines the operational performance of our business. Our group net income amounts to EUR 520 million after 9 months, which is 30% below last year's figures, with a group return on equity of 6.8%. Given that we have just 50 days left in this year, we are happy to provide you with an outlook for 2020, which is clearly above EUR 600 million. And also we would like to give you a guidance for 2021, which is that we want to achieve a result in between EUR 800 million and EUR 900 million. And I will dig into our considerations with regards to the outlook and the guidance in my presentation, in particular our thoughts about investment income in the future as well as our thoughts about the corona claims. We also confirm our midterm target, which is an earnings per share growth of 5% annually, starting from 2018 to 2022. And 2018 was corrected, as a result, to EUR 850 million as a normalized result. So it's -- as a starting point, it's higher than the year-end reported figure. And we also want to achieve a return on equity more than 800 basis points above risk free. And finally, we want to share our success with our shareholders, so we are to propose a dividend of EUR 1.50 per share for 2020, which is a dividend yield, if you take EUR 30 as current share price, of 5%. So let me now dig a little bit more into our figures. If we turn to Page #4, please. First of all, you see we are growing. So after 9 months, we have EUR 32 billion in premium, which is 5% growth. And the growth is driven by P&C reinsurance and Industrial Lines, together EUR 2 billion more in premiums, which is not bad. And this is more than offsetting the decline of EUR 772 million in Retail Germany and Retail International. The second on this P&L slide I would like to draw your attention to is the net investment income. It's down 3%, and this reflects already 2 things. One is some write-offs at the beginning of the year due to the corona effects which were in particular seen in the first quarter; second, a lower interest rate environment. And it's not only in the Eurozone. If you go to German bunds, they are down 39 basis points the first 9 months. It's also in the United States. You're aware of it. So if you go to the 10-year treasuries, they are down 111 basis points. And please note that we have a lot of business outside Germany, so we are in fact impacted by this interest rate environment. So if we go further on the next page, there you see the third quarter results. So in the third quarter, we were able to achieve EUR 194 million net income after minorities, which was also driven by one-off at-equity effect which we have seen in the Reinsurance. If you go to Page 6. This -- I would like to use this waterfall chart to explain to you in more detail how corona has impacted you and how we are accounting for it. So in total you see that the EBIT was impacted by corona for EUR 842 million. And this translates, after minorities, taxes and interests, to EUR 356 million bottom line effect for us. The coronavirus has 4 different impacts which I want to dig into a little bit more in detail. First of all, we have EUR 104 million EBIT impact due to lower premiums. What is that for? In Industrial Lines business as well as in Retail Germany, we have a lot of contracts with small and medium-size enterprises and large corporates where the premium is directly linked to the revenues of the company. And if there is a lockdown and, due to the lockdown, significantly reduced premium, there is an impact not only on the top line but also on the bottom line. What you see here is with this EUR 104 million is the bottom line effect. So we already have taken into account that, if we are receiving less premiums, we also have less claims and so on. This is already accounted for in this EUR 104 million. The second negative impact by corona are the corona claims itself. We have more than EUR 1 billion corona-related claims, of which 32% were absorbed by the otherwise unused large loss budget. So quite a huge number. And I will explain these corona claims in more details later, also in order to give you a certain kind of guidance how we expect these claims to be in the future as well. Then we have another negative impact of EUR 170 million of corona-related decline in net investment income. Please note that we here just have accounted for extraordinary write-offs. We haven't accounted for, for the lower interest rate environment in this column. And finally, we have offsetting effects which we have estimated of EUR 156 million and which mainly result from a lower-than-expected motor claims in our international business and in our Germany business. Because of the lockdown, we have lower claims frequencies. We have a little bit higher claims costs, yes, because in some country where there is usually traffic jam, now the people tend to do speeding. And therefore, the average claims costs are going up, but overall we have a significant impact of the lockdown on the motor claims; and EUR 160 million, EUR 150 million is what we estimate. Finally on this Page 6, we have also shown some other effect, realized net gains which are above the average, which are mainly due to funding the ZZR; and also one-offs due to at-equity consolidation effects which has supported the result. On the next page, on Page 7, you can see a breakdown of these claims on the different segments, so -- but I don't want to dig into that one further. On Page 8, you also have it, how the corona claims were accounted for in the third quarter. Where I want to go to is now to Page 10, please, yes. I want to dig into the corona claims in more detail and also provide you with an -- with some guidance how we see the business going forward. So the line of business which is affected most by corona, so far, was business interruption and closure and where we have to have claims of about EUR 325 million. More than 2/3 related to Reinsurance. Going forward, we expect not too many new claims to come due to the fact that the wording has changed in this line of business and there are tighter pandemic clauses now in the contracts. And if somebody has had a claim, we have asked them to renew the contract with new wordings, but there are some -- but there are 2 things to mention. There will be some claims already in -- also in 2021 due to the fact that, up to now, not all contracts are already changed on the new wordings. So there will -- a certain time lag so that we will have some business interruption and business closure trends also in 2021. Second, there is some uncertainty with regard to the court rulings in various jurisdiction. This will mainly affect Reinsurance given that Hannover Re is paying for the claims of the primary insurers who are in court in several jurisdictions. We have currently booked already very cautious reserves, so -- but if you are at court, you never know. There is some uncertainty. The second line which is affected is event protection, pretty clear. The events cannot happen due to corona. We have accounted for -- already for EUR 186 million. We expect only a little impact into the next year, as new contracts have very tight pandemic losses. There are some but very little multiyear contracts within our portfolio. So some events which are not yet canceled can be canceled in the next year, and so we will have some claims with regard to that one too. The highest uncertainty with regard to the future is, from our point of view, credit insurance because it heavily depends on the future economics development and how much bankruptcies there will be. And it's hard to make a fair judgment on that one because in many jurisdictions the notifications of financial distress have been [ turned by site ] so that the normal identification methods and the normal indicators which you have in advance to look at are not very valid currently. So we have already booked for 119 -- EUR 191 million here. The IBNR ratio is above 90% in this column. So we haven't seen so many really reported claims, but we expect more to come. And there is, from our point, the highest uncertainty. The lowest uncertainty to estimate, what we see currently, is life reinsurance. In life reinsurance, we have 2 claims pattern. One is excess mortality in the United States, and the other is the Australian disability insurance -- income insurance which we have. For the later one, we have already reserved very conservatively. For the excess mortality, I have to comment here we are just allowed to book for the deaths which have already [ incurred ]. So we cannot do booking in advance despite the fact that we expect excess mortality in the United States to last at least till the third quarter in 2021. And so -- and if you compare the numbers which you see here and with the numbers in the second quarter which was just EUR 63 million, if I recall it correctly, EUR 63 million, you see quite an increase in life reinsurance. And we expect further increases, first of all, till year-end; and second, also in 2021 with regard to life reinsurance. Finally, we have some other claims which also are related to corona. This is not very homogeneous claims, and I just want to give you an example what kind of claims are in that. A lot of them are quite close to business interruption and business closure. And maybe we will reallocate some of them to this line of business at year-end, but to give you an example: if you have perishable goods or other crops that have to be destroyed of the -- because they cannot be transported in time to the customer due to the lockdown. So -- and we insure such things and we had to pay for it, and this accounted up to EUR 198 million. So in total, we have corona claims for more than EUR 1 billion in the first 9 months, which is quite a huge, huge, huge amount. Next to the corona claims, I really want to draw your attention to the fact, but you are aware of it, I know, that also the investment income is affected by lower interest rates, yes, which we also have taken into account for -- both for our outlook as well as for our guidance. Coming back to the claims, I would like to go to Page 11. I would like to put these corona claims into the context of large losses. What you can see here is that -- on the page is our large loss budget in the P&C line. It's without life and health reinsurance. Please keep that in mind, that it will be another EUR 159 million. And what you can see is that we have with EUR 1.6 billion after 9 months. And you see full year figures there in comparison. We have already reached the highest level what we've ever seen, yes. And if you compare that to our large loss budget, which would have been after 9 months roughly -- slightly above EUR 1 billion, we have 175 -- 157% usage of the large loss budget. So you can see, yes, we are used to large losses, but this year, with corona, is a particular significant one. What you can see also is that the losses related to nat cat and man made are really okay. And let me dig into that one a little bit further on the next page, what we've seen with regard to the nat cat exposures this year, that we had a large number of nat cat claims, but the amounts were -- the average costs were rather low. So we are with regard to nat cat rather happy with the results. On the other hand, the higher frequency gives us -- or support the thesis of the climate change, yes. And so we have to expect for more claims in the future with regard to nat cat business and we have to take that into account. If you would then go to Page 14, please, then I would like to give you an overview on the various segments of the Talanx Group. First of all, overall, the combined ratio is 100.7%. Without corona, it would have been 97.6%. I already mentioned that. And I just want to highlight on this page 2 things. The most affected segment by corona is the Industrial Lines business, 104.8% combined ratio compared with 98.3% if you were to exclude corona, strong performance. I will dig into that one a little bit later. And we have the opposite effect with Retail International, where the -- where corona has led to a better combined ratio of outstanding 94.8 percentage. Without corona, it would have been 96.3%, which is still a very strong operational performance, but let me now dig into the segments a little bit deeper if we were to go to Page 18 and to start with Industrial Lines. So first of all, we are really pleased to see continued growth here. The biggest contribution again is coming from our speciality business. And also the restructuring is well ahead of plan in fire. The combined ratio, excluding corona, for the first 9 months was 99.9%. And we haven't made it to be 99.9%, so we are pretty much where we said we would be for the full year in 2020. This is around 100%. So we are very happy with that one. Going forward, I want to draw your attention to 2 facts. First of all, we have understood and I've understood in various discussions with some of you that you didn't like the volatility in the Industrial Lines segment in the past. And if results should become better than expected, we would invest in stabilizing future results, so building a volatility [ business ]. Second, the investment income. Industrial Lines business, due to the -- the international business as well, is well affected by the lower interest rate environment. And this will also be kept in mind when you are to estimate the future results. We expect an return on investment by -- to be 2.2% for the full year in 2020 and some downward pressure also for the next year. If you go to Retail Germany on Page 19, then please keep in mind that I was the Head of Retail Germany. And therefore, everything what I tell you might be sounds a little bit more positive than somebody else would present it, but I'm kidding. First of all, we have a decrease in premium in -- both in P&C and life. And this is not good, but it's due to the lockdown. More than 50% of the premiums of Retail Germany are derived from bancassurance. And the lockdown has led to that the bank shops have had to be closed, and this obviously had a negative impact on the figures. The EBIT figures are quite strong, and without corona, it's fair to say that there would be a fair chance already to reach the EUR 240 million EBIT in this year. If we go to the next page to the P&C results, there we see a combined ratio of -- after 9 months of 95.8% already, including the corona impact. And please keep in mind that Retail Germany has quite some business interruption claims, and so the overall result is pretty good. Without corona, it had been -- would have been below 95% for 9 months. If you then go to the life segment. The premium development, again, here is with regards to the bancassurance is significantly lower, but also we have been quite a -- hesitant to write a single premium business due to the lower interest rate environment. This has also impacted our gross written premiums here. The net investment income here is up, and this is due to the fact that we have to fund the ZZR. So this is the only reason. So it's nothing what you can see in the bottom line of the life results, which was -- which is below last year's figures due to a one-off effect which we had in 2019. If we go then to Retail International, then first of all, what you can see, the gross written premiums are down 11%. And I think this needs explanation because this 9 -- 11% 9 months premiums decline is related what has been a significant deterioration in local currency, in particular in Brazil, Turkey, both above 40%; and in Mexico, above 20%. So it's mainly currency related, this decrease in premium. In the non-life business, which is 70% in that segment, if you account for in local currency, we would have -- we are able to show a growth, a small growth, and which is driven by WARTA and Turkey, yes. Life premiums are down 17% in -- also in local currency. And this is particular driven by Italy where we have reduced our life business intentionally. The EBIT figures are quite strong. We have a slight decrease in -- which is limited by 3%, but I have to add here Retail International, due to the lower motor claims, have been a very favorable overall situation here. And so we expect a rather good result in the current year, but with regard to the outlook, please keep in mind that this decrease in the currency will also translate into lower EBIT figures going forward. Let's turn then to Page 23, please. That's Reinsurance. As most of you have heard the Hannover Re call already, I just want to highlight a few things. Hannover Re is growing, is providing for an return on equity of 8.7%. And we are really proud to be the majority owners of Hannover Re. We really like the performance of the team [ from ] Jean-Jacques. That's really great. Then I would like to go to -- directly to Page #28, please. On Page #28, this is solvency development. We are reporting a Solvency II capital adequacy ratio of 187%, which is in the upper range of our target range in between 150% and 200%. And this reflects the development of the ratio also in the Reinsurance. As it was already reported by Hannover Re, it was down from 225% to 222%. And this is also seen in our figures, but if we go to the details here, then I would draw your attention to 4 effects. First, corona claims reduced -- are reducing the own funds. This is the obvious one. Second, we are growing and faster than our peers. And if you are growing faster, you need more solvency capital, and this is the second reason for this development. Third, we have a lower interest rate environment. And as the Solvency II balance sheet is a market value balance sheet and if you discount the values there with a discount rate close to 0, little swings in the future lead to higher changes in your market value balance sheet. And this leads to higher volatility, and therefore due to a lower interest rate environment, you will see higher risk capital requirements. And finally, I want to draw your attention to the fact that we are quite conservative here with regard to the life reinsurance. We do not only have booked in the technical provisions the numbers from IFRS. Other than IFRS, we have already provisioned for the expected higher mortality in the next year. And a small triple-digit number is, as an additional reserve, included in our solvency statement already, so all in all it's a conservative representation of what we see. Finally, let's go to the outlook. So first of all, we are quite happy with the development what we've seen so far if we reflect for the context of corona in which we have to provide for the results. And so we want to share the success also with our shareholders, so the expected dividend is EUR 1.50. We have -- we were to -- we will propose that to our AGM and have to negotiate it also with the BaFin, but we are -- given our good solvency situation, we are quite confident that we can deliver on this EUR 1.50. The group net income for 2020 should be clearly above EUR 600 million. This already takes into account that we will have some lower investment income as well as additional claims to happen in the fourth quarter. For 2021, we want to achieve in between EUR 800 million and EUR 900 million as a result, and I think I've highlighted a few of our thoughts with regard to that result. Overall, we want to continue to grow, which is a challenge, but we are quite confident that, in particular in Reinsurance and Industrial Lines business, we can grow further. And we expect the overall growth of the group to be around 5% next year, which is a strong number. So finally and midterms, if you go to the midterm expectations. We confirm our midterm target matrix which Torsten Leue, as he took over as the CEO, has set out. So the target will be to provide for an return on equity of 800 basis point above risk-free rate. We want to grow our earnings per share on average 5% every year, and we are very confident that we can deliver in 2022 on that one. So having said so, I would like to come to an end. So overall, after 9 months, we have to note that our results were quite significantly affected by corona. If we exclude this impact, we are quite proud on the achieved results after 9 months. EUR 520 million is not a bad number. And going forward, we want to provide you with a guidance for the full year and give an outlook for 2021. And now I'm happy to answer your questions.

So Stuart, I think it's your turn now.

[Operator Instructions] The first question is from Michael Haid from Commerzbank.

I have 2 questions, both on Retail International. Can you talk a little bit about the outlook for your Retail International operations? You mentioned Lat Am currencies are currently -- are hit by FX devaluation. Possibly also we should expect economic slowdowns. Turkey is also difficult, but your combined ratios were better than expected. What are your expectations for 2021? And second question, also Retail International, Italy. Italy is a strong contributor to Retail International. You further expanded there by M&A, yet it is not defined as a core business within the Retail International segment. What is your strategy for Italy? And also can you tell us what type of life insurance products you've sold in Italy? If I understood correctly, you reduced that in the third quarter.

Yes, yes, sure, Michael. Thank you for your question. So first, with regards to the outlook of Retail International, in particular the currency-affected businesses, which is in Lat Am and Turkey, Brazil, Mexico, Chile and Turkey. So with regard to that one, we expect very good operational performance to continue. We also want to grow in local currencies despite the economic downturn, but we have to account for the lower results in euro, calculated in euro. And we are -- our asset and liability management, we hedge assets and liabilities, but we do not hedge for future gains or future profits. And so this is what we have to take into account. If you then go to the operational results a little bit deeper, you will easily find out, if you go for Brazil, for instance, that the investment income in the end markets is really down, except for Turkey. We are still quite up. But is down, as the central banks in those countries try to follow the path of the big central banks like Fed and ECB and have lowered the interest rates significantly. So we will have an impact with regard to the results also not only by currency but also by lower investment income. So this is that. Do we continue to -- the strategy in those segments, that we want to grow in the Lat Am countries as well as in Eastern Europe and in Turkey? Yes, we will continue. We expect these markets to be hit more, yes, by this development but to recover sooner, yes. So this is our overall long-term expectation, but obviously it's driven by the overall economic development. Second question was with regard to Italy and our strategy. We've bought now a pure-P&C play and we did it on purpose. So this investment should yield with more than 10%. So it's above what we want to achieve, and it's euro denominated. For Italy, we do not have, at least so far, any currency issues, and so it will help us to reduce the dependency of the business model on life. And with regard to life, we have reduced single premium business, which is quite close to saving plans, yes. And this, what we have reduced significantly and is something, given that it is capital intense, which will reduce even further going forward. So Michael, I hope this answers your questions.

Yes.

Next question is from the line of Paris Hadjiantonis of Exane BNP Paribas.

Firstly, let me start with the dividend and your aim to keep it flat year-on-year. And the questions I have, firstly, relate to the central liquidity. It's a number that you have been guiding us to before. So where that is then now. And also relating to the dividend: Obviously we know that a big part of your dividend is coming from Hannover Re. Hannover Re was a bit unclear on whether or not they will be paying a special this year. So even if we actually don't see a special from Hannover Re, can you confirm that you are still in a position to pay the EUR 1.50 dividend this year? Then on outlook. For 2021, I'm trying to understand what kind of assumption you have in there already relating to coronavirus claims. Your outlook of EUR 800 million to EUR 900 million for 2021 is below market expectations, so I'm trying to understand. What is conservatism and what is actually coronavirus impact for 2021? And there's a comment in your press release saying that, for 2022, you are still expecting that the 5% EPS growth per annum from a 2018 base stands, which seems a bit weird to me because that leads me to a quite high number for 2022. So can you basically explain what that comment is about? And I'm sorry to drag on, just a small third question: the Industrial Lines combined ratio and which on an underlying basis looks strong. Are there any frequency benefits in there? So lower claims from certain lines that might actually benefit from coronavirus.

Okay, let me -- thank you, Paris, for your questions. Let me start with the first question, whether the dividend payment is safe. I wouldn't have set out the expectation of EUR 1.50 if I wouldn't be very confident that we are able to pay it. It's one thing is quite difficult because the local statutory result is related to the year-end close. So I will -- we will explain that further, also the development of the so-called cash pool after the year-end figures, in more detail because it depends also on the developments in the fourth quarter, but we are very confident that we are able to deliver EUR 1.50. And if Hannover Re is just focusing on their regular dividend, not on the special dividend, we are also ready to stick to our dividend policy, which is that we want to have at least the dividend of the previous year. So having said that, let's go a little bit to the outlook questions. 2021, the EUR 800 million to EUR 900 million, you would like -- would have liked to have more explanation on our thoughts. So we have included in our thoughts both corona claims and a lower investment income, yes. And with regard to corona claims, I will not go into every detail here. The most certain corona claims, which is to be expected, is life and health reinsurance; and the most uncertain is the credit insurance business. So we have given, set some estimates on all those lines. With that one, we expect significantly less corona impact in 2021 compared to 2020, significant less but still some impact in the figures. With regard to 2022, huge numbers. The starting point in 2018 is EUR 850 million, and you have to calculate an annual growth rate on this EUR 850 million to come to our 2022 target. So this is what you have to do. And finally, Industrial Lines combined ratio. Did we have some positive impacts due to lower frequency, corona impacted? Yes, we did have, but if you recall the number premium impact -- we had this particular in those lines, where the company can reduce premiums if the revenues of the companies are lower, yes. In those lines, we also had lower claims. And we have accounted for it in the column what you can see. Let me just go to page -- you can see it overall on Page 6; and Industrial Lines in particular on Page 7, the 9 months aggregated figures. And this is accounted for in the premium impact because this is related to insurance contracts which are revenue related. Paris, I hope I've answered your questions. Or do you want to have further explanation?

No, you have answered the questions. Just a small follow-up on the 2022, essentially, outlook. The 5% growth rate brings me to a number which is above EUR 1 billion. So you are essentially saying that this is what I should be expecting for 2022, all other things being equal, right?

Right.

[Operator Instructions] The next question is from the line of Vikram Gandhi from Societe Generale.

It's Vik from SocGen. I hope you can hear me all right. I've got 3 questions. Firstly, can I just ask where the group is with respect to all the midterm targets, i.e., the segmental ROEs, efforts towards increasing the capital upstream, improving remittance ratios and all of that stuff? I'm aware you are asking us to be patient on the group cash pool and wait until the FY '20 results, but it would be helpful if you can comment on the rest. Secondly, going back to Retail International, I hear what you say in terms of the ForEx translation impact. It would be great if you can share your thoughts with respect to the business prospects since it appears that the segment might be facing several headwinds, including the ForEx translation, but there could be a collapse in demand. And I remember from the past there has also a transactional impact from ForEx where you earn premiums in local currency but the claims have to be translated from U.S. dollar or euro because of the imported spare parts. So it appears as though there are a lot of headwinds for Retail International. And finally, now that we are towards the end of the 20/20/20 program for Industrial Lines, what's next for the segment? So that, a comment there would be very helpful.

Okay. So first, you wanted me to dig into the midterm targets. With regard to dividend, I just want to confirm again that we are quite confident that we are to -- can deliver on that one and that we also can deliver with regard to the midterm cash pool target. Second, the midterm targets also reflect our return on equity ambition, and it's quite sure for the current year. We do not fulfill the return on equity targets for the current year given that we have this huge corona impact. For the next year, we should be able to deliver on that one already, so in -- on the return on equity target. Then with regards to Retail International business, you highlighted a few points quite right. So if we go to Brazil or Mexico, there is an economic downturn which is much heavier what we have to -- much heavier than here in Germany or in some other European states, but we also expect the economies to recover in those countries faster than in other markets. So you have to keep in mind those. And you are absolutely right. New car sales, which is heavy and which is quite important for new business, is down in some of the markets up to 30%. So it's quite significant, that we have a negative impact on demand. And if you then look already at the current growth figures in local currencies, you see that the operational performance of our colleagues in the retail international market is quite strong, but yes, there is headwinds. Second, with regard to claims, you mentioned the issue with the spares and -- spare parts of the cars. You're pretty right there. This needs to be reflected in the insurance prices because claims costs are rising. One funny remark to that one: When I spoke with my colleagues in Brazil, there is another one which nobody had on this agenda. Due to the lockdown, there is so much less traffic in Brazil, yes, that as a result, the people are speeding more. And the average claim costs are higher because, if you just -- everybody has to slow down. You have just small casco claims, but now the casco claims are higher on average due to a higher speed of driving. I was quite surprised to listen to that one. Finally, with regard to the headwinds with regard to demand and claims, what have you already mentioned, I just want to draw your attention. If you go to some of the market, the investment income is really -- it's the #1 headwind what we see, yes, in those markets due to the fact that also in those markets, except for Turkey -- in Turkey also but not to such an amount, the interest rates have gone down. So Vik, did I answer your question adequately?

Okay, Vik, are you still with us?

Yes, yes. Sorry. I was on mute. That's really helpful. There was a third one, with respect to the Industrial Lines. What's next that we should expect?

We want to grow profitable. And we see a hardening of the market and -- but first priority is profitability and the second one is growth. So in this order. We want to grow the business in particular in speciality business. This is what's on the agenda, but also and with regard to rate changes, they have quite some tasks to take into account, in particular in the long tail business also the lower interest rates, which require higher rates in order to compensate for the lower investment income. So the initial targets of the 20/20/20 program were lifted upwards in order to compensate for the interest rate development.

Next telephone question is from the line of Thomas Fossard from HSBC.

A couple of questions on my side which would be relating to the Industrial Lines. First of all, on the rate momentum, can you put some numbers behind how much you managed to get higher price increase in your book on a 9 months basis year-to-date? And potentially what are your expectations for 2021, how -- maybe compared to the claims inflation you are seeing in your books? Just to better understand how you're benefiting from the better pricing environment so far into the year. Second question will be related to the specialty business. And so looking at your slide and hearing your comments, it seems to be that you're very happy with the development in the specialty lines, but here also could you put some numbers behind in terms of premium growth and what is combined ratio you achieved so far? And the third and last question will be related to the premium -- negative premium impact in Industrial Lines. It seems to be that in Q3 it was relatively limited. So that -- do we have to conclude from that, that what you booked already in H1 in terms of negative premium is your best case estimate and you don't expect any more negative pressures coming for the remaining -- for the remainder of the year? And what about 2021 in terms of volumes or demand for Industrial Lines?

Okay, yes, thank you for your questions, Thomas. I'll try to answer as good as I can. And I really -- before I do that: Your first question was with regard to the price momentum. Let me highlight first a general thought of the economics of rate changes. It makes a huge difference if you have long-tail business versus short-tail business and if you discuss rate -- necessary rate changes to the interest rate environment. Where a rate change of 5% to 10% in the short-tail business is fine, yes, it can be not enough in the long-tail business. I just want to highlight this as a starting point, because an average rate increase says not too much, before I come now to the answer of the question. [ Carsten here has just ] provided me with the Marsh global insurance index, which shows that in Continental Europe we have an average price increase in between 10% and 15%. And so in our figures, we have started with restructuring in Industrial Lines business a little bit earlier. So we have seen more price increases already in the last renewal, so this year, our renewal figures do not show the same growth figures like peers who have started later. I have to -- so this is what I can say in general terms, but we are happy with it. Overall, Edgar Puls and his team have clearly outperformed the rate increase changes, which we have tracked down line by line. We are very happy with the performance of Edgar's team here. So this is what I can say with regard to price changes. And sorry for that. I cannot dig into that one further. Second, speciality business. We are growing there. So all in all, I would [ expect ] an overall growth after 9 months is very, very, very strong 35 percentage points. This is driven by 2 things. We have allocated some business from Industrial Lines to speciality. We have to, yes, say that. So it's might -- slightly overstated, but it's also driven not only by new contracts but by -- also by rate increases in some lines of business which have been quite, quite huge. And so we are happy with it and we want to further grow this business not at such rate. Another 35% are not expected next year, but we are to grow this business with double-digit figure also next year. Then with regard you would have liked to have an outlook on the premiums of Industrial Lines going forward: And I would expect Industrial Lines to grow clearly above 5% in 2021, where Reinsurance and Industrial Lines should grow above 5%, whereas in local currency the retail business is expected, in particular due to the impact of [ HINT ], of the Retail International business to be below 5%. So less an impact in Germany but in Retail International due to the currency as we already mentioned. So I hope, Thomas, this answers your question.

Yes.