Ladies and gentlemen, thank you for standing by. I am Hayley, your Chorus Call operator. Welcome and thank you for joining the Talanx Analyst Conference Call on the Full Year twenty nineteen Results. Throughout the recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session.
Questions can also be raised by using the chat field on the webpage at any point during the session. Kindly add your name, function and e mail to be identified. The Q and A session will begin with the questions asked via telephone. And I would now like to turn the conference over to Carsten Wohler, Head of IR. Please go ahead.
Yes, good morning from Hannafa. Thank you, Haley. I'm here together with Thorsten Loy and Emma Kwana, who will lead you through our full year results presentation. And after the presentation, there will, of course, be ample opportunity to ask your question. As you've already seen and heard, for the first time, can also raise your questions via the webcast, but we will start with the questions from the telephone call.
You'll find all our documents, the release, the report and the presentation documents on the IR section of our homepage. And we will keep a replay of the webcast on our webpage. And with these remarks, I'd like to hand over to Thorsten.
Hello, everybody from Hannover. I guess everybody is busy in times of corona and I will say something in my outlook in 2020 what does it mean for us. So before doing that, I would run you through 2019 figures and starting already with Page two. So last year, we had a record result in our history in the one hundred and fifteen years with €923,000,000 It was really a biggest result we had in our one hundred fifteen years history. We had a growth of 13%, so 1.3% was to grow the top line and the other way around 3.1%, so thirty one percent on the bottom line more than double increase than the top line.
The good thing for us is that all divisions really contributed to that one And especially Industrial Lines with the twenty twentytwenty program, which was, as you remember, special on the fire germ portfolio to clean it up, we outperformed that with 34.9% price increase, which brought the combined ratio in Industrial 8% down. I think you could really see that we started very early to clean up. And as we don't have such a huge exposure or not significant at all exposure in The U. S. Long tail business, I think it's a very pleased result to come to normal areas in the future.
The group return on equity is close to 10% with 9.8%, we are close there. Please remember this 9.8% always is basically we include as well the OCI effect, which many times is not done in the market. So that's really to clean out in our opinion group return on equity, 9.8%. And this is clearly above this 2018 figures where we had 8% and well above of our minimum target, which is the 800 basis points above risk free. Dividends, 1.5 that we will propose to general meeting and this is a trends of trend as we always said as well in the capital market, if we increase the seven times in a row our dividends since the IPO.
For 2020, we confirm our net income outlook and this is totally on track then what we have said in our Capital Market Day last year that we had on the basis of EUR850 million, we started the journey in our strategic plan, a 5% EPS at least increase in the CAGR. And then we jump on Page four. On Page four, you see that we have from the bottom, you see that the currency adjusted growth was 11.9%, so double digits, much higher than we thought. It's the net return on investment is with 3.5% as well. We had some special effects, so again, above what we had forecasted.
The group net income was $923,000,000 as well is far above what we have said. And all the other parameters you see as well are nicely really above what we have said, return on equity and as well dividend payout. And please remember here, not only that we pay the seventh time in the row increased dividends and this average dividend yield last year would mean for you 4%. As well, we have increased, you will see later our cash reserve or buffer, let's say, from 0.3 to 0.85 in the last year, which gives us safety for the future to have a dividend continuously coming from now. On the Page five, you see more details.
You see again here the top line is 13 and the bottom line 3.1 increase in percent. And maybe some remarks on that and Inouf will really tell you much more details later. It's 11.9% growth currency adjusted. You see some special effect on net investment income where we have the iridium as a one off and effect from Hannover Re, as was mentioned several times during the last year. And the ZFR is as we had to build, especially in the fourth quarter, is a compensating effect always in net underwriting results.
So nothing here more to comment, I guess. And for those good in the 31%, why is increasing 31% much faster than the EBIT? Basically, two effects. We have some tax effects. Basically, it's a question where you get which country the profit out and where we have better tax yields percentage that it's better for us at the end.
And minority, and this is really a point to mention. The primary insurance contributed much more 10 percentage points up to 33% of the overall group result. So basically, performed relatively better than the reinsurance side. And therefore, we have a share and we want to have a diversification effect. Always, we mentioned the fifty-fifty reinsurance, prime insurance, and we are on the way with the 33 on the right way.
And therefore, we have less minorities, which have deduct and therefore 31 percentage up. On the next slide, on Page six, you see this is a Q4 stand alone. And as always, we said this is really very difficult sometimes in our industry to compare. But what we can see as an indication is that the growth the top line was 18%. This momentum is still there.
On the bottom line, you see a reduction of 16%, but this basically the last quarter, there were some tax effects in reinsurance in 2018. There were some special effects in 2019 stand alone. You remember Chile, what we had there some violent demonstrations. We had Argo Turkey as a first causation. So there are onetime effects.
There were onetime effects in the reinsurance last year in 2018. And we are, for sure, at the end of the year, whenever we feel we can keep what we promise, we are much more conservative now when it comes to volatility buffers and that we need in the fourth quarter to steer. I will come then to the next page on Page seven. This is a page of large losses. And you see that basically, you the right bottom on the column is a 1,300,000,000.0 figure and you see it's higher than last year, was 1.2 from last year.
So it means we had a really year of large losses. By both a man made and a nut cut. And everybody is above last year except industrial lines. You see on the left side where you see the circle, you see it was three twelve industrials down. And this is reflection of the good successful program 2020.
We really get here a bit volatility out of the portfolio with many measures, not just price increases, different reinsurance and different net exposure. All the others are a bit up to compare to last year. So special effects, for example, in Retail National, we had Chile in the fourth quarter as mentioned. So there's a large claim. Normally, they don't have large claims much, so does the €18,000,000 13,000,000 out of this is only Chile.
And reinsurance side, really you see here, there was significantly increased compared to last year. So it was a year with quite significant losses. And therefore as well, not just because of this, but as well because of our growth, we decided to increase in our outlook for 2020, our budget for large losses to $1,335,000,000,000 euros it's increase of 12%, which is in our guidance. So on Page eight, maybe some combined ratio and overlooks here, you see that with 98.3 for the group overall, in spite of those large losses, are on the level of last year. Coming to the segment, and Timo will tell you much more about it later.
Industrial lines, as I said, drop what we forecast is 1.14. So 101.4 was came in. So this was really basically the cleanup project we started very early. And if you see now market, this is a quite good ratio, I guess. Retail Germany, I think here we have to look to the ex course.
So the 96.9 percent is a bit lower than last year. Please remember, we want to have in 2021, the EUR $240,000,000 growth target we announced this year already EUR $230,000,000 with a combined ratio of 96.9%. So quite close to our target, which we have forecast for next year. And whenever you see there, for example, as well in the last quarters, we took some effects of costs already a bit earlier this year. So overall, Germany very much on track in the when it comes to the course comparison.
Retail and National, well, you see here an increased combined ratio, but this is mainly driven only that we have aligned the cost allocation system, basically meaning things from the other goes to the technical now and this is only effect of one percentage points, which were in retail national just to align the group standards. So just reallocation effect, no material effect. Although you see in the companies, maybe two I would mention here. One is the negative in Chile. You see that the 104.2% is mainly driven by those violent demonstration we had in Chile.
We changed here again as a reflection of that now on net exposure totally to that things, when it will happen in the future, we will much less be exposed to this surprisingly, especially in Chile via the demonstrations. And Poland, maybe the second I would mention here is very surprising, it was 90%. Really, it's another record year in Poland, but excellent results and really very well done. So these are basically the main effects you can see in Retail International. Reinsurance, I guess, you have with 98.2%.
Everything was set in the call where it come from. On Page nine, you see that all as I said before, all divisions really and this is I think important in the group, especially Industrial Alliance contribute to our 31% increase to our net income. As you see here, industrial, really the shift of 118 was the biggest one contributor. And again, as I said before, 33% is coming from the total net income from the primary insurance now, and therefore 154 or two thirds for that was really contributed by the decrease this year by the primary insurance. Coming to the next page 10, you see that our dividend proposal is 1.5 And as I said before, since the IPO always increased, last year would give you a yield of the average price of the year of 4%, dividend yield and our cash buffer is now increased by 0.85%.
As we said, 1.5 to two is our target to change our policy. But so far, I always said, and we will say, trend is your friend. So that means on next page, on Page 11, that our strategy somehow works. We have these three main blocks in our strategy. One is enhanced capital management.
Here, we set our clear financial targets with 800 basis points above risk free for return on equity and the 5% average EPS growth until 2022. This, I think, is very well on track. We have done second point, more focus on the divisions. You see it in the blue box. And if you run it through, you see that the program twenty twentytwenty was an increase of 34% and not 20%.
34.9% is on track and working. Specialty, we had quite a good timing because we grew more than 30% in these in the Specialty Lines business, so very strong growth, very profitable. We had international retail still double digit growth. So the growth end is still running as normal, I would say. Retail Germany, we see really here with a 02/30 results, the growth program already last year and our always forecasted target growth for only 2021 to February.
It's running. The small media enterprise, really we are doubling the market. It's a growth of around 7%. So really nice growth initiative, which is working. And reinsurance with 13.3% return on equity, I think, clearly very nice compared to the peers they stand with the return equity.
So at the end, it means our cleanup programs are working and as well the growth initiatives, I guess, delivered results we wanted. On next Page 12, you see as well as part of the strategy is the ESG, how we position ourselves and we have basically here the three main or four blocks starting right on the top. We are CO2 neutral last year in Germany and step by step and long term, we will roll out it worldwide. On the right bottom, you see that we as we mentioned already last year, we are completely withdraw from coal until 02/1938. And we want to be really one of the leading insurer in renewable energy.
On the asset side, on the left side, you see that our ESG, we are compliant totally. We have signed the PRI and we want to double our investment in infrastructure to 5% or roughly EUR 5,000,000,000, a bit more and we are here with EUR 2,800,000,000.0 already more than halfway through. But again, since the last Capital Market we have done, we are we phased out as well in the asset side in the quarter two thousand and thirty eight plus we excluded now Oil Sands. So this was came on top of what we have said in the Capital Market Day. Well, on the left bottom of slide, see nothing new where we focus our engagement when it comes to ESG.
So with that, I will hand over to Immu, and he will tell you much more details about the segments.
Good morning from my side. As always, I'm going to start with the industrial lines business, which is probably at the center of lead of your interest anyway. As you can see, we've grown the business by 33% top line. So the main driver behind this is, of course, the first time consolidation of the specialty business that used to trade on the Hanover until the end of last year. If you would net out the effect of this first time consolidation of the newly added specialty business, the organic underlying growth would be like 12.5%.
And this is what you see both in the kind of pro form a top line as well as on the net premium development. Where have we grown the business? It's been the you could call it, legacy part of the specialty business that we have contributed out of Global into Huggies Specialty and The Americas. And that's true for North America as well as Latin America. I think the second column is probably more significant as we've seen a major turnaround in the figures.
We are profitable again. We've dramatically reduced the loss ratio, which is down. The combined ratio is down from 109 to 101.4, well in line with what we had communicated in our Q3 call. Although the large loss development has been more than difficult the year than an easy year because we've slightly overshot the large loss budget still, we've managed to keep what we have communicated to you in terms of the overall combined ratio. We see positive run up results, although we thought that we play it safely by being more conservative where we could be or we should be on single cases after having secured our guidance of 101 of around 101%.
I think this is the reason for that is to build up volatility buffers for times that may be more difficult in the future. Bottom line wise, see 4.4% return on equity, sort of the nice thing, it is positive again. Of course, we know that this is still not in line with our self set profit ambition that would be
in the region of 8% to 10%.
We're confident that we get there over the coming years. 2019 as seen in other income, some some some changes because we did not benefit from from from from disposal of of some unused real estate that we did in 2018. On the other hand, the underlying financial income out of the financial portfolio was slightly more positive than that we had envisaged this to be. So bottom line, we're very satisfied to see the turnaround in the Industrial Lines business. It all started with the twenty twentytwenty program.
I think we've been consistently communicating the key figures and key performance indicators of this program since we got it started some one point five years ago. We thought that we could make 2020 price to risk improvement. In the end, we have delivered 34.9%, and we are proud of that. This has been the major driver for our dramatic reduction in the combined ratio of the file line from 141% in 2018 down to roughly 106%. We still don't see any adverse selection.
And I think what's probably particularly important for you is we are not going to stop. We are going to continue the program because we know that 106, although it's much better than it used to be in 2018, is still not good enough to support a combined ratio that would be in line with our return on equity ambitions. So this is part of the next couple of years that should take us into combined ratio areas that are well below 100 in the coming years. Next year, it should be black, I. E, below 100.
Next slide tells you something else that in my eyes is quite interesting. If you look on the right hand side, the four boxes, the improvement contribution that we've seen in 2019 amounted to 18%, which is the combination of price increases and premium equivalents such as high deductibles, for instance. But we've not stopped the fire business. We've also looked at other lines and have been able to improve the underlying economics as far as transport is concerned with double digit figures, but also engineering and casualty has seen significant price improvements. The attritional losses, and I'll let me come to the left hand side of the chart, is down from 57% to 45%.
I think this is pretty significant because we always get it wrong with large losses. Anyone, everyone gets it always wrong with large losses. But the underlying attritional losses is something that is probably a true reflection of your pricing power, your underwriting discipline. And this has much improved from 57% to 45%. If you look at the composition of our portfolio, we've withdrawn our capacity from high exposures and particularly the very high exposures and have redeployed it into areas which are not as exposed to the last line on the left hand side.
So I think that should give you an impression that we really mean it and that the profit improvement trajectory of the Industrial Alliance business goes much beyond the 2020 program and the fire business. Retail Germany, this is Page 17, has seen slight growth. It's a growth that we've seen both in the Life and non Life business, which is nice. The operating result is up by 28%. It now amounts to $230,000,000.
And for the ones who still remember the first days, of course, when we said that we should be good enough for EUR $240,000,000 EBIT by year 2021. We've always made it this year, 2019. I think it would be not telling a secret that we could have shown EBIT $240,000,000 But we really try to play safely and to as in the Industrial Lines business, to a certain extent, build up buffers in the fourth quarter for times that are not as easy as the ones that we've seen in 2019. We've even been able to accelerate the course program in order to get this organization ready for the challenges of a more digital world. And that has worked well, although it has come at a cost.
ROE The has seen a nice improvement to 5.5%. Yes, we know that although this is a very nice development, we're still not where want to be and that should at least be in the region of 78%. If you look into the sub segment of our domestic retail P and C business, we've seen growth. The growth has come exactly from two sources. It's our SME business that is very much at the center of our sales initiatives that has worked well.
And it is the bank insurance non life business that has also picked up very nicely. Where we have been a bit more conservative is the motor business. And as for the ones who can remember, Mr. Is Ella, volume is vanity, profit is sanity, we've played it very much according to this principle. The combined ratio has developed into the right direction, allowing for the cause effect of pro form a basis, it would be 96.9%.
Again, we've committed to showing a 95 in 2021, and we are very optimistic that we will be in the position to do so. Equally here, we've tried to play it safely when it comes to laying volatility buffers in fourth quarter. And I think the Non Life business has developed exactly the way we wanted it to develop. Slide 19, the Life business. It has also grown, although it has not grown as much as some of our peers in Germany have grown the Life business.
And the reason is very simple. Were very adamant in concentrating on biometric or capital light of business. We've got a very limited appetite for single premium business, and that is reflected reflected in a rather moderate growth, but we grow the business. I'll come back to the composition of our portfolio on the next slide. Well, the investment income has gone up.
The reason is very simple. While we all in German market do benefit from the new corridor method when it comes to the determination of the ZNR amounts, the interest rate developments in 2019 have not been as we had helped them to develop, I. E, interest rates have not picked up and that necessitated a larger contribution to the LZR. By year end, we are now talking about in terms of stock of our LZR of a rather frightfully high figure that amounts to EUR 3,800,000,000.0. Likewise, we have benefited from a positive one off.
This is fair. I think this is a significant driver behind the favorable development of our operating result. So this is, here we've been lucky to be fair. Let me continue with a deep dive into the portfolio structure of our Life business, they can see that we've seen a welcome change from the new business structure. It is now only less than 25% of the business that is associated with so called conventional business.
So called conventional business are the business that we still like because believe it or not, there is still some pockets in the conventional business that are very profitable. Then there is business where policyholders have reserved the right to top up the premiums. This is something we will of course honor. And then there are certain parts of VFR business, employment benefit schemes. But the share of the business that is conventional is down.
It's down to 24% when it comes to new business, and it is almost just 40% when it comes to the stock of our business, which is good. On the contrary, the efficient products and the share of the capital efficient products and the biometric business has gone up. We are super proud when it comes to the story behind the right hand side of the chart. While of course, we do not like the interest rate environment that we've seen in 2019, we still managed to improve the spread, I. E, the difference between the interest that we owe to our policyholders from balance sheet point of view, including the debt that we've built over the past, and the running yield in our portfolios.
This spread has gone up, also supported by favorable rounding, from 0.8%. And if you look at HDI Leib, which is the largest of our carriers and has been very much at the center of the interest of many, I think they're a part of the story, and their spread is now at 0.7%. Retail International, in a way, the figures exactly reflect what we had flagged to you on the occasion of our Q3 call. Q4 was not a brilliant quarter from a sheer figures point of view. Why is that?
Yes, we suffered from the BARDA demonstrations in Chile. This is something that you've already heard from Thorsten. And I told you so in November. And we had to digest EUR 56,000,000 of integration charges associated with the acquisition of Algo Sikota in Turkey. On top of that, we also played it safely because I think we were fine when delivering our interim guidance.
Premiums are up by 10%, the operating results up by 6%. Going forward, I think this is also probably of some interest to you. The return on equity has advanced to 8.2%. It is not yet there where it should be. Here, the reason is not that we do suffer from any operational underperformance.
The pure reason is that when we calculate the return on equity, we also allow for the goodwill that we've paid in the past as part of the equity. And now this is the goodwill that we've paid for eternity, so to speak. And the more we grow the business, the relatively less important the goodwill component becomes. And so we will naturally grow into our double digit ROE ambition. Here we are well on track.
Slide 22, I think things are fine in Brazil. I think in Poland, we currently see the peak. You heard the story about Chile. Just one word, Turkey, apart from the one off that I've just mentioned, the interest rate environment in Turkey is still much different from what you see in Western Europe. And this is the reason why you could still make a living on the back of a combined ratio of 112%.
That is additionally inflated by reallocation of the cost, you've already heard that. Reinsurance, I think I'm going make it very brief. The company has grown its business by 18%. The net income is up by 14%. And they've been able to digest it above expectation, large loss burden.
Life insurance business has developed extremely positively. I'd like to keep it there. And we've already heard the somewhat above average expert in Q4. Now sort of an exhibit that is somewhere in between looking back and looking into the future. Our current solvency ratio is 196%.
This is the Q3 figure. We're going communicate the year end update probably in May. We've always said that the market risk should not dominate our risk profile. It is roughly 44%. 95% of our investment bonds of our bonds are investment grade.
The allocation of listed equity is below 1%. That should translate and has translated into betters that are lower than the market average. And it should have translated and it has translated into somewhat higher resilience when it comes to market shocks and drawdowns. And this is what you see on the bottom part of the right hand side that Talanx is, in a way, a more resilient stock than what you would normally see in the market. Net investment income, Page 26, we have grown the ordinary investment income.
How come, could you ask? The question is simple. Assets and management have grown. And while interest rates with the notable exception of Mexichem as a bit have moved into the wrong direction. The realized net gains are mainly driven by two effects.
One is the ZZR induced realization of hidden gains, and I've already mentioned this, plus lucky punch when it came to the the viridium effect that we have explained to you in Q2 and Q3. Shareholder equity is up, and it is up actually quite significantly. The other comprehensive income is, of course, driven by the lower interest rates. That's part of our return on equity calculation. Tolstien already mentioned that.
That is part of the equity upon which we would apply calculus. If you would exclude the goodwill, the book value per share would drop from EUR 40.15 to EUR €35.78 But if you would add back, and you see this on the next chart, the hidden results of our asset side, it is much they are attributable to the shareholder. You would have to add up add back another 2 point euros 3 and it's probably no surprise that also this part, I. E, the truly hidden reserves on the asset side picked up. Solvency II, I already mentioned that we're going to communicate the year end figures around the May 7.
The latest available figure is the 196%. This is the figure that refers to Q3. Between Q3 and Q4, we've seen a mild uptick of the interest rates. So I think I'm quite optimistic that what we see here in should at least be be in the ballpark range of what we see in Q3. And just to remind you, let's put the EUR $923,000,000 in context, I.
E. The profit that we've made in 2019, 90% of these profits stay within the solvency family, either because they're retained or as much as they are dividended up, 79% of the dividend would end up in the hands of HCI Mutual. If you work on a figure, that means that roughly 90% of the profits are still Solvency II relevant. And that means that the underlying solvency formation on a ceteris paribus basis is like roughly 9% of our SCR, which is I think, a nice figure because it's a structured drift that supports the business ultimately when the going gets rough. Well, that's it from my side.
So thank you, Himmel. Let's come to the outlook of 2020. I said before, already let me confirm our outlook and maybe give you some words on corona. So I think for industry, in general, you have to see the direct, indirect effects. The direct effects, I guess, in our industry, we can say that's manageable, and I'll tell you why.
So first, our business model from a liquidity point of view is that we get the cash first, let's say, and then we pay out the claims. So it's a reverse, let's say, cash flow as you have. So the liquidity issues in our industry is quite tough to imagine. Second point, if you look to the insurance side, on the product side, let's say, this is a great limited horizon we have insured here. You had the figure from Hannover Re already, which was a three digit lower three digit figure.
And only from that figure, we have only half of it, which is the exposure they mentioned. Then we have primary insurance as well. We believe we have in the worst case something like middle double digit million negative effect because why is it like this? There was a big area of business interruption has the cause of material damages and that is not the case in those things and pandemic risks are not mainly not insured. So therefore, this business interruption is not an issue.
Event Cancellations, yes, is an issue and therefore I mentioned the figure I said to you before. So from that side, from the insurance side, we don't see really some huge material effects. On the SS side, though, you see that there's a huge decreases in many asset classes now. We have always strategically driven a low better approach, which means we have less than 1% in shares in our portfolio. So this really has benefits for us now.
And as well from on the bond side, 95%, as Imo said before, are really investment grade. So we as well, the last year, especially last three years, we drove the flight for quality when it came to the bond side. From there, this is as well relatively picture for sure a bit less than than the market. The last thing is for sure, probably the most important for us, our clients and employees are the first step to see the health of our people. We have to make sure that our business continuation plan is well prepared.
And here, I think worldwide, we have really a functional working group and each location has different things. But basically, what you can do in such things, I think we have done and are well prepared on that. So these are all the direct effects to our company. Indirect effects, well, I think your guess is my guess, how long this recession or will be recession and how long will it take? What happens now is really it's very hard to forecast.
And therefore, we have CCC disclaimer as always. And for sure, let's say, the consequent of those corona crisis is part of the CCC disclaimer. Nevertheless, today, we confirm our outlook into 2020 end of the year. And starting on Page 31 from the bottom, we have a GWP growth of 4% in the forecast. And as you have seen, Hannover Re, only the renewal has a 14 increase with average price increase of 2.3%.
So you can see that the 4% being Hannover Rebound's major part in the group. This is not something unachievable, we believe. The net return on investment is 2.7% we cannot expect every year the medium effect. So therefore, it's basically a normalized return equity investment, but it's going down. That's clear because of interest yields are going down.
As you remember, we have a key figure, 20 basis points down means 25% net income effect for us. On the group net income, you can see we confirm our between more than EUR 900,000,000 and EUR $950,000,000. In slide, as I said, the decrease in interest yields of this effect I mentioned, we have now foreseen a special effect like Vireum, and we have increased our loss budget by 12% to €1,335,000,000 which is included in those outlook 2020. That would mean that our equity is return equity is between more than 99.5%. Again, the OCI is increasing significantly.
It's not a question of the return, but it's more about increased equity due to OCI, why this is 9% to 9.5%. Dividend payout, again, we said 35% to 45%. Nothing has changed here. And I think having the safety part in our 0.85%, we always say the trend is your friend, nothing more, but basically the guarantee of the kind of at least stable dividend from last year we keep ongoing. With that word, I will hand over to Karsten and I think we have a nice Q and A now.
Thank you very much, Thorsten. Haley, I think I just passed further to you to start the Q and A.
Ladies and gentlemen, we will now begin with the Q and A session. Questions. The Q and A session will begin with the questions asked by telephone. And the first question comes from the line of Michael Huttner of Berenberg Bank. Please go ahead.
Fantastic. Thank you so much. Thank you for this opportunity. I had three questions, if I may. All unfortunately a little bit related to the crisis, but just to get a feel because you sound confident, maybe there's some additional data points you can share.
So one on the cash buffer, the GBP 850,000,000.00, what could it progress to at this end of the year? And if you could remind us of the targets or the comfort level for this? Then on solvency, I know you said year end would be higher than January. I guess people are more interested in solvency today. But if I can ask it a different way, are you close to the level where you think you would need to include your transitionals to still be able to be in your target solvency range, which I from memory is one fifty to 200.
And then the third point, you mentioned several times you've built up your reserve buffers, and you gave a a clear indication on the industrial line side. I just wondered if you can give the picture for the other bits of the group as well. Thank you.
So thank you, Michael. I will start maybe the first question and Himmel will elevate on the second or the third one. Well, what we said is 1.5 to two should be our cash pool unless we change them, not our dividend policy. This is something at least three years we believe we need for that still. So that is basically the direction you can head on.
I mean, we we have been faster now about 0.3 the year before, now 0.85. So let's see if it will be faster, but the indication for the time being is at least three years. And maybe the question on the position of the reserve buffer.
Yes. So to 196%, what I said is, well, I think it should be for the same rate. I think I'm optimistic because we when it comes to year end because of the interest rate development. Going forward, I think we currently do not foresee the necessity to resort to transitional measures in order to keep within the 150 to 200% range. Today.
When it comes to the buffering that we've seen in the in the retail divisions in 02/2019, I think it would be fair to think of a significant double digit amount.
Thank you very much. Thank you.
Thank you, Michael. Next one, please.
The next question comes from the line of Edward Morris of JPMorgan. Please go ahead.
Oh, thank you.
Thank you for taking my questions. First one, just coming back to this reserving prudence that you've done in industrial lines in in Germany. Can you just talk a little bit more about what you're sort of hoping to get to or what the target is there? So really, I'd like to understand, there a level of reserve margin that you'd like to move towards if you assuming that you continue to deliver good results there? Or can you just give us a feel for the longer term ambition?
Second question is on realized gains. Just wondering what you think the outlook is there now given where interest rates are for 2020? And how much is in how much in terms of realized gains is assumed in the 2.7% ROI guidance? Can you just give us a feel for what the outlook is likely to be there this year? Thank you.
Well, maybe I'll just start and then Imma will continue with the reserve and the realized gains. But generally speaking, we are at least for sure reserving on the best estimate level. And we said as well, the capital markets is a clear indication where industrial and this is where we're seeing this discussion starting from. As an example, just to give you how we feel here, we give a clear indication about the combined ratio, and we said as well that what we promised in the midterm. And whenever we feel comfortable to get volatility out of this, and part of volatility is to get the next exposure down from the reinsurance side, but as well to have some reserve above this estimate.
And whenever we feel we do, we can do it, we do it. It's just a general remark. So we want to make sure clearly show to the market these are our targets, our 5% EPS growth, etcetera, at least, and then get volatility as much as possible out of our business model, if possible. I move maybe more details.
Perhaps, making this 100% precise, should we see a brilliant year in the Industrial Alliance business, I still would not speculate on on a combined ratio that would be dramatically below 100 because whatever you see will be set aside, to support the long term volatility. So I think this is yeah. This is our current thinking. When it comes to the, extraordinary cap the extraordinary, several gains that we realized, a couple of gains that that we see. In our plan, we've seen significant drop in in in in this position.
Position. As of today, I would say, it it'd probably not drop as much. And why is that? Because, looking on the screens, I think should we be prepared for for for lower rates that would translate into higher ZZR needs. That again would translate into higher realized gains without having a bottom line impact.
I think this is the full story. It's ordinary result would be higher, but but essentially, there would be, zero effect of this, making it into the bottom line.
Questions answered, Ed?
Yes. Perfect. Thank you very much.
Thank you. Next one, please.
The next question comes from the line of Paris Hagiantonis of Exane BNP Paribas. Please go ahead.
Yes, hi. Good morning from my side as well. Even though there's quite a lot of volatility in the market, I was wondering if you can actually share with us any sensitivity with regards to a potential one notch downgrade or credit downgrade across your book? You have said your fixed income is quite high quality, but if you can give us an idea of how we should be thinking about this kind of scenario? Then the second question is, I guess, the operational side.
On Retail Germany, your EBIT for the year was at €230,000,000 You have said that you have accelerated your Koosh program for the challenges in the digital world. I mean, if you can give us an idea of what kind of investments you've made on that front would also be interesting. But the question, I guess, EUR $240,000,000 in two years' time just lowballing what you can actually achieve there?
Thank
you. So maybe I'll start on the second one, and Himmel will tell you on the broader guidance sensitivity. I mean, I think it should be fair that we promised something that we should deliver at the first point. And let's see where we will end. The year is still starting, and we will see in the second half year where we stand.
We have still a Capital Market in November, and we'll see what's coming out at that point of time. For the time being, it looks good. And please leave us in that room to say it looks good. Then when you're close to a target, which you promised a year later, and you will see in the second half year we're coming up. Let's see.
The year is still too early to say something. And, so that's regarding retail Germany and maybe, Imo, something regarding Bola.
No. I think this is really too early. As of now, I'm really not in a position to give you a precise answer here. I think what I would like to do first is to get at least the first draft of the year end top two figures and then develop the sort of the stress testing on these figures. Sorry for that.
Is it okay, Paris? Because
Yes, that's fine. Back on the retail Germany and the investments in course, can you give us an idea of what additional went into course with regards to the acceleration of of digital? Thank you.
Yeah. I think there was, like, a lower thing a lower double digit million euro amount. And part of that related into the sort of the the accelerated integration of our two live platforms. And the other one was things like the claims system management system system environment, and and and and making the company fit with the digital environment. So that that was a bit behind it.
It would have come anyway, but now we we saw a bit of opportunity to digest the figures in 02/2019, given that we were fairly lowballing, and and we just seized the opportunity.
That's useful. Thank you.
Thank you, Paris. Next one, please.
The next question comes from the line of Vikram Hanhai of Societe Generale. Please go ahead.
Oh, hi. Hello, everybody. Good morning. It's Vic from SoftGen. Just a couple from my side.
Can you have a word around where you are with the centralized internal reinsurance that was highlighted at one of the Investors Day? And secondly, can you talk about the large man losses over the fourth quarter of last year? Have I see a significant bump up there? And whether there are any specific actions that you've taken to reduce the volatility coming from man made losses, of course, apart from improved pricing. Yes, that's all from my side.
Thank you.
Good question. And this is special of Bijnsfond as well. The second one for IMO.
Okay. Start with the second one, reinsurance initiative at Carlang's. At least from a 10,000 meters point of view, it's worked like Swiss clockworks. We've now rolled the new model out throughout the organization. So a significant part of the business is seeded to the Tallahassee AG and now beyond seeded to other insurers.
We've set up the operations. When it comes to the risk appetite that we had defined earlier on and that we shared with you in the case of the Capital Markets Day in Frankfurt, we stayed within these limits. And it's going sort of it is we are still not at the long term equilibrium business model nor have we achieved the financial equilibrium because we first have to invest into redundancies before we benefit from runoff gains. We first have to collect the money before we invest it, which is difficult anyway these days. And we still have to cover like 20% of the seasons and move them to the new setup.
But whatever we wanted to achieve by year end has been achieved. We're satisfied.
And maybe on the fourth quarter large losses, maybe some comment. I mean first comment again, our expectation due to our growth, we will increase, as I said, 2x the large loss budget for 2020. Fourth quarter, nothing significant. If you just deduct the two main claims with Hagibis, this typhoon in Japan with close to EUR 200,000,000 effect on our group and as well as Thomas Cook as well, one special effect, I would say, then you could if you take out only these two ones, then you would have a big expectation for the fourth quarter stand alone.
Okay. Well, on hazardousness, I would have thought that the large manmade losses on the fire property and then on the casual duties may not be linked to the Dyson Hajib. This is what I was thinking. So I was kinda focused more on the man made losses on industrial lines than the NAFCATs.
There's no pattern. We can see that there's something wrong in the portfolio somehow. So from my side, man made still went down compared to last quarter 02/2018, and there are $2.18 to 238 compared to quarter to quarter. And there's nothing significant I I recall now. It would be a call something.
No. Nothing significant there.
It's looking last picture.
But but that's it. Maybe the Thomas Cook, as I said, this was one. Additionally, on top, it was not expected.
Thank you very much, Vikram. Then the next one, please. And
there are currently no questions from the webcast so far. The next question comes from the line of Andreas Schafer of Bankhaus Lampe. Please go ahead.
Thank you. So there's just one detailed question regarding your German retail business. I mean you mentioned that you had a strong focus on regular premium on your business, and that was the reason why you lost the market share. But as far as I understand from the annual report, only your single premium business has grown by, I don't know, 12% or 13%. Could you elaborate a bit how you see your market position and especially where the growth was coming from?
Was it more the broker business or the own distribution channels?
Yes. When I refer to somewhat conservative stance, I thought of development of the single premium business in the German market that was is I think it was like, say, 50% of the market or something like that. I think compared to to our peers with much more moderate that case. The I think the business that that we see is probably more broker related. We've also seen seen nice developments in the the bank insurance channel.
Assuming there's a special single premium business, maybe to add on that one, is if you see what's developed in the markets are now, having done last year, lot of single premium, I'm really happy that we've very moderate in that kind of business when it comes to single premium.
Premium. So does the market the sort of the development of single premium business, the market has been 80%, more than just above 30%, but 38%. And the maybe good business, maybe not a good business, we thought we should play conservatively. Okay. Thank you.
Thank you very much, Andreas.
And there are no more questions at this time. I hand back to Carsten Werle for closing comments.
Yes. Thank you very much, Heide.
To be fair, I would like to pass over to Thorsten for closing comments. So just three comments. We had a record year. We are on track for the targets in our outlook in spite what happens around us for the time being. With the Trudeau Sieglas Klager, we are on track.
Hence, really, you, all the best, and take care, all of you. Thank you very much for joining us.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.