Good day, and welcome to the Munich Re 2019 financial results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Christian Becker-Hussong. Please go ahead, sir.
Thank you, Tracy. Good afternoon to everyone. A very warm welcome to our conference call on Munich Re's 2019 earnings, strategic update on our business and on the financial outlook for 2020. We will start with a presentation, and this will be followed by a Q&A session. It's my pleasure to introduce to you today's participants, Joachim Wenning, CEO of Munich Re Group, Christoph Jurecka, our CFO, Markus Rieß, CEO of ERGO, and Torsten Jeworrek, CEO of Reinsurance. I'll be back after the presentation, and now I hand it over to Joachim.
The Solvency II ratio is very strong with 237%. It is still well above the target range of 175%-220%. We propose to increase our dividend to EUR 9.80 per share. As you know, since the day before, we have again decided a share buyback of EUR 1 billion starting in May 2020. For over two years now, we have been working to become more responsive, embrace and adopt Digital Solutions in our incumbent business models, and generate new ones, mainly digital ones, reduce complexity, and take resources out, and to ultimately generate new business growth and increase earnings. In 2018, we exactly matched expectations. In 2019, as momentum and the positive impact from this is growing, we over-delivered both in Reinsurance and at ERGO. In 2019, we consistently strengthened our initiatives that we have launched in Reinsurance already in 2018.
We have again grown business profitably in select markets, like in key Nat Cat markets in the U.S., in Japan, in Latin America. We did the same in specialty lines like credit. Also the Life and Health reinsurance business has grown. Second, our so-called transformation program, which intends to reduce resources in the traditional reinsurance, the more transactional reinsurance, while at the same time investing into building new business models or extending new business models, is very well on track. We established a Global Single Risk Unit, thus increasing the focus on that type of business and again, reducing complexity. Some of our innovation investments are showing very encouraging progress. For example, Digital Partners were already productive in 2018. In 2019, they have doubled business volumes. Cyber has grown by 27%, as anticipated, but it's a strong success.
Our ambition to partner in the Canadian group life market together with incumbent clients and TPAs, is generating new income streams and is scaling up now. On the ERGO side, if you look on slide six, practically, ERGO is improving under all metrics and delivering on its strategic pillars. We actually expect ERGO, by the end of this year, to successfully finish the so-called ERGO Strategy Programme. By then, sales of ERGO will have further increased. They started increasing already 2018, more so 2019, and mainly due to a very massive productivity increase, at the end of the tied agents distribution network. ERGO international consolidation is finished with the sale of 18 companies. We've talked about automation, we've talked about Nexible, I think on previous occasions.
On this occasion today, I'd like to highlight that ERGO has a minority stake in a startup called Next Insurance, that you're aware of, which is targeting the U.S. commercial lines business in the SME area, which is, as you know, a highly attractive and a fast-growing market. If you look on slide seven, during the past two years, we have to concede that market conditions have improved substantially in various markets, mainly in select NatCat segments, in the U.S., in Japan, and in Latin America. As you know, NatCat tends to be a more capital-intense line of business. This is exactly reflected on this slide, that the risk capital consumption is growing faster than the business volumes. This higher risk intensity is very well rewarded and is creating new value, which then is reflecting in increasing bottom-line IFRS results.
On the investment side, we have been also making very good progress. For one, we wanted to establish one consistent investment strategy in the Group and develop investment processes very much in line with industry best practice. Secondly, we seek improving our return risk profile, and we do so by extending the number of asset classes, mainly illiquid ones, which still show attractive returns, but also manage more actively our portfolio and also use external asset managers where those are better or have larger scale than MEAG. As you all know, slide nine, beside the pure financial view, integrating sustainability criteria into our business strategies and the business processes is more and more important. What you see on this slide is where we are standing and how we are standing on the basis of various metrics that we are applying for this.
We just want to send out the message that our ambition goes even further than that, and we have become member, beginning of this year, of the so-called Net-Zero Asset Owner Alliance, seeking a climate-neutral investment portfolio by 2050. On slide 10, you can see the evidence that in 2019, our total shareholder return was 44%, which makes Munich Re second-best performer of the defined peer group of four globally leading reinsurers and four global primary insurers headquartered in Europe. With a dividend of now EUR 9.8 per share, the dividend payout increases to EUR 1.4 billion. If you add to this the EUR 1 billion share buyback, then we will practically cash back EUR 2.4 billion to our shareholders. The outlook for 2020, you can see in a nutshell on slide 11. It's mostly unchanged.
I can keep it short and say EUR 52 billion premiums, roughly 3% return on investment. We expect a EUR 2.8 billion IFRS result. How that is split down into ERGO and Reinsurance, you can see on that slide. Take the combined ratios only as an indication. I'm underlying this because we had those discussions. It's not sub-promises. It's an indication. On the Life and Health reinsurance side, we are expecting an increased technical result, going from EUR 500 million- EUR 550 million. I will finish my remarks inviting you to attend our Investor Day on the 8th of December in 2020. On this occasion, we plan to inform you about any strategic initiatives that we are planning and what the financial ambition is that we will have beyond 2020.
I'd like to also add, before that date, I would understand if you have questions of what the trend is, but please forgive us. On the 8th of December only, we will give you all the answers. Thank you so far. With this, I hand over to Christoph.
Thank you, Joachim. Good afternoon also from my side. I will give you a short overview of our current finance and risk topics starting on page 14. We are very pleased with the 2019 financial performance, particularly as we had to digest very high random large losses in Q4. This IFRS result of EUR 2.7 billion we are showing, this is clearly above our initial guidance of the year. What were the drivers? First of all, the earnings growth in Reinsurance, where we able to improve our underlying combined ratio to a level of 98%-99% now this year. Just to remind you, the underlying combined ratio is the normalized combined ratio, where we take out some one-offs where we think that they are not representative for the operating performance of the respective year.
ERGO, once ahead, is ahead of its target, delivered nicely, more than in line with the ESP program. On top of that, the strong investment result we were having were nicely showing an increased investment result. On top of that, our unrealized gains increased significantly with a total return of 7.7%. German GAAP earnings came in lower, mainly due to the replenishment of the equalization provision and some higher tax expenses in German GAAP only. Our stock of distributable earnings, and this is important now, our stock of distributable earnings supports the dividend increase as well as the share buyback easily. Our economic capitalization, with a 72 ratio of 237%, continues to be very strong. I remind you that in these figures, we already deducted the share buyback and the dividend.
This despite the fact that interest rates have been declining and we are growing our book substantially. I'd like to particularly highlight the economic earnings of above EUR 7 billion in 2019, which indeed have been exceptionally high and were able to more than compensate the growth as well as interest rate-driven increase of the required capital. On page 15, some details on the Q4 results and the major drivers. I'd like to start with the operating results, not on the slide, but maybe a comment on the operating result. We achieved EUR 580 million operating result, where the consensus was EUR 588 million. On the operating result level, we were really meeting the consensus very precisely.
Only on the net income level, there's a deviation between the consensus and the net income, mostly driven to the FX developments we saw in the fourth quarter, where the positive development on the FX side until Q3 was taken back to a large extent. Looking at the net income, the Reinsurance contributed EUR 116 million to the net income. ERGO contributed EUR 101 million. With that, fully in line with the run rate for the full year. Reinsurance was affected by high, large losses in the fourth quarter. I mentioned that already. On top of that, the strengthened assumptions for our Australian life business by approximately EUR 200 million. This is reflected in the technical result. Especially the combined ratio in P&C shows that this high large losses with a major loss ratio of 27.4%. The ERGO combined ratios continue to be very low.
Maybe one more personal remark on the Life and Health RE technical result. This came in substantially higher than I would have personally expected. With a full-year result of EUR 456, we are pretty close to the EUR 500, where we did warn you throughout the year that it's probably no longer possible to get close or to achieve the EUR 500.
That we are that close now at the year-end, given the fact that we increased those by this EUR 200 million, is exceptionally good in my view, and has to do with an outperformance of our expectations in more or less all markets except Australia. On the investment results side, return on investment 3.1% in the quarter, pretty consistent with the 3.2% for the full year. The investment yield in Q4 was a little bit lower than in the other three quarters of the year due to investment into shorter-duration securities.
On the next slide, I'd like to talk a little bit about our balance sheet strength. On top of our high earnings level in 2019, our balance sheet strength continued to be very strong. You know that generally our practice is that we try to be very prudent in reserving and have a very stringent risk management approach to protect earnings, especially in times of elevated volatility. Let's start with reserving on the left-hand side of the slide. You know that our prudent setting of reserves unwinds over time, leading to releases which then support the financial results of the respective year. In 2019, we were able to release 5.6 percentage points. Despite significant reserve strengthening we had to do for U.S. casualty. Still, and this is important, I'd like to underline that, still our reserve strength overall remains unchanged.
On the investment side, our defensive investment portfolio and the ALM have been the basis for delivering, again, a stable investment return despite the low interest rate environment. We have EUR 33 billion of unrealized gains now. There it's kind of a normal course of things that part of these reserves are being realized. We try to be as reluctant as possible with that. Still, also this year, again, these realizations overcompensated the losses we had on derivatives for hedging purposes. Finally, taxes, very quickly. The other reserving approach is pretty similar to what we do on the claims side. Initial reserves are being set prudently. Once the topics are clarified, usually we can enjoy releases from tax reserves as well. That's something which happened in 2019 again. Therefore, the tax rate, the 15% was pretty low, due to some releases we were able to make.
At the same time, the overall tax reserve position is unchanged. On page 17, some more details on P&C reserving. Overall, I mentioned that already, again, very favorable reserve development. The U.S. casualty trend is something which we see in the whole market and the whole industry, and of course, we are also concerned about some of the developments we are seeing there. For our own large and diversified U.S. portfolio, it's important to distinguish between different areas. In some of these areas, we have observed adverse development, particularly in the commercial liability space. Wherever we saw that, and very much in line with our prudent reserving approach, we immediately and very significantly strengthened the reserves in 2019 after having taken action in 2017 already and also in 2018. This is nothing new at all.
It's just the usual course of things that we react wherever we think it's necessary. On the other hand, there are other books in our portfolio, like personal lines, where we did see a pretty normal development, and overall, our casualty book is quite satisfying. Furthermore, developments in asbestos as well as workers comp have been favorable in 2019. Overall, on aggregate level, another year underlining our strong and very solid reserve positions in an environment with quite some issues in the industry, and as I said, also in some of our books. That's again important to notice, as already in 2018 and 2017, the positive developments overcompensated easily all the reserve strengthens which we had to make in some of our books.
With that, we were able to, on top of just compensating the pockets where we had to take action, on top of that, we were able to release 5.6 percentage points of our net earned premiums this year. On average, 5.4 over the last seven years. This is clearly satisfactory. On the next page, the focus on the investment result. For the last couple of years, we were impacted by the low interest rates quite heavily. That's what you can see on the slide, our investment return proved to be pretty stable. These stable returns are a result of our well-balanced, long-duration , high-quality investment portfolio, including managing some of the risks with derivatives. Then, of course, to some extent it's unavoidable that reserves are being realized.
We do so only in case, really, we need to do that, like for financing the ZZR at ERGO, or for ALM purposes, where we feel very much under pressure to take action to optimize our ALM position. On top of that, in the day-to-day portfolio turnover, of course, sometimes it's really unavoidable to realize something, because there's nearly any security left in our portfolio without any unrealized gains. Out of these realizations, we think the impact for the future on the running yield will be -5 basis points, roughly. There's another effect of -5 basis points from the lower reinvestment yield or the lower investment yield in the environment right now compared to what we have in the book. Overall, the attrition is expected to be - 10 basis points.
Also we are investing in non-fixed income securities like infrastructure, like private equity, like real estate, which also helps us to partly at least compensate the negative attrition we have in our book. Page 19, a quick view on local GAAP. Local GAAP result of EUR 1.5 billion is lower than the capital repatriation in 2019. The main driver here is the significant contribution to the equalization provision, despite a year with very high losses. You know that generally our local GAAP result is protected against volatility and then stabilized by this equalization provision. Of course, the flip side is that we eventually have to refill it. Especially in 2019, the replenishment was pretty significant. If I would adjust for this replenishment of the equalization provision and some tax effects, local GAAP would have covered the capital repatriation.
These differences we have between local GAAP, IFRS, economic earnings, which are much higher than IFRS. This is something, you know that, of course, which is just a natural thing with different accounting standards in place and just shows timing differences. The money is not gone. It's just being recognized at a different point in time in our P&L statement, therefore, it is just a different distribution of earnings over time. The economic progress and the economic beneficial year we had in 2019 is not affected by that. For 2020, similar to IFRS, we expect local GAAP to be above the 2019 level. Page 20, the Solvency II ratio. Largely stable and still pretty high above the optimal range, 237%. This includes already the deduction of the share buyback and of the dividend.
For the first time, we have been applying the volatility adjustment for some of the ERGO entities, which we think is an important step to improve the comparability to our peers. The impact on the ratio is 6 percentage points only, there was not really a necessity to do so, we think comparability is important here. There have been many debates around our capitalization in the past, of course. For some years, we have been asked why we are not more active in bringing the ratio down. In Q3, the other hand, we have been asked what would happen if we would then finally be at 220 or even below that. I can only say we feel very comfortable with the current level of capital we have. We were able to absorb the pressure from the low interest rates quite nicely.
We were able to finance our growth, we were able to deliver a strong operating performance, which was easily compensating the growth and interest rate-driven SCR increase. More details on the sources of earnings will be provided with the disclosure of our annual report March 18th. Page 21. A quick view on the SCR increase. The increase was almost EUR 3 billion across all risk CATegories. Major drivers, business growth and Reinsurance, in line with the risk-bearing capacity, which also was increasing. On top of that, the decline of the interest rates, of course, and also currency effects. Overall, we were able to further improve our risk profile because the insurance risks now even more clearly exceed the investment risks than a year ago. We have now EUR 15.2 billion of insurance risks versus EUR 14.3 billion on the investment side.
We continue to be in a very sweet spot with respect to our risk profile. On my last page, 22, only quickly some CFO housekeeping remarks. To improve the comparability and the consistency across our segments and also with peers, we decided to change our disclosure in 2020 in some limited aspects. We'll firstly concentrate more on the IFRS return on equity going forward and discontinue to present the RoRAC. Secondly, we will harmonize the definitions for admin and other operating costs between Reinsurance and ERGO, and will thereby move the Reinsurance also somewhat closer to what market practice is for some of our peers. By doing so, our P&C combined ratio will decrease by 0.5- 1 percentage point.
Then finally, we will move other costs at ERGO from non-operating to operating to have a clear distinction between operating and non-operating without components, and to give you a little bit more transparency on that going forward. That's it from my side. Thank you for your attention. With that, I'm happy to hand it over to Markus.
Thank you, Christoph. I am very happy to present you the 2019 results of ERGO. I repeat what Joachim Wenning said. This is the last year, 2020, of our ERGO Strategy Program. 2019 was the second last year. If you look at the development, I think we can be very happy across the board and can look at this as a confirmation that we are well on track to achieve our ESP targets by the end of this year. If you follow me on page 24, you basically have the standard array of KPIs that we have presented to you from the beginning, I'm happy to report that they are all at target or even better than what we anticipated. There is a growth in premiums. You see that in the next couple of slides, which is widely dispersed around all our companies.
We have again increased profit of EUR 440 million after EUR 412 million in 2018. The investments now for the first time in 2019, were higher than budgeted on the isolated 2019 year. We had a quota of 117%. We are now confident to say that we will achieve the ESP targets without exploiting the full EUR 1 billion that we have anticipated. We rather currently estimate the overall investments in the order of magnitude of EUR 920 million. The total cost savings come in as planned.
Current status is EUR 234 million. The combined ratio of P&C Germany, obviously one of our key KPIs, is now already down to 92.3%, which is pretty much on target as per 2020 already. The following page introduces again to you the progress that we've made according to the way we structure our business between Germany, digital business, and the international business.
Now you know most of that. I will again focus only on the highlights. In Germany, we have yet another year of increased sales. The sale increase year-over-year is 6%. The productivity of our tied agents, which is one of the key leading KPIs when it comes to customer orientation and profit orientation, is 18%. Another year of 18% productivity increase is really remarkable. It shows that we are very well underway in the sales area. We have now integrated our brands into ERGO, launched a new website, which shows this integrated approach. What used to be a concept now has become reality in Germany. The numbers speak for themselves. On the digital venture side, we are going one step further with Nexible. We have 23% growth in our pure digital player.
We are now focusing very stringently on process automation and optimization because, as you remember, medium term, this should be a very scalable organization with very low administration costs. One of the housekeeping items here is to make sure now that we have a critical mass of clients, 100,000 risks, that we really streamline the processes as much as possible before we scale up further. Good progress in ERGO Mobility Solutions as well as in robotics. I think an interesting KPI is here that every two weeks we come up with a new robotic solution that substitutes repetitive tasks by technology and thus increasingly substitutes manpower by technology. On the international side, I'm happy to reemphasize what Joachim said. The portfolio consolidation optimization phase is over. Technically, we acknowledge in the footnote that closings will take place during 2020, but it's all being negotiated and signed.
We have now a very stable situation in which the core markets are well-positioned and where we also have a growing franchise both in China and obviously in India. I'll come to that in a second. I'm very happy that we have now a strong, and I'd say with low volatility, affected kind of net income on the international side. Technology is one of the key drivers, and I'm very happy that I could write down a couple of interesting sentences for you. Basically, we are much more better in providing Digital Solutions and digital assets throughout the Group. We work on portability of digital assets, and we use them primarily on the sales side when it comes to using them for pure omnichannel behavior on the customer side.
There are a couple of numbers with slides, which I understand that Christian Becker-Hussong has already related to you the key information. Again, I'll be very brief and very happy to be available for questions later. You see here our segments, strong performance across the Board. The only number that is negative compared to the last year is the life number. Here, you have to bear in mind that we obviously have the runoff effect of the back book, which is still more significant than the new business in the new book, as expected, I can say. Also on Life Germany, we last year had one very significant positive one-off effect, which we didn't have again in 2019, and still EUR 187 million net profit is a very interesting number. The other thing I'd like to comment is on the international net income.
We had in 2019, EUR 50 million of adverse effects because of the portfolio optimization, and we will still be able to achieve EUR 105 million net income in this segment, which is very positive. If I look at the combined ratios, it's 94.3%, which is a record low on the international business. The combined ratio in Germany has come down. These are very nice set of KPIs. If you go into the segments and starting with Life, the new book now accounts for 20% of the overall share of Life Germany. It is composed of 49% biometric and 59% capital market-related . As you recall, we will build a book with low interest rate sensitivity, and we are well underway. What I find very pleasing is that our products are very well accepted, both with the clients and with our distribution partners.
A testament of this is the 29% growth in 2019 over 2018. You remember also from our previous discussions that we had notable deficits in the IT in the back book, and it's too early to claim our efforts a success, but I'm very positive that the migration of the first tranche, which will be a quarter of all of our 6 million policies, will take place this summer, probably in July. We are very happy that the preparations are going very well. When we talk next time, I can talk to you about the results. Already currently, you find me quite optimistic, with regards to the IT migration on the back book. The following page deals with health. You know that in health, we have a pretty strong position in Germany.
We are number two in the comprehensive insurance and number one in the supplementary insurance. The number of insured persons, which we use as a KPI, has again increased by another 60,000-5 .231 million, which gives us a market share of a little over 21%, which is a strong leadership position. The composition of the book is also good. We have now 32% of supplementary insurance as opposed to roughly 30% four years ago. It is going into the right direction, and we are very happy about this. On the P&C side, I can report two positive things. As you might recall in 2016, when you asked us, what is the expected growth rate that you could give us in terms of a compound annual growth rate on the premium of P&C.
I reluctantly said 2% because I knew that there were a lot of portfolio cleansing that need to be done. I can happily report now that we have achieved 3.1% since the beginning of the program, and in the last year, even 3.6%, which technically is a growth above the market. I think it's too early to tell on whether this is a trend, but it's very clear that this positive development in P&C insurance has come together with a higher growth than anticipated, which is plus/minus around the market growth, plus a significantly increased profitability, as you see on the right-hand side. That obviously is a very strong message. On the right-hand side, you see the combined ratio. It's now down to 92.3%. Out of the 4% that we've promised to achieve an improvement in expense ratio.
We now have cashed in, so to speak, more than 3%. Three-quarters of the way is already accomplished. We will get the last quarter in 2020. Also, the claims ratio has significantly come down. I think that is a very strong combined ratio that we can present. The last picture of mine deals with the international portfolio, and I have already said most of the things that are on this slide. The only thing I would like to say again is that we have a very interesting triangle of observations. We have growth in premiums, we have better technical results, and we have cost savings, which makes me personally optimistic that this strong performance is not only a one-off, but we have created the basis now into a strong performance for the medium term.
You see this, for example, also in our growth markets on the lower right-hand side, where we have been able to achieve a compound annual growth rate of 30%, reaching now EUR 700 million. That is only for the roughly 49% that we have and 50% that we have in those markets. That is now already part of a significant level of our overall premiums in the international business. My summary is ERGO is well underway. We have yet another year where we have outperformed our targets. You can rest assured that we will be extremely focused for 2020 to drive home and bring home the ESP fully, and that would then translate into EUR 530 million net profit. That was the target that we set ourselves in 2015, and you will today see me very confident that we'll be able to achieve that.
With that, I hand over to Torsten.
Okay. Thank you very much, Markus, good afternoon, ladies and gentlemen. In my short presentation, I will try to cover three parts. I come back to the 2019 results, give some insights. In my second part, I will discuss the January 1 renewal, in my third part, the strategic, particularly innovation initiatives. I'm on slide 32. That is the property and casualty business in 2019. Don't want to repeat all the figures. Overall result was very satisfactory, more than EUR 1.5 billion. However, technical performance with a combined ratio of 101% for the full year was behind expectation. Christoph mentioned that was only driven by a very high NatCat loss experience, also large single losses were above expectation. Overall, the large loss NatCat ratio was 15.2%, 3.2% above our 12% average expectation.
To some extent, you could ask, why was Hagibis, the Japanese loss with EUR 780 million higher than the Jebi before? That has to do to some extent with the region. Even more so, with our risk appetite. After 2018, after Jebi and Trami, the terms in Japan improved. We increased our risk appetite in 2019. In hindsight, you can say at the wrong time, right. On the base of much better terms than in the years before. Reserves, Christoph mentioned that already. Overall reserve level is in line with, I would say, the last 10 years before, very satisfactory. Despite we have to take action and took action in some of the U.S. segments. I will come later to the United States casualty business and will give some more insight about that.
When I compare, let's say, the volatility from CAT and large single man-made losses on one hand, and then compared with a very satisfactory reserve level in the overall book in 2019, my judgment would be volatility is at the end our business. You can say, of course, we don't like it, but it's our business that we are there for. We ride this and should justify this business as long as it stays in our risk appetite and as long as our models are right. For all the large loss events and the CAT events in 2019, we have no reason to believe that any of our assumptions is violated or not met. These CAT losses and large single risk losses do occur. Of course, we have to make sure that we get the right premium for that and get the improvements.
Reserve problems are more problematic, and we are very happy that we have a very conservative policy in place and take immediately action, which helps us, so to speak, to manage our overall portfolio immediately. Christoph also mentioned the underlying combined ratio. Underlying, is between 98%-99%. That is slightly above our 97%, which we expected to achieve. You can say, why is it still above? Yeah, there's some noise in the underlying figures, but there's one major reason. That is, also because of the adverse development in the U.S. business, we decided basically, to have more conservative loss picks in the current underwriting year. That means what we saw and see from the past has an immediate impact on our assumption also in the current underwriting year, which of course, moves the combined ratio, the underlying combined ratio, slightly up.
Considering the changes in the allocation of the admin cost ratio, but also considering the rate change, the positive rate change, I will report later from the renewal. These two factors will change our assumption, and we think in 2020, we are confident to achieve the 97%. Next slide, that is the life business, EUR 450 million. Christoph mentioned that. Almost achieve our EUR 500 million targets. All continents, all regions in the world delivered very well. The only regions where we still struggling and took a reserve hit of EUR 200 million was Australia. That means if you take the assumption, that is my assumption, that Australia for the time being is well reserved, then I think there's a realistic chance to meet the target, and that is also the reason why we decided to increase it.
I skip the next slide 34, where you see our three major pillars in our strategy, Reinsurance business, risk solutions, and innovation, and come back to Life and Health. In Life and Health, I would only like to underline that all the continents and what are the major markets is Canada, United States, Continental Europe, U.K., and Asia. All these markets have very, very strong growth and profitable growth. That is good. The only market where we don't grow business, we hardly write any new business, is Australia today. In Australia, because of the disability problems in that market, our focus is really claims management and restructuring and repricing of existing treaties. That means in all other markets, the world is pretty good for us, and that is the reason, again, why we increased the target to EUR 550 million, which you see on slide 36.
Slide 37, these are the January renewals. January renewals, first I try to describe the market environment. There was, of course, a high expectation before the renewal started that we will see and have to see better terms and better pricing conditions. Why? Because we had, in the third year, an extraordinary development of CAT losses and large manmade losses. 2017, the HIM losses, 2018, the Japanese losses, 2019, again, Japan plus the aviation and space losses. The whole market has to struggle with these reserve problems in the United States Social inflation is a key word here. With this expectation, of course, we went into the renewal, and in a nutshell, I would say the market environment did really further improve. That is a given. The market environment is much more positive than in the years before.
However, you can ask, is this now a global hard market? No, it is not. It's not a global hard market. In markets like Europe and in Asia, I exclude here Japan is up for renewal in April only. Europe and Asia, the market is not a hard market. It's a kind of flattish market, I would say. It's not soft or softer than before, but it's a kind of flattish market. It does not participate in the improvements of the United States and the CAT-affected business. Which are the segments which really helped us to improve the rate? That is CAT business in affected regions, particularly United States, Bermuda. Japan, again, will come later. The specialty lines, aviation, space, and the large industrial business. The whole U.S. primary and Reinsurance market does improve considerably.
In this, of course, positive market environment, there are good chances for us to improve our profitability and also take advantage to grow our portfolio. It's not an approach you could or should take that you say, "Now I open the gates and really want to grow everywhere in the world." That would not be the right approach. We are very confident here. On slide 38, you see the Munich Re figures of the January renewal. Please remember, January is, for us, among the three renewal dates, the most important one in terms of size. At January 1, about 50% of our global P&C business was up for renewal. What we achieved was 4.4% increase in our volume to EUR 10.65 billion now.
This 4% after we decided voluntarily to give up more than 10% of our portfolio for price and profitability reasons, particularly in the United States. The rate change which we achieved was 1.2%, so much better than a year ago. I would like to remind you this 1.2% is not easily comparable with all of our competitors and market figures these days. Why? Because our figure is a fully risk-adjusted figure. Fully risk-adjusted figure means we don't measure and report here the nominal rate change. What we monitor here is the risk-adjusted rate change.
That means it also includes our increased and more conservative assumptions regarding the loss picks in the new portfolio. That means when we see inflation trends, emerging losses also, when we see, so need to adjust our CAT models a bit to reflecting the CAT activity, then that is reflected in this rate change.
This is, in our opinion, a pretty good figure, which gives an indication about the possible improvement in terms of the margin and the combined ratio in 2020 and 2021. All lines of business showed a positive price change, so there's no exception, be it property, casualty, be it the specialty line. In percentage-wise, the biggest contribution came from the specialty lines. In the United States, and particularly in the casualty business, we participate in the proportional business from the significant rate change in the market. We are still very conservative and almost reluctant to write non-proportional business. Active portfolio management remains key. If you ask me, my assumption, my feeling for the April renewal Japan is, of course, very positive after these two years of losses. Slide 39. Only a short summary. Where did our growth come from between 2019 and 2018?
Smaller extent from the mature markets. To a very big extent from the emerging markets and then also from risk solutions, which is in line with our priorities in our strategy. Slide 40, I would like to give you a short remark or short feedback, what you can expect from our appetite in NatCat business on a global basis. Do we have an appetite to increase this further and further? The answer would be no. Considering our financial resources, we have, of course, financial resources available to write more CAT business, if and only if the terms are really attractive. Here on that slide, you see a few examples where we think this is the case or was already the case. That's United States, that is Japan, and that is, for instance, the Caribbean markets. Now I switch to the next slide, 41.
On that slide, because there's a lot of noise and discussion in the market about the U.S. casualty business, we thought we'd give you some figures, what we have in our books here. You see here on that slide, in the left part, the premium and the split of the premium of our global casualty business. That is everything United States and all other markets, EUR 6.8 billion. The more important part is on the right side, which causes the attention now, that is the U.S. book. In the traditional casualty book, we have EUR 2.7 billion. The EUR 2.7 billion, it's an important part, but of course not the only part in the world. When you ask me, where are the critical lines today in the United States? Look on the circle on the right side.
We think, according to our analysis, all what is in the commercial liability proportional and non-proportional, the 70+ to 6% part of the EUR 2.7 billion. This part is more exposed to the social inflation. Personal lines is less exposed. That is the remaining part. When you look at our contribution in, or split in commercial lines, the highest exposure come, according to our figures, by far from the commercial liability, non-proportional business. That's the 6% here. Is there an explanation for that? What drives this feedback or this statement? The reason is pretty simple, we saw this pattern already when we had these reserve issues, remember 15 years ago from the workers comp book in the United States in the old American Re.
The non-proportional book looks nice for a while, but if you run into adverse trend, then once the priority, the retention is exceeded, then all further adverse development is asymmetrically distributed between cedent, insurer, and reinsurer and goes only into the Reinsurance book. That is the reason why you see here such a small figure of 6% only. Our risk appetite has not changed. Even in an improving market today, and I admit even the commercial liability excess of loss book has improving terms today. Our risk appetite will not and has not changed. We keep this segment very, very small. How do we react here? I indicated that already. Whenever we see the smallest change, so to speak, of adverse development in one of the segments, we first address it with two measures.
First in our reserve book, second in a more conservative loss fix in the underwriting policy. Of course, we have an, let's say, underwriting target portfolio defined, and this target portfolio focuses more on personal lines business and less so on commercial liability. We gave up almost EUR 700 million premium in particular coming from this segment because we think our concern are not so much our reserves. Our concern is the uncertainty in the new business. We still don't know, and I say in spite of all the improvements in the underlying markets, we still don't know whether the premium and rate increases are sufficient. I admit they are much better in the years before. Are they sufficient considering the loss trend or not? We don't know yet.
For that reason, we are very selective in our underwriting, focus more on personal lines and in commercial liability, more on the proportional book. On the next slide 42, risk solutions. That is our specialty insurance book, which grew very nicely from EUR 4.3 billion- EUR 5 billion now, which is a very nice increase. Combined ratio is elevated, but not because of poor underwriting, underlying combined ratio or performance, but only because we had to digest the large losses, particularly from aviation and from our space business.
We are market leader in space. We had around five satellite losses last year. Our share is between 25 [audio distortion] in these losses. That explains it. Particularly pleasing were the results from American Modern. Here you see it also from Facultative and Corporate, where we have excellent combined ratio in American Modern, 88%. At the same time, 17% growth. That is more property book, what they entertain.
Facultative and Corporate is a very volatile and very cyclical business. Over 93%, that's larger industrial business, which does not cause any concerns in our book. HSB is not on the list. Hartford Steam Boiler is as good as always. 92% combined ratio. Slide 43. It's basically an update of our innovation portfolio and of our strategies. You see here the three segments on that slide. On the left side, some examples how we try to change or to build business models which change the value chain. Examples are our Digital Partners, what was already mentioned by Joachim Wenning, where our premium volume in the meantime grew to EUR 200 million. IoT, Internet of Things, which is more a service model and where we just founded a joint venture with the car manufacturer Porsche.
Munich Re New Ventures, which I come back to that in a minute. In the middle part, extending the boundaries of insurability. That is basically new product and services. Cyber, I will also come back to that. On the right side, data-driven solutions. That is something like underwriting engines based on artificial intelligence, et cetera. I want to give you an example, where we stand on the platform business. Slide 44. We took this example of Munich Re New Ventures. Munich Re New Ventures is a Canadian business model, developed by our Life and Health colleagues there. What they do is, they want to basically look for opportunities in the very big and very profitable Canadian Group insurance market. That is a market which is performing well, but in terms of processes and services, although not on the best level.
What they built is, they built a digital platform called Parachute. This Parachute platform basically manages all the processes, manages the distribution, manages the admin services, and pricing. They cooperate with this platform together with insurance companies, but also with third-party administrators. We have then two options. You see that here. Either we take part in that business via quota share behind the traditional cedents, which use our platform, or we use it directly behind the TPAs and pursue the direct business model. Why is that important? It has been developed for a number of years. We are in the market with this business model. The feedback is extremely positive. What we expect is midterm. Midterm, when you ask me next, around five- six years or so, to make an income in the order of EUR 100 million.
That gives a kind of indication for the potential of that business model. On the next slide, an update on our Cyber business. Cyber business leads always to controversial discussions. On one hand, we all see there is a big and ongoing demand. Why? Our world is connected. More and more of our commercial end customers see the need to protect their infrastructure, of course, by using technology, but also by insurance product, by buying insurance. We are absolutely of the opinion that our industry, and that includes us, of course, have to find solutions to serve these customers. Major market is still the United States, which is about 80%-85%, but more and more of that business comes from non-U.S. markets like Europe and Asia. We were successful to grow our portfolio in line with the underlying market.
Our premium volume is around EUR 600 million by end of 2019. Our profitability is very good. Its combined ratio over the last four years, five years is the order of 80%-85%. You can always ask the question, do you really know what you do? Difficult question because it's a young segment. What we do is really, first of all, we build internal expertise. We hire external expertise from outside. We have approximately 100 FTE now in the company who really are kind of specialists, know how that business and how the technology works. We use a lot of experts to permanently improve and enhance our pricing models, but also in particular our accumulation models. Risk management is key in that business. That comes on top, we think because it's a very technology-driven business model.
We cooperate with many, many companies, including companies like Team8 from Israel, which have their expertise from the, how should I call it, cyber or from the intelligence or cyber intelligence. You know what I mean. These guys. The good hackers in my words. Of course, they give permanently good feedback and help us to build all the service business models for our customers. That is, in other words, a careful approach. We know that it's permanently changing, but on the other hand, we are still of the opinion that we have to serve the market here and are undisputed market leader. At this slide, I would like to finish maybe with a comment. Reinsurance expectation in terms of profitability, but also selected growth looks better.
In 2020, it's not a global hard market. We are in a position to entertain the business and have no issues on the reserving side. Thank you very much.
Thank you, gentlemen. We will now start with the Q&A. May I please remind you to limit the number of your questions to a maximum of two questions per person in order to give all of you a fair chance to participate in the Q&A. Thank you, and back to Tracy. Please go ahead.
Thank you, sir. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We will now take our first question from Vikram Gandhi from Société Générale. Please go ahead.
Hello. Hi, good afternoon, everybody. It's Vikram from Société Générale. I've got two questions. Firstly, on the HGB result on slide 19, I'm just a bit surprised to see a rather strong increase in equalization results despite heavy losses in 2019. I know you've touched upon that topic briefly in your opening remarks, but it's the same amount as we had seen in 2018. Rephrasing the question a bit, if the large losses in 2020 are in line with the budget, does it imply that you'll have to fill that bucket even more? That's question one. Second is on the Group's investment portfolio, where I see the share of equity investments has grown, despite strong disposal gains in the fourth quarter. That's on slide 61.
Given what's happening in the markets today and your rather conservative impairment policy, what's your comfort level with respect to the EUR 2.8 billion net income guidance for this year, especially in terms of equity market downturn? Thank you.
Thank you, Vikram, for your questions. Christoph here. I'll take both of yours. The first one, the difficult thing with equalization provision is the following. It's not a simple formula looking at the overall book we have, but it is really sliced according to different lines of business. When we are looking, for example, at the large CAT claims, they more or less all affected the German GAAP line, which is called FIRE. In that particular line, we did not have to replenish this year. In that particular line, due to the high losses, nothing really happened. At the same time, in other lines, German GAAP lines, that's not the lines we are usually talking about. In other German GAAP lines, we had favorable developments, which led to the fact that we had to increase the equalization provision.
It depends very much not only on your technical result overall, according to German GAAP, so pretty much on how it sliced according to different lines of business and how big is the volatility in these particular lines compared to their 15-year average, what we saw there in the past. That makes it so difficult to predict the development because it's not depending just on one key KPI, but really on a variety and different factors, which might also change throughout the year. This equalization provision is also somehow a little bit more difficult to predict than other positions we have. Therefore, we increased this year comparatively high despite the fact we have the large CAT claims, but coming from other lines than where we had the replenishment the last couple of years.
Equity investments. We slightly increased equity investments throughout the last year. Nicely benefiting from that, in the earnings, but even more on the unrealized gain side. The unrealized gains increased to EUR 1.8 billion on the equities last year, and this is a pretty nice buffer we still have. On top of that, we are positioned a little bit more conservatively as we speak, and we have some derivative protection, as you know, in some of our books for ALM reasons anyway. Having said that, I wouldn't say we are unaffected by the development we see in the stock markets. We can be, let's say, pretty relaxed when it comes to the achievement of our year-end target or year-end guidance because there are still so many moving parts, and we have a certain level of protection in place anyway.
As I've spoken that before, our business is volatility. That's some additional part of volatility. We are not concerned at this stage.
We will now take our next question from Kamran Hossain from RBC. Please go ahead.
Hi. I've got two questions. The first one is just on the dividend. I guess we've had a good progression towards earnings, EUR 2.3 billion-EUR 2.5 billion, next year EUR 2.8 billion. The dividend seems to be slightly lagging in that earnings growth. I'm just wondering whether we might see some kind of catch-up next year or any thoughts around that. Does an improved German GAAP result, hopefully next year, influence that decision in any way? The second question is on the Tokyo Olympics. Saw the headlines on the tape, about the triple-digit million number potential. Could you talk about whether that's in Reinsurance or whether that's in the primary part of the business? Then potentially in the Reinsurance bit, is there any kind of other aggregation concerns that you have around coronavirus, or even the Olympics? Thank you.
Christoph again here. On the dividend, we did show a dividend increase today. We did announce a proposal, which is an increase. I'm not sure if it's really lagging behind. I think it's pretty much in line also with consensus. We never said it's going to proportionally follow the earnings increase from EUR 2.3 billion- EUR 2.8 billion. Due to the fact that the lower boundary of the dividend was that we never had to reduce it in the past. This floor is pretty important to us. We cannot just increase it proportionally because we have to make sure also a level of safety, as a downside protection. Therefore, under proportional dividend growth, I think we delivered on that. I don't see any lagging behind here, I must say.
Okay, I take this question, if I understood you correctly, accumulation risk from event cancellations. I think you refer to the current pandemic situation also. That's my assumption. I give you some figures. What I can't do is to give you specific figures for a single event, because they fall under non-disclosure situations and agreements with the client. Here, I can't give you figures like Olympic event or so this year in Tokyo. As an indication. Before I do that, event cancellation takes place for sports events, takes place for exhibitions, takes place for concerts and whatever. There are many things. It depends on the cover, on the policy, whether this event includes pandemic events, cancellation because of pandemic events or not. Both is possible. Both is very common, by the way.
When we look at our portfolio and would take a scenario where all possible events which are thinkable this year, all fairs, all concerts and big events, small events, would materialize, which have such a coverage for pandemic events. Our exposure range would be in the middle, medium, triple-digit million range or so. That is EUR 500 million+ at the end. In that range. That is a worst case. It's not really a worst case because you always have a bit unknown treaty exposure. That's the good indication if many events are really canceled during the year, which have this kind of coverage.
That's great. Thanks, [audio distortion] .
We will now take our next question from Jonny Urwin from UBS. Please go ahead.
Hi there. Thanks. First question. I was just wondering if you could please provide us a walk, how you see the walk from the 2019 Normalized Combined Ratio to the 2020 guidance. In particular, I'm interested in just hearing how you're thinking about loss ratio improvement, expense ratio improvement, and then the accounting change as well. Thank you. Secondly, just go back to the casualty current year loss fix strengthening. Can you just give us an idea of where you are in terms of reserving level on that book? Is it in line with the reserving strength at the group level? Is it lower? Is it higher? Thank you.
Yeah. Thanks, Jonny. First of all, the walk of the NCR, I think that's pretty straightforward. Underlying combined ratio, we said we were between 98% and 99%. The normalized 99.3%, you take out some one-off costs, and then you'll be at this level of 98%- 99%. This is 2019. The walk to 2020. First of all, if we look at the 1/1 renewal and the renewals to come, this already will give us about a percentage point or something as a reduction. On top of that, this [97] next year includes the new cost definition, which is another 0.5%- 1%, depending on which kind of costs are finally occurring then during the year. That's pretty much the walk. It's no miracle or something to need here.
It's really pretty much the development we see in the market, and in connection with our book we have currently. Casualty, the reserve position. As I said, as soon as we see indications which are adverse, we react immediately in line with our general reserving strategy, which means that we also react not only immediately but also drastically if needed. Of course, that doesn't necessarily mean that for all times in the future, reserve levels are already good enough, because we cannot predict how the future evolvement and how social inflation is going to further develop in the future. To the best of our knowledge today, we did reserve these books according to our usual general prudent practice. You never know how the development in the future is going to be.
Thank you.
We will now take our next question from Andrew Ritchie from Autonomous. Please go ahead.
Oh, hi there. First question I think is for Markus. Could you just help us understand, I think you were implying if we were to normalize ERGO's result for 2019, we should add back EUR 50 million, which was the disposal effect in international. Already you're running at, say, EUR 490-EUR 500. Is that a fair normalization? Is there anything else I should do? Also just where is the biggest scope for remaining improvement? Because you're already running where you want to run in P&C. Life, it looks hard to really shift that profitability, given it's dominated by the back book. Is most of the upside from here in international still, particularly some of the EM businesses? Maybe just to clarify normalized earnings and where upside is. My only second question on the U.S. casualty thing, what actually was the impact of strengthening in 2019?
In particular, when I look at your triangles, you had nearly EUR 900 million of adverse development in the 2018 accident year. I think most of that was Jebi or other CATs. What was the casualty effect in that and the overall U.S. casualty negative PYD? Thanks.
Thank you, Andrew. On the normalized result, obviously, it's always hard to look at the normalization because you have positive and negative runoffs. You are right in saying that I believe that in the international portfolio, the result on a normalized basis would be significantly higher. Might be in the order of magnitude of EUR 150 million. I also have to say that we have positive one-offs in other parts of the business, smaller ones, each in and of itself not being noteworthy. We believe that they are in the order of magnitude of EUR 30 million-EUR 40 million. Yes, the result is a little bit understated in general, but not in terms of EUR 50 million. If you ask me, I'd say we are in the order of magnitude of EUR 470 or EUR 480 or something.
That's sort of the order of magnitude that I would be seeing. Further upside potential comes from still various sources. One source is that we still have 1 percentage point on the expense ratio to go. We'll be realizing that because we are still in the last phase of our HR reduction. While we have negotiated with pretty much everybody, more or less now, their point of leaving, obviously within 2020 and beyond, there will be people actually leaving. That will be certainly a positive factor. Also, I believe on the German sales side, with the current year-on-year growth, last year year-on-year growth is 6%. I'm not at liberty to disclose the current year-on-year growth number, but the way I look at it's not going to be low 6%. That's something which is also something which will create additional revenue potential.
Lastly, and probably most importantly, there are still over proportionally high investments planned in 2020, because it's the last year of this big investment phase. If I look at all of this, I think the EUR 530 is still an ambitious target. Yes, you are right, it is absolutely reachable, and we are committed to achieve it or even overachieve it. After this ESP, we will be looking at it strategically in the context of what Joachim was saying, the Munich Re strategy, and then we'll debate what kind of levers we see beyond that. I hope that clarifies the issue a little bit, Andrew. Thank you.
Thanks.
Your question on the casualty reserve, I am happy to take that. Maybe we start with the accident year 2018. This one is pretty much driven by Jebi, but by far, not only Jebi, because there is negative runoff in there for many other single large losses in there as well in this figure. The vast majority of this figure relates really to large losses. Jebi only being one and the most prominent one within these. There is also a certain portion of basic losses in that. As I said, the majority really relates to the large loss piece, which overall, across all years, was neutral. Just to make that pretty clear. The 2018 year is just exceptional in the sense that in all other years, all the large losses did run off pretty positively and overall, and this was neutral.
Your initial question was the level of casualty, reserve action we had to take. There, I just have to apologize. We're usually not talking about sub-portfolios, and we'd like to stick to that practice.
Okay, thanks. We'll wait for the triangles.
We will now take our next question from Sami Taipalus from Goldman Sachs. Please go ahead.
Yeah. Hi. Thanks for taking my question. The first one is just on the growth of the P&C Reinsurance book. If I just listen to you talk, you sound reasonably cautious on, I guess, a couple of the major areas like U.S. casualty space, but also the CAT space, et cetera. Is it possible to just give any sort of insight into how you think about the growth potential of the aggregate business over the next year or so? I appreciate obviously it's going to come down a lot to the pricing that you get. It'd be great to hear about how you think about the potential there. The second question I have is just relating to the interest rate sensitivity of the business and I guess, ERGO in particular. If I look at your UFR sensitivity, it's come down quite a lot year-on-year.
It was about 7 percentage points- 50 basis points move last year, and now it's about 2 basis points. What's that driven by? Is it just you changed your hedging? Also on this topic, how do you think about the potential reforms to Solvency II and the impact of that? In particular, have you floored interest rates at zero in your calculation of the interest rate stress? Thank you.
Torsten, let me start with your first question. I think I understood it correctly. You ask regarding the aggregate business or the CAT aggregate business?
No, sorry. The whole, the P&C Reinsurance portfolio in total and the potential for growth in that.
Okay, understand. The total P&C business, let's say, I don't have, let's say, a line of business-wise growth target here. I could not tell you because and by the way, we don't give that to our units, and our units have not given that to them. It's basically a response to market environment, what they can achieve. That is why I sometimes say, when the portfolio mix should change more towards CAT business or more towards casualty business, that will of course, also have an impact on our combined ratio, what happened in the past, by the way. On the property book, my answer would be the following. On the proportional business w orldwide. Our, let's say, appetite is unchanged. All the opportunities are also, let's say, a bit limited, I would say.
The biggest opportunities for proportional growth are in the United States, where also we had a lot of these attritional losses, tornadoes, and all this stuff, which benefit a bit of it. The specific growth potential in property comes from the CAT business. Here I say CAT business only. Therefore, I asked the question before, aggregate business, which is also a kind of CAT business, where you can aggregate the events. It's not a business for us. We have a few treaties. We hardly entertain that. The normal CAT business is something we write. Here, I think our growth potential comes currently from three major regions.
One is Caribbean and Latin America, the other one is the United States, and the third one is Japan. Here, basically, the appetite is there. We have not really any limitations from the capital position, so we can take advantage of the market depending on the terms. Do I have an idea how much we can grow? No, not really. It can probably be a lower to medium-sized triple-digit million number in terms of premium or so. Around EUR 100 million-EUR 200 million or so, if you ask me. That is a good guess. That is the best I can give you. Otherwise, it will be a result of the renewals at the end, and we don't pre-decide that before the renewal starts. It's not the underwriting strategy behind.
Outside the property book, are there any sort of major portfolios where you think that you could deploy more capital?
Again, the most attractive environments are loss-driven, of course. Particularly Bermuda and Latin America, then Japan, and then United States. These three.
Okay, great.
The rest is okay-ish, I would say, but not really improving.
Great.
The question on interest rate sensitivity, I think I can do that rather quickly. No real changes on the ERGO side. On the Reinsurance side, we somewhat lengthened the duration during the last year. Overall, as you are mentioning already, our position is pretty well hedged. On the Solvency II, you probably know that there is an industry position where we have been also very active in contributing to that. Therefore, I don't think I have to go into much detail there because this industry position is pretty well aligned. Maybe only two remarks. One remark is that as a reinsurer for us, the risk margin is something which is of high importance, and especially the fact if you are allowed to apply diversification to the risk margin or not.
We currently are not allowed to do that, and this is clearly given our global risk model and how important diversification is for us, clearly not an advantage in the current regime for us. Maybe a more personal remark, because all these discussions about calibration and do you calibrate one risk upwards or downwards? It's maybe all compensating or not. I personally think the most important aspect would be to have stability in the financial steering framework you have. We are, on the other hand, also seeing that right now on the IFRS side, where also all the things are being discussed all the time. It's extremely exhausting for companies and to everybody to follow all these changes all the time. It costs a lot of money.
I think stability per se is an important value, which should not underestimate and t hat's my personal remark on all these debates.
If I could just follow up very briefly on that. The change in the UFR sensitivity really is quite remarkable. It's also, I think, notable that the stress you apply for ERGO, for the interest rate sensitivity, has actually gone down year-on-year. If it's not that you've changed the hedging, what is it that has caused that change then?
I said we did not change the hedging strategy overall. Of course, there are always single transactions which sometimes make a difference, but then the interest rate level again is a different one. We applied the Volatility Adjustment for the first time. That might play also. It's a variety of topics, but overall, we continue to be pretty well hedged. All the rest, I would also say, is a little bit also moving upwards and downwards with the interest rate.
Okay. Thank you. Can we have the next question, please?
We will now take our next question from Michael Haid from Commerzbank. Please go ahead.
Good afternoon. Two questions. First on U.S. casualty. You said that you have EUR 2.7 billion annual gross premiums from your U.S. casualty business, 70% commercial liability proportional and 6% XL. I would like to get a better idea of the per unit of risk exposure. Can you provide us maybe the corresponding reserve positions for these lines of business by proportional and non-proportional? Second question, Japan. Obviously, over the past two years, you, like your competitors, incurred high losses from Japan, 2018 and 2019. The premiums that you collect from Japan were rather small compared to these losses. My view is that price increases in this business of +10% or +20% would by far not be sufficient. My question is, what do you actually require in terms of price increases to further right this Japanese NatCat business?
Torsten here. I give you a short and a long answer. The short answer, Michael, is it was interesting you asked. I have to smile a bit. You asked for more granularity in the U.S. casualty segment. I think Christoph Jurecka said we don't disclose further segment reserves. In general, and would not like to start that here. I would only like to underline what Christoph said. Our reserve approach and our prudency in this segment are exactly the same like in the rest of the business. Higher uncertainty is there because we don't know how the losses will develop over time in this market. Now the more precise answer regarding Japan. Japan, you are right. We had two losses now, or four losses in two years. Four typhoon losses.
Don't forget please, that we didn't have any major typhoons over the last, I don't know, 30 years or 29 years. The last one I remember was in 1991. That was one year after I joined Munich Re for Typhoon Mireille. Since then, we had no big typhoon losses, hardly any. No one complains about that. I admit that, even we don't do it. Now your question, the premium looks very small. It has to look small because the business which brings these losses into the Reinsurance market in our portfolio is almost exclusively non-proportional CAT business. There's not so much proportional business, you don't compare it with the primary insurance book where you have, let's say, relatively high premium related to the typhoon losses or storm losses or whatever that is.
This is almost exclusively a CAT book. The CAT book has, in relative terms, a small premium versus the capacity which you sell. On the other hand, it's non-proportional. There are high retentions or noise or smaller events are not covered at all. In that regard, the relationship between the premium which we charge under these kind of constructions and the limits we provide is absolutely comparable, probably even better than in other similar CAT books or CAT portfolios in other parts of the world. That is pretty normal. This ratio between amount of loss and nominal premium, which we get for that, has, of course, to do with the return period. How often does such a loss occurrence occur, which triggers these kind of covers? Again, before these two years, it's 28 years back.
Of course, that is exactly the kind of risk model or pricing model, which is behind the pricing method and how we calculate that, so to speak. Then, of course, our cost margins and profit margins. You cannot draw the conclusion that because of this ratio between premium and loss, we have to charge a very huge premium increase now. That would not be right. Return periods are high. Give you an indication for a Jebi, it's in the order of 30 years. For a kind of Hagibis, in the order of maybe 15-20 years or so. These are good figures, good estimations for that from our model. That means you collect every year a certain portion of these kinds of event. Sometimes you have bad luck, and these events occur in two years. Yeah. That's how it works.
That is not a conclusion for us for price increase. However, I admit, of course, after such two years, we will also increase our price under these covers, but not for the reason you mentioned. That is basically my view. Japan, regarding profitability over a longer period, has always been a very decent and attractive market for Reinsurance and for us. Thank you.
Thank you very much. Thank you.
We will now take our next question from Iain Pearce from Credit Suisse. Please go ahead.
Hi. Thank you. Just two quick ones from me. Firstly, on the one-one renewals and the price move of 1.2%. Last week we had a peer flagging quite big interest rate headwinds with their renewals. I'm wondering if you could talk to us about the overall economic profitability change you're seeing at your renewal. Secondly, just on U.S. casualty, where you talked about, well, sorry, your exits from some of your lines, the 700 million number, mainly related to U.S. casualty seemingly. Could you talk to us, is there any expected headwind from further exits of certain portfolios in 2020? Thanks.
Economic profitability. You're right. We usually don't take it into account, but I would mention that economic profitability is slightly below 1%. That takes into account, of course, the lower interest rate, which we took into the consideration, in the fourth quarter of the year in which we use them for pricing purposes. In the meantime, so to speak, in hindsight, interest rates have a bit recovered, have a bit improved. That means, slightly below 1%. It's still a good economic, let's say, round figure if you want. Now I have to ask the question, my colleagues, what was the second question here regarding the 700 million? I didn't get it. Can you repeat that again?
Yeah, sure. It was just you flagged some portfolio exits walking away at one-one. I just wondered if there's anything you sort of allocated to walk away from in the remainder of the year and if that's going to provide a headwind to top line.
I can't tell. It's not, let's say, pre-decided, as we didn't decide, so to speak, actively how much we want to give up in the January renewal. We said, and that is unchanged, while the reserve is not my major problem, there's a big uncertainty in the pricing, and we have a risk appetite or underwriting strategy in place, which focus on the commercial and particularly on the non-proportional business. How much we will give up, it's difficult to say. Considering, so to speak, the small premium which is left in that portfolio, you saw the figure, the 6%, and maybe you add some of the proportional figure on top. There is a potential that we give up maybe another amount, maybe a low triple- digit amount or something like that. Again, it's not predetermined.
That is possible, but nothing which will basically severely impact our portfolio and will make the portfolio look very differently. That would be my answer.
Okay, great. Thank you.
We will now take a follow-up question from Vikram Gandhi from Société Générale. Please go ahead.
Hello. Hi, thank you for the opportunity. Two quick clarifications, please. On the changing approach on the cost allocation that is expected to help the P&C combined ratio, can you just tell us what the motivation was behind this change? Secondly, I appreciate there is a very limited transparency around RoRAC, but since you steer the group on an economic basis, can I just ask what prompted the change from RoRAC to ROE now? Thank you.
Yeah. Of course, Vikram. Christoph, I'm very happy to talk about that. Cost allocation first. We had a huge difference between what we do in the primary insurance versus Reinsurance with respect to cost allocation. Whereas in Reinsurance, we basically allocated all the costs we have into the admin expenses. We had a comparatively high portion in primary insurance, which we did allocate to other expenses, not into the admin. There we thought it might be helpful for everybody to have a better comparability between our segments if we align that. Therefore, some of, for example, holding costs, group costs, will no longer show up in Reinsurance in the combined ratio because basically they don't have anything to do with the avoiding business in the Reinsurance anyway.
In that sense, we clarify a little bit what we're doing and are a little bit clearer in our disclosure with respect what is really related to the business and what are other overhead costs like holding costs or stuff like that. Therefore, we think the transparency will increase. As far as we are aware, all of our peers are doing it similarly. We have been, as far as we know, the only ones allocating all the costs into the combined ratio, into the admin costs. Therefore, with the new approach where we take out roughly 0.5%- 1%, we still think that we are pretty much on the conservative side in the sense that we do not take out a lot of the costs out of the admin. We think that's a pretty reasonable amount given the holding costs we actually have.
On the RoRAC side. Basically, we try to convince you for, I don't know, a decade now or so, that not only you but also all the other companies will follow us and also rely a little bit more on the RoRAC externally. What happened is that nobody did, actually. We did never get any questions on the RoRAC, nor did we perceive any discussions around that. All our peers are concentrating on the ROE. As we think that the comparability in the disclosures of the different companies is absolutely key, we said now we're going also to focus more on the ROE because that seems to be the well-accepted and consensus metrics everybody's looking at. That does not mean that internally we are not continuing to steer according to our economic principles. Of course, we do.
Also internally, for the underwriters writing the business, the RoRAC continues to be an important element in their assessment of a potential contract they are underwriting. Externally, we will try to be as comparable as possible to our peers, and that's why we focus on the ROE.
Okay. Just going back to the first question. The overhead costs that are taken out of Reinsurance, where will they appear then? Within ERGO?
No, between other expenses Reinsurance. Other operating expenses Reinsurance.
Okay. Got it. Thank you very much.
Thank you. Next question, please.
We will now take our next question from Andreas Schäfer from Lampe. Please go ahead.
Thank you. Two questions from my side, please. The first question regarding German health insurance. You elaborated about the development in supplementary insurance. Could you give us some sort of indication how your insured persons developed in comprehensive insurance? I mean, it still makes up almost 70% of your premium base. The second question, could you maybe give us after the turmoil in capital markets, a very rough estimate where your solvency ratio currently stands?
Okay. This is Markus. I take the question on, if I understood it correctly, we have sort of a bad connection here. Your question was on comprehensive insurance, right?
Exactly.
Very good. Well, on comprehensive insurance, we have an old book. Not a big book, but an old book, because the DKV is traditionally one of the largest German private insurer. Currently, we hold market position number two. We have roughly around 750,000 comprehensively insured people. Because these are people who joined us decades ago, they are comparatively old. Given the fact that the access to private comprehensive insurance is limited because you need to fulfill certain criteria, which have always gone up. The pipeline of new people coming into the private insurance is, in the entire market, comparatively low compared to 10 years ago. All of the companies which have a large client base traditionally have a hard time of b asically retaining that client base because simply the portfolio is old in terms of the members.
Our clients are old, and the death is an overproportional factor in such an old client base that you have. Our rate is currently that we lose around 2% of our comprehensive insurance people every year. The year for 2019 was 2.2% or 15,000 comprehensively insured people. Given the fact that there is medical inflation and the premiums goes up, you see that the premium level ultimately also has risen in 2019. We have a very large traditional book. I can also say it's very profitable. We consider this to be one of the most profitable health books in Germany. It's a very healthy company in the best sense of the word.
We use that for profitability and for client orientation, o bviously, we have very good values there, but the growth clearly comes from supplemental insurance and has been coming from supplemental insurance over the last couple of years. There we are market leader with 21 %+ and currently have 5.2 million of supplementally insured clients. I hope that gives you some context on these numbers.
Okay, thank you.
The real time Solvency II ratio. We don't have that unfortunately. I can relate to page 20, maybe. On page 20 of my presentation, what you see there is sensitivities around our Solvency II ratio of 237%. What you see there is that an equity market stress by 30%, -30%, would bring us down to 222%. The equity market stresses we are currently having is much less than 30%. It's probably rather 15-ish or something. I don't know. My rule of thumb estimate would be, I don't know, between 225% and 230% as current Solvency II ratio of the day. I don't know. That's pretty much everything I can say to that question. We don't follow that on a day-to-day basis, really.
I got the impression that combining the drop in interest rates, drop in equity markets, and increased spread in corporate bonds, I guess it must be more than 10 percentage point.
Yeah. Maybe if you combine these sensitivities, you can also come to bigger figures. Again, tomorrow the markets will look different again. We are so easily above our optimal range. We don't internally put a lot of importance to this day-to-day tracking of the Solvency II ratio. We don't think it's highly relevant. Of course, based on sensitivities, you could do the math every day. As we said, we are pretty happy with where we are with respect to capitalization. This is to a certain extent, of course, volatile day-to-day .
Thank you.
We will now take our next question from James Shuck from Citi. Please go ahead.
Hi. Thank you for taking my questions. Three from me, please. I'm interested in the ROE focus, versus RoRAC. My first question is really around, please could you give an indication of, on a normalized basis, what the ROEs are in the key divisions, so P&C RE, Life and Health RE, and ERGO? I'm presuming that this greater focus on a group-level ROE means that you'll also start giving us allocated capital between the different divisions. Second question, the problem with the RoRAC was that it was using a multiplier on the SCR as a kind of theoretical level of equity. Does the greater focus on the ROE mean that you will be focused more on how you manage the stock of equity in the near term, and will that drive management remuneration? Just thirdly, quickly, the combined ratio development 2018-2020.
If I look at what rate has done, rate is up, kind of in aggregate, about 2.3 points. The combined ratio target's gone from 99% to around 97%. You've had expense improvements over that period. You've also got the expense reallocation, which is up to a point, and you've also changed the mix of business more towards NatCat. I guess my question is why 97%? Why not a better number than that? Thank you.
I'll start with the combined ratio. Your question is, if I understood it correctly, why weren't we more aggressive in setting our target and giving out a figure even lower than 97%? As you see, we usually do not have anything behind the comma. It's either 97%, 96%, or 98%. 96% would have been pretty aggressive. I think you would have been clearly against that, and we would have been challenged by you a lot if we would have put out 96%. 97% was the obvious choice, I think. If there's upside with also the renewals, which are later in the year, we are of course, happy to digest that in our figures, once we realize it. The ROE versus RoRAC. First of all, of course, no management remuneration at all connected to that, the bonus works completely different.
It's related to the total shareholder return, for us. That's not of any concern. With respect to the divisions, we do not disclose any divisional ROEs. This is really the group figure we're looking at. Maybe only a remark on the E to take out unnecessary volatility on the equity. What we will do going forward is we will adjust the equity for the unrealized gains and losses, especially on the interest side, because this is inflating equity depending on the interest level and at least increasing the volatility. That's something which we will take out then as of starting with Q1. That's all to it. Yep.
On the move from, ROE will still be used internally. I think you're saying that you're focused on ROE, that won't drive management compensation. I'm trying to understand whether the shift from RoRAC to ROE and how you're communicating to the market will ultimately lead to better capital discipline and managing the excess capital that you have, because you're running with very high levels of capital that may make sense as of today. I'm trying to understand if there's a shift of focus here in terms of what you're saying to the market.
Two answers to that. First of all, internally, we continue to steer economically, so no change at all. Its RoRAC, its economic earnings, it is all these economic key metrics we have been using for a long time already that is unchanged. With respect to the focus on capital management, I would even say that the focus was always on capital management. It will continue to be on capital management. If ROE can contribute to that focus, then of course, we will be happy about that additional contribution if this will be of any help. The focus of our management, of our stock, of our financial management always was very much on capital management, and distributions have been pretty high so far in the past. I think, the ROE will just additionally underline an already existing focus.
Okay. Thank you.
We will now take our next question from Thomas Fossard from HSBC. Please go ahead.
Yes. Good afternoon. Two question on my side. The first one would be on ERGO. Moving closer to the ESP initial targets, can you remind us or maybe refresh our mind regarding what are the Group expectations in terms of dividend or restatings dividend payment from ERGO to the Group and when this may start again? The second question would be related to the life Reinsurance business. Just to better understand how many deaths related to the virus you will need to reach before we see any negative impact to the 550 million technical result expected for 2020. Thank you.
Christoph here, I'll start with the ERGO dividend question. There, everything is unchanged, with respect to the communication like we did it when we started the ERGO Strategy Programme. The assumption continues to be that after the termination of the ERGO Strategy Programme, ERGO will nicely contribute to our local GAAP earnings on Group level by paying regularly dividends, like any other daughter company as well.
Regarding your coronavirus question, it's an interesting one. Honestly, we don't have this kind of stress scenario available. At least we haven't made the calculation yet. How many people dying do we need before it really impacts our life result 2020 or so. What we can say is, that is what I said to the press today, we have, of course, a pandemic scenario in place, which is a risk management approach. It has nothing to do with this one here, by the way. That is maybe more based on a Spanish flu event 100 years ago. This kind of event where you have plenty and millions of dead people in all parts of the world and continents or so. We said, like in large CAT events, our risk modeling, we make this 200-year approach. What is a 200-year event?
Here we come to a figure that we have then an exposure of EUR 1.4 billion. If such an really absolute extreme scenario should occur. That is not the scenario, not even close to the scenario. That is, of course, not the question you ask. Regarding your question, how many more people dying do we need before it impacts our result? Honestly, we don't have the stress scenario available. Sorry.
Thank you. Next question, please.
We will now take our next question from Emanuele Musio from Morgan Stanley. Please go ahead.
Hello. Hi. I have a couple of questions on Cyber. The first one is on your strategy. In particular, I'm referring to the change in relationship with Beazley. How has your strategy changed? The second one is on your PML. If I look at your PML, it's gone up by only 15%, roughly looking at slide 73. Whereas premium are up by 30%. Is this a result of your change in appetite or anything else?
First question, our strategy has not changed at all. We have a strategy consisting of two pillars. One is a risk carrying function, the insurance and Reinsurance policy. Our split between Reinsurance and primary insurance in Cyber is about 50/50, roughly. Beazley, the cooperation, which was ended, has not basically changed our strategy. The only reason was because we said we have enough, both companies have enough market presence, that this original cooperation to basically generate business is not to the same extent necessary. Neither our risk appetite in terms of maximum limit per policy, our risk appetite per risk, is EUR 100 million, has changed. Nor our strategy. It's only a kind of independent market approach, what we pursue now.
Okay, thanks.
The scenario question, yeah, you are right. We have, of course, a number of accumulation scenarios in Cyber, and the accumulation scenarios, of course, grow in line or not in line. That depends with our expansion of our underlying portfolio. The scenarios basically shall monitor and shall basically also control and limit our accumulation risk according to various potential cyber attacks at the end of the day. That's similar to the NatCat business. You cannot automatically say that all these, there are various, all these accumulation scenarios in Cyber grow proportionately with the premium. They can grow faster. They can grow to a lesser extent. That depends a bit, so to speak, what business we write, from what industries we write the business, and what accumulation potential is in these segments.
That's more, let's say, a kind of residual or following calculation, basically, which follows the business generation and not the other way around. At some point in time, you can argue, of course, that it might limit our risk appetite, but we are still far away from this position. Only because we monitor and basically publish our biggest accumulation risk, we thought it would be fair, not only to publish the CAT scenarios, which you know already from the past, these five biggest CAT events on the 200-year basis. Now a Cyber scenario has grown into this segment, so to speak, and therefore we said, okay, that is now part of our disclosure.
Thank you.
Thank you. Next question, please.
We will now take our next question from Paris Hadjantonis from Exane BNP Paribas. Please go ahead.
Yes, good afternoon from my side as well. Just one, and I hope a very quick one. In a year where you actually took some reserve strengthening relating to U.S. casualty, you come out with reserve releases of 5.6 percentage points. I assume that the underlying number is higher than that. That would imply that is considerably higher versus your 4% normalized level. Going forward, I guess, how should we be thinking about reserve releases and this 4% level? Is it essentially a hard level which you don't go below or some kind of explanation of why this is the actual correct number that we should be expecting going forward?
Yeah, Christoph, I'll take your question. Actually, this is a question we could debate for some time because there are many aspects which are relevant to that. I give you some flavor, but maybe that's not completely exhaustive because it's really a complex one. First of all, our assumption is 4% is the right figure. In reality, you will only know if 4% was correct after the book has been completely run off. So far, it's always assumption-based. We always in the past said we keep this assumption stable just for the sake of simplicity. Then, of course, it turned out over time that at least for the seven last years, we were higher than that. Following your thought, with the casualty this year, if you take that out, maybe it would have been even higher than the 5.6%. You're right.
There seem to be kind of more buffer in the reserves than the 4% we put in. On the other hand, we also have a so-called pricing reserving gap. If you ask our pricing actuaries, they would probably argue that it's a natural thing because the 4%, in any case, is by far too low. On the other hand, looking forward, our book is growing. The composition is changing. The business mix is changing. This is a figure which relates to the net earned premium. If we grow 4% on a larger book means a much bigger absolute figures, which still have then to be run off out of the old book, which has been a smaller one still.
Even if in the past we had above 5% now consistently over all the years, that does not necessarily mean that also in the future it needs to be more than 5%, only due to the fact that we are growing and that our business mix is changing and so on and so forth. Having that in mind, we decided that the best estimate we can give you for the future continues to be 4%. If I may remind you on our prudent approach, you know, I think, how to interpret this message.
Thank you.
There appears to be no further-
Okay. There don't seem to be any further questions. I guess we will close this call now. Thank you very much for joining us this afternoon and for your questions. The IR team is, of course, happy to answer further questions you might have. Bye for now. Thank you again for joining us.
This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.