Yes. Good morning from Henofar. This is the Talan's Q1 2021 results call. I'm here together with our CFO, Jan Wicke, who will take you as usual through the quarterly numbers. After his presentation, Jan will be happy to take your questions.
And as usual, you can also raise questions via the webcast. Please note, as a hint, that we today have published also for the first time a new financial data supplement in PDF and in Excel format. And this will from now on be published each quarter. You find all the documents on the IRR section of our homepage as well as for the short delay a replay of this webcast. And with these remarks, Jan, over to you.
Well, thank you, Carsten, and good morning, everyone, and thanks for dialing in. We hope that you're all in good health and full of good energy. And I'm personally happy to present my strong results on not my, our strong results for the Q1. Let me start with on Page 2, Carsten. Let me start with a summary on how our group performed in the Q1 of this year.
And first of all, why do I believe that we have a strong result? Well, looking at the growth, you can see that our growth exceeds 9% and currency adjusted it's even about 13%. So, we are growing faster and better than our peers. 2nd, if you look for the results, It's €277,000,000 for the Q1 of the net income. All lines contributed This result and it's worth noting that the primary insurance group exceeded 50% of this result.
The quality of the result is seen in the combined ratio 96 0.1%, which is pretty good. And all of this, this results in a return of equity above 10%, Which is well above our 8% target. And this is done on a very robust solvency coverage ratio, so where we have 206% and where we are slightly above the target range. Well, in a nutshell, we now expect that our net income for the full year will come out at the upper end of the €800,000,000 to €900,000,000 range, which we previously communicated to you. But let me dig into the results a little bit further.
1st, on a group level, if we can turn to Page number 4, please. First of all with regard to the growth. This above 9% growth is derived from our reinsurance operation in both lines and P and C Reinsurance as well as in Life and Health Reinsurance, we are growing the business nicely. We have the trust of our customers here and we are very happy with the development. The same is true in Industrial Lines, Well, also price increases help the growth, but in particular, the specialty business is growing.
I would now like to draw your attention to the bottom line of this chart, the return on investment. There you see that we have increased return on investment in the Q1 if you compare to the quarter previous year to 3.5%. And I just want to highlight that this is a one off effect and a periodical effect due to German Life, where we've realized a lot of book reserves in order to fund the ZSR. This number that normalized during the course of the year. So obviously, the combined ratio is not affected.
Improvement by 3.7% is a result also that we see a different corona impact in the Q1 of this year if we compare that to the previous year. Let me now try to do on Page number 5 to give you an overview with regard what was the underlying performance in the Q1. What we try to do in this waterfall chart is to exclude extraordinary effects, both positive ones and negative ones. 1, the obvious one is obviously Corona, which accounted for a negative burden of EUR 128,000,000 in the EBIT. If we sum up positive a negative effect.
I will dig into that one a little bit later. So let me focus now on the other ones. 2nd, if you go now on the right side of the waterfall chart, there you see one off effect of EUR 129,000,000. The colleagues from Hannoverie yesterday have explained this in more detail. It's related to structuring of a Life portfolio, which has caused a one time gain of €100 €29,000,000 It was a huge portfolio.
And what is the one off part, there was the need to restructure the collateral structure. There was a need to realize gains, which under normal circumstances would have released over a longer period of time and this has led to this €129,000,000 one off effect. In Corporate Operations, we had a negative hit due to a loss portfolio transfer with a subsidiary related to a claim some years ago, which we had which had impacted to the result. The EBIT was €30,000,000 and the net And finally, we have here classified as an extraordinary effect That we have a significantly lower tax rate for Industrial Lines and Reinsurance and this is particularly related to an unusual high number of returns out of the private equity investment portfolio. As you know, we are quite heavily invested in private equity and with very low tax rates.
And here also we That this will normalize during the course of the year. What is the result out of this calculation? So we have shown in the Q1 a profit of €277,000,000 If we normalize for all those effects and also for Corona, which I will explain a little later in more detail. Then we would end up in 268, but you shouldn't just simply multiply 268 by 4 in order to a good estimate of the annual result. We have done the math and calculated what was the average impact On the annual result of the Q1 since we went public and for all years it was 30%.
So and this is really true because in many lines we try to realize a little bit more in the Q1, so that we have then positive momentum for the quarters to come. So 30% was the average since the going public. So let me now going to more details with regard to Corona. I would like just like to draw your attention to a few numbers here on this Charles will not explain all of them. First, the obvious one, if you go into the column of Life and Health Reinsurance, There are €151,000,000 losses due to excess mortality.
This is the major corona impact in the Q1, more than or roughly 2 third of it is related to the United States. The other parts are derived from South Africa and Latin America. The positive news here is Joe Biden's vaccination campaign in the United States is successful. We've already have seen a positive development in March And even also in April with regard to the United States, unfortunately, I also have to add that in South Africa and Latin America, the Vaccination campaigns are lagging. So there are still some effects to come.
But over the year, we would expect that to be much lower than what we've seen in the Q1. 2nd, I would like to draw your attention to the Corium Primary Insurance, total EBIT impact there you see €35,000,000 positive. So in the Primary Insurance, Corona as a whole had a positive impact on the results, Which is related to Retail Germany and Retail International, both benefit from the lockdown, which resulted lower mobility and therefore lower claims frequency. And if we were to normalize the claims frequencies to normal times and we would have had in Retail Germany 21,000,000 more claims in Retail International, €25,000,000 So, and this adds up in if you look at the Primary Insurance Group, including Industrial Lines as a whole to EUR 35,000,000 positive impact related to Corona. How does it sum up in total reinsurance and primary insurance?
In total, the negative impact in the bottom line is EUR 34,000,000 and in the EBIT EUR 128,000,000. So, let's explain now a little bit the large losses during the Q1. You're familiar with this page. In total, you'll find that the large losses were accounted summed up to EUR 287,000,000. We have booked the higher of budget or large losses is EUR 317,000,000 already in the Q1.
So, we had a budget usage of 90%. So, large losses our budget, but they are pretty high. If you go to the various lines of business there, it's worth mentioning, but I will do it later also again that Industry Lines was the only segment where the large losses exceeded the budget, whereas in the rest, we were well within the budget. Please note also that this large loss is just B and C. It's out to life and health reinsurance where we had this excess mortality during the Q1.
On Page 9, we have the traditional overview about the combined ratio and highlighted two figures. 1st, for the group as a whole, including Corona, the combined ratio is 96.1%, Which is very pleasing and demonstrates that from a technical point of view, the business is good. And the outlier, the positive outlier is my former area of responsibility. Even if you were to excludes the positive effect of corona. So combined ratio would have reached 89.7%, so below 90%.
So I'll put it in other words, since I've handed over to my successor, Christopher Lohmann, the profits are coming. Yes. No, but it's very good what he is doing with his team and it's a very pleasing development driven by both And better cost situation due to the course program, but I will dig into that one a little bit later. So let's go now to the segments. Let's start with Industrial Lines on Page 10.
So I will just highlight a few numbers on those charts and not run you through all of it, but I'm happy to answer your questions Leita. So first, a few numbers to be highlighted are first of all the growth. So we are growing 5% here in Industrial Lines. Specialty business. It's a key contributor to this growth and we are very happy about it.
Is business currently operating around 90 combined ratio. So we are happy with it. The overall combined ratio obviously was affected by the large losses, which account where we had €92,500,000 and it was in particular due to the taxes freeze where we had some clients. And if we now see that the combined ratio is 98.7% and also has absorbed this large loss of Van Nuys, the clear signal that the underlying frequency claims were developing in the right directions or in other words that the restructuring program which Edgar Pulte and his team have set up is successful. So, all in all, we are quite happy with the development there.
With regard to the return on equity, we have achieved 7.5%. Obviously, that's not everyone to end. So mid term, it's clear that we want to be above that. But for this for the course of this year, it's really worth mentioning that the net income is also positively affected by this one off income from private equity, Which has a double impact. 1st, the investment income is higher than you should analyze it in your actual models.
And second, the tax rate is lower than you should analyze it because this is a one off for the Q1. We do not expect that to be repeated in the next If we now go from Industrial Lines to Retail Germany, then all in all, you see an increase in the EBIT margin by 300% and the net income by 300%, so a significant improvement in the results. A few comments with regard to that one here. Again, you cannot by this result by 4, but it should give you the confidence that the EUR 240,000,000 course EBIT target for 2021 Will be achieved during the course of this year. We are very, very confident that we can achieve that.
And but you should not multiply it by 4 for two reasons. First reason. With regard to the technical results in the Q1, they benefited from the lockdown measures in Germany significantly given that the vaccination campaign in Germany is accelerating and we have a positive positive mood that mobility will normalize during the course of the year and that will lead to higher claims during the next quarters. And to be honest, if you ask me whether I'm happy or not, yes, from a financial point of view, obviously, a lockdown is a positive one. But I'm a human being too and I think we are all happy if the lockdown ends and the mobility turns back to normal and we will have to pay for higher claims here.
Second, I want to highlight that in the Life results, which contributed to the strong Retail Germany results. We have realized more than €200,000,000 extra in the first a quarter in order to fund the ZZR for the whole year. So and this is given that the ZZR funding is seen over the course of the years, but the capital gains are already realized in the Q1. This gives an aperiodical effect in the Q1. So you cannot multiply the life results for All in all, Christoph Loeban and the team, they are working on the new agenda GO25 for Retail Germany.
Christopher will present this agenda Richie is to set out on the Capital Markets Day in more detail. And I will leave it to him to playing you then a little bit more in detail what he is going to change in order to make the results stronger. If we just then go to a few remarks to the quarters in Retail Germany to Page 12, with regard to growth in P and C. It's just a little growth 1%. There are 2 effects in it.
1, a very nice one, the gross written premium are increasing significantly with small and medium price enterprises and to save employee professionals. We are benefiting from a positive media reflection on our claims policy with regard to business shutdowns where we paid the claims. This has resulted in a gain in trust and this then has resulted in more new business. We are growing here more than twice the market in a difficult economic environment. I think that's pretty good what the colleagues are doing there.
On the other hand, we have a decline in our Motor business by 10%. This is on the negative side. So, all in all, slight growth. With regard to net income and combined ratio, I think I already have mentioned the most important effects. If you then go to Life, there I would just like to mention the reduction in premiums by 2%.
This is related to the fact that in Retail Germany more than half of the new business in Life is written by the bank assurance And many of our bank partners have closed their bank branches in the lockdown period. This has resulted in lower new business. And so this reduction reflects a reduction in sales capacity during the Q1 due to the lockdown. Net investment income, I already mentioned that and the operating result is by then by that reflected by that Ustit. And with regard to one question, which very often emerged with regard to our German Life entities versus Solvency II ratio.
On average for the 4 German Life entities, it's 169% at the end of 2020. So it's solid and the de risking measures are well on track and will be continued. But Christopher will tell you more on the Capital Markets Day with regard to that one. So let's go to Retail International. In retail international, we have very solid first quarter results, strong technical performance here.
But let's first have a closer view on the growth. It's nearly flat, little growth there. But if you look for it currency adjusted, We are growing 8.1%, which is quite strong. If we differentiate between Europe and Latin America, We see 6.3% growth in Europe, whereas in LATAM, the business is growing 15% in euro and 1.5% currency adjusted. And the reason behind that is it's rather simple.
In those countries, They do not have the financial strength to pay out subsidies to each and every one in order to avoid friction Cost in the economy. In those countries, Corona has caused frictional costs. If you look at the new car sales, we are the majority of our business is motor business in those countries and you simply see that the new car sales are significantly down compared to previous year. And this leads us to a situation where motor insurance is sold much less. So this is what we have to mention with regard to those countries.
If we go then to the operating result, I already mentioned that Retail International is benefiting from a lower claims frequency related to corona, but even if you were excluding for that effect, we would see a combined ratio below 97, 96 point 6% what is it, sorry, below 96%. Ann. So the overall impact, the overall technical performance of Retail International is very pleasing. Net income has grown by 24% compared to previous year to EUR 50 4 €1,000,000 net income and the return on equity achieved is 9.3%, very good level. If you then turn to reinsurance, you have listened most of you I assume have listened yesterday to the presentation of the colleagues.
So in a nutshell, reinsurance is growing 12%. It's really outstanding and reflects the trust which Hannover has earned in the insurance community. The net income, it's 3% up. Our share of the net income, which excludes for the minority, So you've heard yesterday the figures are twice as big. So given that we have slightly above 50%, it's for us EUR 153,000,000.
If we then go more into the details, the combined ratio achieves very 96.2%, so the technical performance of Hannover Rook Hannover Rhee is very pleasing. And just we expect this trend also to continue. If you then turn to investment income, capital And our efforts in with regard to sustainability. Let's start with investments. So, all in all, the assets under management book value and if you compare to the previous year are growing 7%.
So, this is where you can also see the growth of the group, which is above the peers. The ordinary investment income is growing just by 5%. This is a result of the lower interest rates. What has grown in the Q1, if you compare that to the Q1 in 2020 These are the extraordinary investment income components. And this again is due to the funding of the ZZR in German Life and is not to be analyzed for the full year.
Going to leave that with that. Let's then go to the book value per share. The shareholders' equity development is reflected on Page 18. You see a small increase in the shareholders' equity. There's some good news going forward.
If we are to come to IFRS 17, I think this page will be much more meaningful given that the accounting mismatch is minimized this IFRS 17, the book value per share what you here under IFRS 4 has grown. If you are to include the goodwill, it's about €41 per share. If to exclude the goodwill, it's about 37. If you then go to the solvency situation, overall solvency situation is very pleasing. So, the current ratio is or year end ratio is 2 0 6%, which is slightly above our target range from $150,000,000 to $200,000,000 We feel very comfortable to be positioned at the upper end of the target range currently given the overall economic situation.
And so this positive solvency picture, it's partly driven also by some model changes. It's 5 points roughly. We have newly modeled corporate bonds in the past that has modeled like corporate bonds, covered bonds, we are modeled like corporate bonds. Now they have an own model, which takes into account the collateral structure and the higher credit quality. And this is in particular positive for the German Life entities.
And I think it's very, very adequate to do so. And this results also, it's a following if you go to the next page. If you have a closer look at our credit spread sensitivity, this has been reduced by this changing the model as well, but I think it's much more adequate and from a lot of you have some questions in the past. Given your portfolio, your conservatism This was regard to credit exposure. Why is the sensitivity so high?
And I think given this is new more adequate modeling. We are now on the right track. So let's then go switch to move to the next page. And the sustainability report for 2020. What are the highlights?
First of all, we've set out a tough target for the carbon intensity of our bond investment portfolio want to reduce by 30% to 2025 and compared to 2020, I know some of our peers, they compare their sustainability targets compared to 2015, 2018, I've seen. It's much tougher to compare to 20 2020 because we have already done some things there. So it's a tough target, but we will achieve that. This is our part of the contribution. Next to that, we are continuing to invest also in infrastructure projects.
We have close to €2,000,000,000 already in Renewable Energies. When I discuss this page with the Head of Public Relations here, I wanted to add also that we are not only investing in the Guy in the environmental sustainability things and also in governance as we are financing prisons in some countries, but he didn't want to mention this on the chart. So, let's just mention that we have invested EUR 2,000,000,000 in Renewable Energies. With that you could supply more than 800,000 households, which he has stated is roughly equivalent to a city like Munich, I would say to the inner city of Munich, if you include also The suburbs, obviously, Munich has more than 810,000 households. So with having said that, the Sustainability target is really something what we take serious.
But where we have a stepwise approach, we assess what we can do in order to contribute here and then define our next steps. Let me now come to the outlook. First of all, with regards to the cutting material, Move to 23, please. Yes. Thanks.
First of all, with regards to the dividend policy, everything remains unchanged. So the payout ratio should stick in between 35% 45% and the dividends per share should be at least stable year on year or they should grow. The return on equity there we have increased the target slightly to above 8% compared to the initial guidance. With regard to the group net income, I already mentioned, given the strong start in the Q1, we would now expect to end up at the upper end of the range. With regard to the net return on investment, there you've seen 3.5% during the Q1.
For the full year, we just expect 2.5%. And with regard to the currently adjusted growth, it should be around 5%. Okay. I have to admit, this is might be a little bit conservative giving the Q1 results, but there should be some room left to exceed expectations. With regard to our midterm targets on the next page, everything remains unchanged.
We stick to our target that we want I just want to draw your attention on the EPS growth. We stick to the target that we want to grow the EPS year on year on average by 5%. Given the starting point in 2018, you will easily find out that for 2020. 2, we then would the net income of the group to exceed the €1,000,000,000 So, having said that, I hope I could give you a good overview about the results and why I have the impression that we had a very strong start in the year, given our growth and the good bottom line, but I'm now happy to answer your question.
Question can also be raised by 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 and A session will begin with the questions asked by telephone And then continue with the web questions. 1st telephone question today is from the line of Pais Harshie Tonis from Exane BNP Paribas. Please go ahead.
Yes. Good morning, everyone, and good job on a nice set up numbers today. A few questions from my side. Firstly, when I look at the industrial lines, the combined ratio looks good, but there are a number of different things going on there. So higher losses than budget.
That's also some negative effects coming from reserves, prior year reserves. And when I start to normalize for these things, the combined ratio is actually looking even stronger than headline number. So I arrive at something which is slightly below 95%. I wonder whether there's anything else underlying or is it just lower frequency and good luck and you expect that to normalize upwards as the year progresses? So that's question number 1.
Question number 2 will be on the solvency ratio. I mean, especially when I look at sensitivities for interest rates, I'm wondering why there's So Mark asymmetry between the upwards and the downwards move on interest rates, If you can explain that. And then more broadly on the solvency ratio, you are now above 200 as of full year. Obviously, the interest rates should give you another small benefit for Q1. So a solvency ratio, which is meaningfully above 200%, is that just a nice thing to have?
Or are you thinking of actually deploying some of that excess capital somehow, I don't know, organic or inorganic growth, for Thank
you.
Well, thank you, Paris, for your question. First question was with regard to Industrial Lines. So, the restructuring and the efficiency program in Industrial Light is well on track. And what we are doing there is yes, we had in the Q1 some bad luck with regard to the large claims that exceeded the budget. So, the underlying frequency losses are even better.
They could compensate for that, but we can show this 98.7 a combined ratio. But with regard to the full year and when you're modeling that, I just want to keep in mind you to keep in mind that we wanted to build up some volatility buffer during the course of the year. We will continue that given that we have made tremendous progress with the volatility buffer already last year. It could be the case that the end of this year that then should be finished that we would have adequate volatility buffers in the reserves as well. So I would expect the combined ratio to remain on that level, maybe a little bit better for the year end included a certain growth of the volatility buffer.
But I also want to mention that Industrial Line Business and this is the reason for the volatility buffer is volatile, yes. If you're insuring industrials And obviously, large planes are part of the program. And this is also the reason for why we are doing that. I've also understood that not only you, but also some of your colleagues would like to have some more comfort on the reserve level. And we will explain on the Capital Markets Day in November, the level of reserves, the comfort we have, the policy and not only that, but also how we will deal with it under IFRS 17.
So going forward, so that you have full transparency that and that you can Our own confidence, which we have in our reserve situation and can reflect on that one. So this is with regard to the first question. Second question was with regard to the interest rate sensitivity, which you see On page, can't you? Yes. On 'twenty and you asked for the asymmetry in between an interest rate increase which is only slightly positive and an increase rate decrease which is net.
The effect is rather simple. It's germ life. Yes. Where we have this asymmetry, if you have gains there, you have to share with the policyholder. If you get below the threshold of this guarantee, the shareholder has to be as a burden.
And this asymmetry is reflected here in the interest rate sensitivity. And third question from you was with regards Above 200 percent solvency ratio. Maybe this is a good it's a very good question. And obviously, we have asked ourselves also where do we want to be positioned within our target range of solvency. And therefore, a little bit more lengthy explanation to that one.
What is happening in a low interest rate environment with a solvency capital adequacy ratio, which is derived from the market value balance sheet. If you have very low discount rates on both sides on the asset side as well as on the liability side. With regard to the SCR, the solvency capital requirement where we have included like the whole industry moving averages into the calculations over the Over the years, this effect will phase in and will lead to higher SCR requirements over time, simply by adding lower interest rates in the model year on year on this average. This development will be rather slow and constant over the period of start to the own funds. There will be more volatility And the more volatility is simply given by the small changes in the discount rate on the market values.
And therefore, the volatility of the owned funds will increase. And therefore, we and I have the feeling also the industry as a whole Yes. The whole field is more comfortable currently to be positioned at the upper right end of normalized solvency targets. I have to admit that was a lengthy explanation, but I hope it helps a little bit that you understand why we feel comfortable also with this is 206% and see no urgency to change it and to Excess capital at this point in time.
It does. Thank you, Jan.
Thank you very much, Paris. Next question please.
Next question is from the line of Michael Haid from Commerzbank. Please go ahead.
Thank you very much. Good morning to everyone. Two questions. 1 on the decline in German Motor Business, minus 10%. Can you break that down into price and volume?
And what were the drivers here of this decline. And also what would be very helpful as you performed quite strongly in the SME business, Can you provide a breakdown of premiums you received from the SME business and from the motor business? That's my first complex of question actually. And the second question is, I noticed that the net realized gains in German Life It was €277,000,000 The ZZR contribution was only €105,000,000 So why were the realized gains so much Hi, Al. And what is the target for the ZZR for the full year?
And does this ZZR have a positive impact on IFRS profitability? These are my questions.
Thank you, Michael. Very good questions. First, with regard to the motor development, is it price or volume related? It's volume related. We haven't reduced prices in motor.
We have avoided due a price adjustment on the other side to increase the prices year on year, but we haven't done a price reduction. So it's a volume effect. With regard to German Life, The ZZR, well, we are currently checking the current level of ZZR is I think €4,600,000,000 isn't it? Could you please I have some colleagues here. They should check on that number.
It's €4,600,000,000
So,
it's right. Page 13. Yes, Page 13 is €4,600,000,000 and you asked also whether this would have a positive impact on the IFRS results. It will have a positive impact on IFRS results if it comes to a situation where interest rates are growing again. Then you will have a release of the ZZL.
If interest rates are moving down, Then there won't be any positive impact because but then it's a little bit money set aside in order to fund the guarantees Later period. So there will be less guarantee burden in later periods due to the funding of the ZZL. Asset help, Michael?
Yes. Can you provide a breakdown between SMB business and Motor?
Yes. 2nd. So, in 2020, we had in total €35,000,000 premium in SME and Self Employed. This is expected to grow to, I would say, now more than 460 more than 470 during the course of the year. And with regard to the motor business, well, Carsten will provide you later on a figure there.
I do not have it here now on my sheet. I'm sorry. But we have this figure obviously. But Yes. We will deliver the figure later, sorry.
Perfect. Thank you very much.
Okay. Then we talk later, Michael, and thanks for your question.
Next telephone question is from the line of Thomas Fossard from HSBC. Please go ahead.
Yes. Good morning, everyone. First question will be related to your COVID-nineteen losses guidance. I think that initially you had €150,000,000 guidance for 2021 on the primary side. Given the relatively positive evolution in Q1, I was wondering if this was time for you to change this guidance for primarily and this is through your lines.
The second question would be related to your Retail Germany EBIT target, which, as you say, it is staying unchanged at 2.40 which looks super, super conservative. And given that on the if we are looking at the adjusted a combined ratio 95%, you're already running below. So I was wondering why you're staying so cautious on the primary side of things. Thank you.
Thank you, Thomas. 2 very good questions. First of all, with regard to COVID, Please keep in mind the EUR 150,000,000 were the bottom line effect for the Taliance Group as a whole and it includes both reinsurance and primary insurance. So €150,000,000 for the group as a whole. It might see that it's a little bit conservative given the Q1 development.
But if you look in particular at the excess mortality in Life, Which is not only driven by the mortality losses in the United States. It accounts for more than 2 thirds of it, but It's also driven by South Africa, Latin America. Fortunately, to a lesser extent, so we have no exposure to India, Which is the area of major concern currently. But so it includes all. So it's a bottom line Dimit, which we have set out end of last year for the group as a whole.
2nd, with regard to Retail Germany, the EUR 240,000,000 seems to be very conservative what you mentioned. We have said they will exceed 2.40 during the course of this year. And the combined ratio should be below 95%. If you are to exclude for the positive one offs from the lockdown. So I would expect the combined ratio to be below 95% at the end minus the effect, the positive corona effect on the lockdown.
So at the end of the year, this is what I would expect to happen in Retail Germany. So all in all, the development is very pleasing and gives and Christopher and the team are doing very well, but they will obviously try to Chief, better return on equity going forward. And maybe we'll have to set out additional measures in order to achieve that. Christopher will present his GO25 program at the Capital Markets Day in November in more detail. He and his team, they are working intensively to specify the set of letters.
Thomas here. Is that okay, Thomas? I couldn't Yes. Thank you.
Okay.
No, do we have further questions?
Yes. We have a follow-up question from the line of Michael Haid from Commerzbank. Please go ahead.
Thank you very much. One question on Industrial Lines. I understand that you want to talk more, that you want to Provide more information at the next Capital Markets Day on reserving. You mentioned that it may be possible that you If I understood correctly, it may be possible that you will increase the buffer to the desired level already in this year, can you say how much this desired level of buffer would be just around? Just the figure would be very helpful.
I understand your question very well, Michael, and it's a very good one. This is what we want to release at the Capital Markets today and for two reasons. We do not want to present you the figures what we have achieved already and you will see the positive trend. We will give Some comfort on that one that we really have delivered on that one. We want also to give you a guiding information for IFRS And how the transition is done with regards to the reserving.
We will do that on a group level as a whole and provide you with the adequate information there. Yes. And This is what I want to present today because I really believe it makes sense to see it in the context of the changes in the accounting standards, which are to come. And also to present to you what we will undertake in order to provide you with comfort not only for this year, but also for the years to come going forward. So we will present our whole concept on reserving on the Capital Markets Day.
Fair enough. Thank you very much.
And it will reflect That Talang will continue to be a conservative player in this area.
So it sounds like you should have the 17th November in your calendar. Please.
There are no more telephone questions and I would like to hand you over to Carsten to read out the questions from the web. Please go ahead.
We have quite a couple of questions. Ashik Musani from JPMorgan has 2. I think the first one perhaps is already answered. Question is, if we use your guidance of at least 5% growth in net income from 2018 base of €850,000,000 I get to 1.0 €3,000,000,000 of earnings in 2022. Does that make sense?
Or am I missing anything? No,
that makes sense.
Exactly. Second question, Industrial Lines premiums grew by 8% constant currency. Is there something we should be expecting going forward and what are risk related claims inflation for this book given growth is mainly coming from specialty item?
There are 2 questions in that one. First of all, the premium growth going forward, well, we will have a disciplined underwriting approach and really Depends on the market. We are not trying going out in order to do the first target is profitability and not volume. So currently we are quite happy with this growth rate. It was 5% during the course of the Q1.
And we also if I look currently at the figures that should be something for the whole year, the trend is positive. 2nd question is with regard to claims inflation. This has to be taken into account in the pricing decisions and the claims inflation in particular also social inflation in particular in the United States has to be reflected and there's a certain growth part in the business. It's simply related to price increases Which are necessary to compensate for claims information. And this is executed and Well, in a disciplined way.
Okay. Then we have a couple of questions from Michael Huttner of Berenberg. Perhaps we do them 1 by 1, so that I don't withstand on the system. On Retail Germany, the improvement is stunning, yet Industrial Alliance, still relatively modest. Is there a way of thinking about this?
Where are all these man made claims coming from? Is it the factories restarting after no maintenance?
Very good question, Michael. And so all in all, if you look at the large losses in the Q1 the majority is really esteemed from Texas REITs, which was an extraordinary situation and which was more than €50,000,000 of this €92,000,000 so it's not from the other factories restarting after no maintenance. But obviously we are very cautious now and we are waiting for what will happen when the lockdown ends. And but we are prepared and we give out some recommendations to our clients as well. So up so far we haven't seen that in the Q1 claims is also this big, big fire claim in Berlin included, which you might have seen in the figures of some of our peers too.
Next question is a bit related. Can you explain a little more the Industrial Lines large losses? What is the common theme? Is it Europe and factory owners making things for whatever reason? And how much are rates rising now in Industrial Lines?
Well, we answered the rate question at annual press conference for the rate increases. During the course of the year, it's really difficult to assess because it differs line by line, it differs region by region. So That's a tough one because it's a heterogeneous picture. All in all prices are still growing, but it really differs. Long tail business is growing faster than short tail business.
I know this is really on a more generic level on that question. But I think it makes sense to have this year on year with the annual press conference and because then we have a full year which You can compare to the previous year. If you do it during the course of the year, the overall trend is still slight price increases in both Industrial Lines as well as in Reinsurance.
Okay. Then next question also Michael Huttner. Can you say a little more about the optimism on growth, where is
it likely to be? So the growth will be derived from both reinsurance and industrial lines, whereas in the retail part, we expect a rather flat development.
Can you say where solvency would be now? Would it be around 210% given interest rates? So I suppose kind of expectation for the Q1 numbers.
We expect to be in the same range as we have been at the end of the year.
Ernst, are you doing the same in Retail Germany? Is the combined ratio underlying even better than 89.7 percent?
How shall I answer that one? And in Retail Germany, the overall reserve situation, which I was able to hand over to my successor Christopher Lohmann is already very, very good. And As we are also always reflecting accounting principles, so I think It's a positive one. The very good combined ratio in the Q1 was also related that Retail Germany had really no large loss during the Q1, which was unusual. Yes.
Normally, we have 2, 3 large losses also in the retail Germany segment. And so it's a little bit also some part of luck that the figure is so low in the Q1.
In connection with this, are the buffers in reserving already included in Solvency II Own Funds?
It depends on how the procedures of Solvency II bookings are reflected. We have here quite some not a homogeneous picture in the group as a whole. In reinsurance, there are some deviations in between the Solvency II Bookings and the IFRS bookings, which leads to higher own funds in Solvency C2 in Retail International, Retail Germany, it's booked in parallel. So the figures you in Solvency II are the same what you see in Solvency II.
Okay. Why did motor volumes drop so much? It's all due to digital competition from
Koenberg. Two effects from my point of view. One effect is competition. So you're pretty right what you've wrote. The second is that we have a very old portfolio.
If you look at the average age of our customer in the motor portfolio.
And the last question from Michael. I suppose that's one which triggers a full seminar. Can you say if IFRS 17 will lead to higher reported profits?
In the end, over all periods of time, the profits will be the same. So no change with regard to that one. What I can say with regard to IFRS 17 is there are a few things. First of all, the volatility with regard to the equity Development will be lower due to the fact that the accounting mismatch due to more consistent discounting on both sides of the balance sheet will be minimized. So this is a good news with regard to IFRS 17.
2nd with regard to P and L volatility, we would expect to have a slightly increased P and L volatility, which is not driven by the technical results. So there we will see the same like as of today, but will be more driven by the investment results. Yes. And so this is what we were to expect. So and all in all, over all periods, the profits should be the same.
But our management performance would hopefully Leading to higher profits going forward.
So this would end the questions from the web. Stuart?
Okay. There are no further questions on the phone lines This time and I would like to hand back to Jan Wicker for closing comments. Please go ahead.
Well, first of all, Thank you for the questions. Very good questions from your side. Thank you for the discussion. And I always hope that all of you will stay healthy. I hope that the lockdown will end and I hope that maybe the Capital Markets Day in November.
We will see us physically as well that we have interesting discussions there. That's what I hope. So all the best for you and thank you for attending this call.