Ladies and gentlemen, thank you for standing by. I'm Moritz, your Chorus Call operator. Welcome, and thank you for joining the Talanx Analyst Call, 9 months 2023 results. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you have dialed in by telephone, you can press star followed by one on your telephone to register for a question. Questions can also be raised by using the chat box on the webcast at any point during the session. Kindly add your name, function, and email to be identified. The Q&A session will begin with the question asked by telephone. I would now like to turn the conference over to Bernd Sablowsky. Please go ahead.
Thanks very much. Good morning, everyone from Hannover. This is the Talanx results call for the first nine months and the third quarter of 2023. I'm here together with my CFO, Jan Wicke, who will present the details of our current year's results to you. As usual, after his presentation, we are available for questions and wish to remind you that, as usual, all our material, including but not limited to the financial data supplement, is posted on our webcast. So now, Jan, over to you for the details of the results.
Well, thank you, Bernd, and good morning, everybody. At Talanx, we are very satisfied with the current performance of our business, and before we dive into the details, let us take a quick glance at some key figures, which support the confidence in our business model and also are the basis for our guidance for both 2023 and 2024. I will focus a little bit more on primary insurance business, given that our colleagues from Hannover Re already explained the reinsurance numbers to most of you last Thursday. And in primary insurance, the revenues continue to grow above 10%, or to be precise, it was 13% after nine months, and if you were to adjust these numbers for currency, it's even 16%. The bottom line rose even much, much stronger, with more than 50% in the primary insurance.
Both the rising premiums and our ability to monetize growth have led to our increase in the outlook that we are now expecting for 2023, a group net income clearly above EUR 1.5 billion for 2023. Based on the excellent nine-month figures, we are now introducing also the profit target for 2024. We believe we can do more than EUR 1.7 billion net income next year. This means that we strive to exceed our initial 2025 profit target of EUR 1.6 billion by more than EUR 100 million, one year ahead of plan. And this obviously rises the question whether we will update our 2025 target. We will do so, but we will do so in March 2024, when we publish our full year 2023 results.
With respect to the 2024 outlook of above EUR 1.7 billion, I wish to highlight that this includes already a small profit contribution from the Liberty acquisition, but not the expected full potential out of this transaction. The return on equity will remain clearly above 10% and in a very, very healthy level, like in the current year. Let me now move to the group financials and provide you with an overview of the consolidated group numbers. In total, the group was able to increase its revenue base by 8%, and this is based, as I already mentioned, on the double-digit revenue growth in primary insurance and a single-digit growth at Hannover Re.
We have a strong net income increase of 38% in the group as a whole, again, with a very robust contribution from the primary division. The return on equity is up almost 5%, or to be precise, 4.6%. This defies the fact that we have done something in order to increase the resiliency embedded in our best estimates. With regards to give you an overall view on the results of 2023 so far, obviously, we had some tailwind here, both from discounting on the one hand side, but on the other hand, we were able to increase our resiliency embedded in the best estimate reserve, but we also had some tailwind from the large loss development, which is, if we move to the next page, which is shown on page 6.
Compared to the previous year, we had EUR 277 million less large losses. But please remind that last year was significantly affected by the Russian war in the Ukraine. Nevertheless, we did not book this five, this EUR 1.589 billion. We booked a number close to EUR 1.7 billion as large losses, as we usually take the higher number of those budget or incurred losses, so that we will have a buffer for the fourth quarter for more than EUR 100 million. Which is good to have the buffer, given that at least for the hurricane in Mexico, we expect this to be a large loss above EUR 100 million. So, but, and that will be then still well within the budget.
With regard to the large loss development so far, in the first nine months, there have been two earthquakes. The most expensive one was in Turkey and Syria, with EUR 330 million. The other one was in Morocco with EUR 70 million, and the Italian storm is worth mentioning with EUR 132 million net burn in our numbers. On the next page, we dig a little bit more into the bottom line and where the results are coming from. Primary insurance is contributing 47% of the net income in the first nine months, so almost half of the group earnings, and within primary insurance, all three divisions contribute nicely, with the largest contribution in absolute numbers coming from Industrial Lines, closely followed by Retail International.
The relative earnings contribution in between primary and reinsurance may level out a little bit towards the end of the year, but we are getting closer and closer to our long, long-term goal of an even split between primary and reinsurance. Based on our very good first nine months, we have raised the outlook with regard to the insurance revenue. We stick to that we want to achieve above EUR 42 billion insurance revenue by the end of the year. This will slightly depend on the dollar, but we will-- we are very confident with that one.
With regard to the group net income, it should be clearly above EUR 1.5 billion, and return on equity, clearly above 10%, and if you later do the math, it should be around 15% at least, which is a very, very healthy level of profitability. Let me now go a little bit more into detail with regard to the segments. On, if we move to page 10, then we see the primary insurance, as a whole, 13% increase in the top line, 51% in the bottom line, and very strong contribution in terms of return on equity. On the next page, there is Industrial Lines. In Industrial Lines, we were able to see a revenue growth of 10%, and if you're adjusting it for currency, 12%, which is shown on the chart here.
If you dig a little bit deeper into this 12%, then it's predominantly driven by commercial lines, whereas the specialty lines, we were below this 12% due to a more selective underwriting approach. The combined ratio stands at 92.7%, which is a very strong number. We were able to increase the resiliency embedded in those number, and given that the technical result was so strong in Industrial Lines, we even decided to switch a little bit in the bond portfolio, so we realized more than EUR 80 million, just in Industrial Lines, more than EUR 80 million losses on the bond portfolio in order to achieve higher ordinary income in the future. All together, this adds up still to a return on equity of 13.4% in the first nine months.
And so we do not only expect to have a Return on Equity by the end of the year above 9%, it should be clearly above 10% for the full year, despite the fact that we are still considering, in terms of steering results, to do a little bit more in the bond portfolio going forward. Retail International, on the next page, is our growth machine. In P&C, we have more than 33% growth in life, even 41%. Those growth figures are a little bit affected by some extraordinary effects. In this regard to P&C, it's Turkey and the inflation accounting. If we were to exclude Turkey from the growth number, then this growth rate would be still 16%, which is a very strong organic number.
With regard to the life business, we have a positive impact on the newly set up bancassurance agreement in Turkey, which contributed EUR 65 million insurance revenue premium. And without this newly founded bancassurance agreement, the growth rate would have been just 9% compared to the previous life previous year. The combined ratio stands at slightly below 95%, and this is despite the fact that we face in Turkey still some challenges due to hyperinflation. But we also see in Turkey a very strong rebound in terms of pricing of the business and also with regard to the development of the combined ratio, but which is still above 100%.
As it's now below 95% was heavily driven by excellent technical performance in South America, in particular in Brazil and Chile, so we are very happy with the development in these countries. The return on equity stands at 11.9% after 9 months, but I would like to draw your attention to the fact that in order to do the closing of the Liberty transaction, we will provide the subsidiaries in Latin America with equity, which will then reduce the return on equity for the full year because the equity component is higher. So no worries about it. In the long run, the return on equity will rise. Now, there will be a dip due to the equity injection. No worries about it. With regard to the transaction in the transactions in Latin America, on the next page...
We want to provide you with an overview. So with regard to Sompo, we have closed this transaction twenty-fourth of August. With regard to Liberty Brazil, which accounts for roughly 80% of the whole Liberty deal, we have already the approval of the antitrust commissions, but we are still in final final answering the final question of the financial supervisor in those countries, but there are no obstacles to be seen, so that we expect to do the closing within the fourth quarter here. With regard to the closing in the Andes countries, which is Chile, Colombia, and Ecuador, we have already received the approval from all antitrust bodies in those countries. But same like in Brazil, we still have to answer some questions of the financial supervisors here.
But again, there are no critical question, at least from my point of view, so that we expect closing in the first half of 2024, maybe even in the first quarter, to happen. With regard to, if you move on to Retail Germany, Retail Germany provided for the highest return on equity within the primary insurance with 14.2%. If we look at the growth picture there, we have a strict split picture. We have growth in the P&C business with 7%, driven by the SME business, which continues to grow. Its revenues are up 11%, even in the first nine months. And also growing, bancassurance contribution in non-life is very pleasing.
Whereas in life business, we have a decrease in the insurance revenue of 7%, and if we look at the APEs, then we have even a decrease by 10%, which is driven by significantly lower single premium business, like in the whole German market. So it's nothing special here. Anyway, it's our smallest segment. Combined Ratio stands slightly below 96%, so it's within the target range, positively influenced by the banc assurance profitability. The new business value in life is up in the first nine months, which might be a little bit surprising. But the reason behind it, that we have a higher proportion of banc assurance business within our revenue mix, and this, in the end, causes also this very favorable return on equity of 14.2%.
And if we were to include the partly asset management contribution of Retail Germany with its large life books, then we would even see a 15.8 return on equity in the first nine months. So let me then move on to the reinsurance. In reinsurance, you have already heard what our colleagues have told you last Thursday. Just to repeat, it's a 4% growth. The 4% growth is particularly impacted by a shift in the new business from proportional to non-proportional reinsurance contracts, which are normally much more profitable, so it's a shift towards profitability. The net income stands at EUR 704 million, which is positive, and the return on equity has reached outstanding 20.5% level.
If you then include also that our colleagues at Hannover Re were able to build resiliency embedded in their best estimate, then you will well understand why we are so satisfied with the development of our Hannover Re. On the next pages, I would like to provide you some color with regard to our capital situation and also with regard on how we are invested. With regard to the Solvency II capitalization, we can show you very strong numbers here. We have Solvency II ratio without transitionals of 222%. It is an increase by five percentage points compared to the last quarter. There are two reasons for this increase. First of all, the favorable earnings development, and second, the capital increase. We have increased the capital by EUR 300 million.
If we were to exclude this number, it would be just 219%, which is still a very strong number. You may ask the question, why is it so strong? Yes, we have bolstered a little bit the solvency ratio because we are preparing ourselves for the consolidation of the Liberty entities. After the consolidation of the Liberty entities, we still expect the solvency ratio to be above 200%, where we want to have it. On the next page, you can see, and as you already know, I'm a fan of the new IFRS 17, 9 accounting. You can see the development of the shareholders' equity, which is a good yardstick for the economic development of the company.
We have an increase of the equity by more than EUR 1.2 billion. If you then focus a little bit on the value creation, which is derived from the sum of net income and other comprehensive income, then the value creation was even above EUR 1.4 billion during the course of the first nine months, which are, on my point of view, quite strong numbers. Next page 19 is my favorite slide in the presentation, and this is why I want to dig into that one a little bit more. On the left side, you see the shareholders' equity, and then we've added to the shareholders' equity the contractual service margin and the shareholders' view of it. What does it mean?...
We have taken the net contractual service margin, deducted the tax effect, and deducted from that one also the minorities, which are quite huge due to the Hannover Re minority shareholding, so that you have a net perspective from a Talanx shareholder's view, if you look at this CSM as an indicator of future profitability, which is already in the book. And the same is true for the risk adjustment, where we also deducted minorities and the standard tax rate. So in total, if you then add up everything from a shareholder's perspective, the equity, the CSM, and risk adjustment, you will end up at EUR 17.4 billion for the Talanx shareholders, and this translates into a value per share of EUR 67.4, which is a strong number.
I just want to highlight, and in particular, Clemens, in his presentation last Thursday, has dug into that we were able to grow our CSM strongly also due to the course of the first nine months. So we are very happy, not only with the overall number, but also with the development of this number. On the next page, you can see that the reason for this nice earnings and CSM development is not that we have an aggressive investment strategy in place. We continue to have a low beta approach in our investment portfolio, and with the majority of our investments held in bonds. We have increased assets under management, which are rising due to the growth of our business by EUR 3 billion.
And, and there's only one thing I want to draw your attention to. If you compare the rating split, which we have currently in place with the previous one, there is a big shift in between triple A to double A bonds, and this is just due to the downgrade of the, of the U.S. There's no, as we are a huge investor in, U.S. Treasury. So, no active, portfolio management action. On the next page, you get another, insight into our investment strategy, but from an IFRS 17/9 perspective. On the left side of the slide, you will see two bars, which are reflecting the net insurance, finance, and investment results. What does that mean? It's the investment result minus the insurance finance result, which is needed to unwind, the liabilities in the book.
Given that we had an increase in the unwind due to higher interest rates, therefore, this insurance finance result has become more negative. And this causes then that the sum of those, the net insurance, finance, and investment result, drops from EUR 1.2 billion to EUR 1 billion year-on-year, despite the fact that the return on investment has been increased. So the unwind was pretty strong. But it's not only that. You can interpret the interpretation of this number, net insurance, finance, and investment result, is that we, what you can see here is the spread, which we earn by investing above risk-free rate in our investment portfolio. But on top of that, you see in those numbers a movement in the bond portfolio.
During the course of the first nine months, we have realized in the bond portfolio roughly EUR 180 million losses in order to buy bonds with higher coupons for the future, which will provide for higher ordinary income in the years to come. So, and if you were to add this 180 million on top of the EUR 1 billion, which is shown here on the left side on the page, then again, you would be at the same level than previous year. The average reinvestment yield is growing from 2.6% in September 2022 to 4.4% in September 2023, so 180 basis points more. This provides for the expectation that we will see more ordinary income in the years to come.
On the next page, there's something, which I've shown you already in the last quarterly call, which is our sensitivity in the P&L towards the Fair Value Through P&L assets. I have to admit, first of all, that I've been much too pessimistic so far. What you can see on the one hand side, this is still a huge sensitivity, but it hasn't played out in the course of the first nine months. In total, this is not on the slide here, we have seen, with regard to private equity, not a negative impact in the first nine months, but a positive of EUR 2 million. Private equity remains positive, slightly positive, but it's far below, the positive numbers which we have seen in the past years, but it's still positive with EUR 2 million.
With regard to real estate, we have seen devaluations, so a negative impact of EUR 34 million already, and we expect some more to come in both private equity and the real estate funds, and we have included that already in our outlook. So, I really like to draw your attention on this slide, given that changes in the fair value through P&L assets may affect our results, and the fact that we haven't seen anything so far is more a surprise than a good indicator for all of our future. So, if we just now go to the outlook 2023 and 2024, let's start with 2023. We expect to achieve insurance revenues above EUR 42 billion.
This will slightly depend on the development, in particular of the US dollar, so the foreign currencies matter here. With regard to the group net income, we will be clearly above EUR 1.5 billion. The return on equity should stand clearly above 10%. If you do the math, then you will see it should be even above 15% for the current year, and the dividend per share will be above EUR 2. You just to remind you, we've promised to increase the dividend to EUR 2.50 till 2025, and given that we have a huge profitability or, or very good results, or expecting very good results for the current year, obviously, this gives room to maneuver within the range on our path to EUR 2.50 by 2025. On the next page, you see the outlook for 2024.
The outlook here is above EUR 1.7 billion, and this above EUR 1.7 billion already includes a small contribution from the newly acquired Liberty subsidiaries in Latin America, but not the full potential. The return on equity should stand all, so again, clearly above 10% in the area of 15%. This is where we would expect it in the current market. So, I hope I could provide you with a good overview about our first nine months, and now I'm happy to take your questions.
Ladies and gentlemen, we will begin now with the question and answer session. If you have dialed in by telephone, please press star followed by 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 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&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 now, or type in the question in the chat box. One moment for the first question, please. And the first question comes from the line of Michael Huttner from Berenberg. Please go ahead.
Good morning, Jan Wicke and good morning, Bernd Sablowsky. Thank you, sir. Those lovely results. It's, and lovely new guidance. Three questions initially, though. Next, the conservatism on the bond kind of write-downs or, you know, realized losses, just in Q3 standalone, both for the group and also Industrial Lines. And then, on the deals, maybe you can, since, you know, they're imminent and you've already done Sompo, can you give, maybe a clearer feel for when we might see more meaningful earnings contributions? And the third, just to ask, you know, the very low tax rate, is it something we should start to bake in, or how should we think about it? Thank you.
Well, thank you, Michael. First of all, the bond realizations of EUR 180 million net so far during the course of the second and third quarter, and mainly related to Industrial Lines, some in Retail International, a few in Retail International, and some in Corporate Operations. It's by rule of thumb slightly above 50% in the third quarter. With regard to the contribution of the Liberty transaction, we expect to see a positive contribution above EUR 80 million in the course of 2025. And during the course of 2024, it will be just a partial contribution of that one due to restructuring efforts, which are normal if you combine entities. And so the contribution will be lower, significantly lower in 2024.
With regard to the tax rate, we've seen some shifts in business, and to give you a little bit a hint, let's assume there is a global minimum tax coming up, and you have a very conservative bookkeeping throughout your entities, also in those who will be affected in global minimum tax regions. Then obviously, you try to shift your resiliency a little bit from those regions to other regions where you have higher tax rate, and this will, in the course of doing that, will cause some positive tax impact. But those tax impacts will not last forever. So starting from the next year and also included in our outlook, there are normalized tax rates. I hope this hint answer your question.
Brilliant. Thank you.
The next question comes from the line of Phil Ross from BNP Paribas. Please go ahead.
Hi, good morning. Thanks for the presentation. Just one question from me, please, on the dividend path. You said you'll have room to maneuver within the range between EUR 2 and EUR 2.50, in the coming years. But thinking about 2025, is there a chance you do more than the EUR 2.50, or are you particularly stuck to this number? I'm just thinking in the context of having increased net income guidance for FY 2023 as well as FY 2024. So if that keeps happening, can you do more than EUR 2.50? Thanks.
Yes. Well, Phil, this is a very good question. First, I understand very well your question, and it's a normal course of business. If the results are better, obviously, there's no more room to maneuver with regard to the dividend. The formal procedure with proposals to the dividend is that both supervisory board and board of management will agree on a proposal always after the close year and closing. So, given that there is no agreement currently, I'm limited to give you further answer than the one I've given. So till 2025, we will for sure, we will for sure achieve EUR 2.50 by 2025. But if there is some discussion, and I assume there will be a discussion, then there might be some more room to maneuver.
Understood. Thank you.
The next question comes from the line of Bhavin Rathod from HSBC. Please go ahead.
Hello, good morning. I have three questions on my side, and thank you for taking my questions again. So the first one would be on your higher guidance for 2023. Obviously, it's been revised up quite significantly. However, looking at the slides and the segmental Combined Ratio target, we can see the Combined Ratio target is still the same as it were presented in the previous quarterly results. So just trying to better understand, where should we see the incremental contribution coming from within your primary line segment in terms of the better underwriting performance? So that would be my first question. The second one would be on reserve resiliency situation.
Jan, if it would be helpful, if you could provide some color, and then how should we think about the pace of reserve resiliency buffer buildup going forward, given the fact that you have built a significant amount of buffer in the recent period. So how should we think about that pace going into 2024? And the third one would be on the retail German combined ratio, which has again come down quite a bit in the third quarter. So can you provide any indication, how are we seeing the claim inflation situation in Germany, and how this has been offset by the strong performance of the bancassurance segment? So any indication of what's driving the strong combined ratio in the third quarter would be really helpful. Thank you so much.
Thank you, Bhavin. So first, with regard to the higher guidance, this higher guidance is clearly driven by a strong technical performance, which we've seen. And this technical performance already includes, and this brings me to your second question, resiliency contribution. And just in order to state Hannover, we have stated for the full year, they expect to build additional roughly EUR 300 million resiliency embedded in their best estimate. And there will be also a significant contribution also in the triple-digit million area of the primary insurance during the course of this year. And I hope this gives you enough color for the resiliency building.
Please keep always in mind that we are publishing the resiliency embedded at our best estimate together with an assessment of independent actuarial company, which is Towers Watson, with the annual general meeting or with the first quarter of 2024. In between, it's quite difficult to give you exact numbers on that one because that are all estimates, both from the external actuary and upon our actuaries. But I would really bet on that you will see a significant increase in the difference in between what we've booked and what the external actuary believes, which would be enough for reserving against the claims we had. Third, with regards to Retail Germany, P&C business, first of all, it's the smallest segment within the group.
It contributes to slightly below 3% of the insurance revenues of the group, and for the next year, it will be even slower when we are to consolidate the Liberty P&C revenues in our books. We have seen a rather stable combined ratio, which is outstanding in the German market. This is right, and it's driven by bancassurance. We also face some profitability challenges in the motor business, but the motor business, if I'm not mistaken, accounts for roughly just EUR 600 million or something like that or it's even EUR 550 million insurance revenues, where the whole market in Germany currently stands at a combined ratio of 110%-116%.
And so, we will have to improve our pricing, and we are prepared to do so in order to achieve positive technical results. But again, I'm talking about EUR 550 million revenues out of 30 out of, it's a full year number, out of EUR 42 billion. So please keep in mind the magnitude of the segment. So I hope this has answered all three of your questions. Has it?
Yes, it does. Can I just quickly follow up? I mean, would you be able to say what would be your combined ratio in German motor? I remember the last time you mentioned 110%, kind of a figure. Would you say the third quarter was broadly at similar levels, or have you seen any movement from-
No, I thought it was even at 111.
I see.
So-
Great. Thank you, sir.
... Okay.
The next question comes from the line of Roland Pfänder from Oddo BHF. Please go ahead.
Morning, two questions from my side. First of all, on Industrial Lines, could you maybe provide for the third quarter, the moving parts, what you see in terms of, for example, pricing and commercial? Did you book any runoffs? Did you, yeah, increase your resiliency again? And what did you do with, benefit from discounting in the quarter? So that's the first one. Second one, on, life Germany, you had, a very strong, new business value in the quarter. Could you explain which product you are selling, which, which drove, this, this figure up? Because, I think the classical life products, are still a little bit under pressure in the high yields environment out there. Thank you.
Well, thank you, Roland. First of all, with regard to Industrial Lines, how is the pricing cycle here? We are still able to increase the prices by, and compensate for the claims inflation, which we also see at the same time. So it's still a positive trend where we can still protect the margins we have in the business, and therefore, the technical performance of Industrial Lines, let me, I'm normally quite humble, but here I can say it was very, very good in the third quarter.
This is why we were not only able to set aside something towards resiliency, but as you know, and out of our discussions, we have, with regard to resiliency, both we have a lower limit, where we ask the segments as we increase their resiliency, and we also have an upper limit, where the resiliency achieves levels, where they are not good from a capital efficiency levels, and Industrial Lines is more to the upper end already, and this is why we've asked them to realize, losses in their bond portfolio in order to provide for higher ordinary income, in the years to come. So very strong result here.
So with regard to life Germany, you asked for the strong new business value contribution, which was in particular, yeah, you're absolutely right, very strong. It was in particular also related to credit life products and unemployment insurances, which contributed very strongly given that we have a low, very low unemployment rate in Germany, which contributed very strongly to that number. Maybe if there's a recession, these numbers will come down a little bit, but currently, they are very, very strong. So I hope-
Okay, thank you.
Those your questions?
Yep.
The next question comes from Ismael Dabo, from Morgan Stanley. Please go ahead.
Hi, how are you guys doing? I think most of my questions have been asked already, but just wondering if you could give just a little bit more color. So I was just basically looking at your Industrial Lines, like the binary show target, and obviously, you guys have performed very well in that business. I know you just highlighted some of the moving pieces, but just curious, you know, exactly why that's, why that's so strong, and if there's anything I may be missing there, beyond just rate versus trend, anyone else, anything like that. From what I understand, you guys booked the full cat loss ratio. And then additionally, I think you briefly mentioned, in your Industrial Lines, the commercial was growing faster than the specialty lines.
Just curious, you know, as of right now, with specialty lines that you guys are a little bit limited on their risk appetite on, and in particular, what lines of commercial are you more favorable on?
Mm-hmm. Good. So first of all, with regard to Industrial Lines, combined ratio target, yeah, we will lower the target in terms of having more ambitious targets there going forward, it's for sure. So, it should improve. What is the main driver for the very nice combined ratio? First of all, I think we have improved significantly the underwriting skills in this area of the business. So, during the past years, it's a multi-year process, and second, never forget, we are the clear cost leader in Industrial Lines business, providing for a difference of close to 5% in the cost ratios compared to our peers. So it's about cost efficiency in this business, where we are much better than our peers, and this provides us with a certain competitive advantage also for the future.
With regard to the underwriting in the specialty lines business, I just want to split the specialty line business between two parts. One is a specialized business, and the other is a delegated authority business, which is also included in our numbers here. And within the delegated authority business, we have discussions with some MGAs on rate increases, in particular, in relation to their net cat exposure, where they weren't able to increase it in the sum we wanted them to have, and this has reduced then our appetite for signing or underwriting that business. So we have a certain net cat de-risking in it. And second, there are some lines like D&O insurance in certain lines, in certain areas of the world, where the prices have come down more.
than we perceived with what would be justified, and this again, then, has led to underwriting discipline. You know, we have in our underwriting manual, we have this fantastic sentence that really is written in there. I love that. Volume is vanity, profit is sanity, and this is the mindset of the underwriting, which is pursued in Industrial Lines.
Great. Thank you very much.
We have a follow-up question from Phil Ross from BNP Paribas. Please go ahead.
Oh, hi there. Just one more from me, please. It's a question on the earnings split, primary and reinsurance. You commented, Jan, that you're moving closer to the 50/50 split. But it does seem that Hannover in FY 2023 is reporting some more subdued earnings as they increase resiliency. So do you think it will be a bit harder to reach the, I guess, the 47% primary share in FY 2024, if Hannover net income rebounds more strongly? Or are you more confident that the primary segments can improve accordingly to keep that split and push on towards the 50/50? Thank you.
Well, Phil, this is a very good question, and obviously it's the case if Hannover Re is doing better than expected, we are happy about it, yeah. Instead of then being sorry for missing the 50/50. So, and, we are very proud on the development of Hannover Re. Yeah, so, and if they can do better, we just tick the box, and I have happy shareholders.
Fair enough. Thank you.
Another follow-up question from Michael Huttner from Berenberg. Please go ahead.
Fantastic. Thank you for this opportunity. Three, are you going to raise the guide, the budget or guidance for large losses in 2024? Is that in your over to EUR 1.7 billion guidance already assumed? The second, you spoke about Turkey combined ratio and the trend of improvement. I wonder if you can give a little bit more color when we might expect a level of profitability. Profitability doesn't have to be 100%. It's a high investment income country, but just to get a feel. And then, finally, I wonder if you can give us the numbers for the IFRS 17 impacts, you know, the discounting and the unwinding of the discount. I think we have...
Yeah, if you could give them for the primary, that would be of most, most interest. Thank you.
Okay, let me start with the development of the large loss budget, and obviously we have increased it, I guess, by 11% for the next year. Second, with regard to Turkey, the colleagues of Retail International are currently doing a so-called push for profit project there, and we expect them to be positive, including the higher investment income, by 2024. So, there should be a huge swing in results in between 2023 and 2024 in Turkey. And finally, with regard to the discount. For the group as a whole, I recall the number that compared to the previous year, yeah, we had a positive discount effect translated to Combined Ratio of 1.7%, so compared to the previous year. And the Unwind was also up.
Oh, I don't see. I cannot tell you that in percentage point, but was quite significantly up. Maybe Michael, we will provide you with this number later on. I'm sorry, I don't have that one here. But please keep also in mind that compared to the previous year, we have an increase in the resiliency, yeah. The unwind is. You can figure it out from the net investment in insurance result in the FDS, yeah. Mm-hmm.
Brilliant. And just also on when you raised guidance both this year and next year, what was the main driver? Was it the fact that private equity is less negative than you may have anticipated? Or is it really just Industrial Lines doing amazing? Or is there... Yeah, just to get a feel for what's the driver here.
The first driver of all of it is that we are monetizing the growth, not only of the current year, but also of the past years. And we are able to monetize the growth due to a very strong technical performance in our figures, and this was the main driver. We have remained conservative with regard to the investment assumptions, given that we expect some writedowns in both real estate and private equity now to happen in 2024. We have also included some in the year-end, 2023. So, we still believe that the higher financing costs will impact those asset classes. So, and this is included in our, in both outlooks.
That's brilliant. Thank you.
We have no more questions on the phone, so I hand back for the written questions.
Yes, thanks, Moritz. Hadley has raised two questions by webcast. The first one is: Given the ongoing risk transfer from reinsurers to primaries and the level of loss volatility year to date, we are hearing from some primary insurers that there could be a need to lift cat loads within combined ratios going into 2024. How do you think about this for your primary operations? That was the first question, net cat load in the combined ratios going forward. The second one is related to our M&A activities and M&A pipeline in particular. The question is, you've clearly built up scale in your Latin operations, post recent transactions. To what extent do you feel you have appropriate scale in Europe, ex-Germany, operations? Is there a risk to your competitive positioning if sub-scale, how hazy is the M&A pipeline there?
So let's start with the nat cat load. Loadings in primary insurance, I think, Hadley, you are absolutely right. There's a need for further pricing freezes for the nat cat loads in the premiums. And this is simply driven by the climate change. You need that year on year, given that both the frequency and second, the severity of those claims will increase over time. So it's not just a one-year thing, and it's also true for our primary operations. Second, with regard to the M&A pipeline. So within Europe, in both in Poland and in Turkey, we have achieved a very strong market position, so there's no need to worry here. With regards to Italy, it's a very profitable niche we're in.
But we-- in case something comes in, and we can do a deal to our conditions, where the hurdle rates of profitability are met, we would be open for it. So all in all, this is okay. With regard to retail Germany, yes, we have to admit that the scale in retail Germany, P&C, is pretty low. That's true, but therefore, we have a little bit to adapt to the profitability yardstick, what we can expect for this entity, given the fact that unfortunately, nothing is available on the German market, which we could buy. Any further questions, Bernd? I don't see any further questions, neither on the web nor on the phone, so maybe it's time for you with the concluding remarks. Yeah. Well, first of all, thank you for attending our earnings call.
You've seen that we were able to present you very satisfying results. We would like to remain humble at Talanx going forward. We try to continuously improve our technical performance and monetizing our growth also in the future. This had led to the increase in the outlook for both 2023 and 2024. So we try to do our best to make our shareholders happy. Thank you so much.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.