Good morning, ladies and gentlemen, and welcome to the analyst call on Talix's Six 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. Karsten Werle. Please go ahead.
Yes. Thank you, Maureen. Good morning from Hannover. This is Talang's six month twenty nineteen results call. I'm here together with our CFO, Doctor.
Mukhraner, who will lead you through our results. And there will, as you know it, at the end of the call, be ample opportunity to raise your questions. Find our quarterly documents, the release, the report, and the presentation on the IR section of our webpage. And you may follow this call via phone and also via webcast, and there are replay options for both channels. And with these remarks, I'd like
to hand over to Hamed.
Well, good morning, everyone. Thank you for attending the call. First six months, bottom line being rather good. I think in terms of growth, we've seen growth across the board, it's not just reinsurance, all segments have contributed. In terms of EBIT, yes, we have benefited from the one off life health insurance, particularly the two retail divisions, retail Germany and international, have nicely contributed to the bottom line profit.
Twenty twenty-twenty twenty, the project, program as such, it is ahead of target, while first half year is not quite at roughly 100%, we're confident to make it for the full year and share with you the reasons why we are that confident. The group net income is up by more than 9%, and we're talking about an annualized return on equity of 10.4%, which is well ahead of what we had last year, and is equally well ahead of our minimum return standards. Against the backdrop of nice development, particularly the tailwind that we get from the special one out of Hannaveau, our share of that, we have raised the outlook from around 900 to more than 900. These are the highlights, let me dive into the key figures. And it's on exhibit four.
The highlights of the first six months. The top line is up by 11%. If you would allow for currency movements and would neutralize them, you're talking 10%. So currencies, at least on a net net basis, have not really distorted the top line growth. Net investment income is a slight decrease.
Now this may come as a surprise because, yes, we do benefit from the vanadium extraordinary. On the other hand, we had to realize less to fund the ZZR. Why is that? You may recall that in autumn last year, we've seen the revision of the ZZR mechanics. So the ZZR buildup is smoothened and not as sharp as it would have been under the old regime, and that has translated in the first half year into lower need to realize hidden reserves to fund that are from a local GAAP perspective.
The operating result is up, I think the reason that I've already mentioned. The net income after minorities is up even a bit more in relative terms. And what are the reasons? The reasons are a lower tax burden. First, the bridge room disposal has been more or less tax free.
Second, we've left burden in reinsurance segment behind us. And the composition of our taxable base has probably been somewhat friendly between higher and lower tax regimes. On page five, you see a deep dive into the second quarter on a standalone basis. I wouldn't want to go into too many details at this point, I'll do this on the segmental discussion, but what you see in the top line is that the growth dynamics are actually intact, because the Q2 standalone growth is actually even somewhat higher, slightly higher than what we've seen on a half year to half year basis. Q2, of course, have benefited from the Viridium transaction.
Slide six, looking at the large loss budget and the exhaustion of these budgets group wide. Have seen the first half year twenty nineteen that is well below the pro rata share of the large loss budget. This is true for the reinsurance business. Here we're sitting on €230,000,000 of underutilized large losses in the first half year, which have been set aside to support the large loss buffer for the second half year. In the primary divisions, we've more or less been on budget slightly, even above our budget, one of the main reasons being Jorn.
This is the hailstorm that hit the southern part of Germany around Munich, that has hit us both in industrial lines and in retail Germany, this is the reason why in both segments, among other large losses as far as industrial the industrial lines are concerned, we are slightly above the product budget as far as large losses are concerned. Let me move on to Exhibit seven. On the top of the chart, you see the combined ratio six month and Q2 standalone for the four divisions and the group. I think in the aggregate we're kind of fine with 97.5% combined ratio for the first six months. Retail sorry, sorry, Industrial Lines with 102.3% for the full half year and 101.9 for the second quarter on a standalone basis.
We are not quite yet there. I'll discuss these figures when I move on to the Industrial segment in a second. Retail Germany is doing fine. And if you would net out the cost expenses, we'll be talking about 96.3% combined ratio, which is not that far away from 95% target. That is the end game for our course program.
Retail international, 95.2 for the first six months and 95.6 for the second quarter on a standalone basis is very healthy combined ratio. And reinsurance is known to you. Just one word in passing, on the lower right hand side of the chart, you see Turkey with 108.5 for the first six months at 107.7. It appears to be a high combined ratio, and in a way it is a high combined ratio, but in a high interest rate environment, Turkey is a country where it still earns in excess of 20% on the asset type short term money, which has helped to significantly improve the EBIT of this unit. You're still talking about interest rates.
This is an expression we probably need to forget as far as we talk about the Eurozone, but I'll come back to this in a second. Slide eight. If you compare the EBIT for the first six months of twenty eighteen and to the first six months of twenty nineteen, you see that the retail Germany, retail international reinsurance have all contributed to the EBIT growth. The industrial lines kind of stagnated and we've seen a slight negative contribution on a period to period comparison out of the corporate operations and including consultations. What are the reasons for that?
A, we've used the good figures to set aside some very cautious extra reserving buffers at the corporate segment against the backdrop of our Talang's inward reinsurance book, which is still very small, but this isn't the time to play it extra conservatively. And then we're talking about a non recurrent event is emanated out of the consolidation, mainly the one off that has helped in a way a year ago that has now gone away, just some intragroup consolidation that is driven by the IFRS inconsistencies even if IFRS four. They don't have to wait for IFRS 17 to wait for inconsistency on an inter group basis, even IFRS four has got some inconsistency when it comes to life, group internal life reinsurance, and that has also contributed to a certain extent to the negative one over thirty million. Now let me move on to the industrial lines, which is probably very much at the center of today's discussion. To preempt the of question of more questions, yes, we are still confident to make it as far as roughly 100% combined ratio is concerned for the full year 2019.
But I'll come back to why we believe that and how we fared in our 2020 program. Let me start with the top line. We've grown by slightly more than 20%. Now the 20% falls into two sources. The one is just the internal, the group internal transfer of our specialty business from Hannover Reeves into Hannover to the industrial lines business.
If you deduct this effect, you're still talking about top line growth of 4.4%, which is completely unrelated to hand over to the industrial lines. It's organic growth. It's organic growth outside the property business. In property, the pruning program has resulted in a loss of roughly €220,000,000 premiums, which have been partly offset by 110,000,000 premiums that have been the result of higher premiums that were the result of these negotiations to a net effect of roughly €110,000,000 minus out of twenty twenty twenty as the difference between the gross loss of to 20 and higher premiums, premium rates amounting to 110. But the rest is organic business from a wide variety of jurisdictions and sources.
The net premium earnings increase is smaller. This is a direct corollary of Hannover specialty business transaction, because this is a highly reinsured business, and the top line does not equally translate into a higher net premium earned figure. Let me talk about the middle column. Large losses, I've already mentioned this in the introduction have been slightly ahead of our budget as far as the industrial line business is concerned. It's roughly 0.8% of Q2 combined ratio that is attributable to the excess utilization of nat cat budget.
The run up results have stabilized at around €32,000,000 It's slightly less than the half year's figure for 2018, which should not come as a surprise because I think we've already indicated in one of our previous calls that the structural run up result should probably be somewhat softer than what we've seen in the past. The combined ratio for the fire business alone was 109%, which is materially down from the structural 120 and from the full 140 that we've seen in full year 2018. So really making progress also from the bottom line point of view. On the right hand side, net income, yes, there's still some residual VA charges that are associated with our fronting and captive business that we do out of The United States. And again, we are confident to make it as far as our combined ratio target for the fourth year of roughly 100% is concerned.
Slide 11 is a slide that's probably known to you by now. In Q2, we've continued to renegotiate the terms of our property book. If you look into the result that is bottom line relevant, P and L relevant by the January 1, we've already contracted now, or negotiated now, an improvement versus the starting point of 20.7% improvement, this is more than the 20% of the old target. So we are well ahead of the plan. Second, in Q2, we've also managed to improve the the profitability of the book from the ongoing 17% achievement by the end of Q1 to 18.9% that will already be P and L relevant in the third and fourth quarter.
That again, underlines the momentum that is in our current pruning process. Perhaps some of you have taken the opportunity to also look at the recent publications of AON and MARCH about the hardening of the industrial pricing cycle. I think one of the two publications you'll find some red boxes indicating the areas where we would see the most dramatic price increases or condition improvements for that matter. One of these boxes is the German property market. And I can tell you that we are certainly not behind the curve.
So we are well ahead of the original final target. There is the ambition to make more. We believe that it is necessary and feasible. We would not shy away from the rendering business if it would not meet our profitability standards. For that we have lost €110,000,000 which is a balance of two twenty minuteus 110 price increases.
And we've continued with initiatives that would even be P and L relevant in the second half year. Retail Germany, Slide 12, we've grown by 2%, which is nice. We've grown the business both in Life and Non Life, and as far as Life is concerned, it has been biometric business in our bank insurance channel and capitalized products. The EBIT improvement is like 43%, which is really good and remarkable. The net income increase is even higher by 46%.
We're not talking about return on equity and annualized return on equity, which amounts to 5.8, which is not yet where we want to be, but it is certainly very much the right direction. Normally, CFOs would use the expression one off, probably only if there is something that is negative and needs special explanations. I think I take the liberty to also highlight a one that has helped us in the first six months. We've benefited from a net positive of some accounting driven one offs that have contributed €9,000,000 in the life EBIT. So the first six months in that regard are perhaps a bit flattering.
But even if we would deduct the $9,000,000 it would still be a very nice quarter and a very nice half year. Slide 13, retail Germany P and C, it's up by 2%. If you look at the Q2 to Q2 figures, even up by 8%, there is a story behind that. The story is that we've been very price disciplined as far as a big renewal season the current motor business is concerned. On the other hand, by now we've got a higher share of business that would not renew by the end of the year, but has good renewal date that is somewhere in between.
And this has allowed us to compensate some of the top line losses in motor business that we've seen allowed for new around in the intra year business, so to speak. And that is one of the reasons why the Q2 to Q2 figure looks nicer than the six months figures. But in any case, are growing the business. Talking about a combined ratio, net of the cost expenses now amounted to 96.3%. And if you bear in mind that we have suffered in inverted commas from above average large losses because of the hailstorm around Munich that has been digested in the combined ratio, I think it really tells you that the program course is working, that we've managed to improve the figure, although we've suffered from the above average nat cat burn in the first six months in retail Germany.
As far as life is concerned, we're also growing. The main growth driver is the biometric risk protection business in our bank assurance operations. As I said, our buildup is still a buildup, but the buildup is not as dramatic as it would have been under the old regime. I already mentioned this in passing. Today, we're talking about, as I said, our balance of 3,600,000,000.0 Euro, and it's still going to grow.
Probably it's even growing a bit more than we first would have expected it to grow at the beginning of the year on the basis of the new mechanism. And the reason is not another change of the mechanism. The reason is that interest rates have not developed as favorable as we had hoped for. Last week, we're talking about ten years minus 60 basis points and the and the and the four curve of of of German bonds being a negative or red territory, something that that I think has never ever ever happened before. And you may recall that that 89% of the assets that we hold in the primary business and even more.
So in the life insurance business, have euros, and that means that this is certainly a major headwind to the structural asset income that we're gonna make in the future. I already mentioned the €9,000,000 positive net effect of some one offs. Still, even if you deduct the 70,000,000 the €9,000,000 from the €71,000,000 EBIT, you're still talking about €62,000,000 in EBIT. Even Life in Germany has contributed to the profitability of the group. And this contribution has significantly grown.
Retail international was growing 9.2% currency adjusted. If I would have to single out a few countries, certainly Italy for that matter, but also Latin America with Mexico being very strong market. We're now looking forward to the initiation of our joint venture with Santander in Brazil. Brazil, as you know, is one of our most important markets and whether we see the opportunity to support growth, agreement as the one with Santander, we of course would be happy to see the opportunities. Bottom line wise, I think vata is still one of the main prop drivers.
That is mostly the case if you talk about the after tax earnings, and the reason is that our corporate tax rate is as low as 19%. So whenever we make more profits on a relative basis in Poland, that means that the average tax rate would go down because this relative term is a low tax country. As far as the situation in Turkey is concerned, we're quite optimistic to see the closing of the transaction related to AGO's Turkish business in the not so distant future. Apart from that, I think everything is according to plan as far as retail international is concerned. Reinsurance, I think, is probably well covered by you anyway.
I think the most important fact is that the return on equity is as high as 14.7%, which is nice, growth is there, and that's particularly driven by Advanced Solutions. Yes, I think the Iridium effect is widely recognized, but I would like to mention again that this company is sitting on €230,000,000 under utilized large loss budgets out of the first six months. Slide 18, net investment income. I'd like to mention one line, and that is the second, the current interest income or current income, which is up by 5% on a six months basis and 8% on a Q2 to Q2 basis, which is remarkable against the backdrop of the low interest rate environment. The reason is that we're sitting on more assets.
The reason is that we not invest in bonds. And the reason is that of course, in other parts of the other than our retail business, we find ways to invest our assets outside the Eurozone, which is probably not that bad an idea. Extraordinary income is the net effect of the positive one off driven by Viridium and the absence of ZZR related realization needs, and you see that figure here. Talking about interest rates, that automatically takes me to slide 19, which is the other comprehensive income increase of €793,000,000 is a reflection of mainly low interest rates that have translated into a higher OCI, the part of the assets that are accounted for on a mark to market basis that would not run through the P and L. The shareholder part net of the fees, net of minorities and net of policyholders have decreased by almost €800,000,000 which is the result of the interest rate development.
We're not talking about book value per share of 83 point euros 0 And if you then look into Slide 20, you would still have would have to add the part of the hidden reserves that is not reflected in the mark to market valuation of an IFRS four balance sheet, because loans and receivables, for instance, accounted for an amortized cost. If you would add the share of the shareholder net of the FISC and the minorities and the policyholders and the German Life business, he would benefit from the hidden reserves that if an IV has a balance sheet, you would have to add another €2 in full hand, taking us to an asset value per share more than €40 per share. Slide 21, solvency figures, it is more than just a guesstimation. We are talking about preliminary figures. The fully loaded solvency ratio is 200 or has been 250% at the end of Q2.
Yes, the development of capital markets, namely the interest rate development has not been helpful. And we've seen this in our German life carriers. To give you an example, sort of the flagship carrier, at least in terms of size, Haifaolin has now a fully loaded solvency ratio of 227%. This is down from 240% at the end of Q1. And the main driver has been the development of the interest rate curve in Europe.
But we're benefiting from a very diversified book of business across all jurisdictions and types of businesses, and this the aggregate fully loaded solvency ratio is only down by one percentage points from 204% to 203%. That takes me to Slide 23, it's the outlook on the back of the good half year, certainly also benefiting from the Iridium one off, we have modified our guidance from roughly 900 to more than 900, and that's equally translated into a similar language for our return on equity guidance. That is from my side. I'm here to answer your questions that you may have. And, yeah, looking forward to these.
Thank you.
We will take our first question, Michael Heidt, Commerzbank. Please go ahead.
Thank you very much. Good morning. Two questions. First on Poland. One of your competitor in Poland has said that he sees first signs of a slowdown in Poland.
Can you tell us your observations for Poland and your expectations? And the second is the Industrial Alliance, of course. You mentioned that the twenty twentytwenty program is clearly ahead of the plan, 19.6% of the price increase is done. Other players in the market have followed you, improving their troubled portfolios. And you probably get some tailwind now, which you probably did not expect when you initiated the 2020 program.
So is the 20% the end of the story here? Or what should we expect going forward from your industrial lines portfolio?
Okay. Let me start with the third question. I think whoever it has been would have been Grudiger and Argo, I think they're right. Yes, I think we've seen the highlight of the Polish party being behind us. The pricing cycle is no longer improving, so in a way we've seen the turning point, and I can confirm that.
Would this automatically translate into adverse figure out of Poland as far as we are concerned? I would not really anticipate that because we've used the bonanza that we've seen in the Polish market to prepare ourselves accounting wise, I think appropriately, putting it that way. As far as the industrial lines business is concerned, I think I should draw your attention to the subtleties of slide 11. We've currently achieved 20.7%, which is more than the original 20%. Does it mean that we'll stop pruning the business and stop improving the business?
The clear answer is no. I think we want to make full use of the fact that we have been very much at the forefront of the price improvement initiatives. We've seen now market commentators such as E. ON and Marsh, that I think we see a major market movement, particularly in areas that we're active in. There is clearly the ambition to go beyond the 30%.
Now, this could prompt the question, why wouldn't you see a certain target figure in this chart? I think that is a very legitimate question. We've decided not to publish any official target figure other than it would be more than 20%. And the reason is that at this phase of the pruning cycle, I think things get much more tricky. You've got to juggle between price increases and condition improvements, and there's also an element that I think we've got no inclination to be too transparent to our competitors.
But I can clearly alleviate any concern, I hope I can dispel any concern, that we would sit idle and would stop with the initiatives now that we have achieved more than 20%. Right? The contrary is true, and this is why we've made this little arrow kind of thermodynamic.
Thank you very much. Yes,
perfect. Thank
you very much. Then the next one, please.
The next question comes from Frank Kopfinger, Deutsche Bank.
Yes, good morning everybody. Have also two questions, two on Industrial Lines. My first question is, as you suggest that you're still on track for this roundabout 100% combined ratio for the full year. Is it fair to assume that 98% is the number we should look at for the second half? And this is is this also the starting point for 2019 then?
And then secondly, on the runoff level of €32,000,000 for H1. Yes, in the past, you indicated that the level is going down. But is this now the €32,000,000 is this should we think about this being a normal run rate level?
Thank you for the questions. I think, yes, your calculation, your math is right, that if the first half year is 102.3 and year end, it should be around 100, that means that the second half year should come in at around 98%. First question is, is this realistic, and why do we believe that this is realistic? A, we have suffered somewhat from above average large losses in the first half year. By nature of these calculations, we do not anticipate an overshoot of these budgets for any future period of time.
Second, you may recall that in Q1 we suffered from two extraordinary one offs, negative one of these days and one of us the reinstatement premium and the other one was a late notification out of December claim. This is something we get this is weighed on the and a half year's result, and we do not expect this to recur. Third, we know traditionally that the specialty business, the newly acquired specialty business, newly acquired as far as IDE is concerned, is historically a much stronger second half year than the first half year. Then, and this is something I mentioned in passing, the price of the condition improvement project has also rendered results that will be P and L positive as per Q3 and Q4. This is the difference between the 17 and the 18.9.
And last but not least, and this takes me to the second question, we know from history that the run up result in the second half year is traditionally much stronger than in the first half year. If you look back on the past couple of years, it's probably fair to say that we see anything between 2535% of the annual run of results in the first half year, and we see the balance in the second half year. If you add up these four or five factors, you could probably get a feeling for why we believe that roughly 100% is not out of reach. Of course, there should be no major excess catastrophes or large loss event. That is fair.
But this is part of our general CCC reminder. Apart from that, I think we are optimistic. As far as the guidance for 2020 is concerned, this is one of the highlights that we should come back on the occasion of a Capital Markets Day. This is probably not the time to look too much into the future as of today. Okay, perfect.
Thank you. Thank you, Frank. Next one, please.
Our next question comes from Andreas Schaffer, Bankhaus Lampe. Please go ahead.
Thanks a lot. Have two questions on the investment side. First of all, you mentioned that you have invested more money out of the Eurozone that has helped the investment income. Is that hedged? Or do you have, let's say, an open currency position on your investment side?
And the second question, could you give us some sort of rough guidance about the potential reinvestment rate in Q3 if rates stay where they are now?
Okay. I'll answer the first question. It's neither hedged nor is it an open position. What we generally do is we look at the exposure that we hold on the liability side, and if we are exposed to U. S.
Dollars or British pounds or Australian dollars liabilities, then we'd invest the corresponding funds in these currencies unhedged because they're natural hedge because of our insurance business. This is one of the reasons why we're so keen to develop the non euro business. It's not just good for the diversification in terms of insurance diversification, it's equally good because it means that we'll be in a position to invest outside the Eurozone without running any currency risks. Should we invest in non euro related assets for one of our euro balance sheets, such as life insurance? I think there are two alternatives.
One is there are a few exceptions, we take forex exposure if you're talking about asset classes that we cannot find. If we want to participate in certain private equity investments that we do, then it is sometimes really difficult to get all of that in euros. But this is really a kind of mega exception. In other cases, if we're talking about a stable profit stream in another currency to be held by an entity that has only euro denominated liabilities, they would also look into hedging. We try to avoid currency mismatches as much as we can.
As far as new investment is concerned, the first six months on average, we've seen, I think, a new investor rate in our life insurance business amounting to 1.8%. I think it's got weaker at the end of Q2 because of the interest rate development. Just trying to find the figure that you invested at the end of Q2. Just a second. It may get a bit bit noisy because I've been trying to figure figures, the the papers.
At the end of German life is more like one one forty something for German retail business, which is as good. Not as high as it should be, But we'll continue our low beta strategy. I think there should be no concern that Mr. Draghi or his successor would drive us into unreasonable yield hunting even though some of the protagonists might want us to do so. Mhmm.
Thanks a lot. Thank you, Andreas. Next one, please.
We will now take our next question, Frank Kopfinger, Deutsche Bank.
Thanks for the opportunity. Have two follow ups. One is just another subject. One is German retail. Again, and still, you run ahead of your targets.
And this was already the case last year. And one of the key reasons for doing this was that 2019 was the year, obviously, where you switch off your old systems and you transfer the books to your new systems. My understanding is that this has been partially completed. So maybe you can give an update where you stand and whether there are still some potential headwinds in front of you. So this would be German retail.
And the other thing is, on your Slide eight, you point to your conservative reserve for building up TALANX AG's captive reinsurance activities. Could you break down this number on what was driven by this reserving approach?
I think let me start with the second question. We've roughly set aside, I think, like €10,000,000 in the first half year to put ourselves in a position that a company would be in if it had been in the market for quite some time. The reason why I'm saying that is it normally takes time to put up reserve buffers. As a new entrant in the insurancereinsurance markets, you wouldn't be sitting on reserves as per day one. And I think it's the ambition to use good days to arrive at a very decent and conservative reserve level that would be consistent with find elsewhere.
Yeah. And and I think first half year has provided us the opportunity to to do so without really biting into the profitability of the business. As far as retail Germany is concerned, I think you're alluding to BS 2,000, one of the probably best known legacy issues of our IT environment. Yes, we have advanced not only according to plan B, slightly ahead of plan, and we are really confident to completely shelve it within the second half of the year and really put this to rest, or the German Museum for that matter. This is good news.
From the cost side, the bad news is that, of course, the necessity to digitize our business have increased. The world is not waiting for us, thus we are perfectly happy to step up our investment into a better digital offering. And there are a variety of initiatives underway that, of course, will be costly. But we would not shy away to improve the efficiency and the quality of our profit service offering, and with us happily accept these charges. This is also one of the reasons next to the favorable one off of roughly €10,000,000 that we've benefited from it in the first half year, that just multiplying the retail Germany EBIT of 125 by two, and signaling that we've jumped two years and 2021 is behind us would probably be not the right mathematics.
So we are sticking to our commitment that by 2021 we would see at least €240,000,000 EBIT, but we are very, very confident that we're going to make perfect.
Thank you.
Ladies and gentlemen, our next question comes from Roland Fender, ODDO, BEHF.
Yes. Good morning. Could you speak about the underlying technical profitability in the industrial lines business outside fire insurance? Are you satisfied with this? And are there also programs running to improve the profitability in this field?
Second question, Retail International. In your presentation, you mentioned that you buffered up the reserve redundancies. Will we see this in the next quarters to come? And why was this necessary or why did you do so? And also, I would be interested to learn about the different cost allocation you put forward in this segment.
Thank you.
Question. Let me start with the third one, which is an easy one at the beginning of Q I think at the end of last year, actually. Looked again at our auditing manuals after a series of acquisitions around the globe and identified that a smaller adjustment needs to call cost what cost is and to call other charges what other charges are that would not have to be reflected in the technical income. But this is just P and L and bottom line neutral.
That is just housekeeping of our accounting manual that in some carriers, particularly in retail internationally, led to slightly higher cost ratios but to lower burdens on the nontactical cost. The reason is very simple. IFRS should be the same for everyone. But as you know from Animal Farm, not animals are equal. Sometimes people have different understandings about what IFRS really has told us, and therefore we've got our accounting manual and there's just housekeeping.
I think it's gonna be done once every five years, and this is the result. Why have we set aside extra buffers in retail international? I think we we know what best estimate is, but I think we would normally have a preference for a somewhat conservative best estimate understanding. And whenever we see the opportunity to support a conservative reserving, then we would not shy away from implementing that. I think one of the questions at the beginning related to Poland, I think one of the reasons why we are relatively relaxed as far as future profit stream out of Poland is concerned is that, yes, we do benefit from conservative balance sheet policy, and I think there's nothing wrong with that.
I think the other other industry lines I mean, if you look at the fire combined ratio of 109 in the first half years, it's quite straightforward to figure out the rough combined ratio for the 80% of the business that I've owned property is roughly around 100%. I think there is no need to really come up with programs that are as thoroughly managed as the twenty twentytwenty program, but I think this is now completely clear under the new management team running the operation that there should be a three thirty degrees of vigilance as far as pricing and condition discipline is concerned, and whenever there is any hint that things should be improved, also in smaller lines, then we would not hesitate to take corrective action. I think that would probably be the right view. Thank that answer, Laurent? Yes, thanks.
Perfect, thank you. Next one, please.
Our next question comes from Rahul Parekh from JPMorgan.
Hi. I joined the call a bit late, so I don't know if these questions were asked before, so I'm just gonna go ahead. My first question is on your investment income. So I just wanted to understand that given the low interest rates, etcetera, and, you know, the search for yield earning as you rightly called it, are you look how much, you know, are you planning to change your investment split towards alternatives or some other asset class as of such? And is there any specific allocation target that you have in mind there?
And my second question is just a continuation of that question at German Retail. You you mentioned that you were in kind of investing more in digital there and that you would not shy away from doing that. So I just wanted to understand how big is that number there? Thank you.
Let me start with the second question. I can't give you a precise figure, but it certainly would not be anything that would endanger our €240,000,000 objective minimum €240,000,000 objective for the '21, and our continuous path towards this. You may recall that I think on the occasion of discussion of the full year figures, We arrived at a very simple piece of mathematics. I think the old EBIT for the full year 2018 was €180,000,000 The difference between 180,000,000 and a target of two forty makes 60. 60 divided by three years makes roughly 20 if you apply kind of straight line method, would roughly take us to €20,000,000 EBIT improvement per year.
I think if you look at this trajectory, I think it is not really very likely that this trajectory would be endangered by these initiatives. As far as the investment style is concerned, yes, we started to invest into alternatives, infrastructure, I think many years ago. The first interim target was like €2,000,000,000 of investments in infrastructure, with the kind of next logical step being around €5,000,000,000 Why €5,000,000,000? We know from the analysis of our solvency data that any asset allocation beyond four to 5% of the asset management would greatly benefit from the marginal diversification that could become questionable after four to 5% asset allocation, so until then it's probably a relatively safe bet if you find assets that would be adequately priced. And even in the field of infrastructure, there are good investments and also good investments.
Some are underpriced, others are overleveraged, others would suffer from very difficult to assess political risks, and we try to be picky. But we're
continuing our
initiatives into this direction. We've built about strengthened our staff and the team at Cologne to invest in these assets, but on a disciplined basis. And as a result of Q1, I think there has not been any inclination to deviate from our low better strategy. I think this is time where it really pays off. I think we have implemented by and large a very disciplined duration matched investment style, so we could afford to continue a low better kind of tragedy.
Which is not to say that there is no risk in the asset portfolio, but I think we really don't want to overdo it, and we would not want to yield to the pressure to drive us yield hunting, and sometimes I've got the impression that that this is exactly what people in Frankfurt want us to do. Question and answer, Rahul?
Yes, yes. Perfect. Thank you.
Thank you very much. Any more questions, Lorraine?
We have no further questions at this time. We have no further questions.
Well, thank you for being our guest this morning. I hope you got what you wanted, and looking forward to talking to you again on the occasion of our Q3 results. Bye.
Thank you. Ladies and gentlemen, this will conclude today's Thank you for your participation. You may now disconnect.