Ladies and gentlemen, thank you for standing by. I am Stuart, your Chorus Call operator. Welcome, and thank you for joining the Talanx analyst call on the full year results 2021. Throughout the recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you've dialed in by telephone, you can press star followed by one on your telephone to register a question. Questions can also be raised using the chat box on the webcast page at any point. Just write your question in the Ask a Question box and press Submit. Kindly add your name, function, and email to be identified. The Q&A session will begin with the questions asked by telephone. I would now like to turn the conference over to Bernd Sablowsky. Please go ahead.
Good morning from Hanover. This is Bernd Sablowsky speaking at the occasion of the Talanx results call for the financial year 2021. For us, today, is a special day, or better said, it is a special day in a difficult environment when we have to handle business matters while elsewhere in the world people are fighting for their life, for their family and their belongings and for peace and freedom. While nothing is normal these days, we would still like to proceed with presenting and explain our full year numbers. I'm here together with my CEO, Torsten Leue, and my CFO, Jan Wicke, who will together take you through the results and where we currently stand. After the presentation, as Stuart just announced, Torsten and Jan will be happy to answer questions.
As usual, you can raise those questions also via the webcast. You'll be aware that we published the preliminary key results in early February already, and today we established the full set of numbers as well as the annual report, all of the documents are available on our IR webpage, including the financial data supplement. We'll also display a recording of this webcast on our webpage. Having said that, I'm happy to hand over to Torsten Leue, our Group CEO.
Thank you, Bernd, and a warm welcome from the sunny Hanover. Thank you, Bernd, for this nice introduction words in sense of we really should think about what's going on in this world. I think you should and we should all think about, besides military, what we should do there is how our group is resilient against what could happen. We will take focus on this call here as well about resiliency, where do we. Sorry for the technical issues we have here. Let's start with the first slide here. 2022. I mean, the promise is the promise. When we started 2018, our strategic cycle, I think it's important to give targets and then to deliver. In the last Capital Markets Day, we say where our point is.
This is, as I say, a step in between our strategic cycle. I could say we're really clear at the moment we delivered. If you go to the next slide, that result summary shows that we have double-digit, more than double-digit growth over 10%. This is industry, we're clearly above what the industry is a strong top line. A growing profitability, you see that around 10% return on equity speaks for itself. Well above our own cost of capital target of 800 basis points above risk-free. Especially these testing times, it's important to talk about resilience. We have our around 200% CAR, the ratio, which I think the first indication we get, and we will publish it later in the second quarter this year, we are above the 200% even.
This is, I think, a good indication for what will come. When I turn now to page five, it's, well, the headline, EUR 1 billion is basically the net income for the first time. It is one year before, as we have promised in 2022 to deliver. It's one year before end, and you will see it later on in Jan's presentation, that the quality of the EUR 1 billion net income is as well very high, when you look deeper into the figures. All this gives us a 9.6% return on equity, as you can see on the right side. This is really, at the end of the day, a growing company with 11% with a reasonable return on equity. On the next slide, you see that one-time effects positively have been not so many
It was really strong headwinds we had. Despite this, we could produce one year earlier, our EUR 1 billion net income. The two major strong headwinds we had was a large loss impact because we have EUR 235 million above our large loss budget, which, and I come in a second to that, is basically driven by the Nat Cat events we had, which have been historically the highest ever Nat Cat events in the Talanx Group. The second effect was the corona impact. We had the first year of non-life and the second year of the life more impacts. We could talk basically the reinsurance area of EUR 403 million regarding corona, mainly life driven by reinsurance.
More or less in the calculation, what means for the net income, just those, only those two effects, those two headwinds give us roughly close to EUR 250 million net income effect. On the next page, just as I mentioned before, the largest Nat Cat loss ever. You see the statistic last 10 years, the EUR 1.261 million is even higher than 2017, where we had the storm Xynthia and North America, which was really hit hard the whole market. This even get higher, and you see as well, this is driven mainly by reinsurance portfolio three-quarter offset hits regarding the Nat Cat.
Just to give you rough figures, what we believe in the market is it's over $100 billion insured losses now worldwide, which is 50% above what is normal in the average years in the last years. In Germany, the highest nat cat event ever was EUR 2.5 billion, roughly. Nat cat events in Germany never have been as this. It's three times higher than normal. It was really a nat cat year. You see on the right side that Ida, Bernd in Texas, where we use three biggest events in the last top nat cat losses we ever had since the IPO. Nat Cat really brought us headwind. Next page, you see why still this EUR 1 billion net income one year before was achievable. You see that the primary insurance gaining momentum.
You can see that, and we compare better here to 2019, which was before corona at times, that we had a growth of 7.6% in the top line, and even better, three times higher. On the bottom line, was 23.3%. We grew three times higher in the profits and in the turnover. This is really based on industrial cleanups, the portfolio, as we have presented to you, and delivering the core in Germany, Retail Germany, the core targets. We have stabilized the portfolio, and we have cleaned up industrial portfolio. All this is really based on the 23.3% increase.
On the next page, which you see when it comes to diversification, you can see here that the primary insurance, due to the positive momentum we have, could grow. On the right side, you see the net income to 45%. It used to be in 2019, before corona times, 39%, now it's 45%. This all based on a very good Hannover Re result, shows you that it was remarkable increase and positive effect due to diversification, but as well, the primary insurance gained momentum. You see on the left side that we, let's say, have less 42% gross written premium participation of the whole group. It used to be 45%. Primary grew a bit less, but on the top line, but comparable in the portfolio, but more on the bottom line.
You could say that basically the margins, profit margin, have been a bit higher in the last years on the primary insurance. The next page, you see a bit more detail, then Jan will tell you much more about it. You can see that the net income, basically all the segments participating in that to the EUR 493 million, which is the primary insurance 45% share of everything, and gives us at the end now starting to get some reasonable margin from the primary insurance. Next slide, you see that, as promised, we will have as well a strategic review and forecast. We will come up on the Capital Markets Day there on 6th of December. We will come up with our new targets and cycle what we will do until 2023 to 2025.
The left targets are the current ones, and you will see probably revised targets in the 6th of December. One of these is a dividend payout, or dividend itself. On the next page, you see, on page number twelve, you can see that our dividends headline is stable or upwards. That happens in the last 10 years since basically IPO. We increase it 5% with EUR 0.5 every year. We only had a break in 2020 because of corona. Some entities could not distribute dividends because of ban of supervising authorities. We caught up this with EUR 1.60 proposal for this year, we will still have the same EUR 0.5 More or less per year. That was basically not stable, but more upwards in the last years.
Stable upward will be the headline as well for whatever we revise in the Capital Markets Day. We have said as well that if we achieve the EUR 1.5 billion cash pool, because the idea behind is even in a year when you make no profits, you can deliver still a stable dividend at least, and promise to the shareholders. We are basically more or less there, and therefore, we will revise our dividend strategy. As we said, whenever we revise something, it will be not for negative for the shareholders. This will be on 6th of December, a message or let's say a message to be communicated.
Having said that, Jan will now go to more details to show you what have been happened in the segments and with the investment income. Jan?
Well, thank you, Torsten, and welcome, everyone. Let's start with the group financials. First of all, as I'm the man for the numbers, I really want to reiterate what Torsten has said. We had a very, very pleasing 2021 result. Growth above 10% operating result, 97.7% combined ratio, despite the headwinds. The net income first time ever above EUR 1 billion and close to our 10% return on equity long-term target. All in all, we are very happy with last year. To go more into the details on the following pages, I will give you an overview on some general impacts we had, in the results, and then I will give you more details on the segments, before I finally give you some overview about solvency, book value, and so on. Let's start with the corona impact.
This is our usual normalization waterfall, which it tends to give you a better impression of what the underlying performance during the course of the year was. So all in all, corona has cost us EUR 122 million negative impact on our net income. To explain a little bit more the details, I will do it on the next page. But before I do that, I would just want to also highlight that we had some offsetting factors which were all derived from the life and health reinsurance part. It was a Voya deal. The colleagues at Hannover Re have already informed you. Also the release of longevity reserves in the light of late notifications from the primary insurers to Hannover Re.
All in all, if you then net out those one-off effects, corona as well as the positive one-offs in the end, a normalized result would have been at EUR 1,233 million. On the next page, we can see the corona effect more in detail. I hope you can see this chart right now because here the screen is still black. But what you can see here is, if you then go to page 16 in your presentation, what you can see is that the vast majority of the claims was derived from life and health reinsurance. Excess mortality due to corona has made up EUR 582 million. If you go into Retail International, we have seen also mortality losses in Poland, Hungary, and Colombia there, which account for EUR 14 million and EUR 15 million.
All in all, we are close to EUR 600 million related to excess mortality. On the positive side, there are two things to mention here. First of all, there is a positive net income in life and health reinsurance due to corona. This is due to the fact that we had some hedge against excess mortality in place, which accounted for those EUR 44 million here in 2021. Maybe there's more to come in 2022. We will see. On the other side, we had positive offsetting effects during the course of 2021 due to local lockdowns, and the positive impact was particularly high in Retail International. All in all, EUR 122 million losses.
Maybe this is the last time that we show this slide because we believe that going forward, we have to live with what is left as corona, so it should be part of the normal business. Let's now dig into a little bit into the Nat Cat events and how they are reflected in our numbers. As Torsten already has mentioned, we had the highest Nat Cat losses in the history of Talanx in 2021. We have increased our Nat Cat budget for the next year to EUR 1.8 billion to come. But I want to put that into context. What you can see on the right page of the chart is if you see our Nat Cat budget in relation to the net earned premiums.
What you can see here is that this EUR 1.8 billion compares to 6.6% of the net premiums earned. This is neither conservative nor aggressive. I think it's a reasonable view for the future to expect 6.6%. Obviously, it's all already included in all the budget and also in our guidance what we have here. On the next page, we have some view on the operational performance. I just want to highlight that both reinsurance and primary insurance are delivering combined ratios well below 100%. This is despite all the Nat Cat events which have happened. On the next page, we can see what Torsten has already highlighted, that over the past years, we had a 5%+ every year.
It was a stable or upward dividend policy. To reiterate what we've already said is this will remain in place. By the end of the year, we are reassessing our dividend policy also in the light of IFRS 17, where also some old yardsticks like payout ratios and so on have to be adjusted anyway. I want to give you already now the message that stable or upward will remain in place. Given the strong growth of our cash pool, we are very resilient to deliver on that. On the next page, you see another indicator of our resiliency, which is the prudent reserving. We have highlighted that already on the Capital Markets Day, that we have resiliency, which is embedded in our reserving.
You will see the figures by May 5th this year when we have the new assessment from Willis Towers Watson again. I just want to give you or want to make a little bit expectation. We expect, like, Clemens Jungsthöfel has told you in his call for Hannover Re, that the reinsurance resiliency will grow. We expect the same for the Talanx primary group, even a little bit stronger. All in all, the resiliency which we were able to build in 2021 will grow in absolute terms. In relative terms, given the strong growth of the company, it will be rather equal. In absolute terms, there will be a significant increase of the resiliency, at least what we expect right now.
This provide us with a very positive position to deal also with inflation shock, which may occur due to the Ukraine situation. How about the Ukraine, if we go to page 21? Our direct exposure seems to be pretty low. Just EUR 94 million in premiums are related to the Ukraine and Russia. We have investments of EUR 106.36 million. A small participation of the Industrial Lines, the small subsidiary of the Industrial Lines business is still in Russia, where we have an impairment risk of EUR 1 million. You should know that we have divested from Russia. We signed this contract end of the last year, and we were able to close everything by February. All the money is on our accounts, so everything is settled.
The overall direct exposure is pretty low. With regard to the overall impact of Russia and Ukraine, we expect the bigger impact of that to come indirectly to us. First of all, via the capital markets, but keep in mind that we are a low beta company, and therefore we expect ourselves to be less affected than our peers. Second, via the inflation risk due to the energy prices in particular. Then again, keep in mind that first of all, the group owns EUR 5.5 billion inflation linkers, which should compensate for part of it. The majority is allocated to Hannover Re, where we have 2/3 of our non-life reserves also. Second, that we have built up resiliency in our reserving, and this resiliency will be also buffered to compensate for such effects.
Let me now draw a closer picture with regard to the segments. I just will not explain all the details of the following slides, but just focus on the highlights. Let's go to Industrial Lines first. First of all, as Torsten already have mentioned, the colleagues in Industrial Lines have successfully managed the turnaround. The portfolio was cleaned up. They exceeded in 2021 the planned net income significantly. What you can see here also is this more than 200% increase in the net income last year. Second, if we go to the next page. They were able to negotiate with their customers significant price increases, which should compensate for the higher inflation with on average 12%.
This provides us also with the comfort that HDI Global is able to deliver on the 97-something combined ratio in 2022. Given the fact, I just want to reiterate that one also, that this is a volatile business. From an operational performance point of view, we expect 97-something during the course of this year, and then going lower by every year till we have reached 95%. Finally, with regards to HDI Global Specialty, the global specialty business. They have started very successfully so far. They have achieved already a premium volume of EUR 2.5 billion during the course of 2021, and a significant EBIT contribution of EUR 32 million, which is to grow to EUR 92 million in 2023.
Then going forward, we always obviously want to make it a three-digit number. All in all, it's a very successful story. Please keep in mind, starting from the 1st of January, we will consolidate 100% of HGF, and there will be a quota share in place within Hannover Re of 25%. Let's move on to Retail Germany. With regard to Retail Germany, first of all, what you see here are the year-end figures, which are very, very pleasing. Maybe we go to the next page in order to give the first two explanations. Some years ago, we had set out the course target of EUR 240 million EBIT. With EUR 286 million, Retail Germany clearly outperforms its initial targets.
It has outperformed it in a way that they were able to build up resiliency also in parallel. Second, the other concern with regard to Retail Germany was the life business and the de-risk. This has now reached an adequate level with a Solvency II capital adequacy ratio close to 300 without transitional. We are now in a safe area and we feel very comfortable. Third, the new mission of GO 25 is now profitable growth. We go to the next page, please. Wait for profitable. Go to page 31 directly. The new mission is now profitable growth.
In Life, it will be a very focused growth, whereas in the Non-Life business, the focus will be on the SME business, where we are growing twice the market rate, and the motor business, which was added to the priority list, for Retail Germany. If you then go to Retail International on page 32, there are three messages. First of all, there is an ongoing operational performance with a combined ratio below 95%. Second, we are growing more than 10% currency adjusted, even close to 15%. Third, the growth is derived from Non-Life business, and it's about 13% there, and currency adjusted close to 20%. All in all, we are very happy with the development of Retail International. Let me summarize. The primary insurance, they have gained significant strength.
We are resilient because the operational performance is there, and so we are very confident with regards to the future development of the primary insurance. We go then to page 34, the reinsurance, where we can see continued growth and really outstanding profitability, which is clearly outperforming the peers. I think I don't need to comment so much on that one. We are very happy to see such a strong profitable growth in our most valuable subsidiary. Having said that, I would now like to go on and to explain a few things with regard to investment and capital. If you go to page 36, there you see a fantastic investment income for 2021. You may wonder, how does this match with the low beta strategy? I first of all want to reiterate our low beta strategy is still in place.
Please take that for your future assumptions that we will remain low beta. 2021 was positively affected by three effects. First of all, you can see that in the ordinary investment income, we had significantly higher private equity returns than planned. To give you some numbers, more than EUR 500 million of those returns, what you can see here, were derived from the private equity book, which was EUR 250 million above our initial plan. Second, we had a very positive contribution from the inflation linkers. They provided in total, EUR 299 million or EUR 300 million extra, which was EUR 100 million above our expected figures. Third, we had a very low default and risk positioning, which was needed during the course of the year. This is due to the low beta strategy.
We are really not really affected by corona so far. All three aspects together lead to this very high net investment income, which we cannot expect for the future to be on the same level, given the low interest rate environment. The next page highlights a little bit our low beta strategy. What you can see here is our investment portfolio. We have 87% in fixed income, less than 2% in equity, and 94% of our fixed income is investment grade. We are positioned low beta, but I think in the current time, that may be an advantage. On the next page, you see the development of our book value.
The book value per share is up for the whole year by 3.8%, whereof 1.3 percentage points were derived from the fourth quarter. I think I do not need to comment any further on that one. On the next page, we have given you the usual slide on our solvency development. As Torsten already mentioned, we expect the figure to be slightly above 200% and to remain in that range till we announce these figures in April 2024. In April this year. All in all, I just want to summarize once again, we are really resilient, which is driven by the operational performance of the primary insurance, which is driven by a high solvency rate.
Which is driven by resiliency, which is embedded in our best estimate reserving, which is driven by the cash pool with regard to the dividend payments. That's how I have. Now I would like to hand over to Torsten again.
Thank you, Jan. Last page is the outlook 2022, and I think the main message is that our group net income, what the outlook is, EUR 1,050 million-EUR 1,150 million will stay as it is. You see then all the other parameters, we have a return on equity around 10% in our outlook. The dividends we mentioned two to three times in the call, where we will come back on beginning of December to you. This is the outlook, no surprises here. With that, there's no surprises. I hand over to Bernd for Q&As.
All right. Stuart, can you give quick instructions again so that everyone is aware how to use the equipment?
Yes. Thank you, Bernd. Ladies and gentlemen, we will now begin the question -and -answer session. If you have dialed in by telephone, please press one on your telephone to register for a question. If you wish to remove yourself from the question queue, please press star followed by two. Questions can also be raised using the chat box on the webcast page at any point during the session. Kindly add your name, function, and email to be identified. The Q&A session will begin with the questions asked by telephone. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one on the telephone, or type a question using the chat box. One moment for the first question, please. First question is from the line of Michael Huttner from Berenberg. Please go ahead.
Thank you very much. Good morning, and well done. Just some lovely results. I had three questions, if I may. The first one is on the combined ratio in Industrial Lines and 98.7%. I was hoping for 98%, and I know you had high Nat Cat and everything, but I just wondered, it's a bit higher than expected. Maybe you can give some color on that. I don't know. The second is the implied growth in net premiums in P&C is 6.7%. So these are the. You can. You're very kind.
I kind of highlighted how you can work it out, you take the budget for large losses and divide by 6.6%, and then compare with the 2021 figure. I just wondered how that fits with your mid-single digit target growth. This is a little bit higher. Maybe you can give some color where it's coming from. And then just a reassurance because you've been so you've said it again and again, but I had. On the dividend, if on the 6th of December you do decide to change the policy, would it already apply to the 2022 dividend? Thank you.
Okay, thank you, Michael. I would take the first and the last, and Jan will talk about the growth thing that you did. Basically coming to the combined ratio, you see the 98, and you expected something more. Again, we have emphasized as well on the call, and we have to make it transparent, the last Capital Markets Day, where we increased our resilience reserve is roughly EUR 500 million. We have now overall EUR 2.9 billion, as you can see. Wait until the Capital Markets Day, and you will find where the combined ratio is 98%. I think important is that we have said in the mid-term, we will every year going one percentage point down in the combined ratio Industrial Lines, and that's what we will do.
The rest is basically, let's see it as a function according with the resilience, and we will make it transparent to you. Regarding dividends, no comment, please. Allow us to work over the summer and come back with something, but the expectation should be that it will be not for the worst for the shareholders if you write the strategy, but we will do. Jan, maybe coming to the single growth.
Well, if I understood you correctly, Michael, you asked for where the implied growth is coming from, 5%-10%. What we expect currently, we expect growth to come from all business units. The majority will be derived from Industrial Lines and Retail International. Whereas in Retail International, you always have to take into account currency changes, so it's very difficult to predict. This is what we expect for the primary group and for reinsurance. Hannover Re already has told in their renewal call that they are well on track to deliver on that one.
If you see the last year from the growth figures, I mean, on that figure, we didn't. Well, basically, we always outperformed that in the last years several times as a peer. It mean we would never position our stock as a growth stock. If you grow say, year by year, let's say with 10%, you know, it's not just a value stock, it's just sort of growing really nicely. Therefore, it will come from all segments.
Lovely. Thank you.
As a reminder, if you would like to ask a telephone question, please press star followed by one on your touch -tone telephone. Or write your question in the Ask a Question box on the webcast. Next question is from the line of Roland Pfänder from ODDO BHF. Please go ahead.
Yes, good morning. Two questions from my side. Could you maybe touch on your internal reinsurance, how this played out for 2021, and if you keep it in the structure or what are your thoughts about this? Second question, if I understood correctly, you have around EUR 500 million inflation linkers in the primary insurance field. Why do you have fewer allocations of this instrument compared to the reinsurance business? Maybe a third question, if I may. Could you maybe explain on your SME business in P&C Germany, what do you think about the volatility of this business, and what would be a normalized combined ratio there? Thank you.
All right, Jan will start the questions with.
Yeah. First of all, the internal reinsurance program, I think you already...
The Hannover Re call. The group reinsurance cover, we were able to place it in excellent in this very good condition. But obviously, yes, we had to pay a little bit more than the previous year. We had some price increases there, but we are able to buy the cover we wanted to have. We have a slightly higher retention ratio for us, but all in all, we are happy that we could place it. Second, with regard to the inflation linkers, you're right in your allocation of inflation linkers. Hannover Re has started early to build up the inflation linker portfolio. The primary move was lagging a little bit here, but they have started to build it up, and this is why we have just EUR 900 million.
Please keep also in mind that more than 2/3 of our reserves in non-life are on the Hannover Re accounts. The normal proportion would be two-thirds to one-third. Finally, with regard to the SME, first of all, the long-term combined ratio target is around 96%. Please keep in mind that we are currently growing twice the market. We are getting portfolios from brokers. At the beginning, this is quite normal that you will not have this 96% right from the beginning. Given such fantastic growth path here which we have, it will be currently slightly higher, but it will come down. We are very confident that we can manage it towards the 96%.
Could I maybe add to this internal reinsurance? I was actually referring to your internalization of premiums within Talanx.
Yes, well, we are growing pretty fast. Well, we have grown. Well, what do we have? At Talanx, again, we have set up a captive, which is there for the primary insurers to cede premiums to the captive first and then to the capital markets. Then they are reinsured as capital markets. We had a growth of nearly 40% in terms of ceded premiums. We are pretty close to our initial plan to have fully integrated the captive in our business model now. I think we've reached what we wanted to have. Does it answer your question?
Okay, thank you.
Next question is from the line of Thomas Fossard from HSBC. Please go ahead.
Oh, yes. Good morning, everyone. I've got a couple of questions. The first one would be related to your Russia-Ukraine exposure. Thanks for pointing to your direct exposure in terms of premiums. Wanted to if you could say maybe a qualitative word on your assessment currently regarding your indirect exposure and which lines could be involved. Potentially if we should think about any overweight exposure coming from HDI specialty lines. The second question would be related to your investments. Could you shed some light on what have been the new money rates in your primary businesses maybe on average in 2021, and maybe what you managed to get on your book more specifically for Q4 2021.
Maybe a last question regarding the inflationary environment, especially in relation to your international markets. Do you foresee any or do you have any concern at the present time regarding the trends or the underlying trends and how it could maybe somewhat challenge your margin targets or your combined ratio? Thank you.
Well, maybe I start. This is more intro, and then Jan will go more to details. But when it comes to your direct exposure, really, I mean, your guess is as good as my guess. There's so much there which could happen, could not happen. Is the war will stop tomorrow, will stop in one year. It's really too early to say whatever you think. I mean, therefore it's not worthwhile to talk about it now because again, your guess is as good as my guess. This is my. One general comment, when it comes to the inflation, maybe there's a general comment here as well. As you can see the price increase, for example, in the Industrial Lines have been 12% average this year.
This gives you some idea that I think the cycle was hard enough that it balanced for sure some of the inflation to be expected. Especially in those lines which is important, which are the casualty lines, the long-term, the long-tail business, that you can see as well in the presentation, that here the increase was even significantly higher than the average of 12%. Yes, inflation is a topic probably will come. The question how much, we don't know. But what we know is that we have some tools. Once it was mentioned, the inflation linker, which you basically can connect to the technical and not to the capital side, basically. You know, that it covers basic sources of inflation we expect in the portfolio.
Plus the price increases significantly we have done, especially in the industrial portfolio, plus the resilience, the EUR 2.6 billion we have in our books. Let's see as well how much it will be. Again, there's so many different opinions, how much, how strong, and so on. Therefore, what we would like that message is, whatever happens, we believe we are going quite resilient to that, whatever happens. Many things are really too early to say. With a general comment, I would then hand over to Jan to give maybe a little bit more details, if you can.
The only detail which I can give is that we have no claims notification so far, with regard to Russia or the Ukraine. I think it was given the question you had with regard to HDI Global Specialty. But the second question was with regards to the reinvestment yield, if I got it right. For the investment, it was around 1.4% for the fixed income. So and, with regard to inflation, I think already Torsten has answered your question. Or do you have a further question with regard to that one?
Well, actually, my question on inflation was more relating to the international business and Industrial Lines.
Yeah.
I think that during the year, quarter -on -quarters, you flagged that you were seeing a bit more of these trends coming into your book.
Maybe I can take this question because I did a lot of Retail International the last years. I think the main part of the portfolio is still the motor portfolio. The main part of this motor portfolio is casco short tail business. Therefore, you can in several countries where inflation really gets an issue, like in Turkey or Brazil, especially Turkey, you adjust the rates monthly, even sometimes weekly. Probably soon come, it's possible daily. So it's really a reflection that it's really important to have short tail business. You see, for example, in the specialty lines as well, internationally, we try to make short, mid tail, not long tail business as a portfolio structure.
When you have a rather short tail oriented portfolio, it's just a question how it's breathing your activity regarding pricing, and that's possible. Therefore, you can see those returns to international markets. You have to be very, very close to cycle management of your insurance portfolio. That is very important.
Okay. Excellent. Thank you.
Again, if you'd like to ask a question, a telephone question, please press star followed by one or write your questions in on the webcast. Next telephone question is from the line of Michael Huttner, which is a follow-up question from Berenberg. Go ahead.
Thank you so much. Thank you for this opportunity. I had two questions. First one is, maybe you can talk on pricing in Retail Germany. I guess I'd be interested to know, you know, following the floods, what the trends are both in motor and household. Second is in terms of deals. You said you're a company which likes growing. I just wondered what you're thinking of in terms of deals at the moment. I can see that, MLP has done lots of deals buying brokers. NN Group bought, what I think of as an MGA. I'm not sure if it's an MGA, Heinenoord. I just wondered if that's your kind of thinking at the moment or anything else. Thank you.
Okay. Thank you, Michael. I will take this M&A question, and Jan will take the first one regarding the pricing in Germany. I mean, generally, it. We will see how volatile it will be. I mean, when something goes sour in the economic environment, for sure, there's consolidation pressure. We don't see it at the moment that there's something more than last year. We're gonna come to the deal size or deal numbers at the end. What we will generally say doing as we will stick to what we have said. First is the discipline. As you know, we have a lot of you know potential to make M&A business. We have several times mentioned the deal size we can do.
With nothing big there in the pipeline, we were disciplined, and we were focused on what we have said always in the regions where we have positioned ourselves. There's no deviation. The basic situation is really some acceleration in M&A. For the time being, I don't see that. It is not excluded in the future. Maybe the first question, Jan.
Yeah. With regard to pricing in Retail Germany, you always have to keep in mind that inflation is one factor, claims inflation, and the other is the frequency. With regard to the frequency, there have been some positive developments here. You have to take out of those a bit. This is exactly what Retail Germany is doing. They are adjusting for the business also. Every month, they stick close to the pricing cycle here. This is what they are doing. To what has it led? In motor, there have been rather low price increases, whereas in other lines of business, there have been higher price increases, in particular due to the floods, which you mentioned.
If you, again, generally speaking of pricing, I think all this discussion around inflation now, which for sure in 2022 will not disappear. Let's see how long it will last until next year. I believe generally speaking, insurance markets and many, many markets will be not soft markets at all. The question is how hard they will be.
Okay. That's very helpful. Thank you.
We have another follow-up question from the line of Thomas Fossard from HSBC. Please go ahead.
Oh, yes. Thanks for taking my question. Just, if you could comment on, you know, the ownership of Argenta. Actually, there's been a news out last week saying that actually, Hannover Re is going to keep control of Argenta. While I think that there were some internal discussions about changing ownership and move it into HDI. Maybe you could comment on why this was the case and why it did not took place. Thank you.
Well, basically on that issue, we will not give no comments. I mean, this is generally, you know, that the HDI Specialty basically is focusing on that business. What we discussed now is to have some capacity, which we will participating in that kind of a tender business 10%. We're working together. It's a very good cooperation, and on the rest, we leave it at a no-comment basis.
Mr. Fossard, are you finished with your questions?
Yes, thank you.
We have another follow-up question from Michael Huttner from Berenberg. Please go ahead.
Thank you very much. Can you say a little bit about environmental policies or green policies or whatever? The reason I highlight this is I tried to use the search function through your lovely presentation, and I couldn't find it, so maybe it's there, but maybe I've missed it. I think all your peers have had at least one or two slides on environmental with their results.
Well, I don't know what the peers have done in that area, but maybe Jan can talk about the investment from. Regarding generally speaking about ESG, when it comes to the E, we have not changed our targets, what we have published in the Capital Markets Day. There's no new from that side, when it comes to, you know, underwriting policy and so on. Probably Jan will give you some more information about where we currently stand with our investment portfolio when it comes to ESG.
I think, as talked in the past, our ESG policies are unchanged. We have implemented investment processes which help to identify ESG issues. We are on our way to reduce the carbon intensity of the fixed income portfolio by 25%, and we will deliver on that. We are going to grow our sustainable investment portfolio to EUR 8 billion by 2025. These are the targets which were set out, and we will deliver on that one. I just want to bring across that the ESG and the investment on the investment side is a journey. We are learning quite a lot, and we are ready to adapt to that one.
We have built our internal quality assessment, ESG quality assessment, which were derived from various information providers, so that we have known ESG score in place, which we take into consideration when investing. All in all, we are here on a journey, and it's difficult. The main challenges they are related to the quality of information, which is provided by those in whom we are investing. It's derived by the actuality of those information. Very often, they are quite old information and which were supplied by the information providers. There are quite some challenges, but we are tackling them, and I think we are making fantastic progress here.
Okay, thank you. If I may just add, this is not on ESG, so I go back to the Capital Markets Day slide. Thank you. On solvency. I know you didn't publish, so it's, you might say, it was an unfair question, but you kind of given some indications. You know, it was Q2 or Q4 September, and it's now a little bit higher than 200%, or that's what my understanding. I'm surprised it's not a lot higher. Consensus is about 210%, I think, 212% or something. I just wondered if you can explain the moving parts of solvency, if we think about it on an annual cycle basis.
The impression I have, but here it's just an impression, is that the part of the reason the solvency isn't kind of shooting up is that the growth is very, very strong. I don't know if you can say anything.
I think the maybe Jan will a little bit more, but your expectation is far above 200. We will come up again with the second quarter underlying solvency ratio where you stand, and your indication is what you have understood. I think that's how we understand it for the time being. It's true. We are growing with more than 10% in all the lines, and that consumes basically. It's a positive effect, and still we feel very, very much resilient with that level we have. By the way, we have to make sure as well in the capital management, we have 150%-200% range indicated as capital market, and we have to make sure not to overshoot too much on that.
The rest is in compensation with the growth portfolio.
I know it's unfair, I'm hogging, right? Remind me, and I'm sure I could ask separately. You know, the excess reserves or what I call excess reserves, are they included in your solvency?
Yeah. To a large part. Not everything of it, but to a large part they are included in the solvency accounts, but not by 100%.
Okay, brilliant. Sorry for hogging the line. Thank you.
Thank you, Michael.
There are no further telephone questions at this time. I would like to turn it back to Bernd for web questions. Please go ahead.
All right. Thanks. We have a web question from Vikram Gandhi. Vikram is challenging the outlook for the combined and industrial thing, and I read out what Vikram put into the Q&A tool. I think the
Financial year 2022 combined ratio outlook for Industrial Lines has changed a bit to smaller than 98% versus roughly 97% earlier. Does the group expect a compensating effect from investment income? That's one. Also, can you help us understand how inflation plays a role here? That is what Vikram wants to know.
Okay. Let me start. Maybe Torsten will add something. First of all, we expect 97-something from Industrial Lines. We have set out internally also net income targets. Vikram, you are absolutely right. If they are overshooting on the investment side, maybe there is then some room left with regard to building resiliency for inflation to come. Currently, we do expect 97-something also in the combined ratio, and they are very well positioned. If you see the price increase of an average 12% for HDI Global, I think this is by far more than the inflation which we could expect at the current point of time. I'm very positive with regard to the technical development of Industrial Lines.
Maybe just to add what Jan said is, if you would assume that something is different, what I said before, I believe exactly the steps, one step combined ratio down per year. There's no hint in the portfolio that there may be expected for the time being some negative impact due to inflation increase in the claims area.
We hope that this answers your question. May we have the next web question now, please?
Yes. There is at the moment. Hang on. Let me check. No further web questions. If there are any further questions you'd like to give us via the Q&A tool via the webcast, please go ahead. Second, something else coming in. Does not seem to be the case. Okay.
There are also no telephone questions at this time.
Okay. This has been the call. I just wanted to remind you, our management of Retail Germany is on the road next week, and we are also doing road shows in London tomorrow to see some of you hopefully there. I hand back to Torsten for a concluding remark.
I think I just would like to conclude. Thank you very much that you have been with us and I hope to have interesting year together. Lastly, we see each other on one of the road shows on the Capital Markets Day. Thank you very much for joining us, and have a good day and a nice week. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.