Ladies and gentlemen, welcome to the Investor Conference Call and Live Webcast on Annual Results and January Renewals. I'm Moritz, the Close Call operator. I would like to remind you that all participants will be in a listen-only mode, and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Becker-Hüssong , Head of Investor and Rating Agency Relations. Please go ahead, sir.
Now, thank you, Moritz, and good morning, everyone, and welcome to Munich Re's Analyst and Investor Call on our Full Year 2025 Earnings. As announced, today's speakers are Christoph Jurecka, our CEO, and Andrew Buchanan, CFO of Munich Re Group. Both gentlemen will start with their main messages before we go into Q&A. It's now my pleasure to hand it over to Christoph.
Thank you, Christian, yeah, good morning also from my side. Let me briefly recap our Ambition 2025, which concluded last year. It has been a great success, marked by strong progress year -after -year. Over the five-year period, we more than doubled our net earnings. We also significantly increased our Return on Equity to 18.3%, an exceptional result compared with industry peers and clearly above our cost of capital. This success was primarily driven by disciplined underwriting and active investment management, based on our strong client orientation and the excellent capabilities of our employees and business partners worldwide. We created substantial value for our shareholders, who participated in this success to a significant extent. Dividend per share growth was even higher than the increase in earnings per share. Ultimately, both metrics grew at nearly 4 x the pledged 5% per year.
What's more, we remain very comfortably capitalized despite materially increased capital returns, and this gives us considerable strategic flexibility as we embark on our new multi-year strategy, Ambition 2030. In short, Ambition 2025 successfully accomplished. We over-delivered on all targets by closing with another record year for Munich Re. Thanks to strong operating performance across all segments and the leasing investment return, we even exceeded our profit target for the fifth consecutive year. Net earnings increased by almost 8% to EUR 6.1 billion. Our result would have been even higher had we not deliberately strengthened our balance sheet and future earnings power. We could implement these measures without compromising financial targets, enhancing our resilience in an environment shaped by geopolitical tensions, by capital market volatility, and by continuously increasing insurance risks.
At the same time, we want our shareholders to once more participate in our strong financial performance. We have decided to increase the dividend per share substantially again by another 20% to EUR 24. Additionally, we continue with share buybacks also on a larger scale of EUR 2.25 billion until the AGM next year. Altogether, we will return almost 90% of our earnings, very much in line with our commitment for our Ambition 2030. This strong capital return is well supported by earnings contributions from beyond the more cyclical P&C Reinsurance segment. While this segment remains our largest earnings driver, the combined contribution from GSI, from Life Re, and from ERGO was nearly as significant and covers the dividend to a large extent. Our highly diversified business model is paying off.
Our combination of a Global Reinsurer and Primary Insurer at scale gives us a competitive edge in maintaining the high profitability throughout the cycle. Before I delve into the specifics, allow me to provide a high-level overview of our segments. Global Specialty Insurance has been growing for quite a while. We focus on structuring the portfolio in such a way that it generates robust and increasing returns in attractive specialty insurance markets in the United States and increasingly worldwide. Life Re has delivered a strong earnings trajectory over the past years. A well-performing in-force book, free of legacy issues and strong new business growth, have been the key drivers. ERGO continues to deliver like clockwork. With a rising earnings share from international operations, the business is becoming more diversified. Taken together, these segments make us less dependent on the P&C Reinsurance cycle.
At the same time, P&C Reinsurance continues to be the strong backbone of Munich Re Group. The rising contribution from our non-P&C Reinsurance segments, however, allows us to manage the cycle with discipline and achieve still attractive profitability levels. This brings me to the January renewals, which had a good outcome given price competition. Despite abundant capacity in the market, the discipline regarding terms and conditions was steadfast. The high quality of our portfolio was maintained with largely unchanged terms and conditions, as well as structures. The main battleground in this renewal was on pricing, reflected in a price decline in our portfolio of 2.5%, still within the range of our expectations. As always, this price change is fully risk adjusted, which means conservative inflation and other loss trend assumptions, as well as model changes, are taken into account.
Coming off very high levels, the margins remain healthy. Consistent with our underwriting DNA, we were prepared to walk away from business which failed to meet our risk return requirements. Selective growth in certain casualty markets and In- Credit Business offset this only partially. Overall, we actively reduced our renewed treaty volume by nearly 8%, with around three quarters of the decline driven by proportional business, which has limited impact on the bottom line. Looking at the individual lines of business. The bubble chart on slide eight clearly illustrates our consistent approach, protecting technical pricing adequacy by giving up business where necessary. Rigorous underwriting and strict portfolio management remain essential to safeguarding attractive profitability. After several years of steady rate increases, pressure was greatest in Property XL and primarily in Nat Cat.
Prices declined by 6%, yet margins remain attractive, similar to levels seen three or four years ago. To maintain high returns, we gave up a meaningful amount of business. Proportional business showed a more mixed picture. We reduced positions that no longer met our criteria, while selectively expanding in areas such as casualty in Europe and Latin America. Let's now turn to Global Specialty Insurance. Bringing our specialty insurance operations under one roof is paying off, increasingly recognized by clients and brokers alike. GSI benefits from a large, diversified portfolio across specialty lines. While still US focused, further international expansion will enhance diversification. As regards bottom line, GSI achieved an excellent performance in 2025.
To some extent, this was supported by below average major losses, but even more so, it was the result of very strong underlying performance of all business units, while strictly adhering to our prudent reserving practices. Building on this success, we continue to emphasize on underwriting and claims excellence. This is the basis to effectively manage the different cycles in specialty markets and manage P&L volatility in the portfolio. At the same time, maintaining cost rigor remains an important lever to deliver on the combined ratio targets. GSI has grown top line by roughly 10% annually in recent years. In 2025, growth continued, but was dampened by a weak US dollar. Looking ahead, I expect compound annual growth of 5%-9%, while always prioritizing profitability and underwriting discipline.
Turning to Life and Health Re, which has reached a significantly higher earnings level compared to the start of Ambition 2025. Strong new business momentum continues to support the CSM, which now stands at above EUR 15 billion, despite adverse currency effects, an impressive increase of roughly 40% since its introduction at the end of 2022. At around 7% release to earnings annually, this creates a predictable income stream for many years to come. More recently, significant tailwind came from large transactions. The global Life and Health reinsurance market is rapidly transforming, expanding from traditional biometric reinsurance into transactional business. Since 2022, large transactions have pushed new business CSM and operating changes by more than EUR 3 billion, and we are anticipating a healthy pipeline also going forward. In addition, a significant share of the positive business development came from thin MOE business.
Additionally, we see good opportunities to expand our Longevity business in the course of Ambition 2030. This year, we expect the total technical result to increase by more than 10% to EUR 1.9 billion. I would like to conclude my remarks on the segments with ERGO, which once again met its guidance with strong net earnings. The German business continues to deliver profitable growth. Adjusted for the one-off impact of the German corporate income tax reform, also the earnings improved. In P&C, the top line momentum paused as ERGO prioritized technical performance improvements. Among other measures, one focus was on improving the profitability of the motor business. These efforts are reflected in the strong combined ratio of 89%. Life & Health also performed well.
Technical profitability improved, while the run-off of the life back book and migration to the new platform continue as planned. ERGO's international business is growing faster than its German operations, with dynamic improvements in both revenue and earnings, organically and through acquisitions. The segment now accounts for 30% of revenue. This share continues to rise. With the acquisition of NEXT Insurance, ERGO expanded its international footprint to the World's Largest Insurance market, the United States. Entering the US Small and Medium Enterprises market provides very attractive growth opportunities, while at the same time giving us access to purely digital business models and underwriting processes. The unit is developing exactly as expected, both financially and operationally. Despite a strong expansion, we maintained an attractive combined ratio.
Altogether, ERGO's domestic and international developments give me great confidence in its contribution towards our Ambition 2030, always based on technical excellence and on rigorous cost control. Beyond the insurance business, capital markets continue to provide tailwinds. Investment income is gradually rising as we reinvest at attractive yields. We aim to unlock additional earnings potential through active investment management, and we closely monitor financial markets to capture short-term opportunities. In 2025, we deliberately accepted EUR 0.8 billion in disposal losses in the reinsurance fixed income portfolio to shift capital into higher yielding assets. We also captured opportunities in commodities and in global equities. Over the longer term, we continue to build exposure to alternative investments to earn illiquidity and complexity premium. Our Ambition is to meaningfully increase the contribution from active management to our return on investment.
In 2025, this approach once again paid off, adding more than 30 basis points to the group ROI. Importantly, we do not intend to materially increase our risk appetite going forward. When presenting Ambition 2030, we emphasized capital repatriation as a key lever in managing capital efficiently to support our return on equity targets. In this respect, dividend growth is particularly close to our hearts. Over the past five years, our dividend per share has more than doubled. Munich Re has not cut its dividend in over 50 years, even during crises. Following a more than 30% dividend increase for 2024, we now propose a further 20% increase for 2025. Thus, the dividend increase again surpasses earnings growth, underscoring our confidence in the sustainability of our earnings and future dividend potential.
This confidence is strengthened by the high share of earnings coming from less volatile, less cyclical segments. We will also continue to use share buybacks as a flexible capital management tool. Following last year's increase, we are again raising the amount to EUR 2.25 billion. We have also exceeded our Ambition 2025 non-financial targets. We have set clear targets and a roadmap for reducing our Greenhouse Gas Emissions. We outperformed in all three core areas: Investments, Insurance, and Own Operations. The same applies to our social targets. We committed to achieving 40% of women in leadership positions across the Munich Re Group by 2025. We reached 40.5%. Building on this success with Ambition 2030, Munich Re remains committed to further reducing Greenhouse Gas Emissions and strives for balanced teams across all aspects of difference globally.
To conclude, we confirm the financial targets for 2026 presented at our Capital Markets Days last December. With a projected net income of EUR 6.3 billion, we are again on track for another record result. In line with our strategy, the expected earnings increase will be driven by the less cyclical segments, Life and Health Reinsurance, Global Specialty Insurance, and ERGO, while we expect a muted development in P&C Reinsurance, given the more competitive market environment. 2026 is also shaping up to be a strong start to Ambition 2030. Our Solvency II ratio remains well above 200%. We clearly delivered a payout ratio above 80%, and net income growth, coupled with increased share buybacks, should support an earnings per share CAGR of more than 8%. We enter the new Ambition period with an expected ROE above 18%.
With that, I hand over to Andrew, who will lead you through the financials in more detail.
Thank you very much, Christoph. Good morning to you all also from me. Indeed, 2025 was another very successful year for Munich Re. Strong financial performance across all lines of business led to net earnings of EUR 6.1 billion, slightly above our EUR 6 billion targets, as you all know and have heard already. In short, a low major loss burden was roughly offset by significant currency losses, while pressure from a lower than planned top line was compensated for by higher investment income. Overall, the result was firmly supported by strong underlying performance across all business segments. I am also particularly pleased with the quality of the result. As we already indicated with our Q3 earnings release, we used the stronger than expected financial performance opportunistically to strengthen the balance sheet in Q4, thus supporting a steadily rising and more stable earnings trajectory.
In line with this long-term steering approach, we deliberately realized disposal losses in our fixed income portfolio to support the running yield and further enhanced our claims reserve prudence, placing us on an even more cautious level. From an economic perspective, our Solvency II ratio increased further to almost 300%, driven by the strong operating performance, also reflecting new business growth in life reinsurance and lower capital requirements. At this strong level, we could comfortably afford to increase the dividend substantially, and as you know, we also chose to implement a new higher share buyback program in 2026/2027. Before moving to the full year view, let's briefly look at the isolated Q4 result.
In light of those balance sheet strengthening measures, which, by the way, also contributed to somewhat lower ERGO earnings, we expected Q4 to fall short of the exceptionally high earnings of the previous two quarters. This was already implied by the Q3 guidance for the full year being maintained at EUR 6 billion for the group. Against this backdrop, net earnings of around EUR 0.9 billion for the quarter again benefited from strong operational performance. In P&C Reinsurance specifically, underlying profitability remained strong despite a higher headline combined ratio of 85.3% in the quarter, and the underlying movements merit some closer examination.
As part of our customary annual reserve review, which you all know about, we reassessed the reserves bottom up. While our actual versus expected analysis once more confirmed a very favorable overall reserving trend, we used the strong financial performance and also the benefit of lower large losses to further reinforce prudence. This affected three key components of the combined ratio that I would like to run through with you for a few minutes. Number one was additional prudence in new business. We booked new business in contract year 2025, at the very upper end of the best estimate range, which overall added roughly 1 percentage point above the usual level of prudence.
This fully explains the elevated, normalized combined ratio, which was 83.6% in Q4 standalone, but more importantly, the full year figure of 80.1%, so about 1% above the 79% guidance. The second category is lower reserve releases. Regarding reserves for basic losses from prior accident years, our cautious response had a similar magnitude of impact as the new business effect that I described a moment ago, resulting in lower than planned reserve releases, only 1.8% in Q4, and 5.0% for the full year, instead of the approximately 6% that we usually expect. Category three is higher man-made losses. Larger man-made losses clearly exceeded expectations in Q4, as we proactively addressed reserve uncertainties that we saw in several long tail casualty lines.
We built up outlier reserves for these lines. This, by the way, is what caused the increase in the discount rate to 13% in the quarter standalone. Quite a high number. which is about 4% above the typical level of 9% in the quarter standalone, or for the full year, about 1% above the normal level. Turning to GSI. GSI likewise benefited from a quiet major loss Q4, producing a better-than-expected combined ratio of 86.4 to 5.9%, being a very good number, about one point better than the revised outlook of 87% that we issued at Q3. Life and Health Reinsurance delivered a positive Q4 performance, meeting the full year guidance for the total technical result.
Biometric experience was favorable. Both the CSM release and the result from the insurance-related financial instruments developed as expected. Turning briefly to ERGO. As mentioned, we also used the favorable claims development at ERGO Germany to strengthen reserve prudence. Overall, the combined ratio in Q4 and the full year met guidance. In the international business of ERGO, the combined ratio was slightly elevated, as the pleasing developments in major European markets was counteracted by higher claims in the legal protection business and Thailand, as well as the higher combined ratio of NEXT Insurance, which is now included in the figures for ERGO International. In addition, temporarily higher project costs in several entities and costs for M&A activity impacted the net result. Coming back to group level now and the investment return.
Overall, we delivered a solid return on investment of 2.8% in the last quarter. While we once more incurred disposal losses, approximately EUR 0.8 billion across the three reinsurance segments to support future regular income, we also benefited from almost the same amount in fair value gains, which were mostly booked under P&C Reinsurance. The same pattern is reflected at full year level. Positive fair value changes from supportive capital markets were offset by deliberate disposal losses. The full year investment return, 3.2%, was pleasing relative to our guidance of at least 3%. You will have seen at year-end 2025, the reinvestment yields declined to 3.8%, partly due to reinvestment into shorter maturities at lower yields.
Before turning to the 2025 full year financial developments of the two business fields, in more detail, allow me a few remarks on the top line. You will have seen we missed our insurance revenue guidance for the group of initially EUR 64 billion by EUR 3 billion. To a large extent, this was driven by technical factors like currency effects, especially the US dollar, and premium adjustments, including changes in the so-called NDIC calculation, which I remind you, does not affect the bottom line and which we discussed already back at Q3. It was also the result of active portfolio management decisions, deliberately giving up business no longer meeting our return requirements. These effects were almost exclusively limited to P&C Reinsurance.
Thanks to our strong underlying profitability in all segments, we were able to fully mitigate the top-line pressure and over-deliver on our net income target. As said, let's take a closer look at the full year financials, this time starting with ERGO, where both segments contributed to the strong bottom-line performance and successfully achieved all of their goals. In Germany, the increase in insurance revenue was largely driven by the Life and Health business, where technical profitability improved thanks to strong contributions from short-term health and travel business. In P&C, the combined ratio remained at last year's very good level, as a benign major loss development, together with an improved cost development, was used to increase reserve prudence.
In contrast, the net profit decreased due to a significant negative one-off in ERGO Germany, related to the future reduction of the corporate income tax rate in Germany. On an adjusted basis, if you take out that special effect, the net result increased year-on-year. At ERGO International, we experienced substantial growth driven by organic expansion, particularly in Poland, Belgium and Thailand, complemented by the first time consolidation of NEXT Insurance and the Norway health business. Profitable growth, coupled with a higher CSM release, along with favorable claims experience, resulted in a strong technical performance in major markets. Consequently, the combined ratio for ERGO International improved by almost 2 percentage points. In addition, the net result benefited from a significant one-off positive effect related to the consolidation of NEXT Insurance. Moving on to the reinsurance business field now.
Life and Health Reinsurance met its guidance with a total technical result of EUR 1.7 billion. Performance was strong overall, with releases on CSM and risk adjustments in line with expectations and very healthy new business generation. FinRe business also developed positively. Experience variances were volatile throughout the year, slightly negative overall, but within the range of expectations. At Global Specialty Insurance, underlying growth was held back by the weakening of the US dollar, but the segment benefited from low major losses and solid reserve releases, resulting in an excellent combined ratio of 85.9%. With around EUR 560 million in net income, GSI contributed very meaningfully to the group result. In P&C Reinsurance, the headline combined ratio improved to an all-time low of 73.5%, supported by very benign major losses.
Adjusted for additional prudence, the normalized combined ratio was fully in line with expectation, as I mentioned earlier. This brings me to the topic of reserving. Our reserving position remains very comfortable. High reserve releases were possible despite a cautious reaction to loss trends, in particular in US liability business, where social inflation remains elevated. Overall, the outcome of the reserve review was, again, positive. The actual versus expected analysis has now shown consistently favorable indications for 14 consecutive years. Unsurprisingly, property was the largest source of releases, where the favorable market environment was felt most strongly in the most recent contract years. For casualty overall, we acted cautiously despite favorable indications. Our strong reserving position would, of course, we believe, have allowed a higher release, which would have then been at the 6% level in P&C Reinsurance, in line with our guidance.
However, as I mentioned, we decided to use the overall strong performance to reinforce our prudency, resulting in the 5% release. Turning now to the economic disclosure. Capital generation was strong, and our Solvency II ratio remains at a very comfortable level, 298%, driven by strong operating performance and lower required capital. This ratio already fully reflects the proposed dividend, while the announced share buyback program will be deducted in Q1 of this year. Our resilience remains very high. Even after significant stress events, we would remain far above our capitalization floor. The well-balanced risk profile and the strong Solvency II position give us significant strategic flexibility to continue developing the group while continuing the disciplined repatriation of earnings.
To conclude with our third important capital metric, HGB or German GAAP, the improved results of EUR 5.5 billion reflects the strong business performance described earlier. It does also reflect some positive one-off effects from the release of equalization provision and currency. More important than the results in any one year is the stock of distributable earnings, which, at more than EUR 10 billion, provides a robust starting point for continued attractive capital returns. With these final remarks, Christoph and I look forward to taking your questions. First, I will hand back to Christian.
Thank you very much, gentlemen. We are now going right into Q&A. As always, my remark, please limit the number of your questions to a maximum of two per person, otherwise, please rejoin the queue. We can now go ahead, please.
Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. The first question comes from Shanti Kang from Bank of America Merrill Lynch. Please go ahead.
Hi, good morning. Thank you for taking my questions. The first one was just on the January Renewal volume, which contracted this time. Could you just elaborate on the lines where you walked away? For example, was that US property, et cetera? The second question is just on the GSI revenue growth. That 5% to 9% CAGR does look quite ambitious against that 2% that we had this year. We have some pricing headwinds to encounter through 2026. Should we expect some of that 5% to 9% accretion to stem from M&A? If so, one of your Swiss peers has added in the credit certainty space. I was just wondering which space might be most attractive to you guys as a proposition. Thank you.
Yeah, Shanti, good morning. Christoph here. Yeah, January volume. If you look at the -7.8% decrease, three quarters of that are proportional business. As you know, proportional business is often want to maybe point at a single market.
but rather say that across the board, of course, we were looking at price as well as an average decline of 6%. Obviously, those treaties which we, those contracts which we didn't renew would have been below that, sometimes significantly below that. Therefore, I think, we actively decided to no longer continue that business and just to really safeguard the profitability of the book overall. Very much in line with what we emphasize anyway all the time, that we're an underwriting company, and that the key KPI for us is really the profitability of our book. Therefore, nobody in our organization in Reinsurance P&C really cares so much about volume. TSI, there it's different.
Their volume matters, therefore, we have explicit growth targets. Also, our Ambition, this 5%-9% CAGR until 2030. This is a multi-year target, as you can see, so therefore I would look at it maybe a bit more from a high-level perspective and a little bit, you know, not so much focusing on single cycles, and which we might have currently. By the way, I mean, there are many micro cycles in the specialties space, and our specialty is also very, you know, a very differentiated book of business with some really kind of retailish lines in there, and others are really the large risks. It's a very diverse and diversified book.
As it's a multi-year target, I think concentrating on single cycles really isn't that meaningful in that context. Therefore, the 5%-9%, look at it as a multi-year ambition. And, by the way, in the past also we had several years where we were growing to a similar extent. This was dampened a bit in 2025, in particular due to FX, I have to say. Your question is that if M&A is included? No, it's not included. These 5%-9%, those are organic growth targets.
Thank you. That's very clear.
The next question comes from Kamran Hossain from JP Morgan. Please go ahead.
Hi. Yeah, two questions from me. The first one is coming back to the renewals. I just wanted to think clearly, you know, I don't think I'd assumed 7.8% reduction in your renewals. I think clearly you set your guidance, you know, to, you know, in December, so you had a fairly good line of sight on kind of what was going to happen. What extent have you already assumed that would happen when you set the 2026 guidance? In the, I think in the slides, you talk about how actually lots of this is proportional business, so it makes no difference to the bottom line at all, if you could maybe just run through kind of the mechanics of that. Then the second question is just on HGB.
Like wonderful place to be, yeah, having EUR 10 billion there. Seems like you added, like, EUR half a billion on top after I net out the share buyback and the dividend compared to last year. How should we think about how much you want to keep in the HGB, you know, as the earnings hopefully grow over the next few years? Thank you.
Kamran, thank you. I'll take the renewal question, and Andrew will then explain HGB. Honestly, I'm very happy I'm no longer in the CFO, I don't have to answer any HGB questions. Renewals. Well, as I said in my introduction already, of course, when we came out with our Ambition, we knew in what direction the market would go, and therefore, I think what I said earlier is that we are still in the range of what we assumed when we published the plan. The small word still implies that it's a bit worse than what we thought back then, but it's still within a reasonable range what we would have expected then. That's just to give you some color.
But, I mean, we feel confident to support the outlook, and this is also what I think I emphasized very much in my introduction. Andrew?
Thank you, Christoph, for generously allowing me to take the question about HGB. Kamran, what I would say to you is, we do have an internal system by which we make sure that we have sufficient HGB distributable earnings on hand in order to give ourselves a reasonable degree of certainty, forward-looking, that we are able to stick to our past practice of not cutting the dividend and ideally modestly increasing it. I'm not going to go into the mechanics of that system publicly, but just to say that we shepherd or we steward that stock of distributable earnings to make sure that we have enough in the pot to give ourselves a degree of forward-looking visibility.
I would also say to you, that in this year, financial year 2025, we have the wonderful situation where the HGB result of EUR 5.5 billion more than covers the sum total of the distribution that we've just announced, which is, EUR 5.3 billion. We have the opportunity to build this stock further. That doesn't have to be the case in every year. The stock of distributable earnings can go up or down, and really what we're looking for is more of a long-term sustainability rather than going, you know, up or down in any one year.
That's fair. Thank you.
The next question comes from Andrew Baker from Goldman Sachs. Please go ahead.
Great. Thank you for taking my questions. First one, just on the Reinsurance revenue. I hear what you're saying on the P&C Re, sort of bottom line focus, about GSI is sort of through the plan, growth target, Life and Health Re, you haven't really mentioned, but I guess you've got the EUR 40 billion target for 2026. There's quite a lot going on in the 25 numbers, as you said, with FX, NDIC, portfolio management actions. Just given that you have this target, are you able just to give us a breakdown of how we should be thinking about the components within it? Is there anything you can say on P&C Re, GSI, and Life and Health Re within that would be extremely helpful.
Second one, just on your retro program, it looks like any detail on sort of the decision to reduce your external retro session and what went into that? Thank you.
Andrew, it's Andrew speaking, I'll certainly take the first one and possibly Christoph will take the second one. You're right, we issue our revenue guidance at the level of the reinsurance business field and the ERGO business field. You know, that does give us a certain amount of flexibility then to weather the ups and downs that you do inevitably get in the individual segments. However, what I would point you to is the growth ambitions that we have in our Ambition 2030. GSI, we clearly still have the ambition to grow, it was mentioned a few minutes ago in one of the earlier questions, that there we will be targeting growth of 5%-9%.
Based on what we just saw in the last year, if you adjust for FX, and you adjust for accounting effects, then we would more or less be in at the bottom end of that range. Life and Health Reinsurance is also a growth area for us, and there you will see we actually have the ambition to grow compound by 8%-12%. In P&C Reinsurance, I would say we have the ambition more or less to be flat from here on in.
You know, if I was to sort of tackle the question a different way and perhaps split it into parts, you know, you might be looking at proportional split, something like P&C, a bit less than half, maybe 45%, something like that, and Life and Health, about one third, and GSI, about one quarter. That's the kind of split that we think would, in the end, get us to the EUR 40 billion. I think the P&C retro question, Christoph was going to take.
Yes, very happy to take that. Thank you, Andrew. Andrew, I mean, the basis for the way how we look at retro is, of course, our strong capital base. We have a very strong balance sheet, and obviously, our business model is a business model of a growth underwriter. Therefore, I mean, if at all using retro, we do it for the purpose of managing volatility, IFRS volatility. In light of our superior capital strength, in light also of our other options, which we have to dampen volatility, we just decided that it would be better to deploy our own capital and keep the margin in-house.
That's really clear. Thank you.
The next question comes from Ivan Bokhmat from Barclays. Please go ahead.
Hi, good morning. Thank you very much. My questions would be on the investment side. I mean, the first one, perhaps tying to this, to these questions on the top line. I was just wondering, what expectations do you have for your investment balances for 2026 and maybe 2027? Should we expect them to grow in line with revenues, or is there anything that you can, you know, any more capital you would want to deploy in a controlled manner? Secondly, you know, also on the running and reinvestment yields. If we look at the P&C Reinsurance, the running yield is already at 4.1%, but the reinvestment across the entire business is lower here.
I'm just wondering if any further recycling of unrealized gains are actually that accretive, and how much do you expect that running yield to improve further from here? Maybe one more question, if I'm allowed to. Any comments about the alternative assets in your portfolio since we've had a lot of capital markets volatility, maybe you have any updated thoughts here? Thanks.
Ivan, thanks. It's Andrew here. I'll take those questions. On the question of investment balances, you know, I think your intuition is pretty much correct. I'd say at least to first order. I mean, whether we want to be or not, we are a, an asset gathering business in the sense that we bring in premiums and we invest them before we pay claims. I think you could say first order, our investment balances will grow with premium. That's fair. On the running yield, the first thing to say is that the realization of disposal gains and the reinvestment that we took place, that we carried out, does not lead to any further updates to the guidance or to any further increase in our intended return on investments.
Those, especially the disposals, but indeed some of the reinvestments had already been carried out at the time of our Capital Markets Day in December, or at the very least, were known at that time. There is no, let's say, incremental uplift. Having said that, we do still see some further upside developments in the running yields could be 10 basis points per annum, something of that order of magnitude. I think with that.
Oh, apologies. You had a question on alternatives. We're building up the alternatives, I would say, in a sort of responsible and measured way. The alternatives for us, I think, are reasonably nicely spread between things like real estate, a rather traditional asset class, but also infrastructure equity, infrastructure debt, and we do also have some private equity holdings. You know, in a portfolio of holdings, when you have potentially hundreds of individual positions that you've invested in, you always have a large majority that are performing exactly the way you want, you have a few stars, and then you have a few that are distressed or are being monitored closely and where you might be taking remedial action.
I think it's no different for us, but I would say overall, the performance of that portfolio is solid and satisfactory, and nothing more to report at this point.
The next question comes from Chris Hartwell from Autonomous. Please go ahead.
Good morning, gentlemen. A couple of questions from me. Firstly, just, if I can just go to the subject of solvency. I mean, obviously, you grew capital through the year, despite the bigger returns to shareholders. You know, I appreciate that about 300% is technically above 200%, your target, but it's a big gap. I was just wondering if we can, I know it was sort of discussed at the CMD, but I wanted if we could just sort of revisit your sort of capital management plan and how we get, you know, even a little bit closer towards that sort of above 200% to the guidance you had with the CMD.
The second question, I was looking at the run-off triangle that you have in the slide deck. I guess this sort of comes back down to the question of prudence, but I was just sort of looking at your sort of year two movements are mostly upwards. I wondered if you sort of help me just triangulate between, I guess, your comments on prudence. I suppose the question of what that leads to, which is, you know, why the sort of prudence coming through in year 2 as opposed to in the initial loss spec? If you understand sort of what I'm trying to get to on that?
Thanks a lot, Chris. It's Andre here. I'll start, and Christoph, please, add on if you'd like to. On the Solvency Ratio, fair enough, fair point, 300% is clearly a lot higher than 200%. I think partly I would say to you, the points that were made at the Capital Markets Day back in December, are still valid. We decided that an upper bound or a ceiling on that ratio wasn't meaningful, and that we were simply going to express our intention and our wish to bring that ratio gradually down over time, and that we felt more immediately compelling and more concrete was the new commitment on the distribution ratio, saying that in every year we would intend to pay out more than 80% of our IFRS net earnings.
I guess you could say one of the factors that influenced our thinking about the payout this year was indeed the fact that the solvency ratio continued to go up. That's part of the reason or one of the reasons why I'm quite pleased that we've come out with an offering that is 87% of earnings, which I would say to you, there's clear blue water there, that 87% is substantially above the 80%. Anybody who thought that we were just going to stick stubbornly to 80% and never pay out any more, I think we've at least demonstrated upfront a clear willingness and ability to do more when the situation allows it. I feel good about that.
I would say to you, the high solvency ratio, there are quite a number of things that could make this come down over time. I think we will continue to grow, and we will continue to take more risk. We might not grow much in P&C Reinsurance in the short term, but we are growing in all of our other segments, and we are going to be taking more and more risk over time, which I think naturally will soak up some of that ratio. I would also say to you, part of the reason why the ratio went up, this time was actually because the required capital, so the denominator of the ratio actually went down. That was, to a significant extent, an FX effect. This can very quickly reverse by a lot.
I think this gives us the leeway to be able to cope with, for example, a swing back in the US dollar and other currencies. Lastly, that high solvency ratio gives us all the strategic optionality in the world to do other things with the capital, should we find opportunities that we find interesting. I'll move on to your second question, which is about the run-off triangle, I guess, you're referring in particular to the 2024 accident year. Thank you. Yes, 2024, where you're probably looking at a number of -495 on the slide. This is sort of development year plus one. It's the financial year after the accident year in which the losses were first booked.
This is actually not so surprising for us because we have very asymmetric behavior in that first development year. We generally release little to nothing, if things are running in line with expectations or running well. We are quite quick to jump on any pockets in the portfolio that we see, that are worse than expectations, and where we, if there are any gaps to be plugged, we plug them quickly. You tend to get this effect where actually none of the good news is shown, but any pockets of bad news are immediately shown. That doesn't particularly surprise me, actually, that kind of year 1 deterioration. What you do see in that triangle is the years 2020 to 2023.
This is really where the bulk of the releases come from the second development year onwards. You've really got this wave of wonderful property business performing so well, where you're seeing the very healthy releases. By the way, that asymmetric behavior, I would say we do that in every year, but probably it was even reinforced this time around where we said openly that we were quite opportunistic in strengthening where we saw, you know, any pockets of uncertainty.
Okay, thank you. That is very clear. Thank you very much.
The next question comes from Iain Pearce, from BNP Paribas. Please go ahead.
Hi. Morning. Thanks for taking my questions. It's just coming back to this insurance revenue guidance. I mean, if we assume flat for the remainder of the year, that's gonna result in P&C Re, likely been down in the sort of 3%-4% range. I mean, even then, if I take top end of the guidance for Life and Health, and top end of the guide, so you know, 12% guidance for Life and Health, 9% guidance for GSI, I'm just getting to EUR 40 billion, assuming no FX impacts. Maybe you could just talk a little bit about what you're assuming for FX in that EUR 40 billion.
If we, if you're assuming that, you know, being at the top end on Life, being at the 12% on life and being at 9% on GSI is the right way to think about the remainder of the outcome for the year. The second one is just on the renewals as well, on appetite. I know you've sort of flagged that you've been reducing some large proportional business. When I look at the renewals disclosure, you've reduced volumes in every line of business except credit. That's sort of volumes, not just price. Can you just talk about where you're seeing opportunities in this market, and if you expect to see opportunities to grow volumes in various lines of business throughout the remainder of the year? Thanks.
Thanks. I'll take the first question about revenues. Look, I think there are quite some moving parts under the hood here. The FX rates that we're assuming are more or less the current ones, and so we are not assuming a large, let's say, positive swing in the FX rates. I would say in the different lines of business, we obviously have some advanced visibility of what's in the pipeline, what deals we think we may able to write. When you do a bottom-up calculation, we certainly conclude that the EUR 40 billion is still realistic and still within reach. I think I would acknowledge probably after last year's volume numbers and after the renewals, it's probably more ambitious than we may have thought at the time that we first set the number.
I think it's still kind of in the range that I would consider to be achievable and realistic. Christoph, do you want to talk about the renewals?
Yeah, I'll happy to do that. Thank you, Andrew. In the renewals, I mean, there's plenty of opportunities, obviously. I mean, we were able to renew a lot of our business at attractive prices. The market generally is in a good place still. Therefore, I mean, if you, if you look at these reductions, which are indeed true, in basically all lines of business, we were able to place business in attractive price and also attractive T&Cs still. I mean, or even in the proportional space, where I mentioned that we reduced significantly, there were growth opportunities, and we did grow in the proportional space in some casualty business, for example, in Europe, and that's in America.
That's something I mentioned already, I think. Also credit is still an area where we're very, very optimistic that we are able to grow that business also going forward. What I would still like to underline again is that the market generally is still in an attractive territory, so there are plenty of opportunities out there.
The next question comes from Vinit Malhotra from Mediobanca. Please go ahead.
Thank you, Christoph, and thank you, Andrew. My two questions. First one is just on the inflation assumptions that you use in your pricing for renewals, for example. I mean, your slide is saying that in, slide 24, is saying that you should warrant close monitoring of inflation. I mean, in many places inflation is supposed to be easing off. I'm just curious that in that 2.5%, what was the inflation kind of, let's say, drag? Or another way to ask is that if you had not been overcautious on inflation, would you have taken some more business and the -7.8 could have looked different? I'm basically trying to gauge not just conservatism generally, but just the inflation assumption that you are baking into these renewals and business.
That's the first question. Second question is just on NEXT. I think it was mentioned that 4Q NEXT combined ratio was a bit higher. Could you just remind us what's the profit outlook? I mean, I know it's meant to improve a lot over the next, over this plan, but if you started with Q4 being high, I mean, I'd just appreciate if you could just revise that for us and just say why it's not a problem or something like that. Thank you. Bye.
Yeah, thank you, Vinit. I'll take both of your questions. I mean, first of all, inflation assumptions. I mean, obviously there are many sources of claims inflation, which often are very detached from headline inflation, CPI inflation and stuff like that. Starting with social inflation, but then sometimes already the insured values, sometimes go up significantly and all these kind of loss trends, they're all fully captured in our numbers. Also, model changes. I think in the past, we discussed climate change quite a few times already. All these kind of trends, they are all part of our number. This is what makes it so difficult to quantify that, because that's not something you can do on a portfolio level.
You can only do that on a single treaty by treaty level, and this is how we approach the pricing. The individual underwriters, that they would you know, for their individual portfolio, have to do that assessment and bake it into the price change. Therefore, we would know for single treaties, but we don't aggregate these numbers, and we don't have it in the system, so I really can't take that out. What I can try to do is just to reemphasize that, I mean, you know us, and all these kind of things, the way we do them, usually they are very conservative. I'm sorry for that, I really can't give you a number because I don't have a number there. Coming to NEXT.
Well, NEXT is totally developing as expected. The combined ratio we mentioned here of 110%, by the way, for the H2 of the year, it is also totally in line with expectation. It's a scale up, you would expect, in particular, the expense ratio still to be a bit higher than what you would expect it to be long term, given that you're investing into growth and then that the volume will grow further. Speaking about growth, the growth we saw last year is also in line with expectation. It's an order of magnitude 30% which we saw, that's nice. That's exactly the growth we were expecting. Operationally as well as financially, everything is exactly going according to plan.
The integration work, the fact that we have now fully consolidated numbers for the first time in IFRS 17 quality, all these kind of things. Also operationally, how the company really moves on, working in their market, and the same entrepreneurial spirit than before. All these kind of things really develop as expected. Nothing else I can report.
Okay. Thank you, Christoph. I appreciate it. Thank you.
The next question comes from Jochen Schmitt for Metzler. Please go ahead.
Thank you. Good afternoon. I have one question on the dividend proposal. As you mentioned, over the past two years, the dividend has grown stronger than net income. Bearing in mind that your policy is to keep the dividend stable, even in years with adverse earnings development. My question is, going forward, can we expect annual dividend growth to be more in line with the profit development if earnings develop as planned? Thank you.
Jochen, it's Andrew here, the short answer to your question is yes, it would be more realistic in future years to see the dividend growing something like the rates of growth in earnings per share. I mean, the two things don't have to be the same. The targets that we've set for ourselves are growth rates over the five-year period, of course, we can have ups and downs. The earnings per share growth in a single year doesn't provide a sort of absolute anchor. What I think we can at least say is that after the big step that we took last year in the dividend, and now a 20% step this year, that wouldn't be a sustainable path to continue increasing the dividend by those kinds of magnitudes year after year into the future.
I think that's certainly where I would want to manage your expectations. I think where we landed this year, where the dividend payout is not too far away from about half of the IFRS earnings, feels like a very responsible and sustainable level, where we essentially have the dividend covered twice over.
Thank you.
We do have one follow-up question from Will Hardcastle from UBS. Please go ahead.
Hey, thanks for taking the question. It's two. Just thinking about that strong Solvency level, you know, are there any further positives to come, whether it be solvency reform? I know you talked about increasing leverage a little bit. What are you sort of assuming that that sort of lands at when you're thinking about the 8% EPS CAGR for the next five years? How much absorption of that is baked into that? Secondly, just thinking about, you know, listening to some of the others from your calls earlier, it certainly seems that they're expecting in their 2026 numbers, with where their combined ratios are set, that there's gonna be further resiliency build in 2026, all else equal.
Do your targets assume that as well, or are they just assuming a sort of a normal reserve build rather than exceptional? Thank you.
Will, it's Andrew here again. On the, on the solvency ratio, the Solvency II review, there are a few moving parts to that, not only is there the Solvency II review, but we, on an ongoing basis, make adjustments and improvements to our own internal model, in alignment with our regulator. Probably when you put everything into the pot together, and we consider the positives and negatives that we know of coming down the road, I don't think it's anything dramatic. You shouldn't really be expecting any big change overall, some big step change in the next couple of years, in the ratio, driven by, let's call it, the sort of technical modeling methodology effects.
I think the Solvency II ratio is more likely to evolve as a result of real business effects going forward. To be honest, the second part of that first question, we haven't really, let's say, targeted or calibrated a particular trajectory of the Solvency II ratio on the assumption of dividend growth in line with earnings per share growth. I wouldn't, let's say, have some new number to offer you. Indeed, we haven't said exactly what endpoint of the Solvency II ratio we would like to end up with. I can only repeat what you said before, which was that we would see a gradual decline over time being the most likely path.
Regarding your second question, the resilience build, no, on a prospective basis for us, we don't really, I would say, premeditate resilience building beyond, let's just say, the normal prudent level of reserving that we would generally always do. For us, resilience building has been more of an opportunistic activity when the situation allows.
That's really helpful. I guess just coming back, if I can, on that first point, just to be clear, within the 8% EPS CAGR, is it at least a fair assumption to assume it doesn't include any further inorganic deployment, or is there some within the 8% CAGR already?
Apologies, Will. I think I may have muted myself there for a moment.
That's okay.
Classic schoolboy error. I'm back now. Just to confirm on that. There is no, let's say, known or planned M&A already baked into the financial goals that we set out in December and that we continue to talk about. I would say that M&A, any M&A that we find that meets all of our quite demanding requirements, that we then execute, offers potential upside.
Thank you.
The next question comes from Ivan Bokhmat from Barclays. Please go ahead.
Hi, thank you very much. I've got two small follow-ups, please. The first one, you made some reference to adding to man-made reserves as a third bucket. I mean, you've quantified the first and the second one. Maybe you could kindly make a comment on the third? I mean, specifically, US casualty, is there anything extra color you can give? The second one, also technical, for GSI, could you maybe talk about the reserve runoff, quantified, and what discount benefit have you been booking in Q4 and for the year? Thanks.
Okay, Ivan, the first question, which is about the so-called third bucket, which is the building up of reserves, actually for outliers on the casualty side. Just to give you a kind of flavor of what kind of things we're talking about there. We opportunistically took the opportunity to really put ourselves in a strong position where we see scenarios out there in the world that are discussed in the public domain. Things like, what they call PFAS, which often go by their nickname of Forever Chemicals. That's a sort of interesting emerging area. Unfortunately, also, in various locations in the US, sexual abuse and molestation suits. Then actually just the old classic of asbestos, which is still with us, and which we shouldn't forget about.
You know, we do still see a, you know, a trickle or a sort of ongoing flow of claims coming in, and we like to make sure that our so-called survival ratio is at a strong level by industry comparison. Making sure that we have plenty of money in the reserves to be able to pay claims for many years into the future. I mean, in terms of quantifying that, you could probably say it's a few hundred million . I wouldn't have a single, very precise number available, but it's probably a few hundred million . Then, in terms of runoff, also the discount rates that are embedded in the reserves, and I think if I understood the question correctly, it related to Global Specialty.
I don't know if I actually heard that correctly. If so, then we're talking about 4.5% Q4 standalone, and about 4% for the full year. Those percentages, when we talk about them, are expressed in combined ratio points.
Thanks. That was right.
Ladies and gentlemen, there are no more questions at this time, so I would like to turn the conference back over to Christian Becker-Hussong for any closing remarks.
Thanks, everyone, for joining us this morning. If you have further questions, I guess you know where to find us, so very happy to follow up on further questions with the investor relations team. Hope to see you soon, have a nice remaining day. Thank you.
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. Goodbye.