Ladies and gentlemen, a very good morning to everyone and a warm welcome to Munich Re's Investor Day on our new strategic and financial Ambition 2030. My name is Christian Becker-Hussong, and I'm head of investor relations and rating agency relations. It is my pleasure to introduce you to today's speakers, which I will do according to the agenda for today's presentations. Joachim Wenning will kick it off with the CEO perspective, followed by our CFO, Christoph Jurecka, who will introduce to you the group's financials. Then we will turn to the business fields, starting with ERGO and its CEO, Markus Rieß, before Thomas Blunck, CEO of Reinsurance, will conclude with his presentation. Afterwards, we will go right into Q&A without any break. Please note that only those participants can ask questions who have registered prior to today's event.
During the presentation part, all participants' microphones and cameras will remain turned off. The ability to activate your camera and microphone will only become available once the Q&A session begins. I will give a brief introduction and explain the process before the Q&A session will start, and in the interest of time, let's kick it off. Joachim, the floor is yours.
Thank you very much, Christian. Ladies and gentlemen, dear colleagues, good morning everybody also from my end here, and thanks for your interest in our strategic course going forward. Our future Ambition 2030 is again a five-year program. I think it's important to recapitulate where we come from. For this, please look at this graphic. Coming back out of the pandemic low in 2020, we wanted to reach the summit by 2025. In fact, we made such good progress each year that we set higher targets for the following year, higher and higher. In fact, we will likely end this year with an annual result of EUR 6 billion. This is two to three times as much as in previous years. As you know, we will probably surpass our financial targets from Ambition 2025 by the end of this year by quite a bit.
We will presumably achieve a return on equity of around 18%. Earnings and dividend per share have risen significantly, far more than the pledged 5% every year to date, and what's more, we are capital rich despite materially increased capital returns. In short, Ambition 2025 more than accomplished. Let's take a closer look at the return on equity. The main drivers of this outstanding performance were excellent underwriting and active investment management. We have vigorously expanded our business with attractive margins and optimized our investment returns. We are particularly pleased that our success is based on all parts of our business: reinsurance, be it P&C, be it Life & Health, Global Specialty Insurance, ERGO, be it Germany, be it international investment. Everyone has delivered, and let me give you a few examples here. I start with Property-Casualty Reinsurance. Remember 2022 and remember 2023.
We grew boldly while the capital market displayed doubt and our competitors were unwilling and/or unable to keep pace. We have ideally capitalized on the resulting hard market. Our earnings have practically doubled. The combined ratio currently stands at an outstanding 79%. Our Life & Health reinsurance. The expected total technical result of EUR 1.7 billion is now twice as high as projected at the beginning of Ambition 2025. Major transactions in the U.S., the financially motivated reinsurance business, longevity business, but also organic growth in the bread and butter businesses in the U.S., but also Asia, and particularly in India and China, contributed to this doubling. Global Specialty Insurance. This has become really a key growth driver of our group, as expected.
With over 15 product launches in the last five years, we have significantly broadened the offering in the U.S. middle market and are well on our way to becoming a key provider in this segment, or let's take ERGO Germany. It has grown in a largely saturated market, as you're aware, above all again due to excellent products and to its successful hybrid customer sale model, and the combined ratio in property casualty there is at the excellent level of 89%. ERGO International has been growing both organically and inorganically. Its share of revenue has risen to 30% and the share of total earnings to as much as 40%, and the combined ratio there being at a good level of around 90%. Investments.
In the last five years, our running yield has improved by almost 150 bp s due to the general rise in interest rates, but active investment management has contributed at least another 20 bp s per year on average. For shareholders, the excellent performance over the Ambition 2025 period has manifested itself in leading total shareholder return. But the question is, what propelled us to this top position? And we think it's three things: performance, diversification, and capital management. I start with performance. It takes courage to grow when others prefer not to, but also resolve to withdraw when circumstances start deteriorating. And all of this is based on excellent underwriting and understanding of risk without allowing ourselves to be or becoming disconcerted. And all of this is underpinned by reliably and consistently managed customer relationships. And all of this, of course, is also based on excellent claims management.
In turn, our net result has more than doubled in just five years, outperforming our peers by 25 percentage points annually. Second, diversification. We have grown profitably in Life & Health Reinsurance, in ERGO, and in Global Specialty Insurance, organically and inorganically. And it is important to understand and repeat that the more we grow in these business pillars, the better we will be in the P&C Reinsurance business, because we can take on more exposure in a hard market, yet withdraw more in a soft market. Third, capital management. We recently returned an average of 75% of our profits in the form of dividends and share buybacks. We have not rashly put our excess capital at risk. Instead, we now earn 18% return on equity, and this includes our excess capital.
Thanks to our focus on performance, the consistent diversification of our portfolio, and disciplined capital management, we have created great benefits for our stakeholders. This is impressively demonstrated by the following key figures on this slide. We have practically doubled the dividend per share and the share buyback as part of Ambition 2025. Last year's total amount distributed was EUR 4.6 billion. The Net Promoter Score for measuring customer satisfaction has risen continually, both in reinsurance and at ERGO. Employee engagement at high levels across the group. Countries worldwide have benefited from our value creation by means of Munich Re's tax payments totaling around EUR 25 billion. To summarize, we will have honored all our financial commitments and all our non-financial commitments by the end of this year.
We managed to do this despite the initial expenditure attributable to the COVID-19 pandemic, despite low interest, and then followed by a sharp rise in the interest rates and also resulting sharp rise in inflation rates, and despite resulting high valuation losses on the asset side, despite a massive increase in claims inflation. We also grew our earnings in spite of the wars in Ukraine and Gaza and the associated uncertainties, and despite a rising share of natural catastrophe losses being insured, et cetera, et cetera. We are listing these adversities to underline that we have been resilient over the years, not just lucky. So what comes next is Ambition 2030. The motto will be Outpeak, Outpace, Outperform . Outpeak means going higher. We will boost our net result to new records beyond EUR 6 billion.
The pillars of success will remain an excellent corporate culture, outstanding grasp of the market, unparalleled staff expertise, excellent underwriting, outstanding investment, and stable earnings through diversification. Outpace means becoming more efficient. We will optimize our organization to meet its peak potential by reducing complexity to get faster and become even more efficient. And top performance at high speed inevitably leads to outperformance. We pledge a return on equity of even more than 18% by 2030. This, of course, is ambitious, but nevertheless realistic. Reading the trends of increasing large losses, the favorable conditions for our industry remain largely unchanged. Reinvestment yields will continue to foster our investment income over the next five years. Growth is poised to stay positive as well and continue providing us with good business opportunities.
I now come to the heart of Ambition 2030, and it consists of four parts: a financial ambition, a capital management ambition, a non-financial ambition, and what we call enablers. We have assigned key strategic levers to all of them in the white boxes of this slide. Levers that we will apply, and the better we do this, the more everyone will ultimately benefit: shareholders, clients, employees, and communities. So let me start with the financial and capital management ambition. Christoph is going to tell you more about the capital management ambition later. To date, we had aimed for a return on equity of between 14% to 16%. We started Ambition 2025 at barely 12%. Going forward, we expect to achieve more than 18%. So in other words, we plan to consistently perpetuate the very high returns of today.
This will be supported by growth, improved efficiency, and higher investment income. I would like to broadly and briefly address the strategic levers for achieving the financial ambition. The later speakers will tell you more details. First, we expect even greater profitability in underwriting. That is the combination of business performance and business development. Life reinsurance will continue its robust growth trajectory. Global specialty insurance will continue to grow and in turn increase its earnings. The same will be true at ERGO, bolstered by Next. Even if we are currently, just currently, a little bit more cautious in P&C reinsurance, the reinsurance segment as a whole, and more so even the whole Munich Re group, will continue their upward trend. Second is efficiency. ERGO is planning a new efficiency campaign, which will help it to gain ground on the competition.
And new standards in reinsurance will assure that future growth will consistently also grant economies of scale. Third, our investments, they will generate higher returns, partly because of the continuous tailwind from higher reinvestment yields, and also because we will further expand our portfolio of alternative investments. Our Ambition 2030 also has a non-financial component, and one of these is the DEI ambition, which we will extend to embrace all aspects of diversity. Thus, each Munich Re location will define and pursue its own DEI targets of greatest strategic importance. And in terms of our planet's climate, we remained committed to our long-term aim of achieving net zero greenhouse gas emissions by 2050. This applies both to the insurance and the investment portfolio. And here on this slide, I want to highlight that functional excellence is the backbone of our business success.
On the one hand, quality can be further enhanced by more closely integrating AI and human expertise. On the other hand, efficiency increases by eliminating redundancies in processes and systems where they still exist. One IT will foster this mission, which via the standardization of our various IT infrastructures will reduce costs, will improve our own cybersecurity, and streamline the development of business applications. We are already deploying AI in many cases in the group. However, technological progress has accelerated, and it has increased the number of potential value-creating applications. We want to become a pioneer in this area. And also in this regard, ERGO, and maybe later also Munich Re can benefit from Next. Last but not least, human resources. More than ever, we will be benefit from consistent, harmonized strategies that deftly combine the conventional HR processes of recruitment, development, remuneration, and so on.
So here comes a slide that outlines the past decade and the coming decade of our strategic journey. From left to right, we move from the past into the future. The dark sections of the pie chart represent the earnings contribution of P&C reinsurance. The light sections correspond to the earnings contributions of Life & Health reinsurance, ERGO, and global specialty insurance. In the past, the group result was largely dependent on P&C reinsurance and was correspondingly volatile. The picture has significantly changed as part of Ambition 2025. P&C reinsurance has optimally capitalized on the hard market. Growth and earnings have risen materially. In this respect, the dark sections of the chart actually should have become even larger. In fact, Life & Health reinsurance, ERGO, and global specialty insurance have also made strong gains in growth and in earnings.
And as a result, today, the two categories are equally strong in terms of earnings. We are not only performing significantly better than five years ago. Our earnings are also much more stable. And this trend will continue over the next five years. Life & Health reinsurance, Global Specialty Insurance, and ERGO will continue to grow more and earn more, while P&C reinsurance will possibly move a little bit more sideways. The entire group will earn more in absolute terms with even greater earnings stability. And I add one more pie in this chart now. Depending on the attractiveness of the P&C reinsurance business 10 years from now, so beyond 2030, the share of earnings could rise again in hard markets or fall in soft markets. It is clear which scenario I would prefer, but neither is a problem.
After all, we will earn consistently high returns on equity in both scenarios. And this is precisely where the power of diversification comes into the play. I wish to conclude by saying that our target picture is clear, and so are the strategies for the coming years. Our financial plan is in place. We pledge to our shareholders that we will continue to outperform, generate a return on equity of more than 18%, and pay out more than before. Many thanks. And with this, I hand over to you, Christoph.
Thank you very much, Joachim. And yeah, very good morning also from my side. It's a big pleasure to present the financial and capital management cornerstones of our strategy now.
If we go on my first slide, what you see here is that our new financial targets are well designed to align our internal value-driven steering methodology with the way how capital markets look at the value of a company, so the total shareholder return. Profitable organic business expansion remains the backbone of our strategy. Going forward, we expect attractive earnings per share growth of more than 8%. At the same time, our commitment to high capital returns is even more pronounced. We promise that more than 80% of our higher net income will be distributed to shareholders via increasing dividends and buybacks. These even higher repatriations are well funded by our strong capital position. Earnings per share growth, Munich Re delivers industry-leading financial targets.
On my next slide, I would like to provide you with some more color on the different drivers that improve our profitability over the next five years. This year, we expect, as you know, a EUR 6 billion result, which is also well substantiated on an underlying basis. This 6 billion result translates immediately in a return on equity number of around 18% and thereby clearly exceeds our Ambition 2025 targets. Now, coming off that already high basis, we will further expand our profitability by increasing underwriting and investment result, by improving the efficiency, and by continued stringent capital management.
If you look at the ROE work, it, I think, very nicely illustrates that the contribution of the first three ROE drivers is of a similar order of magnitude, which in a way also depicts how well diversified we are when it comes also to business models, not only to portfolios, and what you also see is that despite the fact that we, of course, will continue to be an underwriting company, also the investments can have a valuable, can deliver a valuable contribution to our overall value proposition. Now, if you look at the group target of above 18%, I would like to emphasize that this does not only apply for the group overall, but also for ERGO individually and also for the reinsurance business field individually.
But if you look at the various drivers, so underwriting, efficiency, and investments, there you'll see differences of which driver contributes how much to the overall ROE development. And you will see these details then later on in the presentations by Thomas and Markus. Having said all of that, capital management will continue to be very relevant for us, and it will actually be the core of my presentation today. But before we go there, I will briefly cover the other bars, so underwriting, efficiency, investment first. Let's start with underwriting. As regards underwriting, we will considerably increase volume at attractive margins over the next five years. What you see on this slide is a summary of growth and profitability targets for 2030, as they also will be presented in more detail by Markus and Thomas later on.
If you look at the ranges, they are all relatively wide, which I think is natural given market uncertainties, which are currently maybe particularly high, but also given the long planning horizon of five years, so therefore, relatively wide ranges, but we also do have a lot of flexibility when it comes to capital management, and therefore, we are confident that we are able to achieve our ROE target of above 18%, irrespective of where within these various ranges our numbers finally will be, because we can react on the capital side, and therefore, the ROE target would be supported by all the numbers within the ranges as on the slide here.
Also, what I would like to emphasize is that as we cover the full insurance value chain from primary insurance via specialty insurance to reinsurance, we have a lot of flexibility to actually deploy capital wherever attractive opportunities are found for us. And this could be in various lines of business, various regions, various geographies, cycles, various, I don't know, business fields. So we are not restricted by anything and have all the flexibility going forward. And this should then and will support a steadily rising earnings trajectory and even more resilient earnings trajectory in the coming years. On my next slide, just a few words on efficiency. Cost efficiency as the second lever for the increase of the ROE is a central aspect of our ambition.
We aim to continuously improve efficiency across all business areas and make cost management a visible and natural driver of the return on equity. By making Munich Re leaner, less complex, and more efficient, we are aiming for primary cost savings of around EUR 600 million in 2030, growing from EUR 200 million already next year, counteracting the inflation-driven cost increase. The benefit will be visible in various P&L items across all business fields. Now, increasing investment returns, which is the third core element to increase the return on equity. On the asset owner side, we will benefit from gradually deploying additional risk capital into alternative investments and further refining our investment processes. MEAG, our in-house asset manager, is committed to delivering sustained outperformance on its assigned investment mandates.
On this slide, what you can see here is that our investment returns are expected to further rise as we continue to enjoy a favorable market environment with reinvestment yields above the running yield of our book. Beyond that, we continue to enhance our yield by active investment management. So the already mentioned addition of alternative investment to our portfolio is one lever, but the other lever is, of course, also to carry on to make use of attractive market opportunities as we see them. Now, alternative investments and the expansion of alternative investments. On the slide here, you see some more details, some more color on what we plan to do. I would like to start with the fact that as a long-term investor, we have quite a few really long-term liabilities, which are a perfect match to illiquid and more complex asset classes like alternative investments.
We can earn illiquidity and complexity premiums by doing so. We build up the alternatives quite significantly already if you look at the slide. Now, alternative investments, as we use the terminology, is as far as a summary of various asset classes, as you can also see on this slide, and would encompass topics like real estate, like infrastructure, like agricultural and forestry, like infrastructure debt, private credit. All these asset classes are part of alternative assets as we define them.
What we see as particularly interesting for us are attractive market opportunities alongside structural trends where we do have knowledge already on the insurance side, and then also on the investment side are engaging more and more and thereby have nice synergies between insurance and investments and can benefit from our deep understanding of the risks of those investments also on the investment side, while the experience and the expertise on the insurance side is longstanding anyway already. So that's an additional synergy we would like to deploy even more going forward. Now, finally, on this slide, I come to capital management. And this is, as I mentioned, the heart of my presentation. Munich Re's strong balance sheet across all metrics allows us to deploy capital in the most efficient way already today. But actually, there are further areas where we think we can improve the capital efficiency.
I will go through them one by one now on the next few slides. But to only mention them briefly, it's diversification, it's the optimization of our capital structure, and active capital management. I start with diversification on that slide here. Joachim explained that already. We expect to disproportionately grow more in businesses which are less cyclical and less volatile going forward. And over the years, this will then gradually lead to a higher portion of less volatile businesses than in our overall portfolio mix. To make that more tangible, if you look at the slide on the right-hand side, you see that today, Life Re, GSI, and ERGO together, they are contributing roughly 50% to our mix, while we expect their proportion to grow by 10% until 2030, up to 60% then.
So in other words, we will accelerate the transition from being a reinsurer to being a composite insurer over the next five years. And this should then also be beneficial to volatility of our earnings, to our cost of capital, and then ultimately also to our stock valuation. Now, optimization of our capital structure. Munich Re has one of the lowest debt leverage ratios in the industry, as you certainly know. And this provides us with ample flexibility, which we really appreciate. But to further improve our capital efficiency, we are on a long-term track already for quite a number of years to gradually increase the leverage ratio up to a level of, let's say, towards 15%. Currently, we are 12%.
Both numbers, 12 as well as 15, as you can see on the chart, are at the lower end where the industry is and specifically at the lower end where also our peers are, so therefore, no drastic change, but I think a gradual continuation of what we have been doing in recent years. What we are also doing is we look at our legal entity structure and we look for additional simplifications to increase the internal capital efficiency, avoid redundant or trapped capital, and to ensure an even smoother upstreaming of earnings going forward. Now, on my next slide, Solvency II. A significant driver to our shareholder return is capital management, as you know, and we are conscious of our higher, so of our very high Solvency II ratio, and we are highly committed to manage our excess capital.
At the same time, the Solvency II ratio, first and foremost, is a risk measure. We have to keep that in mind. And what we want to have is the highest flexibility in writing and managing risks, in particular also with regards to peak risk exposures. We want to offer our clients reliable, consistent, and high capacity, if needed, over the cycle and independently of loss events. Therefore, holding a sufficient capital buffer is simply a necessity for us. Accordingly, we introduce a bit of a new Solvency II framework. So actually, what we do is we introduce a Solvency II target floor of above 200%, which replaces the old target of 175% to 220%. And by the way, this above 200% floor level is aligned with a target rating of AA.
Just to be very clear, this change in methodology does not at all change our commitment to repatriate capital, as you will see in the next slides. Active capital management on my next slide. So fundamentally, what can we do to bring down the Solvency II ratio? Basically, we have two options. We can increase the capital, so the risk capital, the SCR, or we can decrease the own funds. And to do that, there are various options. Business growth, we can take more investment risks, we could go for more M&A, or higher capital repatriation. Those are the theoretical options, at least.
I will cover all of them in my next few slides because the big, I think, very strong position we are in it is that we can do all of those things and thereby optimize really return versus risk and versus capital in the way how we manage our group going forward. Let's be a bit more specific on the next slides. First of all, the SCR growth versus business growth volume is what is shown on the slide here. You all know we have been growing our book significantly over the last years. As you can see on the slide, the GWP growth is really very high, as you can see. Due to our broad diversification, the SCR, so the risk capital growth, was significantly smaller over the last five years, four times smaller than the volume growth.
This relation is still valid if we would adjust for interest rate changes or other not business-related impacts. In other words, what this means is we can deploy capital in a very efficient way. We can grow our book in a way like not many of our peers are probably able to deploy capital and thereby have an attractive value proposition also for our clients. I would bring one remark here on this slide, maybe also on the asymmetry between economic and IFRS accounting as it matters in the Solvency II context. The new business value we have in life business, in particular in life reinsurance business, and we expect that business to grow dynamically going forward. This new business value is immediately recognized in the Solvency II capital number, in the Solvency II ratio. While in IFRS, via the CSM, it only translates into earnings over time.
There's a time difference, there's a time lag, a gap between recognition in Solvency II and in IFRS earnings. And this time lag is something we have to be aware of. We have to manage that, and we have to keep that in mind when looking at the Solvency II ratio, but also when we look at the development of the IFRS earnings. My next slide briefly covers the topic of investment risks. And on this slide, what you see here is the split between investment and insurance risks. And what you see is that over the years, this ratio always has been breathing. So there are years with higher proportion of insurance risk than there are years with lower proportion of insurance risk.
Currently, the insurance risk is rather dominating, while increasing the investment risk over time until 2030 would bring us more back towards an equilibrium, also optimizing the diversification. So that's the idea. The diversification, in any case, will stay above 30% going forward and with 30% on a very strong level. Next slide, M&A. Apart from organic growth, M&A has always been on the table for us. Now, as always, you could argue, well, you didn't buy a lot. And indeed, we didn't. And the reason is that we apply very rigid criteria for assessing targets, so assessing growth opportunities. And the reason is very clear. When you acquire a company, the integration risk, the execution risk, the operational risk is significantly higher compared to the situation where you organically grow your book. And therefore, we have to be rigid.
The criteria you see on the slide, strategic fit and financial fit, we take them very seriously. Any target must fit to us, both from a strategic perspective as well as from a financial perspective. Or in other words, it must enhance our value proposition at a value-creating price. Now, finally, capital repatriation, the most important lever to manage excess capital for us also going forward. Our shareholders have always benefited from Munich Re's earnings growth, increasingly actually so in the last couple of years. Dividends have been steadily increasing for many, many decades, while the share buybacks have been a flexible tool which we used on top of the dividends. In our last ambition, we provided a growth target for the dividend per share. Implicitly, we still do have that as we expect our dividend per share to grow in line with earnings per share going forward.
But what we are now introducing for the first time in the history of Munich Re is a payout ratio. And we promise a total payout ratio of above 80% net income going forward. This means that for the expected EUR 6 billion net income target for this year, we would then at least pay back EUR 4.8 billion to our shareholders via dividends and share buybacks. We consider this payout ratio target to be attractive in two dimensions even. Firstly, the 80% is higher than the average number we had in recent years, which was 75%. But on top of that, the 80% is an annual number. So we promise to give back more than 80% of IFRS earnings in every single year.
In that context, I would like to emphasize or ask you to please keep a look also at the definition of that payout ratio as outlined in the footnote on the slide. The 80% refer to the announced amounts as we usually do it in the first quarter of the year. Just to remind you of the process, and it will be the same next year. In the first quarter of the year, we always announce a dividend and a buyback. And the sum of those amounts is what we mean by annual payout, just to be 100% certain about the model and that everybody has the same understanding of the methodology. Now, you could ask, can you really afford that above 80%? Well, and we can. It's backed by our very strong capitalization across all metrics.
In addition, we mentioned that a few times already, our dividend is covered to a large extent already by our more stable segments, ERGO, GSI, and Life Re. And those segments are less exposed to cycles and conceptually less volatile. So to summarize what I'm trying to outline here on capital management is that we are committed to returning as much capital as reasonably possible within the applicable restrictions in order to maximize the total payout ratio to a level, in fact, above 80%. This brings me to my last slide, which is the Outlook 2026. With a net income level of EUR 6.3 billion next year, we are once again on our way to deliver a record year. The increase from EUR 6 billion to EUR 6.3 billion is solely driven by reinsurance. Based on the strong underlying performance with healthy margins, we are further expanding our business.
This will be supplemented by higher investment returns as the ROI should grow to above 3.5%, in particular in reinsurance, where we expect a higher result from the realization of gains and losses in addition to a higher running yield. The insurance revenue for the group is projected to rise by EUR 3 billion compared to 2025, and they are of 2/3 borne by ERGO, a substantial share of which will come from Next Insurance. Reinsurance is also expected to see top-line growth of around EUR 1 billion driven by Life Re and by GSI. On margins, P&C reinsurance is anticipated to maintain its strong profitability with only a slight uptick in the combined ratio to 80%. The guidance for GSI is unchanged at 90%.
And also in Life & Health reinsurance, we continue to show very attractive margins, even a further increase of the total technical result by EUR 200 million, now to a new level of EUR 1.9 billion, which underscores also the robust and strong underlying earnings power we have Life & Health business. At ERGO, the combined ratio in Germany should stay at a very attractive level of 89%, while the international business is expected to even improve further to a level also of 89% and then nicely aligning with Germany's ratio. The net income for ERGO is forecasted at EUR 0.9 billion, broadly in line with the year 2025. And here you have to keep, you have to know that investments into Ambition 2030 mask, at ERGO, that there is an operating or operational improvement or an underlying improvement planned also for next year.
This is then compensated, as mentioned, by investments into the new strategy. Now, let me summarize. Munich Re is in very good shape strategically as well as financially for the next five-year ambition, more than 18% ROE, more than 80% capital return, and more than 8% earnings per share growth. Thank you very much for your attention, and I hand over to Markus.
Good morning. I would like to take the opportunity to introduce you to the ERGO contribution to Ambition 2030. This chart just basically explains to you our journey so far. I don't want to go into that at all. The only comment I would like to make is that we have improved over the last 10 years significantly our performance.
I think it's fair to say we now have achieved very competitive KPIs, and we have achieved a good track record of delivering our contributions to the Munich Re overall result. And it goes without saying that this is an obligation for the future as well, i.e., we will do everything in our power to continue to deliver into the Munich Re results consistently and with low volatility. This is the framework that Joachim Wenning showed you, and I just want to very briefly translate that into the ERGO strategy. On the upside, it is about profitably growing our book of business, and that basically means for us improving the already competitive market positions in all regions, primarily successfully to integrate Next with a significant contribution by 2030, and to overall expand our excellence in underwriting.
Outpace makes us faster and more efficient, and that means, and that for us is an absolute main emphasis of the next five years, is to systematically, and I'll put an exclamation mark behind that, systematically adopt artificial intelligence solutions across the entire value chain. Secondly, we need to enhance our digital transformation with a global IT infrastructure. Again, that is something which we will do in the context with the entire Munich Re group. And thirdly, we will try to accelerate our efficiency in these very uncertain inflationary environments. That should lead for an outperformance to ERGO. If we dig now one level deeper, you again see Dr. Wenning's slide being put up and translated into the ERGO points. I will just only very briefly touch on a very few areas. First of all, on the financial ambition, applying cost rigor remains for us a top priority.
We continue to systematically benchmark our businesses, our processes, and try to catch up where we have differences. This has been a very successful recipe for the ERGO development in the past, and we commit to this being a further development also into the future. On the enabler side, I would like again to focus on the leveraging new technologies part and the driving functional excellence because they are interconnected. New technologies enable us to do new things, to become more global, to become quicker, and I believe this increases not only our competitive position, especially in the cost dimension, but it also makes us quicker and less bureaucratic. This is the chart you have seen by Christoph and by Joachim, and I will just touch briefly on what it means to ERGO.
While this remains an illustrative chart, you can see that the individual boxes are a little bit higher or lower, and that is rooted in the reality of the ERGO strategy program. If you just look at the numbers, we will achieve around 15% ROE by 2025 and thus are in line with the Ambition 2025 of the Munich Re group. We commit to an around 18 or larger than 18% return on equity in the Ambition 2030. This walk for us consists primarily of the first box, the underwriting box. That is the case because of the fact that we will integrate with Next a scale-up into our book of business and into the ERGO International segment, which we've really bought at the time where the scaling is really happening.
So while we believe that we will transform it into significant profitability over the last five years, this will be not only driven by disciplined underwriting and digital processes, but also by growth. And that's why I believe that this first box, the growth, the profitable growth will be driven by Next, but also by the continuation of our growth path, both in our international and German segments, primarily in Poland and India in the international segments. Efficiency goes back to the question of cost trigger. I said it before, I'll say it again because it is so super important for us. Cost discipline is our guiding principle everywhere, and new technologies enable us to be even more efficient and more effective in achieving cost efficiencies in the future.
Investments for us is a comparatively lower contribution, and capital management is a detractor here primarily because of the equity we are getting allocated because of the Next transaction. Let's again dig one level deeper into the drivers of the financial ambition, and if we look at the profitable growth and portfolio steering, I would like to say that we have built over the past 10 years quite a resilient and competitive portfolio of international companies, international being outside Germany, and even without Next, the growth trajectory of this portfolio is actually quite impressive and significantly higher than the German trajectory. This will now be even focused and accelerated through the Next acquisition. On the underwriting excellence, we used to have for the last 10 years already a very strong, what I call vertical in our matrix underwriting function, which we continue to strengthen.
The matrix organization with the vertical underwriting function will become even stronger, and we will significantly invest in underwriting technology and portfolio data management. I can go into that in more detail in the Q&A session, but basically this is about central pricing and claims strategies and hubs. I already talked about the cost rigor. Let me just tell you as an example, each and every company has a very clear cost target, both on an absolute term, but also on a cost ratio dimension. I have reason to believe that we will improve our competitive competition in all of our markets in the course of this Ambition 2030, bolstered by the fact that we already have a very strong claims ratio in most of these markets.
In total, we have a total of 200 measures, which we individually allocate to the subjects and regions and which we will be centrally monitoring. The result of these measures is summarized on this chart. We believe that we can commit to an insurance revenue of EUR 26 billion-EUR 30 billion in this strategic program, and we believe that our profit contribution will increase significantly. And if you look closely for the first time, the ERGO International contribution will be larger than the ERGO Germany contribution, and that is not only because of next, but also because of the increased growth trajectory of the international business. And there are various arguments for that. You see them listed on the right-hand side, and we'll discuss each of every one of that in the Q&A if you so choose to ask.
There's one element which I would like to draw your attention to in particular, and that is Next. I've talked about it not only because it is a new acquisition into the ERGO segment, but it is also a super important growth driver for us going forward, so let me just remind you on what Next stands for, and this is a chart I'll spend some minutes on. On the left-hand side is the U.S. small-medium business market. The market itself is a sub-market of the U.S. commercial market, which has a size of the order of magnitude of $400 billion. The SMB markets will be estimated to be around $180 billion altogether and is being defined as consisting of companies between zero and 100 FTEs.
Now, within that market, being the target market for Next, the super specialization of Next is in the so-called small SMB markets, which are just smaller companies between zero and 19 FTEs, and there are tens of millions of these kinds of firms outside in the United States, and the interesting thing in this segment is that the market is not highly concentrated. If you look at the U.S. market, the concentration level of the top 10 player in motor is 77%, in personal home is 67%, but in the SMB segment, it's only 36%. That means a new entrant such as Next has a good opportunity to really scale up, and that is actually what is happening, so we are entering a very attractive, less cyclical market in the United States, and we'll gain access to purely digital native business models and underwriting processes.
I can explain it more in detail in the Q&A if you want to, but the entire value proposition of Next is to digitize everything. Every process is digitized, and most of them even on an end-to-end basis. We have bought them at a time where they are still in the startup phase, on the verge to the scale-up phase. That's why we believe that we basically start from a sweet spot in which the minimum viable products are not only existing, they already have an insurance revenue of roughly EUR 400 million, so they're by no means a startup anymore. We believe that we can scale them up and achieve a net result in the mid-triple digit millions by the end of this program and actually get them to a very competitive combined ratio based on that scale-up.
So I've talked a lot about the international segment, and I think one of the key questions that always arises is what does the segment comprise of other than being owned by ERGO? So I would like to spend one chart on the questions of what we would call the cross-border initiatives in order to give illustration to how we steer the portfolio. And it really has become now an international portfolio steering. So AI solutions, underwriting platforms in this very program, mostly in health, are key subjects which are rolling out on a multi-country basis, centrally managed and controlled. In the entire program, we also gain additional flexibility by setting up global business services. We have established tech hubs in Poland and India during the last strategy program, which is now finishing.
In these near and offshore solutions, Poland and India, we now increasingly put non-IT services, which not only gives us flexibility, but gives us, so to speak, global synergies because all of our companies can access these hubs not only for IT, which they are doing as one of our drivers for a more competitive IT cost solution, but also for the non-IT services. The same is true for a pricing hub. We are starting to recruit actuaries within our niche operations in Poland who will then support, control, manage pricing solutions throughout the entire ERGO Group. All of this is, of course, being complemented by local initiatives such as streamlined SME strategy and top-tier solutions for claims and data management.
The result of this you see on this very page, and the numbers are already reflected in what Christoph Jurecka told you, so I'm just repeating that there will be a continuation of our good track record in 2030, both in the segment ERGO Germany and ERGO International, and for Germany, we use the KPI of the combined ratio P&C Germany because it really is comparable around our peers, and secondly, because of our continued cost rigor, we believe that the cost ratios, which you can see here since 2016, have significantly decreased over the last 10 years, will continue to decrease even further, but, and Christoph said it, I would just like to re-emphasize it in the near future because of the investments of our front-loaded program, they will possibly rise in the next year, but then will ultimately end up in a much more competitive stage.
I firmly believe that in this program, we can make decisive progress towards competitive cost ratios. Let me briefly touch on the enabler because they are also relevant. We need to implement a strategic HR agenda. Basically, it refers to all of the changes and the recruiting for our people. With all of the technology changes coming up, reskilling and re-education will be one of the key drivers, and we will apply that especially in Germany with a significant emphasis. The leverage of technologies I have already touched, this is primarily the systematic AI deployment, and the one IT is basically built by the synergies with Munich Re, and I have already alluded to that verbally, and I have one chart which I'll show you in the next five minutes. Let's just go very briefly into these enabler dimensions. Firstly, HR. What does it mean?
Sometimes it's super abstract and it's not really tangible. The reality here is that we start by a very analytical drive. So we start by deploying workforce planning. And workforce planning means on a super detailed level, location, the group, the department, but also the skill sets to really understand what are the dynamic changes in demand and supply of work. This allows us to manage the demographic change in a much more controlled way. In order to avoid discrepancies in all of our ERGO companies, think about the ERGO International portfolio, we will come to a much closer harmonization of processes and infrastructure across the group. And of course, we need to have an enabling organization, so we need to help our employees to manage the technology changes that are being exposed to. I have talked a lot about AI.
This chart is just telling you it's not a German thing, it's not a U.S. thing. All of our companies have dedicated AI processes, and I will be more than happy to talk about this in the Q&A. My last ERGO-specific point is the question on digital first. We are a very customer-driven company, and the customers are expecting digital elements, and we will do a very significant focus on that, both internally and externally. I'll give you an example. On the marketing data that we use to do marketing actions with Meta, Google, and TikTok, we use Veo and Sora , so very new developments on the digital marketing side. On the internal processes, we look at all of our processes that we have with a process mining tool in order to improve the processes.
Of course, on our customer experience and sales process, we'll try AI-powered visual inspection solutions, customer portal, self-services, etc. This chart illustratively tells you about Munich Re Group technology. Both Joachim and Christoph touched on it. We take full advantage of the power of the group, which combines the technology functions of reinsurance IT, MEAG IT, and ERGO IT. This helps us in standardizations, in security, and of course, in more competitive costs. Let me draw to a close. Our target ambition for 2030 means a continuation of our successful path, both in Germany and in international, with the numbers that you are seeing here. It is reflecting the fact that our international portfolio grows more strongly as it has been in the past, but in the next program, we'll also make a huge step towards an even more competitive combined ratio.
And thus, we will try to continue our track record in supporting the Munich Re Group result in a low volatility and very reliable environment. Based on the 200 measures that we have compiled in order to facilitate this progress, I'm quite confident that we can achieve that also in the future, which then leads us, and this closes the circle to my first chart, to a leading ROE in 2030 and even more diversified net income contribution from the various regions, primarily the achievement in the United States through Next, even more competitive cost levels at ERGO Germany and international, as I alluded to. We really strive to be a front runner in artificial intelligence by systematically applying it throughout our entire value chain. That summarizes briefly the strategic contribution of ERGO, and I'll hand over to Thomas Blunck for the same on the reinsurance side.
Thank you very much.
Thank you very much, Markus, and good morning and good day also from my side. I jumped directly into my slides. I, at the same time, will rely on one or the other part that has been explained by Joachim and Christoph, and that is very similar also with ERGO. You will see that. First, our track record has been really very nice. You can see this on the slide. This is the reinsurance part of the Munich Re Group, and you can see that we have developed a nice track record in each of the three pillars, and that is important, so the Life & Health reinsurance, the P&C reinsurance, and GSI, and GSI in 2025, we have reported separately. So a very good foundation to move forward into the next ambition. This slide is quite important for us internally.
It does answer the question, why do we have those three pillars under one roof, and these are our common principles and our common success factors. And if you look at them, I think you clearly see those are at the same time decisive elements in our proposition in each market. And let me give you just a few examples. The topic of capacity, how we use capacity, is of course a decisive element of any value proposition in all three pillars. And each pillar benefits massively from the magnitude and the flexibility how we as a group can provide the capacity. And by the way, without hinging on retrocession. Another example, the cyber business.
The cyber business has been developed by a cross-functional team, by the way, also including ERGO, and all the foundations, the data, the coverage, the pricing, the accumulation control, the overall risk management in one team and then can be provided to all the business units that can sell it. We sell it on reinsurance, we sell it in GSI, we are liaising with ERGO, and even in the future, we can think of sharing it, of course, with Next. AI has been mentioned as well, and you should know we have globally in the Munich Re Group one AI platform, and that is important. The technology base and the platform is a very expensive thing, and we need to have economies of scale. And by just having one, that is another element, another synergy that we have across our different units. This framework you already have seen.
Just let me emphasize one point that we have realized. This does operationalize the levers that we are addressing in the new ambition, and at the same time, it does align the organization, and aligning the organization in such a big group is of very high importance, and let's now look into the results. Again, this slide is, I think, quite known in the meantime from you. The reinsurance also commits to an ambition to achieve more than 18% of return on equity. That is here the most important message, and of course, where is this coming from? You will see the numbers again, but Life & Health reinsurance growing very nicely, GSI growing nicely, and underwriting of the P&C Re business, we do recognize the more competitive environment.
What you don't see here, you see it in the green color on the investment side, a little bit an indication is that the contribution of investments is higher than at ERGO, as a larger part of the before-mentioned increased return on investment is allocated to the reinsurance portfolio. This is an important thing you should be aware of, and in my following presentations, I will now focus on underwriting and efficiency, but you can see coming off from already very high profitable levels, we aim to deliver more than 18% in reinsurance. Let's now delve into each of these pillars, and we start with the P&C reinsurance. You can, I mean, the most important maybe sentence is our strategy is not changing. You know that we serve all markets, that we have full range of products, that our value proposition gives us a very strong market position.
And this is then depicted in the numbers of the left side, right? You see that we expect either a stable or a low growth of the P&C Re portfolio until 2030. And let me explain the sequence that we foresee. More or less during the next two years, we might see a rather declining revenue, subject to the development, of course, of the market cycle. But in contrast, and based on normalized net earnings of 2025, the net result will stay rather flattish or trend slightly down because the higher investment income that I mentioned earlier largely compensates for the slight reduction of the technical result in our P&C reinsurance business. After that dip, we expect our business to again grow with the normal, for example, 3% that the market growth is providing. So gradually, revenue and net result will rise again.
I think you also know from experience pursuing a strict portfolio management enables us to maintain a high profitability throughout the whole period. And one thing that I think you are also aware of, we can shift resources and capacities, highly flexible globally per line of business, per region, and per parallel. And that is an excellent foundation for us to maneuver through a more competitive environment. Let me add a few more arguments to this topic. On the left side, you see the main arguments why we regard, and we have seen it recently, that the reinsurance, and especially the natural catastrophe segment, is in the medium to long term a growing and very attractive market. But as we all know, the prices fluctuate. On the right side, you find the main arguments why we have such a strong market position.
The result will be, as we maneuver through a more competitive environment, that each year the global portfolio will have an attractive pricing level despite the fluctuations in the market. This is a proven track record that we already had achieved in the last cycle. Very broadly, smart cycle management means for us, we know where to grow, we know where to stabilize or reduce or even stay away from. On the lower part, you see arguments that are also important. For example, our management has no top line target, which means we encourage them to either grow or reduce or shift resources or stabilize. Again, I repeat, we are, I believe, one of the business models with the highest flexibility of shifting resources and capacities depending on where we find opportunities. One reason is, again, we don't hinge on retrocession.
We don't have to fill up the retrocession program and costs, or if we grow, the retrocession program doesn't set us a limit. And that is, for example, the growth that you have seen in the last three years, also mentioned by Joachim already in our nat cat business. Another few arguments how we see the market. On the left side, we want to illustrate a few trends and arguments why reinsurance is so well positioned. Let me summarize. You see that the natural catastrophe losses are increasing. And one important trend within that is the non-peak perils. And they drive quite different and dispersed trends globally. That means we don't have a uniform trend. Rather, we have things moving up or down in different ways across the globe. And that, of course, again, creates opportunities for our business model.
On the right side, you see the dedicated reinsurance capital and the so-called alternative capital. Clearly, you can see that the traditional reinsurance capital is much bigger, but more importantly, it's, of course, highly diversified, and it is really, therefore, much more efficient than the collateralized solution of the alternative capital. Also, the alternative capital is, in most cases, highly inflexible. It's a fixed structure in a multi-year, in most cases, only one shot, which compared to the traditional reinsurance that you can change each year, and you can add structural elements like reinstatement, dropdown, whatever is possible. In summary, the increase of exposure and claims development globally is strong, and it does require the growth of the underlying risk capital, and we have seen that in the long term, we do have a sound relationship between the growth of the exposure and the allocated risk capital.
Traditional reinsurance clearly being the most efficient and effective solution. This slide illustrates how we have done so far in the cycle management. On the left side, you find the full range of results from our recent renewals in the year of 2025, and you can see that the price movement has been only a negative number of 1.1%. On the right side, you find the shifts of the portfolio between the year 2020 and 2025, and of course, we have increased our share in those most profitable areas, and we have reduced them in the more critical segments. Joachim mentions an interesting thing that happened during spring and summer 2022, and some of you may remember that. The nat cat business was not really seen as an attractive market segment by the capital market, and some reinsurance completely stopped, and some reduced their capacity to this market.
We had here a conference with some of you and many analysts, and Stefan Golling and myself tried to share our conviction that the natural catastrophe market is highly attractive despite the fluctuating prices. And you have seen the result in our growth as of 2022 in the nat cat business as a major contributor in the recent years in the old ambition. In summary, in P&C Re now, Munich Re is really well positioned to navigate through a market environment that is a little more competitive due to our strong market position, our global access, our full range of products, our deep risk knowledge, and the very flexible business model. And with that, let me move to our next division, the Life & Health business. The numbers on the left, I think, very clearly indicate a really strong growth plan.
And most of this is based on a proven track record. I will come to that. If you look at top and bottom line on the left side, I find that growth very impressive. And again, here, our strategy has not changed. Similarly to P&C Re, we operate in all markets. We have a full range of products, and we have a very strong value proposition. And you also heard recently in our presentation the Net Promoter Score . P&C Re and Life & Health Re have a very strong Net Promoter Score . That is important for the growth, of course. Also important, as there are some solutions out there in the market that we don't like, we stick to our biometric risk. That is our risk appetite, and we don't mess it up with other potentially asset risks. Two major initiatives are driving the growth.
We will look into that with the next slide a bit more. We are expanding our longevity business, which so far we have been focused on U.K. and a little bit in the Netherlands, and now expanding it into North America and maybe looking also into Japan, and then what we call transactional business. This is one major growth driver here, and let me explain that with my next slide a bit in more detail. The life reinsurance industry, you can say, has developed these different profit pools over time, and I would say in most of the years, Munich Re is very strong in the lead. Our traditional business, you know that very well, is, for example, a quota share where we share the biometric risk with a life insurer.
We then have extended over the decades the solutions into FinMoRe business, financially motivated business, and that optimizes financial KPIs of our clients, for example, a pre-financing with liquidity, and we get biometric margins that allow us then to earn our return. Longevity I already explained, and now let's look at transactional business. There are many structural changes in the Life & Health insurance industry, and the drivers can be that the life insurers end a product or change their business model focusing more on distribution, for example, or there's a consolidation, so M&As, or there are regulatory changes, and very often in these occasions, they want to carve out a very big biometric portfolio and then share that risk with a reinsurer, and these one-off very big and very complex transactions have been a driving force for us in the growth.
We have a proven track record that you will see in the next slide, and we have already a pipeline for the next few years that is giving us the confidence to grow the business. This is to show you and give you some explanations back to this transactional business. Let me just pinpoint two arguments that are important. The new business of the recent years has already been higher than EUR 3 billion driven by these transactions. And again, coming back to the importance of our clients and the relationships in the market, you need to have strong relationships with alternative asset managers and private equity companies because they drive this process very often, and they are the ones also looking for the partner on the biometric side. With that, I like to move to another growth story, which is the GSI.
It has been, of course, already mentioned by Christoph, by Joachim. So this is, again, another nice growth story. And you can see on the left side that we are promising and planning another strong growth into the next five years. The value proposition is strong because it does benefit from the synergies that I mentioned earlier of the reinsurance and the whole Munich Re group. That is one of the core drivers where we can gain market share. Core initiatives for us are we are expanding regional-wise, for example, continental Europe and very selective into Asian markets. And we are expanding the product lines, which Joachim already alluded to, where we have quite a track record of introducing new products into the market. What is the core of the business? It is commercial and personal business. That is what we're aiming for.
That also means that the GSI portfolio, most parts of them have quite small limits and per risk, small exposures. Further growth drivers are, by the way, that these markets tend to grow faster or stronger than standard products of property or casualty. Over time, I would add that the different GSI units will also increase the cross-selling among them. As mentioned before, GSI Global Specialty Insurance shall be a contributor to diversification and to less volatile earnings. Therefore, we very tightly manage the limits that we apply per risk. We very tightly manage the portfolio accumulations, especially natural catastrophes. We do buy external reinsurance for GSI, and we complement, depending on how expensive or cheap the external reinsurance might be, we complement it by internal reinsurance. From our perspective, another nice synergy within our reinsurance group.
Cost ambition, cost rigor has been mentioned by all presenters already. I'll keep it a bit short. Of course, the reinsurance is also committing to economies of scale, and we have very clear defined target budget limits for each and every unit. On this slide, you see the summary of the levers that we're pulling in order to achieve that. There's a very strong commitment by each unit to have a very cost competitive position with respect to their peers in their business model. Of course, we continue investing into the enablers that have been mentioned also before. The people strategy is a big topic for us, and the analysis of demographics that also Markus alluded to, we do just the same and use that as a sound basis and foundation for our people strategy going forward.
We apply AI on the efficiency side, but also especially on the reinsurance side and can help us in many places in order to better understand the risk of an underlying portfolio. We have very attractive cases, and therefore we will continue in prioritizing investments into that. Anything that helps us on our risk expertise and underwriting excellence is, of course, that you can see here on this slide, also an investment that we favor and will push going forward. Our target picture. Let me summarize. I'm convinced that the reinsurance group is building on the success of the last ambition. We have a proven track record, and we will continue growing steadily, top and bottom line over the next five years.
With our leading position in the P&C Re business and the Life & Health reinsurance, and that complemented by a strong footprint in the fast-growing specialty market, we are very well equipped for the new ambition. And as mentioned before, the higher growth of Life & Health and GSI, which are both less cyclical and less volatile, will further improve portfolio diversification and earnings volatility for the reinsurance and for the Munich Re group. Thank you very much, and with that, I hand over to Christian.
Thank you, Thomas and gentlemen, for your presentation. We are now starting our Q&A session, and at this point, participants may activate their camera and microphone. To ensure everything runs smoothly, let me just briefly explain the process. First of all, please use the raise hand feature, which you find in the menu bar if you would like to ask a question.
I will call on participants in the order in which hands are raised, and then please wait until I call your name. Once you are called, please activate your camera and microphone. The hosting team will then spotlight you so everyone can see and hear you. Please ask your questions, but please no more than two per turn. After your questions have been answered, please deactivate your camera and microphone. And last but not least, if you have additional questions, just rejoin the queue. Thank you for your attention, and now we already have the first question from Shanti Kang from Bank of America. Please, Shanti, go ahead.
Hi, yeah, thanks very much for the presentation and for taking my question. I just had a couple mainly on capital. So clearly you've lifted that payout ratio target to an 80% floor across the next five years. How should we think about those returns split between dividends versus buybacks? I think historically that's tracked as a kind of 50-50 split. Is that something that you'll continue to look to do? And then on the ROE target, that's sort of 18%. How much is that driven really by the capital return ambition versus the earnings contribution, i.e., what should we think about as the core driver between the numerator or the denominator for that? Thank you.
Yeah, well, thank you, Shanti. I will take your question. Christoph speaking. The first one, dividend versus buyback, obviously we always have a bit of flexibility in that. But what you can see also in the slide deck is that the basic assumption is that dividends will grow with dividend per share will go with earnings per share, and then we have buybacks as a flexible tool. Now, as I said, it's not carved in stone, but that's the current assumption. On your second question, ROE, there, as always, the answer is it depends. Because as you can see, we didn't commit really to any IFRS targets for 2030.
So therefore, depending on where in the ranges, and the ranges have also to an extent an illustrative character, where we land in the ranges, obviously capital management will have different contributions or different relevance depending on where actually the business development will go. And this is exactly the kind of flexibility which we need and also want to have. Because who is able to predict five years? Nobody, actually. So therefore, I think it's a bold move to come out with five-year targets. It shows how confident we are in our business prospects. But even Munich Re needs some flexibility in expressing targets over a five-year time horizon, and our flexibility sits in capital management.
Typical, thank you.
Thank you. The next question, please. The next one is from Ivan from Barclays. Please, Ivan, go ahead.
Hi, good afternoon. Thank you very much. Congratulations on the success of your current strategy and setting ambitious goals for the next five years. I'd say probably one of the first ambitious targets you've set is the Life & Health. That's the 8% to 12% revenue growth. And I think at the top end, the technical result ambition, that's a billion higher than 2025. So I was just wondering, with that improvement, how much is already captured by this extra EUR 3 billion of new CSM that you've generated, and how much would come from the genuine new business? Because you're talking about pipeline, you're talking about some new initiatives like partnerships, there's risk sharing. If we split between 2026 and the outer years, how does you think that trajectory looks like?
Because if I assume that your CSM release on the EUR 3 billion is 8%, that's only a quarter of this EUR 1 billion that you plan to do. So maybe extra color on that would be quite interesting. And then the second question I have is perhaps on the change in the capital allocation towards more market risk. I think especially in the context of continued growth, that slide 35 looks pretty curious. Maybe you can talk about some changes to the target asset allocation and whether the stronger growth in Life & Health would actually result in much longer duration and therefore substantial increase in less liquid assets, private assets. Anything on that sort would be interesting. Thanks.
Okay, I'm happy to take both, Thomas, whatever you want.
However you like. Just start and I'll comment if necessary.
That's fine. I actually, I'll even start with the capital allocation. The main change is what we mentioned as an increase in alternative assets. And this is also what is shown on this one specific slide on the alternative strategy. And by that, we mean a variety of different asset classes. Some of them have debt character, some have equity character. But this is the major change. Now, I mean, you're using big words, change in capital allocation. I would say it's gradual. It's not that significant. Because if I may, I mean, you could read the slide in a way that the uptick in alternative asset, what is it? It's probably a mid-single-digit billion number. If you look at a chart and take out your ruler, you could measure that. I don't give you any precise numbers. There are no precise numbers, but order of magnitude maybe.
If you then would apply a capital charge of, I don't know, maybe what is it? 20%. Let's assume 20%, because it's a mix between equity and debt and real estate. Let's assume 20%. Apply 20% on a mid-single-digit billion number as additional capital charge for these higher investment risks. Then we will see that this order of magnitude is quite gradual in the context of our overall risk taking. This is what it meant to be. No fundamental radical change at all. As I said, the split between investments and insurance always has been a bit flexible. We are going to bring it down a bit further towards increasing assets a bit, bring insurance in the relative split a bit down. Nothing really, no fundamental change. Let's put it that way.
We continue to be an underwriting company, and this is just the topping of the icing maybe. So that's how I would express it. So really no changed capital allocation. That would be too strong words. I would not use them. Life & Health, I mean, you answered your question yourself probably already when you did the calculation. So there is significant new business needed to achieve our growth targets, and we see a healthy pipeline to get there. And I, Thomas, spoke a lot about these transactional opportunities which we see. And they are part of that, but also the bread and butter underlying business is supposed to grow nicely and also our funeral business and our mortality business. So yes, we need to grow, and there is quite an ambitious commercial growth program behind these numbers. That's how I would express that.
But maybe Thomas, you would like to add something?
I think you already said it.
Okay.
I mean, the only thing I would add is the transactional business. That can be very big transactions, and there are two benefits to it. In most cases, we know the client and we know the portfolio because we already reinsure it. So we have quite a confidence and a track record. Therefore, we have an estimation for what can we achieve with the existing pipeline and how could the pipeline develop. But it is lumpy. It is lumpy, and therefore we don't predict specific numbers.
Thank you, Ivan. I think we can move on to Kamran Hosie from J.P. Morgan. Please, Kamran.
Hi, good morning, everyone. Two questions for me. The first one is on the 8% EPS CAGR. I just wanted to kind of understand how we should think about this over the course of the plan. I hear your comments, Christoph, that you don't want to commit to RFS targets. You're very confident in the prospects. But is the 8% in terms of distribution until 2030, is this kind of should it increase linearly or should it increase as like a hockey stick? Sounds like there's some good contributions from things like Next going forward towards the end of the plan. So just interested in whether you've got an idea of direction of improvement of earnings over the period. The second question is on GSI. I'm very curious when I compare P&C Re and the direction of travel and GSI.
In P&C Re, you've said the combined ratio will be between 79% and 83%, so a worse point than it is from this year's initial guidance. Whereas GSI is actually you expect it to be at a potentially lower level, 87% to 90% versus the 90% initial guidance for the year. So just trying to understand kind of what's going on there. From the outside, it looks like in lots of commercial lines where peak pricing and things are getting a bit worse. So just wanted to kind of square those two things, whether this is more expense saving, whether there's portfolio optimization, kind of what's going on there for that number to potentially improve. Thank you.
I start with the first one maybe, and then I look to my colleague.
You take GSI.
You take GSI. Good. Then I'll start with the first one, and then Thomas takes over. The earnings per share CAGR, I mean, also there, Kamran, you said it. There's a bit of flexibility in there, and I think we need that. We had that discussion. If everything goes 100% according to our today's best estimate, which, by the way, is never ever going to happen, but let's assume for a moment everything goes 100% according to our own current best estimate over five years now. Then I would think from a group overall diversified perspective, we could expect a rather linear development of the earnings going forward. But again, the beauty of the way how we do express the targets is there's only an IFRS target for one year.
Everything else has much more flexibility because we need that given the uncertainties we see going forward, and therefore we have that ranges. And that ranges would open opportunities like of completely different patterns like linear. And that would also be fine for us because all these various paths would support our ROE target of above 18% in 2030. And therefore we have a bit of flexibility manufactured into the plan, and I think we really need that. But if 100%, our current best estimate, then pretty linear, I would say.
Okay, GSI and the target combined ratio that you mentioned. Of course, if we look into the next five years, there is quite some uncertainty, but of course, what we present here are the ranges driven by the portfolio composition and the pricing level, so both things can, of course, have a major impact, and as we want to diversify away from other accumulations of the reinsurance group, one area that we will go into a bit more can be, for example, a longer-tail business that comes with certain higher combined ratios. At the same time, we have economies of scale, and you mentioned that on the cost side. That is for sure, and it's fixed and baked into the plan, and as these two things come together and adding the uncertainty for such a long period, this is how we see the range developing.
Okay, thank you, Kamran. Next question, please, from Will Hardcastle from UBS. Please go ahead, Will.
Thanks very much. The first one is just on P&C Re. Can you talk me through, if you can, what you're assuming on pricing from start to end point to get to that end range on that 79%-83%, so guess the 83? Would you be thinking there's any balance sheet or reserve consumption to get there? And just coming back on the share buyback, it's very clear. One clarification I just wanted to get is, are you essentially stepping away a bit from the sustainable level that you used to talk about? So one where we imagine last year's buyback acts as a floor for the following year. I'm just curious because you mentioned it as a flexible tool, and I just want to see how flexible that is. Thank you.
Thomas.
I start with P&C Re. I mean, in a five-year period, to have a very granular description of the development of combined ratio, you know well that is very difficult. But we have calibrated the whole period a little bit with the experience that we had in the cycle before. So the sensitivities on the pricing are quite similar, but we have a more, I would say, optimistic view because we believe the discipline and the diverse and not uniform movement across lines, perils, and regions will give us more opportunities. But the first two years, it's a slight reduction of the pricing where I mentioned it's being compensated partly by the higher investment income. And then the traction as of 2028, again, improving margins and growing with the market growth of more or less 3%. I think that's what I can give you as a guidance.
But the way we shift and change maybe our appetites because the risk return is developing up or down in different segments depends on the cycle. And how the cycle as a whole predicts or how different it is to the former cycle is still difficult to say.
On share buybacks, I think the wording is completely unchanged. So we always emphasized it's a flexible tool. Now, in reality, if you look back the last, I don't know, 15 years, in reality, we decreased the buyback or canceled it mainly or only in years where significant external events happened. But the wording has always been like that because we need a wording like that in case such kind of events happen. If we achieve our target, a steadily increasing earnings trajectory also going forward, the likelihood of significantly reduced buybacks given a payout target of 80% is pretty remote, isn't it? And therefore, I just want to emphasize again, the wording is unchanged. But clearly, the commitment to repatriate more going forward is what should be the thing you remember out of the presentation today.
Thank you, Will.
And we move on to our next question, which comes from Iain Pearce from BNP Paribas Exane. Please, Iain.
Hi, morning. Thanks for taking my questions. The first one was just following on a little bit from pricing, obviously with the renewal date getting pretty close now. It sounds like from the sort of guidance today, you're sort of expecting a renewal relatively in line with last year. If you could just give us a bit more color on what you're seeing as we get closer to the renewal date, that would be useful, and then the second one was just a question around Next. If I'm just running forwards sort of the Next assumptions, I'm sort of struggling with the math of getting towards a mid-triple digit number.
If we assume $1 billion of premium with $100 million growth per annum, which is what the company has done over recent years, if we assume a 90% combined ratio, 4% investment return, it's quite difficult to get to see how you're getting to that mid-triple-digit number. So if you could just give us a little bit of color around the sort of mechanics of the mid-triple-digit and actually if Next the driver of the improved combined ratio in the ERGO International segment, that'd be really useful. Thank you.
I start again. Hi, Iain. You know that the most important two weeks are still to come for us in the renewal. But what I can share is some anecdotal, I would say, stories or evidence. And I would say compared to the last year where I indicated on my slide that we had a price reduction of 1.1%, I would foresee a little more, a little higher price reduction in this renewal. But I cannot fix it to a number. It's too early to tell. And it will take us until mid of January to then have the real number. But the tendency is a little more.
On Next, I'll start and then hand over to Christoph for complementing it in the planning. So of course, we don't want to disclose the individual targets as they are being discussed with Next currently. But I think if I draw on your conclusions, the insurance revenues, I think we plan them more aggressively. Next basically sells on three channels: direct, agent, and partnerships. All the growth numbers we have been seeing prior to our acquisition, and this is totally unchanged in the way we can analyze the Next development so far, points towards a much more aggressive trajectory, both in terms of growth rate and then consequently volume in 2030.
Also, I believe given the fact that they are concentrating on the small business, small and medium business subjects, and here especially in the micro market, as I alluded to in the chart, the 90% loss ratio prospectively would be quite a disappointment to me. So these two elements translate into, let's say, a higher level of confidence towards a three-digit million net profit contribution by the end of 2030. But Christoph, please comment wherever necessary.
Nothing to co-comment. Maybe just to add one topic, which I think is also relevant from a balance sheet management perspective. An initial volume push will also come from the fact that we're going to internalize all the business to take on the own balance sheet. While initially, Next was still writing a lot also on third-party balance sheets, either via reinsurance or other constructions, so this will also support, particularly initially, the growth trajectory.
Could I just clarify, Markus, was that 90 combined ratio? I think you said 90 loss ratio, but I think you meant was it 90 combined ratio?
That's what I meant. If I said 90 combined r atio, I would be even more disappointed. So my apologies and thank you for giving me the opportunity to clarify that. Thank you.
No problem.
Thank you. Next question from Darius from KBW, please. Darius, we can't hear you.
Hello?
Yeah, now we can hear you, Darius.
Hi. Sorry, my camera for some reason is off. A few questions, please. Should we assume that you are willing to support your combined ratio targets for P&C Re and GSI with reserve releases, or should we think there's some pricing risk to those figures over the next five years? The second question is, could you just confirm the EPS CAGR of more than 8%? You are using the EUR 6 billion net income target for that as a base or something different based on the actual results? And the third question is, what kind of solvency ratio do you commit to getting down to? Because I think the range of possibilities is extremely broad compared to where you're currently sitting and above 220 when you talk qualitatively about wanting to be open to all the peak risk opportunities and whatnot. Thank you.
Darius, can you repeat the second one? I'm not sure if I got the second one right, please.
The baseline.
EPS and.
The baseline.
The baseline. Okay, very good. Darius, I'll take all three of them. They all have a strong financial background. First one, reserve releases. As we always said, we would never use our reserves to buffer a soft market because it would lead to the wrong signals into the underwriting and into the market. For volatility, that's a different story. There we could use them, but not to support long-term. And we're talking about a five-year strategy. So the answer is crystal clear. We cannot support this five-year trajectory by just releasing money we already earned in the past. That would not work, and that's not what we want. So there is cycle and pricing risk in these numbers. But yeah, it's our best estimate. And we showed the ranges in order to show what we think are also possible outcomes. And then we have capital management to react.
The outcome for the CAGR is actually the outlook result of EUR 6 billion, and the Solvency II ratio, so we don't commit to any target, to any target Solvency II ratio. There is no target, but if you ask me today what I think where the Solvency II ratio will be in 2030, then I would tell you clearly below the level where it is today.
Okay, thank you, Darius, for your questions. I'll continue with a question I have received via mail because he has technical issues from Hadley Cohen from Morgan Stanley, and it's a question for Christoph. How should we think about the organic evolution of the solvency ratio from here? One of your peers expects solvency to decline on a 55% payout ratio. Appreciate Munich has more diversification and life value of new business.
But what does an 80%+ payout ratio mean for annual net organic capital generation? Linked to this, how much capital do you expect to be consumed by planned asset re-risking? I think you have already alluded to this last one.
Yeah. And I think also the first one, actually, because the expectation for me would be that Solvency II in 2030, the ratio is lower than where it is today. And there's nothing else I would like to comment today. Question. I think that's the answer, I think.
That should be okay. Thank you. And we can continue with the next question. The next question, I think, is again from Kamran from J.P. Morgan. Please go ahead.
Thanks for taking the follow-up questions. In terms of M&A, I mean, I guess you've said you've got lots of flexibility. You've highlighted kind of things that would be attractive. Should we think about the 8%+ EPS as having no M&A included within that target? Or naturally, there should be probably some kind of bolt-ons, etc., in places like ERGO or maybe GSI. The second question is on ERGO. In terms of the investments that you've talked about in 2026, I think I look back or I think back to like 10 years ago, and the investments you made there or that stage were hugely successful. I'm just interested in kind of how much you're spending in 2026 and kind of what the investments are aimed at. Is this just kind of positioning yourselves for a greater AI adoption or kind of what that might involve? Thank you.
I start with the first one, and the second, Markus will take the second then. The first one is very simple. There's no M&A assumption in our projections.
We do not want to disclose an individual year-by-year investment number. Overall, over the five years, we'll invest a significant three-digit million sum into ERGO. So it's going to be a little less than in the first program, but it's still very, very significant. And in 2026, the investments are primarily technology investments because that is going to be the basis for the future. So it is mostly everything on AI and AI-related technology. So it includes some investments into the legacy systems to make them AI-compatible. And there's also some restructuring in parts of our group which have to be financed. But that will be the two most important drivers for 2026. As I told you, we have a front-loaded program. So there will be more investments in 2026, 2027, and then in 2028, it balances out towards 2029 and 2030.
Thanks very much.
Thank you. Then we have another question from Shanti from Bank of America. Please, Shanti, go ahead.
Hi, yeah, thanks for taking my follow-up question. So just on Life & Health, that 8% to 12% top-line growth corridor is pretty punchy based on how you've performed in the past. And I was just curious, where is that growth really coming from? Is it going to be organic or inorganic? And that step up, is that really driven by changing conditions? Has something changed now versus in the past? And then the second one was just on P&C on the pendulum Slide 21, where you showed P&C swinging from being around one-third of the group back to one-half. I was just curious, is there a metric that you monitor to determine whether or not pricing has sort of bottomed out and turned again?
Take the first one.
I take the first one.
Yes.
Life & Health Reinsurance, why is it growing so nicely? Or why do we promise the same thing? The market is such the normal market, biometric business, quota-share business, financially motivated. Rightly, you're indicating that, I think in your question, grows at a lower pace, but we have those two additional initiatives. The most important one is really what we call transactional business. This is where I have shown the slide of the recent transactions during the last three years. We're not changing conditions. It's rather the other way around. We are in such a good position to take on those very big portfolios because in most cases, we already know the client. Very often, we already reinsure the underlying portfolio. Or we have the same data from different cohorts, from different clients because we have such a broad view on the market as a reinsurer.
So you can say if it wasn't for being big and part of a very complex transaction, it is plain vanilla business. But it's something that you don't find in the statistics of a market growth because those transactions are one-offs and take quite a long time to be executed. A year, sometimes one and a half years.
Shanti, this is Joachim. We struggled for a second if we understood your second question right. So if I may ask back, are you referring to that pie chart slide that I was talking about?
Yes.
Can I ask you back, what is the concrete clarification that you request?
Yeah, I was just wondering at what point do you turn back into a kind of growth position for the P&C book? I think you show that kind of shrinking over the ambition. Is that capital in the system? Is it pricing? Just wondering what metrics you monitor?
That's important that you ask it. Thank you very much because that's an important clarification. So if you look into those pies and how they have evolved over time, what you see is the total pie is becoming larger, and it's expected to become even larger than today in the next five years, and if you ask how will it probably look in 10 years from now, it's even larger, so the whole group business will grow, first thing, and however the composition will be within that portfolio between P&C reinsurance and non-P&C reinsurance, we expect to earn more than 18% ROE, so that's important. Do we have sort of a predefined optimal share of P&C reinsurance worth of the other lines of business? No.
So whatever, from a profitability perspective, makes sense to us and adds value, and today everything is adding value the way that we are doing, is welcome. But the more the markets allow us to grow the stable lines of business to grow, the stronger we feel ourselves on the P&C reinsurance side for the reasons that I highlighted because the more they earn, the others, the stronger we are to offer huge capacities like we did in 2022 and 2023 on the P&C reinsurance side, irrespective of whether large losses may affect us or not. That's a promise to the market, which is highly valuable.
But should the market turn into unattractive, which it is not today, but if so at some point, then we would be in a much stronger position in also reducing our exposures because we can afford it because we have the other three lines of business already earning so much and increasingly so and paying the dividend, interestingly, already them alone. So that is the whole logic. What defines the size of the pie and the composition is just the profitability that we can see in each of them.
Okay, thank you.
Thank you, Shanti. We will continue with Will Hardcastle with his second question. Will, please go ahead.
Thanks very much. Just on the solvency, I guess, given you've made the effort to change that solvency metric to the greater than 200%, can you just go into why you chose 200? I mean, one of the things I'd think about is the cost of equity at that sort of level would be incredibly high, I'd have thought. But maybe some of the details that you thought to choose 200. You also mentioned potential to look at legal entity structure. I'm just trying to understand where there are maybe some trapped capital. It's not something I remember discussing in the past, so that'd be helpful. Thank you.
Yeah, Will, thank you. First, Solvency II, the lower boundary, I mean, we did run a few scenario calculations and also looked at the alignment with rating assumptions. And the 200% is where a double-A rating would roughly sit. And also what we always want to make sure is that independently of what kind of large industry loss happens, that we are in any case be able to then grow into that hardening market after the large event. And for that, your capital shouldn't be too low because if it's too low and then a significant event hits you, then it would be very hard to go into growth mode because maybe your capital would not be sufficient for that.
So therefore, we need a certain level of excess capital for two reasons: rating capital and also the, let's say, general capital strength, but also to stay in business if a real big industry event would hit us because those would be the most profitable years. And you want to grow into those years. This is exactly what you need to do then. So you have to take a precaution ahead of that already and keep the balance sheet strong enough to be able to immediately go into growth mode if needed. So that's basically the reason for the lower boundary.
Just coming back on it just quickly, thank you. I'd imagine, do you think you would be able to grow significantly at just above 200%? Is that why what you'd still be saying you could still grow significantly if that went down to 205 and post-event?
No, the 200 is the minimum, so even if we are at 200 and then a large industry event would hit us, so bring us significantly below 200, even in that case, we would need to be able to grow again and to then make sure we can get these more attractive margins then, and therefore, the calibration of the 200 is basically, let's think about a really severe stress test and make sure that the 200 is high enough that we are able to grow even if a large industry event would hit the industry. Yeah, and therefore, with 200, we're of course happy to grow in any case, but the 200+ the stress, and then we should still be able to have a lot of capacity for the market.
I mean, from a commercial perspective, what is our key strength is really the consistency and that we're able to deploy capacity for all our clients independently of large industry losses and independently of the cycle. And this is something which we need to support by capital management. The second question, the cost of equity for that level, I'm completely relaxed when it comes to that because the cost of equity is also dependent on the way how you finance the 200%. And our debt leverage ratio is very low, but I mentioned in the presentation that we're going to increase it gradually over time. And this would help us optimize the cost of capital. But even at the level where we currently are, we easily earn the cost of capital. So therefore, I don't think there's any urgency at all.
It's just an element where we could further optimize our capital strength going forward and then the profitability on top of that. Similarly, on the legal entity side, I mean, there's no trapped capital anywhere. But really, to further streamline, optimize, you have to just reassess the structure regularly. If you don't do it for a couple of years, then you find out that you have maybe a few more legal entities than what you love to have. If you look at our annual report, you find there is quite a lot of those. So what we do is we just go through all of them, review them, and make sure we only keep those who are really value-creating and simplify structure wherever needed because each of these legal entities, in a way, is binding some capital, sometimes very small amounts only.
But if you add it all up, I mean, it accumulates. And therefore, it's helpful to do this. I would call it it's a bit of a cleaning exercise. You have to do it regularly. And we also think a bit about the interface between ERGO and reinsurance. So a lot of housekeeping in a way, nothing significant.
Thanks very much.
Thank you, Will. We will continue with the questions from Andrew Baker from Goldman Sachs. Please, Andrew, go ahead.
Great. Thank you for taking my questions. First one, I guess on ERGO Germany and the insurance revenue growth outlook, so the 3% to 5% CAGR, is there anything we need to take into consideration, the different outlooks between P&C and Life & Health there? And then secondly, I think in your 2025 AGM, the short-term incentive plan, there was sort of it was voted that you went from it used to be just based on the net result and now to at least two metrics. Are you able to give us any insight into what that other metric is?
Shall I start?
Please.
Good question. So we don't want to go into too much details, but if I may answer that question for Germany conceptually, then we have traditionally a very stable growth on the P&C side in Germany in the market that is around five%-ish. Sometimes it's four, sometimes it's six. Mostly depends on the motorcycle. I think that it is fair that we commit ourselves to grow with the market or maybe a little bit above market medium term in the P&C side. On life, you have to realize that we'll have a very successful new book of life business, which is basically capital market-oriented, hybrid, and some biometric products. But there's also the run-off of our classical life, and that, of course, is dragging in the premium.
So we would not expect from the overall life participation in the German market to grow with the market because we have this large backbook. And in health, we are, as you know, a market leader. We have roughly 10% market share on comprehensive health and 21% market share on supplementary health products. And there, I mean, you already have a little growth because of the price increases that you have, but we'll be able to manage a growth also in the number of insured persons. So here, I would also assume, depending on which criteria you look at into an at-market or above-market growth. That's maybe sort of like a general comment to your question. I hope that helps you for some orientation.
Andrew, your second question surprised me a bit now.
So yes, there will be a second target, and we are very close to being able to announce it already. The only thing I don't know if I'm allowed to say it already today or if there are governance or compliance reasons which would rather recommend not to mention it today. Therefore, I'd rather not give an answer, but it will be on our homepage in the next couple of weeks. And we can give you a hint as soon as it's available there. There will be no big surprise what the second target will be. But actually, as I'm not 100% certain that I'm allowed to say it, I'd rather be silent.
Understand. Thank you.
Thank you. We will continue with a question or two questions, or let's call it two and a half because I'm friendly, from Chris Hartwell from Autonomous. The first question for Christoph, I think, has more or less been answered. However, I think I will read it out. Coming back on capital, can you clarify whether 200% is an operating floor or a stressed floor? Given comments early on maintaining flexibility to offer peak risk to clients, if we add the tail risks and investment shock sensitivities, in effect, is this just reducing the excess capital by 25%? How should I think about that? And semi-related, do you envisage a scenario where your payout could be 100% or greater given the level of capital today?
Yeah.
The first one, operating floor or stressed floor, when we say, as I mentioned before, when we say we're above 200, the reason for that is that we wouldn't want to be able to grow our business even if a stress happens in that situation. So therefore, I would, using your language, probably say it's an operating floor, even if I'm not 100% certain how the exact definition of the term you're using is. I wouldn't say it's a reduction of excess capital because our commitment to give back as much capital as possible given all applicable restrictions is unchanged. So therefore, I think it's rather underlying and explaining a bit better really what the drivers are for the capital buffer we have. And the 200, as I mentioned before, seems to be a very good number for actually being the floor.
The payout ratio above 80%, well, we have to be a bit careful not to get ahead of ourselves. But already mathematically, above 80 doesn't exclude above 100. But it also doesn't exclude above 1,000 or above 10,000 or whatever it is. I don't want to joke too much here. I mean, exceptional circumstances, why not? For example, in the past, if you think about years where we had very big losses and we maintained the dividend, very naturally, the payout ratio would be significantly above 100% in those years. While in more normal years, 100% feels more like a stretch, to be honest.
Thank you. And the next question was on investment risk. Given how high capital has been running through the last plan, why is now the right time to increase investment risk, particularly into alternatives, given some of the recent concerns entering the market?
Is it notable also given the natural opportunity for the running yield to improve given the reinvestment rate gap?
Yeah. So why is it the right time? I think what I mentioned in my presentation is the synergies we have between insurance and investment when it comes to the assessment of some of those alternative assets and asset classes. What we would in any case try to avoid is places which are overcrowded already today. So if there are in certain areas some alternative risks where maybe the risk-return profile is no longer as attractive as it used to be, obviously, those are areas which we would avoid. And I just would like to remind you that our definition of alternative assets is very broad. It starts with real estate, which is a very traditional investment for insurers for decades or centuries even, up to more modern asset classes.
We can allocate just the capital as we like it and where we find the most attractive areas. So therefore, I think it's the right point in time when you look at alternatives in that broad sense and in a very differentiated way. Then I'm sure we'll find the attractive areas where it makes sense to deploy the capital. The reasoning is very clear. It's our illiquid liabilities, which allow us to take a bit more of these illiquid risks. From that, I think we and our shareholders can just benefit by the higher yields we are going to achieve accordingly.
Thank you, Christoph. Sorry, a third one for you. DPS in line with EPS is our message. The question is, is that a commitment or is there flexibility there to decouple those growth rates to some extent?
So the commitment is the above 80.
The DPS in line with EPS is the current assumption, but there's flexibility. I think I mentioned it before already.
Thank you. Okay, then we continue with the next question here from the internet. Iain Pearce, please.
Hi, thanks for taking the follow-up. It's just on the ROE walk versus the solvency guide, and I'm just trying to square the circle of the ROE walk, which seems to embed a sort of quite significant equity build, at least in the chart you presented, versus the guidance that the solvency ratio is coming down. Now, are those sort of two things assuming different assumptions? Is it that the solvency ratio is coming down because of an SCR build? And I know you've said there's flexibility around what you plan to do with the equity, but the sort of assumption would be, for me, is if the solvency ratio is coming down, you wouldn't necessarily be building a lot of equity at the same time, and therefore, if the solvency ratio comes down, that ROE might be a bit above 18%.
So I'm just trying to square that circle, really. If you can give me some help with that, that'd be really useful. And just to follow up on ERGO Germany as well, Markus, you mentioned that historically, ERGO Germany has been growing in line or slightly above the market, and that's the expectation. This year, the growth in ERGO Germany looks a bit light, and particularly in light of what we've seen in German motor pricing. If you could just touch on why you would be confident that that's going to reverse in 2026 and beyond, that'd be useful as well. Thank you.
Yeah, let me start squaring the circle. So first of all, all these assumptions, they are consistent. So I think as a CFO, I would be very unhappy with an inconsistent plan. So I'm happy to confess, yes, it's consistent. I mean, what you have to keep in mind, yes, there is some equity build, but we're also growing our book, and in some of the businesses quite significantly, and this will bind more capital. And then we take this additional investment risk, which also is part of the equation. And therefore, quite naturally, you have to assume an SCR build-up until 2030, already growth-driven and this additional investment element. And then you have the profitability, you pay out, but you retain some capital as well. And if you then do the math, you find a reduction in the solvency ratio.
Thank you for the follow-up on the German sales. You're absolutely right. This year, the growth is lower compared to the market's difference if we compare that to the past. And it's a very intentional decision. As you know, we clearly commit ourselves towards profitability. So the claims ratio for us is, I think, the most relevant KPI if we steer our P&C book. You have talked about motor. We do not profit as much as others from the motor price increase because our motor book, as you remember, is compared to our main peers much lower. We have a lower motor book than the others. So this gives us sort of a slight statistical disadvantage, but it's more than that.
We have been very reluctant in, let's say, 2024 and 2025 to take on new motor risks given the long-term inflationary outlook that we have that has been hurting us in new business, like I said, intentionally, but we've also pruned our commercial business more significantly, especially in the transport segment, in order to reduce the volatility because we firmly believe into our role of ERGO within the Munich Re context is to provide steadily growing low-volatility earnings contributions, so we always look into potential sources of unwanted volatility, and we have and will continue to prune the portfolio wherever necessary, and we prioritize profitability over growth, and that's what you're seeing this year in the market.
Thank you. I'll continue with another question I received via email. It is from Emanuele Musio from Intesa Sanpaolo. Two questions. It appears your targets are conservatively struck as they factor for all the things that can go wrong: a market that softens further from here and macro uncertainty, et cetera. The targets do not seem to include any M&A. So there is strong upside potential to your baseline guidance. On the M&A front, as of today, where do you see strongest potential for deployment? Maybe, Thomas, you take number one and you take two, Christoph.
Yes. Let's begin where we won't do M&A, and that's the whole reinsurance business. P&C Re and Life & Health Re, we don't pursue any kind of M&A. And that is because we have a very global, very strong market position. Any M&A wouldn't help us. But GSI, GSI is something where we are considering M&A. But again, I think it was Christoph in the presentation that mentioned we stick to our conservative view. So there must be a very strong strategic fit, and there must be a reasonable price. And all those two hurdles are difficult to achieve, but we actively pursue an M&A strategy that is for GSI true.
Well, I probably leave it to you to assess how conservative our plan is or not. I would rather say it's an ambitious plan and an attractive plan over the next five years. And in particular, also when you look not only at the sheer numbers, but also that it's quite bold to come out with a five-year strategy in light of all these uncertainties you're also mentioning. So therefore, I'd rather go with ambitious, but I think it's up to all of you to assess from your perspective if it's ambitious or not.
Thank you. Then let's continue with another couple of questions. This case from Vinit Malhotra from Mediobanca. First one probably for Thomas. Life Re technical result growth CAGR of 7%-10%.
What are the risks that large transactions may not be profitable or that your sharing business with alternative asset companies leads to more profit sharing with them? And then we have a question on cost expense initiative, EUR 200 million now growing to EUR 600 million. Is this a bit higher importance for Munich Re than in the past? What difference might it make for services that clients are used to from Munich Re, for example, on various research products like climate change, et cetera?
I take life, Life & Health. I already, I think, mentioned a little bit in the direction of your question. The transactions are big and complex, but the underlying biometric risks in almost every case, we know it quite well. And the reason can be either because we are already reinsuring that portfolio, it's one of our clients approaching us, or because we have data from the same cohorts from a different part of the market. And therefore, the biometric risk is what we take and what we understand, of course, deeply. And therefore, I don't see any danger that we might have a surprise on the biometric development in the next few years because of this type of transactions.
Thomas, do you also want to comment on Vinit's other question, re the cost ambition and whether reinsurance services might be affected?
Yes. I promise that we will have economies of scale in reinsurance, and especially those economies of scale will be in Life & Health and GSI and drive the whole reinsurance. And in those elements, especially on Life & Health where we have some digital services around the globe, it will not reduce our offering. And in GSI, it's more a distribution power that we are increasing. There are no, I would say, major big services that hinge on the success of the GSI business.
Thank you. I will continue with another question I received via mail. It is from Ben Cohen from Royal Bank of Canada. Is it fair to characterize the 8%+ EPS CAGR? So another question for you, I guess, Christoph. To characterize the 8%+ EPS CAGR as weighted to the second half of the five-year plan, given top line and margin pressures in P&C Re and upfront investment in ERGO, would you assume rising investment yields over the course of the plan? And to what extent would you smooth each year's EPS growth to 8% with change in the size of the buyback?
Okay, Ben, thank you for the question. I think I mentioned before already that according to our best estimate, as it's underlying the plan here, a rather linear development would be expected.
But taking up the points you were mentioning, I think the drivers behind the result development in the different years, they can vary quite a bit. And I mentioned in my presentation today that next year we are, for example, expecting quite a step up in the investment result. So this will help next year in a year where ERGO is, for example, still to some extent burdened by the investments they are making. So as you see, we have our means to steer and to manage that. But overall, it's going to be rather linear if everything goes according to plan, which over a five-year time horizon, you anyway don't really know. And this is why we just came out with those ranges. Similarly with the investment yield. So we have assumptions underlying that.
Based on that assumption, the investment yield should trend up further, and we have that also in the slide deck. But then again, of course, you're depending on the capital market, like you're dependent on the insurance market or reinsurance market on the business side. Therefore, again, these wide ranges give us some flexibility. We can add capital management to the equation, and on that basis, I'm very confident to achieve the above 18% ROE target. But we need to ask you, and we need to get that flexibility on the course, on the path towards that above 18% because nobody can predict the future over five years.
Thank you. We have two more questions from Faizan from HSBC. First one, at what point does the shift from P&C Re to other lines become suboptimal from a diversification perspective?
The second question, it was mentioned that you have greater flexibility given the limited use of retrocession. Given that we may see a softening of retrocession prices in the next phase of the cycle, could this create a scenario where your return on deployment may be lower than your peers that are heavier users of retrocession?
Thomas, do you want to take the retro question?
Yes.
Shall I take the P&C reinsurance question? So from what point on would the size or the share of the P&C reinsurance business be suboptimal? I want to emphasize again, we do not have any optimal size in front of us. So we do not target 20%, 40%, 60%, or 80%. If profitability is high, we are very happy to have much more P&C reinsurance business. And if not, we are happy to have and live with less P&C reinsurance business. So I underline there is no critical point of suboptimality. Retro.
Retrocession. One core element of us, Munich Re, in the reinsurance P&C market is the capacities that we provide to our clients. We don't make it dependent on retrocession. Why is that so important? Because we want to be, and we are, the most reliable and consistent player in the market, and especially this feature of our strategy has given us in 2022 the huge opportunity to grow our network catastrophe book. The question that you mentioned, could it be then in a very cheap retrocession cycle that we then have a drag compared to others using strong retrocession? I can't give you numbers, but we look at the whole cycle, so over a period, depending on how it develops, seven, eight years, and then you always pay the full retrocession cost plus the margin for the one taking the retrocession.
So on average of a cycle, you don't have a benefit. You have to pay the normal risk-adequate price for retrocession. And that's how we look at it. And combined with our strategy, we want to be able to give the capacity in each and every single year independent of retrocession. That's how we act in the market.
Thank you. Thomas, I think I have one more for you because we have received a second question from Emanuele from Intesa Sanpaolo. When we look at the returns required by ILS investors today, they have gone down materially from peak in 2024. In the past, there was a strong relationship between rates and ILS required returns. It appears that the relationship no longer holds true as insurance rates are holding up stronger than in the past. Is it what you are seeing? And do you think this may suggest that rates will stay stronger for longer?
I had a slide where I also alluded to the alternative capital. And I think you are raising a very interesting point. I cannot finally make a judgment if that is the case. But what we have seen is that the ILS investors also within the different alternative solutions move from one to another. And the recent development has been especially moving away from sidecars and moving into cat bonds. And that has depressed the cat bond market even more than the insurance market. So I think, yes, the ILS market and the respective sub-segments are more vulnerable to price reductions than the normal reinsurance or insurance relationships.
Thank you, Thomas. And I think we have a very last question now from Andrew Baker. Please, Andrew.
Thank you. Thank you for taking my follow-up. Just one, please. On the 80% P&C Re combined ratio target for 2026, can you just help me sort of think through that versus your original 79% for 2025? You mentioned obviously pricing was down 1.1% last year. That's still partially earning through. Sounds like it's a little bit weaker this year. What's the offsetting factor? Is it discounting or is there something else going on either in 26 or in the base in 2025? Thank you.
As you know, there's always a few moving parts in IFRS 17 when you look at those combined ratios. The good news this time is discounting is stable, so there's no discount rate changes. But there's always, of course, the business mix varies quite a bit from one year to the other. And business mix changes can easily explain also movements of the order of magnitude you're mentioning, so therefore, completely unspectacular in a way. Underlyingly, I think very well supported also going forward. I think this is the entire story already.
Great. Thanks so much.
Thank you very much. As far as I can see, there are no further questions. And let me just check my email once more. I think we have addressed all of them. So I think, yeah, it's thank you. It was a very, very lively and very good discussion. Thank you for all your questions and participations. And yeah, there's nothing left for me other than to say thank you for joining. We will now close today's session. Should you have further questions, as always, please don't hesitate to get in touch with the investor relations team. And I would like to wish all of you happy holidays and a good start to a healthy and successful new year. Speak soon and goodbye.