Talanx AG (TLX) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Talanx Analyst Call FY 2023 Results Call and Live Webcast. I am Davin, the Chorus Call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. [Operator Instructions]. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Bernd Sablowsky. Please go ahead, sir.

Thanks very much, and Good morning to everyone. This is the Talanx for the full year and the fourth quarter of 2023. I'm here together with Torsten Leue, our CEO; and Jan Wicke, our CFO, will take you through the results and where we stand currently with our business. After that presentation, Torsten and Jan, we'll be happy to answer your questions. And as usual, you can also raise those via the webcast. You are aware that we published preliminary key results in early February. Today, we came out with a full set of resides as well as the annual report of the Talanx Group and Talanx AG. All of that is available on our website as well as our financial data supplement, which gives you a comprehensive summary of all the relevant numbers that are important for our business. With that, I hand over to Torsten, our CEO. The floor is yours.

Yes. Thank you, Bernd. Good morning as well from my side. I would jump on Page 3, where you can see that we had another record year. You saw already in our first results we showed in February. Net income is EUR 1.1 billion. What you didn't see at that time is that we have these results supported by high quality of earnings, which means, as you can see, above EUR 3.5 billion resiliency we do expect, which means another EUR 1 billion more than we had last year, and this was both built up in the primarily end of the reinsurance Hannover reside. Jan will tell you much more about it later on. But at least, that means that if you see for example, the combined ratio of more than 3 percentage points was the resiliency effect, we still have in order to cover a balance future volatility. And having said that, we have decided that we increased the dividend. We will propose to the general meeting. Another 17% growth of last year, so 2.35 will be our proposal. And as you know, we had given you a path of EUR 2 to EUR 2.50 until 2025. So you see we are very close to the $250 million already. I come in a second to the next message on that one. On the next slide, you saw already this week, the strong performance of Hannover Re, but as well the Primary had a very, very strong performance. You see that Industrial Lines with 91.5%, I think they really become an underwriting champion. And again, having in mind the high quality of Brazil we have there, you can imagine that the combined is lower than this one. Retail International, we are not yet #1 in Latin America, but #2. So we're really a very prominent player in the region, which, in our opinion, gives us great growth opportunity in the future in these countries because you need scale in the business when you make retail and the letting market, for sure, we have it now. And that means on the other side, that we so Germany is now after many years by far, strongest smallest segment, but with an 11% return on equity, we have a very stable profit contributor here. On the next page, you see it overall in the portfolio that was 85% rest of world, we really very good diversified. I would even declare that out of our home market, we are one of the most growing side of our home market, most diversified company. I remember still times when I was working and we had 30% only rest of world, now it's 85%. So that means a good diversification and which affect as well our risk modeling very well. The type of business, you see we are Industrial Reinsurance B2B was 75%. And this is a good cycle. As you all know, the [ hog ] markets are there, especially in those industry and the Reinsurance side, and we still have relatively high yields compared to the past. So we can really clearly say the 75% of our portfolio, we have a very good cycle. Next page, you see that the promise is a promise. So I don't run the numbers through, but we just have beaten what we have said. The revenues are above what we have said and especially the group net income was EUR 1.518 is basically nearly on the level which we have promised in 2025 was 1.6% on our last capital market. However, this gives us a 16.6% return on equity, which is, I would say, quite okay. On the next page, you see that this return on equity and the performance and the growth was done really very nicely by the private shots. You can see a growth of 16% and just to remind you that the Liberty was just a couple of months in the books in Brazil, only Brazil. It means 13% is organic growth. So we have double-digit growth machine here, and our visible are seems to be working in the markets where we are in. So 16% growth. On the other side, the Reinsurance you can say, why only 2%, but you heard already from Hannover Re, that was a shift in business mix to non-proportional because there seems to be more attractive markets at the moment. And overall, that means that our group insurance revenue is increasing with 9%. But if you see currency adjusted, it's still a double-digit figure. So we are very satisfied with the growth. And that means on the next page that the private insurance is now contributing as well, more or less to the top line and bottom line with nearly 50%. You see that again, we had fixed 46% and a 3 percentage point increase to the contribution to the overall group net income results. And here again, I remember some years ago, we only had 30% in the Prime Insurance. So it really shows you that the Prime Insurance does probably the right way as Hannover Re did many years before. And that at the end is reflected on the next page as well in our market capitalization was increased in the last year of 49%. You can see here, and some of you do it sometimes making some of the part calculation. You see here the price earning in the Prime Insurance is on a good way with 4.6x taking end of last year. But for us, it means still we have room to improve. On next page, you see that our strategy house remains because it works. It's all about implementation. So our business model is a bit different. There are many others because we allow a decentralized entrepreneurship in our modeling, and we have a Cost Leadership in many of the segments. We play in 3.5 segments. We have Cost Leadership. And with the customer orientation, we really can outgrow our market position profitable. And the result of this, you can prove and you can see it in the proof on Page 11, having done the last cycle with the annual growth in the earnings of 8%. We increased it now in our site from '23 to '25. We promised actually on Capital Markets Day with 11% CAGR from 1.4% to 1.6%. And the reality now is what we promised today is on the basis we have this year that we grow in this year 2024, with more than 1.7. That's what you already know, which we published, but you don't know that we grow more than EUR 1.9 billion for 2025. This is another promise we give now to the market. And we believe that our nice growth we have now with again, what I said is a business model where we have not an over-market top position, if you say in industrial, we have, for example, in Germany is a top position. We have in several markets of international retail portfolio top positions but in many other markets, we don't. And with the model of Cost Leadership and Client Orientation, we really have a big opportunity to grow more market positions in the future. And that's reflecting basically the number. And on the next page, you see for sure that as a result, it means dividend payout will increase as well. We have, in the last years, let's say, from 2018 to 2021, we have increased more than 10%. Now we have sensed in last came market, we increased by 25% on the basis of EUR 2, as you know. And we have said on that basis, we want to grow another 25% until 2025. And this we do, but not until 2025, but one year earlier. So our promise today is that we proposed to the general meeting of EUR 2.35 and then for the year 2024 paid out in 2025 EUR 2.50, sat the end, the message is, we are on the same path but one year earlier, delivered as a promise. Coming on the next page of the product means to summarize it that what we have said on Capital Markets Day is on 2025, an increase of more than 10% return on equity. That has come around 1.6 and dividend 2.5. This year, already in our guidance is in requite around 15% net income growth more than 1.7 and already, as I said, one year earlier, the 50 dividend proposal. And that, as we are earlier than we thought due to what I mentioned before, our portfolio structure, our B2B focus and our Cost Leadership model, we will publish already new midterm targets one year earlier than we thought. So we will like you on the 11th of December to our Capital Markets Day. And there, we will again show you a 3-year targets or return equity, net income and dividends. So again, 1 year earlier than we thought. And with that kind of message, I hand over to Jan.

Well, thank you, Torsten. And hello, everybody. I'm happy to be here and to represent the fantastic numbers of 2023 to start with. On the next page, please, Dan. We've had a strong revenue growth of 9%. We are very healthy with regard to profitability, 16.6% and we are to increase the dividend to EUR 2.35. And this drives the question where the profit coming from. And on the next page, you can see that the profit is derived from the insurance service results. We were able to increase insurance service result on a group level by more than 30%. The majority derived from the Primary Group of the growth. But keep in mind that in particular, in both in Primary and in Reinsurance, we were able to strengthen our resiliency quite significantly. On the next page, you can see that the large losses remained within budget and the 3 largest net CAT losses in the last year with the storm in Italy, the Turkey as earthquake and the hurricane, Otis in Mexico. But all in all, with regard to the year, it was a normal year with regards to large losses. What really matters is what you can see on the next page, which is that we were able to show this fantastic insurance service results despite the fact that we've built up significant resilience in our liability accounting. What you can see here on this page is on the one hand side, the numbers you already know from Hannover Re that they have increased the resiliency to around EUR 2 billion that are undiscounted numbers here, but we also have increased the resiliency in the Talanx Primary Group quite significantly. And what you can also see if you put it into context that the higher level of resiliency is related to the Primary Group with above 8%, whereas Reinsurance stands around 5%. So this provides us with a lot of confidence that we can deliver on the earnings growth path, which Torsten just has mentioned to you. So all in all, we expect the external actuary to confirm resilience above EUR 3.5 billion for the year-end in an undiscounted way. So on the next page, we have some color on our investment portfolio. This is investment is the second source of income for us. Overall, we are pretty conservative here. So the majority of our investment is related to bonds. And they are in the higher quality area, investment rate with more than 92% of our bond portfolio. We benefited last year from a strong increase in the reinvestment yield from 2.8% to 4.6%. And we were always very sensitive about the volatility derived from the fair value and P&L assets. But looking at the last year, we haven't seen any in total. We have had a positive impact on those assets in our overall result. Having said that, so the strong insurance service result and is a very stable investment results. And on the next page, support our earnings growth path. We want to deliver more than EUR 1.7 billion next year and more than EUR 1.9 billion in 2025. This translates to an increase in the earnings per share of an average of 17% if you start 2022 to 2025. What I would now like to do is to give you some color on the capital management within the group. First of all, I would like to start with the value creation, which you can see on the left side of the chart. Last year, we were able to deliver in terms of capital creation. EUR 2 billion if we adjust the change in equity for dividends paid and capital increase. It's more than even slightly more than EUR 2 billion. But on top of this, and this is my favorite chart in this presentation, we were able to grow the contractual service margin and the risk adjustment, as we have presented in the previous quarterly calls. We have adjusted here the CSM and risk adjustment for minorities and taxes and what you can see here, if you add up the shareholder equity plus CSM plus risk adjustment adjusted for taxes and minority, we end up close to EUR 18 billion in the shareholder total capital. On the next page, you can see this translates already also in our market capitalization. As at the year-end, we were able to create more than EUR 5 billion value throughout 2023, which was a 46% increase in the share price slightly better than our peers. And we were also happy that our capital increase resulted in much higher trading liquidity. Now we are around EUR 10 million trading liquidity, trade volume a day, which is close to 3x what we had before. So it has worked out pretty good. On the next page, I want to give you some insights on profit and cash contribution from the subsidiary, and this has been a question from some of you. So first of all, as Torsten already mentioned with regard to net income Primary Group is slightly below 50% of the group net income. But if it comes to cash contribution, they are clearly above 50%. So all in all, we have a very balanced view here on Primary and Reinsurance, what you can see here. On the next page, you can see how we have funded Liberty, and I'm talking now about not only Brazil but also about the Andes country, Chile, Colombia and Ecuador. So in total, we had to fund EUR 1.4 billion, EUR 750 million out of it will be financed by senior debt by the mutual, the rest by the cash which was generated within the group. We were able to close the transaction on the Andes 1st of March this year, whereas in Brazil, we already closed this last year. So now all the work is progressing pretty fast with regard to the integration work which needs to be done in Latin America. On the next page, you can see that our solvency ratio due to the strong increase in capital generation will be even higher. I expect it to be even higher than end of last year despite the fact that Brazil and all the risks related to Liberty Brazil are already included in this number. So rough estimate is we will be around 2.15 for the year-end, which really reflects also the strong capital generation, which we were able to do last year. So we are able to finance our growth. And now this brings me to a summary on a group level before I dig into the segments, which is on the next page, profitable growth matters to us. We want to continue to grow our earnings per share 17% is what we have set out as targets to 2025. The shareholders will benefit from it. We are to grow the dividend to EUR 2.50 by 2024, which will be then paid out in 2026. And we will report new targets for both earnings as well as dividend in our Capital Markets Day in December this year. So having said that, I want to give you some more details on the segments now. Let's start with Industrial Lines. In Industrial Lines, we were able to deliver a strong growth with 10%. And if we adjust this for currency, it's even 12% to more than EUR 9 billion. The combined ratio, despite a significant increase in resiliency was at 91.5%, a very good number. And as Torsten said, they are really close to be our underwriting champion here and return on equity stands at 14.3%. If you look on the next page, we can see the sources of growth, which are on the one hand side, the net new business. So we are growing. And on the other side, rate changes, which are needed due to inflation. If we have a closer look to the adjusted rate changes, we can report that on average, we will be slightly above inflation what we were able to execute at the beginning of this year. On the next page, we can see how well our Industrial Lines is diversified by those by regional diversification as well as by line of business. I do not want to dig into that one in more detail. I think it's self-explanatory and on the next page, we have on the outlook for Industrial Lines. We want to continue to grow our business. So the target is a high single-digit number. The combined ratio will be below 93%, I would say, yes, significantly below and return on equity should be around 13%. These are the numbers for Industrial Lines. So let's continue with Retail International. Retail International in 2023 was our growth machine, and they will continue to grow during the course of this year, 33%. And if we were to adjust it for currency impact was even above 40%. And if we deduct from the 33%, the M&A, the inorganic growth, it would be just 22%, which is still a strong number. So we are growing here in a very good way. The combined ratio stands at very solid 95%. And as a return on equity stands at 11.2%. And I just want to repeat what I've said during the last call, we have injected some equity in Retail International in order that they can finance the second finance Liberty transaction. This has lowered the return on equity in the next year as we have done. So again, at the beginning of this year that they can finance the acquisition in Chile, Colombia and Ecuador. This will be another equity increases, which then at the beginning, minus a little bit the return on equity, but in the long run, this will pay off. We are very, very confident that they can deliver a double-digit return on equities here. On the next page, we see some insight to the strategy of Retail International. So the basis of everything is technical excellence. The combined ratio are now around 95%. They have increased their diversification. And they have, in particular, strengthened the access to customers due to the digital transformation, and this was done by M&A and partnerships. So we have a lot of new partnerships which provide us with digital access to customers. And there you can see this strong increase from 15.5 to around 70 million people, in particular in South America, which will be also a basis for our future growth. On the next page, you can see what we have achieved so far. In Retail International, we always said that in core markets, we want to be among the top 5. What you can see is that we are even better here, #2 in Poland, #2 in Brazil, #1 in Chile and so on. And overall, we are also able to diversify from a regional perspective, our Retail International portfolio in a better way that we are now close to 50-50 with regard to Latin America and Europe. The outlook for Retail International is a positive one, too. So with regard to growth, I want to underline double-digit, but low double-digit growth in the P&C area next year. In Life, mid-single-digit combined ratio should stand around below 95% return on equity due to the already mentioned equity injection will be above 8.5% for the year to come. So let me now go to Retail Germany. In Retail Germany, we had a growth in insurance revenues of 4%, which was driven by the P&C business whereas in Life, the revenues were rather stable. The combined ratio is still below 100%, 97.5%. You all know that the overall market development in P&C in the German market was quite demanding last year. Return on equity stands at good 11%. If we were to include the profits related to the MPG business in it, it would be even above 5%. On the next page, we can see how Retail Germany fits to the overall picture. So Retail Germany, given the growth of the other segments is now accounting for just 8% of the insurance revenues of the group, and it's a predominantly life business, what we see here. You can see that also in the group net income, it's 9%, whereas 6.6% is derived from life and where Retail Germany really contributes to the group is with regard to the cash contribution. So they accounted for 25% of the capital upstream to Talanx AG, which is a very healthy contribution derived out it. So what is the outlook for Retail Germany? On the next page, we expect insurance revenue to be stable. Combined ratio should stand below 98%. We want to increase the new business value in life or above EUR 300 million, and the return on equity should remain above 10%. So on the next page, we have the reinsurance numbers. I think most of you already have listened to the earnings call of [indiscernible] so I keep it brief here. So insurance revenue has been up 2%, but driven by a strong shift from proportional reinsurance to non-proportional reinsurance business, which is by far more profitable. Currency-adjusted, this number stands at 5%. The insurance service result was up 24% return on equity stands at favorable, fantastic 19.4%. So very strong numbers here despite all the resiliency that filled up in the last year. The outlook for Hannover Re is also very positive from a group perspective, the insurance revenue should grow by 5%. In P&C, we expect the combined ratio below 90% and return on equity should be above 14%. And if you do the math, you will figure out, it should be clearly above 14% for the last year. Having said that, I would like to hand over to Torsten for the outlook of the group.

Thank you, again. And on Page 44, a nothing new what we said already. So this year target, which is new to you. Now the EUR 250, we pay in 2025 for this year. And for next year already, we promised more than EUR 1.9 billion. And again, on the 11th of December, I hope many of you can see there because we will announce new 3-year targets going forward. And with that, I hand over to Bernd because we are finished with our presentation now it comes to Q&A.

Yes. We are now having our Q&A. Can the moderator please explain to everyone how it works.

Certainly, Sir. [Operator Instructions]. The first question comes from the line of Ismael Dabo with Morgan Stanley.

So I'm just looking at the reserve resiliency. We've had some commentary from Hannover Re on the reserves. Just wondering on the Primary side, can you tell us possibly what lines of business that the reserves have gone has been Retail Germany? Is it Industrial Lines, possibly what [ accident ] is? And additionally, I know that Hannover Re put some -- I think it was about $2 million extra into the current accident year. Just wondering if we saw any of that on the Primary side as well, which would put your reserve position actually, I know you said more than $3.5 billion, but even more than that. Second question is now that the Liberty Mutual deal is behind you, just wondering what the M&A strategies going forward? Should we expect further expansion into LatAm, given you want to increase your share there? I know you're #2 right now. And when I'm actually looking at like the slide that you gave with all of the market positions, you want to be in top 5, the only one outstanding there is Mexico, where it seems like you're #9. So just wondering is Mexico, the next area on the docket?

Thank you very much for the question. I'll take the second one. Jan will take the first one. Well, I mean, we do what we said many years we will grow. And if we think about Hannover Re growth, the focus is international. So with international portfolio, Latin America and Central Europe, especially CAT in Eastern Europe. And in the Industrial Lines, let's say, we like much the specialty markets and here, especially North American market. So that will be the focus when it comes to M&A. And in Latin America. Yes, we are #2. We're not yet #1. It is right. You have seen Mexico, we have not a position which is our aim. So important to say is we don't do everything we would just stay on the table, but we have to be disciplined. Our hit ratio is 4% until now. That means some other deals we see 4% is realized at the end due to whatever economic parameters mainly. And that is important for us to see. So yes, I mean, we have to grow, we can still grow. We are not yet #1 but we will state the implied as have been in the past. And Jan will tell something to the resilient position.

Yes. With regard to the resiliency, we are just used to give you an outlook on the assessment of Towers Watson, which will be published at the beginning of May. And we just give figures on the Primary Group as a whole and the Reinsurance as a whole. But what I want to give you some color already now. We are with regard to the resiliency at a very, very comfortable level at Industrial Lines. We are on a very comfortable level also in Retail International. And we have also strengthened [ Lianhe ] recent underwriting years during the course of 2023. all of that is included in the Primary Group as well. What I also want to mention that we look at the resiliency within our debt estimate liabilities from 2 sides. The one side is that we want to have a certain buffer to deal with volatility and the other side is capital efficiency. And with regard to the capital efficiency, therefore, we also have a look that we do not want to grow the resiliency embedded in the technical liabilities to grow because then it would, in the end, would be capital inefficient. So we have upper and lower limits for resiliency for each part of the group and we are steering our results a little bit according to that one. Second, what I would like to mention is that next to the resiliency embedded in our best estimate liabilities, we also have realized losses in our bond portfolio during the course of the last year in total, roughly about EUR 300 million, which will then translate into increased ordinary income for the next 5 years of EUR 60 million annually, which also supports our earnings growth part, which Torsten has outlined at the beginning of the call. I hope this was helpful.

We now have a question from the line of Michael Huttner from Tallink (sic) [ Berenberg ].

I'm not from Tallink, I'm from Berenberg. I probably misapplied when I registered. And I have a fantastic results at and Jan and I have 2 questions. The first one is Turkey. So I think you did a deal in Turkey and maybe you can talk a little bit about the prospects and when we might see some earnings on the euro accounting basis. The second is this magic period of more earnings, more cash, more resiliency, how long can it last? And maybe you can get a feel for where you see the market. And then the final question, which is really fairly a little bit unfair given how strong your results are. Can you talk a little bit about the German combined ratio, the 97.5%? And maybe split the German motor from the rest to give a feel, I know your fantastic IR raised pricing by 20% in German that's nice, and that seems to be back on track, but maybe talk a little bit about the rest as well. Thank you.

Thank you, Michael. I mean 3 questions. I'll start. So Turkey, yes, there was a deal done [indiscernible], which is a big bank, which lost a lot of entrance to new customers and a very profitable joint venture. And already, we have, I think, is double digits lower field average income. We already have after a small say, time of working together. So it's profitable, double-digit already. And it's going forward, is your big perspective is much better than we thought. And I'm sure on the Capital Market Day stated in November, will tell you much more about this and you will see a very promising deal we have done in Turkey. Second point is how long the market will be hard. And until now, we don't see a big sign that side money comes into the market. We see high discipline, probably because the soft market was so many years before happening, especially in the B2B market, that the shock is still there within the companies. And so I think it will last a little bit more. I cannot give you the roughness or how long it would last, but I don't see this here and probably even next year, a big softening market. I don't see it for the time being. The third one is when it comes to the German combined ratio. Again, this is a very small part of our portfolio. But Jan?

Yes. In total, Michael, as you are aware, we are talking the German P&C focus, I think, 1.3% of the group revenues or the motor book is 1.3% of the group business looked pretty small. So the overall combined ratio of 97.5% is derived from 2 positive and one negative effect, positive in the bancassurance business, very healthy contribution return combined ratio wise in the SME business. And on the negative side, I think this is why you this is the motor business, where we had a combined ratio of 118%. So obviously, there is some work to do there. But please keep in mind, we were able to increase the premiums by an average 19% at the renewal 1st of January. So there are measures underway to improve that.

The next question is from the line of Bhavin Rathod from HSBC.

The first question that I have is again on reserve resiliency. Obviously, have been a strong resiliency or strengthening in the Industrial Line. But can you just talk about how should we think about that going forward? Are you seeing any further pockets where the resilience would further be strengthened? And how should we think about that outlook in 2025? And the other one that I have is on your net income guidance for 2024 and 2025, it seems you benefited quite a bit from favorable experience on the fair value gain side. Can you talk a bit about how your normalized expectation is for these fair value gains or losses in the 2024 and 2025 target?

I think I will take the 2 questions. First of all, with regard to Industrial Lines, as I already mentioned that Industrial Lines have a very, very healthy resiliency level. We expect better results to come from Industrial Lines also with regard to the combined ratio, which we can show. Nevertheless, Industrial Lines business by the nature of the business is quite volatile. You never know how many large losses you have to cope with during the course of the year. And so the outlook is like the outlook is. But overall, we are confident, very confident with regard to the delivery of the technical results here. Second question with regard to the net income. And given that you have been a little bit difficult to understand, please ask again if I didn't get your question right. I understood you asked for the impact of the fair value and P&L asset and how we have accounted for it in our outlook. We have included that we expect some burden from the real estate funds in the years to come, which is also already reflected in this group net income outlook. So this is a 5% write-down could be easily handled within our guideline within our guidance. And given the overall resiliency we have, not only in the technical liabilities, but also in a very conservative accounting in our assets. I'm very confident that we can deliver both the EUR 1.7 billion by 2024 and the EUR 1.9 billion by 2025.

And if you ask me, just generally, just to add about resiliency development. The law basically is where the markets are hard and a good conditions, then you never know if there's high volatilities, bad things happening so totally of volatility. But generally, that we don't expect to reduce it, that would be rather an increase in reduction, but it depends if that market will continue like it is.

All right. Can I just quickly follow up on that hard market topic? Obviously, you've got the strong rate increases in 2023. Can you talk a bit about what are the dynamics you are seeing going into 2024? Are you seeing any normalization of this strong rate increase that you saw in Industrial Line?

I'm not sure if I got this question right, but try and you could follow up with the question. So what we have indicated what the average price increase we have done in Industrial, you've seen as well in Reinsurance. And so when it comes to your question probably of capacity, which jumps into the market, we feel still very good market situation for us at the moment.

The next question comes from the line of Roland Pfänder from ODDO BHF.

2 questions from my side, please. Could you comment on the cash pool level of year-end? I think it was around EUR 1.5 billion end of '22. So how much is the supporting your dividend aspirations. And let me ask maybe the question, what would it take to get to a payout ratio closer to 45%, which should be the upper level of the target range? Is it a matter of growth or higher dividend of Hannover Re because I think the EUR 2.50 early indication, that's already well covered by the higher dividend, which Hannover Re already indicated? Second question, that's German Life business. If I look at the CSM stock year-end, it declined slightly by 3%. Nevertheless, new business was up close to 50%. So what are the new parts here that the CSM stock declined actually towards the end?

So with regard to the first fund, the cash pool stands at EUR 1.4 billion. And if you translate that, we always call it dividend reserve factor, how many times the future dividend is covered by it. It stands at 1.31. So this is what we are looking at, that we have recent in German [ Gavin ] to pay out the dividend. And the second question was with regard to the CSM. Could you repeat that one? Is that the CSM overall declined? Or was it just for one -- I didn't get the beginning of your question.

If I saw it correctly, the CSM stock declined year-over-year slightly by 3%. Nevertheless, the new business was up 50%. So what are the moving parts here? Did you have very high releases? Or are there other operating changes affecting this number?

I'm wondering, so on a group level, we had end of 2022, we had EUR 9.5 billion or EUR 9.6 billion in CSM in the net CSM. And by the year-end 2023, we have an increase to EUR 10.7 billion.

I'm just talking German Life.

Ah, you're talking German Life. No, as has been adjustment in the MCEV models, which was the driver here. And therefore, the change in future expectation was the majority of the driver and the release of CSM was just EUR 254 million, whereas we were able to build up more than EUR 300 million or EUR 338 million in new business. So the majority is derived from a model change here.

Just a follow-up on the payout ratio. Is there a chance that you can get to a 45% ratio in the next years? Or what would it take to get there?

That's a good question. So first of all, maybe we could see the page again, where we have the net income and the cash contribution in the group. So what you can see on Page 25, is that we have a result of close to EUR 1.6 billion and just the cash contribution of the group of EUR 750. So 50% out of it. And where is this coming from? And there, the discounting effect of new accounting standards really matters because in the most of our entities, local statutory accounting is with undiscounted numbers. And therefore, we see the cash contribution from the sub subsidiaries with a time delay. And this is something, in particular, if you have a strong growing company what we are, and we want to continue to grow strongly because we believe we can grow profitable. This is something what you also have to expect for the future. Nevertheless, as I pointed out, we want to grow our dividends in the years to come to EUR 2.50 for 2024 already, 1 year early, so which makes the dividend growth of 12% on average for the last year.

And just to add on this, I can invite you again on December because as we have to do it any way to revise our dividend strategy and let's wait on December.

The next question is from the line of Michael Huttner. Please go ahead.

It's a follow-up from last one and also a little bit on nat cat. You've given the figure for cash upstream. So this is a cash 2023 based on 2022 earnings, I guess. So my guess is because the earnings jump, the must have jumped as well in statutory. Can you give a feel for how much this EUR 743 million might be in the current year? And then the other question, and it's probably in the slide deck, I'm really sorry. You have a large loss budget last year of EUR 2.2 billion, and you're within that. Is there any update on the current loss budget?

So last one I can take. We talk about update of EUR 2.4 billion updates, we have to increase because we are growing. So it's within our guidance, we have around EUR 2.4 billion loss budget. And the first one, Jan can take.

Yes. Obviously, we will also grow our cash from subsidiaries during the course of this year. We do not set out guidance for that one because we are obviously also steering that, but it will increase and it will help support the EUR 2.50, which we intend to pay for the current year for 2024, EUR 2.50, which will be paid then in 2025, I'm sorry.

[Operator Instructions].

Yes, we have some questions that were raised via the webcast tool, which I will hand ended and read out. We have Hadley Cohen from Deutsche. [indiscernible]. I'll start with Hadley Cohen questions from Deutsche and what he wants to know. Is it possible to give us a sense of what the normalized combined ratio was for Industrial Lines in '23? We bought that ratio was 91.5%. But if we adjust for resiliency buffer built and perhaps closer to 88%, maybe not cut a little lighter than expected. The point being, despite your guidance, why should we not expect Industrial Lines to deliver a sub-90% combined ratio in '24, particularly if resilient in [indiscernible] close to the maximum. That was the first question. The second question that Hadley raise is relating to the Solvency II. He asked, is it possible to quantify what you currently expect to be the benefit from the upcoming Solvency II reform? Talanx is one of the most adversely impacted by the risk margin. So presumably, you should be one of the biggest beneficiaries of any potential changes. Are there any offsets we should be mindful of? So those are the 2 questions from Hadley.

I think the first one, rightly observed on the resiliency level, if you normalize the combined there will be above 3 percentage points effect and you say, proportionally, it would be the same for industrial or even a bit more. So now Jan has said before, significantly below 93% and your assumption that I don't know insane number, but it could happen that it will be below 90% for sure. But you're rightly observed that that's what it is. So the real performance of the company in industrial. And Jan takes it.

Yes. Okay. The changes in the Solvency II on a group level, in total, will only have a minor impact. You're absolutely right that the new calculation of the risk margin will result in a positive one. And then there is the volatility adjustment, which is more or less neutral and then the new calculation of the extrapolation will be slightly negative. And the more negative the lower the interest rate development is. So in total, on a group level, rather minor impact from Solvency II. Maybe I should add the risk margin. The positive impact is also derived to a large part from Hannover Re. And with regard to the Hannover Re Solvency consolidation within the Talanx Group, there's a huge haircut on that one on this positive effect.

All right. So that was Hadley questions. I have 2 more questions from Philip Ross from BNP. I asked about the resiliency reserves, you are curious to learn whether we have a target in euro percent level for the resiliency reserves or I would like to know whether it's more opportunistic, adding when we can afford. On the cash contribution, we would like to know how Retail Germany can upstream above its weight. Is it because of the other units need to retain cash? Or is it retail Germany so highly cash generative in both life and nonlife. And the next and final question from relates to M&A. You gave us some details on the potential areas of appetite to grow inorganically, but what is the bandwidth? Do you need to wait to finish Liberty let them first before you think about the prospect of any other deals?

Yes. Well, I mean, I'll start with the first and the last one. So the reason, yes, we take a more optimistic approach because the idea is to balance future volatility and as I was indicating, 4.5 market, you build up and when the market gets -- happen as well one day, you have this is what you need to match volatility. The third question was regarding M&A, well, I mean this is clear that merger, you need on maximum 2 years to integrate. If you don't do it in that time, then it's very difficult to get the economics right. They're on the way, but it doesn't give us any limit to grow somewhere else because of different teams and different approach as we have in the group. But again, yes, we could imagine doing something more. But again, with the discipline of M&A approach. So we look very careful to all the opportunities we have here. So there's always the idea of growing organically and as well un-organically. And the second question regarding the cash of Retail Germany, Jan?

Was 25% of the overall contribution that we've seen during the course of 2023?

Yes. But the question was why is it above net income cash distribution?

Yes, we were able to get the cash contribution out of local statutory accounts. And given that the company is not growing so fast compared to the other parts of the group, therefore, we can receive higher retention rates of the profit there.

So we say cash cow.

Our cash cow, yes.

All right. So those were the webcast questions, and I see we have lined up more questions by phone. You can operate a takeover. And I remind everyone, there are 2 minutes left, so please limit your questions a bit. Back to moderator organizing the question, please?

We have a follow-up question from Roland Pfänder from ODDO BHF.

Yes. Just very quickly on your LatAm business. Fourth quarter combined ratios were below the levels that you had in the first 9 months. So is there something structural going on? And secondly, you have the restructuring costs on Liberty deal in the current year. Could you indicate what you expect for these restructuring costs? And if you expect a net positive contribution for the current year from this deal?

Yes. So I'll start with the second one with regard to LatAm Liberty. We expect already this year a positive contribution despite setting aside already the restructuring or a large part of the restructuring costs for the Andes countries. Second, we expect the net income contribution to be above EUR 80 million for 2025 out of the LatAm business. The start was very positive in Latin America, both with regard to the market profitability as well with regards to how the integration of the Liberty entities started within Brazil already. And now we have started with it in Chile, Colombia and Ecuador. So overall, a positive picture. With regard to the fourth quarter, there may be some prudency in our accounting to. So overall, we are very confident with regard to the contribution of the LatAm.

And again, we will tell you in the Capital Markets Day a much more detailed about transaction, the starting point because the market is very hard, is very good. And you will see that we bought something here where the price earnings are below 10, you will get all the details on the Capital Market Day and the starting point, again, we were very lucky about the market cycle at the moment.

A follow-up question from the line of is Ismael Dabo from Morgan Stanley.

Just circling back on the normalized Industrial Lines combined ratio. I think you said that there was about like if you normalize large losses and the reserves I've seen there was about 300 bps improvement there or it would basically be below 90%. What I'm trying to figure out is when you give your guidance for less than 93% in 2024, say, for example, if the underlying does come in below 90%, would you then add that back into your reserves and build further reserve resiliency? Or would you let it all flow through the bottom line?

Well, what we will do is we have a guidance of above 1.7 above 1.9. And please allow me to say, here, we will stay with what we said for the total group and the rest we will either accordingly.

We have a follow-up question from Michael Huttner.

In very quick. Clearly, Retail Germany, I mean, the SME business is good. The bancassurance is good in non-life, but the other bits are maybe not your favorite businesses. Would you have a [ sell on ]?

In Germany, we are, let's say, on the side, we're looking for buying if you have something for us to buy because that's our home market, and the question we have now.

Thank you. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Bernd Sablowsky for any closing remarks. Over to you, sir.

All right. Thanks a lot, and thanks to everyone joining and listening and asking and concluding remarks to come from our CEO, Torsten Leue.

I just conclude in order to thank you very much for listening and asking questions and into our stock. And on the 11th of December, again, we will come up with some news and hopefully interesting and hopefully will come and listen and looking to us there. Until then, I wish you good weeks and months. Thank you very much.

Thank you. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.