Good morning. This is Hannover calling with our little video show to present the Talanx results for the first nine months and the third quarter of the current financial year 2025. I'm here together with my CFO, Jan Wicke, who is happy to take you through the details of all our numbers. After the call, we are happy to answer your questions during our Q&A session. We are on video today, so if you want to pose a question, please use the hand-raise feature, and I will slot you into the Q&A. As usual, all the documents that complement our presentation today are posted on the IR section of our website, and you will find there not only our presentation but also the much more comprehensive financial data supplement. With that, I hand over to you, Jan. The floor is yours.
Thank you, Bernd, and good morning, everybody, and thank you for attending our earnings call. I'm glad to give you some insights on the recent development of Talanx. We have very good numbers to be reported. First of all, during the first nine months, we were able to grow our net income by 23% compared to the previous year to EUR 1,964 million. By that, we are even close to the full-year earnings numbers from 2024. This strong earning growth is driven by a strong profitability. Return on equity stands above 20%, and this gives us the confidence that we have increased both the outlook for 2025. We intend to achieve a result above EUR 2.4 billion for the full year 2025, and we expect another double-digit earnings growth for 2026 and want to deliver a result around EUR 2.7 billion in 2026.
What gives us the confidence that we can deliver on that one? Insurance, and insurance, it's all about good diversification, and we have a high degree of diversification in both. Once, what you can see here by geographic diversification, a really well-balanced portfolio, and second, also by business model. In the first nine months, roughly 51% of the net income was derived from primary insurance and 49% from reinsurance. It is really very well-balanced what you can see here. Looking into more detail into the numbers, we can report that insurance revenue measured in EUR was stable, whereas adjusted for currency, we see a 2.7% growth. If we further adjust this number for what the colleagues of Hannover Re have explained to you, the refinement of the calculation of reinsurance revenue, then it would be even a growth rate of 6% during the course of the first nine months.
Profits are up 23%, and this is mainly driven by an outstanding technical performance. We were able to achieve a combined ratio below 90% for the group as a whole, and this is, to be honest, even if you adjust for the discounting effects and so on. We did some maths here with the controlling team. It was the best number after nine months in the Talanx history. Return on equity stands at 21.5%. Yes, we have some benefits from the currency accounting, but even if we adjust for currency impact, then it's still 19%, which is a very, very healthy number. What makes our numbers even stronger is the way how we are considering large losses. As you are well aware, we are booking either incurred or budgeted numbers. We always take the higher off.
In these nine-month figures, we have included roughly EUR 2.2 billion large loss burden, even though just incurred and reported are till now just EUR 1,523 million. What does that mean? We have a large, large loss buffer for the fourth quarter to come with more than EUR 660 million. Part of it will be consumed by the hurricane in Jamaica and some other events, but nevertheless, we have a huge buffer for the fourth quarter. You may now raise the question whether we are too conservative with regard to the calculation of our large loss budget, and this is why we have included this chart here in the presentation. What you can see here is the large losses compared to budget over the last 13 years.
What you can see easily is that on average, we had an over-utilization of the last large loss budget in the third quarter, which is the hurricane season, by more than EUR 100 million. In 2025, we had the lowest-ever number in what we have seen. The good news is we can deal with such a volatility. All in all, the very good technical performance, the very prudent accounting gives us the confidence that we can deliver more than EUR 2.4 billion net income for 2025 and deliver also a return on equity of above 19%, which is just if you do the maths. Let me now explain to you more into detail where the profit is coming from during the course of the first nine months, so I will guide you a little bit through the segments. To start with, Corporate & Specialty.
In Corporate & Specialty, we have seen a healthy growth of 4% measured in EUR, currency adjusted even 6%. If we go more into detail, we had a little bit more growth in corporate, a little bit less growth in specialty, but very healthy. Group net income is up 13% to EUR 409 million net income. Again, the team around Edgar accounted for the nine-month figures. It's very, very prudent. We used all again certain things to strengthen the balance sheet. For instance, we took some losses in the fixed income portfolio in order to buy new bonds with higher coupons, which will then support the earnings growth in the years to come. The return on equity stands slightly below 17%, clearly outperforming internal targets. We are very, very satisfied with this consistent outperformance in this segment. Going to Retail International.
In Retail International, the growth measured in Euro of the insurance revenue was 2%. Adjusted for currency was 8%. The currency effect was quite large due to the devaluation of South American currencies compared to the Euro. Looking at the group net income development, we see an increase by 40% to outstanding EUR 474 million. This was in particular driven by a very good technical performance, which if you go more into details, part of it was the loss development, and the other part, nearly half of it, was also cost development, working on the cost positions in the various countries. Return on equity stands at 19%, 4.5% better than in the previous year. There is one special effect that needs to be mentioned. Due to the buyout of the minorities in Poland, I explained that in the previous quarterly call.
If we adjust for this one-off effect, then the return on equity would stand at 16.4%. We already can account for the profits, but we are paying it, the minorities out in the next year. There is no equity burden on it, and this gives a double lever on those numbers. Nevertheless, 16.4% return on equity in retail, this is an excellent number provided for by Wilm Langenbach and his management team. Going to retail Germany. By no surprise, we have a decline in the insurance revenue by 7% due to the end of the TARGOBANK distribution agreement. To give you also some guidance on what is to be expected for the next year, in this year, we will have the majority of the decline due to the end of the TARGOBANK corporation, and then there will be roughly half the effect again next year.
We should grow again in retail Germany. Despite the decreasing insurance revenue, the management team around Jens Wagner was able to increase the net income by 5% to EUR 123 million. This is driven, one, by a very good technical performance. If you go there into detail, there was a portfolio restructuring in Lohndorf, which worked out pretty well, but also cost management. The total costs in these segments are down 10% compared to the previous year. That is really an outstanding achievement, what they have done during the course of this and the past year. Return on equity is double-digit, and I expect it to be above 12% for the years to come, given that this segment contributes a lot to the dividend in terms of dividend payments to the group. We are lowering the equity due to the lower business volume here.
Coming to reinsurance, in reinsurance, I'm sure you might have listened to the call from Clemens and Christian. They are growing profits 7%, achieving a return on equity above 20%. We are proud majority shareholders of Hannover Re, and we are really appreciating their outstanding ongoing and consistent outperformance. Digging a little bit more in capital management, here I also have some good news with regard to our solvency ratio. The solvency ratio is up 9 percentage points compared to the last quarter to 233%. If we look into the details, the solvency capital requirement on a group level is rather stable, but we have this nice profit, so we have more own funds, and this is what is increasing our solvency ratio here. Risk capital requirements are rather stable. This has also to do with our rather boring investment portfolio where we follow a low-beta approach.
What you can see here still, more than 80% of our investments are in fixed income and more than 90% in investment grade. A pretty prudent investment style, what you see here. Nevertheless, we are able to grow our ordinary investment income by 7% compared to the previous year nine-month numbers. The portfolio yield is increasing step by step, and we are accelerating this process by realizing losses on the fixed income portfolio in order to lock in higher interest rates for the future. We did so not only in the years 2022 to 2024 by more than EUR 1.2 billion. We also did it during the course of the first nine months where we have realized more than around EUR 380 million losses, what you can see here on the chart.
To give you some guidance for the full year, I would be very much surprised if the number is below EUR 500 million for the full year. We are continuing to do so in order to support the earnings growth in the years to come. Coming to the outlook, we are very, very confident. What drives our confidence is our distinct business model. First of all, we have a very good diversification. 51% of the net incomes were derived from primary insurance. We have a very good 50/50 mix, and also the geographical diversification, which really matters in P&C business, is very benign. Within our company, we have a focus on P&C business. More than 80% of our premium volume is derived from it. If you walk the floors here, there is a lot of discussion about where risk materialized, how risk developed, and so on.
It's a kind of underwriting cultures. This enables us to deliver a combined ratio this year even below 90%. Where we are really passionate about is our cost leadership. In 93% of our businesses, we are cost leader. This enables us to deliver more value for money to our customer. This gives us a competitive edge. All the three elements, diversification, P&C focus, and cost leadership, bring our business model to another level. Next to that, we have something which is our resiliency, which in a world of higher uncertainty is really important. We have reported at the year or at the first quarter in this year that external actuaries have assessed our reserves and found a resiliency of EUR 4.7 billion. They will do it again at the end of this year, and we will report this number in the first quarter.
I would be very much surprised if the number is lower. We are still strengthening the resiliency to cope with the higher uncertainty in the world we are living in. Putting all together, a strong balance sheet, cost leadership, good diversification, P&C focus, this gives us really the confidence that we have a competitive edge in our cyclical markets. This drives our overall outlook. For the year 2025, we expect to deliver more than EUR 2.4 billion. For 2026, we set out a guidance to around EUR 2.7 billion, which is another double-digit increase compared to the previous year. By that, by the way, we will achieve our midterm target, which was initially set out for 2027, to achieve a result above EUR 2.57 billion one year earlier and higher. We are quite happy to report these numbers and this confidence.
With that, Bernd, I hand back to you to take the questions.
All right. Let's dive into our Q&A. The first questions come from Hadley Cohen from Morgan Stanley. Hadley, good morning. Please unmute your mic and fire your questions at us.
Morning, everyone. Hopefully, you can hear me and see me. A few questions, please. Firstly, with regards to the outlook, Jan, congratulations on raising it to the extent that you have. I'm just wondering how we think about the dividend in that context because you were previously targeting a EUR 4 dividend in 2027 based on EUR 2.5 billion in net income, and now you're targeting EUR 2.7 billion in 2026. How should we think about the dividend trajectory in that context? Another question on the outlook is you're implicitly getting to you're already at the 50/50 split between primary and reinsurance currently and expecting it in 2026 as well. How are you thinking about the relative growth of the two business lines, primary versus reinsurance, going forward? Do you expect them to be broadly similar, or do you think the primary can outgrow reinsurance over the medium term?
Second area is on C&S and the top line there. I mean, I think it was a little, it missed slightly versus what I was expecting. I think in part FX-driven, but also I think you're being quite selective in some of the business that you're writing. Can you just give us a quick update on the underlying pricing dynamic there and which lines of business you're seeing as still attractive and where you're sort of reducing exposure? And then finally, just a very quick one on the German retail combined ratio, incredibly strong, 87.4%, I think, for the nine months. I know that there were some favorable elements earlier in the year, but how should we think about the sort of normalized run rate there? Thank you.
Thank you, Hadley, for your questions. Quite a few. I'll start with the dividend outlook. First of all, the dividend policy will remain unchanged, always up, and we will decide after the year-end closing on how much upside we will provide to our shareholders. I just want to bring across the message that capital efficiency matters to us. Second, also please keep in mind that we have to pay for buying out the Polish minorities in the first quarter of the next year. This has to be also kept in mind when you do your calculations how much dividends will be decided on after year-end closing. The good news is pretty clear. Given the earnings development, we have more room to maneuver. This is for sure. Second, a question was with regard to the growth outlook, primary versus reinsurance.
First thing, I have to admit something. We are not setting out top-line targets to our entities. What we are setting out is earning growth targets. This is what we are discussing. It is even written in our underwriting guidelines that there is one sentence which is really famous with another company, which is, "Volume is vanity, profit is sanity." The mindset is we want to grow where we see profitable growth. The growth from primary and reinsurance, we will capture the business opportunities where they are. It is a little bit difficult to give you a straight answer on that one. Given the cost leadership we have in most of our markets, we are very confident that we are able to capture them. Third question was on Corporate & Specialty top-line development.
It's 4% in Euro, 6% currency adjusted, a little bit more in corporate and a little bit less in specialty, the growth. In total, we see still a positive range change of around 3%. Where are we more cautious? We are more cautious in those lines where we believe that inflation impact is a little bit stronger. It's always keeping in mind how much inflation. We have to make a bet on the expected inflations when doing the pricing. We do see some inflation. This is what needs to be kept in mind. In detail, it's a little bit more complex because we have to distinguish between line of businesses and geographies. In a nutshell, overall, I would expect us also in 2026 to grow a little bit more in the corporate than in the specialty segment.
The first question was on German retail, the combined ratio. It's really an outstanding combined ratio what we've seen. There was this one-off effect, you reminded correctly, that due to the assessment from the external actuaries, I found something where we had to release some reserves as an effect of it. If we normalize it, I would expect in the low 90s the combined ratio in the next year to come. Not at this level. This is really outstanding. I hope I've answered Hedley's question.
Thank you very much.
Okay.
Very clear. Thank you.
We go on with the next questions that come from Chris, Chris Hartwell from Autonomous. Chris, good morning. Unmute your mic and go ahead, please.
Good morning, Jan. Just a couple of questions, maybe three. Firstly, just on the sort of the broad question of balance sheet prudence. I mean, you mentioned that for the first nine months, you are running way, way, way below the large loss budget. You have talked about realizing losses, so that is a couple of hundred million more in Q4. I was wondering also if you could just give a little bit more color on other thoughts on where you may also find a place to strengthen the balance sheet or put into the balance sheet, if that is a better phrase. Secondly, just want to sort of come back to the target. Obviously, the previous comments, I was just wondering if you can give a little bit more color on the construction of that 2.7.
We've obviously got the Hannover element of that, but I was wondering if you could maybe sort of talk a little bit about your relative bottom line excitement as you see it in the various retail and other businesses. Then thirdly, just a very quick question just on the structure transformation into an SE. If I cast my mind back, I think quite a few years now, when other companies did similar, there were capital benefits, I believe, from that. I was wondering if you may see the same from that also. Thank you.
First, with regard to the balance sheet prudence, Chris, the primary, the first focus will be realizing some losses in the fixed income portfolio. The resiliency embedded in the liabilities is really already very strong. Also, from a capital efficiency point of view, there are just a few millions to be added, but it is not huge because it will be much better than the resiliency which we published last year. For the fourth quarter to come, the main focus is on fixed income, and we will also have some prudence in the tax accounting going forward. Overall, the balance sheet, I really can tell you, it is the strongest balance sheet Talanx ever has had. We are already on a very high level. With regard to the second question, 2.7 target, Hannover Re has published their guidance for 2026 as well. They want to deliver also EUR 2.7 billion.
We have then the primary and then the corporate operations, which usually contributes negatively to the overall results. It will be again a 50/50 split of the revenues to come. We will see very nice growth in the earnings in both Corporate & Specialty and Retail International. We are confident that we will see further earnings growth there, a little bit less earnings growth in retail Germany due to the fact that they are still shrinking. The results there will be rather stable. I hope this provides you with some color on the development of the earnings contribution. With regard to the Société Européenne, the SE construct, there is no capital release related to that one.
Okay. Thank you very much.
All right. Thanks for your questions, Chris. Next questions come from Michael Huttner. Michael Huttner from Berenberg. Good morning, Michael. Unmute your mic and go ahead.
Good morning. Well done and fantastic. Lots of upgrades. Lots of questions. The M&A budget, can you remind us how much you could spend, you're willing to spend, and if there's anything in the pipeline? I always remember that Mexico and specialty are kind of areas. The second is on life's long. Your wonderful IR team highlighted it had gone up from 270% - 332% in the last quarter in Germany. I just wondered in terms of capital or cash release, how much of a benefit could that be? If you could remind us how much you take every year from retail Germany, I think it's EUR 200 million. The more complicated question, you're making huge amounts of money in Corporate & Specialty, but clearly the margins or your growth is more selective. Clearly the margin outlook is possibly shrinking a little bit.
I don't know. How does one think about that? You start from a high point and go down. That's always uncomfortable. Analysts want everything to go up. I don't know how to think about that. Any help the way you looked at it? A couple of minutes, if you could maybe, and also exposures to the, was it First Brands and Tricolor if there were any? The last point, I can't quite square the math. EUR 660 million is the unused budget in Q3. You've got another lot to come in Q4, EUR 613 million. Melissa presumably would be covered out of that. If I spend EUR 120 million fixed income going from EUR 380 million to EUR 500 million in terms of realized losses, I'm still left with EUR 540 million. Are you going to put EUR 540 million in tax?
There we are. That's it. Thank you.
To answer the last one, no, we do not put EUR 500 million in tax. Let me start with the other question. First, with regard to the M&A budget, yes, we have the financial strength to execute M&A, but we remain disciplined here. Discipline is the key. By numbers, yes, we can do a EUR 5 billion deal. Yes, we can do even bigger deals given that we also have the support from the mutual, which we also always have to take into account when it comes to M&A. With regard to the pipelines, this remains unchanged. We would love to do something in Mexico or to strengthen also the specialty books. Obviously, price discipline really matters to us. All these targets have to fulfill return on equity targets and return on investment targets. It is a little bit also my role to insist on that.
I do so. Second, with regard to life’s solvency, which is up, you’re right. We have a positive development that meant there due to the interest rate development. We have lower market risk here. This leads to the opportunity to take a little bit more money out. It will remain around EUR 200 million from retail Germany every year. Also in the years to come, the average contribution is around EUR 200 million. What we call. Third question was on the margin outlook at Corporate & Specialty. First of all, you’re right. We will have a little bit lower margins. There are discussions about price and a lot of discussion also with clients about the expected inflation, which we have to embed in our underwriting calculation. Nevertheless, we are very, very confident to deliver very good results also in 2026 and the years to come.
The next question was on Melissa, the hurricane in Jamaica. Given that Hannover has a very high market share in Jamaica, we expect it to be a triple-digit number, which we will have to pay for. It is okay. This is what we are built for. It is well absorbed by the large loss budget. We have no worries with regard to paying that. There was a question on the assets. On First Brands, we expect no impact from First Brands. I think, I do not know, Michael, but I have covered all your questions. Or did I miss one?
The last one, what you're going to do with your strengthening?
Yeah, it is strengthening. Now, we try to find a little bit more than EUR 120 million in the fixed income book in order to strengthen the return on investments in the years to come. So we expect some of the earnings growth to be derived from a rising return on investment in the coming years.
All right. Thanks, Michael. There are more questions from Roland Pfänder from ODDO BHF. Roland, please go ahead.
Yes, good morning. Two questions from my side, please. Could you speak a little bit about the reserving policy going into next year, which is embedded in your new target? Would you expect resiliency reserves to go up, to be stable, or actually to come down? What is the assumption here? Retail Germany, the expense ratio, I think, came down for the first time more markedly in the third quarter, below 30%. What would be a long-term target you think you could manage it down in the future? Thank you.
First, with regard to the reserving policy, we expect the resiliency in 2026 to remain stable in percentage points compared to the liabilities. This means a small increase is embedded in our plan. It is just to give that we are growing to keep that stable. The overall reserving policy, and I really like your question, is the following. We have set out minimum targets for resiliency, but nowhere in the group are we close to the minimum targets. We also have set out upper limits. We are reaching upper limits. Upper limits we have set out because of capital efficiency. We are really calculating for actuarial segments what you need in order to cope with the volatility, which is inherent in our book.
You will have a high threshold if you have a small portfolio, which is very focused, which is not very well diversified, then you will have a higher threshold. If you have a broad portfolio, take Hannover Re for example, which is very well diversified, you have a lower threshold where we start to have discussions on capital efficiency with the segments on that one. We keep that in mind. I just want to bring that across. The reserving policy for the future is what is driving our thoughts also, is that we believe that we have a growing uncertainty. That is a number of large losses, even though they have been incredibly low during the course of this year. They will rise again. They will normalize. This is what we embed in our policy.
The numbers, the severity, what is to be absorbed will rise too. This is in our models, in our thoughts. I can bring across a good message. We are prepared for it. Second, retail Germany expense ratio, they will do further steps on the expense ratio in total. I have to be very careful. They have set out an efficiency program there, which they are conducting. They are slightly ahead of plan. It's really very well managed by Jens Wagner and his team. I would not be surprised, let me put it like this, if they were able to reduce the cost by another 10%.
Thank you.
Thanks for your questions, Roland. Let me check the screen whether there are further questions. I'll give you some more seconds to make up your mind whether you want to know anything more. That does not seem to be the case. Thank you for the time you spent with us and give back for concluding remarks to you, Jan.
Thank you, Bernd. Thank you for all your questions. I hope I could give you some color on our recent development. In brief, we have had a fantastic first nine months. We are very confident with regard to our outlook for both this year and also for next year. We will deliver. Thank you for attending this call.