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 Talanx analyst conference call. [Operator Instructions] And 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 the Talanx results call for the full year 2020. And I'm here together with Torsten Leue, our CEO; and Jan Wicke, our CFO. And Torsten will give you an overview of the group results, and then Jan will take over and lead you through the segmental numbers. After the presentation, of course, they will be happy to answer your questions. [Operator Instructions] And you will find all the documents on today's numbers on the IR section of our homepage as well as, with a short delay, a replay of this webcast. And With these remarks, I'd like to hand over to Torsten.

Hello, and welcome from my side as well, and I hope you stay healthy in these challenging times, we all have, and we're happy that there's some light probably this year at the end of the tunnel. So with that kind of welcome remarks, I would like to draw your attention on Page 2, which gives basically a summary what we would like to address today to you. First is we are a growing company with 4.1% currency adjusted, actually close to 7%. We're a very fast-growing company compared to the peers to the market. And I would say, actually, last year, we grew 4x faster than the main peers of our markets. So Talanx is a growing company. Our combined ratio is 100.9%. This has clearly included the corona effect. I will draw some more details later on. And the key question for us is what the underlying ratio behind, and that was 97.6%. We are below, like last year, if you make an adjustment for the corona effect to 98.3%. So basically, underlying business is running in the right direction. We have said that we will be significant above EUR 600 million as our guidance last year. After some months, we could give no guidance. We gave the guidance end of the year, which is EUR 600 million significant. But with EUR 673 million, we can say that is achieved. And what is sometimes not seen at the first glance, 42% of our results is coming from the primary insurance overall. The dividend, we will keep our promise to stay at least on the level of last year with EUR 1.50 per share. We had good conversations with authorities. As you know, many authorities of the world blocks dividends. But this hour, and we come later to that as well, solvency ratio was 187% of the third quarter. And actually, we are very confident to be even higher than this after the fourth quarter with the first indications we see. There was good discussions, and therefore, we can pay and keep our promise to dividends as said. The outlook is EUR 800 million to EUR 900 million. And as well, I could say here already that we are -- there's still some corona effect to come, that is clear. I will go more details. But in that range of EUR 800 million to EUR 900 million, if you ask us today as the best estimate, we could say we'd rather see us for the time being on the higher end of that range. On the 5% EPS target, we started the journey together in 2018 here in our strategic cycle and we promised in 2022 to have a yearly CAGR of 5% EPS. Here, we're really on track to come back this year. And we believe in 2022, this will happen, that at least 5% EPS in 2018 will be achieved. And therefore, totally on track what we have promised in spite of corona. I would then come to Page 4, which basically shows what I've said, all the indication of our outlook we gave in 2020 November then have been achieved. I would not go too much detail. Maybe the only thing is that 6.9% growth of GWP, I think, is a nice figure in such a challenging year. On Page 5, you can see that our strategy is paying off. Giving you maybe some indications why we say that. Industrial Lines program, the cleanup of this life portfolio with underlying profitability, which was improved, is totally on track. And when we will come later in this year to our Capital Markets Day, you'd be surprised how good this was working. And actually, we have always said we want to have some volatility buffers included there. And all this, you will see then on our Capital Markets Day. So there was no negative surprise on that area. Specialty, we have said that in 2022, we want to have EUR 2.1 billion premium starting with roughly a bit more than EUR 1 billion. This target is already 2 years nearly early achieved. So this year, we have already EUR 2 billion. So actually, again, when we come back to the Capital Markets Day, we have probably come with new targets in that area because 2 years ahead. Retail International, nothing special. We have some core markets, some bolt-on acquisitions. In Germany, we have promised in 2021 to deliver on our cost program. For many years, you have that program discussed with us. We are very confident that the EUR 240 million will be achieved this year. And again, on our Capital Markets Day, probably there will be then a new program as growth probably will be achieved this year as promised. And small and medium enterprise, we are growing really significantly above the market. Actually, the start of the year was very positive, as has been last year, where we could grow significant market share in that area. And Reinsurance, you have heard everything already last week. So therefore, a good performing segment in our Talanx Group, the Reinsurance part. On Page 6, you see that we make our business more sustainable. The main features of that is that we have included the CO2 neutrality globally for our business, what we can do ourselves directly. We have included in our coal risks as well, the oil sands where we want to exit in 2038. And on the alternative investments, we aim to have EUR 5 billion investments. We are roughly EUR 1 billion higher of EUR 3.7 billion for the time being. EUR 2.1 billion there is actually renewable energy. So we are one of the biggest player in that area of renewable energy. And in the diversity area, we have appointed human resources actually to really push this area ahead of us. So then we have -- and this effort we have done, for sure you make some transparency on the ratings. And you see on the right side all the ratings, the major ratings. We would like to get measured with the standard ratings you can see in the market. And we have all improvements in all areas. So therefore, it was seen, our efforts, from the rating agency. On Page 7, you see that our yearly profit loss account. And with EUR 41.1 billion, I think we are a growing company and for sure 1 of the big 7 companies in Europe, will be as a position remains, I guess. The growth is coming mainly from the Reinsurance and Industrial sides, we speak of hardening cycles here, as well from Retail International or the Retail business, but here we have currency headwinds strong against us. But when you look local adjusted currencies, we see as well in the P/C area, we are growing market share, we're a growing company, but currency have been really strong headwinds against us. So all over, we can see nice growth in our company and compared to the market. The combined ratio, maybe you draw attention, plus 2.5%. That is basically the corona effect. And I will come in a second to discuss where exactly it come from -- it came from. And the direct effect and you have the indirect effect of corona, which is the return of investment is 30 basis points down. The ordinary -- just to give you a figure, the 10 basis points in ordinary investment income means for us EUR 36 million impact on our bottom line. So these are the 2 effects directly combined 2.5, indirectly roughly 30 basis points down return on investment. Coming on the next page, now talking a bit more about corona and what was underlying results to give you a feeling where we're going forward. Maybe to the 2 key figures on this slide, on the left bottom, you see the EUR 941 million. That is basically our underlying performance in last year without those special effects of corona and other positive counterbalancing effects. On the right side, you see then what's the result, what we will be showing today, the EUR 673 million, which basically would have shown the profit loss. And now maybe to give you a bit of a feeling where do we stand for this year as well. It would be interesting for you, when we come later to the outlook and why we say we are staying on the higher end as the best estimate for the time being. Well, the EUR 941 million is not a figure we can guide this year because we have to deduct roughly EUR 100 million from that figure, and there are many reasons for that. I give you 2 good ones and 2, let's say, we have to dark ones. So one piece of the corona claims still to come this year. This is our estimation. Who knows how long the third wave will come, but our estimation from the whole pocket we have one still to come. We believe interest yields are going down. We see it already, there's a clear indication that central banks are not changing behaviors. So interest rates continuously eating our, let's say, yields in our ordinary income, so going down. We have positive effects as well. Well, one is the onetime effect you have already probably seen with Hannover Re, the so-called Voyager portfolio was a significant positive effect. And we have as well, for sure, in our ideas that our operational performance will improve. So all this effect together will bring us the EUR 100 million, still minus to the EUR 941 million. So the baseline, you could say, is the EUR 841 million in our ideas. But again, as I said, we believe that operational performance will be really is on a good track and a good trend now. So therefore, we believe that we will rather stay in the EUR 800 million to EUR 900 million on the higher end of the range. It basically would mean that we are roughly 30% up from this year results and close to our record year before corona times. All this for sure, as always, there's our CCC disclaimer, as you know in the past. On Page 9, here you can see basically a lot of numbers, but maybe the key number is, I would say, in the primary insurance, you see the EUR 149 million as a total corona net income impact. So these are the impacts where we have offsetting positive effects. As well included, for example, lower frequency in cars. All this is as well here included. So it's a net effect of claims and, as well, offsetting effects. And you see the Reinsurance side is with EUR 233 million and EUR 95 million. It's really much more [ heated ]. So 2/3 coming from Reinsurance and 1/3 coming from primary insurance. And maybe, and I will tell you a little bit later, the detail was really good for us in this year. You can see that the EUR 402 million, where we talk about the unused large loss budget. So we can -- we could really -- this year, we were able to compensate this huge corona effect we had in the company. We could really compensate with not used large loss budget. And actually, you see it with Industrial part, the EUR 72 million in this column. At the end, it means that the cleanup was working. That we could really stay within or even significantly below our budget when it came to NatCat events and as well man-made claims. And later on, you will see how significantly we have been above that year. On the next page, you see where in which lines of business the hit of corona came. Well, basically, it's business interruption and event protection and credit. These are in the non-life areas, those lines being affected. And in Life, it was basically just mortality. To give you a feeling which -- how much comfort we could have or we have, that's on the right bottom. You see the 59%. So 59% are IBNR percentage. Basically means 59% of what we observed is still on the IBNR level. Hence to, as well, see on the credit side, you see the comment there, especially there, we have even 95% IBNR ratio in our total reserving. So we had figures, still we believe 1/5 will come. So total effect, as I said, with all the positive and negatives will be EUR 100 million less to our underlying profit. So -- but over, I think you see that it's not an aggressive reserving, rather we feel comfortable on the best estimate level with that kind of reserving. So next page, Page 11. Here, you see what I said before. And it's when you basically just stay on the bottom, you see the 71%. And if you compare this to all the past since 2012, when we introduced this large loss budget -- it's difficult, large loss budget, then you have 71%. So we never -- so this basic how much we use our budget. So this year, in 2020, we only used 71%. And you see it as well as the blue column, if you compare, it has been never as low or never been as less -- or that level used as before. So it means manmade really underwriting compared to what we did was really good. And the NatCat events have been, in spite of all these frequencies, there were, for sure, some luck that hurricanes did not go the wrong direction because we had a lot of hurricanes last year. But our risk appetite was really very much focused and limited in that kind of large NatCat. So therefore, over -- and it was a good timing, let's say, that we were in the lowest level ever in our usage of the large loss budget, gives us confidence, again, of the quality of our underlying business and risk appetite where we allocate our risk appetite. On Page 12, you see it then summarized basically in our technical combined ratio. And we always have said and that is, therefore, in the Capital Market Day going forward, that we will give you some more comfort because we have said one thing is a combined ratio, the other thing is the kind of volatility buffer we want to build up in our business models, as Hannover Re has done in the past, as well in the primary insurance as well. So here, you see that 98.3% is last year, and we are above 100%. But again, that was the corona effect. And as I described to you, deducting all of this, we would be a bit lower with 97.6%. Good method is the underlying business Industrial Lines is 98.7% is profitable. As you know we had many years technical negative results, now it's getting to positive area. In Germany, we have promised EUR 240 million EBIT, but as well, we have promised 95% combined ratio in 2020. We are already on that level. So the 95% is finally achieved. And well, basically Retail International, nothing much concerning with 97.4%, if you -- ex corona effect. It's basically just more comfort in the redundancy levels. So there's no others I would comment on these ratios as they have not material or not really with big headaches. You know that if you work in retail, this retail motor business, for sure, you have some benefits of less frequencies. Yes, severity is going a bit higher because of supply chains may be collapsing, but generally speaking, frequency gives you more positive then severity, gives a negative to higher severity average. On Page 13, here you see our share of the primary insurance to the total show, I would say, is 42%. So basically, it means that if you compare to all the last years, that nearly half of the profit comes from the primary insurance and the average was 37% in the past, with EUR 323 million, and we are above the average and above the absolute amount. And last year, it was with EUR 326 million above. So basically, it means, and it's a good picture, a diversification in the group that comes from all the segments. And again, the full primary insurance brings us 42%. On the last page, talking about cash, about the dividends. Well, I mentioned already that our solvency ratio is quite comfortable, 187% we had in the third quarter. And we are optimistic that it will be even higher and in the very upper end of our range, 150% to 200% when it comes to the year-end figures, when we will purchase them. And maybe one thing you can't see that we promised the EUR 1.50 at least on the dividend of last year. So EUR 1.50 we will promise -- propose to the general meeting. But behind the figure as well as a figure where the cash pool, which was always a 2018 message to the market, where we said 1.5 to 2 is something we need to probably revise or we think our dividend strategy. In that kind of pass, we are now at the level of 1.3, coming from 0.85 the year before. So we're going the right path. We do not see anything we will change this year for sure. But the past is the right way. So last year, 0.85. This year, 1.3 coverage of 1-year dividend. So with that word, I would hand over then Jan Wicke.

Thank you, Torsten. And I'm happy to share with you some insights of the business units. Let's jump right into industrial lines on Page 16, please. Okay. What are the key messages? First of all, in Industrial Lines, we are growing 7% year-on-year. And the biggest contribution is again coming from the specialty business, but I will discuss that in more detail in a minute. And even more important than the growth is the improvement in profitability. So what you can see here is an underlying combined ratio of 98.7% for the full year 2020, if you were to exclude the corona effects. after 101.4% in 2019. And please keep in mind that this improvement in the combined ratio also includes that we have built up some volatility buffers, which we have announced already last year. What's the outlook with regard to the Industrial Lines, and here as previously communicated already, we plan to reduce the combined ratio approximately by 1 percentage point every year for the next years. And at the same time, we want to reduce the volatility of our results. This is why we have built up some volatility buffers in 2020. So overall, it's right to state that Edgar Puls and his team, they really have performed very well, and we are happy about the fact that they have outperformed the initial plan which was set out. What gives us positive outlook. If we turn to Page 17, and why do we believe that we can improve the combined ratio 1 percentage point per year. What you can see here is the rate increases for 1st of January, which was very pleasing and healthy: 20% in fire, marine 11%, engineering 8% and casualty 12%. So overall, we are very happy with what could be achieved in cleaning up the portfolio. Overall, if you look at the fire portfolio in particular, because this was one area of concern where we started with somewhat disappointing 140% combined ratio in 2018. So over the years, we have now improved the combined ratio into 2020 by more than 40 percentage points. Overall, we have to see that we have some in Industrial Lines that -- excluding specialty, we have a shrinking premium in the fire line. And this is due to 2 reasons. First, we have reduced not adequately priced business, and we have lowered the share of exposure in some contracts in order to avoid future volatility. Second, in fire, please keep in mind that we have a lot of contracts where the premium is related to the revenues of the company. And due to corona, we see some significant premium effects as we have to reduce the premium collected from the companies due to the fact that they have less revenues. If we now turn to Page 18 (sic) [ Page 19 ], where we can dig into specialty lines a little bit. It's really the key growth engine in our Industrial Lines business. And as Torsten already has mentioned, this original target was achieving EUR 2.1 billion in a premium target for the year 2022. We have already achieved EUR 2 billion by 2020. And obviously, we will have to reassess our targets for this line of business with regard to growth. But what is even more important is that we have profitable growth. So if you were to exclude the corona impact from the figures, then we are already at 99.9% compliance ratio. And if you adjusted for corona, 94.7%. So this is already in a range where the business starts to become profitable. But please keep always in mind, if a business is growing very fast, it really makes sense to build up volatility buffers in the initial phase in order to show stable results over time. And we will have a close eye to that one. And we already have improved the volatility of buffers during the course of 2020 also in this line, but there's some way to go. So if we then turn to Page 19, we go to Retail Germany. And maybe, please keep that in mind. I'm a little bit biased here as I was responsible for this segment until August, end of August. So overall, we are quite pleased to report that excluding corona, we have nearly achieved the 2021 EBIT target of at least EUR 240 million already in 2020. The number, excluding for corona, is EUR 237 million. But there is a decrease in premium both in profit P&C business as well as in life. And this also reflects the dampening effect of the lockdown measures, in particular, in the bancassurance, which accounts for more than half of the premiums of this segment. And with regard to the bancassurance, they were affected by the closedown of -- the lockdown of the banks, very simple. And therefore, the growth figures went down significantly. So if we look at Retail Germany, as such, where we see an EBIT decline from 2019 to 2020, including the corona effect, which is solely attributable to the life segment. And this has also to do with some derisking measures, which I will explain later in a little bit more detail. If you turn on to Page 20, then we see the P&C business, where we see operating results really have improved significantly as planned also. And so despite the negative corona effect of roughly EUR 18 million, the EBIT is up by 36% to EUR 134 million, and this is mainly due to technical improvement. The combined share issue stands at 95.4% even including the corona impact. And but -- and this is also due to a favorable reinsurance structure. So overall, we have just EUR 24 million net corona-related claims, given that the gross figure is much, much, much higher due to the fact that we paid for the claims and business interruption and achieved a very good reputation in the German market, which then translated in, as Torsten has already mentioned, very benign SME growth figures at the beginning of this year. So the negative point with regard to Retail Germany is the development of the gross written premium, a decrease of 5%, which was caused by lower motor business and also reduced sales via the bancassurance channel, in particular, in unemployment protection, which was down by EUR 40 million. If we then turn to the next page, please, it's 21. I'll go to the life. And there we see -- I understand well that life -- German life, in particular, is not so easy to read. But what you can see here is the following. So overall, we have a reduction in the EBIT, also due to some conservative accounting for PFS also due to some investments in the prolongation of the Deutsche Bank-Postbank partnership. But also, what you can see here in the figures is the reduction in premium, which is driven by 2 things. One is we have sold less single premium business, second is the already mentioned lockdown of bank shops, which have led to lower new business. What is really worth to mention going forward that we have continued and accelerated our derisking strategy. So we have brought our products and the product mix has changed selling more unit-linked policies. We have reduced the single premium business again. We have reduced the guarantees in the traditional business. So overall, we are happy to mention that you will see also a strong improvement compared to the third quarter in the solvency ratios of our German life carrier. On average, they will be clearly above 150% at the end of the year. If you go to the next page, they have some more details on the changes in the product portfolio and what we are selling. So the noncapital efficient part of the new business has dropped below 25%, what was an initially set target for 2021. So this is already achieved. And within this 23%, please keep in mind that there are some contracts in it which are due to the high-cost loading, still efficient despite the fact that they are not very capital-efficient that we can earn some money to it. What is also to be mentioned is the spread in between the average guarantee rate and the average investment income, what you can see on the right side of the page. So we are clearly above the average guarantee. What we had to do during the course of 2021 -- 2022 -- no, 2020 -- sorry, about 2020 is that we had to allocate much more investment income to fill up the ZZR, Zinszusatzreserve. So we have to realize EUR 626 million to bolster -- to buffer the ZZR, which has now achieved a total of EUR 4.5 billion in order to cope with low interest rate environment. And this is also a strong signal on our robustness. So moving on to Retail International on Page 23. First of all, if you account for in euros, we have a 10% premium decline. But this premium decline was, one, on the one hand side, related to Italian life; and second, related to a significant deterioration in local currency, particularly in Brazil, Turkey and Mexico. And maybe to explain that, we should first switch to Page 24 before I come back to this page. What you can see on Page 24, in this page, we have added to our presentation as a request from both investors and from you. We have added this page in order to show you also the currency effect. And what you can see quite clearly here that Brazil, the Brazilian real, was down 41.2% during the course of 2020; the Turkish lira, 35%; and Mexico, 15.8%. And this explains well the development -- the premium development in euro, as Torsten already has mentioned, as we are in local currency. And in the P&C business, we are still growing, and we have very favorable positions in our core markets. Going back to Page #23, what can we see out with regard to the segment Retail International? We have very, very strong operational results there. Despite the fact that we have significantly lower in -- that we have significant impact on the investment income in 2020, we've seen very strong combined ratios here. Overall, you can see this also in the pages which Torsten has already commented. You see that the overall effect of corona was a positive one in Retail International, given that the lockdown has lowered the claims frequency in motor. But even if you were to exclude for that, the combined ratios look very good. And so our midterm return on equity ambition, therefore, also remained unchanged. It should be around 10% to 11% over time. So then let's go now to Page 25, where you can see the Reinsurance results. I just want to mention that and I can also reiterate that we are part majority owners of this very profitable and high-performing company called Hannover Re. And we have a return on equity despite corona of 8.5%, and they are growing faster than the market. So we have a very, very positive development here. So that's what I wanted to comment on the segments. Now I would like to spend a few words on investment and capital development. So let's turn to Page 27, please. So in a nutshell, the net investment income remains under pressure due to the capital market conditions. This is no surprise, as you are all acting in the capital markets. What we've actually seen during the course of 2020, the U.S. treasuries went down by 100 basis points to 92 basis points. And the euro government bonds, if you look at the index, they went down 53% basis points. So overall, a strong decrease in the interest rate environment. And this is what you can see in the ordinary investment income, which is despite our growth below the previous year, minus 5%. With regard to the extraordinary income, there are some things to mention here. First of all, that we had an extraordinary gain, EUR 100 million in 2019, which we should keep in mind. Second, that we had to increase our contribution to the ZZR. I already mentioned that. So the EUR 622 million, which we had to realize in 2020 compared to EUR 443 million in 2019. And third, we took opportunities in 2020 when the markets were down, we realized some reserves, book reserves on bonds in order to reenter the equity market, which has developed quite pleasing. And therefore, we had some additional capital gains to this. And so this is why the extraordinary investment income is plus 9%. So there are 3 reasons for it. Please keep that in mind. So having said this, I would like now to turn to Page 28, where we show the development of the shareholders' equity. The shareholders' equity is up 2% and stood at EUR 10.4 billion. If you calculate the book value per share, including goodwill, EUR 41; excluding goodwill, EUR 37 million (sic) [ EUR 37 ]. So those valuations are above our common share price. So you know what you have to do. So -- and then let's go to the solvency ratios, which are shown on Page 29. Here you see the solvency development since 2017. So in the third quarter, we reported 187%. Our year-end results will be communicated officially on May 6, but I already want to give you an indication, we will be at the upper range of our target -- at the upper end of our target range and clearly above 187% at the year-end. So also here, we have a positive development. And this is also due to the fact that we have improved not only in the reinsurance where you have already heard, the year-end Solvency II figures of Hannover Re, but also improved in the life business due to the accelerated derisking, which is underway until we will end up at the upper end of our target range here. So having said that, Torsten, I think it's your turn to the outlook, please.

Thank you, Jan. So on Page 31, maybe it's small comments. We are still and believe our growing company this year around 5%. And again, the last years, we always grew 4x faster than the main peers in the market. So we will continue to be a growing company. Group net income in spite of corona, the EUR 150 million, you see there, we believe the EUR 800 million to EUR 900 million is for us realistic. And even we said, we believe we will come rather to the higher end of that range for the time being, if you would say today as the best estimate, and then be really close to our record year in 2019 and closer to before Corona times. With that, more or less roughly 30% increase of profits, we would have a return on equity above 800 basis points versus our long-term target, and this is on Page 32. When we started the journey in 2018, we have said that we would have at least 800 basis points basically to earn our cost of capital in the group. There, we're in a good way. We have said the 5% average per year EPS growth and sometimes forgotten in 2018, we started the journey on the base of EUR 700 million because we had to clean up some higher portfolio or was starting to clean up. We said, no, we don't start on EUR 700 million, we start at EUR 850 million, which was originally the guidance we gave in that year. And that higher level in 2018, 5% each year up. Okay. Dividends. It's clear this year, we are even above that range, what we have said. And the solvency ratio, as Jan said, with the higher end of the range, already this indication. And on the right side, diversification as well, this a quite interesting development in 2018, just to see the number, 52.8%, let's say, was outside of Germany. Now we have 58.6%. So we are all the way to 2/3 prime insurance premium from outside of Germany, which means another diversification impact as well to everything when, for example, talking about solvency ratio. I think with that words, thank you for listening. And I guess, probably there will be some questions. I leave it to Carsten.

Yes. Thank you very much, Torsten, thank you very much, Jan. Haley, I think I'll pass it to you, and you will lead us through the Q&A session.

[Operator Instructions] And the first question comes from the line of Paris Hadjiantonis of Exane BNP Paribas.

I hope you are doing well. So a few questions from my side. Firstly, on the central liquidity or what we call the cash pool. I think, Torsten, you said that we are currently at 1.3 annual dividend, which is pretty close to essentially your target of 1.5 to 2x. Now if my numbers are correct, that implies an increase of about EUR 160 million year-on-year. So the first question I have relating is where are the money coming from? Is it mainly retained earnings? Or is there upstream of some excess capital that you have in the subsidiaries? And if there is some upstream of excess, is there more to come over the course of 2021? And also relating to the cash pool, when should we really expect you to be rethinking your dividend policy given that we are pretty close to that 1.5 to 2x that you have set as a target. And then I have a couple of small questions on Retail Germany. Firstly, on KuRS, which I think has been now more or less concluded. I think you have alluded to a new program going forward, which we might hear about in the next Capital Markets Day. The question basically is what do you think needs to be addressed further in the Retail division? There is some improvement over the past few years, Obviously, I assume that you would be targeting a better ROE. But what do you think are the areas that you can improve further within the Retail Germany division? The last is again on Retail Germany and traditional life. Now you have been quite successful in actually defending that spread that you're giving every year. I'm wondering what kind of visibility do you have for that spread, which is, I think, 180 basis points right now going forward, given that the investment yield remains -- or the reinvestment yield remains quite low. So where should we be expecting that to be going, going forward?

All right. Thank you very much. So I'm starting and then Jan will continue. When it comes to the liquidity cash flow, the 1.3. So we have said and the timing of -- which clearly in interest of you, we have always said a range 1.5 to 2. And as you can see in our documents, we always aim the higher range of this. So what I'm saying is that we will come back something when we're around 2 on the higher end to come up with some new message on the dividends. So therefore, we're not that close, and we're just on a good way, as we can see. And you can see as well this year, you have, for example, a bit lower dividends from Hannover Re. We don't know what regulator will do all over the world, locking dividends like they have done last year. So there are still some things we have to keep in mind. But just regarding, I think, the dividends and where exactly this increase is coming from, Jan maybe can say the details.

I can. So overall, you asked the question, what is related to capital upstream and what is related to other measures? With regard to capital upstream, we had to compensate for some dividend constraints, which we had in some countries like Poland and Italy, where the regulators did not want us to upstream dividends. And therefore, we had also calculated for write-ups and write-downs in the overall portfolio. And if we do that, in total, then this sums up to relatively close to the figures you have mentioned, the write-downs and write-ups in the portfolio, which we can essentially see in the local territory results. With regard to the outlook of the cash pool, which Torsten has given, I just want to add one additional thing. I think it really makes sense to reassess our payout policy in the light of the changeover of IFRS 17. And therefore, we will clearly wait for some more things in that, so that we can give you a precise outlook on the future dividend policy also in the light of IFRS 17.

And this probably will be -- end of the year Capital Markets Day, probably we'll have some insights of IFRS 17 and impact to give to you. And -- but just we wanted to show to you that the way to the increased cash flow, we are not -- let's say, it's not the way we don't have -- under our observation, we have a nice track actually here. And we are -- actually, we find it's a very interesting way for you as well probably. On page -- on the second questions you had. Again, please allow us first to deliver on the growth program, right? We have EUR 240 million in our target. We have the 95% combined, that's what we delivered. And as we have a new Board member successor of Jan, he is hardly working on coming up with something new to the market. And for sure, I don't want to say something before, but again, we -- hopefully, we will discuss it with you then, Paris, on Capital Market Day. But without saying some insights of the strategies working on, for sure we have to strengthen our strengths. And in some areas, we're very strong, like in the small medium enterprises. And for sure, this will be part of the strategy as well that we strengthen our -- where we are very strong already. But clearly, I would not say much more before we just -- this is ready basically. And first, deliver our course and then comes to the next. And I think end of the year, it's a good point of discussion when you see us on the Capital Markets Day on that. Please wait there a little bit. And the question regarding the reinvestment here. Maybe, Jan will give some [ details ].

Well, it's obvious that the reinvestment yields are going down due to the lower interest rate environment, and therefore, this was the reason for accelerating the derisking strategy in life already for the existing book and having additional changes in the new business portfolio going forward. But I think what has Torsten already mentioned, we will explain on that one in more detail on the Capital Markets Day to give you much more comfort with life going forward.

Was it okay, Paris? Question answered?

Yes, more or less. Just coming back to the last one on the reinvestment yields and the spread. So I assume that, obviously, that spread could be impacted a bit by the lower reinvestment yield. Am I right on that? Or do you think that the average guarantees are all coming down quite materially? I assume not as fast.

That's right. But if you see it on a long-term period, we are very confident that we can match the guarantees, or even not only match but we will earn more on the investment side than what needs to be paid for the guarantees. So we have a long-term strategy from that one.

Next question is from Vikram Gandhi of Societe Generale.

It's Vik from SocGen. I hope you can hear me all right. I've got a few questions all related to Industrial Lines, I'm afraid. Firstly, looking at Slide 16, I noticed a change in communication or maybe I'm over-interpreting things, which says premium reductions related to ongoing measures in motor and marine,, casualty property. This bullet point hasn't been there in the past 4 results, including the FY '19 business presentation. So my question is really what has changed so that this point needs to be highlighted back again here? Staying on the same slide, the guidance of 1 percentage point year improvement in combined ratio. What should the base figure be, your original guidance of 100% or the actual ex corona figure of 98.7%? The third question was the other impact of minus EUR 90 million or lower due to the growth in specialty business that you are guiding to. So for how long do you foresee this impact? So when should this really trend down or get close to 0 is the question. And the last one is on Slide 18 and the targeted underwriting result of EUR 100 million for 2022. What does this EUR 100 million [ translate ] in terms of the bottom line net of minorities? Those are my questions.

All right. Those are very good questions. I guess Jan will answer this in more details. But whenever you see some figures, which looks maybe too conservative to you, I can tell you, yes, because we are conservative in that kind of year-end results. But Jan will give you now more details on that. Jan?

First of all, I'll start with the first question where you -- if I understood you correctly and please correct me if I'm wrong, you wanted to have some explanations for the reduction in premiums in some lines of the business, where we have increased the prices quite significantly. But therefore, we have also lost some business, which was not adequately priced. And what you see here is the consolidated effect of those prices increase on the one hand side, and second, that we have lost some part of the business. With regard to fire, I also want to add that we have intentionally reduced our share in some coverages in order to avoid the volatility in results. So this is also -- which needed to be taken into account when explaining that one. So second question was with regards to...

The decline in combined ratio by 1 percentage point.

Yes. So yes, we expect that the underlying combined ratio will be improved by approximately 1 percentage point per year. So -- and I really want to draw your attention that this should be on average over the year. We know the nature of the business Industrial Lines is volatile, yes? And therefore, having an improved combined ratio by 1 percentage point per year is what we wanted to show. We will continue a little bit in building up volatility business in case of that we have a very pleasing year with regard to large plants. If not, we will also be able to show an improvement, we would be in a position to show an improvement. We will decide on it, having a look on the overall results. Okay. This is the second one. And third one was this regard, I guess, to the EUR 100 million out of specialty lines, which what we want to achieve in 2022. This target has remains unchanged. With regard to the minority effect which are in that, given that this is a joint venture in between Hannover Re and Talanx, this is quite a complicated figure to figure out. So this should -- well, I guess, I think it's best if you ask Carsten after -- or Carsten and the team after this session and we will come back on that one, because this needs some more explanation due to 2 reasons. First of all, we have this 50-50 joint venture, therefore, we have the minorities in Hannover Re to be deducted. Second, we have some old business which were brought in, therefore, we have not a 50-50 reinsurer quotas on that one. So this turns out to be a little bit more complicated. So I think that you should -- despite on that, for us, as a steering instrument, we focus on the EUR 100 million. And we are very comfortable with the plans which we have seen so far and with the development of the business, so that the basic underlying business will be profitable and contribute to the bottom line in both Hannover Re as well as in Talanx' balance sheet.

And from the general management point of view, the team under the guidance of Ulrich Wallin, former CEO of Hannover Re, is clear a bottom line-orientated growth machine. And therefore, say basically, you could always wonder why this growth is so significant. It's because the markets are very hard and that's kind of really -- it's running a good cycle at the moment, and with, I guess, good underwriting skills and finding good teams to support the growth. Is that...

And the EUR 90 million impact, when do you expect this to fade away?

I think we didn't get the last point, Vikram. Could you repeat?

The EUR 90 million impact that you are flagging on the Industrial Lines, the minus EUR 90 million because of the growth in specialty, when should we expect that to fade away in the future?

That EUR 90 million, where do you get the EUR 90 million?

Struggling with the EUR 90 million, Vikram. You were...

Yes. The other result of minus EUR 90 million or lower from 2021. So that's the -- yes.

Sorry, now we got it.

We are just looking and sorry, just a second. Oh, this is -- okay. Jan, so Page 16, yes? We are looking, a second.

We can say that this will remain, yes. This effect will remain, yes.

I think there's not -- so your basic -- your question is on Page 16, I understand, right?

Yes. Yes. So if we should be expecting this EUR 90 million to fade out at some point in future is the question, should kind of have that in all the way in future. So that's kind of a fixed cost that is coming because of specialty business. Is that how we should look at it?

Yes. I think, Vikram, it's an effect that we already reflect on the Capital Markets Day with Industrial Lines in 2019, and we marginally increased it to this minus EUR 90 million, I think, in the last call.

Yes, Exactly. And this will remain at least for 2021.

Okay. Okay. And...

Just the question on where the book is in the combined or the other. And part of this business due to the special construction of the joint venture is more booked than the other. But at the end, you have to look on Page 18, where the final results will be, and the final results 100 where we see as the whole company as a joint venture, basically, yes. But then the question is where your book is in the combined or on the other.

Okay. Okay. And I'm not sure I understood the answer, correct, on the improvement in combined. So you say the underlying combined should improve. So consumer is referring to the 98.7 then? So it should improve further 1 percentage point from there for the year?

Yes. Yes. And again, I would like to give you some what we said that when we started to clean up the portfolio, because this a volatile business model itself, so like to show like we have done in the past sometimes to show volatile results. So we need a volatility buffer, as Hannover Re has done as well for their segment. And we are in a very good way to do that as well. And you will get more comfort on the Capital Market Day, where we show it to you that it's not just talking -- so far, you see it only runoff results afterwards where we are. But again, this is due to IFRS 17 and so on, we have to give you comfort where we are going to stand. It's not just saying it was a [ roll-off ] buffer, but we need some credentials and you will get the credentials. [ You should not be ] surprised with the credentials that I can say already.

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

Two questions from my side. First, on Retail International. Can you talk a little bit about the additive environment you observed in -- especially in motor insurance in Poland, maybe also in Turkey, as well especially in Latin America? What are your expectations regarding premium volumes in these markets? And do you expect pricing to come under pressure, given the frequency benefits you incurred in some of these markets? Second question on Industrial Lines. Can you talk a little bit about the -- your reinsurance protection in Industrial Lines? Given the increased pricing, you see both in your own portfolio as well as on the reinsurance market, how did you change the reinsurance protection in industrial lines?

Thank you, Michael. So Retail International, for sure it is in the shocking event of the first/second wave, you have lower frequency in motor. But coming out of corona, you see as well effects where the frequency is normalizing itself. It's a function of how much home office. On the other side, people travel more with a car when they go to holidays and whatever. And the severity of the claims is not shrinking actually because of supply chain constraints in the market. So well, looking forward, I would say, and having the pressure of the interest rate yields going down because especially in those markets, you see significant decreases in interest rates. I don't see that there is, for example, long-lasting now in front of a subcycle in the motor business because interest rates are pushing some of our technical profits and the frequency is coming back. Even if it's a bit lower than before corona times, let's say, afterwards, the severity of the claims will not decrease. The car accident, generally, on the average are more expensive. So I would guess there's an answer of being neutral for the overall picture of the portfolio when it comes to average pricing due to the [ different market ] can find aggressive competitors not in the general picture, but overall, I would say there's a more neutral pricing going forward. In the Industrial Lines, well, I mean, it is clear that the portfolio is performing better. [ But the Reinsurance business has a one-off effect ] the big Industrial segment could have. Again, maybe Jan, you can give some more details.

So very pleased with the renewal of our reinsurance treaty for the Industrial Lines. It sounds funny, given the rate increases we've seen in the insurance market. But this is really due to the improved quality of our portfolios, and we have been [ rewarded ] by the reinsurance companies for that. And therefore, reinsurance result in Industrial Lines is an upside for 2021.

Actually, we did not change much the structures regarding the pricing, the structures [ are the same ].

The next question is from Fossard of HSBC.

I just have one question relating to the Industry Lines and the volatility buffer you are growing year-on-year. I understand that you will provide more granularity at the time of the Capital Markets Day. But could you remind us the pace that you have started to build these buffer, maybe be a bit more precise on how it improved in 2021? And remind us what the kind of overall volatility buffers you're aiming to build just to replace this in the context?

Well, let me just -- first message we would like to discuss in more detail is really with you on the Capital Market Day. What we have said so far to the market is we aim midterm the 95%. And in that journey to the 95% year-by-year down was 1 percentage point. And at the end of the midterm, we would have a situation where the [ older ] profile as at least 1 year profit. And that path, we are going now. And again, more details we will provide you on the Capital Market Day. And probably this is a part where we look even more optimistic than originally in the past we have said.

Thank you very much, Thomas. Haley, any more questions?

There are currently no more questions at this time.

Okay. Then...

Right. So then hopefully, everything was clear from my side. I'm happy to talk to you again because -- the year-end results, it was really a pleasure to talk to you for sure. I hope that -- it's a very long time to give the market at the end of the year, but still latest just to talk or to see you there. And until then, I wish you really all the best and stay healthy. Thank you very much for listening to us and the interest in our shares.

Thank you.

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