Good morning, ladies and gentlemen, welcome to the analyst call on Talanx nine-month 2019 results. For your information, today's conference will be recorded. At this time, I would like to turn the conference over to Mr. Carsten Werle. Please go ahead, sir.
Thank you, Elaine. Good morning from Hannover. This is Talanx 9-month 2019 results call. I am here together with Immo Querner, our CFO, who will lead you through our results. Then, of course, there will be ample opportunity to raise your question. You find our quarterly documents, the release, the report, and the presentation on the IR section of our homepage. You may follow this call via phone and via webcast, and there are replay options for both channels. With these remarks, I would like to hand over to Immo Querner.
Thank you, Carsten. Good morning to everyone. Let me start right with exhibit number two as the kind of elevator pitch. The first nine months have been rather pleasing, I would say. We're very satisfied with what we see. Top line is up, and even with an accelerating momentum, the EBIT has increased by more than 26%. As far as the development of one of our most important initiatives, this is the profit optimization of the Industrial Segment in general and fire in particular. You recall the program name 20/20/20, we're ahead of schedule. We have already contracted more than 24% condition increase, combined ratio points condition increase, be it via price increases or the increase of deductibles or other means. While the original plan was only, in inverted commas, 20% by year-end, we're well ahead of our plan.
The nine-month net income is up by 52%, that has translated into group return on equity of an annualized figure of 10.4%. All this is very supportive to reconfirm our guidance for 2019. That should be above EUR 900 million. As far as 2020 is concerned, the current guidance it should be at least above EUR 900 million, could go up to EUR 950 million. I could rephrase the whole story in slightly different terms. You may recall that our current historic all-time high in terms of profitability was 2016, with a profit amounting to EUR 903 million. That as of today, we are set or not too far away from coming up with a fiscal year 2019 that could be an all-time high. Looking into 2020, we're set for another record in next year to come.
Putting this into our long-term perspective, a view that we shared with you on the occasion of our last capital markets day, we said that there should be an underlying growth dynamic of our EPS per share of 5% PA compound, starting on a pro forma base of EUR 850 back in 2018. If you arrive at a precise calculation, that would take us into the result that should be around EUR 937. That is more or less right in the middle of the guidance that we've just released to 2020. Thus, we believe we're very consistent with what we have said.
We are very much in a delivering mode, although, and this should be mentioned at least in passing, we are faced with significant headwind in the financial income due to the protracted and worsening low interest rate environment that roughly translates into a headwind of EUR 25 million after tax minorities in 2020. This is, I think, the broad picture. Let me now dive into the nine months, as you see them in slide four. Gross written premiums are up by 12%. Currency adjusted is a little bit less, and that certainly tells us that Forex has been our friend, at least on average, and that is mainly driven by the US dollar. Net investment income is up. Why is it up or there? We're suffering from a low interest rate environment. The answer is relatively straightforward. Yes, we've benefited from the roughly EUR 100 million Viridium effect.
Yes, we've benefited from some extraordinary gains after having disposed of some real estate investments, particularly in Eastern Europe. There was the need to fund these ZZR slightly higher amount than originally planned because the low interest rate environment requires a higher buildup of these ZZR. Having all the other figures I've already mentioned, 52% increase of operating net income, and 10.4% annualized return on equity. Q3 on a standalone basis is probably at least as impressive. We're talking about top-line growth of 14%, i.e., the growth momentum is intact. Net investment income is up. Here again, it is these ZZR-driven reservations plus some extraordinary gains when disposing real estate. Net income after minorities is up by 400%, which is quite a remarkable comeback after a somewhat disappointing Q3 2018. As far as our large loss budget is concerned, we are well on track.
We're talking about an underutilized pro rata large loss budget in our Reinsurance division. That is good news because we know that Hagibis will be costly, that will be digested accounting-wise in Q4. As far as the Industrial Lines business is concerned, I'd like to mention two things. A, we are, and this is, I think, now sort of novel in to a certain extent, below our pro rata large loss budget. This is really new for a very long period of time. The relative share of our manmade losses is significantly down, which is good, and this is another indicator for the success of our Project 20/20/20, which I'll come back to in a second. Slide seven gives you an overview of our combined ratios.
Talanx as a group, we're talking 98.5%, certainly also driven, and you may recall the explanations given by Roland Vogel when discussing Hannover Re's results last week, driven by conservative accounting as far as Hannover Re is concerned. Industrial Lines, I think is interesting. For the first nine months, we're talking 101.4%. Q3 on a standalone basis, yes, this is the black zero that we've been waiting for. The Industrial Lines has delivered that. Will that be good enough to support 100% for the full year? Probably not quite. Our current expectation is around 101% for the full year 2019 combined ratio in the Industrial Lines, which is pretty close to what we originally expected. Q3 certainly provided some good tailwind. Retail Germany is doing fine.
On a normalized basis, i.e., after deducting the invested cost that is associated with our KuRS program, and I think within 2019, we will have the best behind us. We're talking 96.1%. Putting things into perspective, you may recall that by 2021, we wanted to talk about or we want to achieve a combined ratio at around 95%, and we are very confident that we are going to accomplish that. Retail International is doing extremely well, 95%, I think is a very strong figure. A brief comment on Turkey, the 108% is driven by two things, or two things should be borne in mind.
One is that, of KuRS, we benefit from a very supportive interest rate environment, i.e., you can make a living on the back of combined ratios well below above 100%, plus, the single-digit percentage figure is attributable to a change of accounting policy that has led to higher technical costs and lower non-technical costs that are EBIT neutral. Slide eight, I think is interesting, and we're very pleased by this chart because it shows that all lines have contributed to the 27% increase of our EBIT in the aggregate. All divisions, including all our primary divisions. Slide 10. As usual, I'd like to start with a deep dive into our Industrial Lines segmented. The gross top line is up by 30%, and that is of KuRS, inflated by the consolidation of our specialty business that we bought from Hannover Re.
At least we bought 50.2% of what used to be called Inter Hannover, now HDI Global Specialty. A significant part of this top line is reinsured with Hannover Re, and this translates into a net premium growth that is not quite as strong as the growth line development. Here we're talking 12.5%, and that gives you a feeling for the underlying natural growth of this line. I mentioned this not because we are in a kind of growth fever. I mentioned just that because, and you'll see this in a second, that there is no need to be concerned about our willingness and ability to be adamant.
When it comes to implementing our 20/20/20 project, as we grow the business in a wide variety of activities beyond the fire business, there is no need to be hesitant when it comes to enforcing our minimum underwriting standard when it comes to pricing or other conditions. Yes, large loss business. The large loss budget utilization has been below 100%, which is good. As of the 1st of October 2020, we have already implemented price and condition increases that should translate into combined ratio improvement of 24% in 20% of our business, i.e., the fire business, and thus we are ahead of plan. You'll get an update about the dynamics of this figure on the occasion of the upcoming capital markets day. We have benefited a bit from some lucky punches on the asset side, i.e., by selling a mature sub-portfolio of private equity investments at very favorable terms.
All that has now translated into a significantly improved return on equity figure. That's a good interim step. Everyone knows that this is not the end, but it is a very good start. As we talk about the Project 2020, you'll see a chart that you should know by now. That is the usual graphical representation of where we should be. This is the gray area and where we actually are, and these are the blue bars. When looking into the 1st of January 2020, with all the things we've already done by the 1st of October 2019, we've already contracted a conditioning improvement worth 24.2% combined ratio point. We are very proud and pleased about this figure. Retail Germany.
I think it's good to see that both segments of this division have contributed to the growth, and this is life and non-life, and the momentum is kind of stable. The operating result is up. We talk about EUR 185 million EBIT for the first nine months. Again, putting things into perspective, the result of the straight line method that I introduced, I think some nine months ago, would be an expectation of around EUR 200 million by year-end. I think it's fair to say that the nine months EBIT of EUR 185 million is very supportive. Yes.
On the other hand, I think it is also fair to say that on the back of this strong development that we have seen in Retail Germany, we can now afford to even accelerate some of the projects that we want to implement in order to improve a wide variety of digital initiatives and growth initiatives, particularly in the SME sector. That could cost a handful of euros in Q4. Return on equity 5.8%. Again, it is not where we want to be medium to long term, again, I think all indicators point into very good direction and suggest that we are well on track. Retail Germany P&C. We grew the business by 2%. That is true both for the first two months as it is true for the Q3 to Q3 comparison.
The main growth driver would be SMEs and self-employed professionals right in line with our strategy, while we are extremely disciplined when it comes to dealing with softer markets in the motor business. Either the motor business is or lives up to our underwriting standards, the pricing standards, then we like the business. If this is not the case, we would not write it. While the SME focus or self-employed focus is probably good for the bottom line, it is fair to say that both the acquisition cost and the administrative cost is slightly higher. Still, we believe that this is the right business for HDI Germany to be in, and we very much encourage this division to pursue this course of action. Retail Life.
The top line is up, and among growth drivers would be biometric business, both conventional biometric business and the biometric business you would find in a bank assurance business, and would be capitalized savings business. Far, so good. The operating results, turning to the right-hand side of the chart, is up by 18%. To be fair, we have benefited from two or three lucky one-offs in the second and third quarter. That will probably not reoccur in the fourth quarter. That is a kind of right basis for very confident view on what is going to happen in the full year 2019. Retail International, growth is up by 3%. If you look at a figure that is of high interest to us, and this is the currency-adjusted premium top-line development in our core P&C business, we're talking 9.9%. This is almost double digit.
This is very much in line with what we want to see. The operating results has advanced even by great growth rates. We're up by 13%. Looking ahead, I think it's fair to say that Q4 would probably have to digest two or three things that would normally not occur in every quarter. You may remember that we acquired ERGO Sigorta in Turkey. In running up for the merger of the two companies, we've initiated a post-merger management program that is associated with some transitional cost that we will account for in the fourth quarter here. We're talking about a higher single-digit million EUR figure. You also may recall that we have teamed up in Brazil with [Santander] to develop a joint venture. That again is now going live and will be associated with some initial cost.
We will be hit to a certain extent by the violent demonstrations that we've seen in Chile, that occurred in October. It's good to have a very strong first nine months, and that would help us to also deal from a accounting perspective. There's probably some what we did Q4 as far as Retail International is concerned. Reinsurance. I think you've already heard the story from Roland Vogel on the back of a very strong development of the life insurance business on the back of a very strong investment result on the back of disposal of Fidea and a group internal transaction that you would not find in our figures because they would be deconsolidated as it is an intragroup transaction. That is something that you would see in the Hannover Re stand-alone figures.
On the back of an underutilized large loss budget, they have decided to be somewhat more conservative as far as the reservation for the ordinary P&C business is concerned. I think you all remember that. Net investment income, slide 18. I think it was interesting to see that the current interest income on a nine months to nine months comparison is up by 1%. We're talking about a very robust or resilient set of figures. How come? Well, A, we benefit from the maturity of our investments, i.e., just because interest rates are down today, that does not automatically translate into bigger figure. The bad flip side of this line of thought is, however, that what it is persistent headwind that we have to digest over time.
For the year 2020, that translates into a structural headwind of EUR 25 million after taxes and minorities in comparison to a world in which we would not have suffered from the most recent deterioration of the interest rates. The other reason why the current income is fairly stable is, of KuRS, the growing inflow of assets that we see on our balance sheet. Let me turn to slide 19. The low interest rate environment that we currently are exposed to, of KuRS, also translates into growing equity base, and this is accounted for under the item other comprehensive income. This is up, and that now translates into book value per share that is almost EUR 40.50 per share. Even if you want to include goodwill, that has gone up by almost EUR 6 per share.
This is the one part, i.e., the hidden reserve that are not hidden at a balance sheet, but hidden in the P&L. There is another set of hidden reserves in the IFRS 4 balance sheet, this is the hidden part, i.e., part of the fair values that are not reflected in the balance sheet as such. If you look at this figure, you're talking about another almost EUR 2 per share that is attributable to the shareholders after taxes, minorities, and policyholders, that would have to be added to the figures that we've just discussed. Solvency II. After nine months, our fully loaded Solvency II figure, i.e., without using transitionals, is down to 196% from 203%. Probably what would assume that it's driven by the interest rate development. This is only partially true.
The interest rate effect that translates into weaker Solvency II figures for the life carriers would only explain less than four percentage points. Just looking at the life effect or the interest rate effect, that would have taken the figure from 203% to anything between 199% and 200%. The rest is the net effect of a weaker Solvency II figures at Hannover Re as they've reflected their business opportunities that they see for 2020. That translate into higher premium risk charge, the premium risk that would have to be digested by the calculus, and some positive model development in regards to operational risk. Anyway, the 196% is well in line at the upper range of our target range. The fact that the interest rate decline only translated into 3%-4% deterioration of the figures is probably more demonstration of the resilience of our business model.
Otherwise, I think the first nine months give us every reason to be very confident when it comes to reconfirming our guidance for 2019. It should be more than EUR 900. Please do bear in mind that historically, our record result in 2016 was, I think, EUR 903 million, something like that. If there is no CCC event, no catastrophe, no turmoil on the capital markets or no catastrophe, I think it is rather likely that we're going to see a record result in 2019. On the basis of this, I think there is no threat, in inverted commas, why there should be a downward pressure on our dividend policy. As far as outlook for 2020 is concerned, I think the group net guidance, it should be at least EUR 900. It should be at least as good as we see 2019. It could be more.
It could be 950 or anything in between. That means that although we have to digest a EUR 25 million headwind from the financial income, and although there are no reasons why Viridium should happen again in 2020, because it has happened already in 2019. Although we're talking about a EUR 75 million burden, in inverted commas, to what we've seen in 2019, we believe it's going to improve. It is going to be, at least, it is not completely unreasonable that from today's point of view, not only 2019 would be a record result, that 2020, another record result would also be on the cards. Now, putting this into the long-term perspective, you may recall our capital markets day last year in Frankfurt, that we said that based on a normalized income basis of EUR 850 million in 2018, it should be a 5% compound increase per year.
If you work out the figures, that would take you exactly to EUR 937 million. I think that's more or less right in the middle of what we currently guide for 2020, despite the headwind that I've just mentioned. That's it from my side. Of KuRS, I would not be surprised if there are some questions.
Okay. Elaine, I think we could start the Q&A then.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute button is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question from Vikram Gandhi from Societe Generale.
Hello. Hi morning, everybody. I've got three questions. Firstly, can you update us on your thinking about the German life insurance back book from long-term perspective, and how that might have an impact on your dividend upstreaming and ROE ambitions going forward? Secondly, how would you characterize the underwriting performance for industrial lines for the third quarter? Would you say there was an element of luck that helped, or would you be very confident that this is the result of the actions taken over some time now? Lastly, would be great if you can share your thoughts on the reserves development for industrial lines as well as Retail International, particularly Poland. Thank you.
Thank you. Well, as far as the life book is concerned, structurally, I think although we're talking about a very difficult interest rate environment, I think the spread, i.e., the difference between what we earn and what we owe to policyholder customers, is very robust. The reason for that is that we prudently invested. It's officially long-term investment. That this is particularly true for HDI Leben. That is probably one of the companies that has been very much right in the middle of public interest. ROE-wise, I think it'll take a while before we fully earn the cost of capital in the German life business. That'll take some time. The more successful we are in terms of reducing the cost base, i.e., by implementing our IT project Voyager, making one factory out of at least two factories.
The more disciplined we are in terms of selling biometric and capital life policies, and the more successful we are in terms of managing the back book, the faster we get there. Is this something we're going to see in 2020? Probably not. I'm very confident that at least in the business mix that we see, at least the division, Retail Germany as a division, is not too far away from lessening the cost of capital. Underwriting, I think there is always an element of luck and bad luck. This is why I mentioned this when I discussed the large loss budget utilization. Historically, we have suffered from man-made losses as opposed to natural catastrophes. The fact that in Q3, the first nine months, there's been more natural catastrophes and not so much man-made, tells you that something has changed.
Something has changed for the better, i.e., I think we are much better in control of the structural exposure to man-made risks that can be very idiosyncratic, has improved. We also see this when we look at the frequency loss ratio, attritional losses, that have come down in the fire business. That have come dramatically down in the fire business. This is another indicator of a structural shift of the underwriting profile. We're really optimistic that this is not just luck. This is perhaps the absence of bad luck in combination with rigorous underwriting. We are really committed to taking this well into 2020. To institutionalize this rigorous underwriting. To export all the things that we've now learned to other lines of business. To support what you could dub the more capitalistic general underwriting attitude.
Here we are very pleased, and I think there will be ample opportunity to discuss some of the insights and details of this development when we meet in Frankfurt. Reserve development-wise, I think it's fair to say that in Q3, we have taken the opportunity, particularly in the retail segment, to support the redundancy level in our books. That is both true for Retail Germany as it is true for Retail International. I think you mentioned Poland. Poland has probably seen the climax of the good underwriting years. As of today, we're still benefiting from very healthy figures. Also, this has helped us to be very prudent. Questions answered, Vikram?
Yes. If I can just very quickly come back on the third point. Am I right to understand that the redundancy levels for the retail segment has gone up slightly, basically? That's what you're trying to say, right?
Yeah. This is the feeling. You know that the annual reserve review is only once a year. When you talk to the actuaries, to the accountants, and look at some of the indicators that would be available to us, you would also arrive at the conclusion that these segments, the redundancy level should have gone up.
Okay. Any comment on the reserves for Industrial Lines? That was the part of my original question.
Okay. Sorry. I think we've seen a kind of moderate runoff result. We've seen a positive runoff result, it's not been skyrocketing. There is perhaps a kind of implicit reserve buffering, because you recall that whenever the actual utilization of the large loss budget is below what we would have expected for a certain period of time, we account for the difference as if it had happened, sort of like. The fact that at Q3, the large loss burden has been not as high as originally budgeted, has translated into setting aside some buffers for Q4. Here, we're talking about moderate figures, but I think it's the right side of the street.
Okay. Thank you very much, Vikram. Next one, please. Next one, Elaine.
We will take our next question from Paris Hadjiantonis from Exane BNP.
Yes. Hi from my side as well. Basically, I have two questions, both, I think to an extent, related to industrial lines. Firstly, your 2020 Initiative. That obviously relates to just 20% of the overall portfolio. I am wondering what kind of pricing environment you are seeing for the rest of the portfolio, given that generally the comments are for better prices in commercial lines, not only in Germany and North America, but a wider effect in terms of globally. On the change of guidance for the combined ratio for this year. You were previously guiding for around 100%. Now you are guiding for around 101%. I just want to check that there is not anything visible bad news coming into Q4, and this is more, kind of conservatism into your numbers and into what you will be putting into reserves. Thank you.
Okay. As far as the rest of the portfolio is concerned, I think it's fair to say that looking back into the past years, fire has been the main problem. It's not to say that the rest of the business, that we've been rolling in sort of the rest of the business. What does it mean? Yes, we've concentrated and we've launched Project 2020. I think all the discipline and all the tools that we've now seen at work in the fire business, of KuRS, automatically trigger the question, is there anything in there that we can use for other lines? Yes, there is. There are many things that we will roll out in terms of lessons learned. The steering model focusing on the bottom line. A very consistent implementation of a maximum tolerable combined ratio concept.
All these are things that should also help us to improve figures in the other lines. As of today, 90% of the premiums that we earn, we do earn in markets with hardening markets. I think that in kind should answer the question whether the underlying improvement, whether this is limited to fire or whether it goes beyond that. It does go beyond that. That, of KuRS, is good, but it is also necessary. A change of guidance. I mean, if we work with a figure, we talk about net premium incomes of roughly EUR 3 billion in the segment. The one percentage point is roughly EUR 30 million. This is a lot of money for you and me, but in the context, this is not, I think, I would call it a big change. It tells you something.
It tells you something that we are really committed to delivering on the long-term profit improvement part of the Industrial Lines. Next year, we want to see a black zero or a figure that is below 100%. This is not the end. This would be a good start because we all know that in today's interest rate environment, you cannot earn the cost of capital just with a combined ratio of around 100% or even below 100%. We need to improve this figure. It certainly needs to go into regions that are more in line with what we want to achieve in the Retail segment. Let me put it this way.
If you would draw a straight line again, and would use this straight line as a kind of expected combined ratio trajectory, it would probably be fair enough to assume that whenever we benefit from luck, coming back to the first question that has been raised. Whenever there would be underwriting luck, we'll probably invest this luck into higher redundancy levels to support any further guidance and the reliability and resilience of this trajectory going forward. I think this would be our kind of philosophy. We do want to deliver. If there is really luck, we probably set it aside for some bad times. This is the kind of logic behind the guidance. Again, in 2020, in the absence of kind of CCC type of events, we should be talking about a technical underwriting profit in the industrial lines division. Questions answered, Paris?
Indeed. Thank you.
All right. Thank you, Paris. The next one, please.
Thank you. Once again, if you would like to ask a question, please press star one. We will take our next question from Thomas Fossard from HSBC.
Yes, good morning, everyone. I've got a couple of questions. The first one will be related to your Solvency II ratio sensitivity to interest rates. The last time you updated the sensitivities was at the end of last year. I was wondering if, because of the low interest rate and maybe convexity coming into your books, the sensitivity is higher currently than the one you presented at the end of last year. The second question will be related to your full year 2019 net income guidance, which looks pretty conservative, especially since Hannover Re revised its own 2019 net income guidance upwards. I was wondering if you could elaborate a bit more on maybe things that we should have in mind and why this apparent cautiousness, I would say, on the 2019 guidance.
Maybe the last one will be related to your target in terms of dividend cover to 1.5-2 times. Any update on what is the current situation at the present time? Thank you.
Okay. Let me start. Let me take the figures as you've put them. I think the interest rate sensitivity, if I draw any conclusion out of the Q3 figures, I would say that the sensitivity to low interest rates has been probably remarkably low. The interest rate decline has only cost us less than 4 percentage points, subject to fully loaded ratio. I think that would now be premature to update our convexity analyses. I think that was, if we really looked into the details of the figures, that was something that we actually kind of liked. I think many people would have expected much more pronounced development. As far as the guidance question is concerned, now, I hate to be extremely technical. Hannover Re's guidance has been EUR 1.1 billion plus EUR 100 million from Viridium.
This is a very complicated calculation because it translates into EUR 1.2 billion. This guidance had not included the extraordinary effect out of the disposal of Svedea. This is a managed MGA company in Sweden that has contributed another EUR 50 million, essentially of tax-free income to Hannover Re. That has now been recognized in the guidance, this has led to an increase of the guidance to EUR 1.25. Unfortunately, this is something that I think should be in the public domain. The EUR 50 million extraordinary profit that you would see in the accounts of Hannover Re would not be seen in the accounts of the Talanx Group. The reason is very simple. Svedea has been sold to HDI Global Specialty. There is no extraordinary profit. If you deduct the EUR 50 million of this calculus, you would still stand at EUR 1.2.
This is more or less the figure that we've seen at the end of Q2. Together with Hannover Re, we increased our guidance at the end of Q2 to more than EUR 900. Unfortunately, accounting would prevent us and me from showing the EUR 50 million profit of an intragroup transaction, thus there was no reason to change the guidance again. I think this is a very tactical, but still important detail that should not be forgotten. I think the third question was.
Dividend cover.
Dividend cover, yes. I think we'll give the details of things as we see them probably by year-end 2019 when we meet in Frankfurt. I think it's fair to say that we anticipate a major leap forward into the dividend coverage, i.e. the ratio between the standard dividend and the retained earnings, that we would expect for year-end 2020. We will not be there already. The 1.5 coverage ratio will not be achieved and by year 2019, but we anticipate a major improvement that I will share with you in Frankfurt.
If I may just come back on the interest rate sensitivity. Maybe the other way to raise a question is why have you been yourself surprised by the absence of, obviously, a more significant drop in Q3 alone? Thank you.
I think the reason is, I think this is kind of enshrined genetics by now. If you would ask me six years ago if German life insurance company can survive interest rates that are as low as they were at the end of September, my answer would've been, no way. Impossible. At least not without using conditionals. This kind of has been proven wrong. I think the reason is that the mechanism, how we manage the asset liability calibration, the way how we've turned the new business structure, and the way how we've managed the back book, is paying off even more than originally thought. I think this is my takeaway.
Thank you.
Thank you very much, Thomas. Next one please.
Once again, if you would like to ask a question, please press star one on your telephone keypad. If you're using a speakerphone, please make sure your mute button is turned off to allow your signal to reach our equipment. We will take our next question from Roland Pfänder from ODDO BHF.
Yes, good morning. Turning to the international business. If you look at the combined ratios in Mexico and Chile, they are trending up in the third quarter. Is this a random fluctuation here, or maybe even could you comment on the political unrest we currently have in Chile and the impact you might see on the business? Thank you.
Thank you. The current political unrest that we see in Chile is not reflected in the figures that we see as for the end of September. Whatever it is, it's not in the figures. Reasons for development in Chile. There is some minor legacy book that had to be dealt with. There are some integration efforts. There was, I think, a nat cat event in the first quarter. I think this is kind of not one big single reason why Chile is what it is. It's kind of going through a transformation with the new management that'll probably take some quarters to fully play out. The development in Mexico is completely different. We have got to decide how much growth we would want to see and what price, in inverted commas, we want to pay for that growth.
This is a more controllable managerial issue when managing the combined ratio in a growth to bottom line prioritization exercise. We all know that Mexico is one of our target markets. It's not that easy to define the attractive M&A targets. We would be very unwilling and hesitant to overpay, should there be, at one point, an M&A target. That means that the organic growth is something that is our main priority. Here the policy is that as long as the bottom-line figures are okay, we're more than happy to invest in the growth. This is something that can always be fine-tuned and managed. This is something that I wouldn't consider to be an issue.
Maybe coming back to Chile, could you give us a flavor for fourth quarter impact? Is it significant, or do you have already any insight there?
Not really. I think it would probably make it on the large loss list. That is true. Anything else would really be premature. Yes, as you will see this in the figures, we thought it was worth mentioning it, and it's also part of our outlook statement in our quarterly release, that it would really be premature to attach a precise figure to that. Yeah.
Okay, thank you.
Thank you, Roland. Next one, please.
We will take our next question from Michael Haig from Commerzbank.
Good morning to everyone. Two questions. One on German life insurance, of KuRS. The set had EUR 185 million capital gains to finance the ZZR for 2019. With the new corridor method, what are your expectations for the ZZR requirement for the full year 2019, and can you remind me of the figure for 2018 again? Second question, motor Germany. You mentioned the softer market in motor Germany. Is this your expectation or is it already experienced, knowing that the renewal season has just started yet? What are your expectations here?
Let me start with the ZZR question. I think what we see or what we expect for the full year 2019 is a figure around EUR 430 million for the full year. That compares to roughly EUR 301 million that we had accounted for in 2018. The reason is not the corridor method as such, because the corridor method has really helped the industry, and has helped the industry both in 2018 and in 2019. Regardless of this support or the benefit of this new calculus, the fact that the interest rates have come down has necessitated a higher buildup in comparison to what we've seen in 2018. That is it. By year-end, we would be expecting stock of ZZR, a local GAAP that is a little bit shy of EUR 3.9 billion by year-end. Now motor, I think getting a bit rougher.
I think there is a risk of an easing price discipline in the market. This is something we, of KuRS, cannot control. What we can do is decide whether we want to support or participate in a deteriorating price spiral or not. Here the clear answer or message is that we don't want to support that, and want to stay and cling to profit-oriented underwriting policy, even if this would be detrimental to the top line.
Okay. Thank you very much.
Thank you, Michael. Any more questions, Elaine?
Thank you. Once again, if you would like to ask a question, please press star one. We will take a follow-up question from Vikram Gandhi from Societe Generale.
Hello. Hi. Yeah, sorry, this is the last one from my side. Can you shed some more light on the combined ratio development for Retail Germany? If I back out the KuRS impact, what I get to is a two percentage points deterioration year on year for Retail Germany combined. You've already mentioned some of the redundancy built up. Just wondered if there's anything more to it. That's all.
Yeah. I like these questions because these questions already contain the answer. Yes, it is true. What you see is that the combined ratio looks weaker as it is because of extra conservatism that we could afford.
Okay. Thank you.
Sorry for this answer without any news.
Okay. No, that's great. Thanks a lot.
Thank you. Thank you very much. Any more, Elaine?
Final reminder. To ask a question, please press star one on your telephone.
I think if there are no more questions, Elaine, then we don't have to make it longer than it should be. Well, I think we're looking forward to meeting all of you in Frankfurt next week. Some of the questions that you may have and didn't want to ask today, you can ask then, and you'll certainly get many more answers. We look forward to this event.
This concludes today's call. Thank you for your participation. You may now disconnect.