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's analyst call on the full year results 2021. [Operator Instructions] I would now like to turn the conference over to Bernd Sablowsky. Please go ahead.

Good morning from Hanover. Bernd Sablowsky speaking at the occasion of the Talanx results call for the financial year '21. For us, today is a special day, or better said, it is a special day in a difficult environment when we have to handle business matters while around the world people are fighting for their life, for their family, and their belongings and for peace and freedom. While nothing is normal these days, we would still like to proceed with presenting and explain our full year numbers. I'm here together with my CEO, Torsten Leue; and my CFO, Jan Wicke, who will together take you through the slides and where we currently stand. After the presentation, as Stuart just announced, Torsten and Jan will be happy to answer questions. [Operator Instructions] You will be aware that we published the preliminary key results in early February already. And today, we published the full set of numbers as well as the annual report. All of the documents are available on our IR web page, including the financial data supplement. And we also display a recording of this webcast on our web page. Having said that, I'm happy to hand over to Torsten Leue, our group CEO.

Thank you, Bernd. And a warm welcome from a sunny Hanover and thank you, Bernd, for this nice introduction words in terms of what we really should think about what's going on in this world. And I think you should and we should all think about besides military, what we should do there. How our group is resilient against what could happen, and we will take focus on the call here as well about resiliency, where do we... [Technical Difficulty] I'm sorry for the technical issues we have here. So let's start with the first slide here. Strategy 2022 – A promise is a promise! And when we started in 2018 our strategic cycle, I think it's important to give targets and then to deliver, and in the last Capital Markets Day, we said where our point is, as I say, a step in between our strategic cycle. And I could say we're really clear at the moment we delivered. And on the next slide, that result summary shows that we have a double digit -- more than double digit growth, over 10% in this industry is for sure clearly above for the industry as a strong top line. And growing profitability, you'll see there's around 10% return on equity on sales, well above our own cost of capital target of 800 basis points above risk-free. And especially, I think it's important to talk about resilience. And we have our around 200% CAR ratio, which I think is the first indication we get, and we will publish it later in the second quarter this year, we are above the 200% even. So this is, I think, a good indication for what will come. When I drop now on Page 5. Well, the headline, EUR 1 billion is basically the net income for the first time. It is 1 year before as we have promised in 2022 to deliver. So it's 1 year before end, and you will see it later on in Jan's presentation that the quality of the EUR 1 billion net income is very high when you look deeper into the figures. So all this gives us a 9.6% return on equity as you go to the right side. And this is really, at the end of the day, a growing company with 11% with a reasonable return on equity. On the next slide, you see that onetime effects positively have been not so many. So it was really strong headwinds we had. At these prices, we could produce 1 year earlier EUR 1 billion net income. So the 2 major strong headwinds we had was a large loss impact because we have EUR 235 million above of our large loss budget which, and I come in a second to that, is basically driven by the NatCat events we had, which have been historically the highest ever NatCat events in the Talanx Group. And the second effect was the Corona impact. We had the first year in non-life and the second year on life more impact. So weak stock basically is the reinsurance area of the EUR 403 million regarding Corona, mainly life, driven by reinsurance. More or less in the calculation, what means for the net income, only those 2 effects, those 2 headwinds give us roughly close to EUR 250 million net income effect. So on the next page, just as I mentioned before, the largest NatCat loss ever and you see in the statistics last 10 years, the EUR 1.261 million is even higher than 2017, where we had the storm Irma in North America, which really hit hard the whole market. So this is even higher. And you see us as well as this is driven mainly by the reinsurance portfolio, 3/4 of it hits regarding NatCat. And just to give you rough figures, what we believe in the market is it's over EUR 100 billion insured losses now worldwide, which is 50% above what is normal in the average years in the last years. And Germany has the highest NatCat events ever with 2.5 roughly NatCat events in Germany, never has been at this, it's 3x higher than normal. So it was really a NatCat year. You see on the right side that Ida, Bernd, and Winterstorm Texas were the 3 biggest events in the last 12 months, NatCat losses we ever had since the IPO. So NatCat really broader headwind. Next page, you see why still this EUR 1 billion net income for 1 year before was achievable, or you see that the primary insurance gaining momentum. You can see that and we compare better here in 2019, which was before Corona times that we have a growth of 7.6% in the top line and even better 3x higher. On the bottom line, it's 23.3%. We grew 3x higher in the profits and in the turnover. And this is really based on industrial cleanup of the portfolio as we have presented to you and delivering the growth in Germany, Retail Germany, so close targets. So we have stabilized the portfolio and we have cleaned up industrial portfolio. And all this is really based on that we came to 23.3% increase. On next page, which you see when it comes to diversification, you can see here that the primary insurance due to the positive momentum we have could grow. On the right side, you see net income to 45%. It used to be in 2019, before Corona times, 39%. Now it's 45%. And this is all based on a very good Hannover Re result, shows you that remarkable increase and positive effect due to diversification, but as well the primary insurance gain momentum. And you see on the left side that we, let's say, have less, 42% gross written premium participation of the whole group. It used to be 45%. So primary a little bit less on the top line, but comparable in the portfolio, but more on the bottom line. So you can say that basically the profit margin has been a bit higher in the last years on the primary insurance. The next page, you see a bit more details, and Jan will tell you much more about it. But you can see that the net income basically all the segments participating on that to EUR 493 million, which is primary insurance 45% share of everything. And gives us, at the end, now starting to get some reasonable margins on the primary insurance. Next slide, you see that, well, as promised, we will have as well a strategic review in process. We will come up on the Capital Markets Day on 6th of December. We will come up with our new targets and cycle what we will do until '23 to '25. And so these targets are the current ones, and you will see properly revised targets on the 6th of December. And one of this is a dividend payout or dividend itself. On the next page you see, on Page 12, you can see that our dividend headline is stable or upwards that happened in the last 10 years since basically IPO. We increased EUR 0.05 every year. We only had a break in 2020 because of Corona. Some entities could not distribute dividends because of [indiscernible] authorities. But we catched up this. So with the EUR 1.60 proposal for this year, we will still have some edge at EUR 0.05 more or less per year. So that was basically not stable, but more upwards in the last years. And stable upward will be the headline as well for whatever we revise in the Capital Markets Day. We have said as well that if we achieve the 1.5x cash pool, because the idea behind is, even in a year when you make no profit, you can deliver still a stable dividend at least and promise to the shareholders. We are basically more or less there, and therefore, we will revise our dividend strategy. And as well, as we said, whenever we revise something, it will be not for negative for the shareholders. So this will be on the 6th of December, a message, or let's say, listed to be communicated. So having said that, Jan will now go to more details to show you what has been happening in the segments and investment income. Jan?

Well, thank you, Torsten, and welcome, everyone. Let's start with the group financials. First of all, as I'm the man for the numbers, I really want to reiterate what Torsten has said. We had a very, very pleasing 2021 results, rose above 10% operating result, 97.7% combined ratio despite the headwinds, and the net income first time ever above EUR 1 billion and close to our 10% return on equity long-term target. So all in all, we are very happy with last year. To go more into the details, on the following pages, I will give you an overview on some general impact we had in the results, and then I will give you more details on those segments, before I finally give you some overview about [indiscernible] book value and so on. So let's start with the Corona impact. And this our usual normalization waterfall, which tends to give you a better impression of what the underlying performance during the course of the year was. So all in all, Corona has cost us EUR 122 million negative impact on our net income. To explain a little bit more in the details, I will do it on the next page. But before I do that, I just want to also highlight that we had some offsetting factors which were all derived from the life and health reinsurance part. It was the Voya deal that colleagues at Hannover Re had already informed you, and also the release of longevity reserves in the light of late notifications from the primary insurance to Hannover Re. So all in all, if you then net out those one-off effects, Corona as well as the positive one-offs in the end, a normalized result would have been at EUR 1.033 billion. On the next page, we can see the Corona effect more into detail. I hope you can see the chart right now because here the screen is still black. But what you can see here is, if you then go to Page 16 in your presentation, what you can see is that the vast majority of the claims was derived from Life and Health Reinsurance. Excess mortality due to Corona has made up EUR 582 million. And if you go into Retail International, we have seen also mortality losses in Poland, Hungary and Columbia there, which account for EUR 15 million, then all in all, we have close to EUR 600 million related to excess mortality. And on the positive side, there are 2 things to mention here. First of all, there is a positive net income in Life and Health Reinsurance due to Corona. This is due to the fact that we had some hedge against excess mortality in place, which accounted for those EUR 44 million here in 2021. Maybe there is more to come in 2022, we will see. And on the other side, we had positive offsetting effects during the course of '21 due to local lockdowns and the positive impact was particularly high in Retail International. So all in all, EUR 122 million losses and maybe this is the last time that we show this slide, because we believe that going forward we have to live with what is left of Corona. So it should be part of the normal. Let's now dig into a little bit into the NatCat events and how they are reflected in our numbers. As Torsten already has mentioned, we had the highest NatCat losses in the history of Talanx in 2021. And we have increased our NatCat budget for the next year to EUR 1.8 billion to come. But I want to put that into context. What you can see on the right page of the chart is if you see our NatCat budget in relation to the net earned premiums. And what you can see here is that is EUR 1.8 billion compared to 6.6% of the net premiums earned. And this is neither conservative, nor aggressive. I think it's a reasonable view for the future to expect 6.6%. And obviously, it's already included in all of the budget and also in our guidance what we have here. On the next page, we have some view on the operational performance. I just want to highlight that those reinsurance and primary insurance are delivering combined ratios well below 100%, and this is despite all the NatCat events, which have happened. On the next page, we can see what Torsten has already highlighted, that over the past years, we had a plus EUR 0.05 every year. So it was a stable or upwards dividend policy. And to reiterate what we've already said is this will remain in place. But by the end of the year, we are reassessing our dividend policy also in light of IFRS 17, where some old yardsticks like payout ratios and so on have to be adjusted anyway. But I want to give you already now the message that stable or upwards will remain in place. And given the strong growth of our cash pool, we are very resilient to deliver on that. On the next page, you see another indicator of our resiliency, which is the prudent reserving. We have highlighted that already on the Capital Markets Day that we have resiliency, which is embedded in our reserving. And you will see the figures by May this year when we have the new assessment from Willis Towers Watson again. And I just want to give you -- I want to make a little bit of expectation. So we expect, like Clemens Jungsthofel has told you in his call for Hannover Re that the reinsurance resiliency will grow, we expect the same for Talanx primary group, even a little bit stronger. And so all in all, the resiliency, which we were able to build in 2021, will grow in absolute terms. In relative terms, given the strong growth of the company, it will be rather equal, but in absolute terms, there will be a significant increase of the resiliency, at least what we expect right now. And this provides us with a very positive position to deal also with inflation, which may occur due to the current situation. So how about Ukraine as we go to Page 21. So our direct exposure seems to be pretty low, just EUR 94 million written premiums are related to Ukraine and Russia. We have investments of EUR 136 million and a small participation of the industrial -- a small subsidiary of Industrial Line business is still in Russia, where we have some impairment risk of EUR 4 million. But you should note that we have divested from Russia. So we signed this contract at the end of last year, and we were able to close everything by February and all the money is in our German accounts. So every single center, so the overall direct exposure is pretty low. With regard to the overall impact of Russia and Ukraine, we expect the bigger impact of that one to come indirectly to us. First of all, via the capital market. But keep in mind that we are low-beta company and therefore, we expect ourselves to be less affected than our peers. And second via the inflation risk due energy prices in particular. But then again, keep in mind that, first of all, the group owns EUR 5.5 billion inflation linkers, which should compensate for part of it. The majority is allocated to Hannover Re, where we have 2/3 of our non-life reserves also. And second, that we have built up resiliency in our reserving and this resiliency will be also tougher to compensate for such effect. Let me now draw a closer picture with regard to the segments. And I will not explain all the details of the following slides, but just focus on the highlights. Let's go to Industrial Lines. First of all, as Torsten already has mentioned, the colleagues in Industrial Lines have successfully managed to turn around as the portfolio cleans up. They exceeded, in 2021, the planned net income significantly and what you can see here also is this more than 200% increase in the net income last year. Second, if we go to the next page, they were able to negotiate with our customers significant price increases, which should compensate for the higher inflation, which is on average 12%, and this provides us also with the comfort that HDI Global is able to deliver on the 97-point-something combined ratio in 2022. Given the fact -- I just want to reiterate that one also that this is a volatile business, but from an operational performance point of view, we expect 97-point-something during the course of this year and then going lower by every year until we have reached 95%. And finally, with regards to HGS, the Global Specialty business. They have started very successfully so far. They have achieved already a premium volume of EUR 2.5 billion during the course of 2021, with a significant EBIT contribution of EUR 32 million, which is to grow to EUR 92 million in 2023. And then going forward, we obviously want to make it a 3-digit number. So all in all, it's a very successful story. And please keep in mind, starting from the first of January, we will consolidate 100% of HGS, and there will be a quota share in place to Hannover Re of 25%. Let's move on to Retail Germany. With regard to Retail Germany, first of all, what you see here are the year-end figures, which were very, very pleasing. Maybe we go to the next page in order to give the first 2 explanations. Some years ago, we had set out a close target of EUR 240 million EBIT and this EUR 286 million retail journey clearly outperforms its initial target. And it has outperformed it in a way that they were able to build up resiliency also in parallel. Second, the other concerns with regard to Retail Germany was a light business and the derisking of it. And this has now reached an adequate level of this Solvency 2 Solvency Capital Adequacy Ratio close to 300 without transitionals. We are now in a safe area and we feel very comfortable. Third, the new mission of GO25 is now profitable growth. We go to the next page, please. Profitable growth on Page 31. We go to Page 31 directly now. The new mission is now profitable growth in life. This will be a very focused growth, whereas in the non-life business, the focus will be on the SME business, where we are growing twice the market rate, and the motor business, which was added to the priority list for our retail jump. If you then go to Retail International, on Page 32, there are 3 messages. First of all, there is an ongoing operational performance with a combined ratio below 95%. Second, we are growing. More than 10% currency adjusted, even close to 15%. Third, the growth is derived from non-life business, and it's about 30% there and currency adjusted close to 20%. So all in all, we are very happy with the development of Retail International. So let me summarize. The primary insurance, they have gained significant strength. We are resilient because the operational performance is there. And so we are very confident with regards to the future development of the primary insurance. We go then to Page 34, the reinsurance, where we can see continued growth and really outstanding profitability, which is clearly outperforming the peers. And I think I don't need to comment so much on that one. We are very happy to see such a strong profitable growth in our most valuable subsidiary. Having said that, I would now like to go on and to explain a few things with regard to investments and capital. So if you go to Page 36. There you see a fantastic investment income for 2021. And you may wonder how does that match with the low-beta strategy. So I, first of all, want to reiterate our low-beta strategy is still in place and please take that for your future assumptions that we will remain low-beta. '21 was positively affected by 3 effects. First of all, and you can see that in the ordinary investment income, we had significantly higher private equity returns than planned. To give you some numbers, more than EUR 500 million of those returns were derived from the private equity book, which was EUR 250 million above our initial plan. Second, we had a very positive contribution from the inflation that provided us in total EUR 299 million or EUR 300 million extra, which was EUR 100 million above our expected figures. And third, we had a very low default and risk provisioning, which was needed during the course of the year. And yes, this is due to the low-beta strategy, so we are not really affected by Corona so far. And all 3 aspects together lead to this very high net investment income, which we cannot expect for the future to be on the same levels given the low interest credit margin. The next page highlights a little bit our low-beta strategy. What you can see here is our investment portfolio. So we have 87% in fixed income, less than 2% in equity, and 94% of our fixed income is investment grade. So we are positioned low-beta, but I think in the current times that may be an advantage. On the next page, you see the development of our book value. The book value per share is up for the whole year by 3.8%. We are up 1.3 percentage points right from the fourth quarter. And I think I do not need to comment any further on that one. And on the next page, we have given you the usual slide on our solvency development. As Torsten already mentioned, we expect the figure to be slightly above 200% and to remain in that range until we announce these figures in April 2022. So all in all, I just want to summarize once again, we are really resilient, which is driven by the operational performance of the primary insurance, which is driven by a high solvency rate, which is driven by resiliency, which is embedded in our estimate reserving, which is driven by the cash pool with regard to the dividend payments. Now I would like to hand it over to Torsten again.

Thank you, Jan. So last page is the outlook '22. And I think the main message is that our group net income, which the outlook is EUR 1.050 billion to 1.150 billion, will stay as it is. And you see then all the other parameters, we have a return on equity around 10% in our outlook and the dividends we mentioned 2, 3 times in the call where we will come back on beginning of December to you. So this is the outlook. So no surprises here. And with this no surprises, I will hand over to Bernd for Q&A.

All right. So Stuart, can you give quick instructions again, so that everyone is aware of how to use the equipment.

[Operator Instructions] First question is from the line of Michael Huttner from Berenberg.

Well done for some lovely results. Three questions, if I may. The first one is on the combined ratio in Industrial Lines, 98.7%. I was hoping for 98%, and I know you had a high NatCat and everything, but I just wondered, it's a bit higher than expected. Maybe you can give some color on that, I don't know. The second is the implied growth in net premiums. I mean P&C is 6.7%. So you've kind of highlighted that you can work it out as you take the budget for large losses and divide it by 6.6% and then compare with the 2021 figures. And I just wondered how that fits with your mid-single-digit target growth. So this is a little bit higher. Maybe you can give some color where it's coming from. And then just a reassurance, because you've been so -- you've said it again and again, but on the dividend, if on the 6th of December you do decide to change the policy, would it already apply to the 2022 dividend?

Okay. Thank you, Michael. I will take the first and the last, and Jan will talk about the growth single-digit. So basically coming to the combined ratio, well, you see the 98% and you expected something more. But again, and we have emphasized as well on the call, and we have made it transparent in the last Capital Markets Day, where we increased our resilience to roughly EUR 500 million. And we have now overall [indiscernible] as you can see. So wait until the Capital Markets Day, and you will find why the combined ratio is 98%. I think important is that we have said in the midterm, we will be, every year, going 1 percentage point down in the combined ratio of Industrial Lines, and that's what we will do. And the rest is basically -- let's treat it as a function according with the resilience, and we will make it transparent to you. Regarding dividends, no comment. Please allow us to work over the summer and come back with something, but the expectation should be that it will be not for the worse for the shareholders if we revise the strategy that we'll do. And Jan, maybe coming to the single growth.

Yes. Well, if I understood you correctly, Michael, you asked for where the [indiscernible] growth is coming from in between 5% and 10%. But we expect currently, we expect growth to come from all business units. So the majority will be derived from Industrial Lines and Retail International, whereas in Retail International, you always have to take into account currency changes. So it's very difficult to predict. But this is what we expect for the primary group, and for Reinsurance Hannover, we already have told in the renewal call that they are well on track to deliver on that one.

And if you see last years on the growth figures, I mean, on that figure, we didn't -- basically, we always outperformed several times as a PSO. So it means we would never position our stock as a growth stock, but if you grow steadily year-by-year, let's say 10% is not just a value stock, it's just as well growing really nicely. So therefore, it will come from all the segments.

[Operator Instructions] Next question is from the line of Roland Pfänder from ODDO BHF.

Two questions from my side. Could you maybe touch on your internal reinsurance, how this played out for 2021? And if you will keep it in the structure, or what are your thoughts about this? Second question, if I understood correctly, you have around EUR 500 million inflation linkers in the primary insurance field. Why do you have fewer allocations to this instrument compared to the reinsurance business? And maybe a third question, if I may. Could you maybe explain on your SME business in P&C Germany, what you think about the volatility of this business? And what would be a normalized combined ratio there?

All right. So Jan will start with the questions.

Yes. First of all, the internal reinsurance program, I think you're referring to the discussion which was in the Hannover Re column. So as a group reinsurance cover, we were able to place this in very good conditions. But obviously, yes, we had to pay a little bit more than the previous year. We had some price increases there, but we were able to buy the cover we wanted to have. We have a slightly higher retention ratio for us. But all in all, we are happy that we could place it. So the second with regard to the inflation linkers, you're right in your allocation of inflation linkers. Hannover Re has started early to build up the inflation linker portfolio. So the primary group was lagging a little bit here, but they have started to build it up, and this is why we have just EUR 500 million. But please keep also in mind that more than 2/3 of our reserves in non-life are on the Hannover Re accounts. So normal performance would be [indiscernible]. And finally, with regard to the SME. First of all, the long-term combined ratio target is around 96%. But please keep in mind that we are currently growing twice the market. We are getting portfolios from brokers. And at the beginning, this is quite normal that you would go on and have 96 right from the beginning. So given such fantastic growth path here, which we have, it will be currently slightly higher, but it will come down. We are very confident that we can manage it towards 96.

Could I maybe add to this internal reinsurance. I was actually referring to your internalization of premiums within Talanx.

Yes. Well, we are growing pretty fast. Well, we have grown the internalization. Well, what do we have? At Talanx, we have set up a captive, which is there for the primary insurers to cede premiums to the captive first and then to the reinsurance capital markets. So we had a growth of nearly 40% in terms of ceded premiums. So we are pretty close to our initial plan to have fully integrated the captive in our business model now. So I think we've reached what we wanted to have. Does that answer your question?

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

I got a couple of questions. The first one would be related to your Russia-Ukraine exposure. So thanks for pointing to your direct exposure in terms of premiums. I wanted to -- if you could say maybe a qualitative word on your assessment currently regarding your indirect exposure and which lines could be involved and potentially if we should think about any overweight exposure coming from HDI Specialty lines. The second question would be related to your investments. Could you shed some light on what have been the new money rates in your primary businesses, maybe on average in 2021, and maybe what you managed to get on your book, more specifically for Q4 2021. And maybe last question regarding the inflationary environment, especially in relation to your international markets. Do you foresee any or do you have any concern at the present time regarding the underlying trends and how it could maybe somewhat challenge your margin targets or your combined ratio.

Well, maybe I'll start with a small intro, and then Jan will go more to details. But when it comes to exposure, really, I mean, your guess is as good as my guess, as there is so much there which could happen or could not happen, the war will stop tomorrow or will stop in 1 year. So it's really too early to say whatever you think. I mean, therefore, it's not worthwhile to talk about it now because again, your guess is as good as my guess for general comment. And when it comes to the inflation, maybe the general comment here as well. As you can see, the price increase, for example, in the Industrial Lines has been 12% average this year. This gives you some idea that I think the cycle was hard enough. It's balanced for sure something of the inflation to be expected, especially in those lines, which are important, which are the casualty lines. The long-term business, as you can see as well in the presentation, the increase was even significantly higher than the average of 12%. So yes, inflation is a topic. Probably it will come. The question, how much? We don't know. But what we know is that we have some tools, once was mentioned inflation linker, which you basically can connect to the technical or not to the capital side, basically, and it covers basically some of the inflation we expect in the portfolio. Plus the price increases significantly, we have done, especially in the industrial portfolio, plus the resilience, the EUR 2.6 billion we have in our books. So let's see as well how much it will be. And again, there's so many different opinions how much, how strong and so on. So therefore, what we would try to message is, whatever happens, we believe we're going to be quite resilient to whatever happens. And many things are really too early to say. And with a general comment, I would hand over to Jan to give maybe a little bit more detail, if you can.

The only detail which I can give is that we have no claims notification so far with regard to Russia or Ukraine, I think, given the question you had with regard to HDI Specialty. But the second question was with regards to the reinvestment year, if I got it right, for the investment was around 1.4% for the fixed income. And with regard to inflation, I think Torsten already has answered your question? Or do you have further questions with regard to the topic?

Well, actually, my question on inflation was more relating to the international business and industry lines. I think that during the year, quarter-on-quarter, you flagged that you were seeing a bit of these trends coming into your book?

Maybe I can take this question because I did a lot of retail international in the last years. I think the main part of the portfolio is still the motor portfolio. The main part of the motor portfolio is casco short-tail business. And therefore, you can, in several countries where inflation really gets an issue, like in Turkey or Brazil, especially Turkey, you adjust the rates monthly, even sometimes weekly, or probably, soon come, if it's possible daily. So it's really a fraction. Let's say, it's really important to have short-tail business. And you see, for example, in specialty lines as well, internationally, we try to make short, mid-tail or long-tail business portfolio structure. So when you have a rather short-tail or mid-tail portfolio, it's just a question of how breathing your activity regarding pricing, and that's possible. Therefore, you can see those returns to international markets are just very, very close to the cycle management of your insurance portfolio. That is very important.

[Operator Instructions] Next telephone question is from the line of Michael Huttner, which is a follow-up question, from Berenberg.

I had 2 questions. First one is maybe you can talk on pricing in Retail Germany. Yes, I'd be interested to know, following the floods, what the trends are both in motor and household? And then second is in terms of deals. So you said you're a company which likes growing. And I just wondered what you're thinking of in terms of deals at the moment. I can see that MLP has done lots of deals buying brokers, NN Group bought what I think of as an MGA, I'm not sure if it's an MGA highly known. So I just wondered if that's your kind of thinking at the moment or anything else?

Thank you, Michael. I will take this M&A question, and Jan will take the first one regarding pricing in Germany. So I mean, generally, we will see how volatile it will be. I mean, when something goes sour in an economic environment, portfolio has conservation pressure. We don't see at the moment that there's something more than last year. When it comes to the deal size or deal numbers at the end, what we will generally be doing is we will stick to what we have said. So first is discipline. As you know, we have a potential to make M&A business. We have several times mentioned the deal size we can do. But nothing big than pipeline. We were disciplined, and we will focus what we have said always in the regions where we have positioned ourselves. So there's no deviation, and again, basically, to your question as to if there will be some acceleration in M&A. For the time being, I don't see that. It is just not excluded in the future. And maybe the first question, Jan?

With regard to pricing in Retail Germany, you always have to keep in mind that inflation is one factor, claims inflation, and the other is the frequency. And with regard to the frequency, there have been some positive developments here. So we have to take out of those of it. And this is exactly what Retail Germany is doing. So we are adjusting for this also every month to bring it close to the pricing cycle here. And this is what they are doing. So to what has it flat. So in motor, there has been rather low price increases, whereas other lines of business, there have been higher price increases, in particular due to the flats, which you mentioned.

And if you get generally talking about pricing, I think all this discussion around inflation now but for sure in '22 will not disappear. Let's see how long it will last until next year. I believe, generally speaking, insurance markets in many, many markets will be not soft markets at all. The question is how hard they will be.

We have another follow-up question from the line of Thomas Fossard from HSBC.

Yes. Just if you could comment on the ownership of Argenta. Actually, there's been news out last week saying that actually Hannover Re is going to keep control of Argenta. While I think that there were some internal discussions about change in ownership and move it into HDI. Maybe you could comment on why this was the case and why it did not took place.

Well, basically, on that issue, we will give no comments. I mean, generally, you know that the HDI Specialty basically is focusing on that business and what we discussed now is to have a stand capacity, which we will be participating in that kind of in that business 10%. So we're working together. It's a very good cooperation. And on the rest, we leave it as a "no comment" basis.

We have another follow-up question from Michael Huttner from Berenberg.

Can you say a little bit about environmental policies or green policies or whatever. And the reason I highlight this is I tried to use search function through your lovely presentation. And I couldn't find it. So maybe it's there, but maybe I missed it. I think all your peers have had at least 1 or 2 slides on environmental results.

I don't know what the peers have done, but maybe Jan can talk about your question. Regarding generally speaking about ESG, when it comes to E, we have not changed our targets what we have published at the Capital Markets Day. So there's no news from that side when it comes to underwriting policy and so on, but probably Jan will give you some more information about where we currently stand with our investment portfolio when it comes to ESG.

So I think as to our net debt -- so our ESG policy is unchanged. We have implemented investment processes which help to identify ESP issues. We are on our way to reduce the carbon intensity of the fixed income portfolio by 25%. We will deliver on that. We are going to grow our sustainable investment portfolio to EUR 8 billion by 2025. These are the targets which were set out, and we will deliver on that one. . And I just want to bring across that the ESG on the investment side is a journey. We are learning quite a lot and we are ready to adapt to that one. We have built out internal quality assessments, ESG quality assessment, which were derived from various information providers, so that we have known ESG score in place, which we take into consideration when investing. So all in all, we are here on a journey, but it's difficult. The main challenges that are related to the quality of information, which is provided by those who won are investing, it's derived by the actuality of those informations very often. They were quite mushy informations, which were supplied by the information providers. So there are quite some challenges, but we are tackling them, and I think we are making fantastic progress.

Okay. And if I may just add -- this is not on ESG. So I go back to the Capital Markets Day slides. On solvency, so I know you didn't publish, so you might say it was a non-fair question, but you've kind of given some indications. It was 200 for September and it's now a little bit higher than 200-odd to my understanding. I was surprised it's not a lot higher. The consensus was -- it's about 210, I think, 212 or something. And I just wondered if you can explain the moving parts of solvency if we think about it on an annual cycle basis. The impression I have, but here it's just an impression, is that the part of the reason the solvency has been kind of shooting up is that the growth is very, very strong. But I don't know if you can say anything.

I think in general it's more, but your expectation is far above 200. Well, we will come up again in the second quarter regarding solvency ratio, where do you stand and your indication as to what you have understood. We understand it for the time being. But again, it's true, we are growing with more than 10% in all the lines, and that consumes basically. So therefore, it's a positive effect and still we feel very much resilient with that level we have. And by the way, we have to make sure as well on the capital management we have $150 to $200 range we indicated in the capital market, and we have to make sure not to overshoot too much on that. So the rest is then compensated with the growth in the portfolio.

And I know it's unfair, I'm hogging the line. But remind me, and I'm sure I could ask separately, but you know the excess reserves or what I call excess reserves, are they included in your solvency?

Yes, to a large part, not everything of it, but to a large part they are included in the solvency accounts, but not by 100%.

There are no further telephone questions. At this time, I would like to turn it back to Bernd for web questions.

All right. So thanks. We have a web question from Vikram Gandhi. Vikram is challenging the outlook for the combined and industrial saying -- and I'll read out what Vikram put into the Q&A tool. I think the financial year '22 combined ratio outlook for Industrial Lines has changed a bit to smaller than 98 versus roughly 97 earlier. Does the group expect a compensating effect from investment income. That's one. Also, can you help us understand how inflation plays a role here. That is what Vikram wants to know.

Okay. Let me start, maybe Torsten will add something. So first of all, we expect the 97-point-something from Industrial Lines. We have set out internally also net income targets. And Vikram, you're absolutely right, they are overshooting on the investment side. Maybe there is some room left with regard to building resiliency for inflation to come. But currently, we do expect 97-point-something also in the combined ratio, and they are very well positioned. If you see the price increase of an average 12% for HDI Global, I think this is by far more than the inflation which we could expect at the current point of time. So I'm very positive with regard to the technical development of Industrial Lines.

And maybe just to add what Jan said is, if you would assume that something -- it's just what I said before, I believe exactly the 1 step combined ratio down per year. And there is no hint in the portfolio that there will be expected, for the time being, some negative impact due to inflation increase in the claims area.

So we hope that this answers your question. Maybe have the next question, please.

Yes. There is at the moment, hang on, let me check, no further web questions. [Operator Instructions].

There are also no telephone questions at this time.

Okay. So then, this has been the call. I just wanted to remind you our management of Retail Germany is on the road next week, and we are also doing road shows in London tomorrow to see some of you hopefully there. And I hand back to Torsten for a concluding remark.

Basically, I just would like to conclude. Thank you very much that you have been with us and we've had an interesting year together. And latest, we'll see each other on one of the roadshows or the Capital Markets Day. Thank you very much for joining us, and have a good day and a nice week. Thank you.

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