Ladies and gentlemen, thank you for standing by. I'm Hailey, your Chorus Call operator. Welcome, and thanks for joining the Talanx Analyst Conference Call. 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 via 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 page at any point during the session. Kindly add your name, function, and email to be identified. The question and answer session will begin with the questions asked via telephone. I would now like to turn the conference over to Carsten Werle , Head of IR. Please go ahead.
Yeah, thank you, Hailey. Good morning from Hannover. This is the Talanx Results Call for the full year 2020. I'm here together with Torsten Leue, our CEO, and Jan Wicke, our CFO. Torsten will give you an overview of the group results, then Jan will take over and lead you through the segmental numbers. After their presentation, of course, they will be happy to answer your questions. As usual, you can raise your questions via the phone and via the webcast. You will find all the documents on today's numbers on the IR section of our homepage, as well as, with a short delay, a replay of this webcast. With these remarks, I'd like to hand over to Torsten.
Hello, welcome from my side as well, and I hope you stay healthy in these challenging times we all have. We're happy that there's some light, probably this year, at the end of the tunnel. With that kind of welcome remarks, I would like to draw your attention on page two, which gives basically a summary, what we would like to address today to you. First is, we are a growing company who is 4.1%, currency adjusted, actually is close to 7%. We're a very fast-growing company compared to the peers, to the market. I would say, actually, last years, we grew 4x faster than the main peers of our market. Talanx is a growing company. Our combined ratio is 100.9%. This has clearly included the Corona effect. I will draw some more details later on.
The key question for us was the underlying ratio behind, and that was 97.6%. We are below, like last year, if you make an adjustment for the Corona effect, to 98.3%. Basically, underlying business is running in the right direction. We have said that we will be significant above EUR 600 million as our guidance last year. After some months, we could give no guidance. We gave the guidance end of the year, this is EUR 600. Significant above with EUR 673, we can say that is achieved and what is sometimes not seen at the first glance, 42% of our results is coming from the primary insurance over all. The dividends, we will keep our promise to stay at least on the level of last year with EUR 1.50 per share. We had good conversations with authorities.
As you know, many authorities of the world blocked the dividends. We come later to that as well. Solvency ratio was 187% after third quarter. Actually, we are very confident even higher than this after the fourth quarter with the first indications we see. There was good discussions, and therefore, we can pay and keep our promise as dividends as said. The outlook is EUR 800 million-EUR 900 million. As well, I could say here already, that there's still some Corona effect to come. That is clear. I will go more details, but in that range of EUR 800 million-EUR 900 million. If you ask us today as the best estimate, we could say we rather see us for the time being on the higher end of that range.
On the 5% EPS target, we started the journey together in 2018 in our strategic cycle. We promised in 2022 to have a yearly CAGR of 5% EPS. Here, we are really on track to come back this year. We believe in 2022, this will be happened at least 5% EPS since 2018 will be achieved. Therefore, totally on track what we have promised in spite of Corona. I would then come to page four, which basically shows what I said. All the indication of our outlook we gave in 2020 November then have been achieved. I would not go too much detail. Maybe the only thing is that 6.9% growth of GWP, I think it's a nice figure in such a challenging year. On page five, you can see that our strategy is paying off and giving you maybe some indications why we say that.
Industrial Lines, the programs, the clean up of this life portfolio, with underlying profitability, which was improved, is totally on track. When we will come later in this year to our Capital Market Day, you'll be surprised how good this was working. Actually, we have always said we want to have some volatility buffers included there. All this you will see then on our Capital Market Day. There was no negative surprise on that area. Specialty, we have said that in 2022, we want to have EUR 2.1 billion premium starting with roughly a bit more than EUR 1 billion. This target is already two years nearly fully achieved. This year, we have already EUR 2 billion. Actually, again, when we come back to the Capital Market Day, we have probably come with new targets in that area because two years ahead. With the [nat cat], nothing special.
We have some core markets, some bolt-on acquisitions. In Germany, we have promised in 2021 to deliver on our KuRS program. For many years, you have that program discussed with us. We are very confident that the EUR 240 million will be achieved this year. Again, on our Capital Market Day, probably there will be then a new program as KuRS probably will be achieved this year as promised. Small and medium enterprise, we are growing really significantly above the market. Actually, the start of the year was very positive, as had been last year, where we could grow significant market share in that area. Reinsurance, you have heard everything already last week, so therefore, a good performing segment in our Talanx group, the reinsurance part. On page six, you see that we make our business more sustainable.
The main features of that is that we have included the CO2 neutral globally for our business, what we can do ourselves directly. We have included in our coal risk as well, the oil sands, where we want to exit in 2038. On the alternative investments, we aim to have EUR 5 billion investments. We are roughly EUR 1 billion higher of EUR 3.7 billion for the time being. EUR 2.1 billion there is actually renewable energy, we are one of the biggest player in that area of renewable energy. In the diversity area, we have appointed human resources, actually, to really push this area ahead of us. We have, in this effort we have done, to show you, make some transparency on the ratings, you see on the right side all the ratings. The major rating we would like to get measured.
The standard ratings you can see in the market. We have all improvements in all areas. It was seen, our efforts from the rating agency. On page seven, you see that our yearly profit loss account. With EUR 41.1 billion, I think we are a growing company and for sure one of the big seven company in Europe will be as the position remains, I guess. The growth is coming mainly from the reinsurance Industrial site s. We speak of hardening cycles here. From the Retail International or the retail business. Here we have currency headwinds strong against us. When you look globally, adjusted currencies, we see as well in the P&C area, we are growing market share, we are a growing company. Currency have been really strong headwinds against us.
Overall, we can see nice growth in our company and compared to the market. The combined ratio, may we draw attention to the +2.5%. That is basically the corona effect, and I will come in a second to discuss where exactly it came from. There's a direct effect and you have an indirect effect of corona, which is the return on investment is with 30 basis points down. The ordinary, just to give you a figure, the 10 basis points ordinary investment income means for us, EUR 36 million impact on our bottom line. These are the two effects, directly combined 2.5%, indirectly, roughly 30 basis points down return on investment. Coming to the next page now, talking a bit more about corona and what was underlying results to give you a feeling where we're going forward.
Maybe to the two key figures on this slide is on left bottom, you see the EUR 941. That is basically our underlying performance in last year without those special effects of corona and other positive counterbalancing effects. On the right side, you see then what the result, what we were showing today, the EUR 673. That is basically what is shown in the profit loss. Now maybe to give you a bit of a feeling where do we stand for this year as well. It will be interesting for you when we come later to the outlook and why we say we are staying on the higher end as the best estimate for the time being. While the EUR 941 is not a figure we can guide this year because we have to deduct roughly EUR 100 million from that figure, and there are many reasons for that.
I give you two good ones and two, let's say we have to deduct ones. 1/5 of the corona claims still to come this year. This is our estimation. Who knows how long the third wave will come, our estimation from the whole pocket, we have 1/5 still to come. We believe the interest yields are going down. We see it already. There's a clear indication that central banks are not changing behaviors, interest rates continuously eating our, let's say, yields in our ordinary income, going down. We have positive effects as well. While one is a one-time effect, you have already probably seen with Hannover Re, the so-called Viridium portfolio, was a significant positive effect. We have as well, for sure, in our ideas, that our operational performance will improve.
All this effect together will bring us to EUR 100 million still, minus to this EUR 941. The baseline you could say is EUR 841 in our ideas. Again, as I said, we believe that operational performance is on a good track and a good trend now. Therefore, believe that we will be rather stay in the 8%-9% or on the higher end of the range, which basically would mean that we are roughly 30% up from this year results and close to our record year before corona times. All this for sure is always with our triple C disclaimer, as you know in the past. On page nine, here you can see basically a lot of numbers, but maybe the key numbers I would say in the primary insurance, you see the EUR 149 as a total corona net income impact.
These are the impacts where we have all the offsetting positive effects as well included. For example, lower frequency in cars, all this is as well here included. It's a net effect of claims and as well offsetting effects. You see the reinsurance side is with EUR 233 and EUR 495, it's really much more hit it. 2/3 coming from reinsurance and 1/3 coming from primary insurance. Maybe, and I will tell you a little bit later, the details what is really good for us this year, you can see is that the EUR 402, where we talk about the unused large loss budget. We could really this year, we were able to compensate this huge corona effect we had on the company. We could really compensate with not used large loss budgets.
Actually, you see with industrial part, the 72 in this column, at the end it means that the cleanup was working. That we could really stay within or even significantly below our budget when it came to nat cat events and as well, man-made claims. Later on, you will see how significantly we have been above that year. On next page, you see where, in which lines of business, the hit of corona came. Well, basically it's business interruption and event protection and credit. These are in the non-life areas, those lines being affected, and in life, it was basically U.S. mortality. To give a feeling of how much comfort we could have or we have, that's on the right bottom, you see the 59%. 59% are IBNR percentage. Basically means 69% of what we have reserved is still on the IBNR level.
As well, see on the credit side, you see the comment there, especially there, we have even 95% IBNR ratio in our total reserving. With that figure, still we believe 1/5 will come, total effect, as I said, with all the positive and negatives, will be EUR 100 million less to our underlying profit. Overall, I think you see that it's not an aggressive reserving. Rather, we feel comfortable on this estimate level with that kind of reserving. Next page 11. Here you see what I said before. It's when you basically just see on the bottom, you see the 71%. If you compare that to all the past since 2012, when we introduced this large loss budget. You have 71%. This is basically how much we use our budget. This year, in 2020, we only used it with 71%.
You see it as well in the blue column, if you compare, it has been never as low or never been as less or that level used as before. It means man-made, really underwriting, compared to what we did, was really good. The nat cat events have been, in spite of all this frequency, there were for sure some luck that hurricanes did not go the wrong direction, because we had a lot of hurricanes last year. Our risk appetite was really very much focused and limited in that kind of nat cat. Therefore, overall, and it was a good timing, let's say, that we were the lowest level ever in our usage of the large loss budget. It gives us confidence, again, of the quality of our underlying business and risk appetite, where we allocate our risk appetite.
On page 12, you see it summarized basically in our technical combined ratio. We always have said, and that is therefore in the Capital Market Day going forward, that we will give you some more comfort, because we have said one thing is a combined ratio. The other thing is the kind of volatility buffer we want to build up in our business models, as Hannover Re has done in the past, as well as the prime insurance as well. Here you see that 98.3% is last year, and we are above 100%. Again, that was a corona effect. As I described to you, deducting all this, we would be a bit lower with 97.6%. Good message is the underlying business Industrial Lines is 98.7% is profitable. As you know, we had many years of technical negative results. Now it's getting to positive area.
In Germany, we have promised EUR 240 million EBITDA. As well, we have promised 95% combined ratio. In 2020, we are already on that level. 95% is finally achieved. Well, basically, with the nat cat, nothing much concerning with 97.4%. If you put the ex-corona effect, is basically just more comfort in the redundancy levels. There's no others I will comment on these ratios, as they're not material or not really with big headaches. You know that if you work in retail, in this retail motor business, for sure you have some benefits of less frequencies. Yes, severity is going a bit higher because of supply chains maybe collapsing. Generally speaking, frequency gives you more positives than severity gives you negative to higher severity average. On page 13, here you see our share of the primary insurance to the total show, I would say. That's 42%.
Basically, it means that if you compare to all the last years, that nearly half of the profit comes from the primary insurance. The average was 37% in the past, with EUR 323, and we are above the average and above the absolute amount in last year. It was with EUR 326 above. Basically, it means, and there's a good picture, diversification in the group that comes from all the segments. Again, the full primary insurance brings us 42%. The last page, talking about cash, about the dividends. Well, I mentioned already that our solvency ratio is quite comfortable. 187% we had in the third quarter, and we are optimistic that it will be even higher and in the very upper end of our range, 150%-200%, when it comes to the year-end figures, when we will publish them.
Maybe one thing you can't see, that we promised the EUR 150, at least on the dividend of last year. EUR 150, we will propose to the general meeting. Behind the figure, as well as the figure where the cash pool, which was always a 2018 message to the market, where we said 1.5x- 2x is something we need to probably revise or rethink our dividend strategy. In that kind of path, we are now at the level of 1.3x, coming from 0.85x the year before. We're going the right path. We do not see anything we will change this year, for sure. The path is the right way. Last year, 0.5x. This year, 1.3x coverage of one year dividend. With that word, I would hand over to Jan Wicke.
Oh, thank you, Torsten. I'm happy to share with you some insights of the business units. Let's jump right into Industrial Lines on page 16, please. Okay. What are the key messages? First of all, in Industrial Lines, we are growing 7% year-on-year. The biggest contribution is again coming from the Specialty business. I will discuss that in more detail in a minute. Even more important than the growth is improvement in profitability. What you can see here is an underlying combined ratio of 98.7% for the full year 2020, if you were to exclude the corona effect, after 101.4% in 2019. Please keep in mind that this improvement in the combined ratio also includes that we have built up some volatility buffers, which we have announced already last year. What is the outlook with regard to the Industrial Lines?
Here, as previously communicated already, we plan to reduce the combined ratio approximately by one percentage point every year for the next years. At the same time, we want to reduce the volatility of our results. This is why we have built up some volatility buffers in 2020. Overall, it's right to state that Edgar Puls and his team, they really have performed very well, and we are happy about the fact that they have outperformed the initial plan, which was set out. What gives us positive outlook? If we turn to page 17. Why do we believe that we can improve the combined ratio one percentage point per year? What you can see here is the rate increases for 1st of January, which was very pleasing and healthy, 20% in fire, marine 11%, engineering 8%, and casualty 12%.
Overall, we are very happy with what could be achieved in cleaning up the portfolio. Overall, if you look at the fire portfolio in particular, because this was one area of concern where we started with a somewhat disappointing 140 combined ratio in 2018. Over the years, we have now improved the combined ratio into 2020 by more than 40 percentage points. Overall, we have to see that we have some, in Industrial Lines, excluding Specialty, we have shrinking premium in the fire line. This is due to two reasons. First, we have reduced not adequately priced business, and we have lowered the share of exposure with some contracts in order to avoid future volatility. Second, in fire, please keep in mind that we have a lot of contracts where the premium is related to the revenues of the company.
Due to Corona, we see some significant premium effects as we have to reduce the premium collected from the companies due to the fact that they have less revenues. If we now turn to page 18, we can dig into Specialty lines a little bit. It's really the key growth engine in our Industrial Lines business. As Torsten already has mentioned, his original target was achieving EUR 2.1 billion in a premium target for the year 2022. We have already achieved EUR 2 billion by 2020, obviously, we will have to reassess our targets for this line of business with regard to growth. What is even more important is that we have profitable growth. If you were to exclude the Corona impact from the figures, we are already at 99.9% combined ratio. If you adjust it for Corona, 94.7%.
This is already in a range where the business starts to become profitable. Please keep always in mind, if a business is growing very fast, it really makes sense to build up volatility buffers in the initial phase in order to show stable results over time. We will have a close eye to that one. We already have improved the volatility buffers during the course of 2020 also in this line, but there's some way to go. If we then turn to page 19, we go to Retail Germany, and maybe please keep that in mind. I'm a little bit biased here, as I was responsible for this segment till end of August. Overall, we are quite pleased to report that excluding Corona, we have nearly achieved the 2021 EBITDA target of at least EUR 240 million already in 2020.
The number excluding for corona is EUR 237 million. There is a decrease in premium, both in P&C business as well as in life. This also reflects the dampening effect of the lockdown measures, in particular in the bancassurance, which accounts for more than a half of the premiums of this segment. With regard to the bancassurance, they were affected by the close down of the lockdown of the banks. Very simple. The gross figures went down significantly. If we look at Retail Germany as such, then we see an EBITDA decline from 2019 to 2020, including the corona effect, which is solely attributable to the life segment. This has also to do with some de-risking measures, which I will explain later in a little bit more detail.
If you turn on to page 20, then we see the P&C business, where we see operating results really have improved significantly as planned also. Despite the negative corona effects of roughly EUR 18 million, the EBITDA is up by 36% to EUR 134 million. This is mainly due to technical improvement. The combined ratio stands at 95.4%, even including the Corona impact. This is also due to a favorable reinsurance structure. Overall, we have just EUR 24 million net Corona-related claims. Given that the gross figure is much higher due to the fact that we paid for the claims in business interruption and achieved a very good reputation in the German market, which then translated in, as Torsten has already mentioned, very benign SME growth figures at the beginning of this year.
The negative point with regard to Retail Germany is the development of the gross written premium, a decrease of 5%, which was caused by a lower motor business, and also reduced sales via the bancassurance channel, in particular in unemployment protection, which was down by EUR 40 million. If we turn to the next page, please. It is 21. I go to the life. There we see, I understand well that German Life in particular is not so easy to read. What you can see here is the following. Overall, we have a reduction in the EBITDA. Also due to some conservative accounting for PVFPs. Also due to some investments in the prolongation of the Deutsche Bank, Postbank partnership. Also, what you can see here in the figures is the reduction in premium, which is driven by two things.
One is we have sold less single premium business. Second is the already mentioned lockdown of bank shops, which have led to lower new business. What is really worth to mention going forward, that we have continued and accelerated our de-risking strategy. We have bought up products, and the product mix has changed to selling more unit-linked policies. We have reduced the single premium business again. We have reduced the guarantees in the traditional business. Overall, we are happy to mention that you will see also a strong improvement compared to the third quarter in the solvency ratios of our term life carriers. On average, they will be clearly above 150% at the end of the year. We go to the next page. There you have some more details on the changes in the product portfolio, what we are selling.
The non-capital efficient part of the new business has dropped below 25%, what was an initially set target for 2021. This is already achieved. Within the 23%, please keep in mind that there are some contracts in it, which are due to the high cost loading, still efficient despite the fact that they are not very capital efficient, but we can earn some money to it. What is also to be mentioned is the spread in between the average guarantee rate and the average investment income, what you can see on the right side of the page. We are clearly above the average guarantee. What we had to do during the course of 2020 is that we had to allocate much more investment income to fill up the ZZR.
Since 2020, we have to realize EUR 626 million to buffer the ZZR, which has now achieved a total of EUR 4.5 billion in order to cope with low interest rate environment. This is also a strong signal on our robustness. Moving on to Retail International on page 23. First of all, if you account for in euro, we have a 10% premium decline. This premium decline was on one hand side related to Italian Life, and second, related to a significant deterioration in local currency, particularly in Brazil, Turkey, and Mexico. Maybe to explain that, we should first switch to page 24 before I come back to this page. What you can see on page 24, and this page we have added to our presentation at the request from both investors and from you.
We have added this page in order to show you also the currency effect. What you can see quite clearly here, that the Brazilian real was down 41.2% during the quarter of 2020. The Turkish lira, 35%, and Mexico 15.8%. This explains well the premium development in euro. As Torsten already has mentioned, as we are in local currency and in the P&C business, we are still growing, and we have very favorable positions in our core markets. Going back to page number 23. What can we see else with regard to the segment Retail International? We have very strong operational results there. Despite the fact that we have significant impact on the investment income in 2020, we've seen very strong combined ratios here. Overall, you can see this also in the pages which Torsten has already commented.
You see that the overall effect of COVID was a positive one in Retail International, given that the lockdown has lowered the claims frequency in motor. Even if you were to exclude for that, the combined ratios look very good. Our midterm return on equity ambition, therefore, also remained unchanged. It should be around 10%-11% over time. Let's go now to page 25. There you can see the reinsurance results. I just want to mention that and I can only reiterate that we are proud majority owner of this very profitable and high-performing company called Hannover Rück. We have a return on equity despite COVID of 8.5%, and they are growing faster than the market. We have a very positive development here. That's what I wanted to comment on the segments.
Now I would like to spend a few words on investment and the capital development. Let's turn to page 27, please. In a nutshell, the net investment income remains under pressure due to the capital market conditions. This is no surprise as you are all acting in the capital markets. What has been seen during the course of 2020, the U.S. Treasuries went down by 100 basis points to 92 basis points. The euro government bonds, if you look at the index, they went down 53 basis points. Overall, a strong decrease in the interest rate environment. This is what you can see in the ordinary investment income, which is despite our growth below the previous year, -5%. With regard to the extraordinary income, there are some things to mention here.
First of all, that we had an extraordinary gain, EUR 100 million in 2019, which you should keep in mind. Second, that we had to increase our contribution to the ZZR. I already mentioned that. The EUR 622 million, which we had to realize in 2020, compared to the EUR 443 million in 2019. Third, we took opportunities in 2020 when the markets were down. We realized some book reserves on bonds in order to re-enter the equity markets, which has developed quite pleasing. Therefore, we had some additional capital gains to this. This is why the extraordinary investment income is + 9%. There are three reasons for it. Please keep that in mind. Having said this, I would like now to turn to page 28, where we show the development of the shareholders' equity. The shareholders' equity is up 2%, and stood at EUR 10.4 billion.
If you calculate the book value per share, including goodwill, it's EUR 41. Excluding goodwill, EUR 37 billion. Those valuations are above our current share price. You know what you have to do. Let's go to the solvency ratios, which are shown on page 29. There you see the solvency development since 2017. In the third quarter, we reported 187%. Our year-end result will be communicated officially on May 6th, but I already want to give you an indication. We will be at the upper end of our target range and clearly above 187% at the year-end.
Also here we have a positive development, and this is also due to the fact that we have improved, not only in the reinsurance, where you have already heard the year-end Solvency 2 figures of Hannover Re, but also improved in the life business, due to the accelerated de-risking, which is on the way. We will end up at the upper end of our target range here. Having said that, Torsten, I think it's your turn with the outlook, please.
Thank you, Jan. Page 31, maybe it's more comments. We are still and believe are a growing company even this year, around 5%. Again, the last years, we always grew four times faster than the main peers in the market. We will continue to be a growing company. Group net income, in spite of corona, the EUR 150 million you see there, we believe the EUR 800-EUR 900 million is for us realistic. Even we said, we believe we will come rather to the higher end of that range for the time being as if you would say today as the best estimate, and then be really close to our record year in 2019 and close to the before corona times.
With that, more or less roughly 30% increase of profits, we would have return equity above 800 basis points, which is our long-term target, and this is on page 32. When we started the journey in 2018, we have said that we want to have at least 800 basis points basically to earn our cost of capital in the group. There we are in a good way. We have set the 5% average per year EPS growth, and sometimes forgotten in 2018, we started this journey on the base of 700 because we had to clean up some fire portfolio, or it was starting to clean up. We said, "No, we don't start on 700 basis points. We start on 850." This was originally the guidance we gave in that year. That higher level in 2018, 5% each year up. Okay, dividends.
This year we are even above that range what we have said. This capitalization Jan said, with the higher end of the range already his communication. On the right side, diversification as well. This is a quite interesting development. In 2018, just to give you a number, 52.8%, let's say, was outside of Germany. Now we are 58.6. We are on the way to 2/3 prime insurance premium from outside of Germany, which means another diversification impact as well to everything when, for example, talking about solvency ratio. I think with that words, thank you for listening, and I guess probably there will be some questions. I leave it to Carsten.
Yeah. Thank you very much, Torsten. Thank you very much, Jan. Hailey, I think I pass it to you, and you will lead us through the Q&A session.
Ladies and gentlemen, we will now begin the question and answer session. If you have dialed in via 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 question and answer session will begin with the questions asked via telephone. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one on the telephone or type a question using the chat box. The first question comes from the line of Paris Hadjiantonis of Exane BNP Paribas. Please go ahead.
Yes. Good morning, everyone. Hope you are doing all well. A few questions from my side. Firstly, on the central liquidity or what we call the cash pool. I think Torsten, you said that we are currently at 1.3 x annual dividends, which is pretty close to essentially your target of 1.5x-2 x . If my numbers are correct, that implies an increase of about EUR 160 million year-on-year. The first question I have relating to that is, where are the money coming from? Is it mainly retained earnings or is there upstream of some excess capital that you have in the subsidiaries? If there is some upstream of excess, is there more to come over the course of 2021?
Also relating to the cash pool, when should we really expect you to be rethinking your dividend policy, given that we are pretty close to that 1.5x-2x that you have set as a target? I have a couple of small questions on Retail Germany. Firstly, on KuRS, which I think it has been now more or less concluded. I think you have alluded to a new program going forwards, which we might hear about in the next Capital Market Day. The question basically is, what do you think needs to be addressed further in the retail division? There is some improvement over the past few years. Obviously, I assume that you would be targeting a better ROE. What do you think are the areas that you can improve further within the Retail Germany division? The last is again on Retail Germany and traditional life.
You have been quite successful in actually defending that spread that you're giving every year. I am wondering what kind of visibility do you have for that spread, which is I think at 80 basis points right now going forwards, given that the investment yield remains, or the reinvestment yield remains quite low. Where should we be expecting that to be going forwards? Thank you.
All right, Paris. Thank you very much. I starting, and then Jan will continue. When it comes to the liquidity cash for the 1.3x. We have said, and the timing of which is clear in interest of you, we have always said the range 1.5x 2x. As you can see in our documents, we always aim the higher range of this. What I'm saying is that we will come back something when we're around two on the higher end to come up with some new message on the dividends. Therefore, we're not that close, and we're just on a good way, as we can see. You can see as well this year you have, for example, a bit lower dividends from Hannover Re. We don't know what regulator will do all over the world, blocking dividends like they've done last year.
There are still some things we have to keep in mind. Disregarding, I think the dividends and where exactly this increase is coming from, Jan, maybe you can turn the details.
I can. Overall, you asked the question, what is related to capital upstream and what is related to other measures. With regard to capital upstream, we had to compensate for some dividend constraints, which we had in some countries like Poland and Italy, where the regulators did not want us to upstream dividends. Therefore, we had also calculated for write-ups and write-downs in the overall portfolio. If we do that, in total, then this sums up to relatively close to the figures you have mentioned, the write-downs and write-ups in the portfolio, which we can essentially see in the local statutory results. With regard to the outlook of the cash pool, which Torsten has given, I just want to add one additional thing. I think it really makes sense to reassess our payout policy in the light of the changeover of IFRS 17.
Therefore, we will clearly wait for some more things in them so that we can give you a precise outlook on the future dividend policy also in the light of IFRS 17.
Good. This one probably will be end of the year Capital Market Day. Probably, we have some more insights of IFRS 17 and impact to give to you. Just we want to show to you that the way to the increased cash flow, let's say, is not a way we don't have on our observation. We analyzed track actually here. We are actually find this a very interesting way for you as well, probably. On the second questions you had, again, please allow us first to deliver on the KuRS program. We have the 240 basis points in our target. We have the 95% combined that what we delivered. As we have a new board member, successor of Jan, he's hard working on coming up with something new to the market.
For sure, don't want to say something before, but again, hopefully, we will discuss it with you then, Paris, on Capital Market Day. Without saying some insights of the strategies working on, for sure we have to strengthen our strength. In some areas, we're very strong, like in the small/medium enterprises. For sure, this will be part of the strategy as well, that we strength where we are very strong already. Please, I would not say much more before this is ready, basically. First, deliver course and then come to the next. I think end of the year is a good point of discussion when you see us on the Capital Market Day on that. Please wait there a little bit. The question regarding the reinvestment yields, maybe Jan, you give some.
Yeah. Well, it's obvious that the reinvestment yields are going down due to the lower interest rate environment. Therefore, this was a reason for accelerating the de-risking strategy in life already for the existing book and having additional changes in the new business portfolio going forward. I think, what has Torsten already mentioned, we will explain on that one in more detail on the Capital Market Day to give you much more comfort with life going forward.
Was it okay, Paris? Question answered?
Yes, more or less. Just coming back to the last one on the reinvestment yields and the spread. I assume that, obviously, that spread could be impacted a bit by the lower investment yield. Am I right on that, or do you think that the average guarantees are all coming down quite materially? I assume not as fast.
That's right. If you see it on a long-term period, we are very confident that we can match the guarantees. Well, even not only match, that we will earn more on the investment side than what needs to be paid for the guarantees.
That's understood.
long-term studies on that one.
Excellent. Thank you very much.
Thank you very much, Paris. Next one, please.
The next question is from Vikram Gandhi of Société Générale. Please go ahead.
Hi. Good morning, everybody. It's Vikram from Soc Gen. I hope you can hear me all right. I've got a few questions, all related to Industrial Lines, I'm afraid. Firstly, looking at slide 16, I noticed a change in communication, or maybe I'm over-interpreting things here. Which says premium reductions related to ongoing measures in motor, marine, casualty, property. Now, this bullet point hasn't been there in the past four results, including the FY 2019 results presentation. My point is really what has changed so that this point needs to be highlighted back again here. Staying on the same slide, the guidance of a one percentage point [year-over-year] improvement in combined ratio. What should the base figure be, your original guidance of 100% or the actual ex-corona figure of 98.7%?
The third question was the other impact of - EUR 90 million or lower, due to the growth in Specialty business that you're guiding to. For how long do you foresee this impact? When should this really trend down or get close to 0, is the question. Last one is on slide 18. The targeted underwriting result of EUR 100 million for 2022. What does this EUR 100 billion figure translate in terms of the bottom line net of minorities? Those are my questions. Thank you.
All right. Those are very good questions. I guess Jan will answer this in more details, whenever you see some figures which looks maybe too conservative to you, I can tell you, yes, because we are conservative in that kind of year-end results. Jan will give you more details on that.
Yeah. First of all, I'll start with the first question, where you, if I understood you correctly, and please correct me if I'm wrong. You wanted to have some explanations for the reduction in premiums in some lines of the business, where we have increased the prices quite significantly. Therefore, we have also lost some business which was not adequately priced. What you see here is the consolidated effect of those prices increase on the one hand side, and second, that we have lost some part of the business. With regard to fire, I also want to add that we have intentionally reduced our share in some coverages, in order to avoid the volatility in results. This is also which needed to be taken into account when explaining that one. Second question was with regard to, Carsten, would you?
The decline in combined ratio by one percentage point.
Yeah. We expect that the underlying combined ratio will be improved by approximately one percentage point per year. I really want to draw your attention that this should be on average over the year. We know the nature of the business Industrial Lines is volatile. Yeah. Therefore, having an improved combined ratio by one percentage point per year, is that what we want to show. We will continue a little bit, in building up volatility buffers in case of that we have a very pleasing year with regard to large claims. If not, we will also be able to show an improvement or we would be in a position to show an improvement. We will decide on it, having a look on the overall results. This is the second one. Third one was this regard, I guess, the EUR 100 million out of Specialty.
What we want to achieve in 2022. This target, this remains unchanged. With regard to the minority effect, which are in that, given that this is a joint venture in between Hannover Re and Talanx. This is quite a complicated figure to figure out. Well, I guess, I think it's best if you ask Carsten after, or Carsten and the team after the session, and we will come back on that one, because this needs some more explanation due to two reasons. First of all, we have this 50/50 joint venture, therefore we have the minorities in Hannover Re to be deducted. Second, we have some old business which was brought in. Therefore, we have not a 50/50 reinsurer quota on that one. This turns out to be a little bit more complicated. I think that you should decide on that.
For us, as a steering instrument, we focus on the EUR 100 million, and we are very comfortable with the plans which we have seen so far and with the development of the business, so that the basing underlying business will be profitable and contribute to the bottom line in both Hannover Re as well as in Talanx AG.
From the general management point of view, the team, under the guidance of Ulrich Wallin, former CEO of Hannover Re, is clear a bottom line orientated growth machine. Therefore, you could always wonder why this growth is so significant. It's because the market are very hard and that kind of really, it's running the good cycle at the moment. With, I could guess, good underwriting skills and finding good teams to support the growth.
The EUR 90 million impact, when do you expect this to fade away?
I think we didn't get the last point, Vikram, could you?
The EUR 90 million impact that you're flagging on the Industrial Lines, the -EUR 90 million because of the growth in Specialty. When should we expect that to fade away in future?
Oh, that's EUR 90 million. Where did you get the EUR 90?
Struggling with the EUR 90 million, Vikram.
Yeah, the other result of -EUR 90 or lower from 2021.
That's Yeah.
Sorry. Now we got it.
We are just looking. Sorry for a second. Oh, there it is. Okay. Jan, page 16, yeah.
Yes.
We're looking, a second.
Faded. It will remain, yeah? The effect will remain, yeah.
Basically, your question is on page 16, I understand, right?
Yes. If we should be expecting this EUR 90 million to fade out at some point in future is the question? Should kind of have that in all the way in future. That's a fixed cost that is coming because of Specialty business. Is that how we should look at it?
Yes. I think, Vikram, it's the effect that we already reflect on the Capital Market Day with Industrial Lines in 2019. We marginally increased it to this minus EUR 90 million, I think, in the last quarter, no?
Yes, exactly. This will remain at least for 2021.
Okay.
Just a question, maybe where you put the combined on the other end, part of this business, due to the special construction of the joint venture, is more book than the other. At the end, you have to look on page 18 where the final result will be. The final result is 100, where we see as a whole company has a joint venture, basically. The question is where you book it, in the combined or on the other.
I'm not sure I understood the answer correct on the improvement in combined. You say the underlying combined should improve. Presumably, you're referring to the 98.7% then. It should improve for the 1% base point from there only per year.
Yes.
Yeah. Okay.
Again, when we would like to give you some, what we said, when you start to clean up the portfolio, because it's a volatile business model itself, we would like to show, like we have done in the past sometimes, to show volatile results. We need a volatility buffer, as Hannover have done as well for their segment. We are in a very good way to do that as well, and you will get more comfort on the Capital Market Day when we show it to you. That it's not just talking. Far, you see it only in one-off results afterwards, where we are. Again, this is due to IFRS 17 and so on. We have to give some comfort where we stand. It's not just saying we do some vola buffer, but we need some credentials, and you will get the credentials.
Okay, thank you.
Surprised with the credentials. That I can say already.
As a reminder, if you wish to ask a question, please press star and one on your telephone keypad. The next question is the line of Michael Huettner of Commerzbank. Please go ahead.
Thank you very much. Good morning to everyone. Two questions from my side. First, on Retail International, can you talk a little bit about the competitive environment you observe, especially in motor insurance in Poland, maybe also in Turkey, and as well as especially in Latin America. What are your expectations regarding premium volumes in these markets, and do you expect pricing to come under pressure given the frequency benefits you incurred in some of these markets? Second question on Industrial Lines. Can you talk a little bit about your reinsurance protection in Industrial Lines, given the increased pricing you see both in your own portfolio as well as on the reinsurance market? How did you change the reinsurance protection in Industrial Lines?
Thank you, Michael. Retail International, for sure, in the shocking event of the first, second wave, you have lower frequency in motor. Coming out of COVID, you see as well effects where the frequency is normalizing itself. It's a function of how much home office. On the other side, people travel more with the car when it goes to holidays and whatever. The severity of the claims is not shrinking, actually, because of supply chain constraints in the market. Well, looking forward, I would say, having the pressure of the interest rate yields going down, because especially in those markets, you see significantly decreased interest rates. I don't see that there is, for example, long-lasting now in front of a soft cycle in the motor business, because interest rates are pushing some of our technical profits, and the frequency is coming back.
Even if it's a bit lower than before COVID times, let's say afterwards, the severity of the claims will not decrease. The car accidents, generally, the average are more expensive. I would guess there's an answer of being neutral for the overall picture of the portfolio when it comes to average pricing due to this different effect. Different markets can find aggressive competitors, not in the general picture, but overall, I would say there's a more neutral pricing going forward. In Industrial Lines, well, it is clear the portfolio is performing better. It's reinsurance conditions, and that's what one of the biggest industrial segments could have. Maybe Jan can give some more.
I am pleased with the renewal of our reinsurance treaty for the Industrial Lines. That sounds funny given the rate increase we have seen in reinsurance market. This is really due to the improved quality of our portfolios. We have been rewarded by the reinsurance companies for that. Therefore, this reinsurance result in Industrial Lines is an upside for 2021.
Actually, we did not change much the structures regarding the pricing. The structures have
Okay, thank you very much.
Thank you, Michael.
The next question is from Firas of HSBC. Please go ahead.
Oh, yes. Good morning, everyone. I just have one question relating to the Industrial Lines and the volatility buffer. You are growing year-on-year. I understand that you will provide more granularity at the time of the Capital Market Day, but could you remind us the pace that you have started to build this buffer? Maybe be a bit more precise on how it has improved in 2021, and remind us what the kind of overall volatility buffers you are aiming to build just to replace this in the context. Thank you.
Well, let me just, first methods we would like to discuss in more details really with you on the Capital Market Day. What we have said so far to the market is we aim midterm to 95%, and in that journey to the 95%, year- by- year down is one percentage point. At the end of the midterm, we would have situation where the vola buffer has at least one year profit. That path, we are going now. Again, the more details we will provide you on the Capital Market Day. Probably, this is a path even where we look a bit even more optimistic than the original path we have set.
Is it okay, Thomas, for the time being?
Perfect. Thank you.
Okay. Thank you very much, Thomas. Hailey, any more questions?
There are currently no more questions at this time.
Okay, then.
Right. Hopefully, everything was clear from my side. I'm happy to talk to you again because, yeah, results, it is really a pleasure to talk to you for sure. I hope that it's very long time till the Capital Market, end of the year, but still, latest to talk or to see you there. Until then, I wish you really all the best, and stay healthy. Thank you very much for listening to us and interest in our shares. Thank you.
Well, thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.