Good morning, ladies and gentlemen, and welcome to the analyst call on Talend's '9 months 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 Berle. Please go ahead, sir.
Yes. Thank you, Elaine. Good morning from Hannover. This is the Tallang's 09/2019 results call. I'm here together with Emma Kvaerner, our CFO, who will lead you through our results.
And then, of course, there will be ample opportunity to raise your questions. You'll find our quarterly documents, the release, the report and the presentation on the IR section of our homepage. And you may follow this call via phone and via webcast, and there are replay options for both channels. And with these remarks, I'd like to
hand over to Immok Werner. Thank you, Karsten. Good morning to everyone. Let me start right with Exhibit number two. That's the kind of elevator pitch.
So the first nine months have been rather pleasing, I would say, and 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, and this is the profit organization of the industrialized segments in general and fire in particular. And you recall the program named twenty twentytwenty, we're ahead of schedule. We have already contracted more than 24 condition increase combined ratio points condition increase via price increases or the increase of deductibles or other means.
While the original plan was only University of Commerce 20% by year end, so we're well ahead of our plan. The nine month net income is up by 52 percent. 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. There should be above €900,000,000 And as far 2020 is concerned, The current guidance would now be it should be at least above 900, could go up to $9.50.
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 $9.00 €3,000,000 That of today, we are set or not too far away from coming up with the fiscal year 2019 that could be an all time high. And looking into 2020 or looking into 2020, sorry, we are 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, said that there should be an underlying growth dynamic of our EPS per share of 5% PA compound, starting at a base of 800 perform a base of $850 back in 2018. If you arrive at a precise calculation that would take us into the result that should be around $9.37.
And 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've 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 protective worsening low interest rate environment that roughly translates into a headwind of EUR 25,000,000 after tax minorities in 2020. So 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 tells us that Forex has been our friend at least on average, and that is mainly driven by U. S. Dollar.
Net investment income is up. Why is it up all there? We're suffering from a low interest environment. The answer is relatively straightforward. Yes, we've benefited from the roughly 100,000,000 of the revenue effect.
Yes, we've benefited from some extraordinary gains after having disposed of some real estate investments, particularly in Eastern Europe. And there was the need to fund the SFR slightly higher amount than originally planned because the low interest rate environment requires a higher buildup of these FZR. I think all the other figures I've already mentioned, 52% increase of net income and 10.4% annualized return on equity. Q4 sorry, Q3 on a stand alone basis is probably at least as impressive. We're talking about a top line growth of 14%, I.
E, the growth momentum is intact. Net investment income is up. And here again, it is the debt that are driven renovations plus some extraordinary gains when disposing real estate. And net income after minorities is up by four twelve percent, which is quite a remarkable comeback after somewhat disappointing Q3 twenty eighteen. As far as our large loss budget is concerned, we are well on track.
We're talking about an underutilized parotid large loss budget in our reinsurance division. And it is good news, because we know that Hagibis will be costly, will be digested accounting wise in Q4. As far as the industrialized business is concerned, I'd like to mention two things. A, we are, and this is I think kind of novel to a certain extent, below our pro rata large load budget, and this is really new for a very long period of time, plus 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 twentytwenty, which I'll come back to in a second. Slide seven gives you an overview of our combined ratios.
Tallangs as group, we're talking 98.5%, certainly also driven, and you may recall the explanations given by Roland Pruger when discussing Anne Marie's results last week, driven by conservative accounting as far as Anne Marie is concerned. Industrial Lines, I think, is interesting. For the first time in nine months, we're talking 100, 1.4%. Q3 on a standalone basis, yes, this is the black zero that we've been waiting for. And 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 Alliance, which is pretty close to what we have originally expected. And Q3 certainly provided some good tailwind. Retail Germany is doing fine on a normalized basis, I.
E. After deducting the cost that is associated with our course program. And I think within 2019 we will sort of we'll have the best behind us. We're talking 96.1%. And putting things into perspective, you may recall that by 2021, we wanted to talk about or we would 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%, think, a very strong figure. A brief comment on Turkey, the 108% is driven by two things or sort of two things should be borne in mind. One is that, of course, 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 change of accounting policy that has led to higher technical costs and lower nontechnical 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 dividends including all our primary divisions. Slide 10. As usual, I'd like to start with a deep dive into our Industrial Lines segment. Sort of the gross top line is up by 30%, and that is, of course, inflated by the consolidation of our specialty business that we bought from Hannover. At least we bought 50.2% of what used to be called in Hannover, now Hardie 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 gross 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 that again, 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 2020 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 October 1, we have already implemented price and condition increases that should translate into combined ratio improvement of 24% in 20% of our business, I. The fire business, and thus, 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, very, 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, and this is gray area and where we actually are.
And these are the blue bars. And looking into the January 1, with all the things we've already done by the October 1, we've already contracted a conditioning improvement worth 24.2% combined ratio point. And 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. The momentum is kind of stable.
The operating result is up. We talked about €185,000,000 EBIT for the first nine months. Again, putting things into perspective, the result of the straight line method that I introduced, I think, nine months ago would be an expectation of around €200,000,000 by year end. I think it's fair to say that the nine months EBIT of €185,000,000 is very supportive. Yes.
On the other hand, I think it's also fair to say that on the back of the strong development that we've seen in retail Germany, we can now afford to be 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's not where we want to be medium to long term. But again, I think all indicators point into a very good direction and suggest that we are well on track.
Retail Germany P and C. We grow 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, in line with our strategy, while we are extremely disciplined when it comes to dealing with softer market in the motor business. Either the motor business is or lives up to our underwriting standards or 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 Hardie e Germany to be in, and we very much encouraged this division to pursue this course of action. Retail Life, again, the top line is up. And among growth drivers would be biometric business, both conventional biometric business and biometric business you'd find in the bank insurance business and would be capitalized savings business.
So 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 ups in the second and third quarter that would probably not reoccur in the fourth quarter. Yet, that is a kind of right basis for very confident view on what is going to happen in the full 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 and C business, we're talking 9.9%. So this is almost double digit. So this is very much in line with what we want to see. The operating result has advanced even by great growth rates, we are up by 13%. Looking ahead, I think it's fair to say that Q4 would probably we'll have to digest two or three things that would normally not occur in every quarter.
A, you may remember that we acquired Algo Siguarta in Turkey. And 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 double digit a higher single digit million euro figure. You also may recall that we have teamed up in Brazil with partner to develop a joint venture. But again, it's now going live and will be associated with some initial cost.
And we will probably will be hit to a certain extent by pilot demonstrations that we've seen in Chile that occurred in October. So it's good to have a very strong first nine months, and that would help us to also deal from an accounting perspective. It's probably somewhat weaker 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 Medea in a group internal transaction that you would not find in our figures because they would be deconsolidated as it is an intra group transaction. But that is something that you'd see in the kind of standalone figures.
And 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 and C business is concerned. But 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 month to nine month comparison is up by 1%. So 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 not automatically translates into weaker figures. The bad flip side of this line of thought is, however, that what it is is kind of persistence headwind that we have to digest over time. And for the year 2020, that translates into a structural headwind of EUR25 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 interest the current income is fairly stable is, of course, the growing inflow of assets we see on our balance sheet. Let me turn to Slide 19. The low interest rate environment that we currently are exposed to, of course, also translates into growing equity base, and this is accounted for under the item other comprehensive income. And this is up and that now translates into book value per share that is almost EUR $45.00 euros per share. And even if you want to include goodwill, that has gone up by almost €6 per share.
This is the one part, I. E, the hidden reserves that are not hidden at the balance sheet but hidden in the P and L. There is another set of hidden reserves in IFRS four balance sheet, and this is the hidden 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 €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 figures figure, I. E. Without using traditional is down to 196% from 203%. Now probably what we 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. So just looking at the life effect or the interest rate effect that would have taken the figure from two zero three to anything between 199200%. The rest is the net effect of weaker Solvency II figures at Handel Re as they have reflected their business opportunities that I see for 2020 that translate into higher premium risk chart, 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 with our at the upper range of our target range. And the fact that the interest rate decline only translated into 3% to 4% deterioration of the figures is probably more demonstration of the resilience of our business model.
Outlook wise, 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 900. Now please do bear in mind that historically our record result in 2016 was I think $9.00 €3,000,000 something like that. So if there is no CCC event, no catastrophe, no turmoil in the capital markets or no catastrophe, I think it is rather likely that we're going to see a record result in 2019. And on the basis of this, I think there is no slat in a bit comments why there should be a downward pressure on our dividend policy. And as far as twenty twenty four twenty twenty sorry, Slide '24, outlook for 2020 is concerned, I think the group net guidance would be it should be at least 900, so it should be at least as good as we see 2019.
And it could be more. It could be $9.50 or anything in between. And that means that although we have to digest €25,000,000 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. So although we're talking about a €75,000,000 burden in inverted commas to what we've seen in 2019, we believe it's going to improve.
And it is going to be sort of at least, it's not completely unreasonable that from today's point of view, not only twenty nineteen would be a record result, but 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 €850,000,000 in 2018, it should be a 5% compound increase per year. If you work out a figure, that would take you exactly to €937,000,000 And yes, I think that's more or less right in the middle of what we currently guide for 2020 despite the headwind that we that I've just mentioned. So that's it from my side. Of course, I would not be surprised if there are some questions.
Okay, look, Elaine, I think we could start the Q and A then.
Thank We will take our first question from Vikram Gandhi from Societe Generale.
Hello. Hi, good 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 held? Or would you be very confident that this is the result of the actions taken did actions taken over some time now? And 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 Lifebook is concerned, structurally, I think although we're talking about very difficult interest rate environment, I think the spread, I. E, the difference between what we earn and what we owe to policyholders, policyholder customers, is very robust. And this is the reason for that is that we prudently invested in sufficiently long term investments. And this is particularly true for Harley Leiden.
That is one that's probably one of the companies that has been very much in the right in the middle of public interest. Our EUIs, I think it will take a while before we fully earn the cost of capital in the German Life business. That will take some time. And 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 light 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. But I'm very confident that at least in the business mix that we see at least the division, the Research Germany as a division, is not too far away from the cost of capital. Underwriting, I think there's always an element of luck and bad luck. But if you look at the and 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. And the fact that in Q3, the first nine months, it's been more natural catastrophes and not so much man made tells you that something has changed. Something has changed the better, I. E. I think we are much better in control of all sort of the structural exposure to manmade risk 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. Therefore, we're really optimistic that this is not just luck. This is perhaps the absence of bad luck in combination with rigorous underwriting. And we are really committed to taking this well into 2020, institutionalize this rigorous underwriting, to export all the things that we've now learned to underline the business, to support what you could do the more capitalistic general underwriting attitude.
So here we are very pleased and I think there will be ample of 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 segment, to support the redundancy level in our books. And 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.
But as of today, we're still benefiting from very healthy figures. And yes, and 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. So 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?
Yes. This is the feeling. You know that the annual reserve review is only once a year. But when you talk to sort of 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, okay. And any comment on the reserves for Industrial Lines? That was the part of my original question.
Okay, sorry. Yes, I think we've seen a kind of moderate runoff result. We've seen a positive runoff result, but 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 kind of a re. Now the fact that in 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.
So thank you very much, Vikram.
One, Next one, Elaine?
We will take our next question from Paris Hagiantonis from Exane BNP.
Yes. Hi, from my side as well. Basically, 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. So I'm wondering what kind of pricing environment you're 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 on the in terms of globally.
And then on the change of guidance for the combined ratio for this year, you were previously guiding for around 100%. Now you're guiding for around 101%. I just want to check that there's no anything visible bad news coming into Q4, and this is more kind of conservatism into your numbers and into what you would be putting into reserves? 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, higher has been the main problem. It's not to say that the rest of the business that we're enrolling in sort of the rest of the business. What does it mean? Yes, we've concentrated and we've launched initiatives to twenty twentytwenty. But I think all the discipline and all the tools that we've now seen at work in the Fire business, of course, automatically trigger the question, is there anything in there that we can use for other lines?
And 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 earned that we earn, we do earn in markets with hardening markets.
So I think that kind of 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. And that, of course, is good, but it is also necessary. A change of guidance. I mean if you look at the figure, we talk about net premium incomes of roughly €3,000,000,000 in the segment.
The one percentage point is roughly €30,000,000 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. But 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 Alliance. Next year, we want to see a black zero or figure that is below 100%, and this is not the end.
This is that this would then 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 segments. 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, So whenever there would be underwriting luck, we would 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. And if there is really luck, we probably set it aside for some bad times. So this is the kind of logic behind the guidance. But again, in 2020, we should in the absence of kind of CCC type of events, we should be talking about the technical underwriting profit in the Industrial Alliance division.
Questions answered, Paris?
Indeed. Thank you.
Thank you, Paris. And the next one, please.
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 convex 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 revised its own 2019 net income guidance upwards. So 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. And maybe the last one would be related to your target to in terms of dividend cover, to 1.5 to two times. Any update on what is
the
current situation at the present time? Thank you.
Okay. Let me start sort of let's take the figures as you've put them. So I think the interest rate sensitivity, if I draw sort of draw any conclusion out of the Q3 figures, I would say that the sensitivity to low interest rates has been probably remarkably low because the interest rate decline has only cost us less than four percentage points, so it's a pretty low to ratio. I think we've that would now be premature to update our convexity analysis. But 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 sort of I hate to be extremely technical. Henry's guidance has been €1,100,000,000 plus €100,000,000 from Viridium. This is a very complicated calculation because it translates into €1,200,000,000 This guidance had not included the extraordinary effect out of the disposal of Svedia. This is a management MGA company in Sweden that has contributed another €50,000,000 essentially of tax free income to ANNOBRII.
And that has now been recognized in the guidance, and this has led to an increase of the guidance to 1.25. Unfortunately, and this is something that I think should be in the public domain, the €50,000,000 extraordinary profit that you would see in the accounts of Hannover Re would not be seen in the accounts of the Talends Group. The reason is very simple. Zidea has been sold to Hadi Global Specialty. So there is no extraordinary profit.
If you deduct the €50,000,000 of this calculus, you would still stand at 1.2. And this is more or less the figure that we've seen at the end of Q2. And together with Henry, we increased our guidance at the end of Q2 to more than 900. Unfortunately, would prevent us and me from showing the €50,000,000,000 profit of an intragroup transaction, and 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 in 2000 we'll give details of things as we see them probably by year end 2019 when we meet in Frankfurt. But 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.
So the 1.5 coverage ratio will not be achieved by year 2019. But anticipate a major improvement that I will share with you in Frankfurt.
If I may just may come back on the interest rate So maybe the other way to raise the question is why have you been yourself surprised by the absence of, obviously, 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 September, my answer would have been no way, impossible, at least not without using traditionals. But this kind of has been proven wrong. I think the reason is that the mechanism how we've managed 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 very much, Thomas. Next one, please.
We will take our next question from Roland Fender from ODDO BHF.
Yes, good morning. Turning to the international business. If you look at the combined ratios Mexico and Chile, they are trending up in the third quarter. So is this 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
Thank you. You. The current political unrest that we see in Chile is not reflected in the figures that we see as big as for the September. So whatever it is, it's not on the figures. Reasons for development in Chile, there is some a minor legacy book that had to be dealt with.
There are some integration efforts. There are there was, I think, a nat cat event in the first quarter. I think this is kind of not one single big single reason why Chile is what it is. It's kind of going through a transformation with the new management that will 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. So 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 difficult sorry, it's not that easy to define attractive M and A targets. We would be very unwilling and hesitant to overpay should there be at one point an M and A target.
And that means that the organic growth is something that is our main priority. And here, policy is that as long as the bottom line figures are okay, we are more than happy to invest into growth. But this is something that can always be fine tuned and managed. So 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 have already any insight there?
Not really. I think we'd probably make it on the large loss list. That is true. But anything else would really be premature. But yes, as you will see this in the figures, thought it was worth mentioning it, and it's also part of our outlook statement in our quarterly release, but it would really be premature to attach a precise figure to that.
Okay, thank you.
Thank you, Roland. Next one, please.
We will take our next question from Michael Haid from Commerzbank.
Good morning to everyone. Two questions. One on German life insurance, of course, the ZZR €185,000,000 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? And what are your expectations here?
Let me start with the Zenera question. I think what we see or what we expect for the full year 2019 is a figure around €430,000,000 for the full year. And that compares to roughly $3.00 €1,000,000 that we had account 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 as in 2019. But regardless of the support or the benefit of this new calculus, the fact that the interest rates have gone down has necessitated a higher buildup in comparison to what we've seen in 2018.
So that is it. By year end, we would be expecting a stock of ZZR local GAAP that is a little bit shy of €3,900,000,000 by year end. Now Mohawk, think Getting a bit rougher. I think there is a risk of easing price discipline in the market. This is something we of course cannot control.
But what we can do is decide whether we want to support or participate in a deteriorating price spiral or not. And here the clear answer message is that we don't want to support that and want to stick and cling to profit oriented underwriting policy even if this would be detrimental to the top line.
We will take a follow-up question from Vikram Gandhi from Societe Generale.
Hello. Hi. Sorry, this is the last one from my side. Can you shed some more light on the the combined ratio development for Retail Germany? I mean, if I back out the course impact, what what I get to is a two percentage points deterioration year on year for retail Germany combined.
And you've already mentioned some of the redundancy buildup. So I just wondered if there's anything more to it. That's all.
Yes. 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. Well, that's great. Thanks, Simo.
Thank you. Thank you very much. Anymore, Elaine? I think if there are no more questions, Helane, then we don't have to make it longer than it should be.
Well, then 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 them. And you'll certainly get many more answers. And we look forward to this event.
This concludes today's call. Thank you for your participation. You may now disconnect.