Ladies and gentlemen, thank you for standing by. I am Haley, your Chorus Call operator. Welcome, thank you for joining the Talanx analyst conference call on the full year 2019 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. 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 tool on the webpage at any point during the session. Kindly add your name, function, and email to be identified. The Q&A session will begin with the questions asked via telephone. I would now like to turn the conference over to Carsten Werle, Head of IR. Please go ahead.
Good morning from Hanover. Thank you, Haley. I am here together with Torsten Leue and Immo Querner, who will lead you through our full- year results presentation. After the presentation, there will, of course, be ample opportunity to ask your questions. As you have already seen and heard, for the first time, you can also raise your questions via the webcast, but we will start with the questions from the telephone call. You can 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. With these remarks, I would like to hand over to Torsten.
Hello, everybody from Hanover. I guess everybody is busy these times of COVID, and I will say something in my outlook in 2020, what does it mean for us? Before doing that, I would run you through the 2019 figures, and starting already with page two. Last year, we had a record result in our history, in the 115 years, with EUR 923 million. It was really the biggest result we had in our 115- year history. We had a growth of 13%, so 13% was the growth on the top line, and the other way around, 31%, so 31% on the bottom line, more than double the increase than the top line.
The good thing for us is that all divisions really contributed to that one, especially Industrial Lines, with the Program 2020, which was, as you remember, special on the fire general portfolio to clean it up. We outperformed that with 34.9% price increase, which brought the combined ratio in Industrial 8% down. I think we could really see that we started very early the cleanup. 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 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.
This is really the clean, in our opinion, group return on equity, 9.8%. This is clearly above the 2018 figures, where we had 8% and well above of our minimum target, which is the 800 basis points above risk-free. Dividends, EUR 1.50, that we will propose to the general meeting. This is a trend of friends, as we always said as well in the capital market, is we increased our dividends seven times in a row since the IPO. For 2020, we confirm our net income outlook, this is totally on track than what we have said in our capital market day last year, that we had on the basis of EUR 850 million. We start the journey in our strategy plan, a 5% EPS at least increase in the CAGR. I will jump on page four.
On page four, from the bottom, you see that the currency-adjusted growth was 11.9%, so double digits, much higher than we thought. The net return on investment is with 3.5% as well. We had some special effects, so again, above what we have forecasted. The group net income was EUR 923 as well, is far above what we have said. All the other parameters you see as well are nicely really above what we have said, return equity, and as well dividend payout. Please remember here, not only that we pay the seventh time in a 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 dividends continuously coming from now.
On page five, you see more details. You see again here the top line is 13% and the bottom line 31% increase. Maybe some remarks on that, Immo 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 Viridium as a one-off and effects from Hannover Re, as was mentioned several times during the last year. The [SSN R], as we had to build, especially in the fourth quarter, is a compensating effect always in net underwriting results. Nothing here more to comment, I guess. For the 31%, why is increasing 31% much faster than the EBIT? Basically, two effects. We have some tax effects.
It's a question where you get which country gets the profit out and where we have a better tax yield percentage, then it's better for us at the end. 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. Primary performed relatively better than the reinsurance side, and therefore, we have a share, and you know we want to have a diversification effect always. We mentioned the 50/50 reinsurance, primary insurance, and we are on the way with a 33% on the right way. Therefore, we have less minorities, which are deduct and therefore 31% up. On the next slide, on page six, you see this is a Q4 stand-alone.
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, is 18%. This momentum is still there. On the bottom line, you see a reduction of 16%, but this is basically the last quarter; there were some tax effects on reinsurance in 2018. There were some special effects in 2019. Standalone, you remember Chile, what we had there, some violent demonstrations. We had ERGO Turkey as the first quotation. They're one-time effects. There were one-time 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 promised, we are much more conservative now when it comes to volatility buffers, and that we need in the first quarter to steer.
I will come to the next page, on page seven. This is a page of large losses. You see that basically, the bottom-right of the column is a EUR 1.3 billion figure, and you see it's higher than last year. It was EUR 1.2 last year. It means we had a really a year of large losses. They're both man-made, and they're not cut. Everybody is above last year except Industrial Lines. You see on the left side where there's a circle, you see with EUR 312 Industrial is down, and this is one reflection of the good, successful Program 2020. We really, I get here a bit of 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 compared to last year.
Special effects, for example, in Retail International, where you have Chile in the fourth quarter, as mentioned. They had a large claim. Normally, they don't have large claims, much so this, the EUR 18 million. EUR 13 out of this is only Chile. On the Reinsurance side, really, you see here, there was significantly increased compared to last year. It was a year with quite significant large losses. 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 EUR 1,335 million. It's an increase of 12%, which is in our guidance. On page eight, maybe some combined ratio. Overlooks here, you see that with 98.3% for the group overall, in spite of those large losses, we are on the level of last year.
Coming to the segment, Immo will tell you much more about it later. Industrial Lines, as I said, significant drop. What we forecast is 101.4%. 101.4% came in. This was really basically the cleanup project we started very early. If you see now what is in the market, this is quite a good ratio, I guess. Retail Germany, I think here we have to look to the ex-cost. The 96.9% is a bit lower than last year. Please remember, we want to have in 2021, the EUR 240 million cost target. We announced this year already EUR 230 with a combined ratio of 96.9%. Quite close to our target, which we have forecast for next year. Whenever you see there, for example, as well in the last quarters, we took some effects, of course, already a bit earlier this year.
Overall, Germany is very much on track when it comes to the course comparisons. Retail International, 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 we are in Retail International just to align to the group standards. 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%, and this is mainly driven by those violent demonstrations we had in Chile. We changed here again as a reflection of that.
Our net exposure totally to that things when it will happen in the future, we will be much less exposed to this, surprisingly, especially in Chile, violent demonstrations. Poland, on maybe the second, I would mention here, is very surprisingly was 90%. Really, it's another record here in Poland. Excellent results and really very well done. These are basically the main effects you can see in Retail International. Reinsurance, I guess here with 98.2%, everything was said in the call where it comes 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 Lines, contribute to our 31% increase to our net income. As you see here, industrial really was the biggest contributor to the shift of EUR 118 .
Again, as I said before, 33% is coming from the total net income from the primary insurance now. Therefore, EUR 154 or 2/3 for that was really contributed by the increases here by the primary insurance. Coming to the next page 10. Here you see that our dividend proposal is EUR 1.50, and as I said before, since the IPO, always increased. Last year, it would give you a yield of the average price of the year of 4% dividend yield, and our cash buffer is now increased by EUR 0.85. As we said, EUR 1.5 to EUR 2 is our target to change our policy. So far, I have always said, and we will say, trend is your friend. That means on the 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 the second point, more focus on the divisions. You see it in the blue box. If you run it through, you see that Program 2020 with 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 the specialty lines business. Very strong growth, very profitable. We had International Retail still double-digit growth. The growth and it's still running as normal, I would say.
Retail Germany, we see really here with a EUR 230 result, the course program already last year, and our always forecasted target goes for only 2021 to EUR 240. It's running. The small to medium enterprise, we are really doubling in the market. It's a growth of around 7%, so really nice growth initiative, which is working. Reinsurance with 13.3% return equity, I think clearly very nice compared to the peers, where I stand with the return equity. At the end, it means our cleanup programs are working, and as well, the growth initiatives, I guess, delivered the results we wanted. On next page 12, you see as well as part of the strategy , ESG is how we position ourselves, and we are basically here the three main or four blocks.
Starting right on the top, we are CO2 neutral last year in Germany. Step by step, in the long term, we will roll it out worldwide. On the right bottom, you see that as we mentioned already last year, we are completely withdrawing from coal until 2038. We want to be really one of the leading insurers in renewable energy. On the asset side, on the left side, you see that our in ESG we are compliant totally. We have signed the PRI. We want to double our investment in infrastructure to 5% or roughly EUR 5 billion, a bit more; we are here with EUR 2.8 already, more than halfway through. Again, since the last Capital Market we have done, we phase out as well in the asset side in the quarter of 2038, plus we excluded now oil sands.
This came up on top of what we have said in the Capital Market Day. Well, on the left bottom side here is nothing new, where we focus our engagement when it comes to ESG. With that, I will hand over to Immo, and he will tell you much more details about the segments.
Good morning from my side. I'm going to start with the Industrial Lines business, which is probably at the center of the interest anyway. We've grown the business by 33% top line. The main driver behind this is, of course, the first time consolidation of the specialty business that used to trade under Hannover Re 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 forma top line as well as on the net premium development. Where have we grown the business? It's been the, you could call it the legacy part of the specialty business that we had contributed out of HDI Global into HDI Global Specialty and the Americas.
That's true both in North America as well as Latin America. I think the second column is probably more significant, as we've seen and made a 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. The large loss development has been more than difficult this year than an easy year, because we've slightly overshot the large loss budget. We've managed to keep what we had communicated to you in terms of the overall combined ratio. We see positive run-off results. We thought that we should play it safely by being more conservative, where we could be, or we mostly should be on single cases, after having secured our guidance of around 101%.
I think the reason for that is to build up volatility buffers for times that may be more difficult in the future. Bottom line-wise, we see 4.4% return on equity, sort of, and I think it is positive again. Of course, we know that this is still not in line with our self-set profit ambitions. That would be in the region of 8%-10%. We're confident to get there over the coming years. 2019, as seen, has been the other income, some changes, because we did not benefit from disposal 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 we had envisaged this to be. Bottom line, we're very satisfied to see the turnaround in the Industrial Lines business. It all started with the 20 20 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 and a half 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 fire line from 141% in 2018, down to roughly 106%. We still don't see any adverse selection. I think what's probably particularly important for you is that we are not going to stop. We are going to continue the program because we know that even 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.
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. The 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 amounts to 18%, which is the combination of price increases and premium equivalents, such as high deductibles, for instance. We've not stopped at the fire business. We've also looked at other lines, and have been able to improve the underlying economics, also as far as transport is concerned, with double-digit figures, but also engineering and casualty has seen a significant price improvement.
The attritional losses, now I come to the left-hand side of the chart, is down from 57% to 45%. I think this is very significant because we always get it wrong with large losses. Anyone, everyone gets it always wrong with large losses. The underlying attritional losses is something that is probably a true reflection of your pricing power and your underwriting discipline. This is 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, so the last line on the left-hand side.
I think that should give you an impression that we really mean it, and that the profit improvement trajectory of the Industrial Lines 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 life and non-life business, which is nice. The operating result is up by 28%. It now amounts to EUR 230 million. For the ones who still remember the first days of course, when we said that we should be good enough for EUR 240 million EBIT by the year 2021. We've almost made it this year, 2019. I think it would not be telling a secret that we could have shown even EUR 240. 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. That has worked well, although it has come at a cost. The ROE has seen a nice improvement of 5.5%. Yes, we know that although this is a very nice development, we're still not where we want to be. That should at least be in the region of 78%. If you look into the sub-segment of our domestic retail P&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. It is the bank's insurance non-life business that has also picked up very nicely.
Where we have been a bit more conservative is the motor business. Remember, Mr. Zeller, 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 cost effect. On a pro forma basis, it would be 96.9%. Again, we've committed to showing a 95% in 2021. We are very optimistic that we will be in a position to do so. Equally here, we've tried to play it safely when it comes to laying volatility buffers in the fourth quarter. 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. The reason is very simple.
We were very adamant in concentrating on biometric or capital-light business. We've got a very limited appetite for single- premium business, and that is reflected in a rather moderate growth, but we grow the business. I 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 the German market do benefit from the new corridor method, when it comes to the determination of the ZZR amounts, the interest rate developments in 2019 have not been as we had hoped them to develop, i.e., interest rates have not picked up, and that necessitated a larger contribution to the ZZR. By year-end, we are now talking about a total stock of our ZZR of a rather frightfully high figure that amounts to EUR 3.8 billion.
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. Here we've been lucky, to be fair. Let me continue with a deep dive into the portfolio structure of our life business. There, you 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 businesses are the businesses that we still like because, believe it or not, there are still some pockets in the conventional business that are very profitable. There is a business where policyholders have reserved the right to top up their premiums. This is something we will, of course, honor. There are certain parts of the whole business, the employment benefit schemes.
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 capital-efficient product, and a share of the capital-efficient product, and the biometric business has gone up. We are somewhat 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 a balance sheet point of view, including the ZZR that we've built up in the past and the running yield in our portfolios.
This spread has gone up, also supported by favorable rounding, from 0.6%- 0.8%. If you look at HDI Leben, which is the largest of our carriers and has been very much at the center of the interest of many. I think they're 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 violent demonstrations in Chile. That is something that you already heard from Torsten. I told you so in November. We had to digest EUR 46 million of integration charges that are associated with the acquisition of ERGO Sigorta in Turkey. On top of that, we also played it safely.
I think we were fine when delivering our interim guidance. Premiums are up by 10%, the operating results are 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. This is a goodwill that we pay for eternity, so to speak. The more we grow the business, the relatively less important the goodwill component becomes. We'll 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've 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 we see in Western Europe. 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 to make it very brief. The company has grown its business by 18%, net income is up by 14%, they've been able to digest at above expectations, a large loss burden. Life insurance business has developed extremely positively. I would like to keep it there. We've already heard the somewhat above- average tax burden in Q4.
Sort of an exhibit that is somewhere in between looking back and looking into the future. Our current solvency ratio is 196%. This is a Q3 figure. We're going to communicate the year-end update probably in May. We've always said that the market risk should not dominate our risk profile. It is currently 24%. 95% of our bonds are investment- grade, and the allocation of listed equity is below 1%. That should translate and has translated into betas that are lower than the market average. It should have translated, and it has translated into somewhat higher resilience when it comes to market shocks and drawdowns. 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. Investment income, page 26.
We have grown the ordinary investment income. How come, could you ask? The question is simple. The assets under management have grown. While interest rates, with the notable exception of Mexico, I must admit, 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, a lucky punch when it came to the disposal or the Viridium effect that we have explained to you in Q2 and Q3. Shareholder equity is up. It is up, actually, quite significantly. The other comprehensive income is, of course, driven by the low interest rates, and as part of our return on equity calculation. Torsten already mentioned that. That is part of the equity upon which we would apply the return calculus.
If you would exclude the goodwill, the book value per share would drop from EUR 40.15 to EUR 35.78. If you would add back, and you see this on the next chart, the hidden results of our asset side, inasmuch as they are attributable to the shareholder. You would have to add back another EUR 2.36. It is 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 7th of May. 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. Actually, I'm quite optimistic that what we see year-end should at least be in the ballpark range of what we see in Q3.
Just to remind you, and to put the EUR 923 million 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. 79% of the dividend would end up in the hands of HDI Mutual. If you work out a figure, that means that roughly 90% of the profits are still Solvency II relevant. That means that the underlying solvency formation on a ceteris paribus basis is roughly 9% of our SCR, which is, I think, a nice figure because it's a structural drift that supports the business also when the going gets rough. Well, that's it from my side.
Thank you, Immo. Let's come to the outlook of 2020. I said before already that we confirm our outlook and maybe give you some words on corona. I think for our industry in general, you have to see the direct and indirect effects. The direct effects, I guess, in our industry, we can say that's manageable, and I tell you why. 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 claim. It's a reverse, let's say, cash flow as you have. 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 lower three-digit figure. Only from that figure, we have only half of it, which is the exposure they mentioned. We have primary insurance as well. We believe we have, in the worst case, something like a middle double-digit million negative effect because, why is it like this? There is a big area of business interruption, has the cause of material damages, and that is not the case. Those things and pandemic risk are mainly not insured. 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. From that side, from the insurance side, we don't see really some huge material effects. On the asset side, though, you see that there are huge decreases in many asset classes now.
We have always strategically driven a low- beta approach. We have less than 1% in shares in our portfolio. This really benefits for us now. As well from on the bond side, 95%, as Immo said before, are really investment grade. Here 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 the market. The last thing is for sure, and probably the most important for us, are clients and then employees in the first step to see the health of our people. We have to make sure that our business continuation plan is well prepared. Here, I think worldwide, we have a really functional working with the group. Each location does different things.
Basically, what you can do in such things, I think we have done and are well prepared on that. These are all the direct effects to our company. Indirect effects, well, I think your guess is as my guess. How long is this recession, or will it be this recession, and how long will it take? What happens now is really very hard to forecast, and therefore, we have the CCC disclaimer as always. For sure, let's say, the consequence of the coronavirus crisis is out of the CCC disclaimer. Nevertheless, today we confirm our outlook into 2020, end of the year. Starting on page 31 from the bottom, we have GWP growth of 4% on the forecast. As you have seen, Hannover Re only the renewal has a 14% increase, with an average price increase of 2.3%.
You can see that the 4% being Hannover Re is one of the major part in the group, this is not something unachievable, we believe. The net return on investment is 2.7% because we cannot expect a Viridium effect every year . 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 between more than EUR 900 million and EUR 950 million. Inside, as I said, the decreased interest yields of those effects I mentioned. We have no foreseen special effect like Viridium, and we have increased our loss budget by 12% to EUR 1.335 billion, which is included in those outlook 2020.
That would mean that our return on equity is between more than 9% and 9.5%. The OCI is increasing significantly. That'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. I think, having the safety button, our 0.85%, we always say the trend is your friend, nothing more. Basically, the guarantee of the kind of at least the same dividend from last year, we keep on going. With that word, I would hand over to Carsten, and I think we have a nice Q&A now.
Thank you very much, Torsten. Haley, I think I will just pass further to you to start the Q&A.
Ladies and gentlemen, we will now begin with the Q&A 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 Q&A session will begin with the questions asked by telephone. If you are using speaker equipment today, please lift the handset before making your selections. 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 Michael Huttner of Berenberg Bank. Please go ahead.
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, it's just to get a feel, because you sound confident. Maybe there are some additional data points you can share. One on the cash buffer, the EUR 0.85 billion. What could it progress to at this end of the year? If you could remind us of, remind me, sorry, of the target or the comfort level for this. On Solvency, I know you said year-end would be higher than 196%. I guess people are more interested in solvency today.
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 from memory is 150%-200%? The third point, you mentioned several times, you built up your reserve buffers, and you gave a clear indication on the Industrial Lines side. I just wondered if you could give the picture for the other bits of the group as well. Thank you.
Thank you, Michael. I will start maybe the first question, Immo will elevate on the second or the third one. What he said is 1.5%- 2% should be our cash pool, unless we change then not our dividend policy. This is something at least three years, we believe we still need it . That is basically the direction you can head on. We have been faster, about 0.3% the year before, now 0.85%. Let's see if it will be faster, but the indication for the time being is at least three years. Immo, maybe the question on the transitionals and reserve buffer.
Yeah. Solvency II 196%, what I said is, I think it should be at the same rate. I think I'm optimistic 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%-200% range. This is what I can say as of today. When it comes to the buffering that we've seen in the retail divisions in 2019, I think it would be fair to think of a significant double-digit amount.
Brilliant. Thank you very much. Thank you.
Thank you. Michael, next one, please.
The next question comes from the line of Edward Morris of JP Morgan. Please go ahead.
Thank you. Thank you for taking my questions. First one, just coming back to this reserving prudence that you've done in Industrial Lines and 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? Really, I'd like to understand, is there a level of reserve margin that you'd like to move towards, assuming that you continue to deliver good results there? 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. 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 just start, and then Immo will continue with the reserve and the realized gains. Generally speaking, we are at least for sure reserving on the best estimate level. We said as well, the capital markets is a clear indication where Industrial Lines, and this is where this discussion starting from. As an example, just to give you how we feel here. We have a clear indication about the combined ratio, and we said as well that what we promised in the midterm. 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 best estimate. Whenever we feel we can do, we do it. It's just a general remark.
We want to clearly show to the market these are our targets, our 5% EPS growth, et cetera, at least, and then get volatility as much as possible out of our business model, if possible. Immo maybe has more details.
Perhaps making this 100% precise , we should see a brilliant year in the Industrial Lines business. I still would not speculate on a combined ratio that would be dramatically below 100%, because whatever you see will be set aside to support the long-term volatility. I think this is our current thinking. When it comes to the extraordinary capital, the extraordinary level gains that, or the realized capital gains that we see. In our plan, we've seen a significant drop in this position. As of today, I would say it will probably not drop as much. Why is that? Looking on the screens, I think we should be prepared for lower rates that will translate into higher ZZR needs. That, again, will translate into higher realized gains without having a bottom- line impact. I think this is the full story.
Extraordinary, result would be higher, 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 Hadjiantonis 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 could actually share with us any sensitivity with regard to a potential one-notch downgrade or credit downgrade across your book. You have said your fixed income is quite high quality. If you can give us an idea of how we should be thinking about this kind of scenario. The second question is, I guess, on the operational side. On Retail Germany, your EBIT for the year was at EUR 230 million. You have said that you have accelerated your course program for the challenges in the digital world. If you can give us an idea of what kind of investments you've made on that front, it would also be interesting.
The question, I guess, is EUR 240 million in two years time, just low-balling what you can actually achieve there? Thank you.
Maybe I can start with the second one, and Immo will tell you on the Vola regarding sensitivity. I think it should be fair that we promise something and we should deliver as a first point, and let's see where we will end. The year is still starting, and we will see in the second half of the year where we stand. We still have a capital market in November, and we'll see what will be coming out at that point of time. For the time being, it looks good. Please leave that room to say it looks good than when you're close to a target which you promise a year later. You will see in the second half of the year, we're coming up. Let's see. The year is still too early to say something. That's regarding Retail Germany, and maybe Immo something regarding Vola.
Yeah. 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 2022 figures, and then develop the sort of stress testing on these figures. Sorry for that.
Is it okay, Paris? Because.
Yeah, that's fine. Back on the Retail Germany and the investments in course, can you give us an idea of what additional went into the course with regards to the acceleration of digital? Thank you.
Yeah. I think there was a lower double-digit million euro amount. Part of that related into the sort of the accelerated integration of our two life platforms. The other part was things like a better claims system environment, a claims management system environment, and making the company fit the digital environment. That was behind it. It would have come anyway. Now we saw a window of opportunity to adjust the figures in 2019, given that we were fairly low-balling. 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 Handai] of Societe Generale. Please go ahead.
Oh, hi. Hello, everybody. Good morning. It's Vikram from Soc Gen. 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 Days? Secondly, can you talk about the large manmade losses over the fourth quarter of last year, as I see a significant bump up there, and whether there are any specific actions that you've taken to reduce the volatility coming from manmade losses, of course, apart from improved pricing? That's all from my side. Thank you.
Good question. This is special reinsurance as well. The second one for Immo.
Okay. Start with the second one. Our reinsurance initiative with Talanx. At least from 10,000 m point of view, it's worked like Swiss clockworks. We've now rolled the new model out through the outdoor organization, so a significant part of the business is ceded to Talanx AG, and that will be ceded to further reinsurers. 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 here in Frankfurt, we stayed within these limits. It's going. 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 run-off gains. We first have to collect the money before we invest it, which is difficult anyway these days.
We still have to cover 20% of the cedents and move them to the new setup. Whatever we wanted to achieve by year-end has been achieved.
Maybe on the fourth quarter large losses, maybe some comment. We first comment again, our expectation due to our growth, we will increase, as I said, 2x the large loss budget for 2020. First quarter, nothing significant. If you just deduct the two main claims with Hagibis, this typhoon in Japan with close to EUR 200 million affects our group and as well the 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 the basic expectation for the fourth quarter standalone.
Okay. Well, on Hagibis, I would have thought that the large manmade losses on the fire and property, and then on the casualties, may not be linked to the Typhoon Hagibis, is what I was thinking. I was kind of focused more on the manmade losses, on Industrial Lines, than the nat cats.
Well, there's no pattern we can see. There's just something wrong in the portfolio somehow. From my side, manmade still went down compared to last quarter, 2018. There are EUR 218-EUR 238 compared quarter-to-quarter. There's nothing significant I recall now. Do you recall something?
No.
No, nothing significant there.
Okay, thank you.
It's low compared to last year. As I said, maybe the Thomas Cook, as I said, this was one additional on top, which was not expected.
Yeah.
Thank you very much, Vikram. The next one, please.
There are currently no questions from the webcast so far. As a reminder, if you wish to ask a question, please press star followed by one on your telephone or use the question field on the webcast page. The next question comes from the line of Andreas Schäfer of Bankhaus Lampe. Please go ahead.
Thank you. There's just one detailed question regarding your Retail Germany business. You mentioned that you had a strong focus on regular premiums in your business, and that was the reason why you lost the market share. 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 on 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?
Yeah. When I referred to a somewhat conservative stance, I thought of the development of the single premium business in the German market that was, I think, it was like 32% of the market, something like that. Compared to our peers, we're much more moderate in that case. I think the business that we see is probably more broker-related. We've also seen nice developments in the bank insurance channel. Yeah.
Assuming, especially the single premium business, maybe to add on that one, is if you see what the development of the markets are now, having done a lot of single premium last year , I'm really happy that we were very moderate in that kind of business when it comes to single premium.
Did the market, the development of single premium business in the market has been 38%, more than just above 30%, but 38%. There may be good business. There may not be so good business. We thought we should play conservatively.
Okay. Thank you.
Thank you very much, Andreas.
There are no more questions at this time. I hand back to Carsten Werle for closing comments.
Yeah. Thank you very much. Haley, to be fair, I would like to pass over to Torsten for a closing comment.
Just a few comments. We had a record year. We are on track for the targets in our outlook, in spite of what happens around us for the time being. With a true disclaimer, we are on track. Really, for you, all the best, and take care, all of you. Thank you very much for joining us.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.