Good morning, ladies and gentlemen, welcome to the analyst call on Talanx's six-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.
Yeah, thank you, Maureen. Good morning from Hannover. This is Talanx six-month 2019 results call. I'm here together with our CFO, Dr. Immo Querner, who will lead you through our results. 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. You may follow this call via phone and also via webcast, and there are replay options for both channels. With these remarks, I'd like to hand over to Immo.
Well, good morning, everyone. Thank you for attending the call. First six months, the bottom line will be 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 bid, particularly the two retail divisions. Retail Germany and Retail International have nicely contributed to the bottom line profit. 20/20/20, the project, the 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 I'll 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 a backdrop of nice development, and particularly the tailwind that we get from the special one-off out of HanseMerkur, our share of that. We have raised the outlook from around EUR 900 to more than EUR 900. These are the highlights. Let me dive into the key figures. 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 movement and would neutralize them, you're talking 10%. Currencies, at least on a net-net basis, have not really distorted the top line growth. Net investment income is a slight decrease.
This may come as a surprise because, yes, we do benefit from the Vivium 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 a revision of the ZZR mechanics. The ZZR buildup is smoothened and not as sharp as it would have been under the old regime. That has translated in the first half year into a lower need to realize hidden reserves to fund ZZR from a logic gap perspective. The operating result is up. I think for reasons that I've already mentioned. The net income after minorities is up even a bit more in relative terms. What are the reasons? The reasons are a lower tax burden. First, the Vivium disposal has been more or less tax-free.
Second, we've left the bad burdens in the reinsurance segment behind us. 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. What you see on 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 Vivium transaction. Slide six, looking at the large loss budget and the exhaustion of these budgets.
Group wide, we are seeing the first half year 2019, 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 EUR 230 million of underutilized large losses in the first half year, which have been in inverted commas, set aside to support a 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 Jörn. This is the hail storm 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 the Industrial Lines is concerned, we are slightly above the pro rata 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 months 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. 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 are doing fine. If you would net out the cost expenses, we'd be talking about 96.3% combined ratio, which is not that far away from the 95% target. That is the end game for our cost 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. 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 and 107.7. It appears to be a high combined ratio. In a way it is a high combined ratio. In a high interest rate environment, Turkey is a country where we still earn in excess of 20% on the asset side of 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. I'll come back to this in a second. Slide eight.
If you compare the EBIT for the first six months of 2018 to the first six months in 2019, you see that Retail Germany, Retail International, and reinsurance have all contributed to the EBIT growth. The Industrial Lines kind of stagnated, we've seen a slight negative contribution on a period-to-period comparison out of the corporate operations and including consolidations. One of 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 Talanx's buggy in the reinsurance book, which is still very small, this has been the time to play it extra conservatively. Then we're talking about a non-recurring event that has emanated out of the consolidation. Mainly, 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 of IFRS 4. They don't have to wait for IFRS 17 to wait for inconsistency on intragroup basis. Even IFRS 4 has got some inconsistency when it comes to group internal life reinsurance, and that has also contributed to a certain extent to the negative one-off of EUR 30 million. Let me move on to the Industrial Lines, which is probably very much at the center of today's discussion. To preempt the kind of questionable questions. Yes, we are still confident to make it as far as a roughly 100% combined ratio is concerned for the full year 2019. 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%. The 20% falls into two sources.
The one is just the group internal transfer of our specialty business from Hannover Re 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 the sale of Hannover 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 EUR 220 million premiums, which have been partly offset by EUR 110 million premiums that have been the result of higher premiums that will be a result of these negotiations to a net effect of roughly EUR 110 million minus out of 2020 as a difference between the gross loss of EUR 220 and higher premiums being raised amounting to EUR 110. The rest is organic business from a wide variety of jurisdictions and sources. The net premium earnings increase is smaller.
This is the direct corollary of the Hannover Re business transaction because this is a highly reinsured business. The highest 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 Lines business is concerned, is roughly 0.8% of Q2 combined ratio that is attributable to the excess utilization of the nat cat budget. The run-up results have stabilized at around EUR 32 million, is slightly less than the half year 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 material down from the structural 120% and from the 140% that we've seen in full year 2018. We're really making progress also from the bottom line point of view. On the right-hand side, net income, yes, there is still some residual charges that are associated with our fronting and captive business that we do out of the United States. Again, we are confident to make it, as far as our combined ratio target for the full year of roughly 100% is concerned. Slide 11. Here's 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 or P&L relevant, by the 1st of January, 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. We are well ahead of the plan. Second, in Q2, we've also managed to improve the profitability of the book from the ingoing 17% achievement by the end of Q1 to 18.9% that will already be P&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 Marsh about the hardening of the industrial pricing cycle.
I think in one of these 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 German property market. I can tell you that we are certainly not behind the curve. 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 reinsurance business if it would not meet our profitability standards. For now, we have lost EUR 110 million, which is balance of EUR 220 minus EUR 110 price increases. We've continued with initiatives that would even be P&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 bancassurance channel and capital products. The EBIT improvement is like 46%, which is really good and remarkable. Net income increase is even higher by 46%. We're now 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 will take the liberty to also highlight a one-off 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 EUR 9 million in the Life EBIT.
The first six months in that regard are perhaps a bit flattering. Even if you would deduct the EUR 9 million, it would still be a very nice quarter and a very nice half year. Slide 13, Retail Germany P&C. It's up by 2%. If you look at the 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, as the German 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. This has allowed us to compensate some of the top-line losses in motor business that we've seen and a large renewal round in the intra-year business, so to speak.
That is one of the reasons why the Q2 figure looks nicer than the six months to six months figures. In any case, we are growing the business. We're talking about a combined ratio net of course expenses now amounting to 96.3%. 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 burden 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 bancassurance operations.
As I said, our buildup is still a buildup. 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 EUR 3.6 billion. 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. The reason is not another change of the mechanism. The reason is that interest rates have not developed as favorably as we had hoped for. Last week, we were talking about 10-year Bund minus 60 basis points. The forward curve of German Bunds being a negative or red territory, something that I think has never ever happened before.
You may recall that 89% of the assets that we hold in the primary business and even more so in the life insurance business are held in euros. That means that this is certainly a major headwind to the structural ahead income that we're going to make in the future. I already mentioned the EUR 9 million positive net effect of some one-offs. Still, even if you deduct the EUR 9 million from the EUR 71 million EBIT, you're still talking about EUR 62 million in EBIT. Even Life in Germany has contributed to the profitability of the group, and this contribution has significantly grown. Retail International is growing 9.2% currency adjusted. If I would have to single out a few countries, certainly we are Italy for that matter, but also Latin America with Mexico being a 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 wherever we see the opportunity to support growth. In agreement as the one with Santander, we of course, would be happy to seize the opportunities. Bottom line-wise, I think Warta is still one of the main profit drivers. That is even more so the case if you talk about the after-tax earnings, and the reason is that our corporate tax rate is as low as 19%.
Whenever we make more profits on a relative basis in Poland, that means that the average tax rate would go down because this is relative terms a low tax country. As far as the situation in Turkey is concerned, we're quite optimistic to see the closing of the contract related to Ageas Turkish business in not so distant future. Apart from that, I think everything is according to plan as far as retail 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. I think the Viridium effect is widely recognized.
I would like to mention again that this company is sitting on EUR 230 million under the utilized large loss budget 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-month basis and 8% on a 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 now invest in bonds. The reason is that, of course, in other parts of the German 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.
You see the net figure here. Talking about interest rates, that automatically takes me to slide 19. This is the other comprehensive income increase of EUR 793 million is a reflection of mainly the low interest rates that have translated into a higher OCI as part of the assets that are accounted for on a mark-to-market basis that would not run through the P&L. The shareholder part, net of the fisc, net of minorities, and net of policyholders, has increased by almost EUR 800 million, which is the result of the interest rate development. We're now talking about a book value per share of EUR 83.04. If you then look into slide 20, you would have to add the part of the hidden reserves that are not even reflected in the mark-to-market valuation of an IFRS 4 balance sheet, because loans and receivables, for instance, are accounted for on amortized cost.
If you would add the share of the shareholder, net of the fisc and minorities and the policyholders in the German Life business, that he would benefit from the hidden reserves in an IFRS balance sheet. You would have to add another EUR 2.04, taking us to a net asset value per share of more than EUR 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 203% at the end of Q2. Yes, the development of capital markets, namely the interest rate development, has not been helpful. We've seen this in our German Life carriers. Give you an example, the flagship carrier, at least in terms of size, HDI Leben, has now a fully loaded solvency ratio of 227%. This is down from 240% at the end of Q1.
The main driver has been the development of the interest rate curve in Europe. We're benefiting from a very diversified book of business across all jurisdictions and types of businesses, and thus the aggregate fully loaded solvency ratio is only down by 1% 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 Viridium one-off. We have modified our guidance from roughly EUR 900 to more than EUR 900, and that is equally translated into a similar language for our return on equity guidance. That is it from my side. I'm here to answer your questions that you may have, and yeah, looking forward to these.
Thank you.
Maureen.
If you would like to ask a question, please press star one on your telephone keypad. Please ensure that the mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Again, as a reminder, please press star one to ask a question. 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? The second is the Industrial Lines, of course. You mentioned that the 2020 program is clearly ahead of the plan, 19.x% 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. 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 first question. I think whoever it has been, whether it's been ERGO. I think they are right. Yes. I think we've seen the highlight of the Polish party being behind us. The pricing cycle is no longer improving. In a way, we've seen a turning point, and I can confirm that. Would this automatically translate into bad, 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 front running, at the forefront of the price improvement initiatives. We've seen now sort of market commentators such as Aon 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 20%. Now, this could prompt a question, why wouldn't you see a certain target figure on this chart? I think that is a very legitimate question. We have decided not to publish any official target figure other than it would be more than 20%. 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. There's also an element that I think we've got no inclination to be too transparent to our competitors. 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 the 20%. Right? The contrary is true, and this is why we've made this little arrow a kind of somewhat dynamic.
Perfect. Thank you very much.
Hello?
Yes, perfect.
Thank you very much. The next one, please.
Our next question comes from Frank Kopfinger, Deutsche Bank.
Yes, good morning, everybody. I have also two questions, two on Industrial Lines. My first question is, as you suggest that you're still on track for this round about 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? Is this also the starting point for 2019 then? Secondly, on the run-off level of EUR 32 million for H1. Yes, in the past you indicated that the level is going down, but is this now the EUR 32 million? Should we think about this of 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 this realistic and/or 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-off these days, and one of us the reinstatement premium, and the other one was a late notification out of December 31st claim something we gather. This is weighed on the half year's result, and we do not expect this to reoccur.
Third, we know traditionally that the specialty business, the newly acquired specialty business, newly acquired as far as HDI is concerned, is historically a much stronger second half year than the first half year. This is something I mentioned in passing, that the price of the condition improvement project has also rendered results that there will be P&L positive, as per Q3 and Q4. This is the difference between the 17.0 and the 18.9. Last but not least, this takes me to the second question. We know from history, that the run of 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 is probably fair to say that, we see anything between 25% and 35% 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. There should be no major catastrophes or large loss events. That is fair. This is part of our general triple C 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. Yeah. Thank you.
Thank you, Frank. Next one, please.
Our next question comes from Andreas Schaefer, Bankhaus Lampe. Please go ahead.
Thanks a lot. I 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? 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. To 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 expose to US dollars or British pounds or Australian dollars liabilities, that would invest the corresponding funds in these currencies unhedged. There is a natural hedge because of our insurance business. This is one of the reasons why we are 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, in very few exceptions, we take the Forex exposure, if you are 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 very difficult to get all of them in euros. This is really the kind of mega exception. In other cases, if we are 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 the new investment is concerned, the first six months on average, we have seen, I think, a new investment rate in our life insurance business amounting to 1.8%. I think it is weaker at the end of Q2 because of the interest rate development.
Just trying to find the figure of a new investment at the end of Q2. Just a second. It may get a bit noisy because I've been turning figures. The depositors. At the end of German Life Business. More like a 140 something for German Retail Business, which is as good. Not as high as it should be. 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.
Okay?
Okay. Thanks a lot.
Thank you, Andreas. Next one, please.
We will now take our next question, Frank Kopfinger, Deutsche Bank.
Thanks for the opportunity. I have two follow-ups. Just another subject. One is German Retail. Still, you run ahead of your targets. 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. Maybe you can give an update where you stand and whether there are still some potential headwinds in front of you. This would be German Retail. The other thing is, on your slide eight, you point to your conservative reserve for building up the 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 EUR 10 million 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 normally it takes time to put up reserve buffers. As a new entrant in the insurance/reinsurance markets, you wouldn't be sitting on reserves as per day one. I think it's the ambition to use good days to arrive at a very decent, conservative reserve level that would be consistent with what you would find elsewhere. Yeah. I think first half year has provided us the opportunity 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 BS2000.
Sort of one of the probably best-known legacy issues of our IT environment. Yes, we have advanced not only according to plan, we are 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. The German museum for that matter. This is good news from a cost side. The bad news is that, of course, the necessity to digitize our business have increased. The world is not waiting for us, and thus we are perfectly happy to step up our investments into better digital offering. There are a variety of initiatives underway that, of course, will be costly. We would not shy away to improve the efficiency and the quality of our service offering, and with this happily accept these charges.
This is also one of the reasons, next to the favorable one of roughly EUR 10 million that we've benefited from it in the first half year. 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. We're sticking to our commitment that by 2021, we'll see at least EUR 240 million EBIT. We are very confident that we're going to make it. Okay, perfect.
Yeah. Thank you.
Ladies and gentlemen, our next question comes from Roland Pfänder, ODDO BHF.
Yes, good morning. Could you speak about the underlying technical profitability in the Industrial Lines business outside fire insurance? Are you satisfied with this? Are there also programs running to improve this 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? Why was this necessary or why did you do so? Also, I would be interested to learn about the different cost allocation you put forward in this segment. Thank you.
Okay. The question, let me start with the third one, which is the easy one. At the end of last year, actually. We 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. This is just P&L and bottom line neutral. That is just housekeeping of our accounting manual that in some carriers, particularly in Retail International, led to slightly higher cost ratios, but to lower burdens on the non-technical cost. The reason is very simple. IFRS should be the same for everyone. As you know from Animal Farm, not all animals are equal.
Sometimes people have different understandings about what IFRS really has told us. Therefore, we've got our accounting manual. There's just housekeeping. I think it's got to be done once every five years. This is the result. Why have we set aside extra buffers in Retail International? I think, yes, we know what best estimate is. I think we would normally have a preference for a somewhat conservative best estimate understanding. Whenever we see the opportunity to support a conservative reserving, 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 a conservative balancing policy. I think there's nothing wrong with that.
I think the other Industrial Lines. If you look at the fire combined ratio of 109% in the first half year, it's quite straightforward to figure out the rough combined ratio for the 80% of the business that I'm not proxy, is roughly around 100%. I think there is no need to really come up with programs that are as thoroughly managed as the 2020 program. I think this is now completely clear under the new management team running the operation, that there should be a 330 degrees vigilance as far as pricing and condition discipline is concerned. Wherever there is any hint that things should be improved, also in smaller lines, we would not hesitate to take corrective action. I think that would probably be the right view.
Okay. Thank you.
Does that answer it, Roland?
Yes. Thanks.
Perfect. Thank you. Next one, please.
As a reminder, please press star one to ask a question. Our next question comes from Rahul Parekh from JP Morgan.
Hi. I joined the call a bit late, so I don't know if these questions were asked before. I'm just going to go ahead. My first question is on your investment income. I just wanted to understand that given the low interest rates, et cetera, and the search for yield earning, as you rightly called it, how much are you planning to change your investment split towards alternatives or some other asset class as of such? Is there any specific allocation target that you have in mind there? My second question is just a continuation of that question at Retail Germany. You mentioned that you were kind of investing more in digital there, and that you would not shy away from doing that. 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 minimum €240 million objective for 2021 and our continuous path towards this. You may recall that, I think on the occasion of the 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 million. The difference between EUR 180 and at a target of EUR 240 makes EUR 60. EUR 60 divided by three years makes roughly EUR 20. If you apply straight line method, would roughly take us to €20 million 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 EUR 2 billion of investments in infrastructure with the kind of next logical step being around EUR 5 billion. The reason why EUR 5 billion, we know from the analysis of our solvency data that any asset allocation beyond 4%-5% of the assets under management would greatly benefit from the marginal diversification that could become questionable after 4%-5% asset allocation. Until then, it's probably a relatively safe bet if you find assets that would be adequately priced. Even in the field of infrastructure, there are good investments and also good investments. Some are underpriced, others are over-leveraged, others would suffer from very difficult to assess political risks. There we try to be picky.
We're continuing sort of our initiatives into this direction. We've built strengthened our staff and the team in Cologne to invest in these assets, but on a disciplined basis. As a result of Q1, I think there has not been any inclination to deviate from our low beta strategy. I think this is time where it really pays off that I think we've implemented by and large a very disciplined duration matched investment style, so we could afford to continue a low beta kind of strategy. Which is not to say that there is no risk in the asset portfolio, but that I think we really don't want to overdo it, and we would not want to yield to the pressure to drive us into yield hunting. Sometimes I've got the impression that this is exactly what people in Frankfurt want us to do.
Question answered, Rahul?
Yeah. It's perfect. Thank you.
Thank you very much. Any more questions, Maureen?
We've no further questions at this time. As a final reminder, please press star one to ask a question. We have no further questions.
Yeah. Well, thank you for being our guests 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 call. Thank you for your participation. You may now disconnect.